SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended: June 30,
1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
OF 1934 [No Fee Required]
Commission File Number 0-7462
CPT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0972129
(State of Incorporation) (IRS Employer identification No.)
680 Fifth Avenue, 8th floor
New York, New York 10019
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 931-5260
1430 Broadway, 13th floor, New York, NY 10018
Former Address
Securities registered pursuant to Section
12(b) of the Act:
NONE
Securities registered pursuant to Section
12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
As of August 31, 1999, the aggregate market value of shares of Common Stock of
the registrant held by non-affiliates was approximately $196,013.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No ___
As of August 31, 1999, 1,510,084 shares of the registrant's Common Stock were
outstanding.
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PART I
ITEM 1. BUSINESS
General
CPT Holdings, Inc. ("CPT" or the "Company") is a holding company which,
through its indirect operating subsidiary, J&L Structural, Inc., a Delaware
corporation ("J&L"), is a nationwide independent producer of high quality
lightweight structural steel shapes, with a leading market share in the
Northeast, Southeast and Mid-Atlantic regions. The Company's products are used
primarily in the manufactured housing, tractor trailer, construction,
shipbuilding and the oil field service and petrochemical industries. The Company
operates a uniquely designed mill on 33 acres in Aliquippa, Pennsylvania which
is capable of producing thin, lightweight profile structural steel shapes
(primarily I-Beams). The Company, through the Brighton Electric Steel Casting
Division of J&L ("Brighton"), also has a dominant market share in the domestic
small piercer point market.
CPT, a Minnesota corporation, was incorporated in 1971 as CPT
Corporation. Its principal offices are located at 680 Fifth Avenue, 8th floor,
New York, New York and its telephone number is (212) 931-5260. CPT adopted its
current form as a holding company in accordance with its Amended Plan of
Reorganization (the "Reorganization Plan") approved by the U.S. Bankruptcy Court
for the District of Minnesota. The Reorganization Plan became effective as of
July 23, 1991. References to the Company are intended to include CPT and its
direct and indirect subsidiaries, unless the context provides otherwise.
On February 8, 1993, Hupp Industries, Inc., now known as H. Industries,
Inc. ("Hupp"), became a majority-owned subsidiary of CPT when CPT acquired 80.1%
of the capital stock of Hupp. Hupp was a manufacturer of heating, ventilating
and air conditioning equipment used primarily in commercial as well as military
applications. Through its wholly owned division, DCM Corporation, Hupp was also
a manufacturer of fractional horsepower electrical motors. Hupp experienced
operating difficulties in both its air conditioning and electrical motor
manufacturing businesses and in February 1994 decided to discontinue the
manufacture of its air conditioning products. Hupp continued to experience
financial problems that caused certain defaults under its Credit and Security
Agreement with its bank. Despite efforts to bring the operations of Hupp to
profitability, Hupp was unable to eliminate its losses. As a consequence, on
October 27, 1994, Hupp's senior lender exercised its rights and conducted a
secured party sale of the assets of Hupp to an unrelated party. Hupp had no
assets and no employees subsequent to October 1994.
On April 6, 1995, J&L, a newly incorporated, indirect, majority-owned
subsidiary of the Company, acquired substantially all of the assets of J&L
Structural, Inc. ("JLS") and Trailer Components, Inc. ("TCI"), Pennsylvania
corporations based in Aliquippa, Pennsylvania, for $50 million plus the
assumption of certain liabilities (the "Acquisition"). JLS was a nationwide
independent producer of high quality lightweight structural steel shapes used
primarily in the manufactured housing, truck trailer and highway safety systems
industries. TCI provided secondary services to JLS that are now provided by the
Ambridge division of J&L.
As part of the Acquisition, the assets of Brighton Electric Steel
Casting Company ("BESCC"), an existing subsidiary of CPT and the direct parent
of J&L, were contributed to J&L and BESCC changed its name to J&L Holdings Corp.
("JLH"). Prior to the closing of the Acquisition, BESCC redeemed its preferred
stock from the holder thereof in exchange for the issuance by CPT of a Deferred
Purchase Money Note in the amount of $475,000, said amount being equal to the
stated value of the redeemed preferred stock plus the accrued dividends thereon,
bearing interest at 11 percent per annum and due December 15, 2002.
Also as part of the Acquisition, J&L distributed as a dividend to JLH
the right (which J&L acquired from JLS) to acquire a 38-acre parcel of
undeveloped land adjacent to the JLS rolling mill in Aliquippa, Pennsylvania.
JLH, in turn, contributed the right to acquire the 38-acre parcel to Continuous
Caster Corporation, a newly-incorporated Delaware corporation ("CCC"), in
exchange for all of the common stock of CCC. Shortly thereafter, CCC acquired
title to the 38-acre parcel, using funds that JLS had placed in escrow prior to
the Acquisition.
Further information regarding the Acquisition is contained in Form 8-K
filed by the Company with the Securities and Exchange Commission on April 21,
1995, which is incorporated by reference herein.
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J&L Structural, Inc.
J&L operates in two distinct segments, J&L Structural ("J&L
Structural") and Brighton, as a result of significant differences in both
customers and products. J&L Structural further operates as two separate
divisions which include the Aliquippa division and the Ambridge division
(formerly TCI). This distinction is due mainly to separate labor contracts that
exist among the employees of J&L Structural. The Ambridge division provides
finishing services required for certain J&L Structural products which are
produced by the Aliquippa division. The following narrative on the business will
be segmented on this basis.
J&L Structural Segment
Products
J&L Structural is a producer of high quality lightweight structural
steel shapes (primarily I-Beams) which are primarily used in the manufactured
housing, truck trailer, and highway safety systems industries.
J&L Structural's products are monitored, tested and inspected
throughout the manufacturing process to ensure that all aspects of quality meet
applicable industry or customer specifications. The products are also inspected
to ensure integrity of surface and dimensions.
J&L Structural's principal product lines are described below:
JUNIOR(R) Beams are hot rolled lightweight steel beam sections produced
by rolling heated steel billets through J&L Structural's fourteen-stand rolling
mill. These sections have been accepted by designers and engineers for over half
a century as the lightest hot-rolled structurals in their size class. JUNIOR(R)
Beams are available in 3 to 12.5 inch depths, ranging in weight from 2.9 to 12.5
pounds per foot. A total of fifteen weights of JUNIOR(R) Beams are currently
available. JUNIOR(R) Beams are manufactured in a wide range of steel grades
including conventional and high strength steels. Strict quality control at J&L
Structural's mill assures a homogeneous product, uniform in mechanical and
chemical properties and possessing dimensions within close rolling tolerance
limits. JUNIOR(R) Beams have the strength, light weight and versatility to be
used by makers of manufactured housing and truck trailers, industrial and
commercial contractors and machinery builders. JUNIOR(R) Beams are primarily
used by the manufactured housing industry as undercarriage structural support.
Crossmembers are fabricated by the Ambridge division from JUNIOR(R)
Beams. Crossmembers are used by the truck trailer and truck body industry in the
production of trailer frames. These manufacturers space Crossmembers along the
entire length of the trailer to provide structural support to the body and
floor.
JUNIOR(R) Channels are available in seven sizes and varying weights.
They generally weigh significantly less than the lightest standard structural
steel shape of equal depth, while exhibiting the characteristics of form and
constancy of dimension offered by a standard hot-rolled section. JUNIOR(R)
Channels are preferred over formed plate channels since they assure perfect
fitting square corners and true lines. These advantages permit flexibility of
design with minimum weight and lower cost without sacrificing structural
strength. JUNIOR(R) Channels offer excellent application flexibility in
architecture and construction, particularly in the construction of commercial
and industrial stairways. Additionally, truck trailer manufacturers are able to
reduce weight in their finished product through the use of JUNIOR(R) Channels as
side rails.
Wide Flange Beams offer durability and economical installation to
builders of highway safety systems as well as for general construction
applications. On a pound-per-foot basis, J&L Structural's Wide Flange Beams are
among the lightest and lowest cost hot-rolled steel structurals available for
highway guardrail posts.
J&L Structural's philosophy from its inception has been to
incrementally expand its product offerings and capabilities while, at the same
time, striving to maintain high levels of profitability. The Company expects to
continue to add new products, new sizes and/or serve new markets on an
"incremental" basis in the future.
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Suppliers
Steel billets, J&L Structural's primary raw materials, are purchased
from several domestic mini-mills as well as from multiple foreign sources and
are delivered to J&L Structural's mill by barge, rail or truck. J&L Structural
issues a billet quality standard which must be met by all suppliers. This
standard includes specifications for billet chemistry, dimension and surface
quality. Currently, J&L Structural purchases semifinished steel from two main
suppliers and several alternate sources. The loss or reduction in capability of
either of these main billet suppliers would require J&L Structural to rely more
heavily on their other current sources of supply. Management maintains good
relationships with all of its suppliers and does not currently expect any
significant supplier-related impact on its financial condition or results of
operations or its ability to source an adequate supply of billets assuming a
need to change its supplier mix.
Marketing and Distribution
J&L Structural focuses its marketing efforts directly on end users of
its products. J&L Structural's primary marketing strategy is to position itself
as a high-quality niche manufacturer of a variety of lightweight structural
steel products. Customer service and product quality are pivotal elements of
that strategy, and as a result, J&L Structural maintains close ties with its
customers and their markets. Due to its unique mill design and flexible
operating schedule, J&L Structural is able to change its mill frequently at
minimal cost. This allows for quick response to customer requirements, while
maintaining reasonable inventory levels.
J&L Structural maintains a sales force of six salaried employees, two
of whom are stationed in the field and four in Aliquippa. In addition, J&L
engages a commissioned sales agent who handles sales opportunities in Mexico and
the rest of Latin America, as well as a commissioned sales agent to handle
certain domestic sales opportunities.
Over 75% of J&L Structural's shipments go directly to an end user
rather than a service center or steel distributor. J&L Structural ships to
customers from several strategic locations including: Aliquippa, Pennsylvania;
Ambridge, Pennsylvania; Iuka, Mississippi; Houston, Texas; Moultrie, Georgia;
and Fayetteville, North Carolina. Locations outside of Pennsylvania represent
down-river public warehouses that charge J&L Structural a fee for unloading
barges and for warehousing beams prior to shipping to customers in the
Southeast. J&L Structural's location in the Mid-Atlantic region on the inland
waterway system provides good proximity to its major markets. J&L Structural's
barge facility provides low cost transportation for the bulk movement of
JUNIOR(R) Beams to be sold to the manufactured housing industry in Alabama,
Mississippi, Tennessee and other Southeastern states. Moreover, Indiana, North
Carolina and Pennsylvania are leading states in the production of manufactured
homes and all are within one-day truck transportation. Additionally, Indiana
leads the country in the production of truck trailers.
Competition
J&L Structural competes effectively in all of its major product areas
on the basis of product quality, customer service and price in a number of niche
markets characterized by few competitors. Its location on the Ohio River allows
it to ship products to customers and obtain raw materials on a very
cost-effective basis in comparison to its competitors and provides it with
expanded geographic coverage in an industry which is largely regional.
While J&L Structural has competition in all of its major product lines,
the thin, lightweight sections J&L Structural manufactures are difficult to
produce and therefore, the number of competitors producing these items is
limited. The unique design and relatively small size of J&L Structural's mill
enables it to efficiently produce thin, lightweight profiles. J&L Structural's
small powerful mill is better suited to produce the items in its product line
than larger mills operated by competitors that produce a broader range of
products.
Three large steel minimills have recently commissioned greenfield
structural rolling mills that have the ability to produce bantam beams similar
to J&L Structural's products as well as other commodity, structural sections
that J&L Structural does not produce. Due to the intensive level of customer
service necessary to satisfy J&L Structural's markets, it is difficult to
determine how significant of an impact that these new production facilities will
have on J&L's primary markets.
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J&L Structural's commitment to providing a focused product line that is
keyed off customer needs differentiates it from its competitors. In particular,
J&L Structural: (i) provides superior service and consistently high quality
products to its customers, many of which purchase all or substantially all of
their requirements for lightweight steel shapes from J&L Structural, (ii)
maintains adequate inventories and a flexible operating schedule which makes it
more responsive to customer needs and market conditions, (iii) focuses its
marketing directly on end users, (iv) produces a narrow, more focused range of
products relative to its competitors, and (v) provides value-added finishing
services to meet specific customer needs.
Foreign manufacturers do not play a significant role in the structural
markets which J&L Structural serves.
Employees
As of August 31, 1999, J&L Structural employed a total of 270
employees. The United Steelworkers of America represents approximately 186
employees at J&L Structural (excluding the Ambridge division) under a labor
agreement that expires in September 2000. The Ambridge division of J&L
Structural and its 38 unionized employees are also represented by the United
Steelworkers of America under a five-year labor agreement, expiring in October
1999. A new multi-year labor agreement with Ambridge employees is in final
negotiations and is expected to be ratified by early October. The Company
believes that it has excellent relationships with both union locals. J&L
Structural has never experienced a work stoppage, and has historically had good
experience and relations with its employees.
Backlog & Seasonality
The backlog of unfilled orders for J&L Structural typically averages
less than 60 days. This remains the case even in strong markets due to frequent
product rollings and adequate finished inventory levels that allow J&L
Structural's customers to work within short lead times. As of August 31, 1999,
J&L Structural had open orders totaling $3,898,000. This compares with a backlog
of $4,288,000 at the same date in 1998.
The winter months are generally slower activity months for J&L
Structural due to the seasonality of the manufactured housing market and
significant seasonal reductions in highway construction and repair programs.
Environmental Compliance
U.S. steel producers, including J&L Structural, are subject to
stringent Federal, state and local environmental laws and regulations
concerning, among other things, air emissions, waste water discharge, and solid
and hazardous waste disposal. Company spending, in the future, for compliance
with these environmental laws and regulations is not anticipated to be
significant. No significant environmental problems have arisen concerning the
use or operation of J&L Structural's facilities or the conduct of its business.
However, a change in the law or regulations at either the Federal, state or
local level could adversely impact the operations of J&L Structural.
Brighton Segment
Products
The principal product manufactured by Brighton is piercer points, which
are disposable tooling used by the steel industry in the production of seamless
steel tubes. Piercer points are bullet-shaped castings which are driven into the
core of heated steel billets and, therefore, are central in the manufacturing
process of seamless steel tubing products. Generally, seamless tubes are
required in applications where welded seamed tubes lack rigidity and structural
strength. Seamless tubing has a multitude of applications ranging from oil
production to bearings used in the automotive industry.
The Company believes that Brighton is the largest producer of small
piercer points (1 to 250 pounds) in the United States. Brighton also produces
piercer points up to 400 pounds. In addition to piercer points, Brighton
supplies high alloy grate bars used by the steel industry, as well as hi-mill
castings and equalizer plates used in the suspension systems of railway cars.
Brighton's manufacturing capabilities provide it with the opportunity to develop
new markets for its molded alloy steel castings.
The manufacturing process at Brighton begins with the production of a
pattern. Brighton relies to a great extent on an outside pattern shop. Once a
pattern is produced, a mold is manufactured at Brighton's facilities. Molten
metal is then poured into the mold, allowed to cool and then "shaken" free of
the mold to complete the finished product. From this step Brighton may heat the
molded metal product in one of its annealing ovens after which it is machined to
final tolerances.
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The piercer points are usable by customers for only a limited amount of
production before they become too worn for the process. In some processes, two
piercer points are used for larger seamless tubes. Depending on the process and
materials used to manufacture seamless tubing, a piercer point generally has a
useful life of between 2 to 750 manufacturing runs before it must be replaced.
Used piercer points are then returned to Brighton for remolding into other
piercer points.
Suppliers
Brighton purchases a variety of raw materials, including alloys (such
as chrome, nickel, molybdenum and tungsten), foundry sand and grinding
materials. Brighton currently has strong and established relationships with all
of its major suppliers of raw materials. Brighton has not experienced any
problems in obtaining an adequate supply of raw materials at reasonable prices
and it expects the availability of future supplies to be sufficient.
Nevertheless, limited supplies of these raw materials and/or extraordinarily
high prices for such materials could, among other things, cause Brighton to lose
business by failing to meet demand, reduce its profit margins and/or encourage
the use of substitute products.
Marketing and Distribution
Brighton has a dominant market share of the small piercer points
business in the United States and excels in providing quality service and
products. However, Brighton's customer base is limited. Essentially, the
customer base consists of several major accounts that account for approximately
75% of Brighton's revenues. A major loss of one or more of its accounts or a
significant reduction in demand by the steel industry could have an adverse
impact on Brighton's profitability.
Competition
Brighton has limited competition in the small piercer point (1 to 250
pounds) market. Its main competition is Columbiana Foundry ("Columbiana") based
in Columbiana, Ohio which produces a wide variety of castings, including piercer
points. In the past, Columbiana has focused its efforts on producing larger
piercer points.
Employees
As of August 31, 1999, Brighton employed a total of 19 employees. Most
of Brighton's personnel are represented by the United Steelworkers of America
under a contract that expires in December 2001. The Company considers its
employee relations at Brighton to be good.
Backlog & Seasonality
Brighton typically ships products within 30 days of receipt of an
order. Therefore, Brighton does not maintain a significant backlog of unshipped
orders. As of August 31, 1999, Brighton had firm open orders totaling $714,000.
This compares to a backlog of $567,000 at the same date in 1998. Brighton does
not consider its business to be seasonal.
Environmental Compliance
Brighton operates with several environmental permits issued by the
Pennsylvania Department of Environmental Protection. No significant
environmental problems have arisen concerning the use or operation of Brighton's
facilities or the conduct of its business. However, a change in the law or
regulations at either the federal, state or local level could adversely impact
the operations of Brighton.
Financial Information Regarding Industry Segments and Foreign and Domestic
Operations
Financial information about the Company's various industry segments and
its foreign and domestic operations and export sales is contained in Note 13 of
the Notes to the Consolidated Financial Statements of the Company contained in
Item 14 of this Form 10-K. The Company's continuing operations do not currently
have significant export sales or any foreign operations.
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ITEM 2. PROPERTIES
CPT's principal executive offices are located at 680 Fifth Avenue, 8th
floor, New York, New York. The New York offices are occupied under a subleasing
arrangement on a month-to-month lease.
The Company's facilities include: (i) J&L Structural - a reheat
furnace, a unique close-tolerance fourteen stand continuous rolling mill, a hot
bed, straighteners, and sawing, stacking and bundling facilities located on
approximately 33 acres on the Ohio River in Aliquippa, Pennsylvania, with over
265,000 square feet under roof and an adjacent barge loading facility; (ii) J&L
Structural's Ambridge division - a fabricating facility located in a leased
facility in Ambridge, Pennsylvania, approximately five miles from the main
facilities; and (iii) Brighton's headquarters and manufacturing plant, a 25,000
square foot facility, located in Beaver Falls, Pennsylvania, approximately 10
miles from J&L Structural. J&L Structural's facilities are secured by mortgages
to its senior and subordinated lenders.
During July 1999, J&L Structural Inc. commenced a major upgrade to
their rolling mill operation in Aliquippa. New Universal mills, a notch bar
cooling bed, modifications to their existing automatic stacking and bundling
equipment, shipping crane magnets, and a Behringer bundle saw are included in
the capital project. Installation is scheduled for January 2000.
CCC holds title to 38 acres of undeveloped land adjacent to J&L
Structural in Aliquippa, Pennsylvania. The property was acquired subject to an
agreed order between CCC and the Pennsylvania Department of Environmental
Protection. Under the agreement by which this parcel was acquired, the Beaver
County Corporation for Economic Development has a right of first refusal to
repurchase the parcel for an amount approximating the purchase price plus all
environmental testing and remediation costs incurred by CCC and its affiliates
if CCC or its affiliates attempt to sell or transfer the property to a third
party whose intent is other than to ultimately construct a melt shop and
continuous caster on the property.
ITEM 3. LEGAL PROCEEDINGS
The Industrial and Allied Employees Union Local No. 73 Pension Plan
(the "Plan") issued a claim for payment of withdrawal liability totaling
approximately $870,000 under Section 4219 of ERISA against Hupp, CPT and all
"controlled group members", as a result of Hupp's cessation of contributions to
the Plan following the discontinuance of Hupp's business in October 1994. On
July 10, 1996, an arbitrator sustained the Plan's claim of withdrawal liability
against CPT. Pursuant to ERISA, CPT subsequently appealed the arbitration
decision to the U.S. District Court for the Northern District of Ohio. On
September 17, 1997, in response to CPT's appeal, the District Court vacated in
part, and confirmed in part the arbitrator's award. In its judgement, the
District Court reduced the award in favor of the Plan from approximately
$870,000 to $62,696. The Plan subsequently appealed the District Court's ruling
to the United States Court of Appeals for the Sixth Circuit. On December 8,
1998, the Sixth Circuit reversed the decision of the District Court and
reinstated the original arbitration award. On January 21, 1999, the Sixth
Circuit denied CPT's petition for a rehearing, rendering the decision final. No
future appeal has been or will be pursued by CPT. CPT made a payment of
approximately $188,000 in June 1999 to the Plan which reflects the satisfaction
of the arbitration award.
In 1995, J&L signed a contract for turnkey development, fabrication,
and installation of a new reheat furnace. Furnace startup took place in July
1996, with the entire project having a total cost of approximately $8.5 million.
Of this amount, $7.1 million had been disbursed through June 30, 1998. J&L had
been in the process of arbitration with the furnace builder regarding the final
payment of $1.4 million as the Company believed performance testing results did
not meet contract specifications. The $1.4 million had been accrued in full by
the Company. On April 20, 1999, the arbitrators stipulated that J&L pay the
remaining project cost, offset by approximately $300,000 of warranty claims
which had been awarded to J&L as part of the same arbitration process. At June
30, 1999. all required payments under the arbitrators decision had been made.
The Company is involved in various legal actions arising in the normal
course of business. While it is not possible to determine with certainty the
outcome of these matters, in the opinion of management, the eventual resolution
of the claims and actions outstanding will not have a material adverse effect on
the Company's financial position or operating results.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's Common Stock trades over-the-counter with quotations for
the stock available in the "pink sheets" or through the over-the-counter
Bulletin Board of the National Association of Securities Dealers, Inc.
The following table sets forth for each of the periods indicated, the
range of the high and low closing prices for CPT's common stock based on
quotations obtained from the NASDAQ Small Cap Market and through the
over-the-counter bulletin board.
Fiscal 1999
High Low
First Quarter (7/1-9/30/98) $2.06 $1.00
Second Quarter (10/1-12/31/98) 1.00 0.28
Third Quarter (1/1-3/31/99) 2.25 0.28
Fourth Quarter (4/1-6/30/99) 0.51 0.12
Fiscal 1998
High Low
First Quarter (7/1-9/30/97) $2.25 $1.00
Second Quarter (10/1-12/31/97) 2.13 1.31
Third Quarter (1/1-3/31/98) 1.69 1.38
Fourth Quarter (4/1-6/30/98) 2.56 1.50
As of August 31, 1999, there were approximately 1,922 common
stockholders.
Dividend Policy
CPT has not paid any cash dividends on its common stock during the last
three fiscal years and has no plan to pay any dividends in the foreseeable
future.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Selected Financial Data as of and for the Years Ended June 30: (1)(2)
(in 000's except per share data)
Selected Operating Results: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total net revenue $100,385 $110,830 $ 98,199 $101,011 $ 31,208
(Loss) income from continuing operations after
income taxes (276) 558 (2,654) (1,909) 410
Loss from operations of discontinued subsidiaries
- - - - (553)
Net gain on disposal of discontinued
subsidiaries - - - 2,220 2,129
(Loss) income before income taxes and extraordinary
items (276) 558 (2,654) 311 1,986
Gain (loss) on extraordinary item, net (3) (1,532) - - - 3,527
Net income (loss) (1,808) 558 (2,654) 311 5,513
Diluted earnings (loss) per share
From continuing operations $ (0.18) $ 0.10 $ (1.76) $ (1.26) $ 0.27
From discontinued operations - - - 1.47 1.04
Extraordinary items (1) (3) (1.02) - - - 2.34
-------- -------- -------- -------- --------
Net earnings (loss) per share $ (1.20) $ 0.10 $ (1.76) $ 0.21 $ 3.65
======== ======== ======== ======== ========
Fully-diluted common and common equivalent shares
outstanding 1,510 2,243 1,510 1,510 1,510
Selected Balance Sheet Data (2):
Total current assets $ 18,585 $ 21,899 $ 19,756 $ 19,623 $ 19,951
Total assets 60,050 66,405 67,170 68,584 61,203
Current liabilities 17,354 21,058 18,686 15,709 16,041
Long-term obligations, net of
current portion 52,804 53,571 57,255 59,288 52,339
Common shareholders' deficit (12,888) (11,080) (11,638) (8,984) (9,671)
</TABLE>
(1) As a result of the final discontinuance of operations for Hupp as
of October 27, 1994, the consolidated statements of operations for fiscal years
ended June 30, 1996 and 1995 reflected the results of operations of Hupp as
discontinued operations. In addition, certain outstanding notes payable,
unsecured creditor obligations and administrative claims associated with the
operations of Hupp have been treated as forgiven resulting in an extraordinary
gain of $3,257,000 in the year ending June 30, 1995 based on the outcome of
certain bankruptcy proceedings.
(2) On April 6, 1995, J&L, an indirect, majority-owned subsidiary of
the Company, acquired the business and substantially all of the assets of JLS
and TCI as discussed in Note 1 to the Consolidated Financial Statements. The
Acquisition was accounted for as a purchase and the results of operations for
the acquired assets from the date of acquisition (April 6, 1995) through June
30, 1995, were included in the Company's consolidated statement of operations
for the fiscal year ended June 30, 1995.
(3) On June 30, 1999, the Company recognized a $1,532,000 extraordinary
loss as a result of the early termination of the FINOVA senior term loan and
revolving loan facility. The extraordinary loss consisted primarily of the
write-off of associated deferred financing costs and related amortization and a
prepayment premium.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
This Report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in forward-looking statements as
a result of various factors including, but not limited to: (i) a significant
downturn in manufactured housing construction and sales, (ii) significant
negative pricing actions by competitors or (iii) billet costs may increase and
J&L may not have the ability to pass such costs to customers
Overview and Significant Events
During fiscal 1999, the steel industry as a whole had gone through a
very tumultuous time. A significant decline in infrastructure development in
Asia following a period of economic turmoil in that geographic region caused a
tremendous impact on the worldwide flow of steel industry goods and materials.
From a domestic perspective, steel scrap exports decreased dramatically which
drove scrap prices to their lowest point in twenty years. At the same time,
foreign exports of raw and finished steel to the United States increased
dramatically creating a "buyer's" market and sending prices significantly lower.
Management believes that due to the extreme competitive environment which
currently exists and will continue into fiscal year 2000, significant structural
producers are reacting to lower volume and heavy competition in the larger
structural sections by searching for alternative distribution outlets or markets
to penetrate such as those served by J&L Structural.
J&L Structural has experienced a very aggressive marketing environment
over the past several months where pricing has deteriorated significantly. In
many cases, however, J&L Structural was successful in maintaining the majority
of its customer volume which is believed by management to have resulted from J&L
Structural's consistent focus on first-class customer service. Unfortunately,
some customers place different priorities on their supply chain, and as a
result, a certain level of business volume was lost on pricing.
Over the past couple of years, J&L Structural has contemplated varying
ways which would allow it to maintain its cost-competitive status in light of
the evolution of its growing niche markets. During the fourth quarter of fiscal
1999, management approved an $11.5 million plant upgrade project in Aliquippa
which would allow for greater throughput, higher quality, a broader product
offering and process cost savings. The main features of the plant upgrade
include a notch-bar cooling bed, new universal mills, an automatic stacker line
expansion, shipping magnets, new sawing capability and other plant improvements.
The plant upgrade purchase orders have been issued, and project planning is well
underway with an expected plant shutdown for installation and hot commissioning
during January 2000. The capital necessary for the plant upgrade is being
furnished primarily through a refinancing which closed on June 30, 1999 with a
new senior lender plus additional support from state and local financing. This
has been made possible as a result of J&L Structural's ability to significantly
reduce debt over the past four years.
Results of Operations
Net Sales
Net sales for the fiscal years ended June 30, were:
1999 1998 1997
---- ---- ----
J&L Structural $ 96,443,000 $104,227,000 $92,144,000
Brighton 3,942,000 6,603,000 6,055,000
------------ ------------ -----------
Total $100,385,000 $110,830,000 $98,199,000
============ ============ ===========
10
<PAGE>
Net sales at J&L during fiscal 1999 decreased in comparison to the
prior fiscal year primarily due to reduced shipping volume and reductions in
average selling price during the second half of the year. Tonnage decreased
approximately 3.9% during fiscal 1999 when compared to fiscal 1998 primarily due
to reductions in construction industry demand and the loss of certain
manufactured housing customer plants. This is in contrast to an increase in
tonnage shipped of 13.1% between fiscal 1998 and fiscal 1997 which resulted from
growth in the manufactured housing market and increased shipments to steel
service centers as a result of significant construction industry demand.
