<PAGE> 1
UNITED STATES
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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________ to ___________
Commission file number 0-9607
------
CENTRUM INDUSTRIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1654011
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6135 Trust Drive, Suite 104A, Holland, Ohio 43528
- ------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(419) 868-3441
--------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING at August 14, 1998
- --------------------------------- ----------------------------------------
Common Stock - $.05 Par Value 8,403,501
1
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CENTRUM INDUSTRIES, INC.
INDEX
Page
COVER 1
INDEX 2
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1998 and March 31,1998. 3
Condensed Consolidated Statements of
Income for the three months ended
June 30, 1998 and 1997. 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
June 30, 1998 and 1997. 5
Notes to Condensed Consolidated
Financial Statements 6
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
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CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 465,715 $ 1,297,720
Accounts receivable, less allowance for doubtful
accounts of $122,890 and $88,181, respectively 14,078,702 14,814,897
Cost and estimated earnings in excess of
billings on uncompleted contracts 581,088 26,018
Inventories, net 13,062,393 13,211,207
Prepaid expenses and other 1,258,217 1,044,294
------------ ------------
Total current assets 29,446,115 30,394,136
Property, plant and equipment, net 17,606,076 17,204,135
Other assets 5,320,884 5,573,451
------------ ------------
Total assets $ 52,373,075 $ 53,171,722
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank lines of credit $ 14,808,043 $ 13,345,447
Current portion of long-term debt 3,239,086 3,239,086
Accounts payable 10,072,257 11,278,808
Accrued expenses and other 2,425,881 3,425,603
------------ ------------
Total current liabilities 30,545,267 31,288,944
------------ ------------
Long-term debt, less current portion 10,839,723 11,180,914
------------ ------------
Other liabilities 828,412 577,564
------------ ------------
Commitments and contingent liabilities - -
------------ ------------
Shareholders' equity:
Preferred stock - $.05 par value, 1,000,000 shares
authorized, 70,000 issued and outstanding (liquidation
preference of $10 per share) 3,500 3,500
Common stock - $.05 par value, 15,000,000 shares
authorized, 8,403,501 issued and
outstanding at June 30, and March 31, 1998 420,175 420,175
Additional paid-in capital 8,025,847 7,992,847
Retained earnings 1,710,151 1,707,778
------------ ------------
Total shareholders' equity 10,159,673 10,124,300
------------ ------------
Total liabilities and shareholders' equity $ 52,373,075 $ 53,171,722
============ ============
</TABLE>
3
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CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
1998 1997
<S> <C> <C>
Net Sales $ 20,661,357 $ 17,055,717
Cost and expenses:
Cost of goods sold 15,103,851 12,391,988
Depreciation 426,951 408,485
------------ ------------
Gross margin 5,130,555 4,255,244
Selling, general and administrative expenses 4,366,539 3,022,179
------------ ------------
Operating income 764,016 1,233,065
------------ ------------
Other (income) expense:
Interest expense 802,913 664,476
Other (42,853) (33,679)
------------ ------------
Total other expense, net 760,060 630,797
Income before income taxes 3,956 602,268
Provision for income taxes 1,582 213,604
------------ ------------
Net income $ 2,374 $ 388,664
============ ============
Basic income per common share: $ 0.00 $ 0.05
============ ============
Diluted income per share: $ 0.00 $ 0.05
============ ============
Weighted average number of common shares 8,403,501 8,397,123
============ ============
Weighted average number of diluted common shares 8,515,412 8,642,423
============ ============
</TABLE>
4
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CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months ended
June 30,
1998 1997
<S> <C> <C>
Net cash (used for) provided by
operating activities $ (1,213,426) $ 2,183,519
Cash flows from investing activities:
Purchase of Taylor, net of cash acquired - (6,784,734)
Purchase of property and equipment (739,984) (226,070)
Other 22,991
------------ -----------
Net cash used for investing activities (739,984) (6,987,813)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of acquisition debt - 6,463,431
Net change in bank lines of credit 1,462,596 (2,234,480)
Repayments on term debt (341,191) (89,377)
Proceeds from the issuance of common stock
and warrants - 503
------------ -----------
Net cash provided by financing activities 1,121,405 4,140,077
------------ -----------
Decrease in cash and cash equivalents (832,005) (664,217)
Cash and cash equivalents at beginning of year 1,297,720 2,758,219
------------ -----------
Cash and cash equivalents at end of period $ 465,715 $ 2,094,002
============ ===========
</TABLE>
5
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CENTRUM INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting principally of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of the results of operations for the three month periods ended June
30, 1998 and 1997. Accounting policies followed by the Company are described in
Note 1 to the financial statements in its Annual Report on Form 10-K for the
fiscal year ended March 31, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The condensed financial statements should be
read in conjunction with the financial statements, including notes thereto,
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998.
The results of operations for the three month period ended June 30, 1998, are
not necessarily indicative of the results to be expected for the full year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Certain amounts within the previous year's financial statements have been
reclassified in order to be consistent with the current year presentation. In
this document, years reflect the fiscal year ended March 31, unless otherwise
noted.
NOTE B: COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998
------------- --------------
<S> <C> <C>
Raw Materials $ 6,677,299 $ 6,812,856
Work in Progress 5,587,292 5,636,341
Finished Goods 797,802 762,010
----------- -----------
Total Inventories $13,062,393 $13,211,207
=========== ===========
Other assets consisted of the following:
June 30, 1998 March 31, 1998
------------- --------------
Deferred Income Tax Benefits $ 1,753,995 $ 2,016,576
Goodwill, less accumulated amortization of
$721,235 and $686,042, respectively 2,122,875 2,158,068
Debt Issuance Costs, less accumulated
amortization of $943,179 and $845,607, 383,273 480,845
respectively
Other Assets 1,060,741 917,962
----------- -----------
Total Other Assets $ 5,320,884 $ 5,573,451
=========== ===========
</TABLE>
6
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NOTE C: ACQUISITIONS
NOTE D: INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income used in the basic and diluted earnings per share calculations is the
same for 1998. Net Income used in the 1997 diluted earnings per share was
adjusted by $43,106 for interest expense reductions related to debt conversion.
In addition, options and warrants to purchase 4.1 and 2.6 million shares of
common stock were outstanding during first quarter of 1998 and 1997,
respectively, but were not included in the computation of diluted earnings per
share as the effects of converting the options and warrants would be
antidilutive.
