<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period 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 organization) Identification No.)
1806 New Britain Avenue, Farmington, CT 06032
---------------------------------------------
(Address of principal executive offices)
(860) 677-2603
--------------
(Registrant's telephone number, including area code)
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 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
--- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
On November 11, 1999 there were outstanding 4,269,080 shares of the
Registrant's Common Stock, $0.0025 par value per share.
<PAGE> 2
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 2 January 2
1999 1999
(Unaudited) (Note)
------------ ------------
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 124,994 $ 229,480
Trade accounts receivable 5,138,344 6,745,433
Inventories 7,054,632 12,418,181
Prepaid expenses and other 531,090 321,730
Refundable income taxes 504,000 -
Deferred income taxes 1,166,469 1,166,469
------------ ------------
TOTAL CURRENT ASSETS 14,519,529 20,881,293
PROPERTY, PLANT, AND EQUIPMENT 28,124,979 27,822,375
less-accumulated depreciation 10,286,095 8,630,371
------------ ----------
17,838,884 19,192,004
OTHER ASSETS:
Goodwill 11,021,084 11,234,420
Other 1,457,769 1,300,146
------------ ----------
$ 44,837,266 $ 52,607,863
============ ============
</TABLE>
Note: The balance sheet at January 2, 1999 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 2 January 2
1999 1999
(Unaudited) (Note)
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving line of credit $ 4,727,204 $ 7,512,407
Current portion of long-term debt
and long-term debt in default 25,361,719 4,759,750
Trade accounts payable 2,304,099 3,623,598
Employee compensation and
amounts withheld 1,889,041 2,134,176
Accrued expenses 1,691,181 2,215,100
------------- ------------
TOTAL CURRENT LIABILITIES 35,973,244 20,245,031
LONG-TERM DEBT not in default,
less current portion - 21,606,043
OTHER LIABILITIES 500,132 6,000
DEFERRED INCOME TAXES 1,168,000 1,168,000
SHAREHOLDERS' EQUITY:
Common stock, par value $.0025 per
share; 10,000,000 shares authorized;
issued and outstanding--4,269,080
on October 2, 1999 and 4,261,580
on January 2, 1999 10,673 10,654
Additional paid-in-capital 9,108,492 9,033,162
(Accumulated deficit)retained earnings (1,520,075) 981,062
------------- ------------
7,599,090 10,024,878
Less deferred ESOP compensation
expense - (38,889)
Less accumulated other
comprehensive loss (403,200) (403,200)
------------- ------------
7,195,890 9,582,789
$ 44,837,266 $ 52,607,863
============= ============
</TABLE>
Note: The balance sheet at January 2, 1999 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
--------------------- -----------------
October 2 October 3 October 2 October 3
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $12,243,219 $14,163,423 $42,358,636 $37,495,437
Cost of sales 10,472,232 11,709,987 38,383,787 30,360,166
----------- ----------- ----------- -----------
Gross profit 1,770,987 2,453,436 3,974,849 7,135,271
Selling, general and
and administrative
expenses 1,186,716 1,365,635 3,891,810 3,628,077
Impairment of long-lived
assets and severance
expense (Note C & D) 1,215,000 - 1,215,000 -
---------- ----------- ----------- -----------
INCOME (LOSS)
FROM OPERATIONS (630,729) 1,087,801 (1,131,961) 3,507,194
Non-operating income
(expense):
Interest expense (648,510) (686,451) (1,923,384) (1,190,802)
Other (17,232) 20,275 14,208 48,888
---------- ----------- ----------- -----------
(665,742) (666,176) (1,909,176) (1,141,914)
INCOME (LOSS) BEFORE
INCOME TAXES (1,296,471) 421,625 (3,041,137) 2,365,280
Provision (benefit) for
income taxes (179,000) 142,000 (540,000) 763,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,117,471) $ 279,625 $(2,501,137) $ 1,602,280
=========== =========== =========== ===========
Basic earnings (loss)
per common
share (Note A) $ (0.26) $ 0.07 $ (0.59) $ 0.38
========== =========== ============ ===========
Diluted earnings (loss)
per common
share (Note A) $ (0.26) $ 0.06 $ (0.59) $ 0.36
========== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
EDAC TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------
October 2 October 3
1999 1998
----------- -----------
<S> <C> <C>
Operating Activities:
Net income (loss) $(2,501,137) $ 1,602,280
Depreciation and amortization 2,065,151 1,156,288
Changes in working capital items 4,168,725 (540,486)
Impairment of long-lived assets 400,000 -
Other 299,537 (32,951)
----------- -----------
Net cash provided by
operating activities 4,432,276 2,185,131
----------- -----------
Investing Activities:
Additions to property, plant
and equipment (792,649) (5,904,267)
Proceeds from sales of property
plant and equipment 34,825 58,358
Acquisition of
Apex Machine Tool Company, Inc. - (20,511,048)
Other - 122,872
----------- -----------
Net cash used in investing
activities (757,824) (26,234,085)
----------- -----------
Financing Activities:
(Decrease) increase in revolving
line of credit, net (2,785,203) 4,131,169
Issuance of long term debt 457,283 20,916,954
Payment of long term debt (1,461,357) (1,174,206)
Proceeds from exercise of options
for common stock 10,339 61,404
----------- -----------
Net cash used in
financing activities (3,778,938) (23,935,321)
----------- -----------
Decrease in cash (104,486) (113,633)
Cash at the beginning of year 229,480 137,620
----------- -----------
Cash at end of period $ 124,994 $ 23,987
=========== ===========
Supplemental Disclosure of
Cash Flow Information:
Interest paid $ 2,086,804 $ 1,274,377
Income taxes paid $ 570,262 $ 5,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
EDAC TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 2, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments to previously established loss
provisions) considered necessary for a fair presentation have been included.
Operating results for the nine month period ending October 2, 1999 are not
necessarily indicative of the results that may be expected for the year ending
January 1, 2000. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended January 2, 1999.
On June 29, 1998, the Company consummated its acquisition of certain assets and
liabilities of Apex Machine Tool Company, Inc. (Apex). The following is the
unaudited pro forma consolidated financial information for the nine months ended
October 2, 1998 assuming the acquisition of Apex had been consummated at the
beginning of the period:
<TABLE>
<CAPTION>
Nine Months Ended
October 2,
1998
----
<S> <C>
Sales $48,594,264
Net income 2,145,997
Average shares (basic) 4,239,447
Basic income per share $0.51
Average shares diluted 4,505,544
Diluted income per share $0.48
</TABLE>
The unaudited information set forth above includes proforma adjustments related
to the amortization of intangible assets, interest expense, certain operating
expenses and income taxes necessary to present the information assuming the
acquisition been consummated as of January 1, 1998.
Comprehensive Income (Loss): Comprehensive income (loss)is the same as net
income (loss) for the quarters and nine month periods ended October 2, 1999 and
October 3, 1998.
<PAGE> 7
Earnings (Loss) Per Share: The number of shares used in the earnings (loss) per
common share computation for the three and nine month periods ended October 2,
1999 and October 3, 1998 are as follows:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
---------- ---------- ---------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic:
Average common
shares outstanding 4,269,080 4,261,580 4,268,247 4,239,447
Diluted:
Dilutive effect of (a) (a)
stock options - 229,569 - 266,097
---------- ---------- --------- ---------
Average shares diluted 4,269,080 4,491,149 4,268,247 4,505,544
========== ========== ========= =========
</TABLE>
(a) For the quarter and nine months ended October 2, 1999, 494,158 of stock
options were not included above since the effect is anti-dilutive.
NOTE B -- SEGMENT INFORMATION
The following amounts are in thousands:
<TABLE>
<CAPTION>
For the quarter ended October 2, 1999
--------------------------------------------------------------------
Engineered Precision Precision Apex
Precision Engineered Large Machine
Components Technologies Machining Tool Co. Total
---------- ------------ --------- -------- -----
<S> <C> <C> <C> <C> <C>
Sales from
external
customers $3,331 $3,332 $1,368 $4,212 $12,243
Intersegment -- 10 -- 363 373
----- -- ----- ----- ------
Total sales 3,331 3,342 1,368 4,575 12,616
----- ----- ----- ----- ------
Segment
profit (loss) (550) (229) (185) (153) (1,117)
<CAPTION>
For the nine months ended October 2, 1999
--------------------------------------------------------------------
Engineered Precision Precision Apex
Precision Engineered Large Machine
Components Technologies Machining Tool Co. Total
---------- ------------ --------- -------- -----
<S> <C> <C> <C> <C> <C>
Sales from
external
customers $12,564 $9,915 $5,988 $13,892 $42,359
Intersegment -- 10 -- 451 461
------ -- ----- ----- ------
Total sales 12,564 9,925 5,988 14,343 42,820
------ ----- ----- ------ ------
Segment
profit (loss) (2,057) (1) (171) (272) (2,501)
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
For the quarter ended October 3, 1998
--------------------------------------------------------------------
Engineered Precision Precision Apex
Precision Engineered Large Machine
Components Technologies Machining Tool Co(a) Total
---------- ------------ --------- ---------- -----
<S> <C> <C> <C> <C> <C>
Sales from
external
customers $4,146 $2,659 $2,968 $4,390 $14,163
Intersegment -- 4 -- 69 73
----- ----- ----- ----- ------
Total sales 4,146 2,663 2,968 4,459 14,236
----- ----- ----- ----- ------
Segment
profit (loss) (40) (58) 320 58 280
<CAPTION>
For the nine months ended October 3, 1998
--------------------------------------------------------------------
Engineered Precision Precision Apex
Precision Engineered Large Machine
Components Technologies Machining Tool Co. Total
---------- ------------ --------- ---------- -----
<S> <C> <C> <C> <C> <C>
Sales from
external
customers 14,457 $9,889 $8,759 $4,390 $37,495
Intersegment -- 4 -- 69 73
------ ----- ----- ----- ------
Total sales 14,457 9,893 8,759 4,459 37,568
Segment
profit (loss) 267 282 995 58 1,602
</TABLE>
Asset information is unavailable by segment.
