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FORM 10-K/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ............. to...................
Commission file number: 0-2572
STEEL CITY PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 55-0437067
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1001 SANTERRE DRIVE, GRAND PRAIRIE, TEXAS 75050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 660-4499
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE PER SHARE NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes...X... No.....
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value at May 1, 1996 of the voting stock held by non-affiliates
of the registrant: $157,586
At May 1, 1996, the registrant had 3,238,061 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be filed pursuant to
Section 14(a) of the Securities Exchange Act of 1934 in connection with the
registrant's 1996 annual meeting of stockholders are incorporated by reference
in Part III of this report.
EXPLANATORY NOTE
This Form 10-K/A amends Part IV, Item 14 - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K, to include three exhibits which were listed
on the exhibit index (exhibits 10.11, 10.12 and 10.13), but were inadvertently
excluded from the EDGAR transmission by the Company's filing agent.
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PART I
ITEM 1. BUSINESS
BACKGROUND OF STEEL CITY PRODUCTS, INC.
Steel City Products, Inc. ("SCPI" or "the Company") was incorporated in
West Virginia in 1959, and in 1963 became known as Heck's, Inc. In 1969, the
"Steel City Products" automotive distribution business was acquired. The
Company was reincorporated in Delaware under the name Hallwood Industries
Incorporated in 1990, and in January 1993 the Company changed its name to Steel
City Products, Inc.
For many years prior to 1990, Heck's, Inc. operated a Retail Division
consisting of a chain of discount department stores. In September 1990, all of
the assets of the Retail Division were sold to Retail Acquisition Corp.
("RAC").
Continuing operations of SCPI comprise the distribution of automotive
parts and accessories to independent retailers under the name "Steel City
Products".
FORMATION OF OAKHURST COMPANY, INC.
Oakhurst Company, Inc. ("Oakhurst"), formerly Oakhurst Capital, Inc., was
formed as part of a merger transaction in July 1991, in which SCPI became a
majority-owned subsidiary of Oakhurst. In accordance with the merger
agreement, Oakhurst owns 10% of the outstanding common stock of SCPI and all of
the SCPI Series A Preferred Stock, with the result that the aggregate fair
market value of SCPI's common stock and Series A Preferred Stock owned by
Oakhurst is equal to approximately 90% of the aggregate fair market value of
all the issued and outstanding capital stock of SCPI; consequently, Oakhurst
owns 90% of the voting stock of SCPI.
Pursuant to the merger, SCPI became a special, limited purpose subsidiary
that concentrates on its historical line of business, while any future growth
and expansion opportunities are expected to be pursued by Oakhurst or its
subsidiaries. Because Oakhurst's ownership of SCPI is primarily in the form of
preferred stock, Oakhurst retains the value of SCPI, and Oakhurst's income from
SCPI is determined by the Series A Preferred stock dividend. Oakhurst's
ownership of SCPI facilitates the preservation and utilization of SCPI's and
Oakhurst's net operating tax loss carryforwards, which amount to approximately
$149 million.
OPERATIONS
SCPI primarily distributes automotive accessories. These products include
functional and decorative car and truck accessories (such as floor mats, seat
covers, mirrors, running boards and lights), car care products (including waxes
and paints), chemicals (such as antifreeze, windshield washer fluid and motor
oil) and car repair and maintenance items (including spark plugs, windshield
wipers, and air and oil filters). In fiscal 1996, the product selection was
expanded to include selected "hard parts" such as brake rotors, and in the
first quarter of fiscal 1997, SCPI introduced non-food pet supplies to its
merchandise selection. Although such pet supplies are not typical of SCPI's
historical merchandise mix, management determined that the availability of
existing customers which sell both pet supplies and automotive accessories,
combined with SCPI's distribution expertise and infrastructure, offered an
opportunity for increased sales, but there can be no assurance that this will
lead to new sales. For about twenty-five years, SCPI's operations have been
conducted from the same facility in Pittsburgh.
Certain of SCPI's business is performed on a service basis, which involves
visits by its sales personnel to customers' stores to count and re-order
merchandise; generally, these re-orders are transmitted electronically to
SCPI's offices in Pittsburgh and shipments are either made directly to each of
the customers' stores or pre-packed for onward shipment to stores by the
retailers' own distribution centers. Certain customers electronically transmit
their orders to SCPI's headquarters. Because many
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orders are generated electronically and are shipped within a few days of
receipt, the size of SCPI's order backlog is not relevant to an understanding
of the business. SCPI also provides price ticketing and associated services to
those of its customers who request such services.
SOURCES OF SUPPLY
SCPI acquires its merchandise from a large number of suppliers, none of
which accounts for more than 15% of its revenues. Many of the products sold by
SCPI carry nationally-advertised brand names, but because of the diversity and
number of suppliers and products carried, the business is not generally
dependent on the continued availability of individual products or continued
dealings with existing supply sources. From time to time, market or seasonal
conditions may affect the availability of certain merchandise, but not to the
extent that the Company believes would materially impact its business.
Steel City generally carries in inventory only those products that its
customers have identified as necessary for their own merchandising needs, and
does not acquire significant quantities of other merchandise.
SEASONALITY
SCPI's business is seasonal, being slower in the early winter months than
at other times of the year. In anticipation of higher sales volume in the
spring and summer, SCPI carries higher inventories, beginning in February. As
is customary in the industry, many suppliers allow extended payment terms for
such inventory build-ups and in turn, SCPI grants extended payment terms to
many of its customers to facilitate their inventory build-ups.
SCPI's needs for working capital are affected by these seasonal
fluctuations (see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
CUSTOMER BASE
SCPI's customers include general merchandise retail chains, automotive
specialty stores, grocery chains, drug stores, hardware stores and other
automotive accessory distributors. Most customers are based in the
northeastern United States, although stores operated by some customers are
located outside the northeastern states. There are no foreign sales.
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive pressures facing regional mass
merchandisers and the growing influence of national automotive specialty
chains. These have led to fluctuations in the level of business that SCPI
enjoys with individual customers. In recent years, SCPI has lost some
significant customers and has suffered reductions in business as certain
customers have closed stores in the face of competition, have been forced into
bankruptcy, or have reduced their automotive merchandise selection.
Furthermore, some customers have changed their buying practices to acquire
certain merchandise direct from manufacturers rather than through distributors
such as Steel City Products. In its efforts to offset these trends, SCPI has
added new customers, expanded its product offerings to certain customers,
enlarged the territory that it serves and introduced new categories of
products.
Examples of the changes discussed above include the fact that SCPI's
largest customer in fiscal 1992, Fisher Big Wheel, represented a diminishing
percentage of its total revenues in each subsequent fiscal year and then closed
all of its stores in 1993 following a bankruptcy filing, and that in fiscal
1996, SCPI lost two of its largest customers: Jamesway Corporation ("Jamesway")
filed for bankruptcy in October 1995 and shortly thereafter closed all its
stores, and Forest City Auto Parts, Inc. ("Forest City") informed management in
November 1995 of its decision to change distributors (see table below).
Although SCPI added several new customers during fiscal 1995, fiscal 1996
and the first quarter of fiscal 1997, and expanded sales to certain existing
customers, it has not yet obtained enough new
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business to offset all of the lost business and return sales to historical
levels. Management continually attempts to identify new customers, but there
can be no assurance that further customers will be secured. Based on present
information, management anticipates that SCPI's sales in fiscal 1997 will be
less than in fiscal 1996.
The following table shows sales to each of SCPI's customers that
individually accounted for more than 10% of sales during any of the latest
three fiscal years (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 29, 1996 February 28, 1995 February 26, 1994
--------------------- ------------------- ---------------------
% of % of % of
Sales Total Sales Sales Total Sales Sales Total Sales
-------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fisher Big Wheel -- -- -- -- $3,198 10%
Forest City $4,641 19% $6,046 22% $6,250 20%
Jamesway $3,975 16% $4,465 16% $6,332 20%
</TABLE>
Fisher Big Wheel and Jamesway both filed for Chapter 11 bankruptcy
protection in July 1993, and Fisher Big Wheel closed all of its stores in
December 1993. Jamesway emerged from bankruptcy in January 1995, and continued
to be one of SCPI's largest customers throughout this period until the second
quarter of fiscal 1996, when Jamesway began experiencing new financial
difficulties. In October 1995 Jamesway again filed for bankruptcy protection
and announced that it would close all of its stores.
During the third quarter of fiscal 1996, Forest City informed SCPI
that it had decided to change its source of supply, and sales to Forest City
ended in January 1996.
None of SCPI's business is based on government contracts, and there
are no long-term sales contracts with any customers.
COMPETITION
The automotive parts and accessories distribution industry is highly
competitive, with several similar companies operating in SCPI's market place,
and many of SCPI's suppliers also offer their products directly to retailers.
Management is unable to quantify SCPI's relative size in its industry or in
relation to its competitors. SCPI competes on the basis of the breadth of
merchandise offered, price, level of service, order fill rates and order
turnaround times. Management believes that SCPI's long history, good
reputation, experienced management, product variety, pricing, service levels
and high order fill rates enable it to compete favorably with other
distributors.
REGULATION
SCPI's management does not anticipate that existing or known pending
environmental legislation or other regulations will require major capital
expenditures or will affect its operations.
EMPLOYEES
SCPI employs approximately 65 persons, of whom about 50 are employed
in the headquarters office and distribution facility in Pittsburgh. Most of
the others are field personnel. Senior executives, including Bernard Frank (a
founder of Steel City Products in 1947), have many years of service with SCPI
and some are employed under long-term contracts.
The warehouse and certain office employees of SCPI are represented by
Local 636 of the International Brotherhood of Teamsters. SCPI believes that it
has experienced generally good labor relations, and no significant labor
disputes have affected its business in recent years. Renewal negotiations
related to the union agreement have continued beyond its expiration in November
1995.
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ITEM 2. PROPERTIES
SCPI operates its business from a 100,000 square-foot building owned by
SCPI in an industrial park in Pittsburgh, Pennsylvania. The original building
was constructed in 1970 and it has been expanded several times.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings against the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended February 29, 1996.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the names, ages, positions and a brief description of the
business experience during the last five years of the executive officers of the
Company, all of whom serve until they resign or are removed from such offices
by the Board of Directors.
BERNARD H. FRANK (75): Chairman, Chief Executive Officer and Director. Mr.
Frank was a founder of the Steel City Products business which SCPI's
predecessor acquired in 1969; he has been associated with its business for
approximately forty-nine years. He has been Chief Executive Officer of SCPI
since January 1993 and was appointed its Chairman in March 1994. He was
appointed Executive Vice President and Chief Operating Officer of Oakhurst in
May 1994, and a director of Oakhurst in May 1995.
TERRANCE W. ALLAN (44): Executive Vice President and Director. Mr. Allan has
been Executive Vice President of Steel City Products since 1987 and was
appointed Executive Vice President of SCPI in January 1993.
MARK AUERBACH (58): Chief Financial Officer. Mr. Auerbach has been Chief
Financial Officer since December 18, 1995, succeeding Mr. Maarten Hemsley who
resigned from the position effective as of such date. Mr. Auerbach was also
appointed Chairman of the Board of Directors, President, Chief Executive
Officer and Chief Financial Officer of Oakhurst on such date. Mr. Auerbach has
been Senior Vice President and Chief Financial Officer since April 1993 of
Central Lewmar, L.P., a fine paper merchant. From September 1992 until April
1993, he was a partner of Marron Capital, L.P., an investment banking company.
From 1990 to 1992, he was President, Chief Executive Officer and Chairman of
the Board of Implant Technology, Inc., a manufacturer of artificial hip
systems. He is a director of Pharmaceutical Resources, Inc., a generic drug
manufacturer, and Acorn Venture Capital Corporation. Mr. Auerbach is a
certified public accountant, and was a director of SCPI from September 1993
until March 1994.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As a result of the merger transaction with Oakhurst in fiscal 1992 (see
Item 1, "Business - Formation of Oakhurst Company, Inc."), most of the
Company's value is vested in Oakhurst. As a result of the merger, the
Company's stock price fell below the Nasdaq minimum bid price of $1.00 per
share and on July 14, 1992 the Company's common stock was removed from listing
by Nasdaq.
No common stock dividends were paid by the Company during fiscal 1996
or 1995. Dividend payments are restricted by the covenants of the Company's
line of credit.
Through its ownership of the Company, primarily in the form of Series
A Preferred Stock, Oakhurst controls the Company and receives substantially all
of the benefit of the Company's operations through preferred stock dividends,
which are required to be paid before any common stock dividends may be paid.
In fiscal 1995, the Board of Directors approved the declaration and payment of
Series A Preferred Stock dividends of approximately $2.8 million.
There were approximately 3,800 holders of record of SCPI's common
stock on May 1, 1996.
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ITEM 6. SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial and other data of
Steel City Products, Inc. and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations,
which follows, and with the Financial Statements and related Notes.
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26, FEBRUARY 27, FEBRUARY 29,
1996(c) 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales . . . . . . . . . . . . . . . . . . . $ 24,647 $ 27,335 $ 32,003 $ 33,584 $ 29,893
========== ========== =========== ========== ==========
(Loss) income from continuing operations
before income taxes . . . . . . . . . $ (206) $ 1,260 $ 1,024 $ 1,236 $ 351
Current income tax benefit (expense) . . . 136 (87) (87) (148) (44)
Deferred income tax expense . . . . . . . . (1,500) (339) (317) (370) (104)
---------- ---------- ----------- ---------- ----------
(Loss) income from continuing operations . (1,570) 834 620 718 203
Income (loss) from
discontinued operations (a) . . . . . 43 90 - (44) 130
Series A Preferred Stock Dividends
($2,765 and $786 declared in fiscal
1995 and 1993, respectively)(b) . . . (1,016) (1,019) (1,135) (1,983) -
---------- ---------- ----------- ---------- ----------
Net (loss) income attributable
to common stockholders . . . . . $ (2,543) $ (95) $ (515) $ (1,309) $ 333
========== ========== =========== ========== ==========
PER SHARE AMOUNTS:
(Loss) income from continuing operations
after preferred stock dividends . . . $ (0.80) $ (0.06) $ (0.18) $ (0.44) $ 0.07
Income (loss) from discontinued operations 0.01 0.03 - (0.02) 0.04
---------- ---------- ----------- ---------- ----------
Net (loss) income attributable
to common stockholders . . . . . . . $ (0.79) $ (0.03) $ (0.18) $ (0.46) $ 0.11
========== ========== =========== ========== ==========
BALANCE SHEET STATISTICS:
Total assets . . . . . . . . . . . . . . . $ 14,897 $ 19,040 $ 17,506 $ 14,754 $ 14,623
Long-term obligations . . . . . . . . . . . $ 2,216 $ 2,718 $ 1,429 $ 1,766 $ 2,209
Series A Preferred Stock face value (b) . . $ 10,135 $ 10,135 $ 11,379 $ 12,002 $ -
</TABLE>
(a) In fiscal 1991, SCPI sold its Retail Division to RAC as discussed
in Note 8 to the Financial Statements. SCPI remained contingently liable
for most mortgage debt, and for many lease obligations of the Retail
Division following the sale. RAC was forced into bankruptcy in March
1991. RAC's Reorganization Plan (the "RAC Plan") contained provision for
releases in favor of SCPI together with an injunction against further
actions by contingent creditors against SCPI. Accordingly, SCPI was
released from further liability except for payment of the Creditor Notes
as further described in Notes 5 and 8 of the Financial Statements.
(b) The Series A Preferred Stock has a dividend rate of $0.5228 per
share and is redeemable at SCPI's option at $5.2282 per share plus any
cumulative dividends in arrears. Through fiscal 1996, dividends of
approximately $5.2 million have accumulated since the effective date of
the merger; of this amount, approximately $2.8 million and $786,000
were declared by the Company's Board of Directors in fiscal 1995
and 1993, respectively, and approximately $1.6 million of undeclared
dividends in arrears are outstanding as of February 29, 1996. In
accordance with the merger, revaluations of the Company were completed
as of February 26, 1994 and February 27, 1993 which resulted in
reductions in the number of Series A Preferred shares outstanding.
Revaluations as of February 28, 1995 and February 29, 1996,
respectively, have not yet been completed. Management expects that the
revaluation as of the end of February 29, 1996, when complete, will
result in a further decrease in the valuation of SCPI, and that
additional Series A Preferred shares outstanding may be canceled
once such valuation is complete. See Note 2 to the Financial Statements.
(c) Results for fiscal 1996 include a non-cash deferred tax charge of $1.5
million relating to an increase in the Company's valuation allowance of
its deferred tax asset (see Note 7 to the Financial Statements).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
SCPI is a special, limited purpose, majority-owned subsidiary of
Oakhurst. SCPI is expected to concentrate on its historical line of business,
while any future growth and expansion opportunities are expected to be pursued
by one or more subsidiaries of Oakhurst. Through Oakhurst's ownership of SCPI,
primarily in the form of preferred stock, Oakhurst retains substantially all
the value of SCPI, and receives substantially all of the benefit of operations
through dividends on the preferred stock. Oakhurst's ownership of SCPI is
designed to facilitate the preservation and utilization of SCPI's and
Oakhurst's net operating tax loss carryforwards which amount to approximately
$149 million.
SIGNIFICANT EVENTS AND TRENDS
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive pressures facing regional mass
merchandisers and the growing influence of automotive specialty chains. These
have led to fluctuations in the level of business that SCPI enjoys with
individual customers. In recent years, SCPI has lost some significant
customers and has suffered reductions in business as certain customers have
closed stores in the face of competition, have been forced into bankruptcy, or
have reduced their automotive merchandise selection. Furthermore, some
customers have changed their buying practices to acquire certain merchandise
direct from manufacturers rather than through distributors such as SCPI.
In fiscal 1993, SCPI's two then-largest customers filed for bankruptcy
protection. Once of the customers closed all its stores in December 1993; the
other, Jamesway Corporation ("Jamesway") reorganized and emerged from Chapter
11 in January 1995. Jamesway continued to be one of SCPI's largest customers
until October 1995, when it again filed for protection under the U.S.
Bankruptcy Code, and shortly thereafter closed all its stores. SCPI's results
for fiscal 1996 include a write-off of approximately $150,000 in relation to
the balances due from Jamesway. In the first seven months of fiscal 1996
through September 1995, when sales to Jamesway ended, SCPI's sales to this
customer were approximately $4 million.
In November 1995, Forest City Auto Parts, Inc. ("Forest City")
informed SCPI of its decision to change its source of supply; sales to Forest
City ceased in January 1996. In fiscal 1996, sales to Forest City were
approximately $4.6 million.
In its efforts to offset these trends, SCPI strengthened its sales
team to help identify new customers and better serve existing customers,
expanded its product offerings to certain customers and enlarged the territory
that it serves. In fiscal 1996, SCPI began offering certain "hard parts" such
as brake rotors, and in the first quarter of fiscal 1997, SCPI introduced a new
merchandise category of non-food pet supplies. Although such pet supplies are
not typical of SCPI's historical merchandise mix, management determined that
the availability of existing customers which sell both pet supplies and
automotive accessories, combined with SCPI's distribution expertise and
infrastructure, offered an opportunity for increased sales.
During fiscal 1996, SCPI added two new large customers (NHD and Ames)
and other new customers, and in the first quarter of fiscal 1997 added another
large customer (Rich's), and expanded sales to certain other customers.
However, the level of sales to such customers is currently not sufficient to
offset the loss of the Jamesway and Forest City business. Without further
customer additions or significant increases in sales to existing customers,
sales in fiscal 1997 are expected to be lower than in fiscal 1996. In
anticipation of this reduction, management substantially reduced its inventory
levels and eliminated certain operating and overhead expenses.
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LIQUIDITY AND CAPITAL RESOURCES
FINANCING AND LINE OF CREDIT
In addition to cash derived from operations, SCPI's liquidity and
financing requirements are determined principally by the working capital needed
to support its level of business, together with the need for capital
expenditures and the cash required to repay its debt. SCPI also receives cash
payments pursuant to two notes receivable from Oakhurst. SCPI's working
capital needs fluctuate primarily by the amounts of inventory it carries which
can change seasonally, the size and timeliness of payment of receivables from
its customers to which from time to time SCPI grants extended payment terms for
their seasonal inventory builds, and the amount of credit extended to SCPI by
its suppliers. At February 29, 1996, SCPI's debt primarily consisted of a term
loan secured by a mortgage on SCPI's real estate (the "Term Loan") of
approximately $1.7 million, and the Creditor Notes (see below). The Term Loan
was refinanced in March 1996 by the Fixed Asset Loan (see below).