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summarized unaudited results of operations by business segment for the three
month periods ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS % Change from
First quarter ended June 30 Prior Year
--------------
(Dollars in Thousands) 1998 1997
====================================================================================
<S> <C> <C> <C>
NET SALES:
Metal Forming $ 13,583 $ 12,504 8.63%
Material Handling 6,147 2,902 111.82%
Motor Production 930 1,649 -43.60%
Corporate 1 1 0.00%
------------------------------------------------------------------------------------
$ 20,661 $ 17,056 21.14%
====================================================================================
GROSS MARGIN:
Metal Forming $ 3,497 $ 3,201 9.25%
Material Handling 1,446 727 98.8%
Motor Production 188 327 -42.51%
Corporate 0 0 0.00%
------------------------------------------------------------------------------------
$ 5,131 $ 4,255 20.59%
====================================================================================
OPERATING INCOME:
Metal Forming $ 1,325 $ 1,295 2.32%
Material Handling -241 39 -717.95%
Motor Production -34 175 -119.43%
Corporate -286 -276 3.62%
------------------------------------------------------------------------------------
$ 764 $ 1,233 -38.04%
====================================================================================
</TABLE>
INDUSTRY SEGMENTS
The percentage contributions of each industry segment to net sales and gross
operating income during the quarter ending June 30.
<TABLE>
<CAPTION>
1998 1997
=====================================================================
<S> <C> <C>
NET SALES:
Metal Forming 65.7% 73.3%
Material Handling 29.8% 17.0%
Motor Production 4.5% 9.7%
------------------------------------------------------------------
100.0% 100.0%
==================================================================
GROSS OPERATING INCOME:
(1)
Metal Forming 126.2% 85.8%
Material Handling -23.0% 2.6%
Motor Production -3.2% 11.6%
------------------------------------------------------------------
100.0% 100.0%
==================================================================
</TABLE>
(1) Gross operating income for the segments was computed without the
corporate expenses.
8
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CONSOLIDATED RESULTS
The Company's operations have been classified into four business segments: Metal
Forming Operations, Material Handling Systems, Motor Production Systems, and
Corporate office. The Metal Forming Operations segment manufactures steel
forgings and seamless rolled rings for power generation, compressor, bearing,
oil and gas, mining and specialty machine manufacturers, along with nonferrous
castings for the glass container, pump and valve industries. The Material
Handling Systems segment involves the design, manufacture, supply, and
installation of material handling equipment for warehouse and distribution
applications. The Motor Production Systems segment manufactures armature winding
machines and complete production systems for the manufacturing of fractional
horsepower motors.
Consolidated revenues have increased to $20.7 million from $17.1 million or
21.1% for the quarter over the comparable prior year period as a result of the
acquisitions of MRR - Memphis (formerly known as Taylor Forge) and Northern
during the preceding year. Consolidated revenues, excluding Northern and MRR -
Memphis, for the quarter have decreased $2 million or 12.3% as a result of
weakness in all three operating segments. In addition, although gross margin
rates at the existing segments were comparable to prior year levels, SG&A,
excluding acquisitions, increased by approximately $261,000 or 8.8% over the
prior year. This increase was primarily the result of the installation of new
administrative and management infrastructure at American Handling, Inc. (AHI) in
order to support growth plans for this business. The revenue weakness in each
segment coupled with increased SG&A were the primary factors causing the
reduction in operating income to 3.7% of sales in the current quarter, and 3.1%
of sales excluding acquisitions, as opposed to 7.2% in the prior year quarter.
The effective tax rate utilized for the current quarter provision is 40%, as
compared to a tax rate of 35% in the comparable prior year period.
Management believes that the segments will experience similar operating
conditions during the second quarter. However, the third and fourth quarter
operating results should realize the benefit of increasing backlogs in the
material handling segment and expected stronger orders from power generation
customers in the metal forming segment resulting in a return to quarterly
operating margin levels achieved in the previous fiscal year. Management
believes that the long-term fundamentals of each of the Company's business
segments remain sound and the Company's most recent acquisitions (MRR - Memphis
and Northern) will continue to enhance the long term prospects of the metal
forming and material handling segments.
METAL FORMING OPERATIONS
Sales for the Metal Forming Operations increased over the prior year period by
8.7% or $1.1 million due to the inclusion of MRR - Memphis in the results of
operations. Excluding acquisitions, revenues decreased by $595,000 or 5% as a
consequence of the impact of the Asian economic crisis on orders from power
generation customers. The revenue shortfall and the resulting effect on gross
margin was the primary reason for the decrease in this segment's pretax income
for the quarter to $758,000 or 5.6% of sales from $847,000 or 6.8% of sales in
the prior year's quarter. The integration of MRR - Memphis into the Metal
Forming Operations segment helped to bolster the segment's results by
contributing operating income of $273,000 and pretax profits of $74,000 for the
quarter.
9
<PAGE> 10
Management expects that revenues will remain at current levels during the next
quarter and second half results will reflect sustained revenue growth caused by
anticipated new order activity from power generation customers. In addition,
management will continue its focus on increased market penetration and reducing
costs in order to improve operating performance at the segment.
MATERIAL HANDLING SYSTEMS
Sales increased at the Material Handling Systems segment during the current
quarter as a result of the acquisition of Northern. Excluding Northern's sales
of $3.9 million, the revenues at AHI decreased by approximately $700,000 or
24.2% of sales as business conditions and opportunities in the automotive
after-market continue to decline. As a result of this, AHI has continued its
focus on penetrating other sectors of the material handling market. The Company
has received orders from such new market sectors as printing, plumbing and
industrial supplies. Orders from these new sectors totaled approximately $1.8
million during the quarter and accounted for 46% of current AHI backlogs.
However, because of the timing of booking and delivery cycles, these orders are
expected to only benefit the revenue stream during the second half of fiscal
1999, and as a result of this, revenues are expected to remain at current levels
during the second quarter. Selling, general and administrative expense as a
percentage of sales increased to 27.4% in the current quarter, or 36.9%
excluding the results of Northern, as compared to 23.7% in the prior year,
primarily as a result of increased administrative infrastructure in order to
support penetration into other market sectors by AHI coupled with lower sales
volume. Operating income for the segment decreased to a loss of $241,000 for the
quarter as opposed to income of $39,000 in the prior year quarter as a result of
the reduced volume and higher SG&A discussed above.
Revenues and operating margins are expected to improve during the third and
fourth quarter as the company begins to realize the benefit of growth into new
sectors of the material handling market. Current backlogs for the segment of
$6.7 million, an increase of 52.3% from $4.4 million at May 31, 1998, reflect
this drive to diversify the revenue base.
