<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarter ended June 30, 1997 Commission file number 1-11013
SPECIALTY CHEMICAL RESOURCES, INC.
----------------------------------------------------
Exact name of registrant as specified in its charter
Delaware 34-1366838
---------------------- -----------------------
State of incorporation I.R.S. Employer I.D. No.
9055 S. Freeway Drive; Macedonia, Ohio 44056
---------------------------------------------
Address of principal executive offices and zip code
(216) 468-1380
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Registrant's telephone number, including area code
Indicate by a check mark whether the Registrant(1)has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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 ninety(90) days. Yes X No.
--- ---
The number of outstanding shares of the Registrant's common stock as of
July 30, 1997 was 3,882,264.
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- ---------------------------Page 1 of 15 ---------------------------------------
<PAGE> 2
Specialty Chemical Resources, Inc.
Form 10-Q
For the quarter ended June 30, 1997
Index
Part I Financial Information Page
Item 1. Financial Statements.......................................3
Condensed Balance Sheets...................................3
Condensed Statements of Operations, 3 months...............5
Condensed Statements of Operations, 6 months...............6
Condensed Statements of Cash Flows, 3 months...............7
Condensed Statements of Cash Flows, 6 months...............8
Notes to Financial Statements..............................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............10
Part II. Other Information
Item 1. Legal Proceedings.........................................13
Item 4. Submission of Matters to a Vote of Security Holders.......13
Item 6. Exhibits & Reports on Form 8-K............................14
Page 2 of 15
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
(Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 42,609 $ 168,641
Accounts Receivables 5,222,338 4,697,128
Receivable - Other 445,109 509,231
Inventories 9,205,613 5,909,447
Prepaid expenses 377,476 305,259
Refundable Income Taxes -0- 1,075,016
------------ -----------
Total current assets 15,293,145 12,664,722
Property, plant and equipment
At cost 16,962,525 14,284,234
Less accumulated depreciation
and amortization (4,972,863) (4,451,017)
------------ -----------
11,989,662 9,833,217
Other assets
Goodwill, other intangibles 20,834,773 21,197,875
Other 233,272 227,572
------------ -----------
21,068,045 21,425,447
------------ -----------
Total assets $ 48,350,852 $43,923,386
============ ===========
</TABLE>
See accompanying Notes to Financial Statements.
Page 3 of 15
<PAGE> 4
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
(continued)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
(Unaudited) (Audited)
------------- -----------------
Current liabilities
<S> <C> <C>
Current Maturities $ 2,242,852 $ 434,733
Accounts payable 3,777,952 4,004,870
Accrued expenses 633,436 675,619
------------ ------------
Total current liabilities 6,654,240 5,115,222
Long-term obligations 15,339,585 12,246,119
Stockholders' equity
Preferred stock - $.01 par value;
authorized 2,000,000 shares
Common Stock - $.10 par value;
authorized 13,000,000 shares;
issued and outstanding 3,947,764
and 3,947,764 394,777 394,777
Additional paid in capital 41,935,125 41,935,125
Less common stock in treasury,
At cost; 65,500 shares (118,722) (118,722)
Accumulated deficit (15,834,803) (15,629,785)
Unearned Compensation (19,350) (19,350)
------------ ------------
26,357,027 26,562,045
------------ ------------
$ 48,350,852 $ 43,923,386
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
Page 4 of 15
<PAGE> 5
Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 3 month periods ended:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net Sales $ 9,355,703 $ 9,345,913
Cost of Goods Sold 7,532,557 7,573,322
----------- -----------
Gross Profit 1,823,146 1,772,591
Selling, general and administrative
expenses 1,414,414 1,471,194
Amortization of intangibles 256,361 217,173
----------- -----------
Operating profit (loss) 152,371 84,224
Other (income) expense
Interest expense 341,109 272,612
Other (27,771) -0-
----------- -----------
313,338 272,612
----------- -----------
Earnings (loss) before income
taxes (160,967) (188,388)
Income taxes -0- -0-
----------- -----------
Earnings (loss) (160,967) (188,388)
=========== ===========
Earnings (loss) per common share: $ (.04) $ (.05)
Weighted average shares outstanding 3,882,210 3,974,766
</TABLE>
See accompanying Notes to Financial Statements.
Page 5 of 15
<PAGE> 6
Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 6 month periods ended:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net Sales $19,552,782 $19,409,062
Cost of Goods Sold 15,701,339 16,158,116
------------ ------------
Gross profit 3,851,443 3,250,946
Selling, general and administrative
expenses 2,991,539 2,996,409
Amortization of intangibles 515,322 434,346
------------ ------------
Operating profit (loss) 344,582 (179,809)
Other (income) expense
Interest expense 599,177 508,989
Other (49,577) -0-
------------ ------------
549,600 509,989
------------ ------------
Earnings (loss) before income
taxes (205,018) (688,798)
Income taxes (benefit) -0- -0-
------------ ------------
Earnings (loss) (205,018) (688,798)
Earnings (loss) per common share: $ (.05) $ (.17)
Weighted average shares outstanding 3,882,156 3,947,767
</TABLE>
See accompanying Notes to Financial Statements.
Page 6 of 15
<PAGE> 7
Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 3 month periods ended:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net cash provided (used) by operating
activities $ 1,695,068 $ 265,002
Cash flows from investing activities:
Capital expenditures, other (409,523) (21,969)
Purchase of assets from Hysan Corp. (6,785,000) -0-
------------ ------------
Net cash (used) by investing
activities (7,194,523) 21,969
Cash flows from financing activities:
Payments on revolver (15,098,316) (15,768,762)
Proceeds on revolver 20,505,966 15,516,126
------------ ------------
Net cash provided (used) by
financing activities 5,407,650 (252,636)
------------ ------------
Net increase (decrease) in cash
and cash equivalents (91,805) (9,603)
Cash and cash equivalents at beginning
of period 134,414 18,551
------------ ------------
Cash and cash equivalents at end
of period $ 42,609 $ 8,948
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
Page 7 of 15
<PAGE> 8
Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 6 month periods ended:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net cash provided (used) by operating
activities $ 2,453,180 $ 340,156
Cash flows from investing activities:
Capital expenditures, other (575,797) (68,504)
Purchase of assets from Hysan Corp. (6,785,000) -0-
------------ ------------
Net cash (used) by investing
activities (7,360,797) (68,504)
Cash flows from financing activities:
Payments on revolver (22,689,500) (15,780,068)
Proceeds on revolver 27,471,085 15,516,126
------------ ------------
Net cash provided (used) by
financing activities 4,781,585 (263,942)
------------ ------------
Net increase (decrease) in cash
and cash equivalents (126,032) 7,710
Cash and cash equivalents at beginning
of period 168,641 1,238
------------ ------------
Cash and cash equivalents at end
of period $ 42,609 $ 8,948
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
Page 8 of 15
<PAGE> 9
Specialty Chemical Resources, Inc.
Notes to Financial Statements
Note A - Summary of Significant Accounting Policies
The accompanying audited and unaudited financial statements have been
prepared in conformity with generally accepted accounting principles and all
adjustments are of a normal recurring nature and are, in the opinion of
management, necessary to present fairly the financial position of Specialty
Chemical Resources, Inc. (the "Company") at December 31, 1996 and June 30, 1997
and the results of operations and cash flows for the interim periods ended June
30, 1997 and 1996.
Any significant accounting policies employed in the preparation of the
financial statements are included in the Company's most recent Form 10-K.
Note B - Inventories
Inventories are stated at the lower of cost or market determined by the
last-in, first-out (LIFO) method for raw materials and the first-in, first-out
(FIFO) method for finished goods.
