<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1994.
[ ] Transition Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required)
for the transition period from___________to____________.
Commission file number 0-14275
-------------------------------
Edac Technologies Corporation
-----------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1515599
------------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
1790 New Britain Avenue, Farmington, Connecticut 06032
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)-677-2603
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
N/A N/A
------------------- --------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0025 par value
-----------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such a shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE>
As of March 23, 1995, 3,595,539 shares of Common Stock were outstanding, and
the aggregate market value of the Common Stock (based upon the $1-1/16 closing
bid on that date in the over-the-counter market) held by nonaffiliates (excludes
shares reported as beneficially owned by directors and officers - does not
constitute an admission as to affiliate status) was approximately $2,078,181.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Part of Form 10-K
Into Which Portions of
DOCUMENT Document are Incorporated
-------- -------------------------
<S> <C>
Annual Report to Shareholders for the
fiscal year ended December 31, 1994 Part II
Information Statement relating to
1995 Annual Meeting of Shareholders Part III
</TABLE>
2
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PART I
ITEM 1. BUSINESS.
---------
General
-------
Edac Technologies Corporation ("Edac") was formed in 1985 for the purpose of
acquiring Gros-Ite Industries, Incorporated (which had three operating
divisions: Time Engineering, Gros-Ite and Spectrum). In the past six years Edac
has sold the assets of its other operations and now operates only the Gros-Ite
division ("Gros-Ite").
Products
--------
Edac currently offers design and manufacturing services for the aerospace
industry in areas such as special tooling, equipment and gauges, and components
used in the manufacture, assembly and inspec-tion of jet engines. Edac also
offers design and manufacturing services for the medical instruments industry in
such areas as components used in the manufacture of medical instruments and
special tooling. Edac also designs and manufactures specialized machines for a
variety of other applications.
Edac maintains manufacturing facilities with computerized numerically
controlled machining centers, and grinding, welding, and sheet metal
fabrication, painting and assembly capabilities. Items manufactured by Edac
include precision rings, and other components for jet engines, components for
medical instruments, as well as industrial spindles, environmental test chambers
and specialized machinery designed by Edac or others and other assemblies
requiring close tolerances.
Patents and Trademarks
----------------------
Edac currently holds no patents or registered trademarks, tradenames or
similiar intellectual property. The Company believes that the nature of its
business presently does not require the development of patentable products or
registered tradenames or trademarks to maintain market growth.
Marketing and Competition
-------------------------
Edac has numerous competitors both in design and manufacturing. Many of
the independent design firms with which it competes are smaller than Edac and do
not provide the variety of services that Edac provides. Edac also competes with
its customers' in-house design and technical services capabilities. Edac
believes that it is able to compete effectively with independent design firms
and in-house design staffs because of its experience and the timeliness and
competitive pricing of its services.
Many firms also compete with Edac's manufacturing operations. However,
Edac believes that it will be able to compete effectively with these firms on
price, ability to meet customer deadlines and the stringent quality control
standards it employs. Edac also believes that its integration of design and
manufacturing capabilities offers a competitive advantage.
3
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Edac's manufactured products are sold primarily through
individual purchase orders on a quotation or bid basis. Its sales
personnel and management maintain contacts with purchasing sources to
keep informed as to manufacturing projects available for quotation.
Edac occasionally enters into annual manufacturing contracts on
specific components.
For its fiscal year ended December 31, 1994, approximately 69% of Edac's net
sales were derived from sales to United Technologies Corporation.
Approximately 70% of Edac's design business is done on a time and
material basis based on hourly rates established annually. Most of
Edac's manufacturing is done on a firm quotation basis. Less than 10%
of Edac's net sales are attributed to government contracts subject to
termination or renegotiation at the option of the U.S. Government.
United Technologies Corporation annually negotiates hourly billing rates for
design work and is free to audit costs actually charged.
Backlog
-------
Edac's backlog as of December 31, 1994, was approximately $24,487,000
compared to $20,860,000 as of December 31, 1993. Backlog consists of accepted
purchase orders that are cancellable by the customer without penalty, except for
payment of costs incurred, and may involve delivery times that extend over
periods as long as two or three years. Edac presently expects to complete
approximately $15,900,000 of its December 31, 1994 backlog within the next 12
months.
Employees
---------
As of March 19, 1995 Edac had approximately 152 employees.
ITEM 2. PROPERTIES.
------------
<TABLE>
<CAPTION>
Square Owned or Principal
Address Feet Leased Activity
------- ------ -------- ---------
<S> <C> <C> <C>
1790 New Britain Ave. 47,000 Owned Manufacturing
Farmington, Ct. 06032 (1) Design engineering
services
1798 New Britain Ave. 20,800 Owned Design and manu-
Farmington, Ct. 06032 (1) facture of spindles
and specialized
machines
1838 New Britain Ave. 10,000 Leased Design and manu-
Farmington, Ct. 06032 facture of environ-
mental test equip-
ment
</TABLE>
The Company anticipates adding 20,000 additional square feet in 1995. (See
Management's Discussion and Analysis).
4
<PAGE>
(1) Property subject to mortgage securing certain corporate
indebtedness.
ITEM 3. LEGAL PROCEEDINGS.
------------------
None
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS.
-----------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDERS MATTERS.
---------------------
Information in response to this item is incorporated herein by reference to
"Market Information" on page 3 of the Registrant's 1994 Annual Report to
Shareholders
ITEM 6. SELECTED FINANCIAL DATA.
------------------------
Information in response to this item is incorporated herein by reference to
"Selected Financial Information" on page 3 of the Registrant's 1994 Annual
Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
Information in response to this item is incorporated herein by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 4 through 7 of the Registrant's 1994 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
Information in response to this item is incorporated herein by reference to
pages 8 through 20 of the Registrant's 1994 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
Information in response to this item is incorporated herein by
reference to "Election of Directors" in the Registrant's definitive
Information Statement for its 1995 Annual Meeting of Shareholders, which will be
filed within 120 days after the end of the Registrant's fiscal year ended
December 31, 1994.
5
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
Information in response to this item is incorporated herein by
reference to "Executive Compensation" in the 1995 Information Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT.
-----------
Information in response to this item is incorporated herein by
reference to "Principal Security Holders and Security Holdings of
Management" in the 1995 Information Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Information in response to this item is incorporated herein by
reference to "Certain Transactions" in the 1995 Information Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-------------------------------------------------------
FORM 8-K.
---------
(a) Documents filed:
---------------
1. Financial Statements.
The financial statements required to be filed by Item 8
hereof have been incorporated by reference to the
Registrant's 1994 Annual Report to Shareholders and
consist of the following:
Report of Independent Public Acountants
Consolidated Statements of Operations--Years ended
December 31, 1994, 1993 and 1992
Consolidated Balance Sheets--December 31, 1994 and
1993.
Consolidated Statements of Changes in Shareholders'
Equity--Years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows--Years ended
December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
6
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2. Financial statement schedules.
-----------------------------
The following financial statement schedule of Edac is
included in Item 14(d) hereof:
Report of Independent Public Accountants on Schedule
Schedule II: Valuation and qualifying accounts
All other schedules for which provisions are made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits:
--------
See Exhibit Index included as the last part of this Report,
which Index is incorporated herein by this reference.
(d) Financial Statements and Schedules
----------------------------------
Refer to Item 14a above for listing of financial statements
and schedules.
7
<PAGE>
LETTERHEAD OF ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
----------------------------------------------------
To the Shareholders and Board of Directors of
Edac Technologies Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Edac Technologies Corporation's annual report
to shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated March 3, 1995. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule presented
on page 9 of this Form 10-K is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 3, 1995
8
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
EDAC TECHNOLOGIES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------------------------------------------------------------------------------------
DESCRIPTION Balance Charged Charged to Balance
at Beginning to Costs Other Accounts Deductions at End
of Period and Expenses Describe Describe of Period
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts: $40,000 $5,050 0 $5,050(1) $40,000
YEAR ENDED DECEMBER 31, 1993:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts: $40,000 0 0 0 $40,000
YEAR ENDED DECEMBER 31, 1992:
Reserves and allowances deducted
from asset accounts:
Allowance for
doubtful accounts: $40,000 $6,038 0 $6,038(1) $40,000
</TABLE>
(1) Represents write-off of specific accounts receivable.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EDAC TECHNOLOGIES CORPORATION
BY /s/ Robert T. Whitty .
----------------------------
Robert T. Whitty,
Chief Executive Officer
BY /s/ Glenn L. Purple .
--------------------------
Glenn L. Purple
Vice President-Finance
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Robert P. Luzzi . Chairman March 27, 1995
-----------------------
Robert P. Luzzi
/s/ Francis Moskey . President, Chief March 27, 1995
----------------------- Operating Officer
Francis Moskey and Director
/s/ Gerald C. Smith . Executive Vice March 27, 1995
----------------------- President and
Gerald C. Smith Director
/s/ Stephen G.W. Walk . Director March 27, 1995
-----------------------
Stephen G.W. Walk
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Sequential
Number Page Number
------- -----------
<S> <C> <C>
3.1 Edac's Amended and Restated (1)
Articles of incorporation
3.2 Edac's By-Laws (1)
10.1 Consulting Agreement between (1)
Gros-Ite and William Giannone
10.2 Gros-Ite division Pension Plan (1)
10.3 Gros-Ite division Self-Insured (1)
Medical Reimbursement Plan
10.4 Edac Technologies Corporation (2)
Employee Stock Ownership Trust,
effective May 1, 1989
10.5 Amended Employment Agreement dated (2)
May 12, 1989 between Edac and
Robert P. Luzzi
10.6 $700,000 Limited Recourse Term (2)
Promissory Note dated May 12, 1989
between the Plan and CNB
10.7 Guaranty dated May 12, 1989 from (2)
Edac to CNB
10.8 Edac Technologies Corporation (3)
1991 Stock Option Plan
10.9 $4,000,000 Term Promissory Note (5)
dated March 22, 1993 between
Edac and Shawmut
10.10 Employment Agreement dated (5)
January 1,1994 between Edac and
Robert Whitty
10.11 Stock Option Agreement dated (5)
January 1,1994 between Edac and
Robert Whitty
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
10.12 Fifth Amended and Restated Revolving
Loan, Term Loan, Equipment Loan
and Security Agreement dated February
28, 1995 between Edac and Shawmut
10.13 $7,000,000 Revolving Promissory
Note dated February 28, 1995 between
Edac and Shawmut
10.14 $500,000 Equipment Promissory
Note II dated February 28, 1995
between Edac and Shawmut Bank
10.15 Sixth Open-End Mortgage Modifica-
tion Agreement between Edac and
Shawmut dated February 28, 1995
regarding property located at 1790
New Britain Avenue, Farmington, CT
10.16 Amendment dated December 19, 1994 to
Employment Agreement dated
October 1, 1990 between Edac and
Robert P. Luzzi
11.1 Statement regarding computation of
earnings per share
13.1 The Registrant's 1994 Annual Report
to Shareholders
</TABLE>
(1) Exhibit incorporated by reference to the Company's
registration statement on Form S-1 dated August 6, 1985,
commission File No. 2-99491, as amended.
(2) Exhibit incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989.
(3) Exhibit incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
(4) Exhibit incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
(5) Exhibit incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
12
<PAGE>
EXHIBIT 10.12
-------------
1
<PAGE>
FIFTH AMENDED AND RESTATED REVOLVING LOAN,
------------------------------------------
TERM LOAN, EQUIPMENT LOAN AND SECURITY AGREEMENT
------------------------------------------------
THIS LOAN AGREEMENT made this 28th day of February, 1995, by and between
EDAC TECHNOLOGIES CORPORATION, a Wisconsin corporation with its chief executive
office and principal place of business at 1790 New Britain Avenue, Farmington,
Connecticut 06032 (hereinafter called the "BORROWER") and SHAWMUT BANK
CONNECTICUT, N.A., a national banking association, with an office at 777 Main
Street, Hartford, Connecticut 06115 (hereinafter called the "LENDER"). The
Borrower and the Lender hereby agree as follows:
1. DEFINITIONS. As used herein:
1OBLIGATIONS - means all loans, advances, debts, liabilities,
-----------
obligations, covenants and duties owing by the Borrower to the Lender of
every kind and description (whether or not evidenced by any note or other
instrument and whether or not for the payment of money), direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, whether or not such obligations are related to the
transaction described in this Loan Agreement, by class, or kind, or whether
or not contemplated by the parties at the time of the granting of this
security interest including without limitation, the Borrower's Guaranty
dated May 12, 1989 of the obligations of Robert P. Luzzi, Trustee of the
EDAC Technologies Corporation Employee Stock Ownership Plan and Trust (the
"ESOT") to the Lender under that certain $700,000.00 Limited Recourse Term
Promissory Note dated May 12, 1989 from the ESOT to the Lender and,
including without limitation, all interest, fees, charges, expenses and
attorneys' fees chargeable to the Borrower or incurred by the Lender in
connection with the Borrower's account whether provided for herein or in
any Supplemental Agreement.
2COLLATERAL - means Receivables, Inventory, Equipment, Patents,
----------
Trademarks and Additional Collateral, as hereinafter defined.
3RECEIVABLES - means (1) all of the Borrower's now owned and hereafter
-----------
acquired, present and future, accounts, contract rights, chattel paper,
documents, and instruments, including without limitation all obligations to
the Borrower for the payment of money, whether arising out of the
Borrower's sale of goods or rendition of services or otherwise (all
hereinafter called "ACCOUNTS, ETC."), and all proceeds of the foregoing and
all proceeds of any insurance on the foregoing; (2) all of the Borrower's
rights, remedies, security and liens,
1
<PAGE>
in, to and in respect of the Accounts, Etc., present and future, including
without limitation, rights of stoppage in transit, replevin, repossession
and reclamation and other rights and remedies of an unpaid vendor, lienor
or secured party, guaranties or other contracts of suretyship with respect
to the Accounts, Etc., deposits or other security for the obligation of any
debtor or obligor in any way obligated on or in connection with any
Accounts, Etc., and credit and other insurance, and all proceeds of the
foregoing and all proceeds of any insurance on the foregoing; and (3) all
of the Borrower's right, title and interest, present and future, in, to and
in respect of all goods relating to, or which by sale have resulted in,
Accounts, Etc., including without limitation all goods described in
invoices or other documents or instruments with respect to, or otherwise
representing or evidencing any Accounts, Etc., and all returned, reclaimed
or repossessed goods, and all proceeds of the foregoing and all proceeds of
any insurance on the foregoing.
4ELIGIBLE RECEIVABLES - means the net amount of those Receivables which
--------------------
continually meet the following requirements:
a. The account is due and payable not more than thirty (30) days
from the date of the invoice evidencing the account and is not more
than sixty (60) days past due;
b. The account arose from the performance of services by the
Borrower which have been fully and satisfactorily performed or from
the absolute sale of goods by the Borrower in which the Borrower had
the sole and complete ownership and the goods have been shipped or
delivered to the account debtor evidencing which the Borrower or the
Lender has the possession of shipping and delivery receipts;
c. The account is not subject to any prior or subsequent assignment,
claim, lien or security interest other than that of the Lender;
d. To the best of the Borrower's knowledge, the account is not
subject to setoff, counterclaim, defense, allowance or adjustment
other than discounts for prompt payment shown on the invoice, or to
dispute, objection or complaint by the account debtor concerning his
liability on the account, and the goods, the sale of which gave rise
to the account, have not been returned, rejected, lost or damaged;
2
<PAGE>
e. The account arose in the ordinary course of business;
f. To the best of the Borrower's knowledge, no petition or other
application for relief under the Bankruptcy Code or other insolvency
law has been filed with respect to the customer or account debtor; and
the customer or account debtor has not made an assignment for the
benefit of creditors, become insolvent, or suspended or terminated
business; and the account debtor is generally paying its debts as they
become due; and
g. The Lender has not notified the Borrower that, in the Lender's
sole discretion, the account or account debtor is not acceptable to
the Lender.
5INVENTORY - means all inventory of whatsoever name, nature, kind or
---------
description now owned and hereafter acquired, present and future, by the
Borrower, wherever located, including without limitation all contract
rights with respect thereto and documents representing the same, all goods
held for sale or lease or to be furnished under contracts of service,
finished goods, work in process, raw materials, materials used or consumed
by the Borrower, parts, supplies, and all wrapping, packaging, advertising
and shipping materials and any documents relating thereto, and all labels
and other devices, names and marks affixed or to be affixed thereto for
purposes of selling or of identifying the same or the seller or
manufacturer thereof, and all right, title and interest of the Borrower
therein and thereto, and all proceeds of the foregoing and all proceeds of
any insurance on the foregoing.
6ELIGIBLE INVENTORY - means that Inventory (valued at the lesser of cost
------------------
to the Borrower or market value) which continually meets the following
requirements:
a. It is in first-class condition and is saleable through normal
trade channels;
b. It is new and unused;
c. It is owned by the Borrower and is not subject to any lien or
security interest whatsoever other than that of the Lender; and
d. It is not of any class, type or category which the Lender, acting
in the Lender's sole discretion, shall have notified the Borrower, is
not deemed to constitute
3
<PAGE>
Inventory eligible for the purposes of this SECTION "1.6."
Eligible Inventory may include raw materials, work-in-process and finished
goods Inventory. Eligible Inventory may also include billable design time
not yet billed to the customer under design contracts to be performed
within ninety (90) days from the date of the contract.
7EQUIPMENT - means all machinery, equipment, furniture, fixtures, tools,
---------
parts, supplies and motor vehicles, now owned and hereafter acquired,
present and future, by the Borrower of whatsoever name, nature, kind or
description, wherever located, and all additions and accessions thereto and
replacements or substitutions therefor, and all proceeds thereof and all
proceeds of any insurance thereon.
8PATENTS - means all of the Borrower's right, title and interest, present
-------
and future, in and to (a) all letters patent of the United States or any
other country, all right, title and interest therein and thereto, and all
registrations and recordings thereof, including without limitation
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States
and State thereof or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by the Borrower; and
(b) all reissues, continuations, continuations-in-part or extensions
thereof and all licenses thereof; and all proceeds of the foregoing and all
proceeds of any insurance on the foregoing.