MOTOR PRODUCTION SYSTEMS
Revenues decreased at the motor production system segment by 43.6% or $719,000
for the quarter mainly as a result of a shift in product mix at the segment. The
prior year operating results benefited from the completion of a large order by
the segment. The current shift in product mix is toward smaller component orders
which generally have higher margins. The market for new production lines that
manufacture fractional horsepower motors has been very slow for the past several
quarters. This condition has been mainly the result of capacity saturation at
the Original Equipment Manufacturer's (OEM's). As a result of these conditions,
OEM's have been reluctant to idle existing production lines for rebuilds and
replacements. The reduced revenues at the segment resulted in an operating loss
of $34,000 as compared to operating income of $175,000 in the prior year
quarter. Management anticipates that the market conditions discussed above will
persist during the remainder of the fiscal year. The Company will continue its
efforts to reduce costs in future quarters in order to improve operating
performance at this segment.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Cash used for operating activities for the three months ended June 30, 1998
totaled $1.2 million as opposed to cash provided by operating activities in the
prior year quarter of $2.2 million. The primary use of cash during the current
quarter was a reduction in accounts payable caused by the timing of certain
vendor payments.
The primary sources of funds available to the Company in fiscal year 1999 for
operations, planned capital expenditures and debt repayments include available
cash, operating income and funds available under the line of credit agreement.
Although the line of credit agreement places certain restrictions on the
Company's ability to transfer cash between subsidiaries, management does not
consider this restriction to be significant given the level of cash on hand at
the individual subsidiaries and the existing credit facilities. Approximately
$16 million of the Company's debt, including term debt and the revolving line of
credit at the Metal Forming Operations segment, matures in March of 1999. As a
result of this, management initiated efforts to refinance certain long term debt
at the Metal Forming Operations segment during the first quarter of fiscal 1999.
On August 7, 1998, $6.2 million of this indebtedness was refinanced pursuant to
a Promissory Note and Master Security Agreement with a new lender. The new note
will mature in five years and bears interest at a fixed rate of 9.25%. In
addition, in conjunction with this refinancing, the Company's existing senior
lender has agreed to reduce certain fees, this coupled with reduced rates of
interest on borrowings under the existing revolving line of credit, is expected
to yield savings of approximately $200,000 over the course of the next year. The
sources of funds discussed above will still not be sufficient to satisfy the
remaining maturity of the revolving line of credit in March of 1999. However,
management intends to either replace this facility prior to maturity or
renegotiate the existing facility with the existing senior lender prior to
maturity. Management believes that, with the exception discussed above,
sufficient funds for operations, debt repayments and acquisitions can be raised
through cash flows generated by the operating subsidiaries, funds available
under the line of credit agreement, and from sales of the Company's securities.
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
indicated by words or phrases such as "anticipate," "estimate," "projects,"
"management believes," and similar words or phrases. Such statements are subject
to certain risks, uncertainties or assumptions, and are based on management's
current expectations. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected.
11
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PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(B): Reports on Form 8-K
None
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRUM INDUSTRIES, INC.
(Registrant)
Date August 14, 1998 By: /s/ Timothy M. Hunter
---------------- ---------------------
Timothy M. Hunter
Chief Financial Officer
13
<PAGE> 14
EXHIBIT INDEX
Exhibit No. Description
EX 10.41 Master Security Agreement dated as of
July 17, 1998 by and among General Electric
Capital Corporation, McInnes Steel Company,
and Taylor Forge Company.
EX 10.42 Promissory Note dated as of August 7, 1998
by and among General Electric Capital
Corporation, McInnes Steel Company, and
Taylor Forge Company.
EX 10.43 Amendment to Amended and Restated
Employment Agreement with George H. Wells
dated June 10, 1998.
EX 27 Financial Data Schedule
14
<PAGE> 1
EXHIBIT 10.41
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of JULY 17, 1998 ("AGREEMENT"), by and
between GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation with an
address at 4 NORTH PARK DRIVE, SUITE 500, HUNT VALLEY, MARYLAND 21030, AND ITS
ASSIGNS (together with is successors and assigns, if any, "SECURED PARTY"), and
MCINNES STEEL COMPANY, a corporation organized and existing under the laws of
the Commonwealth of Pennsylvania with its chief executive offices located at
441 EAST MAIN STREET, CORRY, PENNSYLVANIA 16407 and TAYLOR FORGE COMPANY, a
corporation organized and existing under the laws of the State of Tennessee
with its chief executive offices located at 5577 TAYLOR DRIVE, MILLINGTON,
TENNESSEE 38053 (jointly, severally and collectively, "DEBTOR").
In consideration of the promises herein contained and of certain other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Debtor and Secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party, its successors
and assigns forever, a security interest in and against any and all property
listed on any collateral schedule now or hereafter annexed hereto or made a
part hereof ("COLLATERAL SCHEDULE"), and in and against any and all additions,
attachments, accessories and accessions thereto, any and all substitutions,
replacements or exchanges therefor, and any and all insurance and/or other
proceeds thereof (all of the foregoing being hereinafter individually and
collectively referred to as the "COLLATERAL"). The foregoing security interest
is given to secure the payment and performance of any and all debts,
obligations and liabilities of any kind, nature or description whatsoever
(whether primary, secondary, direct, contingent, sole, joint or several, or
otherwise, and whether due or to become due) of Debtor to Secured Party, now
existing or hereafter arising, including but not limited to the payment and
performance of certain Promissory Notes from time to time identified on any
Collateral Schedule (collectively "NOTES" and each a "NOTE"), and any renewals,
extensions and modifications of such debts, obligations and liabilities (all of
the foregoing being hereinafter referred to as the "INDEBTEDNESS").
Notwithstanding the foregoing, and notwithstanding anything to the contrary
contained elsewhere in this Agreement, to the extent that Secured Party
asserts a purchase money security interest in any items of Collateral
("PMSI COLLATERAL"): (i) the PMSI Collateral shall secure only that portion of
the Indebtedness which has been advanced by Secured Party to enable Debtor to
purchase, or acquire rights in or the use of such PMSI Collateral (the "PMSI
INDEBTEDNESS"), and (ii) no other Collateral shall secure the PMSI
Indebtedness. Secured Party understands and acknowledges that Debtor's
inventory, work in process, accounts, account receivables and general
intangibles are not Collateral.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the date hereof
and as of the date of execution of each Collateral Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the first paragraph of this
Agreement, has its chief executive offices at the location set forth in such
paragraph, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into, and to perform
its obligations, under this Agreement, each Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "DEBT DOCUMENTS");
(c) This Agreement and the other Debt Documents have been duly
authorized, executed and delivered by Debtor and constitute legal, valid and
binding agreements enforceable under all applicable laws in accordance with
their terms, except to the extent that the enforcement of remedies may be
limited under applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into,
or performance by, Debtor of any of the Debt Documents, except such as may have
already been obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents will
not (i) violate any of the organizational documents of Debtor or any judgment,
order, law or regulation applicable to Debtor, or (ii) result in any breach of,
constitute a default under, or result in the creation of any lien, claim or
encumbrance on any of Debtor's property (except for liens in favor of Secured
Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit
agreement, or other agreement or instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or
affecting Debtor which could, in the aggregate, have a material adverse effect
on Debtor, its business or operations, or its ability to perform its
obligations under the Debt Documents;
(g) All financial statements delivered to Secured Party in connection
with the Indebtedness have been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change;
(h) The Collateral is not, and will not be, used by Debtor for personal,
family or household purposes;
<PAGE> 2
(i) The Collateral is, and will remain, in good condition and repair
ordinary wear and tear excepted; and Debtor will not be negligent in the care
and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner, and in
possession of, the Collateral, and has the sole right and lawful authority to
grant the security interest described in this Agreement; and
(k) The Collateral is, and will remain, free and clear of all liens,
claims and encumbrances of every kind, nature and description, except for (i)
liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes
being contested in good faith and which do not involve, in the reasonable
judgment of Secured Party, any risk of the sale, forfeiture or loss of any of
the Collateral, (iii) inchoate materialmen's, mechanic's, repairmen's and
similar liens arising by operation of law in the normal course of business for
amounts which are not delinquent, and (iv) liens approved in writing by Secured
Party (all of such permitted liens being hereinafter referred to as "PERMITTED
LIENS").
