SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995
___ 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 0-1298
LUNN INDUSTRIES, INC.
Name of Registrant as specified in its charter)
Delaware 11-1581582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Garvies Point Road, Glen Cove, New York 11542-2828
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 671-9000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 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-B (229.405 of this chapter) 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. [ ]
The aggregate market value of the shares of Common Stock held by non-affiliates
of Lunn Industries, Inc. based on the average closing bid and asked prices as
reported by NASDAQ on April 10, 1996 was $21,932,236.
The aggregate number of shares of Common Stock outstanding as of April 10, 1996
was 11,309,359.
Documents incorporated by reference to the Form 10-KSB: None
Part I
Item 1. DESCRIPTION OF BUSINESS
Lunn Industries, Inc., ("Lunn", the "Registrant" or the "Company") is a
Delaware Corporation, originally incorporated in New York in 1948. Lunn
Industries has two primary operating divisions, Lunn Composites and Alcore Inc.,
("Alcore") a wholly owned subsidiary. Lunn Composites produces a wide range of
composite products including metal bonded panels, composite assemblies which
utilize honeycomb, high performance fiber and resin laminates and filament wound
assemblies. Alcore produces aluminum honeycomb, a lightweight cellular material
composed of hexagonal cells with high strength-to-weight ratios. Alcore also
provides value added honeycomb, selling semi- finished parts to it's
customers.
In January 1995, the Company purchased the assets of the metal bonding
business of Limco Manufacturing located in Glen Cove, New York, and relocated
and consolidated the Company's fiber and resin laminated composite
businesses from Newtown, Connecticut and Wyandanch, New York to the newly leased
facilities containing the metal bonded business in Glen Cove, New York.
The Company' s products are sold principally to commercial customers,
both domestic and international, and to agencies of the United States
Government. The Company's products are generally manufactured to
customer's specifications.
Products - Manufacturing
Lunn Composites
Lunn Composites manufactures structures made of both fiber reinforced
plastics assembled into complex structures as well as a wide variety of metal
bonded structures utilizing various core and skin materials. Lunn Composites has
developed a number of specialized processes whereby layers of glass, graphite,
Kevlar or other fibers are impregnated with specially selected polyester, epoxy
or other resins. These processes enable Lunn Composites to manufacture products
with unique properties such as high resistance to corrosion, complex contours,
light-weight, high chemical and abrasion resistance, dimensional stability, high
strength and high impact resistance. Lunn Composite's metal bonded
composites are generally made to customer specifications and frequently employ
customer provided tooling. Various alloy aluminum sheets are progressively
processed through brake, shear, layout and routing, heat treatment, cleaning and
acid anodizing operations to produce complex panels and skins that are autoclave
bonded into finished assemblies. Lunn Composites has been qualified by and is a
licensee of Boeing Aircraft Company ("Boeing") to operate a phosphoric
acid anodized ("PAA") clean line for all metal products.
Typical applications of Lunn Composites' products are as follows:
Radar: radomes, antenna housings, parabolic reflectors, antenna masts,
antennas, and electronic cabinets.
Marine: sonar buoys, submarine masts and mast fairings, pressure vessels,
sonar domes and ship deck structures.
Advanced Composite Structures: tank hull parts, fairings, ducts, and fuel
tanks.
Aerospace & Aircraft: wing panels, hatches, fairings, electronic cabinets,
metal details, slats and other missile and aircraft assemblies.
Alcore
Alcore manufactures aluminum honeycomb products with a variety of strengths,
densities, thicknesses, span lengths, core orientations and contoured shapes.
The most prominent characteristics of the aluminum honeycomb products are high
strength-to-weight ratio, fatigue resistance, energy absorption, sound
dampening, heat exchange, radio frequency shielding, machinability, airflow
directionalization and corrosion resistance. Alcore is recognized as having
superior "node bond" adhesives which afford excellent honeycomb cell
configuration due to the nature of the adhesive utilized and the manner in which
it is applied. The above characteristics make this material ideal for the
aerospace and aircraft industries, the preeminent market for Alcore, Inc.,
products.
Alcore's, product line is broadly divided into two main segments, Block
and Panel and value-added Special Processing or SP. All honeycomb products are
produced by first manufacturing a block of non-expanded honeycomb material. The
block is either sold as a full block or alternately sliced into various
thicknesses depending on customer requirements. The slices may be sold to
customers unexpanded or further processed into fully expanded honeycomb panels.
The panels may then be sold to customers as complete panels or processed further
into Special Processing Assemblies.
The Block and Panel segment of the business consists of honeycomb products
sold as either block, slice or expanded panel. This segment represents
approximately 55% of Alcore's total business. The value-added Special
Processing or SP segment of the business consists of honeycomb products that
have been further processed by forming, rolling, routing, and cutting the
aluminum core to customer specifications, as well as splicing several densities
of core together to form a bonded core "blanket". These engineered parts are
often shipped as ready-to-assemble kits. Special Processing represents
approximately 45% of Alcore's total sales.
One of the company's most promising products is PAA-CORE(Trademark) a
phosphoric acid anodized product produced exclusively by Alcore.
PAA-CORE(Trademark), is a trademark of Lunn Industries. PAA-CORE(Trademark)
was qualified as a sole source product by Boeing Aircraft on their
BMS-4-4 specification in December 1994, and is the material of choice
for all new metal bonded structures. The main characteristic of
PAA-CORE(Trademark) is its superior node bond durability in hostile
environments due to the use of proprietary chemically treated aluminum
foil, proprietary primers and proprietary node bond adhesives. This
product sells at a premium to regular aluminum core. Currently
PAA-CORE(Trademark) represents 15% of Alcore's aluminum honeycomb sales,
but is expected to grow significantly in the future, possibly to a
majority of Alcore's sales volume within the decade.
Beginning in 1994, Alcore expanded beyond the aerospace market into a number
of non-aerospace markets. Applications for high performance, low cost commercial
products were developed for manufacturers of "clean rooms" for computer
chip manufacturing and bio-medical research centers, laminated panels for luxury
cruise ship cabins and numerous other architectural uses. Alcore's honeycomb
products are also utilized by manufacturers of rail car doors for municipal
transit systems, and, due to unique crush characteristics and energy absorbing
qualities, by the nuclear and energy absorption industries.
Sales - Customers
Lunn fiber reinforced composite product sales represented approximately
20% of the Company's consolidated sales in 1995. The Company sells fiber
reinforced composite products as both a prime contractor for agencies of
the U. S. Government and as a subcontractor to holders of government contacts.
The Company is a sole supplier of many of its fiber reinforce composite
products. Major customers of fiber reinforced composite products are the
U.S. Government, Raytheon, General Dynamics (Electric Boat), United
Defense, Westinghouse and Loral (previously Unisys).
Lunn metal bonded composite products, acquired January 1, 1995, represented
approximately 10% of Lunn's consolidated sales. Metal bonded products are
sold to major commercial aircraft original equipment manufacturers such as
Boeing, Northrop/Grumman, Lockheed Martin, McDonnell Douglas and others. The
Company has completed the process of formally transferring specific customer
qualifications and certifications necessary to be able to supply bonded products
to the aircraft industry and specific customers.
Honeycomb product sales represented approximately 70% of the Company's
consolidated sales in 1995. Major customers in the honeycomb segment include
such aerospace companies as Boeing, McDonnell Douglas, Lockheed Martin, Rohr,
Ciba Geigy, Vought (Northrup Grumman), Gulfstream, and Hispano Suiza of France.
Major industrial and transportation customers include DAW Technologies, Cupples
and the European firm Eurocomposite.
Military business in 1995 represented approximately 29% of the Company's
consolidated sales compared to approximately 45% in 1994. With the purchase of
the assets of the metal bonded business and consolidation of the fiber
reinforced composite businesses into the Glen Cove facility subsequent to
December 31, 1994, military sales represent a declining share of the
Company's total sales. Aerospace and aircraft business represented
approximately 55% of 1995 consolidated sales, with industrial, transportation
and construction representing the remaining 16%. Aerospace and aircraft are
projected to represent increasing percentages of the Company's sales in
future years due to the addition of the metal bonded business. Industrial,
transportation and construction are also expected to represent increasing
percentages of the Company's sales due primarily to diversification of
honeycomb sales into these markets.
The backlog as of December 31, 1995 was $13.6 Million compared to $8.3
Million as of the end of 1994. Approximately $9.3 Million of backlog at year end
is anticipated to be released for shipment within fiscal 1996.
In 1995 the Company had one (1) identified customer who represented
greater than 10% of sales. The customer is :
U.S. Government $1,783,949 (12.1%)
In 1994 the Company had two (2) identified customers who represented greater
than 10% of sales. They were:
Raytheon $2.054,000 (13.5%)
U.S. Government $1,793,000 (11.8%)
The Company believes the loss of any of its principal customers could have a
materially adverse effect on the Company's business. Each of the
Company's prime contracts with an agency of the U. S. Government is
terminable by that agency without cause after having paid normal cancellation
and termination claims as authorized in the terminated contract. In the event of
termination by a U. S. Government agency of a prime contract for which the
Company is a subcontractor, the prime contractor can, in turn, terminate the
subcontract with the Company again subject to payment of termination claims.
Much of the Company's business is obtained through competitive bidding.
The Company advertises in Thomas' Register, through direct mailings and by
participation in industry trade shows and seminars. Additionally, the Company
invests substantial resources to maintain customer qualifications and
certifications and thereby insure active bidder's list participation and
receipt of all pertinent RFQ's (requests for quotation). Honeycomb products
are sold domestically and internationally by a direst sales force as well as
independent manufacturer's representatives outside of the United States. The
engineering staffs and executives of both the composite and honeycomb segments
of the business are utilized extensively in the marketing and sales process.
The Company believes that Alcore is the second largest producer of aluminum
honeycomb products in the world and has the broadest product line. Domestically
Alcore competes with Hexcel, the largest worldwide producer of all types of
honeycomb, as well as Plascore. Internationally Alcore, Inc., competes with
Hexcel and Ciba Geigy. Alcore's PAA-CORE technology with it's improved
node bond strength and resistance to corrosion is anticipated to enable the
Company to compete more broadly and expand its served available market to
include applications dominated previously by non-metallic honeycomb materials
such as Nomex(Registered). Additionally, Alcore's expanded family of aluminum
products, including Trussgrid(Trademark), Shapegrid(Trademark),
Spiralgrid(Trademark), Flexgrid(Trademark), CGH (commercial grade honeycomb)
Higrid(Trademark), Plygrid(Trademark). In 1995 Alcore added Nomex(Registered)
Special Process core assemblies to its product line. Alcore has a long-term
preferred price agreement with a leading producer of Nomex(Registered)
honeycomb and converts the Nomex(Registered) honeycomb into complex
assemblies to customer specifications and drawings.
The Company's composite business, both metal bond and fiber reinforced
resin, competes with a number of different companies who have substantially
greater resources than the Company. Notwithstanding, the Company has positioned
itself in a number of "niche" situations where the Company is essentially the
vendor of choice and often sole source. The Company has excellent pattern and
tooling capabilities, comparable engineering and end-to-end capabilities that
enable the Company to offer "one-stop", high quality manufacturing of
complex composite products. The Company's metal bonded manufacturing line
offers Boeing qualified and licensed PAA clean line facilities, heat treatment
and aerospace qualified autoclave bonding capabilities comparable to those
offered by 8 to 10 major competitors located throughout the United States.
Other
The Company utilizes materials in all of its manufacturing operations which
are widely available from several sources, thus not posing any materially
adverse restraints on its operations in the event of loss of any one of these
suppliers. The primary exception to this statement concerns proprietary node
bond adhesives and aluminum foil primers used in the manufacture of Alcore's
PAA-CORE(Trademark) aluminum honeycomb products. The Company has a supply
agreement with Cytec (formerly American Cyanamid) for these materials on
an exclusive basis through 2002. The agreement with Cytec also provides
the Company be given formulations and know-how to be able to produce the
adhesive and primer materials in the event Cytec discontinues their
manufacture. The underlying patents for PAA-CORE(Trademark) technology
expired in 1994.
Management believes expiration of the PAA patent will have minimal impact on
the Company's proprietary position for PAA-CORE(Registered)(Trademark).
PAA-CORE(Trademark) technology consists of three specific components: the
anodizing process itself covered by the patent; a proprietary primer
material to coat the anodized foil; and finally, proprietary node bond
adhesives to fabricate the honeycomb. As noted above, both the primer and
the node bond adhesive materials are supplied exclusively to the Company
by Cytec until the year 2002. Additionally, the anodizing process involves
a number of trade secret process steps developed by the Company and Cytec
over a 10 year period.
Compliance with federal, state and local provisions which have been enacted
to regulate the discharge of hazardous materials into the environment or
relating to safety in the work place have not to date had a material adverse
effect on the Company's business.
The Company is not subject to material seasonal variations.
As of December 31, 1995, 175 people were employed on a full-time basis
by the Company. Manufacturing labor at the Company's composite facilities
in Glen Cove, New York are unionized. The Company believes its employee
relations are good.
Research and Development
The Company conducted no research and development in 1995, and there are no
plans to spend any funds in research and development in 1996.
Recent Developments
On March 20, 1996 the Company sold 3.5 million shares of its common stock
for $.40 per share in a private placement through J.E. Sheehan & Company, Inc.
Net proceeds received by the Company was $1.247 Million. Use of proceeds
included a payment of $300 Thousand to retire a note owed to Fleet National Bank
of Connecticut (f/k/a Shawmut Bank) ("Fleet Bank"), a payment of $220
Thousand (including interest) to repay the balance due to bridge lenders and a
payment of $127 Thousand (including interest and fees) to retire a
shareholder's note. The balance of proceeds of approximately $600 Thousand
will be used for working capital.
In connection with the retirement of the Fleet Bank debt and bridge loans,
the Company issued warrants to purchase 635,000 shares of common stock, which
warrants were valued at $154 Thousand and expensed in 1995.
Item 2. DESCRIPTION OF PROPERTY
The Company operates its business from three locations:
1. Glen Cove, New York - The Company has its corporate headquarters, as well as
its metal bonding and composite manufacturing at this site. The Company signed a
new five year lease for this 93,000 square foot facility at an initial annual
rental of $229,167, with incremental increases during the term of the lease,
bringing the annual rental in the final year of $275,000. Additionally, the
Company is responsible for the cost of real estate taxes and insurance related
to this property. The Company may exercise an option to extend this lease for
two additional five year terms at fair market value.
2. Belcamp, Maryland - The Company leases approximately 50,000 square feet in a
recently constructed industrial building under a lease which expires in February
2002. The annual rental amounted to $210,000 in 1995 with escalations throughout
the term of the lease to $254,000 in the lease's final year. Additionally,
the Company is liable for any increases in real estate taxes over the initial
base period. The Company's Alcore subsidiary manufactures its aluminum
honeycomb products at this site.
3. Jessup, Maryland - The Company leases approximately 43,000 square feet under
a lease that expires in 2006. The annual rental is presently $174,245 increasing
incrementally to $232,253 in the final year, plus real estate taxes and prorated
operating expenses. The Company's Alcore subsidiary produces aluminum
honeycomb at this plant.
Item 3. LEGAL PROCEEDINGS
A Demand for Arbitration was brought before the American Arbitration
Association (the "Association"), 111 Founders Plaza, East Hartford, CT.
06108, by a former employee, Dr. Andrew Bobkowicz (the "Claimant"),
under the terms of an employment agreement dated November 20, 1990 between the
Claimant and Norfield Corporation ("Norfield"). A hearing was held on
May 16 and 17, 1995 before an arbitrator selected by the Association. On August
2, 1995, the Arbitrator awarded Dr. Bobkowicz $85,516.00 plus costs and found
the Company and Norfield jointly and severally liable thereof. On September 1,
1995, the Company filed a Motion to Vacate Arbitration Award in the Superior
Court, Judicial District of Danbury, Connecticut. A hearing was held on the
Motion on November 16, 1995. Post hearing briefs were filed and the Court has
yet to render its decision. On October 11, 1995, the Company put Norfield on
notice of its claim for indemnification under the terms of the Stock Purchase
Agreement between the Company and Edwin F. Phelps, Jr. dated March 10, 1994,
against Edwin F. Phelps, Jr. and Norfield. Although the ultimate outcome of this
matter remains uncertain the Company intends to vigorously defend this suit.
In June 1995, the Company was served with a complaint filed in U.S. District
Court (Connecticut District) by Diana Pisani Romaniello ("Romaniello"),
individually, and on behalf of the United States Government. Norfield
Corporation ("Norfield"), formerly a wholly owned subsidiary of the
Company, was also named as a defendant in the suit. This action was brought
under the False Claims Act (the "Act") alleging that Norfield had
falsified records in order to receive payments under a sub-contract with a prime
contractor for the construction of radar reflector equipment for the U.S.
Department of Defense. The falsification of records is allegedly to have taken
place in the last half of 1991 and the first half of 1992.
The complaint alleges that among other claims, the defendant Norfield
terminated Romaniello to silence her objection to the falsification of records.
The Company had acquired ownership of Norfield several days prior to the
termination of Romaniello and had previously sub-contracted work to Norfield for
the radar equipment for the U.S. Department of Defense. This association with
Norfield caused Romaniello to name the Company in the suit.
The plaintiff is seeking: (a) Punitive damages equal two times
Romaniello's back pay; (b) Damages equal to three times the damages the U.S.
Government has sustained; (c) A civil penalty of $5 to $10 Thousand for each
violation of the Act; (d) Between 15 and 30 percent of the damages and fines
assessed against the defendants be awarded to Romaniello. The U.S. Government
has decided not to directly prosecute this case, as is its right under the
statute, however, it remains a named plaintiff in the suit and would benefit
from any recovery.
On July 26, 1995, the Court entered a default against the Company. The
Company moved to set aside the default, which was objected to by the individual
Plaintiff. The Plaintiff subsequently filed a Motion for Judgment. Thereafter,
the Court granted the Company's Motion, set aside the default and by
inference, the subsequent Motion for Judgement. The Company has answered the
complaint and filed its cross-claims. The case is presently in the discovery
stage. The Company has responded to written interrogatories submitted by the
individual Plaintiff. The Company believes that the Plaintiff's claim is
without merit, and although the ultimate outcome of this matter remains
uncertain, the Company intends to vigorously defend this suit.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Bid Price ($)
-----------------
High Low
---- ---
1995
First Quarter .8125 .50
Second Quarter .625 .375
Third Quarter 1.75 .375
Fourth Quarter 1.4375 .625
1994
First Quarter 1.50 1.25
Second Quarter 1.25 .50
Third Quarter .6875 .5625
Fourth Quarter .6875 .375
The quarterly high and low bid quotations listed above were as quoted by
NASDAQ. The quotations reflect inter-dealer prices, without retail mark-up or
commission and may not represent actual transactions. The Company's common
stock trades on the NASDAQ SmallCap Market.
The number of record holders of the Company's common shares as of April
10, 1996 was 1,083.
The Company has never paid dividends on its common stock and is not expected
to do so in the foreseeable future. Payment of dividends is restricted by the
Company's bank financing agreement.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
During the fiscal year of 1995, management continued its program to turn the
Company around, and focus on profitability in each of the core businesses
(composite/bonded structures and assemblies and honeycomb manufacturing), and
set the stage for future growth based on improving the Company's backlog,
expanding its customer base and adding new technology. Additionally, management
concentrated extensively on improving cash flow from operations, and resolving
the issue of increased credit line availability from its bank or alternatively
taking the necessary action to establish an entirely new credit facility.
Management also focused on quickly integrating the Limco metal bonded assemblies
business together with the composite structures business transferred from
Wyandanch, New York to insure a smooth ramp-up of production during the first
half of 1995.
Overall financial results for 1995 were materially improved over 1994, in
spite of a decline in net sales in 1995 to $14.7 Million, down $500 Thousand or
3% from 1994's level of $15.2 Million. The decline in net sales during 1995 was
due entirely to reduced military composite structure sales and the close down of
the Company's Newtown, Connecticut facility. Composite sales in 1995 were
$2.7 Million, down $4.1 Million or 60% compared to $6.8 Million during 1994.
These declines were partially offset by a $1.8 Million increase in honeycomb
product sales, and the addition of approximately $1.8 Million in metal bonded
assembly sales in the Company's Glen Cove, New York facility. Honeycomb
sales during 1995 were $10.2 Million, up $1.8 Million or 21% from 1994's level
of $8.4 million. This increase reflects a continuing recovery of the aerospace
and commercial aircraft market as well as continued development of non-aerospace
business in transportation, construction and industrial applications. There were
no comparable metal bonded sales during 1994.
The backlog of customer orders as of December 31, 1995 increased to $13.6
Million, a 64% gain compared to $8.3 Million as of December 31, 1994. The
increase in backlog was distributed uniformly across all segments of the Company
and resulted from increased orders for honeycomb products for aircraft and
aerospace, construction and transportation applications; increased orders for
metal bonded products for aircraft and aerospace applications; and increased
orders for composite structures for military fuel tank, radar and submarine
applications. Subsequent to December 31, 1995, the backlog has continued to
increase to $15.7 Million as of March 31, 1996, with significant new orders for
Nomex(Registered) as well as PAA-Core aluminum honeycomb products.
Consolidated gross profit for 1995 improved 102% to $2.9 Million compared to
$1.5 Million for 1994, with corresponding improvement in gross margin to 20% of
sales in 1995 compared to 9% of sales during 1994. The overall improvement was
due to higher contribution margins obtained from the mix of products sold and
lower factory overhead costs in both the honeycomb and composite/bonding
business segments.
Selling, general and administration expenses for the year ended December 31,
1995 were reduced $921 Thousand to $2.4 Million (16% of sales) compared to $3.3
Million (22% of sales) in 1994. This 28% decrease in SG&A expenses was
principally due to elimination of duplicate composite facilities and reduction
of personnel.
Amortization expense for the year ended December 31, 1995 increased to $61
Thousand compared to $10 Thousand during 1994 due to the good will and
intangible asset acquisition of the metal bonding business of Limco
Manufacturing.
Consolidated operating income in 1995 was $522 Thousand, an increase of
approximately $2.4 Million compared to a loss of approximately $1.9 Million
during 1994. Improved gross profit and reduced SG&A expenses contributed to the
improved operating income.
Interest expense for 1995 was $414 Thousand, an increase of $59 Thousand
over 1994 interest expense of $355 Thousand. The increase resulted from new debt
incurred for the acquisition of the Limco Manufacturing metal bonding business
in January, 1995, as well as a $300 Thousand bridge loan in September, 1995 to
provide interim working capital prior to completing the Company's new credit
facility.
Consolidated net income for the year ended December 31, 1995 was $1.1
Million, or $.14 per share compared to a net loss of $2.9 Million, or $.43 per
share for the prior year. Included in the consolidated net income was an
extraordinary gain of $796 Thousand (net of income tax effect of $37,700)
related to debt extinguishment with Fleet Bank as part of the Company's
action to establish a new credit facility December 28, 1995. [See "Liquidity
and Capital Resources"].
The Company enters 1996 in substantially improved financial and operating
condition with sufficient capital resources and excellent prospects to meet its
business goals and complete the final stages of its turn-around program. Backlog
of new orders, totaling $15.7 million as of March 31, 1996, continues to grow
and the Company is expanding and enhancing production capabilities, quality and
process control systems and SG&A support to meet budget projections for 1996.
The Company anticipates increased sales revenues in each of its business
segments during 1996 and anticipates continued profitability on a consolidated
basis. A number of programs and projects are underway to enhance the
Company's ability to increase its participation in aircraft and aerospace
applications, and to add to its metal bonding and composite capabilities. It is
expected that this will be accomplished by securing FAA composite development of
new honeycomb core products based on the Company's PAA technology,
completing development and beginning full scale toll processing of hydrophilic
aluminum foils for air conditioning and heat exchanger applications, and working
to expand joint development and marketing relationships with a major
international company. [See "Forward Looking Statements - Cautionary
Factors"]
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operations during 1995 was $103 Thousand compared to
$989 Thousand provided in 1994. Net cash provided from operations in 1995 was
comprised of $1.1 Million net income plus $300 Thousand in non-cash items,
offset by $1.3 Million in changes in assets and liabilities related to increased
accounts receivable, accounts payable and inventory valuations. Net cash
provided from operations in 1994 was comprised of $2.9 Million loss offset by
gains for non-cash items of approximately $2.1 Million and $1.8 Million in
changes in assets and liabilities. The year 1994 benefited from the collection
of $1.2 Million in insurance proceeds receivable.
Net cash used in investing activities during 1995 was $1.0 Million, with
$685 Thousand utilized for the purchase of machinery and equipment and leasehold
improvements at the Company's Glen Cove, New York and Maryland facilities.
Additionally, $359 Thousand net cash was paid for the acquisition of Limco metal
bonding assets less liabilities issued.
Net cash provided by financing activities was $1.1 Million comprised of $3.2
Million in new debt financing and the use of $2.1 Million proceeds to repay
Fleet Bank.
On September 8, 1995 the Company obtained $300 Thousand bridge financing to
provide interim working capital until the Company was able to refinance its
primary credit facility. The term of the bridge financing was three months,
September 8, 1995 through December 7, 1995, with an initial interest rate of 2%
per month (increased to 4% in default if not repaid by December 7, 1995). The
bridge lenders received a security interest in all of the Company's assets
subordinate to Fleet Bank. Additionally, the bridge lenders received a warrant
to purchase a total of 135,000 shares of the Company's common stock at $.50
per share for a term of five years.
During December 1995 the Company entered into a new two year $3.5 Million
credit facility with Gibraltar Corporation to replace the Company's present
line of credit with Fleet Bank. The new facility consists of a $2.75 Million
revolving line of credit and a $750 Thousand term loan. The revolving line of
credit bears interest at a rate of prime plus 2%, is subject to borrowing base
calculations set forth in the credit facility agreement and is collateralized by
substantially of the Company's inventory and accounts receivable assets. The
term loan bears interest at a rate of prime plus 2%, is amortized over
thirty-six months commending February 1, 1996, and is collateralized by
substantially all of the Company's fixed assets. The amortization schedule
requires six monthly payments of $30 Thousand, six monthly payments of $25
Thousand, twelve monthly payments of $23 Thousand, eleven monthly payments of
$12 Thousand and a final monthly payment of the balance due.
The availability of credit as of December 31, 1995 based on borrowing base
calculations was $835 Thousand. The Company is in full compliance with all
credit facility covenants.
Simultaneous with the Company obtaining the new credit facility in December
1995, the Company entered into an agreement with Fleet Bank to repay the $3.189
Million loan balance by making a one-time payment of $1.961 Million, issuing of
a warrant valid for ten years to purchase 500,000 shares of the Company's
common stock and a payment of $300 Thousand in March 1996.
Approximately $154 Thousand of the $200 Thousand balance of the bridge loan
was repaid in March 1996, with approximately $46,000 converted to equity.
The Company believes it has sufficient capital resources to operate
successfully over the next twelve months. The Company's operating plan for
1996 calls for capital improvements and enhancements to equipment and facilities
located in New York and Maryland to support increased production, provide
environmental process control and continue to meet environmental compliance
requirements. The Company believes that operating cash flow and depreciation
will be sufficient to support its capital needs. However, should circumstances
arise effecting cash flow or require additional capital expenditures beyond
those anticipated by the Company, there can be no assurance that such funds will
be available. [See "Forward Looking Statements - Cautionary Factors"]
FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS
Except for the historical information and statements contained in this
Report, the matters and items set forth in this Report are forward looking
statements that involve uncertainties and risks some of which are discussed at
appropriate points in the Report and are also summarized as follows:
1. The U.S. Government is a significant customer of the Company representing
12.1 percent of its revenue. With the continuing pressure to reduce government
spending, in addition to the world-wide political climate creating an
environment of less visible military threats to the United States, the
de-emphasis in military spending is expected to continue. This could potentially
have a material adverse effect on future projects upon which the Company's
backlog is based, and upon programs the Company is pursuing.
2. Continued consolidation of major aerospace companies could result in program
cancellations as well as increased demand for price concessions. This together
with increased competition for available business could translate into downward
pressure on gross margins with resulting lower overall profit margins.
3. Vendor prices for production materials such as aluminum foil, resins, liquid
and film adhesives, reinforcing fiber materials and other materials and supplies
could increase as demand for aircraft parts and assemblies increase to match
higher build rates for commercial aircraft. Higher material prices and demand
for lower aircraft part and assembly prices could place increasing pressure on
the Company's operating margins and net income.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
Item 7. FINANCIAL STATEMENTS
The Company's financial statements and schedules appear at the end of this
Report after Item 13.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Name and Five Year Business Experience Age
- -------------------------------------- ---
Alan W. Baldwin 59
Chairman of the Board and Chief Executive Officer of the Corporation since March
1994. Vice President of the Corporation from December 1993 to March 1994.
Independent consultant, January 1990 to March 1994. President and CEO of Hytek
Microsystems, a manufacturer of hybrid electronic circuits, from September 1989
to December 1990. Mr. Baldwin was originally elected a director in 1993.
Warren H. Haber 55
For more than 20 years, Chairman of the Board and Chief Executive Officer of
Founders Equity, Inc., Founders Management Services, Inc., and affiliates
(collectively, "Founders") all private investment concerns engaged in
identifying businesses for acquisition by companies in which the principal
stockholders of Founders have a substantial equity interest and managing such
businesses for such principal stockholders' accounts. Since 1983, Chairman
of the Board of Batteries Batteries, Inc. Since 1993, Chairman of the Board and
Chief Executive Officer of HealthRite, Inc., a distributor and producer of
vitamins, natural nutritional and dietary supplements, herbal based products,
and weight-loss products. From 1986 through December 1992, Chairman of the Board
and Chief Executive Officer of International Power Machines. He served as a
Director until February 1995. Director of Realty Information Group, LP, a
privately held commercial real estate information provider. Mr. Haber has served
as an officer and a director of Founders Property, Inc. a private real estate
investment concern. Mr. Haber was originally elected a director of the Company
in 1994.
John F. Menzel 53
Chairman and majority shareholder of Fiberglass Industries, Inc., a
manufacturer of fiberglass products for the marine, sporting goods
and chemical tank industries from before 1989 to the present.
Mr. Menzel was originally elected a director in 1994.
Charles. W. Russell 59
President of F.C. Funding, Inc., a private investment firm, for more than five
years. Executive Vice President, COO and a Director of Fallek Chemical Group, an
international chemical marketing concern, from before 1989 to 1990. Mr. Russell
was originally elected a director in 1989.
John Simon 53
Executive Vice President and Managing Director of Allen & Company,
Incorporated, for more than five years. Director of Immune Response
Corporation, Tcell Sciences, Inc., and Neurogen Corporation. Mr. Simon
was originally elected a director in 1993.
Samuel J. Dastin 65
Director of Advanced Products, Northrop-Grumman Corporation. Retired July 1995,
after thirty year career in advanced composite materials, structures and
manufacturing. Selected a Fellow by both the Society of Advanced Material
Processing Engineers (SAMPE) and the Society of Manufacturing Engineers (SME)
for his comprehensive work in advanced composites and reinforced plastics.
William R. Lewis 54
Financial consultant offering services to multiple corporate clients since
1994. Chief Financial Officer of Air & Water Technologies Corporation
in 1994. Chief Financial Officer of Jenny Craig, Inc. in 1994. Executive
Vice-President, Chief Financial Officer and Director of Nutri/System, Inc
from 1991-1993. Subsequent to Mr. Lewis leaving, Nutri/System, Inc.
filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy
Code in 1993. Executive Vice President, chief administrative and
financial officer of Simplicity Holdings, Inc. from 1988-1991.
Lawrence Schwartz 61
Secretary of the Company since 1994. Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary and Controller of the
Company, since 1990.
Edward Kiley 46
Vice President and General Manager of Alcore, Inc., a wholly owned subsidiary of
the Company, since November 1993. Vice President and General Manager of the
Company from January 1993 through October 1993. Director of Sales and Marketing
of Hexcel Corporation from April 1978 through December 1992.
Compliance with Section 16(a) of the Exchange Act
Alan W. Baldwin Untimely filing of Form 4 upon the grant of stock options in
June 1994. Filing has been made on Form 5.
Warren H. Haber Untimely filing of Form 5 for stock option grant in June 1994.
Required filing has been completed.
John F. Menzel Untimely filing of Form 5 for stock option grants in June 1994
and September 1995. Required filings have been completed.
Charles. W. Russell Untimely filing of Form 5 for stock option grants in
June 1994 and September 1995. Required filings have been completed.
John Simon Untimely filing of Form 5 for stock option grants in June 1994 and
September 1995. Required filings have been completed.
Samuel J. Dastin Untimely filing of Form 5 for stock option grant in September
1995. Required filing has been completed.
Lawrence Schwartz Untimely filing of Form 4 upon the grant of stock option in
December 1994. Filing has been completed on Form 5.
Item 10. Executive Compensation
(b) Summary Compensation Table
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
(a) (b) (c) (d)
Name
and
Principal Other
Position Year Salary($) Compensation($)
- -------- ---- --------- ---------------
Alan W. Baldwin(3) 1995 $150,000 $0
Chairman 1994 $127,257 $4,616 (1)
of the Board 1993 $0 $0
of Directors
and Chief Executive
Officer
Edward Kiley(3) 1995 $98,389 $7,500 (2)
Vice President 1994 $94,799 $0
and General 1993 $92,428 $0
Manager
- --------------------------
(1) Paid as consultant fee earned in 1993, paid in 1994 to a corporation
controlled by Mr. Baldwin.
(2) Paid in restricted stock in exchange for a 10 percent wage concession. Stock
valued at fair market value at time wage concession was implemented.
(3) No other form of compensation was paid the executive except as set forth
above.
(c) Options/SAR Grants Table
No options were granted to the Executive Officers of the Company during the
fiscal year ended December 31, 1995.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
At FY-End (#) FY-End ($)
Shares Value
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------
Alan W. Baldwin None None 150,000/50,000 $51,000/$17,000
Edward Kiley None None 8,333/16,667 $3,667/$7,333
(e) Long-Term Incentive Plan Awards Table
The Company paid no long term compensation to the Executive Officers during
the fiscal year ended December 31, 1995.
(f) Compensation of Directors
Directors who are not employees of the Company earn a fee of $500 for each
meeting of the Board of Directors that is attended. Additionally, non-employee
Directors receive a grant immediately following the Company's Annual
Shareholder Meeting under the Company's 1994 Stock Incentive Plan for the
right to purchase 5,000 shares of the Company's common stock. Such grant
shall be at the fair market value of the common stock at the time of grant.
(g) Employment contracts and termination of employment and change in control
arrangements.
In November, 1994, the Company entered into an employment contract
commencing on March 14, 1994 with Alan W. Baldwin to serve as Chairman of the
Board and Chief Executive Officer of the Company, for an initial term of one
year, with automatic renewals for additional one year terms, at an annual salary
of $150,000.
