<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _________ to __________
Commission File No. 1-12559
CRAGAR INDUSTRIES, INC.
(Name of small business issuer in its charter)
DELAWARE 86-0721001
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4636 NORTH 43RD AVENUE, PHOENIX, ARIZONA 85031
(Address of principal executive offices)
(602) 247-1300
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No []
Number of shares of common stock, $.01 par value, outstanding as of March
31, 1998: 2,453,990.
Transitional small business disclosure format. Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAGAR INDUSTRIES, INC.
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ - $ 016,322
Accounts receivable, less allowance for doubtful accounts
of $3,652,819 as of 3/31/98 and $3,616,336 as of 12/31/97 3,598,160 2,997,880
Inventories, net 5,013,365 4,653,480
Prepaid expenses 100,045 11,153
------------ ------------
Total current assets 8,711,570 7,678,835
------------ ------------
Property and equipment, net 960,603 972,753
Other assets, net 391,320 404,260
------------ ------------
$10,063,493 $ 9,055,848
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank Overdraft $ 9,033 $ -
Accounts payable 2,751,006 2,147,243
Accrued expenses 1,025,328 1,003,295
Accrued interest 83,260 135,495
Line of credit 4,737,172 5,518,544
Capital lease obligations, current installments 15,148 108,123
------------ ------------
Total current liabilities 8,620,947 8,912,700
------------ ------------
Investor Notes Payable - 600,000
------------ ------------
Total liabilities 8,620,947 9,512,700
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01; authorized 200,000 shares,
22,500 shares issued and outstanding 225 -
Additional paid-in capital - preferred 2,033,181 -
Common stock, par value $.01; authorized 5,000,000 shares,
2,453,990 shares issued and outstanding 24,540 24,540
Additional paid-in capital - common 12,075,215 11,845,882
Accumulated deficit (12,690,615) (12,327,274)
------------- ------------
Total stockholders' equity (deficit) 1,442,546 (456,852)
------------- ------------
$10,063,493 $ 9,055,848
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------------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
2
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CRAGAR INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
------------- ------------
<S> <C> <C>
Net sales $ 3,115,197 $ 4,644,521
Cost of goods sold 2,487,467 3,863,096
------------- ------------
Gross profit 627,730 781,425
------------- ------------
Selling, general and administrative expenses 826,431 830,079
Amortization of excess of fair value of assets acquired over cost - (184,367)
------------- ------------
Income (loss) from operations (198,701) 135,713
------------- ------------
Non-operating (income) expenses, net
Interest expense, net 172,208 110,721
Other, net (20,307) 16,404
------------- ------------
Total non-operating expenses 151,901 127,125
------------- ------------
Income (loss) before income taxes (350,602) 8,588
Income taxes - -
------------- ------------
Net earnings (loss) $ (350,602) $ 8,588
------------- ------------
------------- ------------
Basic earnings (loss) per share $ (.15) $ 0.00
------------- ------------
------------- ------------
Weighted average shares outstanding - basic 2,453,990 2,210,305
------------- ------------
------------- ------------
Diluted earnings (loss) per share $ (.15) $ 0.00
------------- ------------
------------- ------------
Weighted average shares outstanding - diluted 2,453,990 2,386,324
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
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CRAGAR INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ (350,602) $ 8,588
Adjustments to reconcile net earnings (loss) to net cash used
in operating activities:
Provision for (write-off of) doubtful accounts 36,483 (5,283)
Reduction in provision for obsolete and slow-moving inventory (145,792) (93,643)
Depreciation and amortization of property and equipment 71,630 76,013
Amortization of other assets 12,940 33,847
Amortization of excess fair value of assets acquired over cost - (184,367)
Increase (decrease) in cash resulting from changes in:
Accounts receivable (636,763) (1,764,469)
Inventories (214,093) 581,542
Prepaid expenses (88,892) (41,983)
Other assets - (7,500)
Bank overdraft 9,033 -
Accounts payable and accrued expenses 628,007 (58,614)
Accrued interest (52,235) (60,464)
------------ -----------
Net cash used in operating activities (730,284) (1,516,333)
------------ ------------
Cash flows from investing activities
Purchases of property and equipment (59,480) (117,164)
------------ ------------
Net cash used in investing activities (59,480) (117,164)
------------ ------------
Cash flows from financing activities
Issuance of preferred stock and warrants 1,650,000 -
Net borrowings (repayments) on note payable (781,373) 987,112
Repayments of long-term debt (2,210) (1,880)
Repayments of capital lease obligations (92,975) (16,206)
------------ ------------
Net cash provided by financing activities 773,442 969,026
------------ ------------
Net decrease in cash (16,322) (664,471)
Cash and cash equivalents at beginning of period 16,322 863,050
------------ ------------
Cash and cash equivalents at end of period $ - $ 198,578
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
4
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CRAGAR INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation:
The interim financial data of Cragar Industries, Inc., (the Company)
presented as of and for the three months ended March 31, 1998 and 1997 is
unaudited; however, in the opinion of the Company, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results for the interim periods.
The year-end balance sheet information was derived from audited
financial statements. These interim financial statements should be read in
conjunction with the Company's audited financial statements.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
-------------- -----------------
<S> <C> <C>
Raw Materials $ 2,817,821 $ 3,041,710
Work in Process 200,858 197,074
Finished Goods 2,557,902 2,123,694
-------------- -----------------
5,576,581 5,362,478
Less allowance for obsolete and slow-moving inventory 563,216 708,998
-------------- -----------------
Inventories, net $ 5,013,365 $ 4,653,480
-------------- -----------------
-------------- -----------------
</TABLE>
3. Net Earnings (loss) per Share
Net Earnings (loss) per common share amounts are based on the weighted
average number of common shares and common stock equivalents outstanding as
reflected on Exhibit 11 to this Quarterly Report on Form 10-QSB.
4. Other Related Reserves and Allowances
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
--------------
UNAUDITED
-------------- -----------------
<S> <C> <C>
Stock Adjustments and Returns $ 82,633 $ 109,179
Rebates Reserve 50,955 39,646
Cash Discounts 19,044 17,103
Advertising Allowance 22,919 6,988
Warranty Reserve 390,750 348,613
Royalty Reserve 12,588 11,409
</TABLE>
5
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5. Preferred Stock and Warrants
During January 1998, the Company issued 22,500 shares of preferred stock
for $1,650,000 cash and conversion of $600,000 of investor notes payable. The
Company also granted 333,333 warrants to purchase shares of common stock
valued at $229,333 in connection with the preferred stock issuance. During
the first quarter ended March 31, 1998, no warrants to purchase shares of
Common Stock were exercised.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. Additional written or
oral forward-looking statements may be made by the Company from time to time
in filings with the Securities Exchange Commission or otherwise. Such
forward-looking statements are within the meaning of that term in Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but not be
limited to, projections of revenues, income or loss, estimates of capital
expenditures, plans for future operations, products or services, and
financing needs or plans, as well as assumptions relating to the foregoing.
The words "believe," "expect," "anticipate," "estimate," "project," and
similar expressions identify forward-looking statements, which speak only as
of the date the statement was made. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be
predicted or quantified. Future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements. The following disclosures, as well as other
statements in the Company's report, including those contained below in this
Item 2, "Management's Discussion and Analysis of Financial Condition or Plan
of Operation," and in the Notes to the Company's Financial Statements,
describe factors, among others, that could contribute to or cause such
differences.
INTRODUCTION
CRAGAR, (the Company) designs, produces, and sells high-quality custom
vehicle wheels and wheel accessories. The Company possesses one of the most
widely recognized brand names in the automotive aftermarket industry. The
Company markets a wide selection of custom wheels and components that are
designed to appeal to automotive enthusiasts who desire to modify the
styling, design, or performance of their cars, trucks, or vans. CRAGAR sells
its wheel products in the automotive aftermarket through a national
distribution network of value-added resellers, including tire and automotive
performance warehouse distributors and retailers and mail order houses.
The Company was formed in 1992 to acquire certain assets, including the
accounts receivable, inventory, property, equipment, patents, trademarks, and
copyrights in a leveraged buyout from the Wheel and Tire Division of Mr.
Gasket Company, Inc., which had filed for reorganization. The fair value of
the net assets acquired exceeded the final purchase price, and, accordingly,
the fair value of the property and equipment, patents, trademarks, and
copyrights acquired was reduced to zero. The remaining balance of $3,687,341
was classified as excess of fair value of assets acquired over cost (commonly
referred to as negative goodwill) and was amortized to income over five years
using the straight-line method ($737,468 per annum through December 31,
1997). As of the year ended December 31, 1997 the balance of the excess of
fair value of assets acquired over cost was zero.
6
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RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of net
sales revenue for the three month periods ended March 31, 1998 and March 31,
1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 79.8 83.2
------------- -------------
Gross profit 20.2 16.8
SG&A 26.5 17.9
Amortization of negative goodwill - (4.0)
------------- -------------
Income (loss) from operation (6.4) 2.9
Non-operating expense, net 4.9 2.7
Income taxes - -
------------- -------------
Net earnings (loss) (11.3) 0.2
</TABLE>
COMPARISON OF QUARTER ENDED MARCH 31, 1998 AND QUARTER ENDED MARCH 31, 1997
Net sales consist of gross sales less discounts, returns and allowances.
Net sales for the quarter ended March 31, 1998 were $3,115,197 compared to
$4,644,521 during the quarter ended March 31, 1997, representing a 32.9%
decrease in sales. The decrease was primarily attributable to the lack of
shipments to the Company's former primary customer, Super Shops, Inc. ("Super
Shops"), which filed for bankruptcy on September 19, 1997 and is currently
being liquidated. Discounts, returns and allowances decreased by 24.7%
between the quarter ended March 31, 1998 and the quarter ended March 31,
1997. The decrease in discounts, returns and allowances was attributable to
historical trends, modifications in customer agreements and lower sales
levels for the period ended March 31, 1998.
Gross profit is determined by subtracting cost of goods sold from net
sales. Cost of goods sold consists primarily of the costs of labor,
aluminum, steel, raw materials, overhead, and material processing used in the
production of the Company's products, as well as the freight costs of
shipping product to the Company's customers. Gross profit for the quarter
ended March 31, 1998 was $627,730 compared to $781,425 for the quarter ended
March 31, 1997. As a percentage of net sales, gross profit increased in the
first quarter of 1998 compared to the first quarter of 1997, from 16.8% to
20.2%. Product mix changes and the introduction of several new wheel styles
at higher margins contributed to the gross profit improvement. The reduction
in sales attributable to the loss of Super Shops sales in the quarter ended
March 31, 1998 had no material impact on gross profit. Cost reduction
efforts including the reduction of production personnel and outsourcing of
selected manufacturing processes positively affected gross profit in the
first quarter of 1998. However, the Company also expects its gross profits
and overall results of operations to vary from period to period based upon a
variety of factors, including changes in order levels from customers, the
timing of orders, changes in product mix, the level of net sales and other
factors.
Selling, general, and administrative ("SG&A") expenses consist primarily
of commissions, marketing expenses, promotional programs, salaries and wages,
product development expenses, office expenses, accounting and legal expenses,
bad debt reserves, and general overhead. These expenses for the first
quarter ended March 31, 1998 were $826,431 compared to $830,079 for the
quarter ended March 31, 1997. This decrease of 0.4% was due in part to the
Company's focus on reducing expenses, primarily in labor with some offsetting
by increased legal expenses.
Non-operating expenses, net, for the first quarter of 1998 were $151,901
compared to $127,125 for the first quarter of 1997. The increase of $24,776
is primarily attributable to an increase in interest expense
7
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resulting from the Company's increase in the amount outstanding under its
credit facility with Norwest Business Credit and an additional two percent
interest charge because the Company was in default under the Norwest Credit
Facility. See "Management's Discussion and Analysis or Plan of Operation --
Liquidity and Capital Resources."
Because of its carry-forward losses from previous years, the Company had
no income tax provision in the first quarter of 1998 and 1997.
Net loss for the first quarter ended March 31, 1998 was $350,602
compared to net earnings of $8,588 for the first quarter ended March 31,
1997, an increase in losses of $359,140. Basic loss per share for the first
quarter ended March 31, 1998 was $.15 compared to basic earnings per share of
$0.00 for the first quarter ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1998, the Company raised $2.25
million ($1.65 million in cash and conversion of $600,000 in investor notes
payable) from a private placement of 22,500 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock"), which includes the issuance of
warrants to purchase 333,333 shares of the Company's common stock at $8.75
per share.
In April 1995, the Company entered into a revolving credit facility
("Norwest Credit Facility") with Norwest Business Credit, Inc. ("Norwest").
As of April 1, 1998, the Norwest Credit Facility had a maximum commitment of
$5.8 million, subject to certain restrictions with respect to the Company's
collateral borrowing base. Prior to April 1, 1998, the maximum commitment
was $9.5 million. The Norwest Credit Facility, which was due to expire on
April 15, 1998, was secured by the Company's accounts receivable,
inventories, intangible assets, and property and equipment. Interest was due
monthly at the prime rate plus 4.25%. Norwest agreed to extend the Credit
Facility to April 30, 1998. As of March 31, 1998, the outstanding balance
under the Credit Facility was $4,737,172, and the Company had excess
availability of $454,069.
On April 22, 1998, the Company secured a credit facility (the "NCFC
Credit Facility") with NationsCredit Commercial Funding Corporation ("NCFC").
The terms of the NCFC Credit Facility specify a maximum combined term loan
and revolving loan totaling $8.5 million at an interest rate of 1.25% above
the prime rate. The NCFC Credit Facility is secured by substantially all of
the Company's assets and has a term of four years. The Company was able to
fully repay the Norwest Credit Facility from the proceeds of NCFC Credit
Facility. As of April 22, 1998 the outstanding balance under the NCFC Credit
Facility was $4,857,683, and the Company had excess availability of
$1,367,467. The NCFC Credit Facility contains no financial performance
covenants and requires prior approval rights to any declarations of dividend
payments.
At March 31, 1998, the Company had an accumulated deficit of
$12,690,615. For the quarter ended March 31, 1998, the Company's operating
activities used $730,284 of cash, which was primarily attributable to the net
loss and increases in accounts receivable and inventories, offset by
increases in accounts payable and accrued expenses. The Company's increase in
inventory at March 31, 1998 from the year ended December 31, 1997 level used
approximately $0.36 million in cash. The Company's financing activities
included the sale of preferred stock for $2.25 million, of which $1.48
million was used to reduce the amount owed under the Norwest Credit Facility
and pay down long term debt, resulting in net cash provided from financing
activities of approximately $0.77 million.
8
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As an ongoing consequence of the bankruptcy of Super Shops, the
Company's principal customer, management is uncertain whether the anticipated
cash flow from operations will be sufficient to meet the Company's
anticipated operating, growth plans and capital needs. Therefore, the
Company also is currently negotiating with other financial institutions to
secure additional equity or subordinated debt. There can be no assurance
that the Company's cash flow will be sufficient to finance its operations as
currently planned or that it will be able to supplement its cash flow with
additional financing. No assurance can be given of the Company's ability to
obtain such financing on favorable terms, if at all. If the Company is
unable to obtain additional financing, its ability to meet its current and
future revenue growth plans could be materially and adversely affected.
ACCOUNTING MATTERS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130) which became effective for the Company January 1, 1998. SFAS
No. 130 establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial
statements. The adoption of SFAS No. 130 had no material impact on the
Company.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131) which became effective for
the Company January 1, 1998. SFAS No. 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim reports issued to
stockholders. The adoption of SFAS No. 131 had no material impact on the
Company.
SEASONALITY
Historically, the Company has experienced higher revenue in the first
two quarters of the year than in the latter half of the year. The Company
believes that this results from seasonal buying patterns resulting, in part,
from an increased demand for certain automotive parts and accessories and its
ultimate customers having added liquidity from income tax refunds during the
first half of the year.
INFLATION
Increases in inflation generally result in higher interest rates.
Higher interest rates on the Company's borrowings would decrease the
profitability of the Company. To date, general price inflation has not had a
significant impact on the Company's operations; however, increases in metal
prices have from time to time, and could in the future, adversely affect the
Company's gross profit.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company's future operating results and financial condition are
dependent upon, among other things, the Company's ability to implement its
business strategy. Potential risks and uncertainties that could affect the
Company's profitability are set forth below.