Average sales price per ton decreased by approximately 3.7% during
fiscal 1999 as compared to fiscal 1998 due to competitive pricing. The reduction
was primarily realized during the six months ended June 30, 1999 when average
sales price per ton decreased 7.3% from the comparable period during fiscal
1998.
Brighton's sales decrease for fiscal 1999 reflects a reduction in
demand for its core product, piercer points. The piercer points are primarily
used in the manufacture of seamless steel tubing used in the oil drilling and
exploration industry. Activities in the oil and gas industry have been curtailed
due to the current worldwide excess oil supply. These market conditions are
expected to continue into the foreseeable future.
Gross Margins
1999 1998 1997
---- ---- ----
J&L Structural 13.8% 13.7% 11.2%
Brighton 23.7% 29.5% 27.7%
Overall 14.2% 14.4% 12.2%
Gross margins for J&L Structural improved during fiscal 1999 in
comparison to fiscal 1998 due primarily to lower billet costs. Billet costs
comprise approximately 69% of plant manufacturing costs. Average billet cost per
ton decreased by 12.1% during fiscal 1999 as compared to fiscal 1998. Average
billet cost per ton decreased steadily during the first half of fiscal 1999
before stabilizing during the third fiscal quarter and finally rising slightly
during the fourth fiscal quarter. Gross margins during fiscal year 1997 were
adversely impacted by startup issues associated with the commissioning of a new
reheat furnace and a charge totaling $767,000 representing engineering and
feasibility studies relating to the intended construction of a melt shop and
caster.
Brighton's fluctuations in gross margins over the three year period
presented above reflect the impact of significant volume fluctuations on a
largely fixed cost business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totaled $7,341,000,
$7,380,000 and $6,576,000 for the fiscal years 1999, 1998 and 1997,
respectively. As a percentage of revenues, the amounts represented 7.3%, 6.7%
and 6.7% of net sales, respectively. The increase in selling, general and
administrative expenses in fiscal 1999 is primarily due to increases in legal
and professional fees totaling approximately $900,000 relating to the
arbitration proceedings against the reheat furnace builder which was resolved in
April 1999. During fiscal 1998, non-recurring professional costs totaling
approximately $400,000 were expended relating to arbitration proceedings against
the reheat furnace builder, a business system conversion study and executive
officer recruiting costs. Research and development costs included in general and
administrative expenses totaled approximately $10,000, $219,000 and $230,000 for
fiscal 1999, 1998 and 1997, respectively, for the purpose of developing new and
innovative product designs.
Interest Expense
Interest expense totaled $7,323,000, $7,624,000 and $7,517,000 for the
fiscal years 1999, 1998 and 1997 respectively. The decrease in interest expense
during fiscal 1999 when compared to fiscal 1998 was due to a reduction in
average debt level and a decrease in the average prime lending rate during
fiscal 1999. The increase in interest expense during fiscal 1998 when compared
to fiscal 1997 was due primarily to approximately $130,000 of incremental
interest expense being capitalized during the final construction phase of the
new reheat furnace.
11
<PAGE>
Other Income/Expense
Expenses for fiscal 1998 and 1997 reflect expenditures incurred
primarily resulting from professional fees relating to a failed acquisition. In
April 1997, the Company had announced a proposal to negotiate the acquisition of
Steel of West Virginia, Inc. for cash, however, was unsuccessful in this
endeavor.
Extraordinary Loss
On June 30, 1999, the Company recognized a $1,532,000 extraordinary
loss as a result of the early termination of the FINOVA senior term loan and
revolving loan facility. The extraordinary loss consisted primarily of the
write-off of associated deferred financing costs and related amortization and a
prepayment premium. No tax benefit was recognized for the extraordinary item due
to the valuation allowance recorded against the net deferred tax asset at June
30, 1999.
Liquidity and Capital Resources
The Company's net cash flows from operating activities totaled
$5,618,000, $4,241,000, and $4,646,000 for the fiscal years ended June 30, 1999,
1998, and 1997, respectively. The increase in cash flows from operations for
fiscal 1999 as compared to fiscal 1998 is primarily due to decreases in accounts
receivable and inventory which reflect the reductions in sales volume, offset to
a great extent by a reduction in trade payables resulting from the settlement
payment to the reheat furnace builder under the arbitration decision and a
reduction in net income.
The Company's net cash outflows from investing activities totaled
$1,494,000, $1,379,000, and $3,219,000 for the fiscal years ended June 30, 1999,
1998 and 1997 respectively. Capital expenditures during fiscal 1999 and 1998
were primarily for maintenance and refurbishment. During fiscal 1997, J&L
completed the installation of a new reheat furnace, the total contracted cost of
which was $8.5 million of which $7.1 million was expended during 1997 and 1996.
The remaining $1.4 million owed to the contractor under the terms of the
contract represented a retention amount which was held back by J&L Structural
due to numerous technical and operating issues relating to the furnace that were
of debate. The resolution of these issues was decided in arbitration in favor of
the furnace builder with a net award of $1.1 million which was paid during the
fourth quarter of fiscal 1999.
During the fourth quarter of fiscal 1999, management approved an $11.5
million plant upgrade project in Aliquippa which would allow for greater
throughput, higher quality, a broader product offering and process cost savings.
The main features of the plant upgrade include a notch-bar cooling bed, new
universal mills, an automatic stacker line expansion, shipping magnets, new
sawing capability and other plant improvements. The plant upgrade purchase
orders have been issued, and project planning is well underway with an expected
plant shutdown for installation and hot commissioning during January 2000. The
capital necessary for the plant upgrade is being furnished primarily through a
refinancing described below which closed on June 30, 1999 with a new senior
lender plus additional support from state and local financing.
The Company's net cash outflows from financing activities totaled
$4,044,000, $2,886,000, and $1,540,000 for fiscal 1999, 1998 and 1997,
respectively. Cash flows during 1999 reflect debt repayments during the year,
the termination of the existing senior credit agreement, and the funds provided
under the new senior credit agreement. During fiscal 1998 and 1997, the reheat
furnace project was financed through borrowings from the senior lender capital
expenditure facility, borrowings from state and county sources and from the
excess availability that existed under the revolving credit facility.
On June 30, 1999, J&L entered into a new loan and security agreement
with Congress Financial Corporation which provides for (i) a revolving loan
facility in an amount up to $16,000,000 (ii) an existing equipment term loan in
the principal amount of $19,000,000, and (iii) equipment purchase term loans in
amounts totaling up to $8,000,000. Proceeds from the financing arrangements were
used to repay existing senior term loans and revolving loan facility with FINOVA
Capital Corporation. As of June 30, 1999, no amounts have been drawn on the
equipment purchase term loan facility. As part of the refinancing, J&L's
subordinated term notes were amended on June 30, 1999 to replace the former
senior lender with the new senior lender and to revise certain performance
covenants. All fees and costs incurred to acquire the new loan and security
agreement and to amend the subordinated term notes totalling $765,000 have been
capitalized and are included in deferred financing costs as of June 30, 1999. In
addition, fees aggregating $750,000 were paid and charged to expense related to
the termination of the existing credit facility.
12
<PAGE>
Cash and cash equivalents totaled $117,000, $37,000, and $61,000 as of
June 30, 1999, 1998 and 1997, respectively. Although the Company's total equity
represents a deficit of approximately $12,888,000, this position is due largely
to the basis adjustment for the Company's leveraged acquisition of J&L
Structural during fiscal 1995. Management believes that cash flow from
operations in addition to proceeds provided under the new senior credit facility
and funding under state and local assistance programs as described above will
continue to satisfy the Company's requirements to fund operating expenses, debt
service and capital expenditures in the future.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities and requires recognition of
all derivatives as either assets or liabilities at fair value. The Company has
not completed the process of evaluating the impact that will result from
adopting SFAS No. 133. The company is therefore unable to disclose the impact
that adopting the statement will have on its financial position and results of
operations when such statement is adopted.
Year 2000 Disclosure
The Year 2000 problem concerns the inability of information systems to
recognize properly and process date-sensitive information beyond January 1,
2000.
State of Readiness: During 1998, the Company initiated a comprehensive
enterprise-wide analysis exercise to identify and to resolve Year 2000 related
issues. The scope of the program includes the investigation of all Company
functions and products, including embedded systems in what are not traditionally
considered information technology systems. The detection phase of the program is
now complete. The corrective action phase of the program began during the second
quarter of fiscal 1999, and was substantially completed during the fourth
quarter of fiscal 1999. The final updated test file with program changes will be
installed during late September 1999. The Company continues to execute a testing
program to assess its state of readiness. J&L has assessed the preparedness of
its critical suppliers for Year 2000 through a thorough inquiry process has been
completed with favorable results.
Costs To Address Year 2000 Issues: Total cost at completion of the
program is currently estimated to approximate $100,000. These costs are being
expensed as incurred.
Risks Associated With Year 2000 Issue: While the Company expects to
resolve all Year 2000 risks without material adverse impact on results of
operations, liquidity or financial condition, there can be no assurances as to
the ultimate success of the program. Uncertainties exist as to the Company's
ability to detect all Year 2000 problems as well as its ability to achieve
successful and timely resolution of all Year 2000 issues. Uncertainties also
exist concerning the preparedness of the Company's critical suppliers in order
to avoid Year 2000 related service and delivery interruptions.
A "reasonably likely worst case" scenario of Year 2000 risks could
include isolated performance problems with manufacturing or administrative
systems at J&L, isolated interruption of deliveries from critical suppliers and
product liability issues. The consequences of these issues may include increases
in manufacturing and administrative costs until the problems are resolved, lost
revenues, and lower cash receipts. However, the Company is unable to quantify
the potential effect, which could be material, of these items on results of
operations, liquidity or financial condition, should some or a combination of
these events come to pass.
13
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is that of interest rate
risk associated with its various debt instruments. The Company has not entered
into any derivative financial instruments to manage its interest rate risks to
date.
At June 30, 1999, the Company's total outstanding debt was comprised of
fixed interest rate obligations of $31,742,000 and variable interest rate
obligations of $24,630,000.
The table below provides information (in thousands of dollars) about
the Company's maturity schedule and fair values of its outstanding debt:
<TABLE>
<CAPTION>
Variable Rate Debt Fixed Rate Debt
Year ending Senior Term Revolving Senior Trinity Trinity Ascott Wing Other
June 30, Loan Loan Subordinated Note Payable Letter of
Facility Notes Credit
<S> <C> <C> <C> <C> <C> <C> <C>
2000 $ 2,488 - - - - - $ 203
2001 2,714 - - - - - 209
2002 13,798 $ 5,630 $ 1,500 - $ - - 125
2003 - - 6,000 $ 6,730 1,000 $ 475 -
2004 - - 6,000 - - - -
Thereafter - - 9,500 - - - -
------- ------- ---------- --------- --------- --------- --------
Total $19,000 $ 5,630 $ 23,000 $ 6,730 $ 1,000 $ 475 $ 537
======= ======= ========== ========= ========= ========= ========
Fair Market Value $19,000 $ 5,630 $ 23,000 $ 6,730 $ 1,000 $ 475 $ 537
======= ======= ========== ========= ========= ========= ========
</TABLE>
Based upon the Company's current level of variable rate debt, a 1%
increase or decrease in interest rates will cause an approximate $246,000
increase or decrease in annual interest expense. At June 30, 1999, the weighted
average interest rate for the variable rate and fixed rate debt was 8.69% and
11.0%, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Included in Item 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the directors and executive officers
of CPT as of August 31, 1999 are as follows:
Name Age Positions
------------------ --- ----------------------------------------------------
Richard L. Kramer 50 Chairman of the Board, Director and Secretary of CPT
William L. Remley 48 President, Treasurer and Director of CPT
Richard C. Hoffman 51 Director of CPT
Mr. Kramer has served as Chairman of the Board, a Director, and
Secretary of the Company since January 3, 1992. Mr. Kramer is also Chairman and
a director of Mentmore Holdings Corporation ("Mentmore"), Stellex Technologies,
Inc., an aerospace machining and electronics company, Precise Holding
Corporation, a full service, custom injection molder of precision plastic
products, and Republic Properties Corporation, a private real estate development
firm. Mr. Kramer is also Chairman of the Board, a Director, Vice President and
Secretary for Trinity Investment Corp. ("Trinity"), Ascott Wing, Inc. ("Ascott")
and Halton House Limited ("Halton").
Mr. Remley has served as a Director, President and Treasurer of CPT
since January 3, 1992. Mr. Remley is also President, Chief Executive Officer and
a director of Mentmore. Mr. Remley is the Vice Chairman, Chief Executive Officer
and a director of Stellex Technologies, Inc. Mr. Remley is also a director of
Republic Properties Corporation, Precise Holding Corporation and Sunderland
Industrial Holdings Corporation. Mr. Remley is a director and President of
Ascott, Trinity, and Halton.
Mr. Hoffman is a licensed attorney who has served as General Counsel of
the Company from January 1995 to March 1999 and Assistant Secretary from July
1995 to March 1999. During September 1999, Mr. Hoffman resigned from his
position as director of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to Mr. William L.
Remley for the fiscal years 1999, 1998 and 1997, as the only paid executive
officer of the Company.
Annual Compensation
--------------------------------------------------------------
Name and Salary Bonus Other Annual
Principal Position Year ($) ($) Compensation
- ------------------ ---- ---- --- ------------
William L. Remley 1999 - - $12,000
President (1)
1998 - - $12,000
1997 - - $12,000
(1) Mr. Remley is an executive officer and Director of Mentmore, which pursuant
to a Management Agreement, provides the Company and its subsidiaries with
general management, advisory, consulting and other services in exchange for an
annual management fee. See Part III, Item 13, "Certain Relationships and Related
Transactions."
15
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The final distribution of shares of the Company's Common Stock to
certain classes of claimants under the Reorganization Plan was completed in
early 1999, with an effective date of June 30, 1998, according to procedures
authorized by the United States Bankruptcy Court, District of Minnesota, Fourth
Division, in an order dated May 13, 1998 (the "Distribution Order"). Pursuant to
the Distribution Order, a portion of the 378,600 shares of Common Stock
previously held in escrow by Norwest Bank Minnesota for distribution under the
Reorganization Plan were distributed to claimants entitled to receive such
shares. The remaining undistributed Common Shares held in escrow were then
distributed, on a pro-rata basis, to all holders of Common Stock as of June 30,
1998.
The following table sets forth certain information, as of August 31,
1999, with respect to the beneficial ownership of Common Stock by each person
who is known by the Company to own beneficially more than 5% of outstanding
shares of CPT's Common Stock, by each director of CPT, and by all officers and
directors as a group:
<TABLE>
<CAPTION>
Number of Shares
Beneficially Percent of Common
Name Owned (1) Stock
---- --------- -----
<S> <C> <C>
Richard L. Kramer (2) - 0%
William L. Remley (2) - 0%
Ascott Wing, Inc. (3) 604,586 40.04%
Trinity Investment Corp. (4)(5) 2,421,445 63.55%
Halton House Limited (3)(5)(6) 3,026,031 79.42%
The Halton Declaration of Trust (3)(5)(6) 3,026,031 79.42%
Bahamas Protectors Ltd., a Bahamian corporation (3)(5)(6) 3,026,031 79.42%
Arun K. Dube (8) 80,542 5.33%
All Directors and Officers as a group (3 persons including those
named above) (4)(5)(6)(7) 3,026,031 79.42%
</TABLE>
(1) The Persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by each of
them, subject to community property laws, where applicable, and the information
contained in other footnotes to the table.
(2) Comprised of shares of Common Stock held of record by Ascott Wing and
Trinity, and Warrants to purchase Common Stock held by Trinity (see Note 5
below), as to which Messrs. Kramer and Remley disclaim beneficial ownership.
(3) The principal offices of Ascott Wing are at 680 Fifth Avenue, 8th Floor, New
York, NY 10019. Halton House Limited, owns all of the outstanding stock of
Ascott. Halton House Limited's principal offices are located at c/o Coutts and
Company (Bahamas) LTD., P.O. Box N7788, West Bay Street, Nassau, Bahamas.
William L. Remley and Richard L. Kramer are directors and executive officers of
Ascott Wing and Halton House Limited. The Halton Declaration of Trust ("Halton
Trust") whose principal address is c/o Coutts and Company (Bahamas) LTD, P.O.
Box N7788, West Bay Street, Nassau, Bahamas, is the majority owner of Halton
House Limited. All powers with respect to investment voting securities
beneficially owned by Halton Trust are exercisable by Bahamas Protectors Ltd., a
Bahamian corporation, protector under the constituent documents of Halton Trust.
Bahamas Protectors Ltd.'s business address is c/o Private Trust Corp., Charlotte
House, Charlotte Street, Nassau, Bahamas.
(4) The principal offices of Trinity are at 680 Fifth Avenue, 8th Floor, New
York, NY 10019. Halton House Limited owns all of the outstanding stock of
Trinity (see Note 2 above). William L. Remley and Richard L. Kramer are
directors and executive officers of Trinity.
(5) Includes 2,300,000 shares that could be acquired upon exercise of two
separate Warrants and; one Warrant representing a right to purchase 2,000,000
shares at an exercise price of $1.00 per share and one Warrant representing a
right to purchase 300,000 shares at an exercise price of $4.00 per share. (see
Item 13).
(6) Includes shares owned by Ascott and shares subject to a Warrant owned
by Trinity (see Note 4 above).
16
<PAGE>
(7) Includes shares over which Mr. Remley and Mr. Kramer may be deemed to
share voting and investment power (see Notes 2 and 3 above).
(8) Comprised of 43,940 shares held individually and 36,602 shares held in
joint tenancy. According to the Company's transfer agent, the address of Mr.
Dube is 7710 Tanglewood Court, Edina, MN 55439-2565
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 1, 1996, Trinity and CPT entered into an unsecured line of
credit agreement totaling $1 million and bearing interest at 13% payable with
interest only semi-annually beginning April 1, 1996, until due in December,
2002. This line of credit was established to satisfy debt service at the holding
company level. In conjunction with the execution of the line of credit, 300,000
warrants for CPT stock have been issued to Trinity for a period of ten years
with an exercise price of $4.00 per warrant.
On April 1, 1995, CPT entered into a Credit Agreement and Security
Agreement with Trinity wherein Trinity agreed to loan CPT the principal amount
of $6,730,000 for the purpose of making a required $5,000,000 equity capital
infusion to JLH in order to consummate the Acquisition of the assets of JLS and
TCI, to retire the existing Variable Rate Debenture of CPT to Trinity in the
amount of $900,000 dated February 5, 1993 and to satisfy and retire certain
other short-term obligations of CPT plus accrued interest. Included within the
Credit Agreement was the following:
1. A fixed rate Debenture of CPT dated April 1, 1995 under which CPT
promises to pay Trinity, or any subsequent holder of the Debenture, the
principal sum of $6,730,000, plus accrued and unpaid interest at the fixed rate
of 13% per annum and costs provided therein, on or before December 15, 2002.
2. A Warrant Purchase Agreement dated April 1, 1995 by and between CPT
and Trinity, in which (i) CPT granted to Trinity Warrants to purchase up to
2,000,000 shares of the common stock of CPT at an exercise price of $ 1.00 per
share, (ii) CPT made certain representations to Trinity regarding its
capitalization, the shares of Common Stock outstanding, the authorization of the
Warrant and the continued truth and accuracy of representations of CPT in the
Credit Agreement and Security Agreement, (iii) Trinity made certain
representations to CPT, including representations regarding the status of the
Warrant (and the underlying shares of Common Stock, if issued) as "restricted
securities" due to the anticipated issuance of such securities pursuant to
exemptions from registration under the Securities Act of 1933, as amended, and
(iv) CPT granted Trinity certain rights to receive financial information and
reports of the Company and to inspect the assets, properties, books and records
of the Company and its subsidiaries.
3. Security Agreement dated April 1, 1995, between CPT and Trinity in
which CPT pledged all of its shares of JLH to Trinity as collateral for the
performance of its obligations under the new Credit Agreement.
Trinity has its principal business and executive offices at 680 Fifth
Avenue, 8th Floor, New York, NY 10019. Trinity is engaged in the investment
business. Richard L. Kramer is Chairman of the Board, a Director, Vice President
and Secretary of Trinity, and William L. Remley is a Director, President and
Treasurer of Trinity.
Halton House Limited, a Bahamian Corporation, owns all of the
outstanding capital stock of Trinity and Ascott Wing. Halton House Limited is a
holding company with interests in investment and industrial/
manufacturing/technology companies. Richard L. Kramer is Chairman of the Board,
a Director, Vice President and Secretary of Halton House Limited, and William L.
Remley is a Director, President and Treasurer of Halton House Limited. Halton
House Limited is owned beneficially by The Halton Declaration of Trust which is
a trust created under the laws of the Bahamas. As of August 31, 1999, all powers
with respect to investment or voting securities beneficially owned by The Halton
Declaration of Trust are currently exercisable by Bahamas Protectors Ltd., a
Bahamian corporation, protector under the constituent documents of The Halton
Declaration of Trust.
Ascott Wing has its principal business and executive offices at 680
Fifth Avenue, 8th Floor, New York, NY 10019. Ascott Wing is engaged in the
investment business. Richard L. Kramer is Chairman of the Board, a Director,
Vice President and Secretary of Ascott Wing, and William L. Remley is a
Director, President and Treasurer of Ascott Wing. The preferred stock redemption
obligation to Ascott Wing including accrued dividends through March 15, 1995,
totaling $475,204 was converted to a deferred purchase money note bearing
interest at a rate of 11% and payable interest only annually beginning March 15,
1996 and due December, 2002.
17
<PAGE>
A management agreement exists between CPT and J&L whereby CPT or its
designated affiliate provides executive management advisory services to J&L. The
contract term of the agreement is for a period of six years through March, 2001
and is subject to being automatically renewed annually thereafter, unless
terminated by either party to the agreement. Annual compensation to CPT under
this agreement totals $600,000, which includes out-of-pocket expenses incurred
by CPT of up to $150,000 annually. CPT exercised its right under the agreement
to designate Mentmore Holdings Corporation ("Mentmore") as the management
advisory service provider and as a result has assigned all fees to which CPT is
entitled under this agreement to Mentmore. Management fee expense paid to
Mentmore for each of the years ended June 30, 1999, 1998 and 1997 under this
agreement totaled $600,000, respectively. Effective July 1, 1999, for a period
of one year, the management advisory services agreement with J&L was amended to
reduce annual compensation to $528,000.
During fiscal 1999, Mentmore provided investment banking services in
connection with J&L's refinancing of its senior credit facility charging J&L
related fees of $200,000.
Richard L. Kramer is Chairman of the Board, a Director and Secretary of
Mentmore, and William L. Remley is a Director, President and Treasurer of
Mentmore.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
A. Documents to be filed as part of this Report.
1. The following financial statements of the Company and the report of its independent auditors are filed herewith:
Page of this Report
<S> <C>
Independent Auditors' Report of Deloitte & Touche LLP..............................................................20
Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 and 1998...........................................................21
Consolidated Statements of Operations for the Years Ended
June 30, 1999, 1998, 1997 ................................................................................22
Consolidated Statements of Changes in Shareholders' Deficit
for the Years Ended June 30, 1999, 1998, 1997.............................................................23
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998, 1997.................................................................................24
Notes to Consolidated Financial Statements.........................................................................26
2. The following financial statement schedules and exhibits of the
Company are filed herewith:
Page of this Report
Financial Statement Schedules
I - Condensed Financial Information of Registrant....................................................37
II - Valuation and Qualifying Accounts................................................................38
Exhibit 10.1 - Loan and Security Agreement by and among J&L Structural, Inc. and..........................40
Congress Financial Corporation dated June 30, 1999
Exhibit 10.2 - Third Amendment to Note and Warrant Purchase Agreement.....................................41
Exhibit 27.1 - Financial Data Schedule....................................................................42
Schedules other than those listed above are omitted because of the
absence of the conditions under which they are required or because the
information required is included in the financial statements or the
notes thereto.
B. Reports on Form 8-K
</TABLE>
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: September 28, 1999 CPT HOLDINGS, INC.
By: /s/ William L. Remley
William L. Remley, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ Richard L. Kramer Chairman of the Board, September 28, 1999
- -----------------------
Richard L. Kramer Secretary and Director
/s/ William L. Remley President, Treasurer and Director September 28, 1999
- -----------------------
William L. Remley (Principal Executive, Accounting and
Financial Officer)
</TABLE>
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CPT Holdings, Inc. and Subsidiaries
We have audited the consolidated balance sheets of CPT Holdings, Inc. and
Subsidiaries ("the Company") as of June 30, 1999 and 1998, and the related
consolidated statements of operations, changes in shareholders' deficit and cash
flows for each of the three years in the period ended June 30, 1999. Our audits
also included the financial statement schedules listed in the Index at Item 14.
These financial statements and the financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CPT Holdings, Inc.
and Subsidiaries as of June 30, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
September 24, 19999
21
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 1998
(000's)
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 117 $ 37
Receivables, net 7,263 8,946
Inventories 10,542 12,722
Receivable from affiliate - 26
Other current assets 663 168
----------- ------------
Total current assets 18,585 21,899
Property, plant and equipment, net 38,865 41,364
Goodwill, net of accumulated amortization of $706 and $612,
respectively 1,177 1,271
Deferred financing costs, net of accumulated
amortization of $479 and $1,390, respectively 1,075 1,522
Other assets 348 349
----------- ------------
Total assets $ 60,050 $ 66,405
=========== ============
LIABILITIES & SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 2,691 $ 4,321
Accounts payable 7,380 10,507
Accrued liabilities 7,030 6,230
Payable to affiliate 253 -
----------- ------------
Total current liabilities 17,354 21,058
Long-term debt, net of current portion 52,804 53,371
Other long-term obligations - 200
Minority interest in consolidated subsidiaries 2,780 2,856
Shareholders' deficit:
Common stock authorized 30,000,000 shares of $.05 par value each,
1,510,084 shares issued and outstanding 76 76
Additional paid in-capital 5,737 5,737
Accumulated deficit (18,701) (16,893)
----------- ------------
Total shareholders' deficit (12,888) (11,080)
----------- ------------
Total liabilities and shareholders' deficit $ 60,050 $ 66,405
=========== ============
The accompanying notes are an integral part of these statements.