The contract provides for increases on an annual basis upon review by the
Board of Directors or the Compensation Committee. Additionally, an incentive
compensation program will be implemented on an annual basis by the Board of
Directors. The Company will provide Mr. Baldwin the normal employee benefits
provided to other employees, in addition to a company car. Additionally, the
Company is obligated to pay Mr. Baldwin a one time relocation expense of
$70,000. The contract provides for a grant to Mr. Baldwin of a non-statutory
stock option for 200,000 shares exercisable at $.60 per share.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners.
- ----------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Class Name and Amount and Percent of Class(1)
Address Nature of
Beneficial Beneficial
Owner Owner
- ----------------------------------------------------------------------------
Common Stock S. Daniel Abraham 900,000 6.77
777 South Flagler
Boulevard
West Tower
West Palm Beach,
FL. 33401
Common Stock Allen & Company 900,000(3) 6.77
711 Fifth Avenue
New York,
New York 10022
Common Stock Grange Nominees 760,000 5.72
Limited
P.O. Box 116
Commerce House
Les Banques
St Peter Port,
Guernsey
GWY1 3EZ
Common Stock Cooke & Cie, S.A. 1,612,000 12.13
7 Rue des Alps
Geneva 1, Switzerland
Common Stock Karin Lamotte 707,500(2) 5.32
16 Victoria Road
London W85RG England
(1) Percentage is based upon a 13,294,355 shares as of April 11, 1996, comprised
of outstanding shares, options and warrants that are exercisable within
sixty days of this date, totaling 11,309,359, 265,833, and 1,719,163 shares,
respectively.
(2) Does not include warrants, expiring January 1997, to acquire 165,137 shares
of common stock for $.40 per share owned by Mrs. Lamotte's husband, in
which Mrs.
Lamotte disclaims any beneficial interest.
(3) Does not include beneficial ownership of John Simon who is a Managing
Director of Allen & Co., Inc.("Allen"). Allen disclaims beneficial
ownership of Mr. Simon's shares.
(b) Security ownership of management.
- ---------------------------------------------------------------------
(1) (2) (3) (4)
Title of Class Name and Amount and Percent of Class(8)
Address Nature of
Beneficial Beneficial
Owner Owner
- ----------------------------------------------------------------------------
Common Stock Alan W. Baldwin 202,500(1) 1.52
c/o Lunn Industries
1 Garvies Point Road
Glen Cove, NY. 11542
Common Stock Warren Haber 90,000(2)(3) .68
c/o Founders Equity
200 Madison Avenue
New York, NY. 10016
Common Stock John F. Menzel 10,000(2)(3) .08
c/o Fiber Glass
Industries, Inc.
RD #5 Edison Street
Amsterdam, NY. 12010
Common Stock Charles W. Russell 170,077(2)(3)(4)(5) 1.28
c/o F.C. Funding
770 Lexington Avenue
New York, NY. 10021
Common Stock John Simon 10,000(2)(3)(7) .08
c/o Allen & Co.
711 Fifth Avenue
New York, NY. 10022
Common Stock Samuel Dastin 5,000(3) .04
c/o Dastin Associates
Company, Inc.
62 Wellesley Lane
Hicksville, NY. 11801
Common Stock William R. Lewis 5,000(3) .04
636 Black Rock Road
Bryn Mawr, PA. 19010
Common Stock Edward Kiley 27,833(6) .21
c/o Alcore, Inc.
1324 Brass Mill Road
Belcamp, MD. 21017
Common Stock Directors and 520,410 3.91
Executive Officers
as a group
(8 persons)
- ----------------------------
(1) Includes option to purchase 150,000 shares at $.60 which expires on June 9,
2004.
(2) Includes options to purchase 5,000 shares at $.625 which expires on June 8,
2004.
(3) Includes options to purchase 5,000 shares at $.1.50 which expires on
September 28, 2005.
(4) Includes warrants to purchase 10,000 shares at $1.50 which expires on June
16, 1999.
(5) Includes warrants to purchase 10,000 shares at $4.37 which expires on May
13, 2003.
(6) Includes options to purchase 8,333 shares at $.50 which expires on December
21, 1999.
(7) Does not include beneficial ownership of Allen, where John Simon is a
Managing Director. Allen disclaims beneficial ownership of Mr. Simon's
ownership.
(8) Percentage is based upon a 13,294,355 shares as of April 11, 1996, comprised
of outstanding shares, options and warrants that are exercisable within
sixty days of this date, totaling 11,309,359, 265,833, and 1,718,363 shares,
respectively.
Item 12. Certain Relationships and Related Transactions.
(a) Alan W. Baldwin.
In November, 1994, the Company entered into an employment contract
commencing on March 14, 1994 with Alan W. Baldwin to serve as Chairman of the
Board and Chief Executive Officer of the Company, for an initial term of one
year, with automatic renewals for additional one year terms, at an annual salary
of $150,000.
The contract provides for increases on an annual basis upon review by the
Board of Directors or the Compensation Committee. Additionally, an incentive
compensation program will be implemented on an annual basis by the Board of
Directors. The Company will provide Mr. Baldwin the normal employee benefits
provided to other employees, in addition to a company car. Additionally, the
Company is obligated to pay Mr. Baldwin a one time relocation expense of
$70,000. The Company has granted Mr. Baldwin a non-statutory stock option for
200,000 shares exercisable at $.60 per share.
(b) Cook & Cie, S.A..
The Company borrowed $360,000 from Cook & Cie, S.A. payable in January, 1997
plus interest at 10% per annum payable in common stock.
(c) Private Placement
On March 21, 1996, the Company sold 3.5 million shares of common stock at
$.40 per share in a private placement, under Regulation D of the regulations
promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"). The following beneficial owners listed in Item 11 purchased shares in
the private placement:
S. Daniel Abraham 900,000 shares
Allen & Company, Inc. 900,000
Cook & Cie, S.A. 840,000
Grange Nominees Limited 460,000
John Simon, Director of the Company, is a Managing Director of Allen &
Company, Inc.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
- -------
3.1 Certificate of Incorporation - incorporated by reference to the
Registrant's Form 10-K for the year ending December 31, 1992
3.2 By-Laws - incorporated by reference to the Registrant's Form 10-K
for the year ending December 31, 1991
10.1 Lease covering the Newtown, Connecticut Plant - incorporated by reference
to the Registrant's Form 10-K for the year ending December 31, 1992
10.2 Lease covering the Danbury, Connecticut Plant - incorporated by
reference to the Registrant's Form 10-K for the year ending
December 31, 1992
10.3 Lease covering the Jessup, Maryland Plant - incorporated by reference
to the Registrant's Form 10-K for the year ending December 31, 1992
10.4 Stock Purchase Agreement for the sale of Norfield Corporation to
Edwin F. Phelps, Jr. dated March 10, 1994 - incorporated by
reference to the Registrant's Report on Form 8-K dated March 10, 1994
10.5 Technology Royalty Agreement between the Company and Norfield
Corporation dated March 10, 1994 - incorporated by reference to
the Registrant's Report on Form 8-K dated March 10, 1994
10.6 Employment Resignation Agreement between the Company and Edwin F. Phelps,
Jr. dated March 10, 1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10, 1994
10.7 Forbearance Agreement between the Company and Shawmut Bank Connecticut,
N.A. dated March 11, 1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10, 1994
10.8 Commitment letter between the Company and J.E. Sheehan & Company, Inc.
dated March 16, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.9 Form of Subscription Agreement pertaining to the issuance of 2,400,000
shares at $.60 per share dated March 31, 1994, incorporated by reference
to the Registrant's report on Form 10-Q/A Amendment 1, for the period
ended March 31, 1994.
10.10 Grant of Warrant for the purchase of 192,000 shares of the common stock
of the Registrant at $.70 per share to J.E. Sheehan & Company, Inc.
Dated March 31, 1994, incorporated by reference to the Registrant's
report on Form 10-Q/A Amendment 1, for the period ended March 31, 1994.
10.11 Asset Purchase Agreement between Lunn Industries, Inc., Limco
Manufacturing Corporation and Alcore, Inc. Dated December 12, 1994.
10.12 Promissory Note dated January 16, 1995 Payable to the order of Limco
Manufacturing Corporation in the amount of $608,762.
10.13 Promissory Note dated January 17, 1995 payable to the order of Limco
Manufacturing Corporation in the amount of $96,238.
10.14 Guaranty Agreement dated January 17, 1995 between Alcore, Inc. And
Limco Manufacturing Corporation.
10.15 Subordination Agreement dated January 17, 995 by and among TAT
Technologies, Ltd., Limco Manufacturing Corporation and Lunn Industries,
Inc.
10.16 Assignment and Assumption of Obligations Agreement dated January 17,
1995 between Limco Manufacturing Corporation and Lunn Industries, Inc.
10.17 Amendment dated January 17, 1995 to the Asset Purchase Agreement by and
among Lunn Industries, Inc., Limco Manufacturing Corporation and Alcore,
Inc. dated December 12, 1994
10.18 Loan Agreement dated January 17, 1995 between Lunn Industries, Inc.
and Cook and Cie, S.A.
10.19 Promissory note dated January 17, 1995 payable to the order of Cook &
Cie, S.A. in the amount of $360,000.
10.20 Promissory note dated January 17, 1995 payable to the order of J.E.
Sheehan & Company, Inc. in the Amount of $100,000.
10.21 Letter dated January 10, 1995 subordinating the Commercial Revolving Loan,
Term Loan and Security Agreement dated May 21, 1993 with Shawmut Bank,
Connecticut, N.A. to the $100,000 promissory note payable to the order of
J.E. Sheehan & Company dated January 17, 1995.
10.22 Lease for the Company's headquarters located in Glen Cove, New York
dated January 1, 1995 between Grill Leasing Corp. and Lunn Industries,
Inc.
10.23 Moratorium Agreement dated February 24, 1995 between Grill Leasing
Corp. and Lunn Industries, Inc.
10.24 Agreement effective July 19, 1995, between the Company and J.E. Sheehan
& Company extending the maturity date of note held by J.E. Sheehan &
Company.
13.1 Form 10-QSB for the period ended March 31, 1995, previously filed with
the Commission, is herein incorporated by reference.
13.2 Form 10-QSB for the period ended June 30, 1995, previously filed with
the Commission, is herein incorporated by reference.
13.3 Form 10-QSB for the period ended September 30, 1995, previously filed
with the Commission, is herein incorporated by reference.
21 List of Registrant's subsidiaries previously filed with the Commission in
the Annual Report on Form 10-K/A Amendment 1 for the fiscal year ended
December 31, 1993, is herein incorporated by reference
(b) Reports on Form 8-K.
None
Lunn Industries, Inc. and Subsidiary
Index to Financial Statements
Page(s)
Report of Independent Accountants F-1
Consolidated Financial Statements:
Balance Sheet as of December 31, 1995 F-2
Statements of Operations for the years ended
December 31, 1995 and 1994 F-3
Statements of Stockholders' Equity for the years
ended December 31, 1995 and 1994 F-4
Statements of Cash Flows for the years ended
December 31, 1995 and 1994 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-16
Report of Independent Accountants
To the Stockholders and Board of Directors of Lunn Industries, Inc.:
We have audited the accompanying consolidated balance sheet of
Lunn Industries, Inc. and Subsidiary (the "Company") as of December 31, 1995,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Lunn
Industries, Inc. and Subsidiary as of December 31, 1995, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand LLP.
Melville, New York
April 4, 1996.
Lunn Industries, Inc. and Subsidiary
Consolidated Balance Sheet
December 31, 1995
ASSETS: 1995
Current assets:
Cash $ 206,075
Accounts receivable - trade, net of allowance
for doubtful accounts of $125,000 2,265,421
Inventories 4,105,941
Prepaid expenses and other current assets 307,370
-----------
Total current assets 6,884,807
Property and equipment, net of accumulated
depreciation of $3,620,003 7,486,474
Other assets 629,399
-----------
Total assets $15,000,680
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 1,090,067
Accounts payable - trade 1,629,370
Accrued expenses 688,938
Obligation under capital lease 3,909
-----------
Total current liabilities 3,412,284
Long-term debt 2,998,087
Obligation under capital lease 9,471
-----------
Total liabilities 6,419,842
-----------
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock; par value $.01 per share;
authorized 20,000,000 shares; issued and
outstanding 7,527,333 shares 75,273
Additional paid-in capital 12,486,834
Accumulated deficit (3,980,932)
Treasury stock, at cost; 150 shares (337)
-----------
Total stockholders' equity 8,580,838
-----------
Total liabilities and stockholders' equity $15,000,680
===========
The accompanying notes are an integral part of the consolidated financial
statements.
Lunn Industries, Inc. and Subsidiary
Consolidated Statements of Operations
for the years ended December 31, 1995 and 1994
1995 1994
Net sales $14,720,718 $15,209,072
Cost of sales 11,821,324 13,774,459
----------- -----------
Gross profit 2,899,394 1,434,613
Selling, general and administrative expenses 2,377,365 3,298,148
----------- -----------
Operating income (loss) 522,029 (1,863,535)
----------- -----------
Other income (expense):
Interest expense (413,515) (354,555)
Loss on insurance claim -- (141,069)
Gain on sale of building -- 260,750
Other income (expense) 162,931 (183,574)
----------- -----------
(250,584) (418,448)
----------- -----------
Income (loss) from continuing operations
before income taxes and extraordinary item 271,445 (2,281,983)
Provision for income taxes 12,300 594,595
----------- -----------
Income (loss) from continuing operations 259,145 (2,876,578)
Discontinued operations - gain on disposal,
net of income tax provision of $12,538 -- 18,335
----------- -----------
Income (loss) before extraordinary item 259,145 (2,858,243)
Extraordinary item:
Gain on extinguishment of debt, net of
income tax effect of $37,700 796,165 --
----------- -----------
Net income (loss) $ 1,055,310 $(2,858,243)
=========== ===========
Income (loss) per share:
Before extraordinary item $ .03 (.43)
Extraordinary item .11 --
---------- -----------
Net income (loss) per share $ .14 $ (.43)
========== ===========
Weighted average number of common shares
outstanding 7,588,747 6,657,927
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Lunn Industries, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional
Number Paid-in Accumulated Treasury
of Shares Amount Capital Deficit Stock Total
--------- ------ ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 4,657,927 $46,579 $10,797,255 $(2,177,999) $(337) $ 8,665,498
Sale of common stock 2,400,000 24,000 1,264,664 -- -- 1,288,664
Net loss -- -- -- (2,858,243) -- (2,858,243)
--------- ------- ----------- ----------- ----- -----------
Balance at December 31, 1994 7,057,927 70,579 12,061,919 (5,036,242) (337) 7,095,919
Issuance of stock to employees 203,406 2,034 154,589 -- -- 156,623
Expenses paid through the issuance of stock 266,000 2,660 117,326 -- -- 119,986
Warrants issued in connection with debt
extinguishment (Note 6) -- -- 153,000 -- -- 153,000
Net income -- -- 1,055,310 -- 1,055,310
--------- ------- ----------- ----------- ----- -----------
Balance at December 31, 1995 7,527,333 $75,273 $12,486,834 $(3,980,932) $(337) $ 8,580,838
========= ======= =========== ============ ====== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Lunn Industries, Inc. and Subsidiary
Consolidated Statements of Cash Flows
for the years ended December 31, 1995 and 1994
1995 1994
Cash flows from operating activities:
Net income (loss) $ 1,055,310 $(2,858,243)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Gain on extinguishment of debt (796,165) --
Depreciation and amortization 928,852 1,107,398
Deferred tax asset -- 604,629
Allowance for doubtful accounts (9,335) 77,450
Amortization of deferred gain on sale of
building -- (260,750)
Loss on insurance settlement -- 141,069
Unrealized loss on investment -- 126,100
Realized loss on investment -- 148,639
Inventory valuation allowance (99,987) 140,205
Issuance of stock to employees 156,623 --
Expenses paid through the issuance of stock 119,986 --
Other, principally discontinued operations -- (30,873)
Changes in assets and liabilities:
Accounts receivable - trade (753,551) 769,184
Inventories (711,781) 372,710
Prepaid expenses and other current assets 109,174 17,822
Insurance proceeds receivable -- 1,191,063
Security deposits and other assets (117,895) 189,703
Accounts payable - trade 426,617 (947,377)
Accrued liabilities (204,540) 377,666
Advances from customers -- (176,926)
----------- -----------
Net cash provided by operating activities 103,308 989,469
----------- -----------
Cash flows from investing activities:
Proceeds from termination of officers'
life insurance -- 69,316
Purchase of property and equipment (685,514) (872,927)
Proceeds from disposal of property and equipment -- 135,372
Purchase of assets from the Limco acquisition (358,861) --
----------- -----------
Net cash used in investing activities (1,044,375) (668,239)
----------- -----------
Cash flows from financing activities:
Bank overdraft (27,745) 27,745
Repayment of related party payable -- (540,687)
Repayment of debt (2,160,245) (1,091,489)
Proceeds from sale of common stock -- 1,288,664
Proceeds from issuance of notes payable 3,321,752 --
Payments on capital lease obligations 13,380 (9,369)
----------- -----------
Net cash provided by (used in)
financing activities 1,147,142 (325,136)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 206,075 (3,906)
Cash and cash equivalents, beginning of year -- 3,906
----------- -----------
Cash and cash equivalents, end of year $ 206,075 $ --
=========== ===========
Cash paid for:
Interest $ 474,830 $ 316,809
Non cash investing and financing activities:
Reduction of property and equipment held for sale -- 126,000
Cancellation of notes payable in connection with
the sale of a subsidiary -- 561,000
Issuance of warrants in connection with debt
extinguishment 153,000 --
Acquisitions:
Assets acquired 1,063,861 --
Notes payable 705,000 --
---------- -----------
Net cash paid for acquisitions $ 358,861 --
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Lunn Industries, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Business as Basis of Presentation:
The Company manufactures a variety of composite products made of
metal, metal core, fiber and reinforced plastic, assembled into
complex structures to meet customer requirements. The Company also
produces honeycomb cores, some of which are used in its other
products. The Company's products are sold principally to commercial
customers, both domestic and international, and to agencies of the
U.S. government. Military business represented 29% and 45% of net
sales during 1995 and 1994, respectively.
2. Summary of Significant Accounting Policies:
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Alcore, Inc. and exclude
Norfield Corporation which has been accounted for as a discontinued
operation for fiscal 1994. All material intercompany balances and
transactions have been eliminated.
Cash and cash equivalents
The Company considers all liquid investments with an original
maturity of three months or less when purchased to be cash and cash
equivalents.
Inventories
Inventories of raw materials and finished goods are stated at the
lower of cost, determined by the first-in, first-out method, or
market. Inventories of work-in-process, substantially all of which
relate to short-term contracts, are stated at the actual production
cost, reduced by amounts relating to revenue recognized on units
delivered.
Property and equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations as incurred.
Expenditures for betterments and major renewals are capitalized.
The cost of assets sold or retired and the related amounts of
accumulated depreciation are eliminated from the accounts in the
year of disposal, with any resulting profit or loss included in
income.
Depreciation and amortization of assets are provided using the
straight-line method over the estimated useful life of the asset.
Notes to Consolidated Financial Statements, Continued
Net income (loss) per share of common stock
Net income (loss) per share of common stock is based on the weighted average
number of common shares outstanding during each period. Common stock
equivalents of 203,225 resulting from the effects of options and warrants
have been included in the calculation of weighted average shares outstanding
in 1995. Common stock equivalents have been excluded in 1994 from the
computation of net loss per share of common stock since the result would be
anti-dilutive.
Income taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Reclassification
Certain 1994 amounts have been reclassified to conform to the 1995
presentation.
Intangible assets
Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of companies acquired. Goodwill and other
intangibles are amortized on a straight-line basis over appropriate periods
not exceeding 25 years.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. The most significant estimates made are for
the recoverability of property and equipment, intangibles and accounts
receivable. Actual results could differ from those estimates.
Prospective accounting change
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Adoption of the new standard is required for
fiscal years beginning after December 15, 1995. Management estimates that
the new accounting principle will not have a material impact on the
Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which establishes financial
accounting and reporting standards for stock based plans. The Statement,
which becomes effective in 1996, requires the Company to choose between
accounting for issuance of stock and other equity instruments to employees
based on their fair value or disclosing the pro forma effects such
accounting would have had on the Company's net income and earnings per
share. The Company has begun to gather the
Notes to Consolidated Financial Statements, Continued
documentation necessary to address the impact of this Statement, however,
it has not yet decided which method it will utilize relating to its stock
based employee plans.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. The
Company grants credit to customers located throughout the United States.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. One
customer and two customers represent 12% and 25% of sales in 1995 and 1994,
respectively.
No one customer comprised more than 10% of outstanding accounts receivable
at December 31, 1995.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily trade accounts receivable.
Ongoing credit evaluation of customers' financial condition are performed
and generally no collateral is required.
Cash and cash equivalent balances are held primarily at one financial
institution and may, at times, exceed insurable amounts. The Company
believes it mitigates its risks by investing in or through major financial
institutions. Recoverability of investment is dependent upon the performance
of the issuer.
Fair value of financial instruments
Cash and cash equivalents, notes receivable and notes payable are reflected
in the accompanying consolidated balance sheets at amounts considered by
management to reasonably approximate fair value. The fair value of
long-term debt approximates recorded amounts as similar borrowings have been
offered to the Company at comparable rates and maturities.
3. Acquisitions:
On January 17, 1995, the Company purchased certain assets from the Limco
Aluminum Bonding Company for $358,861 in cash and notes payable of $705,000,
due in 48 equal monthly payments with interest at prime rate. Assets
acquired consisted of inventory ($75,000), machinery and equipment
($517,000), goodwill ($221,861), trademarks ($100,000) and covenant not to
compete ($150,000).
4. Inventories
Components of inventories are summarized as follows:
Raw materials $ 538,801
Work-in-process 2,469,267
Finished goods 1,097,873
-------------
$ 4,105,941
=============
Notes to Consolidated Financial Statements, Continued
5. Property and Equipment:
Property and equipment are summarized as follows:
Life
Machinery and equipment 5-10 years $ 10,236,768
Furniture and fixtures 5-10 years 538,072
Leasehold improvements 4-6 years 331,637
------------
11,106,477
Less, accumulated depreciation 3,620,003
------------
$ 7,486,474
============
6. Long-Term Debt:
At December 31, 1995, long-term debt consists of:
Revolving line of credit, collateralized
by accounts receivable and inventory. Interest
is payable at 2% above the lender's base rate
(8.5% at December 31, 1995) (a) $ 1,763,952
Term loan, collateralized by property and equipment,
payable in 36 monthly installments. Interest
is payable at 2% above the lender's base rate (a) 750,000
Note payable to bank, with interest at varying rates
through maturity (a) 300,000
Note payable, due December 10, 1995. Interest
payable at 2% per month (b) 200,000
Note payable, due January 16, 1996. Interest is payable
at 10% per annum (c) 100,000
Note payable, due January 13, 1997. Interest is payable
at 10% per annum (c) 360,000
Note payable, due January 17,1997. Interest is payable at
8.5% per annum (d) 566,140
Note payable, due June 1, 2000. Interest is payable at
10.5% per annum 48,062
------------
4,088,154
Less: current maturities 1,090,067
------------
$ 2,998,087
============
(a) During December 1995, the Company entered into a
$3,500,000 credit facility with a new lending institution. The
new facility provides for a $2,750,000 revolving loan and a
$750,000 term loan with interest at 2% over the lender's base
rate. The term loan provides for the following payment
schedule, beginning February 1, 1996: 6 monthly payments of
$30,000, 6 monthly payments of $25,000, 12 monthly payments of
$23,000, 11 monthly payments of $12,000, with a final payment on
February 1, 1999. The new debt is collateralized by
Notes to Consolidated Financial Statements, Continued
substantially all accounts receivable and inventory. The agreement
contains certain restrictive covenants including net worth and minimum
debt service.
Concurrent with the new credit facility, the Company entered into an
agreement with its existing lending institution to repay the
outstanding debt of $3,189,000 through a payment of $1,961,000 in cash
on December 28, 1995, the payment of $300,000 cash on March 20, 1996,
and the issuance of warrants to purchase 500,000 shares of common stock
(see Note 14).
As a result of the extinguishment of debt in the fourth quarter of
1995, the Company has recognized an extraordinary gain of $796,165.
(b) On September 8, 1995, the Company obtained $300,000 bridge financing
to provide interim working capital. The term of the bridge financing
was 3 months at an initial interest rate of 2% per month, increased to
4% if not repaid by December 7, 1995. The bridge lenders received
warrants to purchase a total of 135,000 shares of the Company's common
stock at $.50 per share for a term of 5 years (see Note 14).
(c) In January 1995, the Company borrowed $360,000 and issued a note for
repayment on or before January 13, 1997 with interest at 10% to be paid
semi-annually. In addition, the Company borrowed an additional
$100,000 for interim working capital purposes. The note is due on
January 16, 1996 and bears interest at 10% per annum.
(d) In connection with the Limco acquisition, the Company issued notes
collateralized by the assets acquired. The notes are payable in 48
monthly installments and bears interest at the prevailing prime rate.
Aggregate maturities of long-term debt are as follows:
Long-term
December 31, debt
----------
1996 $ 1,090,067
1997 2,587,994
1998 342,124
1999 61,446
2000 6,523
-----------
$ 4,088,154
===========
Notes to Consolidated Financial Statements, Continued
7. Capital Leases:
Future minimum payments as of December 31, 1995, under capital leases for
equipment, are as follows:
1996 $ 4,655
1997 4,655
1998 4,655
-------
Total minimum lease payments 13,965
Less, amount representing interest 585
-------
Present value of minimum lease payments, including $3,909
currently payable at December 31, 1995 $ 13,380
========
8. Accrued Expenses:
Accrued expenses as of December 31, 1995 consist of the following:
Compensation and related taxes $ 241,549
Professional fees 79,940
Other 317,449
---------
$ 638,938
=========
9. Income Taxes:
The provision for federal and state income taxes before the extraordinary
charge is $6,535 and $5,765, respectively.
The components of deferred taxes as of December 31, 1995 are as follows (in
thousands):
Deferred tax assets:
Accounts receivable $ 52,503
Employee benefits 22,212
Inventory 37,872
Accrued expenses 36,939
Miscellaneous 6,053
Net operating loss and credit carryforwards 3,308,617
---------
Total deferred tax asset 3,464,196
---------
Deferred tax liabilities:
Property and equipment 761,682
--------
Total deferred tax liability 761,682
--------
Net deferred tax asset 2,702,514
Valuation allowance (2,702,514)
----------
$ -
===========
Notes to Consolidated Financial Statements, Continued
The change in the net deferred tax asset for the year ended December 31,
1995 was a decrease of $376,718 related primarily to depreciation and
utilization of net operating loss carryforwards.
The following is a reconciliation of the reported income tax benefit
attributable to continuing operations to the expected income tax expense
(benefit) utilizing federal statutory tax rates:
1995 1994
Expected income tax provision (benefit) $ 375,805 $ (787,000)
State income tax provision (benefit), net of
federal income tax effect 20,000 (138,916)
Valuation allowance on deferred tax assets 1,520,511
Other 52,020
Utilization of net operating loss carryforward (397,825)
----------- ----------
$ 50,000 $ 594,595
=========== ==========
The Company has net operating loss carryforwards of approximately
$7,800,000 for federal income tax purposes which may be applied against
future taxable income and which will begin to expire in 2002. At December
31, 1995, the Company has $167,927 in federal tax credits available for use
in future years which expire in 1996 through 2000.
10. Pension Plans:
The Company's union employees are covered by a defined contribution
retirement plan, the cost of which was $22,597 and $22,341 in 1995 and
1994, respectively.
The Company also maintains a 401(k) savings plan for its non-union
employees. In 1994, the Company amended the plan to add a matching
requirement to employee contributions. Employees may contribute up to 4% of
their annual salary not to exceed certain amounts established by the
Internal Revenue Code. Under this plan, the Company contributes up to 1% of
the employee's contribution to the plan with respect to employees who
contribute up to 4% of annual salary to the plan. These matching
contributions aggregated $17,636 and $34,267 for the years ended December
31, 1995 and 1994, respectively.
Notes to Consolidated Financial Statements, Continued
11. Lease Arrangements:
The Company leases property in Glen Cove, New York, Jessup, Maryland, and
Belcamp, Maryland under operating leases. The Company is required under the
lease agreements to pay certain costs, including insurance and property
taxes. The Company may exercise an option to extend its Glen Cove lease
for two additional five-year terms. Future minimum rental payments are as
follows:
1996 $ 662,405
1997 670,006
1998 691,817
1999 700,711
2000 454,423
Thereafter 1,438,420
-----------
$ 4,617,782
===========
Rent expense aggregated $613,412 and $868,585 for the years ended December
31, 1995 and 1994, respectively.
12. Discontinued Operations:
Effective February 28, 1994, the Company sold all of its interest in
Norfield Corporation, a subsidiary, to the former president and chief
executive officer of the Company and previous owner of Norfield
Corporation, for approximately $561,000, by cancellation of a like amount
of indebtedness and accrued interest owed by the Company to the former
president. The Company recognized a net gain on the sale of approximately
$18,000, net of taxes.
13. Stock Plan:
In December 1994, the Board of Directors of the Company adopted the 1994
stock incentive plan (the "Plan") available to grant options, restricted
stock and other related benefits to employees and directors. The purpose
of the Plan is to promote the interests of the Company with additional
incentive and opportunity through stock ownership to increase employees'
and Directors' proprietary interests in the Company and their personal
interest in its continued success.
Under the terms of the Plan, the Company may grant incentive and
nonqualified stock options. The option price per share may not be less
than the fair market value of a share on the date the option is granted.
For those individuals who own shares in excess of 10% of the capital stock
of the Company, such price will be 110% of the fair market value. The
maximum term of an option may not exceed 10 years. In addition, shares of
restricted stock may be issued either alone or in addition to other awards
granted under the Plan.
The compensation committee shall determine the officers and key employees
of the Company, to whom and the time at which the grants of restricted
stock will be made, the number of shares to be awarded, the price and all
other conditions of the awards. The total number of stock reserves
available for distribution shall be 700,000.
Notes to Consolidated Financial Statements, Continued
The Plan also provides grants of options to non-employee directors. Each
director will be granted an option to purchase 5,000 shares of common stock
each year on the date of the annual meeting of shareholders. As of
December 31, 1995 and 1994, Options for 265,833 and 75,000 shares,
respectively, were exercisable under the Company's stock plan.
During fiscal 1995, the Company issued 203,406 restricted shares to
employees. As a result of the issuance, the Company recorded a charge to
income of approximately $157,000.
In connection with the Plan, the Company issued the following options:
1995 1994
Options, beginning of year 397,500
Options granted at exercise prices ranging
from $.50 to $1.50 40,000 397,500
------- -------
Options, end of year, ranging from $.50 to $1.50 437,500 397,500
======= =======
14. Common Stock:
a. Stock offering
On March 31, 1994, the Company sold 2.4 million shares of its common stock
for $.60 per share in a private placement. Total proceeds, net of
underwriting commissions and expenses, were $1,288,664. The Company used
$300,000 of such proceeds to reduce the term loan portion of its bank loan
and the balance has been applied towards working capital.
During 1995, the Company issued 203,406 shares of stock to employees for
$.50 per share. (See Note 13.) In addition, the Company issued an
additional 266,000 shares to certain individuals and a financial
institution in settlement of debt obligations with a value of $119,986
which was expensed during fiscal 1995.
b. Warrants
In connection with the Company's debt financings, the Company granted
warrants to purchase 635,000 shares of common stock, which were valued at
$153,000 and expensed in 1995. In addition, the Company issued warrants to
purchase 20,000 shares to its legal counsel for services rendered. Warrants
outstanding, which are fully exercisable, are as follows:
1995 1994
Warrants, beginning of year 686,545 494,545
Warrants granted at exercise prices
ranging from $.40 to $6.00 in 1995 655,000 192,000
---------- --------
Warrants, end of year, ranging from
$.40 to $6.00 1,341,545 686,545
========== ========
Notes to Consolidated Financial Statements, Continued
15. Industry Segment Information:
1995 1994
Net sales:
Industry segments:
Composites $ 4,536,816 $ 6,807,303
Honeycomb 10,183,902 8,401,769
------------ ------------
Total $ 14,720,718 $ 15,209,072
============ ============
Geographic:
United States $ 13,281,309 $ 14,117,581
Western Europe 1,439,409 1,091,491
------------ ------------
Total $ 14,720,718 $ 15,209,072
============ ============
Income (loss) from continuing
operations:
Industry segments:
Composites $ (113,644) $ (747,074)
Honeycomb 635,673 (1,025,530)
Other income (expense) (250,584) (509,379)
------------ -------------
$ 271,445 $ (2,281,983)
============ ============
Geographic:
United States $ 435,664 $ (1,668,219)
Western Europe 86,365 (137,684)
Other income (expense (250,584) (476,080)
------------ ------------
$ 271,445 $ (2,281,983)
============ ============
Depreciation and amortization
expense:
Composites $ 109,971 $ 732,694
Honeycombs 818,881 374,704
------------ -----------
$ 928,852 $ 1,107,398
============ ===========
Capital expenditures:
Composites $ 893,658 $ 513,457
Honeycombs 633,856 359,470
------------ ------------
$ 1,527,514 $ 872,927
============ ============
Identifiable tangible assets:
Composites $ 3,609,305 $ 2,248,896
Honeycombs 10,907,477 10,068,225
------------ ------------
$ 14,516,782 $ 12,317,121
============ ============
16. Litigation:
During 1995, the Company was served with a complaint filed under the False
Claims Act alleging that certain records had been falsified, in connection
with its former Norfield operations, in order to receive payment under a
subcontract. In addition, the complaint also alleges that the individual
who has brought forward the claim was terminated due to this incident. This
case is presently in discovery and the ultimate outcome is uncertain.
In addition, in May 1995, the Company was named as a defendant in a demand
of arbitration of a former employee for a breach of an employment contract.
On August 12, 1995, the arbitration awarded the plaintiff $85,516 plus
costs and found the Company and Norfield (its former wholly-owned
subsidiary) jointly and severally liable. However, the award is not a
judgment and
Notes to Consolidated Financial Statements, Continued
the Company has moved to set aside the arbitrator's conclusions. The case
remains open and the ultimate outcome is uncertain.
17. Subsequent Events:
On March 20, 1996, the Company sold 3,500,000 shares of its common stock
for $.40 per share in a private placement. Total proceeds, net of
underwriting commissions and expenses were $1,247,000. The Company has
used approximately $647,000 of the proceeds to reduce its bank debt
obligations to paydown a portion of the outstanding balance due to its
bridge lenders and to reduce its obligation to a shareholder.
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.
