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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, 1996
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.
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(Name of Registrant as specified in its charter)
Delaware 11-1581582
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Garvies Point Road, Glen Cove, New York 11542-2828
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 671-9000
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: Common Stock
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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 market price as quoted on The Nasdaq Stock
Market on April 1, 1997 was $7,063,118.
The aggregate number of shares of Common Stock outstanding as of March 31, 1997
was 12,779,653.
Documents incorporated by reference to the Form 10-KSB: None
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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 its customers.
In January 1995, the Company purchased the assets of the metal bonding
business of Limco Manufacturing Corporation, 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 Lunn Composites business, including 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.
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Typical applications of Lunn Composites' products are as follows:
Radar: Radomes, antenna housings, parabolic reflectors, antenna masts, antennas,
and electronic cabinets.
Marine: Towed-array fairings, 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: Solar panels, wing panels, floor panels, hatches,
fairings, electronic cabinets, metal details, slats and other missile and
aircraft assemblies.
Commercial: Spherical projection display screens and panels.
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 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 50% 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 50% of
Alcore's total sales.
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One of the Company's most promising products is PAA-CORE(R), a
phosphoric acid anodized honeycomb product. PAA-CORE(R) is a trademark of
Alcore. PAA-CORE(R) was qualified 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(R) 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(R)
represents an increasing percentage of Alcore's aluminum honeycomb sales, and is
expected to continue growing in the future.
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's fiber-reinforced composite product sales represented
approximately 22% of the Company's consolidated net sales in 1996. 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
contracts. The Company is a sole supplier of many of its fiber-reinforced
composite products. Major customers of fiber reinforced composite products are
the U. S. Government, Raytheon, General Dynamics (Electric Boat), United
Defense, Northrop/Grumman/Vought and Lockheed Martin.
Sales of Lunn's metal bonded composite product line, acquired in
January, 1995, represented approximately 12% of Lunn's 1996 consolidated net
sales. Metal bonded products are sold to major commercial aircraft original
equipment manufacturers such as Boeing, Northrop/Grumman/Vought, Lockheed
Martin, McDonnell Douglas and others.
Honeycomb product sales represented approximately 66% of the Company's
consolidated net sales in 1996. Major customers in the honeycomb segment include
such aerospace companies as Boeing, McDonnell Douglas, Lockheed Martin, Rohr,
Vought (Northrop Grumman), Gulfstream, and Hispano Suiza of France. Major
industrial and transportation customers include DAW Technologies and Metalmart,
Inc.
Aerospace and aircraft business represented approximately 59% of 1996
consolidated sales compared to 55% in 1995. Industrial, transportation and
construction business increased to approximately 18% of total sales in 1996,
compared to 16% in 1995.
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Military business continued to decline as a percentage of total sales in 1996,
falling to 23% compared to 29% in 1995. Aerospace and aircraft are projected to
represent an increasing share of total Company sales in future years due to
continued growth in the demand for new aircraft and the resultant demand for
increased quantities of honeycomb and metal bond products. Industrial,
transportation and construction uses are also expected to represent increasing
percentages of Company sales due primarily to continued diversification of
honeycomb sales into these markets.
The backlog as of December 31, 1996 was $28.1 million (subsequently
increased to $29.5 million at March 31,1997) compared to $13.6 million as of the
end of 1995. Approximately $13.1 million (46.7%) of the backlog at the end of
the year is scheduled to be released for shipment during fiscal 1997.
In 1996 and 1995, the Company had one customer, the U.S. Government,
which represented greater than 10% of the Company's sales. Sales to the U.S.
Government were approximately $2.3 million (12.7%) and $1.8 million (12.1%) in
1996 and 1995, respectively.
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 by a direct sales force and internationally by the direct sales
force as well as agents or distributors.
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 competes
primarily with Hexcel. Alcore's PAA-CORE(R) technology with its 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(R). During 1996, Alcore expanded its business in Nomex(R)
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special processing, and entered into a long-term preferred price agreement with
a leading producer of Nomex(R).
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, comprehensive engineering and fully integrated
manufacturing resources that enable the Company to offer high quality 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(R) 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(R) technology expired in 1994.
Management believes expiration of the PAA patent will have marginal
impact on the Company's proprietary position for PAA-CORE(R). PAA-CORE(R)
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.
The Company's honeycomb division, Alcore, completed a joint development
program during 1996 with Showa Aircraft Company of Tokyo, Japan ("Showa"), to
jointly qualify and supply a new PAA honeycomb core product, "FormGrid", for use
in Boeing 767 wings slat products, to be produced and delivered during 1997 and
beyond. First article production parts are in process (subsequently completed
during the first quarter 1997), and production quantities will be delivered at
increasing production rates during 1997 and beyond. Plans for additional joint
activities with Showa are currently under discussion.
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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, 1996, 184 people were employed on a full-time basis
by the Company. Manufacturing labor at the Company's composite facilities in
Glen Cove, New York is unionized. The Company believes its employee relations
are good.
Research and Development
The Company conducted no research and development in 1996; however,
there are plans to expend funds in research and development in 1997.
Recent Developments
On January 13,1995, the Company borrowed $360 thousand and issued a
convertible note for repayment on or before January 13, 1997, with interest at
10% to be paid semi-annually in the form of shares of the common stock of the
Company. Pursuant to an agreement between the Company and the note holder, it
was agreed to reprice the conversion rate to the offering price of the March 21,
1996 private placement at $.40. The Note and accrued interest were converted
into 945,000 shares of common stock during January, 1997.
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
five year lease for this 93,000 square foot facility in January 1995 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 $213,000 in 1996 with escalations throughout
the term of the
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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. Alcore
manufactures its aluminum honeycomb products at this site.
On November 4, 1996, Alcore entered into a lease for 2,006 square feet
providing additional office space at a second location in Belcamp, Maryland. The
initial annual rental amounted to $18,977, with rent escalations throughout the
term of the lease to $24,995 which expires in 2001. Additionally, Alcore is
responsible for its proportionate share of operating expenses, insurance and
taxes amounting to $5,095 per annum.
3. Jessup, Maryland - The Company leases approximately 43,000 square feet under
a lease that expires in 2006. The annual rental is presently $176,498 increasing
incrementally to $232,253 in the final year, plus real estate taxes and prorated
operating expenses. Alcore produces aluminum honeycomb block at this plant.
Item 3. LEGAL PROCEEDINGS
Andrew J. Bobkowicz v. Lunn Industries, Inc. and Norfield Corporation
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. 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. On May 7, 1996, the Court denied the Company's Motion to
Vacate and confirmed the arbitration award and on June 26, 1996, judgement was
rendered thereon. The Company has appealed the confirmation of the arbitration
award and judgement to the Appellate Court of the State of Connecticut. Briefs
have not yet been filed. Although the ultimate outcome of this matter remains
uncertain the Company intends to vigorously defend this suit.
Diana Pisani Romaniello v. Lunn Industries, Inc. and Norfield Corporation
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
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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 $10 Thousand for each
violation of the Act; (d) Between 15 and 30 percent of the damages and fines
assessed against the defendants be awarded to Romaniello. The U.S. Government
has decided not to directly prosecute this case, as is its right under the
statute, however, it remains a named plaintiff in the suit and would benefit
from any recovery.
On July 26, 1995, the Court entered a default against the Company. The
Company moved to set aside the default, which was objected to by the individual
Plaintiff. The Plaintiff subsequently filed a Motion for Judgment. Thereafter,
the Court granted the Company's Motion, set aside the default and by inference,
the subsequent Motion for Judgement. The Company has answered the complaint and
filed its cross-claims. The case is presently in the discovery stage. The
Company has responded to written interrogatories submitted by the individual
Plaintiff.
On June 7, 1996, Norfield filed a voluntary petition for bankruptcy
under Chapter 7 of the U.S. Bankruptcy Code. On September 7, 1996, the District
Court dismissed the suit against the Company and Norfield without prejudice to
reopen, upon motion. On November 4, 1996, the Court denied the plaintiff's
Motion to Reopen without prejudice to renewal, upon the plaintiff receiving
relief from stay from the bankruptcy court. The Company believes that the
Plaintiff's claim is without merit, and although the ultimate outcome of this
matter remains uncertain, the Company intends to vigorously defend this suit.
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Bid Price ($)
High Low
1996
First Quarter $1.9375 $.625
Second Quarter $2.00 $1.09375
Third Quarter $1.4375 $.9375
Fourth Quarter $1.375 $.6875
1995
First Quarter $.8125 $.500
Second Quarter $.6250 $.375
Third Quarter $1.7500 $.375
Fourth Quarter $1.4375 $.625
The quarterly high and low quotations listed above were actual trades
as quoted by The Nasdaq Stock Market, Inc. The Company's common stock trades on
the NASDAQ SmallCap Market tier of the NASDAQ Stock Market under the symbol
"LUNN".
The number of record holders of the Company's common shares as of
March 31, 1997 was 1,056.
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.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
During fiscal year 1996, management's attention shifted from turning
the Company around to focusing on profitability in each of the core businesses
and setting the stage for future growth based on: a) improving the Company's
backlog; b) expanding its customer base; c) adding new technology and improved
processes; d) improving cash flow; and e) insuring sufficient credit line
availability to adequately finance anticipated growth during 1996 and beyond.
Continuing the growth trend established during 1995, Company revenues
for the year ended December 31, 1996 increased by $3.4 million or 23%, to $18.1
million compared to $14.7 million during 1995. The increase in revenue resulted
from increased sales in both the composite and honeycomb segments of the
Company's business.
Composite product sales in 1996 were $6.1 million compared to $4.5
million in 1995, an increase of $1.6 million or 35%. The increase in sales
resulted primarily from increased composite mast fairing and fuel tank shipments
to the U.S. government as well as increased metal bonded assembly shipments to
the aerospace and commercial aircraft markets. Other factors contributing to the
increase included improved quote response times, addition of new customers and
improved on-time deliveries.
Honeycomb product sales in 1996 were $12.0 million compared to $10.2
million for 1995, an increase of $1.8 million or 18%. This increase is a
reflection of the beginning of the recovery of the aerospace and commercial
aircraft markets, further development of non-aerospace business in
transportation, construction and industrial applications, as well as the
broadening of Alcore's product line and capabilities.
The backlog of customer orders as of December 31, 1996 increased to
$28.1 million, a 107% gain, compared to $13.6 million as of December 31, 1995.
The increase in backlog was attributed to expanded product line offerings,
long-term contract pricing strategies, an increased market penetration utilizing
the Company's PAA products and bonded structures capabilities. In addition, the
Company has developed an excellent reputation in the market place and is now
being solicited by an increased customer base.
Consolidated gross profit for 1996 improved 50% to $4.3 million
compared to $2.9 million for 1995, with corresponding improvement in gross
margin to 24% of sales in 1996 compared to 20% of sales during 1995. The overall
improvement was due to higher contribution margins obtained from the mix of
products sold in both the honeycomb and composite/bonding business segments, and
lower factory overhead costs in the
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composite/bonding business segment.
Selling, General and Administrative expenses for 1996 were $3.1 million
compared to $2.4 million for 1995, an increase of $700,000 or 29% attributable
principally to increased sales and marketing and increased staffing to support a
growing level of business. Selling, General and Administrative expenses as a
percentage of revenue for 1996 and 1995 remained relatively consistent at
approximately 17% in 1996 and 16% in 1995.
Interest expense increased $93 thousand to $507 thousand in 1996,
compared to $414 thousand in 1995. The increase resulted from expanded use of a
$3.5 million credit facility entered into with Gibraltar Corporation
("Gibraltar") in December 1995. During November 1996, the Company terminated its
credit facility with Gibraltar and entered into a further expanded $6 million
credit facility with First Union Bank of Maryland ("First Union") with a
favorable 30-day LIBOR plus 250 basis point interest rate. On November 25, 1996,
the Company entered into an agreement with First Union which fixed the interest
rate of the first $3 million outstanding under the credit facility at 8.65% to
protect against the risk of an increase in the LIBOR rate. (See Liquidity and
Capital Resources.)
Consolidated net income for the year ended December 31, 1996 was $652
thousand or $.06 per share (net of extraordinary loss of $152 thousand or $(.01)
per share on the early extinguishment of the Gibraltar line of credit), compared
to net income for 1995 of $1.1 million, or $.14 per share (of which $.11 per
share represented an extraordinary gain of $796 thousand related to debt
extinguishment with Fleet Bank as part of the Company's action to establish the
Gibraltar credit facility on December 28, 1995).
The Company has strengthened its honeycomb manufacturing organization
and production process, increased its emphasis on value-added special process
production, and initiated a program to acquire, expand and upgrade the honeycomb
manufacturing facility in Belcamp, Maryland. On March 17, 1997, the Company
agreed to purchase its Belcamp, Maryland facility. The purchase price for the
building and property is $2.025 million. The Company is presently considering
options to obtain financing for the purchase.
The Lunn Composites Division completed upgrading its Boeing Aircraft
certified phosphoric acid anodizing (PAA) clean line facility in Glen Cove, New
York during the third quarter of 1996. Additionally, the Division has sharpened
its focus on bonded panel composites for commercial aircraft, space applications
(i.e., solar panels and other spacecraft composites) and other aerospace and
commercial applications for 1997 and beyond. Traditional military composite
structures of the type produced by Lunn in the past are anticipated to represent
a declining share of the Division's business in the future.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operations during 1996 was $143 thousand
compared to $103 thousand provided in 1995. Net cash provided from operations in
1996 was comprised of $652 thousand net income plus approximately $1.8 million
in non-cash items, consisting of depreciation and amortization, allowance for
doubtful accounts, loss on extinguishment of debt, and stock issued to pay
expenses and debt. This was offset by approximately $2.3 million of cash used in
operations resulting from changes in assets and liabilities related to reduced
accounts payable and increased accounts receivable, payroll and payroll-related
costs and other accrued liabilities, and inventory. The approximate $1.2 million
increase in accounts receivable was due to the increase in the 1996 fourth
quarter sales over the same period in 1995. Inventory increased by approximately
$660 thousand over the prior year directly as a result of increased backlog as
of December 31, 1996. Net cash provided from operations in 1995 was comprised of
approximately $1.1 million net income plus $400 thousand in non-cash items,
offset by approximately $1.3 million of cash used in operations due to changes
in assets and liabilities.
Net cash used in investing activities during 1996 was approximately
$2.4 million, with approximately $1.4 million utilized for the purchase of
machinery and equipment and leasehold improvements at the Company's New York and
Maryland facilities. Additionally, approximately $1.0 million net cash was used
for the construction of tooling at the Maryland facility.
Net cash provided by financing activities was approximately $2.1
million, comprised of approximately $1.3 million from sale of capital stock and
$800,000 of proceeds from long-term debt net of repayments of notes payable and
the Gibraltar Corp. credit facility.
On March 21, 1996, the Company sold 3.5 million shares of its common
stock for $.40 per share in a private placement. Total proceeds, net of
underwriting commissions and expenses, were $1,244,000. The Company used
$581,000 of the proceeds to reduce its bank debt obligation, pay down a portion
of the outstanding balance due to bridge lenders, and to reduce its obligation
to a shareholder. The balance was applied toward working capital. During the
first quarter of 1996, the Company issued 229,666 shares of common stock to pay
expenses and reduce debt valued at $97 thousand.
On November 19, 1996, the Company entered into a two-year revolving
credit facility with First Union. The credit facility allows for borrowings up
to 85% of eligible accounts receivable plus 50% of eligible inventory, as
defined, plus machinery and equipment (to be amortized over a five-year period),
as defined, up to $6,000,000. Based on this formula, the Company had
approximately $632 thousand available for additional borrowing under this credit
facility as of December 31, 1996. Proceeds from this
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financing were used to repay the above-mentioned revolving line of credit and
term loan of $3,424,290 and various notes payable of $398,558. As a result of
this early extinguishment of debt, the Company recognized an extraordinary loss
of $152,228, consisting of prepayment penalties and the expensing of unamortized
deferred financing costs.
On November 25, 1996, the Company entered into an agreement with First
Union which fixed the interest rate of the first $3,000,000 outstanding under
the credit facility at 8.65% to protect against the risk of an increase in the
LIBOR rate.
The Company believes it has sufficient capital resources to operate
successfully over the next twelve months. The Company's operating plan for 1997
calls for capital improvements and enhancements to equipment and facilities
located in New York and Maryland to support increased production, provide
environmental process controls 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 affecting 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 12.7 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. 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.
14
<PAGE>
3. The Company currently sells honeycomb and bonded panel products to
the commercial aircraft industry. Future planning for the Company anticipates
continuing increases in demand for these products over the next several years.
To the extent these increases fail to materialize or fall significantly below
projections, the Company's business could be materially affected.
Item 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements and schedules appear at the end
of this Report after Item 13.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
15
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
<TABLE>
<CAPTION>
Name and Five Year Business Experience Age
- -------------------------------------- ---
<S> <C>
Alan W. Baldwin 60
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. Mr. Baldwin was originally elected a director in 1993.
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
President and General Manager of Alcore, Inc., a wholly owned
subsidiary of the Company, since May 1996. From November 1993 to May 1996, Vice
President and General Manager of Alcore. 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.
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 until August 1996, 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
16
<PAGE>
elected a director of the Company in 1994.
John Simon 53
Executive Vice President and Managing Director of Allen & Company,
Incorporated, for more than five years. Director of Immune Response
orporation, Tcell Sciences, Inc., and Neurogen Corporation. Mr. Simon
was originally elected a director in 1993.
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. Mr. Lewis was originally elected a director in 1995.
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.
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. Mr.
Dastin was originally elected a director in 1995, but did not stand for
re-election in 1996.
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, but did not stand for re-election in 1996.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has the responsibility to serve as the
representative of
17
<PAGE>
the shareholders. The Board establishes broad corporate policies and oversees
the overall performance of the Corporation. However, the Board is not involved
in day-to-day operating details. Members of the Board are kept informed of the
Corporation's business activities through discussion with the Chief Executive
Officer, by reviewing analyses and reports sent to them by management and by
participating in board meetings.
During 1996 there were six meetings of the Board of Directors, two
which were telephonic meetings, and all directors attended more than 75% of the
Board of Directors' meetings.
The Company has standing Executive, Compensation and Stock Option and
Audit Committees.
The Executive Committee consists of Alan Baldwin, Warren Haber, and
John Simon. The Executive Committee did not meet in 1996.
The Compensation and Stock Option Committee consists of three
non-employee directors: William Lewis, John Menzel, and John Simon. The
Compensation and Stock Option Committee met on two occasions in 1996. The
committee has the power to grant options and stock awards under the Company's
1994 Incentive Stock Plan, and to negotiate salaries and employment contracts
for key employees of the Company.
The Audit Committee consists of Warren Haber, William Lewis and John
Menzel. The Audit Committee did not meet in 1996. The committee has the
responsibility of recommending the firm chosen as independent auditors,
overseeing and reviewing audit results, and monitoring the effectiveness of
internal audit functions.
Compliance with Section 16(a) of the Exchange Act
Alan W. Baldwin Untimely filing of Form 4 upon the grant of stock options in
February 1996. Filing has been made on Form 5.
Warren H. Haber Untimely filing of Form 5 for 1996.
John F. Menzel Untimely filing of Form 5 for 1996.
Charles. W. Russell Untimely filing of Form 5 1996.
John Simon Untimely filing of Form 5 for 1996.
Samuel J. Dastin Failure to file Form 5 for 1996.
18
<PAGE>
Item 10. Executive Compensation
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
(a) (b) (c) (d)
Name
and
Principal Other
Position Year Salary($) Compensation($)
-------- ---- --------- ---------------
<S> <C> <C> <C>
Alan W. Baldwin(3) 1996 $150,000 $45,471
Chairman 1995 $150,000 $0
of the Board 1994 $127,257 $4,616 (1)
of Directors
and Chief Executive
Officer
Edward Kiley(3) 1996 $130,347 $31,437
President 1995 $98,389 $7,500 (2)
and General 1994 $94,799 $0
Manager of
Alcore, Inc.
Lawrence Schwartz 1996 $89,000 $20,000
Vice President, (3) 1995 $90,100 $0
Secretary and Chief 1994 $89,100 $0
Financial Officer
</TABLE>
- --------------------------
(1) Consultant fee earned in 1993, but paid in 1994 to a corporation
controlled by Mr. Baldwin.
(2) Paid in restricted stock in exchange for a 15 percent wage concession.
Stock valued at fair market value at the time wage the concession was
implemented.
(3) No other form of compensation was paid the executive except as set
forth above.
19
<PAGE>
(c) Options/SAR Grants Table
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan
Baldwin 200,000 100% $.75 2/25/06
</TABLE>
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
At FY-End (#) FY-End ($)
Shares Acquired Exercisable Exercisable/
Name on Exercise (#) Value Realized Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan W. Baldwin None None 300,000/200,000 $30,000/$0
Edward Kiley None None 16,666/8,334 $4,166/$2,084
Lawrence Schwartz None None 16,666/8,334 $4,166/$2,084
</TABLE>
(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, 1996.
20
<PAGE>
(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.
On December 2, 1996 the Company entered into a consulting arrangement
with William Lewis to assist the Company in locating and evaluating merger and
acquisition candidates one day a week over a six month period with compensation
payable weekly at $1,000 per day. This arrangement will be evaluated after the
six month term expires.
(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. The contract
provides for a grant to Mr. Baldwin of a non-statutory stock option for 200,000
shares exercisable at $.60 per share.
On April 30, 1996, the Board of Director's Compensation and Stock
Option Committee approved the following revisions to Mr. Baldwin's compensation:
(a) A 1995 bonus award of $40,000; (b) An incentive stock option grant of
100,000 common stock shares; (c) Reimbursement of insurance premiums paid by Mr.
Baldwin for his individual life insurance policy.
Additionally, 1996 compensation for Mr. Baldwin was established as
follows: (a) Salary to remain at $150,000; (b) 1996 bonus award based upon the
Company meeting the following financial goals:
A. For 1996, sales of $17 million, operating profit of $1.2
million and year- end backlog exceeding $12 million.
(i) A bonus of 50 percent of annual salary.
(ii) Incentive stock option grant of 200,000 shares granted on
February 26, 1996, with 100,000 shares being exercisable upon
meeting the 1996 financial goals set forth above, the
remaining 100,000 shares being exercisable twelve months
thereafter.
21
<PAGE>
B. The incentives for meeting 75 percent of the goals listed
above would be: (i) A bonus of 25 percent of annual salary.
(ii) Incentive stock option grant of 100,000 shares granted on
February 26, 1996, with 50,000 shares being exercisable upon
meeting the financial goals above, the remaining 50,000 shares
being exercisable twelve months thereafter.
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 Karen Lamotte 872,637(2) 6.12
16 Victoria Road
London, England
United Kingdom
Common Stock Grange Nominees Limited 760,000 5.33
P.O. Box 116
Commerce House
Les Banques
St Peter Port, Guernsey
GWY1 3EZ
Common Stock Cooke & Cie, S.A. 1,592,000(3) 11.17
7 Rue des Alps
Geneva 1, Switzerland
- -----------------------------
(1) Percentage is based upon a 14,258,820 shares as of March 31, 1997,
comprised of outstanding shares, options and warrants that are
exercisable within sixty days of this date, totaling 12,779,653,
591,667, 887,500, respectively.
(2) Includes 165,137 shares held by her husband Hughes Lamotte.
(b) Security ownership of management.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
22
<PAGE>
Title of Class Name and Amount and Percent of Class (8)
Address Nature of
Beneficial Beneficial
Owner Owner
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Alan W. Baldwin 452,500 (1) 3.17
c/o Lunn Industries
1 Garvies Point Road
Glen Cove, NY. 11542
Common Stock Warren Haber 95,000 (2)(3)(8) .67
c/o Founders Equity
200 Madison Avenue
New York, NY. 10016
Common Stock John F. Menzel 15,000 (2)(3)(8) .11
c/o Fiber Glass Industries, Inc.
RD #5 Edison Street
Amsterdam, NY. 12010
Common Stock Charles W. Russell 170,077(2)(3)(4)(5) 1.19
c/o F.C. Funding
770 Lexington Avenue
New York, NY. 10021
Common Stock John Simon 15,000 (2)(3)(7)(8) .11
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 10,000(3)(8) .07
636 Black Rock Road
Bryn Mawr, PA. 19010
Common Stock Edward Kiley 16,666(6) .12
c/o Alcore, Inc.
1324 Brass Mill Road
23
<PAGE>
Belcamp, MD. 21017
Lawrence Schwartz 21,691(6) .15
c/o Lunn Industries
1 Garvies Point Road
Glen Cove, NY. 11542
Common Stock Directors and Executive 625,857 4.39
Officers as a group
(7 persons)
</TABLE>
- ----------------------------
(1) Includes option to purchase 200,000 shares at $.60 which expires on
June 9, 2004, an option to purchase 100,000 shares at $.875 which
expires on November 30, 2005, and an option to purchase 100,000 at $.75
which expires on February 25, 2006.
(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 16,666 shares at $.50 which expires on
December 20, 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) Includes options to purchase 5,000 shares at $1.16 which expires on
September 26, 2006.
(9) Percentage is based upon a 14,258,820 shares as of March 31, 1997,
comprised of outstanding shares, options and warrants that are
exercisable within sixty days of this date, totaling 12,779,653;
591,667; 887,500, respectively.
Item 12. Certain Relationships and Related Transactions.
(a) Alan W. Baldwin.
See Executive Compensation, Employment contracts and termination of
employment and change in control arrangement.
(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. This note is
convertible to the common stock of the Company, at the option of the holder at
anytime during the term of
24
<PAGE>
the note, at the conversion rate of one share for each $.40 of principal
converted.
(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:
Allen & Company, Inc. 900,000 (1)
Cook & Cie, S.A. 840,000
Grange Nominees Limited 460,000
- -------------------------
(1) 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 Restated Certificate of Incorporation incorporated
by reference to the Registrant's Form 10-QSB,
Exhibit 3.1. for the period ended September 30,
1996 previously filed with the Commission.
3.2 By-laws of the Company incorporated by reference to
the Registrant's Form 10-QSB, Exhibit 3.2. for the
period ended September 30, 1996 previously filed
with the Commission.
10.1 Lease covering the Jessup, Maryland Plant
incorporated by reference to the Registrant's Form
10-K for the year ending December 31, 1992
10.2 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
10.3 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
10.4 Employment Resignation Agreement between the
Company and Edwin F. Phelps, Jr. dated
25
<PAGE>
March 10, 1994 - incorporated by reference to the
Registrant's Report on Form 8-K dated March 10,
1994
10.5 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
10.6 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
10.7 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.
10.8 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.
10.9 Asset Purchase Agreement between Lunn Industries,
Inc., Limco Manufacturing Corp- oration and Alcore,
Inc. dated December 12, 1994 incorporated by
reference to Exhibit 10.1 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission.
10.10 Promissory Note dated January 16, 1995 Payable to
the order of Limco Manufacturing Corporation in the
amount of $608,762 incorporated by reference to
Exhibit 10.2 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission.
10.11 Promissory Note dated January 17, 1995 payable to
the order of Limco Manufacturing Corporation in the
amount of $96,238 incorporated by reference to
Exhibit 10.3 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
26
<PAGE>
10.12 Guaranty Agreement dated January 17, 1995 between
Alcore, Inc. and Limco Manufacturing Corporation
incorporated by reference to Exhibit 10.4 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission.
10.13 Subordination Agreement dated January 17, 995 by
and among TAT Technologies, Ltd., Limco
Manufacturing Corporation and Lunn Industries, Inc
incorporated by reference to Exhibit 10.5 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.14 Assignment and Assumption of Obligations Agreement
dated January 17, 1995 between Limco Manufacturing
Corporation and Lunn Industries, Inc. incorporated
by reference to Exhibit 10.6 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission..
10.15 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 incorporated by
reference to Exhibit 10.7 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission..
10.16 Loan Agreement dated January 17, 1995 between Lunn
Industries, Inc. and Cook and Cie, S.A.
incorporated by reference to Exhibit 10.8 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.17 Promissory note dated January 17, 1995 payable to
the order of Cook & Cie, S.A. in the amount of
$360,000 incorporated by reference to Exhibit 10.9
of the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.18 Promissory note dated January 17, 1995 payable to
the order of J.E. Sheehan & Company, Inc. in the
Amount of $100,000 incorporated by reference to
Exhibit 10.10 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
10.19 Letter dated January 10, 1995 subordinating the
Commercial Revolving Loan, Term Loan and Security
Agreement dated
27
<PAGE>
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 incorporated by reference to Exhibit 10.11 of
the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.20 Lease for the Company's headquarters located in
Glen Cove, New York dated January 1, 1995 between
Grill Leasing Corp. and Lunn Industries, Inc.
incorporated by reference to Exhibit 10.12 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.21 Moratorium Agreement dated February 24, 1995
between Grill Leasing Corp. and Lunn Industries,
Inc. incorporated by reference to Exhibit 10.13 of
the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.22 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 incorporated by reference to Exhibit 10.1
of the Registrant's report on Form 10-QSB for the
period ended September 30, 1995, previously filed
with the Commission..
10.23 Amendment to the Company's 1994 Stock Incentive
Plan adopted at the 1996 Annual Shareholders
Meeting on September 27, 1996 incorporated to
reference to the Company's Schedule 14a previously
filed with the Commission.
10.24 Lease for office space in Belcamp, Maryland dated
November 4, 1996 filed herein.
10.25 Lease for office suite in Santa Fe Springs,
California dated January 24, 1996 filed herein.
10.26 Credit Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. And First
Union National Bank of Maryland filed herein.
10.27 Promissory Note dated November 15, 1996 payable to
the order of First Union National Bank of Maryland
filed herein.
10.28 Security Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. and First
Union National Bank of Maryland filed herein.
13.1 Form 10-QSB for the period ended March 31, 1996,
previously filed with the Commission,
28
<PAGE>
is herein incorporated by reference.
13.2 Form 10-QSB for the period ended June 30, 1996,
previously filed with the Commission, is herein
incorporated by reference.
13.3 Form 10-QSB for the period ended September 30,
1996, 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
23.1 Consent of Muenz & Meritz, P.C. incorporated to
reference to Exhibit 23.1 in the Company's Form S-3
Registration Statement No. 333-12905 previously
filed with the Commission.
23.3 Consent of Muenz & Meritz, P.C. incorporated to
reference to Exhibit 23.1 in the Company's Form S-8
Registration Statement No. 333-19759 previously
filed with the Commission.
23.4 Consent of Coopers & Lybrand, LLP. incorporated to
reference to Exhibit 23.2 in the Company's Form S-8
Registration Statement No. 333-19759 previously
filed with the Commission.
23.5 Consent of Coopers & Lybrand, LLP. incorporated to
reference to Exhibit 23.1 in the Company's Form S-3
Registration Statement No. 333-12905 previously
filed with the Commission.
(b) Reports on Form 8-K.
None
<PAGE>
LUNN INDUSTRIES, INC.
AND SUBSIDIARY
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Report
The Board of Directors
and Shareholders
Lunn Industries, Inc.:
We have audited the consolidated balance sheet of Lunn Industries, Inc. and
subsidiary (the Company) as of December 31, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lunn Industries,
Inc. and subsidiary at December 31, 1996, and the results of their operations
and their cash flows for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Jericho, New York
April 2, 1997
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors of Lunn Industries, Inc.:
We have audited the accompanying consolidated statements of operations and cash
flows of Lunn Industries, Inc. and Subsidiary (the "Company") for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Lunn Industries, Inc. and Subsidiary for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Melville, New York
April 4, 1996.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ 5,176
Trade accounts receivable, net of allowance for doubtful accounts of
approximately $177,000 3,016,638
Inventories 4,765,817
Prepaid expenses and other current assets 375,683
-----------
Total current assets 8,163,314
Property and equipment, net of accumulated
depreciation of $4,812,731 9,214,424
Goodwill and other intangibles, net of
accumulated amortization of $100,952 422,114
Other assets 115,135
-----------
Total assets $17,914,987
===========
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdraft 124,929
Current portion of long-term debt 375,000
Current portion of obligation under capital lease 88,451
Trade accounts payable 1,345,083
Accrued payroll and payroll-related costs 314,679
Other accrued liabilities 236,473
-----------
Total current liabilities 2,484,615
Long-term debt, net of current portion 4,519,123
Obligation under capital lease, net of current portion 266,051
-----------
Total liabilities 7,269,789
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock $.01 par value; authorized 1,000,000
shares; no shares issued and outstanding -
Common stock; par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 11,396,999 shares 113,970
Additional paid-in capital 13,860,953
Accumulated deficit (3,329,388)
Treasury stock, at cost; 150 shares (337)
-----------
Total stockholders' equity 10,645,198
-----------
Total liabilities and stockholders' equity $17,914,987
===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $18,098,473 14,720,718
Cost of sales 13,748,868 11,821,324
----------- ----------
Gross profit 4,349,605 2,899,394
Selling, general and administrative expenses 3,077,874 2,377,365
----------- ----------
Operating income 1,271,731 522,029
----------- ----------
Other income (expense):
Interest expense (507,374) (413,515)
Other income (expense) 6,415 162,931
----------- ----------
(500,959) (250,584)
----------- ----------
Income before income taxes and
extraordinary item 770,772 271,445
Provision for (benefit of) income taxes (33,000) 12,300
----------- ----------
Income before extraordinary item 803,772 259,145
Extraordinary item:
Gain (loss) on extinguishment of debt, net of income
tax effect of $37,700 in 1995 (152,228) 796,165
----------- ----------
Net income $ 651,544 1,055,310
=========== ==========
Income (loss) per share:
Before extraordinary item .07 .03
Extraordinary item (.01) .11
-------------- ------------
Net income per share $ .06 .14
============== ============
Weighted average number of common shares outstanding 11,587,400 7,588,747
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
<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
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 - - 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
Sale of common stock 3,500,000 35,000 1,208,975 - - 1,243,975
Exercise of stock options
and warrants 27,500 275 14,100 - - 14,375
Expenses paid and debt
extinguished through
the issuance of stock 342,166 3,422 151,044 - - 154,466
Net income - - - 651,544 - 651,544
-------------- ---------- -------------- ------------- ------ --------------
Balance at
December 31, 1996 11,396,999 $ 113,970 13,860,953 (3,329,388) (337) 10,645,198
============== ========== ============== ============= ====== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 651,544 1,055,310
Adjustments to reconcile net income to cash provided
by operating activities:
Loss (gain) on extinguishment of debt, noncash portion 35,028 (796,165)
Depreciation and amortization 1,254,483 928,852
Bad debt expense (income) 507,000 (9,335)
Issuance of stock to employees - 156,623
Expenses paid through the issuance of stock 36,000 119,986
Changes in assets and liabilities:
Trade accounts receivable (1,258,217) (753,551)
Inventories (659,876) (811,768)
Prepaid expenses and other current assets (103,341) 109,174
Other assets 30,366 (117,895)
Trade accounts payable (212,387) 426,617
Payroll and payroll-related costs and
other accrued liabilities (137,786) (204,540)
------------- --------------
Net cash provided by operating activities 142,814 103,308
------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (2,448,504) (685,514)
Purchase of assets from the Limco acquisition - (358,861)
------------- --------------
Net cash used in investing activities (2,448,504) (1,044,375)
------------- --------------
Cash flows from financing activities:
Cash overdraft 124,929 (27,745)
Proceeds from issuance of notes payable - 3,321,752
Repayment of notes payable (491,665) -
Proceeds from long-term debt, net of repayments 1,344,301 (2,160,245)
Proceeds from issuance of common stock 1,258,350 -
Payments on capital lease obligations (131,124) 13,380
------------- --------------
Net cash provided by financing activities 2,104,791 1,147,142
------------- --------------
Net increase (decrease) in cash (200,899) 206,075
Cash at beginning of year 206,075 -
------------- --------------
Cash at end of year $ 5,176 206,075
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
LunnIndustries, Inc. and subsidiary (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
23% and 29% of net sales during 1996 and 1995, respectively.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Alcore, Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Revenue Recognition
Sales are recorded as units are delivered with the cost of sales recognized
on each shipment based upon an average estimated final contract unit
cost, including overhead costs. Customer advances received on fixed
price contracts are recognized as revenue ratably as partial shipments
are made. Losses on contracts are recorded when known.
(d) 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.
There were no cash equivalents as of December 31, 1996.
(e) 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.
(f) 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.
(Continued)
<PAGE>
2
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
Depreciation and amortization of assets are provided using the
straight-line method over the estimated useful lives of the assets as
follows:
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Computers and computer software 4-5 years
Leasehold improvements 4-6 years
Capitalized values of properties under lease are amortized over the lesser
of term of the lease or estimated life of the asset, depending on the
provisions of the lease. Tooling and molds, all of which were in
process of construction as of December 31, 1996, will be amortized
over the life of the related customer program.
(g) Net Income Per Share of Common Stock
Net income per share of common stock is based on the weighted average
number of common shares outstanding during each period. Common stock
equivalents of 1,041,269 and 203,225 resulting from the effects of
options and warrants have been included in the calculation of weighted
average shares outstanding in 1996 and 1995.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
(i) Goodwill and Other Intangible Assets
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, not exceeding 25 years. The Company
assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
Other intangibles includes a covenant not to compete associated with the
acquisition described in note 2 which is being amortized over the
four-year term of the agreement.
(Continued)
<PAGE>
3
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No.121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," on January 1,
1996. SFAS No.121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of SFAS No.121 did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(k) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No.25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on
the date of grant only if and to the extent that the current market
price of the underlying stock exceeded the exercise price. On January
1, 1996, the Company adopted SFAS No.123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No.123 also allows entities to continue to
apply the provisions of APB Opinion No.25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No.123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No.25 and
provide the pro forma disclosure provisions of SFAS No.123.
(l) Use of 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.
(2) Acquisition
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. The notes payable were repaid in their entirety during 1996.
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).
(Continued)
<PAGE>
4
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(3) Supplemental Cash Flow Information
The following is supplemental information relating to the consolidated
statements of cash flows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash paid during the year for:
Interest $ 532,863 474,830
Income taxes 61,617 53,625
========== ============
Issuance of warrants in connection
with debt extinguishment $ - 153,000
========== ============
Acquisition:
Assets acquired - 1,063,861
Notes payable - 705,000
---------- ------------
Net cash paid for acquisition $ - 358,861
========== ============
Liabilities extinguished through the issuance
of common stock $ 118,567 -
</TABLE>
(4) Inventories
Components of inventories are summarized as follows:
Raw materials $ 2,962,285
Work-in-process 1,959,854
------------
4,922,139
Less progress billing and
advanced payments (156,322)
------------
$ 4,765,817
=============
(5) Property and Equipment
Property and equipment are summarized as follows:
Machinery and equipment $ 10,689,872
Furniture and fixtures 583,123
Computers and computer software 700,063
Leasehold improvements 553,309
Tooling and molds 1,337,737
Construction in process 163,052
--------------
14,027,156
Less accumulated depreciation and amortization (4,812,732)
--------------
$ 9,214,424
==============
(Continued)
<PAGE>
5
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
Depreciation and amortization expense aggregated $1,192,699 in 1996 and
$907,852 in 1995.
(6) Long-Term Debt
At December 31, 1996, long-term debt consists of:
<TABLE>
<S> <C>
Revolving line of credit, collateralized by accounts receivable,
inventory and machinery and equipment. Interest is payable
at LIBOR plus 2.50% (8.0% at December 31, 1996) (a) $ 4,519,123
Note payable, due January 13, 1997. Interest is payable at 10%
per annum (b) 360,000
Note payable, due on demand (c) 15,000
-----------
4,894,123
Less current portion 375,000
-----------
$ 4,519,123
===========
</TABLE>
(a) In December 1995, the Company entered into a $3,500,000 credit
facility with a lending institution. The facility provided for a
$2,750,000 revolving line of credit and a $750,000 term loan with
interest at 2% over the lender's base rate. Proceeds from the credit
facility were used to repay outstanding debt of $3,189,000 through a
payment of $2,261,000 in cash and the issuance of warrants to purchase
500,000 shares of common stock (see note 10). As a result of the
extinguishment of debt in the fourth quarter of 1995, the Company
recognized an extraordinary gain of $796,165.