In recent years, SCPI's operations were more profitable than in fiscal
1996 and its cash flow was sufficient to fund working capital needs, to repay
the scheduled principal reductions required by the Creditor Notes and Term
Loan, and to pay dividends to, and make loans to, SCPI's parent, Oakhurst. In
fiscal 1996, while there was a net loss from continuing operations of $1.6
million, most of this resulted from an adjustment of $1.5 million to the
valuation allowance of the deferred tax asset, which had no cash impact, and
SCPI realized a net decrease of approximately $1.2 million in its level of
working capital as a result of lower levels of sales.
In fiscal 1997, management expects sales to be lower than in fiscal
1996. As part of a strategic evaluation of the business, SCPI has reduced
expenses so as to mitigate negative cash flow from operations while new
customers and product lines are sought. There can be no assurance that SCPI
can obtain a sufficient number of new customers or sufficient levels of new
business to return it to profitability.
At November 30, 1995 Oakhurst and SCPI did not meet certain covenants
under Oakhurst's bank debt, which was cross-collateralized with the Term Loan,
and in March 1996, Oakhurst obtained replacement financing from an
institutional lender that provides a total facility for Oakhurst and its
subsidiaries of $9.5 million, comprising a new SCPI term loan of $1.5 million
(the "Fixed Asset Loan") and a maximum revolving credit facility of $8 million
(the "Revolver") (collectively, the "Credit Facility"), and the amounts
outstanding under the Term Loan and existing bank debt were repaid. The Credit
Facility provides a significant increase in available financing.
Like the Term Loan that it replaced, the Fixed Asset Loan is secured
by SCPI's building in Pittsburgh, but provides a more beneficial amortization
schedule of twenty-four monthly principal and interest payments of
approximately $32,000, with the remaining principal balance due on April 1,
1998. The Fixed Asset Loan provides for prepayment without penalty, and
contains a provision for the release of SCPI's building as collateral on the
Credit Facility in the event of a refinancing of the Fixed Asset Loan, subject
to a right of first refusal by the current lender to refinance the Fixed Asset
Loan on the same terms as offered by a new lender.
Borrowings under the Credit Facility bear interest at the higher of
the Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings
under the Revolver are subject to a borrowing base that is calculated according
to defined levels of Oakhurst's subsidiaries' accounts receivable and
inventories. The Credit Facility has an initial term of two years, with
automatic renewal terms of one year each upon payment of a renewal fee of 0.5%
thereof, unless earlier terminated as provided for in the agreement, and
contains certain restrictive financial and non-financial covenants, including
the maintenance of defined subsidiary and consolidated tangible net worth
levels and consolidated current ratios, and limitations on common stock cash
dividends. The Credit Facility is secured by the accounts receivable,
inventories, and fixed assets of all of Oakhurst's subsidiaries.
At February 29, 1996, SCPI held two promissory notes receivable from
Oakhurst (see Note 3 to the financial statements) that were issued in
connection with acquisitions by Oakhurst, with a remaining
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aggregate balance of approximately $1.5 million. These notes were rescheduled
in March 1996 in accordance with an agreement between SCPI and Oakhurst. The
rescheduling reflected the combination of the outstanding balances of the
Oakhurst Notes into one new note (the "Oakhurst Note") that bears interest at
the prime rate plus 1.5% and provides for eight quarterly installments of
principal and interest of $96,000 each, with a balloon payment of approximately
$1 million in April 1998. The Oakhurst Note allows for a rescheduling of the
April 1998 balloon payment, should a refinancing of the Fixed Asset Loan occur
prior to that time.
The creditor notes that were issued by SCPI in connection with the
bankruptcy of Retail Acquisition Corp., (the "Creditor Notes") (see Note 8 to
the financial statements) are payable in six equal annual installments through
July 1998, subject to a prepayment requirement whereby if defined cash flow
exceeds $900,000, $1,000,000 and $1,100,000 in each of fiscal 1995, 1996 and
1997, respectively, holders of the Creditor Notes may tender for prepayment a
portion thereof in the amount of the excess defined cash flow, but not to
exceed approximately $400,000 per annum. SCPI did not meet such prepayment
criteria in either of fiscal 1996 and fiscal 1995. The Creditor Notes have
been discounted using an imputed interest rate of 7.5% and are included in the
net obligation of the discontinued business segment.
Management believes that the steps taken in response to the recent
loss of significant customers and the reduced operating profits in fiscal 1996,
combined with the greater availability of financing available to SCPI, will
provide adequate funding for SCPI's working capital, capital expenditure and
debt service requirements.
CAPITAL EXPENDITURES
The Company has no outstanding commitments for significant capital
expenditures.
TAX LOSS CARRYFORWARDS
At February 29, 1996, SCPI and Oakhurst had net operating tax loss
carryforwards (the "Tax Benefits") of approximately $149 million, which expire
primarily in the years 2001 through 2005, and which shelter most of SCPI's
income from federal income taxes. A change in control of SCPI or Oakhurst in
any three-year period exceeding 50% may lead to the loss of the majority of the
Tax Benefits. In order to reduce the likelihood of such a change of control
occurring, SCPI's and Oakhurst's Certificates of Incorporation include
restrictions on the registration of transfers of stock resulting in, or
increasing, individual holdings exceeding 4.5% of each company's common stock.
Since the regulations governing the Tax Benefits are highly complex
and may be changed from time to time, and since SCPI's and Oakhurst's attempts
to reduce the likelihood of a change of control occurring may not be
successful, management is unable to determine the likelihood of the continued
availability of the Tax Benefits. However, management believes that the Tax
Benefits are currently available in full and intends to take all appropriate
steps to help ensure that they remain available. Should the Tax Benefits
become unavailable to SCPI or Oakhurst, most future income of SCPI and any
consolidated affiliate would not be shielded from federal taxation, thus
reducing funds otherwise available for corporate purposes (see Note 7 to the
financial statements).
In order to realize the net recorded tax benefit at February 29, 1996,
SCPI is required to generate approximately $5.8 million of federal taxable
income from operations and from tax planning strategies, including benefits
from a sharing agreement with Oakhurst, before the expiration of the net
operating tax loss carryforwards.
FORWARD LOOKING STATEMENTS
From time to time the information provided by the Company or
statements made by its employees may contain so-called "forward looking"
information that involves risks and uncertainties. In particular, statements
contained in Item 1 - "Business" and in this Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
which are not historical facts (including, but not limited
-10-
<PAGE> 12
to statements concerning anticipated sales, profit levels, customers and cash
flows) are forward looking statements. The Company's actual future results may
differ significantly from those stated in any forward looking statements.
Factors that may cause such differences include, but are not limited to the
factors discussed above as well as the accuracy of the Company's internal
estimates of revenue and operating expense levels. Each of these factors and
others are discussed from time to time in the Company's Securities and Exchange
Commission filings.
RESULTS OF OPERATIONS
Continuing operations include the results of SCPI's operating
division, Steel City Products, a distributor of automotive parts and
accessories based in Pittsburgh, Pennsylvania. In the current fiscal year,
there was one additional day than in the prior fiscal year, but the effect of
this on results of operations was not material.
Fiscal Year Ended February 29, 1996 Compared with Fiscal Year Ended February
28, 1995
Compared with the prior year, sales decreased by 10%, or $2.7 million,
with $2.2 million of the decrease occurring in the fourth quarter. Sales
increases aggregating approximately $3 million resulted primarily from the
addition of several new customers, together with higher sales to several
customers. These sales increases were offset by decreases of $5.7 million,
with a reduction in sales to Jamesway of approximately $490,000, following that
customer's bankruptcy in October 1995, a reduction of $1.4 million in sales to
Forest City, following that customer's decision during the third quarter to
change its source of supply, together with other sales decreases attributable
to SCPI's customers in the Northeast market and to certain other smaller
customers, which resulted from intense competitive pressures on those customers
and from reduced sales of spring product lines due to a rainy spring season.
The remainder of the decrease resulted from lower sales to other customers that
have downsized or eliminated their automotive departments, have filed
bankruptcy, or that have changed their source of supply.
Other income decreased by approximately $190,000 compared with the
prior year period, in which SCPI recovered $175,000 that had been placed into
escrow as a part of SCPI's predecessor's 1989 bankruptcy proceeding.
Gross profit decreased by $938,000 compared with the prior year, due
to the sales reduction and to lower gross margins, which resulted primarily
from lower average prices charged to many of SCPI's customers.
Operating, selling and administrative expenses decreased by $115,000;
lower executive salaries, administrative and profit sharing expenses of
approximately $340,000 were partially offset by trade name royalty fees, and
higher corporate overhead expense.
There was an increase in the provision for doubtful accounts of
$415,000 when compared with the prior year. The provision was increased by
$150,000 in connection with the balances due from Jamesway and by $265,000 to
provide for the bankruptcies of several of SCPI's small customers that occurred
during the current year, together with provisions for several other past due
and disputed accounts.
Interest expense reflected an increase over the prior year of $38,000,
primarily resulting from interest in connection with the Term Loan. However,
interest on the Term Loan is offset by interest earned on the Oakhurst Notes
that is included in other income.
Although there was a loss from continuing operations in the current
fiscal year, compared with income in the prior year, income tax expense
increased by $938,000 principally due to a charge to deferred tax expense of
$1.5 million that resulted from an increase in the valuation allowance of the
deferred tax asset.
-11-
<PAGE> 13
Fiscal Year Ended February 28, 1995 Compared with Fiscal Year Ended February
26, 1994
In fiscal 1995, SCPI suffered a decline in sales compared with fiscal
1994 of approximately $4.7 million, a decrease of 14.6%, as it was unable to
fully replace the sales to a large customer that was liquidated in fiscal 1994
and as another of its larger customers closed stores and bought more products
on a factory-direct basis as part of its restructuring strategy. Sales
decreases attributable to these two customers were approximately $5.1 million;
there was a net increase of $400,000 in sales to all other customers, following
intensive efforts to replace the lost business.
Other income increased by $408,000. Of the increase, $175,000 is
attributable to the recovery by SCPI of amounts placed into escrow in prior
years as a part of SCPI's predecessor's bankruptcy, with the remainder largely
attributable to interest on the Oakhurst Notes.
Gross profits decreased by $753,000 compared with the prior year as a
direct result of the decrease in sales, combined with an addition to the LIFO
reserve of $25,000 compared to a reduction in the reserve last year of $70,000.
Operating, selling and administrative costs reflected an increase of
4.5% and, as a percentage of sales, increased from 14.5% to 17.7%. The
increase is primarily attributable to increased sales expenses that were
necessary to maintain the changing customer base and identify new customers.
The provision for doubtful accounts decreased by $879,000 in fiscal
1995 compared with fiscal 1994, when SCPI incurred a significant provision for
doubtful accounts that related to its two largest customers that filed for
Chapter 11 bankruptcy protection in July 1993.
Interest expense increased by $88,000 in fiscal 1995 compared with
fiscal 1994. Of the increase, $133,000 attributable to interest on SCPI's Term
Loan is offset by intercompany interest earned. After excluding this, interest
expense decreased by $45,000, which was primarily due to reductions in the
imputed interest on the Creditor Notes.
-12-
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets: February 29, 1996 and February 28, 1995 . . . . . . . . . . . F-2
Statements of Operations for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . . F-3
Statements of Stockholders' Equity for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . F-4
Statements of Cash Flows for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-6
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal years ended
February 29, 1996 and February 28, 1995 . . . . . . . . . . . . . . . . . F-15
Financial Statement Schedules for the fiscal years ended February 29, 1996,
February 28, 1995 and February 26, 1994:
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . F-17
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
NONE
-13-
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding the Company's
directors is included in its Proxy Statement to be filed pursuant to Schedule
14A in connection with the Company's 1996 annual meeting of shareholders under
the section captioned "Election of Directors" and is incorporated herein by
reference thereto. Information regarding the Company's executive officers is
set forth in Part I above, under the caption "Executive Officers of the
Registrant" and is incorporated herein by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the sections captioned
"Directors' Compensation" and "Executive Compensation", and is incorporated
herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the section captioned
"Security Ownership of Certain Beneficial Owners and Management," and is
incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the section captioned
"Certain Relationships and Related Transactions" and "Compensation Committee
Interlocks and Insider Participation", and is incorporated herein by reference
thereto.
-14-
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Documents filed as a part of this report.
1. Financial Statements:
Independent Auditors' Report
Balance Sheets: February 29,1996 and February 28,1995
Statements of Operations for the fiscal years ended
February 29,1996, February 28,1995 and February 26, 1994
Statements of Stockholders' Equity for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994
Statements of Cash Flows for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994
Notes to Financial Statements
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal
years ended February 29, 1996 and February 28, 1995
2. The following Financial Statement Schedules for the fiscal years
ended February 29, 1996, February 28, 1995 and February 26, 1994
are submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or the notes thereto.
3. Exhibits.
<TABLE>
<S> <C>
Exhibit No. Description
2.1 Heck's, Inc. Second Amended Joint Plan of Reorganization and
Disclosure Statement (filed as Exhibits 2(a) and (b) to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 25, 1989).
2.2 Agreement and Plan of Merger dated as of May 20, 1991 (filed as
Appendix A to the Proxy Statement/Prospectus of Steel City
Products, Inc. and the Company the dated April 16, 1991).
3.1 Restated Certificate of Incorporation (filed as Exhibit 3(a) to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 27, 1993).
</TABLE>
-15-
<PAGE> 17
<TABLE>
<S> <C>
3.2 By-laws of the Company as amended through May 17, 1993 (filed
as Exhibit 3.2 to the Company's Annual Report of Form 10-K for
the fiscal year ended February 26, 1994).
*10.1 Employment Agreement with Bernard H. Frank dated as of
September 1, 1993 (filed as Exhibit 10.1 to the Company's
Annual Report of Form 10-K for the fiscal year ended February
26, 1994).
*10.2 Employment Agreement with Terrance W. Allan dated as of
September 1, 1993 (filed as Exhibit 10.3 to the Company's
Annual Report of Form 10-K for the fiscal year ended February
26, 1994).
10.3 Agreement dated June 11, 1991 with Prudential-Bache Special
Situations Fund (filed as Exhibit 10(q) to the Company's Annual
Report on Form 10-K for the fiscal year ended March 3, 1990).
*10.4 Form of Option Agreement dated August 29, 1991 with directors
and executive officers (filed as Exhibit 10(t) to the Company's
Annual report on Form 10-K for the fiscal year ended February
29, 1992).
10.5 Credit Agreement by and between Steel City Products, Inc. and
Integra Bank Pittsburgh (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended August 27,
1994).
10.6 Mortgage and Security Agreement by and between Steel City
Products, Inc. and Integra Bank Pittsburgh (filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
period ended August 27, 1994).
10.7 Note Agreements with William T. Apgar, Liquidating Trustee for
the Retail Acquisition Corp. Amended Plan of Reorganization,
(filed as Exhibit 10(w) the Company's Annual Report on Form
10-K for the fiscal year ended February 27, 1993).
10.8 Letter agreement dated January 3, 1996 between SCPI and Integra
Bank Pittsburgh amending the Credit Agreement, dated August 1,
1994 between SCPI and Integra, (filed as exhibit #10.17 to
Oakhurst's Registration Statement on Form S-1, file number
#333-00173, filed on January 12, 1996).
10.9 Letter agreement dated January 3, 1996 between Oakhurst and
Integra Bank Pittsburgh amending the Credit Agreement, dated
August 1, 1994 between Oakhurst and Integra, (filed as exhibit
#10.16 to Oakhurst's Registration Statement on Form S-1, file
number #333-00173, filed on January 12, 1996).
10.10 Open-End Mortgage between Steel City Products, Inc. and FINOVA
Capital Corporation dated March 28, 1996 - filed herewith.
10.11 Combined and Amended Promissory Note between Steel City
Products, Inc. and Oakhurst Company, Inc., dated March 28, 1996
- filed herewith.
10.12 Trademark & Trade Name License Agreement between Oakhurst
Holdings, Inc. and Steel City Products, Inc., dated August 16,
1995 - filed herewith.
10.13 Corporate Services Agreement between Steel City Products, Inc.
and Oakhurst Management Corporation dated June 1, 1995 - filed
herewith.
11 Statement re-computation of per-share earnings - filed
herewith.
</TABLE>
-16-
<PAGE> 18
<TABLE>
<S> <C>
27 Financial Data Schedule (EDGAR transmission only) - filed
herewith.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the last quarter of the
fiscal year ended February 29, 1996.
-17-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
STEEL CITY PRODUCTS, INC.
Dated: June 4, 1996 By: /s/ Bernard H. Frank
--------------------------------------
Bernard H. Frank
Chairman of the Board
Chief Executive Officer
(principal executive
officer), and Director
(duly authorized officer)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Bernard H. Frank, Mark Auerbach,
and Roger M. Barzun jointly and severally his true and lawful attorneys-in-fact
and agent with full powers of substitution for him and in his name, place and
stead in any and all capacities to sign on his behalf, individually and in each
capacity stated below and to file any and all amendments to this Annual Report
on Form 10-K with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises as fully as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
---------- ------ ----
<S> <C> <C>
/s/ Mark Auerbach Chief Financial Officer June 4, 1996
- ------------------------------------------- (principal financial officer and
Mark Auerbach principal accounting officer)
/s/ Terrance W. Allan Executive Vice President June 4, 1996
- ------------------------------------------- Director
Terrance W. Allan
/s/ Robert M. Davies Director June 4, 1996
- -------------------------------------------
Robert M. Davies
/s/ Richard Randolph Director June 4, 1996
- ------------------------------------------
Richard Randolph
</TABLE>
- 18 -
<PAGE> 20
INDEPENDENT AUDITORS'S REPORT
To the Board of Directors and Stockholders of
Steel City Products, Inc.:
We have audited the accompanying balance sheets of Steel City Products, Inc. as
of February 29, 1996 and February 28, 1995, and the related statements of
operations, stockholders' equity, and cash flows for the years ended February
29, 1996, February 28, 1995, and February 26, 1994. Our audits also included
the financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Steel City Products, Inc. as of February
29, 1996 and February 28, 1995, and the results of its operations and its cash
flows for the years ended February 29, 1996, February 28, 1995 and February 26,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note 7 to the financial statements, the Company changed its
method of accounting for income taxes effective February 28, 1993 to conform
with Statement of Financial Accounting Standards No. 109.
/s/ Deloitte & Touche LLP
- -------------------------------
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 17, 1996
-F1-
<PAGE> 21
STEEL CITY PRODUCTS, INC.
