<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended: December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _______ to _______
Commission file number: 0-8115
PH GROUP INC.
(Name of Small Business Issuer in Its Charter)
OHIO 31-0737351
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2365 Scioto Harper Drive, Columbus, Ohio 43204
(Address of Principal Executive Offices) (Zip Code)
(614)279-8877
Issuer's Telephone Number, Including Area Code:
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Shares, without 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 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $13,394,357.
The aggregate market value of Common Shares held by non-affiliates of
the Registrant on March 5, 1999 was $2,228,030.
The number of Common Shares outstanding on March 5, 1999 was 1,620,386.
<PAGE> 2
The following document has been incorporated by reference into this
Form 10-KSB:
Document Part of Form 10-KSB
Registrant's Proxy Statement for its Part III
1999 Annual Meeting of Shareholders to
be held on April 27, 1999
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
a. Business Development.
PH Group Inc. is an Ohio corporation (the "Company" or the "Registrant") that
resulted from the merger of a number of small companies over the past 20 years,
the oldest of which was incorporated as Millersport Bank Company in 1906. The
Company sold its banking operations in 1981.
The PH Hydraulics division of the Company arose out of an acquisition in 1987 by
PH Hydraulics & Automation, Inc., a former subsidiary of the Company, of the
right to manufacture and market a line of industrial hydraulic presses which the
Company markets under the PH Hydraulics(TM) label.
The Trueblood division of the Company arose out of an acquisition in 1990 of the
right to manufacture and market a line of plastic injection molding machines
which the Company markets under the Trueblood(TM) label. The Trueblood
operations were conducted by subsidiaries of PH Hydraulics & Automation, Inc.
As of October 31, 1996, PH Hydraulics & Automation, Inc., the sole subsidiary of
the Company, was merged into the Company.
On April 30, 1997, the Company purchased the operating assets of St. Lawrence
Press, a division of St. Lawrence, Inc., for a price of approximately $1.3
million. The purchase agreement contains a contingent earnout component where
the purchase price is subject to future increases based on 5% of gross sales in
excess of an annual specified level ($2.5 million in the first two years and $3
million in the last two years) for eligible products in each of the four years
following the purchase date. The maximum earn out for any one year is $200,000
and the minimum is $50,000. A $124,775 liability has been included on the
financial statements (see Note 8) for the present value of the minimum annual
contingent earnout payments with a corresponding increase in the cost of the
purchase price.
The acquisition was funded with cash, the assumption of liabilities, notes
payable, and restricted common stock which is subject to a repurchase agreement.
St. Lawrence presses are generally larger hydraulic presses that range up to
5,000 tons.
b. Business of Issuer
Business and Principal Products
The Company operates principally in one business segment, the production of high
quality equipment used in the machine tool industry. Based upon its market
research, it is management's belief that the Company has the widest range of
standard and special design hydraulic presses manufactured in the United States.
Hydraulic presses are used in a number of metalforming applications, primarily
in the automotive, aircraft, appliance, and prototype industries. Typical
metalforming applications are assembly, forming, trimming, embossing, and
compression molding. The Company estimates that the market for hydraulic presses
is in excess of $150 million per year. The Company's hydraulic presses range
from 1 to 5,000 tons and are marketed under the names of PH Hydraulics and St.
Lawrence Press. The Company's injection molding product line is used by the
automotive, electrical, medical, and consumer products industries. The process
involves inserting a non-plastic part in a mold and injecting plastic around the
part. The Company estimates that the market for its injection molding machines
is in excess of $200 million. The injection molding machines have a tonnage
range from 30 to 450 tons and are marketed under the Trueblood label.
The Company sells its products primarily through independent sales
representatives. The product lines are separately managed internally by Company
sales personnel who also administer the Company sales and marketing activities.
<PAGE> 4
The following table shows the Company's sales by category within the machine
tool industry for the years 1998, 1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Machine Tools $13,036,460 97.5 $13,493,256 98.1 $8,882,898 97.6
Repair Parts 262,062 2.0 214,992 1.6 153,605 1.7
Repair Service 95,835 0.7 43,757 .3 65,347 0.7
Total $13,394,357 100 $13,752,005 100 $9,101,850 100
</TABLE>
Sources and Availability of Raw Materials
As a matter of policy, the Company uses standard industrial components in the
manufacture of its products. This policy is perceived as a strong marketing
advantage. Since steel is the largest material component of the Company's
products, its availability impacts the Company's ability to meet promised
delivery dates. The Company does not, however, depend heavily on certified or
specialty steels. Hydraulic cylinders and manifolds are key purchase components
which vary in availability and lead times. All of the components used by the
Company in the manufacture of its products are available domestically from a
wide range of suppliers. The Company has experienced no difficulty in obtaining
components from suppliers and anticipates no future difficulty.
Backlog
Backlog at December 31, 1998 was approximately $5,254,000, all of which is
expected to be completed in 1999. Backlog at December 31, 1997 was approximately
$6,505,000 of which $5,894,000 shipped in 1998.
Competition
The Company's two hydraulic press lines face different competition based on the
size of the press. The Company believes that, because of its wide product range
and customer base, it is in a unique position to gain market share for both
product lines. The Company's smaller hydraulic presses, sold under the PH
Hydraulics name, ranging from 1 to 300 tons, have competition from four to six
small companies. These presses, especially less than 50 tons, are sold on the
basis of price and delivery time. The larger presses, sold under the St.
Lawrence Press name, have competition from significantly larger companies. The
competitive factors for sales of the larger hydraulic presses are technical and
engineering design and delivery. Price is seldom the deciding factor. Management
believes that, because of the unique combination of two well-regarded product
lines, it will gain market share. Both product lines have excellent reputations
for performance, quality and engineering design.
Effect of Environmental Regulation
Compliance with federal, state and local provisions regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has not had a material effect upon the capital expenditures,
earnings or competitive position of the Company. The Company believes that the
nature of its operations has little, if any, environmental impact. The Company,
therefore, anticipates no material capital expenditures for environmental
control facilities for its current fiscal year or for the foreseeable future.
<PAGE> 5
Employees
As of December 31, 1998, the Company had 76 employees, all of whom were full
time.
Significant Customers
In 1998, one of the Company's customers accounted for 15% of sales and 24% of
the accounts receivable balance at December 31, 1998. No other customer
accounted for more than 10% of sales. In 1997, one of the Company's customers
accounted for 29% of sales and 33% of the accounts receivable balance at
December 31 1997.
Capital Expenditures and Research and Development
Capital expenditures totaled approximately $265,000 and $319,000 for 1998 and
1997, respectively. Capital expenditures consist of equipment to manufacture
parts as well as storage equipment, computers and office furniture and fixtures.
Research and development costs of approximately $38,000 were expensed during
1998. There were no research and development costs in 1997.
Year 2000 Matters
Issues related to the year 2000 systems issues are addressed in Part II, Item 7,
"Management's Discussion and Analysis or Plan of Operation" contained elsewhere
in this document.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases a manufacturing and office facility at 2365 Scioto Harper
Drive, Columbus, Ohio, containing approximately 22,000 square feet. The lease
term is April 1, 1989 through August 31, 1999. The rent payments escalate from
an annual amount of $54,750 to $88,080 at the end of the eighth year.
The Company owns land in Franklin County, Ohio recorded on the Company's books
at $20,570. In December 1998 the Company sold approximately 470 acres of
undeveloped land in Perry County, Ohio that had been recorded on the Company's
books at $149,600 to the U.S. Department of Agriculture for a consideration of
approximately $480 per acre.
The Company leases manufacturing and office space at 12500 South Wayne Road,
Romulus, Michigan, containing approximately 20,000 square feet. The original
lease term is May 1, 1997 through April 30, 2002 at a monthly rental of $14,850.
A portion of the space was subleased for $2,400 per month through December 31,
1998. The Company has the right to cancel its lease in April 1999. The Wayne
County Airport Authority has issued an order of condemnation on the property due
to airport expansion. The Company is currently vacating the property.
The Company believes that all of the buildings owned or leased by it are well
maintained, in good operating condition, and are suitable for their present
uses, except as disclosed herein.
The Company has entered into a lease agreement for office and manufacturing
space at the CityGate development in Columbus, Ohio. The building is under
construction, with an estimated occupancy of September 1, 1999. Annual lease
payments are estimated to be approximately $280,000.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party, nor is any of its property subject to,
any material pending legal proceedings, other than ordinary, routine litigation
incidental to the business, nor are any such proceedings known by the Company to
be contemplated by governmental authorities.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
a. Market Information
The Company's Common Shares are traded over the counter. The price of the
Company's Common Shares is found on the Electronic Bulletin Board. The range of
high and low bids for the Company's Common Shares for each quarter during its
past two fiscal years is as follows:
<TABLE>
<CAPTION>
Year Quarter $ High(a) $ Low (a)
<S> <C> <C> <C>
1998 4th 2.63 0.50
3rd 3.88 1.50
2nd 4.25 3.00
1st 4.13 2.38
1997 4th 4.00 2.50
3rd 3.20 1.60
2nd 3.00 1.20
1st 2.88 1.20
</TABLE>
(a) Adjusted for a 5-for-4 stock split distributed on January 2, 1998.
The above quotations reflect inter-dealer prices, without retail mark up, mark
down or commission and may not represent actual transactions.
On December 1, 1998, the Company sold options to purchase 5,000 common shares to
each of Alida L. Breen, a director of the Company, and Kenneth J. Warren, the
Secretary of the Company. Each option was sold at a price of $1.50 per share.
Each option is exercisable at a price of $.80 per share and has a term of ten
years. The Company sold the options in reliance upon the exemptions from
registration provided by Sections 4(2) and 4(6) under the Securities Act of 1933
based upon the limited number of purchasers and the status of each individual as
an officer or director of the Company.
b. Holders
As of December 31, 1998, there were approximately 829 record holders of the
Company's Common Shares.
c. Dividends
The Company did not pay cash dividends in 1998 or 1997. Bank lending agreements
contain restrictions against cash dividend payments unless certain financial
covenants are met. The Company's Common Shares were split 5-for-4 on January 2,
1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
Forward Looking Statements
Certain statements contained in this Annual Report on Form 10-KSB, which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
<PAGE> 7
(the "Act"). In addition, certain statements in future filings by the Company
with the Securities and Exchange Commission, in press releases, and in oral and
written statements made by or with the approval of the Company which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Act. Examples of forward-looking statements include, but are not
limited to (a) projections of revenues, income or loss, earnings or loss per
share, the payment or non-payment of dividends, capital structure and other
financial items; (b) statements of plans and objectives of the Company or its
management or Board of Directors, including those relating to products or
services; (c) statements of future economic performance; and (d) statements of
assumption underlying such statements. Words such as "believes", "anticipates",
"expects", "targeted", and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements.
Forward-looking statements involve risks and uncertainties, which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to (a) the strength of the U.S. economy
in general; (b) the ability to improve processes and business practices to keep
pace with economic, competitive and technological environments, including
successfully addressing Year 2000 issues; (c) the ability to increase market
share and control expenses; (d) acquisitions and the ability to successfully
integrate their operations; (e) the ability to raise additional capital through
stock issuance and (f) the success of the Company at managing the risks involved
in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
1998 Compared with 1997
Net Sales
Sales for the year of 1998 totaled $13.4 million, a 2.6% decrease over the same
period in 1997. Press sales for the year of 1998 increased by 47% to $10.1
million. Trueblood sales decreased 49% for the year to $2.9 million. Parts and
service revenues increased 39% to $358 thousand. The Company entered 1998 with a
$6.5 million backlog of orders, most of which shipped in 1998. 1998 ended with a
backlog of orders of $5.3 million that will ship in 1999.
New orders for presses decreased 7.0% in 1998. Orders for injection molding
machines declined 63%. 1997 orders of injection molding machines was positively
impacted by a $3.4 million order from one customer that was not duplicated in
1998. Parts and service orders increased by 84% during 1998, adding increased
business having greater profit margins.
Gross Margin
Gross Margin in 1998 has been adversely impacted by the shipment of highly
specialized presses, and the additional costs associated with metric machines.
Many of these machines were research and development related projects using new
technology unique to a given customer. Material cost of shipments in the period
was 52% of sales compared to 47% for the same period in 1997. Cost projections
on specialty machines that were used in pricing these projects were understated
when compared to the actual material, labor and engineering expenses incurred.
Labor as a percent of sales increased to 9.7% versus 8.8% in 1997. This increase
was primarily due to staffing requirements at the Romulus, Michigan facility
performed by Columbus personnel. The corresponding labor rate is lower when
provided by Columbus personnel as compared to Romulus, Michigan. The benefit of
that reduced rate was eroded by travel-related costs. In addition, the unique
nature of the special orders required more labor hours to complete.
Selling, General and Administrative
Selling, General and Administrative ("SG & A") expenses for the year 1998 have
increased $487,000 or 13.9% over the comparable 1997 amount primarily due to
salary, consulting fees, investment banking fees, travel and
<PAGE> 8
entertainment expenses, and rent of the vacated Romulus facility.
As a percent of sales, SG&A represents 29.9% in 1998 compared to 25.6% in 1997.
Salaries increased $86,000 more in 1998 compared to 1997 amounts. The Company
began to see a decline in salary expense as all work was transferred from the
Romulus facility to Columbus, thus eliminating duplicate positions and expenses
at the two facilities.
Consulting expenses in the amount of $45,000 were incurred to review the
Company's computer software system and its implementation. Investment banking
fees of $25,000 were incurred in an effort to obtain outside equity financing.
There were no comparable charges in 1997. Travel and entertainment expenses are
$25,000 higher than the comparable period of 1997 in part due to the staffing of
Romulus with personnel from Columbus to complete orders in progress.
Rent expense in the amount of $133,000 relating to the Romulus facility has been
reclassified from Manufacturing to Selling, General and Administrative expense
as the building was used primarily as a storage facility during the last half of
the year. The Company had a full 12 months of the St. Lawrence facility expenses
in 1998 as compared to eight months in 1997.
Research and Development expenses in 1998 of $39,000 were incurred with an
outside engineering firm in the design of new products and processes. In-house
engineering efforts on the same projects amounted to approximately $50,000 of
additional expense. There were no similar expenses in 1997.
Interest Expense
Interest expense for the Year 1998 is 50.7% greater than the same period in
1997. The new design and complex nature of many of the large manufacturing jobs
in 1998 required significant cash resources and added to the increased amount of
time that it takes to convert the order to cash. This has led to increased
borrowing against the credit line, resulting in greater interest expense.
Income Taxes
For the year 1998 a net income tax benefit of $297,000 has been recognized,
compared with a $331,300 expense in the previous year. This is due to the net
loss incurred in 1998.
1997 Compared With 1996
In 1997 the Company increased revenues and profits for the third year in a row.
Revenues increased to $13.8 million, an increase of 51.1% over 1996's $9.1
million. The major reason for the Company's growth was sales of its Trueblood
machines which increased to $6.7 million or a 72% increase over 1996's $3.9
million. One of the significant reasons for the Trueblood increase was a large
$3.0 million order, most of which was shipped during the year. St. Lawrence,
acquired in April 1997, had $1.9 million of 1997's shipments. Revenue for the
Company's other product line, PH Hydraulics, remained basically even with 1996's
at $5.1 million.
St. Lawrence Press, a name well known in the large press industry, acquired in
April 1997, was funded with cash, the assumption of liabilities, notes payable
and restricted common stock that is subject to a repurchase agreement. The
addition of the St. Lawrence product line, specializing in presses up to 5,000
tons used in embossing, hydro-forming and die spotting, secures PH Group as the
only press manufacturer in the country manufacturing presses from 1 ton to 5,000
tons. The Company's revenue increase was aided in 1997 by St. Lawrence sales.
New order bookings for the year were $17.3 million. Normally, new orders booked
after October are not shipped until the following year. New order bookings
increased by 86% over 1996 new orders of $9.3 million. St. Lawrence booked $3.6
million for the eight months it was owned by PH Group. Trueblood had new order
bookings for the year of $7.1 million and PH Hydraulics had new orders of $6.4
million. Parts orders comprised the remaining bookings.
<PAGE> 9
Accompanying the record sales was also record net income. Net income increased
by 64.4%. Net income for 1997 was $605 thousand as opposed to $368 thousand in
1996. Net income as a percent of sales increased to 4.4% from 4.0% in 1996.
The St. Lawrence acquisition impacted the traditional financial analysis of the
Company due to increased engineering content and longer period of time from
order to delivery. St. Lawrence presses are large, complex, highly engineered
presses. The average St. Lawrence press sells for approximately $300 thousand as
opposed to $34 thousand for an average PH Hydraulic press. St. Lawrence presses
have greater engineering complexity than either the PH Hydraulic presses or the
Trueblood machines. In addition to the increased engineering costs, St. Lawrence
presses create financial pressures due to the amount of time between receipt of
the purchase order and shipment. A St. Lawrence press can easily take over 26
weeks between receipt of order and shipment. As a result of the long cycle time
between order and shipment, the Company expects interest costs to increase as
bank borrowings may be necessary to fund inventory and labor for longer periods
than the Company's other two product lines.
Cost of goods sold in 1997 was 66.7% of sales, which compares favorably to 76%
in 1996. The major reason for the drop in cost of goods sold was a reduction of
material costs for the year, improved factory floor efficiencies and continued
investment in computer hardware and software. Material costs as a percent of
sales was reduced to 47.8% of sales in 1997 as opposed to 49.1% in 1996. The
reduction in material costs for the year was a result of three factors. The
first factor was that the Company received a large order of $3.0 million for
duplicate Trueblood machines. The large order allowed the Company to receive
greater than normal discounts for material. The second factor is that the
Company continues to reap benefits from its MRP plan that it initiated in late
1995. MRP is designed to speed delivery of our products by refining production
processes. The third reason for the drop in material costs is that a large
percent of St. Lawrence shipments were rebuilt presses. A rebuilt press has
significantly less material costs as a percent of sales than a new press.
Material costs as a percent of sales has decreased for three consecutive years.
Labor, as a percent of sales, increased to 10.2% from 9.8%. Direct labor and
burden costs are 28% higher at the Company's St. Lawrence plant in Romulus,
Michigan. Consequently, the $1.9 million in shipments for 1997 for St. Lawrence
averaged $46 per labor hour as opposed to $36 per labor hour at its Columbus,
Ohio facility. The large difference in labor rates has led the Company to
initiate the close of its St. Lawrence facility by 1999 and move operations to
Central Ohio.
The Company, to accommodate its projected growth plus the consolidation of St.
Lawrence to Central Ohio, is planning on moving to a new facility. The new
facility will be 40,000 square feet and be equipped with crane capacity to
improve both production capacity and gross profit margins. Management believes
that a new facility plus consolidation of operations will substantially improve
profitability.
Selling, General and Administrative costs rose substantially in 1997. SG&A costs
were $3.5 million or 25.6% of sales for 1997 as opposed to $1.7 million or 18.7%
of sales in 1996. The majority of the increases were related to the St. Lawrence
acquisition. Salaries, taxes and benefits increased by 48.3% for the year with
the St. Lawrence staff comprising slightly less than 50% of the increases.