RISK ASSOCIATED WITH BANKRUPTCY OF PRINCIPAL CUSTOMER
On September 19, 1997, the Company's principal customer, Super Shops,
filed for reorganization under Chapter 11 of the Federal Bankruptcy Code in
the United States Bankruptcy Court, Central District of California. On March
31, 1998, the accounts receivable owed to the Company by Super Shops totaled
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$3,523,028, all of which has been reserved. The Company will continue to
review various alternatives with respect to this matter. The Company's Chief
Operating Officer is the Chairman of the Unsecured Creditors' Committee and
is vigorously attempting to recover funds due the Company. Super Shops has
ceased operations and has begun a liquidation plan. As an unsecured
creditor, there is no assurance that the Company will recover any of the
accounts receivable from Super Shops. Furthermore, if the Company should be
able to recover a portion of the account receivable, the timing and amount of
such recovery is uncertain. Accordingly, the Company has established an
allowance for bad debt that includes the entire $3,523,028 account receivable
from Super Shops. Because Super Shops has ceased operations, the Company
also has lost its largest customer, which resulted in decreased revenues
during the first quarter of 1998. It is uncertain whether other current or
new customers can make up for the lost revenues generated by Super Shops.
Failure to resolve this matter satisfactorily could have a material adverse
effect on the Company.
HISTORY OF PREVIOUS LOSSES
The Company was incorporated in December 1992 and has incurred
significant losses in each of its completed fiscal years. For the quarter
ended March 31, 1998, the Company incurred a net loss of $350,602. There can
be no assurance that the Company will be profitable in the future. Net sales
for the year ended December 31, 1997 declined to $16,545,159 from $18,625,497
for the year ended December 31, 1996. Net sales for the three months ended
March 31, 1998 declined to $3,115,197 from $4,644,521 for the same period in
1997. As of March 31, 1998, the Company had cumulative losses of $12,690,615
and total stockholders' equity of $1,442,546.
LISTING AND MAINTENANCE CRITERIA FOR SECURITIES; PENNY STOCK RULES
The Common Stock and Warrants are listed on the Nasdaq Small Cap Market
and the Boston Stock Exchange. The Company's capital and surplus and
shareholders' equity have fallen below the minimum required by NASDAQ
primarily as a result of the establishment of an allowance for bad debt
arising from the bankruptcy of the Company's primary customer. With the
$2.25 million proceeds from the private placement of Series A Convertible
Preferred Stock, the Company exceeds the minimum requirements for continued
listing on the Boston Stock Exchange, but will need to raise additional
equity capital to exceed the minimum listing requirements for NASDAQ. There
can be no assurance that the Company in the future will meet the requirements
for continued listing on the Nasdaq SmallCap Market or the Boston Stock
Exchange with respect to the Common Stock or Warrants. If the Common Stock
or the Warrants fail to maintain such listings, the market value of the
Common Stock and Warrants likely would decline and holders likely would find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock and Warrants. In addition, if the Company
fails to maintain Nasdaq SmallCap Market listing for its securities, and no
other exclusion from the definition of a "penny stock" under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") is available, then any
broker engaging in a transaction in the Company's securities would be
required to provide any customer with a risk disclosure document, disclosure
of market quotations, if any, disclosure of the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market values of the Company's securities held in the
customer's accounts. The bid and offer quotation and compensation
information must be provided prior to effecting the transaction and must be
contained on the customer's confirmation. If brokers become subject to the
"penny stock" rules when engaging in transactions in the Company's
securities, they would become less willing to engage in such transactions,
thereby making it more difficult for the Company's securityholders to dispose
of Common Stock and Warrants.
10
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COVENANT DEFAULTS; DEPENDENCE ON EXTERNAL FINANCING
The NCFC Credit Facility, which expires April 22, 2002, has a maximum
commitment of $8.5 million, and is subject to collateral availability at the
time of borrowing. There can be no assurance that the Company will be able to
satisfy the terms and conditions of the NCFC Credit Facility in the future. In
addition, there can be no assurance that cash flow from operations will be
sufficient to fund the Company's existing operations or to enable the Company to
implement fully its business strategies, especially if the Company is required
to refinance or replace the NCFC Credit Facility. As a result, the Company may
be required to raise additional funds through equity or debt financing. No
assurance can be given that such additional financing will be available on terms
acceptable to the Company, if at all. Further, any such financing may result in
further dilution to the Company's stock and higher interest expense and may not
be on terms that are favorable to the Company.
DEPENDENCE ON KEY DISTRIBUTORS; IMPLEMENTATION OF NEW DISTRIBUTION CHANNELS
A limited number of customers have accounted for a substantial portion of
the Company's revenue in each year. The financial condition and success of its
current customers and the Company's ability to obtain orders from new customers
are critical to the Company's success. The Company's top ten customers
accounted for approximately 55.9% of the Company's gross sales for the first
three months of 1998. The top three customers accounted for 27.0% of gross
sales. For the three months ended March 31, 1998, J. H. Heafner Company, Inc.
accounted for 12.0% of gross sales, PDK accounted for 7.9% of gross sales and
Reliable Automotive Company, Inc. accounted for 7.1% of gross sales. For the
year ended December 31, 1997, the Company's ten largest customers accounted for
a total of approximately 66.3% of gross sales, with Super Shops accounting for
27.5%, J. H. Heafner Company, Inc. 9.6%, and Keystone Automotive 6.2%. In 1996,
the Company's ten largest customers accounted for a total of approximately 75.7%
of its gross sales, with Super Shops, J. H. Heafner Company, Inc., and B & R
Wholesale Tire accounting for 24.3%, 12.1%, and 8.4% of gross sales,
respectively. Due to the significant concentration of sales to the Company's
top ten customers, the loss of any one such customer could have a material
impact on the Company's results of operations and financial condition.
The Company's primary customer, Super Shops, filed for Chapter 11
bankruptcy protection on September 19, 1997 in the United States Bankruptcy
Court, Central District of California. Super Shops has ceased operations and
began a liquidation plan. The Company does not have any long-term contractual
relationships with any of its major customers. While the Company's business
strategy calls for it to expand its product distribution capabilities to
additional markets and to broaden its customer base so that it can become less
dependent on significant customers, any loss, material reduction, or delay of
orders by any of the Company's major customers, including reductions as a result
of market, economic, or competitive pressures in the automotive aftermarket
industry, could adversely affect the Company.
HIGHLY COMPETITIVE INDUSTRY
The market for the Company's products is highly competitive. The Company
competes primarily on the basis of product selection (which includes style and
vehicle fit), timely availability of product for delivery, quality, design
innovation, price, payment terms, and service. Many of the Company's
competitors have substantially greater financial, personnel, marketing, and
other resources than the Company. Increased competition could result in price
reductions (which may be in the form of rebates or allowances), reduced margins,
and loss of market share, all of which could have a material adverse effect on
the Company.
11
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GENERAL ECONOMIC FACTORS
The Company's business is directly impacted by certain external factors,
such as the general demand for aftermarket automotive parts, prices for raw
materials used in producing the Company's products, fluctuations in
discretionary consumer spending, and general economic conditions, including
employment levels, business conditions, interest rates, and tax rates. While
the Company believes that current economic conditions favor growth in the
markets it serves, various factors, including those listed above, could lead to
decreased sales and increased operating expenses. There can be no assurance that
various factors will not adversely affect the Company's business in the future
or prevent the Company from successfully implementing its business strategies.
DATA PROCESSING AND TECHNOLOGY AND YEAR 2000
The Company has commenced a study of its computer systems in order to
assess its exposure to year 2000 issues. The Company expects to make the
necessary modifications or changes to its computer information systems to enable
proper processing of transactions relating to the year 2000 and beyond. The
Company believes the cost to modify its existing systems, should it choose to do
so, is not material. The Company will evaluate appropriate courses of action,
including replacement of certain systems whose associated costs would be
recorded as assets and subsequently amortized, or modification of its existing
systems, which costs would be expensed as incurred. There can be no assurance
that the Company will be able to completely resolve all year 2000 issues in a
timely fashion or that the ultimate cost to identify and implement solutions to
all year 2000 problems will not be material to the Company.
DEPENDENCE ON THIRD PARTY SUPPLIERS
The Company's business depends upon the assembly of component parts and the
shipment of finished wheels and wheel accessories from third-party suppliers.
From time to time, the Company has experienced delays in the delivery of
component parts and finished products from vendors. In addition, one of the
Company's significant suppliers is located in China, which from time to time has
been subject to numerous trading restrictions by the United States. The Company
also has suppliers in Brazil and Taiwan. The purchase of materials from foreign
suppliers may be adversely affected by political and economic conditions abroad
over which the Company has no control. Although to date the Company has
generally been able to acquire adequate supplies of such components and finished
product in a timely manner, any extended interruption in supply, significant
increase in the price, or reduction in the quality of such components could have
a material adverse effect on the Company's business, financial condition, and
results of operations. The Company has begun to outsource selectively the
production of some of its products and may increase such outsourcing in the
future. While the Company anticipates that such outsourcing programs will
stabilize costs and shift certain inventory, warranty, and other risks to its
suppliers, there can be no assurance that the continued or increased outsourcing
of its products will have these desired effects.
NO ASSURANCE OF SUCCESSFUL ACQUISITIONS
The Company is considering acquisitions of and alliances with other
companies that could complement the Company's existing business, including
acquisitions of complementary product lines. There can be no assurance that
suitable acquisition or joint venture candidates can be identified, or that,
if identified, adequate and acceptable financing sources will be available to
the Company that would enable it to consummate such transactions.
Furthermore, there can be no assurance that the Company will be able to
integrate successfully such acquired companies or product lines into its
existing operations, which could increase the Company's operating expenses in
the short-term and materially and adversely affect the Company's results of
operations. Moreover, any acquisition by the Company may result in a
potentially dilutive issuance of equity securities,
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<PAGE>
the incurrence of additional debt, and amortization of expenses related to
goodwill and intangible assets, all of which could adversely affect the
Company's profitability. Acquisitions involve numerous risks, such as the
diversion of the attention of the Company's management from other business
concerns, the entrance of the Company into markets in which it has had no or
only limited experience, and the potential loss of key employees of the
acquired company, all of which could have a material adverse effect on the
Company.
VARIABILITY IN OPERATING RESULTS; SEASONALITY
The Company's results of operations have been and will continue to be
subject to substantial variations as a result of a number of factors, any of
which could have a material adverse effect on the Company. In particular,
the Company's operating results can vary because of the size and timing of
customer orders, delays in new product enhancements and new product
introductions, vendor quality control and delivery difficulties, market
acceptance of new products, product returns, product rebates and allowances,
seasonality in product purchases by distributors and end users, and pricing
trends in the automotive aftermarket industry in general and in the specific
markets in which the Company participates. Historically, the Company's net
sales have been highest in the first and second quarters of each year.
Significant variability in orders during any period may have an adverse
impact on the Company's cash flow or work flow, and any significant decrease
in orders could have a material adverse effect on the Company's results of
operations. The Company believes that any period-to-period comparisons of
its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.
CHANGING CUSTOMER TRENDS; NEED FOR PRODUCT DEVELOPMENT
The Company's success depends, in part, on its ability to correctly and
consistently anticipate, gauge, and respond in a timely manner to changing
consumer preferences. There can be no assurance that the Company's core
products will continue to enjoy acceptance among consumers or that any of the
Company's future product offerings will achieve or maintain market
acceptance. The Company attempts to minimize the risks relating to changing
consumer trends by offering a wide variety of product styles, analyzing
consumer purchases, maintaining active product development efforts, and
monitoring the sales performance of its various product lines. However, any
misjudgment by the Company of the market for a particular product, or its
failure to correctly anticipate changing consumer preferences, could have a
material adverse effect on its business, financial condition, and results of
operations. In order to enhance its product development efforts, the Company
may supplement its existing product development staff by hiring one or more
new employees with product development experience and by engaging an outside
consultant to assist the Company's product development staff. There can be
no assurance that the Company will be able to attract and retain such
additional personnel or that the costs associated with additional product
development efforts will not have an adverse effect on the Company.
REGULATORY COMPLIANCE
The Company is subject to various federal and state governmental
regulations related to occupational safety and health, labor, and wage
practices as well as federal, state, and local governmental regulations
relating to the storage, discharge, handling, emission, generation,
manufacture, and disposal of toxic or other hazardous substances used to
produce the Company's products. The Company believes that it is currently in
material compliance with such regulations. Failure to comply with current or
future environmental regulations could result in the imposition of
substantial fines on the Company, suspension of production, alteration of its
production processes, cessation of operations, or other actions which could
have a material adverse affect on the Company. In the ordinary course of its
business, the Company uses metals, oils, and similar materials, which are
stored on site. The waste created by use of these materials is transported
off-site on a regular basis by a state-registered waste hauler. Although the
Company is not aware of any material claim or investigation
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with respect to these activities, there can be no assurance that such a claim
may not arise in the future or that the cost of complying with governmental
regulations in the future will not have a material adverse effect on the
Company.
RELIANCE ON INTELLECTUAL PROPERTY
The Company owns the rights to certain trademarks and patents, relies on
trade secrets and proprietary information, technology, and know-how, and
seeks to protect this information through agreements with employees and
vendors. There can be no assurance that the Company's patents will preclude
the Company's competitors from designing competitive products, that
proprietary information or confidentiality agreements with employees and
others will not be breached, that the Company's patents will not be
infringed, that the Company would have adequate remedies for any breach or
infringement, or that the Company's trade secrets will not otherwise become
known to or independently developed by competitors.
RISKS ASSOCIATED WITH INTERNATIONAL SALES; CURRENCY FLUCTUATIONS
As part of the Company's business strategy, it intends to expand into
selected international markets. In 1997 and 1996, the Company derived
approximately 4.8% and 4.0%, respectively, of total gross sales from
international markets. The Company's international sales efforts are subject
to the customary risks of doing business abroad, including exposure to
regulatory requirements, political and economic instability, barriers to
trade, trade restrictions (including import quotas), tariff regulations,
foreign taxes, restrictions on transfer of funds, difficulty in obtaining
distribution and support, and export licensing requirements, any of which
could have a material adverse effect on the Company. In addition, a
weakening in the value of foreign currencies relative to the U.S. dollar and
fluctuations in foreign currency exchange rates could have an adverse impact
on the price of the Company's products in its international markets.
CONTROL BY EXISTING STOCKHOLDERS
The directors, officers, and principal stockholders of the Company
beneficially own approximately 26.9% of the Company's outstanding Common Stock.
As a result, these persons will have a significant influence on the affairs and
management of the Company, as well as on all matters requiring stockholder
approval, including electing and removing members of the Company's Board of
Directors, causing the Company to engage in transactions with affiliated
entities, causing or restricting the sale or merger of the Company, and changing
the Company's dividend policy. Such concentration of ownership and control
could have the effect of delaying, deferring, or preventing a change in control
of the Company even when such a change of control would be in the best interest
of the Company's other stockholders.
EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
The Company's Amended and Restated Certificate of Incorporation authorizes
the Board of Directors of the Company to issue "blank check" preferred stock,
the relative rights, powers, preferences, limitations, and restrictions of which
may be fixed or altered from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting, or
other rights that could adversely affect the voting power and other rights of
the holders of Common Stock. In January and February 1998, for example, the
Company issued 22,500 shares of its Series A preferred stock for $2.25 million
in additional capital. Additional series of preferred stock could be issued,
under certain circumstances, as a method of discouraging, delaying, or
preventing a change in control of the Company that stockholders might consider
to be in the Company's best interests. There can be no assurance that the
Company will not issue additional shares of Preferred Stock in the future.
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<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in large part, on the efforts and
abilities of its management team, including Michael L. Hartzmark, Ph.D., its
President and Chief Executive Officer. The loss of the services of Dr.
Hartzmark could have a material adverse effect on the business of the
Company. While Dr. Hartzmark does not have an employment agreement with the
Company, Dr. Hartzmark and his family currently hold over 12.65% of the
Company's Common Stock. The successful implementation of the Company's
business strategies depends on the hiring and retention of additional
management, engineering, marketing, product development, and other personnel.
There can be no assurance that the Company will be able to identify and
attract additional qualified management and other personnel when needed or
that the Company will be successful in retaining such additional management
and personnel if added. Moreover, there can be no assurance that the
additional costs associated with the hiring of additional personnel will not
adversely affect the Company's results of operations. The Company does not
maintain key man life insurance on any of its personnel.
