FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
Commission file number 0-14299
SECOM GENERAL CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 87-0410875
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation
or organization)
46035 GRAND RIVER AVENUE, NOVI,
MICHIGAN 48374
(Address of principal executive offices)
Registrant's telephone number, including area code: (248) 305-9410
Securities registered pursuant to Section
12(b) of the Securities Exchange Act of 1934:
None
(Title of class and name of exchange on which registered)
Securities registered pursuant to Section
12(g) of the Securities Exchange Act of 1934:
Common Stock, par value $.10 per share
(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 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 the Registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
-1-
<PAGE>
As of January 5, 1999, 5,335,400 shares of the Registrant's Common Stock
were outstanding and the aggregate market value of such Common Stock held by
non-affiliates (based on the closing price on that date as reported on the
NASDAQ National Market System) was approximately $1,544,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
-2-
<PAGE>
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business 4
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management 22
Item 13. Certain Relationships and Related Transactions 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 25
-3-
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Secom General Corporation, a Delaware corporation (the "Company") is
a holding company with the following wholly owned operating subsidiaries:
Metal Parts Forming Segment:
* Uniflow Corporation ("Uniflow") acquired in 1991
Tooling Segment:
* Form Flow, Inc. ("Form Flow") acquired in 1987
* L&H Die, Inc. ("L&H") acquired in 1987
* Micanol, Inc. ("Micanol") acquired in 1990
Production Machining Segment - Discontinued Operations:
* MMC Manufacturing Corp., formerly known as Milford
Manufacturing Corporation ("Milford") acquired in
November 1996 and discontinued during 1998
In transactions occurring in March, July and October 1998, the
Company sold all of the assets of Milford. Refer to "Discontinued Operations -
Production Machining Segment" on page 8 for a description of the foregoing.
In October 1998, the Company engaged the investment banking firm of
Goldsmith, Agio, Helms Securities, Inc. ("GAHS") to assist the Company in a
possible merger, sale or similar transaction related to the Company or its
subsidiaries. The engagement is for a minimum six month period and gives the
Company the right to reject any and all offers submitted by GAHS.
The Company's corporate mailing address is 46035 Grand River Avenue,
Novi, Michigan 48374; its telephone number is (248) 305-9410 and its
facsimile number is (248) 347-2829.
Except as otherwise indicated by the context, any reference to the
"Company" shall mean the Company and its subsidiaries. The Company's fiscal
year-end is September 30.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company (who serve as such at the
pleasure of the Board of Directors), their ages and the position or office
held by each, are as follows:
-4-
<PAGE>
Name Age Positions with the Company
---- --- --------------------------
Robert A. Clemente 45 Chairman of the Board since 1994 and
Director since 1993
Martin J. Eidemiller 41 Vice President since 1994, Member of
the Operating Committee and Director
since June 1998
Paul D. Clemente 35 Vice President since 1997 and Member
of the Operating Committee since June
1998
Terry L. Hamilton 51 President of Uniflow since 1997 and
Member of the Operating Committee since
June 1998.
Scott J. Konieczny 34 Secretary and Treasurer since June
1998
In June 1998, Robert Clemente relinquished his position as president
and chief executive officer of the Company. The Company's board of directors
appointed Martin Eidemiller, Paul Clemente and Terry Hamilton to an operating
committee which, since June, has fulfilled the duties of the Company's
president on an interim basis until a new president is appointed.
FORWARD-LOOKING STATEMENTS
Statements herein concerning expectations for the future constitute
forward-looking statements within the meaning of the Securities Exchange Act
of 1934 and are subject to a number of known and unknown risks, uncertainties
and other factors which might cause actual results to differ materially from
those expressed or implied by such forward-looking statements. Long term
growth of the Company may be affected by changes in the automotive, trucking
and construction industries, relations with collective bargaining unit
employees, general economic trends (including inflation and unemployment
rates), interest rates, and the availability and cost of financing.
Long-term profitability will be dependent on management's ability to
control its costs of operations for its respective areas of base sales,
thereby providing adequate margins to maintain and expand its various
businesses.
Forward-looking statements herein include, but are not limited to,
those concerning anticipated growth in sales and profitability, greater than
expected declines in sales, inability to secure additional sources of working
capital if and when needed, the ability to obtain price concessions if and
when needed, and inability to manage growth.
-5-
<PAGE>
BACKLOG AND SEASONALITY
Customer releases generally cover a period of three months or less.
Because the Company receives successive customer releases of products which
are subject to continual change in the short-term, management believes that
its backlog is not a relevant indicator of the level of its present or future
sales. Sales of the Company's parts, tooling and services are not considered
seasonal.
METAL PARTS FORMING SEGMENT
GENERAL
The Metal Parts Forming Segment is comprised of Uniflow, a QS 9000
certified company, which primarily manufactures automotive and truck parts
from steel bar, coil and tubing using cold forging and forming machines and
various types of secondary machining, such as CNC lathes, threadrolling and
piercing equipment. During 1998, the Company restructured Uniflow's
operations. Major steps undertaken in the restructuring effort included
discontinuing certain product lines, the emphasis of Uniflow's traditional
cold forging business, the consolidation of its operations from three
facilities to two, and the sale of its FX 1250 cold former.
SALES AND COMPETITION
Uniflow's fiscal 1998 sales were comprised as follows: 22% wheel
studs for heavy and light duty trucks (original equipment manufacturers or
"OEM" and service part manufacturers or "aftermarket"); 35% transmission gear
housings and component shaft parts; 29% automobile ball joint suspension
housings (OEM and aftermarket); and 14% miscellaneous cold headed and cold
forged parts (OEM).
Competition within the cold forging and forming business varies with
each product line and customer volume requirements. Generally, Uniflow
specializes in smaller volumes, although it supplies higher volume OEM part
requirements as well. Competitors are numerous in each segment and includes
subsidiaries of large corporations as well as smaller independent entities.
Uniflow's sales are concentrated with a few customers, as five
customers comprised 78% of revenue for the fiscal year ended September 30,
1998. If Uniflow were to lose a significant customer, management believes
that it could replace that business within an estimated timeframe of 6 to 18
months, although its gross profit margin could be adversely affected.
Uniflow's sales backlog usually covers a period of approximately three months
of work; actual sales vary with final release instructions from customers.
Uniflow sells principally to customers in the United States.
MANUFACTURING AND ENGINEERING
Uniflow manufactures parts from steel bar, coil and tubing using
cut-off machines, cold forging hydraulic presses, cold heading machines, CNC
turning centers, threadrollers, broaching
-6-
<PAGE>
and piercing machines. Although part production can involve up to 14
different production steps, primary equipment consists of cold forging
presses and cold forming (header) machines, which form the parts into their
general size and shape.
After parts are forged or formed, they are routed to various
secondary machining operations for finishing, such as CNC turning,
threadrolling, piercing and drilling. External steps completed by outside
processors typically include specialized machining, heat-treating, annealing
and plating.
Production order turnaround time can vary from 4 to 16 weeks,
depending on engineering requirements, lead times from outside vendors and
the production backlog. Uniflow's tooling department makes and repairs some
of the perishable tooling used in production, while the Company's Tooling
Segment also supplies Uniflow with some of its production tooling. The
engineering staff offers tool design and production development services to
customers for new or modified parts as well as continuing support for
production operations.
EMPLOYEES
As of September 30, 1998, Uniflow employed a total of 145 full-time
employees compared to 189 in the prior year, as follows: 126 direct and
indirect labor (including factory floor supervision), 6 engineering, 1 sales,
6 office and 6 management. Approximately 120 employees are subject to a
collective bargaining agreement that expires in April 2000.
TOOLING SEGMENT
GENERAL
The Company's Tooling Segment ("Tooling Operations" or "Tooling
Units") is comprised of Form Flow, L&H and Micanol. In July 1998, the Company
significantly reduced the size of Micanol by selling certain equipment and
transferring the remaining assets and business to L&H. In 1995, the Company
sold most of the assets and operations of its Triple tooling subsidiary,
while Form Flow absorbed its remaining operating assets, principally its
electro-diode machining capability.
The Tooling Operations manufacture close tolerance tooling for the
hot and cold metal forming industry. Hot and cold metal forming companies
typically make metal parts from steel coil that is automatically fed through
various stations on a "header forming" machine. A header machine cuts steel
coil and moves it through each die station progressively, using tool inserts
to form the part. Tool life is dependent on the type of material used to make
the part and the size and shape of the part, among other things.
As part of its sales and service, the Tooling Operations design and
development staff will advise customers about tooling issues and other
engineering matters related to the production of hot and cold formed parts.
Tool orders (without design services) typically can take 4 to 10 weeks to
complete, while design and development orders can span over a period of
months.
-7-
<PAGE>
SALES AND COMPETITION
The Tooling Unit's customers are numerous and cover a wide variety
of industries, although the six largest customers comprised 49% of revenues
for the fiscal year ended September 30, 1998. If a significant customer was
lost, management believes that it could be replaced within an estimated
timeframe of 6 to 18 months, although its gross profit margin could be
adversely affected. The Tooling Operation's customers manufacture items
such as industrial fasteners, hand tools, automotive parts, tubing, consumer
items, munitions and a wide array of OEM assembly parts. The Tooling Unit's
customers include OEM and aftermarket suppliers and are predominantly related
to the automotive industry. Continuing customer relations are important, as
significant revenue is derived from tooling reorders.
The Tooling Operations operate in fragmented markets with numerous
competitors. Generally, independent competitors are smaller companies ranging
in size from 10 employees to up to 100 employees. The Tooling Units also
compete with its customers internal tooling capabilities, as customers
typically have their own tool facilities to support production. Management
believes consistent success is dependent principally on tool quality and
durability, on-time delivery and price competitiveness. The Tooling Unit's
design and engineering services allow it to compete for tool development
work; management believes these services provide the Company a significant
advantage in attracting new customer business. The Tooling Units sell
principally to customers in the United States.
MANUFACTURING AND ENGINEERING
All tooling orders are manufactured to customer specifications as
indicated on tool drawings. Tools are made from bar stock steel or carbide
blanks and generally are routed through a production sequence that includes
cutting, turning (CNC/lathe work), heat treating, grinding, polishing and
coating.
Form Flow and L&H have separate plant facilities. Design and
engineering services are located at a Form Flow facility, and are offered by
all three of the Tooling Units.
EMPLOYEES
As of September 30, 1998, the Tooling Operations employed a total of
134 full-time employees compared to 155 in the prior year, as follows: 109
direct and indirect labor (including factory floor supervision), 4
engineering, 3 sales, 12 office and 6 management.
DISCONTINUED OPERATIONS - PRODUCTION MACHINING SEGMENT
The Company's Production Machining Segment was comprised of the its'
wholly owned subsidiary, MMC Manufacturing Corp., f/k/a Milford Manufacturing
Corporation ("Milford"), which was acquired in November 1996. Milford
manufactured various aluminum brake components and a type of starter motor
shaft for the automotive industry. In separate transactions occurring in
March, July and October 1998, all of Milford's assets were sold due to its
deteriorating operating results. (See Note 2 to the consolidated financial
statements included elsewhere in this Form 10-K for a description of the
disposition.)
-8-
<PAGE>
ITEM 2. PROPERTIES
The Company's mailing address is 46035 Grand River Avenue, Novi,
Michigan 48374. The subsidiaries operate in the following facilities, all of
which are owned by the Company:
1. Form Flow is located in two 12,600 square foot adjacent
buildings on approximately four acres of land at 6901 and
6999 Cogswell in Romulus, Michigan 48174. Its telephone
number is (734) 729-3100.
2. L&H and Micanol are located in a 17,400 square foot
building on approximately two acres of land at 38200 Ecorse
Road, Romulus, Michigan 48174 and its telephone number is
(734) 722-8011.
3. Uniflow is located in three buildings on approximately six
acres of land in Novi, Michigan 48374: (1) 12,400 square
feet at 46001 Grand River Avenue, (2) 16,700 square feet at
46035 Grand River Avenue and (3) 32,000 square feet at
46039 Grand River Avenue. Its telephone number is (248)
348-9370.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in the
normal course of business. In the opinion of management (based on the opinion
of counsel) the outcome of such litigation will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No items were submitted to a vote of the Company's stockholders
during its fourth fiscal quarter.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock (trading symbol "SECM") traded on NASDAQ
from June 1987 and on the NASDAQ National Market System (NMS) from January
1992. In November 1998, the Company's common stock was scheduled to be
delisted from trading on NASDAQ as a result of the Company failing to meet
certain minimum listing requirements. The Company has requested a hearing to
appeal the proposed delisting action and the delisting action has been stayed
pending the outcome of the Company's appeal. The appeal is scheduled to occur
in January 1999. The following table sets forth (for the respective period
indicated) the high and low trade for the
-9-
<PAGE>
common stock as reported by NASDAQ. Trade prices do not include retail
markups, markdowns or commissions.