LUNN INDUSTRIES, INC.
By: /s/ Alan W. Baldwin April 12, 1996
Alan W. Baldwin Date
Chairman of the Board and ,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
By: /s/ Alan W. Baldwin April 12, 1996
Alan W. Baldwin Date
Chairman of the Board and ,
Chief Executive Officer and Director
By: /s/ Lawrence Schwartz April 12, 1996
Lawrence Schwartz Date
Vice President, Secretary
and Chief Financial and
Accounting Officer
By: /s/ Samuel J. Dastin April 12, 1996
Samuel J. Dastin Date
Director
By: /s/ Warren H. Haber April 12, 1996
Warren H. Haber Date
Director
By: /s/ John F. Menzel April 12, 1996
John F. Menzel Date
Director
By: /s/ Charles W. Russell April 12, 1996
Charles W. Russell Date
Director
By: April 12, 1996
John Simon Date
Director
By: April 12, 1996
William R. Lewis Date
Director
Exhibit Index
3.1 Certificate of Incorporation - incorporated by reference to the
Registrant's Form 10-K for the year ending December 31, 1992
3.2 By-Laws - incorporated by reference to the Registrant's Form 10-K for the
year ending December 31, 1991
10.1 Lease covering the Newtown, Connecticut Plant - incorporated by reference
to the Registrant's Form 10-K for the year ending December 31, 1992
10.2 Lease covering the Danbury, Connecticut Plant - incorporated by reference
to the Registrant's Form 10-K for the year ending December 31, 1992
10.3 Lease covering the Jessup, Maryland Plant - incorporated by reference to
the Registrant's Form 10-K for the year ending December 31, 1992
10.4 Stock Purchase Agreement for the sale of Norfield Corporation to Edwin
F. Phelps, Jr. dated March 10, 1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10, 1994
10.5 Technology Royalty Agreement between the Company and Norfield Corporation
dated March 10, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.6 Employment Resignation Agreement between the Company and Edwin F. Phelps,
Jr. dated March 10, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.7 Forbearance Agreement between the Company and Shawmut Bank Connecticut,
N.A. dated March 11, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.8 Commitment letter between the Company and J.E. Sheehan & Company, Inc.
dated March 16, 1994 - incorporated by reference to the Registrant's
Report on Form 8-K dated March 10, 1994
10.9 Form of Subscription Agreement pertaining to the issuance of 2,400,000
shares at $.60 per share dated March 31, 1994, incorporated by reference
to the Registrant's report on Form 10-Q/A Amendment 1, for the period
ended March 31, 1994.
10.10 Grant of Warrant for the purchase of 192,000 shares of the common stock of
the Registrant at $.70 per share to J.E. Sheehan & Company, Inc. Dated
March 31, 1994, incorporated by reference to the Registrant's report
on Form 10-Q/A Amendment 1, for the period ended March 31, 1994.
10.11 Asset Purchase Agreement between Lunn Industries, Inc., Limco
Manufacturing Corporation and Alcore, Inc. Dated December 12, 1994.
10.12 Promissory Note dated January 16, 1995 payable to the order of Limco
Manufacturing Corporation in the amount of $608,762.
10.13 Promissory Note dated January 17, 1995 payable to the order of Limco
Manufacturing Corporation in the amount of $96,238.
10.14 Guaranty Agreement dated January 17, 1995 between Alcore, Inc. and Limco
Manufacturing Corporation.
10.15 Subordination Agreement dated January 17, 1995 by and among TAT
Technologies, Ltd., Limco Manufacturing Corporation and Lunn Industries,
Inc.
10.16 Assignment and Assumption of Obligations Agreement dated January 17, 1995
between Limco Manufacturing Corporation and Lunn Industries, Inc.
10.17 Amendment dated January 17, 1995 to the Asset Purchase Agreement by and
among Lunn Industries, Inc., Limco Manufacturing Corporation and Alcore,
Inc. dated December 12, 1994.
10.18 Loan Agreement dated January 17, 1995 between Lunn Industries, Inc. and
Cook and Cie, S.A.
10.19 Promissory note dated January 17, 1995 payable to the order of Cook & Cie,
S.A. in the amount of $360,000.
10.20 Promissory note dated January 17, 1995 payable to the order of J.E.
Sheehan & Company, Inc. in the amount of $100,000.
10.21 Letter dated January 10, 1995 subordinating the Commercial Revolving Loan,
Term Loan and Security Agreement dated May 21, 1993 with Shawmut Bank,
Connecticut, N.A. to the $100,000 promissory note payable to the order of
J.E. Sheehan & Company dated January 17, 1995.
10.22 Lease for the Company's headquarters located in Glen Cove, New York
dated January 1, 1995 between Grill Leasing Corp. and Lunn Industries,
Inc.
10.23 Moratorium Agreement dated February 24, 1995 between Grill Leasing Corp.
and Lunn Industries, Inc.
10.24 Agreement effective July 19, 1995, between the Company and J.E. Sheehan &
Company extending the maturity date of note held by J.E. Sheehan &
Company.
10.25 Promissory Note dated December 28, 1995 payable to the order of Gibraltar
Corporation of America.
10.26 Security Agreement dated December 28, 1995 between the Company and
Gibraltar Corporation of America.
10.27 Rider to the Financing Agreement dated December 28, 1995 between the
Company and Gibraltar Corporation of America.
10.28 Financing Agreement dated December 28, 1995 between the Company and
Gibraltar Corporation of America.
10.29 Security Agreement dated December 28, 1995 between the Company and
Gibraltar Corporation of America.
10.30 Amended and Restated Commercial Revolving Loan, Term Loan and Security
Agreement dated December 28, 1995, by and among the Company, Alcore, Inc.,
and Fleet National Bank of Connecticut.
10.31 Amended and Restated Subordinated Term Note date December 28, 1995 payable
to the order of Fleet National Bank of Connecticut.
10.32 Warrant dated December 28, 1995 issued to Fleet National Bank of
Connecticut.
13.1 Form 10-QSB for the period ended March 31, 1995, previously filed with the
Commission, is herein incorporated by reference.
13.2 Form 10-QSB for the period ended June 30, 1995, previously filed with the
Commission, is herein incorporated by reference.
13.3 Form 10-QSB for the period ended September 30, 1995, previously filed with
the Commission, is herein incorporated by reference.
21 List of Registrant's subsidiaries previously filed with the Commission in
the Annual Report on Form 10-K/A Amendment 1 for the fiscal year ended
December 31, 1993, is herein incorporated by reference.
Exhibit 10.25
PROMISSORY NOTE
New York, New York
December 28, 1995
$750,000
FOR VALUE RECEIVED, each of the undersigned, jointly and severally,
LUNN INDUSTRIES, INC. and ALCORE, INC. ("Maker"), hereby unconditionally
promises to pay to the order of GIBRALTAR CORPORATION OF AMERICA (the "Payee"),
at its offices located at 350 Fifth Avenue, New York, New York 10118 or at such
other place as the Payee or any holder hereof may from time to time designate,
the aggregate principal sum of Seven Hundred Fifty Thousand ($750,000) Dollars
in lawful money of the United States and in immediately available funds, in
thirty-six (36) consecutive monthly installments (or earlier, as hereinafter
provided) commencing February 1, 1996 and on the first day of each month
thereafter, of which the first six (6) installments shall each be in the amount
of Thirty Thousand ($30,000) Dollars and the following six (6) installments
shall each be in the amount of Twenty-Five Thousand ($25,000) Dollars and the
following twelve (12) installments shall each be in the amount of Twenty-Three
Thousand ($23,000) Dollars and the following eleven (11) installments shall each
be in the amount of Twelve Thousand ($12,000) Dollars, and the last and
thirty-sixth (36th) installment shall be in the amount of the entire unpaid
balance hereof.
Maker hereby further promises to pay interest to the order of Payee in
like money at said office or place on the unpaid principal balance hereof
computed at a rate of two (2%) percent per annum in excess of the Base Rate (as
hereinafter defined), and at a rate, upon and after an Event of Default (as
hereinafter defined) or termination or non-renewal of the Financing Agreements
(as hereinafter defined), of four (4%) percent per annum in excess of the Base
Rate. Such interest shall be payable commencing on the first day of the month
next following the date hereof (i.e., February 1, 1996) and on the first day of
each month thereafter. Interest shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed. In no event shall the
interest charged hereunder exceed the maximum permitted under the laws of the
State of New York.
As used herein, the term "Base Rate" shall mean the rate of interest
publicly announced by United Jersey Bank from time to time as its base rate (the
Base Rate is not intended to be the lowest rate of interest charged by United
Jersey Bank to its borrowers) and the term "Event of Default" shall mean an
event of default under the Financing Agreements.
This Note is issued as evidence of certain indebtedness arising
pursuant to the terms and provisions of the Financing Agreement, dated of even
date herewith, executed and delivered by Maker in favor of Payee (the foregoing,
together with all agreements, documents and instruments now or at any time
hereafter executed and/or delivered in connection therewith or otherwise related
thereto, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements"). This Note is entitled to the
benefits of the Financing Agreements and is secured by, and entitled to the
benefits of, any and all collateral security pledged or granted by Maker or
related parties to Payee as set forth in the Financing Agreements or otherwise.
At the time any payment is due hereunder, at its option, Payee may
charge the amount thereof to any account(s) of Maker, or any guarantors thereof,
maintained by Payee.
If any principal or interest payment is not made when due hereunder or
if any Event of Default shall occur for any reason under the Financing
Agreements, or if the Financing Agreements shall be terminable or be terminated
or not renewed for any reason, then and in any such event, in addition to all
rights and remedies of the Payee under the Financing Agreements, applicable law
and otherwise, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively and concurrently, Payee may, at its
option, declare any or all of Maker's obligations, liabilities and indebtedness
owing Payee under the Financing Agreements, including, without limitation, any
or all amounts owing under this Note (the "Obligations"), to be due and payable,
whereupon the then unpaid balance thereof together with all interest accrued
thereon shall forthwith become due and payable, together with interest accruing
thereafter at the highest rate provided for in this Note or the other Financing
Agreements until this Note and such other Obligations are fully paid, plus the
costs and expenses of collection thereof, including reasonable attorneys' fees
and legal expenses.
Maker hereby waives diligence, demand, presentment, protest and notice
of any kind and assents to extensions of the time of payment, release, surrender
or substitution of collateral security or forbearance or other indulgence,
without notice. Payee shall not be required to attempt to realize upon any
collateral security for payment, but may proceed against Maker and any
guarantors in such order or manner as Payee may choose, except as limited by the
Financing Agreement.
The provisions of this Note may not be changed, modified or terminated
orally, but only by an agreement in writing signed by the party to be charged,
nor shall any waiver be applicable except in the specific instance for which it
is given.
Maker hereby waives all rights to trial by jury in any action or
proceeding instituted by either Maker or Payee against the other arising on, out
of or by reason of this Note, any alleged tortious conduct by Maker or Payee or
in any way, directly or indirectly, arising out of or related to the
relationship between Maker and Payee. In no event will Payee be liable for lost
profits or other special or consequential damages.
Maker hereby waives all rights to interpose any claims, deductions,
setoffs or counterclaims of any kind, nature or description in any action or
proceeding instituted by Maker with respect to this Note or any matter arising
herefrom or relating hereto, except compulsory counterclaims.
Maker hereby irrevocably submits and consents to the non-exclusive
jurisdiction of the State and Federal Courts located in the State of New York
with respect to any action or proceeding arising out of this Note or any matter
arising herefrom or relating hereto. Any such action or proceeding commenced by
Maker against Payee will be litigated only in a Federal Court or a State Court
located in New York City, New York and Maker waives any objection based on forum
non conveniens and any objection to venue in connection therewith.
Service of process or notice in connection with any proceedings may be
served (i) inside or outside the State in which the office of Payee indicated
above is located by registered or certified mail, return receipt requested,
addressed to the Maker at the address set forth below or of which Maker has
advised Payee in writing, as indicated in the records of Payee, and service or
notice so served shall be deemed complete five (5) days after the same shall
have been posted, or (ii) in such manner as may be permissible under the rules
of said Courts.
The execution and delivery of this Note has been authorized by the
Board of Directors of Maker. This Note and the other Financing Agreements, shall
be governed by and construed, and all rights and obligations hereunder
determined, in accordance with the internal laws of the State of New York and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, its successors, endorsees and assigns. If the undersigned
are more than one, this Note shall be binding jointly and severally upon the
undersigned and their respective successors and assigns and the term "Maker"
shall mean, individually and collectively, all the undersigned and any one or
more of them and their successors and assigns. If any term or provision of this
Note shall be held invalid, illegal or unenforceable, the validity of all other
terms and provisions hereof shall in no way be affected thereby.
LUNN INDUSTRIES, INC.
By:
Title: Chief Executive Officer
ALCORE, INC.
By:
Title: Chief Executive Officer
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On this 28th day of December, 1995, before me personally came Alan Baldwin,
to me known, who, being duly sworn, did depose and say, that he is the Chief
Executive Officer of LUNN INDUSTRIES, INC., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On this 28th day of December, 1995, before me personally came Alan Baldwin,
to me known, who, being duly sworn, did depose and say, that he is the Chief
Executive Officer of ALCORE, INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
Notary Public
Exhibit 10.26
SECURITY AGREEMENT - [EQUIPMENT]
LUNN INDUSTRIES, INC. (herein called "Debtor") and GIBRALTAR CORPORATION OF
AMERICA, a New York corporation (herein called "Secured Party") hereby agree as
follows:
1. Debtor grants to Secured Party a security interest in the following
Equipment (herein called "Collateral"):
a. All of Debtor's present machinery, equipment, fixtures, vehicles,
furniture, tools, dies, jigs, and attachments (including, but not limited to,
the items listed and described on the Schedule of Equipment annexed);
b. All of Debtor's additional Equipment, of like or unlike nature, to
be acquired hereafter, and all replacements, accessions, and improvements to any
of the foregoing; and
c. All of the proceeds and products of any or all of the foregoing.
2. Said security interest shall always secure all of the following:
a. the payment of all of Debtor's present and future liabilities,
indebtedness and obligations due Secured Party, including, but not
limited to, the "Obligations" as defined in the Financing Agreement
between Debtor and Secured Party dated of even date herewith (the
"Financing Agreement"), however arising, and under the other "Loan
Agreements", as defined in the Financing Agreement, and any other
related documents, instrument, note, agreement or guaranty creating or
evidencing indebtedness or granting collateral security in favor of
Secured Party, all as the same may now exist or hereafter be amended,
modified, supplemented, renewed or extended; all other existing debts
and liabilities of Debtor to Secured Party; all future advances made
by Secured Party to or for the account of Debtor, including advances
for rent, insurance, storage, repairs to and maintenance of the
Collateral, taxes, and discharge of any other lien, security interest
or encumbrance; all other indebtedness, liabilities, undertakings and
obligations, however created direct or contingent (including
guarantees), arising or acquired by Secured Party, which Debtor may now
or hereafter owe to Secured Party; all costs and expenses incurred in
the collection of any of the foregoing, including reasonable attorneys'
fees, as hereinafter mentioned; and without limiting any of the
foregoing, all undertakings, guarantees, debts, liabilities and
obligations of Debtor to Secured Party.
3. Until default hereunder, Debtor shall be entitled to possession of the
Collateral, which shall be kept only at: 1 Garvies Point Road, Glen Cove,
New York 11542 and the following additional address (if any): 1324 Brass
Mill Road, Belcamp. Maryland 21017; Patuxent Range Road, Jessup, Maryland
20794.
4. Debtor warrants, covenants, and agrees that: Debtor is the sole owner
of the Collateral free from any lien, security interest or encumbrance, has
the right to grant Secured Party a security interest therein, and will
defend the Collateral against the claims and demands of all persons; Debtor
shall not sell, lease, encumber, remove, conceal or grant or permit any
further security interest in the Collateral, nor part with possession of any
thereof, nor permit the same to be used for hire nor in violation of any law
or ordinance; Debtor shall maintain the Collateral in good condition and
repair at Debtor's sole expense; Debtor will pay all taxes levied on the
Collateral, and will make due and timely payment or deposit of all Federal,
State, and local taxes, assessments or contributions required by law and
will execute and deliver to Secured Party, on demand, appropriate
Certificates attesting to the payment or deposit thereof; No financing
statement covering the Collateral, or any part thereof, is on file in any
public office, except as disclosed in the Financing Agreement, and Debtor's
present or hereafter acquired Collateral is and shall not be or become
subject to any purchase-money or other lien or security interest except in
favor of Secured Party; Debtor shall procure and maintain insurance on the
Collateral for the full term of this security agreement, against the risks
of fire, theft and such other risks as Secured Party may require (including
the risk of collision in case any part of the Collateral is a motor vehicle)
by insurers satisfactory to Secured Party, and shall deliver to Secured
Party a fully paid policy or policies of insurance properly endorsed in
favor of Secured Party. The Debtor hereby irrevocably appoints the Secured
Party as its attorney-in-fact, to institute any action or proceeding
necessary or proper for the recovery and collection of any moneys that may
become due under the aforesaid policies of insurance and to discharge,
compound or release any claims and to execute, acknowledge and deliver any
instruments under said policies of insurance and further to endorse the name
of the Debtor to any check, draft or other instrument given in payment or in
liquidation of any claim under the said policies of insurance, and to
perform every other act and thing under said policies of insurance; Debtor
will permit Secured Party to inspect the Collateral at any time; Loss,
theft, damage, destruction or seizure of the Collateral shall not relieve
the Debtor from the payment of any indebtedness secured hereby; The
Collateral is not now and will not hereafter be so affixed to realty as to
become a part thereof or a fixture except as may be set forth on the
schedule annexed; The execution and delivery hereof, if Debtor is a
corporation, has been duly authorized by all necessary action of Debtor's
directors and shareholders; Secured Party is authorized to execute on
Debtor's behalf and file, at Debtor's cost, such financing statements and
other instruments or documents as may be necessary to perfect and protect
Secured Party's security interest; and In case of Debtor's default in
performing any warranty, covenant or undertaking hereunder, Secured Party
may (but shall not be obliged to) procure the performance thereof and add
the cost thereof, with interest, to the indebtedness secured hereby.
5. The occurrence of any of the following events or conditions shall, at
the option of Secured Party and without notice or demand, constitute an
event of default hereunder: Default in the due payment of any indebtedness
secured hereby; or Failure of Debtor to perform any covenant or undertaking
on Debtor's part herein or in any other agreement now existing or hereafter
made with Secured Party, or now or hereafter held by Secured Party; or
Breach of any warranty or falsity of any representation made by Debtor to
Secured Party; or Attachment or seizure of or levy upon the Collateral; or
institution of any proceeding by or against Debtor or Debtor's business
under any bankruptcy or insolvency statute, or Debtor's assignment for
benefit of creditors, or the appointment of a receiver for Debtor or the
Collateral, or the filing of a tax lien notice against Debtor by any taxing
authority; or Reasonable insecurity of Secured Party; or Loss, theft,
substantial damage, destruction, sale, encumbrance, concealment, removal, or
forfeiture of the Collateral or any material portion thereof; or an Event
of Default under the Financing Agreements.
6. Upon the occurrence of any event of default, Secured Party may declare
all Debtor's indebtedness secured hereby immediately due and payable, and
thereupon Secured Party shall have the right to take possession of the
Collateral and shall have all other rights and remedies of a Secured Party
under the Uniform Commercial Code. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party shall give Debtor reasonable notice of the
time and place of any public sale thereof or of the time after which any
private sale or other intended disposition thereof is to be made. Debtor
agrees that the requirements of reasonable notice shall be met if notice is
mailed to Debtor at the address of Debtor shown below not less than five (5)
days prior to the sale or other disposition. Secured Party may require
Debtor to assemble the Collateral and make it available to Secured Party at
a place to be designated by Secured Party which is reasonably convenient to
both parties. Secured Party is authorized to maintain, sell, or dispose of
the Collateral on the premises of the Debtor. Secured Party's rights and
remedies shall be cumulative and not alternative. Debtor agrees that
Secured Party may be the purchaser at any public or private sale.
7. If Debtor defaults hereunder or if any of the Secured Party's rights
hereunder are challenged or contested or if Debtor fails to make payment of
any of the Obligations when required of it, or fails to make any payment
required by this Agreement or commits any breach of this Agreement, or any
present or future supplement hereto, or any other agreement between Debtor
and Secured Party and/or upon termination of this agreement, the Debtor will
repay upon demand all Obligations then owing to Secured Party, whether due
or not, and in addition thereto upon the occurrence of any of the above
contingencies Secured Party is hereby given the unqualified right to retain
counsel for any of the following purposes: To protect its interest in this
Security Agreement; To protect, assemble, sell, or foreclose any of the
equipment chattels, inventory, instruments, documents, chattel paper,
general intangibles or other collateral now or hereafter pledged to it; To
collect any money which may become due under this or any other security
agreement or Obligation from Debtor, or any guarantor, or anyone else
against whom Secured Party may have any direct or contingent claim pursuant
to the terms hereunder or pursuant to the terms of any guarantee or
assignment or security agreement; and To otherwise seek in any manner to
protect, defend and enforce Secured Party's rights hereunder or elsewhere
contained, or collect any moneys or obligations due Secured Party from
Debtor. If Secured Party retains counsel for any of the purposes
aforementioned, Debtor agrees to pay reasonable counsel fees, such counsel
fees and all disbursements incurred by Secured Party including but not
limited to all costs, charges, premiums, fees of Court and Public Officers
and other disbursements and expenses incurred by Secured Party in connection
with the enforcement, proceeding, collection, sale or suit involving any of
the aforementioned purposes shall be paid by Debtor on demand; and the
amount thereof shall be added to the indebtedness secured by this Security
Agreement and shall be secured by the lien given Secured Party by this and
any other security instrument in the same manner as if said amount were a
part of the principal sum due from Debtor to Secured Party.
8. That the Debtor as further additional collateral security, by these
presents assigns to the Secured Party all of the Debtor's present and future
rights to any and all payments, checks and drafts, now made or hereafter to
be made by any insurance company pursuant to any contract of insurance or
indemnity now or hereafter in existence regardless of whether or not the
Secured Party is named as Secured Party and/or Mortgagee, and/or Loss Payee
in said present or future insurance policy or policies. The rights given to
the Secured Party hereunder are coupled with an interest and cannot be
revoked by the Debtor. Each present and future insurance carrier is hereby
authorized and directed to make all payments, drafts and checks payable to
Secured Party with the same force and effect as if the same were paid
directly to the Debtor.
9. That as further additional collateral security for the repayment of all
present and future obligations of Debtor to Secured Party, the Debtor agrees
that any security interest (including the security interest created
hereunder) and/or mortgage and/or pledge of any property, whether of like or
unlike nature, which Secured Party may now or hereafter have in, to and of
any of Debtor's present or future property or assets, of any type or nature,
shall at all times be and remain additional collateral for the prompt
fulfillment by Debtor of all its present and future obligations hereunder or
elsewhere contained.
a. The words "debts", "liabilities", "indebtedness", "obligations", or
"undertakings", whether singular or plural, whether capitalized or not
and whether used alone or collectively, whenever used herein shall be
deemed to include without limitation all loans, advances, debts,
liabilities, undertakings, obligations, guarantees, covenants and
duties owing by Debtor to Secured Party or Secured Party's subsidiaries
of every kind and description (whether or not evidenced by any note or
other instrument and whether or not for the payment of money), direct
or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, including without limitation any undertaking,
guarantee, debt, liability or obligation owing from Debtor to others
which Secured Party or Secured Party's subsidiaries may have obtained
by assignment or otherwise, and further including without limitation,
all interest, fees, charges, expenses and attorneys' fees chargeable to
Debtor's account or incurred by Secured Party or Secured Party's
subsidiaries in connection with Debtor's account whether provided for
herein or elsewhere or in any other agreement between Debtor and
Secured Party.
10. This Security Agreement shall be made, construed and enforced according
to the laws of the State of New York. Waiver of any default shall not
constitute waiver of any subsequent or other default. All rights of Secured
Party shall inure to the benefit of its successors and assigns, and all
obligations of Debtor shall bind his or its heirs, executors, personal
representatives, successors and assigns.
11. So long as Debtor is indebted to Secured Party, Debtor will make no
loans, advances and guarantees to or for anyone, nor shall Debtor purchase
the stock or assets of any other business, nor shall Debtor purchase any of
its own stock without first obtaining the written consent of Secured Party.
Furthermore, as long as Debtor is indebted to Secured Party, Debtor will not
terminate any security agreement that it may now have or hereafter enter
into with Secured Party. All security interests now or hereafter held by
Secured Party whether, of like or unlike nature, shall always remain as
collateral for all present and future obligations of Debtor to Secured Party
and Secured Party shall be under no obligation to terminate any of its liens
or security interests or surrender any collateral until all obligations of
Debtor to Secured Party are paid to Secured Party in full. In the event of
litigation over any matter connected with this Agreement or resulting from
transactions hereunder, the right to a trial by jury is hereby waived by
both parties.
12. Nothing herein contained shall be deemed to change, vacate, modify or
terminate any of the obligations of Debtor to Secured Party, or extend the
time of payment of any of said obligations wheresoever or howsoever said
obligations arise, or decrease or impair any rights or remedies Secured
Party may have under any other lien or security instrument or any collateral
therein mentioned.
13. This Security Agreement is executed and delivered by Debtor to Secured
Party in connection with the Financing Agreement. In the event of any
conflict between any term or provision of this Agreement and any term or
provision of the Financing Agreement, the term or provision of the Financing
Agreement shall control.
Dated: December 28, 1995 Debtor: LUNN INDUSTRIES, INC.
Attest: By:
Signature
Alan Baldwin
Typed or Printed Name of Signatory
Secretary
Chief Executive Officer
Title of Signatory
Debtor's Mailing Address: 1 Garvies Point Road
Glen Cove, New York 11542
Secured Party: GIBRALTAR
CORPORATION OF AMERICA
By:
Signature
Typed or Printed Name of Signatory
Title of Signatory
Secured Party's Mailing Address:350 Fifth Avenue
New York, New York 10118
Exhibit 10.27
RIDER TO
FINANCING AGREEMENT
between
GIBRALTAR CORPORATION OF AMERICA ("Gibraltar")
and
LUNN INDUSTRIES, INC.("Borrower")
In addition to and not in limitation of any and all rights granted to
Gibraltar and obligations incurred by Borrower in the printed portion of this
Agreement, Borrower further warrants, covenants and agrees as follows:
14. DEFINITIONS
a. Affiliate. The term "Affiliate" or "affiliate" shall mean and
include any Person (as hereinafter defined) which, directly or
indirectly, is controlled by or is under common control with the
Borrower, including the officers, directors, or partners of the
Borrower, whether through ownership, voting securities, contracts or
otherwise.
b. Borrower Agreements. The term "Borrower Agreements" shall
mean and include, without limitation, this Agreement, the Security
Agreement-Inventory, the Security Agreement [Equipment], and the
Trademark and Patent Security Agreement each executed and delivered by
Borrower in favor of Gibraltar, the Guaranty executed and delivered by
ALCORE, INC. ("Other Borrower"), and all other related present and
future agreements, documents, notes, including the "Term Note" (as said
quoted term is defined below), instruments, mortgages and guaranties
creating or evidencing indebtedness or granting collateral security
therefor, executed and delivered in favor of Gibraltar, as all of the
foregoing may now exist or may hereafter be amended, modified,
supplemented, renewed or extended.
c. Collateral. The term "Collateral" or "collateral" shall mean and
include, without limitation, the "Receivables" described in paragraph 1
of the printed portion of this Agreement and any and all other items of
personal property, in which Borrower has granted or may in the future
grant a security interest to Gibraltar under the Loan Agreements or in
any supplement or supplements thereto or under any other agreement or
document executed and delivered in connection therewith, including, but
not limited to, any and all of the Borrower's inventory and equipment,
all of Borrower's right, title and interest in and to the goods or
other property represented by or securing any of the Collateral, all of
Borrower's rights as an unpaid vendor or lienor, including stoppage in
transit, replevin and reclamation, all additional amounts due to
Borrower from any customer or account debtor, irrespective of whether
such additional amounts have been specifically assigned to Gibraltar,
all guaranties and other agreements or property securing or relating to
any of the items referred to above or acquired for the purpose of
securing or enforcing any of such items, all present and future general
intangibles (including, but not limited to, all of Borrower's
now-existing or hereafter-acquired tax refunds, patents, trademarks,
trade names and tradestyles and license agreements relative to the
rendering of services or the sale or manufacture of goods, choses in
action, rights to sue any Person (as hereinafter defined) and proceeds
of any lawsuits or proceedings brought by Borrower against any Person),
chattel paper, documents, monies, deposits, securities, instruments,
credits and letters of credit, and all property now or hereafter held
by Gibraltar or any entity which at any time participates in
Gibraltar's financing transactions with Borrower, and all proceeds and
products of all of the foregoing in whatever form, together with all
present and future books and records relating to any of the above
including, without limitation, all tapes, cards, computer programs,
runs and computer data in the possession or control of Borrower, any
computer service bureau or other third party. Borrower hereby grants
Gibraltar a continuing security interest in and general lien upon all
of the Collateral to secure payment and performance of all of the
Obligations (as hereinafter defined).
d. Effective Net Worth. The term "Effective Net Worth" shall mean,
for any period, Tangible Net Worth plus any liability of Borrower and
Other Borrower to any party, the payment of which liability is
subordinated to the payment of the Obligations.
e. GAAP. The term "GAAP" shall mean generally accepted
accounting principles in the United States of America.
f. Liabilities. The term "Liabilities" shall mean, at any given time,
all liabilities of Borrower and Other Borrower on a consolidated basis
which would be classified as liabilities under GAAP.
g. Tangible Net Worth. The term "Tangible Net Worth" shall mean,
for any period, stockholders' equity less the aggregate amount of
intangible assets, less the aggregate principal amount of all unsecured
loans outstanding from Borrower and/or Other Borrower to any officer,
director and/or shareholder, less advances to Borrower's trade
suppliers or to any trade suppliers of Other Borrower constituting
prepayment for merchandise purchases, all as determined on a
consolidated basis for Borrower and Other Borrower in accordance with
GAAP.
h. Net Income. The term "Net Income" shall mean for any given
period, the net income of Borrower and Other Borrower, determined on a
consolidated basis, computed in accordance with GAAP.
i. Long Term Liabilities. The term "Long Term Liabilities" shall
mean, at any given time, all Liabilities of Borrower and Other Borrower
determined on a consolidated basis, which would be classified as long
term liabilities under GAAP.
j. Loan Agreements. The term "Loan Agreements" shall collectively
mean the Borrower Agreements and the Other Borrower Agreements.
k. Obligations. The term "Obligations" or "obligation" shall mean and
include, without limitation, that which is set forth in Paragraph 5 of
the printed portion of this Agreement and any and all of the Borrower's
indebtedness and/or liabilities to Gibraltar of every kind, nature and
description, direct or indirect, secured or unsecured, joint or
several, absolute or contingent, due or to become due, now existing or
hereafter arising, regardless of how they arise or by what agreement or
instrument they may be evidenced, including, but not limited to, all
amounts owing by Borrower to Gibraltar under this Agreement, the other
Loan Agreements, or any other security agreement or note, and all
obligations to perform acts or refrain from taking any action.
l. Other Borrower Agreements. The term "Other Borrower
Agreements" shall mean and include, without limitation, the Financing
Agreement, the Security Agreement-Inventory and the Security Agreement
[Equipment] executed and delivered by Other Borrower in favor of
Gibraltar, the Guaranty of Other Borrower's Obligations to Gibraltar
executed and delivered by Borrower in favor of Gibraltar and all other
related agreements, documents, notes, instruments, mortgages,
guaranties and deeds of trust creating or evidencing indebtedness or
granting collateral security therefor, executed and delivered in favor
of Gibraltar, as all of the foregoing may now exist or may hereafter be
amended, modified, supplemented, renewed or extended.
m. Participant. The term "Participant" shall mean and include any
person which, at any time, participates with Gibraltar in respect of
the Obligations of Borrower.
n. Person. The term "Person" or "person" shall mean and include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, institution,
entity, party or government, whether national or federal, state,
county, city, municipal or otherwise, including without limitation any
instrumentality, division, agency, body or department thereof.
o. Uniform Commercial Code. All capitalized terms and other terms used
herein or in the other Loan Agreements which are defined in the Uniform
Commercial Code, shall have the meanings set forth in such Uniform
Commercial Code, unless otherwise defined herein or therein.
p. Value. The term "Value" or "value" shall mean the lower of cost or
market, as determined by Gibraltar in its sole discretion in accordance
with generally accepted accounting principles, consistently applied.
15. ADDITIONAL SECURITY
In addition to any other security interest granted in the Loan
Agreements, and not in limitation of any of the foregoing, and to secure the
payment and performance of all of the Obligations, Borrower hereby pledges and
assigns to Gibraltar, and grants to Gibraltar a continuing first priority
general security interest in all of the Collateral, and all of Borrower's ledger
sheets, files, records and documents relating to the Collateral and all
equipment containing or relating to said ledger sheets, files, records and
documents, which shall, until delivered to or removed by Gibraltar, be kept by
Borrower in trust for Gibraltar and without cost to Gibraltar in appropriate
containers in safe places, bearing suitable legends disclosing Gibraltar's
security interest. Each confirmatory assignment schedule or other form of
assignment hereafter executed by Borrower shall be deemed to include the
foregoing, whether or not same appears therein.
16. ADVANCES
a. Inventory Advances. In addition to the advances made with
reference to the formula set forth in paragraph 2 of the printed
portion of this Agreement (the "Accounts Advances"), Gibraltar shall
make additional advances to Borrower, in such amounts from time to time
determined by Gibraltar in its sole discretion, of up to twenty-five
(25%) percent of the value of Borrower's eligible and acceptable
inventory ("Inventory Advances"). For purposes hereof, "value" shall
mean the lower of cost or market value, as determined by Gibraltar in
its sole discretion.
b. Inventory Advances Sublimit. Except in Gibraltar's sole
discretion, the aggregate principal amount of Inventory Advances made
by Gibraltar to Borrower shall not, at any time outstanding, exceed the
principal sum of $600,000.
c. [Intentionally Deleted].
d. [Intentionally Deleted].
e. Term Loan. In addition to the Accounts Advances and Inventory
Advances, Gibraltar has contemporaneously herewith made an additional
advance to Borrower in the sum of $750,000 (the "Term Loan"). The
Term Loan shall be evidenced by a Promissory Note in the principal sum
of $750,000 dated of even date herewith, executed and delivered by
Borrower in favor of Gibraltar (the "Term Note"). The indebtedness
evidenced by the Term Note shall be payable as set forth therein.
f. Maximum Credit. Except in Gibraltar's sole discretion, the
aggregate principal amount of the Accounts Advances and Inventory
Advances plus the outstanding principal amount due under the Term Loan
(collectively, the "Loan") plus the outstanding principal amount of the
obligations from time to time due and owing Gibraltar by Other
Borrower under the Other Borrower Agreements shall not exceed the
aggregate principal sum of $3,500,000 outstanding at any one time
("Maximum Credit").
g. Interest. All Loans, including the Accounts Advances, by Gibraltar
pursuant to the Loan Agreement shall bear interest at the rate of two
(2%) percent per annum in excess of the Base Rate, publicly announced
from time to time by United Jersey Bank at its principal office as its
"base rate", whether or not said rate is the best available rate at
said Bank, and shall be calculated on the basis of a 360-day year.