LIMITED LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides, with certain
exceptions, that the Company's directors will not be personally liable for
monetary damages for breach of the directors' fiduciary duty of care to the
Company or its stockholders. This provision does not eliminate the duty of
care, and in appropriate circumstances, equitable remedies such as an
injunction or other forms of nonmonetary relief would remain available under
Delaware law. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
NO CASH DIVIDENDS
The Company has never paid cash or stock dividends on its Common Stock
and does not anticipate that it will pay cash dividends in the foreseeable
future. It is contemplated that any earnings will be used to finance the
growth of the Company's business. The Company will be paying dividends on
its Series A Preferred Stock, however it anticipates those dividends will be
paid in kind with common or preferred stock. In addition, the Company's NCFC
Credit Facility prohibits the payments of cash dividends without
NationsCredit Commercial Funding's consent.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company from time to time is involved in routine litigation
incidental to the conduct of its business. In addition, the Company is
involved with the legal proceedings associated with the filing of Chapter 11
bankruptcy protection of Super Shops, the Company's former primary customer.
On September 19, 1997, the Company's principal customer, Super Shops, filed
for reorganization under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court, Central District of California. As an
unsecured creditor, there is no assurance that the Company will recover any
of the accounts receivable from Super Shops. Otherwise, there are currently
no material pending proceedings to which the Company is a party or to which
any of its property is subject. The Company currently maintains product
liability insurance, with limits of $1.0 million per occurrence and $2.0
million in the aggregate per annum. However, such coverage is becoming
increasingly expensive and difficult to obtain. There can be no assurance
that the Company will be able to maintain adequate product liability
insurance at commercially reasonable rates or that the Company's
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<PAGE>
insurance will be adequate to cover future product liability claims. Any
losses that the Company may suffer as a result of claims in excess of the
Company's coverage could have a material adverse effect on the Company.
ITEM 2. DEFAULTS UPON SENIOR SECURITIES
See ITEM 2 "Management's Discussion and Analysis or Plan of Operation
- Liquidity and Capital Resources" above for a discussion of the
Company's default under the Norwest Credit Facility, which has
been paid in full and replaced by the NCFC Credit Facility.
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
11 Schedule of Computation of Earnings per Share
27.1 Financial Data Schedule
27.2 Financial Data Schedule
4.4(f) Fourth Amendment to Security and Credit Agreement,
dated as of November 12, 1997 executed by and between
the Company and Norwest Business Credit, Inc.
4.4(g) Fifth Amendment to Security and Credit Agreement,
dated as of January 8, 1998 executed by and between the
Company and Norwest Business Credit, Inc.
4.4(h) Sixth Amendment to Security and Credit Agreement,
dated as of April 16, 1998 executed by and between the
Company and Norwest Business Credit, Inc.
4.4(i) NationsCredit Loan and Security Agreement dated as
of April 20, 1998 executed by and between the Company
and NationsCredit Commercial Funding.
(b) Reports on Form 8-K
Report on Form 8-K filed on January 15, 1998
Report on Form 8-K/A filed on January 23, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAGAR INDUSTRIES, INC.
Dated: MAY 12, 1998 By: /S/ MICHAEL L. HARTZMARK
------------ --------------------------
Michael L. Hartzmark
President and CEO
Dated: MAY 12, 1998 By: /S/ ANTHONY BARRETT
------------ -------------------------
Anthony Barrett
Vice President of Sales Operations
(Principal Financial and Accounting
Officer)
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<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the ____ day of __________, 1997, by and
between CRAGAR INDUSTRIES, INC., a Delaware corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
RECITALS
The Borrower and the Lender have entered into the Credit and Security
Agreement dated as of April 14, 1995, as amended by that certain First Amendment
to Credit Agreement dated as of September 19, 1996, as amended by that certain
Second Amendment to Credit Agreement dated as of February 12, 1997, as amended
by that certain Third Amendment to Credit Agreement dated August 4, 1997
(collectively, the "Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower and to
issue or cause to be issued certain letters of credit for the account of the
Borrower pursuant to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the
Borrower's promissory note dated as of April 14, 1995, in the maximum principal
amount of $9,500,000.00 and payable to the order of the Lender (the "Note").
All indebtedness of the Borrower to the Lender is secured pursuant to the
terms of the Credit Agreement and all other Security Documents as defined
therein (collectively, the "Security Documents"). Michael L. Hartzmark
("Hartzmark") has entered into that certain Support Agreement with the Borrower
and the Lender dated as of April 14, 1995.
The Borrower has requested that certain amendments be made to the Credit
Agreement which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit Agreement
shall have the same meanings as defined therein, unless otherwise defined
herein.
2. The Credit Agreement is hereby amended as follows:
(a) The definition of Borrowing Base is hereby deleted in its
entirety and replaced as follows:
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<PAGE>
"Borrowing Base" means, at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of
(i) the Commitment, or
(ii) the sum of
(A) 75% of Eligible Accounts, plus
(B) The lesser of (x) the sum of the following percentages
of various classes of Eligible Inventory; (i) 55% of Raw
Materials Inventory; and (ii) 55% of Current Finished Goods
Inventory; or (y) $4,500,000.00, plus
(C) An overadvance in an amount not to exceed
$1,000,000.00, which overadvance shall be reduced to $925,000.00
on October 10, 1997; to $875,000.00 on October 17, 1997; to
$800,000.00 on November 7, 1997; to $725,000.00 on November 14,
1997, to $650,000.00 on November 21, 1997; to $575,000.00 on
November 28, 1997; to $500,000.00 on December 5, 1997; to
$400,000.00 on December 12, 1997; to $300,000.00 on December 19,
1997; to $175,000.00 on December 26, 1997; to $50,000.00 on
December 31, 1997; and to $0.00 on January 7, 1998, at which time
no overadvance shall exist.
(b) There is hereby added a new Section 6.1(p) to the Credit
Agreement which provides as follows:
(p) weekly, Inventory reports.
3. Except as explicitly amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any advance or letter of credit thereunder.
4. The Borrower agrees to pay the Lender, as of the date hereof, a fully
earned, non-refundable fee in the amount of $20,000.00 in consideration of the
execution by the Lender of this Amendment.
5. This Amendment shall be effective upon receipt by the Lender of an
executed original hereof, together with each of the following, each in substance
and form acceptable to the Lender in its sole discretion:
(a) The Acknowledgment and Agreement of Hartzmark set forth at the
end of this Amendment, duly executed by Hartzmark.
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<PAGE>
(b) Certificate of the Secretary of the Borrower certifying as to (i)
the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the Articles of
Incorporation and Bylaws of the Borrower, which were certified and delivered to
the Lender pursuant to the Certificate of the Borrower's Secretary dated as of
April 14, 1995 in connection with the execution and delivery of the Credit
Agreement continue in full force and effect and have not been amended or
otherwise modified except as set forth in the Certificate to be delivered, and
(iii) certifying that the officers and agents of the Borrower who have been
certified to the Lender, pursuant to the Certificate of the Borrower's Secretary
dated as of April 14, 1995, as being authorized to sign and to act on behalf of
the Borrower continue to be so authorized or setting forth the sample signatures
of each of the officers and agents of the Borrower authorized to execute and
deliver this Amendment and all other documents, agreements and certificates on
behalf of the Borrower.
(c) An updated Inventory appraisal, performed by an appraiser
acceptable to Lender and performed at no cost to Lender.
(d) An updated Equipment appraisal, performed by an appraiser
acceptable to Lender and performed at no cost to Lender.
6. The Borrower hereby represents and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate action and do not
(i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the articles of incorporation or bylaws of the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article 5
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
7. All references in the Credit Agreement to "this Agreement" shall be
deemed to refer to the Credit Agreement as amended hereby; and any and all
references in the Security Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.
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<PAGE>
8. The execution of this Amendment and acceptance of any documents
related hereto shall not be deemed to be a waiver of any Default or Event of
Default under the Credit Agreement or breach, default or event of default under
any Security Document or other document held by the Lender, whether or not known
to the Lender and whether or not existing on the date of this Amendment.
9. The Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
10. The Borrower hereby reaffirms its agreement under the Credit Agreement
to pay or reimburse the Lender on demand for all costs and expenses incurred by
the Lender in connection with the Credit Agreement, the Security Documents and
all other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrower specifically agrees to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrower, make a loan to the Borrower under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses and the fee required under paragraph 4
hereof.
11. This Amendment and the Acknowledgment and Agreement of Hartzmark may
be executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original and all of which counterparts, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
CRAGAR INDUSTRIES, INC., a Delaware
corporation
By
-------------------------------------
Its
----------------------------------
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NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By
-------------------------------------
Its
----------------------------------
ACKNOWLEDGMENT AND AGREEMENT OF HARTZMARK
The undersigned, Michael L. Hartzmark, having entered into that certain
Support Agreement dated as of April 14, 1995, with Cragar Industries, Inc. (the
"Borrower") and Norwest Business Credit, Inc. (the "Lender"), hereby
(i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms
and execution thereof; (iii) reaffirms his obligations to the Lender pursuant to
the terms of said Support Agreement; and (iv) acknowledges that the Lender may
amend, restate, extend, renew or otherwise modify the Credit Agreement and any
indebtedness or agreement of the Borrower, or enter into any agreement or extend
additional or other credit accommodations, without notifying or obtaining the
consent of the undersigned and without impairing the obligations of the
undersigned under said Support Agreement.
----------------------------------------
Michael L. Hartzmark
5
<PAGE>
FIFTH AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the ____ day of __________, 1997, by and
between CRAGAR INDUSTRIES, INC., a Delaware corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security
Agreement dated as of April 14, 1995, as amended by that certain First Amendment
to Credit Agreement dated as of September 19, 1996, as amended by that certain
Second Amendment to Credit Agreement dated as of February 12, 1997, as amended
by that certain Third Amendment to Credit Agreement dated August 4, 1997, as
amended by that certain Fourth Amendment to Credit Agreement dated November 12,
1997 (collectively, the "Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower and to
issue or cause to be issued certain letters of credit for the account of the
Borrower pursuant to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the
Borrower's promissory note dated as of April 14, 1995, in the maximum principal
amount of $9,500,000.00 and payable to the order of the Lender (the "Note").
All indebtedness of the Borrower to the Lender is secured pursuant to the
terms of the Credit Agreement and all other Security Documents as defined
therein (collectively, the "Security Documents"). Michael L. Hartzmark
("Hartzmark") has entered into that certain Support Agreement with the Borrower
and the Lender dated as of April 14, 1995.
The Borrower has requested that certain amendments be made to the Credit
Agreement which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
Agreements
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit Agreement
shall have the same meanings as defined therein, unless otherwise defined
herein.
2. The Credit Agreement is hereby amended as follows:
(a) The definition of Borrowing Base is hereby deleted in its
entirety and replaced as follows:
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Borrowing Base" means, at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of
(i) the Commitment, or
(ii) the sum of
(A) 75% of Eligible Accounts, plus
(B) The lesser of (x) the sum of the following
percentages of various classes of Eligible Inventory; (i) 55% of
Raw Materials Inventory; and (ii) 55% of Current Finished Goods
Inventory; or (y) $4,500,000.00, plus
(C) An overadvance (the "Overadvance") in an amount
not to exceed $775,000.00, which Overadvance shall be reduced to
$0.00 on January 24, 1998, at which time no Overadvance shall
exist.
(b) Sections 2.8(a) and 2.8(b) are hereby deleted in their entirety,
and the Lender hereby waives the prepayment and line reduction fees contained in
Sections 2.8(a) and 2.8(b) of the Credit Agreement. The Obligations may be
prepaid and the Commitment may be reduced without payment of the Applicable
Percentage of the Commitment.
3. Except as explicitly amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any advance or letter of credit thereunder.
4. The Borrower agrees to pay the Lender, on demand, a fully earned,
non-refundable overadvance fee in the amount of $250.00 per day in consideration
of the execution by the Lender of this Amendment.
5. This Amendment shall be effective upon receipt by the Lender of an
executed original hereof, together with each of the following, each in substance
and form acceptable to the Lender in its sole discretion:
(a) The Acknowledgment and Agreement of Hartzmark set forth at the
end of this Amendment, duly executed by Hartzmark.
(b) The Guaranty of Sidney Dworkin, Doris Dworkin, Lee Hartzmark and
Dolores Hartzmark, executed and acknowledged to and for the benefit of Lender.
(c) Evidence satisfactory to Lender that Sidney Dworkin, Lee
Hartzmark, Mark Schwartz, and Harry Schwartz have, in the aggregate, contributed
an additional $500,000.00 in shareholder funding to Borrower on or after
December 24, 1997.
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(d) Certificate of the Secretary of the Borrower certifying as to (i)
the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the Articles of
Incorporation and Bylaws of the Borrower, which were certified and delivered to
the Lender pursuant to the Certificate of the Borrower's Secretary dated as of
April 14, 1995 in connection with the execution and delivery of the Credit
Agreement continue in full force and effect and have not been amended or
otherwise modified except as set forth in the Certificate to be delivered, and
(iii) certifying that the officers and agents of the Borrower who have been
certified to the Lender, pursuant to the Certificate of the Borrower's Secretary
dated as of April 14, 1995, as being authorized to sign and to act on behalf of
the Borrower continue to be so authorized or setting forth the sample signatures
of each of the officers and agents of the Borrower authorized to execute and
deliver this Amendment and all other documents, agreements and certificates on
behalf of the Borrower.
6. The Borrower hereby represents and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate action and do not
(i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the articles of incorporation or bylaws of the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article 5
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
7. All references in the Credit Agreement to "this Agreement" shall be
deemed to refer to the Credit Agreement as amended hereby; and any and all
references in the Security Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.
8. Except as specifically set forth herein, the execution of this
Amendment and acceptance of any documents related hereto shall not be deemed to
be a waiver of any Default or Event of Default or Default Period under the
Credit Agreement or breach, default or event of default under any Security
Document or other document held by the Lender, whether or not known to the
Lender and whether or not existing on the date of this Amendment.
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<PAGE>
9. The Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
10. The Borrower hereby reaffirms its agreement under the Credit Agreement
to pay or reimburse the Lender on demand for all costs and expenses incurred by
the Lender in connection with the Credit Agreement, the Security Documents and
all other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrower specifically agrees to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrower, make a loan to the Borrower under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses and the fee required under paragraph 4
hereof.
11. This Amendment and the Acknowledgment and Agreement of Hartzmark may
be executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original and all of which counterparts, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
CRAGAR INDUSTRIES, INC., a Delaware
corporation
By
-------------------------------------
Its
----------------------------------
4
<PAGE>
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By
-------------------------------------
Its
----------------------------------
ACKNOWLEDGMENT AND AGREEMENT OF HARTZMARK
The undersigned, Michael L. Hartzmark, having entered into that certain
Support Agreement dated as of April 14, 1995, with Cragar Industries, Inc. (the
"Borrower") and Norwest Business Credit, Inc. (the "Lender"), hereby
(i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms
and execution thereof; (iii) reaffirms his obligations to the Lender pursuant to
the terms of said Support Agreement; and (iv) acknowledges that the Lender may
amend, restate, extend, renew or otherwise modify the Credit Agreement and any
indebtedness or agreement of the Borrower, or enter into any agreement or extend
additional or other credit accommodations, without notifying or obtaining the
consent of the undersigned and without impairing the obligations of the
undersigned under said Support Agreement.
----------------------------------------
Michael L. Hartzmark
5
<PAGE>
SIXTH AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the ____ day of __________, 1998, by and
between CRAGAR INDUSTRIES, INC., a Delaware corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security
Agreement dated as of April 14, 1995, as amended by that certain First Amendment
to Credit Agreement dated as of September 19, 1996, as amended by that certain
Second Amendment to Credit Agreement dated as of February 12, 1997, as amended
by that certain Third Amendment to Credit Agreement dated August 4, 1997, as
amended by that certain Fourth Amendment to Credit Agreement dated November 12,
1997, as amended by that certain Fifth Amendment to Credit Agreement dated
_______, 1998 as further amended pursuant to that certain Letter Agreement dated
March 9, 1998 (collectively, the "Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower
and to issue or cause to be issued certain letters of credit for the account of
the Borrower pursuant to the terms and conditions set forth in the Credit
Agreement.
