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As filed with the Securities and Exchange Commission on August 30, 1999.
File No. 0-30166
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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ConMat Technologies, Inc.
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(Name of Small Business Issuer in its Charter)
Florida 23-2999072
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Franklin Avenue and Grant Streets, Phoenixville, PA 19460
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(Address of Principal Executive Offices) (Zip Code)
(610) 935-0225
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Issuer's Telephone Number
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on
to be so Registered Which Each Class is to be Registered
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Common Stock Nasdaq OTC Bulletin Board
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Item 1. Description of Business.
General
ConMat Technologies, Inc. ("ConMat"), formerly known as EPL Systems, Inc. and
Phoenix Systems, Inc., was incorporated in Florida in 1986. ConMat is not an
operating company and does not have significant assets or conduct significant
business except through its wholly-owned subsidiary. In December 1998, ConMat
acquired 100% of the common stock of Polychem Corporation ("Polychem") from The
Eastwind Group, Inc. ("Eastwind"). See "Acquisition of Polychem." ConMat's
strategy is to build a material technology company focused on the development
and manufacture of proprietary custom engineered plastics and composite products
to industrial end users with a special emphasis on the wastewater treatment
marketplace. ConMat's acquisition of Polychem is the first step in executing
this strategy. ConMat plans to execute a growth strategy combining internal new
product development and corporate acquisitions. The principal executive offices
of ConMat are located at Franklin Avenue and Grant Streets, Phoenixville, PA
19460. The telephone number is (610) 935-0225.
As of August 20, 1999, ConMat and Polychem have a total of 77 full-time
employees.
Acquisition of Polychem
On December 8, 1998, ConMat acquired 100% of the common stock of Polychem from
Eastwind. The basic structure and terms of the transaction were as follows:
o ConMat acquired all of the outstanding shares of common stock
of Polychem from Eastwind in exchange for (i) 1,000,000 shares
of newly issued common stock of ConMat and (ii) 1,333,333
shares of newly issued Series A convertible preferred stock of
ConMat ("Series A Preferred Stock"). Eastwind subsequently
transferred the 1,000,000 shares of common stock to The
Eastwind Group, Inc. Shareholder Trust, a trust for the
benefit of Eastwind's shareholders in which Eastwind has no
interest.
o ConMat assumed and discharged the following liabilities of
Eastwind: (i) $160,000 owed to Paul A. DeJuliis, Eastwind's
former Chairman and Chief Executive Officer, who is the
current Chairman and Chief Executive Officer of ConMat,
discharged by the issuance to Mr. DeJuliis of 53,333 shares of
Series A Preferred Stock; (ii) $100,000 owed to Clifton
Capital, Ltd., discharged by the payment to Clifton Capital,
Ltd. of $100,000; and (iii) $500,000 owed to Mentor Special
Situation Fund, L.P. ("Mentor"), discharged by the issuance to
Mentor of 166,667 shares of newly issued Series B preferred
stock of ConMat and Series B Warrants to purchase 166,667
shares of common stock. In addition, Mentor Management Company
exchanged warrants to purchase 30,000 shares of Eastwind
common stock for warrants to purchase 30,000 shares of ConMat
common stock.
o Prior to the acquisition, Eastwind had caused Polychem to
distribute to Eastwind approximately $940,000. As part of the
acquisition, Eastwind agreed to repay these distributions with
interest, or forego a portion of the Series A Preferred Stock
issued to it as an adjustment to the purchase price. To
reflect this agreement, Eastwind issued to Polychem a
promissory note in the amount of $940,000, secured by the
pledge of 313,333 shares of Series A Preferred Stock. This
note accrued interest at 8% per year and principal and
interest were due and payable November 30, 2000. Eastwind
defaulted under the terms of the note as a result of a default
by Eastwind on a guarantee of an unrelated debt obligation and
as a result of a material adverse change in Eastwind's
financial condition. Following such default, ConMat sought to
foreclose on the pledged shares. Pursuant to a Settlement
Agreement dated June 29, 1999, Eastwind transferred the
pledged shares to Polychem in exchange for cancellation of the
note. The amounts previously paid to Eastwind have been
accounted for as distributions by Polychem to Eastwind in the
form of dividends. For financial accounting purposes, the
return of the pledges shares was treated as a reduction in the
number of shares of Series A Preferred Stock issued to
Eastwind in connection with the acquisition of Polychem and in
the number of Series A Preferred Stock outstanding.
In compliance with applicable state law, the transaction was approved by the
Board of Directors and shareholders of ConMat and the Board of Directors of
Eastwind. In addition, General Electric Capital Corporation ("GECC") approved
the transaction as required by the terms of a Loan and Security Agreement
between Polychem and GECC.
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Polychem
General. Polychem is a wholly-owned subsidiary of ConMat. Polychem was
originally formed in February 1995 by its former owner for the purpose of
acquiring substantially all of the assets and business of The Polychem Division
of The Budd Company. Polychem, which has been in business since 1955, develops
and manufactures custom engineered plastic molded products which are marketed
primarily to wastewater treatment plants, as well as to other industrial users.
Products. Polychem engineers and produces an extensive line of plastic molded
products that are used in a variety of industrial markets. Polychem's typical
products include, among others, complete non-metallic rectangular clarifier
component systems for water and wastewater treatment operations. Polychem's
clarifier component systems are primarily used for the removal of sediment and
solids from wastewater. The clarifier systems are, in effect, settling tanks
through which water passes, allowing suspended solids to settle. These systems
are comprised of non-metallic chain, sprockets, stub shafts, wear shoes and
other products fabricated to customer specifications. Polychem also produces:
o cast nylon elevator buckets for handling foundry
sand, aggregate and glass cullet. These buckets are
secured to elevators and used to convey raw materials
to their point of use in the manufacture of steel,
glass and other products.
o phenolic sprockets and pulleys used with blade belts
in the cutting housing for agricultural equipment and
for securing electrical cables for mining equipment.
o celeron bearings for the rolling machinery in steel
mills.
o extruded thermoset air conditioning ducts for
aircraft.
o molded conveyor chains and accessories for conveying
cans, bottles and other packaged materials during
production, water and wastewater treatment and other
material handling industries.
Most of the nylon buckets, steel mill bearings and table-top conveyor chains are
sold as off-the-shelf items to steel mills and distributors. The majority of the
balance of Polychem's products are produced for use in a complete system of
wastewater treatment clarifier equipment that Polychem sells to its customers.
Such a complete system is usually built to customer specifications and sold
under an order selected from competitive bids. The reaction injection molded
("RIM") nylon products and the injected molded products account for between 80%
and 90% of Polychem's sales; compression molded products comprise the balance of
the business. The average life expectancy of Polychem's typical products is ten
years. The cost of Polychem's systems varies based on the scope of the system
and the end user modifications required. The cost of a system generally ranges
from $20,000 to $45,000. In addition to its existing products, Polychem
continues to explore new product applications. Polychem currently has one
product designed for use in the automotive industry entering the test market
phase and two wastewater treatment products in the feasibility study stage.
Wastewater treatment plants are primarily used to clean sewage and return water
to general public use. Wastewater treatment plants are generally owned by
municipalities or water authorities. There are over 15,000 wastewater treatment
plants in the United States. Polychem estimates that globally there are 30,000
to 50,000 plants. In the United States, an estimated $22 billion is spent on
wastewater treatment plants annually, while an estimated $83 billion is spent
annually on a global basis.
Polychem provides quotes to contractors for components for approximately 400
wastewater treatment projects each year. Project contracts typically are awarded
on a competitive bid basis. In some cases, the municipality or its engineer
determines, based on price, reliability, system flexibility or other factors,
that certain components must come from a specific manufacturer. If Polychem
products are so required, the successful bidder has to buy the specified
components from Polychem. In most cases a particular manufacturer is not
specified, and the successful bid is selected on such factors as price, system
adaptability and reputation. Historically, Polychem products are used in
approximately 25% of the projects for which Polychem provides quotes. Polychem
does not bid directly for new projects, but rather supplies its products to a
contracting engineer, who in turn bids for new projects. Polychem bids directly
for replacement products. Of the approximately 400 bids submitted annually,
approximately 60% are for replacement parts and 40% are new projects. New
projects account for approximately 75% of Polychem's revenues.
Manufacturing Processes. Polychem's plant is equipped and organized to
accommodate the manufacturing cycle through which raw materials are converted
into finished product. Raw materials are stored in tanks inside and outside the
facility. The manufacturing cycle begins with the mixing of raw materials, which
are then sent to the Molding Department. In the Molding Department, products are
molded in batches by one of the following three processes:
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o RIM molding, which produces nylon buckets, stub shafts, and
sprockets. In RIM molding, a compound containing a catalyst
and a compound containing a promoter are mixed in the mold
where a reaction takes place; the combination and percentage
of base chemicals and additives determine the properties of
the final product;
o Compression molding, which produces phenolic steel mill
bearings, timing gears, timing pulleys and other molded
products. In the compression molding process, phenolic
macerate or phenolic laminate is placed in heated molds
(approximately 325 degrees) and cured for a specific period of
time at pressures up to 3000 PSI; and
o Injection molding, which produces engineered resin parts used
for wastewater drives, collector chains and tabletop conveyor
chains. In injection molding, engineered plastic materials are
melted and injected into the mold at a controlled temperature
and rate. Once in the mold, the plastic is cooled to a shape
reflecting the cavity.
Products are then sent to the Fabricating Department for machining and assembly.
Polychem's plant operates on a three-shift basis. Most of the employees have
been trained to operate all of the various equipment in their departments, which
gives Polychem additional flexibility in scheduling personnel to meet production
needs as they arise.
Marketing and Customers. Polychem was originally a manufacturer of a complete
line of industrial laminates, automotive timing gears, vulcanized fibre and
teflon and silicon tape. In the early 1980's, Polychem identified the wastewater
treatment industry as a potential market and began to shift its focus to
manufacturing products designed for such market. By 1992, wastewater products
became Polychem's dominant revenue producer and presently the revenues from
wastewater products comprise 85% of Polychem's annual sales volume. The
wastewater treatment market is global in nature, and Polychem presently sells
products internationally in Western Europe, Asia and South America and is
expanding into Eastern Europe, the Middle East and Africa.
In addition to non-metallic clarifier component systems for wastewater
treatment, Polychem markets its traditional products (such as plastic chain,
compression molded phenolic and injection molded plastic components,
RIM-processed nylon buckets, phenolic bearings and corrugated fibre products) to
the food processing, electronics, steel, automotive, chemical, printing,
aerospace, and consumer products industries, among others.
Polychem markets its plastic chain, cast nylon buckets, steel mill bearings and
compression molded phenolics primarily through distributors. The balance of its
products, including its wastewater treatment component systems, are sold
primarily through Polychem's internal sales force, which consists of
approximately ten employees. Domestic distributors are paid a percentage of
sales ranging from 5% to 15%. Internationally, distributors are compensated on a
buy and sell arrangement. In effect, Polychem sells to the distributor who, in
turns, resells to the ultimate buyer. The distributor earns the difference
between its purchase price and the sales price to the buyer. Polychem's internal
sales force receives a base salary and a bonus based on their individual and
ConMat's overall performance. In its most recent fiscal year, Polychem's sales
force generated 62.7% of its annual sales revenue, international distributors
accounted for 15.8% and domestic distributors accounted for 21.6%. Domestic
revenues were approximately 71.4% and international revenues were approximately
28.6% in that fiscal year.
Competition and Strategy. Polychem's competition tends to be fragmented. Many
other companies, domestically and internationally, produce one or more products
similar to one or more of Polychem's products. Experienced competition exists in
each of Polychem's major markets and many of Polychem's competitors enjoy
excellent working relationships with their customers, produce a variety of
quality products and have access to significant resources. Such resources,
including capital, labor and product support, can result in faster response time
and cheaper prices. These factors, along with product characteristics,
reliability, servicing, and pricing form the major competitive factors in
Polychem's markets.
Polychem believes that it has four significant competitors in the area of
non-metallic rectangular wastewater clarifier systems, of which it considers
Envirex to be the most significant. Polychem believes that it and Envirex each
possess approximately 35% of this market. However, while Polychem provides
products only to clarifier systems in wastewater plants, Envirex has a much
broader line of wastewater treatment products that encompasses all of the major
processes in a treatment plant. Envirex's broader line allows it to bid for
larger portions or projects and to use certain products as loss leaders. FMC and
NRG are Polychem's other less substantial (in terms of market share)
competitors, and a fifth company is attempting to enter the market. Both Envirex
and FMC are significantly larger than Polychem. Polychem believes that it has
three competitors in the market for nylon buckets and five competitors in the
market for table-top chains. Polychem has an approximate 50% share of the nylon
bucket market, while its closest competitor has an approximate 30% market share.
The dominant competitor in the table top chain market, Rexnard, holds an
approximate 80% market share, while Polychem has an approximate 5% share.
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Polychem's long-term goals include solidifying its reputation as a leading
provider of quality wastewater treatment equipment products; increasing sales of
its traditional products by improving existing product lines; and seeking new
products to supplement its current line, both from internal research and
development and by acquisition.
Materials and Supplies. Polychem's business of manufacturing a broad line of
engineered plastic products requires the ability to obtain various sources of
raw materials. Polychem maintains approximately three to five suppliers for each
of its raw materials. Approximately 80% of the raw materials purchased by
Polychem are resins. Polychem also purchases capolactin and pultrusions for use
in manufacturing. Polychem's two largest suppliers of resins are BASF and ALM
Industries. Its two largest suppliers of capolactin are Dutch State Mines and
BASF, while its two largest suppliers of pultrusions are Creative Pultrusions
and Morrison Fiberglass. At present, Polychem does not maintain more than one
month's supply of raw materials beyond the amount required for its scheduled
production work.
Environmental Regulations. While no assurances can be given, Polychem does not
anticipate any material expenses for environmental remediation projects. In the
ordinary course of its business, Polychem incurs some cost for oil reclamation,
hauling of waste products and normal energy costs associated with recycling and
waste disposal. Polychem spends approximately $50,000 annually to comply with
environmental laws, including hauling costs as well as general monitoring and
compliance costs. Polychem maintains two environmental permits, one for a dust
collection system and the other for its after burner heater. The collected dust
is transported by traditional waste management handlers to domestic landfills.
The after burner heater is used to mix cotton fabric with phenolic resins, which
are then processed into specific products. Methanol from the heater is processed
through an after burner and emits little in the way of contaminants. Polychem
maintains seven above ground storage tanks. Two are used to store phenolic
resins inside the plant; two store fuel oil; and three outside tanks are used to
store other chemicals. There are spill containment systems in place throughout
the facility.
Occasionally, there are minor and isolated spills of heat transfer oil,
capolactin and phenolic resins. The latter two quickly solidify at room
temperature and the hardened material is removed to an approved landfill; spills
of heat transfer oil are cleaned and properly disposed of with other waste
products by a licensed outside processor. Polychem has submitted a revised spill
prevention and response plan to the Pennsylvania Department of Environmental
Resources in May 1994 to which no comments have been received as of the date of
this registration statement.
Polychem has occupied its Phoenixville, Pennsylvania property since 1974. The
property was first used as a silk mill in the early part of this century and
then as a manufacturing site for felt carpet padding. Three environmental audits
that have been conducted over the past four years as part of customary due
diligence in financing transactions have not revealed contamination. An
environmental audit was commissioned by Congress Financial Corporation in
conjunction with the purchase of Polychem by The Eastwind Group in 1995. A
second environmental study was commissioned by Fidelity Funding in connection
with a financing commitment in 1997. A third environmental study was
commissioned by GE Capital Corporation in connection with their refinancing in
1998.
Employees. Polychem employs approximately 77 employees, of whom approximately 43
are employed on an hourly basis. Hourly employees are members of United Textile
Workers of America, AFL-CIO, Phoenixville Plastic Makers' Union, Local No. 130
(the "Union"). Most are semi-skilled workers. The current Union contract expires
at the end of September 1999. While the Union has not yet provided the required
notice of their intent to negotiate, management expects that negotiations with
the Union will commence during the third quarter.
ConMat has assumed all of Polychem's continuing obligations under its collective
bargaining agreement with the Union, which includes assumption of obligations
under a defined benefit retirement plan for hourly rated employees at its
Phoenixville, Pennsylvania plant. The plan is fully funded in accordance with
certain actuarial assumptions and to meet ERISA funding requirements. However,
there can be no assurances that market performance of plan investments will be
sufficient to meet all plan liabilities as they arise.
Equipment. Polychem owns or leases, through capital leases, all of the equipment
required to conduct its business. The equipment is comprised of compression
molding presses, transfer molding presses, injection molding presses, reactors,
dispensers and RIM press lines for nylon-6 operations, a complete fabrication
shop with computerized numerical control equipment and a computer aided design
center.
Research and Development. Polychem is the owner of a number of United States and
foreign patents and patent applications relating to water treatment plastic
products, chain conveyor links, conveyor chain bearings, sprockets with locking
mechanisms and a bucket grit elevator system. The ownership of such patents
helps Polychem from a marketing standpoint by securing its continued reputation
as an innovative competitor in its industry.
Polychem employs eight application engineers who use computer aided design
equipment to design custom wastewater treatment non-metallic rectangular
clarifier systems or to alter existing clarifiers to meet changing specification
requirements.
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All new products are evaluated for patent protection. Recently, Polychem was
granted a patent for a grit bucket system which is now undergoing marketing
development. To date, five successful applications for the system have been
found, the most significant of which is to function as part of a grit collection
system in wastewater treatment where it will be used to remove sand and gravel
from effluent before it reaches the clarifier. Polychem spent $141,000 and
$155,000 on research and development during the years ended January 2, 1999 and
January 3, 1998, respectively, and $76,000 and $79,000 during the six month
periods ended June 30, 1999 and June 30, 1998, respectively.
Debt and Encumbrances. On September 30, 1998, Polychem entered into a Loan and
Security Agreement with GECC which provides for a three-year, $3,500,000
revolving line of credit and a three-year term loan of $1,500,000. On August 25,
1999, the revolving line of credit was increased to $5,000,000. The revolving
line of credit and the term loan originally were secured by a mortgage on
Polychem's Phoenixville, Pennsylvania facility, which mortgage lien was released
in connection with the PSERB financing described below. The term loan is secured
by Polychem's equipment. The revolving line of credit is secured by accounts
receivable and inventory. Advances under the revolving line of credit are
subject to a lending formula limiting the availability of funds to the total of
(i) 80% of eligible accounts receivable, less the amount by which contractual
holdbacks (i.e., amounts that customers are entitled to hold back until
completion of a project) in favor of account debtors on eligible accounts
exceeds $250,000, plus (ii) the lesser of $750,000 or 50% of eligible inventory
(less a $300,000 reserve). Interest rates on the loan are at a rate of 4.75% in
excess of the 30 day dealer commercial paper rate on the revolving line of
credit, 9.85% at August 20, 1999, and 6.50% in excess of the 30 day dealer
commercial paper rate for the term loan, 11.60% at August 20, 1999.
Interest on the revolving line of credit and term loan is payable monthly.
Polychem's collections of accounts receivable are deposited with GECC under a
lockbox arrangement and applied to paydown the balance of the revolving line of
credit, which then may be drawn against subject to availability. The principal
balance of, and all accrued interest on, the revolving line of credit is due and
payable September 30, 2001. In the event that Polychem has cash flow for any
fiscal year in excess of capital expenditures paid for from operations, interest
expense, taxes and scheduled debt repayments, 25% of such excess must be applied
first to repay the term loan and then to reduce the outstanding balance under
the revolving line of credit. As of August 25, 1999, availability under the line
of credit was $2,438,000 and outstanding borrowings were $2,041,000.
On August 25, 1999, Polychem received a $1,880,000 term loan from the Public
School Employes' Retirement Board ("PSERB"), secured by a mortgage on
Polychem's Phoenixville, Pennsylvania facility. $813,000 of the net proceeds of
the loan was applied to reduce the outstanding balance of the GECC term loan to
$412,000 and the remaining $996,000 of net proceeds was applied to reduce the
outstanding balance of the GECC revolving line of credit. The PSERB loan is for
a term of 10 years. The interest rate on the PSERB loan is 8.5% for the first
five years, and thereafter is 350 basis points above the 5 year U.S. Treasury
Note Yield Rate as of the end of the first five years. Principal and interest
are payable in equal monthly installments based on a 25 year amortization
schedule, with a baloon payment September 1, 2009 equal to the outstanding
principal balance plus accrued interest.
In connection with the PSERB loan, GECC agreed to release the mortgage lien
securing its term loan. GECC also agreed to restructure the payment schedule on
the remaining $412,000 balance of its term loan to provide for 25 monthly
payments of $8,000 and a final payment September 30, 2001 of $212,000.
Polychem executed a $1,626,294 promissory note to The Budd Company on March 10,
1995 as part of the purchase price of the Polychem Division of Budd. The
outstanding principal balance of this note as of August 20, 1999 was $1,138,000.
The note accrues interest at 8%, payable quarterly. The principal balance is
payable in 20 equal quarterly installments, commencing March 31, 1998, provided
that Polychem may defer up to 25% of any payment if the payment would exceed
Polychem's net cash flow for the preceding fiscal quarter. No payments have been
deferred. The Budd note is unsecured.
Potential Future Acquisitions
ConMat may seek to acquire other operating companies with complimentary product
lines or incremental distribution or production capabilities. Such companies
would likely have a competitive position in the wastewater treatment
marketplace, but need not service this market exclusively. Acquisition
candidates would likely have a value ranging from $5 million to $15 million. The
market for such acquisition candidates is fragmented and is presently undergoing
significant consolidation.
ConMat is not presently negotiating any specific acquisitions. ConMat has
identified a series of complimentary product and production needs and is
presently searching for acquisition candidates that would meet those particular
needs. ConMat may acquire other operating companies with cash, stock or a
combination of cash and stock.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward Looking Statements
Some of the statements contained in this registration statement discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.
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Important factors that may cause actual results to differ from projections
include, for example:
o general economic conditions, including their impact on
capital expenditures;
o business conditions in the material technology and wastewater
treatment industries;
o the regulatory environment;
o rapidly changing technology and evolving industry standards;
o new products and services offered by competitors; and
o price pressures.
Background and Basis of Presentation
On December 8, 1998, ConMat, a non-operating company with immaterial net assets,
acquired 100% of the outstanding common stock of Polychem from Eastwind. The
acquisition resulted in the owners and management of Polychem having effective
operating control of the combined entity.
The acquisition has been accounted for as a capital transaction in substance,
rather than a business combination. The acquisition is equivalent to the
issuance of stock by Polychem for the net monetary assets of ConMat, accompanied
by a recapitalization, and is accounted for as a change in capital structure.
Accordingly, the accounting for the acquisition is identical to that resulting
from a reverse acquisition, except that no goodwill is recorded. Under reverse
takeover accounting, the post reverse-acquisition comparative historical
financial statements of the "legal acquirer" (ConMat), are those of the "legal
acquiree" (Polychem).
Accordingly, the consolidated financial statements of ConMat included in this
registration statement are the historical financial statements of Polychem for
the same periods adjusted for the following transactions contained in the Share
Exchange Agreement executed at consummation of the acquisition. The basic
structure and terms of the acquisition, together with the applicable accounting
effects, were as follows:
o ConMat acquired all of the outstanding shares of common stock of
Polychem from Eastwind in exchange for (i) 1,000,000 shares of
newly issued common stock of ConMat (which Eastwind transferred to
The Eastwind Group, Inc. Shareholder Trust) and (ii) 1,333,333
shares of newly issued cumulative, 2% Series A convertible
preferred stock of ConMat. The common stock and Series A Preferred
Stock exchanged, in addition to the existing ConMat shares
outstanding, collectively resulted in the recapitalization of
Polychem. Earnings per share calculations include Polychem's
change in capital structure for all periods presented.
o ConMat assumed and discharged the following liabilities of
Eastwind: (i) $160,000 owed to Paul A. DeJuliis, Eastwind's former
Chairman and Chief Executive Officer, who is the current Chairman
and Chief Executive Officer of ConMat, discharged by the issuance
to Mr. DeJuliis of 53,333 shares of Series A Preferred Stock; (ii)
$100,000 owed to Clifton Capital, Ltd., discharged by the payment
to Clifton Capital, Ltd. of $100,000; and (iii) $500,000 owed to
Mentor discharged by the issuance to Mentor of 166,667 shares of
newly issued Series B preferred stock of ConMat and Series B
Warrants to purchase 166,667 shares of common stock. In addition,
Mentor Management Company exchanged warrants to purchase 30,000
shares of Eastwind common stock for warrants to purchase 30,000
shares of ConMat common stock.
o Prior to the acquisition, Eastwind had caused Polychem to
distribute to Eastwind approximately $940,000. As part of the
acquisition, Eastwind agreed to repay these distributions with
interest, or forego a portion of the Series A Preferred Stock
issued to it as an adjustment to the purchase price. To reflect
this agreement, Eastwind issued to Polychem a promissory note in
the amount of $940,000, secured by the pledge of 313,333 shares of
Series A Preferred Stock. This note accrued interest at 8% per
year and principal and interest were due and payable November 30,
2000. Eastwind defaulted under the terms of the note as a result
of a default by Eastwind on a guarantee of an unrelated debt
obligation and as a result of a material adverse change in
Eastwind's financial condition. Following such default, ConMat
sought to foreclose on the pledged shares. Pursuant to a
Settlement Agreement dated June 29, 1999, Eastwind transferred the
pledged shares to Polychem in exchange for cancellation of the
note. The amounts previously paid to Eastwind have been accounted
for as distributions by Polychem to Eastwind in the form of
dividends. For financial accounting purposes, the return of the
pledges shares was treated as a reduction in the number of shares
of Series A
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Preferred Stock issued to Eastwind in connection with the
acquisition of Polychem and in the number of Series A Preferred
Stock outstanding.
o In connection with the acquisition, ConMat assumed certain
liabilities of Eastwind. Such liabilities are considered to be
"contributed" to Polychem by Eastwind upon consummation of the
acquisition resulting in a reduction of Polychem's stockholders
equity. ConMat's securities issued in connection with the
acquisition to satisfy these liabilities are recorded at the
amounts of the related liabilities relieved.
Results of Operations
Six Month Periods Ended June 30, 1999 and June 30, 1998
The following table sets forth certain statement of operation items as a
percentage of total net sales for the period indicated:
Six Months Ended June 30,
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1999 1998
---- ----
Sales....................................... 100.0% 100.0%
Cost of Goods Sold.......................... 73.0 77.3
Gross Profit................................ 27.0 22.7
Selling and Administrative.................. 18.8 22.3
Interest Expense............................ 4.0 5.0
Other Expense............................... 0.4 3.3
Income Tax.................................. 1.3 --
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Income (Loss)............................... 2.5 (7.9)
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Cost of Goods Sold is determined as the sum of material costs, direct
manufacturing labor costs, and an allocation of utilities and other overhead
costs attributable to manufacturing activities.
Total revenues increased by $1,591,000 or 36% to $5,993,000 for the six month
period ended June 30, 1999 ("Current Period") from $4,402,000 for the six month
period ended June 30, 1998 ("Comparable Period"). This increase is attributable
to Polychem's successful efforts to increase market penetration internationally
where it has previously done business as well as increased volume from the
domestic market. In the Current Period, Polychem realized revenues in excess of
$500,000 from international markets in which it had previously never consummated
sales. This included $400,000 in South America, primarily Columbia, and over
$100,000 in the Middle East, including Egypt and Dubai. Additionally, Polychem
realized increased domestic revenues of approximately $1,000,000 from contracts
in the West and Southwestern regions of the United States where there has been
increased spending on water treatment projects and where Polychem has a strong
marketing presence.
Gross profit increased by $617,000 or 61% to $1,616,000 for the Current Period
from $999,000 for the Comparable Period. Gross profit increased as a percentage
of sales to 27.0% for the Current Period from 22.7% for the Comparable Period.