On November 19, 1996, the Company entered into a two-year revolving
credit facility with a new lending institution. The credit facility
allows for borrowings up to 85% of eligible accounts receivable plus
50% of eligible inventory, as defined, plus machinery and equipment
(to be amortized over a 5 year period), as defined, up to $6,000,000.
Proceeds from this financing were used to repay the above mentioned
revolving line of credit and term loan of $3,424,290 and various notes
payable of $398,558. As a result of this early extinguishment of debt,
the Company recognized an extraordinary loss of $152,228, consisting
of prepayment penalties and the expensing of unamortized deferred
financing costs. On November 25, 1996, the Company entered into an
interest rate swap agreement with a counterparty of this new lending
institution which fixed the interest rate of the first $3,000,000
outstanding under the credit facility at 8.65% to protect against the
risk of an increase in the LIBOR rate.
(b) 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 common stock. The note may be converted into
900,000 shares of common stock, at the option of the holder, at any
time during the term of the note. Pursuant to an agreement between the
Company and the noteholder, it was agreed to reprice the conversion
rate to $.40, the offering price of the private placement price
consummated in March 1996. Accordingly, this note and accrued interest
was converted into 945,000 shares of common stock on January 17, 1997.
(Continued)
<PAGE>
6
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(c) On September 8, 1995, the Company obtained $300,000 bridge financing
to provide interim working capital. In 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 five years and
were repaid $100,000. During 1996, $138,333 was repaid in cash and
$46,667 was repaid with the issuance of 116,666 shares of common stock
valued at $.40 per share.
Aggregate maturities of long-term debt are as follows:
1997 $ 375,000
1998 4,519,123
-------------
$ 4,894,123
=============
(7) Income Taxes
The components of deferred taxes as of December 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 71,000
Accrued liabilities not deductible for tax purposes 77,000
Federal tax credits 97,000
Net operating loss carryforwards 2,956,000
------------
Total deferred tax asset 3,201,000
------------
Less valuation allowance 2,325,000
------------
Net deferred tax asset 876,000
Deferred tax liability:
Property and equipment 876,000
------------
Total deferred tax liability 876,000
Net deferred taxes $ -
============
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996 and
1995 was $2,325,000 and $2,702,514, respectively. The net change in
the total valuation allowance for the year ended December 31, 1996 was
a decrease of $377,514. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets
are deductible, management does not believe it is more likely than not
that the Company will realize the benefits of all these deductible
differences.
(Continued)
<PAGE>
7
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
The following is a reconciliation of the reported income tax benefit
attributable to operations to the expected income tax expense
(benefit) utilizing federal statutory tax rates:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected income tax provision (benefit) $ 210,300 375,805
State income tax provision (benefit), net
of federal income tax effect 7,000 20,000
Change in valuation allowance on deferred
tax assets, net of change in effective rate (248,600) -
Decrease in effective rate used for deferred taxes 129,000 -
Reversal of prior year's over provision (40,000) -
Utilization of net operating loss carryforward (83,000) (397,825)
Other (7,700) 52,020
---------- -----------
$ (33,000) 50,000
========== ===========
</TABLE>
The Company has net operating loss carryforwards of approximately
$7,390,000 for federal income tax purposes which may be applied
against future taxable income and expire at varying dates between 2002
and 2011. At December 31, 1996, the Company has $97,000 in federal tax
credits available for use in future years which expire at varying
dates between 1997 and 2001.
The timing of the realization of a substantial portion of the Company's
net operating loss carryforwards may be subject to significant
limitation if the Company undergoes an ownership change (Ownership
Change) as defined in Section 382 of the Internal Revenue Code
(Section 382). Section 382 generally provides that, if a corporation
undergoes an Ownership Change, the amount of taxable income that the
corporation may offset with net operating loss carryforwards and
certain net unrealized built-in losses would be subject to an annual
limitation. If an Ownership Change were to occur as a result of future
equity transactions and the Company were to become subject to an
annual limitation as discussed above, it might adversely impact the
timing of the realization of all or a portion of the Company's net
operating loss carryforwards.
(8) Employee Benefit Plans
The Company's union employees are covered by a defined contribution
retirement plan, the cost of which was $26,021 and $22,597 in 1996 and
1995, respectively.
The Company maintains a 401(k) savings plan for its non-union employees.
Employees may contribute up to 25% 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 employees who
contribute up to 4% of annual salary to the plan. These matching
contributions aggregated $29,168 and $17,636 in 1996 and 1995,
respectively.
(9) Lease Arrangements
The Company is obligated under various capital leases for certain
machinery and equipment that expire at various dates through 2001. At
December 31, 1996, the gross amount of machinery and equipment and
related accumulated amortization recorded under capital leases were as
follows:
<PAGE>
8
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
Machinery and equipment $ 492,031
Less accumulated amortization (72,447)
--------
$ 419,584
========
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. In addition, the
Company leases certain equipment under various operating leases. Rent
expense aggregated $774,376 and $613,412 in 1996 and 1995,
respectively.
Future minimum lease payments under noncancelable operating leases (with
initial remaining lease terms in excess of one year) and the present
value of future minimum capital lease payments as of December 31, 1996
are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
Year ending December 31:
<S> <C> <C>
1997 $ 131,661 619,166
1998 131,661 478,356
1999 98,605 483,980
2000 63,074 237,689
2001 32,327 220,739
----------- ------------
Total minimum lease payments 457,328 $ 2,039,930
============
Less amount representing interest (at
rates ranging from 6.6% to 18.2%) (102,826)
-----------
Net principal portion 354,502
Less portion due within one year 88,451
-----------
Long-term portion $ 266,051
-----------
</TABLE>
The schedule of operating lease obligations does not include the remaining
five years on the lease agreement for the Company's Belcamp, Maryland
facility as the Company has exercised its option under such agreement
to purchase the building as described in note 15.
(10) Stockholders' Equity
On September 27, 1996, the Company's shareholders approved an increase in
authorized shares of common stock to 30 million shares and authorized
the issuance of 1 million shares of preferred stock having a par value
of $.01 per share.
(Continued)
<PAGE>
9
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(a) Common Stock
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 $1,243,975. The Company has
used approximately $647,000 of the proceeds to reduce its bank debt
obligations, its obligations to bridge lenders and its obligation to a
shareholder.
During 1996, the Company issued 225,500 and 116,666, respectively, shares
to certain individuals and bridge loan holders in settlement of
expenses and debt obligations with a value of $107,799 and $46,667.
During 1996 and 1995 the Company issued 342,166 and 266,000 shares,
respectively, to certain individuals and a financial institution in
settlement of debt obligations and expenses with a value of $154,467
and $119,986.
During 1995, the Company issued 203,406 shares of restricted common stock
to employees for $.77 per share. As a result of the issuance, the
Company recorded a charge to income of approximately $157,000.
(b) Warrants
In connection with the Company's 1995 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. All outstanding warrants are fully exercisable. A
summary of warrant transactions follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- ------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Beginning of year 1,341,545 $ 1.20 686,545 $ 1.62
Warrants granted 377,618 .40 655,000 .75
Warrants canceled (100,000) (4.90) - -
Warrants exercised (22,500) (.09) - -
--------- ------- --------- ------
End of year 1,596,663 $ .65 1,341,545 $ 1.20
========= ======= ========= ======
</TABLE>
Certain warrant agreements contain anti-dilutive provisions providing for
certain adjustments in the exercise price and the number of shares to
be received upon exercise in the event of subsequent sales of stock by
the Company below the initial warrant exercise price. In 1996, an
additional 202,618 warrants were granted under the anti-dilutive
provisions resulting from the March 1996 private placement at $.40 per
share.
(Continued)
<PAGE>
10
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(c) Stock Option Plan
On April 19, 1994, the Board of Directors of the Company adopted the 1994
Stock Incentive Plan (the Plan) authorizing the issuance of up to
700,000 shares of the Company's common stock through the grant of
incentive and nonqualified stock options, restricted and deferred
stock awards to employees and grants of nonqualified stock options to
non-employee directors. In September 1996, the number of authorized
shares under Plan was increased to 1.5 million shares and the
eligibility of the Plan was broadened to include consultants or
advisors to the Company. 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. For incentive 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
(affiliates), such price will be 110% of the fair market value for
incentive stock options. For nonqualified stock options, the option
price may be no less than 40% of the fair market value. Both
incentive and nonqualified stock options may be granted with a
term not to exceed ten years from the date of grant, except for
incentive stock options granted to affiliates shall have a term not
to exceed five years from the date of grant. Incentive stock options
granted to employees may not be exercisable sooner than one year
from grant date. In addition, shares of restricted stock may be
issued either alone or in addition to other awards granted under the
Plan.
The Compensation and Stock Option committee of the Board of Directors
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 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 immediately following the annual meeting of
stockholders. As of December 31, 1996 and 1995, options for 488,333
and 265,833 shares, respectively, were exercisable under the Plan and
742,500 shares were available for issuance under the Plan at December
31, 1996.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Beginning of year 537,500 $ .56 397,500 $ .56
Options granted 220,000 .78 140,000 1.00
Options exercised (5,000) (.63) - -
-------- ----- --------- -----
End of year 752,500 $ .71 537,500 $ .56
======== ===== ========= =====
</TABLE>
(Continued)
<PAGE>
11
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
The weighted average fair value of options granted during 1996 and 1995
was $.67 and $.91, respectively, on the date of the grant using the
Black Scholes option-pricing model with the following weighted average
assumptions: expected dividend yield of 0%, risk free interest rate of
6%, expected stock volatility of 100% and an expected option life of
10 and 9 years in 1996 and 1995, respectively.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
1996 1995
---- ----
Net income:
As reported $ 651,544 1,055,310
Pro forma 547,544 1,014,310
========= ============
Net income per share:
As reported $ .06 .14
Pro forma .05 .13
========== ============
Pro forma net income reflect only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No.123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over
the options' vesting period.
(11) Industry Segment Information
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales:
Industry segments:
Composites $ 6,134,800 4,536,816
Honeycomb 11,963,673 10,183,902
-------------- ----------
Total $ 18,098,473 14,720,718
============== ==========
Geographic:
United States 16,351,139 13,281,309
Western Europe 1,348,965 1,439,409
Pacific 398,369 -
-------------- --------------
Total $18,098,473 14,720,718
============== ==============
Operating income (loss):
Industry segments:
Composites 220,787 (113,644)
Honeycomb 1,050,944 635,673
-------------- --------------
$ 1,271,731 522,029
============== ==============
</TABLE>
(Continued)
<PAGE>
12
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Geographic:
United States $ 1,118,293 435,664
Western Europe 118,756 86,365
Pacific 34,682 -
-------------- --------------
$ 1,271,731 522,029
============== ==============
Depreciation and amortization expense:
Composites 324,792 109,971
Honeycomb 929,691 818,881
-------------- --------------
$ 1,254,483 928,852
============== ==============
Capital expenditures:
Composites 594,419 893,658
Honeycomb 1,854,085 633,856
-------------- --------------
Total $ 2,448,504 1,527,514
============== ==============
Identifiable assets:
Composites 4,575,624 4,029,616
Honeycomb 13,339,363 10,971,064
-------------- --------------
Total $ 17,914,987 15,000,680
============== ==============
</TABLE>
(12) 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 based upon analysis
of their financial position and other factors. Consequently, an
adverse change in those factors could affect the Company's estimate of
its bad debts. The Company estimates an allowance for doubtful
accounts based upon the creditworthiness of its customers as well as
general economic conditions. As the majority of the Company's sales
are made and credit is granted to the United States Government and
customers in the defense industry, the Company considers the credit
risks associated with its customers to be minimal. 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 12.7% and 12.0% of sales in 1996
and 1995, respectively. No one customer comprised more than 10% of
outstanding accounts receivable at December 31, 1996.
(13) Fair Value of Financial Instruments
The carrying value of all financial instruments classified as a current
asset or current liability as of December 31, 1996 are deemed to
approximate fair value because of the short maturity of these
instruments. The fair value of long-term debt including the interest
rate swap agreement approximates the carrying value as of December 31,
1996.
(Continued)
<PAGE>
13
LUNN INDUSTRIES, INC. AND SUBSIDIARY
Notes to Financial Statements, Continued
(14) 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 subsidiary, Norfield Corporation
(Norfield), in order for Norfield to receive payment under a
subcontract. In addition, the complainant alleges that she was
terminated due to this incident. On June 17, 1996, Norfield filed a
voluntary petition in bankruptcy. As a result, on September 4, 1996,
the Court dismissed the case without prejudice to reopen the case,
upon motion. On November 4, 1996, the Court denied the plaintiff's
motion to reopen the case without prejudice, upon the plaintiff
receiving relief from the automatic stay issued by the bankruptcy
court. The Company believes that this case is without merit and is of
the opinion, that the outcome of this case will not have a material
effect on the results of operations or financial condition of the
Company.
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
jointly and severally liable. On June 26, 1996 the Court denied the
Company's motion to vacate and confirmed the arbitration award. The
Company has appealed this judgment, which is still pending. The
Company is exercising its rights against the owner of Norfield
pursuant to the indemnification provisions of the stock purchase
agreement entered into upon the sale of Norfield. In the opinion of
management and counsel, it is probable that the Company will be
successful in obtaining a judgment under this indemnification
agreement.
(15) Subsequent Event
On March 17, 1997, the Company agreed to purchase its Belcamp, Maryland
facility. The purchase price for the building and property is
$2,025,000. The Company is presently considering options to obtain
financing for the purchase.
<PAGE>
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 9, 1997
------------------- --------------
Alan W. Baldwin Date
Chairman of the Board,
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 9, 1997
------------------- --------------
Alan W. Baldwin Date
Chairman of the Board,
Chief Executive Officer and Director
By: /s/ Lawrence Schwartz April 10, 1997
--------------------- --------------
Lawrence Schwartz Date
Vice President, Secretary
and Chief Financial and
Accounting Officer
By: /s/Warren Haber 4/14/97
------------------- --------------
Warren H. Haber Date
Director
By: /s/John F. Menzel 4/12/97
------------------ --------------
John F. Menzel Date
Director
By: /s/ John Simon April 10, 1997
------------------- --------------
John Simon Date
Director
By: /s/ William R. Lewis April 10, 1997
-------------------- --------------
William R. Lewis Date
Director
<PAGE>
INDEX OF EXHIBITS
3.1 Restated Certificate of Incorporation incorporated
by reference to the Registrant's Form 10-QSB,
Exhibit 3.1. for the period ended September 30,
1996 previously filed with the Commission.
3.2 By-laws of the Company incorporated by reference to
the Registrant's Form 10-QSB, Exhibit 3.2. for the
period ended September 30, 1996 previously filed
with the Commission.
10.1 Lease covering the Jessup, Maryland Plant
incorporated by reference to the Registrant's Form
10-K for the year ending December 31, 1992
10.2 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
10.3 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
10.4 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
10.5 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
10.6 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
10.7 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.
10.8 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
<PAGE>
March 31, 1994.
10.9 Asset Purchase Agreement between Lunn Industries,
Inc., Limco Manufacturing Corp- oration and Alcore,
Inc. dated December 12, 1994 incorporated by
reference to Exhibit 10.1 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission.
10.10 Promissory Note dated January 16, 1995 Payable to
the order of Limco Manufacturing Corporation in the
amount of $608,762 incorporated by reference to
Exhibit 10.2 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission.
10.11 Promissory Note dated January 17, 1995 payable to
the order of Limco Manufacturing Corporation in the
amount of $96,238 incorporated by reference to
Exhibit 10.3 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
10.12 Guaranty Agreement dated January 17, 1995 between
Alcore, Inc. and Limco Manufacturing Corporation
incorporated by reference to Exhibit 10.4 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission.
10.13 Subordination Agreement dated January 17, 995 by
and among TAT Technologies, Ltd., Limco
Manufacturing Corporation and Lunn Industries, Inc
incorporated by reference to Exhibit 10.5 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.14 Assignment and Assumption of Obligations Agreement
dated January 17, 1995 between Limco Manufacturing
Corporation and Lunn Industries, Inc. incorporated
by reference to Exhibit 10.6 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission..
10.15 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 incorporated by
reference to Exhibit 10.7 of the Registrant's
report on Form 10-QSB for the period ended March
31, 1995, previously filed with the Commission..
10.16 Loan Agreement dated January 17, 1995 between
<PAGE>
Lunn Industries, Inc. and Cook and Cie, S.A.
incorporated by reference to Exhibit 10.8 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.17 Promissory note dated January 17, 1995 payable to
the order of Cook & Cie, S.A. in the amount of
$360,000 incorporated by reference to Exhibit 10.9
of the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.18 Promissory note dated January 17, 1995 payable to
the order of J.E. Sheehan & Company, Inc. in the
Amount of $100,000 incorporated by reference to
Exhibit 10.10 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
10.19 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 incorporated by reference to
Exhibit 10.11 of the Registrant's report on Form
10-QSB for the period ended March 31, 1995,
previously filed with the Commission..
10.20 Lease for the Company's headquarters located in
Glen Cove, New York dated January 1, 1995 between
Grill Leasing Corp. and Lunn Industries, Inc.
incorporated by reference to Exhibit 10.12 of the
Registrant's report on Form 10-QSB for the period
ended March 31, 1995, previously filed with the
Commission..
10.21 Moratorium Agreement dated February 24, 1995
between Grill Leasing Corp. and Lunn Industries,
Inc. incorporated by reference to Exhibit 10.13 of
the Registrant's report on Form 10-QSB for the
period ended March 31, 1995, previously filed with
the Commission..
10.22 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 incorporated by reference to Exhibit 10.1
of the Registrant's report on Form 10-QSB for the
period ended September 30, 1995, previously filed
with the Commission..
10.23 Amendment to the Company's 1994 Stock Incentive
Plan adopted at the 1996 Annual Shareholders
Meeting on September 27, 1996 incorporated to
reference to the Company's Schedule 14a previously
filed with the Commission.
10.24 Lease for office space in Belcamp, Maryland dated
November 4, 1996 filed herein.
<PAGE>
10.25 Lease for office suite in Santa Fe Springs,
California dated January 24, 1996 filed herein.
10.26 Credit Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. And First
Union National Bank of Maryland filed herein.
10.27 Promissory Note dated November 15, 1996 payable to
the order of First Union National Bank of Maryland
filed herein.
10.28 Security Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. And First
Union National Bank of Maryland filed herein.
10.27 Promissory Note dated November 15, 1996 payable to
the order of First Union National Bank of Maryland
filed herein.
10.28 Security Agreement dated November 22, 1996 between
Lunn Industries, Inc. and Alcore, Inc. and First
Union National Bank of Maryland filed herein.
13.1 Form 10-QSB for the period ended March 31, 1996,
previously filed with the Commission, is herein
incorporated by reference.
13.2 Form 10-QSB for the period ended June 30, 1996,
previously filed with the Commission, is herein
incorporated by reference.
13.3 Form 10-QSB for the period ended September 30,
1996, 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
23.1 Consent of Muenz & Meritz, P.C. incorporated to
reference to Exhibit 23.1 in the Company's Form S-3
Registration Statement No. 333-12905 previously
filed with the Commission.
23.2 Consent of Coopers & Lybrand, LLP. incorporated to
reference to Exhibit 23.1 in the Company's Form S-3
Registration Statement No. 333-12905 previously
filed with the Commission.
23.3 Consent of Muenz & Meritz, P.C. incorporated to
reference to Exhibit 23.1 in the Company's Form S-8
Registration Statement No. 333-19759 previously
filed with the Commission.
23.4 Consent of Coopers & Lybrand, LLP. incorporated to
reference to Exhibit 23.2 in the Company's Form S-8
Registration Statement No. 333-19759 previously
filed with the Commission.
23.5 Consent of KPMG Peat Marwick, LLP filed herein.
<PAGE>
STANDARD OFFICE LEASE
THIS AGREEMENT OF LEASE (the "Lease") is made as of this 4 day of
Nov, 1996, by and between LAMBDIN DEVELOPMENT COMPANY, a corporation duly
organized and existing under the laws of the State of Maryland ("Landlord"), as
landlord, and ALCORE, INC., (the "Tenant"), as tenant.
ARTICLE I
General Provisions: Premises, Preparation
1.1 Premises. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the premises shown on the floor plan attached as Exhibit A
to this Lease consisting of Two Thousand Six (2,006) Rentable Square Feet of
leased space (the "Leased Premises") located in that one (1) story office
building primarily of brick and masonry construction containing Nine Thousand
Six Hundred Fifteen (9,615) square feet of Total Rentable Space, known as 1250
Brass Mill Road, Suite 5 (the "Buildings") located on the property containing
approximately 1.292 acres, more or less, and more particularly shown on a plat
entitled "Final Plat Thirteen - Riverside Business Park", recorded among the
Land Records of Harford County in Liber 54, folio 62, the improvements to which
are known as 1250 Brass Mill Road, Belcamp, MD 21017 (collectively the Building
and the foregoing are referred to as the "Property") together with necessary
access, parking and utility easements to serve the Leased Premises, upon the
terms and conditions stated in this Lease. The Leased Premises is one of several
suites to be leased in the Building and includes the Interior Common Area.
1.2 Defined Terms and Lease Summary. The following are definitions of
terms used in this Lease, and not otherwise or elsewhere defined, and a
summary of the basic economic terms of the tenancy created hereunder:
(a) Additional Rent. See Section 3.8.
(b) Advance Rent. $2,006.00 (See Section 3.9)
(c) Base Rent. $18,976.76 per year during the first twelve (12)
full calendar months of the lease and thereafter the Base Rent due shall be
pursuant to Exhibit C (See Secton 3.1).
(d) Building Expenses. See Section 3.4.
(e) Commencement Date. See Section 2.1.
(f) Common Area or Common Areas. Means all areas within the
Building or within the Property reserved by the Landlord for the common,
non-exclusive use of the tenants and their invitees, including, but not limited
to, the entrance areas to the Building, the parking areas, areas reserved for
motor vehicle traffic for means of ingress and egress to, from and within the
Property, all landscaped areas and such other areas as may be designated by the
Landlord. The Landlord reserves the right to change any part or all of the
common areas, to relocate the same, provided that in making such change, the
Landlord does not materially, adversely affect the Tenant's use and enjoyment of
the Leased Premises.
(g) Completion Date. See Section 15.4(a)
(h) Expense Pass-Through. Tenants shall pay as Additional Rent
Tenant's Proportionate Share of the Impositions (see Section 3.2), the Utility
Cost (See Section 3.3), Building Expenses (see Section 3.4) and casualty, public
liability and workmen's compensation insurance for the Building (see Section
10.1 and 10.3).
(i) Estimated Expense Pass-Through. See Section 3.10.
(j) Estimated Utility Cost. See Section 3.3.
(k) Expiration Date. The date which is one (1) year from the
Commencement Date (see Section 2.1). If this Lease is canceled or terminated
prior to the originally fixed expiration date, then the expiration date shall be
the date on which this Lease is so canceled or terminated. However, if this
Lease is canceled or terminated prior to the originally fixed expiration date by
reason of Tenant's default, Tenant's liability under the provisions of this
Lease shall continue until the date the term of this Lease would have expired
had the cancellation or termination not occurred, as further provided in
Article XIII below.
(l) Impositions. See Section 3.2.
(n) Interior Common Area. Means the area within the Building
commonly used by the tenants of Suites 4 and 5, including the common entrance
way, hallway, bathrooms and kitchenette. The Interior Common Area is 319
square feet, as shown on Exhibit A. (See Section 3.1.)
(m) Insurance Requirements. This means the applicable provisions
of any casualty or liability insurance policy carried by Landlord or Tenant
covering the Leased Premises, the Property, or any part of either; all
requirements of the issuer of any such policy; and the applicable regulations
and other requirements of the National Board of Fire Underwriters, any
applicable local board of fire underwriters, and any other body exercising a
similar function.
(o) Landlord's Agents. This means Landlord's managing member,
employees, servants, licensees, assignees, contractors, representatives, heirs,
successors, legatees and devisees.
(p) Legal Requirements. This means all applicable laws, ordinances,
notices, orders, rules, regulations and requirements of all federal, state,
county or municipal governments or the departments, commissions, boards and
officers thereof.
(q) Mortgage. This means any mortgage, deed to secure debt, trust
indenture, or deed of trust which may now or later encumber or be a lien upon
the Leased Premises or the Property, and any agreements, renewals,
modifications, consolidations, replacements and extensions set forth therein
or to any instrument referred to in this section.
(r) Mortgagee. This means the holder of any Mortgage.
<PAGE>
(s) Notice Addresses. (See also Section 15.8).
Landlord's Notice Address:
Lambdin Development Company
P.O. Box 676
Bel Air, MD 21014-0676
Landlord's Notice Copy Address:
Tenant's Notice Address:
Alcore, Inc.
Suite 5
1250 Brass Mill Road
Belcamp, MD 21017
Tenant Notice Copy Address:
(t) Person. This means an individual, fiduciary, estate, trust,
partnership, firm, association, corporation, or other organization, or a
government or governmental authority.
(u) Repair. This includes the words "replacement and restoration",
"replace and restore" or "replace or restore", as the case may be.
(v) Review Date. See Section 10.4.
(w) Security Deposit. $2006.00.
(x) Tenant's Proportionate Share. 21% (calculated by dividing the
area of the Leased Premises by the Total Rentable Space in the Building - see
Sections 2.2, 3.2, 3.3, 3.4, 3.10, 10.1 and 10.3).
(y) Tenant's Agents. This includes Tenant's representatives,
officers, stockholders, directors, employees, servants, licensees, tenants,
subtenants, assignees, contractors, heirs, successors, legatees and devisees.
(z) Term. See Section 2.1(a).
(aa) Total Rentable Space. Means the gross square foot area of the
Building. The Total Rentable Space is 9,615 square feet.
(bb) Utility Cost. See Section 3.3.
ARTICLE II
Lease Term
2.1 Term.
(a) The term of this Lease shall begin on the Commencement Date and
shall end on the Expiration Date, unless sooner terminated as provided in this
Lease (such term as it may be extended pursuant to this Lease being called the
"Term").
(b) "Commencement Date" shall be the date specified in Landlord's
notice to Tenant that Tenant may take possession of the Leased Premises. Not
withstanding above, Lease shall commence 12/1/96 and tenant may take possession
at signing of Lease.
Upon the request of either Landlord or Tenant, the other party shall
execute a written agreement, in recordable form if requested, acknowledging the
Commencement Date of the Term, and the Expiration Date.
2.2 Renewal Option.
(a) Provided that this Lease shall be in good standing and in full
force and effect and shall not theretofore have been terminated and that Tenant
shall not be or have been within six (6) months of the expiration of the then
current term of this Lease in default under any of these terms or conditions of
this Lease, Tenant shall have the option to renew this Lease for one (1)
additional consecutive term of four (4) years, by notifying Landlord in writing,
sent by certified mail, to the Notice Address of Landlord, of Tenant's election
not fewer than one hundred eighty (180) days before the expiration of the then
current term of this Lease.
(b) The renewal shall be on the same terms and conditions set forth
in this Lease, except as follows:
(i) the terms of any further renewals shall be governed by
Section 2.2(a) above, as reduced by the exercise and expiration of any renewal
options thereunder, and
(ii) the Base Rent for the initial year of the applicable
renewal period shall be the Base Rent as determined in accordance with Exhibit
C. The Base Rent for each year after the initial year of the applicable renewal
period shall be increased in accordance with Exhibit C hereof.
<PAGE>
ARTICLE III
Rent
3.1 Annual Base Rent. Beginning on the Commencement Date, or on the
first day of the month next following if the Commencement Date falls on other
than the first day of a month, Tenant shall pay to Landlord annual Base Rent of
$18,976.76 (the "Base Rent", as modified from time to time and as set forth in
Exhibit C) payable to Landlord in equal monthly installments at the rate of
$1,581.40 per month, without demand or set-off, in legal tender, and in advance
on the first day of each of the first (1st) twelve (12) calendar months during
the Term. Thereafter, the annual and monthly rates for each succeeding twelve
(12) calendar month period during the initial three (3) year term of this
Agreement and any renewal periods shall be in accordance with Exhibit C. If the
Commencement Date shall fall on a day other than the first day of a calendar
month, the Tenant shall pay to Landlord together with the first monthly payment,
Rent for the month in which the Commencement Date shall occur, calculated by
prorating the monthly Rent payment from the Commencement Date through the end of
the first partial calendar month of the initial term of this Lease. Tenant shall
make all rental payments to Landlord's notice address as specified in Section
1.2(s) hereof or to such other address as may be designated by Landlord. In
addition to Base Rent, Tenant shall pay Rent and Additional Rent on their share
of the Interior Common Area calculated at the same rent per square foot for the
Leased Premises. Suite 5 share is 161 square feet (50.5% of 319 square feet)
and is included in the Rentable Square Feet.
3.2 Impositions. Tenant shall pay monthly as Additional Rent, Tenant's
Proportionate Share of the Expense Pass-Through which shall include annual real
estate or other taxes and special assessments imposed on or with respect to the
Property and the Building of which the Leased Premises are a part (including,
without limitation, front foot or benefit assessments for sewerage, water,
stormwater management, or paving and any Rent or occupancy tax which may be
imposed) (collectively the "Impositions"). All reasonable expenses incurred by
Landlord (including reasonable attorneys' fees and costs) in contesting any
increase in taxes or any increase in the assessment of Impositions shall be
included as an item of taxes for the purpose of computing Additional Rent due
hereunder. Tenant shall not be obligated to pay its share of any installment of
any special assessment levied or assessed during the Term but not due until
after termination of this Lease. It is agreed that Tenant's Proportionate
Share of the above shall remain fixed during the Term of the Lease in
accordance with Exhibit C.
3.3 Utilities. Tenant shall be responsible for the cost of all
utilities provided to the Leased Premises including, but not limited to
electric service, heating and air conditioning, and Tenant's Proportionate
Share of the cost of any computerized or mechanical energy management system
installed to control, monitor and minimize utility usage in the Building (the
"Utility Cost"). Those utilities for which separate meters are provided shall
be billed directly to the Tenant by the entity providing the utility service.
With respect to those utilities which are not separately metered, Tenant shall
pay Tenant's Proportionate Share of such Utility Cost, the Landlord will, at
the beginning of each calendar year, deliver to Tenant a good faith estmate of
the Utility Cost which will be due during that year (the "Estimated Utility
Cost"). Tenant agrees to pay one-twelfth (1/12) of the Estimated Utility Cost
to Landlord as Additional Rent which shall be due at the same time and in the
same manner as the Rent pursuant to Section 3.1. As soon as practicable each
year and for that portion of the calendar year prior to the Expiration Date,
Landlord shall deliver to Tenant a statement of the actual Utility Cost due
from Tenant for the relevant period. If the amount of the Estimated Utility
Cost paid by Tenant exceeds the amount of the actual utility cost, Tenant shall
be given a credit for such amount against the Rent next becoming due under the
terms of this Lease; provided, however, that upon termination of the Lease
such excess Estimated Utility Cost paid by Tenant shall be rebated to the
Tenant within thirty (30) days of the date the statement of the actual Utility
Cost is delivered for such calendar year. If the amount of the Estimated Utility
Cost is less than the amount of the actual Utility Cost, Tenant agrees to pay
same to Landlord, within thirty (30) days after receipt of a statement
therefor, the full amount of such difference. Tenant agrees to accept as final
and determinative the amount and computation shown on the statement,
unless Tenant, within fifteen (15) days after receipt thereof, notifies Landlord
in writing of any claimed error therein, or requests in writng for Landlord to
verify and detail the amounts of the Utility Costs on the statements. The
Landlord shall provide such verification and detail to the extent such
information is available to the Landlord without undue cost. In any event,
the dispute in regard to computation of the correct charge to Tenant for the
Utility Cost shall not be a reason or serve as a basis for Tenant to withhold
any payments of Rent, Additional Rent or other charges and sums owed by Tenant
to Landlord under the terms of this Lease.
3.4 Building Expenses. Included in the Expense Pass-Through of which
Tenant shall pay Tenant's Proportionate Share as Additional Rent are Building
Expenses. The Landlord will, at the beginning of each calendar year, deliver to
Tenant a good faith estimate of Tenant's Proportionate Share of the Building
Expenses which will be due during that year (the "Estmated Building Expenses").
Landlord agrees that except for snow removal, common area gas and electric,
water & sewer, and taxes, the Building Expenses shall not increase by more than
ten percent (10%) per year. Tenant agrees to pay one-twelfth (1/12) of the
Estimated Building Expenses to Landlord as Additional Rent which shall be due at
the same time and in the same manner as the Rent pursuant to Section 3.1. As
soon as practicable each year and for that portion of the calendar year prior
to the Expiration Date, Landlord shall deliver to Tenant a statement of the
actual Building Expenses due from Tenant for the relevant period. If the
amount of the Estmated Building Expenses paid by Tenant exceeds the amount of
the actual Building Expenses, Tenant shall be given a credit for such amount
against the Rent next becoming due under the terms of this Lease; provided,
however, that upon termination of the Lease such excess Estimated Building
Expenses paid by Tenant shall be rebated to the Tenant within thirty (30) days
of the date the statement of the actual Building Expenses is delivered for
such calendar year. If the amount of the Estimated Building Expenses is less
than the amount of the actual Building Expenses, Tenant agrees to pay same to
Landlord, within thirty (30) days after receipt of a statement therefor, the
full amount of such difference. Tenant agrees to accept as final and
determinative the amount and computation shown on the statement, unless Tenant,
within fifteen (15) days after receipt thereof, notifies Landlord in writing
of any claimed error therein, or requests in writing for Landlord to verify
and detail the amounts of the Building Expenses on the statements. The
Landlord shall provide such verification and detail to the extent such
information is available to the Landlord without undue cost. In any event, the
dispute in regard to computation of the correct charge to Tenant for the
Building Expenses shall not be a reason or serve as a basis for Tenant to
withhold any payments of Rent, Additional Rent or other charges and sums owed by
Tenant to Landlord under the terms of this Lease. Building Expenses shall be
those reasonable expenses paid or incurred (determined on an accrual basis under
generally accepted accounting principles) by Landlord in connection with
maintaining, operating and repairing the Property, including without limitation,
all costs and expenses of the following (net of reimbursement under insurance
policies, warranties, or similar contractual arrangements):
(a) common area janitorial, including, but not limited to sweeping
the parking lots and sidewalks, collecting debris, and maintaining the
appearance of the Building and the Property;
(b) trash removal, including, but not limited to garbage and recycling
material, but excluding Tenant's obligation to remove trash from Tenant's Leased
Premises and deposit same in Landlord's common receptacle and to make separate
arrangements for removal of specialty waste such as medical waste;
(c) mowing and landscaping, including, but not limited to landscaping
of all common areas;
(d) snow removal;
(e) service, repairs and maintenance, including, but not limited to
operating, decorating, cleaning, repairing and painting the Building and the
Property, and maintenance of mechanical, plumbing and electrical equipment and
systems, including heating, ventilating and air conditioning equipment;
(f) supplies and materials, including, but not limited to sales or use
taxes on supplies or services;
(g) common area gas and electric, including, but not limited to
utilities used or consumed at the Building or on the Property which are not
separately metered to other tenants and which are not already included in
Tenant's Utility Costs and the leasing of pole lights;
(h) water and sewer used or consumed at the Building or on the Property
which are not separately metered to other tenants and
<PAGE>
which are not already included in Tenant's Utility Costs;
(i) legal and accounting fees and expenses;
(j) Business Park Fee, including stormwater management assessments;
(k) reserves, including, but not limited to maintenance, repair and
replacement of roof, gutters, parking lot, sidewalks, and other common areas;
(l) miscellaneous, including all other items which would be considered
as procured or incurred in maintaining, operating, or repairing the Building or
the Property under sound management and accounting principles;
(m) management fee, including wages, salaries and compensation for all
persons engaged in the maintenance, operation or repair of the Building and the
Property (including Landlord's share of all payroll taxes).
(n) It is agreed that Tenant's Proportionate Share of the above shall
remain fixed during the Term of the Lease in accordance with Exhibit C.
3.5 Security Deposit. Tenant shall pay to Landlord upon the execution
of this Lease the amount of $2006.00 as a security deposit for the faithful
performance by Tenant of all the terms and covenants of this Lease. If Tenant
shall perform all such obligations, including, but not limited to, the
obligations set forth in Article VIII hereafter, Landlord shall refund the
security deposit to Tenant within forty-five (45) days of the end of the Term.
If Tenant shall default in any such obligation, Landlord shall be entitled to
apply the security deposit to payment of Landlord's actual monetary damages.
3.6 Late Charge. In the event any installment of Rent or Additional
Rent, or any sums otherwise due Landlord hereunder, shall be past due for more
than ten (10) days, Tenant shall pay to Landlord as Additional Rent a sum equal
to eight percent (8%) of the installment or amount due to cover Landlord's cost
for the collection and the loss of income.
3.7 Late Payments. All payments of Rent, Additional Rent and all other
sums due under this Lease, if not paid within ten (10) days of when due, shall,
in addition to the late payment charge, bear interest at the rate of fifteen
percent (15%) per annum from the due date until paid.
3.8 Additional Rent. All Impositions, charges, costs and expenses which
the Tenant is required to pay hereunder, together with all interest and
penalties (including but not limited to a $50.00 assessment for any check
returned for non-sufficient funds) that may accrue thereon in the event of the
Tenant's failure to pay such amounts, and all damages, costs, and expenses which
the Landlord may incur by reason of any default of the Tenant or failure on the
Tenant's part to comply with the terms of this Lease, shall be deemed to be
Additional Rent ("Additional Rent") and, in the event of non-payment by the
Tenant, the Landlord shall have all the rights and remedies with respect thereto
as the Landlord has for the nonpayment of the Rent. Tenant's obligation to pay
any Additional Rent occurring during the term of this Lease pursuant to the
terms of the Lease shall survive the expiration of this Lease.
3.9 Advance Rent. Tenant shall pay upon the execution of this Lease the
amount set forth in Section 1.2(b) to be held as advance rent and security (the
"Advance Rent") to be retained by Landlord, without limitation of other
remedies, to offset Landlord's costs in preparing and negotiating this Lease
and to protect Landlord against any defaults of this Lease by Tenant occurring
prior to the commencement of the Term. If no such defaults occur, the Advance
Rent shall be applied by Landlord against the first monthly installments of Rent
payable by Tenant.
3.10 Expense Pass-Through. During each year of the Term of this Lease
or any renewals or extensions hereof, Tenant shall pay to Landlord as Additional
Rent "Tenant's Proportionate Share" as defined in Section 1(x) of all Expense
Pass-Throughs. Expense Pass-Throughs shall consist of the Impositions described
in Section 3.2, the Utility Costs described in Secton 3.3, the Building Expenses
described in Section 3.4 and the Casualty, Public Liability and Workmen's
Compensation Insurance described in Section 10.1 and 10.3. At the beginning of
each calendar year, Landlord shall deliver to Tenant a good faith estimate of
the amount of the Expense Pass-Through which will be charged to and payable by
Tenant during that year (the "Estimated Expenses Pass-Through"). Except with
respect to Impositions which shall be paid as provided in Section 3.2 and
Casualty, Public Liability and Workmen's Compensation Insurance which shall be
paid as provided in Section 10.1 and 10.3, unless otherwise notified by Landlord
that such expenses will be collected monthly, Tenant agrees to pay to Landlord
monthly one-twelfth (1/12) of the Estimated Expenses Pass-Through as Additional
Rent which shall be due at the same time and in the same manner as the Rent
provided for in Section 3.1. Within one hundred twenty (120) days after the end
of each calendar year, Landlord shall have an accountng of the Expense
Pass-Through prepared for such year, and shall deliver the same to Tenant. If
the amount of the Estimated Pass-Through exceeds the amount of the actual
Expense Pass-Through, Tenant shall be given a credit for such amount against the
Base Rent and/or Additional Rent next becoming due under the terms of this
Lease; provided, however, that upon termination of this Lease such excess
Estimated Expense Pass-Through shall be rebated to the Tenant within thirty (30)
days of the date the statement of the actual Expense Pass-Through is delivered
for such calendar year. If the amount of the Estimated Expense Pass-Through is
less than the amount of the actual Expense Pass-Through, Tenant agrees to pay
the same to Landlord within thirty (30) days after receipt of such statement.