(a) Three months of operations since acquisition.
NOTE C - SEVERANCE
On August 17, 1999, the Company's President and Chief Executive Officer since
January 1, 1997, resigned. The Chairman of the Company has assumed the position
of interim CEO and President while the Board of Directors conducts a search for
a successor. The Company will pay the former President and CEO a severance of
$710,000. This amount will be payable over three years, $225,000 each year for
the first two years and $260,000 in the third year. The Company will also
provide the former President and CEO with health insurance coverage until he
obtains other coverage or until July 1, 2000 whichever is earlier and an
automobile until the end of the lease term in March 2000. These severance costs
resulted in a charge to third quarter 1999 earnings of $750,000.
Additionally, the expiration date for exercising stock options previously
granted to the former President and CEO was extended to September 15, 2001. This
resulted in a third quarter charge to earnings and an addition to shareholders'
equity of $65,000.
<PAGE> 9
NOTE D - IMPAIRMENT OF LONG-LIVED ASSETS
During the third quarter of 1999, the Company determined certain equipment would
no longer be utilized. The Company is holding the equipment for sale and has
written the equipment down to the estimated net realizable value resulting in a
charge to earnings of $400,000 for the quarter ended October 2, 1999.
NOTE E - REFUNDABLE INCOME TAXES
As a result of the pre-tax loss of $1,296,471 and $3,041,137 for the quarter and
nine months ended October 2, 1999, respectively, the Company has recorded
refundable income taxes of $504,000 as of October 2, 1999. The Company paid
these taxes in 1998 and 1999 and anticipates receipt of the refundable taxes in
2000.
NOTE F - NOTE RECEIVABLE
On June 30, 1999, the Company entered into an agreement with Zapata Technologies
Corporation, for the sale of all inventories previously manufactured by the
Company for Zapata for proceeds of $700,000. This amount is to be paid in
accordance with promissory notes in the amount of $643,600 and $56,400. The
notes call for monthly payments of principal and interest of $29,108 commencing
October 1, 1999 through September 1, 2001 and $2,551 commencing October 1, 2001
through September 1, 2003. The notes bear interest at the rate of 8% per annum.
NOTE G - DEBT/FORBEARANCE
On October 2, 1999, the Company was in continuing default under its existing
loan agreement with its bank as a result of the breach of its financial
covenants. As a result the Company has reclassified $19,282,708 to current
liabilities from long-term liabilities.
On October 29, 1999, the Company entered into a forbearance agreement with its
bank. This agreement modifies the existing loan to the bank extending bank
relations until December 31, 1999. The Company had aggregate borrowings with the
bank at October 2, 1999 of $26,526,207. On September 1, 1999, the bank began
charging an additional 1 1/4% default rate of interest and will charge a $77,500
success fee payable on the earlier of June 30, 2000 or demand by the bank. If
the Company meets all the terms and conditions of this agreement, the bank will
consider entering into a second forbearance agreement that will cover the period
until the Company's independent public accountants issue their audit report on
1999. At that time the Company's bank will consider entering into a long-term
bank agreement with the Company.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SALES: The Company's sales decreased $1,920,000 or 13.6% for the three months
and increased $4,863,000 or 13.0% for the nine months ended October 2, 1999 from
the comparable periods of 1998. The sales increase for the nine month period was
primarily due to the acquisition on June 29, 1998 of Apex Machine Tool Company
which contributed sales of $13,892,000 for the nine months ended October 2,
1999. Sales increases (decreases) were $(815,000), $673,000 and $(1,600,000) and
$(1,893,000), $26,000 and $(2,771,000) in the Engineered Precision Components,
Precision Engineered Technologies and Precision Large Machining areas for the
quarter and nine months ended October 2, 1999, respectively, compared to the
prior year periods. Sales for 1999 in the Engineered Precision Components and
Large Machining areas are expected to be 40% to 60% less than 1998 levels due to
the unstable aerospace market. In the third quarter of 1999 the Company hired a
new sales, representative agency. This agency will focus on the Precision
Engineered Components and Large Turning areas. The Company also reorganized its
internal sales department to better focus on existing and new sales
opportunities. Starting in the third quarter of 1999, the Company has
experienced an increase in orders from most of its divisions resulting in a
significant rise in its backlog.
COST OF SALES: Cost of sales as a percentage of sales increased in the 1999
periods to 85.5% from 82.7% and to 90.6% from 81.0% for the three and nine
months ended October 2, 1999 compared to 1998. Cost of sales as a percentage of
sales increased primarily due to fixed manufacturing costs being spread over
lower sales levels. In addition, the decline in both the commercial and military
jet engine marketplace has caused severe schedule shifting, delays of orders,
cancellations of orders and smaller production quantities all of which impacted
productivity and gross profit margins in the Engineered Precision Components and
Large Machining areas. Due to these factors, the Company increased its reserves
on inventory by $1,200,000 in the second quarter of 1999.
To address these issues, the Company has taken steps to reduce costs. Precision
Engineered Technologies operations have been combined with Apex operations. This
change will allow the Company to combine the talents of two tooling and design
groups and have them operate as one. This change resulted in a lay off of 22
employees in the Precision Engineered Technologies area and Apex Machine Tool
Company in August, 1999. No severance was paid to the employees laid off.
In addition, the Company laid off 33 employees in Precision Engineered Component
and Precision Large Machining. No severance was paid to the employees laid off.
While these lay offs were necessary, the Company believes that they do not
materially affect the company's ability to develop new business opportunities or
produce a competitively priced, quality product in a timely manner.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses decreased by $179,000 or 13.1% and increased $264,000 or 7.3% for the
three and nine months, respectively, ended October 2, 1999 compared to 1998.
This increase for the nine months ended October 2, 1999 is due to an additional
$1,084,000 attributable to the acquisition of Apex, partially offset by
reductions in compensation and professional expenses.
INTEREST: Interest expense decreased and increased by $38,000 and by $733,000
for the three and nine months, respectively, ended October 2, 1999 compared to
1998. This increase for the nine months ended October 2, 1999 is due to
additional debt incurred for the Apex acquisition. Beginning on September 1,
1999, the Company's bank began charging an additional 1 1/4 percent default rate
of interest.
LIQUIDITY AND CAPITAL RESOURCES: As of October 2, 1999, the Company's current
liabilities exceeded current assets by $21,453,715. This is due primarily to the
reclassification of $19,282,708 to current
<PAGE> 11
liabilities from long-term liabilities as a result of the continuing breach of
the financial covenants and due to an increase in inventory reserves in the 2nd
quarter of 1999 of $1,200,000. The Company's working capital deficit of
$21,453,715 on October 2, 1999 represents a decrease of $22,089,977 from the
$636,262 of working capital the Company had on January 2, 1999.
On October 29, 1999, the Company entered into a forbearance agreement with its
bank. This agreement modifies the existing loans to the bank extending bank
relations until December 31, 1999. The Company had aggregate borrowings with the
bank at October 2, 1999 of $26,526,207. On September 1, 1999, the bank began
charging an additional 1 1/4% default rate of interest and will charge a $77,500
success fee payable on the earlier of June 30, 2000 or demand by the bank. If
the Company meets all the terms and conditions of this agreement, the bank will
consider entering into a second forbearance agreement that will cover the period
until the Company's independent public accountants issue their audit report on
1999. At that time the Company's bank will consider entering into a long-term
bank agreement with the Company. As long as the bank does not require immediate
repayment of the indebtedness, management believes that funds generated from
operations and its existing credit facility will be sufficient to meet the
Company's cash requirements for 1999.
The Company is in the process of renegotiating its note payable of $2,710,688 to
former shareholders of Apex Machine Tool Company, Inc. currently due on January
1, 2000. The Company expects this note to be paid in equal monthly installments
of $18,000 with the remaining balance due on December 31, 2001.