During the year the Company added significantly to the quality of its
engineering department by recruiting higher quality engineers. The increase in
the engineering staff plus increased salary costs with the St. Lawrence
acquisition increased the salary, taxes and benefits to 11.7% of sales in 1997.
The Company financed part of its St. Lawrence acquisition by $600,000 in bank
financing. The St. Lawrence acquisition plus increased business borrowings
increased interest expense. The Company aggressively solicits customer deposits
to provide working capital rather than the use of its line of credit. The
Company finished the year with $1.7 million in customer deposits.
<PAGE> 10
The St. Lawrence acquisition contributed to the significant increase in
professional expense costs for the year. Professional expenses, which included
legal, accounting and SEC reporting requirements, increased 44 percent in 1996
to $248 thousand. In 1997 the Company expensed $280 thousand in advertising and
promotion expenses, a 168% increase over 1996. The Company's 1998 budget calls
for an increase in advertising and promotion expenses to $330 thousand. The
Company believes that it is necessary to spend 2% of projected sales in business
promotion costs.
Liquidity and Capital Resources
The Company's primary cash requirements are for operating expenses and capital
expenditures. These cash requirements have historically been met through a
combination of cash flow from operations, and bank lines of credit.
Cash used in operations in 1998 totaled $2,800,000, resulting mainly from net
loss of $491,000, increases in accounts receivable of $1,136,000 and decreases
in customer deposits of $797,000. The increase in accounts receivable was due to
longer collection periods on specialty orders and an increase in sales in
December 1998. The decrease in customer deposits related to fewer orders in
process at December 31, 1998 compared to the prior year.
Financing activities provided $2,816,000 of net positive cash flow. The cash
flow was primarily due to additional borrowings on the line of credit of
$2,600,000.
At December 31, 1998, the Company had additional borrowings available under the
line of credit of approximately $440,000.
The Company is currently in violation of the debt covenants for the line of
credit and the term loan. On March 30, 1999, the Company obtained a waiver from
the bank with respect to such events of noncompliance. In addition, the line of
credit agreement was amended as follows: 1) borrowing availability was reduced
to $3,000,000 2) interest is payable monthly at bank prime plus 1% or LIBOR plus
325 basis points and 3) the Company must seek to obtain equity or subordinated
debt acceptable to the bank and sufficient to provide adequate liquidity to the
Company. 4) Immediately upon injection of equity into the Company, the Company
shall be required to reduce the term loan balance by at least $250,000. 5) the
debt covenants were revised such that the Company is currently in compliance
with the new covenants.
Management believes that these sources, along with internally generated funds
from operations and additional bank financing, will be sufficient to fund
anticipated operating expenses and capital requirements.
Income Taxes
The balance sheet at December 31, 1998 and 1997 includes a deferred tax asset of
$473,800 and $200,600, respectively, net of a valuation allowance of $54,000 in
1998 and 1997. The valuation allowance relates primarily to the capital loss
carry forward and deferred costs. The deferred tax asset is net of a valuation
allowance since it is more likely than not that a portion of the deferred tax
asset may be realized in the future.
The deferred tax asset at December 31, 1998 primarily includes the tax benefits
associated with net operating and capital tax losses of approximately $254,000
and $55,400, respectively. The remaining deferred tax assets relate to temporary
differences between the book and tax basis of accrued liabilities $106,800,
goodwill of $90,100, inventory of $67,300, partially offset by property and
equipment of $58,100.
Inflation
Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. We believe that, because rates of inflation have
been moderate during the periods presented, inflation has not had a significant
impact on our results of operations.
Year 2000 Readiness
The Year 2000 ("Y2K") issue refers to a condition in computer software where a
two-digit field rather than a four-digit field is used to distinguish a calendar
year. Unless corrected, date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations
<PAGE> 11
causing disruptions to various activities and operations. Such uncorrected
condition could significantly interfere with the conduct of the Company's
business, could result in disruption of its operations and could subject it to
potentially significant legal liabilities.
The Company has conducted an assessment of the Y2K issue and the potential
effect it will have on the Company and its business. The Company has prepared a
plan for dealing with the Y2K issue. The Company has taken initiatives in three
general areas: information technology and communication systems, non-information
technologies systems, and third party issues.
Information Technology and Communication Systems
In 1998 the Company has upgraded the computer network used throughout the
organization. This has included a new client server, new desktop computers, and
upgrades and enhancements to those machines not replaced. Upgraded, Y2K
compliant versions of most software packages have been obtained. These include
the Visual Manufacturing, the company's application system, Novelle network
software, Microsoft Office, Auto CAD, and Parametric Technology Corp.'s Pro E.
In addition, the outside payroll provider and mailing system have been upgraded
to be in compliance.
Current areas of noncompliance include the Company's fixed asset system
software, and the banking communication system software. An upgraded
telecommunications system is currently being negotiated. Other ancillary office
equipment may not be in compliance. The Company expects to have the above
systems in compliance by the end of the second quarter, 1999.
Non-Information Technologies Systems
The Company has internal non-information technology systems comprised primarily
of building security systems that need to be assessed for compliance. The
Company expects to have the assessment completed by April 1999 and remediation
is expected to be completed by June 1999.
Third Parties
The Company has third party relationships with key raw materials suppliers and
outside processors. The Company is engaged in an ongoing effort with these and
key suppliers of outsource services including, but not limited to stock
transfer, debt servicing, payroll, banking, and benefit programs. The Company is
engaged in ongoing evaluations of these third parties' Y2K readiness; while
simultaneously advising them of the Company's readiness.
Because the Company's Y2K compliance is dependent upon key third parties also
being Y2K compliant on a timely basis, there can be no guarantee that the
Company's efforts will prevent a material adverse impact on its results of
operations, financial conditions and cash flows. The possible consequences to
the Company of not being fully Y2K compliant include temporary plant closings,
delays in the delivery of finished products, delays in the receipt of key
ingredients and supplies, invoice and collection errors, and financing issues,
including payroll. These consequences could have a material adverse impact on
the Company's results of operations, financial condition and cash flows if the
Company is unable to conduct its business in the ordinary course.
The Company currently estimates that the aggregate cost of its Y2K efforts
should not exceed $50,000, of which $45,000 has already been expended for
hardware and software upgrades. The Company believes that such costs will not
have a material impact on its results of operations, financial condition or cash
flows. Due to the nature of the Company's efforts, actual costs may vary from
these estimates and there are no guarantees regarding the timing or efficiency
of completion.
Contingency Plans
The Company intends to deal with contingency planning during the second fiscal
quarter of 1999, after results of the assessment and remediation in progress
have been ascertained. The Company cannot currently estimate the cost, if
<PAGE> 12
any, associated with contingency planning efforts that may be necessary to
complete the Y2K efforts.
Regarding "Forward-Looking" Statements
The foregoing outlook contains forward-looking statements that are based on
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from current expectations due to a number
of factors, including general economics; competitive factors and pricing
pressures; shifts in market demand; the performance and needs of industries
served by the Company's business; actual future costs of operating expenses such
as material, wages and benefits; actual cost of continuing investments in
technology; the availability of capital to finance possible growth; the ability
of management to implement Company strategy of acquisitions and process
improvements; and the risks described from time to time in the Company's SEC
reports.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or obtained for Internal Use." This statement defines whether or not
certain costs related to the development or acquisition of internal use software
should be expensed or capitalized and is effective for fiscal years beginning
after December 15, 1998. The Company does not believe the new statement will
have a material impact on its results of operations, financial position and cash
flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," to establish accounting and reporting requirements for
derivative instruments. This standard requires recognition of all derivative
instruments in the statement of financial position as either assets or
liabilities, measured at fair value, and is effective for fiscal years beginning
after June 15, 1999. This statement additionally requires changes in the fair
value of derivatives to be recorded each period in current earnings or
comprehensive income depending on the intended use of the derivatives. The
Company is currently assessing the impact of this statement on its results of
operations and financial position.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company, and related notes, together with the
report of Deloitte & Touche LLP dated March 30, 1999, are set forth at pages F-1
through F-16 attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
At a meeting held on July 10, 1998, the Board of Directors of the Company agreed
to dismiss, effective July 21, 1998, the accounting firm of Greene & Wallace,
Inc., which had served as independent public accountants for the Company prior
to and until July 21, 1998. At the same meeting, the Company agreed to retain
the accounting firm of Deloitte & Touche LLP to serve as independent public
accountants for the Company effective July 21, 1998. The decision to change
accountants was recommended by the Audit Committee of the Board of Directors,
and approved by the Board.
The reports of Greene & Wallace, Inc. on the financial statements for the fiscal
years ended December 31, 1996, and December 31, 1997 contained no adverse
opinion or disclaimer of opinion and neither of such reports was qualified or
modified as to uncertainty, audit scope or accounting principles.
There were no disagreements between the Company and Greene & Wallace, Inc. on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, during the fiscal years ended
December 31, 1996, and December 31, 1997, or in the interim period of January
1,1998 through July 21, 1998, which disagreements, if not resolved to the
satisfaction of Greene & Wallace, Inc., would have caused it to make a reference
to the subject matter of the disagreements in connection with its report.
<PAGE> 13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information regarding the Registrant's directors and executive officers is set
forth at "ELECTION OF DIRECTORS", and the information required by Item 405 of
Regulation S-B is set forth at "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE", in the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders to be held on April 27, 1999, filed with the Securities
and Exchange Commission (the "1999 Proxy Statement"), which information is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is set forth at "COMPENSATION OF
MANAGEMENT" in the 1999 Proxy Statement, which information is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is set forth at "SECURITY OWNERSHIP OF
PRINCIPAL SHAREHOLDERS, DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS" in the 1999
Proxy Statement, which information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth at "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" in the 1999 Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS.
2. PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
2.1. Asset Purchase Agreement, dated as of April 30, 1997, between PH
Group Inc. and St. Lawrence Press Company, Inc. (incorporated by reference to
Exhibit 2 of the Company's Quarterly Report on Form 10 - QSB for the quarterly
period ended March 31, 1997; Commission File No. 0-8115).
3. ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
3.1. Certificate of Amendment by Shareholders to the Article of
Incorporation of PH Group Inc. as filed with the Ohio Secretary of State on
April 30, 1998 (amending Article IV of Amended Articles of Incorporation).
3.2. Action Taken Without Meeting by the Board of Directors of PH Group
Inc. on April 30, 1998 (adopting Amended and Restated Articles of
Incorporation).
3.3. Certified Resolutions regarding adoption of amendment to Sections
2 and 5 of Article I of Amended Code of Regulations of PH Group Inc. by
Shareholders on April 30, 1998.
10. MATERIAL CONTRACTS (*indicates management contract or compensatory
plan or arrangement).
<PAGE> 14
10.1. Bank Lending Agreement, (Second Amended and Restated Revolving
Credit/Term Loan Agreement dated June 29, 1998 between Star Bank, N.A. and PH
Group Inc.).
10.2. Form of Option Agreement between the Company and Employees,
related to options granted under PH Group Inc. 1997 Stock Incentive Plan.
10.3. Form of Option Agreement between the Company and Consultants,
related to options granted under PH Group Inc. 1997 Stock Incentive Plan.
10.4. Form of Option Agreement between the Company and Directors',
related to options granted under PH Group Inc. 1997 Stock Incentive Plan.
10.5. Employment Agreement between the Company and Charles T. Sherman
dated January 23, 1997 (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-KSB for the period ended December 31, 1997;
Commission File No. 0-8115).*
10.6. Split Dollar Agreement between the Company and Charles T. Sherman
dated September 11, 1997 (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-KSB for the period ended December 31, 1997;
Commission File No. 0-8115).*
10.7. PH Group Inc. 1997 Stock Incentive Plan (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the
period ended December 31, 1997; Commission File No. 0-8115).*
10.8. PH Group Inc. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the
period ended December 31, 1997; Commission File No. 0-8115).*
10.9. PH Group Inc. agreement with major Sales Representative.
23. CONSENT OF INDEPENDENT AUDITORS.
23.1. Consent of Deloitte & Touche LLP
23.2. Consent of Greene & Wallace, Inc.
24. POWERS OF ATTORNEY.
24.1. Powers of Attorney.
24.2. Certified resolution of the Company's Board of Directors
authorizing officers and directors signing on behalf of the Company to sign
pursuant to a power of attorney.
27. FINANCIAL DATA SCHEDULE
27. Financial Data Schedule (submitted electronically for SEC
information only).
(b) REPORTS ON FORM 8-K.
There were no Forms 8-K filed by the Company during the fourth quarter
of fiscal year 1998.
<PAGE> 15
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 30, 1999 PH GROUP INC.
(the "Registrant")
By: /s/ CHARLES T. SHERMAN
----------------------------------
Charles T. Sherman, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the 30th day of March, 1999.
SIGNATURE TITLE
/s/ CHARLES T. SHERMAN Director, President,
- ----------------------------- Chief Executive Officer
Charles T. Sherman (principal executive officer)
/s/ KENNETH P. FURLONG Treasurer (principal financial
- ---------------------------- officer)
Kenneth P. Furlong
MICHAEL W. GARDNER* Director, Vice President
- ---------------------------- Special Press Group
Michael W. Gardner
BOB BINSKY* Director
- ----------------------------
Bob Binsky
ALIDA BREEN* Director
- ----------------------------
Alida Breen
M. RICHARD SULSER* Director
- ----------------------------
M. Richard Sulser
TERRY L. SANBORN* Director
- ----------------------------
Terry L. Sanborn
* Charles T. Sherman, by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a Power of Attorney duly
executed by such person.
*By: /s/ CHARLES T. SHERMAN
------------------------------------
Charles T. Sherman, Attorney-in-fact
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
PH Group Inc.
We have audited the accompanying balance sheet of PH Group Inc. as of December
31, l998 and the related statements of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of PH
Group Inc. for the year ended December 31, 1997 were audited by other auditors
whose report, dated February 6, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PH Group Inc. as of December
31, 1998, and the results of its operations and cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Columbus, Ohio
March 30, 1999
<PAGE> 17
PH GROUP INC.
<TABLE>
<CAPTION>
BALANCE SHEETS, DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
<S> <C> <C>
Cash $ 5,862 $ 7,789
Accounts receivable (less allowance for doubtful accounts:
1998 - $30,000; 1997 - $0) 3,974,134 2,837,774
Federal and state income tax receivables 157,646
Inventories 2,942,799 2,829,172
Deferred income taxes 186,300 150,500
Other current assets 85,260 188,496
--------- ---------
Total current assets 7,352,001 6,013,731
--------- ---------
PROPERTY AND EQUIPMENT:
Office equipment 756,890 621,933
Manufacturing equipment 1,090,015 1,053,198
Leasehold improvements 281,821 265,564
Vehicles 140,271 166,180
--------- ---------
Total property and equipment 2,268,997 2,106,875
Less accumulated depreciation and amortization 1,329,574 1,112,086
--------- ---------
Property and equipment, net 939,423 994,789
--------- ---------
OTHER NONCURRENT ASSETS:
Land held for investment 20,570 169,720
Goodwill, net 698,030 785,899
Deferred income taxes, net 287,500 50,100
Other noncurrent assets, net 285,261 280,338
--------- ---------
Total other noncurrent assets 1,291,361 1,286,057
--------- ---------
TOTAL ASSETS $9,582,785 $8,294,577
========== ==========
</TABLE>
(Continued)
See notes to financial statements.
-2-
<PAGE> 18
PH GROUP INC.
<TABLE>
<CAPTION>
BALANCE SHEETS, DECEMBER 31, 1998 AND 1997 (Continued)
- -------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 2,285,591 $ 1,950,925
Current portion of debt 3,281,539 1,226,882
Income taxes payable 422,626
Accrued expenses 460,257 610,409
Customer deposits 924,949 1,722,235
--------- ---------
Total current liabilities 6,952,336 5,933,077
--------- ---------
NONCURRENT LIABILITIES:
Long-term debt (less current portion) 951,068 252,061
Deferred compensation 12,083 12,916
--------- ---------
Total noncurrent liabilities 963,151 264,977
--------- ---------
Total liabilities 7,915,487 6,198,054
--------- ---------
COMMON STOCK SUBJECT TO REPURCHASE, 125,000
shares issued, outstanding shares (93,750 - 1998; 125,000 - 1997)
at redemption value 262,500 312,500
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, with no par value, authorized 10,000,000
shares, issued and outstanding shares at stated value:
(1998 - 1,519,846; 1997 - 1,418,731) 12,157 11,350
Additional paid-in capital 1,403,321 1,292,051
Retained earnings (accumulated deficit) (10,680) 480,622
--------- ---------
Total shareholders' equity 1,404,798 1,784,023
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,582,785 $ 8,294,577
=========== ===========
</TABLE>
See notes to financial statements.
-3-
<PAGE> 19
PH GROUP INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 13,394,357 $ 13,752,009
COST OF SALES 10,042,780 9,167,483
------------ ------------
GROSS MARGIN 3,351,577 4,584,526
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,006,233 3,518,850
------------ ------------
INCOME (LOSS) FROM OPERATIONS (654,656) 1,065,676
------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (285,623) (189,570)
Other, net 151,977 60,040
------------ ------------
Total other income (expenses), net (133,646) 129,530
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (788,302) 936,146
PROVISION (BENEFIT) FOR INCOME TAXES (297,000) 331,300
------------ ------------
NET INCOME (LOSS) $ (491,302) $ 604,846
============ ============
PER SHARE DATA:
Basic earnings (loss) per share $ (0.33) $ 0.43
Diluted earnings (loss) per share $ (0.31) $ 0.37
Weighted average shares outstanding:
Basic 1,490,475 1,397,343
Diluted 1,577,546 1,622,087
</TABLE>
See notes to financial statements.
-4-
<PAGE> 20
PH GROUP INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED
OUTSTANDING ADDITIONAL EARNINGS TOTAL
COMMON STOCK PAID-IN (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1997 1,359,731 $ 10,878 $ 1,239,023 $ (124,224) $ 1,125,677
Issuance of common stock 59,000 472 53,028 53,500
Net income 604,846 604,846
--------- ------ --------- ------- ---------
BALANCES AT DECEMBER 31, 1997 1,418,731 11,350 1,292,051 480,622 1,784,023
Issuance of common stock 101,115 807 111,270 112,077
Net loss (491,302) (491,302)
--------- ------ --------- ------- ---------
BALANCES AT DECEMBER 31, 1998 1,519,846 $ 12,157 $ 1,403,321 $ (10,680) $1,404,798
========= =========== =========== ========== ==========
</TABLE>
See notes to financial statements.