Tenant agrees to accept as final and determinative the amount and computation
shown on such statement, unless Tenant, within thirty (30) days after receipt
thereof, notifies Landlord in writing of any claimed error therein, or requests
in writing for Landlord to verify and detail the amounts of the Expense
Pass-Through on the statement. The Landlord shall provide such verification and
detail to the extent such information is available to the Landlord without
undue cost. During such thirty (30) day period, Tenant may have its own
accountant, at Tenant's cost, review the invoices and other document supporting
the Expense Pass-Through. In the event that Tenant notifies Landlord of any
claimed error within such thirty (30) day period, if the parties cannot agree
on the appropriate amount, then such issue shall be determined by a court of
competent jurisdiction. In no event shall Tenant offset or deduct any amount in
dispute against other sums due Landlord herein. It is agreed that Tenant's
Proportionate Share of the above shall remain fixed during the Term of the Lease
in accordance with Exhibit C.
ARTICLE IV
Occupancy
4.1 Quiet Enjoyment. Upon payment of the Base Rent, Additional Rent
and all other sums due Landlord hereunder, as required under this Lease and
performance by Tenant of all of the covenants and provisions of this Lease to be
performed by Tenant, Tenant shall have, during the Term, peaceful and quiet use
and possession of the Leased Premises, without hindrance on the part of the
Landlord or any of Landlord's Agents. Tenant acknowledges that Landlord will be
making alterations, additions or improvements for other tenants and Tenant
agrees that the noise and inconvenience of such activity or of any other tenant
shall not consititute a breach of Landlord's convenant of quiet enjoyment.
4.2 Use of Premises. Tenant may use the Leased Premises only for the
following purposes: General Office.
<PAGE>
4.3 Compliance with Law. Tenant shall at all times during the Term, at
its own expense, conform to and comply with all Legal Requirements and Insurance
Requirements now or hereafter in force, affecting the use or occupancy of all or
any part of the Leased Premises. At all times during the Term and for any period
that Tenant enters the Leased Premises prior to the Commencement Date to make
its installations, Tenant hereby indemnifies Landlord against and agrees to save
Landlord harmless from all expenses, liability, and penalty, imposed or incurred
for or because of any violation of any Legal Requirement occasioned by the
negligent act or omission, or willful act of Tenant's Agents, Tenant, its
customers, clients, visitors or invitees, independent contractors, or any
person on the Leased Premises by permission or holding under Tenant unless
such violation results solely from a negligent act or omission on the part of
Landlord or Landlord Agents. Following notice to Landlord, Tenant, by
appropriate proceedings conducted with due diligence at Tenant's expense and
in Tenant's name, may contest in good faith the validity or enforcement of any
applicable Legal Requirement provided that Landlord is not subjected to any
fine or penalty. At Tenant's request and at Tenant's expense, Landlord shall
assist Tenant to the extent reasonable and practicable in contesting the
validity of any such Legal Requirement.
4.4 Conduct on Premises.
(a) Tenant shall not do, or permit anything to be done, in the
Leased Premises, which will in any way (i) increase the rate of
fire or other insurance on the Building or Property, (ii)
invalidate or conflict with the fire or other insurance policies
on the Property or Building and fixtures or other property kept
therein, (iii) obstruct or interfere with the rights of Landlord
or of other tenants, (iv) subject Landlord to any liability for
injury to persons or damage to property, or (v) interfere with
normal operations of the Building. Any increase of fire or other
insurance premiums on the Property or Building or contents
thereof caused solely by the occupancy of Tenant and any expense
incurred solely in consequence of negligence or the willful action
of Tenant, Tenant's Agents, or invitees shall be payable upon
demand as Additional Rent. In addition, Tenant shall pay as
Additional Rent its pro rata portion of any increase of any such
fire insurance premiums or expenses incurred due in part to
occupancy of Tenant or in consequence of negligence or the
willful action of Tenant, Tenant's Agents or invitees.
(b) Tenant shall not place a load upon any floor of the Leased
Premises exceeding the floor load per square foot area which the
floor was designated to carry and which may be allowed by law.
Landlord reserves the right to prescribe the weight and position
of all safes or other heavy equipment, and to prescribe the
reinforcing necessary, if any, which in the opinion of Landlord's
architects or engineers may be required under the circumstances,
such reinforcing to be at Tenant's expense. Business or other
machines and mechanical equipment, if approved by Landlord in
writing, shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient in Landlord's judgment to absorb
and prevent vibration, noise or other adverse condition. Tenant,
at its expense, shall take such steps as Landlord may direct to
remedy any such adverse condition. So long as the Leased Premises
are developed in accordance with the Tenant's Plans set forth on
Exhibit B hereto, Landlord finds such development to be in
accordance with the requirements of this Subsection 4.4(b).
(c) There shall be no allowance to Tenant for a diminution of
rental value, no abatement of Base Rent, and no liability on the
part of Landlord by reason of inconvenience, annoyance or injury
to business arising from Landlord, Tenant or others making any
repairs, alterations, additions or improvements in or to any
portion of the Building and the Property or Leased Premises, or
in or to the fixtures, appurtenances or equipment thereof, and no
liability upon Landlord for failure of Landlord or others to make
any repairs, alterations, additions or improvements in or to any
portion of the Building or of the Leased Premises, or in or to
the fixtures, appurtenances or equipment thereof; provided,
however, that the Landlord will make all reasonable efforts not to
interfere with Tenant's use or enjoyment of the Premises. Nothing
herein precludes Tenant from pursuing any remedies which it might
have against persons other than Landlord, any partner in Landlord
or any affiliate of any such person.
4.5 Property - Loss Damage. Landlord shall not be liable for damage to
property placed in the custody of its employees, nor for the loss of any
property by theft or otherwise unless caused by the gross negligence or willful
misconduct of Landlord or Landlord's Agents. Landlord shall not be liable for
damage or injury to persons or property unless caused by the gross negligence or
willful misconduct of Landlord or Landlord's Agents.
4.6 Regulations. Tenant agrees to be bound by all reasonable rules and
regulations, including regulations designed to achieve a uniform exterior
appearance, which may be attached hereto as an exhibit or which may be
established in the future by Landlord in order to maintain the attractive
appearance and business demeanor of the Building and Property.
4.7 Services. Landlord reserves the right to stop service of the
heating, air conditioning, plumbing and electric systems, when reasonably
necessary, by reason of accident, or emergency, or for repairs, alterations,
replacements or improvements which in the judgment of Landlord are desirable or
necessary to be made, until such repairs, alterations, replacements or
improvements shall have been completed. Landlord shall give notice to Tenant of
the dates and times Landlord intends to stop building services for planned
repairs, alterations, replacements or improvements, at least two (2) days in
advance, unless an emergency exists. In performing such activities, the Landlord
shall use its best efforts, to minimize any interference with the operations of
Tenant. Landlord shall have no responsibility or liability for failure to supply
heat, air conditioning, plumbing, cleaning, or electric service when prevented
from so doing by any cause beyond Landlord's control.
ARTICLE V
Transfers
5.1 Assignment and Subletting. The Tenant shall not assign, let or
sublet, nor use or permit to be used the Leased Premises for any purpose other
than that mentioned in Section 4.2, without the prior written consent of
Landlord, which consent may be withheld in the sole and absolute subjective
discretion of the Landlord. If so assigned, let or sublet, used or permitted
to be used without Landlord's prior written consent, Landlord may re-enter and
re-let the Leased Premises and this Lease by reason of such unauthorized act
shall become null and void at Landlord's election. If so assigned, let or
sublet, Landlord shall have a lien upon and shall be empowered to collect any
rent accruing from a subtenant or assignee and apply the amount collected to
the rents herein reserved. No assignment of this Lease shall be effectuated by
operation of law or otherwise without the prior written consent of the
Landlord. For purposes of this Lease the transfer of fifty percent (50%) or
more of the ownership interest of Tenant to any persons or entities that are
not owners or stockholders of Tenant on the date of execution of this Lease
shall be deemed to be a prohibited assignment of this Lease under this section.
5.2 Tenant Not Released. Subletting or assignment shall not relieve
Tenant of its obligations to Landlord under this Lease.
ARTICLE VI
Parking
Subject to such reasonable rules, regulations, or conditions as
Landlord may impose, Tenant shall be entitled to the non-exclusive use in common
with others of automobile parking areas, driveways, access roads, footways, and
loading facilities as may be constructed by Landlord for the common use by other
tenants of the
<PAGE>
Building. Although Landlord does not currently anticipate doing so, Landlord
shall have the right, at its option, to allocate among tenants, reserve or mark
parking spaces at the Property to assist the orderly control of parking;
provided, however, that Landlord shall not reduce the number of spaces at the
Property below that then required by applicable zoning requirements. In the
event that the Landlord determines that there is insufficient parking on the
Property for the convenience of business invitees of tenants, the Landlord may
prohibit employees of all tenants from parking thereon to the extent necessary
to provide convenient parking for business invitees.
ARTICLE VII
Maintenance and Alterations
7.1 Maintenance and Repair. Tenant, at its sole cost and expense, at
all times during the Term, shall maintain and keep the Leased Premises in an
orderly condition and in a good state of repair, except for structural repairs
and repairs caused by Landlord's negligence, which shall be performed by
Landlord at the Landlord's own expense. Tenant, at all times during the Term,
shall maintain, clean and keep the Interior Common Area in an orderly condition
and in a good state of repair, including furnishing supplies. The costs
associated with the Interior Common Area shall be shared on a pro rata basis
with other tenants who may use this space.
7.2 Alterations by Tenant. Tenant, without the prior written consent of
Landlord, shall not make any additions, alterations or changes to the Leased
Premises; provided, however, that Tenant need not obtain such consent to make
minor, nonstructural alterations which are readily removable or correctable.
7.3 Alterations by Landlord. Landlord reserves the right to make
changes or revisions in the layout of the Building and the Property to modify
the leasable area and to construct additional buildings or to expand the
Building or the Property; provided, however, that Landlord shall use its best
efforts, to minimize any interference with the operations of Tenant or access to
the Leased Premises, and provided further that Landlord shall give Tenant
reasonable prior written notice of any planned alterations to be made by the
Landlord. Landlord agrees that it will not make any material alterations or
revisions in the Leased Premises without Tenant's prior written consent, which
consent shall not be unreasonably withheld.
ARTICLE VIII
Surrender of Leased Premises
8.1 Surrender. Upon termination of the Term, or any earlier termination
of this Lease, Tenant shall surrender to Landlord the Leased Premises, including
all alterations, improvements and other additions except as set forth in Section
8.2, in the same conditions as at the beginning of the tenancy, reasonable wear
and tear excepted and subject to such additions, alterations and changes as are
permitted by Section 7.2. In the event Tenant fails to surrender the Leased
Premises to Landlord upon termination of the Term, Tenant shall pay Landlord two
(2) times the Base Rent paid during the last full calendar month of the Lease.
8.2 Tenant Equipment Excepted.
(a) If Tenant is not in default under this Lease, Tenant shall be
entitled to (or, at Landlords request, must) remove from the Leased Premises at
the end of the Term Tenant's office, trade and manufacturing fixtures,
furniture, equipment and signs, which Tenant has installed on the Leased
Premises prior to or during the Term at the cost of Tenant and which are not an
integral part or necessary to the operation of the Leased Premises, as are
plumbing, heating, ventilating, air conditioning and other similar equipment.
Tenant shall at its own cost and expense repair any and all damage to the Leased
Premises resulting from or caused by such removal, and shall restore the Leased
Premises to good order and condition, reasonable wear and tear excepted. Tenant
shall have five (5) business days after termination of this Lease for any reason
whatsoever to effect such removal, repair and restoration, except that no such
fixtures or equipment placed on or in the Leased Premises by Tenant, and which
remain the property of Tenant, may be removed at a time when Tenant is in
default in payment of Rent or any other money payable hereunder, or in the
performance of any other covenant under this Lease.
(b) If Tenant shall not remove all its personal property from the
Leased Premises within five (5) business days of the termination of this Lease,
Landlord may remove all or part of that property in any manner Landlord deems
appropriate and may store the same without liability of Landlord for its loss or
damage. Tenant shall be liable to Landlord for all expenses incurred in the
removal and storage of Tenant's personal property. If such removal and storage
does not appear to be economically reasonable to Landlord or if Landlord has
reason to suspect that Tenant is not in an economic position to pay for the
cost of such removal and storage, Landlord may, at Landlord's option, retain
any such fixtures and equipment and offset the fair market value of such
equipment, as appraised by an M.A.I. appraiser selected by Landlord, against
any sums Tenant owes Landlord. The determination of such appraiser as to the
fair market value of any such equipment and fixtures shall be finally binding
on both Landlord and Tenant.
ARTICLE IX
Mechanic's Liens
Prior to approving any construction on the Leased Premises by Tenant,
Landlord shall have the right to require Tenant to furnish such assurances
against mechanic's liens as may be reasonable, including, but not limited to,
that Tenant produce waivers of rights to claim liens signed by all contractors,
subcontractors and suppliers and/or that Tenant produce, performance and payment
bonds before commencing construction, and as construction progresses and is
completed, Tenant shall produce affidavits executed by Tenant, Tenant's
contractors or architect, that all labor and materials heretofore furnished have
been paid in full.
ARTICLE X
Insurance and Indemnity
10.1 Casualty Insurance.
(a) Beginning on the date of this Lease and continuing during the
entire Term, Landlord shall keep the Building and the Leased Premises insured
against loss or damage by fire, vandalism and other casualty to the extent now
or hereafter covered under standard full replacement cost extended coverage
provided, however, that Tenant shall pay, as Additional Rent, Tenant's
Proportionate Share of the cost of such insurance monthly. It is agreed that
Tentant's Proportionate Share of the above shall remain fixed during the Term of
the Lease in accordance with Exhibit C.
(b) Tenant shall at all times during the Term maintain at its own cost
and expense casualty insurance against loss, damage, or destruction to all
signs, trade fixtures, improvements, equipment, furniture and other
installations and all personal property installed or maintained by Tenant on the
Leased Premises, and shall, upon Landlord's request, provide Landlord with
certificates of insurance evidencing that such policies are in force or copies
of such policies. All required insurance shall be with insurers approved by
Landlord which approval shall not be unreasonably withheld or delayed. All
policies shall name Landlord and Tenant as beneficiary
<PAGE>
as their respective interests may appear and shall provide that notwithstanding
any act or negligence of Tenant which might otherwise result in a forfeiture,
such policies shall not be canceled without at least thirty (30) days prior
written notice to Landlord.
10.2 Indemnity.
(a) At all times after Tenant takes possession of the Leased Premises
and for any period that Tenant enters the Leased Premises prior to the
Commencement Date to make its installations and improvements, Tenant shall
protect, indemnify, and save and hold the Landlord harmless of, from and against
any and all actions, liabilities, damages, costs, expenses, fees, demands or
claims of any nature whatsoever arising from (i) any work or thing done in or
about the Leased Premises, and the improvements now or hereafter constructed
therein, or any part thereof, by Tenant or its agents or employees or
contractors hired by Tenant, (ii) injury to or death of any persons or damage to
property on the Leased Premises, and (iii) any negligent act or omission on the
part of the Tenant, or its employees or invitees or contractors arising out of
the occupancy or use of the Leased Premises, except that Tenant shall not be
required to save and hold Landlord harmless or to indemnify Landlord if the
injury or loss is due solely to the negligence of the Landlord or Landlord's
Agents.
(b) The Tenant covenants and agrees that all furniture, fixtures and
property of every kind, nature and description which may be in or upon the
Leased Premises or Building or Property during the Term of this Lease or any
extension thereof, shall be at the sole risk and hazard of the Tenant, and if
the whole or any part thereof shall be damaged, destroyed, stolen or removed
for any cause whatsoever, no part of said damage or loss shall be charged or
borne by the Landlord except said loss occasioned solely by the negligence of
the Landlord or Landlord's Agents.
10.3 Public Liability Insurance.
(a) During all periods of construction or reconstruction work performed
by Tenant on the Leased Premises, Tenant, at its own expense, shall keep in
force, by advance payments or premiums, workmen's compensation and builder's
risk insurance providing such coverage as is reasonably acceptable to Landlord's
Agents, which approval shall not be unreasonably withheld or delayed.
(b) Beginning on the Commencement Date or prior thereto upon Tenant's
entry into the Leased Premises and continuing during the entire Term, Tenant, at
Tenant's expense, shall keep in force, by advance payments of premiums, public
liability insurance in an amount of not less than one million dollars
($1,000,000) per occurrence for personal injury or death and not less than five
hundred thousand dollars ($500,000) for damage to property, insuring against any
liability that may accrue on account of any occurrences in or about the Leased
Premises or in consequence of Tenant's occupancy of the Leased Premises. Such
insurance shall protect and indemnify not only against any and all such
liability, but also against all loss, expense and damage of any and every sort
and kind, including costs of investigation and attorneys fees and other costs of
defense.
(c) All required insurance shall be with insurers approved by Landlord
which approval shall not be unreasonably withheld or delayed. All policies
(other than medical malpractice insurance if any is maintained by Tenant) shall
name Landlord and Tenant as beneficiary as their respective interests may
appear. All policies shall provide that notwithstanding any act or negligence
of Tenant which might otherwise result in a forfeiture, such policies shall not
be canceled without at least thirty (30) days' prior written notice to
Landlord. Tenant shall furnish Landlord with a copy of all such policies or a
certificate that such policies are in effect.
(d) In the event Landlord for its own account shall obtain (i) public
liability insurance for personal injury, death or property damage with respect
to liability that may accrue in or about the Building, or (ii) workmen's
compensation and builder's risk insurance, then Tenant, in addition to its other
obligations under this Section 10.3, shall pay, as Additional Rent, Tenant's
Proportionate Share of the cost of such insurance monthly. It is agreed that
Tenant's Proportionate Share of the above shall remain fixed during the Term of
the Lease in accordance with Exhibit C.
10.4 Revision of Insurance Coverage.
(a) Every third year during the Term of this Lease (the "Review Date"),
the parties shall review whether the insurance minimums stated in Section 10.3
provide for sound and prudent coverage in relation to liability risks as of each
such date. On each Review Date the Landlord, after consulting with Tenant, may
require an increase in scope, amount and nature of coverage and Tenant shall,
upon receipt of written demand of Landlord, obtain and maintain henceforth
appropriate insurance coverage as mandated by Landlord. If within thirty (30)
days following written notice to Tenant to modify or increase the scope, amount
or nature of insurance coverages, the Tenant fails to comply with the request of
the Landlord, the Landlord may procure the required insurance and charge the
cost hereof to Tenant as Additional Rent.
(b) Within thirty (30) days following establishment by Landlord of any
required adjustment in insurance coverage, Tenant shall forward to Landlord
certificates of insurance indicating that insurance in no less than the required
amounts is in full force and effect.
10.5 Waiver of Subrogation. Landlord and Tenant waive all right of
recovery by way of subrogation, each against the other, from any and all claims
for loss by fire or any of the casualties covered by standard extended insurance
coverage. If any additional change or increase in premium is made by the insurer
because of the waiver of subrogation, the party in whose favor the waiver is
obtained shall pay such additional charge or increase in premium. If such waiver
of the right of subrogation is not available from the insurers of either party,
then this Section 10.5 shall have no effect.
ARTICLE XI
Eminent Domain
11.1 Total Taking. If (a) the entire Leased Premises (b) or such other
part or all of the remainder of the Building thereby rendering the Building
unsuitable in the judgment of Landlord for its intended purpose, be taken under
the power of eminent domain or by purchase in place thereof (herein together
called "Eminent Domain"), this Lease shall terminate as of the date possession
is taken. Tenant shall immediately vacate the Leased Premises and shall have no
further right or claim against Landlord.
11.2 Partial Taking. If any portion of the Leased Premises shall be
taken under the power of Eminent Domain, and the portion not so taken would not,
in the reasonable judgment of Landlord, be adequate for the continued operation
of the Tenant's use of the Leased Premises either unrestored or restored, or if
Landlord deems such restoration to be impractical, Landlord may terminate this
Lease upon notice to Tenant so long as such notice is given within 120 days of
the taking. If this Lease is not terminated pursuant to this Section 11.2,
Landlord immediately following the taking, but solely to the extent of
condemnation proceeds made available to Landlord, shall proceed to restore such
part of the Leased Premises as is not taken to as near the former condition of
the original Leased Premises (less all signs, trade fixtures, improvements,
furniture, and other installations and property installed by Tenant) as the
circumstances will permit, and Tenant shall continue (except as hereafter
provided) to pay Base Rent and Additional Rent in full and to utilize the Leased
Premises for the operation of its business after restoration. Immediately
following the taking and until such time as the
<PAGE>
restoration is complete, Rent shall abate proportionally in relation to that
part of the Leased Premises which has been taken.
11.3 Damages. All damages awarded for any such taking under the power
of Eminent Domain shall be paid to the Landlord, except for damages related to
Tenant's permanent non-removable fixtures installed into the Leased Premises at
the cost of Tenant and any award relating to relocation expenses for the Tenant.
11.4 Rent. If this Lease is terminated as provided in this Article XI,
all Base Rent and Additional Rent shall be paid up to the date that possession
is taken by the condemning authority, and Landlord shall make a proportional
refund to Tenant of any Base Rent, Additional Rent or other amounts paid by
Tenant which are applicable to any period after that date and not yet earned.
11.5 Taking of All or Part of Common Areas. If all or such part of the
common areas or parking lot serving the Building are taken by Eminent Domain to
the extent that the Leased Premises are no longer suitable for the continued use
thereof by Tenant for the purposes set forth in Section 4.2, or access to the
Leased Premises is made impossible by a taking under Eminent Domain, the Tenant
may, by giving thirty (30) days written notice to Landlord, terminate this Lease
as of the date possession is taken.
ARTICLE XII
Damage and Destruction
12.1 Restoration of Damaged or Destroyed Leased Premises.
(a) If the Leased Premises, or any other portion of the Building,
shall, through no fault of Tenant or Tenant's Agents, be damaged by fire, the
elements, unavoidable accident or other casualty, but the Leased Premises are
not thereby rendered untenantable, Landlord shall promptly cause such damage to
be repaired but only to the extent of insurance proceeds made available to
Landlord.
(b) If by reason of such occurrence the Leased Premises shall be
rendered wholly untenantable, Landlord shall promptly but solely from insurance
proceeds made available to Landlord cause such damage to be repaired, unless
within one hundred twenty (120) days after such occurrence Landlord shall give
Tenant written notice that it has elected not to reconstruct the destroyed
premises, in which event this Lease and the tenancy hereby created shall cease
as of the date of such occurrence, and the rental and all other sums paid
Landlord by Tenant hereunder shall be adjusted as of such date.
(c) Any repair or reconstruction performed by Landlord pursuant to
this Section shall not include any signs, trade fixtures, improvements,
equipment, furniture, or other installations and property maintained or
installed by Tenant. Such items shall be restored or replaced by Tenant at
Tenant's sole cost and expense.
(d) All of the above notwithstanding, if Landlord, in its absolute
discretion, shall desire, within a reasonable time, not to exceed one hundred
twenty (120) days, after the occurrence of any such accident or casualty
rendering fifty percent (50%) or more of the Building untenantable (even though
the Leased Premises may not have been affected by such accident or casualty), to
demolish or not restore the Building, then, upon written notice from Landlord to
Tenant, this Lease shall terminate on a date to be specified in such notice, but
not less than 120 days from the date of such notice, and all Rent and other sums
payable hereunder shall be adjusted as of the time of the occurrence of any such
accident or casualty.
12.2 No Abatement. Tenant shall not be entitled to any abatement or
diminution of Rent during any period because of any casualty damage. Tenant at
all times shall maintain business interruption insurance with respect to the
business operated on the Lease Premises and Rent abatement insurance in such
amounts and for such period of time as the Landlord shall require.
ARTICLE XIII
Default by Tenant
13.1 Tenant's Default. If Tenant (a) shall fail to pay any Base Rent or
Additional Rent or other sum of money due hereunder within ten (10) days of the
date the same was first due, (b) shall breach the use restrictions set forth in
Section 4.2 hereof and such default shall continue beyond a period of five (5)
days after Landlord has provided notice to Tenant of such default, (c) shall
fail to perform any other of the terms, conditions, or covenants of this Lease
to be observed or performed by Tenant for thirty (30) days after written notice
of such default shall have been mailed to Tenant, unless such default is of a
nature that it cannot practically be cured within such thirty (30) day period
and Tenant is proceeding with due diligence and in a continuous manner to cure
such default, or (d) shall abandon the Leased Premises, then in any such event
at Landlord's option and without limiting Landlord in the exercise of any other
right or remedy Landlord may have in law or equity on account of such default,
and without any further demand or notice, Landlord may take any or all of the
following actions:
(1) Landlord may re-enter the Leased Premises, take possession of all
improvements, additions, alterations, equipment and fixtures thereon, eject all
parties in possession thereof therefrom, and, without terminating this Lease, at
any time and from time to time relet the Leased Premises or any part or parts
thereof for the account of Tenant or otherwise, receive and collect the Rents
therefore, applying the Rents first to the payment of such reasonable expense as
Landlord may have paid, assumed or incurred in recovering possession of the
Leased Premises, including costs, expenses and attorneys' fees, and in placing
the Leased Premises in good order and condition or preparing or altering the
same for reletting, and all other reasonable expenses, commission and charges
paid, assumed or incurred by Landlord in or in connection with reletting the
Leased Premises, and then to the fulfillment of the covenants of Tenant. Any
such reletting may be for the remainder of the Term of this Lease or for a
longer or shorter period. Landlord may execute any Lease made pursuant to the
terms hereof either in Landlord's name or in the name of Tenant, as Landlord may
see fit, and the subtenant therein shall be under no obligation whatsoever for
the application by Landlord of any Rent collected by Landlord from such
subtenant to any and all sums, due and owing or which may become due and owing
under the provisions of this Lease. Tenant shall not have any right or
authority to collect any Rent from any subtenant. In any case and whether or not
the Leased Premises or any part thereof be relet, Tenant shall pay to Landlord
all sums required to be paid by Tenant up to the time of re-entry by Landlord.
Thereafter Tenant, if required by Landlord, shall pay to Landlord, until the end
of the Term of this Lease, the equivalent of the amount of all Base Rent and
Additional Rent and other charges required to be paid by Tenant under the terms
of this Lease, less the proceeds of such reletting during the Term of this
Lease, if any, after payment of the expenses of Landlord. Such Rent shall be
due and payable on the several Rent days herein specified, and Landlord need not
wait until the termination of this Lease to recover any Base Rent or Additional
Rent by legal action or otherwise. Re-entry by Landlord shall not constitute an
election to terminate this Lease unless Landlord gives Tenant notice of
Landlord's election to terminate.
(2) Landlord may declare this Lease at an end, re-enter the Leased
Premises with or without process of law, eject all parties in possession thereof
therefrom and repossess and enjoy the Leased Premises together with all
improvements thereto, and Landlord shall thereupon be entitled to recover from
<PAGE>
Tenant the present value, at the time of such termination, of the amount of Base
Rent, Additional Rent and charges payable by Tenant to Landlord hereunder for
the balance of the Term. For the purpose of this subparagraph (2), the current
Impositions and contributions to expenses and other items paid by Tenant shall
be projected over the term of the Lease.
(3) Landlord may perfect and otherwise enforce a lien, which Tenant
hereby grants Landlord on all personal property, fixtures and trade fixtures of
Tenant, presently existing or subsequently acquired, except financed equipment,
placed in the Leased Premises or the Building by or for the benefit of Tenant.
Landlord may, without notice and without liability to Tenant or other party,
sell such personalty at public or private sale with the proceeds being applied
to amounts owed by Tenant and toward damages resulting from Tenant's breach of
this Lease.
13.2 Remedies Not Exclusive; No Waiver. The remedies of Landlord set
forth in this Lease are cumulative and are in addition to and not exclusive of
any other remedy of Landlord herein given or which may be permitted by law, and
if any breach or threatened breach by Tenant of this Lease occurs, Landlord
shall be entitled to enjoin such breach or threatened breach and shall have the
right to invoke any right and remedy allowed by law or in equity or by statute
or otherwise in addition to rights set forth in this Lease. Tenant shall permit
any re-entry as provided for in this Article XIII without hindrance to
Landlord, and Landlord shall not be liable in damages or guilty of trespass
because of such re-entry. The failure of Landlord to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease or
to exercise any option contained herein, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option. A receipt by Landlord
of Base Rent or Additional Rent with knowledge of the breach of any covenant of
this Lease shall not be deemed a waiver of such breach. No waiver by Landlord
of any provision of this Lease shall be deemed to have been made unless
expressed in writing and signed by Landlord. If Tenant fails to make any
payments when due and payable as provided in this Lease and Landlord sends
notice to Tenant more than twice in any one calendar year, then Tenant shall be
deemed in default, and Landlord shall have all rights and remedies provided in
this Lease for a default by Tenant.
13.3 Cure by Landlord. If Tenant at any time defaults in making any
payment or in performing any other obligation under this Lease within the time
required allowing notice, Landlord may cure such default by payment of the
amount due or performance of such obligation and Landlord may collect from
Tenant as Additional Rent the costs thereof, together with interest at the rate
of fifteen per cent (15%) per annum from the date of payment until
reimbursement by Tenant.
ARTICLE XIV
Bankruptcy
14.1 Effect of Bankruptcy or Other Proceedings. If at any time any
bankruptcy or any reorganization proceeding is instituted by or against Tenant
either in the State or Federal Courts, or if a receiver is appointed under any
bankruptcy or insolvency laws, for its business or property on or in the Leased
Premises, or if any lien is assessed against Tenant or its property on or in the
Leased Premises, or if Tenant shall make an assignment for the benefit of
creditors or voluntarily or involuntarily take advantage of any debtor relief
proceedings under present or future law, Landlord, in addition to any other
remedies provided Landlord in the event of Tenant's default as set forth in
this Lease or under any applicable law, shall have the option, to be exercised
by written notice given to Tenant, to declare this Lease terminated at any time
after the expiration of twenty (20) days following the commencement of such
proceeding or the assertion of such lien, unless the proceeding is dismissed or
the lien discharged and unless all payments of Base Rent and Additional Rent and
other payments required by this Lease to be made by Tenant to Landlord are paid
promptly during such period of twenty (20) days. Landlord shall under no
circumstances be required to permit a receiver or any person claiming through or
under Tenant to retain possession of the Leased Premises. Landlord need not
lease the Leased Premises to such receiver or person, and Landlord shall be
enabled to immediate possession of the Leased Premises. Any repossession or
termination hereunder shall not operate in any way to prejudice or affect the
right of Landlord for recovery of Base Rent and Additional Rent or other charges
theretofore accrued, thereafter accruing or to any other damages, nor shall any
such termination or repossession ever be construed as a waiver of or an election
not to claim future damages on account of such breach, but all such damages,
including all future rentals, shall be fully recoverable by Landlord.
14.2 Federal Bankruptcy Laws.
(a) In case any of the foregoing provisions are unenforceable or
invalid under the Bankruptcy Laws of the United States or the insolvency laws or
laws for the relief of debtors of any state or territory, the remaining
provisions of Article XIV shall not be affected thereby, but shall remain in
full force and effect.
(b) No trustee, interim trustee, debtor in possession, debtor engaged
in business, no custodian, receiver or assignee, or any fiduciary by whatever
name, in dominion, control, custody or title, acting under the purported
authority of any law, may assume or assign this Lease without the prior written
consent of Landlord unless all requirements of the Bankruptcy Laws of the
United States are fully satisfied. Such requirements, in the event of a
proceeding under 11 U.S.C. include Section 365(b)(1)(A), (B) and (C), (b)(3)(A),
(B) and (C), (b)(4) and (f)(2)(A) and (B), as the same may be amended
from time to time.
(c) If the property of Tenant is under administration pursuant to the
provisions of 11 U.S.C. Section 101 et seq., then no claim of Landlord for
failure or refusal of Tenant to perform the covenants of this Lease shall exceed
amounts allowable under 11 U.S.C. Section 502(b)(7)(A) and (B), together with
any other amounts allowable to Landlord under other provisions of 11 U.S.C. or
interpretations thereof.
14.3 Bankruptcy of Partner of Tenant. If Tenant is a partnership, a
bankruptcy or reorganization proceeding instituted by or against one or more of
the partners of Tenant shall not constitute a bankruptcy or reorganization
proceeding by or against Tenant allowing Landlord to declare the Lease
terminated within the meaning of this Article XIV, so long as no bankruptcy or
reorganization proceeding has been instituted by or against all of the general
partners of the Tenant.
ARTICLE XV
Miscellaneous
15.1 Recording. Landlord reserves the right at any time to require this
Lease, or a short form thereof, to be recorded at Landlord's expense among the
Land Records of Harford County, Maryland.
15.2 Estoppel Certificates. Tenant agrees at reasonable intervals and
from time to time upon not less than five (5) days prior written notice from
Landlord to execute, acknowledge and deliver a statement in writing certifying
(i) that this Lease is unmodified and in full force and effect (or if there
have been modifications, that the Lease is in full force and effect as modified
and stating the modifications), (ii) the dates to which the Rent and other
charges have been paid in advance, if any, and (iii) stating whether or not to
the best knowledge of Tenant and its authorized representative signing such
certificate the Tenant is in default in performance of any covenant, agreement
or condition contained in this Lease and, if so, specifying each such default of
which the signer may have knowledge. Tenant acknowledges that any such
statement delivered under this Lease may be relied upon by third parties not a
party to this Lease. Failure by the Tenant to respond to a request made
pursuant to this Section within fourteen (14) days shall operate as a
conclusive presumption that the Landlord is not in default of any covenant of
this Lease and that it is unmodified except as the Landlord may otherwise
indicate.
15.3 Right to Enter. Landlord and its agents shall have the right to
enter the Leased Premises at all reasonable hours, and at any time if any
<PAGE>
emergency exists, to examine the Leased Premises, or to make such repairs and
alterations as shall be reasonably necessary for the safety and preservation of
the Leased Premises, or during the last six (6) months of the Term to show both
the interior and exterior of the Leased Premises to prospective tenants or
purchasers and to place "For Rent" signs thereon. Landlord shall use its best
efforts to minimize any interference with Tenant's operations which may be
caused by the entrance upon the Leased Premises by Landlord or Landlord's
Agents.
15.4 Conditions and Termination.
(a) At Landlord's option this Lease shall become void and all parties
shall be relieved of all obligations imposed hereunder if Landlord has not
completed construction of the improvements within thirty (30) days of the
current tenant vacating the Leased Premises (the "Completion Date").
(b) If this Lease is terminated by Landlord pursuant to this Section
15.4, Landlord shall refund to Tenant the amount of all security deposits and
advance Rent made by Tenant to Landlord under this Lease.
15.5 Laws of Maryland. This Lease shall be construed and applied in
accordance with the laws of the State of Maryland.
15.6 Severability. Any provision or provisions of this Lease which
shall prove to be invalid, void, or illegal shall in no way affect or impair or
invalidate any other provision, and the remaining provisions shall remain in
full force and effect.
15.7 Headings. The headings of the various Articles and Sections of
this Lease are inserted for reference only and shall not to any extent have the
effect of modifying, amending or changing the express terms and provisions of
this Lease.
15.8 Notices. Any notice, request, demand, approval, or consent to be
given under this Lease shall be in writing and shall be deemed to have been
received when mailed by United States, registered or certified mail, postage
prepaid, addressed to the other party at the addresses set forth in Section
1.2(s) of this Lease, or if to the Tenant, at the Leased Premises after the
Tenant has occupied the Leased Premises. Either party may at any time change its
address by mailing a notice, as specified in this Section 15.8, that such change
is desired and setting forth the new address.
15.9 Force Majeure. In no event shall Landlord be liable for, nor shall
Tenant have the right to terminate this Lease for, delays in the prosecution of
Landlord's share of construction, or the performance by Landlord of any other
matters hereunder, beyond Landlord's control ("Force Majeure"), including (but
not limited to) delays caused directly or indirectly by strikes, lockouts, the
unavailability of labor or materials, Acts of God, acts of any Federal, State,
or local governmental agency or authority, war, insurrecton, rebellion, riot,
civil disorder, fire, explosion, windstorm, hail, snow, extreme cold, rain,
flood, damage from aircraft, vehicles, or smoke, or by any other casualty of a
substantial enough nature to cause delay. Landlord shall use its best efforts to
satisfy its obligations hereunder as soon as possible after the Force Majeure
have terminated.
15.10 Successors. This Lease shall be binding upon and inure to the
benefit, as the case may require, of the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns.
15.11 Subordination. This Lease shall be subject to and subordinate at
all times to the lien of any Mortgages now or hereafter made by Landlord on the
Leased Premises and to all advances made or hereafter to be made thereunder;
provided, however, that such Mortgages shall provide that, notwithstanding any
default under such Mortgages, if Tenant is not in default hereunder, Tenant may
remain on the Leased Premises undisturbed. Although this subordination provision
shall be self-operative and no further instrument of subordination shall be
required, Tenant shall, nevertheless, execute and deliver such further
instruments confirming such subordination or status of this Lease as may be
required by the Landlord for financing or refinancing the Leased Premises.
Tenant will execute an attornment instrument and attorn to any Mortgagee (under
a Mortgage which contains the aforementioned nondisturbance provision) or to any
successor in interest of Landlord, and become its Tenant on the same terms and
covenants of this Lease for the unexpired portion of the Term.
15.12 Assignment of Landlord's Interest. If Landlord should ever assign
this Lease or the Rents hereunder to a creditor as security for a debt or
otherwise, Tenant shall, after notice of such assignment and upon demand by
Landlord or the assignee, pay all sums hereafter becoming due Landlord hereunder
to the assignee and give all notices required to be given Landlord hereunder
both to Landlord and the assignee. In the event of such assignment of this
Lease or the Rents hereunder, the Landlord shall use its best efforts to obtain
a nondisturbance agreement from its assignee.
15.13 Transfer by Landlord. If Landlord sells, leases or in any manner
transfers title to the Building, including foreclosure sale by judicial
proceeding or otherwise, the Landlord shall be relieved of all covenants and
obligations arising hereunder, provided the Landlord is not then in default
hereunder. Tenant agrees that it will upon request, attorn to and acknowledge
such transferee, provided such transferee has assumed prospectively all of
Landlord's covenants and obligations hereunder, and Tenant shall continue to
perform all of the terms, covenants, and conditions, and obligations of this
Lease.
15.14 Time of Essence. Time is of the essence in all of the provisions
of this Lease.
15.15 Holding Over. If Tenant holds possession of the Leased Premises
after the termination of this Lease without Landlord's express permission,
Tenant shall become a tenant from month to month at two times the Rent specified
herein and upon all other terms herein until Landlord shall terminate such
tenancy or until this Lease is terminated by Tenant upon at least thirty (30)
days' prior notice to Landlord of Tenant's election to terminate.
15.16 Joint and Several Liability. In the event that two (2) or more
parties shall sign this Lease as Tenant, the liability of each such party to pay
Base Rent and Additional Rent and perform all other covenants of this Lease
shall be joint and several. In the event that the Tenant shall be a partnership
or other business association, the members of which are, by virtue of statute or
general law, subject to personal liability, the liability of each such member
shall be personal and joint and several.
15.17 No Discrimination. Landlord requires the Building be operated in
such a manner so that all tenants, and their customers, employees, licensees and
invitees shall have an equal opportunity to obtain all the goods, services,
accommodations, advantages, facilities and privileges of the Building without
discrimination because of race, creed, color, sex, age, national origin or
ancestry. Tenant agrees not to discriminate in the conduct and operation of its
business in the Leased Premises against any person or group of persons because
of the race, creed, color, sex, age, national origin or ancestry of such person
or group of persons.