These increases are a result of increased utilization of existing plant capacity
as the result of which increased production did not require substantial
increases in manufacturing costs, as well as the ongoing effect of several cost
saving measures implemented by management. These measures include improved
productivity as a result of mechanization through new equipment purchases. This
increase in productivity allows Polychem to maintain the same level of
production with lower direct labor costs (wages expended on skilled and
unskilled workers that are allocated directly to a particular unit). While
difficult to quantify, improved productivity arising from the purchase of new
automated machinery should yield approximately $100,000 to $150,000 in annual
cost savings. Further, Polychem has internalized previously outsourced
production resulting in lower material costs. Management estimates cost savings
of $50,000 to $100,000 annually from this reduced outsourcing.
Selling and administrative expenses increased by $147,000, or 15% to $1,129,000
for the Current Period from $982,000 for the Comparable Period. This increase is
a direct result of increased revenue. As a percentage of revenues, however,
selling and administrative expenses decreased to 18.8% for the Current Period
from 22.3% of total revenues for the Comparable Period. Management is closely
monitoring selling and administrative expenses and expects such expenses to
decrease as a percentage of sales in future periods due to expected increased
revenues due to the realization of benefits from expenditures made in late 1997
and early 1998 in an effort to increase Polychem's global focus, including the
hiring of additional sales personnel. As the efforts of Polychem's global sales
force progress, Polychem anticipates increased revenues
7
<PAGE>
without significant increases in selling and administrative expenses. This is
reflected in the decrease in selling and administrative expenses as a percentage
of revenue experienced in Current Period.
Interest expense for the Current Period increased $27,000 or 12%, to $244,000
from $217,000 for the Comparable Period. This higher cost reflects ConMat's
increased borrowing on its working capital line to finance increased receivables
and inventory arising from increased volume. Interest costs as a percentage of
total revenues declined to 4% in the Current period compared to 5% in the
Comparable Period.
ConMat realized a profit of $141,000 and a net cash surplus of $38,000 for the
Current Period. For the Comparable Period, ConMat experienced a loss of $344,000
and a net cash deficit of $19,000. The improved profitability is a direct result
of increased revenues. At the current level of revenues, ConMat is operating
above its break-even point. The small increase in net cash realized is the
result of an increase in profitability resulting from increased volume.
Fiscal Years Ended January 2, 1999 and January 3, 1998
The following table sets forth, for each of the aforementioned periods, certain
statement of operations items as a percentage of total net sales for the periods
indicated:
Fiscal Years Ended
-----------------------------------------
January 2, 1999 January 3, 1998
--------------- ---------------
Net Sales 100.0% 100.0%
Cost of Goods Sold 73.7 75.4
Gross Profit 26.3 24.6
Selling and Administrative 22.7 17.5
Interest Expense 6.7 3.4
Other Expense 3.2 4.2
-------- -------
Income (Loss) (6.3) (0.5)
======== =======
Total revenues decreased by $3,060,000, or 25%, to $9,070,000 for the fiscal
year ended January 2, 1999 ("Current Annual Period") from $12,130,000 for the
fiscal year ended January 3, 1998 ("Comparable Annual Period"). This decline is
attributable in large measure to delays in processing $3.0 million in contracts
in the United States, which were not realized in 1998. The domestic projects
came back on line in 1999 and are part of Polychem's current backlog. In
addition, an anticipated increase in Asian revenues did not occur as the result
of a severe liquidity crisis in the region which made funding of projects very
difficult. As a result of this liquidity crisis, approximately 30 projects worth
approximately $15 million on which Polychem had open quotes were delayed.
Polychem products are specified in approximately $4 million of such projects.
ConMat believes, however, that a substantial portion of these projects will
ultimately be awarded due to their environmental significance. While Management
had expected an increase in revenues derived from activities in Asia of
approximately $4 million, such revenues increased $300,000 to $1.4 million
during the Current Annual Period compared to $1.1 million in the Comparable
Annual Period. ConMat has reduced its reliance on Asia by shifting its sales
focus to projects in other parts of the world where project start dates are more
certain due to better economic stability. As a result of the problems in Asia,
Polychem's international sales force began emphasizing areas of the world where
Polychem had not previously made any sales. These areas included the Middle
East, Mediterranean, South America and parts of Eastern and Western Europe. In
each of these areas there was greater certainty with respect to a project start
date because of the ability of organizations to obtain the necessary funding for
these projects. As a result, ConMat ended the Current Annual Period with a
booked order backlog (confirmed orders with specific shipping dates) of
$5,400,000, or an increase of 135% over the $2,300,000 backlog at the end of the
Comparable Annual Period.
Gross profit decreased by $604,000, or 20%, to $2,384,000 for the Current Annual
Period from $2,988,000 for the Comparable Annual Period as a result of the
decrease in total revenues. Gross profit increased as a percentage of sales to
26.3% for the Current Annual Period from 24.6% for the Comparable Annual Period.
The percentage increase reflects a combination of several cost saving measures
implemented by management which are expected to have increased benefits in the
future as costs increase more slowly than revenues. While difficult to quantify,
improved productivity arising from the purchase of new automated machinery
should yield approximately $100,000 to $150,000 in annual cost reductions.
Further, the internalization of formerly outsourced production should yield
estimated cost savings of $50,000 to 100,000 annually. Reduced outsourcing
results in fewer outside purchases of finished product and accompanying cost
savings due to the lower cost of converting raw materials versus the cost of
purchasing finished products. Management expects gross profits to increase in
the near term reflecting an improved mix of more profitable international versus
domestic sales, lower material costs, and continued improvements in production
efficiencies.
8
<PAGE>
Selling and administrative expenses decreased by $64,000, or 3.0%, to $2,055,000
for the Current Annual Period from $2,119,000 for the Comparable Annual Period.
As a percentage of revenues, selling and administrative expenses increased to
22.7% for the Current Annual Period from 17.5% for the Comparable Annual Period.
The level of selling and administrative expenses during the Current Annual
Period reflects costs associated with the penetration of new markets around the
world and the moderation of Polychem's reliance on Asian markets for new
revenues.
Interest expense for the Current Annual Period includes a one-time charge of
$143,000 relating to deferred financing costs associated with the September 1998
refinancing. Excluding this one-time charge, interest expense increased $61,000,
or 15%, to $467,000 for the Current Annual Period from $406,000 for the
Comparable Annual Period. Increased average borrowings as a result of the
aforementioned refinancing were the primary reason for the increase. Management
expects future interest costs to remain fairly stable.
For the Current Annual Period, ConMat experienced a loss of $575,000, which
included corporate charges from Polychem's former parent company of $480,000.
The corporate charges represent assessments to provide for the parent company's
corporate overhead expenses, including legal and accounting costs, regulatory
compliance costs, insurance costs, administrative overhead as well as other
unforeseen costs. For the Comparable Annual Period, ConMat realized a net loss
of $64,000, which included corporate charges from Polychem's former parent
company of $640,000. ConMat anticipates that its corporate overhead expenses
will be approximately $350,000 per year. The larger loss experienced in the
Current Annual Period reflects, as described above, a significant decrease in
revenues which was not offset by a comparable decrease in manufacturing costs.
Liquidity and Capital Resources
ConMat's primary source of working capital is a credit facility of up to $5
million secured by Polychem's assets with borrowings limited to a percent of
eligible receivables and inventory. At January 2, 1999, ConMat was not in
compliance with certain financial covenants associated with the GECC facility.
These instances of noncompliance were waived by GECC. By the end of the first
quarter of 1999, ConMat was back in compliance with such financial covenants and
anticipates continued compliance moving forward. However, there can be no
assurance that ConMat will remain in compliance or that GECC will continue to
waive any noncompliance. As of August 25, 1999, the maximum borrowing amount was
$2,438,000 and the outstanding balance was $2,041,000. Management believes that
ConMat has sufficient assets, equipment and facility to attain and absorb
forecasted growth in revenues. ConMat has no commitments for significant capital
expenditures in the foreseeable future. Management believes that ConMat's cash
and capital resources, together with cash flow from operations, will be
sufficient to finance current and forecasted operations including its capital
spending and research and development needs. ConMat is, however, actively
seeking potential strategic acquisitions and, depending on the size and terms of
any such acquisitions, additional financing, including equity infusions, may be
required.
On August 25, 1999 Polychem received a $1.88 million term loan from PSERB,
secured by a mortgage on Polychem's Phoenixville, Pennsylvania facility.
$813,000 of the net proceeds from the loan was applied to reduce the outstanding
balance of the GECC term loan to $412,000 and the remaining $996,000 of net
proceeds was applied to reduce the outstanding balance of the GECC revolving
line of credit.
In addition, at January 2, 1999, ConMat had significant net operating loss
carryforwards which expire in periods up to 2018. ConMat has recorded a
valuation allowance to reflect a net deferred tax asset that management believes
is realizable in future tax years from income from operations. Management's
expectations with respect to the realization of the net deferred tax asset are
based on the realization of a net profit for the Current Period, the current
operation of ConMat above its break-even point and Polychem's significant booked
order backlog. However, no assurances can be given that ConMat will generate
sufficient profits to utilize the net operating loss carry forwards. If ConMat
is unable to realize the net deferred tax asset, it will be charged off as an
expense and removed as an asset from ConMat's consolidated balance sheet.
Six Month Period Ended June 30, 1999
During the Current Period, ConMat realized net cash from all sources of $38,000.
During the Current Period, ConMat saw an increase in operating capital
requirements of $1,223,000. This increased requirement was generated primarily
from an increase in accounts receivable of $2,001,000. This increase in accounts
receivable was offset by an increase in accounts payable of $511,000. ConMat's
operating capital needs for the Current Period were sufficiently financed by its
current credit facility. Cash flow from investing activities included
expenditures for new equipment of $37,000. Financing activities included the
repayment of principal on outstanding debt of $325,000. ConMat had net
borrowings of $1,292,000 reflecting primarily draws on its working capital line
to fund its working capital requirements.
9
<PAGE>
Fiscal Years Ended January 2, 1999 and January 3, 1998
Despite incurring a loss for the Current Annual Period, ConMat realized net cash
from operating activities of $462,000 related primarily to a decrease in
accounts receivable of $902,000, a reduction in prepaid expenses of $80,000 and
non-cash charges for depreciation and amortization of $313,000. These inflows
were reduced by an increase in deferred finance costs of $167,000 and combined
decreases in accounts payable and accrued expense of $51,000. Accounts
receivable decreased 26% from the Comparable Annual Period to $2.6 million from
$3.5 million, reflecting normal collections during the period and a lower ending
receivables balance reflecting the 25% decrease in revenues from the Comparable
Annual Period. Cash flow from investing activities included expenditures for new
equipment of $177,000. Financing activities used net cash of $330,000, primarily
reflecting net borrowings arising from a financing of $123,000, a capital
distribution to the former parent of $250,000 and recapitalization costs in
connection with the acquisition of Polychem of $173,000.
For the Comparable Annual Period, ConMat realized cash from operating activities
of $422,000 related primarily to decreases in accounts receivable of $467,000
and inventory of $434,000, plus increases in accounts payable of $188,000 and
non-cash charges for depreciation and amortization of $233,000. These inflows
were reduced by decreases in accrued liabilities of $446,000 and deferred
revenues of $92,000. Cash flow from investing activities included purchases of
new equipment for $126,000. Net cash of $284,000 used in financing activities
reflects the excess of net borrowings under the line of credit above scheduled
principal repayments of the term debt, less repayment of $360,000 on
subordinated notes and dividends to the former parent of $768,000.
Year 2000 Compliance
Changing from the year 1999 to 2000 has the potential to cause problems in data
processing and other date-sensitive systems. The Year 2000 date change can
affect any system that uses computer software programs or computer chips,
including automated equipment and machinery. The Year 2000 problem is the result
of computer programs using two digits rather than four to define the year. Any
of Polychem's programs that are time sensitive may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. At Polychem, computer systems are used to run all
administrative and key design and manufacturing functions. Computer software and
computer chips also are used to run security systems, communications networks
and other essential equipment. Because of its reliance on these systems,
Polychem is following a process to assure that such systems are ready for the
Year 2000 date change.
In June 1998, Polychem entered into an agreement with IBM Corporation and IBM's
authorized software licensee for systems, CNA Systems, Incorporated. Polychem
entered into the agreement, in part, to initiate a Year 2000 plan to ensure that
Polychem's existing information systems were Year 2000 compliant. In connection
with the agreement, Polychem has upgraded its computer system from an IBM System
36 to an IBM AS/400 and has purchased new software applications relating to
sales and marketing, manufacturing, financial management, materials management,
quality control and management information support systems.
During the fourth quarter of 1998, Polychem commenced the editing and
reprogramming of its existing databases. During the first quarter of 1999,
Polychem commenced testing of inter-modular software applications using the
revised databases. Polychem intends to parallel these systems during the third
quarter of 1999 and to complete its Year 2000 preparation by October 1, 1999. In
connection with the foregoing, Polychem has completed its assessment of which
systems and equipment are most prone to placing Polychem at risk if they are not
Year 2000 compliant (i.e., mission critical systems).
Significant vendors have been requested to advise Polychem in writing of their
Year 2000 readiness, including actions to become compliant if they are not
already compliant. Vendors who provide significant technology-related services
to Polychem have modified their systems to become Year 2000 compliant. The
monitoring of certain vendors will continue into the remainder of 1999.
Polychem is preparing a contingency plan for how Polychem would resume business
if unanticipated problems arise from non-performance by vendors. Such plans are
expected to be completed by September 1, 1999.
Polychem spent $125,000 during the year ending December 31, 1998 and $35,000
during the six months ended June 30, 1999, relating to costs incurred as a
result of its Year 2000 Plan. Polychem anticipates incurring approximately
$15,000 in additional costs related to the implementation of the Year 2000 plan.
Management presently believes the Year 2000 issue will not pose significant
operating problems for Polychem. However, if implementation and testing plans
are not completed in a satisfactory and timely manner by Polychem or third
parties on which Polychem is dependent, or other unforeseen problems arise, the
Year 2000 issue could potentially have an adverse effect on the operations of
Polychem.
10
<PAGE>
Item 3. Description of Property.
Polychem operates from a 220,000 square foot facility in Phoenixville,
Pennsylvania, which it owns, subject to a mortgage with GECC securing a
revolving line of credit and term loan. See "Description of
Business-Polychem-Debt and Encumbrances." In July 1998, the property was
appraised at $2.4 million by AccuVal Associates Incorporated, an independent
appraiser. Polychem uses approximately 120,000 square feet for manufacturing and
warehousing, and 20,000 square feet for offices. Polychem leases approximately
42,500 square feet of its facility as warehouse space to Windsor Designs, a
wholesale distributor of imported outdoor furniture. The Windsor Designs lease
continues until December 1999 at a rental rate of $133,980 per year ($3.15 per
square foot), net of utilities. Polychem expects this lease to be renewed.
Polychem leases an additional 4,740 square feet of the facility as equipment
storage space to Ethan Horowitz, a residential cabinet maker. That lease
continues until January, 2003 at a rental rate of $15,100 per year ($3.19 per
square foot). Polychem also leases a tower located on the facility to a group of
cellular phone operators including ComCast Metrophone, PageNet, Nextel and
Omnipoint. Combined annual lease income from the tower is $48,000. The leases
continue through March 2004. An additional 40,000 square feet of warehouse space
is available for lease at the facility. Management believes that Polychem's
properties are adequately insured.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information concerning the beneficial ownership
of ConMat's common stock as of August 20, 1999, by each director and executive
officer, all directors and officers as a group, and each person known to ConMat
to beneficially own 5% or more of its outstanding common stock. Except as
otherwise noted, the address for each such person is Franklin Avenue and Grant
Streets, Phoenixville, Pennsylvania 19460.
11
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of
Title of Class Beneficial Owner Beneficial Ownership (1) Class (1)
- -------------- ---------------- ------------------------ ---------
<S> <C> <C> <C>
Common Stock, par value Paul A. DeJuliis 1,553,333(2) 60.8
$.001 per share
Edward F. Sager, Jr. 196,667(3) 8.0
P.O. Box 560
Yardley, PA 19067
The Eastwind Group, Inc. 735,000(4) 24.6
275 Geiger Road
Philadelphia, PA 19115
The DAR Group, Inc. 240,000 10.7
30 Broad Street
43rd Floor
New York, NY 10004
Odyssey Capital Group, L.P. 360,000(5) 13.8
950 West Valley Rd., Suite 2902
Wayne, PA 19087
Polychem Corporation 313,333(4) 12.2
Franklin Avenue & Grant Sts.
Phoenixville, PA 19460
Directors and Executive Officers 1,750,000(2)(3) 63.6
(4 persons)
Series A Preferred Stock, par Paul A. DeJuliis 53,333 3.8
value $.001
The Eastwind Group, Inc. 735,000 53.0
275 Geiger Road
Philadelphia, PA 19115
Polychem Corporation 313,333 22.6
Franklin Avenue & Grant Sts.
Phoenixville, PA 19460
Odyssey Capital Group, L.P. 285,000 20.6
950 West Valley Rd., Suite 2902
Wayne, PA 19087
Series B Preferred Stock, par Mentor Special Situation Fund, 166,667(6) 100.00
value $.001 L.P.
P.O. Box 560
Yardley, PA 19067
</TABLE>
- ---------------
(1) Based upon 2,250,000 shares of common stock issued and outstanding as
of August 20, 1999, calculated in accordance with Rule 13d-3
promulgated under the Securities Exchange Act of 1934. It also includes
shares owned by (i) a spouse, minor children or by relatives sharing
the same home, (ii) entities owned or controlled by the named person
and (iii) other persons if the named person has the right to acquire
such shares within 60 days by the exercise of any right or option.
Unless otherwise noted, shares are owned of record and beneficially by
the named person. On a fully diluted basis, ConMat had 4,083,333 shares
outstanding as of August 20, 1999.
(2) Includes 53,333 shares issuable upon conversion of Series A Preferred
Stock and 250,000 issuable upon the exercises of options. (See
"Executive Compensation - Employment Agreements" for conditions of
exercise.) Includes 1,000,000 shares held by The Eastwind Group, Inc.
Shareholder Trust, of which Mr. DeJuliis is Trustee, as to which he
disclaims beneficial ownership. If such 1,000,000 shares were not
included in calculating Mr. DeJuliis' beneficial ownership, Mr.
DeJuliis would be deemed to beneficially own 21.7% of ConMat's common
stock.
12
<PAGE>
(3) Includes 166,667 shares issuable upon the exercise of warrants to
Mentor Special Situation Fund, L.P., of which Mr. Sager is a general
partner, and 30,000 shares issuable upon the exercise of warrants to
Mentor Management Company, of which Mr. Sager is President.
(4) Consists of shares issuable upon conversion of Series A Preferred
Stock.
(5) Includes 285,000 shares of common stock issuable upon conversion of
Series A Preferred Stock.
(6) Edward F. Sager, Jr., a director of ConMat is a general partner of
Mentor Special Situation Fund, L.P.
Item 5. Directors, Executive Officers Promoters and Control Persons.
Certain information concerning the directors and executive officers of ConMat is
set forth below.
Name Position with Corporation Age
- ---- ------------------------- ---
Paul A. DeJuliis Chief Executive Officer, Secretary and
Chairman of the Board of Directors 43
Theodore R. Rutkowski President and a Director 63
Edward F. Sager, Jr. Director 51
William J. Crighton Vice President and Treasurer 52
Each director has served since December 8, 1998 and serves for a term of office
of one year. The following is a brief summary of the business experience of
ConMat's directors and executive officers.
Paul A. DeJuliis - Chairman of the Board of Directors and Chief Executive
Officer - Prior to assuming his current role and since 1991, Mr. DeJuliis was
Chairman and Chief Executive Officer of The Eastwind Group, Inc., a publicly
traded holding company. Previously, Mr. DeJuliis was a partner in Phoenix
Management Services, Inc., a turnaround consulting firm (1989-91),
Vice-President, Corporate Finance for Colmen & Co., a national investment
banking firm (1987-89), and Manager, Corporate Turnaround Consulting Group for
Coopers & Lybrand (1986-87). Mr. DeJuliis has a B.S. in finance and accounting
from the University of Delaware. He is also a certified public accountant.
Theodore R. Rutkowski - President and a Director of ConMat and President of
Polychem - Prior to his current role and since 1975, Mr. Rutkowski served as the
General Manager of the Polychem Division of the Budd Company. Mr. Rutkowski
previously served as President of the Budd Company Trailer Division, which was
subsequently sold to a third party in 1985. In addition, Mr. Rutkowski was
responsible for the restructuring of Greening Donald in Hamilton, Ontario, a
Budd Company subsidiary. Mr. Rutkowski graduated with a bachelor's degree in
accounting from Rutgers University.
Edward F. Sager, Jr. - Director - Mr. Sager has been the President of Mentor
Management Company, general partner of Mentor Special Situation Fund LP, an
investment fund, and President of Mentor Capital Partners Ltd., a venture
capital firm, since 1994. From 1985 to 1994 Mr. Sager was President of Sager &
Associates, a merchant banking firm providing access to venture capital for
small to medium size companies. He is a graduate of Lafayette College with a
B.S. degree in Mechanical Engineering and he received an MBA in finance from New
York University.
William J. Crighton - Vice President and Treasurer of ConMat and Polychem -
Prior to his current role and since 1975, Mr. Crighton served as the divisional
controller of The Polychem division of The Budd Company. Prior to joining
Polychem, Mr. Crighton was employed in the automotive division and technical
center of The Budd Company. Mr. Crighton graduated with a bachelor's degree in
accounting from LaSalle University and holds an MBA from Widener University.
The following is a brief summary of the business experience (with the exception
of Mr. Rutkowski and Mr. Crighton, whose biographical information is set forth
above) of the additional members of management of Polychem, ConMat's operating
subsidiary.
J.R. Hannum - Manager of Internal Sales, Product Development and Engineering -
Mr. Hannum has served in his current role since 1995. Prior thereto, Mr. Hannum
served as General Manager of the Polychem Division of The Budd Company and as
manager of domestic sales, research and development and manufacturing
engineering. Mr. Hannum graduated with a bachelor's degree in engineering from
Villanova University and graduated with a master's degree in engineering from
Penn State University.
13
<PAGE>
Donald L. Hutton - National Sales Manager - Mr. Hutton has served in his current
position since 1995. Prior thereto, he was employed with The Budd Company for 36
years in several roles including advertising manager, manager of distributor
sales and manager of customer services. Mr. Hutton is a graduate of the
University of Delaware.
Item 6. Executive Compensation.
The following summary compensation table sets forth the total annual
compensation paid to the Chief Executive Officer and each other Executive
Officer of ConMat whose total compensation for the fiscal year ended January 2,
1999 exceeded $100,000:
<TABLE>
<CAPTION>
Long Term Securities
Name and Position Salary ($) Bonus ($) Other ($) Compensation Match Options
- ----------------- ---------- --------- --------- ------------------ --------
<S> <C> <C> <C> <C> <C>
Paul A. DeJuliis, Chairman &
Chief Executive Officer (1) 14,167 0 0 0 250,000
Theodore F. Rutkowski 135,000 0 0 0 0
</TABLE>
- -----------------
(1) Represents one month of salary at $170,000 per year. None of Mr.
DeJuliis' compensation is deferred. On December 10, 1998, Mr. DeJuliis
purchased 250,000 shares of common stock from ConMat for $50,000.
Employment Agreements
On December 8, 1998, ConMat entered into an Employment Agreement with Paul A.
DeJuliis, ConMat's Chief Executive Officer and Chairman of the Board of
Directors. Under the agreement, Mr. DeJuliis will be paid an annual base salary
ranging from $170,000 to $250,000 depending on ConMat's annual net income. As
additional incentive compensation, upon executing the Employment Agreement, Mr.
DeJuliis received (i) 250,000 shares of common stock for an aggregate purchase
price of $50,000, paid by delivery of a two-year promissory note at 5% interest;
and (ii) 250,000 options to purchase shares of common stock at an exercise price
of $3.00 per share. 50,000 of the options are exercisable upon registration of
the underlying shares of common stock. 100,000 of the options are exercisable
following registration of the underlying shares of common stock if ConMat
realizes $750,000 in pre-tax income during a fiscal year. The remaining 100,000
options are exercisable following registration of the underlying shares of
common stock if ConMat realizes $1,000,000 in pre-tax income during a fiscal
year. All of the options are immediately exercisable upon a merger, sale of
assets or other transaction resulting in a change of control in which the
holders of shares of common stock receive not less than $5.00 per share.
Item 7. Certain Relationships and Related Transactions.
On December 8, 1998, ConMat acquired 100% of the common stock of Polychem from
Eastwind. The basic structure and terms of the transaction were as follows:
o ConMat acquired all of the outstanding shares of common stock
of Polychem from Eastwind in exchange for (i) 1,000,000 shares
of newly issued common stock of ConMat and (ii) 1,333,333
shares of newly issued Series A Preferred Stock.
o ConMat assumed and discharged the following liabilities of
Eastwind: (i) $160,000 owed to Paul A. DeJuliis, Eastwind's
former Chairman and Chief Executive Officer, who is the
current Chairman and Chief Executive Officer of ConMat,
discharged by the issuance to Mr. DeJuliis of 53,333 shares of
Series A Preferred Stock; (ii) $100,000 owed to Clifton
Capital, Ltd., discharged by the payment to Clifton Capital,
Ltd. of $100,000; and (iii) $500,000 owed to Mentor,
discharged by the issuance to Mentor of 166,667 shares of
newly issued Series B preferred stock of ConMat and Series B
Warrants to purchase 166,667 shares of common stock. In
addition, Mentor Management Company exchanged warrants to
purchase 30,000 shares of Eastwind common stock for warrants
to purchase 30,000 shares of ConMat common stock.
14
<PAGE>
o Prior to the acquisition, Eastwind had caused Polychem to
distribute to Eastwind approximately $940,000. As part of the
acquisition, Eastwind agreed to repay these distributions with
interest, or forego a portion of the Series A Preferred Stock
issued to it as an adjustment to the purchase price. To
reflect this agreement, Eastwind issued to Polychem a
promissory note in the amount of $940,000, secured by the
pledge of 313,333 shares of Series A Preferred Stock. This
note accrued interest at 8% per year and principal and
interest were due and payable November 30, 2000. Eastwind
defaulted under the terms of the note as a result of a default
by Eastwind on a guarantee of an unrelated debt obligation and
as a result of a material adverse change in Eastwind's
financial condition. Following such default, ConMat sought to
foreclose on the pledged shares. Pursuant to a Settlement
Agreement dated June 29, 1999, Eastwind transferred the
pledged shares to Polychem in exchange for cancellation of the
note. The amounts previously paid to Eastwind have been
accounted for as distributions by Polychem to Eastwind in the
form of dividends. For financial accounting purposes, the
return of the pledges shares was treated as a reduction in the
number of shares of Series A Preferred Stock issued to
Eastwind in connection with the acquisition of Polychem and in
the number of Series A Preferred Stock outstanding.
Item 8. Legal Proceedings.
ConMat is currently a defendant in a Pennsylvania state court action filed on
January 28, 1999, captioned John R. Thach v. The Eastwind Group, et al.
(Montgomery County C.C.P., Civil Action No. 99- 01195). Plaintiff maintains that
Eastwind, his former employer, breached the terms of his severance agreement and
that the sale of Polychem to ConMat was part of a conspiracy to avoid payments
to him and has violated Pennsylvania's Uniform Fraudulent Transfer Act. The
plaintiff seeks damages of at least $350,0000 and punitive damages of at least
$500,000. In addition, the plaintiff seeks to have the acquisition of Polychem
declared null and void and to have a receiver appointed to oversee the affairs
of Eastwind, Polychem and ConMat. Among the other named defendants is Paul A.
DeJuliis, President of ConMat and the former Chief Executive Officer of
Eastwind.
Initially, the plaintiff sought a temporary restraining order and preliminary
injunction seeking to set aside the sale of Polychem to ConMat. By Order dated
February 19, 1999, the Court denied plaintiff's request for injunctive relief.
ConMat and Paul A. DeJuliis subsequently filed preliminary objections to the
complaint seeking to have themselves dismissed as parties to the action. The
parties have submitted briefs relating to ConMat's preliminary objections and a
decision by the Court is not expected until September, 1999 at the earliest.
Item 9. Market for Common Equity and Other Stockholder Matters.
