U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
--------------------
Commission file number: 0-8328
DYNAMIC MATERIALS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 84-0608431
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
551 ASPEN RIDGE DRIVE, LAFAYETTE 80026
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including Area Code (303) 665-5700
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.05 PAR VALUE
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,790,008 SHARES OF COMMON
STOCK AS OF APRIL 30,1998.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1998 1997
---------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 53,809
Accounts recevable, net of allowance for doubtful
accounts of $150,000 as of each date 6,312,350 4,936,350
Inventories 5,757,816 4,029,559
Prepaid expenses and other 217,462 368,511
Deferred tax asset 200,000 200,000
Receivable from related party 221,274 221,274
----------- -----------
Total current assets 12,708,902 9,809,503
----------- -----------
PROPERTY, PLANT AND EQUIPMENT 9,524,966 5,831,687
Less- Accumulated depreciation (3,181,346) (2,988,807)
----------- -----------
Property, plant and equipment-net 6,343,620 2,842,880
----------- -----------
INTANGIBLE ASSETS, net of accumulated amortization
of $342,229 and $307,451, respectively 1,295,686 1,230,464
NOTE RECEIVABLE 280,000 -
OTHER ASSETS 280,221 522,962
---------- -----------
TOTAL ASSETS $20,908,429 $14,405,809
=========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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<PAGE>
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1998 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 513,768 $ -
Accounts payable 3,435,111 2,328,867
Accrued expenses 1,007,896 1,012,908
Current maturities of long-term debt and
capital lease obligations 98,722 113,925
----------- ------------
Total current liabilities 5,055,497 3,455,700
LINE OF CREDIT 3,938,589 -
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 59,147 76,832
DEFERRED TAX LIABILITY 13,800 13,800
----------- ------------
Total liabilities 9,067,033 3,546,332
----------- ------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.05 par value;
4,000,000 shares authorized: no issued and
outstanding shares - -
Common stock, $.05 par value; 15,000,000 shares
authorized; 2,789,508 and 2,718,708 shares
issued and outstanding, respectively 139,476 135,936
Additional paid-in capital 7,057,315 6,587,911
Retained earnings 4,644,605 4,135,630
----------- ------------
11,841,396 10,859,477
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,908,429 $14,405,809
=========== ===========
See Notes to Condensed Financial Statements
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<PAGE>
DYNAMIC MATERIALS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
NET SALES $ 9,495,154 $ 9,781,910
COST OF PRODUCTS SOLD 7,498,794 7,734,297
----------- -----------
Gross profit 1,996,360 2,047,613
----------- -----------
COSTS AND EXPENSES:
General and administrative expenses 608,337 548,217
Selling expenses 522,501 527,823
Research and development costs 16,486 10,326
----------- -----------
1,147,324 1,086,366
----------- -----------
INCOME FROM OPERATIONS 849,036 961,247
OTHER INCOME (EXPENSE):
Other income -- 21,890
Interest expense (29,350) (65,364)
Interest income 1,289 2,485
----------- -----------
Income before income tax provision 820,975 920,258
INCOME TAX PROVISION (312,000) (295,000)
----------- -----------
NET INCOME $ 508,975 $ 625,258
=========== ===========
NET INCOME PER SHARE
Basic $ .19 $ .24
=========== ===========
Diluted $ .18 $ .22
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 2,735,324 2,600,239
=========== ===========
Diluted 2,869,547 2,891,140
=========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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<PAGE>
DYNAMIC MATERIALS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid in Retained
Shares Amount Capital Earnings
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1997 2,718,708 $ 135,936 $ 6,587,911 $ 4,135,630
Common stock issued for stock
option exercises 13,300 665 22,479 --
Shares issued in connection with
the purchase of Spin Forge 50,000 2,500 447,300 --
Restricted stock grant related
to the purchase of Spin Forge 7,500 375 (375) --
Net income -- -- -- 508,975
----------- ----------- ----------- -----------
BALANCES, March 31, 1998 2,789,508 $ 139,476 $ 7,057,315 $ 4,644,605
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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<PAGE>
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 508,975 $ 625,258
Adjustments to reconcile net income
to net cash from operating activities-
Depreciation 192,539 143,062
Amortization 34,778 29,529
Decrease (increase) in-
Accounts receivable, net (1,376,000) 360,066
Inventories (386,422) 2,650,354
Prepaid expenses and other 155,179 49,120
Increase (decrease) in-
Bank overdraft 513,768 (743,471)
Accounts payable 344,307 (1,130,336)
Accrued expenses (189,480) 155,717
----------- -----------
Net cash flows from operating activities (202,356) 2,139,299
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Spin Forge assets (2,348,589) --
Purchase of AMK assets (905,873) --
Loan to related party (280,000) --
Acquisition of property, plant and equipment (171,020) (19,765)
Sale of property, plant and equipment -- 10,172
Change in other noncurrent assets (74,816) (71,374)
----------- -----------
Net cash flows used in investing activities (3,780,298) (80,967)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings/(payments) on line of credit, net 3,938,589 (2,430,000)
Payments on long-term debt and capital lease obligations (32,888) (29,482)
Net proceeds from issuance of common stock 23,144 200,398
----------- -----------
Net cash flows from financing activities 3,928,845 (2,259,084)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (53,809) (200,752)
CASH AND CASH EQUIVALENTS, beginning of the period 53,809 209,650
----------- -----------
CASH AND CASH EQUIVALENTS, end of the period $ -- $ 8,898
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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<PAGE>
DYNAMIC MATERIALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information included in the Condensed Financial Statements is unaudited but
includes all normal and recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the interim periods
presented. These Condensed Financial Statements should be read in conjunction
with the financial statements that are included in the Company's Annual Report
filed on Form 10-KSB for the year ended December 31, 1997.
2. ACQUISITION OF AMK AND SPIN FORGE BUSINESSES
The Company has completed two separate business acquisitions since its December
31, 1997 fiscal year end. On January 5, 1998, the Company acquired certain
assets of AMK Welding, Inc. (AMK) for a cash purchase price of approximately
$900,000. Assets acquired consisted primarily of machinery and equipment, land
and the building that houses AMK's operations. AMK supplies commercial aircraft
and aerospace-related automatic and manual, gas tungsten and arc welding
services. On March 18, 1998, the Company completed the acquisition of certain
assets of Spin Forge, LLC (Spin Forge) for a purchase price of approximately
$3,900,000 that was paid with a combination of approximately $2,350,000 in cash,
assumption of approximately $1,100,000 in liabilities and 50,000 shares of DMC
Common Stock valued at $450,500. The Company's management believes Spin Forge is
one of the country's leading manufacturers of tactical missile motor cases and
titanium pressure vessels for the commercial aerospace and defense industries.
Principal assets acquired included machinery and equipment and inventories. The
Company will lease land and buildings from Spin Forge, LLC and holds an option
to purchase such property for approximately $2.9 million, subject to certain
adjustments, exercisable under certain conditions through January 2002. The
option may be extended beyond this date under specified conditions provided that
the option price must be adjusted upwards in the event that the fair market
value of the property at the time of exercise is higher than $2.9 million.
The following unaudited pro forma results of operations of the Company for the
three months ended March 31, 1998 and March 31, 1997 assumes that the
acquisition of AMK and Spin Forge had occurred on January 1, 1997. These pro
forma results are not necessarily indicative of the actual results of operations
that would have been achieved nor are they necessarily indicative of future
results of operations. In addition, the purchase price allocation of these
acquisitions are tentative and may be affected by final post closing
adjustments.
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
REVENUES $ 10,756,439 $ 11,474,073
NET INCOME $ 564,854 $ 603,457
NET INCOME PER SHARE - BASIC $ 0.20 $ 0.23
NET INCOME PER SHARE - DILUTED $ 0.19 $ 0.21
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<PAGE>
3. INVENTORIES
This caption on the Condensed Balance Sheet includes the following:
March 31, December 31,
1998 1997
---------- ----------
RAW MATERIALS $ 931,739 $ 984,788
WORK-IN-PROCESS 4,714,328 2,865,164
SUPPLIES 111,749 179,607
$5,757,816 $4,029,559
========== ==========
4. NET INCOME PER SHARE:
The Company computes earnings per share (EPS) in accordance with Statement of
Financial Accounting Standards No. 128 ("SFAS 128), "Earnings per Share". Basic
EPS is computed by dividing net income by the weighted average number of shares
of common stock outstanding during the period. Diluted EPS recognizes the
potential dilutive effects of dilutive securities. The following represents a
reconciliation of the numerator and denominator used in the calculation of basic
and diluted EPS:
<TABLE>
<CAPTION>
For the quarter ended March 31, 1997
------------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Net Income $ 625,258
==========
Basic earnings per share:
Income available to common shareholders $ 625,258 2,600,239 $ 0.24
======
Dilutive effect of options to purchase common
stock -- 290,901
---------- ---------
Dilutive earnings per share:
Income available to common shareholders $ 625,258 2,891,140 $ 0.22
=========== ========= ======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
For the quarter ended March 31, 1997
------------------------------------
Per Share
Income Shares Amount
----------- -------- ---------
<S> <C> <C> <C>
Net Income $ 508,975
===========
Basic earnings per share:
Income available to common shareholders $ 508,975 2,735,324 $ 0.19
======
Dilutive effect of options to purchase common
stock -- 134,223
----------- ---------
Dilutive earnings per share:
Income available to common shareholders $ 508,975 2,869,547 $ 0.18
=========== ========= ======
</TABLE>
In December, 1997 the Company adopted SFAS 128 and, as a result, the Company's
reported earnings per share for the quarter ended March 31, 1997 were restated.
The effect of this change on previously reported EPS data was as follows:
Quarter Ended
March 31, 1997
-------------------
Per share amounts
Primary EPS as reported $0.22
Effect of FAS 128 0.02
-----
Basic EPS as restated $0.24
Fully diluted EPS as reported $0.22
Effect of FAS 128 -
-----
Diluted EPS as restated $0.22
=====
5. SIGNIFICANT CUSTOMER
During the quarter ended March 31, 1998 one customer accounted for approximately
11% of net sales. One customer accounted for approximately 26% of net sales
during the quarter ended March 31, 1997. International sales as a percent of net
sales were 19% and 42% for the quarters ended March 31, 1998 and March 31, 1997,
respectively. Due to the fact that a significant portion of the Company's sales
is derived from a relatively small number of customers, the failure to perform
existing contracts on a timely basis, to receive payment for such services in a
timely manner, or to enter into future contracts at projected volumes and
profitability levels could adversely affect the Company's ability to meet its
cash requirements exclusively through operating activities.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the condensed
financial statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly operating results may occur as a result of
certain factors such as the size and timing of customer orders and competition.
Due to such fluctuations, historical results and percentage relationships are
not necessarily indicative of the results for any future period. Statements
contained in this report that are not historical facts are forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from projected results. Factors that could cause actual
results to differ materially include, but are not limited to, the ability to
obtain new contracts at attractive prices; the size and timing of customer
orders; fluctuations in customer demand; competitive factors; the timely
completion of contracts; and general economic conditions, both domestically and
abroad. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. The Company further directs readers to the
factors discussed in the Company's Form 10-KSB for the year ended December 31,
1997.
GENERAL
Dynamic Materials Corporation ("DMC" or the "Company") is a worldwide
leader in the high energy metal working business. The high energy metal working
business includes the use of explosives to perform both metallurgical bonding,
or metal "cladding," and metal forming. The Company performs metal cladding
using its proprietary Dynaclad(TM) and Detaclad(R) technologies and performs
metal forming using its proprietary Dynaform(TM) technology. Historically, the
Company has generated approximately 85% to 90% of its revenues from its metal
cladding business and approximately 10% to 15% of its revenues from its metal
forming and shock synthesis businesses. The Company expects revenues from its
cladding business, as a proportion of total Company revenues, to decline as a
result of the recent AMK and Spin Forge acquisitions.
Metal Cladding. Clad metal products are used in manufacturing processes or
environments that involve highly corrosive chemicals, high temperatures and/or
high pressure conditions. For example, the Company fabricates clad metal tube
sheets for heat exchangers. Heat exchangers are used in a variety of high
temperature, high pressure, highly corrosive chemical processes, such as
processing crude oil in the petrochemical industry and processing chemicals used
in the manufacture of synthetic fibers. In addition, the Company has produced
titanium clad plates used in the fabrication of metal autoclaves to replace
autoclaves made of brick and lead for two customers in the mining industry. The
Company believes that its clad metal products are an economical,
high-performance alternative to the use of solid corrosion-resistant alloys.
Metal Forming, Welding and Assembly. Formed metal products are made from
sheet metal and forgings that are subsequently formed into precise,
three-dimensional shapes that are held to tight tolerances. Metal forming is
accomplished through both the use of explosives and traditional forming
technologies, including spinning, machining, rolling and hydraulic expansion.
DMC also performs welding services utilizing a variety of manual and automatic
welding techniques that include electron
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<PAGE>
beam and gas tungsten arc welding processes. The Company's forming and welding
operations are often performed to support the manufacture of completed
assemblies and sub-assemblies required by its customers. Assembly and
fabrication services are performed utilizing the Company's close-tolerance
machining, forming, welding, inspection and other special service capabilities.
The Company's forming, welding and assembly operations serve a variety of
product applications in the commercial aircraft, aerospace, defense and power
generation industries. Product applications include torque box webs for jet
engine nacelles, tactical and ballistic missile motor cases and titanium
pressure tanks.
The Company is continually working to generate solutions to the materials
needs of customers in its target markets. Key elements of the Company's strategy
include continual improvement of its basic processes and product offerings, the
internal development of new cladding and forming products and the acquisition of
businesses that broaden or complement the Company's existing product lines. In
July 1996, the Company completed its first strategic acquisition when it
acquired the assets of the Detaclad(R) Division ("Detaclad") of E.I. du Pont de
Nemours and Company ("DuPont"), a complementary explosion cladding business with
expertise in cladding thin metals and heat exchanger components primarily for
the chemical processing, power generation and petrochemical industries.
The Company has completed two separate business acquisitions since its
December 31, 1997 fiscal year end. On January 5, 1998, the Company acquired
certain assets of AMK Welding, Inc. (AMK) for a cash purchase price of
approximately $900,000. Assets acquired consisted primarily of machinery and
equipment, land and the building that houses AMK's operations. AMK supplies
commercial aircraft and aerospace-related automatic and manual, gas tungsten and
arc welding services and generated sales of approximately $1.2 million in its
most recent fiscal year that ended on July 31, 1997. On March 18, 1998, the
Company completed the acquisition of certain assets of Spin Forge, LLC (Spin
Forge) for a purchase price of approximately $3,900,000 that was paid with a
combination of approximately $2,350,000 in cash, assumption of approximately
$1,100,000 in liabilities and 50,000 shares of DMC Common Stock valued at
$450,500. The Company's management believes Spin Forge is one of the country's
leading manufacturers of tactical missile motor cases and titanium pressure
vessels for the commercial aerospace and defense industries. Principal assets
acquired included machinery and equipment and inventories. The Company will
lease land and buildings from Spin Forge, LLC and holds an option to purchase
such property for approximately $2.9 million, subject to certain adjustments,
exercisable under certain conditions through January 2002. The option may be
extended beyond this date under specified conditions provided that the option
price must be adjusted upwards in the event that the fair market value of the
property at the time of exercise is higher than $2.9 million. Spin Forge
generated sales revenues of approximately $6.5 million for the year ended
December 31, 1997.
The Company has experienced and expects to continue to experience,
quarterly fluctuations in operating results caused by various factors, including
the timing and size of orders by major customers, customer inventory levels,
shifts in product mix, the occurrence of acquisition-related costs and general
economic conditions. In addition, the Company typically does not obtain
long-term volume purchase contracts from its customers. Quarterly sales and
operating results therefore depend on the volume and timing of backlog as
well as bookings received during the quarter. A significant
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<PAGE>
portion of the Company's operating expenses are fixed, and planned expenditures
are based primarily on sales forecasts and product development programs. If
sales do not meet the Company's expectations in any given period, the adverse
impact on operating results may be magnified by the Company's inability to
adjust operating expenses sufficiently or quickly enough to compensate for such
a shortfall. In addition, the Company uses numerous suppliers of alloys, steels
and other materials for its operations. The Company typically bears a short-term
risk of alloy, steel and other component price increases, which could adversely
affect the Company's gross profit margins. Although the Company will work with
customers and suppliers to minimize the impact of any component shortages,
component shortages have had, and are expected from time to time to have,
short-term adverse effects on the Company's business. Results of operations in
any period should not be considered indicative of the results to be expected for
any future period. Fluctuations in operating results may also result in
fluctuations in the price of the Company's Common Stock.
QUARTER ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain income statement data:
PERCENTAGE OF NET SALES
THREE MONTHS ENDED MARCH 31,
1998 1997
Net Sales 100.0% 100.0%
Cost of Products Sold 79.0% 79.1%
----- -----
Gross Profit 21.0% 20.9%
General & Administrative 6.4% 5.6%
Selling Expenses 5.5% 5.4%
R & D 0.2% 0.1%
Other Income 0.0% 0.2%
Interest Expense 0.3% 0.7%
Interest Income 0.0% 0.0%
Income Tax Provision 3.3% 3.0%
----- -----
Net Income 5.4% 6.4.%
===== =====
NET SALES. Net sales for the quarter ended March 31, 1998 decreased by 2.9% to
$9,495,154 from $9,781,910 in the first quarter of 1997. Sales for the first
quarter of 1997 included approximately $3.2 million in sales from shipments
under two large, non-recurring orders from an Australian customer. Sales for the
first quarter of 1998 included approximately $800,000 in sales from the newly
acquired Spin Forge and AMK businesses.
GROSS PROFIT. As a result of the Company's decrease in net sales, gross profit
for the quarter ended March 31, 1998 decreased by 2.5% to $1,996,360 from
$2,047,613 in first quarter of 1997. The gross
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<PAGE>
profit margin of 21.0% for the quarter ended March 31, 1998 was virtually
unchanged from the gross profit margin of 20.9% for the first quarter of 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for quarter
ended March 31, 1998 increased 11.0% to $608,337 from $548,217 in the first
quarter of 1997. This increase reflects higher spending levels in a number of
categories, including compensation, travel and entertainment, business
development and insurance. General and administrative expenses are expected to
increase during the remainder of the year as a result of the recently completed
Spin Forge acquisition and the Company's ongoing business development
activities. As a percentage of sales, general and administrative expenses
increased from 5.6% in the first quarter of 1997 to 6.4% in the first quarter of
1998.
SELLING EXPENSE. Selling expenses decreased by 1.0% to $522,501 for the quarter
ended March 31, 1998 from $527,823 in the first quarter of 1997. This decrease
is attributable to timing differences and does not reflect a downward trend in
the Company's selling expenses. As a percentage of sales, selling expenses
increased from 5.4% in the first quarter of 1997 to 5.5% in the first quarter of
1998.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to $16,486
for the quarter ended March 31, 1998 from $10,326 in the first quarter of 1997.
INCOME FROM OPERATIONS. Income from operations decreased by 11.7% to $849,036
for the quarter ended March 31, 1998 from $961,247 in the first quarter of 1997.
This decrease is a direct result of the decrease in net sales combined with the
increase in general and administrative expenses discussed above. Income from
operations as a percentage of net sales decreased to 8.9% for the quarter ended
March 31, 1998 from 9.8% in the first quarter of 1997.
INTEREST EXPENSE. Interest expense decreased to $29,350 for the quarter ended
March 31, 1998 from $65,364 in the first quarter of 1997. This decrease is due
to borrowings during the first quarter of 1997 under the Company's revolving
line of credit facility with KeyBank National Association that were required to
finance a portion of the Detaclad acquisition and working capital requirements
associated with two large orders that accounted for a significant portion of
December 31, 1996 accounts receivable and inventory balances. Interest expense
is expected to increase in the second quarter of 1998 as the line of credit
borrowings increased from zero at December 31, 1997 to $3,938,589 at March 31,
1998. The increase is principally a result of the utilization of line of credit
borrowings to finance the AMK and Spin Forge acquisitions.
INCOME TAX PROVISION. The Company's income tax provision increased by 5.8% to
$312,000 for the quarter ended March 31, 1998 from $295,000 in the first quarter
of 1997. This increase reflects an increase in the Company's effective tax rate
to 38.0% for the quarter ended March 31, 1998 from 32.1% for the first quarter
of 1997. The 38.0% effective tax rate used in the first quarter of 1998 compares
to an effective tax rate of 37.8% for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has secured the major portion of its operational
financing from operating activities and an asset-backed revolving credit
facility. In connection with the Detaclad acquisition, the Company entered into
a $7,500,000 asset-backed revolving credit facility with
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<PAGE>
KeyBank National Association (KeyBank) in July of 1996. The credit facility has
a seven-year term and is secured by substantially all of the Company's assets,
including its accounts receivable, inventory and equipment The maximum amount
available under the line of credit is subject to borrowing base restrictions
which are a function of defined balances in accounts receivable, inventory, real
property and equipment.
In connection with the Company's acquisition of Spin Forge on March 18,
1998 and resultant increase in the Company's asset base, the Company amended its
revolving credit facility with KeyBank. Amendments included an increase in the
total facility from $7.5 million to $10 million and separating $5 million of the
total facility into a reducing revolving credit facility to be used principally
for acquisition financing. The reducing revolving credit facility is secured by
certain of the Company's assets, including those of the acquired AMK and Spin
Forge businesses, and is not subject to borrowing base restrictions.
Availability under this facility will be reduced at the rate of $1 million per
year over its five-year term. The remaining $5 million of the revolving credit
facility will continue under the same terms and conditions as described above
for the original $7.5 million facility. The interest rate applicable to
borrowings under both the revolving credit facility and reducing revolving
credit facility is, at the Company's option, either the LIBOR Rate plus 1% to
1-1/2%, depending on certain conditions, or the Federal Funds Rate plus 2%. The
Company's total borrowings under the KeyBank facility were $3,938,589 as of
March 31, 1998.
During the quarter ended March 31, 1998, the Company used $202,356 in cash
flows from operating activities as compared to generating $2,139,299 in the
first quarter of 1997. The principal sources of cash flow from operations in the
quarter ended March 31, 1998 were net income of $508,975, an increase in bank
overdraft of $513,768 and an increase in accounts payable of $344,307. These
sources of operating cash flow were more than offset by a $1,376,000 increase in
accounts receivable and $386,422 increase in inventories. The increase in
receivables and inventory relates to higher than normal March sales and
production activity associated with the Company's relatively strong beginning of
the year order backlog. The Company's current ratio was 2.5 March 31, 1998 as
compared to 2.8 at December 31, 1997. Investing activities in the quarter ended
March 31, 1998 used $3,780,298 of cash, principally to fund the purchase of the
Spin Forge and AMK assets. Financing activities for the quarter ended March 31,
1998 provided $3,928,845 of net cash, including line of credit borrowings in the
amount of $3,938,589 that were used primarily for the purchase of the assets of
Spin Forge and AMK.
In March 1998, the Company's Board of Directors approved the Company's
proposal to build a new manufacturing facility in Pennsylvania at a cost of
approximately $6 million. The Company plans to finance the construction of the
manufacturing facility and purchase of related equipment with proceeds from the
issuance of tax-exempt, industrial development revenue bonds. KeyBank has
provided the Company with a letter of credit commitment in the amount of $6
million as credit enhancement for the bond financing. The Company anticipates
closing the bond financing by early third quarter of 1998. Construction of the
new facility is expected to begin in the summer of 1998 and should be completed
in early 1999.
The Company believes that its cash flow from operations, funds expected to
be available under its amended credit facility, and proceeds from the
anticipated tax-exempt bond financing for the new Pennsylvania manufacturing
facility will be sufficient to fund working capital and capital expenditure
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<PAGE>
requirements of its current business operations, including those of the recently
acquired AMK and Spin Forge businesses, for the foreseeable future. However, a
significant portion of the Company's sales is derived from a relatively small
number of customers; therefore, the failure to perform existing contracts on a
timely basis, and to receive payment for such services in a timely manner, or to
enter into future contracts at projected volumes and profitability levels could
adversely affect the Company's ability to meet its cash requirements exclusively
through operating activities. Consequently, any restriction on the availability
of borrowing under the line of credit could negatively affect the Company's
ability to meet its future cash requirements. The Company's expenditures for the
Pennsylvania manufacturing facility could exceed its estimates due to
construction delays, the delay in the receipt of any required government
approvals and permits, labor shortages or other factors. In addition, the
Company plans to grow both internally and through the acquisition of
complementary businesses. Increased expenditures for the Pennsylvania
manufacturing facility and/or a significant acquisition may require th Company
to secure additional debt or equity financing. While the Company believes it
would be able to secure such additional financing at reasonable terms, there is
no assurance that this would be the case.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in a Lawsuit filed in France by a
French company with which the Company had preliminary acquisition discussions
during 1997. The Company plans to vigorously defend itself against such claim
and the management of the Company believes that the ultimate outcome of such
litigation will not have a material adverse effect on the Company's financial
condition or results of operations. The Company is not party to any other legal
proceedings, the adverse outcome of which would, in management's opinion, have a
material adverse effect on the Company's business, operation results and
financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Between January 1, 1998 and March 31, 1998 the Registrant has issued and/or sold
unregistered securities as set forth below:
(1) In March 1998, the Registrant issued 50,000 shares of unregistered Common
Stock to Joseph Allwein, an officer of the Registrant, as part of the
consideration for the purchase of the assets of Spin Forge, LLC.
(2) In March 1998 the Registrant issued 7,500 shares of unregistered Common
Stock to Joseph Allwein, an officer of the Registrant, in exchange for
services rendered which stock will vest in four equal annual installments.
The sales and issuance of securities in the transactions described in paragraphs
(1) and (2) above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) promulgated under the Securities Act.
The purchasers in each case represented their intention to acquire the
securities for investment only and not with a view to the distribution thereof.
Appropriate legends are affixed to the stock certificates issued in such
transactions. All recipients either received adequate information about the
Registrant or had access , through employment or other relationships, to such
information.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)
3.1 Certificates of Incorporation of the Registrant**
3.2 Bylaws of the Registrant**
10.1 Asset Purchase Agreement, dated January 1998, between the Registrant and
AMK Inc.
10.2 Asset Purchase Agreement, dated as of March 18, 1998 between the
Registrant, Spin Forge, LLC, Joseph Allwein and Darlene Bauer Allwin*
10.3 Option Agreement, dated as of March 18, 1998 between the Registrant and
Spin Forge, LLC*
10.4 Operating Lease, dated as of March 18, 1998 between the Registrant and
Spin Forge, LLC*
10.5 Loan Agreement, dated March 18, 1998 between the Registrant and Spin
Forge, LLC*
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<PAGE>
10.6 Personal Services Agreement, dated March 18, 1998 between the Registrant
and Joseph Allwein*
10.7 Stock Agreement, dated as of March 18, 1998 between the Registrant and
Spin Forge, LLC*
10.8 Stock Agreement, dated as of March 18, 1998 between the Registrant and
Joseph Allwein*
10.9 Non-Competition Agreement, dated as of March 18, 1998 between the
Registrant and Joseph Allwein*
10.10 Master Promissory Note, dated as of March 18, 1998, by Spin Forge, LLC*
10.11 Personal Guaranty, dated as of March 18, 1998 between the Registrant, Spin
Forge, LLC, Joseph Allwein and Darlene Bauer Allwin*
10.12 Credit Facility and Security Agreement, dated as of March 18, 1998 between
the Registrant and Key Bank National Association
10.13 First Amendment to Loan Documents, dated as of March 18, 1998 between the
Registrant and Key Bank National Association
27 Financial Data Schedule
(b) None
* Incorporated by reference from the Registrant's Report on Form 8-K filed
April 2, 1998
**Incorporated by reference form the Company's Proxy Statement for the 1998
Annual Shareholders' Meeting filed July 14, 1997
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DYNAMIC MATERIALS CORPORATION
(Registrant)
Date: May 15, 1998 /s/Richard A. Santa
-------------------------------
Richard A. Santa, Vice President
of Finance and Chief Financial
Officer (Duly Authorized Officer
and Principal Financial and
Accounting Officer)
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<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1 Asset Purchase Agreement, dated January 1998, between the
Registrant and AMK Inc.
