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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 001-12505
CORE MATERIALS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
31-1481870
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
800 MANOR PARK DRIVE,
P.O. BOX 28183
COLUMBUS, OHIO
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
43228 -0183
(ZIP CODE)
Registrant's telephone number, including area code: (614) 870-5000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
Common Stock, par value $.01
NAME OF EACH EXCHANGE ON WHICH REGISTERED
American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 19, 1998, 9,612,580 shares of Core Materials Corporation common
stock were outstanding, and the aggregate market value of the voting and
non-voting common equity held by non-affiliates was $57,074,694.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Registrant's 1998 definitive Proxy Statement to be filed with the
Securities and Exchange Commission no later than 120 days after the end of
the registrant's fiscal year are incorporated herein by reference in PART III
of this Form 10-K.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
On October 8, 1996, RYMAC Mortgage Investment Corporation ("RYMAC")
incorporated Core Materials Corporation ("Core Materials" or the "Company") as a
wholly-owned subsidiary under the laws of the State of Delaware. RYMAC
subsequently merged with and into Core Materials on December 31, 1996. The
discussion in Part I, Item 1 of this Form 10-K provides an overview of the
historical business of RYMAC, RYMAC's decision to incorporate Core Materials,
and the current business of Core Materials as the surviving corporation of the
merger with RYMAC.
HISTORICAL BUSINESS OF RYMAC AND INCORPORATION OF CORE MATERIALS
RYMAC was incorporated in the State of Maryland on July 1, 1988. From 1988
until 1994, RYMAC was primarily engaged in making investments in mortgage
derivative securities and, to a lesser extent, mortgage related investments, all
of which were secured by single-family residential mortgage loans. RYMAC also
generated revenues from other sources, such as interest earnings on certain
investments and sales of certain investments.
Earnings difficulties and an altered mortgage securities market that
emerged between 1992 and 1994 caused RYMAC's Board of Directors in mid-1994 to
determine that it would not pursue its historical line of business and would
investigate alternative opportunities to maximize stockholder value.(1) In this
regard, RYMAC's Board of Directors focused its efforts on finding and evaluating
acquisition candidates.
On September 12, 1996, RYMAC entered into an Asset Purchase Agreement (the
"Asset Purchase Agreement") with Navistar International Transportation Corp.
("Navistar"), a manufacturer of medium- and heavy-duty trucks. The Asset
Purchase Agreement provided for the acquisition of Navistar's Columbus Plastics
operating unit. Columbus Plastics produced fiberglass and plastic component
parts for Navistar's medium- and heavy-duty trucks, and for other third party
customers, primarily Yamaha Motor Manufacturing Corporation ("Yamaha").
The Asset Purchase Agreement conditioned Navistar's obligation to sell
Columbus Plastics on the reincorporation of RYMAC in the State of Delaware. In
order to effect the reincorporation, RYMAC incorporated Core Materials as a
wholly-owned subsidiary, under the laws of the State of Delaware, on October 8,
1996. RYMAC subsequently merged with and into Core Materials on December 31,
1996. Core Materials was the surviving corporation in the merger with each
outstanding share of RYMAC common stock being converted into the right to
receive one share of Core Materials' common stock.
Immediately following the merger on December 31, 1996, Core Materials
acquired substantially all of the assets and liabilities of Columbus Plastics,
pursuant to the terms of the Asset Purchase Agreement. As consideration,
Navistar received a secured note (the "Secured Note") in an original principal
amount of $25,504,000 subject to adjustment. Navistar also received 4,264,000
shares of newly issued common stock of Core Materials).(2) Following the
acquisition, Core Materials assumed operation of the business previously
conducted by Columbus Plastics.
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(1) RYMAC had maintained a portfolio of assets from its historical business,
selectively selling assets to generate liquidity as market conditions were
appropriate. At the acquisition, Core Materials maintained ownership of one
mortgage-backed security originally purchased by RYMAC.
(2)The principal amount of the Secured Note and the number of shares of common
stock received by Navistar were subject to adjustment pursuant to the terms
of the Asset Purchase Agreement. Effective December 31, 1996, the amount of
the Secured Note was increased to $29,514,000 in order to reflect an increase
in the "net tangible assets" of Columbus Plastics as of the December 31, 1996
acquisition date. In 1997, as a result of a review of the closing balance
sheet and all purchase price adjustments, the Secured Note amount was reduced
by $1,629,000 to reflect an amendment to the closing balance as of the
acquisition date. In addition, Navistar will receive future consideration in
the form of an increase in the principal amount of the Secured Note if Core
Materials achieves earnings results above specified levels during the period
1997 through 1999. Should there be additional future consideration, it will
be accounted for by increasing the amount of the Secured Note, and by
reducing the amount of Core Materials' retained earnings. Based on Core
Materials' earnings for the year ended December 31, 1997, the Secured Note
was increased by $2,937,000. See Notes 4, 7 and 12 of the "Notes to Financial
Statements" in Part II, Item 8 of this Form 10-K.
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Based upon the terms of the acquisition, the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
Core Materials, however, is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax reporting
purposes. Consistent with reverse acquisition accounting treatment Core
Materials has carried forward the historical basis of the acquired assets and
assumed liabilities of Columbus Plastics and has revalued the basis of Columbus
Plastics' net assets to fair value at December 31, 1996.
BUSINESS OF CORE MATERIALS
Certain statements under this caption of this Annual Report on Form 10-K
constitute "forward-looking statements" which involve certain risks and
uncertainties. Core Materials' actual results may differ significantly from
those discussed in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to: business conditions in the plastics,
transportation, recreation and consumer products industries, the general
economy, competitive factors, the dependence on two major customers, new
technologies, the year 2000 systems issue, regulatory requirements, labor
relations, the loss or inability to attract key personnel, construction delays,
the availability of capital and management's decisions to pursue new products or
businesses which involve additional cost risks or capital expenditures.
Core Materials operates principally in one business segment, the production
of high quality compression Sheet Molding Composite ("SMC") fiberglass
reinforced plastic products. SMC plastics are part of a larger family of
materials collectively known as "reinforced plastics." Reinforced plastics are
combinations of resins and reinforcing fibers formed through high or low
pressure fabrication techniques.
Reinforced plastics compete largely against metals and have the strength to
function well during prolonged use. Management believes that reinforced plastic
components offer many advantages over metals, including:
- heat resistance
- corrosion resistance
- lighter weight
- lower cost
- greater flexibility in product design
- part consolidation for multiple piece assemblies
- lower initial tooling costs for lower volume applications
- high strength-to-weight ratio
- dent-resistance in comparison to steel or aluminum.
The largest markets for reinforced plastics are transportation (automotive
and truck), recreational vehicles, commercial products and industrial
applications. The Company's two major existing customers are Navistar and
Yamaha, which are supplied proprietary SMC products for medium- and heavy-duty
trucks and personal watercraft, respectively. In general, product growth and
diversification is achieved in several different ways: (1) resourcing of
existing SMC product from another supplier by an original equipment manufacturer
("OEM"); (2) obtaining new SMC products through a selection process in which an
OEM solicits bids; and (3) successful marketing of SMC products for previously
non-SMC applications. The Company's efforts are currently directed towards all
three areas.
MAJOR COMPETITORS
Core Materials believes that it is one of the three largest compounders and
molders of SMC product in the United States. The Company faces competition from
a number of other molders including, most significantly, Cambridge Industries,
Inc., Budd Plastics Division, Molded Fiber Glass Companies, and Applied Molded
Products. The Company believes that recent consolidation within the SMC industry
has better positioned the Company to compete based primarily on manufacturing
capability, product quality, cost and delivery. However,
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the industry remains highly competitive and some of the Company's competitors
have greater financial resources, research and development facilities and
manufacturing and marketing capabilities.
MAJOR CUSTOMERS
Core Materials currently has two major customers, Navistar and Yamaha. The
loss of a significant portion of sales to Navistar or Yamaha would have a
material adverse effect on the business of Core Materials.
RELATIONSHIP WITH NAVISTAR
As a result of its acquisition of Columbus Plastics, Core Materials assumed
the long-standing relationship between Columbus Plastics and Navistar's truck
manufacturing operations. As a condition to the acquisition, Navistar and Core
Materials entered into a Comprehensive Supply Agreement, pursuant to which Core
Materials became the primary supplier of Navistar's original equipment and
service requirements for fiberglass reinforced parts, using the SMC process.
Navistar manufactures and markets medium- and heavy-duty trucks, including
school buses, mid-range diesel engines and service parts in North America and in
certain export markets. Navistar delivered 104,400 class 5 through 8 trucks,
including school buses, in the United States and Canada during its fiscal 1997,
a 9% increase from the 95,200 units delivered in 1996. Navistar's combined share
of the class 5 through 8 truck market was 28.6% in 1997 and 27.5% in 1996.
Navistar has been the leader in combined market share for class 5 through 8
trucks, including school buses, in the United States and Canada in each of the
last 17 years based on data obtained from the American Automobile Manufacturer's
Association, the United States Motor Vehicle Manufacturer's Association and R.L.
Polk & Company.
Core Materials makes products for Navistar's Chatham (Canada) assembly
plant and its Springfield, Ohio assembly and body plants. Core Materials also
plans to make products for a new Navistar facility located in Mexico which is
scheduled to open in 1998. Core Materials works closely on new product
development with Navistar's engineering and research personnel at Navistar's
Fort Wayne, Indiana, Technical Center. Some of the products sold to Navistar
include hoods, air deflectors, air fairings, fenders, splash panels, engine
covers and other components.
The North American truck market in which Navistar competes is highly
competitive and the demand for trucks is subject to considerable volatility as
it moves in response to cycles in the overall business environment and is
particularly sensitive to the industrial sector, which generates a significant
portion of the freight tonnage hauled. Truck demand also depends on general
economic conditions, among other factors. Sales to Navistar amounted to
approximately 77% for the year ended December 31, 1997.
Core Materials also received support from Navistar through December 31,
1997, in the form of accounting, payroll, and human resources management
functions under a Transitional Services Agreement with Navistar dated December
31, 1996. See Note 14 of "Notes to Financial Statements" in Part II, Item 8 of
this Form 10-K.
RELATIONSHIP WITH YAMAHA
Core Materials also has assumed the long-standing relationship between
Columbus Plastics and Yamaha. Core Materials supplies a significant amount of
the SMC products for Yamaha's personal watercraft.
The addition of Yamaha's personal watercraft component business in 1990
represented Columbus Plastics' first major outside business undertaking.
Products produced for Yamaha include decks, hulls, engine hatches, bulk heads,
and reinforcements. Core Materials (and previously, Columbus Plastics) has
worked closely with Yamaha over the years to improve the surface quality of
Yamaha products and to identify new process control techniques and improved
materials.
The diversification into a market area, other than transportation, allows
Core Materials to offset production gaps that would occur during periods of
lower demand for medium- and heavy-duty trucks. Demand for products from Yamaha
is related to the level of general economic activity and specifically to the
cyclical and seasonal nature of the personal watercraft industry among other
factors.
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Sales to Yamaha amounted to approximately 21% for the year ended December
31, 1997.
OTHER CUSTOMERS
Core Materials also provides limited products to customers other than
Navistar and Yamaha. In addition, Core Materials sells SMC material directly to
third parties, primarily other SMC molders.
Currently, Core Materials is focusing significant effort on the development
of additional product markets and new customer relationships to facilitate
further growth.
EXPORT SALES
Core Materials provides products to Navistar's manufacturing and service
locations in Canada. Export sales, to Canada, approximated 20%, 9% and 3% of
total sales for the twelve month periods ended December 31, 1997, December 31,
1996 and October 31, 1995, respectively.
PRODUCTS
SMC
Core Materials incorporates a sophisticated computer program that assists
in the compounding of various complex SMC formulations tailored to customer
needs. The system provides for the following:
- Control information during various production processes; and
- Data for statistical batch controls
Core Materials has the capacity to manufacture approximately 45 million
pounds of SMC sheet material annually. Core Materials reached this production
capacity, in part, through the installation of an additional SMC compounding
machine, which was brought on line in early 1997. Production of SMC for the
twelve month periods ended December 31, 1997, December 31, 1996, and October 31,
1995 was as follows:
<TABLE>
<CAPTION>
SMC POUNDS
PRODUCED
YEAR (MILLIONS)
---- ----------
<S> <C>
1997 (December 31)............................. 28
1996 (December 31)............................. 27
1995 (October 31).............................. 31
</TABLE>
MOLDING
Core Materials currently owns or leases 17 presses in its Columbus, Ohio
plant ranging in size from 500 to 4500 tons. In the first quarter of 1998, Core
Materials opened a second plant located in Gaffney, South Carolina, which
includes 6 presses ranging in size from 500 to 1500 tons. The Company also has
ordered a 3000 ton press to be installed in the Gaffney, South Carolina plant
later in 1998.
Large platen, high tonnage presses (greater than 2000 tons) provide the
ability to compression mold very large, notably configured SMC parts. Core
Materials believes that it possesses in excess of 40% of the large platen, high
tonnage molding capacity in the industry.
To enhance the surface quality and paint finish of products, Core Materials
uses both in-mold coating and vacuum molding processes. In-mold coating is a
manufacturing process performed by injecting a liquid over the molded part
surface and then applying pressure at elevated temperatures during an extended
molding cycle. The liquid coating serves to fill and/or bridge surface porosity
as well as provide a barrier against solvent penetration during subsequent
top-coating operations. Likewise, vacuum molding is the removal of air during
the molding cycle for the purpose of reducing the amount of surface porosity.
Core Materials believes that it is among the industry leaders in in-mold coating
and vacuum molding applications, based on the size and complexity of parts
molded.
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ASSEMBLY, MACHINING AND PAINT
Core Materials has demonstrated manufacturing flexibility that accepts a
range of very low volume, hand assembly and machining work to high volume,
highly automated assembly and machining systems. Robotics are used extensively
for material handling, machining and adhesive applications. In addition to
conventional machining methods, water-jet cutting technology is also used where
appropriate. Two automated guided vehicles are used to transfer high volume
product from the assembly area to the prime paint operation. The prime paint
operation uses an overhead conveyor to transfer product through two paint booths
and bake ovens.
RAW MATERIALS
The principal raw materials used in the compounding of SMC are polyester
resins, fiberglass rovings and filler. Other significant raw materials include
adhesives for assembly of molded components and in-mold coating and prime paint
for preparation of cosmetic surfaces. The use of single-source, long-term supply
contracts assures the Company of competitive pricing and an adequate supply of
all of these raw materials. Additionally, each raw material has several other
supplier alternatives.
BACKLOG
Core Materials relies on production schedules provided by Navistar and
Yamaha to plan and implement production. These schedules are provided on a
monthly basis and are considered firm for the current period. Navistar and
Yamaha can update these schedules daily for changes in demand that allows them
to run their inventories on a "just-in-time" basis. The ordered backlog was
approximately $6.9 million and $4.5 million at December 31, 1997 and December
31, 1996, respectively all of which is expected to be shipped within a year.
CAPACITY CONSTRAINTS
Core Materials and Columbus Plastics have been required to work, from time
to time, a seven day/three shift schedule to meet Navistar and Yamaha production
requirements. The addition of the second plant in Gaffney, South Carolina will
provide additional capacity to support the production requirements of current
customers and opportunity for growth.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Capital expenditures totaled approximately $10.3 million, $5.1 million and
$7.3 million for the twelve month periods ended December 31, 1997, December 31,
1996 and October 31, 1995, respectively. Capital expenditures consist of presses
and other equipment to manufacture parts as well as laboratory equipment,
storage equipment, computers and office furniture and fixtures. The 1997 amounts
also include the acquisition and construction of the Gaffney, South Carolina
plant.
Product development is a continuous process at Core Materials. Research and
development activities focus on developing new SMC formulations and improving
existing products and manufacturing processes.
Core Materials does not maintain a separate research and development
facility but uses its production equipment (compounding machines, molding
presses, and primer system), as necessary, to support these efforts and
cooperates with its customers and its suppliers in its research and development
efforts. Likewise, manpower to direct and advance research and development is
integrated with the existing manufacturing, engineering, production, and quality
organizations. Management of Core Materials has estimated that internal costs
related to research and development activities approximate $200,000 per year.
ENVIRONMENTAL COMPLIANCE
Core Materials' manufacturing operations are subject to federal, state and
local environmental laws and regulations which impose limitations on the
discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of hazardous waste. The Company's policy is to
conduct its business with due regard for the preservation and protection of the
environment. Core Materials' environmental waste management involves the daily
auditing of all satellite hazardous waste accumulation points, weekly audits of
all
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hazardous waste activities and biennial audits of every authorized treatment,
storage and disposal facility. The Company's environmental staff also trains
each new employee on waste management and other environmental issues as part of
an initial orientation process, and annually thereafter.
Core Materials has submitted the information necessary for the granting of
a Title V permit, as required under the Clean Air Act. In 1989, Columbus
Plastics installed a Regenerative Thermal Oxidizer ("Oxidizer"). The purpose of
the Oxidizer system is to destroy volatile organic compounds from the coating
and SMC operations. The Oxidizer system allows Core Materials to comply with the
Ohio E.P.A. and Title V permit conditions by consistently achieving about 95%
destruction efficiency. Core Materials believes that it is in compliance with
the Resource Conservation and Recovery Act of 1976 ("RCRA") and the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"). Compliance with these environmental laws and regulations has not
had, nor is it currently expected to have, a material effect on the Company's
operations, competitive position or capital expenditures through fiscal year
1998. The amount of capital expenditures currently expected to be spent on
environmental compliance is not significant.
EMPLOYEES
As of December 31, 1997, Core Materials employed a total of 433 employees,
344 of whom are covered by a collective bargaining agreement with the
International Association of Machinists and Aerospace Workers ("IAM"). The
Company's original contract with the IAM was scheduled to expire in August,
1998. In December, 1997, early labor contract negotiations began between
management and union representatives. On January 21, 1998, Core Materials
announced that a new three-year, seven-month labor agreement with the IAM had
been reached which extends the contract to August 1, 2001.
PATENTS, TRADE NAMES AND TRADEMARKS
Core Materials will evaluate, apply for and maintain patents, trade names
and trademarks where it believes that such patents, trade names and trademarks
are reasonably required to protect its rights in its products. Core Materials
does not believe that any single patent, trade name or trademark or related
group of such rights is materially important to its business or its ability to
compete.
SEASONALITY
The Company's business is affected annually by the production schedules of
Navistar and Yamaha. Navistar and Yamaha typically shut down their operations on
an annual basis for a period of several weeks during the Company's third
quarter. As a result, demand by Navistar and Yamaha for the Company's SMC
products drops significantly during the third quarter. Similarly, demand for
Navistar's medium- and heavy-duty trucks and Yamaha's personal watercraft
products fluctuates on a cyclical and seasonal basis, causing a corresponding
fluctuation for demand of the Company's SMC products.
YEAR 2000 MATTERS
Issues related to the year 2000 systems issues are addressed in Part II,
Item 7, "Management Discussion and Analysis of Financial Condition and Results
of Operations" included herein.
ITEM 2. PROPERTIES.
The important physical properties of Core Materials consist of two plants
that are situated, respectively, in Columbus, Ohio and in Gaffney, South
Carolina. The Company believes that, through productive use, these facilities
have adequate production capacity to meet current production volume. The
approximate capacity utilization for the molding of production products in the
Columbus, Ohio plant was 108%, 80% and 122% in December, 1997, December, 1996
and October, 1995. The approximate capacity utilization in March, 1998 was 78%,
as a result of the addition of the Gaffney, South Carolina plant. Capacity
utilization is measured on the basis of a six day, three-shifts per day
operation
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The Columbus, Ohio plant is located at 800 Manor Park Drive on
approximately 28.2 acres of land. The approximate 321,814 square feet of
available floor space at the Columbus, Ohio plant is comprised of the following:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
-----------
<S> <C>
Manufacturing/Warehouse................................ 307,447
Office................................................. 14,367
-------
321,814
</TABLE>
Core Materials acquired the property at 800 Manor Park Drive as a result of
the Asset Purchase Agreement with Navistar.
The Gaffney, South Carolina plant is located at 24 Commerce Drive, Meadow
Creek Industrial Park on approximately 20.7 acres of land. The approximate
110,900 square feet of available floor space at the Gaffney, South Carolina
plant is comprised of the following:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
-----------
<S> <C>
Manufacturing/Warehouse................................ 105,700
Office................................................. 5,200
-------
110,900
</TABLE>
The plant, which can be expanded in the future, began molding and assembly
operations in early 1998.
Both the Columbus, Ohio and Gaffney, South Carolina properties are subject
to liens and securities interests as a result of the properties being pledged as
collateral for the Company's debt as described in Note 7 of the "Notes to
Financial Statements" in Part II, Item 8 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS.
Core Materials is not currently a party, nor is any of its property
subject, to any material pending legal proceedings, other than ordinary, routine
litigation incidental to the business, nor are any such proceedings known by the
Company to be contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company submitted no matters to a vote of its security holders during
the fourth quarter of the Company's fiscal year ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the American Stock Exchange under
the symbol "CME" and began trading on January 2, 1997. The common stock of the
Company's former parent, RYMAC, was traded on the American Stock Exchange under
the symbol "RM" until December 31, 1996.
The table below sets forth the high and low sale prices of Core Materials
and RYMAC common stock for each full quarterly period within the two most recent
fiscal years for which such stock was traded, as reported on the American Stock
Exchange Composite Tape. Following the acquisition and merger, Core Materials
assumed the business previously conducted by Columbus Plastics, rather than the
business previously conducted by RYMAC. The historical prices for RYMAC common
stock, therefore, are not indicative of Core Materials' current or potential
future performance.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C>
CORE MATERIALS CORPORATION
First Quarter.............................. 1997 4 1/8 2 1/4
Second Quarter............................. 1997 3 3/4 2 1/2
Third Quarter.............................. 1997 4 1/8 3 1/8
Fourth Quarter............................. 1997 5 3 1/2
RYMAC MORTGAGE INVESTMENT CORPORATION
First Quarter.............................. 1996 1 7/16 1
Second Quarter............................. 1996 2 7/8 1 1/8
Third Quarter.............................. 1996 2 5/8 1 1/2
Fourth Quarter............................. 1996 2 1/2 1 7/8
</TABLE>
The Company's common stock was held by 745 holders of record on March 19,
1998.
Neither RYMAC nor Core Materials made any payments of cash dividends during
the fiscal years ended December 31, 1996 and December 31, 1997. Core Materials
currently expects that its earnings will be retained to finance the growth and
development of its business and does not anticipate paying dividends on its
common stock in the foreseeable future.
Moreover, Core Materials is restricted by covenants contained in the
Secured Note due Navistar. Pursuant to the terms of the Secured Note, Core
Materials has agreed that, so long as any amount is owing to Navistar, it will
not, and will not permit any of its subsidiaries to, directly or indirectly,
declare or pay any dividend (other than dividends payable solely in common stock
or preferred stock of Core Materials and dividends payable by any subsidiary of
Core Materials to Core Materials, or any other subsidiary of Core Materials) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of capital stock of Core Materials or
any warrants or options to purchase any such capital stock, whether now or
hereafter outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of Core
Materials or any subsidiary.
UNREGISTERED SECURITIES
In 1997, Core Materials issued, in total, 41,000 shares of common stock,
par value $.01 per share, to 410 employees (which constituted all of its
employees with the exception of certain executive employees.(3)) The Company
received no consideration for the shares. The shares were issued as an incentive
for its employees to remain with the Company and are subject to forfeiture to
the Company if an employee leaves prior to December 31, 1998. During this
period, the shares may not be transferred.
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(3) Specifically, Richard R. Conte (Director and former employee of the
Company), Kenneth M. Schmell (General Manager and Acting Chief Executive
Officer), and Gerald L. Voirol (Controller and Assistant Secretary) did not
receive any of the common shares issued on February 19. In addition, at
least one employee decided not to accept the shares.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from the audited
financial statements of Core Materials and Columbus Plastics. The capital
structure of Core Materials differs significantly from the capital structure of
Columbus Plastics prior to its acquisition by RYMAC. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" the financial statements and
related notes included elsewhere herein including, the unaudited combined pro
forma financial information.
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED OCTOBER 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996(1) 1995(1) 1995(1) 1994(1) 1993(1)
- ------------------------------------- ------------ ------------ ------------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net................................. $64,940 $52,467 $ 8,855 $59,505 $44,191 $39,767
sales Gross margin.................. 14,061 5,439 1,329 10,366 8,071 3,907
Income before interest and taxes.... 6,654 547 544 4,790 2,466 67
Net income.......................... 2,723 N/A N/A N/A N/A N/A
Net income per common share:
Basic............................. .29 N/A N/A N/A N/A N/A
Diluted........................... .28 N/A N/A N/A N/A N/A
Total assets........................ 57,540 47,729(2) 33,305 32,591 20,281 N/A
Long term debt...................... 18,822 27,885(2) N/A N/A N/A N/A
Navistar's equity................... N/A N/A 24,206 20,140 14,489 N/A
Stockholders' equity................ 16,095 16,176 N/A N/A N/A N/A
</TABLE>
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(1) Prior to January 1, 1997, Core Materials provided Navistar's truck assembly
operations with all of its sheet molding composite plastic component
requirements at standard cost; production for Navistar accounted for greater
than 60% of Core Materials' output in all periods represented. The remainder
was sold to unrelated third party customers at negotiated prices. Net Income
and Net Income Per Share information has been omitted because Core Materials
was not a separate stand alone division or subsidiary of Navistar and
generally was not accounted for separately prior to the Acquisition. In
addition, Navistar's systems and procedures do not provide sufficient
information to develop a reasonable cost allocation of income taxes,
corporate debt and interest expense.
(2) The December 31, 1996 the Secured Note to Navistar was reduced by $1,629,000
to reflect an amendment to the closing balance as of the acquisition date.
See notes 7 and 12 of the "Notes to Financial Statements".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CORE MATERIALS.
Certain statements under this caption of this Annual Report on Form 10-K
constitute "forward-looking statements" which involve certain risks and
uncertainties. Core Materials' actual results may differ significantly from
those discussed in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to: business conditions in the plastics,
transportation, recreation and consumer products industries, the general
economy, competitive factors, the dependence on two major customers, new
technologies, the year 2000 systems issue, regulatory requirements, labor
relations, the loss or inability to attract key personnel, construction delays,
the availability of capital and management's decisions to pursue new products or
businesses which involve additional cost risks or capital expenditures.
OVERVIEW
On December 31, 1996, Core Materials acquired all of the assets and assumed
certain liabilities of Columbus Plastics, a wholly owned operating unit of
Navistar's truck manufacturing division since its formation in late 1980. Based
on the terms of the acquisition, the transaction for financial reporting and
accounting purposes has been accounted for as a reverse acquisition whereby
Columbus Plastics is deemed to have acquired Core Materials. However, Core
Materials is the continuing legal entity. Accordingly, any references to the
operating results of Core Materials for 1996 and 1995 refer to the historical
operations of Columbus Plastics.
Core Materials manufactures high quality compression SMC fiberglass
reinforced parts. Core Materials has two major customers, Navistar and Yamaha.
The demand for Core Materials' products is affected by the volume
11
<PAGE> 11
of purchases from these two customers, whose orders are primarily affected by
economic conditions in the United States and Canada. Core Materials'
manufacturing operations have a significant fixed cost component. Accordingly,
during periods of changing demands, the profitability of Core Materials'
operations will change proportionately more than revenues from operations.
Pursuant to the Asset Purchase Agreement, Navistar and Core Materials
entered into a Comprehensive Supply Agreement with an initial term of five
years. Under the terms of the Comprehensive Supply Agreement, Navistar agreed to
purchase from Core Materials, and Core Materials agreed to sell to Navistar at
negotiated prices, which approximate fair value, all of Navistar's original
equipment and service requirements for fiberglass reinforced parts using the SMC
process for components then being manufactured by Core Materials and detailed in
the Comprehensive Supply Agreement. All sales and gross margin information for
1997 reflects the results of the Comprehensive Supply Agreement.