The loan advances under the Credit Agreement are evidenced by the
Borrower's promissory note dated as of April 14, 1995, in the maximum principal
amount of $9,500,000.00 and payable to the order of the Lender (the "Note").
All indebtedness of the Borrower to the Lender is secured pursuant to
the terms of the Credit Agreement and all other Security Documents as defined
therein (collectively, the "Security Documents"). Michael L. Hartzmark
("Hartzmark") has entered into that certain Support Agreement with the Borrower
and the Lender dated as of April 14, 1995.
The Borrower has requested that certain amendments be made to the
Credit Agreement which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
Agreements
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit
Agreement shall have the same meanings as defined therein, unless otherwise
defined herein.
2. The Credit Agreement is hereby amended as follows:
1
<PAGE>
(a) The definition of "Termination Date" is hereby deleted in
its entirety and replaced as follows:
"Termination Date" means April 30, 1998.
3. Except as explicitly amended by this Amendment, all of the terms
and conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any advance or letter of credit thereunder.
4. The Borrower agrees to pay the Lender, on demand, a fully earned,
non-refundable Amendment fee in the amount of $1,000.00 per day from April 16,
1998 through and including April 30, 1998 or that date upon which the
Obligations have been repaid in full, in consideration of the execution by the
Lender of this Amendment.
5. This Amendment shall be effective upon receipt by the Lender of
an executed original hereof, together with each of the following, each in
substance and form acceptable to the Lender in its sole discretion:
(a) The Acknowledgment and Agreement of Hartzmark set forth at
the end of this Amendment, duly executed by Hartzmark.
(b) Certificate of the Secretary of the Borrower certifying as
to (i) the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the Articles of
Incorporation and Bylaws of the Borrower, which were certified and delivered to
the Lender pursuant to the Certificate of the Borrower's Secretary dated as of
April 14, 1995 in connection with the execution and delivery of the Credit
Agreement continue in full force and effect and have not been amended or
otherwise modified except as set forth in the Certificate to be delivered, and
(iii) certifying that the officers and agents of the Borrower who have been
certified to the Lender, pursuant to the Certificate of the Borrower's Secretary
dated as of April 14, 1995, as being authorized to sign and to act on behalf of
the Borrower continue to be so authorized or setting forth the sample signatures
of each of the officers and agents of the Borrower authorized to execute and
deliver this Amendment and all other documents, agreements and certificates on
behalf of the Borrower.
6. The Borrower hereby represents and warrants to the Lender as
follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate action and
do not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the
2
<PAGE>
Borrower, or the articles of incorporation or bylaws of the Borrower, or (iii)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in
Article 5 of the Credit Agreement are correct on and as of the date hereof as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.
7. All references in the Credit Agreement to "this Agreement" shall
be deemed to refer to the Credit Agreement as amended hereby; and any and all
references in the Security Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.
8. The execution of this Amendment and acceptance of any documents
related hereto shall not be deemed to be a waiver of any Default or Event of
Default or Default Period under the Credit Agreement or breach, default or event
of default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
9. The Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
10. The Borrower hereby reaffirms its agreement under the Credit
Agreement to pay or reimburse the Lender on demand for all costs and expenses
incurred by the Lender in connection with the Credit Agreement, the Security
Documents and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower specifically agrees to
pay all reasonable fees and disbursements of counsel to the Lender for the
services performed by such counsel in connection with the preparation of this
Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses and the fee
required under paragraph 4 hereof.
11. This Amendment and the Acknowledgment and Agreement of Hartzmark
may be executed in any number of counterparts, each of which when so executed
and delivered
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<PAGE>
shall be deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
CRAGAR INDUSTRIES, INC., a Delaware
corporation
By
-------------------------------------
Its
----------------------------------
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By
-------------------------------------
Its
----------------------------------
ACKNOWLEDGMENT AND AGREEMENT OF HARTZMARK
The undersigned, Michael L. Hartzmark, having entered into that certain
Support Agreement dated as of April 14, 1995, with Cragar Industries, Inc. (the
"Borrower") and Norwest Business Credit, Inc. (the "Lender"), hereby
(i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms
and execution thereof; (iii) reaffirms his obligations to the Lender pursuant to
the terms of said Support Agreement; and (iv) acknowledges that the Lender may
amend, restate, extend, renew or otherwise modify the Credit Agreement and any
indebtedness or agreement of the Borrower, or enter into any agreement or extend
additional or other credit accommodations, without notifying or obtaining the
consent of the undersigned and without impairing the obligations of the
undersigned under said Support Agreement.
----------------------------------------
Michael L. Hartzmark
4
<PAGE>
NATIONSCREDIT COMMERCIAL FUNDING
- -------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this "AGREEMENT")
is entered into on April 20, 1998 between NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("LENDER"), having an
address at 1177 Avenue of the Americas, 36th Floor, New York, New York 10036
and CRAGAR INDUSTRIES, INC., A Delaware corporation ("BORROWER"), whose chief
executive office is located at 4636 North 43rd Avenue, Phoenix, Arizona 85031
("BORROWER'S ADDRESS"). The Schedules to this Agreement are an integral part
of this Agreement and are incorporated herein by reference. Terms used, but
not defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 AMOUNT. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) REVOLVING LOANS AND CREDIT ACCOMMODATIONS. From time to time
during the Term at Borrower's request, make revolving loans to Borrower
("REVOLVING LOANS"), and make letters of credit, bankers acceptances and
other credit accommodations ("CREDIT ACCOMMODATIONS") available to Borrower,
in each case to the extent that there is sufficient Availability at the time
of such request to cover, dollar for dollar, the requested Revolving Loan or
Credit Accommodation; PROVIDED, that after giving effect to such Revolving
Loan or Credit Accommodation, (x) the outstanding balance of all monetary
Obligations (INCLUDING the principal balance of any Term Loan and, solely for
the purpose of determining compliance with this provision, the Credit
Accommodation Balance) will not exceed the Maximum Facility Amount set forth
in Section 1(a) of Schedule A and (y) none of the other Loan Limits set forth
in Section 1 of Schedule A will be exceeded. For this purpose,
"AVAILABILITY" means:
(i) the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances related to
otherwise Eligible Accounts) multiplied by the Accounts Advance Rate set
forth in Section 1(b)(i) of Schedule A but not to exceed the Accounts
Sublimit set forth in Section 1(c) of Schedule A;
PLUS
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section 1(b)(ii)
of Schedule A, but not to exceed the Inventory Sublimit(s) set forth in
Section 1(d) of Schedule A;
MINUS
1
<PAGE>
(iii) all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the
requested Revolving Loan or Credit Accommodation);
MINUS
(iv) the outstanding balance of all of the monetary
Obligations (EXCLUDING the Credit Accommodation Balance and the principal
balance of the Term Loan);
PLUS
(v) the Overadvance Amount, if any, set forth in Section 1(g)
of Schedule A; and
PLUS
(vi) the marked to market value, determined on a weekly basis,
of Eligible Investment Property multiplied by the Investment Property
Advance Rate set forth in Section 1(b)(iii) of Schedule A; but not to
exceed the Investment Property Sublimit set forth in Section 1(h) of
Schedule A, PROVIDED that the Investment Property Advance will be
available only if, and to the extent that, there is a shortfall in
Required Excess Availability on the date of this Agreement.
(b) TERM LOAN. Make (i) on the date of this Agreement, an
advance to Borrower computed with respect to the value of Borrower's
Eligible Equipment (the ("EQUIPMENT ADVANCE") in the principal amount, if
any, set forth in Section 2(a)(i) of Schedule A, (ii) an advance to
Borrower computed with respect to the value of Borrower's Eligible Real
Property (the "REAL PROPERTY ADVANCE") in the principal amount, if any,
set forth in Section 2(a)(ii) of Schedule A, (iii) in Lender's sole and
absolute discretion upon prior written request by Borrower, one or more
advances to Borrower computed with respect to the value of Borrower's
Eligible Equipment to be acquired with the proceeds of each such advance
(each a "CAPITAL EXPENDITURE ADVANCE") in a principal amount, if any, set
forth in Section 2(a)(i)(iii) of Schedule A and (iv) on the date of this
Agreement, an advance to Borrower computed with respect to Borrower's
Eligible Intellectual Property (the "INTELLECTUAL PROPERTY ADVANCE") in
the principal amount, if any, set forth in Section 2(a)(iv) of Schedule
A. The Equipment Advance, the Real Property Advance, each Capital
Expenditure Advance and the Intellectual Property Advance are
collectively referred to as the "TERM LOAN."
1.2 RESERVES. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole and reasonable discretion
("RESERVES") to reflect (i) events, conditions, contingencies or risks which
affect or may affect (A) the Collateral or its value, or the security
interests and other rights of Lender in the Collateral or (B) the assets,
business or prospects of Borrower or any Obligor, (ii) Lender's good faith
concern that any Collateral report or financial information furnished by or
on behalf of Borrower or any
2
<PAGE>
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines
in good faith constitutes, or could constitute, a Default or Event of Default
or (iv) any other events or circumstances which Lender determines in good
faith make the establishment or revision of a Reserve prudent. Without
limiting the foregoing, Lender shall (x) in the case of each Credit
Accommodation issued for the purchase of Inventory (a) which meets the
criteria for Eligible Inventory set forth in clauses (i), (ii), (iii), (v)
and (vi) of the definition of Eligible Inventory, (b) which is or will be in
transit to one of the locations set forth in Section 9(d) of Schedule A, (c)
which is fully insured in a manner satisfactory to Lender and (d) with
respect to which Lender is in possession of all bills of lading and all other
documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to
the cost of such Inventory (plus all duties, freight, taxes, insurance, costs
and other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the
Inventory Advance Rate applicable to Eligible Inventory and (y) in the case
of any other Credit Accommodation issued for any purpose, establish a Reserve
equal to the full amount of such Credit Accommodation plus all costs and
other charges and expenses relating to such Credit Accommodation. In
addition, (x) Lender shall establish a permanent Reserve in the amount set
forth in Section 1(f) of Schedule A, and (y) if the outstanding principal
balance of the Term Loan advance with respect to Eligible Equipment exceeds
the percentage set forth in Section 2(a)(i) or (iii) of Schedule A, as
applicable, of the appraised value of such Eligible Equipment, Lender may
establish an additional Reserve in the amount of such excess (and, for this
purpose, if payments of principal on the Term Loan advances against Eligible
Equipment and Real Property are not calculated separately, payments of
principal of the Term Loan made by Borrower shall be deemed to apply to the
Term Loan advance with respect to Eligible Equipment and Real Property,
respectively, in proportion to the original principal amounts of such
advances). Lender may, in its discretion, establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible
Accounts or Eligible Inventory as ineligible. In no event shall the
establishment of a Reserve in respect of a particular actual or contingent
liability obligate Lender to make advances hereunder to pay such liability or
otherwise obligate Lender with respect thereto. Lender will provide Borrower
with one Business Day's notice of Lender's intent to establish a reserve,
stating the amount and the reason therefor, and shall, if requested by
Borrower, discuss the reason for the reserve with Borrower.
1.3 OTHER PROVISIONS APPLICABLE TO CREDIT ACCOMMODATIONS. Lender may,
in its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; PROVIDED, that after giving effect to each
Credit Accommodation, the Credit Accommodation Balance will not exceed the
Credit Accommodation Limit set forth in Section 1(e) of Schedule A. Any
amounts paid by Lender in respect of a Credit Accommodation will be treated
for all purposes as a Revolving Loan which shall be secured by the Collateral
and bear interest, and be
3
<PAGE>
payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit
Accommodation in connection with any such Credit Accommodation. Lender will
use its best efforts to cause any Credit Accommodation requested by Borrower
to be issued within five Business Days following receipt by Lender of such
request and a properly completed application for such Credit Accommodation.
1.4 REPAYMENT. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately pay to Lender such
amounts (or provide cash collateral to Lender with respect to the Credit
Accommodation Balance in the manner set forth in Section 7.3), as shall cause
Borrower to be in full compliance with all of the Loan Limits.
Notwithstanding the foregoing, Lender may, in its sole discretion, make or
permit Revolving Loans, the Term Loan, any Credit Accommodations or any other
monetary Obligations to be in excess of any of the Loan Limits; PROVIDED,
that Borrower shall, upon Lender's demand, pay to Lender such amounts as
shall cause Borrower to be in full compliance with all of the Loan Limits.
All unpaid monetary Obligations shall be payable in full on the Maturity Date
(as defined in Section 7.1) or, if earlier, the date of any early termination
pursuant to Section 7.2.
1.5 MINIMUM BORROWING. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) use its best efforts to maintain Availability sufficient
to enable Borrower to do so. However, Lender shall not be obligated to loan
Borrower the Minimum Loan Amount other than in accordance with all of the
terms and conditions of this Agreement.
2. INTEREST AND FEES.
2.1 INTEREST. All Loans and other monetary Obligations shall bear
interest at the Interest Rate(s) set forth in Section 3 of Schedule A, except
where expressly set forth to the contrary in this Agreement or another Loan
Document; PROVIDED, that after the occurrence of an Event of Default, all
Loans and other monetary Obligations shall, at Lender's option, bear interest
at a rate per annum equal to two percent (2%) in excess of the rate otherwise
applicable thereto (the "DEFAULT RATE") until paid in full (notwithstanding
the entry of any judgment against Borrower or the exercise of any other right
or remedy by Lender), and all such interest shall be payable on demand.
Changes in the Interest Rate shall be effective as of the date of any change
in the Prime Rate. Notwithstanding anything to the contrary contained in
this Agreement, the aggregate of all amounts deemed to be interest hereunder
and charged or collected by Lender is not intended to exceed the highest rate
permissible under any applicable law, but if it should, such interest shall
automatically be reduced to the extent
4
<PAGE>
necessary to comply with applicable law and Lender will refund to Borrower
any such excess interest received by Lender.
2.2 FEES AND WARRANTS. Borrower shall pay Lender the following fees,
and issue Lender the following warrants, which are in addition to all
interest and other sums payable by Borrower to Lender under this Agreement,
and are not refundable:
(a) CLOSING FEE. A closing fee in the amount set forth in Section
6(a) of Schedule A, which shall be deemed to be fully earned as of the date
hereof and payable in 11 equal consecutive monthly installments of $7,083.33
each, due on the 20th day of each calendar month commencing May 20, 1998.
(b) FACILITY FEES. A facility fee for the Initial Term in the
amount set forth in Section 6(b)(i) of Schedule A (which shall be payable in
arrears in equal installments due, respectively, on each anniversary of the
date of this Agreement during the Initial Term, other than the Maturity Date,
PROVIDED, that the Facility Fee will be pro-rated on a monthly basis in the
event of early termination of this Agreement), and a facility fee for each
Renewal Term in the amount set forth in Section 6(b)(ii) of Schedule A (which
shall be fully earned as of the first day of such Renewal Term and shall be
payable in equal installments due, respectively, on the first day of such
Renewal Term and on each anniversary thereof during such Renewal Term, other
than the Maturity Date).
(c) SERVICING FEE. A monthly servicing fee in the amount set forth
in Section 6(c) of Schedule A, in consideration of Lender's administration
and other services for each month (or part thereof), which shall be fully
earned as of, and payable in advance on, the date of this Agreement and on
the first day of each month thereafter so long as any of the Obligations are
outstanding.
(d) UNUSED LINE FEE. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount exceeds the average daily outstanding
principal balance of the Loans and the Credit Accommodation Balance during
the immediately preceding month (or part thereof), which fee shall be
payable, in arrears, on the first day of each month so long as any of the
Obligations are outstanding and on the Maturity Date.
(e) MINIMUM BORROWING FEE. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in respect of
each period set forth in Section 6(e)(i) of Schedule A if, at all times
during such period, the principal balance of the Loans was equal to the
Minimum Loan Amount over (ii) the actual interest payable in respect of such
period, which fee shall be fully earned as of the last day of such period and
payable on the date set forth in Section 6(e)(ii) of Schedule A and on the
Maturity Date, commencing with the immediately following period.
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<PAGE>
(f) SUCCESS FEE. A success fee in the amount set forth in Section
6(f) of Schedule A, which shall be fully earned as of the date of this
Agreement and payable as set forth in Section 6(f) of Schedule A.