QUARTER ENDED HIGH TRADE LOW TRADE
------------- ---------- ---------
12/31/96 3.06 2.50
3/31/97 3.31 2.19
6/30/97 2.94 2.00
9/30/97 2.69 2.19
12/31/97 2.50 1.69
3/31/98 2.25 1.50
6/30/98 2.50 1.38
9/30/98 1.72 .31
On September 30, 1998 there were approximately 800 nominees/persons
of record that held the Company's common stock. Of those listed of record,
approximately 2.6 million shares were held by brokers and nominees
representing an undetermined number of beneficial stockholders.
Owners of common stock are entitled to receive dividends declared by
the Board of Directors out of funds legally available therefor. The Company
has never paid a cash dividend and does not anticipate paying cash dividends
in the foreseeable future. Its policy is to retain earnings so it can provide
funds for operations of its business. In addition, bank loan agreements
prohibit the payment of cash dividends.
ITEM 6. SELECTED FINANCIAL DATA.
See page F-23 of the consolidated financial statements for selected
financial data as of September 30, 1998, 1997, 1996, 1995, and 1994 and for
the years then ended as required by this Item. This information should be
read in conjunction with the consolidated financial statements and the
footnotes thereto referred to in Item 14(a)(1) of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto contained
elsewhere in the Form 10-K.
OVERVIEW
This management's discussion and analysis of financial condition and
results of operations includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to
certain risks and uncertainties, including those discussed below, that may
cause results to differ
-10-
<PAGE>
materially from historical results or those anticipated. In this report the
words "expects", "anticipates", "believes", and similar expressions identify
forward-looking statements, which speak only as to the date hereof.
The Company's 1998 sales of $31.7 million were lower than 1997 sales
of $35 million because of discontinued product lines at Uniflow and lower
sales at the Tooling Group. The net loss from continuing operations was $6.1
million, or ($1.13) per share, compared to a loss from continuing operations
in 1997 of ($47,000), or one cent per share. The increase in the loss was due
primarily to increasing operating losses at Uniflow, which included certain
restructuring charges.
During 1998, management focused its efforts on curtailing the losses
stemming from the Milford and Uniflow units. Management's plan was twofold:
to discontinue Milford and restructure Uniflow's operations. Milford's
primary operations were sold mid-year, while its starter-motor machining line
was sold after the September 30, 1998 year-end. Uniflow's restructuring steps
involved a series of major plant and equipment consolidation moves, which
adversely affected productivity throughout the year.
The Uniflow restructuring is still in process subsequent to the fiscal
year end, with the primary focus on repricing parts to acceptable profit margin
levels. Although the full impact of the parts repricing will not be known for
a period of months, it appears that this effort has significantly narrowed
Uniflow's operating losses based on operating results for October, November
and December 1998.
The Tooling Operations recorded lower operating income compared to
the prior year due to a slowdown of orders and additional expenses associated
with the consolidation of Micanol into L&H (see segment review below).
The Company's cash flow from operations combined with cash generated
from the sales of the Milford and Uniflow assets was sufficient to fund
operations through the end of the fiscal year, including the timely payment
of all scheduled debt obligations. Nevertheless, cash flow from operations was
not sufficient to maintain compliance with certain bank covenants. The Company
is working with its secured lenders closely and has continued to make all
scheduled debt payments through December 1998. In November 1998, the Company
entered into an amendment and extension agreement with its primary lender,
which provides financing through February 1, 1999. Management believes that
its cash flow outlook for 1999 has improved substantially with the culmination
of certain events during and after fiscal 1998, as described above.
Management believes it can extend current debt facilities with
existing lenders or refinance with other lenders on a continuing basis. The
Company believes that cash flow from operations and amounts available on its
line of credit will be sufficient to fund continuing operations and debt
service through fiscal 1999.
While management is committed to continuing its efforts to improve
operating results in the normal course of business over the long term, it
nevertheless also retained the investment banking firm of Goldsmith,
Agio, Helms Securities, Inc. in November 1998 to assist it in evaluating
the prospects of selling all or a portion of the Company or its assets or
effectuating a merger or partnership with another company. Although the
Company will consider any meaningful offer on favorable terms in order to
maximize shareholder value, the Company still considers continuing as an
independent profitable entity as a viable alternative.
-11-
<PAGE>
RESULTS OF OPERATIONS BY SEGMENT
METAL PARTS FORMING SEGMENT
Chart of three-year comparative operating results (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Net Sales $17,186 100.0 $18,930 100.0 $14,748 100.0
Gross Profit (Differential) (2,613) (15.2) 331 1.8 1,197 8.1
Operating Expenses 3,765 21.9 1,726 9.1 1,898 12.9
Operating Loss 1/ (6,378) (37.1) (1,395) (7.4) (701) (4.8)
<FN>
- --------------------
1/ Before interest, bad debt and corporate overhead expense.
</TABLE>
The Metal Parts Forming Segment is comprised of the Company's
Uniflow subsidiary. Uniflow currently manufactures suspension ball-joint
housings, truck wheel fasteners, transmission shaft parts and a variety of
OEM cold-formed and forged parts. Customers are primarily automotive and
trucking-related original equipment manufacturers ("OEM") and service part
manufacturers ("after-market").
In 1998 net sales decreased 9.2% from 1997 and increased 28.4% in
1997 from 1996. The sales decrease in 1998 from 1997 primarily reflects the
discontinuation of various parts offerings, including airbag housings and
various cold headed parts. Uniflow's existing business of suspension
housings, transmission shafts, wheel studs and starter motor shafts increased
1.7% in 1998 over 1997 as significant increases in transmission shafts and
starter motor shafts were offset by lower sales of wheel studs. Management is
continuing to review all of its sales with the objective of retaining only
profitable product lines.
This review includes Uniflow's dedicated production effort for the
manufacture of certain transmission shafts for an automotive OEM customer.
Sales in 1998 for these parts totaled approximately $2.0 million. In 1996
and 1997 the Company invested over $3.0 million in new equipment for this
project based on certain commitments made by the customer. Uniflow and the
customer are currently negotiating a strategy to either continue with
production of these parts at price levels mutually acceptable, or reach other
terms for the Company to recoup its investment.
Gross profit (differential) on sales was (15.2%) in 1998, 1.8% in
1997, and 8.1% in 1996. In 1998, the gross profit was adversely impacted
largely due to a major restructuring effort. This endeavor required
significant resources for the consolidation of production into two facilities
from three, which resulted in higher labor and factory support costs during
most of 1998. In addition, $900,000 of costs related to the restructuring
plan were recorded in 1998, principally for discontinuing certain product
lines and allowing for certain plant consolidation costs. Subsequent to
year-end the Company negotiated significant price increases on suspension
housings and wheel studs, which management believes will substantially
improve Uniflow's gross profit.
Operating expense as a percentage of sales was 21.9% in 1998, 9.1%
in 1997, and 12.9% in 1996. The percentage increase in 1998 compared to 1997
was largely due to restructuring charges recorded mid year. Those charges
totalling $3.1 million, primarily from the writedown of goodwill and
machinery, were offset by the $758,000 gain realized from the sale of its FX
1250 cold former machine, for a net restructuring charge of $2.3 million.
Without the restructuring charges, operating expense in 1998 decreased
compared to 1997, due to lower personnel and professional expenses,
while 1997 expense was lower than 1996 due primarily to lower personnel and
sales related expense.
In 1998, Uniflow's loss from operations was ($6.4) million, or
(37.1%) of sales, compared to a loss of ($1.4) million, or (7.4%) of sales in
1997, while in 1996 the net loss was ($701,000), or (4.8%) of sales. The
increase in loss in 1998 from 1997 is the result of the restructuring charges
and related reductions in production efficiency realized during the plant
consolidation period. The increase in loss in 1997 from 1996 was the result
of increased factory costs associated with developing new jobs for production
which contributed to lower production efficiency on Uniflow's traditional
business.
-12-
<PAGE>
TOOLING SEGMENT
Chart of three-year comparable operating results (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Net Sales 1/ $17,303 100.0 $18,474 100.0 $18,136 100.0
Gross Profit 3,789 21.9 4,879 26.4 4,317 23.8
Operating Expenses 2,366 13.7 2,292 12.4 2,224 12.3
Operating Profit 2/ 1,423 8.2 2,587 14.0 2.093 11.5
<FN>
- --------------------
1/ Before elimination of intercompany sales.
2/ Before interest, bad debt and corporate overhead expense.
</TABLE>
The Tooling Segment is comprised of the Form Flow, L&H and Micanol
units. The Tooling operations manufacture and sell customized tools and dies
for use in the production of hot and cold-formed metal parts.
Net sales decreased in 1998 by 6.3% compared to 1997, while
increasing by 1.9% in 1997 over 1996. The sales decrease in 1998 was
primarily the result of lower sales from the Micanol unit, which recorded
lower sales orders from a few of its larger accounts. Form Flow also recorded
lower sales, while L&H's sales were flat.
Gross profit on sales was 21.9% in 1998; 26.4% in 1997, and 23.8% in
1996. The 1998 gross profit percentage decreased principally because of the
lower sales volume and the consolidation expenses and lower production
efficiencies resulting from moving Micanol's operation to the L&H facility.
The improvement in 1997's gross profit over 1996 was principally due to
management's focus on controlling shop floor labor and related support
expense.
Operating expense (as a percentage of sales) has remained steady for
the periods shown, and was 13.7% in 1998, 12.4% in 1997, and 12.3% in 1996.
The Tooling Segment's operating profit was $1.4 million in 1998, or
8.2% of sales, $2.6 million, or 14.0% of sales in 1997, and $2.1 million, or
11.5% of sales in 1996. The decrease in 1998 operating profit primarily
results from the lower sales volume, along with the Micanol consolidation
expense. The increase in operating profit in 1997 over 1996 primarily
reflects the improved gross profit on sales.
-13-
<PAGE>
DISCONTINUED OPERATIONS - PRODUCTION MACHINING SEGMENT
During the Second Quarter of fiscal 1998 the Company decided to
discontinue its Milford operation due to ongoing adverse operating results.
In 1998 this segment recorded an operating loss of $891,000, prior to the
decision to discontinue, compared to operating income of $356,000 in 1997. The
decline in operating results in 1998 from 1997 was attributable primarily to
lower product pricing, dictated by Milford's primary customer, and lower
production efficiencies caused largely by new manufacturing projects that
strained existing resources.
In 1998, the Company recognized a $1 million disposal gain on the
sale of Milford's assets and business in transactions involving Milford's two
primary customers.
CORPORATE EXPENSES
Unallocated corporate overhead was $1.6 million in 1998, compared to
$913,000 in 1997, and $712,000 in 1996. The increase in 1998 primarily
reflects expense associated with the Company's newly operational computer
information systems, higher personnel costs and higher professional fees
associated with the disposal of various operating assets. The increase in
1997 expense reflects additional administrative and personnel expense,
primarily related to the establishment of new corporate wide computer
systems, higher amortization related to the debt financing completed mid-1996
and higher professional fee expense.
INTEREST EXPENSE AND INCOME TAXES
Interest expense was $954,000 in 1998, $1.1 million in 1997, and
$848,000 in 1996. The decrease in interest expense in 1998 compared to 1997
resulted from a reduction of secured debt related to various asset sales for
cash. In 1997, interest was higher than 1996 principally due to higher term
debt to finance equipment purchases and higher line of credit borrowings used
for working capital.
Income tax benefit (expense) was $544,000 in 1998, ($29,000) in
1997, and ($18,000) in 1996. The higher income tax benefit reflects the
substantial net loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position was a negative $3.6 million
at September 30, 1998, a positive $5.7 million at September 30, 1997 and
$4.9 million at September 30, 1996. The negative working capital position
largely resulted from the classification of long-term obligations to current,
as the Company was in default of certain bank covenants as of September 30,
1998. Management believes that it will be able to refinance this debt on a
continuing basis in the coming months. The increase in working capital in 1997
compared to 1996 was attributable to the addition of the
-14-
<PAGE>
Milford operation, while in 1996 working capital increased from 1995
primarily from a major refinancing of long-term debt. Management believes
that internally generated cash from operations and amounts available on the
bank line of credit will be sufficient to cover scheduled debt payments
during fiscal 1999 as well as fund continuing working capital requirements.
