UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-21133
SPURLOCK INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 84-1018956
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
125 Bank Street 23890
Waverly, Virginia (Zip Code)
(Address of Principal Executive Offices)
(804) 834-8980
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained in this form, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
-----
The aggregate market value of the voting stock of the registrant held
by non-affiliates computed by reference to the average bid and asked prices of
such stock, as of March 25, 1999, was $9,193,648.
The number of shares outstanding of Common Stock as of March 11, 1999,
was 6,628,639.
<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 7
Item 3. Legal Proceedings.............................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............................ 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................................ 9
Item 6. Selected Financial Data........................................................ 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation....................................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................... 24
Item 8. Financial Statements and Supplementary Data.................................... 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 46
Item 11. Executive Compensation......................................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................................................... 52
Item 13. Certain Relationships and Related Transactions................................. 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K....................................................................... 55
</TABLE>
-2-
<PAGE>
PART I
Item 1. Business
General
Spurlock Industries, Inc. (the "Company" or the "Registrant") is a Virginia
corporation organized in 1996. The Company is the successor to Air Resources
Corporation ("Air Resources"), a Colorado corporation organized in 1986. At a
special meeting of the shareholders of Air Resources held on June 11, 1996, the
shareholders of Air Resources approved the merger of Air Resources into the
Company, in order, among other things, to change the domicile of Air Resources
from Colorado to Virginia. Such merger was consummated on July 26, 1996.
References herein to the "Company" shall include Air Resources as predecessor to
the Company.
Through its wholly-owned subsidiary, Spurlock Adhesives, Inc. ("Spurlock
Adhesives") the Company develops, manufactures and markets specialty
thermosetting resins and formaldehyde for the forest products, building products
and furniture industries. The Company also produces, on a limited basis,
fertilizer products for the agricultural and lawn and garden supply industries.
It operates two manufacturing facilities in the southeastern United States, in
Waverly, Virginia and Malvern, Arkansas, and one in the northeast, in Moreau,
New York. Products of Spurlock Adhesives are sold throughout the northeast,
southeast and midwest regions of the United States.
The Company's principal executive offices are located at 125 Bank Street,
Waverly, Virginia 23890, and its telephone number is (804) 834-8980.
Merger
As previously reported, on December 18, 1998, the Company entered into an
Agreement and Plan of Merger by and among Borden Chemical, Inc., a Delaware
corporation ("Borden Chemical"), SII Acquisition Company, a Virginia corporation
and wholly-owned subsidiary of Borden Chemical ("Acquisition"), and the Company,
dated as of December 18, 1998, and as subsequently amended and restated by an
Amended and Restated Agreement and Plan of Merger by and among such parties,
dated as of January 25, 1999 (the "Merger Agreement"). The Merger Agreement
provides for the merger of Acquisition with and into the Company (the "Merger").
As a result of the Merger, the Company would become a wholly-owned subsidiary of
Borden Chemical.
The agreed purchase price is $3.40 per share of the Company's common stock,
no par value ("Common Stock"), subject to downward adjustment for limited
contingencies. The transaction is subject to shareholder approval, with a
special meeting of shareholders to consider the Merger anticipated for the
second quarter of 1999. In conjunction with the Merger Agreement, certain
executive officers and majority shareholders representing 52.4% of the shares of
the Company's Common Stock outstanding as of March 11, 1999, have entered into a
voting agreement with Borden Chemical and Acquisition (the "Voting Agreement")
and agreed to vote their shares in favor of the Merger Agreement.
Business and Operational Development
Development of Gas Technology Businesses. In 1991, Air Resources formed
Landfill Energy Systems, Inc. and ARC Engineering Fabrications, Inc. to develop
the equipment and technology necessary to pursue certain contracts relating to
landfill gas recovery. The equipment and technology to be developed was intended
to collect raw gases at landfill sites and process them into commercially usable
natural gas for resale. Air Resources entered into production agreements with
two landfill sites in 1991 and conducted feasibility tests in 1992 and 1993. Air
Resources sustained substantial expenses and operating losses associated with
the development of this technology during that time and had discontinued its gas
recovery development operations by March 1994.
-3-
<PAGE>
Acquisition of Spurlock Adhesives. On August 5, 1992, Air Resources
acquired Spurlock Adhesives as a wholly-owned subsidiary. Spurlock Adhesives was
founded in 1973 by Harold N. Spurlock, Sr., as sole proprietor, and was
incorporated in the Commonwealth of Virginia in 1989. The early years of
operation consisted solely of the production of urea resins and liquid
fertilizer products. The business evolved primarily around the needs of the
growing composite wood products industry. Mr. Spurlock developed a number of
innovative products for the particleboard and medium density fiberboard
industries, including the first single component resin. This new resin replaced
an expensive four component system that was being used in the medium density
fiberboard industry. Also, Spurlock Adhesives developed one of the first lower
formaldehyde resins for the particleboard industry in response to concerns
expressed by the environmental community in the early 1980s. The process for
producing this product was one of the first processes patented in this area. See
"-- Patents and Trademarks." The Company has maintained its market leadership in
the development of resins with lower levels of formaldehyde for the
particleboard and medium density fiberboard industries.
Over the years, Spurlock Adhesives has continued to diversify its customer
and market base as well as upgrade its manufacturing facilities. In 1980,
Spurlock Adhesives serviced less than 10 customers and produced approximately 70
million pounds of resins at its Waverly plant, as compared to 30 customers and
375 million pounds of resins and formaldehyde in 1998. In 1987, Spurlock
Adhesives built a new resin production plant adjacent to its existing one in
Waverly, which increased its resin capacity 400%. In a move to vertically
integrate the Waverly facility, Spurlock Adhesives built its first formaldehyde
production plant in Waverly in 1988. This plant allowed Spurlock Adhesives to
internally supply approximately 80% of its formaldehyde needs for resin
production, thus enabling it to become less dependent on outside supply and to
better control its raw material costs.
In 1992, Spurlock Adhesives acquired a resin and formaldehyde production
facility in Malvern, Arkansas from BTL Specialty Resins Corp. of Toronto,
Ontario (Canada) at the time that it became a wholly-owned subsidiary of Air
Resources. This merger gave Spurlock Adhesives a larger distribution area, thus
allowing it to compete for business in the midwest region of the United States.
In 1993, Spurlock Adhesives completed a state-of-the-art formaldehyde plant in
Waverly, which it leased from D.B. Western, Inc. until July 1996, when Spurlock
Adhesives purchased the plant. This plant fulfills all of the current
formaldehyde needs of the Waverly resin operations and offers Spurlock Adhesives
the flexibility of being able to produce additional marketable products. In
1998, the Company opened a commercial grade formaldehyde and resin production
facility, which was designed and built by D.B. Western, Inc., in Moreau, New
York (the "Moreau Facility"). The Moreau Facility has doubled the Company's
formaldehyde production capacity and has increased its resin production capacity
by 30%.
Spurlock Adhesives is presently the sole operating asset of the Company.
Products
The major products produced by Spurlock Adhesives consist of formaldehyde
and two types of thermosetting resins generally classified as Urea-Formaldehyde
Resins ("Urea Resins") and Phenol- Formaldehyde Resins ("Phenolic Resins").
Within these two general resin types are specifically designed resins developed
for the specific needs of certain industries and individual customers. Spurlock
Adhesives also produces fertilizer products for a limited number of customers.
Urea Resins. These resins are used as the binder system for interior grade
products such as particleboard, medium density fiberboard, plywood and coated
papers. These products are then used in furniture, cabinets, wall panels and
cabinet components. Spurlock Adhesives also produces Urea Resin binder systems
for roof mat that later is processed into asphalt roofing shingles. Urea Resins
are thermosetting, which means that they cure and adhere with the aid of heat
and sometimes pressure. They are characterized as having a Type II bond, which
indicates that they are strong and have a moderate amount of resistance to
moisture and humidity. The major materials involved in the production of Urea
Resins are formaldehyde, urea, triethanolamine, sodium hydroxide, sodium
chloride and other proprietary ingredients. Spurlock Adhesives currently
manufactures and sells approximately 36 different Urea Resins to the
particleboard, medium density fiberboard, interior plywood, treated and coated
papers and fiberglass roof mat/filter media segments of the forest products,
building products and furniture industries. Sales of
-4-
<PAGE>
Urea Resins accounted for 69.5%, 70.7% and 73.6% of net sales for the years
ended December 31, 1998, 1997 and 1996, respectively.
Phenolic Resins. These resins are used as the binder system for exterior
grade construction materials such as oriented strandboard, exterior plywood and
hardboard, as well as the binder for fiberglass and mineral wool insulation.
Further, these resins are also used in paper impregnating for high pressure
laminates, such as counter tops. Phenolic Resins are also thermosetting, but are
classified as having a Type I bond, indicating that they provide better
resistance to moisture and humidity than Urea Resins. Phenolic Resins typically
are slower curing and more expensive. The major materials involved in the
production of these resins are formaldehyde, phenol, urea, sodium hydroxide,
potassium hydroxide and sulfuric acid. Spurlock Adhesives presently manufactures
and sells approximately 11 different Phenolic Resins to the oriented
strandboard, hardboard, fiberglass insulation and mineral wool insulation
segments of the forest products, building products and furniture industries.
Sales of Phenolic Resins accounted for 2.4%, 3.3% and 5.7% of net sales for the
years ended December 31, 1998, 1997 and 1996, respectively.
Formaldehyde. Spurlock Adhesives produces formaldehyde for its own internal
consumption, but also selectively markets this product to industrial accounts
and other users. The major material involved in the production of formaldehyde
is methanol. Sales of formaldehyde accounted for 23.2%, 23.4% and 19.2% of net
sales for the years ended December 31, 1998, 1997 and 1996, respectively.
Fertilizer. Spurlock Adhesives produces both liquid fertilizers and
intermediate fertilizer products, which are purchased and further processed by
customers engaged in the manufacture and sale of fertilizers for agricultural
and lawn and gardening uses. Spurlock Adhesives' production of fertilizer is
similar to the production of Urea Resins produced by Spurlock Adhesives. There
are no significant barriers to entry into this business for other resin
producers. This production, however, serves to diversify Spurlock Adhesives'
product mix in a manner that may reduce financial exposure stemming from
downturns in the business cycle of the forest products, building products and
furniture industries. Sales of fertilizers accounted for 4.9%, 3.5% and 1.5% of
net sales for the years ended December 31, 1998, 1997 and 1996, respectively.
Sales and Marketing
Spurlock Adhesives sells its resin products to commercial manufacturers in
the forest products, building products and furniture industries. The customers
of Spurlock Adhesives include small, medium and large thermosetting resin users
located principally in the northeast, southeast and midwest regions of the
United States.
Spurlock Adhesives seeks to attract medium to large users of thermosetting
resins by offering a varied selection of high quality resins at competitive
prices, coupled with the willingness and ability to tailor its products to the
customer's individual needs and specifications. Spurlock Adhesives emphasizes
customer service and the continual improvement and development of new resins to
meet the changing needs of the marketplace, including resins with lower levels
of formaldehyde, phenol and methanol to reduce their potential environmental
impact.
Urea Resins are marketed to manufacturers in the particleboard, medium
density fiberboard and interior plywood segments of the forest products,
building products and furniture industries. In addition, Spurlock Adhesives is
seeking to expand its presence in the fiberglass roof mat and fiberglass filter
media segments of these industries. Phenolic Resins are marketed to different
industry segments, including the fiberglass insulation and oriented strandboard
segments with recent emphasis on development of the hardboard segment.
Spurlock Adhesives has a sales and marketing staff consisting of two
full-time Sales Managers and a Director of Sales and Marketing. The Sales
Managers call on existing and prospective customers in their individual
geographic territories. In circumstances where the company seeks to qualify new
or existing products in a particular industry segment, the Sales Managers submit
samples to prospective customers for evaluation and testing. Plant managers
service accounts and assist in the development of new business. Spurlock
Adhesives also employs regional distributors to service specific markets and
accounts.
-5-
<PAGE>
Spurlock Adhesives also markets itself and its products through advertising
and participation in industry associations. Advertising is usually limited to
the placement of special features in trade publications and to general listings
of resin producers in trade publications, annual buyers guides and other
individual directories. Employees of Spurlock Adhesives participate in various
industry trade associations and conferences, including the Composite Panels
Association, the Technical Association of Pulp and Paper Industries, the Forest
Products Research Society, the International Particleboard/Composite Materials
Symposium, the International Woodworkers Fair and the Amino, Phenolic Wood
Adhesive Association.
Customers
The principal customers of Spurlock Adhesives as of December 31, 1998 were
Willamette Industries (Malvern, Arkansas), Schenectady International
(Schenectady, New York), Union Camp (Franklin, Virginia) and International Paper
(Waverly and Stuart, Virginia; Spring Hope and Statesville, North Carolina; and
Jefferson and Nacogadoches, Texas). Sales to each of these customers represented
at least 10%, but not more than 19%, of Spurlock Adhesives' total consolidated
net sales for 1998. The loss of any one of these customers could have a material
adverse effect on the financial condition and the results of operations of
Spurlock Adhesives.
Raw Materials and Suppliers
The principal raw materials used in the production of resins and
formaldehyde are methanol, urea and phenol. These materials are generally
available at present, and Spurlock Adhesives does not rely on a single producer
for any of its raw materials. Methanol, urea and phenol are commodity chemicals.
In order to assure a continuous supply of these materials, Spurlock Adhesives
enters into multi-year purchase contracts with certain producers for a minimum
supply of these commodities. Purchase orders for commodities are placed several
weeks or months in advance of delivery. Although prices for these commodities
may fluctuate, Spurlock Adhesives seeks to minimize the risk of such price
fluctuations by including provisions in customer agreements that adjust product
sales prices to reflect changes in Spurlock Adhesives' raw material costs. The
amount of any change in raw material costs for purposes of these price
adjustment provisions is determined by reference to market indices for specific
commodities. By matching increases and decreases in raw material costs with
corresponding increases and decreases in the sales prices for its products,
Spurlock Adhesives is better able to maintain profit margins.
Competition
The business of developing and manufacturing liquid thermosetting resins is
highly competitive. The principal products of Spurlock Adhesives compete against
similar and different products manufactured and sold by numerous other
companies, some of which are substantially larger and have greater resources
than Spurlock Adhesives. The principal competitors of Spurlock Adhesives are
three large well-established manufacturers: Georgia-Pacific Resins, a division
of Georgia-Pacific Corporation; Borden Chemical; and Neste Resins, a Finnish
Company. Spurlock Adhesives competes on the basis of price, quality, product
consistency, service, method of distribution and the ability to tailor products
to meet customer needs.
Patents and Trademarks
Spurlock Adhesives is the owner of a United States patent, No. 4,381,368,
on a process for the production of Urea Resins. The patent was obtained by
Harold N. Spurlock, Sr. on April 26, 1983, and was formally assigned to Spurlock
Adhesives in January 1996 for no consideration. The process described in the
patent has been used as the foundation for several other products developed by
Spurlock Adhesives.
Management of Spurlock Adhesives believes that it has a proprietary
interest in certain processes for the production of resins and that the
competitive advantage provided by maintaining the confidentiality of these
processes outweighs any benefits that might be derived from obtaining patent
protection for the processes. Consequently, Spurlock Adhesives has no plans at
the present time to seek patent protection for any such process. Spurlock
Adhesives is not aware of and has not received any notice or claim that any of
its manufacturing processes infringe the proprietary rights of any third party
in any manner that could materially affect its business or that would prevent
Spurlock Adhesives from using its processes.
-6-
<PAGE>
Seasonality and Backlog
Sales volume in the thermosetting resins business is closely related to
overall levels of activity in the forest products, building products and
furniture industries. Historically, Spurlock Adhesives' business has been
generally slower in the winter months and more vigorous in the spring and fall
months. In addition, the resins business is cyclical due to the effect of
fluctuations in the economy and overall levels of building and construction
activity. Periods of recession or high interest rates adversely affect building
and construction activity and therefore sales revenues.
Spurlock Adhesives typically has no significant backlog as customers
generally place monthly purchase orders that require delivery as of a specified
date as a condition to placing the order. Spurlock Adhesives from time to time
must turn down orders if necessary to assure that existing orders are timely
delivered.
Employees
As of December 31, 1998, Spurlock Adhesives had 83 full time employees. The
Company does not employ any personnel. Spurlock Adhesives believes that its
relationship with its employees is good. Approximately 16 employees located at
the Malvern, Arkansas plant are covered by a three year collective bargaining
agreement between Spurlock Adhesives and the United Steel Workers of America
that expires June 30, 1999.
Government Regulation
The Company is subject to various federal, state and local environmental
laws and regulations that limit the discharge, storage, handling and disposal of
a variety of substances. The Company's operations are also governed by laws and
regulations relating to work-place safety and worker health, principally the
Occupational Safety and Health Administration Act of 1970 and accompanying
regulations and various state laws and regulations. Spurlock Adhesives believes
that it presently complies in all material respects with the foregoing laws and
regulations and does not believe that future compliance with such laws and
regulations will have a material adverse effect on its financial condition or
results of operations. See Note 1 to the Consolidated Financial Statements and
Item 7., "Management's Discussion and Analysis of Financial Corporation and
Results of Operations - "Compliance with Environmental Regulations."
Item 2. Properties
The Company conducts its business operations primarily from three
manufacturing facilities located in Waverly, Virginia, Malvern, Arkansas and
Moreau, New York. The Company's headquarters and chief executive offices are
located in leased office space in Waverly, Virginia. Management believes that
the properties are in good condition and suitable for the Company's purposes.
The Company's three manufacturing facilities are encumbered under existing
credit arrangements.
Executive Offices. On March 31, 1998, the Company purchased a small office
building in Waverly that contains approximately 2,700 square feet of space. The
Company began occupying this building on in late July 1998.
Waverly Facility. Spurlock Adhesives owns and operates a facility on a
43-acre industrial site located about three miles northwest of the intersection
of state highways 40 and 460 near Waverly, Virginia. The facility consists of
two resin plants and two formaldehyde plants. The plants produce Urea Resins,
Phenolic Resins and formaldehyde. In 1998, the resin plants were operated at
approximately 52% of capacity and the formaldehyde plants were operated at
approximately 73% of capacity.
Malvern Facility. Spurlock Adhesives owns and operates a facility on 67
acres of land in Gillford, Arkansas, approximately five miles northeast of
Malvern, Arkansas. The facility consists of a resin plant, a formaldehyde plant,
two administrative offices and a research facility. The plants produce Urea
Resins, Phenolic Resins and formaldehyde. In 1998, the resin plant was operated
at approximately 78% of
-7-
<PAGE>
capacity and the formaldehyde plant was operated at approximately 74% of
capacity. The Company's major research activities are conducted at the Malvern
facility.
Moreau Facility. In the fourth quarter of 1996, the Company purchased
property in the Moreau Industrial Park, located in South Glens Falls, New York,
obtained the necessary regulatory approvals and initiated construction of a
manufacturing facility for the production of formaldehyde and resins. The
facility consists of two formaldehyde plants (one purchased and one leased), one
resin plant and ancillary equipment, buildings and tank farms. The total cost of
the project is approximately $8,483,000 for the purchased plants. D.B. Western,
Inc. was the general contractor of the project, which was completed in 1998, and
owns the leased formaldehyde plant. Payments under the lease are $46,139 per
month over a ten-year term, with a purchase option at the end of three years.
The financing sources for the purchased plants include a term loan for
$1,500,000, amortized for 10 years at an interest rate of LIBOR plus 2.75%, the
proceeds from a tax-exempt bond in the amount of $6,000,000 issued by Saratoga
County, New York, amortized for 10 years at a variable interest rate which has
been effectively fixed at a rate of 4.74% with an interest rate swap, and the
Company's operating cash flow for the remaining $800,000 and the soft costs. As
of December 31, 1998 the principal amounts currently outstanding on the term
loan and the tax-exempt bond were $1,400,000 and $5,700,00, respectively.
Operations at the Moreau facility began in July 1998, and the resin plants
operated at approximately 11% of capacity and the formaldehyde plants at
approximately 47% of capacity for the approximate five month period of operation
ended December 31, 1998.
Management believes that the region served by the Moreau facility is a very
favorable market. There has historically been industry undercapacity for resins
and formaldehyde in this market, and purchasers in this region have had to
procure products from outside the region at higher prices due to freight charges
required. Accordingly, the Company is well-positioned to replace such
out-of-region products and to maintain satisfactory pricing of the plants'
output.
Item 3. Legal Proceedings
On April 28, 1997, seven shareholders of the Company filed a Derivative
Suit (the "Derivative Suit") against the Company and certain current and former
officers and directors of the Company in Colorado State Court. The proceeding
was subsequently moved to the United States District Court for the District of
Colorado. The plaintiff shareholders include Lee Rasmussen, who as of March 1,
1999 held approximately 5.3% of the outstanding shares of Common Stock. The
following current directors or officers of the Company were named as defendants:
Harold N. Spurlock, Sr., Phillip S. Sumpter, and Irvine R. Spurlock. Defendants
also included H. Norman Spurlock, Jr. and Lloyd Putnam, former officers and
directors of the Company; and Warren E. Beam, Jr., a former officer of the
Company.
The Derivative Suit, Rasmussen et al. v. Spurlock Industries, Inc., et al.
(Civil Action No. 97-D- 2214), alleged that the defendants engaged in various
activities that breached their fiduciary duties to the plaintiff shareholders
and/or violated provisions of Colorado law applicable to domestic corporations.
The activities so alleged included wrongful payment and wrongful guarantee of
debts of one or more defendants, unlawful loans and distributions to defendants,
unfair dealings with one or more defendants, overcompensation of defendants and
other employees, wrongful depression of the Company's stock price,
misrepresentation as to shareholders, and improper approval of the merger of Air
Resources into the Company. The plaintiff shareholders sought a declaratory
judgment with respect to the acts complained of, repayment of certain monies to
the Company, an accounting of all financial transactions of the Company from
1992 to the present, a constructive trust of shares of common stock held by
certain defendants, injunctive relief and damages.
A special litigation committee appointed by the Company's Board of
Directors conducted an extensive investigation of the facts, circumstances and
transactions alleged in the Derivative Suit. Following its investigation, the
committee concluded that certain claims in the suit had merit and, having
pursued such claims on behalf of the Corporation, recovered approximately
$500,000 in cash, a judgment and a secured note.
-8-
<PAGE>
On December 17, 1998, the parties to the Derivative Suit entered into an
agreement to resolve all claims in connection with the suit (the "Stipulation
and Settlement Agreement"). Under the terms of the settlement, notice of which
was furnished to all shareholders of record as of December 15, 1998, the Company
was required to pay to the plaintiff shareholders $75,000 in cash, representing
a portion of the monies recovered by the Company, and $22,500 in cash,
representing reimbursement of the plaintiff shareholders' legal fees, and to
issue 50,000 shares of Common Stock to the plaintiff shareholders. The
Stipulation and Settlement Agreement was subject to court approval and the
running of all appeals periods.
In addition to the Stipulation and Settlement Agreement, the plaintiff
shareholders and the Spurlock Family Limited Partnership, whose limited partners
include Harold N. Spurlock, Sr., Irvine R. Spurlock and H. Norman Spurlock, Jr.,
entered into a separate Settlement Agreement (the "SFLP Settlement Agreement")
in order to settle all outstanding claims that may have existed between the
parties, none of which claims was a derivative claim. The SFLP Settlement
Agreement was conditioned upon court approval of the Stipulation and Settlement
Agreement and the running of all appeals periods relating thereto. It placed no
obligation on the Company and provided for (i) Lee Rasmussen to receive 225,000
shares of Common Stock from the Spurlock Family Limited Partnership and (ii) the
plaintiff shareholders to have the right to "put" to the Spurlock Family Limited
Partnership certain shares of Common Stock held by them.
A hearing was held on January 27, 1999 in the United States District Court
for the District of Colorado, and the Court determined that the settlement
embodied in the Stipulation and Settlement Agreement was fair, reasonable and
adequate, approved the settlement and dismissed all claims asserted or which
could have been asserted in the Derivative Suit. The Stipulation and Settlement
Agreement and the SFLP Settlement Agreement became final and effective on March
11, 1999 upon the running of all appeals periods and the payment of all
settlement consideration required by such agreements.
As of March 29, 1999, there were no material pending legal proceedings to
which the Company was a party or to which any of its properties was subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
There is no established public trading market for shares of Common Stock.
Shares of Common Stock are traded in over-the-counter markets and on the OTC
Bulletin Board under the symbol "SKII."
The following table shows the high and low closing bid prices per share of
Common Stock as reported in the National Daily Quotation Sheets. These prices
reflect quotations between dealers without adjustment for retail markups,
markdowns, or commissions, and may not represent actual transactions.
Closing Bid Price
High Low
Fiscal Year Ended December 31, 1997
First Quarter............................... $ .625 $ .375
Second Quarter.............................. .4375 .375
Third Quarter............................... .38 .375
Fourth Quarter.............................. .45 .38
-9-
<PAGE>
Fiscal Year Ended December 31, 1998
First Quarter (1)........................... $ .45 $ .25
Second Quarter (1).......................... 1.50 .26
Third Quarter (1)........................... 1.75 .82
Fourth Quarter (1).......................... 3.125 1.53125
____________________
(1) The high and low sales prices per share as reported through the OTC
Bulletin Board for the fiscal year ended December 31, 1998 were: $0.55 and
$0.45, respectively, for the first quarter; $1.75 and $0.312, respectively,
for the second quarter; $1.875 and $0.79, respectively, for the third
quarter; and $3.50 and $1.531, respectively, for the fourth quarter.
The closing bid and asked prices per share of Common Stock on March 1,
1999, were $2.96875 and $3.15625, respectively.
Holders of Common Stock. The number of holders of record of the Company's
Common Stock, no par value, as of March 1, 1999 was approximately 200.
Dividends. Holders of the Company's Common Stock are entitled to receive
such dividends as may be declared by its Board of Directors. No cash dividends
have been declared or paid with respect to the Company's Common Stock and no
dividends are anticipated to be paid in the foreseeable future.
Sale of Unregistered Securities. The Company sold no equity securities of
the Company which were not registered under the Securities Act of 1933, as
amended, during the period covered by this report.
On December 17, 1998, the Company and certain current and former officers
and directors entered the Stipulation and Settlement Agreement with seven
shareholders of the Company with respect to the Derivative Suit. The Stipulation
and Settlement Agreement was subject to court approval. A hearing was held on
January 27, 1999 in the United States District Court for the District of
Colorado, at which time the court approved the settlement and dismissed all
claims asserted or which could have been asserted in the Derivative Suit. The
Stipulation and Settlement Agreement became final and effective on March 11,
1999, upon the running of all appeals periods and the payment of all settlement
consideration required by such agreement.
A portion of the settlement consideration paid to the seven plaintiff
shareholders consisted of 50,000 shares of Common Stock. Such shares were issued
by the Company pursuant to an exemption from the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the "Securities Act")
contained in Section 4(2) of the Securities Act via a private placement of such
shares. The Common Stock issued to the named plaintiffs was restricted, with the
certificate evidencing such shares containing a restrictive legend. The
plaintiffs were provided with the then most recent filings of the Company with
the Commission under the Securities and Exchange Act of 1934, as amended, and
certified to the Company that they were acquiring the 50,000 shares for
investment and not public distribution.
Item 6. Selected Financial Data
The selected consolidated financial information presented below for, and as
of the end of, each of the years in the five-year period ended December 31,
1998, is derived from the consolidated financial statements of the Company. The
financial statements as of December 31, 1998 and 1997, and for the two years
ended December 31, 1998, have been audited by Cherry, Bekaert & Holland, L.L.P.,
independent auditors. The financial statements as of and for the three years
ended December 31, 1996, have been audited by James E. Scheifley & Associates,
P.C. (formerly Winter, Scheifley & Associates, P.C.).
-10-
<PAGE>
The information set forth below should be read in conjunction with Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 (1) 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net Sales........................... $27,659,786 $24,725,077 $28,643,415 $33,243,677 $30,512,704
Cost of sales....................... 21,718,458 19,597,991 21,129,265 26,092,053 26,269,016
Gross profit........................ 5,941,328 5,127,086 7,514,150 7,151,624 4,243,688
Selling, general and
administrative expenses............. 6,310,326 4,815,638 4,414,422 3,903,371 3,456,356
----------- ----------- ----------- ----------- -----------
Income (Loss) from operations....... (368,998) 311,448 3,099,728 3,248,253 787,332
Other income and expenses........... 795,022 139,307 83,376 12,007 2,513
Interest expense.................... (699,109) (627,799) (667,942) (663,662) (828,261)
----------- ----------- ----------- ----------- -----------
Income (Loss) before
income taxes..................... (273,085) (177,044) 2,515,162 2,596,598 (38,416)
Provision for income taxes
(benefit)........................ 23,456 (152,304) 1,021,487 115,600 -
----------- ----------- ----------- ----------- -----------
Net Income (Loss)................... $ (296,541) $ (24,740) $1,493,675 $ 2,480,998 $ (38,416)
=========== =========== =========== =========== ===========
Net Income (Loss) per common share:
Basic and diluted................ ($0.05) $ 0.00 $ 0.22 $ 0.37 ($0.01)
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 (1) 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets...................... $ 3,654,790 $ 2,553,259 $ 2,288,914 $3,099,414 $3,715,917
Current liabilities................. 16,500,693 5,365,116 4,388,860 5,330,308 8,133,204
Total assets........................ 21,086,154 19,401,431 12,270,407 9,342,968 9,996,870
Long-term debt...................... 274,682 9,598,315 3,402,621 983,652 1,354,556
Stockholders' equity(2)............. 3,974,252 4,268,043 4,292,783 2,919,108 509,110
Number of common
shareholders..................... 200 227 242 249 245
Weighted average number
of common shares
outstanding...................... 6,574,899 6,573,639 6,711,733 6,717,667 6,626,066
Cash dividends declared............. 0 0 0 0 0
Book value per share (3)............ $0.60 $0.65 $0.64 $0.43 $0.08
</TABLE>
________________________
(1) Assumes the conversion of 1,200,000 shares of preferred stock, par value
$2 per share, into 2,400,000 shares of Common Stock, which conversion was
subsequently effected on January 5, 1996. Absent the pro forma addition of
2,400,000 shares of Common Stock, the historical number of weighted
average shares outstanding for the fiscal year ended December 31, 1995 was
4,317,667.
(2) For the two fiscal years ended December 31, 1995, stockholders' equity
included 1,200,000 preferred shares, totaling $2,400,000.
-11-
<PAGE>
(3) Assuming the conversion of 1,200,000 preferred shares into 2,400,000
shares of Common Stock, which conversion was subsequently effected on
January 5, 1996, the weighted average shares outstanding for the five
fiscal years ending December 31, 1998 were: 6,574,899, 6,573,639,
6,711,733, 6,717,667 and 6,626,066.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis provides information which management
believes is relevant to understanding the Company's operations and financial
condition. It should be read in conjunction with the financial statements and
accompanying notes. The financial statements of the Company have been prepared
in conformity with generally accepted accounting principles.
Forward-Looking Statements
The following discussion contains certain forward-looking statements,
generally identified by phrases such as "the Company expects" or "management
believes" or words of similar effect. The Company wishes to caution readers that
certain important factors set forth within such discussion, among others, in
some cases have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual results for 1999 and beyond to
differ materially from those expressed in any forward-looking statements made
herein. For a discussion of certain factors that could cause actual results to
differ from those contained in any such forward-looking statements, see "-
Forward-Looking and Cautionary Statements."
General
Overview. Despite the successful startup of the Moreau Facility,
significant gains in revenues and improvement in the gross margin, the Company's
operating results declined in the fiscal year ended December 31, 1998. This
deterioration in operating income was primarily due to substantial legal and
accounting costs related to the Derivative Suit and the sale of the Company,
Derivative Suit settlement costs, start-up costs associated with the Moreau
Facility, and increased deferred tax liability. As a result, the Company
reported a pretax loss of $273,085 and an after tax loss of $296,541 in 1998,
compared to pretax and after tax losses of $177,044 and $24,740, respectively,
in the prior year. Absent the substantial legal and accounting costs related to
the Derivative Suit and the sale of the Company, and Derivative Suit settlement
costs, management estimates that the Company would have reported 1998 pretax
profits of approximately $975,000.
In the fiscal year ended December 31, 1997, the Company's profits also
declined substantially compared to 1996, primarily due to a significant
reduction in the gross margin, which reduction was caused by price deterioration
relating to oversupplies of the Company's primary products in two of its three
regions of operation. In addition, during 1997, the Company elected to expense
approximately $533,927 of start-up and pre-operating costs relating to the new
Moreau, New York manufacturing facility, which began operations in July 1998. As
a result, the Company experienced a loss of $24,740 in 1997, compared to net
income of $1,493,675 in 1996.
Dependence on Construction and Related Industries. Demand for the Company's
products and the Company's financial performance are closely tied to the
fortunes of the construction, forest products and related industries.
Price of Raw Materials. Raw materials costs comprised approximately 52%,
60%, and 57% of net sales in 1998, 1997, and 1996, respectively. Raw materials
are by far the largest component of cost of goods sold. Therefore, the Company's
operating performance is sensitive to price movements in its basic raw
materials, particularly methanol and urea. Management strives to ameliorate
these commodity risks by maintaining diverse supply relationships and by closely
matching increases and decreases in product prices to increases and decreases in
raw material costs. The 1998 reduction in raw material costs reflects favorable
spot market purchases in the fourth quarter and competitive pressure in such
commodity markets.
-12-
<PAGE>
Freight Costs. A substantial portion of the Company's products are priced
on an "as delivered basis." For 1998, 1997, and 1996, freight costs relating to
delivery of the Company's products comprised approximately 8.3%, 3.6%, and 3.9%,
respectively, of net sales. Accordingly, the Company's operating performance is
sensitive to movements in freight costs. The 1998 freight increase reflects
management's decision to supply product to customers in the northeast from the
Company's Waverly, Virginia plant prior to the operation of its Moreau, New York
facility in order to lock in such customers. Such shipments from Waverly ceased
following the start-up of the Moreau Facility in July 1998. Also, in the fourth
quarter of 1998, management was successful in negotiating more favorable freight
rates generally.
Credit Facilities. In July 1996, in order to reduce interest costs and
increase credit availability, the Company terminated a $3,500,000 line of credit
with its primary working capital lender and obtained a line of credit in a like
amount with a new lender. Such credit facility is secured by accounts receivable
and inventory, among other assets, and provides for credit availability based
upon the level of accounts receivable and inventory. In conjunction with this
new line of credit, the Company borrowed an additional $3,600,000 under a term
loan to purchase a formerly leased formaldehyde plant, which term loan is
secured by all assets. In October 1998 and February 1999, the Company obtained
"overlines" to its existing line of credit of $150,000 each to fund additional
working capital requirements relating to the new Moreau Facility.
New York Project. In the fourth quarter of 1996, the Company purchased
property in the Moreau Industrial Park, located in South Glens Falls, New York,
obtained the necessary regulatory approvals and initiated construction of a
manufacturing facility for the production of formaldehyde and resins. The Moreau
Facility began operations in July 1998. See Item 1., "Business - Business and
Operational Development" and Item 2., "Properties."
The financing sources for the New York plants, with a total estimated cost
of $8,483,000, included a term loan for $1,500,000, amortized for 10 years at an
interest rate of LIBOR plus 2.75%, the proceeds from a tax-exempt bond in the
amount of $6,000,000 issued by Saratoga County, New York, amortized for 10 years
at a variable interest rate which has been effectively fixed at a rate of 4.74%
with an interest rate swap (See "- General - Disclosure Concerning Market Risk")
and the Company's operating cash flow for the remaining $800,000 and "soft"
costs of approximately $600,000 consisting of interest, environmental permits,
legal and administrative expenses. As of December 31, 1998, the principal
amounts currently outstanding under the term loan and the tax-exempt bond were
$1,400,000 and $5,700,000, respectively.
One of the two formaldehyde plants at Moreau is leased from D.B. Western,
Inc., the general contractor for the project. Payments under the lease are
$46,139 per month over a ten year term.
Loan Covenants. The credit facilities described under "Credit Facilities"
and "New York Project" above are subject to substantially similar restrictive
financial covenants. At December 31, 1997, March 31, 1998 and June 30, 1998, the
Company was in technical violation of certain of these covenants as a result of
unauthorized advances to officers, which have been previously reported, and the
Company's failure to meet certain financial covenants relating primarily to net
worth, leverage, net profit and capital expenditures. As of November 1998, the
Company had received waivers of all such violations. Also, the applicable credit
facilities were amended to liberalize certain financial covenants effective as
of September 30, 1998. As a result, based on the Company's financial performance
in the third quarter of 1998, the Company was in material compliance with its
loan covenants as of such date.
At December 31, the Company was in violation of financial covenants
relating to minimum net worth and profitability. These violations resulted
primarily from the adverse impact of settlement and professional fees relating
to the Derivative Suit and increased deferred tax liability due to accelerated
depreciation relating to the Moreau Facility. Because of such covenant
violations, the Company's balance sheet for December 31, 1998 shows all formerly
long term debts payable to the Company's two primary bank lenders as current
liabilities under "Current portion of long term debt" rather than as long term
liabilities under "Long term debt." The Company is currently seeking waivers
from its two primary lenders with respect to such covenant violations.
-13-
<PAGE>
The Merger Agreement with Borden Chemical contains covenants which restrict
the Company's ability to increase or otherwise significantly modify the
Company's credit facilities. If the Merger is not consummated, management
anticipates that it would seek to restructure such credit facilities in order to
better provide for the addition of the Moreau Facility and the additional
working capital requirements attendant to such new operations.
Write Off of Start-up Costs. In 1997, the Company elected to expense
certain start-up and pre-operating costs relating to the New York manufacturing
facility. Such costs aggregated approximately $533,927 in 1997 and $851,000 in
1998. The American Institute of Certified Public Accountants ("AICPA")
Accounting Standards Executive Committee (AsSEC) in its Statement of Position
98-5 "Reporting of the Costs of Start-up Activities" required the expensing of
such costs effective for years commencing after December 31, 1998. The SEC had
encouraged this practice prior to AsSEC's consideration of this SOP. While the
Company could have elected to capitalize these costs for the New York facility,
the Company elected early adoption, which was the most conservative treatment
under the circumstances.