(g) WARRANTS. Warrants to acquire the capital stock of Borrower,
as summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) CREDIT ACCOMMODATION FEES. The fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A, payable, in arrears,
on the first day of each month so long as any of the Obligations are
outstanding and on the Maturity Date, plus all costs and fees charged by the
issuer, payable as and when such costs and fees are charged.
2.3 COMPUTATION OF INTEREST AND FEES. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the
actual number of days elapsed in a year of 360 days. For purposes of
calculating interest and fees, if the outstanding daily principal balance of
the Revolving Loans is a credit balance, such balance shall be deemed to be
zero.
2.4 LOAN ACCOUNT; MONTHLY ACCOUNTINGS. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "LOAN ACCOUNT"), and shall provide
Borrower with a monthly accounting reflecting the activity in the Loan
Account. Each accounting shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Lender), unless
Borrower notifies Lender in writing to the contrary within sixty days after
such account is rendered, describing the nature of any alleged errors or
omissions. However, Lender's failure to maintain the Loan Account or to
provide any such accounting shall not affect the legality or binding nature
of any of the Obligations. Interest, fees and other monetary Obligations due
and owing under this Agreement (including fees and other amounts paid by
Lender to issuers of Credit Accommodations) may, in Lender's discretion, be
charged to the Loan Account, and will thereafter be deemed to be Revolving
Loans and will bear interest at the same rate as other Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the
Obligations, Borrower hereby grants to Lender a continuing security interest
in all of Borrower's property and interests in property, whether tangible or
intangible, now owned or in existence or hereafter acquired or arising,
wherever located, including Borrower's interest in all of the following,
whether or not eligible for lending purposes: (i) all Accounts, Chattel
Paper, Instruments, Documents, Goods (including Inventory, Equipment, farm
products and consumer goods), Investment Property, General Intangibles,
Deposit Accounts and money, (ii) all proceeds and
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products of all of the foregoing (including proceeds of any insurance
policies, proceeds of proceeds and claims against third parties for loss or
any destruction of any of the foregoing) and (iii) all books and records
relating to any of the foregoing.
4. ADMINISTRATION.
4.1 LOCK BOXES AND BLOCKED ACCOUNTS. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole and reasonable discretion,
for the collection of checks, wire transfers and other proceeds of Accounts
("ACCOUNT PROCEEDS"), which may include (i) directing all Account Debtors to
send all such proceeds directly to a post office box designated by Lender
either in the name of Borrower (but as to which Lender has exclusive access)
or, at Lender's option, in the name of Lender (a "LOCK BOX") or (ii)
depositing all Account Proceeds received by Borrower into one or more bank
accounts maintained in Lender's name (each, a "BLOCKED ACCOUNT"), under an
arrangement acceptable to Lender with a depository bank acceptable to Lender,
pursuant to which all funds deposited into each Blocked Account are to be
transferred to Lender in such manner, and with such frequency, as Lender
shall specify or (iii) a combination of the foregoing. Borrower agrees to
execute, and to cause its depository banks to execute, such Lock Box and
Blocked Account agreements and other documentation as Lender shall require
from time to time in connection with the foregoing.
4.2 REMITTANCE OF PROCEEDS. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall
be delivered, in kind, by Borrower to Lender in the original form in which
received by Borrower not later than the following Business Day after receipt
by Borrower. Until so delivered to Lender, Borrower shall hold such proceeds
separate and apart from Borrower's other funds and property in an express
trust for Lender. Nothing in this Section 4.2 shall limit the restrictions
on disposition of Collateral set forth elsewhere in this Agreement.
4.3 APPLICATION OF PAYMENTS. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner
as Lender shall determine, whether or not the Obligations are due, and
whether before or after the occurrence of a Default or an Event of Default.
For purposes of determining Availability, such amounts will be credited to
the Loan Account and the Collateral balances to which they relate upon
Lender's receipt of advice from Lender's Bank (set forth in Section 11 of
Schedule A) that such items have been credited to Lender's account at
Lender's Bank (or upon Lender's deposit thereof at Lender's Bank in the case
of payments received by Lender in kind), in each case subject to final
payment and collection. However, for purposes of computing interest on the
Obligations, such items shall be deemed applied by Lender one Business Day
after Lender's receipt of advice of deposit thereof at Lender's Bank.
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4.4 NOTIFICATION; VERIFICATION. Lender or its designee may, from time
to time, (i) whether or not a Default or Event of Default has occurred: (a)
verify directly with the Account Debtors the validity, amount and other
matters relating to the Accounts and Chattel Paper, by means of mail,
telephone or otherwise, either in the name of Borrower or Lender or such
other name as Lender may choose; and (b) notify Account Debtors that Lender
has a security interest in the Accounts and that payment thereof is to be
made directly to Lender; and (iii) after the occurrence of a Default or Event
of Default, demand, collect or enforce payment of any Accounts and Chattel
Paper (but without any duty to do so).
4.5 POWER OF ATTORNEY. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting
Lender (acting through any of its officers, employees, attorneys or agents),
at any time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but
without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise:
(i) execute on behalf of Borrower any documents that Lender may, in its sole
discretion, deem advisable in order to perfect and maintain Lender's security
interests in the Collateral, to exercise a right of Borrower or Lender, or to
fully consummate all the transactions contemplated by this Agreement and the
other Loan Documents (including such financing statements and continuation
financing statements, and amendments thereto, as Lender shall deem necessary
or appropriate) and to file as a financing statement any copy of this
Agreement or any financing statement signed by Borrower; (ii) execute on
behalf of Borrower any document exercising, transferring or assigning any
option to purchase, sell or otherwise dispose of or lease (as lessor or
lessee) any real or personal property which is part of the Collateral or in
which Lender has an interest; (iii) execute on behalf of Borrower any
invoices relating to any Accounts, any draft against any Account Debtor, any
proof of claim in bankruptcy, any notice of Lien or claim, and any assignment
or satisfaction of mechanic's, materialman's or other Lien; (iv) execute on
behalf of Borrower any notice to any Account Debtor; (v) receive and
otherwise take control in any manner of any cash or non-cash items of payment
or proceeds of Collateral; (vi) endorse Borrower's name on all checks and
other forms of remittances received by Lender; (vii) pay, contest or settle
any Lien, charge, encumbrance, security interest and adverse claim in or to
any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (viii) after the occurrence of a
Default or Event of Default, grant extensions of time to pay, compromise
claims relating to, and settle Accounts, Chattel Paper and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (ix) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (x) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.12; (xi) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xii) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as
Lender has under this
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Agreement; and (xiii) after the occurrence of a Default or Event of Default,
change the address for delivery of Borrower's mail and receive and open all
mail addressed to Borrower. Any and all sums paid, and any and all costs,
expenses, liabilities, obligations and reasonable attorneys' fees incurred,
by Lender with respect to the foregoing shall be added to and become part of
the Obligations, shall be payable on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.
Borrower agrees that Lender's rights under the foregoing power of attorney
or any of Lender's other rights under this Agreement or the other Loan
Documents shall not be construed to indicate that Lender is in control of the
business, management or properties of Borrower.
4.6 DISPUTES. Borrower shall notify Lender of all disputes or claims
relating to Accounts and Chattel Paper in the next regular report to Lender,
unless the dispute or claim is in the amount of $25,000 or more, in which
case Borrower shall notify Lender thereof promptly. Borrower will not,
without Lender's prior written consent, compromise or settle any Account or
Chattel Paper for less than the full amount thereof, grant any extension of
time of payment of any Account or Chattel Paper, release (in whole or in
part) any Account Debtor or other person liable for the payment of any
Account or Chattel Paper or grant any credits, discounts, allowances,
deductions, return authorizations or the like with respect to any Account or
Chattel Paper; except that prior to the occurrence of an Event of Default,
Borrower may take any of such actions in the ordinary course of its business,
PROVIDED that Borrower promptly reports the same to Lender.
4.7 INVOICES. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 INVENTORY.
(a) RETURNS. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount (sending a copy to Lender). After the occurrence of an
Event of Default, Borrower will not accept any return without Lender's prior
written consent. Regardless of whether an Event of Default has occurred,
Borrower will (i) hold the returned Inventory in trust for Lender;
(ii) segregate all returned Inventory from all of Borrower's other property;
(iii) conspicuously label the returned Inventory as Lender's property; and
(iv) immediately notify Lender of the return of such Inventory, specifying the
reason for such return, the location and condition of the returned Inventory
and, at Lender's request, deliver such returned Inventory to Lender at an
address specified by Lender.
(b) OTHER COVENANTS. Borrower will not, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set
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forth in Section 9(d) of Schedule A or (ii) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis. All
of the Inventory has been produced only in accordance with the Fair Labor
Standards Act of 1938 and all rules, regulations and orders promulgated
thereunder.
4.9 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and
on at least three Business Days' notice (although Lender will use its best
efforts to give at least five Business Days' notice), prior to the occurrence
of a Default or an Event of Default, and at any time and with or without
notice after the occurrence of a Default or an Event of Default, Lender or
its agents shall have the right to inspect the Collateral, and the right to
examine and copy Borrower's books and records. Lender shall take reasonable
steps to keep confidential all information obtained in any such inspection or
examination, but Lender shall have the right to disclose any such information
to its auditors, regulatory agencies, attorneys and participants, and
pursuant to any subpoena or other legal process. Borrower agrees to give
Lender access to any or all of Borrower's premises to enable Lender to
conduct such inspections and examinations. Such inspections and examinations
shall be at Borrower's expense and the charge therefor shall be $650 per
person per day (or such higher amount as shall represent Lender's then
current standard charge), plus reasonable out-of-pocket expenses. Lender
may, at Borrower's expense, use Borrower's personnel, computer and other
equipment, programs, printed output and computer readable media, supplies and
premises for the collection, sale or other disposition of Collateral to the
extent Lender, in its sole discretion, deems appropriate. Borrower hereby
irrevocably authorizes all accountants and third parties to disclose and
deliver to Lender, at Borrower's expense, all financial information, books
and records, work papers, management reports and other information in their
possession regarding Borrower. Borrower will not enter into any agreement
with any accounting firm, service bureau or third party to store Borrower's
books or records at any location other than Borrower's Address without first
obtaining Lender's written consent (which consent may be conditioned upon
such accounting firm, service bureau or other third party agreeing to give
Lender the same rights with respect to access to books and records and
related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be
affected by any knowledge of, or any investigation by, Lender, and (ii) the
accuracy of each such representation, warranty and covenant will be a condition
to each Loan and Credit Accommodation):
5.1 EXISTENCE AND AUTHORITY. Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation. Borrower is qualified and licensed to do
business in all jurisdictions in which any failure to do so would
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have a material adverse effect on Borrower. The execution, delivery and
performance by Borrower of this Agreement and all of the other Loan Documents
have been duly and validly authorized, do not violate Borrower's articles or
certificate of incorporation, by-laws or other organizational documents, or
any law or any agreement or instrument or any court order which is binding
upon Borrower or its property, do not constitute grounds for acceleration of
any indebtedness or obligation under any agreement or instrument which is
binding upon Borrower or its property, and do not require the consent of any
Person. This Agreement and such other Loan Documents have been duly executed
and delivered by, and are enforceable against, Borrower, and all other
Obligors who have signed them, in accordance with their respective terms.
Sections 9(g) and 9(h) of Schedule A set forth the ownership of Borrower and
the names and ownership of Borrower's Subsidiaries as of the date of this
Agreement.
5.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the
date hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Lender at least thirty days' prior written notice before
changing its name or doing business under any other name. Borrower has
complied with all laws relating to the conduct of business under a fictitious
business name. Borrower represents and warrants that (i) each trade name
does not refer to another corporation or other legal entity; (ii) all
Accounts invoiced under any such trade names are owned exclusively by
Borrower and are subject to the security interest of Lender and the other
terms of this Agreement and (iii) all schedules of Accounts, including any
sales made or services rendered using any trade name shall show Borrower's
name as assignor.
5.3 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower has good and
marketable title to the Collateral. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Lender now has,
and will continue to have, a first-priority perfected and enforceable
security interest in all of the Collateral, subject only to the Permitted
Liens, and Borrower will at all times defend Lender and the Collateral
against all claims of others. None of the Collateral which is Equipment is
or will be affixed to any real property in such a manner, or with such
intent, as to become a fixture. Except for leases or subleases as to which
Borrower has delivered to Lender a landlord's waiver in form and substance
satisfactory to Lender, Borrower is not a lessee or sublessee under any real
property lease or sublease pursuant to which the lessor or sublessor may
obtain any rights in any of the Collateral, and no such lease or sublease now
prohibits, restrains, impairs or conditions, or will prohibit, restrain,
impair or condition, Borrower's right to remove any Collateral from the
premises. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Borrower shall, whenever requested by
Lender, cause each such third party to execute and deliver to Lender, in form
and substance acceptable to Lender, such waivers and subordinations as Lender
shall specify, so as to ensure that Lender's rights in the Collateral are,
and will continue to be, superior to the
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rights of any such third party. Borrower will keep in full force and effect,
and will comply with all the terms of, any lease of real property where any
of the Collateral now or in the future may be located.
5.4 ACCOUNTS AND CHATTEL PAPER. As of each date reported by Borrower,
all Accounts which Borrower has reported to Lender as being Eligible Accounts
comply in all respects with the criteria for eligibility established by
Lender and in effect at such time. All Accounts and Chattel Paper are
genuine and in all respects what they purport to be, arise out of a
completed, bona fide and unconditional and non-contingent (except for
standard warranties and customary return rights) sale and delivery of goods
or rendition of services by Borrower in the ordinary course of its business
and in accordance with the terms and conditions of all purchase orders,
contracts or other documents relating thereto, each Account Debtor thereunder
had the capacity to contract at the time any contract or other document
giving rise to such Accounts and Chattel Paper were executed, and the
transactions giving rise to such Accounts and Chattel Paper comply with all
applicable laws and governmental rules and regulations.
5.5 INVESTMENT PROPERTY. Borrower will take any and all actions
required or requested by Lender, from time to time, to (i) cause Lender to
obtain exclusive control of any Investment Property in a manner acceptable to
Lender and (ii) obtain from any issuers of Investment Property and such other
Persons as Lender shall specify, for the benefit of Lender, written
confirmation of Lender's exclusive control over such Investment Property and
take such other actions as Lender may request to perfect Lender's security
interest in such Investment Property. For purposes of this Section 5.5,
Lender shall have exclusive control of Investment Property if (A) such
Investment Property consists of certificated securities and Borrower delivers
such certificated securities to Lender (with appropriate endorsements if such
certificated securities are in registered form); (B) such Investment Property
consists of uncertificated securities and either (x) Borrower delivers such
uncertificated securities to Lender or (y) the issuer thereof agrees,
pursuant to documentation in form and substance satisfactory to Lender, that
it will comply with instructions originated by Lender without further consent
by Borrower, and (C) such Investment Property consists of security
entitlements and either (x) Lender becomes the entitlement holder thereof or
(y) the appropriate securities intermediary agrees, pursuant to documentation
in form and substance satisfactory to Lender, that it will comply with
entitlement orders originated by Lender without further consent by Borrower.
5.6 PLACE OF BUSINESS; LOCATION OF COLLATERAL. Borrower's Address is
Borrower's chief executive office and the location of its books and records.
In addition, except as provided in the immediately following sentence,
Borrower has places of business and Collateral located only at the locations
set forth on Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender
at least thirty days' prior written notice before opening any additional
place of business, changing its chief executive office or the location of its
books and records, or moving any of the Collateral to a location other than
Borrower's Address or
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one of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and
will execute and deliver all financing statements and other agreements,
instruments and documents which Lender shall require as a result thereof.
5.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements delivered to Lender by or on behalf of Borrower have been prepared
in conformity with GAAP and completely and fairly reflect the financial
condition of Borrower, at the times and for the periods therein stated.
Between the last date covered by any such financial statement provided to
Lender and the date hereof (or, with respect to the remaking of this
representation in connection with the making of any Loan or the providing of
any Credit Accommodation, the date such Loan is made or such Credit
Accommodation is provided), there has been no material adverse change in the
financial condition or business of Borrower. Borrower is solvent and able to
pay its debts as they come due, and has sufficient capital to carry on its
business as now conducted and as proposed to be conducted. All schedules,
reports and other information and documentation delivered by Borrower to
Lender with respect to the Collateral are, or will be, when delivered, true,
correct and complete as of the date delivered or the date specified therein.