The Company expects to improve its liquidity and reduce outstanding debt by
selling noncore assets. These items total $1.4 million and are classified as
"Property, plant and equipment held for sale" on the balance sheet.
Cash flows for 1998, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from
continuing operating activities $2,058,000 $1,173,000 $1,679,000
Cash flows from (used in)
continuing investing activities 1,508,000 (3,025,000) (4,918,000)
Cash flows from (used in)
continuing financing activities (4,891,000) 4,327,000 7,475,000
</TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES
In 1998, of the $3.1 million in cash flow from operating activities,
working capital items and discontinued operations provided $2.9 million.
Working capital items provided $1.8 million, as accounts receivable
collections increased, while inventories were lowered due to better inventory
management. Discontinued operations provided $1.1 million derived from the
sale of the Milford assets. In 1998, cash flow from operations before working
capital items and discontinued operations was $200,000 compared to $2.6
million in 1997. This decline is attributable to the decline in operating
income from the Metal Parts Forming and Tooling Segments.
In 1997, of the $1.4 million in cash flow from operating activities,
working capital items and discontinued operations used $1.2 million. Working
capital items used $1.4 million, primarily related to higher receivables
inventories because of the increasing sales, partially offset by $200,000
provided by discontinued operations. In 1997, cash flow from operations before
working capital items and discontinued operations was $2.6 million compared
to $2.1 million in 1996.
In 1996, of the $1.8 million in cash flow from operating activities,
working capital items and discontinued operations used $200,000. Working
capital items used $400,000, partially offset by $200,000 provided by
discontinued operations.
CASH FLOWS USED IN INVESTING ACTIVITIES
In 1998, capital expenditures were $1.2 million. These expenditures
primarily relate to the expansion of the L&H building and costs associated
with the new corporate wide computer system. In 1997, capital expenditures
totaled $3.1 million, primarily related to equipment additions for production
in all segments and the installation of the new computer system. In 1996,
capital expenditures totaled $5.5 million primarily for the manufacture of
additional transmission component parts for sale to an automotive customer.
The Company received $2.7 million in 1998, $42,000 in 1997, and
$301,000 in 1996 from
-15-
<PAGE>
the disposals of machinery and equipment. Disposals in 1998 reflect the sale
of Uniflow's FX 1250 cold former machine while disposals in 1997 were
negligible. The 1996 disposals reflect the sale of various Tooling Segment
machines no longer used in its core business.
Net cash used in discontinued operations was $207,000 in 1998,
consisting of capital expenditures for new programs, offset by cash proceeds
from the sale of assets. In 1997, discontinued operations used $7.2 million,
primarily for the starter motor machining line and the acquisition of
Milford.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows provided by (used in) financing activities were ($5.2)
million in 1998, $5.3 million in 1997, and $7.5 million in 1996. In 1998, the
Company sold significant operating assets, including its Milford operations
and Uniflow's FX 1250 cold former, allowing for the significant reduction in
debt levels. In 1997, the $4.8 million increase in the bank line of credit
provided funding for the Milford operation and acquisition, equipment
deposits and general working capital purposes. Proceeds from term debt
financing in 1997 were $1.1 million, which was principally utilized to
finance computers in all business segments and machinery at Uniflow. Also in
1997, discontinued operations provided $900,000 from the financing of a
manufacturing facility reduced by payments on long-term obligations.
In 1996, the Company completed a major debt refinancing of its
existing assets resulting in $7.9 million in proceeds offset by $5.5 million
in principal payoffs. In addition, the Company received $7 million in
industrial revenue bond financing to acquire machinery and equipment for two
customer projects. Also in 1996, the Company received $1.9 million through
the exercise of stock warrants in exchange for one million shares of common
stock.
Principal payments were $2.8 million in 1998, which included a $1.3
million one-time payment resulting from the sale of Uniflow's FX 1250, $1.5
million in 1997 and $1.3 million in 1996.
YEAR 2000 DATE CONVERSION
The Company has engaged a consultant who has reviewed all of the
Company's software and hardware to determine whether such systems are capable
of processing information pertaining to the year 2000. The initiative
utilizes both Company resources and external resources to identify systems
and applications affected, to correct existing systems or to acquire
replacement systems, and to test the systems and applications for compliance
with the requirements for processing year 2000 information. In addition, the
Company is seeking certification of Year 2000 compliance from its'
significant third party vendors. The Company is in the process of determining
the total cost associated with the required modifications and conversions but
does not believe such costs will be material.
IMPACT FROM INFLATION
Management does not believe that inflation had a significant impact
on the Company's operations during the prior three years ended September 30,
1998.
-16-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a)(1) for a list of the financial statements included in
this Form 10-K.
Refer to page F-22 of the consolidated financial statements of this
Form 10-K for the supplementary quarterly financial data required by this
Item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In November 1998 the Company filed an 8-K stating that it has changed
its auditors to Rehman Robson PC from Deloitte & Touche LLP. There have been no
disagreements with either firm.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following is a listing of the members of the Board of Directors
of the Company and includes information regarding the individual's age,
principal occupation, other business experience, directorships in other
publicly-held companies and term of service with the Company. Directors are
elected at each Annual Meeting of Stockholders or until his successor is
elected and qualified. Information regarding executive officers is included
under "Item 1. Business" pursuant to General Instruction G.
NAME AND AGE POSITION AND PRINCIPAL OCCUPATION
- ------------ ---------------------------------
Robert A. Clemente, 45 Director of the Company since December 1993 and
Chairman since December 1994. Mr. Clemente is
an attorney and certified public accountant
and, since January 1997, Of Counsel to the firm
of Munro & Munro, PC, Troy, Michigan where Mr.
Clemente practices law, specializing in
corporate, commercial and tax law. From
December 1993 through May 1998, Mr. Clemente
was President and Chief Executive Officer of
the Company and from December 1993 to December
1996, Mr. Clemente was Of Counsel to the law
firm of Hardy, Lewis and Page, PC, Birmingham,
Michigan,
Gregory Adamczyk, 44 Director of the Company since December 1993.
President and owner of Future Planning Corp.
since December 1980, Mr. Adamczyk is also
Chairman, Director and founder of Forward
Planning Corp. Both Future Planning Corp. and
Forward Planning Corp. are based in Livonia and
specialize in manufacturing and engineering,
primarily for automotive factories.
Rocco Pollifrone, 42 Director of the Company since December 1993.
Mr. Pollifrone is President and Chief Executive
Officer of Forward Planning Corp. and has been
employed there or with affiliated companies for
over 20 years in various management positions.
-17-
<PAGE>
Richard Thompson, 29 Director of the Company since December 1993.
Mr. Thompson has been the President of MST
Steel Corp. since 1998 and was Vice President
of MST Steel Corporation since 1991. MST Steel
Corp. is a steel service center that
warehouses, processes and sells flat-rolled
steel, primarily for the automotive industry.
Martin J. Eidemiller, 41 Director of the Company since June 1998. Mr.
Eidemiller has been a member of the Company's
Operating Committee since June 1998 and a Vice
President of the Company since 1994. Mr.
Eidemiller has been engaged in various
management positions with the Company for over
ten (10) years.
Orville (Ken) Thompson, a director of the Company since 1993, died
November 28, 1998 at the age of 50. Mr. Thompson had been the President and
owner of MST Steel Corp., based in Warren, Michigan, for over fifteen (15)
years.
Richard Thompson, Director, is the son of Orville (Ken) Thompson.
Robert Clemente, Director and Chairman of the Board, is the brother of Paul
Clemente, who is a Vice President and a member of the Company's Operating
Committee. There are no other family relationships among the Directors and
Officers listed above.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF COMPENSATION
The following summary compensation table sets forth information
concerning cash and non-cash compensation for services in all capacities
awarded to, earned by or paid during the last three (3) fiscal years to the
Company's Chief Executive Officer and officers whose cash compensation
exceeded One Hundred Thousand ($100,000) Dollars in any such fiscal year.
-18-
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Awards
------------
Annual Compensation Other Securities
Name and Principal Position ------------------------- Annual Underlying All Other
Compensation Year Salary Bonus Compensation Bonus Options (#)
- --------------------------- ---- ------ ----- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Clemente
Chairman of the Board 1998 $150,000 __ __ __ __
1997 150,000 __ __ __ __
1996 150,000 __ __ __ __
Martin J. Eidemiller
Vice President 1998 $117,500 $25,000 $15,000(1) __ __
and Member of the 1997 110,000 20,000 __ __ __
Operating Committee 1996 107,501 30,000 __ __ __
Terry Hamilton
President - Metal 1998 $100,000 __ __ __ __
Parts Forming Group
and Member of the
Operating Committee
- ------
<FN>
(1) Paid in consideration of Mr. Eidemiller executing a noncompetition
agreement with the Company.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUED
The following table provides information on option exercises in
fiscal 1998 by the Named Executive Officers and the value of such officers'
unexercised options at September 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
----------------------------- ---------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Clemente __ __ 90,000 135,000 __ __
Martin J. Eidemiller __ __ 20,000 30,000 __ __
Terry Hamilton __ __ __ __ __ __
</TABLE>
COMPENSATION PURSUANT TO STOCK OPTIONS
During fiscal 1998, no options were awarded to any of the Company's
Named Executive Officers. As of January 5, 1999, 175,000 options were
outstanding to the Company's Named Executive Officers.
1991 NON-QUALIFIED STOCK OPTION PLAN
On August 1, 1991, Secom's Board adopted a non-qualified stock
option plan (the "1991 Plan"). The 1991 Plan authorizes the Board to grant
stock options for a maximum total of 400,000 shares of Common Stock to those
employees of Secom and its subsidiaries, including officers and directors,
who have performed well in their capacities and who have potential for
assuming higher levels of responsibility with Secom. The 1991 Plan is
administered by the Board, which determines the persons who are to receive
options and the terms of the options granted under the
-19-
<PAGE>
1991 Plan. The option price of all options granted under the 1991 Plan shall
not be less than the fair market value of the Common Stock at the date of
grant. Under the 1991 Plan, options may be granted only during the
recipient's employment, and must be exercised within a period fixed by the
Board, which may not exceed ten (10) years from the date of grant unless
earlier terminated as a result of the termination of the recipient's
employment. However, if the recipient's employment is terminated as a result
of death, total and permanent disability, retirement after age 65 or other
reasons approved by the Board, those options may be exercised for specified
periods up to twelve (12) months after that termination. Options granted
under the 1991 Plan may not be transferred except by reason of death. The
1991 Plan provides that the Board may establish a vesting schedule with
respect to any options granted under the 1991 Plan which would limit the
exercisability of those options and/or the sale or transfer of any shares
purchased upon exercise of those options.
As of January 5, 1999, stock options for 239,000 shares were
outstanding to employees, including certain officers, pursuant to the 1991
Plan. During fiscal 1998, options to purchase shares of Common Stock were not
awarded to any of the Company's Named Executive Officers.
COMPENSATION OF DIRECTORS
The Directors of the Company do not receive compensation for attending
Board Meetings or for being Board Members. During fiscal 1998, the Board
of Directors authorized payment of $24,600 to Gregory Adamczyk, a Director of
the Company, in consideration of services he perfored in completing certain
special projects. These fees were not paid as of September 30, 1998.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") was established as a
standing committee of the Board in August 1992. Its purpose is to annually
fix the salaries of the Chief Executive Officer and other Executive Officers
of the Company, determine periodic bonuses and stock options for such
executives, and administers other programs that would provide compensation to
such executives. Rocco Pollifrone and Gregory Adamczyk were appointed to the
Compensation Committee in March 1998.
GENERAL
It is the philosophy of the Committee to ensure that executive
compensation is directly linked to continuous improvement in the Company's
financial performance and stockholder value. The following objectives
represent the underlying principles which support all compensation decisions:
* Allow the Company to attract and retain quality professional talent
among its executive officer group by establishing executive
compensation that is competitive within its industry peer group.
* Integrate compensation practices that promote the successful
execution of the Company's long-term plans and goals.
* Encourage Company stock ownership by its executive officers and
enhance stockholder value through periodic stock option awards or
other stock-based compensation arrangements.