The Company has been advised by its independent public accountants that, if the
indebtedness does not meet the requirements to be classified as long-term prior
to the issuance of their audit report on the Company's consolidated financial
statements for the year ending January 1, 2000, their auditors' report on those
consolidated financial statements will include an explanatory paragraph
indicating the existence of substantial doubt as to the Company's ability to
continue as a going concern subject to the ultimate resolution of the repayment
requirements under the Company's bank debt. If the bank ultimately requires
repayment of the indebtedness, the Company will need to find alternative
financing and there can be no assurance that alternative financing would be
available on terms acceptable to the Company, if at all.
Other Matters
The "Year 2000" ("Y2K") issue affects computer and information technology ("IT")
systems, as well as non-IT systems which include embedded technology such as
micro-processors and micro-controllers (or micro-chips) that have date sensitive
programs that do not properly recognize the year 2000. Systems that do not
properly recognize such information could generate inaccurate data or cause a
system to fail, resulting in a business interruption.
The Company has completed a comprehensive inventory and assessment of its
existing IT and non-IT systems and those of the Company's suppliers. This
assessment included obtaining written assurances from key vendors and suppliers
if possible. Costs incurred to date have not exceeded $150,000.
The Company believes that it's reasonably likely worse case scenario would be to
revert to manual order processing for orders currently processed through EDI
systems and the Company's internal order processing systems. The Company will
continue to monitor the Y2K compliance of its customers and vendors. A number of
risks relating to the Y2K issue may be out of the Company's control, including
reliance on outside links for essential services such as communications and
power. There can be no assurance that a failure of systems of third parties on
which the Company's systems and operations will rely to be Y2K compliant, will
not have a material adverse effect on the Company's business, financial
condition or operating results.
The Company's contingency plan calls for the information systems department to
be staffed over the January 1, 2000 weekend and the Company expects to make
personnel available to handle issues that may arise. To the
<PAGE> 12
extent that unanticipated compliance issues arise with respect to the Company's
internal systems, the Company believes that it will be able to implement
alternative IT systems or manual systems.
Although the Company has taken steps to address the Y2K problem, there can be no
assurance that the failure of the Company and /or its material third parties to
timely attain Y2K compliance or that the failures and/or impacts of broader
compliance failures by telephone, mail, data transfer or other utility or
general service providers of government or private entities will not have a
material adverse effect on the Company.
All statements other than historical statements contained in this report on Form
10-Q constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limitation, these forward
looking statements include statements regarding the Company's business strategy
and plans, statements about the adequacy of the Company's working capital and
other financial resources, statements about the Company's Year 2000 compliance
and other statements herein that are not of a historical nature. These
forward-looking statements rely on a number of assumptions concerning future
events and are subject to a number of uncertainties and other factors, many of
which are outside of the Company's control, that could cause actual results to
differ materially from such statements. These include, but are not limited to
the Company's ability to restructure its loan agreement with its senior lender
so as to eliminate the current default or, if the senior lender ultimately
requires the Company to repay the indebtedness, the Company's ability to obtain
alternative senior financing on reasonable terms; factors which could affect
demand for the Company's products and services such as general economic
conditions and economic conditions in the aerospace industry and the other
industries in which the Company competes; competition from the Company's
competitors; the integration of the Company's Apex operations; the ability of
the Company's customers and suppliers to adequately address their Year 2000
issues; and the Company's continued ability to attract and retain qualified
employees. The Company disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 3. On October 2, 1999, the Company was in continuing default under its
existing loan agreement with its bank as a result of the breach of its financial
covenants. On October 29, 1999, the Company entered into a forbearance agreement
with its bank. This agreement modifies the existing loan to the bank extending
bank relations until December 31, 1999. The Company had aggregate borrowings
with the bank at October 2, 1999 of $26,526,207. On September 1, 1999 the bank
began charging an additional 1 1/4% default rate of interest and will charge a
$77,500 success fee payable on the earlier of June 30, 2000 or demand by the
bank. If the Company meets all the terms and conditions of this agreement, the
bank will consider entering into a second forbearance agreement that will cover
the period until the Company's independent public accountants issue their audit
report on 1999. At that time the Company's bank will consider entering into a
long-term bank agreement with the Company. As long as the bank does not require
immediate repayment of the indebtedness, management believes that funds
generated from operations and its credit facilities will be sufficient to meet
the Company's cash requirements for 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Edac's Amended and Restated Articles of Incorporation
3.2 Edac's By-laws
10.1 Forbearance Agreement dated as of October 29, 1999 by and between Edac
Technologies Corporation and Fleet National Bank
10.2 Third Amended and Restated Revolving Promissory Note dated as of
October 29, 1999 by and between Edac Technologies Corporation and
Fleet National Bank
10.3 Termination and Release Agreement dated October 22, 1999 by and
between Edac Technologies Corporation and Edward J. McNerney.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDAC TECHNOLOGIES CORPORATION
November 12, 1999 By /s/ Ronald G. Popolizio
-----------------------------------------
Ronald G. Popolizio, Chief Financial
Officer and duly authorized officer
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number
in Sequential
NUMBER DESCRIPTION Numbering System
- ------ ----------- ----------------
<S> <C> <C>
3.1 Edac's Amended and Restated Articles of (1)
Incorporation
3.2 Edac By-laws (2)
10.1 Forbearance Agreement dated as of October 29, 1999 by and between Edac
Technologies Corporation and Fleet National Bank
10.2 Third Amended and Restated Revolving Promissory Note dated as of
October 29, 1999 by and between Edac Technologies Corporation and
Fleet National Bank
10.3 Termination and Release Agreement dated October 22, 1999 by and
between Edac Technologies Corporation and Edward J. McNerney.
27 Financial Data Schedule
</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, Amendment
No.1.
(2) Exhibit incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
<PAGE> 1
FORBEARANCE AGREEMENT
This FORBEARANCE AGREEMENT (the "Agreement") dated as of October 29,
1999 by and among FLEET NATIONAL BANK F/K/A FLEET NATIONAL BANK OF CONNECTICUT
F/K/A SHAWMUT BANK CONNECTICUT, N.A., a national banking association with a
place of business at 777 Main Street, Hartford, Connecticut 06115 ("LENDER"),
EDAC TECHNOLOGIES CORPORATION, a Wisconsin corporation with a principal place of
business at 1806 New Britain Avenue, Farmington, Connecticut 06032 ("BORROWER"),
APEX MACHINE TOOL COMPANY, INC., a Connecticut corporation with a mailing
address c/o Borrower at 1806 New Britain Avenue, Farmington, Connecticut 06032
("APEX") and GROS-ITE INDUSTRIES, INC., a Connecticut corporation with a mailing
address c/o Borrower at 1806 New Britain Avenue, Farmington, Connecticut 06032
("GROS-ITE" and collectively with Apex, "GUARANTOR").
RECITALS
On October 3, 1985, Lender and Borrower entered into a certain
Revolving Loan and Security Agreement which has been amended and restated in its
entirety by a certain Fifth Amended and Restated Revolving Loan, Term Loan,
Equipment Loan and Security Agreement dated February 28, 1995, as amended by a
certain Sixth Amendment to Revolving Loan, Term Loan, Equipment Loan and
Security Agreement dated July 31, 1995, as further amended by a certain Seventh
Amendment to Revolving Loan, Term Loan, Equipment Loan and Security Agreement
and Reaffirmation of Guaranties dated as of January 26, 1996, as further amended
by a certain Eighth Amendment to Revolving Loan, Term Loan, Equipment Loan and
Security Agreement and Reaffirmation of Guaranties dated as of April 10, 1996,
as further amended by a certain Ninth Amendment to Revolving Loan, Term Loan,
Equipment Loan, Security Agreement, Modification of Notes and Reaffirmation of
Guaranties dated May 27, 1997 between Borrower and Lender, as further amended by
a certain Tenth Amendment to Revolving Loan, Term Loan, Equipment Loan and
Security Agreement and Reaffirmation of Guaranties dated May 22, 1998, as
further amended by a certain Eleventh Amendment to Loan and Security Agreement,
Modification of Notes and Reaffirmation of Guaranties dated as of June 30, 1998
and as further amended by a certain Twelfth Amendment to Loans and Security
Agreement, Modification of Notes and Reaffirmation of Guaranties dated as of
November 25, 1998 (as amended and in effect from time to time, the "LOAN
AGREEMENT").