Such interest, as well as any other fees due and payable hereunder to
Gibraltar, shall be payable on the first day of each month for the
immediately preceding month while this Agreement is in effect, and may,
at Gibraltar's option, be charged to any of Borrower's accounts
(maintained by Gibraltar). On or after the occurrence of any Event of
Default (as defined below), or termination or non-renewal of the Loan
Agreements, interest on all outstanding unpaid Obligations shall accrue
at a rate equal to two (2%) percent per annum in excess of the
pre-default rate set forth above from the date of such Event of Default
or termination or non-renewal, and all interest accruing hereunder
shall thereafter be payable on demand.
h. Over Formula Provision. Without limiting Gibraltar's rights to
demand payment of the Obligations or any portion thereof in accordance
with other provisions hereof, in the event that the Maximum Credit or
any components thereof at any time exceed the respective maximum
amounts set forth in paragraphs C.1, C.2, C.5, C.6, or in paragraph 2
of the printed portion of this Agreement, the entire amount of such
excess(es) shall, at Gibraltar's option, become immediately due and
payable upon Gibraltar's demand.
i. Non-Refundable Facility Fee. Borrower and Other Borrower,
jointly and severally, shall pay to Gibraltar an annual facility fee in
the aggregate amount of one (1%) percent of the Maximum Credit
("Facility Fee"), payable simultaneously with the execution of this
Agreement and yearly thereafter on the anniversary date hereof for the
term, including all renewal terms of this Agreement or so long as any
of the Obligations are outstanding. Such Facility Fee, which shall be
fully earned as of the date hereof for the first year of this Agreement
and on each anniversary date of this Agreement for each subsequent year
of this Agreement, is in addition to all other amounts due hereunder
and may, at Gibraltar's option, be charged to any account(s) of
Borrower maintained with Gibraltar.
j. Loan Administration Fee. Borrower and Other Borrower, jointly and
severally, agree to pay Gibraltar a loan administration fee in the
aggregate amount of SEVEN HUNDRED ($700.00) DOLLARS per month. The loan
administration fee shall be fully earned as of the first day of each
month and shall be due and payable on the first day of each successive
month during the term of this Agreement.
k. Other Costs and Expenses. Borrower will pay all costs and
expenses and all recording and filing fees and taxes payable upon
filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees) in connection with the preparation,
execution, delivery, administration and enforcement of this Agreement,
all other Loan Agreements, and all other documents contemplated herein
or therein or related hereto or thereto, including any amendments,
supplements or consents which may be hereafter made or entered into in
respect hereof or thereof, and all title insurance premiums, appraisal
fees, audit fees and personal and real property searches in connection
herewith and therewith, and the fees and disbursements of in-house and
outside counsel to Gibraltar. Gibraltar is hereby authorized to charge
any amounts payable hereunder (including principal, interest, fees,
charges and expenses) directly to any account(s) of Borrower maintained
with Gibraltar.
l. Reserve Provision. Without limiting any other rights and remedies
of Gibraltar under the printed portion of this Agreement, hereunder or
under the other Loan Agreements, the aggregate amount of loans,
advances or financial accommodations made or otherwise available to
Borrower shall be subject to Gibraltar's continuing right, in its sole
discretion, to withhold a reserve, and to increase and decrease such
reserve from time to time, if and to the extent that, in Gibraltar's
sole judgment, such reserve is necessary to protect Gibraltar against
possible non-payment of the Obligations, possible non-payment of any
indebtedness owed to third parties, or in respect of any state of facts
which does or would with notice or passage of time or both constitute
an Event of Default hereunder or under any of the other Loan
Agreements.
m. Application of Payments. All payments made by or on behalf of
Borrower with respect to the Obligations may be applied by Gibraltar in
such order and manner as Gibraltar shall determine.
n. Maintenance of Accounts. Gibraltar may maintain one or more
accounts reflecting the advances, repayments and any notes contemplated
under this Agreement. At Gibraltar's option, all principal, interest,
fees, costs, expenses or other charges with respect to this Agreement
and any and all loans and advances to Borrower may be charged directly
to any account of Borrower maintained with Gibraltar. All Collateral
held by Gibraltar and granted to Gibraltar by Borrower (or any third
party) pursuant to the Loan Agreements shall be security for the
payment and performance of any and all Obligations of Borrower to
Gibraltar, notwithstanding the maintenance of separate accounts by
Gibraltar or the existence of any notes.
o. Promissory Notes. Borrower shall, from time to time at Gibraltar's
request, execute and deliver to Gibraltar one or more promissory notes,
in form and substance satisfactory to Gibraltar, evidencing the Loan or
portions thereof, made to Borrower pursuant to this Agreement, as
Gibraltar may specify.
p. Use of Proceeds. The initial loans and advances made by
Gibraltar to Borrower and Other Borrower hereunder shall be used by
Borrower and Other Borrower to pay, inter alia, Borrower's outstanding
indebtedness due Shawmut Bank Connecticut, National Association; J.E.
Sheehan & Co. not to exceed the amount of $115,000; and Jonas Aircraft
and Arms Pension Plan and Trust, Elliot Levine, James McNeil and Mark
B. Senders Retirement Plan, collectively, not to exceed the aggregate
amount of $122,000. Borrower shall use all future loans and advances
solely for general operating and working capital purposes in the
conduct of its business.
q. Participants. Gibraltar may, from time to time, sell, issue or
acquire, on such terms as Gibraltar shall deem appropriate,
participations with respect to all or any part of its right, title and
interest in this Agreement, the other Loan Agreements, the Obligations
and the Collateral thereunder or related thereto.
r. Unacceptable Receivables. Notwithstanding anything to the
contrary contained in the printed portion of this Agreement, and
without in any manner limiting Gibraltar's ability, in its sole
discretion, to determine whether any Receivable is acceptable, the
Borrower and the Other Borrower acknowledge, confirm and agree that:
(w) any Receivable with respect to any account debtor whose chief
executive office or principal place of business is located outside the
United States ("Foreign Account") and such Foreign Account is not
either insured by a foreign credit insurance policy in form, substance
and amount satisfactory to Gibraltar, which insurance policy, together
with the proceeds thereof, shall be duly assigned to Gibraltar or
secured by a letter of credit issued by a bank acceptable to Gibraltar
in form, substance and amount satisfactory to Gibraltar, which letter
of credit, together with the proceeds thereof shall be duly assigned to
Gibraltar; (x) any Receivable with respect to which exists contra
relationships, setoffs, counterclaims or disputes; (y) any Receivable
which is owed by an account debtor not deemed to be creditworthy at any
time by Gibraltar in its sole and absolute discretion; and (z) any
Receivable with respect to which exists any facts (actual or
threatened) which would impair or delay the collectibility of all or
any portion thereof, shall be deemed unacceptable Receivables under the
Loan Agreements.
s. Audit Fees. Borrower and Other Borrower, jointly and severally,
shall pay to Gibraltar all expenses and costs hereafter incurred by
Gibraltar during periodic field examinations of the Collateral and
Borrower and Other Borrower's operations, plus a per diem charge at a
rate of $500.00 per person per day for Gibraltar's auditors in the
field and office.
17. ADDITIONAL REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Gibraltar the following,
each of which shall be a continuing representation and warranty, the truth and
accuracy of which shall be a continuing condition of financing by Gibraltar:
a. Organization. Borrower is a duly organized and validly existing
corporation in good standing under the laws of the State of Delaware
with perpetual corporate existence, and has the corporate power and
authority to own its properties and to transact the business in which
it is engaged or presently proposes to engage. Borrower has qualified
as a foreign corporation in all states or other jurisdictions where the
nature of its business or the ownership or use of property requires
such qualification or where the failure to so qualify as a foreign
corporation would not have an adverse effect upon the Borrower's
business as presently conducted.
b. Authorization. Borrower has the corporate power to borrow and
to execute, deliver and carry out the terms and provisions of this
Agreement and the other Loan Agreements, and all other instruments and
documents delivered by it pursuant hereto and thereto, and Borrower has
taken or caused to be taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement and the other
Loan Agreements and such other agreements, the borrowings hereunder and
the execution, delivery and performance of the instruments and
documents delivered and to be delivered by it pursuant hereto and
thereto, and this Agreement and the other Loan Agreements constitute
and will constitute legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms.
c. Compliance with Other Agreements. Borrower is not in default
in any material respect under any indenture, mortgage, deed of trust,
agreement or other instrument to which it is a party or by which it or
its properties may be bound, except that, Borrower is in default under
that certain Lease dated November 23, 1993 between Borrower and First
Danbury Properties, Inc. Neither the execution and delivery of this
Agreement and the other Loan Agreements, or any of the instruments and
documents to be delivered by Borrower pursuant hereto or thereto, nor
the consummation of the transactions herein or therein contemplated,
nor compliance with the provisions hereof or thereof, has violated any
law or regulation, or any order or decree of any court or governmental
instrumentality in any respect, or does or will conflict with, or
result in a breach of, or constitute a default in any material respect
under, any indenture, mortgage, deed of trust, agreement or other
instrument to which Borrower is a party or by which it or its
properties may be bound, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the property of Borrower
(except as contemplated hereunder or under the other Loan Agreements)
or violate any provision of the Certificate of Incorporation or By-Laws
of Borrower.
d. Compliance with Applicable Law. Borrower is in compliance in
all material respects with the requirements of all applicable licenses,
laws, rules, regulations and orders of any governmental authority
relating to its business, including, without limitation, those embodied
in or promulgated pursuant to the Employee Retirement Income Security
Act of 1974, the Internal Revenue Code of 1986, the Securities Act of
1933, the Securities Exchange Act of 1934, the Federal Food, Drug and
Cosmetic Act, the Americans with Disabilities Act of 1990, the Resource
Conservation and Recovery Act of 1976, the Environmental Cleanup
Responsibility Act and any other Federal or State environmental
statute, all as amended to date.
e. Governmental Approval. No action of, or filing with, any
governmental or public body or authority (other than the filing or
recording of Uniform Commercial Code financing statements, mortgages or
other instruments typically required to perfect security interests or
liens in the types of property constituting Collateral) is required in
connection with the execution, delivery and performance of this
Agreement, the other Loan Agreements, or any of the instruments or
documents to be delivered by Borrower pursuant hereto or thereto.
f. Title To Properties. Borrower has good and marketable title
to all of its properties and assets and such properties and assets are
not subject to any liens, mortgages, pledges, security interests,
encumbrances or charges of any kind, except those in favor of Gibraltar
and such others as are specifically disclosed under the provisions of
this Agreement and the other Loan Agreements, as set forth in Schedule
A.
g. Principal Office; Collateral Locations. The address of the
principal place of business and chief executive office of Borrower is 1
Garvies Point Road, Glen Cove, New York 11542, which address is a
mailing address for said principal place of business and chief
executive office. All books and records of Borrower with respect to
the Collateral and the Collateral itself are maintained at the
addresses set forth on Schedule B annexed hereto and Borrower agrees
not to change such principal place of business or Collateral locations
without providing Gibraltar with ten (10) days prior written notice
and, prior to making such change, to execute any additional documents,
Uniform Commercial Code financing statements or notices which Gibraltar
may require.
h. Priority Of Liens. The security interests and liens granted by
Borrower to Gibraltar under this Agreement and the other Loan
Agreements constitute valid and perfected first priority liens and
security interests in and upon the property described herein and
therein, subject to the existing liens and security interests, if any,
set forth in the Loan Agreements and those set forth on Schedule A.
i. No Misrepresentation. None of the information contained in the
representations and warranties made by Borrower in this or the other
Loan Agreements, or in any other instrument, document, list,
certificate, statement, schedule or exhibit heretofore delivered or to
be delivered to Gibraltar as contemplated in this Agreement or in the
other Loan Agreements contains or will contain any untrue statement of
a material fact or omits or will omit to state a fact necessary in
order to make the statements contained herein or therein not
misleading.
j. No Event of Default. After giving effect to the transactions
contemplated by this Agreement, the other Loan Agreements and the other
instruments or documents delivered in connection herewith and
therewith, there does not exist, as of the date hereof, any condition
or event which constitutes an Event of Default (as herein defined) or
which, after notice or passage of time or both, would constitute such
an Event of Default.
k. Related Entities. Borrower has no parents or subsidiaries or
affiliates which Borrower makes loans or advances to or otherwise
transacts business with, except for the subsidiaries and affiliates
noted on Schedule C.
18. ADDITIONAL COVENANTS
Borrower covenants and agrees that, until all of the Obligations have
been indefeasibly paid in full, it shall comply with the following covenants,
each of which shall be a continuing condition of financing by Gibraltar, unless
Gibraltar shall otherwise consent in writing:
a. Tradestyles. Certain Receivables may be and/or certain of
Borrower's invoices may be, from time to time, rendered to customers
under the tradestyles listed on Schedule D annexed hereto (which,
together with any new tradestyles used after the date hereof are
referred to collectively as the "Tradestyles" and individually as a
"Tradestyle"). As to such Tradestyles and the related Accounts (as
such term is defined in the printed portion of this Agreement),
Borrower hereby warrants and agrees that:
i. each Tradestyle is a trade name and style (and not the
name of an independent corporation or other legal entity) by which
Borrower may identify and sell certain of its goods or services and
conduct a portion of its business;
ii. all Receivables and proceeds thereof and returned merchandise
which arise from the sale of goods invoiced under the Tradestyles
are and shall be (i) owned solely by Borrower and (ii) subject to
the security interest and other terms of this Agreement and the
other Loan Agreements;
iii. any dispute which may arise with customers with respect to the
products invoiced under the name of any of the Tradestyles are to
be subject to the terms of this Agreement and the other Loan
Agreements as though the Tradestyle did not exist;
iv. all confirmation sheets on assignments of accounts
delivered to Gibraltar by Borrower, whether such accounts are
invoiced in the name of any of the Tradestyles or Borrower, shall
be executed by Borrower as the owner of such assigned accounts;
v. new Tradestyles may only be used by Borrower after
Gibraltar is given fifteen (15) days prior written notice of the
use of any such new Tradestyle, which notice shall set forth the
name of such new Tradestyle; and
vi. Borrower does not currently use any Tradestyle other than
the Tradestyles listed on Schedule D hereto.
b. Sale of Assets, Consolidation, Merger, etc. Borrower will not
directly or indirectly sell, lease, transfer, abandon or otherwise
dispose of all or any substantial portion of its property or assets or
consolidate with or merge with or into any other entity or Person, or
permit any other entity to consolidate with or merge with or into it,
without the prior written consent of Gibraltar.
c. Maintenance of Existence. Borrower will, at all times, preserve,
renew and keep in full force and effect its existence as a Delaware
corporation and its rights and franchises with respect thereto,
continue to engage in business of the same type as it is now engaged,
and maintain, in full force and effect, all permits, licenses,
copyrights, trademarks, trade names, patents, approvals,
authorizations, leases and contracts necessary to carry on the business
as the same is being operated as of the date hereof.
d. Loans, Investments, Distributions and Inter-Company
Transactions. Borrower will not, directly or indirectly, during any
fiscal year of Borrower commencing with Borrower's current fiscal year:
lend or advance money or property to, or invest (by capital
contribution or otherwise) in any firm, corporation or Person; declare
or pay any cash dividends, or dividends in property, or make any other
distribution on account of any shares of any class of capital stock of
Borrower now or hereafter outstanding, or set apart any sums for such
purpose, or directly or indirectly, retire, purchase, redeem, or
otherwise acquire any such capital stock for any consideration other
than stock or apply or set apart any sums or other assets therefor, or
make any other distribution (by reduction of capital or otherwise) in
respect of any such capital stock, or agree to do any of the forgoing
until all the Obligations to Gibraltar have been fully and indefeasibly
paid; make any payment of the principal amount of or interest on any
indebtedness owing to any officer, director, shareholder, Affiliate or
other related Person of Borrower; make any loans or advances to any
officer, director, shareholder, Affiliate or other related Person of
Borrower, except that, Borrower may make inter-company transactions
with Other Borrower; directly or indirectly, enter into any sale, lease
or other transaction with any officer, director, shareholder, Affiliate
or other related Person of Borrower which is not in the ordinary course
of business and at arm's length, including terms no less favorable than
would be available if the sale, lease or other transaction were with an
unrelated Person; become a guarantor, surety or otherwise liable for
the debts or obligations of any Affiliate; or make or incur any
liability to make any investment by means of purchase or other
acquisition of stock or other securities, capital contributions, loans
or otherwise in any Affiliate. Notwithstanding anything to the contrary
contained herein, provided that no event of default then exists or is
continuing upon the prior written consent of Gibraltar, which consent
shall not be unreasonably withheld, Borrower may make any payment
permitted under the intercreditor agreements dated of even date hereof
between Gibraltar and the parties listed on Schedule E annexed hereto;
upon the prior written consent of Gibraltar, which consent shall not be
unreasonably withheld, Borrower may make payments to the parties listed
on Schedule E from the proceeds of sale of the Borrower's capital
stock; and Borrower and Other Borrower may make payments on an
unmatured, unaccelerated basis to Allan Baldwin not to exceed the
aggregate amount of $56,000.
e. Compliance with Other Agreements and Applicable Law. Borrower will
comply with the requirements of all applicable laws, rules,
regulations, orders of any governmental authority, and all agreements
to which Borrower is a party, the noncompliance of which would
adversely affect its business, properties or credit.
f. Limitation on Liens. Borrower will not create, assume, or suffer
to exist any liens or encumbrances with respect to its real or personal
property, whether now owned or hereafter acquired, except: tax,
mechanics and other like liens arising in the ordinary course of
business securing obligations which are not overdue or (unless or until
foreclosure or other similar proceedings shall have been commenced) are
being contested in good faith by appropriate proceedings and are
adequately reserved against, liens arising in connection with worker's
compensation, unemployment insurance, appeal and release bonds and
securities pledged as collateral for any of the foregoing, the liens,
encumbrances, or security interests in favor of Gibraltar and the
liens, security interests, claims and encumbrances set forth in the
other Loan Agreements.
g. Further Assurances. Borrower will duly execute and deliver, or
will cause to be duly executed and delivered, such further instruments
and documents, including, without limitation, additional security
agreements, mortgages, collateral assignments, Uniform Commercial Code
financing statements or amendments or continuations thereof,
subordination agreements from Affiliates to whom monies are owed by
Borrower, including shareholders, officers and/or directors of
Borrower, landlord's or mortgagee's waivers of liens and consents to
the exercise by Gibraltar of all its rights and remedies hereunder or
under the other Loan Agreements with respect to the Collateral, and do
or cause to be done such further acts as may be necessary or proper in
Gibraltar's opinion to effectuate the provisions or purposes of this
Agreement or the other Loan Agreements.
h. Additional Financial Reports. In addition to the financial
information and schedules of Collateral to be delivered by Borrower to
Gibraltar as provided in the Loan Agreements, and not in limitation
thereof, Borrower shall provide Gibraltar with the following financial
reports: daily sales reports; daily collection reports; within
twenty (20) days after the end of each month, copies of Borrower's
internally prepared schedules pertaining to accounts receivable aging,
accounts payable aging and inventory designation in a form and
substance satisfactory to Gibraltar; quarterly compilation financial
statements prepared by management in a form and substance satisfactory
to Gibraltar; annual certified financial statements in a form and
substance satisfactory to Gibraltar; and any other financial
information and reports which may be reasonably required or requested
by Gibraltar.
19. ADDITIONAL DEFAULT AND REMEDY PROVISIONS
a. In addition to any default or event of default hereunder or under
any of the other Loan Agreements, including, without limitation, any
default set forth in the printed portion of this Agreement, the
occurrence of any of the following shall each constitute an Event of
Default hereunder and under all of the other Loan Agreements
(collectively, "Events of Default"): if, at any time, the Borrower and
the Other Borrower, on a consolidated basis, fail to maintain a
Tangible Net Worth of at least $6,800,000; if, at any time, for the
Borrower and Other Borrower on a consolidated basis, the ratio of
Liabilities, less any Liabilities the payment of which is subordinated
to the payment of the Obligations, to Effective Net Worth is greater
than 1.5 to 1; if, for any fiscal year for the Borrower and the Other
Borrower on a consolidated basis, the ratio of Net Income (computed
before net interest expense, taxes, depreciation and amortization) to
the sum of interest expense plus that portion of Long Term Liabilities
(including capitalized lease payments) which have become due and
payable during such fiscal year is less than 1.2 to 1; if, for any
fiscal year, the Net Income for Borrower and Other Borrower, on a
consolidated basis, is less than $1.00; or any change in the chief
executive officer, chief operating officer, chief financial officer or
controlling ownership of Borrower or Other Borrower; or in the event
that the Borrower is required to expend in excess of $250,000 in
connection with the removal, restoration or clean-up of any hazardous
substances, waste or other materials under any federal, state or local
environmental or similar laws, statutes, ordinances or regulations,
unless the same is adequately insured, as determined by Gibraltar in
its sole discretion; or any guarantor revokes, terminates or fails to
perform any of the terms of any guaranty, endorsement or other
agreement of such party in favor of Gibraltar or any affiliate of
Gibraltar; or upon the occurrence of any event which, with notice,
lapse of time or both, would constitute a default under any of the
other Loan Agreements or a default by Borrower on any indebtedness for
borrowed money or with respect to any material contract, lease or other
obligation owed to any Person or entity other than Gibraltar.
b. Upon the occurrence of an Event of Default (other than a payment
default or a default as expressly designated in paragraph F.2(b) below)
which remains uncured for ten (10) days after notice to Borrower, or
immediately upon the occurrence of a default in payment when due of
any of the Obligations, or if a tax lien is filed against Borrower and
remains unvacated for forty-five (45) days or if a case or proceeding
is commenced by or against the Borrower under Title 11 of the United
States Code or under any Federal or State bankruptcy or insolvency
statute and which, solely in the case of such petition or application
filed against Borrower remains undismissed for forty-five (45) days
after the filing thereof, of if Borrower fails, suspends or goes out of
business, or if any present or future warranty or representation or
other statement now or hereafter made or furnished to Gibraltar by
Borrower herein or in any document or instrument furnished in
connection herewith proves to have been false or misleading in any
material respect when made or furnished, or if any such Event of
Default consists of a failure to maintain, protect or preserve a
material portion of the Collateral as provided in any of the Loan
Agreements, or immediately upon the termination or non-renewal of this
Agreement or any of the other Loan Agreements, then Gibraltar shall
have all rights and remedies against Borrower available to Gibraltar
pursuant to paragraph 8 of the printed portion of this Agreement, as
well as all other rights and remedies hereunder and under applicable
law, including without limitation, the right to declare any and all of
the Obligations to be immediately due and payable together with
interest at the rate set forth in paragraph 3 of the printed portion of
this Agreement and the right to terminate the Loan Agreements pursuant
to paragraph 7 of the printed portion of this Agreement, and Gibraltar
shall have the right to immediately exercise all of its rights and
remedies hereunder or under any of the other Loan Agreements, without
notice to Borrower, which notice is hereby expressly waived by
Borrower.
c. In the event Gibraltar institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy or
otherwise, Borrower waives the posting of any bond which might
otherwise be required.
20. CURING OF CERTAIN DEFAULTS BY GIBRALTAR
Gibraltar may, at its option, cure any default by Borrower under any
agreement with a third party which constitutes, or with notice or lapse of time
or both would constitute, an Event of Default hereunder or under any other
agreement between Gibraltar and Borrower, or pay or post bond on appeal with
respect to any judgment entered against Borrower (irrespective of the amount of
said judgment or the time elapsed since entry thereof), and Gibraltar may add
any amounts so expended to the Obligations and charge Borrower's account
therefor, such amounts to be repayable by Borrower on demand; Gibraltar shall be
under no obligation to effect such cure, payment or bonding and shall not, by
making any payment for Borrower's account, be deemed to have assumed any
obligation or liability of Borrower.
21. NOTICES
All notices, requests and demands to or upon the respective parties
hereto shall be deemed to have been duly given or made: if by hand, immediately
upon delivery; if by telex, telecopier, facsimile or telegram, immediately upon
sending, provided it is sent on a business day, but if not, then immediately
upon the beginning of the first business day after being sent; if by Federal
Express, Express Mail or any other overnight delivery service, one (1) day after
dispatch; and if mailed by certified mail, return receipt requested, five (5)
days after mailing. All notices, requests and demands are to be given or made to
the respective parties at the following addresses (or to such other addresses as
either party may designate by notice in accordance with the provisions of this
paragraph):
If to Borrower: LUNN INDUSTRIES, INC.
1 Garvies Point Road
Glen Cove, New York 11542
Attention: Mr. Lawrence Schwartz
If to Gibraltar: GIBRALTAR CORPORATION OF AMERICA
350 Fifth Avenue
New York, New York 10118
Attention: Mr. Irwin Schwartz
22. CONTROLLING LAW
This Agreement, the other Loan Agreements, and any other document
referred to herein or therein are being executed and delivered in New York, New
York and shall be, together with the obligations and rights thereunder,
construed and interpreted in accordance with the laws of the State of New York.
23. JURISDICTION/WAIVER OF JURY TRIAL
Borrower hereby agrees that the Supreme Court for the County of New
York, State of New York and the United States District Court for the Southern
District of New York shall have non-exclusive jurisdiction to hear and determine
any claims or disputes pertaining directly or indirectly to this Agreement and
the other Loan Agreements. Borrower expressly and irrevocably submits and
consents in advance to such jurisdiction in any action or proceeding commenced
by Gibraltar in any of such courts, and agrees that service of such summons and
complaint, or other process or paper shall be made inside or outside the State
of New York by registered or certified mail, return receipt requested, addressed
to Borrower at its address as set forth in the printed portion of the Agreement,
or in such other manner as may be permissible under the rules of said courts.
Should Borrower fail to appear or answer any summons, complaint, process or
papers so served within thirty (30) days after the mailing thereof, Borrower
shall be deemed in default and an order and/or judgment may be entered by
Gibraltar against Borrower as demanded or prayed for in such summons.
Borrower hereby waives trial by jury in any action or proceeding
pertaining directly or indirectly to this Agreement and the other Loan
Agreements, and further agrees not to assert any offset or counterclaim, except
for compulsory counterclaims, in any such action or proceeding.
24. PARTIAL INVALIDITY
If any provision of this Agreement or the other Financing Agreements is
held to be invalid or unenforceable, such invalidity or unenforceability shall
not invalidate this Agreement or the other financing Agreements as a whole, but
this Agreement or the particular Financing Agreement, as the case may be, shall
be construed as though it did not contain the particular provision or provisions
held to be invalid or unenforceable and the rights and obligations of the
parties shall be construed and enforced only to such extent as shall be
permitted by law.
25. TERMINATION/PREPAYMENT
a. In addition to, and not in limitation of, paragraph 7 of the
printed portion of this Agreement, Borrower shall have the right, in
its sole discretion, to pay and prepay in full, but not in part, the
outstanding Obligations and to terminate this Agreement in accordance
with the terms and provisions of paragraph 7 of the printed portion of
this Agreement; provided that, (a) the other Loan Agreements are
terminated simultaneously herewith, (b) in any such case, Borrower
provides Gibraltar with sixty (60) days prior written notice of its
intent to terminate this Agreement (the sixtieth (60th) day following
such written notice being hereinafter the "Termination Date"), (c)
Borrower complies with the other provisions of paragraph 7 of the
printed portion of this Agreement, and (d) Borrower pays to Gibraltar
the amount of all principal, interest, charges, fees and expenses owed
to Gibraltar by the Borrower under this Agreement, the other Loan
Agreements, or otherwise, including but not limited to the early
termination fee as set forth in paragraph L.2. below.
b. If Gibraltar terminates this Agreement upon the occurrence of a
default or any Event of Default, or if this Agreement is terminated at
Borrower's request in accordance with paragraph L.1. above, in view of
the impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable
calculation of Gibraltar's lost profits as a result thereof, Borrower
and Other Borrower shall, jointly and severally, pay to Gibraltar, upon
the effective date of such termination, an early termination fee in an
amount equal to (any such amount as calculated below, an "Early
Termination Fee"):
(a) If such termination occurs on or prior to the first anniversary
of this Agreement, three (3%) percent of the Maximum Credit; and
(b) If such termination occurs after the first anniversary of this
Agreement or any renewal period, two (2%) percent of the Maximum Credit.
Such Early Termination Fee shall be presumed to be the amount of
damages sustained by such termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The Early Termination Fee shall be
deemed included in the Obligations.
26. CONFLICTS
In the event that any term or provision of this Rider conflicts with
any term or provision of the printed portion of this Agreement or any of the
other Loan Agreements to which Borrower is a party, or any document or
instrument delivered in connection herewith or therewith, the term or provision
of this Rider shall control.
LUNN INDUSTRIES, INC.
By:
Title: Chief Executive Officer
[SIGNATURES CONTINUED ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACCEPTED:
GIBRALTAR CORPORATION OF AMERICA
By:
Title:
SCHEDULE A
EXISTING LIENS
Liens upon and security interest in certain of the Borrower's assets in favor
of:
a. Bernard Grill
b. Fleet National Bank of Connecticut
c. Jones Aircraft and Arms Pension Plan and Trust
d. Elliot Levine
e. James McNeil
f. Mark B. Senders Retirement Plan
SCHEDULE B
EXISTING LOCATIONS OF COLLATERAL
1 Garvies Point Road
Glen Cove, New York 11542
1324 Brass Mill Road
Belcamp, Maryland 21017
8280 Patuxent Range Road
Jessup, Maryland 20794
SCHEDULE C
RELATED ENTITIES
Alcore Inc.
SCHEDULE D
TRADESTYLES
None
SCHEDULE E
Parties to Intercreditor Agreement
Cook & Cie
Bernard Grill
Jonas Aircraft and Arms Pension Plan and Trust
Elliot Levine
James McNeil
Mark B. Senders Retirement Plan
Fleet National Bank of Connecticut
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned, being the Other Borrower referred to in the within and
foregoing Financing Agreement and Rider (collectively, the "Loan Agreement"),
hereby acknowledge each of the terms and provisions of the foregoing Loan
Agreement and agree to be bound by the terms of paragraph the Loan Agreement and
agree to be bound by and, jointly and severally, agree to pay, the fees set
forth in paragraphs C.9, C.10 and L.2 of the Rider to the Financing Agreement.
The undersigned each acknowledge and agree that although it may
acknowledge this Loan Agreement, it is not a party thereto and does not and will
not receive any right, benefit, priority or interest under or because of the
existence of the Loan Agreement.
ALCORE, INC.
By:
Title: Chief Executive Officer
Exhibit 10.28
FINANCING AGREEMENT
GIBRALTAR CORPORATION OF AMERICA
350 Fifth Avenue
New York, New York 10118
Gentlemen:
This Agreement, effective as of the date of acceptance by you, states the
terms and conditions under which you will make revolving loans to us.
27. As security for Obligations (as herein defined) at any time owing by us to
you or your subsidiaries, we hereby assign to you and grant to you a
security interest in all of our Receivables (as herein defined) whether now
existing or hereafter arising or in which we now have or may hereafter
acquire any rights. The term "Receivables" means and includes accounts,
contract rights, instruments, documents, chattel paper, general intangibles
and all forms of obligations owing to us, all proceeds thereof and all of
our rights to any merchandise which is represented thereby. From time to
time, we shall provide you with schedules describing all Receivables created
or acquired by us and shall execute and deliver written assignments of such
Receivables to you, provided, however, that our failure to execute and
deliver such schedules and/or assignments shall not affect or limit your
security interest or other rights in and to Receivables. Together with each
schedule, we shall furnish copies of customers' invoices or the equivalent,
and original shipping or delivery receipts for all merchandise sold and we
warrant the genuineness thereof. We further warrant that all Receivables are
and will be bona fide existing obligations created by the sale and delivery
of merchandise or the rendition of services to customers in the ordinary
course of business, free of liens, encumbrances and security interests and
unconditionally owed to us without defense, offset or counterclaim.
28. You will lend to us at your discretion up to eighty-five (85%) percent of
the net amount of Receivables which you deem acceptable, and you will credit
the amount thereof to our account. The balance of said net amount, less any
moneys remitted, paid or otherwise advanced by you to or for the account of
the undersigned, including any amounts which you may be obligated to pay in
the future, and less the compensation specified in Paragraph "3", shall be
remitted to us when all said Receivables shall be collected. You or your
designee may notify customers or account debtors at any time that
Receivables have been assigned to you or of your security interest therein,
collect them directly and charge the collection costs and expenses to our
account but, unless and until you do so or give us other instructions, we
shall make collection of all Receivables for you, receive in trust all
payments thereon as your trustee and immediately deliver them to you in
their original form. After allowing two (2) business days for collection of
checks and other instruments, you will credit (conditional upon final
collection) all such payments to our account.
29. Interest will accrue at the rate set forth in the Rider attached hereto,
upon any balance of our account owing to you at the close of each day and
will be due and payable to you at the close of each month. In the event the
United Jersey Bank base rate prevailing on the effective date hereof is
subsequently changed, then an equivalent change will be made in the rate of
interest which will be charged to us, effective as of the date of each such
change. You will account monthly and each monthly accounting will be fully
binding on us unless we give you written notice of exceptions within thirty
(30) days. In no event shall the interest charged hereunder exceed the
maximum permitted by law.
30. If any warranty is breached as to any Receivable, or any Receivable is not
paid by the customer or account debtor within ninety (90) days from the date
of the invoice, or the customer or account debtor disputes liability or
makes any claim with respect thereto, or a petition in bankruptcy or other
application for relief under the Bankruptcy Code or any other insolvency
law, is filed with respect to the customer or account debtor or the customer
or account debtor assigns for the benefit of creditors, becomes insolvent,
fails, suspends or goes out of business, then you may deem unacceptable any
or all Receivables owing by that customer or account debtor and we shall pay
you promptly the amount thereof; but you shall retain your title to all
Receivables, acceptable and unacceptable and/or your security interest
therein until all Obligations have been fully satisfied. Any merchandise
which is returned by a customer or account debtor or otherwise recovered
shall be set aside, marked with your name and held by us as your trustee,
and shall remain a part of your security. We shall notify you promptly of
all returns and recoveries and on request deliver the merchandise to you. We
shall also notify you promptly of all disputes and claims and settle or
adjust them at no expense to you, but no discount, credit or allowance shall
be granted to any customer or account debtor and no returns of merchandise
shall be accepted by us without your consent. You may, at all times, settle
or adjust disputes and claims directly with customers or account debtors for
amounts and upon terms which you consider advisable, and in all cases you
will credit our account with only the net amounts received by you in payment
of Receivables, after deducting all costs and legal expenses.