Purchase of Waverly Formaldehyde Plant. In July 1996, the Company
consummated an agreement with D.B. Western, Inc. whereby the Company purchased a
formaldehyde plant located in Waverly, Virginia formerly leased from D.B.
Western, Inc. Such agreement terminated the lease and settled all operational
performance and rent disputes with respect to the facility for $3,675,000.
Compliance with Environmental Regulations. Environmental costs charged to
operations aggregated $127,834, $184,259 and $202,076 for the years ended
December 31, 1998, 1997 and 1996, respectively. As a percentage of net sales,
such expenditures totalled .46%, .75%, and .71%, respectively, over each of such
three years. In such periods, over 80% of such expenditures related to testing
at the Company's manufacturing facilities to ensure compliance with
environmental laws and regulations. Other expenditures included obtaining
required permits, purchase and maintenance of safety equipment, trash and waste
removal and training. All such expenses are viewed by the Company as customary,
recurring costs of doing business in its particular industry.
Capacity Utilization. For 1998, the Waverly, Virginia formaldehyde plant
ran at approximately 73% of capacity, compared to 83% in 1997 and 1996. Such
decline in 1998 reflected the shifting of production for customers in the
northeast from Waverly to Moreau in July of that year. The Malvern, Arkansas
formaldehyde plant ran at approximately 74% for 1998, compared to 67% and 84%
for 1997 and 1996, respectively, reflecting increased 1998 product sales from
that location. The Moreau Facility, which began production in late July 1998,
operated at approximately 47% of formaldehyde capacity during August through
December of 1998.
With respect to resin capacity utilization, the Waverly facility reported a
52% utilization rate for 1998, compared to the 53% and 55% reported for 1997 and
1996, respectively. The Malvern Facility produced at an approximate 78%
utilization rate for resin for 1998, a significant increase over the 52%
utilization rate for 1997 and 65% for 1996. For August through December 1998,
the Moreau Facility, in its startup mode, utilized approximately 11% of resin
capacity.
Inflation. Although the Company's operations are influenced by general
economic trends, the Company does not believe that inflation had a material
impact on its operations during the three-year period ended December 31, 1998.
Deferred Taxes. The Company is required to recognize the effect of
temporary differences between the bases of assets and liabilities as measured by
tax laws and their bases as reported in the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax liabilities
or assets between periods.
During 1998, the Company accrued non-deductible expenses related to the
settlement of the Derivative Suit and recognized non-deductible provisions to
the allowance for bad debts. These constitute the principal increases in
deferred taxes of approximately $100,000.
-14-
<PAGE>
Settlement of Derivative Suit. In December 1998, the Company entered into
the Stipulation and Settlement Agreement with respect to the Derivative Suit,
which settlement was approved by the Federal District Court in Colorado on
January 27, 1999. The settlement became effective on March 11, 1999, following
the expiration of all appeal periods and the payment by the Company of the
settlement consideration to the plaintiffs pursuant to the Stipulation and
Settlement Agreement. See Item 3., "Legal Proceedings." The cash portion of such
consideration totalled $97,500. The Company also issued 50,000 shares of Common
Stock to the plaintiffs, valued at market on December 31, 1998 at $3.00 per
share, or $150,000 in the aggregate. Based on such valuation, the total cost of
the settlement to the Company was $247,500. Pursuant to FASB No. 5, the cost of
the settlement was recognized in 1998. The Company expects to recover a certain
portion of the cost from the Company's directors and officers insurance carrier.
The preliminary estimate of such recovery is $97,500, which is reflected in the
1998 financials. See Note 16 to the Consolidated Financial Statements.
Disclosure Concerning Market Risk. The table below provides information
about the Company's derivative financial instruments and other financial
instruments that are sensitive to changes in interest rates, including interest
rate swaps and debt obligations.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average interest rates
by expected (contractual) maturity dates. Notional amounts are used to calculate
the contractual payments to be exchanged under the contract. Weighted average
variable rates are based on implied forward rates in the yield curve at the
reporting date.
-15-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable, line-of-credit 2,346,394 2,346,394 2,346,394
Variable average interest rate 7.51%
Long term debt 9,571,487 28,110 14,319 184,389 9,846,169 9,846,169
47,864 -
Fixed Rate 1,647,380 28,110 14,319 184,389 1,922,062 1,922,062
47,864 -
Fixed average interest rate 8.18% 8.18% 8.18% 8.18% 8.18% 8.18%
Variable Rate 7,924,107 7,924,107 7,924,107
- - - - -
Variable average interest rate 7.70% 7.89% 8.09% 8.29% 8.50% 8.71%
Interest rate swap:
Variable to fixed 5,600,000 5,000,000 4,400,000 3,800,000 3,200,000 2,600,000 (127,421)
Average pay rate 4.74% 4.74% 4.74% 4.74% 4.74% 4.74%
Average receive rate 3.74% 3.91% 4.08% 4.27% 4.46% 4.66%
</TABLE>
-16-
<PAGE>
The Company is exposed to interest rate risk through borrowing
arrangements. Much of the Company's debt carries variable interest rates.
As part of the Company's interest rate risk management, the Company has
entered into an interest rate swap to effectively convert a portion of the
floating rate debt to a fixed rate. The notional amount and terms of the
swap coincide with those of the bond obligation under the Industrial
Revenue Bond for the Moreau, New York facility.
The remainder of the variable rate, long term debt floats with the London
Interbank Offered Rate. Upward movement in this interest rate impacts
approximately $3 million in debt.
Fixed rate loans are at or below market rates for such debt. Fixed rate
debt protects the Company from increased costs in a rising interest rate
environment. Should interest rates decline, the Company may incur greater
interest cost than if such debt were variable rate.
-17-
<PAGE>
Results of Operations
Fiscal Year Ended December 31, 1998
Compared to Fiscal Year Ended December 31, 1997
The Company's net sales for the year ended December 31, 1998 totalled
$27,659,786. All the sales were from shipments of resin and formaldehyde by the
Company's wholly owned subsidiary, Spurlock Adhesives. The significant revenue
increase of 11.87% mainly reflects the addition of the Company's new facility at
Moreau, New York which began production in July 1998.
Cost of sales in 1998 increased 10.82%, to $21,718,458 from $19,597,991 in
1997. The gross margin improved to 21.48% from 20.74% in 1997. Gross profit of
$5,941,328 represents a 15.88% increase over the $5,127,086 reported in the
prior year. From February 1998 until the startup of the Moreau Facility in July
1998, the Company supplied product from Waverly, Virginia to customers in the
northeast in order to lock in a significant portion of the future output of the
New York plant. A side effect of this advanced planning was the Company's
incurring greater than typical freight costs aggregating an estimated $400,000
in the second quarter and early third quarter of 1998. The negative impact of
this arrangement was more than offset by favorable spot market purchases of raw
materials during the fourth quarter.
Operating expenses (selling, general and administrative expenses) increased
by 31.04% in 1998, to $6,310,326 or 22.81% of sales from $4,815,638 or 19.48% of
sales for the prior year. This significant rise in operating expenses resulted
from increased legal and accounting expenses of approximately $1.1 million,
relating primarily to the Derivative Suit, and Derivative Suit settlement costs
totalling approximately $250,000, as well as customary operating expenses
relating to the Moreau Facility following its mid-year startup.
Other income in 1998 increased almost six fold to $795,002 from $139,307 in
the prior year. This substantial increase was due in large part to the Company
taking into income the $375,000 SFLP Note (as defined under Item 13., "Certain
Relationships and Related Transactions") from the Spurlock Family Limited
Partnership which is secured by Common Stock. Upon the Company entering into the
Merger Agreement, management determined that collectability of recovery of the
SFLP Note was assured by the Merger Agreement's requirement that the Spurlock
Family Limited Partnership repay such note in full at closing from its portion
of the merger consideration. Other income for 1998 also included interest income
from the invested but unadvanced proceeds of the New York industrial development
bond totalling approximately $386,000, an increase of approximately $150,000
over 1997, as well as interest on certain notes from affiliates.
Interest expense for the year remained relatively unchanged at $699,109 or
2.53% of sales, compared to $627,799 or 2.54% of sales in 1997. Prior to the
startup of the New York Facility in July 1998, interest on the approximately
$7.5 million of project debt was capitalized. Upon the Moreau Facility entering
service in July 1998, the Company began to accrue interest on such debt. The
impact of interest accrued on the project debt was mitigated by somewhat lower
interest rates, as average debt outstanding remained relatively unchanged
between 1998 and 1997.
Despite the increases in gross profits and other income in 1998, the
Company's loss before taxes expanded in 1998 to $273,085 from a loss of $177,044
in 1997 due to the substantial increase in operating expenses discussed above.
The Company accrues for income taxes at an effective rate of 34% exclusive
of the deduction for state income tax. The effective rate was impacted by the
increase in the deferred tax liability due to the non-deductible expenses
associated with the settlement of the Derivative Suit and the provision for the
allowance for bad debt (36%), as well as the netting effect of state tax
benefits (4%).
-18-
<PAGE>
For 1998, the Company reported a net loss of $296,541, a substantial
increase over the net loss of $24,740 reported in 1997.
Fiscal Year Ended December 31, 1997
Compared to Fiscal Year Ended December 31, 1996
The Company's net sales for the year ended December 31, 1997 were
$24,725,077, a decrease of 13.68% compared to $28,643,415 in 1996. This decrease
resulted from lower average selling prices on Spurlock Adhesives' resin and
formaldehyde products due to an oversupply of product in two of the Company's
operating regions. Such oversupply was particularly acute in the region served
by the Company's Malvern, Arkansas facility. Also, although production volume
for formaldehyde remained relatively stable in 1997 at 71,051,940 pounds as
compared to 72,211,660 in 1996, resin shipments declined 14.4% to 151,742,035
pounds, primarily due to reduced volume sales from the Malvern plant. All sales
in 1997 were generated by Spurlock Adhesives.
Cost of goods sold for 1997 totalled $19,597,991 or 79.26% of net sales,
compared to $21,129,265 or 73.77% of net sales in fiscal 1996. This translated
into a decrease in the Company's gross margin to 20.74% in 1997 from 26.23% in
1996. Such margin deterioration resulted from the above described downward
pressure on prices exerted by customers purchasing in the competitive,
oversupplied regional markets served by the Company's two then existing plants.
Selling, general and administrative expenses totalled $4,815,638 or 19.48%
of net sales in 1997, versus $4,414,422 or 15.41% of net sales in 1996. The
$401,216 increase in these expenses was due primarily to the write off of
start-up and pre-operating costs of the Moreau, New York project aggregating
$533,927. Excluding such start-up and related expenses, in 1997 selling, general
and administrative expenses fell by $132,711. Due to the contraction in net
sales, however, total selling, general and administrative expenses (including
the Moreau related expenses) increased, as a percent of net sales, from 15.41%
in 1996 to 19.48% in 1997.
Interest expense (excluding interest on debt obligations related to the New
York Project, which was capitalized) declined 6.0% in 1997. Such decline
resulted primarily from lower average outstandings under the Company's working
capital facility, which resulted in turn from reduced sales and working capital
requirements.
The Company reported a pre-tax loss of $177,044 in 1997, a significant
decline from $2,515,162 in pre-tax profits reported in the previous year. The
1997 loss reflected primarily the decline in the gross margin and the write-off
of start-up and pre-operating costs for the Moreau project, as described above.
The Company recognized non-taxable recoveries in 1997, aggregating $81,486.
These recoveries increased the taxable benefit to $152,304 for the year then
ended. The provision for income tax in 1996 totalled $1,021,487, which consisted
of $149,415 in state income tax and $855,155 in federal income tax.
The Company reported a net loss in 1997 of $24,740, a significant decline
from net income of $1,493,675 reported in the prior year.
Liquidity and Capital Resources
For many years, the Company has relied heavily on its institutional working
capital lenders and its trade creditors to finance its working capital
requirements. The Company traditionally has operated, and continues to operate,
with a negative working capital position, as it takes advantage of supplier
payment terms which exceed those granted to the Company's customers.
Working Capital. At December 31, 1998, the Company reported a working
capital deficit of $12,845,903, a decrease of $10,034,046 from December 31,
1997. This substantially expanded deficit reflects the Company's previously
long-term bank financings being moved under current portion of long-
-19-
<PAGE>
term debt due to the Company's violation of certain loan covenants as of
December 31, 1998, as described in "General <-1- 45> Credit Facilities" above.
Absent the inclusion of such bank financings as current liabilities, the Company
would have reported a working capital deficit of $5,265,890, a decrease of
$2,454,033 from December 31, 1997. Such decrease reflects primarily the
Company's use of approximately $1,000,000 in additional short term bank
borrowings and an approximately $1,800,000 increase in accounts payable and
accrued expenses to fund fixed asset expenditures and working capital
requirements relating to the Moreau Facility. Trade receivables increased
significantly, by approximately $1,000,000 to $2,257,742, and inventories
increased only marginally by approximately $87,000 to $617,610, both such
increases related primarily to shipments from the Moreau Facility.
Cash Flow. For the fiscal year ended December 31, 1998, cash provided by
net income, depreciation and amortization totalling $949,182 remained relatively
unchanged compared to the $948,837 reported in the prior year. Further, net cash
provided by operations of approximately $1,785,000 compared to $1,752,000 in
1997. In 1998, an increase in accounts payable and accrued expenses of
approximately $1,800,000 offset an approximate $1,365,000 increase in
receivables, a modest increase in inventory of approximately $87,000 and the
reinstatement of the SFLP Note of $375,000. The Company invested approximately
$5,650,000 in additional fixed assets relating to the Moreau Facility, which
investment was funded predominantly by the draw down of approximately $3,900,000
in restricted cash relating to the proceeds from the Company's $6,000,000
industrial revenue bond financing. New borrowings aggregating approximately
$1,500,000 supplemented the Company's operating cash flow and such restricted
cash in funding the fixed asset purchases and loan repayments of approximately
$1,500,000. Net cash declined by approximately $260,000.
In 1997, the Company reported a cash flow from net income (loss) and
depreciation and amortization of $948,837, which represented a significant
reduction from the $2,244,732 reported in 1996. The Company supplemented such
cash flow with a $224,653 reduction in trade receivables, reflecting lower net
sales, and an $805,337 increase in accounts payable and accrued expenses.
Working capital decreased by $711,911 to ($2,811,857) at December 31, 1997. Net
cash provided by operating activities of $1,752,054 effectively permitted the
Company to repay notes and loans in the amount of $1,133,388 and increase other
assets (which represent deferred IRB financing fees aggregating $492,423) by
$503,539. New borrowings of $7,500,000 funded fixed asset additions of
$3,488,587 and restricted cash of $3,889,567. Such restricted cash represents
proceeds of the New York industrial development bond financing held in escrow
pending disbursement for project costs. Overall, cash and cash equivalents at
the end of 1997 increased by $256,613 to $362,685.
Long Term Debt. In addition to its working capital credit facility, the
Company had outstanding at year end 1998 funded debt of approximately
$9,850,000, a decrease of approximately $1,000,000 from 1997. As discussed
above, due to loan covenant violations at December 31, 1998, approximately
$7,580,000 of funded debt which was previously included under long-term
liabilities was required to be included under current maturities. Of total
funded debt, approximately $7,500,000 relates to the Moreau, New York project,
consisting of a term loan in the amount $1,500,000 and a $6,000,000 Industrial
Revenue Bond, both described above. The remaining non-credit line funded debt
consists of a term loan in the original amount of $3,639,000 with a bank in
order to purchase a former leased formaldehyde plant.
Outstandings under such term loan totalled $2,224,107 at year end 1998.
Total liabilities increased by 13.58% in 1998 to approximately $17,200,000,
from approximately $15,100,000 in 1997. As a result of this increase, and the
1998 net loss, the ratio of total liabilities to net worth, a measure of
financial leverage, increased to 4.41 in 1998 from 3.55 in the prior year.
In addition to its working capital credit facility, the Company had
outstanding at year end 1997 long term debt totalling $9,598,315 (excluding
current maturities of $1,279,188), a substantial increase from the $3,402,621
(excluding current maturities of $1,029,090) outstanding at year end 1996. Such
increase related to borrowings totalling $7,500,000 relating to the Moreau
Facility, described above. In 1996, the Company entered into a term loan in the
amount of $3,639,000 with a bank in order to purchase a formerly leased
formaldehyde plant. Outstandings under such term loan totalled $2,830,328 at
year end
-20-
<PAGE>
1997. Primarily as a result of the significant increase in funded debt by the
Company in 1997, the ratio of total liabilities to total net worth, a measure of
leverage, increased at year end 1997 to 3.55 from 1.86 at year end 1996.
Liquidity. As previously reported, the Company has a $3.5 million revolving
credit facility with two lenders, which facility matures in July 1999. In
December 1998 and February 1999, the Company was granted overlines on the
facility totalling $300,000. On December 31, 1998, outstanding loans under the
facility totalled $2,346,394, which amount represented substantially all of the
total amount available at such time based on levels of accounts receivable and
inventory on which borrowing availability is based. The credit facility provides
the Company with an important source of liquidity in addition to cash generated
from operations.
Plant start-up costs, expenditures for fixed assets, working capital
requirements related to the Moreau Facility and professional fees and settlement
costs relating to the Derivative Suit placed additional burdens on the Company's
liquidity position in 1998. These additional requirements were met by
significantly increased use of trade credit and a credit facility overline,
which supplemented drawdowns of restricted cash and cash generated from net
income and depreciation and amortization. The increased working capital
requirements associated with Moreau, as well as increased legal and accounting
expenses associated with the Derivative Suit and the sale of the Company,
continued to strain the liquidity position of the Company into the fourth
quarter of 1998, and management believes they will continue to do so in the
first half of 1999. However, management believes that the Company's existing
credit facilities and core cash flow from earnings and depreciation and
amortization will be adequate to fund the Company's short term liquidity and
working capital needs. If the Merger is not consummated, management of the
Company expects to renegotiate and restructure its credit facilities in order to
better provide for the additional working capital requirements of the Moreau
Facility. Under the Merger Agreement, the Company's ability to restructure its
credit facilities at this time is restricted.
Year 2000
There has been significant public awareness and attention paid to the Year
2000 (or "Y2K") problem, which stems from the inability of certain computerized
devices (hardware, software and equipment) to process year-dates properly after
1999 (in addition to related problems processing leap years and other dates).
Affected devices may fail or malfunction unless repaired or replaced. Although
the actual magnitude and effect of the issue cannot be reasonably determined in
advance, the Company has given it priority. In February 1998, the Company began
an analysis of the possible implications to the Company of the Year 2000 problem
and the development of a plan to prevent the problem from adversely affecting
its operations.
The Company's plan can be divided into two principal areas:
(1) Resolution of the internal aspects of the Year 2000 problem. This
area includes the effects of the Year 2000 problem on the
Company's technology, including computer hardware and software
systems, as well as computerized equipment containing programmable
logic controllers or other embedded chips ("PLCs" or "chips"). The
Company's internal technology Year 2000 plan includes:
(i) Locating, listing and prioritizing the specific technology
that is potentially subject to the Year 2000 problem
(referred to as the "inventory" phase),
(ii) Assessing the actual exposure of such technology to the
Year 2000 problem by inquiry, research, testing and other
means (the "assessment" phase),
(iii) Selecting the method necessary to resolve the Year 2000
problems that were identified, including replacement,
upgrade, repair or abandonment, and implementing the
selected resolution method (the "remediation" phase), and
-21-
<PAGE>
(iv) Testing the remediated or converted technology to
determine the efficacy of the resolutions (the "testing"
phase).
(2) Determination and control of the external aspects of the Year 2000
problem. This area includes:
(i) Assessing the risk posed by possible business interruption
or production difficulties affecting important customers
and suppliers of goods, services and essential utilities
due to Year 2000 problems affecting their technology or
business, and
(ii) Developing contingency plans to address failures by
external parties to remediate fully any Year 2000 problems
that are material to the Company. Assessment of external
parties is accomplished by written and verbal inquiry, and
by research to the extent that reliable information is
available.
To date, the Company has made progress on the internal aspects of the plan.
The majority of the Company's business operations have completed the inventory
and assessment phases. Also, management believes that approximately 80% of
required remediation has been achieved, primarily through the replacement of
certain equipment and systems. Remediation is expected to be completed by July
1, 1999, with testing of remediated or converted internal systems to continue
through calendar year 1999. The sequence and extent of testing will be
prioritized by the importance of the technology, with initial focus on two
areas:
(i) the Company's information technology, including critical computer
hardware and software systems, and
(ii) the Company's non-information technology, including PLCs embedded
in key machinery and equipment.
The Company has assessed its internal operational exposure to the failure
of PLCs. Information provided by the manufacturers of the PLCs within the
Company's machinery and equipment indicates that there do not appear to be any
PLCs that will cause material Year 2000 problems. The Company is currently
seeking technical assistance in order to test certain PLCs to confirm
manufacturers' representations regarding the absence of material Year 2000
problems. Testing of PLCs is not a routine practice, and there can be no
assurances that the Company will be able to conduct such test on PLCs or that
the tests will lead to reliable conclusions. In addition, there can be no
assurances that the Company will be able to conduct tests on all of its internal
technology, or that the tests will be fully successful in detecting Y2K problems
within the internal technology.
The Company's operations are dependent on its relationships with third
parties, including suppliers of raw materials and the Company's customers. See
Item 1., "Business -- Customers" and "-- Raw Materials and Suppliers." The
Company has begun communicating with such third parties in an effort to
determine their Year 2000 readiness. Based on preliminary discussions, such
parties have indicated that they are, or will be, Year 2000 ready. A formal
evaluation of external parties will be initiated in March, 1999, and will
continue throughout 1999. Determining the Year 2000 readiness of external
parties requires collection and appraisal of voluntary statements made or
provided by those parties, if available, together with independent factual
research. Although the Company has cooperated in the Y2K efforts of its
customers and suppliers, and will take reasonable efforts to gather information
to determine the readiness of external parties, often such information is not
provided voluntarily, is not otherwise available, or is not reliable.
In assessing the risks to the Company's business arising from the Year 2000
problem, the Company also recognizes that it is subject to operational risks
relating to the readiness of public utilities,
-22-
<PAGE>
transportation facilities, financial services providers and government operated
services. The loss of services from one or more of these entities could
interrupt or disrupt business unit operations. Furthermore, with respect to
certain fundamental services such as electricity and telecommunications, it may
be impractical to develop contingency plans (such as alternative power
generation or telecommunication methods) to mitigate the potential adverse
effects. The Year 2000 readiness of these external parties is substantially
beyond the Company's knowledge and control, and there can be no assurances that
the Company will not be adversely effected by the failure of an external party
to adequately address the Year 2000 problem.
At this time, the Company believes the most likely worst case year 2000
scenario would not have a material effect on the Company's results of
operations, liquidity and financial condition for the year ending December 31,
2000. The Company does not foresee a material loss of revenue due to the Year
2000 issue. However, this estimate is based on management's assessments of the
likelihood of occurrence of possible scenarios; the Company believes that no
entity can address the virtually unlimited possible circumstances related to
Year 2000 issues, including risks outside of the Company's market area. While
unlikely, it is acknowledged that failure by the Company to successfully
implement its Year 2000 plan, its modifications and conversions, or to
adequately access the likelihood of various events relating to the Year 2000
issue, could have a material impact on the Company's operations. Therefore, this
could potentially result in a material adverse effect on the Company's results
of operations and financial conditions.
Prior to June 30, 1999, the Company expects to develop initial contingency
plans to address situations wherein the readiness of the internal technology or
external parties is not sufficiently assured, and practical alternative
products, services or methods are available. Thereafter, as the Year 2000
approaches, the Company will monitor and update such contingency plans as are
appropriate to address any changes in the Company's year 2000 risks. The Company
currently estimates the total cost for addressing the Y2K problem will be
approximately $80,000. These costs do not include the Company's internal costs
incurred for the Y2K project, such costs being principally payroll costs for
personnel assigned to such project, as the Company does not have a tracking
system to capture these items. However, management does not believe that such
internal costs are or will be material. Also, the estimated amounts do not
include estimated costs associated with the implementation of any contingency
plans that may be developed by the Company during fiscal year 1999. The costs
associated with preparing for the Y2K problem have been and are expected to
continue to be expensed as incurred and are being funded with cash from
operations. As of December 31, 1998, the Company had spent approximately
$60,000. The Company does not expect the total cost of addressing the Y2K
problem with respect to its internal technology to be material to its
consolidated financial condition or results of operations.
The above projections of total costs to implement the Company's Year 2000
plan and estimated timetable for completion are based on management's best
estimates, which are necessarily based in part on assumptions of future events
including the continued availability of adequate resources and completion of
third party modification plans. There can be no guarantee that these estimates
will be achieved; actual results could differ from the Company's current
estimates. Specific risk factors that might cause material differences include,
but are not limited to, the availability and cost of personnel with adequate
programming skills, the availability of replacement equipment and components and
the ability to locate and correct all relevant computer codes. The inability to
control the actions and plans of vendors and suppliers, customers, government
entities and other third parties with respect to Year 2000 issues are associated
risks.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Company and its representatives may from time to time make written or
oral forward-looking statements, including statements contained in the Company's
filings with the SEC and in its reports to shareholders. Such forward-looking
statements are generally identified by phrases such as "the Company expects,"
"the Company believes" or words of similar import. These forward-looking
statements involve certain risks and uncertainties and other factors that may
cause the actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. In connection with the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, the Company is hereby
identifying important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or
-23-
<PAGE>
on behalf of the Company. Any such statement is qualified by reference to the
following cautionary statements.
The Company's formaldehyde and resin business is closely tied to the
construction and forest products industries, and is influenced by housing starts
and construction activity generally. The Company's operating performance is
sensitive to price movements in its basic raw materials, particularly methanol
and urea. The Company's operating performance is also sensitive to movements in
freight costs. The Company's raw materials, products and manufacturing processes
are subject to environmental laws and regulations and the costs associated
therewith. The availability of credit from institutional asset based lenders and
suppliers is very important to the Company. Developments in any of these areas,
which are more fully described elsewhere in this Proxy Statement, each of which
is incorporated into this section by reference, could cause the Company's
results to differ materially from the results that have been or may be projected
by or on behalf of the Company.
The Company cautions that the foregoing list of important factors is not
exclusive. Except as required by law, the Company does not undertake to update
any forward-looking statement that may be made from time to time by or on behalf
of the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See "Item 7., Management's Discussion and Analysis of Financial Condition
and Results of Operations - General - Disclosure Concerning Market Risk."
-24-
<PAGE>
Item 8. Financial Statements and Supplementary Data
Independent Auditors' Report
Board of Directors and
Shareholders
Spurlock Industries, Inc.
Waverly, Virginia
We have audited the accompanying consolidated balance sheets of Spurlock
Industries, Inc. and Subsidiary (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Spurlock Industries, Inc. and subsidiary as of December 31, 1998 and 1997, and
the results of their operations, and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ Cherry, Bekaert & Holland, L.L.P.
Richmond, Virginia
February 12, 1999
-25-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Spurlock Industries, Inc.
We have audited the accompanying consolidated balance sheets of Spurlock
Industries, Inc. as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Spurlock Industries, Inc. as of
December 31, 1996, and the results of its operations, and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Winter, Scheifley & Associates, P.C.
Winter, Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
January 17, 1997
-26-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 105,460 $ 362,685
Accounts receivable, trade, net 2,257,742 1,222,277
State income tax recoverable 10,624 40,713
Federal income tax recoverable 227,552 151,000
Accounts and notes receivable
Officers current portion 403,136 101,944
Inventories 617,610 530,183
Prepaid expenses 32,666 144,457
------------- -------------
Total current assets 3,654,790 2,552,259
------------- -------------
Property, plant and equipment,
Net of accumulated depreciation
of $6,076,617 and $4,890,414 16,438,662 12,043,300
------------- -------------
Other assets
Cash restricted - 3,889,567
Accounts and notes receivable - officers 6,675 59,122
Cash value of annuity 316,401 171,995
Deferred tax asset - 92,908
Other 487,188 591,280
Miscellaneous accounts receivable 258,990 _ -
------------- -------------
Total other assets 1,069,254 4,804,872
------------- -------------
Total assets $ 21,162,706 $ 19,401,431
============= =============
Liabilities and Stockholders' Equity
Current liabilities
Notes payable, line-of-credit $ 2,346,394 $ 1,341,622
Current portion of long-term debt 9,571,487 1,279,188
Accounts payable, trade 3,836,722 2,378,597
Accrued expenses 745,550 365,709
Accrued payroll and payroll taxes 540 -
------------- -------------
Total current liabilities 16,500,693 5,365,116
------------- -------------
Long-term liabilities
Long-term debt 274,682 9,598,315
Post retirement benefit liability 399,271 166,956
Deferred tax liability 7,100 -
Other liabilities 6,708 3,001
------------- -------------
Total long-term liabilities 687,761 9,768,272
------------- -------------
Stockholders' equity
Preferred stock, $0 par value
5,000,000 shares authorized
no shares issued and outstanding - -
Common stock. No par value
500,000,000 shares authorized
6,578,639 and 6,573,639 shares
issued and outstanding in 1998
and 1997, respectively - -
Paid in capital 4,811,564 4,808,814
Accumulated deficit (837,312) (540,771)
------------- -------------
3,974,252 4,268,043
------------- -------------
Total liabilities and stockholders' equity $ 21,162,706 $ 19,401,431
============= =============
</TABLE>
-27-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Operation
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenue
Net sales $ 27,659,786 $24,725,077 $28,643,415
Cost of sales 21,718,458 19,597,991 21,129,265
------------- ------------- -------------
5,941,328 5,127,086 7,514,150
------------- ------------- -------------
Selling, general and administrative expenses 6,310,326 4,815,638 4,414,422
-------------- ------------- -------------
Other income and (expense)
Other income 795,022 139,307 83,376
Interest expense (699,109) (627,799) (667,942)
------------- ------------- -------------
95,913 (488,492) (584,566)
------------- ------------- -------------
Income (loss) before taxes (273,085) (177,044) 2,515,162
Income tax expense (benefit) 23,456 (152,304) 1,021,487
------------- ------------- -------------
Net income (loss) $ (296,541) $ (24,740) $ 1,493,675
============= ============= =============
Per share information
Basic earnings (loss) per share $ (0.05) $ 0.00 $ 0.22
============= ============= =============
Diluted earnings (loss) per share $ (0.05) $ 0.00 $ 0.22
============= ============= =============
</TABLE>
-28-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Paid in Preferred Preferred Accumulated
Shares Capital Shares Stock Deficit
--------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 4,325,066 $ 2,528,814 1,200,000 $ 2,400,000 $ (2,009,706)
Conversion of preferred shares 2,400,000 2,400,000 (1,200,000) (2,400,000) -
Acquisition and cancellation of shares (151,427) (120,000) - - -
Net income for the year - - - - 1,493,675
--------- ------------- ----------- ------------- -------------
Balance December 31, 1996 6,573,639 4,808,814 - - (516,031)
Net loss for the year - - - - (24,740)
--------- ------------- ----------- ------------- -------------
Balance December 31, 1997 6,573,639 4,808,814 - - (540,771)
Issuance of common shares 5,000 2,750 - - -
Net loss for the year - - - - (296,541)
--------- ------------- ----------- ------------- -------------
Balance December 31, 1998 6,578,639 $ 4,811,564 - $ - $ (837,312)
========= ============= =========== ============= =============
</TABLE>
-29-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- -------------- ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (296,541) $ (24,740) $ 1,493,675
Adjustments to reconcile net income
(loss) to net cash:
Depreciation and amortization 1,245,723 973,577 751,057
Reinstatement of loan to principal holders
of equity securities (375,000) - -
Write-off of advances to a principal holder of equity securities - 51,357 -
(Increase) decrease in trade receivables (1,035,465) 224,653 420,306
(Increase) in other receivables (329,214) (182,995) -
(Increase) decrease in trading securities - - 200,000
(Increase) decrease in inventory (87,427) 11,449 54,133
(Increase) decrease in prepaid expenses 111,791 2,510 (108,843)
Increase (decrease) in deferred tax provision 100,008 (236,384) 131,946
Increase (decrease) in accounts payable
and accrued expenses 1,838,506 805,337 (380,584)
Increase in other liabilities 5,442 3,001 -
Increase in post retirement benefit 232,315 124,289 42,667
------------- -------------- ------------
Total adjustments 1,410,138 1,776,794 1,110,682
------------- -------------- ------------
Net cash provided by
Operating activities 1,785,138 1,752,054 2,604,357
Investing activities:
Purchase of fixed assets (5,641,085) (3,488,587) (1,184,369)
(Increase) decrease in cash restricted for capital expenditures 3,889,567 (3,889,567) -
Increases in cash value of annuity (144,406) - -
------------- -------------- ------------
Net cash (used in)
Investing activities (1,895,924) (7,378,154) (1,184,369)
Financing activities:
(Increase) decrease in other assets 104,092 (503,539) 2,814
Acquisition of common shares - - (120,000)
Issuance of common stock 2,750 - -
Proceeds of new borrowings 1,517,539 7,500,000 -
Repayment of loans to principal holders of equity securities 150,016 65,816 30,000
Loans to principal holders of equity securities - (46,176) (125,970)
Repayment of notes and loans (1,545,836) (1,133,388) (1,351,511)
------------- -------------- ------------
Net cash provided by (used in)
Financing activities 228,561 5,882,713 (1,564,667)
Net increase in cash and cash equivalents (257,225) 256,613 (144,679)
Beginning cash 362,685 106,072 250,751
------------- -------------- ------------
Ending cash $ 105,460 $ 362,685 $ 106,072
------------- -------------- ------------
Supplemental cash flow information
Cash paid for:
Interest expense $ 699,109 $ 621,149 $ 667,942
============= ============== ============
Income taxes $ 161,000 $ 84,080 $ 658,577
============= ============== ============
Non-cash financing and investing activities:
Acquisition of fixed assets with note payable $ - $ - $ 3,305,168
============= ============== ============
</TABLE>
-30-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of significant accounting policies
Organization and operations
Spurlock Industries, Inc. (the "Company") was originally incorporated on March
17, 1986 in Colorado as Air Resources Corporation. On January 27, 1996, Spurlock
Industries, Inc. was formed in Virginia. A merger of the two corporations was
completed on July 26, 1996. The merger was accounted for as a recapitalization
and no adjustments were made to the carrying amounts of assets and liabilities
of the combined companies. Shares of the combining companies were exchanged on a
one for one basis. The Company is engaged in the development, production, and
distribution of resins, liquid fertilizers and formaldehyde.
Principles of consolidation
The consolidated financial statements include the accounts of Spurlock
Industries, Inc. and wholly owned subsidiary Spurlock Adhesives, Inc. All
significant intercompany transactions have been eliminated. Substantially all of
the Company's revenues have been derived from the operations of Spurlock
Adhesives, Inc.
Restricted cash
Undisbursed funds generated by the Industrial Revenue Bonds were restricted to
the construction of the new formaldehyde manufacturing facility in New York
State. Disbursements were executed by the trustees upon the presentation of
approved construction draws. This project was completed, and restricted cash
disbursed, in July 1998.
Inventories
Inventory is stated at the lower of cost or market using the first in, first out
method. Finished goods include raw materials, direct labor and overhead. Raw
materials include purchase and delivery costs. Inventory consists of the
following at December 31.
1998 1997
-------------- --------------
Raw materials $ 501,062 $ 467,319
Work in process 7,698 8,028
Finished goods 108,850 54,836
-------------- --------------
$ 617,610 $ 530,183
============== ==============
Start-up and pre-operating costs
Start-up and pre-operating costs including all nonrecurring, non-capital
manufacturing and other costs, such as promotional expenses incurred in
preparing for the operation of the new facility have been expensed as incurred.
(continued)
-31-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of significant accounting policies (continued)
Deferred financing costs
Costs associated with obtaining Industrial Revenue Bond financing to construct
the new manufacturing facility in New York State, were capitalized. These costs
are to be amortized, utilizing the interest method, over the life of the
Industrial Revenue Bond, as an adjustment to interest expense.
Revenue recognition
The Company recognizes revenue on the sales of its products at the time of
shipment.
Cash and cash equivalents
Cash and cash equivalents, consist of deposits and high liquid debt instruments
with original maturities of less than 90 days.
Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts of
$55,315 and $12,981 in 1998 and 1997 respectively.
Environmental costs
The Company's business activities are monitored by state and federal
environmental agencies and the Company is required to obtain permits for the
operation of its facilities. Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate. Liabilities are recorded
when environmental assessments and or remedial efforts are probable, and the
costs can be reasonably estimated. Generally, the timing of these accruals
coincides with the completion of a feasibility study or commitment to a formal
plan of action. Environmental costs charged to operations aggregated $127,834,
$184,259, and $202,076 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Advertising
Advertising costs are charged to expense when incurred. Amounts charged to
expense were $8,889, $8,291, and $28,101 for the years ended December 31, 1998,
1997, and 1996, respectively.
(continued)
-32-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of significant accounting policies (continued)
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenue and expenses during the period. Actual results
could differ from these estimates making it reasonably possible that a change in
these estimates could occur in the near term.
Income taxes
Deferred income taxes arise from temporary differences resulting from income and
expense items (principally net operating losses, postretirement benefits, and
accelerated depreciation) reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
Reclassifications
Certain 1997 and 1996 amounts have been reclassified to conform with the 1998
presentation.
Earnings per share
Effective December 31, 1997, the Company adopted SFAS No. 128, Earnings per
Share. This statement replaces primary and fully diluted earnings per share with
basic and diluted earnings per share. Basic earnings per share excludes dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if all stock
options and other stock-based awards, as well as convertible securities, were
exercised and converted into common stock. All net income per share amounts for
all periods have been presented and, where appropriate, restated to conform to
SFAS No. 128 requirements.
Concentration of credit risk
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and payables and accruals. The
carrying amounts of these financial instruments approximates fair value because
of their short-term maturities. Financial instruments that potentially subject
the Company to a concentration of credit risk consist principally of cash and
accounts receivable, trade. During 1998 the Company did not maintain cash
deposits at financial institutions in excess of the $100,000 limit covered by
the Federal Deposit Insurance Corporation. The Company has several major
customers, the loss of any one of which could have a material negative
(continued)
-33-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of significant accounting policies (concluded)
Concentration of credit risk (concluded)
impact upon the Company. Additionally, the Company maintains a line of credit
and a significant portion of its long-term debt with two financial institutions.
