FORM 10-Q/A
AMENDMENT NO.1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
Commission file number 1-7807
Champion Parts, Inc.
(Exact name of registrant as specified in its charter)
Illinois 36-2088911
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
751 Roosevelt Road, #7-110, Glen Ellyn, IL 60137
(Address of principal executive offices)
630-942-8317
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 28, 1998
Common Shares - $.10 par value 3,655,266
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
June 28, December 28,
1998 1997
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents $444,000 $488,000
Accounts Receivable,
less allowance for
uncollectible accounts 4,949,000 4,497,000
Inventories 6,505,000 6,192,000
Prepaid expenses and other 672,000 759,000
----------- -----------
Total current assets 12,570,000 11,936,000
Property, plant and equipment (net) 4,961,000 5,282,000
Other assets 48,000 58,000
----------- -----------
Total Assets $17,579,000 $17,276,000
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $4,824,000 $5,479,000
Accrued expenses and other payables 7,286,000 6,868,000
Current maturities on long-term debt 6,648,000 6,773,000
----------- -----------
Total current liabilities $18,758,000 $19,120,000
Deferred income taxes 351,000 351,000
Notes payable 2,378,000 2,377,000
----------- -----------
Total liabilities $21,487,000 $21,848,000
Stockholders' Equity
Preferred stock - no par value 0 0
Authorized 10,000,000 shares
issued and outstanding, none
Common stock - $.10 par value 366,000 366,000
Authorized 50,000,000 shares
issued and outstanding 3,655,266
shares
Additional paid-in capital 15,578,000 15,578,000
Cumulative translation adjustment (508,000) (628,000)
Retained earnings (19,344,000) (19,888,000)
----------- -----------
Total stockholders' equity $(3,908,000) $(4,572,000)
Total Liabilities and Stockholders'
Equity $17,579,000 $17,276,000
========== ==========
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONDENSED)
Six Months Ended Three Months Ended
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
(Unaudited) (Unaudited)
Net Sales $13,743,000 $13,617,000 $6,734,000 $5,980,000
----------- ----------- ---------- ----------
Cost and Expenses
Cost of product sold 11,136,000 11,077,000 5,460,000 4,894,000
Selling, distribution
and administration 1,491,000 1,934,000 721,000 938,000
----------- ----------- ---------- ----------
12,627,000 13,011,000 6,181,000 5,832,000
----------- ----------- ---------- ----------
Earnings (loss) before
interest and
income taxes 1,116,000 606,000 553,000 148,000
Interest Expense 568,000 508,000 320,000 250,000
----------- ----------- ---------- ----------
Earnings (loss) before
income taxes 548,000 98,000 233,000 (102,000)
Income taxes 4,000 ---- 4,000 ----
----------- ----------- ---------- ----------
Net earnings (loss) 544,000 98,000 229,000 (102,000)
Average Shares
Outstanding 3,655,266 3,655,266 3,655,2666 3,655,266
========== ========== =========== ==========
Net Earnings (loss) per
common share $ 0.15 $ 0.03 $ 0.06 $ (0.03)
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 28, June 29
1998 1997
(Unaudited) (Audited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $544,000 $98,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 347,000 407,000
Provision for losses on accounts receivable 0 155,000
Change in assets and liabilities:
Accounts receivable (452,000) 1,460,000
Inventories (313,000) (141,000)
Accounts payable and accrued expenses (237,000) (1,111,000)
Other 97,000 406,000
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (14,000) 1,274,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (net) (31,000) (332,000)
Proceeds from sales of property,
plant & equipment 5,000 49,000
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (26,000) (283,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
credit agreements (168,000) (956,000)
Principal payments on long-term debt 44,000 (43,000)
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (124,000) (110,800)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 120,000 21,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (44,000) (96,000)
CASH AND CASH EQUIVALENTS, beginning of
period 488,000 707,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $444,000 $611,000
========== ==========
See notes to condensed consolidated financial statements.
CHAMPION PARTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying financial statements for the six months ended
June 28, 1998 have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. The condensed consolidated financial
statements and these notes should be read in conjunction with the
consolidated financial statements of the Company included in the
Company's Annual Report on Form 10-K for the year ended
December 28, 1997.
The consolidated balance sheet at December 28, 1997 has been
derived from the audited financial statements at that date and
condensed.
2. The information furnished herein reflects all adjustments
(consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
results of operations for the interim period. Results of
operations for the six months ended June 28, 1998 are not
necessarily indicative of results to be expected for the entire
year.
3. Inventories are valued at the lower of cost (first-in, first-out
method) or market. A summary of the inventories follows:
June 28, December 28,
1998 1997
Raw Materials $2,804,000 $1,867,000
Work in Process 2,166,000 2,641,000
Finished Goods 1,535,000 1,684,000
----------- -----------
$6,505,000 $6,192,000
========== ==========
Included in inventory above were cores of $2.6 million
(June 28, 1998) and $2.5 million (December 28, 1997).
4. For reporting purposes, product and core returns are offset against
gross sales in arriving at net sales. For the six months ended
June 28, 1998 and June 29, 1997 returns were $8,370,000, and
$7,586,000 respectively.
5. On August 6, 1998, the Company entered into an agreement with
NationsCredit Commercial Corporation for a four year credit
facility to replace its bank financing. In connection with this
agreement, the Company granted NationsCredit security interests
in its property, equipment, inventory and receivables. Interest on
amounts outstanding under this facility is payable at 1-3/4%
above the prime rate plus commitment fees. This compares to 3-1/2%
over prime that the Company was paying under its prior
bank financing. The amount available under the new credit
facility varies in relationship to collateral values, up to a
maximum amount of $8.5 million including credit
accommodations of $2.2 million. The maximum available under
the previous facility was $7.8 million.
An extraordinary gain of approximately $200,000 resulting from
the payoff of the prior loans will be recognized in August, 1998.
6. The Company's financial statements, have been prepared on a
going concern basis. The Company has A negative net worth and
its ability to continue as a going concern is ultimately
dependent upon its ability to increase sales to a level that
will allow it to operate profitably and generate positive
operating cash flows.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Recent Events
On August 6, 1998, the Company entered into an agreement with
NationsCredit Commercial Corporation for a four year credit
facility to replace its bank financing. In connection with this
agreement, the Company granted NationsCredit security interests
in its property, equipment, inventory and receivables. Interest on
amounts outstanding under this facility is payable at 1-3/4% above
the prime rate plus commitment fees. This compares to 3-1/2%
over prime that the Company was paying under its prior bank
financing. The amount available under the new credit facility varies
in relationship to collateral values, up to a maximum amount of
$8.5 million including credit accommodations of $2.2 million. The
maximum available under the previous facility was $7.8 million.
An extraordinary gain of approximately $200,000 resulting from
the payoff of the prior loans will be recognized in August, 1998.
In June, 1998 the Company paid the first installment of the
promissory notes to its trade creditors as defined in the
composition agreement. (See "Debt" in "Liquidity and Capital
Resources" below.)
Results of Operations
Three Months Ended June 28, 1998 Compared to Three Months
Ended June 29, 1997
Net sales for the quarter ended June 28, 1998 were $6.7 million,
11.7% higher than net sales of $6.0 million for the same period of
1997. The increase in net sales can be attributed to increased sales
to existing customers as compared to the like quarter of the prior
year. Total product and core returns, which are reflected in
reductions in net sales, were 36% and 35% of gross sales in 1998
and 1997, respectively.
Carburetor sales were 70% and 65% of net sales in the second
quarter of 1998 and 1997, respectively. The Company continues to
be a significant supplier of carburetors to the aftermarket.
Although new vehicles sold in the United States and Canada are no
longer equipped with carburetors, the Company continues to sell
replacement units for older vehicles, many of which use
carburetors. The Company expects that carburetor sales will
decline in future years. In addition, carburetor margins may be
negatively impacted in the future as customers seek to return
product during periods of declining demand. The Company has a
customer product return policy and has established reserves to
mitigate this effect.
Cost of products sold was 81% of net sales in the second quarter
of 1998 compared to 82% in the second quarter of 1997. This
slight decline in the cost of products sold is primarily attributed
to reductions in burden expenses.
Selling, distribution and administrative expenses were $721,000 in
the second quarter of 1998 compared to $938,000 in the second
quarter of 1997. Company-wide cost control efforts were
primarily responsible for the improvement.
Interest expense was $320,000 in the second quarter of 1998
compared to $250,000 in the prior year due to increased expenses
and fees by the Company's lender in 1998.
As a result of the increased sales and cost containment efforts
described above, net income for the 1998 second quarter was
$229,000 versus a net loss of $102,000 in 1997.
Six Months Ended June 28, 1998 Compared to Six Months Ended
June 29, 1997
Net sales for the first half ended June 28, 1998 were $13.7 million,
slightly higher (0.9%) than net sales of $13.6 million for the same
period of 1997. Total product and core returns, which are reflected
as reductions in net sales, were 37% and 35% of gross sales in
1998 and 1997, respectively. The increase in 1998 is attributed to
stock adjustments and accruals for future stock adjustments.
Cost of products sold was 81.0% of net sales in the first half of
1998 compared to 81.4% in the first half of 1997. This slight
decline in the cost of products sold is primarily attributed to
reductions in burden expenses.
Selling, distribution and administrative expenses were $1,491,000
in the first half of 1998 compared to $1,934,000 in the first half of
1997. Ongoing cost control efforts were primarily responsible for
the improvement.
Interest expense was $568,000 in the first half of 1998 compared
to $508,000 in the prior year. This is attributed to increased
expenses and fees in 1998 related to its prior bank facility.
As a result of cost containment efforts described above, net income
for the first half of 1998 was $544,000 versus $98,000 in the same
period of 1997.
Factors Which May Affect Future Results
The Company continues to seek new business. However, without
an increase in the customer base, the Company expects sales in
1998 subsequent quarters to be lower than in the first half of the
year due to lower seasonal demand for carburetors and heavy duty
and agricultural products.
In 1997, the Company initiated a project to address Year 2000
issues. The initial stage of this project is to address its current
computer systems and upgrade them to Year 2000 compliances.
The Company elected to embark on a system conversion utilizing
current technology and operating platforms and moving to a
distributed processing structure. This stage of the project is
expected to be completed in the 4th Quarter of 1998 at an
estimated cost of $200,000 in 1998. The Company has analyzed
its products and found that there are no Year 2000 issues. The
second stage of the project is to address Year 2000 issues with its
support operations, and its relationship with customers and
vendors. This stage is in an investigative and inquiry phase, and is
scheduled to be completed in the 3rd Quarter of 1999 and no costs
have been estimated at this time.
Liquidity and Capital Resources
Working Capital
Net working capital on June 28, 1998 was negative $(6.2) million
compared to a negative $(7.2) million on December 28, 1997. This
is a reflection of increased receivables and inventories.
Receivables at the end of the second quarter were $4.9 million,
$452,000 or 10% higher than the prior year end balance of $4.5
million. Receivables were also $1.3 million higher compared to the
second quarter of 1997. The increase was due to higher sales
volume.
Although higher ($313,000) than year end 1997, net inventories
decreased $100,000 in the second quarter of 1998, due primarily
to liquidation of discontinued products. Inventories at the end of
the second quarter of 1998 were $676,000 lower than the same
period in 1997.
Accounts payable at the end of the second quarter were $655,000
less than year end 1997. The decrease reflects lower expenses and
a reduction in payables resulting from profits over the first six
months. Accounts payable were also $3.1 million less than the
same quarter ending in June, 1997. This was primarily due to
reclassification in July 1997 of $2.4 million of unsecured debt as
long term resulting from the composition agreement with certain
unsecured creditors. (see "Debt" below)
At June 28, 1998, the Company classified outstanding loans to its
banks as short-term obligations. The amount of outstanding loans
under the bank lines were $5.0 million on June 28, 1998 and 5.2
million on December 28, 1997. The Company also classified as a
short-term obligation the outstanding principal on a $1.5 million
capitalized lease obligation which was supported with a letter of
credit issued under the terms of the Company's bank credit facility.
This will be reclassified in August as primarily long-term debt due
to the August, 1998 bank refinancing.
Debt
On August 6, 1998, the Company entered into an agreement with
NationsCredit Commercial Corporation for a four year credit
facility to replace its bank financing. In connection with this
agreement, the Company granted NationsCredit security interests
in its property, equipment, inventory and receivables. Interest on
amounts outstanding under this facility is payable at 1-3/4% above
the prime rate plus commitment fees. This compares to 3-1/2%
over prime that the Company was paying under its prior bank
financing. The amount available under the new credit facility varies
in relationship to collateral values, up to a maximum amount of
$8.5 million including credit accommodations of $2.2 million. The
maximum available under the previous facility was $7.8 million.
An extraordinary gain of approximately $200,000 resulting from
the payoff of the prior loans will be recognized in August, 1998.
