<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended
NOVEMBER 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition Period from N/A to N/A
--- ---
Commission File No. 1-7755
SUMMA INDUSTRIES
(Name of registrant as specified in its charter)
DELAWARE 95-1240978
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
21250 HAWTHORNE BOULEVARD, SUITE 500, TORRANCE, CALIFORNIA 90503
(Address of principal executive offices, including zip code)
Registrant's Telephone Number: (310) 792-7024
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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
----- -----
The number of shares of common stock outstanding as of November 30, 1999 was
4,322,161.
<PAGE>
SUMMA INDUSTRIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
August 31, 1999 and November 30, 1999 (unaudited) ........................3
Condensed Consolidated Statements of Income (unaudited) -
three months ended November 30, 1998 and 1999.............................4
Condensed Consolidated Statements of Cash Flows (unaudited) -
three months ended November 30,1998 and 1999..............................5
Notes to Condensed Consolidated Financial Statements (unaudited)......... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..........................8
PART II - OTHER INFORMATION........................................................13
Item 1. Legal Proceedings.........................................................13
Item 2. Changes in Securities.....................................................13
Item 3. Defaults upon Senior Securities...........................................13
Item 4. Submission of Matters to a Vote of Security Holders.......................13
Item 5. Other Information.........................................................14
Item 6. Exhibits and Reports on Form 8-K..........................................14
Signature Page.....................................................................14
</TABLE>
2
<PAGE>
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
November 30, 1999
ASSETS August 31, 1999 (unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,148,000 $924,000
Accounts receivable 16,075,000 15,614,000
Inventories 11,714,000 12,402,000
Prepaid expenses and other 1,283,000 1,649,000
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 30,220,000 30,589,000
- ----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 36,819,000 39,312,000
Less accumulated depreciation 11,098,000 12,283,000
- ----------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 25,721,000 27,029,000
- ----------------------------------------------------------------------------------------------------------------------
Other assets 585,000 499,000
Goodwill and other intangibles, net 31,128,000 30,981,000
======================================================================================================================
Total assets $87,654,000 $89,098,000
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $7,054,000 $6,039,000
Accrued liabilities 7,046,000 6,612,000
Current maturities of long-term debt 5,794,000 6,215,000
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 19,894,000 18,866,000
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current maturities 27,987,000 28,955,000
Other long-term liabilities 4,400,000 4,275,000
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 52,281,000 52,096,000
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.001; 10,000,000 shares authorized;
issued and outstanding: 4,313,481 at August 31, 1999
and 4,322,161 at November 30, 1999 19,205,000 19,231,000
Retained earnings 16,168,000 17,771,000
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 35,373,000 37,002,000
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $87,654,000 $89,098,000
======================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended November 30
- ---------------------------------------------------------------------------------------------------
1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $23,271,000 $28,569,000
Cost of sales 16,005,000 20,297,000
- ---------------------------------------------------------------------------------------------------
Gross profit 7,266,000 8,272,000
Selling, general, administrative and other expenses 4,572,000 5,050,000
- ---------------------------------------------------------------------------------------------------
Operating income 2,694,000 3,222,000
Interest expense 380,000 679,000
- ---------------------------------------------------------------------------------------------------
Income before income taxes 2,314,000 2,543,000
Provision for income taxes 908,000 940,000
- ---------------------------------------------------------------------------------------------------
Net income $1,406,000 1,603,000
- ---------------------------------------------------------------------------------------------------
Earnings per common share
Basic $.33 $.37
Diluted $.32 $.35
- ---------------------------------------------------------------------------------------------------
Weighted average common shares outstanding
Basic 4,254,000 4,324,000
Diluted 4,434,000 4,584,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended November 30
- --------------------------------------------------------------------------------------------------------------
1998 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $1,406,000 $1,603,000
- --------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 886,000 1,185,000
Amortization 130,000 242,000
Net change in assets and liabilities, net of effects of acquisitions:
Accounts receivable (308,000) 733,000
Inventories (343,000) (543,000)
Prepaid expenses and other assets 119,000 (265,000)
Accounts payable (717,000) (1,103,000)
Accrued liabilities (226,000) (679,000)
- --------------------------------------------------------------------------------------------------------------
Total adjustments (459,000) (430,000)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 947,000 1,173,000
- --------------------------------------------------------------------------------------------------------------
Investing activities:
Acquisition of business (Note 5) --- (1,521,000)
Purchases of property and equipment (691,000) (778,000)
Purchase of patent --- (95,000)
- --------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (691,000) (2,394,000)
- --------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds from line of credit 349,000 3,159,000
Proceeds from issuance of long-term debt 727,000 ---
Payments on long-term debt (969,000) (2,188,000)
Proceeds from the exercise of stock options 105,000 128,000
Purchases of common stock (153,000) (102,000)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 59,000 997,000
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 315,000 (224,000)
Cash and cash equivalents, beginning of period 293,000 1,148,000
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $608,000 $924,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SUMMA INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Summa Industries
(the "Company"), some of which are unaudited, have been condensed in certain
respects and should, therefor, be read in conjunction with the audited financial
statements and notes related thereto contained in the Company's Annual Report on
Form 10-K for the year ended August 31, 1999. In the opinion of the Company, the
accompanying unaudited interim condensed consolidated financial statements
contain all adjustments necessary for a fair presentation for the interim
period, all of which were normal recurring adjustments. The results of
operations for the three months ended November 30, 1999 are not necessarily
indicative of the results to be expected for the full year ending August 31,
2000.
2. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
August 31, 1999 November 30,
--------------- -----------
(audited) 1999
----
<S> <C> <C>
Finished goods........................ $4,588,000 $5,172,000
Work in process....................... 458,000 265,000
Materials and parts................... 6,668,000 6,965,000
----------- -----------
$11,714,000 $12,402,000
----------- -----------
----------- -----------
</TABLE>
3. DILUTED EARNINGS PER SHARE
Diluted earnings per share were calculated using the "treasury stock" method as
if dilutive stock options and warrants had been exercised and the funds were
used to purchase common shares at the average market price during the period.
<TABLE>
<CAPTION>
Three months ended
November 30
1998 1999
---- ----
<S> <C> <C>
Weighted average shares outstanding - basic...........4,254,000 4,324,000
Effect of dilutive securities:
Impact of common shares to be issued under
stock option plans.............................. 180,000 246,000
Impact of common shares to be issued with
respect to warrants............................. --- 14,000
--------- ---------
Weighted average shares outstanding - diluted.........4,434,000 4,584,000
========= =========
</TABLE>
6
<PAGE>
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three months ended
November 30
1998 1999
---- ----
<S> <C> <C>
Cash paid during the period:
Interest............................................... $368,000 $885,000
Income taxes........................................... $700,000 222,000
Non-cash investing and financing activities:
Details of acquisitions
Fair value of assets acquired.......................... $ --- $2,266,000
Liabilities assumed or incurred........................ --- (626,000)
-------- ----------
Cash paid............................................ --- 1,640,000
Less cash acquired................................... --- (119,000)
-------- ----------
Net cash used in acquisitions..................... $ --- $1,521,000
-------- ----------
-------- ----------
</TABLE>
5. ACQUISITIONS
On March 5, 1999, the Company completed the acquisition of substantially all of
the assets of Plastron Industries, L.P. ("Plastron"). The aggregate purchase
price paid for Plastron consisted of (i) $19,525,000 in cash; (ii) a four-year
warrant exercisable to purchase up to 200,000 shares of the Company's common
stock at $11.75 per share valued at $278,000; (iii) investment banking fees
consisting of a $125,000 cash payment and stock options, valued at $32,000; and
(iv) the assumption of certain liabilities, principally trade payables and
accrued obligations of $2,220,000. The transaction has been accounted for using
the purchase method of accounting, and accordingly, the purchase price has been
allocated to identifiable tangible and intangible assets purchased and
liabilities assumed or incurred based upon their fair value at the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired amounted to $13,781,000 and has been recorded as goodwill which
is being amortized on a straight line basis over 35 years.
In September 1999, Summa acquired substantially all of the assets of Broadview
Injection Molding Co., Inc. ("Broadview"). The aggregate purchase price paid for
Broadview consisted of $1,640,000 in cash and liabilities assumed or incurred of
$626,000 including an amount due to the former owners of Broadview which is
subject to adjustment based upon working capital. The transaction has been
accounted for using the purchase method of accounting, and accordingly, the
purchase price has been allocated to identifiable tangible and intangible assets
purchased and liabilities assumed or incurred based upon their fair value at the
date of acquisition. No goodwill was recorded in this transaction.
The results of operations of Plastron have been included in the consolidated
results of operations and the consolidated statements of cash flows of the
Company since March 5, 1999, the date of the acquisition. The following
unaudited proforma financial information presents the results of operations of
the Company with Plastron as if it had been acquired as of September 1, 1998.
Proforma adjustments have been made to give effect to the amortization of
goodwill, adjustments in depreciation and inventory value, interest expense
related to acquisition debt, the related tax effects and the effect upon basic
and diluted earnings per share of the stock
7
<PAGE>
options and warrants issued in conjunction with the acquisition. The following
unaudited pro forma financial information does not include adjustments to give
effect to the Broadview acquisition as such adjustments would not be material:
<TABLE>
<CAPTION>
Three months ended
November 30
1998 1999
---- ----
<S> <C> <C>
Net sales........................................ $27,782,000 $28,569,000
Net income ...................................... 1,548,000 1,603,000
Income per common share:
basic.............................. $.36 $.37
diluted............................ $.35 $.35
</TABLE>
The pro forma results in the preceding table are not necessarily indicative of
what the actual consolidated results of operations might have been if the
acquisition of Plastron had been effective at September 1, 1998 or the results
which may be achieved in the future.