The Company's inventories consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 3l,
1997 1996
----------- -------
<S> <C> <C>
Raw materials $4,232,620 $3,663,804
Finished goods 5,618,024 2,890,674
---------- ----------
Total FIFO cost 9,850,644 6,554,478
Less: Excess of FIFO cost over
LIFO 645,031 645,031
---------- ----------
Total LIFO cost $9,205,613 $5,909,447
---------- ----------
</TABLE>
Note C - Legal Proceedings
There have been no material changes in the status of legal proceedings
pending against the Company other than that which was reported on the Company's
most recent Form 10-K.
Page 9 of 15
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain items included in the Company's
Statement of Operations.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ......................... 80.3% 83.3% 80.5% 81.0%
Gross profit ............................. 19.7% 16.7% 19.5% 19.0%
Selling, general and administrative expenses 15.3% 15.4% 15.1% 15.7%
Operating profit.(loss) .................. 1.8% (1.0%) 1.6% 1.0%
Interest expense ........................... 3.1% 2.6% 3.6% 2.9%
</TABLE>
On May 22, 1997 the Company acquired substantially all of the tangible
and intangible non-real estate assets of Hysan Corporation (the "Hysan
Assets"). See "Liquidity and Capital Resources". Hysan is a leading producer of
aerosol and liquid specialty chemical maintenance products sold to the
institutional janitorial/sanitation market. The Company's results from May 22,
1997 include the results attributable to the acquisition of the Hysan Assets.
Net sales of $19,553,000 for the six-month period ended June 30, 1997, were
$144,000, or 1.0%, above the comparable period in the prior year. $620,000 of
the current year net sales were attributed to the acquisition of Hysan assets.
Excluding acquisition related sales, net sales for the six month period ended
June 30, 1997 were $18,933,000; $476,000 or 2.5% below the comparable period in
the prior year. This reduction in net sales for the first six months occurred
during the second quarter due primarily to production shortfalls caused by the
integration of Hysan operations.
For the second quarter ended June 30, 1997, net sales of $9,356,000
were $10,000 above the comparable period in the prior year. $620,000 of the net
sales were the result of the acquisition of Hysan Assets. Excluding the
acquisition related sales, net sales for the quarter ended June 30, 1997 were
$8,736,000; $610,000 or 6.5% below the comparable period in the prior year. This
reduction in net sales dollars is due primarily to the same reason discussed
above with respect to the six-month period ended June 30, 1997.
Page 10 of 15
<PAGE> 11
Cost of goods sold for the six-month period ended June 30, 1997,
decreased by $457,000 as compared to the same period in the prior year. This
decrease was due principally to reduced sales unit volume during the six-month
period ended June 30, 1997 and cost reduction efforts in manufacturing labor
and overhead. Cost of goods sold decreased as a percentage of net sales from
83.3% to 80.3% for the six-month periods ended June 30, 1996 and 1997,
respectively. The decrease in percent of sales was due to improved mix, higher
unit pricing and reductions in raw material costs.
Cost of goods sold decreased by $40,000 for the three-months ended June
30, 1997 as compared to the same period in the prior year. This decrease was
due principally to reduced sales unit volume and cost reduction efforts in
manufacturing labor and overhead. Cost of goods sold decreased as a percentage
of net sales from 81.0% to 80.5% for the three-months ended June 30, 1997 as
compared to the same period in the prior year. The decrease as a percentage of
net sales was due to improved mix, higher unit pricing and reductions in raw
material costs.
Selling, general and administrative expenses were $2,992,000 for the
six-month period June 30, 1997, or 15.3% of net sales. Selling, general and
administrative expenses were $2,996,000 or 15.4% of net sales for the six month
period ended June 30, 1996.
Selling, general and administrative expenses were $1,414,000 for the
quarter ended June 30, 1997, or 15.1% of net sales. Selling, general, and
administrative expenses were $1,471,000, or 15.7% of net sales for the three
month period ended June 30, 1996.
Interest expense for the six-months ended June 30, 1997, was 3.1% of
net sale s versus 2.6% for the comparable period in the prior year. Interest
expense was $599,000 for the six-months ended June 30, 1997 as compared to
$509,000 for the six-months ended June 30, 1996. The increase in interest
expense is due to increased borrowing under the Company's senior credit
facility. See "Liquidity and Capital Resources".
Interest expense for the quarter ended, June 30, 1997, was 1.6% of net
sales versus 1.0% for the comparable period in the prior year. Interest expense
was $341,000 for the quarter ended June 30, 1997 as compared to $273,000 for the
same period in 1996. The increase in interest expense is due to increased
borrowings under the Company's senior credit facility. See "Liquidity and
Capital Resources".
Page 11 of 15
<PAGE> 12
The Company recorded a net loss for the six-months ended June 30,1997
of $205,018, or $.05 per share on weighted average shares outstanding of
3,882,156. This compared to a net loss of $688,798, or $.17 per share on
weighted average shares outstanding of 3,947,767 for the same period in
the prior year.
For the quarter ended June 30, 1997, the Company had a net loss of
$160,967, or $.04 per share on weighted average shares outstanding of 3,882,210
as compared to a net loss of $188,388, or $.05 per share on weighted average
shares outstanding of 3,974,766 for the same period in the prior year.
Liquidity and Capital Resources
As of June 30, 1997, the Company's ratio of current assets to current
liabilities was 2.41 to 1 and the quick ratio (cash, cash equivalents, and
accounts receivable, divided by current liabilities) was .87 to 1.
During the six-months ended June 30, 1997, the Company incurred
$599,000 in interest expense and made interest payments totaling $419,000.
Accrued interest at June 30, 1997 was $128,000. Most of the Company's interest
expense is related to the Company's credit agreement, and $4,000,000 of 6%
subordinated convertible debt, issued October, 1996.
On May 22, 1997 the Company, in connection with the acquisition of of
the Hysan Assets, executed an amendment to its current credit agreement (the
"Credit Agreement") with its senior lender Star Bank, N.A.. The amended Credit
Agreement provides for a $15,000,000 facility which expires on December 31,
2000, comprised of a revolving line of credit and three term loans. Borrowings
on the revolving line of credit and two of the term loans bear interest at the
prime rate plus 1.5%, subject to decrease if certain ratios and financial
test are met. The first of these two term loans amortizes in forty-seven
consecutive monthly installments of $58,333 commencing June 1, 1998 with a
forty- eighth and final principal payment of $58,349. The second of these term
loans amortizes in four equal consecutive monthly payments of $375,000
commencing on July 1, 1997. The third term loan bears interest at the prime
rate plus 4.5%, subject to decrease if certain financial test are met. This
term loan amortizes in seventeen consecutive monthly installments of $55,000
commencing July 1, 1997 with an eighteenth and final installment of $55,565.
Under the terms of the Credit Agreement, the Company is required to
comply with various covenants, the most restrictive of which relate to the
maintenance of certain financial ratios, levels of tangible net worth, limits
on capital expenditures and restrictions on distributions from the Company to
its stockholders. As of June 30, 1997, approximately $1,566,000 was unused and
available under the Credit Agreement.
Page 12 of 15
<PAGE> 13
In addition to the Credit Agreement, the Company is a borrower under an
installment note dated October 15, 1995 to a bank. The borrowing is
collateralized by a building a which serves as the Company's distribution
center and executive offices. Interest is payable monthly at 1/4% over the
bank's prime rate. As of June 30, 1997, the Company had $836,000 remaining on
the note.