<PAGE>
15.18 Integration of Agreements. This writing is intended by the
parties as a final expression of their agreement and is a complete and
exclusive statement of its terms, and all negotiations, considerations and
representations between the parties are incorporated. No course of prior
dealings between the parties or their affiliates shall be relevant or admissible
to supplement, explain, or vary any of the terms of this Lease. Acceptance of,
or acquiescence to, a course of performance rendered under this Lease or any
prior agreement between the parties or their affiliates shall not be relevant or
admissible to determine the meaning of any of the terms or covenants of this
Lease. Other than as specifically set forth in the Lease, no representations,
understandings, or agreements have been made or relied upon in the making of
this Lease. This Lease can only be modified in writing signed by each of the
parties hereto.
15.19 Third Party Beneficiary. Nothing contained in this Lease shall be
construed as to confer upon any other party the rights of a third party
beneficiary, except as may be otherwise specifically provided for herein.
15.20 Real Estate Broker. Landlord and Tenant each warrants to the
other that no real estate broker or any other party other than RKS Realty, Inc.
has participated in bringing about this Lease and each agrees to hold the other
harmless and indemnify the other from all claims of others arising out of the
negotiation or entering into of this Lease.
15.21 Effective Date of this Lease. All terms, conditions, and
covenants by Tenant contained in this Lease shall be effective as of delivery
of an executed copy of this Lease by Landlord to Tenant, except the covenant
to pay Base Rent and Additional Rent, which shall be effective on the
Commencement Date.
15.22 Variation in Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine, neuter, singular or plural, as
the identity of the person or persons may require.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
WITNESS: LANDLORD:
LAMBDIN DEVELOMENT COMPANY
___________________________ By: ________________________ (SEAL)
James Lambdin, President
TENANT:
ALCORE, INC.
___________________________ By: __________________________ (SEAL)
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A Floor Plan of Building
EXHIBIT B Tenant's Plans
EXHIBIT C Rent Schedule
EXHIBIT D Insurance Policies
EXHIBIT E Rules and Regulations
EXHIBIT F Common Area Expenses - Budget
<PAGE>
EXHIBIT B
TENANT'S PLANS
I. To be provided by Landlord at no cost to Tenant.
Tenant agrees to take space in as is condition and has use of the moveable
partitions.
II. To be provided by Landlord at cost of Tenant.
III. To be provided by Tenant - at Tenant's Cost.
<PAGE>
EXHIBIT C
RENTAL RATES
Impositions,
Building Rent
Year of Annual Expenses & Annual Monthly Per Square
Lease Base Rent* Insurance** Total Rent Payment Foot
- ------------------------------------------------------------------------------
1 $18,976.76 $5,095.24 $24,072.00 $2,006.00 $12.00
2 Option Year $18,976.76 $5,095.24 $24,072.00 $2,006.00 $12.00
3 Option Year $20,982.80 $5,095.24 $26,078.04 $2,173.17 $13.00
4 Option Year $22,988.72 $5,095.24 $28,083.96 $2,340.33 $14.00
5 Option Year $24,994.76 $5,095.24 $30,090.00 $2,507.50 $15.00
* Pursuant to Section 1.2(c) and Section 3.1 hereof.
** Pursuant to Sections 3.2, 3.4, 3.10, 10.1 and 10.3 hereof.
It is agreed that Tenant's Proportionate Share of Expense Pass-Throughs
including Impositions, Building Expenses and Insurance shall remain fixed
during the Term of the Lease and the four Option Years. However, Tenant shall
be responsible for its Proportionate Share of Utility Costs as described in
Section 3.3. For the first year, the estimated Utility Cost for those
utilities which are not separately metered is Six Hundred Sixty Dollars
$660.00) or Fifty-Five Dollars ($55.00) a month and will be added to and be
paid along with Rent each month.
<PAGE>
EXHIBIT D
TENANT INSURANCE
[TO BE COMPLETED]
I. Casualty Insurance - Tenants Property [under Section 10.3(b)].
Amount of
Insurer Coverage Term Insureds
- ------- --------- ---- --------
II. Public Liability Insurance [under Section 10.3(b)].
Amount of
Insurer Coverage Term Insureds
- ------- --------- ---- --------
III. Tenants Rent Interruption Insurance [under Section 12.2]
Amount of
Insurer Coverage Term Insureds
- ------- --------- ---- --------
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, halls, passages, and stairways shall not be
obstructed by any of the tenants or used by them for any other purpose than for
ingress and egress from and to their respective offices. The halls, passages,
stairways and roof are not for the use of the general public, and Landlord shall
in all cases retain the right to control and prevent access thereto of all
persons whose presence, in the judgment of Landlord or its employees, shall be
prejudicial to the safety, character, reputation and interest of the building
and its Tenants. No tenant or employee or invitee of any tenant, shall go upon
the roofs of said building without the written consent of Landlord or its agents
nor use the corridors other than those provided for the portion of the building
in which the leased premises are located. In case of invasion, mob riot, public
excitement or other commotion, Landlord reserves the right to prevent access to
the building during the continuance of the same by closing the doors or
otherwise for the safety of tenants and the protection of property in said
building. During other than business hours access to the building may also be
refused unless the person seeking admission is known by the watchman in charge
to have the right to enter demised premises therein or is properly identified
and the production of a key to such demised premises may in addition be
required, provided that Landlord shall in no case be liable in damages for the
admission or exclusion of any person from said building.
2. The floors, windows, doors and transoms that reflect or admit into
passage-ways or into any place in said building shall not be covered or
obstructed by any of the tenants. The tenant's toilet room and water apparatus
shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, ashes, chemicals, or other
unsuitable substance, shall be thrown therein. Any damage resulting from such
misuse or abuse shall be borne and immediately paid by the tenant by whom
employees or invitees it shall be cause.
3. Nothing shall be placed on the outside of the building, or of the
windows, window-sills or projections.
4. No sign, advertisement, or notice shall be inscribed, painted or
affixed on any part of the outside or inside of said building unless of such
color, size and style, and in places upon or in said buildings as shall be first
designated by the Landlord and endorsed hereon. A sign painter authorized by
Landlord will do such work at tenant's expenses. A directory, in a conspicuous
place on the first floor, will be provided by the Landlord, on which the names
of tenants will be placed by the Landlord.
5. Each tenant, upon the termination of his lease, must surrender all
keys of rooms and safes.
6. No tenant shall do or permit anything to be done in said premises,
or bring or keep anything therein which will in any way increase the rate of
fire insurance on said building, or on property kept therein, or obstruct or
interfere with the right of other tenants, or in any other way injure or annoy
them or conflict with the laws relating to fires, or with the regulations of the
Fire Department, or with any insurance policy upon said building or any part
thereof, or conflict with any of the rules and ordinances of the Board of
Health. The use of rooms as sleeping apartments is prohibited.
7. The Landlord shall in all cases retain the right to prescribe the
weight and proper position of safes, and all damage done to the building by
taking in or putting out a safe, or during the time it is in or on the premises
shall be made good and immediately paid by the tenant, and no safe shall be put
or hoisted in any part of said building. Tenants shall notify the Building
Manager of the weight of the safe, and arrange with him as to time for receiving
or delivering the same. Safes must be removed upon termination of the lease.
8. The Landlord or its agents shall have the right to enter any
premises at reasonable hours in the day or night to examine the same or to make
such repairs, additions and alterations as it shall deem necessary for the
safety, improvement, preservation or restoration of said building, or for the
safety or convenience of the occupants thereof and also to exhibit the said
premises to be let.
9. Tenants, and their employees or invitees, shall not make or commit
any improper noises, or disturbances of any kind in the building or mark or
defile the building, or interfere in any way with the other tenants or those
having business with them. Tenants shall be liable for all damages done to the
building by their employees.
10. No carpet, rug or other article shall be hung or shaken out of any
window, and nothing shall be thrown or allowed to drop by the tenants, or their
employees out of the windows or doors or down the passages or skylight of the
building, and no Tenant shall sweep or throw, or permit to be swept or thrown
from the leased premises, any dirt or other substances into any of the
corridors, halls, or stairways of said building, or into the light-shaft
thereof, or any adjoining building or roof.
11. No animals shall be kept in or about the premises.
12. If tenants desire to introduce signaling, telegraphic, telephonic
or other wires and instruments, the Landlord will direct the electricians as to
where and how the same are to be placed, and without such direction no placing,
boring or cutting for wires will be permitted. Landlord shall in all cases
retain the right to require the placing and using of such electrical protecting
devices to prevent the transmission of excessive currents of electricity into or
through the building and to require the changing of wires and of their placing
and arrangement as Landlord may deem necessary, and further, to require
compliance on the part of all using or seeking access to such wires, with such
rules as Landlord may establish relating thereto, and in the event of non-
compliance with the requirements and rules, Landlord shall have the right to
immediately cut and prevent the use of such wires.
13. Tenants shall not use or keep in the building any explosives,
kerosene, camphene, burning fluid or other illuminating materials.
14. The heating or air-conditioning apparatus must not be removed or
disturbed in any way nor shall articles be fastened to or holes drilled or
nails or screws driven into walls or partitions, nor shall the walls or
partitions be painted, papered or othewise covered, or in any way marked or
broken, nor shall any attachments be made to the electric lighting wires of
the building for the running of electric fans or motors, or other purposes, nor
will machinery of any kind be allowed to be operated on the premises nor shall
any tenant use any other method or heating or air-conditioning than that
provided by Landlord, without the written consent of the Landlord. Tenants
desiring to put in telephone will notify the Landlord, who will designate where
the same shall be placed.
15. The Landlord reserves the right to rescind any of these rules and
to make such other and further reasonable rules and regulations as, in
Landlord's judgment may from time to time be needful for the safety, care and
cleanliness of the premises, and for the preservation of good order therein,
which, when so made, and notice thereof given to the Tenant, shall have the same
force and effect as if originally made a part of the foregoing lease; and such
other and further rules, not however, to be inconsistent with the proper and
rightful enjoyment by the Tenant under the foregoing lease of the premises
therein referred to.
16. Canvassing, soliciting and peddling on the Property are prohibited.
Tenant shall cooperate to prevent such activity.
<PAGE>
EXHIBIT F
COMMON AREA MAINTENANCE EXPENSES
--------------------------------
LAMBDIN DEVELOPMENT COMPANY
1250 BRASS MILL ROAD
BELCAMP, MD 21017
1996 COMMON AREA MAINTENANCE BUDGET
CATEGORY ANNUAL MONTHLY PER SQ. FOOT
- -------- ------ ------- ------------
Janitorial $ 1,680.00 $ 140.00 $0.17
Trash Removal 1,080.00 90.00 0.11
Mowing & Landscaping 1,860.00 155.00 0.19
Snow Removal 108.00 9.00 0.01
Service, Repairs & Maintenance 1,008.00 84.00 0.11
Supplies & Materials 240.00 20.00 0.02
Gas & Electric 1,980.00 165.00 0.21
Water & Sewer 1,200.00 100.00 0.12
Legal & Accounting 1,008.00 84.00 0.11
Miscellaneous 108.00 9.00 0.01
Business Park Fees & Reserves 1,008.00 84.00 0.11
Real Estate Taxes 9,876.00 823.00 1.23
Insurance 1,224.00 102.00 0.13
---------- --------- -----
Subtotal $22,380.00 $1,865.00 $2.33
Management Fee 5,196.00 433.00 0.54
---------- --------- -----
TOTAL $27,576.00 $2,298.00 $2.87
========== ========= =====
<PAGE>
PROFESSIONAL EXECUTIVE SUITE OFFICE LEASE
This Professional Executive Suite Office Lease (hereinafter "Lease") is entered
into and executed by and between the Client whose name appears below
(hereinafter "Client") and International Satellite Promotions, Inc., dba
Corporate Executive Suites (hereinafter "Company"), the operator of the
Corporate Executive Suites Center located at Santa Fe Corporate Center, 14111
East Freeway Drive, Santa Fe Springs, California 90670 (hereinafter "Center").
Basic Lease Terms
(a) Effective Date: January 24, 1996
(b) Name Of Client: ALCORE, INC.
Address (For Notices): 1324 Brass Mill Road, Belcamp, MD 21017
Attention: Donna Bumford
Telephone: 410-272-2224
FAX: 410-272-8050
(c) Office Numbers(s) 319/320
(d) Number of Occupants 2
(e) Commencement Date March 1, 1996
(f) Term of Lease 18 Months
(g) Basic Monthly Rent $ 990.00
(h) Furniture Rental $ N/A
(i) Instrument, Voice Mail, PBX Charge
Phones 2 @$35.00 ea $ 70.00
(j) 2 Phone Lines @$28.00 ea $ 56.00
(k) 1 FAX/Modem Lines @$28.00 ea $ 28.00
$
(l) Total Monthly Basic Charges $1,144.00
(m) Security Deposit, including
non-refundable cleaning fee of $ 0 $ 990.00
(n) Telephone Deposit $ 0
(o) Key/Card Deposit $ 20.00
(p) Telephone Installation $ 80.00 (reg. $80./line)
(q) Directory Listing $ 35.00
(r) Deposit $ 100.00
(s) Total Move-In Charges (Due Upon Lease
Execution.) $
Total Amount Due at Lease Commencement $2,169.00
=========
COMPANY'S INITIALS: /s/ CLIENT'S INITIALS:
<PAGE>
l. PREMISES. Company hereby Leases to Client and Client hereby leases from
Company the Premises designated above herein, on the terms and conditions
hereinafter set forth. The lease of the Premises includes reasonable access to
common areas of the Center and the building including restrooms, corridors and
reception lobbies.
2. TERM. The term of this Lease shall begin on the Commencement Date and shall
continue for the term set forth above, unless sooner terminated pursuant to the
terms of this Lease. Such term, and any extension given with the express written
consent of Company, is hereafter referred to as "term." If Company is unable to
deliver possession of the Premises to Client at the Commencement Date, Company
will not be liable for any resulting damage, nor will this Lease be affected,
except that Client will not be obligated to pay the basic monthly rent as
hereafter defined, until Company delivers possession. If Client takes occupancy
of the Premises prior to the Commencement Date such occupancy shall be subject
to the terms and conditions of this Lease.
3. PAYMENTS. Client agrees to pay to Company the Basic Monthly Rent and other
Monthly Basic Charges in the amount stated in the Basic Lease Terms above
throughout the term of this Lease. Client will pay when due hereunder such rent
and charges, and any other charge(s), including any applicable sales, use and
other taxes, now or hereafter imposed by any governmental body, without any
deduction or offset to:
Corporate Executive Suites Center
14111 East Freeway Drive, Suite 300
Santa Fe Springs, California 90670
Attention: Douglas Maniaci
(a) All payments to Company of Monthly Basic Rent and Monthly Basic
Charges are due and payable in advance on the first of every month without
demand, deduction or offset. Any additional charges are due and payable upon
receipt of an invoice from Company.
(b) ANY PAYMENTS NOT RECEIVED WITHIN FIVE (5) DAYS AFTER THE DUE DATE
WILL BE SUBJECT TO A LATE CHARGE EQUAL TO SIX PERCENT (6%) OF THE PAST DUE
BALANCE, BUT NOT LESS THAN $20 TO COMPENSATE COMPANY FOR THE EXTRA COSTS
INCURRED AS A RESULT OF SUCH LATE PAYMENT. PAYMENTS RECEIVED SHALL BE APPLIED
FIRST TO BASIC MONTHLY RENT AND THEN TO OTHER MONTHLY BASIC CHARGES IN SUCH
PRIORITY AS COMPANY MAY ELECT.
(c) If Client fails to pay any amount when due, Client shall pay to
Company interest thereon at an annual rate of ten percent (10%) or such lower
rate as may be the maximum lawful rate.
-2-
<PAGE>
4. USE. Client shall use the Premises as and for an executive suite (as defined
hereinafter), and for no other purpose without the prior written consent of
Company. Client shall abide by all laws, ordinances, rules and regulations
pertaining to the use of the Premises including, without limitation, the Rules
and Regulations for the building in which the Premises are located.
(a) "Executive Suite" shall mean an office to be used for professional
business purposes and the use of adjoining facilities for services provided to
and shared by other clients of Company.
(b) Client agrees that Client will not offer or use the Premises to
provide services provided by Company to Company's clients, nor make nor permit
any use of the Premises in any manner which is forbidden by law or regulation,
or may be hazardous or unsafe, or may tend to impair the character, reputation,
appearance or operation of Company. Only telephone equipment and services
approved by Company may be used in the Premises. Client agrees that any ringing
or communications devices, e.g., pagers, will be adjusted to the lowest
reasonable ringing volume.
(c) Client understands and agrees that occupancy of the Premises is
subject to this Lease. Client will comply with all rules, regulations, and
requirements of the building in which the Premises are located and with other
reasonable rules and regulations established by Company and relating to the
Premises and Client's use thereof. Company will have no responsibility to Client
for violation of any lease provisions or rules and regulations by any other
Client of Company.
(d) In Company's sole and absolute discretion, upon thirty (30) days
prior written notice to Client, Company shall have the right to relocate Client
in comparable office space within the Center. Client agrees that all terms and
conditions of the Lease will remain the same. Company will incur all reasonable
out-of-pocket costs associated with any such relocation. Client shall not be
entitled to any compensation for any inconvenience or interference with Client's
business, nor to any abatement or reduction in rent, nor shall Client's
obligations under this Lease be otherwise affected.
(e) Client shall neither use nor occupy the Premises in any manner, nor
commit any act, resulting in a cancellation or reduction of any insurance
coverage or increase in premiums on any insurance policy covering the Premises
or the property or building of which the Premises are a part. Client agrees to
maintain a commercial general liability policy with a minimum limit of
$1,000,000. Failure to furnish Company with an endorsement of insurance naming
Company as an additional insured shall constitute a material breach of this
Lease entitling Company to terminate this Lease.
5. IMPROVEMENTS AND ALTERATIONS. Company has made no promise to alter or
improve the Premises or Center and has made no representations concerning the
condition thereof. By taking possession of the Premises, Client acknowledges
that they are in good order,
-3-
<PAGE>
condition and repair and accepts the Premises and the Center in its "AS-IS"
condition as of the date of this Lease. Client shall maintain the Premises in
good condition and repair, will not make holes in walls for any reason except
the normal and reasonable hanging of pictures, or cause or permit the Premises
to be damaged or defaced in any manner whatsoever. Client will make no
alterations or additions to the Premises without Company's prior written
consent, which consent Company may grant or withhold in its sole discretion.
Client will return the Premises at the end of the term in as good of condition
and repair as when Client received the Premises, reasonable wear and tear
excepted. Client shall provide, at Client's expense, a plastic mat(s) to be
placed under each chair located within the Premises and will use it at all
times. If mat(s) are not installed within one week of move-in, Company will
purchase and install mat(s) at a cost to Client of $85.00 each. Company may, but
is not required to, make repairs or replacements for Client's account, and
Client will pay to Company all costs and expenses for such repairs and
replacements upon demand. It is also agreed that damage or injury done to the
Premises, by Client, or by any person who may be in or upon the Premises with
the consent of Client, other than from normal wear and tear, shall be paid by
Client. Upon termination of this Lease, whether upon expiration of the term
hereof or sooner, Client agrees to pay to Company the sum of $150 per leased
office to cover painting costs for each such office.
6. LIMITATION OF LIABILITY.
(a) THIS LEASE IS MADE UPON THE EXPRESS CONDITION THAT COMPANY SHALL BE
FREE FROM ALL LIABILITY AND CLAIM FOR DAMAGES by reason of any injury to any
person or persons, including Client, or property of any kind, from any cause or
causes, in any way connected with the Premises or the use or occupancy thereof
during the term of this Lease or any extensions hereof or any occupancy
hereunder. In no event shall Company be liable for any conduct of any other
client of Company or tenant of the building where the Premises are located, and
any such conduct shall not give Client the right to terminate this Lease or any
other agreement between Company and Client. Company or its agents shall not be
liable for any damage to property entrusted to employees of the Building nor for
loss or damage to property by theft or otherwise, nor for injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain, or from pipes or from any other cause whatsoever
unless caused by the gross negligence or willful misconduct of Company. Company
shall not be liable under any circumstances for consequential damages or damages
or injury to Client's business or potential business, no matter what causes such
damages.
(b) THE PREMISES AND ANY SERVICES, FURNISHINGS, AND FACILITIES PROVIDED
PURSUANT TO THIS LEASE ARE FURNISHED WITHOUT WARRANTY (EXPRESS, IMPLIED OR
STATUTORY) OF ANY KIND WHATSOEVER. Client's sole remedy, and Company's sole
obligation for any failure to render any service, furnishings or facility, any
error or omission, or any delay or interruption with respect thereto, is limited
to an adjustment to Client's billing in an amount equal to the charge for such
service, furnishing or facility for periods during which the failure, delay or
interruption continues. (By way of example only, if Client's office is
reasonably determined to be unusable due to the negligence or fault of Company,
Client's billing will be reduced in proportion to Client's reduced use thereof.)
With the sole exception of the remedy set forth in this Paragraph 6(b), Client
expressly and specifically agrees to waive, and agrees not to make any claim for
damages, direct or consequential, arising out of any failure to furnish any
service, furnishing or facility, any error or omission with respect thereto, or
any delay or interruption of the same. Notwithstanding anything in this
paragraph, there shall be no billing adjustment if Client is in default
hereunder.
7. INDEMNITY. Client hereby covenants and agrees to indemnify, protect, defend
(with counsel chosen by Company) and hold harmless Company from and against any
and all liability, loss, cost, claim, action or obligation, including, without
limitation, actual attorneys' fees on
-4-
<PAGE>
account of Client's use of the Premises and anything done or allowed to be done
by Client on the Premises or the building where the Premises are located.
8. DESTRUCTION OF PREMISES. Should the Premises, the Center or the building in
which the Premises are located be so damaged by flood, fire, earthquake,
explosion or other cause, that, in the opinion of Company, it is impracticable
or inadvisable to restore the same, then this Lease shall terminate as of the
date of such damage, and both Company and Client shall be released from all
obligations hereunder arising subsequent to the date of such damage (except
Client shall not be released from any of its indemnification obligations under
this Lease as to events arising or accruing prior to the date of such
termination). If Company desires to restore the Premises or the Center, Company
shall have ninety (90) days, or such additional time as may be mutually agreed
to between the parties, to complete such restoration. In such event, this Lease
shall remain in full force and effect, except that the rent due hereunder during
the period that the Premises are in need of or are being restored shall be
abated or proportionately reduced, depending on whether the Premises are
entirely or partially untenantable.
9. EMINENT DOMAIN. If all or part of the Premises shall be taken under power of
eminent domain or sold under threat of such taking, this Lease shall terminate
as to the part so taken or sold, and the rent shall be reduced in the proportion
that the value of the Premises is reduced thereby. The entire award or proceeds
from such taking or sale of land and improvements, including severance damages,
shall belong to Company and Client shall be entitled only to the portion of the
award or proceeds for its personal property which may be taken, and any
relocation allowance actually paid by the condemning authority. Client may
terminate this Lease by notice to Company within thirty (30) days after such
taking or sale.
10. DEFAULT. Client shall be in default hereunder when Client does not pay any
sum payable by Client to Company after such sum becomes due and payable under
this Lease, or if Client fails to perform any of Client's other covenants or
provisions or agreements under this Lease. If Client does not cure any such
default within three (3) days after written notice from Company, Company shall
have the right, with or without further notice, and in addition to and not in
lieu of other remedies available, to terminate all of Client's rights under this
Lease or such of those rights as Company designates in such written notice. Such
notice shall be in lieu of, and not in addition to, any notice required by
California Code of Civil Procedure 1161.
If Client's rights under this Lease are so terminated, Company may, after
complying with any applicable requirements of law, take possession of the
Premises. Upon any such action by Company, Client shall remain liable for all
obligations which have previously accrued, and, to the maximum extent permitted
by law, for all obligations which may subsequently accrue under this Lease.
It is expressly agreed that in the event of any default by Client hereunder,
Company shall have a lien upon all goods, chattels and personal property of any
description belonging to Client which are placed in, or become part of the
Premises, as security for rent due and to become due for the remainder of the
then current term of this Lease, which lien shall not be in lieu of or in any
way affect any statutory lien given by law to Company, which shall be cumulative
thereof. Client hereby grants Company a security interest and all such personal
property placed in the Premises for the above described purposes.
11. SECURITY DEPOSIT. Upon execution of this Lease, Client shall pay to Company
the amount set forth in the Basic Lease Terms as a security deposit ("Security
Deposit"). Such amount shall be held by Company as security for the full,
faithful and complete performance by Client of all terms, covenants and
agreements to be kept by Client hereunder, or under any other agreement between
Client and Company. If Client fails to perform any of Client's obligations when
performance is due, Company may apply the Security Deposit to the payment of any
monthly charge or any other payment due from Client, or of any sum which Company
may spend
-5-
<PAGE>
or be required to spend by reason of Client's failure. Upon written demand by
Company, Client will pay to Company any amount so applied so that such Security
Deposit is returned to its original amount as specified herein. If at the end of
the term of this Lease Client has performed all of the provisions of this Lease,
the Security Deposit, or any remaining balance, will be returned to Client,
without interest, less the cleaning/painting fee, within forty-five (45) days
after the end of such term.
12. ASSIGNMENT AND SUBLETTING. Only with the prior written consent of Company
may Client assign this Lease or any interest herein or sublet the Premises or
any portion thereof or permit any other person to occupy the Premises or any
portion thereof. Such consent may be withheld by Company in its sole, absolute
and subjective discretion without adhering to any standard of reasonableness.
Consent to one assignment or subletting shall not constitute a waiver of this
provision or consent to any further assignments or subletting. No assignee for
the benefit of creditors, trustee in bankruptcy or purchaser at any execution
sale shall have any right to possess or occupy the Premises or any part thereof,
or claim of right hereunder. Client agrees to reimburse Company its reasonable
attorneys' fees incurred in connection with the processing and documentation
of any requested transfer, assignment or subletting.
13. TERMINATION. CLIENT SHALL GIVE COMPANY NOT LESS THAN FORTY-FIVE (45) DAYS
WRITTEN NOTICE OF CLIENT'S INTENTION TO DISCONTINUE ITS OCCUPANCY HEREUNDER
PRIOR TO THE END OF ANY TERM. Unless otherwise notified by Client, if Client
fails to provide such notice, Client's term shall automatically be renewed for
an additional thirty (30) day term. Client's continued failure to provide
Company such notice will result in Client's term being automatically renewed for
successive additional thirty (30) day terms. Said notice may not be given more
than sixty (60) days prior to the end of any term.
14. SURRENDER OF POSSESSION BY CLIENT. Client hereby agrees, upon the
termination of this Lease, to immediately and peaceably yield up and surrender
the Premises in as good condition as the same were at the time of the taking of
possession, subject to reasonable wear and tear. Any personal property remaining
in the Premises upon expiration or termination shall be deemed abandoned.
Notwithstanding Client's failure to give forty-five (45) days notice of
termination as provided above, Company may, at any time prior to termination of
the initial term hereof or any thirty (30) day renewal period, give Client a
demand for possession of the Premises upon termination of the initial term or
the then applicable thirty (30) day period, as the case may be (the "Surrender
Date"). If Client remains in possession of the Premises after the Surrender
Date, Client shall become a lessee at sufferance only, upon the same terms and
conditions as contained herein except that the monthly rent shall equal two (2)
times the monthly rent which was in effect immediately prior to the Surrender
Date. Acceptance by Company of rent after the Surrender Date shall not
constitute consent to a holdover by Client or result in a renewal of this Lease.
In addition, Client shall indemnify, protect, defend (with counsel chosen by
Company) and hold harmless Company from and against any and all claims,
liabilities, actions, demands, losses or damages incurred by or asserted or
awarded against Company due to Client's failure to deliver possession of the
Premises at the Surrender Date, including, without limitation, any claims by any
succeeding Client for the Premises based on such delay.
15. RIGHT OF ENTRY. Company's agents may enter upon the Premises at any
reasonable time to inspect and examine the Premises and to see that the
covenants hereof are being kept and performed, to take action which may be
required or permitted hereunder, to clean the Premises, make repairs, additions,
or improvements as Company shall deem necessary, or to exhibit the Premises to
prospective Clients or purchasers thereof.
16. SIGNS. Client shall not place or permit to be placed any sign,
advertisement, notice or other similar matter on any doors, windows, or walls or
other areas of the Premises which are open to the view of persons in the common
area of the Center.
-6-
<PAGE>
17. KEYS. Two (2) keys to the Premises will be furnished by Company. Additional
keys will be furnished upon Client's payment to Company of a fee therefor.
Client shall not cause or permit the duplication of any keys to be made, and
Client shall not cause or permit any keys to be possessed by any person other
than an authorized agent of Client. Client agrees to return to Company all keys
to the Premises at the termination of the tenancy. Company shall have the right
to charge Client $20 for each key which Client does not return to Company within
five (5) days of vacating the Premises, or each additional key provided to
Client upon request.
18. TELEPHONE ANSWERING AND OTHER SERVICES. Company agrees to provide the
following services as long as Client is not in breach of this Lease.
(a) Telephone answering, reception and other business services from
8:00 a.m. to 5:00 p.m. Monday through Friday, recognized holidays excepted.
(b) Moves, adds and changes relating to telephone service at the rates
described on the Rates and Fee Schedule, Section A, attached hereto.
(c) Dial tone. Client will have the ability to place local and long
distance telephone calls at the rates described on the Rates and Fee Schedule,
Section B, attached hereto.
Client acknowledges and agrees that said services are subject to human,
electrical and mechanical error, failure or illness which may result in a delay
or discontinuance of their services. CLIENT HEREBY REPRESENTS THAT CLIENT HAS
READ AND AGREES TO SECTIONS 6 (LIMITATION OF LIABILITY) AND 7 (INDEMNITY) AND 20
(WARRANTIES).
IF THIS LEASE TERMINATES, OR CLIENT IS IN DEFAULT HEREUNDER (AS DEFINED IN
SECTION 10), COMPANY MAY, AT ITS ELECTION, REFUSE TO ANSWER CLIENT'S TELEPHONES
AND/OR TERMINATE (DISCONNECT) TELEPHONE SERVICE AND COMPANY SHALL NOT BE IN
BREACH OF ANY OF ITS OBLIGATIONS HEREUNDER, UNDER THE LEASE, OR UNDER ANY OTHER
AGREEMENT, NOR SHALL SUCH REFUSAL BE DEEMED A CONSTRUCTIVE EVICTION OF CLIENT
UNDER THIS LEASE.
Client agrees that only Company provided telephone equipment will be used in
Client's offices, except for personal fax machines or computer modems after
written approval from Company. Client understands that any assigned phone
numbers are non-transferable when service is discontinued and are the property
of Company. CLIENT FURTHER UNDERSTANDS IT MAY NOT PLACE A DISPLAY AD IN THE
YELLOW PAGES OF ANY TELEPHONE DIRECTORY OR ORDER A CALLING CARD UNDER THE
ASSIGNED NUMBER.
19. WARRANTIES, REMEDIES AND LIMITATIONS.
(a) COMPANY'S ONLY LIABILITY AND CLIENT'S SOLE REMEDY FOR ANY LOSS OF
THE SERVICES TO BE PROVIDED PURSUANT TO THIS LEASE, OR OTHERWISE PROVIDED AT
CLIENT'S REQUEST, ARE LIMITED TO A PRO RATA CREDIT OF PAYMENTS MADE BY CLIENT
PURSUANT TO PARAGRAPH 3, SAID PRO RATA CREDIT SHALL APPLY TO THE PERIOD OF TIME
DURING WHICH COMPANY WAS NOT ABLE TO PROVIDE THE ABOVE-DESCRIBED SERVICES.
(b) COMPANY PROVIDES NO WARRANTIES AS TO ANY SERVICES PROVIDED TO
CLIENT AND ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, ARE HEREBY
WAIVED.
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(c) THE FOREGOING REMEDY IS EXCLUSIVE AND IS GIVEN AND ACCEPTED IN LIEU
OF ANY OBLIGATION, LIABILITY, RIGHT OR CLAIM OR REMEDY IN CONTRACT OR TORT,
WHETHER OR NOT ARISING FROM COMPANY'S NEGLIGENCE, ACTUAL OR IMPUTED. THE
REMEDIES OF CLIENT SHALL BE LIMITED TO THOSE PROVIDED HEREIN TO THE EXCLUSION OF
ANY AND ALL OTHER REMEDIES, INCLUDING, WITHOUT LIMITATION, INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
20. FURNITURE AND EQUIPMENT. If Client uses or rents Company's furniture or
other equipment, including but not limited to telephones (the "Equipment"),
Client shall not damage said Equipment or make any modifications, alterations or
attachments thereto, nor remove the same. Client shall provide Company with
prior written notice of its proposed move-in and shall coordinate its move-in
with Company. Equipment shall only be moved by Company or its authorized
representatives. Client shall be responsible to pay all costs of such moves at
the Company's published fees as well as the costs of repairing any damage to the
Center caused by Client's move-in. Upon expiration of the Term or other
termination of the Lease, Client shall return the Equipment to Company in the
same condition as when provided, normal wear and tear excepted. If at the end of
the term of this Lease Client has performed all provisions of this Lease, the
deposits held on the equipment or any remaining balance will be refunded to
Client, without interest, within forty-five (45) days after the end of the term.
21. MAIL.
(a) Subject to any restrictions set forth herein, Client is hereby
authorized to use the address of Company as Client's business address (the
"Center Address"). Client acknowledges that Client has read and understood
United States Post Office Form #1583 and understands that in the event Client's
use of the Center Address terminates, Company shall cease to act as Client's
agent for receipt of mail and the U.S. Post Office will not forward Client's
mail in such event. It will be Client's responsibility to notify all parties of
termination of use of the Center Address.
(b) In the event that this Lease terminates, for whatever reason,
Client's right to use the Center Address shall immediately terminate, and
Company, at its election, may return to senders all mail addressed to Client. IN
THE EVENT OF Any DEFAULT BY CLIENT, COMPANY MAY TERMINATE CLIENT'S RIGHT TO USE
THE CENTER ADDRESS AND AT COMPANY'S ELECTION, UPON NOTICE TO CLIENT, MAY RETURN
ALL MAIL TO SENDERS.
(c) Prior to the exercise by Company of its options described in
Sections 21(a) and/or (b) above, and provided Client is not in default
hereunder, Client may elect to maintain mail handling services by submitting to
Company a completed mail handling services form which shall be subject to
Company's terms and listed price for such service. Payment for such service
shall be made monthly, in advance, on the first day of each month. Failure to
make such payments shall immediately terminate all of Company's obligations
under said mail handling services agreement.
22. FORCE MAJEURE. If Company's performance of this Lease or of any of its
obligations hereunder is prevented or restricted by reason of any cause beyond
the reasonable control of Company, including, but not limited to, mechanical or
electrical breakdown, fire, explosion or other casualty, acts of God, acts of
public enemies, embargo, delays of supplies, acts of any governmental agency,
labor difficulties, strikes or inclement weather, Company, upon giving timely
notice to Client, shall be excused from such performance hereunder to the extent
of such breakdown, prevention or restriction, provided that Company shall resume
performance within a reasonable time after any such cause has been removed or
ceases.
23. WAIVER. One or more waivers by Company of any breach by Client of any
covenant or condition hereunder shall not be construed as a waiver of a
subsequent or continuing breach by
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Client of the same or of any other covenant or condition, and the consent or
approval by Company to or of any act by Client requiring Company's consent or
approval shall not be deemed to waive or render unnecessary Company' s consent
or approval to or of any subsequent act by Client.
24. ASBESTOS NOTICE. In 1988, California enacted Legislation (specifically,
Chapter 10.4 of the Health and Safety Code, Section 25915 et seq.) requiring
landlords and tenants of commercial buildings constructed prior to 1979 to
notify each other and their employees of any knowledge they may have regarding
any asbestos-containing construction materials in the building. As required by
this Legislation, Landlord advises Tenant that certain sprayed-on fireproofing
material containing approximately .05 to .07 parts asbestos ("ACM") has been
identified in certain limited locations in the Building on the floor support
beams of the fourth floor, the third floor and the second floor, on roof support
beams and within certain walls. This notification is being given to provide the
information required under this Legislation in order to help Tenant and others
avoid any unintentional contact with the limited ACM in the Building and to
assist Tenant in making appropriate disclosures to Tenant's employees,
contractors and others, if any. This notice is intended to comply with the
requirements of California law.
Landlord has engaged qualified consultants to survey the Building for ACM and to
prepare a qualified plan for monitoring the limited ACM in the Building. This
Operations and Management Plan (the "O&M Plan") is available for review at the
Building during normal business hours between 9:00 a.m. and 3:00 p.m., Monday
through Friday, except legal holidays. The O&M Plan describes the nature and
location of the limited ACM in the Building, air quality test results
recommended avoidance measures and handling suggestions.
Based upon the O&M Plan, Landlord has no reason to believe that the ACM in the
Building is currently in a condition or location to release ACM fibers which
would pose any significant health hazard to the Building's occupants. However,
Tenant should take into consideration that Landlord's knowledge as to the
absence of health risks is based solely upon the information contained in the
O&M Plan, and that Landlord has no special knowledge concerning potential health
risks resulting from exposure to ACM in the Building. Landlord is therefore
required by the above-mentioned Legislation to encourage Tenant to contact local
or state public agencies if Tenant desires to obtain a better understanding of
any potential impacts resulting from any exposure to ACM.
To avoid any unnecessary disturbance of any of the limited ACM in the
above-mentioned areas, tenants should not perform any alterations or
improvements in such areas and should avoid moving, drilling, boring or
otherwise disturbing any identified ACM. Should Tenant have any questions
regarding which areas contain ACM, Tenant should contact Landlord. As provided
in the O&M Plan, Landlord will make available such instruction as may be
required. If Tenant observes any activity which has the potential to disturb any
ACM, Tenant should report the same to Landlord immediately, and Tenant and its
employees, agents, contractors, and others, should avoid touching or disturbing
any ACM.
25. TIME OF THE ESSENCE. Time is expressly of the essence of this Lease, and of
all covenants and conditions contained herein.
26. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained shall,
subject to the provision as to assignments and subletting, apply to and bind the
heirs, successors,
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executors, administrators and assigns of the respective parties hereto. If this
Lease is executed by more than one person as Client, their obligations hereunder
shall be joint and several.
27. ATTORNEYS' FEES. In the event of any legal action or proceeding by Client or
Company against the other under this Lease, the prevailing party shall be
entitled to recover all expenses and costs, including actual attorneys' fees and
costs of appeal, if any.
28. NOTICES. All notices by Client or Company to the other must be in writing
Notice to Client will be considered given if delivered personally to Client or
to one of Client's officers or mailed by U.S. mail, addressed to Client, either
at Company's premises address described herein or at Client's address described
herein. Notices to Company will be considered given if mailed by registered or
certified mail, postage prepaid, to Company at Company's address set forth in
the applicable Schedule or such other address as Company shall designate to
Client in writing.
29. SEVERABILITY. The invalidity or unenforceability of any provision hereof
shall not affect or impair the validity or enforceability of any other
provision. No waiver of any default of Client shall be implied from any failure
by Company to take action with respect to such default.
30. AUTHORITY. Each party represents that it has the full power and authority to
enter into and perform this Lease. If Client is a corporation, partnership or
association, each individual executing this Lease on behalf of said
corporation, partnership or association, represents and warrants that he or she
is duly authorized to execute and deliver this Lease on behalf of said
corporation, partnership or association, and that this Lease is binding on said
corporation, partnership or association.
31. ENTIRE AGREEMENT. This Lease supersedes any prior agreement or agreements
and embodies the entire agreement between Company and Client with regard to the
leasing of the Premises to Client, and may not be modified, changed or altered
in any way except in writing Submission of this instrument for examination does
not constitute a reservation of or option for the Premises and becomes effective
only upon execution and delivery by both parties and shall be interpreted and
enforced in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed on
the date set forth hereinbelow.