The maintenance of a satisfactory relationship with these institutions is of
significant importance to the Company.
Stock-based compensation
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in the accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized for the stock options granted and employee stock purchases. The
Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting
for Stock-Based Compensation.
New accounting pronouncements
The Statement of Financial Accounting Standards No. 133 - Accounting for
Derivative Instruments and Hedging Activities
This Statement standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The statement is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999. The
Company is evaluating the potential impact of adopting SFAS No. 133 and does not
expect the adoption of SFAS No. 133 to have a material adverse impact on
financial condition or results of operation.
Note 2 - Sale of the Company
On December 18, 1998, the Company, signed an "Agreement and Plan of Merger" (the
"Agreement") with Borden Chemical, Inc., a Delaware corporation, and SII
Acquisition Company, a Virginia corporation and wholly-owned subsidiary of
Borden Chemical. The Agreement provides for the merger of SII Acquisition
Company with and into the Company. As a result, the Company will be a
wholly-owned subsidiary of Borden Chemical.
Subject to the terms and conditions of the Agreement, each issued and
outstanding share of Common Stock of the Company, will automatically be
cancelled and cease to exist and shall be converted into the right to receive a
per share amount equal to $3.40 in cash, subject to possible downward
adjustments for certain contingencies.
Borden Chemical, SII Acquisition and certain executive officers and majority
shareholders of the Company have also entered into a Voting Agreement, dated as
of December 18, 1998, pursuant to which such executive officers and majority
shareholders have agreed, among other things, to vote the shares of Common Stock
owned by them in favor of the sale. The merger awaits the completion of the
review of the merger proxy statement by the Securities and Exchange Commission
and formal approval by the stockholders. Currently, the votes in favor of the
sale represented by the Voting Agreement constitute greater than 51% of the
outstanding shares of the Company, a percentage sufficient to approve the sale.
-34-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 3 - Misappropriation of assets and restatement of financial statements
On January 23, 1998, the Company discovered that financial information regarding
payments on a note receivable from an officer/director/principal shareholder of
the Company and the payment of travel and related expenses of this individual
has been falsified to intentionally mislead management concerning their
propriety. Subsequent to this discovery, another officer/director/principal
shareholder admitted to the payment of personal expenses by the Company recorded
as equipment. An independent investigation concluded that these acts were
apparently conducted through collusion of two other employees of the Company.
Accordingly, records of the Company, and its predecessor companies, were
apparently falsified as early as 1992.
On April 10, 1998, settlement was reached regarding the personal expenses paid
by the Company, aggregating approximately $267,000. Restitution included
interest, at the cost of funds to the Company to settlement date, as well as
partial reimbursement of professional expenses. The aggregate principal amount
of restitution, at April 10, 1998, was $375,000. The principal amount of
restitution bears interest at 9.00%, payable monthly in advance, with the entire
principal amount due April 8, 2003. Although collateral and guarantees were
obtained, it was management's opinion that sufficient uncertainty existed, at
the time the settlement was reached, to recognize the recovery as received.
Upon the completion of the Agreement (See Note 2), management determined that
collectability of the recovery was assured by requiring payment from the merger
transaction.
Note 4 - Investments
Securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities. Trading securities are
recorded at fair value as a current asset with the change in fair value during
the period included in earnings. There were no investments held as trading
securities as of December 31, 1998 and 1997 or for the years ended December 31,
1998 and 1997. The Company purchased trading securities during the year ended
December 31, 1996 for cash aggregating $397,500. The Company had sales proceeds
from trading securities during the year ended December 31, 1996, amounting to
$581,167 and realized a loss for this period aggregating $16,333.
Note 5 - Property and equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
useful lives 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Land - $ 543,866 $ 219,233
Land Improvement 7-20 249,415 -
Building 15-30 6,379,321 5,440,321
Machinery and equipment 5-15 14,684,187 7,358,963
Construction in progress 5-15 168,219 2,932
Vehicles 5-7 280,976 273,596
Furniture and fixtures 5-7 209,295 161,101
----------------- -----------------
$ 22,515,279 $ 16,933,714
Less: Accumulated depreciation and amortization 6,076,617 4,890,414
----------------- -----------------
$ 16,438,662 $ 12,043,300
================= =================
</TABLE>
Depreciation charged to operations was $1,245,723, $973,577, and $751,057 for
the years ended December 31, 1998, 1997 and 1996, respectively.
-35-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 6 - Line of credit
The Company utilizes a revolving line of credit secured by accounts receivable
and inventories to provide working capital. Advances under this line of credit
bear interest at the lesser of prime + .5% or LIBOR + 2.75% (weighted average
rate of 7.49% in 1998 and 7.41% in 1997), and are limited to the lesser of
revolving $3,650,000 or 85% of eligible accounts receivable and 60% of the
inventory value. The line of credit matures in July 1999. At December 31, 1998
and 1997 advances outstanding totaled $2,346,394 and $1,341,622, respectively.
This credit facility is also subject to the same covenants as those of long-term
debt (See Note 8).
Note 7 - Advances and notes receivable for principal holders of equity
securities
Accounts and notes receivable from principal holders of equity securities
consisted of the following at December 31:
1998 1997
--------------- ---------------
Notes receivable and advances
with various interest rates $ 409,811 $ 161,066
Less: current portion 403,136 101,944
--------------- ---------------
$ 6,675 $ 59,122
=============== ===============
During 1997, the Company wrote off $51,357 in advances and notes receivable for
a principal holder of equity securities.
During 1998, a note receivable to a former officer and director for $375,000 was
reinstated. This note had not been recognized as collectable at December 31,
1997 due to uncertainty of resources to repay. The reinstatement of this note
receivable is based upon the impending completion of the sale of the Company's
stock as described in Note 2. This note was originated by the restitution
settlement dated April 10, 1998 (See Note 3).
-36-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 8 - Long-term debt
Bank Borrowing Arrangements
At December 31, 1998, the Company had agreements with two banks that have
extended credit, through lines of credit, loans and standby letters of credit,
comprising the majority of borrowings of the Company. Under these agreements, as
amended (the "Bank Loan Agreements"), borrowings under the various credit
facilities are subject to certain provisions and covenants which, among other
things, require specific levels of net worth and profitability and limit the
amount of future capital expenditures. The violation of covenants related to the
Bank Loan Agreements creates defaults under certain credit support facilities
related to the Industrial Revenue Bond for the Moreau, New York facility.
As of the above date, the Company violated the net worth and profitability
covenants of the Bank Loan Agreements. The impact of the Company's violations is
the acceleration of the long-term portion of the affected loans to current
liabilities. Management has requested forbearance from the lenders concerning
these violations, in anticipation of the sale of the Company.
Should the sale of the Company not occur, management anticipates restructuring
long-term debt, seeking outside capital or obtaining waivers of the loan
violations.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable bank, payable in monthly installments
of $6,250 plus interest at 8.0% through May 2003
secured by plant and equipment $1,400,000 $1,500,000
Industrial revenue bonds, payable in quarterly installments of
$150,000 through April 1, 2008 with a variable interest rate
remarked weekly, interest at 4.20% on December 31, 1998
collateralized by the Plant in Moreau, New York 5,700,000 6,000,000
Note payable bank payable in monthly installments of
$50,542 with interest at prime plus .5% or LIBOR plus
2.75% (7.85% at December 31, 1998) collateralized by
plant and equipment due July, 2002 2,224,107 2,830,328
Note payable bank, payable in monthly installments
of $1,832 at 12% interest, collateralized by real property
due in August, 2004 - 99,934
Note payable, supplier, payable in monthly installments
of $14,814, with interest at 8.25%, through August 1999 137,083 263,185
Note payable, bank, payable in monthly installments of
$1,334 including interest of 8.25% through August 2003 135,134 -
Note payable, vendor, payable in monthly installments of
$1,778 including interest of 9.25% through October 2003 91,218 -
Various notes payable, payable in monthly installments
of $5,808 with interest from 8% to 10% due December 1999
to October 2000 collateralized by personal property 158,628 114,116
---------- ----------
9,846,169 10,877,503
Less current portion 9,571,487 1,279,188
---------- ----------
$ 274,682 $9,598,315
========== ==========
</TABLE>
(continued)
-37-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 8 - Long-term debt (concluded)
Maturities of long-term debt are as follows:
1999 $ 9,571,487
2000 47,864
2001 28,110
2002 14,319
2003 184,389
Thereafter -
-----------------
$ 9,846,169
=================
In October 1997, the Company obtained an irrevocable letter of credit in the
amount of $6.0 million. As of December 31, 1998 this letter of credit had been
reduced to $3.1 million. The letter of credit has a term of five years and
collateralizes the Company's obligations under the Industrial Revenue Bond
financing for the New York State manufacturing facility. The fair value of this
letter of credit approximates the carrying value based on the nature of the fee
arrangement with the issuing banks.
Deferred financing costs are amortized over the life of the Industrial Revenue
Bond (ten years, based on the interest method). Amortization of deferred
financing costs aggregated $102,563 and $51,423 for 1998 and 1997, respectively.
There were no deferred financing costs amortized for 1996.
The Company capitalized interest on assets constructed for its formaldehyde
production facility in the State of New York. In 1998 and 1997 total interest
costs incurred were $930,180 and $683,481, respectively of which $231,071 and
$55,682, respectively were capitalized. Interest was not capitalized for 1996.
Note 9 - Financial instruments with off-balance-sheet risk
During 1997, the Company entered into an interest rate swap agreement ("swap")
for purposes of fixing the variable rate Industrial Revenue Bond ("IRB")
borrowing. This swap alters the interest rate characteristics of the IRB to
eliminate the interest rate sensitivity. Swaps involve the periodic exchange of
payments over the life of the agreements. Amounts received or paid on swaps are
used to manage interest rate sensitivity. At December, 31, 1998 and 1997, the
Company had one swap agreement outstanding, the net effect of which was to
effectively convert the $6.0 million variable rate IRB to a fixed rate of 4.74%
until maturity. Payments or receipts under this agreement are due monthly.
Changes in the fair value of the swap are not reflected in the accompanying
financial statements. The notional amount was $5.3 million and $6.0 million at
December 31, 1998 and 1997 respectively. The estimated fair market value of this
instrument was a liability of $127,421 and $182,921 as of December 31, 1998 and
1997, respectively.
The Company's credit exposure on this swap is limited to an event of
nonperformance by the counter parties and to an amount equal to the positive
value (if any) of the swap to the company. The Company did not require
collateral from counterparties on its existing agreement. The Company actively
monitors the credit ratings of counterparties and anticipates performance by the
counterparties with whom it transacted the swap.
-38-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 10 - Related party transactions
During September 1994, a shareholder of the Company entered into an agreement to
purchase 533,333 shares of preferred stock. During January 1996 this shareholder
converted these shares and 666,667 additional preferred shares, aggregating 1.2
million shares of preferred stock, into 2.4 million shares of common stock.
In July 1996, the Company entered into an employment agreement with its founder
and former chief executive officer to serve as its vice president for product
development through August 31, 1999. The contract provides for an annual salary
of $180,000 during the contract term. The contract also provides for post
retirement benefit payments of $100,000 per year for a five-year period
beginning August 31, 1999. The Company intends to fund the post retirement
payments currently by depositing monthly payments of approximately $12,000 into
an interest bearing account.
The estimated payment assumes an earned interest rate of 5% per year on the
deposit amounts and a discount rate of 8% per year to arrive at the net present
value of the annual retirement benefit due at August 31, 1999. The Company has
recorded $232,319, $124,284 and $42,667 of expense for post retirement benefits
for the years ended December 31, 1998, 1997 and 1996, respectively. The Company
estimates that its net commitment for the period from January 1, 1999 to August
31, 1999 pursuant to this contract will be approximately $220,729 for both
salary and post retirement benefits. The Company has invested in annuities to
fund the post retirement benefit. The cash value of these annuities aggregated
$316,401 and $171,995 as of December 31, 1998 and 1997, respectively.
Note 11 - Description of leasing arrangements
Lease Commitments
The Company leases equipment under agreements, which are classified as capital
leases. These leases generally provide that all expenses related to the
properties are to be paid by the lessee. The leases all expire within ten years.
Rents under these agreements amounted to $18,150 in 1998. There were no such
payments for 1997 or 1996. All of the equipment leases have purchase options at
the end of the original lease term. Assets under capital leases are included in
the consolidated balance sheets as follows:
1998
----
Equipment $76,435
Accumulated amortization (9,494)
$66,941
In addition, the Company rents equipment and a facility under operating leases.
Payments made under these leases aggregated $259,842 in 1998 and $6,690 in 1997
and 1996.
(continued)
-39-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 11 - Description of leasing arrangements (concluded)
Future minimum payments, by year and in the aggregate, under the aforementioned
leases and other noncancellable operating leases with initial or remaining terms
in excess of one year as of December 31, 1998, are as follows:
Capital Operating
Years Ending Leases Leases
1999 $ 30,039 $ 553,668
2000 22,988 553,668
2001 14,240 553,668
2002 0 553,668
2003 0 553,668
Later years 0 2,537,645
------------- -------------
Total minimum lease payments $ 67,267 $ 4,819,929
=============
Less amount representing interest (9,471)
-------------
Present value of net minimum
Lease payments 57,796
Less current portion (5,716)
$ 52,080
=============
Lease related expenses are as follows:
Years Ended 1998 1997
------------- -------------
Capital lease amortization $ 9,494 $ 578
Capital lease interest expense 3,628 354
Operating lease rentals
(excluding month-to-month
rents) 235,155 6,690
Note 12 - Income taxes
Deferred income taxes arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse.
(continued)
-40-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 12 - Income taxes (concluded)
Deferred tax assets and liabilities at December 31, 1998, 1997 and 1996 resulted
from the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Deferred tax assets
Operating loss carry forward $ 83,138 $ 69,682 $ -
Post retirement liability 151,723 63,925 14,507
Deferred tax liabilities
Accelerated depreciation 246,973 40,699 157,983
------------ ------------- ------------
Net deferred tax asset (liability) $ (7,100) $ 92,908 $ 143,476
============ ============= ============
</TABLE>
The provision for income taxes expense (benefit) at December 31, 1998, 1997, and
1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Current $ (76,552) $ 6,329 $ 987,910
Deferred 100,008 (158,633) 26,323
------------ ------------- ------------
$ 23,456 $ (152,304) $ 1,021,487
============ ============= ============
</TABLE>
A reconciliation of the federal taxes at statutory rates to the tax provision
for the years ended December 31, 1998, 1997, and
1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Federal statutory rate expense (benefit) $ (92,849) $ (60,195) $ 855,155
State income taxes (10,922) (10,623) 149,415
Nondeductible Expenses 95,000 - -
Other 32,227 (81,486) 16,917
------------ ------------- ------------
Provision for income taxes expense (benefit) $ 23,456 $ (152,304) $ 1,021,487
============ ============= ============
</TABLE>
Note 13 - Stockholders' equity
During 1995 the Company adopted a stock option plan for the benefit of certain
employees, officers and directors. The number of common shares reserved under
the plan is 500,000. The option price on the grant date shall not be less than
the fair market value on such date provided that an owner of more than 10% of
the common stock shall not have an option granted at a price less than 110% of
the fair market value on the date of the grant. During 1995, the company issued
210,000 options exercisable at $0.50 per share under the plan which expire
100,000 in 2000 and 110,000 in 2005. During June, 1996, the Company granted
additional options under the plan for 75,000 shares exercisable at $0.55 for a
ten year period. All shares were vested when granted. No options were granted
for the years ended December 31, 1998 and 1997.
(continued)
-41-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 13 - Stockholders' equity (concluded)
Following is a summary of the transactions in the plan:
<TABLE>
<CAPTION>
Weighted
Shares Average Price
----------------- ----------------
<S> <C> <C>
Balance, December 31, 1995 210,000 $ 0.50
Granted 75,000 0.55
Canceled - -
Exercised - -
----------------- ----------------
Balance, December 31, 1996 and 1997 285,000 0.51
=================
Granted - -
Canceled 75,000 0.50
Exercised 5,000 0.55
----------------- ----------------
Balance, December 31, 1998 205,000 $ 0.51
=================
Options available at December 31, 1998 290,000
=================
</TABLE>
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rate of 6.87%; dividend yields of 0%; volatility factor of 2.06%; and a
weighted-average expected life of the option of 6.00 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is calculated as of the date of grant. The Company's pro forma information
follows:
1998 1997 1996
---- ---- ----
Pro Forma net income (loss) $ (296,541) $ (24,740) $ 1,474,960
Pro forma earnings per share
Basic $ (0.05) $ 0.00 $ 0.22
Diluted $ (0.05) $ 0.00 $ 0.21
During January 1996 the holder of the 1,200,000 preferred shares converted these
shares into 2,400,000 shares of common stock. In connection with the
recapitalization, the Company agreed to reacquire 80,000 shares of the Air
Resources Corporation common stock from a dissenting shareholder for $120,000 in
cash. Also during 1996, the Company acquired 71,427 shares of common stock of
Air Resources from a former officer.
-42-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 14 - Earnings per share
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted earnings per share ("EPS") computations:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1998 1997 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) available to shareholders $ (296,541) $ (24,740) $ 1,493,675
================= ================= =================
Denominator:
Weighted average shares outstanding 6,574,899 6,573,639 6,711,733
----------------- ---------------- -----------------
Basic EPS weighted average shares outstanding 6,574,899 6,573,639 6,711,733
Effect of dilutive securities:
Incremental shares attributable to the
Stock Option Plan 130,582 10,509 210,900
----------------- ----------------- -----------------
Diluted EPS weighted average shares outstanding 6,705,481 6,584,148 6,922,633
================= ================= =================
Basic earnings per share $ (0.05) $ 0.00 $ 0.22
================= ================= =================
Diluted earnings per share $ (0.05) $ 0.00 $ 0.22
================= ================= =================
</TABLE>
Note 15 - Sales to major customers and concentration of credit risk
The Company, whose customers produce raw materials used in the construction
industry, made sales in excess of 10% of its gross revenues for the years ended
December 31, 1998, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
Receivable
Customer Sales % at 12/31
- -------- ----------------------------------------------------------------
<S> <C> <C> <C>
1998
International Paper $ 3,737,167 14% $ 108,029
Union Camp 2,699,956 10 37,159
Schenectady 3,013,006 11 233,567
Willamette 4,596,978 17 534,327
1997
International Paper $ 4,423,800 17% $ 158,681
Union Camp 3,919,989 15 170,026
Schenectady 3,869,340 15 71,964
Willamette 4,715,645 19 113,564
1996
International Paper $ 4,537,102 16% $ 108,000
Union Camp 3,865,062 13 162,000
Schenectady 3,521,857 12 57,000
Willamette 7,478,831 26 424,000
</TABLE>
-43-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 16 - Commitments and contingencies
The Company purchases substantially all of its three raw material components for
its resin, formaldehyde, and fertilizer operations from four suppliers. The
Company purchased $12,801,148, $13,488,767, and $15,158,111 from these suppliers
during 1998, 1997 and 1996 and had a balance due to them of $1,500,931 and
$1,742,592 at December 31, 1998 and 1997. The Company believes that alternate
sources for its raw materials are readily available.
At the end of April 1997, a shareholder's derivative suit was filed against the
Company and certain current and former officers and directors of the Company in
state District Court in Denver, Colorado by seven shareholders. The suit, which
was subsequently moved to the United States District Court for the District of
Colorado, alleged that the defendants engaged in various activities that
breached their fiduciary duties to the plaintiffs and/or violated provisions of
Colorado law applicable to domestic corporations.
In response to the suit, the Board of Directors appointed a Special Litigation
Committee, composed of two outside directors not named as defendants, to
investigate the allegations and determine whether maintenance of the derivative
proceeding was in the best interests of the Company. The Special Litigation
Committee determined in an initial report delivered to the Court in October 1997
that maintenance of the suit was not in the best interests of the Company.
Subsequently, in response to the winter 1998 discovery and investigation of the
defalcations by two of the Company's officers, and after the receipt of full
restitution from one such officer and partial restitution plus a judgment and
secured repayment agreement for the remainder on behalf of the other, the
Special Litigation Committee filed with the Court on April 13, 1998 a supplement
to its October report and again concluded that maintenance of the derivative
suit was not in the best interests of the Company.
On July 2, 1998, at a hearing on a Motion for Summary Judgment filed by the
Company, the Court declined to dismiss the derivative suit and referred the
matter to a federal magistrate for a settlement conference. Pursuant to such
initiative, the named parties reached a proposed Stipulation and Settlement
Agreement (the "Settlement Agreement") involving the dismissal of all of the
derivative claims. After hearing evidence and the arguments of counsel, the
Court approved the Settlement Agreement and entered, as of January 27, 1999, the
Final Order and Judgment of Dismissal with Prejudice requested by the parties.
The Settlement Agreement provides, among other things, for delivery or payment,
as the case may be, by the Company to the plaintiffs of (i) 50,000 shares of
newly issued Company common stock and $75,000 cash in recognition of the
benefits conferred upon the Company as a result of the investigation commenced
as a result of the derivative suit, and (ii) $22,500 cash representing
reimbursement of the plaintiff's legal fees incurred in connection with the
suit. At December 31, 1998, accrued settlement expenses aggregating $247,500 had
been recognized as a result of these actions.
The Company, as a result of the above litigation, has claims against its
insurance carrier for Directors and Officers insurance aggregating approximately
$374,000. Although formal agreements have not been reached with the carrier,
management's estimate of probable recovery against these claims aggregating
$97,500 has been accrued.
The Company enters into multi-year purchase contracts for a minimum supply of
methanol and urea. These minimums must be met annually and are generally
exceeded each year.
-44-
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 17 - Employee Benefit Plan
The Company maintains a defined contribution employee benefit plan under section
401(k) of the Internal Revenue Code for eligible employees. In order for an
employee to be considered eligible they must have been employed by the company
for three months. An employee will be considered fully vested after seven years
of employment. The contributions are determined as a percentage of each
participating employee's compensation. The Company contributes 3% of the
employee's salary. In addition, the Company will match employee contribution
$0.50 on the $1.00 up to 3% of the employee's salary. Contributions for 1998,
1997, and 1996 were $139,312, $166,282, and $132,476, respectively.
Note 18 - Disclosures about Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------ -----------------------------------
Carrying Est. Fair Carrying Est. Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial Assets
Cash $ 105,460 $ 105,460 $ 362,685 $ 362,685
Accounts receivable 2,516,733 2,516,733 1,222,277 1,222,277
Notes receivable 409,811 409,811 161,066 161,066
Cash value of annuity 316,401 316,401 171,995 171,995
Financial liabilities
Notes Payable 2,346,394 2,346,394 1,341,622 1,341,622
Long term debt 9,846,169 9,846,169 9,598,315 9,598,315
Post retirement benefit liability 399,271 399,271 166,956 166,956
Financial instruments with off-balance sheet risk
Interest rate swap agreement - (127,421) - (182,921)
</TABLE>
-45-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On February 17, 1998, the Board of Directors approved the replacement
of James E. Scheifley & Associates, P.C. (formerly Winter, Scheifley &
Associates, P.C.) as the independent accountant chosen to audit the Company's
financial statements and approved the appointment of Cherry, Bekaert & Holland,
L.L.P. as the Company's independent accountant for the 1998 and 1997 fiscal
years. The Company has previously disclosed the appointment to the Commission on
a Current Report on Form 8-K dated February 17, 1998.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors. The business experience of the directors of the Company for
the past five years is summarized below.
PHILLIP S. SUMPTER, 59, has been Chairman of the Board of Directors and
Chief Executive Officer of both the Company and Spurlock Adhesives since
February 11, 1998. Mr. Sumpter has served as a director of the Company since
December 1995 and was its Executive Vice President from March 1996 to February
11, 1998. He was a director of Air Resources from December 1995 to July 1996. In
March 1996, he was appointed Executive Vice President of Spurlock Adhesives, a
subsidiary of the Company and Air Resources. He was in private practice as a
business consultant from June 1993 to March 1996. He has also served as Director
of Marketing of Monadnock Lifetime Products, Inc., a manufacturer of police
protection equipment, since January 1995.
HAROLD N. SPURLOCK, 74, has served as a director of the Company since
January 1996. Mr. Spurlock was Chairman of the Board of Directors and Chief
Executive Officer of the Company from January 1996 to August 1996. He served as
Chairman of the Board of Directors and Chief Executive Officer of Air Resources
from August 1992 to July 1996 and as President from July 1994 to July 1996. He
also served as Chairman of the Board of Spurlock Adhesives, which he founded,
from November 1989 until August 1996. In August 1996, Mr. Spurlock became a Vice
President of Spurlock Adhesives in charge of product development.
RAYMOND G. TUTTLE, 72, has served as a director of the Company since
January 1997. Mr. Tuttle has been in private practice as a commission salesman
of structural steel since 1995. Mr. Tuttle has served as Chairman of the Board
of Standard Supplies Inc., a manufacturer of fabricated steel located in
Rockville, Maryland, and as General Manager for approximately the past 13 years.
He also served as a member of the Board of Directors of Devlin Lumber, a lumber
distributor.
GLEN S. WHITWER, 54, has served as a director of the Company since
August 1996, and has been a principal of Whitwer & Company, Inc., a management
consulting firm located in Kensington, Maryland, since September 1994. He was
co-owner of Quinn, Whitwer & Co., Inc., a business consultant located in
Bethesda, Maryland, from July 1986 to September 1994.
KIRK J. PASSOPULO, 44, has served as a director of the Company since
October 1998. He has served as Corporate Secretary and Director of Information
Systems & Environmental Affairs of both the Company and Spurlock Adhesives since
February 1998. From 1993 to 1998, Mr. Passopulo served as Plant Manager of
Spurlock Adhesives. Previously, Mr. Passopulo served the Company in a number of
positions subsequent to joining it in 1976.
LANCE K. HOBOY, 45, has served as a director of the Company since
September 1998. He previously held positions as a director and Vice President of
Air Resources from April 1992 until June
-46-
<PAGE>
1993. From December 1993 until October 1994, he served as a Merger and
Acquisitions Analyst with Schwan's Sales Enterprises, a frozen food manufacturer
and marketing concern. From October 1994 until the present, he has served as the
Managing Director of Schwan's Food International, also a frozen food
manufacturer and marketing concern, headquartered in Marshall, Minnesota. From
July 1998 until December 1998, he served as a director of Foodsline, LTD., a
Japanese food distributor. Since March 1998 he has served as a director of
Schwan's Korea, a Korean food distributor.
Executive Officers. The business experience of Phillip S. Sumpter, the
Chairman and Chief Executive Officer of the Company, Kirk J. Passopulo,
Corporate Secretary and Director of Information Systems and Environmental
Affairs, and Harold N. Spurlock, Vice President of Spurlock Adhesives, is
presented above. The business experience for the past five years for the
remaining executive officers is summarized below.
IRVINE R. SPURLOCK, 45, has served as President of the Company since
August 1996, and as President of Spurlock Adhesives since 1989. He had
previously served as Chairman of the Board of Directors and Chief Executive
Officer of the Company since August 1996, as a director of the Company since
January 1996, Chairman of the Board of Directors and Chief Executive Officer of
Spurlock Adhesives since August 1996, and as a Director of Spurlock Adhesives
since 1989. On February 11, 1998, Mr. Spurlock resigned as the Chairman of the
Board and Chief Executive Officer, and as a director, of both the Company and
Spurlock Adhesives.
LAWRENCE C. BIRKHOLZ, 60, has served as Controller of the Company and
Spurlock Adhesives since February 1998. Mr. Birkholz previously served as
Controller-Treasurer of UCB Chemicals from 1985 to 1994, and served in the same
capacity at Paramount Industries, a bedding manufacturer, from 1995 to 1996. He
also served as Chief Financial Officer for Burger Busters, Inc. from 1996 to
1997.
JOHN D. FITZGERALD, JR., 56, has served as Director of Sales and
Marketing of Spurlock Adhesives since April 1, 1998. Mr. Fitzgerald previously
served as Senior Project Planner with Union Camp Corporation, a paper and wood
products corporation, from November 1995 until March 1998, where he was
responsible for new products and technical transfers. Prior to that, he served
as a Plant Manager at Union Camp from October 1990 until November 1995.
Family Relationships. There are no family relationships between any
director and executive officer, except that Irvine R. Spurlock, President, is
the son of Harold N. Spurlock, Director.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires the Company's
directors and executive officers and persons who beneficially own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership of Common Stock with the Securities and Exchange
Commission (the "Commission"). Such persons are required by Commission
regulation to furnish the Company with copies of all Section 16(a) forms that
they file.
To the Company's knowledge, based solely upon a review of the copies of
such reports furnished to the Company, the Company believes that applicable
Section 16(a) filing requirements were satisfied for events and transactions
that occurred in 1998.
Item 11. Executive Compensation
The following table summarizes the compensation paid or accrued to the
Chief Executive Officer of the Company and its other most highly paid executive
officers (the "Named Executive Officers") for the last fiscal year in all
capacities in which they served the Company.
-47-
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Award
------------------- -----
Securities
Name and Other Annual Underlying
Principal Position Year Salary Bonus Compensation Options
------------------ ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Phillip S. Sumpter, Chairman and 1998 $187,151 -- (3) --
Chief Executive Officer (1) 1997 $180,000 -- (3) --
1996 (2) $141,942 -- (3) 50,000 (4)
Irvine R. Spurlock, President (5) 1998 $185,701 -- (3) --
1997 $186,725 -- (3) --
1996 $179,880 -- (3) --
Harold N. Spurlock, Sr. Vice 1998 $180,986 $ 50,000 (3) --
President of Spurlock Adhesives 1997 $180,000 $ 50,000 (3) --
1996 $170,130 $ 50,000 (3) --
</TABLE>
__________________________
(1) Mr. Sumpter was elected Chairman of the Board and Chief Executive
Officer on February 11, 1998. During the fiscal year ended December 31,
1997 and until February 11, 1998, he served as Executive Vice President
and Chief Financial Officer.
(2) Represents compensation for Mr. Sumpter's employment with the Company
beginning April 1, 1996.
(3) The value of perquisites and other personal benefits did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus shown in
the table.
(4) Represents shares of Air Resources' common stock. As of July 26, 1996,
these options were automatically converted to options to purchase
shares of Common Stock.
(5) Irvine Spurlock served as Chairman of the Board, President and Chief
Executive Officer during the fiscal year ended December 31, 1997 and
until February 11, 1998. On February 11, 1998, he resigned as Chairman
of the Board and Chief Executive Officer but retained his title as
President.
The executive officers of the Company participate in other benefit
plans provided to all full-time employees of the Company who meet eligibility
requirements, including group life insurance, hospitalization and major medical
insurance.
Option Grants, Exercises and Holdings. The Company did not grant any
options to the Named Executive Officers named in the Summary Compensation Table
during the fiscal year ended December 31, 1998. In addition, no options were
exercised by any of the Named Executive Officers of the Company during the
fiscal year ended December 31, 1998.
The following table sets forth information with respect to unexercised
options held by the Named Executive Officers as of December 31, 1998:
-48-
<PAGE>
Fiscal Year End Options
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year End at Fiscal Year End (1)
--------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Phillip S. Sumpter 50,000 - $122,500 -
Irvine R. Spurlock 50,000 - $125,000 -
</TABLE>
_______________________
(1) The value of unexercised in-the-money options at fiscal year end was
calculated by determining the difference between the fair market value
of the Company's Common Stock underlying the options on December 31,
1998 per share ($3.00, closing sales price on the OTC Bulletin Board)
and the exercise price of the options ($0.50 for Mr. Spurlock and $0.55
for Mr. Sumpter).
Compensation of Directors. The Company pays each outside director a
quarterly retainer of $3,000, plus $500 per meeting. Directors who are also
employees do not receive any compensation for their service as directors.
In May 1997, the Company created a Special Litigation Committee,
consisting of Messrs. Tuttle and Whitwer, to investigate the allegations
contained in the Derivative Suit filed against the Company and to determine
whether maintenance of the derivative proceeding was in the best interests of
the Company. Mr. Tuttle was paid $2,857.49 for his service on the Special
Litigation Committee in 1998. Mr. Whitwer was paid $27,516.07 for his service on
the Special Litigation Committee in 1998, and, at Mr. Whitwer's request, the
Company paid his compensation directly to Whitwer & Company, Inc., a management
consulting firm owned by Mr. Whitwer. For further information on the Special
Litigation Committee and the Derivative Suit, see Item 3., "Legal Proceedings"
above.
Employment Agreements
Phillip S. Sumpter. The Company, Spurlock Adhesives and Mr. Sumpter
entered into an employment agreement in 1998 that provides for his employment as
Chairman of the Board of Directors and Chief Executive Officer of the Company
and Spurlock Adhesives. The term of the agreement commenced on April 1, 1998 and
will end on March 31, 2001, when it will automatically renew for successive
terms of one year each unless it is terminated or not renewed by any party.
Under the agreement, Mr. Sumpter is entitled to receive annual base compensation
of $190,000, subject to annual adjustments by the Company. If the agreement is
terminated by the Company and Spurlock Adhesives without cause (as provided in
the agreement), Mr. Sumpter will continue to receive his base compensation
through the earlier of the last date of the remaining term of the agreement, the
date of his death or the date that is 18 months after such termination. If the
agreement is terminated by Mr. Sumpter with good reason (as provided in the
agreement), Mr. Sumpter will continue to receive his base compensation through
the earlier of the last date of the remaining term of the agreement, the date of
his death or the date that is 12 months after such termination. In the event of
a change of control of the Company and Spurlock Adhesives (as provided in the
agreement), Mr. Sumpter will have the option to terminate his employment and
will be entitled to receive a lump sum payment equal to one and one half times
his total compensation under the agreement.
The agreement requires Mr. Sumpter to keep in confidence certain trade
secrets and confidential information of the Company and Spurlock Adhesives
during the term of his employment and for a period of
-49-
<PAGE>
five years thereafter. Mr. Sumpter has further agreed not to remove or retain
any documents of Spurlock Adhesives. Also, for so long as Mr. Sumpter is
employed by the Company and Spurlock Adhesives and as long as he is receiving
any compensation under the agreement, he has agreed not to compete with the
Company and Spurlock Adhesives. In connection therewith, Mr. Sumpter has also
agreed in the agreement not to solicit employees of the Company and Spurlock
Adhesives for a period of 12 months following termination of his employment for
any reason.
Harold N. Spurlock. Pursuant to an Agreement and Plan of Reorganization
dated April 22, 1992 (the "Spurlock Adhesives Agreement"), Air Resources, among
other things, acquired all of the capital stock of Spurlock Adhesives from
Harold Spurlock. The Spurlock Adhesives Agreement required Air Resources to
purchase all of Harold Spurlock's shares of Air Resources' common stock at his
request upon the termination of his employment by Air Resources. The per share
purchase price set by the Spurlock Adhesives Agreement was the highest market
bid price at which such shares have traded in the preceding twelve months. The
Spurlock Adhesives Agreement also provided for Air Resources to purchase all of
Harold Spurlock's shares of Air Resources' common stock upon his death at the
request of his heirs upon mutually agreeable terms. These provisions of the
Spurlock Adhesives Agreement relating to Air Resources' obligations to purchase
Harold Spurlock's shares were terminated by mutual agreement effective April 15,
1996, without compensation to Harold Spurlock.
On August 21, 1996, Harold Spurlock and the Company entered into a
certain Employment and Retirement Benefit Agreement (the "Employment Agreement")
which provides, among other things, for Harold Spurlock's employment and certain
retirement benefits. Pursuant to the Employment Agreement, Harold Spurlock has
agreed to serve as vice president for product development, and as a member of
the Company's Board of Directors, until August 31, 1999.
For his services, Harold Spurlock will receive under the Employment
Agreement a base salary of $180,000 per year, reimbursement of expenses in
accordance with the general policies of Spurlock Adhesives, and such additional
or special compensation as the Board of Directors of Spurlock Adhesives may
determine from time to time. Harold Spurlock will not receive any additional
compensation for service on the Company's Board of Directors.
The Employment Agreement provides that Harold Spurlock's employment
with Spurlock Adhesives will be terminated by reason of his death or permanent
disability, by Harold Spurlock upon 30 days notice in writing, or by Spurlock
Adhesives with cause. "Cause" is deemed to exist under the Employment Agreement
if Harold Spurlock (i) willfully refuses to perform services thereunder, (ii)
materially breaches the provisions thereof relating to trade secrets, and
confidential information, retention of documents, and noncompetition, (iii)
engages in acts of dishonesty or fraud, or (iv) engages in other serious
misconduct. If Harold Spurlock's employment with Spurlock Adhesives terminates
for cause, or due to death, permanent disability or voluntary termination, any
portion of his fixed salary, which is earned but unpaid as of the date of such
termination shall be paid to him, or his designated beneficiary in the event of
death.
The Employment Agreement provides for a retirement benefit equal to
$100,000 per year to be received by Harold Spurlock upon his retirement from
employment at or after August 31, 1999, or permanent disability prior to such
date, for a period of five years. In the event of Harold Spurlock's death prior
to or after such date, Harold Spurlock's wife would receive such benefit during
such five year period. Any benefit payable to Harold Spurlock's wife would cease
upon her death. Neither Harold Spurlock nor his wife would be entitled to any
retirement or death benefit under the Employment Agreement in the event that he
voluntarily terminated his employment with Spurlock Adhesives prior to August
31, 1999 without "good reason." Under the Employment Agreement, "good reason" is
deemed to exist if, and only if:
(a) Spurlock Adhesives generally fails to timely pay the amounts and
benefits provided to Harold Spurlock under the Employment Agreement;
-50-
<PAGE>
(b) the assignment to Harold Spurlock of duties materially inconsistent
with and inferior to Harold Spurlock's position, duties and responsibilities and
status as a vice president; or
(c) the transfer of Harold Spurlock's place of employment further than
30 miles beyond the limits of Petersburg, Virginia without his prior consent.