9TRADEMARKS - means all of the Borrower's right, title and interest,
----------
present and future, in and to (1) all trademarks, trade names, trade
styles, service marks, prints and labels on which said trademarks, trade
names, trade styles and service marks have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all right, title and interest therein and thereto, and all
registrations and recordings thereof, including without limitation
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States,
any State thereof, or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by the Borrower; (2)
all reissues, extensions or renewals thereof and all licenses thereof; and
(3) the goodwill of the business symbolized by each of the Trade marks, and
all customer lists and other records of the Borrower relating to the
distribution of
4
<PAGE>
products bearing the Trademarks; and all proceeds of the foregoing and all
proceeds of any insurance on the foregoing.
10ADDITIONAL COLLATERAL - means (1) all other general intangibles of
---------------------
every kind and description of the Borrower, including without limitation
Federal, State and local tax refund claims of all kinds, whether now
existing or hereafter arising; (2) all of the Borrower's deposit accounts,
whether now owned or hereafter created, wherever located; (3) all monies,
securities, instruments, cash and other property of the Borrower and the
proceeds thereof, now or hereafter held or received by, or in transit to,
the Lender from or for the Borrower, whether for safekeeping, pledge,
custody, transmission, collection or otherwise, and all of the Borrower's
deposits (general or special, balances, sums, proceeds and credits of the
Borrower with the Lender at any time existing); and (4) all books, records,
customer lists, ledger cards, computer programs, computer tapes, disks,
printouts and records, and other property and general intangibles at any
time evidencing or relating to any of the foregoing, whether now in
existence or hereafter created; and all proceeds of the foregoing and all
proceeds of any insurance on the foregoing.
11LOAN AGREEMENT - means this Fifth Amended and Restated Revolving Loan,
--------------
Term Loan, Equipment Loan and Security Agreement, as the same may hereafter
be supplemented, modified or amended.
12SUPPLEMENTAL AGREEMENTS - means any and all agreements, instruments,
-----------------------
documents, security agreements, mortgages, financing statements, and
supplements thereto granting or intending to grant to the Lender any lien,
security interest, pledge, assignment or indemnification to secure the
Obligations, or entered into between the Borrower and the Lender, at any
time, for any purpose.
13EFFECTIVE DATE - means the date of execution of this Loan Agreement.
--------------
14GUARANTOR - means any person, firm or corporation which has guaranteed
---------
or endorsed or has agreed to act as surety for any of the Obligations.
15ADDITIONAL DEFINITIONS. Unless otherwise specifically defined herein,
----------------------
all terms used in this Loan Agreement and in all documents referred to
herein and which have been defined in Articles 1, 2 or 9, Uniform
Commercial Code, shall be interpreted and construed in light of the
sections, the defini-
5
<PAGE>
tions, the "official comment", and the definitional and substantive cross-
references of the Uniform Commercial Code.
6
<PAGE>
2. TERMS OF BORROWING.
1REVOLVING LOAN. The Lender may loan to the Borrower, at its discretion,
--------------
and the Borrower may borrow from the Lender, from time to time (the
"REVOLVING LOAN"), up to that amount (hereinafter referred to as the
"BORROWING BASE") which is the lesser of:
a. The sum of:
(1) EIGHTY PERCENT (80%) of the Borrower's Eligible Receivables;
(2) FIFTY-FIVE PERCENT (55%) of the Borrower's Eligible Inventory,
but in any event not to exceed THREE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($3,500,000.00); AND
(3) FIFTY PERCENT (50%) of the Borrower's Eligible Inventory in
excess of the budgeted level of inventory of Borrower, as
determined by the Lender in its reasonable discretion;
which sum shall be reduced by the aggregate amount committed under any
letter or letters of credit issued by the Lender on behalf of the
Borrower; OR
b. SEVEN MILLION DOLLARS ($7,000,000.00), reduced by the aggregate
amount committed under any letter or letters of credit issued by the
Lender on behalf of the Borrower.
Nothing herein shall be construed to require the Lender to lend up to the
Borrowing Base, and nothing shall prohibit the Lender from lending in
excess of the Borrowing Base, all loans to be at the discretion of the
Lender.
The Revolving Loan shall be evidenced by the Revolving Promissory Note
annexed hereto and made a part hereof as EXHIBIT "B".
2BORROWING BASE REPORTS, ETC. For purposes of computing the Borrowing
---------------------------
Base, the Borrower shall furnish to the Lender information adequate to
identify Receivables and Inventory at times and in form and substance as
may be required by the Lender, together with such certificates as the
Lender may require from the Borrower representing that no Event of Default
has occurred and that the Borrower knows of no event
7
<PAGE>
which, but for the passage of time or the giving of notice, would create an
Event of Default. From time to time, the Borrower shall provide the Lender
with schedules describing all Receivables created or acquired by the
Borrower and shall execute and deliver written assignments of such
Receivables to the Lender; provided, however, that the Borrower's failure
to execute and deliver such schedules and/or assignments shall not affect
or limit the Lender's security interest or other rights in and to any
Collateral. Together with each schedule, the Borrower shall, upon request
of the Lender, furnish copies of customers' invoices or the equivalent, and
original shipping or delivery receipts for all merchandise sold, and the
Borrower warrants the genuineness thereof. In addition to the foregoing,
the Borrower shall deliver to the Lender (a) within ninety (90) days after
the end of each of the Borrower's fiscal years, a register containing the
name and address of each customer of the Borrower and (b) within thirty
(30) days after the end of each month, an accounts receivable aging report,
an accounts payable aging report, an accounts receivable reconciliation
report, an accounts receivable reserve reconciliation report and an
inventory and work-in-process report, all of which may be internally
prepared. The Borrower further warrants that all Receivables are and will
be bona fide existing obligations created by the sale and delivery of
merchandise or the rendition of services to customers in the ordinary
course of business, free of liens, encumbrances and security interests and
unconditionally owed to the Borrower and, to the best of the Borrower's
knowledge, without defense, offset or counterclaim.
3REPAYMENT OF THE REVOLVING LOAN. The Revolving Loan shall be payable
-------------------------------
upon demand without requiring the Lender first to resort to any other
right, remedy or security. In the event the Revolving Loan at any time
exceeds the Borrowing Base, the Borrower will immediately, upon
notification thereof from the Lender, repay to the Lender the amount by
which the Revolving Loan exceeds the Borrowing Base. At the time of each
advance under the Revolving Loan, the Borrower will, upon request of the
Lender, execute a promissory note evidencing the Revolving Loan, such note
to be in such form and to contain such provisions as the Lender shall deem
desirable. If the Lender shall elect not to have the Borrower execute
notes, each advance shall be recorded in an account on the Lender's books
in which shall also be recorded accrued interest on advances, payments on
such advances, and other appropriate debits and credits as herein provided,
and such account shall constitute prima facie evidence of the information
contained therein.
8
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4INTEREST ON THE REVOLVING LOAN. Interest on the Revolving Loan will be
------------------------------
payable monthly in arrears on the first business day of each month,
commencing on the first business day of the month subsequent to the date of
this Loan Agreement, and will be charged to the Borrower upon any and all
balances due to the Lender at the applicable rate or rates stated in the
Revolving Promissory Note attached hereto as EXHIBIT "B", such interest to
be computed based upon a 360-day per year for the actual number of days
elapsed. The Borrower further agrees to pay the Lender a late charge fee
equal to five percent (5%) of any payment due to the Lender which is not
received before the expiration of ten (10) days after the payment is due.
It is further agreed that upon an Event of Default and at any time
thereafter, the Borrower shall pay interest to the Lender at the applicable
rate or rates set forth in the Revolving Promissory Note attached hereto as
EXHIBIT "B", plus one (1) point until the Obligations are paid in full.
----
5COLLECTION OF RECEIVABLES. The Lender or its designee may notify
-------------------------
customers or account debtors at any time, whether or not an Event of
Default has occurred, that Receivables have been assigned to the Lender or
of the Lender's security interest therein and collect them directly and
charge the collection costs and expenses to the Borrower's account; but,
unless and until the Lender does so or gives the Borrower other
instructions, the Borrower shall make collection of all Receivables for the
Lender, receive all payments thereon as the Lender's trustee and
immediately deliver them to the Lender in their original form. All such
payments will be placed by the Lender into a cash collateral account and,
until credited to the Borrower's account as hereinafter set forth, shall be
held by the Lender as collateral for payment and/or performance of the
Borrower's Obligations to the Lender. After allowing one (1) day for
collection of checks and other instruments, the Lender will credit
(conditional upon final collection) all such payments, or those made on
account thereof, to the Borrower's account.
6RETURNS, CREDITS, ETC. Any merchandise which is returned by a customer
---------------------
or account debtor or otherwise recovered shall remain part of the Lender's
security. The Borrower shall notify the Lender promptly of all returns and
recoveries and, on request, deliver the merchandise to the Lender. The
Borrower shall also notify the Lender promptly of any single claim in
excess of $10,000.00 or of disputes and claims in excess of an aggregate of
$10,000.00 and settle or adjust them at no expense to the Lender, but no
discount, credit or allowance (other than in the ordinary course of the
Borrower's
9
<PAGE>
business) shall be granted to any customer or account debtor, and no
returns of merchandise (other than in the ordinary course of the Borrower's
business) shall be accepted by the Borrower without the Lender's consent.
The Lender may at all times after an Event of Default, settle or adjust
disputes and claims directly with customers or account debtors for amounts
and upon terms which the Lender considers advisable, and in all cases the
Lender will credit the Borrower's account with only the net amounts
received by the Lender in payment of Receivables.
7FURTHER ASSURANCE. Upon the Lender's request, the Borrower shall perform
-----------------
all other steps requested by the Lender to create and maintain in the
Lender's favor a valid first priority security interest, assignment or lien
in, of or on all Receivables and all other security held by or for the
Lender.
8POWER OF ATTORNEY. The Borrower appoints the Lender, or any person whom
-----------------
the Lender may designate, as its attorney, with power exercisable at any
time after an Event of Default: to endorse the Borrower's name on any
checks, notes, acceptances, money orders, drafts or other forms of payment
or security that may come into the Lender's possession; to sign the
Borrower's name on any invoice or bill of lading relating to any
Receivables, on notices of assignment, financing statements, and other
public records, on verifications of accounts and on notices to customers;
to notify the post office authorities to change the address for delivery of
the Borrower's mail to an address designated by the Lender; to send
requests for verification of Receivables to customers or account debtors;
and to do all things necessary to carry out this Loan Agreement. The
Borrower ratifies and approves all acts of the attorney. Neither the Lender
nor the attorney will be liable for any acts or omissions nor for any error
of judgment or mistake of fact or law. This power, being coupled with an
interest, is irrevocable so long as any Receivables assigned to the Lender
or in which the Lender has a security interest remain unpaid or until the
Obligations have been fully satisfied. The Lender may file one or more
financing statement disclosing the Lender's security interest without the
Borrower's signature appearing thereon.
10
<PAGE>
9TERMINATION. The Revolving Loan shall terminate on January 31, 1996 and
-----------
may be renewed by the Lender, in its sole and absolute discretion, upon
written notification by the Lender prior to January 31, 1996, which
notification will contain the terms and conditions of any renewal. The
Revolving Loan may also be terminated by the Lender at any time by giving
the Borrower thirty (30) days' prior written notice. Termination shall be
effected by the mailing of a registered or certified letter of notice
addressed by either party to the other at the address set forth herein, and
the termination shall be effective as of the date so fixed in such notice.
Upon the effective date of termination, all Obligations of Borrower under
the Revolving Loan shall become immediately due and payable without notice
or demand. Notwithstanding termination of the Revolving Loan, the Borrower
shall continue to assign Receivables to the Lender and turn over all
collections to the Lender; and, except for those specific covenants and
conditions dealing with the making of advances, all terms and conditions of
all agreements between the Borrower and the Lender shall remain in full
force and effect.
10ADDITIONAL PAYMENTS. If the Lender shall deem applicable to this Loan
-------------------
Agreement (including the borrowed and the unused portion thereof) any
requirement of any law of the United States of America, any regulation,
order, interpretation, ruling, official directive or guideline (whether or
not having the force of law) of the Board of Governors of the Federal
Reserve System, the Comptroller of the Currency, the Federal Deposit
Insurance Corporation or any other board or governmental or administrative
agency of the United States of America which shall impose, increase, modify
or make applicable thereto or cause to be included in, any reserve, special
deposit, calculation used in the computation of regulatory capital
standards, assessment or other requirement which imposes on the Lender any
cost that is attributable to the maintenance thereof, then, and in each
such event, the Borrower shall promptly pay the Lender, upon its demand,
such amount as will compensate the Lender for any such cost, which
determination may be based upon the Lender's reasonable allocation of the
aggregate of such costs resulting from such events. In the event any such
cost is a continuing cost, a fee payable to the Lender may be imposed upon
the Borrower periodically for so long as any such cost is deemed applicable
to the Lender, in an amount determined by the Lender to be necessary to
compensate the Lender for any such cost. The determination by the Lender of
the existence and amount of any such cost shall, in the absence of manifest
error, be conclusive.
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<PAGE>
2.11 EQUIPMENT LINE OF CREDIT. The Lender has extended, as of March 21, 1994, an
------------------------
Equipment Line of Credit ("LINE OF CREDIT") in the principal amount of up
to FIVE HUNDRED THOUSAND DOLLARS ($500,000.00), which Line of Credit has
converted to a five (5) year term loan as of January 31, 1995 ("EQUIPMENT
TERM LOAN"). The Equipment Term Loan is evidenced by the Equipment
Promissory Note annexed hereto as EXHIBIT "C". The Equipment Term Loan
shall be subject to the terms and conditions of this Loan Agreement.
2.12 EQUIPMENT LINE OF CREDIT II.
---------------------------
a. The Lender may, from time to time from the Effective Date until
January 31, 1996, upon request by the Borrower, make equipment loan
advances (the "EQUIPMENT LINE OF CREDIT II ADVANCES") to the Borrower
up to a maximum principal amount outstanding at any one time not to
exceed FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) (the "EQUIPMENT LINE OF CREDIT II"), as evidenced by,
and subject to the terms and conditions of, the Equipment Promissory
Note annexed hereto as EXHIBIT "C-I" (the "EQUIPMENT NOTE II"), upon
satisfaction of the following conditions:
(1) Execution and delivery of this Loan Agreement, the Equipment
Note II and any Supplemental Agreements;
(2) Satisfaction of all the terms and conditions contained herein and
in the Equipment Note II which are necessary for such Equipment
Line of Credit II Advances; and
(3) There being no Event of Default under this Loan Agreement.
The Equipment Line of Credit II Advances will be made at the absolute
discretion of the Lender. No Equipment Line of Credit II Advances
shall be made after January 31, 1996.
b. Each Equipment Line of Credit II Advance shall be recorded in an
account on the Lender's books in which shall also be recorded accrued
interest on Equipment Line of Credit II Advances, payments on
Equipment Line of Credit II Advances, and other appro-
12
<PAGE>
priate debits and credits in connection with this Loan Agreement, and
such account shall constitute prima facie evidence of the information
contained therein.
c. The proceeds of the Equipment Line of Credit II Advances shall be
used by the Borrower for the acquisition of new equipment and shall be
subject to the following conditions:
(1) Equipment Line of Credit II Advances may be made no more
frequently than one (1) time per month subject to at least three
(3) business days prior request by the Borrower;
(2) The Equipment Line of Credit II Advance shall not exceed SEVENTY-
FIVE PERCENT (75%) of the invoice price of the new equipment, net
of discounts, taxes, delivery charges and installation costs; and
(3) Each request for an Equipment Line of Credit II Advance must be
accompanied by:
(a) A copy of the invoice for the equipment being acquired;
(b) A certificate from the Borrower repre-senting that no Event
of Default has occurred and that the Borrower knows of no
event which, but for the passage of time or the giving of
notice, would create an Event of Default; and
(c) Any other documents and agreements, in form and substance
satisfactory to the Lender, that the Lender may reasonably
request regarding the equipment to be purchased and its
intended use.
2.13 $4,000,000.00 TERM LOAN. The Lender made on March 22, 1993 a term loan to
-----------------------
the Borrower in the original principal amount of FOUR MILLION DOLLARS
($4,000,000.00), which term loan shall be subject to the terms and
conditions of this Loan Agreement.
3. COLLATERAL.
13
<PAGE>
1SECURITY INTEREST. As security for payment and performance of the
-----------------
Obligations, the Borrower hereby assigns and grants to the Lender a
continuing security interest in the Collateral. The Lender shall retain its
security interest in all Collateral, eligible and ineligible, until all
Obligations have been fully satisfied.
2POSSESSION OF COLLATERAL. Upon an Event of Default and at any time
------------------------
thereafter, the Lender will have the right: (1) to take physical possession
of the Collateral and to maintain such possession on the Borrower's
premises; and/or (2) to remove the Collateral or any part thereof to such
other places as the Lender may desire; and/or (3) without removal, to
render the Equipment unusable and to dispose of the Collateral on the
Borrower's premises. Upon an Event of Default and at any time thereafter,
the Borrower shall, upon the Lender's demand, assemble the Collateral and
make it available to the Lender at a place reasonably convenient to the
Lender.
3LOCATION OF COLLATERAL. The Collateral is and will be owned by the
----------------------
Borrower, free of all other liens and encumbrances (except as set forth in
EXHIBIT "A" annexed hereto), and shall be kept by the Borrower at those
locations listed in EXHIBIT "A" annexed hereto and the Borrower will not
(without the Lender's prior written approval) remove the Collateral
therefrom, except for the purposes of sale in the regular course of
business.