</TABLE>
22
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1999, 1998 and 1997
(000's Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $ 100,385 $ 110,830 $ 98,199
Cost of sales 86,097 94,869 86,247
------------ --------------- ---------------
Gross profit 14,288 15,961 11,952
Selling, general and administrative 7,341 7,380 6,576
------------ --------------- ---------------
Operating income 6,947 8,581 5,376
Other expense (income):
Interest expense 7,323 7,624 7,517
Minority interest (76) 529 (244)
Other, net (24) 207 420
------------- --------------- ---------------
Income (loss) before income taxes (276) 221 (2,317)
Income tax benefit (provision) - 337 (337)
------------ --------------- ---------------
Income (loss) from continuing operations before
extraordinary loss (276) 558 (2,654)
Extraordinary loss from early extinguishment of debt (1,532) - -
------------- --------------- ---------------
Net income (loss) $ (1,808) $ 558 $ (2,654)
============ =============== ===============
Basic earnings (loss) per share:
Income (loss) before extraordinary loss $ (0.18) $ 0.37 $ (1.76)
Extraordinary loss (1.02) - -
------------ --------------- ---------------
-
$ (1.20) $ 0.37 $ (1.76)
============ =============== ===============
Diluted earnings (loss) per share:
Income (loss) before extraordinary loss $ (0.18) $ 0.10 $ (1.76)
Extraordinary loss (1.02) - -
------------ --------------- ---------------
$ (1.20) $ 0.10 $ (1.76)
============ =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
For the Years Ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
($000's, Except Share Amounts)
Common Stock Additional
Paid-In Accumulated
Capital Deficit
Shares Amount
<S> <C> <C> <C> <C>
Balance at June 30, 1996 1,510,084 $ 76 $ 5,737 $ (14,797)
Net loss - - - (2,654)
---------- ------------- -------------- ----------
Balance at June 30, 1997 1,510,084 76 5,737 (17,451)
Net income - - - 558
---------- ------------- -------------- ----------
Balance at June 30, 1998 1,510,084 76 5,737 (16,893)
Net loss - - - (1,808)
---------- ------------- -------------- ----------
Balance at June 30, 1999 1,510,084 $ 76 $ 5,737 $ (18,701)
========== ============= ============== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1999, 1998 and 1997
(000's)
<TABLE>
<CAPTION>
Years ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,808) $ 558 $ (2,654)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss 1,532 - -
Minority interest in earnings (loss) of subsidiaries (76) 529 (244)
Depreciation and amortization 4,523 4,431 4,108
Loss on disposal of assets 127 - -
Deferred caster and melt shop charge - - 767
Deferred taxes - (337) 337
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable 1,683 525 (965)
Decrease (increase) in inventory 2,180 (2,846) 937
Increase in other current assets (495) (48) (16)
Increase (decrease) in accounts payable and accrued liabilities (2,048) 1,594 2,211
Increase (decrease) in other current liabilities - (165) 165
-------- -------- ----------
Net cash provided by operating activities 5,618 4,241 4,646
-------- -------- ----------
Cash flows from investing activities:
Decrease (increase) in other non-current assets 1 (1) 279
Capital expenditures (1,495) (1,378) (3,498)
-------- -------- ----------
Net cash used in investing activities (1,494) (1,379) (3,219)
-------- -------- ----------
(CONTINUED)
</TABLE>
25
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended June 30, 1999, 1998 and 1997
(000's)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities: (Note 7)
Borrowings under Congress senior term loan $ 19,000 $ - $ -
Borrowings under Congress revolving credit facility 5,630 - -
Net borrowings (repayments) under FINOVA revolving credit facility (9,843) 592 (621)
Repayments of FINOVA senior term loans (16,920) (3,188) (2,775)
Borrowings under state/local loans - - 1,000
Repayments of state/local loans (196) (190) (78)
Proceeds from issuance of other long-term debt - - 1,000
Borrowings under unsecured line of credit - - 34
Fees paid for termination of FINOVA credit facilities (750) - -
Deferred financing costs (765) - -
Other (200) (100) (100)
---------- ------------ -------------
Net cash used in financing activities (4,044) (2,886) (1,540)
---------- ------------ -------------
Net increase (decrease) in cash and cash equivalents 80 (24) (113)
Cash and cash equivalents:
Beginning of year 37 61 174
---------- ------------ -------------
End of year $ 117 $ 37 $ 61
========== ============ =============
Supplemental Data - Cash paid during the year for:
Interest, net of capitalized amounts $ 5,736 $ 6,036 $ 6,268
========== ============ =============
Income taxes $ - $ - $ -
========== ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
NOTE 1 - BASIS OF PRESENTATION
Consolidated Accounts
The accompanying consolidated financial statements include the accounts of CPT
Holdings, Inc., a Minnesota corporation, and its direct and indirect
majority-owned subsidiaries (the "Company"), J&L Structural, Inc. ("J&L"), a
Delaware Corporation, J&L Holdings Corp. ("JLH"), a Delaware Corporation,
Continuous Caster Corporation ("CCC"), a Delaware Corporation, and H.
Industries, Inc. ("Hupp"), an Ohio Corporation. All material intercompany
transactions have been eliminated in consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. The Business
The Company's operations include two distinct business segments within
its single indirect operating subsidiary, J&L: J&L Structural and
Brighton. J&L Structural manufactures and fabricates lightweight
structural steel shapes which are distributed principally to the
manufactured housing, tractor trailer construction and highway safety
systems industries. Brighton designs, manufactures and sells steel
piercer points which represent disposable tooling used in the
production of seamless steel tubes used in the petrochemical industry.
CCC is a majority-owned, indirect subsidiary which holds title to 38
acres of undeveloped land adjacent to J&L in Aliquippa, Pennsylvania.
b. Inventories
The Company's inventories are valued at the lower of cost (first-in
first-out basis) or market value.
c. Cash Equivalents
For purposes of cash flows reporting, all investments with original
maturities of 90 days or less are treated as cash equivalents.
d. Property and Depreciation
Property and equipment are stated at cost. Expenditures for additions,
renewals and improvements of property and equipment are capitalized,
and expenditures for repairs and maintenance and gains or losses on
disposals are included in results of operations. Depreciation is
computed using the straight-line method over the estimated useful
lives.
e. Goodwill
The goodwill associated with acquisitions is amortized on a
straight-line basis over a period of 20 years.
f. Deferred Financing Costs
Amortization of deferred financing costs is charged to interest expense
on a periodic basis using the effective interest rate method over the
term of the Company's senior and subordinated loan facilities with
independent lenders.
g. Impairment
On an ongoing basis, management reviews the valuation of property,
plant and equipment and intangible assets. As part of the review, the
Company estimates the value, future benefits and future cash flows
generated by the related subsidiaries and assets to determine that no
impairment has occurred.
h. Revenue Recognition
Revenue is recognized when product is shipped to dealers, distributors
and direct customers.
27
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
i. Research and Development
All product development costs are expensed as incurred. For the years
ended June 30, 1999, 1998 and 1997, these amounts were approximately
$10,000, $219,000 and $230,000, respectively.
j. Insurance
J&L provides health insurance coverage to its employees under
self-insurance programs that include stop-loss coverage. Insurance
expense is recognized based on estimated losses incurred under the
program. Components of insurance expense include paid claims, incurred
but not paid claims and estimated incurred but not reported claims.
k. Income Taxes
The Company accounts for income taxes utilizing the asset and liability
method as prescribed by Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Deferred income taxes
are recognized for the tax consequences of temporary differences
between the financial statement carrying amounts and the tax basis of
existing assets and liabilities by applying enacted statutory tax rates
applicable to future years. Deferred tax assets are reduced by a
valuation allowance if management believes it is more likely than not
that some portion or all of the deferred tax asset will not be
realized.
l. Earnings Per Share
Earnings per share are computed as provided for in SFAS No. 128,
"Earnings Per Share." Basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted
earnings per share reflects any dilutive impact of options, warrants,
and convertible securities.
The following table sets forth the computation of basic and diluted
earnings per common share (in 000's, except per share amounts):
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Numerator - Basic
Income (loss) before extraordinary loss $ (276) $ 558 $ (2,654)
Extraordinary loss (1,532) - -
---------- ----------- ----------
Net income (loss) available to common shareholders $ (1,808) $ 558 $ (2,654)
========== =========== ==========
Numerator - Diluted
Income (loss) before extraordinary loss $ (276) $ 558 $ (2,654)
Dilution on earnings resulting from subsidiary
Warrants - (329) -
---------- ----------- ----------
Income (loss) before extraordinary loss (276) 229 (2,654)
Extraordinary loss (1,532) - -
Net income (loss) available to common shareholders $ (1,808) $ 229 $ (2,654)
========== =========== ==========
Denominator:
Basic weighted average shares 1,510,084 1,510,084 1,510,084
Effect of dilutive securities:
Warrants - 732,573 -
---------- ----------- ----------
Diluted weighted-average shares 1,510,084 2,242,657 1,510,084
========== =========== ==========
</TABLE>
28
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
l. Earnings Per Share - Continued
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Basic earnings (loss) per share:
Income (loss) before extraordinary item $ (0.18) $ 0.37 $ (1.76)
Extraordinary loss (1.02) - -
----------- ----------- -----------
$ (1.20) $ 0.37 $ (1.76)
=========== =========== ===========
Diluted earnings (loss) per share:
Income (loss) before extraordinary item $ (0.18) $ 0.10 $ (1.76)
Extraordinary loss (1.02) - -
----------- ----------- -----------
$ (1.20) $ 0.10 $ (1.76)
=========== =========== ===========
</TABLE>
m. Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
n. Comprehensive Income
During fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The Statement requires that all changes in
equity during a period from transactions and events from non-owner
sources such as foreign currency items, unrealized gains and losses on
investment securities, transaction adjustments, and minimum pension
liability items, be presented in the income statement or statement of
stockholders equity. The Company had no items or comprehensive income
for the period.
o. Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities and
requires recognition of all derivatives as either assets or liabilities
at fair value. The Company has not completed the process of evaluating
the impact that will result from adopting SFAS No. 133. The Company is
therefore unable to disclose the impact that adopting the statement
will have on its financial position and results of operations when such
statement is adopted.
p. Reclassification
Certain items in the financial statements have been reclassified to
conform to the current year presentation.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at June 30:
<TABLE>
<CAPTION>
(000's)
1999 1998
<S> <C> <C>
Trade receivables $7,487 $9,092
Other 231 205
------ ------
7,718 9,297
Less allowance for doubtful accounts (131) (211)
Less allowance for discounts and returns (324) (140)
------ ------
Accounts receivable, net $7,263 $8,946
====== ======
29
<PAGE>
</TABLE>
NOTE 4 - INVENTORIES
Inventories consisted of the following at June 30:
<TABLE>
<CAPTION>
(000's)
1999 1998
<S> <C> <C>
Raw materials $ 2,628 $ 3,401
Finished goods 7,914 9,321
----------- -----------
Total $ 10,542 $ 12,722
=========== ===========
</TABLE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
Estimated
Useful Life (000's)
----------- -------
1999 1998
---- ----
<S> <C> <C> <C>
Land and land improvements - $ 382 $ 382
Building 30 years 2,200 2,126
Machinery and equipment 7-20 years 46,883 46,751
Furniture and fixtures 5-7 years 1,066 767
Roll inventory 3 years 2,334 1,766
Construction-in-process - 472 246
----------- -----------
53,337 52,038
Less accumulated depreciation 14,472 10,674
----------- -----------
Total $ 38,865 $ 41,364
=========== ===========
</TABLE>
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at June 30:
<TABLE>
<CAPTION>
(000's)
1999 1998
<S> <C> <C>
Salaries $ 1,965 $ 2,043
Interest 4,011 2,845
Hupp pension liability - 129
Other liabilities 1,054 1,213
----------- -----------
Total $ 7,030 $ 6,230
=========== ===========
</TABLE>
NOTE 7 - LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following at June 30:
<TABLE>
<CAPTION>
(000's)
1999 1998
---- ----
<S> <C> <C>
Senior Term Loan, $25,000,000 principal amount, interest at prime (8.5% at June
30, 1998) plus 2.0%, payable in monthly installments, beginning August 1, 1995,
with final payment due April 1, 2001, senior position collateralized by all the
assets, contracts, real property and common stock of J&L. - $ 16,920
Revolving Loan Facility, $15,000,000 principal amount, interest at prime (8.5%
at June 30, 1998) plus 1.5%, payable April 1, 2000, with a one-year renewal
option, senior position collateralized by all the assets, contracts, and real
property and common stock of J&L. - 9,843
30
<PAGE>
Senior Term Loan, $19,000,000 principal amount, interest at prime (7.75% at June
30, 1999) plus 1% per annum or at Eurodollar rate (5.09% at June 30, 1999) plus
3% payable in monthly installments under an 84-month amortization schedule
beginning August 1, 1999 with final payment due for the remainder of the balance
on June 30, 2002, unless extended for successive one year terms at the sole
option of the lender. Senior lender position is collateralized by all assets of
J&L including accounts receivable, inventory, contracts and property, plant and
equipment. 19,000 -
Revolving loan facility, $16,000,000 principal amount, interest at prime (7.75%
at June 30, 1999) rate plus 0.75% per annum or at Eurodollar rate (5.09% at June
30, 1999) plus 2.75% payable June 30, 2002, with consecutive one year renewals
at the sole option of the lender. Senior lender position is collateralized by
all assets of J&L including accounts receivable, inventory, contracts and
property, plant and equipment. 5,630 -
Subordinated Term Notes, $23,000,000 principal amount, interest at the fixed
rate of 13%, payable interest only quarterly beginning June 30, 1995 through
March 31, 2002 and then quarterly principal payments of $1,500,000 plus interest
until due June 30, 2005, subordinated position to the senior debt with respect
to collateralization by all the assets, contracts, real property and common
stock of J&L. The notes have been discounted $153,000 at the date of issuance
for financial statement reporting purposes as a result of the fair value
attributed to their related warrants. 23,000 23,000
Machinery and Equipment Loan Fund (MELF) loan, $500,000 principal amount,
interest a fixed rate of 3%, payable monthly beginning December 1, 1996, with
final payment due November 1, 2001, subordinated position to senior and
subordinated debt with respect to collateralization by all assets, contracts and
real property of J&L. 243 342
Beaver County Enterprise Zone and Development Fund loans, $250,000 principal
amount each, interest at 3% and 4.125% respectively, payable monthly beginning
June 1, 1997, with final payment due May 1, 2001, subordinated position to the
senior and subordinated debt with respect to collateralization by all assets,
contracts and real property of J&L. 294 391
Fixed rate 13% debenture agreement with a related investment company, $6,730,000
principal amount, payable semi-annually interest only beginning October 1, 1995
and due December 15, 2002, secured by the Company's stock held in JLH. The debenture
has been discounted $840,000 at the date of issuance for financial statement
reporting purposes as a result of the fair value attributed to the related
warrants. 6,730 6,730
Deferred purchase money note payable to a related holding company, interest
fixed at 11%, payable annually interest only beginning March
15, 1996 and due December 15, 2002. 475 475
31
<PAGE>
Unsecured line of credit to $1,000,000 with a related investment company,
bearing interest at 13% and payable with interest only semi-annually beginning
April 1, 1996 until due in December 15, 2002. The line of credit has been discounted
$376,000 at the date of issuance for financial statement reporting purposes as a
result of the fair value attributed to the related warrants.
1,000 1,000
----------- -----------
Total 56,372 58,701
Less-current maturities 2,691 4,321
Less-discounts on long term obligations 877 1,009
----------- -----------
Long-term obligations, net $ 52,804 $ 53,371
=========== ===========
</TABLE>
The following table sets forth the scheduled maturities of the long-term debt of
the Company as of June 30:
(000's)
2000 $ 2,691
2001 2,923
2002 21,053
2003 14,205
2004 6,000
Thereafter 9,500
-------
$56,372
J&L capitalized interest on capital projects during their construction period in
fiscal 1997 totaling approximately $130,000.
On June 30, 1999, J&L entered into a new loan and security agreement with
Congress Financial Corporation ("Congress") which provides for (i) a revolving
loan facility in an amount up to $16,000,000 (ii) an existing equipment term
loan in the principal amount of $19,000,000, and (iii) equipment purchase term
loans in amounts totaling up to $8,000,000. Proceeds from the financing
arrangements were used to repay existing senior term loans and revolving loan
facility with FINOVA Capital Corporation ("FINOVA"). As of June 30, 1999, no
amounts have been drawn on the equipment purchase term loan facility. As part of
the refinancing, J&L's subordinated term notes were also amended on June 30,
1999 to replace the former senior lender with the new senior lender and to
revise certain performance covenants. All fees and costs incurred to acquire the
new loan and security agreement and to amend the subordinated term notes have
been capitalized and are included in deferred financing costs as of June 30,
1999.
On June 30, 1999, the Company recognized a $1,532,000 extraordinary loss as a
result of the early termination of the FINOVA senior term loan and revolving
loan facility. The extraordinary loss consisted primarily of the write-off of
associated deferred financing costs and related amortization and a prepayment
premium. No tax benefit was recognized for the extraordinary item due to the
valuation allowance recorded against the net deferred tax asset at June 30,
1999.
Under the terms of the revolving loan facility, as of June 30, 1999 and 1998,
the Company used $750,000 and $1,500,000, respectively, of its credit
availability to issue letters of credit. During 1999, a letter had been issued
to an insurance company to collateralize the cost of certain insurance programs.
During 1999, letters had been issued to the insurance company and to a supplier
for the purchase of raw materials.
The revolving loan facility is subject to a borrowing base calculation for
purposes of collateral that is comprised of 85% of eligible accounts receivable
less any availability reserves plus the lesser of 60% of eligible inventory or
$8,500,000. At June 30, 1999, the borrowing base limit totaled $12,285,500.
32
<PAGE>
The Company continues to remain unable to meet its debt service obligations
under various related party obligations including its credit agreement and
unsecured line of credit totaling $6,730,000 and $1,000,000 with accrued
interest totaling approximately $3,407,000 and $408,000, respectively, to
Trinity Investment Corp., and a deferred purchase money note to Ascott Wing,
Inc. totaling $475,000 plus accrued interest totaling approximately $196,000
through June 30, 1999. Both Trinity Investment Corp. and Ascott Wing, Inc. have
agreed to extend a previously issued waiver deferring any payments due under
these obligations from July 1, 1999 to July 1, 2000.
The various loan agreements of J&L include certain provisions which, among other
things, provide that J&L will maintain certain tangible net worth, maintain
certain financial ratios, limit the amount of annual capital expenditures, and
limit the amount of shareholder distributions. At June 30, 1999, J&L was in
compliance with all provisions of its loan agreements.
The fair market value of J&L's fixed rate long-term debt on June 30, 1999,
including current maturities, approximates its book value. Book value
approximates fair value as the interest rates are appropriate based upon the
current market conditions for similar loans based upon current credit worthiness
and other factors. The fair market value estimate was based on cash flow yield
to maturity which was compared to market quotations where possible. Management
is not aware of any significant factors that would alter this estimate after
that date.
NOTE 8 - INCOME TAXES
For the years ended June 30, 1999, 1998, and 1997 the provision (benefit) for
income taxes consisted of the following:
(000's)
1999 1998 1997
---- ---- ----
Federal income tax provision $ - $ - $ -
State deferred tax provision (benefit) - (337) 337
-------- ------ -------
Total $ - $ (337) $ 337
-------- ------ -------
The effective income tax rate on income from continuing operations differs from
the statutory federal income tax rate for the fiscal years ended June 30, 1999,
1998, and 1997, as follows:
<TABLE>
<CAPTION>
(000's)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax (benefit) at U.S. Federal statutory rate of 34% $ (94) $ 75 $ (788)
State income taxes (37) (307) 337
Utilization of net operating loss carryforwards, increase in
valuation allowance and other 131 (105) 788
------------ --------- -------
Income tax provision (benefit) $ - $ (337) $ 337
============ ========= =======
</TABLE>
Management has calculated its federal and state net operating loss carryforward
at June 30, 1999 to be approximately $103,731,000 and $11,907,000. Such losses
can be carried forward and expire in the tax years ending June 30, 2008 through
2019.
Temporary differences between financial statement carrying amounts and tax bases
of assets and liabilities at June 30, 1999 and 1998 were as follows:
(000's)
1999 1998
Current deferred taxes:
Accrued expenses $ 572 $ 474
Inventory 345 347
Valuation allowance (917) (821)
------------ -----------
Net current deferred tax asset $ - $ -
============ ===========
Non-current deferred taxes:
Property, plant and equipment and intangibles $ (5,922) $ (4,435)
Net operating losses (federal and state) 36,412 35,111
Other 134 87
Valuation allowance (30,624) (30,763)
------------ -----------
Total non-current deferred tax liability $ - $ -
============ ===========
33
<PAGE>
The Company reduced valuation allowances by approximately $337,000 during 1998
to reflect the effect of legislation enacted in 1997, which extended the
carryforward period for the state tax net operating losses. Management has
recorded a valuation allowance at June 30, 1999 and 1998 against the deferred
tax assets due to their belief that recovery of these future deductions against
future taxable income is less than likely.
NOTE 9 - CAPITAL STOCK
Warrants for 300,000 shares of Company common stock were issued to Trinity in
conjunction with the unsecured line of credit agreement executed on February 1,
1996. The warrants are exercisable for a period of ten years at $4.00 per
warrant.
Warrants for 2,000,000 shares of Company common stock were issued to Trinity in
conjunction with an amended credit agreement executed on April 1, 1995. These
warrants are exercisable for a period of ten years at $1.00 per warrant.
NOTE 10 - BENEFIT PLANS
J&L maintains a defined contribution (money purchase) plan for substantially all
employees whereby J&L makes contributions, at designated rates, based on hours
worked. All contributions required under the plan have been funded as of June
30, 1999, 1998 and 1997. Pension expense for the years ended June 30, 1999,
1998, and 1997 was approximately $646,000, $584,000 and $582,000, respectively.
J&L participates in the National Industrial Group Pension Plan which is a
multi-employer defined benefit pension plan covering all employees of Brighton's
collective bargaining unit. All contributions required under the plan have been
funded as of June 30, 1999, 1998 and 1997. A withdrawal from the plan would
trigger an obligation to the plan for a portion of the unfunded benefit
obligation. Pension expense for the years ended June 30, 1999, 1998 and 1997 was
approximately $27,000, $34,000 and $40,000, respectively.
J&L provides a profit sharing plan for substantially all employees. The amount
available for profit sharing is based on a return on sales formula using defined
levels of pretax income. For those employees compensated under terms of
collective bargaining agreements, distributions are calculated and paid
quarterly. For other eligible employees, calculations and distributions are made
at J&L's fiscal year end. Such amounts have been reflected as current
liabilities in the accompanying consolidated balance sheets. Profit sharing
expense for the years ended June 30, 1999, 1998 and 1997 was approximately
$1,038,000, $1,111,000 and $764,000, respectively.
J&L also maintains separate 401(k) or salary deferral plans for substantially
all of its employees. Participation in these plans is based on hours of service.
Both plans provide for employee contributions up to 20% of wages subject to
certain adjustments. The plan associated with the collective bargaining
agreement provides for discretionary company contributions. For the years ended
June 30, 1999, 1998 and 1997, no employer contributions were made.
In connection with its collective bargaining agreement with the Industrial and
Allied Employees Union Local No. 73 (the "Union"), Hupp participated in a
multi-employer defined benefit pension plan. The plan covered all of Hupp's
employees who were members of the Union. As a result of the secured party asset
sale on October 27, 1994, Hupp was deemed to have withdrawn from the plan. This
withdrawal triggered a demand for payment of withdrawal liability by the Union
(see Note 11).
NOTE 11 - LITIGATION, COMMITMENTS AND CONTINGENCIES
The Industrial and Allied Employees Union Local No. 73 Pension Plan (the "Plan")
issued a claim for payment of withdrawal liability totaling approximately
$870,000 under Section 4219 of ERISA against Hupp, CPT and all "controlled group
members", as a result of Hupp's cessation of contributions to the Plan following
the discontinuance of Hupp's business in October 1994. On July 10, 1996, an
arbitrator sustained the Plan's claim of withdrawal liability against CPT.
Pursuant to ERISA, CPT subsequently appealed the arbitration decision to the
U.S. District Court for the Northern District of Ohio. On September 17, 1997, in
response to CPT's appeal, the District Court vacated in part, and confirmed in
part the arbitrator's award. In its judgement, the District Court reduced the
award in favor of the Plan from approximately $870,000 to $62,696. The Plan
subsequently appealed the District Court's ruling to the United States Court of
Appeals for the Sixth Circuit. On December 8, 1998, the Sixth Circuit reversed
the decision of the District Court and reinstated the original arbitration
award. On January 21, 1999, the Sixth Circuit denied CPT's petition for a
rehearing, rendering the decision final. No future appeal has been or will be
pursued by CPT. CPT made a payment of approximately $188,000 in June 1999 to the
Plan which reflects the satisfaction of the arbitration award.
34
<PAGE>
In 1995, J&L signed a contract for turnkey development, fabrication, and
installation of a new reheat furnace. Furnace startup took place in July 1996,
with the entire project having a total cost of approximately $8.5 million. Of
this amount, $7.1 million had been disbursed through June 30, 1998. J&L had been
in the process of arbitration with the furnace builder regarding the final
payment of $1.4 million as the Company believed performance testing results did
not meet contract specifications. The $1.4 million had been accrued in full by
the Company. On April 20, 1999, the arbitrators stipulated that J&L pay the
remaining project cost, offset by approximately $300,000 of warranty claims
which had been awarded to J&L as part of the same arbitration process.
At June 30, 1999, all required payments under the arbitrators decision had been
made.
During 1999, J&L entered into an agreement to purchase certain daily quantities
of gas for the period of November 1999 through October 2000. Total commitments
remaining under this agreement approximated $1,446,000 as of June 30, 1999.
One June 30, 1999, the Company entered into turnkey engineering, procurement and
construction agreements for upgrades to the Aliquippa mill in the amounts
totaling $4,850,000 and $2,550,000.
The Company is involved in various legal actions arising in the normal course of
business. While it is not possible to determine with certainty the outcome of
these matters, in the opinion of management, the eventual resolution of the
claims and actions outstanding will not have a material adverse effect on the
Company's financial position or operating results.
NOTE 12 - RELATED PARTY TRANSACTIONS
A management agreement exists between the Company and J&L whereby the Company or
its designated affiliate provides executive management advisory services to J&L.
The contract term of the agreement is for a period of six years through March
2001 and is subject to being automatically renewed annually thereafter, unless
terminated by any party to the agreement. Annual amounts due to the Company
under this agreement total $600,000, which includes out-of-pocket expenses
incurred by the Company of up to $150,000 annually. The Company exercised its
right under the agreement to designate Mentmore Holdings Corporation
("Mentmore") as the management advisory service provider and as a result has
assigned all fees the Company is entitled to under this agreement to Mentmore.
Management fee expense paid to Mentmore for the years ended June 30, 1999, 1998
and 1997 under this agreement totaled $600,000 per year. Effective July 1, 1999,
for a period of one year, the management advisory services agreement with J&L
was amended to reduce annual compensation to $528,000.
During fiscal 1999, Mentmore provided investment banking services in connection
with J&L's refinancing of its senior credit facility charging J&L related fees
of $200,000.
Richard L. Kramer is Chairman of the Board, a Director and Secretary of
Mentmore. William L. Remley is a director and President of Mentmore. The
Chairman of the Board of the Company is also the Chairman of the Board, a
Director, Vice President and Secretary of Trinity and Ascott Wing. The President
and Treasurer of the Company is also a Director, President and Treasurer of
Trinity and Ascott Wing, and a Trustee for The A.J. 1989 Trust. Various lending
and stock purchase warrant agreements have been executed by the Company with
Trinity (see Note 9). Various loans to the Company had been made by The A.J.
1989 Trust, and a Deferred Purchase Money Note exists in consideration for BESCC
preferred stock redeemed on March 15, 1995.
Long-term employment contracts exist with three executives at J&L, formerly
owners of JLS. These employment contracts extend for five-year periods each
through March, 2000.
35
<PAGE>
NOTE 13 - SEGMENT INFORMATION
The Company's continuing operations include two distinct business segments, J&L
Structural and Brighton, within its single operating subsidiary, J&L. The
distinction between the two segments is primarily driven by the difference in
products manufactured and the markets served. J&L Structural manufactures and
fabricates lightweight structural steel shapes which are distributed principally
to the manufactured housing, truck trailer construction and highway safety
system industries. Brighton designs, manufactures and sells steel piercer points
which represent disposable tooling used in the production of seamless steel
tubes which are primarily used in the petrochemical industry. There are no
intersegment sales between J&L and Brighton. Interest expense and the
extraordinary item are recorded and evaluated at the corporate level and are not
allocated to the segments. Financial information for continuing operations by
business segment for the fiscal years ended June 30, is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
Brighton $ 3,942 $ 6,603 $ 6,055
J&L Structural 96,443 104,227 92,144
--------------- ---------------- ---------------
Total $ 100,385 $ 110,830 $ 98,199
=============== ================ ===============
Depreciation and amortization:
Brighton $ 204 $ 192 $ 162
J&L Structural 4,200 4,106 3,836
Corporate and Other 119 133 110
--------------- ---------------- ---------------
Total $ 4,523 $ 4,431 $ 4,108
=============== ================ ===============
Operating income (loss):
Brighton $ 460 $ 1,348 $ 1,107
J&L Structural 6,487 7,649 4,764
Corporate and Other - (314) (495)
--------------- ---------------- ---------------
Total $ 6,947 $ 8,683 $ 5,376
=============== ================ ===============
Total assets:
Brighton $ 4,771 $ 4,811 $ 3,847
J&L Structural 55,128 61,491 63,147
Corporate and Other 151 103 176
--------------- ---------------- ---------------
Total $ 60,050 $ 66,405 $ 67,170
=============== ================ ===============
Capital expenditures:
Brighton $ 74 $ 211 $ 85
J&L Structural 1,421 1,167 3,413
--------------- ---------------- ---------------
Total $ 1,495 $ 1,378 $ 3,498
=============== ================ ===============
</TABLE>
For the year ended June 30, 1999, one J&L Structural customer accounted for
approximately 11% of the Company's net sales. For the years ended June 30, 1998
and 1997, no customer accounted for more than 10% of the Company's net sales.
Brighton's net sales were driven by five customers that comprised 81%, 84% and
80% of Brighton's total net sales in 1999, 1998 and 1997, respectively.