On July 1, 1997, the Company reached a composition agreement
with over 90% of its unsecured trade creditors with past due
balances of approximately $3.4 million. Under the terms of this
agreement, the Company made a cash distribution in the amount of
10% of the total restructured indebtedness, issued approximately
$1.0 million in non-interest bearing promissory notes and issued
other obligations entitling the trade creditors to a portion of the
Company's defined free cash flow in years 2005 to 2009 of up to
an aggregate of approximately $1.5 million. Since July, 1997,
agreements have been reached with most of the remaining trade
creditors bringing the total settled to 99.5%. The Company paid
the first installment on the promissory notes in June, 1998.
In addition, the Company is continuing discussions with certain
other unsecured creditors with past due balances to restructure
approximately $1.8 million of associated indebtedness upon
substantially the same terms as the settlement with the trade
creditors. There is no assurance that any of these creditors will
accept the proposal.
The Company's long-term debt position did not change
significantly during the second quarter of 1998. Loans and other
credit obligations will be reclassified in August due to the new
credit agreement with NationsCredit.
The Company's financial statements, have been prepared on a
going concern basis. The Company has a negative net worth and
its ability to continue as a going concern is ultimately dependent
upon its ability to increase sales to a level that will allow it to
operate profitably and generate positive operating cash flows.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No Form 8-K report was filed by the Company
during the most recently completed fiscal quarter.
(10) Loan and Security Agreement, dated August 6,
1998, by and between the Company and NationsCredit
Commercial Corporation.
(27) Financial Data Schedules
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CHAMPION PARTS, INC.
(Registrant)
DATE: September 17, 1998 By: /s/ Jerry A. Bragiel
Jerry A. Bragiel
President, Chief Executive Officer
and Principal Financial Officer
Loan and Security Agreement
This Loan and Security Agreement (as it may be amended, this
"Agreement") is entered into on August 6th, 1998 between
NationsCredit Commercial Corporation, through its
NationsCredit Commercial Funding Division ("Lender"),
having an address at 1177 Avenue of the Americas, 36th Floor, New
York, New York 10036 and Champion Parts, Inc. ("Borrower"),
whose chief executive office is located at 751 Roosevelt Road,
Building 7, Suite 110, Glen Ellyn, Illinois 60137 ("Borrower's
Address"). The Schedules to this Agreement are an integral part of
this Agreement and are incorporated herein by reference. Terms used,
but not defined elsewhere, in this Agreement are defined in
Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From
time to time during the Term at Borrower's request, make revolving
loans to Borrower ("Revolving Loans"), and make letters of credit,
bankers acceptances and other credit accommodations ("Credit
Accommodations") available to Borrower, in each case to the extent
that there is sufficient Availability at the time of such request to cover,
dollar for dollar, the requested Revolving Loan or Credit
Accommodation; provided, that after giving effect to such Revolving
Loan or Credit Accommodation, (x) the outstanding balance of all
monetary Obligations (including the principal balance of any Term
Loan and, solely for the purpose of determining compliance with this
provision, the Credit Accommodation Balance) will not exceed the
Maximum Facility Amount set forth in Section 1(a) of Schedule A and
(y) none of the other Loan Limits set forth in Section 1 of Schedule A
will be exceeded. For this purpose, "Availability" means:
(i) the aggregate amount of Eligible Accounts
(less maximum existing or asserted taxes, discounts,
credits and allowances) multiplied by the Accounts
Advance Rate set forth in Section 1(b)(i) of Schedule A
but not to exceed the Accounts Sublimit set forth in
Section 1(c) of Schedule A;
plus
(ii) the lower of cost or market value of
Eligible Ordinary Inventory multiplied by the applicable
Inventory Advance Rate(s) set forth in Section 1(b)(ii)(A)
of Schedule A, but not to exceed the applicable Inventory
Sublimit(s) set forth in Section 1(d) of Schedule A;
plus
(iii) the lower of cost or market value of
Eligible Exempt Inventory multiplied by the applicable
Advance Rate(s) set forth in Section 1(b)(ii)(B) of
Schedule A, but not to exceed the applicable Inventory
Sublimit(s) set forth in Section 1(d) of Schedule A;
minus
(iv) all Reserves which Lender has established
pursuant to Section 1.2 (including those to be established
in connection with the requested Revolving Loan or Credit
Accommodation);
minus
(v) the outstanding balance of all of the
monetary Obligations (excluding the Credit
Accommodation Balance and the principal balance of the
Term Loan); and
plus
(vi) the Overadvance Amount, if any, set forth
in Section 1(g) of Schedule A.
(b) Term Loan. On the date of this Agreement, make
(i) an advance to Borrower computed with respect to the value of
Borrower's Eligible Equipment (the ("Equipment Advance") in the
principal amount, if any, set forth in Section 2(a)(i) of Schedule A, and
(ii) an advance to Borrower computed with respect to the value of
Borrower's Eligible Real Property (the "Real Property Advance") in
the principal amount, if any, set forth in Section 2(a)(ii) of
Schedule A. The Equipment Advance and the Real Property Advance
are collectively referred to as the "Term Loan."
1.2 Reserves. Lender may from time to time establish and revise
such reserves as Lender deems appropriate in its reasonable sole
discretion ("Reserves") to reflect (i) events, conditions, contingencies
or risks which affect or may affect (A) the Collateral or its value, or
the security interests and other rights of Lender in the Collateral or
(B) the assets, business or prospects of Borrower or any Obligor,
(ii) Lender's good faith concern that any Collateral report or financial
information furnished by or on behalf of Borrower or any Obligor to
Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender
determines in good faith constitutes, or could constitute, a Default or
Event of Default or (iv) any other events or circumstances which
Lender determines in good faith make the establishment or revision of
a Reserve prudent. Without limiting the foregoing, Lender shall (x) in
the case of each Credit Accommodation issued for the purchase of
Inventory (a) which meets the criteria for Eligible Inventory set forth
in clauses (i), (ii), (iii), (v) and (vi) of the definition of Eligible
Inventory, (b) which is or will be in transit to one of the locations set
forth in Section 9(d) of Schedule A, (c) which is fully insured in a
manner satisfactory to Lender and (d) with respect to which Lender is
in possession of all bills of lading and all other documentation which
Lender has requested, all in form and substance satisfactory to Lender
in its sole discretion, establish a Reserve equal to the cost of such
Inventory (plus all duties, freight, taxes, insurance, costs and other
charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus
the Inventory Advance Rate applicable to Eligible Inventory of the
type being purchased and (y) in the case of any other Credit
Accommodation issued for any purpose, establish a Reserve equal to
the full amount of such Credit Accommodation plus all costs and other
charges and expenses relating to such Credit Accommodation. In
addition, (x) Lender shall establish a permanent Reserve in the amount
set forth in Section 1(f) of Schedule A, and (y) if the outstanding
principal balance of the Term Loan advance with respect to Eligible
Equipment exceeds the percentage set forth in Section 2(a)(i) of
Schedule A of the appraised value of such Eligible Equipment, Lender
may establish an additional Reserve in the amount of such excess (and,
for this purpose, if payments of principal on the Term Loan advances
against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower
shall be deemed to apply to the Term Loan advance with respect to
Eligible Equipment and Real Property, respectively, in proportion to
the original principal amounts of such advances). Lender may, in its
discretion, establish and revise Reserves by deducting them in
determining Availability or by reclassifying Eligible Accounts or
Eligible Inventory as ineligible. In no event shall the establishment of
a Reserve in respect of a particular actual or contingent liability
obligate Lender to make advances hereunder to pay such liability or
otherwise obligate Lender with respect thereto.
1.3 Other Provisions Applicable to Credit Accommodations.
Lender shall, subject to the terms and conditions of this Agreement
and on terms and conditions acceptable to Lender, make Credit
Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each
Credit Accommodation, the Credit Accommodation Balance will not
exceed the Credit Accommodation Limit set forth in Section 1(e) of
Schedule A. Any amounts paid by Lender in respect of a Credit
Accommodation will be treated for all purposes as a Revolving Loan
which shall be secured by the Collateral and bear interest, and be
payable, in the same manner as a Revolving Loan. Borrower agrees
to execute all documentation required by Lender or the issuer of any
Credit Accommodation in connection with any such Credit
Accommodation.
1.4 Repayment. Accrued interest on all monetary Obligations
shall be payable on the first day of each month. Principal of the Term
Loan shall be repaid as set forth in Section 2(b) of Schedule A. If at
any time any of the Loan Limits are exceeded, Borrower will
immediately pay to Lender such amounts (or provide cash collateral
to Lender with respect to the Credit Accommodation Balance in the
manner set forth in Section 7.3), as shall cause Borrower to be in full
compliance with all of the Loan Limits. Notwithstanding the
foregoing, Lender may, in its sole discretion, make or permit
Revolving Loans, the Term Loan, any Credit Accommodations or any
other monetary Obligations to be in excess of any of the Loan Limits;
provided, that Borrower shall, upon Lender's demand, pay to Lender
such amounts as shall cause Borrower to be in full compliance with all
of the Loan Limits. All unpaid monetary Obligations shall be payable
in full on the Maturity Date (as defined in Section 7.1) or, if earlier,
the date of any early termination pursuant to Section 7.2.
1.5 Minimum Borrowing. Subject to the terms and conditions of
this Agreement, Borrower agrees to (i) borrow sufficient amounts to
cause the outstanding principal balance of the Loans to equal or
exceed, at all times prior to the Maturity Date, the Minimum Loan
Amount set forth in Section 4 of Schedule A and (ii) maintain
Availability sufficient to enable Borrower to do so; provided, that it
shall not constitute a Default or Event of Default hereunder if
Borrower fails to maintain the Minimum Loan Amount. However,
Lender shall not be obligated to loan to Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions
of this Agreement.
2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations shall bear
interest at the Interest Rate(s) set forth in Section 3 of Schedule A,
except where expressly set forth to the contrary in this Agreement or
another Loan Document; provided, that after the occurrence of an
Event of Default, all Loans and other monetary Obligations shall, at
Lender's option, bear interest at a rate per annum equal to two percent
(2%) in excess of the rate otherwise applicable thereto (the "Default
Rate") until paid in full (notwithstanding the entry of any judgment
against Borrower or the exercise of any other right or remedy by
Lender), and all such interest shall be payable on demand. Changes
in the Interest Rate shall be effective as of the date of any change in
the Prime Rate. Notwithstanding anything to the contrary contained
in this Agreement, the aggregate of all amounts deemed to be interest
hereunder and charged or collected by Lender is not intended to
exceed the highest rate permissible under any applicable law, but if it
should, such interest shall automatically be reduced to the extent
necessary to comply with applicable law and Lender will refund to
Borrower any such excess interest received by Lender.
2.2 Fees and Warrants. Borrower shall pay Lender the following
fees, and issue Lender the following warrants, which are in addition to
all interest and other sums payable by Borrower to Lender under this
Agreement, and are not refundable:
(a) Closing Fee. A closing fee in the amount set forth in
Section 6(a) of Schedule A, which shall be deemed to be fully earned
as of, and payable on, the date hereof.
(b) Facility Fees. A facility fee for the Term in the amount
set forth in Section 6(b) of Schedule A (which shall be fully earned as
of the date of this Agreement and shall be payable in equal
installments due, respectively, on each anniversary of the date of this
Agreement during the Term.
(c) Servicing Fee. A monthly servicing fee in the amount
set forth in Section 6(c) of Schedule A, in consideration of Lender's
administration and other services for each month (or part thereof),
which shall be fully earned as of, and payable in advance on, the date
of this Agreement and on the first day of each month thereafter so long
as any of the Obligations are outstanding.
(d) Unused Line Fee. An unused line fee at a rate equal to
the percentage per annum set forth in Section 6(d) of Schedule A of
the amount by which the Maximum Facility Amount exceeds the
average daily outstanding principal balance of the Loans and the
Credit Accommodation Balance during the immediately preceding
month (or part thereof), which fee shall be payable, in arrears, on the
first day of each month so long as any of the Obligations are
outstanding and on the Maturity Date.
(e) Minimum Borrowing Fee. A minimum borrowing fee
equal to the excess, if any, of (i) interest which would have been
payable in respect of each period set forth in Section 6(e)(i) of
Schedule A if, at all times during such period, the principal balance of
the Loans and the Credit Accommodations was equal to the Minimum
Loan Amount over (ii) the actual interest payable in respect of such
period, which fee shall be fully earned as of the last day of such period
and payable on the date set forth in Section 6(e)(ii) of Schedule A and
on the Maturity Date, commencing with the immediately following
period.
(f) Success Fee. A success fee in the amount set forth in
Section 6(f) of Schedule A, which shall be fully earned as of the date
of this Agreement and payable as set forth in Section 6(f) of
Schedule A.
(g) Warrants. Warrants to acquire the capital stock of
Borrower, as summarized in Section 6(g) of Schedule A and as more
fully set forth in a separate warrant agreement, if any, executed by
Borrower contemporaneously with this Agreement.
(h) Credit Accommodation Fees. The fees relating to
Credit Accommodations set forth in Section 6(i) of Schedule A,
payable, in arrears, on the first day of each month so long as any of the
Obligations are outstanding and on the Maturity Date, plus all costs
and fees charged by the issuer, payable as and when such costs and
fees are charged.