4LIMITATION ON DISPOSITION OF COLLATERAL. The Borrower will not sell,
---------------------------------------
exchange or otherwise dispose of the Collateral, other than finished goods
Inventory in the ordinary course of business, or any part thereof, or any
interest therein without the express written authorization of the Lender;
in the event of the sale, exchange or other disposition of the Collateral
or any part thereof or any interest therein (and no such sale, exchange or
other disposition is hereby otherwise authorized or consented to), the
security interest of the Lender shall nevertheless continue in said
Collateral (including all proceeds, cash and non-cash) notwithstanding said
sale, exchange or other disposition; all of said proceeds shall remain
Collateral hereunder and shall be transferred and paid over to the Lender
immediately following said sale, exchange or other disposition, and shall
be applied at the option of the Lender to the payment of the Obligations;
and the receipt by the Lender of all or any of said proceeds shall not be
deemed or construed to be an authorization or
14
<PAGE>
consent of the Lender to such sale, exchange or other disposition of said
Collateral.
5FURTHER ASSURANCES RE INVENTORY. The Borrower shall perform any and all
-------------------------------
steps requested by the Lender to perfect the Lender's security interest in
the Inventory, such as leasing warehouses to the Lender or the Lender's
designee, placing and maintaining signs, appointing custodians, executing
and filing financing or continuation statements in form and substance
satisfactory to the Lender, maintaining stock records and transferring
Inventory to warehouses. If any Inventory is in the possession or control
of any of the Borrower's agents or processors, the Borrower shall notify
such agents or processors of the Lender's security interest therein, and,
upon request, instruct them to hold all such Inventory for the Lender's
account and subject to the Lender's instructions. A physical listing of all
Inventory, wherever located, shall be taken by the Borrower at least
annually and whenever requested by the Lender, and a copy of each such
physical listing shall be supplied to the Lender. The Lender may examine
and inspect the Inventory at any time.
6COMPLIANCE. The Borrower will comply with the terms and conditions of
----------
any leases covering the premises wherein the Collateral is located and any
orders, ordinances, laws or statutes of any city, state or other
governmental department having jurisdiction with respect to such premises
or the conduct of business thereon. The Borrower shall indemnify the Lender
and hold the Lender harmless from and against all loss, liability, damage
and expense, including attorney's fees, suffered or incurred by the Lender,
(i) under or on account of CHAPTER 446K of the Connecticut General Statutes
(Revision of 1958), as amended (the "ACT") or related regulations, or any
similar applicable federal laws or regulations, including the assertion of
any liens thereunder; (ii) with respect to any discharge, spillage,
uncontrolled loss, seepage or filtration of oil or petroleum or chemical,
liquids or solid, liquid or gaseous products or hazardous waste which, if
contained or removed or mitigated by the State of Connecticut, would give
rights to a lien under Connecticut General Statutes SECTION 22A-452A, as
amended (a "SPILL") affecting any real or personal property owned or leased
by the Borrower, including any loss of value of any such property as a
result of such Spill; and (iii) with respect to any other matter affecting
the real or personal property owned or leased by the Borrower and governed
by the provisions of the Act or related regulations or any similar
applicable federal laws or regulations.
15
<PAGE>
7DISCHARGE OF LIENS. The Lender may, at its option, discharge any taxes,
------------------
liens, security interests or other encumbrances at any time levied or
placed on the Collateral, and the Lender may pay insurance premiums or
procure insurance and otherwise pay for the maintenance and preservation of
the Collateral and the Borrower will reimburse the Lender on demand for any
payment made or expense incurred by the Lender pursuant to the foregoing
authority, with interest at the highest rate provided in this Loan
Agreement.
8CORPORATE EXISTENCE, PROPERTIES, INSURANCE. The Borrower will at all
------------------------------------------
times maintain, preserve and protect all franchises, patents, and trade
names and preserve all the remainder of its property used or useful in the
conduct of its business and keep the same in good condition and repair
(normal wear and tear and obsolescence excepted), and from time to time
make, or cause to be made, all needful and proper repairs, renewals,
replacements, betterments and improvements thereto, and will pay or cause
to be paid, except when the same may be contested in good faith, all rent
due on premises where any property is held or may be held, so that the
business carried on in connection therewith may be continuously conducted.
The Borrower will have and maintain insurance at all times with respect to
all Collateral against risks of fire (including so-called extended
coverage), theft and such risks as the Lender may require containing such
terms, in such form, and for such periods, and written by such companies as
may be satisfactory to the Lender, such insurance to be payable to the
Lender and the Borrower as their interests may appear; each policy of
liability insurance shall name the Lender as an additional insured; each
policy of property casualty and business interruption insurance shall have
a loss payee endorsement providing:
a. That loss or damage, if any under the policy, shall be payable to
the Lender, as mortgagee and/or secured party, as its interests may
appear;
b. That the insurance as to the interest of the Lender shall not be
invalidated by any act or neglect of the insured or owner of the
property described in said policy, nor by any foreclosure, or other
proceeding, nor by any change in the title of ownership of said
property, nor by the occupation of the premises where the property is
located for
16
<PAGE>
purposes more hazardous than are permitted by said policy;
c. That, if the policy is canceled at any time by the insurance
carrier, in such case the policy shall continue in force for the
benefit of the Lender for not less than thirty (30) days after written
notice of cancellation to the Lender from the insurance carrier; and
d. That the policy will not be reduced or canceled at the request of
the insured nor will said loss payee endorsement be amended or deleted
without thirty (30) days' prior written notice to the Lender from the
insurance carrier.
The Borrower will furnish the Lender with certificates or other evidence
satisfactory to the Lender of compliance with the foregoing insurance
provisions, and upon the occurrence of an Event of Default under this Loan
Agreement, the Lender may act as attorney for the Borrower in obtaining,
adjusting, settling, and canceling such insurance and receiving and
endorsing any drafts. The Borrower hereby assigns to the Lender any and all
monies which may become due and payable under any policies of property
casualty insurance insuring the Collateral and business interruption
insurance, including return of unearned premiums, and hereby directs any
insurance company issuing any such policy to make payment directly to the
Lender and authorizes the Lender, at its option: (i) to apply such monies
in payment on account of any of the Obligations, whether or not due, and
remit any surplus to the Borrower; or (ii) to return said funds to the
Borrower for the purpose of replacement of the Collateral. The Borrower
will also at all times maintain necessary workmen's compensation insurance
and such other insurance as may be required by law or as may be reasonably
required by the Lender.
4.MISCELLANEOUS WARRANTIES, REPRESENTATIONS AND COVENANTS.
1AFFIRMATIVE COVENANTS. The Borrower warrants and represents to and
---------------------
covenants with the Lender that:
a. The Borrower is and shall at all times hereafter be a corporation
duly organized and existing in good standing under the laws of the
state of its incorporation and qualified and licensed to do
17
<PAGE>
business in any other state in which it is required to be so
qualified and/or licensed;
b. The Borrower has the right and power and is duly authorized to
enter into this Loan Agreement and the Supplemental Agreements;
c. The execution by the Borrower of this Loan Agreement and the
Supplemental Agreements shall not constitute a breach of any provision
contained in the Borrower's Certificate of Incorporation or By-Laws or
contained in any agreement to which the Borrower is now or hereafter a
party;
d. The performance by the Borrower of all of the terms and
provisions contained in this Loan Agreement and in the Supplemental
Agreements shall not constitute an event of default under any
agreement to which the Borrower is now or hereafter a party;
e. Except as set forth in EXHIBIT "A", the Borrower has good and
indefeasible title to the Collateral;
f. All financial statements and information relating to the Borrower
which have been or may hereafter be delivered by the Borrower to the
Lender are true and correct and have been prepared in accordance with
generally accepted accounting principles, and there has been no
material adverse change in the financial condition of the Borrower
since the submission of any such financial information to the Lender;
g. There are no actions or proceedings which are pending or
threatened against the Borrower which might result in any material
adverse change in the Borrower's financial condition or which might in
any way affect any of the assets of the Borrower;
h. The Borrower has duly filed all federal, state and other
governmental tax returns which it is required by law to file, and that
all taxes and other sums which may be due to the United States, any
state or other governmental authority have been fully paid and that
the Borrower now has and shall hereafter maintain reserves adequate in
amount to fully pay all such tax liabilities which may hereafter
accrue;
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<PAGE>
i. The Borrower at all times hereafter shall: maintain a standard
and modern system of accounting in accordance with generally accepted
accounting principles and ledger and account cards which contain such
information as may be requested by the Lender; permit the Lender or
any of its employees, officers or agents, upon demand during the
Borrower's usual business hours, to have access to and to examine all
of the Borrower's books and records, and in connection therewith,
permit the Lender or any such employees, officers or agents to copy
and make abstracts therefrom; deliver to the Lender (1) within ninety
(90) days after the end of each of the Borrower's fiscal years, a
reasonably detailed balance sheet and a reasonably detailed profit and
loss statement covering the Borrower's operations for such fiscal year
audited and certified by an independent certified public accountant
satisfactory to the Lender; (2) within forty-five (45) days after the
end of each of the Borrower's fiscal quarters, a reasonably detailed
balance sheet and a reasonably detailed profit and loss statement
covering the Borrower's operations for such fiscal quarter, which
financial information may be internally prepared; (3) within thirty
(30) days after the end of each month, a balance sheet and a profit
and loss statement covering the Borrower's operations for that month,
which may be internally prepared; (4) within thirty (30) days after
the end of each month, a backlog report including bookings and
shipments for that month; and within twenty (20) days after demand by
the Lender, deliver to the Lender copies of any interim financial
report or statement prepared by or for the Borrower, any other report
requested by the Lender relating to the Collateral and the financial
condition of the Borrower. Each financial report shall be accompanied
by a certificate signed by an authorized officer of the Borrower to
the effect that all reports, statements or documents delivered or
caused to be delivered to the Lender under this subparagraph are
complete, correct and thoroughly present the financial condition of
the Borrower and that there exists on the date of delivery of said
certificate to the Lender no condition or event which constitutes an
Event of Default and that no events have occurred which, after notice
by the Lender or lapse of time or both, would constitute an Event of
Default. Said certificate shall contain the
19
<PAGE>
calculation of all financial covenants contained in this Loan
Agreement;
j. The Borrower shall promptly supply the Lender with such other
information concerning its affairs as the Lender may reasonably
request from time to time hereafter, and shall promptly notify the
Lender of any material adverse change in the Borrower's financial or
operating condition and of any condition or event which constitutes an
Event of Default;
k. The Lender may at all times have access to, inspect, audit and
make extracts from all of the Borrower's records, files and books of
account; and the Borrower shall furnish the Lender, at reasonable
intervals, with statements showing the Borrower's financial condition
and the results of the Borrower's operations; and
l. The Borrower is now and shall be at all times hereafter solvent.
2NEGATIVE COVENANTS. The Borrower warrants and represents to and
------------------
covenants with the Lender that the Borrower shall not:
a. Grant a security interest or a mortgage in or permit a lien,
claim or encumbrance upon any of its assets to any person,
association, firm, corporation (except to the Lender and as set forth
on EXHIBIT "A"), entity or governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be made affecting any
of its assets;
c. Permit any receiver, trustee or assignee for the benefit of
creditors to be appointed to take possession of any or all of its
assets;
d. Sell, lease or otherwise dispose of or transfer any of its
assets, other than in the ordinary course of its business;
e. Merge or consolidate with any other corporation;
f. Acquire any other corporation;
20
<PAGE>
g. Enter into any transaction not in the usual course of its
business;
h. Make any investment in the securities of any person,
association, firm, entity or corporation other than the securities of
the United States of America;
i. Guarantee or otherwise become in any way liable with respect to
the obligations of any person, association, firm entity or
corporation except by endorsement of instruments or items of payment
for deposit to the general account of the Borrower or which are
transmitted or turned over to the Lender on account of the Borrower's
Obligations;
j. Pay or declare any dividends upon the Borrower's capital stock;
k. Redeem, retire, purchase or otherwise acquire directly or
indirectly any of the Borrower's capital stock;
l. Make any distribution of the Borrower's property or assets;
m. Make any change in the Borrower's capital structure or in any of
its business objectives, purposes and operations which might in any
way adversely affect the ability of the Borrower to repay the
Borrower's Obligations;
n. Incur any debts outside of the ordinary course of the Borrower's
business except renewals or extensions of existing debts and interest
thereon; or
o. Make any loan, advance, contribution or payment of money or
goods to any subsidiary, affiliated or parent corporation or to any
officer, director or stockholder thereof (except compensation for
personal services rendered.)
p. Change its corporate name or conduct its business under any
trade name or style other than as disclosed in EXHIBIT "A" or change
its chief executive office, place of business or the present location
of the business assets or records relating thereto from those
addresses disclosed in EXHIBIT "A".
21
<PAGE>
3FURTHER COVENANTS. See EXHIBIT "A" annexed hereto and made a part
-----------------
hereof.
4WAIVER OF RIGHT TO PREJUDGMENT REMEDY NOTICE AND HEARING. The Borrower
--------------------------------------------------------
acknowledges its understanding that the Lender may have rights against the
Borrower, now or in the future, in its capacity as secured party, creditor,
or in any other capacities. Such rights may include the right to deprive
the Borrower of or affect the use of or possession or enjoyment of the
Borrower's property; and in the event the Lender deems it necessary to
exercise any of such rights prior to the rendition of a final judgment
against the Borrower, or otherwise, the Borrower may be entitled to notice
and/or hearing under the Constitution of the United States and/or State of
Connecticut, Connecticut statutes (to determine whether or not the Lender
has a probable cause to sustain the validity of the Lender's claim), or the
right to notice and/or hearing under other applicable state or federal laws
pertaining to prejudgment remedies, prior to the exercise by the Lender of
any such rights. The Borrower expressly waives any such right to
prejudgment remedy notice or hearing to which the Borrower may be entitled;
provided, however, that this waiver shall not include a waiver of such
rights as the Borrower shall have to prior notice of the proposed
disposition of Collateral by the Lender. Specifically and without limiting
the generality of the foregoing, the Borrower recognizes that the Lender
has and shall continue to have an absolute right to effect collection of
any of the Receivables or Collateral with respect to which the Lender holds
a security interest without the necessity of according to the Borrower any
prior notice or hearing. This shall be a continuing waiver and remain in
full force and effect so long as the Borrower is obligated to the Lender.
5WAIVER OF RIGHT TO TRIAL BY JURY AND CONSENT TO JURISDICTION.
------------------------------------------------------------
The Borrower hereby waives the right to trial by jury in any action or
proceeding of any kind or nature in any court in which an action may be
commenced arising out of this Loan Agreement, the Supplemental Agreements
or any assignment thereof or by reason of any other cause or dispute
between the Borrower and the Lender.
The Borrower hereby further agrees that the following courts:
State Court - Any state or local court of the State of Connecticut.
22
<PAGE>
Federal Court - United States District Court for the District of
Connecticut.
or at the option of the Lender, any court in which the Lender shall
initiate legal or equitable proceedings and which has subject matter
jurisdiction over the matter in controversy, shall have exclusive
jurisdiction to hear and determine any claims or disputes between the
Borrower and the Lender pertaining directly or indirectly to this Loan
Agreement or to any matter arising in connection with this Loan Agreement.
The Borrower expressly submits and consents in advance to such jurisdiction
in any action or proceeding commenced in such courts, hereby waiving
personal service of the summons and complaint, or other process or papers
issued therein, and agreeing that service of such summons and complaint, or
other process or papers, may be made by registered or certified mail
addressed to the Borrower at the address set forth herein. Should the
Borrower fail to appear or answer any summons, complaint, process or papers
so served within thirty (30) days after the mailing thereof, it shall be
deemed in default and an order and/or judgment may be entered against it as
demanded or prayed for in such summons, complaint, process or papers. The
exclusive choice of forum set forth herein shall not be deemed to preclude
the enforcement of any judgement obtained in such forum or the taking of
any action under this Loan Agreement to enforce the same in any appropriate
jurisdiction.
6SETOFF. All sums at any time standing to the Borrower's credit on the
------
Lender's books and all of the Borrower's property at any time in the
Lender's possession, or upon or in which the Lender has a lien or security
interest shall be security for all Obligations. In addition to and not in
limitation of the above, with respect to any deposits or property of the
Borrower in the Lender's bank, or in the Lender's possession or control,
now or in the future, the Lender shall have the right to setoff all or any
portion thereof, at any time, against any Obligations hereunder, even
though unmatured, without prior notice or demand to the Borrower.
7TAXES. Upon request of the Lender, the Borrower will furnish the Lender
-----
with proof satisfactory to the Lender of the payment or deposit of F.I.C.A.
and withholding taxes required of the Borrower by applicable law. Such
proof shall be furnished within five (5) days after the due date
established by law for each such payment or deposit. Should the Borrower
fail to make any such payment or deposit or
23
<PAGE>
furnish such proof, the Lender may, in the Lender's sole and absolute
discretion, and without notice to the Borrower: (a) make payment of the
same or any part thereof; or (b) set up such reserves in the Borrower's
account as the Lender may deem necessary to satisfy the liability therefor.
Each amount so deposited or paid by the Lender shall constitute an advance
and shall be secured by all Collateral held by the Lender. Nothing herein
contained shall obligate the Lender to make such deposit or payment or set
up such reserve, nor shall the making of one or more such deposits or
payments or the setting up of any such reserve constitute: (i) an agreement
on the Lender's part to take any further or similar action; or (ii) a
waiver of any default by the Borrower under the terms hereof or of any
other agreements between the Borrower and the Lender. Upon the expiration
or termination of this Loan Agreement or transactions hereunder, the Lender
shall retain its security interest in all Collateral held by the Lender
until the Borrower shall have paid or discharged all such F.I.C.A. and tax
obligations accrued to the date of such expiration or termination, or shall
have supplied the Lender with evidence satisfactory to the Lender that due
provisions have been made therefor. In addition, the Borrower shall pay any
and all stamp and other taxes and fees payable or determined to be payable
in connection with the execution, delivery, filing and recording of any
document evidencing the Obligations or any document to be delivered in
connection with the Obligations, and agrees to save the Lender harmless
from and against any and all liabilities with respect to or resulting from
any delay in paying or omission to pay such taxes and fees.