COMPANY: CLIENT:
INTERNATIONAL SATELLITE Alcore, Inc.
PROMOTIONS, INC., DBA a _______________________________
CORPORATE EXECUTIVE SUITES
By: /s/Brenda Jobe By: /s/Donna L. Bumford
------------------------ ------------------------------
Name: Brenda Jobe Name: Donna L. Bumford
Title: Operating Mgr. Title: Human Resources Manager
Date: 6-14-96 Date: 6/12/96
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$6,000,000
CREDIT AGREEMENT
DATED AS OF NOVEMBER 22, 1996
BETWEEN
LUNN INDUSTRIES, INC. AND ALCORE, INC., AS BORROWER
AND
FIRST UNION NATIONAL BANK OF MARYLAND, AS LENDER
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CREDIT AGREEMENT DATED AS OF NOVEMBER 22, 1996
BETWEEN
LUNN INDUSTRIES, INC., A DELAWARE CORPORATION, AND ALCORE, INC.,
A DELAWARE CORPORATION,
AND
FIRST UNION NATIONAL BANK OF MARYLAND,
A NATIONAL BANKING ASSOCIATION
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS. All capitalized terms used in this
Agreement or in any Appendix, Schedule or Exhibit hereto which are not otherwise
defined herein or therein shall have the respective meanings set forth in the
Appendix attached hereto identified as the Definitions Appendix. The Definitions
Appendix is incorporated herein by reference in its entirety and is a part of
this Agreement to the same extent as if it had been set forth in this Section
1.01 in full.
Section 1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles in the United States of
America as in effect from time to time, applied on a basis consistent (except
for changes concurred in by the Borrower's independent public accountants) with
the most recent audited consolidated financial statements of the Borrower and
all Consolidated Subsidiaries delivered to the Bank.
ARTICLE II
THE CREDIT
Section 2.01 COMMITMENT TO LEND. The Bank agrees, on the terms
and conditions set forth in this Agreement, to make Loans to the Borrower from
time to time during the Revolving Credit Period in amounts such that: (a) the
aggregate principal amount of Loans at any one time outstanding will not exceed
the lesser of (i) the Commitment and (ii) the Borrowing Base; (b) the aggregate
principal amount of Loans at any one time advanced and outstanding against the
Alcore Borrowing Base do not exceed the Alcore Sublimit; and (c) the aggregate
principal amount of Loans advanced and outstanding against the Lunn Borrowing
Base do not exceed the Lunn Sublimit. Within the foregoing limits and sublimits,
the Borrower may borrow, prepay and reborrow Loans at any time during the
Revolving Credit Period.
Section 2.02 METHODS OF BORROWING.
(a) Notice of Borrowing; Borrowing Base Certificate. Except as
otherwise provided in this Section, each of Alcore and Lunn may, with the
approval of the Bank, give the Bank notice substantially in the form of Exhibit
A -- Notice of Borrowing (a "Notice of Borrowing") not later than 12:00 P.M.
(local time in Baltimore, Maryland) on the date of each requested Loan,
specifying the date of such Loan and the amount of such Loan and such other
information as is required to satisfy the requirements of Section 2.01 above.
(b) Operating Account Overdrafts. If on any day Items are
presented to the Bank for payment
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<PAGE>
against an Operating Account which Items, in the aggregate, would, if paid in
full, cause the Available Balance in such Operating Account on such day to be
less than $0, such presentation shall be deemed to be a request by the
applicable Borrower for a Loan on the date of such presentation in an amount
equal to the amount (rounded upward to the nearest $1,000) required to cause
such Available Balance to equal $0.
(c) Overdrafts in Other Accounts. The Bank may, at its option,
pay any Item which will cause any deposit account maintained by the Borrower
with the Bank to become overdrawn, and such payment shall be deemed a Loan
hereunder.
Section 2.03 FUNDING OF LOANS. The Bank shall disburse the
proceeds of each Loan requested, or deemed to be requested, pursuant to Section
2.02 as follows:
(a) The proceeds of each Loan under Section 2.02(a) shall be
made available by the Bank to the applicable Borrower in Federal or other funds
immediately available at the Bank's address referred to in Section 8.01.
(b) The proceeds of each Loan under Section 2.02(b) or (c)
shall be disbursed by the Bank by way of direct payment of the relevant Item or
by way of deposit to the Operating Account of the amount set forth in Section
2.02(b), as the case may be.
Section 2.04 NOTE.
(a) Evidence of Loans. The Loans shall be evidenced by a
single Note made by Alcore and Lunn, jointly and severally, as co-borrowers,
payable to the order of the Bank in the principal amount of $6,000,000.
(b) Records of Amounts Due. The Bank shall record the date and
amount of each Loan made by it and the date and amount of each payment of
principal made by each Borrower with respect thereto, and may, if the Bank so
elects in connection with any transfer or enforcement of the Note, endorse on
the schedule forming a part thereof appropriate notations to evidence the
foregoing information with respect to each such Loan then outstanding; provided
that the failure of the Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Note. The Bank
is hereby irrevocably authorized by the Borrower so to endorse the Note and to
attach to and make a part of the Note a continuation of any such schedule as and
when required.
Section 2.05 INTEREST RATES.
(a) LIBOR-Based Rate. Except as otherwise provided in
subsection (c) below, each Loan shall bear interest on the outstanding principal
amount thereof, for each day from the date such Loan is made until it becomes
due, at a rate per annum equal to the applicable LIBOR-based Rate for such day.
Such interest shall be payable for each month in arrears on the first day of the
immediately succeeding calendar month.
The "Adjusted London Interbank Offered Rate" means on any day
a rate per annum equal to the quotient obtained (rounded upward, if necessary,
to the next higher 1/100 of 1%) by dividing (i) the London Interbank Offered
Rate for such day by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
"LIBOR-based Rate" means for any day, the sum of (i) the
Adjusted London Interbank Offered Rate for such day plus (ii) 250 basis points.
The "London Interbank Offered Rate" means the rate per annum
designated as the British Bankers' Association settlement rate as of 11:00 A.M.
(London time) for one month deposits in Dollars in the London interbank market
that appears on the display on page 3750 (under the caption "USD" of the
Telerate Services, Incorporated screen (the "Telerate Screen") (or on such other
display as may replace such page on the Telerate Screen) at such time) each
Euro-Dollar Business Day; provided that if no offered quotations appear on the
Telerate Screen or if quotations are not
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<PAGE>
given on the Telerate Screen for such one month period, then the London
Interbank Offered Rate shall mean the rate per annum determined by the Bank at
which United States Dollars in the amount of $5,000,000 are being offered to
leading banks in the London interbank market for Dollar deposits at
approximately 11:00 A.M. London time two Euro-Dollar Business Days prior to such
day for settlement in immediately available funds by leading banks in the London
interbank market for a one month period.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars in respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to which the
interest rate on Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of the Bank to
United States residents). The Adjusted London Interbank Offered Rate shall be
adjusted automatically on and as of the effective date of any change in the
Euro-Dollar Reserve Percentage.
The LIBOR-based Rate shall change from time to time with
changes to occur on the date the London Interbank Offered Rate changes on the
Telerate Screen page 3750, or if such rate is not available, by reference to the
rate being offered to leading banks.
(b) Overdue Amounts. Any overdue principal of or interest on
any Loan shall bear interest, payable on demand, for each day from and including
the date payment thereof was due to but excluding the date of actual payment, at
a rate per annum equal to the sum of 2% plus the LIBOR-based Rate or Base Rate,
as the case may be, applicable to such Loan on such day.
(c) Base Rate. Each Loan required to be converted into or made
as a Base Rate Loan pursuant to the provisions of Article VII shall bear
interest on the outstanding principal amount thereof, for each day on which such
Loan constitutes a Base Rate Loan, at a rate per annum equal to the Base Rate
for such day. Such interest shall be payable for each month in arrears on the
first day of the immediately succeeding calendar month.
"Base Rate" means for any day, the Prime Rate.
"Prime Rate" means the rate announced by the Bank from time to
time as its Prime Rate, as such rate may change from time to time with changes
to occur on the date the Bank's Prime Rate changes. The Bank's Prime Rate is one
of several interest rate bases used by the Bank. The Bank lends at rates above
and below the Bank's Prime Rate, and the Borrower acknowledges that the Bank's
Prime Rate is not represented or intended to be the lowest or most favorable
rate of interest offered by the Bank.
(d) Determination and Notice of Interest Rates. The Bank shall
determine each interest rate applicable to the Loans hereunder. The Bank shall
give prompt notice to the Borrower of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.
Section 2.06 FEES.
(a) Servicing Fee. The Borrower shall pay to the Bank a
monthly servicing fee (the "Servicing Fee") equal to $750.00. The Servicing Fee
shall accrue from and including the Effective Date to but excluding the
Termination Date (or earlier date of termination of the Commitment in its
entirety), and be payable on the first day of the first month immediately
following the Effective Date, and on the first day of each month thereafter,
unless the Commitment is terminated prior to any such date, in which case all
Servicing Fees which have accrued and remain unpaid shall be payable on the
effective date of such termination.
(b) Commitment Fee. On the Effective Date, the Borrower
shall pay to the Bank a commitment fee equal to $27,500.
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<PAGE>
(c) Audit Fees. Recurring field audits of the Borrower's
books, records and assets will be conducted not more than semi-annually, and all
costs thereof (estimated to be no more than $2,500 per audit) will be paid by
the Borrower.
Section 2.07 TERMINATION, REDUCTION OR EXTENSION OF
COMMITMENT.
(a) Optional Termination or Reductions of Commitment. The
Borrower may, upon at least three Business Days' notice to the Bank, (i)
terminate the Commitment at any time, if no Loans are outstanding at the time of
termination or (ii) reduce from time to time the amount of the Commitment in
excess of the aggregate outstanding principal amount of the Loans.
(b) Optional Extension of Commitment. In September, 1997 (and
each September thereafter, if the Loan is extended), after receipt and review of
each Borrower's quarterly financial statement, the Bank shall consider, in its
sole discretion, extending the Revolving Credit Period for an additional
twelve-month period.
Section 2.08 MATURITY AND REPAYMENT OF LOANS.
(a) Maturity at Termination Date. Each Loan shall mature,
and the principal amount thereof shall be due and payable, on the Termination
Date.
(b) Mandatory Prepayments of Loans Exceeding Borrowing Base.
If on any day the aggregate outstanding principal amount of all Loans exceeds
the Borrowing Base, the Borrower shall prepay, and there shall become due and
payable, on such date the principal amount of the Loans equal to such excess,
together with interest thereon to the date of repayment.
(c) Mandatory Repayments from Operating Accounts.
(i) Deposits of Proceeds to Operating
Accounts. The Borrower shall instruct all Account Debtors and other Persons
obligated in respect of Accounts and other Collateral to make all payments in
respect of the Accounts or other Collateral directly to the Bank (by instructing
that such payments be remitted to a post office box which shall be in the name
and under the control of the Bank). Except as provided in Section 3.04 of the
Security Agreement, all such payments made to the Bank with respect to Alcore
shall be deposited in the Alcore Operating Account, and all such payments made
to the Bank with respect to Lunn shall be deposited in the Lunn Operating
Account. In addition to the foregoing, the Borrower agrees that if the proceeds
of any Collateral (including the payments made in respect of Accounts) shall be
received by it, the Borrower shall, unless Section 3.04 of the Security
Agreement shall require otherwise, as promptly as possible deposit such proceeds
to the appropriate Operating Account. Until so deposited, all such proceeds
shall be held in trust by the Borrower for and as the property of the Bank and
shall not be commingled with any other funds or property of the Borrower. The
Borrower hereby irrevocably authorizes and empowers the Bank, its officers,
employees and authorized agents to endorse and sign its name on all checks,
drafts, money orders or other media of payment so delivered, and such
endorsements or assignments shall, for all purposes, be deemed to have been made
by the Borrower prior to any endorsement or assignment thereof by the Bank. The
Bank may use any convenient or customary means for the purpose of collecting
such checks, drafts, money orders or other media of payment.
(ii) Loans Due to Extent of Available Balance.
Each Business Day, that principal amount of the Loans equal to the then
Available Balance shall become due and payable.
(iii) Withdrawals from Operating Account to Pay
Obligations. The Available Balance on deposit in each Operating Account, or
so much thereof as is necessary to pay in full the Obligations referred to in
this Section 2.08(c)(iii), shall be withdrawn by the Bank each Business Day and
applied to repay the respective Obligations of each Borrower which are then due
and payable (including those which become due and payable on
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<PAGE>
such date pursuant to subsection (ii) above).
(d) Optional Prepayments of Loans. The Borrower may upon at
least one Business Day's notice to the Bank, prepay any Loan, in whole at any
time, or from time to time in part, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. The notice of
prepayment delivered by the Borrower to the Bank shall not be revocable by the
Borrower following its receipt by the Bank.
Section 2.09 GENERAL PROVISIONS AS TO PAYMENTS. The Borrower
shall make each payment of principal of and interest on the Loans and fees
hereunder not later than 12:00 Noon (local time in Baltimore, Maryland) on the
date when due, without set-off, counterclaim or other deduction, in Federal or
other funds immediately available in Baltimore, Maryland, to the Bank at its
address referred to in Section 8.01. Each Borrower hereby irrevocably authorizes
the Bank to deduct from its respective Operating Account at any time such amount
as may then be necessary to pay Obligations referred to in clause (ii)(A) of the
definition of Available Balance. Whenever any payment of principal of, or
interest on, the Loans or of fees shall be due on a day which is not a Business
Day, the date for payment thereof shall be extended to the next succeeding
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
Section 2.10 COMPUTATION OF INTEREST AND FEES. Interest on
Loans hereunder shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding the
last day).
ARTICLE III
CONDITIONS
Section 3.01 CONDITIONS TO CLOSING. The obligation of
the Bank to make the first Loan hereunder is subject to the satisfaction of
the following conditions:
(a) Effectiveness. This Agreement shall have become
effective in accordance with Section 8.08.
(b) Note. On or prior to the Closing Date, the Bank shall have
received a duly executed Note dated on or before the Closing Date complying with
the provisions of Section 2.04.
(c) Other Loan Documents. Each of the Loan Documents to be
executed on or before the Closing Date shall be in form and substance
satisfactory to the Bank and shall have been duly executed and delivered to the
Bank by each of the parties thereto.
(d) Adverse Change, etc. On the Closing Date, nothing shall
have occurred (and the Bank shall not have become aware of any facts or
conditions not previously known) which the Bank shall determine has, or could
reasonably be expected to have, a Material Adverse Effect.
(e) Officer's Certificate. The Bank shall have received a
certificate dated the Closing Date signed on behalf of the Borrower by the
Chairman of the Board, the President, any Vice President or the Treasurer of
each Borrower stating that (x) on the Closing Date and after giving effect to
the Loan being made on the Closing Date, no Default or Event of Default shall
have occurred and be continuing and (y) to the best knowledge and belief of such
officer, the representations and warranties of the Borrower contained in the
Loan Documents are true and correct on and as of the Closing Date.
(f) Opinion of Borrower's Counsel. On the Closing Date,
the Bank shall have received from
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counsel to the Borrower an opinion addressed to the Bank, dated the Closing
Date, substantially in the form of Exhibit C hereto and covering such additional
matters incident to the transactions contemplated hereby as the Bank may
reasonably request.
(g) Corporate Proceedings. On the Closing Date, the Bank shall
have received (i) a copy of each Borrower's articles or certificate of
incorporation (or analogous organizational documents), as amended, certified by
the applicable state filing office; (ii) certificates of the Maryland Department
of Assessments and Taxation and the Secretary of State of New York with respect
to Alcore, and certificates of the Secretary of State of Delaware and the
Secretary of the State of New York with respect to Lunn, dated as of a recent
date, as to the good standing and if available listing in long-form the charter
or similar organizational documents of the Borrower on file; and (iii) a
certificate of the Secretary or an Assistant Secretary of each Borrower dated
the Closing Date and certifying (A) that the articles or certificate of
incorporation of such Borrower have not been amended since the date of the last
amendment thereto indicated on the certificate furnished pursuant to clause (ii)
above, (B) as to the absence of dissolution or liquidation proceedings by or
against such Borrower, (C) that attached thereto is a true and complete copy of
the by-laws of such Borrower as in effect on the date of such certification and
all other times relevant to the transactions contemplated hereby, (D) that
attached thereto is a true, correct and complete copy of resolutions adopted by
the board of directors of such Borrower authorizing the execution, delivery and
performance of the Credit Agreement, the Note and the Security Agreement and
each other document delivered in connection herewith or therewith and that said
resolutions have not been amended and are in full force and effect on the date
of such certificate, (E) as to the incumbency and specimen signatures of each
officer of such Borrower executing this Agreement, the Note and the Security
Agreement or any other document delivered in connection herewith or therewith
and (F) certifying as to the names and respective jurisdictions of incorporation
of all Subsidiaries of such Borrower existing on the Closing Date. The
certificate referred to in clause (iii) of this subsection shall be
substantially in the form of such certificate as attached to the Memorandum of
Closing furnished by counsel for the Bank.
All corporate and legal proceedings and instruments and
agreements relating to the transactions contemplated by this Agreement or
in any other document delivered in connection therewith shall be
satisfactory in form and substance to the Bank and its counsel, and the
Bank shall have received all information and copies of all documents and
papers, including records of corporate proceedings, governmental
approvals, good standing certificates and bring-down telegrams, if any,
which the Bank reasonably may have requested in connection therewith, such
documents and papers where appropriate to be certified by proper corporate
or governmental authorities.
(h) Perfection of Security Interests; Search Reports.
On or prior to the Closing Date, the Bank shall have received:
(i) a Perfection Certificate of the Borrower,
substantially in the form of Exhibit A to the Security
Agreement;
(ii) appropriate Financing Statements (Form UCC-1 or
such other financing statements or similar notices as shall be
required by local law) fully executed for filing under the
Uniform Commercial Code or other applicable local law of each
jurisdiction in which the filing of a financing statement or
giving of notice may be required, or reasonably requested by
the Bank, to perfect the security interests purported to be
created by the Loan Documents;
(iii) copies of reports from Prentice-Hall Financial
Services or other independent search service reasonably
satisfactory to the Bank listing all effective financing
statements that name each Borrower (under its present name and
any previous name and, if requested by the Bank, under any
trade names) as debtor or seller that are filed in the
jurisdictions referred to in clause (i) above, together with
copies of such other financing statements (none of which shall
cover the Collateral except to the extent evidencing Permitted
Liens or for which the Bank shall have
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received termination statements (Form UCC-3) or such other
termination statements as shall be required by local law)
fully executed for filing; and
(iv) evidence of the completion of all other filings
and recordings of, or with respect to, the Loan Documents as
may be necessary or, in the opinion of the Bank, desirable to
perfect the security interests intended to be created by the
Loan Documents.
(i) Closing Date Borrowing Base Certificate. On the Closing
Date, each Borrower shall have delivered to the Bank an initial Borrowing
Base Certificate meeting the requirements of Section 5.01(f) hereof.
(j) Payment of Fees. All costs, fees and expenses due to
the Bank on or before the Closing Date shall have been paid.
(k) Counsel Fees. The Bank shall have received payment
from the Borrower of the fees and expenses of Piper & Marbury L.L.P.
described in Section 8.03 which are billed through the Closing Date, which shall
not exceed $7,500 plus disbursements.
(l) Cash Management and Depository Accounts. On or
before the Closing Date, each Borrower shall have established its
respective cash management and depository accounts with the Bank.
(m) Field Audits. On or before the Closing Date, the Bank
shall have received (a) an initial audit of each Borrower's Inventory, (b) an
initial audit of all of each Borrower's Machinery and Equipment in all
locations, and (c) an initial audit of each Borrower's books, records and other
assets. Such initial audits shall be paid for by the Bank, prepared by a firm
acceptable to the Bank, and otherwise be satisfactory to the Bank in form and
substance.
The Bank shall promptly notify the Borrower of the Closing Date, and
such notice shall be conclusive and binding on all parties hereto. The documents
referred to in this Section shall be delivered to the Bank no later than the
Closing Date. The certificates and opinion referred to in this Section shall be
dated the Closing Date.
Section 3.02 CONDITIONS TO ALL LOANS. The obligation of the
Bank to make each Loan is subject to the satisfaction of the following
conditions:
(a) the fact that the Closing Date shall have occurred;
(b) the fact that, immediately after the making of such Loan,
the aggregate outstanding principal amount of all Loans shall not exceed the
lesser of (A) the Commitment and (B) the Borrowing Base;
(c) the fact that, immediately after making such Loan,
neither the Alcore Sublimit nor the Lunn Sublimit is exceeded;
(d) the fact that, immediately before and after the making of
such Loan, no Default shall have occurred and be continuing; and
(e) the fact that the representations and warranties of the
Borrower contained in this Agreement shall be true on and as of the date of such
Loan.
Each Loan hereunder shall be deemed to be a representation and warranty by the
Borrower on the date of such Loan as to the facts specified in clauses (iii) and
(iv) of this Section.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
Section 4.01 CORPORATE EXISTENCE AND POWER. Each Borrower and
each of its Subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. Each Borrower and each of its Subsidiaries is duly qualified as a
foreign corporation, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a Material Adverse Effect.
Section 4.02 CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Borrower of the
Loan Documents to which it is a party are within the corporate powers of the
Borrower, have been duly authorized by all necessary corporate action, require
no action by or in respect of, or filing with, any governmental body, agency or
official (except for any such action or filing as shall have been taken or made
and that is in full force and effect from and after the Closing Date) and do not
contravene, or constitute (with or without the giving of notice or lapse of time
or both) a default under, any provision of applicable law or of the articles or
certificate of incorporation or by-laws (or analogous organizational documents)
of the Borrower or any Subsidiary or of any agreement, judgment, injunction,
order, decree or other instrument binding upon or affecting the Borrower or any
Subsidiary or result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
Section 4.03 BINDING EFFECT. Each Loan Document to which the
Borrower is a party constitutes a valid and binding agreement of the Borrower
enforceable against the Borrower in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by equitable principles of general
applicability (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
Section 4.04 FINANCIAL CONDITION.
(a) Audited Financial Statements. The consolidated balance
sheet of the Borrower and all Consolidated Subsidiaries as of December 31, 1995
and the related consolidated statements of income and cash flows for the fiscal
year then ended, reported on by Coopers & Lybrand, copies of which have been
delivered to the Bank, fairly present, in conformity with generally accepted
accounting principles, the consolidated financial position of the Borrower and
all Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such fiscal year. As of the date of such financial
statements, the Borrower and all Consolidated Subsidiaries did not have any
material contingent obligation, contingent liability or liability for taxes,
long-term lease or unusual forward or long-term commitment, which is not
reflected in any of such financial statements or notes thereto.
(b) Interim Financial Statements. The unaudited consolidated
balance sheet of the Borrower and all Consolidated Subsidiaries as of June 30,
1996 and the related unaudited consolidated income statements for the twelve
months then ended, copies of which have been delivered to the Bank, fairly
present, in conformity with generally accepted accounting principles applied on
a basis consistent with the financial statements referred to in subsection (a)
of this Section, the consolidated financial position of the Borrower and all
Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such twelve-month period
(subject to normal year-end audit adjustments).
(c) Material Adverse Change. Since June 30, 1996 there
has been no material adverse change in condition (financial or otherwise),
results of operations, properties, assets, business or prospects of the Borrower
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or of the Borrower and all Consolidated Subsidiaries, considered as a whole.
Section 4.05 LITIGATION. Except as described in Schedule 4.05
attached hereto and made a part hereof, there is no action, suit, proceeding or
investigation pending against, or to the knowledge of the Borrower threatened
against, contemplated or affecting, the Borrower or any of its Subsidiaries
before any court, arbitrator or any governmental body, agency or official which
has, or, if adversely determined, could reasonably be expected to have, a
Material Adverse Effect, or which in any manner draws into question the validity
or enforceability of this Agreement or the Note, and there is no basis known to
the Borrower or any of its Subsidiaries for any such action, suit, proceeding or
investigation.
Section 4.06 REGULATION U; USE OF PROCEEDS. The Borrower and
its Subsidiaries do not own any "margin stock" as such term is defined in
Regulation U. The proceeds of the Loans will be used by the Borrower only for
the purposes set forth in Section 5.17 hereof.
Section 4.07 REGULATORY RESTRICTIONS ON BORROWING. Neither the
Borrower nor any of its Subsidiaries is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, a "holding company"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended, or otherwise subject to any regulatory scheme which restricts its
ability to incur debt.
Section 4.08 SUBSIDIARIES. Part I of Schedule 4.08 (as such
Schedule may be supplemented by a writing delivered by the Borrower to the Bank
from time to time after the Effective Date) hereto lists each Subsidiary of the
Borrower (and the direct and indirect ownership interests of the Borrower
therein), in each case existing on the Effective Date. Except as set forth on
Part 1 of such Schedule 4.08, each such Subsidiary existing on the date hereof
is, and, in the case of any additional corporate Subsidiaries formed after the
Effective Date, each of such additional corporate Subsidiaries will be at each
time that this representation is made or deemed to be made after the Effective
Date, a wholly-owned Subsidiary that is a corporation duly incorporated, validly
existing and, to the extent relevant in such jurisdiction, in good standing
under the laws of its jurisdiction of incorporation, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted. Except as listed
on Part 2 of Schedule 4.08 (as such Schedule may be supplemented by a writing
delivered by the Borrower to the Bank from time to time after the Effective
Date), neither the Borrower nor any of its Subsidiaries is engaged in any joint
venture or partnership with any other Person.
Section 4.09 FULL DISCLOSURE. All factual information (taken
as a whole) furnished by or on behalf of the Borrower or any of its Subsidiaries
in writing to the Bank for purposes of or in connection with this Agreement or
any transaction contemplated hereby is true and accurate in all material
respects on the date as of which such information is dated or certified and is
not incomplete by omitting to state any material fact necessary to make such
information (taken as a whole) not misleading at such time in light of the
circumstances under which such information was provided. Except for economic
trends generally known to the public affecting generally the industry in which
the Borrower and its Subsidiaries conduct their business, the Borrower has
disclosed to the Bank in writing any and all facts which materially and
adversely affect or may materially and adversely affect (to the extent the
Borrower can now reasonably foresee), the business, operations or financial
condition of the Borrower and its Consolidated Subsidiaries, taken as a whole,
or the ability of the Borrower to perform its obligations under this Agreement.
Section 4.10 TAX RETURNS AND PAYMENTS. Except as described in
Schedule 4.10 attached hereto and made a part hereof, each of the Borrower and
its Subsidiaries has filed all United States Federal income tax returns and all
other material tax returns, domestic and foreign, required to be filed by it and
has paid all taxes and assessments payable by it which have become due pursuant
to such returns or pursuant to any assessment received by the Borrower or any
Subsidiary, other than those not yet delinquent and except for those contested
in good faith. Each of the Borrower and its Subsidiaries has paid, or has
provided adequate reserves (in good faith judgment of the management of the
Borrower) for the payment of, all federal, state and foreign income taxes
applicable for all prior fiscal years and for the current fiscal year to the
date hereof.
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<PAGE>
Section 4.11 COMPLIANCE WITH ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
Section 4.12 INTELLECTUAL PROPERTY. Each of the Borrower and
its Subsidiaries owns or possesses or holds under valid non-cancelable licenses
all Patents, Trademarks, service marks, trade names, copyrights, Licenses and
other intellectual property rights that are necessary for the operation of their
respective properties and businesses, and neither the Borrower nor any of its
Subsidiaries is in violation of any provision thereof. The Borrower and its
Subsidiaries conduct their business without infringement or claim of
infringement of any material license, patent, trademark, trade name, service
mark, copyright, trade secret or any other intellectual property right of others
and there is no infringement or claim of infringement by others of any material
license, patent, trademark, trade name, service mark, copyright, trade secret or
other intellectual property right of the Borrower and its Subsidiaries.
Section 4.13 NO BURDENSOME RESTRICTIONS. No contract, lease,
agreement or other instrument to which the Borrower or any of its Subsidiaries
is a party or by which any of its property is bound or affected, no charge,
corporate restriction, judgment, decree or order and no provision of applicable
law or governmental regulation has had or is reasonably expected to have a
Material Adverse Effect.
Section 4.14 ENVIRONMENTAL MATTERS. In the ordinary course of
its business, the Borrower conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of the Borrower
and its Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs (including, without limitation, any capital or
operating expenditures required for clean-up or closure of properties presently
or previously owned, any capital or operating expenditures required to achieve
or maintain compliance with environmental protection standards imposed by law or
as a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted at any such facility, any costs or liabilities in connection with
off-site disposal of wastes or Hazardous Substances, and any actual or potential
liabilities to third parties, including employees, and any related costs and
expenses). On the basis of this review, the Borrower has reasonably concluded
that such associated liabilities and costs, including the costs of compliance
with Environmental Laws, are unlikely to have a material adverse effect on the
business, financial condition, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
Section 4.15 ACCOUNTS. With respect to each Account, all
records, papers and documents relating thereto (if any) are genuine and in all
respects what they purport to be, and all papers and documents (if any) relating
thereto: (i) represent legal, valid and binding obligations of the respective
Account Debtor, subject to adjustments customary in the business of the
Borrower, with respect to unpaid indebtedness incurred by such Account Debtor in
respect of the performance of labor or services or the sale or lease and
delivery of the merchandise listed therein, or both, (ii) are the only original
writings evidencing and embodying such obligation of the Account Debtor named
therein (other than copies created for general accounting purposes) and are in
compliance with all applicable federal, state and local laws and applicable laws
of any relevant foreign jurisdiction.
ARTICLE V
COVENANTS
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The Borrower agrees that, so long as the Bank has any
Commitment hereunder or any Obligation remains unpaid:
Section 5.01 INFORMATION. The Borrower will deliver or
cause to be delivered to the Bank:
(a) Annual Financial Statements. As soon as available and in
any event within 120 days after the end of each fiscal year of the Borrower, a
consolidated and consolidating balance sheet of the Borrower and all
Consolidated Subsidiaries as of the end of such fiscal year and the related
consolidated and consolidating statements of income and cash flows for such
fiscal year, setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail and accompanied by an opinion
thereon by Coopers & Lybrand or other independent public accountants
satisfactory to the Bank, which opinion shall not be qualified as to the scope
of the audit and which shall state that such consolidated financial statements
present fairly the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of the date of such financial statements and the
results of their operations for the period covered by such financial statements
in conformity with generally accepted accounting principles applied on a
consistent basis (except for changes in the application of which such
accountants concur) and shall not contain any "going concern" or like
qualification or exception or qualification arising out of the scope of the
audit.
(b) Quarterly Financial Statements. As soon as available and
in any event within 50 days after the end of each quarter of each fiscal year of
the Borrower, a consolidated and consolidating balance sheet of the Borrower and
all Consolidated Subsidiaries as of the end of such fiscal quarter (with all
supporting schedules), the related consolidated and consolidating statements of
income and cash flows of the Borrower and all Consolidated Subsidiaries for such
quarter, and a profit and loss statement of the Borrower and its Consolidated
Subsidiaries, setting forth in each case in comparative form the figures for the
corresponding quarter of the Borrower's previous fiscal year, all certified
(subject to normal year-end audit adjustments) as to fairness of presentation,
generally accepted accounting principles and consistency by the chief financial
officer or chief accounting officer of the Borrower.
(c) Officer's Certificate. Simultaneously with the delivery of
each set of financial statements referred to in subsections (a) and (b) above, a
certificate of the chief financial officer or chief accounting officer of the
Borrower, (i) if applicable, setting forth in reasonable detail the calculations
required to establish whether the Borrower was in compliance with the
requirements of Sections 5.12, 5.15, and 5.19 through 5.22, on the date of such
financial statements, (ii) stating whether there exists on the date of such
certificate any Default and, if any Default then exists, setting forth the
details thereof and the action which the Borrower is taking or proposes to take
with respect thereto, and (iii) stating whether, since the date of the most
recent previous delivery of financial statements pursuant to subsections (a) and
(b) of this Section, there has been any material adverse change in the condition
(financial or otherwise), results of operations, properties, assets, business or
prospects of the Borrower or of the Borrower and all Consolidated Subsidiaries,
considered as a whole, and, if so, the nature of such material adverse change.
(d) Accountant's Certificate. Simultaneously with the delivery
of each set of financial statements referred to in subsection (a) above, a
statement of the firm of independent public accountants which reported on such
statements as to whether anything has come to their attention to cause them to
believe that any Default existed on the date of such statements and whether the
Borrower is in compliance with the financial covenants set forth in the Loan
Documents, and confirming the calculations set forth in the officer's
certificate delivered simultaneously therewith pursuant to subsection (c) above.
(e) Borrowing Base Certificate. As soon as available and in
any event within 10 days after the end of each calendar month, a Borrowing Base
Certificate executed by the chief financial officer or chief accounting officer
of each Borrower setting forth the Alcore Borrowing Base and the Lunn Borrowing
Base,
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respectively, as of the last Business Day of such month, each of which
certificates shall include Eligible Accounts, Eligible Inventory, their advance
rates, the then applicable Machinery and Equipment Advance (as reduced that
month), and the aggregate amount of Loans outstanding to each Borrower.
(f) Accounts Receivable, Account Payable Agings and Inventory
Reports. As soon as available and in any event within 10 business days after the
end of each calendar month:
(i) a report listing all Accounts of each Borrower as
of the last Business Day of such month, which report shall
include a detailed listing or the amount and age of each
Account, a summary listing with the name and mailing address
of each Account Debtor, the original date of each invoice, a
reconciliation statement, and such other information as the
Bank may require in order to verify the Eligible Accounts, all
in reasonable detail and in form satisfactory to the Bank;
(ii) a report listing all Inventory of each Borrower
as of the last Business Day of such month, which shall include
the cost and location thereof and such other information as
the Bank may require in order to verify the Eligible Inventory
(including, without limitation, individual values for raw
materials, work-in-progress, finished products and any
inventory obsolescence), all in reasonable detail and in form
satisfactory to the Bank; and
(iii) a report listing all accounts payable of each
Borrower (including a detailed aging of payables by total and
a summary aging of payables by vendor and vendor address, a
reconciliation statement and original invoice dates) in
reasonable detail and in form satisfactory to the Bank.
(g) Default. Forthwith upon the occurrence of any Default, a
certificate of the chief financial officer or chief accounting officer of
the Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto.
(h) Litigation. As soon as reasonably practicable after
obtaining knowledge of the commencement of, or of a material threat of the
commencement of, an action, suit, proceeding or investigation against the
Borrower or any of its Subsidiaries which could materially adversely
affect the condition (financial or otherwise), results of operations,
properties, assets, business or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or could otherwise have
a Material Adverse Effect or which in any manner questions the validity of
this Agreement or any of the other transactions contemplated hereby or
thereby, an explanation of the nature of such pending or threatened
action, suit, proceeding or investigation and such additional information
as may be reasonably requested by the Bank.
(i) Auditors' Management Letters. Promptly upon receipt
thereof, copies of each report submitted to the Borrower or any of its
Consolidated Subsidiaries by independent public accountants in connection
with any annual, interim or special audit made by them of the books of the
Borrower or any of its Consolidated Subsidiaries including, without
limitation, each report submitted to the Borrower or any of its
Consolidated Subsidiaries concerning its accounting practices and systems
and any final comment letter submitted by such accountants to management
in connection with the annual audit of the Borrower and its Consolidated
Subsidiaries.
(j) Tax Returns. Within 30 days after filing, copies of (i)
all federal, state and local income tax returns filed by the Borrower or
any Subsidiary, (ii) all quarterly reports by the Borrower or any
Subsidiary on Form 941 and (iii) all annual FUTA tax returns of the
Borrower or any Subsidiary.
(k) ERISA Matters. If and when any member of the ERISA Group
(i) gives or is required to give notice to the PBGC of any "reportable
event" (as defined in Section 4043 of ERISA) with respect to any Plan
which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the
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<PAGE>
plan administrator of any Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable event
given or required to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or notice
that any Multiemployer Plan is in reorganization, is insolvent or has been
terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies for a
waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment-or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could
reasonably be expected to result in the imposition of a Lien or the
posting of a bond or other security, a certificate of the chief financial
officer or the chief accounting officer of the Borrower setting forth
details as to such occurrence and action, if any, which the Borrower or
applicable member of the ERISA Group is required or proposes to take.
(l) Reports and Proxies. The Borrower shall deliver to the
Bank: (i) prior to or simultaneously with its annual financial statements,
copies of all 10K's, (ii) prior to or simultaneously with its quarterly
financial statements, (A) copies of all 10-Q's, and (B) a current backlog
report, and (iii) promptly following the date of items, copies of all other
financial statements, reports, notices and proxy statements which are sent to
stockholders of the Borrower or its Consolidated Subsidiaries, and all regular
and periodic reports required to be filed by Borrower or its Consolidated
Subsidiaries with any governmental agency or authority.
(m) Environmental Matters. Promptly, upon receipt of any
complaint, order, citation, notice or other written communication from any
Person with respect to, or upon the Borrower's obtaining knowledge of, (i) the
existence or alleged existence of a violation of any applicable Environmental
Law in connection with any property now or previously owned, leased or operated
by the Borrower or any of its Subsidiaries, (ii) any release on such property or
any part thereof in a quantity that is reportable under any applicable
Environmental Law and (iii) any pending or threatened proceeding for the
termination, suspension or non-renewal of any permit required under any
applicable Environmental Law, in each case in which there is a reasonable
likelihood of an adverse decision or determination which could result in a
Material Adverse Effect.
(n) Other Information. From time to time such additional
financial or other information regarding the condition (financial or otherwise),
results of operations, properties, assets, business or prospects of the Borrower
or any of its Subsidiaries as the Bank may reasonably request.
Section 5.02 PAYMENT OF OBLIGATIONS. The Borrower will pay and
discharge, and will cause each of its Subsidiaries to pay and discharge, as the
same shall become due and payable, (i) all their respective obligations and
liabilities, including all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons which, in any such
case, if unpaid, might by law give rise to a Lien upon any of their properties
or assets and (ii) all lawful taxes, assessments and charges or levies made upon
their properties or assets, by any governmental body, agency or official, except
where any of the items in clause (i) or (ii) of this Section 5.02 may be
diligently contested in good faith by appropriate proceedings and the Borrower
or such Subsidiary shall have set aside on its books, if required under
generally accepted accounting principles, appropriate reserves for the accrual
of any such items.
Section 5.03 MAINTENANCE OF PROPERTY; INSURANCE.
(a) Maintenance of Properties. The Borrower will keep, and
will cause each of its Subsidiaries to keep, all property useful and necessary
in their respective businesses in good working order and condition, subject to
ordinary wear and tear.
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<PAGE>
(b) Insurance. The Borrower will maintain, and will cause each
of its Subsidiaries to maintain, insurance with financially sound and
responsible companies in such amounts (and with such risk retentions) and
against such risks as is usually carried by owners of similar businesses and
properties in the same general areas in which the Borrower and its Subsidiaries
operate. The Borrower will deliver to the Bank upon request from time to time
full information as to the insurance carried.
Section 5.04 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE.
The Borrower will continue, and will cause each of its Subsidiaries to continue,
to engage in business of the same general type as now conducted by the Borrower
and its Subsidiaries, and will preserve, renew and keep in full force and
effect, and will cause each of its Subsidiaries to preserve, renew and keep in
full force and effect, their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business; provided that nothing in this Section 5.04 shall prohibit the
merger of a Subsidiary into the Borrower or the merger or consolidation of a
Subsidiary with or into another Person if the corporation surviving such
consolidation or merger is a Subsidiary and if, in each case, after giving
effect thereto, no Default shall have occurred.