3. COLLATERAL.
(a) Until the declaration of any default hereunder, Debtor shall remain
in possession of the Collateral; provided, however, that Secured Party shall
have the right to possess (i) any chattel paper or instrument that constitutes
a part of the Collateral, and (ii) any other Collateral which because of its
nature may require that Secured Party's security interest therein be perfected
by possession. Secured Party, its successors and assigns, and their respective
agents, shall have the right to examine and inspect any of the Collateral at
any time during normal business hours upon reasonable advance written notice.
Upon any request from Secured Party, Debtor shall provide Secured Party with
notice of the then current location of the Collateral.
(b) Debtor shall (i) use the Collateral only in its trade or business,
(ii) maintain all of the Collateral in good condition and working order,
ordinary wear and tear excepted, (iii) use and maintain the Collateral only in
compliance with all applicable laws, and (iv) keep all of the Collateral free
and clear of all liens, claims and encumbrances (except for Permitted Liens).
(c) Debtor shall not, without the prior written consent of Secured Party,
(i) part with possession of any of the Collateral (except to Secured Party or
for maintenance and repair), (ii) remove any of the Collateral from the
continental United States, or (iii) sell, rent, lease, mortgage, grant a
security interest in or otherwise transfer or encumber (except for Permitted
Liens) any of the Collateral.
(d) Debtor shall pay promptly when due all taxes, license fees,
assessments and public and private charges levied or assessed on any of the
Collateral, on the use thereof, or on this Agreement or any of the other Debt
Documents. Lessee may contest any Taxes provided the contest is made in good
faith is diligently pursued, does not subject the Equipment to a material risk
of confiscation or seizure and so long as Lessee is not in default. At its
option, Secured Party may discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on the Collateral and may pay for the
maintenance, insurance and preservation of the Collateral or to effect
compliance with the terms of this Agreement or any of the other Debt Documents.
Debtor shall reimburse Secured Party, on demand, for any and all costs and
expenses incurred by Secured Party in connection therewith and agrees that such
reimbursement obligation shall be secured hereby.
(e) Debtor shall, at all times, keep accurate and complete records of the
Collateral, and Secured Party, its successors and assigns, and their respective
agents, shall have the right to examine, inspect, and make extracts from all of
Debtor's books and records relating to the Collateral at any time during normal
business hours upon reasonable advance written notice.
(f) If agreed by the parties, Secured Party may, but shall in no event be
obligated to, accept substitutions and exchanges of property for property, and
additions to the property, constituting all or any part of the Collateral. Such
substitutions, exchanges and additions shall be accomplished at any time and
from time to time, by the substitution of a revised Collateral Schedule for the
Collateral Schedule now or hereafter annexed. Any property which may be
substituted, exchanged or added as aforesaid shall constitute a portion of the
Collateral and shall be subject to the security interest granted herein.
Additions to, reductions or exchanges of, or substitutions for, the Collateral,
payments on account of any obligation or liability secured hereby, increases in
the obligations and liabilities secured hereby, or the creation of additional
obligations and liabilities secured hereby, may from time to time be made or
occur without affecting the provisions of this Agreement or the provisions of
any obligation or liability which this Agreement secures.
(g) Any third person at any time and from time to time holding all or any
portion of the Collateral shall be deemed to, and shall, hold the Collateral as
the agent of, and as pledge holder for, Secured Party. At any time and from
time to time, Secured Party may give notice to any third person holding all or
any portion of the Collateral that such third person is holding the Collateral
as the agent of, and as pledge holder for, the Secured Party.
4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk, and Debtor
shall keep it insured against loss or damage by fire and extended coverage
perils, theft, burglary, reasonably and for any or all Collateral which are
vehicles, for risk of loss by collision, and where requested by Secured Party,
against other risks as required thereby, for the full replacement value
thereof, with companies, in amounts and under policies acceptable to Secured
Party. Debtor shall, if Secured Party so requires, deliver to Secured Party
policies or certificates of insurance evidencing such coverage. Each policy
shall name Secured Party as loss payee thereunder, shall provide for coverage
to Secured Party regardless of the breach by Debtor of any warranty or
representation made therein, shall not be subject to co-insurance, and shall
provide for thirty (30) days written notice to Secured Party of the
cancellation or material modification thereof. Debtor hereby appoints Secured
Party as its attorney in fact to make proof of loss, claim for insurance and
adjustments with insurers, and to execute or endorse all documents, checks or
drafts in connection with payments made as a result of
<PAGE> 3
any such insurance policies; provided, however, Secured Party shall not act as
Debtor's attorney-in-fact unless Debtor is in default. Proceeds of insurance
shall be applied, to repair or replace the Collateral or, in the event Debtor
is at such time in default, to reduce any of the Indebtedness secured hereby.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event of (i) any
change in the name of Debtor, (ii) any relocation of its chief executive
offices, (iii) any relocation of any of the Collateral, (iv) any of the
Collateral being lost, stolen, missing, destroyed, materially damaged or worn
out, or (v) any lien, claim or encumbrance attaching or being made against any
of the Collateral other than Permitted Liens.
(b) Debtor will within ninety (90) days of the close of each fiscal year
of Debtor, deliver to Secured Party, Debtor's parent company, Centrum
Industries, Inc. ("Centrum") complete consolidated and consolidating financial
statements, certified by a recognized firm of certified public accountants.