2.3 Computation of Interest and Fees. All interest and fees shall
be calculated daily on the closing balances in the Loan Account based
on the actual number of days elapsed in a year of 360 days. For
purposes of calculating interest and fees, if the outstanding daily
principal balance of the Revolving Loans is a credit balance, such
balance shall be deemed to be zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain
a loan account for Borrower reflecting all advances, charges, expenses
and payments made pursuant to this Agreement (the "Loan Account"),
and shall provide Borrower with a monthly accounting reflecting the
activity in the Loan Account. Each accounting shall be deemed
correct, accurate and binding on Borrower and an account stated
(except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies
Lender in writing to the contrary within sixty days after such account
is rendered, describing the nature of any alleged errors or omissions.
However, Lender's failure to maintain the Loan Account or to provide
any such accounting shall not affect the legality or binding nature of
any of the Obligations. Interest, fees and other monetary Obligations
due and owing under this Agreement (including fees and other
amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will
thereafter be deemed to be Revolving Loans and will bear interest at
the same rate as other Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the
Obligations, Borrower hereby grants to Lender a continuing security
interest in all of Borrower's property and interests in property, whether
tangible or intangible, now owned or in existence or hereafter acquired
or arising, wherever located, including Borrower's interest in all of the
following, whether or not eligible for lending purposes: (i) all
Accounts, Chattel Paper, Instruments, Documents, Goods (including
Inventory, Equipment, farm products and consumer goods),
Investment Property, General Intangibles, Deposit Accounts and
money, (ii) all proceeds and products of all of the foregoing
(including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the
foregoing.
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Borrower will, at its
expense, establish (and revise from time to time as Lender may
require) collection procedures acceptable to Lender, in Lender's sole
discretion, for the collection of checks, wire transfers and other
proceeds of Accounts ("Account Proceeds"), which may include
(i) directing all Account Debtors to send all such proceeds directly to
a post office box designated by Lender either in the name of Borrower
(but as to which Lender has exclusive access) or, at Lender's option,
in the name of Lender (a "Lock Box") or (ii) depositing all Account
Proceeds received by Borrower into one or more bank accounts
maintained in Lender's name (each, a "Blocked Account"), under an
arrangement acceptable to Lender with a depository bank acceptable
to Lender, pursuant to which all funds deposited into each Blocked
Account are to be transferred to Lender in such manner, and with such
frequency, as Lender shall specify or (iii) a combination of the
foregoing. Borrower agrees to execute, and to cause its depository
banks to execute, such Lock Box and Blocked Account agreements
and other documentation as Lender shall require from time to time in
connection with the foregoing.
4.2 Remittance of Proceeds. Except as provided in Section 4.1
and except for proceeds of the property listed in Section 14 of
Schedule A, all proceeds arising from the sale or other disposition of
any Collateral shall be delivered, in kind, by Borrower to Lender in the
original form in which received by Borrower not later than the
following Business Day after receipt by Borrower. Until so delivered
to Lender, Borrower shall hold such proceeds separate and apart from
Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 Application of Payments. Lender may, in its sole discretion,
apply, reverse and re-apply all cash and non-cash proceeds of
Collateral or other payments received with respect to the Obligations,
in such order and manner as Lender shall determine, whether or not
the Obligations are due, and whether before or after the occurrence of
a Default or an Event of Default. For purposes of determining
Availability, such amounts will be credited to the Loan Account and
the Collateral balances to which they relate upon Lender's receipt of
advice from Lender's Bank (set forth in Section 11 of Schedule A) that
such items have been credited to Lender's account at Lender's Bank (or
upon Lender's deposit thereof at Lender's Bank in the case of
payments received by Lender in kind), in each case subject to final
payment and collection. However, for purposes of computing interest
on the Obligations, such items shall be deemed applied by Lender two
Business Days after Lender's receipt of advice of deposit thereof at
Lender's Bank.
4.4 Notification; Verification. Lender or its designee may, from
time to time, whether or not a Default or Event of Default has
occurred: (i) verify directly with the Account Debtors the validity,
amount and other matters relating to the Accounts and Chattel Paper,
by means of mail, telephone or otherwise, either in the name of
Borrower or Lender or such other name as Lender may choose; and
(ii) notify Account Debtors that Lender has a security interest in the
Accounts and that payment thereof is to be made directly to Lender.
Lender or its designee may, after the occurrence of a Default or Event
of Default, demand, collect or enforce payment of any Accounts and
Chattel Paper (but without any duty to do so).
4.5 Power of Attorney. Borrower hereby grants to Lender an
irrevocable power of attorney, coupled with an interest, authorizing
and permitting Lender (acting through any of its officers, employees,
attorneys or agents), at any time (whether or not a Default or Event of
Default has occurred and is continuing, except as expressly provided
below), at Lender's option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise: (i) execute on behalf of
Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests
in the Collateral, to exercise a right of Borrower or Lender, or to fully
consummate all the transactions contemplated by this Agreement and
the other Loan Documents (including such financing statements and
continuation financing statements, and amendments thereto, as Lender
shall deem necessary or appropriate) and to file as a financing
statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) after the occurrence of an Event of Default,
execute on behalf of Borrower any document exercising, transferring
or assigning any option to purchase, sell or otherwise dispose of or
lease (as lessor or lessee) any real or personal property which is part
of the Collateral or in which Lender has an interest; (iii) after the
occurrence of an Event of Default, execute on behalf of Borrower any
invoices relating to any Accounts, any draft against any Account
Debtor, any proof of claim in bankruptcy, any notice of Lien or claim,
and any assignment or satisfaction of mechanic's, materialman's or
other Lien; (iv) after the occurrence of an Event of Default, execute on
behalf of Borrower any notice to any Account Debtor; (v) receive and
otherwise take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; (vi) endorse Borrower's name on
all checks and other forms of remittances received by Lender;
(vii) pay, contest or settle any Lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any
judgment based thereon, or otherwise take any action to terminate or
discharge the same (unless such Lien, charge encumbrance, security
interest or adverse claim is being contested by Borrower in good faith
and appropriate reserves have been established by Borrower therefor);
(viii) after the occurrence of a Default or Event of Default, grant
extensions of time to pay, compromise claims relating to, and settle
Accounts, Chattel Paper and General Intangibles for less than face
value and execute all releases and other documents in connection
therewith; (ix) pay any sums required on account of Borrower's taxes
or to secure the release of any Liens therefor, unless such Liens are
being diligently contested by Borrower in good faith and appropriate
reserves have been established by Borrower therefor; (x) pay any
amounts necessary to obtain, or maintain in effect, any of the
insurance described in Section 5.12; (xi) settle and adjust, and give
releases of, any insurance claim that relates to any of the Collateral
and obtain payment therefor; (xii) instruct any third party having
custody or control of any Collateral or books or records belonging to,
or relating to, Borrower to give Lender the same rights of access and
other rights with respect thereto as Lender has under this Agreement;
and (xiii) after the occurrence of a Default or Event of Default, change
the address for delivery of Borrower's mail and receive and open all
mail addressed to Borrower. Any and all sums paid, and any and all
costs, expenses, liabilities, obligations and reasonable attorneys' fees
incurred, by Lender with respect to the foregoing shall be added to and
become part of the Obligations, shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any
of the Obligations. Borrower agrees that Lender's rights under the
foregoing power of attorney or any of Lender's other rights under this
Agreement or the other Loan Documents shall not be construed to
indicate that Lender is in control of the business, management or
properties of Borrower.
4.6 Disputes. Borrower shall promptly notify Lender of all
disputes or claims relating to Accounts and Chattel Paper. Borrower
will not, without Lender's prior written consent, compromise or settle
any Account or Chattel Paper for less than the full amount thereof,
grant any extension of time of payment of any Account or Chattel
Paper, release (in whole or in part) any Account Debtor or other
person liable for the payment of any Account or Chattel Paper or grant
any credits, discounts, allowances, deductions, return authorizations
or the like with respect to any Account or Chattel Paper; except that
prior to the occurrence of an Event of Default, Borrower may take any
of such actions in the ordinary course of its business, provided that
Borrower promptly reports the same to Lender with each collateral
reporting package, but in any event no less than weekly.
4.7 Invoices. At Lender's request, Borrower will cause all invoices
and statements which it sends to Account Debtors or other third parties
to be marked, in a manner satisfactory to Lender, to reflect Lender's
security interest therein.
4.8 Inventory.
(a) Returns. Provided that no Event of Default has
occurred and is continuing, and except for returns pursuant to the Core
Return Program and Stock Adjustment Program, if any Account
Debtor returns any Inventory to Borrower in the ordinary course of its
business, Borrower will promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender), and will immediately
notify Lender of the return of such Inventory, specifying the reason for
such return, the location and condition of the returned Inventory.
After the occurrence of an Event of Default, Borrower will not accept
any return without Lender's prior written consent and Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all
returned Inventory from all of Borrower's other property;
(iii) conspicuously label the returned Inventory as Lender's property;
and (iv) immediately notify Lender of the return of such Inventory,
specifying the reason for such return, the location and condition of the
returned Inventory and, at Lender's request, deliver such returned
Inventory to Lender at an address specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's
prior written consent, sell any Inventory with an aggregate value in
excess of $50,000 (excluding Inventory which is part of the Stock
Adjustment Program) on a sale-or-return, guaranteed sale,
consignment, or other contingent basis. Borrower will not store any
Inventory with any warehouseman or other third party other than as set
forth in Section 9(d) of Schedule A, unless (i) Borrower provides 10
Business Days' prior written notice to Lender of Borrower's intention
to do so, (ii) such warehouseman or other third party has executed a
warehouseman's or similar agreement in favor of Lender in form and
substance satisfactory to Lender, and (iii) Borrower has taken any
other actions required by Lender to perfect Lender's first priority Lien
on such Inventory. All of the Inventory has been produced only in
accordance with the Fair Labor Standards Act of 1938 and all rules,
regulations and orders promulgated thereunder.
4.9 Access to Collateral, Books and Records. At reasonable
times, and on one Business Day's notice, prior to the occurrence of a
Default or an Event of Default, and at any time and with or without
notice after the occurrence of a Default or an Event of Default, Lender
or its agents shall have the right to inspect the Collateral, and the right
to examine and copy Borrower's books and records. Lender shall take
reasonable steps to keep confidential all information obtained in any
such inspection or examination, but Lender shall have the right to
disclose any such information to its auditors, regulatory agencies,
attorneys and participants, and pursuant to any subpoena or other legal
process. Borrower agrees to give Lender access to any or all of
Borrower's premises to enable Lender to conduct such inspections and
examinations. Such inspections and examinations shall be at
Borrower's expense and the charge therefor shall be $650 per person
per day (or such higher amount as shall represent Lender's then
current standard charge), plus reasonable out-of-pocket expenses;
provided, that so long as no Default or Event of Default has occurred,
Borrower shall only be required to pay for four such inspections or
examinations during the year ending on the first anniversary of the
date hereof and during each successive year thereafter. Lender may,
at Borrower's expense, use Borrower's personnel, computer and other
equipment, programs, printed output and computer readable media,
supplies and premises for the collection, sale or other disposition of
Collateral to the extent Lender, in its sole discretion, deems
appropriate. Borrower hereby irrevocably authorizes all accountants
and third parties to disclose and deliver to Lender, at Borrower's
expense, all financial information, books and records, work papers,
management reports and other information in their possession
regarding Borrower. Borrower will not enter into any agreement with
any accounting firm, service bureau or third party to store Borrower's
books or records at any location other than Borrower's Address
without first obtaining Lender's written consent (which consent may
be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to
access to books and records and related rights as Lender has under this
Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each
such representation and warranty will be deemed remade as of the date
on which each Loan is made and each Credit Accommodation is
provided and shall not be affected by any knowledge of, or any
investigation by, Lender, and (ii) the accuracy of each such
representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
5.1 Existence and Authority. Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation. Borrower is qualified and licensed to do
business in all jurisdictions in which any failure to do so would have
a material adverse effect on Borrower. The execution, delivery and
performance by Borrower of this Agreement and all of the other Loan
Documents have been duly and validly authorized, do not violate
Borrower's articles or certificate of incorporation, by-laws or other
organizational documents, or any law or any agreement or instrument
or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or
obligation under any agreement or instrument which is binding upon
Borrower or its property, and do not require the consent of any Person.
This Agreement and such other Loan Documents have been duly
executed and delivered by, and are enforceable against, Borrower, and
all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A set forth the
ownership of Borrower and the names and ownership of Borrower's
Subsidiaries as of the date of this Agreement.
5.2 Name; Trade Names and Styles. The name of Borrower set
forth in the heading to this Agreement is its correct and complete legal
name as of the date hereof. Listed in Sections 9(a), 9(b) and 9(c) of
Schedule A are all prior names of Borrower and all of Borrower's
present and prior trade names. Borrower shall give Lender at least
thirty days' prior written notice before changing its name or doing
business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name.