Pursuant to the Loan Agreement, the Lender has made: (i) a
$13,000,000.00 revolving loan (the "REVOLVING LOAN") as evidenced by a certain
Second Amended and Restated Revolving Promissory Note dated as of June 30, 1998
(the "REVOLVING NOTE"), (ii) a $14,000,000.00 term loan (the "ACQUISITION TERM
LOAN") as evidenced by a certain Term Promissory Note dated June 30, 1998 (the
"ACQUISITION TERM NOTE"), (iii) a $541,153.34 term loan (the "CONSOLIDATED
EQUIPMENT LOAN") as evidenced by a certain Amended and Restated Promissory Note
dated March 27, 1997 (the "CONSOLIDATED EQUIPMENT NOTE"), (iv) a $4,000,000.00
term loan (the "TERM LOAN") as evidenced by a certain Term Promissory Note dated
March 22, 1993 (the "TERM NOTE"), (v) a
<PAGE> 2
$1,000,000.00 construction to permanent loan (the "CONSTRUCTION LOAN") as
evidenced by a certain Construction to Permanent Loan Promissory Note dated July
31, 1995 (the "CONSTRUCTION NOTE"), (vi) a $3,000,000.00 equipment loan (the
"THIRD EQUIPMENT LOAN") as evidenced by a certain Equipment Promissory Note III
dated as of March 27, 1997 (the "THIRD EQUIPMENT NOTE") and (vii) a $3,000,000
equipment loan (the "FOURTH EQUIPMENT LOAN") as evidenced by a certain Equipment
Promissory Note IV dated as of May 22, 1998 (the "FOURTH EQUIPMENT NOTE" and
collectively with the Revolving Note, Acquisition Term Note, Consolidation
Equipment Note, Term Note, Construction Note and Third Equipment Note, the
"NOTES").
Each Guarantor has guaranteed the obligations of Borrower under the
Loan Agreement and Notes, pursuant to their respective Guaranties (collectively,
"GUARANTY").
The Borrower acknowledges that it is unconditionally indebted to Lender
with respect to its respective debts more particularly described on Exhibit A
attached hereto (the "INDEBTEDNESS"), plus interest accrued and accruing thereon
and costs and expenses of collection, including without limitation, reasonable
attorneys' fees. Additionally, the Borrower acknowledges that it has no defense,
offset or counterclaim to its obligations in respect of the Indebtedness and
further that it has no other claim whatsoever against Lender (whether arising in
contract, tort or otherwise) with respect to, or arising out of, the
Indebtedness. The outstanding principal amount of the Indebtedness as of
September 30, 1999 is $27,008,204.17.
Hereinafter, this Agreement, the Loan Agreement, the Notes, the
Guaranty and all other documents evidencing, relating or securing the
Indebtedness (as defined below) (collectively, the "LOAN DOCUMENTS") all
instruments, documents and agreements executed by the Borrower, Guarantor or any
other party in connection herewith, and all amendments and modifications to any
of the foregoing, including without limitation those contained in paragraph C
hereof, are sometimes collectively referred to hereinafter as the "LOAN AND
FORBEARANCE DOCUMENTS". Capitalized terms used in this Agreement but not
otherwise defined shall have the meanings given to such terms in the Loan
Agreement.
The Borrower and Guarantor acknowledges and affirms that (a) Borrower
is in default in the performance of its obligations under the Loan Agreement,
the Notes and the Loan Documents by virtue of Borrower's past and continuing
failure to comply with the financial covenants set forth in Sections 10 and 13
of Exhibit A of the Loan Agreement, and (b) as a result of the aforesaid
defaults, Lender has the full and unrestricted right to declare all of the
Indebtedness to be immediately due and payable and to commence proceedings for
its collection.
The Borrower and Guarantor have requested, and Lender has agreed,
subject to the terms and conditions set forth herein: (a) to forbear from
acceleration and collection of the Indebtedness until December 31, 1999 (the
"FORBEARANCE TERMINATION DATE") (the period from the date of this Agreement
through and including the Forbearance Termination Date is referred to herein as
the "FORBEARANCE PERIOD"); and (b) to make certain other changes to the terms
and conditions of the Loan Agreement. Lender has agreed to grant the requested
accommodations subject to the express agreements and conditions set forth below
and provided further that: (i) there is no further material
2
<PAGE> 3
adverse change in the business or financial condition of the Borrower or
Guarantor after the date hereof; (ii) there is no material adverse change in the
value, extent or condition of any of the collateral or other property granted to
Lender to secure any or all of the Indebtedness after the date hereof; (iii) the
Borrower and Guarantor shall perform and comply with, as and when required, time
being of the essence in all respects, all of the respective agreements,
covenants and obligations set forth in the Loan and Forbearance Documents; (iv)
except for the defaults described above, no default or event of default
(howsoever defined) under any of the other Loan and Forbearance Documents, shall
occur or exist under any of the Loan and Forbearance Documents, it being further
agreed and understood that from and after the date hereof all cure and grace
periods and/or requirements for prior notice or demand, if any, which are
currently allowed or must be satisfied prior to an event being deemed a default
or event of default (howsoever defined) under any of the Loan and Forbearance
Documents are hereby waived by the Borrower and Guarantor and are of no further
force and effect; (v) no other party takes any action against the Borrower and
Guarantor or against any of the collateral or other property granted to Lender
to secure any or all of the Indebtedness which in Lender's sole judgment will
have a material adverse impact upon Lender's right or ability to repossess,
attach or execute upon any of such collateral or other property; (vi) the
Borrower and Guarantor shall not make any assignment for the benefit of
creditors or similar action or be the subject, voluntarily or involuntarily, of
any bankruptcy, insolvency, reorganization or other similar proceeding; (vii)
the Borrower and Guarantor shall not have misrepresented any material fact to,
or committed any fraud upon, Lender; (viii) all information and documents
delivered by or on behalf of the Borrower and Guarantor to Lender shall be true
and complete in all material respects; and (ix) Borrower and Guarantor shall
have paid all outstanding legal fees and expenses of its counsel incurred in
connection with the Loan Documents ((i), (ii), (iii), (iv), (v), (vi), (vii),
(viii), and (ix) being hereafter referred to individually as a "FORBEARANCE
CONDITION" and collectively as the "FORBEARANCE CONDITIONS").
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree, represent and warrant as follows:
A. If Borrower meets all of the terms and conditions of this
Agreement and the Loan Documents as revised, and no Event of Default shall have
occurred, Lender shall consider entering into a second Forbearance Agreement,
upon terms and conditions satisfactory to Lender in its sole discretion, with
Borrower.
B. The Borrower and each Guarantor (i) represents and warrants to
Lender that: (1) it has the requisite corporate power to enter into this
Agreement and the transactions contemplated herein, and has taken all necessary
corporate action to authorize this Agreement and the transactions contemplated
herein; and (2) the Loan and Forbearance Documents to which it is a party
constitute the legal, valid and binding obligations of the Borrower, enforceable
against it in accordance with their respective terms and (ii) confirms that all
of its representations and warranties contained in the Loan Agreement are true
and correct as of the date hereof, except to the extent that any of the same
relate to a prior specific date or event.
3
<PAGE> 4
C. So long as the Forbearance Conditions are and continue to be
satisfied, Lender agrees (1) to forbear from acceleration and collection of the
Indebtedness during the Forbearance Period, and (2) subject to the terms and
conditions set forth in the Loan Agreement and to the additional conditions set
forth in this Agreement, to continue to make advances under the Revolving Credit
Loan available for borrowing by the Borrower during the Forbearance Period,
EXCEPT that notwithstanding anything to the contrary contained in the Loan
Agreement or any of the other Loan and Forbearance Documents, the Borrower and
Guarantor acknowledge and agree that commencing on the date hereof and
continuing until Lender otherwise agrees in writing: (i) upon (A) the failure of
any of the Forbearance Conditions to be satisfied or to continue to be
satisfied, or (B) the expiration of the Forbearance Period, all Indebtedness and
other sums due from the Borrower and Guarantor to Lender under the Loan and
Forbearance Documents shall automatically and immediately be due and payable
without further notice or demand and Lender shall have the right to exercise,
without further notice or demand, any and all rights and remedies available to
it under the Loan and Forbearance Documents and at law or equity; and (ii)
Lender shall have no obligation to enter into or consider any restructuring of,
or any other accommodation with respect to any of the Indebtedness upon the
failure of any Forbearance Condition to be satisfied or upon the expiration of
the Forbearance Period.
D. The Borrower shall pay monthly in arrears additional interest on
all of the outstanding Indebtedness on the first day of each month to Lender at
a per annum rate equal to one hundred twenty-five (125) basis points. Such
interest shall be charged separately by Lender to Borrower.
E. The Loan Agreement shall be deemed to be amended as follows:
(i) The definition of "Cost of Funds" in Section 1.20 is hereby
deleted and replaced with the following:
"Section 1.20. "COST OF FUNDS" means the per annum rate of
interest which Lender is required to pay, or is offering to
pay, for wholesale liabilities, adjusted for reserve
requirements and such other requirements as may be imposed
by federal, state or local government and regulatory
agencies, as determined by Fleet National Bank's Treasury
Group."