On May 22, 1997, the Company acquired the Hysan Assets for an estimated
purchase price of $6,785,000 including $447,000 of related expenses. Pursuant
to the asset purchase agreement, $500,000 of the purchase price was deposited
in escrow with a bank in order to secure any adjustments to the purchase price
that may be necessary pursuant to the asset purchase agreement and to secure
Hysan's indemnification obligations thereunder. The purchase price is subject
to adjustment based upon the final disposition of accounts receivable and
inventory.
The Company spent $424,000 on capital improvements during the six-month
period ended June 30, 1997. In addition, the Company expects to spend
approximately $376,000 on capital improvements during the balance of the
current fiscal year which are to be funded from operating cash flows and
borrowings under the credit agreement. Under current business conditions, the
Company expects no significant change in its liquidity position during the
current fiscal year. However, the Company continues to explore growth
opportunities by way of acquisition and product line expansions. Any required
capital for these efforts would come from borrowings under the Credit Agreement
or additional borrowings
Part II - Other Information
Item 1. Legal Proceedings
There have been no material changes in the status of legal proceedings
pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual Meeting of Stockholders of the Company held on June 5,
1997, the stockholders considered and voted on the election of seven directors
for one-year terms expiring in 1998 or until their successors have been duly
elected and qualified and a resolution by the Board of Directors ratifying the
appointment of Grant Thornton LLP as independent auditors for the Company for
the year ended December 31, 1997.
Page 13 of 15
<PAGE> 14
All of management's nominees for directors, as listed in the proxy
statement, were elected by the following votes :
Edwin M. Roth For 3,618,033
Withheld -0-
Corey B. Roth For 3,617,583
Withheld -0-
George N. Arnoff For 3,619,039
Withheld -0-
Victor Gelb For 3,618,189
Withheld -0-
Geoffrey J. Colvin For 3,630,035
Withheld -0-
Terrance J. Conklin For 3,630,035
Withheld -0-
Lionel N. Sterling For 3,630,035
Withheld -0-
The proposal to ratify the appointment of Grant Thornton LLP as the
Company's independent auditors was passed by the following vote :
Shares voted for 3,639,347
Shares voted against 9,930
Abstentions 16,416
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 Amendment to the Credit Agreement extending the terms
to December 31, 2000 between the Company and Star Bank,
N. A. Dated May 22, 1997.................................
(b) Reports on Form 8-K:
The Company filed a form 8-K on June 5, 1997,
announcing the acquisition of certain assets from
Hysan Corporation as amended by a form 8-K/A filed
on August 5, 1997 which included the following:
A. Audited Financial Statements of Business Acquired
for the years ended December 31, 1996, 1995, and 1994;
B. Unaudited Pro Forma Condensed Consolidated Statement
of Income of Specialty Chemical Resources, Inc. at March
31, 1997 and the Notes related thereto;
C. Unaudited Pro Forma Consolidated Balance Sheet of
Specialty Chemical Resources, Inc. at March 31, 1997 and
Notes related thereto;
Page 14 of 15
<PAGE> 15
D. Unaudited Pro Forma Consolidated Statement of Income
for Specialty Chemical Resources, Inc. for the year ended
December 31, 1996 and the Notes related thereto.
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.
Specialty Chemical Resources, Inc.
By: /s/ DAVID F. SPINK August 13, 1997
--------------------------------
David F. Spink
Vice President, Chief Financial
Officer
Page 15 of 15
<PAGE> 1
Exhibit 4.1
FIRST AMENDMENT
---------------
TO
--
FINANCING AGREEMENT
-------------------
This First Amendment to Financing Agreement (the "Amendment") is made as
of the 22nd day of May, 1997, by and between Specialty Chemical Resources, Inc.,
a Delaware corporation ("Borrower") and Star Bank, National Association, a
national banking association ("Bank").
WITNESSETH:
----------
WHEREAS, Borrower and Bank have entered into that certain Financing
Agreement, dated as of September 18, 1996 (the "Financing Agreement"), pursuant
to which Bank has made certain financial accommodations available to Borrower;
WHEREAS, Borrower and Bank desire to amend the Financing Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Bank and Borrower do hereby agree as
follows.
SECTION 1. DEFINED TERMS.
Each defined term used herein and not otherwise defined herein shall
have the meaning ascribed to such term in the Financing Agreement.
SECTION 2. AMENDMENTS TO SECTION 1 OF THE FINANCING AGREEMENT,
CAPITALIZED TERMS.
SECTION 1.1, DEFINED TERMS, of the Financing Agreement shall be amended
by adding the new defined terms, or by modifying existing defined terms, as
applicable, as follows:
2.1 "ACQUISITION SPECIAL ADVANCE" shall have the meaning
ascribed thereto in Section 2.1 hereof
1
<PAGE> 2
2.2 "ACQUISITION SPECIAL ADVANCE FACILITY" shall have the
meaning ascribed thereto in SECTION 2.1 hereof.
2.3 The definition of "AVAILABILITY DEFICIENCY" shall be deleted
in its entirety and the following substituted in lieu thereof:
"AVAILABILITY DEFICIENCY" shall mean the occurrence, as
at any date, of a condition in which (i) the sum of (a)
the then aggregate outstanding principal amount of the
Revolving Loans PLUS (b) the then aggregate outstanding
principal amount of Term Loan A PLUS (c) the then
aggregate outstanding principal amount of Term Loan B
PLUS (d) the then aggregate outstanding principal amount
of the Acquisition Special Advance PLUS (e) the Reserve
Amount then in effect, exceeds the lesser of (ii)
fifteen Million Dollars ($15,000,000) or (iii) the
Borrowing Base.
2.4 "ASSIGNMENT OF SELLER'S REPRESENTATIONS AND WARRANTIES"
shall mean the assignment by Borrower of all of its rights and remedies
with respect to the representations, warranties, covenants and
indemnities made by Seller under the Hysan Purchase Agreement, in
substantially the form of EXHIBIT AB attached hereto and incorporated by
reference herein.
2.5 "COLLATERAL ASSIGNMENT OF ESCROW AGREEMENT" shall mean the
assignment by Borrower of its rights and remedies under the Hysan Escrow
Agreement, in substantially the form of EXHIBIT AC attached hereto and
incorporated herein by reference.
2.6 The definition of "DEFICIENCY" shall be modified by deleting
the words "Term Loan Deficiency" therefrom and by substituting "Term
Loan A Deficiency" in place thereof.
2.7 "EFFECTIVE DATE" shall mean the date on which Borrower has
executed and delivered this Amendment to Bank and Bank has accepted and
executed the same and Bank, in its sole discretion, agrees that all
conditions precedent to closing set forth in SECTION 11 hereto have been
fully performed, satisfied or discharged.
2.8 "HYSAN" shall mean Hysan Corporation, an Illinois
corporation, and a Seller under the Hysan Asset Purchase Agreement.
2.9 "HYSAN ESCROW AGENT" shall mean Bank One Trust Company,
N.A., a national banking association.
2.10 "HYSAN ESCROW AGREEMENT" shall mean the escrow agreement by
and between Borrower on the one part and Hysan on the other part, a copy
of which is attached hereto as EXHIBIT AD.
2
<PAGE> 3
2.11 "HYSAN PURCHASE AGREEMENT" shall mean that certain asset
purchase agreement, entered into as of even date herewith, by and
between Borrower, as purchaser, and Hysan, as Seller, and all exhibits,
schedules, agreements and documents delivered and/or executed and
delivered by the parties thereto in connection therewith (collectively,
with the Hysan Purchase Agreement, the "HYSAN TRANSACTION DOCUMENTS"), a
true and correct copy of which is attached hereto as EXHIBIT AE.