5.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed all tax returns and reports required by applicable law, has
timely paid all applicable taxes, assessments, deposits and contributions
owing by Borrower and will timely pay all such items in the future as they
became due and payable. Borrower may, however, defer payment of any
contested taxes; PROVIDED, that Borrower (i) in good faith contests
Borrower's obligation to pay such taxes by appropriate proceedings promptly
and diligently instituted and conducted; (ii) notifies Lender in writing of
the commencement of, and any material development in, the proceedings; (iii)
posts bonds or takes any other steps required to keep the contested taxes
from becoming a Lien upon any of the Collateral and (iv) maintains adequate
reserves therefor in conformity with GAAP. Borrower is unaware of any claims
or adjustments proposed for any of Borrower's prior tax years which could
result in additional taxes becoming due and payable by Borrower. Borrower
has paid, and shall continue to pay, all amounts necessary to fund all
present and future pension, profit sharing and deferred compensation plans in
accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted
the occurrence of any other event with respect to, any such plan which could
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or any other governmental agency.
5.9 COMPLIANCE WITH LAWS. Borrower has complied in all material
respects with all provisions of all applicable laws and regulations,
including those relating to Borrower's ownership of real or personal
property, the conduct and licensing of Borrower's business, the payment and
withholding of taxes, ERISA and other employee matters, safety and
environmental matters.
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5.10 LITIGATION. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of
Borrower's knowledge) threatened against Borrower. There is no claim, suit,
litigation, proceeding or investigation pending or (to the best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or
before any governmental agency (or any basis therefor known to Borrower)
which may result, either separately or in the aggregate, in any material
adverse change in the financial condition or business of Borrower, or in any
material impairment in the ability of Borrower to carry on its business in
substantially the same manner as it is now being conducted. Borrower will
promptly inform Lender in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against Borrower.
5.11 USE OF PROCEEDS. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 INSURANCE. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
reasonably require, and Borrower will provide evidence of such insurance to
Lender, so that Lender is satisfied that such insurance is, at all times, in
full force and effect. Each property insurance policy shall name Lender as
loss payee and shall contain a lender's loss payable endorsement in form
acceptable to Lender, each liability insurance policy shall name Lender as an
additional insured, and each business interruption insurance policy shall be
collaterally assigned to Lender, all in form and substance satisfactory to
Lender. All policies of insurance shall provide that they may not be
cancelled or changed without at least thirty days' prior written notice to
Lender, shall contain breach of warranty coverage, and shall otherwise be in
form and substance satisfactory to Lender. Upon receipt of the proceeds of
any such insurance, Lender shall apply such proceeds in reduction of the
Obligations as Lender shall determine in its sole discretion. Borrower will
promptly deliver to Lender copies of all reports made to insurance companies.
5.13 FINANCIAL AND COLLATERAL REPORTS. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with
GAAP, unless Borrower's certified public accountants concur in any change
therein and such change is disclosed to Lender):
(a) COLLATERAL REPORTS. On or before the fifteenth day of each
month, an aging of Borrower's Accounts, Chattel Paper and notes receivable,
and weekly Inventory reports, all in such form, and together with such
additional certificates, schedules and other information with respect to the
Collateral or the business of Borrower or any Obligor, as Lender shall
request; PROVIDED, that Borrower's failure to execute and deliver the same
shall not affect or limit Lender's security interests and other rights in any
of the Accounts, nor shall Lender's failure to advance or lend against a
specific Account affect or limit Lender's security interest
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and other rights therein. Together with each such schedule, Borrower shall
furnish Lender with copies (or, at Lender's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence
of delivery, for any goods the sale or disposition of which gave rise to such
Accounts, and Borrower warrants the genuineness of all of the foregoing. In
addition, Borrower shall deliver to Lender the originals of all Instruments,
Chattel Paper, security agreements, guaranties and other documents and
property evidencing or securing any Accounts, immediately upon receipt
thereof and in the same form as received, with all necessary endorsements.
Lender may destroy or otherwise dispose of all documents, schedules and other
papers delivered to Lender pursuant to this Agreement (other than originals
of Instruments, Chattel Paper, security agreements, guaranties and other
documents and property evidencing or securing any Accounts) six months after
Lender receives them, unless Borrower requests their return in writing in
advance and arranges for their return to Borrower at Borrower's expense.
(b) ANNUAL STATEMENTS. Not later than one hundred twenty days
after the close of each fiscal year of Borrower, unqualified (except for a
qualification for a change in accounting principles with which the accountant
concurs) audited financial statements of Borrower and its Subsidiaries as of
the end of such year, on a consolidated and consolidating basis, certified by
a firm of independent certified public accountants of recognized standing
selected by Borrower but acceptable to Lender, together with a copy of any
management letter issued in connection therewith and a letter from such
accountants acknowledging that Lender is relying on such financial statements;
(c) INTERIM STATEMENTS. Not later than thirty days after the end
of each month hereafter, including the last month of Borrower's fiscal year,
unaudited interim financial statements of Borrower and its Subsidiaries as of
the end of such month and of the portion of Borrower's fiscal year then
elapsed, on a consolidated and consolidating basis, certified by the
principal financial officer of Borrower as prepared in accordance with GAAP
and fairly presenting the consolidated financial position and results of
operations of Borrower and its Subsidiaries for such month and period subject
only to changes from audit and year-end adjustments and except that such
statements need not contain notes;
(d) PROJECTIONS, ETC. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Borrower
and its Subsidiaries as Lender shall request from time to time;
(e) SHAREHOLDER REPORTS, ETC. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders
and copies of any regular, periodic and special reports or registration
statements which Borrower files with the Securities and
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Exchange Commission or any governmental authority which may be substituted
therefor, or any national securities exchange;
(f) ERISA REPORTS. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with
each plan subject thereto; and
(g) OTHER INFORMATION. Such other data and information (financial
and otherwise) as Lender, from time to time, may reasonably request, bearing
upon or related to the Collateral or Borrower's and each of its Subsidiary's
financial condition or results of operations.
5.14 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Lender with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Lender, make
available Borrower and its officers, employees and agents, and Borrower's
books and records, without charge, to the extent that Lender may deem them
reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.15 MAINTENANCE OF COLLATERAL, ETC. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim
relating to the Collateral or which may result in an adverse impact upon
Borrower's business, assets or financial condition.
5.16 NOTIFICATION OF CHANGES. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new
bank account or other deposit account, or any material adverse change in the
business or financial affairs of Borrower or the existence of any
circumstance which would make any representation or warranty of Borrower
untrue in any material respect or constitute a material breach of any
covenant of Borrower.
5.17 FURTHER ASSURANCES. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees
and processors and other bailees, subordination and intercreditor agreements
and other agreements, instruments and documents as Lender may request from
time to time, to perfect and maintain Lender's security interests in the
Collateral and to fully effectuate the transactions contemplated by this
Agreement.
5.18 NEGATIVE COVENANTS. Except as set forth in Section 13 of Schedule
A, Borrower will not, without Lender's prior written consent, which shall not
be unreasonably withheld or delayed (i) merge or consolidate with another
Person, form any new Subsidiary or acquire any interest in any Person; (ii)
acquire any assets except in the ordinary course of business and as otherwise
permitted by this Agreement and the other Loan Documents; (iii) enter into
any
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transaction outside the ordinary course of business; (iv) sell or transfer
any Collateral or other assets, except that Borrower may sell finished goods
Inventory, work in process, raw materials and scrap in the ordinary course of
its business; (v) make any loans to, or investments in, any Affiliate or
other Person in the form of money or other assets; (vi) incur any debt
outside the ordinary course of business; (vii) guaranty or otherwise become
liable with respect to the obligations of another party or entity; (viii) pay
or declare any dividends or other distributions on Borrower's stock, if
Borrower is a corporation (except for dividends payable solely in capital
stock of Borrower) or with respect to any equity interests, if Borrower is
not a corporation; (ix) redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure (except in
connection with the exercise of warrants or conversion rights existing on the
date of this Agreement); (xi) dissolve or elect to dissolve; (xii) pay any
principal or interest on any indebtedness owing to an Affiliate, (xiii) enter
into any transaction with an Affiliate other than on arms-length terms; or
(xiv) agree to do any of the foregoing.
5.19 FINANCIAL COVENANTS.
(a) CAPITAL EXPENDITURES. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of
Schedule A as the Capital Expenditure Limitation in any fiscal year.
(b) NET WORTH. Borrower will at all times maintain a net worth of
at least the amount set forth in Section 8(b) of Schedule A.
(c) TANGIBLE NET WORTH. Borrower will at all times maintain a
minimum tangible net worth of at least the amount set forth in Section 8(c)
of Schedule A.
(d) WORKING CAPITAL. Borrower will at all times maintain working
capital of at least the amount set forth in Section 8(d) of Schedule A.
(e) NET LOSSES. Borrower will not permit its cumulative net loss
to exceed the amount set forth in Section 8(e) of Schedule A.
(f) NET INCOME. Borrower will not permit its cumulative net income
to be less than the amount set forth in Section 8(f) of Schedule A.
(g) LEVERAGE. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
(h) OTHER FINANCIAL COVENANTS. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
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6. RELEASE AND INDEMNITY.
6.1 RELEASE. Borrower hereby releases Lender and its Affiliates and
their respective directors, officers, employees, attorneys and agents and any
other Person affiliated with or representing Lender (the "RELEASED PARTIES")
from any and all liability arising from acts or omissions under or pursuant
to this Agreement, whether based on errors of judgment or mistake of law or
fact, except for those arising from gross negligence or willful misconduct of
the Released Parties. However, in no circumstance will any of the Released
Parties be liable for other special or consequential damages. Such release
is made on the date hereof and remade upon each request for a Loan or Credit
Accommodation by Borrower. Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission,
or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account; (iii) settling any Account in
good faith for less than the full amount thereof; or (iv) any of Borrower's
obligations under any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods
to the documents presented, the validity or genuineness of any documents,
delay, default or fraud by Borrower, shippers and/or any other Person.
Borrower agrees that any action taken by Lender, if taken in good faith, or
any action taken by an issuer of any Credit Accommodation, under or in
connection with any Credit Accommodation, shall be binding on Borrower and
shall not create any resulting liability to Lender. In furtherance thereof,
Lender shall have the full right and authority to clear and resolve any
questions of non-compliance of documents, to give any instructions as to
acceptance or rejection of any documents or goods, to execute for Borrower's
account any and all applications for steamship or airway guaranties,
indemnities or delivery orders, to grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances or
documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the Credit Accommodations or applications and other documentation
pertaining thereto.
6.2 INDEMNITY. Borrower hereby agrees to indemnify the Released
Parties and hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties,
costs and expenses (including attorneys' fees), of every nature, character
and description, which the Released Parties may sustain or incur based upon
or arising out of any of the transactions contemplated by this Agreement or
the other Loan Documents or any of the Obligations, including any
transactions or occurrences relating to the issuance of any Credit
Accommodation, the Collateral relating thereto, any drafts thereunder and any
errors or omissions relating thereto (including any loss or claim due to any
action or
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inaction taken by the issuer of any Credit Accommodation) (and for this
purpose any charges to Lender by any issuer of Credit Accommodations shall be
conclusive as to their appropriateness and may be charged to the Loan
Account), or any other matter, cause or thing whatsoever occurred, done,
omitted or suffered to be done by Lender relating to Borrower or the
Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of the Released Parties).
Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any termination
of this Agreement.
7. TERM.
7.1 MATURITY DATE. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement shall initially continue in effect
until the Initial Maturity Date set forth in Section 7 of Schedule A (the
"INITIAL TERM"); PROVIDED, that such date shall automatically be extended
(the Initial Maturity Date, as it may be so extended, being referred to as
the "MATURITY DATE") for successive additional terms of three years each
(each a "RENEWAL TERM"), unless one party gives written notice to the other,
not less than sixty days prior to the Maturity Date, that such party elects
not to extend the Maturity Date. This Agreement and the other Loan Documents
and Lender's security interests in and Liens upon the Collateral, and all
representations, warranties and covenants of Borrower contained herein and
therein, shall remain in full force and effect after the Maturity Date until
all of the monetary Obligations are indefeasibly paid in full.
7.2 EARLY TERMINATION. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days
after written notice of termination is given to Lender or (ii) by Lender at
any time after the occurrence of an Event of Default, without notice,
effective immediately; PROVIDED, that if any Affiliate of Borrower is also a
party to a financing arrangement with Lender, no such early termination shall
be effective unless such Affiliate simultaneously terminates its financing
arrangement with Lender. If so terminated under this Section 7.2, Borrower
shall pay to Lender (i) an early termination fee (the "EARLY TERMINATION
FEE") in the amount set forth in Section 6(h) of Schedule A plus (ii) any
earned but unpaid Facility Fee. Such fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate
equal to the highest rate applicable to any of the Obligations. In addition,
if Borrower so terminates and repays the Obligations without having provided
Lender with at least thirty days' prior written notice thereof, an additional
amount equal to thirty days of interest at the applicable Interest Rate(s),
based on the average outstanding amount of the Obligations for the six month
period immediately preceding the date of termination.
7.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay in full all Obligations,
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the
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foregoing, if, on the Maturity Date or on any earlier effective date of
termination, there are any outstanding Credit Accommodations, then on such
date Borrower shall provide to Lender cash collateral in an amount equal to
110% of the Credit Accommodation Balance to secure all of the Obligations
(including estimated attorneys' fees and other expenses) relating to said
Credit Accommodations or such greater percentage or amount as Lender
reasonably deems appropriate, pursuant to a cash pledge agreement in form and
substance satisfactory to Lender.
7.4 EFFECT OF TERMINATION. No termination shall affect or impair any
right or remedy of Lender or relieve Borrower of any of the Obligations until
all of the monetary Obligations have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary
Obligations (and the provision of cash collateral with respect to any Credit
Accommodation Balance as required by Section 7.3) and termination of this
Agreement, Lender shall promptly deliver to Borrower termination statements,
requests for reconveyances and such other documents as may be reasonably
required to terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "EVENT OF DEFAULT" under this Agreement, and Borrower
shall give Lender immediate written notice thereof: (i) if any warranty,
representation, statement, report or certificate made or delivered to Lender
by Borrower or any of Borrower's officers, employees or agents is untrue or
misleading; (ii) if Borrower fails to pay when due any principal or interest
on any Loan or any other monetary Obligation; (iii) if Borrower breaches any
covenant or obligation contained in this Agreement or any other Loan Document
or fails to perform any other non-monetary Obligation PROVIDED that any
breach of subsection 5.13(b), (c), (d), (e) or (f) of this Agreement shall
not constitute an Event of Default until twenty (20) days after the
occurrence thereof; (iv) if any unsatisfied levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made or
permitted to exist and is not dismissed in thirty days on all or any part of
the Collateral; (v) if one or more judgments aggregating in excess of
$100,000, or any injunction or attachment, is obtained against Borrower or
any Obligor which remains unstayed for more than thirty days or is enforced;
(vi) the occurrence of any default not cured within the time allowed under
any financing agreement, security agreement or other agreement, instrument or
document executed and delivered by (A) Borrower with, or in favor of, any
Person other than Lender or (B) Borrower or any Affiliate of Borrower with,
or in favor of, Lender or any Affiliate of Lender; (vii) the dissolution,
death, termination of existence in good standing, insolvency or business
failure or suspension or cessation of business as usual of Borrower or any
Obligor (or of any general partner of Borrower or any Obligor if it is a
partnership) or the appointment of a receiver, trustee or custodian for all
or any part of the property of, or an assignment for the benefit of creditors
by Borrower or any Obligor, or the commencement of any proceeding by Borrower
or any Obligor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or
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liquidation law or statute of any jurisdiction, now or in the future in
effect, or if Borrower makes or sends a notice of a bulk transfer or calls a
meeting of its creditors; (viii) the commencement of any proceeding against
Borrower or any Obligor under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations, or any security document securing the
Obligations, by any Obligor; (x) if Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations attempts to
limit or terminate its subordination agreement; (xi) if there is any actual
or threatened indictment of Borrower or any Obligor under any criminal
statute or commencement or threatened commencement of criminal or civil
proceedings against Borrower or any Obligor, pursuant to which the potential
penalties or remedies sought or available include forfeiture of any property
of Borrower or such Obligor; (xii) if there is a change in the record or
beneficial ownership (other than as permitted in Section 5.18) of an
aggregate of more than 20% of the outstanding shares of stock of Borrower (or
partnership or membership interests if it is a partnership or limited
liability company), in one or more transactions, compared to the ownership of
outstanding shares of stock (or partnership or membership interests) of
Borrower as of the date hereof, without the prior written consent of Lender;
(xiii) if there is any change in the chief executive officer, chief operating
officer or chief financial officer of Borrower without a replacement
satisfactory to Lender; (xiv) if an Event of Default occurs under any Loan
and Security Agreement between Lender and an Affiliate of Borrower; or (xv)
if Lender determines in good faith that the Collateral is insufficient to
fully secure the Obligations or that the prospect of payment of performance
of the Obligations is impaired.