The Company primarily sells to domestic customers. International customers
comprised 2.7%, 2.1% and 0.9% of total sales for the fiscal years ended June 30,
1999, 1998, and 1997, respectively. All of the Company's foreign customers are
located in Canada.
36
<PAGE>
CPT HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
June 30,
(000's)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance Sheets
Assets
Cash and cash equivalents $ 52 $ 2 $ 18
Prepaid expenses and other - - 203
EITF 88-16 basis adjustment (9,705) (9,705) (9,705)
Investment in subsidiary 9,032 9,529 7,506
------------- ------------- --------------
Total assets $ (621) $ (174) $ (1,978)
============= ============= ==============
Liabilities and Shareholders' Deficit
Accrued liabilities $ 4,529 $ 3,185 $ 2,079
Due to subsidiaries 49 152 200
Long-term obligations 7,441 7,321 7,188
Common stock: authorized 30,000,000 shares
at $0.05 par value each, 1,510,084 shares
issued and outstanding 76 76 76
Additional paid-in capital 5,737 5,737 5,737
EITF 88-16 basis adjustment (9,705) (9,705) (9,705)
Accumulated deficit (8,748) (6,940) (7,553)
------------- ------------- --------------
(12,640) (10,832) (11,445)
------------- ------------- --------------
Total shareholders' deficit
$ (621) $ (174) $ (1,978)
============= ============= ==============
Total liabilities and shareholders' deficit
Statement of Cash Flows
Cash flows from operating activities $ (139) $ (140) $ (370)
Cash flows from investing activities - - -
Cash flows from financing activities 189 124 297
------------- -------------- --------------
Increase (decrease) in cash and cash equivalent 50 (16) (73)
Cash and cash equivalents:
Beginning of year 2 18 91
------------- ------------- --------------
End of year $ 52 $ 2 $ 18
============= ============= ==============
Statements of Earnings (Loss)
Earnings (loss) in subsidiaries $ (307) $ 2,091 $ (1,185)
Other income 25 132 48
Interest expense (1,526) (1,406) (1,215)
Operating expenses - (259) (302)
-------------- ------------- --------------
Net income (loss) $ (1,808) $ 558 $ (2,654)
============== ============= ==============
</TABLE>
37
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 1999, 1998 and 1997
(000's)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
---------------------------------- ----------------- ----------------- ----------------- -----------------
Description Balance at Charges to Retirements 2 Balance at end
beginning of costs & expenses of period
period
---------------------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1999
Allowance for Doubtful
Accounts in Accounts
Receivable $ 211 $ 75 $ 155 $ 131
===== ===== ===== =====
Allowance for Sales Discounts
and Claims $ 140 $ 231 $ 47 $ 324
===== ===== ===== =====
1998
Allowance for Doubtful
Accounts in Accounts
Receivable $ 151 $ 158 $ 98 $ 211
===== ===== ===== =====
Allowance for Sales Discounts
and Claims $ 67 $ 567 $ 494 $ 140
===== ===== ===== =====
1997
Allowance for Doubtful
Accounts in Accounts
Receivable $ 206 $ 60 $ 115 $ 151
===== ===== ===== =====
Allowance for Sales Discounts
and Claims $ 101 $ 266 $ 300 $ 67
===== ===== ===== =====
</TABLE>
38
<PAGE>
- --------
2 Represents write-offs of uncollectable accounts or realized sales discounts
and claims.
39
<PAGE>
LOAN AND SECURITY AGREEMENT
by and among
CONGRESS FINANCIAL CORPORATION
as Lender
and
J&L STRUCTURAL, INC.
as Borrower
J&L HOLDINGS CORP.
CONTINUOUS CASTER CORPORATION
as Guarantors
Dated: June 30, 1999
189-5
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
SECTION 1. DEFINITIONS..........................................................................................1
SECTION 2. CREDIT FACILITIES...................................................................................19
2.1 Loans..............................................................................................19
2.2 Letter of Credit Accommodations....................................................................21
2.3 Existing Equipment Term Loan.......................................................................23
2.4 Equipment Purchase Term Loans......................................................................24
2.5 Availability Reserves..............................................................................26
SECTION 3. INTEREST AND FEES...................................................................................26
3.1 Interest...........................................................................................26
3.2 Closing Fee........................................................................................28
3.3 Servicing Fee......................................................................................28
3.4 Unused Line Fee....................................................................................28
3.5 Changes in Laws and Increased Costs of Loans.......................................................29
SECTION 4. CONDITIONS PRECEDENT................................................................................30
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations..........................30
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations..............................32
SECTION 5. GRANT OF SECURITY INTEREST...........................................................................33
SECTION 6. COLLECTION AND ADMINISTRATION.......................................................................34
6.1 Borrower's Loan Account............................................................................34
6.2 Statements.........................................................................................34
6.3 Collection of Accounts.............................................................................35
6.4 Payments...........................................................................................36
6.5 Authorization to Make Loans........................................................................36
6.6 Use of Proceeds....................................................................................37
SECTION 7. COLLATERAL REPORTING AND COVENANTS..................................................................37
7.1 Collateral Reporting...............................................................................37
7.2 Accounts Covenants.................................................................................38
7.3 Inventory Covenants................................................................................39
7.4 Equipment and Real Property Covenants..............................................................40
7.5 Right to Cure......................................................................................41
7.6 Power of Attorney..................................................................................41
7.7 Access to Premises.................................................................................42
SECTION 8. REPRESENTATIONS AND WARRANTIES......................................................................42
8.1 Corporate Existence, Power and Authority; Subsidiaries.............................................42
189-5
(i)
<PAGE>
8.2 Financial Statements; No Material Adverse Change...................................................43
8.3 Chief Executive Office; Collateral Locations.......................................................43
8.4 Priority of Liens; Title to Properties.............................................................43
8.5 Tax Returns........................................................................................44
8.6 Litigation.........................................................................................44
8.7 Compliance with Other Agreements and Applicable Laws...............................................44
8.8 Bank Accounts......................................................................................44
8.9 Environmental Compliance...........................................................................45
8.10 Employee Benefits.................................................................................45
8.11 Accuracy and Completeness of Information..........................................................46
8.12 Survival of Warranties; Cumulative................................................................47
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS..................................................................47
9.1 Maintenance of Existence...........................................................................47
9.2 New Collateral Locations...........................................................................47
9.3 Compliance with Laws, Regulations, Etc.............................................................47
9.4 Payment of Taxes and Claims........................................................................49
9.5 Insurance..........................................................................................49
9.6 Financial Statements and Other Information.........................................................50
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc............................................51
9.8 Encumbrances.......................................................................................53
9.9 Indebtedness.......................................................................................55
9.10 Loans, Investments, Guarantees, Etc...............................................................59
9.11 Dividends and Redemptions.........................................................................61
9.12 Transactions with Affiliates......................................................................61
9.13 Additional Bank Accounts..........................................................................62
9.14 Compliance with ERISA.............................................................................63
9.15 After Acquired Real Property......................................................................63
9.16 Adjusted Tangible Net Worth.......................................................................64
9.17 Year 2000 Compliance..............................................................................64
9.18 End of Fiscal Years................................................................................64
9.19 Costs and Expenses................................................................................64
9.20 Further Assurances................................................................................65
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.....................................................................65
10.1 Events of Default.................................................................................65
10.2 Remedies..........................................................................................67
10.3 Confession of Judgment.............................................................................69
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW .............................................................70
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.............................70
11.2 Waiver of Notices.................................................................................71
189-5
(ii)
<PAGE>
11.3 Amendments and Waivers............................................................................71
11.4 Waiver of Counterclaims...........................................................................72
11.5 Indemnification...................................................................................72
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS...................................................................72
12.1 Term..............................................................................................72
12.2 Notices...........................................................................................74
12.3 Partial Invalidity................................................................................74
12.4 Successors........................................................................................74
12.5 Entire Agreement..................................................................................75
189-5
</TABLE>
(iii)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate for Borrowers and Guarantors
Exhibit B Form of Equipment Purchase Loan Note
Schedule 1.35 Existing Lenders
Schedule 1.36 Existing Letters of Credit
Schedule 1.53 Municipal Debt Agreements
Schedule 6.5 Authorized Persons to Request Loans and
Letter of Credit Accommodations
Schedule 8.4 Existing Liens
Schedule 8.8 Bank Accounts
Schedule 8.9 Environmental Compliance
Schedule 8.10 ERISA Compliance
Schedule 9.10 Loans, Advances and Guarantees
189-5
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<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated June 30, 1999 is entered into by
and among Congress Financial Corporation, a Delaware corporation ("Lender") and
J&L Structural, Inc., a Delaware corporation ("Borrower") and J&L Holdings
Corp., a Delaware corporation ("Holdings") and Continuous Caster Corporation, a
Delaware corporation ("CCC"; and together with Holdings, individually, each a
"Guarantor" and collectively, "Guarantors").
W I T N E S S E T H:
WHEREAS, Borrower and Guarantors have requested that Lender enter into
certain financing arrangements with Borrower pursuant to which Lender may make
loans and provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and advances and provide
such financial accommodations on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural. All
references to Borrower pursuant to the definition set forth in the recitals
hereto, unless the context otherwise requires, shall mean Borrower and its
successors and assigns. All references to Guarantors pursuant to the definition
set forth in the recitals hereto, unless the context otherwise requires, shall
mean each and all of them and their respective successors and assigns,
individually and collectively, jointly and severally. All references to Lender
pursuant to the definitions set forth in the recitals hereto, or to any other
person herein, shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement and as this Agreement now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue or
be
189-5
1
<PAGE>
continuing until such Event of Default is waived in accordance with Section 11.3
or is cured in a manner satisfactory to Lender if such Event of Default is
capable of being cured as determined by Lender. Any accounting term used herein
unless otherwise defined in this Agreement shall have the meanings customarily
given to such term in accordance with GAAP. For purposes of this Agreement, the
following terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to deposits
of United States dollars in a non-United States or an international banking
office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar
Rate Loan made with the proceeds of such deposit, whether or not the Reference
Bank actually holds or has made any such deposits or loans. The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of any change
in the Reserve Percentage.
1.3 "Adjusted Tangible Net Worth" shall mean as to any Person, at any
time, in accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its Subsidiaries (if any),
the amount equal to: (a) the difference between: (i) the aggregate net book
value of all assets of such Person and its subsidiaries (excluding the value of
patents, trademarks, tradenames, copyrights, licenses, goodwill and other
intangible assets), calculating the book value of inventory for this purpose on
a first-in-first-out basis, after deducting from such book values all
appropriate reserves in accordance with GAAP (including all reserves for
doubtful receivables, obsolescence, depreciation and amortization) and (ii) the
aggregate amount of the indebtedness and other liabilities of such Person and
its subsidiaries (including tax and other proper accruals) plus (b) indebtedness
of such Person and its subsidiaries which is subordinated in right of payment to
the full and final payment of all of the Obligations on terms and conditions
acceptable to Lender (including, the subordinated indebtedness of Borrower
permitted under Section 9.9 hereof).
1.4 "Affiliate" shall mean, with respect to a specified Person, a
partnership, corporation or any other person which directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with such
189-5
2
<PAGE>
Person, and without limiting the generality of the foregoing, includes (a) any
Person which beneficially owns or holds five (5%) percent or more of any class
of voting securities of such Person or other equity interests in such Person;
(b) any Person of which such Person beneficially owns or holds five (5%) percent
or more of any class of voting securities or in which such Person beneficially
owns or holds five (5%) percent or more of the equity interests; and (c) any
director, officer or employee of such Person. For the purposes of this
definition, the term "control" (including with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
1.5 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender, may from time to time establish and
revise in good faith reducing the amount of Loans and Letter of Credit
Accommodations which would otherwise be available to Borrower under the lending
formula(s) provided for herein: (a) to reflect events, conditions, contingencies
or risks which, as determined by Lender in good faith, adversely affect or have
a reasonable likelihood of adversely affecting either (i) the Collateral or any
other property which is security for the Obligations, its value or the amount
which may be realized by Lender from the sale or other disposition thereof, or
(ii) the assets, business or financial condition of Borrower or any Obligor, or
(iii) the security interests and other rights of Lender in the Collateral
(including the enforceability, perfection and priority thereof), or (b) to
reflect Lender's good faith belief 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 or
(c) to reflect outstanding Letter of Credit Accommodations as provided in
Section 2.2 hereof or (d) in respect of any state of facts which Lender
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default or (e) to reflect any
rental payments, service charges or other amounts due to lessors of real or
personal property (other than amounts due to lessors who have executed and
delivered Collateral Access Agreements) to the extent Inventory is located in or
on such property (subject to Section 1.19 hereof) or (f) to reflect $268,000 of
real estate taxes currently due and payable but not yet delinquent in respect of
Borrower's Real Property.
1.6 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.7 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a day
on which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which banks are
closed for dealings in
189-5
3
<PAGE>
dollar deposits in the London interbank market or other applicable Eurodollar
Rate market.
1.8 "Capital Leases" shall mean, as applied to any Person, any lease of
(or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee which in accordance with GAAP, is
required to be reflected as a liability on the balance sheet of such Person.
1.9 "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's capital stock, partnership interests or interests in any limited
liability company at any time outstanding, and any and all rights, warrants or
options exchangeable for or convertible into such capital stock or other
interests (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
1.10 "Cash Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of one hundred eighty (180) days or less
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof; provided, that, the full faith
and credit of the United States of America is pledged in support thereof; (b)
certificates of deposit or bankers' acceptances with a maturity of one hundred
eighty (180) days or less of any financial institution that is a member of the
Federal Reserve System having combined capital and surplus and undivided profits
of not less than $250,000,000; (c) commercial paper (including variable rate
demand notes) with a maturity of one hundred eighty (180) days or less issued by
a corporation (except an Affiliate of Borrower) organized under the laws of any
State of the United States of America or the District of Columbia and rated at
least A-1 by Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.; (d)
repurchase obligations with a term of not more than thirty (30) days for
underlying securities of the types described in clause (a) above entered into
with any financial institution having combined capital and surplus and undivided
profits of not less than $250,000,000; (e) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit to the
United States of America, in each case maturing within one hundred eighty (180)
days or less from the date of acquisition; provided, that, the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (f)
investments in money market funds and mutual funds which invest substantially
all of their assets in securities of the types described in clauses (a) through
(e) above.
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1.11 "Change of Control" shall mean (a) the transfer (in one
transaction or a series of transactions) of all or substantially all of the
assets of Borrower or any Guarantor to any Person or group (as such term is used
in Section 13(d)(3) of the Exchange Act); (b) the liquidation or dissolution of
Borrower or any Guarantor or the adoption of a plan by the stockholders of
Borrower or any Guarantor relating to the dissolution or liquidation of Borrower
or any Guarantor; (c) the acquisition by any Person or group (as such term is
used in Section 13(d)(3) of the Exchange Act) except for one or more Permitted
Holders, of beneficial ownership, directly or indirectly, of fifty (50%) percent
or more of the voting power of the total outstanding Voting Stock of any
Guarantor; (d) the failure of Holdings to own (i) at least eighty (80%) percent
of the voting power of the total outstanding Voting Stock of Borrower and (ii)
one hundred (100%) percent of the voting power of the total outstanding Voting
Stock of CCC and (e) failure of CPT or any of the other Permitted Holders to own
at least eighty (80%) of Holdings.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.13 "Collateral" shall have the meaning set forth in Section 5.1
hereof.
1.14 "Collateral Access Agreement" shall mean an agreement in writing,
in form and substance satisfactory to Lender, from any lessor of premises to
Borrower or any Guarantor, or any other person to whom any Collateral (including
Inventory, Equipment, bills of lading or other documents of title) is consigned
or who has custody, control or possession of any such Collateral or is otherwise
the owner or operator of any premises on which any of such Collateral is
located, pursuant to which such lessor, consignee or other person, inter alia,
acknowledges the security interest of Lender in such Collateral, agrees to waive
any and all claims such lessor, consignee or other person may, at any time, have
against such Collateral, whether for processing, storage or otherwise, and
agrees to permit Lender access to, and the right to remain on, the premises of
such lessor, consignee or other person so as to exercise the rights and remedies
of Lender and otherwise deal with such Collateral.
1.15 "CPT" shall mean CPT Holdings, Inc., a Minnesota corporation.
1.16 "Current Municipal Indebtedness" shall mean the Indebtedness of
Borrower to Municipalities arising under the Current Municipal Debt Agreements
in effect on the date hereof.
1.17 "Current Portion" shall mean as at each Payment Date, the amount
of interest and/or regularly scheduled payments of principal that are payable in
cash on the
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Senior Subordinated Notes in respect of the quarterly period ending on such
Payment Date.
1.18 "Eligible Accounts" shall mean the Accounts created by Borrower
which are and continue to be acceptable to Lender based on the criteria set
forth below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than the earlier of (i)
sixty (60) days after the original due date for them or (ii) ninety (90) days
after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America or Canada (provided,
that, at any time promptly upon Lender's request, Borrower shall execute and
deliver, or cause to be executed and delivered, such other agreements, documents
and instruments as may be required by Lender to perfect the security interests
of Lender in those Accounts of an account debtor with its chief executive office
or principal place of business in Canada in accordance with the applicable laws
of the Province of Canada in which such chief executive office or principal
place of business is located and take or cause to be taken such other and
further actions as Lender may request to enable Lender as secured party with
respect thereto to collect such Accounts under the applicable Federal or
Provincial laws of Canada) or, at Lender's option, if the chief executive office
and principal place of business of the account debtor with respect to such
Accounts is located other than in the United States of America or Canada, then
if either: (i) the account debtor has delivered to Borrower an irrevocable
letter of credit issued or confirmed by a bank organized and existing under the
laws of the United States of America or any State thereof, satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and if required by Lender, the original of such letter of credit has been
delivered to Lender or the agent of Lender and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit
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insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender, or (iii) such Account is otherwise acceptable in all
respects to Lender (subject to lending formula with respect thereto as Lender
may determine);
(f) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which have impaired
the validity, enforceability or collectability of such Account or reduced the
amount payable or delayed payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee, agent or
other Affiliate of Borrower directly or indirectly;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts are not owed by an account debtor who has
Accounts unpaid more than the earlier of sixty (60) days after the original due
date for such
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Accounts or ninety (90) days after the date of the original invoice for them,
which constitute more than fifty (50%) percent of the total Accounts of such
account debtor; and
(n) such Accounts are owed by account debtors whose total
indebtedness to such Borrower does not exceed the credit limit with respect to
such account debtors as determined by Lender from time to time (but the portion
of the Accounts not in excess of such credit limit may be deemed Eligible
Accounts);
(o) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral. In the event Lender shall
establish new criteria or revise the existing criteria for Eligible Accounts in
any respect, Lender shall notify Borrower and upon Borrower's request, Lender
shall inform Borrower of the basis for the establishment of such new criteria or
revision of such criteria, as the case may be.
1.19 "Eligible Inventory" shall mean the Inventory of Borrower
consisting of finished goods held for resale in the ordinary course of the
business of Borrower and raw materials for such finished goods which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) work-in-process; (b) components which are not
part of finished goods; (c) spare parts for equipment; (d) packaging and
shipping materials; (e) supplies used or consumed in the business of Borrower;
(f) Inventory at premises other than those owned and controlled by Borrower,
except any Inventory which would otherwise be deemed Eligible Inventory at
locations which are not owned and operated by Borrower may nevertheless be
considered Eligible Inventory if: (i) as to premises leased by Borrower
(including warehouses and similar facilities) if either (A) Lender shall have
received a Collateral Access Agreement duly authorized, executed and delivered
by the owner and lessor of such premises or (B) if Lender has not received such
Collateral Access Agreement, then Lender shall have established an Availability
Reserve in respect of amounts due or to become due to the owner and lessor of
such location (without limiting any other rights and remedies of Lender under
this Agreement or under the other Financing Agreements with respect to the
establishment of Availability Reserves or otherwise) and after giving effect to
such Availability Reserves, there is Excess Availability; provided, that, (1)
Borrower shall use its best efforts to obtain the Collateral Access Agreement
with respect to each of such locations and (2) the Availability Reserves
established pursuant to this Section shall not exceed at any time the aggregate
of amounts payable to such owners and lessors for the next three (3) months and
including amounts, if any, then outstanding and unpaid owed by Borrower to such
owners and lessors, provided, that, such limitation on the amount of the
Availability Reserves pursuant to this Section shall
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only apply so long as: (aa) no Event of Default shall have exist or have
occurred and be continuing, and (bb) Borrower or Lender shall not have received
notice of any default or event of default under the agreement with respect to
such location and (ii) as to premises of third parties constituting consignees
and processors and other like owners and operators, Lender shall have received a
Collateral Access Agreement duly authorized, executed and delivered by the owner
and operator of such premises, and in addition, if required by Lender: (A) the
owner and operator executes appropriate UCC- 1 financing statements in favor of
Borrower, which are duly assigned to Lender and (B) any secured lender to such
owner and operator is properly notified of the first priority lien of Lender on
such Inventory of Lender; (g) Inventory subject to a security interest or lien
in favor of any person other than Lender except those permitted in this
Agreement; (h) bill and hold goods; (i) unserviceable, obsolete or slow moving
Inventory; (j) Inventory which is not subject to the first priority, valid and
perfected security interest of Lender; (k) returned, damaged and/or defective
Inventory; and (l) Inventory purchased or sold on consignment (except as
otherwise provided in Section 1.19(f) above). General criteria for Eligible
Inventory may be established and revised from time to time by Lender. Any
Inventory which is not Eligible Inventory shall nevertheless be part of the
Collateral. In the event Lender shall establish new criteria or revise the
existing criteria for Eligible Inventory in any respect, Lender shall notify
Borrower and upon Borrower's request, Lender shall inform Borrower of the basis
for the establishment of new criteria or such revision of the existing criteria,
as the case may be.
1.20 "Eligible New Equipment" shall mean Equipment owned by Borrower
acquired after the date hereof, which Equipment is in good order, repair,
running and marketable condition, located at Borrower's premises and acceptable
to Lender in all respects. In general, Eligible New Equipment shall not include:
(a) Equipment at premises other than those owned or leased and controlled by
Borrower, except as to premises that are leased by Borrower, only if Lender
shall have received a Collateral Access Agreement from the person in possession
of such Equipment and/or the owner or operator of such premises in form and
substance satisfactory to Lender; (b) Equipment subject to a security interest
or lien in favor of any person other than Lender except those permitted in this
Agreement; (c) Equipment which is not located in the continental United States
of America; (d) Equipment which is not subject to the first priority, valid and
perfected security interest of Lender; (e) worn-out obsolete, damaged or
defective Equipment or Equipment not used or usable in the ordinary course of
Borrower's business as presently conducted; or (f) Equipment not used for the
manufacturing of Inventory in the ordinary course of business of Borrower. Any
Equipment which is not Eligible New Equipment shall nevertheless be part of the
Collateral. In the event Lender shall establish new criteria or revise the
existing criteria for Eligible New Equipment in any respect, Lender shall notify
Borrower and upon Borrower's request, Lender shall inform Borrower of the basis
for the establishment of such new criteria or such revision of the existing
criteria, as the case may be.
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1.21 "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, binding judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.22 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired or leased equipment, machinery, computers and computer hardware and
software (whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.23 "Equipment Purchase Term Loan Repayment Date" shall mean August 1,
2006.
1.24 "Equipment Purchase Term Loans" shall mean the secured term loans
hereafter made by Lender to Borrower as provided for in Section 2.4, such term
loans being from time to time referred to herein individually as an "Equipment
Purchase Term Loan."
1.25 "Equipment Purchase Term Notes" shall mean, collectively, the
Equipment Purchase Term Notes which may at any time hereafter be issued by
Borrower to Lender pursuant to Section 2.4 hereof to evidence an Equipment
Purchase Term Loan, such notes being from time to time referred to herein
individually as an "Equipment Purchase Term Note."
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1.26 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.27 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any Subsidiary of Borrower under Sections 414(b), 414(c),
414(m) or 414(o) of the Code.
1.28 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York City time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans requested by and available to
Borrower in accordance with this Agreement, with a maturity of comparable
duration to the Interest Period selected by Borrower.
1.29 "Eurodollar Rate Loans" shall mean, individually and collectively,
Eurodollar Rate Revolving Loans and Eurodollar Rate Term Loans.
1.30 "Eurodollar Rate Revolving Loans" shall mean any Revolving Loans
or portion thereof on which interest is payable based on the Adjusted Eurodollar
Rate in accordance with the terms hereof.
1.31 "Eurodollar Rate Term Loans" shall mean any Term Loans or portion
thereof on which interest is payable based on the Adjusted Eurodollar Rate in
accordance with the terms hereof.
1.32 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.33 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts
and the Value of Eligible Inventory, as determined by Lender, and subject to the
sublimits and Availability Reserves from time to time established by Lender
hereunder and (ii) the Revolving Loan Limit, minus (b) the sum of: (i) the
amount of all then outstanding and unpaid Obligations (but not including for
this purpose the then aggregate outstanding principal amount of the Term Loans),
plus (ii) the aggregate amount of all then outstanding and unpaid trade payables
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and other obligations of Borrower which are more than sixty (60) days past due
as of such time plus (iii) the amount of any checks issued by Borrower to pay
such trade payables (which are more than sixty (60) days past due), but not yet
sent.
1.34 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
the same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.35 "Existing Equipment Term Loan" shall mean the amortizing term loan
made by Lender to Borrower as provided in Section 2.3 hereof.
1.36 "Existing Lenders" shall mean the lenders to Borrower listed on
Schedule 1.36 hereto.
1.37 "Existing Letters of Credit" shall mean, collectively, the letters
of credit issued for the account of Borrower or any Guarantor or for which
Borrower or any Guarantor is otherwise liable listed on Schedule 1.37 hereto, as
the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.38 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instr uments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.39 "Future Municipal Indebtedness" shall mean the Indebtedness of
Borrower to Municipalities arising after the date hereof pursuant to Future
Municipal Debt Agreements as permitted in accordance with Section 9.9(f) hereof.
1.40 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.
1.41 "Governmental Authority" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any
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corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
1.42 "Hard Costs" shall mean, with respect to the purchase by Borrower
of an item of Eligible New Equipment, the net cash amount actually paid to
acquire title to such item, net of all incentives, discounts and rebates, and
exclusive of freight, delivery charges, installation costs and charges, trade-in
allowances, software costs, charges and fees, warranty costs, taxes, insurance
and other incidental costs or expenses and all indirect costs or expenses of any
kind.
1.43 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.44 "Indebtedness" shall mean, with respect to any Person, any
liability, whether or not contingent, (a) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such Person
or only to a portion hereof) or evidenced by bonds, notes, debentures or similar
instruments; (b) representing the balance deferred and unpaid of the purchase
price of any property or services (except any such balance that constitutes an
account payable to a trade creditor (whether or not an Affiliate) created,
incurred, assumed or guaranteed by such Person in the ordinary course of
business of such Person in connection with obtaining goods, materials or
services that is not overdue by more than ninety (90) days, unless the trade
payable is being contested in good faith); (c) all obligations as lessee under
leases which have been, or should be, in accordance with GAAP recorded as
Capital Leases; (d) any contractual obligation, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, or any agreement to purchase,
repurchase, or otherwise acquire such indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof,
or to maintain solvency, assets, level of income, or other financial condition;
(e) all obligations with respect to redeemable stock and redemption or
repurchase obligations under any Capital Stock or other equity securities issued
by such Person; (f) all reimbursement obligations and other liabilities of such
Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker's acceptances or similar documents or instruments
issued for such Person's account; and
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(g) all indebtedness of such Person in respect of indebtedness of another Person
for borrowed money or indebtedness of another Person otherwise described in this
definition which is secured by any consensual lien, security interest,
collateral assignment, conditional sale, mortgage, deed of trust, or other
encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time.