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS FEBRUARY 29, FEBRUARY 28,
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3 $ 29
Trade accounts receivable, less allowance of $419 and $194, respectively . . 2,512 4,030
Advances to Oakhurst Company, Inc . . . . . . . . . . . . . . . . . . . . . . 2,051 1,066
Notes receivable - Oakhurst Company, Inc . . . . . . . . . . . . . . . . . . 249 675
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,493 6,371
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 348
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 162
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 9,670 12,681
------------- -------------
Property and equipment, at cost . . . . . . . . . . . . . . . . . . . . . . . . 1,998 2,096
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . (752) (807)
------------- -------------
1,246 1,289
------------- -------------
Deferred tax asset, less valuation allowance
of $48,300 and $46,800, respectively . . . . . . . . . . . . . . . . . . . . 2,018 3,267
Notes receivable - Oakhurst Company, Inc., long-term portion . . . . . . . . . 1,282 1,531
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 272
------------- -------------
3,615 5,070
------------- -------------
$ 14,531 $ 19,040
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,650 $ 5,677
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 550
Current maturities of long-term obligations . . . . . . . . . . . . . . . . . 260 591
Net obligation of discontinued business segment-current portion . . . . . . . 465 505
Due to affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 76
------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 4,919 7,399
------------- -------------
Long-term obligations:
Net obligation of discontinued business segment . . . . . . . . . . . . . . . 678 985
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,428 1,660
Other long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . 110 73
------------- -------------
2,216 2,718
------------- -------------
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders' equity:
Preferred stock, par value $0.01 per share; authorized
5,000,000 shares, issued 1,938,526 shares;
liquidation preference $10,135 . . . . . . . . . . . . . . . . . . . . . . 19 19
Common stock, par value $0.01 per share; authorized
5,000,000 shares; issued 3,238,061 shares . . . . . . . . . . . . . . . . 32 32
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 43,824 43,824
Deficit (Reorganized on August 26, 1989) . . . . . . . . . . . . . . . . . . (36,478) (34,951)
Treasury stock, at cost, 207 common shares . . . . . . . . . . . . . . . . . (1) (1)
------------- -------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 7,396 8,923
------------- -------------
$ 14,531 $ 19,040
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F2-
<PAGE> 22
STEEL CITY PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
---------------- --------------- --------------
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,647 $ 27,335 $ 32,003
Other income . . . . . . . . . . . . . . . . . . . . . . . . 588 778 370
---------------- --------------- --------------
25,235 28,113 32,373
---------------- --------------- --------------
Cost of goods sold, including occupancy and
buying expenses . . . . . . . . . . . . . . . . . . . . . 20,024 21,774 25,689
Operating, selling and administrative expenses . . . . . . . 4,720 4,835 4,625
Provision for doubtful accounts . . . . . . . . . . . . . . . 415 - 879
Interest expense . . . . . . . . . . . . . . . . . . . . . . 282 244 156
---------------- --------------- --------------
25,441 26,853 31,349
---------------- --------------- --------------
(Loss) income from continuing operations
before income taxes . . . . . . . . . . . . . . . . . . . (206) 1,260 1,024
---------------- --------------- --------------
Current income tax benefit (expense) . . . . . . . . . . . . 136 (87) (87)
Deferred income tax expense . . . . . . . . . . . . . . . . . (1,500) (339) (317)
---------------- --------------- --------------
(1,364) (426) (404)
---------------- --------------- --------------
(Loss) income from continuing operations . . . . . . . . . . (1,570) 834 620
Discontinued operations:
Income on disposal, less income tax expense of $22
and $46 in fiscal 1996 and 1995, respectively . . . . 43 90 -
---------------- --------------- --------------
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . (1,527) 924 620
Effect of Series A Preferred Stock dividends
($2,765 declared in fiscal 1995) . . . . . . . . . . . . (1,016) (1,019) (1,135)
---------------- --------------- --------------
Net loss attributable to common stockholders . . . . . . . . $ (2,543) $ (95) $ (515)
================ =============== ==============
Per share amounts:
Net loss from continuing operations
after preferred stock dividends . . . . . . . . . . . $ (0.80) $ (0.06) $ (0.18)
Income from discontinued operations . . . . . . . . . . . 0.01 0.03 -
---------------- --------------- --------------
Net loss attributable to common
stockholders after preferred stock dividends . . . . $ (0.79) $ (0.03) $ (0.18)
================ =============== ==============
Weighted average number of shares outstanding
used in computing per share amounts . . . . . . . . . . . 3,238,061 3,028,725 2,869,653
================ =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F3-
<PAGE> 23
STEEL CITY PRODUCTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS TREASURY
STOCK STOCK CAPITAL (DEFICIT) STOCK TOTALS
-------- -------- ---------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 27, 1993 . . . . . . . . . . $ 23 $ 29 $ 39,473 $ (33,730) $ (1) $ 5,794
Cumulative effect of the adoption of SFAS 109
resulting in a net deferred tax asset . . . . 1,500 1,500
Net income . . . . . . . . . . . . . . . . . . . 620 620
Oakhurst Company, Inc. Preferred stock
cancellation pursuant to the merger
agreement (see Note 2) . . . . . . . . . . . (1) 1 -
Deferred tax benefit resulting
from a reduction in the valuation
allowance of the deferred tax asset . . . . . 2,817 2,817
-------- -------- ---------- ----------- ------- -----------
BALANCE AT FEBRUARY 26, 1994 . . . . . . . . . . 22 29 43,791 (33,110) (1) 10,731
Net income . . . . . . . . . . . . . . . . . . . 924 924
Oakhurst Company, Inc. Preferred stock
cancellation pursuant to the merger
agreement (see Note 2) . . . . . . . . . . . (3) 3 -
Exercise of warrants . . . . . . . . . . . . . . 3 30 33
Additional common shares issued to
Oakhurst Company, Inc. resulting
from the exercise of warrants . . . . . . . . * *
Series A Preferred Stock dividend
paid to Oakhurst Company, Inc . . . . . . . . (2,765) (2,765)
-------- -------- ---------- ----------- ------- -----------
BALANCE AT FEBRUARY 28, 1995 . . . . . . . . . . 19 32 43,824 (34,951) (1) 8,923
Net loss . . . . . . . . . . . . . . . . . . . . (1,527) (1,527)
-------- -------- ---------- ----------- ------- -----------
BALANCE AT FEBRUARY 29, 1996 . . . . . . . . . . $ 19 $ 32 $ 43,824 $ (36,478) $ (1) $ 7,396
======== ======== ========== =========== ======= ===========
</TABLE>
* Rounds to less than $1,000
The accompanying notes are an integral part of these financial statements.
-F4-
<PAGE> 24
STEEL CITY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, February 28, February 26,
1996 1995 1994
------------- ----------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
(Loss) income from continuing operations . . . . . . . . . . . $ (1,570) $ 834 $ 620
Adjustments to reconcile (loss) income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 194 186 139
Loss on retirement of property and equipment . . . . . 26 - -
Deferred tax expense . . . . . . . . . . . . . . . . . 1,522 385 317
Undistributed earnings of investment in affiliate . . . (80) - -
Other changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . 1,518 (460) 1,120
Inventories . . . . . . . . . . . . . . . . . . . . . . 1,878 (406) 852
Accounts payable . . . . . . . . . . . . . . . . . . . (2,027) 1,122 (1,777)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (175) 277 (82)
------------- ----------- ---------------
Net cash provided by (used in) operating activities of:
Continuing operations . . . . . . . . . . . . . . . . . . . . . 1,286 1,938 1,189
Discontinued operations . . . . . . . . . . . . . . . . . . . . (304) (161) (295)
------------- ----------- ---------------
Net cash provided by operating activities . . . . . . . . . . . . . 982 1,777 894
------------- ----------- ---------------
Cash flows from investing activities:
Advances to Oakhurst Company, Inc. . . . . . . . . . . . . . . . (985) (67) (266)
Issuance of note receivable - Oakhurst Company, Inc. . . . . . . - (1,450) (1,250)
Collection of note receivable - Oakhurst Company, Inc. . . . . . 675 494 -
Additions to property and equipment . . . . . . . . . . . . . . (96) (330) (35)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (17) (21)
------------- ----------- ---------------
Net cash used in investing activities . . . . . . . . . . . . . . . (406) (1,973) (1,572)
------------- ----------- ---------------
Cash flows from financing activities:
Proceeds from long-term borrowings . . . . . . . . . . . . . . - 2,560 -
Principal payments on long-term obligations . . . . . . . . . . (602) (378) (58)
Series A Preferred Stock dividends paid to
Oakhurst Company, Inc . . . . . . . . . . . . . . . . . . . . - (2,765) -
Exercise of warrants . . . . . . . . . . . . . . . . . . . . . . - 33 -
------------- ----------- ---------------
Net cash used in financing activities . . . . . . . . . . . . . . . (602) (550) (58)
------------- ----------- ---------------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . (26) (746) (736)
Cash and cash equivalents at beginning of period . . . . . . . . . 29 775 1,511
------------- ----------- ---------------
Cash and cash equivalents at end of period . . . . . . . . . . . . $ 3 $ 29 $ 775
============= =========== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 282 $ 253 $ 154
============= =========== ===============
Income taxes, net of refunds . . . . . . . . . . . . . . . . $ (93) $ - $ 205
============= =========== ===============
Supplemental schedule of non-cash financing activities:
Capital lease obligations incurred for new equipment . . . . $ 79 $ - $ -
============= =========== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F5-
<PAGE> 25
STEEL CITY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business Activities:
Steel City Products, Inc. ("SCPI" or "the Company") is a wholesale
distributor, operating under the trade name Steel City Products, selling
primarily to discount retail chains and other segments of the mass market,
hardware, drug and grocery retail industries and to automotive specialty
stores, based primarily in the Northeastern United States. SCPI is a
majority-owned subsidiary of Oakhurst Company, Inc., ("Oakhurst") (formerly
Oakhurst Capital, Inc.) (see Note 2).
Use of Estimates:
The financial statements have been prepared in conformity with
generally accepted accounting principals, which requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the 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.
Fiscal Year:
The Company's fiscal year ends on the last day of February. Previous
to fiscal 1995, the Company's fiscal year end was the Saturday closest to the
end of February. The effect of the change on the consolidated financial
statements was not material.
Cash and Cash Equivalents:
For the purpose of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined by the last in, first out method (LIFO). Had all of the inventories
been valued using the first-in, first-out (FIFO) method, inventories would have
been approximately $388,000 and $437,000 higher than reported at February 29,
1996 and February 28, 1995, respectively.
Property and Equipment:
Depreciation and amortization are computed using the straight-line
method. Estimated useful lives used for computing depreciation and
amortization are: buildings, 15-40 years; building improvements, 5-20 years;
and office furniture and equipment, 3-10 years. Depreciation expense was
approximately $190,000, $185,000 and $140,000 in fiscal 1996, 1995 and 1994,
respectively.
-F6-
<PAGE> 26
Other Assets:
Other assets include goodwill associated with the acquisition in 1969
of Steel City Products, which is being amortized over a 40 year period. The
unamortized values at February 29, 1996 and February 28, 1995 are approximately
$167,000 and $173,000, respectively.
SCPI assesses whether its excess of costs over net assets acquired is
impaired at each balance sheet date based upon an evaluation of undiscounted
projected cash flow through the remaining amortization period. If an
impairment is determined, the amount of such impairment is calculated based
upon the estimated fair value of the asset.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. Management believes that the adoption of SFAS
No. 121 in fiscal 1997 will not have a material impact on the Company's
carrying value of such assets.
Revenue Recognition:
Revenues are recognized at the time products are shipped.
Federal Income Taxes:
SCPI accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The standard requires an asset and liability
approach to accounting for income taxes. Deferred tax liabilities and assets
are recognized for the future tax consequences of events that have already been
recognized in the financial statements or tax returns. Net deferred tax assets
are recognized to the extent that realization of such benefits is more likely
than not. Changes in enacted tax rates or laws may result in adjustments to
the recorded deferred tax assets or liabilities in the period that the tax law
is enacted (see Note 7).
SCPI is included in the consolidated federal income tax return of
Oakhurst. For financial reporting purposes, income taxes are calculated on a
stand alone basis.
Computation of Per Share Amounts:
Income per share amounts attributable to common stockholders are
computed on the basis of the weighted average number of outstanding common
shares and common stock equivalents determined by applying the treasury stock
method to stock options and warrants outstanding. Loss per share amounts do
not include common stock equivalents since that would reduce the net loss per
share.
2. CORPORATE REORGANIZATION
In accordance with a merger transaction in July 1991, SCPI issued to
Oakhurst shares of its common stock and Series A Preferred Stock so that the
aggregate fair market value of such stock owned by Oakhurst totaled
approximately 90% of the aggregate fair market value of SCPI. Accordingly,
Oakhurst controls approximately 90% of the outstanding voting power of SCPI and
receives substantially all of the benefit of operations through dividends on
the preferred stock.
Under the merger transaction, SCPI is required for a period of five
years following the merger to issue to Oakhurst (or cancel) such number of
shares of Series A Preferred Stock and/or common stock as shall be
-F7-
<PAGE> 27
necessary, in accordance with periodic determinations, to maintain Oakhurst's
aggregate stock ownership of SCPI at 90%. In accordance with a revaluation of
the Company as of February 26, 1994, the Series A Preferred shares outstanding
were reduced to 1,938,526 to reflect a decrease in the valuation to $10.1
million; such decrease was primarily attributable to the abandonment of a
proposed Oakhurst financing transaction. Revaluations of the Company as of
February 28, 1995 and February 29, 1996, respectively, have not yet been
completed. Management expects that the revaluation as of the end of February
29, 1996, when complete, will result in a further decrease in the valuation of
the Company because of changes in the business climate that occurred during
fiscal 1996. Accordingly, additional Series A Preferred shares outstanding may
be cancelled once such valuation is complete.
The Series A Preferred Stock carries a dividend rate of $0.5228 per
share and has a redemption price and liquidation preference of $5.2282 per
share plus any accumulated dividends in arrears. Through February 29, 1996,
dividends of approximately $5.2 million have accumulated since the effective
date of the merger; of this amount, approximately $3.6 million has been
declared by SCPI's Board of Directors and paid through fiscal 1995.
Approximately $1.6 million of undeclared dividends in arrears was outstanding
as of February 29, 1996.
3. NOTES RECEIVABLE AND DIVIDENDS PAID - OAKHURST COMPANY, INC.
Prior to the year ended February 28, 1995, SCPI advanced to Oakhurst
$1,250,000 evidenced by a promissory note to facilitate an acquisition by
Oakhurst of all the capital stock of H&H Distributors, d/b/a Harry Survis
("H&H") and in August 1994, further advanced Oakhurst $1,450,000 evidenced by a
second promissory note (collectively, the "Oakhurst Notes") in connection with
Oakhurst's acquisition of Dowling's Fleet Service, Co., Inc. ("Dowling's").
The Series A Preferred stock dividends outstanding as of August 1, 1994 were
declared by SCPI's Board of Directors and were paid to Oakhurst.
The Oakhurst Notes bear interest at 9.25% and were repayable quarterly
through 1998. In consideration for SCPI's agreement to the acceleration of the
maturity of the Term Loan (see Note 5), Oakhurst agreed in January 1996 to
accelerate the maturity dates of the Oakhurst Notes to July 31, 1996, or until
such time that a refinancing of the Term Loan occurred, when the agreement
allowed a similar rescheduling of the Oakhurst Notes with essentially like
terms as the refinanced Term Loan. The Term Loan was refinanced on March 28,
1996 by the Fixed Asset Loan, and accordingly, the Oakhurst Notes were
rescheduled on such date, and have been presented in SCPI's balance sheet for
the year ended February 29, 1996 reflecting the terms of such rescheduling.
The rescheduling of the Oakhurst Notes reflected the combination of
the outstanding balances of the Oakhurst Notes into one new note (the "Oakhurst
Note") that bears interest at the prime rate plus 1.5% and provides for eight
quarterly principal and interest installments of $96,000, with a balloon
payment of approximately $1 million in April 1998. The Oakhurst Note allows
for a rescheduling of the April 1998 balloon payment, should a similar
refinancing of the Fixed Asset Loan occur prior to that time, using essentially
like terms as any such refinancing. The Oakhurst Note is secured by the
capital stock of H&H and Dowling's.
SCPI participates in a cash concentration system together with all the
subsidiaries of Oakhurst. Available cash that has been transferred to Oakhurst
has been reflected as an addition to the advances to Oakhurst.
-F8-
<PAGE> 28
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
-------------- ------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . $ 170 $ 170
Buildings . . . . . . . . . . . . . . . . . . . . 830 830
Building improvements . . . . . . . . . . . . . . 370 291
Office furniture and equipment . . . . . . . . . 628 805
------ ------
1,998 2,096
Less accumulated depreciation . . . . . . . . . . (752) (807)
------ ------
$1,246 $1,289
====== ======
</TABLE>
5. LONG-TERM OBLIGATIONS AND OAKHURST LINE OF CREDIT
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
-------------- -----------
<S> <C> <C>
Term loan, due monthly through
July 1996 (refinanced in March 1996; see below) . . . . . . . . . . $1,663 $2,245
Capital lease obligations for computer and warehouse equipment,
due monthly through August 2001 . . . . . . . . . . . . . . . . . . 62 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 79
------ -----
1,798 2,324
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 591
------ ------
$1,538 $1,733
====== ======
</TABLE>
In August 1994, SCPI obtained a four year term loan in the amount of
$2,560,000 (the "Term Loan"), issued in connection with an acquisition by
Oakhurst. The Term Loan was secured by a mortgage on SCPI's real estate,
guaranteed by Oakhurst and its subsidiaries, and was supported by a pledge of
the capital stock of Oakhurst's subsidiaries. The Term Loan provided for
monthly repayments beginning in September 1994 and interest at a fixed rate of
9.25%.
In August 1994, Oakhurst entered into a two year revolving credit
agreement (the "Oakhurst Credit Agreement") that, until its amendment, carried
a floating interest rate of prime plus 1% and provided for maximum borrowings
of $3 million. The Oakhurst Credit Agreement allowed Oakhurst to make advances
to its subsidiaries, including SCPI. The Term Loan and the Oakhurst Credit
Agreement were cross-collateralized, and contained various financial covenants.
The Oakhurst Credit Agreement was amended during the third quarter of
the fiscal year ending February 29, 1996 to reflect an acquisition by Oakhurst
that occurred in the latter part of the previous year. The amendment to the
Oakhurst Credit Agreement provided for an increase in maximum borrowings to $4
million and eliminated all of the financial covenants, except for certain
amended subsidiary and consolidated net worth requirements. The Term Loan was
also amended to reflect such revised covenants. The amended Oakhurst Credit
Agreement provided for interest at prime plus 1.5%, and was secured by the
accounts receivable, inventory and capital stock of Oakhurst's subsidiaries,
including SCPI.
At November 30, 1995, Oakhurst did not meet the amended consolidated
net worth covenant, and requested a modification of such covenant. The
modification was granted by the bank on January 3, 1996, in exchange for
Oakhurst's and SCPI's agreement to accelerate the maturity date of the Term
Loan to July 31, 1996, and to increase the interest rates on the Term Loan and
on borrowings under the Oakhurst Credit Agreement by 1.25% and 1%,
respectively, effective February 28, 1996.
-F9-
<PAGE> 29
On March 28, 1996, Oakhurst obtained replacement financing from an
institutional lender that provides for a total facility for Oakhurst and its
subsidiaries of $9.5 million, comprising a new SCPI term loan of $1.5 million
(the "Fixed Asset Loan") and a maximum revolving credit facility of $8 million
(the "Revolver") (collectively, the "Credit Facility"), and the amounts
outstanding under the Term Loan and Oakhurst Credit Agreement were repaid.
Accordingly, the Term Loan has been presented at February 29, 1996 reflecting
the terms of the March 1996 refinancing.
Borrowings under the Credit Facility bear interest at the higher of
the Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings
under the Revolver are subject to a borrowing base that is calculated according
to defined levels of Oakhurst's subsidiaries' accounts receivable and
inventories. The Credit Facility has an initial term of two years, with
automatic renewal terms of one year each upon payment of a renewal fee of 0.5%
thereof, unless earlier terminated as provided for in the agreement, and
contains restrictive financial covenants, including among other things, the
maintenance of defined subsidiary and consolidated tangible net worth levels
and consolidated current ratio, and limitations on annual cash dividends.
The Credit Facility is secured by the accounts receivable,
inventories, and fixed assets of Oakhurst and its subsidiaries, including SCPI,
contains certain Revolver prepayment penalties, and provides for the payment of
loan management fees, unused Revolver facility fees and examination fees.
The Fixed Asset Loan provides for twenty-four monthly principal and
interest payments based on a five year amortization schedule, with the
remaining principal balance due on April 1, 1998. The Fixed Asset Loan
provides for prepayment without penalty, and contains a provision for the
release of SCPI's building as collateral on the Credit Facility in the event of
a refinancing of the Fixed Asset Loan, subject to a right of first refusal by
the current lender to refinance the Fixed Asset Loan on the same terms as
offered by a new lender.
Long-term obligations, including the present value of the Creditor
Notes (see Note 8), mature during each fiscal year as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM CREDITOR
FISCAL OBLIGATIONS NOTES TOTAL
------ ----------- -------- ------
<S> <C> <C> <C>
1997 . . . . . . $ 386 $ 646
1998 . . . . . . 329 626
1999 . . . . . . 349 1,528
2000 . . . . . . -- 19
2001 . . . . . . -- 12
Thereafter . . . -- 31
------ ------ ------
$1,798 $1,064 $2,862
====== ====== ======
</TABLE>
6. FINANCIAL INSTRUMENTS
Financial instruments at February 29, 1996 consists of the following
(in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
---------- -------
<S> <C> <C>
Cash . . . . . . . . . . $ 3 $ 3
Oakhurst Notes . . . . . $1,531 $1,531
Creditor Notes . . . . . $1,064 $1,046
Term Loan . . . . . . . $1,663 $1,663
</TABLE>
The fair values of the instruments were based upon the rate available
to the Company for instruments of the same maturities. The Creditor Notes,
which are non-interest bearing, were discounted using a current market rate of
11.75% to determine current fair value.