8.2 REMEDIES. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other Loan Document.
Upon the occurrence of any Event of Default, and at any time thereafter,
Lender, at its option, and without notice or demand of any kind (all of which
are hereby expressly waived by Borrower), may do any one or more of the
following: (i) cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other Loan Document; (ii) accelerate and declare
all or any part of the Obligations to be immediately due, payable and
performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any of the Obligations; (iii) take
possession of any or all of the Collateral wherever it may be found, and for
that purpose Borrower hereby authorizes Lender, without judicial process, to
enter onto any of Borrower's premises without interference to search for,
take possession of, keep, store, or remove any of the Collateral, and remain
(or cause a custodian to remain) on the premises in exclusive control
thereof, without charge for so long as Lender deems it reasonably necessary
in order to complete the enforcement of its rights under this Agreement or
any other agreement; PROVIDED, that if Lender seeks to take possession of any
of the Collateral by court
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process, Borrower hereby irrevocably waives (A) any bond and any surety or
security relating thereto required by law as an incident to such possession,
(B) any demand for possession prior to the commencement of any suit or action
to recover possession thereof and (C) any requirement that Lender retain
possession of, and not dispose of, any such Collateral until after trial or
final judgment; (iv) require Borrower to assemble any or all of the
Collateral and make it available to Lender at one or more places designated
by Lender which are reasonably convenient to Lender and Borrower, and to
remove the Collateral to such locations as Lender may deem advisable; (v)
complete the processing, manufacturing or repair of any Collateral prior to a
disposition thereof and, for such purpose and for the purpose of removal,
Lender shall have the right to use Borrower's premises, vehicles and other
Equipment and all other property without charge; (vi) sell, lease or
otherwise dispose of any of the Collateral, in its condition at the time
Lender obtains possession of it or after further manufacturing, processing or
repair, at one or more public or private sales, in lots or in bulk, for cash,
exchange or other property, or on credit (a "SALE"), and to adjourn any such
Sale from time to time without notice other than oral announcement at the
time scheduled for Sale (and, in connection therewith, (A) Lender shall have
the right to conduct such Sale on Borrower's premises without charge, for
such times as Lender deems reasonable, on Lender's premises, or elsewhere,
and the Collateral need not be located at the place of Sale; (B) Lender may
directly or through any of its Affiliates purchase or lease any of the
Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral
shall not relieve Borrower of any liability Borrower may have if any
Collateral is defective as to title, physical condition or otherwise at the
time of sale); (vii) demand payment of and collect any Accounts, Chattel
Paper, Instruments and General Intangibles included in the Collateral and, in
connection therewith, Borrower irrevocably authorizes Lender to endorse or
sign Borrower's name on all collections, receipts, Instruments and other
documents, to take possession of and open mail addressed to Borrower and
remove therefrom payments made with respect to any item of Collateral or
proceeds thereof and, in Lender's sole discretion, to grant extensions of
time to pay, compromise claims and settle Accounts, General Intangibles and
the like for less than face value; and (viii) demand and receive possession
of any of Borrower's federal and state income tax returns and the books and
records utilized in the preparation thereof or relating thereto. In addition
to the foregoing remedies, upon the occurrence of any Event of Default
resulting from a breach of any of the financial covenants set forth in
Section 5.19, Lender may, at its option, upon not less than ten days' prior
notice to Borrower, reduce any or all of the Advance Rates set forth in
Section 1(b) of Schedule A to the extent Lender, in its sole discretion,
deems appropriate. In addition to the rights and remedies set forth above,
Lender shall have all the other rights and remedies accorded a secured party
after default under the UCC and under all other applicable laws, and under
any other Loan Document, and all of such rights and remedies are cumulative
and non-exclusive. Exercise or partial exercise by Lender of one or more of
its rights or remedies shall not be deemed an election or bar Lender from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Lender to exercise any rights or remedies shall not
operate as a waiver thereof, but all rights and remedies shall continue in
full force
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and effect until all of the Obligations have been fully paid and performed.
If notice of any sale or other disposition of Collateral is required by law,
notice at least seven days prior to the sale designating the time and place
of sale in the case of a public sale or the time after which any private sale
or other disposition is to be made shall be deemed to be reasonable notice,
and Borrower waives any other notice. If any Collateral is sold or leased by
Lender on credit terms or for future delivery, the Obligations shall not be
reduced as a result thereof until payment is collected by Lender.
8.3 APPLICATION OF PROCEEDS. Subject to any application required by
law, all proceeds realized as the result of any Sale shall be applied by
Lender to the Obligations in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any
deficiency. If Lender, in its sole discretion, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
Sale, Lender shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Lender of the cash therefor.
9. GENERAL PROVISIONS.
9.1 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt
requested, addressed to Lender or Borrower at the address shown in the
heading to this Agreement, or by facsimile to the facsimile number shown in
Section 9(i) of Schedule A, or at any other address (or to any other
facsimile number) designated in writing by one party to the other party in
the manner prescribed in this Section 9.1. All notices shall be deemed to
have been given when received or when delivery is refused by the recipient.
9.2 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any party or circumstance, is held to be void or
unenforceable by any court of competent jurisdiction, such defect shall not
affect the remainder of this Agreement, which shall continue in full force
and effect.
9.3 INTEGRATION. This Agreement and the other Loan Documents represent
the final, entire and complete agreement between Borrower and Lender and
supersede all prior and contemporaneous negotiations, oral representations
and agreements, all of which are merged and integrated into this Agreement.
THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE
PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 WAIVERS. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or
any other Loan Documents
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shall not waive or diminish any right of Lender later to demand and receive
strict compliance therewith. Any waiver of any default shall not waive or
affect any other default, whether prior or subsequent, and whether or not
similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives
demand, protest, notice of protest and notice of default or dishonor, notice
of payment and nonpayment, release, compromise, settlement, extension or
renewal of any commercial paper, Instrument, Account, General Intangible,
Document, Chattel Paper, Investment Property or guaranty at any time held by
Lender on which Borrower is or may in any way be liable, and notice of any
action taken by Lender, unless expressly required by this Agreement, and
notice of acceptance hereof.
9.5 AMENDMENT. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to,
in connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to
administer this Agreement and the other Loan Documents (including the cost of
periodic financing statement, tax lien and other searches conducted by Lender);
to enforce, or seek to enforce, any of its rights; prosecute actions against,
or defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to enforce and protect, or to seek to enforce and
protect, any of its rights and interests in any bankruptcy case of Borrower,
including, without limitation, by initiating and prosecuting any motion for
relief from the automatic stay and by initiating, prosecuting or defending any
other contested matter or adversary proceeding in bankruptcy; to file or
prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; to examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; to protect, obtain possession of, lease, dispose
of, or otherwise enforce Lender's security interests in, the Collateral; and to
otherwise represent Lender in any litigation relating to Borrower. If either
Lender or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys' fees and costs
to which Lender may be entitled pursuant to this Section shall immediately
become part of the Obligations, shall be due on demand, and shall bear
interest at
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a rate equal to the highest interest rate applicable to any of the
Obligations. Lender shall provide Borrower with a detailed invoice or cost
summary of all costs and fees payable by Borrower under this Section 9.7.
9.8 BENEFIT OF AGREEMENT; ASSIGNABILITY. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
PROVIDED, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
9.9 HEADINGS; CONSTRUCTION. Section and subsection headings are used
in this Agreement only for convenience. Borrower and Lender acknowledge that
the headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and
no uncertainty or ambiguity in any term or provision of this Agreement shall
be construed strictly against Lender or Borrower under any rule of
construction or otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE
AND FEDERAL COURTS IN NEW YORK, NEW YORK OR THE STATE IN WHICH ANY OF THE
COLLATERAL IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO
THIS AGREEMENT, ANY OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR DISPUTE BROUGHT BY
BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT
OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL
BE BROUGHT EXCLUSIVELY IN THE STATE
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AND FEDERAL COURTS OF NEW YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT
AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE IN THE MANNER AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1
FOR NOTICES, TO THE EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL
BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER
OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL
BY JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR
OMISSIONS OF LENDER OR BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OR ANY OTHER PERSONS AFFILIATED WITH
LENDER OR BORROWER, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE; (ii)
NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR
ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING
LENDER TO EXERCISE ANY OF LENDER'S REMEDIES AND (iii) THE BENEFIT OF ALL
VALUATION, APPRAISEMENT AND EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE
FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS
AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
26
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
BORROWER: LENDER:
CRAGAR INDUSTRIES, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By /s/ [ILLEGIBLE] By /s/ Lynne Ciaccia
--------------------------------- ---------------------------------
Its PRES/CEO Its Authorized Signatory
------------------------------
27
<PAGE>
SCHEDULE A
DESCRIPTION OF CERTAIN TERMS
This Schedule is an integral part of the Loan and Security Agreement
between CRAGAR INDUSTRIES, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
1. Loan Limits for
Revolving Loans:
(a) Maximum Facility $8,500,000
Amount:
(b) Advance Rates:
(i) Accounts 85%; PROVIDED, that if the
Advance Rate: Dilution Percentage exceeds
5.0%, Lender may, at its
option, (i) reduce such advance
rate or (ii) implement a
collateral reserve, each in the
amount of such excess Dilution
Percentage
(ii) Inventory
Advance
Rate(s):
(A) Finished 54% (excluding finished goods
goods: Inventory which has not turned
over in one year or more
("Excess Finished Goods
Inventory") and finished goods
Inventory not advertised in
Borrower's then current
catalogue ("Obsolete
Inventory"))
(B) Raw 41%
materials:
(C) Work in 54%
process:
A-1
<PAGE>
(D) Excess 48%
Finished
Goods
Inventory
and
Obsolete
Inventory
(iii) Investment 75%
Property
Advance Rate
(c) Accounts Sublimit: $2,000,000 for Eligible
Accounts with terms greater
than 90 days but not in excess
of 180 days
(d) Inventory Sublimit(s):
(i) Overall $4,000,000
sublimit
on advances
against
Eligible
Inventory
(ii) Sublimit on Not applicable
advances
against
finished
goods
(iii) Sublimit on Not applicable
advances
against raw
materials
(iv) Sublimit on $250,000
advances
against work
in process
(e) Credit $500,000
Accommodation
Limit:
(f) Permanent None
Reserve
Amount:
A-2
<PAGE>
(g) Overadvance None
Amount:
(h) Investment Property $1,500,000
Sublimit
2. Loan Limits for Term
Loan:
(a) Principal Amount:
(i) Equipment $627,000 based on 80% of the
Advance appraised auction sale value of
Borrower's Eligible Equipment
(ii) Real Property Not Applicable
Advance:
(iii) Capital The lesser of $750,000 in the
Expenditure aggregate and 80% of the
Advance: appraised auction sale value of
Borrower's Eligible Equipment
purchased after the date of the
Agreement
(iv) Intellectual The lesser of $500,000 and 30%
Property of the appraised quick sale
Advance: value of Borrower's Eligible
Intellectual Property
(b) Repayment Schedule:
(i) Equipment The Equipment Advance shall be
Advance: repaid in equal consecutive
monthly installments amortized
over 60 months payable on the
first day of each calendar
month commencing May 1, 1998,
with the entire unpaid balance
due and payable on the Maturity
Date
(ii) Real Property Not applicable
Advance:
A-3
<PAGE>
(iii) Capital Each Capital Expenditure
Expenditure Advance shall be repaid in
Advance: equal consecutive monthly
installments amortized over 60
months payable on the first day
of each calendar month
commencing on the first day of
the month following the month
in which such Capital
Expenditure Advance was made,
with the entire unpaid balance
due and payable on the Maturity
Date
(iv) Intellectual The Intellectual Property
Property Advance shall be repaid in
Advance: equal consecutive monthly
installments amortized over 48
months payable on the first day
of each calendar month
commencing May 1, 1998, with
the entire unpaid balance due
and payable on the Maturity
Date.
3. Interest Rates:
(a) Revolving Loans: 1.25% per annum in excess
of the Prime Rate, provided
that such percentage will
reduce to 1.0% per annum in
excess of the Prime Rate
effective on the first day of
the calendar month following
the month in which Borrower
makes timely delivery of its
audited year-end financial
statements for any fiscal year
showing that Borrower's net
operating profit for such
fiscal year (excluding any
extraordinary items) was
positive
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<PAGE>
(b) Term Loan: 1.25% per annum in excess
of the Prime Rate, provided
that such percentage will
reduce to 1.0% per annum in
excess of the Prime Rate
effective on the first day of
the calendar month following
the month in which Borrower
makes timely delivery of its
audited year-end financial
statements for any fiscal year
showing that Borrower's net
operating profit for such
fiscal year (excluding any
extraordinary items) was
positive
4. Minimum Loan Amount: $4,000,000
5. Maximum Days:
(a) Maximum days after 210
original INVOICE
DATE for Eligible
Accounts:
(b) Maximum days after 60
original INVOICE
DUE DATE for
Eligible Accounts:
6. Fees:
(a) Closing Fee: $85,000, of which $7,083 has
been paid prior to the date of
the Agreement
(b) Facility Fee:
(i) Initial Term: $127,500
(ii) Renewal Not applicable
Term(s):
(c) Servicing Fee: Not applicable
(d) Unused Line Fee: Not applicable
A-5
<PAGE>
(e) Minimum
Borrowing Fee:
(i) Applicable Each year
period:
(ii) Date payable: Each anniversary of the date of
the Agreement
(f) Success Fee: Not applicable
(g) Warrants: Warrants to acquire up to
50,000 shares of the capital
stock of Borrower for a
purchase price equal to 105% of
the value of such capital stock
on the date of the Agreement,
exercisable within 5 years
after the date of the Agreement
and with other terms and
conditions acceptable to Lender
(h) Early Termination 3.0% of the Maximum Facility
Fee: Amount if terminated during the
first year of the Initial Term,
1.5% of the Maximum Facility
Amount if terminated during the
second year of the Initial
Term, 1.0% of the Maximum
Facility Amount if terminated
during the third year of the
Initial Term and 0.50% of the
Maximum Facility Amount if
terminated thereafter and prior
to the Maturity Date; PROVIDED
that, if the Agreement is
terminated during the first
year of the Initial Term in
connection with a sale of, or a
change in the controlling
ownership of, Borrower, the
Early Termination Fee will be
1.0% of the Maximum Facility
Amount
(i) Fees for letters 1.5% per annum of the face
of credit and amount of each open Credit
other Credit Accommodation
Accommodations (or
guaranties thereof
by Lender):
A-6
<PAGE>
7. Initial Maturity Date: April 19, 2002
8. Financial Covenants:
(a) Capital Expenditure Not applicable
Limitation:
(b) Minimum Net Worth Not applicable
Requirement:
(c) Minimum Tangible Net Not applicable
Worth:
(d) Minimum Working Not applicable
Capital:
(e) Maximum Cumulative Net Not applicable
Loss:
(f) Minimum Cumulative Net Not applicable
Income:
(g) Maximum Leverage Not applicable
Ratio:
(h) Limitation on Purchase Not applicable
Money Security Interests:
(i) Limitation on Not applicable
Equipment Leases:
(j) Additional Financial None
Covenants:
9. Borrower Information:
(a) Prior Names of None
Borrower:
A-7
<PAGE>
(b) Prior Trade Names of Tru=Spoke Wire Wheels
Borrower:
(c) Existing Trade Names
of Borrower: None
(d) Inventory Locations: 4636 North 43rd Avenue
Phoenix, Arizona 85031
(e) Other Locations: None
(f) Litigation: See attached Schedule 1
(g) Ownership of Borrower: See attached Schedule 2
(h) Subsidiaries (and None
ownership thereof):
(i) Facsimile Numbers:
Borrower: 602-846-0684
Lender: (212) 597-1666
10. Description of Real None
Property:
11. Lender's Bank: The First National Bank of
Chicago
One First National Plaza
Chicago, Illinois 60670
12. Other Covenants: None
13. Exceptions to Negative None
Covenants:
A-8
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
BORROWER: LENDER:
CRAGAR INDUSTRIES, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ [ILLEGIBLE] By /s/ Lynne Ciaccia
--------------------------- -------------------------
Its PRES/CEO Its Authorized Signatory
------------------------
A-9
<PAGE>
SCHEDULE B
DEFINITIONS
This Schedule is an integral part of the Loan and Security Agreement
between CRAGAR INDUSTRIES, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
As used in the Agreement, the following terms have the following meanings:
"ACCOUNT" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"ACCOUNT DEBTOR" means the obligor on an Account or Chattel Paper.