The Employment Agreement requires Harold Spurlock to keep in confidence
certain trade secrets and confidential information of Spurlock Adhesives during
the term of his employment and for a period of five years thereafter. Harold
Spurlock has further agreed not to remove or retain any documents of Spurlock
Adhesives. Also, for so long as Harold Spurlock is employed by Spurlock
Adhesives and as long as he is receiving retirement benefits, he has agreed not
to compete with Spurlock Adhesives. In connection therewith, Harold Spurlock has
also agreed in the Employment Agreement not to solicit employees of Spurlock
Adhesives for a period of 12 months following termination of his employment for
any reason.
Bonus. On June 11, 1996, the Board of Directors of Spurlock Adhesives
resolved to pay a bonus to Harold Spurlock in the amount of $150,000 to reward
his past performance to Spurlock Adhesives, including its favorable operating
performance in 1995 and year-to-date 1996. Such bonus was to be paid upon the
effectiveness of a new employment contract (described above), September 1, 1996.
Subsequently, Spurlock Adhesives and Harold Spurlock agreed, in order to assist
the Company in managing its liquidity position, that such bonus be paid over the
next three years at $50,000 per year. The 1996 payment was made in December
1996. The 1997 and 1998 payments were paid to Harold Spurlock periodically as an
addition to his salary under the Employment Agreement described above.
Indemnification Agreements. On December 21, 1995, Air Resources entered
into an Indemnification Agreement with Phillip S. Sumpter upon his appointment
to the Board of Directors. The Company succeeded to and assumed all the rights
and obligations of Air Resources under the Indemnification Agreement, which was
subsequently superseded by a new Indemnification Agreement between such parties
dated January 30, 1997. Similar Indemnification Agreements were entered into
between the Company and Glen S. Whitwer, Raymond G. Tuttle on September 19,
1996, January 30, 1997, respectively, and Lance K. Hoboy and Kirk J. Passopulo,
on September 21, 1998. Such agreements provide for the indemnification of such
directors against claims, losses, liabilities, damages, costs and expenses that
each may suffer as a result of his service as a director of the Company, to the
full extent that such indemnification is permitted and not prohibited by
applicable federal or state law, including securities law, or the Articles of
Incorporation of the Company.
Compensation Committee Interlocks and Insider Participation. Prior to
November 20 1997, executive compensation was examined and approved by the entire
Board of Directors. On November 20, 1997, the Board of Directors created a
compensation committee, consisting of the outside directors, Messrs. Tuttle and
Whitwer. Executive compensation is now examined and approved by the Compensation
Committee, which then makes recommendations to the Board of Directors. The
entire Board of Directors must approve executive compensation. For the fiscal
year ended December 31, 1998, the Board of Directors included the following
officers and employees of the Company and/or Spurlock Adhesives, who
participated in deliberations of the Board of Directors concerning executive
officer compensation: Harold N. Spurlock, Irvine R. Spurlock and Phillip S.
Sumpter.
-51-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 11, 1999 by (a) each director
of the Company, (b) each of the most highly compensated executive officers of
the Company (the "Named Executive Officers"), (c) each person who is known to
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock, and (d) all current directors and executive officers, as a
group. For the purposes of the following table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3 under the Exchange
Act, under which, in general, a person is deemed to be a beneficial owner of a
security if he or she has or shares the power to vote or direct the voting of
the security or the power to dispose or direct disposition of the security, or
if he or she has the right to acquire beneficial ownership of the security
within 60 days. Except as otherwise indicated (i) each shareholder identified in
the table possesses sole voting and investment power with respect to his shares,
and (ii) the mailing address of each individual is Spurlock Industries, Inc.,
125 Bank Street, Waverly, Virginia 23890.
<TABLE>
<CAPTION>
Name and Address of Common Stock
Beneficial Owner Beneficially Owned Percent of Class*
- ---------------- ------------------ -----------------
<S> <C> <C>
Phillip S. Sumpter (1) 80,000 1.2
Irvine R. Spurlock (2)(3)(4) 3,184,800 47.7
Harold N. Spurlock, Sr. (2)(5) 3,420,800 51.6
Kirk J. Passopulo (6) 25,000 0.4
Lance K. Hoboy (7) 120,000 1.8
Raymond G. Tuttle 0 0
Glen S. Whitwer 0 0
Borden Chemical, Inc. Borden Chemical Holdings, 3,470,800 52.4
Inc., BW Holdings, LLC, SII Acquisition
Company, Whitehall Associates, LP, KKR
Associates (8)
180 East Broad Street
Columbus, Ohio 43215
Lee Rasmussen 621,283 9.4
14945 E. Radcliffe Drive
Aurora, CO 80015
Executive officers and 3,715,800 55.0
directors as a group (eight persons)
</TABLE>
___________________________
*Based on 6,628,639 shares of Common Stock outstanding on March 11, 1999.
(1) Includes options to purchase 50,000 shares of Common Stock at $.55 per
share pursuant to the 1995 Stock Incentive Plan and 30,000 shares owned
by Mr. Sumpter's spouse.
(2) Includes beneficial ownership of 3,114,800 shares held by the Spurlock
Family Limited Partnership, which has a mailing address identical to
that of Irvine R. Spurlock. The general partner of the Spurlock Family
Limited Partnership is the Spurlock Family Corporation, control of which
at is held by Harold N. Spurlock, Sr. and Irvine R. Spurlock.
(3) Pursuant to an agreement between Lloyd B. Putman, H. Norman Spurlock,
Jr. and Irvine R. Spurlock, dated January 12, 1996, Irvine and Norman
Spurlock each purchased 507,400 shares of Air Resources' common stock
from Mr. Putman in consideration of a joint promissory note due in
installments ending May 2000. In accordance with the stock purchase
agreement, the shares purchased have been pledged as security for the
promissory note, but Messrs. Spurlock retained the right to vote their
respective shares until an event of default thereunder. Irvine and
Norman Spurlock transferred all such shares to the Spurlock Family
Limited Partnership in 1996. Effective April 8, 1998, Norman Spurlock
resigned as an officer and a director of, and relinquished all interest
in, the Partnership's general partner, the Spurlock Family Corporation.
-52-
<PAGE>
(4) Includes options to purchase 50,000 shares of Common Stock at $.50 per
share pursuant to the 1995 Stock Incentive Plan and 20,000 shares of
Common Stock owned as trustee of the Irvine R. Spurlock Declaration of
Living Trust (the "I. Spurlock Trust").
(5) Includes 306,000 shares of Common Stock held as trustee of the Harold N.
Spurlock, Sr. Declaration of Living Trust dated December 17, 1998 (the
"H. Spurlock Trust").
(6) Includes options to purchase 25,000 shares of Common Stock at $.50 per
share pursuant to the 1995 Stock Incentive Plan. The options held by Mr.
Passopulo expire May 15, 2005.
(7) Includes 120,000 shares of Common Stock owned by Mr. Hoboy's spouse.
(8) Pursuant to the Voting Agreement, the listed persons have acquired a
beneficial interest in the following voting securities of Company:
3,114,800 shares of Common Stock held by the Spurlock Family Limited
Partnership, 30,000 shares of Common Stock held by Phillip S. and
Katherine G. Sumpter, 20,000 shares of Common Stock held by the I.
Spurlock Trust and 306,000 shares of Common Stock held by the H.
Spurlock Trust. See Item 1., "Business -- Merger."
Changes in Control. As previously reported, on December 18, 1998, the
Company entered into the Merger Agreement with Borden Chemical and Acquisition.
Concurrently therewith, certain executive officers and majority shareholders of
the Company representing 52.4% of the shares of the Company's Common Stock
outstanding as of March 11, 1999 entered into the Voting Agreement whereby,
among other things, they agreed to vote their shares in favor of the Merger
Agreement. Consummation of the Merger would result in the Company becoming a
wholly owned subsidiary of Borden Chemical, thereby effecting a change in
control of the Company.
Item 13. Certain Relationships and Related Transactions
Special Litigation Committee
In May 1997, the Company created a Special Litigation Committee,
consisting of Messrs. Tuttle and Whitwer, to investigate the allegations
contained in the Derivative Suit and to determine whether maintenance of the
derivative proceeding was in the best interests of the Company. Mr. Tuttle was
paid $2,857.49 for his service on the Special Litigation Committee in 1998. Mr.
Whitwer was paid $27,516.07 for his service on the Special Litigation Committee
in 1998, and, at Mr. Whitwer's request, the Company paid his compensation
directly to Whitwer & Company, Inc., a management consulting firm owned by Mr.
Whitwer. See Item 3., "Legal Proceedings."
Indebtedness of Management
Harold N. Spurlock, Sr. On June 30, 1995, Harold N. Spurlock, then
Chairman of the Board, President and Chief Executive Officer of the Company,
received a loan in the amount of $112,500 from Spurlock Adhesives. Principal and
interest at 9.0% per annum are payable in five equal annual installments
commencing in July 1996, the first of which was paid as agreed. The largest
aggregate amount of such debt outstanding during 1998 was $60,483. The balance
as of December 31, 1998 was $34,811. The loan relates to the purchase by Mr.
Spurlock of certain manufacturing assets in Malvern, Arkansas that were
contributed by Mr. Spurlock to Air Resources pursuant to the Spurlock Adhesives
Agreement.
Irvine R. Spurlock. As previously reported, in February and March 1998,
Irvine Spurlock, President of the Company, paid the Company in cash $102,944, as
repayment in full of certain unauthorized advances from the Company and interest
thereon.
H. Norman Spurlock, Jr. As previously reported, in a settlement between
the Company and Norman Spurlock, a former director and executive officer of the
Company, dated April 8, 1998, Mr. Spurlock agreed to a settlement with the
Company for restitution by him of $385,000 relating to certain unauthorized
advances. Of this amount, $10,000 was repaid at that time in cash to Spurlock
Adhesives. As a part of the settlement, the Spurlock Family Limited Partnership,
which holds certain shares of the
-53-
<PAGE>
Company's Common Stock held by the Spurlock Family, delivered a promissory note
for $375,000 (the "SFLP Note"). Payments on the promissory note are interest
only, due monthly, at 9% per annum, for three years with a balloon payment for
the full amount at the end of the three years. The promissory note is secured by
2,100,000 unencumbered shares of the Common Stock held by the partnership and is
personally guaranteed by Harold Spurlock, a director of the Company. Norman
Spurlock also confessed judgment for $375,000 docketed in the Circuit Court of
Sussex, Virginia, which judgment will not be enforced or domesticated in other
jurisdictions by Spurlock Adhesives so long as the SFLP Note is paid as agreed.
As of December 31, 1998, all payments had been made as agreed.
Guaranty of Lease by Irvine R. Spurlock
In order to obtain lease financing from D.B. Western, Inc., for one of
the Company's two formaldehyde plants located in Moreau, New York, Irvine R.
Spurlock, President of the Company, entered into a Guaranty of Payment, dated
September 30, 1997 (the "Moreau Guaranty"), in favor of D.B. Western. Pursuant
to the Moreau Guaranty, Mr. Spurlock unconditionally guarantied the payment of
all obligations of Spurlock Adhesives under the lease agreement between Spurlock
Adhesives and D.B. Western, dated September 30, 1997, for the first twelve
months of such lease. As such lease took effect on August 1, 1998, Mr. Spurlock
is obligated under the Moreau Guaranty through July 1999. Mr. Spurlock did not
receive any consideration for his granting of the Moreau Guaranty.
-54-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements:
(i) Independent Auditors' Report
(ii) Consolidated Balance Sheets as of December 31, 1998
and 1997
(iii) Consolidated Statements of Operations for the years
ended December 31, 1998, 1997 and 1996
(iv) Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1998, 1997 and 1996
(v) Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996
(vi) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules: none.
(3) Exhibits
Exhibit No. Document
- ----------- --------
2.1 Agreement and Plan of Merger dated February 15, 1996, between Air
Resources Corporation and Spurlock Industries, Inc., incorporated
by reference to Exhibit 2 to the Form S-4 of the Registrant filed
with the Securities and Exchange Commission on February 20, 1996,
as amended by Amendment No. 1 and No. 2 thereto, Registration No.
33-01448 (as amended, the "Form S-4").
2.2 Amended and Restated Agreement and Plan of Merger by and among
Borden Chemical, Inc. ("Borden Chemical"), SII Acquisition
Company, a wholly-owned subsidiary of Borden Chemical ("SIIA"),
and Spurlock Industries, Inc., dated January 25, 1999,
incorporated by reference to Appendix A to the Preliminary Proxy
Statement of the Registrant filed with the Securities and Exchange
Commission on January 27, 1999.
3.1 Articles of Incorporation of Spurlock Industries, Inc.,
incorporated by reference to Exhibit 3.1 to the Form S-4.
3.2 Bylaws of Spurlock Industries, Inc., incorporated by reference to
Exhibit 3.2 to the Form S-4.
9.1 Voting Agreement, dated as of December 18, 1998, between Borden
Chemical, SIIA and Phillip S. Sumpter, Katherine G. Sumpter,
Irvine R. Spurlock, Harold N. Spurlock, Sr., Spurlock Family
Corporation, Spurlock Family Limited Partnership, Trustees under
agreement, dated December 17, 1998, with Harold N. Spurlock, Sr.,
known as the "Harold N. Spurlock, Sr., Declaration of Living Trust
dated December 17, 1998," and Trustees under agreement, dated
December 17, 1998, with Irvine R. Spurlock, known as the "Irvine
R. Spurlock Declaration of Living Trust dated December 17, 1998,"
incorporated by reference to Appendix B to the Preliminary Proxy
Statement of the Registrant filed with the Securities and Exchange
Commission on January 27, 1999."
10.1 Agreement and Plan of Reorganization, dated April 22, 1992,
between Air Resources Corporation and Spurlock Adhesives, Inc.,
incorporated by reference to
-55-
<PAGE>
Exhibit No. Document
- ----------- --------
Exhibit 10.1 to the Form S-4.
10.2 Employment and Retirement Benefit Agreement dated August 21, 1996
by and between Spurlock Adhesives, Inc. and Harold N. Spurlock, as
amended by First Amendment thereto dated February 24, 1997 by and
between such parties, incorporated by reference to Exhibit 10.2 to
the Registrant's Form 10-K for the year ended December 31, 1996,
filed with the Securities and Exchange Commission on March 31,
1997.
10.3 Air Resources Corporation 1995 Stock Incentive Plan, incorporated
by reference to Exhibit 10.3 to the Form S-4.
10.4 Incentive Stock Option Agreement, dated February 22, 1995, between
Air Resources Corporation and Irvine R. Spurlock, incorporated by
reference to Exhibit 10.4 to the Form S-4.
10.5* Indemnification Agreement between Spurlock Industries, Inc. and
Kirk J. Passopulo, dated September 21, 1998.
10.6* Indemnification Agreement between Spurlock Industries, Inc. and
Lance K. Hoboy, dated September 21, 1998.
10.7 Indemnification Agreement, dated January 30, 1997, between
Spurlock Industries, Inc. and Phillip S. Sumpter, incorporated by
reference to Exhibit 10.7 to the Registrant's Form 10-K for the
year ended December 31, 1996, filed with the Securities and
Exchange Commission on March 31, 1997.
10.8* Stipulation and Settlement Agreement in the United States District
Court for the District of Colorado, Civil Action No. 97-D-2214,
between Lee Rasmussen, Doug Richmond, Jeff T. Coates, Ernest
Reeves, Vernon Rasmussen, Sheila Rasmussen, Beverly Dittemore, and
Christy Olson, Plaintiffs, and Spurlock Industries, Inc., Harold
N. Spurlock, Irvine R. Spurlock, H. Norman Spurlock, Jr., Phillip
S. Sumpter, Warren E. Beam, Jr., and Lloyd Putman, Defendants,
dated December 2, 1998.
10.9* Deed, dated November 5, 1998, by and between Harold N. Spurlock
and Daphne R. Spurlock and Spurlock Adhesives, Inc.
10.10 Collateral Promissory Note made by Harold N. Spurlock in favor of
Spurlock Adhesives, Inc. as of June 30, 1995, incorporated by
reference to Exhibit 10.10 to the Form S-4.
10.11 Indemnification Agreement, dated September 19, 1996, between
Spurlock Industries, Inc. and Glen S. Whitwer, incorporated by
reference to Exhibit 10.11 to the Registrant's Form 10-K for the
year ended December 31, 1996, filed with the Securities and
Exchange Commission on March 31, 1997.
10.12 Indemnification Agreement, dated January 30, 1997 between Spurlock
Industries, Inc. and Raymond G. Tuttle, incorporated by reference
to Exhibit 10.12 to the Registrant's Form 10-K for the year ended
December 31, 1996, filed with the Securities and Exchange
Commission on March 31, 1997.
-56-
<PAGE>
Exhibit No. Document
- ----------- --------
10.13 Loan and Security Agreement, dated July 1, 1996, between Spurlock
Adhesives, Inc. and National Canada Finance Corporation,
incorporated by reference to Exhibit 10 to the Registrant's Form
10-Q for the quarter ended June 30, 1996, filed with the
Securities and Exchange Commission on August 15, 1996.
10.14 Spurlock Industries, Inc. 1995 Stock Incentive Plan, incorporated
by reference to Exhibit 4.3 of the Registrant's Registration
Statement on Form S-8, File No. 333- 09659.
10.15 Form of Spurlock Industries, Inc., Incentive Stock Option
Agreement, incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended September 30, 1996,
filed with the Securities and Exchange Commission on November 14,
1996.
10.16 Form of Spurlock Industries, Inc. Non-Qualified Stock Option
Agreement, incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-Q for the quarter ended September 30, 1996,
filed with the Securities and Exchange Commission on November 14,
1996.
10.17 Letter agreement between Spurlock Adhesives, Inc. and KeyBank of
New York dated August 4, 1997, incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q for the quarter ended
September 30, 1997, filed with the Securities and Exchange
Commission on November 14, 1997.
10.18 Promissory Note dated August 13, 1997 from Spurlock Adhesives,
Inc. payable to KeyBank of New York, incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-Q for the quarter ended
September 30, 1997, filed with the Securities and Exchange
Commission on November 14, 1997.
10.19 HCHO/UFC Turnkey Plant "B" Sale Contract - Design, Engineer,
Equipment Supply, Construct, and Install Contract dated September
30, 1997 between Spurlock Adhesives, Inc. and D.B. Western, Inc.,
incorporated by reference to Exhibit 10.3 to the Registrant's Form
10-Q for the quarter ended September 30, 1997, filed with the
Securities and Exchange Commission on November 14, 1997.
10.20 HCHO/UFC Plant "A" - Lease dated September 30, 1997 between
Spurlock Adhesives, Inc. and D.B. Western, Inc., incorporated by
reference to Exhibit 10.4 to the Registrant's Form 10-Q for the
quarter ended September 30, 1997, filed with the Securities and
Exchange Commission on November 14, 1997.
10.21 Guaranty dated September 1, 1997 of Spurlock Industries, Inc. in
favor of D.B. Western, Inc., incorporated by reference to Exhibit
10.5 to the Registrant's Form 10-Q for the quarter ended September
30, 1997, filed with the Securities and Exchange Commission on
November 14, 1997.
10.22 Guaranty dated September 1, 1997 of Spurlock Industries, Inc. in
favor of D.B. Western, Inc., incorporated by reference to Exhibit
10.6 to the Registrant's Form 10-Q for the quarter ended September
30, 1997, filed with the Securities and Exchange Commission on
November 14, 1997.
10.23 Guaranty of Payment dated September 30, 1997 of Irvine R. Spurlock
for the benefit of D.B. Western, Inc., incorporated by reference
to Exhibit 10.7 to the
-57-
<PAGE>
Exhibit No. Document
- ----------- --------
Registrant's Form 10-Q for the quarter ended September 30, 1997,
filed with the Securities and Exchange Commission on November 14,
1997.
10.24 Indenture dated August 13, 1997 between Town of Moreau, New York
as grantor and Spurlock Adhesives, Inc. as grantee, incorporated
by reference to Exhibit 10.8 to the Registrant's Form 10-Q for the
quarter ended September 30, 1997, filed with the Securities and
Exchange Commission on November 14, 1997.
10.25 Indenture dated August 13, 1997 between Town of Moreau, New York,
as grantor and Spurlock Adhesives, Inc. as grantee, incorporated
by reference to Exhibit 10.9 to the Registrant's Form 10-Q for the
quarter ended September 30, 1997, filed with the Securities and
Exchange Commission on November 14, 1997.
10.26* Business Loan Agreement, dated October 23, 1998, between Spurlock
Adhesives, Incorporated and James River Bank.
10.27 Employment Agreement by and between Spurlock Industries, Inc.,
Spurlock Adhesives, Inc. and Phillip S. Sumpter, dated as of April
1, 1998, incorporated by reference to Exhibit 10.27 to the
Registrant's Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission on April 17, 1998.
10.28 Deed, dated October 9, 1997, between Spurlock Adhesives, Inc., as
Grantor, and the County of Saratoga Industrial Development Agency,
as Grantee, incorporated by reference to Exhibit 10.28 to the
Registrant's Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission on April 17, 1998.
10.29 Bill of Sale, dated October 1, 1997, from Spurlock Adhesives,
Inc., to the County of Saratoga Industrial Development Agency,
incorporated by reference to Exhibit 10.29 to the Registrant's
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.30 Trust Indenture, dated October 1, 1997, between the County of
Saratoga Industrial Development Agency and Star Bank, N.A.,
incorporated by reference to Exhibit 10.30 to the Registrant's
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.31 Installment Sale Agreement, dated October 1, 1997, between the
County of Saratoga Industrial Development Agency and Spurlock
Adhesives, Inc., incorporated by reference to Exhibit 10.31 to the
Registrant's Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission on April 17, 1998.
10.32 Irrevocable Transferable Direct Pay Letter of Credit No. NSL
792132, dated October 10, 1997, from KeyBank National Association
in favor of Star Bank, N.A., incorporated by reference to Exhibit
10.32 to the Registrant's Form 10-K for the year ended December
31, 1997, filed with the Securities and Exchange Commission on
April 17, 1998.
10.33 Letter of Credit Reimbursement Agreement, dated October 1, 1997,
between Spurlock Adhesives, Inc. and KeyBank National Association,
incorporated by
-58-
<PAGE>
Exhibit No. Document
- ----------- --------
reference to Exhibit 10.33 to the Registrant's Form 10-K for the
year ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.34 Pledge and Assignment, dated October 1, 1997, from the County of
Saratoga Industrial Development Agency to Star Bank, N.A.,
incorporated by reference to Exhibit 10.34 to the Registrant's
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.35 Mortgage and Security Agreement, dated October 1, 1997, from the
County of Saratoga Industrial Development Agency and Spurlock
Adhesives, Inc. to KeyBank National Association, incorporated by
reference to Exhibit 10.35 to the Registrant's Form 10-K for the
year ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.36 Security Agreement, dated October 1, 1997, between Spurlock
Adhesives, Inc., as Debtor, and KeyBank National Association, as
Secured Party, incorporated by reference to Exhibit 10.36 to the
Registrant's Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission on April 17, 1998.
10.37 Guaranty of Payment and Performance, dated October 1, 1997, from
Spurlock Industries, Inc., to KeyBank National Association,
incorporated by reference to Exhibit 10.37 to the Registrant's
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.38 Remarketing Agreement, dated October 1, 1997, among Spurlock
Adhesives, Inc., KeyBank National Association and the County of
Saratoga Industrial Development Agency, incorporated by reference
to Exhibit 10.38 to the Registrant's Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange
Commission on April 17, 1998.
10.39 Pledge and Security Agreement, dated October 1, 1997, between
Spurlock Adhesives, Inc. and KeyBank National Association,
incorporated by reference to Exhibit 10.39 to the Registrant's
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.40 Payment in Lieu of Tax Agreement, dated October 1, 1997, between
the County of Saratoga Industrial Development Agency and Spurlock
Adhesives, Inc., incorporated by reference to Exhibit 10.40 to the
Registrant's Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission on April 17, 1998.
10.41 Building Loan Agreement, dated October 1, 1997, among KeyBank
National Association, Spurlock Adhesives, Inc. and the County of
Saratoga Industrial Development Agency, incorporated by reference
to Exhibit 10.41 to the Registrant's Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange
Commission on April 17, 1998.
10.42 Tax Regulatory Agreement, dated October 10, 1997, from Spurlock
Adhesives, Inc., for the benefit of the County of Saratoga
Industrial Development Agency and Star Bank, N.A., incorporated by
reference to Exhibit 10.42 to the Registrant's
-59-
<PAGE>
Exhibit No. Document
- ----------- --------
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.43 Deed of Trust and Security Agreement, dated October 1, 1997, from
Spurlock Adhesives, Inc. to Otto W. Konrad and Bruce H. Matson, as
collective Trustee, for the benefit of KeyBank National
Association, incorporated by reference to Exhibit 10.43 to the
Registrant's Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission on April 17, 1998.
10.44 Hazardous Substances Indemnity Agreement, dated October 1, 1997,
by Spurlock Adhesives, Inc., and Spurlock Industries, Inc., for
the benefit of KeyBank National Association, incorporated by
reference to Exhibit 10.44 to the Registrant's Form 10-K for the
year ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.45 Guaranty, dated October 1, 1997, from Spurlock Industries, Inc.,
to the County of Saratoga Industrial Development Agency,
incorporated by reference to Exhibit 10.45 to the Registrant's
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.46 Performance Bond No. 644927, dated October 9, 1997, issued by
Nobel Insurance Company, as Surety, on behalf of D.B. Western,
Inc., as Principal, for the benefit of Spurlock Adhesives, Inc.,
Key Bank and National Bank of Canada, as the Obligees,
incorporated by reference to Exhibit 10.46 to the Registrant's
Form 10- K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.47 Promissory Note, dated October 10, 1997, from Spurlock Adhesives,
Inc., payable to KeyBank National Association, incorporated by
reference to Exhibit 10.47 to the Registrant's Form 10-K for the
year ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.48 Settlement Agreement, dated April 8, 1998, among Spurlock
Industries, Inc., Spurlock Adhesives, Inc., Spurlock Family
Limited Partnership, H. Norman Spurlock, Jr. and Harold N.
Spurlock, Sr., incorporated by reference to Exhibit 10.48 to the
Registrant's Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission on April 17, 1998.
10.49 Unconditional Guaranty, dated April 8, 1998, given by Harold N.
Spurlock, Sr., to Spurlock Adhesives, Inc., incorporated by
reference to Exhibit 10.49 to the Registrant's Form 10-K for the
year ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.50 Pledge and Security Agreement, dated April 8, 1998, between
Spurlock Adhesives, Inc., and Spurlock Family Limited Partnership,
incorporated by reference to Exhibit 10.50 to the Registrant's
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.51 Promissory Note, dated April 8, 1998, from Spurlock Family Limited
Partnership, payable to Spurlock Adhesives, Inc., incorporated by
reference to Exhibit 10.51 to the Registrant's Form 10-K for the
year ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
-60-
<PAGE>
Exhibit No. Document
- ----------- --------
10.52* Promissory Note, dated October 23, 1998, from Spurlock Adhesives,
Incorporated payable to James River Bank.
10.53* Deed of Trust, dated October 23, 1998, among Spurlock Adhesives,
Incorporated, as Grantor, James River Bank, as Lender or
Beneficiary, and O. LeRoy Stables, Jr. and/or Andy Condlin, as
Grantee or Trustee.
10.54 Letter dated March 4, 1998 from the Registrant to Larry Birkholz,
incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-Q for the quarter ended September 30, 1998, filed with the
Securities and Exchange Commission on November 16, 1998.
10.55 Letter dated March 4, 1998 from the Registrant to Kirk Passopulo,
incorporated by reference to Exhibit 10.2 to the Registrant's Form
10-Q for the quarter ended September 30, 1998, filed with the
Securities and Exchange Commission on November 16, 1998.
10.56 Letter dated March 4, 1998 from the Registrant to John Fitzgerald,
Jr., incorporated by reference to Exhibit 10.3 to the Registrant's
Form 10-Q for the quarter ended September 30, 1998, filed with the
Securities and Exchange Commission on November 16, 1998.
10.57* Deed, dated April 29, 1998, between James River Bank and Spurlock
Adhesives, Inc.
10.58* Promissory Note, dated May 1, 1998, from Spurlock Adhesives, Inc.
to James River Bank.
10.59* Deed of Trust, dated May 1, 1998, among Spurlock Adhesives, Inc.,
as Grantor, James River Bank, as Lender or Beneficiary, and O.
LeRoy Stables, Jr. and/or C. Taylor Everett, as Grantee or
Trustee.
10.60* Business Loan Agreement, dated May 1, 1998, between Spurlock
Adhesives, Inc. and James River Bank.
21* Subsidiaries of the Registrant.
23.1* Consent of Cherry, Bekaert & Holland, L.L.P.
23.2* Consent of James E. Scheifley & Associates, P.C. (formerly Winter,
Scheifley & Associates, P.C.), independent auditors.
27* Financial Data Schedule (filed electronically only).
* Filed herewith.
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
during the last quarter of 1998:
-61-
<PAGE>
<TABLE>
<CAPTION>
Date of Report Items Reported
- -------------- --------------
<S> <C>
October 9, 1998 Spurlock Industries, Inc. Announces New Directors
December 18, 1998 Borden Chemical, Inc. to Acquire Spurlock Industries, Inc.
</TABLE>
(c) The exhibits required by Item 601 of Regulation S-K are filed as
exhibits to this Form 10-K.
(d) There are no financial statements of the Company required by
Regulation S-X which were excluded from the Annual Report to Shareholders by
Rule 14a-3(b).
-62-
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SPURLOCK INDUSTRIES, INC.
Date: March 25, 1999 By: /s/ Phillip S. Sumpter
--------------------------------------
Phillip S. Sumpter
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Phillip S. Sumpter Chairman and Chief Executive March 25, 1999
- ------------------------------------------- Officer and Director (Principal Executive
Phillip S. Sumpter and Financial Officer)
/s/ Lawrence C. Birkholz Controller March 25, 1999
- ------------------------------------------- (Principal Accounting Officer)
Lawrence C. Birkholz
/s/ Harold N. Spurlock Director March 25, 1999
- -------------------------------------------
Harold N. Spurlock
/s/ Raymond G. Tuttle Director March 26, 1999
- -------------------------------------------
Raymond G. Tuttle
/s/ Glen S. Whitwer Director March 26, 1999
- -------------------------------------------
Glen S. Whitwer
/s/ Kirk J. Passopulo Director March 25, 1999
- -------------------------------------------
Kirk J. Passopulo
/s/ Lance K. Hoboy Director March 24, 1999
- -------------------------------------------
Lance K. Hoboy
</TABLE>
-63-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Document
----------- --------
2.1 Agreement and Plan of Merger dated February 15, 1996,
between Air Resources Corporation and Spurlock Industries,
Inc., incorporated by reference to Exhibit 2 to the Form S-4
of the Registrant filed with the Securities and Exchange
Commission on February 20, 1996, as amended by Amendment No.
1 and No. 2 thereto, Registration No. 33-01448 (as amended,
the "Form S-4").
2.2 Amended and Restated Agreement and Plan of Merger by and
among Borden Chemical, Inc. ("Borden Chemical"), SII
Acquisition Company, a wholly-owned subsidiary of Borden
Chemical ("SIIA"), and Spurlock Industries, Inc., dated
January 25, 1999, incorporated by reference to Appendix A to
the Preliminary Proxy Statement of the Registrant filed with
the Securities and Exchange Commission on January 27, 1999.
3.1 Articles of Incorporation of Spurlock Industries, Inc.,
incorporated by reference to Exhibit 3.1 to the Form S-4.
3.2 Bylaws of Spurlock Industries, Inc., incorporated by
reference to Exhibit 3.2 to the Form S-4.
9.1 Voting Agreement, dated as of December 18, 1998, between
Borden Chemical, SIIA and Phillip S. Sumpter, Katherine G.
Sumpter, Irvine R. Spurlock, Harold N. Spurlock, Sr.,
Spurlock Family Corporation, Spurlock Family Limited
Partnership, Trustees under agreement, dated December 17,
1998, with Harold N. Spurlock, Sr., known as the "Harold N.
Spurlock, Sr., Declaration of Living Trust dated December
17, 1998," and Trustees under agreement, dated December 17,
1998, with Irvine R. Spurlock, known as the "Irvine R.
Spurlock Declaration of Living Trust dated December 17,
1998," incorporated by reference to Appendix B to the
Preliminary Proxy Statement of the Registrant filed with the
Securities and Exchange Commission on January 27, 1999."
10.1 Agreement and Plan of Reorganization, dated April 22, 1992,
between Air Resources Corporation and Spurlock Adhesives,
Inc., incorporated by reference to Exhibit 10.1 to the Form
S-4.
10.2 Employment and Retirement Benefit Agreement dated August 21,
1996 by and between Spurlock Adhesives, Inc. and Harold N.
Spurlock, as amended by First Amendment thereto dated
February 24, 1997 by and between such parties, incorporated
by reference to Exhibit 10.2 to the Registrant's Form 10-K
for the year ended December 31, 1996, filed with the
Securities and Exchange Commission on March 31, 1997.
10.3 Air Resources Corporation 1995 Stock Incentive Plan,
incorporated by reference to Exhibit 10.3 to the Form S-4.
10.4 Incentive Stock Option Agreement, dated February 22, 1995,
between Air Resources Corporation and Irvine R. Spurlock,
incorporated by reference to Exhibit 10.4 to the Form S-4.
-64-
<PAGE>
Exhibit No. Document
----------- --------
10.5* Indemnification Agreement between Spurlock Industries, Inc.
and Kirk J. Passopulo, dated September 21, 1998.
10.6* Indemnification Agreement between Spurlock Industries, Inc.
and Lance K. Hoboy, dated September 21, 1998.
10.7 Indemnification Agreement, dated January 30, 1997, between
Spurlock Industries, Inc. and Phillip S. Sumpter,
incorporated by reference to Exhibit 10.7 to the
Registrant's Form 10-K for the year ended December 31, 1996,
filed with the Securities and Exchange Commission on March
31, 1997.
10.8* Stipulation and Settlement Agreement in the United States
District Court for the District of Colorado, Civil Action
No. 97-D-2214, between Lee Rasmussen, Doug Richmond, Jeff T.
Coates, Ernest Reeves, Vernon Rasmussen, Sheila Rasmussen,
Beverly Dittemore, and Christy Olson, Plaintiffs, and
Spurlock Industries, Inc., Harold N. Spurlock, Irvine R.
Spurlock, H. Norman Spurlock, Jr., Phillip S. Sumpter,
Warren E. Beam, Jr., and Lloyd Putman, Defendants, dated
December 2, 1998.
10.9* Deed, dated November 5, 1998, by and between Harold N.
Spurlock and Daphne R. Spurlock and Spurlock Adhesives, Inc.
10.10 Collateral Promissory Note made by Harold N. Spurlock in
favor of Spurlock Adhesives, Inc. as of June 30, 1995,
incorporated by reference to Exhibit 10.10 to the Form S-4.
10.11 Indemnification Agreement, dated September 19, 1996, between
Spurlock Industries, Inc. and Glen S. Whitwer, incorporated
by reference to Exhibit 10.11 to the Registrant's Form 10-K
for the year ended December 31, 1996, filed with the
Securities and Exchange Commission on March 31, 1997.
10.12 Indemnification Agreement, dated January 30, 1997 between
Spurlock Industries, Inc. and Raymond G. Tuttle,
incorporated by reference to Exhibit 10.12 to the
Registrant's Form 10-K for the year ended December 31, 1996,
filed with the Securities and Exchange Commission on March
31, 1997.
10.13 Loan and Security Agreement, dated July 1, 1996, between
Spurlock Adhesives, Inc. and National Canada Finance
Corporation, incorporated by reference to Exhibit 10 to the
Registrant's Form 10-Q for the quarter ended June 30, 1996,
filed with the Securities and Exchange Commission on August
15, 1996.
10.14 Spurlock Industries, Inc. 1995 Stock Incentive Plan,
incorporated by reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-8, File No. 333-09659.
10.15 Form of Spurlock Industries, Inc., Incentive Stock Option
Agreement, incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended September 30,
1996, filed with the Securities and Exchange Commission on
November 14, 1996.
-65-
<PAGE>
Exhibit No. Document
----------- --------
10.16 Form of Spurlock Industries, Inc. Non-Qualified Stock Option
Agreement, incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-Q for the quarter ended September 30,
1996, filed with the Securities and Exchange Commission on
November 14, 1996.
10.17 Letter agreement between Spurlock Adhesives, Inc. and
KeyBank of New York dated August 4, 1997, incorporated by
reference to Exhibit 10.1 to the Registrant's Form 10-Q for
the quarter ended September 30, 1997, filed with the
Securities and Exchange Commission on November 14, 1997.
10.18 Promissory Note dated August 13, 1997 from Spurlock
Adhesives, Inc. payable to KeyBank of New York, incorporated
by reference to Exhibit 10.2 to the Registrant's Form 10-Q
for the quarter ended September 30, 1997, filed with the
Securities and Exchange Commission on November 14, 1997.
10.19 HCHO/UFC Turnkey Plant "B" Sale Contract - Design, Engineer,
Equipment Supply, Construct, and Install Contract dated
September 30, 1997 between Spurlock Adhesives, Inc. and D.B.
Western, Inc., incorporated by reference to Exhibit 10.3 to
the Registrant's Form 10-Q for the quarter ended September
30, 1997, filed with the Securities and Exchange Commission
on November 14, 1997.
10.20 HCHO/UFC Plant "A" - Lease dated September 30, 1997 between
Spurlock Adhesives, Inc. and D.B. Western, Inc.,
incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-Q for the quarter ended September 30,
1997, filed with the Securities and Exchange Commission on
November 14, 1997.
10.21 Guaranty dated September 1, 1997 of Spurlock Industries,
Inc. in favor of D.B. Western, Inc., incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-Q for
the quarter ended September 30, 1997, filed with the
Securities and Exchange Commission on November 14, 1997.
10.22 Guaranty dated September 1, 1997 of Spurlock Industries,
Inc. in favor of D.B. Western, Inc., incorporated by
reference to Exhibit 10.6 to the Registrant's Form 10-Q for
the quarter ended September 30, 1997, filed with the
Securities and Exchange Commission on November 14, 1997.