10.12 Credit Facility and Security Agreement, dated as of March 18, 1998
between the Registrant and Key Bank National Association
10.13 First Amendment to Loan Documents, dated as of March 18, 1998
between the Registrant and Key Bank National Association
27 Financial Data Schedule
DYNAMIC MATERIALS CORPORATION
ASSET PURCHASE AGREEMENT
between
DYNAMIC MATERIALS CORPORATION
and
AMK WELDING, INC.
Dated
January 5, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. Transfer of Assets, Payment, and Related Matters.................1
1.1 Transfer of Assets...................................1
1.2 Retained Assets......................................2
1.3 No Assumption of Obligations and Liabilities.........2
1.4 Consideration........................................2
1.5 Allocation of Consideration..........................3
1.6 Taxes................................................3
1.7 Instruments of Conveyance, Transfer and Assumption...3
1.8 Further Assurances...................................3
2. Closing..........................................................4
3. Representations and Warranties by Seller.........................4
3.1 Organization and Standing............................4
3.2 Corporate Power Authorization........................4
3.3 No Breach, Etc.......................................4
3.4 Financial Statements.................................5
3.5 Title to Properties: Liens: Condition of Properties..5
3.6 Taxes................................................5
3.7 No Liabilities.......................................6
3.8 Litigation, Etc......................................6
3.9 Patents, Trade Names and Trademarks..................6
3.10 Compliance with Laws.................................7
3.11 Environmental Matters................................7
3.12 Governmental Permits.................................9
3.13 Disclosure of Material Information...................9
3.14 Insurance............................................9
3.15 Inventory...........................................10
3.16 Major Customers.....................................11
3.17 Existing Employment Contracts.......................11
3.18 Required Consents and Approvals.....................11
3.19 Absence of Certain Changes..........................11
3.20 Product Warranty and Product Liability..............12
3.21 Shareholder List....................................13
3.22 Assets Necessary to Business........................13
3.23 No Brokers or Finders...............................13
3.24 Contracts and Commitments...........................13
4. Representations and Warranties of Purchaser.....................15
4.1 Corporate Power; Authorization......................15
4.2 No Breach, Etc......................................15
5. Other Matters...................................................16
5.1 Covenant Not to Compete.............................16
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5.2 Use of Seller's Name................................16
5.3 Sales Tax Matters...................................16
5.4 Finders Fees; Payments..............................16
5.5 Consents............................................16
6. Indemnification.................................................16
6.1 Indemnification of Purchaser........................16
6.2 Indemnification Procedures..........................17
6.3 Nonexclusivity of Indemnification Remedies..........18
7. Survival of Representations and Warranties......................18
8. Conditions to Purchaser's Obligations at Closing................18
8.1 Representations and Warranties True; Compliance
with Agreement......................................18
8.2 Seller Board and Shareholder Approval...............18
8.3 Transfer of Title...................................19
8.4 Consents and Assignment of Leasehold Interests......19
8.5 Completion of Diligence.............................19
8.6 General Releases....................................19
8.7 Non-Competition Agreements..........................19
8.8 Consulting Agreements...............................19
8.9 No Material Adverse Change..........................19
8.10 Proprietary Information Agreements..................19
8.11 Financial Statements................................20
8.12 Legal Opinion.......................................20
9. Conditions to Seller's Obligations at Closing...................20
9.1 Representations and Warranties True.................20
9.2 Seller Board and Shareholder Approval...............20
9.3 Delivery of Consideration...........................20
10. Confidentiality Provisions......................................20
10.1 Obligation..........................................20
10.2 Exclusions..........................................20
10.3 Remedies............................................21
11. Entire Agreement and Amendments.................................21
12. Counterparts....................................................21
13. Successors and Assigns..........................................21
14. Applicable Law..................................................21
15. Closing Costs...................................................21
16. Equitable Relief................................................22
17. "Knowledge" Definition..........................................22
18. Further Assurances..............................................22
19. Notices.........................................................22
20. Severability and Waiver.........................................23
21. Public Announcements............................................23
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<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("AGREEMENT") is entered into as of this 5th
day of January, 1998 (the "EFFECTIVE DATE") between Dynamic Materials
Corporation, a Delaware corporation ("PURCHASER"), having a principal place of
business at 551 Aspen Ridge Drive, Lafayette, CO 80026, and AMK Welding, Inc., a
Connecticut corporation, ("AMK"), Alva Rossi and Margaret Rossi (the
"SHAREHOLDERS," together with AMK referred to herein as the "SELLER"), having a
principal place of business at 283 Sullivan Avenue, South Windsor, CT 06074.
RECITALS
A. Seller owns a welding business located at 283 Sullivan Avenue, South
Windsor, CT 06074 (the "BUSINESS"), and owns certain tangible and intangible
assets related to such business.
B. Seller desires to sell such business and assets and Purchaser desires to
purchase such business and assets.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions set forth below, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to this
Agreement hereby agree as follows:
TERMS
1. TRANSFER OF ASSETS, PAYMENT, AND RELATED MATTERS.
1.1 TRANSFER OF ASSETS. In consideration of the payment to AMK and the
Shareholders by Purchaser pursuant to Section 1.4 below, and subject to the
terms and conditions of this Agreement, AMK and the Shareholders hereby assign,
convey, transfer and sell to Purchaser as of the closing provided for in Section
2 below (the "CLOSING"), all right, title and interest in and to all of the
assets of Seller relating to the Business (other than the Retained Assets, as
defined herein), including without limitation, those tangible, intangible and
contract assets, rights and personal properties, all as more particularly
described in EXHIBIT A attached hereto and incorporated herein by reference
(collectively, the "ASSETS"). Without limiting the generality of the foregoing,
Seller hereby assigns, conveys, transfers and sells to Purchaser as of the
Closing all real property (including all rights appurtenant thereto and all
buildings, structures, improvements and the like) possessed by Seller (the "REAL
PROPERTY ASSETS," which are included in and a part of the Assets) in fee simple
absolute evidenced by a general warranty deed satisfactory to Purchaser and as
advised by Purchaser's title insurance carrier; provided, however, that AMK and
the Shareholders shall, jointly and severally, indemnify and hold harmless
Purchaser for any amounts associated with the correction,
<PAGE>
cure or release of any defect, encumbrance, lien, charge or the like of any
nature whatsoever advised by such carrier.
1.2 RETAINED ASSETS. Seller shall retain and the Assets shall not
include the following (collectively, the "RETAINED ASSETS"):
(a) AMK's corporate franchise, stock record books, corporate record
books containing minutes of meetings of directors and shareholders, and
such other records as have to do exclusively with AMK's organization or
stock capitalization (provided, however, that Purchaser and its
representatives shall have access to such documents at reasonable times and
on reasonable notice for the purpose of inspecting and making copies of
them);
(b) any Materials of Environmental Concern (as defined in Section
3.11(b) hereof);
(c) cash on hand;
(d) Accounts Receivable;
(e) Personal items as defined on Exhibit A-1;
(f) the federal tax deposit in the amount of Nineteen Thousand and
Sixty- Two Dollars ($19,062);
(g) prepaid insurance on policies not assumed by Purchaser existing at
the time of the Closing, if any; and
(h) refunds on taxes paid by AMK or the Shareholders prior to the
Closing, if any.
1.3 NO ASSUMPTION OF OBLIGATIONS AND LIABILITIES. Purchaser shall not
undertake, assume or agree to perform, pay or discharge and expressly disclaims
any and all liabilities associated with the Retained Assets or any other
liabilities, obligations or the like of or related to Seller. In addition,
Seller shall remain fully responsible for all liabilities or obligations arising
from activities conducted on and all conditions (including, without limitation,
any environmental contamination) of the site where the Assets are located, and
all adjacent sites, including those sites described in the Retained Assets, and
for all activities conducted off the site which relate to the Assets or the
operations in which the Assets were previously employed, to the extent such
liabilities or obligations arise from activities or conditions occurring prior
to the Closing. Seller's responsibility (as described in the preceding sentence)
shall include, without limitation, the responsibility to perform any and all
response activities required under any federal, state, or local law, regulation
or requirement relating to any environmental condition or circumstance.
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<PAGE>
1.4 CONSIDERATION. Subject to the terms and conditions of this
Agreement, as consideration for the Assets transferred to Purchaser hereunder,
Purchaser shall pay (1) to AMK the sum of Four Hundred Seventy-Five Thousand
Dollars ($475,000) and (2) to the Shareholders the sum of Four Hundred
Twenty-Five Thousand Dollard ($425,000) (collectively, the "PURCHASE PRICE").
The Purchase Price shall be paid by delivery of a certified or bank check or by
wire transfer of immediately available funds.
1.5 ALLOCATION OF CONSIDERATION. The allocation of consideration paid
by Purchaser for the Assets shall be allocated as determined by Purchaser within
sixty (60) days after Closing and approved by the Shareholders, which approval
shall not be unreasonably withheld or delayed. Purchaser, AMK and the
Shareholders hereby affirm that they shall each adhere to any such allocation
for the purposes of all tax returns filed by them subsequent to such date,
including the determination by AMK and the Shareholders of taxable gain or loss
on the sale of the Assets and the determination by Purchaser of the tax basis of
the Assets, for the purposes of all financial statements and in all other
circumstances.
1.6 TAXES. Purchaser shall pay all sales taxes arising out of the
transfer of the Assets hereunder.
1.7 INSTRUMENTS OF CONVEYANCE, TRANSFER AND ASSUMPTION. AMK and the
Shareholders agree to deliver or cause to be delivered to Purchaser at the
Closing full possession of all of the Assets together with (i) a bill of sale
substantially in the form of EXHIBIT B hereto; (ii) such other instruments of
conveyance and transfer as shall be effective to vest in Purchaser all right,
title and interest and to the Assets free and clear of all liens, charges,
easements, mortgages, pledges, claims and other encumbrances in favor of any
third party; (iii) any and all tangible manifestations of the Assets including
without limitation, all notes, records, files, prints, drawings, schematics
diagrams, specifications and tangible items of any sort in AMK's and the
Shareholders' possession or under AMK's and the Shareholders' control relating
to the Assets, and including original trademarks and related registrations,
copyrights and related registrations, and certificates of letters patent, and
applications and disclosures therefor, if any. Such delivery shall include all
present and predecessor versions and (iv) a general warranty deed.
1.8 FURTHER ASSURANCES. AMK and the Shareholders shall use their best
efforts to obtain all consents (including, without limiting the generality of
the foregoing, consents or approvals of any government or governmental agency)
necessary to the assignment and transfer to Purchaser to effect the sale,
delivery, transfer and conveyance of the Assets contemplated by Section 1.1.
From time to time after the Closing, at Purchaser's request and without further
consideration, AMK and the Shareholders agree to execute and deliver such other
instruments of conveyance and transfer and take such other action as Purchaser
reasonably may require more effectively to convey, transfer to and vest in
Purchaser, and to put Purchaser in possession of, any property to be sold,
conveyed, transferred and delivered hereunder, and in the case of contracts and
rights, if any, that have not at the Closing been transferred effectively due to
the lack of the consent
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<PAGE>
of third parties, endeavor to obtain such consents promptly, and if any such
consents be unobtainable, to use its best efforts to provide Purchaser with the
benefits thereof in some other manner acceptable to Purchaser.
2. CLOSING. The closing of the transactions provided for in Section 1 above
shall take place at the offices of Rogin, Nassau, Caplan, Lassman & Hirtle, LLC,
CityPlace 1, 22nd Floor, 185 Asylum Street, Hartford, Connecticut 06103-3460, at
10:00 a.m. on January 5, 1998 (the "CLOSING DATE"), or such other place, time
and date as the parties may agree.
3. REPRESENTATIONS AND WARRANTIES BY SELLER. Except as otherwise set forth
in the Disclosure Schedule in EXHIBIT C attached hereto and incorporated by
reference (the "DISCLOSURE SCHEDULE"), AMK and the Shareholders each hereby,
jointly and severally, represent and warrant to Purchaser as follows:
3.1 ORGANIZATION AND STANDING. AMK is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Connecticut. AMK has all requisite corporate power to own and operate its
properties and assets, and to carry on its business as conducted and possesses
all licenses, franchises, rights and privileges necessary for the conduct of its
business. AMK is qualified to do business in all jurisdictions in which such
qualification is required. AMK does not own any interest in any corporation,
partnership or other entity.
3.2 CORPORATE POWER AUTHORIZATION. Each of AMK and the Shareholders
has all requisite power and authority to enter into this Agreement and the
Exhibits attached hereto, to sell and transfer the Assets, and to carry out and
perform all of their obligations under the terms of this Agreement and the
Exhibits. All corporate action on the part of AMK and AMK's officers, directors,
shareholders and other security holders that is necessary for the authorization,
execution and delivery of this Agreement and the Exhibits by AMK and the
Shareholders and for the performance of AMK's and the Shareholders' obligations
hereunder and thereunder for the sale and transfer of the Assets has been taken.
This Agreement and the Exhibits, when executed and delivered, shall constitute
the legal and binding obligations of AMK and the Shareholders, enforceable
against AMK and the Shareholders in accordance with their terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and by rules of law governing specific performance, injunctive
relief or other equitable remedies.
3.3 NO BREACH, ETC. The execution and delivery of this Agreement by
AMK and the Shareholders and all documents to be executed by AMK or the
Shareholders in connection with the transactions contemplated hereby do not, and
the performance and consummation by AMK and the Shareholders of the transactions
contemplated by this Agreement and the Exhibits will not, result in any conflict
with, breach or violation of or default, termination, forfeiture or lien under
(or upon the failure to give notice or the lapse of time, or both, result in any
conflict with, breach or violation of or default, termination, forfeiture or
lien under) any terms or provisions of AMK's Articles of Incorporation or Bylaws
or similar charter documents, each as amended, or any statute, rule,
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<PAGE>
regulation, judicial or governmental decree, order or judgment, or any
agreement, lease or other instrument, to which AMK or either of the Shareholders
is a party or to which it or the Assets are subject.
3.4 FINANCIAL STATEMENTS. AMK has previously delivered to Purchaser
unaudited balance sheets, statements of operations, statements of shareholders'
equity and statements of cash flows of Seller as of and for the years ended July
31, 1993, 1994, 1995, 1996 and 1997 (the "Year-End Financial Statements"). AMK
has also delivered to Purchaser for the three (3) month period ended October 31,
1997 (the "Interim Financial Statements," together with the Year-End Financial
Statements are referred to herein as the "Financial Statements"). The Financial
Statements were compiled by Noreika, Rosenfeld & Hupp LLC, independent
accountants for AMK, whose report with respect thereto has been delivered to
Purchaser. To the best of Seller's knowledge, all of such financial statements
have been prepared in accordance with generally accepted accounting principles
applied consistently during the periods covered thereby and present fairly the
financial condition of AMK at the dates of such statements and the results of
its operations for the periods covered thereby.
3.5 TITLE TO PROPERTIES: LIENS: CONDITION OF PROPERTIES.
(a) AMK has good and marketable title to all of the Assets other than
that part comprising the Real Property Assets. The Shareholders have good
and marketable title to all of the Real Property Assets. No default by
either AMK or the Shareholders exists under or with respect to any of such
Assets and none of the Assets is subject to any mortgage, pledge, lien,
conditional sale agreement, security interest, encumbrance or other charge.
(b) All such buildings, machinery, and equipment have been well
maintained and conform with all material applicable ordinances, regulations
and zoning or other laws and do not encroach on the property of others.
(c) As of the date of this Agreement there is, to AMK's and the
Shareholders' knowledge no pending or threatened change in any such
ordinance, regulation or zoning or other law, and there is to AMK's and the
Shareholders' knowledge no pending or threatened condemnation of all such
buildings, machinery or equipment.
(d) From and after the Closing, the Assets shall include all rights,
properties, interest in properties and assets necessary to permit Purchaser
to conduct the Business.
3.6 TAXES. With respect to the Business and the Assets, AMK and the
Shareholders have accurately prepared and timely filed all income tax returns
and other tax returns or other reports which are required to be filed, and have
paid, or made provision for the payment of, all federal, state and local taxes,
including, but not limited to, income and sales taxes, which have or may have
become due pursuant to said returns or reports or pursuant to any assessment
which has been received by it. Neither AMK nor any of the Shareholders is a
party to any pending action or
-5-
<PAGE>
proceeding, nor, to the best knowledge of AMK or the Shareholders, is any such
action or proceeding threatened by any governmental authority for the assessment
or collection of taxes, interest, penalties, assessments or deficiencies, and no
claim for assessment or collection of taxes, interest, penalties, assessments or
deficiencies has been asserted against AMK or the Shareholders with respect to
the Business or the Assets.
3.7 NO LIABILITIES. As of the date of this Agreement, neither AMK nor
the Shareholders have, or have had (i) any liabilities or obligations (absolute
or contingent) of any nature, or (ii) any change in the nature of the business,
results of operations, prospects, financial condition, method of accounting or
accounting practice or manner of conducting the Business other than changes in
the ordinary course of such business, none of which has had, or may reasonably
be expected to have, a material adverse effect on the Assets or the Business, or
the results of operations, prospects, financial condition or manner of operating
the Assets or conducting the Business taken as a whole.
3.8 LITIGATION, ETC. With respect to the Business and the Assets, no
action, suit, proceeding or investigation of any nature, including any claims
alleging infringement of the intellectual property rights of others, is pending
or threatened against AMK or any of the Shareholders, nor, to the best knowledge
of AMK or the Shareholders, is there any basis therefor. The foregoing includes,
without limitation: any action, suit, proceeding or investigation, pending or
threatened, which questions the validity of this Agreement or the Exhibits or
the right of AMK and the Shareholders to enter into this Agreement or the
Exhibits or to sell and transfer the Assets, or which might result, either
individually or in the aggregate, in any material adverse change in the Assets,
condition, affairs or prospects of the Business or of AMK or the Shareholders,
financial or otherwise; any litigation pending or threatened which might affect
the ability of Purchaser to operate the Business or to use the Assets; and any
litigation pending or threatened against AMK or the Shareholders by reason of
the past employment relationship of any employee, officer or consultant of AMK
or the Shareholders, the activities of AMK or the Shareholders, or negotiations
by AMK or the Shareholders with possible purchasers of. or investors in, AMK or
the Real Property Assets, all with respect to the Business or the Assets. There
is no judgment, decree, injunction, rule or order of any court, governmental
department, commission agency, instrumentality or arbitrator or other similar
ruling outstanding against AMK or the Shareholders affecting the Business or the
Assets. No action, suit, proceeding or investigation is pending or threatened by
AMK or the Shareholders affecting the Business or the Assets.
3.9 PATENTS, TRADE NAMES AND TRADEMARKS. All patents, patent
applications, registered copyrights, trade names, registered trademarks and
trademark applications which are owned by or licensed to AMK or the Shareholders
and are associated with the Business or are included in the Assets are listed in
Section 3.9 of the Disclosure Schedule, which section indicates with respect to
each the nature of AMK's or the Shareholders' interest therein and the
expiration date thereof or the date on which AMK's or the Shareholders' interest
therein terminates. All such patents, patent applications, registered trademarks
and trademark applications have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, and all such
-6-
<PAGE>
registered copyrights have been duly registered in, filed in or issued by the
United States Copyright Office, or, in each case, the corresponding offices of
other countries identified on Section 3.9 of the Disclosure Schedule, and have
been properly maintained and renewed in accordance with all applicable
provisions of law and administrative regulations in the United States and each
such country. Except as set forth in Section 3.9 of the Disclosure Schedule, use
of said patents, patent applications, registered copyrights, other copyrights,
trade names, registered trademarks, trademark applications and other trademark,
and trade secrets (collectively, the "INTELLECTUAL PROPERTY") owned by AMK or
the Shareholders, as applicable, does not require the consent of any other
person and the same are freely transferable (except as otherwise provided by
law) and are owned exclusively by AMK or the Shareholders, as applicable, free
and clear of any licenses, charges, attachments, liens, encumbrances or adverse
claims. Except as set forth in Section 3.9 of the Disclosure Schedule, (a) no
other person has an interest in or right or license to use, or the right to
license others to use, any of the Intellectual Property owned or licensed by AMK
or the Shareholders, as applicable, (b) there are no claims or demands of any
other person pertaining thereto and no proceedings have been instituted, or are
pending or threatened, which challenge AMK's or the Shareholders' rights in
respect thereof, (c) none of the Intellectual Property is subject to any
outstanding order, decree, judgment or stipulation, or, to the best knowledge of
AMK or the Shareholders, is being infringed by others, (d) no claim has been
made and no proceeding has been filed or is threatened to be filed charging AMK
or the Shareholders with infringement of any adversely held patent, trade name,
trademark or copyright, and (e) there does not exist (i) any unexpired patent
with claims which are or would be infringed by products of AMK or the
Shareholders or by apparatus, methods or designs employed by it or any of them
in manufacturing such products or (ii) any patent or application therefor or
invention which would materially adversely affect AMK's or the Shareholders'
ability to manufacture, use or sell any such product, apparatus, method or
design. There are no royalties, fees or other payments payable by AMK or the
Shareholders to any person by reason of the ownership, use, license, sale or
disposition of any instrument or agreement governing any of the Intellectual
Property except as set forth in Section 3.9 of the Disclosure Schedule.
3.10 COMPLIANCE WITH LAWS. Neither AMK nor the Shareholders are in
violation of any laws and regulations which apply to the conduct of their
business, including, without limitation, laws and regulations relating to
employment, occupational safety and environmental matters relating to the
Business or the Assets. Neither AMK nor the Shareholders have received notice
of, and there has never been, any citation, fine or penalty imposed upon or
asserted against AMK or the Shareholders under any federal, state or local law
or regulation relating to employment, occupational safety, zoning or
environmental matters relating to the Business or the Assets.
3.11 ENVIRONMENTAL MATTERS.
(a) Each of AMK and the Shareholders have materially complied with,
and each is in material compliance with, all applicable Environmental Laws
(as defined below). Each of AMK and the Shareholders possesses, and has
provided to Purchaser true and accurate copies of, all permits, approvals,
registrations, licenses or other authorizations required by any
governmental authority pursuant to any Environmental Law applicable to the
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Business or the Assets, the absence of which would have a material adverse
effect on the Business or the Assets. There is no pending or, to AMK's or
the Shareholders' knowledge, threatened civil or criminal litigation,
written notice of violation, formal administration proceeding, or
investigation, inquiry or information request by any governmental
authority, relating to any Environmental Law to which either AMK or any of
the Shareholders is a party or is threatened to be made a party. For
purposes of this Agreement, "ENVIRONMENTAL LAW" means any federal, state or
local law, statute, rule or regulation or the common law relating to the
environment or occupational health and safety, including without limitation
any statute, regulation or order pertaining to (i) treatment, storage,
disposal, generation and transportation of industrial, toxic or hazardous
substances or solid or hazardous waste; (ii) air, water and noise
pollution; (iii) groundwater and solid contamination; (iv) the release or
threatened release into the environment of industrial, toxic or hazardous
substances, or solid or hazardous waste, including without limitation
emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wild life,
marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and
containers; (vii) underground and other storage tanks or vessels,
abandoned, disposed or discarded barrels, containers and other closed
receptacles; (viii) health and safety of employees and other persons; and
(ix) manufacture, processing, use, distribution, treatment, storage,
disposal, transportation or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or oil or petroleum products
or solid or hazardous waste. As used herein, the terms "release" and
"environment" shall have the meaning set forth in the federal Comprehensive
Environmental Compensation, Liability and Response Act of 1980 ("CERCLA").
(b) Except as set forth in Section 3.11 of the Disclosure Schedule
there have been no releases of any Materials of Environmental Concern (as
defined below) into the environment at any parcel of real property or any
facility presently or formerly owned, operated or controlled by AMK or the
Shareholders. With respect to any such releases of Materials of
Environmental Concern, AMK and the Shareholders have given all required
notices to government authorities, copies of which have been provided to
Purchaser. Neither AMK nor any of the Shareholders is aware of any releases
of Materials of Environmental Concern at parcels of real property or
facilities other than those presently or formerly owned, operated or
controlled by AMK or the Shareholders that could reasonably be expected to
have an impact on the real property or facilities owned, operated or
controlled by AMK or the Shareholders. For purposes of this Agreement,
"MATERIALS OF ENVIRONMENTAL CONCERN" means any chemicals, pollutants or
contaminants, hazardous substances (as such term is defined under CERCLA),
solid wastes and hazardous wastes (as such terms are defined under Federal
Resources Conservation and Recovery Act), toxic materials, oil or petroleum
and petroleum products.
(c) Set forth in Section 3.11(c) of the Disclosure Schedule is a list
of all environmental reports, investigations and audits in the possession
of AMK or the Shareholders with respect to the Operations of, or real
property leased by AMK or the
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Shareholders (whether conducted by or on behalf of AMK or the
Shareholders or a third party and whether done at the initiative of
AMK or the Shareholders or directed by a governmental authority or
other third party). Complete and accurate copies of each such report,
or the results of each such investigation or audit, have been provided
to Purchaser.
(d) Neither AMK nor any of the Shareholders is aware of any material
environmental liability arising out of the utilization by AMK or the
Shareholders of any solid and hazardous waste transporter or treatment,
storage and disposal facility.
3.12 GOVERNMENTAL PERMITS. AMK and the Shareholders own, hold or
possess all federal, state or local governmental permits, certificates,
licenses, franchises, privileges, immunities, approvals and other authorizations
which are necessary to entitle them to own or lease, operate and use the Assets
and to carry on and conduct the Business (herein collectively called
"GOVERNMENTAL PERMITS"), except for such Governmental Permits that can now or
hereafter be obtained without delay and at nominal cost and as to which the
failure to so own, hold or possess would not have a material adverse effect on
the Assets or the Business. In connection with the Assets and the Business, AMK
and the Shareholders have fulfilled and performed their obligations under each
of the Governmental Permits owned, held or possessed by them, and no event has
occurred or exists which constitutes a breach or default under any such
Governmental Permit or which permits, or after notice or lapse of time or both,
would permit revocation or termination of any such Governmental Permit or which
may adversely affect in any material respect the rights of either AMK or the
Shareholders thereunder.
3.13 DISCLOSURE OF MATERIAL INFORMATION. With respect to the Business
and the Assets, neither this Agreement nor any Exhibit or Schedule hereto
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements herein or therein not misleading. No
representation or warranty by AMK or the Shareholders in this Agreement, nor any
statement, certificate, schedule or exhibit hereto furnished or to be furnished
by or on behalf of AMK or the Shareholders pursuant to this Agreement, nor any
document or certificate delivered to Purchaser pursuant to this Agreement or in
connection with transactions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading. All
statements and information contained in any certificate, instrument, Disclosure
Schedule or document delivered by or on behalf of AMK or the Shareholders shall
be deemed representations and warranties by AMK and the Shareholders. There is
no fact (other than factors affecting the Business' industry generally) known to
AMK or the Shareholders which materially adversely affects or may in the future
materially adversely affect the operations, properties or condition (financial
or otherwise) of the Business or the Assets.
3.14 INSURANCE. Set forth in Section 3.14 of the Disclosure Schedule
is a complete and accurate list and summary description of all policies of fire,
casualty, general liability, product liability, workers compensation, health and
other forms of insurance presently in effect with respect to the business and
properties of AMK or the Shareholders as relates to the Business or the Assets,
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true and correct copies of which have heretofore been delivered to Purchaser.