-5-
<PAGE> 21
PH GROUP INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (491,302) $ 604,846
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 393,380 339,985
Deferred income tax benefit (255,500) (160,600)
Gain on sale of property and equipment (52,696) (7,875)
Changes in assets and liabilities affecting cash flows from operating activities:
Accounts receivable (1,136,360) (708,402)
Inventories (113,627) (1,924,683)
Other current assets 103,236 3,136
Other noncurrent assets (34,949) (46,040)
Accounts payable 334,666 963,160
Income taxes (598,172) 399,126
Accrued expenses (150,152) (9,188)
Customer deposits (797,286) 1,029,237
Deferred compensation (833) 6,550
---------- -------
Net cash (used in) provided by operating activities (2,799,595) 489,252
---------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 246,514 145,079
Acquisition costs (211,143)
Capital expenditures for property and equipment (264,587) (319,090)
---------- -------
Net cash used in investing activities (18,073) (385,154)
---------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt obligations (8,919,365) (11,979,558)
Proceeds from debt obligations 11,673,029 11,725,300
Proceeds from issuance of common stock 112,077 41,500
Payment for common stock subject to repurchase (50,000)
---------- -------
Net cash provided by (used in) financing activities 2,815,741 (212,758)
---------- -------
NET DECREASE IN CASH (1,927) (108,660)
CASH, beginning of year 7,789 116,449
---------- -------
CASH, end of year $ 5,862 $ 7,789
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 557,642 $ 92,774
============ ============
Cash paid for interest expense $ 285,623 $ 189,570
============ ============
</TABLE>
See notes to financial statements.
-6-
<PAGE> 22
PH GROUP INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION - PH Group Inc., an Ohio corporation, is the product
of the merger of several companies, the oldest of which was incorporated
in 1906. The primary operations of the Company are the manufacture and
marketing of a line of hydraulic presses and injection molding equipment
under the names PH Hydraulics, St. Lawrence Press and Trueblood. The
principal market area of these product lines is North America.
LOSS FROM OPERATIONS - The Company incurred a net loss of approximately
$491,000 in 1998 and is in violation of certain debt covenants for which
the Company obtained a waiver (See Note 2). Should losses continue to
occur, the Company will continue to have difficulty satisfying liabilities
as they come due and, accordingly, may not be able to continue as a going
concern. Management has changed its focus from revenue growth to
operational efficiencies and has implemented various cost savings plans to
reduce operational losses. Additionally, the Company seeks to improve its
margins in the manufacturing process and acquire additional equity and
amend its bank credit facilities. Accordingly, management believes that
the Company will be able to return to profitable operations, realize its
assets and satisfy its liabilities in the normal course of business.
INVENTORIES - Inventories are stated at the lower of cost (on a first-in,
first-out basis) or market. Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Raw materials $ 420,661 $ 439,528
Finished and work-in-process goods 2,522,138 2,389,644
--------- ---------
Total $2,942,799 $2,829,172
========== ==========
</TABLE>
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method
for financial reporting purposes and accelerated methods for income tax
purposes over the estimated useful lives of the related assets ranging
from 3 to 20 years.
Depreciation expense was approximately $275,000 and $249,000 in 1998
and 1997, respectively.
SIGNIFICANT CUSTOMERS AND INDUSTRY CONCENTRATION - A significant portion
of the Company's business activity is with customers directly or
indirectly related to the automotive industry. One of the Company's
customers accounted for approximately 15% and 29% of the sales in 1998 and
1997 and 24% and 33% of the accounts receivable balance at December 31,
1998 and 1997. The Company's exposure to credit risk is impacted by the
economic climate affecting its industry. The Company manages this risk by
performing on-going credit evaluations of its customers and maintains
reserves for potential uncollectable accounts.
-7-
<PAGE> 23
LAND HELD FOR INVESTMENT - Land held for investment is valued at the lower
of cost or market. Expenditures that add to the recoverable value of the
property are capitalized as land development costs.
GOODWILL - Goodwill is being amortized using the straight-line method over
periods ranging from six to fifteen years for financial statement
purposes. The amortization expense for 1998 and 1997 was approximately
$78,000 and $61,000, respectively. Goodwill on the balance sheet is shown
net of accumulated amortization at December 31, 1998 and 1997 of
approximately $214,000 and $136,000, respectively.
IMPAIRMENT OF ASSETS - At each balance sheet date, a determination is made
by management to ascertain whether property and equipment, goodwill held
for investment, land and non-compete and consulting agreements have been
impaired based on several criteria, including, but not limited to, revenue
trends, undiscounted operating cash flows and other operating factors. For
the years presented, there has been no impairment of assets.
OTHER NONCURRENT ASSETS - Included in other noncurrent assets are
noncompetition and consulting agreements of approximately $147,000 at
December 31, 1998 and 1997. These agreements are being amortized using the
straight-line method over the lives of the agreements which range from 32
to 116 months. The amortization expense for 1998 and 1997 was
approximately $37,000 and $25,000, respectively. Accumulated amortization
at December 31, 1998 and 1997 was approximately $62,000 and $25,000,
respectively.
REVENUE RECOGNITION - Revenue from equipment sales and the related costs
of sales are recognized when products are completed, and accepted for
shipment by the customer, and all costs are incurred or subject to
reasonable estimate. Advance payments from customers prior to completion
are reported as customer deposits.
PRODUCT WARRANTY - The Company generally provides a warranty against
defects in its products for periods ranging from one to two years. A
liability for estimated warranty costs is recognized on current sales. The
Company has determined the estimate based on the historical relationship
of actual warranty costs to sales revenue.
ADVERTISING - The Company expenses advertising costs as incurred.
Advertising costs relate primarily to product brochures, industry
magazines and trade shows. Advertising expenses were approximately
$242,000 and $274,000 in 1998 and 1997, respectively.
RESEARCH AND DEVELOPMENT -The Company expenses research and development
costs as incurred. Research and development expenses were approximately
$39,000 and $0 in 1998 and 1997, respectively.
PER SHARE INFORMATION - Basic earnings per share amounts (EPS) are
computed based on the weighted average number of common shares actually
outstanding. Diluted EPS includes the effect of EPS of dilutive stock
options of 72,759 and 140,840 and restricted stock subject to put options
of 14,312 and 83,904 at December 31, 1998 and 1997, respectively.
Computation of the dilutive effect of stock option conversion is computed
using the treasury stock method. All share and per share information for
1998 and 1997 reflects the retroactive impact of a five for four stock
split which occurred January 2, 1998. No adjustments to net income (loss)
were required for purposes of computing diluted per share amounts.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
-8-
<PAGE> 24
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
BUSINESS SEGMENTS - In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of a Business
Enterprise and Related Information". The Company is managed in one
operating segment, the manufacturer of equipment for the machine tool
industry. Within their one operating segment, the Company has identified
two product groups; Hydraulic Presses and Injection Molding Machines. The
following is supplemental information on net sales by product group:
<TABLE>
<CAPTION>
HYDRAULIC INJECTION REPAIR PARTS
PRESSES MOLDING AND SERVICE TOTAL
<S> <C> <C> <C> <C>
1998 $ 10,151,921 $ 2,884,539 $ 357,897 $ 13,394,357
1997 $ 6,897,463 $ 6,596,793 $ 257,749 $ 13,752,005
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS - In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or obtained for
Internal Use." This statement defines whether or not certain costs related
to the development or acquisition of internal use software should be
expensed or capitalized and is effective for fiscal years beginning after
December 15, 1998. The Company does not believe the new statement will
have a material impact on its results of operations and financial
position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," to establish accounting and reporting
requirements for derivative instruments. This standard requires
recognition of all derivative instruments in the statement of financial
position as either assets or liabilities, measured at fair value, and is
effective for fiscal years beginning after June 15, 1999. This statement
additionally requires changes in the fair value of derivatives to be
recorded each period in current earnings or comprehensive income depending
on the intended use of the derivatives. The Company is currently assessing
the impact of this statement on its results of operations, financial
position and cash flows.
RECLASSIFICATIONS - Reclassifications have been made to prior years'
amounts to conform with the current year's classifications.
-9-
<PAGE> 25
2. DEBT AND OTHER OBLIGATIONS
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Bank line of credit agreement $ 3,056,716 $ 457,049
Term loan payable to bank at interest rate of 8.07%, secured,
monthly payments of $14,286 through June 30, 2005. 1,114,286
The term loan is cross collateralized with the line of credit
Promissory note payable to bank at an interest rate of
prime plus 1%, secured, paid in 1998 600,000
Term loan payable to a bank at an interest rate of prime
plus 1%, secured, paid in 1998 291,667
Other installment notes at interest rates ranging from 5%
to 10.25%, secured by certain vehicles and manufacturing
equipment, requiring monthly principal and interest
payments with various maturities through August 2000 37,841 87,287
Capital lease obligation at 13%, secured by computer
equipment requiring monthly principal and interest
payments through January 2000 23,764 42,940
--------- ---------
Total 4,232,607 1,478,943
Less current portion 3,281,539 1,226,882
--------- ---------
Long-term portion $ 951,068 $ 252,061
========= =========
</TABLE>
BANK LINE OF CREDIT - At December 31, 1998, the Company has a line of
credit agreement with a bank to borrow up to $3,500,000, subject to
certain borrowing base restrictions. The line is secured as noted below.
Interest is payable monthly at bank prime plus .5%. The agreement expires
on September 30, 1999. Outstanding balances due were $3,056,716 and
$457,049 at December 31, 1998 and 1997. At December 31, 1998 the Company
was in violation of certain debt covenants regarding the following;
tangible net worth, debt to tangible net worth ratio, defined cash flow
coverage ratio and annual capital expenditures. On March 30, 1999 the
Company obtained a waiver from the bank with respect to such events of
noncompliance. Additional borrowings available under the line of credit at
December 31, 1998 were $443,284.
In addition, the line of credit agreement was amended as follows: 1)
borrowing availability was reduced to $3,000,000 2) interest is payable
monthly at bank prime plus 1% or LIBOR plus 325 basis points and 3) the
Company must seek to obtain equity or subordinated debt acceptable to the
bank and sufficient to provide adequate liquidity to the Company. 4)
Immediately upon injection of equity into the Company, the Company shall
be required to reduce the term loan balance by at least $250,000. 5) the
debt covenants were revised such that the Company is currently in
compliance with the new covenants.
-10-
<PAGE> 26
Maturities of debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $3,281,539
2000 179,640
2001 171,429
2002 171,429
2003 171,429
Thereafter 257,141
----------
Total $4,232,607
==========
</TABLE>
Debt is secured by substantially all assets of the Company and the
assignment of the proceeds of a $500,000 life insurance policy.
3. INCOME TAXES
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997
Current:
<S> <C> <C>
Federal $ 11,100 $ 419,800
State and local (52,600) 72,100
--------- ---------
(41,500) 491,900
Deferred:
Federal (250,100) (160,600)
State and local (5,400)
--------- ---------
(255,500) (160,600)
--------- ---------
Provision (benefit) for income taxes $(297,000) $ 331,300
========= =========
</TABLE>
A reconciliation of the income tax provision (benefit) based on the
federal statutory income tax rate of 34% to the Company's income tax
provision (benefit) is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Provision (benefit) at federal statutory rate $(268,000) $ 318,300
State and local tax expense (benefit), net of federal effect (35,400) 72,100
Change in valuation allowance (39,800)
Other items, net 6,400 (19,300)
--------- ---------
Provision (benefit) for income taxes $(297,000) $ 331,300
========= =========
</TABLE>
-11-
<PAGE> 27
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
Current assets:
<S> <C> <C>
Accrued expenses $ 106,800 $ 79,400
Inventory 67,300 104,900
Bad debt allowance 12,200
--------- ---------
Total current assets 186,300 184,300
--------- ---------
Non-current asset (liability):
Property, plant and equipment (58,100) (39,600)
Net operating loss carryforwards 254,100
Goodwill 90,100 29,000
Deferred costs 76,300
Capital loss carryforwards 55,400
Other, net 4,600
--------- ---------
Total non-current asset 341,500 70,300
--------- ---------
Total deferred tax asset 527,800 254,600
Less valuation allowance (54,000) (54,000)
--------- ---------
Total deferred tax asset - net $ 473,800 $ 200,600
========= =========
</TABLE>
At December 31, 1998, the Company has approximately $747,000 of net
operating losses carryforwards for Federal income tax purposes expiring in
2013 and approximately $54,000 in capital loss carryforwards expiring in
2003.
4. OPERATING LEASES
During 1989, the Company entered into an agreement to lease office and
manufacturing space in Columbus, Ohio. The lease period is 125 months and
will expire on August 31, 1999.
During May 1997, the Company entered into an agreement to lease office and
manufacturing space in Romulus, Michigan. The lease requires monthly
payments of $14,850, plus a proportionate share of the operating expenses.
The agreement was to expire in April 2002, with an option for early
termination in April 1999. The Wayne County Airport Authority has issued
an order of condemnation on the property due to airport expansion. The
Company is currently vacating the property. A portion of this space was
subleased for $2,400 per month, plus a proportionate share of the
operating expenses, under a month to month operating lease agreement.
-12-
<PAGE> 28
The Company has entered into a lease of office and manufacturing space at
the CityGate development in Columbus, Ohio. The building is currently
under construction, however, a preliminary annual lease payment of
approximately $279,000 has been negotiated based on estimated construction
costs. The Company plans to occupy the new building in September 1999.
Minimum future rental payments for the above noncancelable operating
leases having remaining terms in excess of one year as of December 31,
1998 are as follows:
<TABLE>
<S> <C>
1999 $ 93,045
2000 279,135
2001 279,135
2002 279,135
2003 279,135
Thereafter 2,977,440
</TABLE>
Rental expense under all operating leases was approximately $255,000 in
1998 and $182,000 in 1997.
5. STOCK OPTIONS
The Company has a fixed director's stock option plan. Under this plan the
Company can grant up to 6,250 options per newly elected director after May
1996. The maximum term of the options is ten years and they become fully
vested at the end of two years. Directors who held their position before
May 1996 could receive up to 25,000 options which were fully vested upon
receipt, and expire in the year 2005. The exercise price of each option is
equal to the market price of the Company's stock on the date of the grant.
All stock option information in these financial statements has been
adjusted to reflect the impact of a five for four stock split in January
1998.
The Company's 1997 Stock Incentive Plan allows the Board of Directors to
grant stock options to employees, directors and consultants. The total
number of aggregate shares which may be granted under the Plan shall not
exceed 187,500. Options to acquire company stock for employees and
consultants shall not be granted with exercise prices less than the fair
market value of a share on the date of the grant. The number of shares
granted to employees and consultants is at the discretion of the board.
Shares are granted to non-employee directors upon appointment to the board
and at each annual meeting based upon the increase in total income before
taxes over the prior calendar year. Options granted to non-employee
directors are made at exercise prices equal to the fair market value of
the stock at the date of the annual meeting corresponding to the
performance year. During 1998, 66,150 options were granted at $3.11 under
the Plan. No options will be granted to non-employee directors at the 1999
annual meeting of shareholders.
The Company accounts for its stock option plans in accordance with APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for all stock option plans been determined consistent
with the SFAS No. 123, "Accounting for Stock Based Compensation," the
Company's pro forma 1998 net income (loss) and earnings (loss) per common
share would have been $(554,269) and $(.37) per basic and $(.35) diluted
share, respectively. For 1997, pro forma net income and earnings per
common share would have been $545,276 and $.39 per basic share or $.34 per
diluted share. The pro forma amounts are not representative of the effects
on reported net earnings or earnings per common share for future years.
The fair value of each option granted is estimated on the grant date using
the Black-Scholes Formula. The following weighted average assumptions were
made in estimating the fair value for options granted in 1998
-13-
<PAGE> 29
and 1997, respectively: risk-free interest rates of 5.09% and 6.25%; and
volatility factors of 119% and 184%. The expected life of the options was
assumed at 10 years and the expected dividend yields were assumed to be
zero for both 1998 and 1997.
The following table summarized stock option activity:
<TABLE>
<CAPTION>
1998 1997
---- ----
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 233,750 $ 1.02 252,500 $ 0.86
Granted 72,400 3.11 33,500 1.68
Exercised (71,700) 0.86 (52,250) 0.81
Forfeited or expired (29,150) 2.62
------- ---- ------- ------
Outstanding at end of year 205,300 $ 1.57 233,750 $ 1.02
======= ====== ======= ======
Exercisable at end of year 162,550 $ 1.16 179,750 $ 1.01
======= ====== ======= ======
Weighted average fair value of options
granted during the year $ 2.84 $ 2.29
====== ======
Options Available for Grant 131,750 187,500
======= =======
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Weighted Weighted
Number Average Average Number Average
of Exercise Contractual of Exercise
Range of Exercise Prices Options Price Life (Years) Options Price
<S> <C> <C> <C> <C> <C>
$.80 91,250 $ 0.80 4.1 96,250 $ 0.80
$1.20 to $2.20 66,050 1.51 4.1 55,000 1.37
$3.06 to $3.25 48,000 3.11 9.3 11,300 3.15
------ ---- ------ ----
205,300 $ 1.57 162,550 $ 1.16
======= ====== ======= ======
</TABLE>
Options to purchase 125,000, 93,750, 98,650 and 57,900 shares at $1.60 -
3.25 for each quarter in 1998 were outstanding but not included in the
computation of diluted EPS because the options' exercise price was greater
than the average market price of common shares.
-14-
<PAGE> 30
On January 26, 1999 options for 3,125 shares at $1.75 per share were
granted automatically to a director appointed to fill a board vacancy. On
February 9, 1999 options for 45,000 shares were granted to employees and
executives of the Company at $1.38 per share.
6. TRANSACTIONS WITH RELATED PARTIES
In 1998 fees of $26,400 were paid to a director for services provided to
the Company. In 1997 fees of $85,000 were incurred to an entity owned by
certain shareholders in regards to activities involving the St. Lawrence
Press asset acquisition (see Note 8). At December 31, 1997 a liability of
$32,000 is due to this entity and included in accounts payable. At
December 31,1998 this liability was paid in full.
In December 1996 the Company agreed to lend $59,000 to an entity owned by
certain shareholders. At December 31, 1998 the outstanding balance was
$47,200, with $5,900 in other current assets and $41,300 in other
non-current assets. At December 31, 1997 the outstanding balance was
$53,100 with $5,900 in other current assets and $47,200 in other
non-current assets. Interest is computed on the outstanding principal
amount at a rate of bank prime plus 1.25%. Principal repayment is $5,900
for 1999 with remaining balance is due in 2000.
7. PROFIT-SHARING PLAN
The Company sponsors a profit-sharing plan covering employees completing
at least six months of service, working at least 1,000 annual hours, and
having attained the age of 21. Contributions to the plan are made at the
discretion of the Board of Directors. Employees have an option to make
voluntary contributions to the Plan under the provisions of Internal
Revenue Code Section 401(k). Profit-sharing expense was approximately
$20,000 in 1998, and $51,900 in 1997.
8. BUSINESS COMBINATION
On April 30, 1997, the Company acquired certain net assets of the St.