-20-
<PAGE>
Executive compensation is reviewed on an annual basis by the
Committee in conjunction with an analysis of each individual's performance.
In addition, corporate performance is evaluated in a manner to ensure that
compensation levels support the continued focus on increasing profitability
and stockholder value. Conversely, in periods when corporate performance
goals are not achieved, the Committee may decrease the level of overall
individual compensation.
The Committee also reviews independent compensation survey
information from national and regional organizations that report compensation
practices and salary levels for various executive positions at comparably
sized companies that operate in similar lines of businesses of the Company.
SALARIES AND BONUSES
The Committee's policy is to determine salaries and to award
discretionary bonuses to key employees each year based on their individual
performance and the overall performance of the Company during the immediately
preceding year. The Committee's review of individual performance of an
executive is largely a subjective test; the Committee considers the potential
of the individual executive and the executive's performance in his or her
position. In addition, the Committee consults with financial and other
professionals who have experience with respect to the compensation levels of
various executives at comparably sized companies that operate in similar
lines of business as the Company. These professionals also utilize relevant
independent compensation surveys for executive positions at comparably sized
companies. Salaries for the Company's executives generally fall near the mean
of salaries for similarly-situated companies.
The Compensation Committee generally uses different criteria in
determining each of the three components of an executive's compensation; base
salary, options and bonuses. To determine the base salary, the Compensation
Committee reviews the executive's past performance and prospects for future
performance and establishes a fair and equitable base salary. The
Compensation Committee rewards long-term performance through the granting of
stock options. The Committee believes that the issuance of stock options
provides an incentive to executives to increase the overall long-term
financial performance of the Company. Cash bonuses are used to reward the
short-term accomplishments of specific executives for favorable performance
of the business units under their management. In granting bonuses, the
Compensation Committee reviews recommendations from management, the
executive's current base salary and the overall financial condition of the
Company.
STOCK OPTIONS
The Committee utilizes the 1991 Plan as a long term stock incentive
plan to compensate executives based on the Company's long term growth. Since
the option price on options granted under the 1991 Plan can not be less than
the fair market value on the date of the grant, the Committee believes that
this provides the Company's executives with the incentive to increase the
Company's earnings and increase stockholder value.
-21-
<PAGE>
FISCAL 1998 COMPENSATION CONCERNING CHIEF EXECUTIVE OFFICER
In May 1998, Mr. Clemente relinquished his position as Chief
Executive Officer and the Board appointed an Operating Committee comprised of
Martin Eidemiller, Terry Hamilton and Paul Clemente to fulfill the role of
CEO. As CEO through May 1988, Mr. Clemente's base salary remained at $150,000
and he was not paid a bonus or paid any other compensation as CEO during fiscal
1998. The Compensation Committee concluded that Mr. Clemente's salary
represented a low base salary for similar industry positions and, therefore
did not make any changes to it. Given the Company's performance Messrs.
Eidemiller and Hamilton remained at their current compensation level after
becoming members of the Operating Committee while Paul Clemente's compensation
was increased to an annual rate of $100,000 in recognition of his increased
responsibilities as a member of the Operating Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Both members of the Compensation Committee are Directors. There were
no interlocks of executive officers or Board Members of the Compensation or
equivalent Committee of another entity, which has any executive officers
serving on the Compensation Committee of the Company. No executive officer of
the Company serves as a director of another entity, one of whose executive
officers served on the Compensation Committee of the Company. No executive
officer of the Company served as a member of the Compensation Committee of
another entity, one of whose executive officers served as a director of the
Company. See also "Item 13 - Certain Relationships and Related Transactions"
herein.
COMPANY PERFORMANCE
The following graph depicts a five (5) year comparison of
cumulative total returns, assuming $100 was invested on September 30, 1993 in
(a) Secom's Common Stock; (b) the NASDAQ Stock Market -- U.S. (as a broad
equity market index) and (c) the NASDAQ non-financial index (as a peer group
index utilizing a published industry index).
<TABLE>
<CAPTION>
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SECOM GENERAL CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ NON-FINANCIAL INDEX
[ Performance Graph ]
Cumulative Total Return
------------------------------------------------------------
9/93 9/94 9/95 9/96 9/97 9/98
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SECOM GENERAL CORPORATION 100.00 96.00 100.00 88.00 75.00 13.00
NASDAQ STOCK MARKET (U.S.) 100.00 100.83 139.28 165.24 226.81 231.84
NASDAQ NON-FINANCIAL 100.00 99.44 138.60 161.82 217.34 220.01
<FN>
* $100 INVESTED ON 9/30/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
</TABLE>
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. SECURITY
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
those persons who are
-22-
<PAGE>
known by management of the Company to have been a beneficial owner of more
than five (5%) percent of the Company's outstanding Common stock as of the
January 5, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OWNED 1/
- ------------------- -------------------- ----------------
<S> <C> <C>
Manubusiness Opportunities, Inc.
c/o 24417 Groesbeck Highway
Warren, Michigan 48089............... 1,630,428 1/ 30.56%
Secom General Corporation 401(k) Plan
46035 Grand River Avenue
Novi, Michigan 48374................. 507,589 2/ 9.51%
John Cocke
46657 Arboretum
Plymouth, Michigan 48170 ............. 410,730 7.70%
<FN>
- -------------------------
1/ Three Stockholders of Manubusiness Opportunities, Inc. ("MOI"), Gregory
Adamczyk, Rocco Pollifrone and Richard Thompson, are Directors of Secom.
2/ Participants of the Company's 401(k) Plan can vote their pro rata portion
of the shares owned by the Plan. Shares not voted by participants may be
voted by the Plan's trustee, Scott Konieczny. Shares owned by the 401(k) Plan
for the account of persons who are not officers or directors are not included
in the shares as shown beneficially owned by all directors and officers as a
group. Of the shares owned by the Company's 401(k) Plan, approximately 38,852
are owned for the account of officers and directors and are treated as being
owned directly. See "Security Ownership of Management."
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of shares of the Company's Common stock by the present
Directors and Named Executive Officers of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY
NAME OWNED AS OF JANUARY , 1999 1/ PERCENT OWNED 2/
- ---- ------------------------------ ----------------
<S> <C> <C>
Robert A. Clemente.......... 185,078 3/4/ 3.41%
Gregory Adamczyk............ 321,194 3/5/ 6.02%
Rocco Pollifrone............ 114,130 3/6/ 2.14%
Richard Thompson............ 532,798 3/7/ 9.99%
Martin J. Eidemiller........ 47,561 3/8/ *
Terry Hamilton.............. 449 *
Current Directors and
Officersas a Group
(totaling 6)................ 1,201,210 9/ 22.06%
-23-
<PAGE>
<FN>
- -------------
* Less than 1% of the outstanding shares.
1/ To the best of the Company's knowledge based on information reported by
the Directors or executive officers or contained in the Company's shareholder
records. Each of the named persons is presumed to have sole voting and sole
investment power with respect to all shares shown, except as otherwise
indicated by additional information included in the footnotes to this table.
2/ For the purposes of this table, shares indicated as being beneficially
owned include shares for which the person has the direct or indirect: (i)
voting power, which includes the power to vote or to direct the voting,
and/or (ii) investment power, which includes the power to dispose or to
direct the disposition, of the shares of Common Stock indicated. Unless
otherwise indicated, the beneficial owner has sole investment and voting
power. Shares indicated as being beneficially owned also include shares not
presently outstanding but which are subject to exercise within 60 days
through options, warrants, rights or conversion privileges. For the purpose
of computing the percentage of the outstanding shares beneficially owned by a
stockholder, any shares issuable to such persons under stock options
exercisable within 60 days are deemed to be outstanding securities of the
class owned by the stockholder but are not deemed to be outstanding for the
purpose of computing the percentage owned by any other person.
3/ A director of the Company. The address for all directors is c/o Secom
General Corporation, 46035 Grand River Avenue, Novi, Michigan 48374.
4/ Includes (a) 90,000 shares which Mr. Clemente has the right to
acquire within 60 days pursuant to the exercise of stock options, and (b)
31,556 shares which represents 49% of the 64,400 shares beneficially owned by
Career Opportunities, a partnership of which Mr. Clemente is a general
partner.
5/ Represents 19.7% of the 1,630,428 shares that are beneficially owned by
MOI, as Mr. Adamczyk owns 19.7% of the Common Stock of MOI. See "Principal
Stockholders - Manubusiness Opportunities, Inc."
6/ Represents 7% of the 1,630,428 shares that are beneficially owned by MOI,
as Mr. Pollifrone owns 7% of the Common Stock of MOI. See "Principal
Stockholders - Manubusiness Opportunities, Inc."
7/ Includes (a) 500,052 shares which represents 30.67% of the 1,630,428
shares that are beneficially owned by MOI, as Mr. Thompson owns 30.67% of the
Common Stock of MOI, and (b) 32.844 shares which represents 51% of the 64,400
shares beneficially owned by Career Opportunities, a partnership of which the
Orville K. Thompson Living Trust (the "Trust") is a partner and Mr. Thompson
is a beneficiary of the Trust. Does not include 16,588 shares of Common Stock
which are owned by Mr. Thompson's sister under the Michigan Uniform Gifts to
Minors Act. Although Mr. Thompson is the custodian pursuant to such gift, he
does not exercise the power to vote such shares and disclaims beneficial
ownership of such shares. See "Principal Stockholders - Manubusiness
Opportunities, Inc."
8/ Includes 20,000 shares of Common Stock which Mr. Eidemiller has the
right to acquire within 60 days pursuant to the exercise of stock options.
9/ Shares shown as beneficially owned by more than one Director or officer
are included only once in the total.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1997, Robert Clemente has served in an "Of Counsel"
capacity to the law firm of Munro & Munro, PC. During fiscal 1998, Munro &
Munro was retained by the Company for professional legal services required in
the normal course of business. During fiscal 1998 the Company paid Munro &
Munro $84,000 in legal fees and expenses. Mr. Clemente does not receive any
portion of the fees paid by the Company to Munro & Munro. In addition during
1998, Mr. Clemente provided legal services to MST Steel Corp., which is owned by
Director Richard
-24-
<PAGE>
Thompson, and to Future Planning Corp., and Forward Planning Corp., whose
principal owners and officers are Directors Gregory Adamczyk and Rocco
Pollifrone.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
PAGE
Financial Statements............................................... F
Independent Auditors' Reports...................................... F-1
Consolidated Balance Sheets as of September 30, 1998 and 1997...... F-2
Consolidated Statements of Operations for the Years Ended
September 30, 1998, 1997 and 1996.................................. F-3
Notes to Consolidated Financial Statements......................... F-6
The information required to be submitted in Schedule II - Valuation and
Qualifying Accounts is included in the consolidated financial statements and
notes thereto. Schedules other than those listed above are omitted because of
the absence of the conditions under which they are required.
(b) Reports filed on Form 8-K.
None.
(c) Exhibits. See the Exhibit Index on the following page.