Borrower represents and warrants that (i) each trade name does not
refer to another corporation or other legal entity; (ii) all Accounts
invoiced under any such trade names are owned exclusively by
Borrower and are subject to the security interest of Lender and the
other terms of this Agreement and (iii) all schedules of Accounts,
including any sales made or services rendered using any trade name
shall show Borrower's name as assignor.
5.3 Title to Collateral; Permitted Liens. Borrower has good and
marketable title to the Collateral. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Lender
now has, and will continue to have, a first-priority perfected and
enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend Lender and the
Collateral against all claims of others. None of the Collateral which
is Equipment is or will be affixed to any real property in such a
manner, or with such intent, as to become a fixture. Except for leases
or subleases as to which Borrower has delivered to Lender a landlord's
waiver in form and substance satisfactory to Lender, Borrower is not
a lessee or sublessee under any real property lease or sublease pursuant
to which the lessor or sublessor may obtain any rights in any of the
Collateral, and no such lease or sublease now prohibits, restrains,
impairs or conditions, or will prohibit, restrain, impair or condition,
Borrower's right to remove any Collateral from the premises.
Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under
a deed of trust, lien or otherwise), Borrower shall, whenever requested
by Lender, cause each such third party to execute and deliver to
Lender, in form and substance acceptable to Lender, such waivers and
subordinations as Lender shall specify, so as to ensure that Lender's
rights in the Collateral are, and will continue to be, superior to the
rights of any such third party. Borrower will keep in full force and
effect, and will comply with all the terms of, any lease of real property
where any of the Collateral now or in the future may be located.
Notwithstanding the foregoing, Collateral may be located at
595 Wentworth Street E., Oshawa, Ontario Canada L1H 3V8 and
2696 South Maple Avenue, Fresno, California 93725 without
Borrower having to obtain landlord's or warehouseman's agreements
from the owners of such facilities so long as (i) the value of the
Collateral located at either of such facilities at any time does not
exceed $150,000, and (ii) the aggregate value of the Collateral located
at both such facilities at any time does not exceed $250,000.
5.4 Accounts and Chattel Paper. As of each date reported by
Borrower, all Accounts which Borrower has reported to Lender as
being Eligible Accounts comply in all respects with the criteria for
eligibility established by Lender and in effect at such time. All
Accounts and Chattel Paper are genuine and in all respects what they
purport to be, arise out of a completed, bona fide and unconditional
and non-contingent sale and delivery of goods or rendition of services
by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the
capacity to contract at the time any contract or other document giving
rise to such Accounts and Chattel Paper were executed, and the
transactions giving rise to such Accounts and Chattel Paper comply
with all applicable laws and governmental rules and regulations.
5.5 Investment Property. Borrower will take any and all actions
required or requested by Lender, from time to time, to (i) cause Lender
to obtain exclusive control of any Investment Property in a manner
acceptable to Lender and (ii) obtain from any issuers of Investment
Property and such other Persons as Lender shall specify, for the
benefit of Lender, written confirmation of Lender's exclusive control
over such Investment Property and take such other actions as Lender
may request to perfect Lender's security interest in such Investment
Property. For purposes of this Section 5.5, Lender shall have
exclusive control of Investment Property if (A) such Investment
Property consists of certificated securities and Borrower delivers such
certificated securities to Lender (with appropriate endorsements if
such certificated securities are in registered form); (B) such Investment
Property consists of uncertificated securities and either (x) Borrower
delivers such uncertificated securities to Lender or (y) the issuer
thereof agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with instructions originated
by Lender without further consent by Borrower, and (C) such
Investment Property consists of security entitlements and either (x)
Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and
substance satisfactory to Lender, that it will comply with entitlement
orders originated by Lender without further consent by Borrower.
5.6 Place of Business; Location of Collateral. Borrower's
Address is Borrower's chief executive office and the location of its
books and records. In addition, except as provided in the immediately
following sentence, Borrower has places of business and Collateral
located only at the locations set forth on Sections 9(d) and 9(e) of
Schedule A. Borrower will give Lender at least thirty days' prior
written notice before opening any additional place of business,
changing its chief executive office or the location of its books and
records, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth in Sections 9(d)
of Schedule A, and will execute and deliver all financing statements
and other agreements, instruments and documents which Lender shall
require as a result thereof.
5.7 Financial Condition, Statements and Reports. All financial
statements delivered to Lender by or on behalf of Borrower have been
prepared in conformity with GAAP and completely and fairly reflect
the financial condition of Borrower, at the times and for the periods
therein stated. Between the last date covered by any such financial
statement provided to Lender and the date hereof (or, with respect to
the remaking of this representation in connection with the making of
any Loan or the providing of any Credit Accommodation, the date
such Loan is made or such Credit Accommodation is provided), there
has been no material adverse change in the financial condition or
business of Borrower. All schedules, reports and other information
and documentation delivered by Borrower to Lender with respect to
the Collateral are, or will be, when delivered, true, correct and
complete as of the date delivered or the date specified therein.
5.8 Tax Returns and Payments; Pension Contributions.
Borrower has timely filed all tax returns and reports required by
applicable law, has timely paid all applicable taxes, assessments,
deposits and contributions owing by Borrower and will timely pay all
such items in the future as they became due and payable. Borrower
may, however, defer payment of any contested taxes; provided, that
Borrower (i) in good faith contests Borrower's obligation to pay such
taxes by appropriate proceedings promptly and diligently instituted
and conducted; (ii) notifies Lender in writing of the commencement
of, and any material development in, the proceedings; (iii) posts bonds
or takes any other steps required to keep the contested taxes from
becoming a Lien upon any of the Collateral and (iv) maintains
adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's
prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid, and shall continue to
pay, all amounts necessary to fund all present and future pension,
profit sharing and deferred compensation plans in accordance with
their terms, and Borrower has not withdrawn from participation in,
permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which
could result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or any other governmental
agency.
5.9 Compliance with Laws. Borrower has complied in all
material respects with all provisions of all applicable laws and
regulations, including those relating to Borrower's ownership of real
or personal property, the conduct and licensing of Borrower's business,
the payment and withholding of taxes, ERISA and other employee
matters, safety and environmental matters.
5.10 Litigation. Section 9(f) of Schedule A discloses all
claims, proceedings, litigation or investigations pending or (to the best
of Borrower's knowledge) threatened against Borrower. There is no
claim, suit, litigation, proceeding or investigation pending or (to the
best of Borrower's knowledge) threatened by or against or affecting
Borrower in any court or before any governmental agency (or any
basis therefor known to Borrower) which may result, either separately
or in the aggregate, in any material adverse change in the financial
condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the
same manner as it is now being conducted. Borrower will promptly
inform Lender in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against
Borrower.
5.11 Use of Proceeds. All proceeds of all Loans will be used
solely for lawful business purposes.
5.12 Insurance. Borrower will at all times carry property,
liability and other insurance, with insurers acceptable to Lender, in
such form and amounts, and with such deductibles and other
provisions, as Lender shall require, and Borrower will provide
evidence of such insurance to Lender, so that Lender is satisfied that
such insurance is, at all times, in full force and effect. Each property
insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each
liability insurance policy shall name Lender as an additional insured,
and each business interruption insurance policy shall be collaterally
assigned to Lender, all in form and substance satisfactory to Lender.
All policies of insurance shall provide that they may not be cancelled
or changed without at least thirty days' prior written notice to Lender,
shall contain breach of warranty coverage, and shall otherwise be in
form and substance satisfactory to Lender. Upon receipt of the
proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations as Lender shall determine in its sole
discretion. Borrower will promptly deliver to Lender copies of all
reports made to insurance companies.
5.13 Financial and Collateral Reports. Borrower has kept
and will keep adequate records and books of account with respect to
its business activities and the Collateral in which proper entries are
made in accordance with GAAP reflecting all its financial
transactions, and will cause to be prepared and furnished to Lender the
following (all to be prepared in accordance with GAAP, unless
Borrower's certified public accountants concur in any change therein
and such change is disclosed to Lender):
(a) Collateral Reports. On or before the fifteenth day of
each month, an aging of Borrower's Accounts, Chattel Paper and notes
receivable, and weekly Inventory reports, all in such form, and
together with such additional certificates, schedules and other
information with respect to the Collateral or the business of Borrower
or any Obligor, as Lender shall request; provided, that Borrower's
failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor
shall Lender's failure to advance or lend against a specific Account
affect or limit Lender's security interest and other rights therein.
Together with each such schedule, Borrower shall furnish Lender with
copies (or, at Lender's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to
such Accounts, and Borrower warrants the genuineness of all of the
foregoing. In addition, Borrower shall deliver to Lender the originals
of all Instruments, Chattel Paper, security agreements, guaranties and
other documents and property evidencing or securing any Accounts,
immediately upon receipt thereof and in the same form as received,
with all necessary endorsements. Lender may destroy or otherwise
dispose of all documents, schedules and other papers delivered to
Lender pursuant to this Agreement (other than originals of
Instruments, Chattel Paper, security agreements, guaranties and other
documents and property evidencing or securing any Accounts) six
months after Lender receives them, unless Borrower requests their
return in writing in advance and arranges for their return to Borrower
at Borrower's expense.
(b) Annual Statements. Not later than ninety days after
the close of each fiscal year of Borrower, unqualified (except for a
qualification for a change in accounting principles with which the
accountant concurs) audited financial statements of Borrower and its
Subsidiaries as of the end of such year, on a consolidated and
consolidating basis, certified by a firm of independent certified public
accountants of recognized standing selected by Borrower but
acceptable to Lender, together with a copy of any management letter
issued in connection therewith and a letter from such accountants
acknowledging that Lender is relying on such financial statements;
(c) Interim Statements. Not later than fifteen Business
Days after the end of each month hereafter, including the last month
of Borrower's fiscal year, unaudited interim financial statements of
Borrower and its Subsidiaries as of the end of such month and of the
portion of Borrower's fiscal year then elapsed, on a consolidated and
consolidating basis, certified by the principal financial officer of
Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of
Borrower and its Subsidiaries for such month and period subject only
to changes from audit and year-end adjustments and except that such
statements need not contain notes;
(d) Projections, Etc. Such business projections,
Availability projections, business plans, budgets and cash flow
statements for Borrower and its Subsidiaries as Lender shall
reasonably request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending
or filing thereof, as the case may be, copies of any proxy statements,
financial statements or reports which Borrower has made available to
its shareholders and copies of any regular, periodic and special reports
or registration statements which Borrower files with the Securities and
Exchange Commission or any governmental authority which may be
substituted therefor, or any national securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of
any annual report to be filed pursuant to the requirements of ERISA
in connection with each plan subject thereto; and
(g) Other Information. Such other data and information
(financial and otherwise) as Lender, from time to time, may
reasonably request, bearing upon or related to the Collateral or
Borrower's and each of its Subsidiary's financial condition or results
of operations.
5.14 Litigation Cooperation. Should any third-party suit or
proceeding be instituted by or against Lender with respect to any
Collateral or in any manner relating to Borrower, Borrower shall,
without expense to Lender, make available Borrower and its officers,
employees and agents, and Borrower's books and records, without
charge, to the extent that Lender may deem them reasonably necessary
in order to prosecute or defend any such suit or proceeding.
5.15 Maintenance of Collateral, Etc. Borrower will
maintain all of its Equipment in good working condition, ordinary
wear and tear excepted, and Borrower will not use the Collateral for
any unlawful purpose. Borrower will immediately advise Lender in
writing of any material loss or damage to the Collateral and of any
investigation, action, suit, proceeding or claim relating to the
Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16 Notification of Changes. Borrower will promptly
notify Lender in writing of any change in its officers or directors, the
opening of any new bank account or other deposit account, or any
material adverse change in the business or financial affairs of
Borrower or the existence of any circumstance which would make any
representation or warranty of Borrower untrue in any material respect
or constitute a material breach of any covenant of Borrower.
5.17 Further Assurances. Borrower agrees, at its expense,
to take all actions, and execute or cause to be executed and delivered
to Lender all promissory notes, security agreements, agreements with
landlords, mortgagees and processors and other bailees, subordination
and intercreditor agreements and other agreements, instruments and
documents as Lender may request from time to time, to perfect and
maintain Lender's security interests in the Collateral and to fully
effectuate the transactions contemplated by this Agreement.
5.18 Negative Covenants. Except as set forth in Section 13
of Schedule A, Borrower will not, without Lender's prior written
consent (provided, that Lender shall be deemed to have given consent
if Lender does not respond to a written request by Borrower within
thirty (30) days of Lender's receipt thereof), (i) merge or consolidate
with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of
business and as otherwise permitted by this Agreement and the other
Loan Documents; (iii) enter into any transaction outside the ordinary
course of business; (iv) sell or transfer any Collateral or other assets,
except that Borrower may sell finished goods Inventory in the ordinary
course of its business; (v) make any loans to, or investments in, any
Affiliate or other Person in the form of money or other assets;
(vi) incur any debt outside the ordinary course of business;
(vii) guaranty or otherwise become liable with respect to the
obligations of another party or entity; (viii) pay or declare any
dividends or other distributions on Borrower's stock, if Borrower is a
corporation (except for dividends payable solely in capital stock of
Borrower) or with respect to any equity interests, if Borrower is not a
corporation; (ix) redeem, retire, purchase or otherwise acquire, directly
or indirectly, any of Borrower's capital stock or other equity interests;
(x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any
indebtedness owing to an Affiliate, (xiii) enter into any transaction
with an Affiliate other than on arms-length terms; (xiv) provide notice
to the Landlord pursuant to Section 13.1 of the Lease Agreement
between City of Hope, Arkansas and Borrower dated December 1,
1991 of intent not to exercise the renewal option set forth in such
subsection; (xv) make any amendment to the Creditor's Documents (as
defined in the Subordination Agreement dated the date hereof by and
between Lender and NBD Bank); or (xvi) agree to do any of the
foregoing.