Section 3.14 of the Disclosure Schedule includes, without limitation the
carrier, the description of coverage, the limits of coverage, retention or
deductible amounts, amount of annual premiums, date of expiration and the date
through which premiums have been paid with respect to each such policy, and any
pending claims in excess of $50,000. All such policies are valid, outstanding
and enforceable policies and provide insurance coverage for the properties,
assets and operations of AMK or the Shareholders as relates to the Business or
the Assets, of the kinds, in the amounts and against the risks customarily
maintained by organizations similarly situated; and no such policy (nor any
previous policy) provides for or is subject to any currently enforceable
retroactive rate or premium adjustment, loss sharing arrangement or other actual
or contingent liability arising wholly or partially out of events arising prior
to the date hereof. Section 3.14 of the Disclosure Schedule indicates each
policy as to which (a) the coverage limit has been reached or (b) the total
incurred losses to date equal 75 % or more of the coverage limit. No notice of
cancellation or termination has been received with respect to any such policy,
and neither AMK nor any of the Shareholders has knowledge of any act or omission
of AMK or the Shareholders which could result in cancellation of any such policy
prior to its scheduled expiration date (except any cancellations resulting from
the consummation of the transactions contemplated by this Agreement). Neither
AMK nor the Shareholders has been refused any insurance with respect to any
aspect of the operations of the Business nor has their coverage been limited by
any insurance carrier to which they have applied for insurance or with which
they have carried insurance during the last three years. AMK and the
Shareholders have duly and timely made all claims they have been entitled to
make under each policy of insurance. Since AMK's inception, all products
liability and general liability policies maintained by or for the benefit of AMK
or the Shareholders have been "occurrence" policies and not "claims made"
policies. There is no claim by AMK or the Shareholders pending under any such
policies as to which coverage has been questioned, denied or disputed by the
underwriters of such policies, and neither AMK nor any of the Shareholders has
any knowledge of any basis for denial of any claim under any such policy.
Neither AMK nor any of the Shareholders has received any written notice from or
on behalf of any insurance carrier issuing any such policy that insurance rates
therefor will hereafter be substantially increased (except to the extent that
insurance rates may be increased for all similarly situated risks) or that there
will hereafter be a cancellation or an increase in a deductible (or an increase
in premiums in order to maintain an existing deductible) or nonrenewal of any
such policy. Such policies are sufficient in all material respects for
compliance by AMK and the Shareholders with all requirements of law and with the
requirements of all contracts to which either AMK or the Shareholders is a
party.
3.15 INVENTORY. All inventories of raw materials, work-in-process and
finished goods (including all such in transit) of AMK, together with related
packaging materials (collectively the "INVENTORY"), reflected on AMK's October
31, 1997 balance sheet consist of a quality and quantity usable and saleable in
the ordinary course of business. All Inventory purchased since the date of such
balance sheet consists of a quality and quantity usable and saleable in the
ordinary course of business. Except as set forth in Section 3.15 of the
Disclosure Schedule, all Inventory is located on premises owned or leased by AMK
or the Shareholders as reflected in this Agreement. All work-in-process
contained in Inventory constitutes items in process of production pursuant to
contracts or open orders taken in the ordinary course of business, from regular
customers of AMK with no recent
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history of credit problems with respect to AMK; neither AMK nor any such
customer is in material breach of the terms of any obligation to the other. All
work-in-process is of a quality ordinarily produced in accordance with the
requirements of the orders to which such work-in-process is identified, and, to
the best of AMK's and the Shareholders' knowledge, will require no rework with
respect to work performed prior to Closing.
3.16 MAJOR CUSTOMERS. Section 3.16 of the Disclosure Schedule contains
a list of the five (5) largest customers of AMK for each of the two (2) most
recent fiscal years (determined on the basis of the total dollar amount of net
sales) showing the total dollar amount of net sales to each such customer during
each such year. Neither AMK nor any of the Shareholders has any knowledge or
information of any facts indicating, nor any other reason to believe, that any
of the customers listed in Section 3.16 of the Disclosure Schedule will not
continue to be customers of the Business of AMK after the Closing at
substantially the same level of purchases as heretofore.
3.17 EXISTING EMPLOYMENT CONTRACTS. Section 3.17 of the Disclosure
Schedule contains a list of all employment contracts and collective bargaining
agreements, and all pension, bonus, profit sharing, or other agreements or
arrangements providing for employee remuneration or benefits to which AMK or the
Shareholders is a party or by which it is bound; all of these contracts and
arrangements are in full force and effect, and neither AMK nor the Shareholders
nor any other party is in default under them. There have been no claims of
defaults and, to the best of AMK's or the Shareholders' knowledge there are no
facts or conditions which if continued, or on notice, will result in a default
under these contracts or arrangements. There is no pending or, to the best of
AMK's or the Shareholders' knowledge, threatened labor dispute, strike, or work
stoppage affecting AMK's or the Shareholders' Assets or the Business.
3.18 REQUIRED CONSENTS AND APPROVALS. AMK and the Shareholders have
the right, power, legal capacity, and authority to enter into, and perform its
respective obligations under, this Agreement, and no approvals or consents of
any persons are necessary in connection with it. The execution and delivery of
this Agreement by AMK has been duly authorized by its board of directors and
shareholders.
3.19 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Section 3.19 of the Disclosure Schedule, since October 31, 1997 there has not
been.
(A) ADVERSE CHANGE. Any adverse change in the financial
condition, assets, liabilities, business, prospects or operations of
AMK or the Real Property Assets;
(B) DAMAGE. Any loss, damage or destruction, whether covered by
insurance or not affecting AMK's business or properties or the Real
Property Assets;
(C) INCREASE IN COMPENSATION. Any increase in the salaries, wages
or other remuneration or compensation, or in any benefits payable or
to become payable to any employee or agent of AMK or the Shareholders
(including, without limitation, any increase
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or change pursuant to any bonus, pension, profit sharing, retirement
or other plan or commitment), or any bonus or other employee benefit
granted, made or accrued;
(D) LABOR DISPUTES. Any labor dispute or disturbance;
(E) COMMITMENTS. Any commitment or transaction by AMK or the
Shareholders (including, without limitation, any borrowing or capital
expenditure) other than in the ordinary course of business consistent
with past practice;
(F) DIVIDENDS. Any declaration, setting aside, or payment of any
dividend or any other distribution in respect of AMK's capital stock;
any redemption, purchase or other acquisition by AMK of any capital
stock of AMK, or any security relating thereto; or any other payment
to any shareholder of AMK as such shareholder;
(G) DISPOSITION OF PROPERTY. Any sale, lease or other transfer or
disposition of any properties or assets of AMK or the Shareholders,
except for the sale of inventory items in the ordinary course of
business;
(H) INDEBTEDNESS. Any indebtedness for borrowed money incurred,
assumed or guaranteed by AMK or the Shareholders;
(I) LIENS. Any mortgage, pledge, lien or encumbrance made on any
of the properties or assets of AMK or the Shareholders;
(J) AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by AMK or the Shareholders of any contract, or any waiver
of material rights thereunder, other than in the ordinary course of
business;
(K) LOANS AND ADVANCES. Any loan or advance (other than advances
to employees in the ordinary course of business for travel and
entertainment in accordance with past practice) to any person
including, but not limited to, any officer, director or employee of
Seller, or any shareholder or affiliate;
(L) CREDIT. Any grant of credit to any customer on terms or in
amounts more favorable than those which have been extended to such
customer in the past, any other change in the terms of any credit
heretofore extended, or any other change of AMK's or the Shareholders'
policies or practices with respect to the granting of credit; or
(M) NO UNUSUAL EVENTS. Any other event or condition not in the
ordinary course of business of AMK or the Shareholders.
3.20 PRODUCT WARRANTY AND PRODUCT LIABILITY. Section 3.20 of the
Disclosure Schedule contains a true, correct and complete copy of AMK's standard
warranty or warranties for
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its services. There have been no variations from such warranties except as set
forth in Section 3.20 of the Disclosure Schedule. Except as stated therein,
there are no warranties, commitments or obligations with respect to AMK's
performance of services. Section 3.20 of the Disclosure Schedule contains a
description of all product liability claims and similar claims, actions,
litigation and other proceedings relating to services rendered, which are
presently pending or which to AMK's knowledge are threatened, or which have been
asserted or commenced against AMK or the Shareholders within the last five (5)
years, in which a party thereto either requests injunctive relief (whether
temporary or permanent) or alleges damages (whether or not covered by
insurance). There are no defects in AMK's or the Shareholders' services which
would adversely affect performance of AMK's services or create an unusual risk
of injury to persons or property. AMK's or the Shareholders' services have been
designed or performed so as to meet and comply with all governmental standards
and specifications currently in effect, and have received all governmental
approvals necessary to allow their performance.
3.21 SHAREHOLDER LIST. Section 3.21 of the Disclosure Schedule sets
forth a complete and exclusive list of the names of record of all the holders of
equity securities of AMK issued and outstanding on the date hereof, together
with the number of shares or other equity securities held by each such holder.
Except as set forth in Section 3.21 of the Disclosure Schedule, each holder so
listed that is an individual is a competent adult and is the record and the
beneficial owner of all shares or other equity securities so listed in his or
her name, with the sole right to vote, dispose of, and receive dividends or
distributions with respect to such shares.
3.22 ASSETS NECESSARY TO BUSINESS. Except as disclosed in Section 3.22
of the Disclosure Schedule, the Assets include all property and assets, tangible
and intangible, and all leases, licenses and other agreements, which are
necessary to permit Purchaser to carry on, or currently use or hold for use in,
the Business as presently conducted.
3.23 NO BROKERS OR FINDERS. Except as disclosed in Section 3.23 of the
Disclosure Schedule, neither AMK nor the Shareholders nor any of AMK's
directors, officers, employees or agents have retained, employed or used any
broker or finder in connection with the transactions provided for herein or in
connection with the negotiation thereof.
3.24 CONTRACTS AND COMMITMENTS.
(A) REAL PROPERTY LEASES. Except as set forth in Section 3.24(a)
of the Disclosure Schedule, neither AMK nor the Shareholders have any
leases of real property.
(B) PERSONAL PROPERTY LEASES. Except as set forth in Section
3.24(b) of the Disclosure Schedule, neither AMK nor the Shareholders
have any leases of personal property.
(C) PURCHASE COMMITMENTS. Neither AMK nor the Shareholders have
any purchase commitments for inventory items or supplies that,
together with amounts on
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hand, constitute in excess of three (3) months normal usage, or which
are at an excessive price.
(D) SALES COMMITMENTS. Except as set forth in Section 3.24(d) of
the Disclosure Schedule, neither AMK nor the Shareholders have any
sales contracts with or commitments to customers which aggregate in
excess of $50,000 with respect to any one customer (or group of
affiliated customers). Neither AMK nor the Shareholders have any sales
contracts or commitments except those made in the ordinary course of
business, at arm's length, and no such contract or commitment is for a
sales price which would result in a loss (determined on a gross profit
margin basis) to the AMK or the Shareholders.
(E) CONTRACTS WITH AFFILIATES AND CERTAIN OTHERS. Except as
disclosed in Section 3.24(e) of the Disclosure Schedule, neither AMK
nor the Shareholders have any agreement, understanding, contract or
commitment (written or oral) with any affiliate or any other officer,
employee, agent, or consultant that is not cancelable by AMK or the
Shareholders on notice of not longer than 30 days without liability,
penalty or premium of any nature or kind whatsoever.
(F) POWERS OF ATTORNEY. Neither AMK nor the Shareholders have
given a power of attorney, which is currently in effect, to any
person, firm or corporation for any purpose whatsoever.
(G) COLLECTIVE BARGAINING AGREEMENTS. Neither AMK nor the
Shareholders are a party to any collective bargaining agreements with
any unions, guilds, shop committees or other collective bargaining
groups.
(H) LOAN AGREEMENTS. Except as set forth in Section 3.24(h) of
the Disclosure Schedule, neither AMK nor the Shareholders are
obligated under any loan agreement, promissory note, letter of credit,
or other evidence of indebtedness as a signatory, guarantor or
otherwise.
(I) GUARANTEES. Except as disclosed on Section 3.24(i) of the
Disclosure Schedule, neither AMK nor the Shareholders have guaranteed
the payment or performance of any person, firm or corporation, agreed
to indemnify any person or act as a surety, or otherwise agreed to be
contingently or secondarily liable for the obligations of any person.
(J) CONTRACTS SUBJECT TO RENEGOTIATION. Neither AMK nor the
Shareholders are a party to any contract with any governmental body
which is subject to renegotiation.
(K) BURDENSOME OR RESTRICTIVE AGREEMENTS. Except as shown on
Section 3.24(k) of the Disclosure Schedule, neither AMK nor the
Shareholders are a party to nor are any of them bound by any
agreement, deed, lease or other instrument which is so
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burdensome as to materially affect or impair the operation of the
Business. Without limiting the generality of the foregoing, neither
AMK nor the Shareholders are a party to nor are any of them bound by
any agreement requiring AMK or the Shareholders to assign any interest
in any trade secret or proprietary information, or prohibiting or
restricting AMK or the Shareholders from competing in any business or
geographical area or soliciting customers or otherwise restricting the
Business from carrying on its business anywhere in the world.
(L) SALES REPRESENTATIVE AGREEMENTS. Section 3.24(1) of the
Disclosure Schedule contains a list of all sales representative
agreements of AMK.
(M) OTHER MATERIAL CONTRACTS. Neither AMK nor any of the
Shareholders lease or have any contract or commitment of any nature
involving consideration or other expenditure in excess of $50,000, or
involving performance over a period of more than three months, or
which is otherwise individually material to the operations of AMK or
the Shareholders , except as explicitly described in Section 3.24(m)
of the Disclosure Schedule or in any other Section of the Disclosure
Schedule.
(N) NO DEFAULT. Neither AMK nor any of the Shareholders is in
default under any lease, contract or commitment, nor has any event or
omission occurred which through the passage of time or the giving of
notice, or both, would constitute a default thereunder or cause the
acceleration of any of AMK's or the Shareholders' obligations or
result in the creation of any lien on any of the assets owned, used or
occupied by AMK or the Shareholders. Based on AMK's or the
Shareholders' best knowledge or what AMK or the Shareholders
reasonably should know, no third party is in default under any lease,
contract or commitment to which AMK or the Shareholders is a party,
nor has any event or omission occurred which, through the passage of
time or the giving of notice, or both, would constitute a default
thereunder or give rise to an automatic termination, or the right of
discretionary termination, thereof.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents
and warrants to Seller as follows:
4.1 CORPORATE POWER; AUTHORIZATION. Purchaser has all requisite legal
and corporate power and authority to enter into this Agreement and to carry out
and perform all of its obligations under the terms of this Agreement. All
corporate action on the part of Purchaser and all action on the part of its
officers and directors necessary for the authorization, execution and delivery
of this Agreement by Purchaser and for the performance of Purchaser's
obligations hereunder has been taken, and this Agreement and the Exhibits, when
duly executed and delivered, shall constitute the legal and binding obligations
of Purchaser, enforceable against Purchaser in accordance with their terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and by rules of law governing specific
performance, injunctive relief or other equitable remedies.
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4.2 NO BREACH, ETC. The execution and delivery of this Agreement by
Purchaser and all documents to be executed by Purchaser in connection with the
transactions contemplated hereby do not, and the performance and consummation by
Purchaser of the transactions contemplated by this Agreement and the Exhibits
will not, result in any conflict with, breach or violation of or default,
termination, forfeiture or lien under (or upon the failure to give notice or the
lapse of time, or both, result in any conflict with, breach or violation of or
default, termination, forfeiture or lien under) any terms or provisions of
Purchaser's Certificate of Incorporation or Bylaws or similar charter documents,
each as amended, or any statute, rule, regulation, judicial or governmental
decree, order or judgment, or any agreement, lease or other instrument, to which
Purchaser is a party.
5. OTHER MATTERS.
5.1 COVENANT NOT TO COMPETE. Each of AMK and the Shareholders agree
that for a period of five (5) years from the Closing they shall not compete with
or in the Business existing as of the Closing in national, regional or local
markets served or intended to be served by Purchaser anywhere in the world, all
as more particularly set forth in EXHIBIT D-1 attached hereto. Each of AMK and
the Shareholders represents and warrants that it will undertake to promptly
wind-up, liquidate and commence dissolution following the Closing Date and any
required notice period.
5.2 USE OF SELLER'S NAME. Following the Closing, neither AMK, the
Shareholders, nor any affiliate shall, without the prior written consent of
Purchaser, make any use of the name "AMK Welding," or any of AMK's or the
Shareholders' other trademarks or trade names, or any other trade name or
trademark confusingly similar thereto, except as may be necessary for AMK or the
Shareholders to pay their liabilities, prepare tax returns and other reports,
and to otherwise wind up and conclude their business.
5.3 SALES TAX MATTERS. As soon as reasonably practicable subsequent to
the Closing, and provided Purchaser has paid any sales taxes due as a result of
the consummation of the transactions contemplated by this Agreement, AMK and the
Shareholders shall obtain a sales tax clearance certificate.
5.4 FINDERS FEES; PAYMENTS. Each party agrees to pay its own broker or
finders' fees in connection with any of the transactions contemplated by this
Agreement. The Shareholder and Purchaser further agree to indemnify and hold
harmless one another against any loss, liability, damage, cost claim, or expense
incurred by reason of any brokerage, commission, or finder's fee alleged to be
payable because of any act, omission, or statement of the indemnifying party.
5.5 CONSENTS. Each of AMK and the Shareholders will use its best
efforts to obtain all consents necessary for the consummation of the
transactions contemplated hereby, including, without limitation, the consent of
each lessor of real or personal property leased by AMK or the Shareholders under
leases being assumed by Purchaser herein to assignment of the lessee's interest
under the lease of such property to Purchaser. All such consents shall be in
writing and
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executed counterparts thereof shall be delivered to Purchaser promptly after
AMK's or the Shareholders' receipt thereof.
6. INDEMNIFICATION
6.1 INDEMNIFICATION OF PURCHASER. Notwithstanding any investigation of
the business, financial condition, prospects or assets of AMK and the
Shareholders made by or on behalf of Purchaser prior to the Closing, AMK and the
Shareholders shall, jointly and severally, indemnify and hold harmless Purchaser
and its respective officers, directors, employees, control persons, advisors and
agents from and against all damages, losses, expenses and liabilities (including
reasonable attorneys' fees) relating to or arising out of or in connection with
any material breach of warranty or covenant or any materially inaccurate,
incomplete or erroneous representation of AMK or the Shareholders contained in
this Agreement or in any schedule, exhibit, agreement, certificate, list or
other instrument delivered pursuant hereto. "Material" or "materially" as used
herein shall mean with respect to any breach of warranty or covenant or any
inaccurate, incomplete or erroneous representation that such breach or
representation (a) has or could have a material effect on the business,
operations, prospects or finances of the Business or (b) results in damage,
loss, expense or liability which is in an amount equal to or greater than
Twenty-Five Thousand Dollars ($25,000).
6.2 INDEMNIFICATION PROCEDURES.
(A) NOTICE. In the event Purchaser or its respective officers,
directors, employees, control persons, advisors and agents (the
"Indemnified Party") seeks indemnification under this Agreement, the
Indemnified Party shall give the party from whom indemnification is
requested (the "Indemnifying Party") written notice as promptly as
practicable after the Indemnified Party has received notice or
knowledge of the matter that has given or could give rise to a right
of indemnification under this Agreement. Such notice shall state the
amount of losses, if any, and the method of computation thereof, all
with reasonable particularity and shall contain a reference to the
provisions of this Agreement in respect of which such right of
indemnification is claimed.
(B) THIRD PARTY CLAIMS. With respect to any losses arising from
any third party claim (a "Third Party Claim"), the Indemnified Party
shall give the Indemnifying Party written notice as promptly as
practicable after receiving notice of any Third Party Claim. If the
Indemnifying Party acknowledges in writing its obligation to indemnify
the Indemnified Party hereunder against any losses that may result
from any Third Party Claim (subject to the limitations set forth in
this Section 6), then the Indemnifying Party shall be entitled, at its
option to assume and control the defense of such Third Party Claim at
its expense and through counsel of its choice upon giving written
notice of its intention to do so to the Indemnified Party. In such
case, the Indemnified Party shall be permitted, at its option, to
participate in the defense of any such Third Party Claim with counsel
of its own choosing and at its own expense. If the Indemnifying Party
does not elect to assume and control the defense of such Third Party
Claim, then the Indemnified Party may, at its option, elect
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to assume and control such defense at the reasonable expense of the
Indemnifying Party (subject to the consent of the Indemnifying Party,
not to be unreasonably withheld or delayed) and through counsel of the
Indemnified Party's choice. If the Indemnifying Party exercises its
right to undertake the defense of any such Third Party Claim as
provided above, the Indemnified Party shall cooperate with the
Indemnifying Party and make available to the Indemnifying Party all
pertinent records, materials and information in its possession or
under its control as is reasonably requested by the Indemnifying
Party. Similarly, if the Indemnified Party rightfully undertakes the
defense of any Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party and make available to it all such
records, materials and information in the Indemnifying Party's
possession or under its control relating thereto as is reasonably
requested by the Indemnified Party. No Third Party Claim may be
settled by the Indemnifying Party or the Indemnified Party without the
written consent, not to be unreasonably withheld or delayed, of the
other party; provided, however, that if such settlement involves the
payment of money only and the Indemnified Party is fully indemnified
with respect to such payment and the Indemnified Party refuses to
consent thereto, the Indemnifying Party shall cease to be obligated
with respect to such Third Party Claim. In no event will either party
conduct the defense of any Third Party Claim in a manner that will
unreasonably detract from or otherwise interfere with or disrupt the
other party's business or customers.
(C) CALCULATION OF LOSSES. The parties shall make appropriate
adjustments for the proceeds of any insurance coverage or any other
form of cost recovery in determining the amount of losses or claims
for purposes of this Section 6, provided that the indemnifiable losses
shall then be increased by any additional expense or liability
associated with the obtaining of benefits under such coverage, to the
extent of and as a result of such losses or claims.
6.3 NONEXCLUSIVITY OF INDEMNIFICATION REMEDIES. The indemnification
remedies and other remedies in this Section 6 shall not be deemed to be
exclusive. Accordingly, the exercise by any person of any of its rights under
this Section 6 shall not be deemed to be an election of remedies and shall not
be deemed to prejudice, or to constitute or operate as a waiver of, any other
right or remedy that such person may be entitled to exercise, whether under this
Agreement, under any other contract, under any statute, rule or other legal
requirement, at common law, in equity or otherwise.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by AMK, the Shareholders and Purchaser under this Agreement in
connection with the transactions contemplated hereby or in any schedule,
exhibit, agreement, certificate, list or other instrument delivered pursuant
hereto shall survive the Closing and any investigation made at any time with
respect thereto.
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8. CONDITIONS TO PURCHASER'S OBLIGATIONS AT CLOSING. The obligations of
Purchaser to purchase the Assets hereunder and consummate the transactions
contemplated hereby are conditioned on the satisfaction, unless waived, of the
following conditions at the Closing:
8.1 REPRESENTATIONS AND WARRANTIES TRUE; COMPLIANCE WITH AGREEMENT.
The representations and warranties made by AMK and the Shareholders in Section 3
shall be true and correct in all material respects as of the Closing Date. Each
of AMK and the Shareholders shall have in all material respects performed and
complied with all of its agreements and obligations hereunder which are to be
performed or complied with prior to or on the Closing Date, including delivery
of documents specified in Sections 8.6, 8.7, 8.8, 8.10, 8.11 and 8.12.
8.2 SELLER BOARD AND SHAREHOLDER APPROVAL. AMK shall have obtained the
approval of its Board of Directors and the holders of outstanding shares of the
voting securities of AMK to the transactions contemplated by this Agreement as
required by applicable law, AMK's Articles of Incorporation, Bylaws or any other
applicable instrument.
8.3 TRANSFER OF TITLE. Purchaser shall have determined in its sole
discretion that the assets being transferred to Purchaser hereunder are free and
clear of any liens, claims, encumbrances, charges and the like and the
Shareholders shall have made the deliveries required by Section 1.7.
8.4 CONSENTS AND ASSIGNMENT OF LEASEHOLD INTERESTS. All approvals,
consents and waivers that are required to effect the transactions contemplated
hereby shall have been received, and executed counterparts thereof shall have
been delivered to Buyer. Purchaser shall have obtained, and be satisfied in its
sole discretion with, the assignment and extension of those leasehold interests
included in the Assets.
8.5 COMPLETION OF DILIGENCE. Notwithstanding any representations and
warranties of AMK or the Shareholders herein, Purchaser shall be satisfied in
its sole discretion and in all respects with the results of its due diligence
regarding AMK and the Shareholders, the Assets and the Business, which due
diligence shall be customary for transactions of the type contemplated by this
Agreement.
8.6 GENERAL RELEASES. Robert Sanborn shall have delivered a general
release to Purchaser in the form attached hereto as EXHIBIT E releasing AMK, the
Shareholders and the directors, officers, agents and employees of AMK from all
claims emanating from occurrences prior to the Closing, except (i) as may be
described in written contracts disclosed in the Disclosure Schedule and
expressly described and excepted from such releases, and (ii) in the case of
persons who are employees of the AMK or the Shareholders, compensation for
current periods expressly described and excepted from such releases.
8.7 NON-COMPETITION AGREEMENTS. Each of the Shareholders shall have
entered into the Non-Competition Agreement in the form attached hereto as
EXHIBIT D-1, and Robert
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Sanborn shall have entered into the Non-Competition Agreement in the form
attached hereto as EXHIBIT D-2.
8.8 CONSULTING AGREEMENTS. Each of the Shareholders shall have entered
into the Consulting Agreement in the substantially the forms attached hereto as
EXHIBITS F1-2.
8.9 NO MATERIAL ADVERSE CHANGE. During the period from the date of
this Agreement to the Closing, there shall not have been any material adverse
change in the condition (financial or other) of the Assets or the condition,
operations, liabilities or assets of the Business.
8.10 PROPRIETARY INFORMATION AGREEMENTS. All employees shall have
executed the standard proprietary information agreement in the form attached
hereto as EXHIBITS G1-2.
8.11 FINANCIAL STATEMENTS. AMK shall have delivered to Purchaser
unaudited interim financial statements for the period ended October 31, 1997.
8.12 LEGAL OPINION. Purchaser shall have received an opinion of Rogin,
Nassau, Caplan, Lassman & Hirtle LLC, counsel to AMK and the Shareholders, dated
the Closing Date, substantially in the form attached hereto as EXHIBIT H.
9. CONDITIONS TO SELLER'S OBLIGATIONS AT CLOSING. The obligations of AMK
and the Shareholders to transfer the Assets hereunder and consummate the
transactions contemplated hereby are conditioned on the satisfaction, unless
waived, of the following conditions at the Closing:
9.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by Purchaser in Section 4 shall be true and correct in all
material respects as of the Closing Date.
9.2 SELLER BOARD AND SHAREHOLDER APPROVAL. AMK shall have obtained the
approval of its Board of Directors and the holders of outstanding shares of the
voting securities of AMK's to the transactions contemplated by this Agreement as
required by applicable law, AMK's Articles of Incorporation, Bylaws or any other
applicable instrument.
9.3 DELIVERY OF CONSIDERATION. AMK and the Shareholders shall have
received at the Closing the consideration as specified in Section 1.4 hereof.
10. CONFIDENTIALITY PROVISIONS.
10.1 OBLIGATION. AMK and the Shareholders agrees that upon the Closing
Date all of the Assets shall be the sole and exclusive property of Purchaser and
any Confidential Information (as defined below) relating to such Assets shall
comprise a special, valuable and unique asset of Purchaser's business, and that
the confidentiality and restricted use of such Confidential Information is an
integral part of its ascribed value. AMK and the Shareholders shall use all
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reasonable efforts, not less than those used to maintain the confidentiality of
their own confidential information, not to disclose or use such information
after the date of this Agreement. For purposes of this Agreement, "CONFIDENTIAL
INFORMATION" shall mean (a) any information, know-how, data, process, technique,
design, drawing, formula or test data relating to any research project, work in
process, future development, engineering, manufacturing, marketing, business
plan, servicing, financial or personnel matter relating to the Assets, the
Business, Purchaser, its present or future products, sales, suppliers,
customers, employees, investors or business, whether in oral, written, graphic
or electronic form; and (b) any information disclosed to AMK and the
Shareholders by any third party which AMK and the Shareholders are obligated to
treat as confidential or proprietary, including all whole or partial copies and
versions thereof occurring in any form which satisfies the terms and conditions
of this Section 10.1.