6. SEGMENT REPORTING
<TABLE>
<CAPTION>
Three months ended
November 30
1998 1999
---- ----
<S> <C> <C>
Net sales
Engineered polymer components.................... 18,674,000 24,457,000
Extruded plastic products........................ 4,597,000 4,112,000
--------- ---------
Consolidated..................................... 23,271,000 28,569,000
Operating profit
Engineered polymer components.................... 2,717,000 3,303,000
Extruded plastic products........................ 272,000 172,000
All other........................................ (295,000) (253,000)
--------- ---------
Consolidated .................................... 2,694,000 3,222,000
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements contained in this Quarterly Report on Form 10-Q, which are not purely
historical, are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including but not limited to statements regarding Summa's expectations,
hopes, beliefs, intentions or strategies regarding the future, such as those set
forth in Part II, Item 1 "Legal Proceedings" below. Actual results could differ
materially from those projected in any forward-looking statements as a result of
a number of factors, including those detailed in this "Management's Discussion
and Analysis" section (including, without limitation, the potential material
adverse consequences to the Company of the Year 2000 issue) and elsewhere herein
and in the Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1999. The forward-looking statements are made as of the date hereof, and the
Company assumes no obligation to update the forward-looking statements, or to
update the reasons why
8
<PAGE>
actual results could differ materially from those projected in the
forward-looking statements.
Summa manufactures diverse plastic products in two segments: Engineered Polymer
Components and Extruded Plastic Products. Summa designs and manufactures
injection-molded plastic optical components for OEM customers in the lighting
industry; modular plastic conveyor belt and chain for the food processing
industry; engineered plastic fittings, valves, filters and tubing for the
agricultural irrigation industry; molded plastic coil forms ("bobbins") for use
in transformers, motors, relays and switches; extruded plastic sheet with smooth
or textured surfaces in various colors and sizes for diverse industrial
applications, and other molded and extruded plastic components for diverse
industries.
Growth has been achieved by acquisition, development of new products and
expansion of the Company's sales organization. There can be no assurance that
Summa will be able to continue to consummate acquisitions, develop new products
or expand sales to sustain rates of revenue growth and profitability in future
periods comparable to those experienced in the past several years. Any future
success that the Company may achieve will depend upon many factors including
factors which may be beyond the control of Summa or which cannot be predicted at
this time. These factors may include changes in the markets for the products
offered by the Company through its operating subsidiaries, increased levels of
competition including the entry of additional competitors and increased success
by existing competitors, reduced margins caused by competitive pressures and
other factors, increases in operating costs including costs of production,
materials, supplies, personnel, equipment, import duties and transportation,
increases in governmental regulation imposed under federal, state or local laws,
including regulations applicable to environmental, labor and trade matters,
changing customer profiles and general economic and industry conditions that
affect customer demand and sales volume, both domestically and internationally,
the introduction of new products by Summa or its competitors, the need to make
material capital expenditures, the timing of the Summa's advertising and
promotional campaigns, and other factors.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain information, derived from Summa's
unaudited consolidated statements of income from continuing operations, as a
percent of sales for the three-month periods ended November 30, 1998 and 1999,
and the Company's effective income tax rate during those periods:
<TABLE>
<CAPTION>
Three months ended
November 30
1998 1999
---- ----
<S> <C> <C>
Net sales.................................. 100.0% 100.0%
Cost of sales.............................. 68.8% 71.0%
------ -------
Gross profit............................... 31.2% 29.0%
S,G & A and other expenses................. 19.7% 17.7%
------ -------
Operating income........................... 11.5% 11.3%
Interest expense, net...................... 1.6% 2.4%
------ -------
Income before tax.......................... 9.9% 8.9%
Provision for income taxes................. 3.9% 3.3%
------ -------
Net income................................. 6.0% 5.6%
------ -------
------ -------
Effective tax rate......................... 39.2% 37.0%
</TABLE>
Sales for the first quarter ended November 30, 1999 increased $5,298,000 or 23%,
compared to the same period in the prior year, due to the inclusion of the sales
of newly acquired operations. Same business sales in the first quarter were up
4% in the Engineered Polymer Components segment, down 11% in the Extruded
Plastic Products segment, and up 1% overall, compared to the first quarter of
fiscal 1999. Sales, especially in the Extruded Plastic Products segment, were
adversely impacted by a plant relocation and difficulties with the
implementation of manufacturing software, during the quarter.
Gross profit for the first quarter increased $1,006,000, or 14%, from the
comparable prior year period, primarily due to the effects of acquisitions and
sales growth. As a percentage of sales, gross profit decreased from 31.2% to
29.0%, as a result of the blending of newly acquired businesses with
historically lower gross margins and the adverse effects of a plant relocation
and difficulties with the implementation of manufacturing software, during the
quarter.
Operating expenses for the three months ended November 30, 1999 increased
$478,000, or 10%, from the comparable prior year period, primarily due to the
inclusion of the operating expenses of recently acquired businesses. As a
percentage of sales, operating expenses decreased from 19.7% to 17.7%, primarily
as a result of the blending of newly acquired businesses with historically lower
operating expenses. Operating margin for the quarter decreased from 11.5% in the
first quarter of fiscal 1999 to 11.3% in the first quarter of fiscal 2000, as a
result of the changes in gross margin and operating expenses discussed above.
Net interest expense for the first quarter ended November 30, 1999 increased
$299,000 from the prior year first quarter, primarily due to increased debt
levels related to acquisitions.
The decrease in the effective tax rate in the first quarter of fiscal 2000
versus fiscal 1999, from 39.2% to 37.0%, is due to a lower effective combined
state income tax rate and increased foreign sales corporation tax benefit.
10
<PAGE>
The Company's backlog of unfilled orders, believed to be firm, increased from
$9,338,000 at August 31, 1999 to $10,196,000 at November 30, 1999. Because the
length of time between entering an order and shipping the product is typically
shorter than one month, backlog levels are not a reliable indicator of future
sales volume.
The following tables set forth the relative contribution of each of Summa's
reportable segments to the sales and operating income of the entire Company and
the operating margins of each segment:
RELATIVE CONTRIBUTION BY SEGMENT
<TABLE>
<CAPTION>
Three months ended
November 30
1998 1999
---- ----
<S> <C> <C>
Net sales
Engineered polymer components................................... 80.2% 85.6%
Extruded plastic products....................................... 19.8% 14.4%
------- -----
Consolidated.................................................... 100.0% 100.0%
Operating profit
Engineered polymer components................................... 100.9% 102.5%
Extruded plastic products....................................... 10.1% 5.3%
All other....................................................... (11.0%) (7.8%)
-------- ------
Consolidated.................................................... 100.0% 100.0%
</TABLE>
OPERATING MARGIN BY SEGMENT
<TABLE>
<CAPTION>
Three months ended
November 30
1998 1999
---- ----
<S> <C> <C>
Engineered polymer components................................... 14.5% 13.5%
Extruded plastic products....................................... 5.9% 4.2%
Consolidated.................................................... 11.5% 11.3%
</TABLE>
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. The Company's working capital at November 30, 1999 was
$11,723,000, compared to $10,326,000 at August 31, 1999. The most significant
change was a reduction of accounts payable of $1,015,000.
FINANCING ARRANGEMENTS. The Company has several debt relationships as described
below. Substantially all of the Company's assets are pledged to secure debt.
During the quarter, the Company amended its agreement with its primary lenders
to expand its credit capacity. All of the borrowings from the banks are at
variable interest rates and require compliance with financial and operating
covenants.
Summary of the Company's debt at November 30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Interest Additional
Description of Debt Balance Rate Availability Due
------------------- ------- ---- ------------ ---
<S> <C> <C> <C> <C>
Bank line of credit................................. $11,175,000 7.9% $13,825,000 2003
Bank term loans..................................... 17,886,000 7.9% --- 1999-2004
Acquisition facility................................ --- --- 15,000,000 ---
Industrial revenue bonds and other.................. 6,109,000 6.5% --- 1999-2021
----------- ---- -----------
Total debt.......................................... $35,170,000 7.7% $28,825,000
----------- ---- -----------
----------- ---- -----------
</TABLE>
Interest rates on bank debt are subject to reduction as the Company achieves
certain financial milestones or increase if the Company borrows additional
funds.
The Company announced a stock buy-back program September 28, 1998 which
authorized the Company to purchase its common stock in an aggregate amount of up
to $2,000,000. As of November 30, 1999, 18,000 shares of common stock had been
repurchased at an aggregate cost of $153,000. During the quarter ended November
30, 1999, no shares were repurchased under the program but 9,105 shares were
purchased from a former employee who received a distribution from the Summa
Industries ESOP, at a price of $14.07 per share, pursuant to a contractual
obligation. The repurchase obligation expired during the quarter ended November
30, 1999.
Summa believes that cash flows from operations and existing credit facilities
will be sufficient to fund working capital requirements, planned capital
expenditures and debt service for the next twelve months. The Company has a
strategy of growth by acquisition. In the event an acquisition plan is adopted
which requires funds exceeding the availability described above, an alternate
source of funds to accomplish the acquisition would have to be developed. The
Company has 10,000,000 shares of common stock authorized, of which 4,322,161
shares were outstanding at November 30, 1999 and 5,000,000 shares of "blank
check" preferred stock authorized, of which none is outstanding. The Company
could issue additional shares of common or preferred stock or enter into new or
revised borrowing arrangements to raise funds.
12
<PAGE>
YEAR 2000 COMPLIANCE
The Company is continuing to analyze operations to determine and implement the
procedures necessary to ensure timely Year 2000 compliance. The Company has also
identified and contacted key customers, vendors and suppliers to request
confirmation of timely external Year 2000 compliance.
Each of the Company's facilities utilizes and is dependent upon data processing
systems and software to conduct business. The Company has received confirmation
from vendors of most of the business software used by the Company that such
software is designed to be Year 2000 compliant. Further, for reasons generally
unrelated to the Year 2000 issue, the Company is in the process of purchasing
and installing new systems for certain operations at a cost of several hundred
thousand dollars. The Company currently anticipates that all internally used
software will be Year 2000 compliant in a timely manner. Additionally, various
machines and other types of personal property at each facility have computer
controls and/or contain integrated circuits. The Company has analyzed these
devices and anticipates that they will be functional after January 1, 2000.