5. DEFAULT.
1EVENTS OF DEFAULT. The occurrence of any one or more of the following
-----------------
events or conditions shall constitute an "EVENT OF DEFAULT" under this Loan
Agreement:
a. Failure to make any payment of principal or interest or any other
sums when due on any of the Obligations.
b. Any warranty or representation or other statement made or
furnished to the Lender by or on behalf of the Borrower herein or in
any document or instrument furnished in connection herewith proves to
have been false or misleading in any material respect when made or
furnished.
24
<PAGE>
c. Breach of or failure in the due observance or performance of any
covenant, condition or agreement on the part of the Borrower to be
observed or performed pursuant to SECTION "4.2" hereof.
d. Breach of or failure in the due observance or performance of any
covenant, condition or agreement on the part of the Borrower to be
observed or performed pursuant to this Loan Agreement (other than
those to be observed or performed pursuant to SECTION "4.2" hereof and
other than those specifically listed in this SECTION 5.1), and the
failure to cure (if curable) any such breach or failure within ten
(10) days after receipt of written notice thereof from the Lender to
the Borrower.
e. Breach of or failure in the due observance or performance of any
covenant, condition or agreement on the part of the Borrower or any
Guarantor to be observed or performed pursuant to any Supplemental
Agreement.
f. The occurrence of any material adverse change in the financial and/or
operating condition of the Borrower or Guarantor.
g. Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver, trustee, custodian or similar
fiduciary, assignment for the benefit of creditors or the commencement
of any proceedings under any bankruptcy and insolvency laws by or
against the Borrower or any Guarantor, or the making by the Borrower
or any Guarantor of any offer of settlement, extension or composition
to their respective unsecured creditors generally.
h. The issuance, filing or levy against the Borrower or any
Guarantor of an attachment, injunction, execution, tax lien or
judgment for the payment of money.
i. Default in the payment of any sum due under any indebtedness for
borrowed money owed by the Borrower or any Guarantor to the Lender or
any other default under such indebtedness which results in such
indebtedness being due prior to its stated maturity.
25
<PAGE>
j. The loss, revocation or failure to renew any license and/or
permit now held or hereafter acquired by the Borrower which is
necessary for the continued operation of the Borrower's business.
k. The occurrence of an Event of Default under a certain $700,000.00
Limited Recourse Term Promissory Note from Robert P. Luzzi, Trustee of
the EDAC Technologies Corporation Employee Stock Ownership Plan and
Trust to the Lender dated May 12, 1989, as the same may be amended,
modified and/or supplemented from time to time.
l. The occurrence of a default under that certain Security Agreement
dated July 30, 1992 between Gros-Ite Industries, Inc. and the Lender.
m. The occurrence of a default under that certain Security Agreement
dated July 30, 1992 between Natural Cool, Ltd. and the Lender.
n. In the event the Lender, in good faith, believes that the
prospect of payment or performance by the Borrower is impaired.
Nothing in this Loan Agreement shall be construed to modify or limit the
unconditional right of the Lender in its sole discretion to demand full or
partial payment of the principal of, and interest on, any demand
Obligation. The right to make demand on any such Obligation shall exist
whether or not the Borrower is in compliance with the covenants or
conditions contained in this Loan Agreement or in any other agreements
between the Borrower and the Lender.
2RIGHTS OF THE LENDER. In the event demand for payment is made of any
--------------------
demand Obligation or upon an Event of Default and at any time thereafter,
all the Obligations shall, at the Lender's option, immediately become due
and payable without presentment, protest, notice of protest or other notice
of dishonor of any kind, all of which are hereby expressly waived by the
Borrower; and the Lender shall have, in addition to all other rights
provided herein and in any Supplemental Agreement, the rights and remedies
of a secured party under the Uniform Commercial Code; and, further, the
Lender may sell and deliver any or all Receivables and any or all other
security and Collateral held by the Lender or for the Lender at public or
private sale, for cash, upon credit or
26
<PAGE>
otherwise, at such prices and upon such terms as the Lender deems
advisable, at the Lender's sole discretion. In addition to all other sums
due the Lender, the Borrower will pay to the Lender all costs and expenses
incurred by the Lender, including an allowance for attorneys' fees, to
obtain or enforce payment of Receivables or Obligations, or in the
prosecution or defense of any action or proceeding either against the
Lender or against the Borrower concerning any matter arising out of or
connected with this Loan Agreement and all Supplemental Agreements. Any
requirement of reasonable notice shall be met if such notice is mailed
postage prepaid to the Borrower at the Borrower's address as set forth
herein at least five (5) days before the time of sale or other disposition.
The Lender may be the purchaser at any such sale, if it is public, and, in
the event the Lender is the purchaser, the Lender shall have all the rights
of a good faith, bona fide purchaser for value from a secured party after
default. The proceeds of sale shall be applied first to all costs and
expenses of sale, including attorneys' fees, and second to the payment (in
whatever order the Lender elects) of all Obligations, and any remaining
proceeds shall be applied in accordance with the provisions of Part 5 of
Article 9 of the Uniform Commercial Code. The Borrower shall remain liable
to the Lender for any deficiency. Failure by the Lender to exercise any
right, remedy or option under this Loan Agreement or any present or future
Supplemental Agreement or in any other agreement between the Borrower and
the Lender, or delay by the Lender in exercising the same will not operate
as a waiver; no waiver by the Lender will be effective unless it is in
writing and then only to the extent specifically stated. The Lender's
rights and remedies under this Loan Agreement will be cumulative and not
exclusive of any other right or remedy which the Lender may have.
6. MISCELLANEOUS.
1COUNSEL FEES AND EXPENSES. The Borrower agrees to pay all reasonable
-------------------------
counsel fees and expenses, including recording and filing fees, incurred by
the Lender in connection with the financing being concluded this day as
well as any reasonable counsel fees and expenses of any kind and character
hereafter incurred by the Lender, whether in connection with efforts to
collect the Obligations, or in the enforcement or defense of any of the
provisions of this Loan Agreement; or negotiations regarding and
consultation concerning this Loan Agreement or any Supplemental Agreement,
or preparation therefor, or the financing extended thereunder; or the
defense of any proceedings involving any claims made or threatened against
or
27
<PAGE>
arising out of this Loan Agreement or any Supplemental Agreement, or the
financing extended thereunder, or which the Lender may hereafter incur in
protecting, enforcing, increasing or releasing any security held by the
Lender or any Obligation or any provision of this Loan Agreement or any
Supplemental Agreement, or the financing extended thereunder, or otherwise.
The Borrower's obligation to pay such reasonable counsel fees and expenses
of the Lender shall exist whether or not proceedings are instituted or
legal appearances made in any court of competent jurisdiction on behalf of
the Lender. The Borrower specifically authorizes the Lender to pay all such
fees and expenses and charge the same to the Borrower's loan account.
2LENDER ADVANCES. The Lender may, in its sole and absolute discretion and
---------------
without notice or demand, pay any amount which the Borrower has failed to
pay or perform any act which the Borrower has failed to perform under this
Loan Agreement (including, without limitation, (1) the payment of taxes and
assessments required under SECTION 4.7 hereof; (2) the cost of discharging
any liens or encumbrances under SECTION 3.7 hereof; and (3) the payment of
insurance premiums and/or the furnishing of insurance required under
SECTION 3.7 hereof). In such event the costs, disbursements, expenses and
reasonable counsel fees thereof, together with interest thereon from the
date the expense is paid or incurred, at the highest interest rate allowed
under this Loan Agreement shall be (i) added to the Obligation, (ii)
payable on demand to the Lender and (iii) secured by the Collateral.
Nothing herein contained shall obligate the Lender to make such payments
nor shall the making of one or more such payments constitute; (i) an
agreement on the Lender's part to take any further or similar action; or
(ii) a waiver of any Event of Default under this Loan Agreement.
3FURTHER ASSURANCE. The Borrower agrees that any time, or from time to
-----------------
time, upon the written request of the Lender, the Borrower will execute and
deliver such further documents and do such other acts and things as the
Lender may reasonably request in order to fully effect the purposes of this
Loan Agreement and the Supplemental Agreements.
4NOTICES. Any written notice required or permitted by this Loan Agreement
-------
shall be delivered by depositing it (registered or certified mail, return
receipt requested) in the U.S. mail, postage prepaid, or by telegraph,
charges prepaid, addressed to the Borrower or to the Lender at the address
set forth on page "1" hereof. The date of receipt of any notice
28
<PAGE>
shall be deemed to be, and shall be effective from, the earlier of (1) the
date of the actual receipt of such notice, or (2) three (3) days after same
is deposited in the United States mail as provided above, whether or not
the same is actually received by such party. Any party hereto shall have
the right to change the place to which any such notice shall be sent by
similar notice sent in like manner to all parties hereto.
5CONSTRUCTION. This Loan Agreement and the Supplemental Agreements may
------------
not be amended orally.
6SUCCESSORS. All rights of the Lender hereunder shall inure to the
----------
benefit of its successors and assigns, and all obligations of the Borrower
shall bind the successors and assigns of the Borrower.
7DURATION OF LIEN. All the collateral described in this Loan Agreement
----------------
shall remain collateral as security for the performance of all the
Obligations of the Borrower under this Loan Agreement until all monies
required to be paid under this Loan Agreement have been paid in full and
all Obligations on the part of the Borrower to be paid, kept and performed
under this Loan Agreement have been paid, kept and performed.
8PAYMENTS. The acceptance of any check, draft or money order tendered in
--------
full or partial payment of any Obligation hereunder is conditioned upon and
subject to the receipt of final payment in cash.
9EXHIBITS. All exhibits referred to herein and annexed hereto are hereby
--------
incorporated into this Loan Agreement and made a part hereof.
10OTHER TERMS AND CONDITIONS. See EXHIBIT "A" annexed hereto and made a
--------------------------
part hereof.
11GOVERNING LAW. This Loan Agreement and the rights and obligations of
-------------
the parties hereunder and under the Supplemental Agreements shall be
construed in accordance with and be governed by the laws of the State of
Connecticut, including its conflict of laws principles.
12SEVERABILITY. If any provision of this Loan Agreement or application
------------
thereof to any person or circumstance shall to any extent be invalid, the
remainder of this Loan Agreement or the application of such provision to
persons, entities, or circumstances other than those as to which it is held
29
<PAGE>
invalid, shall not be affected thereby and each provision of this Loan
Agreement shall be valid and enforceable to the fullest extent permitted by
law.
13PRIOR AGREEMENTS. This Loan Agreement is an amendment to and a complete
----------------
restatement of that certain Revolving Loan and Security Agreement dated
October 3, 1985, between the Borrower and the Lender, as the same has been
amended from time to time. The Lender specifically reserves all rights to
such priority of liens and security interests as it may have under any
other security agreements or financing statements filed in connection
therewith. In the event of any conflict between the terms of this Loan
Agreement and any other agreements, this Loan Agreement shall govern.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be duly
executed and delivered by the proper and duly authorized officers as of the date
and year first above written.
WITNESS: BORROWER:
_________________________________________ EDAC TECHNOLOGIES CORPORATION
_________________________________________ By:____________________________
Glenn L. Purple
Its Vice President
Duly Authorized
LENDER:
_________________________________________ SHAWMUT BANK CONNECTICUT, N.A.
_________________________________________ By:____________________________
John D. Behan
Its Vice President
Duly Authorized
30
<PAGE>
STATE OF CONNECTICUT)
) ss.: Hartford
COUNTY OF HARTFORD )
The foregoing instrument was acknowledged before me this 28th day of
February, 1995, by Glenn L. Purple, the Vice President of EDAC Technologies
Corporation, a Wisconsin corporation, on behalf of the corporation.
_____________________________________
David H. Flynn
Commissioner of Superior Court
STATE OF CONNECTICUT)
) ss.: Hartford
COUNTY OF HARTFORD )
The foregoing instrument was acknowledged before me this 28th day of
February, 1995, by John D. Behan, the Vice President of Shawmut Bank
Connecticut, N.A., a national banking association on behalf of the banking
association.
_____________________________________
David H. Flynn
Commissioner of Superior Court
31
<PAGE>
EXHIBIT "A"
-----------
TO FIFTH AMENDED AND RESTATED REVOLVING LOAN,
---------------------------------------------
TERM LOAN, EQUIPMENT LOAN AND SECURITY AGREEMENT
------------------------------------------------
OTHER TERMS AND CONDITIONS
--------------------------
1. USE OF PROCEEDS. The proceeds of the Revolving Loan shall be used by the
---------------
Borrower for its working capital needs and, together with the proceeds of
the Equipment Line of Credit II, for the acquisition of new Equipment. The
proceeds of the Equipment Line of Credit II shall be used by the Borrower
only for the acquisition of new Equipment as provided for in the Loan
Agreement.
2. LIFE INSURANCE. The Borrower shall maintain at all times a key-man life
--------------
insurance policy on the life of Robert Whitty in an amount not less than
ONE MILLION DOLLARS ($1,000,000), which policy shall be assigned to the
Lender in substantially the form of EXHIBIT "E" annexed hereto.
3. MORTGAGE. As further security for payment and performance of the
--------
Obligations, the Borrower has delivered to the Lender a valid and
enforceable mortgage on real estate known as 1790 New Britain Avenue,
Farmington, Connecticut (the "PROPERTY"), such mortgage to be in
substantially the form of EXHIBIT "F" annexed hereto, as modified this
date, subject only to a certain Mortgage from the Borrower to the Lender
dated October 3, 1985 and recorded on October 4, 1985 in Volume 320 at Page
887 of the Farmington Land Records, as modified, and a certain Mortgage
from the Borrower to the Lender dated January 6, 1986 and recorded on
January 7, 1986 in Volume 325 at Page 177 of the Farmington Land Records,
as modified.
4. LENDER'S AUDIT FEE. The Borrower agrees to pay to the Lender, upon
------------------
demand, an audit fee (the "AUDIT FEE") of FIVE HUNDRED DOLLARS ($500.00)
per man day. So long as no Event of Default has occurred under this Loan
Agreement, the Borrower shall not be required to pay the Lender more than
ONE THOUSAND DOLLARS ($1,000.00) in Audit Fees in any given calendar year.
In addition to the Audit Fee, the Borrower shall reimburse the Lender, upon
demand, for any reasonable travel expenses incurred by the Lender. It is
expected that the Lender may conduct on-site audits of the Borrower as
frequently as every quarter.
1
<PAGE>
5. LIENS AND ENCUMBRANCES. The Collateral may be subject to the following
----------------------
liens and encumbrances:
a. UCC-1 Financing Statement naming EDAC Technologies and Gros-Ite
Industries as debtor and Aerocraft Corporation as secured party, dated
September 21, 1987 and filed with the Connecticut Secretary of State as
filing #726633, covering one (1) Shizuoka B-5V Vertical Milling Machine
(Serial #64041).
b. UCC-1 Financing Statement naming EDAC Technologies Corporation as
lessee and Center Capital Corporation as lessor, dated January 24, 1989 and
filed with the Connecticut Secretary of State as filing #806564, covering
one (1) Mori Seiki MH80 Horizontal Machining Center; which was assigned to
New England Capital Corporation by a UCC-1 Financing Statement dated March
21, 1989 and filed with the Connecticut Secretary of State as filing
#815490.
c. UCC-1 Financing Statement naming Gros-Ite Industries Div. EDAC
Technologies Corporation as lessee and SNET Credit, Inc. as lessor, dated
June 27, 1989 and filed with the Connecticut Secretary of State as filing
#832023, covering one (1) AT&T 25 System.
NOTE: As to the interests listed above, the listing thereof in this Loan
Agreement shall not, in any manner whatsoever, be deemed to be an
acknowledgement by the Lender as to the perfection, priority, validity or
enforceability thereof.
7. LOCATION OF COLLATERAL. The Collateral shall be held at 1790, 1798 and 1838
----------------------
New Britain Avenue, Farmington, Connecticut. The Borrower shall immediately
furnish written notification to the Lender of any change or addition of
location of any place of the Borrower's business or location at which any
assets of the Borrower are located or stored.
8. TRADE NAMES. The Borrower presently conducts its business under the
-----------
following trade names:
a. Gros-Ite Industries
b. American Research
c. Gros-Ite Spindle
The Borrower shall immediately furnish written notification to the Lender
of any change of corporate name of the Borrower or the use of any trade
name.
2
<PAGE>
9. ACCOUNTING TERMS. All accounting terms not specifically defined in this
----------------
Loan Agreement shall be construed in accordance with generally accepted
accounting principles and all financial data submitted pursuant to this
Loan Agreement shall be prepared in accordance with such principles.
10. DEBT SERVICE RATIO. The Borrower shall maintain as of the end of each
------------------
calendar quarter a ratio of [(earnings before interest, taxes and
depreciation allowance) minus (taxes paid) minus (unfunded Capital
----- -----
Expenditures)] to [(current maturities of long-term debt ("CMLTD") ) plus
----
(interest)] of not less than 1.25 to 1.0. CMLTD shall be based solely on
that portion of the calendar year which has elapsed.
11. CAPITAL EXPENDITURES LIMITATION. The Borrower will not make in any one
-------------------------------
fiscal year, directly or indirectly, capital expenditures for the purchase,
fabrication, creation or lease of fixed assets, including rentals on leased
items, but excluding the capital expenditures associated with the
construction of the proposed 20,000 square foot building, in excess of an
aggregate of ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000.00)
(noncumulative). For purposes of this paragraph, the word "EXPENDITURES"
shall refer to:
a. in the event of a purchase, the entire purchase price of the fixed
asset; or
b. in the case of a lease, the entire rental for the term.
12. CURRENT RATIO. The Borrower shall maintain as of the end of each calendar
-------------
quarter a ratio of current assets to current liabilities of not less than
1.2 to 1.0.
13. DEBT TO WORTH RATIO. The Borrower's ratio of Total Debt to Tangible Net
-------------------
Worth shall not exceed 2.5 to 1.0 as of the end of each calendar quarter.