10.2 EXCLUSIONS. Confidential Information shall not include and AMK
and the Shareholders shall not be obligated to hold in confidence any
information which is or becomes public knowledge without breach of this
Agreement, or which is or becomes publicly available without a confidentiality
restriction and without breach of this Agreement from a source other than
Purchaser.
10.3 REMEDIES. AMK and the Shareholders acknowledge that disclosure or
use of any Confidential Information prior to or after the Closing Date in a
manner inconsistent with this Section 11 or any other provision of this
Agreement will cause Purchaser irreparable injury which may not be adequately
compensated by damages. Accordingly, in addition to all other remedies that
Purchaser may have hereunder Purchaser shall have the right to equitable and
injunctive relief to prevent the unauthorized use or disclosure of any such
Confidential Information and the right to such damages (including without
limitation, court costs and reasonable attorneys' fees) as are occasioned by
such unauthorized use or disclosure.
11. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement, including the Exhibits
and schedules referred to herein, which are incorporated herein and made a part
hereof, contains the final complete and exclusive understanding of the parties
hereto with respect to the subject matter contained herein and may be amended or
terminated only by a written instrument executed by AMK, or the Shareholders and
Purchaser or their respective successors or assigns. There are no
representations, promises, warranties, covenants or undertakings other than
those expressly set forth herein, and any of same prior to the Closing, together
with the Letter of Intent dated October 29, 1997 by and between Purchaser, AMK,
or the Shareholders are hereby merged into this Agreement. The section and
paragraph headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and assigns of the parties hereto; provided, however, that neither
this Agreement nor any rights or obligations accruing hereunder may
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be assigned or is assignable by AMK or the Shareholders, or may be delegated or
is delegable, and any attempted assignment or delegation shall be null and void.
14. APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules. Any action or proceeding seeking to enforce any
provision of, or based on any right arising our of this agreement may be brought
against any of the parties in the federal or state courts in the State of
Connecticut, County of and each of the parties consents to the
----------
jurisdiction of such courts in any such action or proceeding and waives any
objection to venue therein.
15. CLOSING COSTS. Each party shall bear its respective expenses incurred
with the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, including without limitation all fees and
expenses of agents, representatives, counsel and accountants.
16. EQUITABLE RELIEF. AMK and the Shareholders each further acknowledge
that any breach of warranty or covenant or any other provision of this Agreement
will cause Purchaser irreparable injury which may not be adequately compensated
by damages. Accordingly, in addition to all other remedies that Purchaser may
have hereunder Purchaser shall have the right to equitable and injunctive
relief, including the right to request specific performance of AMK or the
Shareholders' obligations hereunder.
17. "KNOWLEDGE" DEFINITION. As used herein, the expressions "knowledge,"
"best of knowledge," "aware" or similar expressions include only the actual
knowledge of an individual or, in the case of AMK or Purchaser, the named
individuals listed below and the knowledge any of them should reasonably have by
virtue of his or her position, authority, responsibilities and activities,
including all such information as is in the files under the control or sued by
such individual. When such terms are used in connection with the knowledge of
AMK, such knowledge shall include the knowledge of Robert Sanborn, Alva Rossi
and Margaret Rossi. When such terms are used in connection with the knowledge of
Purchaser, such knowledge shall include the knowledge of Paul Lange, Richard
Santa and Michael Beam.
18. FURTHER ASSURANCES. The parties shall at their own cost and expense
execute and deliver such further documents and instruments and shall take such
other actions as may be reasonably required or appropriate to carry out the
intent and purposes of this Agreement.
19. NOTICES. All notices, requests, demands and other communications under
this Agreement shall be given in writing and shall be served either personally,
be facsimile or delivered by first class mail, registered or certified, return
receipt requested, postage prepaid and properly addressed as follows:
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If to the Purchaser: Dynamic Materials Corporation
551 Aspen Ridge Drive
Lafayette, Colorado 80026
Attn.: Richard Santa, Chief Financial Officer
Fax: 303/604-1897
With a copy to: Davis, Graham & Stubbs LLP
Suite 4700
370 Seventeenth Street
Denver, Colorado 80202
Attn.: David Bartlett
Fax: 303/892-7400
If to AMK: AMK Welding, Inc.
283 Sullivan Avenue
South Windsor, CT 06074
Attn.:
Fax:
With a copy to: Rogin, Nassau, Caplan, Lassman & Hirtle, LLC
CityPlace 1, 22nd Floor
185 Asylum Street
Hartford, Connecticut 06103-3460
Attn.:Edwin Lassman
Fax: 860/278-2179
If to Shareholders: Alva and Margaret Rossi
c/o Rogin, Nassau, Caplan, Lassman & Hirtle, LLC
CityPlace 1, 22nd Floor
185 Asylum Street
Hartford, Connecticut 06103-3460
Attn.:Edwin Lassman
Fax: 860/278-2179
Notice shall be deemed received upon the earliest of actual receipt,
confirmed facsimile or three (3) days following mailing pursuant to this
Section.
20. SEVERABILITY AND WAIVER. In the event that any provision of this
Agreement is held to be invalid or unenforceable, the valid or enforceable
portion thereof and the remaining provisions of this Agreement will remain in
full force and effect. Any waiver (express or implied) by either party of any
default or breach of this Agreement shall not constitute a waiver of any other
or subsequent default or breach.
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<PAGE>
21. PUBLIC ANNOUNCEMENTS. Purchaser and AMK shall consult upon the
substance of any and all press releases, publicity statements and other
communications to the public or to vendors and customers of AMK with respect to
this Agreement and the transactions contemplated hereby. However, neither AMK
nor the Shareholders shall at any time make any such communication without the
consent of the Purchaser.
IN WITNESS WHEREOF, the parties hereto have fully executed this Agreement
as of the date first written above.
Dynamic Materials Corporation
By: /s/ Richard A. Santa
-------------------------------------
Title: Chief Financial Officer
----------------------------------
AMK Welding, Inc.
By: /s/ Alva Rossi
-------------------------------------
Title: President
----------------------------------
/s/ Alva Rossi
----------------------------------------
Alva Rossi
/s/ Margaret Rossi
----------------------------------------
Margaret Rossi
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<PAGE>
EXHIBIT A
ASSETS
All personal property, tangible and intangible, including all related
rights and intellectual property comprising or associated with the Business as
described in AMK's Balance Sheet for the Business dated October 31, 1997 (the
"BALANCE SHEET") and all real property (including all rights appurtenant thereto
and all buildings, structures, improvements and the like) comprising or
associated with the Business, as adjusted for actions conducted in the ordinary
course of business from the date of the Balance Sheet to the Closing, including
without limitation the following:
A. All processing equipment, maintenance shop equipment, laboratory
equipment, other equipment and components and spare parts for same.
B. All leasehold improvements, trade fixtures, and other improvements and
fixtures.
C. All real property (including all rights appurtenant thereto and all
buildings, structures, improvements and the like) comprising or associated with
the Business.
D. All office furniture, equipment, supplies, furnishings and the like.
E. All leasehold interests and rights and related documentation.
F. All contracts, agreements, instruments and similar documents and all
related rights.
G. All of the intellectual property or other proprietary rights principally
relating to the Business and all contract rights relating to such intellectual
property or proprietary rights (the "INTELLECTUAL PROPERTY RIGHTS"), more
specifically described as follows:
(1) all rights, title and interests in all trade secrets arising under
the common law, state law, federal law and laws of foreign countries;
(2) all copyright rights and all other literary property and author
rights whether or not copyrightable; and all rights, title and interests in all
works, copyrights and copyrighted interests;
(3) all rights, title and interests in any trademarks, service marks,
trade names, or applications therefor, or any other marketing names used by AMK
or the Shareholders in connection with the Business, and the goodwill
appurtenant thereto, including the trademarks, service marks, trade names and
other marketing names listed in Section 3.9 of the Disclosure Schedule;
(4) all rights, title and interests in all patents and patent
applications;
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(5) all rights, title and interests in all know-how whether or not
protectable by patent, copyright or trade secret laws;
(6) all rights, title and interests in all causes of action arising
under the patent trademark, copyright, trade secret or other laws of any
jurisdiction, which causes have not been asserted as of the Closing; and
(7) all rights under any license, distribution development, OEM, or
other agreement for intellectual property as licensee or the like.
H. All rights, contracts of any nature, inventories, other instruments,
equipment, fixtures.
I. All inventories of supplies and finished products principally relating
to the Business, including finished goods, work-in-process and raw materials.
J. All of AMK's and the Shareholders' right to market, license and sell all
products marketed, licensed or sold by AMK or the Shareholders in the Business,
including all marketing materials, advertising materials, marketing plans and
market research for the Business.
K. All of AMK's and the Shareholders' claims against any parties relating
to the Assets, including without imitation, unliquidated rights under
manufacturers, and vendors, warranties or guarantees.
L. All rights under any license, distribution, development, OEM, or other
agreement for intellectual property as licensor or the like or pursuant to which
AMK or the Shareholders receive royalties or other payments.
M. All scientific notebooks, writings, pictures, drawings, magnetic tapes,
computer programs, equipment, prototypes, tools, models and protocols owned or
licensed by AMK or the Shareholders relating to the Business.
N. Copies of all of AMK's and the Shareholders' books and records
principally relating to the Business, including without limitation all customer
and supplier lists (in both hard copy and on electronic media, including all
software associated with customer lists), sketches, drawings, specifications,
work standards, manufacturing and process information and documentation, bills
of material, theories of operation, repair manuals, service manuals, business
planning and financial data and manuals and other materials of AMK or the
Shareholders used in employee and management training.
O. All personal computers, printers, other PC accessories, cables and
purchased software relating to the Business.
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<PAGE>
P. All other properties, rights and assets owned by AMK or the Shareholders
principally relating to the Business, whether tangible or intangible, absolute,
contingent or otherwise, in addition to those listed in (A) through (O) above,
but not including any fixtures.
Q. All of AMK's insurance policies described in Section 3.14 of the
Disclosure Schedule.
When used herein, the phrase "principally relating to the Business" means
assets or properties which are devoted primarily to the Assets or Business and
only incidentally to other products or activities of AMK or the Shareholders.
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<PAGE>
BILL OF SALE
AMK Welding, Inc., a Connecticut corporation (hereinafter called
"ASSIGNOR"), for good and valuable consideration, receipt of which is hereby
acknowledged, by these presents does sell, assign, transfer, and convey unto
Dynamic Materials Corporation, a Delaware corporation (hereinafter called
"ASSIGNEE"), its successors and assigns, to have and hold forever, all right,
title and interest in and to all of the Assets, excluding Retained Assets (both
as defined in the Asset Purchase Agreement of even date herewith (the
"AGREEMENT")), and all rights (whether at common law or otherwise), claims, and
causes of action of Assignor arising out of transactions occurring on or prior
to the date hereof in connection with the Assets irrespective of the time or
date on which any such right, claim or cause of action may arise or accrue.
Assignor, subject to the terms of the Agreement, does hereby
warrant, covenant, and agree that it:
(a) has good and marketable title to the Assets hereby sold,
assigned, transferred, conveyed and delivered;
(b) will warrant and defend the sale of said Assets, against
all and every person or persons whomsoever claiming to or making claim against
any or all of the same; and
(c) will take all steps necessary to put Assignee, its
successors or assigns, in actual possession and operating control of said
Assets.
IN WITNESS WHEREOF, Assignor affixed its signature hereto this day
of January, 1998.
AMK Welding, Inc.
By: /s/Alva Rossi
Title: Pres.
ACCEPTED:
Dynamic Materials Corporation
By: /s/R A Santa
Title: CFO
<PAGE>
DYNAMIC MATERIALS CORPORATION
NON-COMPETITION AGREEMENT
IN CONNECTION WITH
SALE OF BUSINESS
This Non-Competition Agreement (the "Non-Competition Agreement") is made
as of the 5th day of January, 1998, by and between Dynamic Materials
Corporation, a Delaware corporation ("DMC") and Alva Rossi ("A. Rossi"). This is
the Non-Competition Agreement contemplated by that certain Asset Purchase
Agreement (the "Agreement"), dated as of the date hereof by and between the
parties.
WHEREAS, DMC, AMK Welding, Inc. ("AMK") and Alva and Margaret Rossi have
entered into an Asset Purchase Agreement, dated as of January 5, 1998 providing
for the acquisition by DMC of certain tangible and intangible assets related to
AMK's welding business (the "Acquisition" );
WHEREAS, in order to protect the value of the assets and goodwill being
acquired by DMC in the Acquisition, DMC requires that A. Rossi agree to certain
restrictions on A. Rossi's ability to compete with DMC in the future;
WHEREAS, DMC and A. Rossi desire that the Acquisition and the
transactions contemplated by the Agreement be consummated; and
WHEREAS, pursuant to the terms and conditions of Section 6.1 of the
Agreement, A. Rossi shall execute and deliver this Non-Competition Agreement to
DMC prior to the Closing.
NOW, THEREFORE, as inducement to DMC to proceed with the Closing and in
consideration of such Closing, and in consideration of the mutual covenants and
agreements contained herein and in the Agreement and for other good and valuable
consideration hereby acknowledged, intending to be legally bound, the parties
hereto do hereby agree as follows:
1. NON-COMPETITION. A. Rossi agrees that he shall not, directly or
indirectly, for the Term of this Agreement, whether as an owner, consultant,
partner, joint venturer, stockholder, broker, agent, principal, trustee,
licensor or in any capacity whatsoever (a) own, manage, operate, join, control,
finance or participate in the ownership, management, operation, control or
financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant, licensor, licensee or otherwise
with, any business or enterprise engaged in any business which is competitive
with DMC in the welding business, or (b) engage in any other manner, in any
business which is competitive with DMC in the welding business; provided,
however, that acquisition or ownership of less than 2 % of the outstanding
shares of any corporation engaged in the welding business whose stock is
publicly traded shall not constitute a violation of this Non-Competition
Agreement. Nothing herein shall prevent Consultant from being retained as an
employee or consultant to serve as a teacher or an instructor for an educational
institution.
2. TERM. This Agreement shall remain in effect for a period of sixty (60)
months from the date hereof.
<PAGE>
3. JUDICIAL LIMITATION. In the event that any provision of this
Non-Competition Agreement is more restrictive than permitted by the law of the
jurisdiction in which DMC seeks enforcement thereof, the provisions of this
Non-Competition Agreement shall be limited only to that extent that a judicial
determination finds the same to be unreasonable or otherwise unenforceable. Such
invalidity or unenforceability shall not affect any other terms herein, but such
term shall be deemed deleted, and such deletion shall not affect the validity of
the other terms hereof. In addition, if any one or more of the terms contained
in this Non-Competition Agreement shall for any reason be held to be excessively
broad or of an overly long duration that term shall be construed in a manner to
enable it to be enforced to the extent compatible with applicable law. Moreover,
notwithstanding any judicial determination that any provision of this
Non-Competition Agreement is not specifically enforceable the parties intend
that DMC shall nonetheless be entitled to recover monetary damages as a result
of any breach hereof.
4. INJUNCTIVE RELIEF. In view of the nature of the rights in goodwill,
business reputation and prospects of DMC to be protected under this Agreement,
A. Rossi understands and agrees that DMC could not be reasonably or adequately
compensated in damages in an action at law for A. Rossi's breach of his
obligations hereunder. Accordingly, A. Rossi specifically agrees that DMC shall
be entitled to temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision with respect to injunctive
relief shall not, however, diminish the right of DMC to claim and recover
damages in addition to injunctive relief.
5. WAIVER. The failure of DMC to enforce at any time any of the provisions
of this Non-Competition Agreement or to require at any time performance by A.
Rossi of the provisions hereof shall in no way be construed to be a waiver of
such provisions or to affect either the validity of this Noncompetition
Agreement, or any part hereof, or the right of DMC thereafter to enforce each
and every provision in accordance with the terms of this Non-Competition
Agreement.
6. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Non-Competition Agreement shall not affect the other
provisions hereof, and this Non-Competition Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.
7. ASSIGNABILITY. This Non-Competition Agreement shall be freely
assignable by DMC and shall inure to the benefit of its successors and assigns.
8. GOVERNING LAW. This Non-Competition Agreement shall be governed by the
laws of the State of Colorado without regard to its conflicts-of-laws rules.
9. AMENDMENTS. This Non-Competition Agreement may not be amended, altered
or modified other than by a written agreement between the parties hereto.
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10. COUNTERPARTS. This Non-Competition Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which shall together constitute one and the same instrument. This
Non-Competition Agreement shall become binding when one or more counterparts
hereof shall bear the signatures of all of the parties indicated as the
signatories hereto.
11. NOTICES. All notices, requests, demands and other communications under
this Agreement shall be given in writing and shall be served either personally,
by facsimile or delivered by first class mail, registered or certified, return
receipt requested, postage prepaid and properly addressed to the parties as
noted herein. Notice shall be deemed received upon the earliest of actual
receipt, confirmed facsimile or three (3) days following mailing pursuant to
this section.
12. INTERPRETATION. Each party has had the opportunity and has reviewed
and revised this Non-Competition Agreement and, therefore, the rule of
construction requiring that any ambiguity be resolved against the drafting party
shall not be employed in the interpretation of this Non-Competition Agreement.
The section headings contained in this Non-Competition Agreement are for
convenience and reference purposes only and shall not affect in any way the
meaning and interpretation of this Non-Competition Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
/s/Alva Rossi
---------------------------------------
Alva Rossi
Address:
------------------------------
---------------------------------------
DYNAMIC MATERIALS CORPORATION
551 Aspen Ridge Drive
Lafayette, CO 80026
By: /s/R A Santa
------------------------------------
Name: Richard A. Santa
----------------------------------
Title: CFO
---------------------------------
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DYNAMIC MATERIALS CORPORATION
NON-COMPETITION AGREEMENT
IN CONNECTION WITH
SALE OF BUSINESS
This Non-Competition Agreement (the "Non-Competition Agreement") is made
as of the 5th day of January, 1998, by and between Dynamic Materials
Corporation, a Delaware corporation ("DMC") and Margaret Rossi ("M. Rossi").
This is the Non-Competition Agreement contemplated by that certain Asset
Purchase Agreement (the "Agreement"), dated as of the date hereof by and between
the parties.
WHEREAS, DMC, AMK Welding, Inc. ("AMK") and Alva and Margaret Rossi have
entered into an Asset Purchase Agreement, dated as of January 5, 1998 providing
for the acquisition by DMC of certain tangible and intangible assets related to
AMK's welding business (the "Acquisition" );
WHEREAS, in order to protect the value of the assets and goodwill being
acquired by DMC in the Acquisition, DMC requires that M. Rossi agree to certain
restrictions on M. Rossi's ability to compete with DMC in the future;
WHEREAS, DMC and M. Rossi desire that the Acquisition and the
transactions contemplated by the Agreement be consummated; and
WHEREAS, pursuant to the terms and conditions of Section 6.1 of the
Agreement, M. Rossi shall execute and deliver this Non-Competition Agreement to
DMC prior to the Closing.
NOW, THEREFORE, as inducement to DMC to proceed with the Closing and in
consideration of such Closing, and in consideration of the mutual covenants and
agreements contained herein and in the Agreement and for other good and valuable
consideration hereby acknowledged, intending to be legally bound, the parties
hereto do hereby agree as follows:
1. NON-COMPETITION. M. Rossi agrees that she shall not, directly or
indirectly, for the Term of this Agreement, whether as an owner, consultant,
partner, joint venturer, stockholder, broker, agent, principal, trustee,
licensor or in any capacity whatsoever (a) own, manage, operate, join, control,
finance or participate in the ownership, management, operation, control or
financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant, licensor, licensee or otherwise
with, any business or enterprise engaged in any business which is competitive
with DMC in the welding business, or (b) engage in any other manner, in any
business which is competitive with DMC in the welding business; provided,
however, that acquisition or ownership of less than 2 % of the outstanding
shares of any corporation engaged in the welding business whose stock is
publicly traded shall not constitute a violation of this Non-Competition
Agreement.
2. TERM. This Agreement shall remain in effect for a period of sixty (60)
months from the date hereof.
<PAGE>
3. JUDICIAL LIMITATION. In the event that any provision of this
Non-Competition Agreement is more restrictive than permitted by the law of the
jurisdiction in which DMC seeks enforcement thereof, the provisions of this
Non-Competition Agreement shall be limited only to that extent that a judicial
determination finds the same to be unreasonable or otherwise unenforceable. Such
invalidity or unenforceability shall not affect any other terms herein, but such
term shall be deemed deleted, and such deletion shall not affect the validity of
the other terms hereof. In addition, if any one or more of the terms contained
in this Non-Competition Agreement shall for any reason be held to be excessively
broad or of an overly long duration that term shall be construed in a manner to
enable it to be enforced to the extent compatible with applicable law. Moreover,
notwithstanding any judicial determination that any provision of this
Non-Competition Agreement is not specifically enforceable the parties intend
that DMC shall nonetheless be entitled to recover monetary damages as a result
of any breach hereof.
4. INJUNCTIVE RELIEF. In view of the nature of the rights in goodwill,
business reputation and prospects of DMC to be protected under this Agreement,
M. Rossi understands and agrees that DMC could not be reasonably or adequately
compensated in damages in an action at law for M. Rossi's breach of her
obligations hereunder. Accordingly, M. Rossi specifically agrees that DMC shall
be entitled to temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision with respect to injunctive
relief shall not, however, diminish the right of DMC to claim and recover
damages in addition to injunctive relief.
5. WAIVER. The failure of DMC to enforce at any time any of the provisions
of this Non-Competition Agreement or to require at any time performance by M.
Rossi of the provisions hereof shall in no way be construed to be a waiver of
such provisions or to affect either the validity of this Noncompetition
Agreement, or any part hereof, or the right of DMC thereafter to enforce each
and every provision in accordance with the terms of this Non-Competition
Agreement.
6. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Non-Competition Agreement shall not affect the other
provisions hereof, and this Non-Competition Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.
7. ASSIGNABILITY. This Non-Competition Agreement shall be freely
assignable by DMC and shall inure to the benefit of its successors and assigns.
8. GOVERNING LAW. This Non-Competition Agreement shall be governed by the
laws of the State of Colorado without regard to its conflicts-of-laws rules.
9. AMENDMENTS. This Non-Competition Agreement may not be amended, altered
or modified other than by a written agreement between the parties hereto.
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<PAGE>
10. COUNTERPARTS. This Non-Competition Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which shall together constitute one and the same instrument. This
Non-Competition Agreement shall become binding when one or more counterparts
hereof shall bear the signatures of all of the parties indicated as the
signatories hereto.
11. NOTICES. All notices, requests, demands and other communications under
this Agreement shall be given in writing and shall be served either personally,
by facsimile or delivered by first class mail, registered or certified, return
receipt requested, postage prepaid and properly addressed to the parties as
noted herein. Notice shall be deemed received upon the earliest of actual
receipt, confirmed facsimile or three (3) days following mailing pursuant to
this section.
12. INTERPRETATION. Each party has had the opportunity and has reviewed
and revised this Non-Competition Agreement and, therefore, the rule of
construction requiring that any ambiguity be resolved against the drafting party
shall not be employed in the interpretation of this Non-Competition Agreement.
The section headings contained in this Non-Competition Agreement are for
convenience and reference purposes only and shall not affect in any way the
meaning and interpretation of this Non-Competition Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
/s/Margaret Rossi
---------------------------------------
Margaret Rossi
Address:
-------------------------------
---------------------------------------
DYNAMIC MATERIALS CORPORATION
551 Aspen Ridge Drive
Lafayette, CO 80026
By: /s/R A Santa
------------------------------------
Name: Richard A. Santa
----------------------------------
Title: CFO
---------------------------------
<PAGE>
DYNAMIC MATERIALS CORPORATION
NON-COMPETITION AGREEMENT
IN CONNECTION WITH
SALE OF BUSINESS
This Non-Competition Agreement (the "Non-Competition Agreement") is made
as of the 5th day of January, 1998, by and between Dynamic Materials
Corporation, a Delaware corporation ("DMC") and Robert Sanborn ("Sanborn"). This
is the Non-Competition Agreement contemplated by that certain Asset Purchase
Agreement (the "Agreement"), dated as of the date hereof by and between the
parties.
WHEREAS, DMC, AMK Welding, Inc. ("AMK") and Alva and Margaret Rossi have
entered into an Asset Purchase Agreement, dated as of January 5, 1998 providing
for the acquisition by DMC of certain tangible and intangible assets related to
AMK's welding business (the "Acquisition" );
WHEREAS, in order to protect the value of the assets and goodwill being
acquired by DMC in the Acquisition, DMC requires that Sanborn agree to certain
restrictions on Sanborn's ability to compete with DMC in the future;
WHEREAS, DMC and Sanborn desire that the Acquisition and the
transactions contemplated by the Agreement be consummated; and
WHEREAS, pursuant to the terms and conditions of Section 6.1 of the
Agreement, Sanborn shall execute and deliver this Non-Competition Agreement to
DMC prior to the Closing.
NOW, THEREFORE, as inducement to DMC to proceed with the Closing and in
consideration of such Closing, and in consideration of the mutual covenants and
agreements contained herein and in the Agreement and for other good and valuable
consideration hereby acknowledged, intending to be legally bound, the parties
hereto do hereby agree as follows:
1. NON-COMPETITION. Sanborn agrees that it shall not, directly or
indirectly, for the Term of this Agreement, whether as an owner, consultant,
partner, joint venturer, stockholder, broker, agent, principal, trustee,
licensor or in any capacity whatsoever (a) own, manage, operate, join, control,
finance or participate in the ownership, management, operation, control or
financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant, licensor, licensee or otherwise
with, any business or enterprise engaged in any business which is competitive
with DMC in the welding business, or (b) engage in any other manner, in any
business which is competitive with DMC in the welding business; provided,
however, that acquisition or ownership of less than 2 % of the outstanding
shares of any corporation engaged in the welding business whose stock is
publicly traded shall not constitute a violation of this Non-Competition
Agreement.
2. CONSIDERATION. In consideration of the covenants and agreements by
Sanborn contained herein, DMC agrees to pay to Sanborn for the Term of this
Agreement an amount equal to Eight Hundred Thirty-Four Dollars ($834.00) per
month, payable in such installments as is the
<PAGE>
policy of DMC with respect to the payment of salaries to employees of DMC at
substantially the same employment level as Sanborn.
3. TERM. This Agreement shall remain in effect for a period of sixty (60)
months from the date hereof (the "Initial Term"). In the event Sanborn is no
longer employed by DMC on the last day of the Initial Term, DMC shall be
entitled at its sole and exclusive option (the "Option") to extend the term of
this Agreement (the "Term") for an additional thirty-six (36) month period by
providing written notice to Sanborn of its exercise of the Option pursuant to
this section within thirty (30) days after the end of the Initial Term. In the
event Sanborn continues to be employed by DMC after the expiration of the
Initial Term, the Term of this Agreement shall automatically be extended for so
long as Sanborn continues to be employed by DMC.
4. JUDICIAL LIMITATION. In the event that any provision of this
Non-Competition Agreement is more restrictive than permitted by the law of the
jurisdiction in which DMC seeks enforcement thereof, the provisions of this
Non-Competition Agreement shall be limited only to that extent that a judicial
determination finds the same to be unreasonable or otherwise unenforceable. Such
invalidity or unenforceability shall not affect any other terms herein, but such
term shall be deemed deleted, and such deletion shall not affect the validity of
the other terms hereof. In addition, if any one or more of the terms contained
in this Non-Competition Agreement shall for any reason be held to be excessively
broad or of an overly long duration that term shall be construed in a manner to
enable it to be enforced to the extent compatible with applicable law. Moreover,
notwithstanding any judicial determination that any provision of this
Non-Competition Agreement is not specifically enforceable the parties intend
that DMC shall nonetheless be entitled to recover monetary damages as a result
of any breach hereof.