Section 5.05 COMPLIANCE WITH LAWS. The Borrower will comply,
and will cause each of its Subsidiaries to comply, with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws, ERISA and the rules and
regulations thereunder) except (i) where the necessity of compliance therewith
is contested in good faith by appropriate proceedings or (ii) where
noncompliance could not reasonably be expected to have a Material Adverse
Effect. Section 5.06 ACCOUNTING; INSPECTION OF PROPERTY, BOOKS AND RECORDS. The
Borrower will keep, and will cause each of its Subsidiaries to keep, proper
books of record and account in which full, true and correct entries in
conformity with generally accepted accounting principles shall be made of all
dealings and transactions in relation to their respective businesses and
activities, will maintain, and will cause each of its Subsidiaries to maintain,
their respective fiscal reporting periods on the present basis and will permit,
and will cause each of its Subsidiaries to permit, representatives of the Bank
to visit and inspect any of their respective properties, to examine and make
copies from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their officers, employees and
independent public accountants, all at such reasonable times and as often as may
reasonably be desired.
Section 5.07 COLLECTION OF ACCOUNTS. The Borrower shall use
its best efforts to cause to be collected from each Account Debtor, as and when
due, any and all amounts owing under or on account of each Account (including,
without limitation, Accounts which are delinquent, such Accounts to be collected
in accordance with lawful collection procedures) and shall apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding balance
of such Account. The Borrower shall not rescind or cancel any indebtedness or
obligation evidenced by any Account, modify, make adjustments to, extend, renew,
compromise or settle any material dispute, claim, suit or legal proceeding
relating to or sell or assign any Account, or interest therein, without the
prior written consent of the Bank, except that, subject to the rights of the
Bank under the Loan Documents, if a Default or an Event of Default shall have
occurred and be continuing, the Borrower may allow in the ordinary course of
business as adjustments to amounts owing under its Accounts (i) an extension or
renewal of the time or times of payment, or settlement for less than the total
unpaid balance, which the Borrower finds appropriate in accordance with sound
business judgment and (ii) a refund or credit due as a result of discounts,
over-billings and miscellaneous credits, all in accordance with the Borrower's
ordinary course of business consistent with its historical collection practices.
The costs and expenses (including, without limitation, attorneys' fees) of
collection, whether incurred by the Borrower or the Bank, shall be borne by the
Borrower.
Section 5.08 NOTIFICATION TO ACCOUNT DEBTORS. Upon the
effectiveness of this Agreement, the Borrower will promptly notify each Account
Debtor in respect of any Account or Instrument that any payments due or to
become due in respect of such Collateral are to be made in the name of the
Borrower to such address and post office box as shall be specified by the Bank.
Except as set forth in Section 3.04 of the Security Agreement, each such payment
shall, upon receipt by the Bank, be deposited in the Operating Account in
accordance with Section 2.08(c). Upon the occurrence of a Default or an Event of
Default, the Borrower will promptly notify (and the Borrower
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hereby authorizes the Bank so to notify) each Account Debtor in respect of any
Account or Instrument that such Collateral has been assigned to the Bank and
that any payments due or to become due in respect of such Collateral are to be
made directly to the Bank in accordance with Section 3.04 of the Security
Agreement.
Section 5.09 RESTRICTION ON LIENS. The Borrower will not, and
will not permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon or with respect to any property or assets of any kind (real
or personal, tangible or intangible) of the Borrower or any such Subsidiary
whether now owned or hereafter acquired, or sell any such property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable or notes with
recourse to the Borrower or any of its Subsidiaries) or assign any right to
receive income, or file or permit the filing of any financing statement under
the Uniform Commercial Code as in effect in any applicable jurisdiction or any
other similar notice of Lien under any similar recording or notice statute;
provided that the provisions of this Section 5.09 shall not prevent the
creation, incurrence, assumption or existence of the following (with such Liens
described below being herein referred to as "Permitted Liens"):
(a) Liens created by the Loan Documents;
(b) other Liens in favor of the Bank;
(c) Liens for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Borrower) have been established;
(d) Liens imposed by law securing the charges, claims, demands or
levies of carriers, warehousemen, mechanics and other like persons which were
incurred in the ordinary course of business which (A) do not in the aggregate
materially detract from the value of the property or assets subject to such Lien
or materially impair the use thereof in the operation of the business of the
Borrower or any Subsidiary or (B) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject to such lien; and
(E) LIENS (OTHER THAN ANY LIENS IMPOSED BY ERISA OR PURSUANT TO ANY
ENVIRONMENTAL LAW) NOT SECURING DEBT OR DERIVATIVES OBLIGATIONS INCURRED OR
DEPOSITS MADE IN THE ORDINARY COURSE OF BUSINESS IN CONNECTION WITH WORKERS'
COMPENSATION, UNEMPLOYMENT INSURANCE AND OTHER TYPES OF SOCIAL SECURITY, OR TO
SECURE THE PERFORMANCE OF TENDERS, STATUTORY OBLIGATIONS, SURETY BONDS (OTHER
THAN APPEAL BONDS), BIDS, LEASES, GOVERNMENT CONTRACTS, PERFORMANCE AND
RETURN-OF-MONEY BONDS AND OTHER SIMILAR OBLIGATIONS INCURRED IN THE ORDINARY
COURSE OF BUSINESS.
The parties acknowledge that Alcore intends (a) to purchase the land
and the building presently being leased by Alcore at 1324 Brass Mill Road,
Belcamp, Maryland, as well certain additional land and equipment, and (b) to
finance such purchase with tax-exempt financing to be provided by the Maryland
Industrial Development Finance Authority ("MIDFA") and either the Bank or
another lender. In the event that such tax-exempt financing is provided by
another lender, the Bank agrees to subordinate its blanket lien covering the
Alcore Equipment to the lien of MIDFA and such other lender with respect to any
new equipment purchased with the proceeds of such tax-exempt financing, provided
that such new equipment is excluded from the Alcore Borrowing Base for purposes
of this Agreement.
Section 5.10 LIMITATION ON GUARANTEES. Neither the Borrower nor any of
its Subsidiaries shall Guarantee any Debt of any Person or Persons.
Section 5.11 NO VOLUNTARY PREPAYMENT OF SUBORDINATED DEBT AND LONG TERM
DEBT. Except as described in Schedule 5.11 attached hereto and made a part
hereof, the Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, redeem, retire, purchase, acquire, defease or otherwise
make any payment in respect of the principal of any Long Term Debt at a date in
advance of its legal obligations to do so.
Section 5.12 CONSOLIDATED CAPITAL EXPENDITURES. Unless previously
approved by the Bank, the
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Borrower will not make any Consolidated Capital Expenditures for any fiscal year
in excess of $2,000,000, excluding Consolidated Capital Expenditures for the
purchase of, and improvements to, the facility currently leased by Alcore and
located at 1324 Brass Mill Road, Belcamp, Maryland.
Section 5.13 CHANGE OF MANAGEMENT. The Borrower will not make any
material change of management.
Section 5.14 INVESTMENTS; LINE OF BUSINESS. Neither the Borrower nor
any Subsidiary will make or acquire any Investment in any Person, exclusive of
loans and advances to employees in the ordinary course of business, which loans
or advances, in the aggregate, at any time in excess of $500,000 outstanding.
Section 5.15 LIMITATION ON DEBT. Unless previously approved by the Bank
in writing, neither Borrower nor any of its Consolidated Subsidiaries shall,
directly or indirectly, become liable for any Consolidated Debt, contingent or
direct, if, giving effect to such additional Debt on a pro forma basis, causes
the aggregate amount of Borrower's Debt, excluding Debt outstanding with the
Bank, to exceed $500,000.
Section 5.16. CHANGE IN FISCAL YEAR. The Borrower shall not, without
the Bank's prior consent, change its fiscal year.
Section 5.17 USE OF PROCEEDS. The proceeds of the Loans made under this
Agreement will be used by the Borrower to (a) finance accounts receivable and
inventory purchases of the Borrower, (b) refinance existing term debt of the
Borrower, (c) finance working capital needs of the Borrower, and (d) satisfy
short-term financing needs for Equipment purchases. No such use of the proceeds
for general corporate purposes will be, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of buying or carrying any "margin
stock" within the meaning of Regulation U.
Section 5.18 TRANSACTIONS WITH OTHER PERSONS. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into any agreement with
any Person whereby any of them shall agree to any restriction on the right of
the Borrower or any of its Subsidiaries to amend or waive any of the provisions
of this Agreement or any other Loan Document.
Section 5.19 CONSOLIDATED CURRENT RATIO. The Consolidated Current
Ratio of Borrower, measured quarterly, shall not be less than 1.00 to 1.00.
Section 5.20 MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Consolidated
Tangible Net Worth, measured quarterly, will at no time be less than $9,800,000.
Section 5.21 CONSOLIDATED DEBT TO CONSOLIDATED TANGIBLE NET WORTH. The
ratio of (i) Consolidated Debt (including Subordinated Debt) to (ii)
Consolidated Tangible Net Worth, will not exceed 1.00 to 1.00, measured
quarterly.
Section 5.22 CONSOLIDATED CASH FLOW COVERAGE RATIO. The Consolidated
Cash Flow Coverage Ratio will not be less than 1.25 to 1.00, measured quarterly.
Section 5.23 CASH MANAGEMENT RELATIONSHIP. Each Borrower will maintain
its cash management accounts with the Bank.
Section 5.24 DEPOSIT RELATIONSHIP. Each Borrower will maintain its
primary depository relationship with the Bank. The parties hereto acknowledge
and agree that Lunn may maintain its payroll account in New York with a
financial institution other than the Lender.
Section 5.25 INDEPENDENCE OF COVENANTS. All covenants contained herein
shall be given independent
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effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that such action or condition would be permitted by an
exception to, or otherwise be within the limitations of another covenant shall
not avoid the occurrence of a Default if such action is taken or condition
exists.
ARTICLE VI
DEFAULTS
Section 6.01 EVENTS OF DEFAULT. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of the Loans
or shall fail to pay any interest on the Loans, any fee or any other amount
payable hereunder or under the Note;
(b) the Borrower shall fail to observe or perform any covenant
contained in Article V (other than those contained in Sections 5.01 through
5.06);
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clauses (i)
or (ii) above) for 30 days after notice thereof has been given to the Borrower
by the Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant hereto or thereto shall prove to have been
incorrect in any material respect when made;
(e) the Borrower or any Subsidiary shall fail to make any payment or
perform any collateralization obligation with respect to any Material Financial
Obligations when due or within any applicable grace period;
(f) the Borrower shall default in the payment or performance of any
term, covenant, agreement or condition in any loan agreement, credit agreement,
note, deed of trust, security agreement, pledge agreement or other contract
securing or evidencing payment of any indebtedness to the Bank or any Affiliate
or Subsidiary of the Bank, other than the Loan.
(g) the Borrower or any Subsidiary shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Subsidiary seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Subsidiary under the federal
Bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $25,000 which it shall have become liable to
pay under Title IV of ERISA; or notice of intent to terminate a
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Material Plan shall be filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or to cause a trustee to be appointed to administer any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could reasonably be expected to cause one or more members of the ERISA
Group to incur a current payment obligation in excess of $25,000;
(j) one or more judgments, orders for the payment of money, writs of
attachment or garnishment against any property or debt due Borrower, or tax lien
against any property or debt of Borrower, in excess of $500,000 in the aggregate
shall be rendered against the Borrower or any Subsidiary of the Borrower and
such judgments or orders shall continue unsatisfied and unstayed for a period of
30 days;
(k) (A) the Bank shall in good faith determine that its prospect of
receiving payment in full of the Obligations then outstanding or its ability to
exercise its rights and remedies hereunder and under the other Loan Documents
has been impaired, (B) an event or condition shall have occurred since the
Effective Date which has or could reasonably be expected to have a Material
Adverse Effect or (C) the Bank shall reasonably suspect that one or more Events
of Default have occurred, and the Borrower, upon 30 days' notice thereof by the
Bank, shall have failed to provide reasonably satisfactory evidence to the Bank
that such Events of Default have not in fact occurred;
then, and in every such event, while such event is continuing, the Bank may (A)
by notice to the Borrower terminate the Commitment and it shall thereupon
terminate, and (B) by notice to the Borrower declare the Loans (together with
accrued interest thereon) to be, and the Loans shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind (except as set forth in clause (A) above), all of which are hereby
waived by the Borrower; provided that in the case of any Default or any Event of
Default specified in clause 6.01(g) or 6.01(h) above with respect to the
Borrower, without any notice to the Borrower or any other act by the Bank, the
Commitment shall thereupon terminate and the Loans (together with accrued
interest and accrued and unpaid fees thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
ARTICLE VII
CHANGE IN CIRCUMSTANCES
Section 7.01 UNAVAILABILITY OF INTEREST RATE. If, at any time, (a) the
Bank shall determine that, by reasons of circumstances affecting foreign
exchange and interbank markets generally, the London Interbank Offered Rate in
the applicable amounts are not being offered to the Bank; or (b)a new, or a
revision in any existing law or interpretation or administration (including
reversals) thereof, by any government authority, central bank or comparable
agency shall make it unlawful or impossible for the Bank to honor its
obligations under this Agreement, (i) the Bank's obligation to make, maintain or
convert into the Adjusted London Interbank Offered Rate shall be suspended; and
(ii) the applicable the Adjusted London Interbank Offered Rate shall immediately
be converted to the Base Rate for the remainder of the applicable interest
period. The Bank shall forthwith give notice thereof to the Borrower, whereupon
until the Bank notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, (i) the obligations of the Bank to make Loans at the
LIBOR-based Rate shall be suspended and (ii) each outstanding Loan shall be
converted into a Base Rate Loan on the date of such determination. Unless the
Borrower notifies the Bank at least two Business Days before the date of any
Loan for which a Notice of Borrowing has previously been given that it elects
not to borrow on such date, such Loan shall instead be made as a Base Rate Loan.
Section 7.02 ILLEGALITY. If, on or after the date of this Agreement,
the adoption of any applicable law,
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rule or regulation, or any change in any applicable law, rule or regulation, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for the Bank to make,
maintain or fund Loans and the Bank shall so notify the Borrower, until the Bank
notifies the Borrower that the circumstances giving rise to such suspension no
longer exist, the obligation of the Bank to make Loans shall be suspended. If
such notice is given, each Loan then outstanding which bears interest at the
LIBOR-based Rate shall be converted immediately to a Base Rate Loan.
Section 7.03 INCREASED COST AND REDUCED RETURN.
(a) Increased Costs. If on or after the date hereof, the adoption of
any applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency:
(i) shall subject the Bank to any tax, duty or other charge
with respect to its Loans, the Note or its obligation to make Loans, or
shall change the basis of taxation of payments to the Bank of the
principal of or interest on its Loans or any other amounts due under
this Agreement in respect of its Loans or its obligation to make Loans
(except for changes in the rate of tax on the overall net income of the
Bank imposed by the jurisdiction in which the Bank's principal
executive office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System, but excluding any
such requirement included in an applicable Euro-Dollar Reserve
Percentage, special deposit, insurance assessment or similar
requirement against assets of, deposits with or for the account of,
letters of credit issued or participated in by, or other credit
extended by, the Bank or shall impose on the Bank or on the United
States market for certificates of deposit or the London interbank
market any other condition affecting its Loans, the Note or its
obligation to make Loans;
and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining any Loan, or to reduce the amount of any sum received or
receivable by the Bank under this Agreement or under the Note with respect
thereto, by an amount deemed by the Bank to be material, then, within 30
Business Days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts, as determined by the Bank in good faith, as will
compensate the Bank for such increased cost or reduction.
(b) Capital Adequacy. If the Bank shall have determined that, after the
date hereof, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of the Bank (or its Parent) as a consequence of the Bank's
obligations hereunder to a level below that which the Bank could have achieved
but for such adoption, change, request or directive (taking into consideration
its policies with respect to capital adequacy) by an amount deemed by the Bank
to be material, then from time to time, within 30 Business Days after demand by
the Bank, the Borrower shall pay to the Bank such additional amount or amounts
as will compensate the Bank (or its Parent) for such reduction.
(c) Notices. The Bank will promptly notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, that will entitle the
Bank to compensation pursuant to this Section. A certificate of the Bank
claiming compensation under this Section and setting forth in reasonable detail
the additional amount or amounts
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to be paid to it hereunder shall be conclusive in the absence of manifest error.
In determining such amount, the Bank may use any reasonable averaging and
attribution methods.
Section 7.04 BASE RATE LOANS SUBSTITUTED FOR AFFECTED LIBOR-BASED
LOANS. If (i) the obligation of the Bank to make or maintain Loans has been
suspended pursuant to Section 7.02 or (ii) the Bank has demanded compensation
under Section 7.03(a) with respect to its Loans and the Borrower shall, by at
least four Business Days' prior notice to the Bank have elected that the
provisions of this Section shall apply, then, unless and until the Bank notifies
the Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer apply:
(a) all Loans shall be Base Rate Loans, and
(b) after each of the Loans, as the case may be, has been
repaid (or converted to a Base Rate Loan), all payments of principal that would
otherwise be applied to repay such Loans shall be applied to repay the Base Rate
Loans instead.
If the Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
cease immediately to constitute a Base Rate Loan and shall thereafter bear
interest in accordance with Section 2.05(a).
ARTICLE VIII
MISCELLANEOUS
Section 8.01 NOTICES. Unless otherwise specified herein, all
notices, requests and other communications to a party hereunder shall be in
writing (including bank wire, telex, facsimile transmission or similar writing)
and shall be given to such party: (i) at its address, facsimile number or telex
number set forth on the signature pages hereof, or (ii) at such other address,
facsimile number or telex number as such party may hereafter specify for the
purpose of communication hereunder by notice to the other party hereto. Each
such notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answer back is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (iii) if given by mail, 72 hours after
such communication is deposited in the mails, certified mail, return receipt
requested, with appropriate first class postage prepaid, addressed as specified
in this Section or (iv) if given by any other means, when delivered at the
address specified in this Section 8.01. Rejection or refusal to accept, or the
inability to deliver because of a changed address of which no notice was given
shall not affect the validity of notice given in accordance with this Section.
Section 8.02 NO WAIVERS. No failure by the Bank to exercise,
no course of dealing with respect to, and no delay in exercising any right,
power or privilege hereunder or under the Note shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided herein shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 8.03 EXPENSES; INDEMNIFICATION.
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(a) Expenses. With the exception of the Bank's legal fees and
expenses incurred in connection with the preparation of the Loan Documents and
the closing of the Line of Credit which shall be paid for by the Bank, the
Borrower shall pay (i) all out-of-pocket expenses of the Bank, including fees
and disbursements of special and local counsel for the Bank, in connection with
the preparation and administration of this Agreement and the other Loan
Documents, any waiver or consent thereunder or any amendment thereof or any
Default or alleged Default thereunder and (ii) if an Event of Default occurs,
all out-of-pocket expenses incurred by the Bank, including (without duplication)
the fees and disbursements of outside counsel, in connection with such Event of
Default and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom.
(b) Indemnity in Respect of Loan Documents. The Borrower
agrees to indemnify the Bank, its affiliates and the respective directors,
officers, trustees, agents and employees of the foregoing (each an "Indemnitee")
and hold each Indemnitee harmless from and against any and all liabilities,
losses, damages, costs and expenses of any kind, including, without limitation,
the reasonable fees and disbursements of counsel, which may be incurred by such
Indemnitee in connection with any investigative, administrative or judicial
proceeding (whether or not such Indemnitee shall be designated a party thereto)
brought or threatened relating to or arising out of this Agreement or any actual
or proposed use of proceeds of Loans hereunder; provided that no Indemnitee
shall have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
(c) Indemnity in Respect of Environmental Liabilities. The
Borrower hereby indemnifies the Bank from and against and agrees to hold each of
them harmless from any and all liabilities, losses, damages, costs and expenses
of any kind (including without limitation reasonable expenses of investigation
by engineers, environmental consultants and similar technical personnel and
reasonable fees and disbursements of counsel) of the Bank arising out of, in
respect of or in connection with any and all violations or alleged violations of
Environmental Laws. Without limiting the generality of the foregoing, the
Borrower hereby waives all rights for contribution or any other rights of
recovery with respect to liabilities, losses, damages, costs and expenses
arising under or related to Environmental Laws that it might have by statute or
otherwise against the Bank.
Section 8.04 AMENDMENTS AND WAIVERS. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Bank.
Section 8.05 SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of the Bank.
Section 8.06 GOVERNING LAW. This Agreement and the Note
shall be governed by and construed in accordance with the laws of the State of
Maryland.
Section 8.07 ARBITRATION; SUBMISSION TO JURISDICTION.
(a) Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement, the Note or any
other Loan Document ("Disputes") between parties to this Agreement shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from loan documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Agreement.
Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
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arbitration hearings shall be conducted in the city in which is located the
office of the Bank identified in Section 8.01 as the place where notices are to
be sent to the Bank. The expedited procedures set forth in Rule 51 et seq. of
the Arbitration Rules shall be applicable to claims of less than $1,000,000. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to
Derivatives Obligations.
(b) Notwithstanding the preceding binding arbitration
provisions, the Bank and the Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. The Bank and the Borrower shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power of
sale granted under any Loan Document or under applicable law or by judicial
foreclosure and sale, including a proceeding to confirm the sale; (ii) all
rights of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal property;
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by
confession of judgment. Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be requested by a party in a
Dispute.
The Borrowers and the Bank agree that they shall not have a
remedy of punitive or exemplary damages against the other in any Dispute and
hereby waive any right or claim to punitive or exemplary damages they have now
or which may arise in the future in connection with any Dispute whether the
Dispute is resolved by arbitration or judicially.
(c) Any legal action or proceeding with respect to this
Agreement, the Note or any other Loan Document or any document related hereto or
thereto may be brought in the courts of the State of Maryland or of the United
States of America for the District of Maryland, and by execution and delivery of
this Agreement the Borrower hereby accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Borrower hereby irrevocably and unconditionally waives any
objection, including without limitation, any objection to the laying of venue or
based on the grounds of the forum non conveniens which it now or hereafter may
have to the bringing of any action or proceeding in such respective
jurisdictions. Service of process in any such case may be had against the
Borrower by delivery in accordance with the notice provisions herein or as
otherwise permitted by law, and the Borrower agrees that such service shall be
valid in all respects for establishing personal jurisdiction over it.
Section 8.08 COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement and the Note constitute the entire agreement
and understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Bank of
counterparts hereof signed by each of the parties hereto.
Section 8.09 CONFIDENTIALITY. The Bank agrees to hold all
non-public information obtained pursuant to the requirements of this Agreement
in accordance with its customary procedure for handling confidential information
of this nature and in accordance with safe and sound banking practices, provided
that nothing herein shall prevent any Bank from disclosing such information (i)
to any other Person if reasonably incidental to the administration of the Loans,
(ii) upon the order of any court or administrative agency, (iii) upon the
request or demand of any regulatory agency or authority, (iv) which had been
publicly disclosed other than as a result of a
- 23 -
<PAGE>
disclosure by the Bank prohibited by this Agreement, (v) in connection with any
litigation to which the Bank or its subsidiaries or parent may be a party, (vi)
to the extent necessary in connection with the exercise of any remedy hereunder
and (vii) to the Bank's legal counsel and independent auditors. The Bank or
Bank's counsel may circulate promotional materials and place advertisements in
financial and other newspapers and periodicals or on a home page or similar
place for dissemination of information on the Internet or worldwide web after
the closing of the transactions contemplated by this Agreement in the form of a
"tombstone" or otherwise describing the name of the Borrower and the amount,
type and closing date of such transactions, all at their sole expense.
Section 8.10 WAIVER OF JURY TRIAL. Each Borrower waives trial
by jury in any action or proceeding to which such Borrower and Lender may be
parties, arising out of, in connection with or in any way pertaining to, this
Agreement, the Note, the Security Agreement or any of the other Loan Documents.
It is agreed and understood that this waiver constitutes a waiver of trial by
jury of all claims against all parties to such action or proceedings, including
claims against parties who are not parties to this Agreement. This waiver is
knowingly, willingly and voluntarily made by each Borrower, and each Borrower
hereby represents that no representations of fact or opinion have been made by
any individual to induce this waiver of trial by jury or to in any way modify or
nullify its effect. Each Borrower further represents and warrants that it has
been represented in the signing of this Agreement and in the making of this
waiver by independent legal counsel, or has had the opportunity to be
represented by independent legal counsel selected of its own free will, and that
it has had the opportunity to discuss this waiver with counsel.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
BORROWER:
LUNN INDUSTRIES, INC.
By:_____________________________(SEAL)
Name: Alan W. Baldwin
Title: Chief Executive Officer and Chairman
1 Garvies Point Road
Glen Cove, New York 11542-2828
Facsimile No.:________________
ALCORE, INC.
By:_____________________________(SEAL)
Name: Edward A. Kiley
Title: President/General Manager
1324 Brass Mill Road
Belcamp, Maryland 21017
Facsimile No.:__________________
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<PAGE>
FIRST UNION NATIONAL BANK OF
MARYLAND
By:_____________________________(SEAL)
Name: Robert Linthicum
Title: Vice President
7 East Baltimore Street, 2nd Floor
Baltimore, Maryland 21202
Attn: Robert Linthicum
Facsimile No.:410-244-1236
- 25 -
<PAGE>
Schedule 4.08
<TABLE>
<CAPTION>
SUBSIDIARIES
PART I
PERCENT OF OUTSTANDING SHARES OF SUBSIDIARY
NAME OF SUBSIDIARY OWNED BY LUNN
- ------------------------------------------------- ------------------------------------------------
<S> <C>
<CAPTION>
PERCENT OF OUTSTANDING SHARES OF SUBSIDIARY
NAME OF SUBSIDIARY OWNED BY ALCORE
- ------------------------------------------------- ------------------------------------------------
PART II
</TABLE>
- 26 -
<PAGE>
Schedule 5.09
<TABLE>
<CAPTION>
BORROWER SECURED PARTY/LESSOR JURISDICTION FILING TYPE FILING NUMBER FILING DATE COLLATERAL DESCRIPTION
- -------- -------------------- ------------ ----------- ------------- ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------- ------------ ------------ -------------- ---------- -----------------------
</TABLE>
- 1 -
<PAGE>
EXHIBIT A
Form of Notice of Borrowing
_____________________, 199_
First Union National Bank of Maryland
1 East Baltimore Street
2nd Floor
Baltimore, Maryland 21202
Attn: Robert Linthicum
Ladies and Gentlemen:
This notice shall constitute a "Notice of Borrowing" pursuant
to Section 2.02(a) of the Credit Agreement dated as of November __, 1996 (the
"Credit Agreement") by and among Lunn Industries, Inc., Alcore, Inc. and First
Union National Bank of Maryland. Capitalized terms not otherwise defined herein
have the meanings ascribed to them in the Credit Agreement.
We hereby represent and warrant that all of the information
set forth in the Borrowing Base Certificate attached hereto and made a part
hereof is true and correct as of the date of this notice.
The date of the Loan will be ________________, _________.
The principal amount of the Loan will be $__________________.
The Borrower of the Loan will be the Borrower whose name is set forth
below.
Transfer Instructions:
[Insert appropriate delivery instructions, which shall include bank and account
number].
[BORROWER NAME]
By:____________________________________
Name:_______________________________
Title:________________________________
- 1 -
<PAGE>
EXHIBIT B
Form of Note
Baltimore, Maryland
November _, 1996
For value received, LUNN INDUSTRIES, INC., a Delaware
corporation, and ALCORE, INC., a Maryland corporation (collectively, the
"Borrower"), jointly and severally promise to pay to the order of FIRST UNION
NATIONAL BANK OF MARYLAND (the "Bank") the unpaid principal amount of each Loan
made by the Bank to the Borrower (and/or either of them) pursuant to the Credit
Agreement referred to below on the maturity date provided for in the Credit
Agreement. The Borrower promises to pay interest on the unpaid principal amount
of each such Loan on the dates and at the rate or rates provided for in the
Credit Agreement. All such payments of principal and interest shall be made in
accordance with the provisions of the Credit Agreement.
All Loans made by the Bank and all repayments of the principal
thereof shall be recorded by the Bank and, if the Bank so elects in connection
with any transfer or enforcement hereof, appropriate notations to evidence the
foregoing information with respect to each Loan then outstanding shall be
endorsed by the Bank on the schedule attached to and made a part hereof;
provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is the Note referred to in the Credit Agreement [of
even date herewith] [dated as of November __, 1996], between the Borrower and
the Bank (as the same may be amended from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the mandatory and
optional prepayment hereof and the acceleration of the maturity hereof.
ATTEST: LUNN INDUSTRIES, INC.
____________________ By __________________________SEAL)
Name: Alan W. Baldwin
Title: Chief Executive Officer and
Chairman
[CORPORATE SEAL]
ALCORE, INC.
___________________ By:__________________________(SEAL)
Name: Edward A. Kiley
Title: President/General Manager
[CORPORATE SEAL]
- 2 -
<PAGE>
<TABLE>
<CAPTION>
LOANS AND PAYMENTS OF PRINCIPAL
Amount of UNPAID
BORROWER AMOUNT OF LOAN Principal PRINCIPAL NOTATION
DATE Repaid BALANCE MADE BY
============= ==================== ===================== ================== =================== ==================
<S> <C> <C> <C> <C> <C>
============= ==================== ===================== ================== =================== ==================
</TABLE>
- 1 -
<PAGE>
First Union National Bank of ___________________
November __, 1996
Page 1
EXHIBIT C
Form of Opinion of Counsel
November __, 1996
First Union National Bank of Maryland
1 East Baltimore Street
2nd Floor
Baltimore, Maryland 21202
Ladies and Gentlemen:
We have acted as counsel for Lunn Industries, Inc., a Delaware
corporation ("Lunn"), and Alcore, Inc., a Maryland corporation (Alcore and Lunn
being herein sometimes collectively called the "Borrower"), in connection with
the Credit Agreement [of even date herewith] [dated as of November __, 1996]
(the "Credit Agreement") between the Borrower and First Union National Bank of
Maryland, a national banking association (the "Bank"). This opinion is being
delivered pursuant to Section 3.01 of the Credit Agreement. Terms defined in the
Credit Agreement and not defined herein are used herein as therein defined.
We have examined (i) executed copies of the Loan Documents,
(ii) unfiled copies of the financing statements on Form UCC-1 (the "Financing
Statements") filed in the offices listed on Schedule I hereto (the "Filing
Jurisdictions") executed by the Borrower, as debtor, in favor of the Bank, (iii)
reports from [SEARCH SERVICE] as to copies of UCC financing statements naming
the Borrower as debtor and of federal tax liens filed against the Borrower that
are on file as set forth therein (the "Search Report") and (iv) originals or
copies, certified or otherwise identified to our satisfaction, of such other
documents, corporate records, certificates of public officials and other
instruments as we have deemed necessary or advisable for purposes of this
opinion.
In rendering the opinions expressed below, we have assumed
(except with respect to the Borrower) (a) the valid existence and good standing
in the jurisdiction of its organization of each of the parties to the Loan
Documents; (b) the due authorization, execution and delivery of the Loan
Documents by the parties thereto, (c) the corporate or partnership power and
authority, as applicable, of each party to the Loan Documents to execute,
deliver and perform the same, and that such execution, delivery and performance
does not violate its certificate or articles of incorporation, bylaws or
partnership agreement, as applicable, or any law or governmental rule or
regulation applicable to it, (d) the genuineness of all signatures and the
authority of all persons signing each of the Loan Documents on behalf of the
parties thereto, (e) that each of the Loan Documents constitutes the legal,
valid and binding obligation of each party to such Loan Document and is
enforceable against each such party in accordance with its terms and (f) the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies. As to
certain factual matters we have, to the extent deemed appropriate by us, relied
upon certificates of officers of the Borrower and the representations made by
the Borrower in the Loan Documents to which it is a party.
Based upon the foregoing, we are of the opinion that:
1. Lunn is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, has all corporate
powers required to carry on its business as now conducted and is duly qualified
as a foreign corporation in each jurisdiction where qualification or licensing
is required by the nature of its
- 1 -
<PAGE>
First Union National Bank of ___________________
November __, 1996
Page 2
business or the character and location of its property, business or customers
and in which the failure so to qualify or be licensed, as the case may be, in
the aggregate, could have a material adverse effect on its business, financial
position, results of operations or properties.
2. Alcore is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Maryland, has all corporate
powers required to carry on its business as now conducted and is duly qualified
as a foreign corporation in each jurisdiction where qualification or licensing
is required by the nature of its business or the character and location of its
property, business or customers and in which the failure so to qualify or be
licensed, as the case may be, in the aggregate, could have a material adverse
effect on its business, financial position, results of operations or properties.
3. The execution, delivery and performance by the Borrower of
the Loan Documents to which it is a party are within its corporate power and
have been duly authorized by all necessary corporate action of the Borrower.
Each Borrower has duly executed and delivered the Loan Documents to which it is
a party. Each Loan Document is a valid and binding agreement or obligation of
each Borrower which is a party thereto, in each case enforceable against such
Borrower in accordance with its terms, except (i) as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights generally and by equitable
principles of general applicability (regardless of whether such enforceability
is considered in a proceeding in equity or at law), (ii) that certain of the
remedial provisions in the Security Agreement may be limited by applicable law,
although such limitations do not in our opinion make the remedies provided for
therein inadequate for the practical realization of the principal benefit
intended to be afforded thereby, and (iii) that provisions of the Loan Documents
which permit the Bank to take action or make determinations or to require
payments under indemnity and similar provisions may be subject to a requirement
that such action be taken or such determination be made on a reasonable basis
and in good faith and that any action or omission to act in respect of which
such payment is so required be reasonable and in good faith.
4. The execution, delivery and performance by each Borrower of
the Loan Documents to which it is a party (i) require no action by or in respect
of, or filing with, any governmental body, agency or official (other than the
filings referred to in paragraph 8 of this opinion); (ii) do not contravene or
constitute (with or without the giving of notice or lapse of time or both) a
default under (A) any provision of applicable law or regulation or, to the best
of our knowledge, (B) any material indenture, mortgage, deed of trust, credit
agreement, loan agreement or other material agreement relating to indebtedness
known to us binding upon any Borrower or (C) any judgment, injunction, order,
decree or other instrument known to us binding upon any Borrower; and (iii) do
not result in the creation or imposition of any Lien (other than the Liens of
the Loan Documents) on any asset of any Borrower. The execution, delivery and
performance by the Borrower of the Loan Documents to which it is a party do not
contravene any provision of the articles of incorporation or by-laws of the
Borrower.
5. To the best of our knowledge, there is no action, suit,
proceeding or arbitration pending or threatened against the Borrower before any
court or arbitrator or any governmental body, agency or official in which there
is a reasonable possibility of an adverse decision which could materially and
adversely affect the business, financial position, results of operations or
properties of the Borrower or which in any manner questions the validity of any
Loan Document.
6. The Security Agreement creates security interests in favor
of the Bank, as security for the Loans, the Note and all other Obligations, in
such of the collateral purported to be covered thereby in which a security
interest may be created under Article 9 of the Uniform Commercial Code as in
effect in the State of Maryland (the "Article 9 Collateral"), except that the
Security Agreement will create such security interests in property in which the
Borrower has no present rights only when the Borrower acquires rights therein.
- 2 -
<PAGE>
First Union National Bank of ___________________
November __, 1996
Page 3
7. (a) The Financing Statements have been duly filed in all of
the Filing Jurisdictions. Accordingly, the security interests of the Bank in all
right, title and interest of the Borrower in the Article 9 Collateral (the
"Security Interests") have been (or when the Borrower acquires rights therein
will be) perfected under the UCC to the extent that the perfection of a security
interest under Article 9 of the UCC is achieved by the filing of a financing
statement, and no further filing or recording of any document or instrument or
other action will be required to perfect the Security Interests of the Bank
under the UCC, except that: (i) continuation statements with respect to each
Financing Statement must be filed within the respective time periods provided in
Schedule I hereto; (ii) additional filings may be necessary if the Borrower
changes its name, identity or corporate structure or the jurisdictions in which
its chief executive office or the Article 9 Collateral are located; (iii) in the
case of Collateral consisting of proceeds, perfection and the continuation of
perfection of the Security Interests therein is limited to the extent set forth
in Section 9-306 of the UCC and (iv) in the case of property which becomes part
of the Collateral after the date hereof, Section 552 of the federal Bankruptcy
Code limits the extent to which property acquired by the debtor after the
commencement of a case under the Bankruptcy Code may be subject to a security
interest arising from a security agreement entered into by the debtor before the
commencement of such case.
(b) As of each of the dates specified in the Search Report,
there were no
(i) UCC financing statements naming the Borrower as debtor or
seller and covering any of the Article 9 Collateral,
(ii) notices of the filing of any federal tax lien (filed
pursuant to Section 6323 of the Code) or any lien of the PBGC (filed pursuant to
Section 4068 of ERISA) covering any of the Collateral, or
(iii) judgment liens covering any of the Collateral
listed in the available records in any Filing Jurisdiction, except as set forth
therein, and the Filing Jurisdictions are all of the offices (i) prescribed
under the UCC as offices in which filings should be made to perfect security
interests in the Article 9 Collateral which are perfected by filing, and (ii)
having files which must be searched in order to determine fully the existence of
notices of the filing of federal tax liens (filed pursuant to Schedule 6323 of
the Code) liens of the PBGC (filed pursuant to Section 4068 of ERISA) or
judgment liens on the Collateral.
The opinions herein expressed are limited in all respects
solely to the matters governed by the internal laws of the State of Maryland and
the federal laws of the United States of America. Insofar as the matters covered
in this opinion pertaining to Articles 8 or 9 of the UCC are governed by the
laws of any State other than the State of Maryland, we have based our opinions
with regard thereto on our review of unofficial compilations of the UCC as in
effect therein as reported by the [West Publishing Company], and we have
otherwise assumed without independent investigation that the laws of each such
State are in all relevant aspects identical to the laws of the State of
Maryland.
This opinion is issued solely for your benefit, and is not to
be relied upon by any other entity.
Very truly yours,
- 3 -
<PAGE>
DEFINITIONS APPENDIX
The definitions set forth in this Definitions Appendix are
incorporated by reference into Section 1.01 of the Credit Agreement dated as of
November __, 1996, by and among Lunn Industries, Inc., a Delaware corporation,
and Alcore Inc., a Delaware corporation, and First Union National Bank of
Maryland, national banking association (as the same may be amended, modified or
supplemented from time to time, the "Credit Agreement"). Reference in this
Definitions Appendix to "this Agreement", "herein", "hereof", "hereunder" and to
any Article or Section shall be interpreted to mean the Credit Agreement and the
referenced Article or Section, including this Definitions Appendix.
"ACCOUNTS" means all "accounts" (as defined in the UCC) now
owned or hereafter acquired by the Borrower, and shall also mean and include all
accounts receivable, contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to the Borrower arising from the sale, lease
or exchange of goods or other property by it and/or the performance of services
by it (including, without limitation, any such obligation which might be
characterized as an account, contract right or general intangible under the
Uniform Commercial Code in effect in any jurisdiction) and all of the Borrower's
rights in, to and under all purchase orders for goods, services or other
property, and all of the Borrower's rights to any goods, services or other
property represented by any of the foregoing (including returned or repossessed
goods and unpaid seller's rights of rescission, replevin, reclamation and rights
to stoppage in transit) and all monies due to or to become due to the Borrower
under all contracts for the sale, lease or exchange of goods or other property
and/or the performance of services by it (whether or not yet earned by
performance on the part of the Borrower), in each case whether now in existence
or hereafter arising or acquired 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.
"ACCOUNT DEBTOR" means, with respect to any Account, Document,
Instrument or General Intangible, any Person obligated to make payment
thereunder, including, without limitation, any account debtor thereon.
"ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning
set forth in Section 2.05(a).
"AFFILIATE" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Borrower (a "Controlling
Person") or (ii) any Person (other than the Borrower or a Subsidiary) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"AGREEMENT" means this Credit Agreement, as it may be amended,
modified or supplemented from time to time.