For the purposes of this paragraph, "TOTAL DEBT" shall mean all of the
Borrower's liabilities as set forth on its balance sheet, including without
limitation, all bank debt, subordinated debt and capital and operating
leases. For the purposes of this paragraph, the term "TANGIBLE NET WORTH"
shall mean [total assets] less [total liabilities plus subordinated debt],
---- ----
excluding from the determination of total assets (i) all assets which would
be classified as intangible assets, including, without limitation,
goodwill, patents, trademarks, trade names, copyrights and franchises, (ii)
any amounts due to the
3
<PAGE>
Borrower from any affiliates, employees, officers or stockholders and (iii)
increases caused by a write-up of assets of the Borrower.
14. MINIMUM TANGIBLE NET WORTH. The Borrower will maintain a minimum tangible
--------------------------
net worth at the end of each calendar quarter as indicated below:
<TABLE>
<CAPTION>
Calendar Quarter Minimum Tangible Net
---------------- ----------------------------
Worth
-----
<S> <C> <C> <C>
3/31/95 $6,200,000
6/30/95 $6,200,000
9/30/95 $6,200,000
12/31/95 $6,300,000
</TABLE>
15. SALARY RESTRICTIONS. The Borrower shall not, without the prior written
-------------------
consent of the Lender, pay salaries, bonuses or otherwise directly or
indirectly compensate F. Moskey, G. Smith or G. Purple in excess of the
yearly compensation in effect as of December 31, 1994, provided however,
that such yearly compensation may be increased by up to ten percent (10%)
per annum, commencing December 31, 1995.
16. DISPOSITION OF OBSOLETE EQUIPMENT. Notwithstanding anything to the
---------------------------------
contrary contained in this Loan Agreement, the Borrower may sell, exchange
or otherwise dispose of obsolete equipment, without the prior consent of
the Lender, if:
a. the net proceeds from the disposition of the obsolete equipment is
used to acquire new equipment or is delivered to the Lender to reduce
the Obligations;
b. any new equipment acquired with the net proceeds from the disposition
of the obsolete equipment is subject to the first priority security
interest of the Lender;
c. the fair market value of the obsolete equipment:
(i) is less than TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00),
or
(ii) if more than TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00),
then only, if the difference in fair market value of new
equipment and the obsolete equipment is less than TWO HUNDRED
FIFTY THOUSAND DOLLARS ($250,000.00);
4
<PAGE>
d. the disposition of the obsolete equipment is not part of the
disposition of a substantial part of the equipment owned by the
Borrower; and
e. no Event of Default has occurred.
17. INSURANCE PROCEEDS. So long as no Event of Default has occurred under this
------------------
Loan Agreement, and notwithstanding anything to the contrary herein,
insurance proceeds not exceeding TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000.00) per occurrence will be returned by the Lender to the Borrower
for the purpose of replacement of the Collateral.
18. PURCHASE MONEY SECURITY INTEREST. Notwithstanding anything to the contrary
--------------------------------
contained in this Loan Agreement, the Borrower may grant a purchase money
security interest on any equipment hereafter acquired, without the prior
consent of the Lender, if:
a. the equipment subject to the purchase money security interest is
acquired by the Borrower in the ordinary course of business;
b. the purchase money security interest on any such equipment is created
contemporaneously with such acquisition;
c. the obligations secured by the purchase money security interest does
not exceed seventy five percent (75%) of the lesser of cost or fair
market value as of the time of acquisition of the equipment covered
thereby by the Borrower or if the obligations are to be paid in full
no more than one hundred eighty (180) days after the granting of said
purchase money security interest;
d. the purchase money security interest shall attach only to the
equipment so acquired;
e. the expenditure is permitted under PARAGRAPH 11 of this EXHIBIT A; and
f. no Event of Default has occurred.
19. MAINTENANCE OF DEPOSITORY ACCOUNTS. The Borrower shall maintain all of its
----------------------------------
depository checking accounts with the Lender and shall pay all associated
bank fees for maintenance and service of those accounts.
5
<PAGE>
20. APPRAISALS. The Borrower agrees to pay to the Lender, upon demand, for all
----------
costs and fees associated with separate appraisals of the Property and the
Collateral to be conducted once per calendar year. The Lender may conduct
additional appraisals of the Property and/or the Collateral at its own
expense. The Borrower agrees to cooperate in all respects with the Lender
or its representatives in connection with the performance and/or completion
of said appraisals.
6
<PAGE>
EXHIBIT 10.13
-------------
1
<PAGE>
REVOLVING PROMISSORY NOTE
-------------------------
$7,000,000.00 Hartford, Connecticut
February 28, 1995
ON DEMAND, EDAC TECHNOLOGIES CORPORATION, a Wisconsin corporation with its
chief executive office and principal place of business at 1790 New Britain
Avenue, Farmington, Connecticut 06032 (hereinafter called the "BORROWER"), for
value received, promises to pay to the order of SHAWMUT BANK CONNECTICUT, N.A.,
a national banking association (hereinafter referred to as the "LENDER") at its
office at 777 Main Street, MSN 240, Hartford, Connecticut 06115 or at such other
place as the holder of this Note may from time to time designate in writing, the
principal sum of SEVEN MILLION DOLLARS ($7,000,000.00) or such lesser amount as
has been advanced and remains outstanding under this Note, with interest
(computed as hereinafter set forth) from the date hereof until this Note is
fully paid. The interest rate shall be computed on the basis of a three hundred
sixty (360) day year for the actual number of days in each period for which
interest is charged.
Accrued interest shall be payable monthly, in arrears, commencing April 1,
1995 and continuing on the first day of each successive month thereafter, until
all sums due under this Note have been fully paid at the applicable per annum
rate or rates set forth below.
Interest shall be charged on the outstanding principal balance hereunder at
a per annum rate equal to the Base Rate (the "VARIABLE RATE"). In the event
that the Base Rate prevailing on the date hereof is subsequently increased or
decreased, then, as of the date of such change, an increase or decrease will be
made in the rate or rates of interest which will be charged under this Note, so
that the interest rate or rates shall at all times be equal to the applicable
rate or rates set forth above; provided, however, that at no time shall the
interest rate or rates be more than the rate of interest permitted by the law
governing this Note. The "BASE RATE" is herein defined to mean the interest
rate announced from time to time by the Lender as its base rate. The Base Rate
is not necessarily the lowest rate available.
The Borrower may convert the interest rate payable hereunder to a fixed
rate ("FIXED RATE") equal to (1) the Lender's cost of funds rate, which cost of
funds rate will be based on the number of months remaining until the Maturity
Date, calculated three (3) business days prior to the effective date of such
interest rate
1
<PAGE>
conversion or (2) the LIBOR Rate, plus two hundred (200) basis points, quoted by
the Lender two (2) business days prior to the interest period agreed upon
between the Borrower and the Lender (the "INTEREST PERIOD") for the offering by
prime commercial banks to other prime commercial banks in the interbank
Eurodollar market of dollar deposit for a period equal to the Interest Period.
The LIBOR Rate shall be increased by the marginal reserve percentages as
prescribed by the Board of Governors of the Federal Reserve System for
determining reserve requirements for the Lender for Eurodollar deposits having a
maturity equal to the Interest Period.
If the interest rate in effect under this note is the Variable Rate, the
Borrower may prepay this Note in whole or in part at any time without penalty.
All such prepayments shall be applied on account of principal remaining unpaid
and shall be accompanied by payment of unpaid late charges and accrued and
unpaid interest, if any, thereon. All partial prepayments of principal shall be
credited to the unpaid principal of this Note in the inverse order of maturity
and shall not affect the Borrower's obligation to make the regular installments
required hereunder until this Note is fully paid.
If the interest rate in effect under this Note is a Fixed Rate, the
Borrower may not prepay this Note except as set forth in this paragraph. Under
no circumstances may there by a partial prepayment of this Note. The Borrower
may prepay only the entire unpaid balance of this Note upon payment of such
amounts, as determined by the Lender, in its sole and absolute discretion, as
may be necessary to reimburse the Lender for any losses and expenses incurred by
the Lender as a result of prepayment of this Note, including without limitation
any losses (including loss of anticipated profits) and expenses incurred by
reason of the liquidation or re-employment of deposits or other funds acquired
by the Lender to fund or maintain this Note. The Borrower hereby acknowledges
that in reliance upon this agreement, the Lender has made certain commitments of
funds upon the terms and conditions of this Note. In the event that this Note
is accelerated for any reason whatsoever by the Lender, such payment of the
Lender's losses and expenses shall be paid by the Borrower.
If the Lender shall deem applicable to this Note (including the borrowed
and the unused portion thereof) any requirement of any law of the United States
of America, any regulation, order, interpretation, ruling, official directive or
guideline (whether or not having the force of law) of the Board of Governors of
the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit
Insurance Corporation or any other board or governmental or administrative
agency of the United States of America which shall
2
<PAGE>
impose, increase, modify or make applicable thereto or cause to be included in,
any reserve, special deposit, calculation used in the computation of regulatory
capital standards, assessment or other requirement which imposes on the Lender
any cost that is attributable to the maintenance thereof, then, and in each such
event, the Borrower shall promptly pay the Lender, upon its demand, such amount
as will compensate the Lender for any such cost, which determination may be
based upon the Lender's reasonable allocation of the aggregate of such costs
resulting from such events. In the event any such cost is a continuing cost, a
fee payable to the Lender may be imposed upon the Borrower periodically for so
long as any such cost is deemed applicable to the Lender, in an amount
determined by the Lender to be necessary to compensate the Lender for any such
cost. The determination by the Lender of the existence and amount of any such
cost shall, in the absence of manifest error, be conclusive.
To the extent allowed by applicable law, after the occurrence of an Event
of Default, all outstanding principal and unpaid interest shall bear, until
paid, interest at a rate or rates per annum (the "DEFAULT RATE") equal to one
(1) point above the interest rate or rates specified above. The Default Rate
shall be adjusted whenever a change in the Base Rate occurs so that the Default
Rate shall remain at all times one (1) point above the interest rate or rates
specified above. Any adjustments in the Default Rate shall be effective
simultaneously with a change in the Base Rate.
The Lender may collect a "late charge" equal to five percent (5%) of any
installment of interest or principal, or of any taxes, assessments and insurance
paid by the Lender which is not paid or reimbursed by the Borrower within ten
(10) days of the due date thereof to cover the extra expense involved in
handling such delinquent payment.
All payments will be applied first to the payment of late charges, then to
accrued and unpaid interest and the balance on account of the unpaid principal
of this Note.
All sums due under this Note shall be payable together with all lawful
taxes and assessments levied thereon, or upon this Note, or upon the holder
hereof with respect to the same, and together with the reasonable fees of the
attorney of the said holder of this Note and all costs and expenses if this Note
is placed in the hands of an attorney for collection or in any proceeding
instituted to collect said sums, to foreclose, or to protect or sustain the lien
of any security which may be given to secure the payment of this Note, or in any
litigation or controversy arising from or connected
3
<PAGE>
with this Note and any mortgage or security agreement securing the same.
The happening of any of the following events or conditions shall constitute
an "EVENT OF DEFAULT" under this Note:
1. Failure to make when due any payment of principal or interest or any
sum due under this Note when the same shall be due and payable.
2. The occurrence of an Event of Default, notice of termination or demand
for payment under that certain Fifth Amended and Restated Revolving Loan, Term
Loan, Equipment Loan and Security Agreement of even date herewith between the
Borrower and the Lender (the "LOAN AGREEMENT").
Nothing in this Note shall be construed to modify or limit the
unconditional right of the Lender in its sole discretion to demand full or
partial payment of the principal of, and interest on, this Note. The right to
make demand on this Note shall exist whether or not the Borrower is in
compliance with the covenants and conditions contained in this Note, the Loan
Agreement or in any other agreements between the Borrower and the Lender.
Upon and after the occurrence of an Event of Default, the whole of said
indebtedness, both principal and interest, and including any other sums which
may become due under this Note, shall, at the option of the holder of this Note,
immediately become due and payable without presentment, demand, protest, notice
of protest, or other notice or notice of dishonor of any kind, all of which are
hereby expressly waived by the Borrower.
The Borrower agrees that no delay or failure on the part of the holder in
exercising any power, privilege, remedy, option or right under this Note shall
operate as a waiver thereof or of any other power, privilege, remedy or right;
nor shall any single or partial exercise of any power, privilege, remedy, option
or right hereunder preclude any other or future exercise thereof or the
exercise of any other power, privilege, remedy, option or right. The rights and
remedies expressed herein are cumulative, and may be enforced successively,
alternately, or concurrently and are not exclusive of any rights or remedies
which holder may or would otherwise have under the provisions of all applicable
laws, and under the provisions of all agreements between the Borrower and the
Lender.
The Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the de-
4
<PAGE>
livery, acceptance, performance, default or enforcement of this Note, assents to
any extension or postponement of the time of payment or any other indulgence
and/or to the addition or release of any party or person primarily or
secondarily liable.
The Borrower gives the Lender a lien and right of setoff for all of the
Borrower's liabilities upon and against the Borrower's deposits, credits and
property, now or hereafter in the possession or control of the Lender or in
transit to it. The Lender may, at any time, apply the same or any part thereof,
to any of the Borrower's liability, though unmatured, without notice and without
first resorting to any other collateral.
The Borrower hereby represents, covenants and agrees that the proceeds of
the loan evidenced by this Note shall be used for general commercial purposes.
THE BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR
COURT ORDER IN CONNECTION WITH ANY AND ALL PREJUDGMENT REMEDIES TO WHICH THE
HOLDER HEREOF MAY BE ENTITLED UNDER ANY PROVISION OF FEDERAL OR STATE LAW.
The Borrower hereby waives the right to trial by jury in any action or
proceeding of any kind or nature in any court in which an action may be
commenced arising out of this Note or any assignment thereof or by reason of any
other cause or dispute between the Borrower and the Lender. The Borrower
acknowledges that it makes this waiver knowingly, voluntarily and only after
extensive consideration of the ramifications of this waiver with its attorneys.
The Borrower hereby further agrees that the following courts:
State Court - Any state or local court of the State of
Connecticut.
Federal Court - United States District Court for the District of
Connecticut.
or at the option of the Lender, any court in which the Lender shall initiate
legal or equitable proceedings and which has subject matter jurisdiction over
the matter in controversy, shall have exclusive jurisdiction to hear and
determine any claims or disputes between the Borrower and the Lender pertaining
directly or indirectly to this Note or to any matter arising in connection with
this Note.
The Borrower expressly submits and consents in advance to such jurisdiction in
any action or proceeding commenced in such courts, hereby waiving personal
service of the summons and complaint, or
5
<PAGE>
other process or papers issued therein, and agreeing that service of such
summons and complaint, or other process or papers, may be made by registered or
certified mail addressed to the Borrower at the address set forth herein. Should
the Borrower fail to appear or answer any summons, complaint, process or papers
so served within thirty (30) days after the mailing thereof, it shall be deemed
in default and an order and/or judgment may be entered against it as demanded or
prayed for in such summons, complaint, process or papers. The exclusive choice
of forum set forth herein shall not be deemed to preclude the enforcement of any
judgment obtained in such forum or the taking of any action under this Note to
enforce the same in any appropriate jurisdiction.
This Note shall be governed by and construed in accordance with the laws of
the State of Connecticut.
This Note is the Revolving Promissory Note referred to in, and is entitled
to the benefits of, the Loan Agreement. This Note is secured by security
interests in the Borrower's accounts receivable, etc., inventory and fixtures,
machinery and equipment and by a mortgage on certain real property located on
New Britain Avenue, Farmington, Connecticut, and the holder of this Note is
entitled to the benefits of said security interests and mortgage.
EDAC TECHNOLOGIES CORPORATION
By:________________________________
Glenn L. Purple
Its Vice President
Duly Authorized
6
<PAGE>
EXHIBIT 10.14
-------------
1
<PAGE>
EQUIPMENT PROMISSORY NOTE II
----------------------------
$500,000.00 Hartford, Connecticut
February 28, 1995
FOR VALUE RECEIVED, EDAC TECHNOLOGIES CORPORATION, a Wisconsin corporation
with its chief executive office at 1790 New Britain Avenue, Farmington,
Connecticut 06032 (hereinafter called the "BORROWER"), promises to pay to the
order of SHAWMUT BANK CONNECTICUT, N.A., a national banking association
(hereinafter called the "LENDER"), at its office at 777 Main Street, MSN 240,
Hartford, Connecticut 06115 or at such other place as the holder of this Note
may from time to time designate in writing, the principal sum of FIVE HUNDRED
THOUSAND DOLLARS ($500,000.00), or such lesser amount as has been advanced and
remains outstanding under this Note, with interest (computed as hereinafter set
forth) from the date hereof until this Note is fully paid. The interest rate
shall be computed on the basis of a three hundred sixty (360) day year for the
actual number of days in each period for which interest is charged.
Notwithstanding any other provision to the contrary set forth herein, if at
any time implementation of any provision hereof shall raise the interest rate
hereon above the lawful maximum, if any, in effect from time to time in the
applicable jurisdiction, then such interest inadvertently collected shall be
deemed to be a partial prepayment of principal and so applied.
Interest shall accrue on each advancement from the date of same and on all
unpaid balances thereafter existing from time to time until January 31, 1996.
Accrued interest shall be payable monthly, in arrears, commencing April 1, 1995
and continuing on the first day of each successive month thereafter through and
including January 1, 1996. Interest which accrues hereunder from January 1, 1996
through and including January 31, 1996 shall be due and payable on January 31,
1996. Interest from the date hereof through January 31, 1996 shall be charged at
a per annum rate equal to the Base Rate plus one-half (1/2) point (the "VARIABLE
RATE"). In the event the Base Rate prevailing on the date hereof is subsequently
increased or decreased, then, as of the date of change, an increase or decrease
will be made in the Variable Rate so that the Variable Rate shall at all times
be one-half (1/2) point in excess of the Base Rate; provided, however, that at
no time shall the Variable Rate be more than the rate of interest permitted by
the law governing this Note. The "BASE RATE" is herein defined to mean the
interest rate announced from time to time by the Lender as its base
1
<PAGE>
rate. The Base Rate is not necessarily the lowest rate available. On the date
hereof the Base Rate is 8.50%.