Although, the Company currently believes that it will be internally Year 2000
compliant in all material respects prior to January 1, 2000 and that the effort
to achieve Year 2000 compliance has not and will not have a significant impact
on the financial condition or results of future operations of the Company, the
Company remains concerned that the failure to comply by a relatively small
number of large customers and/or vendors, including banking institutions,
utilities, telecommunications and transportation companies, could significantly
disrupt operations at one or more of the Company's facilities. The Company does
not have a formalized Company-wide contingency plan covering worst case
scenarios in the event of Year 2000 non-compliance, but any such plan, if and
when formalized, would likely include technical contacts, access to backup
systems and alternative vendor sources, among other things. See the introductory
paragraph above in this "Management's Discussion and Analysis" section for
forward looking statements disclaimer.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company encounters lawsuits from time to time in the ordinary course of
business and, at November 30, 1999, the Company or its affiliates were parties
to several civil lawsuits. Any losses that the Company may suffer from current
or future lawsuits, and the effect such litigation may have upon the reputation
and marketability of the Company's products, could have a material adverse
impact on the results of future operations, the financial condition and
prospects of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
ITEM 5. OTHER INFORMATION
Prior to October 1986, a previously owned business unit of one of the Company's
subsidiaries operated a facility on property within an area subsequently
designated as a federal Superfund site. The Company learned that hazardous
substances have been detected in the subsurface of the property and that the
current owner has been requested by a state agency to undertake additional
investigation at the property. The Company is also aware that the property has
been subject to a general notice letter issued by the United States
Environmental Protection Agency under the federal Superfund law. The Company, as
the successor to one of several prior tenants of the property, may be held
responsible for the contamination at the site regardless of whether its
subsidiary caused the contamination. The Company does not believe it is
responsible for any contamination at the property, and has not been notified or
contacted by any governmental authority in that regard, nor named in any
proceeding relating to the property. However, if the Company were held liable
under federal Superfund law, or other environmental law, or had to defend itself
against such a claim, the consequences could be material to the Company's
financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.1 Amendment No. 2 to Amended and Restated Loan Agreement dated
November 23, 1999 between the Company, Comerica Bank -
California and Mellon Bank, N.A. *
10.2 Employment Agreement dated December 1, 1999 between the
Company and Paul A. Walbrun. *
27.1 Financial Data Schedule *
--------------------
* Filed herewith.
(b) CURRENT REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on December 21, 1999.
SUMMA INDUSTRIES
/s/ James R. Swartwout /s/ Trygve M. Thoresen
- ---------------------- ----------------------
James R. Swartwout Trygve M. Thoresen
President and Chief Financial Officer Vice President and Secretary
14
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 2 TO AMENDED AND RESTATED LOAN AGREEMENT
This Amendment dated as of November 23, 1999 by and among Summa Industries, a
Delaware corporation ("Borrower"), Comerica Bank-California, a California
corporation, as agent for the lenders from time to time ("Agent") and the
various financial institutions that are (or may hereafter become) parties hereto
as Lenders (each a "Lender" and collectively the "Lenders").
R E C I T A L S:
A. Borrower, Agent and the Lenders entered into that certain Amended and
Restated Revolving Credit and Term Loan Agreement dated as of March 5, 1999, as
previously amended as of April 21, 1999 ("Agreement").
B. The parties desire to amend the Agreement as set forth below.
The parties agree as follows:
1. The following definitions are added to SECTION 1 of the Agreement:
"`ACQUISITION ADVANCE' MEANS THE BORROWING OF THE ACQUISITION LOAN REQUESTED BY
BORROWER AND MADE BY LENDERS UNDER SECTION 2.10."
"`ACQUISITION COMMITMENT LIMIT' HAS THE MEANING SET FORTH IN SECTION 2.10."
"`ACQUISITION LOAN' HAS THE MEANING SET FORTH IN SECTION 2.10."
"`ACQUISITION NOTE' AND `ACQUISITION NOTES' HAVE THE MEANINGS SET FORTH IN
SECTION 2.10."
"`COMMITMENT' MEANS THE AGGREGATE COMMITMENT OF THE LENDERS TO MAKE ADVANCES OF
THE REVOLVING LOAN TO BORROWER UNDER SECTION 2.1 AND TO MAKE ADVANCES OF THE
ACQUISITION LOAN TO BORROWER UNDER SECTION 2.10."
"`PERMITTED ACQUISITION" MEANS ANY ACQUISITION BY BORROWER OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF ANOTHER PERSON, OR OF A DIVISION OR LINE OF
BUSINESS OF ANOTHER PERSON, OR SHARES OF STOCK OR OTHER OWNERSHIP INTERESTS OF
ANOTHER PERSON, WHICH IS CONDUCTED IN ACCORDANCE WITH THE FOLLOWING
REQUIREMENTS:
(a) SUCH ACQUISITION IS OF A BUSINESS OR PERSON ENGAGED IN A LINE OF BUSINESS
WHICH IS COMPATIBLE WITH, OR COMPLEMENTARY TO, THE BUSINESS OF BORROWER;
(b) BOTH IMMEDIATELY BEFORE AND AFTER SUCH ACQUISITION NO DEFAULT OR EVENT OF
DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING;
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(c) THE BOARD OF DIRECTORS (OR OTHER PERSON(S) EXERCISING SIMILAR FUNCTIONS) OF
THE SELLER OF THE ASSETS OR ISSUER OF THE SHARES OF STOCK OR OTHER OWNERSHIP
INTERESTS BEING ACQUIRED SHALL NOT HAVE DISAPPROVED SUCH TRANSACTION OR
RECOMMENDED THAT SUCH TRANSACTION BE DISAPPROVED;
(d) IF THE SUM OF (i) THE PURCHASE PRICE OF SUCH PROPOSED NEW ACQUISITION,
COMPUTED ON THE BASIS OF TOTAL ACQUISITION CONSIDERATION PAID OR INCURRED, OR TO
BE PAID OR INCURRED, BY BORROWER WITH RESPECT THERETO, INCLUDING THE AMOUNT OF
DEBT ASSUMED OR TO WHICH SUCH ASSETS, BUSINESSES OR BUSINESS OR OWNERSHIP
INTERESTS OR SHARES, OR ANY PERSON SO ACQUIRED, IS SUBJECT, BUT EXCLUDING THE
VALUE OF ANY COMMON SHARES TRANSFERRED AS A PART OF SUCH ACQUISITION, PLUS (ii)
THE AGGREGATE PURCHASE PRICE OF ALL OTHER PERMITTED ACQUISITIONS MADE DURING THE
TWELVE (12) MONTH PERIOD ENDING ON THE EFFECTIVE DATE OF THE PROPOSED
ACQUISITION, PLUS (iii) THE AMOUNT OF PAYMENTS TO BE MADE UNDER NON-COMPETE
AGREEMENTS ENTERED INTO IN CONNECTION WITH SUCH ACQUISITION, ("PURCHASE PRICE")
IS GREATER THAN SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS $7,500,000, (x)
BORROWER SHALL HAVE DELIVERED TO THE AGENT AND THE LENDERS NOT LESS THAN FIFTEEN
(15) NOR MORE THAN NINETY (90) DAYS PRIOR TO THE DATE OF SUCH ACQUISITION,
NOTICE OF SUCH ACQUISITION TOGETHER WITH PRO FORMA PROJECTED FINANCIAL
INFORMATION; (y) LENDERS SHALL HAVE HAD SUFFICIENT OPPORTUNITY TO CONDUCT AUDITS
AND APPRAISALS OF THE TARGET CORPORATION (INCLUDING WITHOUT LIMIT ACCOUNT
RECEIVABLE AUDITS, INVENTORY AUDITS AND APPRAISALS OF BORROWER'S MACHINERY,
EQUIPMENT AND REAL ESTATE) AND ARE SATISFIED WITH THE RESULTS THEREOF; AND (z)
THE ACQUISITION SHALL HAVE BEEN APPROVED IN WRITING BY THE REQUIRED LENDERS
PRIOR TO ITS CONSUMMATION (WHICH APPROVAL SHALL BE GIVEN OR DENIED WITHIN THIRTY
DAYS OF RECEIPT BY THE AGENT AND THE LENDERS OF THE INFORMATION REFERRED TO IN
CLAUSE (x) ABOVE); AND
(e) IF AFTER GIVING EFFECT TO SUCH ACQUISITION, BORROWER'S RATIO OF FUNDED DEBT
TO EBITDA WOULD BE EQUAL TO OR GREATER THAN 3.0:1, THE ACQUISITION SHALL HAVE
BEEN APPROVED IN WRITING BY THE REQUIRED LENDERS PRIOR TO ITS CONSUMMATION
(WHICH APPROVAL SHALL BE GIVEN OR DENIED WITHIN THIRTY DAYS OF RECEIPT BY THE
AGENT AND THE LENDERS OF THE INFORMATION REFERRED TO IN CLAUSES (b) AND (c)
ABOVE); AND
(f) THE GOODWILL CREATED BY THE ACQUISITION SHALL NOT EXCEED SIXTY PERCENT (60%)
OF THE PURCHASE PRICE."