-F10-
<PAGE> 30
7. INCOME TAXES AND DEFERRED TAX ASSET
As of February 29, 1996, SCPI and Oakhurst had, for tax reporting
purposes, net operating tax loss carryforwards of approximately $149 million
which expire principally in the years 2001 through 2005. Under SFAS No. 109,
SCPI is required to recognize currently the estimated realizable value of the
future benefit of its net operating tax loss carryforwards along with other tax
benefits. The initial adoption of SFAS No. 109, effective February 28, 1993,
resulted in the recognition of a deferred tax asset $1.5 million, net of a
valuation allowance of $49.5 million, with a corresponding increase of $1.5
million in additional paid-in capital. The accounting treatment to increase
paid-in capital results from SCPI's quasi-reorganization accounting in 1990.
Any subsequent utilization of the net operating tax loss carryforwards is
accounted for as a reduction in the deferred tax asset.
Fluctuations in market conditions and trends warrant periodic
management reviews of the recorded valuation allowance to determine if an
increase or decrease in such allowance would be appropriate. Accordingly,
management re-evaluated the allowance as of February 26, 1994 in light of
SCPI's earnings trends and the then current market conditions, and determined
that a reduction in the valuation allowance of approximately $2.8 million was
appropriate. During the year ended February 29, 1996, SCPI experienced
significant changes in its customer base. As a result, management undertook an
extensive review and strategic evaluation of SCPI's operations to determine the
impact of this lost business on SCPI's future levels of revenues and profits,
and to evaluate future customer and product opportunities.
These efforts, combined with management's consideration of current
trends and historical operations, led management to conclude that the current
impact of these events warranted an increase of $1.5 million in the deferred
tax asset valuation allowance, with a corresponding charge to deferred tax
expense. If future profit levels exceed current expectations, and economic or
business changes warrant upward revisions in the estimate of the realizable
value of net operating tax loss carryforwards, the consequent reduction in the
valuation allowance would result in a corresponding deferred tax benefit in
future results of operations to the extent of the charge of $1.5 million to
deferred tax expense for the fiscal year ended February 29, 1996, and any
benefit in excess of such charge would be reflected as an addition to paid-in
capital.
In order to realize the net recorded tax benefit at February 29, 1996,
SCPI is required to generate approximately $5.8 million of federal taxable
income from operations and from tax planning strategies, including benefits
from a sharing agreement with Oakhurst, before the expiration of the net
operating tax loss carryforwards.
The deferred tax effects of temporary differences are not significant,
and current income taxes payable represent state income taxes.
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current tax (benefit) expense . . . . . . . $ (136) $426 $404
Current tax benefit from utilization of
net operating tax loss carryforwards . . -- (339) (317)
------ ---- ----
(136) 87 87
Increase in valuation allowance
of the deferred tax asset . . . . . . . 1,500 -- --
Deferred tax expense . . . . . . . . . . . -- 339 317
------ ---- ----
Income tax expense . . . . . . . . . . . . $1,364 $426 $404
====== ==== ====
</TABLE>
During the year ended February 29, 1996, SCPI settled a dispute over a
tax refund claimed from the state of Kentucky by SCPI's predecessor, and
accordingly, recorded a refund of approximately $142,000, of
-F11-
<PAGE> 31
which approximately $35,000 consisted of interest.
The income tax provision differs from the amount using the statutory
federal income tax rate of 34% applied to income or loss from continuing
operations for the following reasons (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------- ------------ -----------
<S> <C> <C> <C>
Tax (benefit) expense based on the
U.S. federal statutory rate . . . . . . . . $ (70) $429 $348
State income tax (benefit) expense,
net of refunds and federal benefit . . . . . (90) 58 56
Undistributed investment income . . . . . . . (27) -- --
Increase in deferred tax asset
valuation allowance . . . . . . . . . . . . 1,500 -- --
Non-deductible costs . . . . . . . . . . . . . 51 -- --
Non-taxable escrow refund . . . . . . . . . . -- (61) --
------ ---- ----
Income tax expense . . . . . . . . . . . $1,364 $426 $404
====== ==== ====
</TABLE>
The availability of the net operating tax loss carryforwards may be
adversely affected by future ownership changes of SCPI or Oakhurst; at this
time, such changes cannot be predicted. SCPI's and Oakhurst's estimated
operating tax loss carryforwards at February 29, 1996 expire as follows (in
thousands):
<TABLE>
<S> <C>
2001 . . . . . . $ 12,000
2002 . . . . . . 52,000
2003 . . . . . . 22,000
2004 . . . . . . 49,000
2005 . . . . . . 13,000
2010 . . . . . . 1,000
--------
$149,000
========
</TABLE>
8. DISCONTINUED OPERATIONS
SCPI disposed of its former Retail Division to an unrelated company,
Retail Acquisition Corp. ("RAC") in September 1990 when RAC acquired
substantially all the assets of the former division and assumed substantially
all of its liabilities. SCPI remained contingently liable for certain of these
liabilities. In early 1991, SCPI received notices of default in respect of the
leased properties that SCPI had transferred to RAC. In March 1991, RAC was
forced into bankruptcy by a group of creditors which included SCPI. Pursuant
to RAC's bankruptcy reorganization plan (the "RAC Plan"), which became
effective in September 1992, SCPI participated in a global settlement pursuant
to which SCPI issued $2.5 million of non-interest bearing notes (the "Creditor
Notes") solely for the benefit of contingent creditors. In return, SCPI and
Oakhurst were relieved of any further obligations to contingent creditors,
except for payment on the Creditor Notes.
The Creditor Notes, which are non-interest bearing, are payable in
equal annual installments through July 1998, subject to a prepayment provision
whereby if defined cash flow exceeds $900,000, $1,000,000 and $1,100,000 in
fiscal 1995, 1996 and 1997, respectively, holders of Creditor Notes may tender
for prepayment a portion thereof in the amount of the defined excess cash flow,
but not to exceed approximately $400,000 per annum. In fiscal 1995 and in
fiscal 1996, SCPI did not meet the defined criteria for such prepayment. The
Creditor Notes have been discounted using an imputed interest rate of 7.5% and,
together with accrued interest thereon, principally comprise the net obligation
of the discontinued business segment. Imputed interest expense of
approximately $76,000, $96,000 and $128,000 is included in results of
continuing operations for fiscal 1996, 1995 and 1994, respectively.
-F12-
<PAGE> 32
The accompanying statements of operations and cash flows reflect any
income or loss associated with the disposal of the former Retail Division as
discontinued operations. Income from discontinued operations of $43,000 and
$90,000 for the periods ended February 29, 1996 and February 28, 1995,
primarily reflected decreases in SCPI's reserve for contingent liabilities
relating to the former retail division, net of income tax provisions of $22,000
and $46,000, respectively.
9. STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which requires adoption no
later than fiscal years beginning after December 15, 1995. The new standard
defines a fair value method of accounting for stock options and similar equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of adoption.
SCPI has not yet determined if it will elect to change to the fair value
method. However, SCPI has determined that should it elect to make such a
change, the effect of the new standard will not have a material impact on net
income and earnings per share in the year of adoption, nor would it have any
effect on the Company's cash flows.
In fiscal 1992, the Board of Directors granted options to purchase
215,986 shares of common stock to key employees and to members of the Board of
Directors. The exercise price of the options, which was equal to the market
value of the stock at the date of the grant, is $0.625. As of February 29,
1996, no options had been exercised; all options are fully vested and will
remain exercisable through 2001.
In connection with SCPI's predecessor's emergence in fiscal 1990 from
Chapter 11 bankruptcy proceedings, warrants to purchase 366,837 shares of
common stock were issued and were exercisable at a price of $1.00 per share
through September 28, 1994. As a result of the merger (see Note 2), the
warrant holders, upon exercise, were entitled to one share each of SCPI's and
Oakhurst's common stock for the aggregate purchase price of $1.00. During the
year ended February 28, 1995, 331,622 shares were purchased pursuant to these
warrants and 35,215 warrants expired.
10. EMPLOYEE PENSION PLAN
Steel City Products maintains a defined contribution profit-sharing
retirement plan ("the Plan") covering substantially all its employees, whereby
employees may contribute a percentage of compensation, limited to maximum
allowed amounts under the Internal Revenue Code. Through fiscal 1995, the Plan
provided for a 25% matching employer contribution and an annual discretionary
contribution determined by SCPI's Board of Directors.
In October 1995, SCPI's 25% matching employer contribution was
suspended until further notice, and a discretionary contribution was not made
for the year ending February 28, 1996. Total expenses related to the Plan were
$150,000 for each of the years ended February 28, 1995 and February 26, 1994.
On June 1, 1995, by amendment to the Plan, Oakhurst and one of its
subsidiaries incorporated into the Plan, the Plan was renamed the Oakhurst
Company Profit Sharing Plan (the "Profit Sharing Plan"), and on January 1, 1996
two of Oakhurst's other subsidiaries were incorporated into the Profit Sharing
Plan, with one such subsidiary merging its assets and liabilities into the
Profit Sharing Plan. The Profit Sharing Plan now
-F13-
<PAGE> 33
provides for discretionary employer contributions, the level of which, if any,
is to be determined annually by each company's Board of Directors.
11. COMMITMENTS AND CONTINGENCIES
SCPI has employment agreements with two senior executives that provide
termination rights in the event of a change in control of SCPI, as defined.
The rights include payments ranging from six to twenty-four months of the
executives' base salaries, along with continuation of benefits and certain
other payments to each executive. Each agreement also provides for
substantially the same provisions in the event that the executive's employment
were to be terminated by SCPI without cause. The agreements expire in August
1996, and contain certain renewal options.
Management is unaware of any other significant contingencies.
12. MAJOR CUSTOMERS
Sales to each of those major customers representing individually more
than 10% of sales were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 29, 1996 February 28, 1995 February 26, 1994
----------------- ----------------- -----------------
% of % of % of
Sales Total Sales Sales Total Sales Sales Total Sales
-------- ----------- ------------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Customer A -- -- -- -- $3,198 10%
Customer B $4,641 19% $6,046 22% $6,250 20%
Customer C $3,975 16% $4,465 16% $6,332 20%
</TABLE>
In July 1993, SCPI's two then-largest customers filed for protection
under Chapter 11 of the United States Bankruptcy Code, at which time
approximately $1.2 million was outstanding from them to SCPI. As a result,
SCPI ultimately wrote off approximately $879,000 of these customer's
receivables.
One of these customers (customer A), closed all its stores in December
1993; the other customer, customer C, reorganized and emerged from Chapter 11
in January 1995. Customer C continued to be one of SCPI's largest customers
throughout this period until the second quarter of fiscal 1996, when management
curtailed the level of credit allowed to such customer after becoming aware
that it was experiencing new financial difficulties. In October 1995, customer
C again filed for protection under the U.S. Bankruptcy Code and announced that
it would close all its stores; the fiscal 1996 provision for doubtful accounts
contains a write-off of approximately $150,000 relating to this customer.
During the third quarter of fiscal 1996, customer B informed SCPI that
it had decided to change its source of supply, and sales to customer B ended in
January 1996.
13. RELATED PARTY TRANSACTIONS
From November 1989 until June 1993, SCPI engaged The Hallwood Group
Incorporated ("Hallwood"), a principal stockholder of Oakhurst until February
1994, under a financial advisory agreement. SCPI paid Hallwood approximately
$83,000 in fiscal 1994 in connection with this agreement.
Prior to fiscal 1994, SCPI entered into an agreement with Integra
Management Company ("IMC") to provide corporate office administrative functions
and certain tax services. IMC was a wholly owned subsidiary of Hallwood until
October 1992, when it became a wholly owned subsidiary of Integra Hotels, Inc.,
formerly Integra - A Hotel and Restaurant Company. Mr. Hemsley, SCPI's Chief
Financial Officer until December 1995, was President of both IMC and Integra
until March 1994. The agreements were approved by the Company's Board of
Directors, and were terminated in May 1994. SCPI paid IMC $11,000 and $60,000
in fiscal 1995 and 1994, respectively, pursuant to these agreements.
-F14-
<PAGE> 34
During fiscal 1996, SCPI transferred the rights to its Steel City
Products trademark and trade name to Oakhurst Holdings, Inc. ("OHI") in
exchange for 460 shares of stock, representing a 45.6% investment interest in
OHI. In August 1995, SCPI entered into a trademark and trade name license
agreement with OHI whereby OHI granted SCPI the exclusive right to use the
trade name in transacting its business. The agreement provides for a quarterly
license fee equal to 1% of gross sales. SCPI's results for the year ended
February 29, 1996 included a charge of $97,000 for this fee. SCPI's investment
income from OHI was approximately $80,000 in fiscal 1996 and is included in
other income.
In June 1995, SCPI engaged Oakhurst Management Corporation ("OMC"), a
wholly-owned subsidiary of Oakhurst, to provide certain legal, management,
investor relations, accounting, and tax services. SCPI's results for the year
ended February 29, 1996 include a charge of approximately $365,000 for these
services.
14. PREDECESSOR BANKRUPTCY
During fiscal 1995, SCPI recovered funds placed into escrow in prior
years as a part of SCPI's predecessor's bankruptcy in the amount of
approximately $175,000, which amount is included in other income for such year.
SCPI's predecessor emerged from bankruptcy in 1990.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL 1996 FIRST SECOND THIRD FOURTH
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . $ 7,836 $ 7,078 $ 5,958 $ 3,775
Gross profit . . . . . . . . . . . . . . . . . . 1,572 1,423 1,078 550
Income from continuing operations . . . . . . . . 211 86 (1,507) (360)
Income from discontinued operations . . . . . . . -- -- -- 43
Net income (loss) . . . . . . . . . . . . . . . . 211 86 (1,507) (317)
Series A Preferred Stock dividends . . . . . . . (253) (253) (253) (257)
Net income (loss) available
to common stockholders . . . . . . . . . . . . (42) (167) (1,760) (574)
Per share:
Loss from continuing operations
after preferred stock dividends . . . . . . . $ (.01) $ (.05) $ (.54) $ (.19)
Net loss attributable to common
stockholders after preferred stock dividends $ (.01) $ (.05) $ (.54) $ (.18)
Average number of shares outstanding . . . . . . 3,238,061 3,238,061 3,238,061 3,238,061
FISCAL 1995
- -----------
Sales . . . . . . . . . . . . . . . . . . . . . . $ 8,474 $ 7,330 $ 5,576 $ 5,955
Gross profit . . . . . . . . . . . . . . . . . . 1,662 1,556 1,106 1,237
Income from continuing operations . . . . . . . . 267 414 184 (31)
Income from discontinued operations . . . . . . . -- 66 6 18
Net income (loss) . . . . . . . . . . . . . . . . 267 480 190 (13)
Series A Preferred Stock dividends . . . . . . . (253) (253) (253) (260)
Net income (loss) available
to common stockholders . . . . . . . . . . . . 14 227 (63) (273)
Per share:
Income (loss) from continuing operations
after preferred stock dividends . . . . . . $ -- $ .05 $ (.02) $ (.09)
Net income (loss) attributable to common
stockholders after preferred stock dividends $ -- $ .07 $ (.02) $ (.08)
Average number of shares outstanding . . . . . . 3,169,539 3,170,375 3,137,316 3,238,122
</TABLE>
-F15-
<PAGE> 35
The net loss in third quarter of fiscal 1996 was primarily caused by a
deferred tax charge of $1.5 million related to an increase in the valuation
allowance of the deferred tax asset, and by reduced sales and profit levels due
to the loss of a major customer that filed bankruptcy. The loss in the fourth
quarter of fiscal 1996 was principally due to the loss of certain other
customers and to increases in the provision for doubtful accounts.
During fiscal 1996 and fiscal 1995, the previous estimate to provide
for the disposal of the discontinued Retail Division was reduced.
SCPI incurred a loss during the fourth quarter of fiscal 1995 as a
result of decreased sales levels and higher expenses due to increased sales
efforts.
A reclassification of approximately $115,000 was made from
discontinued operations to continuing operations in the third quarter of fiscal
1995 results of operations, which related to the recovery by SCPI of amounts
placed in escrow in prior years as part of SCPI's predecessor's bankruptcy.
-F16-
<PAGE> 36
SCHEDULE II
STEEL CITY PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED CHARGES TO BALANCE
BEGINNING TO COSTS OTHER ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD AND EXPENSES - DESCRIBE - DESCRIBE OF PERIOD
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts deducted
from trade accounts receivable:
Years ended:
February 29, 1996 . . . . . . . . . $ 194 $ 415 $ - $ 190 (A) $ 419
========= =========== =========== ========= =========
February 28, 1995 . . . . . . . . . $ 320 $ - $ - $ 126 (A) $ 194
========= =========== =========== ========= =========
February 26, 1994 . . . . . . . . . $ 304 $ 879 $ - $ 863 (A) $ 320
========= =========== =========== ========= =========
</TABLE>
(A) Amounts were deemed uncollectible.
-F17-
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Heck's, Inc. Second Amended Joint Plan of Reorganization and
Disclosure Statement (filed as Exhibits 2(a) and (b) to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 25, 1989).
2.2 Agreement and Plan of Merger dated as of May 20, 1991 (filed as
Appendix A to the Proxy Statement/Prospectus of Steel City
Products, Inc. and the Company the dated April 16, 1991).
3.1 Restated Certificate of Incorporation (filed as Exhibit 3(a) to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 27, 1993).
3.2 By-laws of the Company as amended through May 17, 1993 (filed
as Exhibit 3.2 to the Company's Annual Report of Form 10-K for
the fiscal year ended February 26, 1994).
*10.1 Employment Agreement with Bernard H. Frank dated as of
September 1, 1993 (filed as Exhibit 10.1 to the Company's
Annual Report of Form 10-K for the fiscal year ended February
26, 1994).
*10.2 Employment Agreement with Terrance W. Allan dated as of
September 1, 1993 (filed as Exhibit 10.3 to the Company's
Annual Report of Form 10-K for the fiscal year ended February
26, 1994).
10.3 Agreement dated June 11, 1991 with Prudential-Bache Special
Situations Fund (filed as Exhibit 10(q) to the Company's Annual
Report on Form 10-K for the fiscal year ended March 3, 1990).
*10.4 Form of Option Agreement dated August 29, 1991 with directors
and executive officers (filed as Exhibit 10(t) to the Company's
Annual report on Form 10-K for the fiscal year ended February
29, 1992).
10.5 Credit Agreement by and between Steel City Products, Inc. and
Integra Bank Pittsburgh (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended August 27,
1994).
10.6 Mortgage and Security Agreement by and between Steel City
Products, Inc. and Integra Bank Pittsburgh (filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
period ended August 27, 1994).
10.7 Note Agreements with William T. Apgar, Liquidating Trustee for
the Retail Acquisition Corp. Amended Plan of Reorganization,
(filed as Exhibit 10(w) the Company's Annual Report on Form
10-K for the fiscal year ended February 27, 1993).
10.8 Letter agreement dated January 3, 1996 between SCPI and Integra
Bank Pittsburgh amending the Credit Agreement, dated August 1,
1994 between SCPI and Integra, (filed as exhibit #10.17 to
Oakhurst's Registration Statement on Form S-1, file number
#333-00173, filed on January 12, 1996).
10.9 Letter agreement dated January 3, 1996 between Oakhurst and
Integra Bank Pittsburgh amending the Credit Agreement, dated
August 1, 1994 between Oakhurst and Integra, (filed as exhibit
#10.16 to Oakhurst's Registration Statement on Form S-1, file
number #333-00173, filed on January 12, 1996).
10.10 Open-End Mortgage between Steel City Products, Inc. and FINOVA
Capital Corporation dated March 28, 1996 - filed herewith.
10.11 Combined and Amended Promissory Note between Steel City
Products, Inc. and Oakhurst Company, Inc., dated March 28, 1996
- filed herewith.
10.12 Trademark & Trade Name License Agreement between Oakhurst
Holdings, Inc. and Steel City Products, Inc., dated August 16,
1995 - filed herewith.