Lawrence Press Company in a business combination accounted for as a
purchase. The acquired business is engaged in the production, development
and sales of various multi-ton hydraulic presses. The results of
operations of the acquired business are included in the financial
statements from the date of acquisition. The $1,257,430 purchase price,
including acquisition costs, exceeded the value of the net tangible assets
acquired by $910,418. The excess amount was allocated as follows: Goodwill
$763,836; Consulting Agreements $109,942; and Noncompetition Agreements
$36,640. These intangible assets are being amortized over fifteen years
for the Goodwill and the specific lives of the Noncompetition and
Consulting Agreements which range from 32 to 116 months.
The purchase agreement contains a contingent earnout component where the
purchase price is subject to future increases. The increases are based on
5% of gross sales in excess of an annual specified level ($2.5 million in
the first two years and $3 million in the last two years) for eligible
products in each of the four years following the purchase date. The
maximum earn out for any one year is $200,000 and the minimum is $50,000.
A $124,775 liability has been included on the financial statements (see
Note 3) for the present value of the minimum annual contingent earnout
payments with a corresponding increase in the cost of the purchase price.
The acquisition was funded with cash, the assumption of liabilities, notes
payable, and restricted common stock which is subject to a repurchase
agreement, (see Note 10).
-15-
<PAGE> 31
9. COMMON SHARES SUBJECT TO REPURCHASE
In conjunction with the St. Lawrence Press asset acquisition discussed in
Note 8, the Company issued 125,000 shares of common stock, which are
subject to a repurchase agreement. The issued shares are subject to
restrictions on their transfer and voting rights. The Company has
guaranteed the value of these shares by providing the holders four
separate put rights which can require the Company to redeem these shares
as follows: 31,250 shares on April 30, 1998 at $1.60 per share; 31,250
shares on April 30, 1999 at $2.40 per share; 31,250 shares on April 30,
2000 at $2.80 per share; and 31,250 shares on April 30, 2001 at $3.20 per
share. Each separate put option is not exercisable until the dates shown
above and expires one year from this vesting date. The holders are
required to attempt to sell the shares in the market at a price equal to
or greater than the minimum share price for 90 days prior to requiring the
Company to redeem them.
On the date issued, there was no significant difference between the
estimated fair value of the common shares subject to repurchase and the
future mandatory redemption amounts.
No put options were exercised on the first installment at April 30, 1998.
However, the holders were able to sell the first installment of 31,250
shares on the market at April 30, 1998.
10. CONTINGENCIES
At December 31, 1998, the Company is a party to various legal matters
which have arisen in the ordinary course of business. Such matters did not
have a material adverse effect on the current year's results of operations
and, in the opinion of management, their ultimate disposition will not
have a material adverse effect on the Company's future financial position
or results of operations.
******
-16-
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page in
Sequentially
Numbered
Exhibit No. Description Copy
<S> <C> <C>
2.1. Asset Purchase Agreement, dated as of April 30, 1997, between PH Group
Inc. and St. Lawrence Press Company, Inc. (incorporated by reference
to Exhibit 2 of the Company's Quarterly Report on Form 10 - QSB for the
quarterly period ended March 31, 1997; Commission File No. 0-8115). *
3.1. Certificate of Amendment by Shareholders to the Article of
Incorporation of PH Group Inc. as filed with the Ohio
Secretary of State on April 30, 1998 (amending Article IV of
Amended Articles of Incorporation).
3.2. Action Taken Without Meeting by the Board of Directors of PH Group Inc.
on April 30, 1998 (adopting Amended and Restated Articles of Incorporation).
3.3. Certified Resolutions regarding adoption of amendment to
Sections 2 and 5 of Article I of Amended Code of Regulations
of PH Group Inc. by Shareholders on April 30, 1998.
10.1. Bank Lending Agreement, (Second Amended and Restated Revolving
Credit/Term Loan Agreement dated June 29, 1998 between Star Bank,
N.A. and PH Group Inc.).
10.2. Form of Option Agreement between the Company and Employees, related
to options granted under PH Group Inc. 1997 Stock Incentive Plan.
10.3. Form of Option Agreement between the Company and Consultants, related
to options granted under PH Group Inc. 1997 Stock Incentive Plan.
10.4. Form of Option Agreement between the Company and Directors', related
to options granted under PH Group Inc. 1997 Stock Incentive Plan.
10.5. Employment Agreement between the Company and Charles T.
Sherman dated January 23, 1997 (incorporated by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-KSB for
the period ended December 31, 1997; Commission File No.
0-8115).* *
10.6. Split Dollar Agreement between the Company and Charles T.
Sherman dated September 11, 1997 (incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-KSB for
the period ended December 31, 1997; Commission File No.
0-8115).* *
10.7. PH Group Inc. 1997 Stock Incentive Plan (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the
period ended December 31, 1997; Commission File No. 0-8115).* *
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
10.8. PH Group Inc. Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the
period ended December 31, 1997; Commission File No. 0-8115).* *
10.9. PH Group Inc. agreement with major Sales Representative.
23.1. Consent of Deloitte & Touche LLP
23.2. Consent of Greene & Wallace, Inc.
24.1. Powers of Attorney.
24.2. Certified resolution of the Company's Board of Directors
authorizing officers and directors signing on behalf of the
Company to sign pursuant to a power of attorney.
27. Financial Data Schedule (submitted electronically for SEC
information only).
</TABLE>
- ---
*Incorporated by reference
<PAGE> 1
3.1 Prescribed by Charter No._____________
BOB TAFT, Secretary of State Approved_______________
30 East Broad Street, 14th Floor Date ___________________
Columbus, Ohio 43266-0418 Fee $35.00
CERTIFICATE OF AMENDMENT
BY SHAREHOLDERS TO THE ARTICLES OF INCORPORATION OF
PH GROUP INC.
(Name of Corporation)
Charles T. Sherman , who is:
( ) Chairman of the Board (X) President ( )Vice President (Please check one.)
and Kenneth J. Warren , who is:
(X) Secretary ( ) Assistant Secretary (Please check one.)
of the above named Ohio corporation organized for profit does hereby certify
that: (Please check the appropriate box and complete the appropriate
statements.)
(X) a meeting of the shareholders was duly called for the purpose of
adopting this amendment and held on April 30, 1998 at which meeting a
quorum of the shareholders was present in person or by proxy, and by
the affirmative vote of the holds of shares entitling them to exercise
___________% of the voting power of the corporation.
( ) in a writing signed by all of the shareholders who would be entitled
to notice of a meeting held for that purpose, the following resolution
to amend the articles was adopted:
RESOLVED. that Article IV of the Company's Amended Articles of Incorporation be,
and it hereby is, amended in its entirety to read as presented to the
shareholders at this meeting and set forth in Exhibit A to the proxy statement
delivered to the shareholders in connection with this meeting.
IN WITNESS "'(WHEREOF, the above named officers; acting for and on the behalf of
the corporation, have hereto subscribed their names this 30th day of
April , 1998.
By ___/s/ Charles T. Sherman________ By ____/s/ Kenneth J. Warren____________
(President) (Secretary)
NOTE: OHIO LAW DOES NOT PERMIT ONE OFFICER TO SIGN IN TWO CAPACITIES, TWO
SEPARATE SIGNATURES ARE REQUIRED, EVEN IF THIS NECESSITATES THE ELECTION OF A
SECOND OFFICER BEFORE THE FILING CAN BE MADE.
ISD FORM SHARE
<PAGE> 1
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3.2
DATE DOCUMENT NO DESCRIPTION FILING EXPED PENALTY CERT COPY
1.5/20/1998 199813100541 AMD DOMESTIC/ 6285.00 0.00 0.00 0.00 0.00
AMENDMENT TO ARTICLES TOTAL 6285.00 0.00 0.00 0.00 0.00
</TABLE>
RETURN TO:
KEN WARREN
5920 CROMDALE #1
DUBLIN, OH 43017-0000
- ------------------------------CUT ALONG THE DOTTED LINE-------------------------
THE STATE OF OHIO
~ CERTIFICATE ~
Secretary of State - Bob Taft
328076
It is hereby certified that the Secretary of State of Ohio has
custody of the business records for PH GROUP INC. and that said
business records show the filing and recording of:
Documents(s) Document No(s):
------------ ---------------
DOMESTIC/AMENDMENT TO ARTICLES 19813100541
-----------------------------
United States of America Witness my hand and the seal of the Secretary
State of Ohio of State at Columbus, Ohio, This 8th day of
Office of the Secretary of State May, A.D. 1998
Bob Taft
Secretary of State
<PAGE> 2
3.2
ACTION TAKEN WITHOUT MEETING
BY THE
BOARD OF DIRECTORS
OF
PH GROUP INC.
The undersigned, being all of the Directors of PH Group Inc., an Ohio
corporation, do hereby authorize and take the following action in writing as of
April 30, 1998.
RESOLVED, that the Amended and Restated Articles of Incorporation of PH
Group Inc., in the form attached hereto as Exhibit A and made a part hereof,
which Amended and Restated Articles of Incorporation consolidate the original
articles and all previously adopted amendments to the articles that are in force
at the date hereof, be, and the same hereby are, adopted.
/s/ Bob Binsky
---------------------------
Bob Binsky
/s/ Alida L. Breen
---------------------------
Alida L. Breen
/s/ Michael W. Gardner
---------------------------
Michael W. Gardner
/s/ David Montgomery
---------------------------
David Montgomery
/s/ Terry L. Sanborn
---------------------------
Terry L. Sanborn
/s/ Charles T. Sherman
---------------------------
Charles T. Sherman
<PAGE> 3
Exhibit A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PH GROUP INC.
ARTICLE I
The name of said corporation shall be PH Group Inc.
ARTICLE II
The place in Ohio where its principal office is to be located is in
Columbus, Franklin County, Ohio.
ARTICLE III
The purposes for which it is formed are to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Revised Code.
This corporation reserves the right at any time and from time to time
substantially to change its purpose in the manner now or hereafter permitted by
statute. Any change of the purposes of the corporation which is authorized or
approved by the holders of shares entitling them to exercise the proportion of
the voting power of the corporation now or hereafter required by statute, shall
be binding and conclusive upon every shareholder as if he had voted therefor. No
shareholder, notwithstanding that he may have voted against such change of
purposes or may have objected thereto in writing, shall be entitled to payment
of the fair cash value of his shares.
ARTICLE IV
AUTHORIZED SHARES
Section 1. Number and Class of Shares. The number of shares which the
Corporation is authorized to have issued and outstanding is 12,500,000 shares.
The classes and the aggregate number of shares of each class are as follows:
(a) 10,000,000 Common Shares, without par value; and
(b) 2,500,000 Preferred Shares, without par value.
No holder of Common Shares or of Preferred Shares shall have as such, as a
matter of right, the preemptive right to subscribe for or purchase any part of
any new or additional issue of shares of any class whatsoever, or of securities
or other obligations convertible into or exchangeable for
<PAGE> 4
any shares of any class whatsoever or which by warrants or otherwise entitle the
holders thereof to subscribe for or purchase any shares of any class whatsoever,
whether now or hereafter authorized and whether issued for cash or other
consideration.
Section 2. Preferred Shares.
2.1. Issuance in Series. Any unissued or treasury Preferred
Shares may be issued from time to time in one or more series for such
consideration as may be fixed from time to time by the Board of Directors. The
Board of Directors is hereby expressly authorized to adopt amendments to the
Articles of Incorporation in respect of any unissued or treasury Preferred
Shares to, among other things, fix or change (a) the division of Preferred
Shares into one or more series, (1,) the designation and authorized number of
shares of each series, and (c) the express terms of each series of Preferred
Shares. The express terms of shares of different series of Preferred Shares
shall be identical except that there may be variations in respect of:
2.1.1. the dividend or distribution rate;
2.1.2. the dates of payments of dividends or
distributions and the dates from which they are cumulative;
2.1.3. redemption rights and price;
2.1.4. liquidation price;
2.1.5. sinking fund requirements;
2.1.6. conversion rights; and
2.1.7. restrictions on the issuance of shares of the
same series or of any other class or series.
2.2. Voting Rights. As to every matter requiring the approval
of the shareholders of the Corporation, every holder of Preferred Shares shall
be entitled to one vote for each Preferred Share standing in his name on the
books of the Corporation, with the same and identical voting rights, except as
otherwise provided herein, as a holder of Common Shares. The Preferred Shares
and Common Shares shall vote together as a single class, except as otherwise
required by law or the Articles of Incorporation.
2.3. Priority of Preferred Shares in Event of Dissolution. In
the event of any dissolution, liquidation or winding up of the affairs of the
Corporation, whether voluntarily or involuntarily, the holders of each series of
Preferred Shares shall be entitled, after payment or provision for payment of
the debts and other liabilities of the Corporation, to receive, out of the net
assets of the Corporation, the amount fixed and determined by the Board of
Directors in any amendment to the Articles of Incorporation providing for the
issuance of a particular series of Preferred Shares, before any distribution
shall be made to the holders of Common Shares. Neither the merger or
consolidation of the Corporation, nor the sale, lease or conveyance of all or
<PAGE> 5
part of its assets, shall be deemed to be a liquidation, dissolution or winding
up of the affairs of the Corporation within the meaning of this Section 2.3.
2.4. Priority of Preferred Shares to Dividends or Other
Distributions. As and when dividends or other distributions payable in cash,
property or capital stock of the Corporation may be declared by the Board of
Directors, holders of Preferred Shares shall be paid a dividend or distribution
in an amount to be determined by the Board of Directors in any amendment to the
Articles of Incorporation before payment of any such dividend or distribution is
made to holders of Common Shares.
ARTICLE V
A. Notwithstanding any provision of the Revised Code of Ohio, now or
hereafter in force, requiring for any purpose the vote of the holders of shares
entitling them to exercise two-thirds or any other proportion of the voting
power of the corporation or of any class or classes of shares thereof, such
action, unless otherwise expressly required by statute, may be taken by the vote
of the holders of shares entitling them to exercise a majority of the voting
power of the corporation or of such class or classes.
B. The corporation reserves the right to amend, alter, change or repeal
any provision contained in the Articles of Incorporation, in the manner now or
hereafter prescribed or permitted by statute, and all rights conferred upon
shareholders herein are granted subject to this reservation.
C. No person shall be disqualified from being a director of the
corporation because he or she is or may be a party to, and no director of the
corporation shall be disqualified from entering into any contract or other
transaction to which the corporation is or may be a party. No contract or other
transaction to which the corporation is or may be a party shall be void or
voidable for the reason that any director or officer or other agent of the
corporation is a party thereto, or otherwise has any direct or indirect interest
in such contract or transaction or in any other party thereto, for reason that
any interested director or officer or other agent of the corporation authorizes
or participates in authorization of such contract or transaction, (a) if the
material facts as to such interest are disclosed or are otherwise known to the
Board of Directors - at the time the contract - or transaction is authorized and
at least a majority of the disinterested members vote for or otherwise take
action authorizing such contract or transaction even though such disinterested
directors are less than a quorum, or Q,) if the contract or transaction (i) is
not less favorable to the corporation than an arm 5 length contract or
transaction in which no director or officer or other agent of the corporation
has any interest or (ii) is otherwise fair to the corporation as of the time it
is authorized. Any interested director may be counted in determining the
presence of a quorum at any meeting of the Board of Directors which authorizes
the contract or transaction.
D. Section 1701.831 of the Ohio Revised Code, as amended from time to
time, shall not apply to "control share acquisitions" of shares of stock of the
corporation, as defined in Section 1701.01(Z) of the Ohio Revised Code, as
amended from time to time.
E. No shareholder of the corporation may cumulative voting power in the
election of
<PAGE> 6
directors.
ARTICLE VI
The Board of Directors is hereby authorized to determine whether any,
and, if any, what part of the surplus, however created or arising, shall be used
or disposed of or declared in dividends or paid to shareholders, and, without
action of the shareholders, to use and apply such surplus, or any part thereof,
at any time or from time to time, in the purchase or acquisition of shares of
any class now or hereafter authorized, voting-trust certificates for shares,
bonds, debentures, notes, scrip, warrants, obligations, evidences of
indebtedness of the corporation, and other securities of the corporation, to
such extent or amount and in such manner and upon such terms as the Board of
Directors shall deem expedient.
ARTICLE VII
The provisions of Section 1701.13(E)(5)(a) of the Ohio Revised Code or
any statute of like tenor or effect which is hereafter enacted shall not apply
to the corporation. The corporation shall, to the fullest extent not prohibited
by any provision of applicable law other than Section 1701.l3(E)(5)(a) of the
Ohio Revised Code or any statute of like tenor or effect which is hereafter
enacted, indemnify each director and officer against any and all costs and
expenses (including attorney fees, judgments, fines, penalties, amounts paid in
settlement and other disbursements) actually and reasonably incurred by or
imposed upon such person in connection with any action, suit, investigation or
proceeding (or any claim or other matter therein), whether civil, criminal,
administrative or otherwise becomes or is threatened to be made a party by
reason of being or at any time having been, while such a director or officer, an
employee or other agent of the corporation or, at the direction or request of
the corporation, a director, trustee, officer, administrator, manager employee,
adviser or other agent of or fiduciary for any other corporation, partnership,
trust venture or other entity or enterprise including any employee benefit plan.
The corporation shall indemnify any other person to the extent such
person shall be entitled to indemnification under Ohio law by reason of being
successful on the merits or otherwise in defense of an action to which such
person is named a party by reason of being an employee or other agent of the
corporation and the corporation may further indemnify any such person if it is
determined on a case by case basis by the Board of Directors that
indemnification is proper in the specific case.
Notwithstanding anything to the contrary in these Articles of
Incorporation, no person shall be indemnified to the extent, if any, it is
determined by the Board of Directors or by written opinion of legal counsel
designated by the Board of Directors for such purpose that indemnification is
contrary to applicable law.
<PAGE> 7
ARTICLE VIII
These Amended and Restated Articles of Incorporation supersede and
replace the original articles of PH Group Inc. and its predecessor and all
previously adopted amendments thereto that are in force on the date hereof.
<PAGE> 1
3.3
S H A R E H O L D E R s e r v i c e s
PH GROUP INC.
ANNUAL MEETING OF STOCKHOLDERS
APRIL 30,1998
CERTIFICATE OF INSPECTOR OF ELECTION
AS TO THE APPROVAL OF THE PROPOSAL TO AMEND SECTIONS 2 AND 5
OF ARTICLE I OF THE AMENDED CODE OF REGULATIONS OF THE COMPANY
TO DELETE REFERENCES THEREIN TO "COMMON" SHARES
AND TO SUBSTITUTE THEREFOR "VOTING" SHARES
I, the undersigned Inspector of Election dully appointed by the Board
of Directors of PH Group Inc., (the "Company") to serve at the Annual Meeting of
Stockholders of the Company held at the 2365 Scioto Harper Drive, Columbus, Ohio
on April 30, 1998, do hereby certify that (i) I have conducted the vote at such
meeting upon the resolution for the Approval of the proposal to amend Sections 2
and 5 of Article I of the Amended Code of Regulations of the Company to delete
references therein to "common" shares and to substitute therefor "voting"
shares, (ii) I have counted and tabulated all votes and determined the result of
such amendment, and (iii) the voting results are such that the amendment has
received 1,115,007 votes FOR, 11,462 votes AGAINST and 9,760 votes WITHHELD:
THUS APPROVING THE AMENDMENT to Sections 2 and 5 of Article I.