"'PRO FORMA PROJECTED FINANCIAL INFORMATION' MEANS AS TO ANY PROPOSED
ACQUISITION, A STATEMENT EXECUTED BY THE CHIEF FINANCIAL OFFICER OF BORROWER
(SUPPORTED BY REASONABLE DETAIL) SETTING FORTH THE TOTAL CONSIDERATION TO BE
PAID OR INCURRED IN CONNECTION WITH THE PROPOSED ACQUISITION AND, PRO FORMA
COMBINED PROJECTED FINANCIAL INFORMATION FOR BORROWER AND ITS CONSOLIDATED
SUBSIDIARIES AND THE ACQUISITION TARGET (IF APPLICABLE), CONSISTING OF (a)
PROJECTED BALANCE SHEETS AS OF THE PROPOSED EFFECTIVE DATE OF THE ACQUISITION OR
THE CLOSING DATE AND AS OF THE END OF AT LEAST THE NEXT SUCCEEDING THREE (3)
FISCAL YEARS OF BORROWER FOLLOWING THE ACQUISITION, (b) PROJECTED STATEMENTS OF
INCOME FOR EACH OF THOSE YEARS, INCLUDING SUFFICIENT DETAIL TO PERMIT
CALCULATION OF THE AMOUNTS AND THE RATIOS DESCRIBED IN SECTION 7.15 HEREOF, AS
PROJECTED AS OF THE EFFECTIVE DATE OF THE ACQUISITION AND FOR THOSE FISCAL YEARS
AND (c) COPIES OF FINANCIAL STATEMENTS OF THE ACQUISITION TARGET FOR THE THREE
(3) IMMEDIATELY PRECEDING FISCAL YEARS
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AUDITED WITH UNQUALIFIED OPINIONS OR REVIEWED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS SATISFACTORY TO THE REQUIRED LENDERS, AND ACCOMPANIED BY (i) A
STATEMENT SETTING FORTH A CALCULATION OF THE RATIOS AND AMOUNTS SO DESCRIBED,
(ii) A STATEMENT IN REASONABLE DETAIL SPECIFYING ALL MATERIAL ASSUMPTIONS
UNDERLYING THE PROJECTIONS AND (iii) SUCH OTHER INFORMATION AS ANY LENDER
SHALL REASONABLY REQUEST."
"'QUICK RATIO' MEANS AS OF ANY DATE OF DETERMINATION A RATIO, THE NUMERATOR OF
WHICH IS THE SUM OF COMPANY'S AND ITS CONSOLIDATED SUBSIDIARIES' CASH, CASH
EQUIVALENTS AND ACCOUNTS AS OF SUCH DATE AND THE DENOMINATOR OF WHICH IS
CONSOLIDATED CURRENT LIABILITIES AS OF SUCH DATE."
"'REVOLVING ADVANCE' MEANS A BORROWING OF THE REVOLVING LOAN REQUESTED BY
BORROWER AND MADE BY LENDERS UNDER SECTION 2.1."
"'REVOLVING COMMITMENT' MEANS THE AGGREGATE COMMITMENT OF THE LENDERS TO MAKE
ADVANCES OF THE REVOLVING LOAN TO BORROWER UNDER SECTION 2.1."
"'TERM LOAN C' HAS THE MEANING SET FORTH IN SECTION 2.9."
"'TERM NOTE C' AND `TERM NOTES C' SHALL HAVE THE MEANINGS SET FORTH IN
SECTION 2.9."
2. The definitions of "Advance", "Applicable Base Rate Margin," "Applicable
LIBOR Margin", "Available Amount," "Letter of Credit Maximum Amount",
"Loans", "Required Lenders", "Revolving Maturity Date", "Swing Line
Commitment", and "Term Loan" set forth in SECTION 1 of the Agreement are
amended to read as follows:
"'ADVANCE' MEANS A REVOLVING ADVANCE OR AN ACQUISITION ADVANCE."
"'APPLICABLE BASE RATE MARGIN' MEANS
(a) FROM THE DATE HEREOF UNTIL THE PRICING MATRIX COMMENCEMENT DATE, (i)
WITH RESPECT TO THE REVOLVING LOAN, THREE EIGHTHS OF ONE PERCENT (.375%) AND
(ii) WITH RESPECT TO TERM LOAN C AND THE ACQUISITION LOAN, FIVE EIGHTHS OF
ONE PERCENT (.625%) AND
(b) ON THE PRICING MATRIX COMMENCEMENT DATE AND THEREAFTER, THE APPLICABLE
PERCENTAGE FOR EACH LOAN SET FORTH BELOW BENEATH SUCH LOAN BASED UPON
BORROWER'S RATIO OF SENIOR DEBT TO EBITDA FOR THE MOST RECENTLY ENDED PERIOD
OF FOUR CONSECUTIVE FISCAL QUARTERS (TAKING INTO ACCOUNT ACTUAL FINANCIAL
RESULTS OF EACH CONSOLIDATED SUBSIDIARY OF BORROWER FOR SUCH ENTIRE FOUR
QUARTER PERIOD NOTWITHSTANDING THAT SUCH SUBSIDIARY MAY HAVE BEEN ACQUIRED
DURING SUCH FOUR QUARTER PERIOD, PROVIDED THAT AGENT SHALL HAVE RECEIVED
AUDITED FINANCIAL STATEMENTS WITH UNQUALIFIED OPINIONS OR FINANCIAL
STATEMENTS REVIEWED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS SATISFACTORY
TO THE REQUIRED LENDERS FOR SUCH SUBSIDIARIES FOR SUCH MEASURING PERIOD) AS
SET FORTH IN THE MOST RECENT OFFICER'S CERTIFICATE OF BORROWER FURNISHED
PURSUANT TO SECTION 7.1(c):
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APPLICABLE BASE RATE MARGIN
<TABLE>
<CAPTION>
SENIOR DEBT/EBITDA RATIO REVOLVING LOAN TERM LOAN C ACQUISITION LOAN
- ------------------------ -------------- ----------- ----------------
<S> <C> <C> <C>
< 2.0 0% .250% .250%
> = 2.0 AND < 2.5 .125% .375% .375%
> = 2.5 AND < 3.0 .375% .625% .625%
> = 3.0 .625% .875% .875%"
</TABLE>
"'APPLICABLE LIBOR MARGIN' means:
(a) FROM THE DATE HEREOF UNTIL THE PRICING MATRIX COMMENCEMENT DATE, (i)
WITH RESPECT TO THE REVOLVING LOAN, TWO AND THREE EIGHTHS PERCENT (2.375%)
AND (iii) WITH RESPECT TO TERM LOAN C AND THE ACQUISITION LOAN, TWO AND FIVE
EIGHTHS PERCENT (2.625%) AND
(b) ON THE PRICING MATRIX COMMENCEMENT DATE AND THEREAFTER, WITH RESPECT TO
ANY LOAN, THE APPLICABLE PERCENTAGE SET FORTH BELOW BENEATH SUCH LOAN BASED
UPON BORROWER'S RATIO OF SENIOR DEBT TO EBITDA FOR THE MOST RECENTLY ENDED
PERIOD OF FOUR CONSECUTIVE FISCAL QUARTERS (TAKING INTO ACCOUNT ACTUAL
FINANCIAL RESULTS OF EACH CONSOLIDATED SUBSIDIARY OF BORROWER FOR SUCH ENTIRE
FOUR QUARTER PERIOD NOTWITHSTANDING THAT SUCH SUBSIDIARY MAY HAVE BEEN
ACQUIRED DURING SUCH FOUR QUARTER PERIOD, PROVIDED THAT AGENT SHALL HAVE
RECEIVED AUDITED FINANCIAL STATEMENTS WITH UNQUALIFIED OPINIONS OR FINANCIAL
STATEMENTS REVIEWED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS SATISFACTORY
TO THE REQUIRED LENDERS FOR SUCH SUBSIDIARIES FOR SUCH MEASURING PERIOD) AS
SET FORTH IN THE MOST RECENT OFFICER'S CERTIFICATE OF BORROWER FURNISHED
PURSUANT TO SECTION 7.1(c):
APPLICABLE LIBOR MARGIN
<TABLE>
<CAPTION>
SENIOR DEBT/EBITDA RATIO REVOLVING LOAN TERM LOAN C ACQUISITION LOAN
- ------------------------ -------------- ----------- ----------------
<S> <C> <C> <C>
< 1.5 1.625% 1.875% 1.875%
> = 1.5 AND < 2.0 1.875% 2.125% 2.125%
> = 2.0 AND < 2.5 2.125% 2.375% 2.375%
> = 2.5 AND < 3.0 2.375% 2.625% 2.625%
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> = 3.0 2.625% 2.875% 2.875%"
</TABLE>
"'AVAILABLE AMOUNT' MEANS AS OF ANY DATE THE REVOLVING COMMITMENT LIMIT AS OF
SUCH DATE."
"'LETTER OF CREDIT MAXIMUM AMOUNT' MEANS FIVE MILLION DOLLARS ($5,000,000)."
"'REQUIRED LENDERS' MEANS, AS OF ANY DATE OF DETERMINATION (a) SO LONG AS THE
REVOLVING COMMITMENT LIMIT IS OUTSTANDING HEREUNDER, LENDERS HOLDING NOT LESS
THAN 66-2/3% OF THE AGGREGATE PRINCIPAL AMOUNT OF (i) THE REVOLVING COMMITMENT
LIMIT, PLUS (ii) THE ACQUISITION COMMITMENT LIMIT, PLUS (iii) THE OBLIGATIONS
THEN OUTSTANDING UNDER TERM LOAN C AND (b) IF THE REVOLVING COMMITMENT LIMIT AND
THE ACQUISITION COMMITMENT LIMIT HAVE BEEN TERMINATED, THE LENDERS HOLDING NOT
LESS THAN 66-2/3% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE OBLIGATIONS THEN
OUTSTANDING HEREUNDER; PROVIDED HOWEVER, THAT FOR PURPOSES OF DETERMINING
REQUIRED LENDERS HEREUNDER, OBLIGATIONS OUTSTANDING UNDER ANY LETTER OF CREDIT
SHALL BE ALLOCATED AMONG THE LENDERS BASED ON THEIR RESPECTIVE PERCENTAGES OF
THE REVOLVING COMMITMENT."
"'REVOLVING MATURITY DATE' MEANS THE EARLIER OF (i) DECEMBER 31, 2002 AND (ii)
THE DATE ON WHICH THE REVOLVING COMMITMENT IS TERMINATED PURSUANT TO SECTION
8.2."
"'SWING LINE COMMITMENT' MEANS THREE MILLION DOLLARS ($3,000,000) SUBJECT TO
TERMINATION PURSUANT TO SECTION 8.2."
"'TERM LOANS' MEANS TERM LOAN A, TERM LOAN B AND TERM LOAN C."
"'LOAN' MEANS EACH OF THE REVOLVING LOAN, TERM LOAN A, TERM LOAN B, TERM LOAN C
AND THE ACQUISITION LOAN, OR ANY PORTION THEREOF. `LOANS' MEANS ALL OF SUCH
LOANS COLLECTIVELY."