Prior to January 1, 1997, Core Materials had not been a stand alone
operating entity. As such, Navistar had provided substantial management support
in the form of treasury, legal, tax, information systems and other similar
corporate support functions. Corporate general and administrative expenses have
not been previously allocated to Core Materials. For purposes of preparing the
income statement of Core Materials for calendar year 1996, the two months ended
December 31, 1995, and fiscal year 1995 included in this Form 10-K, these
corporate costs have been allocated using a method management believes to be
reasonable and reflective of those costs had they been incurred on a stand alone
basis.
Net sales for 1996 and the 1995 periods do not reflect the additional
revenue that would have been generated had the Comprehensive Supply Agreement
been in effect at that time. Prior to the Comprehensive Supply Agreement, all
sales to Navistar facilities were accounted for at Core Materials' ("Columbus
Plastics Operations") standard costs. In addition, Core Materials did not incur
certain expenses related to being a stand alone publicly traded entity, such as
executive salary costs and legal and accounting fees. Finally, the results for
1996 and the 1995 periods do not reflect investment income or expenses for
interest or income taxes. Thus, the results of 1996 and the 1995 periods are not
readily comparable to the results of 1997.
In order to make this comparison more meaningful in the discussion which
follows, pro forma financials have been prepared for 1996 and the year ended
October 31, 1995 (See Note 5 in the "Notes to Financial Statements" for further
information). In the discussion which follows, all references to and comparisons
with the results of 1996 and 1995 reflect the historical Columbus Plastics
financials. Any dollars and/or percentages in parentheses reflect references to
and comparisons with 1996 and 1995 pro forma financial information.
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
Net sales for 1997 totaled $64,940,000, up 24% (15%) from the $52,467,000
($56,590,000) reported for 1996. Sales to Navistar increased 59% (40%) to
$50,011,000 from $31,546,000 ($35,669,000) in 1996. The increase in sales to
Navistar was primarily the result of a general increase in volume of sales and
sales of certain heavy truck components which Core Materials began producing in
June 1996. Sales to Yamaha decreased in 1997 by 32% to $13,416,000, compared
with $19,759,000 in 1996. The decrease in sales to Yamaha is primarily due to
Yamaha's production slowdown as a result of the maturing of the personal
watercraft industry.
"Other" sales increased 30% to $1,514,000 from $1,161,000 in 1996. These
additional sales were primarily the result of increased sales of sheet molding
composite to an SMC molder.
Gross margin was 22% of sales in 1997 compared with 10% (17%) for 1996. The
increased gross margin as a percent of sales, 22% versus 10%, is primarily due
to the markup (per the Comprehensive Supply Agreement) on sales to Navistar. The
1997 gross margin as a percent of sales increased over the 1996 pro forma
adjusted percentage due to increased sales volumes and due to 1996's cost of
sales including higher than normal repair and maintenance expenses and
unfavorable inventory adjustments. Additionally, Core Materials has experienced
increased control of its material related costs.
12
<PAGE> 12
Selling, general and administrative expenses ("SG&A") totaled $7,465,000 in
1997, increasing from $5,242,000 ($6,106,000) in 1996. The increase over the
1996 amounts is primarily due to the Company incurring expenses related to being
a stand alone publicly traded entity, increased depreciation expense and
increased employee related expenses.
"Other" income totaled $58,000 in 1997 decreasing from $350,000 in 1996.
The decrease from the 1996 actual amounts is primarily due to income generated
in 1996 from the close-out of a special tooling project for one customer.
Interest income for 1997 totaled $234,000 and is primarily attributable to
interest on Core Materials' mortgage-backed security investment. Interest
expense for 1997 totaled $2,232,000, primarily reflecting interest on the
Secured Note held by Navistar; this expense was offset by $180,000 of
capitalized interest expense relating to property, plant and equipment under
construction. The Company had no interest income or interest expense in 1996
since all investing and financing was handled at Navistar's corporate offices.
Income taxes for 1997 were estimated to be approximately 41.5% of total
earnings before taxes. Actual tax payments will be substantially lower than the
recorded expenses as Core Materials has substantial federal tax loss
carryforwards. These loss carryforwards were recorded as a deferred tax asset,
partially offset by a valuation allowance at December 31, 1996 as a part of the
purchase accounting adjustments. As the tax loss carryforwards are utilized to
offset federal income tax payments, Core Materials reduces the deferred tax
asset as opposed to recording a reduction in income tax expense. Actual cash
payments for 1997 are estimated to be approximately $478,000 which reflects
federal alternative minimum, state and local taxes.
Net income for 1997 was $2,723,000 or $.28 per diluted share, an increase
of ($1,433,000) or (111%) over the 1996 pro forma net income of ($1,290,000), or
($.13) per diluted share. The 1997 increase over 1996's pro forma amounts was
primarily the result of increased sales and improved margins as delineated
above. Core Materials has approximately $29,000,000 of operating tax loss
carryforwards that do not begin to expire until the year 2007. If the benefit of
the Company's operating tax loss carryforwards were recorded as a reduction in
income tax expense, which is reflective of the actual cash treatment, net income
for the year would have increased by $1,455,000, or $.15 per diluted share, to a
total of $.43 per diluted share. The comparable 1996 pro forma net income would
have increased by ($738,000), or ($.08) per diluted share, to a total of ($.21)
income per diluted share.
1996 COMPARED WITH 1995
Net sales for calendar 1996, totaled $52,467,000 ($56,590,000) down 12%
(13%) from the $59,505,000 ($65,371,000) reported for fiscal 1995. Sales to
Navistar decreased 16% (18%) to $31,546,000 ($35,669,000) from $37,777,000
($43,643,000) in 1995. The decrease in sales to Navistar was the direct result
of a decrease in sales of Navistar trucks resulting from a decline in demand for
trucks in the United States and Canada. Sales to Yamaha decreased in 1996 by 2%
to $19,759,000 compared with $20,222,000 in 1995. The decrease was the result of
a slight decrease in demand for Yamaha's watercraft products.
"Other" sales decreased 23% to $1,161,000 from $1,506,000 in 1995. This
reduction in sales was primarily the result of short-term production of certain
consumer products in 1995.
Gross margin was 10% (17%) of sales for 1996 compared with 17% (25%) for
1995. The decrease in gross margin as a percent of sales, 17% to 10%, is
primarily due to decreased sales volume. In addition, 1996's cost of sales
included increased depreciation expense, start up costs related to the tooling
for a new Yamaha model, increased labor costs resulting from the three year
labor agreement with hourly employees signed in August, 1995 and increased
repair and maintenance costs relating to projects that had been deferred during
1995 due to the record production volumes experienced in that year.
SG&A totaled $5,242,000 ($6,106,000) in 1996 decreasing from $5,521,000
($6,385,000) in 1995. The decrease from the 1995 actual amount is primarily due
to expenses incurred during a fifteen day labor strike in 1995.
13
<PAGE> 13
"Other" income totaled $350,000 increasing from an expense of $55,000 in
1995. The 1996 income is primarily due to one time income generated from the
close-out of a special tooling project for one customer. The 1995 expense
reflects a loss on the disposal of assets.
Pro forma net income for 1996 was ($1,290,000) or ($.13) per diluted share,
a decrease of ($3,298,000) or (72%) over the pro forma net income of
($4,588,000), or ($.48) per diluted share for 1995. The 1996 increase over
1995's amounts was primarily the result of decreased sales and reduced margins
as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital at December 31, 1997 decreased $3,514,000 from the
working capital at December 31, 1996. The primary reason for the decrease in
working capital is the use of $3,997,000 in short-term notes to finance the
construction of the Company's new facility in Gaffney, South Carolina; see
further discussion below. Accounts receivable increased by $12,298,000 and
accounts payable increased by $7,768,000 from the December 31, 1996 amounts. The
primary causes for both the receivables and payables increase is the Asset
Purchase Agreement between Core Materials and Navistar. As of December 31, 1996,
the effective date of the purchase, there were no receivables on the books for
Navistar as a customer. Additionally, as part of the Asset Purchase Agreement,
Navistar assumed a majority of the accounts payable of Columbus Plastics that
existed on December 31, 1996. The December 31, 1997 accounts receivable includes
Navistar receivables for sales under the Comprehensive Supply Agreement. The
December 31, 1997 accounts payable includes expenditures to support normal
production and the construction of the Company's new facility in South Carolina.
Property additions of $10,341,000 primarily related to the acquisition of land,
building and machinery and equipment for the above mentioned South Carolina
facility.
Columbus Plastics' working capital and investment needs were financed by
Navistar through the intercompany Equity Investment account and through the sale
of products to Yamaha. Subsequent to the Acquisition, Core Materials has
independently funded all of its working capital and investment capital
requirements. Funds necessary to meet its working capital and investment needs
are currently being financed through the following sources: 1) the Comprehensive
Supply Agreement between Navistar and Core Materials, which requires that
Navistar obtain its SMC plastic components, as detailed in the Comprehensive
Supply Agreement, from Core Materials at negotiated prices which approximate
fair value; 2) the Company has substantial tax net operating losses ("NOLs")
that will be available to offset future taxable income of Core Materials (the
utilization of these NOLs will substantially reduce any federal income tax
liability payments); and 3) the financing facilities discussed below.
In the fourth quarter of 1997, Core Materials entered into a comprehensive
financing arrangement with a financial institution. Under this arrangement, the
financial institution committed to provide Core Materials the following credit
facilities: 1) a $7,500,000 variable rate revolving line of credit; 2) a
$12,000,000 sale leaseback arrangement on certain machinery and equipment; 3) a
$7,500,000 standby letter of credit to support the issuance of an Industrial
Revenue Bond, and 4) $5,500,000 for equipment leases.
In December 1997, Core Materials closed on the line of credit which will be
used for working capital purposes and to temporarily fund capital expenditures
related to the Company's South Carolina expansion. Also in December, the Company
entered into a sale leaseback agreement, the proceeds of which were used to pay
down the Secured Note payable to Navistar. See notes 6 and 7 of the "Notes to
Financial Statements" for further discussion.
The Industrial Revenue Bond and equipment leases will be used as permanent
financing for Core Materials' new facility and equipment in South Carolina. The
Company expects to close on these facilities in the second quarter of 1998.
At December 31, 1997, Core Materials also had a $3,000,000 line of credit
with another financial institution. The Company terminated this credit facility
in January 1998.
Management believes that internally generated funds from operations, along
with the current and future financing identified above, will be sufficient to
fund anticipated capital requirements.
14
<PAGE> 14
INCOME TAXES
The balance sheet at December 31, 1997 and 1996 includes a deferred tax
asset of $11,625,000 and $13,080,000, respectively, net of a valuation allowance
of $6,787,000 in 1997 and 1996. The deferred tax asset is net of a valuation
allowance since it is more likely than not that a portion of the deferred tax
asset may not be realized in the future.
The deferred tax asset at December 31, 1997 primarily includes the tax
benefits associated with cumulative net operating and capital tax losses of
approximately $37.7 million, temporary differences between the book and tax
basis of Core Materials' property and equipment of approximately $9.9 million
and temporary differences relating to post-retirement and pension benefits of
$2.4 million. The valuation allowance at December 31, 1997 assumes that it is
more likely than not that approximately $11.1 million of the cumulative net
operating losses and all (approximately $8.9 million) of the cumulative capital
tax losses will not be realized before their expiration date. Realization of the
net deferred tax asset is dependent on the generation of approximately $29
million of future taxable income, of which an average of approximately $2.2
million would need to be generated annually for the next 11- year period 1998
through 2008.
Extensive analysis is performed to determine the amount of the deferred tax
asset. Such analysis is based upon the premise that Core Materials is and will
continue as a going concern and that it is more likely than not that deferred
tax benefits will be realized through the generation of future taxable income.
Management reviews all available evidence, both positive and negative, to assess
the long-term earnings potential of Core Materials using a number of
alternatives to evaluate financial results in economic cycles at various
industry volume conditions. Other factors considered are the Company's
long-standing relationship with its two largest customers -- Navistar and
Yamaha -- the Comprehensive Supply Agreement between Core Materials and
Navistar, and Navistar's 17-consecutive-year leadership in the combined market
share of Class 5 through 8 trucks. The projected availability of taxable income
to realize the tax benefits from net operating loss carryforwards and the
reversal of temporary differences before expiration of these benefits are also
considered. Management believes that, with the combination of available tax
planning strategies, the maintenance of its relationships with Yamaha and
Navistar and Navistar's maintenance of significant market share, earnings are
achievable in order to realize the net deferred tax asset of $11,625,000.
Reconciliation of the Company's income before income taxes for financial
statement purposes to United States Taxable Income for the year ended December
31, 1997 is as follows:
<TABLE>
<S> <C>
Income before income taxes.................................. $4,656,324
State income taxes.......................................... (411,800)
Temporary differences....................................... (985,298)
Other....................................................... 11,938
----------
Taxable income.............................................. $3,271,164
==========
</TABLE>
YEAR 2000 MATTERS
Core Materials has identified all significant applications that will
require modification to ensure Year 2000 compliance. Internal and external
resources are being used to make the required modifications and test Year 2000
compliance. The Company plans to complete the modifications and testing process
of all significant applications by May 1999, which is prior to any anticipated
impact on its operating systems. The total cost of the Year 2000 project is
estimated at $716,000 and is being funded through operating cash flows. Of the
total project cost, approximately $462,000 is attributable to the purchase of
new hardware and software which will be capitalized. The remaining $254,000,
which will be expensed as incurred, is not expected to have a material effect on
the results of operations. In 1997, the Company incurred approximately $402,000
of costs associated with this project of which $293,000 related to the purchase
of new hardware and software which was capitalized.
The costs of the project and the date on which Core Materials believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other
15
<PAGE> 15
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
In addition, Core Materials will communicate with others with whom it does
significant business to determine their Year 2000 compliance readiness and the
extent to which the Company is vulnerable to any third-party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse affect on the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components. This statement is effective for fiscal years
beginning after December 15, 1997. This standard expands or modifies disclosures
and, accordingly, will have no impact on the Company's reported financial
position, results of operations and cash flows.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement revises standards
for disclosures about pension and other postretirement benefit plans and is
effective for fiscal years beginning after December 15, 1997. This standard
expands or modifies disclosure and, accordingly, will have no impact on the
Company's reported financial position, results of operations and cash flows.
MANAGEMENT'S OUTLOOK
For 1998, management anticipates continued strength in sales to Navistar
and relatively flat sales to Yamaha. Significant focus will be placed on
expanding the customer base and filling the capacity created with the opening of
the Company's new facility in South Carolina in early 1998. Core Materials has
initiated and responded to a number of new sales opportunities. Although there
can be no assurance that these opportunities will result in new business,
management is encouraged by both the number and diversity of the opportunities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The disclosures required under this Part II, Item 7A are omitted pursuant
to the General Instructions to Item 305 of Regulation S-K, because this Annual
Report on Form 10-K, for the fiscal year ended December 31, 1997, does not
contain financial statements for fiscal years ended after June 15, 1998.
16
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
Core Materials Corporation
Columbus, Ohio
We have audited the accompanying balance sheets of Core Materials
Corporation (the "Company") as of December 31, 1997 and 1996 and the related
statement of income, stockholders' equity, and cash flow for the year ended
December 31, 1997 and the statements of revenues, direct expenses and identified
corporate expenses before interest and taxes for the year ended December 31,
1996, the two-month period ended December 31, 1995 and the year ended October
31, 1995. Our audits also included the financial statement schedule listed in
the Index for Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 2, the Company's historical operating results are not
necessarily indicative of those which may have resulted had it been a stand
alone company in 1996 and 1995.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Core Materials Corporation as of December
31, 1997 and 1996 and the results of its operations and its cash flow for the
year ended December 31, 1997 and its direct operations and identified corporate
expenses before interest and taxes for the year ended December 31, 1996, the
two-month period ended December 31, 1995 and the year ended October 31, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- ------------------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 2, 1998
17
<PAGE> 17
CORE MATERIALS CORPORATION
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997
AND STATEMENTS OF REVENUES, DIRECT EXPENSES AND IDENTIFIED CORPORATE EXPENSES
BEFORE INTEREST AND TAXES FOR THE YEAR ENDED DECEMBER 31, 1996,
THE TWO MONTHS ENDED DECEMBER 31, 1995 AND THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES:
Navistar.................................. $50,010,566 $31,546,315 $5,334,994 $37,777,164
Yamaha.................................... 13,415,548 19,759,033 3,216,025 20,221,722
Other..................................... 1,513,844 1,161,461 303,633 1,506,243
----------- ----------- ---------- -----------
Total sales....................... 64,939,958 52,466,809 8,854,652 59,505,129
----------- ----------- ---------- -----------
Cost of sales............................... 50,118,918 46,148,086 7,401,442 48,458,210
Postretirement benefits expense............. 760,410 879,487 124,358 680,857
----------- ----------- ---------- -----------
Total cost of sales............... 50,879,328 47,027,573 7,525,800 49,139,067
----------- ----------- ---------- -----------
GROSS MARGIN................................ 14,060,630 5,439,236 1,328,852 10,366,062
----------- ----------- ---------- -----------
Selling general and administrative
expense................................... 7,350,385 5,078,487 761,727 5,345,008
Postretirement benefits expense............. 114,429 163,307 26,750 176,241
----------- ----------- ---------- -----------
Total selling, general and
administrative expense.......... 7,464,814 5,241,794 788,477 5,521,249
----------- ----------- ---------- -----------
Other income (expense)...................... 58,210 349,604 3,250 (55,241)
----------- ----------- ---------- -----------
INCOME BEFORE INTEREST AND TAXES............ 6,654,026 547,046 543,625 4,789,572
Interest income............................. 233,873 N/A N/A N/A
Interest (expense).......................... (2,231,575) N/A N/A N/A
----------- ----------- ---------- -----------
INCOME BEFORE INCOME TAXES.................. 4,656,324 N/A N/A N/A
Income taxes:
Current................................... 478,035 N/A N/A N/A
Deferred.................................. 1,454,808 N/A N/A N/A
----------- ----------- ---------- -----------
Total income taxes................ 1,932,843 N/A N/A N/A
----------- ----------- ---------- -----------
NET INCOME.................................. $ 2,723,481 N/A N/A N/A
=========== =========== ========== ===========
NET INCOME PER COMMON SHARE:
Basic..................................... $ 0.29 N/A N/A N/A
=========== =========== ========== ===========
Diluted................................... $ 0.28 N/A N/A N/A
=========== =========== ========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic..................................... 9,555,774 N/A N/A N/A
=========== =========== ========== ===========
Diluted................................... 9,713,020 N/A N/A N/A
=========== =========== ========== ===========
</TABLE>
See notes to financial statements.
18
<PAGE> 18
CORE MATERIALS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 100,356 $ 590,212
Mortgage-backed security investment....................... 3,217,349 3,295,049
Accounts receivable (less allowance for doubtful accounts:
1997 -- $133,000; 1996 -- $0)............................. 14,306,101 2,007,963
Inventories:
Work in process........................................ 1,163,611 1,585,644
Stores................................................. 2,143,108 1,757,055
------------ ------------
Total inventories...................................... 3,306,719 3,342,699
Deferred tax asset........................................ 455,002 291,000
Prepaid expenses and other current assets................. 307,059 344,440
------------ ------------
Total current assets................................... 21,692,586 9,871,363
Property, plant and equipment............................... 34,971,001 42,337,970
Accumulated depreciation.................................... (10,293,834) (17,269,489)
------------ ------------
Property, plant and equipment -- net........................ 24,677,167 25,068,481
Deferred tax asset -- net................................... 11,170,190 12,789,000
------------ ------------
TOTAL....................................................... $ 57,539,943 $ 47,728,844
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Accounts payable.......................................... $ 8,140,802 $ 372,869
Notes payable -- Banks.................................... 3,997,120
Accrued liabilities:
Compensation and related benefits...................... 2,066,488 827,313
Interest............................................... 1,149,061
Other accrued liabilities.............................. 1,776,856 594,790
------------ ------------
Total current liabilities.............................. 17,130,327 1,794,972
Secured note payable........................................ 18,821,841 27,884,510
Deferred long-term gain..................................... 3,018,331
Postretirement benefits liability........................... 2,474,367 1,873,490
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock -- $0.01 par value, authorized
shares -- 20,000,000;
Outstanding shares: 1997 -- 9,613,281;
1996 -- 9,474,583..................................... 96,133 94,746
Paid-in capital........................................... 16,049,861 15,918,193
Retained earnings (deficit)............................... (50,917) 162,933
------------ ------------
Total stockholders' equity............................. 16,095,077 16,175,872
------------ ------------
TOTAL....................................................... $ 57,539,943 $ 47,728,844
============ ============
</TABLE>
See notes to financial statements.
19
<PAGE> 19
CORE MATERIALS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
OUTSTANDING TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997, restated
(note 12).......................... 9,474,600 $ 94,746 $15,918,193 $ 162,933 $16,175,872
Net Income........................... 2,723,481 2,723,481
Issuance of restricted stock to
employees.......................... 41,000 410 117,415 117,825
Unearned deferred stock
compensation....................... (117,825) (117,825)
Amortization of deferred stock
compensation....................... 50,555 50,555
Issuance of stock under stock option
plan............................... 100,000 1,000 81,500 82,500
Increase in Secured Note to
Navistar........................... (2,937,331) (2,937,331)
Other................................ (2,319) (23) 23 -- --
--------- -------- ----------- ----------- -----------
Balance at December 31, 1997......... 9,613,281 $ 96,133 $16,049,861 $ (50,917) $16,095,077
========= ======== =========== =========== ===========
</TABLE>
See notes to financial statements.
20
<PAGE> 20
CORE MATERIALS CORPORATION
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 2,723,481
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 2,074,093
Deferred income taxes..................................... 1,454,808
Loss on disposal of assets................................ 26,715
Amortization of gain on sale/leaseback transaction........ (28,176)
Compensation expense on stock awards...................... 50,555
Change in operating assets and liabilities:
Increase in accounts receivable........................ (12,298,138)
Decrease in inventories................................ 35,980
Decrease in prepaid and other assets................... 37,381
Increase in accounts payable........................... 7,767,933
Increase in accrued and other liabilities.............. 3,235,666
Increase in postretirement benefits liability.......... 600,877
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 5,681,175
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (10,340,851)
Proceeds from sale/leaseback transaction.................... 12,000,000
Payments on mortgage-backed security investment............. 77,700
Proceeds from sale of property and equipment................ 12,500
------------
NET CASH PROVIDED BY INVESTING ACTIVITIES................... 1,749,349
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit............................. 7,647,120
Payments on lines-of-credit................................. (3,650,000)
Payments on secured note payable............................ (12,000,000)
Proceeds from exercise of stock options..................... 82,500
------------
NET CASH USED IN FINANCING ACTIVITIES....................... (7,920,380)
NET DECREASE IN CASH........................................ (489,856)
CASH AT BEGINNING OF YEAR................................... 590,212
------------
CASH AT END OF YEAR......................................... $ 100,356
============
Cash paid for:
Interest.................................................. $ 1,082,514
============
Income Taxes.............................................. $ 122,500
============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Increase in secured note payable to Navistar.............. $ 2,937,331
============
</TABLE>
See notes to financial statements.
21
<PAGE> 21
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS FORMATION AND NATURE OF OPERATIONS
Core Materials Corporation ("Core Materials") was formed on October 8, 1996
by RYMAC Mortgage Investment Corporation ("RYMAC"), as a wholly owned
subsidiary, for the purpose of acquiring substantially all of the assets and
assuming certain of the liabilities of Columbus Plastics Operation ("Columbus
Plastics"), an operating unit of Navistar International Transportation Corp.
("Navistar"). Throughout these Notes to Financial Statements, references to
Columbus Plastics refers to the operations of Core Materials prior to the
acquisition.
On December 31, 1996, RYMAC merged into its wholly owned subsidiary, Core
Materials, by converting each outstanding common share of RYMAC into the right
to receive one common share of Core Materials, with Core Materials as the
surviving corporation and continuing registrant. Simultaneously, on December 31,
1996, Core Materials purchased substantially all of the assets and assumed
certain liabilities of Columbus Plastics (the "Acquisition") (see Note 4).
Core Materials produces compression Sheet Molding Composite ("SMC")
fiberglass reinforced plastic parts. Core Materials has two principal customers,
Navistar and Yamaha Motor Manufacturing Corporation.
2. BASIS OF PRESENTATION
Core Materials' year end is December 31. Columbus Plastics' historical year
end was October 31. In the accompanying financial statements, the historical
fiscal year of Columbus Plastics has been maintained through October 31, 1995,
its previous most recently audited financial statements prior to 1996. Effective
December 31, 1995, the year end was changed to conform to the year end of Core
Materials, the continuing legal entity and registrant.
Based upon the terms of the Acquisition, the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
However, Core Materials is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax reporting
purposes. Consistent with reverse acquisition accounting treatment Core
Materials has carried forward the historical basis of the acquired assets and
assumed liabilities of Columbus Plastics and has revalued the basis of Columbus
Plastics' net assets to fair value at December 31, 1996. All other accompanying
financial statements for the year ended December 31, 1996 and prior reflect the
historical operations of Columbus Plastics. Note 5 contains the unaudited pro
forma combined statements of income of Core Materials for the twelve months
ended December 31, 1996 and the twelve months ended October 31, 1995, as if the
Acquisition had been consummated as of January 1, 1996 and November 1, 1994,
respectively.
Prior to the Acquisition, Columbus Plastics was not a "stand alone"
division or subsidiary of Navistar and was not generally accounted for
separately. As a result, the distinct and separate accounts necessary to present
individual Core Materials income statements for the year ended December 31,
1996, the two months ended December 31, 1995 and the year ended October 31, 1995
have not been maintained.
Also, prior to the Acquisition, Columbus Plastics did not maintain
corporate treasury, legal, tax, purchasing and other similar corporate support
functions. Corporate general and administrative expenses have not been
previously allocated to Columbus Plastics. For purposes of preparing the Core
Materials financial statements for the years prior to 1997, certain of these
corporate costs, along with other Navistar Truck Group expenses, were allocated
using an allocation method (see Note 13). However, Navistar's systems and
procedures do not provide sufficient information to develop a reasonable cost
allocation for income taxes, corporate debt and interest expense.
Accordingly, Statements of Revenues, Direct Expenses and Identified
Corporate Expenses before Interest and Taxes are presented for the year ended
December 31, 1996, the two months ended December 31, 1995 and the year ended
October 31, 1995. These statements include all Navistar corporate cost
allocations for which a reasonable method of allocating costs to the operations
of Columbus Plastics can be developed.
22
<PAGE> 22
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the Acquisition, purchases of inventory, payroll, capital and
other expenditures were funded through the Equity Investment account with
Navistar. Accounts payable to third party vendors and certain expense accruals
were processed and recorded at other Navistar locations. Remittances from sales
to third parties were collected by Navistar and were accounted for through the
Equity Investment account as were sales to Navistar's truck assembly operations.
Accordingly, Columbus Plastics has no operating cash flows and statements of
cash flows are not presented for the year ended December 31, 1996, the two
months ended December 31, 1995 and the year ended October 31, 1995. Note 8 to
the financial statements presents a reconciliation of the Navistar Equity
Investment account for the applicable periods.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
REVENUE RECOGNITION -- Revenue from product sales is recognized at the time
products are shipped. Effective January 1, 1997, sales to Navistar are recorded
at the prices stipulated in the Comprehensive Supply Agreement between Core
Materials and Navistar (the "Supply Agreement") (see Note 14), which approximate
fair value. Prior to 1997, Core Materials recorded sales to Navistar's
manufacturing plants at its standard cost at date of shipment.