10.13 Corporate Services Agreement between Steel City Products, Inc.
and Oakhurst Management Corporation dated June 1, 1995 - filed
herewith.
11 Statement re-computation of per-share earnings - filed
herewith.
27 Financial Data Schedule (EDGAR transmission only) - filed
herewith.
</TABLE>
- --------------------
* Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 10.10
OPEN-END MORTGAGE
THIS MORTGAGE SECURES FUTURE ADVANCES.
THIS MORTGAGE made this 27th day of March, 1996, but effective this
28th day of March, 1996, between STEEL CITY PRODUCTS, INC. (formerly known as
Hallwood Industries Incorporated, successor by merger to Heck's, Inc., a West
Virginia corporation), a Delaware Corporation with an address at 630 Alpha
Drive, Pittsburgh, Pennsylvania 15238 ("Mortgagor") and FINOVA CAPITAL
CORPORATION, with an address at 355 South Grand Avenue, Suite 2400, Los
Angeles, California 90071 ("Mortgagee").
W I T N E S S E T H:
WHEREFORE, Mortgagor has executed and delivered to Mortgagee a Secured
Promissory Note bearing even date herewith, wherein Mortgagor together with
Oakhurst Company, Inc., Puma Products, Inc., H&H Distributors, Inc., Dowling's
Fleet Services Co., Inc., Oakhurst Holdings, Inc., G&O Sales Company and
Oakhurst Management Corporation (each a "Borrower"), jointly and severally
promise to pay to Mortgagee the principal sum of One Million Five Hundred
Thousand Dollars ($1,500,000) lawful money of the United States of America
(that, together with any and all restatements thereof or amendments thereto, is
referred to herein as the "Note") evidencing certain indebtedness owed by
Mortgagor to Mortgagee pursuant to that certain Loan and Security Agreement of
even date herewith by and between Mortgagor, each Borrower and Mortgagee (the
Note, the Loan and Security Agreement together with any and all documents or
instruments executed in connection therewith hereinafter referred to as the
"Financing Agreements"), all of which are incorporated herein by reference;
WHEREFORE, as further security for any and all obligations owing from
Mortgagor and each Borrower to Mortgagee under the Financing Agreements
("Obligations"), Mortgagor has agreed to give Mortgagee a first lien mortgage
on certain property owned by Mortgagor according to the terms of this Mortgage.
NOW, THEREFORE, in consideration of the indebtedness of Mortgagor and
each Borrower to Mortgagee which Mortgagor acknowledges and confirms is
valuable and of benefit to Mortgagor, and as security for payment to Mortgagee
of the Obligations, and for performance of the agreements, conditions,
covenants, provisions and stipulations contained herein and therein, Mortgagor
has granted, conveyed, aliened, enfeoffed, released, confirmed and mortgaged,
and by these presents does hereby grant, convey, alien, enfeoff, release,
confirm and mortgage unto Mortgagee, all those certain tracts or parcels of
land commonly known as 630 Alpha Drive, Pittsburgh, Pennsylvania located in the
Township of O'Hara,
<PAGE> 2
Allegheny County, Pennsylvania and more particularly described in Exhibit "A"
attached hereto and made a part hereof (hereinafter referred to as the "Land").
TOGETHER WITH all of Mortgagor's right, title and interest now owned
or hereafter acquired in:
(a) all easements, rights-of-way, gores of land, streets,
ways, alleys, passages, rights, waters, water courses, water rights and powers,
riparian rights, mineral rights, privileges, tenements, hereditaments and
appurtenances whatsoever in any way belonging, relating or appertaining to any
of the Land or which hereafter shall in any way belong, relate or be
appurtenant thereto, whether now owned or hereafter acquired by Mortgagor, and
the reversions and remainders; and
(b) all rents, issues and profits thereof; and
(c) all buildings and other improvements erected or
hereafter erected upon the Land and all building materials, fixtures, building
machinery and building equipment delivered on site to the Land during the
course of, or in connection with, the construction of, or reconstruction of, or
remodeling of any buildings and improvements from time to time during the term
hereof; and
(d) all fixtures, appliances, machinery, furniture and
equipment of any nature whatsoever, and other articles of personal property now
or at any time hereafter installed in, attached to or situated in or upon the
Land or any buildings and improvements now or hereafter erected on, upon, under
or forming a part of the Land, or used or intended to be used in connection
with the Land, or in the operation of any buildings and improvements now or
hereafter erected thereon, or in the operation or maintenance of any such
building or improvement, plant or business situate thereon, whether or not the
personal property is or shall be affixed thereto; and
(e) all licenses (including but not limited to operating
licenses or similar matters), contracts, management contracts or agreements,
franchise agreements, permits, bonds, authorities or certificates required or
used in connection with the ownership of, or the operation or maintenance of
the real property or improvements or personal property, provided that no such
contract, agreement, license or the like shall be binding upon Mortgagee except
with Mortgagee's prior consent; and
(f) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or liquidated claims, including,
without limitation, proceeds of insurance and condemnation awards.
All of the Land, buildings and improvements, fixtures, machinery,
furniture, equipment, tenements, hereditaments and appurtenances, proceeds and
other property interests above described and hereby mortgaged are sometimes
collectively referred to herein as the "Mortgaged Property".
-2-
<PAGE> 3
TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed or
mentioned and intended so to be, unto Mortgagee, in fee simple, forever.
PROVIDED ALWAYS, and this instrument is upon the express condition
that, if Mortgagor pays to Mortgagee the principal sum mentioned in the Note,
the interest thereon and all other sums payable by Mortgagor and any Borrower
to Mortgagee as are secured hereby, in accordance with the provisions of the
Financing Agreements, the Note and this Mortgage, at the times and in the
manner specified, without deduction, fraud or delay, and Mortgagor performs and
complies with all the agreements, conditions, covenants, provisions and
stipulations contained herein and in the Financing Agreements, then this
Mortgage and the estate hereby granted shall cease and become void.
1. Mortgagor's Representations. Mortgagor warrants and
represents that it possesses a good and marketable title to an indefeasible fee
simple estate in the Mortgaged Property; that Mortgagor has full power and
lawful authority to subject the Mortgaged Property to the lien of this Mortgage
in the manner and form herein provided; that it shall be lawful for Mortgagee
at all times to enter upon, hold, occupy and enjoy the Mortgaged Property and
every part thereof; that the Mortgaged Property is free from all liens and
encumbrances subject only to those title exceptions listed in the mortgagee
title insurance policy approved by and issued to Mortgagee, insuring the
priority of the lien of this Mortgage; that all information, reports, papers
and data given to Mortgagee with respect to the Mortgaged Property or Mortgagor
are accurate in all material respects; that no notice of taking by eminent
domain or condemnation of any part of the Mortgaged Property has been received,
and Mortgagor has no knowledge that any of such is contemplated; that the
Mortgaged Property and the present use and occupancy thereof are in compliance
with all applicable laws, rules, ordinances, statutes and regulations; and that
no part of the Mortgaged Property is located in an area designated by any
federal, state or local governmental entity as having a special flood hazard.
2. Payment and Performance. Mortgagor and each Borrower
shall pay to Mortgagee, in accordance with the terms of the Financing
Agreements and this Mortgage, the principal and interest, and other sums
therein set forth; shall perform and comply with all the agreements,
conditions, covenants, provisions and stipulations of the Financing Agreements
and this Mortgage; and shall timely perform all of its material obligations and
duties as landlord under any lease of all or any portion of the Mortgaged
Property now or hereafter in effect.
3. Maintenance of Mortgaged Property. Mortgagor shall
keep and maintain or cause to be kept and maintained all buildings and
improvements now or at any time hereafter erected on the Mortgaged Property and
the sidewalks and curbs abutting them, in good order and condition and in a
rentable and tenantable state of repair, and will make or cause to be made, as
and when necessary for such purpose, all repairs, renewals and replacements,
structural and nonstructural, exterior and interior, ordinary and
extraordinary, foreseen and unforeseen. Mortgagor shall abstain from and shall
not permit the commission of waste in or about the Mortgaged Property; shall
not remove or demolish, or alter the structural character of, any building
erected at any time on or constituting a part of the Mortgaged Property or
alter the exterior of the building, without the prior written
-3-
<PAGE> 4
consent of Mortgagee; and shall not permit the Mortgaged Property to become
vacant, deserted or abandoned. Mortgagor further covenants and agrees to
maintain in good condition on the Mortgaged Property all items of inventory,
equipment and any other personal property necessary for or used in the
maintenance and operation of the Mortgaged Property, free of any security
interest (except a security interest in favor of Mortgagee), and, upon request,
to furnish to Mortgagee financing statements, continuation certificates and
such other documents necessary to perfect and maintain in favor of Mortgagee a
security interest in such personal property.
4. Insurance.
(a) Mortgagor shall keep the Mortgaged Property
continuously insured, to the extent of its full insurable value, against loss
or damage by fire, with extended coverage and business interruption coverage
and against such other hazards (including, without limitation, coverage against
loss or damage by vandalism, malicious mischief, sprinkler leakage and flood)
as Mortgagee may reasonably require, and shall maintain comprehensive general
public liability property damage and workmen's compensation insurance, in an
insurance company or companies qualified to insure property located in
Pennsylvania and satisfactory to Mortgagee, and in such total amounts as
Mortgagee may reasonably require from time to time. Such insurance shall
contain agreed amount endorsements, inflation guard endorsements and
replacement cost endorsements reasonably satisfactory to Mortgagee. During the
course of any construction or repair of improvements on the Mortgaged Property
for which builder's risk insurance may be obtained, Mortgagor shall acquire and
maintain builder's completed value risk insurance against all risks of physical
loss, including collapse and transit coverage, during construction of such
improvements, with deductibles not to exceed $10,000 in non-reporting form,
covering the total value of work performed and equipment, supplies and
materials furnished. Mortgagor shall also obtain insurance affording
protection against rental loss in an amount of not less than the rent payable
during the then current twelve (12) month period in the event of any damage
caused by the perils referred to above. All policies of insurance, including
policies for any amounts carried in excess of the required minimum and policies
not specifically required by Mortgagee, shall be in form reasonably
satisfactory to Mortgagee, shall name Mortgagee as the insured and a loss payee
endorsement, shall be maintained in full force and effect, shall be assigned
and delivered to Mortgagee, with premiums prepaid, as collateral security for
payment of the indebtedness secured hereby, shall be endorsed with a standard
mortgagee clause in favor of Mortgagee (substantially equivalent to the
Pennsylvania standard mortgagee endorsement and a loss payee endorsement) not
subject to contribution, and shall provide for at least thirty (30) days'
notice of cancellation, termination, modification, refusal to renew or
reduction to Mortgagee. If the insurance, or any part thereof, shall expire,
or be withdrawn, or become void or unsafe by Mortgagor's breach of any
condition thereof, or become void or unsafe by reason of the failure or
impairment of the capital of any company in which the insurance may then be
carried, or if for any reason in the reasonable opinion of Mortgagee the
insurance shall be unsatisfactory to Mortgagee, Mortgagor shall place new
insurance on the Mortgaged Property satisfactory to Mortgagee. All renewal
policies, with premiums paid, shall be delivered to Mortgagee at least thirty
(30) days before expiration of the old policies.
-4-
<PAGE> 5
(b) In the event of loss, Mortgagor will give
immediate notice thereof to Mortgagee, and Mortgagee may make proof of loss if
not made promptly by Mortgagor. Each insurance company concerned is hereby
authorized and directed to make payment under such insurance, including return
of unearned premiums, directly to Mortgagee instead of to Mortgagor and
Mortgagee jointly, and Mortgagor appoints Mortgagee, irrevocably, as
Mortgagor's attorney-in-fact to endorse any draft therefor. Mortgagee shall
have the right to retain and apply the proceeds of any such insurance, at its
election, to reduction of the indebtedness secured hereby, or to restoration or
repair of the property damaged on such terms as Mortgagee may specify, at
Mortgagee's sole and absolute discretion. If Mortgagee elects to retain and
apply such proceeds to the reduction of the indebtedness secured hereby,
Mortgagee shall have the right in its sole and absolute discretion to apply any
such proceeds, in such order and in such amounts as Mortgagee may elect,
against: (i) any amounts payable by Mortgagor hereunder or under the Financing
Agreements, and/or (ii) accrued and unpaid interest under the Note and on the
other Obligations, and/or (iii) the outstanding principal balance of the Note
or the other Obligations. No application of insurance proceeds to the payment
of the Obligations shall postpone any of the current installments of principal
or interest becoming due under such Financing Agreements until such Financing
Agreements and all interest and other sums due hereunder and thereunder have
been paid in full.
(c) Such policies of insurance and all renewals
thereof are hereby assigned to Mortgagee as additional security for payment of
the indebtedness hereby secured and Mortgagor hereby agrees that any values
available thereunder upon cancellation or termination of any of said policies
or renewals, whether in the form of return of premiums or otherwise, shall be
payable to Mortgagee as assignee thereof. If Mortgagee becomes the owner of
the Mortgaged Property or any part thereof by foreclosure or otherwise, such
policies, including all right, title and interest of Mortgagor thereunder,
shall become the absolute property of Mortgagee. In addition, Mortgagor will
deliver the originals or certified copies of all such policies to Mortgagee,
and, not less than thirty (30) days prior to the expiration date of each such
policy, will deliver to Mortgagee a renewal policy or policies (or certified
copies of such policies) marked "premium paid" or accompanied by other evidence
of payment satisfactory to Mortgagee. Mortgagor shall not change the present
use of any portion of the Mortgaged Property in any manner or permit any
condition to exist on the Mortgaged Property which would permit an insurer to
cancel or increase the premium for any insurance policy or invalidate such
policy in whole or in part. Mortgagor shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to
be maintained under this Paragraph 4 unless Mortgagee is included thereon as a
named insured with loss payable to Mortgagee under a non-contributory mortgagee
clause satisfactory to Mortgagee. Mortgagor shall immediately notify Mortgagee
whenever any such separate insurance is taken out, specifying the insurer
thereunder and full particulars as to the policies evidencing the same.
5. Taxes and Other Charges. Mortgagor shall pay at
least fifteen (15) days before they are due and payable and before any
interest, charge or penalty is due thereon, without any deduction, defalcation
or abatement, all taxes, assessments, levies, liabilities, obligations,
encumbrances, water and sewer rents and all other charges or claims of every
nature and kind which may be imposed, suffered, placed, assessed, levied, or
filed at any
-5-
<PAGE> 6
time against Mortgagor, the Mortgaged Property or any part thereof or against
the interest of Mortgagee therein, or with respect to the Financing Agreements
or Mortgage and/or the ownership of either thereof by Mortgagee, or which by
any present or future law may have priority over the indebtedness secured
hereby either in lien or in distribution out of the proceeds of any judicial
sale, without regard to any law heretofore or hereafter to be enacted imposing
payment of the whole or of any part upon Mortgagee; and insofar as any such
tax, assessment, levy, liability, obligation or encumbrance is of record, the
same shall be promptly satisfied and discharged of record and the original
official document (such as, for instance, the tax receipt or the satisfaction
paper officially endorsed or certified) shall be placed in the hands of
Mortgagee not later than five (5) days prior to the due date thereof.
Provided, however, that if, pursuant to this Mortgage or otherwise, Mortgagor
shall have deposited with Mortgagee before the due date thereof sums sufficient
to pay any such taxes, assessments, levies, water and sewer rents, charges or
claims, and Mortgagor is not otherwise in default, they shall be paid by
Mortgagee; and provided further, that if Mortgagor is not in default hereunder
and in good faith and by appropriate legal action shall contest the validity of
any such item, or the amount thereof, and shall have established on its books
or by deposit of cash with Mortgagee, as Mortgagee may elect, a reserve for the
payment thereof in such amount as Mortgagee may require (including any interest
and penalties which may be payable in connection therewith), then Mortgagor
shall not be required to pay the item or to produce the required receipts,
while the reserve is maintained and so long as the contest operates to prevent
collection, and is maintained and prosecuted with diligence, and shall not have
been terminated or discontinued adversely to Mortgagor. Further, Mortgagor
will not apply for or claim any deduction, by reason of this Mortgage, from the
taxable value of all or any part of the Mortgaged Property. It is expressly
agreed that no credit shall be claimed or allowed on the interest payable on
the Note or the Obligations because of any taxes or other charges paid.
6. Installments for Insurance, Taxes and Other Charges.
Without limiting the effect of Paragraphs 4 and 5 hereof, Mortgagee may require
Mortgagor to pay to Mortgagee (or to such other entity as Mortgagee shall
designate), monthly with the monthly installments of interest (or the monthly
installments of principal and interest when applicable), an amount equal to
one-twelfth (1/12) of the annual premiums for the insurance policies referred
to hereinabove and the annual real estate taxes, water and sewer rents, any
special assessments, charges or claims and any other item which at any time may
be or become a lien upon the Mortgaged Property prior to the lien of this
Mortgage; and on demand from time to time Mortgagor shall pay to Mortgagee any
additional sums necessary to pay the premiums and other items, all as estimated
by Mortgagee. The amounts so paid shall be security for the premiums and other
items and shall be used in payment thereof if Mortgagor is not otherwise in
default hereunder. No amount so paid shall be deemed to be trust funds but may
be commingled with general funds of Mortgagee and no interest shall be payable
thereon. If, pursuant to any provision of this Mortgage or the Note, the whole
amount of the unpaid principal debt becomes due and payable, Mortgagee shall
have the right, in its sole and absolute discretion, to apply any amount so
held, in such order and in such amounts as Mortgagee may elect, against: (a)
any amounts payable by Mortgagor hereunder or under the Financing Agreements,
and/or (b) accrued and unpaid interest under the Note or any other Obligations,
and/or (c) the outstanding principal balance of the Note or the other
Obligations. At Mortgagee's option, Mortgagee from time to time may waive, and
after any such waiver
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<PAGE> 7
may reinstate, the provisions of this paragraph requiring the monthly payments.
Mortgagor will furnish to Mortgagee bills and other requests for payment in
sufficient time to enable Mortgagee to pay such taxes, assessments, levies,
charges and fees as provided above.
7. Corporate Existence and Taxes. If Mortgagor or any
successor or grantee of Mortgagor is a corporation, it shall keep in effect its
existence and rights as a corporation under the laws of the state of its
incorporation and its right to own property and transact business in the state
in which the Mortgaged Property is situated during the entire time that it has
any ownership interest in the Mortgaged Property. For all periods during which
title to the Mortgaged Property or any part thereof shall be held by a
corporation or association subject to corporate taxes or taxes similar to
corporate taxes, Mortgagor shall file returns for such taxes with the proper
authorities, bureaus or departments and it shall pay, when due and payable and
before interest or penalties are due thereon, all taxes owing by Mortgagor to
the United States, to such state of incorporation and to the state in which the
Mortgaged Property is situated and any political subdivision thereof, and shall
produce to Mortgagee receipts showing payment of any and all such taxes,
charges or assessments prior to the last dates upon which such taxes, charges
or assessments are payable without interest or penalty charges, and within ten
(10) days of receipt thereof all settlements, notices of deficiency or
overassessment and any other notices pertaining to Mortgagor's tax liability
which may be issued by the United States, such state of incorporation, the
state in which the Mortgaged Property is situated and any political subdivision
thereof.
8. Documentary and Other Stamps. If at any time the
United States, the state in which the Mortgaged Property is located or any
political subdivision thereof, or any department or bureau of any of the
foregoing, shall require documentary, revenue or other stamps on the Financing
Agreements secured hereby or this Mortgage, Mortgagor on demand shall pay for
them with any interest or penalties payable thereon.
9. Future Taxes. If hereafter any law or ordinance
shall be adopted imposing a tax directly or indirectly on Mortgagee with
respect to the Mortgaged Property, the value of Mortgagor's equity therein, or
the indebtedness evidenced by the Financing Agreements and secured by this
Mortgage, Mortgagee, at its election, shall have the right at any time after
the tax has been imposed to give Mortgagor written notice declaring that the
Obligations shall be due on a specified date not less than sixty (60) days
thereafter which notice shall specify the nature of the tax which is the basis
for acceleration; provided, however, that such election shall be ineffective
if, prior to the specified date, Mortgagor lawfully pays the tax (in addition
to all other payments required hereunder) and agrees to pay the tax whenever it
becomes due and payable thereafter, which agreement shall then constitute a
part of this Mortgage.