Dated this 30th day of April, 1998
/s/ Michael J. Lang
- ---------------------------------
Michael J Lang
Vice President
<PAGE> 1
10.1. BANK LENDING AGREEMENT, AMENDED AND RESTATED JUNE 29, 1998
SECOND AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT
This SECOND AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT is made
and entered into to be effective this 29th day of June, 1998, by and between
STAR BANK, N.A., a national banking corporation, with an address at 175 South
Third Street, 4th Floor, Columbus, Ohio 43215 (hereafter referred to as the
"Bank"), and PH GROUP, INC., an Ohio corporation formerly known as Resource
General Corporation and successor by merger to PH Hydraulics and Automation,
Inc., whose address is 2365 Scioto Harper Drive, Columbus, Ohio 43204 (hereafter
referred to as the "Company").
RECITALS
I. The Company and the Bank entered into an "Amended and Restated Revolving
Credit/Term Loan Agreement" dated April 28, 1997. This agreement amended and
restated a letter agreement dated November 6, 1995, referred to therein as the
Revolving Credit/Term Loan Agreement, as it was amended by letter agreements
dated March 25, 1996, December 2, 1996 and March 3, 1997 (hereafter referred to
as the "Credit Agreement");
II. The Credit Agreement provided for a revolving line of credit in the amount
of, $2,500,000.00 (hereafter referred to as the "Line of Credit"), a term loan
in the amount of $500,000.00 (hereafter referred to as the "First Term Loan")
and a term loan in the amount of $600,000.00 (hereafter referred to as the
"Second Term Loan"); and each secured by Security Agreements executed by the
Company and/or PH Hydraulics and Automation, Inc. dated November 6, 1995 and
April 28, 1997 (hereafter collectively referred to as the "Security Agreements")
granting a security interest in the collateral provided therein and such other
collateral as may have been required by the Bank; including, a first priority
security in the assets acquired in the St. Lawrence Press acquisition, a first
mortgage lien on approximately 505 acres of real property owned by the Company
in Perry County, Ohio, the unlimited guaranty of Phoenix Management, Ltd., an
Ohio limited liability company and the $600,000.00 limited guaranty of Charles
T. Sherman, an individual Ohio resident (hereafter collectively referred to as
the "Guarantors") each provided to the Bank by executed Agreements dated April
28, 1997.
III. The Company has requested that the Line of Credit now be increased to
$3,500,000.00 and asked for the existing First Term Loan and Second Term Loan,
along with approximately $500,000.00 of the Line of Credit outstanding balance
be consolidated into one $1,200,000.00 consolidated term loan (hereafter
referred to as the "Consolidation Term Loan".)
IV. To induce the Bank to grant the extensions of credit, and in addition to all
existing collateral for all indebtedness owing to the Bank, the Company has
agreed to provide to the Bank the revision of various covenants in the Credit
Agreement and agrees to permit the Bank to perform a one-time Asset Based
Lending Audit.
V. The parties agree that all indebtedness of the Company to the Bank shall be
cross-collateralized and cross-defaulted.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
Company and the Bank agree to amend and restate the Credit Agreement as follows:
CONSOLIDATION TERM LOAN
Subject to there being no event of default (or circumstances which would, with
the passage of time or the giving of notice, become an event of default), the
Bank agrees to lend the Company $1,200,000.00 from the date of this Agreement
through June 30, 2005 (hereafter referred to as the "Consolidation Term Loan
Maturity Date"). The Consolidation Term Loan is evidenced by a promissory note
in the form attached hereto as Exhibit A (hereafter referred to as the
"Consolidation Term Loan Note"). The Consolidation Term Loan Note shall bear
interest and be paid as provided therein. Upon the injection of equity into the
Company, the term loan shall require a minimum repayment of a $500,000. This may
be from a combination of equity proceeds
<PAGE> 2
and/or the sale of real property in Perry County, Ohio.
LINE OF CREDIT
Subject to there being no event of default (or circumstance which would, with
the passage of time or the giving of notice, become an event of default) the
Bank agrees to make a revolving credit loan to the Company (as described below)
from the date of this Agreement through the earlier of: a) a demand for payment
in accordance with the terms of a revolving promissory note in the form attached
hereto as Exhibit B (hereafter referred to as the "Line of Credit Note"); or b)
June 30, 2000 (hereafter referred to as the "Line of Credit Maturity Date").
Under the Line of Credit Note, the Company may borrow, repay, and reborrow up to
the "Maximum Amount" which shall be the lesser of: a) the sum of 80% of accounts
receivable acceptable to the Bank which are outstanding less than 90 days from
the date of invoice, plus 50% of raw materials, plus 35% of work-in-process (up
to a maximum work-in-process advance of $250,000.00), plus $500,000.00 for fixed
assets availability, less a reserve amount of the outstanding balance of the
Consolidation Term Loan, the reserve amount will be reduced by the monthly
principal payments as further described in the Consolidation Term Loan section
above (the sum of which shall be called the "Borrowing Base"); or b)
$3,500,000.00. Should the total amount outstanding under the Line of Credit Note
at any time exceed the Maximum Amount, the Company shall, upon notification,
reduce the amount outstanding to an amount that is less than or equal to the
Maximum Amount. The Line of Credit shall bear interest and be paid as provided
in the Line of Credit Note.
If at any time, equity is injected into the Company, and the Leverage Ratio, as
hereafter defined, is not greater than 2.0:1, the interest rate on the Line of
Credit Note will be reduced to the Prime Commercial Rate of the Bank. The
interest rate reduction will only occur if all financial covenants as described
in this Agreement are being met and maintained. Furthermore, the Borrower shall
have the added interest rate option of LIBOR, London Inter Bank Offered Rate,
plus 275 basis points per annum. As Tangible Net Worth and Cash Flow Coverage
ratios continues to improve the applicable margin per the covenant matrix as set
forth in Schedule B shall determine LIBOR interest rate benefits. Additionally,
at such time a minimum of $3,000,000.00 equity is injected into the Company, the
limited Personal Guaranty of Charles T. Sherman shall be released by the Bank.
Line of Credit Loan Interest Options
(a) Interest Rate Options: Borrower shall pay Bank interest on tile unpaid
balance of tile Revolving Loan on the earlier of a monthly basis or, if
applicable, the maturity date of a contract for a LIBOR Rate Advance (as
hereafter defined). Interest on the Revolving Loan shall be payable pursuant to
Borrower's option as set forth below:
(i) Prime Interest Rate: Unless Borrower elects the LIBOR Interest Rate,
Borrower agrees to pay to Bank monthly interest on the unpaid balance of the
Revolving Loan at a variable rate of interest (the "Prime Interest Rate") equal
to the Prime Commercial Rate of Bank from time to time in effect plus .50%
(9.00%) reducing to Prime (8.50%) as shareholder equity increases by at least
$3,000,000 and Leverage Ratio, hereafter defined, is 2:1 or less. Each change in
the Prime Commercial Rate automatically and immediately changing the interest
rate on tile Revolving Loan without notice to Borrower. "Prime Commercial Rate"
as used herein shall mean the rate published by Bank front time to time as its
Prime Commercial Rate based on its consideration of economic money market,
business and competitive factors, and it is not necessarily Bank's most favored
rate. Interest shall be calculated on a three hundred sixty (360) day year basis
and shall be based on the actual number of days which elapse during the interest
calculation period. The Prime Interest Rate shall be applicable at all times
prior to the Termination Date to all of the unpaid principal balance of the
Revolving Loan that is not subject to the alternative interest rate option
elected in the manner hereinafter provided. "Prime Interest Rate Advance" shall
mean any amount borrowed as part of the Revolving Loan that bears interest at
the Prime interest Rate.
(ii) LIBOR Interest Rate: Borrower may from time to time prior to the
Termination Date elect to have interest accrue on all or part of the outstanding
principal balance of the Revolving Loan at a rate of interest equal to 275 basis
points plus the LIBOR Rate, or plus the then applicable margin based on the
covenant matrix set forth in Schedule B.
<PAGE> 3
In the event Borrower for any reason causes a LIBOR contract to be broken,
Borrower shall pay any resulting penalty incurred by Bank thereof. "Libor Rate"
shall mean, with respect to any LIBOR Rate Advance and the related Interest
Period (as hereinafter defined), the per annum rate that is equal to the
quotient of:
(x) the actual or estimated arithmetic mean of the per annum rates of interest
at which deposits in U.S. dollars for the related Interest Period and in an
aggregate amount comparable to the amount of such LIBOR Rate Advance are being
offered to U.S. banks by one or more prime banks in the London interbank market,
as determined by Bank in its discretion based upon reference to information
appearing on the display designated as page "LIBOR" on the Reuters monitor
money Rate Service (or such other page as may replace the LIBOR page on that
service for the purpose of displaying London interbank offered rates of major
banks) or any comparable index selected by Bank, the obtaining of rate
quotation, or any other reasonable procedure, at approximately 11:00 a.m.
London, England, time, on the second LIBOR business day prior to the first day
of the related Interest Period; all as determined by Bank, such sum to be
rounded up, if necessary, to the nearest whole multiple of one-sixteenth (1/16)
of one percent (1%); divided by
(y) a percentage equal to one hundred percent (100%) minus the rate (expressed
as a percentage), if any, at which reserve requirements are imposed on Bank, on
the second LIBOR business days prior to the first day of the related Interest
Period, with respect to all "Eurocurrency? liabilities" under Regulation D of
the Board of Governors of the Federal Reserve S3~stcni or any other regulations
of any governmental authority having jurisdiction with respect thereto
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves) for a term comparable to such Interest Period. This provision
is for the benefit of Bank and is not intended to increase the expected yield to
Bank above the rates of interest provided for in this Loan Agreement.
"LIBOR Rate Advance" shall mean any amount borrowed as part of the Revolving
Loan that bears interest at a rate calculated with reference to the LIBOR Rate.
All LIBOR Rate Advances shall be for a principal amount not less than Five
Hundred Thousand Dollars ($500,000.00) and in increments of One Hundred Thousand
Dollars ($100,000.00) for all greater amounts. "LIBOR business day" shall mean,
with respect to any LIBOR Rate Advance, a day which is both a day on which
Bank is open for business and a day on which dealings in U.S. dollar deposits
are carried out in the London interbank market.
(b) Notice of Election. Borrower may initially elect to request an Advance of
any type, continue an Advance of one type as an Advance of the then existing
type or convert an Advance of one type to an Advance of another type, by giving
notice thereof to Bank in writing in the form prescribed by Bank not later than
10:00 a.m. New York time, three (3) LIBOR business days prior to the date any
such initial request, continuation of or conversion to a LIBOR Rate Advance is
to be effective, provided, that an outstanding Advance may only be converted on
the last day of the then current Interest Period (if applicable) with respect
to such Advance, and provided, further, that upon the continuation or conversion
of an Advance such notice shall also specify the Interest Period (if applicable)
to be applicable thereto upon such continuation or conversion. If Borrower shall
fail to timely deliver such a notice with respect to any outstanding Advance,
Borrower shall be deemed to have elected to convert such Advance to a Prime
Interest Rate Advance on the last day of the then current Interest Period with
respect to such Advance.
(c) Interest Calculation and Interest Payment Date. "Interest Period" shall
mean:
(1) With respect to any LIBOR Rate Advance under the Revolving Loan, an initial
period commencing, as the case may be, on the day such an Advance shall be made
by Bank, or on the day of conversion of any then outstanding Advance to an
Advance of such type, and ending thirty (30), sixty (60) or ninety (90) days
thereafter, all as Borrower may elect pursuant to this Loan Agreement, provided,
that (a) any Interest Period with respect to a LIBOR Rate Advance that shall
commence on the last LIBOR business day of the calendar month (or on the
immediately preceding day if such day is a day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last LIBOR business day of the appropriate subsequent calendar
month; and (b) each Interest Period with respect to a LIBOR Rate Advance that
would otherwise end on a day which is not a LIBOR business day shall end on the
next succeeding LIBOR business day or, if such next succeeding LIBOR business
day falls in the next succeeding calendar month, on the next preceding LIBOR
business day.
<PAGE> 4
(2) With respect to a Prime Interest Rate Advance for the Revolving Loan, the
initial period commencing, as the case may be, on the day such an Advance shall
be made by Bank, or on the day of conversion of any then outstanding Advance to
an Advance of such type, and ending on the day of conversion to an Advance of a
different type.
Notwithstanding the provisions of (1) and (2) above, no Interest Period shall be
permitted which would end after the Termination Date.
Interest for LIBOR Rate Advances shall be calculated on a three hundred sixty
(360) day year basis and shall be based on the actual number of days which
elapse during the interest calculation period. Interest shall be due and payable
on each Interest Payment Date. "Interest Payment Date" shall mean (a) the last
day of each Interest Period in the case of a LIBOR Rate Advance; and (b) in the
case of a Prime Interest Rate Advance under the Revolving Loan, the first
business day of each month and on the date of conversion from a Prime Interest
Rate Advance to a LIBOR Rate Advance, said Interest Payment Date also serving
from time to time as the date of conversion from a Prime Interest Rate Advance
to a LIBOR Rate Advance as Borrower may so elect pursuant to the terms and
conditions this Loan Agreement.
(d) Additional Costs. In the event that any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by Bank with
any request or directive of any such authority (whether or not having the force
of law, shall (i) affect the basis of taxation of payments to Bank of any
amounts payable by Borrower for LIBOR Rate Advances under this Loan Agreement
(other than taxes imposed on the overall net income of Bank by the jurisdiction,
or by any political subdivision or taxing authority of any such jurisdiction, in
which Bank has its principal office), or (ii) shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by Bank, or (iii)
shall impose any other condition, requirement or charge with respect to this
Loan Agreement or the Revolving Loan (including, without limitation, any capital
adequacy requirement, any requirement which affects the manner in which Bank
allocates capital resources to its commitments or any similar requirement), and
the result of any of the foregoing is to increase the cost to Bank of making or
maintaining the Revolving Loan or any Advance thereunder, to reduce the amount
of any sum receivable by Bank thereon, or to reduce the rate of return on Bank's
capital, then Borrower shall pay to Bank, from time to time, upon request of
Bank, additional amounts sufficient to compensate Bank for such increased cost,
reduced sum receivable or reduced rate of return to the extent Bank is not
compensated therefor in the computation of the interest rates applicable to the
Revolving Loan. A detailed statement as to the amount of such increased cost,
reduced sum receivable or reduced rate of return, prepared in good faith and
submitted by Bank to Borrower, shall be considered binding for all purposes
relative to Bank, subject to manifest error in computation. Bank shall promptly
notify Borrower of any event occurring after the date of this Loan Agreement
that entitles Bank to additional compensation pursuant to this Paragraph.
(e) Limitations on Requests and Elections. Notwithstanding any other provision
of this Loan Agreement to the contrary, if, upon receiving a request for an
Advance or a request for a continuation of an Advance as an Advance of the then
existing type or conversion of an Advance to an Advance of another type (i) in
the case of any LIBOR Rate Advance, deposits in dollars for periods comparable
to the Interest Period elected by Borrower are not available to Bank in the
London interbank or secondary market, or (ii) by reason of national or
international financial, political or economic conditions or by reason of any
applicable law, treaty, rule or regulation (whether domestic or foreign) now or
hereafter in effect, or the interpretation or administration thereof by any,
governmental authority charged with the interpretation or administration
thereof, or compliance by Bank with any request or directive of such authority
(whether or not having the force of 1,?\\-), including without limitation
exchange controls, it is unlawful or impossible for Bank (x) to make the
relevant LIBOR Rate Advance or 0-) to continue such Advance as a LIBOR Rate
Advance or (z) to convert an Advance to a LIBOR Rate Advance, then Borrower
shall not be entitled, so long as such circumstances continue, to request a
LIBOR Rate Advance or a continuation of or conversion to such Advances from
Bank. In the event that such circumstances no longer exist, Bank shall again
consider requests for LIBOR Rate Advances of the affected type and requests for
continuations of and conversions
<PAGE> 5
to such Advances of the affected type.
(f) Illegality and Impossibility. In the event that any applicable law, treaty,
rule or regulation (whether domestic or foreign) now or hereafter in effect, or
any interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by Bank
with any request or directive of such authority (whether or not having the force
of law), including without limitation exchange controls, shall make it unlawful
or impossible for Bank to maintain any Advance under this Loan Agreement,
Borrower shall as soon as possible following receipt of notice thereof from
Bank, repay in full the then outstanding principal amount of all Advances made
by Bank together with all accrued interest thereon to the date of payment and
all amounts due to Bank under Paragraphs (d) and/or (g) of this Section 1.3, (i)
on the last day of the then current Interest Period, if any, applicable to such
Advance, if Bank may lawfully continue to maintain such Advance to such day, or
(ii) immediately if Bank may not continue to maintain such Advance to such day.
This provision is for the benefit of Bank and is not intended to increase the
yield to Bank above the rates of interest provided for in this Loan Agreement.
This section shall apply only as long as such illegality exists. Bank shall use
reasonable, lawful efforts to avoid the impact of such law, treaty, rule or
regulation. Bank shall use reasonable efforts to convert such Advance to a
lawful type of Advance in the event such illegality exists.
(g) Indemnification. If Borrower makes any payment of principal with respect to
any Advance on any other date than the last day of an Interest Period applicable
thereto or if Borrower fails to borrow any Advance after notice has been given
to Bank in accordance herewith, or fails to make any payment of principal or
interest in respect of an Advance when due or at the Termination Date or the
Maturity Date, Borrower shall reimburse Bank on demand for any resulting loss or
expense incurred by Bank, determined in Bank's reasonable opinion, including
without limitation any loss incurred in obtaining, liquidating or employing
deposits from third parties. A detailed statement as to the amount of such loss
or expense, prepared in good faith and submitted by Bank to Borrower shall be
considered binding for all purposes subject to manifest error in computation.
Bank shall promptly notify Borrower of any event occurring after the date of
this Loan Agreement that entitles Bank to reimbursement pursuant to this
Paragraph.
(h) Survival of Obligations. The provisions of Paragraphs (d) and (g) of this
Section 1.3 shall survive the termination of this Loan Agreement and the payment
in full of all promissory notes outstanding pursuant hereto. Upon request, Bank
shall provide written notice to Borrower at the time of termination of this Loan
Agreement of any claims under Paragraphs (d) or (g) hereof which exist to Bank's
knowledge at the time of such request.