3. The term "Facilities", wherever used in the Agreement, means the
Revolving Loan, the Acquisition Loan, Term Loan A, Term Loan B or Term Loan C
and "Facility" means any of them.
4. SECTION 2.1 of the Agreement is amended to read as follows:
"2.1 REVOLVING LOAN LENDERS AGREE TO MAKE AVAILABLE TO BORROWER, IN AN AMOUNT
NOT TO EXCEED EACH SUCH LENDER'S PERCENTAGE OF THE REVOLVING LOAN, A REVOLVING
LINE OF CREDIT (THE `REVOLVING LOAN') IN THE MAXIMUM PRINCIPAL AMOUNT
OUTSTANDING AT ANY TIME OF TWENTY FIVE MILLION DOLLARS ($25,000,000) (THE
`REVOLVING COMMITMENT LIMIT') WHICH REVOLVING LOAN SHALL BE EVIDENCED BY ONE OR
MORE REVOLVING NOTES, EACH SUBSTANTIALLY IN THE FORM OF EXHIBIT A ANNEXED HERETO
(EACH A `REVOLVING NOTE' AND COLLECTIVELY THE `REVOLVING NOTES'). EACH REVOLVING
NOTE SHALL BE REGISTERED IN THE NAME OF A LENDER AND SHALL HAVE A MAXIMUM
PRINCIPAL AMOUNT EQUAL TO SUCH LENDER'S PERCENTAGE OF THE REVOLVING COMMITMENT.
THE REVOLVING LOAN SHALL MATURE AND BE PAYABLE IN FULL ON THE REVOLVING MATURITY
DATE. SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, SECTION 3.7, BORROWER MAY FROM TIME TO TIME REPAY ALL
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OR A PORTION OF THE AMOUNTS OUTSTANDING UNDER THE REVOLVING LOAN (TOGETHER
WITH ACCRUED INTEREST TO THE DATE OF REPAYMENT ON THE PRINCIPAL AMOUNT SO
REPAID), WHICH AMOUNTS MAY BE REBORROWED (SUBJECT TO THE REVOLVING COMMITMENT
LIMIT AND THE AVAILABLE AMOUNT) SO LONG AS THE REVOLVING COMMITMENT OF THE
LENDERS TO MAKE ADVANCES UNDER THE REVOLVING LOAN HAS NOT BEEN TERMINATED. IN
NO EVENT SHALL THE SUM OF THE AGGREGATE OUTSTANDING ADVANCES PLUS THE
OUTSTANDING LETTER OF CREDIT OBLIGATIONS EXCEED THE LESSER OF (i) THE
REVOLVING COMMITMENT LIMIT OR (ii) THE AVAILABLE AMOUNT."
5. SECTION 2.4(b) of the Agreement is amended to read as follows:
"(b) UNLESS AGENT SHALL HAVE BEEN NOTIFIED BY TELEPHONE, CONFIRMED IN WRITING,
BY ANY LENDER BY 5:00 P.M., PACIFIC TIME, ON THE BUSINESS DAY PRIOR TO AN
ADVANCE THAT SUCH LENDER WILL NOT MAKE AVAILABLE THE AMOUNT WHICH WOULD
CONSTITUTE ITS PERCENTAGE OF SUCH ADVANCE ON THE DATE SPECIFIED THEREFORE, AGENT
MAY ASSUME THAT SUCH LENDER HAS MADE SUCH AMOUNT AVAILABLE TO AGENT AND, IN
RELIANCE UPON SUCH ASSUMPTION, MAKE AVAILABLE TO BORROWER A CORRESPONDING
AMOUNT. IF AND TO THE EXTENT THAT SUCH LENDER SHALL NOT HAVE MADE SUCH AMOUNT
AVAILABLE TO AGENT, SUCH LENDER AND BORROWER SEVERALLY AGREE TO REPAY AGENT
FORTHWITH ON DEMAND SUCH CORRESPONDING AMOUNT TOGETHER WITH INTEREST THEREON FOR
EACH DAY FROM THE DATE AGENT MADE SUCH AMOUNT AVAILABLE TO BORROWER TO THE DATE
SUCH AMOUNT IS REPAID TO AGENT, AT THE INTEREST RATE APPLICABLE AT THE TIME TO
THE PORTION OF THE REVOLVING LOAN OR ACQUISITION LOAN COMPRISING SUCH ADVANCE."
6. SECTION 2.6(c) is added to the Agreement as follows:
"(c) ON THE DATE OF EACH ACQUISITION ADVANCE UNDER THE ACQUISITION LOAN,
BORROWER SHALL PAY TO THE AGENT FOR DISTRIBUTION TO THE LENDERS, PRO RATA IN
ACCORDANCE WITH THEIR PERCENTAGES, A NON-REFUNDABLE DRAW FEE (`DRAW FEE') EQUAL
TO TWELVE AND ONE-HALF (12.5) BASIS POINTS OF THE AMOUNT OF SUCH ACQUISITION
ADVANCE."
7. Each reference to the term "Advance" in SECTIONS 2.7 AND 2.8 of the
Agreement shall mean Revolving Advances.
8. The reference to the term "Commitment" in Section 2.8(j) of the
Agreement shall mean the Revolving Commitment.
9. SECTION 2.9 is added to Agreement as follows:
"2.9 TERM LOAN C. SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, LENDERS
AGREE TO PROVIDE BORROWER ON THE DATE HEREOF WITH A TERM LOAN (`TERM LOAN C') IN
THE PRINCIPAL AMOUNT OF EIGHTEEN MILLION TWELVE THOUSAND SEVEN HUNDRED SEVENTY
SEVEN DOLLARS AND 14/100 DOLLARS ($18,012,777.14) WHICH TERM LOAN C SHALL BE
EVIDENCED BY ONE OR MORE TERM NOTES EACH SUBSTANTIALLY IN THE FORM OF EXHIBIT
`T' HERETO (EACH `TERM NOTE C' AND COLLECTIVELY `TERM NOTES C') PAYABLE TO EACH
LENDER IN AN AMOUNT EQUAL TO EACH LENDER'S PERCENTAGE OF TERM LOAN C. IN NO
EVENT MAY BORROWER RE-BORROW ANY PRINCIPAL PORTION OF TERM
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LOAN C THAT HAS BEEN REPAID. THE PROCEEDS OF TERM LOAN C SHALL BE USED BY
BORROWER TO REPAY IN FULL THE INDEBTEDNESS OUTSTANDING UNDER TERM LOAN A AND
TERM LOAN B. THE PRINCIPAL OF TERM LOAN C SHALL BE PAYABLE AS PROVIDED IN
SECTION 3.3(g) AND INTEREST SHALL BE PAYABLE CONCURRENTLY WITH PRINCIPAL. AT
ITS OPTION, BORROWER MAY FROM TIME TO TIME PREPAY ALL OR ANY PORTION OF THE
OUTSTANDING PRINCIPAL OF TERM LOAN C, TOGETHER WITH ACCRUED INTEREST ON THE
PRINCIPAL BEING SO REPAID AND ANY AMOUNT PAYABLE PURSUANT TO SECTION 3.7.
BORROWER SHALL BE ENTITLED TO DESIGNATE THE SCHEDULED PRINCIPAL PAYMENTS TO
WHICH ANY PARTIAL VOLUNTARY PREPAYMENT UNDER TERM LOAN C IS TO BE APPLIED; IN
SUCH EVENT BORROWER SHALL PAY ACCRUED INTEREST ON THE OUTSTANDING PRINCIPAL
OF TERM LOAN C ON THE PAYMENT DATE WHEN SUCH PREPAID PRINCIPAL AMOUNT WOULD
OTHERWISE HAVE BEEN DUE."
10. SECTION 2.10 is added to the Agreement as follows:
"2.10 ACQUISITION LOAN. LENDERS AGREE TO MAKE AVAILABLE TO BORROWER, IN AN
AMOUNT NOT TO EXCEED EACH SUCH LENDER'S PERCENTAGE OF THE ACQUISITION LOAN, A
NONREVOLVING LINE OF CREDIT (THE `ACQUISITION LOAN') IN AN AGGREGATE PRINCIPAL
AMOUNT NOT TO EXCEED FIFTEEN MILLION DOLLARS ($15,000,000) (THE `ACQUISITION
COMMITMENT LIMIT') WHICH ACQUISITION LOAN SHALL BE EVIDENCED BY ONE OR MORE
NOTES, EACH SUBSTANTIALLY IN THE FORM OF EXHIBIT `U' HERETO (EACH AN
`ACQUISITION NOTE' AND COLLECTIVELY THE `ACQUISITION NOTES'). EACH ACQUISITION
NOTE SHALL BE REGISTERED IN THE NAME OF A LENDER IN AN AMOUNT EQUAL TO SUCH
LENDER'S PERCENTAGE OF THE ACQUISITION COMMITMENT LIMIT. ACQUISITION ADVANCES
SHALL BE AVAILABLE FROM THE DATE HEREOF THROUGH NOVEMBER 1, 2001. PRINCIPAL
SHALL BE PAID AS PROVIDED IN SECTION 3.3(h). SUBJECT TO THE TERMS AND CONDITIONS
OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, SECTION 3.7, BORROWER MAY FROM
TIME TO TIME REPAY ALL OR PORTION OF THE AMOUNTS OUTSTANDING UNDER THE
ACQUISITION LOAN (TOGETHER WITH ACCRUED INTEREST TO THE DATE OF REPAYMENT ON THE
PRINCIPAL AMOUNT SO REPAID) PROVIDED, HOWEVER, THAT ANY SUCH AMOUNTS REPAID
CANNOT BE REBORROWED. IN NO EVENT SHALL THE SUM OF THE AGGREGATE ACQUISITION
ADVANCES EXCEED THE ACQUISITION COMMITMENT LIMIT. THE PROCEEDS OF ACQUISITION
ADVANCES SHALL BE USED SOLELY TO FINANCE PERMITTED ACQUISITIONS."