At any time prior to January 31, 1996 (the "MATURITY DATE"), the Borrower
may convert the interest rate payable hereunder to a fixed rate ("FIXED RATE")
equal to (1) two hundred twenty-five (225) basis points over the Lender's cost
of funds rate, which cost of funds rate will be based on the number of months
remaining until the Maturity Date, calculated three (3) business days prior to
the effective date of such interest rate conversion or (2) the LIBOR Rate quoted
by the Lender two (2) business days prior to the interest period agreed upon
between the Borrower and the Lender (the "INTEREST PERIOD") for the offering by
prime commercial banks to other prime commercial banks in the interbank
Eurodollar market of dollar deposit for a period equal to the Interest Period.
The LIBOR Rate shall be increased by the marginal reserve percentages as
prescribed by the Board of Governors of the Federal Reserve System for
determining reserve requirements for the Lender for Eurodollar deposits having a
maturity equal to the Interest Period.
If the interest rate in effect under this note is the Variable Rate, the
Borrower may prepay this Note in whole or in part at any time without penalty.
All such prepayments shall be applied on account of principal remaining unpaid
and shall be accompanied by payment of unpaid late charges and accrued and
unpaid interest, if any, thereon. All partial prepayments of principal shall be
credited to the unpaid principal of this Note in the inverse order of maturity
and shall not affect the Borrower's obligation to make the regular installments
required hereunder until this Note is fully paid.
If the interest rate in effect under this Note is a Fixed Rate, the
Borrower may not prepay this Note except as set forth in this paragraph. Under
no circumstances may there by a partial prepayment of this Note. The Borrower
may prepay only the entire unpaid balance of this Note upon payment of such
amounts, as determined by the Lender, in its sole and absolute discretion, as
may be necessary to reimburse the Lender for any losses and expenses incurred by
the Lender as a result of prepayment of this Note, including without limitation
any losses (including loss of anticipated profits) and expenses incurred by
reason of the liquidation or re-employment of deposits or other funds acquired
by the Lender to fund or maintain this Note. The Borrower hereby acknowledges
that in reliance upon this agreement, the Lender has made certain commitments of
funds upon the terms and conditions of this Note. In the event that this Note is
accelerated for any reason whatsoever by the Lender, such payment of the
Lender's losses and expenses shall be paid by the Borrower.
2
<PAGE>
All advances under this Note are made pursuant to the terms and conditions
of that certain Fifth Amended and Restated Revolving Loan, Term Loan, Equipment
Loan and Security Agreement dated February 1, 1995 between the Borrower and the
Lender (the "LOAN AGREEMENT"). No further advances under this Note will be made
after January 31, 1996.
Commencing on February 1, 1996, interest on the unpaid principal balance of
this Note shall be charged at a rate equal to either (a) the Variable Rate; (b)
a fixed rate equal to two hundred twenty-five (225) basis points over the
Lender's cost of funds rate, calculated three (3) business days prior to the
effective date of such interest rate conversion; or (c) the LIBOR Rate quoted by
the Lender two (2) business days prior to the interest period agreed upon
between the Borrower and the Lender (the "INTEREST PERIOD") for the offering by
prime commercial banks to other prime commercial banks in the interbank
Eurodollar market of dollar deposit for a period equal to the Interest Period.
The LIBOR Rate shall be increased by the marginal reserve percentages as
prescribed by the Board of Governors of the Federal Reserve System for
determining reserve requirements for the Lender for Eurodollar deposits having a
maturity equal to the Interest Period. The amount of the unpaid principal
balance of this Note which may be converted to the LIBOR Rate shall be
determined by the Lender in its reasonable discretion. The Borrower shall elect
the method of computing the interest rate and give the Lender written notice of
its election on or before December 31, 1995. If the Borrower shall fail to give
the Lender notice of its election, then the interest rate shall be deemed to be
the Variable Rate. The Lender will notify the Borrower of the amount of the
monthly installments of principal to be paid until maturity. The failure of the
Lender to give such notice in a proper or timely manner, or any errors contained
in such notice, shall not relieve the Borrower from its obligations hereunder.
This Note shall be payable ON DEMAND, but if not sooner demanded, payments
of principal shall be made in sixty (60) successive monthly installments as
follows:
Fifty-nine (59) successive monthly installments, each in an amount
sufficient to pay by January 31, 2001 in full the entire outstanding principal
balance of this Note as of January 31, 1996 in substantially equal monthly
installments, commencing March 1, 1996 and continuing on the first day of each
successive month thereafter through and including December 1, 2000, with the
final and sixtieth (60th) installment being due and payable on January 31, 2001,
such installment being an amount equal to the balance of all unpaid principal
and accrued interest.
3
<PAGE>
Accrued interest on the entire outstanding balance under this Note as of
January 31, 1996 shall be payable monthly, in arrears, commencing February 1,
1996 and continuing on the first day of each successive month thereafter, until
all sums due under this Note have been fully paid.
If the Lender shall deem applicable to this Note (including the borrowed
and the unused portion thereof) any requirement of any law of the United States
of America, any regulation, order, interpretation, ruling, official directive or
guideline (whether or not having the force of law) of the Board of Governors of
the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit
Insurance Corporation or any other board or governmental or administrative
agency of the United States of America which shall impose, increase, modify or
make applicable thereto or cause to be included in, any reserve, special
deposit, calculation used in the computation of regulatory capital standards,
assessment or other requirement which imposes on the Lender any cost that is
attributable to the maintenance thereof, then, and in each such event, the
Borrower shall promptly pay the Lender, upon its demand, such amount as will
compensate the Lender for any such cost, which determination may be based upon
the Lender's reasonable allocation of the aggregate of such costs resulting from
such events. In the event any such cost is a continuing cost, a fee payable to
the Lender may be imposed upon the Borrower periodically for so long as any such
cost is deemed applicable to the Lender, in an amount determined by the Lender
to be necessary to compensate the Lender for any such cost. The determination by
the Lender of the existence and amount of any such cost shall, in the absence of
manifest error, be conclusive.
To the extent allowed by applicable law, after the occurrence of an Event
of Default, all outstanding principal and unpaid interest shall bear, until
paid, interest at a rate per annum (the "DEFAULT RATE") equal to one (1) point
above the interest rate specified above.
The Lender may collect a "late charge" equal to five percent (5%) of any
installment of interest or principal, or of any taxes, assessments and insurance
paid by the Lender which is not paid or reimbursed by the Borrower within
fifteen (15) days of the due date thereof to cover the extra expense involved in
handling such delinquent payment.
All payments will be applied first to the payment of late charges, then to
accrued and unpaid interest and the balance on account of the unpaid principal
of this Note.
4
<PAGE>
The Borrower may prepay this Note in whole or in part at any time without
penalty. All such prepayments shall be applied on account of principal remaining
unpaid and shall be accompanied by payment of unpaid late charges and accrued
and unpaid interest, if any, thereon. All partial prepayments of principal shall
be credited to the unpaid principal of this Note in the inverse order of
maturity and shall not affect the Borrower's obligation to make the regular
installments required hereunder until this Note is fully paid.
All sums due under this Note shall be payable together with all lawful
taxes and assessments levied thereon, or upon this Note, or upon the holder
hereof with respect to the same, and together with the reasonable fees of the
attorney of the said holder of this Note and all costs and expenses if this Note
is placed in the hands of an attorney for collection or in any proceeding
instituted to collect said sums, to foreclose, or to protect or sustain the lien
of any security which may be given to secure the payment of this Note, or in any
litigation or controversy arising from or connected with this Note and any
mortgage or security agreement securing the same.
The happening of any of the following events or conditions shall constitute
an "EVENT OF DEFAULT" under this Note:
1. Failure to make when due any payment of principal or interest or any
sum due under this Note when the same shall be due and payable.
2. The occurrence of an Event of Default, notice of termination or demand
for payment under the Loan Agreement.
Upon and after an Event of Default, the whole of said indebtedness, both
principal and interest, and including any other sums which may become due under
this Note, shall, at the option of the holder of this Note, immediately become
due and payable without presentment, demand, protest, notice of protest, or
other notice of dishonor of any kind, all of which are hereby expressly waived
by the Borrower.
The Borrower agrees that no delay or failure on the part of the holder in
exercising any power, privilege, remedy, option or right hereunder shall operate
as a waiver thereof or of any other power, privilege, remedy or right; nor shall
any single or partial exercise of any power, privilege, remedy, option or right
hereunder preclude any other or future exercise thereof or the exercise of any
other power, privilege, remedy, option or right. The rights
5
<PAGE>
and remedies expressed herein are cumulative, and may be enforced successively,
alternately, or concurrently and are not exclusive of any rights or remedies
which holder may or would otherwise have under the provisions of all applicable
laws, and under the provisions of all agreements between the Borrower and the
Lender.
The Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, assents to any extension or
postponement of the time of payment or any other indulgence and/or to the
addition or release of any party or person primarily or secondarily liable.
The Borrower gives the Lender a lien and right of setoff for all of the
Borrower's liabilities upon and against the Borrower's deposits, credits and
property now or hereafter in the possession or control of the Lender or in
transit to it. The Lender may, at any time, apply the same or any part thereof
to any of the Borrower's liability, though unmatured, without notice and without
first resorting to any other collateral.
The Borrower hereby represents, covenants and agrees that the proceeds of
the loan evidenced by this Note shall be used for general commercial purposes.
THE BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR
COURT ORDER IN CONNECTION WITH ANY AND ALL PREJUDGMENT REMEDIES TO WHICH THE
HOLDER HEREOF MAY BE ENTITLED UNDER ANY PROVISION OF FEDERAL OR STATE LAW.
The Borrower hereby waives the right to trial by jury in any action or
proceeding of any kind or nature in any court in which an action may be
commenced arising out of this Note or any assignment thereof or by reason of any
other cause or dispute between the Borrower and the Lender.
The Borrower hereby further agrees that the following courts:
State Court - Any state or local court of the State of Connecticut.
Federal Court - United States District Court for the District of
Connecticut.
or at the option of the Lender, any court in which the Lender shall initiate
legal or equitable proceedings and which has subject matter jurisdiction over
the matter in controversy, shall have exclusive jurisdiction to hear and
determine any claims or disputes be
6
<PAGE>
tween the Borrower and the Lender pertaining directly or indirectly to this Note
or to any matter arising in connection with this Note. The Borrower expressly
submits and consents in advance to such jurisdiction in any action or proceeding
commenced in such courts, hereby waiving personal service of the summons and
complaint, or other process or papers issued therein, and agreeing that service
of such summons and complaint, or other process or papers, may be made by
registered or certified mail addressed to the Borrower at the address set forth
herein. Should the Borrower fail to appear or answer any summons, complaint,
process or papers so served within thirty (30) days after the mailing thereof,
it shall be deemed in default and an order and/or judgment may be entered
against it as demanded or prayed for in such summons, complaint, process or
papers. The exclusive choice of forum set forth herein shall not be deemed to
preclude the enforcement of any judgment obtained in such forum or the taking of
any action under this Note to enforce the same in any appropriate jurisdiction.
This Note shall be governed by and construed in accordance with the laws of
the State of Connecticut.
This Note is the Equipment Promissory Note referred in, and is entitled to
the benefits of, the Loan Agreement. This Note is secured by security interests
in the Borrower's accounts receivable, etc., inventory and fixtures, machinery
and equipment, and by a mortgage on certain real property located on New Britain
Avenue, Farmington, Connecticut, and the holder of this Note is entitled to the
benefits of said security interests and mortgage.
EDAC TECHNOLOGIES CORPORATION
By:______________________________
Glenn L. Purple
Its Vice President
Duly Authorized
7
<PAGE>
EXHIBIT 10.15
-------------
1
<PAGE>
SIXTH MODIFICATION AGREEMENT
----------------------------
TO OPEN-END MORTGAGE DEED
-------------------------
THIS AGREEMENT made this 28th day of February, 1995, by and between EDAC
TECHNOLOGIES CORPORATION, a Wisconsin corporation with its principal place
business at 1790 New Britain Avenue, Farmington, Connecticut 06032 (hereafter
referred to as the "Borrower") and SHAWMUT BANK CONNECTICUT, N.A., formerly The
Connecticut NAtional Bank, a national banking association with an office at 777
Main Street, MSN 240, Hartford, Connecticut 06115 (hereafter referred to as the
"LENDER").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, on May 12, 1989, the Borrower granted to the Lender a mortgage on
certain premises located at 1790 New Britain Avenue, Farmington, Connecticut,
which mortgage was recorded in the Farmington Land Records on May 15, 1989 in
Volume 394 at Page 521, and which mortgage was modified by that certain Mortgage
Modification Agreement dated November 10, 1989 and recorded in the Farmington
Land Records on November 21, 1989 on Volume 403 at Page 644 (collectively, the
"Mortgage");
WHEREAS, on July 30, 1992, the parties modified the Mortgage by entering
into that certain Second Modification Agreement to Open-End Mortgage Deed
recorded in the Farmington Land Records on August 6, 1992 in Volume 446 at Page
002;
WHEREAS, on December 23, 1992, the parties modified the Mortgage by
entering into that certain Third Modification Agreement to Open-End Mortgage
Deed recorded in the Farmington Land Records on February 25, 1993 in Volume 456
at Page 1010;
WHEREAS, on March 22, 1993, the parties modified the Mortgage by entering
into that Fourth Mortgage Agreement to Open-End Mortgage Deed recorded in the
Farmington Land Records on March 31, 1993 in Volume 458 at Page 738;
WHEREAS, on MArch 29, 1994, the parties modified the Mortgage by entering
into that certain Fifth Modification Agreement to Open-End Mortgage Deed
recorded in the Farmington Land Records on April 19, 1994 in Volume 480 at Page
855; and
WHEREAS, the parties desire to further modify the Mortgage;
1
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is hereby agreed by and between the parties that the
Mortgage be modified as follows:
1. The first "WHEREAS" PARAGRAPH on Page 2 of the Mortgage is hereby
amended in its entirety to read as follows:
"WHEREAS, the Lender and the Borrower have entered into a Fifth Amended
and Restated Revolving Loan, Term Loan and Security Agreement, dated
February 28, 1995 (such Fifth Amended and Restated Revolving Loan, Term
Loan, Equipment Loan and Security Agreement is hereinafter referred to as
the "EDAC LOAN AGREEMENT"), pursuant to which the full amount of the
revolving loan therein authorized (the "EDAC REVOLVING LOAN") is SEVEN
MILLION DOLLARS (7,000,000.00). Pursuant to the EDAC Loan Agreement, all or
part of the Revolving Loan proceeds are permitted to be advanced from time
to time (the "EDAC REVOLVING LOAN ADVANCES") and shall be secured by this
Mortgage. The EDAC Revolving Loan shall be evidenced by the promissory note
annexed hereto and made a part hereof as SCHEDULE K (the "REVOLVING
PROMISSORY NOTE"). The initial EDAC Revolving Loan Advance and future EDAC
Revolving Loan Advances, if any, may be either evidenced by additional
notes or recorded in an account on the books of the Lender as specified in
Section 4.1 hereof. THE EDAC LOAN AGREEMENT provides for repayment of all
or a portion of the outstanding balance of the EDAC Revolving LOan
proceeds, together with interest thereon, from time to time. The entire
principal balance of the EDAC Revolving Loan, together with accrued
interest, shall be due and payable ON DEMAND; and"
2. The Mortgage is hereby supplemented by the addition of the following
"WHEREAS" PARAGRAPH:
"WHEREAS, the Borrower is justly indebted to the Lender pursuant to a
certain Equipment Promissory Note II dated February 28, 1995, in the
maximum principal amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00)
(the "EQUIPMENT LINE OF CREDIT II"), a copy of which note is attached
hereto and made a part hereof as SCHEDULE M (the "EQUIPMENT PROMISSORY NOTE
II"); and"
3. The last "WHEREAS" PARAGRAPH (which collectively defines all of the
obligations of the Borrower to the Lender as the "LOAN:) is hereby amended in
its entirety to read as follows:
"WHEREAS, the obligations of the Borrower under the Term Note, the ESOT
Guaranty, the Equipment Promissory Note, the
2
<PAGE>
Equipment Promissory Note II, the EDAC Revolving Loan, the Revolving
Promissory Note and the EDAC Loan Agreement (hereinafter collectively
referred to as the "Loan") shall not exceed in the aggregate
$_____________;"
4. All capitalized terms not otherwise defined herein shall have the same
meaning as set forth in the Mortgage.
5. Except as modified by this Agreement and any previous modifications,
the rights, privileges, duties and obligations of the parties hereto under the
Mortgage shall remain unchanged, in full force and effect and binding upon the
parties thereto. Nothing herein contained shall operate to release the
Mortgagor from its liability to pay the Obligations, and to keep and perform all
of the terms, conditions, obligations, and agreements, contained in the
Mortgage, as hereinbefore modified.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their respective seals to be affixed hereto as of date set forth on
the first page hereof.
WITNESS: BORROWER:
__________________________________ EDAC TECHNOLOGIES CORPORATION
__________________________________ BY: ______________________________
Glenn L. Purple
Its Vice President
Duly Authorized
LENDER:
__________________________________ SHAWMUT BANK CONNECTICUT, N .A.
__________________________________ By: ______________________________
John D. Behan
Its Vice President
Duly Authorized
3
<PAGE>
STATE OF CONNECTICUT)
) ss.: Hartford
COUNTY OF HARTFORD )
The foregoing instrument was acknowledged before me this 28th day of
February, 1995, by Glenn L. Purple, the Vice President of EDAC TECHNOLOGIES
CORPORATION, a Wisconsin corporation, on behalf of the corporation.
-----------------------------------
David H. Flynn
Commissioner of Superior Court
STATE OF CONNECTICUT)
) ss.: Hartford
COUNTY OF HARTFORD )
The foregoing instrument was acknowledged before me this 28th day of
February, 1995, by John D. Behan, the Vice President of SHAWMUT BANK
CONNECTICUT, N.A., a national banking association, on behalf of the banking
association.
-----------------------------------
David H. Flynn
Commissioner of Superior Court
4
<PAGE>
Exhibit 10.16
<PAGE>
AMENDMENT TO LUZZI EMPLOYMENT AGREEMENT
DATED OCTOBER 1, 1990
THIS AMENDMENT dated December 19, 1994, hereby amends the Amended Employment
Agreement (the "Agreement") dated October 1, 1990 between Edac Technologies
Corporation (the "Company") and Robert P. Luzzi ("Employee").