31. All sums at any time standing to our credit on your books and all of our
property at any time in your possession, or upon or in which you have a lien
or security interest shall be security for all Obligations. The term
"Obligations" (as used in this Agreement) means and includes all loans,
advances, debts, liabilities, obligations, guarantees, covenants and duties
owing by us to you or your subsidiaries, of every kind and description
(whether or not evidenced by any note or other instrument and whether or not
for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, whether arising prior
to or subsequent to the commencement of any bankruptcy case, including,
without limitation, any debt, liability or obligation owing from us to
others which you or your subsidiaries may have obtained by assignment or
otherwise, and further including, without limitation, all interest, fees,
charges, expenses and attorneys' fees chargeable to our account or incurred
by you or your subsidiaries in connection with our account whether provided
for herein or in any other agreement between us. At the request of any of
your subsidiaries, you may pay over to it the amounts of all such
Obligations owing to such subsidiaries. Any corporation which is at least
fifty percent owned by you shall be deemed your subsidiary.
32. During the term of this Agreement, we shall not sell or assign or grant any
security interest in any Receivables to anyone other than you, nor shall we
mortgage, pledge or grant any security interest in any of our inventory or
equipment to anyone other than you. We shall place notations upon our books
of account to disclose the assignment of all Receivables to you or your
security interest therein and shall perform all other steps requested by you
to create and maintain in your favor a valid first security interest,
assignment or pledge in, of or on all Receivables and all other security
held by or for you. We waive presentment and protest of any instrument and
notice thereof, notice of default and all other notices to which we might
otherwise be entitled. You may at all times, have access to, inspect, audit
and make extracts from all of our records, files and books of account and
you may at any time remove from our premises all of them pertaining to our
Receivables; and we shall furnish you quarterly statements showing our
financial condition and the results of our operations and you may obtain
such information directly from our accountants. We shall deliver to you
within ninety days after the end of our fiscal year, our year-end financial
statement prepared by an independent Certified Public Accountant in a form
acceptable to you. We appoint you or any other person whom you may designate
as our attorney, with power: to endorse our name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that
may come into your possession; to sign our name on any invoice or bill of
lading relating to any Receivables, on drafts against customers, on
schedules and assignments of Receivables, on notices of assignment,
financing statements and other public records, on verifications of accounts
and on notices to customers; to notify the post office authorities to change
the address for delivery of our mail to an address designated by you; to
receive, open and dispose of all mail addressed to us; to send requests for
verification of Receivables to customers or account debtors, and to do all
things necessary to carry out this Agreement. We ratify and approve all acts
of the attorney. Neither you nor the attorney will be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law. This
power, being coupled with an interest, is irrevocable so long as any
Receivables assigned to you or in which you have a security interest remain
unpaid or until the Obligations have been fully satisfied. You may file one
or more financing statements disclosing your security interest without our
signature appearing thereon.
33. This Agreement is deemed to be made and accepted by you in the State of New
York and it and all transactions hereunder shall be governed by and
interpreted in accordance with the laws of that state. It shall have an
initial term of two (2) years from its effective date and shall be
automatically renewed for successive periods of one year unless terminated
by either party on the anniversary of its effective date (such anniversary
date, a "Renewal Date") in any year by giving the other at least sixty (60)
days' prior written notice. Termination shall be effected by the mailing of
a registered or certified letter of notice addressed by either of us to the
other at the address set forth herein and the termination shall be effective
as of the date so fixed in such notice. Notwithstanding the foregoing,
should we become insolvent or unable to meet our debts as they mature, or
fail, suspend or go out of business or commit an act of bankruptcy or make a
general assignment or if a case in bankruptcy or any insolvency or
reorganization case be commenced by or against us, or if you shall be
insecure as to any of the Collateral or as to the prospect of our payment or
performance of any of the Obligations, or if a Federal, State or any other
tax lien be filed against us or judgment rendered against us, you shall have
the right to terminate at any time without notice. Upon the effective date
of termination, all Obligations whether or not incurred under this Agreement
or any supplement hereto or otherwise shall become immediately due and
payable without notice or demand. Notwithstanding termination, until all
Obligations have been fully satisfied, you shall retain your security
interest in and title to all existing Receivables and those arising
thereafter, and we shall continue to assign Receivables to you and turn over
all proceeds to you. Termination by us shall not be effective if there are
any other Loan Agreements (as defined in the Rider attached hereto)
outstanding.
34. If we default hereunder or if any of your rights hereunder are challenged or
contested or if we fail to make payment of any of the Obligations when
required of us, or fail to make any payment required by this Agreement or
commit any breach of this Agreement, or any present or future supplement
hereto, or any other agreement between us and/or upon termination of this
agreement, the undersigned will repay upon demand all Obligations then owing
to you, whether due or not, and in addition thereto upon the occurrence of
any of the above contingencies you are hereby given the unqualified right to
retain counsel for any of the following purposes to protect your interest in
this Agreement, to protect, assemble, sell, or foreclose any of the
equipment, chattels, inventory, instruments, documents, chattel paper,
general intangibles or other collateral now or hereafter pledged to you, to
collect any money which may become due under this or any other Agreement or
Obligation from us or any account debtor, or any guarantor, or anyone else
against whom you may have any direct or contingent claim pursuant to the
terms hereunder or pursuant to the terms of any guarantee or assignment or
security agreement, to otherwise seek in any manner to protect, defend and
enforce your rights hereunder or elsewhere contained, or collect any monies
or obligations due from us. If you retain counsel for any of the purposes
aforementioned, we agree to pay reasonable counsel fees and all
disbursements incurred by you including, but not limited to, all costs,
charges, premiums, fees of Court and Public Officers and other disbursements
and expenses incurred by you in connection with the enforcement, proceeding,
collection, sale or suit involving any of the aforementioned purposes shall
be paid by us on demand; and the amount thereof shall be added to the
indebtedness secured by this Agreement and shall be secured by the lien
given you by this and any other security instrument in the same manner as if
said amount were a part of the principal sum due from us to you. You shall
have, in addition to all other rights provided herein, the rights and
remedies of a secured party under the Uniform Commercial Code of the State
of New York, and further, you may, without demand and without advertisement
or notice, all of which we waive, at any time or times, sell and deliver any
or all Receivables and any or all other security and collateral held by or
for you at public or private sale, for cash, upon credit or otherwise, at
such prices and upon such terms as you deem advisable, at your sole
discretion. Any requirement of reasonable notice shall be met if such notice
is mailed postage prepaid to us at our address as set forth herein at least
ten (10) days before the time of sale or other disposition. You may be the
purchaser at any such sale, if it is public, free from any right of
redemption, which we also waive. The proceeds of sale shall be applied first
to all costs and expenses of sale, including attorneys' fees, and second to
the payment (in whatever order you elect) of all Obligations. You will
return any excess to us and we shall remain liable to you for any
deficiency. Failure by you to exercise any right, remedy or option under
this Agreement or any present or future supplement hereto or in any other
agreement between us or delay by you in exercising the same will not operate
as a waiver; no waiver by you will be effective unless it is in writing and
then only to the extent specifically stated. Your rights and remedies under
this Agreement will be cumulative and not exclusive of any other right or
remedy which you may have. Both of us waive all right to a trial by jury in
any litigation relating to transactions under this Agreement.
35. That we, as further additional collateral security, by these presents assign
to you all our present and future rights to any and all payments, checks and
drafts, now made or hereafter to be made by any insurance company pursuant
to any contract of insurance or indemnity now or hereafter in existence,
regardless of whether or not you are named as Secured Party and/or
Mortgagee, and/or Loss Payee in said present or future policy or policies.
The rights given to you hereunder are coupled with an interest and cannot be
revoked by us. Each present and future insurance carrier is hereby
authorized and directed to make all payments, drafts and checks payable to
you with the same force and effect as if the same were paid directly to us.
36. We will furnish you with proof satisfactory to you of our making the payment
or deposit of F.I.C.A. and withholding taxes required of us by applicable
law. Such proof shall be furnished within five (5) days after the due date
for each payment or deposit established by law.
a. Should we fail to make any such payment or deposit or furnish such
proof, you may, in your sole and absolute discretion, and without
notice to us, make payment of the same or any part thereof, or set up
such reserves in our account as you deem necessary to satisfy the
liability therefor. Each amount so deposited or paid by you shall
constitute an advance under this Agreement and shall be secured by all
collateral now or hereafter held by you.
b. Nothing herein contained shall obligate you to make such deposit or
payment or set up such reserve, nor shall the making of one or more
such deposits or payment or the setting up of any such reserve
constitute an agreement on your part to take any further or similar
action, or a waiver of any default by us under the terms thereof or of
the security agreement.
c. Upon the expiration or termination of this Agreement or any
transactions hereunder or relating hereto, you shall retain your
security interests in all collateral held by you until we shall have
paid or discharged all such obligations, accrued to the date of such
expiration or termination, or shall have supplied you with evidence
satisfactory to you that due provision has been made therefor.
37. That as further additional collateral security for the repayment of all our
present and future Obligations to you, we agree that any security interest
(including the security interest created hereunder) and/or mortgage and/or
pledge of any property, whether of like or unlike nature, which you may now
or hereafter have in, to and of any of our present or future property or
assets, of any type or nature, shall at all times be and remain additional
collateral for the prompt fulfillment by us of all our present and future
Obligations hereunder or elsewhere contained.
38. All security interests now or hereafter held by you whether of like or
unlike nature, shall always remain as collateral for all our present and
future Obligations to you. You shall be under no obligation to terminate any
of your liens or security interests or surrender any collateral until all
our Obligations are paid in full to you.
39. This Agreement cannot be changed or terminated orally. All of the rights,
privileges, remedies and options given to you hereunder shall inure to the
benefit of your successors and assigns; and all the terms, conditions,
promises, covenants, provisions and warranties of this Agreement shall inure
to the benefit of and shall bind the representatives, successors and assigns
of each of us.
40. Reference is made to the Rider annexed hereto, the terms of which are
incorporated herein.
Very truly yours,
ATTEST: (SEAL) LUNN INDUSTRIES, INC.
By:
Secretary Chief Executive Officer
1 Garvies Point Road, Glen Cove,
New York 11542
Accepted at New York, New York
on December 28, 1995
GIBRALTAR CORPORATION OF AMERICA
By:_____________________________
Vice President
Exhibit 10.29
SECURITY AGREEMENT-INVENTORY
GIBRALTAR CORPORATION OF AMERICA
350 Fifth Avenue
New York, New York 10118
Gentlemen:
We hereby pledge, assign, consign, transfer and set over to you, and you
shall at all times have a continuing general lien upon, and we hereby grant you
a continuing security interest in, all of our present and hereafter acquired
Inventory and the proceeds thereof. We further grant you a continuing security
interest in your favor in all general intangibles, including all patents,
trademarks and trade names now owned or hereafter acquired by us, whether or not
registered, together with the good will of the business associated with each of
said Trademarks and Trade Names. "Inventory" shall include, but not be limited
to, raw materials, work in process, finished goods and all wrapping, packing and
shipping materials wheresoever located, and all additions and accessions
thereto, the resulting product or mass and any documents representing all or any
part thereof. Upon your request, we will at any time and from time to time, at
our expense, deliver such Inventory to you or such person as you may designate,
cause the same to be stored in your name at such place as you may designate,
deliver to you documents of title representing the same or otherwise evidence
your security interest in such manner as you may require.
The aforementioned pledge, assignment, consignment, transfer, lien and
security interest shall secure any and all of our obligations to you, matured or
unmatured, absolute or contingent, now existing or that may hereafter arise, and
howsoever acquired by you, whether arising directly between us or acquired by
you by assignment and whether relating to this agreement or independent hereof
and any and all guaranties, indemnities or endorsements at any time delivered by
us to you, together with all interest, charges, commissions, expenses,
attorneys' fees and other items chargeable against us in connection with any of
said obligations.
We agree that the making of advances is always wholly discretionary on your
part, and that you shall be the sole judge of the amount of such advances and of
the total of such advances to be outstanding at any particular time. All such
advances shall be repayable on demand, and shall bear interest at the same rate
specified in the Financing Agreement between us.
We agree, at our expense, to keep all Inventory insured to the full value
thereof against such risks and by policies of insurance issued by such companies
as you may designate or approve, and the policies evidencing such insurance
shall be duly endorsed in your favor with a long form lender's loss payable
rider or such other document as you may designate and said policies shall be
delivered to you. Should we fail for any reason to furnish you with such
insurance, you shall have the right to effect the same and charge any costs in
connection therewith to us. You shall have no risk, liability or responsibility
in connection with payment or nonpayment of any loss, your sole obligation being
to credit our account with the net proceeds of any such insurance payments
received on account of any loss. We, as further additional collateral security,
by these presents, assign to you all our present and future rights to any and
all payments, checks and drafts, now made or hereafter to be made by any
insurance company pursuant to any contract of insurance or indemnity now or
hereafter in existence, regardless of whether or not you are named as Secured
Party and/or Mortgagee, and/or Loss Payee in said present or future policy or
policies. The rights given to you hereunder are coupled with an interest and
cannot be revoked by us. Each present and future insurance carrier is hereby
authorized and directed to make all payments, drafts and checks payable to you
with the same force and effect as if the same were paid directly to us. Any and
all assessments, taxes or other charges that may be assessed upon or payable
with respect to the Inventory or any part thereof shall forthwith be paid by us,
and we agree that you, in your discretion, may effect such payment and charge
the amount thereof to us. We further agree that except for the pledge,
assignment, consignment, transfer, lien and security interest granted to you
hereby, we shall not permit said Inventory to otherwise become liened or
encumbered nor shall we grant any security interest therein to any other party.
We shall not, without your written consent first obtained, remove or dispose of
any of such Inventory except to bona fide purchasers thereof in the ordinary
course of our business on orders first approved in writing by you. All such
sales shall be reported to you promptly and the accounts or other proceeds
thereof shall be subject to the security interests in your favor. You shall have
the right at all times to the immediate possession of all Inventory and its
products and proceeds and we shall make such Inventory and all our records
pertaining thereto available to you for inspection at any time requested by you.
Each month we shall deliver to you a written signed statement setting forth the
Inventory subject to your Security Interest. You shall have the right, in your
discretion, to pay any liens or claims upon said Inventory, including, but not
limited to, warehouse charges, dyeing, finishing and processing charges,
landlords' claims, etc. and the amount of any such payment shall be charged to
our account and secured hereby. You shall not be liable for the safekeeping of
any of the Inventory or for any loss, damage or diminution in the value thereof
or for any act or default of any warehouseman, carrier or other person dealing
in and with said Inventory, whether as your agent or otherwise, or for the
collection of any proceeds thereof but the same shall at all times be at our
sole risk. All warehousemen and bailees are authorized and directed to furnish
you with such information as you may request concerning our account and all
warehouse receipts issued by them.
Upon our default in the payment, performance or discharge of any of our
obligations and liabilities to you as and when the same become due, or in the
event of our insolvency, or if a receiver or trustee is appointed for our assets
or affairs, or if we discontinue doing business, or if a petition in bankruptcy
or for arrangement or reorganization is filed by or against us, or if we make an
assignment for the benefit of our creditors, or suspend the operation of our
business or commence the liquidation thereof, or make any offer of settlement,
extension or composition with our creditors, or upon the appointment of a
committee of our creditors or a liquidating agent for us, or the issuance of any
attachment or execution against us, or the filing of a judgment or other lien
against us, or upon our any default hereunder or under any other agreement
between us you shall have the right, upon reasonable notice to us, to sell all
or any part of our Inventory, at public or private sale, or make other
disposition thereof, at which sale or disposition you may be a purchaser. We
agree that written notice sent to us by postpaid mail, at least ten (10) days
before the date of any intended public sale or the date after which any private
sale or other intended disposition of the Inventory is to be made, shall be
deemed to be reasonable notice thereof. We do hereby waive all notice of any
such sale or other intended disposition if said Inventory is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market. Upon the occurrence of any of the events referred to in the
first sentence of this paragraph, you may require us to assemble all or any part
of the Inventory and make it available to you at a place to be designated by
you, which is reasonably convenient to both parties. In addition, you may
peaceably, by your own means or with judicial assistance, enter our or any other
premises and take possession of the Inventory and remove or dispose of it on our
premises and we agree that we will not resist or interfere with any such action.
We hereby expressly waive demand, notice of sale (except as herein provided),
advertisement of sale and redemption before sale. The net proceeds of any such
public or private sale or other disposition as far as needed shall be applied
toward the payment and discharge of any and all of our obligations to you,
together with all interest thereon and all reasonable costs, charges, expenses
and disbursements in connection therewith, including the reasonable fees of your
attorneys.
This agreement is deemed made in the State of New York and is to be
governed, interpreted and construed in accordance with the laws of the State of
New York. No modification, waiver or discharge of this agreement shall be
binding upon you unless in writing, signed and subscribed by you. If you should
at any time fail to exercise any right or privilege hereunder, the same shall
not constitute a waiver on your part of exercising any right or privilege at any
subsequent time. If any taxes are imposed or if you shall be required to
withhold or pay any tax because of any transactions between us, we agree to
indemnify you and hold you harmless in respect thereto. It is agreed between us
that trial by jury is hereby waived in any action, proceeding or counterclaim
brought by either of us against the other on any matters whatsoever arising out
of or in any way connected with this agreement or our relationship created
hereby and we hereby consent to the non-exclusive jurisdiction of the Supreme
Court of the State of New York and any federal court located in the Southern
District of New York for a determination of any dispute as to any such matters
and authorize the service of process on us by registered mail sent to us at our
address hereinbelow set forth.
This Agreement shall constitute a security agreement pursuant to the Uniform
Commercial Code and, in addition to any and all of your other rights hereunder,
you shall have all of the rights of a secured party pursuant to the provisions
of the Uniform Commercial Code. We agree to execute a financing statement and
any and all other instruments and documents that may now or hereafter be
provided for by the Uniform Commercial Code or other law applicable thereto,
reflecting the security interests granted to you hereunder. We do hereby
authorize you to file a financing statement without our signature, signed only
by you as secured party, to reflect the security interests granted to you
hereunder.
Very truly yours,
Attest: LUNN INDUSTRIES, INC.
By:
on December 28, 1995 Chief Executive Officer
GIBRALTAR CORPORATION OF AMERICA 1 Garvies Point Road, Glen Cove,
New York 11542
By:
Vice President
Exhibit 10.30
AMENDED AND RESTATED COMMERCIAL REVOLVING LOAN, TERM LOAN
AND SECURITY AGREEMENT
AGREEMENT made December 28, 1995, among LUNN INDUSTRIES, INC., a
Delaware corporation, with a place of business located at 1 Garvies Point Road,
Glen Cove, New York ("Lunn"), ALCORE INC., a Delaware corporation with a place
of business located at 1324 Brass Mill Road, Belcamp, Maryland 21017 ("Alcore")
(Lunn and Alcore each a "Borrower" and collectively, "Borrowers") and FLEET
NATIONAL BANK OF CONNECTICUT (f/k/a SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION), a national banking association with an office located at One
Corporate Center, Hartford, Connecticut 06120 (the "Lender").
Background
Borrowers and Lender have previously entered into a Commercial
Revolving Loan, Term Loan and Security Agreement dated May 21, 1993 (as amended
and modified from time to time, the "Loan Agreement").
Various Events of Default are now existing under the Loan Agreement by
reason of which Lender has no obligation to make any additional Loans and has
full legal right to exercise all remedies under the Loan Agreement. Borrower has
requested that the Lender amend and restate the Loan Agreement in order to
permit (i) certain of the Obligations to be paid and (ii) Borrower to enter into
financing transactions with Gibraltar and Lender is willing to do so upon the
terms and conditions contained herein.
AMENDMENT AND RESTATEMENT
As of the date of this Agreement, the terms, conditions, covenants,
agreements, representations and warranties contained in the Loan Agreement shall
be deemed amended and restated in their entirety provided, however, that nothing
contained in this Agreement shall impair, limit or affect the Liens heretofore
granted, pledged and/or assigned to Lender as security for the Obligations to
Lender under the Loan Agreement.
Agreement
In consideration of the Background, which is incorporated by reference
and the mutual considerations contained in this Agreement, the Borrowers and the
Lender, intending to be bound legally, agree as follows:
ARTICLE I.
Definitions
(a) Unless otherwise defined, all accounting terms set forth in this
Agreement shall be construed, and all computations or classifications of assets,
liabilities, income and expenses shall be made or determined in accordance with
GAAP, as defined below. As used herein, or in any certificate, document or
report delivered pursuant to this Agreement or any other Financing Agreement, as
defined below, the following terms shall have the following meanings:
(a) "Accounts" shall have the definition assigned in Section 8.1(i).
(b) "Account Debtor" and "Account Debtors" shall mean the person or
entity or persons or entities obligated to the Borrower upon the Accounts.
(c) "Agreement" shall mean this Amended and Restated Commercial
Revolving Loan, Term Loan and Security Agreement as the same may be amended,
supplemented or otherwise modified from time-to-time.
(d) "Base Rate" shall mean the interest rate publicly announced by the
Lender from time-to-time as its Base Rate. The Base Rate may not be the Lender's
lowest or most favorable rate.
(e) "Borrower" and "Borrowers" shall have the meaning ascribed to such
term in the Preamble of this Agreement.
(f) "Business Day" shall mean any day other than a day on which
commercial banks in the state of Connecticut are required or permitted by law to
close.
(g) "Closing Date" shall mean December 28, 1995 or such other date as
may be agreed to by the parties hereto.
(h) "Code" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
(i) "Collateral" means the property of the Borrowers described in
Article VIII hereof.
(j) "Contract Rate" shall mean (i) for the First Period, the Base Rate,
and (ii) for the Second Period, ten percent (10%) per annum subject to increase
upon exercise by Borrower of the Interest Rate ("Fixed Rate") Option, provided,
however, that the maximum Fixed Rate shall not exceed twenty percent (20%) per
annum.
(k) "Debt" shall mean all indebtedness, liabilities and obligations
arising under and in any way related to the financing accommodations set forth
in this Agreement including, without limitation, the indebtedness of the Note.
(l) "Default Rate" shall mean the then applicable Contract Rate plus
four percent (4%) per annum.
(m) "Dollar" and the sign "$" shall mean lawful money of the United
States of America.
(n) "Effective Net Worth" shall mean, for any period, Tangible Net
Worth plus any liability of Borrowers to any party, the payment of which is
subordinated to the payment of the Gibraltar Indebtedness.
(o) "Equipment" shall have the definition assigned in Section 8.1(v)
hereof.
(p) "Excess Cash Flow Payment" shall have the definition assigned in
Section 2.1 hereof.
(q) "ERISA" shall mean the Employee Retirement Income Security Act of
1974 and all rules and regulations promulgated pursuant thereto, as the same may
be supplemented or amended from time-to-time.
(r) "Event of Default" shall have the definition assigned in
Section 9.1 hereof.
(s) "Excess Cash Flow" shall mean, for any fiscal period, for Lunn
and its Subsidiaries on a consolidated basis, the sum of (a) net income plus
taxes, interest, depreciation and amortization less (b) regularly scheduled
payments of principal and interest on Gibraltar Indebtedness (exclusive of
repayments of outstanding revolving loans), Grill Leasing Indebtedness and Limco
Indebtedness, (c) capital expenditures not more than $250,000 in any fiscal year
and (d) $350,000.
(t) "Financing Agreement" or "Financing Agreements" shall mean this
Agreement, the Note, the Warrant and all other agreements or documents executed
in connection herewith, together with any amendments, supplements or
modifications hereto or thereto.
(u) "First Period" shall mean the period commencing on the Closing
Date and ending on December 27, 1997.
(v) "GAAP" means generally accepted accounting principles.
(w) "Gibraltar" shall mean Gibraltar Corporation of America.
(x) "Gibraltar Indebtedness" shall mean Indebtedness for money
borrowed due and owing to Gibraltar under the Gibraltar Loan Agreement.
(y) "Gibraltar Loan Agreement" shall mean the Financing Agreement
dated the date hereof between Lunn and Gibraltar.
(z) "Governmental Body" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative judicial, regulatory or administrative functions of or pertaining to
government any court arbitrator.
(aa) "Grill Leasing Indebtedness" shall mean Indebtedness due and
owing to Grill Leasing in connection with the Asset Purchase Agreement dated
December, 1994 between Lunn and Limco.
(bb) "Insolvent" or "Insolvency" shall mean the failure to pay
debts as they mature or when the fair market value of assets is less than the
Person's liabilities.
(cc) "Intercreditor Agreement" shall mean the Intercreditor and
Subordination Agreement dated as of December 28, 1995 between Lender and
Gibraltar.
(dd) "Interest Rate Option" shall mean the option of Borrower to omit
payment of the Excess Cash Flow Payment on any Required Payment Date by electing
instead to increase the then current Contract Rate by an additional two and one
half percent per annum (2.50%).
(ee) "Inventory" shall have the definition assigned in Section
8.1 (viii) hereof.
(ff) "Lender" shall have the meaning ascribed to such terms in the
Preamble.
(gg) "Liabilities" shall mean, at any given time, all liabilities
of Borrowers on a consolidated basis which would be classified as liabilities
under GAAP.
(hh) "Limco" shall mean Limco Manufacturing, Inc.
(ii) "Limco Indebtedness" shall mean Indebtedness due and owing to
Limco in connection with the Asset Purchase Agreement dated December 12, 1994
between Lunn and Limco.
(jj) "Loan" shall mean the Term Loan.
(kk) "Long Term Liabilities" shall mean, at any given time, all
Liabilities of Borrowers determined on a consolidated basis which would be
classified as long term liabilities under GAAP.
(ll) "Net Income" shall mean for any given period, the net income
of Borrowers determined on a consolidated basis, computed in accordance with
GAAP.
(mm) "Note" shall mean the Amended and Restated Subordinated Term
Note described in Section 2.1 hereof.
(nn) "Obligations" shall mean all loans, advances, interest,
indebtedness, liabilities, obligations, guaranties, covenants and duties of
every kind and description at any time owing by the Borrowers to the Lender,
whether or not evidenced by any note or other instrument, whether or not for the
payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising including, but not limited to, the
indebtedness, liabilities and obligations arising under this Agreement, the Note
and the other Financing Agreements, and all reasonable costs, expenses, fees,
charges, and attorneys, paralegals and other professional fees incurred in
connection with any of the foregoing, or in any way connected with, involving or
relating to the preservation, enforcement, protection and defense of this
Agreement, the Note, the other Financing Agreements, any related agreement,
document or instrument, the Collateral and the rights and remedies. hereunder or
thereunder.
(oo) "PBGC" shall mean the Pension Benefit Guaranty Corporation.
(pp) "Person" shall mean an individual, a partnership, a corporation,
a business trust, a joint stock company, a trust, an unincorporated association,
a joint venture, a Governmental Body or any other entity of whatever nature.
(qq) "Plan" shall mean any employee benefit plan or other plan
maintained for employees covered by Title 10 of ERISA.
(rr) "Required Payment Date" shall have the meaning assigned to such
term in Section 2.2(b) hereof.
(ss) "Security Interests" shall mean a valid and enforceable second
priority lien upon, pledge of, and security interest in the Collateral.
(tt) "Second Period" shall mean the period commencing on December 28,
1997 and at all times thereafter.
(uu) "Subsidiary" and "Subsidiaries" shall mean any corporation or
corporations of which more than 50% of the outstanding shares of stock of each
class having ordinary voting power is at the time owned by the Borrower or by
one or more Subsidiaries.
(vv) "Tangible Net Worth" shall mean, for any period, stockholders'
equity, less the aggregate amount of intangible assets, less the aggregate
principal amount of all loans outstanding from Borrowers to any officer,
director and/or shareholder, less advances to Borrowers' trade suppliers
constituting prepayment for merchandise purchases, all as determined on a
consolidated basis for Borrowers in accordance with GAAP.
(ww) "Term" shall mean from December 28, 1995 through December 27,
2005.
(xx) "Term Loan" shall have the definition assigned in Section 2.1
hereof.
(yy) "Term Note" shall have the definition assigned in Section 2.1
hereof.
(zz) "Transaction Expenses" shall mean all reasonable legal, search
and filing fees, and all other reasonable expenses that may be incurred or
sustained by the Lender or any of its authorized agents in connection with the
transaction contemplated herein, whether or not the transaction is consummated,
including, without limitation, expenses related to due diligence efforts and the
negotiation and preparation of this Agreement and the other Financing
Agreements, in perfecting, preserving and enforcing the Lender's Security
Interest, in rendering advice with respect to this Agreement, the other
Financing Agreements and the Term Loan.
(aaa) "Warrant" shall mean the Warrant issued by Lunn to Lender to
purchase 400,000 shares of the common stock of Lunn attached hereto as Exhibit
1.1.
1.2 Uniform Commercial Code Terms. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of Connecticut shall have
the meaning given therein unless otherwise defined herein; provided, however,
that to the extent that the creation, validity, attachment, perfection,
priority, maintenance or continuation of a security interest in any Collateral
(or the effect of any such matters) is governed by the laws of any other
jurisdiction, such terms shall have the meanings given to them in the Uniform
Commercial Code as adopted in such other jurisdiction for the purposes of the
provisions hereof pertaining to the creation, validity, attachment, perfection,
priority, maintenance or continuation of a security interest in such Collateral
(or the effect of any such matters).
1.3 Other Terms and Computation of Time Periods. Wherever appropriate
in the context, terms used herein in the singular also include the plural, and
vice versa, and each masculine, feminine or neuter pronoun shall also include
other genders. The words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation". The computation of periods of
time from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding".
ARTICLE II.
Loans
2.1 Acknowledgment. Subject to the terms and conditions set forth in
this Agreement prior to its restatement, Lender has made advances to Borrowers.
Borrowers hereby affirm and acknowledge that as of December 28, 1995 there were
outstanding loans and advances in the aggregate principal amount of
$3,365,197.73 including accrued interest thereon and costs and expenses
(collectively, the "Amount") and that the Amount was due and owing without
defense, setoff or counterclaim of any kind or nature. As of December 28, 1995,
Gibraltar entered into financing arrangements with Borrowers pursuant to which
Gibraltar has agreed upon certain terms and conditions to make loans and provide
other financial accommodations to Borrowers as a result of which the Amount has
been reduced to $500,000. Such sum of $500,000 (the "Term Loan") is now
represented by the Amended and Restated Subordinated Term Note (the "Term
Note"), the principal amount of which is payable at the end of the Term subject
to acceleration upon the occurrence of an Event of Default under this Agreement
and subject to prepayment as set forth below. Subject to the terms and
conditions contained in this Agreement, the Lender has recast the Amount into a
$500,000 term loan as evidenced by and on the terms and conditions of the Term
Note, a copy of which is attached hereto as Exhibit 2.1.
2.2 Mandatory Prepayments.
(a) When Borrowers sell or otherwise dispose of any Collateral
(other than Inventory in the ordinary course of business) Borrowers shall,
subject to the terms of the Intercreditor Agreement, repay the principal amount
of the Obligations and the interest thereon and other Obligations if not
otherwise paid in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sales or other dispositions), such
repayments to be made promptly but in no event more than one (1) Business Day
following receipt of such net proceeds, and until the date of payment, such
proceeds shall be held in trust for Lender. The foregoing shall not be deemed to
be implied consent to any such sale otherwise prohibited by the terms and
conditions hereof.
(b) Borrowers shall prepay the outstanding principal amount of
the Term Note and the interest thereon in an amount equal to thirty percent
(30%) of Excess Cash Flow for the fiscal year ending December 31, 1998 and for
each fiscal year thereafter until the Loan is paid in full (the "Excess Cash
Flow Payment") payable upon delivery of the financial statements to Lender
referred to in and required by Section 7.1(a)(ii) but in any event not later
than ninety (90) days after the end of each such fiscal year (the "Required
Payment Date"). In the event that any financial statement is not so delivered,
then a calculation based upon estimated amounts shall be made by Lender upon
which calculation Borrower shall make the prepayment required by this Section
2.2, subject to adjustment when the financial statement is delivered to Lender
as required hereby. The calculation made by Lender shall not be deemed a waiver
of any rights Lender may have as a result of the failure by Borrowers to deliver
such financial statement.
(c) In the alternative, and in lieu of making the Excess Cash
Flow Payment, Borrowers shall have the right to exercise the Interest Rate
Option. The exercise of the Interest Rate Option shall be (i) in writing, (ii)
delivered to Lender no later than five (5) Business days prior to any applicable
Required Payment Date, (iii) irrevocable, with respect to each Cash Flow Payment
as to which it is being exercised and (iv) effective as to an increase in the
then current Contract Rate retroactive to January 1 of each such fiscal year.
2.3 Voluntary Prepayments
(a) Borrowers may prepay the principal amount of the Term Loan in
part or in full at any time without premium or penalty except as provided in (b)
below.
(b) The Borrowers may prepay the Term Loan in full on or prior
to March 31, 1996 upon (a) payment to Lender of Three Hundred Thousand dollars
($300,000) and (b) issuance to Lender of warrants to purchase 100,000 shares of
the common stock of Lunn pursuant to a warrant agreement in the form attached
hereto as Exhibit 2.3.
ARTICLE III.
Interest, Terms, Repayments and Fees
3.1 Interest.
(a) Interest Rate. Subject to the next succeeding sentence, interest on
the Loan shall be payable in arrears on the last day of each month. During the
First Period, interest on the Loan shall accrue at the Contract Rate and shall
be added to and become part of the principal balance of the Term Loan. Interest
charges shall be computed at a rate per annum equal to the Contract Rate;
provided, however, that after the occurrence of an Event of Default and for so
long as such Event of Default continues, interest charges shall, at Lender's
option, be computed at a rate per annum equal to the Default Rate.
(b) Computation of Interest and Fees. Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed. If any payment to be made hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the
applicable Contract Rate during such extension.
(c) Lawful Interest. The Borrowers and the Lender intend that the
rate of interest and all other charges to the Borrowers be lawful. If for any
reason the payment of a portion of interest, fees or charges required by this
Agreement or the Note would exceed the limit established by applicable law which
the Lender may charge to the Borrowers, then the Borrowers' obligation to pay
interest or charges shall automatically be reduced to such limit and, if the
Borrowers shall pay any amounts in excess of such limits, then the Lender shall
(i) apply such amounts to the unpaid principal amount of the Obligations or (ii)
refund such amounts to the Borrowers, so that under no circumstances shall the
interest or charges required hereunder exceed the maximum rate allowed by law.