11. The cash flow recapture covenant set forth is SECTION 3.3(e) of the
Agreement is deleted and replaced by the following:
"(e) [RESERVED]."
12. The last sentence of SECTION 3.3(d) of the Agreement is amended to read as
follows:
"ALL NET CASH PROCEEDS PAID TO AGENT AS HEREIN PROVIDED SHALL BE DISTRIBUTED TO
THE LENDERS FOR APPLICATION FIRST TO REPAY THE INDEBTEDNESS OUTSTANDING UNDER
TERM NOTES C, ON A PRO RATA BASIS, AND THEN TO THE PRINCIPAL INDEBTEDNESS
OUTSTANDING UNDER THE ACQUISITION NOTES, ON A PRO RATA BASIS."
13. SECTION 3.3(g) is added to the Agreement as follows:
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"(g) THE PRINCIPAL OF TERM LOAN C SHALL BE PAYABLE IN FORTY-EIGHT (48) MONTHLY
INSTALLMENTS OF THREE HUNDRED SEVENTY SEVEN THOUSAND ONE HUNDRED EIGHTY SIX AND
93/100 DOLLARS ($377,186.93) EACH COMMENCING ON NOVEMBER 1, 1999 AND THE FIRST
BUSINESS DAY OF EACH MONTH THEREAFTER UNTIL NOVEMBER 1, 2003, WHEN TERM LOAN C
SHALL MATURE AND BE PAYABLE IN FULL. INTEREST ON EACH TERM NOTE C SHALL BE
REPAID IN ACCORDANCE WITH SECTION 3.2 OF THE AGREEMENT."
14. SECTION 3.3(h) is added to the Agreement as follows:
"(h) EACH ACQUISITION ADVANCE SHALL BE REPAID IN SIXTY (60) MONTHLY PRINCIPAL
INSTALLMENTS EACH EQUAL TO 1/60TH OF THE PRINCIPAL AMOUNT OF SUCH ACQUISITION
ADVANCE, COMMENCING ON THE FIRST BUSINESS DAY OF THE FIRST MONTH IMMEDIATELY
FOLLOWING THE DATE OF THE ACQUISITION ADVANCE AND ON THE FIRST BUSINESS DAY OF
EACH MONTH THEREAFTER UNTIL THE DATE WHICH IS FIVE (5) YEARS AFTER THE DATE OF
SUCH ACQUISITION ADVANCE WHEN SUCH ACQUISITION ADVANCE SHALL MATURE AND BE
PAYABLE IN FULL. INTEREST ON EACH ACQUISITION ADVANCE SHALL BE REPAID IN
ACCORDANCE WITH SECTION 3.2 OF THE AGREEMENT."
15. SECTION 7.1(a) of the Agreement is amended to read as follows:
"(a) AS SOON AS AVAILABLE AND IN ANY EVENT WITHIN 30 DAYS AFTER THE END OF EACH
MONTH, COPIES OF THE CONSOLIDATED AND CONSOLIDATING BALANCE SHEETS OF BORROWER
AND ITS SUBSIDIARIES AS OF THE END OF SUCH MONTH, AND OF THE RELATED
CONSOLIDATED AND CONSOLIDATING STATEMENTS OF OPERATIONS, EARNINGS AND CASH FLOWS
FOR SUCH MONTH AND FOR THE PORTION OF THE FISCAL YEAR OF BORROWER ENDED WITH THE
LAST DAY OF SUCH MONTH, ALL IN REASONABLE DETAIL AND STATING IN COMPARATIVE FORM
(i) THE CONSOLIDATED AND CONSOLIDATING FIGURES AS OF THE END OF AND FOR THE
CORRESPONDING DATE AND PERIOD IN THE PREVIOUS FISCAL YEAR AND (ii) THE
CORRESPONDING FIGURES FROM THE CONSOLIDATED BUDGET OF BORROWER AND ITS
SUBSIDIARIES FOR SUCH PERIOD, ALL SUCH STATEMENTS BEING CERTIFIED BY THE CHIEF
FINANCIAL OFFICER OF BORROWER;"
16. SECTION 7.1(c) of the Agreement is amended to read as follows:
"(c) WITHIN 30 DAYS AFTER THE END OF EACH MONTH, AN OFFICER'S CERTIFICATE OF
BORROWER (1) SETTING FORTH CALCULATIONS IN REASONABLE DETAIL DEMONSTRATING
WHETHER OR NOT AS AT THE END OF SUCH MONTH BORROWER WAS IN COMPLIANCE WITH
SECTIONS 7.7, 7.8 AND 7.15 OF THIS AGREEMENT AND (2) STATING THAT, BASED UPON
SUCH EXAMINATION OR INVESTIGATION AND REVIEW OF THIS AGREEMENT AND OTHER LOAN
DOCUMENTS AS IN THE OPINION OF THE SIGNER IS NECESSARY TO ENABLE THE SIGNER TO
EXPRESS AN INFORMED OPINION WITH RESPECT THERETO, NO DEFAULT BY BORROWER AND ITS
SUBSIDIARIES IN THE FULFILLMENT OF ANY OF THE TERMS, COVENANTS, PROVISIONS OR
CONDITIONS OF THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS EXISTS OR HAS EXISTED
DURING SUCH MONTH OR, IF SUCH A DEFAULT SHALL EXIST OR HAVE EXISTED, THE NATURE
AND PERIOD OF EXISTENCE THEREOF AND WHAT ACTION BORROWER (OR THE APPLICABLE
SUBSIDIARY) HAS TAKEN, IS TAKING OR PROPOSES TO TAKE WITH RESPECT THERETO;"
17. SECTION 7.11 of the Agreement is amended to read as follows:
"7.11 MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS; ACQUISITIONS. BORROWER
WILL NOT, AND
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WILL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, ENTER INTO ANY TRANSACTION OF
MERGER OR CONSOLIDATION, OR LIQUIDATE, WIND UP OR DISSOLVE ITSELF (OR SUFFER
ANY LIQUIDATION OR DISSOLUTION), OR CONVEY, SELL, LEASE, TRANSFER OR
OTHERWISE DISPOSE OF, IN ONE TRANSACTION OR A SERIES OF TRANSACTIONS, ALL OR
ANY PART OF ITS BUSINESS, PROPERTY OR FIXED ASSETS, WHETHER NOW OWNED OR
HEREAFTER ACQUIRED, OR ACQUIRE BY PURCHASE OR OTHERWISE ALL OR SUBSTANTIALLY
ALL OF THE BUSINESS, PROPERTY OR FIXED ASSETS OF, OR STOCK OR OTHER EVIDENCE
OF BENEFICIAL INTEREST IN ANY PERSON, EXCEPT:
(a) BORROWER AND ITS SUBSIDIARIES MAY IN THE ORDINARY COURSE OF ITS BUSINESS
SELL OR OTHERWISE DISPOSE OF INVENTORY;
(b) BORROWER AND ITS SUBSIDIARIES MAY SELL OR OTHERWISE DISPOSE OF, IN THE
ORDINARY COURSE OF BUSINESS, (i) PROPERTY THAT IS WORN OUT OR OBSOLETE OR NO
LONGER USED IN ITS BUSINESS, AND (ii) OTHER PROPERTY IN AN AMOUNT NOT TO EXCEED
AN AGGREGATE FAIR MARKET VALUE OF $500,000 ON A CONSOLIDATED BASIS PER FISCAL
YEAR;
(c) ANY SUBSIDIARY OF BORROWER MAY MERGE WITH BORROWER (PROVIDED THAT BORROWER
IS THE SURVIVING ENTITY) OR ANY OTHER SUBSIDIARY OF BORROWER; AND
(d) PERMITTED ACQUISITIONS."
18. Section 7.14 of the Agreement is amended to read as follows:
"7.14 RESTRICTED PAYMENTS AND INVESTMENTS. BORROWER WILL NOT, AND WILL NOT
PERMIT ANY OF ITS SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY, MAKE
(i) ANY RESTRICTED PAYMENT OTHER THAN (a) RESTRICTED PAYMENTS TO BORROWER AND
(b) THE PAYMENTS AND DISTRIBUTIONS DESCRIBED IN CLAUSES (a) AND (b) OF THE
DEFINITION OF `RESTRICTED PAYMENTS', PROVIDED THAT IMMEDIATELY PRIOR TO AND
AFTER GIVING EFFECT TO ANY SUCH PAYMENT OR DISTRIBUTION NO EVENT OF DEFAULT
SHALL HAVE OCCURRED AND BE CONTINUING, OR
(ii) ANY INVESTMENT OTHER THAN PERMITTED INVESTMENTS AND THE LOANS TO BORROWER'S
SUBSIDIARIES PERMITTED UNDER SECTION 7.7(d). THIS SECTION 7.14 SHALL NOT
PROHIBIT BORROWER OR ANY SUBSIDIARY FROM OWNING THE CAPITAL STOCK OF THEIR
RESPECTIVE SUBSIDIARIES; PROVIDED THAT NO INVESTMENTS MAY BE MADE IN EXCLUDED
SUBSIDIARIES IN EXCESS OF THOSE INVESTMENTS EXISTING AS OF THE CLOSING DATE."
19. SECTION 7.15(a) of the Agreement is amended to read as follows:
"(a) BORROWER WILL HAVE, AS OF THE LAST DAY OF EACH MONTH, A BOOK NET WORTH OF
NOT LESS THAN THE FOLLOWING DURING THE PERIODS SET FORTH BELOW:
FROM AUGUST 31, 1999 THROUGH AUGUST 30, 2000 $34,000,000
FROM AUGUST 31, 2000 THROUGH AUGUST 30, 2001 $39,000,000
FROM AUGUST 31, 2001 THROUGH AUGUST 30, 2002 $44,000,000
9
<PAGE>
FROM AUGUST 31, 2002 AND THEREAFTER $49,000,000"
20. The Total Liabilities to Book Net Worth ratio set forth in Section
7.15(b) of the Agreement is hereby deleted and replaced by the following:
"(b) [RESERVED.]"