Debtor will, within thirty (30) days after the date on which they are filed,
deliver to Secured Party all Forms 10-K and 10-Q filed with the Securities and
Exchange Commission. Upon request Debtor will deliver to Secured Party
quarterly, within ninety (90) days of the close of each fiscal quarter of
Debtor, in reasonable detail, copies of Centrum's consolidated and
consolidating quarterly financial report certified by the chief financial
officer of Debtor. Upon request, Debtor will deliver to Secured Party one copy
of each financial statement, report, notice or proxy statement sent by Centrum
to shareholders generally and one copy of each regular or periodic report,
registration statement or prospectus filed by Centrum with any securities
exchange or the Securities and Exchange Commission or any successor agency,
such copies to be delivered to Secured Party within thirty (30) days after they
become available or are otherwise filed.. Any and all financial statements
submitted and to be submitted to Secured Party have and will have been prepared
on a basis of generally accepted accounting principles, and are and will be
complete and correct and fairly present Centrum's financial condition as at the
date thereof. Secured Party may at any reasonable time examine the books and
records of Debtor and make copies thereof upon reasonable advance written
notice.
(c) Debtor will permit Secured Party to inspect any Collateral during
normal business hours upon reasonable advance written notice.
(d) Within thirty (30) days after any request by Secured Party, Debtor
will furnish a certificate of an authorized officer of Debtor stating that he
has reviewed the activities of Debtor and that, to the best of his knowledge,
there exists no Event of Default (as described in Section 7) or event which
with notice or lapse of time (or both) would become an Event of Default.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to Secured Party
such further information, execute and deliver to Secured Party such documents
and instruments (including, without limitation, Uniform Commercial Code
financing statements) and do such other acts and things, as Secured Party may
at any time reasonably request relating to the perfection or protection of the
security interest created by this Agreement or for the purpose of carrying out
the intent of this Agreement. Without limiting the foregoing, Debtor shall
cooperate and do all acts deemed necessary or advisable by Secured Party to
continue in Secured Party a perfected first security interest in the
Collateral, and shall obtain and furnish to Secured Party any subordinations,
releases, landlord, lessor, or mortgagee waivers, and similar documents as may
be from time to time requested by, and which are in form and substance
satisfactory to, Secured Party.
(b) In the event Debtor fails for a period of ten (10) days to sign
documents related to the Collateral, Debtor hereby grants to Secured Party the
power to sign Debtor's name and generally to act on behalf of Debtor to execute
and file applications for title, transfers of title, financing statements,
notices of lien and other documents pertaining to any or all of the Collateral
(provided, however, if Debtor is in default or there is a material risk to
Secured Party's rights or interests in the Collateral, Secured Party may
exercise such rights without notice to Debtor). Secured Party will furnish
copies to Debtor of all such documents signed by Secured Party on behalf of
Debtor. Debtor shall, if any certificate of title be required or permitted by
law for any of the Collateral, obtain such certificate showing the lien hereof
with respect to the Collateral and promptly deliver same to Secured Party.
(c) Debtor shall indemnify and defend the Secured Party, its successors
and assigns, and their respective directors, officers and employees, from and
against any and all claims, actions and suits (including, to the extent
permitted by law, without limitation, related attorneys' fees) of any kind,
nature or description whatsoever arising, directly or indirectly, in connection
with any of the Collateral.
7. EVENTS OF DEFAULT.
Debtor shall be in default under this Agreement and each of the other
Debt Documents upon the occurrence of any of the following "Event(s) of
Default":
(a) Debtor fails to pay any installment or other amount due or coming due
under any of the Debt Documents within ten (10) days after its due date;
(b) Any attempt by Debtor, without the prior written consent of Secured
Party, to sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for Permitted Liens) any of the
Collateral;
<PAGE> 4
(c) Debtor fails to procure, or maintain in effect at all times, any of
the insurance on the Collateral in accordance with Section 4 of this Agreement;
(d) Debtor breaches any of its other obligations under any of the Debt
Documents and fails to cure the same within thirty (30) days after written
notice thereof;
(e) Any warranty, representation or statement made by Debtor in any of
the Debt Documents or otherwise in connection with any of the Indebtedness
shall be false or misleading in any material respect;
(f) Any of the Collateral being subjected to, or being threatened with,
attachment, execution, levy, seizure or confiscation in any legal proceeding or
otherwise not released within 30 days;;
(g) Any default beyond applicable grace periods by Debtor under any other
agreement between Debtor and Secured Party;
(h) Any insolvency or business failure of Debtor or any guarantor or
other obligor for any of the Indebtedness (collectively "GUARANTOR"), or if
Debtor or any Guarantor is a natural person, any death or incompetency of
Debtor or such Guarantor;
(i) The appointment of a receiver for all or of any part of the property
of Debtor or any Guarantor not released within 45 days, or any assignment for
the benefit of creditors by Debtor or any Guarantor;
(j) The filing of a petition by Debtor or any Guarantor under any
bankruptcy, insolvency or similar law, or the filing of any such petition
against Debtor or any Guarantor if the same is not dismissed within forty-five
(45) days of such filing;
(k) Any uncured default by Debtor under the Loan and Security Agreement
with Huntington National Bank or any replacement credit agreement (whether by
refinancing or otherwise) resulting in the acceleration of obligations owing
thereunder;
(l) Any dissolution, termination of existence, or merger or consolidation
of Debtor or any Guarantor into any person (such action being referred to as an
"Event"), unless not less than sixty (60) days prior to such Event: (x) such
person is organized and existing under the laws of the United States or any
state, and executes and delivers to Secured Party an agreement containing an
effective assumption by such person of the due and punctual performance of this
Agreement; and (y) Secured Party is reasonably satisfied as to the credit
worthiness of such person;
(m) If Debtor or any guarantor is a privately held corporation and
effective control of Debtor's or any guarantor's voting capital stock, issued
and outstanding from time to time, is not retained by the present stockholders
(unless Debtor shall have provided sixty (60) days' prior written notice to
Secured Party of the proposed disposition of stock and Secured Party shall have
consented thereto in writing);
(n) If Debtor or any guarantor is a publicly held corporation as a result
of or in connection with a material change in the ownership of Debtor's or any
guarantor's capital stock, Debtor's or any guarantor's debt-to-worth ratio
equals or exceeds twice Debtor's or any guarantor's debt-to-worth ratio as of
the date of this Lease (unless Secured Party shall have given its prior written
consent thereto); or if Debtor or any guarantor is a natural person, any death
or incompetency of Debtor or such guarantor. As used herein, "DEBT-TO-WORTH
RATIO" shall mean the ratio of (x) total liabilities which, in accordance with
generally accepted accounting principles ("GAAP") would be included in the
liability side of a balance sheet, to (y) tangible net worth including the sum
of the par or stated value of all outstanding capital stock, surplus and
undivided profits, less any amounts attributable to goodwill, patents,
copyrights, mailing lists, catalogs, trademarks, bond discount and underwriting
expenses, organization expense and other intangibles, all determined in
accordance with GAAP; or
(o) An Event of Default (as defined therein) under any of the Bond
Documents (as defined in that certain Security Interests Priority Agreement
dated July 31, 1998, among Secured Party, PNC Bank, National Association,
McInnes Steel Company, Erie County Industrial Development Authority and The
Huntington National Bank) or a breach of any of the terms of said Security
Interests Priority Agreement.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement, the
Secured Party, at its option, may declare any or all of the Indebtedness,
including without limitation the Notes, to be immediately due and payable,
without demand or notice to Debtor or any Guarantor. The obligations and
liabilities accelerated thereby shall bear interest (both before and after any
judgment) until paid in full at the lower of four percent (4%) above the per
annum rate of interest in effect under the applicable Note or the maximum rate
not prohibited by applicable law (the "Default Rate of Interest").