-25-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE*
- ------- ----------- -----
2.1 Agreement dated March 18, 1998 between
Milford Manufacturing Corporation and
Kelsey-Hayes Company.................................. 2.1 *(1)
2.2 Agreement dated March 18, 1998 between
Milford and PGK Acquisition
Corp.................................................. 2.2 *(1)
2.3 Asset Purchase Agreement between
Uniflow Corporation and Horizon
Technology, LLC dated February 5, 1998................ 2.3 *(1)
3.1 Certificate of Incorporation of the Company
filed with the Secretary
of State of Delaware on August 25, 1987............... 3.1 *(2)
3.2 Amendment to Articles of Incorporation
filed on August 31, 1990.............................. 3.2 *(3)
3.3 Certificate of Merger between the
Company and Secom General
Corporation, a Utah corporation filed
with the Secretary of State of
Delaware in December 1987............................. 3.2 *(2)
3.4 Certificate of Designation of Rights of
the Class A Preferred Stock
filed with the Secretary of State of
Delaware in December 1987............................. 3.3 *(2)
3.5 Amendment to Articles of Incorporation
filed on December 17, 1991............................ 3.5 *(5)
-26-
<PAGE>
EXHIBIT DESCRIPTION PAGE*
- ------- ----------- -----
3.6 Bylaws of the Company................................. 3.4 *(2)
4.1 List of instruments defining the right of security
holders............................................... 4.1 *(7)
10.1 Amended and Restated Revolving Credit and
Loan Agreement between Secom
General Corporation, Uniflow
Corporation, Micanol, Inc., L&H
Die, Inc. and Form Flow, Inc.......................... 10.2 *(8)
10.2 Master Equipment Lease Agreement between
Secom General Corporation
and KeyCorp Leasing Ltd............................... 10.3 *(8)
10.3 Mortgage, Security Agreement,
Assignment of Leases and Rents and
Fixture Filing between Secom General
Corporation and Metlife Capital
Financial Corporation................................. 10.4 *(8)
10.4 Loan Agreement among GE Capital
Public Finance, Inc. as Lender, and
Michigan Strategic Fund, as Issuer
and Secom General Corporation as
Borrower dated June 1, 1996........................... 10.5 *(8)
10.5 Loan Agreement among GE Capital
Public Finance, Inc. as Lender, and
Michigan Strategic Fund, as Issuer,
and Secom General Corporation,
as Borrower dated as of Sept. 1,
1996.................................................. 10.6 *(8)
10.6 1991 Nonqualified Stock Option
Plan.................................................. 10.27*(4)
10.7 Form of Stock Option Agreement for
Options granted under the
1991 Non-qualified Stock Option
Plan.................................................. 10.28*(4)
10.8 Subordination Agreement dated
December 15, 1993 between Larry
McKnight as junior lender and
NBD Bank, N.A. as senior
lender................................................ 10.17*(6)
10.9 Agreement and Extension Agreement
Dated November 25, 1998 between NBD Bank,
as Lender and Secom General Corporation
as Borrower........................................... E-1
- ------------
* See the footnotes on page 28 to locate these Exhibits.
-27-
<PAGE>
EXHIBIT DESCRIPTION PAGE*
- ------- ----------- -----
22. Subsidiaries of the
Registrant............................................ E-41
23.1 Consent of Deloitte & Touche
LLP................................................... E-42
23.2 Consent of Rehmann Robson, PC......................... E-43
27. Financial Data Schedule
All exhibits that have page numbers followed by an * are
incorporated by reference from the filings set forth below. The numbers set
forth as page numbers for those exhibits are the exhibit numbers those
documents were given in those other filings. All other exhibits are included
in this Form 10-K at the page numbers shown.
* (1) Incorporated by reference from the Company's Current Report
on Form 8-K dated April 2, 1998.
* (2) Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended September 30, 1987.
* (3) Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended September 30, 1990.
* (4) Incorporated by reference from the Company's Registration
Statement on Form S-4 (File No. 33-40865) that was declared
effective on November 20, 1991.
* (5) Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended September 30, 1991.
* (6) Incorporated by reference from the Company's Current Report
on Form 8-K dated December 15, 1993.
* (7) Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended September 30, 1993.
* (8) Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended September 30, 1996.
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
SECOM GENERAL CORPORATION
By: /s/ Martin J. Eidemiller
------------------------------
Dated: January 13, 1999 Martin J. Eidemiller
Its: Vice President
-----------------------------
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.
SIGNATURE TITLE DATE
- --------- ----- ----
Principal Executive
Officer:
/s/ Martin J. Eidemiller
- ------------------------
Martin J. Eidemiller Vice President January 13, 1999
Principal Financial and
Accounting Officer:
/s/ Scott J. Konieczny
- ------------------------
Scott J. Konieczny Secretary/Treasurer January 13, 1999
/s/ Richard Thompson
- ------------------------
Richard Thompson Director January 13, 1999
/s/ Gregory Adamczyk
- ------------------------
Gregory Adamczyk Director January 13, 1999
/s/ Rocco Pollifrone
- ------------------------
Rocco Pollifrone Director January 13, 1999
/s/ Robert A. Clemente
- ------------------------
Robert A. Clemente Director January 13, 1999
-29-
<PAGE>
SECOM GENERAL CORPORATION
NOVI, MICHIGAN
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY INFORMATION
FOR THE YEARS ENDED
SEPTEMBER 30, 1998, 1997 AND 1996
F
<PAGE>
SECOM GENERAL CORPORATION
TABLE OF CONTENTS
- ------------------------------------------------------------------------
Page
----
Independent Auditors' Report F-1
Financial Statements for the Years Ended
September 30, 1998, 1997 and 1996
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-21
Supplementary Information
Selected Quarterly Financial Data (Unaudited) F-22
Selected Financial Data (Unaudited) F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
SECOM GENERAL CORPORATION
Novi, Michigan
We have audited the accompanying consolidated balance sheet of Secom General
Corporation and subsidiaries as of September 30, 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Secom General Corporation and subsidiaries as of September 30, 1998, and
the consolidated results of their operations and their cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Farmington Hills, Michigan
January 11, 1999
F-1(a)
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Secom General Corporation
Novi, Michigan
We have audited the accompanying consolidated balance sheet of Secom General
Corporation and subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended September 30, 1997. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Secom General Corporation and
subsidiaries at September 30, 1997, and the results of their operations and
their cash flows for each of the two years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
December 5, 1997
(January 11, 1999
as to Note 2)
F-1(b)
<PAGE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
ASSETS September 30,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Current assets
Cash $ 104,600 $ 346,800
Accounts receivable
Trade 4,139,000 6,772,100
Other 163,500 222,200
Inventories 4,044,800 6,136,900
Prepaid expenses 286,500 465,900
Deferred tax assets 603,900 651,000
Property, plant and equipment
held for sale 1,440,000 --
Machinery and equipment of
discontinued subsidiary 4,200,000 --
------------ ------------
Total current assets 14,982,300 14,594,900
Cash restricted for equipment -- 526,500
Property, plant and equipment, net 12,189,200 28,002,300
Intangible assets 146,700 1,857,800
Other assets 549,500 1,226,800
------------ ------------
Total assets $ 27,867,700 $ 46,208,300
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY September 30,
-----------------------------
1998 1997
---- ----
Current liabilities
Current maturities of long-term debt $ 4,724,900 $ 3,435,500
Long-term debt classified as current 6,623,300 --
Accounts payable 2,925,800 3,678,700
Accrued wages and benefits 779,000 1,338,200
Accrued restructuring costs 416,000 --
Other accrued expenses 746,700 453,500
Debt secured by assets of discontinued
subsidiary 2,349,800 --
------------ ------------
Total current liabilities 18,565,500 8,905,900
Long-term debt obligations -- 17,710,600
Post retirement health care benefits -- 3,396,100
Pension and other liabilities -- 485,100
Deferred tax liabilities 960,100 1,411,000
------------ ------------
Total liabilities 19,525,600 31,908,700
------------ ------------
Commitments and contingencies (Note 10)
Stockholders' equity
Common stock, $.10 par value,
authorized 10,000,000 shares;
outstanding 5,335,400 shares;
(5,340,400 shares in 1997) 533,500 534,000
Additional paid-in capital 18,400,800 18,412,400
Accumulated deficit (10,592,200) (4,646,800)
------------ ------------
Total stockholders' equity 8,342,100 14,299,600
------------ ------------
Total liabilities and stockholders' equity $ 27,867,700 $ 46,208,300
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<FN>
</TABLE>
F-2
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
Year Ended September 30,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $31,725,500 $35,037,200 $30,877,100
Cost of sales:
Production 28,946,700 29,234,900 25,064,900
Restructuring charges 900,000 -- --
----------- ----------- -----------
Gross profit 1,878,800 5,802,300 5,812,200
Selling, general and
administrative expenses 5,352,700 4,910,000 4,920,700
Other restructuring charges 2,312,000 -- --
----------- ----------- -----------
(Loss) income from operations (5,785,900) 892,300 891,500
----------- ----------- -----------
Other income (expense)
Interest (953,700) (1,071,800) (847,600)
Other, net 129,600 161,000 14,600
----------- ----------- -----------
Other (expense) - net (824,100) (910,800) (833,000)
----------- ----------- -----------
(Loss) income from continuing
operations before income taxes (6,610,000) (18,500) 58,500
Income tax benefit (expense) 543,900 (28,700) (17,900)
----------- ----------- -----------
(Loss) income from continuing
operations (6,066,100) (47,200) 40,600
Discontinued operations
(Loss) income from operations
of discontinued subsidiary (890,600) 355,800 --
Gain on disposal of subsidiary,
net of applicable income
taxes of $248,700 1,011,300 -- --
----------- ----------- -----------
Net (loss) income $(5,945,400) $ 308,600 $ 40,600
=========== =========== ===========
(Loss) income per common share
(basic and diluted):
Continuing operations $ (1.13) $ (0.01) $ 0.01
Discontinued operations 0.02 0.07 --
----------- ------------ -----------
Net (loss) income per common share $ (1.11) $ 0.06 $ 0.01
=========== ============ ===========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
Common Stock Additional
----------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Balance at October 1, 1995 4,276,200 $ 427,600 $ 16,478,900 $ (4,996,000) $ 11,910,500
Exercise of stock warrants 1,000,000 100,000 1,900,000 -- 2,000,000
Issuances to 401(k) plan (employer
match and employee elections) 35,700 3,600 77,600 -- 81,200
Stock issued for note receivable 25,000 2,500 35,000 -- 37,500
Stock repurchases, net (14,300) (1,400) (32,500) -- (33,900)
Stock issued for settlement of
stock guarantees 19,600 1,900 (1,900) -- --
Net income -- -- -- 40,600 40,600
--------- --------- ------------ ------------ ------------
Balance at September 30, 1996 5,342,200 534,200 18,457,100 (4,955,400) 14,035,900
Stock repurchases, net (20,000) (2,000) (48,000) -- (50,000)
Exercise of stock options 2,600 300 4,800 -- 5,100
Stock issued for settlement of
stock guarantees 15,600 1,500 (1,500) -- --
Net income -- -- -- 308,600 308,600
--------- --------- ------------ ------------ ------------
Balance at September 30, 1997 5,340,400 534,000 18,412,400 (4,646,800) 14,299,600
Stock repurchases, net (5,000) (500) (11,600) -- (12,100)
Net loss -- -- -- (5,945,400) (5,945,400)
--------- --------- ------------ ------------ ------------
Balance at September 30, 1998 5,335,400 $ 533,500 $ 18,400,800 $(10,592,200) $ 8,342,100
========= ========= ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Year Ended September 30,
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash from operating activities:
Net (loss) income $ (5,945,400) $ 308,600 $ 40,600
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 2,692,700 2,234,900 1,983,900
Deferred income taxes (benefit) (403,800) (1,500) (214,700)
Provision for doubtful accounts 104,500 62,000 51,400
(Gain) loss on sale of assets (23,900) (3,000) 115,800
Restructuring charges 3,788,500 -- --
Stock issuances to 401(k) plan -- -- 32,000
Write-off of intangibles -- -- 84,200
Changes in operating assets and
liabilities which provided
(used) cash:
Trade and other receivables 1,288,100 (983,500) 388,600
Inventories 1,070,000 (454,000) (1,234,800)
Prepaids 7,500 229,300 (36,000)
Other assets (372,600) (215,600) (192,000)
Trade accounts payable (65,000) (229,800) 842,000
Accrued liabilities (83,000) 226,100 (181,800)
Net cash provided by discontinued
operations 1,081,500 249,900 158,600
------------ ------------ ------------
Net cash provided by operating activities 3,139,100 1,423,400 1,837,800
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposal of property,
plant and equipment 2,655,800 42,400 301,000
Collections on notes receivable 101,800 22,100 259,800
Capital expenditures (1,249,100) (3,089,700) (5,479,100)
Net cash used in discontinued
operations (207,200) (7,188,900) --
------------ ------------ ------------
Net cash provided by (used in) investing
activities 1,301,300 (10,214,100) (4,918,300)
------------ ------------ ------------
Cash flows from financing activities:
Net change in bank line of credit (2,442,600) 4,766,300 (3,603,600)
Proceeds from long-term obligations 395,900 1,134,600 8,205,500
Proceeds from refinancing of long-term
obligations -- -- 7,887,500
Proceeds from issuances of stock -- 5,100 1,918,800
Payments on long-term obligations due
to refinancing -- -- (5,535,800)
Retirements of common stock (12,100) (50,000) (33,900)
Payments on long-term obligations (2,832,000) (1,529,400) (1,314,600)
Payments on capital lease obligations -- -- (48,500)
Net cash (used in) provided by
discontinued operations (318,300) 928,800 --
------------ ------------ ------------
Net cash (used in) provided by financing
activities (5,209,100) 5,255,400 7,475,400
------------ ------------ ------------
Net (decrease) increase in cash and
restricted cash (768,700) (3,535,300) 4,394,900
Cash and restricted cash, beginning of year 873,300 4,408,600 13,700
------------ ------------ ------------
Cash and restricted cash, end of year $ 104,600 $ 873,300 $ 4,408,600
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-5
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the
accounts of Secom General Corporation and its wholly-owned
subsidiaries, Form Flow, Inc.; L&H Die, Inc.; Micanol, Inc.;
Uniflow Corporation; and MMC Manufacturing Corp. f/k/a Milford
Manufacturing Corporation ("Milford"). All significant
intercompany accounts and transactions have been eliminated.