5.19 Financial Covenants. Intentionally Omitted.
5.20 Year 2000 Compliance. Borrower has (i) initiated a
review and assessment of all areas within its and each of its Affiliates'
business and operations (including those affected by suppliers and
vendors) that could be adversely affected by the "Year 2000 Problem"
(that is, the risk that computer applications used by Borrower or any
of its Affiliates (or its suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving
certain dates prior to any date after December 31, 1999), (ii) developed
a plan and timeline for addressing the Year 2000 Problem on a timely
basis, and (iii) to date, implemented that plan in accordance with that
timetable. Borrower reasonably believes that all computer
applications (including those of its suppliers and vendors) that are
material to its or any of its Affiliates' business and operations will on
a timely basis be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect (as defined
below). Borrower will promptly notify Lender in the event Borrower
discovers or determines that any computer application (including those
of its suppliers and vendors) that is material to its or any of its
Affiliates' business and operations will not be Year 2000 compliant on
a timely basis, except to the extent that such failure could not
reasonably be expected to have a Material Adverse Effect. For
purposes of this Agreement, "Material Adverse Effect" shall mean a
material adverse effect on Borrower's business or operations or value
of the Collateral.
6. RELEASE AND INDEMNITY.
6.1 Release. In connection with Credit Accommodations or any
underlying transaction, Lender shall not be responsible for the
conformity of any goods to the documents presented, the validity or
genuineness of any documents, delay, default or fraud by Borrower,
shippers and/or any other Person. Borrower agrees that any action
taken by Lender, if taken in good faith, or any action taken by an
issuer of any Credit Accommodation, under or in connection with any
Credit Accommodation, shall be binding on Borrower and shall not
create any resulting liability to Lender. In furtherance thereof, Lender
shall have the full right and authority to clear and resolve any
questions of non-compliance of documents, to give any instructions as
to acceptance or rejection of any documents or goods, to execute for
Borrower's account any and all applications for steamship or airway
guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any
drafts, acceptances or documents, and to agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the Credit Accommodations or
applications and other documentation pertaining thereto.
6.2 Indemnity. Borrower hereby agrees to indemnify the Lender
and its Affiliates and their respective directors, officers, employees,
attorneys and agents and any other Person affiliated with or
representing Lender (the "Released Parties") and hold them harmless
from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description,
which the Released Parties may sustain or incur based upon or arising
out of any of the transactions contemplated by this Agreement or the
other Loan Documents or any of the Obligations, including any
transactions or occurrences relating to the issuance of any Credit
Accommodation, the Collateral relating thereto, any drafts thereunder
and any errors or omissions relating thereto (including any loss or
claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any
issuer of Credit Accommodations shall be conclusive as to their
appropriateness and may be charged to the Loan Account), or any
other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by Lender relating to Borrower or the Obligations
(except any such amounts sustained or incurred as the result of the
willful misconduct or gross negligence of the Released Parties).
Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any
termination of this Agreement.
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to
provide Credit Accommodations under this Agreement shall initially
continue in effect until the Maturity Date set forth in Section 7 of
Schedule A (being referred to as the "Maturity Date"). This
Agreement and the other Loan Documents and Lender's security
interests in and Liens upon the Collateral, and all representations,
warranties and covenants of Borrower contained herein and therein,
shall remain in full force and effect after the Maturity Date until all of
the monetary Obligations are indefeasibly paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to
provide Credit Accommodations under this Agreement may be
terminated prior to the Maturity Date as follows: (i) by Borrower,
effective thirty business days after written notice of termination is
given to Lender or (ii) by Lender at any time after the occurrence of
an Event of Default, without notice, effective immediately; provided,
that if any Affiliate of Borrower is also a party to a financing
arrangement with Lender, no such early termination shall be effective
unless such Affiliate simultaneously terminates its financing
arrangement with Lender. If so terminated under this Section 7.2,
Borrower shall pay to Lender (i) an early termination fee (the "Early
Termination Fee") in the amount set forth in Section 6(h) of
Schedule A plus (ii) any earned but unpaid Facility Fee. Such fee
shall be due and payable on the effective date of termination and
thereafter shall bear interest at a rate equal to the highest rate
applicable to any of the Obligations.
7.3 Payment of Obligations. On the Maturity Date or on any
earlier effective date of termination, Borrower shall pay in full all
Obligations, whether or not all or any part of such Obligations are
otherwise then due and payable. Without limiting the generality of the
foregoing, if, on the Maturity Date or on any earlier effective date of
termination, there are any outstanding Credit Accommodations, then
on such date Borrower shall provide to Lender cash collateral in an
amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and
other expenses) relating to said Credit Accommodations or such
greater percentage or amount as Lender reasonably deems appropriate,
pursuant to a cash pledge agreement in form and substance satisfactory
to Lender.
7.4 Effect of Termination. No termination shall affect or impair
any right or remedy of Lender or relieve Borrower of any of the
Obligations until all of the monetary Obligations have been
indefeasibly paid in full. Upon indefeasible payment and performance
in full of all of the monetary Obligations (and the provision of cash
collateral with respect to any Credit Accommodation Balance as
required by Section 7.3) and termination of this Agreement, Lender
shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be reasonably
required to terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement,
and Borrower shall give Lender immediate written notice thereof: (i) if
any warranty, representation, statement, report or certificate made or
delivered to Lender by Borrower or any of Borrower's officers,
employees or agents is untrue or misleading; (ii) if Borrower fails to
pay when due any principal or interest on any Loan or any other
monetary Obligation; (iii) if Borrower breaches any covenant or
obligation contained in this Agreement or any other Loan Document
or fails to perform any other non-monetary Obligation (provided, that
any breach of Sections 5.13(b), 5.13(c), 5.13(d), 5.13(e) or 5.13(f) of
this Agreement shall not constitute an Event of Default until 10 days
after the earlier of Borrower's knowledge of such breach and notice by
Lender to Borrower of such breach); (iv) if any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien)
is made or permitted to exist on all or any part of the Collateral; (v) if
one or more judgments aggregating in excess of $50,000, or any
injunction or attachment, is obtained against Borrower or any Obligor
which remains unstayed for more than ten days or is enforced; (vi) the
occurrence of any default under any financing agreement, security
agreement or other agreement, instrument or document executed and
delivered by (A) Borrower with, or in favor of, any Person other than
Lender or (B) Borrower or any Affiliate of Borrower with, or in favor
of, Lender or any Affiliate of Lender; (vii) the dissolution, death,
termination of existence in good standing, insolvency or business
failure or suspension or cessation of business as usual of Borrower or
any Obligor (or of any general partner of Borrower or any Obligor if
it is a partnership) or the appointment of a receiver, trustee or
custodian for all or any part of the property of, or an assignment for
the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under
any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction,
now or in the future in effect, or if Borrower makes or sends a notice
of a bulk transfer or calls a meeting of its creditors; (viii) the
commencement of any proceeding against Borrower or any Obligor
under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect (provided, that during the
first fifteen (15) days following the commencement of such any
proceeding, if such proceeding is not dismissed during such period,
Lender, although it shall not have an obligation to continue to make
Loans to Borrower and shall retain all rights it may have with respect
to Borrower, shall not be entitled to accelerate the Loans); (ix) the
actual or attempted revocation or termination of, or limitation or denial
of liability upon, any guaranty of the Obligations, or any security
document securing the Obligations, by any Obligor; (x) if Borrower
makes any payment on account of any indebtedness or obligation
which has been subordinated to the Obligations other than as permitted
in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations attempts to limit or
terminate its subordination agreement; (xi) if there is any actual or
threatened indictment of Borrower or any Obligor under any criminal
statute or commencement or threatened commencement of criminal or
civil proceedings against Borrower or any Obligor, pursuant to which
the potential penalties or remedies sought or available include
forfeiture of any property of Borrower or such Obligor; (xii) if
Borrower fails to provide prior written notice to Lender of any change
in the president or chief executive officer of Borrower; (xiii) if an
Event of Default occurs under any Loan and Security Agreement
between Lender and an Affiliate of Borrower; or (xiv) if Lender
determines in good faith that an event has occurred involving
Borrower or any other change has taken place which could reasonably
be expected to have a Material Adverse Effect.
8.2 Remedies. Upon the occurrence of any Default, and at any
time thereafter, Lender, at its option, may cease making Loans or
otherwise extending credit to Borrower under this Agreement or any
other Loan Document. Upon the occurrence of any Event of Default,
and at any time thereafter, Lender, at its option, and without notice or
demand of any kind (all of which are hereby expressly waived by
Borrower), may do any one or more of the following: (i) cease making
Loans or otherwise extending credit to Borrower under this Agreement
or any other Loan Document; (ii) accelerate and declare all or any part
of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any of the Obligations; (iii) take
possession of any or all of the Collateral wherever it may be found,
and for that purpose Borrower hereby authorizes Lender, without
judicial process, to enter onto any of Borrower's premises without
interference to search for, take possession of, keep, store, or remove
any of the Collateral, and remain (or cause a custodian to remain) on
the premises in exclusive control thereof, without charge for so long
as Lender deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other
agreement; provided, that if Lender seeks to take possession of any of
the Collateral by court process, Borrower hereby irrevocably waives
(A) any bond and any surety or security relating thereto required by
law as an incident to such possession, (B) any demand for possession
prior to the commencement of any suit or action to recover possession
thereof and (C) any requirement that Lender retain possession of, and
not dispose of, any such Collateral until after trial or final judgment;
(iv) require Borrower to assemble any or all of the Collateral and make
it available to Lender at one or more places designated by Lender
which are reasonably convenient to Lender and Borrower, and to
remove the Collateral to such locations as Lender may deem advisable;
(v) complete the processing, manufacturing or repair of any Collateral
prior to a disposition thereof and, for such purpose and for the purpose
of removal, Lender shall have the right to use Borrower's premises,
vehicles and other Equipment and all other property without charge;
(vi) sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Lender obtains possession of it or after further
manufacturing, processing or repair, at one or more public or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit (a "Sale"), and to adjourn any such Sale from time to time
without notice other than oral announcement at the time scheduled for
such Sale (and, in connection therewith, (A) Lender shall have the
right to conduct such Sale on Borrower's premises without charge, for
such times as Lender deems reasonable, on Lender's premises, or
elsewhere, and the Collateral need not be located at the place of such
Sale; (B) Lender may directly or through any of its Affiliates purchase
or lease any of the Collateral at any such public disposition, and if
permissible under applicable law, at any private disposition and
(C) any Sale of Collateral shall not relieve Borrower of any liability
Borrower may have if any Collateral is defective as to title, physical
condition or otherwise at the time of sale); (vii) demand payment of
and collect any Accounts, Chattel Paper, Instruments and General
Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's
name on all collections, receipts, Instruments and other documents, to
take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of Collateral or
proceeds thereof and, in Lender's sole discretion, to grant extensions
of time to pay, compromise claims and settle Accounts, General
Intangibles and the like for less than face value; and (viii) demand and
receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the foregoing remedies, upon the
occurrence of any Event of Default resulting from a breach of any of
the financial covenants set forth in Section 5.19, Lender may, at its
option, upon not less than ten days' prior notice to Borrower, reduce
any or all of the Advance Rates set forth in Section 1(b) of Schedule A
to the extent Lender, in its sole discretion, deems appropriate. In
addition to the rights and remedies set forth above, Lender shall have
all the other rights and remedies accorded a secured party after default
under the UCC and under all other applicable laws, and under any
other Loan Document, and all of such rights and remedies are
cumulative and non-exclusive. Exercise or partial exercise by Lender
of one or more of its rights or remedies shall not be deemed an
election or bar Lender from subsequent exercise or partial exercise of
any other rights or remedies. The failure or delay of Lender to
exercise any rights or remedies shall not operate as a waiver thereof,
but all rights and remedies shall continue in full force and effect until
all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at
least seven days prior to the sale designating the time and place of sale
in the case of a public sale or the time after which any private sale or
other disposition is to be made shall be deemed to be reasonable
notice, and Borrower waives any other notice. If any Collateral is sold
or leased by Lender on credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment is
collected by Lender.