5. AT-WILL EMPLOYMENT. This Agreement is not an employment contract and
nothing in this Agreement shall be deemed to create in any way whatsoever any
obligation on Sanborn's part to continue in the employ of DMC or of DMC to
continue Sanborn's employment with DMC. Sanborn agrees that he is an at-will
employee and that his employment may be terminated at any time, with or without
cause and with or without notice.
6. INJUNCTIVE RELIEF. In view of the nature of the rights in goodwill,
business reputation and prospects of DMC to be protected under this Agreement,
Sanborn understands and agrees that DMC could not be reasonably or adequately
compensated in damages in an action at law for Sanborn's breach of its
obligations hereunder. Accordingly, Sanborn specifically agrees that DMC shall
be entitled to temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision with respect to injunctive
relief shall not, however, diminish the right of DMC to claim and recover
damages in addition to injunctive relief.
7. WAIVER. The failure of DMC to enforce at any time any of the provisions
of this Non-Competition Agreement or to require at any time performance by
Sanborn of the provisions hereof shall in no way be construed to be a waiver of
such provisions or to affect either the validity
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<PAGE>
of this Noncompetition Agreement, or any part hereof, or the right of DMC
thereafter to enforce each and every provision in accordance with the terms of
this Non-Competition Agreement.
8. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Non-Competition Agreement shall not affect the other
provisions hereof, and this Non-Competition Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.
9. ASSIGNABILITY. This Non-Competition Agreement shall be freely
assignable by DMC and shall inure to the benefit of its successors and assigns.
10. GOVERNING LAW. This Non-Competition Agreement shall be governed by the
laws of the State of Colorado without regard to its conflicts-of-laws rules.
11. AMENDMENTS. This Non-Competition Agreement may not be amended, altered
or modified other than by a written agreement between the parties hereto.
12. COUNTERPARTS. This Non-Competition Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which shall together constitute one and the same instrument. This
Non-Competition Agreement shall become binding when one or more counterparts
hereof shall bear the signatures of all of the parties indicated as the
signatories hereto.
13. NOTICES. All notices, requests, demands and other communications under
this Agreement shall be given in writing and shall be served either personally,
by facsimile or delivered by first class mail, registered or certified, return
receipt requested, postage prepaid and properly addressed to the parties as
noted herein. Notice shall be deemed received upon the earliest of actual
receipt, confirmed facsimile or three (3) days following mailing pursuant to
this section.
14. INTERPRETATION. Each party has had the opportunity and has reviewed
and revised this Non-Competition Agreement and, therefore, the rule of
construction requiring that any ambiguity be resolved against the drafting party
shall not be employed in the interpretation of this Non-Competition Agreement.
The section headings contained in this Non-Competition Agreement are for
convenience and reference purposes only and shall not affect in any way the
meaning and interpretation of this Non-Competition Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
/s/Robert Sanborn
----------------------------------------
Robert Sanborn
Address: P.O. Box 479 South Winsor
--------------------------------
CT 06074
----------------------------------------
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<PAGE>
DYNAMIC MATERIALS CORPORATION
551 Aspen Ridge Drive
Lafayette, CO 80026
By: /s/R A Santa
-------------------------------------
Name:
-----------------------------------
Title: CFO
----------------------------------
-4-
CREDIT FACILITY AND
SECURITY AGREEMENT
THIS AGREEMENT is made by and between the Company (as herein defined) and
the Bank (as herein defined).
In consideration of the covenants and agreements contained herein, the
Company and the Bank hereby mutually agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1 GENERAL. Any accounting term used but not specifically defined
herein shall be construed in accordance with GAAP. The definition of each
agreement, document, and instrument set forth in Section 1.2 hereof shall be
deemed to mean and include such agreement, document, or instrument as amended,
restated, or modified from time to time.
SECTION 1.2 DEFINED TERMS. As used in this Agreement:
"ACCOUNT" shall mean (a) any account as defined in the UCC, and (b) any
right to payment for Goods sold or leased or for services rendered which is not
evidenced by an Instrument or Chattel Paper, whether or not it has been earned.
"ACCOUNT DEBTOR" shall mean the Person who is obligated on an Account
Receivable.
"ACCOUNT RECEIVABLE" shall mean:
(a) any account receivable, Account, Chattel Paper, Contract Right,
General Intangible Document, or Instrument owned, acquired, or
received by a Person,
(b) any other indebtedness owed to or receivable owned, acquired, or
received by a Person of whatever kind and however evidenced, and
(c) any right, title, and interest in a Person's Goods which were sold,
leased, or furnished by that Person and gave rise to either (a) or
(b) above, or both of them. This includes, without limitation:
(1) any rights of stoppage in transit of a Person's sold,
leased, or furnished Goods,
(2) any rights to reclaim a Person's sold, leased, or furnished
Goods, and
(3) any rights a Person has in such sold, leased, or furnished
Goods that have been returned
"AFFILIATE" shall mean, with respect to a specified Person, any other
Person: (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with such Person,
(b)which beneficially owns or holds with power to vote five percent (5 %) or
more of any class of the voting stock of such Person, (c) five percent (5 %) or
more
<PAGE>
of the voting stock of which other Person is beneficially owned or held by such
Person, or (d) who is an officer or director of such Person.
"BANK" shall mean KeyBank National Association, a national banking
association, and its successors and assigns.
"BUSINESS CONDITION" shall mean the financial condition, business and
assets of a Person.
"BUSINESS DAY" shall mean a day of the year on which banks are not
required or authorized to close in Denver, Colorado and, if the applicable
Business Day relates to any LIBOR Rate Loan, on which dealings are carried on in
the London interbank eurodollar market.
"CAPITAL EXPENDITURES" shall mean any and all amounts invested, expended
or incurred by a Person in respect of the purchase, improvement, renovation or
expansion of any land and depreciable or amortizable property of such Person
(including expenditures required to be capitalized in accordance with GAAP).
"CASH COLLATERAL ACCOUNT" shall mean a commercial Deposit Account
designated "cash collateral account" and maintained by the Company with Bank,
without liability by Bank to pay interest thereon, from which account Bank shall
have the exclusive right to withdraw funds until all Obligations are paid,
performed, satisfied, enforced, and observed in full.
"CASH SECURITY" shall mean all cash, Instruments, Deposit Accounts, and
other cash equivalents, whether matured or unmatured, whether collected or in
the process of collection, upon which Company presently has or may hereafter
have any claim, that are presently or may hereafter be existing or maintained
with, issued by, drawn upon, or in the possession of Bank.
"CHATTEL PAPER" shall mean "chattel paper" as defined in the UCC.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL" shall have the meaning described in Section 3.1 below.
"COLLECTIONS" shall have the meaning described in Section 4. 1(a) of this
Agreement.
"COMMONLY CONTROLLED ENTITY" shall mean a Person, whether or not
incorporated, which is under common control with the Company within the meaning
of Section 414(b) or (c) of the Code.
"COMPANY" shall mean Dynamic Materials Corporation, a Delaware
corporation, with its principal office located at 551 Aspen Ridge Dr.,
Lafayette, Colorado 80026, and its successors.
"COMPANY'S LOCATION" shall mean the location of: (a) Company's place of
business, if there is only one such place of business; or (b) if there is more
than one place of business, the place
-2-
<PAGE>
(1) from which Company manages the main part of its business operations, and (2)
where persons dealing with Company would normally look for credit information.
"CONTRACT RIGHT" shall mean (a) any contract right, and (b) any right to
payment under a contract not yet earned by performance and not evidenced by an
Instrument or Chattel Paper.
"CONTRACT YEAR" shall mean the twelve (12) month period which commences on
each anniversary of the execution of the Agreement.
"CREDIT LOAN" shall mean the revolving Loan described in Section 2.1(a)(i)
of this Agreement.
"CURRENT ASSETS" and "CURRENT LIABILITIES" shall mean the amounts as
determined in accordance with GAAP not inconsistent with present accounting
procedures.
"DEPOSIT ACCOUNT" shall mean (a) any deposit account, and (b) any demand,
time, savings, passbook, or a similar account maintained with a bank, savings
and loan association, credit union, or similar organization, other than an
account evidenced by a certificate of deposit.
"DOCUMENT" shall mean (a) any document, (b) any document of title,
including a bill of lading, dock warrant, dock receipt, warehouse receipt or
order for the delivery of Goods, and any other document which in the regular
course of business or financing is treated as adequately evidencing that the
Person in possession of it is entitled to receive, hold, and dispose of the
document and the Goods it covers, and (c) any receipt covering Goods stored
under a statute requiring a bond against withdrawal or a license for the
issuance of receipts in the nature of warehouse receipts even though issued by a
Person who is the owner of the Goods and is not a warehouseman.
"ENVIRONMENTAL LAW" shall mean any federal, state, or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to, or
imposing liability upon a Person in connection with the use, release or disposal
of any hazardous toxic or dangerous substance, waste or material.
"EQUIPMENT" shall mean "equipment " (as defined in the UCC) and fixtures
(as defined in the UCC) including, without limitation, all machinery, equipment,
furniture, furnishings, fixtures, and packaging production equipment, parts,
material handling, supplies, and motor vehicles (titled or untitled) of every
kind and description, now or hereafter owned by the Company.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EVENT OF DEFAULT" shall mean any one or more of the occurrences described
in ARTICLE IX hereof.
-3-
<PAGE>
"FEDERAL FUNDS RATE" shall mean, during any period, a fluctuating interest
rate per annum for each day during such period, that is the rate determined by
Bank to be the opening rate per annum paid or payable by it on the day in
question in its region market for federal funds purchased overnight from other
banking institutions.
"FEDERAL FUNDS RATE LOAN" shall mean any Loan that bears interest with
reference to the Federal Funds Rate.
"FINAL MATURITY DATE" shall mean the fifth annual anniversary date of this
Agreement.
"FUNDED DEBT" shall mean all Indebtedness which matures more than one year
after the date such Indebtedness was incurred, less any portion thereof that is
payable within twelve (12) months following the date as of which the calculation
is made.
"FUNDS FROM OPERATIONS" shall mean the aggregate of the Company's profit
before taxes and extraordinary items plus depreciation, plus amortization, plus
deferred income taxes.
"GAAP" shall mean generally accepted accounting principles as then in
effect, which shall include the official interpretations thereof by the
Financial Accounting Standards Board, consistently applied.
"GENERAL INTANGIBLE" shall mean (a) any "general intangible" (as defined
in the UCC), and (b) any personal property (including things in action) other
than Goods, Accounts, Contract Rights, Chattel Paper, Documents, Instruments,
and money.
"GOODS" shall mean (a) any "goods" (as defined in the UCC), and (b) all
things which are movable at the time the security interest granted Bank under
the Agreement attaches or which are fixtures but does not include money,
Instruments, Documents, Accounts, Chattel Paper, General Intangibles, or
Contract Rights.
"HAZARDOUS MATERIALS" shall mean any substance or material defined or
designated as a hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance, or other similar term, by any United States federal, state
or local environmental statute, regulation or ordinance.
"INDEBTEDNESS" shall mean for any Person (i) all obligations to repay
borrowed money, direct or indirect, incurred, assumed, or guaranteed, (ii) all
obligations for the deferred purchase price of capital assets excluding trade
payables, (iii) all obligations under conditional sales or other title retention
agreements, and (iv) all lease obligations which have been or should be
capitalized on the books of such Person.
"INSTRUMENT" shall mean "instruments" (as defined in the UCC).
"INTEREST PERIOD" means, with respect to any LIBOR Rate Loan, the period
commencing on the date such Loan is made, continued, or converted and ending on
the last day of such period as
-4-
<PAGE>
selected by the Company pursuant to the provisions below and, thereafter,
each subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of such period as selected by the
Company pursuant to the provisions below. The duration for any LIBOR Rate Loan
which is a Credit Loan shall be 1 month, 2 months, or 3 months, as selected by
the Company; and the duration for any LIBOR Rate Loan which is a Term Loan shall
be 3 months; provided, however, that whenever the last day of any Interest
Period would otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall occur on the next succeeding Business Day, and;
provided, further, however, that if such extension of time would cause the last
day of such Interest Period for a LIBOR Rate Loan to occur in the next following
calendar month, the last day of such Interest Period shall occur on the next
preceding Business Day.
"INVENTORY" shall mean all "inventory" (as defined in the UCC) now owned
or hereafter acquired by the Company, including, without limitation, all Goods,
merchandise, work-in-process, raw materials, finished Goods, and inventory held
for lease to other Persons; all other materials, supplies, and tangible personal
property of any kind, nature, or description held for sale or lease or for
display or demonstration; and all documents of title or other Documents
pertaining thereto, and all proceeds of the foregoing.
"LETTER OF CREDIT LOAN" shall mean the $6,000,000 loan to Company from
Bank, evidenced by the issuance of a Letter of Credit to provide a credit
enhancement for bond financing and which loan shall be secured by a lien on
certain property, plant and equipment of the Company located in Mount Braddock,
Pennsylvania.
"LIBOR RATE" means, for any Interest Period for any LIBOR Rate Loan, an
interest rate per annum (rounded upwards to the next higher whole multiple of
1/16% if such rate is not such a multiple) equal at all times during such
Interest Period to the quotient of (a) the rate per annum (rounded upwards to
the next higher whole multiple of 1/16 % if such rate is not such a multiple) at
which deposits in United States dollars are offered at 11:00 a.m. (London,
England time) (or as soon thereafter as is reasonably practicable) by prime
banks in the London interbank eurodollar market two Business Days prior to the
first day of such Interest Period in an amount and maturity of such LIBOR Rate
Loan, divided by (b) a number equal to 1.00 minus the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of the LIBOR Reserve
Requirements current on the date two Business Days prior to the first day of
such Interest Period.
"LIBOR RATE LOAN" shall mean any Loan that bears interest with reference
to the LIBOR Rate.
"LIBOR RATE MARGIN" shall mean: (i) for the period commencing on the date
of this Agreement and ending on June 30, 1998, 100 basis points, and (ii)
thereafter, such Margin as is adjusted pursuant to Section 2.3(b)(ii) of this
Agreement.
"LIBOR RESERVE REQUIREMENTS" means, for any Interest Period for any LIBOR
Rate Loan, the maximum reserves (whether basic, supplemental, marginal,
emergency, or otherwise) prescribed by the Board of Governors of the Federal
Reserve System (or any successor) with respect to
-5-
<PAGE>
liabilities or assets consisting of or including "Eurocurrency liabilities" (as
defined in Regulation D of the Board of Governors of the Federal Reserve System)
having a term equal to such Interest Period.
"LIEN" shall mean any mortgage, security interest, lien, charge,
encumbrance on, pledge or deposit of, or conditional sale or other title
retention agreement with respect to any property or asset.
"LOAN" or "LOANS" shall mean any of the loan advances to the Company
extended by the Bank in accordance with Section 2.1(a).
"LOAN DOCUMENTS" shall mean this Agreement, the Note and any other
documents relating thereto.
"MARGIN ADJUSTMENT DATE" shall have the meaning specified in Section
2.3(b) of this Agreement.
"MARGIN STOCK" shall have the meaning given to it under Regulation U of
the Board of Governors of the Federal Reserve System, as amended from time to
time.
"MATERIAL ADVERSE EFFECT" shall mean material adverse effect on (i) the
ability of the Company and any Subsidiaries taken as a whole to fulfill their
obligations under any of the Loan Documents or (ii) the Business Condition of
the Company and any Subsidiaries taken as a whole.
"MATERIAL AGREEMENTS" shall mean (a) any agreement to which the Company is
a party which provides for the receipt or expenditure by the Company or any
Subsidiary of more than $500,000.00 in any 12-month period other than sales
orders in the ordinary course of business, and (b) any other agreement to which
the Company is a party which is material to the business of the Company.
"MULTIEMPLOYER PLAN" shall mean a Plan described in ERISA which covers
employees of the Company and employees of any other Person, which together would
be treated as a single employer for purposes of ERISA.
"NOTE" shall mean the promissory note of Company in the form of Exhibit A
attached hereto evidencing the Loan.
"OBLIGATIONS" shall mean any and all indebtedness, obligations,
liabilities, contracts, indentures, agreements, warranties, covenants,
guaranties, representations, provisions, terms, and conditions of whatever kind,
now existing or hereafter arising, and however evidenced, that are now or
hereafter owed, incurred, or executed by Company to, in favor of, or with Bank
or any Affiliate Bank.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to subtitle A of Title IV or ERISA.
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<PAGE>
"PERMITTED INVESTMENT" shall mean the Company's:
(a) investments existing on March 18, 1998 as disclosed in the
Schedule on Exhibit C hereto;
(b) extensions of credit in the nature of Accounts Receivable, or
notes receivable arising from the Company's sale or lease of
goods or services in the ordinary course of business;
(c) investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in
the ordinary course of business;
(d) investments (excluding debt obligations) received in connection
with the bankruptcy or reorganization of the Company's customers
or suppliers and in settlement of delinquent obligations of, and
other disputes with, such customers or suppliers arising, form
transactions in the ordinary course of business;
(e) investments consisting of (i) compensation of Company employees,
officers or directors so long as the Company's Board of Directors
lawfully determines that such compensation is in the Company's
best interest, (ii) travel advances, employee relocation loans
and other employee loans and advances lawfully made in the
ordinary course of business, and (iii) loans lawfully made to
Company's employees, officers or directors relating to the
purchase of equity securities of Company;
(f) investments in marketable U.S. Treasury and Agency obligations;
(g) investments in certificates of deposit and bankers' acceptances
issued or created by any domestic commercial bank;
(h) investments in instruments issued or enhanced by a member bank of
the Federal Reserve System;
(i) investments in debt obligations issued by a corporation, or state
or municipal entity rated Bb or better in accordance with a
rating system employed by either Moody's Investor's Service, Inc.
or Standard & Poor's Corporation; or
(j) investments of other types aggregating not in excess of
$200,000.00.
"PERMITTED LIEN" shall mean the following, subject to the limitation set
forth in Section 8.19 hereto:
(a) Liens existing as of the date of this Agreement and disclosed in
the Schedule on Exhibit C hereto;
(b) Liens for taxes or governmental assessments. charges, or levies
the payment of which is not at the time required by any provision
of this Agreement or any other Loan Document unless such Liens
are not delinquent or are being contested in good faith by
appropriate proceedings;
(c) Liens that secure the Company's Indebtedness for the purchase
price of any real or personal property and that only encumber the
property purchased, improvements or accessions thereto, and
proceeds thereof,
(d) Liens securing capital lease obligations;
(e) Liens on Equipment leased by the Company pursuant to an operating
lease in the ordinary course of business (including proceeds
thereof and accessions thereto)
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incurred solely for the purpose of financing the lease of such
Equipment (including Liens arising from UCC financing statements
regarding leases permitted by this provision);
(f) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar Liens
affecting real property not interfering in any material respect
with the ordinary conduct of the business of the Company;
(g) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection
with the importation of Goods;
(h) Liens imposed by law, such as Liens of landlords, carriers,
warehousemen, mechanics, and materialmen arising in the ordinary
course of business for sums not yet due or being contested by
appropriate proceedings promptly initiated and diligently
conducted, provided the Company has set aside proper amounts,
determined in accordance with GAAP, for the pavement of all such
Liens;
(i) Liens incurred or deposits made in the ordinary course of
business in conjunction with worker's compensation, unemployment
insurance, and other types of social security, or to secure the
performance of tenders, statutory obligations, and surety and
appeal bonds, or to secure the performance and return of money
bonds and other similar obligations, but excluding Indebtedness;
(j) Liens in respect of judgments or awards with respect to which the
Company shall, in good faith, be prosecuting an appeal or
proceeding for review and with respect to which a stay of
execution upon such appeal or proceeding for review shall have
been obtained;
(k) Liens in favor of the Bank or any Affiliate Bank; and
(l) Liens incurred in connection with the extension, renewal,
refunding, refinancing, modification, amendment or restatement of
Indebtedness secured by Liens of the type described in clauses
(a), (c), (d) and (k) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered
by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase.
"PERSON" shall mean any natural person, corporation (which shall be deemed
to include business trust), association, limited liability company, partnership,
joint venture, political entity, or political subdivision thereof.
"PLAN" shall mean any plan (other than a Multiemployer Plan) defined in
ERISA in which the Company or any Subsidiary is, or has been at any time during
the preceding two (2) years, an employer" or a "substantial employer" as such
terms are defined in ERISA.
"PRIOR AGREEMENT" means that certain Credit Facility and Security
Agreement dated July 19, 1996 executed by and between Bank and Company.
"PROCEEDS" means any "proceeds" (as defined in the UCC).
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"RELATED EXPENSES" means any and all reasonable costs, liabilities, and
expenses (including without limitation, losses, damages, penalties, claims,
actions, reasonable attorney's fees, legal expenses, judgments, suits, and
disbursements) incurred by, imposed upon, or asserted against, Bank in any
attempt by Bank:
(a) to obtain, preserve, perfect, or enforce any security interest
evidenced by (i) the Agreement, or (ii) any other pledge
agreement, mortgage deed, deed of trust, hypothecation agreement,
guaranty, security agreement, assignment, or security instrument
executed or given by Company to or in favor of Bank,
(b) to obtain payment, performance, and observance of any and all of
the Obligations,
(c) to maintain, insure, audit, collect, preserve, repossess, and
dispose of any of the Collateral, or
(d) incidental or related to (a) through (c) above.
"REMITTANCES" shall have the meaning described in Section 4. 1 (a) of this
Agreement.
"REPORTABLE EVENT" shall have the meaning assigned to that term in Section
4043 of ERISA for which the requirement of 30 days' notice to the PBGC has not
been waived by the PBGC.
"SINGLE EMPLOYER PLAN" shall mean any Plan as defined in Section
4001(a)(15) of ERISA.
"SPIN FORGE ASSETS" shall mean the assets of Spin Forge LLC, a California
limited liability company ("Spin Forge"), acquired by Company with the proceeds
of the Credit Loan described in Article II hereof .
"SUBORDINATED DEBT" shall mean Indebtedness of a Person which is
subordinated, in a manner satisfactory to the Bank, to all Indebtedness owing to
the Bank.
"SUBSIDIARY" shall mean any Person of which more than fifty percent (50%)
of (i) the voting stock entitling the holders thereof to elect a majority of the
Board of Directors, managers, or trustees thereof, or (ii) the interest in the
capital or profits of such Person, which at the time is owned or controlled,
directly or indirectly, by the Company or one or more other Subsidiaries.
"TANGIBLE NET WORTH" shall mean the total assets of a Person less (i) such
Person's Total Indebtedness, and (ii) the aggregate amount of all of such
Person's intangible assets.
"TERM LOAN" shall mean any of the term loans described in Section
2.1(a)(ii) of this Agreement.
"TOTAL INDEBTEDNESS" shall mean the total of all items of indebtedness or
liability which in accordance with GAAP would be included in determining total
liabilities on the liability side of the balance sheet as of the date of
determination.
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"UCC" shall mean the Uniform Commercial Code in effect in the State of
Colorado from time to time.
The foregoing definitions shall be applicable to the singulars and plurals
of the foregoing defined terms. All accounting and financial terms used in this
Section and in this Agreement and not otherwise defined shall be determined in
accordance with GAAP consistently applied.
ARTICLE II. CREDIT FACILITY
SECTION 2.1(A). AMOUNT OF CREDIT. The Bank hereby agrees, subject to
the terms and conditions of this Agreement, to make a Credit Loan to the Company
as follows:
(i) Subject to the annual principal reductions set forth below, the Bank hereby
makes a revolving Credit Loan to the Company from time to time on and after
the date of this Agreement through and including the Final Maturity Date,
in an aggregate principal amount not to exceed Five Million and no/100
Dollars ($5,000,000.00). Until the Final Maturity Date, the Company may
borrow, repay, and reborrow such Credit Loan up to the maximum amount
thereof. Commencing with the first anniversary of this Agreement and on
each Contract Year thereafter, the aggregate principal amount available
under the Credit Loan shall be permanently reduced by the amount of
$1,000,000.00, provided that the Company shall immediately pay to the Bank
the amount, if any, by which the aggregate principal amount outstanding on
the Loan exceeds such reduced commitment of the Bank at that time. If,
however, after giving effect to any such payment any LIBOR Rate Loan would
be prepaid prior to the end of its respective Interest Period, the
permanent reduction in the commitment of the Bank shall be deemed to be
effective on the last day of such Interest Period.
(ii) If no Event of Default shall have occurred and be continuing, the Company
may elect to convert all or a portion of the Credit Loan outstanding to a
Term Loan; whereupon the amount of the Credit Loan available to be borrowed
under Section 2.1(a)(i) above shall be permanently and automatically
reduced by the amount of such Credit Loan converted to Term Loan. The
Company shall make such election by written notice delivered to Bank not
less than fifteen (15) days prior to the effective date of the Term Loan,
specifying the principal amount of the Term Loan and the initial interest
rate applicable thereto (i.e. whether the Term Loan is to be a LIBOR Rate
Loan or a Federal Funds Rate Loan). Each Term Loan shall be in an amount of
$50,000.00 or an integral multiple thereof. The Company shall repay each
Term Loan on a fully amortized basis over a period commencing on the date
of each Term Loan and ending on a date not later than the Final Maturity
Date. The principal amount of each Term Loan shall be payable in
consecutive and equal quarterly installments on the last day of each March,
June, September and December (commencing with the first such date following
the fixing of the Term Loan) until the maturity date of such Term Loan or
the earlier acceleration of the maturity of the Term Loan in accordance
with ARTICLE XI hereof, when any remaining principal balance shall be due
and payable. Each principal installment shall be an amount equal to the
original principal amount of the Term Loan divided by the
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number of calendar quarters occurring between the date of the making of
the Term Loan and the maturity date of such Term Loan.
(iii) Each Credit Loan or Term Loan shall be either a LIBOR Rate Loan or a
Federal Funds Rate Loan, subject to the following conditions:
(A) Each Loan that is made or continued as or converted into a LIBOR Rate
Loan shall be made, continued, or converted on such Business Day, in
such amount (equal to $10,000.00 or an integral multiple thereto), and
with such an Interest Period as the Company shall request by written
notice given to the Bank no later than 11:00 a.m. (Denver, Colorado
time) on the third Business Day prior to the date of disbursement or
continuation of or conversion into the requested LIBOR Rate Loan. Each
written notice of any LIBOR Rate Loan shall be irrevocable and binding
on the Company and the Company shall indemnify the Bank against any
loss or expense incurred by the Bank as a result of any failure by the
Company to consummate such LIBOR Rate Loan, including, without
limitation, any loss (including loss of anticipated profits) or
expense incurred by reason of liquidation or reemployment of deposits
or other funds acquired by the Bank to fund the LIBOR Rate Loan. A
certificate as to the amount of such loss or expense submitted by the
Bank to the Company shall be conclusive and binding for all purposes,
absent manifest error. In the event that the Company fails to provide
the Bank with the required written notice, the Company shall be deemed
to have given a written notice that such LIBOR Rate Loan shall be
converted to a Federal Funds Rate Loan on the last day of the
applicable Interest Period. In no event shall the Company be permitted
to select a LIBOR Rate Loan having an Interest Period ending after the
Final Maturity Date;
(B) Each Loan that is made as or converted into a Federal Funds Loan shall
be made or converted on such Business Day and in such amount (equal to
$10,000.00 or any integral multiple thereof) as the Company shall
request by written notice given to the Bank no later than 11:00 a.m.
(Denver, Colorado time) on the date of disbursement of or conversion
into the requested Federal Funds Loan;
(C) Each LIBOR Rate Loan that is a Term Loan shall have an Interest Period
of three (3) months.
SECTION 2.2 LOAN EVIDENCED BY PROMISSORY NOTE. All Loans shall be
evidenced by the Note, dated the date hereof. The Note shall be a master note,
and the principal amount of all Loans outstanding shall be evidenced by the Note
or any ledger or other record of the Bank, which shall be presumptive evidence
of the principal owing and unpaid on the Note.