10.23 Guaranty of Payment dated September 30, 1997 of Irvine R.
Spurlock for the benefit of D.B. Western, Inc., incorporated
by reference to Exhibit 10.7 to the Registrant's Form 10-Q
for the quarter ended September 30, 1997, filed with the
Securities and Exchange Commission on November 14, 1997.
10.24 Indenture dated August 13, 1997 between Town of Moreau, New
York as grantor and Spurlock Adhesives, Inc. as grantee,
incorporated by reference to Exhibit 10.8 to the
Registrant's Form 10-Q for the quarter ended September 30,
1997, filed with the Securities and Exchange Commission on
November 14, 1997.
10.25 Indenture dated August 13, 1997 between Town of Moreau, New
York, as grantor and Spurlock Adhesives, Inc. as grantee,
incorporated by reference to Exhibit 10.9 to the
Registrant's Form 10-Q for the quarter ended September 30,
1997, filed with the Securities and Exchange Commission on
November 14, 1997.
-66-
<PAGE>
Exhibit No. Document
----------- --------
10.26* Business Loan Agreement, dated October 23, 1998, between
Spurlock Adhesives, Incorporated and James River Bank.
10.27 Employment Agreement by and between Spurlock Industries,
Inc., Spurlock Adhesives, Inc. and Phillip S. Sumpter, dated
as of April 1, 1998, incorporated by reference to Exhibit
10.27 to the Registrant's Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange
Commission on April 17, 1998.
10.28 Deed, dated October 9, 1997, between Spurlock Adhesives,
Inc., as Grantor, and the County of Saratoga Industrial
Development Agency, as Grantee, incorporated by reference to
Exhibit 10.28 to the Registrant's Form 10-K for the year
ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.29 Bill of Sale, dated October 1, 1997, from Spurlock
Adhesives, Inc., to the County of Saratoga Industrial
Development Agency, incorporated by reference to Exhibit
10.29 to the Registrant's Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange
Commission on April 17, 1998.
10.30 Trust Indenture, dated October 1, 1997, between the County
of Saratoga Industrial Development Agency and Star Bank,
N.A., incorporated by reference to Exhibit 10.30 to the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on April
17, 1998.
10.31 Installment Sale Agreement, dated October 1, 1997, between
the County of Saratoga Industrial Development Agency and
Spurlock Adhesives, Inc., incorporated by reference to
Exhibit 10.31 to the Registrant's Form 10-K for the year
ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.32 Irrevocable Transferable Direct Pay Letter of Credit No. NSL
792132, dated October 10, 1997, from KeyBank National
Association in favor of Star Bank, N.A., incorporated by
reference to Exhibit 10.32 to the Registrant's Form 10-K for
the year ended December 31, 1997, filed with the Securities
and Exchange Commission on April 17, 1998.
10.33 Letter of Credit Reimbursement Agreement, dated October 1,
1997, between Spurlock Adhesives, Inc. and KeyBank National
Association, incorporated by reference to Exhibit 10.33 to
the Registrant's Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission on
April 17, 1998.
10.34 Pledge and Assignment, dated October 1, 1997, from the
County of Saratoga Industrial Development Agency to Star
Bank, N.A., incorporated by reference to Exhibit 10.34 to
the Registrant's Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission on
April 17, 1998.
-67-
<PAGE>
Exhibit No. Document
----------- --------
10.35 Mortgage and Security Agreement, dated October 1, 1997, from
the County of Saratoga Industrial Development Agency and
Spurlock Adhesives, Inc. to KeyBank National Association,
incorporated by reference to Exhibit 10.35 to the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on April
17, 1998.
10.36 Security Agreement, dated October 1, 1997, between Spurlock
Adhesives, Inc., as Debtor, and KeyBank National
Association, as Secured Party, incorporated by reference to
Exhibit 10.36 to the Registrant's Form 10-K for the year
ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.37 Guaranty of Payment and Performance, dated October 1, 1997,
from Spurlock Industries, Inc., to KeyBank National
Association, incorporated by reference to Exhibit 10.37 to
the Registrant's Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission on
April 17, 1998.
10.38 Remarketing Agreement, dated October 1, 1997, among Spurlock
Adhesives, Inc., KeyBank National Association and the County
of Saratoga Industrial Development Agency, incorporated by
reference to Exhibit 10.38 to the Registrant's Form 10-K for
the year ended December 31, 1997, filed with the Securities
and Exchange Commission on April 17, 1998.
10.39 Pledge and Security Agreement, dated October 1, 1997,
between Spurlock Adhesives, Inc. and KeyBank National
Association, incorporated by reference to Exhibit 10.39 to
the Registrant's Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission on
April 17, 1998.
10.40 Payment in Lieu of Tax Agreement, dated October 1, 1997,
between the County of Saratoga Industrial Development Agency
and Spurlock Adhesives, Inc., incorporated by reference to
Exhibit 10.40 to the Registrant's Form 10-K for the year
ended December 31, 1997, filed with the Securities and
Exchange Commission on April 17, 1998.
10.41 Building Loan Agreement, dated October 1, 1997, among
KeyBank National Association, Spurlock Adhesives, Inc. and
the County of Saratoga Industrial Development Agency,
incorporated by reference to Exhibit 10.41 to the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on April
17, 1998.
10.42 Tax Regulatory Agreement, dated October 10, 1997, from
Spurlock Adhesives, Inc., for the benefit of the County of
Saratoga Industrial Development Agency and Star Bank, N.A.,
incorporated by reference to Exhibit 10.42 to the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on April
17, 1998.
10.43 Deed of Trust and Security Agreement, dated October 1, 1997,
from Spurlock Adhesives, Inc. to Otto W. Konrad and Bruce H.
Matson, as collective Trustee, for the benefit of KeyBank
National Association, incorporated by reference to Exhibit
10.43 to the Registrant's Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange
Commission on April 17, 1998.
-68-
<PAGE>
Exhibit No. Document
----------- --------
10.44 Hazardous Substances Indemnity Agreement, dated October 1,
1997, by Spurlock Adhesives, Inc., and Spurlock Industries,
Inc., for the benefit of KeyBank National Association,
incorporated by reference to Exhibit 10.44 to the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on April
17, 1998.
10.45 Guaranty, dated October 1, 1997, from Spurlock Industries,
Inc., to the County of Saratoga Industrial Development
Agency, incorporated by reference to Exhibit 10.45 to the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on April
17, 1998.
10.46 Performance Bond No. 644927, dated October 9, 1997, issued
by Nobel Insurance Company, as Surety, on behalf of D.B.
Western, Inc., as Principal, for the benefit of Spurlock
Adhesives, Inc., Key Bank and National Bank of Canada, as
the Obligees, incorporated by reference to Exhibit 10.46 to
the Registrant's Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission on
April 17, 1998.
10.47 Promissory Note, dated October 10, 1997, from Spurlock
Adhesives, Inc., payable to KeyBank National Association,
incorporated by reference to Exhibit 10.47 to the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on April
17, 1998.
10.48 Settlement Agreement, dated April 8, 1998, among Spurlock
Industries, Inc., Spurlock Adhesives, Inc., Spurlock Family
Limited Partnership, H. Norman Spurlock, Jr. and Harold N.
Spurlock, Sr., incorporated by reference to Exhibit 10.48 to
the Registrant's Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission on
April 17, 1998.
10.49 Unconditional Guaranty, dated April 8, 1998, given by Harold
N. Spurlock, Sr., to Spurlock Adhesives, Inc., incorporated
by reference to Exhibit 10.49 to the Registrant's Form 10-K
for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on April 17, 1998.
10.50 Pledge and Security Agreement, dated April 8, 1998, between
Spurlock Adhesives, Inc., and Spurlock Family Limited
Partnership, incorporated by reference to Exhibit 10.50 to
the Registrant's Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission on
April 17, 1998.
10.51 Promissory Note, dated April 8, 1998, from Spurlock Family
Limited Partnership, payable to Spurlock Adhesives, Inc.,
incorporated by reference to Exhibit 10.51 to the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission on April
17, 1998.
10.52* Promissory Note, dated October 23, 1998, from Spurlock
Adhesives, Incorporated payable to James River Bank.
10.53* Deed of Trust, dated October 23, 1998, among Spurlock
Adhesives, Incorporated, as Grantor, James River Bank, as
Lender or Beneficiary, and O. LeRoy Stables, Jr. and/or Andy
Condlin, as Grantee or Trustee.
-69-
<PAGE>
Exhibit No. Document
----------- --------
10.54 Letter dated March 4, 1998 from the Registrant to Larry
Birkholz, incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-Q for the quarter ended September 30,
1998, filed with the Securities and Exchange Commission on
November 16, 1998.
10.55 Letter dated March 4, 1998 from the Registrant to Kirk
Passopulo, incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended September 30,
1998, filed with the Securities and Exchange Commission on
November 16, 1998.
10.56 Letter dated March 4, 1998 from the Registrant to John
Fitzgerald, Jr., incorporated by reference to Exhibit 10.3
to the Registrant's Form 10-Q for the quarter ended
September 30, 1998, filed with the Securities and Exchange
Commission on November 16, 1998.
10.57* Deed, dated April 29, 1998, between James River Bank and
Spurlock Adhesives, Inc.
10.58* Promissory Note, dated May 1, 1998, from Spurlock Adhesives,
Inc. to James River Bank.
10.59* Deed of Trust, dated May 1, 1998, among Spurlock Adhesives,
Inc., as Grantor, James River Bank, as Lender or
Beneficiary, and O. LeRoy Stables, Jr. and/or C. Taylor
Everett, as Grantee or Trustee.
10.60* Business Loan Agreement, dated May 1, 1998, between Spurlock
Adhesives, Inc. and James River Bank.
21* Subsidiaries of the Registrant.
23.1* Consent of Cherry, Bekaert & Holland, L.L.P.
23.2* Consent of James E. Scheifley & Associates, P.C. (formerly
Winter, Scheifley & Associates, P.C.), independent auditors.
27* Financial Data Schedule (filed electronically only).
* Filed herewith.
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
during the last quarter of 1998:
<TABLE>
<CAPTION>
Date of Report Items Reported
- -------------- --------------
<S> <C>
October 9, 1998 Spurlock Industries, Inc. Announces New Directors
December 18, 1998 Borden Chemical, Inc. to Acquire Spurlock Industries, Inc.
</TABLE>
(c) The exhibits required by Item 601 of Regulation S-K are filed as
exhibits to this Form 10-K.
(d) There are no financial statements of the Company required by
Regulation S-X which were excluded from the Annual Report to Shareholders by
Rule 14a-3(b).
-70-
Exhibit 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made as of the
21st day of September, 1998, by and between SPURLOCK INDUSTRIES, INC., a
Virginia corporation (the "Corporation"), and Kirk J. Passopulo, a Virginia
resident (the "Indemnitee"). It recites and provides as follows:
RECITALS:
A. The Indemnitee is a director of the Corporation.
B. The Indemnitee has requested that the Corporation indemnify him from
liability arising from his service as a director of the Corporation, and the
Corporation has agreed to provide such indemnification pursuant to this
Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of ten dollars and other good and
valuable consideration, the receipt and adequacy of which is acknowledged, the
parties agree as follows:
1. Indemnification of Indemnitee. The Corporation hereby agrees to
indemnify the Indemnitee and to hold him harmless from and against: (a) any and
all claims, losses, liabilities, obligations, damages, deficiencies, costs and
expenses, including without limitation, expenses of investigation and reasonable
attorneys' fees and disbursements, suffered by him of every kind, nature and
description, as a result of his service as a director of the Corporation; and
(b) all actions, suits, proceedings, arbitrations, demands, assessments and
judgments, incident to the foregoing; provided, however, the Indemnitee shall
not be entitled to indemnification under this Agreement if such indemnification
is not permitted by applicable federal, state or securities law or the Articles
of Incorporation of the Corporation. This indemnification shall be in addition
to any other rights the Indemnitee may have at law or equity, and the Indemnitee
need not pursue or exhaust any remedies before being entitled to indemnification
hereunder.
2. Indemnification Procedures. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
(a) In the event that any claim, or claims, is asserted
against the Indemnitee (a "Claim") which could give rise to a right of
indemnification under this Agreement, the Indemnitee shall promptly (i) notify
the Corporation of such Claim and (ii) deliver to the Corporation a written
notice ("Claim Notice") describing in reasonable detail the nature of the Claim
and a copy of all papers served with respect to the Claim (if any). Within
fifteen (15) calendar days after receipt of any Claim Notice (the "Election
Period"), the Corporation shall notify the Indemnitee whether the Corporation
desires to defend the Indemnitee against such Claim at its sole cost and
expense.
(b) If the Corporation notifies the Indemnitee within the
Election Period that it intends to assume the defense of the Claim, then the
Corporation shall have the right to defend, at its sole cost and expense, such
Claim by all appropriate proceedings, which proceedings shall be
<PAGE>
prosecuted diligently by attorneys mutually acceptable to the Indemnitee and the
Corporation, until final conclusion or settlement at the discretion of the
Corporation in accordance with this Section 2(b). The Corporation shall have
full control of such defense proceedings, including any compromise or settlement
thereof, provided, however, that (i) the Corporation shall not settle the Claim
without the consent in writing of the Indemnitee (which consent shall not be
unreasonably withheld, but may include, at the Indemnitee's sole discretion, as
a condition precedent, the grant of a release, in form satisfactory to the
Indemnitee in favor of the Indemnitee by the party bringing the Claim), and (ii)
any such settlement shall not provide for injunctive or other equitable relief
against the Indemnitee. The Indemnitee may participate in, but not control, any
defense or settlement of any Claim controlled by the Corporation pursuant to
this Section 2(b).
(c) If, with respect to a Claim, the Corporation fails to
notify the Indemnitee within the Election Period that the Corporation elects to
defend the Indemnitee pursuant to Section 2(b) or if the Corporation elects to
defend the Indemnitee pursuant to Section 2(b) but fails to diligently and
promptly prosecute or settle such Claim, then the Indemnitee shall have the
right to defend such Claim by all appropriate proceedings, which proceedings
shall be promptly and vigorously prosecuted by the Indemnitee until final
conclusion or settlement. The Indemnitee shall have full control of such defense
and proceedings, provided however, that if requested by the Indemnitee, the
Corporation agrees, at its cost and expense, to cooperate with the Indemnitee
and its counsel in contesting any Claim which the Indemnitee is contesting, or,
if appropriate and related to the Claim in question, in making any counterclaim
against the person asserting the Claim, or any cross-complaint against any
person. Notwithstanding the foregoing, if the Corporation has delivered a
written notice to the Indemnitee to the effect that the Corporation disputes its
potential liability to the Indemnitee under this Agreement and if such dispute
is resolved in favor of the Corporation, by final, nonappealable order of a
court of competent jurisdiction, the Corporation shall not be required to bear
the cost and expenses of the Indemnitee's defense pursuant to this Section 2 or
of the Corporation's participation therein at the Indemnitee's request and the
Indemnitee shall reimburse the Corporation in full for all costs and expenses of
such litigation. The Corporation may participate in, but not control, any
defense or settlement controlled by the Indemnitee pursuant to this Section 2,
and the Corporation shall bear its own costs and expenses with respect to such
participation.
3. Payment of Indemnification Claims. If the Indemnitee asserts an
indemnification claim under this Agreement which is not disputed by the
Corporation, the amount of such claim shall be paid within fifteen (15) days
after the date the Corporation advises the Indemnitee in writing that it does
not dispute the asserted indemnification claim(s) of the Indemnitee. If the
Indemnitee asserts a claim under this Agreement which is disputed by the
Corporation, then the Corporation shall pay to the Indemnitee the amount of the
final judgment, award or settlement in respect of such claim within fifteen (15)
calendar days after the date of such final judgment, award or settlement.
4. Survival of Indemnification. This Agreement shall survive
termination of the Indemnitee's status as a director of the Corporation.
5. Binding Effect; Benefit. This Agreement supersedes all prior
agreements between the parties, whether written or oral, with respect to the
subject matter hereof and shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and assigns, any rights,
remedies, obligations or
-2-
<PAGE>
liabilities under or by reason of this Agreement.
6. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally or when received if
sent by registered or certified mail to the parties at the following addresses
(or such other address as a party may specify by notice):
If to the Corporation:
Spurlock Industries, Inc.
Post Office Box 8
209 West Main Street
Waverly, Virginia 23890
Attention: Chief Executive Officer
with copy to:
Williams, Mullen, Christian & Dobbins, P.C.
Two James Center
1021 East Cary Street
Richmond, Virginia 23219
Attention: William L. Pitman, Esquire
If to the Indemnitee:
Kirk J. Passopulo
Spurlock Industries, Inc.
209 West Main Street
Waverly, Virginia 23890
7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
8. Applicable Law. This Agreement shall be interpreted, governed and
enforced in accordance with the laws of the Commonwealth of Virginia. Venue for
the resolution of any dispute or breach hereof shall be an appropriate state or
federal court in the County of Sussex or City of Richmond, Virginia.
-3-
<PAGE>
WITNESS the following signatures and seals as of the date first above
written.
SPURLOCK INDUSTRIES, INC.,
a Virginia corporation
By: /s/ Phillip S. Sumpter
----------------------------(SEAL)
Phillip S. Sumpter
Chairman of the Board and
Chief Executive Officer
INDEMNITEE:
/s/ Kirk J. Passopulo
--------------------------------(SEAL)
Kirk J. Passopulo
-4-
Exhibit 10.6
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made as of the
21st day of September, 1998, by and between SPURLOCK INDUSTRIES, INC., a
Virginia corporation (the "Corporation"), and Lance K. Hoboy, a Maryland
resident (the "Indemnitee"). It recites and provides as follows:
RECITALS:
A. The Indemnitee is a director of the Corporation.
B. The Indemnitee has requested that the Corporation indemnify him from
liability arising from his service as a director of the Corporation, and the
Corporation has agreed to provide such indemnification pursuant to this
Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of ten dollars and other good and
valuable consideration, the receipt and adequacy of which is acknowledged, the
parties agree as follows:
1. Indemnification of Indemnitee. The Corporation hereby agrees to
indemnify the Indemnitee and to hold him harmless from and against: (a) any and
all claims, losses, liabilities, obligations, damages, deficiencies, costs and
expenses, including without limitation, expenses of investigation and reasonable
attorneys' fees and disbursements, suffered by him of every kind, nature and
description, as a result of his service as a director of the Corporation; and
(b) all actions, suits, proceedings, arbitrations, demands, assessments and
judgments, incident to the foregoing; provided, however, the Indemnitee shall
not be entitled to indemnification under this Agreement if such indemnification
is not permitted by applicable federal, state or securities law or the Articles
of Incorporation of the Corporation. This indemnification shall be in addition
to any other rights the Indemnitee may have at law or equity, and the Indemnitee
need not pursue or exhaust any remedies before being entitled to indemnification
hereunder.
2. Indemnification Procedures. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
(a) In the event that any claim, or claims, is asserted
against the Indemnitee (a "Claim") which could give rise to a right of
indemnification under this Agreement, the Indemnitee shall promptly (i) notify
the Corporation of such Claim and (ii) deliver to the Corporation a written
notice ("Claim Notice") describing in reasonable detail the nature of the Claim
and a copy of all papers served with respect to the Claim (if any). Within
fifteen (15) calendar days after receipt of any Claim Notice (the "Election
Period"), the Corporation shall notify the Indemnitee whether the Corporation
desires to defend the Indemnitee against such Claim at its sole cost and
expense.
(b) If the Corporation notifies the Indemnitee within the
Election Period that it intends to assume the defense of the Claim, then the
Corporation shall have the right to defend, at its sole cost and expense, such
Claim by all appropriate proceedings, which proceedings shall be
<PAGE>
prosecuted diligently by attorneys mutually acceptable to the Indemnitee and the
Corporation, until final conclusion or settlement at the discretion of the
Corporation in accordance with this Section 2(b). The Corporation shall have
full control of such defense proceedings, including any compromise or settlement
thereof, provided, however, that (i) the Corporation shall not settle the Claim
without the consent in writing of the Indemnitee (which consent shall not be
unreasonably withheld, but may include, at the Indemnitee's sole discretion, as
a condition precedent, the grant of a release, in form satisfactory to the
Indemnitee in favor of the Indemnitee by the party bringing the Claim), and (ii)
any such settlement shall not provide for injunctive or other equitable relief
against the Indemnitee. The Indemnitee may participate in, but not control, any
defense or settlement of any Claim controlled by the Corporation pursuant to
this Section 2(b).
(c) If, with respect to a Claim, the Corporation fails to
notify the Indemnitee within the Election Period that the Corporation elects to
defend the Indemnitee pursuant to Section 2(b) or if the Corporation elects to
defend the Indemnitee pursuant to Section 2(b) but fails to diligently and
promptly prosecute or settle such Claim, then the Indemnitee shall have the
right to defend such Claim by all appropriate proceedings, which proceedings
shall be promptly and vigorously prosecuted by the Indemnitee until final
conclusion or settlement. The Indemnitee shall have full control of such defense
and proceedings, provided however, that if requested by the Indemnitee, the
Corporation agrees, at its cost and expense, to cooperate with the Indemnitee
and its counsel in contesting any Claim which the Indemnitee is contesting, or,
if appropriate and related to the Claim in question, in making any counterclaim
against the person asserting the Claim, or any cross-complaint against any
person. Notwithstanding the foregoing, if the Corporation has delivered a
written notice to the Indemnitee to the effect that the Corporation disputes its
potential liability to the Indemnitee under this Agreement and if such dispute
is resolved in favor of the Corporation, by final, nonappealable order of a
court of competent jurisdiction, the Corporation shall not be required to bear
the cost and expenses of the Indemnitee's defense pursuant to this Section 2 or
of the Corporation's participation therein at the Indemnitee's request and the
Indemnitee shall reimburse the Corporation in full for all costs and expenses of
such litigation. The Corporation may participate in, but not control, any
defense or settlement controlled by the Indemnitee pursuant to this Section 2,
and the Corporation shall bear its own costs and expenses with respect to such
participation.
3. Payment of Indemnification Claims. If the Indemnitee asserts an
indemnification claim under this Agreement which is not disputed by the
Corporation, the amount of such claim shall be paid within fifteen (15) days
after the date the Corporation advises the Indemnitee in writing that it does
not dispute the asserted indemnification claim(s) of the Indemnitee. If the
Indemnitee asserts a claim under this Agreement which is disputed by the
Corporation, then the Corporation shall pay to the Indemnitee the amount of the
final judgment, award or settlement in respect of such claim within fifteen (15)
calendar days after the date of such final judgment, award or settlement.
4. Survival of Indemnification. This Agreement shall survive
termination of the Indemnitee's status as a director of the Corporation.
5. Binding Effect; Benefit. This Agreement supersedes all prior
agreements between the parties, whether written or oral, with respect to the
subject matter hereof and shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and assigns, any rights,
remedies, obligations or
-2-
<PAGE>
liabilities under or by reason of this Agreement.
6. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally or when received if
sent by registered or certified mail to the parties at the following addresses
(or such other address as a party may specify by notice):
If to the Corporation:
Spurlock Industries, Inc.
Post Office Box 8
209 West Main Street
Waverly, Virginia 23890
Attention: Chief Executive Officer
with copy to:
Williams, Mullen, Christian & Dobbins, P.C.
Two James Center
1021 East Cary Street
Richmond, Virginia 23219
Attention: William L. Pitman, Esquire
If to the Indemnitee:
Lance K. Hoboy
Schwan's Foods International
11819 Gordon Road
Silver Spring, Maryland 20904
7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
8. Applicable Law. This Agreement shall be interpreted, governed and
enforced in accordance with the laws of the Commonwealth of Virginia. Venue for
the resolution of any dispute or breach hereof shall be an appropriate state or
federal court in the County of Sussex or City of Richmond, Virginia.
-3-
<PAGE>
WITNESS the following signatures and seals as of the date first above
written.
SPURLOCK INDUSTRIES, INC.,
a Virginia corporation
By: /s/ Phillip S. Sumpter
-----------------------------(SEAL)
Name: Phillip S. Sumpter
Title:
INDEMNITEE:
/s/ Lance K. Hoboy
---------------------------------(SEAL)
Lance K. Hoboy
-4-
Exhibit 10.8
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 97-D-2214
LEE RASMUSSEN, minority shareholder of record; DOUG RICHMOND; JEFF T. COATES;
ERNEST REEVES; VERNON RASMUSSEN; SHEILA RASMUSSEN; BEVERLY DITTEMORE; CHRISTY
OLSEN, minority shareholders in street name;
Plaintiffs,
v.
SPURLOCK INDUSTRIES, INC., a Virginia corporation; HAROLD N. SPURLOCK; IRVINE R.
SPURLOCK; H. NORMAN SPURLOCK, JR.; PHILLIP S. SUMPTER; WARREN E. BEAM, JR.;
LLOYD PUTMAN, as individuals;
Defendants.
-----------------------------------------------------------------
STIPULATION AND SETTLEMENT AGREEMENT
-----------------------------------------------------------------
This derivative action was commenced initially by seven owners of the
common stock of Spurlock Industries, Inc., a Virginia corporation (such
corporation, its predecessors, subsidiaries and affiliates, hereinafter
collectively referred to as the "Corporation"), on behalf of the Corporation,
alleging that the Corporation had been damaged by the actions of certain of its
current and former directors and asserting that such claims should be pursued on
behalf of the Corporation. The Corporation was included as a nominal defendant.
An eighth plaintiff was added later.
Promptly following the filing of plaintiffs' complaint (the
"Complaint"), the Corporation's board of directors appointed a special
litigation committee (the "SLC") consisting of two independent outside directors
who were not named defendants in the Complaint. The
<PAGE>
SLC was delegated all of the Board of Directors' corporate powers and authority
with respect to the lawsuit, including investigating the facts surrounding
plaintiffs' substantive allegations; determining whether maintaining the suit
was in the best interests of the Corporation and its shareholders; retaining
independent legal counsel to assist the SLC's investigation; and taking all
other action that the SLC might deem necessary or appropriate.
The SLC conducted an extensive investigation of the facts,
circumstances and transactions alleged in plaintiffs' Complaint. The SLC
examined and analyzed thousands of pages of documents produced by the
Corporation, interviewed numerous witnesses alleged to have knowledge concerning
the claims set forth in the Complaint, and employed an independent certified
public accounting firm to conduct an examination of the Corporation's books. The
SLC's findings as a result of the investigations are set out in the Report of
the Special Litigation Committee of Spurlock Industries, Inc. and the
Supplemental Report of the Special Litigation Committee of Spurlock Industries,
Inc., both of which reports have previously been filed with the Court in this
action. The SLC concluded that there was merit in certain claims which were
implicitly embodied within Claim Three of the Complaint; and the SLC vigorously
pursued such claims on behalf of the Corporation, resulting in a recovery by the
Corporation of cash, a judgment and a secured note totaling approximately
$500,000. The SLC further concluded that the remaining claims alleged in the
Complaint either had no merit or had resulted in no damage to the Corporation.
The plaintiffs also conducted their own investigation and interviewed
potential witnesses, and they have studied the reports of the SLC. They are
satisfied with the independence of the SLC and the scope and thoroughness of its
investigations. Accordingly, on the basis of their factual investigation, their
study of the reports filed by the SLC, and their assessment of the risks
2
<PAGE>
and hazards of further litigation, plaintiffs have concluded that all damages
which the Corporation may have suffered by reason of certain matters alleged in
their Complaint have been recovered by the Corporation and that the Corporation
has suffered no damages as a result of the remaining allegations, even if those
allegations could be proved. Accordingly, plaintiffs have concluded that a
settlement of the litigation on the terms and conditions described below would
be fair, reasonable and adequate to plaintiffs and to the Corporation and its
shareholders. The defendants, while denying and disclaiming wrongdoing of any
kind whatsoever and denying any damage to the Corporation which has not been
fully repaid to or otherwise recovered by the Corporation, have nevertheless
agreed to enter into a settlement in order to recognize plaintiffs' efforts in
investigating, filing and prosecuting this derivative action which prompted a
thorough investigation by the SLC and resulted in a recovery by the Corporation
of approximately $500,000; to avoid the further expense of burdensome and
protracted litigation; and finally to put to rest the claims which have been
alleged in this litigation. Moreover, plaintiffs and defendants desire by this
settlement to facilitate, to the extent feasible, the potential sale of the
Corporation or all or a portion of its assets to persons who have expressed an
interest in purchasing same.
IT IS, THEREFORE, STIPULATED AND AGREED by and among the parties in
this action that this action shall be settled and compromised, upon approval of
the Court, after notice to shareholders and a hearing pursuant to Fed. R. Civ.
P. 23.1, on the terms and conditions set forth below. This Stipulation and
Settlement Agreement shall hereafter be termed the "Agreement," "action" shall
mean the civil action captioned above, and certain other terms will be used as
defined in this Agreement.
1. The undersigned represent that they are authorized to execute this
Agreement and to take all steps which this Agreement contemplates to effectuate
the settlement of this action,
3
<PAGE>
and the parties agree that they will take all steps which this Agreement
contemplates to effectuate the settlement of this action.
2. The intent and purpose of this Agreement are to effect the full and
final disposition of: (a) all claims, rights, or causes of action (state or
federal, including but not limited to claims arising under the federal
securities laws, any rules or regulations promulgated thereunder, or otherwise),
whether known or unknown, that are, could have been, or might in the future be
asserted by any of the plaintiffs, whether on behalf of themselves directly or
derivatively, representatively, or in any other capacity, against any of the
defendants, including the Corporation, (regardless of whether any such defendant
has been served or entered an appearance in this action) and their respective
present or former directors, officers, employees, general and limited partners
and partnerships, principals, agents, attorneys, subsidiaries, affiliates,
associates, parents, predecessors, successors, assigns, heirs, executors, and
administrators, or personal representatives (collectively, the "Released
Persons"), or against anyone else in connection with, or that arise now or
hereafter out of or are related to, the settlement (except for compliance with
the settlement) or any matters, transactions, circumstances or occurrences
referred to in the Complaint, or the fiduciary or disclosure obligations of any
of the Released Persons with respect to any of the foregoing; and (b) all
claims, rights, or causes of action, known or unknown, that are, could have
been, or might in the future be asserted on behalf of the Corporation or any
shareholder against any Released Person or against anyone else in connection
with, or that arise now or hereafter out of or are related to, the settlement or
any matters, transactions, circumstances or occurrences referred to in the
Complaint, or the fiduciary or disclosure obligations of any of the Released
Persons with respect to the any of the foregoing
4
<PAGE>
(collectively, the "Settled Claims"). However, except as may be expressly
provided herein, this Agreement shall not affect any existing contract between
the Corporation and any defendant, nor shall it affect any existing judgment in
favor of the Corporation.
3. In consideration of paragraph 2 above, on or before the tenth
Business Day after the day upon which the order approving the settlement of the
lawsuit and dismissing with prejudice all claims brought in the derivative
action, through the date of this Agreement, shall have become a Final Order and
all appeal periods have run:
(a) the Corporation will pay to the plaintiffs out of the
amounts recovered by the SLC the sum of $22,500, representing reimbursement of
the plaintiffs' legal fees incurred in the investigation, preparation and filing
of the action, and the further sum of $75,000 in cash in recognition of the
benefits conferred upon the Corporation and its shareholders by virtue of the
investigation which was commenced by the Corporation as a result of plaintiffs'
lawsuit, which resulted in a recovery to the Corporation of approximately
$500,000 in cash, a judgment, and a secured note; and
(b) the Corporation will deliver to the plaintiffs 50,000
shares of the common stock of the Corporation, subject to the restrictions on
such stock hereinafter set forth.
4. By separate agreement (the "Spurlock Agreement") with the Spurlock
Family Limited Partnership (the "Family Partnership"), the plaintiff Lee
Rasmussen ("Rasmussen") and others (collectively, the "Rasmussen Group") have
compromised and settled for separate consideration the direct claims they
asserted on their own behalf in the Sixth Claim of the Complaint and all other
claims they may have individually, or as representatives of any other person, on
account of alleged conduct of any of the Corporation's present or former
directors, officers, employees, partners, principals, agents, attorneys,
subsidiaries, affiliates, predecessors
5
<PAGE>
or their successors, assigns, heirs or personal representatives, none of which
claims is a derivative claim. The Family Limited Partnership/Rasmussen Group
separate settlement of non-derivative claims, which provides for Rasmussen to
receive 225,000 shares of common stock in the Corporation presently owned by the
Family Limited Partnership and for members of the Rasmussen Group to have the
right to "put" to the Family Limited Partnership certain shares, is at no cost
to and places no obligations on the Corporation. Harold N. Spurlock, Irvine R.
Spurlock and H. Norman Spurlock, Jr., as evidenced by their signatures hereto,
agree that neither the Corporation nor its insurers nor any other person shall
be required to, and that they will not seek to have the Corporation, its
insurers, or any other person, indemnify, reimburse or hold harmless any of them
for any liabilities, losses, costs, damages, injuries, claims, demands and
expenses, including legal expenses, arising from or related to the settlement
between the Spurlock Family Limited Partnership and the Rasmussen Group; and
Harold N. Spurlock, Irvine R. Spurlock and H. Norman Spurlock, Jr. hereby
expressly waive and release any claim thereto.
5. As soon as practicable after the execution of this Agreement,
counsel shall submit this Agreement to the Court for approval of submission of
its terms by notice to all shareholders of record of the Corporation's stock,
and shall submit to the Court a proposed order containing the following
provisions, which are hereby consented to by the parties signatory hereto:
(a) Approving the appropriate forms of notice to be given to
shareholders ("Notice") and the manner of giving such Notice, and directing that
such Notice be given by the Corporation on or before a date certain (the "Notice
Date"), as well as containing the manner for filing proof of the giving of such
Notice and such other provisions as shall be appropriate with respect to Notice.
6
<PAGE>
(b) Directing that a hearing be held to determine the
fairness, reasonableness, and adequacy of the settlement and whether it should
be approved by the Court; fixing a date for such hearing; and providing that any
shareholder who objects to the approval of this settlement or to the judgment to
be entered as a result of its approval may appear at the hearing, upon
conditions stated, and show cause why the settlement should not be approved as
fair, reasonable and adequate and why final judgments pursuant to Rule 54(b)
should not be entered.
(c) Requiring that the objection of any person must be made in
writing and that such objection together with any supporting papers must be
filed with the Court more than ten (10) days prior to the hearing set by the
Order and served on counsel designated in the Order.
(d) Providing that, upon approval of the settlement, all
shareholders and the Corporation shall forever be barred from prosecuting the
Settled Claims.
6. In advance of the hearing at which final approval by the Court of
the Settlement is sought, counsel for plaintiffs and counsel for defendants
shall jointly file a motion for an Order, which shall constitute a final
judgment pursuant to Rule 54(b) as to all claims on behalf of the Corporation
and its shareholders:
(a) Finding that adequate notice has been given, approving
this Agreement and the Settlement and adjudging the terms hereof to be fair,
reasonable and adequate and directing consummation of the Settlement in
accordance with the terms and conditions of this Agreement.
(b) Dismissing the Complaint, all claims therein, and all
related claims on the merits, without costs, in favor of the defendants and with
prejudice to plaintiffs, individually, and on behalf of the Corporation and its
shareholders; and
7
<PAGE>
(c) Providing that all shareholders and the Corporation shall
forever be barred from prosecuting the Settled Claims.
7. With respect to any shares of stock delivered to any plaintiff under
the Settlement (the "Shares"), each plaintiff hereby represents and warrants to
the Corporation and all other defendants that:
(a) Each plaintiff is acquiring the Shares as an investment
for his/her own account, as principal, and not with a view towards the resale or
distribution thereof; he/she has no intention, agreement or arrangement to
divide his/her interest in the Shares with others or to assign, transfer or
otherwise dispose of any or all of the Shares unless and until the Shares are
registered or an exemption from such registration is available under applicable
federal and state securities laws.
(b) Each plaintiff, either alone or together with his/her
representatives, has such knowledge and experience in financial and business
matters that he/she is capable of evaluating the Corporation and the merits and
risks of an investment in the Shares.
(c) Neither the Corporation nor any person acting on behalf of
the Corporation made any offer of the Shares by means of any form of general
solicitation or general advertising.
(d) Each plaintiff has been furnished with a copy of the
Corporation's Form 10-K for the fiscal year ended December 31, 1997, and copies
of the Corporation's Form 10-Q for the quarters ended March 31, 1998, June 30,
1998, and September 30, 1998, and has been afforded the opportunity to obtain
any additional information necessary to make an informed investment decision on
the Shares.
8
<PAGE>
8. Each plaintiff agrees that the Shares will bear a restrictive legend
prohibiting transfers thereof except in compliance with applicable federal and
state securities laws and will not be transferred of record except upon adequate
evidence of compliance therewith. The Corporation may require that each
plaintiff provide the Corporation with an opinion of counsel satisfactory to the
Corporation that such transfer complies with applicable federal and state
securities laws. Stop transfer instructions will be issued to the Corporation's
transfer agent with respect to the Shares.
9. The plaintiffs hereby unconditionally release the Corporation and
all current, past and future officers, directors, employees and agents of the
Corporation, whether or not named, from any and all liability that may arise out
of any breach, default or claim under the separate agreement with the Spurlock
Family Limited Partnership, including but not limited to any liability arising
out of the transfer of the Corporation's common stock to any plaintiff or the
fulfillment of the obligations of the Spurlock Family Limited Partnership under
such separate agreement relating to any rights related to those securities by
any of the plaintiffs. The Corporation in no way guarantees the performance of
the obligations set forth in the separate agreement with the Spurlock Family
Limited Partnership, and each plaintiff agrees that his or her remedies for any
breach, claim or default thereunder shall be exclusively against the parties to
such agreement and not against the Corporation, its officers, directors and
employees, or any successor of the Corporation.
10. In the event that the orders of the Court contemplated in
Paragraphs 4 and 5 not be entered, or be entered but reversed or modified on
appeal, then this Agreement shall have no further force and effect, and shall be
without prejudice to the claims, defenses, rights and contentions of the
defendants or plaintiffs.