RECITAL
The Company and the Employee are parties to the Agreement which they desire
to amend as set forth herein.
AGREEMENTS
In consideration of the recital and mutual agreements which follow, the
parties agree as follows:
1. Deferred Compensation as described in Article 1(d)(i) of the
Agreement will be paid to employee on January 6, 1995 as follows:
(a) The quarterly payments as described in the Agreement will paid
in a lump sum, calculated based on the current present value of those quarterly
payments.
(b) The Company shall transfer equitable life insurance policy No.
40245688 covering the life of the Employee (the "Policy") to the Employee. If
the surrender value under the Policy is greater than the calculated lump sum
pay out, the Employee will pay to the Company the difference upon receipt of
the Policy. If the surrender value is less than the calculated lump sum
payment, then the Company will reimburse the difference upon the transfer of
the policy to the Employee.
2. The Employee has no right to make any elections pursuant to the
Agreement or to receive any payments during 1994.
3. Except as stated herein, the Agreement and its amendments remain in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
Agreement on the day and year first written above.
EDAC TECHNOLOGIES CORPORATION
BY /s/ Glenn L. Purple .
----------------------------
Its V.P. Finance, Secretary.
------------------------
Attest:
s/s Glenn L. Purple .
------------------------------
Glenn L. Purple, Secretary
s/s Robert P. Luzzi .
------------------------------
Robert P. Luzzi
<PAGE>
Exhibit 11.1
<PAGE>
EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
EDAC TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Primary:
Average shares outstanding 3,571,872 3,560,593 3,491,153
Net effect of dilutive stock
options based on the treasury
stock method using average
market price 152,146 141,318 222,653
--------- --------- ---------
TOTAL 3,724,018 3,701,911 3,713,788
========= ========= ==========
Net income $ 71,515 $ 741,237 $1,476,323
Net Income Per Share $ .02 $ .20 $ .40
========= ========= ==========
Fully diluted:
Average shares outstanding 3,571,872 3,560,593 3,491,153
Net effect of dilutive stock
options based on the treasury
stock method using the year-end
market price if higher than
average market price 122,650 122,447 221,652
--------- --------- ---------
TOTAL 3,694,522 3,683,040 3,712,805
========= ========= ==========
Net income $ 71,515 $ 741,237 $1,476,323
Net income Per Share $ .02 $ .20 $ .40
========= ========= ==========
</TABLE>
<PAGE>
Exhibit 13.1
<PAGE>
EDAC TECHNOLOGIES CORPORATION
GROS-ITE INDUSTRIES 1994
GROS-ITE SPINDLE ANNUAL
AMERICAN RESEARCH REPORT
NATURAL COOL, LTD.
<PAGE>
Edac Technologies Corporation, also known as Gros-Ite Industries, is a
diversified company. It primarily offers design and manufacturing services for
the aerospace industry in areas such as jet engine parts, special tooling,
equipment and gauges, and components used in the manufacture, assembly and
inspection of jet engines. Edac also offers design and manufacturing services
for the medical instruments industry in such areas as components used in the
manufacture of surgical instruments and special tooling. Edac also designs and
manufactures specialized machines for a variety of other applications.
Gros-Ite Spindle specializes in the design, manufacture and repair of
precision spindles. Spindles are an integral part of numerous machine tools
which are found in virtually any type of manufacturing environment. For 13 years
Gros-Ite Spindle has been servicing the industry with high quality standard and
custom spindles.
American Research, a 40 year old company acquired by Edac in 1986, offers
custom designed environmental test chambers which duplicate hostile conditions
such as high altitude, wind and dust, compression, humidity, decompression,
temperature and explosions. This equipment is sold to customers in the
aerospace, automotive and electronics industries, among others.
Edac maintains manufacturing and design facilities with computerized
numerically controlled machining centers, and grinding, welding, and sheet metal
fabrication, painting and assembly capabilities. Items manufactured by Edac
include precision rings, and other components for jet engines, components for
medical instruments, as well as industrial spindles, environmental test chambers
and specialized machinery designed by Edac or others and other assemblies
requiring close tolerances.
Marketing and Competition
-------------------------
Edac has numerous competitors both in design and manufacturing. Many of the
independent firms with which it competes are smaller than Edac and do not
provide the variety of high quality services that Edac provides. Edac also
competes with its customers' in-house manufacturing and technical services
capabilities. Edac believes that it is able to compete effectively with
independent firms and customers' in-house capabilities because of Edac's
emphasis on customer service, its experience and its competitive pricing of its
services.
For its fiscal year ended December 31, 1994, approximately 69% of Edac's net
sales were derived from sales to United Technologies Corporation.
2
<PAGE>
MARKET INFORMATION
The Company's Common Stock is traded on the over-the-counter
market (NASDAQ).
High and low stock bid prices for the last two years were as
follows:
<TABLE>
<CAPTION>
1994 1993
---------------- ----------------
High Low High Low
---- ---- ---- ----
<S> <C> <C> <C> <C>
First Quarter 1 6/16 1 2/16 3 14/16 2 2/16
Second Quarter 1 6/16 1 2 4/16 1
Third Quarter 1 2/16 15/16 1 14/16 1
Fourth Quarter 1 13/16 1 12/16 15/16
</TABLE>
The approximate number of record holders of the Company's Common
Stock at March 27, 1995 was 329.
The Company has never paid cash dividends. The Company is prohibited
from paying cash dividends by certain loan agreements with its
bank (see Note C to the Company's consolidated financial
statements included elsewhere in this report).
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990
----------------------------------------------
(In thousands of dollars, except per share data)
SELECTED OPERATING DATA
<S> <C> <C> <C> <C> <C>
Sales $22,239 $29,331 $38,252 $26,830 $27,958
Income before
extraordinary item 72 741 1,476 183 528
Net income 72 741 1,476 320 975
Net income per share .02 .20 .40 .09 .28
SELECTED BALANCE SHEET DATA
Current assets $12,170 $12,179 $14,970 $14,171 $11,597
Total assets 16,326 16,634 19,785 19,163 17,237
Current liabilities 5,323 5,669 9,799 10,538 8,067
Working capital 6,847 6,510 5,171 3,633 3,530
Long-term obligations 4,831 4,959 4,724 4,940 5,883
Shareholders' equity 6,172 6,006 5,262 3,685 3,287
______________________
</TABLE>
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues from the Company's principal markets are as follows:
<TABLE>
<CAPTION>
In Thousands of Dollars 1994 1993 1992
-------------------------- -------- -------- --------
<S> <C> <C> <C>
Aerospace customers....... $15,810 $16,576 $18,772
Medical customers......... 1,161 6,819 15,085
Other..................... 5,268 5,936 4,395
</TABLE>
Net sales decreased $7,092,000 or 24% in 1994 from 1993. Aerospace sales
decreased $766,000 or 5% from 1993 while sales to medical customers declined by
$5,658,000 or 83%. During 1994, the Company's principal aerospace customer
continued to implement cost savings initiatives including personnel reductions,
vendor consolidations and facility closings to respond to the decline in
military and commercial aviation markets. While this negatively impacted the
Company's revenues, the Company remains an approved supplier of this customer.
The Company's principal medical customer consolidated its vendor base resulting
in the Company receiving few orders in 1994, which level of activity is not
expected to increase in 1995. Sales to other customers decreased $668,000 or 11%
reflecting a decrease in specialized machine sales offset slightly by increased
spindle sales.
Net sales decreased $8,921,000 or 23% in 1993 from 1992. Decreased sales
were due primarily to the Company's medical instruments customers. Sales to
medical instruments customers decreased by $8,266,000 or 55% from 1992. Sales to
aerospace customers decreased by $2,196,000 or 12% from 1992. Sales to customers
in other markets increased by $1,541,000 or 35% from 1992.
In late 1992, pricing concessions were granted to the Company's principal
aerospace customer for ongoing production orders. The Company negotiated price
concessions with its suppliers and implemented cost control programs to mitigate
that concession.
Cost of sales as a percentage of sales increased in 1994 to 86.0% from 85.0%
in 1993 due primarily to the effect of spreading fixed overhead over lower
production levels. Additionally, the Company incurred expense in moving certain
machines and departments within the Company to better utilize its existing
facilities. The American Research department was moved to newly leased
facilities.
Cost of sales as a percentage of sales increased in 1993 to 85.0% from 83.4%
in 1992 due to the above mentioned reduced prices from aerospace customers and
the effect of spreading fixed overhead over lower production levels. In
addition, the Company had lower sales and reduced prices to its principal
medical customer.
Selling, general and administrative costs increased $14,000 in 1994 from
1993 due to additional sales personnel and increased travel and telephone
expense, offset by reduced compensation expense.
4
<PAGE>
In 1993 selling, general and administrative costs decreased by $624,000 or
18.9% from 1992. This decrease is the result of the Company's cost reduction
programs implemented early in the year in response to the contracting aerospace
and medical markets. The Company amended its defined benefit plan as of April 1,
1993 to cease benefit accruals. This resulted in a reduction of pension expense
of $282,000. In addition, commission expense decreased by $69,000, amortization
expense decreased by $68,000 and compensation and other expenses decreased by
$205,000.
INTEREST AND OTHER
Interest expense in 1994 was $433,000, a decrease of $90,000 from 1993. This
decrease reflects a reduction in overall borrowing levels throughout the year
offset slightly by an increasing interest rate on the Company's revolving line
of credit.
Interest expense in 1993 was $523,000, a decrease of $222,000 from 1992.
This decrease reflects a reduction in overall borrowing levels throughout the
year. Additionally, the Company refinanced term debt with a fixed interest rate
of 10.15% in March 1993 with $4,000,000 of new term debt with a fixed interest
rate of 7.65%.
Other income for 1994 was $72,000 consisting primarily of insurance proceeds
received.
Other expense for 1993 was $11,000 reflecting a loss on an investment. Other
income of $36,000 for 1992 reflects insurance proceeds received.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
109 "Accounting for Income Taxes" in 1992. There was no cumulative effect of
adopting this change as of January 1, 1992 because of the Company's net
operating loss position at time of adoption. Under SFAS No. 109, deferred tax
expenses or credits are based on the changes in deferred tax assets and
liabilities from period to period.
The effective rates of 0% for 1994, 37.5% for 1993 and 36.7% for 1992
reflects the utilization of the Company's net operating loss carryforward,
limited to $181,000 per year. (See note F). The Company expects to recognize the
benefit from its remaining net operating loss carryover only to the extent such
amounts are realized for tax purposes and are not required to offset required
deferred tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash
to fund its operating and investing activities. Of particular importance to the
Company's liquidity are cash flows
5
<PAGE>
generated from operating activities, capital expenditure levels and available
bank lines of credit.
The following is selected cash flow data from the Statements of Cash Flows:
<TABLE>
<CAPTION>
In Thousands of Dollars 1994 1993 1992
----------------------- -------- -------- --------
<S> <C> <C> <C>
Net cash flow from
operating activities.... $1,104 $ 3,326 $ 1,986
Net cash flow from
investing activities.... (621) (494) (759)
Net cash flow from
financing activities.... (509) (2,918) (1,153)
</TABLE>
Net cash flow from operating activities in 1994 primarily reflect net income
and non-cash charges against income. Net cash flow from operating activities in
1993 improved over 1992 due to reduced inventory levels. Net cash flows from
investing activities for all years primarily reflect purchases of fixed assets
consisting mainly of machinery and equipment. Expenditures have been necessary
to add capacity and to increase productivity.
The following is selected capitalization data from the Balance Sheets:
<TABLE>
<CAPTION>
In Thousands of Dollars 12/31/94 12/31/93 12/31/92
----------------------- --------- --------- ---------
<S> <C> <C> <C>
Revolving line of credit.......... $ 1,595 $ 1,875 $ 4,635
Current portion long term debt.... 245 247 825
Long term debt.................... 3,824 4,069 3,706
Shareholders' equity.............. 6,172 6,006 5,262
Debt to total capitalization...... 48% 51% 64%
Unused revolving line of credit... 4,731 4,915 2,248
</TABLE>
The Company believes that there are sales opportunities in providing larger
machining capabilities to the aerospace engine industry, as airframe
manufacturers are demanding larger engines. In 1994, the Company purchased
several used large machines capable of producing parts for the larger engines.
The Company anticipates constructing in 1995, a 20,000 square foot building
adjacent to its existing buildings. The large machine that the Company has
committed to purchase in 1995 (See note G) along with the other large machines
purchased in 1994 will be placed in service in the new building. Including the
building, the Company anticipates spending approximately $2.2 million in 1995 on
capital expenditures. The Company has secured a mortgage commitment from its
bank for the new building. In addition, it has an equipment line of credit with
its bank which provides up to
6
<PAGE>
$500,000 in 1995 for equipment purchases, and it has secured an extended payment
agreement for the purchase of $690,000 of equipment. (See note G)
In March 1993, the Company completed a refinancing of $4,000,000 of term
debt with its bank reducing its fixed interest rate and its annual payments.
Principal payments were reduced by $500,000 for 1994, $1,701,000 for 1995 and by
$353,000 for 1996. By refinancing its term debt under favorable conditions and
thereby favorably impacting cash flow for 1995 and 1996, management believes the
Company is well positioned to respond to a healthier aerospace market. The
Company has a revolving line of credit with its bank which provides up to
$7,000,000 ($1,386,530 outstanding at December 31, 1994) limited by a formula
based on percentages of the Company's receivables and inventory.
Management believes that the funds generated from operations, as well funds
available from existing financing agreements, will be sufficient to meet the
Company's cash flow needs throughout 1995.
7
<PAGE>
LETTERHEAD OF ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
Edac Technologies Corporation:
We have audited the accompanying consolidated balance sheets of Edac
Technologies Corporation (a Wisconsin corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Edac Technologies Corporation
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 3, 1995
8
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
EDAC TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
--------------- -------------- --------------
<S> <C> <C> <C>
Sales:
Services $ 2,185,968 $ 3,231,581 $ 3,731,210
Products 20,052,882 26,099,157 34,521,088
-------------- -------------- -------------
22,238,850 29,330,738 38,252,298
Cost of Sales 19,114,373 24,934,728 31,908,439
-------------- -------------- -------------
Gross Profit 3,124,477 4,396,010 6,343,859
Selling, general and administrative expenses 2,691,447 2,677,647 3,302,123
-------------- -------------- -------------
INCOME FROM OPERATIONS 433,030 1,718,363 3,041,736
Non-operating income (expense):
Interest expense (433,173) (522,599) (744,569)
Other 71,658 (10,527) 35,659
-------------- -------------- -------------
INCOME BEFORE INCOME TAXES 71,515 1,185,237 2,332,826
Provision for income taxes - 444,000 856,503
-------------- -------------- -------------
NET INCOME $ 71,515 $ 741,237 $ 1,476,323
============== ============== =============
Weighted average number of shares of
common stock outstanding 3,724,018 3,691,665 3,713,788
============== ============== =============
Earnings Per Share $.02 $.20 $.40
============== ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
CONSOLIDATED BALANCE SHEETS
EDAC TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
December 31,
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 86,260 $ 111,754
Trade accounts receivable (net of
allowance for doubtful accounts of
$40,000 in 1994 and 1993) 1,487,150 1,831,063
Inventories:
Finished goods 1,114,575 1,042,034
Work in process and raw materials 8,709,074 8,630,650
Deferred income taxes 671,000 472,000
Prepaid expenses and other current
assets 102,317 91,659
-------------- --------------
TOTAL CURRENT ASSETS 12,170,376 12,179,160
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 314,091 314,091
Buildings 2,512,217 2,499,269
Machinery and equipment 7,250,472 6,949,355
-------------- --------------
10,076,780 9,762,715
Less-accumulated depreciation 6,306,302 5,620,615
-------------- --------------
3,770,478 4,142,100
-------------- --------------
OTHER ASSETS 384,946 312,337
-------------- --------------
$ 16,325,800 $ 16,633,597
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
EDAC TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
December 31,
1994 1993
-------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,595,367 $ 1,874,565
Current portion of long-term debt 245,383 246,550
Trade accounts payable 2,083,701 2,134,363
Employee compensation and amounts
withheld 638,068 594,235
Accrued expenses 760,533 819,131
-------------- --------------
TOTAL CURRENT LIABILITIES 5,323,052 5,668,844
-------------- --------------
LONG-TERM DEBT, less current portion 3,824,061 4,069,444
-------------- --------------
OTHER LIABILITIES 296,840 264,254
-------------- --------------
DEFERRED INCOME TAXES 710,000 625,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES (NOTE G)
SHAREHOLDERS' EQUITY:
Common stock, par value $.0025 per
share; 10,000,000 shares authorized;
issued and outstanding--3,595,539
in 1994 and 3,566,205 in 1993 8,989 8,916
Additional paid-in capital 8,560,672 8,544,246
Accumulated deficit (1,915,216) (1,986,731)
-------------- --------------
6,654,445 6,566,431
Less guaranty of Employee Stock
Ownership Plan debt (350,000) (427,778)
Less Unfunded accrued pension costs (132,598) (132,598)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 6,171,847 6,006,055
-------------- --------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 16,325,800 $ 16,633,597
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
EDAC TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
------------- ------------- ------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 71,515 $ 741,237 $ 1,476,323
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision (benefit) for deferred
income taxes (114,000) (82,000) 235,000
Depreciation and amortization 985,588 931,269 1,025,299
Loss (gain) on sale of property
and equipment 11,915 1,039 (11,420)
Changes in operating assets and
liabilities:
Trade accounts receivable 343,913 (511,392) 814,764
Inventories (150,965) 3,097,671 (869,226)
Prepaid expenses and other
current assets (10,658) 27,624 (107,102)
Trade accounts payable (50,662) (781,504) (301,996)
Other current liabilities (14,765) (141,882) (310,748)
Other liabilities 32,586 44,411 35,537
------------- ------------- ------------
Net cash provided by
operating activities 1,104,467 3,326,473 1,986,431
------------- ------------- ------------
Investing Activities:
Additions to property, plant and
equipment (696,359) (394,709) (762,557)
Proceeds from sales of property,
plant and equipment 231,532 37,746 21,450
Increase in other assets (155,885) (136,930) (18,113)
------------- ------------- ------------
Net cash used in
investing activities $ (620,712) $ (493,893) $ (759,220)
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
EDAC TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
------------- ------------- ------------
<S> <C> <C> <C>
Financing Activities:
Decrease in revolving
line of credit, net $ (279,198) $ (2,760,281) $ (7,341)
Payments of long-term debt (246,550) (4,215,509) (1,168,881)
Issuance of long-term debt --- 4,000,000 ---
Proceeds from exercise of options
for common stock, including
related income tax benefit 16,499 57,438 22,874
------------- ------------- ------------
Net cash used in
financing activities (509,249) (2,918,352) (1,153,348)
------------- ------------- ------------
Increase (decrease) in cash (25,494) (85,772) 73,863
Cash at beginning of year 111,754 197,526 123,663
------------- ------------- ------------
Cash at end of year $ 86,260 $ 111,754 $ 197,526
============ ============ ============
Supplemental Disclosure of
Cash Flow Information:
Interest Paid $ 427,763 $ 578,014 $ 780,400
Income taxes paid 130,000 285,000 476,277
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
EDAC TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balances at January 1, 1992 3,478,543 $ 8,696 $ 8,464,154 $(4,204,291)
Exercise of stock options 40,664 102 22,772 --
Net income -- -- -- 1,476,323
Balances at December 31, 1992 3,519,207 8,798 8,486,926 (2,727,968)
Exercise of stock options,
including related income
tax benefit 46,998 118 57,320 --
Net income -- -- -- 741,237
Balances at December 31, 1993 3,566,205 8,916 8,544,246 (1,986,731)
Exercise of stock options,
including related income
tax benefit 29,334 73 16,426
Net income -- -- -- 71,515
Balances at December 31, 1994 3,595,539 $ 8,989 $ 8,560,672 $(1,915,216)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EDAC TECHNOLOGIES CORPORATION
DECEMBER 31, 1994
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Until May 12, 1989, Edac Technologies Corporation (the Company) was a subsidiary
of Cade Industries, Inc. (Cade) which owned approximately 57% of the Company's
outstanding Common Stock. Effective May 12, 1989, Cade sold its investment in
the Company's Common Stock to a partnership comprised of certain members of the
Company's management and the Edac Technologies Corporation Employee Stock
Ownership Plan (ESOP). The Partnership owns 27.4% and the ESOP owns 27.1% of
the Company's outstanding Common Stock as of December 31, 1994.