1.45 "Information Certificate" shall mean, collectively, the
Information Certificates with respect to Borrower and Guarantors constituting
Exhibit A hereto containing material information with respect to Borrower and
Guarantors, their respective business and assets provided by or on behalf of
Borrower and Guarantors to Lender in connection with the preparation of this
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.46 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.47 "Interest Rate" shall mean the following:
(a) as to Prime Rate Revolving Loans, a rate equal to
three-quarters (.75%) percent per annum in excess of the Prime Rate and, as to
Eurodollar Rate Revolving Loans, a rate of two and three-quarters (2.75%)
percent per annum in excess of the Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the Interest Period selected by Borrower as in
effect three (3) Business Days after the date of receipt by Lender of the
request of Borrower for such Eurodollar Rate Revolving Loans in accordance with
the terms hereof, whether such rate is higher or lower than any rate previously
quoted to Borrower);
(b) as to Prime Rate Term Loans, a rate equal to one (1%) percent
per annum in excess of the Prime Rate and as to Eurodollar Rate Term Loans, a
rate equal to three (3%) percent in excess of the Adjusted Eurodollar Rate
(based on the Eurodollar Rate applicable for the Interest Period selected by
Borrower as in effect three (3) Business Days after the date of receipt by
Lender of the request of Borrower for such Eurodollar Rate Term Loans in
accordance with the terms hereof, whether such rate is higher or lower than any
Eurodollar Rate previously quoted to Borrower); and
(c) notwithstanding anything to the contrary contained herein,
the Interest Rate, as to Prime Rate Loans and Eurodollar Rate Loans, shall mean
the rate of two (2%) percent per annum more than the otherwise then applicable
Interest Rate, at Lender's option, without notice, (i) either (A) for the period
on and after the date of
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termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid in full, or (B) for the period from and after the date of the
occurrence of any Event of Default, and for so long as such Event of Default is
continuing as determined by Lender and (ii) on the Loans to Borrower at any time
outstanding in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es) arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default).
1.48 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.49 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of Borrower or any Obligor
or (b) with respect to which Lender has agreed to indemnify the issuer or
guaranteed to the issuer the performance by Borrower of its obligations to such
issuer (including the Existing Letters of Credit).
1.50 "Loans" shall mean the Revolving Loans and the Term Loans.
1.51 "Material Adverse Effect" shall mean a material adverse effect on
(a) the condition (financial or otherwise), business, performance, operations or
properties of Borrower and Guarantors; (b) the legality, validity or
enforceability of this Agreement or any of the other Financing Agreements; (c)
the legality, validity, enforceability, perfection or priority of the security
interests and liens of Lender upon the Collateral or any other property which is
security for the Obligations; (d) the Collateral or any other property which is
security for the Obligations, or the value of the Collateral or such other
property; (e) the ability of Borrower to repay the Obligations or of Borrower or
any Guarantor to perform its obligations under this Agreement or any of the
other Financing Agreements; or (f) the ability of Lender to enforce the
Obligations or realize upon the Collateral or otherwise with respect to the
rights and remedies of Lender under this Agreement or any of the other Financing
Agreements.
1.52 "Maximum Credit" shall mean $43,000,000.
1.53 "Mortgages" shall mean, collectively, the following (as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced): (a) Open End Mortgage and Security Agreement in
favor of Lender with respect to Real Property and related assets of Borrower
located in Aliquippa, Pennsylvania and Beaver Falls, Pennsylvania and (b) Open
End Leasehold Mortgage and Security Agreement in favor of Lender with respect to
Borrower's leasehold interest in Real Property and related assets of Borrower
located in Ambridge, Pennsylvania.
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1.54 "Municipal Debt Agreements" shall mean, collectively, the
following (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) the agreements,
documents and instruments listed on Schedule 1.54 hereto in respect of the
Current Municipal Indebtedness, (b) the agreements, documents and instruments
evidencing all Future Municipal Indebtedness entered into after the date hereof,
and (c) all agreements, documents and instruments executed and/or delivered in
connection therewith.
1.55 "Municipal Indebtedness Subordination and Intercreditor Agreement"
shall mean the Subordination and Intercreditor Agreement dated the date hereof
by and among the appropriate Municipalities and Lender as acknowledged and
agreed to by Borrower, providing for, among other things, such parties' relative
rights and priorities with respect to the assets and properties of Borrower and
the subordination in right of payment of all Current Municipal Indebtedness owed
by Borrower or any Obligor to such Municipalities to the right of Lender to
receive the prior and final payment and satisfaction in full of the Obligations,
as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.56 "Municipalities" shall mean (i) Beaver County Corporation for
Economic Development, (ii) Commonwealth of Pennsylvania, acting by and through
the Department of Community and Economic Development and (iii) any other
Pennsylvania municipality or state agency.
1.57 "Net Amount of Eligible Accounts" shall mean the gross amount of
the Eligible Accounts of Borrower less (a) sales, excise or similar taxes
included in the amount thereof and (b) returns, discounts, claims, credits and
allowances of any nature at any time issued, owing, granted, outstanding,
available or claimed with respect thereto.
1.58 "Net Proceeds" shall mean the aggregate cash proceeds received by
any of Borrower or Guarantors in respect of any asset sale permitted under
Section 9.7 hereof, net of the direct costs relating to such asset sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions), taxes paid or payable as a result thereof (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), amounts applied to the repayment of Indebtedness secured by a
lien on the asset or assets that are the subject of such asset sale. Net
Proceeds shall exclude any non-cash proceeds received from any asset sale, but
shall include such proceeds when and as converted by Borrower, or any Guarantor.
1.59 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or Lender's
Affiliates,
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including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.60 "Obligor" shall mean 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.
1.61 "Participant" shall mean any person which at any time participates
with Lender in respect of the Loans, the Letter of Credit Accommodations or
other Obligations or any portion thereof.
1.62 "Payment Date" shall mean the last Business Day of each calendar
quarter, beginning with the quarter ending June 30, 1995.
1.63 "Permitted Holders" shall mean (i) Richard L. Kramer and William
L. Remley, (ii) any spouse or immediate family member of any Person named in
clause (i) hereof and any child or spouse of any spouse or immediate family
member of any such Person, (iii) a trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding, directly or indirectly, a controlling interest of which
consists of any Person named in clause (i) hereof and/or such other Persons
referred to in the immediately preceding clause (ii) hereof, or (iv) the
trustees of any trust referred to in clause (iii) hereof and (iv) CPT.
1.64 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Code), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.65 "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.
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1.66 "Prime Rate Loans" shall mean, individually and collectively, the
Prime Rate Revolving Loans and the Prime Rate Term Loans.
1.67 "Prime Rate Revolving Loans" shall mean any Revolving Loans or
portion thereon on which interest is payable based on the Prime Rate in
accordance with the terms hereof.
1.68 "Prime Rate Term Loans" shall mean any Term Loans or portion
thereof on which interest is payable based on the Prime Rate in accordance with
the terms hereof.
1.69 "Real Property" shall mean all now owned and hereafter acquired
real property of Borrower and/or any Guarantor, including leasehold interests,
together with all buildings, structures, and other improvements located thereon
and all licenses, easements and appurtenances relating thereto, wherever
located, including the real property and related assets located in Aliquippa,
Pennsylvania, Beaver Falls, Pennsylvania and Ambridge, Pennsylvania more
particularly described in the Mortgages.
1.70 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.71 "Reference Bank" shall mean First Union National Bank, or such
other bank as Lender may from time to time designate.
1.72 "Repurchase Agreement" shall mean the Repurchase Agreement dated
as of April 6, 1995 among Borrower, CPT and the Senior Subordinated Noteholders.
1.73 "Renewal Date" shall have the meaning set forth in Section 12.1
hereof.
1.74 "Revolving Loan Limit" shall mean the amount of $16,000,000.
1.75 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrowers on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.76 "Senior Subordinated Note Agreements" shall mean, collectively,
the following (as the same now exists as amended through the date hereof or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced): (a) the
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Senior Subordinated Notes, (b) the Note and Warrant Purchase Agreement dated as
of April 6, 1995 by and among Borrower, the Senior Subordinated Noteholders and
the Common Stock Purchase Warrants issued thereunder, as amended by: First
Amendment to Note and Warrant Purchase Agreement, executed on October 12, 1995
and made effective as of June 30, 1995; Second Amendment to Note and Warrant
Purchase Agreement, executed on May 15, 1996 and made effective as of March 31,
1996 and Third Amendment to Note and Warrant Purchase Agreement, executed on the
date hereof, (c) the Repurchase Agreement, (d) the Management Subordination
Agreement dated as of April 6, 1995 by and among Borrower, Holdings, CPT and the
Senior Subordinated Noteholders, (e) the Pledge Agreement dated as of April 6,
1995 by and between Holdings and the Senior Subordinated Noteholders, (f) the
Collateral Assignments of Trademarks and Security Agreement dated as of April 6,
1995 by and between Borrower and the Senior Subordinated Noteholders, (g) the
Open-End Mortgage dated as of April 6, 1995 made by Borrower in favor of the
Senior Subordinated Noteholders and (h) all agreements, documents and
instruments executed and/or delivered in connection therewith.
1.77 "Senior Subordinated Noteholders" shall mean, collectively, each
and all of the following and their respective successors and assigns: (a) The
Paul Revere Life Insurance Company, (b) The Paul Revere Variable Annuity
Insurance Company, (c) The Paul Revere Protective Life Insurance Company, (d)
Investors Bank and Trust, as trustee for the Textron Collective Investment Trust
and (e) any other person that at any time is a holder of any of the Senior
Subordinated Notes.
1.78 "Senior Subordinated Notes" shall mean, collectively the 13%
Senior Subordinated Secured Note due June 30, 2005 dated April 6, 1995 issued by
Borrower pursuant to the Senior Subordinated Note Agreements dated April 6, 1995
by and among Borrower and the Senior Subordinated Noteholders, as such notes now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.79 "Subordination and Intercreditor Agreement" shall mean the
Subordination and Intercreditor Agreement dated the date hereof by and among and
the Senior Subordinated Noteholders and Lender as acknowledged and agreed to by
Borrower, providing for, among other things, such parties' relative rights and
priorities with respect to the assets and properties of Borrower and the
subordination in right of payment of all indebtedness owed by Borrower or any
Obligor to the right of Lender to receive the prior and final payment and
satisfaction in full of the Obligations, as the same now exists or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
1.80 "Subsidiary" or "subsidiary" shall mean, with respect to any
Person, any corporation, limited or general partnership, trust, association or
other business entity of
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which an aggregate of at least a majority of the outstanding Capital Stock or
other interests entitled to vote in the election of the board of directors of
such corporation (irrespective of whether, at the time, Capital Stock of any
other class or classes of such corporation shall have or might have voting power
by reason of the happening of any contingency), managers, trustees or other
controlling persons, or an equivalent controlling interest therein, of such
Person is, at the time, directly or indirectly, owned by such Person and/or one
or more subsidiaries of such Person.
1.81 "Term Loans" shall mean, individually and collectively, the
Existing Equipment Term Loan and the Equipment Purchase Term Loans.
1.82 "Value" shall mean, as determined by Lender, with respect to
Inventory, the lower of (a) cost computed on a first-in-first-out basis in
accordance with GAAP or (b) market value.
1.83 "Voting Stock" shall mean with respect to any Person, (a) one (1)
or more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
SECTION 2. CREDIT FACILITIES
2.1 Loans.
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to:
(i) eighty-five (85%) percent of the Net Amount of
Eligible Accounts, plus
(ii) the lesser of (A) sixty (60%) percent of the Value of
Eligible Inventory, or (B) $8,500,000, less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrower, (i) reduce the lending formula
with respect to Eligible
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Accounts to the extent that Lender determines in good faith that: (A) the
dilution with respect to the Accounts of Borrower for any period (based on the
ratio of (1) the aggregate amount of reductions in Accounts other than as a
result of payments in cash to (2) the aggregate amount of total sales) has
increased or may be reasonably anticipated to increase above historical levels,
or (B) the general creditworthiness of account debtors has declined or (ii)
reduce the lending formula(s) with respect to Eligible Inventory of Borrower to
the extent that Lender determines in good faith that: (A) the number of days of
the turnover of the Inventory for any period has negatively changed in any
material respect or (B) the liquidation value of the Eligible Inventory, or any
category thereof, has decreased, or (C) the nature, quality and mix of the
Inventory has deteriorated. The amount of any reduction in any lending formula
by Lender pursuant to this Section 2.1(b) shall have a reasonable relationship
to the matter which is the basis for such reduction in the good faith
determination of Lender. To the extent an Availability Reserve shall have been
established which is sufficient to address any event, condition or matter in a
manner satisfactory to Lender in its good faith determination, Lender shall not
exercise its rights under this Section 2.1(b) to reduce the lending formulas to
address such event, condition or matter.
(c) Except in Lender's discretion, the aggregate amount of the
Revolving Loans and the Letter of Credit Accommodations outstanding at any time
shall not exceed the Revolving Loan Limit as then in effect. In the event that
the outstanding amount of any component of the Revolving Loans, or the aggregate
amount of the outstanding Revolving Loans and Letter of Credit Accommodations,
exceed the amounts available under the lending formulas, the sublimit for
Eligible Inventory set forth in Section 2.1(a)(ii) above, the sublimits for
Letter of Credit Accommodations set forth in Section 2.2(d) or the Revolving
Loan Limit, as applicable, such event shall not limit, waive or otherwise affect
any rights of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any time or from
time to time, immediately repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimit on Revolving Loans
based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Lender may treat
the then undrawn amounts of outstanding Letter of Credit Accommodations for the
purpose of purchasing Eligible Inventory as Revolving Loans to the extent Lender
is in effect basing the issuance of the Letter of Credit Accommodations on the
Value of the Eligible Inventory being purchased with such Letter of Credit
Accommodations. In determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the outstanding
Revolving Loans and Availability Reserves shall be attributed first to any
components of the lending formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to the components of the lending formulas
subject to such sublimit.
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2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Loans to Borrower
pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to one and one-half
(1 1/2%) percent per annum on the daily outstanding balance of the Letter of
Credit Accommodations for the immediately preceding month (or part thereof),
payable in arrears as of the first day of each succeeding month, except that
Borrower shall pay to Lender such letter of credit fee, at Lender's option,
without notice, at a rate equal to three and one-half (3 1/2%) percent per annum
on such daily outstanding balance for: (i) the period from and after the date of
termination or non-renewal hereof until Lender has received full and final
payment of all Obligations (notwithstanding entry of a judgment against
Borrower) and (ii) the period from and after the date of the occurrence of an
Event of Default and for so long as such Event of Default is continuing. Such
letter of credit fee shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed and the obligation of Borrower to pay
such fee shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless
on the date of the proposed issuance of any Letter of Credit Accommodations, the
Loans available to the Borrower (subject to the Revolving Loan Limit, the
Maximum Credit and any Availability Reserves) are equal to or greater than: (i)
if the proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory, the sum of (A) the percentage equal to one hundred (100%)
percent minus the then applicable percentage set forth in Section 2.1(a)(ii)
above multiplied by the cost of such Eligible Inventory, plus (B) freight,
taxes, duty and other amounts that Lender estimates must be paid in connection
with such Inventory upon arrival and for delivery to one of Borrower's locations
for Eligible Inventory within the United States of America and (ii) if the
proposed Letter of Credit Accommodation is for any other purpose, an amount
equal to one hundred (100%) percent of the face amount thereof and all other
commit ments and obligations made or incurred by Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodation, an
Availability Reserve shall be established in the applicable amount set forth in
Section 2.2(c)(i) or Section 2.2(c)(ii).
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(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time exceed
$3,500,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Loans otherwise
available to Borrower shall not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation. Borrower assumes all risks with respect
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation except for Lender's own gross
negligence or wilful misconduct as determined pursuant to a final non-appealable
order of a court of competent jurisdiction. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties,
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indemnities or delivery orders, and (ii) at all times, (A) grant any extensions
of the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents, and (B) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit Accommodations, or
documents, drafts or acceptances thereunder or any letters of credit included in
the Collateral. Lender may take such actions either in its own name or in
Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Existing Equipment Term Loan. Lender is making an Existing
Equipment Term Loan to Borrower in the original principal amount of $19,000,000.
The Existing Equipment Term Loan is (a) evidenced by a Term Promissory Note,
dated the date hereof, in such original principal amount duly executed and
delivered by Borrower to lender concurrently herewith; (b) to be repaid,
together with interest and other amounts, in accordance with this Agreement, the
Term Promissory Note, and the other Financing Agreements; and (c) secured by all
of the Collateral. The Existing Equipment Term Loan may be prepaid in full by
Borrower at any time without premium or penalty, subject only to the early
termination fee provided for in Section 12.1 hereof if it is prepaid together
with all other Obligations as provided therein. The principal amount of the
Existing Equipment Term Loan repaid may not be reborrowed.
2.4 Equipment Purchase Term Loans.
(a) Subject to and upon the terms and conditions contained
herein, Lender shall make Equipment Purchase Term Loans to Borrower, from time
to time, at the request of Borrower of up to one hundred (100%) percent of the
Hard Costs of Eligible New Equipment to be purchased by Borrower after the date
hereof with the proceeds of such Equipment Purchase Term Loan. Each Equipment
Purchase Term Loan shall be in a minimum amount equal to the lesser of (i)
$500,000 (and in integral multiples of $100,000 greater than such amount), or
(ii) the amount equal to the excess, if any, of (A) $8,000,000 over (B) the
aggregate unpaid principal amount of all outstanding Equipment Purchase Term
Loans. All of the proceeds of each Equipment Purchase Term Loan shall be used
solely for the payment of the purchase price of the Eligible
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New Equipment specified in the notice required to be delivered to Lender
pursuant to Section 2.4(d)(i) below.
(b) Except in Lender's discretion, the outstanding aggregate
principal amount of the Equipment Purchase Term Loans shall not exceed, at any
time, the lower of (i) the aggregate amount of one hundred (100%) percent of the
Hard Costs of all Eligible New Equipment purchased by Borrower pursuant hereto
or (ii) $8,000,000 ("Equipment Purchase Term Loan Limit"). If at any time the
outstanding aggregate principal amount of all Equipment Purchase Term Loans
shall exceed the Equipment Purchase Term Loan Limit, Borrower shall remain
liable therefor, and Lender may, at its option, create an Availability Reserve
in an amount equal to the entire amount of such excess(es) or Borrower shall,
upon the demand by Lender, which may be made at any time and from time to time,
repay to Lender the entire amount of such excess(es). The principal amounts of
Equipment Purchase Term Loans repaid may not be reborrowed.
(c) Each Equipment Purchase Term Loan shall be (i) evidenced by
an Equipment Purchase Term Note executed and delivered by Borrower to Lender
concurrently with each Equipment Purchase Term Loan, (ii) repaid, together with
interest and other amounts payable thereunder, in accordance with the provisions
of the applicable Equipment Purchase Term Note, this Agreement and the other
Financing Agreements, and (iii) secured by all of the Collateral.
(d) In addition to the other conditions precedent to any Loan or
Letter of Credit Accommodation set forth in this Agreement, the making of each
Equipment Purchase Term Loan shall be subject to the satisfaction of each of the
following additional conditions precedent, as determined by Lender:
(i) Lender shall have received from Borrower not less than
fifteen (15)Business Days prior written notice of the proposed Equipment
Purchase Term Loan, which notice shall specify the following: (A) the proposed
date and amount of the Equipment Purchase Term Loan, (B) a list and description
of the Eligible New Equipment (by model, make, manufacturer, serial no. and/or
such other identifying information as may be appropriate, as determined by
Lender), (C) the Hard Costs and the total purchase price for the Eligible New
Equipment to be purchased with the proceeds of such Equipment Purchase Term Loan
(and the terms of payment of such purchase price), and (D) such other
information and documents as Lender may from time to time require related
thereto;
(ii) Lender shall have a valid and perfected first
security interest in and lien upon the Eligible New Equipment to be purchased
with the proceeds of the Equipment Purchase Term Loan and the Eligible New
Equipment shall be free and clear of all other liens, security interests, claims
or other encumbrances except those liens and
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security interests permitted in accordance with Section 9.8 hereof, and Borrower
shall have delivered to Lender such evidence thereof, as Lender may from time to
time, require;
(iii) the amount of the Equipment Purchase Term Loan shall
not exceed one hundred (100%) percent of the Hard Costs of the Eligible New
Equipment to be purchased by Borrower with the proceeds of such Equipment
Purchase Term Loan;
(iv) as of the date of such Equipment Purchase Term Loan
and after giving effect thereto, the aggregate principal amount of all Equipment
Purchase Term Loans outstanding at such time shall not exceed $8,000,000;
(v) Lender shall have received copies, or upon Lender's
request, the originals, of all agreements, documents and instruments relating to
the sale of the Eligible New Equipment to any Borrower, including, without
limitation, any purchase orders, invoices, bills of sale or similar documents;
(vi) Borrower shall duly authorize, execute and deliver to
Lender a single original Equipment Purchase Term Note in the form annexed hereto
as Exhibit B, as completed to reflect the date and amount of each such loan and
with the number of monthly installments of principal payable thereunder and the
amount of each such monthly installment completed in accordance with Sections
2.4(e) and 2.4(f) below, as the case may be, which note shall evidence a valid
and legally enforceable indebtedness of Borrower unconditionally owing to
Lender, without offset, defense or counterclaim of any kind, nature or
description whatsoever; and
(vii) no Event of Default, or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred and be continuing.
(e) The principal amount of each Equipment Purchase Term Loan
requested hereunder shall be payable (subject to earlier payment to the extent
required hereunder or under each Equipment Purchase Term Note) in, consecutive
monthly installments of principal, each in an amount calculated as set forth
below, together with interest commencing on the first day of the month after the
date of the making of such loan, together with interest and other amounts as
provided herein and in the Equipment Purchase Term Note with respect to such
loan with the last installment due and payable on the Equipment Purchase Term
Loan Repayment Date. The amount of each monthly installment of principal in
respect of each such Equipment Purchase Term Loan (other than the last
installment, which shall be due and payable on the Equipment Purchase Term Loan
Repayment Date in an amount equal to the entire unpaid balance of such Equipment
Purchase Term Note) shall equal: (i) the principal amount of the proposed
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Equipment Purchase Term Loan divided by (ii) the number of months in the period
commencing on the date of the making of such Equipment Purchase Term Loan and
ending on the Equipment Purchase Term Loan Repayment Date.
2.5 Availability Reserves. All Loans otherwise available to Borrower
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of any Event of Default or
termination or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans
to it be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate
Loans to it continue for an additional Interest Period. Such request from or on
behalf of Borrower shall specify the amount of the Prime Rate Loans which will
constitute Eurodollar Rate Loans (subject to the limits set forth below) and the
Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the
terms and conditions contained herein, three (3) Business Days after receipt by
Lender of such a request from or on behalf of a Borrower, such Prime Rate Loans
shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall
continue, as the case may be, provided, that, (i) no Event of Default, or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default shall exist or have occurred and be continuing, (ii) no
party hereto shall have sent any notice of termination or non-renewal of this
Agreement, (iii) Borrower shall have complied with such customary procedures as
are established by Lender and specified by Lender to Borrower from time to time
for requests by Borrower for Eurodollar Rate Loans, (iv) no more than six (6)
Interest Periods may be in effect at any one time, (v) the aggregate amount of
the Eurodollar Rate Loans must be in an amount not less than $1,000,000 or an
integral multiple of $500,000 in excess thereof, (vi) the maximum amount of
Eurodollar Rate Loans at any time requested by Borrower shall not exceed the
amount equal to (A) eighty (80%) percent of the aggregate principal amount of
the Term Loans which it is anticipated will be outstanding as of the last day of
the applicable Interest Period plus (B) eighty (80%) percent of the lowest
principal amount of Revolving Loans which it is anticipated will be outstanding
during the applicable Interest Period, in each case as determined by Lender (but
with no obligations of Lender to make such Revolving Loans) in
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consultation with Borrower and (vii) Lender shall have determined that the
Interest Period or Adjusted Eurodollar Rate is available to Lender through the
Reference Bank and can be readily determined as of the date of the request for
such Eurodollar Rate Loan by Borrower. Any request by Borrower to convert Prime
Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate
Loans shall be irrevocable. Notwithstanding anything to the contrary contained
herein, Lender and Reference Bank shall not be required to purchase United
States Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions
hereof shall be deemed to apply as if Lender and Reference Bank had purchased
such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans to Borrower shall, at Lender's option,
upon notice by Lender to Borrower, convert to Prime Rate Loans in the event that
(i) an Event of Default or act, condition or event which, with notice or passage
of time, or both, would constitute an Event of Default, shall exist or have
occurred and be continuing, (ii) this Agreement shall terminate or not be
renewed, or (iii) the aggregate principal amount of the Prime Rate Loans which
have previously been converted to Eurodollar Rate Loans or existing Eurodollar
Rate Loans continued, as the case may be, at the beginning of an Interest Period
shall at any time during such Interest Period exceed either (A) the aggregate
principal amount of the Loans then outstanding, or (B) the then outstanding
principal amount of Loans then available to Borrower under Section 2 hereof.
Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any loss
(including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non- contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender exceed the maximum amount or
the rate permitted under any applicable law or regulation, and if any such part
or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
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3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of $430,000, which shall be fully earned and payable by Borrower as of
the date hereof, $150,000 of which was paid to Lender on or about May 19, 1999.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee
in an amount equal to $2,500 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each such
month hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused
line fee at a rate equal to three-eighths (3/8%) percent per annum calculated
upon the amount by which $15,000,000 exceeds the average daily principal balance
of the outstanding Revolving Loans and Letter of Credit Accommodations during
the immediately preceding month (or part thereof) while this Agreement is in
effect and for so long thereafter as any of the Obligations are outstanding,
which fee shall be payable on the first day of each month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender, Reference
Bank or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrower shall
pay to Lender, upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person as a result of the
foregoing, including, without limitation, any such loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain the Eurodollar Rate Loans or any
portion thereof. A certificate of Lender setting forth the basis for the
determination of such amount necessary to compensate Lender as aforesaid shall
be delivered to Borrower and shall be conclusive, absent manifest error.
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(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the Existing
Lenders to Borrower of their respective financing arrangements with Borrower and
the termination and release by it or them, as the case may be, of any interest
in and to any assets and properties of Borrower and any Obligor, duly
authorized, executed and delivered by it or each of them, including, but not
limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor
in favor of such Existing Lenders, in form acceptable for recording in the
appropriate government office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(c) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and
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proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in the assets,
business or financial condition of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(e) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral and business of Borrower
as Lender may require to determine the amount of the Loans available to Borrower
(including, without limitation, current perpetual inventory records and/or
roll-forwards of Accounts and Inventory through the date of closing and test
counts of the Inventory in a manner satisfactory to Lender, together with such
supporting documentation as may be necessary or appropriate, and other documents
and information that will enable Lender to accurately identify and verify the
Collateral), the results of which each case shall be satisfactory to Lender, not
more than three (3) Business Days prior to the date hereof;
(f) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, Collateral Access
Agreements;
(g) the aggregate amount of the Excess Availability of Borrower
shall be not less than $3,000,000 as of the date hereof, after giving effect to
the initial Loans made or to be made and Letter of Credit Accommodations issued
or to be issued in connection with the initial transactions hereunder;
(h) Borrower shall have established a blocked account or lockbox
for its collections and the transfer thereof to Lender, which shall be in form
and substance acceptable to Lender;
(i) Lender shall have received environmental audits of Borrower's
and Guarantors' Real Property covered by Mortgages conducted by an independent
environmental engineering firm acceptable to Lender, and in form, scope and
methodology satisfactory to Lender confirming (i) Borrower is in compliance with
all material Environmental Laws and (ii) the absence of any material
environmental problems;
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(j) Lender shall have received, in form and substance
satisfactory to Lender, valid and effective title insurance policies issued by a
company and agent acceptable to Lender (i) insuring the priority, amount and
sufficiency of the Mortgages, (ii) insuring against matters that would be
disclosed by surveys and (iii) containing any legally available endorsements,
assurances or affirmative coverage reasonably requested by Lender for protection
of its interests;
(k) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(l) Lender shall have received, in form and substance
satisfactory to Lender, the Subordination and Intercreditor Agreement and the
Municipal Indebtedness Subordination and Intercreditor Agreement, duly
authorized, executed and delivered by each of the parties thereto and
acknowledged by Borrower, as well as any additional subordination and
intercreditor agreements, deemed necessary by Lender with other third parties
providing for, inter, alia, the subordination in right of payment of
indebtedness of Borrower to each of the Subordinated Noteholders to the prior
indefeasible payment and satisfaction in full of the Obligations and for such
parties' relative rights with respect to the assets and properties of Borrower
and Guarantors and related matters;
(m) to the extent that Borrower maintains credit insurance for
Accounts owing by account debtors to Lender shall have received evidence of such
credit insurance and an endorsement naming Lender as loss payee with respect
thereto, in each case in form and substance satisfactory to Lender;
(n) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance reasonably satisfactory to Lender, and certificates of
insurance policies and/or endorsements naming Lender as loss payee;
(o) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel(s) to Borrower and
Guarantors with respect to the Financing Agreements and the security interests
and liens of Lender with respect to the Collateral and such other matters as
Lender may request; and
(p) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
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4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto, except
to the extent that such representations and warranties relate solely to an
earlier date (in which case such representations and warranties shall have been
true and accurate as of the earlier date);
(b) no law, regulation, order, judgment or decree of any
Governmental Authority shall exist, and no action, suit, investigation,
litigation or proceeding shall be pending or threatened in any court or before
any arbitrator or Governmental Authority, which (i) purports to enjoin,
prohibit, restrain or otherwise affect (A) the making of the Loans or providing
the Letter of Credit Accommodations, or (B) the consummation of the transactions
contemplated pursuant to the terms hereof or the other Financing Agreements or
(ii) has or could reasonably be expected to have a material adverse effect on
the assets, business or financial condition of Borrower or any Obligor or would
impair the ability of Borrower or any Obligor to perform its obligations
hereunder or under any of the other Financing Agreements or of Lender to enforce
any Obligations or realize upon any of the Collateral; and
(c) no Event of Default and no act, condition or event which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation and
after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
5.1 To secure payment and performance of all Obligations, Borrower
hereby grants to Lender, a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (together with all other collateral
security for the Obligations at any time granted to or held or acquired by
Lender, collectively, the "Collateral"):
(a) Accounts;
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(b) all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate and
fixtures), chattel paper, documents, instruments, investment property, letters
of credit, bankers' acceptances and guaranties;
(c) all present and future monies, securities and other
investment property, credit balances, deposits, deposit accounts and other
property of Borrower now or hereafter held or received by or in transit to
Lender or its Affiliates or at any other depository or other institution from or
for the account of Borrower whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Accounts or other Collateral, including returned, repossessed and
reclaimed goods, and (iv) deposits by and property of account debtors or other
persons securing the obligations of account debtors;
(d) Inventory;
(e) Equipment;
(f) Records;
(g) Real Property; and
(h) all products and proceeds of the foregoing, in any form,
including insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest.