SECTION 2.3 INTEREST RATES. The Company shall pay interest on the unpaid
principal amount of each Credit Loan and Term Loan made by the Bank from the
date of such Credit Loan or Term Loan, as the case may be, until such principal
amount shall be paid in full as follows:
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(a) (i) During such periods as any LIBOR Rate Loan comprising a Credit Loan or
Term Loan is outstanding, at a rate per annum equal to the sum of the
LIBOR Rate and the LIBOR Rate Margin (as described in subpart (b)
below) in effect from time to time from and after each Margin
Adjustment Date occurring, on or prior to the date of the making, the
conversion or the continuation of such Loan, as the case may be, in
accordance with this Agreement.
(ii) During such periods as any Federal Funds Rate Loan comprising a
Credit Loan or Term Loan is outstanding, at a rate per annum equal at all
times to the sum of the Federal Funds Rate plus two hundred (200) basis
points.
(b) (i) Except as otherwise provided herein, the LIBOR Rate Margin in
effect shall be adjusted as of the first day of each calendar quarter,
beginning with July 1, 1998 (each a "Margin Adjustment Date"), in
accordance with Section 2.3(b)(ii) below. The LIBOR Rate Margin in
effect shall be applicable to new advances for Credit or Term Loans as
of the date of such advances, and to a converted or continued Loan as
of the date of conversion or continuation, occurring within the
calendar quarter in which such LIBOR Rate Margin is in effect. With
respect to any LIBOR Rate Loan for which the last day of the Interest
Period is a date subsequent to the Margin Adjustment Date, such LIBOR
Rate Margin shall not be applicable until the continuation date of
such LIBOR Rate Loan, if applicable, subsequent to the Margin
Adjustment Date.
(ii) As of any Margin Adjustment Date, the LIBOR Rate Margin shall be
adjusted to be the percentage indicated in the following table
corresponding to the Company's Indebtedness to Tangible Net Worth Ratio,
which shall be calculated from the balance sheet provided by the Company
to the Bank under Section 8. l(a) of this Agreement immediately preceding
the Margin Adjustment Date.
INDEBTEDNESS TO TANGIBLE NET
WORTH RATIO LIBOR RATE MARGIN
>=2.00 to 1.00 150 Basis Points
<=1.99 to 1.00 but >1.00 to 1.00 125 Basis Points
< = 1.00 to 1.00 100 Basis Points
(iii) Any such adjustment to the LIBOR Rate Margin shall only remain
effective until the earlier of the next Margin Adjustment Date or the date
on which an Event of Default shall occur (excepting therefrom an Event of
Default created by the Company's Indebtedness to Tangible Net Worth
exceeding 1.99:1.00 as required under Section 8.18 of this Agreement in
which case the LIBOR Rate Margin shall be one hundred fifty (150) basis
points). The LIBOR Rate Margin to be effective from such earlier date and
from time to time thereafter shall be the LIBOR Rate Margin as adjusted
pursuant to this Agreement, PROVIDED, HOWEVER, that: (i) if the Company
shall not deliver the financial statements in accordance with Section 8.1
of this Agreement, the LIBOR Rate Margin shall be two hundred (200) basis
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points per annum and (ii) if an Event of Default (excepting therefrom an
Event of Default created by the Company's Indebtedness to Tangible Net
Worth exceeding 1.99:1.00 as required under Section 8.18 of this Agreement)
shall occur which has not been waived in writing by the Bank, the interest
rate shall be the interest rate applicable pursuant to subsection (c)
below.
(c) Upon the occurrence of any Event of Default and so long as such Event of
Default is continuing (excepting therefrom an Event of Default created by
the Company's Indebtedness to Tangible Net Worth exceeding 1.99:1.00 as
required under Section 8.18 of this Agreement, or an Event of Default
created by the Company's failure to deliver the financial statements in
accordance with Section 8.1 of this Agreement), the unpaid principal amount
of the Loan, and accrued interest thereon, or any fees or any and other sum
payable hereunder, shall thereafter until paid in full bear interest at a
rate per annum equal to six hundred (600) basis points in excess of the
Federal Funds Rate in effect from time to time.
SECTION 2.4 INTEREST PAYMENTS. The Company shall pay to the Bank interest
on the unpaid principal balance of each Federal Funds Rate Loan on either (i)
the date such Loan is converted to a LIBOR Rate Loan, or (ii) the last date of
each March, June, September and December. The Company shall pay to the Bank
interest on the unpaid principal balance of each LIBOR Rate Loan on (i) the date
such Loan is converted to a Federal Funds Rate Loan, or (ii) the last day of the
applicable Interest Period of such Loan, whichever is earlier.
SECTION 2.5 PREPAYMENT. The Company may prepay any Federal Funds Rate Loan
in whole, or in part, at any time or times. The Company may prepay any LIBOR
Rate Loan, in whole or in part, only on the last day of the Interest Period
applicable to such LIBOR Rate Loan upon not less than three (3) Business Days'
prior written notice given to the Bank. Each prepayment of a Term Loan shall be
applied to the principal installments in the inverse order of their respective
maturities.
SECTION 2.6 FEES. The Company shall pay to the Bank:
(a) A commitment fee of $25,000.00 payable upon the execution of this
Agreement;
(b) An annual administrative fee of $5,000.00, payable on the first
anniversary of this Agreement and on each anniversary thereafter through
the Final Maturity Date; and
(c) Prior to maturity (whether by acceleration or otherwise), for each payment
of principal or interest not paid when due, a late fee equal to five
percent (5.00%) of such payment, not to exceed $100.00.
SECTION 2.7 COMPUTATION OF INTEREST AND FEES. Interest on Loans and unpaid
fees, if any, shall be computed on the basis of a year of 360 days and paid for
the actual number of days elapsed.
SECTION 2.8 ADDITIONAL COSTS.
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(a) If, due to either (i) the introduction of, or any change in, or in the
interpretation of, any law or regulation, or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in
the cost to the Bank of making, funding or maintaining LIBOR Rate Loans,
then the Company shall from time to time, upon demand by the Bank pay to
the Bank additional amounts sufficient to reimburse the Bank for any such
additional costs. A certificate of the Bank submitted to the Company as to
the amount of such additional costs, shall be conclusive and binding for
all purposes, absent manifest error. Notwithstanding anything to the
contrary contained in this Section 2.8(a), the Company shall not be
obligated to indemnify or reimburse the Bank for any additional costs which
arose or were incurred during, or is otherwise attributable to, any period
of time more than 180 days prior to the date on which the Bank delivered
its written certificate for indemnification or reimbursement for such
additional costs and such costs shall be nondiscriminatory in nature and
will apply without exception to all Bank clients of equal standing. Upon
notice from the Company to the Bank within five (5) Business Days after the
Bank notifies the Company of any such additional costs pursuant to this
Section 2.8(a), the Company may either prepay in full all LIBOR Rate Loans
so affected then outstanding, together with interest accrued thereon to the
date of such prepayment, or (ii) convert such LIBOR Rate Loans so affected
then outstanding into Federal Funds Rate Loans upon not less than four (4)
Business Days' notice to the Bank. If any such prepayment or conversion of
any LIBOR Rate Loan occurs on any day other than the last day of the
applicable Interest Period for such Loan, the Company also shall pay to the
Bank such additional amounts sufficient to indemnify the Bank against any
loss, cost, or expense incurred by the Bank as a result of such prepayment
or conversion, including, without limitation, any loss (including loss of
anticipated profits), cost, or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Bank
to fund any such Loan, and a certificate as to the amount of any such loss,
cost, or expense submitted by the Bank to the Company shall be conclusive
and binding for all purposes, absent manifest error.
(b) If either (i) the introduction of, or any change in, or in the
interpretation of, any law or regulation, or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and the Bank determines that the amount of
such capital is increased by or based upon the existence of the Loan (or
commitment to make the Loan) and other extensions of credit (or commitments
to extend credit) of similar type, then, upon demand by the Bank, the
Company shall pay to the Bank from time to time as specified by the Bank
additional amounts sufficient to compensate the Bank in the light of such
circumstances, to the extent that the Bank reasonably determines such
increase in capital to be allocable to the existence of the Bank's Loan (or
commitment to make the Loan). A certificate of the Bank submitted to the
Company as to such amounts shall be conclusive and binding for all
purposes, absent manifest error. Notwithstanding anything to the contrary
contained in this Section 2.8(b), the Company shall not be obligated to
indemnify or reimburse the Bank for any such additional amounts which arose
or were incurred during, or is otherwise attributable
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<PAGE>
to, any period of time more than 180 days prior to the date on which the
Bank delivered its written certificate for indemnification or reimbursement
for such additional amounts and such amounts shall be nondiscriminatory in
nature and will apply without exception to all Bank clients of equal
standing. Upon notice from the Company to the Bank within five (5) Business
Days after the Bank notifies the Company of any such additional costs
pursuant to this Section 2.8(b), the Company may either (A) prepay in full
the Loan if so affected, together with interest accrued thereon to the date
of such prepayment, or (B) convert the Loan if so affected into a Loan of
any other type not so affected upon not less than four (4) Business Days'
notice to the Bank. If any such prepayment or conversion of any LIBOR Rate
Loan occurs on any day other than the last day of the applicable Interest
Period for such Loan, the Company also shall pay to the Bank such
additional amounts sufficient to indemnify the Bank against any loss, cost,
or expense incurred by the Bank as a result of such prepayment or
conversion, including, without limitation, any loss (including loss of
anticipated profits), cost, or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Bank
to fund any such Loan, and a certificate as to the amount of any such loss,
cost, or expense submitted by the Bank to the Company shall be conclusive
and binding for all purposes, absent manifest error.
SECTION 2.9 ILLEGALITY. Notwithstanding any other provision of this
Agreement, if the introduction of or any change in or in the interpretation of
any law or regulation shall make it unlawful, or any central bank or other
governmental authority shall assert that it is unlawful, for the Bank to perform
its obligations hereunder to make, continue, or convert LIBOR Rate Loans
hereunder, then, (a) on notice thereof by the Bank to the Company, the
obligation of the Bank to make or continue a LIBOR Rate Loan or to convert any
Federal Funds Rate Loan into a LIBOR Rate Loan shall terminate and the Bank
shall thereafter be obligated to make only Federal Funds Rate Loans whenever any
written notice requests for any type LIBOR Rate Loan is received, and (b) upon
demand therefor by the Bank to the Company, the Company shall either (i)
forthwith prepay in full any LIBOR Rate Loan then outstanding, together with
interest accrued thereon, or request that the Bank, upon four (4) Business Days'
notice, convert any LIBOR Rate Loan then outstanding into a Federal Funds Rate
Loan. If any such prepayment or conversion of any LIBOR Rate Loan occurs on any
day other than the last day of the applicable Interest Period for such Loan, the
Company also shall pay to the Bank such additional amounts sufficient to
indemnify the Bank against any loss, cost, or expense incurred by the Bank as a
result of such prepayment or conversion, including, without limitation, any loss
(including loss of anticipated profits), cost, or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by the Bank
to fund any such Loan, and a certificate as to the amount of any such loss,
cost, or expense submitted by the Bank to the Company shall be conclusive and
binding, for all purposes, absent manifest error.
SECTION 2.10 INTEREST RATE SWAP CONTRACTS. The Company shall have the
option at any time and from time to time to enter into one or more interest rate
swap contracts with Key Capital Markets, Inc. on any portion of the Loans
outstanding, on terms and conditions mutually agreeable to the Company and Key
Capital Markets, Inc. Such interest rate swaps may be entered into for periods
up to, but not extending beyond the Final Maturity Date.
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ARTICLE III. SECURITY AGREEMENT
SECTION 3.1 GRANT OF SECURITY INTEREST. To secure the prompt payment and
performance of the Obligations, and in addition to any other collateral or Lien
securing the Obligations, the Company hereby grants to the Bank a continuing
security interest in and to and a pledge of all of the tangible and intangible
personal property and assets of the Company, together with any other collateral
securing the obligations of Company under the Prior Agreement and/or under the
Letter of Credit Loan and in and to the Spin Forge Assets (the "Collateral"),
whether now owned or existing or hereafter acquired or arising and wheresoever
located including, without limitations (a) all Accounts Receivable, (b) all
Inventory, (c) all Equipment, (d) all General Intangibles (excluding patents),
(e) any and all deposits or other sums at any time credited by or due from the
Bank to the Company, whether in the Cash Collateral Account, another Depository
Account, or other account, (f) all Cash Security, (g) all Instruments,
Documents, documents of title, policies and certificates of insurance,
securities, Goods, choses in action, Chattel Paper, cash or other property, to
the extent owned by the Company or in which the Company has an interest, (h) all
Collateral which now or hereafter is at any time in the possession or control of
the Bank or in transit by mail or carrier to or from the Bank or in the
possession of any Person acting in the Bank's behalf, without regard to whether
the Bank received the same in pledge, for safekeeping, as agent for collection
or transmission or otherwise or whether the Bank had conditionally released the
same, and any and all balances, sums, proceeds and credits of the Company with,
and any claims of the Company against, the Bank, (i) all accessions to,
substitutions for, and all replacements, products and Proceeds, profits and
rents of the herein above-referenced property of the Company described in this
Section including, but not limited to, proceeds of insurance policies insuring
such property, (j) all books, records, and other property including, but not
limited to, credit files, programs, printouts, computer software (to the extent
not disallowed by any agreement between the Company and third parties),
programs, and disks, magnetic tape and other magnetic media, and other materials
and records) of the Company pertaining to any such above-referenced property of
the Company, (k) all real property, improvements, fixtures, appurtenances,
leasehold interests and any other property of similar kind or character, and (l)
all "investment property" (as defined in the UCC). Notwithstanding the
foregoing, the Collateral shall not include that certain sublease (the
"Sublease") dated July 22, 1996 between the Company and E.I. duPont de Nemours
and Company ("DuPont") and those assets located on the property covered by the
Sublease or those assets used directly or indirectly in connection with the
services provided by the Company to DuPont under that certain Tolling/Services
Agreement for Industrial Diamonds dated July 22, 1996, all of which assets are
located at the Company's facility in Dunbar, Pennsylvania.
SECTION 3.2 GRANT OF LICENSE. The Company hereby grants to the Bank a
fully-paid, royalty-free, worldwide right and license to, upon the occurrence of
an Event of Default, (a) use, or sell or otherwise transfer, any and all of the
Company's Inventory; (b) use or sell any such work-in-process, raw materials or
completed or finished products, and (c) accept any and all orders or shipments
of products ordered by the Company from manufacturers and use or sell any such
products.
SECTION 3.3 PERFECTION. The Company shall execute such financing
statements provided for by applicable law, and otherwise take such other action
and execute such assignments or other instruments or documents, in each case as
the Bank may reasonably request, to evidence, perfect, or
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record the Bank's security interest in the Collateral or to enable the Bank to
exercise and enforce its rights and remedies under this Agreement with respect
to any Collateral. The Company hereby authorizes the Bank to execute and file
any such financing statement or continuation statement on the Company's behalf.
The parties acknowledge that a carbon, photographic, or other reproduction of
this Agreement shall be sufficient as a financing statement to the extent
permitted by law.
SECTION 3.4 GENERAL REPRESENTATIONS AS TO COLLATERAL. The Company
represents that the Schedule attached as Exhibit C hereto sets forth: (a) the
principal place of business of the Company and the office where its chief
executive offices and accounting offices are located, (b) the office where
Company keeps its records concerning the Accounts Receivable and General
Intangibles, (c) the location of the Company's registered office, (d) each
location at which is located any Inventory, Equipment or other tangible
Collateral of the Company, including, without limitation, the location of any
warehouse, bailee or consignee at which Collateral is located, and (e) all trade
names, assumed names, fictitious names and other names used by the Company
during the five (5) years prior to the date hereof.
SECTION 3.5 TITLE TO COLLATERAL; LIENS; TRANSFERS. The Company has good,
clear and merchantable title to and ownership of the Collateral, free and clear
of all Liens, except for Permitted Liens. Except as otherwise provided herein or
in any other Loan Document, and except as to Permitted Liens and sale of
Inventory in the ordinary course of business, the Company shall not encumber,
pledge, mortgage, grant a security interest in, assign, sell, lease or otherwise
dispose of or transfer, whether by sale, merger, consolidation, liquidation,
dissolution or otherwise, any of the Collateral.
SECTION 3.6 CHANGES AFFECTING PERFECTION. The Company shall not, without
giving the Bank thirty (30) days prior notice thereof: (a) make any change in
any location where Company's Equipment or material amounts of Company's
Inventory is maintained or locate any of the Company's Equipment or material
amounts of the Company's Inventory at any new locations, (b) make any change in
the location of its chief executive office, principal place of business or the
office where Company's records pertaining to its Accounts and General
Intangibles are kept, (c) add any new places of business or close any of its
existing places of business, (d) make any change in Company's name or adopt any
trade names, assumed names or fictitious names or otherwise add any name under
which the Company does business, or (e) make any other change (other than sales
of Inventory in the ordinary course of business) which might affect the
perfection or priority of the Bank's Lien in the Collateral.
SECTION 3.7 POWER OF ATTORNEY FOR INSURANCE. Upon request of the Bank, the
Company shall promptly deliver to the Bank true copies of all reports made to
insurance companies. The Company hereby irrevocably makes, constitutes, and
appoints the Bank (and all officers, employees, or agents designated by the
Bank) as its true and lawful attorney-in-fact and agent, with full power of
substitution, such that the Bank shall have the right and authority, upon the
occurrence and during the continuance of an Event of Default which has not been
waived in writing by the Bank as required by this Agreement, to make and adjust
claims under such policies of insurance, receive and endorse the name of the
Company on, any check, draft, instrument or other item of payment for the
proceeds
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of such policies of insurance and make all determinations and decisions with
respect to such policies of insurance. The Company hereby ratifies all that said
attorneys shall lawfully do or cause to be done by virtue hereof. This power of
attorney is a power coupled with an interest and shall be irrevocable. Without
waiving or releasing any obligation, Potential Default or Event of Default by
the Company under this Agreement, the Bank may (but shall not be required to) at
any time or times thereafter maintain such action with respect thereto as the
Bank deems advisable. All sums disbursed by the Bank in connection therewith
(including, but not limited to, reasonable attorneys' and paralegals' fees and
disbursements, court costs, expenses and other charges relating thereto) shall
be payable on demand, and until paid by the Company to the Bank, with interest
thereon at the then applicable Federal Funds Rate plus four hundred basis
points, and shall be additional Obligations under this Agreement secured by the
Collateral.
SECTION 3.8 PROTECTION OF COLLATERAL; REIMBURSEMENT. All insurance
expenses and all expenses of protecting, storing, warehousing, insuring,
handling, maintaining, and shipping any Collateral, any and all excise,
property, sales, use, or other taxes imposed by any state, Federal, or local
authority on any of the Collateral, or in respect of the sale thereof, or
otherwise in respect of the Company's business operations which, if unpaid,
could result in the imposition of any Lien upon the Collateral, shall be borne
and paid by the Company. If the Company fails to promptly pay any portion
thereof when due, except as may otherwise be permitted under this Agreement or
under any of the other Loan Documents, the Bank, at its option, may, but shall
not be required to, pay the same. All sums so paid or incurred by the Bank for
any of the foregoing and any and all other sums for which the Company may become
liable under this Agreement and all reasonable costs and expenses (including
reasonable attorneys' fees and paralegals' fees, legal expenses, and court
costs, expenses and other charges related thereto) which the Bank may incur in
enforcing or protecting its Liens on or rights and interests in the Collateral
or any of its rights or remedies under this Agreement or any other agreement
between the parties to this Agreement or in respect of any of the transactions
to be had under this Agreement shall be repayable within five (5) Business Days
of demand and if not paid within said five (5) Business Day period, which amount
shall also accrue interest, until paid by the Company to the Bank with interest
thereon at a rate per annum equal to the Federal Funds Rate plus four hundred
basis points, shall be additional Obligations under this Agreement secured by
the Collateral. Unless otherwise provided by law, neither the Bank nor any
Affiliate Bank shall be liable or responsible in any way for the safekeeping of
any of the Collateral or for any loss or damage thereto or for any diminution in
the value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other Person whomsoever.
SECTION 3.9 INSPECTION; VERIFICATION. During regular business hours and
with prior notice and after reasonable notice, to the Company, the Bank (by any
of its officers, employees, agents, representatives, or designees) shall have
the right to inspect the Company's Collateral and to inspect and audit, all
books, records, journals, orders, receipts, or other correspondence related
thereto (and to make extracts or copies thereof as the Bank may desire) and to
inspect the premises upon which any of the Collateral is located for the purpose
of verifying the amount, quality, quantity, value, and condition of, or any
other matter relating to, the Collateral, provided, however, that upon the
occurrence and during the continuance of an Event of Default, the Bank may
exercise such access and other rights at any time the Bank deems such action
necessary or desirable. In addition to inspections
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as outlined above, the Bank or its designee shall have the right to make test
verifications of the Accounts Receivable and other Collateral and physical
verifications of the Inventory and other tangible items of the Collateral in any
manner and through any commercially reasonable medium that the Bank considers
advisable, and the Company agrees to furnish all such assistance and information
as the Bank may require in connection therewith. The Company shall pay the costs
for each of one such inspection and one such verification in each 12-month
period; provided that if an Event of Default has occurred and is continuing, the
Company shall pay the costs of all such inspections and verifications.
SECTION 3.10 ASSIGNMENTS, RECORDS AND SCHEDULES OF ACCOUNTS. On or before
the fifteenth (15th) calendar day of each month from and after the date of this
Agreement, the Company shall deliver to the Bank, in form and substance
acceptable to the Bank, a summary aged trial balance of the Company's Accounts
Receivable dated as of the last day of the preceding month (and upon the Bank's
request, a detailed aged trial balance, of all then existing Accounts Receivable
specifying the names, face value and dates of invoices for each Account Debtor
obligated on an Account Receivable so listed). In addition, upon the Bank's
request, the Company shall furnish the Bank with copies of proof of delivery and
the original copy, if available, of all documents relating to the Accounts
Receivable including, but not limited to, repayment histories and present status
reports, and such other matters and information relating to the status of then
existing Accounts Receivable as the Bank shall reasonably request. If, upon the
occurrence of an Event of Default, the Bank so requests, the Company shall
execute and deliver to the Bank, on forms supplied by the Bank and at such
intervals as the Bank may from time to time require, written assignments of all
of its Accounts after shipment of the subject goods, together with copies of
invoices and/or invoice registers related thereto.
SECTION 3.11 REPORTING REGARDING INVENTORY. The Company shall report
inventory figures no later than fifteen (15) days after the end of each month
based upon month-end balances reconciled to the period end balance sheet. The
Company's Inventory shall be reported based upon reconciliation of the financial
statements to the perpetual inventory system or a regular physical count as the
case may be, and: (a) the values shown on reports of Inventory shall be at the
lower of cost or market value determined in accordance with the Company's usual
cost accounting system, consistently applied, and (b) no later than fifteen (15)
days after the end of each month, or more frequently, if the Bank shall so
request, the Company shall submit to the Bank an inventory report, the Company's
perpetual inventory records and its general ledger, broken down into such detail
and with such categories as the Bank shall require.
SECTION 3.12 OTHER COLLATERAL REPORTS. The Company shall furnish the Bank
with, on or before the fifteenth (15th) day of each month from and after the
date of this Agreement, a report listing the schedule of backlog of orders being
processed by the Company, and such other reports regarding other Collateral as
the Bank from time to time reasonably may request.
ARTICLE IV. COLLECTION OF ACCOUNTS
SECTION 4.1 CASH COLLATERAL ACCOUNT:
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(a) All collections from Account Debtors ("Collections") shall be deposited
into the Cash Collateral Account established pursuant to Section 4.2 below.
The Company will promptly deposit all remittances from Account Debtors
submitted to the Company ("Remittances"), in the identical form in which
such Remittances were made (except for any necessary endorsements), whether
by cash or check, into the Cash Collateral Account. All funds in the Cash
Collateral Account shall be deemed to be the property of the Bank and shall
be subject only to the signing authority designated from time to time by
the Bank. The Company shall have no control over such funds. The Bank shall
have sole access to the Cash Collateral Account, and the Company shall have
no access thereto. The Company hereby grants to the Bank a security
interest in all funds held in the Cash Collateral Account as security for
the Obligations. The Cash Collateral Account shall not be subject to any
deduction, set-off, banker's lien or any other right in favor of any person
or entity other than the Bank. Prior to the occurrence of an Event of
Default which is continuing, deposits to the Cash Collateral Account shall
be: (1) applied immediately against the principal and/or interest of the
Loans and/or other Obligations of the Company to the Bank under this
Agreement all in such order and method of application as may be elected by
the Bank in its sole discretion; provided, however, the Bank will use
reasonable efforts to avoid applications that would cause early prepayment
of a LIBOR Rate Loan prior to the expiration of its applicable Interest
Period, or (ii) to the extent not so applied by the Bank, released to the
Company for use in the Company's business.
SECTION 4.2 CREDITING OF COLLECTIONS AND REMITTANCES. For the purpose of
calculating interest and determining the aggregate Loans outstanding and
resulting loan availability hereunder, all Collections and Remittances shall be
credited to the Company on the Business Day or on the next Business Day after
which the Bank receives notice of the deposit of the proceeds of such
Collections and Remittances into the Cash Collateral Account, and is in good
funds with respect thereto, prior to 2:00 p.m. (Denver, Colorado time). From
time to time, upon advance written notice to the Company, the Bank may adopt
such additional or modified regulations and procedures as it may deem reasonable
and appropriate with respect to the operation of the Cash Collateral Account and
the services to be provided by the Bank under this Agreement.
SECTION 4.3 COST OF COLLECTION. All reasonable costs of collection of the
Company's Accounts Receivable, including out-of-pocket expenses, administrative
and record-keeping costs, reasonable attorney's fees, and all service charges
and costs related to the establishment and maintenance of the Cash Collateral
Account, shall be the sole responsibility of the Company, whether the same are
incurred by the Bank or the Company, and the Bank, in its sole discretion, may
charge the same against the Company and/or any account maintained by the Company
with the Bank and the same shall be deemed part of the Obligations hereunder.
The Company hereby indemnifies and holds the Bank harmless from and against any
loss or damage with respect to any Collection or Remittance deposited in the
Cash Collateral Account which is dishonored or returned for any reason. If any
Collection or Remittance deposited in the Cash Collateral Account is dishonored
or returned unpaid for any reason, the Bank, in its sole discretion, may charge
the amount of such dishonored or returned Collection or Remittance directly
against the Company and/or any account maintained by the Company with the Bank
and such amount shall be deemed part of the Obligations hereunder. The
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Bank shall not be liable for any loss or damage resulting from any error,
omission, failure or negligence on the part of the Bank under this Agreement,
except losses or damages resulting from the Bank's gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction.
SECTION 4.4 RETURN OF FUNDS. Upon the payment in full of all Obligations:
(a) the Bank's security interests and other rights in funds in the Cash
Collateral Account under Section 4.1 of this Agreement shall terminate, (b) all
rights to such funds shall revert to the Company, and (c) the Bank will, at the
Company's expense, take such steps as the Company may reasonably request to
evidence the termination of such security interests and to effect the return to
the Company of such funds.
SECTION 4.5 NOTICE TO ACCOUNT DEBTORS. The Company hereby authorizes the
Bank, upon the occurrence and during the continuance of an Event of Default, in
accordance with the powers conferred upon the Bank pursuant to any applicable
provision of this Agreement, to: (a) notify any or all Account Debtors that the
Accounts Receivable have been assigned to the Bank, for the benefit of the Bank,
and that the Bank has a security interest therein, and (b) direct such Account
Debtors to make all payments due from them to the Company upon the Accounts
Receivable directly to the Bank or to a lock box designed by the Bank; provided,
however, that the Bank shall not exercise any of its rights under this sentence
unless: (i) the Company has failed to so notify or direct any such Account
Debtor following a request from the Bank to the Company for such notification or
direction, or (ii) the Bank reasonably believes that the Company has failed to
so notify or direct any such Account Debtor. The Bank shall promptly furnish the
Company with a copy of any such notice sent. Any such notice, in the Bank's sole
discretion, may be sent on the Company's stationery, in which event the Company
shall co-sign such notice with the Bank.