MORTGAGE-BACKED SECURITY -- Pursuant to reverse acquisition accounting, the
mortgage backed security is recorded at its fair value at December 31, 1996,
which is the cost basis to Core Materials. The security which matures in
November 2025, is considered held to maturity, and is carried at cost. Core
Materials has the intent and ability to hold this security to maturity.
INVENTORIES -- Inventories are stated at the lower of cost (first-in,
first-out), or market.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are recorded
at cost. Depreciation is provided on a straight line method over the estimated
useful lives of the assets. The carrying amount of long-lived assets is
evaluated annually to determine if adjustment to the depreciation period or to
the unamortized balance is warranted. Such evaluation is based principally on
the expected utilization of the long-lived assets.
Ranges of estimated useful lives for computing depreciation are as follows:
<TABLE>
<S> <C>
Land improvements........................................... 20 years
Building and improvements................................... 20-50 years
Machinery and equipment..................................... 3-25 years
Tools, dies and patterns.................................... 3-5 years
</TABLE>
Depreciation expense was $2,074,000, $1,847,000, $275,000, and $1,338,000
for the years ended December 31, 1997 and 1996, the two months ended December
31, 1995 and the year ended October 31, 1995, respectively.
In 1997, approximately $180,000 of interest costs were capitalized. Prior
to December 31, 1996, Core Materials did not record capitalized interest on
construction in progress as interest expense was not allocated by Navistar to
Columbus Plastics.
SELF-INSURANCE -- The Company is self-insured with respect to medical and
dental claims and workers' compensation claims. The Company has recorded an
estimated liability for self-insured medical and dental claims incurred and
worker's compensation claims incurred but not reported at December 31, 1997 of
$469,000. As part of the Asset Purchase Agreement, Navistar assumed the
liability for these items at December 31, 1996.
23
<PAGE> 23
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- Core Materials accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes" which uses the liability method to calculate deferred income
taxes. This standard requires, among other things, recognition of future tax
benefits, measured by enacted tax rates, attributable to deductible temporary
differences between the financial statement basis and income tax basis of assets
and liabilities and net operating loss carry forwards to the extent realization
is more likely than not.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- Core Materials' financial
instruments consist of a mortgage-backed security investment, a secured note
payable, accounts receivable and accounts payable. The carrying amount of the
financial instruments approximated their fair value.
EARNINGS PER COMMON SHARE -- Core Materials presents earnings per common
share in accordance with SFAS No. 128, "Earnings per Share." Under SFAS No. 128,
basic earnings per common share is computed based on the weighted average number
of common shares outstanding during the period. Diluted earnings per common
share is computed similarly but includes the effect of the exercise of stock
options under the treasury stock method. For years prior to 1997, earnings per
share is not presented as Columbus Plastics was not a stand alone division or
subsidiary of Navistar and was generally not accounted for separately during
periods presented. In calculating net income per share for 1997, weighted
average shares increased for the computation of diluted income per share by
157,246 due to the effect of stock options, which reduced net income per share
by $0.01.
RECLASSIFICATIONS -- Reclassifications have been made to prior years'
amounts to conform with the classifications of such amounts for 1997.
Additionally, the Company has recorded reclassifications between the December
31, 1996 secured notes payable and the postretirement benefits liability
including the related deferred tax asset impact (see Note 12).
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components. This statement is effective for fiscal years
beginning after December 15, 1997. This standard expands or modifies disclosures
and, accordingly, will have no impact on the Company's reported financial
position, results of operations and cash flows.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement revises standards
for disclosures about pension and other postretirement benefit plans and is
effective for fiscal years beginning after December 15, 1997. This standard
expands or modifies disclosure and, accordingly, will have no impact on the
company's reported financial position, results of operations and cash flows.
4. ACQUISITION
On December 31, 1996 Core Materials acquired substantially all of the
assets and assumed certain liabilities of Columbus Plastics for (1) a
$27,884,510 (as adjusted, see Note 12) Secured Note due Navistar, subject to
adjustment, and (2) 4,264,000 shares of Core Materials common stock,
representing approximately 45% of the total number of shares of Core Materials
common stock then issued and outstanding.
In connection with the Acquisition, Core Materials is required to pay
Navistar future consideration in the form of an increase in the Secured Note
based upon a multiple of the amount by which Core Materials' earnings before
interest and taxes (EBIT), as defined in the Asset Purchase Agreement, exceeds
established thresholds
24
<PAGE> 24
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
over the three year period 1997 to 1999. The future consideration will be based
upon a multiple of the defined EBIT as follows:
- 1997: If EBIT exceeds $6,512,000, then future consideration will be the
excess multiplied by 5.55.
- 1998: If EBIT exceeds $6,512,000, then the future consideration will be
the product of the 1998 excess EBIT less the 1997 excess EBIT multiplied
by 4.50.
- 1999: If EBIT exceeds $6,512,000, then the future consideration will be
the product of the 1999 excess EBIT less the 1998 excess EBIT multiplied
by 2.75.
The maximum increase in the Secured Note, as a result of future
consideration, is limited to $24,496,000. Such increases will be accounted for
by reducing Core Materials' retained earnings and will increase the amount of
the balloon payment due in November 2006. For the year ended December 31, 1997,
Core Materials EBIT, as defined in the Asset Purchase Agreement, exceeded the
established threshold by $529,249. This excess resulted in additional
consideration due to Navistar of $2,937,331.
Based upon the terms of the Acquisition, the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
Consistent with reverse acquisition accounting treatment, the purchase price
should be determined as the fair value of the consideration paid or received
whichever is more clearly evident. Because RYMAC's stock was thinly traded and
supported a company with no operations (prior to the Acquisition), the fair
value of RYMAC's then outstanding common stock was not appropriate to determine
the Acquisition purchase price. Instead the purchase price was determined based
upon the fair value of the consideration received (Core Materials' assets and
liabilities) by Columbus Plastics. The purchase price was approximately $16.0
million, calculated as follows, and excludes any future consideration to be paid
if certain earnings thresholds are met:
<TABLE>
<S> <C>
Cash........................................................ $ 584,351
Mortgage-backed assets...................................... 3,295,049
Other assets................................................ 122,935
Deferred tax asset, net..................................... 12,455,000
Accrued expenses............................................ (492,649)
-----------
$15,964,686
===========
</TABLE>
Transaction costs incurred by the acquirer in connection with the
acquisition of a company without operating substance should be treated similar
to that of an offering of equity securities as a reduction of paid-in capital.
Since the recording of Navistar's transaction costs at Core Materials would
result in no net impact to Core Materials' balance sheet, Navistar's transaction
costs are excluded from the purchase price.
25
<PAGE> 25
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma combined statements of income for the
twelve month periods ended December 31, 1996 and October 31, 1995 are presented
as if the Acquisition had occurred as of January 1, 1996 and November 1, 1994,
respectively . This pro forma information is not necessarily indicative of the
actual results of operations which would have occurred had the transactions
occurred on such dates or which may occur in the future.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------
HISTORICAL SUPPLY & PROFORMA
COLUMBUS SERVICES ADJUSTED
PLASTICS ACQUISITION NOTE AGREEMENT NOTE BALANCE NOTE
----------- ----------- ---- ---------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales:
Navistar..................... $31,546,315 $4,123,000 (b) $35,669,315
Yamaha....................... 19,759,033 19,759,033
Other........................ 1,161,461 1,161,461
----------- ---------- -----------
Total.......................... 52,466,809 4,123,000 56,589,809
Cost of sales.................. 46,148,086 46,148,086
Postretirement benefits
expense...................... 879,487 879,487
----------- -----------
Total cost of sales............ 47,027,573 47,027,573
Gross margin................... 5,439,236 4,123,000 9,562,236
----------- ---------- -----------
Selling, general and
administrative expense....... 5,078,487 $ 864,000 (d) 5,942,487
Postretirement benefits
expense...................... 163,307 163,307
----------- ----------- -----------
Total selling, general and
administrative expense....... 5,241,794 864,000 6,105,794
----------- ----------- -----------
Other income................... 349,604 349,604
----------- ----------- ---------- -----------
Income before interest and
taxes........................ 547,046 (864,000) 4,123,000 3,806,046
Interest income................ 230,650 (a) 230,650
Interest (expense)............. (1,841,120) (c) (1,841,120)
----------- ----------- ---------- -----------
Income before income taxes..... $ 547,046 $(2,474,470) $4,123,000 $ 2,195,576
Estimated income taxes......... 905,895 (f)
-----------
Net income..................... $ 1,289,681
-----------
Net income per share:
Basic........................ $ .14
===========
Diluted...................... $ .13
===========
Weighted average shares
outstanding:
Basic........................ 9,474,583 (e)
===========
Diluted...................... 9,580,693 (e)
===========
</TABLE>
26
<PAGE> 26
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------
HISTORICAL SUPPLY & PROFORMA
COLUMBUS SERVICES ADJUSTED
PLASTICS ACQUISITION NOTE AGREEMENT NOTE BALANCE NOTE
----------- ------------ ---- ---------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales:
Navistar....................... $37,777,164 $5,866,200 (b) $43,643,364
Yamaha......................... 20,221,722 20,221,722
Other.......................... 1,506,243 1,506,243
----------- ---------- -----------
Total sales...................... 59,505,129 5,866,200 65,371,329
----------- ---------- -----------
Cost of sales.................... 48,458,210 48,458,210
Postretirement benefits
expense........................ 680,857 680,857
----------- -----------
Total cost of sales.............. 49,139,067 49,139,067
----------- -----------
Gross margin..................... 10,366,062 5,866,200 16,232,262
----------- ---------- -----------
Selling, general and
administrative expense......... 5,345,008 $ 864,000 (d) 6,209,008
Postretirement benefits
expense........................ 176,241 176,241
----------- ----------- -----------
Total selling, general and
administrative expense......... 5,521,249 864,000 6,385,249
----------- ----------- -----------
Other expense.................... (55,241) (55,241)
----------- ----------- ---------- -----------
Income before interest and
taxes.......................... 4,789,572 (864,000) 5,866,200 9,791,772
Interest income.................. 230,650 (a) 230,650
Interest (expense)............... (2,211,120) (c) (2,211,120)
----------- ----------- ---------- -----------
Income before income taxes....... $ 4,789,572 $(2,844,470) $5,866,200 7,811,302
Estimated income taxes........... 3,222,943 (f)
-----------
Net income....................... $ 4,588,359
===========
Net income per share:
Basic.......................... $ .48
===========
Diluted........................ $ .48
===========
Weighted average shares
outstanding:
Basic.......................... 9,474,583 (e)
===========
Diluted........................ 9,580,693 (e)
===========
</TABLE>
The Unaudited Proforma Combined Statements of Income for the twelve months
ended December 31, 1996 and October 31, 1995 have been prepared assuming the
proposed acquisition had occurred on January 1, 1996 and November 1, 1994,
respectively and reflects the effects of certain adjustments to the historical
financial statements that result from the acquisition of Columbus Plastics by
Core Materials. Columbus Plastics was not a stand alone division or subsidiary
of Navistar and was not generally accounted for separately. Navistar's systems
and procedures do not provide sufficient information to develop a reasonable
cost allocation for income taxes and interest expense. Accordingly, historical
net income per common share amounts have not been included for the financial
information for Columbus Plastics. A historical statement of income for Core
Materials is not included in the unaudited proforma combined financial
information as the Acquisition was accounted for using reverse acquisition
accounting treatment.
(a) Represents the estimated interest income to be earned on the
mortgage-backed security at the security's effective interest rate of
7%.
27
<PAGE> 27
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) Represents the additional revenues resulting from pricing sales by Core
Materials to Navistar reflecting the prices specified in the
Comprehensive Supply Agreement, rather than at Core Materials
historical standard cost.
(c) Represents the estimated interest expense on the Secured Note due to
Navistar at 8% per annum less the interest credit of $520,000 and
$150,000 for the twelve months ended December 31, 1996 and October 31,
1995, respectively, which represents the capitalization of interest on
the Secured Note relating to property, plant and equipment under
construction.
(d) Represents an estimate of the additional administrative expenses to be
incurred by Core Materials as a result of its status as a stand-alone,
publicly owned company rather than an operating unit of a much larger
corporation. Additional costs consist primarily of broker fees, legal
fees, auditing fees, 10-K and 10-Q printing fees, officers' salaries
and directors' fees.
(e) The weighted average number of common shares outstanding used to
calculate basic and diluted net income per common share include the
number of shares of Core Materials common stock outstanding prior to
the acquisition and the number of shares issued to Navistar as
consideration for the Acquisition. The diluted weighted average shares
outstanding also includes the effect of the exercise of 260,000
dilutive Core Materials stock options, using the treasury stock method.
(f) Represents the estimated income tax expense for Core Materials based
upon a statutory Federal tax rate of 34% and an estimated Ohio state
and local tax rate of 11%. The income tax expense recorded in the
unaudited pro forma combined financial statements is not necessarily
indicative of the cash payments for income taxes that Core Materials
would be required to pay due to Core Materials' substantial net
operating loss carryforwards. Core Materials expects to only be
required to make minimal Federal income tax payments as mandated,
primarily, by the Alternative Minimum Tax regulations until such time
that the loss carryforwards are fully utilized or expired.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Land and land improvements.................... $ 2,024,566 $ 1,607,066
Building and equipment........................ 22,955,364 38,933,211
Tools, dies and patterns...................... 334,761 299,135
Construction in progress...................... 9,656,310 1,498,558
------------ ------------
Total......................................... 34,971,001 42,337,970
Less accumulated depreciation................. (10,293,834) (17,269,489)
------------ ------------
Property, plant and equipment -- net.......... $24 ,677,167 $ 25,068,481
============ ============
</TABLE>
Construction in progress at December 31, 1997, primarily relates to the
construction and equipping of a new 110,900-square-foot facility in Gaffney,
South Carolina to expand Core Materials' molding and assembly capacities. At
December 31, 1997, commitments for capital expenditures in progress were
$2,494,000.
In December 1997, Core Materials entered into a sale leaseback arrangement
with a financial institution, whereby it sold certain equipment with an original
cost of approximately $17,541,000 and a net book value of approximately
$8,619,000 (see Note 7).
28
<PAGE> 28
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT AND LEASES
SECURED NOTE PAYABLE
The Secured Note payable is due to Navistar and bears interest at the rate
of 8% per annum, payable semi-annually, and is secured by a subordinated lien
and security interest in all of Core Materials' assets. The Secured Note is due
in November 2006. In connection with the acquisition, Core Materials is also
required to pay Navistar future consideration in the form of an increase in the
principal amount of the Secured Note if Core Materials achieves earnings before
interest and taxes in excess of established thresholds during the period of 1997
through 1999 (see Note 4).
Principal payments under the secured note are due as follows:
(a) Within ninety (90) days after the end of each fiscal year of Core
Materials during the term of the Secured Note, Core Materials shall pay
principal in an amount equal to the amount, if any, by which the total cash
and cash equivalents of Core Materials, as of the end of such fiscal year,
exceeds $3,000,000, as long as there is no outstanding balance on the
revolving line of credit and Core Materials is in compliance with all loan
covenants; and
(b) In the event Core Materials obtains, from time to time, any
refinancing loan (as defined by the terms of the Secured Note), Core
Materials shall promptly upon obtaining such loan pay principal in an
amount equal to the proceeds of such loan.
Based upon the financial position of Core Materials' at December 31, 1997,
the Secured Note is classified as long-term on the balance sheet.
In 1997, a refinancing arrangement was entered into with a financial
institution whereby Core Materials received $12,000,000 from a sale/leaseback
transaction. The proceeds from this transaction were used to repay principal on
the Secured Note due to Navistar.
Based on Core Materials' earnings for the year ended December 31, 1997, the
Secured Note was increased by $2,937,000 in accordance with the provisions of
the Asset Purchase Agreement (see Note 4). During 1997, the final purchase price
adjustments were reviewed by Core Materials and Navistar management. As a result
of this review, it was agreed that Core Materials would assume an additional
$1,629,000 of accumulated benefits obligations relating to postretirement
benefits at December 31, 1996 and reduce the secured note payable to Navistar by
the same amount and amend the December 31, 1996 closing balance sheet of
Columbus Plastics to reflect the reclassification of these two long-term
liabilities (see Note 12).
The provisions of the Secured Note prohibit the declaration or payment of
cash dividends, the repurchase or retirement of capital stock, as well as the
pledge of any of Core Materials' assets or revenue as a security lien to a third
party, except as approved by Navistar, as long as the Secured Note is
outstanding.
LINE OF CREDIT
At December 31, 1997, Core Materials had available a $7,500,000 variable
rate revolving line of credit. This facility, which matures on November 30,
1999, is secured by a first priority lien and security interest in all Core
Materials' business assets. The line of credit bears interest at LIBOR plus two
percent or prime as elected by Core Materials.
At December 31, 1997, Core Materials also had a $3,000,000 variable rate
line of credit secured by the Company's mortgage-backed security investment.
This facility bears interest at prime and was terminated by the Company in
January 1998.
The total outstanding balance under these facilities at December 31, 1997
was $3,997,120 at a weighted average interest rate of 8.37%. These facilities
did not exist at December 31, 1996.
29
<PAGE> 29
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LETTERS OF CREDIT
Core Materials also had commitments at December 31, 1997, from a financial
institution to provide a $7,500,000 standby letter of credit to support the
issuance of Industrial Revenue Bonds and $5,500,000 of equipment leasing for the
Company's new facility in South Carolina.
LEASES
In December 1997 Core Materials entered into a sale-leaseback arrangement
with a financial institution. Equipment, consisting primarily of SMC presses
with a net book value of approximately $8,619,000, was sold for $12,000,000 and
leased back under a 10 year lease agreement. The lease agreement meets the
criteria to be accounted for as an operating lease. Core Materials recorded a
deferred gain of approximately $3,381,000 on the transaction which will be
amortized over the life of the lease. The current portion of the deferred gain,
approximately $335,000, is recorded in other accrued liabilities. For the year
ended December 31, 1997, Core Materials recognized into income approximately
$28,000 of the deferred gain. Proceeds from the sale-leaseback of $12,000,000
were used to reduce a portion of the principal on the Secured Note payable due
to Navistar.
Core Materials also leases certain equipment under operating leases entered
in prior years with original lease terms of 9.5 to 10 years.
Total rental expense was $701,000, $563,000, $83,000 and $560,000 for the
years ended December 31, 1997 and 1996, the two months ended December 31, 1995
and the year ended October 31, 1995, respectively.
The future minimum lease payments under non-cancelable operating leases
that have lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 1,999,000
1999........................................................ 1,604,000
2000........................................................ 1,604,000
2001........................................................ 1,445,000
2002........................................................ 1,457,000
Thereafter.................................................. 8,713,000
-----------
Total minimum lease payments................................ $16,822,000
===========
</TABLE>
30
<PAGE> 30
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EQUITY INVESTMENT ACCOUNT
Prior to January 1, 1997, cash flows for purchases of inventory, payroll,
capital expenditures, and other expenditures were funded through the
intercompany Equity Investment account with Navistar. The following summarizes
the changes in the Equity Investment account for the periods presented:
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance -- beginning of period...................... $ 24,206,408 $ 20,140,446 $ 14,489,444
Funding of purchases................................ 45,922,756 9,870,093 37,766,508
Net charges from Navistar........................... 19,695,932 3,032,887 19,991,165
Navistar funding of plant expenses and other........ 2,777,608 300,196 2,076,547
Net charges to Navistar............................. (36,030,151) (6,344,451) (37,368,465)
Collections from third parties...................... (27,781,025) (3,336,388) (21,604,325)
Income before interest and taxes.................... 547,046 543,625 4,789,572
Push down of postretirement benefit liabilities
from Navistar..................................... (1,757,490)
Issuance of Core Materials common stock............. (27,581,084)
------------ ------------ ------------
Balance -- end of period............................ $ $ 24,206,408 $ 20,140,446
============ ============ ============
</TABLE>
Funding of Purchases -- represents amounts funded by Navistar primarily for
purchases of materials and capital expenditures.
Net Charges From Navistar -- represents amounts charged for payroll and
related expenses, charges for employee health and welfare plans, payments to
union sponsored pension plans and all corporate support services.
Navistar Funding of Plant Expenses -- represents amounts transferred to
Columbus Plastics from Navistar as reimbursement for expenses paid by Columbus
Plastics.
Net Charges to Navistar -- represents the intercompany sales and charges by
Columbus Plastics to other Navistar manufacturing plants for the sale of SMC
products.
Collections From Third Parties -- represents amounts collected by Columbus
Plastics on sales to third parties, primarily Yamaha, and collections on
billings for tooling projects.
Push Down of Postretirement Benefit Liabilities From Navistar -- represents
the push down from Navistar to Core Materials of the projected postretirement
benefit obligations which were assumed by Core Materials, see Note 12.
Issuance of Core Materials Common Stock -- reverse acquisition accounting
treatment requires that the retained earnings carried forward to Core Materials
as of December 31, should consist of Columbus Plastics' Equity Investment
account, less an amount equivalent to the par value of Core Materials common
stock owned by Navistar. This item represents the transfer of the Equity
Investment account to common stock and retained earnings.
9. EQUITY
ANTI-TAKEOVER MEASURES
Core Materials' Certificate of Incorporation and By-laws contain certain
provisions designed to discourage specific types of transactions involving an
actual or threatened change of control of Core Materials. These
31
<PAGE> 31
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
provisions, which are designed to make it more difficult to change majority
control of the Board of Directors without its consent, include the following:
Removal of Directors -- This provision provides that a director of
Core Materials may be removed with or without cause only upon the vote of
the holders of at least 80% of the voting power of the outstanding shares
of capital stock entitled to vote generally in the election of directors.
Supermajority Approval -- This provision requires that a merger and
certain other transactions (as outlined in the Certificate of
Incorporation) be approved by the affirmative vote of the holders of at
least 66 2/3% of the then outstanding shares of Core Materials' common
stock. Such affirmative vote is required notwithstanding the fact that no
vote may be required, or that a lesser percentage may be specified by law.
Amendments -- This provision requires that any amendment to the
provisions relating to the removal of directors be approved by the holders
of at least 80% of the then outstanding shares of voting stock, and any
amendment to provisions requiring the approval of the holders of at least
66 2/3% of the then outstanding shares of voting stock be approved by the
holders of at least 66 2/3% of the then outstanding shares of voting stock.
RESTRICTIONS ON TRANSFER
Core Materials' Certificate of Incorporation also contains a provision (the
"Prohibited Transfer Provision") designed to help assure the continued
availability of Core Materials' substantial net operating loss and capital loss
carryforwards by seeking to prevent an "ownership change" as defined under
current Treasury Department income tax regulations. Under the Prohibited
Transfer Provision, if a stockholder transfers or agrees to transfer stock, the
transfer will be prohibited and void to the extent that it would cause the
transferee to hold a "Prohibited Ownership Percentage" (as defined in Core
Materials' Certificate of Incorporation, but generally, means direct and
indirect ownership of 4.5% or more of the Company's common stock) or if the
transfer would result in the transferee's ownership increasing if the transferee
had held a Prohibited Ownership Percentage within the three prior years or if
the transferee's ownership percentage already exceeds the Prohibited Ownership
Percentage under applicable Federal income tax rules. The Prohibited Transfer
Provision does not prevent transfers of stock between persons who do not hold a
Prohibited Ownership Percentage.
RESTRICTED COMMON STOCK
In 1997, Core Materials issued, in total, 41,000 shares of common stock,
par value $0.01 per share, to 410 employees (which constituted all of its
employees at the time of grant with the exception of certain executive
employees). The Company received no consideration for the issued shares. The
shares were issued as an incentive for its employees to remain with the Company
and are subject to forfeiture to the Company if an employee leaves prior to
December 31, 1998. During this period, the shares may not be transferred. At
December 31, 1997, 23 of these employees terminated service with Core Materials
and, therefore, the 2,300 shares were forfeited and retired. The market value of
the shares at the dates of grant totaled $117,825 which will be recognized
ratably as compensation expense, net of forfeitures, over the period of the
restriction and is recorded as a contra equity account and included in paid in
capital. During 1997, Core Materials expensed $51,000 related to these shares.
PREFERRED STOCK
Core Materials has authorized 10,000,000 shares of preferred stock (par
value: $0.01) of which none is issued.
32
<PAGE> 32
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. INCENTIVE STOCK PLANS
STOCK OPTIONS
The Company has a Long Term Equity Incentive Plan (the "Plan"), as approved
by the shareholders in May, 1997, that allows for grant to directors and key
employees of non-qualified stock options, incentive stock options, stock
appreciation rights, restricted stock, performance shares, performance units and
other incentive awards up to an aggregate of 1.5 million awards, each
representing a right to buy a share of Core Materials' common stock. The Plan
expires on the earlier of December 31, 2006, or the date the maximum number of
available awards under the plan have been granted.
During 1997, the Company granted non-qualified stock options and incentive
stock options to directors and certain employees. The options have vesting
schedules of five or ten years from the date of grant, are not exercisable after
ten years from the date of grant, and were granted at prices which equal fair
market value of Core Materials' common stock at the date of grant.
At the time of the merger of RYMAC into Core Materials, each outstanding
option to purchase shares of RYMAC's common stock granted under any of RYMAC's
previous stock option plans was deemed amended to constitute an option to
acquire, at the same price per share, the same number of shares of Core
Materials' common stock.
At December 31, 1996, there were 260,000 outstanding options from the RYMAC
Plans, each to purchase one share of Core Materials' common stock at prices
ranging from $0.75 to $1.50, all of which were exercisable. All of the options
are held by former executive officers and a former director of RYMAC.
The Company accounts for its stock option plans in accordance with APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for all stock option plans been determined consistent with the
SFAS No. 123, "Accounting for Stock Based Compensation," the Company's pro forma
net income and net income per common share would have been $2,657,418 and $.28
per basic share or $.27 per diluted share for fiscal 1997, respectively.
The pro forma amounts are not representative of the effects on reported net
income or net income per common share for future years.
The following summarizes all stock option transactions for the Company
under the plans from January 1, 1997 through December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding as of December 31,1996......................... 260,000 $0.81
Options granted............................................ 796,000 2.82
Options exercised.......................................... (100,000) 0.83
Options forfeited.......................................... (16,000) 2.77
-------- -----
Outstanding as of December 31, 1997........................ 940,000 $2.48
======== =====
Exercisable as of December 31, 1997........................ 221,850 $1.34
======== =====
Options available for grant as of December 31, 1997........ 720,000
========
</TABLE>
33
<PAGE> 33
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER OF AVERAGE CONTRACTUAL LIFE NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE (YEARS) OPTIONS EXERCISE PRICE
Range of Exercise Price --------- -------------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.75-$1.50 160,000 $0.80 6.8 160,000 $0.80
$2.75-$2.81 715,500 2.75 9.3 61,850 2.75
$3.47-$3.81 64,500 3.62 9.8 --
------- ----- ------- -----
940,000 $2.48 221,850 $1.34
======= ===== ======= =====
</TABLE>
The weighted average fair value of options granted during 1997 was $1.93.
The fair value of the options granted were estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: risk-free
interest rate of 6.0%, no expected dividend yield, expected lives of 8 and 10
years, expected volatility of 52%.
11. INCOME TAXES
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Currently Payable:
Federal..................................................... $ 66,000
State and local............................................. 412,000
----------
478,000
Deferred Taxes:
Federal..................................................... 1,346,000
State and local............................................. 109,000
----------
1,455,000
----------
Provision for income taxes.................................. $1,933,000
----------
</TABLE>
No income tax expense was recorded in the financial statements for the year
ended December 31, 1996, the two month period ended December 31, 1995 and the
year ended October 31, 1995 as Navistar's systems and procedures did not provide
sufficient information to develop a reasonable allocation of income tax expense
to Columbus Plastics.