3.2 Term.
(a) Term Loan. Unless the Lender accelerates payment as the result of
an occurrence of an Event or Default, the Term Loan shall be repaid at the end
of the Term, subject to prepayments as set forth herein.
3.3 Repayments. The Lender shall credit any payments made by the
Borrowers to the Lender first to late charges, costs and expenses, then to
accrued and unpaid interest and then to the outstanding principal balances due
under the Term Loan in the inverse order of maturity, in the Lender's sole
discretion.
ARTICLE IV.
Funding and Yield Protection
4.1 Increased Costs. In the event that any applicable law, treaty,
regulation or official directive from any government, governmental agency or
regulatory authority, or the interpretation or application thereof by any court
or governmental authority, or compliance by the Lender with any request or
directive, whether or not having the force of law, from any central bank or
government, governmental agency or regulatory authority, shall:
(a) subject the Lender to any tax with respect to this Agreement or the
Loan, except taxes on the overall net income of the Lender, or change the basis
of taxation of payments to the Lender of principal, interest or any other amount
payable hereunder, except for change" in the rate of tax on the overall net
income of the Lender;
(b) impose, modify or hold applicable any deposit, insurance, reserve,
special deposit, capital maintenance or similar requirements against assets held
by, or deposits in or for the account of, or advances or loans or commitments to
make the Loan, or other credit extended by, the Lender including, without
limitation, pursuant to Regulations of the Board of Governors of the Federal
Reserve System; or
(c) impose on the Lender any other condition with respect to this
Agreement, the Note or the Loan and the result of any of the foregoing is (i) to
increase the cost to the Lender of making, renewing or maintaining the Loan, or
any part thereof, by an amount that the Lender reasonably deems to be material,
or (ii) to reduce the income receivable by or return on equity of the Lender by
an amount that the Lender reasonably deems to be material, or (iii) to impose
any expense upon the Lender with respect to the Loan, then, in any case, the
Borrowers agree to pay promptly to the Lender, upon its demand, such additional
amount that will compensate the Lender for such additional costs, reduction in
income or expenses as the case may be (collectively the "Additional Costs"). The
Lender shall certify the amount of such Additional Costs to the Borrowers, and
such certification, absent demonstrable error, shall be deemed conclusive.
4.2 Capital Adequacy Protection. If the Lender shall have determined
that (i) the adoption of any applicable law, governmental rule, regulation or
order regarding capital adequacy of banks or bank holding companies, or any
change therein, or (ii) any change in the interpretation or administration
thereof by any applicable governmental authority, central bank or comparable
agency, or (iii) compliance by the Lender with any request or directive
regarding capital adequacy, whether or not having the force of law and whether
or not failure to comply therewith would be unlawful, so long aa the Lender
believes in good faith that such has the force of law or that the failure to so
comply would be unlawful, has or would have the effect of reducing the rate of
return on the Lender's capital as a consequence of the Lender's obligations
hereunder to a level below that which the Lender could have achieved but for
such adoption, change or compliance, taking into consideration the Lender's
policies with respect to capital adequacy immediately before such adoption,
change or compliance and assuming that the Lender's capital was fully utilized
prior to such adoption, change or compliance, by an amount deemed by the Lender
in its reasonable judgment to be material, then, upon demand, the Borrowers
shall pay immediately to the Lender, from time-to-time as specified by the
Lender, such additional amount. as shall be sufficient to compensate the Lender
for such reduced return, together with interest on each such amount from the
date of such specification by the Lender until payment in full thereof at the
then current rate of interest due under the Term Loan. A certificate of the
Lender setting forth the amount to be paid to it shall, in the absence of
demonstrable error, be deemed conclusive. In determining such amount, the Lender
shall use any reasonable averaging and attribution methods. The Borrowers may,
however, avoid paying such amounts for future rate of return reductions if,
within the maximum borrowings permitted herein, the Borrowers borrow such
amounts as will cause the Lender to avoid any such future rate of return
reductions which would otherwise be caused by such changed capital adequacy
requirements or the Borrowers agree to a reduction in the Loan to achieve the
same result.
ARTICLE V.
Conditions of Lending
5.1 The Borrowers agree that the Lender's obligation to extend the Term
Loan is subject to fulfillment by the Borrowers of the following conditions
precedent, all in form, scope and substance reasonably satisfactory to the
Lender and its counsel:
(a) Evidence of Corporate Action. The Lender shall have received
certified copies of all corporate action taken by each of the Borrowers to
authorize the execution, delivery and performance of this Agreement, the Note,
the Warrant, the other Financing Agreements, and the borrowings to be made
hereunder, together with copies of the Borrowers' Certificates of Incorporation
and Bylaws, all amendments thereto, and such other papers as the Lender or its
counsel may reasonably require, including, without limitation, certificates of
good standing, qualification and tax clearance.
(b) Note. The Lender shall have received the duly executed Term Note
drawn to its order.
(c) Financing Statements. The Lender shall have received from the
Borrowers (i) duly executed Financing Statements on Form UCC-1 and (ii) such
other documents as the Lender deems reasonably necessary or proper to perfect
its security interest in the Collateral.
(d) Insurance. The Lender shall have received evidence of insurance in
such amounts and with such companies reasonably satisfactory to the Lender, and
the Lender shall be named as a loss payee on all such insurance.
(e) Senior Financing. The Borrowers shall have closed its financing
arrangements with Gibraltar.
(f) Warrant. The Lender shall have received a duly executed Warrant.
(g) Opinion of Counsel. The Lender shall have received a written
opinion of counsel to the Borrowers in the state of New York, accompanied by
such supporting documents as the Lender or its counsel may reasonably require.
(h) Transaction Expenses. The Borrowers shall have paid the
Transaction Expenses incurred through the date of this Agreement.
(i) Material Adverse Change. Since September 5, 1995, (i) there shall
have occurred no material depreciation in the value of the Collateral, (ii)
there shall have occurred no material adverse change in the operation, financial
condition or business prospects of the Borrowers, (iii) no litigation shall have
been commenced or threatened which, if successful, would have any material
adverse effect on the operation or challenge the transactions contemplated by
this Agreement, financial condition or business prospects of the Borrowers, (iv)
no event which with the giving of notice or passage of time or both, would
constitute an Event of Default, if any, shall have occurred or be continuing,
and (v) no representations made or information supplied to the Lender shall have
proven to be inaccurate or misleading in any material respect.
(j) Other. The Lender shall have received such other documents as the
Lender deems reasonably necessary.
ARTICLE VI.
Representations and Warranties
6.1 Each of the Borrowers represents and warrants to the Lender that:
(a) Good Standing and Qualification. Each of the Borrowers is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware. Each of the Borrowers has all requisite corporate
power and authority to own and operate its properties and to carry on its
business as presently conducted and is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction wherein the character of
the properties owned or leased by it therein or in which the transaction of its
business therein makes such qualification necessary.
(b) Corporate Authority. The Borrowers have full corporate power and
authority to enter into and perform the obligations contained in this Agreement,
to make the borrowings contemplated herein, to execute and deliver the Note, the
Warrant and the other Financing Agreements and to incur the obligation. provided
for herein and therein, all of which have been duly authorized by all necessary
and proper corporate action. No other consent or approval or the taking of any
other action in respect of shareholders or of any public authority is required
as a condition to the validity or enforceability of this Agreement, the Note,
the Warrant or any of the other Financing Agreements. The execution and delivery
of this Agreement is for valid corporate purposes and will not violate the
Borrowers' certificates of incorporation or bylaws.
(c) Binding Agreements. This Agreement constitutes, and the Note, the
Warrant and the other Financing Agreements shall constitute, legal, valid and
legally binding Obligations of the Borrowers, enforceable in accordance with
their respective terms, except as enforcement may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
(d) Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the transactions contemplated by this
Agreement, the Note, the Warrant and the other Financing Agreements, except such
as have been made or obtained and are in full force and effect, and except for
the filing of the notices of assignment in accordance with the compliance with
the Assignment of Claims Act, the filing of Financing Statements on Form UCC-1
and the filing with the Office of Patents and Trademarks.
(e) Brokers. No broker or finder acting on behalf of the Borrowers'
brought about the obtaining, making or closing of the Loan made pursuant to this
Agreement or the transactions contemplated by the Financing Agreements and the
Borrowers have no obligation to any Person in respect of any finder's or
brokerage fees in connection therewith.
(f) Litigation. Except as otherwise provided in Schedule 6.1(f), there
are no actions, suits, proceedings or investigations pending or, to the
knowledge of the officers of the Borrowers, threatened against the Borrowers
before any court or administrative agency, which either in any case or in the
aggregate, if adversely determined, would materially and adversely affect the
financial condition, assets or operations of the Borrowers, or which question
the validity of this Agreement, the Note, the Warrant, or any other Financing
Agreement, or any action to be taken in connection with the transactions
contemplated hereby.
(g) No Conflicting Law or Agreements. The execution, delivery and
performance by the Borrowers of this Agreement, the Note, the Warrant and the
other Financing Agreements do not (i) violate any order, decree or judgment, or
any provision of any statute, rule or regulation, (ii) violate or conflict with,
result in a breach of or constitute, with notice or lapse of time, or both, a
default under any shareholder agreement, stock preference agreement, mortgage,
indenture or contract to which any of the Borrowers is a party, or by which any
of their properties are bound, or (iii) result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any property or
assets of the Borrowers except as contemplated herein.
(h) Taxes. With respect to all taxable periods of the Borrowers, the
Borrowers have filed all tax returns required to be filed by them other than
their 1994 federal and state tax returns and have paid all federal, state,
municipal, franchise and other taxes shown on such filed returns or have
reserved against the same, as required by GAAP. The Borrowers are not the
subject of any audit and have not applied for, or been granted, any extension
within which to file their tax returns or for an audit to be completed and the
Borrowers know of no unpaid assessments against them.
(i) Financial Statements. The Borrowers have delivered to the Lender
the audited balance sheet of the Borrowers as of December 31, 1994, and the
related statements of income, retained earnings and cash flows for the fiscal
year then ended. Such statements fairly present the consolidated financial
condition of the Borrowers as of the dates and for the periods referred to
therein and have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved. There are no liabilities, direct or
indirect, fixed or contingent, of the Borrowers as of the date of the balance
sheet which are not reflected therein or in the notes thereto, other than
liabilities or obligations not material in amount which are not required to be
reflected in corporate balance sheets prepared in accordance with GAAP. There
has been no material adverse change in the financial condition, business,
operations, affairs or prospects of the Borrowers since the date of such
financial statements. The Borrowers represent that (i) they are and, after
giving effect to the transactions contemplated by this Agreement, they shall not
be Insolvent, (ii) they do not have, and shall not have after giving effect to
the transactions contemplated by this Agreement, unreasonably small capital, and
(iii) they do not intend to incur, and do not believe that they will incur,
debts that would be beyond their ability to pay as such debts mature.
(j) Existence of Assets and Title Thereto. The Borrowers have good and
marketable title to its properties and assets, including the properties and
assets reflected in the financial statements referred to above. These properties
and assets are not subject to any mortgage, pledge, lien, lease, encumbrance,
restriction or charge except those permitted under the terms of this Agreement
or as set forth in Schedule 6.1(j), and none of the foregoing prohibit or
interfere with the Borrowers' ownership of its assets or the operation of its
business.
(k) Regulations G, T, U and X. The proceeds of the Loan will not be
used, directly or indirectly, for any consumer purchases, or for the purposes of
purchasing or carrying any margin stock in contravention of Regulations G, T, U
or X promulgated by the Board of Governors of the Federal Reserve System.
(l) Compliance. The Borrowers are not in default with respect to or
in violation of any order, writ, injunction or decree of any court or of any
Governmental Body, or in violation of any law, statute, rule or regulation to
which they or their properties are subject, where such default or violation
would materially and adversely affect the financial condition of the Borrowers.
The Borrowers represent that they have not received notice of any such default
from any party which has not been cured. The Borrowers are not in default in the
payment or performance of any of their obligations to any third parties or in
the performance of any mortgage, indenture, lease, contract or other agreement
to which they are a party or by which any of their assets or properties are
bound.
(m) Leases. The Borrowers enjoy quiet and undisturbed possession
under all leases under which they are operating, and all such leases are valid
and existing and the Borrowers are not in default under any of their leases. The
leases to which the Borrowers are currently a party are set forth on the
attached Schedule 6.1(m).
(n) Pension Plans. (i) To the best of the Borrowers' knowledge, no fact
exists in connection with any Plan of the Borrowers which might constitute
grounds for termination of any such Plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States District
Court of a trustee to administer any Plan. A list of all of the Borrowers' Plans
are set forth on Schedule 6.1(n);
(ii) No "prohibited transaction" within the meaning of ERISA
or the Code exists or will exist upon the execution and delivery of this
Agreement, or the performance by the Borrowers of their obligations hereunder;
(iii) The Borrowers agree to do all acts including, but not
limited to, making all contributions necessary to maintain compliance with
ERISA and the Code and agree not to terminate any Plan in a manner or do or
fail to do any act which could result in the imposition of a lien on any of
their property pursuant to ERISA;
(iv) The Borrowers do not sponsor or maintain, and have
never contributed to, and have not incurred any withdrawal liability under a
"multi-employer plan" as defined by ERISA and the Borrowers do not have any
written or verbal commitment to establish, maintain or contribute to any
"multi-employer plan" under the Multi-employer Pension Plan Amendment Act of
1980;
(v) The Borrowers have no unfunded liability in
contravention of ERISA and the Code;
(vi) The Plan complies currently, and has complied in the
past, both as to form and operation, with the terms and provisions of the Code
and ERISA, and all applicable regulations thereunder and all rules issued by the
Internal Revenue Service, U.S. Department of Labor and the PBGC and as such, is
and remains a "qualified" plan under the Code;
(vii) No actions, suits or claims are pending against any
Plan, or the assets of any Plan;
(viii) The Borrowers have performed all obligations required
to be performed by it under the Plans and the Borrowers are not in default, or
in violation of any Plan, and has no knowledge of any such default or violation
by any other party to the Plans;
(ix) No liability has been incurred by the Borrowers to the
PBGC or to participants or beneficiaries on account of any termination of a Plan
subject to Title IV of ERISA, no notice of intent to terminate a Plan has been
filed by, or on behalf of, the Borrowers pursuant to Section 4041 of ERISA and
no proceeding has been commenced by the PBGC pursuant to Section 4042 of ERISA;
(x) The reporting and disclosure provisions of the
Securities Act of 1933 and Securities Exchange Act of 1934 have been complied
with for all such Plans.
(o) Deferred Compensation Arrangements. Except as set forth in
Schedule 6.1(o), the Borrowers have not entered into employment contracts or
deferred compensation plans, incentive compensation plans, executive
compensation plans, arrangements or commitments, other than normal policies
regarding holidays, vacations and salary continuation during short periods of
illness. With respect to any such plan, arrangement or commitment:
(i) Each plan, arrangement, or commitment complies
currently, and has complied in the past, both as to form and operation with the
terms and provisions of the Code and ERISA and all applicable laws, rules and
regulations;
(ii) The disclosure and reporting provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934 have been
satisfied;
(iii) Each plan and arrangement set forth in Schedule 6.1(o)
is legally valid and binding and is in full force and effect;
(iv) The Borrowers have made all contributions required to
be made under such plan, arrangement, or commitment and no contributions are
currently due and owing;
(v) There are no actions, suits or claims pending, or, to
the best of the Borrowers' knowledge which could be reasonably expected to be
asserted against any such plan, arrangement, or commitment;
(vi) The Borrowers have performed all obligations required
to be performed by it under each plan, arrangement, or commitment and the
Borrowers are not in default or in violation of, and the Borrowers have no
knowledge of any such default or violation by any other party to any and all
such plans or arrangements.
(p) Office. The chief executive office and principal place of
business of the Borrowers, and the office where their records concerning the
Collateral are kept are as set forth on the attached Schedule 6.1(p).
(q) Places of Business. The Borrowers have no other places of
business and locate no Collateral, specifically including books and records, at
any location other than those set forth on the attached Schedule 6.1(q).
(r) Contingent Liabilities. The Borrowers are not a party to any
suretyship, guarantyship, or other similar type agreement; and they have not
offered their endorsement to any Person or acted or failed to act in any manner
which would in any way create a contingent liability that does not appear in the
financial statements referred to above.
(s) Contracts. The Borrowers are not a party to any contract,
governmental or otherwise, which is currently subject to renegotiation, and the
Borrowers are not in default of any material contract.
(t) Union Contracts. The Borrowers are not a party to any collective
bargaining or union agreement, except as set forth on the attached Schedule
6.1(t). The union contracts set forth on Schedule 6.1(t) are in full force and
effect and are not currently subject to renegotiation. The Borrowers are in
material compliance with the terms and conditions of all such union contracts
and know of no threatened work stoppage by any union members.
(u) Stock Matters. There are no options or rights outstanding to
purchase any of the Borrowers' capital stock except as set forth on the attached
Schedule 6.1(u). The authorized capital stock of Lunn consists of 20,000,000
shares of common stock, $.01 par value per share, 7,508,650 of which shares are
outstanding. The authorized capital stock of Alcore consists of 1000 shares of
common stock, no par value per share, 1000 of which shares are outstanding. All
of such shares are fully paid and non-assessable, are not and will not have
been, issued in violation of any federal or state law pertaining to the issuance
of any securities or any preemptive rights. No issued, no authorized but
unissued and no treasury shares of capital stock of any Borrower are subject to
any preemptive rights, irrevocable proxy, shareholder or voting agreement,
option, warrant, right of conversion or purchase or any similar right except as
set forth in Schedule 6.1(u).
(v) Licenses. The Borrowers have all licenses, permits, approvals and
other authorization required by any Governmental Body, or from any licensing
entity necessary for the conduct of their businesses, all of which the Borrowers
represent to be current, valid and in full force and effect.
(w) Collateral. a. The Borrowers are and shall continue to be the
sole owner of the Collateral free and clear of all liens, encumbrances, security
interests and claims, except (X) the Security Interests and (Y) the security
interests of Gibraltar and as listed on the attached Schedule 6.1(w). The
Borrowers are fully authorized to sell, transfer, pledge or grant to the Lender
the Security Interest in the Collateral. All documents and agreements relating
to the Collateral shall be true and correct and in all respects what they
purport to be. All signatures and endorsements that appear thereon shall be
genuine and all signatories and endorsers shall have full capacity to contract.
None of the transactions underlying or giving rise to the Collateral shall
violate any applicable laws or regulations of any Governmental Body. All
documents relating to the Collateral shall be legally sufficient under such laws
or regulations and shall be legally enforceable in accordance with their terms;
and each of the Borrowers agrees to defend the Collateral against the claims of
all persons other than the Lender.
(ii) The Financing Statements on Form UCC-l in appropriate
form have been filed in the offices specified in Schedule 6.1(w)(ii) and the
Security Interests constitute valid and perfected security interests in the
Collateral to the extent that a security interest therein may be perfected by
filing pursuant to the UCC, prior to all other liens and rights of others
therein other than Gibraltar.
(iii) If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of the Borrowers' agents or
processors, the Borrowers shall (X) notify such warehouseman, bailee, agent or
processor of the Security Interests created hereby, and (Y) instruct such
warehouseman, bailee, agent or processor to hold all such Collateral for the
Lender's account subject to the Lender's instructions and subject to the
Intercreditor Agreement.
(x) Accounts. Each Account is, or at the time it comes into
existence, will be, a true and correct statement of: (A) the bona fide
indebtedness of each Account Debtor; and (B) the amount of the account for
merchandise sold and delivered to, or for services performed for and accepted
by, such Account Debtor, net of any charges, adjustments, discounts or other
reductions whatsoever.
(y) Financial information. All financial information submitted by the
Borrowers to the Lender, whether previously or in the future, is and will be
true and correct in all material respects, and is and will be complete insofar
as may be necessary to give the Lender a true and accurate knowledge of the
subject matter.
(z) Environmental Health and Safety Laws. The Borrowers have not
received any notice, order, petition, or similar document in connection with or
arising out of any violation or possible violation of any environmental health
or safety law, regulation or order which violation has not been cured, and the
Borrowers know of no basis for any such violation or threat thereof for which it
may become liable, except as set forth on the attached Schedule 6.1(z).
(aa) Parent, Affiliate or Subsidiary Corporations. Lunn has no
parent corporation and is the parent corporation of Alcore. Except as set forth
on the attached Schedule 6.1(aa), the Borrowers have no other affiliate or
subsidiary corporations.
(bb) Officers and Directors. The officers and directors of the
Borrowers are as set forth on the attached Schedule 6.1(ab).
(cc) Intellectual Property. Each Borrower and its Subsidiaries
owns, or is licensed to use, all trademarks tradenames, copyrights, technology,
know-how and processes believed to be necessary for the conduct of its business
as currently conducted except for those the failure to own or license which
could not reasonably be expected to have a material adverse affect on its
business. No claim has been asserted or is pending by any Person challenging or
questioning the use of any of the foregoing or the validity or effectiveness of
any of the foregoing, and the Borrowers do not know of any valid basis for any
such claim. To the best of their knowledge, the use of the foregoing by the
Borrowers and their Subsidiaries does not infringe on the valid intellectual
property rights of any Person, except for ouch claims and infringements that, in
the aggregate, could not reasonably be expected to have a material adverse
affect on their businesses.
(dd) No Material Representations and Omissions. No information,
report, financial statement, exhibit or schedule furnished by or on behalf of
the Borrowers to the Lender in connection with the negotiation of any of the
Financing Agreements or included therein or delivered pursuant thereto
contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were, are or
will be made not misleading.
ARTICLE VII.
Covenants
7.1 Affirmative Covenants. Each of the Borrowers covenants and agrees
that from the date hereof until payment and performance in full of all
Obligations and the termination of this Agreement, the Borrowers shall:
(a) Financial Statements. Deliver or cause to be delivered to the
Lender:
(i) within (45) days after the end of each calendar
quarter, commencing with the calendar quarter and ending March 31, 1996, a
balance sheet of the Borrowers as of the close of each quarter and statements of
income and retained earnings for that portion of the fiscal year-to-date then
ended, prepared in conformity with GAAP, applied on a basis consistent with that
of the preceding period or containing disclosure of the effect on financial
position or results of operations of any change in the application of GAAP
during the period, and certified by the president or the chief financial officer
of the Borrowers as being accurate and fairly presenting the financial condition
of the Borrowers;
(ii) within 90 days after the close of each fiscal year of
the Borrowers consolidated and consolidating audited financial statements
including a balance sheet as of the close of such fiscal year and statements of
income and retained earnings and statement of cash flows for the year then
ended, prepared in conformity with GAAP, applied on a basis consistent with that
of the preceding year or containing disclosure of the effect on financial
position or results of operations of any change in the application of GAAP
during the year and accompanied by a report thereon containing an audit opinion
of independent public accountants selected by the Borrowers and reasonably
acceptable to the Lender, which opinion shall state that subject to the comments
contained therein such financial statements fairly present the financial
condition and results of operations of the Borrowers in accordance with GAAP;
(iii) together with the statements referred to in
subparagraph (ii) above, a written statement from the financial and operating
officers of the Borrowers certifying that there exists no Event of Default by
the Borrowers in the performance of any of its Obligations;
(iv) simultaneously with the filing thereof with the
Securities and Exchange Commission copies of all documents filed with such
Commission; and
(v) promptly upon the Lender's written request from
time-to-time, such other information about the financial condition and
operations of the Borrowers as the Lender may reasonably request.
(b) Insurance and Endorsement. (i) Keep its properties and business
insured against fire and other hazards (so-called "All Risk" coverage) in
amounts and with companies reasonably satisfactory to the Lender covering such
risks as are herein set forth; maintain public liability coverage, including
without limitation, products liability coverage against claims for personal
injuries or death; and maintain all worker's compensation, employment or similar
insurance as may be required by applicable law.
(ii) All insurance shall be in amounts reasonably
satisfactory to the Lender and shall contain such terms, be in such form, be for
such periods, and be written by carriers duly licensed by the state of New York
or such other jurisdiction in which the Borrowers operate and reasonably
satisfactory to the Lender. Without limiting the generality of the foregoing,
such insurance must provide that it may not be cancelled without 30 days prior
written notice to the Lender. With respect to the Collateral, and on the
Borrowers' All Risk coverage, the Borrowers shall cause the Lender to be
endorsed as a loss payee with a long form Lender's Loss Payable Clause, in form
and substance reasonably acceptable to the Lender. If the Borrowers fail to
provide and maintain the insurance provided for herein, the Lender may, at its
option, provide such insurance and charge the amount thereof to the Revolving
Loans. The Borrowers shall furnish to the Lender certificates or other
satisfactory evidence of compliance with the foregoing insurance provisions. The
Borrowers irrevocably appoint the Lender as its attorney-in-fact, coupled with
an interest, to make proofs of loss and claims for insurance, and to receive
payments of the insurance and execute all documents, checks and drafts in
connection with payment of the insurance.
(c) Taxes and Other Liens. Comply with all statutes and government
regulations and pay all taxes, assessments, governmental charges or levies, or
claims for labor, supplies, rent and other obligations made against them or
their property which, if unpaid, might become a lien or charge against the
Borrowers or their properties, except liabilities being contested in good faith
and against which, if requested by the Lender, the Borrowers shall set up
reserves in amounts and in form reasonably satisfactory to the Lender. Borrowers
shall file their 1994 federal and state tax returns no later than January 31,
1996.
(d) Places of Business. Maintain their chief places of business and
chief executive offices and the Collateral at the addresses set forth in the
beginning of this Agreement and in Schedule 6.1(p), unless, the Borrowers shall
have given the Lender 30 days prior written notice of any change in such places
of business.
(e) Inspections. Allow the Lender by or through any of its officers,
attorneys, accountants or other agents designated by the Lender, for the purpose
of ascertaining whether or not each and every provision hereof and of the other
Financing Agreements, is being performed, to enter the offices and plants of the
Borrowers to examine or inspect any of the properties, books and records or
extracts therefrom, to make copies of such books and records or extracts
therefrom, and to discuss the affairs, finances and accounts thereof with the
Borrowers and its accountants all at such times and as often as the Lender or
any representative of the Lender may reasonably request.
(f) Litigation. Advise the Lender of the commencement or threat of
litigation, including arbitration proceedings and any proceedings before any
Governmental Body, which is instituted against any of the Borrowers and is
reasonably likely to have a material adverse effect upon the condition,
financial, operating or otherwise, of the Borrowers or where the amount involved
or claimed is Twenty Five Thousand Dollars ($25,000), or more.
(g) Maintain Existence. Maintain their corporate existence and comply
with all applicable statutes, rules and regulations.
(h) Maintain Assets. Maintain their properties in good repair,
working order and operating condition. The Borrowers shall immediately notify
the Lender of any event causing material loss in the value of its assets.
(i) Inventory. Allow the Lender to examine and inspect the Inventory
at reasonable times and intervals after receipt of reasonable notice. The
Borrowers shall immediately notify the Lender of any event causing material loss
or depreciation in value of Inventory and the amount of such loss or
depreciation.
(j) ERISA. Immediately notify the Lender of any event which cause. it
to become subject to ERISA and, upon becoming subject thereto, they shall comply
in all material respects with ERISA.
(k) Notice of Certain Events. Give prompt written notice to the Lender
of:
(i) any material dispute that arises between the Borrowers
and any Governmental Body or law enforcement agency;
(ii) any labor controversy resulting or likely to result in
a strike or work stoppage against the Borrowers;
(iii) any proposal by any public authority to acquire the
assets or business of the Borrowers;
(iv) the location of any Collateral other than at the
Borrowers' places of business disclosed in this Agreement other than Collateral
in transit in the ordinary course of the Borrowers' business;
(v) any proposed or actual change of the name, identity or
corporate structure of the Borrowers;
(vi) any other matter which has resulted or is likely to
result in a material adverse change in the financial condition or operations of
the Borrowers;
(vii) any notice of default received from any landlord where
the Borrowers locate Collateral; and
(viii) any information received by the Borrowers with respect
to Accounts that may materially affect the aggregate value thereof or the
rights and remedies of the Lender with respect thereto.
(l) Defaults. Give prompt written notice to the Lender upon the
occurrence of any default or of any event which, but for giving of notice or
passage of time or both, would constitute an Event of Default, signed by the
president or chief financial officer of the Borrowers describing such occurrence
and the steps, if any, being taken to cure the default.
(m) Account Duties. Comply with all laws affecting their business,
including, but not limited to, payment of all federal and state taxes with
respect to the sales to Account Debtors by the Borrowers and disclosures in
connection therewith. The Borrowers agree to indemnify the Lender against and
hold the Lender harmless from all claims, actions and losses, including
reasonable attorney's fees and costs actually incurred by the Lender arising
from any contention, that there has been a failure to comply with such laws.
(n) Collateral Duties. Do whatever the Lender may reasonably request
from time-to-time by way of obtaining, executing, delivering and filing
financing statements, assignments, landlord's or mortgagee's waivers, and other
notices and amendments and renewals thereof, and take any and all steps and
observe such formalities as the Lender may reasonably request in order to create
and maintain a valid and enforceable first lien upon, pledge of, and security
interest in, the Collateral subject only to the prior security interest of
Gibraltar. If the Borrowers fail to timely provide financing statements, the
Borrowers authorize the Lender to file financing statements without the
signature of the Borrowers and to execute and file such financing statements on
behalf of the Borrowers as specified by the Uniform Commercial Code to perfect
or maintain its security interest in all of the Collateral. All charges,
expenses and fees which the Lender incurs in filing any of the foregoing,
together with costs and expenses of any lien search required by the Lender, and
any taxes relating thereto, shall be charged to the balance of the Revolving
Loans and added to the Obligations.
(o) Audit by Lender: Fees. Permit the Lender to audit their books and
records at such time" and in such manner and detail as the Lender deems, in the
Lender's reasonable discretion, are necessary. Without limiting the generality
of the foregoing, the Lender shall be allowed to verify the Accounts and
Inventory of the Borrowers and to confirm with Account Debtors the validity and
amount of Accounts. The Borrowers shall promptly pay the Lender reasonable audit
fees and any reasonable out of pocket expenses incurred in connection with any
such audit.
(p) Officers and Directors. Promptly notify the Lender in writing upon
any changes or additions to the Borrowers' officers or directors.
(q) Payment of Principal Interest and Fees. Pay, when due, the
payments of principal, interest and other charges under the Note.
(r) Transaction Expenses. Upon demand, the Borrowers agree to pay all
Transaction Expenses to the Lender.
7.2 Negative Covenants. Each of the Borrowers covenants and agrees that
from the date hereof until payment and performance in full of all Obligations
and the termination of this Agreement, the Borrowers shall not without the prior
written consent of the Lender:
(a) Encumbrances. Incur or permit to exist any lien, mortgage, charge
or other encumbrance against any of their properties or assets, whether now
owned or hereafter acquired, except: (i) the Security Interest; (ii) pledges or
deposits in connection with or to secure worker's compensation, unemployment or
liability insurance; (iii) tax lien which are being contested in good faith and
in compliance with this Agreement; (iv) the liens set forth on the attached
Schedule 6.1(w); (v) liens in favor of existing customers which are subordinate
to the Lender's lien in the Collateral and secure the products specified in
their purchase orders and (vi) liens in favor of Gibraltar.
(b) Limitation on Indebtedness. Create, incur or guarantee any
indebtedness or obligation for borrowed money from, or issue or sell any
obligations of the Borrowers to any lender other than the Lender and Gibraltar.
(c) Contingent Liabilities. Assume, guarantee, endorse or otherwise
become liable upon the obligations of any person, firm or corporation, or enter
into any purchase or option agreement or other arrangement having substantially
the same effect as such a guarantee, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
(d) Acquisition. Consolidation or Merger. Acquire or merge into or
consolidate with or into any corporation.
(e) Loans. Advances. Investments. Use the proceeds of the Term Loan,
either directly or indirectly, to make or permit to exist any loans or advances
to, or purchase any stock, other securities or evidences of indebtedness of, or
make or permit to exist any investment, including without limitation the
acquisition of stock of a corporation, or acquire any interest whatsoever in,
any other Person.
(f) Acquisition of Stock of the Borrowers; Dividends. Purchase,
acquire, redeem or retire, or make any commitment to purchase, acquire, redeem
or retire any of the capital stock of the Borrowers, whether now or hereafter
outstanding, or declare or pay any dividend, or make any distribution to any of
their stockholders except as required under the Warrant.
(g) Sale and Lease of Assets. Sell, lease or otherwise dispose of any
of its assets, in excess of Fifteen Thousand Dollars ($15,000) per event or
Fifty Thousand Dollars ($50,000) per annum, except for sales of inventory or
replacement of equipment having an equal or greater value than the equipment
replaced, in the ordinary course of business.
(h) Name Changes. Change their corporate name" or conduct their
businesses under any trade name or style other than as set forth in this
Agreement.
(i) Capital Expenditures. Make any expenditure for any asset which
would be a fixed asset, or any expenditures for any leases, including but
without limitation capitalized or conditional sales contracts, in excess of
$1,000,000 in any fiscal year, on a non-cumulative basis. For the purpose of
this covenant, the entire amount paid over the life of any capitalized lease or
conditional sales contract shall be deemed to be paid in the first year of such
lease or sales contract.
(j) Prohibited Transfers. Transfer, in any manner, either directly or
indirectly, any cash, property, or other assets of the Borrowers to any parent
or any of their affiliates or subsidiaries, except to other entities comprising
the Borrowers, other than sales made in the ordinary course of business and for
fair consideration on terms no less favorable than if such sale had been an
arms-length transaction between the Borrowers and an unaffiliated entity.
(k) No Management Change. Suffer any change in the management of the
Borrowers which the Lender deems, in its reasonable discretion, to be a material
adverse change.
(l) Leasebacks. Lease any real estate or other capital asset from any
lessor who shall have acquired such property from the Borrowers.
(m) Business Operations. Engage in any business other than the
business in which they are currently engaged or businesses reasonably related
thereto.
(n) Assignment of Claims Act. Take any action or fail to take any
action, either directly or indirectly, or cooperate in any way, so as to allow
any Person, other than the Lender, to comply with the Federal Assignment of
Claims Act.
7.3 Financial Covenants. Each of the Borrowers agrees and covenants
that from the date hereof until the payment and performance in full of the
Obligations, and the termination of this Agreement, the Borrowers shall not at
any time:
(a) Debt to Equity Ratio. Permit the ratio of (i) Liabilities less any
Liabilities the payment of which is subordinated to the payment of the Gibraltar
Indebtedness, to (ii) Effective Tangible Net Worth to exceed 1.50 to 1.00.
(b) Tangible Net Worth. Permit the Tangible Net Worth of Borrowers on a
consolidated basis to fall below $6,800,000 at any time.