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiaries, Gros-Ite Industries, Inc. and
Natural Cool, Ltd. Intercompany transactions have been eliminated from the
consolidated financial statements.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Provisions for depreciation and amortization are computed using the
straight-line method over 3 to 12 years for machinery and equipment and 25 years
for buildings for financial reporting purposes. For income tax reporting
purposes, straight-line and accelerated methods are used.
Earnings Per Share: Earnings per share is based on the weighted average number
of shares of common stock outstanding during the year, plus the dilutive effect,
if any, of outstanding stock options.
NOTE B -- COMMON STOCK AND STOCK OPTIONS
On December 5, 1991, the Board of Directors adopted the 1991 Stock Option Plan
(the Plan). The Plan is non-qualified and provides for the granting of up to
325,000 options to purchase shares of the Company's Common Stock. The option
price is the fair market value of the shares on the date of the grant. Options
may be exercised at the rate of 33 1/3% six months after the grant date, another
33 1/3% one year after the grant date and the remaining 33 1/3% two years after
the grant date. Options may be granted under the Plan through December 5, 2001.
During 1991, options to purchase 282,000 shares of the Company's Common Stock at
$.5625 per share were granted under the Plan.
On January 1, 1994, options to purchase 100,000 restricted shares were granted
to an officer at an exercise price of $.5625 per share. On October 1, 1994,
25,000 of these options became exercisable. An additional 25,000 become
exercisable each January 1 thereafter through January 1, 1997.
During 1994, 1993, and 1992, options for 29,334, 46,998 and 40,664 shares,
respectively, were exercised at $.5625 per share. At December 31, 1994, there
were options outstanding for the purchase of 265,004 shares at $.5625 per share
of which 190,004 were exercisable.
15
<PAGE>
NOTE C -- NOTES PAYABLE AND LONG TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
Note payable to bank in 60 monthly installments of $37,516,
including interest at 7.65% per annum commencing
April 1, 1993, with a balloon payment of $3,089,220
due on April 30, 1998. $3,719,444 $3,874,580
Note payable to bank by Edac Technologies
Corporation Employee Stock Ownership Plan
(guaranteed by the Company). Principal is
due in 108 monthly installments of $6,481
commencing July 1, 1990. Interest at 95%
of the bank's base rate is due monthly. 350,000 427,778
Installment notes payable in monthly and
annual installments, plus interest. -- 13,636
---------- ----------
4,069,444 4,315,994
Less amounts due within one year 245,383 246,550
---------- ----------
$3,824,061 $4,069,444
========== ==========
</TABLE>
The Company also has a Revolving Loan and Security Agreement (the Agreement)
which provides for a revolving line of credit with a borrowing base limited to
an amount which is the lesser of $10,000,000 or an amount determined by a
formula based on percentages of the Company's receivables and inventory. The
revolving line of credit bears interest at the bank's base rate of interest
(8.5% at December 31, 1994) on borrowings up to $3,000,000, base rate plus 1/4
on borrowings from $3,000,001 to $6,000,000 and base rate plus 1/2 on borrowings
from $6,000,001 to $10,000,000. Effective February 28, 1995, the Agreement was
amended to revise the borrowing base to the lesser of $7,000,000 or an amount
determined by a formula based on percentages of the Company's receivables and
inventory and extend the maturity of the Agreement from January 31, 1995 to
January 31, 1996. The interest rate was amended to the bank's base rate of
interest. The Agreement also provides for an equipment line of credit which
provides loan advances of 75% of equipment purchases up to an aggregate amount
of $500,000, with interest payable monthly at the bank's base rate plus 0.5%.
The principal amount outstanding as of February 1, 1995 will be paid in 60 equal
payments commencing February 1, 1995. Interest will be charged monthly after
February 1, 1995 at the bank's base rate plus 0.5% or, upon election of the
Company, at a fixed rate equal to 3% above the bank's five-year average cost of
funds. At December 31, 1994, the Company had borrowed $208,837 on the equipment
line. The Agreement, as amended on February 28, 1995, provides as of February
1, 1995 a second equipment line of credit which provides loan advances of 75% of
equipment purchases up to an aggregate amount of $500,000 through January 31,
1996 with interest payable monthly at the bank's base rate plus 0.5%. The
principal amount outstanding as of February 1, 1996 will be paid in 60 equal
payments commencing February 1, 1996. Interest will be charged monthly after
February 1, 1996 at the bank's base rate plus 0.5% or, upon election of the
Company, at a fixed rate equal to 3% above the bank's cost of funds. The
Agreement also provides for a five-year term loan in the original amount of
$4,000,000 ($3,719,444 outstanding at December 31, 1994).
At December 31, 1994 and 1993, borrowings outstanding under the revolving line
of credit and the equipment line amounted to $1,595,367 and $1,874,565,
respectively. The unused portion of the line of credit was approximately
$4,730,965 as of December 31, 1994 (based on a borrowing base determined by the
formula).
To secure all obligations of the Company under the Agreement, the bank has a
first priority security interest in the Company's accounts receivable,
inventories, equipment, real estate and other assets. The Agreement requires,
among other things, minimum levels of net income, no material adverse changes in
the financial condition of the company and the maintenance of certain financial
ratios including debt to net worth, interest coverage, current and debt service
ratios. The Agreement also prohibits payment of dividends, issuance, redemption
or sale of common stock, and creation of certain other encumbrances and
contingent liabilities without the consent of the bank and limits the amount of
annual capital expenditures. The Company was in compliance with all loan
covenants, as amended, at December 31, 1994.
16
<PAGE>
Aggregate annual maturities of long-term debt for the five year period
subsequent to December 31, 1994 are as follows: 1995--$245,383; 1996--$258,062;
1997--$273,347; 1998--$3,253,763; and 1999--$38,889.
NOTE D -- PENSION PLAN
The Company maintains a noncontributory defined benefit pension plan covering
substantially all employees meeting certain minimum age and service
requirements. The benefits are generally based on years of service and
employees' compensation during the last five years of employment. The Company's
policy is to contribute annually the amount necessary to satisfy the
requirements of the Employee Retirement Income Security Act of 1974.
In March 1993, the Board of Directors approved a curtailment to the plan which
resulted in the freezing of all future benefits under the plan as of April 1,
1993. As a result, the Company recognized a gain of $361,929 in 1993.
The following table sets forth the plan's funded status and amounts recognized
in the Company's financial statements:
<TABLE>
<CAPTION>
December 31
------------------------
1994 1993
--------- ----------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$4,042,220 and $4,100,858
in 1994 and 1993, respectively... $4,210,450 $4,307,881
---------- ----------
Projected benefit obligation....... 4,210,450 4,307,881
Plan assets at fair value.......... 4,153,134 4,177,428
---------- ----------
Projected benefit obligation in
excess of plan assets............. (57,316) (130,453)
---------- ----------
Accrued pension cost included
in accrued employee compensation.. $ (57,316) $ (130,453)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------
1994 1993 1992
---------- --------- ---------
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost-benefits earned
during the period.................. $ -- $ 103,606 $ 188,216
Interest cost on projected
benefit obligation................. 317,914 352,159 360,956
Actual return on plan assets..... 8,683 (367,950) (287,246)
Net amortization and deferral.... (300,633) 331,764 78,141
---------- ---------- ---------
Curtailment gain................. -- (361,929) --
---------- ---------- ---------
$ 25,954 $ 57,650 $ 340,067
========== ========== =========
</TABLE>
17
<PAGE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.5%. The expected long-term rate
of return on plan assets was 7%.
In accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 87, "Employers' Accounting for Pensions," the Company recorded an
additional liability with a corresponding reduction in stockholders' equity of
$132,598 relating to the change in the discount rate from 8.0% to 7.5%
subsequent to the curtailment of the plan.
In July 1991, the Company established a 401(k) defined contribution plan. The
Company matches 10% of employee contributions up to 4% of compensation.
Employer contributions and expense related to this plan were $10,508, $17,891,
and $17,309 in 1994, 1993 and 1992, respectively.
NOTE E -- EMPLOYEE STOCK OWNERSHIP PLAN
Effective May 4, 1989, the Company established the Edac Technologies Corporation
Employee Stock Ownership Plan (the ESOP). Employees of the Company are eligible
to participate in the ESOP beginning six months following their hire date. The
Company's contributions to the ESOP are determined annually by the Board of
Directors. The Company records the expense in the amount of contributions made
to the ESOP. The Company contributed $104,500, $105,000, and $111,000, to the
ESOP for the years ended December 31, 1994, 1993 and 1992, respectively.
At December 31, 1994, the ESOP owned 973,802 shares of the Company's Common
Stock. These shares were purchased using the proceeds of a $700,000 note payable
to a bank for which repayment has been guaranteed by the Company. Interest
expense incurred on the debt was $26,357, $26,772. and $32,679, for the years
ended December 31, 1994, 1993 and 1992, respectively.
In the accompanying financial statements, the outstanding debt of the ESOP has
been included in the Company's long-term debt, and shareholders' equity has been
decreased by a corresponding amount. As the principal amount of the loan is
repaid, the liability and the amount offset against shareholders' equity will be
reduced in equal amounts.
NOTE F -- INCOME TAXES
Effective January 1, 1992, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using
the enacted marginal tax rate. Deferred income tax expenses or benefits are
based on the changes in the deferred tax assets and liabilities from period to
period. Because of the Company's net operating loss carryforward position, there
was no cumulative effect of adopting this change as of January 1, 1992.
Income tax expense (benefit) are included in the financial statements as follows
(in 000's):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Current $ 114 $ 526 $ 622
Deferred (114) ( 82) 235
----- ----- -----
$ - $ 444 $ 857
===== ===== =====
</TABLE>
18
<PAGE>
The effective tax rate on income before income taxes is different from the
prevailing Federal and state income tax rate as follows (in 000's):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Income before income taxes $ 72 $1,185 $2,333
----- ------ ------
Income tax at Federal statutory rate $ 24 $ 403 $ 793
State income taxes-net of Federal benefit 5 90 208
Meals, Entertainment and Other 41 21 72
Change in valuation allowance on
deferred income tax assets due to
realization of net operating loss
carryforwards subject to limitations (70) (70) (216)
----- ------ ------
$ - $ 444 $ 857
===== ====== ======
</TABLE>
The tax effect of temporary differences giving rise to the Company's deferred
tax asset and liability at December 31, 1994 and 1993 are as follows (in 000's):
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 959 $1,113
Capital leases 58 58
Other 90 25
------ ------
1,107 1,196
====== ======
Deferred tax assets:
Allowance for uncollectible
accounts receivable 17 17
Employee compensation and amounts withheld 125 208
Accrued expenses 55 125
Unicap and inventory reserves 466 272
Tax effect of net operating loss carryforwards 464 517
Alternative minimum tax credit carryforwards 268 283
Capital loss carryforwards -- 541
Other 5 14
Valuation allowance (332) (934)
------ ------
1,068 1,043
------ ------
Net deferred tax liability $ 39 $ 153
====== ======
Reflected in balance sheet as:
Net current deferred tax asset $ 671 $ 472
Net long term deferred tax liability 710 625
------ ------
$ 39 $ 153
====== ======
</TABLE>
Due to the change in ownership during 1989 (see Note A), provisions of the
Internal Revenue Code restrict the utilization of net operating loss
carryforwards (NOLs) attributed to the period prior to the change in ownership.
As of December 31, 1994, the Company has pre-change NOLs of approximately
$1,521,000 available to offset future federal taxable income of which the
company is limited to annual utilization of approximately $181,000. These NOLs
expire in the year 2003. The Company has alternative minimum tax credits of
approximately $268,000 which carry forward indefinitely for Federal income tax
purposes. These credits can be used in the future to the extent that the
Company's regular tax liability exceeds amounts calculated under the alternative
minimum tax method.
19
<PAGE>
NOTE G -- COMMITMENTS AND CONTINGENCIES
Lease expense under operating leases was $16,710, $7,917 and $30,250, for the
years ended December 31, 1994, 1993 and 1992, respectively. Minimum rental
commitments as of December 31, 1994 for noncancelable operating leases with
initial or remaining terms of one year or more are as follows: 1995--$38,000;
1996--$38,000; 1997--$1,750.
The Company is committed to expend $690,000 on equipment in 1995. After a down
payment of $103,000, minimum quarterly payments of $12,500 will be made
commencing four months after delivery of the machine. Any unpaid balance will
be due on March 24, 1998.
NOTE H -- BUSINESS SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company and its subsidiaries design and manufacture tools, fixtures, special
machines, jet engine components, medical instrument components and spindles.
Although the Company and its subsidiaries offer both design and manufacturing
services to the aerospace and medical instruments industries, the design and
manufacturing are interrelated and have essentially the same capabilities and,
in the opinion of management, the Company operates in one business segment.
For the year ended December 31, 1994, sales to United Technologies Corporation
amounted to 69% of consolidated sales. For the year ended December 31, 1993,
sales to United Technologies Corporation and United States Surgical Corporation
amounted to 55% and 21%, respectively, of consolidated sales. For the year
ended December 31, 1992, sales to United Technologies Corporation and United
States Surgical Corporation amounted to 48% and 35%, respectively, of
consolidated sales. These customers operate in the aerospace and medical
instruments fields, respectively.
At December 31, 1994, the Company had $676,185 of trade receivables due from
United Technologies Corporation.
20
<PAGE>
OFFICERS
Robert T. Whitty Chief Executive Officer
Francis W. Moskey President and Chief Operating Officer
Gerald C. Smith Executive Vice President
Glenn L. Purple Vice President-Finance and Secretary
BOARD OF DIRECTORS
John Di Francesco Retired General Motors Plant Manager
William J. Gallagher President, William J. Gallagher Company
Robert P. Luzzi Chairman, Consultant
Francis W. Moskey President, Chief Operating Officer
Gerald C. Smith Executive Vice President
Stephen G.W. Walk Business Consultant
CORPORATE OFFICES
1790 New Britain Avenue
Farmington, CT 06032
GENERAL COUNSEL
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c.
1000 North Water Street
Milwaukee, WI 53202
CORPORATE AUDITORS
Arthur Andersen LLP
One Financial Plaza
Hartford, CT 06103
TRANSFER AGENT
Firstar Trust Company
615 East Michigan Street
Milwaukee, WI 53202
10-K INFORMATION
Shareowners may obtain a copy of the 1994 Edac Technologies 10-K report filed
with the Securities and Exchange Commission by writing to: Glenn Purple,
Secretary, Edac Technologies Corporation, 1790 New Britain Avenue, Farmington,
CT 06032.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 86,260
<SECURITIES> 0
<RECEIVABLES> 1,487,150
<ALLOWANCES> 40,000
<INVENTORY> 9,823,649
<CURRENT-ASSETS> 12,170,376
<PP&E> 10,076,780
<DEPRECIATION> 6,306,302
<TOTAL-ASSETS> 16,325,800
<CURRENT-LIABILITIES> 5,323,052
<BONDS> 3,824,061
<COMMON> 8,989
0
0
<OTHER-SE> 6,162,858
<TOTAL-LIABILITY-AND-EQUITY> 16,325,800
<SALES> 20,052,882
<TOTAL-REVENUES> 22,238,850
<CGS> 19,114,373
<TOTAL-COSTS> 19,114,373
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,050
<INTEREST-EXPENSE> 433,173
<INCOME-PRETAX> 71,515
<INCOME-TAX> 0
<INCOME-CONTINUING> 71,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,515
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