(ii) The definition of "LIBOR Base Rate" in Section 1.29 is
hereby deleted and replaced with the following:
"Section 1.29 "LIBOR BASE RATE" shall mean, as applicable to
any LIBOR Advance, the rate per annum rounded upward, if
necessary, to the nearest 1/32 of one percent) as determined
on the basis of the offered rates for deposits in U.S.
dollars, for a period of time comparable to such LIBOR
Advance which appears on the Telerate page 3750 as of 11:00
a.m. London time on the day that is two London Banking Days
preceding the first of such LIBOR Advance; provided,
however, if the rate described above does not appear on the
Telerate System on any applicable interest determination
date,
4
<PAGE> 5
the LIBOR rate shall be the rate (rounded upwards as
described above, if necessary) for deposits in dollars for a
period substantially equal to the interest period on the
Reuters Page "LIBO" (or such other page as may replace the
LIBO Page on that service for the purpose of displaying such
rates), as of 11:00 a.m. (London Time), on the day that is
two (2) London Banking Days prior to the beg inning of such
interest period. "Banking Day" shall mean, in respect of any
city, any date on which commercial banks are open for
business in that city.
If both the Telerate and Reuters system are
unavailable, then the rate for that date will be determined
on the basis of the offered rates for deposits in U.S.
dollars for a period of time comparable to such LIBOR
Advance which are offered by four major banks in the London
interbank market at approximately 11:00 a.m. London time, on
the day that is two (2) London Banking Days preceding the
first day of such LIBOR Advance as selected by the
calculation agent. The principal London office of each of
the four major London banks will be requested to provide a
quotation of its U.S. dollar deposit offered rate. If at
least two such quotations are provided, the rate for that
date will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for
that date will be determined on the basis of the rates
quoted for loans in U.S. dollars to leading European banks
for a period of time comparable to such LIBOR Advance
offered by major banks in New York City at approximately
11:00 a.m. New York City time, on the day that is two London
Banking Days preceding the first day of such LIBOR Advance.
In the event that Bank is unable to obtain any such
quotation as provided above, it will be deemed that LIBOR
pursuant to a LIBOR Advance cannot be determined.
In the event that the Board of Governors of the Federal
Reserve System shall impose a Reserve Percentage with
respect to LIBOR deposits to Bank then for any period during
which such Reserve Percentage shall apply, LIBOR shall be
equal to the amount determined above divided by an amount
equal to 1 minus the Reserve Percentage."
(iii) The following is hereby inserted after Section 1.40 of the
Loan Agreement:
"Section 1.41 "THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION" shall
mean the convention for adjusting any relevant date if it would
otherwise fall on a day that is not a Business Day. The following
terms, when used in conjunction with the term "Modified Following
Business Day Convention", and a date, shall mean that an adjustment
will be made if that date would otherwise fall on a day that is not a
Business Day so that the date will be the first following day that is a
Business Date. For purposes of the Modified Business Day Convention,
"BUSINESS DAY" means, in respect of any date that is specified in this
agreement to be subject to adjustment in accordance with applicable
Modified Business Day
5
<PAGE> 6
Convention, a day on which commercial banks settle payments in New York
or London if the payment obligation is calculated by reference to any
(i) LIBOR Bate Rate, or (ii) New York, if the payment obligation is
calculated by reference to any Prime Rate or Cost of Funds Rate."
(iv) Amendment to Section 2.1 of the Loan Agreement. The Loan
Agreement is hereby amended by deleting Section 2.1 in its entirety and
substituting the following in lieu thereof:
2.1 Revolving Loan. The Lender may loan to the Borrower, at
is discretion, and the Borrower may borrow from the Lender,
from time to time (each an "ADVANCE" and collectively, 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) SIXTY PERCENT (60%) of the Borrower's Eligible
Inventory, but in any event not to exceed FIVE
MILLION FIVE HUNDRED THOUSAND DOLLARS
($5,500,000.00);
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. TEN MILLION DOLLARS ($10,000,000.00), 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 Amended
and Restated Revolving Promissory Note annexed hereto
and made a part hereof as EXHIBIT "B".
(v) The language "three percent (3%) in Section 2.16, Default
Interest is hereby deleted and replaced with "four percent (4%)".
6
<PAGE> 7
(vi) Section 2.22 of the Loan Agreement is hereby deleted and
replaced with the following:
Section 2.22 Fees. The Borrower shall pay Lender the
following fees: (i) $40,000.00 waiver fee, (ii) a $40,000
servicing charge, (iii) a $30,000 restructuring fee and
(iv) a $10,000 success fee. All fees shall be due and
payable on October 29, 1999 except for the $10,000.00
success fee which shall be payable on the earlier of (a)
June 30, 2000 or (b) on the date the Loans are refinanced
either in whole or in part with borrowed money.
(vii) The following are hereby inserted after Section 2.22 of the
Loan Agreement:
"Section 2.23 Cross-Termination: In the event that the
Revolving Loan terminates while any other Loans and/or the
Construction Loan are outstanding, all of the Loans and the
Construction Loan shall simultaneously terminate and
Borrower shall simultaneously prepay all of the Loans and
the Construction Loan in full together with all accrued but
unpaid interest thereon to the date of such prepayment
together with any applicable prepayment or make-whole
premium."
Section 2.24 Fixed Rate Penalty: If, at any time (i) the
interest rate of the loan is a fixed rate, and (ii) Lender
in its sole discretion should determine that current market
conditions can accommodate a prepayment request, Borrower
shall have the right at any time and from time to time to
prepay any of the Loans in whole (but not in part), and
Borrower shall pay to Lender a yield maintenance fee in an
amount computed as follows: The current rate for United
States Treasury securities (bills on a discounted basis
shall be converted to a bond equivalent) with a maturity
date closest to the maturity date of the Interest Period
chosen pursuant to the Fixed Rate Election as to which the
prepayment is made, shall be subtracted from the "cost of
funds" component of the fixed rate in effect at the time of
prepayment. If the result is zero or a negative number,
there shall be no yield maintenance fee. If the result is a
positive number, then the resulting percentage shall be
multiplied by the amount of the principal balance being
prepaid. The resulting amount shall be divided by 360 and
multiplied by the number of days remaining in the Interest
Rate chosen pursuant to the Fixed Rate Election as to which
the prepayment is made. Said amount shall be reduced to
present value calculated by using the number of days
remaining in the designated Interest Period and using the
above-referenced United States Treasury security rate and
the number of days remaining in the Interest Rate chosen
pursuant to the fixed rate election as to which the
prepayment is made. The resulting amount shall be the yield
maintenance fee due to Lender upon prepayment of the fixed
rate loan. Each reference in this paragraph to "Fixed Rate
Election"
7
<PAGE> 8
shall mean the election by Borrower pursuant to paragraph
2.14 of this Agreement.
If by reason of an event of default Lender elects to
declare any of the Loans to be immediately due and payable,
then any yield maintenance fee with respect to the Loans
shall become due and payable in the same manner as though
Borrower had exercised such right of prepayment."
Section 2.25 Lost/Destroyed Documents: Upon receipt of an
affidavit of an officer of Lender as to the loss, theft,
destruction or mutilation of any Note or any other security
document which is not of public record, and, in the case of
any such loss, theft, destruction or mutilation, upon
surrender and cancellation of such Note or other security
document, Borrower will issue, in lieu thereof, a
replacement Note or other security document in the same
principal amount thereof and otherwise of like tenor.
Section 2.26 Participation: Lender shall have unrestricted
right at any time and from time to time, and without the
consent of or notice to Borrower or Guarantor, to grant to
one or more banks or other financial institutions (each, a
"PARTICIPANT") participating interests in Lender's
obligation to lend hereunder and/or any or all of the loans
held by Lender hereunder. In the event of any such grant by
Lender of a participating interest to a Participant,
whether or not upon notice to Borrower, Lender shall remain
responsible for the performance of its obligations
hereunder and Borrower shall continue to deal solely and
directly with Lender in connection with Lender's rights and
obligations hereunder.
Section 2.27 Late Fee: Notwithstanding any provision in any
of the Notes, if the entire amount of any required payment
of principal and/or interest under any of the Notes is not
paid in full within ten (10) days after the same is due,
Borrower shall pay to the Lender a late fee equal to five
percent (5%) of the required payment."