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All entries in the loan account(s) shall be made in accordance with Lender's
customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower, each month a statement
setting forth the balance in Borrower's loan account(s) maintained by Lender
pursuant to the provisions of this Agreement, including principal, interest,
fees, costs and expenses. Each such statement shall be subject to subsequent
adjustment by Lender but shall, absent manifest errors or omissions, be
considered correct and deemed accepted by Borrower and conclusively binding upon
Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans available
to Borrower, such payments will be applied (conditional upon final collection)
to the Obligations on the Business Day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next Business Day. For the purposes
of calculating interest on the Obligations,
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such payments or other funds received will be applied (conditional upon final
collec tion) to the Obligations one (1) Business Day following the date of
receipt of immediately available funds by Lender in the Payment Account provided
such payments or other funds and notice thereof are received in accordance with
Lender's usual and customary practices as in effect from time to time and within
sufficient time to credit Borrower's loan account on such day, and if not, then
on the next Business Day.
(c) Borrower and all of its directors, employees, agents,
Subsidiaries and other Affiliates shall, acting as trustee for Lender, receive,
as the property of Lender, any monies, checks, notes, drafts or any other
payment relating to and/or proceeds of Accounts or other Collateral which come
into their possession or under their control and immediately upon receipt
thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
6.4 Payments. All Obligations shall be payable to Lender as provided in
Section 6.3 to the Payment Account or to such other account or place as Lender
may designate from time to time. Lender may apply payments received or collected
from Borrower or for the account of Borrower (including, without limitation, the
monetary proceeds of collections or of realization upon any Collateral) to such
of the Obligations, whether or not then due, in such order and manner as Lender
determines, provided, that, (a) all such payments shall be applied to
Obligations which are then due and payable before being applied to pay any
Obligations which are not then due and payable (and unless and until an Event of
Default occurs and is continuing, such payments shall not be applied to make
prepayments of principal in respect of the Term Loans, except as Borrower may
request in writing) and (b) all such payments shall be applied to Prime Rate
Loans before being applied to Eurodollar Rate Loans. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and
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continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Lender. Borrower shall be liable to
pay to Lender, and do hereby indemnify and hold Lender harmless for, the amount
of any payments or proceeds surrendered or returned. This Section 6.4 shall
remain effective notwithstanding any contrary action which may be taken by
Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be one of the officers of
Borrower listed on Schedule 6.5 hereof or other authorized person, at the
discretion of Lender, if such Loans are necessary to satisfy any Obligations.
All requests for Loans or Letter of Credit Accommodations hereunder shall
specify the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business Day) and the
amount of the requested Loan. Requests received after 11:00 a.m. New York City
time on any day shall be deemed to have been made as of the opening of business
on the immediately following Business Day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed to have been
made to, and at the request of and for the benefit of, Borrower when deposited
to the credit of Borrower or otherwise disbursed or established in accordance
with the instructions of Borrower or in accordance with the terms and conditions
of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower and Guarantors not otherwise
prohibited by the terms hereof. None of the proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security or for
the purposes of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the Loans to be considered a "purpose credit" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended.
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SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a daily basis or
more frequently as Lender may request, (i) a schedule of sales made, credits
issued and cash received and (ii) perpetual inventory reports by category and
location; (b) on a monthly basis or more frequently as Lender may request (i)
agings of accounts payable and (ii) agings of accounts receivable, (c) upon
Lender's request, provide or make available to Lender: (i) copies of customer
statements and credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (ii) copies of shipping and delivery
documents, and (iii) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower; and (d) such other reports as
to the Collateral as Lender shall request from time to time. If any of
Borrower's or any Guarantor's records or reports of the Collateral are prepared
or maintained by an accounting service, contractor, shipper or other agent,
Borrower hereby irrevocably authorizes such service, contractor, shipper or
agent to deliver such records, reports, and related documents to Lender and to
follow Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its obligations to any account debtor
or the assertion of any material claims, offsets, defenses or counterclaims by
any account debtor, or any material disputes with account debtors, or any
settlement, adjustment or compromise thereof, (ii) all material adverse
information relating to the financial condition of any account debtor and (iii)
any event or circumstance which, to Borrower's knowledge would cause Lender to
consider any then existing Accounts as no longer constituting Eligible Accounts.
No credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor without Lender's consent,
except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. So long as no
Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or has occurred and
is continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of Borrower to deliver any
other information to Lender, Borrower shall promptly report to Lender any return
of Inventory by any one account debtor if the Inventory so returned in such case
has a value in excess of $150,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such
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returned, reclaimed or repossessed Inventory shall not be deemed an Eligible
Account. In the event any account debtor returns Inventory when an Event of
Default exists or has occurred and is continuing, Borrower shall, upon Lender's
request, (i) hold the returned Inventory in trust for Lender, (ii) segregate all
returned Inventory from all of its other property, (iii) dispose of the returned
Inventory solely according to Lender's instructions, and (iv) not issue any
credits, discounts or allowances with respect thereto without Lender's prior
written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of business of Borrower in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contrasts, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable Federal, State or local laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
immediately upon Borrower's receipt thereof, with appropriate endorsement and
assignment, with full recourse to Borrower, all chattel paper and instruments
which Borrower now owns or may at any time acquire immediately upon Borrower's
receipt thereof, except as Lender may otherwise agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all account debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any
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Accounts or such other obligations, but without any duty to do so, and Lender
shall not be liable for its failure to collect or enforce the payment thereof
nor for the negligence of its agents or attorneys with respect thereto and (iv)
take whatever other action Lender may deem necessary or desirable for the
protection of its interests. At any time that an Event of Default exists or has
occurred and is continuing, at Lender's request, all invoices and statements
sent to any account debtor shall state that the Accounts and such other
obligations have been assigned to Lender and are payable directly and only to
Lender and Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping in all material respects correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, the cost therefor
and daily withdrawals therefrom and additions thereto; (b) Borrower shall
conduct a physical count of the Inventory of Borrower at least once each year,
but at any time or times as Lender may request on or after an Event of Default,
and promptly following such physical inventory shall supply Lender with a report
in the form and with such specificity as may be reasonably satisfactory to
Lender concerning such physical count; (c) Borrower shall not remove any
Inventory from the locations set forth or permitted herein, without the prior
written consent of Lender, except for sales of Inventory in the ordinary course
of Borrower's business and except to move Inventory directly from one location
of Borrower set forth or permitted herein to another such location of Borrower
or the other Borrower (including any locations of account debtors, consignees or
processors to the extent permitted hereunder), so long as a financing statement
between Lender, as secured party and such other Borrower, as debtor, covering
such Inventory has previously been recorded in the appropriate governmental
offices of the jurisdiction of such location); (d) upon Lender's request,
Borrower shall at its expense no more than once in any twelve (12) month period,
but at any time or times as Lender may request on or after an Event of Default,
deliver or cause to be delivered to Lender written reports or appraisals as to
the Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender and upon which Lender is
expressly permitted to rely; (e) Borrower shall produce, use, store and maintain
the Inventory, with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (f) Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate Borrower to
repurchase such Inventory; (h) Borrower shall keep the Inventory in good and
marketable
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condition; and (i) Borrower shall not, without prior written notice to Lender,
acquire or accept any Inventory on consignment or approval.
7.4 Equipment and Real Property Covenants. With respect to the
Equipment and Real Property: (a) upon Lender's request, Borrower shall, at its
expense, no more than once in any twelve (12) month period, but at any time or
times as Lender may request on or after an Event of Default and at Borrower's
expense on and after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Equipment and the Real Property
in form, scope and methodology acceptable to Lender and by an appraiser
acceptable to Lender, addressed to Lender and upon which Lender is expressly
permitted to rely; (b) Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear excepted); (c) Borrower
shall use the Equipment and Real Property with all reasonable care and caution
and in accordance with applicable standards of any insurance and in conformity
with all applicable laws; (d) the Equipment is and shall be used in Borrower's
businesses and not for personal, family, household or farming use; (e) Borrower
shall not remove any Equipment from the locations set forth or permitted herein,
except to the extent necessary to have any Equipment repaired or maintained in
the ordinary course of the business of Borrower or to move Equipment directly
from one location of Borrower set forth or permitted herein to another such
location of such or the other Borrower (so long as a financing statement between
Lender, as secured party, and such other Borrower, as debtor, covering such
Equipment has previously been recorded in the appropriate governmental offices
of the jurisdiction of such location) and except for the movement of motor
vehicles used by or for the benefit of Borrower in the ordinary course of
business; (f) the Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (g) Borrower assumes all responsibility and
liability arising from the use of the Equipment and Real Property.
7.5 Right to Cure. Lender may, at its option, (a) after prior notice to
Borrower cure any default by Borrower under any agreement with a third party or
pay or bond on appeal any judgment entered against Borrower, (b) discharge
taxes, liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and (c) pay any amount, incur any
expense or perform any act which, in Lender's judgment, is necessary or
appropriate to preserve, protect, insure or maintain the Collateral and the
rights of Lender with respect thereto. Lender may add any amounts so expended to
the Obligations and charge Borrower's account therefor, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
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7.6 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing (i) demand payment on Accounts or other proceeds
of Inventory or other Collateral, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of Borrower's rights and remedies
to collect any Account or other Collateral, (iv) sell or assign any Account upon
such terms, for such amount and at such time or times as the Lender deems
advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi)
discharge and release any Account, (vii) prepare, file and sign Borrower's name
on any proof of claim in bankruptcy or other similar document against an account
debtor, (viii) notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Lender, and open and
dispose of all mail addressed to Borrower, and (ix) do all acts and things which
are necessary, in Lender's determination, to fulfill Borrower's obligations
under this Agreement and the other Financing Agreements and (b) at any time to
(i) take control in any manner of any item of payment or proceeds thereof
constituting Collateral or proceeds thereof received in or for deposit in the
Blocked Accounts or otherwise received by Lender, (ii) have access to any
lockbox or postal box into which remittances from customers or other payments in
respect of Accounts or other Collateral are deposited, (iii) endorse Borrower's
name upon any items of payment or proceeds thereof and deposit the same in the
Lender's account for application to the Obligations, (iv) endorse Borrower's
name upon any chattel paper, document, instrument, invoice, or similar document
or agreement relating to any Account or any goods pertaining thereto or any
other Collateral, (v) sign Borrower's name on any verification of Accounts and
notices thereof to account debtors and (vi) execute in Borrower's name and file
any UCC financing statements or amendments thereto. Borrower hereby releases
Lender and its officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Lender's own gross
negligence or wilful misconduct as determined pursuant to a final non-appealable
order of a court of competent jurisdiction.
7.7 Access to Premises. From time to time as requested by Lender, at
the cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all premises of Borrower during normal business hours and after notice
to Borrower or at any time and without notice to Borrower if an Event of Default
exists or has occurred and is continuing, for the purposes of inspecting,
verifying and auditing the Collateral and all of Borrower's books and records,
including, without limitation, the Records, and (b) Borrower shall promptly
furnish to Lender such copies of such books and records or extracts therefrom as
Lender may request, and (c) Lender or its designee may use during normal
business hours such of Borrower's personnel, equipment, supplies and premises as
may be reasonably necessary for the foregoing and if an Event of Default exists
or
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has occurred and is continuing for the collection of Accounts and realization of
other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower and Guarantors hereby jointly and severally represent and
warrant to Lender the following (which shall survive the execution and delivery
of this Agreement), the truth and accuracy of which are a continuing condition
of the making of Loans and providing Letter of Credit Accommodations by Lender
to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower
and each Guarantor is a corporation duly organized and in good standing under
the laws of its state of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where the
nature and extent of the business transacted by it or the ownership of assets
makes such qualification necessary and where the failure to so qualify would
have a material adverse effect on Borrower's or any Guarantor's financial
condition, results of operation or business or the rights of Lender hereunder or
under any of the other Financing Agreements or the rights of Lender in or to any
of the Collateral. The execution, delivery and performance of this Agreement,
the other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's and each Guarantor's corporate powers, have
been duly authorized and are not in contravention of law or the terms of
Borrower's or any Guarantor's certificate of incorporation, by-laws, or other
organizational documentation, or any indenture, agreement or undertaking to
which Borrower or any Guarantor is a party or by which Borrower or any Guarantor
or its property are bound. This Agreement and the other Financing Agreements to
which Borrower or any Guarantor is a party constitute legal, valid and binding
obligations of Borrower and such Guarantor enforceable in accordance with their
respective terms. Borrower and Guarantors do not have any Subsidiaries except as
set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower and Guarantors which have been or may hereafter
be delivered by Borrower or Guarantors to Lender have been prepared in
accordance with GAAP (except as to any interim financial statements, to the
extent such statements are subject to normal year-end adjustments and do not
include any notes), and fairly present the financial condition and the results
of operation of Borrower as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished by Borrower
and Guarantors to Lender prior to the date of this Agreement, there has been no
material adverse change in the assets, liabilities and condition, financial or
otherwise of Borrower or any Guarantor, since the date of the most recent
audited financial statements furnished by Borrower or Guarantors to Lender prior
to the date of this Agreement.
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8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and each Guarantor and Borrower's and Guarantors' Records
concerning Accounts are located only at the addresses set forth below and their
only other places of business and the only other locations of Collateral, if
any, are the addresses set forth in the Information Certificate, subject to the
right of Borrower and each Guarantor to establish new locations in accordance
with Section 9.2 below. The Information Certificate correctly identifies any of
such locations which are not owned by Borrower or Guarantors and sets forth the
owners and/or operators thereof and to the best of Borrower's knowledge, the
holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender hereunder and under the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower and each
Guarantor has good and marketable title to all of its respective properties and
assets subject to no liens, mortgages, pledges, security interests, encumbrances
or charges of any kind, except those granted to Lender and such others as are
specifically listed on Schedule 8.4 hereto or permitted under Section 9.8
hereof.
8.5 Tax Returns. Borrower and each Guarantor has filed, or caused to be
filed, in a timely manner all tax returns, reports and declarations which are
required to be filed by it. All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower and
each Guarantor has paid or caused to be paid all taxes due and payable or
claimed due and payable in any assessment received by it, except taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower or such Guarantor and with respect
to which adequate reserves have been set aside on its books. Adequate provision
has been made for the payment of all accrued and unpaid Federal, State, county,
local, foreign and other taxes whether or not yet due and payable and whether or
not disputed.
8.6 Litigation. Except as set forth on the Information Certificates,
there is no present investigation by any Governmental Authority pending, or to
the best of Borrower's and Guarantors' knowledge threatened, against or
affecting Borrower or any Guarantor, their respective assets or business and
there is no action, suit, proceeding or claim by any Person pending, or to the
best of Borrower's and each Guarantor's knowledge threatened, against Borrower
or any Guarantor or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which if adversely determined
against Borrower or such Guarantor would have result in any material adverse
change in the assets, businesses or financial condition of Borrower or such
Guarantor or would impair the ability of Borrower or such Guarantor to perform
its obligations hereunder or under any of the other Financing Agreements to
which
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Borrower or such Guarantor is a party or of Lender to enforce any Obligations or
realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Neither
Borrower nor any Guarantor is in default in any respect under, or in violation
in any respect of any of the terms of, any material agreement, including without
limitation, the Subordinated Note Agreements and the Municipal Debt Agreements,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound. Borrower and each Guarantor is in
compliance in all material respects with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders of any foreign,
Federal, State or local Governmental Authority.
8.8 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower or any Guarantor maintained at
any bank or other financial institution are set forth on Schedule 8.8 hereto,
subject to the right of Borrower and each Guarantor to establish new accounts in
accordance with Section 9.13 below.
8.9 Environmental Compliance.
(a) Except as set forth on Schedule 8.9 hereto, neither Borrower
nor any Guarantor, or any Subsidiary, has generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Materials, on or off its premises (whether or not owned by it) in any manner in
material violation of any applicable Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the operations of
Borrower and each Guarantor complies in all material respects with all
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 8.9 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any Governmental Authority or any other person nor is any pending or
to the best of Borrower's and each Guarantor's knowledge threatened, with
respect to (i) any non-compliance with or violation of the requirements of any
Environmental Law by Borrower or any Guarantor (or any Subsidiary), (ii) the
release, spill or discharge, threatened or actual, of any Hazardous Material or
(iii) the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials or any other
environmental, health or safety matter, which, as to each of clauses (i), (ii)
or (iii) to the best of Borrower's or any Guarantor's knowledge, materially
affects Borrower or any Guarantor or their respective businesses, operations or
assets or any properties at which Borrower or any Guarantor has transported,
stored or disposed of any Hazardous Materials.
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(c) Neither Borrower nor any Guarantor has any material liability
(contingent or otherwise) in connection with a release, spill or discharge,
threatened or actual, of any Hazardous Materials or the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials.
(d) Borrower and each Guarantor has all material licenses,
permits, certificates, approvals or similar authorizations required to be
obtained or filed in connection with the operations of Borrower and each
Guarantor under any Environmental Law and all of such licenses, permits,
certificates, approvals or similar authorizations are valid and in full force
and effect.
8.10 Employee Benefits.
(a) Neither Borrower nor any Guarantor has engaged in any
transaction in connection with which Borrower, any Guarantor or any of their
respective ERISA Affiliates could be subject to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code
which has or has a reasonable likelihood of having a Material Adverse Effect,
including any accumulated funding deficiency described in Section 8.10(c) hereof
which has or has a reasonable likelihood of having a Material Adverse Effect and
any deficiency with respect to vested accrued benefits described in Section
8.10(d) hereof which has or has a reasonable likelihood of having a Material
Adverse Effect.
(b) No liability to the Pension Benefit Guaranty Corporation has
been or is expected by Borrower or any Guarantor to be incurred with respect to
any employee benefit plan of Borrower or any Guarantor or their respective ERISA
Affiliates which has a or has a reasonable likelihood of having Material Adverse
Effect. There has been no reportable event (within the meaning of Section
4043(b) of ERISA) or any other event or condition with respect to any employee
pension benefit plan of Borrower or any Guarantor or its ERISA Affiliates which
presents a risk of termination of any such plan by the Pension Benefit Guaranty
Corporation which has or has a reasonable likelihood of having a Material
Adverse Effect.
(c) Full payment has been made of all amounts which Borrower or
any Guarantor or its ERISA Affiliates is required under Section 302 of ERISA and
Section 412 of the Code to have paid under the terms of each employee benefit
plan as contributions to such plan as of the last day of the most recent fiscal
year of such plan ended prior to the date hereof, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, exists with respect to any employee benefit plan,
including any penalty or tax described in Section 8.10(a) hereof which has or
has a reasonable likelihood of having a Material Adverse Effect and any
deficiency with respect to vested accrued benefits described in Section
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8.10(d) hereof which has or has a reasonable likelihood of having a Material
Adverse Effect.
(d) The current value of all vested accrued benefits under all
employee benefit plans maintained by Borrower and each Guarantor that are
subject to Title IV of ERISA does not exceed the current value of the assets of
such plans allocable to such vested accrued benefits, including any penalty or
tax described in Section 8.10(a) hereof which has or has a reasonable likelihood
of having a Material Adverse Effect and any accumulated funding deficiency
described in Section 8.10(c) hereof which has or has a reasonable likelihood of
having a Material Adverse Effect. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Except as set forth on Schedule 8.10 hereof, neither Borrower
nor any Guarantor or any of its ERISA Affiliates is or has ever been obligated
to contribute to any "multiemployer plan" (as such term is defined in Section
4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.11 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower or Guarantors in writing to Lender in
connection with this Agreement or any of the other Financing Agreements or any
transaction contemplated hereby or thereby (including, without limitation, all
information on the Information Certificate) is true and correct in all material
respects on the date as of which such information is dated or certified and does
not omit any material fact necessary in order to make such information not
misleading. No event or circumstance has occurred and is continuing which has
had or could reasonably be expected to have a material adverse affect on the
businesses, assets or financial condition of Borrower or any Guarantor, which
has not been accurately disclosed to Lender in writing.
8.12 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder, except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and accurate
on and as of such earlier date), and shall be conclusively presumed to have been
relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower and Guarantors shall now or hereafter give, or cause to be given, to
Lender.
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SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower and each Guarantor shall at all
times preserve, renew and keep in full force and effect its corporate existence
and rights and franchises with respect thereto and maintain in full force and
effect all material permits, licenses, trademarks, tradenames, approvals,
authorizations, leases and contracts necessary to carry on its business as
presently or proposed to be conducted. Borrower and each Guarantor shall give
Lender thirty (30) days prior written notice of any proposed change in its
corporate name, which notice shall set forth the new name and Borrower or such
Guarantor shall deliver to Lender a copy of the amendment to the Certificate of
Incorporation of Borrower or such Guarantor providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of
Borrower or such Guarantor as soon as it is available.
9.2 New Collateral Locations. Borrower and each Guarantor may open any
new location within the continental United States provided Borrower or such
Guarantor (a) gives Lender thirty (30) days prior written notice of the intended
opening of any such new location, and (b) executes and delivers, or causes to be
executed and delivered, to Lender such agreements, documents, and instruments as
Lender may deem reasonably necessary or desirable to protect its interests in
the Collateral at such location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower and each Guarantor shall, and shall cause any
Subsidiary to, at all times, comply in all material respects with all laws,
rules, regulations, licenses, permits, approvals and orders applicable to it and
duly observe all requirements of any Federal, State or local Governmental
Authority, including ERISA, the Code, the Occupational Safety and Health Act of
1970, as amended, the Fair Labor Standards Act of 1938, as amended, and all
statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including all of the
Environmental Laws.
(b) Borrower and each Guarantor shall establish and maintain, at
its expense, a system to assure and monitor its continued compliance with all
Environmental Laws in all of its operations which system shall include annual
reviews of such compliance by employees or agents of Borrower and Guarantors who
are familiar with the requirements of the Environmental Laws. Copies of all
environmental surveys, audits, assessments, feasibility studies and results of
remedial investigations shall be promptly furnished, or caused to be furnished,
by Borrower and each Guarantor to Lender. Borrower and Guarantors shall take,
and shall cause any Subsidiary to take, prompt and appropriate action to respond
to any non-compliance with any of the Environmental Laws and shall report to
Lender on such response.
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(c) Borrower and Guarantors shall give both oral and written
notice to Lender immediately upon Borrower's or such Guarantor's receipt of any
notice of, or Borrower's or such Guarantor's otherwise obtaining knowledge of
any of the following that could reasonably be expected to have a Material
Adverse Effect, (i) the occurrence of any event involving the release, spill or
discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or any Guarantor or (B) the release, spill or
discharge, threatened or actual, of any Hazardous Material other than as
permitted by or in accordance with any applicable Environmental Laws or (C) the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials other than as permitted by or
in accordance with any applicable Environmental Laws or (D) any other
environmental, health or safety matter, which affects Borrower or any Guarantor
or their respective business, operations or assets or any properties at which
Borrower or any Guarantor transported, stored or disposed of any Hazardous
Materials.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance, or any condition
which requires any action by or on behalf of Borrower or any Guarantor in order
to avoid any material non-compliance, with any Environmental Law, Borrower or
such Guarantor shall, at Lender's request and the expense of Borrower: (i) cause
an independent environmental engineer acceptable to Lender to conduct such tests
of the site where Borrower's or such Guarantor's non-compliance or alleged
non-compliance with such Environmental Laws has occurred as to such
non-compliance and prepare and deliver to Lender a report as to such
non-compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's or such
Guarantor's response thereto or the estimated costs thereof, shall change in any
material respect.
(e) Borrower and each Guarantor shall indemnify and hold harmless
Lender, its directors, officers, employees, agents, invitees, representatives,
successors and assigns, from and against any and all losses, claims, damages,
liabilities, costs, and expenses (including attorneys' fees and legal expenses)
directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release, spill,
discharge, disposal or presence of a Hazardous Material, including the costs of
any required or necessary repair, cleanup or other remedial work with respect to
any property of Borrower or any Guarantor and the preparation and implementation
of any closure, remedial or other required plans. All representations,
warranties, covenants and indemnifications in this Section 9.3 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
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9.4 Payment of Taxes and Claims. Borrower and each Guarantor shall, and
shall cause any Subsidiary to, duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to Borrower,
Guarantor or Subsidiary and with respect to which adequate reserves have been
set aside on its books. Borrower shall be liable for any tax or penalties
imposed on Lender as a result of the financing arrangements provided for herein
and Borrower and each Guarantor agrees to indemnify and hold Lender harmless
with respect to the foregoing, and to repay to Lender on demand the amount
thereof, and until paid by Borrower such amount shall be added and deemed part
of the Loans, provided, that, nothing contained herein shall be construed to
require Borrower or Guarantors to pay any income or franchise taxes attributable
to the income of Lender from any amounts charged or paid hereunder to Lender.
The foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.5 Insurance.
(a) Borrower and each Guarantor shall, and shall cause any
Subsidiary to, at all times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against loss or damage and all
other insurance of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
satisfactory to Lender as to form, amount and insurer. Borrower and each
Guarantor shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower or any
Guarantor fails to do so, Lender is authorized, but not required, to obtain such
insurance at the expense of Borrower. All policies shall provide for at least
thirty (30) days prior written notice to Lender of any cancellation or reduction
of coverage and that Lender may act as attorney for Borrower or any Guarantor in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance. Borrower
and each Guarantor shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower and each Guarantor shall obtain non-contributory
lender's loss payable endorsements to all insurance policies in form and
substance satisfactory to Lender. Such lender's loss payable endorsements shall
specify that the proceeds of such insurance shall be payable to Lender as its
interests may appear and further specify that Lender shall be paid regardless of
any act or omission by Borrower or any of their Affiliates.
(b) At its option, Lender may apply any insurance proceeds
received by Lender at any time to the cost of repairs or replacement of
Collateral and/or to payment
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of the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower and each Guarantor shall keep proper books and
records in which true and complete entries shall be made of all dealings or
transactions of or in relation to the Collateral and the businesses of Borrower,
Guarantors and their Subsidiaries (if any) in accordance with GAAP and Borrower
and Guarantors shall furnish or cause to be furnished to Lender: (i) within
forty-five (45) days after the end of each fiscal month, monthly unaudited
consolidated financial statements and unaudited consolidating financial
statements (including in each case balance sheets, statements of income and
loss, statements of cash flow, and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower and its Subsidiaries as of the end of and through
such fiscal month and (ii) within ninety (90) days after the end of each fiscal
year, audited consolidated financial statements and unaudited consolidating
financial statements of Borrower and its Subsidiaries (including in each case
balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower and its Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrower and its Subsidiaries
as of the end of and for the fiscal year then ended.