SECTION 4.6 APPOINTMENT OF ATTORNEY-IN-FACT. The Company hereby
irrevocably appoints the Bank (and all persons designated by the Bank) as the
Company's true and lawful attorney (and agent-in-fact) to: upon the occurrence
and during the continuance of an Event of Default in the Company's or Bank's
name: (i) demand payment of the Accounts Receivable, (ii) enforce payment of the
Accounts Receivable, by legal proceedings or otherwise, (iii) exercise all of
the Company's rights and remedies with respect to the collection of the Accounts
and any other Collateral, (iv) settle, adjust, compromise, extend, or renew the
Accounts Receivable, (v) settle, adjust, or compromise any legal proceedings
brought to collect the Accounts Receivable, (vi) if permitted by applicable law,
sell or assign the Accounts Receivable and other Collateral upon such terms, for
such amounts, and at such time or times as the Bank deems advisable, (vii)
discharge and release the Accounts Receivable and any other Collateral, (viii)
take control, in any manner, of any item of payment or proceeds relating to any
Collateral, (ix) prepare, file, and sign the Company's name on a proof of claim
in bankruptcy or similar document against any Account Debtor, (x) prepare, file,
and sign the Company's name on any notice of Lien, assignment, or satisfaction
of Lien or similar document in connection with the Accounts Receivable, (xi) do
all acts and things necessary, in the Bank's discretion, to fulfill the
Company's obligations under this Agreement, (xii) endorse the name of the
Company upon any of the items of payment or proceeds relating to any Collateral
and deposit the same to the account of the Bank on account of the Obligations,
(xiii) endorse the name of the Company upon any Chattel Paper, document,
Instrument, invoice, freight bill, bill of lading,
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or similar document or agreement relating to the Accounts Receivable, Inventory
and any other Collateral, (xiv) use the Company's stationery and sign the name
of the Company to verifications of the Accounts Receivable and notices thereof
to Account Debtors, (xv) use the information recorded on or contained in any
data processing equipment and computer hardware and software relating to the
Accounts Receivable, Inventory, and any other Collateral to which the Company
has access, and (xvi) notify post office authorities to change the address for
delivery of the Company's mail to an address designated by the Bank, receive and
open all mail addressed to the Company, and, after removing all Collections and
Remittances and other Proceeds of Collateral, forward the mail to the Company.
The Company hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
ARTICLE V. SPECIFIC REPRESENTATIONS, WARRANTIES
AND COVENANTS RELATING TO COLLATERAL.
SECTION 5.1 DISPUTES AND CLAIMS REGARDING ACCOUNTS. The Company shall
notify the Bank promptly of all material disputes and claims and settle or
adjust them at no expense to the Bank, but no material discount, credit or
allowance outside the ordinary course of business or material adverse extension,
compromise or settlement shall be granted to any customer or Account Debtor in
respect of an Account Receivable and no returns of merchandise outside the
ordinary course of business shall be accepted by the Company in settlement or
satisfaction of an Account Receivable which settlement or satisfaction would
have a Material Adverse Effect, without the Bank's consent which consent shall
not be unreasonably withheld.
SECTION 5.2 DEPOSIT ACCOUNTS. Other than: (a) the Cash Collateral Account,
and (b) those other Deposit Accounts disclosed on the Schedule on Exhibit C
hereto and consented to by the Bank (such disclosed Deposit Accounts being, the
"Permitted Accounts"), neither the Company nor any of its Subsidiaries maintains
a Deposit Account or trust account for the purpose of collecting and depositing
Collections and\or Remittances or otherwise holding monies of the Company.
SECTION 5.3 COMPLIANCE WITH TERMS OF ACCOUNTS; GENERAL INTANGIBLES. The
Company will perform and comply in all material respects with all obligations in
respect of Accounts Receivable, Chattel Paper, General Intangibles and under all
other contracts and agreements to which it is a party or by which it is bound
relating to the Collateral where failure to so comply would result in any
material impairment in the value of the Collateral, unless the validity thereof
is being contested in good faith by appropriate proceedings and such proceedings
do not involve the material danger of the sale, forfeiture or loss of the
Collateral which is the subject of such proceedings or the priority of the lien
in favor of the Bank thereon.
SECTION 5.4 NO WAIVERS, EXTENSIONS, AMENDMENTS. The Company will not,
without the Bank's prior written consent, which consent shall not be
unreasonably withheld or delayed, grant any extension of the time of payment of
any of the Accounts, Chattel Paper or Instruments, compromise, compound or
settle the same for less than the full amount thereof, release, wholly or
partly, any person liable for the payment thereof, or allow any credit or
discount whatsoever thereon, other than in the ordinary course of business.
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SECTION 5.5 LOCATION OF COLLATERAL. All of the locations of the Company
and its Subsidiaries and all locations of the Collateral are set forth in the
Schedule attached hereto as Exhibit C. Other than as otherwise set forth in the
Schedule on Exhibit C hereto, as amended or supplemented by written notice to
the Bank: (a) the Company does not keep, and shall not keep, any Collateral
owned by it on any property not owned in fee simple by the Company, and (b) each
of the Subsidiaries of the Company does not keep, and shall not keep, any
Collateral owned by it on any property not owned in fee simple by the Company
except to the extent permitted by this Agreement.
SECTION 5.6 LIEN PRIORITY. From and after the date of this Agreement, by
reason of the filing of financing statements and termination statements in all
requisite government offices, this Agreement and the Loan Documents will create
and constitute a valid and perfected first priority security interest (except as
permitted by this Agreement and subject to Permitted Liens) in and Lien on that
portion of the Collateral which can be perfected by such filing or delivery,
which security interest will be enforceable against the Company and all third
parties as security for payment of all Obligations.
SECTION 5.7 LIEN WAIVERS; LANDLORD, BAILEE AND CONSIGNEE WAIVERS,
WAREHOUSE RECEIPTS. The Company will not create, permit or suffer to exist and
will defend the Collateral against and take such other action as is necessary to
remove, any Lien, claim or right, in or to the Collateral, other than the
Permitted Liens. The Company shall defend the right, title and interest of the
Bank in and to any of the Company's rights to the Collateral and in and to the
Proceeds and products thereof against the claims and demands of all Persons. In
the event any Collateral of the Company comprising personal property subject to
the security interest or Lien in favor of the Bank is at any time located on any
real property not owned by the Company, the Company will obtain and maintain in
effect at all times while any such Collateral is so located valid and effective
lien waivers, in form and substance reasonably satisfactory to the Bank whereby
each owner, landlord, consignee, bailee and mortgagee having an interest in such
real property shall disclaim any interest in such Collateral, as the case may
be, and shall agree to allow the Bank reasonable access to such real property in
connection with any enforcement of the security interest granted hereunder.
SECTION 5.8 MAINTENANCE OF INSURANCE. The Company will maintain with
financially sound and reputable companies, insurance policies: (a) insuring the
real property portion of the Collateral, the Equipment, the Inventory, and all
equipment subject to any lease, against loss by fire, explosion, theft, flood
(if any such properties are located in a federally designated flood hazard area)
and such other casualties as are usually insured against by companies engaged in
the same or similar businesses, and (b) insuring the Company and the Bank
against liability for personal injury and property damage relating to such real
property, Equipment, Inventory and equipment covered by any equipment lease,
such policies to be in such form and in such amounts and coverage as may be
reasonably satisfactory to the Bank, with losses payable to the Company and the
Bank as their respective interests may appear. All insurance with respect to the
real property, Equipment and Inventory shall: (i) provide that no cancellation,
reduction in amount, change in coverage or expiration thereof, shall be
effective until at least thirty (30) days after written notice to the Bank
thereof. and (ii) be satisfactory in all respects to the Bank.
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SECTION 5.9 MAINTENANCE OF EQUIPMENT. The Company will keep and maintain
each item of Equipment necessary for the operation of the Company's business in
good operating condition, ordinary wear and tear excepted, and the Company will
provide all maintenance and service, and all repairs necessary for such purpose.
SECTION 5.10 LIMITATIONS ON DISPOSITIONS OF INVENTORY AND EQUIPMENT. The
Company will not sell, transfer, lease or otherwise dispose of any of the
Inventory or Equipment, or attempt, offer or contract to do so, except for (a)
dispositions of Inventory in the ordinary course of business, and (b) so long as
no Event of Default has occurred, the disposition of obsolete or worn out
Equipment in the ordinary course of business and other dispositions of Equipment
permitted by this Agreement.
SECTION 5.11 GENERAL APPOINTMENT AS ATTORNEY-IN-FACT. The Company hereby
irrevocably constitutes and appoints the Bank and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of the Company and
in the name of the Company or in its own name, from time to time following the
occurrence of an Event of Default and for such time as such Event of Default is
continuing, in the Bank's reasonable discretion, for the purpose of carrying out
the terms of this Agreement, without notice (except as specifically provided
herein) to or assent by the Company, to take any and all appropriate action and
to execute any and all documents and instruments which may be necessary or
desirable to effect the terms of this Agreement, including, without limiting the
generality of the foregoing, the power and right, on behalf of the Company, to
do the following, upon notice to the Company: (a) to pay or discharge taxes,
liens, security interests or other encumbrances levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance,
called for by the terms of this Agreement and to pay all or any part of the
premiums therefor and the costs thereof, and otherwise to itself perform or
comply with, or otherwise cause performance or compliance with, any of the
covenants or other agreements of the Company contained in this Agreement which
the Company has failed to perform or with which the Company has not complied,
(b) to commence and prosecute any suits, actions or proceedings at law or in
equity in any court of component jurisdiction to collect the Collateral or any
thereof and to enforce any other right in respect of any Collateral; (c) to
defend any suit, action or proceeding brought against the Company with respect
to any Collateral; (d) to settle, compromise or adjust any suit, action or
proceeding described above and, in connection therewith, to give such discharges
or releases as the Bank may deem appropriate; (e) to sell, transfer, pledge,
make any agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though the Bank were the absolute owner thereof for
all purposes; and (f) to do, at the Bank's option and the Company's expense, at
any time, or from time to time, all acts and things which the Bank deems
necessary, to protect, preserve or realize upon the Collateral and the Bank's
security interest therein, in order to effect the intent of this Agreement, all
as fully and effectively as the Company might do. This power of attorney is a
power coupled with an interest and shall be irrevocable.
SECTION 5.12 BANK NOT LIABLE. The powers conferred on the Bank hereunder
are solely to protect its interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Bank shall be accountable only for
amounts that it actually receives as a result of the
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exercise of such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Company for any act or failure
to act, except for its own gross negligence or willful misconduct.
SECTION 5.13 AUTHORITY TO EXECUTE TRANSFERS. Without limitation of any
authorization granted to the Bank hereunder, the Company also hereby authorizes
the Bank, upon the occurrence of an Event of Default, to execute, in connection
with the exercise by the Bank of its remedies hereunder, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
SECTION 5.14 PERFORMANCE BY BANK OF THE COMPANY'S OBLIGATIONS. If the
Company fails to perform or comply with any of its agreements contained herein
and the Bank shall itself perform or comply, or otherwise cause performance or
compliance, with. such agreement, the expenses of the Bank incurred in
connection with such performance or compliance, together with interest thereon
at the interest rate provided for in Section 2.3(c) hereof in effect from time
to time, shall be payable by the Company to the Bank within five (5) Business
Days following demand. In consideration of and as security for any performance
by the Bank of any of Company's obligations or agreements hereunder, the Company
does hereby (a) grant to the Bank a security interest in the Collateral, and (b)
assign to the Bank all of its right, title, and interest (including, without
limitation, all rights to payment) arising under or with respect to all of
Company's Accounts Receivable, whether now owned or hereafter acquired or
received by Company, but not including any duty, obligation, or liability of
Company with respect thereto.
ARTICLE VI. GENERAL REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank (which representations and
warranties will survive the delivery of the Note and all extensions of credit
under this Agreement) that:
SECTION 6.1 ORGANIZATION; CORPORATE POWER.
(a) The Company is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which it is incorporated;
(b) The Company has the corporate power and authority to own its properties
and assets and to carry on its business as now being conducted,
(c) The Company, is qualified to do business in every jurisdiction in which
the ownership or leasing of its property or the doing of business requires
such qualification and the failure of such qualification would have a
Material Adverse Effect: and
(d) The Company has the corporate power to execute, deliver, and perform its
Loan Documents and to borrow hereunder.
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SECTION 6.2 AUTHORIZATION OF LOAN. The execution, delivery, and
performance of the Loan Documents and the Loans by Company have been duly
authorized by all requisite corporate action.
SECTION 6.3 NO CONFLICT. The execution, delivery, and performance of the
Loan Documents will not (a) violate any provision of any law, rule or
regulation, the Articles of Incorporation of Company, or By-Laws of Company, (b)
violate any order of any court or other agency of any federal or state
government or any provision of any material indenture, agreement, or other
instrument to which Company is a party or by which it or any of its properties
or assets are bound, (c) conflict with, result in a breach of, or constitute
(with passage of time or delivery of notice, or both), a default under any such
material indenture, agreement, or other instrument, or (d) result in the
creation or imposition of any Lien, other than a Permitted Lien, or other
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company except in favor of the Bank.
SECTION 6.4 EXECUTION OF LOAN DOCUMENTS. The Loan Documents have been duly
executed and are valid and binding obligations of Company fully enforceable in
accordance with their respective terms.
SECTION 6.5 FINANCIAL CONDITION. The following information with respect to
the Company has heretofore been furnished to the Bank:
(a) Audited annual financial statements of the Company for the periods
ended December 31, 1996 and December 31, 1997; and
(b) The pro forma financial statements of the Company as of December 31,
1997, which pro forma financial statements reflect the Company's
purchase of the Spin Forge Assets and the liabilities incurred by
the Company related to such purchase.
Each of the financial statements referred to above in this Section 6.5 was
prepared in accordance with GAAP (subject in the case of interim statements, to
the absence of footnotes and normal year-end adjustments) applied on a
consistent basis, except as stated therein. Each of the financial statements
referred to above in this Section 6.5 fairly presents the financial condition or
pro forma financial condition, as the case may be, of the Company and is
complete and correct in all material respects and no Material Adverse Effect has
occurred since the date thereof.
SECTION 6.6 LIABILITIES; LIENS. The Company has made no investment in,
advance to, or guarantee of, the obligations of any Person nor are the Company's
assets and properties subject to any claims. liabilities, Liens, or other
encumbrances, except as disclosed in the financial statements and related notes
thereto referred to in Section 6.5 hereof.
SECTION 6.7 LITIGATION. There is no action, suit, examination, review, or
proceeding by or before any governmental instrumentality or agency now pending
(including any claims alleging infringement of intellectual property rights of
others) or, to the knowledge of the Company, threatened against the Company or
against any property or rights of the Company, which, if adversely determined,
would materially impair the right of the Company to carry on business as now
being
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conducted; would materially adversely affect the financial condition of the
Company; or would draw into question the legal existence of the Company or the
validity authorization or enforceability of any of the Loan Documents, except
for the litigation, if any, described in the notes to the financial statements
referred to in Section 6.5 hereof.
SECTION 6.8 PAYMENT OF TAXES. The Company has accurately prepared and
timely filed, or caused to be filed, all Federal, state, local, and foreign tax
returns required to be filed, and has paid, or caused to be paid, all taxes as
are shown on such returns, or on any assessment received by the Company, to the
extent that such taxes become due, except as otherwise contested in good faith.
The Company has set aside proper amounts on its books, determined in accordance
with GAAP, for the payment of all taxes for the years that have not been audited
by the respective tax authorities or for taxes being contested by the Company.
SECTION 6.9 ABSENCE OF ADVERSE AGREEMENTS. The Company is not a party to
any indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any corporate or partnership restriction which would be
reasonably likely to have a Material Adverse Effect.
SECTION 6.10 REGULATORY STATUS. Neither the making nor the performance of
this Agreement, nor any extension of credit hereunder, requires the consent or
approval of any governmental instrumentality or political subdivision thereof,
any other regulatory or administrative agency, or any court of competent
jurisdiction.
SECTION 6.11 FEDERAL RESERVE REGULATIONS: USE OF LOAN PROCEEDS. The
Company is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
Margin Stock. No part of the proceeds of the Loans will be used, directly or
indirectly, for a purpose which violates any law, rule or regulation of any
governmental body, including without limitation the provisions of Regulations G,
U, or X of the Board of Governors of the Federal Reserve System, as amended. No
part of the proceeds of the Loans will be used, directly or indirectly, to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock.
SECTION 6.12 SUBSIDIARIES. The Company has no Subsidiaries.
SECTION 6.13 ERISA. The Company and any Commonly Controlled Entity do not
maintain or contribute to any Plan which is not in substantial compliance with
ERISA. Neither the Company nor any Commonly Controlled Entity maintains,
contributes to, or is required to make or accrue a contribution or has within
any of the six preceding years maintained, contributed to or been required to
make or accrue a contribution to any Plan subject to regulation under Title IV
of ERISA, any Plan that is subject to the minimum funding requirements of
Section 412 of the Code or Section 302 of ERISA, or any Multiemployer Plan.
SECTION 6.14 SOLVENCY. The Company has received consideration which is the
reasonable equivalent value of the obligations and liabilities that the Company
has incurred to the Bank. The
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Company is not insolvent as defined in any applicable state or federal statute,
nor will the Company be rendered insolvent by the execution and delivery of this
Agreement or the Note to Bank. The Company is not engaged or about to engage in
any business or transaction for which the assets retained by it shall be an
unreasonably small capital, taking into consideration the obligations to Bank
incurred hereunder. The Company does not intend to, nor does it believe that it
will, incur debts beyond its ability to pay them as they mature.
SECTION 6.15 SCHEDULE ON EXHIBIT C. The Schedule on Exhibit C accurately
and completely lists the location of all real property, owned or leased by the
Company. The Company enjoys quiet possession under all material leases of real
property to which it is a party as a lessee, and all of such leases are valid,
subsisting and, in full force and effect. Except as specified in the Schedule in
Exhibit C hereto, none of the real property occupied by the Company or any
Subsidiary is located within any federal, state or municipal flood plain zone.
Except as set forth in the Schedule in Exhibit C, all of the material properties
used in the conduct of the Company's business (i) are in good repair, working
order and condition (reasonable wear and tear excepted) and reasonably suitable
for use in the operation of the Company's business; and (ii) are currently
operated and maintained, in all material respects, in accordance with the
requirements of applicable governmental authorities.
SECTION 6.16 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of the
Company's representations or warranties set forth in this Agreement or in any
document or certificate furnished pursuant to this Agreement or in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary to make any statement
of fact contained herein or therein, in light of the circumstances under which
it was made not misleading.
SECTION 6.17 NO INVESTMENT COMPANY. The Company is not an "investment
company" or a Company "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 19409, as amended, which is required to
register thereunder.
SECTION 6.18 APPROVALS. Except as set forth in the Schedule in Exhibit C
hereto, all approvals required of the Company from all Persons including without
limitation all governmental authorities with respect to the Loan Documents have
been obtained.
SECTION 6.19 LICENSES, REGISTRATIONS, COMPLIANCE WITH LAWS, ETC. The
Schedule in Exhibit C hereto accurately and completely describes all permits,
governmental licenses. registrations and approvals, material to carrying out of
the Company's businesses as presently conducted and required by law or the rules
and regulations of any federal, foreign governmental, state, county or local
association, corporation or governmental agency, body, instrumentality or
commission having jurisdiction over the Company, including but not limited to
the United States Environmental Protection Agency, the United States Department
of Labor, the United States Occupational Safety and Health Administration, the
United States Equal Employment Opportunity Commission, the Federal Trade
Commission and the United States Department of Justice and analogous and related
state and foreign agencies. All existing material authorizations, licenses and
permits are in full force and effect, are duly issued in the name of, or validly
assigned to the Company and the Company has
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full power and authority to operate thereunder. There is no material violation
or material failure of compliance or, to the Company's knowledge, allegation of
such violation or failure of compliance on the part of the Company with any of
the foregoing permits, licenses, registrations, approvals, rules or regulations
and there is no action, proceeding or investigation pending or to the knowledge
of the Company threatened nor has the Company received any notice of such which
might result in the termination or suspension of any such permit, license,
registration or approval which in any case could have a Material Adverse Effect.
SECTION 6.20 COPYRIGHT. The Company has not violated any of the provisions
of the Copyright Revision Act of 1976, 17 U.S.C. ss. 101, ET SEQ. Except as set
forth on the Schedule on Exhibit C hereto, the Company has not filed any
registration statements, notices and statements of account with the United
States Copyright Office. The Schedule on Exhibit C hereto accurately and
completely sets forth all registered copyrights held by the Company and contains
exceptions to the representations contained in this Section 6.20. To the
Company's knowledge no inquiries regarding any such filings have been received
by the Copyright Office.
SECTION 6.21 ENVIRONMENTAL COMPLIANCE. Except as expressly set forth in
the Schedule on Exhibit C hereto, neither the Company, nor, to the knowledge of
management of the Company, any other Person has:
(a) ever caused, permitted, or suffered to exist any Hazardous Material to
be spilled, placed, held, located or disposed of on, under, or about, any of the
premises owned or leased by the Company (the "Premises"), or from the Premises
into the atmosphere, any body of water, any wetlands, or on any other real
property, nor does any Hazardous Material exist on, under or about the Premises,
or in respect of Hazardous Material used or disposed of in compliance with law;
(b) ever used (whether by the Company or by any other Person) as a
treatment, storage or disposal (whether permanent or temporary) site for any
Hazardous Waste as defined in 42 U.S.C.A.
ss. 6901, ET SEQ. (the Resource Recovery and Conservation Act); and
(c) any knowledge of any notice of violation, lien or other notice issued
by any governmental agency with respect to the environmental condition of the
Premises or any other property occupied by the Company.
The Company is in compliance with all Environmental Laws and all other
applicable federal, state and local health and safety laws, regulations,
ordinances or rules, except to the extent that any non compliance will not, in
the aggregate, have a Materially Adverse Effect on the Company or the ability of
the Company to fulfill its obligations under this Agreement or the Note.
SECTION 6.22 MATERIAL AGREEMENTS, ETC. The Schedule on Exhibit C hereto
accurately and completely lists all Material Agreements, all of which are
presently in effect. All of the Material Agreements are legally valid, binding,
and to the Company's knowledge, in full force and effect and neither the Company
nor, to the Company's knowledge, any other parties thereto are in material
default thereunder.
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SECTION 6.23 PATENTS, TRADEMARKS AND OTHER PROPERTY RIGHTS. The Schedule on
Exhibit C hereto contains a complete and accurate schedule of all registered
trademarks, registered copyrights and patents of the Company, and pending
applications therefor, and all other intellectual property in which the Company
has any rights other than "off-the-shelf" software which is generally available
to the general public at retail. Except as set forth in the Schedule on Exhibit
C hereto, the Company owns, possesses, or has licenses to use all the patents,
trademarks, service marks, trade names, copyrights and nongovernmental licenses,
and all rights with respect to the foregoing, necessary for the conduct of its
business as now conducted, without, to the Company's knowledge, any conflict
with the rights or others with respect thereto.
ARTICLE VII. CONDITIONS OF LENDING
SECTION 7.1 FIRST LOAN. The obligation of the Bank to make a Loan shall be
subject to satisfaction of the following conditions, unless waived in writing by
the Bank: (a) all legal matters and Loan Documents incident to the transactions
contemplated hereby shall be reasonably satisfactory, in form and substance, to
Bank's counsel; (b) the Bank shall have received (i) certificates by an
authorized officer of Company, upon which the Bank may conclusively rely until
superseded by similar certificates delivered to the Bank, certifying (1) all
requisite action taken in connection with the transactions contemplated hereby,
and (2) the names, signatures, and authority of Company's authorized signers
executing the Loan Documents, (ii) documentation satisfactory to the Bank
evidencing the acquisition by Company of the Spin Forge Assets, and (iii) such
other documents as the Bank may reasonably require to be executed by, or
delivered on behalf of Company; (c) the Bank shall have received the Note, with
all blanks appropriately completed, executed by an authorized signer of Company;
(d) Company shall have paid to the Bank the fee(s) then due and payable in
accordance with ARTICLE II, of this Agreement, and (e) the Bank shall have
received the written opinion of legal counsel selected by Company and
satisfactory to the Bank, dated the date of this Agreement, in form satisfactory
to the Bank and covering such other matter(s) as the Bank may reasonably
require.
SECTION 7.2 EACH LOAN. The obligation of the Bank to make the Loan shall
be subject to compliance with Section 2.1 herein and also subject to
satisfaction of the following conditions that at the date of making such Loan,
and after giving effect thereto: (a) no Event of Default shall have occurred and
be then continuing, (b) each representation and warranty set forth in this
Agreement and in each of the other Loan Documents is true and correct as if then
made, and (c) no event shall have occurred or failed to occur which has or is
reasonably likely to have a Material Adverse Effect.
ARTICLE VIII. COVENANTS
As long as credit is available hereunder or until all principal of and
interest on the Note have been paid in full:
SECTION 8.1 ACCOUNTING: FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Company will maintain a standard system of accounting, established and
administered in accordance with
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GAAP consistently followed throughout the periods involved, and will set aside
on its books for each fiscal month the proper amounts or accruals for
depreciation, obsolescence, amortization, bad debts, current and deferred taxes,
prepaid expenses, and for other purposes as shall be required by GAAP. The
Company will deliver to the Bank:
(a) As soon as practicable after the end of each calendar month in each year
and in any event within fifteen (15) days thereafter, a consolidated and
consolidating balance sheet of the Company and each of its Subsidiaries as
of the end of such month, and statements of income, changes in financial
position, and shareholders' equity of the Company for such month, certified
as complete and correct by the principal financial officer of the Company,
subject to changes resulting from year-end adjustments,
(b) As soon as practicable after the end of each fiscal year, and in any event
within ninety (90) days thereafter, a consolidated and consolidating
balance sheet of the Company and each of its Subsidiaries as of the end of
such year, and statements of income, changes in financial position, and
shareholders' equity of the Company for such year, setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail and accompanied by a report and an unqualified opinion of
independent certified public accountants of recognized standing, selected
by the Company and satisfactory to the Bank, which report and opinion shall
be prepared in accordance with generally accepted auditing standards,
together with a certificate by such accountants (i) briefly setting forth
the scope of their examination (which shall include a review of the
relevant provisions of this Agreement and stating that in their judgment
such examination is sufficient to enable them to give the certificate, and
(ii) stating whether their examination has disclosed the existence of any
condition or event which constitutes an Event of Default under this
Agreement, and, if their examination has disclosed such a condition or
event, specifying the nature and period of existence thereof;
(c) As soon as practicable, and in any event within fifteen (15) days of the
end of each calendar month in each year, a certificate by the Company
indicating the Total Indebtedness to Tangible Net Worth Ratio as of the end
of such calendar month; and
(d) With reasonable promptness, such other data and information as from time to
time may be reasonably requested by the Bank.
SECTION 8.2 INSURANCE; MAINTENANCE OF PROPERTIES. The Company will
maintain with financially sound and reputable insurers, insurance with coverage
and limits as may be required by law or as may be reasonably required by the
Bank. The Company will, upon request from time to time, furnish to the Bank a
schedule of all insurance carried by it, setting forth in detail the amount and
type of such insurance. The Company will maintain in good repair, working order,
and condition, all properties used or useful in the business of the Company.
SECTION 8.3 EXISTENCE; BUSINESS. The Company will cause to be done all
things necessary to preserve and keep in full force and effect its existence and
rights, to conduct its business in a
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prudent manner, to maintain in full force and effect, and renew from time to
time, its franchises, permits, licenses, patents, and trademarks that are
necessary to operate its business. The Company will comply in all material
respects with all valid laws and regulations now in effect or hereafter
promulgated by any properly constituted governmental authority having
jurisdiction; provided, however, the Company shall not be required to comply
with any law or regulation which it is contesting in good faith by appropriate
proceedings as long as either the effect of such law or regulation is stayed
pending the resolution of such proceedings or the effect of not complying with
such law or regulation is not to jeopardize any franchise, license. permit
patent, or trademark necessary to conduct the Company's business.