"ALCORE" means Alcore Inc., a Delaware corporation, and its
Consolidated Subsidiaries and Affiliates.
"ALCORE BORROWING BASE" means at any date an amount equal to
(i) eighty-five percent (85%) of the aggregate Net Unpaid Balance of all
Eligible Accounts of Alcore; plus (ii) the lesser of $1,750,000 or fifty percent
(50%) of the value of all Eligible Inventory of Alcore; plus (iii) the then
applicable Alcore Machinery and Equipment Borrowing Base, minus (iv) the
Liquidation Reserve.
"ALCORE MACHINERY AND EQUIPMENT BORROWING BASE" means the
maximum amount under the Alcore Borrowing Base which may be advanced against
Alcore's Machinery and Equipment from time to time, which amount shall equal
$1,072,000 on the Closing Date, but which amount will be automatically and
permanently reduced by $17,867 each month commencing on the first day of the
second month immediately following the Closing Date, and continuing on the first
day of each month thereafter.
- 1 -
<PAGE>
"ALCORE OPERATING ACCOUNT" means the demand deposit account
maintained with the Bank by Alcore on which Alcore draws checks to pay its
operating expenses.
"ALCORE SUBLIMIT" means $4,500,000, the maximum amount of
Loans that may be advanced to Alcore on the basis of the Alcore Borrowing Base.
"ASSIGNED AGREEMENTS" means those contracts and agreements of
the Borrower identified in or pursuant to Section 7 of the Perfection
Certificate, as the same may be amended, modified or supplemented from time to
time.
"AVAILABLE BALANCE" means at any time, (i) without
duplication, all funds on deposit in an Operating Account on such day which the
Bank, in accordance with its standard practices for posting of debits and
credits to demand deposit accounts of a type similar to such Operating Account,
deems to be collected funds, including, without limitation, all wire transfers
credited to such Operating Account at such time and all other Federal or other
immediately available funds on deposit in or deposited into such Operating
Account at such time less (ii) the sum of (A) all interest, fees and other
Obligations not constituting principal of the Loans which Obligations are due
and payable at such time and (B) all Items deducted from such Operating Account
at such time.
"BANK" means First Union National Bank of Maryland, a national
banking association, and its successors and assigns.
"BASE RATE" has the meaning set forth in Section 2.05(c).
"BASE RATE LOAN" means a Loan which bears interest at the Base
Rate pursuant to Section 2.05(c).
"BENEFIT ARRANGEMENT" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"BORROWER" means, collectively, Lunn and Alcore, and
individually, each of Lunn and Alcore, and their respective successors.
"BORROWING BASE" means, collectively, the Alcore Borrowing
Base and the Lunn Borrowing Base.
"BORROWING BASE CERTIFICATE" means a certificate of Lunn or
Alcore in a form satisfactory to the Bank containing a computation of its
applicable Borrowing Base.
"BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in Maryland are authorized by law to close.
"CAPITAL LEASE" means any lease of property which, in
accordance with generally accepted accounting principles, should be capitalized
on the lessee's balance sheet.
"CASH EQUIVALENTS" means (i) direct obligations of the United
States or any agency thereof, or obligations guaranteed by the United States of
any agency thereof, (ii) commercial paper rated in the highest grade by a
nationally recognized credit rating agency or (iii) time deposits with,
including certificates of deposit issued by, any office located in the United
States of any bank or trust company which is organized under the laws of the
United States or any state thereof and has capital, surplus and undivided
profits aggregating at least $250,000,000; provided, in each case that such
investment matures within one year from the date of acquisition thereof by the
Borrower.
"CASH PROCEEDS ACCOUNTS" has the meaning set forth in Section
3.04 of the Security Agreement.
- 2 -
<PAGE>
"CLOSING DATE" means the date not later than November __, 1996
on which the Bank determines that the conditions specified in or pursuant to
Section 3.01 have been satisfied.
"COLLATERAL" means all right, title and interest of the
Borrower in the following, whether now owned or existing or hereafter acquired,
created or arising, whether tangible or intangible, and regardless of where
located:
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
(iv) Documents;
(v) Instruments;
(vi) Equipment;
(vii) Assigned Agreements;
(viii) the Collateral Accounts, all cash deposited
therein from time to time, the Liquid Investments made pursuant to
Section 3.04 of the Security Agreement and other monies and property
(including deposit accounts) of any kind of the Borrower maintained
with or in the possession or under the control of the Bank;
(ix) all books and records (including, without
limitation, customer lists, credit files, computer programs, printouts and
other computer materials and records) of the Borrower pertaining to any of the
Collateral; and
(x) all Proceeds of all or any of the
Collateral described in clauses (i) through (ix) above.
"COLLATERAL ACCOUNTS" means the Cash Proceeds Accounts, the
Operating Accounts and the Insurance Account.
"COMMITMENT" means $6,000,000, as such amount may be increased
or decreased pursuant to this Agreement.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the
additions to property, plant and equipment and other capital expenditures of the
Borrower and its Consolidated Subsidiaries for such period (including, without
limitation, gross leases to be capitalized under generally accepted accounting
principles and leasehold improvements), as the same are or would be set forth in
a consolidated statement of cash flows of the Borrower and its Consolidated
Subsidiaries for such period, but excluding (to the extent that they would
otherwise be included) any such expenditures made for the replacement or
restoration of assets to the extent financed by condemnation awards or proceeds
of insurance received with respect to the loss or taking of or damage to the
asset or assets being replaced or restored.
"CONSOLIDATED CASH FLOW COVERAGE RATIO" means the sum of net
profit, taxes, interest expenses, depreciation and amortization divided by
the sum of all current maturities of long term debt and capital lease
obligations and interest expense of the Borrower and its Consolidated
Subsidiaries.
"CONSOLIDATED CURRENT ASSETS" means the aggregate amount of
all assets of the Borrower and its
- 3 -
<PAGE>
Consolidated Subsidiaries which would, in accordance with generally accepted
accounting principles, be defined as current assets.
"CONSOLIDATED CURRENT LIABILITIES" means the aggregate amount
of all current liabilities of the Borrower and its Consolidated Subsidiaries, as
determined in accordance with generally accepted accounting principles, but in
any event shall include all liabilities except those having a maturity date
which is more than one (1) year from the date as of which such computation is
being made.
"CONSOLIDATED CURRENT RATIO" means the ratio of Consolidated
Current Assets divided by Consolidated Current Liabilities.
"CONSOLIDATED DEBT" means at any date the Debt of the Borrower
and its Consolidated Subsidiaries, determined on a consolidated basis as of such
date.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the
total interest expense (including, without limitation, that attributable to
Capital Leases, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net costs in
respect of Derivatives Obligations) of the Borrower and its Consolidated
Subsidiaries determined on a consolidated basis for such period.
"CONSOLIDATED NET INCOME" means, for any period, the net
income (or net loss) of the Borrower and its Consolidated Subsidiaries,
determined on a consolidated basis for such period.
"CONSOLIDATED SUBSIDIARY" means with respect to any Person at
any date, any Subsidiary of such Person or other entity, the accounts of which
would be consolidated with those of such Person in its consolidated financial
statements if such statements were prepared as of such date in accordance with
generally accepted accounting principles.
"CONSOLIDATED TANGIBLE NET WORTH" means at any date total
assets (less Intangible Assets) minus total liabilities (including Subordinated
Debt) of the Borrower and its Consolidated Subsidiaries. For purposes of this
definition, "Intangible Assets" means all intangible assets of the Borrower,
including, without limitation, goodwill, franchises, patents, licenses,
trademarks, copyrights, service marks, advances to Affiliates and related
parties, trade names and brand names.
"DEBT" of any Person means, at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services (other than trade accounts payable arising in the ordinary
course of business), (iv) all obligations of such Person as lessee under Capital
Leases, (v) all obligations of such Person to purchase securities or other
property which arise out of or in connection with the sale of the same or
substantially similar securities or property, (vi) all non-contingent
obligations (and, for purposes of Section 5.09 and the definitions of Material
Debt and Material Financial Obligations, all contingent obligations) of such
Person to reimburse any bank or other person in respect of amounts paid under a
letter of credit, bankers' acceptance or similar instrument, (vii) all
obligations of others secured by a Lien on any asset of such Person, whether or
not such obligation is assumed by such Person and (viii) all obligations of
others Guaranteed by such Person.
"DEFAULT" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"DERIVATIVES OBLIGATIONS" of any Person means all obligations
of such Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
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<PAGE>
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"DIVIDEND" has the meaning set forth in Section 5.15.
"DOCUMENTS" means all "documents" (as defined in the UCC) or
other receipts covering, evidencing or representing goods, now owned or
hereafter acquired by the Borrower.
"DOLLARS" and the sign "$" means lawful money of the United
States of America.
"EFFECTIVE DATE" means the date this Agreement becomes
effective in accordance with Section 8.08.
"ELIGIBLE ACCOUNTS" means all billed Accounts for goods
delivered or services rendered owing to the Borrower, excluding:
(i) Accounts arising out of sales that are not
in the ordinary course of the business of the Borrower;
(ii) Accounts on terms other than those normal
or customary in the business of the Borrower;
(iii) Accounts owing from any person that is an
Affiliate of the Borrower unless arising in the ordinary course of
business conducted on an arm's-length basis;
(iv) Domestic accounts which are outstanding
more than 90 days past the original invoice date with respect thereto;
(v) Foreign accounts (i.e., accounts generated
by account debtors outside the United States) which are outstanding
more than 120 days past the original invoice date with respect
thereto;
(vi) Accounts of any (A) domestic Account Debtor if
50% or more of the Accounts of any such domestic Account Debtor are
more than 90 days past original invoice date with respect thereto, or
(B) any foreign Account Debtor if 50% or more of the Accounts of any
such foreign Account Debtor are more than 120 days past the original
invoice date, with respect thereto;
(vii) Accounts the liability for which has been
disputed by the Account Debtor;
(viii) Accounts owing from any Person that shall
take or be the subject of any action or proceeding;
(ix) Accounts owing from any Person that is also
a supplier to or creditor of the Borrower;
(x) Accounts arising out of sales to Account Debtors
outside the United States, unless the account is (A) fully backed by an
irrevocable letter of credit containing terms acceptable to the Bank
issued by a financial institution satisfactory to the Bank or by credit
insurance in form substance satisfactory to the Bank, in either case
naming the Bank as beneficiary, and (B) on terms acceptable to the
Bank;
(xi) Accounts arising out of sales on a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval or
consignment basis or subject to any right of return, set-off or
charge-back;
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<PAGE>
(xii) Accounts owing from an Account Debtor that is
an agency, department or instrumentality of the United States or any
state governmental authority in the United States unless the Borrower
shall have satisfied the requirements of the Assignment of Claims Act
of 1940, as amended, and any similar state legislation in respect
thereof and the Bank is satisfied as to the absence of set-offs,
counterclaims and other defenses to payment on the part of the United
States or such state governmental authority;
(xiii) Accounts representing billings in excess of
costs and earnings and retainage;
(xiv) Accounts in respect of which the Security
Agreement does not or has ceased to create a valid and perfected first
priority Lien in favor of the Bank, subject only to Permitted Liens;
and
(x) That portion of any Account which, when
aggregated with all of the Accounts of that Account Debtor, exceeds 20%
of the then aggregate of Eligible Accounts, unless the long-term senior
debt of that Account Debtor has received a rating of at least BBB-minus
from Standard and Poor's rating agency; and
(xi) Any other Accounts, the validity,
collectibility or amount of which is determined in good faith by the
Borrower or the Bank to be doubtful.
"ELIGIBLE INVENTORY" means (i) all aluminum coil, metallic and
non-metallic block Inventory in the possession of Alcore, and (ii) in the sole
discretion of the Bank after review of a field audit, raw materials of Lunn
excluding adhesives, in each case valued at the lower of cost or fair market
value on a first-in, first-out basis, as to which the Bank has a first priority
perfected security interest subject only to Permitted Liens, of a kind usually
and customarily sold by the Borrower and which is not, because of damage, age,
unmerchantability, obsolescence or any other condition or circumstance,
materially impaired in condition, value or marketability in the good faith
opinion of the Bank, excluding any inventory reserve, as determined by the Bank
in its sole discretion.
"ENVIRONMENTAL LAWS" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"EQUIPMENT" means all "equipment" (as defined in the UCC) now
owned or hereafter acquired by the Borrower, including all items of machinery,
equipment, furnishings and fixtures of every kind, whether affixed to real
property or not, as well as all motor vehicles, automobiles, trucks, trailers,
railcars, barges and vehicles of every description, trailers, handling and
delivery equipment, all additions to, substitutions for, replacements of or
accessions to any of the foregoing, all attachments, components, parts
(including spare parts) and accessories whether installed thereon or affixed
thereto and all fuel for any thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA GROUP" means the Borrower, any Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower or any Subsidiary, are treated as a single employer under Section 414
of the Internal Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Business Day on which
commercial banks are open for
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<PAGE>
international business (including dealings in Dollar deposits) in London.
"EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in
Section 2.05(a).
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"FYE" and "FQE" mean fiscal year end and fiscal quarter end,
respectively, and when used in conjunction with a particular month mean the date
of ending of the relevant fiscal period nearest the last day of such month.
"GENERAL INTANGIBLES" means all "general intangibles" (as
defined in the UCC) now owned or hereafter acquired by the Borrower, including,
without limitation, (i) all obligations and indebtedness owing to the Borrower
(other than Accounts), from whatever source arising, (ii) all patents,
trademarks, copyrights, licenses, rights in intellectual property, goodwill,
trade names, service marks, trade secrets, confidential or proprietary technical
and business information, know-how, show-how, software, customer lists,
subscription lists, data bases and related documentation, registration,
franchises and all other intellectual or other similar property rights, (iii)
all rights or claims in respect of refunds for taxes paid, (iv) all rights in
respect of any pension plans or similar arrangements maintained for employees of
the Borrower or any member of the ERISA Group and (v) all "uncertificated
securities" (as defined in the UCC).
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic
or otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"INDEMNITEE" has the meaning set forth in Section 8.03(b).
"INSTRUMENTS" means all "instruments" (as defined in Article 9
of the UCC), "chattel paper" and "certificated securities" (each as defined in
the UCC) or "letters of credit" (as defined in Article 9 of the UCC) evidencing,
representing, arising from or existing in respect of, relating to, securing or
otherwise supporting the payment of, any of the Accounts or General Intangibles,
including (but not limited to) promissory notes, drafts, bills of exchange and
trade acceptances, now owned or hereafter acquired by the Borrower.
"INSURANCE ACCOUNT" has the meaning set forth in Section
3.03(a) of the Security Agreement.
"INSURANCE PROCEEDS" has the meaning set forth in
Section 3.03(a) of the Security Agreement.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"INVENTORY" means all "inventory" (as defined in the UCC) now
owned or hereafter acquired by the Borrower, wherever located, and shall also
mean and include, without limitation, all raw materials and other materials
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<PAGE>
and supplies, work-in-process and finished goods and any products made or
processed therefrom and all substances, if any, commingled therewith or added
thereto.
"INVESTMENT" means any investment in any Person, whether by
means of share purchase, capital contribution, loan, time deposit or otherwise.
"ITEM" means any "item" as defined in Section 4-104 of the
UCC, and shall also mean and include checks, drafts, money orders or other media
of payment.
"LIBOR-BASED RATE" has the meaning set forth in
Section 2.05(a).
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<PAGE>
"LICENSE" means (i) with respect to any Patent, any agreement
now or hereafter in existence granting to the Borrower, or pursuant to which the
Borrower has granted to any other Person, any right with respect to any Patent
or any invention now or hereafter in existence, whether patentable or not,
whether a Patent or application for Patent is in existence on such invention or
not, and whether a Patent or application for Patent on such invention may come
into existence, and (ii) with respect to any Trademark, any agreement now or
hereafter in existence granting to the Borrower, or pursuant to which the
Borrower has granted to any other Person, any right to use any Trademark (in
each case exclusive of license agreements entered into after the date hereof
which by their terms prohibit assignment or a grant of a security interest by
the Borrower as licensee thereunder); provided that rights to payments under any
such license shall be included in the Collateral to the extent permitted thereby
or by Section 9-318 of the UCC.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.
"LINE OF CREDIT" means the revolving credit facility extended
by the Bank to the Borrower under which one or more Loans may be made pursuant
to the terms and conditions of the Loan Documents.
"LIQUID INVESTMENTS" has the meaning set forth in
Section 3.03(c) of the Security Agreement.
"Liquidation Reserve has the meaning set forth in Insert A
attached hereto and made a part hereof.
"LOAN" means a loan made pursuant to Section 2.01.
"LOAN DOCUMENTS" means the Credit Agreement, the Note, the
Security Agreement and any and all other documents or instruments executed and
delivered by Borrower to evidence, secure, or in connection with, the Loans,
collectively, and "Loan Document" means any of them.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in
Section 2.05(a).
"LONG TERM DEBT" means liabilities with maturity dates greater
than one (1) year from the date as of which such computation in being made. For
purposes of calculating the financial covenants described herein, the Borrower
shall at all times characterize the Line of Credit and the Loans as Long Term
Debt
"LUNN" means Lunn Industries, Inc., a Delaware corporation,
and its Consolidated Subsidiaries and Affiliates.
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<PAGE>
"LUNN BORROWING BASE" means at any date the sum of (i)
eighty-five percent (85%) of the aggregate Net Unpaid Balance of all Eligible
Accounts of Lunn; plus (ii) the lesser of $250,000 or fifty percent (50 %) of
the value of all Eligible Inventory of Lunn; plus (iii) the then applicable Lunn
Machinery and Equipment Borrowing Base.
"LUNN MACHINERY AND EQUIPMENT BORROWING BASE" means the
maximum amount under the Lunn Borrowing Base which may be advanced against
Lunn's Machinery and Equipment from time to time, which amount shall equal
$600,000 on the Closing Date, but which amount will be automatically and
permanently reduced by $10,000 each month commencing on the first day of the
second month immediately following the Closing Date, and continuing on the first
day of each month thereafter.
"LUNN OPERATING ACCOUNT" means the demand deposit account
maintained with the Bank by Lunn on which Lunn draws checks to pay its operating
expenses.
"LUNN SUBLIMIT" means $1,500,000, the maximum amount of Loans
that may be advanced to Lunn on the basis of the Lunn Borrowing Base.
"MATERIAL ADVERSE EFFECT" means (i) any material adverse
effect upon the condition (financial or otherwise), results of operations,
properties, assets, business or prospects of the Borrower or of the Borrower and
its Consolidated Subsidiaries, taken as a whole; (ii) a material adverse effect
on the ability of the Borrower to consummate the transactions contemplated
hereby to occur on the Closing Date; (iii) a material adverse effect on the
ability of the Borrower to perform its obligations under this Agreement and the
Note or (iv) a material adverse effect on the rights and remedies of the Bank
under this Agreement and the Note.
"MATERIAL DEBT" means Debt (other than the Notes) of the
Borrower and/or one or more of its Subsidiaries, arising in one or more related
or unrelated transactions, in an aggregate principal or face amount exceeding
$10,000.
"MATERIAL FINANCIAL OBLIGATIONS" means a principal or face
amount of Debt and/or payment obligations in respect of Derivatives Obligations
of the Borrower and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, exceeding in the aggregate $250,000.
"MATERIAL PLAN" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $25,000.
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<PAGE>
"MOODY'S" means Moody's Investors Service, a Delaware
corporation, and its successors or, absent any successor, such nationally
recognized statistical rating organization as the Borrower and the Bank may
select.
"MULTIEMPLOYER PLAN" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
"NET UNPAID BALANCE" means at any date the unpaid balance of
an Eligible Account at such date not including any unearned finance charges,
late payment charges or other charges, or any extension, service or collection
fees in respect thereof.
"NOTE" means a promissory note of the Borrower, substantially
in the form of Exhibit B hereto, evidencing the obligation of the Borrower to
repay the Loans.
"NOTICE OF BORROWING" means a Notice of Borrowing (as defined
in Section 2.02(a)).
"OBLIGATIONS" means:
(i) all principal of and interest (including, without
limitation, any interest which accrues after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency
or reorganization of the Borrower, whether or not allowed or allowable
as a claim in any such proceeding) on any loan, fees payable or
reimbursement obligation under, or any note issued pursuant to, this
Agreement or any other Loan Document;
(ii) all other amounts now or hereafter payable by
the Borrower and all other obligations or liabilities now existing or
hereafter arising or incurred (including, without limitation, any
amounts which accrue after the commencement of any case, proceeding or
other action relating to the bankruptcy, insolvency or reorganization
of the Borrower, whether or not allowed or allowable as a claim in any
such proceeding) on the part of the Borrower pursuant to this Agreement
or any other Loan Document;
(iii) all Derivatives Obligations (including, without
limitation, any amounts which accrue after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency
or reorganization of the Borrower, whether or not allowed or allowable
as a claim in any such proceeding) of the Borrower to the Bank;
(iv) all other indebtedness, obligations and
liabilities of the Borrower to the Bank, now existing or hereafter
arising or incurred, whether or not evidenced by notes or other
instruments, and whether such indebtedness, obligations and liabilities
are direct or indirect, fixed or contingent, liquidated or
unliquidated, due or to become due, secured or unsecured, joint,
several or joint and several, related or unrelated to the Loans,
similar or dissimilar to the indebtedness arising out of or in
connection with the Credit Agreement or of the same or a different
class of indebtedness as the indebtedness arising out of or in
connection with the Credit Agreement, including, without limitation,
any overdrafts in any deposit accounts maintained by the Borrower with
the Bank, all obligations of the Borrower with respect to letters of
credit, if any, issued by the Bank for the account of the Borrower any
indebtedness of the Borrower that is purchased by or assigned to the
Bank;
together in each case with all renewals, modifications, consolidations or
extensions thereof.
"OPERATING ACCOUNTS" means, collectively, the Alcore Operating
Account and the Lunn Operating
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<PAGE>
Account.
"PARENT" means, with respect to the Bank, any Person
controlling the Bank.
"PATENTS" means all of the following:
(i) all letters patent and design letters patent of
the United States or any other country, all applications for letters
patent and design letters patent of the United States or any other
country including, without limitation, 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
political subdivision thereof;
(ii) all reissues, divisions, continuations,
continuations-in-part, renewals or extensions thereof;
(iii) all claims for, and rights to sue for, past
or future infringement of any of the foregoing; and
(iv) all income, royalties, damages and payments
now or hereafter due or payable with respect to any of the foregoing, including,
without limitation, damages and payments for past or future infringements
thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERFECTION CERTIFICATE" means a certificate, substantially in
the form of Exhibit A to the Security Agreement, completed and supplemented with
the schedules and attachments contemplated thereby to the satisfaction of the
Bank, and duly executed by the chief executive officer and the chief legal
officer of the Borrower.
"PERMITTED LIENS" means the Security Interests and the other
Liens on the Collateral permitted to be created, to be assumed or to exist
pursuant to Section 5.09.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
"PRIME RATE" has the meaning set forth in Section 2.05(c).
"PRINCIPAL" means any general partner of, or the holder of
any majority ownership interest in any Borrower.
"PROCEEDS" means all proceeds of, and all other profits,
products, rents or receipts, in whatever form, arising from the collection,
sale, lease, exchange, assignment, licensing or other disposition of or other
realization upon or payment for the use of, Collateral, including (without
limitation) all claims of the Borrower against third parties for loss of, damage
to or destruction of, or for proceeds payable under, or unearned premiums with
respect to, policies of insurance in respect of, any Collateral, and any
condemnation or requisition payments with respect to any Collateral, in each
case whether now existing or hereafter arising.
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<PAGE>
"QUARTERLY DATE" means the first Business Day of each January,
April, July and October.
"REGULATION U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"REVOLVING CREDIT PERIOD" means the period from and including
the Closing Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., a New York corporation, and its successors or, absent of any
successor, such nationally recognized statistical rating organization as the
Borrower and the Bank may select.
"SECURITY INTERESTS" means the security interests in the
Collateral granted under the Security Agreement securing the Obligations.
"SHAREHOLDER" means any Person owning shares of stock of the
Borrower, and "Shareholders" means any two or more of such Shareholders,
collectively.
"SUBORDINATED DEBT" of any Person means all Debt which (i)
bears interest at rates not greater than such Person shall reasonably determine
to be the prevailing market rate, at the time such Subordinated Debt is issued,
for interest on comparable subordinated debt issued by comparable issuers, (ii)
is subordinated in right of payment to such Person's indebtedness, obligations
and liabilities to the Bank under the Loan Documents pursuant to payment and
subordination provisions satisfactory in form and substance to the Bank and
(iii) is issued pursuant to loan documents having covenants and events of
default that are satisfactory in form and substance to the Bank but that in no
event are less favorable, including with respect to rights of acceleration, to
the Borrower than the terms hereof.
"SUBSIDIARY" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Borrower.
"TERMINATION DATE" means twenty four (24) months from the
Closing Date.
"TRADEMARK" means all of the following:
(i) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos, brand names, trade dress, prints and labels on
which any of the foregoing have appeared or appear, package and other
designs, and any other source or business identifiers, and general
intangibles of like nature, and the rights in any of the foregoing
which arise under applicable law;
(ii) the goodwill of the business symbolized
thereby or associated with each of them;
(iii) all registrations and applications in
connection therewith, including, without limitation, registrations 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;
(iv) all reissues, extensions and renewals
thereof;
(v) all claims for, and rights to sue for, past
or future infringements of any of the foregoing; and
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<PAGE>
(vi) all income, royalties, damages and payments
now or hereafter due or payable with respect to any of the foregoing,
including, without limitation, damages and payments for past or future
infringements thereof.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof in the State of Maryland with respect to Alcore, and the State of
New York with respect to Lunn; provided that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-perfection
of the Security Interest in any Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than Maryland or New York, "UCC" means
the Uniform Commercial Code as in effect in such other jurisdictions for
purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
"UNITED STATES" means the United States of America, including
the States and the District of Columbia, but excluding its territories and
possessions.
"WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership interests of
which (except directors' qualifying shares) are at the time directly or
indirectly owned by the Borrower.
USAGE
The following rules of construction and usage shall be
applicable to any instrument that is governed by this Appendix:
All terms defined in this Appendix shall have the
defined meanings when used in any instrument governed hereby and in any
certificate or other document made or delivered pursuant thereto unless
otherwise defined therein.
The words "hereof", "herein", "hereunder" and words
of similar import when used in an instrument refer to such instrument as a whole
and not to any particular provision or subdivision thereof; references in any
instrument to "Article", "Section" or another subdivision or
to an attachment are, unless the context otherwise requires, to an article,
section or subdivision of or an attachment to such instrument; and the term
"including" means "including without limitation".
The definitions contained in this Appendix are
equally applicable to both the singular and plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such terms.
4. Any agreement, instrument or statute defined or referred to
below or in any agreement or instrument that is governed by this Appendix means
such agreement or instrument or statute as from time to time amended, modified
or supplemented, including (in the case of agreements or instruments) by waiver
or consent and (in the case of statutes) by succession of comparable successor
statutes and includes (in the case of agreements or instruments) references to
all attachments thereto and instruments incorporated therein. References to a
Person are also to its permitted successors and assigns.
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INSERT A.
(ATTACHED TO AND MADE A PART OF THIS DEFINITIONS APPENDIX OF PAGE 11 HEREOF)
"Liquidation Reserve" means a portion of availability under the Alcore
Borrowing Base equal to $200,000 (or such lower amount as may be approved by the
Lender in its sole discretion) to be reserved for any and all potential costs
associated with liquidating Alcore's Equipment located at its Jessup, Maryland
facility (such as costs of advertising and sale, rent payable in the event such
premises are vacated by Alcore, damages or other costs payable to the landlord
by the Lender, and any amounts payable to the landlord from the proceeds of any
sale of the Alcore Equipment).
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Exhibit 10.27
PROMISSORTY NOTE
Baltimore, Maryland
November __, 1996
For value received, LUNN INDUSTRIES, INC., a Delaware
corporation, and ALCORE, INC., a Delaware corporation (collectively, the
"Borrower"), jointly and severally promise to pay to the order of FIRST UNION
NATIONAL BANK OF MARYLAND, a national banking association (the "Bank"), the
unpaid principal amount of each Loan made by the Bank to the Borrower (and/or
either of them) pursuant to the Credit Agreement referred to below on the
maturity date provided for in the Credit Agreement. The Borrower promises to pay
interest on the unpaid principal amount of each such Loan on the dates and at
the rate or rates provided for in the Credit Agreement. All such payments of
principal and interest shall be made in accordance with the provisions of the
Credit Agreement.
All Loans made by the Bank and all repayments of the principal
thereof shall be recorded by the Bank and, if the Bank so elects in connection
with any transfer or enforcement hereof, appropriate notations to evidence the
foregoing information with respect to each Loan then outstanding shall be
endorsed by the Bank on the schedule attached to and made a part hereof;
provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is the Note referred to in the Credit Agreement of
even date herewith, between the Borrower and the Bank (as the same may be
amended from time to time, the "Credit Agreement"). Terms defined in the Credit
Agreement are used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the mandatory and optional prepayment hereof
and the acceleration of the maturity hereof.
WITNESS/ATTEST: LUNN INDUSTRIES, INC.
____________________ By __________________________SEAL)
Name: Alan W. Baldwin
Title: Chief Executive Officer
and Chairman
[CORPORATE SEAL]
ALCORE, INC.
___________________ By:__________________________(SEAL)
Name: Edward A. Kiley
Title: President/General Manager
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<PAGE>
EXHIBIT 10.28
SECURITY AGREEMENT
DATED AS OF NOVEMBER 22, 1996
AMONG
LUNN INDUSTRIES, INC. AND ALCORE, INC.
AND
FIRST UNION NATIONAL BANK OF MARYLAND
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<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (AS AMENDED, SUPPLEMENTED OR MODIFIED
FROM TIME TO TIME, THIS "AGREEMENT") IS DATED AS OF NOVEMBER 22, 1996 AND IS
BETWEEN LUNN INDUSTRIES, INC., A DELAWARE CORPORATION, AND ALCORE, INC., A
DELAWARE CORPORATION (BOTH OF WHICH SHALL BE REFERRED TO HEREIN COLLECTIVELY AND
INDIVIDUALLY AS THE "BORROWER"), AND FIRST UNION NATIONAL BANK OF MARYLAND, A
NATIONAL BANKING ASSOCIATION (THE "BANK").
The Borrower and the Bank are parties to a Credit Agreement
dated as of November 22, 1996 (as the same may be amended, supplemented or
modified from time to time and including any agreement extending the maturity
of, refinancing or otherwise restructuring all or any portion of the obligations
of the Borrower under such agreement or any successor agreement, the "Credit
Agreement"). To induce the Bank to enter into the Credit Agreement, and as a
condition precedent to the Bank's obligations thereunder, the Borrower has
agreed to grant a continuing security interest in and to the Collateral (as
hereinafter defined) to secure the Obligations (as hereinafter defined).
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. Terms defined in the Credit
Agreement and not otherwise defined herein have, as used herein, the respective
meanings provided for therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 2.01 TITLE TO COLLATERAL. The Borrower has good and
marketable title to all of the Collateral, free and clear of any Liens other
than Permitted Liens. The Borrower has taken all actions necessary under the UCC
to perfect its interest in any Accounts and "chattel paper" (as defined in the
UCC) purchased or otherwise acquired by it, as against its assignors and
creditors of its assignors. The Borrower has not performed any acts which might
prevent the Bank from enforcing any of the terms of this Agreement or which
would limit the Bank in any such enforcement. Other than financing statements or
other similar or equivalent documents or instruments with respect to the
Security Interests and Permitted Liens, no financing statement, mortgage,
security agreement or similar or equivalent document or instrument covering all
or any part of the Collateral is on file or of record in any jurisdiction in
which such filing or recording would be effective to perfect a Lien on such
Collateral. No Collateral is in the possession of any Person (other than the
Borrower) asserting any claim thereto or security interest therein, except that
the Bank or its designee may have possession of Collateral as contemplated
hereby and by the Credit Agreement.
SECTION 2.02 VALIDITY, PERFECTION AND PRIORITY OF SECURITY
INTERESTS. The Security Interests constitute valid security interests under the
UCC securing the Obligations. When UCC financing statements containing a
description of the Collateral in the form specified in Exhibit B hereto shall
have been filed in the offices specified in Schedule 4.01 hereto, the Security
Interests shall constitute perfected security interests in all right, title and
interest of the Borrower in the Collateral (except Inventory in transit) 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 except for
Permitted Liens.
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<PAGE>
SECTION 2.03 INSURANCE. The Inventory and Equipment are
insured in accordance with the requirements of the Credit Agreement.
SECTION 2.04 FAIR LABOR STANDARDS ACT. All Inventory has or
will have been produced in compliance with the applicable requirements of the
Fair Labor Standards Act, as amended from time to time, or any successor
statute, and regulations promulgated thereunder.
SECTION 2.05 PATENTS AND TRADEMARKS. As of the date hereof,
the Borrower does not have any Patents, Patent Licenses, Trademarks or Trademark
Licenses.
ARTICLE III
SECURITY INTEREST
SECTION 3.01 GRANT OF SECURITY INTERESTS. In order to secure
the full and punctual payment of all of the Obligations in accordance with the
terms thereof (regardless of whether any Loan was advanced on the basis of the
Lunn Borrowing Base or the Alcore Borrowing Base), and to secure the performance
of all of the obligations of the Borrower hereunder and under the Credit
Agreement and the other Loan Documents, the Borrower hereby jointly and
severally grants to the Bank a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired, created or
arising, whether tangible or intangible, and regardless of where located.
SECTION 3.02 CONTINUING LIABILITY OF THE BORROWER. The
Security Interests are granted as security only and shall not subject the Bank
to, or transfer or in any way affect or modify, any obligation or liability of
the Borrower with respect to any of the Collateral or any transaction in
connection therewith.
SECTION 3.03 INSURANCE ACCOUNT.
(a) Creation of and Deposits to Insurance Account. Promptly
upon and at all times after the receipt of any cash proceeds of insurance
policies, awards of condemnation or other compensation required to be paid
to the Bank pursuant to Section 4.10 of this Agreement (the "Insurance
Proceeds"), the Borrower shall establish and shall thereafter maintain a
cash collateral account (the "Insurance Account") at the offices of the
Bank or such other bank as the Borrower and the Bank may agree (the
"Insurance Account Bank"), in the name and under the exclusive control of
the Bank. Forthwith upon such establishment, the Borrower shall notify the
Bank of the location, account name and account number of such account. The
Borrower hereby agrees to cause any Insurance Proceeds received from time
to time after the establishment of the Insurance Account to be deposited
therein as set forth in this paragraph. Any Insurance Proceeds received
from time to time by the Bank in respect of which the Bank is an insured
party and loss payee shall be promptly deposited in the Insurance Account
as set forth in this paragraph. Any income received with respect to the
balance from time to time standing to the credit of the Insurance Account,
including any interest or capital gains on Liquid Investments, shall
remain, or be deposited, in the Insurance Account. All right, title and
interest in and to the cash amounts on deposit from time to time in the
Insurance Account together with any Liquid Investments from time to time
made pursuant to Section 3.03(c) shall vest in the Bank, shall constitute
part of the Collateral and shall not constitute payment of the Secured
Obligations until applied thereto as hereinafter provided.
(b) Withdrawals from Insurance Account. The balance from time
to time standing to the credit of the Insurance Account shall be subject
to withdrawal only upon the instructions of the Bank. Except
upon the occurrence and continuation of a Default, the Bank agrees to give
instructions to distribute such amounts to the Borrower at such times and
in such amounts as the Borrower shall request for the purpose of
repairing, reconstructing or replacing the property in respect of which
such Insurance Proceeds were received. Any such request shall be
accompanied by a certificate of the chief executive officer or treasurer
of the Borrower setting forth in detail reasonably satisfactory to the
Bank the repair, reconstruction or replacement for
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<PAGE>
which such funds will be expended. If immediately available cash on
deposit in the Insurance Account is not sufficient to make any
distribution to the Borrower referred to in the previous sentence of this
Section 3.03(b), the Bank shall cause to be liquidated as promptly as
practicable such Liquid Investments in the Insurance Account designated by
the Borrower as are required to obtain sufficient cash to make such
distribution and, notwithstanding any other provision of this Article III,
such distribution shall not be made until such liquidation has taken
place. Upon the occurrence and continuation of an Event of Default, the
Bank may (in its sole discretion) apply or cause to be applied (subject to
collection) any or all of the balance from time to time standing to the
credit of the Insurance Account in the manner specified in Section 5.04.
(c) Investment of Funds in Insurance Account. Amounts on
deposit in the Insurance Account shall be invested and re-invested from
time to time in such Liquid Investments as the Borrower shall determine,
which Liquid Investments shall be held in the name and be under the
control of the Bank, provided that, if an Event of Default has occurred
and is continuing, the Bank may liquidate any such Liquid Investments and
apply or cause to be applied the proceeds thereof in the manner specified
in Section 5.04. For this purpose, "Liquid Investments" means Cash
Equivalents; provided that (i) each Liquid Investment shall mature within
30 days after it is acquired by the Bank and (ii) in order to provide the
Bank with a perfected security interest therein, each Liquid Investment
shall be either:
(i) evidenced by negotiable certificates or
instruments, or if non-negotiable then issued in the name of the Bank,
which (together with any appropriate instruments of transfer) are
delivered to, and held by, the Bank or an agent thereof (which shall
not be the Borrower or any of its Affiliates) in the State of Maryland;
or
(ii) in book-entry form and issued by the United
States and subject to pledge under applicable state law and Treasury
regulations and as to which (in the opinion of counsel to the Bank)
appropriate measures shall have been taken for perfection of the
Security Interests.
SECTION 3.04 CASH PROCEEDS ACCOUNTS.
(a) Creation of Cash Proceeds Accounts. There is hereby
established with the Bank (i) a cash collateral account in the name of
"Lunn Industries, Inc. - First Union National Bank of Maryland", and (ii)
a cash collateral account in the name of "Alcore, Inc. - First Union
National Bank of Maryland" (each, a "Cash Proceeds Account" and
collectively, the "Cash Proceeds Accounts"), and under the exclusive
control of the Bank into which there shall be deposited from time to time
the cash proceeds of the Collateral required to be delivered to the Bank
pursuant to paragraph (b) of this Section or any other provision of the
Loan Documents. Any income received by the Bank with respect to the
balance from time to time standing to the credit of a Cash Proceeds
Account, including any interest, shall remain, or be deposited, in the
applicable Cash Proceeds Account. All right, title and interest in and to
the cash amounts on deposit from time to time in the Cash Proceeds
Accounts shall vest in the Bank, shall constitute part of the Collateral
and shall not constitute payment of the Obligations until applied thereto
as hereinafter provided.
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<PAGE>
(b) Deposits to Cash Proceeds Account. The Borrower shall
instruct all Account Debtors and other Persons obligated in respect of
Accounts and other Collateral to make all payments in respect of the
Accounts or other Collateral directly to the Bank (by instructing that
such payments be remitted to a post office box which shall be in the name
and under the control of the Bank). Upon the earlier of (i) notification
by the Bank and (ii) the occurrence of a Default or an Event of Default,
all such payments made to the Bank shall be deposited in the applicable
Cash Proceeds Account. In addition to the foregoing, the Borrower agrees
that if the proceeds of any Collateral (including the payments made in
respect of Accounts) shall be received by it, the Borrower shall as
promptly as possible deposit such proceeds to the applicable Cash Proceeds
Account. Until so deposited, all such proceeds shall be held in trust by
the Borrower for and as the property of the Bank and shall not be
commingled with any other funds or property of the Borrower. The Borrower
hereby irrevocably authorizes and empowers the Bank, its officers,
employees and authorized agents to endorse and sign its name on all
checks, drafts, money orders or other media of payment so delivered, and
such endorsements or assignments shall, for all purposes, be deemed to
have been made by the Borrower prior to any endorsement or assignment
thereof by the Bank. The Bank may use any convenient or customary means
for the purpose of collecting such checks, drafts, money orders or other
media of payment.