10. Security Agreement.
(a) This Mortgage constitutes a security agreement
within the meaning of the Uniform Commercial Code as enacted this date in the
Commonwealth of Pennsylvania (the "Uniform Commercial Code"). Mortgagor hereby
grants to Mortgagee a security interest in all that property included in the
Mortgaged Property which might otherwise be deemed "personal property",
including, but not limited to, all furniture, furnishings, fixtures, equipment,
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<PAGE> 8
machinery, leases, rents, issues, profits, contract rights, accounts, general
intangibles and all other property used or useable in connection with the
Mortgaged Property, whether now owned or hereafter acquired by Mortgagor, and
all substitutions, accretions and component parts, replacements thereof, and
additions thereto and all cash and non-cash proceeds thereof.
(b) Mortgagor shall execute, deliver, file and
refile any financing statements, continuation statements, or other security
agreements Mortgagee may require from time to time to confirm the lien of this
Mortgage with respect to such property. Without limiting the foregoing,
Mortgagor hereby irrevocably appoints Mortgagee attorney-in-fact for Mortgagor
to execute, deliver and file such instruments for and on behalf of Mortgagor.
Mortgagor shall pay, or at Mortgagee's election shall reimburse Mortgagee for,
all filing fees in connection therewith. Mortgagor shall not change its
principal place of business without giving Mortgagee at least thirty (30) days
prior written notice thereof, which notice shall be accompanied by new
financing statements executed by Mortgagor in the same form as the financing
statements delivered to Mortgagee on the date hereof except for the change of
address.
(c) Upon any Event of Default hereunder or under
the Financing Agreements, Mortgagee shall have, in addition to any other rights
and remedies hereunder or under the Financing Agreements, all of the rights and
remedies granted to a secured party under the Uniform Commercial Code with
respect to such personal property. To the extent permitted by law, Mortgagor
and Mortgagee agree that the items set forth on the financing statements shall
be treated as part of the real estate and improvements regardless of the fact
that such items are set forth in the financing statements. Such items are
contained in the financing statements to create a security interest in favor of
Mortgagee in the event such items are determined to be personal property under
the law. Notwithstanding any release of any or all of that property included
in the Mortgaged Property which is deemed "real property", any proceedings to
foreclose this Mortgage or its satisfaction of record, the terms hereof shall
survive as a security agreement with respect to the security interest created
hereby and referred to above until the repayment or satisfaction in full of the
obligations of Mortgagor as are now or hereafter evidenced by the Financing
Agreements.
(d) To the extent permitted under the Uniform
Commercial Code, Mortgagor waives all rights of redemption and all other rights
and remedies of a debtor thereunder and all formalities prescribed by law
relative to the sale or disposition of the personal property after the
occurrence of an Event of Default hereunder and to all other rights and
remedies of Mortgagor with respect thereto. In exercising its right to take
possession of the personal property upon the occurrence of an Event of Default
hereunder, Mortgagee may enter upon the Mortgaged Property without being guilty
of trespass or any other wrong-doing, and without liability for damage thereby
occasioned.
(e) Mortgagor shall reimburse Mortgagee, on
demand, for all reasonable expenses of retaking, holding, preparing for sale,
lease or other use or disposition, selling, leasing or otherwise using or
disposing of the personal property which are incurred or paid by Mortgagee,
including, without limitation, all attorneys' fees, legal
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<PAGE> 9
expenses and costs, and all such expenses shall be added to Mortgagor's
obligations to Mortgagee and shall be secured hereby.
11. Compliance with Laws and Regulations. Mortgagor
shall comply with all laws, ordinances, regulations and orders of all federal,
state, municipal and other governmental authorities relating to the Mortgaged
Property. Mortgagor will pay all license fees and similar municipal charges
for the use of the Mortgaged Property and any other areas now or hereafter
comprising part thereof or used in connection therewith and will not, unless so
required by a governmental agency having jurisdiction, discontinue use or
occupancy of any portion of the Mortgaged Property without the prior written
consent of Mortgagee. The Mortgagor shall not take or permit any action with
respect to the Mortgaged Property which will in any manner impair the security
of this Mortgage.
12. Inspection. Mortgagee and any persons authorized by
Mortgagee shall have the right at any time, to enter the Mortgaged Property at
a reasonable hour to inspect and photograph its condition and state of repair
and/or for the purpose of appraising the same.
13. Declaration of No Set-Off. Within one (1) week after
being requested to do so by Mortgagee, Mortgagor shall certify to Mortgagee or
to any proposed assignee of this Mortgage, in a writing duly acknowledged, the
amount of principal, interest and other charges then owing on the obligation
secured by this Mortgage and by prior liens, if any, and whether Mortgagor
claims any set-offs or defenses against Mortgagor's obligation to pay such
amounts, and if so the precise basis for such set-offs or defenses.
14. Financial Statements. So that Mortgagee will have a
full and clear understanding of the operation of the Mortgaged Property and the
financial standing of Mortgagor, Mortgagor shall furnish Mortgagee, within
ninety (90) days after the end of each fiscal year of Mortgagor during the
entire term of the Loan and Security Agreement, with statements reflecting, in
reasonable detail, a balance sheet for the operation of the Mortgaged Property,
a fully itemized statement of the gross income and expenses of the Mortgaged
Property for such fiscal year, including an itemized rent roll, and a balance
sheet and profit and loss statement for Mortgagor, all reviewed by a certified
public accountant. Mortgagor agrees to make the books and accounts relating to
the Mortgaged Property and Mortgagor's operations available for inspection by
Mortgagee, or its representatives, upon written request at any reasonable time.
15. Required Notices. Mortgagor shall notify Mortgagee
promptly of the occurrence of any of the following:
(a) a fire or other casualty causing damage to
the Mortgaged Property;
(b) receipt of notice of eminent domain
proceedings or condemnation of all or any part of the Mortgaged Property;
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<PAGE> 10
(c) receipt of notice from any governmental
authority relating to the structure, use or occupancy of the Mortgaged
Property;
(d) receipt of any notice from any tenant of all
or any portion of the Mortgaged Property;
(e) substantial change in the occupancy of the
Mortgaged Property;
(f) commencement of any litigation affecting the
Mortgaged Property other than accident claims fully covered by insurance and
for which the insurance carrier has acknowledged liability; or
(g) receipt of any notice from the holder or
claimant of any lien or security interest in the Mortgaged Property or any part
thereof.
16. Condemnation.
(a) In the event of any condemnation or taking of
any part of the Mortgaged Property by eminent domain, alteration of the grade
of any street, or other injury to or decrease in the value of the Mortgaged
Property by any public or quasi-public authority or corporation, all proceeds
(that is, the award or agreed compensation for the damages sustained) allocable
to Mortgagor are hereby assigned by Mortgagor to Mortgagee to further secure
the payment of the indebtedness secured hereby. No settlement for damages
sustained shall be made by Mortgagor without Mortgagee's prior written
approval. Mortgagee is authorized and empowered (but not required) to collect
and receive any such condemnation award and all condemnation proceeds which
then shall be applied in the order and in the amounts that Mortgagee, in
Mortgagee's sole discretion, may elect, to the reduction of the indebtedness
secured hereby, or toward payment to Mortgagor, on such terms as Mortgagee may
specify, to be used for the sole purpose of altering, restoring or rebuilding
any part of the Mortgaged Property which may have been altered, damaged or
destroyed as a result of the taking, alteration of grade or other injury to the
Mortgaged Property. Mortgagor shall execute such further assignments of any
such awards as Mortgagee may require. If Mortgagee elects to apply such
proceeds to reduction of the indebtedness secured hereby, Mortgagee shall have
the right in its sole and absolute discretion to apply any such proceeds, in
such order and in such amounts as Mortgagee may elect, against any amounts
payable by Mortgagor hereunder or under the Financing Agreements.
(b) If prior to the receipt of the proceeds by
Mortgagee the Mortgaged Property shall have been sold on foreclosure of this
Mortgage, Mortgagee shall have the right to receive the proceeds to the extent
of:
(i) any deficiency found to be due to
Mortgagee in connection with the foreclosure sale, with legal interest thereon,
and
(ii) reasonable counsel fees, costs and
disbursements incurred by Mortgagee in connection with collection of the
proceeds and the proceedings to establish the deficiency.
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<PAGE> 11
(c) If the amount of the initial award of damages
for the condemnation is insufficient to pay in full the indebtedness secured
hereby with interest and other appropriate charges, Mortgagee shall have the
right to prosecute to final determination or settlement an appeal or other
appropriate proceedings in the name of Mortgagee or Mortgagor, for which
Mortgagee is hereby appointed irrevocably as attorney-in-fact for Mortgagor,
which appointment, being for security, is irrevocable. In that event, the
expenses of the proceedings, including counsel fees, shall be paid first out of
the proceeds and only the excess, if any, paid to Mortgagee shall be credited
against the amounts due under this Mortgage.
(d) Nothing herein shall limit the rights
otherwise available to Mortgagee, at law or in equity, including the right to
intervene as a party to any condemnation proceeding.
(e) No application of condemnation proceeds to
the payment of the Obligations shall postpone any of the current installments
of principal or interest becoming due under the Financing Agreements until the
Financing Agreements and all interest and other sums due thereunder and
hereunder are paid in full.
17. Leases.
(a) Mortgagor hereby assigns to Mortgagee all
existing and future leases (the "Leases") and all rents and profits of the
Mortgaged Property as further security for the payment of the indebtedness
hereby secured and Mortgagor grants to Mortgagee the right to enter upon the
Mortgaged Property for the purposes of collecting the same and to let the
Mortgaged Property or any part thereof. This assignment and grant shall
continue in effect until the indebtedness secured by this Mortgage is paid.
Mortgagee hereby waives the right to collect said rents and profits, and
Mortgagor shall be entitled to collect and receive the same until default in
this Mortgage or the Financing Agreements, and Mortgagor agrees to use such
rents and profits in payment of principal and interest becoming due on this
Mortgage and in payment of taxes, assessments, sewer rents, water rents and
charges becoming due as aforesaid, but such privilege of Mortgagor may be
revoked by Mortgagee upon default without notice. Mortgagor shall not, without
the written consent of Mortgagee, receive or collect rent or other charge for a
period of more than one month in advance. Mortgagee shall not be deemed to
have accepted the assignment except as a pledge or be obligated as lessor by
virtue of this assignment except by a separate and express written agreement of
Mortgagee.
(b) Mortgagor hereby authorizes and instructs
each and every present and future tenant of any of the Mortgaged Premises to
pay all rents directly to Mortgagee and to perform all other obligations of
that tenant for the direct benefit of Mortgagee, as if Mortgagee were the
landlord under the lease with that tenant, immediately upon receipt of a demand
by Mortgagee to make such payment or perform such obligations. No tenant shall
have any responsibility to ascertain whether such demand is permitted hereunder
or whether a default shall have occurred. Mortgagor hereby waives any right,
claim or demand it may now or hereafter have against any such tenant by reason
of such payment of rents or performance of obligations to Mortgagee; and any
such payment or performance to Mortgagee shall discharge the obligations of the
tenant to make such payment or
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<PAGE> 12
performance to Mortgagor. Mortgagor shall indemnify Mortgagee and hold
Mortgagee harmless from any and all liability under any lease and for any and
all claims and demands which may be asserted against Mortgagee by reason of any
alleged obligations to perform any provision of any lease, except as to
Mortgagee's own gross negligence or willful misconduct.
(c) Mortgagor will deliver to Mortgagee upon
written request a statement under oath setting forth the names of all tenants
occupying space in the Mortgaged Property, a brief description of the space
occupied, the rental payable and the date of expiration of the respective
leases, and the status of the rental payments due thereunder.
(d) Mortgagor shall promptly (i) perform all of
the provisions of the Leases on the part of the landlord thereunder to be
performed; (ii) enforce all of the provisions of the Leases on the part of the
tenants thereunder to be performed; and (iii) appear in and defend any action
or proceeding arising under, growing out of or in any manner connected with the
Leases or the obligations of Mortgagor as landlord or of the tenants
thereunder.
(e) Mortgagor shall not enter into any lease or
agreement to lease all or any part of the Mortgaged Property (i) without
obtaining the prior written approval of the tenant and form and substance of
the lease by Mortgagee; and (ii) unless, at Mortgagee's option, landlord's
interest in any such lease is assigned to Mortgagee, on such form of assignment
as Mortgagee shall specify, as collateral security for the obligations secured
hereby.
18. No Other Financing or Liens. Without the prior
written consent of Mortgagee, which Mortgagee can grant or withhold in its sole
and absolute discretion, Mortgagor shall not create or cause or permit to exist
any lien on, or security interest in the Mortgaged Property or any part thereof
(whether or not such lien or security interest is subordinate to the lien of
this Mortgage), including any furniture, fixtures, appliances, machinery,
equipment, or other items of personal property which are intended to be or
become part of the Mortgaged Property, or securing repayment of monies paid to
or for the benefit of Mortgagor or any Borrower, except as otherwise permitted
in the Loan Agreement.
19. No Transfer. Without the prior written consent of
Mortgagee, which Mortgagee can grant or withhold in its sole and absolute
discretion, Mortgagor will abstain from and will not cause or permit any
transfer of title to, beneficial interest in, or any estate or other interest
in the Mortgaged Property or any part thereof, or any interest in Mortgagor,
voluntarily or by operation of law, whether by sale, exchange, conveyance,
merger, division, consolidation or otherwise, if such will result in the
transfer of control of all or any portion of the Mortgaged Property to other
than Mortgagor, or in a change in the ownership and/or control of Mortgagor.
Any consent given by Mortgagee hereunder shall pertain only to the proposed
transfer for which the consent was requested and shall not obligate Mortgagee
to approve any further transfers.
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<PAGE> 13
20. Right to Remedy Defaults. In the event that
Mortgagor should fail to pay corporate taxes, real estate or other taxes,
assessments, water and sewer rents, charges and claims on or before the date on
which any penalty may be imposed with respect thereto, or fail to pay insurance
premiums, or fail to make necessary repairs, or permit waste, or fail to comply
with any other provision of this Mortgage or the Financing Agreements,
Mortgagee, at its election and without notice to Mortgagor, shall have the
right to make any payment or expenditure and to take any action which Mortgagor
should have made or taken, or which Mortgagee deems reasonably necessary to
protect the security of this Mortgage or the Mortgaged Property, without
prejudice to any of Mortgagee's rights or remedies available hereunder or
otherwise, at law or in equity. All such sums, as well as costs, advanced by
Mortgagee pursuant to this Mortgage shall be due immediately from Mortgagor to
Mortgagee, shall be secured hereby, and shall bear interest at the Default Rate
(as defined in the Note) from the date of payment by Mortgagee until the date
of repayment. Notwithstanding the foregoing, Mortgagee shall not exercise its
right to pay overdue corporate taxes, real estate or other taxes, assessments,
water and sewer rents, charges and claims, provided that Mortgagee has a good
faith dispute regarding the same and is diligently disputing any such corporate
tax, real estate or other tax, assessment, water and sewer rent, charge or
claim.
21. Actions of Mortgagee. Without affecting the lien
and/or priority of this Mortgage upon the Mortgaged Property or any part
thereof or affecting the liability of Mortgagor or any other person liable for
payment of all or any part of the indebtedness secured by this Mortgage or for
performance of any obligation contained herein Mortgagee may, at any time and
from time to time without notice to or the consent of any other person or
entity (except for Mortgagor in the case of a modification of the terms of the
Financing Agreements or this Mortgage), extend the time of payment of the
indebtedness secured hereby, agree to modify the terms of the Financing
Agreements or this Mortgage, release any person liable for payment of any
indebtedness secured hereby or for performance of any obligation, release all
or any part of the security held for the indebtedness secured hereby or
exercise or refrain from exercising or waive any right Mortgagee may have.
22. Additional Advances; Future Indebtedness. Without
limiting any other provisions of this Mortgage, Mortgagee may make future
advances, and this Mortgage shall secure repayment of such advances and the
interest thereon, for the payment of taxes, assessments, maintenance charges,
insurance premiums, or costs similar or dissimilar incurred for the protection
of the Mortgaged Property or for the lien of this Mortgage, expenses incurred
by Mortgagee by reason of default by Mortgagor, or advances made under a
construction loan to enable the completion of the improvements for which the
construction loan was originally made. This Mortgage shall further constitute
as security for any and all present and future loans and advances that may be
made by Mortgagee to Mortgagor or by Mortgagee to any Borrower under the Note
or the Loan and Security Agreement at any time or times hereafter whether or
not any reference is made to this Mortgage at the time that such loans or
advances are made.
23. Notices to Mortgagee. Mortgagor agrees that any
notice given by Mortgagor to Mortgagee purportedly pursuant to 42 PA. C.S.A.
Section 8143 shall be given by registered or certified mail, return receipt
requested, to the address of Mortgagee specified on page 1 of this Mortgage and
only to that address, and such notice shall be deemed to have
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<PAGE> 14
been received no earlier than the date actually and physically received at the
address on page 1.
24. Notice to Prior Lienholders. Mortgagor hereby
authorizes Mortgagee, without liability and at Mortgagee's sole discretion, to
give notice in form and substance satisfactory to Mortgagee of the lien and
security interest created by this Mortgage to a holder of a previously recorded
mortgage which is a lien on the Mortgaged Property in order, among other
things, to subordinate further advances by such mortgage holder.
25. Events of Default. Each of the following shall
constitute an event of default (hereinafter called "Event of Default" or
"Default") hereunder:
(a) The failure of Mortgagor to pay any sum due
under this Mortgage, following the expiration of the applicable notice and
grace periods, if any.
(b) Any event of default under the Financing
Agreements by any party.
(c) Material breach by any Borrower or Mortgagor
of any warranty or material untruth of any representation contained in this
Mortgage or the Financing Agreements.
(d) If Mortgagor shall be in default under any
mortgage or other lien against all or any portion of the Mortgaged Property or
any document executed or delivered in connection therewith.
(e) If Mortgagor shall cause or permit any
transfer of title to, beneficial interest in, or any estate or other interest
in the Mortgaged Property or any part thereof, or any interest in Mortgagor,
voluntarily or by operation of law (other than by execution on the Financing
Agreements or foreclosure under this Mortgage), whether by sale, exchange,
conveyance, merger, division, consolidation or otherwise, if such will result
in the transfer of control of all or any portion of the Mortgaged Property to
other than Mortgagor, or in a change in the ownership and/or control of
Mortgagor, except as otherwise permitted in Paragraph 19 herein.
(f) If any inferior lien encumbers the Mortgaged
Property or any part thereof without the express written consent of the
Mortgagee which can be granted or withheld in Mortgagee's sole discretion.
(g) If any of the following occurs with respect
to Mortgagor, any Borrower, any guarantor or surety of Mortgagor's or any
Borrower's obligations: (i) insolvency, assignment for the benefit of
creditors, the entry of an order for relief under The Bankruptcy Code of 1978,
as amended, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"), or the
filing of a bill in equity or the initiation of other proceedings for the
appointment of a receiver of assets; (ii) the voluntary filing of a petition or
initiation of other proceedings in any court for a composition with creditors
for relief in any manner from the payment of debts when due under any state or
federal law; or (iii) the institution of any proceedings in
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<PAGE> 15
bankruptcy or for the appointment of a receiver, liquidator, trustee or other
such officer under any state or federal law by any creditor which is not
dismissed within sixty (60) days.
(h) Should any federal or state tax lien or any
claim or lien for labor or materials be filed of record against Mortgagor or
the Mortgaged Property or any part thereof; however, after prior notice to
Mortgagee, in the case of any material item, Mortgagor, at its own expense, may
contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due diligence, the amount or validity or application in
whole or in part of any of the taxes or lien for labor or materials, provided
that (i) no default exists under the Financing Agreements or the Mortgage, (ii)
such proceeding shall suspend the collection of the taxes from Mortgagor and
from the Mortgaged Property, (iii) such proceeding shall be permitted under and
be conducted in accordance with the provisions of any other instrument to which
Mortgagor or the Mortgaged Property is subject and shall not constitute a
default thereunder, (iv) neither the Mortgaged Property nor any part thereof or
interest therein will, in the reasonable opinion of Mortgagee, be in danger of
being sold, forfeited, terminated, canceled or lost, (v) Mortgagor shall have
set aside adequate reserves for payment of the taxes, together with all
interest and penalties thereon, and (vi) Mortgagor shall have furnished such
security as may be required in the proceeding, or as may be reasonably
requested by Mortgagee to insure the payment of any such taxes, together with
all interest and penalties thereon.