SECTION 8.4 PAYMENT OF TAXES. The Company will pay all taxes. assessments,
and other governmental charges levied upon any of its properties or assets or in
respect of its franchises, business, income, or profits before the same become
delinquent, except that no such taxes, assessments, or other charges need be
paid if contested by the Company in good faith and by appropriate proceedings
promptly initiated and diligently conducted and if the Company has set aside
proper amounts, determined in accordance with GAAP, for the payment of all such
taxes, changes, and assessments.
SECTION 8.5 LITIGATION; ADVERSE CHANGES. The Company will promptly notify
the Bank in writing of (a) any future event which, if it had existed on the date
of this Agreement, would have required qualification of any of the
representations and warranties set forth in this Agreement or any of the other
Loan Documents, and (b) any Material Adverse Effect.
SECTION 8.6 NOTICE OF DEFAULT. The Company will promptly notify the Bank
of any Event of Default hereunder and any demands made upon the Company by any
Person for the acceleration and immediate payment of any Indebtedness owed to
such Person.
SECTION 8.7 INSPECTION. The Company will make available for inspection by
duly authorized representatives of the Bank, or its designated agent, the
Company's books, records, and properties when reasonably requested to do so, and
will furnish the Bank such information regarding its business affairs and
financial condition within a reasonable time after written request therefor.
SECTION 8.8 ENVIRONMENTAL MATTERS. The Company and each of its
Subsidiaries:
(a) Shall comply with all Environmental Laws, and
(b) Shall deliver promptly to Bank (i) copies of any documents received from
the United States Environmental Protection Agency or any state, county or
municipal environmental or health agency, and (ii) copies of any documents
submitted by Company or any of its Subsidiaries to the United States
Environmental Protection Agency or any state, county or municipal
environmental or health agency concerning its operations.
SECTION 8.9 SALE OF ASSETS. The Company will not, directly or indirectly
sell, lease, transfer, or otherwise dispose of any plant or any manufacturing
facility or other assets except for (i)
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assets sold for full and adequate consideration which the Board of Directors or
senior management of the Company has determined to be worn out, obsolete, or no
longer needed or useful in its business, and (ii) assets sold in the ordinary
course of business, provided that the Company receives full and adequate
consideration in exchange for such assets sold.
SECTION 8.10 LIENS. The Company will not, directly or indirectly, create,
incur, assume, or permit to exist any Lien with respect to any property or asset
of the Company now owned or hereafter acquired other than Permitted Liens.
SECTION 8.11 INDEBTEDNESS. The Company will not, directly or indirectly,
create, incur, or assume Indebtedness, or otherwise become liable with respect
to, any Indebtedness other than:
(a) Indebtedness now or hereafter payable, directly or indirectly, by the
Company to the Bank or any Affiliate Bank;
(b) Subordinated Debt of the Company;
(c) To the extent permitted by this Agreement, Indebtedness for the lease or
purchase price of any real or personal property, which is secured only by a
Permitted Lien.
(d) Unsecured Indebtedness and deferred liabilities incurred in the ordinary
course of business;
(e) Indebtedness for taxes, assessments, governmental charges, liens, or
similar claims to the extent not yet due and payable;
(f) Indebtedness of the Company existing as of the date of this Agreement,
which is expressly disclosed on the Schedule on Exhibit C hereto;
(g) Other Indebtedness of the Company not exceeding $200,000.00 in the
aggregate outstanding at any time: and
(h) Extensions, renewals, refundings, refinancings, modifications, amendments
and restatements of any of the items listed in items (b) through (g) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon the Company.
SECTION 8.12 INVESTMENTS; LOANS. Except for Permitted Investments, the
Company will not, directly or indirectly, (a) purchase or otherwise acquire or
own any stock or other securities of any other Person, or (b) make or permit to
be outstanding any loan or advance (other than trade advances in the ordinary
course of business) or enter into any arrangement to provide funds or credit, to
any other Person.
SECTION 8.13 GUARANTIES. The Company will not guarantee, directly or
indirectly, or otherwise become surety (including, without limitation, liability
by way of agreement, contingent or
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otherwise, to purchase, to provide funds for payment, to supply funds to, or
otherwise invest in, any Person, or enter into any working capital maintenance
or similar agreement) in respect of any obligation or Indebtedness of any other
Person, except guaranties by endorsement of negotiable instruments for deposit,
collection, or similar transactions in the ordinary course of business.
SECTION 8.14 MERGERS: CONSOLIDATION. The Company will not merge into or
consolidate with any other Person or permit any other Person to merge into or
consolidate with it, or sell all or substantially all of its assets. except that
the Company may merge into or consolidate with any other Person or permit any
other Person to merge into or consolidate with it; PROVIDED, HOWEVER, that (i)
the Company shall be the corporation which survives such merger or results from
such consolidation; (ii) immediately after the consummation of the transaction,
and after giving effect thereto, the Company would be permitted by the
provisions of this Article VIII to incur additional Indebtedness: and (iii)
before and immediately after the consummation of the transaction, and after
giving effect thereto, no Event of Default, or event which with notice or lapse
of time or both would become an Event of Default, exists or would exist.
SECTION 8.15 CURRENT RATIO. The Company will not permit the ratio by which
its Current Assets exceeds its Current Liabilities, calculated at the same point
in time, to be at any time less than 2.00 to 1.00.
SECTION 8.16 FUNDS FROM OPERATIONS TO TOTAL DEBT. The Company will not
permit the ratio of Funds from Operations to Total Indebtedness, calculated
annually upon the Bank's receipt of the financial statements provided by the
Company under Section 8. l(b) of this Agreement, to be less than twenty five
percent (25.00%)
SECTION 8.17 SUBORDINATED DEBT. The Company will not make any payment upon
any outstanding Subordinated Debt, except in such manner and amounts as may be
expressly authorized in any subordination agreement presently or hereafter held
by the Bank.
SECTION 8.18 RATIO OF TOTAL INDEBTEDNESS TO TANGIBLE NET WORTH. The
Company will not permit the ratio of its Total Indebtedness to the sum of its
Tangible Net Worth, calculated at the same point in time, to be at any time more
than 1.99 to 1.00.
SECTION 8.19 CAPITAL EXPENDITURES. The Company will not make Capital
Expenditures in an aggregate amount in excess of $1,000,000 in any fiscal year
without thirty (30) days' prior written notification to the Bank.
Notwithstanding the foregoing, the Capital Expenditure limitation set forth
herein shall not include expenditures financed by an industrial development bond
to support the development of the Mount Braddock, Pennsylvania property owned by
the Company.
SECTION 8.20 SENIOR MANAGEMENT. The Company will not replace the President
or Chief Executive Officer of the Company without sixty (60) days prior written
notice to Bank and will not accept the resignation of the President or Chief
Executive Officer of the Company without providing written notice to Bank, which
notice will be given to Bank as soon as reasonably possible after the
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Company has knowledge of the same, but in no event more than three (3) days
following the date that the Company obtains such knowledge.
SECTION 8.21 COMPLIANCE WITH ERISA. With respect to the Company and any
Commonly Controlled Entity, the Company will not permit the occurrence of any of
the following events to the extent that any such events would result in a
material Adverse Effect on the Company, (a) withdraw from or cease to have an
obligation to contribute to, any Multiemployer Plan, (b) engage in any
"prohibited transaction" (as defined in Section 4975 of the Code) involving any
Plan, (c) except for any deficiency caused by a waiver of the minimum funding
requirement under Section 412 of the Code, as described above, incur or suffer
to exist any material "accumulated funding deficiency" (as defined in Section
302 of ERISA and Section 412 of the Code) of the Company or any Commonly
Controlled Entity, whether or not waived, involving any Single Employer Plan,
(d) incur or suffer to exist any Reportable Event or the appointment of a
trustee or institution of proceedings for appointment of a trustee for any
Single Employer Plan if, in the case of a Reportable Event, such event continues
unremedied for ten (10) days after notice of such Reportable Event pursuant to
Sections 4043(a), (c) or (d) of ERISA is given, if in the reasonable opinion of
the Bank any of the foregoing is likely to result in a Material Adverse Effect,
(e) allow or suffer to exist any event or condition, which presents a material
risk of incurring a material liability of the Company or any Commonly Controlled
Entity to PBGC by reason of termination of any such Plan or (f) cause or permit
any Plan maintained by the Company and/or any Commonly Controlled Entity to be
out of compliance with ERISA.
ARTICLE IX. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute
an Event of Default under this Agreement:
SECTION 9.1 PRINCIPAL OR INTEREST. If Company fails to pay any installment
of principal of or interest on the Note, or any other sums of money when due and
payable under this Agreement and such failure continues for forty-eight (48)
hours; or
SECTION 9.2 MISREPRESENTATION. If any representation or warranty made
herein by Company or in any written statement, certificate, report, or financial
statement at any time furnished by, or on behalf of, Company in connection
herewith, is incorrect or misleading in any material respect when made; or
SECTION 9.3 FAILURE OF PERFORMANCE OF THIS AGREEMENT. Except as otherwise
provided herein, if the Company fails to perform or observe any covenant or
agreement contained in this Agreement or any of the other Loan Documents, and
such failure remains unremedied for thirty (30) calendar days after the Bank
shall have given written notice thereof to the Company; or
SECTION 9.4 CROSS-DEFAULT. If the Company (a) fails to pay any
indebtedness or any other sums of money when due and payable under the Prior
Agreement or the Letter of Credit Loan owing by Company and such failure
continues for forty-eight (48) hours, whether at maturity, by
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acceleration, or otherwise, or (b) fails to perform any term, covenant, or
agreement on its part to be performed under any agreement or instrument (other
than the Loan Documents) evidencing, securing, or relating to the Prior
Agreement or the Letter of Credit Loan , and such failure remains unremedied for
thirty (30) calendar days after the Bank shall have given written notice thereof
to the Company, or is otherwise in default thereunder; or
SECTION 9.5 INSOLVENCY. If the Company shall discontinue business or (a)
is adjudicated a bankrupt or insolvent under any law of any existing
jurisdiction, domestic or foreign, or ceases, is unable, or admits in writing
its inability to pay its debts generally as they mature, or makes a general
assignment for the benefit of creditors, (b) applies for, or consents to, the
appointment of any receiver, trustee, or similar officer for it or for any
substantial part of its property, or any such, receiver, trustee, or similar
officer is appointed without the application or consent of the Company, and such
appointment continues thereafter undischarged for a period of thirty (30) days,
(c) institutes, or consents to the institution of any bankruptcy, insolvency,
reorganization, arrangement, readjustment or debt, dissolution, liquidation, or
similar proceeding relating to it under the laws of any jurisdiction, (d) any
such proceeding is instituted against the Company and remains thereafter
undismissed for a period of thirty (30) days, or (e) any judgment, writ, warrant
of attachment or execution, or similar process is issued or levied against a
substantial part of the property of the Company or any Subsidiary and such
judgment, writ, or similar process is not effectively stayed within thirty (30)
days after its issue or levy.
ARTICLE X. REMEDIES UPON DEFAULT
SECTION 10.1 OPTIONAL ACCELERATION. In the event that one or more of the
Events of Default set forth in Sections 9.1 through 9.5 above occurs and
continues and is not waived by the Bank, then, in any such event. and at any
time thereafter, the Bank may, at its option, terminate its commitment to make
any Loan and declare the unpaid principal of, and all accrued interest on any
Note, including any notes executed in connection with the Prior Agreement and
the Letter of Credit Loan, and any other liabilities hereunder, and all other
indebtedness of Company to the Bank forthwith due and payable, whereupon the
same will forthwith become due and payable without presentment, demand, protest,
or other notice of any kind, all of which Company hereby expressly waives,
anything contained herein or in any Note to the contrary notwithstanding.
SECTION 10.2 AUTOMATIC ACCELERATION. Intentionally Deleted.
SECTION 10.3 REMEDIES. The Bank shall have the rights and remedies of a
secured party under the Uniform Commercial Code in addition to the rights and
remedies of a secured party provided elsewhere within the Agreement, the Prior
Agreement, or under the Letter of Credit Loan or in any other writing executed
by Company. The Bank may require the Company to assemble the Collateral and make
it available to the Bank at a reasonably convenient place to be designated by
the Bank. Unless the Collateral is perishable, threatens to decline speedily in
value, or is of a type customarily sold on a recognized market, the Bank will
give the Company reasonable notice of the time and place of any public sale of
the Collateral or of the time after which any private sale or other
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intended disposition thereof is to be made. The requirement of reasonable notice
shall be met if such notice is mailed (deposited for delivery, postage prepaid,
by U.S. mail) to either, at the Bank's option (1) principal office of the
Company as set forth in this Agreement (or as modified by any change therein
which the Company has supplied in writing to the Bank), or (2) the Company's
address at which the Bank customarily communicates with the Company, at least
ten (10) days before the time of the public sale or the time after which any
private sale or other intended disposition thereof is to be made. At any such
public or private sale, the Bank may purchase the Collateral. After deduction
for the Bank's Related Expenses, the residue of any such sale or other
disposition shall be applied in satisfaction of the Obligations in such order of
preference as the Bank may determine. Any excess, to the extent permitted by
law, shall be paid to the Company, and the Company shall remain liable for any
deficiency.
SECTION 10.4 NO WAIVER. The remedies in this ARTICLE X are in addition to,
not in limitation of. any other right, power, privilege, or remedy, either in
law, in equity, or otherwise, to which the Bank may be entitled. No failure or
delay on the part of the Bank in exercising any right, power, or remedy will
operate as a waiver thereof, nor will any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right hereunder.
ARTICLE XI. MISCELLANEOUS
SECTION 11.1 AMENDMENTS. No waiver of any provision of this Agreement, the
Note, or consent to departure therefrom, is effective unless in writing and
signed by the Bank. No such consent or waiver extends beyond the particular case
and purpose involved. No amendment to this Agreement is effective unless in
writing, and signed by the Company and the Bank.
SECTION 11.2 EXPENSES; DOCUMENTARY TAXES. The Company shall pay (a) all
out-of-pocket expenses of the Bank, including fees and disbursements of special
counsel for the Bank, in connection with the preparation of this Agreement
(which fees of special counsel shall not exceed $10,000.00), any waiver or
consent hereunder or any amendment hereof or any Event of Default hereunder, and
(b) if an Event of Default occurs, all out-of-pocket expenses incurred by the
Bank, including reasonable fees and disbursements of counsel, in connection with
such Event of Default and collection and other enforcement proceedings resulting
therefrom. The Company shall reimburse the Bank for its payment of all transfer
taxes, documentary taxes, assessments, or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or the Note.
SECTION 11.3 INDEMNIFICATION. The Company shall indemnify and hold the
Bank harmless against any and all liabilities, losses, damages, costs, and
expenses of any kind (including, without limitation, the reasonable fees and
disbursements of counsel in connection with any investigative, administrative or
judicial proceeding, whether or not the Bank shall be designated a party
thereto) which may be incurred by the Bank relating to or arising out of this
Agreement or any actual or proposed use of proceeds of any Loan hereunder;
provided, that the Bank shall have no right to be indemnified hereunder for its
own negligence, bad faith or willful misconduct as determined by a court of
competent jurisdiction. The Company further agrees to indemnify the Bank against
any loss or expense which the Bank may sustain or incur as a consequence of any
default by the Company in
-37-
<PAGE>
payment when due of any amount due hereunder in respect of any LIBOR Rate Loan,
including, but not limited to, any loss of profit, premium, or penalty incurred
by the Bank in respect of funds borrowed by it for the purpose of making or
maintaining any such Loan, as determined by the Bank in the exercise of its sole
but reasonable discretion. A certificate as to any such loss or expense shall be
promptly submitted by the Bank to the Company and shall, in the absence of
manifest error, be conclusive and binding as to the amount thereof.
SECTION 11.4 CONSTRUCTION. This Agreement and the Note will be governed by
and construed in accordance with the laws of the State of Colorado, without
regard to principles of conflict of laws. The several captions to different
Sections of this Agreement are inserted for convenience only and shall be
ignored in interpreting the provisions hereof.
SECTION 11.5 EXTENSION OF TIME. Whenever any payment hereunder or under
the Note becomes due on a date which the Bank is not open for the transaction of
business, such payment will be due on the next succeeding Business Day and such
extension of time will be included in computing interest in connection with such
payment.
SECTION 11.6 NOTICES. All written notices, requests, or other
communications herein provided for must be addressed:
to the Company as follows:
Dynamic Materials Corporation
551 Aspen Ridge Dr.
Lafayette, Colorado 80026
Attn: Richard A. Santa, Vice President of Finance and Chief
Financial Officer
to the Bank as follows:
KeyBank National Association
600 S. Cherry Street, Suite 1000
Denver, Colorado 80246
Attn: Scott Wetzel, Corporate Banking
or at such other address as either party may designate to the other in writing.
Such communication will be effective (i) if by telex, when such telex is
transmitted and the appropriate answer back is received, (ii) if given by mail,
72 hours after such communication is deposited in the U.S. mail certified mail
return receipt requested, or (iii) if given by other means, when delivered at
the address specified in this Section 11.6.
SECTION 11.7 SURVIVAL OF AGREEMENTS, RELATIONSHIP. All agreements,
representations, and warranties made in this Agreement will survive the making
of the extension of credit hereunder, and will bind and inure to the benefit of
the Company and the Bank, and their respective successors and assigns; PROVIDED,
that no subsequent holder of the Note shall by reason of acquiring that Note, as
the
-38-
<PAGE>
case may be, become obligated to make any Loan hereunder and no successor to or
assignee of the Company may borrow hereunder without the Bank's written assent.
The relationship between the Company and the Bank with respect to this
Agreement, the Note, and any other Loan Document is and shall be solely that of
debtor and creditor, respectively, and the Bank has no fiduciary obligation
toward the Company with respect to any such document or the transactions
contemplated thereby.
SECTION 11.8 SEVERABILITY. If any provision of this Agreement or the Note,
or any action taken hereunder, or any application thereof, is for any reason
held to be illegal or invalid, such illegality or invalidity shall not affect
any other provision of this Agreement or the Note, all of which shall be
construed and enforced without reference to such illegal or invalid portion and
shall be deemed to be effective or taken in the manner and to the full extent
permitted by law.
SECTION 11.9 ENTIRE AGREEMENT. This Agreement, the Note, and any other
Loan Document integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral representations and negotiations and
prior writings with respect to the subject matter hereof.
SECTION 11.10 JURY TRIAL WAIVER. THE COMPANY AND THE BANK EACH WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, BETWEEN THE BANK' AND THE COMPANY ARISING OUT OF,
IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE,
LIMIT, AMEND OR MODIFY THE BANK'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY
CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER
INSTRUMENT. DOCUMENT OR AGREEMENT BETWEEN THE BANK AND THE COMPANY.
IN WITNESS WHEREOF, the Company and the Bank have each caused this
Agreement to be executed by their duly authorized officers as of the 18th day of
March, 1998.
REMAINDER OF PAGE INTENTIONALLY DELETED
39
<PAGE>
COMPANY: DYNAMIC MATERIALS CORPORATION
By: /s/Richard A. Santa
--------------------------------------
Title: Vice President of Finance and
-----------------------------------
Chief Financial Officer
BANK: KEYBANK NATIONAL ASSOCIATION
By: /s/Scot T. Wetzel
--------------------------------------
Title: Vice President, Corporate Banking
-----------------------------------
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$5,000,000.00 March 18, 1998
For value received, DYNAMIC MATERIALS CORPORATION (the "Company") promises
to pay to the order of KEYBANK NATIONAL ASSOCIATION, Denver, Colorado, (the
"Bank"), its successor and assigns, at its main office, on the date or dates and
in the manner specified in Article II of the Credit Agreement (as defined
below), the aggregate principal amount of the Loan as shown on any ledger or
other record of the Bank, which shall be rebuttably presumptive evidence of the
principal amount owing and unpaid on this Note.
The Company promises to pay to the order of the Bank interest on the
unpaid principal amount of each Loan made pursuant to the Credit Agreement from
the date of such Loan until such principal amount is paid in full at such
interest rate(s) and at such times as are specified in Article II of the Credit
Agreement.
This Note is the Note referred to in, and is entitled to the benefits of,
the Credit Facility and Security Agreement ("Credit Agreement") by and between
the Bank and the Company dated March 18,1998, as the same may be hereafter
amended from time to time. This Note may be declared forthwith due and payable
in the manner and with the effect provided in the Credit Agreement, which
contains provisions for acceleration of the maturity hereof upon the happening
of any Event of Default and also for prepayment on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.
Each defined term used in this Note shall have the meaning ascribed
thereto in Section 1.2 of the Credit Agreement.
The Company expressly waives presentment, demand, protest, and notice of
dishonor.
The Company acknowledges that this Note was signed in the City of Denver,
in the State of Colorado.
COMPANY: DYNAMIC MATERIALS CORPORATION
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
EXHIBIT B
LOAN CERTIFICATE
[INTENTIONALLY DELETED]
-42-
<PAGE>
EXHIBIT C
SCHEDULE OF COMPANY
[See Attached]
-43-
FIRST AMENDMENT TO LOAN DOCUMENTS
THIS FIRST AMENDMENT TO LOAN DOCUMENTS (this "FIRST AMENDMENT"), executed
this 18th day of March, 1998, is by and between DYNAMIC MATERIALS CORPORATION, a
Delaware corporation ("COMPANY"), and KEYBANK NATIONAL ASSOCIATION, a national
banking association ("BANK").
R E C I T A L S:
A. On July 19, 1996, the Company and the Bank entered into that certain
Credit Facility and Security Agreement (the "Prior Credit Agreement") pursuant
to which the Bank agreed to make Loans to the Company, on a revolving basis, in
a maximum principal amount not to exceed $7,500,000.
B. The Company desires to reduce the maximum principal amount of the
Loans which may be borrowed under the Prior Credit Agreement, and modify certain
other terms and conditions of the Prior Credit Agreement, and the Bank is
willing to agree to such reduction and modification, on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
1. CREDITAGREEMENT AMENDMENTS. The Prior Credit Agreement is hereby
amended as follows:
(a) REDUCTION IN MAXIMUM PRINCIPAL AMOUNT OF LOANS. The first
sentence of Section 2.1(a)(i) is hereby deleted and shall be replaced with the
following:
"The Bank will make one or more revolving Credit Loans to the
Company from time to time on and after the date of this Agreement through and
including the Termination Date, in an aggregate principal amount not to exceed
the lesser of (i) Five Million Dollars ($5,000,000) or (ii) the Loan Base as
calculated from time to time."
(b) INCREASE IN MAXIMUM AMOUNT OF CAPITAL EXPENDITURES. Section 8.19
is hereby amended as set forth in such Section of the Credit Facility and
Security Agreement between Company and Bank dated March 18, 1998 (the "New
Credit Agreement"). Further, the Company is hereby granted a waiver to exceed
the foregoing $1,000,000 restriction for the 1998 calendar year.
(c) DELETION OF SECTION. Section 2.6(b) pertaining to an annual fee
for unused amounts of the Credit Loan is hereby deleted.
(d) REVISIONS TO CONFORM TO NEW CREDIT AGREEMENT. The following
Sections of the Prior Credit Agreement shall be amended to reflect the language
set forth in such Sections of the New Credit Agreement: (i) In Section 1.2, the
definitions of "CURRENT ASSETS" AND "CURRENT
1
<PAGE>
LIABILITIES" and "MATERIAL AGREEMENTS"; (ii) Section 2.1(a)(i); (iii) Section
4.2; (iv) Section 5.9; (v) Section 5.11; (vi) Section 8.1; (vii) Section 8.20;
(viii) Section 9.1; (ix) Section 9.4; (x) the deletion of Section 9.6; (xi)
Section 10.1; (xii) the deletion of Section 10.2; and (xiii) Section 11.6.
2. LOAN DOCUMENTS AMENDMENTS. Each of the Loan Documents is hereby amended
to conform to the amendments to the Credit Agreement as set forth in Paragraph
1.
3. DOCUMENT RATIFICATION. Subject to the amendments set forth in
Paragraphs 1 and 2 above, all of the terms and conditions contained in the
Credit Agreement and the other Loan Documents shall remain unmodified and in
full force and effect.
4. RELEASE. Except as specifically set forth herein, the execution of this
First Amendment by the Bank does not and shall not constitute a waiver of any
rights or remedies to which the Bank is entitled pursuant to the Loan Documents,
nor shall the same constitute a waiver of any default now existing or which may
occur in the future with respect to the Loan Documents. The Company hereby
agrees that the Bank has fully performed its obligations pursuant to the Loan
Documents through the date hereof and hereby waives, releases and relinquishes
any and all known claims whatsoever that it may have against the Bank with
respect to the Loan Documents through the date hereof.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
represents, warrants and covenants to the Bank:
(a) No default or event of default under any of the Loan Documents
as modified herein, nor any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Loan Documents as modified herein has occurred and is continuing.
(b) There has been no material adverse change in the financial
condition of the Company or any other person whose financial statement has been
delivered to the Bank in connection with the Loans from the most recent
financial statement received by the Bank.
(c) Each and all representations and warranties of the Company in
the Loan Documents are accurate on the date hereof.
(d) The Company has no known claims, counterclaims, defenses, or
set-offs with respect to the Loans or the Loan Documents as modified herein.
(e) The Loan Documents as modified herein are the legal, valid, and
binding obligation of the Company, enforceable against the Company in accordance
with their terms.
(f) The Company shall execute, deliver, and provide to the Bank such
additional agreements, documents, and instruments as reasonably required by the
Bank to effectuate the intent of this Agreement.
2
<PAGE>
6. CONTROLLING LAW. The terms and provisions of this First Amendment shall
be construed in accordance with and governed by the laws of the State of
Colorado.
7. BINDING EFFECT. This First Amendment shall be binding upon and inure to
the benefit of the parties hereto, their successors and assigns.
8. CAPTIONS. The paragraph captions utilized herein are in no way intended
to interpret or limit the terms and conditions hereof, rather, they are intended
for purposes of convenience only.
9. COUNTERPARTS. This First Amendment may be executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if all parties hereto had signed the
same signature page. Any signature page of this First Amendment may be detached
from any counterpart of this First Amendment without impairing the legal effect
of any signatures thereon and may be attached to another counterpart of this
First Amendment identical in form hereto but having attached to it one or more
additional signature pages.
10. DEFINED TERMS. Capitalized terms not defined herein shall have the
same meaning as set forth in the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the day and year first above written.
BANK:
KEYBANK NATIONAL ASSOCIATION
By: /s/Scot T. Wetzel
----------------------------------------
Title: Vice President, Corporate Banking
---------------------------------
COMPANY:
DYNAMIC MATERIALS CORPORATION
By: /s/Richard A. Santa
----------------------------------------
Title: Vice President of Finance
-------------------------------
and Chief Financial Officer
3
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<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 6,462,350
<ALLOWANCES> 150,000
<INVENTORY> 5,757,816
<CURRENT-ASSETS> 12,708,902
<PP&E> 9,524,966
<DEPRECIATION> 3,181,346
<TOTAL-ASSETS> 20,908,429
<CURRENT-LIABILITIES> 5,055,497
<BONDS> 59,147
0
0
<COMMON> 139,476
<OTHER-SE> 11,701,920
<TOTAL-LIABILITY-AND-EQUITY> 20,908,429
<SALES> 9,495,154
<TOTAL-REVENUES> 9,495,154
<CGS> 7,498,754
<TOTAL-COSTS> 7,498,794
<OTHER-EXPENSES> 1,147,324
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<INTEREST-EXPENSE> 29,350
<INCOME-PRETAX> 820,975
<INCOME-TAX> 312,000
<INCOME-CONTINUING> 508,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 508,975
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