(i) Prepayment. Borrower may, on any payment due date, upon payment of all
accrued interest, fees and other amounts then due and payable to the Bank and
upon at least five (5) business days written notice to the Bank, elect to prepay
all or part of the principal outstanding balance of the Revolving Loan or the
Term Loan, provided, however, that if such prepayment occurs during an Interest
Period subject to a LIBOR Rate Advance or any other type of fixed rate of
interest, any such prepayment shall be in an amount equal to the sum of (i) the
amount of the prepayment; (ii) all accrued interest to the date of such
prepayment; (iii) any late charges or charge then due and owing; and (iv) the
Prepayment Fee, which shall be equal to the maximum of (i) zero, or (ii) the Net
Present Value Adjustment.
The following definitions shall be used for purposes of calculating the
Prepayment
(i) Matched Maturity Rate. The rate per annum, determined solely by Bank in the
exercise of its commercially reasonably discretion, on the first day of the
Interest Period for LIBOR advances, as the rate in which Bank would be able to
borrow funds in Money Markets for the amount of such LIBOR Rate advance and with
an interest payment frequency and principal repayment schedule equal to such
advance and for a term as may be arranged and agreed upon by Borrower and Bank.
Such a rate shall include FDIC insurance, reserve requirements and other
explicit or implicit costs levied by any regulatory agency. Borrower
acknowledges that Bank is under no obligation to actually purchase and/or match
funds for the Matched Maturity Rate of all or any portion of this Loan.
(ii) Money Markets. One or more wholesale funding markets available to Bank,
including negotiable certificates of deposit, eurodollar deposits, bank notes,
fed funds or others.
<PAGE> 6
(iii) Net Present Value Adjustment. The amount, calculated on any Prepayment
Date, which is derived by subtracting; (i) the principal amount of the Loan or
portion of the Loan to be prepaid as of such Prepayment Date, from (ii) the Net
Present Value of the Loan or portion of the Loan to be prepaid on such
Prepayment Date.
(iv) Prepayment Date. For this Loan, that Business Day the Bank receives from
Borrower an unscheduled principal payment amount.
(v) Business Day. The day other than a Saturday, Sunday or Holiday on which
banks in the State of Ohio are authorized by law to close.
(vi) Net Present Value. The amount, calculated on any Prepayment Date, which is
derived by summing the present values of each prospective payment of principal
and interest which, without such full or partial prepayment, could otherwise
have been received by Bank over the remaining contractual life of the subject
LIBOR Interest Period, if Bank had instead invested the loan proceeds on the
Loan Origination Date at the Initial Matched Maturity Rate. The individual
discount rate used to value each prospective payment of interest and/or
principal shall be the Current Matched Maturity Rate for the maturity matching
that of each specific payment of principal and/or interest.
(vii) Initial Matched Maturity Rate. That zero coupon rate calculated on the day
any LIBOR advance is requested by Borrower for all or a portion of the Loan,
determined solely by Bank, as the rate in which Bank is able to borrow funds in
Money Markets for the amount so requested by Borrower and matching the maturity
of the Interest Period requested by Borrower. Such rate shall include FDIC
insurance, reserve requirements and other explicit or implicit costs levied by
any regulatory agency.
(viii) Current Matched Maturity Rate. That zero-coupon rate, calculated on the
Prepayment Date, and determined solely by the Bank, as the rate in which the
Bank would be able to borrow funds in Money Markets for the prepayment amount
matching the maturity for the corresponding Interest Period for a LIBOR Rate
advance. Such a rate shall include FDIC insurance, reserve requirements and
other explicit or implicit costs levied by any regulatory agency. A separate
Current Matched Maturity Rate will be calculated for each prospective interest
and/or principal payment date, or for each LIBOR contract outstanding and
subject to prepayment.
(ix) Loan Origination Date. The date that the Initial Matched Maturity Rate is
accepted and funds are drawn.
In calculating the amount of such a Prepayment Fee, Bank is hereby authorized by
Borrower to make such assumptions regarding the source of funding, redeployment
of funds and other related matters as Bank may reasonably deem appropriate. If
Borrower fails to pay any Prepayment Fee when due, the amount of such prepayment
fee shall thereafter bear interest until paid at the default rate (as defined in
Section 7 hereof).
Any prepayment of principal shall be accompanied by a payment of interest
accrued to date thereon; and said prepayment shall be applied to the principal
installments in the inverse order of their maturities.
ADDITIONAL EXTENSIONS OF CREDIT
This Agreement governs all extensions of credit from the Bank to the Company,
whether now existing or hereafter arising, either created by the Company alone
or together with another or others, primary or secondary, secured or unsecured,
absolute or contingent, liquidated or unliquidated, direct or indirect.
REPRESENTATIONS & WARRANTIES
To induce the Bank to enter into this Agreement and to agree to make the Loans,
as hereafter defined, to the Company, the Company represents and warrants that;
(A) Corporate Existence. It is a corporation duly existing under the laws of the
State of Ohio, is qualified to do business in all states where failure to be so
qualified would have a material adverse effect on the Company, and has
<PAGE> 7
all requisite power and authority to own its property and carry on its business
as now being conducted.
(B) Borrowing Authorization. The execution by the Company and the delivery and
performance of this Agreement, the Consolidation Term Note, the Line of Credit
Note, and such other notes as many evidence extensions of credit under this
Agreement (hereafter collectively referred to as the "Notes"), and other
documents (including, without limitation, the Security Agreements, hereafter
collectively referred to as the "Loan Documents") executed in connection with
the First Term Loan, the Second Term Loan, the Consolidation Term Loan, the Line
of Credit or other extensions of credit under this Agreement (hereafter
collectively referred to as the "Loans"), have been authorized by all necessary
corporate action and will not violate: 1) any provision of law; 2) the Articles
of Incorporation or By-laws of the Company; or 3) any agreement binding on the
Company.
(C) Financial Statements. Its interim financial statements dated April 30, 1998
(a copy of which have been previously furnished to the Bank) have been prepared
in conformity with generally accepted accounting principles consistently
applied, and fairly present the financial condition of the Company and its
operation as of the date of the statements, and since such date there has been
no material adverse change in its financial condition other than as disclosed on
Schedule A attached hereto.
(D) Actions Pending. There are no legal actions pending or threatened against or
affecting the Company before any court or agency, or any contingent liabilities
that are not provided for in the financial statements referred to in subsection
(C) Financial Statements above.
(E) Liens. None of the assets of the Company are subject to any mortgage,
pledge, security interest, lien, or other encumbrance except for those noted in
the financial statements referred to in subsection (C) Financial Statements.
(F) Environmental Matters. All operations and property of the Company are in
full compliance with all federal, state, and local statutes, rules, and
regulations relating to air and water pollutants and hazardous waste disposal.
There is no judicial or administrative proceeding pending or threatened against
or affecting the Company with respect to such environmental matters.
(G) Compliance. The Company is in compliance in all material respects with all
statutes, rules, and regulations applicable to it. No default (or event which
with notice or lapse of time, or both, would constitute a default) exists under
any agreement or instrument for borrowed money to which the Company is a party
or pursuant to which any property of the Company is encumbered.
(H) Liabilities. All taxes, assessments, and other liabilities which are due
have been paid in full and in a timely manner, except for those taxes and
assessments which the Company is contesting in good faith and with respect to
which the Company has taken proper steps to perfect its appeal and which have
not resulted in liens on the Company's property which materially diminishes the
value of the Collateral, as hereafter defined, and delinquent taxes on the
Company's real estate in Perry County, Ohio.
(I) Millennium Compliance. Borrower has undertaken a specific plan of action to
ensure that its computer hardware, computer software, and all other systems and
devices whether in use by the Company or for resale (herein collectively
referred to as "Computer Systems") will achieve Millennium Compliance. As used
herein, "Millennium Compliance" means that the Computer Systems are capable of
the following, before, during and after January 2000: (i) handling date
information involving any and all dates before, during and after January 1,
2000, including accepting input, providing output and performing date
calculations in whole or in part; (ii) operating, accurately without
interruption on and in respect of any and all dates before, during and/or after
January 1, 2000 and without any changes in performance; (iii) responding to and
processing two digit year input without creating ambiguity as to the century;
and (iv) storing and providing date input information without creating any
ambiguity as to the century.
COLLATERAL
<PAGE> 8
All Obligations, as hereafter defined, shall be secured by the following
(collectively called the "Collateral"):
(A) A first priority security interest in the Company's Accounts Receivable,
Inventory, Equipment, Fixtures and Furniture, as such terms are defined in the
Security Agreements, now owned or hereafter acquired, their proceeds (cash or
non-cash) and any insurance proceeds related thereto-
(B) A first Collateral Assignment of Life Insurance in the amount of $500,000 on
the life of Charles T. Sherman-
(C) A first mortgage lien on approximately 505 acres of real property owned by
the Company in Perry County, Ohio;
(D) All Obligations shall be cross collateralized and cross defaulted to all
existing Bank debt
The Collateral and all documentation with respect thereto shall be in a form
satisfactory to the Bank, and the Company agrees to execute any and all
documents necessary to assure the protection, perfection, and/or enforcement of
the Bank's security interest in the Collateral.
The security interests in the Collateral are to secure the prompt and full
payment and complete performance of all Obligations of the Company to the Bank.
The word "Obligations" is used in its most comprehensive sense and includes,
without limitation, all indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of the Company to the Bank, whether now existing or hereafter arising,
either created by the Company alone or together with another or others, primary
or secondary, secured or unsecured, absolute or contingent, liquidated or
unliquidated, direct or indirect, whether evidenced by note, draft, lease,
application for letter of credit or otherwise, and any and all renewals of or
substitutes therefor, including all indebtedness owed by the Company to the Bank
in connection with the Loans.
COVENANTS
In consideration of the Bank's promise to make the Loans, the Company agrees
that, from the date of this Agreement until the Notes are paid in full, it
shall:
(A) Financial Statement. Furnish the Bank: 1) a copy of the Company's audited
financial statements, prepared in conformity with generally accepted accounting
principles applied on a basis consistent with the preceding years by independent
certified public accountants acceptable to the Bank within 90 days of the
Company's fiscal year end; 2) a copy of its unaudited financial statements,
similarly prepared, in a form satisfactory to the Bank within 30 days of the end
of each of its fiscal month certified as to accuracy by an executive officer of
the Company.
(B) Periodic Reports. Provide the Bank 1) an aging of accounts receivable, a
work in process breakdown and the accounts payable aging in a form satisfactory
to the Bank within 30 days of the end of each fiscal month of the Company; 2) a
calculation of the Borrowing Base, in the form attached hereto as Exhibit C and
a "no-default" certification, Exhibit D, signed by an executive officer of the
Company within 30 days of the end of each fiscal month of the Company; and 3)
other reports and information as the Bank may reasonably request.
(C) Insurance. Maintain insurance on all real and personal property with
carriers acceptable to the Bank in an amount sufficient to repay the outstanding
balance of all Loans and against hazards and liabilities as is common with other
companies in similar situations. The policies shall show the Bank as "name
insured" and "loss payee." The Company shall provide the Bank with certificates
of insurance or other satisfactory evidence upon request.
(D) Taxes. Pay all taxes, assessments, and other liabilities when due, except
for those which are contested in good faith or subject to a payment plan with
the taxing authority.
(E) Notice. Give the Bank prompt notice of any: (i) default of this or any other
agreement or contract under which the Company is liable; (ii) environmental or
labor disputes; (iii) lawsuit filed naming the Company as a
<PAGE> 9
defendant; (iv) reportable event under ERISA; or (v) material change in the
Company's business prospects or financial condition.
(F) Corporate Existence and Status. Maintain its corporate existence and remain
in good standing under the laws of each jurisdiction where the Company is duly
qualified to conduct its business.
(G) Maintain of Property. Maintain Company property in good condition and
repair, and not commit or permit any action that may impair the value of the
property or the Bank's Collateral.
(H) Leverage Ratio. Maintain a leverage ratio, defined as Total Liabilities
divided by Tangible Net Worth (as defined below) of not greater than 5.00:1,
decreasing to 4.00:1 by December 31, 1998 and decreasing to 3.25:1 by December
31, 1999 and thereafter. As at least $3,000,000.00 of equity is potentially
injected into the Company, this ratio shall then not be greater than 2:1 at the
fiscal year-end period immediately following the injection, and thereafter.
(I) Cash Flow Coverage Ratio. Maintain a cash flow coverage ratio of at least
1.25x at all times. This ratio will be tested on a quarterly basis based upon
the trailing four (4) quarters. "Cash Flow Coverage" ratio shall be calculated
as follows:
Net Income + Non-Cash Charges + Interest Expense - Dividends
Current Portion of Long Term Debt + Interest expense
As at least $3,000,000.00 of equity is potentially injected into the Company,
this ratio shall then not be less than 1.4x at each fiscal quarter thereafter.
(J) Tangible Net Worth. Not permit its Tangible Net Worth to be less than
$1,150,000.00 as of date hereof and increasing to $1,500,000.00 as of December
31, 1998 and $1,800,000.0 by December 31, 1999 and for each fiscal year
thereafter. "Tangible Net Worth" shall mean, as of any date, the sum of the
Company's total equity, including redeemable common stock, plus debts
subordinated to the Bank minus any intangible assets. All financial terms in
this Agreement shall have the meanings given them under generally accepted
accounting principles. The Tangible Net Worth requirement shall be increased
dollar for dollar for each increase in subordinated debt or for proceeds from
the sale of Company stock. As at least $3,000,000.00 of equity is potentially
injected into the Company, Tangible Net Worth shall then not be less than
$4,500,000.00 at the fiscal year-end period immediately following the injection
and thereafter.
(K) Indebtedness. Not incur or permit to exist any indebtedness, other than that
indebtedness which exists on balance sheet as of date hereof, except: (i) the
borrowings evidenced by this Agreement; (ii) favorable short-term unsecured
trade credit granted in the ordinary course of business.
(L) Liens. Not create or permit to exist any mortgage, pledge, security
interest, or other encumbrance with respect to any assets now owned or hereafter
acquired other than that indebtedness which existed on balance sheet as of the
date hereof, except for (i) lines created in favor of the Bank hereunder; or
(ii) purchase money interests created in up to $20,000.00 in connection with the
acquisition of property acquired after the date of this Agreement which attaches
specifically to the property acquired.
(M) Guaranties. Not guaranty any obligation or indemnify any other person or
enterprise except for the personal liability from the Company's own officers',
directors', or employees' own actions on behalf of the Company.
(N) Merger, Sale or Transfer of Assets. Not be a party to any merger,
consolidation, transfer or reorganization without the consent of the Bank
(including, but not limited to, the purchase of all or substantially all of the
equity or assets of any other enterprise).
(0) Investments. Not invest in, loan, or make advances to any other enterprises,
except for (i) obligations of the United States Treasury and agencies thereof,
(ii) commercial paper maturing within one-year and rated "A-I P-I or
<PAGE> 10
better," or (iii) Certificates of Deposit of the Bank.
(P) Restricted Payments. Do not declare nor pay any dividend to shareholders or
redeem any of the Put Options in the St. Lawrence Press Asset Purchase Agreement
unless all financial covenants are in compliance.
(Q) Franklin County Property. The land held in Franklin County will not be held
as collateral, but if and when the property is sold, all proceeds must be
applied against the Consolidation Term Loan. Said property must remain free of
any liens during the term of all Obligations.
(R) Depository Accounts. The Bank shall be the primary depository bank of the
Company. A lock box account will be used to handle all of the Company's accounts
receivable collections.
(S) Negative Covenants. The Company shall not; 1) change the type or character
of its business; or 2) change any executive management personnel without the
Bank's prior written consent.
(T) Subordination. All notes/accounts payable due to shareholders shall be
subordinated to the Bank. All payments due to the Sellers in the St. Lawrence
Press Asset Purchase for Put Options shall be subordinated to the Bank. All
subordinated debtors shall sign the Bank's standard subordination agreement.
(U) Waiver. Any variance from these covenants shall be permitted only with the
prior written consent and/or waiver of the Bank. Any such waiver shall not
preclude the exercise of any power or right under this Agreement by the Bank.
(V) Stock Purchases. Not redeem any of its common stock other than the
redemption's provided in the St. Lawrence Press Asset Purchase Agreement and
otherwise in accordance with this Agreement.
W) Capital Expenditures. Not make capital expenditures during any fiscal year in
excess of $200,000.00.
CLOSING CONDITIONS
The obligation of the Bank to make the Loans is subject to the satisfaction of
each of the following conditions:
(A) Resolutions. The Company shall have delivered to the Bank a copy of the
resolution of the Company's Board of Directors authorizing the Loans, certified
by an executive officer of the Company, and the execution and delivery of this
Agreement, the Notes, and such Loan Documents as the Bank deems necessary.
Phoenix Management, Ltd. shall have delivered to the Bank a copy of the
resolution of a majority of the Percentage Interests, as such term is defined in
its Operating Agreement, of its members authorizing the unlimited guaranty of
the loans.
(B) Other Documents: Inspection. The Company shall have delivered to the Bank
such other documents as the Bank may request prior to the date of this
Agreement. The Bank or its designated representative shall have the continuing
right to inspect and review all the Company's records, documents, and assets,
whether or not directly related to the Obligations or the Collateral.
(C) Default. Before and after giving effect to the loans, no event of default
(as defined below) or event which would with the passage of time or the giving
of notice mature into an event of default shall have occurred and/or be
continuing.
(D) Warranties. Before and after giving effect to the Loans, the representations
and warranties noted above shall be true and correct on the date of this
Agreement and on the date of each extension of credit under this Agreement.
(E) Fees and Expenses. The Company agrees to pay the Bank a one-time fee of
$6,000.00 plus any out-of-pocket expenses incurred by the Bank (including
reasonable attorneys' fees, legal expenses, filing fees, etc.) in entering into
and closing this Agreement.
EVENTS OF DEFAULT
<PAGE> 11
Upon the occurrence of any of the following events and following five (5)
business days prior written notice to the Company, and an additional five (5)
business day default cure period, the Bank may declare the Notes due and
immediately payable and shall have all rights to realize on the Collateral. To
the extent the Maximum Amount on the Line of Credit is not being utilized by the
Company, the Bank may upon such declaration of default terminate any unused
balance:
(A) Non-payment of principal or interest on the Notes when due and following any
applicable notice or cure period; or
(B) Non-payment of principal or interest on any other borrowed money obligation
when due or the holder of such obligation declares the obligation due prior to
it stated maturity unless the obligation is disputed in good faith; or
(C) Any representation or warranty of the Company in this or any other of the
Loan Documents is false; or
(D) The Company violates any covenant or condition of this or any other of the
Loan Documents; or
(E) The Company is unable to pay its business debts as they become due or the
Company's consolidated financial statement indicates an insolvency or deficit
net worth; or
(F) The Company applies for the appointment of a trustee or receiver of any part
of the assets of the Company or commences any proceedings relating to the
Company under any bankruptcy, reorganization, arrangement insolvency,
readjustment of debt, dissolution, or other liquidation law of any jurisdiction;
or
(G) Any such application, if filed, or any such proceedings are commenced
against the Company, and the Company indicates its approval, consent, or
acquiescence; or an order is entered appointing such trustee or receiver, or
adjudicating the Company bankrupt or insolvent, or approving the petition in any
such proceedings, and such order remains in effect for thirty (30) days; or
(H) A material part of the Company's operations shall cease for a period of
thirty (30) days, other than temporary or seasonal cessations which are
simultaneously experienced by other companies in the Company's line of business
(which, if continued, would not have a material adverse effect on the Company's
operations or financial conditions); or
(I) Failure of the Company to provide, either (i) release of the Citibank, N.A.
mortgage on the Perry County property, or (ii) affirmative title insurance
coverage against the Citibank, N.A. mortgage on the Perry County Property.