(viii) Section 4.1.i of the Loan Agreement is deleted and replaced
with the following:
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
8
<PAGE> 9
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, along with a management letter
from such accountant; (2) within twenty-five (25) days
after the end of each calendar month and forty days (40)
days of each calendar quarter, a reasonably detailed
balance sheet and a reasonably detailed profit and loss
statement covering the Borrower's operations for such month
or quarter, as applicable, which financial information may
be internally prepared, and setting forth calculations in
reasonable detail evidencing such compliance along with a
certificate executed and certified as being true, correct
and complete, by the president or chief financial officer
of the Borrower; (3) within thirty (30) days after the end
of each month, a backlog report in form and substance
satisfactory to Lender; (4) within (a) twenty (20) days
after the end of each of the months of January, February,
April, May, July, August, October and November, and (b)
forty (40) days after the end of each of the months of
March, June, September and December, for each of such
months (i) a detailed aging of Receivables, (ii) a detailed
accounts payable aging, and (iii) inventory reports, each
in form and substance satisfactory to Lender; (5) within
three days of each calendar week end, a borrowing base
certificate in form and substance satisfactory to Lender,
and (6) deliver to the Lender any such other information
requested by Lender. Each financial report provided under
subparagraphs (1) and (2) above shall be accompanied by a
certificate signed by an authorized officer of the Borrower
to the effect that such information is complete, correct
and thoroughly presents 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. Any
information provided to Lender shall be complete, correct
and accurate.
(ix) Section 4 of Exhibit "A" of the Loan Agreement is hereby
deleted and replaced with the following:
Lender's Audit Fee. Lender may conduct audits from time to
time of the Borrower in its sole discretion. Borrower
agrees to pay to the Lender all fees, cost and expenses
(including Lender's internal cost and expenses) incurred by
Lender in connection with such audits. So long as no Event
of Default has occurred under this Loan Agreement, the
Lender shall not conduct more than four (4) audits per
calendar year.
(x) Section 13 of Exhibit "A" of the Loan Agreement is hereby
deleted and replaced with the following:
9
<PAGE> 10
13. Intentionally Omitted.
(xi) The following is hereby inserted into Exhibit A of the Loan
Agreement:
21. Operating Profit. Maintain an operating profit
(excluding (a) extraordinary expenses incurred in
connection with the severance of Borrower's former Chief
Executive Officer and expenses incurred in connection with
the recruitment of senior management, provided such
exclusions shall not exceed $1,100,000.00 in the aggregate
and (b) the impairment loss relating to four (4) Okuma
turning machines) for each of the periods commencing July
3, 1999 through the end of each monthly periods as set
forth below of not less than the following:
-----------------------------------------------------
Minimum
Periods Ending Operating Profit
-----------------------------------------------------
October 2, 1999 $200,000
-----------------------------------------------------
October 30, 1999 $450,000
-----------------------------------------------------
November 27, 1999 $725,000
-----------------------------------------------------
January 1, 2000 $725,000
-----------------------------------------------------
22. Minimum Availability. Borrower shall maintain a minimum
difference between the Borrowing Base and outstanding
principal balance of the Revolving Loan of (a) for the
weeks ending October 2, 1999, October 30, 1999, November
27, 1999 and January 1, 2001, $1,250,000.00 and (b) at all
other times, $500,000.
23. Unfunded Capital Expenditures. Borrower shall not make
or otherwise incur Unfunded Capital Expenditures in excess
of $375,000 for the period commencing October 2, 1999 and
ending January 1, 2000. For purposes of this section,
"Unfunded Capital Expenditures" means amounts paid or
indebtedness incurred by Borrower or any of its
subsidiaries in connection with the purchase or lease by
the Borrower or any of its subsidiaries of Capital Assets
that would be required to be capitalized and shown on
Borrower's or its subsidiaries balance sheet in accordance
with GAAP and which amounts paid or indebtedness incurred
is not funded by any of the Loans (excluding the Revolving
Loan). For purposes of this section, "Capital Assets" means
fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as
patents, copyrights,
10
<PAGE> 11
trademarks, franchises and good will); provided that
Capital Assets shall not include any item customarily
charged directly to expense or depreciated over a useful
life of twelve (12) months or less in accordance with GAAP.
F. Exhibit B to the Loan Agreement is hereby deleted and replaced
with Exhibit B attached hereto and made a part hereof.
G. All Exhibits to the Loan Agreement, the Notes and the other Loan
and Forbearance Documents are hereby amended in such a manner as to be
consistent with all amendments made hereby and contained herein.
H. As a further inducement to Lender to enter into this Agreement
and to grant the accommodations hereunder, Borrower agrees to pay Lender an
additional $77,500 success fee, which shall be payable upon the earlier of (a)
June 30, 2000 or (b) demand by Lender. Borrower acknowledges that the success
fee is due and payable, but that Lender, at Borrower's request, has not
requested immediate payment.
I. To induce the Lender to enter into this Amendment, each Guarantor
hereby (a) consents to this Amendment and (b) affirms and ratifies its Guaranty
and confirms that (i) each Guarantor does irrevocably and unconditionally
guarantee to the Lender the payment and performance from the Borrower of the
Obligations (as defined in each Guaranty) from the Borrower to the Lender, upon
the terms and conditions set forth in the respective Guaranty, (ii) the term
Obligations includes, without limitation, this Forbearance Agreement, the Term
Loan, the Construction Loan, the Consolidated Equipment Loan, the Third
Equipment Loan, the Fourth Equipment Loan, the Revolving Loan and the
Acquisition Term Loan, and (iii) each Guaranty remains in full force and effect.
J. As a further inducement to Lender to enter into this Agreement
and to grant the accommodations contained herein, effective on the date hereof,
the Borrower does hereby release, acquit and forever discharge Lender, its
respective representatives, parent, subsidiaries, affiliates, officers,
directors, agents, employees, servants, attorneys and representatives, as well
as the respective personal representatives, successors and assigns of any and
all of them (collectively, the "RELEASED LENDER PARTIES"), from and against any
and all claims (including without limitation, any so-called "lender liability"
claims or defenses), demands, debts, actions, causes of action, suits,
contracts, agreements, obligations, accounts, defenses, offsets against any of
the Indebtedness, and liabilities of any kind or character whatsoever, known or
unknown, suspected or unsuspected, in contract or in tort, at law or in equity,
including without implied limitation, such claims and defenses as fraud,
mistake, failure of consideration and duress, which the Borrower and/or anyone
claiming by or through any of them ever had, now has, or might hereafter have
against any of the Released Lender Parties for or by reason of any matter, cause
or thing whatsoever occurring from the beginning of time through and including
the date hereof which relates to, in whole or in part, directly or indirectly:
(a) any of the Indebtedness, (b) any of the Loan and Forbearance Documents; (c)
any of the collateral or other property granted to Lender as security for any of
the Indebtedness; or (4) the administration of any of the Indebtedness or
conduct of Lender or of any of the other Released
11
<PAGE> 12
Lender Parties. In addition, the Borrower agrees not to commence, join in,
assist, prosecute or participate in any suit or other proceeding against any of
the Released Lender Parties relating directly or indirectly to any of the
foregoing matters (including without limitation the Loan and Forbearance
Documents) or otherwise contrary to the provisions set forth above.
K. The Borrower acknowledges and agrees that a default under any of
the Loan and Forbearance Documents shall constitute a default under the other
Loan and Forbearance Documents.
L. LENDER AND THE BORROWER EXPRESSLY WAIVE TRIAL BY JURY IN ANY COURT
AND IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH
OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THE LOAN AND
FORBEARANCE DOCUMENTS ARE A PART AND/OR THE ENFORCEMENT OF ANY OF LENDER'S
RIGHTS AND REMEDIES THEREUNDER, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
M. THE BORROWER ACKNOWLEDGES THAT THE TRANSACTIONS EVIDENCED BY THE
LOAN AND FORBEARANCE DOCUMENTS AND AS CONTEMPLATED BY THIS AGREEMENT ARE
COMMERCIAL TRANSACTIONS AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER
CHAPTER 903A OF THE CONNECTICUT GENERAL STATUES, OR AS OTHERWISE ALLOWED BY THE
LAW OF ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH
LENDER MAY DESIRE TO USE, AND FURTHER WAIVES ITS RIGHT TO REQUEST THAT LENDER
POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT THE BORROWER AGAINST DAMAGES
THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER BY
VIRTUE OF ANY DEFAULT OR PROVISION OF THIS AGREEMENT OR ANY OF THE OTHER LOAN
AND FORBEARANCE DOCUMENTS.
N. THE BORROWER ACKNOWLEDGES THAT IT MAKES THE WAIVERS SET FORTH
HEREIN KNOWINGLY, VOLUNTARILY AND WITHOUT DURESS AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THOSE WAIVERS WITH ITS ATTORNEYS. THE
BORROWER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO
THE BORROWER OR ANY OTHER PARTY HERETO THAT THE PROVISIONS HEREIN WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES.
O. The Borrower agrees to pay all costs and expenses incurred by
Lender, including without limitation, attorneys' fees, in connection with the
preparation, negotiation, administration and enforcement of this Agreement and
the transactions contemplated herein. Nothing herein shall be construed to limit
the Borrower' obligation to pay fees, costs and expenses pursuant to the terms
of the Loan and Forbearance Documents.
12
<PAGE> 13
P. The Borrower shall from time to time execute and deliver such
additional documents and take such additional actions and shall provide such
additional information as Lender may reasonably require to carry out the terms
and conditions of this Agreement.