A reconciliation of the income tax provision based on the federal statutory
income tax rate to the Company's income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Provision at federal statutory rate......................... $1,583,000
State and local tax expense, net of federal benefit......... 339,000
Non-deductible expenses..................................... 11,000
----------
Total....................................................... $1,933,000
==========
</TABLE>
34
<PAGE> 34
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current asset (liability):
Accrued liabilities..................................... $ 406,000 $ 321,000
Other, net.............................................. 49,000 (30,000)
----------- -----------
Total current asset..................................... 455,000 291,000
Non-current asset (liability):
Property, plant and equipment........................... 4,465,000 5,356,000
Net operating loss carryforwards........................ 9,798,000 10,910,000
Capital loss carryforwards.............................. 3,017,000 3,017,000
Postretirement benefits................................. 1,066,000 791,000
Other, net.............................................. (389,000) (498,000)
----------- -----------
Total non-current asset................................. 17,957,000 19,576,000
----------- -----------
Total deferred tax asset.................................. 18,412,000 19,867,000
Less valuation allowance.................................. (6,787,000) (6,787,000)
----------- -----------
Total deferred tax asset -- net........................... $11,625,000 $13,080,000
=========== ===========
</TABLE>
A valuation allowance has been provided for those net operating loss (NOL)
carryforwards and temporary differences which are estimated to expire before
they are utilized. A full allowance has been provided against the approximately
$8.9 million of capital loss carryforwards, because the capital loss
carryforwards are estimated to expire before they are utilized ($4.1 million
expire in 1999 and $4.8 million expire in 2001). At December 31, 1997, Core
Materials had approximately $28.8 million of NOL carryforwards available to
offset future taxable income. Such carryforwards reflect income tax losses
incurred which will expire as follows:
<TABLE>
<S> <C>
2007............................................ $13,334,000
2008............................................ 10,823,000
2009............................................ 3,614,000
2010............................................ 638,000
2011............................................ 357,000
-----------
Total........................................... $28,766,000
===========
</TABLE>
12. POSTRETIREMENT BENEFITS
Core Materials provides postretirement benefits to substantially all of its
employees. Costs associated with postretirement benefits include pension
expense, postretirement health care and life insurance expense and expense
related to contributions to a 401(k) defined contribution plan. In addition,
Core Materials also participates in a multi-employer defined benefit plan for
its union represented employees. Prior to the Acquisition, Core Materials'
employees were participants in various Navistar sponsored pension and
postretirement plans. Navistar allocated postretirement benefit costs to
Columbus Plastics based upon the number of Columbus Plastics participants and
their respective demographic data.
The Navistar pension plan for non-represented employees was
non-contributory and both benefits and years of service were frozen as of the
date of the Acquisition. In connection with the Acquisition, Navistar retained
responsibility for the vested benefits as of December 31, 1996 and Core
Materials agreed to reimburse Navistar for early retirement subsidies for
certain employees. The accumulated benefit obligation, which equals the
35
<PAGE> 35
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
projected benefit obligation and net liability is $147,000 at December 31, 1997
and $128,000 at December 31, 1996, respectively.
All of Core Materials' union employees are covered under a multi-employer
defined benefit pension plan under a collective bargaining agreement. This plan
is not administered by Core Materials and contributions are determined in
accordance with provisions in the negotiated labor contract. Pursuant to the
terms of the Asset Purchase Agreement, Navistar withdrew from the multi-employer
plan, and, simultaneously, Core Materials took over Navistar's former
responsibilities in regards to the multi-employer plan. Management has been
advised by the multi-employer plan's actuary that Navistar's withdrawal from the
plan will not result in a withdrawal liability.
The postretirement plan provides healthcare and life insurance for certain
employees upon their retirement along with their spouses and certain dependents
and calls for cost sharing between Core Materials, Navistar and the participants
in the form of premiums, co-payments and deductibles. Core Materials and
Navistar share the cost of benefits for certain employees, pursuant to the Asset
Purchase Agreement, using a formula that allocates the cost based upon the
respective portion of time that the employee was an active service participant
after the Acquisition to the period of active service prior to the Acquisition.
During 1997, Core Materials and Navistar management reviewed all purchase price
adjustments including the initial allocation of the Columbus Plastics December
31, 1996 accumulated postretirement benefit obligation. As a result of this
review, Core Materials and Navistar agreed that Core Materials would assume an
additional $1,629,000 of accumulated benefit obligations as of December 31, 1996
and Navistar would amend the December 31, 1996 closing balance sheet of Columbus
Plastics to reflect this increase in benefit obligation resulting in an equal
reduction in the Core Materials Secured Note to Navistar. The reclassification
of $1,629,000 between the two long-term liabilities has been recorded to the
December 31, 1996 balance sheet to reflect the final purchase price allocation
and to present the two years on a comparative basis. In addition, the deferred
tax asset related to the additional accumulated benefit obligation has also been
recorded in the December 31, 1996 balance sheet as an increase in retained
earnings consistent with reverse acquisition accounting. The funded status of
other postretirement benefits as of December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Accumulated other postretirement benefit
obligation...................................... ($2,438,194) ($1,629,490)
Plan assets....................................... 0 0
----------- -----------
Funded status..................................... (2,438,194) (1,629,490)
Unrecognized loss................................. 372,663
----------- -----------
Net liability..................................... ($2,065,531) ($1,629,490)
=========== ===========
</TABLE>
36
<PAGE> 36
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of expense for all of Core Materials' postretirement benefit
plans are as follows:
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1997 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Pension expense:
Interest cost.................. $ 10,000
Corporate allocation........... $ 229,000 $ 31,000 $229,000
-------- ---------- -------- --------
10,000 229,000 31,000 229,000
-------- ---------- -------- --------
Defined contribution plan
contributions............... 160,877 -- -- --
-------- ---------- -------- --------
Multi-employer plan
contributions............... 266,962 275,794 45,108 235,098
-------- ---------- -------- --------
Health and life insurance:
Service cost................... 307,000
Interest cost.................. 130,000
Corporate allocation........... 538,000 75,000 393,000
-------- ---------- -------- --------
437,000 538,000 75,000 393,000
-------- ---------- -------- --------
Total postretirement benefits
expense........................ $874,839 $1,042,794 $151,108 $857,098
======== ========== ======== ========
</TABLE>
The discount rate used to determine the accumulated pension benefit
obligation and the accumulated other postretirement benefit obligation was 8%
and 7% at December 31, 1996 and 1997, respectively. For 1998, the weighted
average rate of increase in the per capita cost of covered health care benefits
is projected to be 8%. The rate is projected to decrease to 5% by the year 2003
and remain at the level each year thereafter. If the cost trend rate assumptions
were increased by one percentage point for each year, the accumulated
postretirement benefit obligation would increase by approximately 12% and the
associated expense recognized for the year ended December 31, 1997 would
increase by an estimated 21%.
13. CORPORATE ALLOCATIONS
Prior to its acquisition by Core Materials, Columbus Plastics did not
maintain corporate treasury, legal, tax, purchasing and other similar corporate
support functions. Columbus Plastics did record certain budgeted corporate
expenses related primarily to employee benefits, real estate taxes and
insurance. Adjustments to these amounts to reflect actual expenditures were not
recorded by Columbus Plastics but are included in the corporate allocation
amounts noted below. For purposes of preparing the financial information for
Columbus Plastics certain corporate costs and credits along with other Navistar
Truck Group expenses which were not budgeted to Columbus Plastics were allocated
based upon a variety of factors which include the size of the Columbus Plastics
operation, the number of Columbus Plastics employees, and the identification of
costs specifically attributable to Columbus Plastics. Management believes that
the allocation method used is reasonable and reflective of Columbus Plastics'
proportionate share of such expenses and is comparable to those that would have
been incurred on a stand-alone basis.
The following summarizes the corporate costs (credits) allocated to
Columbus Plastics, in the financial statements included herein, which were not
budgeted and recorded by Columbus Plastics. The amounts represent adjustments to
the budgeted expenses or allocations of Navistar Corporate and Truck Group
Marketing and Administrative expenses.
37
<PAGE> 37
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TWO MONTHS YEAR
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1996 1995 1995
------------ ------------ -----------
<S> <C> <C> <C>
Total cost of sales.................................... $(465,321) $(111,512) $(226,128)
--------- --------- ---------
Total selling, general and administrative expense...... $ 434,321 $ 65,512 $ 450,128
--------- --------- ---------
</TABLE>
14. RELATED PARTIES
In connection with the acquisition, Core Materials and Navistar entered
into a Supply Agreement and a Transitional Services Agreement (the "Services
Agreement"). Under the terms of the Supply Agreement, for a rolling five year
period commencing December 31, 1996, Navistar agreed to purchase from Core
Materials, and Core Materials agreed to sell to Navistar at negotiated prices,
which approximate fair value, all of Navistar's original equipment and service
requirements for Fiberglass Reinforced Parts using the Sheet Molding Composite
process as they existed or as they may be improved or modified. However, no
minimum quantities of annual production of products or minimum purchase
quantities are set forth or implied in the Supply Agreement, and no penalties
will be imposed on Navistar for volumes of products actually ordered by Navistar
below those quantities forecasted.
Under the terms of the Services Agreement, Navistar provided certain
accounting, payroll, human resources, and office support services to Core
Materials and procured insurance on Core Materials' behalf. Core Materials
expensed $183,000 for these services in 1997 of which $46,000 had not been paid
at December 31, 1997 and was included in accounts payable. Sales to Navistar in
1997 totaled $50,011,000 of which $10,519,000 had not been received at December
31, 1997 and was included in accounts receivable. Core Materials expensed
$2,322,000 for interest expense on the Secured Note in 1997, of which $1,135,000
had not been paid on December 31, 1997 and was included in accrued liabilities.
15. LABOR CONCENTRATION
At December 31, 1997, Core Materials employed a total of 433 employees, 344
of whom, at its Columbus, Ohio facility, are covered by a collective bargaining
agreement with the International Association of Machinists and Aerospace Workers
("IAM"). In January 1998, Core Materials announced that a new three year
seven-month labor agreement with the IAM had been reached which extends to
August 1, 2001.
38
<PAGE> 38
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL YEAR
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Net sales................... $16,373,035 $16,659,250 $13,680,033 $18,227,640 $64,939,958
Gross margin................ 3,436,610 3,740,893 2,932,016 3,951,111 14,060,630
Income before interest and
taxes..................... 1,571,841 1,840,556 1,137,033 2,104,596 6,654,026
Net income.................. 604,312 766,235 381,960 970,974 2,723,481
Net income per common share:
Basic..................... $ .06 $ .08 $ .04 $ .10 $ .29(1)
Diluted................... $ .06 $ .08 $ .04 $ .10 $ .28
DECEMBER 31, 1996
Net sales................... $14,601,362 $13,470,420 $10,846,590 $13,548,437 $52,466,809
Gross margin................ 1,393,642 829,458 1,393,878 1,822,258 5,439,236
Income (loss) before
interest and taxes........ 66,730 (420,564) 50,081 850,799 547,046
Net income (2).............. NA NA NA NA NA
Net income per common share
(2)....................... NA NA NA NA NA
</TABLE>
- ---------------
(1) Sum of the quarters do not add up to total year due to rounding.
(2) Net Income and Net Income Per Share information has been omitted because
Core Materials was not a separate stand alone division or subsidiary of
Navistar and generally not accounted for separately prior to the
Acquisition.
******
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Core Materials previously reported a change in accountants as required by
this Part II, Item 9 in a Form 8-K, as amended by a Form 8-K/A (filed with the
Securities and Exchange Commission on January 14, 1997 and January 27, 1997,
respectively).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Part III, Item 10 is incorporated herein
by reference from the Company's definitive proxy statement for its annual
meeting of stockholders to be held on or about May 28, 1998, which is expected
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A of the Securities Exchange Act of 1934 within 120 days after the end of the
Company's fiscal year covered by this report.
39
<PAGE> 39
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Part III, Item 11 is incorporated herein
by reference from the Company's definitive proxy statement for its annual
meeting of stockholders to be held on or about May 28, 1998, which is expected
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A of the Securities Exchange Act of 1934 within 120 days after the end of the
Company's fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Part III, Item 12 is incorporated herein
by reference from the Company's definitive proxy statement for its annual
meeting of stockholders to be held on or about May 28, 1998, which is expected
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A of the Securities Exchange Act of 1934 within 120 days after the end of the
Company's fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Part III, Item 13 is incorporated herein
by reference from the Company's definitive proxy statement for its annual
meeting of stockholders to be held on or about May 28, 1998, which is expected
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A of the Securities Exchange Act of 1934 within 120 days after the end of the
Company's fiscal year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
The following financial statements are included in Part II, Item 8 of
this Form 10-K:
Independent Auditors' Report
Statement of Income for the Year Ended December 31, 1997 and Statements
of Revenues, Direct Expenses and Identified Corporate Expenses Before
Interest and Taxes for the Year Ended December 31, 1996, the Two Months
Ended December 31, 1995 and the Year Ended October 31, 1995
Balance Sheets as of December 31, 1997 and 1996
Statement of Stockholders' Equity for the Year Ended December 31, 1997
Statement of Cash Flows for the Year Ended December 31, 1997
Notes to Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed herein:
Schedule II -- Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because of the absence of the conditions
under which they are required.
(3) EXHIBITS
See Index to Exhibits filed herein.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K for the fourth quarter of the
Company's fiscal year ended December 31, 1997.
40
<PAGE> 40
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CORE MATERIALS CORPORATION
By /s/ KENNETH M. SCHMELL
------------------------------------
Kenneth M. Schmell
General Manager and Acting Chief
Executive Officer
Date March , 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KENNETH M. SCHMELL General Manager and Acting Chief Executive March 30, 1998
- ------------------------------------------------ Officer
Kenneth M. Schmell
/s/ KEVIN L. BARNETT Vice President, Secretary, Treasurer and March 30, 1998
- ------------------------------------------------ Chief Financial Officer
Kevin L. Barnett
/s/ GERALD L. VOIROL Controller and Assistant Secretary March 30, 1998
- ------------------------------------------------
Gerald L. Voirol
* Director March 30, 1998
- ------------------------------------------------
Richard R. Conte
* Director March 30, 1998
- ------------------------------------------------
Ralph O. Hellmold
* Director March 30, 1998
- ------------------------------------------------
Thomas M. Hough
* Director March 30, 1998
- ------------------------------------------------
Malcolm M. Prine
* Director March 30, 1998
- ------------------------------------------------
Thomas E. Rigsby
*By /s/ KEVIN L. BARNETT Attorney-In-Fact March 30, 1998
-------------------------------------------
Kevin L. Barnett
</TABLE>
41
<PAGE> 41
CORE MATERIALS CORPORATION
SCHEDULE II
Valuation and qualifying accounts and reserves for the years ended December
31, 1997, and 1996.
Reserves deducted from asset to which it applies -- allowance for doubtful
accounts.
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS & OTHER DEDUCTIONS BALANCE AT
OF YEAR EXPENSES ACCOUNTS (A) END OF YEAR
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997............... -- $140,000 -- $7,000 $133,000
Year Ended December 31, 1996............... -- -- -- -- --
</TABLE>
(A) Amount represents uncollectable accounts written off.
42
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <C> <C>
2(a)(1) Asset Purchase Agreement dated as of September 12, Incorporated by reference to Exhibit
1996, as amended October 31, 1996, between Navistar 2-A to Registration Statement on Form
and RYMAC(1) S-4 (Registration No. 333-15809)
2(a)(2) Second Amendment to Asset Purchase Agreement dated Incorporated by reference to Exhibit
December 16, 1996(1) 2.1.1 to Annual Report on Form 10-K for
the year-ended December 31, 1996
2(b)(1) Agreement and Plan of Merger dated as of November Incorporated by reference to Exhibit
1, 1996, between Core Materials and RYMAC 2-B to Registration Statement on Form
S-4 (Registration No. 333-15809)
2(b)(2) First Amendment to Agreement and Plan of Merger Filed Herein
dated as of December 27, 1996 between Core
Materials and RYMAC
3(a)(1) Certificate of Incorporation of Core Materials Incorporated by reference to Exhibit
Corporation as filed with the Secretary of State of 4(a) to Registration Statement on Form
Delaware on October 8, 1996 S-8, (Registration No. 333-29203)
3(a)(2) Certificate of Amendment of Certificate of Incorporated by reference to Exhibit
Incorporation of Core Materials Corporation as 4(b) to Registration Statement on Form
filed with the Secretary of State of Delaware on S-8 (Registration No. 333- 29203)
November 6, 1996
3(a)(3) Certificate of Incorporation of Core Materials Incorporated by reference to Exhibit
Corporation, reflecting amendments through November 4(c) to Registration Statement on Form
6, 1996 [for purposes of compliance with Securities S-8 (Registration No. 333-29203)
and Exchange Commission filing requirements only]
3(b) By-Laws of Core Materials Corporation Incorporated by reference to Exhibit
3-C to Registration Statement on Form
S-4 (Registration No. 333-15809)
4(a)(1) Certificate of Incorporation of Core Materials Incorporated by reference to Exhibit
Corporation as filed with the Secretary of State of 4(a) to Registration Statement on Form
Delaware on October 8, 1996 S-8 (Registration No. 333-29203)
4(a)(2) Certificate of Amendment of Certificate of Incorporated by reference to Exhibit
Incorporation of Core Materials Corporation as 4(b) to Registration Statement on Form
filed with the Secretary of State of Delaware on S-8 (Registration No. 333- 29203)
November 6, 1996
4(a)(3) Certificate of Incorporation of Core Materials Incorporated by reference to Exhibit
Corporation, reflecting amendments through November 4(c) to Registration Statement on Form
6, 1996 [for purposes of compliance with Securities S-8 (Registration No. 333-29203)
and Exchange Commission filing requirements only]
</TABLE>
43
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <C> <C>
4(b) By-Laws of Core Materials Corporation Incorporated by reference to Exhibit
3-C to Registration Statement on Form
S-4 (Registration No. 333-15809)
10(a)(1) Core Materials Corporation Secured Promissory Note Incorporated by reference to Exhibit
10.1 to Annual Report on Form 10-K for
the year-ended December 31, 1996
10(a)(2) Amendment No. 1 to Secured Promissory Note Incorporated by reference to Exhibit
10.1.1 to Annual Report on Form 10-K
for the year-ended December 31, 1996
10(b) Comprehensive Supply Agreement Incorporated by reference to Exhibit
10.2 to Annual Report on Form 10-K for
the year-ended December 31, 1996
10(c) Transitional Services Agreement Incorporated by reference to Exhibit
10.3 to Annual Report on Form 10-K for
the year-ended December 31, 1996
10(d) Registration Rights Agreement Incorporated by reference to Exhibit
10.4 to Annual Report on Form 10-K for
the year-ended December 31, 1996
10(e) Loan Agreement Filed Herein
10(f) Master Equipment Lease Agreement(2) Filed Herein
10(g) Long Term Equity Incentive Plan(3) Incorporated by reference to Exhibit
4(e) to Registration Statement on Form
S-8 (Registration No. 333-29203)
10(h) 1995 Stock Option Plan(3) Incorporated by reference to Exhibit
10.6 to Annual Report on Form 10-K for
the year-ended December 31, 1996
10(i) 1997 Informal Cash Profit Sharing Plan(3) Filed Herein
10(j) Letter Agreement Regarding Severance Pay to Richard Incorporated by reference to Exhibit
R. Conte(3) 10.7 to Annual Report on Form 10-K for
the year-ended December 31, 1996
10(k) Letter Agreement with Hellmold Associates, Inc. Incorporated by reference to Exhibit
dated November 1, 1995, as amended April 10, 1996 10.8 to Annual Report on Form 10-K for
and July 18, 1996(3) the year-ended December 31, 1996
10(l) Oral Compensation Agreement with Malcolm M. Incorporated by reference to Exhibit
Prine(3) 10.9 to Annual Report on Form 10-K for
the year-ended December 31, 1996
</TABLE>
44
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <C>
11 Computation of Net Income per Share Exhibit 11 is omitted because the
required information is included in the
Notes to Financial Statements in Part II,
Item 8 of this Annual Report on Form 10-K
23 Consent of Independent Auditors Filed Herein
24 Powers of Attorney Filed Herein
27 Financial Data Schedule Filed Herein
</TABLE>
(1) The Asset Purchase Agreement, as filed with the Securities and Exchange
Commission at Exhibit 2-A to Registration Statement on Form S-4
(Registration No. 333-15809), omits the exhibits (including, the Buyer Note,
Special Warranty Deed, Supply Agreement, Registration Rights Agreement and
Transition Services Agreement, identified in the Asset Purchase Agreement)
and schedules (including, those identified in Sections 1, 3, 4, 5, 6, 8 and
30 of the Asset Purchase Agreement. The Company will provide any omitted
exhibit or schedule to the Securities and Exchange Commission upon request.
(2) The Master Equipment Lease, as filed in the Exhibits to this Annual Report
on Form 10-K, omits certain schedules (including, addendum to the schedules)
which separately identify equipment subject to the Master Equipment Lease
and certain additional terms applicable to the lease of such equipment. New
schedules may be added under the terms of the Master Equipment Lease from
time to time and existing schedules may change. The Company will provide any
omitted schedule to the Securities and Exchange Commission upon request.
(3) Indicates management contracts or compensatory plans that are required to be
filed as an exhibit to this Annual Report on Form 10-K.
45
<PAGE> 1
EXHIBIT 2(b)2
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This First Amendment to the Agreement and Plan of Merger (the "First
Amendment") is entered into as of the 27th day of December, 1996, by and between
RYMAC Mortgage Investment Corporation, a Maryland corporation ("RYMAC"), and
Core Materials Corporation, a Delaware corporation ("Core Materials");
WITNESSETH:
WHEREAS, RYMAC and Core Materials entered into a certain Agreement and
Plan of Merger dated as of November 1, 1996 (the "Agreement"), pursuant to which
RYMAC shall be merged with and into Core Materials, and Core Materials shall be
the surviving corporation;
WHEREAS, RYMAC and Core Materials desire to amend the Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to amend
the Agreement as follows, said provisions to control whenever inconsistent with
the original provisions of the Agreement, and the capitalized terms herein shall
have the same meaning as set forth in the Agreement unless stated otherwise
herein:
1. Section 6 of the Agreement is hereby amended by adding at the end
thereof the following language:
"Anything contained in this Agreement to the contrary notwithstanding,
no holder of outstanding shares of Maryland Common Stock shall be entitled to
receive a fractional share of Delaware Common Stock. In lieu of such fractional
share(s), Core Materials shall make a cash payment therefor valuing said
fractional shares based on the market price of Maryland Common Stock on the
American Stock Exchange at the close of business on the last business day
preceding the Effective Time."
2. Except as expressly amended hereby, the Agreement shall remain in
full force and effect.
53
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
duly executed as of the date first written above.
RYMAC MORTGAGE INVESTMENT
CORPORATION
By:/s/ Richard R. Conte
------------------------------------
Name: Richard R. Conte
Title: Chief Executive Officer
CORE MATERIALS CORPORATION
By:/s/ Richard R. Conte
-------------------------------------
Name: Richard R. Conte
Title: President
<PAGE> 1
EXHIBIT 10(e)
LOAN AGREEMENT
--------------
This agreement is made effective December 3, 1997, between Core
Materials Corporation, a Delaware corporation ("Borrower"), and KeyBank,
National Association, a national banking association ("Lender").
BACKGROUND INFORMATION
----------------------
A. Borrower has applied to Lender for the Loan (deemed in
ss.l, below).
B. Lender has approved Borrower's application for the Loan by
the commitment letter dated August 28, 1997, as amended (the "Loan Commitment"),
and Lender is willing to make the Loan available to Borrower but only on the
terms and subject to the conditions set forth in this agreement and the Loan
Documents (defined in ss.2, below).
C. Pursuant to the Loan Commitment, Lender is providing three
other credit facilities to Borrower in the form of (i) a $12,000,000
sale/leaseback equipment financing facility (the "Sale/Leaseback"); (ii) a
$5,500,000 equipment lease (the "Operating Lease"); and (iii) a standby letter
of credit (the "Letter of Credit") to be issued on behalf of Borrower to support
the issuance of "Industrial Development Revenue Bonds" (the "Bonds") by Borrower
in the approximate amount of $7,500,000. The documents executed by Borrower in
connection with the Sale/Leaseback and the Operating Lease, including without
limitation the Master Equipment Lease Agreements between Borrower and Lender,
are sometimes hereafter collectively referred to as the "Lease Documents."
D. It is presently anticipated that the Letter of Credit will
be issued during the first calendar quarter of 1998. The Borrower's obligations
relating to the issuance of the Letter of Credit shall be evidenced by a
Reimbursement Agreement between Borrower and Lender and such other documents as
Lender may require (collectively, the "Letter of Credit Documents"), which shall
be executed on or before the date of issuance of the Letter of Credit.
STATEMENT OF AGREEMENT
----------------------
Borrower and Lender acknowledge the accuracy of the foregoing
Background Information and agree as follows:
SECTION.l. LOAN; USE OF LOAN PROCEEDS. On the terms and
subject to the conditions set forth in this agreement and the Loan Documents (as
defined below), Lender shall provide to Borrower and Borrower shall accept from
Lender a $7,500,000 revolving loan (the "Loan"). Borrower shall use the proceeds
of the Loan to refinance Borrower's existing debt, to finance Borrower's new
facility in Gaffney, South Carolina, for working capital, to pay the Fee
(defined in ss.5, below), and to pay Lender's Costs (defined in ss.6, below).
SECTION 2. EVIDENCE OF INDEBTEDNESS AND SECURITY FOR THE
LOANS. The Loan shall be evidenced by a Revolving Variable Rate Promissory Note
(the "Note"), a copy of which is attached to this agreement as Exhibit A and
incorporated into this agreement by reference.
The Note, including all extensions, renewals, amendments, modifications
and replacements thereof, along with all of Borrower's obligations under this
agreement and the other Loan Documents (defined below), shall be secured by:
(a) a first priority security interest in all business assets
of Borrower, including without limitation all inventory, equipment,
materials, receivables, instruments, mortgage-backed securities and
other tangible and intangible property, excepting the property leased
by Borrower as set forth on Schedule l attached hereto ("Leased
Property"), (collectively the "Assets");
(b) first priority mortgage liens upon the real and personal
property of Borrower located at: (i) 800 Manor Park Drive, Columbus,
Ohio (the "Ohio Property"); and (ii) 24 Commerce Drive, Gaffney, South
Carolina
58
<PAGE> 2
(the "South Carolina Property"), such Properties being hereafter
sometimes referred to individually as a "Property" and collectively as
the "Properties;" and
(c) UCC-1 Financing Statements to perfect Lender's security
interest in the Collateral (the "UCC Financing Statements") which will
be filed with the following:
(1) Ohio Secretary of State
(2) Franklin County, Ohio Recorder, Real Estate
Records
(3) Franklin County, Ohio Recorder, Personal
Property Records
(4) South Carolina Secretary of State
(5) Cherokee County, South Carolina Recorder,
Real Estate Records
(6) Cherokee County, South Carolina, Personal
Property Records
The security interest described in (a) shall be in the form of a
Security Agreement between Borrower and Lender (the "Security Agreement") and
the mortgage liens described in (b) shall be in the form of an Open-End
Mortgage, Assignment of Rents and Leases and Security Agreement from Borrower to
Lender covering the Properties (the "Mortgages"). The Note, Security Agreement,
Mortgages, and UCC Financing Statements shall be referred to collectively as the
"Loan Documents." The Assets and the Properties shall hereinafter be referred to
collectively as the "Collateral."