2.12 "OPINION OF BORROWER'S COUNSEL" shall mean the opinion of
Benesch, Friedlander Coplan & Aronoff, LLP, as counsel to Borrower, a
copy of which is attached hereto as EXHIBIT AF and incorporated herein
by reference.
2.13 "OPINION OF SELLER'S COUNSEL" shall mean the opinion of
Rudnick & Wolfe, as counsel to Sellers, a copy of which is attached
hereto as EXHIBIT AG and incorporated herein by reference.
2.14 Intentionally Omitted.
2.15 The definition of "REVOLVING LOAN AVAILABILITY" shall be
deleted in its entirety and the following is substituted in place
thereof:
"REVOLVING LOAN AVAILABILITY" shall mean, as at any
date, an amount equal to the difference of:
(i) THE LESSER OF (a) the difference of Fifteen
Million Dollars ($15,000,000) LESS (W) the then
aggregate outstanding principal amount of Term
Loan A LESS (X) the then aggregate outstanding
principal amount of Term Loan B LESS (Y) the
then aggregate outstanding principal amount of
the Acquisition Special Advance LESS (Z) the
Reserve Amount then in effect, OR (b) an amount
equal to the then Borrowing Base;
LESS
(ii) the then aggregate outstanding principal amount
of all Revolving Loans.
2.16 "SELLER" means Hysan under the Hysan Asset Purchase
Agreement.
2.17 The definition of "TERM LOAN" is hereby deleted in its
entirety.
2.18 "TERM LOAN A" shall have the meaning ascribed thereto in
SECTION 2.1 hereof.
2.19 The definition of "TERM LOAN AVAILABILITY" is hereby
deleted in its entirety and the following is substituted in place
thereof:
3
<PAGE> 4
"TERM LOAN A AVAILABILITY" shall mean, as at any date,
an amount equal to the lesser of (i) Two Million Six Hundred
Eighty Thousand Dollars ($2,680,000) or (ii) seventy-five
percent (75%) of the orderly liquidation value of the eligible
machinery and equipment of Borrower as determined by Bank in its
good faith discretion on the Effective Date.
2.20 "TERM LOAN B" shall have the meaning ascribed thereto in
SECTION 2.1 hereof.
2.21 The definition of "TERM LOAN DEFICIENCY" is hereby deleted
in its entirety and the following is substituted in lieu thereof:
"TERM LOAN A DEFICIENCY" shall mean any failure of the
Term Loan A Availability to be greater than or equal to zero (0)
dollars.
2.22 The definition of "TERM LOAN FACILITY" is hereby deleted in
its entirety.
2.23 "WEDGE" shall mean Wedge Energy Group, Inc., a Delaware
corporation, and the sole owner of all duly authorized and outstanding
shares of stock of Hysan.
SECTION 3. AMENDMENTS TO SECTION 2. LOANS AND OTHER FINANCIAL
ACCOMMODATIONS.
The following SECTION 2, LOANS AND OTHER FINANCIAL ACCOMMODATIONS, of
the Financing Agreement shall be amended as set forth herein:
3.1 Section 2.1, TOTAL FACILITY, shall be deleted in its
entirety and new Section 2.1 shall be substituted in lieu thereof:
2.1 TOTAL FACILITY. Bank, in its good faith discretion,
will make up to a Fifteen Million Dollar ($15,000,000) total
credit facility (the "Total Facility") available to Borrower,
subject to the terms and conditions of this Agreement and
comprised of the following loans or other financial
accommodations advanced, made or made available under the
following facilities (collectively, the "Loans"): (i) Revolving
Loans (as hereinafter defined) to be advanced under the
Revolving Loan facility (the "Revolving Loan Facility"), (ii) a
term loan ("Term Loan A") to be advanced under the Term Loan A
facility (the "Term Loan A Facility"), (iii) a term loan ("Term
Loan B") to be advanced under the Term Loan B facility (the
"Term Loan B Facility"), and (iv) a special advance (the
"Acquisition Special Advance") to be advanced under a separate
special advance facility (the "Acquisition Special Advance
Facility"), all as more particularly described below.
3.2 Section 2.2, REVOLVING LOAN FACILITY, shall be deleted in
its entirety and new Section 2.2 shall be substituted in lieu thereof:
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<PAGE> 5
2.2 REVOLVING LOAN FACILITY. Until the termination of
this Agreement pursuant to SECTION 11 hereof, revolving loans
under the Revolving Loan Facility will be lent and relent from
time to time (such loans being referred to collectively as the
"Revolving Loans" and each of such loans being referred to
individually as a "Revolving Loan"), in Bank's good faith
discretion, in amounts equal to the sum of (i) up to eighty-five
percent (85%) of the net amount of the Borrower's Eligible
Receivables, PLUS (ii) THE LESSER OF (a) up to forty-five
percent (45%) of the value of the Borrower's Eligible Raw
Materials Inventory and (b) Two Million Seven Hundred Thousand
Dollars ($2,700,000), PLUS (iii) THE LESSER OF (a) up to
sixty-five percent (65%) of Borrower's Eligible Finished Goods
Inventory and (b) Three Million Four Hundred Thousand Dollars
($3,400,000), MINUS (iv) the Reserve Amount then in effect (such
aggregate sum as in effect from time to time being the
"Borrowing Base"). Notwithstanding the foregoing sentence, in no
event shall Bank be obligated to make Revolving Loans if, either
immediately before or after giving effect to any such Revolving
Loan, (y) a Deficiency has occurred or shall occur, or (z) an
Event of Default has occurred or shall occur. Further, in no
event shall the aggregate amount of (i) Eligible Puerto Rican
Receivables included in the Borrowing Base at any time exceed
Three Hundred Thousand Dollars ($300,000) and (ii) the value of
Eligible Raw Materials Inventory consisting of cartons included
in the Borrowing Base at any time exceed Two Hundred Twenty-Five
Thousand Dollars ($225,000). The Eligible Inventory will be
valued at the lower of cost or market value, determined on a
"first in first out" basis, consistently applied.
3.3 Section 2.3, TERM LOAN FACILITY, shall be deleted in its
entirety and new Section 2.3 shall be substituted in lieu thereof:
2.3 TERM LOAN A FACILITY. The Term Loan A under the Term
Loan A Facility will be made, in Bank's good faith discretion,
to Borrower with respect to its eligible machinery and equipment
in an amount of up to the lesser of (i) Two Million Six Hundred
Eighty Thousand Dollars ($2,680,000) and (ii) an amount equal to
seventy-five percent (75%) of the orderly liquidation value of
Borrower's owned machinery and equipment on the Effective Date.
The principal of Term Loan A shall be payable in forty-seven
(47) consecutive equal monthly installments of Fifty-Five
Thousand Eight Hundred Thirty-Three Dollars ($55,833) each,
commencing on June 1, 1998, and thereafter on the first day of
each calendar month, with the last payment of principal being in
the amount of Fifty-Five Thousand Eight Hundred Forty-Nine
($55,849); PROVIDED, HOWEVER, that notwithstanding the foregoing
amortization schedule for Term Loan A, upon the effective date
of any termination of this Agreement pursuant to SECTION 11
and/or SECTION 13 hereof, all amounts then outstanding under
Term Loan A shall become immediately due and payable without
notice or demand. No repayment or prepayment of Term Loan A
shall be reason for any relending or additional lending of Term
Loan A proceeds to Borrower. At Bank's option, the principal of
Term
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<PAGE> 6
Loan A shall be payable in accordance with the payment terms set forth
above in this SECTION 2.3 by charging or increasing the Revolving Loan
balance of Borrower.