21. SECTION 7.15(c) of the Agreement is amended to read as follows:
"(c) BORROWER WILL HAVE, AS AT THE END OF EACH MONTH, A RATIO OF FUNDED DEBT TO
EDITDA (TAKING INTO ACCOUNT ACTUAL FINANCIAL RESULTS OF EACH CONSOLIDATED
SUBSIDIARY OF BORROWER FOR THE TWELVE MONTH PERIOD ENDING ON THE DATE OF
DETERMINATION NOTWITHSTANDING THAT SUCH SUBSIDIARY MAY HAVE BEEN ACQUIRED DURING
SUCH PERIOD, PROVIDED THAT AGENT SHALL HAVE RECEIVED AUDITED FINANCIAL
STATEMENTS WITH UNQUALIFIED OPINIONS OR FINANCIAL STATEMENTS REVIEWED BY
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS SATISFACTORY TO THE REQUIRED LENDERS
FOR SUCH SUBSIDIARIES FOR SUCH TWELVE MONTH PERIOD) OF NOT MORE THAT 3.5: 1."
22. SECTION 7.15(d) of the Agreement is amended to read as follows:
"(d) BORROWER SHALL AT ALL TIMES HAVE A RATIO OF (x) CONSOLIDATED NET INCOME
PLUS DEPRECIATION AND AMORTIZATION (TAKING INTO ACCOUNT ACTUAL FINANCIAL RESULTS
OF EACH CONSOLIDATED SUBSIDIARY OF BORROWER FOR THE TWELVE MONTH PERIOD ENDING
ON THE DATE OF DETERMINATION NOTWITHSTANDING THAT SUCH SUBSIDIARY MAY HAVE BEEN
ACQUIRED DURING SUCH PERIOD, PROVIDED THAT AGENT SHALL HAVE RECEIVED AUDITED
FINANCIAL STATEMENTS WITH UNQUALIFIED OPINIONS OR FINANCIAL STATEMENTS REVIEWED
BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS SATISFACTORY TO THE REQUIRED LENDERS
FOR SUCH SUBSIDIARIES FOR SUCH TWELVE MONTH PERIOD) LESS DIVIDENDS PAID TO
SHAREHOLDERS OF COMPANY FOR THE TWELVE MONTH PERIOD ENDING ON SUCH DATE TO (y)
THE CURRENT PORTION OF LONG-TERM INDEBTEDNESS PLUS CAPITAL EXPENDITURES INCURRED
BUT NOT FINANCED DURING THE APPLICABLE PERIOD OF MEASUREMENT OF NOT LESS THAN
1.5 TO 1.0, AS AT THE END OF EACH MONTH FOR THE PERIOD OF TWELVE CONSECUTIVE
MONTHS THEN ENDED."
23. The Consolidated Current Assets to Consolidated Current Liabilities ratio
set forth in SECTION 7.15(e) of the Agreement is deleted and replaced by the
following::
"(e) BORROWER WILL HAVE, AS AT THE LAST DAY OF EACH MONTH, A QUICK RATIO OF NOT
LESS THAN .45:1.0."
24. SECTION 9.14 of the Agreement is amended to read as follows:
"9.14 APPLICATION OF PROCEEDS OF COLLATERAL. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THIS AGREEMENT, AFTER AN EVENT OF DEFAULT, THE PROCEEDS OF ANY
COLLATERAL, TOGETHER WITH ANY OFFSETS, VOLUNTARY PAYMENTS BY BORROWER OR ANY
SUBSIDIARY OF THE BORROWER OR OTHERS AND ANY OTHER SUMS RECEIVED OR COLLECTED IN
RESPECT OF THE INDEBTEDNESS, SHALL BE APPLIED, FIRST, TO THE ADVANCES OF THE
REVOLVING LOAN, THE ACQUISITION LOAN, TERM LOAN C AND ANY REIMBURSEMENT
OBLIGATIONS
10
<PAGE>
ON A PRO RATA BASIS (OR IN SUCH ORDER AND MANNER AS DETERMINED BY
THE REQUIRED LENDERS; SUBJECT, HOWEVER, TO THE APPLICABLE PERCENTAGES OF THE
LOANS HELD BY EACH OF THE LENDERS), NEXT, TO ANY OTHER INDEBTEDNESS ON A PRO
RATA BASIS, AND THEN, IF THERE IS ANY EXCESS, TO BORROWER AND THE SUBSIDIARIES,
AS THE CASE MAY BE. SUBJECT TO THE TERMS OF THIS SECTION 9.14, THE APPLICATION
OF SUCH PROCEEDS AND OTHER SUMS TO THE ADVANCES OF THE REVOLVING CREDIT, THE
ACQUISITION LOAN, TERM LOAN C AND THE REIMBURSEMENT OBLIGATIONS SHALL BE BASED
ON EACH LENDER'S PERCENTAGE OF THE AGGREGATE OF THE LOANS."
25. Section 10.2(g) of the Agreement is hereby deleted.
26. SCHEDULES 6.4, 6.5(b), 6.6, 6.7(a), 6.8(a), 6.9, 6.10, 6.21, 6.22, 6.23,
6.31 and 7.19 of the Agreement are amended as annexed hereto. EXHIBIT A is
amended and restated in the form annexed hereto. EXHIBITS T, U AND V are added
to the Agreement in the form annexed hereto. SCHEDULE 1 of the Agreement is
amended to read in the form of SCHEDULE 1 annexed hereto.
27. Pursuant to this Amendment, the parties have modified the definition
of "Available Amount" effectively deleting the requirement that the Revolving
Loan be governed by the Borrowing Base. In the event at any time after the
occurrence of an Event of Default or if after the date hereof Borrower=s
Funded Debt to EDITDA ratio equals or exceeds 3.0 to 1 (as determined by
reference to the financial statements furnished Agent and Lenders pursuant to
Section 7.1), the Required Lenders have the right to reinstate the Borrowing
Base. Upon the written instruction of Required Lenders to Agent, the Agent
shall give Borrower written notice of the Lenders' election to reinstate the
Borrowing Base and effective on (but not until) the 20th day following
delivery of written notice of such reinstatement by Agent to Borrower in the
form of EXHIBIT V annexed hereto, the definition of "Available Amount"
automatically shall be deemed amended to read as follows:
"'AVAILABLE AMOUNT' MEANS AS OF ANY DATE THE LESSER OF (i) THE
BORROWING BASE AS OF SUCH DATE AND (ii) THE REVOLVING COMMITMENT LIMIT
AS OF SUCH DATE."
Within 20 days of receipt of such written notice of reinstatement, Borrower
shall furnish Agent, with copies for the Lenders, with a Borrowing Base
Certificate as of the last Business Day of the immediately preceding month.
Unless and until the Borrowing Base is reinstated pursuant to this paragraph,
Borrower shall not be required to furnish Agent and the Lenders with the
documents and information required under SECTION 7.1(e) (i) and (iii) of the
Agreement, but Borrower shall continue to be required to furnish Agent and the
Lenders on a quarterly basis with the other documents and information required
under SECTION 7.1(e) (ii) AND (iv) of the Agreement.
28. For purposes of calculating the financial covenants set forth in
the Agreement, Borrower shall be permitted to take into account actual financial
results of each consolidated Subsidiary of Borrower for the applicable measuring
period notwithstanding that such Subsidiary may have been acquired during such
measuring period, provided that Agent shall have received audited financial
statements with unqualified opinions or financial statements reviewed by
independent certified public accountants satisfactory to the Required Lenders
for such measuring period.
11
<PAGE>
29. The above amendments shall be effective as of the date hereof upon
issuance by Borrower of the Revolving Notes, Term Notes C and the Acquisition
Notes (all in the form annexed hereto) and delivery by Borrower to Agent of all
of the documents set forth on the closing agenda annexed hereto.
30. Except as expressly modified hereby, all the terms of and
conditions of the Agreement shall remain in full force and effect. A default
under this Amendment shall constitute an Event of Default.
31. Borrower hereby represents and warrants that, after giving effect
to the amendments contained herein, (a) execution, delivery and performance of
this Amendment and any other documents and instruments required under this
Amendment or the Agreement are within Borrower=s powers, have been duly
authorized, are not in contravention of law or the terms of the Borrower=s
Articles of Incorporation or Bylaws or Articles of Organization or Operating
Agreement, as applicable, and do not require the consent or approval of any
governmental body, agency, or authority; and this Amendment and any other
documents and instruments required under this Amendment or the Agreement, will
be valid and binding in accordance with their terms; (b) the representations and
warranties of Borrower set forth in SECTIONS 6.1 THROUGH 6.4 AND 6.6 THROUGH
6.32 of the Agreement are true and correct in all material respects on and as of
the date hereof with the same force and effect as if made on and as of the date
hereof; (c) the representations and warranties of Borrower set forth in SECTION
6.5 of the Agreement are true and correct in all material respects as of the
date hereof with respect to the most recent financial statements furnished to
the Lenders by Borrowers in accordance with SECTION 7.1 of the Agreement; and
(d) no Event of Default, or condition or event which, with the giving of notice
or the running of time, or both, would constitute an Event of Default under the
Agreement, has occurred and is continuing as of the date hereof.
32. This Amendment may be signed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK-CALIFORNIA, SUMMA INDUSTRIES
as Agent
By: /s/ JASON LETENDRE By: /s/ TRYGVE M. THORESEN
------------------------------- ---------------------------------
Its: Vice President Its: Vice President
12
<PAGE>
REVOLVING/TERM/ACQUISITION LENDERS: COMERICA BANK- CALIFORNIA
By: /s/ JASON LETENDRE
------------------------------
Its: Vice President
MELLON BANK, N.A.
By: /s/ GARRY HANDELMAN
------------------------------
Its: Vice President
SWINGLINE LENDER: COMERICA BANK- CALIFORNIA
By: /s/ JASON LETENDRE
------------------------------
Its: Vice President
13
<PAGE>
SCHEDULE 1
PERCENTAGES
COMERICA BANK 66%
MELLON BANK 34%
14
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of December 1, 1999, by and between Summa Industries, a Delaware corporation
(the "Company" or "Employer"), and Mr. Paul A. Walbrun, an individual residing
in the State of California ("Executive").