(J) If, in the reasonable opinion of the Bank, there has been a material adverse
change in the financial affairs or operating condition of the Company, the
Guarantors or in the value of the Collateral which, in the reasonable judgment
of Bank, materially imperils the Company's ability to repay or secure its
obligations to the Bank under this Agreement.
OTHER DOCUMENTATION
The terms hereof requiring (5) day prior written notice and an additional five
(5) day opportunity to cure prior to the Bank's having any right to declare the
Notes due and payable, or any right to pursue the Collateral following the
occurrence of an event of default, shall also be applicable with respect to any
and all events of default specified in any and all other Loan Documents.
LAW/JURISDICTION
This Agreement, the Loans, the Notes and the other Loan Documents shall be
deemed made in Ohio, and all the
<PAGE> 12
rights and obligations of the parties hereunder shall in all respects be
governed by the construed in accordance with the laws of the State of Ohio,
including all matters of construction, validity, and performance Without
limitation on the ability of the Bank to exercise all its rights as to the
Collateral security for any loan or note, or to initiate and prosecute actions
for repayment in any applicable jurisdiction, the Bank and the Company agree
that any action or proceeding commenced by or on behalf of the parties relating
to this Agreement, the Loans, the Notes or the other Loan Documents shall be
commenced and maintained exclusively in courts of applicable jurisdiction
located in Franklin County, Ohio. This document, in conjunction with the other
Loan Documents, memorializes the entire Agreement between parties, and any
amendment to this Agreement, may only be made in writing and signed by all
parties.
WARRANT OF ATTORNEY
The Company hereby authorizes any attorney-at-law to appear in any court of
record in any county in the State of Ohio or wherever the Company may have a
place of business, have signed the Notes or can be found, after the Bank
declares an event of default and accelerates the balances due under the Notes,
to waive the issuance of service of process and confess judgment against the
Company in favor of the Bank for the amounts then appearing due, together with
the costs of suit, and thereupon to release all errors and waive all rights of
appeal and stays of execution; but no such judgment or judgments against the
Company shall be a bar to a subsequent judgment or judgments against the
Company. The Company agrees and consents that the attorney confessing judgment
on behalf of the Company hereunder may also be counsel to the Bank or its
affiliates, waives any conflict of interest which might otherwise arise, and
consents to the Bank paying such confessing attorney a legal fee or allowing
such attorney's fees to be paid from any proceeds of collection of the Notes or
Collateral.
<PAGE> 13
JURY WAIVER
THE BANK AND THE COMPANY ACKNOWLEDGE AND AGREE THAT THERE MAY BE A
CONSTITUTIONAL RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY CLAIM, DISPUTE OR
LAWSUIT ARISING BETWEEN OR AMONG THEM, BUT THAT SUCH RIGHT MAY BE WAIVED.
ACCORDINGLY, THE PARTIES AGREE THAT NOTWITHSTANDING SUCH CONSTITUTIONAL RIGHT,
IN THIS COMMERCIAL MATTER THE PARTIES BELIEVE AND AGREE THAT IT SHALL BE IN
THEIR BEST INTEREST TO WAIVE SUCH RIGHT, AND, ACCORDINGLY, HEREBY WAIVE SUCH
RIGHT TO A JURY TRIAL, AND FURTHER AGREE THAT THE BEST FORUM FOR HEARING ANY
CLAIM, DISPUTE OR LAWSUIT, IF ANY, ARISING IN CONNECTION WITH THIS AGREEMENT,
ANY LOAN DOCUMENTS OR THE RELATIONSHIP AMONG THE BANK AND THE COMPANY SHALL BE A
COURT OF COMPETENT JURISDICTION SITTING WITHOUT A JURY.
WARNING- BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHTS TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE OF HIS PART OF COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE. (Sec. 2323.13 O.R.C.)
Accepted this 29 day of June, 1998.
Borrower PH GROUP, INC.
By: /s/ Charles T. Sherman
-----------------------------
Charles T. Sherman, President
Guarantor: PHOENIX MANAGEMENT LTD
By: /s/ Charles T. Sherman
-----------------------------
Charles T. Sherman, Member
Guarantor Charles T Sherman Individual
By: /s/ Charles T. Sherman
-----------------------------
Charles T. Sherman, Individual
STAR BANK, N.A.
BY: /s/ Karen K. Bigelow
--------------------------------
Karen K. Bigelow, Vice President
<PAGE> 1
10.2 EMPLOYEES' OPTION AGREEMENT
<<Date of Grant>>
<<Name of Grantee>>
<<Street>> Employees' Option Agreement
<<City, State, Zip>>
Congratulations. You have been granted a Stock Option under the
Company's Stock Incentive Plan (the "Plan") on the following terms:
1. Number of Shares. The number of Shares of Common Stock of the
Company that you may purchase under this Option is:<<Number>>
2. Exercise Price. The exercise price to purchase Shares under this
Option is: $<<Price>> per Share.
3. Vesting. 25% of the Shares originally subject to this Option will
vest and become exercisable on the first four anniversaries of the date of this
Agreement if you have been an Employee of the Company continuously from the date
of this Agreement through the date when such portion of the Option vests
[subject to the special rule referred to in paragraph 5 below]. Notwithstanding
any other provision hereof, this Option, to the extent that it has not
previously been exercised or lapsed, shall vest fully and become exercisable
upon the occurrence of any Change in Control if you are an Employee at that
time.
4. Lapse. This Option will lapse and cease to be exercisable upon the
earliest of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine months after you cease to be an Employee because of your death or
disability,
(iii) three months after a termination without cause of your employment with any
Employer, or
(iv) immediately upon termination of your employment with all Employers by such
Employers for cause or by your resignation.
5. Taxation. This Option is [an Incentive Stock Option][a Nonqualified
Option]. [Because this Option is an Incentive Stock Option vesting of a portion
of this Option or of other Incentive Stock Options held by you may be deferred
under a special rule set forth in Section 5.4 (c) of the Plan. If you exercise
this Option and dispose of any of the Shares received by you as a result of such
exercise within two years from the date above or within one year after the
issuance of such Shares to you upon such exercise, you must notify the Company
of such disposition and the amount received as a result thereof and pay or
provide for the withholding taxes on such disposition.] [You will have taxable
income upon the exercise of this Option. At that time, you must pay to the
Company an amount equal to the required federal, state, and local tax
withholding less any withholding otherwise made from your salary or bonus. You
must satisfy any relevant withholding requirements before the Company issues
Shares to you.]
6. Exercise. This Option may be exercised by the delivery of this
Agreement, with the notice of exercise attached hereto properly completed and
signed by you, to the Treasurer of the Company, together with the aggregate
Exercise Price for the number of Shares as to which the Option is being
exercised, after the Option has become exercisable and before it has ceased to
be exercisable. The Exercise Price must be paid in cash by (a) delivery of a
certified or cashier's check payable to the order of the Company in such amount,
(b) wire transfer of immediately available funds to a bank account designated by
the Company, or (c) reduction of a debt of the Company to you. This Option may
be exercised as to less than all of the Shares purchasable hereunder, but not
for a fractional share, nor may it be exercised as to less than 100 Shares
unless it is exercised as to all of the Shares then available hereunder.
<PAGE> 2
7. No Transfer. This Option may not be sold, pledged nor otherwise
transferred other than by will or the laws of descent and distribution; and it
may be exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8 of
the Uniform Commercial Code).
8. Not An Employment Agreement. This Agreement is not an employment
agreement and nothing contained herein gives you any right to continue to be
employed by or provide services to the Company or affects the right of the
Company to terminate your employment or other relationship with you.
9. Plan Controls. This Agreement is an Option Agreement (as such term
is defined in the Plan) under Article 5 of the Plan. The terms of this Agreement
are subject to, and controlled by, the terms of the Plan, as it is now in effect
or may be amended from time to time hereafter, which are incorporated herein as
if they were set forth in full. Any words or phrases defined in the Plan have
the same meanings in this Agreement. The Company will provide you with a copy of
the Plan promptly upon your written or oral request made to its Treasurer.
10. Miscellaneous. This Agreement sets forth the entire agreement of
the parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This Agreement
may not be amended or terminated except by a writing signed by the party against
whom any such amendment or termination is sought. If any one or more provisions
of this Agreement shall be found to be illegal or unenforceable in any respect,
the validity and enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby. This Agreement shall be governed by the
laws of the State of Ohio.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
PH GROUP INC.
By: _________________________________
Charles T. Sherman, President
Accepted and Agreed to as of the date first set forth above:
__________________________________
<<Name of Grantee>>
<PAGE> 3
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
<<Date of Grant>> under the Company's Stock Incentive Plan. The undersigned
hereby represents and warrants to the Company that he or she is not exercising
such rights or planning to transfer such shares while in the possession of
material inside information relating to the Company.
Date: __________________________________
__________________________________
<<Name of Holder>>
Sign and complete this Option Exercise Form and deliver it to:
PH Group Inc.
Attn.: Treasurer
2365 Scioto Harper Drive
Columbus, Ohio 43204
together with the option price in cash by (a) delivery of a certified or
cashier's check payable to the order of the Company in such amount, (b) wire
transfer of immediately available funds to a bank account designated by the
Company, or (c) reduction of a debt of the Company to you.
<PAGE> 1
10.3 CONSULTANTS' OPTION AGREEMENT
<<Date of Grant>>
<<Name of Grantee>>
<<Street>> Consultants' Option Agreement
<<City, State, Zip>>
Congratulations. You have been granted a Stock Option under the Company's
Stock Incentive Plan (the "Plan") on the following terms:
1. Number of Shares. The number of Shares of Common Stock of the Company
that you may purchase under this Option is:<<Number>>
2. Exercise Price. The exercise price to purchase Shares under this Option
is: $<<Price>> per Share.
3. Vesting. 25% of the Shares originally subject to this Option will vest
and become exercisable on the first four anniversaries of the date of this
Agreement if you have been a Consultant to the Company continuously from the
date of this Agreement through the date when such portion of the Option vests.
Notwithstanding any other provision hereof, this Option, to the extent that it
has not previously been exercised or lapsed, shall vest fully and become
exercisable upon the occurrence of any Change in Control if you are a Consultant
at that time.
4. Lapse. This Option will lapse and cease to be exercisable upon the
earliest of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine months after you cease to be a Consultant because of your death or
disability,
(iii) three months after a termination without cause of your consulting
relationship with the Company or any Employer; or
(iv) immediately upon termination of your consulting relationship with any
Employer for cause or by your resignation.
5. Taxation. This Option is a Nonqualified Option. You will have taxable
income upon the exercise of this Option. At that time, you must pay to the
Company an amount equal to the required federal, state, and local tax
withholding less any withholding otherwise made from compensation payable to
you. You must satisfy any relevant withholding requirements before the Company
issues Shares to you.
6. Exercise. This Option may be exercised by the delivery of this
Agreement, with the notice of exercise attached hereto properly completed and
signed by you, to the Treasurer of the Company, together with the aggregate
Exercise Price for the number of Shares as to which the Option is being
exercised, after the Option has become exercisable and before it has ceased to
be exercisable. The Exercise Price must be paid in cash by (a) delivery of a
certified or cashier's check payable to the order of the Company in such amount,
(b) wire transfer of immediately available funds to a bank account designated by
the Company, or (c) reduction of a debt of the Company to you. This Option may
be exercised as to less than all of the Shares purchasable hereunder, but not
for a fractional share, nor may it be exercised as to less than 100 Shares
unless it is exercised as to all of the Shares then available hereunder.
7. No Transfer. This Option may not be sold, pledged nor otherwise
transferred other than by will or the laws of descent and distribution; and it
may be exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8 of
the Uniform Commercial Code).
<PAGE> 2
8. Not A Consulting Agreement. This Agreement is not a consulting
agreement and nothing contained herein gives you any right to continue to
provide services to the Company or affect the right of the Company to terminate
the consulting relationship with you.
9. Plan Controls. This Agreement is an Option Agreement (as such term is
defined in the Plan) under Article 6 of the Plan. The terms of this Agreement
are subject to, and controlled by, the terms of the Plan, as it is now in effect
or may be amended from time to time hereafter, which are incorporated herein as
if they were set forth in full. Any words or phrases defined in the Plan have
the same meanings in this Agreement. The Company will provide you with a copy of
the Plan promptly upon your written or oral request made to its Treasurer.
10. Miscellaneous. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This Agreement
may not be amended or terminated except by a writing signed by the party against
whom any such amendment or termination is sought. If any one or more provisions
of this Agreement shall be found to be illegal or unenforceable in any respect,
the validity and enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby. This Agreement shall be governed by the
laws of the State of Ohio.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
PH GROUP INC.
By:
------------------------------------
Charles T. Sherman, President
Accepted and Agreed to as of
the date first set forth above:
- -----------------------------------
<<Name of Grantee>>
<PAGE> 3
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
<<Date of Grant>> under the Company's Stock Incentive Plan. The undersigned
hereby represents and warrants to the Company that he or she is not exercising
such rights nor planning to transfer such shares while in the possession of
material inside information relating to the Company.
Date:
----------------------------------
-------------------------------------
<<Name of Holder>>
Sign and complete this Option Exercise Form and deliver it to:
PH Group Inc.
Attn.: Treasurer
2365 Scioto Harper Drive
Columbus, Ohio 43204
together with the option price in cash by (a) delivery of a certified or
cashier's check payable to the order of the Company in such amount, (b) wire
transfer of immediately available funds to a bank account designated by the
Company, or (c) reduction of a debt of the Company to you.
<PAGE> 1
10.4 DIRECTORS' OPTION AGREEMENT
<<Date of Grant>>
<<Name of Grantee>>
<<Street>> Directors' Option Agreement
<<City, State, Zip>>
Congratulations. You have been granted a Stock Option under the
Company's Stock Incentive Plan (the "Plan") on the following terms:
1. Number of Shares. The number of Shares of Common Stock of the Company
that you may purchase under this Option is:<<Number>>
2. Exercise Price. The exercise price to purchase Shares under this Option
is: $<<Price>> per Share.
3. Vesting. [The Shares originally subject to this Option will vest and
become exercisable as follows: (i) as to no more than 1,000 of the Shares
originally subject to the Option on the Date of Grant (or such lesser number as
remain subject to the Option in the case of an Option granted to a Director
filling a vacancy); (ii) as to no more than 2,000 of the Shares originally
subject to the Option on the first Meeting Date following your election or
appointment, as the case may be (or such lesser number as remain subject to the
Option in the case of an Option granted to a Director filling a vacancy); and
(iii) as to the remaining 2,000 Shares originally subject to the Option on the
second Meeting Date following such Director's election or appointment, as the
case may be (or such lesser number as remain subject to the Option in the case
of an Option granted to a Director filling a vacancy)] [50% of the Shares
originally subject to this Option will vest and become exercisable on each
Meeting Date if you are a Director at the time of the adjournment of the meeting
of shareholders held on such Meeting Date.] [All of the Shares subject to the
Option are vested and fully exercisable.] Notwithstanding any other provision
hereof, this Option, to the extent that it has not previously been exercised or
lapsed, shall vest fully and become exercisable upon the occurrence of any
Change in Control if you are then a Director.
4. Lapse. This Option will lapse and cease to be exercisable upon the
earliest of:
(i) the expiration of 10 years from the date of this Agreement,
(ii) nine months after you cease to be a Director because of your
death or Disability,
(iii) immediately upon your resignation as a Director, or
(iv) one year after you cease to be a Director for any reason other
than your death, disability or resignation.
5. Taxation. This Option is a Nonqualified Option. You will have taxable
income upon the exercise of this Option.
6. Exercise. This Option may be exercised by the delivery of this
Agreement, with the notice of exercise attached hereto properly completed and
signed by you, to the Treasurer of the Company, together with the aggregate
Exercise Price for the number of Shares as to which the Option is being
exercised, after the Option has become exercisable and before it has ceased to
be exercisable. The Exercise Price must be paid in cash by (a) delivery of a
certified or cashier's check payable to the order of the Company in such amount,
(b) wire transfer of immediately available funds to a bank account designated by
the Company, or (c) reduction of a debt of the Company to you. This Option may
be exercised as to less than all of the Shares purchasable hereunder, but not
for a fractional share, nor may it be exercised as to less than 100 Shares
unless it is exercised as to all of the Shares then available hereunder.
<PAGE> 2
7. No Transfer. This Option may not be sold, pledged nor otherwise
transferred other than by will or the laws of descent and distribution; and it
may be exercised during your lifetime only by you. This Agreement is neither a
negotiable instrument nor a security (as such term is defined in Article 8 of
the Uniform Commercial Code).
8. Not An Employment Agreement. This Agreement is not an employment
agreement and nothing contained herein gives you any right to continue to be a
Director of the Company or affect the right of the shareholders to terminate
your directorship.
9. Plan Controls. This Agreement is an Option Agreement (as such term is
defined in the Plan) under Article 7 of the Plan. The terms of this Agreement
are subject to, and controlled by, the terms of the Plan, as it is now in effect
or may be amended from time to time hereafter, which are incorporated herein as
if they were set forth in full. Any words or phrases defined in the Plan have
the same meanings in this Agreement. The Company will provide you with a copy of
the Plan promptly upon your written or oral request made to its Treasurer.
10. Miscellaneous. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This Agreement
may not be amended or terminated except by a writing signed by the party against
whom any such amendment or termination is sought. If any one or more provisions
of this Agreement shall be found to be illegal or unenforceable in any respect,
the validity and enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby. This Agreement shall be governed by the
laws of the State of Ohio.
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to the
Company.
PH GROUP INC.
By:
------------------------------------
Charles T. Sherman, President
Accepted and Agreed to as of
the date first set forth above:
- -----------------------------------
<<Name of Grantee>>
<PAGE> 3
OPTION EXERCISE FORM
The undersigned hereby exercises the right to purchase ________________
shares of Common Stock of the Company pursuant to the Option Agreement dated
<<Date of Grant>> under the Company's Stock Incentive Plan. The undersigned
hereby represents and warrants to the Company that he or she is not exercising
such rights nor planning to transfer such shares while in the possession of
material inside information relating to the Company.
Date:
----------------------------------
-------------------------------------
<<Name of Holder>>
Sign and complete this Option Exercise Form and deliver it to:
PH Group Inc.