Market for Common Stock
The common stock of ConMat is quoted on the Nasdaq OTC Bulletin Board under the
symbol "CNMT" and began trading December 21, 1998. The following table shows
quarterly low and high bid information for the common stock from inception
through August 20, 1999:
1999 Low Bid High Bid
---- ------- --------
Third Quarter (1) $2.25 $4.00
Second Quarter $3.00 $3.00
First Quarter $1.63 $4.00
1998
----
Fourth Quarter (2) $1.50 $2.125
- ---------------
(1) Through and including August 20, 1999.
(2) Commencing December 21, 1998.
15
<PAGE>
Market quotations reflect inter-dealer prices, without retail markups, markdown
or commissions and may not necessarily reflect actual transactions. As of August
20, 1999, there were approximately 13 holders of record of ConMat's common
stock.
Dividend Policy
ConMat has never paid a cash dividend and does not intend to pay any cash
dividends on its common stock for the foreseeable future.
Item 10. Recent Sales of Unregistered Securities.
In connection with the acquisition of Polychem on December 8, 1998 and pursuant
to Section 4(2) of the Securities Act, ConMat issued (i) 1,000,000 shares of
common stock to Eastwind, (ii) 1,386,666 shares of Series A convertible
preferred stock to Eastwind and Paul A. DeJuliis, (iii) 166,667 shares of Series
B convertible preferred stock and warrants to purchase 196,667 shares of common
stock to Mentor.
On December 10, 1998, Paul A. DeJuliis, President and Chief Executive Officer of
ConMat, purchased 250,000 shares of common stock at a purchase price of $50,000,
paid by delivery to ConMat of Mr. DeJuliis' promissory note in that amount. The
note has a maturity date of December 10, 2000, bears interest at 5% per annum
and is secured by a pledge of the purchased shares.
Item 11. Description of Securities.
General
The following description of ConMat's common stock and preferred stock is a
summary only. This summary is qualified in its entirety by reference to the
applicable instruments and governing law, including without limitation, ConMat's
Articles of Incorporation and Bylaws and the Florida Business Corporation Act.
The authorized capital stock of ConMat consists of 40,000,000 shares of common
stock and 10,000,000 shares of preferred stock. As of August 20, 1999, there
were outstanding 2,250,000 shares of common stock, 1,386,666 shares of Series A
Preferred Stock and 166,667 shares of Series B Preferred Stock.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders, including the election of
directors, and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the dividend preferences attributable to the
preferred stock. Upon the liquidation, dissolution or winding up of ConMat,
holders of common stock are entitled to receive ratably the net assets of ConMat
available for distribution to such holders after preferred distributions to
holders of preferred stock. Holders of common stock have no preemptive or
redemption rights.
Series A Preferred Stock
Shares of the Series A Preferred Stock rank prior to the common stock and pari
passu with the Series B Preferred Stock. The creation of any class or series of
capital stock ranking senior to or pari passu with the Series A Preferred Stock
requires the consent of a majority of the holders of the Series A Preferred
Stock.
16
<PAGE>
The holders of the shares of the Series A Preferred Stock are entitled to
receive cash dividends at a rate of 2% per year, which dividends are payable in
equal, quarterly installments, as and if declared by the Board of Directors out
of funds legally available for the payment of dividends. The current terms of
the Series A Preferred Stock provide that such dividends shall begin to accrue
on outstanding shares of Series A Preferred Stock from the date of issuance and
shall accrue from day to day, whether or not earned or declared, until paid. The
holders of the Series A Preferred Stock have agreed to waive the cumulative
dividend feature and ConMat intends to amend the terms of the Series A Preferred
Stock to provide that the dividends on the Series A Preferred Stock will not be
cumulative. ConMat may, at its sole discretion, pay any or all dividends in
common stock rather than in cash. In the event of any liquidation, dissolution
or winding up of ConMat, holders of the Series A Preferred Stock shall be
entitled, in preference to the holders of the common stock and pari passu with
the holders of the Series B Preferred Stock, to be paid first out of assets and
funds of ConMat available for distribution to holders of ConMat's capital stock
in the amount of $3.00 per share.
Shares of Series A Preferred Stock are convertible at the option of the holder
at any time following 60 days after the date of issuance at the then effective
conversion price. The conversion price shall be the greater of $3.00 or 80% of
the closing bid price of the common stock on the conversion date, subject to
adjustments due to stock splits, stock dividends, mergers, consolidations and
other events. ConMat has the right, by written notice to each of the holders of
the Series A Preferred Stock, to convert all shares of the Series A Preferred
Stock into shares of common stock at any time on or after the first day on which
the closing bid price has been equal to or in excess of the conversion price for
45 consecutive calendar days. In the case of such a mandatory conversion, each
share of Series A Preferred Stock will be converted into a number of shares of
common stock determined by dividing the stated value by the then effective
conversion price.
The holders of the Series A Preferred Stock will have no voting power, except as
otherwise required by the Florida Business Corporation Act. To the extent
permitted under the Florida Business Corporation Act, the Series A preferred
stock and Series B Preferred Stock will be considered a single class of stock
for voting purposes.
The holders of Series A Preferred Stock have, subject to certain limitations,
registration rights, which obligate ConMat to include shares of common stock
issued or issuable upon conversion of shares of Series A Preferred Stock in a
registration statement filed with the Securities and Exchange Commission.
Series B Preferred Stock
Shares of the Series B Preferred Stock rank prior to the common stock and pari
passu with ConMat's Series A Preferred Stock. The creation of any class or
series of capital stock ranking senior to or pari passu with the Series B
Preferred Stock requires the consent of a majority of the holders of the Series
B Preferred Stock.
Holders of the shares of the Series B Preferred Stock are entitled to receive
cash dividends at a rate of 8% per year, which dividends are payable in equal,
quarterly installments, as and if declared by the Board of Directors out of
funds legally available for the payment of dividends. Such dividends will begin
to accrue on outstanding shares of Series B Preferred Stock from the date of
issuance and will accrue from day to day, whether or not earned or declared,
until paid. In the event of any liquidation, dissolution or winding up of
ConMat, holders of the Series B Preferred Stock will be entitled, in preference
to the holders of the common stock and pari passu with the holders of the Series
A Preferred Stock, to be paid first out of assets and funds of ConMat available
for distribution to holders of ConMat's capital stock in the amount of $3.00 per
share, plus all accrued but unpaid dividends.
ConMat may redeem the Series B Preferred Stock at any time. ConMat is required
to redeem the Series B Preferred Stock on the earliest of, (i) the date Mr.
DeJuliis ceases for any reason to serve as Chairman and Chief Executive Officer
of ConMat, or (ii) the date Mr. DeJuliis, Mr. Rutkowski and the member of
ConMat's Board of Directors elected by the holders of the Series B Preferred
Stock cease to constitute a majority of the Board of Directors. The redemption
price is $3.00 per share, plus all accrued but unpaid dividends.
The holders of the Series B Preferred Stock have the right to elect one member
of ConMat's Board of Directors. Except as otherwise required by the Florida
Business Corporation Act, the holders of the Series B Preferred Stock have no
other voting rights. To the extent permitted under the Florida Business
Corporation Act, the Series A Preferred Stock and Series B Preferred Stock will
be considered a single class of stock for voting purposes.
In connection with the acquisition of Polychem by ConMat, the holders of the
Series B Preferred Stock also received warrants to purchase 166,667 shares of
common stock at an exercise price of $3.00 per share, subject to adjustment in
the case of stock splits, stock dividends, below market issuances or a merger or
consolidation. The warrants are exercisable until December 31, 2005. Subject to
certain limitations, holders of the warrants have "piggy-back" registration
rights which, upon the request of such holders, obligate ConMat to include the
shares of common stock issuable upon exercise of the warrants in a registration
statement filed with the Securities and Exchange Commission.
17
<PAGE>
Item 12. Indemnification of Directors and Officers.
ConMat's charter provides that to the fullest extent permitted by law, no
director or officer of ConMat shall be personally liable to ConMat or its
shareholders for damages for breach of any duty owed to ConMat or its
shareholders and that ConMat may, in its by-laws or in any resolution of its
stockholders or directors, undertake to indemnify the officers and directors of
ConMat against any contingency or peril as may be determined to be in the best
interests of ConMat, and in conjunction therewith, to procure, at ConMat's
expense, policies of insurance. Florida law, under which ConMat is incorporated,
allows a corporation to indemnify its directors and officers if such director or
officer acted in good faith and in a manner such director or officer reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. ConMat maintains a director and officer
liability insurance policy covering each of ConMat's directors and executive
officers.
Item 13. Financial Statements.
The financial statements are attached to this registration statement beginning
on page F-1.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) The following financial statements are filed as part of this
registration statement:
Unaudited
Consolidated Balance Sheets as of June 30, 1999 and January 2, 1999
Consolidated Statements of Operations for the six month periods ended
June 30, 1999 and June 30, 1998
Consolidated Statements of Cash Flows for the six month periods ended
June 30, 1999 and June 30, 1998
Audited
Consolidated Balance Sheets as of January 2, 1999 and January 3, 1998
Consolidated Statements of Operations for the fiscal years ended
January 2, 1999 and January 3, 1998
Consolidated Statements of Changes in Stockholders' Equity for the
fiscal years ended January 2, 1999 and January 3, 1998
Consolidated Statements of Cash Flows for the fiscal years ended
January 2, 1999 and January 3, 1998
(b) The following exhibits are filed as part of this registration
statement. Exhibit numbers correspond to the exhibit requirements of
Regulation S-B.
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation of ConMat Technologies, Inc., as amended.*
3.2 By-laws of ConMat Technologies, Inc.*
4.1 Specimen common stock certificate.*
4.2 Specimen Series A Preferred Stock certificate.*
4.3 Specimen Series B Preferred Stock certificate.*
4.4 Series A Warrant No. 1 from ConMat to Mentor Special Situation Fund,
L.P. dated December 8, 1998.*
4.5 Series B Warrant No. 1 from ConMat to Mentor Management Company dated
December 8, 1998.*
4.6 Option Agreement between ConMat and Paul A. DeJuliis dated December
8, 1998.*
10.1 Employment Agreement between ConMat and Paul A. DeJuliis dated
December 8, 1998.*
10.2 Loan and Security Agreement between Polychem and GECC dated
September 30, 1998.*
10.3 $3,500,000 Revolving Credit Note payable by Polychem to GECC dated
September 30, 1998.*
10.4 $1,500,000 Term Note payable by Polychem to GECC dated September
30, 1998.*
10.5 Stock Pledge Agreement between ConMat and GECC dated December
8, 1998.*
10.6 Guarantee dated December 8, 1998 between ConMat and GECC.*
18
<PAGE>
10.7 Waiver and Amendment Agreement among GECC, ConMat, Polychem
and Eastwind.*
10.8 $1,626,294 Term Note payable by Polychem to The Budd Company dated
March 10, 1995.*
10.9 Mortgage and Security Agreement between Polychem and GECC.*
10.10 Share Exchange Agreement between ConMat and Eastwind dated December
8, 1996.
10.11 Eastwind Stockholder Trust Agreement between Eastwind and Paul A.
DeJuliis dated December 7, 1998.
10.12 Waiver and Amendment Agreement between GECC and Polychem dated August
25, 1999.
10.13 Amended and Restated Term Note dated August 25, 1999 payable by
Polychem to GECC.
10.14 Amended and Restated Revolving Credit Note dated August 25, 1999
payable by Polychem to GECC.
10.15 Guantor Reaffirmation Agreement dated August 25, 1999 between ConMat
and GECC.
10.16 Balloon Mortgage Note dated August 25, 1999 payable to Public School
Employes' Retirement Board by Polychem.
10.17 Open End Mortgage and Security Agreement between Polychem and Public
School Employes' Retirement Board dated August 24, 1999.
10.18 Loan Guaranty and Suretyship Agreement between Polychem and Public
School Employes' Retirement Board dated August 24, 1999.
10.19 Mortgagee's Waiver and Consent dated August 25, 1999 between Public
School Employes' Retirement System, Polychem and GECC.
27 Financial Data Schedule.
- ------------------
* Incorporated by reference to Form 10-SB file no. 0-30114 filed April 27, 1999
and Amendment No. 1 filed June 16, 1999.
19
<PAGE>
ConMat Technologies, Inc.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
Unaudited
- ---------
<S> <C>
Consolidated Balance Sheets as of June 30, 1999 and January 2, 1999.............................................F-2
Consolidated Statements of Operations for the six month periods ended June 30, 1999
and June 30, 1998..........................................................................................F-3
Consolidated Statements of Cash Flows for the six month periods ended June 30, 1999
and June 30, 1998........................................................................................F-4
Notes to Consolidated Financial Statements......................................................................F-5
Audited
- -------
Report of Independent Certified Public Accounts.................................................................F-6
Consolidated Balance Sheets as of January 2, 1999 and January 3, 1998...........................................F-7
Consolidated Statements of Operations for the fiscal years ended January 2, 1999 and January 3, 1998............F-8
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended January 2, 1999
and January 3, 1998........................................................................................F-9
Consolidated Statements of Cash Flows for the fiscal years ended January 2, 1999 and January 3, 1998...........F-10
Notes to Consolidated Financial Statements.....................................................................F-11
</TABLE>
F-1
<PAGE>
ConMat Technologies, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, January 2,
1999 1999
---------- ----------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 67,262 $ 29,430
Accounts receivable - Trade, net of allowance for doubtful accounts 4,776,631 2,622,261
Inventories 1,004,755 1,159,545
Prepaid expenses and other 6,775 14,768
Prepaid income taxes 31,477 35,577
---------- ----------
Total current assets $5,886,900 3,861,581
Property, plant and equipment, at cost less accumulated depreciation 1,117,834 1,188,823
Deferred income taxes 78,493 78,493
Other Assets 271,941 386,128
---------- ----------
Total assets $7,355,168 $5,515,025
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Line of credit $3,074,048 $1,398,632
Current portion of long-term debt 625,260 625,260
Current portion of capital lease obligations 107,925 103,744
Accounts payable 1,694,931 1,183,913
Accrued expenses 195,678 302,374
Dividends payable 17,556 --
---------- ----------
Total current liabilities 5,715,398 3,613,923
Long-term debt 1,763,146 2,075,775
Obligations under capital leases 135,478 151,761
Other liabilities 128,500 181,900
---------- ----------
Total liabilities 7,742,522 6,023,359
---------- ----------
Series B Preferred Stock, $.001 par value, 166,667 shares issued and outstanding 500,000 500,000
Stockholders' equity (deficiency)
Series A Preferred Stock, $.001 par value, 10,000,000 shares authorized,
1,073,333 shares issued and outstanding 1,073 1,386
Common stock, $.001 par value, 40,000,000 shares authorized,
2,250,000 shares issued and outstanding 2,250 2,250
Additional paid-in capital (472,175) (472,486)
Accumulated earnings (deficit) (368,502) (489,482)
Less note receivable for shares sold (50,000) (50,000)
---------- ----------
Total stockholders' equity (deficiency) (887,354) (1,008,334)
---------- ----------
Total liabilities and stockholders' equity $7,355,168 $5,515,025
========== ==========
</TABLE>
F-2
<PAGE>
ConMat Technologies, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Month Periods Ended June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net sales to customers $5,993,022 $4,402,093
Cost of goods sold 4,376,827 3,402,459
---------- ----------
Gross profit 1,616,195 999,634
Selling, general and administrative expenses 1,129,215 982,564
Corporate support fees 118,542 240,000
---------- ----------
Operating (loss) income 368,438 (222,930)
Interest expense (244,031) (217,639)
Rental income 96,874 96,594
---------- ----------
Profit (loss) before income tax expense 221,281 (343,975)
Income tax expense (80,300) --
---------- ----------
NET PROFIT (LOSS) $ 140,981 $ (343,975)
========== ==========
Dividend requirements on Series B preferred stock $ 20,000 $ --
Per share data - basic and diluted
Net profit (loss) per share $ 0.05 $ (0.17)
Common stock (weighted average shares outstanding) 2,250,000 2,000,000
</TABLE>
F-3
<PAGE>
ConMat Technologies, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Periods Ended June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------
1999 1998
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 140,981 $ (343,975)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization 140,645 119,970
Changes in assets and liabilities, net of effect from acquisitions
(Increase) decrease in assets
Accounts receivable (2,001,349) 1,040,744
Inventories 154,790 239,723
Prepaid expenses 7,993 161,144
Prepaid income taxes 75,900 --
Patents, net (13,488) (22,936)
Deferred financing charges (25,415) --
Increase (decrease) in liabilities
Accounts payable 511,019 (435,069)
Accrued expenses (231,898) (93,119)
------------- ----------
Net cash provided by (used in) operating activities (1,240,822) 666,479
------------- ----------
Cash flows from investing activities
Purchase of property and equipment (37,084) (23,018)
------------- ----------
Net cash used in investing activities (37,084) (23,018)
------------- ----------
Cash flows from financing activities
Net (repayments) borrowings under lines of credit 1,675,416 (582,891)
Repayments of term notes (312,629) (343,098)
Payments of capitalized lease obligations (57,100) (36,228)
Proceeds from capitalized lease obligations 45,000 --
Proceeds from term notes -- 300,000
Recapitalization costs (32,505) --
Payment of dividends on Series B preferred stock (2,444) --
------------- ----------
Net cash provided by (used in) financing activities 1,315,738 (662,217)
------------- ----------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS 37,832 (18,756)
Cash and cash equivalents at beginning of period 29,430 63,840
------------- ----------
Cash and cash equivalents at end of period $ 67,262 $ 45,084
============= ==========
</TABLE>
F-4
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and June 30, 1998
Interim financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the periods. The
January 2, 1999 balance sheet has been derived from the audited financial
statements contained in this registration statement. These interim financial
statements conform with the requirements for interim financial statements and
consequently do not include all the disclosures normally required by generally
accepted accounting principles. The results for the six months ended June 30,
1999 are not necessarily indicative of the results to be expected for the full
year. Reporting developments have been updated where appropriate. In this
connection, there are no significant changes in disclosures.
Research and development costs are expensed as incurred. Such expenses were
approximately $76,000 during the six month period ended June 30, 1999 and
$79,000 during the six month period ended June 30, 1998.
Other assets include deferred financing costs totaling approximately $183,000.
ConMat is currently in negotiations to refinance a portion of its current debt,
and such costs are included in these deferred costs. Upon successful refinancing
of the term loan, a proportionate share of the deferred financing costs related
to the extinguished debt will be expensed to operations.
On June 29, 1999, Polychem foreclosed on a $940,000 note payable to Polychem by
Eastwind due to a default by Eastwind on the obligation. At settlement, Polychem
took possession of 313,333 shares of Series A Convertible Preferred Stock of
ConMat which had been pledged as collateral.
F-5
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
ConMat Technologies, Inc.
We have audited the accompanying consolidated balance sheets of ConMat
Technologies, Inc. and Subsidiary (a Florida corporation) as of January 2, 1999,
and January 3, 1998, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the fiscal years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ConMat Technologies, Inc. and Subsidiary as of January 2, 1999, and January 3,
1998, and the consolidated results of their operations and their consolidated
cash flows for the fiscal years then ended, in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
March 25, 1999
F-6
<PAGE>
ConMat Technologies, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
January 2, January 3,
1999 1998
------------ -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 29,430 $ 63,840
Accounts receivable, net 2,622,261 3,524,622
Due from related parties - 10,900
Inventories 1,159,545 1,144,202
Prepaid expenses 14,768 105,911
Prepaid income taxes 35,577 24,677
------------ -----------
Total current assets 3,861,581 4,874,152
Property, plant and equipment, net 1,188,823 1,232,162
Deferred income taxes 78,493 78,493
Other assets 386,128 286,438
------------ -----------
$ 5,515,025 $ 6,471,245
============ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Lines of credit $ 1,398,632 $ 1,492,511
Current portion of long-term debt 625,260 680,660
Current portion of capitalized lease obligations 103,744 68,947
Accounts payable 1,183,913 1,162,738
Accrued expenses 302,374 247,620
------------ -----------
Total current liabilities 3,613,923 3,652,476
Long-term debt 2,075,775 1,897,597
Capitalized lease obligations 151,761 122,293
Other liabilities 181,900 209,170
------------ -----------
Total liabilities 6,023,359 5,881,536
------------ -----------
Series B Preferred Stock, $.001 par value, 166,667 shares issued and outstanding 500,000 -
Stockholders' equity (deficiency)
Series A Preferred stock, $.001 par value, 10,000,000 shares authorized,
1,386,666 shares issued and outstanding 1,386 -
Common stock, $.001 par value, 40,000,000 shares authorized, 2,250,000
shares issued and outstanding 2,250 -
Common stock, $.01 par value, 5,000,000 shares authorized, 1,000
shares issued and outstanding - 10
Additional paid-in capital (472,488) 504,490
Accumulated earnings (deficit) (489,482) 85,209
Less note receivable for shares sold (50,000) -
------------ -----------
Total stockholders' equity (deficiency) (1,008,334) 589,709
------------ -----------
$ 5,515,025 $ 6,471,245
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ConMat Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------
January 2, January 3,
1999 1998
------------ -----------
<S> <C> <C>
Net sales $ 9,069,668 $12,129,981
Cost of goods sold 6,685,177 9,142,517
------------ -----------
Gross profit 2,384,491 2,987,464
Selling, general and administrative expenses 2,055,063 2,119,615
Eastwind corporate support fees 480,000 640,000
------------
Operating (loss) income (150,572) 227,849
Interest expense (609,996) (406,021)
Rental income 185,877 177,832
------------ -----------
Loss before income tax expense (574,691) (340)
Income tax expense -- (63,573)
------------ -----------
NET LOSS $ (574,691) $ (63,913)
============ ===========
Per share data - basic and diluted
Net loss per share $ (0.28) $ (0.03)
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
ConMat Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Fiscal years ended January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
Series A
Common stock Preferred stock
--------------------------- ----------------------------
Shares Amount Shares Amount
--------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 1,000 $ 10 -- $ --
Cash dividends on common stock -- -- -- --
Net loss -- -- -- --
--------- -------- --------- ---------
Balance, January 3, 1998 1,000 10 -- --
Reclassification of $.01 common stock (1,000) (10) -- --
Issuance of $.001 common stock and Series A
Preferred Stock in connection with
reclassification of equity 2,000,000 2,000 1,333,333 1,333
Assumption of stockholders' liabilities -- -- -- --
Issuance of Series A preferred stock -- -- 53,333 53
Issuance of common stock 250,000 250 -- --
Receivable from stockholder -- -- -- --
Capital repayment -- -- -- --
Net loss -- -- -- --
--------- -------- --------- ---------
Balance, January 2, 1999 2,250,000 $ 2,250 1,386,666 $ 1,386
========= ======== ========= =========
Note Total
Additional Accumulated receivable stockholders'
paid-in earnings for shares equity
capital, net (deficit) sold (deficiency)
------------- ----------- ---------- --------------
Balance, January 1, 1997 $ 504,490 $ 917,068 $ $ 1,421,568
Cash dividends on common stock -- (767,946) -- (767,946)
Net loss -- (63,913) -- (63,913)
----------- ---------- ---------- -----------
Balance, January 3, 1998 504,490 85,209 -- 589,709
Reclassification of $.01 common stock -- -- -- (10)
Issuance of $.001 common stock and Series A
Preferred Stock in connection with
reclassification of equity (176,675) -- -- (173,342)
Assumption of stockholders' liabilities (760,000) -- -- (760,000)
Issuance of Series A preferred stock 159,947 -- -- 160,000
Issuance of common stock 49,750 -- -- 50,000
Receivable from stockholder -- -- (50,000) (50,000)
Capital repayment (250,000) -- -- (250,000)
Net loss -- (574,691) -- (574,691)
----------- ---------- ---------- -----------
Balance, January 2, 1999 $ (472,488) $ (489,482) $ (50,000) $(1,008,334)
=========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-9
<PAGE>
ConMat Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------
January 2, January 3,
1999 1998
------------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (574,691) $ (63,913)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 312,980 233,354
Changes in assets and liabilities, net of effect from acquisitions
(Increase) decrease in assets
Accounts receivable 902,361 467,378
Inventories (15,343) 434,495
Prepaid expenses 91,143 (212,334)
Prepaid income taxes (10,900) (33,076)
Patents, net (25,666) (54,668)
Deferred financing charges (166,660) -
Increase (decrease) in liabilities
Accounts payable 21,175 188,082
Accrued expenses (45,256) (220,391)
Other current liabilities - (225,607)
Other liabilities (27,270) (91,589)
------------ -----------
Net cash provided by operating activities 461,873 421,731
------------ -----------
Cash flows from investing activities
Purchase of property and equipment (177,005) (125,651)
Advances to affiliated companies 10,900 (10,900)
Other - (80,000)
------------ -----------
Net cash used in investing activities (166,105) (216,551)
------------ -----------
Cash flows from financing activities
Net (repayments) borrowings under lines of credit (93,879) 1,182,372
Borrowings on term notes 1,800,000 -
Repayments of term notes (1,677,222) (356,400)
Repayments of capitalized lease obligations (84,155) (52,012)
Proceeds from capitalized lease obligations 148,420 69,922
Recapitalization costs (173,342) -
Repayment of subordinated debenture - (360,000)
Dividends on common stock - (767,946)
Capital distribution (250,000) -
------------ -----------
Net cash used in financing activities (330,178) (284,064)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (34,410) (78,884)
Cash and cash equivalents at beginning of year 63,840 142,724
------------ -----------
Cash and cash equivalents at end of year $ 29,430 $ 63,840
============ ===========
Supplemental cash flow information
Cash paid for interest $ 609,996 $ 406,021
============ ===========
Cash paid for taxes $ - $ 25,000
============ ===========
Noncash transactions
Assumption of stockholders' liabilities $ 760,000 $ -
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 2, 1999 and January 3, 1998
NOTE A - NATURE OF BUSINESS
ConMat Technologies, Inc. (ConMat or the Company), organized under the
laws of the State of Florida, is engaged in the development and manufacture of
proprietary custom engineered plastics and composite products for industrial end
users with a special emphasis on the wastewater treatment marketplace. ConMat
conducts its operations through its wholly owned subsidiary, the Polychem
Corporation (Polychem), located in Phoenixville, Pennsylvania. Polychem
manufactures and sells clarifier components for wastewater treatment
applications and other plastic-molded products, including buckets, sprockets,
and bearings. The wastewater treatment market is global in nature, and Polychem
presently sells products internationally in Western Europe, Asia and South
America, as well as in the United States.
NOTE B - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ConMat
and its wholly owned subsidiary, Polychem.
On December 8, 1998, ConMat, a non-operating public company with
1,000,000 common shares outstanding and immaterial net assets, acquired 100% of
the outstanding common stock of Polychem from The Eastwind Group, Inc.
(Eastwind) (the Acquisition). The Acquisition resulted in the owners and
management of Polychem having effective operating control of the combined
entity.
Under generally accepted accounting principles, the Acquisition is
considered to be a capital transaction in substance, rather than a business
combination. That is, the Acquisition is equivalent to the issuance of stock by
Polychem for the net monetary assets of ConMat, accompanied by a
recapitalization, and is accounted for as a change in capital structure.
Accordingly, the accounting for the Acquisition is identical to that resulting
from a reverse acquisition, except that no goodwill is recorded. Under reverse
takeover accounting, the post reverse-acquisition comparative historical
financial statements of the "legal acquirer" (ConMat), are those of the "legal
acquiree" (Polychem) (i.e. the accounting acquirer).