3.4 Section 2.5, previously intentionally omitted, shall be revised to
provide as follow:
2.5 TERM LOAN B FACILITY. The Term Loan B under the Term Loan B
Facility will be made to Borrower in the amount of One Million Dollars
($1,000,000) on the Effective Date. The principal of Term Loan B shall
be payable in seventeen (17) consecutive equal monthly installments of
Fifty-Five Thousand Five Hundred Fifty-Five Dollars ($55,555) each,
commencing on the first day of July, 1997, and thereafter on the first
day of each calendar month, with the last payment of principal being in
the amount of Fifty-Five Thousand Five Hundred Sixty-Five Dollars
($55,565); PROVIDED, HOWEVER, that notwithstanding the foregoing
amortization schedule for Term Loan B, upon the effective date of any
termination of this Agreement pursuant to SECTION 11 and/or SECTION 13
hereof, all amounts outstanding under Term Loan B shall become
immediately due and payable without notice or demand. No repayment or
prepayment of Term Loan B shall be any reason for any relending or
additional lending of Term Loan B proceeds to Borrower. At Bank's
option, the principal of Term Loan B shall be payable in accordance with
the payment terms set forth in this SECTION 2.5 by charging or
increasing the Revolving Loan balance of Borrower. The Term Loan B may
be prepaid at any time by Borrower to Bank without penalty.
3.5 Section 2.6, previously intentionally omitted, shall be revised to
provide as follows:
2.6 ACQUISITION SPECIAL ADVANCE FACILITY. The Acquisition
Special Advance under the Acquisition Special Advance Facility will be
made to Borrower to support Borrower's short term working capital needs
in connection with its acquisition under the Hysan Purchase Agreement in
an amount of up to One Million Five Hundred Thousand Dollars
($1,500,000) on the Effective Date. The principal of the Acquisition
Special Advance shall be payable in four (4) equal consecutive monthly
installments of Three Hundred Seventy-Five Thousand Dollars
($375,000.00) each, commencing on the 1st day of July, 1997 and
thereafter on the 1st calendar day of each month; PROVIDED, HOWEVER,
that notwithstanding the foregoing amortization schedule for the
Acquisition Special Advance, upon the effective date of any termination
pursuant to SECTION 11 and/or SECTION 13 hereof, all amounts then
outstanding under the Acquisition Special Advance shall become
immediately due and payable without notice or demand. No repayment or
prepayment of the Acquisition Special Advance shall be reason for any
relending or additional lending of Acquisition Special Advance proceeds
to Borrower. The Acquisition Special Advance may be prepaid at any time
by Borrower to Bank without penalty. At Bank's option, the principal of
the Acquisition Special
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<PAGE> 7
Advance shall be payable in accordance with the payment terms set forth
above in this SECTION 2.6 by charging or increasing the Revolving Loan
balance of Borrower.
3.6 Section 2.11 shall be added to the Financing Agreement as follows:
2.11 EXCESS CASH FLOW RECAPTURE. Each six (6) month period
during the term of this Agreement in which Term Loan B shall remain
outstanding, Borrower shall make a payment to Bank ("Semi-Annual Cash
Flow Payment") in an amount equal to a percent of Borrower's Excess Cash
Flow (as defined in ADDENDUM TO EXHIBIT L attached hereto and
incorporated herein by reference) for the applicable fiscal period
("Semi-Annual Cash Flow Payment Amount"). The Semi-Annual Cash Flow
Payment Amount with respect to the periods of (x) from and including
July 1, 1997 through and including December 31, 1997 and (y) from and
including January 1, 1998 through and including June 30, 1998, of
Borrower shall be an amount equal to fifty percent (50%) of Borrower's
Excess Cash Flow for such period of Borrower. Borrower's Excess Cash
Flow for the applicable period referred to above shall be calculated on
the first (1st) Business Day after the earlier to occur of (i) the date
on which Borrower shall have actually delivered the financial
information required to be delivered under SECTION 8.5 hereof, and (ii)
the date on which such financial information is required to be delivered
by Borrower in accordance with the terms of SECTION 8.5 hereof (any such
date on which such calculation shall be made being referred to herein as
the "Cash Flow Calculation Date"). Each payment in respect of an
Semi-Annual Cash Flow Payment Amount shall be applied to the Monthly
Term Loan B Payments in inverse order of maturity until Term Loan B
shall have been paid in full. Borrower shall continue to make Annual
Cash Flow Payments in accordance with this SECTION 2.11 until Term Loan
B shall have been paid in full. Each payment in respect of an Annual
Cash Flow Payment Amount shall be payable by charging or increasing the
Revolving Loan balance of Borrower.
4. SECTION 3. INTEREST CHARGES, MINIMUM LOAN CHARGE; FEES, to the
Financing Agreement shall be amended as follows.
4.1 Section 3.1, INTEREST ON LOANS, shall be deleted in its
entirety and new Section 3.1 substituted in lieu thereof.:
3.1 INTEREST ON LOANS. Borrower shall pay Bank interest
on the average daily outstanding principal amount of its
(i)Loans (except the Term Loan B) and all other Obligations at a
per annum rate which shall vary from time to time with the rate
announced at Bank from time to time as its prime rate (the
"Prime Rate") PLUS one and one-half percent (1.50%), such rate
to be adjusted on the effective date of any change in the Prime
Rate by Bank; and (ii) Term Loan B at a per annum rate which
shall vary from time to time as its Prime Rate PLUS four and
one-half percent (4.50%), such rate to be adjusted on the
effective date of any change in the Prime Rate by Bank. In
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<PAGE> 8
(b) there is or has been no material adverse change in the
financial condition of Borrower since the date of the Financials
delivered on or prior to the Effective Date, and (c) Borrower
shall have met each of the financial tests with respect to
interest rate reduction set forth in EXHIBIT L attached hereto
for the four (4) fiscal quarter period ending on the date of the
financial statements for the previous four fiscal quarters of
Borrower required to be delivered under SECTION 8, in Bank's
sole discretion based upon Bank's review of such financial
statements, the interest rate set forth above at subpart (i)
shall be reduced to the per annum rate set forth on EXHIBIT L.
Such reduction in the interest rate, if applicable, shall become
effective on the first day of the calendar month immediately
following the calendar month in which Borrower shall have
actually delivered the financial statements required to be
delivered under SECTION 8 hereof for the applicable fiscal year
of Borrower. The Prime Rate is determined solely by Bank
pursuant to market factors and its own operating needs and is
not necessarily Bank's best or most favorable rate for
commercial or other loans. The per annum rate of interest
applicable at all times after the occurrence of an Event of
Default shall be the applicable rate of interest set forth above
PLUS an additional two percent (2%) per annum.
4.2 New Section 3.11, AMENDMENT FEE, shall be added as follows:
3.11 AMENDMENT FEE. Borrower shall pay Bank an amendment
fee of Twenty Five Thousand Dollars ($25,000) on the Effective
Date.
5. SECTION 5. SECURITY, to the Financing Agreement shall be amended by
adding the following new Section 5.9:
5.9 HYSAN ASSET COLLATERAL. The Obligations shall be secured by
an assignment of Borrower's right, title and interest in and to the
obligations of Seller under and pursuant to the (a) Hysan Escrow
Agreement (the "Collateral Assignment of Escrow Agreement"), and (ii)
the Hysan Purchase Agreement, including, but not limited to, the
representations, warranties, covenants and indemnities of Seller set
forth therein. The Obligations shall be further secured by a security
interest in all of the Acquired Assets, as the same is defined in the
Hysan Purchase Agreement and all proceeds thereof.