"ACCOUNT PROCEEDS" has the meaning set forth in Section 4.1.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person,
any parent or subsidiary of such Person, or any Person controlling, controlled
by or under common control with such Person or any other Person affiliated,
directly or indirectly, by virtue of family membership, ownership, management
or otherwise.
"AGREEMENT" and "THIS AGREEMENT" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
"AVAILABILITY" has the meaning set forth in Section 1.1(a)
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
Section 101 ET SEQ.).
"BLOCKED ACCOUNT" has the meaning set forth in Section 4.1.
"BORROWER" has the meaning set forth in the heading to the Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the heading to the
Agreement.
"BUSINESS DAY" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York are authorized to close.
"CHATTEL PAPER" has the meaning set forth in the UCC.
"COLLATERAL" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement
or the other Loan Documents.
"CREDIT ACCOMMODATION" has the meaning set forth in Section 1.1(a).
B-1
<PAGE>
"CREDIT ACCOMMODATION BALANCE" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due
in connection therewith.
"DEFAULT" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"DEFAULT RATE" has the meaning set forth in Section 2.1.
"DEPOSIT ACCOUNT" has the meaning set forth in the UCC.
"DILUTION PERCENTAGE" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a trailing twelve month basis but excluding dilution related to
the Accounts owed by Super Shops, Inc..
"DOCUMENT" has the meaning set forth in the UCC.
"EARLY TERMINATION FEE" has the meaning set forth in Section 7.2.
"ELIGIBLE ACCOUNT" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
reasonably acceptable to Lender (PROVIDED, that Lender may, in its sole and
reasonable discretion, change the general criteria for acceptability of
Eligible Accounts upon at least fifteen days' prior notice to Borrower). An
Account shall be deemed to meet the current general criteria if (i) neither the
Account Debtor nor any of its Affiliates is an Affiliate, creditor or supplier
of Borrower; (ii) it does not remain unpaid more than the earlier to occur of
(A) the number of days after the original INVOICE DATE set forth in
Section 5(a) of Schedule A or (B) the number of days after the original INVOICE
DUE DATE set forth in Section 5(b) of Schedule A; (iii) the Account Debtor or
its Affiliates are not past due on other Accounts owing to Borrower comprising
more than 50% of all of the Accounts owing to Borrower by such Account Debtor
or its Affiliates; (iv) all Accounts owing by the Account Debtor or its
Affiliates do not represent more than 20% of all otherwise Eligible Accounts
(PROVIDED, that Accounts which are deemed to be ineligible solely by reason of
this clause (iv) shall be considered Eligible Accounts to the extent of the
amount thereof which does not exceed 20% of all otherwise Eligible Accounts);
(v) no covenant, representation or warranty contained in this Agreement with
respect to such Account (including any of the representations set forth in
Section 5.4) has been breached; (vi) the Account is not subject to any contra
relationship, counterclaim, dispute or set-off (PROVIDED, that Accounts which
are deemed to be ineligible solely by reason of this clause (vi) shall be
considered Eligible Accounts to the extent of the amount thereof which is not
affected by such contra relationships, counterclaims, disputes or set-offs);
(vii) the Account Debtor's chief executive office or principal place of
business is located in the United States or Provinces of Canada which have
adopted the Personal Property Security Act or a similar act, unless (A) the
sale is fully backed by a letter of credit, guaranty or acceptance acceptable
to Lender in its sole discretion, and if backed by a letter of credit, such
letter of credit has been issued or confirmed by a bank satisfactory to Lender,
is sufficient to cover such Account, and if required by Lender, the original of
such letter of credit has been delivered to Lender or Lender's agent and the
issuer thereof notified of the
B-2
<PAGE>
assignment of the proceeds of such letter of credit to Lender or (B) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender; (viii) it is absolutely
owing to Borrower and does not arise from a sale on a bill-and-hold,
guarantied sale, sale-or-return, sale-on-approval, consignment, retainage or
any other repurchase or return basis or consist of progress billings; (ix)
Lender shall have verified the Account in a manner satisfactory to Lender;
(x) the Account Debtor is not the United States of America or any state or
political subdivision (or any department, agency or instrumentality thereof),
unless Borrower has complied with the Assignment of Claims Act of 1940 (31
U.S.C. Section 203 et seq.) or other applicable similar state or local law in
a manner satisfactory to Lender; (xi) it is at all times subject to Lender's
duly perfected, first priority security interest and to no other Lien that is
not a Permitted Lien, and the goods giving rise to such Account (A) were not,
at the time of sale, subject to any Lien except Permitted Liens and (B) have
been delivered to and accepted by the Account Debtor, or the services giving
rise to such Account have been performed by Borrower and accepted by the
Account Debtor; (xii) the Account is not evidenced by Chattel Paper or an
Instrument of any kind and has not been reduced to judgment; (xiii) the
Account Debtor's total indebtedness to Borrower does not exceed the amount of
any credit limit established by Borrower or Lender and the Account Debtor is
otherwise deemed to be creditworthy by Lender (PROVIDED, that Accounts which
are deemed to be ineligible solely by reason of this clause (xiii) shall be
considered Eligible Accounts to the extent the amount of such Accounts does
not exceed the lower of such credit limits); (xiv) there are no facts or
circumstances existing, or which could reasonably be anticipated to occur,
which might result in any adverse change in the Account Debtor's financial
condition or impair or delay the collectibility of all or any portion of such
Account; (xv) Lender has been furnished with all documents and other
information pertaining to such Account which Lender has requested, or which
Borrower is obligated to deliver to Lender, pursuant to this Agreement; (xvi)
Borrower has not made an agreement with the Account Debtor to extend the time
of payment thereof beyond the time periods set forth in clause (ii) above;
and (xvii) Borrower has not posted a surety or other bond in respect of the
contract under which such Account arose.
"ELIGIBLE EQUIPMENT" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible
for borrowing purposes.
"ELIGIBLE INVENTORY" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise reasonably acceptable to Lender
(PROVIDED, that Lender may, in its sole and reasonable discretion, change the
general criteria for acceptability of Eligible Inventory upon at least fifteen
days' prior written notice to Borrower). Inventory shall be deemed to meet the
current general criteria if (i) it consists of raw materials or finished goods,
or work-in-process that is readily marketable in its current form; (ii) it is
in good, new and saleable condition; (iii) it is not unmerchantable; (iv) it is
not in the possession of a processor, consignee or bailee, or located on
premises leased or subleased to Borrower, or on premises subject to a mortgage
in favor of a Person other than Lender, unless such processor, consignee,
bailee or mortgagee or the lessor or sublessor of such premises, as the case
may be, has executed and delivered all documentation which Lender shall require
to evidence the subordination or other limitation or extinguishment of such
Person's rights with respect to such Inventory and Lender's right to gain
access thereto; (v) it meets all standards imposed by any governmental agency
or authority; (vi) it conforms in all
B-3
<PAGE>
respects to any covenants, warranties and representations set forth in the
Agreement; (vii) it is at all times subject to Lender's duly perfected, first
priority security interest and no other Lien except a Permitted Lien; and
(viii) it is situated at an Inventory Location listed in Section 9(d) of
Schedule A or other location of which Lender has been notified as required by
Section 5.6.
"ELIGIBLE INTELLECTUAL PROPERTY" means patents and patent
applications (collectively, "PATENTS") and trademarks, trademark registrations,
trademark applications, tradenames and tradestyles, service marks, service mark
registrations and service mark registration applications (collectively,
"TRADEMARKS") and all license agreements with respect to any Patents or
Trademarks, in each case subject to Lender's perfected first priority security
interest and not subject to any other security interests, liens or
encumbrances.
"ELIGIBLE INVESTMENT PROPERTY" means marketable stocks and bonds
acceptable to Lender in its sole discretion, subject to Lender's perfected
first priority security interest and not subject to any other security
interests, liens or encumbrances.
"ELIGIBLE REAL PROPERTY" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"EQUIPMENT" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a non-
profit organization or governmental subdivision or agency and which are not
Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"EQUIPMENT ADVANCE" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in effect
from time to time, consistently applied.
"GENERAL INTANGIBLES" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or
B-4
<PAGE>
otherwise), and all judgments now or hereafter arising therefrom, rights to
purchase or sell real or personal property, rights as a licensor or licensee
of any kind, royalties, telephone numbers, internet addresses, proprietary
information, purchase orders, and all insurance policies and claims
(including life insurance, key man insurance, credit insurance, liability
insurance, property insurance and other insurance), tax refunds and claims,
letters of credit, banker's acceptances and guaranties, computer programs,
discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by
or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature.
"GOODS" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"INITIAL TERM" has the meaning set forth in Section 7.1.
"INSTRUMENT" has the meaning set forth in the UCC.
"INVENTORY" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such
Goods, and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"INVESTMENT PROPERTY" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"LENDER" has the meaning set forth in the heading to the Agreement.
"LIEN" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be
deemed to be the owner of any property which it has acquired or holds subject
to a conditional sale agreement or other arrangement pursuant to which title to
the property has been retained by or vested in some other Person for security
purposes.
"LOAN ACCOUNT" has the meaning set forth in Section 2.4.
"LOAN DOCUMENTS" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by
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Borrower or any Obligor in connection with, or to evidence the transactions
contemplated by, this Agreement.
"LOAN LIMITS" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"LOANS" means, collectively, the Revolving Loans and any Term Loan.
"LOCK BOX" has the meaning set forth in Section 4.1.
"MATURITY DATE" has the meaning set forth in Section 7.1.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Lender, whether evidenced by this Agreement or any
other Loan Document, whether arising from an extension of credit, opening of a
Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, Closing Fees, Facility Fees, Servicing Fees, Unused Line Fees,
Minimum Borrowing Fees, Success Fees, amounts owing under Warrants, Credit
Accommodation Fees and any other sums chargeable to Borrower under this
Agreement or under any other Loan Document.
"OBLIGOR" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
"PERMITTED LIENS" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(h) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(i) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional
Liens which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics, warehousemen or carriers arising in the ordinary course of business
and securing obligations which are not delinquent; (vii) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (i) or (ii) above; PROVIDED,
that any extension, renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase; (viii) Liens in favor
of customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; and (ix) security deposits posted in
connection with real property leases or subleases. Lender will
B-6
<PAGE>
have the right to require, as a condition to its consent under clause (iv)
above, that the holder of the additional Lien sign an intercreditor agreement
in form and substance satisfactory to Lender, in its sole discretion,
acknowledging that the Lien is subordinate to the security interests of
Lender, and agreeing not to take any action to enforce its subordinate Lien
so long as any Obligations remain outstanding, and that Borrower agree that
any uncured default in any obligation secured by the subordinate Lien shall
also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"PRIME RATE" means, at any given time, the prime rate as quoted in THE
WALL STREET JOURNAL as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"REAL PROPERTY" means the real property described in Section 10 of
Schedule A.
"REAL PROPERTY ADVANCE" has the meaning set forth in Section 1.1(b).
"RELEASED PARTIES" has the meaning set forth in Section 6.1.
"RENEWAL TERM" has the meaning set forth in Section 7.1.
"REQUIRED EXCESS AVAILABILITY" means unused Availability in an amount
equal to the absolute value of Borrower's net profit or loss for the three
months ended March 31, 1998, TIMES 4, PLUS actual annual depreciation and
amortization, MINUS actual annual debt service and MINUS [HISTORICAL] Capital
Expenditures, determined on the date of this Agreement after the making of the
initial Loans and taking of initial Reserves, if any, under the Agreement and
provided that, at such time, Borrower has no accounts payable more than 60 days
past due (unless Lender has established a Reserve for the full amount thereof)
and no past due taxes.
"RESERVES" has the meaning set forth in Section 1.2.
"REVOLVING LOANS" has the meaning set forth in Section 1.1(a).
"SALE" has the meaning set forth in Section 8.2.
"SUBSIDIARY" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"TERM" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"TERM LOAN" has the meaning set forth in Section 1.1(b).
B-7
<PAGE>
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein.
The term "INCLUDING," whenever used in this Agreement, shall mean "including
but not limited to." The singular form of any term shall include the plural
form, and vice versa, when the context so requires. References to Sections,
subsections and Schedules are to Sections and subsections of, and Schedules to,
this Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
BORROWER: LENDER:
CRAGAR INDUSTRIES, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ [ILLEGIBLE] By /s/ Lynne Ciaccia
-------------------------- --------------------------
Its PRES/CEO Its Authorized Signatory
-----------------------
B-8
<PAGE>
EXHIBIT 11
CRAGAR INDUSTRIES, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31,
EARNINGS (LOSS) PER SHARE 1998 1997
----------------------------
<S> <C> <C>
Net earnings (loss) $ (350,602) $ 8,588
Less: Preferred Stock Dividends in Arrears (17,500) -
----------- ---------
Income (loss) available to Common Stockholders $ (368,102) $ 8,588
----------- ---------
----------- ---------
Basic EPS - Weighted Average
Shares outstanding 2,453,990 2,210,305
----------- ---------
----------- ---------
Basic Earnings (Loss) per Share $ (0.15) $ 0.00
----------- ---------
----------- ---------
Basic EPS - Weighted Average
Shares outstanding 2,453,990 2,210,305
Effect of Diluted Securities:
Stock Options and Warrants (1) - 176,019
Convertible Preferred Stock (1) - -
----------- ---------
Diluted EPS - Weighted Average
Shares Outstanding 2,453,990 2,386,324
----------- ---------
----------- ---------
Diluted Earnings (Loss) per Share $ (0.15) $ 0.00
----------- ---------
----------- ---------
</TABLE>
(1) The Company's outstanding stock options, warrants, and convertible
preferred stock have an antidilutive effect on net loss per share.
As a result, such amounts have been excluded from the computations
of diluted loss per share.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 7,250,979
<ALLOWANCES> 3,652,819
<INVENTORY> 5,013,365
<CURRENT-ASSETS> 8,711,570
<PP&E> 2,103,241
<DEPRECIATION> 1,142,638
<TOTAL-ASSETS> 10,063,493
<CURRENT-LIABILITIES> 8,620,947
<BONDS> 0
0
225
<COMMON> 24,540
<OTHER-SE> 1,417,781
<TOTAL-LIABILITY-AND-EQUITY> 10,063,493
<SALES> 3,115,197
<TOTAL-REVENUES> 3,115,197
<CGS> 2,487,467
<TOTAL-COSTS> 826,431
<OTHER-EXPENSES> (20,307)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,208
<INCOME-PRETAX> (350,602)
<INCOME-TAX> 0
<INCOME-CONTINUING> (350,602)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (350,602)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,322
<SECURITIES> 0
<RECEIVABLES> 6,614,216
<ALLOWANCES> 3,616,336
<INVENTORY> 4,653,480
<CURRENT-ASSETS> 7,678,835
<PP&E> 2,043,761
<DEPRECIATION> 1,071,008
<TOTAL-ASSETS> 9,055,848
<CURRENT-LIABILITIES> 8,912,700
<BONDS> 0
0
0
<COMMON> 24,540
<OTHER-SE> (481,392)
<TOTAL-LIABILITY-AND-EQUITY> 9,055,848
<SALES> 4,644,521
<TOTAL-REVENUES> 4,644,521
<CGS> 3,863,096
<TOTAL-COSTS> 830,079
<OTHER-EXPENSES> (167,963)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,721
<INCOME-PRETAX> 8,588
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,588
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