8.3 Application of Proceeds. Subject to any application required
by law, all proceeds realized as the result of any Sale shall be applied
by Lender to the Obligations in such order as Lender shall determine
in its sole discretion. Any surplus shall be paid to Borrower or other
persons legally entitled thereto; but Borrower shall remain liable to
Lender for any deficiency. If Lender, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction
with any purchaser at any Sale, Lender shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of the purchase price or deferring
the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be
in writing and shall be given either personally, by reputable private
delivery service, by regular first-class mail or certified mail return
receipt requested, addressed to Lender or Borrower at the address
shown in the heading to this Agreement, or by facsimile to the
facsimile number shown in Section 9(i) of Schedule A, or at any other
address (or to any other facsimile number) designated in writing by
one party to the other party in the manner prescribed in this
Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
9.2 Severability. If any provision of this Agreement, or the
application thereof to any party or circumstance, is held to be void or
unenforceable by any court of competent jurisdiction, such defect shall
not affect the remainder of this Agreement, which shall continue in
full force and effect.
9.3 Integration. This Agreement and the other Loan Documents
represent the final, entire and complete agreement between Borrower
and Lender and supersede all prior and contemporaneous negotiations,
oral representations and agreements, all of which are merged and
integrated into this Agreement. THERE ARE NO ORAL UNDER-
STANDINGS, REPRESENTATIONS OR AGREEMENTS
BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this
Agreement or any other Loan Documents shall not waive or diminish
any right of Lender later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent, and whether or not similar.
None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of
Lender or its agents or employees, but only by a specific written
waiver signed by an authorized officer of Lender and delivered to
Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment,
release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible,
Document, Chattel Paper, Investment Property or guaranty at any time
held by Lender on which Borrower is or may in any way be liable, and
notice of any action taken by Lender, unless expressly required by this
Agreement, and notice of acceptance hereof.
9.5 Amendment. The terms and provisions of this Agreement
may not be amended or modified except in a writing executed by
Borrower and a duly authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance
by Borrower of each and every obligation under this Agreement and
the other Loan Documents.
9.7 Attorneys Fees and Costs. Borrower shall reimburse Lender
for all reasonable attorneys' and paralegals' fees (including in-house
attorneys and paralegals employed by Lender) and all filing, recording,
search, title insurance, appraisal, audit, and other costs incurred by
Lender, pursuant to, in connection with, or relating to this Agreement,
including all reasonable attorneys' fees and costs Lender incurs to
prepare and negotiate this Agreement and the other Loan Documents
(provided, that such reimbursement for any attorneys' fees and
paralegals' fees incurred solely in connection with the preparation of
this Agreement and the other Loan Documents prior to the making of
the Loans, assuming that there are no protracted negotiations of this
Agreement and the other Loan Documents and excluding (i) any costs
or disbursements of such attorneys or paralegals and (ii) any fees
charged by local counsel in the States of Arkansas and Pennsylvania
or in Canada, shall be limited to $25,000); to obtain legal advice in
connection with this Agreement and the other Loan Documents or
Borrower or any Obligor; to administer this Agreement and the other
Loan Documents (including the cost of periodic financing statement,
tax lien and other searches conducted by Lender); to enforce, or seek
to enforce, any of its rights; prosecute actions against, or defend
actions by, Account Debtors; to commence, intervene in, or defend
any action or proceeding; to enforce and protect, or to seek to enforce
and protect, any of its rights and interests in any bankruptcy case of
Borrower, including, without limitation, by initiating and prosecuting
any motion for relief from the automatic stay and by initiating,
prosecuting or defending any other contested matter or adversary
proceeding in bankruptcy; to file or prosecute any probate claim,
bankruptcy claim, third-party claim, or other claim; to examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and
records; to protect, obtain possession of, lease, dispose of, or otherwise
enforce Lender's security interests in, the Collateral; and to otherwise
represent Lender in any litigation relating to Borrower. If either
Lender or Borrower files any lawsuit against the other predicated on
a breach of this Agreement, the prevailing party in such action shall be
entitled to recover its reasonable costs and attorneys' fees, including
reasonable attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment.
All attorneys' fees and costs to which Lender may be entitled pursuant
to this Section shall immediately become part of the Obligations, shall
be due on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations.
9.8 Benefit of Agreement; Assignability. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
respective successors, assigns, heirs, beneficiaries and representatives
of Borrower and Lender; provided, that Borrower may not assign or
transfer any of its rights under this Agreement without the prior
written consent of Lender, and any prohibited assignment shall be
void. No consent by Lender to any assignment shall release Borrower
from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more
other Persons, and Borrower agrees to execute all agreements,
instruments and documents requested by Lender in connection with
each such assignment and participation.
9.9 Headings; Construction. Section and subsection headings are
used in this Agreement only for convenience. Borrower and Lender
acknowledge that the headings may not describe completely the
subject matter of the applicable Sections or subsections, and the
headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. This Agreement
has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement
shall be construed strictly against Lender or Borrower under any rule
of construction or otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC.
THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND
DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE,
IN CHICAGO, ILLINOIS, AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH
STATE. BORROWER HEREBY CONSENTS AND AGREES THAT
THE STATE AND FEDERAL COURTS IN CHICAGO, ILLINOIS
OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN BORROWER AND LENDER PERTAINING TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENTS OR ANY
MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. BORROWER ALSO AGREES
THAT ANY CLAIM OR DISPUTE BROUGHT BY BORROWER
AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY
OTHER LOAN DOCUMENT OR ANY MATTER ARISING OUT OF
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL
BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS OF ILLINOIS. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT
AND OTHER PROCESS MAY BE MADE IN THE MANNER AND
SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1
FOR NOTICES, TO THE EXTENT PERMITTED BY LAW.
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF
ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR
THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM
OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER
WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH LENDER
ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT,
ACTS OR OMISSIONS OF LENDER OR BORROWER OR ANY OF
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES,
ATTORNEYS OR AGENTS OR ANY OTHER PERSONS
AFFILIATED WITH LENDER OR BORROWER, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE; (ii) THE
RIGHT TO INTERPOSE ANY CLAIMS, DEDUCTIONS, SETOFFS
OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR
PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO
THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS;
(iii) NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR
CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT
PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL
VALUATION, APPRAISEMENT AND EXEMPTION LAWS.
BORROWER ACKNOWLEDGES THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S
ENTERING INTO THIS AGREEMENT AND THAT LENDER IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH BORROWER. BORROWER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THE FOREGOING
WAIVERS WITH ITS LEGAL COUNSEL AND HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this
Agreement as of the date set forth in the heading.
Borrower:
Champion Parts, Inc.
By Jeery A. Bragiel
Its President
Lender:
NationsCredit Commercial
Corporation, through its
NationsCredit Commercial Funding
Division
By Lynne Ciaccia
Its Authorized Signatory
<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security
Agreement between Champion Parts, Inc. and NationsCredit
Commercial Corporation, through its NationsCredit
Commercial Funding Division (the "Agreement").
1. Loan Limits for Revolving Loans:
(A) Maximum Facility Amount: $8,500,000
(B) Advance Rates:
(i) Accounts Advance Rate:
85%; provided, that if the Dilution Percentage
exceeds 4%, at Lender's option, either (i) such
advance rate will be reduced by the number of
full or partial percentage points of such
excess, or (ii) a Reserve shall be implemented
in the amount of such excess (provided, that
the Core Return Program shall be excluded in
calculating the Dilution Percentage)
(ii) Inventory Advance Rate(s):
(a) Finished goods Inventory consisting of
Ordinary Inventory:
35% (or, if less, 70% of the appraised
orderly liquidation value of such Inventory)
(provided, that Lender shall cause a
reappraisal of the finished goods and raw
materials Inventory of Borrower to be
performed, with an appraiser satisfactory to
Lender in its sole discretion and at the
expense of Borrower, eighteen months from
the date of this Agreement and at the end of
each eighteen month period thereafter
during the Term; and provided, further, that
the advance rates set forth in this Section
1(b)(ii) of this Schedule A may be adjusted
by Lender based upon the results of any
such appraisal)
(b) Finished Goods Inventory consisting of
Exempt Inventory: 15%
(c) Raw materials Inventory consisting of
Ordinary Inventory:
The lesser of 35% and 70% of the appraised
orderly liquidation value of such Inventory
(d) Raw Materials Inventory consisting of
Exempt Inventory: 15%
(e) Work in process: Not Applicable
(C) Accounts Sublimit: Not Applicable
(D) Inventory Sublimit(s):
(i) Overall sublimit on advances against Eligible
Inventory: $2,500,000
(ii) Sublimit on advances against finished goods and raw
materials consisting of Ordinary Inventory: $2,500,000
(iii) Sublimit on advances against finished goods and raw
materials consisting of Exempt Inventory:
$500,000, reducing on the first day of each
month commencing September 1, 1998 by the
greater of $42,000 or 50% of net sales of
Exempt Inventory at selling price during the
prior month
(iv) Sublimit on advances against work in process:
Not Applicable
(E) Credit Accommodation Limit: $2,600,000
(F) Permanent Reserve Amount: Not Applicable
(G) Overadvance Amount: Not Applicable
2. Loan Limits for Term Loan:
(A) Principal Amount:
(i) Equipment Advance: $835,000
(i) Real Property Advance: $2,170,000
(B) Repayment Schedule:
(i) Equipment Advance:
The Equipment Advance shall be repaid in
equal consecutive monthly installments
amortized over 60 months payable on the first
day of each calendar month commencing
September 1, 1998, with the entire unpaid
balance due and payable on the Maturity Date
(ii) Real Property Advance:
The Real Property Advance shall be repaid in
equal consecutive monthly installments
amortized over 60 months payable on the first
day of each calendar month commencing
September 1, 1998, with the entire unpaid
balance due and payable on the Maturity Date
3. Interest Rates:
(A) Revolving Loans:
1.75% per annum in excess of the Prime
Rate; provided, that if Borrower generates a
net loss (calculated before taking into account
depreciation, amortization and extraordinary
items) for any fiscal year beginning with
Borrower's fiscal year ending December 28,
1998, the interest rate set forth above shall be
permanently increased by 0.50%
(B) Term Loan:
1.75% per annum in excess of the Prime
Rate; provided, that if Borrower generates a
net loss (calculated before taking into account
depreciation, amortization and extraordinary
items) for any fiscal year beginning with
Borrower's fiscal year ending December 28,
1998 the interest rate set forth above shall be
permanently increased by 0.50%
4. Minimum Loan Amount: $5,000,000
5. Maximum Days:
(A) Maximum days after original invoice date for
Eligible Accounts: 90
(B) Maximum days after original invoice due date
for Eligible Accounts: 60
6. Fees:
(A) Closing Fee: $42,500 ($21,250 of which has
already been paid to Lender)
(B) Facility Fee: $85,000
(C) Servicing Fee: Not Applicable
(D) Unused Line Fee: 0.25% per annum
(E) Minimum Borrowing Fee:
(i) Applicable period: Each year
(ii) Date payable: Each anniversary of the date
of the Agreement
(F) Success Fee: Not Applicable
(G) Warrants: Not Applicable
(H) Early Termination Fee: 4% of the Maximum Facility Amount
if terminated during the first year of the Term, 3% of the
Maximum Facility Amount if terminated during the second year
of the Term, 2% of the Maximum Facility Amount if terminated
during the third year of the Term, and 0.75% of the Maximum
Facility Amount if terminated thereafter and prior to the
Maturity Date; provided, that if terminated after the third year of
the Term but prior to the Maturity Date, no such fee shall be payable
if the Loans are refinanced by an Affiliate of NationsBank, N.A.
(I) Fees for letters of credit and other Credit
Accommodations (or guaranties thereof by Lender):
2.25% per annum of the face amount of each
open Credit Accommodation
7. Maturity Date: August 5th, 2002
8. Financial Covenants: Not Applicable
9. Borrower Information:
(A) Prior Names of Borrower: None
(B) Prior Trade Names of Borrower: None
(C) Existing Trade Names of Borrower: None
(D) Inventory Locations:
1. 751 Roosevelt Road
Building 7, Suite 110
Glen Ellyn, Illinois 60137
2. 2696 South Maple Avenue
Fresno, California 93725
3. Route 150, Beech Creek Industrial Park
Beech Creek, Pennsylvania 16822
(E) Other Locations: 921 Third Avenue
Lock Haven, Pennsylvania 17745
(F) Litigation:
1. Sharbono versus CSK versus Champion
Parts (Insured by Illinois National)
2. Siegel versus Champion Parts (Insured by
Home Insurance)
3. Veterans Freightway, Inc. versus Champion
Parts (Insured by Home Insurance)
4. George Thomas versus Champion Parts
(Insured by Home Insurance)
5. Aircraft Gear Corporation versus Champion
Parts
6. Environmental Matters described on Exhibit
9(f) attached hereto.
(G) Ownership of Borrower:
1. Echlin Inc. (16.4%)
2. Directors and Officers:
(includes 18.1% for RGP Holding, Inc.