Nature of Business
Secom General Corporation (the "Company") is a publicly-traded
holding company with five wholly-owned subsidiaries supplying the
automotive, truck and construction markets. The Company currently
operates in two business segments: tooling and metal parts
forming. In March 1998 the Company discontinued its production
machining segment (see Note 2).
Restructuring and Realignment of Business
During the year ended September 30, 1998, management significantly
reduced the size of the Company's consolidated business in order
to stem negative operating cash flows and reduce secured debt
obligations. Those efforts culminated in the sale of various
operating assets, including the discontinued Milford subsidiary
and various machinery and equipment of Uniflow, as well as revised
part pricing or product discontinuation on low margin sales and
production. Management believes that these efforts have
substantially reduced the operational circumstances which created
the negative cash flows and significant operating losses. As this
trend continues, management believes internally generated cash
from operations and amounts available on the line of credit will
be sufficient to cover scheduled debt payments as well as fund
continuing working capital requirements, and restore normal
banking relations including compliance with ongoing debt
covenants. While management is committed to continuing its efforts
to improve operating results in the normal course of business over
the long term, it nevertheless has also engaged an investment
banking firm in October 1998 to assist in the development of other
strategic alternatives, such as the possible sale or merger of all
or part of the Company's continuing business. As such, although
the Company would consider any meaningful offer on favorable
terms, continuing as an independent profitable going concern is
considered a viable alternative to maximizing shareholder value.
Significant Customer and Concentration Risks
The Company has one customer which comprised approximately 19% of
total revenues in 1998, one customer which comprised approximately
13% of total revenues in 1997, and one customer which comprised
approximately 12% of total revenues in 1996. The loss of a
significant customer could have an adverse impact on short-term
operating results.
F-6
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company grants trade credit to customers in the normal course
of business and at September 30, 1998 has receivables of
$2,359,400 from companies in the automotive industry. Ongoing
credit evaluations of customers' financial condition are conducted
and, generally, no collateral is required. The Company maintains
reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of income and expenses during the
reporting period. Significant estimates include fair value of
assets held for sale, realization of tax benefits associated with
net operating losses and tax credit carryforwards, and impairment
of property and goodwill assets.
Inventory Valuation
Inventories are stated at the lower of cost determined using the
first-in, first-out method, or market.
Revenue Recognition
Revenues are recognized upon shipment of customer products.
Property, Plant and Equipment
Property, plant and equipment used in conducting the business are
stated at cost. Major improvements and renewals are capitalized
while ordinary maintenance and repairs are expensed. Management
reviews these assets on an ongoing basis to determine whether
carrying values have been impaired.
Property, plant and equipment held for sale are reported at
estimated fair value less estimated costs to sell.
Depreciation
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets, which range from 2
to 30 years.
F-7
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangible Assets
Intangible assets consisting of goodwill (cost in excess of net
assets acquired) is currently amortized on a straight-line basis
over 5 years. Accumulated amortization was $508,600 and $799,000
as of September 30, 1998 and 1997, respectively. Management
reviews the carrying value of goodwill on an ongoing basis to
assess its recoverability.
Income Taxes
Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and federal income
tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future, based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Deferred income taxes arise
from temporary basis differences principally related to tax
carryforwards, various accruals and allowances, certain assets
acquired in business combinations and property, plant and
equipment. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the year
plus or minus the change during the year in deferred tax assets
and liabilities.
Earnings (Loss) Per Common Share
Earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the year. The Company
adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share", effective October 1, 1997. This
statement requires a dual presentation and reconciliation of
"basic" and "diluted" per share amounts. Diluted reflects the
potential dilution of all common stock equivalents. At September
30, 1998, 1997 and 1996 options to purchase 614,000, 576,700 and
696,700 shares, respectively, were excluded from the computation
of earnings per share because the options' exercise prices were
greater than the average market price of the common shares. A
reconciliation of the denominators used in the basic and diluted
share calculation for continuing operations follows for the years
ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Denominator:
Weighted average shares outstanding,
basic 5,335,400 5,350,000 4,782,300
Incremental shares from assumed
conversion of options -- 111,300 92,300
--------- --------- ---------
Weighted average shares outstanding, diluted 5,335,400 5,461,300 4,874,600
========= ========= =========
</TABLE>
F-8
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Values of Financial Instruments
The carrying amount of accounts receivable and accounts payable
approximate their fair values due to the short-term maturity of
these financial instruments. The carrying amounts of long-term
debt approximate their fair values because the interest rates are
representative of, or change with, market rates.
Recently Issued Financial Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting
and display of comprehensive income and its components, amending
various prior SFAS. Management believes that the adoption of SFAS
No. 130 in fiscal 1999 will not have a significant impact on
results of operations or financial position.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information", which
establishes standards for the way that public enterprises report
information about operating segments in annual financial
statements and requires selected information in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas,
and major customers, superseding SFAS No. 14. Management believes
that the adoption of SFAS No. 131 in fiscal 1999 will not have a
significant impact on the disclosure of financial information.
2. DISCONTINUED OPERATIONS - PRODUCTION MACHINING SEGMENT
Effective March 18, 1998, the Company sold all of its assets
relating to Milford's machined brake valve parts business in
transactions with Varity Kelsey-Hayes Corporation ("VKH") and PGK
Acquisition Corp. ("PGK"). VKH was Milford's primary customer and
Secom had acquired the assets and business of Milford from VKH
effective November 1, 1996. Milford sold back to VKH, for $3
million in cash, the machinery, equipment and tooling used in
connection with the manufacture of machined brake valve body parts
along with its industrial facility. In addition to the cash
portion of the purchase price, VKH also assumed any funding
contributions required to be made to the Milford pension plan.
PGK acquired other machined valve related assets in exchange for
the assumption of approximately $1.2 million in accounts payable,
other accruals of approximately $700,000, and the bargaining unit
employee retiree health care obligation, recorded at $3.4 million.
PGK now operates the Milford business and also assumed Milford's
obligations under a supply agreement with VKH. In July 1998, the
Company also received $450,000 for the sale of certain Milford
equipment associated with the machining of various automotive
seating components.
F-9
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
2. DISCONTINUED OPERATIONS - PRODUCTION MACHINING SEGMENT (Continued)
On October 27, 1998, the Company sold the remaining assets and
business of Milford to Delco Remy America, Inc. ("DRA"), for the
purchase price of $4.2 million dollars, receiving $2.7 million in
cash and a $1.5 million promissory note. DRA purchased all of
Milford's machinery, equipment and certain inventories that were
used to produce machined starter motor shafts for DRA. The
remaining inventory was sold to Horizon Technology Group, L.L.C.
in a separate transaction. Accordingly, these assets are recorded
at their net realizable values as of September 30, 1998.
The disposal of Milford has been accounted for as a discontinued
operation and, accordingly, the results of the Production
Machining segment have been reported separately as discontinued
operations in the accompanying consolidated statements of
operations and cash flows, and its net assets have been segregated
from continuing operations in the accompanying consolidated
balance sheets. Summarized results of the Production Machining
segment prior to the March 1998 disposal decision are as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1998 1997
---- -----
<S> <C> <C>
Net sales $ 7,935 $ 12,718
Cost of sales 7,580 10,479
-------- --------
Gross profit 355 2,239
Operating expenses 985 1,287
Nonoperating expenses, net 364 398
-------- --------
(Loss) income before income taxes (994) 554
Income tax benefit (expense) 103 (198)
-------- --------
Net (loss) income $ (891) $ 356
======== ========
</TABLE>
The gain on the disposal of the production machining segment is
net of operating losses of $630,000 sustained in the months
following the March 1998 disposal decision.
F-10
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
2. DISCONTINUED OPERATIONS - PRODUCTION MACHINING SEGMENT (Continued)
The net assets and liabilities of the discontinued production
machining operations included in the accompanying consolidated
balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Current assets
Accounts receivable $ 658 $ 1,978
Inventory 41 512
Machinery and equipment to be sold 4,200 --
------- -------
Total current assets 4,899 2,490
------- -------
Current liabilities
Debt 2,350 769
Accounts payable and accrued liabilities 549 1,732
------- -------
Total current liabilities 2,899 2,501
------- -------
Net current assets (liabilities) $ 2,000 $ (11)
======= =======
<CAPTION>
September 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Noncurrent assets
Restricted cash $ -- $ 526
Intangible and other assets -- 849
Property, plant and equipment -- 9,692
------- -------
Total noncurrent assets -- 11,067
Noncurrent liabilities
Notes payable -- 4,160
Post retirement benefits -- 3,881
------- -------
Total noncurrent liabilities -- 8,041
------- -------
Net noncurrent assets $ -- $ 3,026
======= =======
</TABLE>
F-11
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
3. RESTRUCTURING CHARGES - METAL PARTS FORMING SEGMENT
The Company's Metal Parts Forming segment is comprised of the
Uniflow subsidiary. During the second quarter ended March 31,
1998, the Company began implementing a restructuring plan at
Uniflow. The plan includes emphasizing the cold forging business,
while selling off much of its cold heading capacity and business.
As a result, the Company recorded asset writedowns in connection
with the restructuring during the year ended September 30, 1998.
Those charges covered costs of discontinuing certain product
lines, including related machinery writedowns, and costs
associated with the consolidation of production into two
facilities from three. Also, in conjunction with the
restructuring, the Company recorded writedowns of goodwill and
machinery and equipment consistent with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of". Major components of the Uniflow restructuring
charges recorded during the year ended September 30, 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
Discontinued product lines - inventories and
related costs $ 680
Plant consolidation costs 220
------
Cost of sales - restructuring costs $ 900
======
<CAPTION>
Amount
------
Machinery and asset writedowns $1,450
Goodwill impairment 1,620
Less gain on sale of cold former machine (758)
------
Other restructuring costs $2,312
======
</TABLE>
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The following is a summary of changes in the allowance for
doubtful accounts receivable during each of the three years in the
period ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Balance, beginning of year $ 52,800 $ 21,000 $ 93,500
Add provision charged
against income 104,500 62,000 51,400
Less uncollected accounts
written off, net of recoveries (22,800) (30,200) (123,900)
-------- -------- ---------
Balance, end of year $134,500 $ 52,800 $ 21,000
======== ======== =========
</TABLE>
F-12
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
5. INVENTORIES
Inventories at September 30 consist of the following components
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 562 $1,102
Work-in-process 1,366 2,772
Finished goods 2,117 2,263
------ ------
Total $4,045 $6,137
====== ======
</TABLE>
The following is a summary of changes in the inventory valuation
allowance during each of the three years in the period ended
September 30:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 232,500 $ 147,500 $ 76,000
Add provision charged
against income 127,000 96,000 101,500
Less writeoffs (20,000) (11,000) (30,000)
--------- --------- ---------
Balance, end of year $ 339,500 $ 232,500 $ 147,500
========= ========= =========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following assets at
September 30 (in thousands) (see Note 3):
<TABLE>
<CAPTION>
1998 1997 Life
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment $14,344 $26,678 2 to 20 years
Building and improvements 4,705 6,581 3 to 30 years
Land and improvements 448 897 --
Furniture and fixtures 1,716 1,735 3 to 7 years
Vehicles 123 149 3 years
Construction-in-progress and deposits -- 1,334 --
------- -------
Total 21,336 37,374
Less accumulated depreciation 9,147 9,372
------- -------
Net book value $12,189 $28,002
======= =======
</TABLE>
F-13
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
7. LONG-TERM DEBT
Long-term debt consists of the following obligations at September
30 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Bank line of credit (a) $ 2,496 $ 4,939
Real estate mortgage notes (b) 3,267 3,446
Michigan Strategic Fund Limited
Obligation Revenue Bonds (c) 4,352 5,891
Equipment term notes (d) 2,805 6,077
Other notes payable (e) 778 794
-------- --------
Total long-term debt 13,698 21,147
Less current maturities (4,725) (3,436)
Less long-term obligations
classified as current (6,623) --
Less debt secured by assets of
discontinued subsidiary (2,350) --
-------- --------
Long-term debt reported $ -- $ 17,711
======== ========
<FN>
--------------
(a) In July 1996, the Company entered into an amended and
restated revolving credit and loan agreement with a bank,
which is for a three year period and permits borrowings of
up to $4 million under a revolving credit note and up to $2
million under a line of credit note. During 1998, the
Company violated certain debt covenants. As a result, in
November 1998 the Company's primary lender required the
Company to replace its current credit facilities with an
amendment and extension agreement, which extends continuing
credit, up to $3 million at prime plus 1%, through February 1,
1999. Prior to entering into the amendment and extension
agreement the interest rate was at prime or the 30 day LIBOR
rate plus 215 basis points. Borrowings on the bank line of
credit are collateralized by accounts receivable and
inventory, limited to stated advance rate percentages.