9
<PAGE>
11. Neither this Agreement nor any proceedings hereunder shall in any
event be construed as or deemed to be evidence of any admission on the part of
any of the Corporation's present or former directors, officers, employees,
partners, principals, agents, attorneys, subsidiaries, affiliates, or
predecessors or successors of any liability or wrongdoing whatsoever, or of the
truth of the averments of the Complaint in this action or an admission of any
lack of merit in their defenses, nor shall this Agreement, or any of the terms
hereof, or any of the negotiations or proceedings connected herewith, be offered
or received in evidence for any purpose other than for purposes of the
Settlement and its effectuation and the dismissal order which it contemplates,
and, without limitation, they shall not be used as an admission of any wrongful
or illegal activity on the part of any person or of any liability whatsoever by
any of the defendants, or as an admission of damage to any person, including the
Corporation, or as an admission of any of the averments contained in the
Complaint in this action.
12. This Agreement is to be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the Commonwealth
of Virginia (without giving effect to any laws or rules relating to conflicts of
laws that would cause the application of the laws of any jurisdiction other than
the Commonwealth of Virginia). All parties hereby consent to and accept the
exclusive jurisdiction of the federal and state courts serving the Commonwealth
of Virginia in all disputes arising from this Agreement, including without
limitation the interpretation, performance, termination of this Agreement.
13. This Agreement may be executed in counterparts by the parties
hereto, each of which shall be deemed an original and which together shall
constitute one and the same instrument.
DATED as of December 2, 1998.
10
<PAGE>
PLAINTIFFS:
/s/ LEE RASMUSSEN
-----------------------------
LEE RASMUSSEN
/s/ DOUG RICHMOND
-----------------------------
DOUG RICHMOND
/s/ JEFF T. COATES
-----------------------------
JEFF T. COATES
/s/ ERNEST REEVES
-----------------------------
ERNEST REEVES
/s/ VERNON RASMUSSEN
-----------------------------
VERNON RASMUSSEN
/s/ SHEILA RASMUSSEN
-----------------------------
SHEILA RASMUSSEN
/s/ BEVERLY DITTEMORE
-----------------------------
BEVERLY DITTEMORE
/s/ CHRISTY OLSEN
-----------------------------
CHRISTY OLSEN
11
<PAGE>
DEFENDANTS:
SPURLOCK INDUSTRIES, INC.,
a Virginia corporation
By: /s/ Phillip S. Sumpter
-------------------------
Phillip S. Sumpter
Chairman and CEO
/s/ HAROLD N. SPURLOCK
-----------------------------
HAROLD N. SPURLOCK
/s/ IRVINE R. SPURLOCK
-----------------------------
IRVINE R. SPURLOCK
/s/ H. NORMAN SPURLOCK, JR.
-----------------------------
H. NORMAN SPURLOCK, JR.
/s/ PHILLIP S. SUMPTER
-----------------------------
PHILLIP S. SUMPTER
/s/ WARREN E. BEAM, JR.
-----------------------------
WARREN E. BEAM, JR.
/s/ LLOYD PUTMAN
-----------------------------
LLOYD PUTMAN
12
THIS DEED, made ________ day of November, 1998, by and between HAROLD
N. SPURLOCK and DAPHNE R. SPURLOCK, husband and wife, to be indexed as grantor
(the "Grantor"), and SPURLOCK ADHESIVES, INC., a Virginia corporation, to be
indexed as grantee(s) (the "Grantee(s)"), provides as follows:
W I T N E S S E T H :
That for and in consideration of the sum of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Grantor does hereby grant and convey unto the Grantee,
with SPECIAL WARRANTY of Title, the following described real estate, to-wit:
SEE SCHEDULE A ATTACHED HERETO AS A PART HEREOF
This conveyance is made expressly subject to such recorded
restrictions, conditions and easements as may lawfully apply to the real estate
and to such state of facts as would be shown by a current survey and inspection
thereof.
1
<PAGE>
WITNESS the following signatures:
/s/ Harold N. Spurlock
----------------------------
Harold N. Spurlock, Grantor
/s/ Daphne R. Spurlock
----------------------------
Daphne R. Spurlock, Grantor
COMMONWEALTH OF VIRGINIA
CITY OF PETERSBURG, to-wit:
The foregoing deed was acknowledged before me, the undersigned Notary
Public, in my jurisdiction aforesaid, this 5 day of November, 1998, by Harold
N. Spurlock and Daphne R. Spurlock, husband and wife, Grantors.
My Commission expires: 2 28 2002 .
-----------------------
/s/ Peggy K. Seward
-------------------------------------
Notary Public
Grantee's Address:
PO Box 8
Waverly, VA 23890
2
<PAGE>
Exhibit A
ALL that certain tract or parcel of land lying and being situated in Waverly
Magisterial District, Sussex County, Virginia, containing 32 acres, more or
less, by estimation, but sold in gross and not by the acre, and bound on the
north by U.S. Route 460, on the east by Harold N. Spurlock, on the south by
Norfolk and Western Railway Company, and on the West by land owned by the Town
of Waverly.
BEING the same real estate conveyed to Harold N. Spurlock and Daphne R.
Spurlock, as tenants by the entirety with the right of survivorship as at common
law, by deed from Lone Star Industries, Inc., a Delaware corporation, dated June
7, 1989, recorded June 14, 1989, Clerk's Office, Circuit Court, Sussex County,
Virginia, Deed Book 120, page 243.
Exhibit 10.26
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------- -------------- -------------- -------------- ------------ -------------- -------------- -------------- --------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$92,000.00 10-23-1998 10-30-2003 BL14117 1E 10 OLS
- -------------- -------------- -------------- -------------- ------------ -------------- -------------- -------------- --------------
</TABLE>
Reference in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: SPURLOCK ADHESIVES, INCORPORATED Lender: JAMES RIVER BANK
(TIN: 54-1522700) MAIN OFFICE
125 Bank St. P.O. Box 8 209 W MAIN STREET
Waverly, VA 23890 WAVERLY, VA 23890-0047
================================================================================
THIS BUSINESS LOAN AGREEMENT between SPURLOCK ADHESIVES, INCORPORATED
("Borrower") and JAMES RIVER BANK ("Lender") is made on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of October 21, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
Borrower. The word "Borrower" means SPURLOCK ADHESIVES, INCORPORATED
and its successors and assigns. The word "Borrower" also includes, as
applicable, all subsidiaries and affiliates of Borrower as provided
below in the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt lien, charge, lien or
title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Granter. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, and their personal representatives,
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness and their personal representatives,
successors and assigns.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, including all principal, interest and other fees,
costs and charges, if any, together with all other present and future
liabilities and obligations of Borrower, or any one or more of them, to
Lender, whether direct or indirect, matured or unmatured, and whether
absolute or contingent, joint, several, or joint and several, and no
matter how the same may be evidenced or shall arise.
Lender. The word "Lender" means JAMES RIVER BANK, its successors and
assigns.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender
to Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan
obligations in favor of Lender, as well as any substitute, replacement
or refinancing note or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet due
or being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens
and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of
Borrower's assets.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all
<PAGE>
10-23-1998 BUSINESS LOAN AGREEEMENT Page 2
Loan No BL 14117 (Continued)
================================================================================
other instruments, agreements and documents, whether now or hereafter
existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any and all types of liens and encumbrances, whether
created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written
agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's
total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements)
less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current
liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b)
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the
Commonwealth of Virginia and is validly existing and in good standing
in all states in which Borrower is doing business. Borrower has the
full power and authority to own its properties and to transact the
businesses in which it is presently engaged or presently proposes to
engage. Borrower also is duly qualified as a foreign corporation and is
in good standing in all states in which the failure to so qualify would
have a material adverse effect on its businesses or financial
condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or constitute
a default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled in
Borrower's legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance by any person on, under,
about or from any of the properties; (b) Borrower has no knowledge of,
or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substance on, under, about or from
the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of
any kind by
<PAGE>
10-23-1998 BUSINESS LOAN AGREEEMENT Page 3
Loan No BL 14117 (Continued)
================================================================================
any person relating to such matters; (c) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of,
or release any hazardous waste or substance on, under, about or from
any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender
and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any inspections or tests
made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or
liability on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on Borrower's
due diligence in investigating the properties for hazardous waste and
hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws,
and (b) agrees to indemnify and hold harmless Lender against any and
all claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened
release of a hazardous waste or substance on the properties. The
provisions of this section of the Agreement, including the obligation
to indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected
by Lender's acquisition of any interest in any of the properties,
whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event
has occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other
events, if any, that have been disclosed to and acknowledged by Lender
in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been taken
to terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 125 Bank Street, P.O. Box 8,
Waverly, Virginia 23890. Unless Borrower has designated otherwise in
writing this location is also the office or offices where Borrower
keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in making the above referenced
Loan to Borrower. Borrower further agrees that the foregoing
representations and warranties shall be continuing in nature and shall
remain in full force and effect until such time as Borrower's
Indebtedness shall be paid in full, or until this Agreement shall be
terminated in the manner provided above, whichever is the last to
occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower or
the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in
no event later than sixty (60) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and,
as soon as available, but in no event later than thirty (30) days after
the end of each fiscal quarter, Borrower's balance sheet and profit and
loss statement for the period ended, prepared and certified as correct
to the best knowledge and belief by Borrower's chief financial officer
or other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to
Tangible Net Worth of less than 1.00 to 1.00.
<PAGE>
10-23-1998 BUSINESS LOAN AGREEEMENT Page 4
Loan No BL 14117 (Continued)
================================================================================
Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities in excess of 2.00 to 1.00. Except as provided
above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in
accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as
being true and correct.
Insurance. Maintain fire and other risk insurance, public
liability insurance, and such other insurance as Lender may
from time to time reasonably require with respect to
Borrower's properties and operations, in form, amounts,
coverages and with insurance companies acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from
time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least twenty
(20) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that
coverage in favor of Lender will not be impaired in any way by
any act, omission or default of Borrower or any other person.
In connection with all policies covering assets in which
Lender holds or is offered a security interest for the Loans,
Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy (d) the properties insured; (e) the then current property values
on the basis of which insurance has been obtained, and the manner of
determining those values; and (f) the expiration date of the policy. In
addition, upon request of Lender (however not more often than
annually), Borrower will have an independent appraiser satisfactory to
Lender determine, as applicable, the actual cash value or replacement
cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the regality of the
same shall be contested in good faith by appropriate proceedings, and
(b) Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of
the assessments, taxes, charges, levies, liens and claims, and will
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or
profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and
regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans
With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts,
and records and to make copies and memoranda of Borrower's books,
accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement are
true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of Default
exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a Permitted
Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
<PAGE>
10-23-1998 BUSINESS LOAN AGREEEMENT Page 5
Loan No BL 14117 (Continued)
================================================================================
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that notwithstanding
the foregoing, but only so long as no Event of Default has occurred and
is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as defined in the Internal
Revenue Code of 1986, as amended), Borrower may pay cash dividends on
its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income
tax payments to satisfy their liabilities under federal and state law
which arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of Borrower,
or (d) purchase or retire any of Borrower's outstanding shares or alter
or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the Indebtedness against any and all such accounts,
and, at Lender's option, to administratively freeze all such accounts to Lender
to protect Lender's charge and setoff rights provided on this paragraph.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when
due on the Indebtedness.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation covenant or condition contained in any other agreement
between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
tries Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, or a trustee or receiver is appointed for Borrower or
for all or a substantial portion of the assets of Borrower, or Borrower
makes a general assignment for the benefit of Borrower's creditors, or
Borrower files for bankruptcy, or an involuntary bankruptcy petition is
filed against Borrower and such involuntary petition remains
undismissed for sixty (60) days.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate and, at Lender's option, all sums
owing in connection with the Loans, including all principal, interest, and all
other fees, costs and charges, if any, will become immediately due and payable,
all without notice of any kind to Borrower, except that in the case of an Event
of Default of the type described in the "Insolvency" subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related Documents or available at
law, in equity, or otherwise. Except as may be prohibited by applicable law, all
of Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
<PAGE>
10-23-1998 BUSINESS LOAN AGREEEMENT Page 6
Loan No BL 14117 (Continued)
================================================================================
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Virginia.
Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either party against the
other.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower. This means that each of
the persons signing below is responsible for all obligations in this
Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any
rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of
any such participation interests will be considered as the absolute
owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the
sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses
that Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
out-of-pocket expenses incurred in connection with this Agreement or in
connection with the Loans made pursuant to this Agreement. Subject to
any limits under applicable law, if Lender hires an attorney to help
enforce this Agreement or to collect any Indebtedness, Borrower agrees
to pay Lender's attorney fees equal to 10.000% of the principal balance
due on the Note, and all of Lender's other collection expenses, whether
or not there is a lawsuit and including legal expenses for bankruptcy
proceedings.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered if
hand delivered or when deposited with a nationally recognized overnight
courier or deposited as certified or registered mail in the United
States mail, first class, postage prepaid, addressed to the party to
whom the notice is to be given at the address shown above. Any party
may change its address for notices under this Agreement by giving
format written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice purposes,
Borrower will keep Lender informed at all times of Borrower's current
address(es).
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of
any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and affiliates
of Borrower. Notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require Lender to
make any Loan or other financial accommodation to any subsidiary or
affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
Survival. All warranties, representations, and agreements of Borrower
in this Agreement shall survive the making of the Loan or Loans
contemplated hereby, and shall be deemed made and redated by Borrower
at the time of the making of each disbursement of Loan proceeds.
Time Is of the Essence. Time is of the essence in the performance of
this Agreement.
Waiver. Indulgence by Lender with respect to any of the terms and
conditions of this Agreement or the failure of Lender to exercise any
of its rights under this Agreement shall not constitute a waiver
thereof, and Borrower shall remain liable for the strict performance of
such terms and conditions until this Agreement shall be terminated. No
provision of this Agreement may be waived or modified orally, but all
such waivers or modifications shall be in writing. Whenever the consent
of Lender is required under this Agreement, the granting of such
consent by Lender in one instance shall not constitute Lender's
continuing consent in subsequent instances, and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
<PAGE>
10-23-1998 BUSINESS LOAN AGREEEMENT Page 7
Loan No BL 14117 (Continued)
================================================================================
THIS BUSINESS LOAN AGREEMENT IS SIGNED, SEALED AND DELIVERED EFFECTIVE IN ALL
RESPECTS AS OF OCTOBER 23,1998.
BORROWER:
SPURLOCK ADHESIVES, INCORPORATED
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Phillip S. Sumpter (SEAL) By /s/ Larry C. Birkholz (SEAL)
------------------------------------ ---------------------------------------
Phillip S. SUMPTER, Chairman & CEO LARRY C. BURKHOLTZ (sic), Corporate Controller
</TABLE>
LENDER:
JAMES RIVER BANK
By:_________________________________________
Authorized Officer
Exhibit 10.52
PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------- -------------- -------------- -------------- -------------- ------------- ------------- ------------- -------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$92,000.00 10-23-1998 10-30-2003 BL14117 1E 10 OLS
- ---------------- -------------- -------------- -------------- -------------- ------------- ------------- ------------- -------------
</TABLE>
Reference in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: SPURLOCK ADHESIVES, INCORPORATED Lender: JAMES RIVER BANK
(TIN:54-1522700) MAIN OFFICE
125 Bank St., P.O. Box 8 209 W MAIN STREET
Waverly, VA 23890 WAVERLY, VA 23890-0047
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Amount: $92,000.00 Interest Rate: 9.250% Date of Note: October 23, 1998
</TABLE>
PROMISE TO PAY. SPURLOCK ADHESIVES, INCORPORATED ("Borrower") promises to pay to
JAMES RIVER BANK ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Ninety Two Thousand and 00/100 Dollars
($92,000.00), together with interest at the rate of 9.250% per annum on the
unpaid principal balance from October 30, 1998, until paid in full.
PAYMENT. Borrower will pay this loan in 59 regular payments of $1,177.87 each
and one irregular last payment estimated at $57,590.54. Borrower's first payment
is due November 30, 1998, and all subsequent payments are due on the same day of
each month after that Borrower's final payment due October 30, 2003, will be for
all principal, accrued interest, and all other applicable fees, costs and
charges, if any, not yet paid. Payments include principal and interest. Interest
on this Note is computed on a 365/365 simple interest basis; that is, by
applying the ratio of the annual interest rate over the number of days in a year
(366 during leap years), multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is outstanding.
Borrower will pay Lender at Lender's address shown above or at such other place
as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
PREPAYMENT PENALTY. Upon prepayment of this Note, Lender Is entitled to the
following prepayment penalty: Borrower may prepay the principal amount
outstanding in whole or in part, upon payment of a one (1%) percent premium of
the amount prepaid. The Noteholder may require that any partial prepayments (i)
be made on the date monthly installments are due and (ii) be in an amount of
that part of one or more monthly installments which would be applicable to
principal. Any partial prepayment shall be applied against the principal amount
outstanding and shall not postpone the due date of any subsequent monthly
installments or change the amount of such installment unless the Noteholder
shall otherwise agree in writing. Except for the foregoing, Borrower may pay all
or a portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation
to continue to make payments under the payment schedule. Rather, they will
reduce the principal balance due and may result in Borrower making fewer
payments.
LATE CHARGE. If a payment is 7 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $50.00, whichever is less.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due; (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender; (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents; (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished; (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws; (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender;
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note; (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired; (i) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest, together with all other
applicable fees, costs and charges, if any immediately due and payable, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note 4.000 percentage points.
The interest rate will not exceed the maximum rate permitted by applicable law.
Furthermore, subject to any limits under applicable law, upon default, Borrower
also agrees to pay Lender's attorney fees equal to 10.000% of the principal
balance due on the Note, and all of Lender's other collection expenses, whether
or not there is a lawsuit and including without limitation legal expenses for
bankruptcy proceedings. This Note shall be governed by, construed and enforced
in accordance with the laws of the Commonwealth of Virginia. Lender and Borrower
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either party against the other.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $24.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored,
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts, and, at
Lender's option, to administratively freeze all such accounts to allow Lender to
protect Lender's charge and setoff rights provided on this paragraph.
COLLATERAL. This Note is secured by 32 acres open and cutover land fronting
approximately 3/4 mile on Route 460, west of Waverly.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
<PAGE>
BORROWER:
SPURLOCK ADHESIVES, INCORPORATED
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Phillip S. Sumpter By: /s/ Larry C. Birkholz (SEAL)
-----------------------------------(SEAL) --------------------------------------------
Phillip S. SUMPTER, Chairman & CEO LARRY C. BURKHOLTZ (sic), Corporate Controller
</TABLE>
RECORDATION REQUESTED BY:
JAMES RIVER BANK
209 W MAIN STREET
P. 0. BOX 47
WAVERLY, VA 23890-0047
WHEN RECORDED MAIL TO:
JAMES RIVER BANK
209 W MAIN STREET
P. 0. BOX 47
WAVERLY, VA 23890-0047
FOR RECORDER'S USE ONLY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Deed of Trust prepared by: JAMES RIVER BANK, WAVERLY, VIRGINIA
DEED OF TRUST
THIS IS A CREDIT LINE DEED OF TRUST
Maximum aggregate amount of principal
to be secured hereby at any one time: $92,000.00
Name and address of Noteholder secured hereby:
JAMES RIVER BANK
209 W. MAIN STREET
P.O. BOX 47
WAVERLY, VA 23890-0047
THIS DEED OF TRUST IS DATED OCTOBER 23, 1998, among SPURLOCK ADHESIVES,
INCORPORATED, whose address is 125 Bank St. P.O. Box 8, Waverly, VA 23890
(referred to below as "Grantor"); JAMES RIVER BANK, whose address is 209 W. MAIN
STREET, P.0. BOX 47, WAVERLY, VA 23890-0047 (referred to below sometimes as
"Lender" and sometimes as "Beneficiary"); and O. LeRoy STABLES, Jr. and/or Andy
CONDLIN, 1021 E. CARY ST. TOO JAMES CENTER, PO. BOX 1320, Richmond, VA 23210
("Grantee," also referred to below as "Trustee"), whose address is 209 W. Main
St. and 1021 E. Cary St. Too James Center, Richmond, VA 23210.
CONVEYANCE AND GRANT. For valuable consideration, Grantor conveys, transfers,
encumbers and pledges and assigns to Trustee for the benefit of Lender as
Beneficiary, all of Grantor's present and future right, title, and interest in
and to the following described real property, together with all existing or
subsequently erected or affixed buildings, improvements and fixtures; all
easements, rights of way, and appurtenances; and all rights, royalties, and
profits relating to the real property, including without limitation all
minerals, oil, gas, geothermal and similar matters, located in Sussex County,
Virginia, Commonwealth of Virginia (the "Real Properly"):
See "Schedule A" attached.
The Real Properly or its address is commonly known as 125 Bank St., Waverly, VA
23890.
Grantor presently assigns absolutely and irrevocably to Lender all of Grantor's
right, title, and interest in and to all present and future leases of the
Property and all Rents from the Property. In addition, Grantor grants Lender a
Uniform Commercial Code security interest in the Rents and the Personal Property
defined below.
DEFINITIONS. The following words shall have the following meanings when used in
this Deed of Trust. Terms not otherwise defined in this Deed of Trust shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Beneficiary. The word "Beneficiary" means JAMES RIVER BANK, its successors
and assigns.
Deed of Trust. The words "Deed of Trust" mean this Deed of Trust among
Grantor, Lender, and Trustee.
Grantor. The word "Grantor" means any and all persons and entities
executing this Deed of Trust, including without limitation SPURLOCK
ADHESIVES, INCORPORATED.
Guarantor. The word "Guarantor" means and includes without limitation any
and all guarantors, sureties, and accommodation parties in connection with
the Indebtedness and their personal representatives, successors and
assigns.
Improvements. The word "Improvements" means and includes without limitation
all existing and future improvements, buildings, structures, mobile homes
affixed on the Real Property, facilities, additions, replacements and other
construction on the Real Property.
Indebtedness. The word "Indebtedness" means all principal and interest,
together with all other fees, costs and charges, if any, payable under the
Note and any amounts expended or advanced by Lender to discharge
obligations of Grantor or expenses incurred by Trustee or Lender to enforce
obligations of Grantor under this Deed of Trust, together with interest on
such amounts as provided in this Deed of Trust. In addition to the Note,
the word "Indebtedness" includes all obligations, debts and liabilities,
plus interest
<PAGE>
10-23-1998 DEED OF TRUST Page 2
Loan No BL14117 (Continued)
================================================================================
thereon, of Grantor to Lender, or any one or more of them, as well as all
claims by Lender against Grantor, or any one or more of them, whether now
existing or hereafter arising, whether related or unrelated to the purpose
of the Note, whether voluntary or otherwise, whether due or not due,
absolute or contingent, liquidated or unliquidated and whether Grantor may
be liable individually or jointly with others, whether obligated as
guarantor or otherwise, and whether recovery upon such Indebtedness may be
or hereafter may become barred by any statute of limitations, and whether
such Indebtedness may be or hereafter may become otherwise unenforceable.
In addition to the amounts specified in the Note, this Deed of Trust also
secures future advances. The maximum principal amount secured by this Deed
of Trust is $92,000.00 plus interest and costs of collection.
Lender. The word "Lender" means JAMES RIVER BANK, its successors and
assigns.
Note. The word "Note" means the Note dated October 23, 1998, in the
principal amount of $92,000.00 from Grantor to Lender, together with all
renewals, extensions, modifications, refinancings, and substitutions for
the Note.
Personal Property. The words "Personal Property" mean all equipment,
fixtures, and other articles of personal property now or hereafter owned by
Grantor, and now or hereafter attached or affixed to the Real Property;
together with all accessions, parts, and additions to, all replacements of,
and all substitutions for, any of such property; and together with all
proceeds (including without limitation all insurance proceeds and refunds
of premiums) from any sale or other disposition of the Property.
Property. The word "Property" means collectively the Real Property and the
Personal Property.
Real Property. The words "Real Property" mean the property, interests and
rights described above in the "Conveyance and Grant" section.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Rents. The word "Rents" means all present and future rents, revenues,
income, issues, royalties, profits, and other benefits derived from the
Property.
Trustee. The word "Trustee" means O. LeRoy STABLES, Jr. and/or Andy
CONDLIN, 1021 E. CARY ST. TOO JAMES CENTER, P.O. BOX 1320, Richmond, VA
23210 and any substitute or successor trustees. If more than one person is
named as trustee, the word "Trustee" means each such person.
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST
IN THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT OF THE
INDEBTEDNESS AND (2) PERFORMANCE OF ANY AND ALL OBLIGATIONS OF GRANTOR UNDER THE
NOTE, THE RELATED DOCUMENTS, AND THIS DEED OF TRUST. THIS DEED OF TRUST IS GIVEN
AND ACCEPTED ON THE FOLLOWING TERMS:
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Deed of Trust,
Grantor shall pay to Lender all amounts secured by this Deed of Trust as they
become due, and shall strictly and in a timely manner perform all of Grantor's
obligations under the Note, this Deed of Trust, and the Related Documents.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that Grantor's
possession and use of the Properly shall be governed by the following
provisions:
Possession and Use. Until the occurrence of an Event of Default, Grantor
may (a) remain in possession and control of the Property, (b) use, operate
or manage the Property, and (c) collect any Rents from the Property.
Duty to Maintain. Grantor shall maintain the Property in tenantable
condition and promptly perform all repairs, replacements, and maintenance
necessary to preserve its value.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Deed of
Trust, shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. Grantor
represents and warrants to Lender that: (a) During the period of Grantor's
ownership of the Property, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any
hazardous waste or substance by any person on, under, about or from the
Property; (b) Grantor has no knowledge of, or reason to believe that there
has been, except as previously disclosed to and acknowledged by Lender in
writing, (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the Properly by any prior owners or
occupants of the Property or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters; and (c) Except
as previously disclosed to and acknowledged by Lender in writing, (i)
neither Grantor nor any tenant, contractor, agent or other authorized user
of the Property shall use, generate, manufacture, store, treat, dispose of,
or release any hazardous waste or substance on, under, about or from the
Property and (ii) any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations and ordinances,
including without limitation those laws, regulations, and ordinances
described above. Grantor authorizes Lender and its agents to enter upon the
Property to make such inspections and tests, at
<PAGE>
10-23-1998 DEED OF TRUST Page 2
Loan No BL14117 (Continued)
================================================================================
Grantor's expense, as Lender may deem appropriate to determine compliance
of the Property with this section of the Deed of Trust. Any inspections or
tests made by Lender shall be for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Grantor or to any other person. The representations and warranties
contained herein are based on Grantor's due diligence in investigating the
Property for hazardous waste and hazardous substances. Grantor hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup or other costs
under any such laws, and (b) agrees to indemnity and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Deed of Trust or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a hazardous waste or substance on the properties.
The provisions of this section of the Deed of Trust, including the
obligation to indemnify, shall survive the payment of the Indebtedness and
the satisfaction and reconveyance of the lien of this Deed of Trust and
shall not be affected by Lender's acquisition of any interest in the
Property, whether by foreclosure or otherwise.
Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance
nor commit, permit, or suffer any stripping of or waste on or to the
Property or any portion of the Property. Without limiting the generality of
the foregoing, Grantor will not remove, or grant to any other party the
right to remove, any timber, minerals (including oil and gas), soil, gravel
or rock products without the prior written consent of Lender.
Removal of Improvements. Grantor shall not demolish or remove any
Improvements from the Real Property without the prior written consent of
Lender. As a condition to the removal of any Improvements, Lender may
require Grantor to make arrangements satisfactory to Lender to replace such
Improvements with Improvements of at least equal value.
Lender's Right to Enter. Lender and its agents and representatives may
enter upon the Real Property at all reasonable times to attend to Lender's
interests and to inspect the Property for purposes of Grantor's compliance
with the terms and conditions of this Deed of Trust.
Compliance with Governmental Requirements. Grantor shall promptly comply
with all laws, ordinances, and regulations, now or hereafter in effect, of
all governmental authorities applicable to the use or occupancy of the
Property, including without limitation, the Americans With Disabilities
Act. Grantor may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Grantor has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Property are not jeopardized. Lender may require Grantor
to post adequate security or a surety bond, satisfactory to Lender, to
protect Lender's interest.
Duty to Protect. Grantor agrees neither to abandon nor leave unattended the
Property. Grantor shall do all other acts, in addition to those acts set
forth above in this section, which from the character and use of the
Property are necessary to protect and preserve the Property.
DUE ON SALE - CONSENT BY LENDER. NOTICE - THE DEBT SECURED HEREBY IS SUBJECT TO
CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE OR
CONVEYANCE OF THE PROPERTY CONVEYED. Lender may, at its option, declare
immediately due and payable all sums secured by this Deed of Trust upon the sale
or transfer, without the Lender's prior written consent, of all or any part of
the Real Property, or any interest in the Real Property. A "sale or transfer"
means the conveyance of Real Property or any right, title or interest therein;
whether legal, beneficial or equitable; whether voluntary or involuntary;
whether by outright sale, deed, installment sale contract, land contract,
contract for deed, leasehold interest with a term greater than three (3) years,
lease-option contract, or by sale, assignment, or transfer of any beneficial
interest in or to any land trust holding title to the Real Property, or by any
other method of conveyance of Real Property interest. If any Grantor is a
corporation, partnership or limited liability company, transfer also includes
any change in ownership of more than twenty-five percent (25%) of the voting
stock, partnership interests or limited liability company interests, as the case
may be, of Grantor. However, this option shall not be exercised by Lender if
such exercise is prohibited by federal law or by Virginia law.
TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are a part of this Deed of Trust.
Payment. Grantor shall pay when due (and in all events prior to
delinquency) all taxes, special taxes, assessments, charges (including
water and sewer), fines and impositions levied against or on account of the
Property, and shall pay when due all claims for work done on or for
services rendered or material furnished to the Property. Grantor shall
maintain the Property free of all liens having priority over or equal to
the interest of Lender under this Deed of Trust, except for the lien of
taxes and assessments not due and except as otherwise provided in this Deed
of Trust.
Right To Contest. Grantor may withhold payment of any tax, assessment, or
claim in connection with a good faith dispute over the obligation to pay,
so long as Lender's interest in the Property is not jeopardized. If a lien
arises or is filed as a result of nonpayment, Grantor shall within fifteen
(15) days after the lien arises or, if a lien is filed, within fifteen (15)
days after Grantor has notice of the filing, secure the discharge of the
lien, or if requested by Lender, deposit with Lender cash or a sufficient
corporate surety bond or other security satisfactory to Lender in an amount
sufficient to discharge the lien plus any costs and attorneys' fees or
other charges that could accrue as a result of a foreclosure or sale under
the lien. In any contest, Grantor shall defend itself and Lender and shall
satisfy any adverse judgment before enforcement against the Property.
Grantor shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
Evidence of Payment. Grantor shall upon demand furnish to Lender
satisfactory evidence of payment of the taxes or assessments and shall
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of the taxes and assessments against the Property.
Notice of Construction. Grantor shall notify Lender at least fifteen (15)
days before any work is commenced, any services are furnished, or any
materials are supplied to the Property, if any mechanic's lien,
materialmen's lien, or other lien could be asserted
<PAGE>
10-23-1998 DEED OF TRUST Page 4
Loan No BL14117 (Continued)
================================================================================
on account of the work, services, or materials. Grantor will upon request
of Lender furnish to Lender advance assurances satisfactory to Lender that
Grantor can and will pay the cost of such improvements.
PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Deed of Trust.
Maintenance of Insurance. Grantor shall procure and maintain policies of
fire insurance with standard extended coverage endorsements on a
replacement basis for the full insurable value covering all Improvements on
the Real Property in an amount sufficient to avoid application of any
coinsurance clause, and with a standard mortgagee clause in favor of
Lender. Grantor shall also procure and maintain comprehensive general
liability insurance in such coverage amounts as Lender may request with
trustee and Lender being named as additional insureds in such liability
insurance policies. Additionally, Grantor shall maintain such other
insurance, including but not limited to hazard, business interruption, and
boiler insurance, as Lender may require. Policies shall be written in form,
amounts, coverages and basis acceptable to Lender and issued by a company
or companies acceptable to Lender. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least twenty (20)
days' prior written notice to Lender. Each insurance policy also shall
include an endorsement providing that coverage in favor of Lender will not
be impaired in any way by any act, omission or default of Grantor or any
other person. Should the Real Property at any time become located in an
area designated by the Director of the Federal Emergency Management Agency
as a special flood hazard area, Grantor agrees to obtain and maintain
Federal Flood Insurance for the full unpaid principal balance of the loan,
up to the maximum policy limits set under the National Flood Insurance
Program, or as otherwise required by Lender, and to maintain such insurance
for the term of the loan.
Application of Proceeds. Grantor shall promptly notify Lender of any loss
or damage to the Property. Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. Whether or not Lender's
security is impaired, Lender may, at its election, receive and retain the
proceeds of any insurance and apply the proceeds to the reduction of the
Indebtedness, payment of any lien affecting the Property, or the
restoration and repair of the Property. If Lender elects to apply the
proceeds to restoration and repair, Grantor shall repair or replace the
damaged or destroyed Improvements in a manner satisfactory to Lender.
Lender shall, upon satisfactory proof of such expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration
if Grantor is not in default under this Deed of Trust. Any proceeds which
have not been disbursed within 180 days after their receipt and which
Lender has not committed to the repair or restoration of the Property shall
be used first to pay any amount owing to Lender under this Deed of Trust,
then to pay accrued interest, and the remainder, if any, shall be applied
to the principal balance of the Indebtedness. If Lender holds any proceeds
after payment in full of the Indebtedness, such proceeds shall be paid to
Grantor as Grantor's interests may appear.
Unexpired Insurance at Sale. Any unexpired insurance shall inure to the
benefit of, and pass to, the purchaser of the Property covered by this Deed
of Trust at any trustee's sale or other sale held under the provisions of
this Deed of Trust, or at any foreclosure sale of such Property.
Grantor's Report on Insurance. Upon request of Lender, however not more
than once a year, Grantor shall furnish to Lender a report on each existing
policy of insurance showing: (a) the name of the insurer; (b) the risks
insured; (c) the amount of the policy; (d) the property insured, the then
current replacement value of such property, and the manner of determining
that value; and (e) the expiration date of the policy. Grantor shall, upon
request of Lender, have an independent appraiser satisfactory to Lender
determine the cash value replacement cost of the Property.
EXPENDITURES BY LENDER. If Grantor fails to comply with any provision of this
Deed of Trust, or if any action or proceeding is commenced that would materially
affect Lender's interests in the Property, Lender on Grantor's behalf may, but
shall not be required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the rate provided
for in the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses, at Lender's option, will (a) be payable
on demand, (b) be added to the balance of the Note and be apportioned among and
be payable with any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining term of the Note,
or (c) be treated as a balloon payment which will be due and payable at the
Note's maturity. This Deed of Trust also will secure payment of these amounts.
The rights provided for in this paragraph shall be in addition to any other
rights or any remedies to which Lender may be entitled on account of the
default. Any such action by Lender shall not be construed as curing the default
so as to bar Lender from any remedy that it otherwise would have had.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Deed of Trust.
Title. Grantor warrants generally that: (a) Grantor holds good and
marketable title to the Property in fee simple, free and clear of all liens
and encumbrances other than those set forth in the Real Property
description or in any title insurance policy, title report, or final title
opinion issued in favor of, and accepted by, Lender in connection with this
Deed of Trust, and (b) Grantor has the full right, power, and authority to
execute and deliver this Deed of Trust to Lender.
Defense of Title. Subject to the exception in the paragraph above, Grantor
warrants and will forever defend the title to the Property against the
lawful claims of all persons. In the event any action or proceeding is
commenced that questions Grantor's title or the interest of Trustee or
Lender under this Deed of Trust, Grantor shall defend the action at
Grantor's expense. Grantor may be the nominal party in such proceeding, but
Lender shall be entitled to participate in the proceeding and to be
represented in the proceeding by counsel of Lender's own choice, and
Grantor will deliver, or cause to be delivered, to Lender such instruments
as Lender may request from time to time to permit such participation.
Compliance With Laws. Grantor warrants that the Property and Grantor's use
of the Property complies with all existing applicable laws, ordinances, and
regulations of governmental authorities.
CONDEMNATION. The following provisions relating to condemnation proceedings are
a part of this Deed of Trust.
<PAGE>
10-23-1998 DEED OF TRUST Page 2
Loan No BL14117 (Continued)
================================================================================
Application of Net Proceeds. If all or any part of the Property is
condemned by eminent domain proceedings or by any proceeding or purchase in
lieu of condemnation, Lender may at its election require that all or any
portion of the net proceeds of the award be applied to the Indebtedness or
the repair or restoration of the Property. The net proceeds of the award
shall mean the award after payment of all reasonable costs, expenses, and
attorneys' fees incurred by Trustee or Lender in connection with the
condemnation.
Proceedings. If any proceeding in condemnation is filed, Grantor shall
promptly notify Lender in writing, and Grantor shall promptly take such
steps as may be necessary to defend the action and obtain the award.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of its own choice, and Grantor will deliver or cause
to be delivered to Lender such instruments as may be requested by it from
time to time to permit such participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and charges are a part of this
Deed of Trust:
Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall
execute such documents in addition to this Deed of Trust and take whatever
other action is requested by Lender to perfect and continue Lender's lien
on the Real Property. Grantor shall reimburse Lender for all taxes, as
described below, together with all expenses incurred in recording,
perfecting or continuing this Deed of Trust, including without limitation
all taxes, fees, documentary stamps, and other charges for recording or
registering this Deed of Trust.
Taxes. The following shall constitute taxes to which this section applies:
(a) a specific tax upon this type of Deed of Trust or upon all or any part
of the Indebtedness secured by this Deed of Trust; (b) a specific tax on
Grantor which Grantor is authorized or required . to deduct from payments
on the Indebtedness secured by this type of Deed of Trust; (c) a tax on
this type of Deed of Trust chargeable against the Lender or the holder of
the Note; and (d) a specific tax on all or any portion of the Indebtedness
or on payments of principal and interest made by Grantor.
Subsequent Taxes. If any tax to which this section applies is enacted
subsequent to the date of this Deed of Trust, this event shall have the
same effect as an Event of Default (as defined below), and Lender may
exercise any or all of its available remedies for an Event of Default as
provided below unless Grantor either (a) pays the tax before it becomes
delinquent, or (b) contests the tax as provided above in the Taxes and
Liens section and deposits with Lender cash or a sufficient corporate
surety bond or other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Deed of Trust as a security agreement are a part of this Deed of Trust.