(b) Upon such declaration of default, Secured Party shall have all of the
rights and remedies of a Secured Party under the Uniform Commercial Code, and
under any other applicable law. Without limiting the foregoing, Secured Party
shall have the right to (i) notify any account debtor of Debtor or any obligor
on any instrument which constitutes part of the Collateral to make payment to
the Secured Party, (ii) with or without legal process, enter any premises where
the Collateral may be and take possession and/or remove said Collateral from
said premises, (iii) sell the Collateral at public or private sale, in whole or
in part, and have the right to bid and purchase at said sale, and/or (iv) lease
or otherwise dispose of all or part of the Collateral, applying proceeds
therefrom to the obligations then in default. If requested by Secured Party,
Debtor shall promptly assemble the Collateral and make it available to
<PAGE> 5
Secured Party at a place to be designated by Secured Party which is reasonably
convenient to both parties. Secured Party may also render any or all of the
Collateral unusable at the Debtor's premises and may dispose of such Collateral
on such premises without liability for rent or costs. Any notice which Secured
Party is required to give to Debtor under the Uniform Commercial Code of the
time and place of any public sale or the time after which any private sale or
other intended disposition of the Collateral is to be made shall be deemed to
constitute reasonable notice if such notice is given to the last known address
of Debtor at least ten (10) days prior to such action.
(c) Proceeds from any sale or lease or other disposition shall be
applied: first, to all costs of repossession, storage, and disposition
including to the extent permitted by law without limitation attorneys',
appraisers', and auctioneers' fees; second, to discharge the obligations then
in default; third, to discharge any other Indebtedness of Debtor to Secured
Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth,
to expenses incurred in paying or settling liens and claims against the
Collateral; and lastly, to Debtor, if there exists any surplus. Debtor shall
remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents are
placed in the hands of an attorney for collection of money due or to become due
or to obtain performance of any provision hereof, Debtor agrees to the extent
permitted by law to pay all reasonable attorneys' fees incurred by Secured
Party, and further agrees that payment of such fees is secured hereunder.
(e) Secured Party's rights and remedies hereunder or otherwise arising
are cumulative and may be exercised singularly or concurrently. Neither the
failure nor any delay on the part of the Secured Party to exercise any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. Secured Party shall not be deemed to have waived any of its rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such waiver be in writing and signed by Secured Party. A waiver on any
one occasion shall not be construed as a bar to or waiver of any right or
remedy on any future occasion.
(f) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE
INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED
PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
9. MISCELLANEOUS.
(a) This Agreement, Collateral Schedules, any Note and/or any of the
other Debt Documents may be assigned, in whole or in part, by Secured Party
without notice to Debtor, and Debtor hereby waives any defense, counterclaim or
cross-complaint by Debtor against any assignee, agreeing that Secured Party
shall be solely responsible therefor. Debtor agrees that if Debtor receives
written notice of an assignment from Secured Party, Debtor shall pay all
payments and other amounts due under the assigned Note and Collateral Schedule
to such assignee as instructed by Secured Party. Debtor further agrees to
confirm in writing receipt of the notice of assignment as may be reasonably
requested by Assignee.
(b) All notices to be given in connection with this Agreement shall be in
writing, shall be addressed to the parties at their respective addresses set
forth hereinabove (unless and until a different address may be specified in a
written notice to the other party), and shall be deemed given (i) on the date
of receipt if delivered in hand or by facsimile transmission, (ii) on the next
business day after being sent by express mail, and (iii) upon receipt if being
sent by regular, registered or certified mail (provided that any notices of
default will not be sent by regular, registered or certified mail). As used
herein, the term "business day" shall mean and include any day other than
Saturdays, Sundays, or other days on which commercial banks in New York, New
York are required or authorized to be closed. Copies of all notices of default
to John W. Hilbert II, Esq., Fuller & Henry P.L.L., One Seagate, Suite 1700,
Toledo, Ohio 43604, Facsimile No. (419) 247-2665.
(c) Secured Party may correct patent errors herein and fill in all blanks
herein or in any Collateral Schedule consistent with the agreement of the
parties. Secured Party shall deliver to Debtor copies of this Agreement and any
such Collateral Schedule promptly after execution.
(d) Time is of the essence hereof. This Agreement shall be binding,
jointly and severally, upon all parties described as the "Debtor" and their
respective heirs, executors, representatives, successors and assigns, and shall
inure to the benefit of Secured Party, its successors and assigns.
(e) This Agreement and its Collateral Schedules constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior understandings (whether written, verbal or implied) with
respect thereto. This Agreement and its Collateral Schedules shall not be
changed or terminated orally or by course of conduct, but only by a writing
<PAGE> 6
signed by both parties hereto. Section headings contained in this Agreement
have been included for convenience only, and shall not affect the construction
or interpretation hereof.
(f) This Agreement shall continue in full force and effect until all of
the Indebtedness has been indefeasibly paid in full to Secured Party. The
surrender, upon payment or otherwise, of any Note or any of the other documents
evidencing any of the Indebtedness shall not affect the right of Secured Party
to retain the Collateral for such other Indebtedness as may then exist or as it
may be reasonably contemplated will exist in the future. This Agreement shall
automatically be reinstated in the event that Secured Party is ever required to
return or restore the payment of all or any portion of the Indebtedness (all as
though such payment had never been made).
(g) Secured Party may, without the consent of Debtor, assign and/or sell
participation interests in this Agreement, any Note or any Collateral Schedule
or any interests therein, whether in whole or in part. Debtor agrees that if
Debtor receives written notice of an assignment from Secured Party, Debtor will
pay all amounts payable under any assigned Note to such assignee or as
instructed by Secured Party. Debtor further agrees to confirm in writing
receipt of the notice of assignment as may be reasonably requested by assignee.
Debtor hereby waives and agrees not to assert against any such assignee any
defense, set-off, recoupment claim or counterclaim which Debtor has or may at
any time have against Secured Party for any reason whatsoever.
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally
bound hereby, have duly executed this Agreement in one or more counterparts,
each of which shall be deemed to be an original, as of the day and year first
aforesaid.