Q. This Agreement and the other Loan and Forbearance Documents
constitute the entire understanding and agreement among the parties hereto and
supersede any prior or contemporaneous written or oral understanding with
respect to the subject matter hereof. Except as expressly modified herein, the
Loan and Forbearance Documents remain unmodified and in full force and effect in
accordance with their terms.
R. This Agreement and the other Loan and Forbearance Documents, and
all transactions, assignments and transfers hereunder and thereunder, and all
the rights of the parties, shall be governed as to validity, construction,
enforcement and in all other respects by the laws of the State of Connecticut
(but not its conflicts of law provisions).
S. This Agreement may be executed in any number of counterparts, each
of which shall constitute an original and all of which, when taken together,
shall constitute one instrument.
T. Nothing therein shall be construed to be a waiver of any
requirements of the Loan Agreement or the other Loan and Forbearance Documents.
Guarantor hereby ratifies and confirms his obligations under his Guaranty with
respect to the Loans, the Loan Agreement and the other Loan and Forbearance
Documents as amended hereby.
[The remainder of this page intentionally left blank]
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LENDER:
FLEET NATIONAL BANK
By: /s/ Edacr Ezerins
------------------------------
Edgar Ezerins
Its Vice President
(Duly Authorized)
BORROWER:
EDAC TECHNOLOGIES CORPORATION
By /s/ Ronald G.Popolizio
------------------------------
Ronald G. Popolizio
Its Vice President
(Duly Authorized)
GUARANTORS:
GROS-ITE INDUSTRIES, INC.
By /s/ Ronald G. Popolizio
------------------------------
Ronald G. Popolizio
Its V.P.
APEX MACHINE TOOL COMPANY, INC.
By /s/ Ronald G. Popolizio
------------------------------
Ronald G. Popolizio
Its V.P.
14
<PAGE> 15
EXHIBIT A
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
NAME OF LOAN OUTSTANDING
BALANCE AS OF
9/30/99
--------------------------------------------------------------------------------
<S> <C>
Revolving Credit Loan $ 5,000,000.00
--------------------------------------------------------------------------------
Acquisition Term Loan $13,750,000.00
--------------------------------------------------------------------------------
Term Loan $ 2,795,297.62
--------------------------------------------------------------------------------
Construction Loan $ 749,999.80
--------------------------------------------------------------------------------
Third Equipment Loan $ 2,100,000.00
--------------------------------------------------------------------------------
Consolidated Equipment Loan $ 279,573.34
--------------------------------------------------------------------------------
Fourth Equipment Loan $ 2,333,333.41
--------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
THIRD AMENDED AND RESTATED
REVOLVING PROMISSORY NOTE
$10,000,000.00 Hartford, Connecticut
October 29, 1999
ON DEMAND FOR VALUE RECEIVED, the undersigned, EDAC TECHNOLOGIES
CORPORATION, a Wisconsin corporation with a place of business at 1790 New
Britain Avenue, Farmington, Connecticut 06032 (hereinafter "BORROWER") promises
to pay to the order of FLEET NATIONAL BANK, f/k/a Fleet National Bank of
Connecticut, N.A. f/k/a Shawmut Bank of Connecticut f/k/a Connecticut National
Bank, a national banking association ("LENDER"), having a mailing address of 777
Main Street, Hartford, Connecticut, 06115 or at such other place as Lender may
from time to time designate in writing, the principal sum of TEN MILLION
($10,000,000.00) DOLLARS (the "PRINCIPAL AMOUNT") or, if less, the aggregate
unpaid principal amount of all Advances made pursuant to that certain Fifth
Amended and Restated Revolving Loan, Term Loan, Equipment Loan and Security
Agreement dated February 28, 1995, as amended by a certain Sixth Amendment to
Revolving Loan, Term Loan, Equipment Loan and Security Agreement dated July 31,
1995, as further amended by a certain Seventh Amendment to Revolving Loan, Term
Loan, Equipment Loan and Security Agreement and Reaffirmation of Guaranties
dated as of January 26, 1996, as further amended by a certain Eighth Amendment
to Revolving Loan, Term Loan, Equipment Loan and Security Agreement and
Reaffirmation of Guaranties dated as of April 10, 1996, as further amended by a
certain Ninth Amendment to Revolving Loan, Term Loan, Equipment Loan, Security
Agreement, Modification of Notes and Reaffirmation of Guaranties dated March 27,
1997 between Borrower and Lender, as further amended by a certain Tenth
Amendment to Revolving Loan, Term Loan, Equipment Loan and Security Agreement
and Reaffirmation of Guaranties dated May 22, 1998, as further amended by a
certain Eleventh Amendment to Revolving Loan, Term Loan, Equipment Loan,
Security Agreement dated as of June 30, 1998, as further amended by a Twelfth
Amendment to Loans and Security Agreements Modification of Notes and
Reaffirmation of Guaranties dated as of November __, 1998 and by a Forbearance
Agreement of even date herewith (as amended and in effect from time to time, the
"LOAN AGREEMENT"), together with (i) interest at the rate and in the manner
provided in the Loan Agreement; (ii) all amounts which may become due under the
Loan Agreement or any of the other Loan Documents; (iii) any costs and expenses,
including reasonable attorneys' and appraiser's fees incurred in the collection
of this Note or the enforcement of the Loan Agreement or any of the other Loan
Documents, foreclosure thereunder or in any litigation or controversy arising
from or connected with this Note, or the Loan Agreement or any of the other Loan
Documents; and (iv) all taxes or duties assessed upon said sum against Lender or
upon the debt evidenced hereby. All amounts owing under this Note and interest
thereon shall be payable in legal tender of the United States of America.
Capitalized terms used herein and not otherwise defined shall have the meanings
given to them in the Loan Agreement.
Interest on the Principal Amount shall be computed on the basis of a
360-day year for actual days elapsed and shall be payable at the rate and in the
manner as provided in the Loan Agreement until all of said Principal Amount has
been fully paid, whether before or after the maturity hereof, by acceleration or
otherwise, and whether or not any judgment is obtained hereon. If not sooner
paid, the Principal Amount, together with all accrued but unpaid interest
thereon, shall be due and
<PAGE> 2
payable on June 30, 2001 or such earlier date as provided in the Loan Agreement
(including by reason of an acceleration upon the occurrence of an Event of
Default) (the "MATURITY DATE").
In the event that Lender has not received, within ten (10) days of its
due date, any payment of principal or interest due hereunder (excluding any
Principal Amount or interest due upon the Maturity Date), or payment with
respect to any other payment due under this Note, Borrower shall be subject to a
late charge equal to five (5%) percent of any such payment.
Upon the occurrence of default by Borrower in the performance of any of
Borrower's obligations hereunder, or an Event of Default as defined in the Loan
Agreement or in any other Loan Documents, Lender may, at its option, accelerate
Borrower's obligations hereunder and declare the entire unpaid Principal Amount,
together with accrued interest and all other amounts then due which are
evidenced by this Note, to be immediately due and payable, without the necessity
for demand or additional notice. In addition, upon the occurrence of such
default or Event of Default or after the Maturity Date, the interest rate of
this Note shall increase without notice, as provided in the Loan Agreement.
Failure to exercise these options shall not constitute a waiver of the right to
exercise the same in the event of any subsequent default.
Borrower may prepay the Note only in accordance with the terms of the
Loan Agreement.
Notwithstanding any provisions of this Note, it is the understanding
and agreement of Borrower and Lender that the maximum rate of interest to be
paid by Borrower to Lender shall not exceed the highest of the maximum rate of
interest permissible to be charged by Lender under applicable laws. Any amount
paid in excess of such rate shall be deemed to be a payment in reduction of
principal except to the extent that such amount is in excess of the then
outstanding Principal Amount, in which event such excess shall be returned to
the Borrower.
This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut. This Note shall bind the successors and
assigns of Borrower, and shall inure to the benefit of Lender and its successors
and assigns. This Note may not be changed or terminated orally, but only by an
agreement in writing signed by the party against whom enforcement of any such
change or termination is sought.
Whenever in this Note words of any gender appear, they shall be deemed
to apply equally to any other gender. Whenever used in this Note, the plural
shall include the singular and the singular shall include the plural, as the
context shall require. In the event that Borrower consists of more than one
person or entity, the obligations hereunder shall be joint and several.
This Note amends, restates, and supersedes in its entirety a certain
Second Amended and Restated Revolving Promissory Note dated as of June 30, 1998
in the original principal amount of $13,000,000.00 from the Borrower to the
Lender (as amended and in effect from time to time, the "ORIGINAL NOTE") and the
Original Note shall have no further force and effect except to the extent
necessary to preserve and maintain the Lender's previously filed and fully
protected security interest in the personal property of the Borrower. Nothing
contained herein shall constitute a novation of the Original Note.