(c) Withdrawals from Cash Proceeds Account. Collected funds on
deposit in the Cash Proceeds Accounts shall be withdrawn by the Bank on
the Business Day following the day on which the Bank considers the funds
deposited therein to be collected funds and applied to repay the
Obligations which are then due and payable. Until a Default shall occur,
all collected funds remaining on deposit in the Cash Proceeds Account
after the application required by the preceding sentence shall then be
deposited in each Borrower's respective Operating Account, as applicable.
ARTICLE IV
COVENANTS
The Borrower covenants and agrees with the Bank that until the
payment in full of all Obligations and until there is no Commitment by the Bank
to make further advances, incur obligations or otherwise give value, the
Borrower will comply with the following:
SECTION 4.01 DELIVERY OF PERFECTION CERTIFICATE; FILING OF
FINANCING STATEMENTS AND DELIVERY OF SEARCH REPORTS. On or prior to the
Effective Date, the Borrower shall deliver the Perfection Certificate to the
Bank and shall cause all filings and recordings and other actions specified in
Schedule 4.01 hereto to have been completed. The information set forth in the
Perfection Certificate shall be correct and complete. Not later than 60 days
following the Closing Date, the Borrower shall furnish to the Bank file search
reports from each UCC filing office set forth in Schedule 4.01 confirming the
filing information set forth in such Schedule.
SECTION 4.02 CHANGE OF NAME, IDENTITY OR STRUCTURE; LOCATIONS
OF PLACES OF BUSINESS, CHIEF EXECUTIVE OFFICE AND COLLATERAL. The Borrower will
not change its name, identity or corporate structure in any manner unless it
shall have given the Bank not less than 30 days' prior notice thereof. The
Borrower will not change the location of (i) its place or places of business,
its chief executive office or its chief place of business or (ii) the locations
where it keeps or holds any Collateral or any records relating thereto from the
applicable location described in the Perfection Certificate unless it shall have
given the Bank not less than 30 days' prior notice thereof. The Borrower shall
not in any event change the location of its place or places of business, its
chief executive office or any Collateral if such change would cause the Security
Interests in such Collateral to lapse or cease to be perfected.
SECTION 4.03 FURTHER ASSURANCES. The Borrower will, from time
to time, at its expense, execute, deliver, file and record any statement,
assignment, instrument, document, agreement or other paper and take any other
action, (including, without limitation, any filings of financing or continuation
statements under the UCC and
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<PAGE>
any filings with the United States Patent and Trademark Office) that from time
to time may be necessary or desirable, or that the Bank may request, in order to
create, preserve, perfect, confirm or validate the Security Interests or to
enable the Bank to obtain the full benefit of this Agreement, or to enable the
Bank to exercise and enforce any of its rights, powers and remedies created
hereunder or under applicable law with respect to any of the Collateral. To the
extent permitted by applicable law, the Borrower hereby authorizes the Bank to
execute and file financing statements or continuation statements without the
Borrower's signature appearing thereon. The Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. The Borrower shall
pay the costs of, or incidental to, any recording or filing of any financing or
continuation statements concerning the Collateral.
SECTION 4.04 COLLATERAL IN POSSESSION OF OTHER PERSONS. If any
Collateral is at any time in the possession or control of any warehouseman,
bailee or any of the Borrower's agents or processors, the Borrower shall notify
such warehouseman, bailee, agent or processor of the Security Interests created
hereby and to hold all such Collateral for the Bank's account subject to the
Bank's instructions. The Borrower agrees that if any warehouse receipt or
receipt in the nature of a warehouse receipt is issued with respect to any of
its Inventory, such warehouse receipt or other receipt in the nature thereof
shall not be "negotiable" (as -104 of the Uniform Commercial Code in any
relevant jurisdiction or under other relevant law).
SECTION 4.05 BOOKS AND RECORDS. The Borrower shall keep full
and accurate books and records relating to the Collateral, including, without
limitation, the originals of all documentation with respect thereto, records of
all payments received, all credits granted thereon, all merchandise returned and
all other dealings therewith, and the Borrower will make the same available to
the Bank for inspection, at the Borrower's own cost and expense, at any and all
reasonable times upon demand. Upon direction by the Bank, the Borrower shall
stamp or otherwise mark such books and records in such manner as the Bank may
reasonably require in order to reflect the Security Interests.
SECTION 4.06 DELIVERY OF INSTRUMENTS. The Borrower will
immediately deliver each Instrument, certificated security and uncertificated
security to the Bank indorsed (as applicable) to the Bank; provided that so long
as no Event of Default shall have occurred and be continuing and except as
provided by any other Loan Document, the Borrower may retain for collection in
the ordinary course of business any Instruments (other than certificated
securities, checks, drafts and other Instruments constituting payments in
respect of Accounts and other Collateral, as to which the provisions of Section
2.08(c) of the Credit Agreement and Section 3.04 hereof shall apply) received by
it in the ordinary course of business and the Bank shall, promptly upon request
of the Borrower, make appropriate arrangements for making any other Instrument
pledged by the Borrower available to it for purposes of presentation, collection
or renewal (any such arrangement to be effected, to the extent deemed
appropriate to the Bank, against trust receipt or like document).
SECTION 4.07 MODIFICATION OF ASSIGNED AGREEMENTS, ETC. The
Borrower shall keepssigned Agreements. The Borrower will not, except with the
consent of the Bank amend, modify, extend, renew, cancel or terminate any
Assigned Agreement, waive any default under or breach of any Assigned Agreement,
compromise or settle any material dispute, claim, suit or legal proceeding
relating to any Assigned Agreement, sell or assign any Assigned Agreement or
interest therein, consent to or permit or accept any prepayment of amounts to
become due under or in connection with any Assigned Agreement, except as
expressly provided therein, or take any other action in connection with any
Assigned Agreement which would impair the value of the interests or rights of
the Borrower thereunder or which would impair the interests or rights of the
Bank under this Agreement, except that, unless the Bank shall have notified the
Borrower upon the occurrence of a Default or Event of Default that this
exception is no longer applicable, the Borrower may modify, make adjustments
with respect to, extend or renew any Assigned Agreements in the ordinary course
of business. The Borrower will duly fulfill all of its obligations under or in
connection with the Assigned Agreements.
SECTION 4.08 CERTIFICATES OF TITLE; FIXTURES. The Borrower
shall (i) on or prior to the date of
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the first Loan advance, in the case of Equipment constituting one or more titled
vehicles now owned and (ii) within 10 days of acquiring any other Equipment
constituting one or more titled vehicles, deliver to the Bank any and all
certificates of title, applications for title or similar evidence of ownership
of such Equipment and shall cause the Bank to be named as lienholder on any such
certificate of title or other evidence of ownership. The Borrower shall promptly
inform the Bank of any additions to or deletions from the Equipment and shall
not permit any such items to become a fixture to real estate or an accession to
other personal property.
SECTION 4.09 DISPOSITION OF COLLATERAL. Without the prior
written consent of the Bank, the Borrower will not sell, lease,
exchange, assign or otherwise dispose of, or grant any option with respect to,
any Collateral except that, subject to the rights of the Bank hereunder if an
Event of Default shall have occurred and be continuing, the Borrower may sell,
lease or exchange Inventory and obsolete, unused or unnecessary Equipment in the
ordinary course of business, whereupon, in the case of such a sale or exchange,
the Security Interests created hereby in such item (but not in any Proceeds
arising from such sale or exchange) shall cease immediately without any further
action on the part of the Bank.
SECTION 4.10 INSURANCE. Prior to the Closing Date, the
Borrower will cause the Bank to be named as an insured party and loss payee on
each insurance policy covering risks relating to any of its Inventory and
Equipment. The Borrower will deliver to the Bank, upon its request, the
insurance policies for such insurance or certificates of insurance evidencing
such coverage. Each such insurance policy shall include effective waivers by the
insurer of all claims for insurance premiums against the Bank, provide for
coverage to the Bank regardless of the breach by the Borrower of any warranty or
representation made therein, not be subject to co-insurance, provide that all
insurance proceeds in excess of $50,000 per claim shall be adjusted with and
payable to the Bank and provide that no cancellation, termination or material
modification thereof shall be effective until at least 30 days after receipt by
the Bank of notice thereof. The Borrower hereby appoints the Bank as its
attorney-in-fact to make proof of loss, claim for insurance and adjustments with
insurers, and to execute or endorse all documents, checks or drafts in
connection with payments made as a result of any insurance policies. The
Borrower assumes all liability and responsibility in connection with the
Collateral acquired by it and the liability of the Borrower to pay the
Obligations shall in no way be affected or diminished by reason of the fact that
such Collateral may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to the Borrower.
SECTION 4.11 INFORMATION REGARDING COLLATERAL. The Borrower
will, promptly upon request, provide to the Bank all information and evidence it
may reasonably request concerning the Collateral to enable the Bank to enforce
the provisions of this Agreement.
SECTION 4.12 COVENANTS REGARDING PATENT, TRADEMARK AND
COPYRIGHT COLLATERAL.
(a) The Borrower (either itself or through licensees) will,
for each Patent, not do any act, or omit to do any act, whereby any Patent
which is material to the conduct of the Borrower's business may become
invalidated or dedicated to the public, and shall continue to mark any
products covered by a Patent with the relevant patent number or indication
that a Patent is pending as required by the Patent laws.
(b) The Borrower (either itself or, if permitted by law,
through its licensees or its sublicensees) will, for each Trademark
material to the conduct of the Borrower's business, (i) maintain such
Trademark in full force free from any claim of abandonment or invalidity
for non-use, (ii) maintain the quality of products and services offered
under such Trademark, (iii) display such Trademark with notice of federal
registration to the extent required by applicable law, (iv) not knowingly
use or knowingly permit the use of such Trademark in violation of any
third party rights and (v) not permit any assignment in gross of such
Trademark.
(c) The Borrower (either itself or through licensees) will,
for each work covered by a material copyright, continue to publish,
reproduce, display, adopt and distribute the work with appropriate
copyright notice.
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<PAGE>
(d) The Borrower shall notify the Bank immediately if it knows
or has reason to know that any Patent, Trademark or copyright (or any
application or registration relating thereto) material to the conduct of
its business may become abandoned or dedicated to the public, or of any
adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office, United States
Copyright Office or any court) regarding the Borrower's ownership of any
Patent, Trademark or copyright, its right to register the same or to keep
and maintain the same.
(e) The Borrower will take all necessary steps to file,
maintain and pursue each material application relating to the Patents,
Trademarks and/or copyrights (and to obtain the relevant grant or
registration) and to maintain each registration of the Patents, Trademarks
and copyrights which is material to the conduct of the Borrower's
business, including filing of applications for renewal, affidavits of use,
affidavits of incontestability and maintenance fees, and, if consistent
with good business judgment, to initiate opposition, interference and
cancellation proceedings against third parties.
(f) In the event that any rights to any Patent, Trademark,
copyright or License relating thereto material to the conduct of the
Borrower's business is believed infringed, misappropriated or diluted by a
third party, the Borrower shall notify the Bank promptly after it learns
thereof and shall, if consistent with good business judgment, promptly sue
for infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution, and take such
other actions as the Borrower shall reasonably deem appropriate under the
circumstances to protect such Patent, Trademark, copyright or License.
(g) In no event shall the Borrower, either itself or through
any agent, employee, licensee or designee, file an application for any
Patent, Trademark or copyright with the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any
political subdivision of the United States or in any other country or any
political subdivision thereof, unless not less than 10 days prior thereto
it informs the Bank, and, upon request of the Bank, executes and delivers
any and all agreements, instruments, documents and papers as the Bank may
request to evidence the Security Interests in such Patent, Trademark or
copyright and the goodwill or accounts and general intangibles of the
Borrower relating thereto or represented thereby, and the Borrower hereby
appoints the Bank its attorney-in-fact to execute and file such writings
for the foregoing purposes.
ARTICLE V
REMEDIES; RIGHTS UPON DEFAULT
SECTION 5.01 GENERAL AUTHORITY. The Borrower hereby
irrevocably appoints the Bank its true and lawful attorney, with full power of
substitution, in the name of the Borrower, the Bank or otherwise, for the sole
use and benefit of the Bank, but at the Borrower's expense, to the extent
permitted by law to exercise at any time and from time to time while an Event of
Default has occurred and is continuing, all or any of the following
powers with respect to all or any of the Collateral, all acts of such attorney
being hereby ratified and confirmed; such power, being coupled with an interest,
is irrevocable until the Obligations are paid in full and until there is no
Commitment by the Bank to make further advances, incur obligations or otherwise
give value:
(a) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due thereon or
by virtue thereof,
(b) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto,
(c) to sell, transfer, assign or otherwise deal in or
with the same or the proceeds or
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avails thereof, including without limitation for the implementation of
any assignment, lease, License, sublicense, grant of option, sale or
other disposition of any Patent, Trademark or copyright or any action
related thereto, as fully and effectually as if the Bank were the
absolute owner thereof, and
(d) to extend the time of payment of any or all
thereof and to make any allowance and other adjustments with
reference thereto;
provided that the Bank shall give the Borrower not less than ten days' prior
notice of the time and place of any sale or other intended disposition of any of
the Collateral, except any Collateral which is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market. The Bank and the Borrower agree that such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC. Except as
otherwise provided herein, the Borrower hereby waives, to the extent permitted
by applicable law, notice and judicial hearing in connection with the Bank's
taking possession or the Bank's dispositions of any of the Collateral,
including, without limitation, any and all prior notice and hearing for any
prejudgment remedy or remedies and any such right which the Borrower would
otherwise have under the Constitution or any statute of the United States or of
any state.
SECTION 5.02 REMEDIES UPON EVENT OF DEFAULT.
(a) If any Event of Default has occurred and is continuing,
the Bank may exercise all rights of a secured party under the UCC (whether or
not in effect in the jurisdiction where such rights are exercised) and, in
addition, the Bank may, without being required to give any notice, except as
herein provided or as may be required by mandatory provisions of law, (i)
withdraw all cash and Liquid Investments in the Collateral Accounts and apply
such cash and Liquid Investments and other cash, if any, then held by it as
Collateral as specified in Section 5.04 and (ii) if there shall be no such cash
or Liquid Investments or if such cash and Liquid Investments shall be
insufficient to pay all the Obligations in full or cannot be so applied for any
reason, sell the Collateral or any part thereof at public or private sale, for
cash, upon credit or for future delivery, and at such price or prices as the
Bank may deem satisfactory. The Bank may be the purchaser of any or all of the
Collateral so sold at any public sale (or, if the Collateral is of a type
customarily sold in a recognized market or is of a type which is the subject of
widely distributed standard price quotations, at any private sale). The Borrower
will execute and deliver such documents and take such other action as the Bank
deems necessary or advisable in order that any such sale may be made in
compliance with law. Upon any such sale, the Bank shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold to it
absolutely and free from any claim or right of whatsoever kind, including any
equity or right of redemption of the Borrower which may be waived, and the
Borrower, to the extent permitted by law, hereby specifically waives all rights
of redemption, stay or appraisal which it has or may have under any law now
existing or hereafter adopted. The notice (if any) of such sale required by
Section 5.01 shall (he time ad place fixed for such sale, and (ii) in the case
of a private sale, state the day after which such sale may be consummated. Any
such public sale shall be held at such time or times within ordinary business
hours and at such place or places as the Bank may fix in the notice of such
sale. At any such sale the Collateral may be sold in one lot as an entirety or
in separate parcels, as the Bank may determine. The Bank shall not be obligated
to make any such sale pursuant to any such notice. The Bank may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned without further notice. In the case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Bank until the selling price is paid by the purchaser thereof,
but the Bank shall not incur any liability in the case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in the case of any
such failure, such Collateral may again be sold upon like notice. The Bank,
instead of exercising the power of sale herein conferred upon it, may proceed by
a suit or suits at law or in equity to foreclose the Security Interests and sell
the Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) For the purpose of enforcing any and all rights and
remedies under this Agreement the Bank may (i) require the Borrower to, and the
Borrower agrees that it will, at its expense and upon the request of the Bank,
forthwith assemble all or any part of the Collateral as directed by the Bank and
make it available at a place
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<PAGE>
designated by the Bank which is, in the Bank's opinion, reasonably convenient to
the Bank and the Borrower, whether at the premises of the Borrower or otheower's
obligation so to deliver the Collateral is of the essence of this Agreement and
that, accordingly, upon application to a court of equity having jurisdiction,
the Bank shall be entitled to a decree requiring specific performance by the
Borrower of such obligations; (ii) to the extent permitted by applicable law,
enter, with or without process of law and without breach of the peace, any
premise where any of the Collateral is or may be located, and without charge or
liability to the Bank seize and remove such Collateral from such premises; (iii)
have access to and use the Borrower's books and records relating to the
Collateral; and (iv) prior to the disposition of the Collateral, store or
transfer it without charge in or by means of any storage or transportation
facility owned or leased by the Borrower, process, repair or recondition it or
otherwise prepare it for disposition in any manner and to the extent the Bank
deems appropriate and, in connection with such preparation and disposition, use
without charge any Patent, Trademark, copyright, License relating thereto or
technical process used by the Borrower. The Bank may also render any or all of
the Collateral unusable at the Borrower's premises and may dispose of such
Collateral on such premises without liability for rent or costs.
(c) Without limiting the generality of the foregoing, if any
Event of Default has occurred and is continuing:
(i) the Bank may license, or sublicense, whether
general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any Patents, Trademarks or copyrights included in
the Collateral throughout the world for such term or terms, on such
conditions and in such manner as the Bank shall in its sole discretion
determine;
(ii) the Bank may (without assuming any obligations
or liability thereunder), at any time and from time to time, enforce
(and shall have the exclusive right to enforce) against any licensee or
sublicensee all rights and remedies of the Borrower in, to and under
any Patent License, Trademark License or license with respect to
copyrights and take or refrain from taking any action under any
provision thereof, and the Borrower hereby releases the Bank from, and
agrees to hold the Bank free and harmless from and against any claims
arising out of, any lawful action so taken or omitted to be taken with
respect thereto; and
(iii) upon request by the Bank, the Borrower will use
its best efforts to obtain all requisite consents or approvals by the
licensor or sublicensor of each Patent License, license with respect to
copyrights or Trademark License to effect the assignment of all of the
Borrower's rights, title and interest thereunder to the Bank or its
designee and will execute and deliver to the Bank a power of
attorney, in form and substance satisfactory to the Bank, for the
implementation of any lease, assignment, license, sublicense, grant of
option, sale or other disposition of a Patent, Trademark or copyright;
and
(iv) the Bank may direct the Borrower to refrain, in
which event the Borrower shall refrain, from using or practicing any
Trademark, Patent or copyright in any manner whatsoever, directly or
indirectly and shall, if requested by the Bank change the borrower's
name to eliminate therefrom any use of any Trademark and will execute
such other and further documents as the Bank may request to further
confirm this and transfer ownership of the Trademarks, Patents,
copyrights and registrations and any pending applications therefor to
the Bank.
(d) In the event of any disposition of any Patent, Trademark
or copyright pursuant to this Article V, the Borrower shall supply its know-how
and expertise relating to the manufacture and sale of the products or services
bearing Trademarks or the products, services or works made or rendered in
connection with or under Patents, Trademarks or copyrights, and its customer
lists and other records relating to such Patents, Trademarks or copyrights and
to the distribution of said products, services or works, to the Bank.
SECTION 5.03 LIMITATION ON DUTY OF THE BANK IN RESPECT OF
COLLATERAL. Beyond the exercise of reasonable care in the custody thereof, the
Bank shall have no duty to exercise any rights or take any steps to preserve the
rights of the Borrower in the Collateral in its or the Borrower's possession or
control or in the
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<PAGE>
possession or control of any agent or bailee or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto, nor shall the Bank be liable to the Borrower or any other Person for
failure to meet any obligation imposed by Section 9-207 of the
UCC or any successor provision. The Bank shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which it accords its own property, and shall not be liable or responsible for
any loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by the Bank in
good faith.
SECTION 5.04 APPLICATION OF PROCEEDS. The proceeds of any sale
of, or other realization upon, all or any part of the Collateral and any cash
held in the Collateral Accounts shall be applied by the Bank in the following
order of priorities:
(a) to payment of the expenses of such sale or other
realization, including reasonable compensation to agents and counsel
for the Bank, and all expenses, liabilities and advances incurred or
made by the Bank in connection therewith, and any other Obligations
owing to the Bank in respect of sums advanced by the Bank to preserve
the Collateral or to preserve its security interest in the Collateral;
(b) an amount equal to (A) the unpaid principal of
and accrued but unpaid interest on all Loans and all other Obligations
which arise or are incurred in connection with the Loan Documents; plus
(B) all unpaid fees owing to the Bank under the Credit Agreement; plus
(C) to the extent not covered by paragraph (i) above, all unreimbursed
expenses for which the Bank is to be reimbursed pursuant to Section
8.03 of the Credit Agreement or Section 7.03 hereof shall be applied to
payment of the Obligations;
(c) an amount equal to the Derivatives Obligations
shall be applied to the payment thereof;
(d) to the payment of all other Obligations, until
all Obligations shall have been paid in full; and
(e) to payment to the Borrower or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
SECTION 5.05 ASSIGNED AGREEMENTS. The Borrower hereby
irrevocably authorizes and empowers the Bank, in the Bank's sole discretion, if
an Event of Default has occurred and is continuing, to assert, either directly
or on behalf of the Borrower, any claims the Borrower may have, from time to
time, against any other party to any Assigned Agreement or to otherwise exercise
any right or remedy of the Borrower under any Assigned Agreement (including
without limitation, the right to enforce directly against any party to an
Assigned Agreement all of the Borrower's rights thereunder, to make all demands
and give all notices and make all requests required or permitted to be made by
the Borrower under any Assigned Agreements) as the Bank may deem proper. The
Borrower hereby irrevocably makes, constitutes and appoints the Bank (and all
officers, employees or agents designated by the Bank) as the Borrower's true and
lawful attorney-in-fact for the purpose of enabling the Bank, to assert and
collect such claims and to exercise such rights and remedies.
ARTICLE VI
MISCELLANEOUS
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<PAGE>
SECTION 6.01 NOTICES. Unless otherwise specified herein, all
notices, requests or other communications to any party hereunder shall be in
writing (including bank wire, telex, facsimile transmission or similar writing)
and shall be given to such party (i) at its address set forth on the signature
pages hereto or (ii) other address, facsimile number or telex number as such
party shall hereafter specify for the purpose of communications hereunder by
notice to the other parties hereto. Each such notice, request or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (iii) if given by mail, 72 hours after such
communication is deposited, certified mail, return receipt requested, in the
mails with appropriate first class postage prepaid, addressed as aforesaid or
(iv) if given by other means, when delivered at the address specified in this
Section 6.01. Rejection or refusal to accept, or the inability to deliver
because of a changed address of which no notice was given shall not affect the
validity of notice given in accordance with this Section.
SECTION 6.02 NO WAIVERS; NON-EXCLUSIVE REMEDIES. No failure or
delay on the part of the Bank to exercise, no course of dealing with respect to,
and no delay in exercising any right, power or privilege under this Agreement or
any other Loan Document or any other document or agreement contemplated hereby
or thereby shall operate as a waiver thereof nor shall any single or partial
exercise of any such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided herein and in the other Loan Documents are
cumulative and are not exclusive of any other remedies provided by law. Without
limiting the foregoing, nothing in this Agreement shall impair the right of the
Bank to exercise any right of set-off or counterclaim it may have and to apply
the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness under the Credit Agreement and the other
Loan Documents.
SECTION 6.03 COMPENSATION AND EXPENSES OF THE BANK;
INDEMNIFICATION.
(a) Expenses. The Borrower shall pay (i) all out-of-pocket
expenses of the Bank, including fees and disbursements of special and
local counsel for the Bank, in connection with the preparation and
administration of this Agreement or any document or agreement contemplated
hereby, any consent or waiver hereunder or any amendment hereof or any
Default or alleged Default and (ii) if an Event of Default occurs, all
out-of-pocket expenses incurred by the Bank, including (without
duplication) the fees and disbursements of outside counsel in connection
with such Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom.
(b) Protection of Collateral. If the Borrower fails to comply
with the provisions of the Credit Agreement, this Agreement or any other
Loan Document, such that the value of any Collateral or the validity,
perfection, rank or value of any Security Interest is thereby diminished
or potentially diminished or put at risk, the Bank may, but shall not be
required to, effect such compliance on behalf of the Borrower, and the
Borrower shall reimburse the Bank for the costs hereof on demand. All
insurance expenses and all expenses of protecting, storing, warehousing,
appraising, insuring, handling, maintaining and shipping the Collateral,
any and all excise, property, sales and use taxes imposed by any state,
federal or local authority on any of the Collateral, or in respect of
periodic appraisals and inspections of the Collateral to the extent the
same may be requested by the Bank from time to time, or in respect of the
sale or other disposition thereof shall be borne and paid by the Borrower.
If the Borrower fails to promptly pay any portion thereof when due, the
Bank may, at its option, but shall not be required to, pay the same and
charge the Borrower's account therefor, and the Borrower agrees to
reimburse the Bank therefor on demand. All sums so paid or incurred by the
Bank for any of the foregoing and any and all other sums for which the
Borrower may become liable hereunder and all costs and expenses (including
attorneys' fees, legal expenses and court costs) reasonably incurred by
the Bank in enforcing or protecting the Security Interests or any of its
rights or remedies under this Agreement, shall, together with interest
thereon until paid at the rate applicable to the Loans plus 2%, be
additional Obligations hereunder.
(c) Indemnification. The Borrower agrees to indemnify each
Indemnitee and hold each
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<PAGE>
Indemnitee harmless from and against any and all liabilities, obligations,
losses, damages, penalties, claims, demands, actions, suits, judgments,
costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred by,
imposed on or asserted against such Indemnitee in connection with any
investigation or administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of this Agreement or in any other way connected
with the enforcement of any of the terms of, or the preservation of any
rights hereunder, or in any way relating to or arising out of the
manufacture, ownership, ordering, purchasing, delivery, control,
acceptance, lease, financing, possession, operation, condition, sale,
return or other disposition or use of the Collateral (including, without
limitation, latent or other defects, whether or not discoverable) the
violation of the laws of any country, state or other governmental body or
unit, any tort (including, without limitation, any claims, arising or
imposed under the doctrine of strict liability, or for or on account of
injury to or the death of any Person (including any Indemnitee), or
property damage), or contract claim; provided that no Indemnitee shall
have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction. The Borrower agrees that upon written notice by any
Indemnitee of the assertion of such a liability, obligation, loss, damage,
penalty, claim, demand, action, judgment or suit, the Borrower shall
assume full responsibility for the defense thereof. Each Indemnitee agrees
to use its best efforts to notify the Borrower of any such assertion of
which such Indemnitee has knowledge.
(d) Obligations; Survival. Any amounts paid by any
Indemnitee as to which such Indemnitee has the right to reimbursement
shall constitute Obligations. The indemnity obligations of the Borrower
contained in this Section 6.03 shall continue in full force and effect
notwithstanding the full payment of all Note and all of the other
Obligations and notwithstanding the discharge thereof.
SECTION 6.04 AMENDMENTS AND WAIVERS. Any provision of this
Agreement may be amended, changed, discharged, terminated or waived if, but only
if, such amendment or waiver is in writing and is signed by the Borrower and the
Bank.
SECTION 6.05 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon each of the parties hereto and inure to the benefit of the Bank and
its successors and assigns. The Borrower shall not assign or delegate any of its
rights and duties hereunder without the prior written consent of the Bank.
SECTION 6.06 LIMITATION OF LAW; SEVERABILITY.
(a) All rights, remedies and powers provided in this Agreement
may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all the provisions of this
Agreement are intended to be subject to all applicable mandatory
provisions of law which may be controlling and be limited to the extent
necessary so that they will not render this Agreement invalid,
unenforceable in whole or in part, or not entitled to be recorded,
registered or filed under the provisions of any applicable law.
(b) If any provision hereof is invalid or unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Bank in
order to carry out the intentions of the parties hereto as nearly as may
be possible; and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability
of such provisions in any other jurisdiction.
SECTION 6.07 GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of Maryland except as
otherwise required by mandatory provisions of law and except to the extent that
remedies provided by the laws of any jurisdiction other than such states are
governed by the laws of such jurisdictions.
SECTION 6.08 COUNTERPARTS; EFFECTIVENESS. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon
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<PAGE>
the same instrument. This Agreement shall become effective when the Bank shall
receive counterparts hereof executed by itself and the Borrower.
SECTION 6.09 TERMINATION. Upon full, final and irrevocable
payment and performance of all Obligations and the termination of the Commitment
under the Credit Agreement, the Security Interests shall terminate and all
rights to the Collateral shall revert to the Borrower. In addition, at any time
and from time to time prior to such termination of the Security Interests, the
Bank may release any of the Collateral. Upon any such termination of the
Security Interests or release of Collateral, the Bank will, upon request by and
at the expense of the Borrower, execute and deliver to the Borrower such
documents as the Borrower shall reasonably request to evidence the termination
of the Security Interests or the release of such Collateral, as the case may be.
Any such documents shall be without recourse to or warranty by the Bank.
SECTION 6.10 ENTIRE AGREEMENT. This Agreement and the other
Loan Documents constitute the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, and any contemporaneous oral agreements and understandings
relating to the subject matter hereof and thereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
WITNESS/ATTEST: LUNN INDUSTRIES, INC.
________________________ By:________________________________________
Name: Alan W. Baldwin
Title: Chief Executive Officer and Chairman
1 Garvies Point Road
Glen Cove, New York 11542-2828
Facsimile No.: ____________________
WITNESS: ALCORE, INC.
________________________ By:__________________________________(SEAL)
Name: Edward A. Kiley
Title: President/General Manager
1324 Brass Mill Road
Belcamp, Maryland 21017
Facsimile No.: ___________________
WITNESS/ATTEST: FIRST UNION NATIONAL BANK OF MARYLAND
________________________ By:________________________________________
Name: Robert Linthicum
Title: Vice President
7 East Baltimore Street
2nd Floor
Baltimore, Maryland 21202
Attn: Robert Linthicum
Facsimile No.: (410) 244-1236
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<PAGE>
SCHEDULE 4.01
TO
SECURITY AGREEMENT
SCHEDULE OF FILINGS
TO PERFECT SECURITY INTERESTS
<TABLE>
<CAPTION>
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Time for Filing of
Filing Type of File Date of Periodic Continuation
Name of Debtor Jurisdiction Filing Number Filing Statements
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 1 -
<PAGE>
EXHIBIT A
TO
SECURITY AGREEMENT
PERFECTION CERTIFICATE
- 1 -
<PAGE>
SCHEDULE B
TO
SECURITY AGREEMENT
DESCRIPTION OF COLLATERAL
Description for Face of UCC-1:
All of the Debtor's now existing or hereafter arising, right, title and interest
in and to all personal property, tangible or intangible, whether now or
hereafter in existence, including, without limitation, all accounts, accounts
receivable, contract rights, money, instruments, documents, chattel paper,
general intangibles, inventory, equipment and fixtures, as more fully described
in Schedule A hereto which is made a part hereof. Products and proceeds of the
foregoing, including any of the foregoing which are acquired with any cash
proceeds of the foregoing, are included.
Text of Schedule A to UCC-1:
This financing statement covers the types of property
described on the face of the Financing Statement of which this Schedule is a
part and all right, title and interest of the Debtor in and to the following
types (or items) of property whether now owned or existing or hereafter
acquired, created or arising (all being collectively referred to as the
Collateral):
(a) Accounts;
(b) Inventory;
(c) General Intangibles;
(d) Documents;
(e) Instruments;
(f) Equipment;
(g) the Collateral Accounts, all cash deposited therein from
time to time, the Liquid Investments and other monies and property
(including deposit accounts) of any kind of the Debtor maintained with or
in the possession or under the control of the Secured Party;
(h) all books and records (including, without limitation,
customer lists, credit files, computer programs, printouts and other
computer materials and records) of the Debtor pertaining to any of the
Collateral; and (g) all Proceeds of all or any of the Collateral described
in clauses (a) through (g) hereof.
As used in this Schedule A, the following terms have the
following meanings:
"Accounts" means all "accounts" now owned or hereafter
acquired by the Debtor, and shall also mean and include all accounts receivable,
contract rights, book debts, notes, drafts and other obligations or indebtedness
owing to the Debtor arising from the sale, lease or exchange of goods or other
property by it and/or the performance of services by it (including, without
limitation, any such obligation which might be characterized as an account,
contract right or general intangible under the Uniform Commercial Code in effect
in any jurisdiction) and all of the Debtor's rights in, to and under all
purchase orders for goods, services or other property, and all of the Debtor's
rights to any goods, services or other property represented by any of the
foregoing (including returned or repossessed goods and unpaid sellers' rights of
rescission, replevin, reclamation and rights to stoppage in transit) and all
monies due to or to become due to the Debtor under all contracts for the sale,
lease or exchange of goods or other
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<PAGE>
property and/or the performance of services by it (whether or not yet earned by
performance on the part of the Debtor), in each case whether now in existence or
hereafter arising or acquired 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.
"Cash Equivalents" means (i) direct obligations of the United
States or any agency thereof, or obligations guaranteed by the United States or
any agency thereof, (ii) commercial paper rated in the highest grade by a
nationally recognized credit rating agency or (iii) time deposits with,
including certificates of deposit issued by, any office located in the United
States of any bank or trust company which is organized under the laws of the
United States or any state thereof and has capital, surplus and undivided
profits aggregating at least $250,000,000; provided, in each case that such
investment matures within one year from the date of acquisition thereof by the
Debtor.
"Collateral Accounts" means one or more deposit accounts
established with or in the possession or under the control of the Secured Party
into which cash or cash proceeds (including cash proceeds of insurance policies,
awards of condemnation or other compensation) of any Collateral are deposited
from time to time.
"Documents" means all "documents" or other receipts covering,
evidencing or representing goods, now owned or hereafter acquired by the Debtor.
"Equipment" means all "equipment" now owned or hereafter
acquired by the Debtor, including all items of machinery, equipment, fur,
trucks, trailers, railcars, barges and vehicles of every description, trailers,
handling and delivery equipment, all additions to, substitutions for,
replacements of or accessions to any of the foregoing, all attachments,
components, parts (including spare parts) and accessories whether installed
thereon or affixed thereto and all fuel for any thereof.
"General Intangibles" means all "general intangibles" now
owned or hereafter acquired by the Debtor, including, without limitation, (i)
all obligations and indebtedness owing to the Debtor (other than Accounts), from
whatever source arising (ii) all Patents, Trademarks, copyrights, Licenses,
rights in intellectual property, goodwill, trade names, trade secrets,
confidential or proprietary technical and business information, know-how,
show-how, software, customer lists, subscription lists, data bases and related
documentation, registration, franchises and all other intellectual or other
similar property rights, (iii) all rights or claims in respect of refunds for
taxes paid and (iv) all rights in respect of any pension plans or similar
arrangements maintained for employees of the Debtor or any member of the ERISA
Group and (v) all "uncertificated securities".
"Instruments" means all "instruments", "chattel paper",
"certificated securities" or "letters of credit" evidencing, representing,
arising from or existing in respect of, relating to, securing or otherwise
supporting the payment of, any of the Accounts or General Intangibles, including
(but not limited to) promissory notes, drafts, bills of exchange and trade
acceptances, now owned or hereafter acquired by the Debtor.
"Inventory" means all inventory now owned or hereafter
acquired by the Debtor, wherever located, and shall also mean and include,
without limitation, all raw materials and other materials and supplies,
work-in-process and finished goods and any products made or processed therefrom
and all substances, if any, commingled therewith or added thereto.
"Licenses" means any Patent License, Trademark License or
other license or sublicense as to which the Debtor is a party (other than those
license agreements which by their terms prohibit assignment or a grant of a
security interest by such Debtor as licensee thereunder); provided that the
rights to payments under any such Licenses shall be included in the Collateral
to the extent permitted thereby or by Section 9-318 of the Uniform Commercial
Code.
"Liquid Investments" means Cash Equivalents; provided that (i)
each Liquid Investment shall
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<PAGE>
mature within 30 days after it is acquired by the Secured Party and (ii) in
order to provide the Secured Party with a perfected security interest therein,
each Liquid Investment shall be either:
(i) evidenced by negotiable certificates or
instruments, or if non-negotiable then issued in the name of
the Secured Party, which (together with any appropriate
instruments of transfer) are delivered to and held by, the
Secured Party or an agent thereof (which shall not be the
Debtor or an affiliate) in the State of Maryland; or
(ii) in book-entry form and issued by the
United States and subject to pledge under applicable state law
and United States Treasury regulations and as to which (in the
opinion of counsel to the Secured Party) appropriate measures
shall have been taken for perfection of the security
interests.
"Patent License" means any agreement now or hereafter in
existence granting to the Debtor, or pursuant to which the Debtor has granted to
any other person, any right with respect to any Patent or any invention now or
hereafter in existence, whether patentable or not, whether a Patent or
application for Patent is in existence on such invention or not, and whether a
Patent or application for Patent on such invention may come into existence.
"Patents" means all of the following:
(a) all letters patent and design letters patent of
the United States or any other country, all applications for letters
patent and design letters patent of the United States or any other
country including, without limitation, 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
political subdivision thereof;
(b) all reissues, divisions, continuations,
continuations-in-part, renewals or extensions thereof;
(c) all claims for, and rights to sue for, past or
future infringement of any of the foregoing; and
(d) all income, royalties, damages and payments now
or hereafter due or payable with respect to any of the foregoing,
including, without limitation, damages and payments for past or future
infringements thereof.
"Proceeds" means all proceeds of, and all other profits,
products, rents or receipts, in whatever form arising from the collection, sale,
lease, exchange, assignment, licensing or other disposition of or other
realization upon or payment for the use of, collateral, including (without
limitation) all claims of the Debtor against third parties for loss of, damage
to or destruction of, or for proceeds payable under, or unearned premiums with
respect to, policies of insurance in respect of, any collateral, and any
condemnation or requisition payments with respect to any collateral, in each
case whether now existing or hereafter arising.
"Trademark License" means any agreement now or hereafter in
existence granting to the Debtor, or pursuant to which the Debtor has granted to
any other person, any right to use any Trademark.
- 3 -
<PAGE>
"Trademarks" means all of the following:
(i) the following registered Trademarks and
Trademark applications:
(ii) all other trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos, brand names, trade dress, prints and
labels on which any of the foregoing have appeared or appear, package
and other designs, and any other source or business identifiers, and
general intangibles of like nature, and the rights in any of the
foregoing which arise under applicable law,
(iii) the goodwill of the business symbolized
thereby or associated with each of them,
(iv) all registrations and applications in connection
therewith, including, without limitation, registrations 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,
(v) all reissues, extensions and renewals
thereof,
(vi) all claims for, and rights to sue for,
past or future infringements of any of the foregoing; and
(vii) all income, royalties, damages and payments now
or hereafter due or payable with respect to any of the foregoing,
including, without limitation, damages and payments for past or future
infringements thereof.
As used in this Schedule A, the uncapitalized terms "account",
"account debtor", "certificated securities", "uncertificated securities",
"chattel paper", "contract right", "document", "equipment", "letter of credit",
"instrument", "warehouse receipt", "bill of lading", "document of title",
"inventory", "general intangibles", "money" and "proceeds" have the meanings of
such terms as defined in the Uniform Commercial Code.
- 4 -
<PAGE>
Independent Auditors' Consent
The Board of Directors and Stockholders
Lunn Industries, Inc.:
We consent to the incorporation by reference in the Registration Statement
No.333-19759 on Form S-8 and No.333-12905 on Form S-3 of Lunn Industries, Inc.
of our report dated April 2, 1997, relating to the consolidated balance sheet of
Lunn Industries, Inc. and subsidiary as of December 31, 1996 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year ended December 31, 1996, which report appears in the December 31, 1996
annual report on Form 10-KSB of Lunn Industries, Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
April 10, 1997
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