Accordingly, the consolidated financial statements of ConMat as of
January 2, 1999, and January 3, 1998, and for the fiscal years then ended, are
the historical financial statements of Polychem for the same periods adjusted
for the following transactions contained in the Share Exchange Agreement
executed at consummation of the Acquisition. The basic structure and terms of
the Acquisition, together with the applicable accounting effects, were as
follows:
o ConMat acquired all of the outstanding shares of common stock of
Polychem from Eastwind in exchange for (I) 1,000,000 shares of
newly issued common stock of ConMat and (II) 1,333,333 shares of
newly issued cumulative, 2%, Series A convertible preferred stock
of ConMat (Series A Preferred Stock). The common stock and Series
A Preferred Stock exchanged, in addition to the existing ConMat
shares outstanding, collectively resulted in the recapitalization
of the Company. Earnings per share (EPS) calculations include the
Company's change in capital structure for all periods presented.
o ConMat assumed and, in certain instances, discharged the following
liabilities of Eastwind: (I) $160,000 owed to Eastwind's former
Chairman and Chief Executive Officer, who is the current Chairman
and Chief Executive Officer of ConMat, discharged by the issuance
of 53,333 shares of Series A Preferred Stock; (II) $100,000 owed
to Clifton Capital, Ltd.; and (III) $500,000 owed to Mentor
Special Situation Fund, L.P. (Mentor), discharged by the issuance
to Mentor of 166,667 shares of newly issued cumulative, 8%, Series
B Preferred Stock of ConMat plus warrants to purchase 166,667
shares of ConMat common stock, at $3.00 per share. The general
partner of Mentor is a member of ConMat's Board of Directors.
ConMat issued an option to purchase 30,000 shares of common stock
to this director for $1.00 per share.
o At closing, Eastwind issued to Polychem a promissory note in the
amount of $940,000 to evidence certain outstanding amounts owed by
Eastwind to Polychem for prior advances, secured by the pledge of
313,333 shares of Series A Preferred Stock. This amount, in
addition to other amounts owed to Polychem by Eastwind, was
accounted for as distributions in the form of dividends on common
stock to Eastwind in the periods the distributions were made.
The Company incurred $173,342 of costs related to the Acquisition.
These costs were recorded as reductions to additional paid-in capital in
connection with the reclassification of equity resulting from the
recapitalization.
F-11
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. 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 at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Cash and Cash Equivalents
The Company's cash management system provides for the short-term
investment of cash and the transfer or deposit of sufficient funds to cover
checks as they are submitted for payment. The Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
3. Inventories
Inventories consist of raw materials, work-in-process, and finished
goods. Work-in-process and finished goods include raw materials, direct labor,
and a portion of manufacturing overhead. The Company's inventory is stated at
the lower of cost or market, with cost determined by the last-in, first-out
(LIFO) method.
4. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is recorded using the straight-line and accelerated
depreciation methods over the estimated useful lives of the assets. Leasehold
improvements are amortized over the term of the lease or estimated useful life,
whichever is shorter.
5. Research and Development Costs
The Company expenses research and development costs as incurred.
Research and development costs were approximately $140,000 for the year ended
January 2, 1999 and $155,000 for the year ended January 3, 1998.
6. Income Taxes
The Company accounts for its income taxes under the liability method
specified by Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
7. Loss Per Share
The Company reports earnings per share in accordance with the
provisions of SFAS No. 128, Earnings Per Share. SFAS No. 128 requires
presentation of basic and diluted earnings per share in conjunction with the
disclosure of the methodology used in computing such earnings per share. Basic
earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted average common shares
outstanding during the period. Diluted earnings per share takes into account the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock.
F-12
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The following are the basic and diluted earnings per share calculations
for the periods presented:
January 2, January 3,
1999 1998
------------ -----------
Loss per share
Net loss $ (574,691) $ (63,913)
=========== ==========
Weighted average shares outstanding 2,017,170 2,000,000
----------- ----------
Basic and diluted loss per share $ (0.28) $ (0.03)
=========== ==========
Series A Preferred Stock, convertible into 1,386,666 and 1,333,333
shares of common stock, were outstanding during the fiscal years ended January
2, 1999, and January 3, 1998, respectively, which were not included in the
computation of diluted earnings per share because to do so would be
antidilutive.
There were stock options outstanding at January 2, 1999, to purchase
280,000 shares of common stock which were not included in the computation of
diluted earnings per share because to do so would be antidilutive.
NOTE D - ACCOUNTS RECEIVABLE
January 2, January 3,
1999 1998
----------- -----------
Trade receivables $2,241,801 $3,401,519
Retainage receivables 608,481 361,124
Allowance for doubtful accounts (75,000) (85,000)
---------- ----------
2,775,282 3,677,643
Less retainage receivables due in
over one year 153,021 153,021
---------- ----------
$2,622,261 $3,524,622
========== ==========
The Company sells clarifier components to general contractors for use
in building and maintaining wastewater treatment facilities operated by
government municipalities. Sales of these components under contracts generally
require retainage provisions which become due upon completion of the entire
contract. Retainage receivables expected to be collected after one year are
included in other assets in the accompanying balance sheets.
NOTE E - INVENTORIES
January 2, January 3,
1999 1998
----------- -----------
Raw materials $ 327,412 $ 320,826
Work-in-process 362,255 356,763
Finished goods 469,878 466,613
----------- -----------
$ 1,159,545 $ 1,144,202
=========== ===========
Had the FIFO method of valuing inventory been used, the value of
inventories would not have been significantly different as of January 2, 1999,
and January 3, 1998.
F-13
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE F - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated January 2, January 3,
useful lives 1999 1999
----------------- ------------------ ------------------
<S> <C> <C> <C>
Land - $ 56,000 $ 56,000
Buildings and improvements 10 - 15 years 976,155 968,826
Machinery and equipment 3 - 7 years 860,612 690,935
---------- ----------
1,892,767 1,715,761
Less accumulated depreciation 703,944 483,599
---------- ----------
$1,188,823 $1,232,162
========== ==========
</TABLE>
Depreciation expense was $220,345 and $199,668 for the fiscal years
ended January 2, 1999, and January 3, 1998, respectively.
Machinery and equipment as of January 2, 1999, and January 3, 1998,
includes $448,236 and $299,816, respectively, of equipment under capital leases,
with accumulated depreciation of $192,731 and $108,576, respectively.
NOTE G - OTHER ASSETS
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
-------------- -------------
<S> <C> <C>
Retainage receivables due in over one year $153,021 $153,021
Deferred financing, net 152,773 78,749
Patents, net 80,334 54,668
-------- --------
$386,128 $286,438
======== ========
</TABLE>
F-14
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE H - LINES OF CREDIT AND LONG-TERM DEBT
On September 30, 1998, Polychem entered into a three year loan and security
agreement (the Agreement) with a commercial lender which provided to Polychem a
revolving credit line up to $3,500,000 based upon eligible accounts receivable
and inventory, as defined. The revolving credit line bears interest at the index
rate, based on the rate for 30-day dealer paper, plus 4.75% (9.65% at January 2,
1999). The Agreement also provided for a term loan for $1,500,000, secured by
real estate and equipment, with interest at the index rate plus 6.5% (11.4% at
January 2, 1999). At January 2, 1999, the Company was not in compliance with
certain financial covenants contained in the Agreement with respect to
$2,798,632 of obligations. These instances of noncompliance were waived by the
commercial lender.
At January 2, 1999, there was approximately $286,000 available for advances
under the revolving line of credit.
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
---------------- ----------------
<S> <C> <C>
Polychem term note payable to the Budd Company, interest at 8%, principal
payable in quarterly installments of $81,305, commencing March
1998 through March 2003 $1,301,035 $1,626,093
Polychem note payable, interest at index rate plus 6.5% (11.4% at January 2,
1999), payable in 36 monthly installments of $25,000 plus
interest, with a final payment in September 2001 1,400,000 --
Polychem note payable to bank, interest at the bank's prime rate plus 1.5% (10%
at January 3, 1998), payable in 18 monthly installments of $21,155 and 41
monthly installments of $29,617 plus interest, with a final payment
in March 2000 -- 952,164
---------- ----------
2,701,035 2,578,257
Less current portion 625,260 680,660
---------- ----------
$2,075,775 $1,897,597
========== ==========
</TABLE>
Maturities on these obligations at January 2, 1999 are as follows:
2000 $ 625,260
2001 625,260
2002 1,125,259
2003 325,256
----------
$2,701,035
==========
The carrying amounts of the Company's long-term debt approximate their
fair value as of January 2, 1999, and January 3, 1998. The fair value of the
Company's long-term debt is estimated using discounted cash flow analyses based
on the Company's incremental borrowing rate for similar types of borrowing
arrangements.
Interest expense of $414,123 and $266,831 on the term notes was charged
to operations for the years ended January 2, 1999, and January 3, 1998,
respectively.
F-15
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE I - CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under capital leases. The weighted
average interest rate was 9.96% and 14.2% for the years ended January 2, 1999,
and January 3, 1998, respectively. Interest expense of $23,184 and $24,553 on
the capitalized lease obligations was charged to operations for the years ended
January 2, 1999, and January 3, 1998, respectively.
Future minimum lease payments as of January 2, 1999, are as follows:
1999 $ 122,958
2000 88,168
2001 44,356
2002 25,439
2003 10,600
----------
Total minimum lease payments 291,521
Less amounts representing interest 36,016
----------
Present value of future minimum lease payments 255,505
Less current portion 103,744
----------
$ 151,761
==========
NOTE J - EMPLOYEE BENEFIT PLANS
1. Defined Contribution Plans
Management and nonunion employees of Polychem participate in a
qualified 401(k) savings plan. Participants can contribute a portion of their
pretax compensation, and Polychem matches 50% of the first 4% of compensation
contributed by the employee. Contributions to the plan for the years ended
January 2, 1999, and January 3, 1998, were $29,093 and $30,270, respectively.
Participants vest in Polychem's contributions pro rata over two to five years.
At the direction of the Board of Directors, Polychem may elect to contribute a
maximum of 9% of each employee's compensation, in addition to the regular match,
if sufficient profits are generated. Discretionary contributions were $-0- and
$93,964 for the years ended January 2, 1999, and January 3, 1998, respectively.
2. Defined Benefit Pension Plan
Polychem maintains a non-contributory defined benefit pension plan for
hourly union employees. The pension benefits are based on years of service and
the benefit rate in effect at the date of retirement.
F-16
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE J - EMPLOYEE BENEFIT PLANS - Continued
The plan status was as follows:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
----------- -----------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 2,213,711 $ 2,146,767
Service cost 31,139 28,445
Interest cost 148,996 155,221
Actual gain 120,755 102,831
Benefits paid (185,822) (219,553)
----------- -----------
Benefits obligation at end of year 2,328,779 2,213,711
Change in plan assets
Fair value of plan assets at beginning of year 2,157,972 1,907,362
Actual return on plan assets 316,663 470,163
Employer contribution -- --
Benefits paid (185,822) (219,553)
----------- -----------
Fair value of plan assets at end of year 2,288,813 2,157,972
Funded status 39,966 55,739
Unrecognized net actuarial gain 233,319 221,635
Unrecognized prior service cost (55,872) (61,393)
----------- -----------
Prepaid (accrued) benefit cost $ 217,413 $ 215,981
=========== ===========
Weighted average assumptions as of December 31
Discount rate 6.75% 7.00%
Expected return on plan assets 9.00% 9.00%
Components of net periodic benefit cost
Service cost $ (31,139) $ (28,445)
Interest cost (148,996) (155,221)
Expected return on plan assets 316,663 470,163
Amortization of prior service cost (5,521) (5,521)
Recognized net actuarial loss (132,439) (308,375)
----------- -----------
Net periodic benefit cost $ (1,432) $ (27,399)
=========== ===========
</TABLE>
3. Postretirement Life Insurance Benefits
Polychem provides postretirement life insurance benefits to all union
employees. The life insurance plan provides coverage ranging from $3,000 to
$6,000 for qualifying retired employees. A discount rate of 7% was used in
determining the actuarial present value of the obligations as of January 2,
1999, and January 3, 1998. The unfunded accumulated postretirement benefit
obligation as of January 2, 1999, and January 3, 1998, was $20,000 and $25,782,
respectively, and the net periodic postretirement benefit cost for the years
ended January 2, 1999, and January 3, 1998, was immaterial.
F-17
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE K - INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
---------- -----------
<S> <C> <C>
Current
Federal $ - $ -
State - 7,240
--------- -----------
- 7,240
--------- -----------
Deferred
Federal $ - $ 56,333
State - -
--------- -----------
- 56,333
--------- -----------
56,333
-----------
$ - $ 63,573
========= ===========
</TABLE>
The reconciliation of the statutory federal rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
---------- -----------
<S> <C> <C>
Statutory tax (benefit) provision $(195,395) $ (116)
State income tax provision, net of federal tax benefit - 4,778
Increase (decrease) in valuation allowance 189,492 46,944
Nondeductible expense 4,027 5,841
Other 1,876 6,126
--------- -----------
$ - $ 63,573
========= ===========
</TABLE>
Under SFAS No. 109, Accounting for Income Taxes, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates.
The tax effect of temporary differences that give rise to deferred
income taxes is as follows:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
---------- -----------
<S> <C> <C>
Deferred Tax Assets
Accruals and reserves $ 25,500 $ 28,900
Inventory 62,906 49,498
Net operating loss carryforwards 166,406 -
Valuation allowance on deferred tax asset (236,436) (46,944)
Other 60,117 47,039
--------- -----------
$ 78,493 $ 78,493
========= ===========
</TABLE>
At January 2, 1999, the Company had approximately $500,000 of net
operating loss carryforwards expiring in 2018. A valuation allowance has been
recorded to reflect a net deferred tax asset that management believes is
realizable in future tax years from income from operations.
F-18
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE L - COMMITMENTS AND CONTINGENCIES
1. Operating Leases
The Company leases certain facilities and equipment under
noncancellable operating leases that expire through May 2001. Rent expense of
$31,148 and $30,458 has been charged to operations for the years ended January
2, 1999, and January 3, 1998, respectively. Minimum future rental payments under
leases as of January 2, 1999, are as follows:
1999 $ 27,204
2000 16,695
2001 490
---------
$ 44,389
=========
2. Litigation
ConMat is currently a defendant in a Pennsylvania state court action
filed on January 28, 1999. The plaintiff maintains that Eastwind, his former
employer, breached the terms of his severance agreement, and that the sale of
Polychem to ConMat was part of a conspiracy to avoid payments to him and
violated Pennsylvania's Uniform Fraudulent Act. Among the other named defendants
is the Chairman and Chief Executive Officer of ConMat who was the former Chief
Executive Officer of Eastwind.
Initially, the plaintiff sought a temporary restraining order and
preliminary injunction seeking to set aside the sale of Polychem to ConMat.
However, by Order dated February 19, 1999, the Court denied plaintiffs' request
for injunctive relief. ConMat subsequently filed preliminary objections to the
complaint seeking to have itself dismissed as a party to the action. The parties
have completed filing briefs relating to ConMat's preliminary objections and a
decision by the Court is not expected until September 1999 at the earliest.
From time to time, ConMat and its subsidiary are parties to routine
litigation which arises in the normal course of business. In the opinion of
management, the resolution of these lawsuits would not have a material adverse
effect on the Company's consolidated financial position or consolidated results
of operations.
NOTE M - EMPLOYMENT AGREEMENTS
In conjunction with the Acquisition, ConMat entered into an Employment
Agreement with ConMat's Chief Executive Officer and Chairman of the Board of
Directors. Under the agreement, he will be paid an annual base salary ranging
from $170,000 to $250,000, depending on ConMat's annual net income. As
additional incentive compensation, upon executing the Employment Agreement, he
received (i) 250,000 shares of common stock for an aggregate purchase price of
$50,000, paid by delivery of a two-year promissory note at 5% interest; and (ii)
250,000 options to purchase shares of common stock at an exercise price of $3.00
per share (the Stock Option Award). 50,000 of the options are exercisable
following registration of the underlying shares of common stock. 100,000 of the
options are exercisable following registration of the underlying common stock if
ConMat realizes $750,000 in pre-tax income during a fiscal year. The remaining
100,000 options are exercisable following registration of the underlying shares
of common stock if ConMat realizes $1,000,000 in pre-tax income during a fiscal
year. All of the options expire ten years from the grant date and are
immediately exercisable upon a merger, sale of assets, or other transaction
resulting in a change of control in which the holders of shares of common stock
receive not less than $5.00 per share.
The Stock Option Award is accounted for under Accounting Principles
Board (APB) Opinion No. 25 and related interpretations. Had compensation cost
for the options been determined based on the fair value of the options on the
grant date consistent with the method of SFAS No. 123, Accounting for Stock
Based Compensation, the Company's net loss per share for the fiscal year ended
January 2, 1999, would not be materially different from the amount reported.
F-19
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE N - INDUSTRY SEGMENT AND FOREIGN SALES INFORMATION
Management has determined that it operates in one industry segment (see
note A).
For the year ended January 2, 1999, Polychem's sales to foreign
customers were approximately $2,826,505, or 31.2% of consolidated net sales, and
consist of sales to customers in Asia (15.2%), Europe (11.0%), and North America
(5.0%). Receivables from these customers were approximately $339,096 as of
January 2, 1999.
For the year ended January 3, 1998, Polychem's sales to foreign
customers were approximately $2,722,000, or 22.4% of consolidated net sales, and
consist of sales to customers in Asia (3.6%), Europe (10.7%), and North America
(8.1%).
F-20
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
ConMat Technologies, Inc.
Date: August 26, 1999 By: /s/ Paul A. DeJuliis
-----------------------------------
Paul A. DeJuliis
Chief Executive Officer and
Chairman of the Board of Directors
<PAGE>
Exhibit Index
Exhibit
Number Description
- ------ -----------
10.10 Share Exchange Agreement between ConMat and Eastwind
dated December 8, 1996.
10.11 Eastwind Stockholder Trust Agreement between Eastwind
and Paul A. DeJuliis dated December 7, 1998.
10.12 Waiver and Amendment Agreement between GECC and
Polychem dated August 25, 1999.
10.13 Amended and Restated Term Note dated August 25, 1999
payable by Polychem to GECC.
10.14 Amended and Restated Revolving Credit Note dated
August 25, 1999 payable by Polychem to GECC.
10.15 Guantor Reaffirmation Agreement dated August 25, 1999
between ConMat and GECC.
10.16 Balloon Mortgage Note dated August 25, 1999 payable
to Public School Employes' Retirement Board by
Polychem.
10.17 Open End Mortgage and Security Agreement between
Polychem and Public School Employes' Retirement Board
dated August 24, 1999.
10.18 Loan Guaranty and Suretyship Agreement between
Polychem and Public School Employes' Retirement Board
dated August 24, 1999.
10.19 Mortgagee's Waiver and Consent dated August 25, 1999
between Public School Employes' Retirement System,
Polychem and GECC.
27 Financial Data Schedule.
<PAGE>
Exhibit 10.10
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (the "Agreement") dated this 8th day of
December, 1998, is between ConMat Technologies, Inc. a Florida corporation
("ConMat"), and The Eastwind Group, Inc., a Delaware corporation ("Eastwind").
RECITALS
A. Eastwind is a holding company that currently owns all of the outstanding
shares of the common stock of Polychem Corporation ("Polychem"), par value $0.01
per share ("Polychem Common Stock").
B. The parties desire to enter into a share exchange transaction whereby
ConMat will acquire all of the outstanding shares of Polychem Common Stock from
Eastwind in exchange for (i) one million (1,000,000) shares of newly issued
common stock of ConMat, par value $0.001 per share ("ConMat Common Stock") and
one million three hundred thirty-three thousand three hundred thirty-three
(1,333,333) shares of newly issued Series A convertible preferred stock of
ConMat, par value $0.001 per share ("ConMat Series A Preferred Stock"), and (ii)
the assumption by ConMat of certain liabilities of Eastwind.
NOW, THEREFORE, in consideration of the agreements and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:
1. Share Exchange Transaction. At the Closing, Eastwind shall convey,
transfer, assign and deliver to ConMat all of the outstanding shares of Polychem
Common Stock (the "Polychem Shares"), free and clear of any security interest,
lien, pledge, encumbrance or other adverse claim or interest except as provided
herein. In exchange for the Polychem Shares, at the Closing, ConMat shall issue
and deliver to Eastwind (i) one million (1,000,000) shares of ConMat Common
Stock and (ii) one million three hundred thirty-three thousand three hundred
thirty-three (1,333,333) shares of ConMat Series A Preferred Stock
(collectively, the "ConMat Shares"). The rights, preferences and privileges of
the ConMat Series A Preferred Stock shall be as set forth in the form of
Certificate of Designation attached hereto as Exhibit "A".
2. Assumption and Discharge of Eastwind Obligations by ConMat. As further
consideration for the Polychem Shares, at the Closing (defined below), ConMat
will assume and discharge certain liabilities of Eastwind as follows:
(a) $160,000 owed to Paul DeJuliis, to be discharged by the issuance to
Paul DeJuliis of 53,333 shares of ConMat Series A Preferred Stock, pursuant to
an agreement in substantially the form attached hereto as Exhibit "B";
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(b) $100,000 owed to Clifton Capital, Ltd., to be discharged by the
payment to Clifton Capital, Ltd. of $100,000, pursuant to an agreement in
substantially the form attached hereto as Exhibit "C"; and
(c) $500,000 owed to Mentor Special Situation Fund, L.P., a Pennsylvania
limited partnership ("Mentor"), to be discharged by the issuance to Mentor of
166,667 shares of ConMat's Series B Preferred Stock, plus warrants to purchase
166,667 shares of ConMat Common Stock, pursuant to an agreement in substantially
the form attached hereto as Exhibit "D".
3. Obligations of Eastwind to Polychem. In addition to the share exchange
described above, at the Closing, Eastwind shall issue to Polychem a promissory
note (the "Eastwind Note"), in substantially the form attached as Exhibit "E",
in the amount of $940,000 to evidence the outstanding amount owed by Eastwind to
Polychem for prior advances, secured by the pledge of 313,333 shares of Series A
Preferred Stock, pursuant to a Collateral Pledge of Stock Agreement in the form
attached as Exhibit "F"; and
4. Closing. The closing (the "Closing") will be held at the offices of
Klehr, Harrison, Harvey, Branzburg & Ellers LLP, located at 1401 Walnut Street,
Philadelphia, Pennsylvania 19102-3163, on December 7, 1998 or such other date
and such other place as the parties shall agree, provided that if the Closing
has not been completed by December 31, 1998, this Agreement will terminate and
neither party will have any further obligations to the other except for any
obligations arising out of any breach of its obligations hereunder.
5. Representations and Warranties of Eastwind. Eastwind represents and
warrants to ConMat as follows, which representations and warranties shall be
true and correct as of the date when made and as of the Closing as though made
at that time:
(a) Eastwind is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full corporate
power and authority to execute and deliver this Agreement and to assume and
perform its obligations hereunder.
(b) Polychem is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania.
(c) The authorized capital stock of Polychem consists of 1,000 shares of
Polychem Common Stock, of which only the Polychem shares are currently
outstanding. Eastwind is the lawful owner, of record and beneficially, of the
Polychem Shares free and clear of any security interest, lien, pledge,
encumbrance or other adverse claim or interest other than a pledge in favor of
General Electric Capital Corporation ("GECC"). Upon delivery of certificates
representing the Polychem Shares pursuant to the terms of this Agreement, ConMat
will acquire good title to the Polychem Shares, free and clear of any security
interest, lien, pledge, encumbrance or other adverse claim or interest other
than the pledge in favor of GECC.
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(d) The Polychem Shares are duly authorized, validly issued, fully paid
and non-assessable.
(e) Eastwind has taken all necessary corporate action to authorize the
execution and delivery of this Agreement and this Agreement constitutes the
legal, valid and binding agreement of Eastwind enforceable against Eastwind in
accordance with its terms.
(f) Neither the execution nor delivery of this Agreement by Eastwind,
nor the performance by Eastwind of any of the transactions contemplated hereby
(i) will result in a violation of the certificate of incorporation or by-laws of
Eastwind or Polychem, (ii) conflicts with, or constitutes a breach or default
under any applicable judgment, order, writ, injunction or decree of any court or
any applicable law or any applicable rule or regulation of any administrative
agency or governmental or regulatory authority or (iii) except as set forth on
Schedule I hereto, violates, conflicts with, or constitutes a default (or an
event or condition that, with notice or lapse of time or both, would constitute
a default) under, any contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which Eastwind or Polychem
is a party or may be bound, other than with respect to which the other party has
given, or gives prior to Closing, its consent.
(g) Until the ConMat Common Stock is registered under the Securities
Acts of 1933, Eastwind is acquiring the ConMat Shares for its own account, as
principal, for investment purposes only and not with a view to the resale or
distribution of all or any portion thereof. Eastwind has no present intention,
agreement or arrangement to divide the ConMat Shares with others or to resell,
assign, transfer or otherwise dispose of all or any part of the ConMat Shares,
other than to assign the ConMat Common Stock to a trust for the benefit of its
shareholders.
6. Representations and Warranties of ConMat. ConMat represents and warrants
to Eastwind as follows, which representations and warranties shall be true and
correct as of the date when made and as of the Closing as though made at that
time:
(a) ConMat is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida and has full corporate power and
authority to execute and deliver this Agreement and to assume and perform its
obligations hereunder.
(b) ConMat's authorized capital consists of 40,000,000 shares of common
stock, par value $0.001 per share, of which 1,000,000 shares are issued and
outstanding, and 10,000,000 shares of "blank check" preferred stock, par value
$0.001 per share, of which no shares are issued and outstanding. Except as
otherwise indicated in this Agreement or the exhibits thereto, other than the
options granted to Paul A. DeJuliis for 500,000 shares of Common Stock, there
are no options, warrants or rights to purchase shares of capital stock or other
securities of ConMat authorized, issued or outstanding, nor is ConMat obligated
in any other manner to issue shares of its capital stock or other securities. No
holder of any security of ConMat is entitled to preemptive or similar statutory
or contractual rights with respect to the sale or voting of any shares of
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capital stock of ConMat, either arising pursuant to any agreement or instrument,
to which ConMat is a party, or which are otherwise binding upon ConMat.
(c) Upon delivery at the Closing, the ConMat Shares will be duly
authorized, validly issued, fully paid and non-assessable.
(d) ConMat has taken all necessary corporate action to authorize the
execution and delivery of this Agreement and this Agreement constitutes the
legal, valid and binding agreement of ConMat enforceable against ConMat in
accordance with its terms.
(e) Neither the execution nor delivery of this Agreement by ConMat, nor
the performance by ConMat of any of the transactions contemplated hereby (i)
will result in a violation of the certificate of incorporation or by-laws of
ConMat, (ii) conflicts with, or constitutes a breach or default under any
applicable judgment, order, writ, injunction or decree of any court or any
applicable law or any applicable rule or regulation of any administrative agency
or governmental or regulatory authority or (iii) violates, conflicts with, or
constitutes a default (or an event or condition that, with notice or lapse of
time or both, would constitute a default) under, any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which ConMat is a party or may be bound.
(f) Based on the representations made by Eastwind in Section 5 above,
and in reliance thereon, the issuance and sale of the ConMat Shares to Eastwind
as contemplated hereby is exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933.
7. Conditions to ConMat's Obligation to Close. The obligation of ConMat to
accept the Polychem Shares and to issue the ConMat Shares at the Closing is
subject to the satisfaction, at or before the Closing, of each of the following
conditions, provided that such conditions are for ConMat's sole benefit and may
be waived by ConMat:
(a) Eastwind shall have delivered to ConMat the Polychem Shares and
shall have performed, satisfied and complied in all material respects with all
terms and provisions of this Agreement;
(b) Eastwind shall have received all authorizations and consents
necessary to consummate the transactions contemplated by this Agreement,
including without limitation, any required shareholder approvals;
(c) Eastwind's board of directors shall have approved the distribution
of the ConMat Common Stock to Eastwind's shareholders immediately following the
effectiveness of a registration statement covering the ConMat Common Stock;
(d) Eastwind shall have issued the Eastwind Note to Polychem; and
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(e) Centennial shall have issued the Centennial Note to Polychem.
8. Conditions to Eastwind's Obligation to Close. The obligation of Eastwind
to accept the ConMat Shares and to deliver the Polychem Shares at the Closing is
subject to the satisfaction, at or before the Closing, of each of the following
conditions, provided that such conditions are for Eastwind's sole benefit and
may be waived by Eastwind:
(a) ConMat shall have issued to Eastwind the ConMat Shares and shall
have performed, satisfied and complied in all material respects with all terms
and provisions of this Agreement;
(b) ConMat shall have received all authorizations necessary to
consummate the transactions contemplated by this Agreement, including without
limitation, any required shareholder approvals;
(c) GECC shall have released Eastwind from all liability under the
Guarantee dated September 30, 1998; and
(d) ConMat shall have discharged certain obligations of Eastwind as
required pursuant to Section 2 of this Agreement.