-2-
<PAGE> 3
TO INDUCE LENDER TO ENTER INTO THE COMMERCIAL LOAN TRANSACTION
EVIDENCED BY THIS NOTE, THE LOAN AGREEMENT, AND ANY OTHER LOAN DOCUMENTS
EVIDENCING OR SECURING THE SAME, BORROWER AGREES THAT THIS IS A COMMERCIAL
TRANSACTION AND NOT A CONSUMER TRANSACTION, AND WAIVES ANY RIGHT TO NOTICE AND A
HEARING AND AUTHORIZES LENDER'S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT
REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF
THIS WAIVER AND WAIVES ANY CLAIM IN TORT, CONTRACT OR OTHERWISE AGAINST LENDER'S
ATTORNEY WHICH MAY ARISE OUT OF SUCH ISSUANCE OF A WRIT FOR A PREJUDGMENT REMEDY
WITHOUT COURT ORDER. BORROWER FURTHER WAIVES ANY RIGHT IT MAY HAVE TO REQUEST
THAT LENDER POST A BOND IN CONNECTION WITH ANY SUCH PREJUDGMENT REMEDY. BORROWER
ACKNOWLEDGES AND STIPULATES THAT SUCH WAIVER AND AUTHORIZATION GRANTED ABOVE ARE
MADE KNOWINGLY AND FREELY AND AFTER FULL CONSULTATION WITH COUNSEL.
SPECIFICALLY, BORROWER RECOGNIZES AND UNDERSTANDS THAT THE EXERCISE OF LENDER'S
RIGHTS DESCRIBED ABOVE MAY RESULT IN THE ATTACHMENT OF OR LEVY AGAINST
BORROWER'S PROPERTY, AND SUCH WRIT FOR A PREJUDGMENT REMEDY WILL NOT HAVE THE
PRIOR WRITTEN APPROVAL OR SCRUTINY OF A COURT OF LAW OR OTHER JUDICIAL OFFICER
NOR WILL BORROWER HAVE THE RIGHT TO ANY NOTICE OR PRIOR HEARING WHERE BORROWER
MIGHT CONTEST SUCH A PROCEDURE. THE INTENT OF BORROWER IS TO GRANT TO LENDER FOR
GOOD AND VALUABLE CONSIDERATION THE RIGHT TO OBTAIN SUCH A PREJUDGMENT REMEDY
AND TO EXPRESS ITS BELIEF THAT ANY SUCH PREJUDGMENT REMEDY OBTAINED IS VALID AND
CONSTITUTIONAL. FURTHER, TO THE EXTENT ALLOWED UNDER APPLICABLE LAW, BORROWER
HEREBY WAIVES DEMAND, PRESENTMENT FOR PAYMENT, PROTEST, NOTICE OF PROTEST,
NOTICE OF DISHONOR, DILIGENCE IN COLLECTION, NOTICE OF NONPAYMENT OF THIS NOTE
AND ANY AND ALL NOTICES OF A LIKE NATURE.
-3-
<PAGE> 4
Lender may at any time pledge all or any portion of its rights under
this note and any other loan documents evidencing, securing or relating thereto
to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the
Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement
thereof shall release Lender from its obligations under any of the loan
documents.
BORROWER:
EDAC TECHNOLOGIES CORPORATION
By: /s/ Ronald G. Popolizio
----------------------------------
Ronald G. Popolizio
Its Vice President
(Duly Authorized)
-4-
<PAGE> 1
TERMINATION AND RELEASE AGREEMENT
THIS TERMINATION AND RELEASE AGREEMENT dated as of October 22,
1999, is entered into by and between EDAC TECHNOLOGIES CORPORATION, a Wisconsin
corporation (the "Corporation") and EDWARD J. MCNERNEY ("McNerney").
RECITALS
A. The Corporation and McNerney are parties to an Employment
Agreement dated November 20, 1998 (the "Employment Agreement") and a certain
Change in Control Agreement dated January 29, 1999 (the Control Agreement").
B. The Corporation and McNerney wish to terminate the
Employment Agreement and the Control Agreement except as expressly set forth
herein.
AGREEMENTS
In consideration of the recitals and mutual agreements
hereinafter contained, the Corporation and McNerney agree as follows:
1. Termination of Employment Agreement and Control Agreement.
All rights and obligations of the Corporation and McNerney pursuant to the
Employment Agreement and Control Agreement are hereby terminated, and the
Agreements are of no further force or effect, except for the provisions of
paragraphs 7, 8 and 9 of the Employment Agreement, which shall remain in full
force and effect for the duration of this Agreement.
2. Release. McNerney hereby releases and forever discharges
the Corporation, its respective officers, directors, representatives, successors
and assigns of and from all claims, whether known or unknown, and whether or not
contingent which McNerney ever had, now has or hereafter can, shall or may have
against the Corporation or any other party hereto relating in any way to the
Employment Agreement and Control Agreement.
3. Duties. During the term of this Agreement, McNerney will
hold himself available to consult with the Corporation from time to time, when,
if and as required during normal business hours and upon reasonable advance
notice. Consultation by telephone shall be deemed sufficient unless McNerney's
physical presence is clearly necessary.
<PAGE> 2
4. Payment. In consideration for the termination of the
Employment Agreement and the Control Agreement and McNerney's consultation
services, the Corporation will:
(a) pay to McNerney on the Corporation's regular payroll
payment dates annual compensation in the following amounts:
August 23 - August 22, 1999 - 2000 $225,000
August 23 - August 22, 2000 - 2001 $225,000
August 23 - August 22, 2001 - 2002 $260,000
(b) pay for McNerney's health insurance coverage in effect and
on the same basis that such insurance was paid for while McNerney was actively
employed by the Corporation; provided, however, that such obligation will
terminate on the earlier to occur of McNerney's obtaining other health insurance
coverage or June 30, 2000;
(c) provide to McNerney his company car until its current
lease expires on the same terms that applied during McNerney's active
employment; provided, however, that McNerney shall be personally responsible for
any excess mileage changes;
(d) reimburse McNerney for reasonable business expenses
incurred by him in rendering consulting services under this Agreement; and
(e) extend McNerney's right to exercise options granted to him
prior to the date of this Agreement until 5:00 p.m. on September 15, 2001.
(f) In the event of McNerney's death, payments under this
agreement will continue to be paid to McNerney's wife or estate.
All payments made under this Agreement shall be in accordance
with Corporation's normal payroll practices in effect from time to time and
shall be subject to all normal withholding.
5. Waiver. The failure of either party to insist, in any one or more
instances, upon performance of the terms or conditions of this Agreement shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any such term, covenant or condition.
6. Notices. Any notice to be given hereunder shall be deemed sufficient
if addressed in writing, and delivered by registered or certified mail or
2
<PAGE> 3
delivered personally, in the case of Edac, to its principal business office, and
in the case of McNerney, to his address appearing on the records of Edac, or to
such other address as he may designate in writing to Edac.
7. Severability. If any provision of this Agreement is held to be
invalid or unenforceable for any reason whatsoever, it is agreed such invalidity
or unenforceability shall not affect any other provision of this Agreement and
the remaining covenants, restrictions and provisions hereof shall remain in full
force and effect and any court of competent jurisdiction may so modify the
objectionable provision as to make it valid, reasonable and enforceable. The
parties specifically acknowledge that the provisions of sections 7(a), 7(b)(i),
7(b)(ii) and 7(b)(iii) of the Employment Agreement are each separate and
independent agreements.
8. Amendment. This Agreement may only be amended by an agreement in
writing signed by all of the parties hereto.
9. Benefit. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against Edac, its successors and
assigns, and McNerney, his heirs, beneficiaries and legal representatives. It is
agreed that the rights and obligations of McNerney may not be delegated or
assigned.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings among the parties with
respect to such subject matter.
EDAC TECHNOLOGIES CORPORATION
BY /s/John J. DiFrancesco
----------------------
Its Chairman
----------------------
/s/Edward J. McNerney
---------------------
Edward J. McNerney
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> OCT-02-1999
<CASH> 124,994
<SECURITIES> 0
<RECEIVABLES> 5,138,344
<ALLOWANCES> 170,041
<INVENTORY> 7,054,632
<CURRENT-ASSETS> 14,519,529
<PP&E> 28,124,979
<DEPRECIATION> 10,286,095
<TOTAL-ASSETS> 44,837,266
<CURRENT-LIABILITIES> 35,973,244
<BONDS> 0
0
0
<COMMON> 10,673
<OTHER-SE> 7,185,217
<TOTAL-LIABILITY-AND-EQUITY> 44,837,266
<SALES> 42,358,636
<TOTAL-REVENUES> 42,358,636
<CGS> 38,383,787
<TOTAL-COSTS> 43,490,597
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,923,384
<INCOME-PRETAX> (3,041,137)
<INCOME-TAX> (540,000)
<INCOME-CONTINUING> (2,501,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,501,137)
<EPS-BASIC> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