6. SECTION 6.1. New Section 6.1, DELIVERIES PRIOR TO DISBURSEMENT;
FURTHER ASSURANCES, shall be added to the Financing Agreement as follows:
6.1 DELIVERIES PRIOR TO DISBURSEMENT FURTHER ASSURANCES - HYSAN
ACQUISITION. Prior to the initial disbursement of proceeds of the Loans,
Borrower shall have delivered to Bank all of the documents, instruments
and other information and shall have satisfied all other conditions
described in the Addendum
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<PAGE> 9
TO EXHIBIT J attached hereto and incorporated herein by reference.
Borrower agrees to execute and deliver or cause to be executed and
delivered any and all further documents and instruments and to take any
and all further actions as may be determined by Bank to be reasonably
necessary or appropriate to the transactions contemplated herein.
7. SECTION 9.7, TITLE TO PROPERTY; NO LIENS and SECTION 12. TITLE TO
PROPERTY; NO LIENS, to the Financing Agreement shall be amended by amending
SCHEDULE 3 referenced therein by adding the "ADDENDUM TO SCHEDULE 3" attached
hereto TITLE TO PROPERTY; NO LIENS - HYSAN ACQUISITION" and incorporated by
reference herein.
8. MODIFICATION OF EXHIBITS AND SCHEDULES. The following Exhibits and
Schedules to the Financing Agreement shall be added or amended, as applicable,
as set forth in this Section 8 to the Amendment:
8.1 ADDENDUM TO EXHIBIT B, CONTINGENT PATENT, TRADEMARK AND
LICENSE ASSIGNMENT. Exhibit B shall be amended by adding thereto
ADDENDUM TO EXHIBIT B, HYSAN ACQUISITION PATENTS, TRADEMARKS AND LICENSE
ASSIGNMENTS, attached hereto and incorporated by reference herein.
8.2 ADDENDUM TO EXHIBIT J. EXHIBIT J shall be amended by adding
thereto ADDENDUM TO EXHIBIT J, DELIVERIES PRIOR TO DISBURSEMENT - HYSAN
ACQUISITION, attached hereto and incorporated by reference herein.
8.3 ADDENDUM TO EXHIBIT L. EXHIBIT L shall be amended by adding
to said EXHIBIT L ADDENDUM TO EXHIBIT L, FINANCIAL COVENANTS, attached
hereto and incorporated by reference herein.
8.4 ADDENDUM TO EXHIBIT M. EXHIBIT M shall be amended by adding
thereto ADDENDUM TO EXHIBIT M, CERTIFICATE OF CHIEF FINANCIAL OFFICER -
HYSAN ACQUISITION, attached hereto and incorporated by reference herein.
8.5 ADDENDUM TO EXHIBIT S. EXHIBIT S shall be amended by adding
thereto ADDENDUM TO EXHIBIT S, CERTIFICATE OF CHIEF FINANCIAL OFFICER -
HYSAN ACQUISITION, attached hereto and incorporated by reference herein.
8.6 ADDENDUM TO EXHIBIT T. EXHIBIT T shall be amended by adding
thereto ADDENDUM TO EXHIBIT T, DISBURSEMENT DIRECTION LETTER- HYSAN
ACQUISITION, attached hereto and incorporated by reference herein.
8.7 ADDENDUM TO EXHIBIT U. EXHIBIT U, EVIDENCE OF INSURANCE,
shall be amended by adding the ADDENDUM TO EXHIBIT U, attached hereto
and incorporated by reference herein.
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8.8 ADDENDUM TO SCHEDULE l. Schedule 1 shall be amended by
adding thereto ADDENDUM TO SCHEDULE 1, LICENSES, PATENTS, TRADEMARKS,
ETC.-HYSAN ACQUISITION, attached hereto and incorporated by reference
herein.
9. SECTION 11, EFFECTIVE DATE, TERMINATION, to the Financing Agreement
shall be amended:
9.1 SECTION 11.1. EFFECTIVE DATE AND TERMINATION DATE, shall be
amended by deleting the date "December 31, 1998" in the last line of
said Section and substituting in lieu thereof "December 31, 2000."
9.2 SECTION 11.3, TERMINATION PRIOR TO DECEMBER 31, 1998, shall
be deleted in its entirety and by substituting the following in lieu
thereof:
11.3 TERMINATION PRIOR TO DECEMBER 31, 2000. Prior to
December 31, 2000, Borrower may terminate this Financing
Agreement as of the last day of any month by giving Bank notice
of the date on which this Agreement is to terminate ("Voluntary
Termination Date"), which date must be the last day of a month,
at least ninety (90) days before the Voluntary Termination Date
and by paying, on such Voluntary Termination Date (i) as
compensation to Bank for loss of bargain with respect to the
credit advanced hereunder, and not as a penalty, a termination
fee in amounts as set forth below:
<TABLE>
<CAPTION>
Voluntary Termination Date Termination Fee
-------------------------- ---------------
<S> <C>
Between May 22, 1997 and
December 31, 1997 (inclusive) $300,000
After December 31, 1997 but
prior to December 31, 1998 $150,000
</TABLE>
and (ii) all of the other Obligations (including, but not
limited to, the fees described in SECTION 3.4 and SECTION 3.5
hereof). Notwithstanding the foregoing provisions of this
SECTION 11.3, in the event that Borrower terminates this
Financing Agreement (i) and refinances the Loans with credit
made available by the conventional Commercial Lending Department
of Bank, (ii) in connection with the consummation of a
transaction whereby (a) Borrower becomes a private corporation
and (b) Bank provides the senior debt financing for such
transaction, or (iii) in connection with the consummation of a
transaction whereby (a) Borrower acquires another business
entity, (b) a financial institution other than Bank provides the
financing for such transaction and (c) Bank declined to provide
the financing for such transaction after Borrower's request
therefor, no termination fee shall be due and owing by Borrower
upon such termination. In the event
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that (x) the shareholders and/or the board of directors of
Borrower, as may be required by applicable law, elect to sell
all or substantially all of the stock of Borrower or all or
substantially all of the assets of Borrower, in either case in a
single transaction (a "Sale Transaction"), (y) such Sale
Transaction is consummated on or prior to December 31, 1998, and
(z) Borrower terminates this Agreement in connection with the
consummation of such Sale Transaction, then the termination fee
due and owing by Borrower upon such termination shall be equal
to [One Hundred Fifty Thousand Dollars ($150,000)].
10. SECTION 12, EVENTS OF DEFAULT, to the Financing Agreement shall be
amended by:
(a) deleting "or" at the end of subsection (o);
(b) deleting the period at the end of subsection (p) and
inserting "; or" in place thereof; and
(c) adding new subsection (q) thereto as follows:
(q) Borrower shall fail to perform any obligation,
commit any breach of any provision, representation, warranty or
covenant, on its part to be performed, or fail to deliver or
perform any document or instrument on its part to be delivered
or fail to perform any action on its part to be taken after the
Effective Date within the time period as set forth in the
Financing Agreement as amended thereby.
11. SECTION 10 REPRESENTATIONS AND WARRANTIES.
In order to induce Bank to enter into this Amendment and to make the
Loans hereunder and in addition to all of the representations, warranties and
covenants made by Borrower under the Financing Agreement and Loan Documents,
Borrower hereby represents, warrants and covenants that, as of the date hereof;
any date upon which a Loan is made hereunder, and until the Obligations are
fully paid, performed and satisfied, the representations, warranties and
covenants set forth below are and shall remain true. The Borrower hereby
represents and warrants to Bank as follows:
11.1 THE AMENDMENT. This Amendment has been duly and validly
executed by an authorized executive officer of Borrower and constitutes
the legal, valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms.