9. Registration Rights. Each present and future holder of Series A
Preferred Stock shall be entitled to the benefits of the registration rights
granted pursuant to this Section 9.
(a) For purposes of this Section 9:
(i) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(ii) The term "Registrable Securities" means the shares of ConMat
Common Stock issued to Eastwind pursuant to this Agreement and all shares of
ConMat Common Stock issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of any of
the ConMat Common Stock issued to Eastwind pursuant to this Agreement excluding
in all cases, however, any Registrable Securities (x) sold by a person in
transaction in which his rights under this Section 9 are not assigned, (y) sold
in a public offering registered under the Securities Act or (z) sold pursuant to
Rule 144 promulgated under the Securities Act;
(iii) The term "Holder" means any person owning or having the right
to acquire Registrable Securities;
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(iv) The term "SEC" means the Securities and Exchange Commission;
and
(v) The term "Securities Act" shall mean the Securities Act of 1933,
as from time to time amended.
(b) No later than December 31, 1999 the Company shall file with the
Securities and Exchange Commission ("SEC") a registration statement covering the
Registerable Securities, and shall use its best offers to cause such
registration statement is filed (the "Initial Registration"). If such Initial
Registration is not declared effective by the end of such period or does not
include all Registrable Securities, or the Company is not in compliance with its
obligations under Section 9(d), the Holders of a majority of the Registrable
Securities, or the Company is not in compliance with its obligations under
Section 9(d), the Holders of a majority of the Registrable Securities shall have
the right to require by notice in writing that the Company register all or any
part of the Registrable Securities held by such Holders (a "Demand
Registration") and the Company shall thereupon effect such registration in
accordance herewith. The parties agree that if such Holders demand registration
of less than all of the Registrable Securities, the Company, at its option, may
nevertheless file a registration statement covering all of the Registrable
Securities. Upon the filing by the Company of a Registration Statement under
Section 9(c) below, and if the Company is in compliance with its obligations
under Sections 9(c) and (d) below, the Demand Registration rights granted
pursuant to this Section 9(b) shall cease. If such Registration statement is not
declared effective with respect to all Registrable Securities or if the Company
is not in compliance with such obligations, the Demand Registration rights
described herein shall remain in effect.
(ii) If the Holders initiating the registration request hereunder
(the "Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 9(b) and the
Company shall include such information in the written notice referred to in
Section 9(b)(i). In such event, the right of any Holder to include its, his or
her Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in Section
9(d)(v)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 9(b), if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of securities that may be included in the underwriting shall be
allocated among all Initiating Holders and other Holders who have been provided
the notice required by Section 9(b)(i) in proportion (as nearly as practicable)
to the number of shares of Registrable Securities requested to be included in
such registration by such Holder and which would be eligible for inclusion in
the registration but for the application of this sentence.
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(iii) Notwithstanding the foregoing, the Company shall not be
required to file a registration statement following the effective date of any
registration of Company securities with respect to which Holders were given the
opportunity to register Registrable Shares under Section 9(c) below, or (B)
during the period of time beginning on the date the Company files a registration
statement with the SEC described in Section 9(c) below and ending on the earlier
to occur of (x) the date which is 120 days after such registration becomes
effective, or (y) the date on which the Company withdraws such registration with
the SEC. In addition, if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 9(b) a certificate signed by the
President of the Company stating that in the good faith judgment of the board of
directors of the Company it would be seriously detrimental to the Company and
its stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than ninety (90)
days after receipt of the request of the Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
(c) If (but without any obligation to do so) the Corporation proposes to
register (including for this purpose a registration effected by the Corporation
for stockholders other than the Holders) any shares of its Common Stock under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration relating solely to the sale of
securities to employees pursuant to stock option awards and/or to participants
in a Company employee benefit or stock plan, or a registration on any form which
does not include substantially the same information, other than information
related to the selling stockholders or their plan of distribution, as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Corporation shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the
Corporation, the Corporation shall, subject to the provisions of the immediately
preceding sentence and Section 9(e) hereof, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be so registered.
(d) Whenever required under this Section 9 to effect the registration of
any Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
(ii) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
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(iii) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(v) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing under writer of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(vi) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(vii) In the case of an underwritten public offering, furnish, at
the request of any Holder requesting registration of Registrable Securities
pursuant to this Section 9, on the date that such Registrable Securities are
delivered to the underwriters for sale in connection with a registration
pursuant to this Section 9, (A) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in such form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters and (B) a letter dated such date, from
the independent certified public accountants of the Company, in such form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.
(e) It shall be a condition precedent to the obligations of the
Corporation to take any action pursuant to this Section 9 with respect to the
Registrable Securities of any selling Holder that such Holder shall have
furnished to the Corporation such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
(f) Except as set forth in this Section 9(f), the Company shall bear and
pay all expenses incurred by it in connection with any registrations, filings or
qualifications pursuant to Section 9(b), including without limitation all
registration, filing and qualification fees, printers, and accounting fees, and
fees and disbursements of counsel for the Company, but excluding underwriter's
commissions and/or discounts with respect to shares sold by Holders, which shall
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be the responsibility of the Holders; provided, however, that (subject to
Section 9(b)(ii) hereof) the Holders participating in any registration pursuant
to Section 9(b) shall reimburse the Company for any expenses of any Demand
Registration proceeding begun pursuant to Section 9(b) if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered (in which case all Holders
participating in such withdrawn registration shall bear such expenses pro rata
based upon the number of Registrable Securities to be included in such
registration). In no event shall the Company be required to pay any expenses
incurred by a Holder in connection with any registration, filing or
qualification pursuant to Section 9(b).
(g) The Corporation shall bear and pay all expenses incurred by it in
connection with any registration, filing or qualification of Registrable
Securities with respect to the registrations pursuant to Section 9(c), including
without limitation all registration, filing, and qualification fees, printers
and accounting fees and all fees and disbursements of counsel for the
Corporation relating or allocable thereto. The Corporation shall not pay any
expenses incurred by a Holder in connection with any such registration, filing
or qualification, including, but not limited to underwriting discounts and
commissions relating to Registrable Securities and the fees and disbursements of
any professional advisors (including attorneys and accountants) utilized by the
selling Holders in connection with such registration, filing or qualification.
(h) In connection with any offering involving an underwriting of shares
being issued by the Corporation, the Corporation shall not be required under
Section 9(b) or (c) hereof to include any of the Holders' securities in such
underwriting unless they accept the customary and reasonable terms of the
underwriting as agreed upon between the Corporation and the underwriters
selected by it, and then only in such quantity as will not, in the opinion of
the underwriters, jeopardize the success of the offering by the Corporation. If
the total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Corporation that the underwriters reasonably believe
compatible with the success of the offering, then the Corporation shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters believe will not
jeopardize the success of the offering (the securities so included to be
allocated first among all holders of Other Securities and next apportioned among
the Holders who have provided notice required by Section 9(b) or (c) and all
other holders of securities subject to registration rights granted by the
Corporation in proportion (as nearly as practicable) to the number of shares of
securities requested to be included in such registration by such Holder and such
other holders and which would have been eligible for inclusion in such
registration but for the application of this sentence, or in such other
proportions as shall mutually be agreed to by such selling stockholders). For
purposes of the provision of the preceding sentence concerning apportionment
amongst the selling stockholders, for any selling stockholder which is a
partnership or corporation, the partners, retired partners and stockholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any reduction with respect to
such "selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
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(i) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any registration by the Corporation as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 9.
(j) In the event any Registrable Securities are included pursuant to a
registration statement under this Section 9:
(i) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Securities Act)
and each person if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act") against any losses, claims, damages or liabilities (joint
or several) to which they or any of them may become subject under the Securities
Act, the Exchange Act or any other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively a "Violation"): (A) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus (but only if such is not corrected in the final
prospectus) contained therein or any amendments or supplements thereto, (B) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading (but
only if such is not corrected in the final prospectus), or (C) any violation or
alleged violation by the Company in connection with the registration of
Registrable Securities under the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law; and the Company will pay to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 9(j)(i) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with information furnished by such Holder for
use in connection with such registration; and each such Holder will pay, as
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incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this Section 9(j)(ii), in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
9(j)(ii) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided that
in no event shall any indemnity under this Section 9(j)(ii) exceed the net
proceeds from the offering received by such Holder.
(iii) Promptly after receipt by an indemnified party under this
Section 9(j) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9(j), deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 9(j), but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
9(j).
(iv) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 9(j)(i) and
(ii) is applicable but for any reason is held to be unavailable from the Company
with respect to all Holders or any Holder, the Company and the Holder or
Holders, as the case may be, shall contribute to the aggregate losses, claims,
damages and liabilities (including any investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted) to which the Company and one or more
of the Holders may be subject in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand, and the Holder or Holders on
the other, in connection with statements or omissions which resulted in such
losses, claims, damages or liabilities. Notwithstanding the foregoing, no Holder
shall be required to contribute any amount in excess of the net proceeds
received by such Holder from the Registrable Securities as the case may be, sold
by such Holder pursuant to the registration statement. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Each person, if any, who controls a
Holder within the meaning of the Securities Act shall have the same rights to
contribution as such Holder.
11
<PAGE>
(v) The obligations of the Company and Holders under this Section
9(j) shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 9 or otherwise.
9. Miscellaneous Terms and Conditions.
(a) Entire Agreement. This Agreement represents the entire understanding
of the parties hereto as to the subject matter hereof and supersedes any and all
other oral or written agreements and understandings as to such subject matter.
(b) Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, successors and
assigns.
(c) Governing Law. This Agreement will be governed by the laws of the
Commonwealth of Pennsylvania, without regard to conflicts of law principles.
(d) Notices. All notices and other communications between the parties
shall be in writing and shall be deemed to have been given if mailed
first-class, postage prepaid to the address set forth below or such other
address as ConMat or Eastwind may give the other for such purpose:
If to ConMat:
ConMat Technologies
Franklin Avenue and Grant Street
Phoenixville, PA 19460
Attention: Chairman
Tel.: (610) 935-0225
Fax: (610) 935-7151
With a copy to:
Klehr, Harrison, Harvey,
Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esquire
Tel: (215) 569-4284
Fax: (215) 568-6603
12
<PAGE>
If to Eastwind:
The Eastwind Group, Inc.
275 Geiger Road
Philadelphia, PA 19115
Attention: Chief Financial Officer
Tel: (215) 671-0606
Fax: (215) 673-8964
(e) Further Assurances. Prior to and following the Closing, at the
request of either party, the other party shall deliver any further instruments
of transfer and take all reasonable actions as may be necessary or appropriate
to effectuate the transactions contemplated by this Agreement.
(f) Execution in Counterparts. This Agreement may be executed and
delivered by facsimile and in counterparts, each of which shall be deemed to be
an original as against any party whose signature appears thereon, and all of
such shall together constitute one and the same instrument.
(g) Section Headings. The section headings are inserted for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
(h) DAR Group Fees. Eastwind agrees to be responsible for all fees and
expenses of DAR Group in connection with the transactions contemplated by this
Agreement, which are in the amount of $250,000.00.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement as of the date first written above.
CONMAT TECHNOLOGIES, INC.
By: /s/ Steven B. Rosner
----------------------
Name: Steven B. Rosner
Title: President
THE EASTWIND GROUP, INC.
By: /s/ Paul A. DeJuliis
----------------------
Name: Paul A. DeJuliis
Title: President
14
<PAGE>
Exhibit 10.11
EASTWIND STOCKHOLDER'S TRUST
This Eastwind Stockholder's Trust (the "Trust") is made the 7th day of
December 1998, by and between THE EASTWIND GROUP, INC., a Delaware corporation
(the "Company"), and PAUL A. DEJULIIS, an individual, acting as Trustee (the
"Trustee") of the Trust.
BACKGROUND
Pursuant to the Share Exchange Agreement between the Company and ConMat
Technologies, Inc. ("ConMat") the Company has received 1,000,000 shares of
ConMat Common Stock ("ConMat Common Stock" or the "Stock"). The Board of
Directors of the Company has authorized and declared the distribution of the
ConMat Common Stock to its stockholders as a dividend ("Dividend") Pursuant to
the Share Exchange Agreement, ConMat has agreed to register the ConMat Common
Stock for resale under the Securities Act of 1933, as amended (the "Act").
Actual payment of the ConMat Common Stock is conditioned upon the effectiveness
of such registration statement under the Act ("Effective Date"), as well as the
Company having sufficient surplus as required under Section 170 of the Delaware
Corporation Law, and having obtained all required consents of any third parties
to the payment of the Dividend.
Pending payment of the Dividend, the ConMat Common Stock shall be
assigned and delivered by the Company to the Trust according to the terms and
conditions contained herein to be held for the benefit of the Company's
stockholders.
TRUST AGREEMENT
NOW THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
<PAGE>
1. Assignment of ConMat Common Stock. At the time of execution and
delivery of this Trust, the Company has assigned and delivered to the Trustee
the stock certificate representing the ConMat Common stock.
2. Ownership Rights; Trustee's Powers.
2.1 The ConMat Common Stock shall be held in the Trust by the
Trustee for the sole and exclusive benefit of the Company's common stockholders
pursuant to all of the terms and conditions hereof. All of the ownership rights
of the Company in connection with the ConMat Common Stock shall be held by the
Trustee. The ownership rights shall include any voting rights and rights to any
distributions on account of and attributable to the Stock. The Company hereby
grants to Trustee an irrevocable proxy to vote the Stock.
2.2 The Trustee shall have power to do all such other things
and execute all such instruments as are necessary, proper or desirable in order
to carry out the above-referenced activities of the Trust, including, but not
limited to, delivery to the Trustee of a written proxy in favor of Trustee to
vote the Stock at any Company stockholder's meeting or action where the consent
of stockholders is required.
2.3 The Trustee shall be entitled, from time to time, to
collect and receive all dividends and all other distributions in respect of the
ConMat Common Stock, whenever paid or made ("Distributions"). Said Distributions
shall be received by, the Trustee in Trust for the benefit of the Company's
stockholders and be released as provided in Section 4 herein. If the Company
receives any Distributions, the Company will immediately assign, transfer and
deliver such Distributions to the Trustee.
2
<PAGE>
3. Prohibition on Transfer. Except as specifically provided herein, all
Trust assets, including the ConMat Common Stock and any Distributions shall not
be sold, pledged, hypothecated, or transferred, directly or indirectly, by the
Trustee, and shall be released by the Trustee only as prescribed in Sections 4
or 5 herein.
4. Release of Trust Assets. Upon receipt by the Trustee of an
appropriate instruction from the Company's Board of Directors, the Trustee shall
assign and deliver the ConMat Common Stock and all other Distributions to the
Company's transfer agent or to the Company's stockholders in payment of the
Dividend. Prior to releasing the Stock or the Distributions, the Trustee may
require appropriate certifications from the Company.
5. Termination. This Trust shall be terminated upon the earlier
occurrence of the following:
(a) the receipt of notice by the Trustee from the Company's
Board of Directors authorizing the release of the Stock and Distributions in
payment of the Dividend as prescribed in Section 4 herein; or
(b) the receipt of notice by the Trustee from the Company's
Board of Directors stating that the Effective Date has not Occurred by July 11
2000; or
(c) the receipt of a final Court order or upon the written
agreement by the Trustee and The Budd Company indicating that this Trust is a
Restricted Distribution as such term is defined under the Surety Agreement dated
March 10, 1995, from the Company in favor of The Budd Company.
If the Trustee receives notice pursuant to subparagraph (a), the Stock
and any Distributions shall be distributed as set forth in Section 4 hereof. If
the Trustee receives notice
3
<PAGE>
pursuant to subparagraphs (b) or (c) hereof, the Stock and any Distributions
shall be delivered to the Company by the Trustee.
6. Trustee's Duties and Obligations.
6.1 The duties and obligations of the Trustee shall be
determined solely by the express provisions of this Trust and the Trustee shall
not be liable for the performance of such duties and obligations, except as
specifically set forth in this Trust.
6.2 The Trustee shall not be responsible in any manner
whatsoever for any failure or inability of the Company, or any third party, to
perform or comply with any of the provisions of this Trust.
6.3 The Trustee shall not be liable for any error of judgment,
or any action taken or omitted to be taken hereunder, except in the case of his
gross negligence or willful misconduct, nor shall he be liable for the
misconduct of any employee or agent appointed by him who shall have been
selected with reasonable care.
7. Indemnification of Trustee. The Company agrees to indemnify the
Trustee and hold the Trustee harmless from any liability or expenses incurred
(including counsel fees) on the part of the Trustee arising out of or in
connection with the acceptance or administration by the Trustee of his duties
hereunder, including the fees, costs and expenses of defending himself against
any claims of liability hereunder.
8. Successor Trustee. In the event the Trustee is no longer able or
willing to serve, the Company shall have the exclusive right to appoint a
successor Trustee who shall be bound by the terms and conditions set forth
herein.
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<PAGE>
9. UCC-1 Filing. The company hereby grants to the Trustee a security
interest in the Stock and Distributions to evidence this Trust. The parties
hereto shall file appropriate UCC-1 Financing Statements evidencing the Trust
arrangement created herein with the Secretary of the Commonwealth of
Pennsylvania and the County of Philadelphia, Pennsylvania.
10. Stockholders Benefit. The Trust is created to insure that the
ConMat Common Stock is available for distribution to the Company's stockholders
as a dividend following the Effective Date and is intended to presently and
immediately transfer a beneficial interest therein to such stockholders.
Creditors of the Company shall have no right or claim to any Trust assets
including the stock or any Distributions, and the Trustee shall take such action
as shall be necessary to protect the stockholders' interest in the Stock and any
Distributions. Any and all expenses incurred by the Trustee in communication
therewith, including attorneys' fees, may be charged against and satisfied from
the Stock or Distributions.
11. Notices. All notices required or permitted hereunder from either of
the parties hereto to the other must be in writing and sent by certified mail,
return receipt requested, postage prepaid or by overnight mail service with
receipt postage prepaid. Notice shall be addressed to the parties as follows:
To the Company:
The Eastwind Group, Inc.
275 Geiger Road
Philadelphia, PA, 19115
Attn: Mr. William B. Miller,
Senior Vice President
5
<PAGE>
To the Trustee:
Mr. Paul A. DeJuliis
1110 Daniel Davis Drive
West Chester, PA 19382
Either party may at any time, by notice given as aforesaid, change the address
to which notices shall be sent.
12. Binding Effect. This Trust shall inure to the benefit of and shall
be binding upon the respective heirs, personal representatives, successors and
legal assigns of the parties hereto.
13. Choice of Law. This Trust shall be construed in accordance with and
shall be governed by the laws of the state of Delaware without regard to its
conflict of law rules. Wherever possible, each provision of the Trust shall be
interpreted in such manner as to be effective and valid, but if any provision
shall be ineffective or invalid, such ineffectiveness or invalidity shall extend
only to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Trust.
14. Further Assurances. Each of the parties hereto shall hereafter
execute and deliver such further documents and instruments and do such further
acts and things as may be required or useful to carry out the intent and purpose
of this Trust and as are not inconsistent with the terms hereof.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto, have executed and delivered
this Trust the day and year above written.
THE EASTWIND GROUP, INC.
By: /s/ William B. Miller
-------------------------------
William B. Miller,
Senior Vice President
/s/ Paul A. DeJuliis
--------------------------------
PAUL A. DEJULIIS,
Trustee
7
<PAGE>
EXHIBIT 10.12
WAIVER AND AMENDMENT AGREEMENT
WAIVER AND AMENDMENT AGREEMENT (this "Amendment"), dated as of August 25,
1999, between General Electric Capital Corporation, a New York corporation (the
"Lender") and Polychem Corporation, a Pennsylvania corporation ("Polychem").
Unless otherwise stated or defined herein, capitalized terms used herein shall
have the meanings given to them in the Loan and Security Agreement.
WHEREAS, the Lender and Polychem are parties to a Loan and Security
Agreement, dated as of September 30, 1998 (as amended by the Waiver and
Amendment Agreement thereto, dated as of December 8, 1998, and the Waiver and
Amendment to Loan and Security Agreement, dated as of April 22, 1999, as it may
be further amended or modified, the "Loan and Security Agreement"), pursuant to
which the Lender has agreed to make revolving credit advances and a term loan to
Polychem;
WHEREAS, the Account from the APC-T&KJV project (the "APC Account") became
ineligible as of June 30, 1999, which has caused the Revolving Credit Loan to
exceed the Borrowing Availability (the "Overadvance") and to result in the
occurrence and continuance of an Event of Default under the Loan and Security
Agreement.
WHEREAS, Polychem has requested that the APC Account continue to be deemed
to be an Eligible Account through October 1,1999 and that the Lender waive such
Event of Default;
WHEREAS, Polychem wishes to refinance its real property with financing from
another lending institution, and, in connection therewith, to reduce the Term
Loan and obtain a release of the Mortgage from the Lender;
WHEREAS, Polychem has requested that a portion of the Term Loan in the
amount of $412,000 remain outstanding and that the Maximum Amount of the
revolving credit facility be increased from $3,500,000 to $5,000,000; and
WHEREAS, the Lender is willing to release the Mortgage, permit a portion of
the Term Note in the amount of $412,000 to remain outstanding and increase the
Maximum Amount of the revolving credit facility from $3,500,000 to $5,000,000 on
the terms and conditions set forth herein.
NOW THEREFORE, intending to be legally bound hereby and in consideration of
the mutual covenants contained herein and for other good, valuable and
sufficient consideration, the receipt and sufficiency of which is hereby
acknowledged, it is hereby agreed as follows:
1. Waiver. Effective as of the Effective Date (as hereinafter defined), the
Lender hereby waives any Default or Event of Default which existed on and prior
to the date hereof due to the failure of the APC Account to be an Eligible
Account in accordance with clause (m) of the definition of the term "Eligible
Accounts", it being understood and agreed that the Lender does not waive any
Default or Event of Default, if any, arising from the failure, if any, of the
APC Account to comply with any other clause of the definition of the term
"Eligible Accounts".
<PAGE>
2. Amendments to Loan and Security Agreement. The Lender hereby agrees to
amend the Loan and Security Agreement as follows:
(a) Section 1.2 is hereby amended to add a new clause (h) thereto, to
read in its entirety as follows:
"(h) After giving effect to the Waiver and Amendment Agreement,
dated as of August 25, 1999, the original principal amount of the Term Loan
shall be $412,000, payable in 25 monthly installments of $8,000, commencing
on September 1, 1999, with a balloon payment of the remaining outstanding
balance on the Commitment Termination Date."
(b) Clause (m) of the definition of Eligible Account is hereby amended
by adding two clauses to the end of such clause, to read in their entirety
to as follows:
";except for the APC Account which shall be deemed to be an Eligible
Account through October 1, 1999 provided it meets all of the other
requirements set forth in this definition of Eligible Accounts other
than the requirements of this clause (m); provided, further, that the
maximum amount which may be included in the Borrowing Base with respect
to the APC Account shall be $400,000."
(c) The definition of "Maximum Amount" is hereby amended by changing the
amount set forth therein from "$3,500,000" to "$5,000,000".
3. Effectiveness. This Amendment shall become effective on the date (the
"Effective Date") on which each of the following conditions is satisfied:
(a) The Lender shall have received an executed Amended and Restated Term
Note made by Polychem in favor of the Lender (the "New Term Note"), in the
form attached hereto as Exhibit A;
(b) The Lender shall have received an executed Amended and Restated
Revolving Credit Note made by Polychem in favor of the Lender (the "New
Revolving Credit Note"), in the form attached hereto as Exhibit B;
(c) The Lender shall have received a Mortgagee Waiver in the form
attached hereto as Exhibit C;
(d) The Lender shall have received the Reaffirmation Agreement of ConMat
Technologies, Inc. in the form attached hereto as Exhibit D;
(e) Polychem shall have reduced the outstanding indebtedness to the
Lender under the Loan and Security Agreement by $1,800,000; and
2
<PAGE>
(f) The Lender shall have received an amendment fee in the amount of
$10,000.
4. Representations and Warranties.
4.1. Polychem hereby represents and warrants to the Lender that:
(a) (i) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority and the legal right to own and operate
its property, to lease the property it operates and to conduct the business
in which it is currently engaged, (ii) it has the power and authority and
the legal right and capacity to execute and deliver, and to perform its
obligations under this Amendment, the Agreement, as amended by this
Amendment, and the New Term Note and the New Revolving Credit Note
(collectively, the "New Notes"), and has taken all necessary action to
authorize its execution, delivery and performance of this Amendment, the
Agreement, as amended by this Amendment, and the New Notes.
(b) this Amendment, the Agreement as amended by the Amendment and the
New Notes constitute the legal, valid and binding obligations of Polychem,
enforceable in accordance with their terms, except as affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws relating to or affecting the enforcement of
creditors' rights generally, general equitable principles and an implied
covenant of good faith and fair dealing;
(c) the execution, delivery and performance of this Amendment, the
Agreement, as amended by this Amendment, and the New Notes will not violate
any provision of any Requirement of Law or Contractual Obligation of
Polychem and will not result in or require the creation or imposition of
any Lien on any of its properties or revenues pursuant to any Requirement
of Law or any of its Contractual Obligations;
(d) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any
other Person (including, any shareholder or creditor of Polychem) is
required in connection with the execution, delivery, performance, validity
or enforceability of this Amendment, the Agreement, as amended by this
Amendment or the New Notes; and
(e) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of
Polychem threatened by or against it or against any of its properties or
revenues (1) with respect to this Amendment, the Agreement, as amended by
this Amendment, or the New Notes, or any of the transactions contemplated
hereby, or (2) which could have a material adverse effect on the business,
property, or financial or other condition of Polychem.
4.2. Polychem hereby represents and warrants to the Lender that each of
its representations and warranties contained in the Loan and Security
Agreement is true and
3
<PAGE>
correct and hereby restates each such representation and warranty and
further represents and warrants that no Event of Default or Default has
occurred or is continuing after giving effect to this Amendment.
5. Miscellaneous Terms and Conditions.
5.1. Loan and Security Agreement in Full Force and Effect. Except as
amended or waived by this Amendment, all of the provisions of the Loan and
Security Agreement shall remain in full force and effect from and after the
date hereof.
5.2. References to Loan and Security Agreement and to New Notes. From
and after the effectiveness of this Amendment, (a) all references in the
Loan and Security Agreement to "this Agreement," "hereof," "herein," or
similar terms, all references to the Loan and Security Agreement in the
Loan Documents, or any other documents or instruments executed or delivered
in connection with the Loan and Security Agreement, and all references to
the Loan and Security Agreement shall mean and refer to the Loan and
Security Agreement as amended by this Amendment, (b) all references in the
Loan and Security Agreement or in the other Loan Documents, or any other
documents or instruments executed or delivered in connection with the Loan
and Security Agreement to "the Term Note" shall mean and refer to the
Amended and Restated Term Note attached hereto as Exhibit A. and (c) all
references in the Loan and Security Agreement or in the other Loan
Documents, or any other documents or instruments executed or delivered in
connection with the Loan and Security Agreement to "the Revolving Credit
Note" shall mean and refer to the Amended and Restated Revolving Credit
Note attached hereto as Exhibit B.
5.3. Further Assurances. At the request of either party, the other party
shall deliver any further instruments and take all reasonable actions as
may be necessary or appropriate to effectuate the transactions contemplated
by this Amendment.
5.4. GOVERNING LAW. THIS AMENDMENT WILL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Waiver and Amendment
Agreement upon the date first written above.