Security Agreement. This instrument shall constitute a security agreement
to the extent any of the Properly constitutes fixtures or other personal
property, and Lender shall have all of the rights of a secured party under
the Uniform Commercial Code as amended from time to time.
Security Interest. Upon request by Lender, Grantor shall execute financing
statements and take whatever other action is requested by Lender to perfect
and continue Lender's security interest in the Rents and Personal Property.
In addition to recording this Deed of Trust in the real property records,
Lender may, at any time and without further authorization from Grantor,
file executed counterparts, copies or reproductions of this Deed of Trust
as a financing statement. Grantor shall reimburse Lender for all expenses
incurred in perfecting or continuing this security interest. Upon default,
Grantor shall assemble the Personal Properly in a manner and at a place
convenient to Lender and make it available to Lender promptly following
Lender's request.
Addresses. The mailing addresses of Grantor (debtor) and Lender (secured
party), from which information concerning the security interest granted by
this Deed of Trust may be obtained (each as required by the Uniform
Commercial Code), are as stated on the first page of this Deed of Trust.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Deed of Trust.
Further Assurances. At any time, and from time to time, upon request of
Lender, Grantor will make, execute and deliver, or will cause to be made,
executed or delivered, to Lender or to Lender's designee, and when
requested by Lender, cause to be filed, recorded, refiled, or rerecorded,
as the case may be, at such times and in such offices and places as Lender
may deem appropriate, any and all such mortgages, deeds of trust, security
deeds, security agreements, financing statements, continuation statements,
instruments of further assurance, certificates, and other documents as may,
in the sole opinion of Lender, be necessary or desirable in order to
effectuate, complete, perfect, continue, or preserve (a) the obligations of
Grantor under the Note, this Deed of Trust, and the Related Documents, and
(b) the liens and security interests created by this Deed of Trust as first
and prior liens on the Properly, whether now owned or hereafter acquired by
Grantor. Unless prohibited by law or agreed to the contrary by Lender in
writing, Grantor shall reimburse Lender for all costs and expenses incurred
in connection with the matters referred to in this paragraph.
Attorney-in-Fact. If Grantor fails to do any of the things referred to in
the preceding paragraph, Lender may do so for and in the name of Grantor
and at Grantor's expense. For such purposes, Grantor hereby irrevocably
appoints Lender as Grantor's attorney-in-fact for the purpose of making,
executing, delivering, filing, recording, and doing all other things as may
be necessary or desirable, in Lender's sole opinion, to accomplish the
matters referred to in the preceding paragraph.
FULL PERFORMANCE. If Grantor pays all the Indebtedness when due, and otherwise
performs all the obligations imposed upon Grantor under this Deed of Trust,
Lender shall execute and deliver to Trustee a request for full reconveyance and
shall execute and
<PAGE>
10-23-1998 DEED OF TRUST Page 6
Loan No BL14117 (Continued)
================================================================================
deliver to Grantor suitable statements of termination of any financing statement
on file evidencing Lender's security interest in the Rents and the Personal
Properly. Any reconveyance fee required by law shall be paid by Grantor, if
permitted by applicable law.
DEFAULT. Each of the following, at the option of Lender, shall constitute an
event of default ("Event of Default") under this Deed of Trust:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Default on Other Payments. Failure of Grantor within the time required by
this Deed of Trust to make any payment for taxes or insurance, or any other
payment necessary to prevent filing of or to effect discharge of any lien.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Deed of Trust or any of the Related Documents.
Compliance Default. Failure of Grantor to comply with any other term,
obligation, covenant or condition contained in this Deed of Trust, the Note
or in any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Deed of Trust,
the Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Deed of Trust or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Foreclosure, Forfeiture, etc. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any governmental agency
against any of the Property. However, this subsection shall not apply in
the event of a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the foreclosure or
forfeiture proceeding, provided that Grantor gives Lender written notice of
such claim and furnishes reserves or a surety bond for the claim
satisfactory to Lender.
Breach of Other Agreement. Any breach by Grantor under the terms of any
other agreement between Grantor and Lender that is not remedied within any
grace period provided therein, including without limitation any agreement
concerning any indebtedness or other obligation of Grantor to Lender,
whether existing now or later.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender in good faith deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter, Trustee or Lender, at its option, may exercise any one
or more of the following rights and remedies, in addition to any other rights or
remedies provided by law:
Accelerate Indebtedness. Lender shall have the right at its option without
notice to Grantor to declare the entire Indebtedness immediately due and
payable, including any prepayment penalty which Grantor would be required
to pay. This right is in addition to all other rights given to holders of
promissory notes under Title 55 of the Code of Virginia.
Foreclosure. With respect to all or any part of the Real Property, the
Trustee shall have the right to foreclose by notice and sale, and Lender
shall have the right to foreclose by judicial foreclosure, in either case
in accordance with and to the full extent provided by applicable law.
Grantor expressly waives and releases any requirement or obligation that
Lender or Trustee present evidence or otherwise proceed before any court or
other judicial or quasi-judicial body as a precondition to or otherwise
incident to the exercise of the powers of sale authorized by this Deed of
Trust. The proceeds of sale shall be applied by Trustee as follows: (a)
first, to pay all proper advertising expenses, auctioneer's allowance, the
expenses, if any, required to correct any irregularity in the title,
premium for Trustee's bond, auditor's fee, attorneys' fees, and all other
expenses of sale incurred in or about the protection and execution of this
Deed of Trust, and all moneys advanced for taxes, assessments, insurance,
and with interest thereon at the rate provided in the Note, and all taxes
and assessments due upon the Property at time of sale, and to retain as
compensation a commission of five percent (5%) on the amount of the sale or
sales; (b) second, to pay the whole amount then remaining unpaid on the
Indebtedness; (c) third, to pay liens of record against the Property
according to their priority of lien and to the extent that funds remaining
in Trustee's hands are available; and (d) last,
<PAGE>
10-23-1998 DEED OF TRUST Page 7
Loan No BL14117 (Continued)
================================================================================
to pay the remainder of the proceeds, if any, to Grantor, Grantor's heirs,
personal representatives, successors or assigns upon the delivery and
surrender to the purchaser of possession of the Property, less costs and
expenses of obtaining possession.
UCC Remedies. With respect to all or any part of the Personal Property,
Lender shall have all the rights and remedies of a secured party under the
Uniform Commercial Code.
Collect Rents. Lender shall have the right, without notice to Grantor, to
take possession of and manage the Properly and collect the Rents, including
amounts past due and unpaid, and apply the net proceeds, over and above
Lender's costs, against the Indebtedness. In furtherance of this right,
Lender may require any tenant or other user of the Property to make
payments of rent or use fees directly to Lender. If the Rents are collected
by Lender, then Grantor irrevocably designates Lender as Grantor's
attorney-in-fact to endorse instruments received in payment thereof in the
name of Grantor and to negotiate the same and collect the proceeds.
Payments by tenants or other users to Lender in response to Lender's demand
shall satisfy the obligations for which the payments are made, whether or
not any proper grounds for the demand existed. Lender may exercise its
rights under this subparagraph either in person, by agent, or through a
receiver.
Appoint Receiver. Lender shall have the right to have a receiver appointed
to take possession of all or any part of the Property, with the power to
protect and preserve the Property, to operate the Property preceding
foreclosure or sale, and to collect the Rents from the Property and apply
the proceeds, over and above the cost of the receivership, against the
Indebtedness. The receiver may serve without bond if permitted by law.
Lender's right to the appointment of a receiver shall exist whether or not
the apparent value of the Property exceeds the Indebtedness by a
substantial amount. Employment by Lender shall not disqualify a person from
serving as a receiver.
Tenancy at Sufferance. If Grantor remains in possession of the Property
after the Property is sold as provided above or Lender otherwise becomes
entitled to possession of the Property upon default of Grantor, Grantor
shall become a tenant at sufferance of Lender or the purchaser of the
Property and shall, at Lender's option, either (a) pay a reasonable rental
for the use of the Properly, or (b) vacate the Property immediately upon
the demand of Lender.
Other Remedies. Trustee or Lender shall have any other right or remedy
provided in this Deed of Trust or the Note or by law.
Notice of Sale. Lender shall give Grantor reasonable notice of the time and
place of any public sale of the Personal Property or of the time after
which any private sale or other intended disposition of the Personal
Property is to be made. Reasonable notice shall mean notice given at least
fourteen (14) days before the time of the sale or disposition. Any sale of
Personal Property may be made in conjunction with any sale of the Real
Property.
Sale of the Property. To the extent permitted by applicable law, Grantor
hereby waives any and all rights to have the Property marshalled. In
exercising its rights and remedies, the Trustee or Lender shall be free to
sell all or any part of the Property together or separately, in one sale or
by separate sales. Lender shall be entitled to bid at any public sale on
all or any portion of the Property.
Waiver; Election of Remedies. A waiver by any party of a breach of a
provision of this Deed of Trust shall not constitute a waiver of or
prejudice the party's rights otherwise to demand strict compliance with
that provision or any other provision. Election by Lender to pursue any
remedy provided in this Deed of Trust, the Note, in any Related Document,
or provided by law shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Deed of Trust after failure of Grantor to perform shall
not affect Lender's right to declare a default and to exercise any of its
remedies.
Attorneys' Fees; Expenses. If Lender institutes any suit or action to
enforce any of the terms of this Deed of Trust, Lender shall be entitled to
recover such sum as the court may adjudge reasonable as attorneys' fees at
trial and on any appeal. Whether or not any court action is involved, all
reasonable expenses incurred by Lender which in Lender's opinion are
necessary at any time for the protection of its interest or the enforcement
of its rights shall become a part of the Indebtedness payable on demand and
shall bear interest at the Note rate from the date of expenditure until
repaid. Expenses covered by this paragraph include, without [imitation,
however subject to any limits under applicable law, Lender's attorney fees
equal to 10.000% of the principal balance due on the Note whether or not
there is a lawsuit, including attorney fees equal to 10.000% of the
principal balance due on the Note for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals and
any anticipated post-judgment collection services, the cost of searching
records, obtaining title reports (including foreclosure reports),
surveyors' reports, appraisal fees, title insurance, and fees for the
Trustee, to the extent permitted by applicable law. Grantor also will pay
any court costs, in addition to all other sums provided by law.
Rights of Trustee. Trustee shall have all of the rights and duties of
Lender as set forth in this section.
POWERS AND OBLIGATIONS OF TRUSTEE. The following provisions relating to the
powers and obligations of Trustee are part of this Deed of Trust.
Powers of Trustee. In addition to all powers of Trustee arising as a matter
of law, Trustee (and each of them if more than one) shall have the power to
take the following actions with respect to the Property upon the written
request of Lender and Grantor: (a) join in preparing and filing a map or
plat of the Real Property, including the dedication of greets or other
rights to the public; (b) join in granting any easement or creating any
restriction on the Real Property; and (c) join in any subordination or
other agreement affecting this Deed of Trust or the interest of Lender
under this Deed of Trust.
<PAGE>
10-23-1998 DEED OF TRUST Page 8
Loan No BL14117 (Continued)
================================================================================
Obligations to Notify. Trustee shall not be obligated to notify any other
party of a pending sale under any other trust deed or lien, or of any
action or proceeding in which Grantor, Lender, or Trustee shall be a party,
unless the action or proceeding is brought by Trustee.
Trustee. Trustee shall meet all qualifications required for Trustee under
applicable law. In addition to the rights and remedies set forth above,
with respect to all or any part of the Property, the Trustee shall have the
right to foreclose by notice and sale, and Lender shall have the right to
foreclose by judicial foreclosure, in either case in accordance with and to
the full extent provided by applicable law.
Successor Trustee. Lender, at Lender's option, at any time hereafter and
without prior notice and without specifying any reason, may from time to
time appoint a successor Trustee to any Trustee appointed hereunder by an
instrument executed and acknowledged by Lender and recorded in the office
in the jurisdiction where this Deed of Trust has been recorded. The
instrument shall contain, in addition to all other matters required by
state law, the names of the original Lender, Trustee, and Grantor, the book
and page where this Deed of Trust is recorded, and the name of the
successor trustee and the county, city or town in which he or she resides,
and the instrument shall be executed and acknowledged by Lender or its
successors in interest. The successor trustee, without conveyance of the
Property, shall succeed to all the title, power, and duties conferred upon
the Trustee in this Deed of Trust and by applicable law. This procedure for
substitution of trustee shall govern to the exclusion of all other
provisions for substitution.
Power to Act Separately. If more than one Trustee is named in this Deed of
Trust, any Trustee may act alone, without the joinder of any other Trustee,
to exercise any or all the powers given to the Trustees collectively in
this Deed of Trust or by applicable law.
NOTICES TO GRANTOR AND OTHER PARTIES. Any notice under this Deed of Trust shall
be in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered, or when deposited with a
nationally recognized overnight courier, or, if mailed, shall be deemed
effective when deposited in the United States mail first class, certified or
registered mail, postage prepaid, directed to the addresses shown near the
beginning of this Deed of Trust. Any party may change its address for notices
under this Deed of Trust by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address. All
copies of notices of foreclosure from the holder of any lien which has priority
over this Deed of Trust shall be sent to Lender's address, as shown near the
beginning of this Deed of Trust. For notice purposes, Grantor agrees to keep
Lender and Trustee informed at all times of Grantor's current address.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Deed of Trust:
Amendments. This Deed of Trust, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Deed of Trust. No alteration of or amendment to
this Deed of Trust shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
Annual Reports. If the Property is used for purposes other than Grantor's
residence, Grantor shall furnish to Lender, upon request, a certified
statement of net operating income received from the Property during
Grantor's previous fiscal year in such form and detail as Lender shall
require. "Net operating income" shall mean all cash receipts from the
Property less all cash expenditures made in connection with the operation
of the Property.
Applicable Law. This Deed of Trust shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Virginia.
Lender and Grantor hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either party against the other.
Caption Headings. Caption headings in this Deed of Trust are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Deed of Trust.
Merger. There shall be no merger of the interest or estate created by this
Deed of Trust with any other interest or estate in the Properly at any time
held by or for the benefit of Lender in any capacity, without the written
consent of Lender.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Deed of Trust shall be joint and several, and all references to
Grantor shall mean each and every Grantor. This means that each of the
persons signing below is responsible for all obligations in this Deed of
Trust.
Severability. If a court of competent jurisdiction finds any provision of
this Deed of Trust to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Deed of Trust in all other respects shall remain valid and
enforceable.
Successors and Assigns. Subject to the limitations stated in this Deed of
Trust on transfer of Grantor's interest, this Deed of Trust shall be
binding upon and inure to the benefit of the parties, their heirs, personal
representatives, successors and assigns. If ownership of the Properly
becomes vested in a person other than Grantor, Lender, without notice to
Grantor, may deal with Grantor's successors with reference to this Deed of
Trust and the Indebtedness by way of forbearance or extension without
releasing Grantor from the obligations of this Deed of Trust or liability
under the Indebtedness.
Time Is of the Essence. Time is of the essence in the performance of this
Deed of Trust.
Waivers and Consents. Lender shall not be deemed to have waived any rights
under this Deed of Trust (or under the Related Documents) unless such
waiver is in writing and signed by Lender. No delay or omission on the part
of Lender in exercising any
<PAGE>
10-23-1998 DEED OF TRUST Page 9
Loan No BL14117 (Continued)
================================================================================
right shall operate as a waiver of such right or any other right. A waiver
by any party of a provision of this Deed of Trust shall not constitute a
waiver of or prejudice the party's right otherwise to demand strict
compliance with that provision or any other provision. No prior waiver by
Lender, nor any course of dealing between Lender and Grantor, shall
constitute a waiver of any of Lender's rights or any of Grantor's
obligations as to any future transactions. Whenever consent by Lender is
required in this Deed of Trust, the granting of such consent by Lender in
any instance shall not constitute continuing consent to subsequent
instances where such consent is required.
Waiver of Homestead Exemption. Grantor waives the benefit on Grantor's
homestead exemption as to this obligation.
EACH GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS DEED OF TRUST,
AND EACH GRANTOR AGREES TO ITS TERMS.
GRANTOR:
SPURLOCK ADHESIVES, INCORPORATED
By: /s/ Phillip S. Sumpter (SEAL)
--------------------------------------------------
Phillip S. SUMPTER, Chairman & CEO
By: /s/ Larry C. Birkholz (SEAL)
--------------------------------------------------
LARRY C. BURKHOLTZ (sic), CORPORATE CONTROLLER
Exhibit 10.57
THIS DOCUMENT PREPARED BY:
C Taylor Everett, Attorney at Law
Post Office Box 189, 357 West Main Street
Waverly, Virginia 23890
(804) 834-2160
THIS DEED, made this 29th day of April, 1998, by and between JAMES
RIVER BANK (formerly The Bank of Waverly), a Virginia Corporation, party of the
first part and hereinafter known as GRANTOR, and SPURLOCK ADHESIVES, INC., a
Virginia corporation, of Post office Box 8, Waverly, Virginia 23890, party of
the second part and hereinafter known as GRANTEE.
WITNESSETH:
That for and in consideration of the sum of TEN ($10.00) DOLLARS, and
other good and valuable consideration, cash in hand paid by the party of the
second part to the party of the first part, the receipt of which is hereby
acknowledged, the said party of the first part doth hereby bargain, sell, grant
and convey, unto the said Spurlock Adhesives, Inc., a Virginia corporation, with
GENERAL WARRANTY and ENGLISH COVENANTS OF TITLE, all of the following described
real estate, to-wit:
ALL that certain lot, piece or parcel of land lying and being situate
on the East side of Bank Street in the town of Waverly, Sussex County,
Virginia, and containing 0.506 acres, more or less, and being shown and
designated on a certain plat of survey entitled "SURVEY AND PLAT OF
PROPERTY BELONGING TO THE TOWN OF WAVERLY", made by Lee B. Carpenter,
Certified Surveyor, September 21, 1959, which said plat of survey is
duly
<PAGE>
recorded in the Charles Office of the Circuit Court of Sussex County,
Virginia in Plat Book 10 at page 80 and reference to which is heremade
for a more full and complete description.
LESS, SAVE, AND EXCEPT a small triangle of land containing 718.3 square
feet conveyed to Commonwealth of Virginia, Department of Conservation
and Economic Development, Division of Forestry, by deed dated 28
January, 1960, and duly recorded in the Clerics Office of the Circuit
Court of Sussex County, Virginia in Deed Book 59 at page 451, with plat
attached and recorded in Plat Book 10 at page 95.
IT BEING the same and identical property conveyed from Southside
Virginia Production Credit Association, et al. to the Bank of Waverly
by deed dated 2 November, 1982 and duly recorded in the Clerks Office
of the Circuit Court of Sussex County, Virginia in Deed Book 100, page
760. By amendment to its corporate charter, the Bank of Waverly changed
its name to James River Bank as May be seen by a Certificate of
Amendment of the State Corporation Commission, copy of each is hereto
attached as Attachment "A".
THIS CONVEYANCE is made subject to such conditions, restrictions and
easements of record to the extent that they may lawfully apply to the property
hereby conveyed.
WITNESS the following signature and seal:
JAMES RIVER BANK
By: /s/ Jerry P. Bryant (SEAL)
-----------------------------------------
Jerry P. Bryant, President
2
<PAGE>
COMMONWEALTH OF VIRGINIA
County of Sussex, to-wit:
The foregoing instrument was acknowledged before me this 30th day of
April, 1998, by Jerry R. Bryant, President of James River Bank, on behalf of
James River Bank.
My Commission Expires: January 31, 2001
---------------------------
/s/ Ruth A. Price
------------------------------------
Notary Public
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
February 28, 1996
The State Corporation Commission has found the accompanying articles submitted
on behalf of
JAMES RIVER BANK
(FORMERLY THE BANK OF WAVERLY)
to comply with the requirements of law, and confirms payment of all related
fees.
Therefore, it is ORDERED that this
CERTIFICATE OF AMENDMENT
be issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission, effective March 1, 1996.
The corporation is granted the authority conferred on it by law in accordance
with the articles, subject to the conditions and restrictions imposed by law.
STATE CORPORATION COMMISSION
By /s/ T. V. Morrison, Jr.
-----------------------------------
Commissioner
AMENACPT
CIS20318
96-02-21-0513
VIRGINIA: In the Clerk's Office of the Circuit Court of Sussex County. The
foregoing instrument was this day presented in the office aforesaid and is,
together with the certificate of acknowledgment annexed, admitted to record
this......4th........ day of........ May................... 1998 at...... at
1:24 P.M.
The tax imposed by ss.58.1-802 of the Code has been paid in the amount of
$137.50.
PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------- -------------- -------------- -------------- ------------- -------------- ------------- -------------- -------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$137,500.00 05-01-1998 05-01-2003 bl13711 1E 10 OLS
- --------------- -------------- -------------- -------------- ------------- -------------- ------------- -------------- -------------
</TABLE>
Reference in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Borrower: Spurlock Adhesives, Inc. (TIN: 54-1522700) Lender: JAMES RIVER BANK
P.O. Box 8 MAIN OFFICE
Waverly, VA 23890 209 W MAIN STREET
P. O. BOX 47
WAVERLY, VA 23890-0047
</TABLE>
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Amount: $137,500.00 Interest Rate: 8.250% Date of Note: May 1, 1998
</TABLE>
PROMISE TO PAY. Spurlock Adhesives, Inc. ("Borrower') promises to pay to JAMES
RIVER BANK ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Hundred Thirty Seven Thousand Five Hundred
& 00/100 Dollars ($137,500.00), together with interest at the rate of 8.250% per
annum on the unpaid principal balance from May 1, 1998, until paid in full.
PAYMENT. Borrower will pay this loan In 59 regular payments of $1,334.23 each
and one irregular last payment estimated at $110,091.79 Borrower's first payment
is due June 1, 1998, and all subsequent payments are due on the same day of each
month after that. Borrower's final payment due May 1, 2003, will be for all
principal, accrued interest, and all other applicable fees, costs and charges,
if any, not yet paid Payments include principal and interest. Interest on this
Note is computed on a 365/365 simple interest basis; that is, by applying the
ratio of the annual interest rate over the number of days in a year (366 during
leap years), multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal and
any remaining amount to any unpaid collection costs and late charges.
PREPAYMENT. Borrower may pay all or a portion of the amount owed earlier than it
is due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower making fewer payments.
LATE CHARGE. If a payment is 7 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $50.00, whichever is less.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower' property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest, together with all other
applicable fees, costs and charges, if any, immediately due and payable, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on the Note 4.000 percentage points.
The interest rate will not exceed the maximum rate permitted by applicable law.
Furthermore, subject to any limits under applicable law, upon default, Borrower
also agrees to pay Lender's attorney fees equal to 25.000% of the principal
balance due on the Note, and all of Lender's other collection expenses, whether
or not there is a lawsuit and including without limitation legal expenses for
bankruptcy proceedings. The Note shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Virginia. Lender and Borrower
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either party against the other.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $24.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keog accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts, and, at
Lender's option, to administratively freeze all such accounts to allow Lender to
protect Lender's charge and setoff rights provided on this paragraph.
COLLATERAL. This Note is secured by COMMERCIAL DEED OF TRUST AS RECORDED IN THE
CLERK'S OFFICE OF THE CIRCUIT COURT OF SUSSEX COUNTY, VIRGINIA ON PROPERTY
LOCATED AT 125 BANK STREET, WAVERLY, VA.
<PAGE>
05-01-1998 PROMISSORY NOTE Page 2
Loan No bl13711 (Continued)
================================================================================
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and an other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in to collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
Spurlock Adhesives, Inc.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Phillip S. Sumpter (SEAL) By: /s/ Irvine R. Spurlock (SEAL)
-------------------------------------- -----------------------------------------
PHILLIP S. SUMPTER, CHAIRMAN AND CEO IRVINE R. SPURLOCK, PRESIDENT
</TABLE>
================================================================================
<PAGE>
ALL that certain lot piece or parcel of land lying and being situate on the East
side of Bank Street in the town of Waverly, Sussex County, Virginia, and
containing 0.506 acres, more or less, and being shown and designated on a
certain plat of survey entitled "SURVEY AND PLAT OF PROPERTY BELONGING TO THE
TOWN OF WAVERLY', made by Lee B. Carpenter, Certified Surveyor, September 21,
1959, which said plat of survey is duly recorded in the Clerk's Office of the
Circuit Court of Sussex County, Virginia in Plat Book 10 at page 80 and
reference to which is heremade for a more full and complete description.
LESS, SAVE, AND EXCEPT a small triangle of land containing 718.3 square feet
conveyed to Commonwealth of Virginia, Department of Conservation and Economic
Development, Division of Forestry, by deed dated 28 January, 1960, and duly
recorded in the Clerk's Office of the Circuit Court of Sussex County, Virginia
in Deed Book 59 at page 451, with plat attached and recorded in Plat Book 10 at
page 95.
IT BEING the same and identical property conveyed from James River Bank to
Spurlock Adhesives, Inc., by deed dated 29 April 1998 and to be recorded in the
Clerk's Office of the Circuit Court of Sussex County, Virginia.
<PAGE>
ALL that certain lot, piece or parcel of land lying and being situate on the
East side of Bank Street in the town of Waverly, Sussex County, Virginia, and
containing 0.506 acres, more or less, and being shown and designated on a
certain plat of survey entitled "SURVEY AND PLAT OF PROPERTY BELONGING TO THE
TOWN OF WAVERLY, made by Lee B. Carpenter, Certified Surveyor, September 21,
1959, which said plat of survey is duly recorded in the Clerk's Office of the
Circuit Court of Sussex County, Virginia in Plat Book 10 at page 80 and
reference to which is heremade for a more full and complete description.
LESS, SAVE, AND EXCEPT a small triangle of land containing 718.3 square feet
conveyed to Commonwealth of Virginia, Department of Conservation and Economic
Development, Division of Forestry, by deed dated 28 January, 1960, and duly
recorded in the Clerk's Office of the Circuit Court of Sussex County, Virginia
in Deed Book 59 at page 451, with plat attached and recorded in Plat Book 10 at
page 95.
IT BEING the same and identical property conveyed from James River Bank to
Spurlock Adhesives, Inc., by deed dated 29 April 1998 and to be recorded in the
Clerk's Office of the Circuit Court of Sussex County, Virginia.
VIRGINIA: In the Clerk's Office of the Circuit Court of Sussex County. The
foregoing instrument was this day presented in the office aforesaid and is,
together with the certificate of acknowledgment annexed, admitted to record this
____ day of ______________, 19__ at _______ p.m.
TESTE: ____________________________ Clerk
Exhibi 10.59
RECORDATION REQUESTED BY:
JAMES RIVER BANK
209 W MAIN STREET
P. 0. BOX 47
WAVERLY, VA 23890-0047
WHEN RECORDED MAIL TO:
JAMES RIVER BANK
209 W MAIN STREET
P. 0. BOX 47
WAVERLY, VA 23890-0047
FOR RECORDER'S USE ONLY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Deed of Trust prepared by: JAMES RIVER BANK, WAVERLY, VIRGINIA
DEED OF TRUST
THIS IS A CREDIT LINE DEED OF TRUST
Maximum aggregate amount of principal
to be secured hereby at any one time: $137,500.00
Name and address of Noteholder secured hereby:
JAMES RIVER BANK
209 W. MAIN STREET
P.O. BOX 47
WAVERLY, VA 23890-0047
THIS DEED OF TRUST IS DATED MAY 1, 1998, among Spurlock Adhesives, Inc., whose
address is P.O. Box 8, Waverly,, VA . 23890 (referred to below as "Grantor");
JAMES RIVER BANK, whose address is 209 W MAIN STREET, P.O. BOX 47, WAVERLY, VA
23890-0047(referred to below sometimes as "Lender" and sometimes as
"Beneficiary"); and O. LeRoy STABLES, JR. and/or C. Taylor EVERETT ("Grantee,"
also referred to below as "Trustee"),whose address is Waverly, Sussex County,
Virginia.
CONVEYANCE AND GRANT. For valuable consideration, Grantor conveys, transfers,
encumbers and pledges and assigns to Trustee for the benefit-of Lender as
Beneficiary, all of Grantor's present and future right, title, and interest in
and to the following described real property, together with all existing or
subsequently erected or affixed buildings, improvements and fixtures; all
easements, rights of way, and appurtenances; and all rights, royalties, and
profits relating to the real property, including without limitation all
minerals, oil, gas, geothermal and similar matters, located in TOWN OF WAVERLY,
SUSSEX COUNTY, VIRGINIA, Commonwealth of Virginia (the "Real Property"):
SEE EXHIBIT "A" ATTACHED
The Real Property or its address is commonly known as 125 BANK ST., WAVERLY, VA
23890. The Real Property tax identification number is 28A8 (A) 33.
Grantor presently assigns absolutely and irrevocably to Lender all of Grantor's
right, title, and interest in and to all present and future leases of the
Property and all Rents from the Property. In addition, Grantor grants Lender a
Uniform Commercial Code security interest in the Rents and the Personal Property
defined below.
DEFINITIONS. The following words shall have the following meanings when used in
this Deed of Trust. Terms not otherwise defined in this Deed of Trust shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Beneficiary. The word "Beneficiary" means JAMES RIVER BANK, its
successors and assigns.
Deed of Trust. The words "Deed of Trust" mean this Deed of Trust among
Grantor, Lender, and Trustee.
Grantor. The word "Grantor" means any and all persons and entities
executing this Deed of Trust, including without limitation Spurlock
Adhesives, Inc..
<PAGE>
05-01-1998 DEED OF TRUST
Page 2
Loan No bl13711 (Continued)
================================================================================
Guarantor. The word "Guarantor" means and includes without limitation any
and all guarantors, sureties, and accommodation parties in connection with
the Indebtedness and their personal representatives, successors and
assigns.
Improvements. The word "Improvements" means and includes without limitation
all existing and future improvements, buildings, structures, mobile homes
affixed on the Real Property, facilities, additions, replacements and other
construction on the Real Property.
Indebtedness. The word "Indebtedness" means all principal and interest,
together with all other fees, costs and charges, if any, payable under the
Note and any amounts expended or advanced by Lender to discharge
obligations of Grantor or expenses incurred by Trustee or Lender to enforce
obligations of Grantor under this Deed of Trust, together with interest on
such amounts as provided in this Deed of Trust. In addition to the Note,
the word "Indebtedness" includes all obligations, debts and liabilities,
plus interest thereon, of Grantor to Lender, or any one or more of them, as
well as all claims by Lender against Grantor, or any one or more of them,
whether now existing or hereafter arising, whether related or unrelated to
the purpose of the Note, whether voluntary or otherwise, whether due or not
due, absolute or contingent, liquidated or unliquidated and whether Grantor
may be liable individually or jointly with others, whether obligated as
guarantor or otherwise, and whether recovery upon such Indebtedness may be
or hereafter may become barred by any statute of limitations, and whether
such Indebtedness may be or hereafter may become otherwise unenforceable.
In addition to the amounts specified in the Note, this Deed of Trust also
secures future advances. The maximum principal amount secured by this Deed
of Trust is $137,500.00 plus interest and costs of collection.
Lender. The word "Lender" means JAMES RIVER BANK, its successors and
assigns.
Note. The word "Note" means the Note dated May 1, 1998, in the principal
amount of $137,500.00 from Grantor to Lender, together with all renewals,
extensions, modifications, refinancings, and substitutions for the Note.
Personal Property. The words "Personal Property" mean all equipment,
fixtures, and other articles of personal property now or hereafter owned by
Grantor, and now or hereafter attached or affixed to the Real Property;
together with all accessions, parts, and additions to, all replacements of,
and all substitutions for, any of such property; and together with all
proceeds (including without limitation all insurance proceeds and refunds
of premiums) from any sale or other disposition of the Property.
Property. The word "Property" means collectively the Real Property and the
Personal Property.
Real Property. The words "Real Property" mean the property, interests and
rights described above in the "Conveyance and Grant" section.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Rents. The word "Rents" means all present and future rents, revenues,
income, issues, royalties, profits, and other benefits derived from the
Property.
Trustee. The word "Trustee" means O. LeRoy STABLES, Jr. and/or C. Taylor
EVERETT and any substitute or successor trustees. If more than one person
is named as trustee, the word "Trustee" means each such person.
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST
IN THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT OF THE
INDEBTEDNESS AND (2) PERFORMANCE OF ANY AND ALL OBLIGATIONS OF GRANTOR UNDER THE
NOTE, THE RELATED DOCUMENTS, AND THIS DEED OF TRUST. THIS DEED OF TRUST IS GIVEN
AND ACCEPTED ON THE FOLLOWING TERMS:
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Deed of Trust,
Grantor shall pay to Lender all amounts secured by this Deed of Trust as they
become due, and shall strictly and in a timely manner perform all of Grantor's
obligations under the Note, this Deed of Trust, and the Related Documents.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that Grantor's
possession and use of the Property shall be governed by the following
provisions:
Possession and Use. Until the occurrence of an Event of Default, Grantor
may (a) remain in possession and control of the Property, (b) use, operate
or manage the Property, and (c) collect any Rents from the Property.
<PAGE>
05-01-1998 DEED OF TRUST
Page 3
Loan No bl13711 (Continued)
================================================================================
Duty to Maintain. Grantor shall maintain the Property in tenantable
condition and promptly perform all repairs, replacements, and maintenance
necessary to preserve its value.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Deed of
Trust, shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. Grantor
represents and warrants to Lender that: (a) During the period of Grantor's
ownership of the Property, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any
hazardous waste or substance by any person on, under, about or from the
Property; (b) Grantor has no knowledge of, or reason to believe that there
has been, except as previously disclosed to and acknowledged by Lender in
writing, (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the Property by any prior owners or
occupants of the Property or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters; and (c) Except
as previously disclosed to and acknowledged by Lender in writing, (i)
neither Grantor nor any tenant, contractor, agent or other authorized user
of the Property shall use, generate, manufacture, store, treat, dispose of,
or release any hazardous waste or substance on, under, about or from the
Property and (ii) any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations and ordinances,
including without limitation those laws, regulations, and ordinances
described above. Grantor authorizes Lender and its agents to enter upon the
Property to make such inspections and tests, at Grantor's expense, as
Lender may deem appropriate to determine compliance of the Property with
this section of the Deed of Trust. Any inspections or tests made by Lender
shall be for Lender's purposes only and shall not be construed to create
any responsibility or liability on the part of Lender to Grantor or to any
other person. The representations and warranties contained herein are based
on Grantor's due diligence in investigating the Property for hazardous
waste and hazardous substances. Grantor hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Grantor becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnity and hold harmless Lender against any and all
claims, losses, liabilities damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Deed of Trust or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
of a hazardous waste or substance on the properties. The provisions of this
section of the Deed of Trust, including the obligation to indemnity, shall
survive the payment of the Indebtedness and the satisfaction and
reconveyance of the lien of this Deed of Trust and shall not be affected by
Lender's acquisition of any interest in the Property, whether by
foreclosure or otherwise.
Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance
nor commit, permit, or suffer any stripping of or waste on or to the
Property or any portion of the Property. Without limiting the generality of
the foregoing, Grantor will not remove, or grant to any other party the
right to remove, any timber, minerals (including oil and gas), soil, gravel
or rock products without the prior written consent of Lender.
Removal of Improvements. Grantor shall not demolish or remove any
Improvements from the Real Property without the prior written consent of
Lender. As a condition to the removal of any Improvements, Lender may
require Grantor to make arrangements satisfactory to Lender to replace such
Improvements with Improvements of at least equal value.
Lender's Right to Enter. Lender and its agents and representatives may
enter upon the Real Property at all reasonable times to attend to Lender's
interests and to inspect the Property for purposes of Grantor's compliance
with the terms and conditions of this Deed of Trust.
Compliance with Governmental Requirements. Grantor shall promptly comply
with all laws, ordinances, and regulations, now or hereafter in effect, of
all governmental authorities applicable to the use or occupancy of the
Property, including without limitation, the Americans With Disabilities
Act. Grantor may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Grantor has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Property are not jeopardized. Lender may require Grantor
to post adequate security or a surety bond, satisfactory to Lender, to
protect Lender's interest.
Duty to Protect. Grantor agrees neither to abandon nor leave unattended the
Property. Grantor shall do all other acts, in addition to those acts set
forth above in this section, which from the character and use of the
Property are necessary to protect and preserve the Property.
<PAGE>
05-01-1998 DEED OF TRUST
Page 4
Loan No bl13711 (Continued)
================================================================================
DUE ON SALE - CONSENT BY LENDER. NOTICE - THE DEBT SECURED HEREBY IS SUBJECT TO
CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE OR
CONVEYANCE OF THE PROPERTY CONVEYED. Lender may, at its option, declare
immediately due and payable all sums secured by this Deed of Trust upon the sale
or transfer, without the Lender's prior written consent, of all or any part of
the Real Property, or any interest in the Real Property. A "sale or transfer"
means the conveyance of Real Property or any right, title or interest therein;
whether legal, beneficial or equitable; whether voluntary or involuntary;
whether by outright sale, deed, installment sale contract, land contract,
contract for deed, leasehold interest with a term greater than three (3) years,
lease-option contract, or by sale, assignment, or transfer of any beneficial
interest in or to any land trust holding title to the Real Property, or by any
other method of conveyance of Real Property interest. If any Grantor is a
corporation, partnership or limited liability company, transfer also includes
any change in ownership of-more than twenty-five percent (25%) of the voting
stock, partnership interests or limited liability company interests, as the case
may be, of Grantor. However, this option shall not be exercised by Lender if
such exercise is prohibited by federal law or by Virginia law.
TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are a part of this Deed of Trust.
Payment. Grantor shall pay when due (and in all events prior to
delinquency) all taxes, special taxes, assessments, charges (including
water and sewer), fines and impositions levied against or on account of
the Property, and shall pay when due all claims for work done on or for
services rendered or material furnished to the Property. Grantor shall
maintain the Property free of all liens having priority over of equal to
the interest of Lender under this Deed of Trust, except for the lien of
taxes and assessments not due and except as otherwise provided in this
Deed of Trust.