SECTION 3. RATE OF INTEREST; TERMS OF PAYMENTS: LATE CHARGES;
PREPAYMENT CHARGES; AND DEFAULT. The rate of interest, terms of payment, late
charges, prepayment charges, and default rates for the Loan shall be those set
forth in the Note.
SECTION 4. TERM OF LOAN. The principal balance of the Note and accrued
interest thereon shall be due and payable in accordance with the Note and the
entire unpaid principal balance of the Note and all accrued interest thereon
shall be due and payable on or before the "Maturity Date" as set forth in the
Note.
SECTION 5. FEES. At the closing of the Loan (the "Closing"), Borrower
shall pay to Lender a loan fee of $10,000 (the "Fee"). Borrower is also paying
(a) a $25,000 fee in connection with the Sale/Leaseback at the time of its
execution and (b) an origination fee of $20,000, the first annual fee equal to
1% of the face amount of the letter of credit, and an investment banking fee of
$75,000 at the time of the issuance of the Letter of Credit.
Borrower shall also pay to Lender a fee in connection with the
Loan equal to one-eighth of one-percent per annum of the unused portion of such
Loan during the previous calendar quarter, commencing in the first quarter of
1998, which fee shall be due within fifteen days after receipt of an invoice
from Lender.
SECTION 6. COSTS AND EXPENSES. In addition to the payment of the Fee,
Borrower shall pay or reimburse Lender, as applicable, for all of Lender's
reasonable out-of-pocket costs and expenses relating to, or incidental with, the
Loan, including without limitation recording and filing fees, title examination
and insurance costs, escrow fees, appraiser's fees, engineer's fees,
environmental audit fees, inspection fees, surveyor's fees, costs and expenses
relating to administration of the Loan, Lender's attorneys' fees (including
costs and expenses) whether incurred before or after the Closing (collectively,
"Lender's Costs").
SECTION 7. DEPOSITORY REQUIREMENTS. While any sums advanced under the
Loan remain outstanding, Borrower shall maintain its primary depository/cash
management relationship with Lender.
SECTION 8. REPRESENTATIONS, WARRANTIES, AND AFFIRMATIVE COVENANTS.
Except as specifically set forth on Schedule 2 attached hereto (Exceptions to
Representations and Warranties), Borrower represents, warrants, and covenants,
as applicable, that all of the following statements are true and correct as of
the date of this agreement and shall continue to be true and correct until such
time as the Notes are paid in full and all of Borrower's obligations under this
agreement and the Loan Documents are satisfied in full:
59
<PAGE> 3
(a) Borrower is a duly organized and validly existing Delaware
corporation in good standing under the laws of the State of Delaware,
and is qualified to do business and is in good standing in each other
jurisdiction where Borrower's operations require it to be so qualified,
including without limitation in the States of Ohio and South Carolina.
(b) Except as noted on Schedule 2, as of the Closing, there
has been no material adverse change in Borrower's financial statements
and other documents and materials submitted to Lender with Borrower's
application for the Loan since the period covered by such statements,
documents and materials.
(c) Borrower has not employed or engaged any broker, finder,
or agent who may claim a commission or fee relating to the Loan, and
Borrower shall indemnify and hold Lender harmless from any such claim,
demand, or litigation resulting therefrom.
(d) Borrower has full power and authority to execute and
deliver this agreement and the Loan Documents and to perform and
observe its obligations under this agreement and the Loan Documents;
and this agreement and the Loan Documents have been duly and validly
executed and delivered by Borrower, and are the legal, valid, and
binding obligations of Borrower enforceable in accordance with their
respective terms.
(e) Neither the execution or delivery of this agreement or the
Loan Documents, nor the consummation of any of the transactions
contemplated in this agreement or the Loan Documents, nor compliance
with the terms and provisions in this agreement or the Loan Documents,
will contravene or conflict with: (i) any provision of law, statute, or
regulation to which Borrower or any of its properties is subject; (ii)
any judgment, license, order, or permit applicable to Borrower or any
of its properties; (iii) any indenture, mortgage, or other agreement or
instrument to which Borrower is a party or by which Borrower or any of
its properties is subject or bound; or (iv) Borrower's certificate of
incorporation, by-laws, qualifications to do business in any state, or
any actions or proceedings of Borrower. No consent, approval,
authorization, or order of any court or governmental authority or third
party is required in connection with the execution, delivery, and
performance by Borrower of this agreement or the Loan Documents.
(f) Borrower is not in material default under any agreement,
indenture, mortgage, deed of trust, security agreement, lease,
franchise, or other obligation to which it is a party or by which it or
any of its property is bound. Borrower is not in violation of any law,
ordinance, governmental rule, or regulation to which it is subject,
which violation might materially adversely affect the business,
prospects, profits, properties, or financial condition of Borrower. No
event has occurred and is continuing which constitutes an Event of
Default (as defined in ss.13, below) or would, with the lapse of time
or giving of notice or both, constitute such a default.
(g) There are no claims, suits, or causes of action (whether
legal, equitable, or administrative) pending or threatened against
Borrower which will or may materially adversely affect the properties,
business, prospects, profits, or financial condition of Borrower or the
ability of Borrower to consummate or perform the transactions
contemplated by this agreement or the Loan Documents.
(h) Borrower is not in default or delinquent in the payment of
any type of material tax or assessment with any governmental entity.
(i) As of the Closing, there is no fact that Borrower has not
disclosed in writing to Lender which could materially or adversely
affect the properties, business, prospects, or conditions (financial or
other) of Borrower.
(j) Borrower shall use the proceeds of the Loan solely for
those uses permitted under ss.l.
(k) Borrower shall furnish to Lender, promptly upon becoming
aware of the existence of any condition or event constituting an Event
of Default, or which, with the giving of notice or lapse of time or
both,
60
<PAGE> 4
would constitute an Event of Default under this agreement or any
Loan Document, a written notice specifying the nature and period of
existence thereof, and what action Borrower is taking or proposes to
take with respect thereto.
(l) Borrower shall maintain proper books of account and
records containing entries of all of the transactions entered into by
Borrower in accordance with generally accepted accounting principles.
(m) Upon reasonable advance notice (oral or written), Borrower
shall provide Lender and Lender's employees and agents access to the
Collateral to examine the existence and condition of such Collateral,
which shall include but not be limited to reviewing (and, in the event
of default, making copies of) all of Borrower's books and records
relating thereto.
(n) Borrower shall maintain liability and all-risk (hazard)
insurance coverage on all of the Collateral in amounts reasonably
satisfactory to Lender. Such insurance coverages shall be issued by an
insurance company (or companies) acceptable to Lender, shall contain
such terms and be in such amounts acceptable to Lender, shall name
Lender as an additional named insured and loss payee, shall provide
Lender with written notice 30 days prior to the expiration,
cancellation, non-renewal, or amendment of such policy (or policies).
Borrower shall, from time to time upon the reasonable request of
Lender, provide Lender with copies of the binder (or binders) and the
policy (or policies) to evidence the coverage required under this
section.
(o) Borrower shall pay when due all taxes, assessments, and
other governmental charges imposed upon it or its assets, franchises,
business, income, or profits before any penalty or interest accrues
thereon, and all claims (including without limitation claims for labor,
services, materials, and supplies) for sums which by law might be a
lien or charge upon any of its assets; provided that (unless any
material item or property would be lost, forfeited, or materially
damaged as a result thereof) Borrower's failure to pay any such tax,
assessment or charge shall not be a default if Borrower pays the same
within 30 days after Borrower becomes aware that the same is overdue or
if it is being diligently contested in good faith by Borrower and, if
such contested charges, together with all interest and penalties
thereon, exceeds $250,000, if Lender is notified in advance of such
contest and receives adequate reserve or other appropriate security
(including without limitation demonstrated financial capacity of
Borrower to pay same) reasonably acceptable to Lender to protect the
Lender against any loss therefrom.
(p) Borrower shall deliver, or cause to be delivered, to
Lender: (i) monthly internally prepared financial statements for
Borrower certified as being true, accurate, and complete by an officer
of Borrower, not later than 50 days after the expiration of each month;
(ii) quarterly and annual covenant compliance certificates for Borrower
certified as being true, accurate, and complete by an officer of
Borrower, relating to those covenants described in ss.11, below, not
later than 50 days after the expiration of each fiscal quarter and 95
days after expiration of each fiscal year, as applicable, of the
Company; (iii) year-end financial statements prepared in accordance
with generally accepted accounting principles for Borrower, audited by
a firm of independent accountants, not later than 95 days after the
expiration of each fiscal year of Borrower; and (iv) all other
information or documentation (financial or otherwise), including
without limitation, financial statements, tax returns, income
statements, balance sheets, accounts receivable and account payable
agings relating to Borrower upon reasonable request of Lender from time
to time.
(q) Borrower has good and marketable title to all of its
properties and assets, including without limitation the Collateral. The
attached Schedule 1 sets forth all real or personal property leased by
Borrower. All such properties and assets are free from liens or
encumbrances, other than (1) the liens in favor of Mellon Bank which
Borrower is causing to be terminated and released of record
contemporaneously with the execution and delivery of this agreement,
and (2) the liens in favor of Navistar International Transportation
Corp., a Delaware corporation ("Navistar"), which are being
subordinated to the liens of Lender pursuant to a subordination
agreement, dated on or about this same date (the "Subordination
Agreement"). The amount of outstanding principal and interest owed by
Borrower to Navistar, at any given point in time, is hereinafter
referred to as the "Subordinated Debt." Borrower shall not cause or
permit any other liens or encumbrances to affect or attach to any such
properties
61
<PAGE> 5
and assets, whether now owned or hereafter acquired, without
the prior written consent of Lender, except for purchase money liens
for assets purchased by Borrower after the Closing.
SECTION 9. EVIDENCE OF TITLE. Prior to the Closing, Borrower shall
furnish to Lender ALTA mortgagee's title insurance commitments with extended
coverage (i.e., without any of the standard exceptions) (the "Title
Commitments") for the Properties (in the amount of $7,500,000 on the Ohio
Property and $5,000,000 on the South Carolina Property), with such provisions
for reinsurance or co-insurance as Lender may require, written by a title
insurance company acceptable to Lender, which bind the title insurance company
to insure Lender that Borrower will have, upon Closing, good and marketable
title to the respective Property covered thereby, and that each Mortgage will be
the first lien on the respective Property to which it applies. The Title
Commitment shall show each Property to be free and clear of all defects, liens,
encumbrances, security interests, restrictions and easements which are not
acceptable to Lender or which would unreasonably interfere with the present use
of such Property. The Title Commitments shall contain all affirmative coverages
and endorsements as may be required by Lender in its discretion, including
without limitation affirmative coverage that the Property covered thereby has
ingress and egress to a publicly dedicated street. The title policies issued
pursuant to the Title Commitments (the "Title Policies") shall be delivered to
Lender within 15 days after the Closing. Both the Title Commitments and the
Title Policies shall show Lender as the insured, and shall contain no exceptions
except those specifically approved by Lender. Prior to Closing, Borrower shall
execute and deliver a no-lien affidavit and such agreements, affidavits,
waivers, bonds, and indemnities as are desired or required by either Lender or
the title insurance company to issue the Title Commitments and Title Policies.
Lender shall be provided with an insured closing letter from the title
insurance company regarding the title agent, if any. Lender reserves the right
to require reinsurance in such amounts and from such companies as may be
acceptable to Lender (such reinsurance to be evidenced by an ALTA Reinsurance
Agreement with provisions for direct access).
SECTION 10. SURVEY AND SURVEYOR'S CERTIFICATION. Prior to the Closing,
Borrower shall furnish to Lender a current survey of each of the Properties
prepared in accordance with the minimum detail requirements for land title
surveys, including without limitation those items set forth in "Table A," as
adopted by the American Land Title Association and the American Congress on
Surveying and Mapping (version 1992) (the "Survey"). The Surveys shall: (a) be
prepared by a surveyor registered in the State in which the Property is located;
and (b) show: (i) all of the boundaries of the Property; (ii) the location of
any improvements on the Property (including all dimensions thereof); (iii) all
easements and encumbrances set forth in the Title Commitment, setback lines,
deviations between survey lines and title lines, rights-of-way, encroachments,
bench marks; and (iv) all utility lines (water, sewer, gas, electric, and
telephone); and (c) depict any other matters requested by Lender. In addition,
the Surveys must contain a full legal description of the Property covered
thereby, certification of square footage and acreage, identification of adjacent
and contiguous streets as well as measurements to the nearest intersection. The
Surveys shall contain a surveyor's certification in form and substance
satisfactory to Lender, including a certification that, other than the area set
forth on the Surveys and disclosed to Lender, the Property is located within a
HUD-designated flood hazard area.
SECTION 11. NEGATIVE COVENANTS. In addition to the affirmative
covenants set forth in ss.8, until such time as the Notes are paid in full and
all of Borrower's obligations under this agreement and the Loan Documents are
satisfied in full, Borrower shall:
(a) Not permit the Maximum Senior Funded Debt to EBITDA Ratio
(as defined below) to exceed 4.0:1.00 as determined at the end of each
fiscal quarter, commencing December 31, 1998, calculated for the four
quarters then ended.
(b) Not permit the Minimum Fixed Charge Coverage Ratio
(defined below) to be less than 1.10:1.00 as determined at the end of
each fiscal quarter, commencing with the quarter ending December 31,
1999, calculated for the four quarters then ended.
(c) Not permit the Minimum Debt Service Coverage Ratio
(defined below) to be less than 1.50:1.00 as determined at the end of
each fiscal quarter, commencing March 31, 1998, for the fiscal quarter
then ended; June
62
<PAGE> 6
30, 1998, for the two fiscal quarters then ended; September 30, 1998,
for the three fiscal quarters then ended; and December 31, 1998, and
each fiscal quarter thereafter for the four quarters then ended.
(d) Not incur Unfunded Capital Expenditures (as defined below)
in excess of $5,500,000 during the fiscal year ending December 31,
1998.
For purposes of this section:
(i) "Maximum Senior Funded Debt to EBITDA Ratio" shall mean
the (A) sum of the commitment amount of the Loan ($7,500,000 as of the
date hereof), the total Sale/Leaseback obligations, and the outstanding
principal balances of the Industrial Development Revenue Bonds and any
other permitted debt (other than the Subordinated Debt) divided by (B)
EBITDA (as defined below).
(ii) "Minimum Fixed Charge Coverage Ratio" shall mean the sum
of EBITDA and rent (lease) expense, including without limitation rent
payments in connection with the Sale/Leaseback and the Operating Lease,
for a given period, divided by the sum of (A) interest expense (which
shall not include interest on the Subordinated Debt which is deferred
and not paid), (B) rent (lease) expense, including without limitation
rent payments in connection with the Sale/Leaseback and Operating
Lease, (C) principal payments on the Subordinated Debt, the Bonds and
any other permitted debt, and (D) Unfunded Capital Expenditures in the
amounts disclosed by Borrower in its financial statements, for such
period.
(iii) "Minimum Debt Service Coverage Ratio" shall mean the sum
of EBITDA and rent (lease) expense, including without limitation rent
payments in connection with the Sale/Leaseback and the Operating Lease,
for a given period, divided by the sum of (A) interest expense (which
shall not include interest on the Subordinated Debt which is deferred
and not paid), (B) rent (lease) expense, including without limitation
rent payments in connection with the Sale/Leaseback and Operating
Lease, and (C) principal payments on the Subordinated Debt, the Bonds
and any other permitted debt, for such period.
(iv) "EBITDA" shall mean, for any period, (A) the sum of the
amounts for such period of (1) net income, (2) interest expense, (3)
charges for federal, state, local and foreign income taxes, (4)
depreciation and amortization expense, and (5) extraordinary losses
(and any unusual losses arising outside the ordinary course of business
not included in extraordinary losses determined in accordance with
generally accepted accounting principles) minus (B) the sum of the
amounts for such period of (1) extraordinary gains (and any unusual
gains arising outside the ordinary course of business not included in
extraordinary gains determined in accordance with generally accepted
accounting principles) and (2) to the extent not deducted from total
interest expense, any net payments received during such period under
interest rate contracts and any interest income received in respect of
cash investments.
(v) "Unfunded Capital Expenditures" shall mean any capital
expenditure made for which no long-term funding source is specifically
available.
SECTION 12. CLOSING DELIVERIES. At or prior to the Closing, Borrower
shall have delivered or cause to be delivered to Lender, unless specifically
waived by Lender in writing, the following items, each of which shall be in form
and content satisfactory to Lender:
(a) Fully-executed originals of this agreement and all of the
Loan Documents.
(b) All items, instruments, documents, insurance policies,
title commitments, surveys, opinions, certificates, and all other
matters and documents required to be furnished by Borrower at or prior
to the Closing under this agreement or any of the Loan Documents or
otherwise required by Lender.
(c) Payment of the Fee and payment or reimbursement of all of
Lender's Costs.
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(d) An environmental audit for each Property prepared by a
firm acceptable to Lender which audit contains findings acceptable to
Lender.
(e) The Surveys as required under ss.10.
(f) Confirmation satisfactory to Lender that no Event of
Default exists and no condition which through notice or passage of time
or both would cause or result in an Event of Default and that all
representations and warranties contained in this agreement and all of
the Loan Documents shall be true and complete in all material respects.
(g) Copies of all applicable governmental permits required to
operate Borrower's business and evidence of, and compliance with, all
governmental laws, regulations, ordinances, and other requirements
pertaining thereto.
(h) The Title Commitments and any affidavits, agreements,
indemnities, or other documentation to be delivered by Borrower to
Lender or the title insurance company in accordance with ss.9.
(i) The Subordination Agreement signed by Navistar, together
with the mortgage subordination and UCC-3 financing statements referred
to therein.
Notwithstanding anything here to the contrary, the agreement
of Lender to execute, deliver and/or accept this agreement and the
other Loan Documents at Closing prior to its receipt of all of the
items listed above shall not be construed as a waiver by Lender of its
right to receive, review and approve such items, nor as a waiver of all
or any of the conditions to disbursement of Loan proceeds under ss.16,
below.
SECTION 13. EVENTS OF DEFAULT. The occurrence of any of the following
events shall be an Event of Default under this agreement and all of the Loan
Documents.
(a) The determination by Lender that any representation or
warranty made by Borrower in this agreement (including without
limitation those representations and warranties set forth in ss.8) or
any of the Loan Documents is untrue or was untrue in any material (as
determined by Lender) respect when made.
(b) The failure by Borrower to pay the full amount of any
installment of interest or principal and interest, within 5 days alter
the same is due under the Note.
(c) The failure by Borrower to perform or observe any
covenant, condition, or obligation contained in this agreement or any
of the Loan Documents (excluding those monetary obligations covered
under (b), above, and excluding the representations and warranties
covered under (a), above) which failure continues uncured for 15 days
after delivery by Lender to Borrower of notice of such failure.
(d) The occurrence of any default described in ss.14.
(e) The filing of a voluntary or involuntary petition in
bankruptcy or insolvency or for reorganization, arrangement,
adjustment, liquidation, dissolution or composition or for the
appointment of a receiver, guardian, or trustee by or against Borrower,
provided that if such petition is an involuntary petition, Borrower
shall have 25 days from the date of such filing to have the same
discharged.
(f) The making of an assignment for the benefit of creditors
by Borrower, or at such time as Borrower fails generally to pay its
debts as they become due.
(g) The appointment of a receiver or trustee for all or any
portion of the Collateral.
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<PAGE> 8
(h) The dissolution, merger, reorganization, or other change
in the corporate structure of Borrower, without the prior written
consent of Lender.
(i) The transfer or attempted transfer by Borrower of any
legal or equitable ownership interest in all or any portion of the
Collateral, except for sales in the ordinary course of Borrower's
business, without the prior written consent of Lender, which consent
may be withheld in Lender's sole discretion.
(j) The determination by Lender that the condition of all or
any portion of the Collateral has deteriorated to the extent that
Lender's security has been materially impaired.
(k) The entry of a material judgment or lien against Borrower
which is not satisfied, discharged or bonded-off, or any collection
action relating to such judgment or lien is not stayed so as to prevent
the issuance of a certificate of judgment against Borrower, within 10
days alter the date of entry of such judgment or lien.
(l) Any change in the financial position of Borrower which, in
the reasonable opinion of Lender, materially and adversely affects
Lender's security position with respect to the Collateral.
(m) The concealment or removal by Borrower of any part of its
property with intent to hinder, delay, or defraud its creditors or any
of them, or the making or suffering of a transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent
conveyance, or similar law, or the making by Borrower of any transfer
of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid, or any other
action by Borrower which results in Borrower permitting any creditor to
obtain a lien upon any of its property through legal proceedings which
is not vacated within 10 days from the date thereof.
(n) The failure by Borrower to pay the full amount of any
payment when due, including any applicable grace period therein, or to
observe or perform any of its other obligations under the Lease
Documents.
(o) The occurrence of any material default by Borrower under
its supply agreement with Navistar.
Upon the occurrence of any of the above-described events,
Lender may declare the Note due and payable upon demand without presentment,
protest, notice, or demand of any kind. Borrower shall not have the opportunity
to cure any default if such failure is incapable of being cured, in Lender's
reasonable discretion, or if the failure is described under any of (a), (b),
(d), (e), (f), (g), (h), (i), (j) and (n).
SECTION 14. CROSS DEFAULT. Any default by Borrower of any obligation of
Borrower to Lender or any of Lender's affiliates, whether or not relating to the
Loan, including without limitation any default under the Lease Documents or the
Letter of Credit Documents, shall constitute an Event of Default under this
agreement and all of the Loan Documents.
SECTION 15. EXISTENCE AND AUTHORITY OPINION OF COUNSEL. At or prior to
the Closing, Borrower shall furnish or cause to be furnished to Lender:
(a) Evidence satisfactory to Lender that Borrower has the
authority under its organizational documents to enter into this
agreement and the Loan Documents, and to perform all of its covenants
and obligations under those documents.
(b) Certified copy of Borrower's certificate of incorporation
filed with the Delaware Secretary of State.
(c) Certificate of foreign qualification (or authorization to
do business) for Borrower from the Secretary of State of the following
jurisdictions:
(i) Ohio, and
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(ii) South Carolina.
(d) Certificate of good standing for Borrower from the
Secretary of State of the following jurisdictions:
(i) Delaware,
(ii) Ohio, and
(iii) South Carolina.
(e) Copy of Borrower's bylaws certified by the Borrower's
secretary.
(f) Certified corporate resolution of Borrower approving the
Loan and authorizing an officer of Borrower to execute this agreement
and all of the Loan Documents on behalf of Borrower.
(g) A written opinion of counsel for Borrower in form and
substance satisfactory to Lender.
SECTION 16. PROCEDURE FOR BORROWING UNDER LOAN. Provided all conditions
described in the following paragraph are satisfied, Borrower may borrow under
the Loan on any Business Day (meaning a day other than a Saturday, Sunday or
other day on which commercial banks in Columbus, Ohio, are authorized or
required by law to close) provided that the Borrower gives the Lender telephonic
or written notice (each, a "Notice of Borrowing") which must be received by the
Lender prior to 1:00 p.m., Columbus, Ohio, time, on the requested Borrowing Date
for each Loan disbursement, specifying (i) the requested Borrowing Date of such
borrowing, which shall be a Business Day and (ii) the aggregate amount of such
requested Borrowing. Each borrowing pursuant to the Loan shall be in an
aggregate principal amount equal to $50,000 plus whole multiples of $5,000. Upon
receipt of each such Notice of Borrowing from the Borrower, the Lender shall
deposit such requested borrowing for the benefit of the Borrower on the
requested Borrowing Date, subject to the satisfaction of the terms and
conditions of this agreement, by crediting the loan account on the books of the
Lender in the amount of such requested borrowing. Lender is hereby authorized,
and may at its option, but shall have no obligation, to record the date and
amount of each borrowing made in connection with the Loan, and the date and the
amount of each payment or prepayment of principal thereof, on its separate
written or electronic records maintained in the ordinary course of its business,
and any such recordation shall constitute prima facie evidence of the accuracy
of the information so recorded; however, the failure of the Lender to make such
recordations shall not effect the obligations of the Borrower to repay
outstanding principal, interest or any other amounts due hereunder or under the
Note in accordance with the terms hereof and thereof.
The obligation of Lender to make disbursements of the Loan to Borrower
pursuant to the Note and this agreement is subject to the full satisfaction, in
the opinion of Lender, of each of the following conditions:
(a) The representations, warranties and covenants made by
Borrower in this agreement or any other Loan Document, and any
representations, warranties and covenants made by Borrower which are
contained in any certificate, document or financial or other statement
furnished at any time under or in connection herewith or therewith,
shall be true and correct in all material respects as of the date the
Lender makes a disbursement to Borrower pursuant to the Revolving Note
(the "Borrowing Date").
(b) No Event of Default shall have occurred and be continuing
on the Borrowing Date.
(c) All resolutions, certificates, corporate and other
proceedings and all other documents and legal matters in connection
with the transactions contemplated by this agreement and the Loan
Documents, shall all have been provided, and shall be in form and
substance reasonably satisfactory to Lender prior to the Borrowing
Date.
(d) No petition for voluntary or involuntary bankruptcy or
insolvency or for reorganization, arrangement, adjustment, liquidation,
dissolution or composition or for the appointment of a receiver,
guardian, or trustee has been filed by or against Borrower.
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Each time Lender provides a loan to Borrower under the Note pursuant to
a request by Borrower, it shall constitute a representation, warranty and
covenant by each Borrower that as of the Borrowing Date the conditions contained
in paragraphs (a), (b), (c) and (d) of this ss.16 have been fully satisfied.
SECTION 17. ASSIGNMENT. No rights under this agreement nor in or to the
proceeds of the Loan may be assigned by Borrower without the prior written
consent of Lender.
SECTION 18. NON-WAIVER. No failure by either party to insist upon
strict compliance with any term of this agreement or to exercise any option,
enforce any right, or seek any remedy upon any default of the other party shall
affect, or constitute a waiver of, the first party's right to insist upon that
strict compliance, exercise that option, enforce that right, or seek that remedy
with respect to that default or any prior, contemporaneous, or subsequent
default. No custom or practice of the parties at variance with any provision of
this agreement shall affect, or constitute a waiver of, either party's right to
demand strict compliance with the provisions of this agreement.
Section 19. NOTICES. All notices and other communications under this
agreement to be made to either Lender or Borrower shall be in writing and shall
be deemed given when delivered personally, telecopied (which is confirmed
electronically), or mailed by certified mail (return receipt requested) or sent
by Federal Express, UPS, or other nationally recognized overnight delivery
service for overnight delivery to that party at the address for that party (or
at such other address for such party as such party shall have specified in
notice to the other party):
(a) If to Lender:
KeyBank, National Association
88 East Broad Street
Columbus, Ohio 43215
Attention: Roger D. Campbell
Telecopy No. (614) 460-3469
With a copy to:
Baker & Hostetler LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215
Attention: Kevin H. Connor, Esq.
Telecopy No. (614) 462-2616
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(b) If to Borrower:
Core Materials Corporation
800 Manor Park Drive
Post Office Box 28183
Columbus, Ohio 43228
Attention: Kevin L. Barnett
Telecopy No. (614) 870-4028
With a copy to:
Vorys, Sater, Seymour & Pease
52 East Gay Street
Columbus, Ohio 43216-1008
Attention: Phil Johnston, Esq.
Telecopy No. (614) 464-6350
SECTION 20. GOVERNING LAW. All questions concerning the validity or
meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance under this agreement shall be construed and
resolved under the laws of Ohio.
SECTION 21. VENUE. The parties to this agreement hereby designate the
Court of Common Pleas of Franklin County, Ohio, as a court of proper
jurisdiction and exclusive venue for any actions or proceedings relating to this
agreement; hereby irrevocably consent to such designation, jurisdiction, and
venue; and hereby waive any objections or defenses relating to jurisdiction or
venue with respect to any action or proceeding initiated in the Court of Common
Pleas of Franklin County, Ohio.