(i) The entry of final judgment against Mortgagor
if such judgment is not satisfied, set aside or superseded by bond or appeal
within fifteen (15) days after entry.
(j) The receipt by Mortgagee of written notice
from either Mortgagor, any guarantor or surety of Mortgagor's obligations or
any other party, purportedly sent to terminate, limit or restrict future
advances, whether or not such notice is sent pursuant to the provisions of 42
PA.C.S.A. Sections 8143(B) or 8143(C) and whether or not such notice is
effective thereunder.
(k) Mortgagor's noncompliance or nonperformance
of any other term, covenant or condition contained in this Mortgage, if such
failure continues for fifteen (15) days or more after written notice from
Mortgagee to Mortgagor; provided that if the default in question is curable,
but is not reasonably susceptible of cure within said fifteen (15) day period
(not including Mortgagor's inability to cure for financial reasons), and if
Mortgagor commences to cure in good faith within said fifteen (15) day period
and thereafter proceeds in good faith and due diligence to effectuate a cure
without interruption or unreasonable delay, then said fifteen (15) day period
shall be extended for the additional time reasonably necessary to complete such
cure, but in no event to exceed thirty (30) additional days. Notwithstanding
the foregoing, however, (i) the aforesaid grace periods under subparagraphs
25(a) and (b) shall not be applicable to paragraphs 4, 5, and 7 herein and are
applicable only to such defaults as are reasonably susceptible of cure, and
shall not affect the imposition or collection of any late charge or default
interest under the Financing Agreements, and (ii) there shall not be any
cumulation of grace periods under this Mortgage and Financing Agreements with
respect to any particular default or event, and if any such default or event
has an associated grace period specified under the Financing Agreements or in
this Mortgage which is different from that set forth herein, then the more
restrictive provision shall apply.
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26. Remedies.
(a) Upon the happening of any Event of Default,
the entire unpaid balance of the principal, the accrued interest and all other
sums secured by this Mortgage shall become immediately due and payable, at the
option of Mortgagee, without notice or demand.
(b) When the entire indebtedness shall become due
and payable, either because of maturity or because of the occurrence of any
Event of Default, or otherwise, then forthwith:
(i) Foreclosure. Mortgagee may
institute an action of mortgage foreclosure against the Mortgaged Property, or
take such other action at law or in equity for the enforcement of this Mortgage
and realization on the mortgage security or any other security herein or
elsewhere provided for, as the law may allow, and may proceed therein to final
judgment and execution for the entire unpaid balance of the principal debt,
with interest at the rate stipulated in the Financing Agreements to the date of
default, and thereafter at the Default Rate (as defined in the Note), together
with all other sums due by Mortgagor in accordance with the provisions of the
Financing Agreements and this Mortgage, including all sums which may have been
loaned by Mortgagee to Mortgagor after the date of this Mortgage, and all sums
which may have been advanced by Mortgagee for taxes, water or sewer rents,
charges or claims, payments on prior liens, insurance or repairs to the
Mortgaged Property, all costs of suit, reasonable attorneys' fees and other
expenses in connection therewith, together with interest at such rate on any
judgment obtained by Mortgagee from and after the date of any Sheriff's sale
until actual payment is made by the Sheriff of the full amount due Mortgagee;
or
(ii) Possession. Mortgagee may enter
into possession of the Mortgaged Property, manage, lease and operate the
Mortgaged Property, collect therefrom all rentals (which term shall also
include sums payable for use and occupancy) and, after deducting all costs of
collection and administration expense, apply the net rental to any or all of
the following in such order and amounts as Mortgagee, in Mortgagee's sole
discretion, may elect: the payment of taxes, water and sewer rents, charges and
claims, insurance premiums and all other carrying charges, and to the
maintenance, repair or restoration of the Mortgaged Property, and on account
and in reduction of the principal or interest, or both, hereby secured; in and
for that purpose Mortgagor hereby assigns to Mortgagee all rentals due and to
become due under any lease or leases or rights to use and occupancy of the
Mortgaged Property hereafter created, as well as all rights and remedies
provided in such lease or leases or at law or in equity for the collection of
the rentals. For the purpose of obtaining possession of the Mortgaged Property
in the event of any default hereunder, under the Loan Agreement, or under the
Note, Mortgagor hereby authorizes and empowers any attorney of any court of
record in the Commonwealth of Pennsylvania or elsewhere, as attorney for
Mortgagor and all persons claiming under or through Mortgagor, to sign an
agreement for entering in any competent court an amicable action in ejectment
for possession of the Mortgaged Property and to appear for and confess judgment
against Mortgagor, and against all persons claiming under or through Mortgagor,
in favor of Mortgagee, for recovery by Mortgagee of possession thereof, for
which this Mortgage, or a
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<PAGE> 17
copy thereof verified by affidavit, shall be a sufficient warrant; and
thereupon a writ of possession may immediately issue for possession of the
Mortgaged Property, without any prior writ or proceeding whatsoever and without
any stay of execution. If for any reason after such action has been commenced
it shall be discontinued, or possession of the Mortgaged Property shall remain
in or be restored to Mortgagor, Mortgagee shall have the right for the same
default or any subsequent default to bring one or more further amicable actions
as above provided to recover possession of the Mortgaged Property. Mortgagee
may bring an amicable action in ejectment and confess judgment therein before
or after the institution of proceedings to foreclose this Mortgage or to
enforce the Note or the other Obligations, or after entry of judgment therein
or on the Note or the other Obligations, or after a Sheriff's sale of the
Mortgaged Property in which Mortgagee is the successful bidder, it being the
understanding of the parties that the authorization to pursue such proceedings
for obtaining possession and confession of judgment therein is an essential
part of the remedies for enforcement of the Mortgage and the Financing
Agreements, and shall survive any execution sale to Mortgagee; or
(iii) Receiver. Mortgagee may, upon any
proper action or proceeding being commenced for the foreclosure of this
Mortgage, apply for, and Mortgagee as a matter of right, without consideration
of the value of the Mortgaged Property as security for the amount due
Mortgagee, or of the solvency of any person, firm or corporation obligated for
the payment of such amount, shall be entitled to, the appointment by any
competent court or tribunal, without prior demand or notice to any party, of a
receiver of rents and profits and rental value of the Mortgaged Property, with
power to take possession of the Mortgaged Property, including possession from
Mortgagor if in possession and occupying any portion of the Mortgaged Property,
and in the latter case to require Mortgagor, as a condition of remaining in
possession and occupation, to pay the reasonable rental value for the use and
occupation thereof, with further power to lease and repair the Mortgaged
Property and to renovate same to suit new tenants and with such other powers as
may be deemed necessary, and such receiver after deducting all proper charges
and expenses attending the execution of the said trust as receiver, shall each
month pay over to Mortgagee the residue of the said rents and profits and
rental value, to be applied by Mortgagee to the payment of the amount remaining
secured hereby, or to any deficiency (whether or not any judgment therefor may
be entered and irrespective of the market value of the Mortgaged Property)
which may exist in the event of foreclosure by sale after applying the proceeds
of the sale of the Mortgaged Property to the payment of the amount due,
including interest, costs and expenses of such foreclosure and sale, or in the
event of strict foreclosure to the payment of any deficiency existing
thereunder. A receiver, while in possession of the Mortgaged Property, shall
have the right to make repairs and to make improvements necessary or advisable
in its or his opinion to preserve the Mortgaged Property, or to make and keep
them rentable to the best advantage, and Mortgagee may advance moneys to a
receiver for such purposes. Any moneys so expended or advanced by Mortgagee or
by a receiver shall be repaid so far as possible out of the rents collected
after payment of other expenses properly chargeable against said rents, and any
unpaid balance of moneys so advanced or expended shall be added to and become a
part of the debt secured by this Mortgage.
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<PAGE> 18
(c) Mortgagee shall have the right, from time to
time, to bring an appropriate action to recover any sums required to be paid by
Mortgagor under the terms of this Mortgage, as they become due, without regard
to whether or not the principal indebtedness or any other sums secured by the
Financing Agreements and this Mortgage shall be due, and without prejudice to
the right of Mortgagee thereafter to bring an action of Mortgage Foreclosure,
or any other action, for any default by Mortgagor existing at the time the
earlier action was commenced.
(d) Any real estate sold pursuant to any writ or
order of execution issued on a judgment obtained by virtue of the Financing
Agreements or this Mortgage, or pursuant to any other judicial proceedings
under the Mortgage, may be sold in one parcel, as an entirety, or in such
parcels, and in such manner or order as Mortgagee, in its sole discretion, may
elect.
27. Cumulative Rights. The rights and remedies of
Mortgagee as provided in this Mortgage and the Financing Agreements, shall be
cumulative and concurrent; may be pursued separately, successively or together
against Mortgagor or against the Mortgaged Property, or both, at the sole
discretion of Mortgagee; and may be exercised as often as occasion therefor
shall arise. The failure to exercise any such right or remedy shall in no
event be construed as a waiver or release thereof.
28. No Waiver Implied. Any failure by Mortgagee to
insist upon strict performance by Mortgagor of any of the terms and provisions
of this Mortgage or the Financing Agreements shall not be deemed to be a waiver
of any of the terms or provisions of the Mortgage or Financing Agreements, and
Mortgagee shall have the right thereafter to insist upon strict performance by
Mortgagor of any and all of them. Neither Mortgagor nor any other person now
or hereafter obligated for payment of all or any part of the sums now or
hereafter secured by this Mortgage shall be relieved of such obligation by
reason of the failure of Mortgagee to comply with any request of Mortgagor or
of any other person so obligated to take action to foreclose on this Mortgage
or otherwise enforce any provisions of the Mortgage or the Note, or by reason
of the release, regardless of consideration, of all or any part of the security
held for the Obligations secured by this Mortgage, or by reason of any
agreement or stipulation between any subsequent owner of the Mortgaged Property
and Mortgagee extending the time of payment or modifying the terms of the
Mortgage or Financing Agreements without first having obtained the consent of
Mortgagor or such other person; and in the latter event Mortgagor and all such
other persons shall continue to be liable to make payments according to the
terms of any such extension or modification agreement, unless expressly
released and discharged in writing by Mortgagee.
29. Tax Assessment Appeals. With respect to any real
estate tax assessment on the Mortgaged Property, Mortgagee shall have the right
to prosecute to final determination or settlement an appeal or other
appropriate proceedings in the name of Mortgagee or Mortgagor, for which
Mortgagee is hereby appointed as attorney-in-fact for Mortgagor, which
appointment is irrevocable (said authorization being coupled with an interest).
In the event such an appeal or other proceeding is taken, the expenses of the
proceedings, including counsel fees, shall be payable by Mortgagor to Mortgagee
upon demand and such sums shall be secured by this Mortgage.
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<PAGE> 19
30. Waiver of Jury Trial. Mortgagor irrevocably waives
jury trial and the right thereto in any and all disputes involving Mortgagor or
Mortgagor's parent, affiliates or related entities or any officer, director,
shareholder, attorney or partner of any of them, whether hereunder or under any
other agreements, notes, papers, instruments or documents heretofore or
hereafter executed or any other contract whether similar or dissimilar. This
shall be deemed a covenant enforceable independently of all other provisions of
this Mortgage.
31. Other Waivers. Mortgagor hereby waives and releases:
(a) all errors, defects and imperfections in any
proceeding instituted by Mortgagee under the Financing Agreements or this
Mortgage, or both;
(b) all benefit that might accrue to Mortgagor by
virtue of any present or future law exempting the Mortgaged Property, or any
part of the proceeds arising from any sale thereof, from attachment, levy or
sale on execution, or providing for any stay of execution, exemption from civil
process or extension of time for payment;
(c) unless specifically required herein, all
notices of Mortgagor's default or of Mortgagee's election to exercise, or
Mortgagee's actual exercise of any option under the Financing Agreements or
this Mortgage;
(d) after sale or sales of the Mortgaged Property
any right under any statute heretofore or hereafter enacted to redeem the
property so sold or any part thereof; and
(e) any right to have the Mortgaged Property
marshaled upon any foreclosure hereunder. The right is hereby given by
Mortgagor and reserved by Mortgagee to make partial release or releases of
security hereunder, agreeable to Mortgagee without notice to, or the consent,
approval or agreement of other parties in interest, which partial release or
releases shall not impair in any manner the validity of or priority of this
Mortgage on the security remaining, nor release the personal liability of
Mortgagor for the debt hereby secured.
Mortgagor hereby expressly waives all benefit or
advantage of any such law or laws to the extent that it lawfully may, and
covenants not to hinder, delay or impede the execution of any power herein
granted or delegated to Mortgagee, but to suffer and permit the execution of
every power as though no such law or laws had been made or enacted.
32. Environmental Representations and Covenants.
(a) For purposes of this paragraph, "Hazardous
Substances" means those elements and compounds which are designated as such in
Section 101(14) of the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), 42 U.S.C. Section 9601(14) or 40 C.F.R. Section 302,
any substance containing petroleum as that term is used in Section 9001 of the
Resource Conservative and Recovery Act, 42 U.S.C. Section 6991, 40 C.F.R.
Section 280.1, or any "Pollutant" or "Contaminant" as defined in Section
104(a)(2) of CERCLA, and any other hazardous substances as that term may be
further defined in applicable state or
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<PAGE> 20
local laws; and "Wastes" means any hazardous waste, residual waste, solid waste
or other waste as those terms are defined in applicable federal, state or local
laws.
(b) Mortgagor represents and warrants that to the
best of its knowledge, no Hazardous Substances and no Wastes are present on the
Mortgaged Property including, without limitation, asbestos or
urea-formaldehyde, and there has been no use of the Mortgaged Property that
may, under any federal, state, or local environmental statute, ordinance or
regulation, require, at any time, any closure or cessation of the use of the
Mortgaged Property and/or impose, at any time, upon Mortgagor or its successors
any response costs or other monetary obligations. Mortgagor further represents
and warrants that to the best of its knowledge, it has not been identified in
any litigation, administrative proceeding or investigation as a responsible
party or potentially responsible party for any liability for response costs,
natural resource damages or other damages or liability for prior disposal or
releases of Hazardous Substances, Wastes or other environmental pollutants or
contaminants; and that no lien or superlien has been recorded, filed or
otherwise asserted against any real or personal property of Mortgagor for any
cleanup costs or other response costs incurred in connection with any
environmental contamination that is attributable, in whole or in part, to
Mortgagor.
(c) Mortgagor covenants to and agrees with
Mortgagee that (i) Mortgagor will not, nor will it permit any tenant or other
occupant of the Mortgaged Property to, store, use or generate any Hazardous
Substance in or on the Mortgaged Property (except as disclosed in Environmental
Certificate and as permitted by the Loan Agreement); and (ii) Mortgagor will
not, nor will it permit any tenant or other occupant of the Mortgaged Property
to, treat or dispose of any Wastes in or on the Mortgaged Property, nor will
Mortgagor, for more than the maximum period of time allowed by the applicable
federal, state or local law without being required to obtain a permit or
approval therefor, store any Wastes in or on the Mortgaged Property. Prior to
engaging in any of the actions or omissions decribed in the preceding sentence,
Mortgagor shall first obtain the written consent of Mortgagee, which consent
shall not be unreasonably withheld, but Mortgagee reserves the right, as a
condition thereto, to require written confirmation in the form acceptable to
Mortgagee and its counsel that: (aa) Mortgagor has obtained all necessary
permits and approvals to perform such activities; (bb) Mortgagor will perform
such activities in compliance with all applicable laws in a safe and effective
manner that will not endanger persons or property and will not diminish the
value of any collateral or other security provided by Mortgagor to Mortgagee to
secure any and all advances hereunder; (cc) Mortgagor has obtained adequate
insurance or posted adequate surety to insure that Mortgagor will have
sufficient resources to contain, control, abate and remedy any and all
contamination of collateral and the environment that might foreseeably result,
in the case of any Hazardous Substances, from any release of any such
Substances or materials containing any such Substances that would be generated,
stored or used by Mortgagor in or about the Mortgaged Property; or, in the case
of any Wastes, from any release of contamination from any such Wastes that
would be treated, disposed of or stored by Mortgagor in or on the Mortgaged
Property.
(d) Mortgagor shall indemnify and hold Mortgagee
harmless from any and all liability, loss or damage suffered or incurred as a
result of a claim, demand, cost or judgment in favor of a third party (which
obligations shall survive payment of the Financing
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<PAGE> 21
Agreements and satisfaction of this Mortgage), including without limitation a
governmental authority, arising from the deposit, storage, disposal, burial,
dumping, injecting, spilling, leaking or other placement or release in or on
the Mortgaged Property of Hazardous Substances or Wastes proven to have
occurred subsequent to the date hereof, including but not limited to:
(i) Liability for costs of removal or remedial
action incurred by the United Stated Government or the Commonwealth of
Pennsylvania, or response costs incurred by any other person, or damages from
injury to, destruction of, or loss of natural resources, including the
reasonable costs of assessing such injury, destruction or loss, incurred
pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9607;
(ii) Liability for response costs, fines, damages
or penalties incurred pursuant to the provisions of the Pennsylvania Clean
Streams Law, 35 P.S.A. Section 691.1 et. seq. (supp. 1982), and the
Pennsylvania Solid Waste Management Act, 35 P.S.A. Section 6018.101 et. seq.
(Purdon supp. 1983);
(iii) Liability for cost and expenses of abatement,
correction or cleanup, fines, damages, response costs or penalties which arise
from the provisions of any other statute, state or federal; and
(iv) Liability for personal injury or property
damage caused by any such deposit, storage, disposal, burial, dumping,
injecting, spilling, leaking, placement or release and arising under any
statutory or common-law tort theory, including damages assessed for the
maintenance of the public or private nuisance, response costs or for the
carrying on of an abnormally dangerous activity.
33. Further Assurances. Mortgagor will execute and
deliver such further instruments and perform such further acts as may be
requested by Mortgagee from time to time to confirm the provisions of this
Mortgage or the Financing Agreements, to carry out more effectively the
purposes of this Mortgage or the Financing Agreements, or to confirm the
priority of the lien created by this Mortgage on any property, rights or
interest encumbered or intended to be encumbered by the lien of this Mortgage
or the Financing Agreements.
34. Late Charge. In the event that any of the payments
of principal and interest or other sums due under the Financing Agreements or
this Mortgage shall become overdue for a period of fifteen (15) days, Mortgagor
shall pay to Mortgagee a late charge at the rate of five percent (5%) of such
delinquent payment, in order to defray part of the extra expense involved in
handling delinquent payments. Such late charge shall be secured by this
Mortgage.
35. Indemnification. Mortgagor hereby irrevocably agrees
to indemnify and save harmless Mortgagee from and against any and all loss or
damage of whatsoever kind and from any suits, claims or demands, including,
without limitation, Mortgagee's reasonable
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<PAGE> 22
legal fees and expenses, on account of any matter or thing arising out of this
Mortgage or in connection herewith excepting obligations which arise solely as
a result of the Mortgagee's gross negligence or willful misconduct.
36. Counsel Fees. If Mortgagee becomes a party to any
suit or proceeding affecting the Mortgaged Property or title thereto, the lien
created by this Mortgage or Mortgagee's interest therein, or if Mortgagee
engages counsel to collect any of the indebtedness or to enforce performance of
the agreements, conditions, covenants, provisions or stipulations of this
Mortgage or the Financing Agreements, Mortgagee's costs, expenses and
reasonable counsel fees, whether or not suit is instituted, shall be paid to
Mortgagee by Mortgagor, on demand, with interest at the then effective rate set
forth in the Note, and until paid they shall be deemed to be part of the
indebtedness evidenced by the Financing Agreements and secured by this
Mortgage.
37. Communications. All communications required under
this Mortgage or the Financing Agreements shall be in writing, and shall be
sent by nationally recognized overnight courier, addressed to the Mortgagor or
Mortgagee at the addresses as either party may designate from time to time by
notice to the other in the manner set forth herein.
38. Covenant Running with the Land. Any act or agreement
to be done or performed by Mortgagor shall be construed as a covenant running
with the land and shall be binding upon Mortgagor and its successors and
assigns as if they had personally made such agreement.
39. Amendment. This Mortgage cannot be changed or
amended except by agreement in writing signed by the party against whom
enforcement of the change is sought.