(c) Net Income. For any fiscal year of Borrowers, permit the Net Income
of Borrowers on a consolidated basis to fall below $1.00.
(d) Cash Flow. For any fiscal year of Borrowers on a consolidated
basis, permit the ratio of (i) Net Income (computed before net interest expense,
taxes, depreciation and amortization) to (ii) the sum of interest expense plus
that portion of Long-Term Liabilities (including capitalized lease payments)
which have become due and payable during such fiscal year to fall below 1.2 to
1.0.
All financial covenants shall be calculated in accordance with GAAP, applied on
a consistent basis with prior years. For purposes of calculating compliance with
the financial covenants, all revolving loans outstanding from Gibraltar shall be
included in the current liabilities of the Borrowers, except that such revolving
loans shall not be included as a current maturity in calculating the cash flow
described in subparagraph (d) above.
ARTICLE VIII.
Grant of Collateral
8.1 To secure the prompt payment and performance of the Obligations,
the Borrowers pledge, assign, transfer and grant to the Lender a continuing,
security interest in, and hereby confirm their prior assignment and grant to
Lender of a continuing security interest in the following property of the
Borrowers (the "Collateral"):
(i) All accounts (the "Accounts"), as that term is defined
in the Uniform Commercial Code as in effect from time-to-time in the state of
Connecticut (the "UCC"), including, without limitation, all accounts receivable,
contract rights, book debts, notes, drafts and other forms of obligations, other
than forms of obligations or indebtedness evidenced by Chattel Paper or
Instruments, as those terms are defined below, now owned or hereafter received
or acquired by or belonging or owing to the Borrowers, including, without
limitation, under any trade name, style or division thereof, whether arising out
of goods sold or services rendered by the Borrowers or from any other
transaction, whether or not the same involves the sale of goods or services by
the Borrowers, including, without limitation, any such obligation which may be
characterized as an account or contract right under the UCC, and all of the
Borrowers' rights in, to and under all purchase orders or receipts now owned or
hereafter acquired by them for goods or services, and all of the Borrowers'
rights to any goods represented by any of the foregoing, including, without
limitation, unpaid seller's rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods, and
all monies due or to become due to the Borrowers under all purchase orders and
contracts for the sale of goods or the performance of services or both by the
Borrower, whether or not yet earned by performance on the part of the Borrowers
or in connection with any other transaction, now in existence or hereafter
occurring, including, without limitation, the right to receive the proceeds of
said purchase orders and contracts, and all collateral security and guarantees
of any kind given by any person with respect to any of the foregoing;
(ii) All chattel paper (the "Chattel Paper"), as that term
is defined in the UCC, now owned or hereafter acquired by the Borrowers;
(iii) All contracts, undertakings, franchise agreements or
other agreements (collectively, the "Contracts), other than rights evidenced by
Chattel Paper, Documents or Instruments, as those terms are defined below, in or
under which the Borrowers may now or hereafter have any right, title or
interest, including, without limitation, with respect to an Account, any
agreement relating to the terms of payment or the terms of performance thereof;
(iv) All documents (the "Documents"), as that term is
defined in the UCC, or other receipts covering, evidencing or representing
goods, now owned or hereafter acquired by the Borrowers;
(v) All equipment (the "Equipment"), as that term is
defined in the UCC, now or hereafter owned or acquired by the Borrowers
including, without limitation, all machinery, tools, dyes, equipment,
furnishings, vehicles and computers and other electronic data processing and
other office equipment, any and all additions, substitutions and replacements of
any of the foregoing, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto;
(vi) All general intangibles (the "General Intangibles"), as
that term is defined in the UCC, now owned or hereafter acquired by the
Borrowers including, without limitation, all right, title and interest which the
Borrowers may now or hereafter have in or under any Contract, all customer
lists, Trademarks (as defined below), Patents (as defined below), right" in
intellectual property, interests in partnerships, joint ventures and other
business associations, licenses, permits, copyrights, trade secrets, proprietary
or confidential information, inventions, whether or not patented or patentable,
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
blueprints, catalogs, materials and records, goodwill including, without
limitation, the goodwill associated with any Trademark, Trademark registration
or Trademark licensed under any Trademark License, as defined below, claims in
or under insurance policies, including unearned premiums, uncertificated
securities, deposit accounts, rights to receive tax refunds and other payments
and right" of indemnification;
(vii) All instruments (the "Instruments"), as that term is
defined in the UCC, now owned or hereafter acquired by the Borrowers, including,
without limitation, all notes and other evidences of indebtedness, other than
instruments that constitute, or are a part of a group or writings that
constitute, Chattel Paper;
(viii) All inventory (the "Inventory"), as that term is
defined in the UCC, wherever located, now or hereafter owned or acquired by the
Borrowers including, without limitation, all inventory, merchandise, goods and
other personal property which are held by or on behalf of the Borrowers for sale
or lease or are furnished or are to be furnished under a contract of service or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in the Borrowers' business, or the processing, packaging,
promotion, delivery or shipping of the same, and all finished goods, whether or
not such inventory is listed on any schedules, assignments or reports furnished
to the Lender from time-to-time and whether or not the same is in transit or in
the constructive, actual or exclusive occupancy or possession of the Borrowers
or is held by the Borrowers or by others for the Borrowers' account, including,
without limitation, all goods covered by purchase orders and contracts with
suppliers and all goods billed and held by suppliers and all inventory which may
be located on premises of the Borrowers or of any carriers, forwarding agents,
truckers, warehousemen, vendors, selling agents or other persons;
(ix) All Patent Licenses, as defined below, Trademark
Licenses, or other licenses of rights or interests now held or hereafter
acquired by the Borrowers (collectively, the "Licenses");
(x) Any written agreement granting any right with respect to
any invention on which a Patent, as defined below, is in existence, whether now
owned or hereafter acquired by the Borrowers (collectively, the "Patent
Licenses");
(xi) (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country and (b) all reissues,
continuations, continuations-in-part or extensions thereof (individually, a
"Patent" and collectively, the "Patents"), whether the Borrowers now hold or
hereafter acquire any interest;
(xii) Any written agreement granting any right to use any
Trademark or Trademark registration, whether now owned or hereafter acquired by
the Borrowers (collectively, the "Trademark Licenses");
(xiii) (a) all trademarks, tradenames, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings and applications
in the United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country or any
political subdivision thereof and (b) all reissues, extensions or renewals
thereof, (collectively, "Trademarks"), whether such Trademarks are now owned or
hereafter acquired by the Borrowers; and
(xiv) All proceeds (the "Proceeds"), as that term is defined
in Section 9-306(1) of the UCC, and in any event shall include, without
limitation, (a) all Accounts, Chattel Paper, Instruments, cash and other
proceeds payable to the Borrowers from time-to-time in respect of any of the
foregoing collateral security, (b) all proceeds of any insurance, indemnity,
warranty or guaranty payable to the Borrowers from time-to-time with respect to
any of the collateral security, (c) all payments, in any form whatsoever, made
or due and payable to the Borrowers from time-to-time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the collateral security by any governmental body, authority, bureau or
agency, or any person acting under color of governmental authority, (d) all tax
refunds, and (e) all other amounts from time-to-time paid or payable under or in
connection with any of the Collateral.
ARTICLE IX.
Default
9.1 Events of Default. (a) The Obligations shall, at the option of the
Lender, become immediately due and payable without notice or demand upon the
occurrence of any of the following events (collectively, "Events of Default" and
individually, an "Event of Default"):
(i) failure of the Borrowers to pay any installment of
principal or interest or any other Obligations or such failure by any guarantor
of any of the Obligations;
(ii) breach of any of the Obligations by the Borrowers or any
guarantor including, without limitation, any covenant, representation or
warranty contained herein, or the Borrowers' failure to perform any act, duty or
obligation as required by this Agreement or any of the other Financing
Agreements which breach or failure continues for 10 days;
(iii) the making by the Borrowers of any material
misrepresentation of a material fact to the Lender;
(iv) Insolvency of the Borrowers or any guarantor or surety
for the Obligations, or business failure, appointment of a receiver or
custodian, or assignment for the benefit of creditors or the commencement of any
proceedings under any bankruptcy or insolvency law by or against the Borrowers
or any guarantor for the Obligations; appointment of a committee of creditors or
liquidating banks, or offering of a composition or extension to creditors by,
for or of the Borrowers; however, if an involuntary bankruptcy petition is
filed, an event of default shall not occur unless such petition is not dismissed
within 75 days of filing;
(v) the loss, revocation or failure to renew any license
and/or permit now held or hereafter acquired by the Borrowers which materially
affects the ability of the Borrowers to continue its operations as presently
conducted;
(vi) a default, after the expiration of any
applicable grace period, in any other Financing Agreement or any other
agreements between the Lender and the Borrowers or any guarantors;
(vii) the filing of any lien, voluntary or
involuntary, on the Collateral, which in the case of an involuntary lien
is not discharged of record within 30 days of filing;
(viii) dissolution of any of the Borrowers;
(ix) the Lender, in its reasonable discretion, deems
itself insecure; or
(x) the occurrence of an Event of Default (as such
term is defined in the Gibraltar Loan Agreement) under the Gibraltar
Loan Agreement.
(b) The Borrowers expressly waive any presentment, protest, notice of
protest or other notice of any kind. Subject to the terms of the Intercreditor
Agreement, the Lender may proceed to enforce its rights whether by suit in
equity or by action at law, whether for specific performance of any covenant or
agreement contained in this Agreement or the Note, or in aid of the exercise of
any power granted in either this Agreement, the Note or the other Financing
Agreements, or it may proceed to obtain judgment or any other relief whatsoever
appropriate to the enforcement of such rights, or proceed to enforce any legal
or equitable right which the Lender may have by reason of the occurrence of any
Event of Default hereunder.
9.2 Declared Default. Subject to the terms of the Intercreditor
Agreement: (a) Upon demand after the occurrence of an Event of Default, the
Lender shall have in any jurisdiction where enforcement hereof is sought, in
addition to all other rights and remedies which Lender may have under law and
equity, the following rights and remedies, all of which may be exercised with or
without further notice to the Borrowers and without a prior judicial or
administrative hearing or notice, which notice and hearing are expressly waived
by the Borrowers: (i) to enforce or foreclose the liens and security interests
created under the Financing Agreements, this Agreement or under any other
agreement relating to the Collateral by any available judicial procedure or
without judicial process, (ii) to enter any premises where any Collateral may be
located for the purpose of taking possession or removing the same, (iii) to
sell, assign, lease, or otherwise dispose of Collateral or any part thereof,
either at public or private sale, in lots or in bulk, for cash, on credit or
otherwise, with or without representations or warranties, and upon such terms as
shall be acceptable to Lender, all at the Lender's sole option and as the Lender
in its reasonable discretion may deem advisable, (iv) to bid or become purchaser
at any such sale if public, free from any right of the Borrowers of redemption
after sale, which is expressly waived by the Borrowers, and (v) at the option of
the Lender, to apply or be credited with the amount of all or any part of the
Obligations against the purchase price bid by the Lender at any such sale.
(b) The Lender may at any time, after demand after the occurrence of
an Event of Default, at the Lender's sole discretion: (i) give notice of
assignment to any Account Debtor; (ii) collect Accounts directly and charge
Borrowers the reasonable collection costs and expenses; (iii) settle or adjust
disputes and claims directly with Account Debtor for amounts and upon terms
which the Lender considers advisable; (iv) exercise all other rights granted in
this Agreement and the other Financing Agreements; (v) receive, open and dispose
of all mail addressed to the Borrowers and notify the Post Office authorities to
change the address for delivery of the Borrowers' mail to an address designated
by the Lender; (vi) endorse the name of the Borrowers on any checks or other
evidence of payment that may come into possession of the Lender and on any
invoice, freight or express bill, bill of lading or other document; (vii) in the
name of the Borrowers or otherwise, demand, sue for, collect and give
acquittance for any and all monies due or to become due on Accounts; (viii)
compromise, prosecute or defend any action, claim or proceeding concerning
Accounts; and (ix) do any and all things necessary and proper to carry out the
purposes contemplated in this Agreement, the other Financing Agreements and any
other agreement between the parties.
(c) The Lender and any person acting as its attorney hereunder shall
not be liable for any acts or omissions or for any error of judgment or mistake
of fact or law, except for bad faith and willful misconduct. The Borrowers agree
that the powers granted hereunder, being coupled with an interest, and shall be
irrevocable so long as any Obligation remains unsatisfied. Notwithstanding the
foregoing, the Borrowers acknowledges that the Lender is under no duty to take
any of the foregoing actions and that after having made demand upon the Account
Debtors for payment, the Lender shall have no further duty as to the collection
or protection of Accounts or any income therefrom and no further duty to
preserve any rights pertaining thereto, other than the safe custody thereof.
9.3 Duties After Demand or Default. Subject to the terms of the
Intercreditor Agreement: (a) The Borrowers will, at the Lender's request,
assemble all Collateral and make it available to the Lender at places which the
Lender may reasonably select and will make available to the Lender all premises
and facilities of the Borrowers for the purpose of the Lender taking possession
of Collateral or of removing or putting the Collateral in salable form. In the
event any goods called for in any sales order, contract, invoice or other
instrument or agreement evidencing or purporting to give rise to any Account
shall not have been delivered or shall be claimed to be defective by any
customer, the Lender shall have the right in its discretion to use and deliver
to such customer any goods of the Borrowers to fulfill such order, contract or
the like so as to make good any such Account. If any Collateral shall require
repairing, maintenance, preparation, or the like, or is in process or other
unfinished state, the Lender shall have the right, but shall not be obligated,
to do such repairing, maintenance, preparation, processing or completion of
manufacturing for the purpose of putting the same in such salable form as the
Lender shall deem appropriate, but the Lender shall have the right to sell or
dispose of such Collateral without such processing;
(b) The net cash proceeds resulting from the collection, liquidation,
sale, lease or other disposition of Collateral shall be applied first to the
expenses, including all reasonable attorney's and professional fees, of
retaking, holding, storing, processing and preparing for sale, selling,
collecting, liquidating the Collateral and then to the satisfaction of all
Obligations, application as to particular Obligations or against principal or
interest to be at the Lender's sole discretion and the balance of the proceeds,
if any, shall be paid to the Borrowers. The Borrowers shall be liable to the
Lender and shall pay to the Lender on demand any deficiency which may remain
after such sale, disposition, collection or liquidation of Collateral.
9.4 Borrowers Indemnification. The Lender shall not, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the liquidation of any of the
Collateral, including the settlement, collection or payment of any of the
Collateral accounts or any instrument received in payment thereof, or any damage
resulting therefrom, provided that the Lender acted in a commercially reasonable
manner in its liquidation of any of the Collateral. The Borrowers agree to
indemnify and hold harmless the Lender against any claim, loss or damage arising
out of the liquidation of any of the Collateral, including the settlement,
collection or payment of any of the Collateral accounts or any instrument
received in payment thereof, provided that the Lender acted in a commercially
reasonable manner in its liquidation of any of the Collateral.
9.5 Cumulative Remedies. The enumeration of the Lender's rights and
remedies set forth in this Article is not intended to be exhaustive and the
exercise by the Lender of any right or remedy shall not preclude the exercise of
any other rights or remedies, all of which shall be cumulative and shall be in
addition to any other right or remedy given hereunder or under any other
agreement between the parties or which may now or hereafter exist in law or at
equity or by suit or otherwise. The Lender's delay or failure to take action in
exercising any right, power or privilege shall not operate as a waiver thereof,
and any single or partial exercise of any such right, power or privilege shall
not preclude other or further exercise thereof or the exercise of any other
right, power or privilege or shall be construed to be a waiver of any event of
default. No course of dealing between the Borrowers and the Lender or their
employees shall be effective to change, modify or discharge any provision of
this Agreement or to constitute a waiver of any default.
ARTICLE X.
Miscellaneous
10.1 Expenses. Whether or not the transactions contemplated
herein shall be consummated, the Borrowers agree to pay all reasonable
out-of-pocket expenses, including reasonable fees and expenses of the
Lender's counsel, of the Lender incurred in connection with the
preparation of this Agreement, the Note, the Warrant, the other
Financing Agreements and any amendments or supplements hereto and
thereto, and all expenses, including reasonable fees and expenses of the
Lender or the Lender's counsel, incidental to the collection of monies
due hereunder or under the Note or the other Financing Agreements and/or
the enforcement of the rights, including the protection thereof, of the
Lender under any provisions of this Agreement, and the Note and the
other Financing Agreements.
10.2 Set-off. The Borrowers give the Lender a lien and right of setoff
for all the Obligations upon and against all its deposits, credits, collateral
and property now or hereafter in the possession or control of the Lender or in
transit to it. The Lender may, upon the occurrence of any Event of Default,
apply or set off the same, or any part thereof, to any Obligations of the
Borrowers to the Lender.
10.3 Covenants to Survive. Binding Agreement. All covenants,
agreements, warranties and representations made herein, in the Note, in
the other Financing Agreements, and in all certificates or other
documents of the Borrowers shall survive the advances of money made by
the Lender to the Borrowers hereunder and the delivery of the Note and
the other Financing Agreements until the Obligations are satisfied in
full. All such covenants, agreements, warranties and representations
shall be binding upon and inure to the benefit of the Lender and its
successors and assigns, whether or not so expressed. In the event that
the Lender is forced to disgorge any monies which the Lender receives,
directly or indirectly, in payment of the Debt, all of the Financing
Agreements shall be deemed reinstated to the extent of any such
disgorged amount and the Lender shall be entitled to all rights and
remedies at law, in equity or under this Agreement. The last sentence of
this provision shall remain in effect for six years after the
satisfaction of the Obligations.
10.4 Cross-Collateralization. All Collateral which the Lender
may at any time acquire from the Borrowers or from any other source in
connection with the Obligations arising under this Agreement and the
other Financing Agreements shall constitute collateral for each and
every Obligation, without apportionment or designation as to particular
Obligations. All Obligations, however and whenever incurred, shall be
secured by all Collateral however and whenever acquired. The Lender
shall have the right, in its sole discretion, to determine the order in
which the Lender's rights in or remedies against any Collateral are to
be exercised and which type of Collateral or which portions of
Collateral are to be proceeded against and the order of application of
proceeds of Collateral as against particular Obligations.
10.5 Amendments and Waivers. This Agreement, the Note, the Warrant, the
other Financing Agreements, and any term, covenant or condition hereof or
thereof may not be changed, waived, discharged, modified or terminated except by
a writing executed by the parties hereto or thereto.
10.6 Notices. All notices, requests, consents, demands and other
communication" hereunder shall be in writing and shall be mailed by registered
or certified first class mail or delivered by an overnight courier or by
facsimile, to the respective parties to this Agreement as follows:
If to the Borrowers: Lunn Industries, Inc.
1 Garvies Point Road
Glen Cove, New York 11542
Attn: Alan Baldwin
With a copy to: Muenz & Meritz, PC
3 Hughes Place
Dix Hills, New York 11746
Attn: Lawrence Muenz, Esq.
If to the Lender: Fleet National Bank
of Connecticut
One Corporate Center MSN 921
Hartford, Connecticut 06120
Attn: Mr. Theodore Maniatis
With a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attn: Daniel J. Krauss, Esq.
All such notices and communications shall be deemed to have been delivered on
the date of delivery thereof, one day after receipt of facsimile or on the third
business day after the mailing thereof.
10.7 Transfer of Lender's Interest. The Borrowers agree that
the Lender, in its sole discretion and upon prior written notice to the
Borrowers, may freely sell, assign or otherwise transfer participations,
portions, co-lender interests or other interests in all or any portion
of the indebtedness, liabilities or obligations arising in connection
with or in any way related to the financing transactions of which this
Agreement is a part. In the event of any such transfer, the transferee
may, in Lender's sole discretion, have and enforce all the rights,
remedies and privileges of Lender. Each of the Borrowers consents to the
release by Lender to any potential transferee, so long as such
transferee is a financial institution, of any and all information
including, without limitation, financial information pertaining to the
Borrowers as Lender, in its sole discretion, may deem appropriate. If
such transferee so participates with Lender in making loans or advances
hereunder or under any other agreement between Lender and the Borrowers,
each of the Borrowers grants to such transferee and such transferee
shall have and is hereby given a continuing lien and security interest
in any money, securities or other property of the Borrowers in the
custody or possession of such transferee, including the right of set
off, to the extent of such transferee's participation in the
Obligations.
10.8 Section Headings. Severability. Entire Agreement. Section and
subsection headings have been inserted herein for convenience of reference only
and shall not be construed as part of this Agreement. Every provision of this
Agreement, the Note and the other Financing Agreements is intended to be
severable; if any term or provision of this Agreement, the Note, the other
Financing Agreements, or any other document delivered in connection herewith
shall be invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions hereof or
thereof shall not in any way be affected or impaired thereby. All Exhibits and
Schedules to this Agreement shall be deemed to be part of this Agreement. This
Agreement, the other Financing Agreements, and the Exhibits and Schedules
attached hereto and thereto embody the entire agreement and understanding among
the Borrowers and the Lender and supersede all prior agreements and
understandings relating to the subject matter hereof unless otherwise
specifically reaffirmed or restated herein.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered shall be an
original, and it shall not be necessary when making proof of this Agreement to
produce or account for more than one counterpart.
10.10 Governing Law; Consent to Jurisdiction. This Agreement and the
other Financing Agreements, and all the rights of the parties, shall be governed
as to validity, construction, enforcement and in all other respects by the laws
of the state of Connecticut. The Borrowers expressly submit and consent in
advance to the jurisdiction of the appropriate courts within the state of
Connecticut in any action or proceeding.
10.11 Uniform Commercial Code. The Borrowers shall comply with, and the
Lender shall have all the rights and remedies of a secured party under the
Uniform Commercial Code, as enacted in Connecticut, as amended.
10.12 Further Assurances. At the request of the Lender, the Borrowers
agree that at their expense, they shall promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Lender may request, in order to perfect and protect the
Security Interests, including, but not limited to financing statements on Form
UCC-1, or to enable the Lender to exercise and enforce its rights and remedies
hereunder.
10.13 Prejudgment Remedy Waiver: Waivers. EACH OF THE BORROWERS
ACKNOWLEDGES THAT THE LOANS EVIDENCED HEREBY ARE A COMMERCIAL TRANSACTION AND
WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 9038 OF THE CONNECTICUT
GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY DESIRE TO USE, AND
FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT,
PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSIONS. EACH OF THE BORROWERS
ACKNOWLEDGES THAT IT MARES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND
WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF
THIS WAIVER WITH ITS ATTORNEYS.
10.14 Jury Trial Waiver. EACH OF THE BORROWERS WAIVES TRIAL BY JURY IN
ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT
IS A PART OR THE ENFORCEMENT OF ANY OF LENDER'S RIGHTS. EACH OF THE BORROWERS
ACKNOWLEDGES THAT IT NARES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND
WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF
THIS WAIVER WITH ITS ATTORNEYS.
The parties have executed this Agreement on the date first written above.
SIGNED IN THE PRESENCE OF: LUNN INDUSTRIES, INC.
By:______________________
Alan Baldwin,
Chairman and Chief
Executive Officer
ALCORE, INC.
By:______________________
Alan Baldwin,
Chairman and Chief
Executive Officer
FLEET NATIONAL BANK OF
CONNECTICUT
By:______________________
Theodore Maniatis,
Vice President
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Alan Baldwin, known to me to be the Chairman and Chief Executive
Officer of Lunn Industries, Inc., and that he as such officer, signer and sealer
of the foregoing instrument, acknowledged the execution of the same to be his
free act and deed individually and as such officer and the free act and deed of
the corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Alan Baldwin, known to me to be the Chairman and Chief Executive
Officer of Alcore, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Theodore Maniatis, known to me to be the Vice President of Fleet
National Bank of Connecticut, and that he as such officer, signer and sealer of
the foregoing instrument, acknowledged the execution of the same to be his free
act and deed individually and as such officer and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
Exhibit 10.31
AMENDED AND RESTATED SUBORDINATED TERM NOTE
$500,000.00 December 28, 1995
(1) For value received, the undersigned, LUNN INDUSTRIES, INC., a
Delaware corporation and ALCORE, INC., a Delaware Corporation (collectively, the
"Makers"), jointly and severally, promise to pay to the order of FLEET NATIONAL
BANK OF CONNECTICUT (f/k/a SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION) (the
"Lender"), at its office at One Corporate Center, Hartford, Connecticut, or at
such other place as the holder hereof (including the Lender, hereinafter
referred to as the "Holder") may designate, the principal sum of FIVE HUNDRED
THOUSAND DOLLARS ($500,000), together with interest on the unpaid balance of
this Note.
(2) This Note is issued pursuant to the Amended and Restated Commercial
Revolving Loan, Term Loan and Security Agreement dated the same date as this
Note, between the Makers and the Lender (as amended, restated, supplemented or
otherwise modified from time-to-time, the "Loan Agreement"), and is entitled to
the benefit and security of the Financing Agreements (as defined therein).
(3) The principal amount of the indebtedness evidenced hereby shall be
payable in accordance with the provisions of the Loan Agreement, and subject to
acceleration upon the occurrence of an Event of Default under the Loan Agreement
or earlier repayment as set forth in the Loan Agreement. If not sooner paid, all
sums outstanding under this Note shall be paid in full on December 27, 2005 (the
"Maturity Date").
(4) Interest shall be computed daily and payable, in arrears, at the
applicable Contract Rate in accordance with the terms of the Loan Agreement, on
the basis of a 360 day year and the actual days elapsed, together with all taxes
levied or assessed against Holder on this Note or the debt evidenced hereby, and
together with all reasonable costs, expenses, attorneys' and professionals' fees
incurred in any action to collect the indebtedness of this Note, to foreclose
any security agreement securing the indebtedness of this Note, or in protecting
or sustaining the lien of any security agreement, or in any litigation or
controversy arising from or connected with this Note or any security agreement
or other agreement securing the indebtedness of this Note.
(5) Makers hereby agree that (a) if they shall fail to make payments
required under this Note within five (5) days of the date when same are due and
Makers do not exercise the Interest Rate Option within such time period or (b)
upon and after the occurrence of an Event of Default, Holder may, without
demand, notice or legal process of any kind, declare this Note to become due and
payable.
(6) This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
(7) This Note is subject to the terms and conditions contained in the
Intercreditor and Subordination Agreement between Lender and Gibraltar
Corporation of America dated the date hereof.
(8) Makers agree that upon the occurrence of an Event of Default, after
judgment or the Maturity Date, the indebtedness of this Note shall bear interest
at the Default Rate.
(9) Holder may collect a late charge of 5% of any installment of
principal, interest or other amount due to Holder which is not paid by Maker
within ten (10) days after the due date thereof to cover the extra expense
involved in handling such delinquent payment. The minimum late charge shall be
$15.
(10) Makers give Holder a lien and right of set off for all of Makers'
liabilities upon and against all the deposits, credits, collateral and property
of Makers now or hereafter in the possession or control of Holder, or any parent
or subsidiary corporation or any other entity affiliated with Holder, or in
transit to any of them. Holder may, upon and after the occurrence of an Event of
Default, apply or set off the same, or any part therefor, to any liability of
Makers.
(11) This Note amends and restates in their entirety and is given in
substitution for (but not in satisfaction of) that certain (i) Revolving
Promissory Note dated May 21, 1993 issued by Makers and Norfield Corporation
("Norfield") in favor of Lender in the original principal amount of $2,500,000
and (ii) Term Promissory Note dated May 21, 1993 issued by Makers and Norfield
in favor of Lender in the original principal amount of $2,000,000.
(12) Makers waive any diligence, presentment, protest and notice of
nonpayment, protest and any renewals or extension of this Note. The failure of
Holder to insist upon the strict performance of Makers of the terms of this Note
shall not be deemed to be a waiver of any term herein, and Lender shall retain
the right thereafter to insist upon strict performance by Makers of the terms of
this Note.
(13) This Note shall be governed by and construed in accordance with
the laws of the State of Connecticut. Makers consent in advance to the
jurisdiction of the appropriate courts within such state.
(14) Prejudgment Remedy Waiver. MAKERS ACKNOWLEDGE THAT THE
TRANSACTIONS OF WHICH THIS NOTE IS A PART ARE COMMERCIAL TRANSACTIONS AND WAIVE
THEIR RIGHT TO NOTICE AND A HEARING AS PROVIDED BY CHAPTER 903 OF THE
CONNECTICUT GENERAL STATUTES OR UNDER ANY OTHER FEDERAL OR STATE LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO USE. MAKERS
ACKNOWLEDGE THAT THEY MAKE THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS
AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH
THEIR ATTORNEYS.
(15) Jury Trial Waiver. MAKERS WAIVE TRIAL BY JURY IN ANY COURT AND IN
ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN
ANY WAY RELATED TO THE FINANCING TRANSACTIONS TO WHICH THIS NOTE IS A PART OR
THE ENFORCEMENT OF ANY OF HOLDER'S RIGHTS AND REMEDIES. MAKERS ACKNOWLEDGE THAT
THEY MAKE THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH THEIR
ATTORNEYS.
LUNN INDUSTRIES, INC.
[CORPORATE SEAL]
By:_____________________
Alan Baldwin, Chairman
and Chief Executive
Officer
ALCORE, INC.
[CORPORATE SEAL]
By:______________________
Alan Baldwin, Chairman
and Chief Executive
Officer
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Alan Baldwin, known to me to be the Chairman and Executive Officer of
Lunn Industries, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, this ___ day of December, 1995 personally
appeared Alan Baldwin, known to me to be the Chairman and Chief Executive
Officer of Alcore, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
---------------------------
Notary Public
Exhibit 10.32
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SECURITIES LAWS AND THE
RULES AND REGULATIONS THEREUNDER OR AN EXEMPTION THEREFROM AND IN COMPLIANCE
WITH THE RESTRICTIONS CONTAINED HEREIN.
WARRANT
To Subscribe for and Purchase
Common Stock of
LUNN INDUSTRIES, INC.
THIS IS TO CERTIFY THAT, for value received, Fleet National Bank of
Connecticut (f/k/a Shawmut Bank Connecticut, National Association) ("Lender")
having offices at One Corporate Center, Hartford, Connecticut 06103, or its
successors is entitled to subscribe for and purchase from Lunn Industries, Inc.,
a Delaware corporation (the "Company"), 400,000 shares of the duly authorized,
validly issued, fully paid and nonassessable shares of the Company's voting
Common Stock, $.01 par value per share (the "Common Stock"), at an exercise
price (the "Initial Exercise Price") of the lesser of (a) $1.00 per share and
(b) 75% of the price per share of the Common Stock as published in the Wall
Street Journal or as reflected by a comparable source ("Market Price") as of the
date which is two (2) Business days prior to the effective date of exercise of
this Warrant ("Warrant"). This Warrant is issued in connection with the Amended
and Restated Commercial Revolving Loan, Term Loan and Security Agreement dated
December 28, 1995 between the Company, Alcore, Inc. and Lender (as same has been
or may be amended, modified or supplemented from time to time, the "Loan
Agreement"). All capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Loan Agreement. This Warrant shall
expire on (x) December 27, 2005 or (y) the first anniversary of the indefeasible
payment in full of all Obligations under the Loan Agreement and the irrevocable
termination thereof.
This Warrant is subject to the following provisions, terms and conditions:
11. Exercise of Warrant.
11.1 Manner of Exercise. This Warrant may be exercised by the holder
hereof (the "Holder") at any time on or after March 31, 1996, during normal
business hours on any day other than a Saturday, Sunday or legal holiday in the
State of New York (a "Business Day"), by surrender of this Warrant, with the
form of subscription at the end of this Warrant as Exhibit A (or a reasonable
facsimile thereof) duly executed by the Holder, to the Company at its principal
office, accompanied by payment of the Exercise Price (as hereinafter defined)
for such shares, in cash, by certified or official bank check payable to the
order of the Company or, at the option of Lender, by reduction of the
outstanding Obligations payable to Lender; provided that this Warrant may only
be exercised in whole and may not be exercised in part. The Holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock determined as provided
herein.
11.2 When Exercise Effective. Exercise of this Warrant shall be deemed
to have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as provided
in Section 1.1. At such time the person, corporation or other entity (a
"Person") in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such exercise as provided in Section 1.3
shall be deemed to have become the holder or holders of record thereof.
11.3 Delivery of Stock Certificates. As soon as practicable after the
exercise of this Warrant, in whole, and in any event within ten (10) Business
Days thereafter, the Company at its expense (including the payment by it of any
applicable taxes other than income or transfer taxes) will cause the following
to be issued in the name of and delivered to the Holder (bearing the applicable
legend specified in Article 5): a certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock to which the Holder shall be entitled upon such exercise.
11.4 Shares to be Fully Paid; Reservation of Shares; Listing. The
Company covenants and agrees that: (i) all shares which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof; (ii) without limiting the generality of the foregoing, it
will from time to time take all such action as may be required to assure that
the par value, if any per share of the Common Stock is at all times equal to or
less than the Exercise Price per share of the Common Stock issuable pursuant to
this Warrant; (iii) during the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have a sufficient
number of shares of Common Stock authorized and reserved for the purpose of
issue or transfer upon exercise of the rights represented by this Warrant; (iv)
upon the exercise of this Warrant, it will, at its expense, promptly notify each
securities exchange on which any Common Stock is at the time listed of such
issuance, and maintain a listing of all shares of Common Stock from time to time
issuable upon the exercise of the Warrant, and, if applicable under the
provisions of Article 7 below, will register under the Securities Act of 1933
(or any similar statute then in effect) ("Securities Act") all shares of Common
Stock from time to time so issuable; provided, however, that the Company need
not list such shares of Common Stock so long as there are in the Treasury of the
Company a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant.
12. Adjustments. The above provisions are, however, subject to the
following:
12.1 Initial Exercise Price; Adjustment of Warrant Purchase Price. The
Initial Exercise Price shall be subject to adjustment from time to time as
hereinafter provided (such price or price as last adjusted, as the case may be,
the "Exercise Price"). Upon each adjustment of the number of shares purchasable
pursuant hereto, the Exercise Price shall be adjusted by multiplying the
Exercise Price in existence immediately prior to such adjustment by a fraction,
the numerator of which is the total maximum number of Warrant Shares issuable
upon exercise of this Warrant prior to such adjustment and the denominator of
which is the total maximum number of Warrant Shares issuable upon exercise of
this Warrant after such adjustment.