SECTION 22. SEVERABILITY. It is the intention of the parties to comply
fully with all laws and public policies, and this agreement shall be construed
consistently with such laws and public policies to the extent possible. If and
to the extent that any court of competent jurisdiction is unable to so construe
any provision of this agreement and holds that provision to be invalid, that
invalidity shall not affect the remaining provisions of this agreement, which
shall remain in full force and effect.
SECTION 23. TIME IS OF THE ESSENCE. Time is of the essence relating to
this agreement and with respect to all other obligations to be performed under
this agreement, but delay in the exercise by Lender of its rights hereunder
shall not be deemed a waiver of such right by Lender.
SECTION 24. CAPTIONS. The captions at the beginning of the sections and
several subsections of this agreement are not part of the context of this
agreement, but are only labels to assist in locating those sections and
subsections, and shall be ignored in construing this agreement.
SECTION 25. JURY TRIAL WAIVER. Borrower, after consulting or having the
opportunity to consult with legal counsel, knowingly, voluntarily and
intentionally waives any right it may have to a trial by jury in any action or
proceeding based upon or arising out of this agreement or any of the Loan
Documents or any course of conduct, dealings, statements, whether oral or
written, or actions of either party. Borrower shall not seek to consolidate, by
counterclaim or otherwise, any action in which a jury trial has been waived with
any other action in which a jury trial cannot be or has not been waived.
SECTION 26. NO THIRD PARTY BENEFIT. This agreement is intended for the
exclusive benefit of the parties and their respective heirs, successors and
assigns. Nothing contained in this agreement shall be construed as creating any
rights or benefits in or to any third party.
SECTION 27. COMPLETE AGREEMENT. This document, along with the Loan
Documents, contains the entire agreement among the parties and supersedes any
prior discussions, negotiations, representations, or agreements among them
respecting
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the subject matter. No additions or other changes to this agreement
shall be made or be binding unless made in writing and signed by each party to
this agreement.
CORE MATERIALS CORPORATION KEYBANK, NATIONAL ASSOCIATION
By: /S/ KEVIN L. BARNETT By: /s/ ROGER D. CAMPBELL
--------------------------------- ---------------------------
Kevin L. Barnett, Vice President Roger D. Campbell, Senior
and Chief Financial Office Vice President
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Exhibit A
VARIABLE RATE PROMISSORY NOTE
-----------------------------
$7,500,000.00 December _____ , 1997
For value received, the undersigned, Core Materials Corporation, a
Delaware corporation, with offices at 800 Manor Park Drive, Columbus, Ohio 43228
(hereinafter referred to as "Maker") promises to pay to the order of KeyBank,
National Association, a national banking association (hereinafter referred to as
"Payee," which term shall include any holder hereof), at its principal place of
business at 88 East Broad Street, Columbus, Ohio 43215, or at such other place
as Payee may designate, the principal sum of Seven Million Five Hundred Thousand
Dollars ($7,500,000), or so much thereof as may be advanced by Payee to Maker
from time to time, together with all charges herein provided and interest on the
unrepaid advances of said principal sum from date of disbursement by Payee,
payable in cash at the rates and in the manner hereinafter set forth.
ARTICLE I
DEFINITIONS
-----------
1.1 The following terms wherever used in this Note shall have the
following meanings:
"Collateral" shall mean all accounts receivable, equipment, inventory
and mortgage-backed securities owned by Maker, as more particularly described in
the Security Agreement.
"Default Rate of Interest" shall mean the rate equal to two percent per
annum plus the applicable rate of interest being charged hereunder.
"Designated LIBOR Rate" shall mean the applicable LIBOR Rate elected by
Maker in the applicable Interest Rate Notice of Election.
"Designated LIBOR Rate Amount" shall mean the amount of outstanding
principal designated by Maker in an Interest Rate Notice of Election to be
converted from being charged interest hereunder from the variable Rate to a
LIBOR rate; provided that such amount designated by Maker shall not be less than
$250,000.
"Interest Rate Conversion Option" shall mean the option of Maker to
convert the interest rate being charged hereunder on a Designated LIBOR Rate
Amount for the LIBOR Period from the variable Rate to a LIBOR Rate.
"Interest Rate Conversion Date" shall mean that date which is the first
day of the first month immediately following receipt by Payee of an applicable
Interest Rate Notice of Election.
"Interest Rate Notice of Election" shall mean the written or oral
(provided written confirmation is received by Payee by the next business day)
statement of maker to Payee informing Payee of Maker's election to exercise the
Interest Rate Conversion Option and containing such additional information as is
required to permit Payee to effectively convert the rate of interest, including
without limitation the Designated LIBOR Rate Amount.
"LIBOR Business Days" shall mean business days in which dealings in
dollars are carried out in the London Interbank Market.
"LIBOR Period" shall mean a period of time equal in duration to 30
days, but in no event a period extending beyond the Maturity Date.
"LIBOR Rate" shall mean the rate per annum equal to (i) two percent,
plus (ii) a rate determined pursuant to the following formula:
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LONDON INTERBANK RATE
---------------------
100% - LIBOR Reserve Percentage
"LIBOR Reserve Percentage" shall mean the reserve requirement including
any supplemental and emergency reserves (expressed as a percentage) applicable
to member banks of the Federal Reserve System in respect of "Eurocurrency
Liabilities" under Regulation D of the Board of Governors of the Federal Reserve
System, or any substituted or amended reserve requirement hereinafter applicable
to member banks of the Federal Reserve System, which is in effect as of the
applicable Interest Rate Conversion Date and taking into account any
transitional requirements thereto becoming effective during the applicable LIBOR
Period.
"Loan Agreement" shall mean that certain Loan Agreement dated December
___, 1997, pursuant to which the principal amount of this Note is to be
disbursed, by which Payee agrees to loan funds to Maker pursuant to the terms
and conditions stated therein.
"Loan Documents" shall collectively mean this Note, the Security
Agreement, Loan Agreement and any other instrument, affidavit, certificate or
document heretofore, now or hereafter given by Maker in connection with the
closing of the loan evidenced by this Note.
"London Interbank Market" shall mean the buying and selling of dollar
deposits payable outside the United States of America between Payee and other
financial institutions in the ordinary course of Payee's business.
"London Interbank Rate" shall mean the per annum rate of interest
(rounded upward to the nearest 1/8 of 1%) at which United States dollar deposits
in immediately available and freely transferable funds, would be offered to
Payee on the applicable Interest Rate Conversion Date as of 10:00 a.m. New York
City time (or at such time on the next LIBOR Business Day closest to the
Interest Rate Conversion Date), which deposits are in immediately available
funds, for a period comparable to the applicable LIBOR Period and in an amount
comparable to the specified Designated LIBOR Rate Amount.
"Maturity Date" shall mean November 30, 1999.
"Note" shall mean this Variable Rate Cognovit Promissory Note.
"Prime Rate" shall mean the interest rate established and announced
from time to time by Maker as its prime rate, based upon its consideration of
economic, money market, business and competitive factors, and it is not
necessarily the most favorable rate of Maker. Each change in said Prime Rate
shall, without notice, automatically and immediately change the rate of interest
due hereon.
"Rate Quote" shall mean any rate quoted to Maker by Payee in response
to a Rate Quote Request, which response may be made either verbally or in
writing and shall include the duration of the quote. If the quote is verbal,
Payee's internal rate sheet on the date of such quote shall be conclusive
evidence of the rate quoted. Unless specified otherwise, a Rate Quote shall be
deemed valid for 24 hours.
"Rate Quote Request" shall mean a request by Maker to Payee to quote
any rate of interest available hereunder pursuant to Maker's Interest Rate
Conversion Option, which request shall be made either verbally or in writing and
shall contain all necessary information required by Payee in order to give a
Rate Quote.
"Reconversion Date" shall mean the first day immediately following the
last day of the applicable LIBOR Period.
"Security Agreement" shall mean a certain Security Agreement dated
December ___, 1997, pursuant to which Maker has granted to Payee a security
interest in the Collateral to secure payment of this Note.
"Variable Rate" shall mean the rate equal to the Prime Rate.
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ARTICLE II
PAYMENTS OF PRINCIPAL AND INTEREST
----------------------------------
2.1 From and after the date of this Note, interest on the unrepaid
advances of the principal sum from date of disbursement by Payee at the Variable
Rate shall be due and payable monthly on the first day of each month commencing
January, 1998, and continuing on the first day of each month thereafter through
the Maturity Date. Notwithstanding the foregoing, Maker shall have the option to
convert the interest rate charged on all or portions of the outstanding
principal balance to a LIBOR Rate as set forth in Section 2.2 hereof. In the
event Maker shall effectively convert the interest charged on all or portions of
the outstanding principal balance pursuant to Section 2.2, interest on such
portions shall accrue and be due and payable as set forth in Section 2.2.
2.2 Maker may, at any time, exercise Maker's Interest Rate Conversion
Option to convert the interest rate payable hereunder on a Designated LIBOR Rate
Amount from the variable Rate to a LIBOR Rate for the LIBOR Period. Maker shall
be entitled to request a Rate Quote from Payee by submitting a Rate Quote
Request. In the event Maker desires to accept a Rate Quote, Maker shall deliver
to Payee an Interest Rate Notice of Election. In the event Maker shall
effectively elect a LIBOR Rate, commencing on the applicable Interest Rate
Conversion Date, interest on the applicable Designated LIBOR Rate Amount shall
accrue at the LIBOR Rate indicated in the applicable Rate Quote and interest
payments shall be due and payable monthly at such LIBOR Rate for the applicable
LIBOR Period, commencing on the first day of the first month next immediately
following the applicable Interest Rate Conversion Date and continuing through
the applicable Reconversion Date, at which time the interest rate payable
hereunder on such Designated LIBOR Rate Amount shall automatically reconvert to
the Variable Rate and monthly payments shall be due and payable in accordance
with Section 2.1, above, thereafter throughout the balance of the term of this
Note, unless reconverted by Maker's re-exercise of an Interest Rate Conversion
Option, in which case a new LIBOR Rate and LIBOR Period shall then be
determined.
2.3 All interest payable in accordance with this Note shall be
calculated on the basis of the actual number of calendar days elapsed but
computed on a daily basis as if each year consisted of 360 days.
2.4 All principal and all accrued and unpaid interest shall be due and
payable in full on the Maturity Date.
2.5 In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect, or any interpretation
or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by Payee with any
request or directive of any such authority (whether or not having the force of
law) (each of the foregoing being referred to as a "Regulatory Requirement"),
shall (a) affect the basis of taxation or payments to Payee of any Designated
LIBOR Rate Amount under this Note (other than taxes imposed on the overall net
income of Payee by the jurisdiction, or by any political subdivision or taxing
authority of any such jurisdictions in which Payee has its principal office), or
(b) shall impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by Payee, or (c) shall impose any other condition, requirement
or charge with respect to this Note or the Loan Documents (including, without
limitation, any capital adequacy requirement, any requirement which affects the
manner in which Payee allocates capital resources to its commitments or any
similar requirement), and the result of any of the foregoing change in external
conditions is to increase the actual cost to Payee of making or maintaining the
loan evidenced by this Note (the "Loan") or any advance hereunder, to reduce the
actual amount of any sum receivable by Payee thereon, or to reduce the actual
rate of return on the capital of Payee from the actual cost, sum receivable or
rate of return applicable on the date of this Note, then Maker shall pay to
Payee, from time to time, upon request of Payee, additional amounts sufficient
to compensate Payee for such increased cost, reduced sum receivable or reduced
rate of return (collectively, "Reduced Earnings") to the extent Payee is not
compensated therefor in the computation of the interest rates applicable to the
Loan. A detailed statement as to the amount of such increased cost, reduced sum
receivable or reduced rate of return, prepared in good faith and submitted by
Payee to Maker, shall be conclusive and binding for all purposes, absent
manifest error in determination. Payee shall promptly notify Maker of any event
occurring after the date of this Note that entitles Payee to additional
compensation pursuant to this Section. This provision is for the benefit of
Payee and is not intended to increase the yield to payee above the rates of
interest provided for in this Note.
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<PAGE> 16
2.6 Notwithstanding any other provision of this Note to the contrary,
if, upon receiving an Interest Rate Notice of Election (a) deposits in U.S.
dollars for periods comparable to the LIBOR Period are not available to Payee in
the London Interbank Market, or (b) the LIBOR Rate will not accurately cover the
cost to Payee of making or maintaining the related Designated LIBOR Rate Amount,
or (c) by reason of national or international financial, political or economic
conditions or by reason of any applicable Regulatory Requirement, including
without limitation exchange controls, it is unlawful, impossible or unduly
burdensome for Payee (i) to advance the relevant Designated LIBOR Rate Amount or
(ii) to continue any outstanding sum as a Designated LIBOR Rate Amount or (iii)
to convert any outstanding sum to a Designated LIBOR Rate Amount, then Maker
shall not be entitled, so long as such circumstances continue, to request a
Designated LIBOR Rate Amount or a continuation of or conversion to the LIBOR
Rate for any such outstanding sum from Payee. In the event that such
circumstances no longer exist, Payee shall again consider requests for
Designated LIBOR Rate Amounts and requests for continuation of and conversions
to such advances.
2.7 In the event that any Regulatory Requirement, including without
limitation exchange controls, shall make it unlawful or impossible for Payee to
maintain any Designated LIBOR Rate Amount under this Note, the Maker shall after
receipt of notice thereof from Payee, repay in full the then-outstanding
principal amount of all Designated LIBOR Rate Amounts together with all accrued
interest thereon to the date of payment and all amounts due to the affected
Payee under Section 2.8, (a) on the last day of the then-current LIBOR Period,
if any, applicable to such Designated LIBOR Rate Amount, if Payee may lawfully
continue to maintain such Designated LIBOR Rate Amount of such day, or (b)
immediately if Payee may not continue to maintain such Designated LIBOR Rate
Amount to such day. This provision is for the benefit of Payee and is not
intended to increase the yield to Payee above the rates of interest provided for
in this Note. This Section 2.7 shall apply only as long as such illegality
exists. Payee shall use reasonable, lawful efforts to avoid the impact of such
law, treaty, rule or regulation. As an alternative to the repayment obligation
provided in this Section 2.7, Maker may, at its option, and at the time provided
in this Section 2.7, convert any affected advance or a portion thereof to the
Variable Rate or to any Designated LIBOR Rate Amount of a duration that remains
unaffected by the foregoing external conditions, in each case accompanied by the
payment of all accrued interest on the affected advance to the date of
conversion and all amounts due to Payee under Section 2.8.
2.8 If Maker makes any payment of principal with respect to any
Designated LIBOR Amount on any other date than the last day of a LIBOR Period
applicable thereto or if Maker fails to borrow any Designated LIBOR Amount after
notice has been given to Payee in accordance with Section 2.2, or fails to make
any payment of principal or interest in respect of a Designated LIBOR Amount
when due or at the Maturity Date, the Maker shall reimburse Payee on demand for
any resulting actual and direct loss or expense incurred by Payee, determined in
Payee's reasonable opinion, including without limitation any loss incurred in
obtaining, liquidating or employing deposits from third parties. A detailed
statement as to the amount of such loss or expense, prepared in good faith and
submitted by Payee to Maker, shall be conclusive and binding for all purposes
absent manifest error in determination. This provision is for the benefit of
Payee and is not intended to increase the yield to Payee above the rates of
interest provided for in this Agreement.
2.9 The provisions of sections 2.5 and 2.8 shall survive the
termination and payment in full of this Note.
ARTICLE III
LATE CHARGES
------------
3.1 If any of said payments of principal or interest or any combination
thereof are not paid in full within five days after such payment is due, then in
addition to the amount of said payment there shall be due, and Maker promises to
pay, a late charge in respect of each said payment in the amount of 5% which
Maker agrees is a fair and reasonable charge for costs incurred by Payee in
processing such late payment and shall not be deemed a penalty.
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ARTICLE IV
PREPAYMENT
----------
4.1 This Note evidences a loan in the form of a revolving line of
credit, and Maker may, subject to the applicable provisions under this Note and
the Loan Agreement, borrow, repay, and reborrow sums an unlimited number of
times.
4.2 In the event the applicable rate of interest charged hereunder is
the Variable Rate, the privilege is hereby reserved by Maker to prepay this Note
in whole or in part at any time and from time to time without premium or
penalty, provided that Payee shall receive written notice of Maker's intention
to so prepay not less than three days prior to such prepayment and further
provided that a payment of all accrued and unpaid interest applicable to the
portion of the principal amount to be prepaid, to the date of such prepayment,
is included with such prepayment.
4.3 In the event the applicable rate of interest charged hereunder is
the LIBOR Rate, Maker may prepay this Note, provided that Payee shall receive
written notice of Maker's intention to so prepay not less than three business
days prior to such prepayment date ("LIBOR Prepayment Notice") and provided
further that: (a) such prepayment shall be of one or more Designated LIBOR Rate
Amount(s) in full (no partial prepayment of any Designated LIBOR Rate Amount is
permitted); (b) Maker shall indicate on the LIBOR Prepayment Notice which
Designated LIBOR Rate Amount(s) are to be prepaid ("Prepayment Amount"); and (c)
concurrently with such prepayment Maker shall pay all accrued interest and any
late charge or charges then due and owing on the Prepayment Amount. Maker may
prepay this Note on the last day of a LIBOR Period in whole or in part without
premium or penalty provided that Payee shall receive written or oral notice of
Maker's. intention to so prepay not less than one business day prior to such
prepayment and further provided that a payment of all accrued and unpaid
interest applicable to the portion of the principal amount to be prepaid, to the
date of such prepayment, is included with such prepayment.
ARTICLE V
DEFAULT
-------
5.1 The term "Event of Default" shall mean the occurrence of any one or
more of the following:
(a) A failure by Maker to make any payment of principal or
interest or any combination thereof under this Note within 5 days after the same
is due.
(b) The material incorrectness of any representation or
warranty made by Maker to Payee in any of the Loan Documents or any financial
statement or other document delivered to Payee in connection with the Loan.
(c) The inability of Maker to satisfy any one or more of the
conditions specified in the Loan Agreement as precedent to the obligation of
Payee to make a loan disbursement after an application for a loan disbursement
has been submitted by Maker to Payee.
(d) The failure of Maker to observe, perform or comply with
any of the other terms, covenants or conditions of Maker set forth in the Loan
Documents and to cure such failure within the time period, if any, specified
therein.
5.2 Upon the occurrence of any Event of Default, the entire unpaid
balance of principal and interest evidenced by this Note, together with all sums
of money advanced by Payee in accordance with the terms of any one or more of
the Loan Documents, and all sums due and owing for any late charge or charges
hereunder (the foregoing being hereinafter collectively referred to as the
"Indebtedness") shall thereupon bear interest at the Default Rate of Interest,
and at the option of Payee, all the Indebtedness together with interest at the
Default Rate of Interest shall immediately become due and payable
("Acceleration") without demand made therefor and without notice to any person,
notice of the exercise of said option being hereby expressly waived, and Payee
shall have all remedies of a secured party under law and equity to enforce the
payment of all of the Indebtedness, time being of the essence of this Note. The
Default Rate of Interest shall be charged to Maker upon the occurrence of any
Event of Default notwithstanding any invoices or billing statements sent by
Payee to Maker
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indicating an interest rate to the contrary. In addition, any waiver of Payee's
right to charge the Default Rate of Interest or to accelerate the Indebtedness
must be made in writing and cannot be waived by oral representation or the
submission to Maker of monthly billing statements.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 The failure of Payee to exercise any option herein provided upon
the occurrence of any Event of Default shall not constitute a waiver of the
right to exercise such option in the event of any continuing or subsequent Event
of Default. Maker hereby agrees that the maturity of all or any part of the Loan
may be postponed or extended and that any covenants and conditions contained in
this Note or in any of the other Loan Documents may be waived or modified
without prejudice to the liability of Maker on said Note or Loan Documents.
6.2 When this Note becomes due, by Acceleration or otherwise, Payee
may, at its option, demand, sue for, collect or make any compromise or
settlement it deems desirable with reference to property held as security
herefor. Payee shall not be bound to take any steps necessary to preserve any
rights in the property held as security herefor against prior parties, which
Maker hereby assumes to do. Maker expressly authorizes Payee to deal in any
manner with any collateral and the security of every kind and character given to
secure she payment of Maker's obligations under this Note, and without limiting
the generality of the foregoing, Maker expressly authorizes Payee to waive any
rights which Payee may have relative to requiring additional collateral or to
surrendering or to releasing collateral held by Payee, or to substituting any
Collateral held by Payee for other collateral of like kind, or of any kind, nor
shall the obligations of Maker under this Note, nor the rights of Payee under
the Loan Documents be diminished or in any manner affected by the failure of
Payee to exercise its rights with reference to such collateral or in any manner
failing to proceed against the collateral or security pledged or conveyed as
security for the obligations of Maker under this Note. The provisions hereof
shall apply and be controlling as to all properly which may at any time be
security herefor.
6.3 Maker hereby authorizes Payee, in its sole discretion, upon the
occurrence of an Event of Default, to apply all or any portion of the balance of
any account maintained by Maker with Payee to the payment or reduction, in whole
or in part, of any and all principal and interest then due, whether by
acceleration or otherwise, to Payee under this Note. Upon the occurrence of any
Event of Default, Payee shall have the right to setoff against all obligations
of Maker to Payee hereunder, whether matured or unmatured, all amounts owing to
Maker by Payee, whether or not then due and payable, and all other funds or
property of Maker on deposit with or otherwise held in the custody of Payee or
any of its affiliates, all without notice to or demand on Maker, such notice and
demand being hereby waived.
6.4 Presentment for payment, notice of dishonor, protest, notice of
protest and diligence in bringing suit against any party hereto are hereby
waived by Maker.
6.5 Maker hereby waives all relief from any and all appraisement or
exemption laws now in force or hereafter enacted.
6.6 The obligations evidenced or created by this Note, as well as all
waivers of rights by Maker contained herein shall effectively bind and be the
obligations and waivers of any and all others who may at any time become liable
for the payment of all or any part of this Note, including, without limitation,
all indorsers and guarantors.
6.7 Nothing herein contained, nor in any of the other Loan Documents or
other documents relating hereto, shall be construed or so operate as to require
Maker, or any person liable for the payment of the Loan, to pay interest in an
amount or at a rate greater than the highest rate permissible under applicable
law. Should any interest or other charges paid by Maker, or any parties liable
for the payment of the Loan, result in the computation or earning of interest in
excess of the highest rate permissible under applicable law, then any and all
such excess shall be and the same is hereby waived by Payee, and all such excess
shall be automatically credited against and in reduction of the principal
balance, and any portion of said excess which exceeds the principal balance
shall be paid by Payee to Maker and any parties liable for the payment of the
loan made pursuant to this Note, it being the intent of the parties hereto that
under no circumstances shall Maker or any parties
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liable for the payment of the loan hereunder, be required to pay interest in
excess of the highest rate permissible under applicable law. All Interest paid
or agreed to be paid to Payee shall, to the extent permitted under applicable
law, be amortized, prorated, allocated and spread throughout the full period
until payment in full of this Note, including the period of any renewal or
extension thereof, so that interest thereon for such full period shall not
exceed the maximum amount permitted by applicable law.
Notwithstanding anything to the contrary herein contained, in
the event that the Variable Rate should ever exceed the highest rate permissible
under applicable law, thereby causing the interest accruing on the Indebtedness
to be limited to such highest rate permissible under applicable law, then any
subsequent reduction in the Prime Rate shall not reduce the rate of interest
charged hereunder below the highest rate permissible under applicable law until
the total amount of interest accrued on the Indebtedness equals the amount of
interest which would have accrued on such indebtedness if the Variable Rate had
been in effect at all times in the period during which the rate charged thereon
was limited to the highest rate permissible under applicable law.
6.8 Maker acknowledges and agrees that all property pledged or assigned
by Maker to Payee as security for this Note has been pledged or assigned as
security for the entirety of all Indebtedness.
6.9 If any provision (or any part of any provision) contained in this
Note shall for any reason be held or deemed to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision (or remaining part of the affected
provision) of this Note, and this Note shall be construed as if such invalid,
illegal or unenforceable provision (or part thereof) had never been contained
herein and the remaining provisions of this Note shall remain in full force and
effect.
6.10 Maker hereby agrees to pay to Payee all costs of collecting and
securing, and of attempting to collect and to secure this Note, and all costs of
foreclosing the Mortgage, including, without limitation, reasonable attorneys'
fees, appraisers' fees, court costs, notice charges and title insurance charges,
whether such attempt by made by suit, in bankruptcy, or otherwise, and said
costs and any other sums due Payee by virtue of this Note or the Mortgage may be
included in any judgment or decree rendered.
This Note is delivered in the State of Ohio and is to be governed by
and construed in accordance with the laws of the State of Ohio. In addition to
any other appropriate jurisdiction determined by Payee, Maker hereby consents
to, and by execution of this Note, submits to the personal jurisdiction of the
Court of Common Pleas of Franklin County, Ohio and the United States District
Court sitting in Columbus, Ohio for the purposes of any judicial proceedings
which are instituted for the enforcement of this Note. Maker agrees that venue
is proper in said jurisdiction.
CORE MATERIALS CORPORATION
By
---------------------------------
Its
---------------------------------
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EXHIBIT 10(f)
MASTER EQUIPMENT LEASE AGREEMENT
--------------------------------
THIS MASTER EQUIPMENT LEASE AGREEMENT is made and dated effective as of
December 2, 1997 by and between KEYCORP LEASING, A DIVISION OF KEY CORPORATE
CAPITAL INC., a Michigan corporation with its principal place of business at 54
State Street, Albany, New York 12207 ("Lessor"), and CORE MATERIALS CORPORATION,
a Delaware corporation, with its principal place of business at 800 Manor Park
Drive, Columbus, Ohio 43228 ("Lessee").
TERMS AND CONDITIONS OF LEASE
1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Equipment, subject to and upon the terms and conditions set forth
herein. Each Equipment Schedule shall constitute a separate and enforceable
lease incorporating all the terms and conditions of this Master Equipment Lease
Agreement as if such terms and conditions were set forth in full in such
Equipment Schedule. In the event that any term or condition of any Equipment
Schedule conflicts with or is inconsistent with any term or condition of this
Master Equipment Lease Agreement, the terms and conditions of the Equipment
Schedule shall govern.
2. DISCLAIMER OF WARRANTIES. LESSOR MAKES NO (AND SHALL NOT BE DEEMED
TO HAVE MADE ANY) WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE DESIGN, OPERATION OR CONDITION OF, OR THE
QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE STATE OF TITLE
THERETO OR ANY COMPONENT THERETO, THE ABSENCE OF LATENT OR OTHER DEFECTS
(WHETHER OR NOT DISCOVERABLE), AND LESSOR HEREBY DISCLAIMS THE SAME; IT BEING
UNDERSTOOD THAT THE EQUIPMENT IS LEASED TO LESSEE "AS IS" AND ALL SUCH RISKS, IF
ANY, ARE TO BE BORNE BY LESSEE. NO DEFECT IN, OR UNFITNESS OF, THE EQUIPMENT, OR
ANY OF THE OTHER FOREGOING MATTERS, SHALL RELIEVE LESSEE OF THE OBLIGATION TO
PAY RENT OR OF ANY OTHER OBLIGATION HEREUNDER. LESSEE HAS MADE THE SELECTION OF
THE EQUIPMENT FROM THE SUPPLIER BASED ON ITS OWN JUDGMENT AND EXPRESSLY
DISCLAIMS ANY RELIANCE UPON ANY STATEMENTS OR REPRESENTATIONS MADE BY LESSOR.