GENERAL ELECTRIC CAPITAL CORPORATION
By:_________________________________
Name:
Title:
POLYCHEM CORPORATION
By: /s/ Paul A. DeJuliis
---------------------------------
Name: Paul A. DeJuliis
Title: Chairman and CEO
5
<PAGE>
EXHIBIT 10.13
AMENDED AND RESTATED TERM NOTE
$412,000
August 25, 1999
New York, New York
For value received, the receipt and sufficiency of which are hereby
acknowledged, POLYCHEM CORPORATION, a Pennsylvania corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("Lender"), $412,000, together with interest on the unpaid
balance of such amount from the date of this Note. This Note is the Term Note
issued under the Loan and Security Agreement between Borrower and Lender of even
date herewith (said agreement, as the same may be amended, restated or
supplemented from time to time, being herein called the "Agreement") to which a
reference is made for a statement of all of the terms and conditions of the Loan
evidenced hereby. Capitalized terms not defined in this Note shall have the
respective meanings assigned to them in the Agreement. This Note is secured by
the Agreement, the other Loan Documents and the Collateral, and is entitled to
the benefit of the rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
Term Loan Rate or, under the circumstances contemplated by the Agreement, at the
Default Rate, in immediately available United States Dollars at the time and in
the manner specified in the Agreement. The outstanding principal and interest
under this Note shall be immediately due and payable on the Commitment
Termination Date, and prior to the Commitment Termination Date, the outstanding
principal shall be due and payable in accordance with the schedule attached as
Schedule G-1 hereto and incorporated herein by reference.
Payments received by Lender shall be applied against principal and interest as
provided for in the Agreement. To the fullest extent permitted by applicable
law, Borrower waives: (a) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all of the Obligations, the Loan Documents or this Note; (b) all rights
to notice and a hearing prior to Lender's taking possession or control of, or to
Lender's replevy, attachment or levy upon, the Collateral or any bond or
security that might be required by any court prior to allowing Lender to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in the
Agreement.
Upon the occurrence of any one or more of the Events of Default specified in the
Agreement, all amounts then remaining unpaid on this Note shall become, or may
be declared to be, immediately due and payable, all as provided therein.
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<PAGE>
This Note amends and restates the Note dated September 30, 1998 in the original
principal amount of $1,500,000.
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY
THE LAW OF THE STATE OF NEW YORK.
POLYCHEM CORPORATION
By: /s/ Paul A. DeJuliis
------------------------
Name: Paul A. DeJuliis
Title: Chairman and CEO
2
<PAGE>
SCHEDULE G-1 TO AMENDED AND RESTATED TERM NOTE DATED August 25, 1999
IN THE ORIGINAL PRINCIPAL AMOUNT OF $412,000
MADE BY POLYCHEM CORPORATION
Amortization Schedule
The Term Loan shall amortize in equal monthly principal installments of $8,000
payable on the first day of each month, with a balloon payment of the remaining
outstanding balance on the Commitment Termination Date.
3
<PAGE>
EXHIBIT 10.14
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$5,000,000
August 25, 1999
New York, New York
For value received, the receipt and sufficiency of which are hereby
acknowledged, POLYCHEM CORPORATION, a Pennsylvania corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("Lender"), $5,000,000 or such greater or lesser amount as
shall be advanced by Lender from time to time, together with interest on the
unpaid balance of such amount from the date of the initial Revolving Credit
Advance. This Note is the Revolving Credit Note issued under the Loan and
Security Agreement between Borrower and Lender of even date herewith (said
agreement, as the same may be amended, restated or supplemented from time to
time, being herein called the "Agreement") to which a reference is made for a
statement of all of the terms and conditions of the Loan evidenced hereby.
Capitalized terms not defined in this Note shall have the respective meanings
assigned to them in the Agreement. This Note is secured by the Agreement, the
other Loan Documents and the Collateral, and is entitled to the benefit of the
rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
Revolving Credit Rate, or, under the circumstances contemplated by the
Agreement, at the Default Rate, in immediately available United States Dollars
at the time and in the manner specified in the Agreement. The outstanding
principal and interest under this Note shall be immediately due and payable on
the Commitment Termination Date. Payments received by Lender shall be applied
against principal and interest as provided for in the Agreement. Borrower
acknowledges that (a) Lender is authorized under the Agreement to charge to the
Revolving Credit Loan unpaid Obligations of Borrower to Lender, (b) the
principal amount of the Revolving Credit Loan will be increased by such amounts,
and (c) the principal, as so increased, will bear interest as provided for
herein and in the Agreement.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all of the Obligations,
the Loan Documents or this Note; (b) all rights to notice and a hearing prior to
Lender's taking possession or control of, or to Lender's replevy, attachment or
levy upon, the Collateral or any bond or security that might be required by any
court prior to allowing Lender to exercise any of its remedies; and (c) the
benefit of all valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Upon the occurrence of any one or more of the Events of Default specified in the
Agreement, all amounts then remaining unpaid on this Note shall become, or may
be declared to be, immediately due and payable, all as provided therein.
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<PAGE>
Borrower agrees to pay to Lender all Fees and expenses described in the
Agreement.
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY
THE LAW OF THE STATE OF NEW YORK.
This Note amends and restates the Note dated September 30, 1998 in the original
principal amount of $3,500,000.
POLYCHEM CORPORATION
By: /s/ Paul A. DeJuliis
------------------------
Name: Paul A. DeJuliis
Title: Chairman and CEO
2
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EXHIBIT 10.15
GUARANTOR REAFFIRMATION AGREEMENT
The undersigned duly authorized officer of CONMAT TECHNOLOGIES, INC. (the
"Guarantor") refers to (a) the Loan and Security Agreement, dated as of
September 30, 1998 (as amended by the Waiver and Amendment Agreement thereto,
dated as of December 8, 1998, and the Waiver and Amendment to Loan and Security
Agreement, dated as of April 22, 1999, as it may be further amended or modified,
the "Loan and Security Agreement") between General Electric Capital Corporation,
a New York corporation (the "Lender") and Polychem Corporation ("Polychem") and
(b) the Waiver and Amendment Agreement, dated as of August 25, 1999 (the
"Amendment"), between the Lender and Polychem.
The Guarantor confirms that it has received and reviewed a copy of the
Amendment and that it reconfirms all of its obligations under the Guarantee,
dated as of December 8, 1999, made by the Guarantor in favor of the Lender.
IN WITNESS WHEREOF, the Guarantor has duly executed this Reaffirmation
Agreement upon the date first written above.
CONMAT TECHNOLOGIES, INC.
By: /s/ Paul A. DeJuliis
-----------------------
Name: Paul A. DeJuliis
Title: Chairman and CEO
Dated as of August 25, 1999
<PAGE>
EXHIBIT 10.16
- --------------------------------------------------------------------------------
BALLOON MORTGAGE NOTE
$1,880,000 , Pennsylvania
, 1999
For Value Received the undersigned, and if more than one,
jointly and severally ("Borrower"), promises to pay to the order of PUBLIC
SCHOOL EMPLOYES' RETIREMENT BOARD an independent Administrative Board of the
Commonwealth of Pennsylvania transacting business in the name of the PUBLIC
SCHOOL EMPLOYES' RETIREMENT SYSTEM ("Lender"), the principal sum of ONE MILLION
EIGHT HUNDRED EIGHTY THOUSAND DOLLARS ($1,880,000) or so much thereof as may be
advanced and outstanding from time to time, with interest which shall be
calculated on a three hundred and sixty (360) day year consisting of twelve (12)
months, each month containing thirty (30) days, and shall begin accruing on the
loan principal or any portion thereof which is outstanding from the date hereof
at the following rate and payable in the following manner:
The following mortgage note is to be considered a balloon mortgage note
whereby the principal of this loan is retired slowly through principal and
interest payments. On the date of maturity one large payment consisting of all
unpaid principal and accrued interest becomes due in full.
The term of this loan shall be for ten (10) years and shall consist of
two consecutive five year loan periods.
During the first five year loan period of this Note, interest
shall accrue on the outstanding principal at EIGHT AND ONE HALF PERCENT (8.5%)
per annum. The principal and interest during the first five year loan period
shall be payable in SIXTY (60) monthly installments of FIFTEEN THOUSAND ONE
HUNDRED THIRTY EIGHT DOLLARS AND TWENTY SEVEN CENTS ($15,138.27) each. In the
event Borrower satisfies this Note at the end of the first five year loan
period, the sixtieth (60th) monthly payment shall consist of outstanding
principal and all accrued and unpaid interest. During the second five year
period of this Note, the interest rate shall be fixed at three hundred and fifty
(350) basis points above the then reported five (5) year U.S. Treasury Note
Yield Rate as of the first business day of the sixtieth (60th) month of the
loan. The principal and interest during the second five (5) year loan period of
this loan shall be payable in FIFTY-NINE (59) monthly installments of an amount
which is calculated by using the interest as calculated above and converting
this interest rate into a mortgage loan constant using a TWENTY YEAR
amortization, and then multiplying the remaining loan balance by the mortgage
loan constant and dividing by twelve (12). The one hundred twentieth (120th)
payment shall consist of the then outstanding principal plus all accrued and
unpaid interest. The first installment being due and payable on OCTOBER 1, 1999,
and the remaining installments being due and payable on the first day of each
succeeding month thereafter until all installments are paid. This Note shall
mature on SEPTEMBER 1, 2009. and on such date the entire unpaid principal
balance hereof, together with accrued interest thereon, shall become due and
payable in full. Both principal and interest shall be payable in lawful current
money of the United States of America.
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<PAGE>
The indebtedness represented by this Note may be prepaid in
accordance with the following provisions, but not otherwise. In consideration of
the Lender granting to the Borrower the privilege of prepaying all or a part of
the principal balance of this Note, Borrower agrees to give sixty (60) days
written notice to the holder hereof of intention to make prepayment, provided
Borrower shall have said privilege to prepay all or any part of the principal
balance of this Note with accrued interest thereon to date of payment upon
Borrower paying, at the time of such prepayment and in addition thereto as
follows: No prepayment shall be allowed during the first two loan years. There
shall be a prepayment premium computed on the amount so prepaid of, three (3%)
percent during the third (3rd) Loan Year, and declining one percent (1%) in each
Loan Year thereafter. Prepayments made during the ninety (90) day period
immediately preceding the end of the first five year loan period are not subject
to a payment premium. Prepayments made during the second five year loan period
shall be subject to a one percent (1%) prepayment premium. Prepayments made
during the ninety days immediately preceding loan maturity are not subject to a
prepayment premium.
Prepayments shall not reduce or postpone regular installments but shall
be applied against the outstanding principal balance in the inverse order of its
maturity. Any voluntary or involuntary prepayment, whether payable out of
insurance awards, compensation for eminent domain, or by reason of acceleration
due to any default (intentional, purposeful or otherwise) hereunder or under any
of the loan documents shall be subject to the aforedescribed prepayment
premiums. Borrower acknowledges that the prepayment premium is bargained-for
consideration for permitting prepayment and is not to be construed as a
liquidated damages provision. This prepayment premium provision shall be
interpreted and enforced to the fullest extent permitted by law. In the event
this provision or any part hereof is adjudicated to be invalid or unenforceable,
it is the intention of the parties hereto that such invalid portion of the
provision be stricken or otherwise modified to cause the provision as revised to
be enforced.
No further encumbrances or secondary financing of the Property
will be permitted during the term of the loan or any extensions thereof without
the advance written approval of Lender, which may be granted or withheld in
Lender's sole discretion.
The term "Loan Year" is defined to be any twelve (12) month
period commencing on the date of the first monthly payment hereunder and on each
yearly anniversary thereof.
In the event any payment of principal and/or interest and/or
other charges payable to Lender shall become overdue for a period in excess of
ten (10) days, in addition to the interest due as stipulated in this Note, a
late charge equal to five percent (5%) of such unpaid amount shall also be
immediately due to Lender for each month of delinquency. The amount of the late
charge to be paid to Lender for any month shall be computed on the aggregate
amount of delinquent monthly installments and any other payments due under this
Note or related Loan Documents, including all accrued late charges, then
outstanding. The provisions of this paragraph in no way relieve Borrower of the
obligation to pay any payments on or before the date on which they are due, nor
do the terms of this paragraph in any way affect Lender's remedies in the event
said payments are unpaid after their due date. No payment is deemed to have been
made until said payment is received in Lender's office.
All payments made hereunder shall be applied first to accrued
interest and then to outstanding principal and shall be payable in lawful money
of the United States of America at Lender's principal office, or at such other
place as the holder may designate in writing.
This Note is secured by, among other things, a mortgage upon
real property located in the Commonwealth of Pennsylvania (herein the
"Mortgage"), and other Loan Documents hereinafter in existence. The Mortgage,
this Note and all other documents given in connection with the loan evidenced
hereby are sometimes herein referred to as the "Loan Documents".
2
<PAGE>
Lender may after providing Borrower with ten (10) days written
notice in which to cure a monetary default and thirty (30) days in which to cure
a nonmonetary default declare the unpaid balance of principal plus accrued
interest under this Note to be immediately due and payable either: (1) when
permitted under any of the Loan Documents; or (2) upon any default in the
payment of any sum of money or interest due hereunder or due by the Borrower to
the Lender under any other promissory note or under any security agreement or
other written obligation of any kind now existing or hereafter created; or (3)
upon the happening of an event by which said balance shall or may become due and
payable under the terms of the Mortgage; or (4) upon the insolvency, bankruptcy,
or dissolution, or other change or occurrence adversely affecting any borrower,
endorser, or guarantor hereof; or (5) in the event of a material adverse change
of the Borrower as defined in paragraph thirteen (13) of the Open End Mortgage
and Security Agreement of even date; or (6) in the event the Lender shall deem
itself insecure. After default or maturity, this Note and all sums due hereunder
shall bear interest at fifteen (15%) (hereinafter referred to as "Default Rate"
throughout the loan documents) percent from due date until paid.
DISCLOSURE OF CONFESSION OF JUDGMENT
If any of the events described in the immediately preceding
paragraph occur, Borrower hereby irrevocably authorizes and empowers any
attorney or attorneys or the Prothonotary or Clerk of any Court of record in the
Commonwealth of Pennsylvania, or in any other jurisdiction which permits the
entry of judgment by confession, to appear for Borrower in such court in an
appropriate action there brought or to be brought against Borrower at the suit
of Lender on this Note, with or without complaint or declaration filed as of any
term or time, and therein to CONFESS OR ENTER JUDGMENT against Borrower for all
sums due by Borrower to Lender under this Note and the other Loan Documents
(with or without acceleration of maturity), including all costs and a reasonable
attorney's commission for collection of ten percent (10%), but not less than $
10,000.00 of the aggregate amount due hereunder. For so doing this Note or a
copy hereof verified by affidavit shall be sufficient warrant. The authority to
confess judgment granted herein shall not be exhausted by any exercise thereof
but may be exercised from time to time and at any time as of any term and for
any amount authorized herein. Borrower expressly authorizes the entry of
repeated judgments under this paragraph notwithstanding any prior entry of
judgment in the same or any court for the same obligation or any part thereof.
Initials: PAD .
---------------------------
BORROWER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY LEGAL
COUNSEL IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS NOTE AND THAT IT
UNDERSTANDS THIS PROVISION FOR CONFESSION OF JUDGMENT, AND BORROWER WAIVES ANY
RIGHT TO NOTICE OR HEARING WHICH IT MIGHT OTHERWISE HAVE BEFORE ENTRY OF
JUDGMENT.
Initials: PAD .
---------------------------
Our Legal Counsel has explained to us that the Note contains wording
that would permit the PUBLIC SCHOOL EMPLOYES' RETIREMENT SYSTEM to enter
judgment against us at the courthouse if said Note is in default, without notice
to us and without offering us an opportunity to defend against the entry of
judgment, and that the judgment may be collected by any legal means. In
executing the Note, we are knowingly, understandingly, and voluntarily waiving
our rights to resist the entry of judgment against us at the courthouse, and are
consenting to the confession of judgment.
Initials: PAD .
---------------------------
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<PAGE>
The parties agree and intend to comply with the applicable
usury law, and notwithstanding anything contained herein, in the Mortgage or in
any other Loan Document, the effective rate of interest to be paid on this Note
(including all costs, charges and fees which are characterized as interest under
applicable law) shall not exceed the maximum contract rate of interest permitted
under applicable law, as it exists from time to time. Lender agrees not to
knowingly collect or charge interest (whether denominated as fees, interest or
other charges) which will render the interest rate hereunder usurious, and if
any payment of interest or fees by Borrower to Lender would render this Note
usurious, Borrower agrees to give Lender written notice of such fact with or in
advance of such payment. If Lender should receive any payment which constitutes
interest under applicable law in excess of the maximum lawful contract rate
permitted under applicable law (whether denominated as interest, fees or other
charges), the amount of interest received in excess of the maximum lawful rate
shall automatically be applied to reduce the principal balance, regardless of
how such sum is characterized or recorded by the parties.
Each Borrower, jointly and severally: (1) promises to pay all
costs of collection of this Note, including the cost of enforcing this section,
a reasonable attorney's fee, whether incurred in connection with collection,
trial, appeal or otherwise, all of which shall bear interest at the rate of six
percent (6%) per annum from the date said expenses are incurred until the date
Lender is reimbursed for said expenses; (2) waives presentment, demand, protest
of demand, notice of protest and nonpayment; (3) waives the right of exemption
under the constitution and the laws of Pennsylvania; and (4) gives the Lender a
security interest in any funds or other assets from time to time on deposit with
or in possession of the Lender, and the Lender may, at any time, set off the
indebted ness evidenced by this Note against any such funds or other assets.
The Borrower and all endorsers and all persons liable or to
become liable on this Note consent to any and all renewals and extensions of the
time of payment hereof and further agree that at any time the terms of the
payment hereof may be modified or security released, surrendered or substituted
by agreement between the Lender hereof and any owner of the premises or property
affected by the Mortgage or other Loan Document securing this Note without
affecting the liability of any party to this Note or any person liable or to
become liable with respect to any indebtedness evidenced thereby and waive all
and every kind of notice of such extension or extensions, change or changes, and
agree that the same may be made without joinder of the Borrower.
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE THIS BALLOON MORTGAGE NOTE. IT IS AGREED AND UNDERSTOOD
THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL
PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE
NOT PARTIES TO THIS BALLOON MORTGAGE NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY
AND VOLUNTARILY MADE BY BORROWER, AND BORROWER HEREBY ACKNOWLEDGES THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY AN INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
INITIALS: PAD .
---------------------------
The remedies of Lender shall be cumulative and concurrent, and
may be pursued singly, successively or together, at the sole discretion of
Lender, and may be exercised as often as occasion therefor shall arise. No act,
or omission or commission of Lender, including specifically any failure to
exercise any right, remedy or recourse, shall be effective unless set forth in a
written document executed by Lender and then only to the extent specifically
recited therein. A waiver or release with reference to one event shall not be
construed as continuing, as a bar to, or as a waiver or release of, any
subsequent right, remedy or recourse as to any subsequent event.
4
<PAGE>
If any one or more of the provisions contained in this Note
for any reason shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been continued herein or
therein.
This Note shall be governed by and enforced in accordance with
the laws of the Commonwealth of Pennsylvania.
Lender as used herein shall include the named Lender and its
uccessors and assigns.
Time is of the essence of this Note and the payments and
performance hereunder and under the Loan Documents.
This Note may not be changed orally, but only by an agreement
in writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
5
<PAGE>
IN WITNESS WHEREOF, Borrower has executed and delivered this
instrument this day and year first above written.
WITNESS/ATTEST BORROWER:
POLYCHEM CORPORATION, A PENNSYLVANIA
CORPORATION
By: /s/ Paul A. DeJuliis
- ---------------------------- ---------------------------------
Paul A. DeJuliis, Chairman & CEO
6
<PAGE>
CONFESSION OF JUDGMENT WAIVER
AND NOW, THIS ____ DAY OF __________, 1999 THE UNDERSIGNED (HEREINAFTER
"BORROWER") HAVING EXECUTED A BALLOON MORTGAGE NOTE OF EVEN DATE
HEREWITH IN FAVOR OF THE PUBLIC SCHOOL EMPLOYES' RETIREMENT SYSTEM (HEREINAFTER
"LENDER") HEREBY UNDERSTANDS AND AGREES AS FOLLOWS:
BY SIGNING THIS WAIVER, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT
IT HAS BEEN REPRESENTED BY COUNSEL WITH REGARDS TO THE REVIEW OF THE PROVISIONS
OF THE BALLOON MORTGAGE NOTE AND THE EXECUTION OF SAID NOTE. BY SIGNING THIS
WAIVER, BORROWER FURTHER REPRESENTS TO LENDER THAT IT UNDERSTANDS THE
IMPLICATIONS OF SAID PROVISIONS INCLUDING BUT NOT LIMITED TO THE PROVISION
REGARDING CONFESSION OF JUDGMENT.
ACTING WITH THE BENEFIT OF LEGAL COUNSEL, THE UNDERSIGNED FURTHER
ACKNOWLEDGES AND AGREES THAT THIS DOCUMENT CONTAINS PROVISIONS UNDER WHICH
LENDER MAY ENTER JUDGMENT BY CONFESSION AGAINST THE UNDERSIGNED. BEING FULLY
AWARE OF ITS RIGHTS TO PRIOR NOTICE AND A HEARING ON THE VALIDITY OF ANY CLAIMS
THAT MAY BE ASSERTED AGAINST IT BY LENDER HEREUNDER BEFORE JUDGMENT IS ENTERED,
THE UNDERSIGNED HEREBY FREELY, KNOWINGLY AND INTELLIGENTLY WAIVES THESE RIGHTS
AND EXPRESSLY AGREES AND CONSENTS TO LENDER'S ENTERING JUDGMENT AGAINST IT BY
CONFESSION PURSUANT TO THE TERMS HEREOF.
ACTING WITH THE BENEFIT OF LEGAL COUNSEL, THE UNDERSIGNED ALSO
ACKNOWLEDGES AND AGREES THAT THIS DOCUMENT CONTAINS PROVISIONS UNDER WHICH
LENDER MAY, AFTER ENTRY OF JUDGMENT AND WITHOUT NOTICE AND A HEARING, FORECLOSE
UPON, ATTACH, LEVY OR OTHERWISE SEIZE PROPERTY OF THE UNDERSIGNED IN FULL OR
PARTIAL PAYMENT OF THE JUDGMENT. BEING FULLY AWARE OF ITS RIGHTS AFTER JUDGMENT
IS ENTERED, THE UNDERSIGNED HEREBY FREELY, KNOWINGLY AND INTELLIGENTLY WAIVES
THESE RIGHTS AND EXPRESSLY AGREES AND CONSENT TO LENDER'S TAKING SUCH ACTIONS AS
MAY BE PERMITTED UNDER APPLICABLE LAW WITHOUT PRIOR NOTICE TO THE UNDERSIGNED.
IN WITNESS WHEREOF, INTENDING TO BE LEGALLY BOUND HEREBY, BORROWER
HAS CAUSED THIS WAIVER TO BE EXECUTED AND DELIVERED ON THE DATE FIRST ABOVE
WRITTEN.
POLYCHEM CORPORATION, A PENNSYLVANIA
CORPORATION
BY: /s/ Paul A. DeJuliis
--------------------------------
PAUL A. DEJULIIS, CHAIRMAN & CEO
7
<PAGE>
EXHIBIT 10.17
- --------------------------------------------------------------------------------
OPEN END
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE IS AN OPEN-END MORTGAGE AS PROVIDED IN CHAPTER 81 OF THE
PENNSYLVANIA JUDICIARY AND JUDICIAL PROCEDURE CODE, 42 PA. C.S.A. SECTIONS 8143
AND 8144, SECURES FUTURE ADVANCES AND THE MORTGAGEE IS OTHERWISE ENTITLED
TO THE RIGHTS, BENEFITS AND PRIVILEGES PROVIDED IN SAID 42 PA. C.S.A. SECTIONS
8143 AND 8144, AS THOSE SECTIONS MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME.
THIS OPEN-END MORTGAGE AND SECURITY AGREEMENT (this
"Mortgage"), dated as of August 24 1999 by and between POLYCHEM CORPORATION, A
PENNSYLVANIA CORPORATION, whose permanent mailing address is Franklin Avenue and
Grant Street, Phoenixville, Pennsylvania 19460 (hereinafter called "Mortgagor")
and PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, an Administrative Board of the
Commonwealth of Pennsylvania transacting business in the name of the PUBLIC
SCHOOL EMPLOYES' RETIREMENT SYSTEM (PSERS), having an office at 5 North 5th
Street, 4th Floor, Harrisburg, Pennsylvania 17108 (hereinafter called
"Mortgagee").
WITNESSETH, that in consideration of the premises and to
secure the payment of both the principal of, and interest and any other sums
payable on, that certain Balloon Mortgage Note of even date herewith (the
"Note"), including all future advances (as hereinafter defined) or this Mortgage
and the performance and observance of all of the provisions hereof and of the
Note and other related loan documents, Mortgagor hereby grants, sells, warrants,
conveys, assigns, transfers, mortgages, pledges, grants a security interest in
and sets over and confirms unto Mortgagee, its successors and assigns, all of
Mortgagor's estate, right, title, interest, property, claim and demand in and to
that certain real property located at, Franklin Avenue and Grant Street, Borough
of Phoenixville, Chester County, Pennsylvania more particularly described in
Exhibit "A" .
TOGETHER WITH all and singular the tenements, hereditaments
and appurtenances belonging or in any way appertaining to said real property,
all easements, rights of way and rights used in connection with said real
property, all buildings, structures and other improvements now or hereafter
located on said real property and all fixtures, appliances, apparatus,
equipment, furnishings, heating and air conditioning systems and equipment and
other articles of personal property, now or hereafter affixed to, attached to,
placed upon, or used in any way in connection with the complete and comfortable
use, occupancy, or operation of the said real property, all licenses and permits
used or required in connection with the use of said real property, all leases of
said real property now or hereafter entered into and all right, title and
interest of Mortgagor thereunder, including without limitation, cash or
securities deposited thereunder pursuant to said leases, and all rents, issues,
proceeds, and profits accruing from said real property and together with all
proceeds of the conversion, voluntary or involuntary, of any of the foregoing
into cash or liquidated claims, including without limitation, proceeds of
insurance and condemnation awards, and all other proceeds, both cash and
non-cash, of any and all of the foregoing (the foregoing said real property,
tangible and intangible personal property hereinafter referred to collectively
as the "Mortgaged Property").
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee and
its successors and assigns forever.
<PAGE>
Mortgagor warrants that Mortgagor has a good and marketable
title to an indefeasible fee estate in the real property comprising the
Mortgaged Property, and good title to the other property comprising the
Mortgaged Property, subject to no lien, charge, pledge, security interest or
other encumbrance except such as Mortgagee has agreed to accept in writing and
Mortgagor covenants that this Mortgage is and will remain a valid and
enforceable mortgage on the Mortgaged Property subject only to the exceptions
herein provided. Mortgagor has full power and lawful authority to mortgage the
Mortgaged Property in the manner and form herein done or intended hereafter to
be done. Mortgagor will preserve such title and will forever warrant and defend
the validity and priority of the lien and security interest hereof against the
claims and demands of all persons and parties whomsoever.
PROVIDED, HOWEVER, that if the Mortgagor shall pay to
Mortgagee the indebtedness in the principal sum of ONE MILLION EIGHT HUNDRED
EIGHTY THOUSAND DOLLARS ($1,880,000) as evidenced by that certain promissory
note (the "Note") of even date herewith or any renewal or replacement of such
Note, which by its term is expressly secured by this Mortgage, with interest and
upon the terms as provided therein, and together with all other sums advanced by
Mortgagee to or on behalf of Mortgagor pursuant to the Note or this Mortgage,
and if the Mortgagor shall duly, promptly and fully pay, perform, discharge,
execute, effect, complete and comply with and abide by each and every other of
the stipulations, agreements, conditions and covenants of the Note (all the
terms of which are incorporated herein by reference as though set forth fully
herein), this Mortgage, and the other instruments referred to herein, then this
Mortgage and the estate hereby created shall cease and terminate.