WHEREAS, the Company desires to retain the services of Executive as
Vice President and Controller of the Company, and Executive is willing to
continue to provide such services so long as the terms and conditions contained
herein apply to Executive's employment; and
WHEREAS, the Company and Executive acknowledge that, except as
specifically set forth herein, Executive will continue to be an "at will"
employee of the Company.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants of the parties contained herein, the parties hereto agree as
follows:
1. TERM. This Agreement shall continue in full force and effect
for a period which shall commence as of the date indicated above and shall
continue until Executive's employment with the Company is terminated.
Executive's employment hereunder may be terminated by the Company at any
time, with or without cause. Executive acknowledges that, except as
specifically set forth herein, Executive is an at will employee of the
Company.
2. EMPLOYMENT. Executive shall serve as Vice President and
Controller, subject to the direction of the Company's Chief Executive Officer
and the Board of Directors. Executive shall devote such of his working time
and effort to the business and affairs of the Company as may reasonably be
required of him in the discharge of the duties and responsibilities of such
office, but no less than 40 hours per week on average. Executive shall at all
times perform his duties and obligations faithfully and diligently and to the
best of Executive's ability.
3. COMPENSATION. During the term of this Agreement, and any
continuance hereof, as compensation for the services to be rendered and the
other obligations undertaken by Executive hereunder, Executive shall be
entitled to receive salary and annual bonuses as shall be determined from
time to time by the Company's Board of Directors.
4. EXPENSES. During the term hereof, Executive shall be entitled
to receive prompt reimbursement of all reasonable expenses incurred by
Executive (in accordance with the policies and procedures from time to time
adopted by the Board of Directors of the Company for its senior executive
officers) in performing the services contemplated hereunder, provided that
Executive properly accounts therefor in accordance with Company policy. In
addition, Executive will be granted use of a Company automobile.
1
<PAGE>
5. BENEFITS AND VACATIONS.
(a) Executive shall be entitled to participate in or receive
benefits under the life, health and disability insurance plans or
arrangements of an operating subsidiary of the Company as in effect on the
date hereof for such period of time as such plans and arrangements shall
remain in effect. In addition, Executive shall be entitled to participate in
or receive benefits under any pension plan, profit-sharing plan, life
insurance, health-and-accident plan or arrangement made available in the
future by the Company or its subsidiaries to its executives and key
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Nothing
paid to Executive under any such plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of any
compensation payable to Executive hereunder.
(b) Executive shall be entitled to the number of paid vacation
days in each calendar year, and to compensation for earned but unused
vacation days, determined by the Company or its subsidiaries from time to
time for its executives and key management employees. Executive shall also be
entitled to all paid holidays given by the Company or its subsidiaries to its
executives and key management employees.
6. CHANGE IN CONTROL. Notwithstanding any provision in this
Agreement to the contrary, the provisions of this Paragraph 6 shall control,
to the exclusion of any other provision of this Agreement, in the event that
there has been a "Change in Control" of Employer, as defined hereafter. In
such event, regardless of whether or not Executive's employment is terminated
as a result of such event, Executive shall be entitled to promptly receive,
and the Company will be obligated to promptly pay to Executive as a special
bonus, an amount equal to one (1) years' salary and bonus at the level then
being paid to Executive pursuant to Paragraph 3 above. For the purposes of
this agreement, "Change in Control" means:
(i) the acquisition by a person or a group of related persons,
other than the Company or a person controlling, controlled by or under common
control with the Company, of beneficial ownership (as determined pursuant to the
provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of securities possessing (whether immediately or upon subsequent conversion or
exercise) thirty percent (30%) or more of the total voting power of the
Company's outstanding securities, or
(ii) the acquisition by a person or a group of related
persons, other than the Company or a person controlling, controlled by or under
common control with the Company, of beneficial ownership (as determined pursuant
to the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of securities possessing (whether immediately or upon subsequent
conversion or exercise) the right to elect a majority of the Company's Board of
Directors, or
(iii) the sale, transfer or other disposition (other than in
the ordinary course) of substantially all of the Company's assets, or
(iv) the first date within any period of thirty-six (36)
consecutive months or less on which there is effected a change in the
composition of the Company's Board of Directors such that a
2
<PAGE>
majority of the Board (determined by rounding up to the next whole number)
ceases to be comprised of individuals who either (I) have been members of the
Company's Board continuously since the beginning of such period or (II) have
been elected or nominated for election as Board members during such period by
at least a majority of the Board members described in clause (I) who were
still in office at the time such election or nomination was approved by the
Board.
7. PROPRIETARY INFORMATION. Executive acknowledges that certain
technological and other information may from time to time be disclosed to
Executive by the Company during the continuance hereof. Executive hereby
acknowledges that all such information and technology, whether currently
existing or hereafter developed by the Company through or involving the
services and efforts of Executive hereunder, shall at all times consist of
and be preserved by Executive as valuable trade secrets and confidential
information which is proprietary to and owned exclusively by the Company, and
that Executive does not have, and shall not have or hereafter acquire, any
rights in or to any of such information and technology, including without
limitation any patents, inventions, discoveries, know-how, trademarks or
trade names used or adopted by the Company in connection with the design,
development, manufacture, marketing, sale or installation of any products
which at any time during the continuation hereof may be offered and sold or
licensed by the Company. Executive further warrants and agrees that he shall
not at any time, whether during the continuance of this Agreement or after
its expiration or earlier termination, whether by Executive or by the
Company, in any manner or form, directly or indirectly, use, disclose,
duplicate, license, sell, reveal, divulge, publish or communicate any portion
of any such information or technology, nor use, disclose duplicate, license,
sell, reveal, divulge, publish or communicate any other confidential
information concerning the Company, or any customers or other products of the
Company, to any person, firm or entity.
8. COMPETITION. Prior to termination of this Agreement, Executive
shall not, without the Company's prior written consent, directly or
indirectly engage in any business activity, or have any interest in any
person, firm or other entity engaged in any business activity, in which the
Company at the time is engaged or to the knowledge of Executive, is planning
to engage. During the term hereof and for a period of two (2) years
thereafter, Executive shall not directly or indirectly: (a) divert or take
away or solicit or attempt to divert or take away any of the Company's
customers, including without limitation those customers with whom Executive
became acquainted while retained by the Company; (b) employ, or knowingly
permit any business entity controlled by Executive to employ, any person who
during the period of twelve (12) months immediately preceding such time has
been employed by the Company; (c) solicit or otherwise seek to induce any
employee of the Company to leave his or her employment with the Company; or
(d) undertake planning for or organization of any business activity that will
injure the Company's business, or conspire with employees of the Company for
the purpose of organizing any such injurious business activity.
9. GENERAL PROVISIONS.
(a) Any notice, request, demand or other communication required
or permitted hereunder shall be deemed to be properly given when personally
served in writing, three (3) days after being deposited in the United States
mail, properly addressed and postage prepaid, or one (1) day after being sent
by reputable overnight carrier (Federal Express, UPS, Airborne), addressed to
the Company or
3
<PAGE>
Executive at their respective last known address. Either party may change its
address by written notice given in accordance with this subparagraph.
(b) This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective executors, administrators,
successors and assigns; provided, however, that Executive may not assign any
or all of Executive's rights or duties hereunder without the prior written
consent of the Company.
(c) This Agreement is made and entered into, is to be performed
primarily within, and shall be governed by and construed in all respects in
accordance with the internal laws of the State of California.
(d) Captions and paragraph headings used herein are for
convenience only and are not a part of this Agreement and shall not be used
in construing it.
(e) Should any provision of this Agreement for any reason be
declared invalid, void, or unenforceable by a court of competent
jurisdiction, the validity and binding effect of any remaining portions of
such provision shall not be affected, and all other portions of this
Agreement shall remain in full force and effect.
(f) This Agreement contains the entire agreement of the
parties, and supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the retention of
Executive by the Company. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are
not embodied herein, and that no other agreement, statement or promise not
contained herein shall be relied upon or be valid or binding. This Agreement
may not be modified or amended by oral agreements, but only by an agreement
in writing signed by the Company on the one hand, and by Executive on the
other hand.
(g) In the event of any litigation between Executive and the
Company concerning the rights or obligations of any party under this
Agreement, the non-prevailing party shall pay the reasonable costs and
expenses, including attorneys' fees, of the prevailing party in connection
therewith.
(h) The Company shall indemnify Executive to the fullest extent
permitted by applicable law with respect to any claims arising from the
performance by Executive of his duties hereunder during the term of this
Agreement.
(i) The obligations under paragraphs 7, 8 and 9(h) hereof shall
survive the termination of this Agreement for the time periods specified
therein, or, if no period is specified, for an unlimited period of time.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
"Company" "Executive"
SUMMA INDUSTRIES, /s/ Paul A. Walbrun
a Delaware corporation ------------------------------------
Paul A. Walbrun
By: /s/ Trygve M. Thoresen
-------------------------------
Vice President
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 924,000
<SECURITIES> 0
<RECEIVABLES> 15,614,000
<ALLOWANCES> 0
<INVENTORY> 12,402,000
<CURRENT-ASSETS> 30,589,000
<PP&E> 39,312,000
<DEPRECIATION> 12,283,000
<TOTAL-ASSETS> 89,098,000
<CURRENT-LIABILITIES> 18,866,000
<BONDS> 0
0
0
<COMMON> 19,231,000
<OTHER-SE> 17,771,000
<TOTAL-LIABILITY-AND-EQUITY> 89,098,000
<SALES> 28,569,000
<TOTAL-REVENUES> 28,569,000
<CGS> 20,297,000
<TOTAL-COSTS> 20,297,000
<OTHER-EXPENSES> 5,050,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 679,000
<INCOME-PRETAX> 2,543,000
<INCOME-TAX> 940,000
<INCOME-CONTINUING> 1,603,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,603,000
<EPS-BASIC> .37
<EPS-DILUTED> .35
</TABLE>