LESSOR IS NOT RESPONSIBLE FOR ANY REPAIRS, SERVICE, MAINTENANCE OR DEFECT IN THE
EQUIPMENT OR THE OPERATION THEREOF. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (WHETHER UNDER THE UCC OR OTHERWISE),
INCLUDING, WITHOUT LIMITATION, ANY LOSS, COST OR DAMAGE TO LESSEE OR OTHERS
ARISING FROM ANY OF THE FOREGOING MATTERS, INCLUDING, WITHOUT LIMITATION,
DEFECTS, NEGLIGENCE, DELAYS, FAILURE OF DELIVERY OR NON-PERFORMANCE OF THE
EQUIPMENT. ANY WARRANTY BY THE SUPPLIER IS HEREBY ASSIGNED TO LESSEE BY LESSOR
WITHOUT RECOURSE. SUCH WARRANTY SHALL NOT RELEASE LESSEE FROM ITS OBLIGATION TO
LESSOR TO PAY RENT, TO PERFORM ALL OTHER OBLIGATIONS HEREUNDER AND TO KEEP,
MAINTAIN AND SURRENDER THE EQUIPMENT IN THE CONDITION REQUIRED BY SECTIONS 12
AND 13 HEREOF. Lessee's execution and delivery of a Certificate of Acceptance
shall be conclusive evidence as between Lessor and Lessee that the Items of
Equipment described therein are in all of the foregoing respects satisfactory to
Lessee, and Lessee shall not assert any claim of any nature whatsoever against
Lessor based on any of the foregoing matters; PROVIDED, HOWEVER, that nothing
contained herein shall in any way bar, reduce or defeat any claim that Lessee
may have against the Supplier or any other person (other than Lessor).
3. NON-CANCELABLE LEASE. THIS LEASE IS A NET LEASE AND LESSEE'S
OBLIGATION TO PAY RENT AND PERFORM ITS OBLIGATIONS HEREUNDER ARE ABSOLUTE,
IRREVOCABLE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES WHATSOEVER AND
SHALL NOT BE SUBJECT TO ANY RIGHT OF SET OFF, COUNTERCLAIM, DEDUCTION, DEFENSE
OR OTHER RIGHT, WHETHER BY STATUTE OR OTHERWISE, WHICH LESSEE MAY HAVE AGAINST
THE SUPPLIER, LESSOR OR ANY OTHER PARTY. LESSEE SHALL HAVE NO RIGHT TO TERMINATE
(EXCEPT AS EXPRESSLY PROVIDED HEREIN) OR
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CANCEL THIS LEASE OR TO BE RELEASED OR DISCHARGED FROM ITS OBLIGATION HEREUNDER
FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DEFECTS IN,
DESTRUCTION OF, DAMAGE TO OR INTERFERENCE WITH ANY USE OF THE EQUIPMENT (FOR ANY
REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WAR, ACT OF GOD, STRIKE OR
GOVERNMENTAL REGULATION), THE INVALIDITY, ILLEGALITY OR UNENFORCEABILITY (OR ANY
ALLEGATION THEREOF) OF THIS LEASE OR ANY PROVISION HEREOF, OR ANY OTHER
OCCURRENCE WHATSOEVER, WHETHER SIMILAR OR DISSIMILAR TO THE FOREGOING, WHETHER
FORESEEN OR UNFORESEEN.
4. DEFINITIONS. Unless the context otherwise requires, as used in this
Lease, the following terms shall have the respective meanings indicated below
and shall be equally applicable to both the singular and the plural forms
thereof:
(a) "APPLICABLE LAW" shall mean all applicable Federal, state,
local and foreign laws (including, without limitation, any Environmental Law,
industrial hygiene and occupational safety or similar laws), ordinances,
judgments, decrees, injunctions, writs and orders of any Governmental Authority
and rules, regulations, orders, licenses and permits of any Governmental
Authority.
(b) "APPRAISAL PROCEDURE" shall mean the following procedure
for obtaining an appraisal of the Fair Market Sales Value or the Fair Market
Rental Value. Lessor shall provide Lessee with the names of three independent
Appraisers. Within ten (10) business days thereafter, Lessee shall select one of
such Appraisers to perform the appraisal. If Lessor and Lessee cannot agree upon
an Appraiser, each shall select one Appraiser, and the two selected Appraisers
shall select a third Appraiser. The selected Appraiser(s) shall be instructed to
perform its appraisal based upon the assumptions specified in the definition of
Fair Market Sales Value or Fair Market Rental Value, as applicable, and shall
complete its appraisal within twenty (20) business days after such selection.
Any such appraisal shall be final, binding and conclusive on Lessee and Lessor
and shall have the legal effect of an arbitration award. Lessee shall pay the
fees and expenses of the selected Appraiser, and if more than one Appraiser is
required, Lessee and Lessor shall each pay for the fees and expenses of the
Appraiser each selected, and shall each pay one-half of the fees and expenses of
the third Appraiser.
(c) "APPRAISER" shall mean a person engaged in the business of
appraising property that has at least ten years' experience in appraising
property similar to the Equipment.
(d) "AUTHORIZED SIGNER" shall mean those officers of Lessee,
set forth on an incumbency certificate (in form and substance satisfactory to
Lessor) delivered by Lessee to Lessor, who are authorized and empowered to
execute this Lease, the Equipment Schedules and all other documents the
execution of which is contemplated hereby.
(e) "CERTIFICATE OF ACCEPTANCE" shall mean a certificate of
acceptance, in form and substance satisfactory to Lessor, executed and delivered
by Lessee in accordance with Section 7 hereof indicating, among other things,
that the Equipment described therein has been accepted by Lessee for all
purposes of this Lease.
(f) "DEFAULT" shall mean any event or condition which, with
the passage of time or the giving of notice, or both, would constitute an Event
of Default.
(g) "ENVIRONMENTAL LAW" shall mean any federal, state, or
local statute, law, ordinance, code, rule, regulation, or order or decree
regulating, relating to or imposing liability upon a person in connection with
the use, release or disposal of any hazardous, toxic or dangerous substance,
waste, or material as same may relate to the Equipment or its operation.
(h) "EQUIPMENT" shall mean an item or items of personal
property designated from time to time by Lessee which are described on an
Equipment Schedule and which are being or will be leased by Lessee pursuant to
this Lease, together with all replacement parts, additions and accessories
incorporated therein or affixed thereto.
(i) "EQUIPMENT GROUP" shall consist of all Items of Equipment
listed on a particular Equipment Schedule.
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(j) "EQUIPMENT LOCATION" shall mean the location of the
Equipment, as set forth on an Equipment Schedule, or such other location
(approved by Lessor) as Lessee shall from time to time specify in writing.
(k) "EQUIPMENT SCHEDULE" shall mean each equipment lease
schedule from time to time executed by Lessor and Lessee with respect to an
Equipment Group, pursuant to and incorporating by reference all of the terms and
conditions of this Master Equipment Lease Agreement.
(l) "EVENT OF DEFAULT" shall have the meaning specified in
Section 22 hereof.
(m) "FAIR MARKET RENTAL VALUE" or "FAIR MARKET SALE VALUE"
shall mean the value of each Item of Equipment for lease or sale, unless
otherwise specified herein as determined between Lessor and Lessee, or, if
Lessor and Lessee are unable to agree, pursuant to the Appraisal Procedure,
which would be obtained in an arms-length transaction between an informed and
willing lessor or seller (under no compulsion to lease or sell) and an informed
and willing lessee or buyer (under no compulsion to lease or purchase). In
determining the Fair Market Rental Value or Fair Market Sale Value of the
Equipment, (a) such Fair Market Rental Value or Fair Market Sale Value shall be
calculated on the assumption that the Equipment is in the condition and repair
required by Sections 12 and 13 hereof, and (b) there shall be excluded from the
calculation thereof the value of any upgrades and attachments made pursuant to
Section 14 hereof in which the Lessor does not own an interest; PROVIDED,
HOWEVER, that, unless otherwise provided in such Section 22, for purposes of
Section 22 of the Lease, Fair Market Sale Value of the Equipment shall be
determined based upon the actual facts and circumstances then prevailing without
regard to the assumptions in clause (a) above.
(n) "GOVERNMENTAL ACTION" shall mean all authorizations,
consents, approvals, waivers, filings and declarations of any Governmental
Authority, including, without limitation, those environmental and operating
permits required for the ownership, lease, use and operation of the Equipment.
(o) "GOVERNMENTAL AUTHORITY" shall mean any foreign, Federal,
state, county, municipal or other governmental authority, agency, board or
court.
(p) "GUARANTOR" shall mean any guarantor of Lessee's
obligations hereunder.
(q) "ITEM OF EQUIPMENT" shall mean each item of the Equipment.
(r) "LATE PAYMENT RATE" shall mean an annual interest rate
equal to the lesser of 18% or the maximum interest rate permitted by Applicable
Law.
(s) "LEASE", "HEREOF", "HEREIN and "HEREUNDER" shall mean,
with respect to an Equipment Group, this Master Equipment Lease Agreement and
the Equipment Schedule on which such Equipment Group is described, including all
addenda attached thereto and made a part thereof.
(t) "Lien" shall mean all mortgages, pledges, security
interests, liens, encumbrances, claims or other charges of any kind whatsoever.
(u) "PURCHASE AGREEMENT" shall mean any purchase agreement or
other contract entered into between the Supplier and Lessee for the acquisition
of the Equipment to be leased hereunder.
(v) "RELATED EQUIPMENT SCHEDULE" shall have the meaning set
forth in Section 27 hereof.
(w) "RENEWAL NOTICE" shall have the meaning set forth in
Section 32 hereof.
(x) "RETURN NOTICE" shall have the meaning set forth in
Section 13 hereof.
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(y) "RENT" shall mean the periodic rental payments due
hereunder for the leasing of the Equipment, as set forth on the Equipment
Schedules, and, where the context hereof requires, all such additional amounts
as may from time to time be payable under any provision of this Lease.
(z) "RENT COMMENCEMENT DATE" shall mean, with respect to an
Equipment Group, the date on which Lessor disburses funds for the purchase of
such Equipment Group, as determined by Lessor in its sole discretion.
(aa) "RENT PAYMENT DATE" with respect to an Equipment Group,
shall have the meaning set forth in the Equipment Schedule associated therewith.
(ab) "STIPULATED LOSS VALUE" shall mean, as of any Rent
Payment Date and with respect to an Item of Equipment, the amount determined by
multiplying the Total Cost for such Item of Equipment by the percentage
specified in the applicable Stipulated Loss Value Supplement opposite such Rent
Payment Date.
(ac) "STIPULATED LOSS VALUE SUPPLEMENT" with respect to an
Equipment Group, shall have the meaning set forth in the Equipment Schedule
associated therewith.
(ad) "SUPPLIER" shall mean the manufacturer or the vendor of
the Equipment, as set forth on each Equipment Schedule.
(ae) "TERM" shall mean the Initial Term, as defined in Section
8 hereof, and any Renewal Term, as defined in Section 8 hereof.
(af) "TOTAL COST" shall mean, with respect to an Item of
Equipment, (1) the acquisition cost of such Item of Equipment (including
Lessor's capitalized costs), as set forth on the Equipment Schedule on which
such Item of Equipment is described, or (2) if no such acquisition cost is
specified, the Supplier's invoice price for such Item of Equipment plus Lessor's
capitalized costs, or (3) if no such acquisition cost is specified and no such
invoice price is obtainable, an allocated price for such Item of Equipment based
on the Total Cost of all Items of Equipment set forth on the Equipment Schedule
on which such Item of Equipment is described, as determined by Lessor in its
sole discretion.
5. SUPPLIER NOT AN AGENT. LESSEE UNDERSTANDS AND AGREES THAT (i)
NEITHER THE SUPPLIER, NOR ANY SALES REPRESENTATIVE OR OTHER AGENT OF THE
SUPPLIER, IS (1) AN AGENT OF LESSOR OR (2) AUTHORIZED TO MAKE OR ALTER ANY TERM
OR CONDITION OF THIS LEASE, AND (ii) NO SUCH WAIVER OR ALTERATION SHALL VARY THE
TERMS OF THIS LEASE UNLESS EXPRESSLY SET FORTH HEREIN.
6. ORDERING EQUIPMENT. Lessee has selected and ordered the Equipment
from the Supplier and, if appropriate, has entered into a Purchase Agreement
with respect thereto. Lessor shall accept an assignment from Lessee of Lessee's
rights, but none of Lessee's obligations, under any such Purchase Agreement.
Lessee shall arrange for delivery of the Equipment so that it can be accepted in
accordance with Section 7 hereof. If an Item of Equipment is subject to an
existing Purchase Agreement between Lessee and the Supplier, Lessee warrants
that such Item of Equipment has not been delivered to Lessee as of the date of
the Equipment Schedule applicable thereto. If Lessee causes the Equipment to be
modified or altered, or requests any additions thereto prior to the Rent
Commencement Date, Lessee (i) acknowledges that any such modification,
alteration or addition to an Item of Equipment may affect the Total Cost, taxes,
purchase and renewal options, if any, Stipulated Loss Value and Rent with
respect to such Item of Equipment, and (ii) hereby authorizes Lessor to adjust
such Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss
Value and Rent as appropriate. Lessee hereby authorizes Lessor to complete each
Equipment Schedule with the serial numbers and other identification data of the
Equipment Group associated therewith, as such data is received by Lessor.
7. DELIVERY AND ACCEPTANCE. Upon acceptance for lease by Lessee of any
Equipment delivered to Lessee and described in any Equipment Schedule, Lessee
shall execute and deliver to Lessor a Certificate of Acceptance. LESSOR SHALL
HAVE NO OBLIGATION TO ADVANCE FUNDS FOR THE PURCHASE OF THE EQUIPMENT UNLESS
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AND UNTIL LESSOR SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING
THERETO EXECUTED BY LESSEE. Such Certificate of Acceptance shall constitute
Lessee's acknowledgment that such Equipment (a) was received by Lessee, (b) is
satisfactory to Lessee in all respects and is acceptable to Lessee for lease
hereunder, (c) is suitable for Lessee's purposes, (d) is in good order, repair
and condition, (e) has been installed and operates properly, and (f) is subject
to all of the terms and conditions of this Lease (including, without limitation,
Section 2 hereof).
8. TERM; SURVIVAL. With respect to any Item of Equipment, unless
otherwise specified thereon, the initial term of this Lease (the "Initial Term")
shall commence on the date on which such Item of Equipment is delivered to
Lessee, and, unless earlier terminated as provided herein, shall expire on the
final Rent Payment Date for such Item of Equipment. With respect to an Item of
Equipment, any renewal term of this Lease (individually, a "Renewal Term"), as
contemplated hereby, shall commence immediately upon the expiration of the
Initial Term or any prior Renewal Term, as the case may be, and, unless earlier
terminated as provided herein, shall expire on the date on which the final
payment of Rent is due and paid hereunder. All obligations of Lessee hereunder
shall survive the expiration, cancellation or other termination of the Term
hereof.
9. RENT. With respect to Each Item of Equipment, Lessee shall pay the
Rent set forth on the Equipment Schedule applicable to such Item of Equipment,
commencing on the Rent Commencement Date, and, unless otherwise set forth on
such Equipment Schedule, on the same day of each payment period thereafter for
the balance of the Term. Rent shall be due whether or not Lessee has received
any notice that such payments are due. All Rent shall be paid to Lessor at its
address set forth on the Equipment Schedule, or as otherwise directed by Lessor
in writing.
10. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to
the Equipment Location and shall not be removed therefrom without Lessor's prior
written consent. Lessor shall have the right to enter upon the Equipment
Location and inspect the Equipment upon 24 hours notice to Lessee and during
normal business hours. At Lessor's request, Lessee shall affix labels stating
that the Equipment is owned by Lessor permanently in a prominent place on the
Equipment and shall keep such labels in good repair and condition.
11. USE; ALTERATIONS. Lessee shall use the Equipment lawfully and only
in the manner for which it was designed and intended and so as to subject it
only to ordinary wear and tear. Lessee shall comply with all Applicable Law.
Lessee shall immediately notify Lessor in writing of any existing, pending or
threatened investigation, inquiry, claim or action by any Governmental Authority
in connection with any Applicable Law or Governmental Action which could
adversely affect the Equipment or this Lease. Lessee, at its own expense, shall
make such alterations, additions or modifications or improvements to the
Equipment as may be required from time to time to meet the requirements of
Applicable Law or Governmental Action. Except as otherwise permitted herein,
Lessee shall not make any alterations, additions, modifications or improvements
to the Equipment without Lessor's prior written consent.
12. REPAIRS AND MAINTENANCE. Lessee, at Lessee's own cost and expense,
shall keep the Equipment in good repair, good operating condition and working
order and in compliance with the manufacturer's specifications (reasonable wear
and tear excepted), and maintain, service and repair the Equipment so as to keep
the Equipment in as good operating condition and working order as it was when it
first became subject to this Lease and in compliance with the manufacturer's
specifications. Upon Lessor's request, Lessee shall furnish Lessor with an
executed copy of third-party maintenance agreements, if any, with respect to any
Item of Equipment. Lessee, at its own cost and expense and within a reasonable
period of time, shall replace any part of any Item of Equipment that becomes
worn out, lost, stolen, destroyed, or otherwise rendered permanently unfit or
unavailable for use (whether or not such replacement is covered by the aforesaid
maintenance agreement), with a replacement part of the same manufacture, value,
remaining useful life and utility as the replaced part immediately preceding the
replacement (assuming that such replaced part is in the condition required by
this Lease). Such replacement part shall be free and clear of all Liens.
Notwithstanding the foregoing, this paragraph shall not apply to any Loss or
Damage (as defined in Section 16 hereof) of any Item of Equipment.
13. RETURN OF EQUIPMENT. Upon the expiration (subject to Section 32
hereof and except as otherwise provided in an Equipment Schedule) or earlier
termination of this Lease, Lessee, at its sole expense, shall return the
Equipment to Lessor by delivering such Equipment F.A.S. or F.O.B. to such
location or such carrier (packed for shipping) as
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Lessor shall specify, provided, however that such location shall be within the
continental United States. Lessee agrees that the Equipment, when returned,
shall be in the condition required by Section 12 hereof. All components of the
Equipment shall have been properly serviced, following the manufacturer's
written operating and servicing procedures, without Lessor's incurring any
expense to repair or rehabilitate the Equipment. If, in the reasonable opinion
of Lessor, any Item of Equipment fails to meet the standards set forth above,
Lessee agrees to pay on demand all costs and expenses incurred in connection
with repairing such Item of Equipment and restoring it so as to meet such
standards, assembling and delivering such Item of Equipment. Lessee shall give
Lessor ninety (90) days written notice (the "Return Notice") that Lessee is
returning the Equipment as provided for above. If Lessee falls to return any
Item of Equipment as required hereunder, then, all of Lessee's obligations under
this Lease (including, without limitation, Lessee's obligation to pay Rent for
such Item of Equipment at the rental then applicable under this Lease) shall
continue in full force and effect until such Item of Equipment shall have been
returned in the condition required hereunder.
14. EQUIPMENT UPGRADES/ATTACHMENTS. In addition to the requirements of
Section 11 hereof, Lessee, at its own expense, may from time to time add or
install upgrades or attachments to the Equipment during the Term; PROVIDED, that
such upgrades or attachments (a) are readily removable without causing material
damage to the Equipment, (b) do not materially adversely affect the Fair Market
Sale Value, the Fair Market Rental Value, residual value, productive capacity,
utility or remaining useful life of the Equipment, and (c) do not cause such
Equipment to become "limited use property" within the meaning of Revenue
Procedure 76-30, 1976-2 C.B. 647 (or such other successor tax provision), as of
the applicable delivery date or the time of such upgrade or attachment. Any such
upgrades or attachments which are not required by Section 11 hereof and which
can be removed without causing damage to or adversely affecting the condition of
the Equipment, or reducing the Fair Market Sale Value, the Fair Market Rental
Value, residual value, productive capacity, utility or remaining useful life of
the Equipment shall remain the property of Lessee; and upon the expiration or
earlier termination of this Lease and provided that no Event of Default exists,
Lessee may, at its option, remove any such upgrades or attachments and, upon
such removal, shall restore the Equipment to the condition required hereunder.
15. SUBLEASE AND ASSIGNMENT. (a) WITHOUT LESSOR'S PRIOR WRITTEN CONSENT
(SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD), LESSEE SHALL NOT (i) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, THE EQUIPMENT
OR ANY INTEREST THEREIN, OR (ii) SUBLET OR LEND THE EQUIPMENT TO, OR PERMIT THE
EQUIPMENT TO BE USED BY, ANYONE OTHER THAN LESSEE OR LESSEE'S QUALIFIED
EMPLOYEES.
(b) Lessor, at any time with or without notice to Lessee, may
sell, transfer, assign and/or grant a security interest in this Lease, any
Equipment Schedule or any Item of Equipment. In any such event, any such
purchaser, transferee, assignee or secured party shall have and may exercise all
of Lessor's rights hereunder with respect to the items to which any such sale,
transfer, assignment and/or security interest relates, and LESSEE SHALL NOT
ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY
DEFENSE, COUNTERCLAIM OR OFFSET THAT LESSEE MAY HAVE AGAINST LESSOR. Lessee
acknowledges that no such sale, transfer, assignment and/or security interest
will materially change Lessee's duties hereunder or materially increase its
burdens or risks hereunder. Lessee agrees that upon written notice to Lessee of
any such sale, transfer, assignment and/or security interest, Lessee shall
acknowledge receipt thereof in writing and shall comply with the directions and
demands of Lessor's successor or assign.
16. LOSS OF OR DAMAGE TO EQUIPMENT. (a) Lessee shall bear the entire
risk of loss, theft, destruction, disappearance of or damage to any and all
Items of Equipment ("Loss or Damage") from any cause whatsoever during the Term
hereof until the Equipment is returned to Lessor in accordance with Section 13
hereof. No Loss or Damage shall relieve Lessee of the obligation to pay Rent or
of any other obligation under this Lease.
(b) In the event of Loss or Damage to any Item of Equipment,
Lessee, at the option of Lessee so long as No Event of Default exists hereunder
and is continuing, otherwise at Lessor's option, shall within thirty (30) days
following such Loss or Damage: (1) place such Item of Equipment in good
condition and repair, in accordance with the terms hereof; (2) replace such Item
of Equipment with replacement equipment (acceptable to Lessor) in as good
condition and repair, and with the same value, remaining useful economic life
and utility, as such replaced Item of Equipment immediately preceding the Loss
or Damage (assuming that such replaced Item of Equipment is the condition
required by this
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Lease), which replacement equipment shall be free and clear of all Liens; or (3)
pay to Lessor the sum of (i) all Rent due and owing hereunder with respect to
such Item of Equipment (at the time of such payment) plus (ii) the Stipulated
Loss Value as of the Rent Payment Date next following the date of such Loss or
Damage with respect to such Item of Equipment, as set forth on the Schedule
applicable thereto. Upon Lessor's receipt of the payment required under
subsection (3) above, Lessee shall be entitled to Lessor's interest in such Item
of Equipment, in its then condition and location, "as is" and "where is",
without any warranties, express or implied. If Lessee replaces the Item of
Equipment pursuant to subsection (b) above, title to such replacement equipment
shall immediately (and without further act) vest in Lessor and thereupon shall
be deemed to constitute Items of Equipment and be fully subject to this Lease as
if originally leased hereunder. If Lessee falls to either restore or replace the
Item of Equipment pursuant to subsection (1) or (2) above, respectively, Lessee
shall make the payment under subsection (3) above, provided, however, that in
the event replacement of such Item of Equipment cannot reasonably be
accomplished within such 30 day period, the period shall be extended to 90 days,
provided that Lessee commences acts to replace such Item of Equipment within the
30 day period and thereafter diligently pursues completion of the replacement.
17. INSURANCE. (a) Lessee, at all times during the Term hereof (until
the Equipment shall have been returned to Lessor) and at Lessee's own cost and
expense, shall maintain (1) insurance against all risks of physical loss or
damage to the Equipment (including theft and collision for Equipment consisting
of motor vehicles) in an amount not less than the full replacement value thereof
or the Stipulated Loss Value thereof, whichever is greater, and (2) commercial
general liability insurance (including blanket contractual liability coverage
and products liability coverage) for personal and bodily injury and property
damage in an amount satisfactory to Lessor.
(b) All insurance policies required hereunder shall (1)
require 30 days' prior written notice of cancellation or material change in
coverage to Lessor (any such cancellation or change, as applicable, not being
effective until the thirtieth (30th) day after the giving of such notice); (2)
name "KeyCorp and its subsidiaries and affiliated companies, including KeyCorp
Leasing Ltd." as an additional insured under the public liability policies and
name Lessor as sole loss payee under the property insurance policies; (3) not
require contributions from other policies held by Lessor; (4) waive any right of
subrogation against Lessor; (5) in respect of any liability of any of Lessor,
except for the insurers' salvage rights in the event of a Loss or Damage, waive
the right of such insurers to set-off, to counterclaim or to any other
deduction, whether by attachment or otherwise, to the extent of any monies due
Lessor under such policies; (6) not require that Lessor pay or be liable for any
premiums with respect to such insurance covered thereby; (7) be in full force
and effect throughout any geographical areas at any time traversed by any Item
of Equipment; and (8) contain breach of warranty provisions providing that, in
respect of the interests of Lessor in such policies, the insurance shall not be
invalidated by any action or inaction of Lessee or any other person (other than
Lessor) and shall insure Lessor regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by Lessee or by
any other person (other than Lessor). Prior to the first date of delivery of any
Item of Equipment hereunder, and thereafter not less than 15 days prior to the
expiration dates of the expiring policies theretofore delivered pursuant to this
Section, Lessee shall make available to Lessor at Lessee's offices an original
of all policies issued by the insurers thereunder for the insurance maintained
pursuant to this Section, and Lessee shall deliver to Lessor certificates of
insurance for such insurance coverage.
18. GENERAL TAX INDEMNIFICATION. Lessee shall pay when due and shall
indemnify and hold Lessor harmless from and against (on an after-tax basis) any
and all taxes, fees, withholdings, levies, imposts, duties, assessments and
charges of any kind and nature (together with interest and penalties thereon)
(including, without limitation, sales, use, gross receipts, personal property,
ad valorem, business and occupational, franchise, value added, leasing, leasing
use, documentary, stamp or other taxes) imposed upon or against Lessor, Lessor's
assigns, Lessee or any Item of Equipment by any Governmental Authority with
respect to any Item of Equipment or the manufacturing, ordering, sale, purchase,
shipment, delivery, acceptance or rejection, ownership, titling, registration,
leasing, subleasing, possession, use, operation, removal, return or other
dispossession thereof or upon the rents, receipts or earnings arising therefrom
or upon or with respect to this Lease, excepting only all Federal, state and
local taxes on or measured by Lessor's net income, net worth, or capital (other
than such taxes resulting from making any alterations, improvements,
modifications, additions, upgrades, attachments, replacements or substitutions
by Lessee). Whenever this Lease terminates as to any Item of Equipment, Lessee
shall, upon written request by Lessor, advance to Lessor the amount determined
by Lessor to be the personal property or other taxes on said item which are not
yet payable, but for which Lessee is responsible, provided Lessor provides
Lessee with copies of tax bills supporting Lessor's request.
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19. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to perform or
comply with any of its obligations contained herein, Lessor may (but shall not
be obligated to do so) itself perform or comply with such obligations, and the
amount of the reasonable costs and expenses of Lessor incurred in connection
with such performance or compliance, together with interest on such amount at
the Late Payment Rate, shall be payable by Lessee to Lessor upon demand. No such
performance or compliance by Lessor shall be deemed a waiver of the rights and
remedies of Lessor or any assignee of Lessor against Lessee hereunder or be
deemed to cure the default of Lessee hereunder.