11.2 FINANCING AGREEMENT. The Financing Agreement, as amended by
this Amendment, remains in full force and effect and remains the valid
and binding obligation of Borrower enforceable against Borrower in
accordance with its terms. Borrower hereby ratifies and confirms the
Financing Agreement as amended by this Amendment.
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11.3 NONWAIVER. Except as specifically set forth in this
Amendment, the execution, delivery, performance and effectiveness of
this Amendment shall not operate nor be deemed to be nor construed as a
waiver (i) of any right, power or remedy of Bank under the Financing
Agreement, nor (ii) of any term, provision, representation, warranty or
covenant contained in the Financing Agreement or any other documentation
executed in connection therewith. Further, except as specifically set
forth in this Amendment, none of the provisions of this Amendment shall
constitute, be deemed to be or construed as, a waiver of any Event of
Default under the Financing Agreement as amended by this Amendment.
11.4 THE HYSAN TRANSACTION DOCUMENTS. The Hysan Transaction
Documents have been duly and validly executed by an authorized executive
officer of Borrower and constitute the legal, valid and binding
obligation of Borrower. The execution, delivery and/or performance by
Borrower of the Hysan Transaction Documents does not and will not (i)
constitute a violation of any applicable law or a breach of any
provision contained in Borrower's Certificate of Incorporation or
By-Laws or contained in any order of any Court or other governmental
agency or in any agreement, instrument or document to which Borrower
is a party or by which Borrower or any of Borrower's properties is
bound or (ii) result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of Borrower's
properties (other than in favor of Bank hereunder).
11.5 REAFFIRMATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Borrower hereby reaffirms and agrees to be bound by all representations,
warranties and covenants made or entered into it under the Financing
Agreement and under any and all Loan Documents. Borrower hereby
represents and warrants to Bank that no Default or Event of Default
exists as of the date of this Amendment and none shall be caused to
exist as a result of the execution, delivery and performance by Borrower
of (i) this Amendment and (ii) the Hysan Transaction Documents.
11.6 NO LIABILITIES. Borrower hereby represents and warrants to
Bank that it is not assuming any liabilities, debts, accounts payable,
encumbrances, mortgages, leases (whether of personal property or real
property), guaranties, indemnities, claims against, known or unknown,
contingent or liquidated, of Hysan or Wedge under or pursuant to the
Hysan Transaction Documents, except as set forth on SCHEDULE 11.6
attached hereto and incorporated by reference herein.
11.7 REFERENCE TO AND EFFECT ON THE FINANCING AGREEMENT. Upon
the effectiveness of this Amendment, each reference in the Financing
Agreement to "this Agreement", "hereunder", "hereof", "herein", or words
of like import shall mean and be a reference to the Financing Agreement,
as amended hereby, and each reference to the Financing Agreement in any
other document, instrument or agreement executed and/or delivered in
connection with the Financing Agreement shall mean and be a reference to
the Financing Agreement, as amended hereby.
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11.8 BULK TRANSFER LAWS. Borrower hereby represents and warrants
to Bank that Borrower has received adequate compensatory indemnification
from Hysan of any obligations and liabilities incurred by Borrower as
the result of Borrower's and/or Hysan's failure to comply with bulk
sales or transfers or similar laws in the state of Illinois.
12. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT.
In addition to all of the other conditions and agreements set
forth herein, the effectiveness of this Amendment is subject to each of
the following conditions precedent:
12.1 AMENDMENT TO FINANCING AGREEMENT. Bank shall have received
an original counterpart of this Amendment to Financing Agreement, and
all Schedules and Exhibits thereto, the Assignment of Seller's
Representations and Warranties and the Collateral Assignment of Escrow
Agreement, executed and delivered by a duly authorized officer of
Borrower.
12.2 CREDIT INVESTIGATION. Bank shall have completed its credit
investigation of Borrower to its sole satisfaction.
12.3 HYSAN ACQUISITION. Bank shall have received copies of the
fully executed originals of each of the Hysan Transaction Documents.
12.4 AMENDMENT FEE. Bank shall have received from Borrower an
amendment fee in the amount of Twenty-five Thousand Dollars ($25,000).
12.5 RESOLUTIONS. Bank shall have received certified resolutions
of Borrower authorizing Borrower to execute, deliver and perform each
(a) this Amendment and (b) the Hysan Transaction Documents.
12.6 INSURANCE. Bank shall have received true and correct
evidence, satisfactory to Bank in its sole discretion, of personal
property and liability insurance policies maintained by Borrower
including, without limitation, the carriers thereof; and the types of
coverage (which coverage shall include environmental liability
insurance) and insured amounts covered thereby and naming Bank as loss
payee and additional insured.
12.7 FINANCIALS. Bank shall have received from Borrower detailed
projections for the (i) twelve (12) months immediately following the
Effective Date on a monthly basis, (ii) the following twelve (12) months
on a quarterly basis and (iii) the next following twelve (12) months on
an annualized basis, prepared in
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<PAGE> 14
accordance with the requirements set forth at SECTION 8.6 of the
Financing Agreement.
12.8 VALUATION. Bank shall have completed a review, satisfactory
to Bank in its sole discretion, of the orderly liquidation value and
appraisals for the Acquired Assets, as said term is defined in the Hysan
Purchase Agreement.
12.9 EXCESS AVAILABILITY. Borrower shall have a minimum excess
availability of One Million Dollars ($1,000,000) under the facilities
established by the Financing Agreement on the Effective Date and after
allowing for all fees, costs and expenses incurred or paid by it under
or pursuant to (i) this Amendment and (ii) the Hysan Transaction
Documents.
12.10 SOLVENCY. Borrower is and will be Solvent after receipt
and application of the loans in accordance with the terms of the
Financing Agreement, as amended by this Amendment.
12.11 COSTS. Bank shall have received from Borrower
reimbursement in full for all of its costs, including, but not limited
to service, "out-of-pocket" and legal expenses, which legal expenses
shall not exceed $10,000, exclusive of out-of-pocket costs of Bank's
counsel.
12.12 OPINION OF COUNSEL. Bank shall have received from Borrower
and its counsel an opinion of counsel, satisfactory to Bank in its sole
discretion, as to all legal aspects of the (i) Hysan Acquisition, and
(ii) Amendment and all matters relevant thereto.
12.13 NO MATERIAL ADVERSE CHANGE. There shall have occurred no
material and adverse change in the Borrower's assets, liabilities or
financial condition since the date of the last Financials delivered by
Borrower to Bank nor shall there have been any material damage to or
loss of any of Borrower's assets or properties since such date.
12.14 CONSENTS. Borrower shall have received all necessary
consents from NCB to (i) this Amendment and (ii) the Hysan Transaction
Documents.
12.15 REMITTANCES. Bank shall have received from Borrower
evidence, satisfactory to Bank in its sole discretion, that Borrower has
complied with all conditions and requirements of SECTION 7.3 of the
Financing Agreement regarding written notification to all Persons who
become its customers and account debtors as a result of the execution,
delivery and performance by the parties to, and of; the Hysan Purchase
Agreement at the Closing (as the term "Closing" is defined in the Hysan
Purchase Agreement).
12.16. PAYMENTS FROM ESCROW ACCOUNT. Borrower shall, and hereby
does,
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<PAGE> 15
agree to direct the Hysan Escrow Agent under the Hysan Escrow Agreement
to forward to the Locked Box, pursuant to the provisions of SECTION 7.3
of the Financing Agreement, all payments to be made to Borrower pursuant
to Section 1.5(b) of the Hysan Purchase Agreement and pursuant to the
Hysan Escrow Agreement.