Attn.: Treasurer
2365 Scioto Harper Drive
Columbus, Ohio 43204
together with the option price in cash by (a) delivery of a certified or
cashier's check payable to the order of the Company in such amount, (b) wire
transfer of immediately available funds to a bank account designated by the
Company, or (c) reduction of a debt of the Company to you.
<PAGE> 1
10.9 PH GROUP INC. AGREEMENT WITH MAJOR SALES REPRESENTATIVE
PH HYDRAULICS TRUEBLOOD ST. LAWRENCE PRESS
PH GROUP INC.
AGREEMENT WITH SALES REPRESENTATIVE
THIS AGREEMENT is made between PH Group Inc. with its office in Columbus, Ohio
(hereinafter called the "Company") and Sulser Associates with its office in
Columbus, OH (hereinafter called the "Agent").
In consideration of the mutual agreements hereinafter set forth and the terms of
that certain letter from the Company to Agent dated January 2, 1998, a copy of
which is attached hereto and incorporated herein by reference, which the parties
acknowledge and agree is valuable and sufficient consideration for their
respective obligations hereunder, the parties intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. The Company hereby appoints the Agent as the exclusive
authorized representative for the products specified in Schedule A,
attached, in the specific territory defined as per attached Schedule C
(the "Territory").
2. NON-COMPETE. During the term of this Agreement, and any renewal term,
Agent agrees that he will not, directly or indirectly, market, sell or
distribute any hydraulic presses, whether inside or outside the Territory,
other than those manufactured by the Company or any affiliate or
subsidiary without the written consent of the Company. This provision
shall survive any early termination of this Agreement except by mutual
agreement of the parties.
3. AGENT'S RESPONSIBILITIES AND FACILITIES. The Agent agrees that it will:
a) Use its best efforts to develop business to promote the sale of, and
to sell the products covered by this Agreement at commission rates
specified in Schedule B, attached.
b) Maintain a sales organization which actively solicits the sale of
products covered by this Agreement.
c) Include a representative listing of the products covered by this
Agreement in any catalogues issued by it.
PH GROUP, INC.
PH HYDRAULICS TRUEBLOOD
ST LAWRENCE PRESS
<PAGE> 2
d) Furnish the Company from time to time, upon request, with such
information and reports as it may have available for its records
with respect to sales and other activities under this Agreement.
e) Cooperate with the Company in its regional marketing programs,
including advertising, product services and market research.
4. SALES ASSISTANCE BY COMPANY. The Company recognizes the benefits derived
by both parties through the active promotion of the Agent's name and
facilities in connection with the Company's products. To further this
objective, the Company agrees to furnish the Agent with sales promotional
aids, such as a sales plan, circulars, advertising and assistance.
5. AGENT - COMPANY RELATIONSHIP. The Agent shall have no right and shall not
attempt to enter into contracts or commitments in the name or on behalf of
the company or to bind the Company in any respect whatsoever.
6. PROPRIETARY AND TRADE SECRET INFORMATION. The Agent recognizes and
acknowledges that the methods of design, manufacturing, distribution,
or, lists and address or telephone information of actual or potential
customers, ordering patterns and preferences or design specifications
of customers, pricing information and strategies, advertising or
promotional materials, product design or specifications, marketing,
price lists, and any information relating to any bids, quotes or
orders, any patents, trademarks, trade secrets, proprietary information
and other intellectual property rights of the Company, including all
videos or recordings used for purposes of advertising, or marketing
(collectively "Confidential Information") as the same may exist from
time to time, are valuable, special and unique assets of Company. The
Agent specifically acknowledges that such Confidential Information has
independent economic value and is not generally known to individuals
outside Company. The Agent shall not, during or after the term hereof,
disclose, directly or indirectly, any such Confidential Information to
any person for any reason whatsoever or use any such Confidential
Information, directly or indirectly, for his own benefit or the benefit
of others. The Agent recognizes that he holds all Confidential
Information in a fiduciary capacity for the benefit of Company and that
in such capacity has a duty to take appropriate measures to safeguard
such information and preserve its confidentiality. Agent acknowledges
that the Company has implemented all reasonable and necessary
procedures for the protection of such Confidential Information and
agrees to comply with such procedures. During the term hereof, at the
close or completion of his work for Company, or any subsequent time,
upon request, the Agent will promptly return to Company all of its
property, which property includes notes, data and records relating to
Confidential Information in whatever form they exist and by whomever
prepared, which are then in Agent's possession, custody or control. The
provisions of this Section 6 will survive the termination hereof and
remain in full force and effect.
<PAGE> 3
7. TRADE MARKS. The Agent shall not use directly or indirectly, in whole or
in part, any trade mark or trade name that is or may hereafter be owned by
the Company in any way in connection with the Agent's business, except in
the manner and to the extent that the Company may specifically consent in
writing.
8. CHANGES. Although the Company will endeavor to give the Agent thirty (30)
days advance notice of any price reductions, it shall at all times have
the right, either with or without advance notice, to change prices, terms,
and conditions applicable to the purchase to its products under this
Agreement as set out from time to time in the prices or terms and
conditions provided to the Agent.
9. DURATION AND TERMINATION. The term of this Agreement shall commence on
the date hereof and continue for a two year period from the date hereof
This Agreement shall renew automatically for additional one year
periods upon the expiration of each succeeding term, upon the same
terms and conditions that apply during the initial term unless either
party shall give written notice to the other that such party does not
desire to renew this Agreement. Such notice must be given no later than
90 days before the expiration of then current term. Notwithstanding the
foregoing, this Agreement may be terminated by mutual agreement of the
parties. The Company may terminate this Agreement immediately upon
written notice if
(a) the Agent assigns or attempts to assign this Agreement, or any
rights hereunder, without the Company's prior written consent,
(b) there is a change in the control of management of the Agent's
employer or agency which is unacceptable to the Company,
(c) an indebtedness owed to the Company by the Agent becomes more than
thirty (30) days past due,
(d) the Agent ceases to function as a going concern, or to conduct its
operations in the normal course of business,
(e) a receiver for the Agent is appointed, or applied for, or a petition
under the Federal Bankruptcy Act is filed by or against the Agent,
or the Agency makes an assignment for the benefit of creditors, or
(f) the Agent at any time fails to perform any of the obligations on his
part to be performed hereunder.
<PAGE> 4
10. NO LIABILITY FOR TERMINATION. Neither the Company nor the Agent shall by
reason of the termination of the Agreement be liable to the other for
compensation, reimbursement, or damages either on account of present or
prospective profits on sales or anticipated sales, or on account of
expenditures, investments or commitments made in connection therewith or
in connection with the establishment, development or maintenance of the
business or goodwill of the Company or Agent, or on account of any other
cause of thing whatsoever, provided, however, that such termination shall
not affect the rights or liabilities of the parties with respect to
products previously sold hereunder or with respect to any indebtedness
then owing by either party to the other. Notwithstanding the foregoing,
this Section shall in no event limit a party's liability arising out of or
relating to a breach of this Agreement.
11. FAILURE TO ENFORCE. The failure of either party to enforce at any time or
for any period of time any of the provisions of this Agreement shall not
be construed as a waiver of such provisions or of the right of the party
thereafter to enforce each and every such provision. Any waiver or
modification of the provisions of the Agreement must be in writing and
signed by a duly authorized representative of the Company.
12. COMMISSION SPLIT. Commissions will be paid on the following basis:
- 25% Origination of RFQ
- 25% Specification review
- 25% Purchase Order
- 25% Ship To
If there are no established reps in the ship to area, then the 25% ship to
will be deducted from the commission.
All commission splits are left to the discretion of the Company. Any
objections by the Agents involved shall be in written form.
13. EFFECT AND MODIFICATION. This instrument contains the entire and only
agreement between the parties respecting the sale of the products referred
to in Paragraph 1, hereof, there being merged herein all prior and
collateral representations, promises and conditions in connection with
said matter.
14. INJUNCTIVE RELIEF. In the event of a breach or a threatened breach by
Agent of Sections 2 or 6 of this Agreement, Agent acknowledges that the
Company will suffer irreparable harm and that Company will be entitled to,
in addition to any other remedies available to the Company, a permanent
injunction in order to restrain Agent and any person or entity directly or
indirectly acting with him or for him from breaching any provisions of
Sections 2 or 6 of this Agreement.
<PAGE> 5
15. Neither party to this Agreement may assign, directly or indirectly, by
operation of law or otherwise, any right nor delegate any obligation under
this Agreement without the written consent of the other party. Any
purported assignment or delegation is void and ineffective to transfer any
right or delegate any obligation.
SULSER ASSOCIATES PH GROUP INC.
/s/ Rick Sulser /s/ Charles T. Sherman
Rick Sulser Charles T. Sherman
President
EFFECTIVE DATE: 1-8-98 EFFECTIVE DATE: 1-1-98
<PAGE> 6
SCHEDULE C
EXCLUSIVE TERRITORY
Territory defined as States of
Southern Ohio
Kentucky
Indiana
Illinois
<PAGE> 7
PH Hydraulics
SCHEDULE A
TYPE PRESS SERIES
1. Open Gap OGF
2. Open Gap Platen OGP
3. Straightening S
4. Four Column 4C
5. Bench Air Presses AP
6. Phoenix PHN
7. Marathon OGM
8. Specials SPEC
SCHEDULE B
1. Open Gap 10%
2. Open Gap Platen 10%
3. Straightening 10%
4. Four Column 10%
5. Bench Air Presses 10%
6. Marathon 10%
7. Specials As negotiated
8. Phoenix: PHN-2 10%
PHN-4 10%
PHN-8 10%
PHN-12 10%
It must be clearly understood by the Agent that there may be competitive
situations where the Agent may have to accept a lower commission rate to get the
order.
<PAGE> 1
23.1 CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-45717 and No. 333-46617 of PH Group Inc. on Form S-8 of our report dated
March 30, 1999, appearing in this Annual Report on Form 10-KSB of PH Group Inc.
for the year ended December 31, 1998.
Deloitte & Touche LLP
Columbus, Ohio
March 30, 1999
<PAGE> 1
23.2. CONSENT OF GREENE & WALLACE, INC.
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation of our report, dated February 6, 1998,
with respect to the financial statements of PH Group, Inc. for the year ended
December 31, 1997, included in this Form 10-KSB, in the previously filed
Registration Statements of PH Group, Inc. on Form S-8 No. 333-45717 and
333-46617.
Greene & Wallace, Inc.
March 29, 1999
<PAGE> 1
24.1 POWERS OF ATTORNEY
POWER OF ATTORNEY
The undersigned who is a director or officer of PH Group Inc., an Ohio
corporation (the "Company");
Does hereby constitute and appoint Charles T. Sherman to be his agent and
attorney-in fact;
With the power to act fully hereunder and with full power of substitution to act
in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the annual report
on Form 10-K or Form 10-KSB or any amendment or supplement thereto; and
To execute and deliver the annual report on Form 10-K or Form 10-KSB and all
instruments or reports necessary or in connection with the filing or
amendments thereto, and generally to act for and in the name of the
undersigned with respect to such fillings as fully as could the
undersigned if then personally present and acting.
The agent named above is hereby empowered to determine in his discretion that
times when, the purposes for which, and the names in which, any power
conferred upon him herein shall be exercised and the terms and
conditions of any instrument, certificate or document which may be
executed by him pursuant to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of the Power of Attorney shall be governed
by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State
of Ohio.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 9th day of
February, 1999.
/s/ KENNETH P. FURLONG
--------------------------------
Kenneth P. Furlong
<PAGE> 2
POWER OF ATTORNEY
The undersigned who is a director or officer of PH Group Inc., an Ohio
corporation (the "Company");
Does hereby constitute and appoint Charles T. Sherman to be his agent and
attorney-in fact;
With the power to act fully hereunder and with full power of substitution to act
in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the annual report
on Form 10-K or Form 10-KSB or any amendment or supplement thereto; and
To execute and deliver the annual report on Form 10-K or Form 10-KSB and all
instruments or reports necessary or in connection with the filing or
amendments thereto, and generally to act for and in the name of the
undersigned with respect to such fillings as fully as could the
undersigned if then personally present and acting.
The agent named above is hereby empowered to determine in his discretion that
times when, the purposes for which, and the names in which, any power
conferred upon him herein shall be exercised and the terms and
conditions of any instrument, certificate or document which may be
executed by him pursuant to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of the Power of Attorney shall be governed
by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State
of Ohio.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 9th day of
February, 1999.
/s/ MICHAEL W. GARDNER
--------------------------------
Michael W. Gardner
<PAGE> 3
POWER OF ATTORNEY
The undersigned who is a director or officer of PH Group Inc., an Ohio
corporation (the "Company");
Does hereby constitute and appoint Charles T. Sherman to be his agent and
attorney-in fact;
With the power to act fully hereunder and with full power of substitution to act
in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the annual report
on Form 10-K or Form 10-KSB or any amendment or supplement thereto; and
To execute and deliver the annual report on Form 10-K or Form 10-KSB and all
instruments or reports necessary or in connection with the filing or
amendments thereto, and generally to act for and in the name of the
undersigned with respect to such fillings as fully as could the
undersigned if then personally present and acting.
The agent named above is hereby empowered to determine in his discretion that
times when, the purposes for which, and the names in which, any power
conferred upon him herein shall be exercised and the terms and
conditions of any instrument, certificate or document which may be
executed by him pursuant to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of the Power of Attorney shall be governed
by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State
of Ohio.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 9th day of
February, 1999.
/s/ BOB BINSKY
---------------------------
Bob Binsky
<PAGE> 4
POWER OF ATTORNEY
The undersigned who is a director or officer of PH Group Inc., an Ohio
corporation (the "Company");
Does hereby constitute and appoint Charles T. Sherman to be his agent and
attorney-in fact;
With the power to act fully hereunder and with full power of substitution to act
in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the annual report
on Form 10-K or Form 10-KSB or any amendment or supplement thereto; and
To execute and deliver the annual report on Form 10-K or Form 10-KSB and all
instruments or reports necessary or in connection with the filing or
amendments thereto, and generally to act for and in the name of the
undersigned with respect to such fillings as fully as could the
undersigned if then personally present and acting.
The agent named above is hereby empowered to determine in his discretion that
times when, the purposes for which, and the names in which, any power
conferred upon him herein shall be exercised and the terms and
conditions of any instrument, certificate or document which may be
executed by him pursuant to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of the Power of Attorney shall be governed
by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State
of Ohio.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 9th day of
February, 1999.
/s/ ALIDA L. BREEN
------------------------------
Alida Breen
<PAGE> 5
' POWER OF ATTORNEY
The undersigned who is a director or officer of PH Group Inc., an Ohio
corporation (the "Company");
Does hereby constitute and appoint Charles T. Sherman to be his agent and
attorney-in fact;
With the power to act fully hereunder and with full power of substitution to act
in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the annual report
on Form 10-K or Form 10-KSB or any amendment or supplement thereto; and
To execute and deliver the annual report on Form 10-K or Form 10-KSB and all
instruments or reports necessary or in connection with the filing or
amendments thereto, and generally to act for and in the name of the
undersigned with respect to such fillings as fully as could the
undersigned if then personally present and acting.
The agent named above is hereby empowered to determine in his discretion that
times when, the purposes for which, and the names in which, any power
conferred upon him herein shall be exercised and the terms and
conditions of any instrument, certificate or document which may be
executed by him pursuant to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of the Power of Attorney shall be governed
by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State
of Ohio.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 9th day of
February, 1999.
/s/ M. RICHARD SULSER
---------------------------
M. Richard Sulser
<PAGE> 6
POWER OF ATTORNEY
The undersigned who is a director or officer of PH Group Inc., an Ohio
corporation (the "Company");
Does hereby constitute and appoint Charles T. Sherman to be his agent and
attorney-in fact;
With the power to act fully hereunder and with full power of substitution to act
in the name and on behalf of the undersigned;
To sign and file with the Securities and Exchange Commission the annual report
on Form 10-K or Form 10-KSB or any amendment or supplement thereto; and
To execute and deliver the annual report on Form 10-K or Form 10-KSB and all
instruments or reports necessary or in connection with the filing or
amendments thereto, and generally to act for and in the name of the
undersigned with respect to such fillings as fully as could the
undersigned if then personally present and acting.
The agent named above is hereby empowered to determine in his discretion that
times when, the purposes for which, and the names in which, any power
conferred upon him herein shall be exercised and the terms and
conditions of any instrument, certificate or document which may be
executed by him pursuant to this instrument.
This Power of Attorney shall not be affected by the disability of the
undersigned or the lapse of time.
The validity, terms and enforcement of the Power of Attorney shall be governed
by those laws of the State of Ohio that apply to instruments
negotiated, executed, delivered and performed solely within the State
of Ohio.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 9th day of
February, 1999.
/s/ TERRY L. SANBORN
---------------------------------
Terry Sanborn
<PAGE> 1
24.2 Certificate
I, KENNETH J. WARREN, hereby certify that I am the duly elected
Secretary of PH Group Inc., an Ohio corporation (the "Corporation"), and do
further certify that the following resolution was duly adopted by the Board of
Directors of the Corporation at a meeting duly called and held on January 21,
1998, and that such resolution has not been amended or rescinded, and is in full
force and effect:
RESOLVED, that each officer and director who may be required to execute
an annual report on Form 10-K or Form 10-KSB (whether on behalf of the Company
or as an officer or director thereof or otherwise) or any amendment or
supplement thereto be, and each of them hereby is, authorized to execute a power
of attorney appointing Charles T. Sherman, his or her true and lawful attorney
and agent to execute in his or her name, place and stead (in any such capacity)
the annual report and all amendments or reports necessary or in connection
therewith, and to file the same with the Securities and Exchange Commission, to
have full power and authority to do and to perform in the name and on behalf of
each of said officers and directors, or both, as the case may be, every act
which is necessary or advisable to be done as fully, and to all intents and
purposes, as any such officer or director might or could do in person; ...
Dated this 30th day of March, 1999.
/s/ KENNETH J. WARREN
------------------------------
Kenneth J. Warren
<TABLE> <S> <C>
<ARTICLE> 5
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,862
<SECURITIES> 0
<RECEIVABLES> 4,004,134
<ALLOWANCES> (30,000)
<INVENTORY> 2,942,799
<CURRENT-ASSETS> 7,352,001
<PP&E> 2,268,997
<DEPRECIATION> (1,329,574)
<TOTAL-ASSETS> 9,582,785
<CURRENT-LIABILITIES> 6,952,336
<BONDS> 951,068
0
0
<COMMON> 12,157
<OTHER-SE> 1,392,641
<TOTAL-LIABILITY-AND-EQUITY> 9,582,785
<SALES> 13,394,357
<TOTAL-REVENUES> 13,394,357
<CGS> 10,042,780
<TOTAL-COSTS> 10,042,780
<OTHER-EXPENSES> (151,977)
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 285,623
<INCOME-PRETAX> (788,302)
<INCOME-TAX> (297,000)
<INCOME-CONTINUING> (491,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (491,302)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.31)
</TABLE>