Interest is payable monthly. The agreement prohibits the
payment of cash dividends and requires the Company to maintain
specific financial covenants including minimum total equity,
current ratio and EBITDA. The Company is working with its
secured lenders closely and has continued to make all
scheduled debt payments through December 1998. Management
believes it can extend current debt facilities with existing
lenders or refinance with other lenders on a continuing basis.
(b) During 1996, the Company refinanced its existing mortgage
loans to obtain new mortgage loans requiring monthly
installments of principal and interest. Interest on a $2.88
million mortgage note is 8.25% per annum and is
collateralized by land and buildings with a net book value
of $3,350,000, while interest on a $775,000 mortgage note is
currently charged at prime plus 1% and is collateralized by
land and building with a net book value of $1,400,000. These
agreements mature in fiscal 1999 and 2011.
F-14
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
7. LONG-TERM DEBT (Continued)
(c) In June and September 1996, the Michigan Strategic Fund sold
$3,000,000 and $4,000,000, respectively, of its Limited
Obligation Revenue Bonds and the bondholders then loaned the
proceeds to the Company for the purchase of equipment. The
bonds require monthly interest and principal payments
through September 1, 2002. The bonds bear interest at the
rates of 6.15% and 5.99%, respectively, and are
collateralized by equipment with a net book value of $6.9
million. In October 1998, the balance of $2,349,800
outstanding on the $4 million bond was paid with proceeds
received from the sale of the remaining Milford assets.
(d) During 1996, the Company entered into an equipment term note
with a financial institution with interest payable at the 30
day LIBOR plus 215 basis points (approximately 7.53% at
September 30, 1998). During 1997, the Company entered into
an equipment term note agreement which provided for advances
up to $1,500,000 through December 31, 1997. At September 30,
1998, $644,700 was outstanding and interest is currently
payable at prime plus 1%. Both of these equipment term notes
are collateralized by the related equipment which amounted
to a net book value of $4.8 million at September 30, 1998.
(e) Interest rates on other notes payable range from 4.9% to
12%. At September 30, 1998, the balance includes $627,000 in
trade installment notes collateralized by certain property.
Maturity dates range from 1999 to 2001.
The prime rate at September 30, 1998 and 1997 was 8.25% and
8.5%, respectively.
</TABLE>
Scheduled principal payments on long-term debt for the next five years are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
September 30, Amount
------------- ------
<S> <C>
1999 $ 7,075
2000 1,628
2001 1,883
2002 1,035
2003 171
Thereafter 1,906
-------
Total $13,698
=======
</TABLE>
F-15
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
8. COMMON STOCK OPTIONS
In 1991, the Board of Directors (the "Board") adopted a
nonqualified common stock option plan (the "1991 Plan"). The 1991
Plan authorizes the Board to grant options to purchase a maximum
of 400,000 shares of common stock to employees, at not less than
the fair market value at the date of grant. The options vest at
various dates as described in the related option agreement and
expire up to 10 years from the date of grant.
The Company accounts for stock option grants and awards under its
stock-based compensation plan in accordance with APB Opinion No.
25. Accordingly, no compensation cost has been recognized for
stock option grants since the options have exercise prices of not
less than the market value of the Company's common stock at the
date of grant.
There were 25,000 stock options granted during 1998, 272,000
options granted during 1996, and none granted in 1997. For stock
options granted during the years ended September 30, 1998 and
1996, if compensation cost had been determined based on the fair
value at the date of grant consistent with the method prescribed
by SFAS No. 123, the Company's net operating results and related
per share amounts would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1996
----------------------- -----------------------
Net Net Income Net Net Income
Income (Loss) Per Income (Loss) Per
(Loss) Common Share (Loss) Common Share
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
As reported $(5,945,400) $ (1.11) $ 40,600 $ 0.01
----------- -------- --------- ------
Compensation costs for stock
option grants, net of tax
benefit (23,700) -- (300,300) (0.06)
----------- -------- --------- ------
Pro forma $(5,969,100) $ (1.11) $(259,700) $(0.05)
=========== ======== ========= ======
</TABLE>
Under SFAS No. 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for grants during those years:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1998 1996
---- ----
<S> <C> <C>
Expected volatility 50.0% 38.0%
Risk-free interest rate 5.5% 5.5%
Expected lives (in years) 5 5
</TABLE>
F-16
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
8. COMMON STOCK OPTIONS (Continued)
A summary of the status of stock option grants under the Company's
1991 Plan as of September 30, 1998, 1997 and 1996 and changes
during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7 1 9 9 6
----------------------------- ------------------------------ -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the year 313,000 $ 2.19 376,000 $ 2.15 162,500 $ 2.68
Granted 25,000 1.75 -- -- 272,000 1.94
Exercised -- -- (2,600) 1.94 -- --
Terminated (99,000) 2.27 (60,400) 1.94 (58,500) 2.65
------- ----------- ------- ----------- ------- ----------
Outstanding at the end
of the year 239,000 2.12 313,000 2.19 376,000 $ 2.15
======= =========== ======= =========== ======= ==========
Options exercisable at
end of the year 128,900 $ 2.30 112,200 $ 2.44 80,800 $ 2.49
======= =========== ======= =========== ======= ==========
Weighted average fair
value of options
granted during the
year $ 0.95 $ 1.10
=========== ==========
</TABLE>
The following table summarizes information about stock options
outstanding under the Company's 1991 Plan at September 30, 1998:
<TABLE>
<CAPTION>
Remaining
Contractual
Exercise Options Options Life
Price Outstanding Exercisable (Years)
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 1.75 25,000 2,500 4.7
1.94 146,000 58,400 2.5
2.63 68,000 68,000 0.3
------- -------
239,000 128,900
======= =======
</TABLE>
During the year ended September 30, 1996, 175,000 options
exercisable at $1.94 were issued to an officer of the Company
outside of the 1991 Plan. At September 30, 1998, 70,000 of these
options were exercisable and the remaining options vest ratably
over a five year period. These options expire 10 years from the
date of grant. Additionally, 200,000 options excersizable at $2.63
issued to certain related parties outside of the 1991 Plan,
expired unexcersized in November 1998.
F-17
<PAGE>
9. INCOME TAXES
The provision for income taxes attributable to continuing
operations consists of the following components for the years
ended September 30:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7 1 9 9 6
-------------- ------------- --------------
<S> <C> <C> <C>
Current benefit (expense) $ 140,100 $ (30,200) $ (232,600)
Deferred benefit (expense) 1,451,200 (74,900) 214,700
Change in valuation allowance (1,047,400) 76,400 --
-------------- ------------- --------------
Income tax benefit (expense) $ 543,900 $ (28,700) $ (17,900)
============== ============= ==============
</TABLE>
Temporary differences and carryforwards which give rise to
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
-------------- ---------------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax carryforwards $ 349,900 $ 325,900
Net operating loss carryforwards 628,800 --
Net operating loss carryforwards of
acquired companies - subject to
limitations 446,000 438,800
Allowances and accruals 618,900 278,600
Post-retirement and pension benefits -- 1,224,000
-------------- ---------------
Total deferred tax assets 2,043,600 2,267,300
Less valuation allowance (1,439,700) (392,300)
-------------- ---------------
Net deferred tax assets 603,900 1,875,000
Current portion 603,900 651,000
-------------- ---------------
Long-term portion $ -- $ 1,224,000
============== ===============
Deferred tax liabilities:
Depreciation $ 372,500 $ 650,200
Book and tax basis differences from
business combinations 574,800 1,926,500
Other amounts 12,800 58,300
-------------- ---------------
Total deferred tax liabilities
(all long-term) $ 960,100 $ 2,635,000
============== ===============
</TABLE>
During 1998 and 1997, certain tax benefits from net operating
losses and temporary differences creating deferred tax assets have
been reserved with a valuation allowance due to their uncertainty
of realization.
Remaining net operating loss carryforwards of approximately
$3,161,000 as of September 30, 1998 are available for offset
against future taxable earnings through the year 2013, subject to
annual limitations as set forth in the Internal Revenue Code.
F-18
<PAGE>
9. INCOME TAXES (Continued)
A reconciliation of the Company's statutory income tax provision
computed on pre-tax results from continuing operations to the
recorded income tax provision for the years ended September 30 are
as follows:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7 1 9 9 6
------------- ----------- ----------
<S> <C> <C> <C>
Statutory income tax (provision) benefit $ 2,247,400 $ 6,300 $ (20,200)
Change in valuation allowance (1,047,400) 76,400 --
Nondeductible goodwill amortization (582,000) (46,400) (26,300)
Other (74,100) (65,000) 28,600
------------- ----------- ----------
Income tax (expense) benefit $ 543,900 $ (28,700) $ (17,900)
============= =========== ==========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Leases and Litigation
The Company's annual expense and future obligations related to
operating leases is not significant. Additionally, the Company is
involved in certain legal proceedings arising in the normal course
of business. In the opinion of management, based on the advice of
counsel, the outcome of such litigation will not have a material
adverse effect on the Company's consolidated financial position or
results of operations.
Trading of Common Stock
In November 1998, the Company's common stock was scheduled to be
delisted from trading on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) National Market System
as a result of the Company failing to meet certain minimum listing
requirements. The Company has requested a hearing to appeal the
proposed delisting action and the delisting action has been stayed
pending the outcome of the Company's appeal. The appeal is
expected to occur sometime in 1999.
11. CASH RESTRICTED FOR EQUIPMENT
The cash restricted for equipment was received from the Michigan
Strategic Fund bondholders (see Note 7) to purchase equipment for
future production requirements. Proceeds not yet utilized at
September 30, 1997 totaled $526,500 and were classified as
restricted cash. At September 30, 1997, the Company had
contractual obligations to purchase equipment sufficient to
utilize the restricted cash.
F-19
<PAGE>
12. RELATED PARTY TRANSACTIONS
Since January 1997, the Company's Chairman, Robert Clemente,
served in an "Of Counsel" capacity to the law firm of Munro &
Munro, PC. During fiscal 1998, Munro & Munro was retained by the
Company for professional legal services required in the normal
course of business. During fiscal 1998, the Company paid to this
law firm $84,000 in legal fees and expenses. Mr. Clemente does not
receive any portion of the fees paid by the Company to this law
firm.
During the year ended September 30, 1998 the Company incurred
$24,600 in consulting expenses for certain special projects
completed by a director.