40. Applicable Law. This Mortgage shall be governed by
and construed according to the laws, including the conflict of law rules, of
the Commonwealth of Pennsylvania.
41. Interpretation. Whenever used in this Mortgage,
unless the context clearly indicates a contrary intent:
(a) The word "Mortgagor" shall mean the entity
which executes this Mortgage and any subsequent owner of the Mortgaged Property
and his respective heirs, executors, administrators, successors and assigns;
(b) The word "Mortgagee" shall mean the person or
entity specifically named herein as "Mortgagee" or any subsequent holder of
this Mortgage;
(c) The word "entity" shall mean individual,
corporation, partnership or unincorporated association;
(d) The use of any gender shall include all
genders;
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<PAGE> 23
(e) The singular number shall include the plural
and the plural the singular as the context may require.
42. Captions. The captions preceding the text of the
paragraphs or subparagraphs of this Mortgage are inserted only for convenience
of reference and shall not constitute a part of this Mortgage, nor shall they
in any way affect its meaning, construction or effect.
43. Taxpayer Federal I.D. Number. In accordance with the
requirements of Section 6050J of the Internal Revenue Code, as amended (the
"Code"), Mortgagor's Tax I.D. Number for federal tax reporting purposes is 25-
1655321 and Mortgagor agrees to cooperate with Mortgagee in supplying such
information and executing such documentation as Mortgagee reasonably-requires
to comply with the provisions of Section 6050J of the Code.
44. Non-Merger. Mortgagor intends and agrees that this
Mortgage shall NOT merge into any judgment entered or recovered by Mortgagee
against Mortgagor under the Financing Agreements or under or pursuant to any
other note, document or instrument. Notwithstanding the recovery or entry of
any such judgment against Mortgagor, all of the terms, provisions, covenants,
undertakings and agreement of Mortgagor whether hereunder or under the
Financing Agreements or any other note, document or undertaking of Mortgagor,
whether relating thereto or not, shall remain in full force and effect and
shall be enforceable strictly in accordance with their terms as fully as though
no such judgment had been entered or recovered against Mortgagor.
45. Inconsistent Terms. In the event of any
inconsistency between this Mortgage and the Loan and Security Agreement, the
terms of the Loan and Security Agreement shall govern.
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<PAGE> 24
46. Counterparts. This Mortgage may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage to be
effective as of the day and year first above written.
"MORTGAGOR"
STEEL CITY PRODUCTS, INC.
By: /s/ MARK AUERBACH
-------------------------------------
Title: Chief Financial Officer
----------------------------------
The address of the within named Mortgagee is:
FINOVA CAPITAL CORPORATION
355 South Grand Avenue
Suite 2400
Los Angeles, CA 90071
/s/ [ILLEGIBLE]
-------------------------------
On Behalf of Mortgagee
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<PAGE> 25
STATE/COMMONWEALTH OF NEW YORK :
: ss
COUNTY OF NEW YORK :
On this, the 27th day of March, 1996, before me, the subscriber, a
Notary Public in and for the State and County aforesaid, personally appeared
Mark Auerbach who acknowledged himself to be the Chief Financial Officer of
Steel City Products, Inc. and who I am satisfied is such person who signed the
within Mortgage on behalf of said corporation.
WITNESS my hand and seal the day and year aforesaid.
/s/ JOE A. CRUZ
---------------------------------------------
Notary Public
My Commission Expires: JOE A. CRUZ
Notary Public State of New York
NO. 4977399
Qualified in BRONX COUNTY
My Commission Expires FEB 4, 1997
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<PAGE> 26
EXHIBIT A
ALL THAT CERTAIN parcel of ground situate in the Township of O'Hara,
County of Allegheny and Commonwealth of Pennsylvania, and being a part of the
property shown in Plan No. 1, RIDC-Allegheny County Industrial Park as recorded
in Plan Book Volume 77, pages 22 and 29, as amended and supplemented, bounded
and described as follows, to-wit:
BEGINNING at a point in the easterly line of Alpha Drive as laid out
in said Plan No. 1, RIDC-Allegheny County Industrial Park, said point being
distant northwardly along said easterly line of Alpha Drive, the following two
(2) courses and distances from the intersection of the northerly line of Gamma
Drive with the said easterly line of Alpha Drive:
1. by the arc of a circle having a radius of 230.00 feet
and deflecting to the right a distance of 149.04 feet to a point;
2. North 0 degrees 59' 40" West a distance of 1855.31
feet to a point at the northwesterly corner of property now or
formerly of Tri-State Realty, Inc., said point being the place of
beginning;
thence from said place of beginning continuing northwardly along said easterly
line of Alpha Drive North 0 degrees 59' 40" West, a distance of 227.16 feet to
a point of curve; thence continuing northwardly along said easterly line of
Alpha Drive by the arc of a circle having a radius of 960.00 feet and
deflecting to the right, a distance of 103.87 feet to a point; thence
westwardly along said easterly line of Alpha Drive South 89 degrees 00' 20"
West a distance of 0.03 feet to a point; thence continuing northwardly along
said easterly line of Alpha Drive North 4 degrees 46' 54" East, a distance of
183.57 feet to a point; thence eastwardly along property now or formerly of
Allegheny County Workhouse and Inebriate Asylum North 89 degrees 00' 20" East,
a distance of 555.79 feet to a point; thence southwardly along said property
now or formerly of Allegheny County Workhouse and Inebriate Asylum South 0
degrees 59' 40" East, a distance of 513.47 feet to a point at the northeast
corner of property now or formerly of Tri-State Realty, Inc.; thence westwardly
along said property South 89 degrees 00' 20" West, a distance of 579.84 feet to
a point at the place of beginning.
CONTAINING 6.768 acres.
BEING designated in the Deed Registry Office of Allegheny County as
Block 226-S, Lot 10 and Block 226-M, Lot 2.
<PAGE> 1
EXHIBIT 10.11
COMBINED AND AMENDED PROMISSORY NOTE
$1,531,250 MARCH 28, 1996
PITTSBURGH, PENNSYLVANIA
BACKGROUND
This combined and amended promissory note (this "Note") supersedes, replaces
and constitutes repayment in full of, both that certain promissory note dated
February 16, 1994 in the original principal amount of $1,250,000 and that
certain promissory note dated August 1, 1994 in the original principal amount
of $1,450,000, each made by Oakhurst Company, Inc. (then known as Oakhurst
Capital, Inc.) ("Oakhurst"). Such notes have a combined outstanding principal
balance on the date hereof equal to the principal amount of this Note;
accordingly, this Note is made on the following terms and conditions:
1. FOR VALUE RECEIVED Oakhurst promises to pay to Steel City Products,
Inc., or order, ("SCPI") the principal sum of one million five
hundred thirty-one thousand two hundred fifty dollars ($1,531,250)
as and when provided herein.
2. Interest shall accrue on the principal balance hereof from time to
time outstanding commencing May 1, 1996 at an annual rate of
interest equal to one and one-half (1.5) percentage points above the
rate of interest announced publicly by Citibank, N.A. from time to
time as its "base rate" (or any successor thereto), which may not be
such institution's lowest rate; and shall be paid quarterly in
arrears at the same time as payments of principal are made, as
provided below. Interest shall be prorated, when necessary, based
on a three hundred sixty (360) day year and a thirty (30) day month
for the number of days actually elapsed.
3. Payment of principal and interest shall be made in installments as
follows:
(a) eight (8) equal installments of ninety-six thousand
dollars ($96,000) each (allocated first to accrued
interest and then to principal), on or before the last day
of each of Oakhurst's fiscal quarters commencing with the
fiscal quarter ending May 30, 1996; and
(b) one (1) installment on April 1, 1998 in an amount equal to
the then outstanding principal balance of this Note
together with accrued interest thereon.
4. Notwithstanding the foregoing, in the event that SCPI re-finances
that certain term loan from FINOVA Capital Corporation dated March
28, 1996 (the "Term Loan"), the payment that would otherwise become
due hereunder on April 1, 1998 shall become due on the expiration of
the re-financed Term Loan, and in the interim, Oakhurst shall
continue to make the quarterly payments of principal and interest
provided for in Section 3(a), above, until the earlier to occur of
the payment in full of all interest and principal due hereunder, and
such expiration date.
5. Any payment of principal or interest not made when due shall bear
interest compounded daily until paid at an annual rate of thirteen
and one-quarter percent (13.25%).
6. This Note may be prepaid in whole or in part at any time or from
time to time without penalty or premium provided that in the event
of a prepayment of the entire outstanding principal balance,
interest accrued to the date of such prepayment shall be paid
together with such prepayment. All prepayments shall be applied
first to any outstanding arrears of interest and then to any
outstanding principal balance hereof.
<PAGE> 2
COMBINED AND AMENDED PROMISSORY NOTE DATED MARCH 28, 1996 - PAGE 2
7. This Note is secured by a pledge of the all of the capital stock of
H & H Distributors, Inc. ("H&H") and Dowling's Fleet Service Co.,
Inc. ("Dowlings").
8. Upon written notice from SCPI, this Note shall become immediately
due and payable upon the occurrence of any one or more of the
following events:
(a) The failure by Oakhurst to make payment of any principal
or interest when due hereunder within five (5) business
days after written notice of such failure has been given
to Oakhurst;
(b) The admission by Oakhurst of its inability to pay its
debts as they become due; the insolvency or the
appointment of a receiver with respect to Oakhurst or its
property; any assignment of the property of Oakhurst for
the benefit of creditors; or the commencement of any
proceedings under any bankruptcy or insolvency laws by or
against Oakhurst unless such proceeding is dismissed
within ninety (90) days of the filing thereof; or
(c) The sale or attempted sale by Oakhurst of substantially
all of the capital stock or assets, or both, of either of
H&H or Dowlings.
9. Oakhurst hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery,
acceptance, performance, default, or enforcement of this Note or any
security for this Note, except such notices as are expressly
provided for herein. Oakhurst agrees that any delay or omission on
the part of SCPI in exercising any rights hereunder or any security
for this Note shall not operate as a waiver of such right, of any
other right hereunder, or of any security for this Note; and a
waiver of any right on one occasion shall not be construed as a bar
or a waiver of any such right on any future occasion.
10. All notices required or permitted hereunder shall be in writing and
shall be deemed given by a party either (i) when hand delivered to a
party; (ii) when deposited with a courier service with instructions
to provide next-day delivery and proof of delivery; or (iii) when
sent by facsimile transmission, in each case to the principal
executive office of the other party.
11. All payments required hereunder shall be made to SCPI's principal
executive office or to such other address as to which SCPI shall
notify Oakhurst in writing.
12. This Note shall be governed by the laws of the Commonwealth of
Pennsylvania.
OAKHURST COMPANY, INC.
By: /s/ Mark Auerbach ATTEST: /s/ Roger M. Barzun
----------------------------------- ---------------------------------
Mark Auerbach Roger M. Barzun
Chairman & Chief Executive Officer Secretary
<PAGE> 1
EXHIBIT 10.12
TRADEMARK & TRADE NAME LICENSE AGREEMENT
Agreement (this "AGREEMENT") made as of this 16th day of August, 1995 by and
between OAKHURST HOLDINGS, INC. (hereinafter referred to as "Licensor"") and
STEEL CITY PRODUCTS, INC. referred to as "Licensee").
BACKGROUND
Licensor is the owner of the trade name(s) and trademark(s) STEEL CITY PRODUCTS
(hereinafter referred to as the "Intangibles") and Licensee wishes to obtain a
license thereto so that it may use the same in the conduct of its business.
THEREFORE, for and in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, it is hereby agreed as follows:
13. Grant of License. Licensor hereby grants to Licensee the exclusive
right to use the Intangibles for the purpose of soliciting and
transacting its business.
14. License Fee. Licensee shall pay Licensor within thirty days after
the end of each of Licensee's fiscal quarters, a licensee fee of ONE
PERCENT (1.0%) of the gross sales made by Licensee during such
quarter.
15. Incontestability. Licensee shall at no time question or contest the
validity of the Intangibles or Licensor's right to.
16. Representations. Licensor represents and warrants to Licensee that
as of the date hereof, Licensor is the sole owner of the Intangibles
for use in connection with the production, distribution and sale of
products.
17. Infringements.
(a) If Licensor becomes aware of any infringement of
Licensee's rights granted hereunder, it shall notify
Licensee thereof and may thereupon at its option, or
shall, if so requested by Licensee, take prompt and
appropriate action --
i. to enjoin and restrain such infringement and to
protect Licensee's exclusive rights hereunder to
the Intangibles; and
ii. to recover for the benefit of Licensee, any
damages suffered by Licensee from such
infringements;
provided, however, that Licensee shall bear the entire
cost of any such action, payable from time to time to
Licensor as charges are incurred by Licensor in connection
therewith.
(b) Licensee shall extend its full cooperation to Licensor,
including the use of Licensee's name in the prosecution
and/or settlement of any such litigation. Counsel
retained in connection with any such infringement claims
or litigation may be selected by Licensor, but shall be
subject to the approval of Licensee, which approval shall
not be unreasonably withheld.
18. Licensee's Indemnity. Licensee shall defend and indemnify Licensor
and shall hold Licensor harmless from and against any and all
liabilities, claims and losses asserted by any third party against
Licensor in connection with the products or business of Licensee
involving the use of the Intangibles provided that such liabilities,
claims or losses are not the result of the fault or negligence of
Licensor or of a breach by
<PAGE> 2
Licensor of any of its obligations, representations or warranties
hereunder.
19. No Assignment. Neither party may assign its rights under this
Agreement without the prior written approval of the other party.
20. Bankruptcy etc. of Licensee. In the event of the dissolution,
insolvency or bankruptcy of Licensee, whether voluntary or
involuntary, or if Licensee shall cease to use the Intangibles, or
if Licensee shall default in the performance of any other provision
of this Agreement and shall have failed to remedy such default
within thirty days of receipt of written notice thereof from
Licensor, then, in any such event, Licensor shall have the right
upon written notice to Licensee to terminate this Agreement.
21. Cooperation. The parties hereto shall execute any and all other
documents that may, from time to time, be required to perfect the
interests of either of them under this Agreement and the rights and
obligations accruing hereto.
22. Registration. Licensor shall, if requested by Licensee, at
Licensee's expense, register the Intangibles with the United States
Patent and Trade Mark Office to the extent permissible, and
thereafter shall renew and maintain such registrations.
In Witness Whereof, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first above
written.
OAKHURST HOLDING COMPANY STEEL CITY PRODUCTS, INC.
By: /s/ Roger M. Barzun By: /s/ Bernard H. Frank
----------------------------------- -----------------------------------
Roger M. Barzun Bernard H. Frank
Senior Vice President Chairman & Chief Executive Officer
<PAGE> 1
EXHIBIT 10.13
CORPORATE SERVICES AGREEMENT
STEEL CITY PRODUCTS, INC. -- OAKHURST MANAGEMENT CORPORATION
THIS AGREEMENT (this "Agreement") is made effective as of the 1st day of June
1995, by and between STEEL CITY PRODUCTS, INC. ("SCPI") and OAKHURST MANAGEMENT
CORPORATION (the "Company").
In consideration of the covenants of the parties hereto and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. SERVICES: The Company will provide the following services to SCPI:
(a) Management Services: To the extent requested, sales and
marketing services; and operating and management
consultation and supervision services.
(b) Accounting Services: Supervision and assistance in
carrying out the duties and responsibilities customarily
performed by an accounting department and controller,
including, but not limited to tax and auditing services,
and/or contracting for the performance of some or all of
such services by an independent third party on behalf of
SCPI. In addition, the Company will provide such
services as are required by SCPI to enable it to comply
with applicable securities laws, including, to the extent
required, shareholder relations and stock administration.
(c) Treasury Services: Treasury and cash management
services, which shall include, but not be limited to
managing SCPI's cash requirements and bank borrowings and
investing any of its excess cash.
(d) Payroll, Benefit & Insurance Services: On an
as-requested basis, the handling of SCPI's payroll
requirements, and insurance and benefits coordination.
(e) Legal Management: The management of SCPI's legal
affairs, including, but not limited to the retention of
special counsel to the extent that on a given matter
there is not a conflict between the interests of SCPI and
the Company.
2. CHARGES:
(a) Fees: For such services, SCPI shall pay to the Company a
fee quarterly in arrears equal to the costs of all of the
services provided by the Company to all its affiliates
during a given fiscal quarter multiplied by a fraction,
(i) the numerator of which is the net revenues of SCPI
for such fiscal quarter divided by (ii) the consolidated
net revenues of Oakhurst Company, Inc. for such fiscal
quarter. Such costs shall include, but not be limited to
rent; payroll; supplies; equipment rentals; amortization
of fixed assets and other operating and overhead
expenses.
(b) Expenses: SCPI shall also reimburse to the Company any
expenses incurred by the Company that are incurred solely
for the benefit of SCPI.
3. TERM/TERMINATION: The initial term of this Agreement shall be for a
period commencing on June 1, 1995 and continuing through the third
anniversary thereof. Thereafter this Agreement shall continue from
fiscal quarter to fiscal quarter until terminated by either party
giving the other party one fiscal quarter's prior written notice of
termination.
4. NOTICES: Notices shall be deemed given to a party when hand delivered
to such party, or when sent to such party by courier service providing
next day delivery, or by facsimile transmission, addressed to such
party's principal executive offices, attention of the President.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date and year first above
written.
OAKHURST MANAGEMENT CORPORATION STEEL CITY PRODUCTS, INC.
By: /s/ Maarten D. Hemsley By: /s/ Karen Stempinski
---------------------------------- ----------------------------------
Maarten D. Hemsley Karen Stempinski
President Vice President
<PAGE> 1
EXHIBIT 11
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING SHARES
INCLUDING COMMON
STOCK EQUIVALENTS
------------------
<S> <C>
Fiscal year ended February 29, 1996...................... 3,238,061
Fiscal year ended February 28, 1995...................... 3,199,185
Fiscal year ended February 26, 1994...................... 3,168,557
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING SHARES
OF COMMON STOCK
------------------
<S> <C>
Fiscal year ended February 29, 1996...................... 3,238,061
Fiscal year ended February 28, 1995...................... 3,028,725
Fiscal year ended February 26, 1994...................... 2,869,653
</TABLE>
<TABLE>
<CAPTION>
LOSS FROM
CONTINUING OPERATIONS
AFTER SERIES A PREFERRED
STOCK DIVIDENDS
-------------------------
TOTAL (000's) PER SHARE
------------- ---------
<S> <C> <C>
Fiscal year ended February 29, 1996................. $(2,586) $ (0.80)
Fiscal year ended February 28, 1995................. $ (185) $ (0.06)
Fiscal year ended February 26, 1994................. $ (515) $ (0.18)
</TABLE>
<TABLE>
<CAPTION>
NET LOSS
ATTRIBUTABLE TO COMMON
STOCKHOLDERS
-------------------------
TOTAL (000's) PER SHARE
------------- ---------
<S> <C> <C>
Fiscal year ended February 29, 1996................. $(2,543) $ (0.79)
Fiscal year ended February 28, 1995................. $ (95) $ (0.03)
Fiscal year ended February 26, 1994................. $ (515) $ (0.18)
</TABLE>
Note: Income per share amounts attributable to common stockholders are
computed on the basis of the weighted average number of outstanding
common shares and common stock equivalents determined by applying the
treasury stock method to stock options and warrants outstanding. Loss
per share amounts do not include common stock equivalents since that
would reduce the net loss per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 2,931
<ALLOWANCES> 419
<INVENTORY> 4,493
<CURRENT-ASSETS> 9,670
<PP&E> 1,998
<DEPRECIATION> 752
<TOTAL-ASSETS> 14,531
<CURRENT-LIABILITIES> 4,919
<BONDS> 2,216
<COMMON> 32
0
19
<OTHER-SE> 7,345
<TOTAL-LIABILITY-AND-EQUITY> 14,531
<SALES> 24,647
<TOTAL-REVENUES> 25,235
<CGS> 20,024
<TOTAL-COSTS> 20,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 415
<INTEREST-EXPENSE> 282
<INCOME-PRETAX> (206)
<INCOME-TAX> 1,364
<INCOME-CONTINUING> (1,570)
<DISCONTINUED> (43)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,543)
<EPS-PRIMARY> (0.79)
<EPS-DILUTED> 0
</TABLE>