20. DELINQUENT PAYMENTS; INTEREST. If Lessee fails to pay any Rent or
other sums under this Lease within ten (10) days of when the same becomes due,
Lessee shall pay to Lessor a late charge equal to five percent (5%) of such
delinquent amount. Such late charge shall be payable by Lessee upon demand by
Lessor and shall be deemed Rent hereunder. In no event shall such late charge
exceed the maximum amounts permitted under Applicable Law.
21. PERSONAL PROPERTY; LIENS. Lessor and Lessee hereby agree that the
Equipment is, and shall at all times remain, personal property notwithstanding
the fact that any Item of Equipment may now be, or hereafter become, in any
manner affixed or attached to real property or any improvements thereon. Lessee
shall at all times keep the Equipment free and clear from all Liens. Lessee
shall (i) give Lessor immediate written notice of any such Lien, (ii) promptly,
at Lessee's sole cost and expense, take such action as may be necessary to
discharge any such Lien, and (iii) indemnify and hold Lessor, on an after-tax
basis, harmless from and against any loss or damage caused by any such Lien.
22. EVENTS OF DEFAULT; REMEDIES. (a) As used herein, the term "Event of
Default" shall mean any of the following events: (1) Lessee fails to pay any
Rent within ten (10) days after the same shall have become due; (2) Lessee or
any Guarantor becomes insolvent or makes an assignment for the benefit of its
creditors; (3) a receiver, trustee, conservator or liquidator of Lessee or any
Guarantor or of all or a substantial part of Lessee's or such Guarantor's assets
is appointed with or without the application or consent of Lessee or such
Guarantor, respectively; (4) a voluntary petition is filed by Lessee or any
Guarantor under any bankruptcy, insolvency or similar legislation, or an
involuntary petition is filed by against Lessee or any Guarantor under any
bankruptcy, insolvency or similar legislation and is not dismissed within 60
days; (5) Lessee or any Guarantor violates or fails to perform any material
provision of either this Lease or any other loan, lease or credit agreement or
any acquisition or purchase agreement with Lessor or KeyBank National
Association or its or their affiliates and assigns; (6) Lessee violates or fails
to perform any material covenant or representation made by Lessee herein; (7)
any representation or warranty made herein or in any Lease, certificate,
financial statement or other statement furnished to Lessor shall prove to be
false or misleading in any material respect as of the date on which the same was
made; (8) Lessee makes a bulk transfer of furniture, furnishings, fixtures or
other equipment or inventory; or (9) Lessee fails to comply with the financial
covenants agreed upon by Lessor and Lessee in any document executed in
connection herewith. An Event of Default with respect to any Equipment Schedule
hereunder shall, at Lessor's option, constitute an Event of Default for all
Equipment Schedules hereunder and any other agreements between Lessor and
Lessee.
(b) Upon the occurrence of an Event of Default and Lessee's
failure to cure the default within thirty (30) days of Lessor's notice to Lessee
thereof (except an unremedied default under Subsection (a)(5) above as to which
no additional notice shall be required), or failure of Lessee to cure within ten
(10) days of Lessor's notice to Lessee of a payment default, Lessor may do one
or more of the following as Lessor in its sole discretion shall elect: (1)
proceed by appropriate court action or actions, either at law or in equity, to
enforce performance by Lessee of the applicable covenants of this Lease or to
recover damages for the breach thereof; (2) sell any Item of Equipment at public
or private sale; (3) hold, keep idle or lease to others any Item of Equipment as
Lessor in its sole discretion may determine; (4) by notice in writing to Lessee,
terminate this Lease, without prejudice to any other remedies hereunder; (5)
demand that Lessee, and Lessee shall, upon written demand of Lessor and at
Lessee's expense forthwith return all Items of Equipment to Lessor or its order
in the manner and condition required by, and otherwise in accordance with all of
the provisions of this Lease, except those provisions relating to periods of
notice; (6) enter upon the premises of Lessee or other premises where any Item
of Equipment may be located and, without notice to Lessee and with or without
legal process, take possession of and remove all or any such Items of Equipment
without liability to Lessor by reason of such entry or taking possession, and
without such action constituting a termination of this Lease unless Lessor
notifies Lessee in writing to such effect; (7) by written notice to Lessee
specifying a payment date, demand that Lessee pay to Lessor, and Lessee shall
pay to Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to
the
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payment date specified in such notice plus whichever of the following amounts
Lessor, in its sole discretion, shall specify in such notice (together with
interest on such amount at the Late Payment Rate from the payment date specified
in such notice to the date of actual payment): (i) an amount, with respect to an
Item of Equipment, equal to the Rent payable for such Item of Equipment for the
remainder of the then current Term thereof, after discounting such Rent to
present worth as of the payment date specified in such notice on the basis of a
per annum rate of discount equal to five percent (5%) from the respective dates
upon which such Rent would have been paid had this Lease not been terminated; or
(ii) the Stipulated Loss Value, computed as of the payment date specified in
such notice or, if such payment date is not a Rent Payment Date, the Rent
Payment Date next following the payment date specified in such notice (provided,
however, that, with respect to any Item of Equipment returned to or repossessed
by Lessor, the amount recoverable under this clause (ii) shall be reduced (but
not below zero) by an amount equal to the Fair Market Sales Value (taking into
account its actual condition) of such Item of Equipment; (8) cause Lessee, at
its expense, to promptly assemble any and all Items of Equipment and return the
same to Lessor at such place as Lessor may designate in writing; and (9)
exercise any other right or remedy available to Lessor under applicable law or
proceed by appropriate court action to enforce the terms hereof or to recover
damages for the breach hereof or to rescind this Lease. In addition, Lessee
shall be liable, except as otherwise provided above, for any and all unpaid Rent
due hereunder before or during the exercise of any of the foregoing remedies,
and for legal fees and other costs and expenses incurred by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies with
respect thereto, including without limitation the repayment in full of any costs
and expenses necessary to be expended in repairing any Item of Equipment in
order to cause it to be in compliance with all maintenance and regulatory
standards imposed by this Lease. If an Event of Default occurs, to the fullest
extent permitted by law, Lessee hereby waives any right to notice of sale and
further waives any defenses, rights, offsets or claims against Lessor because of
the manner or method of sale or disposition of any Items of Equipment. None of
Lessor's rights or remedies hereunder are intended to be exclusive of, but each
shall be cumulative and in addition to any other right or remedy referred to
hereunder or otherwise available to Lessor or its assigns at law or in equity.
No express or implied waiver by Lessor of any Event of Default shall constitute
a waiver of any other Event of Default or a waiver of any of Lessor's rights.
23. NOTICES. All notices and other communications hereunder shall be in
writing and shall be transmitted by hand, overnight courier or certified mail
(return receipt requested), postage prepaid. Such notices and other
communications shall be addressed to the respective party at the address set
forth above or at such other address as any party may from time to time
designate by notice duly given in accordance with this Section. Such notices and
other communications shall be effective upon receipt.
24. GENERAL INDEMNIFICATION. Lessee shall pay, and shall indemnify and
hold Lessor harmless on an after-tax basis from and against, any and all
liabilities, causes of action, claims, suits, penalties, damages, losses, costs
or expenses (including attorneys' fees), obligations, liabilities, demands and
judgments, and Liens, of any nature whatsoever (collectively, a "Liability")
arising out of or in any way related to: (a) this Lease or any other written
agreement entered into in connection with the transactions contemplated hereby
and thereby (including, without limitation, a Purchase Agreement, if any) or any
amendment, waiver or modification of any of the foregoing or the enforcement of
any of the terms hereof or any of the foregoing, (b) the manufacture, purchase,
ownership, selection, acceptance, rejection, possession, lease, sublease,
operation, use, maintenance, documenting, inspection, control, loss, damage,
destruction, removal, storage, surrender, sale, use, condition, delivery,
nondelivery, return or other disposition of or any other matter relating to any
Item of Equipment or any part or portion thereof (including, in each case and
without limitation, latent or other defects, whether or not discoverable, any
claim for patent, trademark or copyright infringement and any and all
Liabilities in any way relating to or arising out of injury to persons,
properties or the environment or any and all Liabilities based on strict
liability in tort, negligence, breach of warranties or violations of any
regulatory law or requirement, (c) a failure to comply fully with any
Environmental Law with respect to the Equipment or its operation or use, and (d)
Lessee's failure to perform any covenant, or breach of any representation or
warranty, hereunder; provided that the foregoing indemnity shall not extend to
the Liabilities to the extent resulting solely from the gross negligence or
willful misconduct of Lessor. Lessee shall deliver promptly to Lessor (i) copies
of any documents received from the United States Environmental Protection Agency
or any state, county or municipal environmental or health agency and (ii) copies
of any documents submitted by Lessee or any of its subsidiaries to the United
States Environmental Protection Agency or any state, county or municipal
environmental or health agency concerning material claims, violations,
regulations or enforcement relating to the Equipment or its operation.
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25. SEVERABILITY; CAPTIONS. Any provision of this Lease or any
Equipment Schedule which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability shall not invalidate or render
unenforceable such provision in any other jurisdiction. Captions are intended
for convenience or reference only, and shall not be construed to define, limit
or describe the scope or intent of any provisions hereof.
26. LESSOR'S EXPENSE. Lessee shall pay all costs and expenses of
Lessor, including attorneys' fees and the fees of any collection agencies,
incurred by Lessor in enforcing any of the terms, conditions or provisions
hereof.
27. RELATED EQUIPMENT SCHEDULES. In the event that any Item of
Equipment covered under any Equipment Schedule hereunder may become attached or
affixed to, or used in connection with, Equipment covered under another
Equipment Schedule hereunder (a "Related Equipment Schedule"), Lessee agrees
that, if Lessee elects to exercise a purchase or renewal option under any such
Equipment Schedule, or if Lessee elects to return the Equipment under any such
Equipment Schedule pursuant to Section 13 hereof, then Lessor, in its sole
discretion, may require that all Equipment leased under all Related Equipment
Schedules be similarly disposed of.
28. FINANCIAL AND OTHER DATA. During the Term hereof, Lessee shall
furnish Lessor, as soon as available and in any event within 60 days after the
end of each quarterly period (except the last) of each fiscal year, and, as soon
as available and in any event within 120 days after the last day of each fiscal
year, copies of Lessee's Securities Exchange Commission filings including
financial statements of Lessee and each Guarantor, in the case of fiscal year
end financial statements audited by an independent public accountant, and upon
Lessor's request, copies of all reports submitted by Lessee and each Guarantor
to KeyBank National Association under any credit agreements. Lessee shall also
furnish such other financial reports, information or data as Lessor may
reasonably request from time to time.
29. COMMITMENT FEE REQUIREMENT. An amount equal to the first periodic
payment of Rent must accompany each Lessee proposal for an Equipment Schedule
hereunder. THIS COMMITMENT FEE IS NON-REFUNDABLE; provided, however, that, upon
Lessor's acceptance of Lessee's proposal to enter into such Equipment Schedule,
such commitment fee shall be applied to the first periodic payment of Rent
thereunder.
30. NO AFFILIATION WITH THE SUPPLIER. Lessee hereby represents and
warrants to Lessor that, except as previously disclosed in writing to Lessor,
neither Lessee nor any of its officers or directors (if a corporation) or
partners (if a partnership) has, directly or indirectly, any financial interest
in the Supplier.
31. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and
warrants that: (a) Lessee is a corporation duly organized and validly existing
in good standing under the laws of the state of its incorporation; (b) the
execution, delivery and performance of this Lease and all related instruments
and documents: (1) have been duly authorized by all necessary corporate action
on the part of Lessee, (2) do not require the approval of any stockholder,
partner, trustee, or holder of any obligations of Lessee except such as have
been duly obtained, and (3) do not and will not contravene any law, governmental
rule, regulation or order now binding on Lessee, or the charter or by-laws of
Lessee, or contravene the provisions of, or constitute a default under, or
result in the creation of any lien or encumbrance upon the property of Lessee
under, any indenture, mortgage, contract or other agreement to which Lessee is a
party or by which it or its property is bound; (c) this Lease and all related
instruments and documents, when entered into, will constitute legal, valid and
binding obligations of Lessee enforceable against Lessee in accordance with the
terms thereof; (d) there are no pending actions or proceedings to which Lessee
is a party, and there are no other pending or threatened actions or proceedings
of which Lessee has knowledge, before any court, arbitrator or administrative
agency, which, either individually or in the aggregate, would adversely affect
the financial condition of Lessee, or the ability of Lessee to perform its
obligations hereunder; (e) Lessee is not in default under any obligation for the
payment of borrowed money, for the deferred purchase price of property or for
the payment of any rent under any lease agreement which, either individually or
in the aggregate, would have the same such effect; (f) under the laws of the
state(s) in which the Equipment is to be located, the Equipment consists solely
of personal property and not fixtures; (g) the financial statements of Lessee
(copies of which have been furnished to Lessor) have been prepared in accordance
with generally acceptable accounting principles consistently applied ("GAAP"),
and fairly present Lessee's financial condition and the results of its
operations as of the date of and for the period covered by such statements,
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and since the date of such statements there has been no material adverse change
in such conditions or operations; (h) the address stated above is the chief
place of business and chief executive office, or in the case of individuals, the
primary residence, of Lessee; (i) Lessee does not conduct business under a
trade, assumed or fictitious name; and (j) the Equipment is being leased
hereunder solely for business purposes and that no item of Equipment will be
used for personal, family or household purposes.
32. RENEWAL AND PURCHASE OPTIONS. With respect to an Equipment Schedule
and the Equipment Group set forth thereon, so long as no Default or Event of
Default shall have occurred and is continuing, then, upon not less than ninety
(90) days prior written notice to Lessor, (the "Renewal Notice") Lessee may (a)
at the expiration of the Initial Term, or any Renewal Term, purchase all, but
not less than all, of the Equipment Group for the Fair Market Sale Value of such
Equipment Group, payable in cash to Lessor upon the expiration of the Initial
Term or any Renewal Term, as the case may be, (b) at the expiration of the
Initial Term, renew this Lease on a month to month basis at the same Rent
payable at the expiration of the Initial Term, or (c) at the expiration of the
Initial Term, renew this Lease for a minimum period of not less than twelve (12)
consecutive months at the then current Fair Market Rental Value. If Lessee fails
to give Lessor the Return Notice or the Renewal Notice at least ninety (90) days
before the expiration of the Initial Term, Lessee shall be deemed to have chosen
option (b) above. If Lessee exercises option (a) above, Lessee shall purchase
the Equipment "as is" and "where is" and without any warranties, express or
implied, by Lessor.
33. LESSEE'S WAIVERS. To the extent permitted by Applicable Law, Lessee
hereby waives (a) any and all rights and remedies which it may now have or which
at any time hereafter may be conferred upon it by statute (including, without
limitation, Article 2A of the Uniform Commercial Code, as applicable) or
otherwise, (1) which may limit or modify Lessor's rights or remedies hereunder,
(2) to terminate, cancel, quit, repudiate or surrender this Lease, except as
expressly provided herein; (3) to reject, revoke acceptance or accept partial
delivery of the Equipment; (4) to recover damages from Lessor for any breach of
warranty PROVIDED, HOWEVER, that no such waiver shall preclude Lessee from
asserting any such claim against Lessor in a separate cause of action; or
against Lessor's assignee in a separate cause of action relating to such
assignee's own conduct.
34. UCC FILINGS. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS
TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO
EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN
LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN
THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS.
35. MISCELLANEOUS. Time is of the essence with respect to this Lease.
Any failure of Lessor to require strict performance by Lessee or any waiver by
Lessor of any provision herein shall not be construed as a consent or waiver of
any provision of this Lease. Neither this Lease nor any Equipment Schedule may
be amended except by a writing signed by Lessor and Lessee. This Lease and each
Equipment Schedule shall be binding upon, and inure to the benefit of, the
parties hereto, their permitted successors and assigns. This Lease will be
binding upon Lessor only if executed by a duly authorized officer or
representative of Lessor at Lessor's principal place of business as set forth
above. This Lease, and all other documents (the execution and delivery of which
by Lessee is contemplated hereunder), shall be executed on Lessee's behalf by
Authorized Signers of Lessee. THIS LEASE IS BEING DELIVERED IN THE STATE OF NEW
YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
36. JURY TRIAL WAIVER. LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO WHICH LESSOR OR LESSEE MAY BE PARTIES ARISING OUT OF
OR IN ANY WAY PERTAINING TO THIS LEASE. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY
AND VOLUNTARILY BY THE LESSOR AND THE LESSEE WHO EACH ACKNOWLEDGE THAT NO
REPRESENTATIONS HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL
BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
88
<PAGE> 12
37. MORE THAN ONE LESSEE. If more than one person or entity executes
this Lease, each Equipment Schedule, and all addenda or other documents executed
in connection herewith or therewith, as "Lessee," the obligations of "Lessee"
contained herein and therein shall be deemed joint and several and all
references to "Lessee" shall apply both individually and jointly.
38. QUIET ENJOYMENT. So long as no Event of Default has occurred and is
continuing, Lessee shall peaceably hold and quietly enjoy the Equipment without
interruption by Lessor or any person or entity claiming through Lessor.
39. ENTIRE AGREEMENT. This Lease, together with all Equipment
Schedules, riders and addenda executed by Lessor and Lessee collectively
constitute the entire understanding or agreement between Lessor and Lessee with
respect to the leasing of the Equipment, and there is no understanding or
agreement, oral or written, which is not set forth herein or therein. By
initialing below, Lessee hereby further acknowledges the conditions of this
Section 39.
Lessee's Initials: /S/ KB
40. EXECUTION IN COUNTERPARTS. This Master Equipment Lease Agreement
may be executed in several counterparts, each of which shall be an original and
all of which shall constitute but one and the same instrument.
89
<PAGE> 13
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the day and year first above written.
LESSOR: LESSEE:
KEYCORP LEASING, CORE MATERIALS CORPORATION
A Division of Key Corporate
Capital, Inc.
By:/s/ DONALD C. DAVIS By: /s/ KEVIN L. BARNETT
--------------------------------- ------------------------------------
Donald C. Davis, Vice President Kevin L. Barnett, Vice President,
Treasurer and CFO
90
<PAGE> 14
AMENDMENT TO MASTER EQUIPMENT LEASE AGREEMENT
---------------------------------------------
THIS AMENDMENT dated effective as of December 2, 1997 amends that
certain Master Equipment Lease Agreement dated effective as of December 2, 1997
between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC., as Lessor,
and CORE MATERIALS CORPORATION, as Lessee (the "Master Lease"). Unless otherwise
specified herein, all capitalized terms shall have the meanings ascribed to them
in the Master Lease or in the Credit Agreement between Lessee as Borrower and
KeyBank National Association as Lender dated December 2, 1997 ("Credit
Agreement").
For good and valuable consideration, the receipt of which is
acknowledged, Lessor and Lessee hereby agree that the Security Agreement will be
amended as follows:
LESSEE'S FINANCIAL COVENANTS. Lessee hereby covenants with Lessor as follows:
On a continuing basis, from the date of the Master Lease until the date
on which Lessee's obligations thereunder are fully paid and performed, Lessee
hereby covenants and agrees that:
I. It shall not permit the Maximum Senior Funded Debt to EBITDA Ratio (as
defined below) to exceed 4.00:1.00 as determined at the end of each
fiscal quarter, commencing December 31, 1998, calculated for the four
quarters then ended.
II. It shall not permit the Minimum Fixed Charge Coverage Ratio (as defined
below) to be less than 1.10:1.00 as determined at the end of each
fiscal quarter, commencing with the quarter ending December 31, 1999,
calculated for the four quarters then ended.
III. It shall not permit the Minimum Debt Service Coverage Ratio (as defined
below) to be less than 1.50:1.00 as determined at the end of each
fiscal quarter, commencing March 31, 1998, for the fiscal quarter then
ended; June 30, 1998, for the two quarters then ended; September 30,
1998, for the three quarters then ended; and December 31, 1998, and
each fiscal quarter thereafter for the four quarters then ended.
IV. It shall not incur Unfunded Capital Expenditures (as defined below) in
excess of $5,500,000 during the fiscal year ended December 31, 1998.
V. For the purposes of this section:
A. "Maximum Senior Funded Debt to EBITDA Ratio" shall mean the
(1) sum of the commitment amount of the Loan ($7,500,000 as of
the date hereof), the total of Sale/Leaseback obligations, and
the outstanding principal balances of the Industrial
Development Revenue Bonds and any other permitted debt (other
than the Subordinated Debt) divided by (2) EBITDA (as defined
below).
B. "Minimum Fixed Charge Coverage Ratio" shall mean the sum of
EBITDA and rent (lease) expense, including without limitation
rent payments in connection with the Sale/Leaseback and the
Operating Lease, for a given period, divided by the sum of (1)
interest expense (which shall not include interest on the
Subordinated Debt which is deferred and not paid), (2) rent
(lease) expense, including without limitation rent payments in
connection with the Sale/Leaseback and Operating Lease, (3)
principal payments on the Subordinated Debt, the Bonds, and
any other permitted debt, and (4) Unfunded Capital
Expenditures in the amounts disclosed by Lessee in its
financial statements, for such period.
91
<PAGE> 15
C. "Minimum Debt Service Coverage Ratio" shall mean the sum of
EBITDA and rent (lease) expense, including without limitation
rent payments in connection with the Sale/Leaseback and the
Operating Lease, for a given period, divided by the sum of (1)
interest expense (which shall not include interest on the
Subordinated Debt which is deferred and not paid), (2) rent
(lease) expense, including without limitation rent payments in
connection with the Sale/Leaseback and Operating Lease, and
(3) principal payments on the Subordinated Debt, The Bonds and
any other permitted debt, for such period.
D. "EBITDA" shall mean, for any period, (1) the sum of the
amounts for such period of (a) net income, (b) interest
expense, (c) charges for federal, state, local and foreign
income taxes, (d) depreciation and amortization expense, and
(e) extraordinary losses (and any unusual losses arising
outside the ordinary course of business not included in
extraordinary losses determined in accordance with generally
accepted accounting principles) minus (2) the sum of the
amounts for such period of (a) extraordinary gains (and any
unusual gains arising outside the ordinary course of business
not included in extraordinary gains determined in accordance
with generally accepted accounting principles) and (b) to the
extent not deducted from total interest expense, any net
payments received during such period under interest rate
contracts and any interest income received in respect of cash
investments.
E. "Unfunded Capital Expenditures" shall mean any capital
expenditure made for which no long-term funding source is
specifically available.
Except as modified hereby, all of the terms, covenants and conditions
of the Master Lease shall remain in full force and effect and are in all
respects hereby ratified and affirmed.
92
<PAGE> 16
IN WITNESS WHEREOF, Lessor and Lessee have executed this Amendment as
of the date first above written.
LESSOR: LESSEE:
KEYCORP LEASING, CORE MATERIALS CORPORATION
A Division of Key Corporate
Capital, Inc.
By:/s/ DONALD C. DAVIS By: /s/ KEVIN L. BARNETT
--------------------------------- ----------------------------------
Donald C. Davis, Vice President Kevin L. Barnett, Vice President,
Treasurer and CFO
93
<PAGE> 1
EXHIBIT 10(i)
CORE MATERIALS CORPORATION
1997 INFORMAL CASH PROFIT SHARING PLAN
Core Materials has an informal cash profit sharing plan for its
management and salaried employees which is calculated as follows:
- - A profit sharing pool is created after a reasonable return is provided
to stockholders.
- - Annually, the Company's Board of Directors will establish a threshold
for Earnings Before Taxes ("EBT") to provide such return to the
stockholders.
- - A percentage of any EBT above such threshold will be shared with the
permanent salaried employees in the form of profit sharing.
- - A total profit sharing pool is limited to a maximum percentage of EBT as
established by the Board of Directors.
- - The salaried profit sharing pool is split into two groups, an
"executive" group and a "salary" group. The executive group consists of
the Acting Chief Executive Officer, the Chief Financial Officer, the
Controller and three other key management positions.
- - The executive group shares in 40% of the pool while the remaining salary
group shares in 60% of the pool.
- - Employees must have been employed as of December 31, 1997 to be eligible
to participate. There is no pro-rating for terminated employees.
- - The Board of Directors reserves the right to change the plan annually.
95
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-29203 on Form S-8 of Core Materials Corporation of our report dated March
2, 1998, included in this Annual Report on Form 10-K of Core Materials
Corporation for the year ended December 31, 1997.
Deloitte & Touche LLP
Chicago, Illinois
March 30, 1998
97
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Core Materials Corporation, a Delaware corporation which is about to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, hereby constitutes and appoints Kenneth
M. Schmell and Kevin L. Barnett, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead in any and all capacities, to sign such
Annual Report on Form 10-K, and to file the same with all exhibits and financial
statements and schedules thereto, and other documents in connection therewith,
including any amendment thereto, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunder set his hand this
19th day of March, 1998.
- ----
/s/ RALPH O. HELLMOLD
---------------------------
Ralph O. Hellmold
Director
102
<PAGE> 2
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Core Materials Corporation, a Delaware corporation which is about to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, hereby constitutes and appoints Kenneth
M. Schmell and Kevin L. Barnett, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead in any and all capacities, to sign such
Annual Report on Form 10-K, and to file the same with all exhibits and financial
statements and schedules thereto, and other documents in connection therewith,
including any amendment thereto, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunder set his hand this
23rd day of March, 1998.
- ----
/s/ RICHARD R. CONTE
------------------------------
Richard R. Conte
Director
103
<PAGE> 3
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Core Materials Corporation, a Delaware corporation which is about to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, hereby constitutes and appoints Kenneth
M. Schmell and Kevin L. Barnett, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead in any and all capacities, to sign such
Annual Report on Form 10-K, and to file the same with all exhibits and financial
statements and schedules thereto, and other documents in connection therewith,
including any amendment thereto, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunder set his hand this
23rd day of March, 1998.
- ----
/s/ THOMAS M. HOUGH
-----------------------------
Thomas M. Hough
Director
104
<PAGE> 4
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Core Materials Corporation, a Delaware corporation which is about to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, hereby constitutes and appoints Kenneth
M. Schmell and Kevin L. Barnett, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead in any and all capacities, to sign such
Annual Report on Form 10-K, and to file the same with all exhibits and financial
statements and schedules thereto, and other documents in connection therewith,
including any amendment thereto, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunder set his hand this
24th day of March, 1998.
- ----
/s/ MALCOLM M. PRINE
----------------------------
Malcolm M. Prine
Director
105
<PAGE> 5
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Core Materials Corporation, a Delaware corporation which is about to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, hereby constitutes and appoints Kenneth
M. Schmell and Kevin L. Barnett, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead in any and all capacities, to sign such
Annual Report on Form 10-K, and to file the same with all exhibits and financial
statements and schedules thereto, and other documents in connection therewith,
including any amendment thereto, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunder set his hand this
24th day of March, 1998.
- ----
/s/ THOMAS E. RIGSBY
----------------------------------
Thomas E. Rigsby
Director
106
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 100,356
<SECURITIES> 3,217,349
<RECEIVABLES> 14,306,101
<ALLOWANCES> 133,000
<INVENTORY> 3,306,719
<CURRENT-ASSETS> 21,692,586
<PP&E> 34,971,001
<DEPRECIATION> 10,293,834
<TOTAL-ASSETS> 57,539,943
<CURRENT-LIABILITIES> 17,130,327
<BONDS> 18,821,841
0
0
<COMMON> 96,133
<OTHER-SE> 15,998,944
<TOTAL-LIABILITY-AND-EQUITY> 57,539,943
<SALES> 64,939,958
<TOTAL-REVENUES> 64,939,958
<CGS> 50,879,328
<TOTAL-COSTS> 58,344,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,231,575
<INCOME-PRETAX> 4,656,324
<INCOME-TAX> 1,932,843
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,723,481
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