SECURED PARTY: DEBTOR:
GENERAL ELECTRIC CAPITAL CORPORATION MCINNES STEEL COMPANY
By: /s/ Mark H. Mooney By: /s/ Timothy M. Hunter
--------------------- ------------------------
Title: Mark H. Mooney Title: Treasurer
--------------------- ---------------------
Transaction &Syndication Manager
TAYLOR FORGE COMPANY
By: /s/ Timothy M. Hunter
------------------------
Title: Treasurer
---------------------
<PAGE> 1
EXHIBIT 10.42
PROMISSORY NOTE
August 7, 1998
(Date)
<TABLE>
<S> <C>
441 East Main Street, Corry, Erie County, PA 16407 & 5577 Taylor Drive, Millington, Shelby County, TN 38053
- ------------------------------------------------------------------------------------------------------------------------------------
(Street Address of Makers) (Town) (County) (State)(Zip Code)
</TABLE>
FOR VALUE RECEIVED, MCINNES STEEL COMPANY AND TAYLOR FORGE COMPANY ("Maker")
promises, jointly and severally if more than one, to pay to the order of GENERAL
ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS,
or any subsequent holder hereof (each, a "Payee") at its office located at 4
North Park Drive, Suite 500, Hunt Valley, MD 21030 or at such other place as
Payee may designate, the principal sum of SIX MILLION ONE HUNDRED SIXTY FIVE
THOUSAND EIGHTY ONE DOLLARS ($6,165,081.00), with interest thereon, from the
date hereof through and including the dates of payment, at a fixed interest rate
of NINE AND TWENTY FIVE ONE HUNDREDTHS PERCENT (9.25%) per annum, to be paid in
lawful money of the United States, in FORTY-EIGHT (48) consecutive monthly
installments of principal and interest of ONE HUNDRED TWENTY EIGHT THOUSAND FIVE
HUNDRED SIXTY AND 31/100 DOLLARS ($128,560.31) each (each, a "Periodic
Installment") AND A FINAL INSTALLMENT IN THE AMOUNT OF $1,479,619.44. The first
Periodic Installment shall be due and payable on SEPTEMBER 7, 1998, and the
following Periodic Installments and the final installment shall be due and
payable on the same day of each succeeding month (each, a "Payment Date"). Such
installments have been calculated on the basis of 360 day year of twelve 30-day
months. Each payment may, at the option of the Payee, be calculated and applied
on an assumption that such payment would be made on its due date. Payments shall
be paid by wire transfer of immediately available funds to BANKER'S TRUST, ONE
BANKERS TRUST PLAZA, NEW YORK, NY 10006, ACCOUNT NO.: 50-260-660, ABA NO.
021-001-033, or to such other account as holder may request.
The acceptance by Payee of any payment which is less than payment in full of all
amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof.
This Note is secured by Collateral Schedule No. G-1 to Master Security Agreement
dated July 17, 1998 ("Security Agreement.")
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of five percent (5%) of the
amount of said installment or other sum, but not exceeding any lawful maximum.
In the event that (i) Maker fails to make payment of any amount due hereunder
within ten (10) days after the same becomes due and payable; or (ii) Maker is in
default under, or fails to perform under any term or condition contained in any
Security Agreement following any applicable notice and/or cure period, then the
entire principal sum remaining unpaid, together with all accrued interest
thereon and any other sum payable under this Note or any Security Agreement, at
the election of Payee, shall immediately become due and payable, with interest
thereon at the lesser of 500 basis points over the fixed interest rate payable
hereunder or the highest rate not prohibited by applicable law from the date of
such accelerated maturity until paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment (in addition to all other sums due hereunder or under the Security
Agreement) of an additional sum as a premium equal to the following percentages
of the remaining principal balance for the indicated period:
Prior to the first annual anniversary date of this Note: two percent (2%)
Prior to the second annual anniversary date of this Note: two percent (2%)
Prior to the third annual anniversary date of this Note: one percent (1%)
Prior to the fourth annual anniversary date of this Note: one-half percent
(.5%) and zero percent (0%) thereafter
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or any Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or refunded
to Maker, at the option of the Payee, and (d) the effective rate of interest
shall be automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
this Note or any Security Agreement which are made for the purpose of
determining whether such rate exceeds the maximum lawful contract rate, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full stated
term of the indebtedness evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise by Payee in connection with
such indebtedness; provided, however, that if any applicable state law is
amended or the law of the United States of America preempts any applicable state
law, so that it becomes lawful for the Payee to receive a greater interest per
annum rate than is presently allowed, the Maker agrees that, on the effective
date of such amendment or preemption, as the case may be, the lawful maximum
hereunder shall be increased to the maximum interest per annum rate allowed by
the amended state law or the law of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and that Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waives
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agrees to pay (if permitted by
law) all reasonable expenses incurred in collection, including Payee's actual
attorneys' fees.
<PAGE> 2
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. The
scope of this waiver is intended to be all encompassing of any and all disputes
that may be filed in any court (including, without limitation, contract claims,
tort claims, breach of duty claims, and all other common law and statutory
claims). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. In the event of litigation, this Note may be filed as a written
consent to a trial by the court.
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supersedes all
prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.
MCINNES STEEL COMPANY
/s/ Patty M. Hellenschmidt By: /s/ Timothy M. Hunter (L.S.)
- ---------------------------------- -------------------------------------
(Witness) Signature
Patty M. Hellenschmidt Timothy M. Hunter
- ---------------------------------- -------------------------------------
(Print Name) Print name (and title, if applicable)
441 East Main Street 25-0653540
- ---------------------------------- -----------------------------------------
(Address) Federal Tax ID Number
Corry, PA 16407
TAYLOR FORGE COMPANY
/s/ Patty M. Hellenschmidt By: /s/ Timothy M. Hunter (L.S.)
- ---------------------------------- -------------------------------------
(Witness) Signature
Patty M. Hellenschmidt Timothy M. Hunter
- ---------------------------------- -------------------------------------
(Print Name) Print name (and title, if applicable)
441 East Main Street 25-1685104
- ---------------------------------- -----------------------------------------
(Address) Federal Tax ID Number
Corry, PA 16407
<PAGE> 3
COLLATERAL SCHEDULE NO. G-1
THIS COLLATERAL SCHEDULE NO. G-1 incorporates that certain Master
Security Agreement dated as of July 17, 1998 between General Electric Capital
Corporation for Itself and as Agent for Certain Participants, as Secured Party
and McInnes Steel Company and Taylor Forge Company as Debtor. Debtor hereby
gives, grants and assigns to General Electric Capital Corporation for Itself and
as Agent for Certain Participants ("GECC") a security interest in and against
property listed below, and in and against any and all additions, attachments,
accessories and accessions thereto, any and all substitutions, replacements or
exchanges therefor, and any and all insurance and/or other proceeds thereof. The
foregoing security interest is given to secure the payment and performance of
any and all debts, obligations and liabilities of any kind, nature or
description whatsoever (whether primary, secondary, direct, contingent, sole,
joint or several, or otherwise, and whether due or to become due) of Debtor to
GECC, now existing or hereafter arising, including without limitation that
certain Promissory Note dated August 7, 1998 in the original principal amount of
$6,165,081.00 (the "Note") and any renewals, extensions and modifications of the
Note and such other debts, obligations and liabilities.