12.2 Adjustment for Additional Issuances. If and whenever after the
date hereof the Company shall in any manner (i) issue or sell any shares of any
class of its Common Stock, (ii) grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any options
for the purchase of, any class of Common Stock or any stock or securities
convertible into or exchangeable for any class of Common Stock (such rights or
options being herein called "Options" and such convertible or exchangeable stock
or securities being herein called "Convertible Securities"), (iii) issue or sell
(whether directly or by assumption in a merger or otherwise) Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable or (iv) declare a dividend or make any other
distribution upon any stock of the Company payable in any class of Common Stock,
Options or Convertible Securities (any of the matters referred to in clauses
(i), (ii), (iii) and (iv) being an "Event"), then the Holder shall thereafter be
entitled to purchase at the Exercise Price resulting from any such adjustment
the number of shares (as adjusted from time to time, the "Warrant Shares")
obtained by dividing the number of shares purchasable pursuant hereto
immediately prior to such Event (with respect to each class of Common Stock) by
the sum of the total number of shares of Common Stock outstanding immediately
prior to such Event plus the total maximum number of shares of Common Stock
issuable upon the exercise of any Options or upon the conversion or exchange of
all Convertible Securities, in each case outstanding immediately prior to such
Event, and multiplying the result by the sum of the total number of shares of
Common Stock outstanding immediately after such Event plus the total maximum
number of shares of Common Stock issuable upon the exercise of any Options or
upon the conversion or exchange of all Convertible Securities, in each case
outstanding immediately after such Event.
12.3 Subdivision or Combination of Stock. In case the Company shall at
any time subdivide its outstanding shares of any class of Common Stock into a
greater number of shares or, in case the outstanding shares of any class of
Common Stock of the Company shall be combined into a smaller number of shares,
then, the number of shares of Common Stock thereafter constituting Warrant
Shares shall be adjusted so as to consist of the number of shares of Common
Stock which a record holder of the number of shares of Common Stock constituting
Warrant Shares immediately prior to the happening of such event would own or be
entitled to receive after the happening of such event.
12.4 Reorganization, Reclassification, Consolidation, Merger or Sale.
In case the Company shall reorganize its capital, reclassify its capital stock,
merge or consolidate into another corporation, or sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation, and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation are to be received by or
distributed to the holders of Common Stock, then the Holder shall have the right
thereafter to receive, upon exercise of such Warrant prior to the Expiration
Date, a number of Warrant Shares equal to the number of shares of common stock
of the successor or acquiring corporation receivable upon or as a result of such
reorganization, reclas- sification, merger, consolidation or disposition of
assets, by a holder of the number of shares of Common Stock constituting Warrant
Shares immediately prior to such event, subject to subsequent adjustments to the
number of shares of common stock of the successor or acquiring corporation
constituting Warrant Shares as provided in this Article 2. If, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, any cash, shares of stock or other securities or property
of any nature whatsoever (including warrants or other subscription or purchase
rights) are to be received by or distributed to the holders of Common Stock in
addition to common stock of the successor or acquiring corporation, the Holder,
upon exercise thereof prior to the Expiration Date, shall be entitled to receive
with respect to each Warrant Share cash in an amount equal to the amount of any
such cash applicable to the number of shares of Common Stock then constituting
Warrant Shares and the fair value (as determined in good faith by the Board of
Directors of the Company) of any and all such shares of stock or other
securities or property to be received by or distributed to the holders of Common
Stock of the Company. In case of any such reorganization, reclassification,
merger, consolidation or disposition of assets, the successor or acquiring
corporation shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order to
provide for adjustments of Warrant Shares which shall be as nearly equivalent as
practicable to the adjustments provided for in this Article 2. For the purposes
of this Article 2, common stock of the successor or acquiring corporation shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidence of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Article 2 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or dispositions of assets.
Notwithstanding the foregoing, if a purchase, tender or exchange offer is made
to and accepted by the holders of more than 50% of the outstanding shares of
Common Stock of the Company, (I) at the option of the Company, the Company may
purchase this Warrant for cash at a price equal to the excess of (i) the product
of the per share price paid in such purchase, tender offer or exchange offer
(taking any non-cash consideration into account at its fair market value) and
the Exercise Shares then in effect less (ii) the product of the then Exercise
Price and the Exercise Shares (as hereinafter defined) then in effect and (II)
the Company shall not effect any consolidation, merger or sale with the Person
having made such offer or with any Affiliate of such Person, unless prior to the
consummation of such consolidation, merger or sale the Holder shall have been
given a reasonable opportunity to then elect to receive upon the exercise of
this Warrant either the stock, securities or assets then issuable with respect
to the Common Stock of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer.
12.5 Notice of Adjustment. Whenever the number of shares of Common
Stock constituting Warrant Shares shall be adjusted pursuant to this Article 2
or otherwise or upon any adjustment of the Exercise Price, then and in each such
case the Company shall promptly obtain the opinion of a firm of independent
certified public accountants (which may be the regular auditors of the Company)
selected by the Company's Board of Directors, which opinion shall state the
Exercise Price resulting from such adjustment and specifying the increase or
decrease, if any, in the number of shares of Common Stock constituting Warrant
Shares, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Company will promptly mail a
copy of such accountants' opinion to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company.
12.6 Other Provisions Applicable to Adjustments or Exercise. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock constituting Warrant Shares hereinbefore
provided for in this Article 2 or upon exercise of this Warrant:
(a) When Adjustments Are To Be Made. The adjustments required by this
Article 2 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.
(b) Fractional Interests. In computing adjustments under this Article
or shares of Common Stock upon an exercise of this Warrant, fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.
(c) Adjustments for Fractional Interests. No adjustments computed
pursuant to this Article 2 shall be made until such time as the fractional
interest is at least one-hundredth of a share.
12.7 Fractional Warrants and Fractional Warrant Shares.
(a) The Company may, but shall not be required to, issue fractions of
Warrant Shares upon the exercise of Warrants. In the event that the Company
elects not to issue fractions of Warrant Shares it shall make an adjustment in
respect of a fractional interest in a Warrant by paying in cash to the person or
entity entitled to a fractional interest in a Warrant an amount equal to the
corresponding fractional part of the then current Market Price.
(b) The Company may, but shall not be required to, issue fractions of
Warrants or distribute Warrant Certificates that evidence fractional Warrants.
In the event that it elects not to issue fractions of Warrants or fractional
Warrants it shall make an adjustment in respect of a fractional interest in a
Warrant Share by paying in cash to the person or entity entitled to a fraction
of a Warrant Share an amount equal to the corresponding fractional part of the
purchase price of a Warrant Share.
12.8 Record Date. In case the Company shall take record of the holders
of its Common Stock for the purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Stock, Options or Convertible
Securities, or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such rights of subscription or
purchase, as the case may be.
12.9 Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be considered an
issue or sale of Common Stock for the purposes of this Article 2.
13. Notices of Corporate Action; Certain Events.
13.1 In case at any time:
(a) the Company shall declare a cash dividend on its Common Stock
other than out of consolidated earnings for any fiscal year determined in
accordance with generally accepted accounting purposes;
(b) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization, or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation (other than a subsidiary of the Company in which the
Company is the surviving or continuing corporation and no change occurs in the
Company's Common Stock), or sale of all or substantially all of its assets to
another corporation); or
(e) there shall be voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then, in any one or more of said
cases, the Company shall give written notice, by first class mail, postage
prepaid, addressed to the holder of this Warrant at
the address of such holder as shown on the books of the Company, of (a) the date
on which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (b) the date (or, if not
then known, a reasonable approximation thereof by the Company) on which such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up shall take place, as the case may be. Such notice
shall also specify (or, if not then known, reasonably approximate) the date as
of which the holders of Common Stock of record shall participate in such
dividend, distribution or subscription rights, or shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be. Such written notice shall be
given at least 10 days prior to the action in question and not less than 10 days
prior to the record date or the date on which the Company's transfer books are
closed in respect thereof.
13.2 If any event occurs as to which in the opinion of the Board of
Directors the other provisions of this Article 3 are not strictly applicable but
the lack of any adjustment would not in the opinion of the Board of Directors
fairly protect the purchase rights of this Warrant in accordance with the
essential intent and principles of such provisions, or if strictly applicable
would not fairly protect the purchase rights of the Warrant in accordance with
the essential intent and principles of such provisions, the Board of Directors
shall appoint a firm of independent certified public accountants (which may be
the regular auditors of the Company) which shall give their opinion as to the
adjustments,if any necessary to preserve, without dilution, on a basis
consistent with the essential intent and principles established in the other
provisions of this Article 3, the exercise rights of the registered holders of
this Warrant. Upon receipt of such opinion, the Board of Directors of the
Company shall forthwith make the adjustments described therein.
14. Actions Prohibited.
The Company will not (i) increase the par value of any shares
receivable upon the exercise of the rights represented hereby above the Exercise
Price then in effect, (ii) issue any capital stock of any class preferred as to
dividends or as to the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding-up of the Company unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets or
(iii) take any action which results in any adjustment of the Exercise Price if
the total number of shares of Common Stock issuable after such action upon the
exercise of the rights represented by all of the Warrants would exceed the total
number of shares of Common Stock then authorized by the Company's charter and
available for the purpose of issue upon such exercise.
15. Restrictive Legends. Each Warrant issued upon direct or indirect
transfer or in substitution for any Warrant shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"This Warrant and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any State, and may not be sold or otherwise
transferred except pursuant to an effective registration under such Act
and securities laws and the rules and regulations thereunder or an
exemption therefrom. The holder of this certificate, by acceptance of
this certificate, agrees to be bound by the provisions of the Warrant."
Each certificate for Common Stock issued upon the exercise of any Warrant
and each Certificate issued upon the direct or indirect transfer of any such
Common Stock shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The shares represented by this certificate have been acquired for
investment only and have not been registered under the Securities Act
of 1933, as amended (the "Act"), or under the securities laws of any
State. The shares represented by this certificate may not be sold or
transferred in absence of such registration or an exemption therefrom
under the Act and applicable state securities laws. Additionally, the
transfer of the shares represented by this certificate are subject to
the conditions specified in a certain Warrant (the "Warrant"), dated as
of December 28, 1995, issued by Lunn Industries, Inc. Copies of the
Warrant are on file with the Secretary of the Company. The holder of
this certificate, by acceptance of this certificate, agrees to be bound
by the provisions of the Warrant."
16. Ownership of Warrants; Replacement of Warrants; Transfer of Warrants
and Exercise Shares.
16.1 Ownership of Warrants. The Company may treat the Person in whose
name a Warrant is registered on the books of the Company as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary.
16.2 Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of a
Warrant and, in the case of any such mutilation, upon surrender of such Warrant
for cancellation at the principal office of the Company, and, in the case of any
loss, theft or destruction, upon receipt by the Company of an indemnification
agreement reasonably satisfactory to the Company, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant of like tenor bearing
the applicable legend specified in Article 5.
16.3 Transfer of Warrants and Exercise Shares.
(a) Title to this Warrant and, in the event the Warrant is
exercised, any Common Stock issued upon such exercise (the "Exercise Shares"),
may be transferred by Lender without the approval of the Company at any time
after December 28, 1995 by surrender of this Warrant and certificates evidencing
the Exercise Shares at the principal office of the Company, together with a
written assignment of this Warrant substantially in the form of Exhibit B hereto
and/or stock powers, as the case may be, duly executed by the Holder or its
agent or attorney.
(b) Upon the surrender of this Warrant, the Company, at its
expense, will execute and deliver to or upon the order of the Holder a new
Warrant or Warrants of like tenor, bearing the applicable legend specified in
Article 5, in the name of the Holder or in the name or names of the permitted
assignee or assignees as the Holder may direct, representing in the aggregate
the right to subscribe for and purchase the number of shares of Common Stock
which may at such time be subscribed for and purchased hereunder. Each new
Warrant shall represent the right to subscribe for and purchase that number of
shares of Common Stock from time to time constituting such percentage of the
aggregate number of outstanding shares of Common Stock as shall be designated by
the Holder at the time of such surrender. Notwithstanding the foregoing, a
Warrant may be exercised by a new holder without first having a new Warrant
issued.
(c) Upon the surrender of stock certificates evidencing Exercise
Shares, the Company, at its expense, will execute and deliver to or upon the
order of the Holder, new stock certificates of like tenor, bearing the
applicable legends specified in Article 5, in the name of the Holder or in the
name or names of the permitted assignee or assignee as the Holder may direct,
representing the aggregate number of Exercise Shares of such surrendered stock
certificates.
17. Registration and Take-Along Rights.
17.1. Demand Registration. Subject to the limitations and conditions
set forth below in this Section 7.1, until the expiration of this Warrant, each
holder of the Warrants and/or Exercise Shares (each hereinafter "Holder") may,
in its sole discretion, request Registration (a "Demand Registration") of the
Warrants and/or Exercise Shares (hereinafter "Holder Securities"), and upon
receiving such a request, the Company shall promptly prepare and make the
filings necessary for such Demand Registration and use its best efforts to cause
such Demand Registration and use its best efforts to cause Demand Registration
to become effective. As used herein, "piggy-back opportunity" means a
consummated sale of all Holder Securities requested to be registered by Holder
pursuant to Section 7.2 below. Notwithstanding the foregoing, the Holder may
only request a Demand Registration after September 30, 1996; provided, however,
if the Company files a registration statement under the Securities Act covering
an offering to the public for cash of any of the Company's common stock which
registration includes the Holder Securities on or before September 30, 1996 and
such offering is delayed due to reasons beyond the control of the Company, then
the right of Holder to request a Demand Registration hereunder shall not
commence until December 1, 1996.
(a) The request for a Demand Registration shall be given to the
Company in writing and shall state the kind, and number of shares (or other
units), of Holder Securities to be offered and sold pursuant to such
registration and the plan of distribution or disposition for such Holder
Securities (listing each state and/or other jurisdiction in which such
distribution or disposition is intended to be made).
(b) The Company may, within 20 days after receiving a request for
a Demand Registration, give written notice to Holder that it will instead
include the Holder Securities specified in such request in a larger Registration
of its securities under the Securities Act; in which event, provided that the
Company files such Registration within 60 days after receiving such request for
a Demand Registration and, after filing, diligently undertakes to have such
Registration declared effective (and provided that such Registration is declared
effective within four months after Holder's request for such Demand
Registration), the Company shall include (subject to the right of Holder to
withdraw from such Registration) all the Holder Securities specified in Holder's
request in such larger Registration in lieu of effecting a Demand Registration
under this Section 7.1. If in any such larger Registration there is a decrease
in the number of securities delivered proposed to be registered, Holder
Securities shall have priority over any securities of the Company or any third
party, provided, however, that if any of the holders of any securities of the
Company or any warrants to purchase securities of the Company who have demand
registration rights as of the date hereof with respect to such securities (the
"Other Securities") are to be included in such larger Registration and there is
a decrease in the number of securities proposed to be registered so that all the
Other Securities and the Holder Securities cannot be included in such
Registration, then Other Securities shall have priority over Holder Securities.
Subject to the foregoing, Holder shall have the right to request a Demand
Registration of Holder Securities regardless of whether Holder has yet exercised
for and purchased any of such Holder Securities hereunder, and to defer purchase
of any such unissued Holder Securities or its decision to withdraw from such
Registration:
(i) Until close of the offering made pursuant to such
Registration, if such offering is made on the basis of a firm
underwriting, and if, concurrently with the execution of the
underwriting agreement for such offering, (A) Holder delivers to
the Company a binding undertaking to exercise the Warrant, for such
number of shares of unissued Holder Securities as may be required
(in addition to any already issued Holder Securities which are
subject to such offering) to fulfill the obligation for delivery of
Holder Securities which are subject to such offering, (B) if the
managing underwriter so requires, Holder delivers into escrow, with
the managing underwriter for such offering, its check (which need
not be a certified check), in an amount equal to the aggregate
Exercise Price for the maximum number of shares of unissued Holder
Securities which (together with any already issued Holder
Securities subject to such offering) may be required under the
terms of such underwriting agreement (such check to be replaced by
the closing of such offering with a certified check in the exact
amount of the aggregate Exercise Price for the number of unissued
Holder Securities to be purchased), (C) Holder delivers to the
Company and the managing underwriter for such offering such other
documents as the Company or such underwriter may reasonably require
(without materially enlarging the obligations or liability of
Holder beyond those contemplated hereby) provided, however, if the
Demand Registration does not result in the sale of all of the
Holder Securities subject to such offering, any check or other
documents delivered to the Company or the managing underwriter or
both shall promptly be returned to Holder and Holder shall still be
entitled to one Demand Registration, or Holder may direct the
managing underwriter to deliver the check to the Company and the
unissued Holder Securities shall be issued to Holder; or,
otherwise,
(ii) within five (5) business days following receipt of
written notice that such Registration has become effective.
The selection, if any, of a managing underwriter who will, or will
manage a group of underwriters who will, undertake the sale and distribution of
the Holder Securities to be included in the registration statement filed under
this Section 7.1 shall be made by the Company, subject to the prior approval of
the Holder, which approval will not be withheld unreasonably, provided, however,
that the approval of Holder is subject to the right of first refusal to be the
underwriter on the part of J.E. Sheenan & Company, Inc.
The Company shall have sole control in connection with preparing,
filing, amending or supplementing any registration statement under the
Securities Act to be filed on behalf of the Holders but Holders shall control
the compensation to be paid to the underwriters in connection with a Demand
Registration. The underwriters shall have sole control in connection with
determining whether withdrawal of any registration statement to be filed on
behalf of the Holders is appropriate. In the event that a Holder of Holders
shall have requested registration pursuant to the provisions of this Section 7.1
and the underwriters shall have thereafter withdrawn such registration
statement, such withdrawn registration statement shall not be deemed one of the
demand registration statements which may be requested pursuant to this Section
7.1.
The Company will pay all registration expenses in connection with all
attempted registrations of Holder Securities under this Section 7.1 whether or
not such Demand Registration is successfully concluded for any reason
whatsoever. The rights on behalf of any Holder under this Section 7.1 shall be
exercisable by any successor Holder or Holder Securities (other than the
Company) who shall have acquired all Holder Securities held by its immediate
transferor,but only if and to the extent that such rights shall not previously
have been exercised by such Holder or by any other such successor Holder of such
Holder Securities. Holder may voluntarily withdraw at any time from any
registration covering shares demanded or requested to be registered.
17.2. Incidental (Piggy-Back) Registration. At any time until the
expiration of this Warrant, if the Company files or proposes to file a
registration statement under the Securities Act covering an offering, whether by
the Company or any of its other stockholders, of any of the Company's stock to
the public for cash (other than pursuant to any employee benefit plan or
employee option plan) and the registration form for such registration may also
be used for the registration of Holder Securities, then the Company shall
promptly give Holder written notice of such proposed registration (including a
list of the states and/or other jurisdictions, if any, in which the Company
intends to qualify such offering under "blue sky" or other applicable securities
laws). Subject to the limitations and conditions set forth below in this Section
7.2, the Company shall include in such registration (a "Piggy-Back
Registration"), whether as initially filed or by pre-effective amendment all of
the Holder Securities specified by Holder in a written request given the Company
within 20 days after Holder receives such notice from the Company.
(a) The Company shall not be obligated to include such Holder
Securities in a Piggy-Back Registration if, in the written opinion of its
counsel addressed to Holder, all such Holder Securities may be immediately sold
in public trading without registration.
(b) Except as set forth in (c) and (d) below, the Company shall
not be obligated to include in a Piggy-Back Registration any Holder Securities
which, in the opinion of its investment banker (stated in writing by such
investment banker to Holder) would materially interfere with the proposed
offering by the Company of its securities, provided, however, that the amount of
Holder Securities which shall be excluded from such Piggy-Back Registration
shall be determined on a pro rata basis with the securities of all persons other
than the Company and Other Securities to be included in such Piggy-Back
Registration.
(c) In any underwritten primary offering where the Company's
underwriter advises in writing that, in such underwriter's reasonable opinion,
the number of Holder Securities requested to be included in a Piggy-Back
Registration exceeds the number that effectively can be sold in such offer, the
Company shall give priority for inclusion in such registration, first, to the
securities the Company proposes to sell, second, to the Other Securities
requested to be included and third, on a pro rata basis, to the Holder
Securities and to other securities requested to be included.
(d) In any underwritten secondary offering on behalf of any of the
Company's stockholders (other than Holder) where the underwriter advises the
Company in writing that,in such underwriter's opinion, the number of securities
requested to be included in such a registration exceeds the number that
effectively can be sold in such offering, the Company shall give priority to
Other Securities requested to be included and then shall reduce on a pro rata
basis the Holder Securities requested to be included and other securities
requested to be included in such registration.
Subject to the foregoing, Holder shall have the right to request inclusion of
Holder Securities in any Piggy- Back Registration regardless of whether any of
such Holder Securities have yet been exercised for and purchased hereunder, and
to defer the purchase of any such unissued Holder Securities, or its decision to
withdraw from such registration:
(i) Until close of the offering pursuant to such registration,
if such offering is made on the basis of a firm underwriting, and
if, concurrently with the execution of the underwriting agreement
for such offering, (A) Holder delivers to the Company a binding
undertaking to exercise the Warrant, for such number of shares of
unissued Holder Securities as may be required (in addition to any
already issued Holder Securities which are subject to such
offering) to fulfill the obligation for delivery of Holder
Securities under such underwriting agreement (but in no event for
more than the aggregate remaining number of shares of Holder
Securities purchasable under the Warrant),(B) if the managing
underwriter so requires, Holder delivers into escrow, with the
managing underwriter for such offering, its check (which need not
be a certified check), in an amount equal to the aggregate Exercise
Price for the maximum number of shares of unissued Holder
Securities (together with any already issued Holder Securities
subject to such offering) may be required under the terms of such
underwriting agreement (such check to be replaced by the closing of
such offering with a certified check in the exact amount of the
aggregate Exercise Price for the number of unissued Holder
Securities to be purchased), (C) Holder delivers to the Company and
the managing underwriter for such offering such other documents as
the Company or such underwriter may reasonably require (without
materially enlarging the obligations or liability of Holder beyond
those contemplated hereby) provided, however, if the Piggy- Back
Registration does not result in the sale of all of the Holder
Securities subject to such offering, any check or other documents
delivered to the Company or the managing underwriter or both shall
promptly be returned to Holder and Holder shall still be entitled
to further Piggy-Back Registrations, or Holder may direct the
managing underwriter to deliver the check to the Company and the
unissued Holder Securities shall be issued to the Holder; or,
otherwise.
(ii) Within five (5) business days following receipt of
written notice that such registration has become effective.
The Company will pay all registration expenses in connection with each
registration of Holder Securities under the Section 7.2 and in connection with
all requests for such registrations. No registration effected under this Section
7.2 shall relieve the Company from its obligation to effect registrations upon
request under Section 7.1.
Holder may withdraw from a Piggy-Back Registration at any time without
consequence to its registration rights.
17.3. Registration Procedures. If and whenever the Company is required
to use its best efforts to effect the registration of any Holder Securities
under the Securities Act as provided herein, the Company will promptly:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all such securities covered by such registration statement until
such time as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement, but in no event for a period of more than nine
months after such registration statements becomes effective;
(c) furnish to each seller of such securities such number of
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus comprised in such registration statement (including each preliminary
prospectus), in conformity with the requirements of the Securities Act, and such
other documents, as such seller may reasonably request in order to facilitate
the disposition of the securities owned by such seller;
(d) use its best efforts to register or qualify such securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions within the United States (including territories and
commonwealths thereof) as each seller shall reasonably request, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified, to subject itself to taxation in any such jurisdiction, or to consent
to general service of process in any such jurisdiction; and
(e) notify each seller of any securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act within the period mentioned in
subdivision (b) of this Section 7.3, of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing (and upon
receipt of such notice and until a supplemented or amended prospectus as set
forth below is available, each seller will not offer or sell any securities
covered by the registration statement and will return all copies of the
prospectus to the Company if requested to do so by it), and at the request of
any such seller a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
The Company may require each seller of any securities as to which any
registration or qualification is being effected to furnish the Company such
information regarding such seller and the distribution of such securities as the
Company may from time to time request in writing and as shall be required by law
in connection therewith.
17.4. Take-Along.
(a) If, during the period the Warrants are exercisable, the Company
proposes to sell any Common Stock or Convertible Securities (collectively,
"Securities") other than pursuant to a Registration, the Company shall cause the
proposed terms of the offering of such Securities (the "Offering") to be reduced
to writing (which writing shall include the purchase price of each of the
securities which is subject to the Offering, the identity of the proposed
purchaser or purchasers, or, if not so identifiable, the class of proposed
purchasers and a list of the states in which the Offering may be made) (the
"Offering Disclosure") and shall notify each Holder in writing (the "Offering
Notice") of its wish to make the Offering and shall otherwise comply with the
provisions of this Section 7.4, provided, however, that the provisions of this
Section shall not apply to sales or transfers of Common Stock pursuant to
Sections 7.1 and 7.2. The Offering Notice shall contain an irrevocable offer to
sell on behalf of each Holder such Securities as such Holder may designate, on
up to a pro rata basis (according to beneficial ownership of Common Stock,
assuming full exercise of Warrant and with the proportionate right of
oversubscription to the extent any other Holder does not elect to accept the
offer set forth in the Offer Notice), at a purchase price equal to the price
contained in, and on the same terms and conditions of, the Offering Disclosure,
and shall be accompanied by a true copy of the Offering Disclosure. If sales are
proposed to be made by the Company pursuant to a series of related sales, the
higher of (i) the average price in all such sales and (ii) the most recent sale,
shall apply. If the consideration stated in the Offering is not cash, then the
purchase price to be stated in the offer contained in the Offering Notice will
be determined pursuant to an appraisal of the value of such consideration, the
terms and conditions of which appraisal will be mutually agreed upon by the
Company on the one hand and the Holders on the other after the receipt by them
of the Offering Notice. To the extent that the sale of Securities contemplated
by the Disclosure Notice requires the qualification of such Securities for sale
in any state, the Company shall qualify the Securities to be sold in the
Offering for sale in such additional states as may be reasonably requested by
the Holders.
(b) Each of the Holders who wishes to sell Securities in the
Offering shall deliver to the Company, within 20 days of the delivery of the
Offering Notice, a written election (the "Take-Along Election") to include in
the sale pursuant to the Offering such Securities as are designated in the
Take-Along Election, subject to paragraph (c) below (the "Take- Along
Securities"). The Company shall not be permitted to sell any Securities subject
to the Offering unless the Take-Along Securities are simultaneously sold in the
Offering, provided, however, in the event all of the Securities (including the
Take-Along Securities) proposed to be sold in the Offering cannot be sold, the
amount sold by the Company shall have priority over the amount sold by the
Holder.
(c) The number of Warrants or Exercise Shares, as the case may
be, which any Holder shall be entitled to include in its Take-Along Election
shall not exceed the product of (i) the number of Warrants or Exercise Shares,
as the case may be, owned by such Holder, multiplied by (ii) a percentage
calculated by dividing the aggregate number of Securities which the Company
proposes to sell pursuant to the Offering by the total number of Securities to
be outstanding after the Offering.
(d) Upon delivering a Take-Along Election, such Holder will, if
requested by the Company execute and deliver a custody agreement and power of
attorney (a "Custody Agreement and Power of Attorney") in form and substance
satisfactory to the Company with respect to the Securities which are to be sold
by such Holder pursuant hereto. The Custody Agreement and Power of Attorney will
provide, among other things, that such Holder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein a certificate or
certificates representing such Securities (duly endorsed in blank by the
registered owner or owners thereof or accompanied by duly executed stock powers
in blank) and irrevocably appoint said custodian and attorney-in-fact as such
Holder's agent and attorney-in-fact with full power and authority to act under
the Custody Agreement and Power of Attorney on such Holder's behalf with respect
to the matters specified herein relating to the sale of such Securities in
accordance with the provisions of this Warrant.
(e) The Company shall enter into agreements and take all other
appropriate actions to expedite or facilitate the Offering, including:
(i) making such representations and warranties to the Holders
and any purchasers of Take-Along Securities in form, substance and scope as
are customarily made by issuers in private placements;
(ii) obtaining opinions of counsel to the Company and updates
thereof addressed to each selling Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested in private
placements and such other matters as may be reasonably requested by such
Holders and underwriters, which counsel and opinions shall be reasonably
satisfactory (in form, substance and scope) to the underwriters, if any, and
a majority in interest of the Holders of the Take-Along Securities being
sold, and
(iii) delivering such documents and certificates as may be
reasonably requested by a majority in interest of the Holders of Take-Along
Securities being sold or the underwriters, if any, to evidence compliance
with this paragraph (e) and with any customary conditions contained in any
agreement entered into by the Company in connection with the Offering.
(f) The Holders of the Take-Along Securities being so sold agree
to pay all of the underwriting discounts and commissions (but not fees) and
transfer taxes on such Take-Along Securities. The Company agrees that the costs
and expenses which it is obligated to pay in connection with the Offering,
whether or not such Offering is successfully concluded for any reason
whatsoever, include, but are not limited to, the fees and expenses of counsel
for the Company, the fees and expenses of the Company's accountants, reasonable
fees and expenses of counsel to Holders in connection with such Offering, all
other costs and expenses incident to the preparation and printing of the
Offering Disclosure and any other documents furnished by the Company to Holders
or purchasers of the Take-Along Securities (the "Private Sale Documents"), the
costs incurred in connection with the qualification for sale under the "blue
sky" or other securities laws in the states and other jurisdictions determined
pursuant to Section 7.4(a) above, including fees and expenses of counsel for the
Company and the Holders in respect thereto, and the costs of supplying a
reasonable number of Private Sale Documents to the Holders.
17.5. Indemnification.
(a) In the event of any registration of any Warrants or restricted
securities under the Securities Act pursuant to paragraph 7.1 or 7.2 or sale of
Take-Along Securities pursuant to Section 7.4, the Company will indemnify and
hold harmless the seller of such securities and each underwriter of such
securities and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller or
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities Act,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and the Company will reimburse such
seller and each such underwriter and each such controlling person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument executed by
such seller, underwriter or controlling person specifically for use in the
preparation thereof.
(b) The Company may require, as a condition to including any
Holder Securities in any registration statement filed pursuant to Section 7.1 or
7.2 or any Take-Along Securities in any Offering pursuant to Section 7.4, that
the Company shall have received an undertaking satisfactory to it from the
prospective seller or underwriter of such securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in paragraph
(a) of this Section 7.5) the Company, each director of the Company, each officer
of the Company who shall sign such registration statement or furnish the Private
Sale Documents, any person who controls the Company within the meaning of the
Securities Act and any underwriter designated by the Company to manage the sale
of such securities, with respect to any statement in or omission from such
registration statement, Private Sale Document, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument executed by
such seller or underwriter specifically for use in the preparation of such
Private Sale Document, registration statement, preliminary prospectus, final
prospectus, amendment or supplement.
(c) Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
subdivisions of this Section 7.5, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action, provided that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 7.5, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
18. Termination of Restrictions and Put and Call Options. The restrictions
imposed by this Warrant upon the transferability, and exercise, of Warrants and
restricted securities shall cease and terminate as to any particular Warrants or
restricted securities, (a) when such securities shall have been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering such securities, or (b) when in the opinions of
both counsel for the holder thereof and counsel for the Company such
restrictions shall terminate as to any Warrants or restricted securities, the
holder thereof shall be entitled to receive from the Company, without expense,
new certificates of like tenor not bearing the respective legends set forth in
Article 5.
19. No Rights or Liabilities as Shareholder. Nothing contained in this
Warrant shall be construed as conferring upon the Holder any rights as a
shareholder of the Company or as imposing any liabilities on the Holder to
purchase any securities or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors or shareholders of the
Company or otherwise.
20. Notices. All notices and other communications under this Warrant shall
be in writing and shall be mailed by registered or certified mail, return
receipt requested, addressed (a) if to the Holder or any holder of Common Stock,
at the registered address of such holder as set forth in the applicable register
kept at the principal office of the Company, or (b) if to the Company, to the
attention of its President at its principal office, provided that the exercise
of any Warrant shall be effected in the manner provided in Article 1.
21. Successors and Permitted Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefits of and be binding upon the successors of the
Company and the successors and assigns of the Holder. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant and shall be enforceable by any such Holder.
22. Amendment. This Warrant may be modified or amended or the provisions
thereof waived with the written consent of the Company and the Holder.
23. Governing Law. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
24. Call Option.
14.1 The Company shall have the option, exercisable from December 28,
1995 through December 27, 1998 to call, in whole, the Warrants and Exercise
Shares issued hereunder and subject hereto (the "Call Option") at a price (the
"Call Price") equal to (i) $3,321,469.34 less (ii) $1,961,951.84 less (iii) the
aggregate amount of principal payments made with respect to the Term Loan (the
"Aggregate Amount"), provided, however, if the Term Loan has been paid in full
pursuant to Section 2.3(b) of the Loan Agreement, then the Aggregate Amount
shall be deemed to be $500,000. The Company shall pay the aggregate Call Price
within thirty (30) days after the Lender receives notice (the "Call Notice") of
exercise of the Call Option (but in no event sooner than three (3) days after
the Call Price is determined).
14.2 Payment. The Company shall pay when due the Call Price to Lender,
by wire transfer of immediately available funds to such bank accounts of the
Holder as shall be provided in writing to the Company, or to such other location
as Lender shall have given notice of to the Company pursuant to the provisions
of the Loan Agreement.
IN WITNESS WHEREOF, the Company has executed this instrument as of the day
and year first above written.
LUNN INDUSTRIES, INC.
By:________________________________
Alan Baldwin, Chairman and
Chief Executive Officer
Exhibit A
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To: _____________________
The undersigned registered holder of the enclosed Warrant hereby irrevocably
exercise such Warrant for, and purchases thereunder, _______ shares of Common
Stock of_________________, and herewith makes payment of $____________ therefor
and requests that the certificates for such shares be issued in the name of, and
delivered to the undersigned registered holder.
Dated:____________________
-------------------------------
(Signature must conform
in all respects to name
of holder as specified on
the face of the
Warrant)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
Exhibit B
FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the enclosed Warrant
hereby sells, assigns and transfers unto ______________________________ the
right represented by such Warrant to purchase ______ shares of Common Stock of
___________________, to which such Warrant relates, and appoints _____________
Attorney to make such transfer on the books of ____________________, maintained
for such purpose, with full power of substitution in the premises.
Dated:____________________
-------------------------------
(Signature must conform
in all respects to name
of holder as specified on
the face of the
Warrant)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ---------------------------
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 206075
<SECURITIES> 0
<RECEIVABLES> 2,390,421
<ALLOWANCES> 125,000
<INVENTORY> 4,105,941
<CURRENT-ASSETS> 6,884,807
<PP&E> 11,106,477
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0
0
<COMMON> 75,273
<OTHER-SE> 8,505,565
<TOTAL-LIABILITY-AND-EQUITY> 15,000,680
<SALES> 14,720,718
<TOTAL-REVENUES> 14,720,718
<CGS> 11,821,324
<TOTAL-COSTS> 14,198,689
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<INCOME-TAX> 12,300
<INCOME-CONTINUING> 259,145
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<EXTRAORDINARY> 796,165
<CHANGES> 0
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<EPS-PRIMARY> 0.14
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</TABLE>