Right To Contest. Grantor may withhold payment of any tax, assessment,
or claim in connection with a good faith dispute over the obligation to
pay, so long as Lender's interest in the Property is not jeopardized. If
a lien arises or is filed as a result of nonpayment, Grantor shall
within fifteen (15) days after the lien arises or, if a lien is filed,
within fifteen (15) days after Grantor has notice of the filing, secure
the discharge of the lien, or if requested by Lender, deposit with
Lender cash or a sufficient corporate surety bond or other security
satisfactory to Lender in an amount sufficient to discharge the lien
plus any costs and attorneys' fees or other charges that could accrue as
a result of a foreclosure or sale gander the lien. In any contest,
Grantor shall defend itself and Lender and shall satisfy any adverse
judgment before enforcement against the Property. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the
contest proceedings.
Evidence of Payment. Grantor shall upon demand furnish to Lender
satisfactory evidence of payment of the taxes or assessments and shall
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of the taxes and assessments against the Property.
Notice of Construction. Grantor shall notify Lender at least fifteen (15)
days before any work is commenced, any services are furnished, or any
materials are supplied to the Property, if any mechanic's lien,
materialmen's lien, or other lien could be asserted on account of the work,
services, or materials. Grantor will upon request of Lender furnish to
Lender advance assurances satisfactory to Lender that Grantor can and will
pay the cost of such improvements.
PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Deed of Trust.
Maintenance of Insurance. Grantor shall procure and maintain policies of
fire insurance with standard extended coverage endorsements on a
replacement basis for the full insurable value covering all Improvements on
the Real Property in an amount sufficient to avoid application of any
coinsurance clause, and with a standard mortgagee clause in favor of
Lender. Grantor shall also procure and maintain comprehensive general
liability insurance in such coverage amounts as Lender may request with
trustee and Lender being named as additional insureds in such liability
insurance policies. Additionally, Grantor shall maintain such other
insurance, including but not limited to hazard, business interruption, and
boiler insurance, as Lender may require. Policies shall be written in form,
amounts, coverages and basis acceptable to Lender and issued by a company
or companies acceptable to Lender. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least twenty (20)
days' prior written notice to Lender. Each insurance policy also shall
include an endorsement providing that coverage in favor of Lender will not
be impaired in any way by any act, omission or default of Grantor or any
other person. Should the Real Property at any time become located in an
area designated by the Director of the Federal Emergency Management Agency
as a special flood hazard area, Grantor agrees to obtain and maintain
Federal Flood Insurance for the full unpaid principal balance of the loan,
up to the maximum policy limits set under the National Flood Insurance
Program, or as otherwise required by Lender, and to maintain such insurance
for the term of the loan.
<PAGE>
05-01-1998 DEED OF TRUST
Page 2
Loan No bl13711 (Continued)
================================================================================
Application of Proceeds. Grantor shall promptly notify Lender of any loss
or damage to the Property. Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. Whether or not Lender's
security is impaired, Lender may, at its election, receive and retain the
proceeds of any insurance and apply the proceeds to the reduction of the
Indebtedness, payment of any lien affecting the Property, or the
restoration and repair of the Property. If Lender elects to apply the
proceeds to restoration and repair, Grantor shall repair or replace the
damaged or destroyed Improvements in a manner satisfactory to Lender.
Lender shall, upon satisfactory proof of such expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration
if Grantor is not in default under this Deed of Trust. Any proceeds which
have not been disbursed within 180 days after their receipt and which
Lender has not committed to the repair or restoration of the Property shall
be used first to pay any amount owing to Lender under this Deed of Trust,
then to pay accrued interest, and the remainder, if any, shall be applied
to the principal balance of the Indebtedness. If Lender holds any proceeds
after payment in full of the Indebtedness, such proceeds shall be paid to
Grantor as Grantor's interests may appear.
Unexpired Insurance at Sale. Any unexpired insurance shall inure to the
benefit of, and pass to, the purchaser of the Property covered by this Deed
of Trust at any trustee's sale or other sale held under the provisions of
this Deed of Trust, or at any foreclosure sale of such Property.
Grantor's Report on Insurance. Upon request of Lender, however not more
than once a year, Grantor shall furnish to Lender a report on each existing
policy of insurance showing: (a) the name of the insurer; (b) the risks
insured; (c) the amount of the policy; (d) the property insured, the then
current replacement value of such property, and the manner of determining
that value; and (e) the expiration date of the policy. Grantor shall, upon
request of Lender, have an independent appraiser satisfactory to Lender
determine the cash value replacement cost of the Property.
EXPENDITURES BY LENDER. If Grantor fails to comply with any provision of this
Deed of Trust, or if any action or proceeding is commenced that would materially
affect Lender's interests in the Property, Lender on Grantor's behalf may, but
shall not be required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the rate provided
for in the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses, at Lender's option, will (a) be payable
on demand, (b) be added to the balance of the Note and be apportioned among and
be payable with any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining term of the Note,
or (c) be treated as a balloon payment which will be due and payable at the
Note's maturity. This Deed of Trust also will secure payment of these amounts.
The rights provided for in this paragraph shall be in addition to any other
rights or any remedies to which Lender may be entitled on account of the
default. Any such action by Lender shall not be construed as curing the default
so as to bar Lender from any remedy that it otherwise would have had.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Deed of Trust.
Title. Grantor warrants generally that: (a) Grantor holds good and
marketable title to the Property in fee simple, free and clear of all liens
and encumbrances other than those set forth in the Real Property
description or in any title insurance policy, title report, or final title
opinion issued in favor of, and accepted by, Lender in connection with this
Deed of Trust, and (b) Grantor has the full right, power, and authority to
execute and deliver this Deed of Trust to Lender.
Defense of Title. Subject to the exception in the paragraph above, Grantor
warrants and will forever defend the title to the Property against the
lawful claims of all persons. In the event any action or proceeding is
commenced that questions Grantor's title or the interest of Trustee or
Lender under this Deed of Trust, Grantor shall defend the action at
Grantor's expense. Grantor may be the nominal party in such proceeding, but
Lender shall be entitled to participate in the proceeding and to be
represented in the proceeding by counsel of Lender's own choice, and
Grantor will deliver, or cause to be delivered, to Lender such instruments
as Lender may request from time to time to permit such participation.
Compliance With Laws. Grantor warrants that the Property and Grantor's use
of the Property complies with all existing applicable laws, ordinances, and
regulations of governmental authorities.
CONDEMNATION. The following provisions relating to condemnation proceedings are
a part of this Deed of Trust.
Application of Net Proceeds. If all or any part of the Property is
condemned by eminent domain proceedings or by any proceeding or purchase
in lieu of condemnation, Lender may at its election require that all or
any portion of the net proceeds of the award be applied to the
Indebtedness or the repair or restoration of the Property. The net
proceeds of the award shall mean the award after payment of all
reasonable costs, expenses, and attorneys' fees incurred by Trustee or
Lender in connection with the condemnation.
<PAGE>
05-01-1998 DEED OF TRUST
Page 6
Loan No bl13711 (Continued)
================================================================================
Proceedings. If any proceeding in condemnation is filed, Grantor shall
promptly notify Lender in writing, and Grantor shall promptly take such
steps as may be necessary to defend the action and obtain the award.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of its own choice, and Grantor will deliver or
cause to be delivered to Lender such instruments as may be requested by
it from time to time to permit such participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and. charges are a part of this
Deed of Trust:
Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall
execute such documents in addition to this Deed of Trust and take
whatever other action is requested by Lender to perfect and continue
Lender's lien on the Real Property. Grantor shall reimburse Lender for
all taxes, as described below, together with all expenses incurred in
recording, perfecting or continuing this Deed of Trust, including
without limitation all taxes, fees, documentary stamps, and other
charges for recording or registering this Deed of Trust.
Taxes. The following shall constitute taxes to which this section
applies: (a) a specific tax upon this type of Deed of Trust or upon all
or any part of the Indebtedness secured by this Deed of Trust. (b) a
specific tax on Grantor which Grantor is authorized or required to
deduct from payments on the Indebtedness secured by this type of Deed
of Trust; (c) a tax on this type of Deed of Trust chargeable against
the Lender or the holder of the Note; and (d) a specific tax on all or
any portion of the Indebtedness or on payments of principal and
interest made by Grantor.
Subsequent Taxes. If any tax to which this section applies is enacted
subsequent to the date of this Deed Trust, this event shall have the
same effect as an Event of Default (as defined below), and Lender may
exercise any or all of its available remedies for an Event of Default
as provided below unless Grantor either (a) pays the tax before it
becomes delinquent, or (b) contests the tax as provided above in the
Taxes and Liens section and deposits with Lender cash or a sufficient
corporate surety bond of (other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Deed of Trust as a security agreement are a part of this Deed of Trust.
Security Agreement. This instrument shall constitute a security
agreement to the extent any of the Property constitutes fixtures or
other personal property, and Lender shall have all of the rights of a
secured party under the Uniform Commercial Code as amended from time to
time.
Security Interest. Upon request by Lender, Grantor shall execute
financing statements and take whatever other action is requested by
Lender to perfect and continue Lender's security interest in the Rents
and Personal Property. In addition to recording this Deed of Trust in
the real property records, Lender may, at any time and without further
authorization from Grantor, file executed counterparts, copies or
reproductions of this Deed of Trust as a financing statement. Grantor
shall reimburse Lender for all expenses incurred in perfecting or
continuing this security interest. Upon default, Grantor shall assemble
the Personal Property in a manner and at a place convenient to Lender
and make it available to Lender promptly following Lender's request.
Addresses. The mailing addresses of Grantor (debtor) and Lender (secured
party), from which information concerning the security interest granted
by this Deed of Trust may be obtained (each as required by the Uniform
Commercial Code), are as stated on the first page of this Deed of Trust.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Deed of Trust.
Further Assurances. At any time, and from time to time, upon request of Lender,
Grantor will make, execute and deliver, or will cause to be made, executed or
delivered, to Lender or to Lender's designee, and when requested by Lender,
cause to be filed, recorded, refiled, or rerecorded, as the case may be, at such
times and in such offices and places as Lender may deem appropriate, any and all
such mortgages, deeds of trust, security deeds, security agreements, financing
statements, continuation statements, instruments of further assurance,
certificates, and other documents as may, in the sole opinion of Lender, be
necessary or desirable in order to effectuate, complete, perfect, continue, or
preserve (a) the obligations of Grantor under the Note, this Deed of Trust, and
the Related Documents, and (b) the liens and security interests created by this
Deed of Trust as first and prior liens on the Property, whether now owned or
hereafter acquired by Grantor. Unless prohibited by law or agreed to the
contrary by Lender in writing,
<PAGE>
05-01-1998 DEED OF TRUST
Page 7
Loan No bl13711 (Continued)
================================================================================
Grantor shall reimburse Lender for all costs and expenses incurred in
connection with the matters referred to in this paragraph.
Attorney-in-Fact. If Grantor fails to do any of the things referred to
in the preceding paragraph, Lender may do so for and in the name of
Grantor and at Grantor's expense. For such purposes, Grantor hereby
irrevocably appoints Lender as Grantor's attorney-in-fact for the
purpose of making, executing, delivering, filing, recording, and doing
all other things as may be necessary or desirable, in Lender's sole
opinion, to accomplish the matters referred to in the preceding
paragraph.
FULL PERFORMANCE. If Grantor pays all the Indebtedness when due, and otherwise
performs all the obligations imposed upon Grantor under this Deed of Trust,
Lender shall execute and deliver to Trustee a request for full reconveyance and
shall execute and deliver to Grantor suitable statements of termination of any
financing statement on file evidencing Lender's security interest in the Rents
and the Personal Property. Any reconveyance fee required by law shall be paid by
Grantor, if permitted by applicable law.
DEFAULT. Each of the following, at the option of Lender, shall constitute an
event of default ("Event of Default") under this Deed of Trust:
Default on Indebtedness. Failure of Grantor to make any payment when
due on the Indebtedness.
Default on Other Payments. Failure of Grantor within the time required
by this Deed of Trust to make any payment for taxes or insurance, or
any other payment necessary to prevent filing of or to effect discharge
of any lien.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Deed of Trust or any of
the Related Documents.
Compliance Default. Failure of Grantor to comply with any other term,
obligation, covenant or condition contained in this Deed of Trust, the
Note or in any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Deed of Trust,
the Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Deed of Trust or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Foreclosure, Forfeiture, etc. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any governmental agency
against any of the Property. However, this subsection shall not apply in
the event of a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the foreclosure or
forfeiture proceeding, provided that Grantor gives Lender written notice of
such claim and furnishes reserves or a surety bond for the claim
satisfactory to Lender.
Breach of Other Agreement. Any breach by Grantor under the terms of any
other agreement between Grantor and Lender that is not remedied within any
grace period provided therein, including without limitation any agreement
concerning any indebtedness or other obligation of Grantor to Lender,
whether existing now or later.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender in good faith deems itself insecure.
<PAGE>
05-01-1998 DEED OF TRUST
Page 8
Loan No bl13711 (Continued)
================================================================================
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter, Trustee or Lender, at its option, may exercise any one
or more of the following rights and remedies, in addition to any other rights or
remedies provided by law:
Accelerate Indebtedness. Lender shall have the right at its option without
notice to Grantor to declare the entire Indebtedness immediately due and
payable, including any prepayment penalty which Grantor would be required
to pay. This right is in addition to all other rights given to holders of
promissory notes under Title 55 of the Code of Virginia.
Foreclosure. With respect to all or any part of the Real Property, the
Trustee shall have the right to foreclose by notice and sale, and Lender
shall have the right to foreclose by judicial foreclosure, in either case
in accordance with and to the full extent provided by applicable law.
Grantor expressly waives and releases any requirement or obligation that
Lender or Trustee present evidence or otherwise proceed before any court or
other judicial or quasi-judicial body as a precondition to or otherwise
incident to the exercise of the powers of sale authorized by this Deed of
Trust. The proceeds of sale shall be applied by Trustee as follows: (a)
first, to pay all proper advertising expenses, auctioneer's allowance, the
expenses, if any, required to correct any irregularity in the title,
premium for Trustee's bond, auditor's fee, attorneys' fees, and all other
expenses of sale incurred in or about the protection and execution of this
Deed of Trust, and all moneys advanced for taxes, assessments, insurance,
and with interest thereon at the rate provided in the Note, and all taxes
and assessments due upon the Property at time of sale, and to retain as
compensation a commission of five percent (5%) on the amount of the sale or
sales; (b) second, to pay the whole amount then remaining unpaid on the
Indebtedness; (c) third, to pay liens of record against the Property
according to their priority of lien and to the extent that funds remaining
in Trustee's hands are available; and (d) last, to pay the remainder of the
proceeds, if any, to Grantor, Grantor's heirs, personal representatives,
successors or assigns upon the delivery and surrender to the purchaser of
possession of the Property, less costs and expenses of obtaining
possession.
UCC Remedies. With respect to all or any part of the Personal Property,
Lender shall have all the rights and remedies of a secured party under the
Uniform Commercial Code.
Collect Rents. Lender shall have the right, without notice to Grantor, to
take possession of and manage the Property and collect the Rents, including
amounts past due and unpaid, and apply the net proceeds, over and above
Lender's costs, against the Indebtedness. In furtherance of this right,
Lender may require any tenant or other user of the Property to make
payments of rent or use fees directly to Lender. If the Rents are collected
by Lender, then Grantor irrevocably designates Lender as Grantor's
attorney-in-fact to endorse instruments received in payment thereof in the
name of Grantor and to negotiate the same and collect the proceeds.
Payments by tenants or other users to Lender in response to Lender's demand
shall satisfy the obligations for which the payments are made, whether or
not any proper grounds for the demand existed. Lender may exercise its
rights under this subparagraph either in person, by agent, or through a
receiver.
Appoint Receiver. Lender shall have the right to have a receiver appointed
to take possession of all or any part of the Property, with the power to
protect and preserve the Property, to operate the Property preceding
foreclosure or sale, and to collect the Rents from the Property and apply
the proceeds, over and above the cost of the receivership, against the
Indebtedness. The receiver may serve without bond if permitted by law.
Lender's right to the appointment of a receiver shall exist whether or not
the apparent value of the Property exceeds the Indebtedness by a
substantial amount. Employment by Lender shall not disqualify a person from
serving as a receiver.
Tenancy at Sufferance. If Grantor remains in possession of the Property
after the Property is sold as provided above or Lender otherwise becomes
entitled to possession of the Property upon default of Grantor, Grantor
shall become a tenant at sufferance of Lender or the purchaser of the
Property and shall, at Lender's option, either (a) pay a reasonable rental
for the use of the Property, or (b) vacate the Property immediately upon
the demand of Lender.
Other Remedies. Trustee or Lender shall have any other right or remedy
provided in this Deed of Trust or the Note or by law.
Notice of Sale. Lender shall give Grantor reasonable notice of the time and
place of any public sale of the Personal Property or of the time after
which any private sale or other intended disposition of the Personal
Property is to be made. Reasonable notice shall mean notice given at least
fourteen (14) days before the time of the sale or disposition. Any sale of
Personal Property may be made in conjunction with any sale of the Real
Property.
Sale of the Property. To the extent permitted by applicable law, Grantor hereby
waives any and all rights to have the Property marshalled. In exercising its
rights and remedies, the Trustee or Lender shall be free to sell all
<PAGE>
05-01-1998 DEED OF TRUST
Page 9
Loan No bl13711 (Continued)
================================================================================
or any part of the Property together or separately, in one sale or by
separate sales. Lender shall be entitled to bid at any public sale on all
or any portion of the Property.
Waiver; Election of Remedies. A waiver by any party of a breach of a
provision of this Deed of Trust shall not constitute a waiver of or
prejudice the party's rights otherwise to demand strict compliance with
that provision or any other provision. Election by Lender to pursue any
remedy provided in this Deed of Trust, the Note, in any Related Document,
or provided by law shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Deed of Trust after failure of Grantor to perform shall
not affect Lender's right to declare a default and to exercise any of its
remedies.
Attorneys' Fees; Expenses. If Lender institutes any suit or action to
enforce any of the terms of this Deed of Trust, Lender shall be entitled to
recover such sum as the court may adjudge reasonable as attorneys' fees at
trial and on any appeal. Whether or not any court action is involved, all
reasonable expenses incurred by Lender which in Lender's opinion are
necessary at any time for the protection of its interest or the enforcement
of its rights shall become a part of the Indebtedness payable on demand and
shall bear interest at the Note rate from the date of expenditure until
repaid. Expenses covered by this paragraph include, without limitation,
however subject to any limits under applicable law, Lender's attorney fees
equal to 25.000% of the principal balance due on the Note whether or not
there is a lawsuit, including attorney fees equal to 25.000% of the
principal balance due on the Note for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals and
any anticipated post-judgment collection services, the cost of searching
records, obtaining title reports (including foreclosure reports),
surveyors' reports, appraisal fees, title insurance, and fees for the
Trustee, to the extent permitted by applicable law. Grantor also will pay
any court costs, in addition to all other sums provided by law.
Rights of Trustee. Trustee shall have all of the rights and duties of
Lender as set forth in this section.
POWERS AND OBLIGATIONS OF TRUSTEE. The following provisions relating to the
powers and obligations of Trustee are part of this Deed of Trust.
Powers of Trustee. In addition to all powers of Trustee arising as a
matter of law, Trustee (and each of them if more than one) shall have
the power to take the following actions with respect to the Property
upon the written request of Lender and Grantor: (a) join in preparing
and filing a map or plat of the Real Property, including the dedication
of streets or other rights to the public; (b) join in granting any
easement or creating any restriction on the Real Property; and (c) join
in any subordination or other agreement affecting this Deed of Trust or
the interest of Lender under this Deed of Trust.
Obligations to Notify. Trustee shall not be obligated to notify any
other party of a pending sale under any other trust deed or lien, or of
any action or proceeding in which Grantor, Lender, or Trustee shall be
a party, unless the action or proceeding is brought by Trustee.
Trustee. Trustee shall meet all qualifications required for Trustee
under applicable law. In addition to the rights and remedies set forth
above, with respect to all or any part of the Property, the Trustee
shall have the right to foreclose by notice and sale, and Lender shall
have the right to foreclose by judicial foreclosure, in either case in
accordance with and to the full extent provided by applicable law.
Successor Trustee. Lender, at Lender's option, at any time hereafter
and without prior notice and without specifying any reason, may from
time to time appoint a successor Trustee to any Trustee appointed
hereunder by an instrument executed and acknowledged by Lender and
recorded in the office in the jurisdiction where this Deed of Trust has
been recorded. The instrument shall contain, in addition to all other
matters required by state law, the names of the original Lender,
Trustee, and Grantor, the book and page where this Deed of Trust is
recorded, and the name of the successor trustee and the county, city or
town in which he or she resides, and the instrument shall be executed
and acknowledged by Lender or its successors in interest. The successor
trustee, without conveyance of the Property, shall succeed to all the
title, power, and duties conferred upon the Trustee in this Deed of
Trust and by applicable law. This procedure for substitution of trustee
shall govern to the exclusion of all other provisions for substitution.
Power to Act Separately. If more than one Trustee is named in this Deed
of Trust, any Trustee may act alone, without the joinder of any other
Trustee, to exercise any or all the powers given to the Trustees
collectively in this Deed of Trust or by applicable law.
NOTICES TO GRANTOR AND OTHER PARTIES. Any notice under this Deed of Trust shall
be in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered, or when deposited with a
nationally recognized overnight courier, or, if mailed, shall be deemed
effective when deposited in the United States mail first class, certified or
registered mail, postage prepaid, directed to the addresses shown near the
beginning of this Deed of Trust. Any party may change its address for notices
under this
<PAGE>
05-01-1998 DEED OF TRUST
Page 10
Loan No bl13711 (Continued)
================================================================================
Deed of Trust by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party's address. All copies of
notices of foreclosure from the holder of any lien which has priority over this
Deed of Trust shall be sent to Lender's address, as shown near the beginning of
this Deed of Trust. For notice purposes, Grantor agrees to keep Lender and
Trustee informed at all times of Grantor's current address.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Deed of Trust:
Amendments. This Deed of Trust, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the manners set forth in this Deed of Trust. No alteration of or
amendment to this Deed of Trust shall be effective unless given in
writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.
Annual Reports. If the Property is used for purposes other than
Grantor's residence, Grantor shall furnish to Lender, upon request, a
certified statement of net operating income received from the Property
during Grantor's previous fiscal year in such form and detail as Lender
shall require. "Net operating income" shall mean all cash receipts from
the Property less all cash expenditures made in connection with the
operation of the Property.
Applicable Law. This Deed of Trust shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Virginia.
Lender and Grantor hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either party against the
other.
Caption Headings. Caption headings in this Deed of Trust are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Deed of Trust.
Merger. There shall be no merger of the interest or estate created by
this Deed of Trust with any other interest or estate in the Property at
any time held by or for the benefit of Lender in any capacity, without
the written consent of Lender.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Deed of Trust shall be joint and several, and all references to
Grantor shall mean each and every Grantor. This means that each of the
persons signing below is responsible for all obligations in this Deed of
Trust.
Severability. If a court of competent jurisdiction finds any provision of
this Deed of Trust to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Deed of Trust in all other respects shall remain valid and
enforceable.
Successors and Assigns. Subject to the limitations stated in this Deed of
Trust on transfer of Grantor's interest, this Deed of Trust shall be
binding upon and inure to the benefit of the parties, their heirs, personal
representatives, successors and assigns. If ownership of the Property
becomes vested in a person other than Grantor, Lender, without notice to
Grantor, may deal with Grantor's successors with reference to this Deed of
Trust and the Indebtedness by way of forbearance or extension without
releasing Grantor from the obligations of this Deed of Trust or liability
under the Indebtedness.
Time Is of the Essence. Time is of the essence in the performance of this
Deed of Trust.
Waivers and Consents. Lender shall not be deemed to have waived any rights
under this Deed of Trust (or under the Related Documents) unless such
waiver is in writing and signed by Lender. No delay or omission on the part
of Lender in exercising any right shall operate as a waiver of such right
or any other right. A waiver by any party of a provision of this Deed of
Trust shall not constitute a waiver of or prejudice the party's right
otherwise to demand strict compliance with that provision or any other
provision. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights or
any of Grantor's obligations as to any future transactions. Whenever
consent by Lender is required in this Deed of Trust, the granting of such
consent by Lender in any instance shall not constitute continuing consent
to subsequent instances where such consent is required.
Waiver of Homestead Exemption. Grantor waives the benefit on Grantor's
homestead exemption as to this obligation.
<PAGE>
05-01-1998 DEED OF TRUST
Page 11
Loan No bl13711 (Continued)
================================================================================
EACH GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS DEED OF TRUST,
AND EACH GRANTOR AGREES TO ITS TERMS.
GRANTOR:
SPURLOCK ADHESIVES, INC.
By: /s/ Phillip S. Sumpter (SEAL)
--------------------------------------
Phillip S. SUMPTER, CHAIRMAN & CEO
By: /s/ Irvine R. Spurlock (SEAL)
--------------------------------------
IRVINE R. SPURLOCK, PRESIDENT
- --------------------------------------------------------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF Virginia )
) ss
COUNTY OF Sussex )
On this 1st day of May, 1998, before me, the undersigned Notary Public,
personally appeared PHILLIP S. SUMPTER, CHAIRMAN & CEO; and IRVINE R. SPURLOCK,
PRESIDENT of Spurlock Adhesives, Inc., and known to me to be authorized agents
of the corporation that executed the Deed of Trust and acknowledged the Deed of
Trust to be the free and voluntary act and deed of the corporation, by authority
of its Bylaws or by resolution of its board of directors, for the uses and
purposes therein mentioned, and on oath stated that they are authorized to
execute this Deed of Trust and in fact executed the Deed of Trust on behalf of
the corporation.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Peggy K Seward Residing at 1271 Huntington Road, Waverly, VA 23890
---------------------------------- -----------------------------------------
Notary Public in and for Virginia My commission expires 2-28-2002
------------- -------------------------------
</TABLE>
Exhibit 10.60
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------- -------------- -------------- ------------ ------------- -------------- -------------- -------------- --------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$137,500.00 05-01-1998 05-01-2003 bl13711 1E 10 OLS
- --------------- -------------- -------------- ------------ ------------- -------------- -------------- -------------- --------------
</TABLE>
Reference in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Borrower: Spurlock Adhesives, Inc. (TIN: 54-1522700) Lender: JAMES RIVER BANK
P.O. Box 8 MAIN OFFICE
Waverly, VA 23890 209 W MAIN STREET
P. O. BOX 47
WAVERLY, VA 23890-0047
</TABLE>
================================================================================
THIS BUSINESS LOAN AGREEMENT between Spurlock Adhesives, Inc. ("Borrower") and
JAMES RIVER BANK ("Lender') is made on the following terms and conditions.
Borrower has received prior commercial loans from Lender or has applied to
Lender for a commercial loan or loans and other financial accommodations,
including those which may be described on any exhibit or schedule attached to
this Agreement All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to Borrower, are referred
to in this Agreement individually as the "Loan" and collectively as the "Loans."
Borrower understands and agrees that: (a) in granting, renewing, or extending
any Loan, Lender is relying upon Borrower's representations, warranties, and
agreements, as set forth in this Agreement; (b) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender's sole
judgment and discretion; and (c) all such Loans shall be and shall remain
subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of April 1, 1998, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in law money of the United States of
America.
Agreement. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower" means Spurlock Adhesives, Inc. and its
successors and assigns. The word "Borrower" also includes, as applicable,
all subsidiaries and affiliates of Borrower as provided below in the
paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation are
amortization.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a
security interest, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust recent lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
title, "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in a
Collateral for the Indebtedness, and their personal representatives,
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties connection
with any Indebtedness and their personal representatives, successors and
assigns.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, including all principal, interest and other fees,
costs and charges, if any, together with all other present and future
liabilities and obligations of Borrower, or any one or more of them, to
Lender, whether direct or indirect, matured or unmatured, and whether
absolute or contingent, joint, several, or joint and several, and no
matter how the same may be evidenced or shall arise.
Lender. The word "Lender" means JAMES RIVER BANK, its successors and
assigns.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligation in
favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
<PAGE>
05-01-1998 BUSINESS LOAN AGREEMENT Page 2
Loan No bl13711 (Continued)
================================================================================
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangement!
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any and all types of liens and encumbrances, whether created by
law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance
acceptable to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible
items, but including leaseholds and leasehold improvements) less total
Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Virginia and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which it
is presently engaged or presently proposes to engage. Borrower also is
duly qualified as a foreign corporation and is in good standing in all
states in which the failure to so quality would have a material adverse
effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of
any other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change
in Borrower's financial condition subsequent to the date of the most
recent financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
<PAGE>
05-01-1998 BUSINESS LOAN AGREEMENT Page 3
Loan No bl13711 (Continued)
================================================================================
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and
as accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has
not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA,"
"SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents
and warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of
any of the properties, or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any
of the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or from
any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender and
its agents to enter upon the properties to make such inspections and tests
as Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by
Lender shall be at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnity
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release of a hazardous waste or substance
on the properties. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of
the Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at P.O. Box 8, Waverly, VA 23890. Unless Borrower
has designated otherwise in writing this location is also the office or
offices where Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to
make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in making the above referenced Loan
to Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's Indebtedness shall be paid
in full, or until this Agreement shall be terminated in the manner
provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
<PAGE>
05-01-1998 BUSINESS LOAN AGREEMENT Page 4
Loan No bl13711 (Continued)
================================================================================
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each
fiscal year, Borrower's balance sheet and income statement for the year
ended, audited by a certified public accountant satisfactory to Lender,
and, as soon as available, but in no event later than thirty (30) days
after the end of each fiscal quarter, Borrower's balance sheet and profit
and loss statement for the period ended, prepared and certified as correct
to the best knowledge and belief by Borrower's chief financial officer or
other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities agings of receivables and
payables, inventory schedules, budgets, tax returns, and other reports
with respect to borrower's financial condition and business operations as
Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.00 to 1.00.
Current Ratio. Maintain a ratio of Current Assets to Current Liabilities
in excess of 2.00 to 1.00.
Quick Ratio. Maintain a ratio of Liquid Assets to Current Liabilities in
excess of 2.00 to 1.00. Except as provided above, all computations made to
determine compliance with the requirements contained in this paragraph
shall be made in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true and
correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may from time to time
reasonably require with respect to Borrower's properties and operations,
in form, amounts, coverages and with insurance companies acceptable to
Lender. Borrower, upon request of Lender, will deliver to Lender from time
to time the policies or certificates of insurance in form satisfactory to
Lender, including stipulations that coverages will not be cancelled or
diminished without at least twenty (20) days prior written notice to
Lender. Each insurance policy also shall include an endorsement providing
that coverage in favor of Lender will not be impaired in any way by any
act, omission or default of Borrower or any other person. In connection
with all policies covering assets in which Lender holds or is offered a
security interest for the Loans, Borrower will provide Lender with such
loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually Borrower will have
an independent appraiser satisfactory to Lender determine, as applicable,
the actual cash value or replacement cost of any Collateral. The cost of
such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Fees and Charges. In addition to all other agreed upon fees and
charges, pay the following: NONE.
Loan Proceeds. Use all Loan proceeds solely for the following specific
purposes: PURCHASE OF PROPERTY AS DESCRIBED IN NOTE.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments. taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profits. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy, lien
or claim so long as (a) the legality of the same shall be contested in
good faith by appropriate proceedings, and (b) Borrower shall have
established on it books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessment taxes, charges, levies, liens and claims against Borrower's
properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a time,
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act
and with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party
to permit Lender free access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at
Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or
other officer or person acceptable to Lender, certifying
<PAGE>
05-01-1998 BUSINESS LOAN AGREEMENT Page 5
Loan No bl13711 (Continued)
================================================================================
that the representations and warranties set forth in this Agreement are
true and correct as of the date of the certificate and further certifying
that, as of the date of the certificate, no Event of Default exists under
this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local laws
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or of the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c)
pay any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholder
of a Subchapter S Corporation because of their ownership of shares of
stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender: or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by laws.
Borrower authorizes Lender, to the extent permitted by applicable law to charge
setoffs, administratively freeze all such accounts to allow Lender to protect
Lender's charge and setoff rights provided on this paragraph.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Indebtedness.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's
or any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, or a trustee or receiver is appointed for Borrower or for
all or a substantial portion of the assets of Borrower, or Borrower makes
a general assignment for the benefit of Borrower's creditors, or Borrower
files for bankruptcy, or an involuntary bankruptcy petition is filed
against Borrower and such involuntary petition remains undismissed for
sixty (60) days.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
<PAGE>
05-01-1998 BUSINESS LOAN AGREEMENT Page 6
Loan No bl13711 (Continued)
================================================================================
Indebtedness, or by any governmental agency. This includes a garnishment,
attachment, or levy on or of any of Borrower's deposit accounts with
Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate and, at Lender's option, all sums
owing in connection with the Loans, including all principal, interest, and all
other fees, costs and charges, if any, will become immediately due and payable,
all without notice of any kind to Borrower, except that in the case of an Event
of Default of the type described in the "Insolvency" subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related Documents or available at
law, in equity, or otherwise. Except as may be prohibited by applicable law, all
of Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Virginia.
Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either party against the
other.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will
be considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
out-of-pocket expenses incurred in connection with this Agreement or in
connection with the Loans made pursuant to this Agreement. Subject to any
limits under applicable law, if Lender hires an attorney to help enforce
this Agreement or to collect any Indebtedness, Borrower agrees to pay
Lender's attorney fees equal to 25.000% of the principal balance due on
the Note, and all of Lender's other collection expenses, whether or not
there is a lawsuit and including legal expenses for bankruptcy
proceedings.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered if hand delivered
or when deposited with a nationally recognized overnight courier or
deposited as certified or registered mail in the United States mail, first
class, postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there is
more than one Borrower, notice to any Borrower will constitute notice to
all Borrowers. For notice purposes, Borrower will keep Lender informed at
all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
<PAGE>
05-01-1998 BUSINESS LOAN AGREEMENT Page 7
Loan No bl13711 (Continued)
================================================================================
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and agreements of Borrower in
this Agreement shall survive the making of the Loan or Loans contemplated
hereby, and shall be deemed made and redated by Borrower at the time of
the making of each disbursement of Loan proceeds.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Indulgence by Lender with respect to any of the terms and
conditions of this Agreement or the failure of Lender to exercise any of
its rights under this Agreement shall not constitute a waiver thereof, and
Borrower shall remain liable for the strict performance of such terms and
conditions until this Agreement shall be terminated. No provision of this
Agreement may be waived or modified orally, but all such waivers or
modifications shall be in writing. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in
one instance shall not constitute Lender's continuing consent in
subsequent instances, and in all cases mat be granted or withheld in the
sole discretion of Lender.
THIS BUSINESS LOAN AGREEMENT IS SIGNED, SEALED AND DELIVERED EFFECTIVE IN ALL
RESPECTS AS OF MAY 1, 1998.
BORROWER:
<TABLE>
<CAPTION>
<S> <C>
Spurlock Adhesives, Inc.
By: /s/ Phillip S. Sumpter (SEAL) By: /s/ Irvine R. Spurlock (SEAL)
------------------------------------- ------------------------------------
PHILLIP S. SUMPTER, CHAIRMAN AND CEO IRVINE R. SPURLOCK, PRESIDENT
</TABLE>
LENDER:
JAMES RIVER BANK
By:________________________________
Authorized Officer
================================================================================
<PAGE>
EXHIBIT A
ALL that certain lot, piece or parcel of land lying and being situate on the
East side of Bank Street in the town of Waverly, Sussex County, Virginia, and
containing 0.506 acres, more or less, and being shown and designated on a
certain plat of survey titled "SURVEY AND PLAT OF PROPERTY BELONGING TO THE TOWN
OF WAVERLY" made by Lee B. Carpenter, Office of the Circuit Court of Sussex
County, Virginia in Plat Book 10 at page 80 and reference to which is heremade
for a more full and complete description.
LESS, SAVE, AND EXCEPT a small triangle of land containing 718.3 square feet
conveyed to Commonwealth of Virginia, Department of Conservation and Economic
Development, Division of Forestry, by deed dated 28 January 1960, and duly
recorded in the Clerk's office of the Circuit Court of Sussex County, Virginia
in Deed Book 59 at page 451, with plat attached and recorded in Plat Book 10 at
page 95.
Exhibit 21
Subsidiaries of the Registrant
The Registrant has one wholly owned operating subsidiary, Spurlock Adhesives,
Inc.
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Spurlock Industries, Inc.
We consent to the incorporation by reference in Registration Statement No.
333-09659 on Form S-8 of Spurlock Industries, Inc. of our report dated February
12, 1999 relating to the consolidated balance sheets of Spurlock Industries,
Inc. as of December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended, which
report is included in this Annual Report on Form 10-K for the year ended
December 31, 1998 of Spurlock Industries, Inc.
/s/ Cherry, Bekaert & Holland, L.L.P.
Cherry, Bekaert & Holland, L.L.P.
Richmond, Virginia
March 25, 1999
Exhibit 23.2
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of Spurlock Industries, Inc. dated August 6, 1996 of our
report dated January 17, 1997 relating to the financial statements of Spurlock
Industries, Inc. as of December 31, 1996, which report is incorporated by
reference in the Annual Report on Form 10-K for the year ended December 31, 1998
of Spurlock Industries, Inc.
/s/ Winter, Scheifley & Associates, P.C.
Winter, Scheifley & Associates, P.C.
Certified Public Accountants
March 25, 1999
Englewood, Colorado
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 105,460
<SECURITIES> 0
<RECEIVABLES> 2,660,878
<ALLOWANCES> 0
<INVENTORY> 617,610
<CURRENT-ASSETS> 3,654,790
<PP&E> 22,515,279
<DEPRECIATION> 6,076,617
<TOTAL-ASSETS> 21,162,706
<CURRENT-LIABILITIES> 16,500,693
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,974,252
<TOTAL-LIABILITY-AND-EQUITY> 21,162,706
<SALES> 27,659,786
<TOTAL-REVENUES> 27,659,786
<CGS> 21,718,458
<TOTAL-COSTS> 21,718,458
<OTHER-EXPENSES> 6,310,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (699,109)
<INCOME-PRETAX> (273,085)
<INCOME-TAX> 23,456
<INCOME-CONTINUING> (296,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296,541)
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