(b) Borrower and Guarantors shall promptly notify Lender in
writing of the details of (i) any material loss, damage, investigation, action,
suit, proceeding or claim relating to the Collateral or any other property which
is security for the Obligations or which would result in any material adverse
change in Borrower's or any Guarantor's business, properties, assets, goodwill
or condition, financial or otherwise and (ii) the occurrence of any Event of
Default or act, condition or event which, with the passage of time or giving of
notice or both, would constitute an Event of Default. In addition, Borrower
shall provide Lender monthly with a report of all locations of Inventory at
consignees, processors, warehouses, bailees or other third parties indicating
the name and address of such person and the approximate amount of the Inventory
at such location.
(c) Borrower and Guarantors shall furnish or cause to be
furnished to Lender such budgets, forecasts, projections and other information
respecting the Collateral and the businesses of Borrower and Guarantors, as
Lender may, from time to
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time, reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower or any Guarantor to any court or other Governmental Authority or to any
participant or assignee or prospective participant or assignee. Borrower and
each Guarantor hereby irrevocably authorizes and directs all accountants or
auditors to deliver to Lender, at Borrower's expense, copies of the financial
statements of Borrower and Guarantors and any reports or management letters
prepared by such accountants or auditors on behalf of Borrower and Guarantors
and to disclose to Lender such information as they may have regarding the
businesses of Borrower and Guarantors. Any documents, schedules, invoices or
other papers delivered to Lender may be destroyed or otherwise disposed of by
Lender one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
and each Guarantor shall not, and shall not permit any Subsidiary to, directly
or indirectly,
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it; or
(b) sell, assign, lease, transfer, abandon or otherwise dispose
of any Capital Stock or Indebtedness to any other Person or any of its assets to
any other Person except, for,
(i) sales of Inventory in the ordinary course of business,
or
(ii)(A) the disposition of worn-out or obsolete Equipment
or Equipment no longer used in the business so long as (1) Lender shall have
received at least five (5) days prior written notice of such disposition, (2)
such sales shall be at commercially reasonable prices and on terms with a Person
who is not an Affiliate, (3) at least eighty (80%) percent of the consideration
received from any such sale or other disposition is in the form of cash or Cash
Equivalents, (4) such sales price is equal to or in excess of the appraised
value of the Equipment subject to such sale or other disposition (in addition to
any other rights of Lender under Section 7.4 hereof or otherwise, Lender may at
its option require Borrower, at Borrower's expense, to deliver or cause to be
delivered to Lender an updated appraisal as to the Equipment in form, scope and
methodology acceptable to Lender and upon which Lender is expressly permitted to
rely) may rely, (5) the Net Proceeds of any such disposition are paid to Lender,
and (6) no Event of Default or act or condition which with notice, lapse of time
or both would constitute an Event of Default shall exist or have occurred and be
continuing, or
(B) in addition to the transfers and dispositions of
Equipment permitted pursuant to Section 9.7(b) (ii)(A) above, Borrower may sell,
transfer or
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dispose of other Equipment, provided, that, (1) prior to the first anniversary
of the date of this Agreement, any such sales, transfers or other dispositions
do not involve Equipment having an aggregate fair market value in excess of
$100,000 and at all times thereafter such sales transfers or other dispositions
do not involve Equipment having an aggregate fair market value in excess of
$300,000 for all such Equipment disposed of in any fiscal year of Borrower, (2)
the conditions set forth in Section 9.7(b)(ii)(A)(1) through (4) are satisfied,
(3) as of the date of any such sale or other disposition and after giving effect
thereto, the daily average of the Excess Availability for the immediately
preceding fifteen (15) consecutive day period shall be not less than $1,000,000
and as of the date of any such disposition and after giving effect thereto, the
Excess Availability shall be not less than $1,000,000, and (4) as of the date of
any such sale or other disposition and after giving effect thereto, no Event of
Default, or act, condition or event which with notice or passage of time or both
would constitute an Event of Default, shall exist or have occurred and be
continuing,
Notwithstanding the provisions of this Section 9.7(b)(ii), Borrower shall have
the ability to retain the Net Proceeds of any permitted disposition of Equipment
so long as the Net Proceeds of any such disposition are used within sixty (60)
days of such disposition to acquire other Equipment of equal or greater utility
and value than the Equipment disposed of prior to such Equipment becoming
worn-out or obsolete and the following additional conditions are satisfied: (x)
Borrower notifies Lender of its intention to replace the Equipment to be
disposed of at least ten (10) days prior to its disposition, (y) as of the date
of any such sale, transfer or other disposition and after giving effect thereto,
no Event of Default or act or condition which with notice, lapse of time or both
would constitute an Event of Default shall exist or have occurred and be
continuing and (z) such replacement Equipment, is immediately upon its
acquisition, subject to a first priority security interest in favor of Lender;
or
(iii) the sale of not more than four and one-half (4.5)
acres of the thirty-eight (38) acres real property owned by CCC and located in
Aliquippa, Pennsylvania as such sale is provided for in a contract of sale, in
form and substance reasonably satisfactory to Lender, provided, that, as to such
sale, it shall occur (A) prior to December 31, 1999, (B) Lender shall have
received not less than ten (10) days prior written notice of such sale, which
notice shall set forth in reasonable detail satisfactory to Lender, the parties
to such sale, the Real Property and related assets to be sold, the purchase
price and the manner of payment thereof and such other information with respect
thereto as Lender may request, (C) such sale shall be on commercially reasonable
terms in a bona fide arm's-length transaction with a non-affiliated Person, and
(D) all of the Net Proceeds of any such sale shall be paid either (1) directly
to Lender or (2) to Borrower to pay down the Indebtedness of CCC to Borrower,
provided, that, neither Borrower nor any Guarantor shall incur any liabilities
in connection with such sale except as permitted herein, and as of the date of
such sale and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or
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passage of time or both would constitute an Event of Default shall exist or have
occurred and be continuing; or
(c) wind up, liquidate or dissolve; or
(d) agree to do any of the foregoing.
9.8 Encumbrances. Borrower and each Guarantor shall not, and shall not
permit any Subsidiary to, create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets or properties, including, without limitation,
the Collateral, except:
(a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue
or the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower or such Guarantor and
with respect to which adequate reserves have been set aside on its books and
which have not yet become enforceable against such Person;
(c) non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of Borrower's or such
Guarantor's business to the extent: (i) such liens secure Indebtedness or
obligations which are not overdue or (ii) such liens secure Indebtedness
relating to claims or liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or being contested
in good faith by appropriate proceedings diligently pursued and available to
Borrower or such Guarantor, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books;
(d) pledges and deposits of cash by Borrower or any Guarantor
after the date hereof in the ordinary course of business (i) in connection with
workers' compensation, unemployment insurance and other types of social security
benefits consistent with the current practices of Borrower and Guarantors as of
the date hereof, (ii) in connection with casualty insurance maintained in
accordance with the provisions of any Financing Agreement, (iii) to secure
surety or appeal bonds (exclusive of obligations for the payment of borrowed
money) or (iv) to secure indemnity, performance or other similar bonds
(exclusive of obligations for the payment of borrowed money) in the ordinary
course of business; provided, that, provisions for the payment of such liens has
been made on the books of such Person in accordance with GAAP and the aggregate
amount of all deposits or pledges at any time pursuant to the foregoing clauses
(i) through (iv) shall not exceed $1,500,000 in the aggregate for Borrower and
Guarantors, taken as a whole.
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(e) liens arising from (i) operating leases and the precautionary
UCC financing statement filings in respect thereof and (ii) equipment or other
materials which are not owned by Borrower located on the premises of Borrower
(but not in connection with, or as part of, the financing thereof) from time to
time in the ordinary course of business and consistent with current practices of
Borrower and the precautionary UCC financing statement filings in respect
thereof, provided, that, Lender shall have received written notice of such
equipment or other materials and such equipment and other materials shall be
separately identified to Lender in any report with respect to Equipment and
Inventory provided to Lender in a manner satisfactory to Lender;
(f) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of Real Property which do not interfere in any
material respect with the use of such real property or ordinary conduct of the
businesses of Borrower as presently conducted thereon or materially impair the
value of the Real Property which may be subject thereto;
(g) security interests and liens upon the Collateral granted by
Borrower to the Senior Subordinated Noteholders and the Municipalities pursuant
to the terms of the Senior Subordinated Note Agreements and the Current
Municipal Debt Agreements (each as in effect on the date hereof), respectively,
to secure the Indebtedness of Borrower to Senior Subordinated Noteholders and
Municipalities, respectively, as permitted under Section 9.9 hereof, which
security interests and liens on the Collateral are, in all respects, subject and
subordinated in priority to the security interests and liens of Lender as set
forth in the Subordination and Intercreditor Agreement and the Municipal
Subordination and Intercreditor Agreement respectively;
(h) security interests and liens upon the Collateral granted by
Borrower to the Senior Subordinated Noteholders and the Municipalities pursuant
to the terms of the Senior Subordinated Note Agreements and the Current
Municipal Debt Agreements (each as in effect on the date hereof), respectively,
to secure the Indebtedness of Borrower to Municipalities, to secure Indebtedness
under Future Municipal Debt Agreements permitted under Section 9.9 (f) hereof,
which security interests and liens on the Collateral shall be, in all respects,
subject and subordinated in priority to the security interests and liens of
Lender as set forth in the Subordination and Intercreditor Agreement, in form
and substance satisfactory to Lender;
(i) purchase money security interests in Equipment (including
Capital Leases) arising after the date hereof in the aggregate not to exceed
$2,000,000 at any time outstanding, so long as (A) the Borrower may no longer
obtain Equipment Purchase Term Loans hereunder, (B) such security interests do
not apply to any property of Borrower other than the Equipment so acquired and
(C) the Indebtedness secured thereby does not exceed the cost of the Equipment
acquired; and
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(j) security interests and liens set forth on Schedule 8.4
hereto.
9.9 Indebtedness. Borrower and each Guarantor shall not, and shall not
permit any Subsidiary to, incur, create, assume, become or be liable in any
manner with respect to, or permit to exist, any Indebtedness, except:
(a) the Obligations;
(b) unsecured Indebtedness of Borrower to any Guarantor or any
Guarantor to Borrower, as the case may be, arising pursuant to loans permitted
under Section 9.10 below; and
(c) Indebtedness of Borrower under interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
exchange agreements and similar contractual arrangements entered into for the
purpose of protecting a Person against fluctuations in interest rates; provided,
that, such arrangements are with banks or other financial institutions that have
combined capital and surplus and undivided profits of not less than $100,000,000
and are not for speculative purposes and such Indebtedness shall be unsecured;
(d) Indebtedness arising under the Senior Subordinated Notes,
provided, that:
(i) the aggregate principal amount of such Indebtedness
shall not exceed $23,000,000 less the aggregate amount of all repayments,
repurchases or redemptions, whether optional or mandatory in respect thereof,
plus interest thereon at the rate provided for in the Senior Subordinated Notes
as in effect on the date hereof,
(ii) Borrower shall not, directly or indirectly make any
payments in respect of such Indebtedness, except, that, Borrower may make
regularly scheduled payments of principal and interest in respect of the Senior
Subordinated Notes (each a "Subordinated Note Payment") as follows: each Current
Portion on the Senior Subordinated Notes may be paid on the Payment Date on
which it is due under the terms of the Senior Subordinated Note Agreements,
together with any Current Portion which became due and owing on any preceding
Payment Date (including amounts which were not previously permitted to be paid
in full pursuant to the provisions of the Subordination and Intercreditor
Agreement), only if and to the extent that as of the date of such Subordinated
Note Payment and after giving effect thereto, each of the following conditions
is satisfied: (1) as of the date of any such Subordinated Note Payment, Excess
Availability immediately prior to the making of such Subordinated Note Payment
and after giving effect thereto, shall be not less than $1,000,000, and (2)
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as of the date of any such Subordinated Note Payment and after giving effect
thereto, no Event of Default, shall exist or have occurred; and
(iii) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto, except, that, Borrower may, after prior
written notice to Lender, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof, or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or (B) make any principal payments in respect of, redeem,
retire, defease, purchase or otherwise acquire such Indebtedness (except
pursuant to regularly scheduled payments of principal and interest permitted in
Section 9.9(d)(ii) hereof), or set aside or otherwise deposit or invest any sums
for such purpose, and
(iv) Borrower shall furnish to Lender all notices or
demands in connection with such Indebtedness either received by Borrower or on
its behalf promptly after the receipt thereof, or sent by Borrower or on its
behalf concurrently with the sending thereof, as the case may be;
(e) Current Municipal Indebtedness, provided, that:
(i) the aggregate principal amount of such Indebtedness
outstanding at any time shall not exceed $600,000 less the aggregate amount of
all repayments, repurchases or redemptions, whether optional or mandatory in
respect thereof, plus interest thereon at the rate provided for in the Current
Municipal Debt Agreements as in effect on the date hereof,
(ii) Borrower shall not, directly or indirectly make any
payments in respect of such Indebtedness, except, that, Borrower may make
regularly scheduled payments of principal and interest in respect of the Current
Municipal Debt Agreements as provided for in the Current Municipal Debt
Agreements, provided, that, on the date of any such payment and after giving
effect thereto, no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default, shall
exist or have occurred and be continuing,
(iii) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto, except, that, Borrower may, after prior
written notice to Lender, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof, or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or (B) make any principal payments in respect
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of, redeem, retire, defease, purchase or otherwise acquire such Indebtedness
(except pursuant to regularly scheduled payments of principal and interest
permitted herein), or set aside or otherwise deposit or invest any sums for such
purpose, and
(iv) Borrower shall furnish to Lender all notices or
demands in connection with such Indebtedness either received by Borrower or on
its behalf promptly after the receipt thereof, or sent by Borrower or on its
behalf concurrently with the sending thereof, as the case may be;
(f) Future Municipal Indebtedness, provided, that:
(i) as of the date any such Future Municipal Indebtedness
is incurred and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default, shall exist or have occurred,
(ii) the aggregate principal amount of such Indebtedness
at any one time outstanding shall not exceed $2,400,000 less the aggregate
amount of all repayments, repurchases or redemptions, whether optional or
mandatory in respect thereof, plus interest thereon at the rate provided for in
the Future Municipal Debt Agreements,
(iii) Prior to the incurrence of any Future Municipal
Indebtedness, (A)Lender shall have received at least thirty (30) days prior
written notice of Borrower's intention to incur such Future Municipal
Indebtedness, and (B) Lender shall have received, (1) true and complete copies
of all of the documents evidencing the applicable Future Municipal Indebtedness,
each in form and substance satisfactory to Lender and (2) in form and substance
satisfactory to Lender, a subordination and intercreditor agreement, duly
authorized, executed and delivered by the applicable Municipality and each of
the other parties thereto and acknowledged by Borrower (each a "Future Municipal
Intercreditor Agreement"), providing for, inter, alia, the subordination (aa) of
the right of payment of such Future Municipal Indebtedness of Borrower to each
such Municipality to the prior indefeasible payment and satisfaction in full of
the Obligations and (bb) of the security interests of such Municipality to those
of Lender with respect to the assets and properties of Borrower and Guarantors,
(iv) Borrower shall not, directly or indirectly make any
payments in respect of such indebtedness, except, that, Borrower may make
regularly scheduled payments of principal and interest in respect of the Future
Municipal Debt Agreements as provided for in the Future Municipal Debt
Agreements, provided, that, on the date of any such payment and after giving
effect thereto, no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default, shall
exist or have occurred and be continuing,
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(v) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Future Municipal Indebtedness or any
agreement, document or instrument related thereto once executed and delivered by
the parties thereof, except, that, Borrower may, after prior written notice to
Lender, amend, modify, alter or change the terms thereof so as to extend the
maturity thereof, or defer the timing of any payments in respect thereof, or to
forgive or cancel any portion of such Indebtedness (other than pursuant to
payments thereof), or to reduce the interest rate or any fees in connection
therewith, or (B) make any principal payments in respect of, redeem, retire,
defease, purchase or otherwise acquire such Indebtedness (except pursuant to
regularly scheduled payments of principal and interest permitted herein), or set
aside or otherwise deposit or invest any sums for such purpose and
(vi) Borrower shall furnish to Lender all notices or
demands in connection with such Indebtedness either received by Borrower or on
its behalf promptly after the receipt thereof, or sent by Borrower or on its
behalf concurrently with the sending thereof, as the case may be; and
(g) purchase money indebtedness (including Capital Leases) to the
extent not incurred or secured by liens (including Capital Leases) in violation
of Section 9.8(i) or any other provision of this Agreement.
9.10 Loans, Investments, Guarantees, Etc. Borrower and each Guarantor
shall not, and shall not permit any Subsidiary to, directly or indirectly, make
any loans or advance money or property to any Person, or invest in (by capital
contribution, dividend or otherwise) or purchase or repurchase the Capital Stock
or Indebtedness or all or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the Indebtedness, performance, obligations or dividends
of any Person or form or acquire any Subsidiaries or agree to do any of the
foregoing, except:
(a) the endorsement of instruments for collection or deposit in
the ordinary course of business;
(b) investments in cash or Cash Equivalents, provided, that, (i)
no Revolving Loans are then outstanding and (ii) as to any of the foregoing,
unless waived in writing by Lender, Borrower and each Guarantor shall take such
actions as are deemed necessary by Lender to perfect the security interest of
Lender in such investments;
(c) the guarantee by each Guarantor of the Obligations of
Borrower in favor of Lender;
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(d) the existing equity investments of Holdings in Borrower and
CCC and any equity investments after the date hereof by Holdings in Borrower;
(e) loans by any Guarantor to Borrower or any other Guarantor
after the date hereof, provided, that, as to each such loan each of the
following conditions is satisfied: (i) each month Borrower shall provide to
Lender a report in form and substance satisfactory to Lender indicating the
amount of such loans made in the immediately preceding month and any repayments
in connection therewith, (ii) the Indebtedness arising pursuant to such loan
shall not be evidenced by a promissory note or other instrument, unless the
single original of such note or other instrument is delivered to Lender to hold
as part of the Collateral, with such endorsement and/or assignment by the payee
of such note or other instrument as Lender may require, and (iii) as of the date
of each such loan and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default shall exist or have occurred;
(f) loans and other payments by Borrower to Guarantors to the
extent permitted under Section 9.12 hereof and any other loans or investments
permitted under Sections 9.11 and 9.12 hereof;
(g) stock or obligations issued to Borrower or any Guarantor by
any Person (or the representative of such Person) in respect of Indebtedness or
other obligations of such Person owing to Borrower or such Guarantor in
connection with the insolvency, bankruptcy, receivership or reorganization of
such Person or a composition or readjustment of the debts of such Person or
settlement or compromise of past due Accounts; provided, that, the original of
any such stock or instrument evidencing such obligations shall be promptly
delivered to Lender, upon Lender's request, together with such stock power,
assignment or endorsement by Borrower or such Guarantor as Lender may request;
(h) obligations of account debtors to Borrower arising from
Accounts which are past due evidenced by a promissory note made by such account
debtor payable to Borrower; provided, that, promptly upon the receipt of the
original of any such promissory note by Borrower, such promissory note shall be
endorsed to the order of Lender, by Borrower and promptly delivered to Lender as
so endorsed;
(i) the existing loans, advances and guarantees set forth on
Schedule 9.10 hereto, provided, that, as to such loans, advances and guarantees,
(i) Borrower and Guarantors shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such loans, advances or guarantees or any
agreement, document or instrument related thereto, or (B) as to such guarantees,
redeem, retire, defease, purchase or otherwise acquire such guarantee or set
aside or otherwise deposit or invest any sums for such purpose and (ii) Borrower
and Guarantors shall furnish to Lender all notices, demands
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or other materials in connection with such loans, advances or guarantees either
received by Borrower or any Guarantor or on its behalf, promptly after the
receipt thereof, or sent by Borrower or any Guarantor or on its behalf,
concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower and each Guarantor shall not,
and shall not permit any Subsidiary to, directly or indirectly, declare or pay
any dividends on account of any shares of class of Capital Stock of Borrower or
such Guarantor now or hereafter outstanding, or set aside or otherwise deposit
or invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of Capital Stock, including without
limitation, any Capital Stock of Borrower pursuant to the Repurchase Agreement,
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except, that,
(a) any Subsidiary of Borrower may pay dividends to Borrower;
and
(b) Borrower and CCC may pay dividends or other amounts to
Holdings and Holdings may pay dividends or other amounts to CPT, in each case to
the extent permitted under Section 9.12 below.
9.12 Transactions with Affiliates. Borrower and each Guarantor shall
not, and shall not permit any Subsidiary to, directly or indirectly,
(a) purchase, acquire or lease any property from, or sell,
transfer or lease any property to, any officer, director, agent or other
Affiliate of Borrower or any Guarantor, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's or such Guarantor's
business and upon fair and reasonable terms no less favorable to Borrower or
Guarantor than Borrower or such Guarantor would obtain in a comparable arm's
length transaction with a person who is not an Affiliate, or
(b) make any payments of management, consulting or other fees for
management or similar services, or of any Indebtedness owing to any officer,
employee, shareholder, director or other Affiliate of Borrower or any Guarantor,
except:
(i) reasonable compensation to officers, employees and
directors of Borrower and Guarantors for services rendered to Borrower and
Guarantors in the ordinary course of business,
(ii) payments of fees by Borrower in accordance with the
terms of the Management Advisory Services Agreement, dated as of April 6, 1995,
by and among Borrower, CPT and Holdings, provided, that, (A) the aggregate of
all such fee payments
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in any fiscal year shall not exceed $750,000 and (B) as of the date of any
payment of such fees and after giving effect thereto, no Event of Default, or
act, condition or event which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred,
(iii) payments by a Guarantor to Borrower or another
Guarantor in respect of Indebtedness arising pursuant to loans made by Borrower
or such Guarantor to the extent permitted under Section 9.10 hereof, and
(iv) payments by Borrower and Guarantors to CPT pursuant
to the Tax Sharing Agreement dated March 31, 1995 among Borrower and Guarantors
(as in effect on the date hereof); provided, that, (A) Borrower (or Holdings, as
the case may be), is included in the consolidated Federal income tax return
filed by CPT as to which Borrower or Holdings is making such payment, (B) the
payments in any year shall not exceed the Federal income tax liability that
Borrower or Holdings would have been liable for if Borrower or Holdings were not
part of such consolidated federal income tax return filed by CPT, (C) such
payments shall be made by Borrower or Holdings no earlier then ten (10) days
prior to the date on which CPT is required to make its payments to the Internal
Revenue Service, and (D) in the event that Borrower or Holdings also joins with
CPT in filing any combined or consolidated (or similar) State or local income
tax returns, then the making of payments to CPT shall be allowed in a manner as
similar as possible to that provided herein with respect to Federal income
taxes.
9.13 Additional Bank Accounts. Borrower and each Guarantor shall not,
and shall not permit any Subsidiary to, directly or indirectly, open, establish
or maintain any deposit account, investment account or any other account with
any bank or other financial institution, other than the Blocked Accounts and the
accounts set forth in Schedule 8.8 hereto, except: (a) as to any new or
additional Blocked Accounts and other such new or additional accounts which
contain any Collateral or proceeds thereof, with the prior written consent of
Lender and subject to such conditions thereto as Lender may establish and (b) as
to any accounts used by Borrower or such Guarantor to make payments of payroll,
taxes or other obligations to third parties, after prior written notice to
Lender.
9.14 Compliance with ERISA.
(a) Except as set forth in Schedule 8.10, neither Borrower nor
any Guarantor shall, or shall permit any Subsidiary to, with respect to any
"employee benefit plans" maintained by Borrower or such Guarantor or any of its
ERISA Affiliates: (i) terminate any of such employee benefit plans so as to
incur any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction
involving any of such employee benefit plans or any
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trust created thereunder which would subject Borrower or such ERISA Affiliate to
a tax or penalty or other liability on prohibited transactions imposed under
Section 4975 of the Code or ERISA, (iii) fail to pay to any such employee
benefit plan any contribution which it is obligated to pay under Section 302 of
ERISA, Section 412 of the Code or the terms of such plan, (iv) allow or suffer
to exist any accumulated funding deficiency, whether or not waived, with respect
to any such employee benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such
employee benefit plan that is a single employer plan, which termination could
result in any liability to the Pension Benefit Guaranty Corporation or (vi)
incur any withdrawal liability with respect to any multiemployer pension plan
except, in each case, where the failure to prohibit such actions would not have
a Material Adverse Effect.
(b) As used in this Section 9.14, the terms "employee benefit
plans", "accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
9.15 After Acquired Real Property. If Borrower hereafter acquires any
Real Property, fixtures or any other property that is of the kind or nature
described in the Mortgages and such Real Property, fixtures or other property,
as the case may be, is adjacent or contiguous to, or located on, any of the Real
Property of Borrower, or is at any other location (or if an Event of Default, or
act, condition or event which with notice or passage of time or both would
constitute an Event of Default exists, then regardless of the fair market value
of such assets or Real Property), without limiting any other rights of Lender,
or duties or obligations of Borrower, Borrower shall notify Lender twenty (20)
days prior to any such acquisition and contemporaneously with such acquisition,
execute and deliver to Lender a mortgage, deed of trust or deed to secure debt,
as Lender may determine, in form and substance substantially similar to the
Mortgages and as to any provisions relating to specific state laws satisfactory
to Lender and in form appropriate for recording in the real estate records of
the jurisdiction in which such Real Property or other property is located
granting to Lender a lien and mortgage on and security interest in such Real
Property, fixtures or other property (except as Borrower would otherwise be
permitted to incur hereunder or under the Mortgage or as otherwise consented to
in writing by Lender) and such other agreements, documents and instruments as
Lender may require in connection therewith.
9.16 Adjusted Tangible Net Worth. Borrower shall maintain an Adjusted
Tangible Net Worth of not less than $20,000,000 at all times.
9.17 Year 2000 Compliance. Borrower and each Guarantor shall take, and
shall cause any Subsidiary to take, all action which may be required so that its
computer-based information systems, including, without limitation, all of its
proprietary computer hardware and software and all computer hardware and
software leased or licensed from third parties (and whether supplied by others
or with which Borrower's, Guarantor's or Subsidiary's systems interface) are
able to operate effectively and correctly process data using dates on or after
January 1, 2000. Compliance with the foregoing shall mean that the systems will
operate and correctly process data without human intervention such that (a)
there is correct century recognition, (b) calculations properly accommodate same
century and multi-century formulas and date values, (c) all leap years shall be
calculated correctly and (d) the information systems shall otherwise comply with
applicable industry standards and regulatory guidelines regarding the change of
the century and year 2000 compliance. Borrower and Guarantors shall, by no later
than September 30, 1999, certify to Lender in writing that its information
systems have been modified, updated and programmed as required by this Section.
On and after September 30, 1999, the computer-based information systems of
Borrower shall be, and with ordinary course upgrading and maintenance, will
continue to be sufficient to permit Borrower to conduct its business without any
adverse effect as a result of the year 2000.
9.18 End of Fiscal Years. Borrower and each Guarantor shall, for
financial reporting purposes, cause its, and each of its Subsidiaries' (a)
fiscal years to end on June 30 of each year and (b) fiscal quarters to end on
September 30, December 31, March 31 and June 30 of each year.
9.19 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) costs and expenses
and fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) all
title insurance and other insurance premiums, appraisal fees and search fees;
(d) costs and expenses of remitting loan proceeds, collecting checks and other
items of payment, and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with respect thereto; (e)
charges, fees or expenses charged by any bank or issuer in connection with the
Letter of Credit Accommodations; (f) costs and expenses of preserving and
protecting the Collateral; (g) costs and expenses paid or incurred in connection
with obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
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otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising out
of the transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any such matters); (h)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations of the
Collateral and Borrower's operations, plus a per diem charge at the rate of $650
per person per day for Lender's examiners in the field and office; and (i) the
reasonable fees and disbursements of counsel (including legal assistants) to
Lender in connection with any of the foregoing.