12.17 REPURCHASED ACCOUNTS. Borrower shall, and hereby does,
agree to notify Hysan that any amounts paid by Hysan to Borrower
pursuant to Section 1.5(c) of the Hysan Purchase Agreement shall be
forwarded directly by Hysan to the Locked Box in accordance with the
terms and conditions of SECTION 7.3 of the Financing Agreement.
12.18 INTENTIONALLY OMITTED.
12.19 UNIFORM COMMERCIAL CODE LIEN SEARCHES AND FILINGS;
ESTOPPEL. Bank shall have received (i) the results of Uniform Commercial
Code ("UCC") 11 lien searches as to each (a) Borrower and (b) Hysan, in
Ohio, California and Illinois, as applicable, the results of which must
be satisfactory to Bank in its sole discretion; (ii) duly executed
UCC-1 financing statements granting Bank a first lien on all of the
"Acquired Assets" (as said term is defined in the Hysan Purchase
Agreement) and (iii) either (a) duly executed and filed UCC-3
termination statements from each holder of a lien, assignment (in which
case a release of assignment in recordable form is acceptable) or other
encumbrance affecting the "Acquired Assets" (as said term is defined in
the Hysan Purchase Agreement) or (b) duly executed estoppel letters from
each holder of a lien, assignment or other encumbrance affecting the
"Acquired Assets" (as said term is defined in the Hysan Purchase
Agreement).
12.20 DELIVERIES PRIOR TO DISBURSEMENTS - HYSAN ACQUISITION.
Bank shall have received from Borrower each item specified, and each
condition shall have been satisfied, as set forth on ADDENDUM TO EXHIBIT
J, DELIVERIES PRIOR TO DISBURSEMENT.
13. MISCELLANEOUS.
13.1 GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the law of the State of Ohio, without
regard to principles of conflict of law.
13.2 SEVERABILITY. In the event any provision of this Amendment
should be invalid, the validity of the other provisions hereof and of
the Financing Agreement shall not be affected thereby.
13.3 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which, when taken together, shall constitute but
one and the
15
<PAGE> 16
same agreement.
13.4 CONFESSION OF JUDGMENT. Borrower hereby irrevocably
authorizes and empowers any attorney-at-law to appear for Borrower in
any action upon or in connection with this Amendment or the Financing
Agreement, as amended hereby, at any time after the Loans and/or other
Obligations become due, as herein provided, in any court in or of the
State of Ohio or elsewhere, and waives the issuance and service of
process with respect thereto, and irrevocably authorizes and empowers
any such attorney-at-law to confess judgment in favor of Bank against
Borrower, the amount due thereon or hereon, plus interest as herein
provided, and all costs of collection, and waives and releases all
errors in said proceedings and judgments and all rights of appeal from
the judgment rendered. The Borrower agrees and consents that the
attorney confessing judgment on behalf of the Borrower may also be
counsel to Bank or any of Bank's Affiliates, waives any conflict of
interest which might otherwise arise, and consents to Bank paying such
confessing attorney a reasonable legal fee or allowing such attorney's
reasonable fees to be paid from the proceeds of Collateral, the Premises
or any other security for the Loans and the other Obligations.
IN WITNESS WHEREOF, Borrower has caused this First Amendment to
Financing Agreement to be duly executed and delivered by its duly authorized
officer as of the date first above written.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS. FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
Signed in Cleveland, Ohio on May 22, 1997.
------
Signed and acknowledged SPECIALTY CHEMICAL RESOURCES,
in the presence of: INC.
/s/ Corey Roth By: /s/ David F. Spink
- ------------------------------- ---------------------------
Name: Corey Roth Its: CFO
--------------------------
16
<PAGE> 17
/s/ Ira C. Kaplan
- -------------------------------
Name: Ira C. Kaplan
-------------------------
17
<PAGE> 18
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
The foregoing instrument was acknowledged before me this 22nd day of
May, 1997, by David F. Spink, Chief Financial Officer of Specialty Chemical
Resources, Inc., a Delaware corporation, on behalf of the corporation.
/s/ illegible
------------------------
Notary Public
Accepted at Cleveland, Ohio
as of May 22, 1997.
---
STAR BANK, NATIONAL ASSOCIATION
By: /s/ Susan Geiger
---------------------------
Its: Vice President
---------------------------
18
<PAGE> 19
EXHIBITS AND SCHEDULES
----------------------
EXHIBIT AB - ASSIGNMENT OF SELLER'S REPRESENTATIONS AND WARRANTIES
- ----------
EXHIBIT AC - COLLATERAL ASSIGNMENT OF ESCROW AGREEMENT
- ----------
EXHIBIT AD - HYSAN ESCROW AGREEMENT
- ----------
EXHIBIT AE - HYSAN TRANSACTION DOCUMENTS
- ----------
EXHIBIT AF - OPINION OF BORROWER'S COUNSEL
- ----------
EXHIBIT AG - OPINION OF SELLER'S COUNSEL - HYSAN TRANSACTION
- ----------
EXHIBIT AH - CONSENT OF NCB
- ----------
EXHIBIT AI - CERTIFICATE OF SECRETARY OF BORROWER
- ----------
ADDENDUM TO EXHIBIT B - HYSAN ACQUISITION PATENTS, TRADEMARKS AND
- ---------------------
LICENSE ASSIGNMENTS
ADDENDUM TO EXHIBIT J - DELIVERIES PRIOR TO DISBURSEMENT - HYSAN
- ---------------------
ACQUISITION
ADDENDUM TO EXHIBIT K - BORROWING BASE CERTIFICATE
- ---------------------
ADDENDUM TO EXHIBIT L - FINANCIAL COVENANTS
- ---------------------
ADDENDUM TO EXHIBIT M - CERTIFICATE OF CHIEF FINANCIAL OFFICER - HYSAN
- ---------------------
ACQUISITION
ADDENDUM TO EXHIBIT S - CERTIFICATE OF CHIEF FINANCIAL OFFICER - HYSAN
- ---------------------
ACQUISITION
ADDENDUM TO EXHIBIT T - DISBURSEMENT DIRECTION LETTER - HYSAN
- ---------------------
ACQUISITION
ADDENDUM TO EXHIBIT U - INSURANCE
- ---------------------
ADDENDUM TO SCHEDULE 1 - LICENSES, PATENTS, TRADEMARKS. ETC. - HYSAN
- ----------------------
ACQUISITION
<PAGE> 20
ADDENDUM TO SCHEDULE 3- TITLE TO PROPERTY; NO LIENS - HYSAN
- ----------------------
ACQUISITION
SCHEDULE 11.6 TO FIRST AMENDMENT--DISCLOSURE OF LIABILITIES
- -------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 42,609
<SECURITIES> 0
<RECEIVABLES> 5,667,447
<ALLOWANCES> 0
<INVENTORY> 9,205,613
<CURRENT-ASSETS> 15,293,145
<PP&E> 16,962,525
<DEPRECIATION> 4,972,863
<TOTAL-ASSETS> 48,350,852
<CURRENT-LIABILITIES> 6,654,240
<BONDS> 15,339,585
<COMMON> 394,777
0
0
<OTHER-SE> 25,962,250
<TOTAL-LIABILITY-AND-EQUITY> 48,350,852
<SALES> 19,552,782
<TOTAL-REVENUES> 19,552,782
<CGS> 15,701,339
<TOTAL-COSTS> 15,701,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 599,177
<INCOME-PRETAX> (205,018)
<INCOME-TAX> 0
<INCOME-CONTINUING> (205,018)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (205,018)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