(Raymond G. Perelman) and
3.0% for John R. Gross) (22.0%)
3. Balance, including publicly
traded common shares (61.6%)
(H) Subsidiaries (and ownership thereof):
1. CPR Properties, Inc.
(Inactive/100% owned by Borrower)
2. Northeast Rebuilders, Inc.
(Inactive/100% owned by Borrower)
3. Texas Rebuilders, Inc.
(Inactive/100% owned by Borrower)
4. Western Rebuilding, Inc.
(Inactive/100% owned by Borrower)
5. Super Parts Rebuilders, Inc.
(Inactive Holding
Company/100% owned by Borrower)
6. Champion Parts (Canada) Ltd.
(24 Common Voting Shares
owned by Super Parts Rebuilders,
Inc., 8000 shares of Class A
Special Retractable Shares owned
by Borrower)
7. Advance Automotive Industries,
Inc. (50% owned by Champion
Parts (Canada) Ltd. and 50%
owned by John Bjrnas)
(I) Facsimile Numbers:
Borrower: (630) 942-0334
Lender: (212) 597-1666
10. Description of Real Property: See Attached Exhibit A
11. Lender's Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
12. Other Covenants: None
13. Exceptions to Negative Covenants:
1. Borrower may make equity
investments in Champion Parts
(Canada) Ltd. in an amount not
to exceed $50,000 in the aggregate.
14. Property Exempt from Section 4.2 of the Agreement
1. All funds now on deposit in
Account No. 58-000-11376 at
LaSalle National Bank for use in
settlement of unsecured debt and
environmental liability.
2. The real property in Fort Worth,
Texas for use in settlement of
unsecured debt and environmental
liabilities.
3. All funds now in client fund
account at Adelman, Gettleman,
Merens, Berish & Carter for use in
settlement of unsecured debt and
environmental liabilities.
4. Comprehensive general liability
insurance policies and proceeds;
business auto policies and proceeds
(other than for property damage to
owned or leased vehicles); workers'
compensation and fiduciary
liability insurance policies and
proceeds; directors' and officers'
liability insurance policies and
proceeds; and insurance policies
and proceeds therefrom relating to
actual or alleged environmental and
similar claims, and expenses related
thereto, including, but not limited
to, insurance for defense costs,
investigations and feasibility
studies and remediation.
5. Chrysler consigned inventory
(designated by unique part numbers
and/or in designated barrels).
6. Inventory reserved for return to
customers under Borrower's core
bank program.
7. All accessions, replacements and
substitutions for the items listed
in paragraphs 5 and 6 of this
Section 14 of this Schedule A with
items of a similar nature.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A
as of the date set forth in the heading to the Agreement.
Borrower:
Champion Parts, Inc.
By Jerry A. Bragiel
Its President
Lender:
NationsCredit Commercial
Corporation, through its
NationsCredit Commercial Funding
Division
By Lynne Ciaccia
Its Authorized Signatory
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between Champion Parts, Inc. and NationsCredit Commercial Corporation,
through its NationsCredit Commercial Funding Division (the "Agreement").
As used in the Agreement, the following terms have the following meanings:
"Account" means any right to payment for Goods sold or leased or
for services rendered which is not evidenced by an
Instrument or Chattel Paper, whether or not it has been
earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative, partner,
member, manager, director, officer, or employee of such
Person, any parent or subsidiary of such Person, or any
Person controlling, controlled by or under common control
with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership,
management or otherwise.
"Agreement" and "this Agreement" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code
(11 U.S.C. - 101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the Agreement.
"Borrower's Address" has the meaning set forth in the heading to
the Agreement.
"Business Day" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York are
authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property in or
upon which a security interest or other Lien is granted
pursuant to this Agreement or the other Loan Documents.
"Core Return Program" means Borrower's practice of accepting
returns of steel cores previously sold to certain repeat
Account Debtors of Borrower, refurbishing such steel cores
and redelivering them to such Account Debtor, but only to
the extent carried out in the ordinary course of Borrower's
business and consistent with Borrower's past practices as
heretofore described to Lender.
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations
and (ii) all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith.
"Default" means any event which with notice or passage of time,
or both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar
items relating to Borrower's Accounts computed as a
percentage of Borrower's gross sales, calculated on a
ninety (90) day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account
which satisfies the general criteria set forth below and
which is otherwise acceptable to Lender (provided, that
Lender may, in its sole discretion, change the general
criteria for acceptability of Eligible Accounts upon at
least fifteen days' prior notice to Borrower). An Account
shall be deemed to meet the current general criteria if
(i) neither the Account Debtor nor any of its Affiliates
is an Affiliate, creditor or supplier of Borrower; (ii) it
does not remain unpaid more than the earlier to occur of
(A) the number of days after the original invoice date set
forth in Section 5(a) of Schedule A or (B) the number of
days after the original invoice due date set forth in
Section 5(b) of Schedule A; (iii) the Account Debtor or its
Affiliates are not past due on other Accounts owing to
Borrower comprising more than 50% of all of the Accounts
owing to Borrower by such Account Debtor or its Affiliates;
(iv) all Accounts owing by the Account Debtor or its
Affiliates do not represent more than 20% of all otherwise
Eligible Accounts, except that Accounts due from Autozone
shall not represent more than 40% of all otherwise Eligible
Accounts and Accounts due from Advanced Auto Parts shall
not represent more than 30% of all otherwise Eligible
Accounts (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv) shall be
considered Eligible Accounts to the extent of the amount
thereof which does not exceed 20% (or 40% and 30% in the
case of Autozone and Advanced Auto Parts, respectively)
of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement
with respect to such Account (including any of the
representations set forth in Section 5.4) has been breached;
(vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off (provided, that Accounts
which are deemed to be ineligible solely by reason of this
clause (vi) shall be considered Eligible Accounts to the
extent of the amount thereof which is not affected by such
contra relationships, counterclaims, disputes or set-offs);
(vii) the Account Debtor's chief executive office or
principal place of business is located in the United States
or Provinces of Canada which have adopted the Personal
Property Security Act or a similar act, unless (A) the sale
is fully backed by a letter of credit, guaranty or
acceptance acceptable to Lender in its sole discretion,
and if backed by a letter of credit, such letter of credit
has been issued or confirmed by a bank satisfactory to
Lender, is sufficient to cover such Account, and if required
by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of
credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer nd on terms
and in an amount acceptable to Lender; (viii) it is
absolutely owing to Borrower and does not arise from a sale
on a bill-and-hold, guarantied sale (except for the Stock
Adjustment Program), sale-or-return, sale-on-approval,
consignment, retainage or any other repurchase or return
basis or consist of progress billings; (ix) Lender shall
have verified the Account in a manner satisfactory to Lender;
(x) the Account Debtor is not the United States of America
or any state or political subdivision (or any department,
agency or instrumentality thereof), unless Borrower has
complied with the Assignment of Claims Act of 1940
(31 U.S.C. - 203 et seq.) or other applicable similar state
or local law in a manner satisfactory to Lender; (xi) it is
at all times subject to Lender's duly perfected, first
priority security interest and to no other Lien that is not
a Permitted Lien, and the goods giving rise to such Account
(A) were not, at the time of sale, subject to any Lien
except Permitted Liens and (B) have been delivered to and
accepted by the Account Debtor, or the services giving rise
to such Account have been performed by Borrower and accepted
by the Account Debtor; (xii) the Account is not evidenced
by Chattel Paper or an Instrument of any kind and has not
been reduced to judgment; (xiii) the Account Debtor's total
indebtedness to Borrower does not exceed the amount of any
credit limit established by Borrower or Lender and the
Account Debtor is otherwise deemed to be creditworthy by
Lender (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (xiii) shall be
considered Eligible Accounts to the extent the amount of such
Accounts does not exceed the lower of such credit limits);
(xiv) there are no facts or circumstances existing, or which
could reasonably be anticipated to occur, which might result
in any adverse change in the Account Debtor's financial
condition or impair or delay the collectibility of all or
any portion of such Account; (xv) Lender has been furnished
with all documents and other information pertaining to such
Account which Lender has reasonably requested, or which
Borrower is obligated to deliver to Lender, pursuant to this
Agreement; (xvi) Borrower has not made an agreement with the
Account Debtor to extend the time of payment thereof beyond
the time periods set forth in clause (ii) above; and (xvii)
Borrower has not posted a surety or other bond in respect
of the contract under which such Account arose.
"Eligible Equipment" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion,
deems to be eligible for borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory
(other than packaging materials and supplies) which
satisfies the general criteria set forth below and which is
otherwise acceptable to Lender (provided, that Lender may,
in its sole discretion, change the general criteria for
acceptability of Eligible Inventory upon at least fifteen
days' prior written notice to Borrower). Inventory shall
be deemed to meet the current general criteria if (i) it
consists of raw materials or finished goods, or
work-in-process that is readily marketable in its current
form; (ii) it is in good, new or remanufactured and saleable
condition; (iii) it is not slow-moving, obsolete,
unmerchantable, returned or repossessed (except for
Inventory which is part of the Core Return Program);
(iv) it is not in the possession of a processor, consignee
or bailee, or located on premises leased or subleased to
Borrower, or on premises subject to a mortgage in favor of
a Person other than Lender, unless such processor, consignee,
bailee or mortgagee or the lessor or sublessor of such
premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the
subordination or other limitation or extinguishment of such
Person's rights with respect to such Inventory and Lender's
right to gain access thereto (provided, that, assuming such
Inventory otherwise satisfies the requirements to be
Eligible Inventory as set forth in this paragraph, Inventory
located at 595 Wentworth Street E., Oshawa, Ontario Canada
L1H 3V8 and 2696 South Maple Avenue, Fresno, California 93725
will be deemed to be Eligible Inventory without the delivery
of such documentation so long as (i) the value of the
Inventory located at either of such facilities at any time
does not exceed $150,000, and (ii) the aggregate value of
the Inventory located at both such facilities at any time
does not exceed $250,000); (v) it meets all standards imposed
by any governmental agency or authority; (vi) it conforms
in all respects to any covenants, warranties and
representations set forth in the Agreement; (vii) it is at
all times subject to Lender's duly perfected, first priority
security interest and no other Lien except a Permitted Lien;
and (viii) it is situated at an Inventory Location listed
in Section 9(d) of Schedule A or other location of which
Lender has been notified as required by Section 5.6.
"Eligible Exempt Inventory" means, at any time of determination,
Eligible Inventory consisting of Exempt Inventory.
"Eligible Ordinary Inventory" means, at any time of determination,
Eligible Inventory consisting of Ordinary Inventory.
"Eligible Real Property" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole
discretion, deems to be eligible for borrowing purposes.
"Equipment" means all Goods which are used or bought for use
primarily in business (including farming or a profession)
or by a Person who is a non-profit organization or
governmental subdivision or agency and which are not
Inventory, farm products or consumer goods, including all
machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor
vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions,
additions or improvements to, or spare parts for, any of the
foregoing.
"Equipment Advance" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974
and all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
"Exempt Inventory" means Inventory of raw cores, purchased parts and
finished goods Inventory as defined and described in that
certain appraisal report dated as of November 6, 1997
prepared by MB Valuation.
"GAAP" means generally accepted accounting principles as in effect
from time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral
and other business and financial records in the possession
of Borrower or any other Person, inventions, designs,
drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to
use" applications until a verified statement of use is
filed with respect to such applications) and the goodwill
of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, security and other deposits,
causes of action and other rights in all litigation presently
or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, rights to purchase or sell
real or personal property, rights as a licensor or licensee
of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all
insurance policies and claims (including life insurance,
key man insurance, credit insurance, liability insurance,
property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and
guaranties, computer programs, discs, tapes and tape files
in the possession of Borrower or any other Person, claims
under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature.
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money,
Documents, Instruments, Investment Property, Accounts,
Chattel Paper, General Intangibles, or minerals or the like
(including oil and gas) before extraction), including
standing timber which is to be cut and removed under a
conveyance or contract for sale, the unborn young of
animals, and growing crops.
"Instrument" has the meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw
materials, work in process, finished goods, goods in transit
and materials and supplies which are or might be used or
consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or
finishing of such Goods, and all products of the foregoing,
and shall include interests in goods represented by Accounts,
returned, reclaimed or repossessed goods and rights as an
unpaid vendor.
"Investment Property" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements,
securities accounts, commodity contracts and commodity
accounts.
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property,
whether such interest is based on common law, statute or
contract, including rights of sellers under conditional sales
contracts or title retention agreements and reservations,
exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting property. For the
purpose of this Agreement, Borrower shall be deemed to be the
owner of any property which it has acquired or holds subject
to a conditional sale agreement or other arrangement pursuant
to which title to the property has been retained by or vested
in some other Person for security purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements,
Lock Box and Blocked Account agreements and all other
agreements, documents and instruments now or hereafter
executed or delivered by Borrower or any Obligor in
connection with, or to evidence the transactions contemplated
by, this Agreement.