DESCRIPTION OF COLLATERAL
Rolling mills, forging presses, rotary hearth furnaces, water and oil tanks,
lathing machines, and other equipment located at:
Taylor Forge International
5577 Taylor Drive
Millington, TN (Shelby County)
and
McInnes Rolled Rings
1533 East 12th Street
Erie, PA (Erie County)
more fully described on the attached "Exhibit No. 1" consisting of 28 pages
Debtor agrees that its obligations under the Note to make payments to GECC in
the amounts set forth in the Note are absolute and unconditional and are
independent of, and will not assert against GECC, any defense, claim, setoff,
recoupment, abatement or other right, existing or future, which Debtor may have
against General Electric Capital Corporation or any other person or entity.
SECURED PARTY: DEBTOR:
GENERAL ELECTRIC CAPITAL CORPORATION, McINNES STEEL COMPANY
FOR ITSELF AND AS AGENT FOR CERTAIN
PARTICIPANTS
By: /s/ Mark H. Mooney By: /s/ Timothy M. Hunter
--------------------------- -----------------------
Title: Mark H. Mooney Title: Treasurer
--------------------------- -------------------
Transaction & Syndication Manager Date: September 30, 1998
-------------------
TAYLOR FORGE COMPANY
By: /s/ Timothy M. Hunter
----------------------
Title: Treasurer
-------------------
Date: September 30, 1998
-------------------
<PAGE> 4
CERTIFICATE OF DELIVERY/INSTALLATION
Undersigned hereby certify that all equipment and property covered by a Security
Agreement or Chattel Mortgage dated July 17, 1998 and Note dated August 7, 1998
between General Electric Capital Corporation, for Itself and as Agent for
Certain Participants ("Secured Party") and undersigned has been delivered to
undersigned and found satisfactory, and that any and all installation has been
satisfactorily completed. In order to induce Secured Party to advance the loan
evidenced by such Note, undersigned hereby waive any defense, counterclaim or
offset thereunder as against Secured Party.
McINNES STEEL COMPANY
By: /s/ Timothy M. Hunter
---------------------------
Title: Treasurer
---------------------------
Date: September 30, 1998
---------------------------
TAYLOR FORGE COMPANY
By: /s/ Timothy M. Hunter
---------------------------
Title: Treasurer
---------------------------
Date: September 30, 1998
---------------------------
<PAGE> 1
EXHIBIT 10.43
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT is made and entered into as of this 10th day of June
1998, by and between GEORGE H. WELLS ("Employee") and CENTRUM INDUSTRIES, INC.
("Corporation").
W I T N E S S E T H
WHEREAS, Employee and Corporation entered into an Amended and Restated
Employment Agreement ("Agreement") effective as of the 1st day of September 1996
whereby the Corporation employed the Employee as President and Chief Executive
Officer; and
WHEREAS, the Agreement was amended as of June 10, 1997; and
WHEREAS, the parties hereto desire to [FURTHER] amend the Agreement and
paragraph 11 of the Agreement requires that all amendments shall be in writing.
NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Paragraphs 2.1 and 2.2 are amended in their entirety to read
as follows:
"2.1 The term of this Agreement shall begin on the effective
date set forth above and shall continue for a period of
three (3) years.
2.2 This Agreement shall automatically renew for additional
three (3) year terms unless terminated in writing by
either party hereto, notice of termination to be given
not less than sixty (60) days prior to the commencement
of a new term."
2. Paragraph 3.1 is amended in its entirety to read as follows:
"3.1 The Employee shall be paid a salary of Two Hundred
Thirty Thousand Dollars ($230,000.00) per year payable
in twenty-four (24) equal bi-monthly installments on
the 15th and last day of each month."
3. Paragraph 3.7 is amended in its entirety to read as follows:
"3.7 In the event Employee's employment is terminated other
than for "Cause" (as defined in Section 2.3) at any
time prior to the expiration of the then current term
of this Agreement, the Corporation shall pay to
Employee as severance compensation an amount equal to
twenty-four (24) times Employee's base monthly cash
compensation then in effect, together with any bonuses
earned pursuant to paragraph 3.2 hereof but not yet
paid and the pro rata amount of the Performance Bonus
that the Employee would otherwise have earned under the
terms of paragraph 3.3 hereof had this Agreement not
been terminated."
4. A NEW PARAGRAPH 3.8 IS ADDED AS FOLLOWS:
"THE CORPORATION SHALL PAY EMPLOYEE UPON THE EXECUTION
OF THIS AGREEMENT, AND ANNUALLY THEREAFTER ON THE LAST
DAY OF THE CORPORATION'S FISCAL YEAR COMMENCING MARCH
31, 1999, AN AMOUNT WHEN GROSSED UP FOR ALL APPLICABLE
TAXES WILL ENABLE EMPLOYEE TO PURCHASE ANNUALLY A
TWENTY-FIVE THOUSAND DOLLAR ($25,000.00) RETIREMENT
ANNUITY AND TO PROVIDE EVIDENCE OF SUCH PURCHASE TO THE
CORPORATION."
5. Except as expressly amended hereby, all other terms and
conditions of the Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Employment Agreement this 10th day of June 1998.
CENTRUM INDUSTRIES, INC.
/s/ George H. Wells By: /s/ Timothy M. Hunter
- --------------------- -----------------------------
GEORGE H. WELLS TIMOTHY M. HUNTER, Secretary
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 465,715
<SECURITIES> 0
<RECEIVABLES> 14,078,702
<ALLOWANCES> 122,890
<INVENTORY> 13,062,393
<CURRENT-ASSETS> 29,446,115
<PP&E> 21,358,051
<DEPRECIATION> 3,751,975
<TOTAL-ASSETS> 52,373,075
<CURRENT-LIABILITIES> 30,545,267
<BONDS> 0
0
3,500
<COMMON> 420,175
<OTHER-SE> 9,735,998
<TOTAL-LIABILITY-AND-EQUITY> 52,373,075
<SALES> 20,661,357
<TOTAL-REVENUES> 20,704,210
<CGS> 15,530,802
<TOTAL-COSTS> 19,897,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 802,913
<INCOME-PRETAX> 3,956
<INCOME-TAX> 1,582
<INCOME-CONTINUING> 2,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,374
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