TO BETTER SECURE PAYMENT OF SAID INDEBTEDNESS, Mortgagor
further covenants and agrees with the Mortgagee as follows:
1. Place of Payment and Costs of Collection. All indebtedness
secured hereby shall be payable at Mortgagee's principal place of business, and,
unless otherwise provided in the instrument evidencing said indebtedness, shall
bear interest at the same rate per annum as the Note bears, from date of accrual
of said indebtedness until paid. If the Note or any other indebtedness secured
hereby shall be collected by legal proceedings or through a probate or
bankruptcy court, or shall be placed in the hands of an attorney for collection
after maturity, whether matured by the expiration of time or by the option given
to the Mortgagee to mature same, Mortgagor agrees to pay all and singular, the
costs, charges and expenses, including attorneys fees (through all stages of
legal proceedings including pretrial, trial, appellate and administrative)
reasonably incurred, or paid at any time by the Mortgagee because of the failure
on the part of the Mortgagor to perform, comply with and abide by each and every
one of the stipulations, agreements, conditions and covenants of the Note and
this Mortgage, and every such payment shall bear interest at the default rate
set forth in the Note from the date said expenses are incurred until the date
Lender is reimbursed for said expenses.
2. Timely Payment. Mortgagor will pay all of the indebtedness
secured hereby, together with the interest and other appurtenant charges
thereon, when the same shall become due, in accordance with the terms of the
Note or other instruments evidencing said indebtedness or evidencing any
renewal, extension or modification of the same, or this Mortgage, all such sums
to be payable in lawful money of the United States of America at Mortgagee's
aforesaid principal office, or at such other place as Mortgagee may designate in
writing. Payments shall not be deemed to be paid until said payments are
received at Mortgagee's office.
3. Payment of Charges, Etc. Against Property; Liens. Mortgagor
will immediately pay and discharge any taxes, assessments, levies, charges,
liabilities, claims, liens, obligations, impositions and encumbrances of every
nature and kind now on the Mortgaged Property, or that hereafter may be imposed,
suffered, placed, levied or assessed thereon, or that hereafter may be
2
<PAGE>
levied or assessed upon this Mortgage or the indebtedness secured hereby, when
due and payable according to law, before they become delinquent, and before any
interest attached or any penalty is incurred, and produce receipts therefor upon
demand; provided, however, that in the event of the passage of any such law or
regulation imposing a tax or assessment against Mortgagee upon this Mortgage or
the debt secured hereby, the entire indebtedness secured by this mortgage shall
thereupon become immediately due and payable at the option of the Mortgagee.
Mortgagor shall not create, permit to accrue or suffer to exist any assignment,
mortgage, lien, security interest, pledge, conditional sale or other title
retention agreement, encumbrance or charge of, in, to or upon the Mortgaged
Property.
4. Escrow Account. Mortgagee requires monthly deposits by
Mortgagor in a non-interest bearing account, together with and in addition to
interest and principal, of a sum equal to one-twelfth (1/12) of the yearly taxes
and assessments which may be levied against the Mortgaged Property, and
one-twelfth (1/12) of the yearly premiums for insurance thereon. The amount of
such taxes, assessments and premiums, when unknown, shall be estimated by
Mortgagee. Such deposits shall be used by Mortgagee to pay such taxes,
assessments and premiums when due. Any insufficiency of such account to pay such
charges when due shall be paid by Mortgagor to Mortgagee on demand. If, by
reason of any default by Mortgagor under any provision of this Mortgage,
Mortgagee declares all sums secured hereby to be due and payable, Mortgagee may
then apply any funds in said account against the entire indebtedness secured
hereby. The enforceability of the covenants relating to taxes, assessments and
insurance premiums herein otherwise provided shall not be affected except
insofar as those obligations have been met by compliance with this paragraph.
Mortgagee may from time to time at its option waive, and after any such waiver
reinstate, any or all provisions hereof requiring such deposits, by notice to
Mortgagor in writing. While any such waiver is in effect, Mortgagor shall pay
taxes, assessments and insurance premiums as herein elsewhere provided.
5. Property Insurance. Mortgagor will keep the Mortgaged
Property insured against loss or damage by fire, and all perils insured against
by an extended coverage endorsement, rent or business interruption and such
other risks and perils as Mortgagee in its discretion may require. Mortgagor
shall obtain and deposit with Mortgagee fire, extended coverage, hazard and
other perils insurance on the property in an amount equal to one hundred percent
(100%) of the full replacement value of the improvements but in no event less
than $1,880,000 and shall contain a standard mortgage clause with the loss
payable to Mortgagee. The policy shall have a replacement cost endorsement and
an inflation guard endorsement. Mortgagor shall also be required to obtain and
deposit with Mortgagee rent loss insurance insuring the subject property to
cover loss of rents for a period of one year, naming Mortgagee as loss payee.
Mortgagor will further be required to maintain comprehensive general liability
insurance for bodily injury (including death) and property damage in an amount
not less than $1,000,000.00, naming Mortgagee as additional insured. In the
event the Property is located in a flood hazard area, Mortgagor will obtain and
deliver to Mortgagee the maximum available amount of flood insurance. The flood
zone shall be clearly defined (e.g. Flood Zone A, Flood Zone, B, etc.) and the
local definition of the flood zone shall be stated. All insurance policies
required by Mortgagee shall be prepared for a period of not less than one year
and shall be in amounts, form and substance satisfactory to Lender, with
companies acceptable to them in favor of and in form acceptable to Mortgagee.
The insurance company shall be required to have a Best Guide financial rating of
no less than A and a size rating of IX or larger. All policies shall provide for
a mandatory thirty (30) day written notice to Mortgagee prior to cancellation
for any reason. The originals of such policies shall be delivered to and be held
by Mortgagee. Any and all amounts received by Mortgagee under any of such
policies may be applied by Mortgagee on the indebtedness secured hereby in such
manner as Mortgagee may, in its sole discretion, elect or, at the option of
Mortgagee, the entire amount so received or any part thereof may be released.
Neither the application nor the release of any such amounts shall cure or waive
any default. Upon exercise of the power of sale given in the Mortgage or other
acquisition of the Mortgaged Property
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or any part thereof by Mortgagee, such policies shall become the absolute
property of Mortgagee. Payments for such insurance shall be escrowed pursuant to
paragraph four (4) of this Mortgage document.
6. Maintenance. Mortgagor shall maintain the Mortgaged
Property in good condition and repair, including but not limited to the making
of such repairs as Mortgagee may from time to time determine to be necessary for
the preservation of the Mortgaged Property and shall not commit or permit any
waste thereof, and Mortgagee shall have the right to inspect the Mortgaged
Property on reasonable notice to Mortgagor.
7. Mortgagee's Right to Cure. If Mortgagor fails to pay or
discharge any claim, lien or encumbrance on the Mortgaged Property, or to pay
when due any tax or assessment or insurance premium required to be maintained
hereunder, or to keep the Mortgaged Property in repair, or shall commit or
permit waste, or if there be commenced any action or proceeding affecting the
Mortgaged Property or the title thereto, or the interest of Mortgagee therein,
including, but not limited to, eminent domain and bankruptcy or reorganization
proceedings, then Mortgagee, at its option, may pay said claim, lien,
encumbrance, tax assessment or premium, with right to subrogation thereunder,
may make such repairs and take such steps as it deems advisable to prevent or
cure such waste without being deemed in any manner guilty of trespass or
forcible entry and detainer and without incurring any liability for any damage
therefrom, and may appear in any such action or proceeding and retain counsel
therein, and take such action therein as Mortgagee deems advisable, and for any
of such purposes Mortgagee may advance such sums of money, including all costs,
reasonable attorneys' fees and other items of expense as it deems necessary.
Mortgagee shall be the sole judge of the legality, validity and priority of any
such claim, lien, encumbrance, tax, assessment and premium and of the amount
necessary to be paid in satisfaction thereof. Mortgagee shall not be held
accountable for any delay in making any such payment, which delay may result in
any additional interest, costs, charges, expenses or otherwise. All expenditures
made by the Mortgagee in that connection, including reasonable attorneys' fees,
shall bear interest at the Default Rate set forth in the Note from the date of
expenditure and shall, at the option of the Mortgagee, be added to the unpaid
principal amount due under the Note or be payable immediately and without demand
and all such expenditures shall be secured by the lien of this Mortgage. In the
case of any such payment by Mortgagee, the Mortgagor agrees to reimburse and
indemnify the Mortgagee. Neither the right nor the exercise of the right herein
granted unto the Mortgagee to make any such payments shall preclude the
Mortgagee from exercising its option to cause the whole indebtedness secured
hereby to become, immediately due and payable by reason of the Mortgagor's
default in making such payments as hereinabove required.
8. Governmental Requirements. Mortgagor will observe, abide by
and comply with all statutes, ordinances, orders, requirements or decrees
relating to the Mortgaged Property by any federal, state or municipal authority
or subdivision, and observe and comply with all conditions and requirements
necessary to preserve and extend any and all rights, licenses, permits
(including but not limited to, zoning variances, special exceptions and
non-conforming uses), privileges, franchises and concessions which are
applicable to said premises or which have been granted to or contracted for by
Mortgagor in connection with any existing or presently contemplated use of said
premises.
9. Condemnation Proceedings. In the event of condemnation
proceedings of the Mortgaged Property, the award or compensation payable
thereunder is assigned hereby to and shall be paid to Mortgagee. Mortgagee shall
be under no obligation to question the amount of any such award or compensation
and may accept the same in the amount in which the same shall be paid. In any
such condemnation proceedings, Mortgagee may be represented by counsel selected
by Mortgagee. The proceeds of any award or compensation so received shall, at
the option of Mortgagee, either be applied to the prepayment of the Note and at
the rate of interest provided therein, regardless of the rate of interest
payable on the award by the condemning authority, or at
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the option of Mortgagee, such award shall be paid over to Mortgagor for
restoration of the Mortgaged Property.
10. Assignment of Leases, Etc. Mortgagor hereby grants a first
assignment and pledge to Mortgagee, as additional security for the payment of
all indebtedness secured by this Mortgage, of any and all leases, written or
oral, rents, income, profits, issues, revenues, from whatever source derived,
existing now or hereafter on the Mortgaged Property covered hereby; and
Mortgagor covenants to observe all the obligations of the lessor in any leases
and not to do or permit to be done anything to impair the security thereof; not
to execute any other assignment of lease or assignment of rents of the Mortgaged
Property; and to give Mortgagee written notice of any alteration to or
termination of an existing lease, or entry into a new lease; to assign and
transfer to Mortgagee any and all further leases upon all or any part of the
Mortgaged Property; to execute and deliver, at the request of Mortgagee, all
such further assurances and assignments in the premises that, Mortgagee shall
from time to time require; and upon Mortgagee's request, to provide Mortgagee
with copies of all leases covered by the foregoing assignment; and Mortgagor
authorizes the Mortgagee to take possession of the Mortgaged Property at any
time there shall be any default in the payment of the indebtedness hereby
secured or in the performance of any obligation herein contained, and have,
hold, manage, lease and operate the same, on such terms and for such period of
time as Mortgagee may deem proper, and to collect and receive all rents, issues
and profits of the Mortgaged Property, with full power to make from time to time
all alterations, renovations, repairs and replacements thereto as may seem
proper to Mortgagee, and to apply such rents, issues and profits to the payment
of (a) the costs of collection and administration and of all such alterations,
renovations, repairs and replacements, and expenses incident to taking and
retaining possession of the Mortgaged Property, and the management and operation
thereof, and keeping the same properly insured, and (b) all taxes, charges,
claims, assessments, and any other liens on the Mortgaged Property, and (c) the
indebtedness, secured hereby, together with all costs and attorneys fees, in
such order or priority as to any of such items as Mortgagee in its sole
discretion may determine any statute, law, custom or use. Provided, however,
Mortgagee shall not be obligated to perform or discharge, any obligation, duty
or liability under any leases, and Mortgagor shall and does hereby agree to
indemnify Mortgagee for and to hold Mortgagee harmless of and from any and all
liability, loss or damage which it may or might incur under said leases or under
or by reason of any alleged obligations or undertakings on its part to perform
or discharge any of the terms, covenants or agreements contained in said leases;
and further provided, that permission is hereby given to Mortgagor, so long as
no default exists, to collect, take, use and enjoy such rents, income, profits,
issues and revenues as they become due and payable.
11. Alterations to Property. Mortgagor will first obtain the
written consent of Mortgagee, such consent to be granted or withheld at the sole
discretion of Mortgagee, before (a) removing or demolishing any building now or
hereafter erected on the premises, (b) altering the arrangement, design or
structural character thereof, (c) making any repairs which involve the removal
of structural parts or the exposure of the interior of such building to the
elements, (d) cutting or removing or permitting the cutting and removal of any
trees or timber on the Mortgaged Property, or (e) removing or exchanging any
tangible personal property which is part of the Mortgaged Property.
12. Indications of Insolvency. It shall be a default hereunder
if Mortgagor shall (a) consent to the appointment of a receiver, trustee or
liquidator of all or a substantial part of the Mortgagor's assets, or (b) be
adjudicated a bankrupt or insolvent, or file a voluntary Petition in Bankruptcy,
or admit in writing its inability to pay its debts as they become due, or (c)
make a general assignment for the benefit of creditors, or (d) file a Petition
or Answer seeking reorganization or arrangement of creditors, or to take
advantage of any insolvency law, or (e) file an Answer admitting the material
allegations of the Petition filed against the Mortgagor in any bankruptcy,
reorganization
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or insolvency proceeding, or (f) itself take action for the purpose of effecting
any of the foregoing, or (g) if any order, judgment or decree shall be entered
upon an application of a creditor of Mortgagor by a court of competent
jurisdiction approving a Petition seeking appointment of a receiver, or trustee
of all or a substantial part of the Mortgagor's assets and such order, judgment
or decree shall continue unstayed and in effect for a period of thirty (30)
days.
13. Default. In (a) the event of any breach or default of this
Mortgage, the Note, or related loan documents, or if any of said sums of money
or interest referred to herein or in the Note be not fully paid when due without
demand or notice; or (b) the occurrence of any event, circumstance or proceeding
that, in the good faith determination of the Mortgagee, materially adversely
affects the credit or financial condition of the Mortgagor, including without
limitation, any change in the financial condition of Mortgagor or the value of
the Mortgaged Property as reflected in any financial information furnished to
Mortgagee pursuant to paragraph Nineteen (19) herein or otherwise that is
materially adverse in Mortgagee's good faith judgment; or (c) there has been an
event or occurrence that, in the good faith determination of Mortgagee, causes
the Mortgagee to deem itself insecure; or (d) Mortgagee shall be given notice
from Mortgagor as provided for in Chapter 81 of the Pennsylvania Judiciary and
Judicial Procedure Code, 42, PA.C.S.A. Section 8143(c), purporting to limit the
Indebtedness secured by this Mortgage, or purporting to release the obligation
of Mortgagee to make any further advances, or (e) if the stipulations,
agreements, conditions, and covenants of the Note, this Mortgage, or other
related loan documents are not duly, promptly and fully performed, then in
either or any such event (a "default" hereunder), the said aggregate sum
mentioned in the Note then remaining unpaid, with interest accrued to that time,
any prepayment penalty, to the extent allowed by law, and all monies secured
hereby, shall become due and payable forthwith, or thereafter at the option of
the Mortgagee, without notice or demand which are hereby expressly waived, as
fully and completely as if all of said sums of money were originally stipulated
to be paid on such day, anything in the Note, this Mortgage or the other
instruments referred to herein to the contrary notwithstanding; and thereupon or
thereafter, at the option of the Mortgagee, Mortgagee may avail itself of all
rights and remedies, at law or in equity, and this Mortgage may be foreclosed
with all rights and remedies afforded by the laws of Pennsylvania and Mortgagor
shall pay all costs, charges, and expenses thereof, including reasonable
attorney's fees, including all such costs, expenses and attorneys fees, for any
retrial, rehearing or appeal. All such expenses shall bear interest at the
Default Rate set forth in the Note from the date said expenses are incurred
until the date Mortgagee is reimbursed for said expenses. The indebtedness
secured hereby shall bear interest at the Default Rate set forth in the Note
from and after the date of any such default of Mortgagor. The Mortgagee may, at
its option, collect a late charge as may be provided for in the Note, to
reimburse the Mortgagee for expenses in collecting and servicing such
installment payments. In addition, upon any default hereunder, Mortgagee shall
have the right to enter and take possession of the Mortgaged Property or any
part thereof and exclude Mortgagor and all persons claiming under Mortgagor
wholly or partly therefrom. For the purposes of the remedies afforded Mortgagee
hereunder, Mortgagor hereby authorizes any attorney of any court of record to
appear for Mortgagor to sign an agreement for entering an amicable action of
ejectment for possession of any of the Mortgaged Property and to confess
judgment thereon against Mortgagor in favor of Mortgagee, whereupon a writ may
forthwith issue for the immediate possession of any of the Mortgaged Property,
without any prior writ or proceeding whatsoever; and for so doing, this Mortgage
or a copy hereof verified by affidavit shall be a sufficient warrant.
14. Appointment of Receiver. It is further agreed that the
Mortgagee, upon default by Mortgagor, shall be entitled to the appointment of a
receiver of the Mortgaged Property as a matter of absolute right and without
notice; with power to collect the rents, issues and profits of the Mortgaged
Property due and coming due during the pendency of such foreclosure suit,
without regard to the value of the Mortgaged Property or the solvency of any
person or persons liable for the payment of the broad and effective functions
and powers in any way entrusted by a court of equity. Mortgagor, for itself and
any subsequent owner, hereby waives any and all defenses to the
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application for a receiver as above provided, and hereby specifically consents
to such appointment without notice; but nothing herein contained is to be
construed to deprive the Mortgagee of any other right, remedy or privilege it
may now have under the law to have a receiver appointed. The provision for the
appointment of a receiver of the rents and profits and the assignment of such
rents and profits is made an express condition upon which the loan hereby
secured is made. The expenses incurred pursuant to the powers herein contained
shall be an additional indebtedness secured by the lien of this Mortgage.
15. Waiver of Stay, Extension, Moratorium Laws; Equity of
Redemption. Mortgagor shall not at any time (a) insist upon, plead or in any
manner whatever claim or take any benefit or advantage of any applicable present
or future stay, extension or moratorium law or (b) claim, take or insist upon
any benefit or advantage of any present or future law providing for the
valuation or appraisal of the Mortgaged Property prior to any sale or sales
thereof which may be made under or by virtue of the provisions hereof; and
Mortgagor hereby waives all benefit or advantage of any such law or laws.
Mortgagor, for itself and all who may claim under it, hereby waives any and all
rights and equities of redemption from sale under any order or decree of
foreclosure of this Mortgage and all notice or notices of seizure, and all right
to have the Mortgaged Property marshalled upon any foreclosure hereof. Mortgagee
shall not be obligated to pursue or exhaust its rights or remedies as against
any part of the Mortgaged Property before proceeding against any other part
thereof and Mortgagor hereby waives any right or claim of right to have
Mortgagee proceed in any particular order. Mortgagor hereby waives and releases
all errors, defects and imperfections in any proceedings instituted by Mortgagee
under this Mortgage.
16. Waiver of Default. No waiver of any default on the part of
Mortgagor or of any breach of any of the provisions of this Mortgage shall be
considered a waiver of any other or subsequent default or breach, and no delay
or omission in exercising or enforcing the rights and powers herein granted
shall be construed as a waiver of such rights and powers, and likewise no
exercise or enforcement of any rights or powers hereunder shall be held to
exhaust such rights and powers, and every such right and power may be exercised
from time to time.
17. Additional Rights of Mortgagee. Without affecting the
liability of Mortgagor or any other person (except any person expressly released
in writing) for payment of any indebtedness secured hereby or for performance of
any obligation contained herein,and without affecting the rights of Mortgagee
with respect to any security not expressly released in writing, Mortgagee may,
at any time and from time to time, either before or after the maturity of said
Note, and without notice or consent:
(a) Release any person liable for payment of all or
any part of the indebtedness or for performance of any obligation;
(b) Make any agreement extending the time or
otherwise altering the terms of payment of all or any part of the indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or
otherwise dealing with the lien or charge hereof;
(c) Exercise or refrain from exercising or waive any
right Mortgagee may have;
(d) Accept additional security of any kind; or
(e) Release or otherwise deal with any property, real
or personal, securing the indebtedness, including all or any part of the
Mortgaged Property.
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18. Priority of Liens. Any agreement hereafter made by
Mortgagor and Mortgagee pursuant to this Mortgage shall be superior to the
rights of the holder of any intervening lien or encumbrance.
19. Financial Statements. At the option of Mortgagee,
Mortgagor shall provide Mortgagee with periodic statements of the operations of
and the financial condition of Mortgagor, the Mortgaged Property and any
guarantors of the indebtedness secured hereby, certified by Mortgagor, and if
Mortgagee shall require, by an independent certified public accountant to insure
that there has been no material adverse change in the condition (financial or
otherwise), business, prospects or operations of the Borrower. With the
foregoing, and at any other time upon Mortgagee's request, Mortgagor shall
furnish a rent schedule for the Mortgaged Property, certified by Mortgagor,
showing the name of each tenant, and for each tenant, the space occupied, the
lease expiration date, and the rent payable and the rent paid.
20. Assumption of Note and Mortgage. The loan represented by
this Mortgage and Note is personal to the Mortgagor and the Mortgagee made the
loan to the Mortgagor based upon the credit of the Mortgagor and the Mortgagee's
judgment of the ability of the Mortgagor to repay all sums due under this
Mortgage, and therefore this Mortgage may not be assumed by any subsequent
holder of an interest in the Mortgaged Property without Mortgagee's prior
written consent. If all or any part of the Mortgaged Property, or any interest
therein, is sold, conveyed, transferred (including a transfer by agreement for
deed or land contract), or further encumbered by Mortgagor without Mortgagee's
prior written consent, then in that event, Mortgagee may declare all sums
secured by this Mortgage immediately due and payable.
21. Hazardous Substances.
(a) For purposes of this Section 21, the terms
"Hazardous Substances" and "Environmental Laws" shall be defined as follows:
"Hazardous Substances" shall mean any hazardous waste,hazardous substance, toxic
substance, pollutant or contaminant as defined or listed under any of the
Environmental Laws, and shall include those elements or compounds which are
contained in the list of hazardous substances adopted by the United States
Environmental Protection Agency ("EPA") and the list of toxic pollutants
designated by Congress or the EPA. "Environmental Laws", shall mean any and all
federal, state or local statutes, laws, ordinances, codes, rules, orders or
regulations which govern, regulate or otherwise relate to the generation, use,
storage, transportation, handling, release, threat of release, emission,
discharge or disposal of any Hazardous Substances or any petroleum products
including gasoline, fuel oil, heating oil, motor oil and waste oil ("Petroleum
Products"), including without limitation the laws and regulations provided
pursuant to or under the (i) Resource Conservation and Recovery Act of 1976 as
amended, 42 U.S.C. Section 6901 et seq.; (ii) the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq. ("CERCLA") and (iii) the Clean Water Act, as amended, 33 U.S.C.
Section 1251 et seq.; and the Pennsylvania Hazardous Site Cleanup Act ("HSCA")
35 P.S. Section 6020.101 et seq.
(b) Mortgagor hereby represents and warrants the
following:
(1) Neither Mortgagor nor any users or
occupants of the Mortgaged Property ("Occupants") has ever used the Mortgaged
Property for the storage of any Hazardous Substances or Petroleum Products.
(2) Mortgagor and/or the Occupants have
obtained all permits, licenses and other authorizations which are required under
the Environmental Laws with respect to the condition, use and occupancy of the
Mortgaged Property and are in compliance in all material respects with all terms
and conditions of the required permits, licenses and authorizations and are
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also in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws with respect to the
condition, use and occupancy of the Mortgaged Property.
(3) Neither Mortgagor nor the Occupants has
received notice of any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans with respect
to the condition, use or occupancy of the Mortgaged Property which may interfere
with, violate, or prevent compliance or continued compliance in any material
respect with the Environmental Laws or which may give rise to any material
common law or legal liabilities or otherwise form the basis of any material
claim, action, demand, suit, proceeding, hearing, study or investigation with
respect to the Mortgaged Property pursuant to the Environmental Laws.
(4) There is no civil, criminal or
administrative action, suit, demand, claim, hearing, notice or demand letter,
notice of violation, investigation or proceeding pending or threatened with
respect to the condition, use or occupancy of the Mortgaged Property, pursuant
to the Environmental Laws.
(5) Mortgagor and the Occupants have
operated the Mortgaged Property and have at all times received, handled, used,
stored, treated, shipped and disposed of all Hazardous Substances and Petroleum
Products in strict compliance with the Environmental Laws.
(6) No Hazardous Substance or Petroleum
Products are present on, in or under the Mortgaged Property.
(c) Mortgagor agrees to comply with all Environmental
Laws and, with respect to Occupants, use its best efforts to assure that
Occupants comply with all Environmental Laws with respect to the condition, use
and occupancy of the Mortgaged Property.
(d) Mortgagor hereby agrees to defend and indemnify
Mortgagee and hold Mortgagee harmless from and against any and all losses,
liabilities, including strict liability, damages, injuries, expenses, including
reasonable attorney's fees, costs of any settlement or judgment and claims of
any and every kind whatsoever paid, incurred or suffered by, or asserted
against, Mortgagee (hereinafter "Claims"), by any person or entity or
governmental agency for, with respect to, or as a direct or indirect result of,
the presence on, in or under; or the escape, seepage, leakage, spillage,
discharge, emission, release or threatened release on, in, under or from the
Mortgaged Property of any Petroleum Products or Hazardous Substances including,
without limitation, any "Claims" asserted or arising under the Environmental
Laws.
(e) If Mortgagor receives any notice of (i) the
happening of any material event involving the spill, release, leak, seepage,
discharge or cleanup of any Hazardous Substance or Petroleum Products on, in or
under the Mortgaged Property, or in connection with Mortgagor's or Occupants'
operations thereon or (ii) any complaint, order, citation or material notice
with regard to air emissions, water discharges, or any other environmental,
health or safety matter relating to the condition, use or occupancy of the
Mortgaged Property (an "Environmental Complaint") from any person or entity
(including without limitation the EPA) then Mortgagor shall immediately notify
Mortgagee orally and in writing of said notice.
(f) Mortgagee shall have the right but not the
obligation, and without limitation of Mortgagee's rights under this Mortgage to
enter onto the Mortgaged Property and to take such other action as it deems
necessary or advisable to clean up, remove, resolve or minimize the impact of,
or otherwise deal with, an Environmental Complaint or the presence on, in or
under the Mortgaged Property of any Hazardous Substances or Petroleum Products
which could result in an order, suit or other action against Mortgagor and/or
which, in the sole opinion of Mortgagee, could
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jeopardize its security under this Mortgage. All reasonable costs and expenses
incurred by Mortgagee in the exercise of any such rights shall be secured by
this Mortgage and shall be payable by Mortgagor upon demand.
(g) Mortgagee shall have the right, in its sole
discretion, to require Mortgagor to periodically (but not more frequently than
annually unless an Environmental complaint is then outstanding) perform (at
Mortgagor's expense) an environmental audit and, if deemed necessary to
Mortgagee, an environmental risk assessment, each of which must be satisfactory
to Mortgagee, with respect to the condition, use and occupancy of the Mortgaged
Property. Said audit and/or risk assessment must be undertaken by an
environmental consultant satisfactory to Mortgagee. Should Mortgagor fail to
perform said environmental audit or risk assessment within 30 days of the
Mortgagee's written request, Mortgagee shall have the right but not the
obligation to retain an environmental consultant to perform said environmental
audit and risk assessment. All costs and expenses incurred by Mortgagee in the
exercise of such rights shall be secured by this Mortgage and shall be payable
by Mortgagor upon demand or charged to Mortgagor's loan balance at the
discretion of Mortgagee.
22. Authority of Mortgagor. Mortgagor represents and warrants
that it has full power and authority to consummate the transactions contemplated
hereby.
23. Severability. If any one or more of the provisions
contained in this Mortgage for any reason shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Mortgage.
24. Successors. The covenants herein contained shall bind, and
the benefits and advantages shall inure to, the respective heirs, successors and
assigns of Mortgagor and Mortgagee. Whenever used, the singular name shall
include the plural, the singular, and the use of any gender shall be applicable
to all genders. When executed by two or more persons or entities as Mortgagor,
the parties so executing shall be bound jointly and severally. The term
"Mortgagee" shall also include any lawful owner, holder or pledgee of any
indebtedness secured hereby.