9.20 Further Assurances. At the request of Lender at any time and from
time to time, each Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower or any Guarantor fails to pay any of the
Obligations within three (3) days after the same becomes due and payable or (ii)
Borrower or any Guarantor fails to perform any of the covenants contained in
Sections 9.1, 9.2, 9.3, 9.4, 9.5(a), 9.6, 9.14, 9.15, 9.16, 9.17, 9.19 and 9.20
of this Agreement and such failure shall continue for ten (10) days; provided,
that, such ten (10) day period shall not apply in the case of: (A) any failure
to observe any such covenant which is not capable of being cured at all or
within such ten (10) day period or which has been the subject of a prior failure
within a six (6) month period or (B) an intentional breach of Borrower or any
Guarantor of any such covenant or (iii) Borrower or any Guarantor fails to
perform any of the terms, covenants, conditions or provisions contained in this
Agreement or any of
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the other Financing Agreements other than those described in Sections 10.1(a)(i)
and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by
Borrower or any Obligor to Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or misleading in any material
respect;
(c) any Obligor revokes, terminates or fails to perform any of
the material terms, covenants, conditions or provisions of any guarantee,
endorsement or other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $500,000 in any one case or in excess of
$1,000,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of its assets;
(e) Borrower or any Obligor dissolves or suspends or discontinues
doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
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(i) (A) any default by Borrower or any Obligor under any
agreement, document or instrument relating to any Indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent Indebtedness in connection with any guarantee, letter of
credit, indemnity or similar type of instrument in favor of any person other
than Lender, in any case in an amount in excess of $500,000, which default
continues for more than the applicable cure period, if any, with respect
thereto, or (B) any default by Borrower or any Obligor under any material
contract to any Person other than Lender, which default continues for more than
the applicable cure period, if any, with respect thereto and which default has
or is reasonably likely to have a Material Adverse Effect;
(j) any Change of Control;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal felony statute, or commencement or threatened
commencement of any felony criminal or civil proceedings by any governmental
unit or agency against Borrower or any Obligor, pursuant to which statute or
proceedings by any governmental unit or agency the penalties or remedies sought
or available include forfeiture of any of the property of Borrower or Obligor;
(l) there shall be a material adverse change in the business or
assets of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
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(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the time
after which any private sale or other intended disposition of Collateral is to
be made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or
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amounts of Loans and Letter of Credit Accommodations available to Borrower
and/or (ii) terminate any provision of this Agreement providing for any future
Loans or Letter of Credit Accommodations to be made by Lender to Borrower.
10.3 Confession of Judgment.
(a) Borrower, to the extent permitted by law, and without the
further consent of or notice to Borrower, hereby irrevocably and unconditionally
authorizes the Prothonotary, Clerk of Court, or any attorney of any court of
record in the Commonwealth of Pennsylvania, or any other jurisdiction, as
attorney for Borrower to appear for Borrower in such court and confess judgment
against Borrower and in favor of Lender, at any time on or after an Event of
Default exists or has occurred and in continuing, for all or any portion of the
Obligations (including, but not limited to, principal interest, fees, costs and
expenses and including attorneys' fees and legal expenses not to exceed ten
(10%) percent of the outstanding and unpaid Obligations), for which this
Agreement or a verified copy hereof shall be sufficient warrant. The authority
to enter judgment shall not be exhausted by one exercise hereof, but, to the
extent permitted by law, shall continue from time to time until final payment
and satisfaction in full of all of the Obligations. The foregoing right and
remedy is in addition to and not in lieu of any other right or remedy available
to Lender under this Agreement, the other Financing Agreements, applicable law
or otherwise.
(b) Borrower, being fully aware of its right to notice and a
hearing concerning the validity of any and all claims that may be asserted
against Borrower by Lender before a judgment can be entered against any Borrower
by Lender before a judgment can be entered hereunder or before execution may be
levied on such judgment against any and all property of Borrower, hereby waives
each of these rights and agrees and consents to judgment being entered by
confession in accordance with the terms hereof and execution being levied on
such judgment against any and all property of Borrower, in each case without
first giving notice and the opportunity to be heard on the validity of the claim
or claims upon which such judgment is entered.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the
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internal laws of the State of New York (without giving effect to principles of
conflicts of law).
(b) Borrower, Guarantors and Lender irrevocably consent and
submit to the non-exclusive jurisdiction of the Supreme Court of the State of
New York in New York County and the United States District Court for the
Southern District of New York and waive any objection based on venue or forum
non conveniens with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of the parties hereto in respect of
this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against Borrower or any Guarantor or its property in the courts of
any other jurisdiction which Lender deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against Borrower or
its property).
(c) Borrower and each Guarantor hereby waives personal service of
any and all process upon it and consents that all such service of process may be
made by certified mail (return receipt requested) directed to its address set
forth on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon Borrower or any Guarantor in any
other manner provided under the rules of any such courts. Within thirty (30)
days after such service, Borrower or such Guarantor shall appear in answer to
such process, failing which Borrower shall be deemed in default and judgment may
be entered by Lender against Borrower for the amount of the claim and other
relief requested.
(d) BORROWER, GUARANTORS AND LENDER EACH HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING
UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER,
GUARANTORS AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE
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OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
(e) Lender shall not have any liability to Borrower or Guarantors
(whether in tort, contract, equity or otherwise) for losses suffered by Borrower
or Guarantors in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by a
final and non-appealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct. In any such litigation, Lender shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement.
11.2 Waiver of Notices. Borrower and each Guarantor hereby expressly
waives demand, presentment, protest and notice of protest and notice of dishonor
with respect to any and all instruments and commercial paper, included in or
evidencing any of the Obligations or the Collateral, and any and all other
demands and notices, of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Borrower or any Guarantor which
Lender may elect to give shall entitle Borrower or Guarantors to any other or
further notice or demand in the same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower and each Guarantor waives all
rights to interpose any claims, deductions, setoffs or counterclaims of any
nature (other than compulsory counterclaims) in any action or proceeding with
respect to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.
11.5 Indemnification. Borrower and Guarantors shall indemnify and hold
Lender, and its directors, agents, employees and counsel, harmless from and
against any and all losses, claims, damages, liabilities, costs or expenses
imposed on, incurred by or
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asserted against any of them in connection with any litigation, investigation,
claim or proceeding commenced or threatened related to the negotiation,
preparation, execution, delivery, enforcement, performance or administration of
this Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including, without
limitation, amounts paid in settlement, court costs, and the fees and expenses
of counsel. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable because it violates any
law or public policy, Borrower and Guarantors shall pay the maximum portion
which it is permitted to pay under applicable law to Lender in satisfaction of
indemnified matters under this Section. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof.
(b) Lender or Borrower may terminate this Agreement and the other
Financing Agreements effective on the Renewal Date or on the anniversary of the
Renewal Date in any year by giving to the other party at least sixty (60) days
prior written notice; provided, that, this Agreement and all other Financing
Agreements must be terminated simultaneously.
(c) Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and
unpaid Obligations and shall furnish cash collateral to Lender in such amounts
as Lender determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including issued and outstanding Letter of
Credit Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate to Borrower for
such purpose. Interest shall be due until and including the next Business Day,
if the amounts so paid by Borrower to the bank account designated by Lender are
received in such bank account later than 12:00 noon, New York City time.
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(d) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(e) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
------ ------
(i) 3% of Maximum Credit From the date hereof to and
including June 30, 2000
(ii) 2% of Maximum Credit From July 1, 2000 to and
including June 30, 2001
(iii) 1% of Maximum Credit From July 1, 2001 to and
including March 30, 2002 and
if the term of this Agreement
is extended for any one year
period as provided above,
then at any time prior to
ninetieth (90th) day before the
end of the then current term.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
(f) Notwithstanding anything to the contrary contained in Section
12.1(e) above, in the event of the termination of this Agreement at the request
of Borrower or any Guarantor prior to the end of the term of this Agreement and
the full and final
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repayment of all Obligations and the receipt by Lender of cash collateral all as
provided in Section 12.1(c) above, Borrower shall not be required to pay to
Lender an early termination fee if such payments are made to Lender with the
initial proceeds of a financing transaction provided or underwritten by First
Union National Bank and/or one of its Affiliates to Borrower.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower, Guarantors and their
respective successors and assigns, except that Borrower may not assign their
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Lender. Lender may, after notice to Borrower, assign its rights and delegate its
obligations under this Agreement and the other Financing Agreements and further
may assign, or sell participations in, all or any part of the Loans, the Letter
of Credit Accommodations or any other interest herein to another financial
institution or other person, in which event, the assignee or participant shall
have, to the extent of such assignment or participation, the same rights and
benefits as it would have if it were the Lender hereunder, except as otherwise
provided by the terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts
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concerning the subject matter thereof, whether oral or written. In the event of
any inconsistency between the terms of this Agreement and any schedule or
exhibit hereto, the terms of this Agreement shall govern.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, Lender, Borrower and Guarantors have caused these
presents to be duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION J&L STRUCTURAL, INC.
By: /s/ Stephen A. Altneu By: /s/ William L. Remley
Title: Vice President Title: Vice Chairman
Address: Chief Executive Office:
1133 Avenue of the Americas 111 Station Street
New York, New York 10036 Aliquippa, Pennsylvania 15001
GUARANTORS
J&L HOLDINGS CORP.
By: /s/ William L. Remley
Title: President
Chief Executive Office:
680 Fifth Avenue
New York, New York 10019
CONTINUOUS CASTER
CORPORATION
By: /s/ William L. Remley
Title: Vice Chairman
Chief Executive Office:
680 Fifth Avenue
New York, New York 10019
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THIRD AMENDMENT TO
NOTE AND WARRANT PURCHASE AGREEMENT
THIRD AMENDMENT, dated as of June 30, 1999 (the "Third
Amendment"), to the NOTE AND WARRANT PURCHASE AGREEMENT dated as of April 6,
1995, as amended by the First Amendment thereto dated as of October 12, 1995 and
the Second Amendment thereto dated as of May 15, 1996 (as so amended, the
"Original Agreement"), by and among J&L Structural, Inc., (the "Company") and
Provident Investment Management, LLC, as agent (the "Agent"), The Paul Revere
Life Insurance Company ("PRLIC"), The Paul Revere Variable Annuity Insurance
Company ("PRV"), The Paul Revere Protective Life Insurance Company ("PRP; PRP,
PRLIC and PRV being hereinafter collectively referred to as the "Paul Revere
Purchasers") and Investors Bank & Trust Company, as trustee for The Textron
Collective Investment Trust (the "Textron Purchaser"; the Textron Purchaser and
the Paul Revere Purchasers being hereinafter collectively referred to as (the
"Purchasers").
WHEREAS, the parties hereto, or their predecessors in
interest, entered into the Original Agreement;
WHEREAS, concurrently herewith the Company is entering into a
new senior credit facility (the "New Credit Facility") with Congress Financial
Corporation ("Congress") to replace the senior credit facility held by FINOVA
Capital Corporation ("FINOVA") pursuant to a Loan and Security Agreement between
the Company and FINOVA dated as of March 31, 1995; and
WHEREAS, the Purchasers are entering into the Subordination
and Intercreditor Agreement dated as of June 30, 1999, with the Company and
Congress; and
WHEREAS, the parties desire to amend the Original Agreement
and certain related documents in order to permit the Company to enter into the
New Credit Facility and as otherwise set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. Amendments to Original Agreement. Effective as of the Effective Date
(as hereinafter defined), the Original Agreement is hereby amended as follows:
1.1 Amendment to Section 3 of the Original Agreement: Section 3 of the
Original Agreement is hereby amended by inserting at the end of the definition
of "Consolidated Cash Flow" the following:
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"and (vii) during the Company's fiscal year 2000, profit sharing
deferrals, to the extent unpaid, but during the Company's fiscal years
2001, 2002 and 2003, such profit sharing deferrals originating during
the Company's fiscal year 2000, to the extent paid, shall represent
deductions from Consolidated Net Income for purposes of determining
Consolidated Cash Flow; provided, however, that, for the Company's
fiscal year 1999, the amount of any prepayment premium or early
termination fee incurred in connection with the replacement of the
FINOVA senior credit facilities shall not be taken into account in the
determination of the Consolidated Net Income component of Consolidated
Cash Flow for such fiscal year."
1.2 Amendment to Section 3 of the Original Agreement: Section 3 of the
Original Agreement is hereby amended by inserting at the end of the definition
of "Contractual Senior Debt Service" the following:
"; provided, however, that, for the Company's fiscal year 1999, the
amount of any prepayment premium or early termination fee incurred in
connection with the replacement of the FINOVA senior credit facilities
shall not be taken into account in the determination of the Contractual
Senior Debt Service."
1.3 Amendment to Section 3 of the Original Agreement: Section 3 of the
Original Agreement is hereby amended by inserting at the end of the definition
of "Contractual Total Debt Service" the following:
"; provided, however, that, for the Company's fiscal year 1999, the
amount of any prepayment premium or early termination fee incurred in
connection with the replacement of the FINOVA senior credit facilities
shall not be taken into account in the determination of the Contractual
Total Debt Service."
1.4 Amendment to Section 3 of the Amendment. Section 3 of Original
Agreement is hereby amended by deleting the words "Section 2.2.1" from the
definition of "Excess Availability" therein, and inserting the words "Section
2.1(a)" in lieu thereof.
1.5 Amendment to Section 3 of the Original Agreement. Section 3 of the
Original Agreement is hereby amended by inserting the following definition in
its proper alphabetical place:
" "Financing Agreements" shall have the meaning specified in
the Loan and Security Agreement."
1.6 Amendment to Section 3 of the Original Agreement. Section 3 of the
Original Agreement is hereby amended by deleting the words "Section 2.3" from
the definition of "L/C's" therein, and inserting the words "Section 2.2" in lieu
thereof.
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1.7 Amendment to Section 3 of the Original Agreement. Section 3 of the
Original Agreement is hereby amended by deleting in its entirety the definition
of "Loan and Security Agreement" and inserting in lieu thereof the following:
" "Loan and Security Agreement" means the Loan and Security
Agreement dated as of June 30, 1999, by and among the Company, the
Senior Lender and certain Guarantors."
1.8 Amendment to Section 3 of the Original Agreement. Section 3 of the
Original Agreement is hereby amended by deleting the words "Section 2.2" from
the definition of "Revolving Loan" therein, and inserting the words "Section
2.1" in lieu thereof.
1.9 Amendment to Section 3 of the Original Agreement. Section 3 of the
Original Agreement is hereby amended by deleting in its entirety the definition
of "Senior Indebtedness" and inserting in lieu thereof:
" "Senior Indebtedness" shall mean "Senior Debt" as defined in
the Subordination and Intercreditor Agreement."
1.10 Amendment to Section 3 of the Original Agreement: Section 3 of the
Original Agreement is hereby amended by deleting in its entirety the definition
of "Senior Lender" and inserting in lieu thereof the following:
" "Senior Lender" means Congress Financial Corporation, a
Delaware corporation, and its successors and assigns."
1.11 Amendment to Section 3 of the Original Agreement: Section 3 of the
Original Agreement is hereby amended by deleting in its entirety the definition
of "Senior Security Interests" and inserting in lieu thereof the following:
" "Senior Security Interests" means: Liens granted to the
Senior Lenders pursuant to the Loan and Security Agreement, and certain
Financing Agreements, as in effect on the date hereof or amended as
permitted by the Subordination and Intercreditor Agreement so that the
obligations thereunder constitute Senior Indebtedness."
1.12 Amendment to Section 3 of the Original Agreement: Section 3 of the
Original Agreement is hereby amended by deleting in its entirety the definition
of "Subordination and Intercreditor Agreement" and inserting in lieu thereof the
following:
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" "Subordination and Intercreditor Agreement" means that
certain Subordination and Intercreditor Agreement, dated June 30, 1999,
by and among the Senior Lender, the Company, The Paul Revere Life
Insurance Company, The Paul Revere Variable Annuity Insurance Company,
The Paul Revere Protective Life Insurance Company and Investors Bank &
Trust Company, as trustee for Textron Collective Investment Trust, as
amended or modified pursuant to the terms hereof."
1.13 Amendment to Section 3 of the Original Agreement. Section 3 of the
Original Agreement is hereby amended by deleting the "$25,000,000" from the
definition of "Term Note" therein, and replacing it with the word $19,000,000 in
lieu thereof.
1.14 Amendment to Section 8.5 of the Original Agreement. Section 8.5 of the
Original Agreement is hereby amended by deleting the words "the L/C Obligations"
in clause (ii) thereof and inserting in lieu thereof the following: "the L/C's".
1.15 Amendment to Section 8.10(a) of the Original Agreement. Section
8.10(a) of the Original Agreement is hereby amended by deleting it in its
entirety and inserting in lieu thereof the following:
"(a) Make any payment on the Notes, except as permitted by the
Subordination and Intercreditor Agreement and if after giving effect to
such payment, the Company would have Excess Availability of at least
$1,000,000 assuming the Revolving Loan Limit (as defined in the Loan
and Security Agreement) equals $16,000,000, the standards of
eligibility set forth in the definition of Eligible Accounts and
Eligible Inventory (as defined in the Loan and Security Agreement) have
not been modified or revised, no reserves are deemed necessary by the
Senior Lender as provided in the definition of Availability Reserves
(as defined in the Loan and Security Agreement) and Senior Lender has
not reduced the advance rates pursuant to Section 2.1(b) of the Loan
and Security Agreement."
1.16 Amendment to Section 8.10(c) of the Original Agreement. Section
8.10(c) of the Original Agreement is hereby amended by deleting it in its
entirety and inserting the following in lieu thereof:
"(c) Subject to the terms of the State Subordination
Agreement(s) then in effect, make any payment of State Debt, except
payments of principal and interest due on the State Debt may be made to
the holder thereof provided (i) no Event of Default or Potential
Default then exists, or would exist as a result of giving effect to
such payment, (ii) after giving effect to such payment the Company
would have Excess Availability of at least $1,000,000, and (iii) the
ratio of the Company's Consolidated Cash Flow to Contractual Total Debt
Service the twelve-month period ending on (w) the last day of each
calendar quarter during calendar year 1999 is not less than 1.00:1.00,
(x) the last day of each calendar quarter during calendar year 2000 is
not less than 1.05:1.00, (y) the last day of each calendar quarter
during calendar year 2001 is not less than 1.10:1.00, and (z) the last
day of each calendar quarter thereafter is not less than 1.15:1.00."
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1.17 Amendment to Section 8.14 of the Original Agreement. Section 8.14 of
the Original Agreement is hereby amended by deleting the first sentence thereof
in its entirety and inserting in lieu thereof the following:
"Make Capital Expenditures in any Loan Year in an amount
exceeding $2,500,000 ("Maintenance Capital Expenditures"); provided,
however, that in addition to Maintenance Capital Expenditures, the
Company may make Capital Expenditures (i) during the period commencing
on the Closing and ending June 30, 2002, to fund a proposed plant
upgrade project (including the installation of a notch-bar cooling bed,
two universal mills, a second tie-in to the stacker and related
ancillary equipment) in an aggregate amount not to exceed $12,000,000
and (ii) out of Excess Cash Flow for additional projects subject to the
Majority Noteholders' consent."
1.18 Amendment to Section 14(a) of the Original Agreement: Section 14 (a)
of the Original Agreement is hereby amended by inserting at the end of such
Section 14(a) the following clause (xiv):
"; or (xiv) a default by CPT in the performance of any of its
obligations under that certain Letter Agreement, dated June 30, 1999,
from CPT to the Purchasers."
1.19 Insertion of Section 7.22. The Original Agreement is hereby amended by
inserting Section 7.22 to read in its entirety as follows:
"7.22. Real Property. Within 60 days after the execution of
the Subordination and Intercreditor Agreement (time being of the
essence), the Company will take such actions and execute such documents
as the Agent and the Textron Purchaser shall require to create a valid
mortgage lien in favor of the Agent (on behalf of the Paul Revere
Purchasers) and the Textron Purchaser with respect to the real property
described on Exhibit A attached hereto (the "Additional Real
Property"), including, without limitation, the following documents and
instruments:
(a) a mortgage encumbering the Additional Real
Property (the "Mortgage"), together with such UCC-1 financing
statements as are contemplated by the counsel opinion described in
Section 3.1(d) below, all of which shall be in form and substance
reasonably satisfactory to the Agent and the Textron Purchaser, which
Mortgage and financing statements shall be effective to create a lien
on the Additional Real Property subject to no liens other than (i) the
lien of that certain Open-End Mortgage and Security Agreement (the
"Congress Mortgage"), dated on or about the date hereof, by the Company
in favor of Congress, and (ii) those matters set forth in the Congress
Policies (as defined below) (collectively, the "Permitted Congress
Liens");
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(b) a policy of title insurance from Lawyers Title
Insurance Corporation (the "Title Company") insuring the lien of the
Mortgage as a valid mortgage lien on the Additional Real Property in an
amount equal to the title insurance policy (or policies) being issued
by the Title Company to Congress with respect to the Additional Real
Property (the "Congress Policies"), which policy shall contain (i)
endorsements substantially similar to those contained in the Congress
Policies and such other endorsements as shall be reasonably required by
the Agent, (ii) only such exceptions to title as shall be Permitted
Congress Liens, and (iii) other terms and conditions acceptable to the
Agent and the Textron Purchaser;
(c) a survey (or surveys) of the Additional Real
Property reasonably acceptable to the Agent and the Textron Purchaser;
and
(d) in respect of the Mortgage, a legal opinion
addressed to each of the Purchasers and the Agent and dated the date of
execution of the Mortgage, in form and substance reasonably
satisfactory to the Agent and the Textron Purchaser, from legal counsel
to the Company in the state where the Additional Real Property is
located.
The Company shall perform any and all other acts and execute any and
all other documents which are necessary in order to fulfill the
obligations set forth in this Section 7.22."
SECTION 2. Amendments to Other Documents. Effective as of the Effective Date,
each Loan Document other than the Original Agreement (collectively, the "Other
Loan Documents) is hereby amended as follows:
2.1 Amendments to Loan Documents. Each reference in any Other Loan Document
to "FINOVA Capital Corporation" shall be deemed and is hereby amended to
constitute a reference to "Congress Financial Corporation".
2.2 Amendments to Loan Documents. Each reference in any Other Loan Document
to "Subordination and Intercreditor Agreement" shall be deemed and is hereby
amended to mean the Subordination and Intercreditor Agreement, as defined in the
Original Agreement as amended by this Third Amendment.
2.3 Amendments to Loan Documents. Each reference in any Other Loan Document
to "Loan and Security Agreement" shall be deemed and is hereby amended to mean
the Loan and Security Agreement, as defined in the Original Agreement as amended
by this Third Amendment.
SECTION 3. Conditions to Effectiveness.
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3.1 This Amendment shall become effective only upon the satisfaction in
full (or waiver by the Purchasers) of each of the conditions precedent set forth
in this Section 3 (the first date on which all such conditions have been so
satisfied or waived being herein called the "Effective Date"):
(a) the execution and delivery of the Loan and Security Agreement with
respect to the New Credit Facility and all agreements contemplated thereby; and
(b) the execution and delivery of the Subordination and Intercreditor
Agreement referred to in the recitals hereto by the Senior Lender and the
Purchasers; and
(c) the execution and delivery of a Subordination Agreement by the
Senior Lender, the Purchasers and the Commonwealth of Pennsylvania, acting
through The Department of Community and Economic Development; and
(d) the execution and delivery of a Subordination Agreement by the
Senior Lender, the Purchasers and the Beaver County Corporation for Economic
Development; and
(e) the execution and delivery of the Bring Along Agreement by the
Senior Lender and the Purchasers; and
(f) the Purchasers shall have received payment (allocated among the
Purchasers on a pro rata basis in accordance with the outstanding principal
amount of the Notes held by them) of a fee of $115,000 (corresponding to 0.5% of
the aggregate outstanding principal amount of the Notes); and
(g) Morgan, Lewis & Bockius LLP shall have received payment of all fees
and expenses incurred in connection with this Third Amendment and the
transactions contemplated thereby; and
(h) the execution of that certain Letter Agreement, dated June 30,
1999, from CPT to the Purchasers; and
(i) the Purchasers shall have received opinions of the Company's legal
counsel in connection with the New Credit Facility, addressed to the Purchasers
(or expressly stating that the Purchasers are entitled to rely thereon), and in
form and substance reasonably satisfactory to the Purchasers; and
(j) the Purchasers shall have received documentation relating to the
release of the indebtedness owed to FINOVA in form and substance reasonably
satisfactory to the Purchasers; and
(k) the Agent shall have received from the Title Company modification
endorsements to title policy numbers 135-00-774881 and 135-00-774879 in form and
substance reasonably satisfactory to the Purchasers.
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SECTION 4. General Provisions
4.1 Reaffirmation. Nothing in this amendment shall affect the terms of that
certain Letter Agreement, dated May 26, 1996, by and among CPT, J&L Holdings and
the Purchasers.
4.2 Representations and Warranties of the Company. Upon the effectiveness
of this Third Amendment, the Company hereby reaffirms all covenants,
representations and warranties made in the Original Agreement to the extent the
same are not amended hereby and represents and warrants that, as of the
Effective Date and after giving effect to this Third Amendment, no Potential
Default or Event of Default has occurred and is continuing.
4.3 Agreement; Terms. Except as expressly amended hereby, the Original
Agreement and the Other Loan Documents shall continue in full force and effect
in accordance with the provisions thereof on the date hereof, and this Third
Amendment shall not be deemed to waive or amend any provision of the Original
Agreement or any Other Loan Document except as expressly set forth herein. As
used in the Original Agreement or any Other Loan Document, the terms "this
Agreement," "herein," "hereinafter," "hereunder," "hereto" and words of similar
import shall mean from and after the Effective Date, unless the context
otherwise specifically requires, the Original Agreement or such Other Loan
Document as amended by this Third Amendment. Capitalized terms used and not
defined herein shall have the meanings assigned to such terms in the Original
Agreement.
4.4 Counterparts. This Third Amendment may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument, and all signatures need not appear on any one
counterpart.
4.5 Expenses. The Company agrees to pay all reasonable out-of-pocket
expenses incurred by the Purchasers in connection with the preparation of this
Third Amendment, including, but not limited to, the reasonable fees, charges and
disbursements of counsel for the Purchasers.
4.6 No Course of Dealing. The Purchasers have entered into this Third
Amendment on the express understanding with the Company that, in entering into
this Third Amendment, the Purchasers are not establishing any course of dealing
with the Company. The Purchasers' rights to require strict compliance with all
the terms and conditions of the Original Agreement (as amended by this Third
Amendment) and the Other Loan Documents shall not in any way be impaired by the
execution of this Third Amendment. No Purchaser shall be obligated in any manner
to execute any further amendments or waivers to any Loan Document and, if any
such waiver or amendment is requested in the future, assuming the terms and
conditions thereof are acceptable to them, the Purchasers may require the
payment of fees in connection therewith.
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4.7 Headings. The headings and captions in this Third Amendment are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof.
4.8 Governing Law. This Third Amendment shall be governed by, and construed
in accordance with, the law of the Commonwealth of Pennsylvania (other than any
conflict of laws rule which might result in the application of the laws of any
other jurisdiction).
[Remainder of page intentionally left blank]
10
<PAGE>
IN WITNESS WHEREOF, this Third Amendment has been duly executed and delivered by
duly authorized officers of the parties hereto by a duly authorized officer of
each such party as of the date first set forth above.
J&L STRUCTURAL, INC.
By: /s/ William L. Remley
THE PAUL REVERE LIFE INSURANCE COMPANY
By: PROVIDENT INVESTMENT MANAGEMENT, LLC
Its: Agent
By: /s/ Ben S. Miller
THE PAUL REVERE PROTECTIVE LIFE INSURANCE COMPANY
By: PROVIDENT INVESTMENT MANAGEMENT, LLC
Its: Agent
By: /s/ Ben S. Miller
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
By: PROVIDENT INVESTMENT MANAGEMENT, LLC
Its: Agent
By: /s/ Ben S. Miller
INVESTORS BANK & TRUST
COMPANY (successor in
interest to Rhode Island
Hospital Trust National
Bank), as Trustee for THE
TEXTRON COLLECTIVE
INVESTMENT TRUST
By: /s/ William H. Brophy
11
<PAGE>
Acknowledged and agreed for purposes of Section 4.1 only:
CPT HOLDINGS, INC.
By: /s/ William L. Remley
J&L HOLDINGS CORP.
By: /s/ William L. Remley
12
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 117
<SECURITIES> 0
<RECEIVABLES> 7,718
<ALLOWANCES> 455
<INVENTORY> 10,542
<CURRENT-ASSETS> 18,585
<PP&E> 53,337
<DEPRECIATION> 14,472
<TOTAL-ASSETS> 60,050
<CURRENT-LIABILITIES> 17,354
<BONDS> 0
<COMMON> 76
0
0
<OTHER-SE> (12,964)
<TOTAL-LIABILITY-AND-EQUITY> 60,050
<SALES> 100,385
<TOTAL-REVENUES> 100,385
<CGS> 86,097
<TOTAL-COSTS> 93,438
<OTHER-EXPENSES> (100)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,323
<INCOME-PRETAX> (276)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,532)
<CHANGES> 0
<NET-INCOME> (1,808)
<EPS-BASIC> 1.20)
<EPS-DILUTED> (1.20)
</TABLE>