"Loan Limits" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations
set forth in this Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Material Adverse Effect" has the meaning set forth in Section 5.20.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and
indebtedness at any time owing by Borrower to Lender, whether
evidenced by this Agreement or any other Loan Document,
whether arising from an extension of credit, opening of a
Credit Accommodation, guaranty, indemnification or otherwise
(including all fees, costs and other amounts which may be
owing to issuers of Credit Accommodations and all taxes,
duties, freight, insurance, costs and other expenses, costs
or amounts payable in connection with Credit Accommodations
or the underlying goods), whether direct or indirect
(including those acquired by assignment and any participation
by Lender in Borrower's indebtedness owing to others),
whether absolute or contingent, whether due or to become due,
and whether arising before or after the commencement of a
proceeding under the Bankruptcy Code or any similar statute,
including all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees,
Closing Fees, Facility Fees, Servicing Fees, Unused Line
Fees, Minimum Borrowing Fees, Success Fees, amounts owing
under Warrants, Credit Accommodation Fees and any other sums
chargeable to Borrower under this Agreement or under any
other Loan Document.
"Obligor" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who
is the owner of any property which is security for the
Obligations, other than Borrower.
"Ordinary Inventory" means Inventory other than Exempt Inventory.
"Permitted Liens" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to
exceed the limit set forth in Section 8(h) of Schedule A;
(ii) leases of specific items of Equipment in an aggregate
amount not to exceed the limit set forth in Section 8(i) of
Schedule A; (iii) Liens for taxes not yet due and payable;
(iv) additional Liens which are fully subordinate to the
security interests of Lender and are consented to in writing
by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi)
Liens of materialmen, mechanics, warehousemen or carriers
arising in the ordinary course of business and securing
obligations which are not delinquent; (vii) Liens incurred
in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in
clause (i) or (ii) above; provided, that any extension,
renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of
the indebtedness being extended, renewed or refinanced does
not increase; (viii) Liens in favor of customs and revenue
authorities which secure payment of customs duties in
connection with the importation of goods; and (ix) security
deposits posted in connection with real property leases or
subleases. Lender will have the right to require, as a
condition to its consent under clause (iv) above, that the
holder of the additional Lien sign an intercreditor agreement
in form and substance satisfactory to Lender, in its sole
discretion, acknowledging that the Lien is subordinate to the
security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any
Obligations remain outstanding, and that Borrower agree that
any uncured default in any obligation secured by the
subordinate Lien shall also constitute an Event of Default
under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated
organization, association, corporation, government or any
agency or political division thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in
The Wall Street Journal as the base rate on corporate loans
posted as of such time by at least 75% of the nation's 30
largest banks (which rate is not necessarily the lowest rate
offered by such banks).
"Real Property" means the real property described in Section 10 of
Schedule A.
"Real Property Advance" has the meaning set forth in Section 1.1(b).
"Released Parties" has the meaning set forth in Section 6.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(a).
"Sale" has the meaning set forth in Section 8.2.
"Stock Adjustment Program" means those rights afforded by Borrower to
certain of its Account Debtors, pursuant to which inventory
sold to such Account Debtors must be repurchased by Borrower
provided that (i) such inventory is in immediately resaleable
form, and (ii) amounts returned by any individual Account
Debtor in a calendar year cannot exceed four percent (4%) of
the aggregate sales to such Account Debtor during the
previous calendar year.
"Subsidiary" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more
intermediaries, more than 50% of the capital stock or other
equity interest at the time of determination.
"Term" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as
adopted and in effect at such time in the State of New York.
"Year 2000 compliant" has the meaning set forth in Section 5.20.
"Year 2000 Problem" has the meaning set forth in Section 5.20.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All
other terms contained in this Agreement, unless otherwise indicated, shall
have the meanings provided by the UCC, to the extent such terms are defined
therein. The term "including," whenever used in this Agreement, shall mean
"including but not limited to." The singular form of any term shall include
the plural form, and vice versa, when the context so requires. References
to Sections, subsections and Schedules are to Sections and subsections of,
and Schedules to, this Agreement. All references to agreements and statutes
shall include all amendments thereto and successor statutes in the case of
statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as
of the date set forth in the heading to the Agreement.
Borrower:
Champion Parts, Inc.
By Jerry A. Bragiel
Its President
Lender:
NationsCredit Commercial
Corporation, through its
NationsCredit Commercial Funding
Division
By Lynne Ciaccia
Its Authorized Signatory
EXHIBIT 9(f)
Legal Proceedings
Environmental Matters
1. Beech Creek, Pennsylvania Facility Soil and Groundwater Contamination.
In May, 1991, the Pennsylvania Department of Environmental Resources
("PADER") notified the Company that there was evidence of trichloroethylene
and trichloroethane in the soil, and possibly the groundwater under the
Beech Creek facility. Further, PADER was concerned that the contamination
had migrated off site. PADER demanded that the Company conduct an
investigation to determine the source and extent of the contamination, and
perform any required cleanup.
The Company retained a qualified environmental consultant, Todd Giddings &
Associates, Inc. ("TGAI") to prepare a site investigation plan. In June of
1992 PADER approved the investigation plan. The plan included extensive soil
testing and groundwater monitoring. TGAI completed the investigation in 1995.
Cleanup commenced in 1995 at the Beech Creek plant. Cleanup activities
consist of the venting of volatile organic gases from soil, and the pumping
and treating of groundwater. While there are always uncertainties in
predicting future cleanup costs, recent experience has shown that the
maintenance and operation of the system has been approximately $20,000 per
year. The Company's current consultant, Advanced Resource Management
Group, Inc. ("ARMG") currently is unable to predict how long the groundwater
pump and treat system will have to operate.
The Company is currently considering other innovative technology approaches
and risk based site specific cleanup standards under Pennsylvania's new "Act
Two," which might shorten the remediation period. Finally, the Beech Creek
matter is a subject of the insurance carrier litigation (paragraph 3 below),
and the Company has settled with one and is in settlement negotiations with
the of balance of carriers.
2. Lawson Street, City of Industry, California Cleanup Proceedings, and
Puente Valley, California Superfund Proceeding. The Company formerly
operated a manufacturing facility at 825 Lawson Street, City of Industry,
California. In response to requirements imposed by the Los Angeles Regional
Water Quality Control Board (the "Los Angeles Board") in letters dated
March 27, 1992, and April 18, 1994, the Company, along with another former
lessee and a former owner of the Lawson Street property, retained an
environmental consultant to perform a site assessment of the Lawson Street
property. The site assessment, completed in July, 1994, revealed volatile
organic compounds in the soil and shallow groundwater beneath the Lawson
Street property. A site assessment report was submitted to the Los Angeles
Board in 1995.
The Los Angeles Board has indicated that they will require cleanup of the
property. It is too early to predict the cleanup methodology to be required
by the Los Angeles Board, or the cost of the cleanup. The Company, along
with others, has retained a consultant to prepare a remedial action plan.
The cost of implementing the plan is estimated at approximately
$360,000-$500,000, but the plan has not yet been submitted to or approved by
the Board. Under the present Cost Sharing Agreement with the other two
parties who funded the site assessment report and the Remedial Action Plan,
the Company would be responsible for paying one-third of the cost of cleanup
of the Lawson Street property. The Company and the other two parties to
this agreement are also in litigation (described in paragraph number 4 below)
with another potentially responsible party, the current property owner, for
its fair share of these costs. This could reduce the Company's liability for
these costs.
The Lawson Street property is also located within the Puente Valley Operable
Unit of the San Gabriel Valley Superfund Site (the "Puente Valley Site").
The Puente Valley Site is concerned with volatile organic compounds in a deep
groundwater aquifer. The Puente Valley site and its associated potential
liability, is also a subject of the Soto litigation described below. The
Company, and approximately 42 other potentially responsible parties, are
parties to an Administrative Consent Order with the United States
Environmental Protection Agency to undertake a remedial
investigation/feasibility study ("RI/FS") of the Puente Valley Site. The
Company entered into a separate agreement with the other Respondents to the
Administrative Consent Order to fund the RI/FS. The Company, and the other
two companies funding the Lawson Street property investigation are jointly
responsible for 3.75% of the cost of the RI/FS (the Company's share of the
Puente Valley RI/FS costs, therefore, is 1.25%). The group submitted the
RI/FS to USEPA for its review and USEPA approved the RI/FS. The Company
was responsible for paying approximately $50,000 toward the RI/FS, most of
which was reimbursed by the Company's insurance carriers (see paragraph 3
below).
While it is too early to know if cleanup of the Puente Valley aquifer will be
required, or the cost of any cleanup, USEPA has published a proposed cleanup
plan for public comment. The proposed plans's preferred remedial alternative
is predicted to cost $27. 80 million (present value cost estimate). It is
unclear over what period the amount would be payable. Other remedial
alternatives discussed in USEPA'S publication range from $0 to $68.1 million.
It is impossible to predict the Company's share of the potential cleanup
costs, but under the previous agreement for sharing the costs of the RI/FS,
the company's share was 1.25%.
3. Litigating Against Insurance Carriers. The Company has filed a complaint
in Illinois State Court, in DuPage County against its insurance carriers for
a declaration that the insurance carriers are liable for all of the company's
investigation and cleanup costs at the Beech Creek, City of Industry, Puente
Valley and Spectron Sites and for any liability in the Soto litigation.
In 1995, the Company entered into a Partial Settlement Agreement with certain
primary insurance carriers, whereby those carriers paid the Company a
significant percentage of its past defense and investigation costs at the
Beech Creek, City of Industry and Puente Valley Sites. Some of those
insurance carriers are also paying for the Company's defense, subject to a
reservation of rights, in the Soto litigation described below.
The Company also reached a partial settlement with one of its insurance
carriers, National Union, regarding that carrier's responsibility for Beech
Creek and Spectron (See below). In that settlement, National Union paid the
Company $120,000, and received a release from the Company for its liability
for cleanup costs at those two sites.
The Company is also presently in settlement negotiations with most of the
primary insurance carriers regarding partial settlement for the Company's
liability for cleanup of the Lawson street site. Under the terms of the
proposed settlement, the Company would also dismiss the litigation, without
prejudice with regard to the carrier's liability for Puente Valley or any
other site, with the right to refile at any time.
4. Soto Associates v. Lois Kipling, et al. On April 25, 1996, Soto
Associates (Soto), a current owner of the property located at 825 Lawson
Street, city of Industry, California, filed a complaint in the United States
District Court for the Central District of California against the Company,
Lois Kipling, and Maremont Corporation, for claims arising out of the
contamination at the Lawson Street property and at the Puente Valley site.
The complaint seeks relief requiring the Company and the other defendants to
clean up the Lawson Street property, and payment for any liability associated
with the Lawson Street property and the Puente Valley site. The complaint
also seeks damages for diminution in value of the Lawson Street property,
attorneys' fees, and other relief.
The Company has entered into a Joint Defense Agreement with the other
defendants, and along with the other defendants, has denied the allegations
and has counterclaimed against Soto for contribution for the investigation
and cleanup costs at the Lawson Street property and the Puente Valley site.
Champion tendered its defense and demanded indemnification from its insurance
carriers and the carriers have been defending the Company under a reservation
of rights.
The Company is presently in settlement negotiations with Soto and the
co-defendants. Pursuant to a draft side settlement agreement between the
defendants, the Company would be responsible initially for one-third of the
total amount (estimated at $360,000-$500,000) subject to a possible future
reallocation.
5. Spectron, Maryland Superfund Proceeding. The Company was notified
in 1989 by the United States Environmental Protection Agency ("EPA") that it
was a "potentially responsible party" ("PRP") with respect to the removal of
hazardous substances from the Spectron, Inc. site in Elkton, Maryland (the
"Spectron Site"). The Company has admitted to sending about 102,000 gallons
of liquid substances to the Spectron Site. There are about 30 million gallons
of materials sent to the site that have been accounted for.
A PRP Group known as the Spectron Steering Committee ("SSC") was formed and
in August, 1989, an Administrative Order by Consent ("Phase I Order"),
authorizing the SSC to conduct the surface removal, and a Consent Agreement
under which the PRPs became obligated to reimburse the EPA for its past costs
in connection with the site, were entered into by the EPA and approximately
ten PRPs, including several major industrial corporations.
The Company entered into an agreement with the Company's waste transporter,
which selected the Spectron Site, pursuant to which the transporter paid
one-half of the cost attributed to surface removal for the Company's waste
sent to the Spectron Site. The Company has paid approximately $17,000 for
its portion of the removal.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> JUN-28-1998
<CASH> 444000
<SECURITIES> 0
<RECEIVABLES> 5297000
<ALLOWANCES> 348000
<INVENTORY> 6505000
<CURRENT-ASSETS> 12570000
<PP&E> 20746000
<DEPRECIATION> 15785000
<TOTAL-ASSETS> 17579000
<CURRENT-LIABILITIES> 18758000
<BONDS> 0
0
0
<COMMON> 366000
<OTHER-SE> (3908000)
<TOTAL-LIABILITY-AND-EQUITY> 17579000
<SALES> 6734000
<TOTAL-REVENUES> 6734000
<CGS> 5460000
<TOTAL-COSTS> 5460000
<OTHER-EXPENSES> 721000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320000
<INCOME-PRETAX> 233000
<INCOME-TAX> 4000
<INCOME-CONTINUING> 229000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229000
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