25. Security Agreement. This Mortgage shall be construed as
both a plant mortgage of real property and an assignment and pledge of leases,
rents, income, profits, issues, revenues, and it shall also constitute and serve
as a "Security Agreement" within the meaning of and shall create a security
interest under the Uniform Commercial Code of the Commonwealth of Pennsylvania.
The Mortgagee shall have all the rights with respect to all property encumbered
hereby afforded to the Mortgagee or Secured Party as the case may be under the
Uniform Commercial Code of the Commonwealth of Pennsylvania, in addition to, but
not in limitation of, the other rights afforded the Mortgagee by this Mortgage.
26. Further Assurances. Mortgagor will, at the cost of
Mortgagor, and without expense to Mortgagee, do, execute, acknowledge and
deliver all and every such further acts, deeds, conveyances, mortgages,
assignments, notices of assignment, transfers and assurances as Mortgagee shall
from time to time require in order to preserve the priority of the lien of this
Mortgage or to facilitate the performance of the terms hereof.
27. Modification. No modification hereof shall be effective
between the Mortgagor and the Mortgagee unless it is in writing and duly
executed by the party to be bound.
28. Notices. Any notices made hereunder shall be made in
writing and shall be effective when delivered personally or when deposited in
the United States mail, postage prepaid, certified or registered mail, return
receipt requested, addressed as follows:
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To Mortgagee: PUBLIC SCHOOL EMPLOYES' RETIREMENT
SYSTEM
5 North 5th Street, 4th Floor
Harrisburg, PA 17108
With a copy to: Legg Mason Real Estate Services, Inc.
1735 Market Street, 12th Floor
Philadelphia, PA 19103
To Mortgagor: Paul A. DeJuliis
Polychem Corporation
Franklin Avenue and Grant Street
Phoenixville, PA 19460
or at such other addresses as may be designated in writing from time to time.
29. Headings. The captions, headings and titles to sections of
this Agreement are for convenience of reference only, and shall in no way
restrict or affect, or be in any way an interpretation of, the provisions of any
such section of this Agreement.
30. Governing Law. This Mortgage shall be governed by and
enforced in accordance with the Laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the said Mortgagor has executed this
Mortgage on the day and year first above written.
WITNESS/ATTEST MORTGAGOR:
POLYCHEM CORPORATION, A PENNSYLVANIA
CORPORATION
By: /s/ Paul A. DeJuliis
- --------------------------- ---------------------------------
PAUL A. DEJULIIS, CHAIRMAN & CEO
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EXHIBIT 10.18
LOAN GUARANTY AND SURETYSHIP AGREEMENT
THIS LOAN GUARANTY AND SURETYSHIP AGREEMENT given by the undersigned
(hereinafter called the "Guarantors") to PUBLIC SCHOOL EMPLOYES' RETIREMENT
BOARD an independent Administrative Board of the Commonwealth of Pennsylvania
transacting business in the name of the PUBLIC SCHOOL EMPLOYES' RETIREMENT
SYSTEM (PSERS hereinafter called the "Lender") to induce Lender to extend credit
to or otherwise become the creditor of POLYCHEM CORPORATION, A PENNSYLVANIA
CORPORATION (hereinafter called the "Borrower").
W I T N E S S E T H
WHEREAS, Borrower, has requested Lender to make a loan (the "loan") to
Borrower in the amount of ONE MILLION EIGHT HUNDRED EIGHTY THOUSAND DOLLARS
($1,880,000), under the terms and conditions set forth in that certain Permanent
Loan Commitment Letter (hereinafter "Commitment Letter") dated May 30, 1999, by
and between Legg Mason Real Estate Services, Inc. As agent for Lender; and
WHEREAS, the loan is being evidenced by a certain Balloon Mortgage Note
(the "Note") in the amount of $1,880,000; and
WHEREAS, the loan is to be secured by, among other security, the Open End
Mortgage and Security Agreement (the "Mortgage") executed by Borrower in favor
of Lender for the premises located at FRANKLIN AVENUE AND GRANT STREET, BOROUGH
OF PHOENIXVILLE, CHESTER COUNTY, PENNSYLVANIA; and
WHEREAS, Lender is willing to make the loan to Borrower only if Guarantors
guarantee (i) the full and prompt payment (and not merely the collectibility) of
the Note and all amounts to come due under the Balloon Mortgage Note; and (ii)
the full and prompt performance of the terms of the Balloon Mortgage Note and
the Open End Mortgage and Security Agreement, both being executed simultaneously
herewith.
NOW THEREFORE, In consideration of the foregoing, Guarantors jointly and
severally agree as follows:
1. Recitals Incorporated. Guarantors acknowledge and agree that the
foregoing recitals constitute a material part of the Guaranty, and the same are
expressly incorporated herein by this reference.
2. Obligation of Guarantors. The Guarantors hereby agree (a) to
absolutely and unconditionally guarantee to the Lender, its successors and
assigns, and become surety to the Lender, its successors and assigns, for the
prompt payment to the Lender when due of any and every obligation, in connection
with which either as makers, drawers, guarantors or endorsers, or otherwise,
whether directly or contingently, the Borrower is now or shall become liable to
the Lender, with interest thereon at the rate or rates provided in the
obligations guaranteed hereby, until payment in full has been received by
Lender, together with costs including but not limited to all attorney's fees,
costs and expenses of collection or for the protection, preservation or repair
of any real or personal property held as security therefore, and interest
thereon, including costs, expenses and attorneys' fees on appeal, incurred by
the Lender, in connection with any indebtedness of Borrower guaranteed herein
and with any matter covered by this Guaranty; and (b) to become guarantors and
1
<PAGE>
sureties for the full, prompt and punctual performance and satisfaction of
Borrower's obligations under the Balloon Mortgage Note, Open-End Mortgage and
Security Agreement and any other related loan documents; and (c) that this
Guaranty and Suretyship shall survive and Guarantor's obligations and
liabilities hereunder shall remain unaffected by the dissolution of Borrower
whether voluntary or involuntary and/or any transfer or other disposition of
Guarantor's interest in Borrower; and (d) this guaranty shall be binding upon
the undersigned, their heirs, personal representatives, successors and assigns.
The specific loan obligation guaranteed hereunder is a Balloon Mortgage Note in
the amount of ONE MILLION EIGHT HUNDRED EIGHTY THOUSAND DOLLARS ($1,880,000)
together with a Mortgage and Security Agreement and any other related loan
documents.
3. Direct Guaranty. The liability of Guarantors under this Guaranty,
shall be primary, direct and immediate and not conditional or contingent on
pursuit by Lender of any remedies it may have against Borrower or Borrower's
heirs, personal representatives, successors and assigns, with respect to the
Note or the other Loan Documents, whether pursuant to the terms thereof or by
law. Without limiting the generality of the foregoing, Lender shall not be
required to make any demand on Borrower or otherwise pursue or exhaust its
remedies against Borrower, before, simultaneously with, or after enforcing its
rights and remedies hereunder against Guarantors. Any one or more successive
and/or concurrent actions may be brought hereon against Guarantors either in the
same action, if any, brought against Borrower, or in a separate action, as often
as Lender may deem advisable.
4. Additional Obligations of Guarantors. So long as this Guaranty
remains in effect, Guarantors have not, and will not, without Lender's prior
written consent, sell, lease, assign, pledge, hypothecate, encumber, transfer or
otherwise dispose of all or substantially all of Guarantors' assets. Guarantors
agree to remain adequately informed of any facts, events or circumstances which
might in any way affect Guarantors' risks under this Guaranty. Guarantors
further agree that Lender shall have no obligation to disclose to Guarantors any
information or material information relating to Borrower or to Borrower's
indebtedness
5. Term of Guaranty. The liability of the Guarantors are continuing,
absolute and unconditional, and shall remain in full force and effect until
payment is made of every obligation of the Borrowers now due or hereafter to
become due, and until payment is made of any loss or damage incurred by the
Lender with respect to any matter covered by this Guaranty and until all other
covenants and conditions of the Borrower under the Balloon Mortgage Note and the
Mortgage and Security Agreement and any other related loan documents are
fulfilled.
6. Consent to Lender's Acts. The Guarantors consent, without affecting
the Guarantors' liability to the Lender hereunder, that the Lender may, without
notice to or consent of the Guarantors, with or without consideration and upon
such terms as it may deem advisable in its sole discretion: (a) make future
advances or additional extensions of credit to the Borrower; (b) extend, in
whole or in part, by renewal or otherwise, and for any period or periods, the
time of payment of any indebtedness owing by the Borrower to the Lender, or held
by the Lender as security for any such obligation; (c) release, surrender,
exchange, modify, impair, or extend the period of duration, or the time for
performance or payment of any collateral securing any obligation of the Borrower
to the Lender; (d) settle or compromise any claim of the Lender against the
Borrower, or against any other person, firm or corporation, whose obligation is
held by the Lender as collateral security for any obligation of the Borrower to
the Lender; and (e) release, in whole or in part, any person primarily or
secondarily liable for any indebtedness of Borrower to Lender. The Guarantors,
hereby ratify and confirm any such future advance, extension, renewal, release,
surrender, exchange, modification, impairment, settlement, or compromise; and
2
<PAGE>
all such actions shall be binding upon the Guarantors who hereby waive all
defenses, counterclaims, or offsets which the Guarantors might have by reason
thereof.
7. Waivers by Guarantors. The Guarantors waive: (a) notice of acceptance
of this Guaranty by the Lender; and (b) notice of nonpayment or partial payment
under the Note or other loan documents or the occurrence of any other Event of
Default; and (c) notice of presentment, notice of dishonor, demand for payment,
or protest of any of the Borrower's obligations, or the obligation of any
person, firm, or corporation, held by the Lender as collateral security for the
Borrower's obligation; (d) notice of the failure of any person, firm, or
corporation to pay to the Lender any indebtedness held by the Lender as
collateral security for any obligation of the Borrower; and (e) all defenses,
offsets and counterclaims which the Guarantors may at any time have to any claim
of the Lender against the Borrower. If for any reason the indebtedness or
obligations of the Borrower cannot be enforced against Borrower, such fact shall
not affect the liability of Guarantors hereunder, but Guarantors shall be liable
hereunder as if the indebtedness or obligations had been enforceable against
Borrower.
Guarantors warrant and agree that each of the waivers set forth above is
made with Guarantors' full knowledge of its significance and consequences and
that, under the circumstances, such waivers are reasonable and not contrary to
public policy or law. If any such waiver is determined to be contrary to any
applicable law or public policy, such waiver shall be effective only to the
extent permitted by law.
8. Representations by Guarantors. The Guarantors represent that, (a) at
the time of the execution and delivery of this Guaranty, nothing exists to
impair the effectiveness of the liability of the Guarantors to the Lender
hereunder, or the immediate taking effect of this Guaranty as the sole agreement
between the Guarantors and the Lender with respect to guaranteeing the
Borrower's obligation to the Lender; and (b) Guarantors have examined the
Balloon Mortgage Note and the Open End Mortgage and Security Agreement and
related loan documents and understand the promises, covenants and conditions
thereunder; and (c) Guarantors have the full power, authority and legal right to
execute and deliver this Guaranty; and (d) this Guaranty and the Guarantors
execution, delivery and performance hereunder are not in violation of any laws
and will not result in a default under any contract, agreement, or instrument to
which Guarantors are a party, or by which Guarantors or Guarantors' property may
be bound; and (e) Lender has made no representations to Guarantors as to the
creditworthiness of Borrower.
9. Additional Guaranty or Guaranties. In the event Guarantors may, in
the future, grant one or more additional guaranties of the Note or an additional
Note or with respect to the Loan or any amounts due under any other Loan
Documents in favor of Lender, the execution of any additional guaranties on the
part of Guarantors will not be construed as a cancellation of this Guaranty; it
being Guarantors' full intent and agreement that this Guaranty shall remain in
full force and effect and shall be cumulative in nature and effect.
10. Remedy of Lender. The Lender may at its option proceed in the first
instance against the Guarantors to collect any obligation covered by this
Guaranty, without first proceeding against the Borrower, endorsers, or any other
persons, firm or corporation, and without first resorting to any property at any
time held by the Lender, Borrower or others as collateral or other security. In
the event Lender does not proceed first against Guarantors, Guarantors shall be
liable for any deficiency in the amount recovered from the Borrower, endorsers,
or any other persons, firm or corporation, or from the sale of the property held
by the Lender, Borrower or others as collateral or other security. The exercise
by Lender of any right conferred upon it in any collateral agreement shall be
3
<PAGE>
discretionary with Lender, and the exercise of, or failure to exercise, any such
right shall not diminish the obligations of Guarantors hereunder.
IN THE EVENT THAT THE NOTE WHICH THE UNDERSIGNED GUARANTEES SHALL FALL
INTO DEFAULT, GUARANTORS HEREBY IRREVOCABLY AUTHORIZE AND EMPOWER ANY ATTORNEY
OR ATTORNEYS OR THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE
COMMONWEALTH OF PENNSYLVANIA, OR IN ANY OTHER JURISDICTION WHICH PERMITS THE
ENTRY OF JUDGMENT BY CONFESSION, TO APPEAR FOR GUARANTORS IN SUCH COURT IN AN
APPROPRIATE ACTION THERE BROUGHT TO OR TO BE BROUGHT AGAINST GUARANTORS AT THE
SUIT OF LENDER THIS AGREEMENT, WITH OR WITHOUT COMPLAINT OR DECLARATION FILED AS
OF ANY TERM OR TIME, AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST GUARANTORS
(WITH OR WITHOUT ACCELERATION OF MATURITY), INCLUDING ALL COSTS, ATTORNEY'S FEES
AND THE ATTORNEY'S COMMISSION PROVIDED FOR IN THE NOTE WHICH THIS DOCUMENT
SECURES. FOR SO DOING, THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT
SHALL BE SUFFICIENT WARRANT. THE AUTHORITY TO CONFESS JUDGMENT GRANTED HEREIN
SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF BUT MAY BE EXERCISED FROM TIME TO
TIME AND AT ANY TIME AS OF ANY TERM AND FOR ANY AMOUNT AUTHORIZED HEREIN.
GUARANTORS EXPRESSLY AUTHORIZE THE ENTRY OF REPEATED JUDGMENTS UNDER THIS
PARAGRAPH NOTWITHSTANDING ANY PRIOR ENTRY OF JUDGMENT IN THE SAME OR ANY COURT
FOR THE SAME OBLIGATION OR ANY PART THEREOF.
INITIALS: PAD PAD PAD
------------------- ------------------- -------------------
GUARANTORS ACKNOWLEDGES THAT THEY HAVE BEEN REPRESENTED BY COUNSEL IN
CONNECTION WITH THE EXECUTION AND DELIVERY OF THE NOTE IN WHICH THIS AGREEMENT
SECURES AND HAVE BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE EXECUTION OF
THIS GUARANTY AND SURETYSHIP AGREEMENT AND THAT THEY UNDERSTAND THIS PROVISION
FOR CONFESSION OF JUDGMENT, AND GUARANTORS HEREBY WAIVE ANY RIGHT TO NOTICE OR
HEARING WHICH THEY MIGHT OTHERWISE HAVE BEFORE ENTRY OF JUDGMENT.
INITIALS: PAD PAD PAD
------------------- ------------------- -------------------
OUR LEGAL COUNSEL HAS EXPLAINED TO US THAT THE NOTE WHICH THIS AGREEMENT
SECURES CONTAINS WORDING THAT WOULD PERMIT THE LENDER TO ENTER JUDGMENT AGAINST
US AT THE COURTHOUSE IF SAID NOTE IS IN DEFAULT, WITHOUT NOTICE TO US AND
WITHOUT OFFERING US AN OPPORTUNITY TO DEFEND AGAINST THE ENTRY OF JUDGMENT, AND
THAT THE JUDGMENT MAY BE COLLECTED BY ANY LEGAL MEANS. IN EXECUTING SAID NOTE,
WE ARE KNOWINGLY, UNDERSTANDINGLY, AND VOLUNTARILY WAIVING OUR RIGHTS TO RESIST
THE ENTRY OF JUDGMENT AGAINST US AT THE COURTHOUSE, AND ARE CONSENTING TO THE
CONFESSION OF JUDGMENT.
INITIALS: PAD PAD PAD
------------------- ------------------- -------------------
11. WAIVER OF JURY TRIAL. GUARANTORS HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE THIS GUARANTY. IT IS AGREED AND UNDERSTOOD THAT
THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL
PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE
NOT PARTIES TO THIS GUARANTY. THIS WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY GUARANTORS, AND GUARANTORS
4
<PAGE>
HEREBY ACKNOWLEDGE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY
AN INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT.
INITIALS: PAD PAD PAD
------------------- ------------------- -------------------
12. Guarantors' Waiver of Certain Rights. Guarantors hereby waives any
claim, remedy or other right Guarantors may now possess or hereafter acquire
against Borrower or any other person arising from, or in any way related to, the
existence or performance under this Guaranty, including, without limitation, any
right of subrogation, reimbursement, exoneration, contribution, or
indemnification against Borrower or any other person(s) or any right to
participate in any collateral securing Borrower's indebtedness or other
obligations to Lender, regardless of whether such claim, remedy, or right arises
in equity, under contract, statute, common law or otherwise.
13. Guarantors' Receipt of Payments. If Guarantors should for any reason
whatsoever receive any payment(s) from Borrower (or any other guarantors,
sureties or endorsers or the Note of the other Loan Documents) that Borrower (or
such a third party) may owe to Guarantors, Guarantors agree to accept such
payment(s) in trust for and on behalf of Lender, advising Borrower (or the third
party payee) of such fact. Guarantors further unconditionally agree to
immediately deliver any such funds received to Lender, with such funds being
held by Guarantors, over any interim period, in trust for Lender. In the event
that Guarantors should, for any reason whatsoever, receive any such funds from
Borrower (or any third party), Guarantors should deposit such funds in one or
more of Guarantors' deposit accounts, no matter where located, Lender shall have
the right to attach the amount of funds received from Borrower in Guarantors'
deposit accounts in which such funds were deposited, whether or not such funds
were commingled with other monies of Guarantors, and whether or not such funds
then remain on deposit in such an account or accounts.
14. Modification of Agreement. The whole of this Guaranty is herein set
forth and there is no verbal or other written agreement, and no understanding or
custom affecting the terms hereof. This Guaranty can be modified only by a
written instrument signed by the party to be charged therewith.
15. Construction and Benefit. The Guaranty is delivered and made in, and
shall be construed pursuant to the laws of the Commonwealth of Pennsylvania, and
is binding jointly and severally upon the Guarantors and their legal
representatives, and shall inure to the benefit of the Lender, its successors
and assigns.
16. Severability. If any one or more of the provisions contained in this
Guaranty for any reason shall be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Guaranty, but this Guaranty shall be construed as
if such invalid, illegal or unenforceable provision had never been continued
herein or therein.
17. Headings. The captions, headings and titles to sections of this
Guaranty are for convenience of reference only, and shall in no way restrict or
affect, or be in any way an interpretation of the provisions of any such section
of this Guaranty.
5
<PAGE>
18. Expenses of Lender. Guarantors agree to pay reasonable attorney's
fees and all other reasonable costs and expenses which may be incurred by Lender
in connection with the enforcement of this Guaranty.
6
<PAGE>
IN WITNESS WHEREOF, the Guarantors intending to be legally bound has
signed this Agreement on the 24th day of August , 1999.
WITNESS: GUARANTORS
POLYCHEM CORPORATION, A
PENNSYLVANIA CORPORATION
BY: /s/ Paul A. DeJuliis (SEAL)
- ---------------------------- ----------------------------
PAUL A. DEJULIIS, CHAIRMAN AND CEO
CONMAT TECHNOLOGIES, INC., A
FLORIDA CORPORATION
BY: /s/ Paul A. DeJuliis (SEAL)
- ---------------------------- ----------------------------
PAUL A. DEJULLIS, CHAIRMAN AND CEO
BY: /s/ Paul A. DeJuliis (SEAL)
- ---------------------------- ----------------------------
PAUL A. DEJULLIS, Individually
COMMONWEALTH OF PENNSYLVANIA :
: SS.
COUNTY OF :
On this, the 24th day of August , 1999 before me, a Notary Public, the
undersigned officer, personally appeared Paul A. DeJuliis, who acknowledged
himself to be the Chairman and CEO of Polychem Corporation, a Pennsylvania
Corporation and ConMat Technologies, Inc., A Florida Corporation and that he as
such Chairman and CEO being authorized to do so executed the foregoing document
for the purposes therein contained by signing his name as such Chairman and CEO.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
Catherine Maquire
---------------------
Notary Public
My Commission Expires:
7
<PAGE>
EXHIBIT 10.19
MORTGAGEE'S WAIVER AND CONSENT
This MORTGAGEE'S WAIVER AND CONSENT ("Waiver and Consent") is
made and entered into as of August 25, 1999, by and among PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM, (the "New Lender"), POLYCHEM CORPORATION, a
Pennsylvania corporation (the "Company"), and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation (together with any successors and assigns,
the "Lender").
A. The New Lender is the mortgagee under that certain Open End
Mortgage and Security Agreement, dated as of August 24, 1999, made by the
Company, and to be recorded in the real estate records of Chester County,
Pennsylvania (the "Mortgage").
B. Pursuant to the Mortgage, the Company has granted to the
New Lender a lien upon all or a portion of the real property commonly known as
Franklin Avenue and Grant Street, and as more fully described in Appendix A
attached hereto (the "Premises").
C. The Lender has previously entered into or is about to enter
into certain financing transactions with the Company, and to secure such
financing the Company has granted to the Lender a security interest in and lien
upon certain of the tangible and intangible property of the Company, including,
without limitation, all of the Company's cash, cash equivalents, goods,
inventory, machinery, equipment, furniture and fixtures, together with all
additions, substitutions, replacements and improvements to, and proceeds of, the
foregoing (collectively, the "Collateral").
NOW, THEREFORE, in consideration of any financial
accommodations extended by the Lender to the Company at any time, and other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. The New Lender is not aware of any existing default under
the Mortgage, and agrees to give written notice to the Lender in the event the
New Lender acquires an ownership or possessory interest in the Premises pursuant
to the exercise of its rights under the Mortgage or any other document executed
by the Company or under applicable law.
2. The New Lender acknowledges the validity of the Lender's
lien on the Collateral and, until such time as the obligations of the Company to
the Lender are indefeasibly paid in full, the New Lender waives any interest in
the Collateral and agrees not to distrain or levy upon any Collateral or to
assert any lien, right of distraint or other claim against the Collateral for
any reason. Any provision in the Mortgage to the contrary notwithstanding, the
New Lender acknowledges that, for so long as the Loan and Security Agreement,
dated as of September 30, 1998, as amended by the Waiver and Amendment Agreement
thereto, dated as of December 8, 1998, and the Waiver and Amendment to Loan and
Security Agreement, dated as of April 22, 1999, as it may be further amended or
modified, between the Company and Lender is outstanding, all equipment now or
hereafter owned and/or used by the Company in the operation of its business and
located at the Premises is part of the Collateral and the New Lender does not
have
1
<PAGE>
and will not take a lien on or security interest in any such equipment,
regardless of whether such equipment is deemed to be personal property or
fixtures. Notwithstanding the above, the Collateral shall not include any
equipment or fixtures which are required in connection with the operation of the
premises, including, without limitation, HVAC systems, temperature control
systems, theft detection systems, sprinkler systems, carpeting and lighting
fixtures.
3. The New Lender agrees that the Collateral may be stored,
utilized, and/or installed at the Premises and shall not be deemed a fixture or
part of the real estate but shall at all times be considered personal property,
whether or not any Collateral becomes so related to the real estate that an
interest therein would otherwise arise under applicable law.
4. The New Lender acknowledges that the Lender or its
representatives or invitees may enter upon the Premises at any time without any
interference by the New Lender to inspect, repossess, remove or otherwise deal
with the Collateral, and the Lender may advertise and conduct public auctions or
private sales of the Collateral at the Premises, in each case without
interference by the New Lender or liability of the Lender to the New Lender. The
Lender shall promptly repair, at the Lender's expense, any physical damage to
the Premises actually caused by the conduct of such auction or sale and any
removal of Collateral by or through the Lender (ordinary wear and tear
excluded). The Lender shall not be liable for any diminution in value of the
Premises caused by the absence of Collateral actually removed or by any
necessity of replacing the Collateral, and the Lender shall have no duty or
obligation to remove or dispose of any Collateral or any other property left on
the Premises by the Company.
5. Foreclosure by New Lender. In the event of a mortgage
foreclosure by the New Lender, the Lender agrees to arrange for the sale and/or
removal of the Collateral within 180 days from the date of a written notice to
do so served upon the Lender at the address set forth herein. In the event the
Lender wishes to abandon such Collateral, it shall provide the New Lender with
its intention to do so within 120 days of the date of such notice to remove such
Collateral. If the Lender abandons the Collateral, the New Lender shall be held
harmless for any damage or loss to the Collateral which may occur.
6. Notices. All notices hereunder shall be in writing, sent by
certified mail, return receipt requested, to the respective parties and the
following addresses:
The Lender: General Electric Capital Corporation
40 Old Ridgebury Road
Danbury, CT 06810
Attention: Polychem Corporation - Account Manager`
Telephone: 203-796-5500
Facsimile: 203-796-5536
2
<PAGE>
The New Lender: Public School Employes'
Retirement System
c/o Legg Mason Real Estate Services, Inc.
1735 Market Street
12th Floor
Philadelphia, PA 19103
Attention: Douglas Callantine
Telephone: 215-496-3000
Facsimile: 215-496-3079
The Company: Polychem Corporation
Franklin Avenue & Grant Street
Phoenixville, PA 19460-0527
Attention: Bill Crighton
Telephone: 610-935-0225
Facsimile: 610-935-7151
7. Miscellaneous. This Waiver and Consent may be executed in
any number of several counterparts, shall be governed and controlled by, and
interpreted under, the laws of the State of New York and shall inure to the
benefit of the Lender and its successors and assigns and shall be binding upon
the New Lender and its successors and assigns (including any transferees of the
Mortgage or Premises). The New Lender agrees and consents to the filing of this
document for recording in the land records of the county in which the Premises
is located.
3
<PAGE>
IN WITNESS WHEREOF, this Mortgagee's Waiver and Consent is
entered into as of the date first set forth above.
PUBLIC SCHOOL EMPLOYES'
RETIREMENT SYSTEM
By its agent Legg Mason Real Estate Services, Inc.
By: /s/ Thomas S. Ryan
--------------------------------
Thomas S. Ryan
Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: _________________________
Name:
Title:
4
<PAGE>
Agreed to and acknowledged by the Company:
POLYCHEM CORPORATION
By: /s/ Paul A. DeJuliis
--------------------------------------------
Name: Paul A. DeJuliis
Title: Chairman & CEO
[ATTACH NOTARIAL ACKNOWLEDGMENTS]
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION STATEMENT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 67,262 0
<SECURITIES> 0 0
<RECEIVABLES> 4,776,631 0
<ALLOWANCES> 0 0
<INVENTORY> 1,004,755 0
<CURRENT-ASSETS> 5,886,900 0
<PP&E> 1,962,423 0
<DEPRECIATION> 844,589 0
<TOTAL-ASSETS> 7,355,168 0
<CURRENT-LIABILITIES> 5,715,398 0
<BONDS> 0 0
500,000 0
1,073 0
<COMMON> 2,250 0
<OTHER-SE> 890,677 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 5,993,022 4,402,093
<TOTAL-REVENUES> 5,993,022 4,402,093
<CGS> 4,376,827 3,402,459
<TOTAL-COSTS> 4,376,827 3,402,459
<OTHER-EXPENSES> 1,150,883 1,125,970
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 244,031 217,639
<INCOME-PRETAX> 221,281 (343,975)
<INCOME-TAX> 80,300 0
<INCOME-CONTINUING> 140,981 (343,975)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 140,981 (343,975)
<EPS-BASIC> 0.05 (0.17)
<EPS-DILUTED> 0.05 (0.17)
</TABLE>