13. SEGMENT INFORMATION
The following is summarized business segment information
applicable to continuing operations (in thousands):
<TABLE>
<CAPTION>
Metal Eliminations
Parts and
Year Ended September 30: Forming Tooling Corporate Consolidated
- ------------------------------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C>
1998
Net sales $ 17,186 $ 17,303 $ (2,763) $ 31,726
(Loss) income from operations (6,378) 1,423 (831) (5,786)
Identifiable assets 10,676 6,819 5,473 22,968
Depreciation and amortization 1,501 616 576 2,693
Capital expenditures 506 504 239 1,249
1997
Net sales 18,930 18,474 (2,367) 35,037
(Loss) income from operations (1,395) 2,587 (300) 892
Identifiable assets 13,753 7,433 11,754 32,940
Depreciation and amortization 1,200 701 334 2,235
Capital expenditures 1,457 662 971 3,090
1996
Net sales 14,748 18,136 (2,007) 30,877
(Loss) income from operations (701) 2,093 (501) 891
Identifiable assets 12,920 7,211 10,734 30,865
Depreciation and amortization 1,098 671 215 1,984
Capital expenditures 1,803 163 3,513 5,479
</TABLE>
F-20
<PAGE>
14. SUPPLEMENTAL CASH FLOWS INFORMATION
Cash payments for interest and income taxes during the year ended
September 30 amounted to the following (in thousands):
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7 1 9 9 6
-------- -------- -------
<S> <C> <C> <C>
Interest:
Continuing operations $ 985 $ 1,058 $ 903
Discontinued operations 370 191 --
Income taxes:
Continuing operations 25 205 154
Discontinued operations -- -- --
</TABLE>
The Company entered into the following noncash investing and
financing transactions for the year ended September 30 (in
thousands):
<TABLE>
<CAPTION>
1998 1996
-------- --------
<S> <C> <C>
Note receivable received from
sale of machine $ 575 $ --
Cancellation of accrued interest/note payable
in exchange for exercise of stock warrant -- 132
Common stock issued for services or for
reduction of other obligations -- 32
Stock issued for note receivable -- 37
</TABLE>
* * * * *
F-21
<PAGE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------------------
1998 1997(1)
-------------------------------------- -------------------------------------
September June March December September June March December
1998 1998 1998 1997 1997 1997 1997 1996
--------- ---- ----- -------- --------- ---- ----- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 6,947 $ 7,879 $ 8,545 $ 8,354 $ 8,657 $ 9,145 $ 9,191 $ 8,044
Gross profit 165 813 8 893 1,586 1,526 1,534 1,156
(Loss) income
from continuing
operations (1,356) (949) (3,299) (462) 126 (69) 85 (189)
(Loss) income from
discontinued
operations 1,193 -- (621) (451) (68) 226 142 56
------- ------- ------- ------- ------- ------- ------- -------
Net (loss) income $ (163) $ (949) $(3,920) $ (913) $ 58 $ 157 $ 227 $ (133)
======= ======= ======= ======= ======= ======= ======= =======
(Loss) income per
common share:
Continuing
operations $ (0.24) $ (0.18) $ (0.62) $ (0.09) $ 0.02 $ (0.01) $ 0.01 $ (0.03)
Discontinued
operations 0.21 -- (0.11) (0.08) (0.01) 0.04 0.03 0.01
------- ------- ------- ------- ------- ------- ------- -------
Net (loss) income
per common share $ (0.03) $ (0.18) $ (0.73) $ (0.17) $ 0.01 $ 0.03 $ 0.04 $ (0.02)
======= ======= ======= ======= ======= ======= ======= =======
Price range of common
stock:
High bid $ 1.72 $ 2.50 $ 2.25 $ 2.50 $ 2.69 $ 2.94 $ 3.31 $ 3.06
Low bid 0.31 1.38 1.50 1.69 2.19 2.00 2.19 2.50
Weighted average
shares
outstanding 5,335 5,335 5,335 5,336 5,424 5,460 5,480 5,494
<FT>
(1) Amounts restated to reflect discontinued operations.
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
- ------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of operations data
Net sales $ 31,726 $ 35,037 $ 30,877 $ 36,276 $ 32,571
(Loss) income from continuing
operations, before income taxes (6,610) (18) 58 831 1,154
Income tax benefit (expense) 544 (29) (17) 373 (61)
-------- -------- -------- -------- --------
(Loss) income from continuing
operations (6,066) (47) 41 1,204 1,093
Income from discontinued
operations, net of income taxes 121 356 -- -- --
-------- -------- -------- -------- --------
Net (loss) income $ (5,945) $ 309 $ 41 $ 1,204 $ 1,093
======== ======== ======== ======== ========
(Loss) income per common share:
Continuing operations $ (1.13) $ (0.01) $ 0.01 $ 0.28 $ 0.29
Discontinued operations 0.02 0.07 -- -- --
-------- -------- -------- -------- --------
Net (loss) income per common share $ (1.11) $ 0.06 $ 0.01 $ 0.28 $ 0.29
======== ======== ======== ======== ========
Balance sheet data
Total assets $ 27,868 $ 46,208 $ 34,954 $ 26,947 $ 27,826
Long-term debt 8,973 17,711 13,724 4,622 7,089
Stockholders' equity 8,342 14,300 14,036 11,910 9,837
Common stock shares outstanding 5,335 5,340 5,342 4,276 3,701
Equity per common share 1.56 2.68 2.63 2.79 2.66
Current ratio 0.81 1.64 1.84 1.13 1.02
Long-term debt to
stockholders' equity 1.08 1.24 0.98 0.39 0.72
</TABLE>
F-23
AMENDMENT AND EXTENSION AGREEMENT
NBD Bank ("NBD" or "Lender"), Secom General Corporation ("Secom"),
Form Flow, Inc. ("Form Flow"), L & H Die, Inc. ("L&H"), Micanol, Inc.
("Micanol"), Uniflow Corporation ("Uniflow"), and MMC Manufacturing Corp.
f/k/a Milford Manufacturing, Corporation ("Milford") enter into this
Amendment and Extension Agreement (this "Agreement") on November 25, 1998.
For convenience (i) Secom, Form Flow, L&H, Micanol, Uniflow, and Milford are
referred to herein, collectively, as "Borrowers" and, individually, as a
"Borrower," (ii) Secom, Form Flow, L&H, Micanol, Uniflow, and Milford in
their capacity as guarantor of another Borrower's debt to NBD, and any other
person or entity who guaranteed the obligations of one or more of Borrowers
to NBD are referred to herein, collectively, as "Guarantors", and,
individually, as a "Guarantor," and (iii) Borrowers and Guarantors are
referred to herein, collectively, as the "Parties" and, individually, as a
"Party."
RECITALS
A. NBD, as lender and secured party, and Borrowers, as borrowers and
debtors, are parties to a certain Amended and Restated Revolving Credit and
Loan Agreement dated as of June 30, 1996, as amended by Acknowledgement to
Amended and Restated Revolving Credit and Loan Agreement, dated April 4,
1997, First Amendment to Amended and Restated Revolving Credit and Loan
Agreement dated August 22, 1997 and Second Amendment to Amended and Restated
Revolving Credit and Loan Agreement, dated as of January 1, 1998
(collectively, as so amended and as may be further amended and with all
supplements thereto, the "Credit Agreement"). Capitalized terms used herein
but not defined shall have the meanings given to them in the Credit
Agreement.
B. In furtherance of, and in accordance with, the Credit Agreement,
NBD agreed, among other things, to make available to Borrowers (i) a secured
committed revolving credit facility in an aggregate principal amount not to
exceed $4,000,000 (the "Revolving Credit Facility"), (ii) secured
discretionary line of credit advances (the "Line of Credit"), in an aggregate
principal amount not to exceed $2,000,000, against the security of accounts
receivable and inventory described in the Credit Agreement, subject to
certain limitations, and (iii) a term loan in the original principal amount
of $800,000 (the "Term Loan").
C. In furtherance of, and in accordance with the Credit Agreement, NBD
also agreed, among other things, to make discretionary advances to Borrowers
in an aggregate principal amount not to exceed $1,500,000 ("Equipment Line")
to be used for the acquisition of equipment by any Borrower, and NBD agreed
to extend discretionary advances to Secom in an aggregate principal amount
not to exceed $300,000 ("Improvement Line") to be used for the improvement of
Secom's facility at 38200 Ecorse Road, Romulus, Michigan.
D. The Revolving Credit Facility is evidenced by an Amended and
Restated
E-1
<PAGE>
Revolving Credit Note dated as of June 30, 1996 in the original principal
amount of $4,000,000 (the "Revolving Note"). The Line of Credit is evidenced
by a Line of Credit Note, dated as of June 30, 1996, in the original
principal amount of $2,000,000 (the "Line of Credit Note"). The Term Loan is
evidenced by an Amended and Restated Term Note dated June 30, 1996 (the "Term
Note") in the original principal amount of $800,000. The Equipment Line is
evidenced by an Amended and Restated Equipment Line Note (the "Equipment Line
Note") dated as of January 1, 1998, in the original principal amount of
$1,500,000, and the Improvement Line was evidenced by a Promissory Note (the
"Improvement Line Note") dated as of August 22, 1997, in the original
principal amount of $300,000. The Improvement Line Note has been paid in full
and no further advances will be made under the Improvement Line. For
convenience, the Revolving Note, the Line of Credit Note, the Term Note, and
the Equipment Line Note are referred to herein, collectively, as the "Notes."
E. Among other mortgages and security agreements (i) Secom executed
and delivered to NBD (A) an Amended and Restated Security Agreement dated
June 30, 1996, as amended by an Amendment to Amended and Restated Security
Agreement dated March 31, 1997 (as may be further amended and with all
supplements thereto, the "Secom Security Agreement"), (ii) Micanol executed
and delivered to NBD an Amended and Restated Security Agreement dated as of
June 30, 1996, as amended by Amendment to Amended and Restated Security
Agreement dated March 31, 1997 (as amended and as may be further amended and
with all supplements thereto, the "Micanol Security Agreement"), (iii) Form
Flow executed and delivered to NBD an Amended and Restated Security Agreement
dated June 30, 1996, as amended by Amendment to Amended and Restated Security
Agreement dated March 31, 1997, a Continuing Security Agreement dated August
22, 1997 and a Continuing Security Agreement dated November 5, 1997,
(collectively, as amended and as may be further amended and with all
supplements thereto, the "Form Flow Security Agreements"), (iv) L&H executed
and delivered to NBD an Amended and Restated Security Agreement dated as of
June 30, 1996, as amended by Amendment to Amended and Restated Security
Agreement dated March 31, 1997, a Continuing Security Agreement dated August
22, 1997, and a Continuing Security Agreement dated November 5, 1997 (as so
amended and as may be further amended and with all supplements thereto, the
"L&H Security Agreements"), (v) Uniflow executed and delivered to NBD an
Amended and Restated Security Agreement dated June 30, 1996, as amended by
Amendment to Amended and Restated Security Agreement dated March 31, 1997,
and a Continuing Security Agreement dated August 22, 1997 (as so amended and
as may be further amended from time to time and with all supplements thereto,
the "Uniflow Security Agreements"), and (vi) Milford executed and delivered
to NBD a Security Agreement dated April 4, 1997 (as so amended and as may be
further amended from time to time and with all supplements thereto the
"Milford Security Agreement"). For convenience, the Secom Security Agreement,
the Form Flow Security Agreements, the L&H Security Agreements, the Micanol
Security Agreement, the Uniflow Security Agreements, and the Milford Security
Agreement are referred to herein, collectively, as the "Security Agreements."
F. In addition to the Secom Security Agreement, Secom also executed
and delivered to NBD an Amended and Restated Future Advance Mortgage, dated
December 6, 1995, and
E-2
<PAGE>
recorded on March 6, 1996 in Liber 28654, Pages 367-381 of the Wayne County
Records (as may be amended and with all supplements thereto, the "Secom
Mortgage"), which Secom Mortgage relates to property located at 6901 Cogswell
Avenue,. 6999 Cogswell Avenue and 38200 Ecorse Road (collectively, "the
Mortgaged Premises").
G. All of the obligations of Secom to NBD, whether then existing or
thereafter created or arising, are guaranteed by L&H, Uniflow, Form Flow and
Micanol, jointly and severally, pursuant to that certain Amended and Restated
Continuing Guaranty, dated as of June 30, 1996 (as may be amended and with
all supplements thereto, the "Secom Guaranty").
H. All of the obligations of L&H to NBD, whether then existing or
thereafter created or arising, are guaranteed, jointly and severally, by
Secom, Uniflow, Form Flow and Micanol, pursuant to that certain Amended and
Restated Continuing Guaranty, dated as of June 30, 1996, (as may be amended
and with all supplements thereto, the "L&H Guaranty").
I. All of the obligations of Uniflow to NBD, whether then existing or
thereafter created or arising, are guaranteed, jointly and severally, by
Secom, L&H, Form Flow and Micanol, pursuant to that certain Amended and
Restated Continuing Guaranty, dated as of June 30, 1996, (as may be amended
and with all supplements thereto, the "Uniflow Guaranty").
J. All of the obligations of Form Flow to NBD, whether then existing
or thereafter created or arising, are guaranteed, jointly and severally, by
Secom, L&H, Uniflow and Micanol, pursuant to that certain Amended and
Restated Continuing Guaranty, dated as of June 30, 1996, (as may be amended
and with all supplements thereto, the "Form Flow Guaranty").
K. All of the obligations of Micanol to NBD, whether then existing or
thereafter created or arising, are guaranteed, jointly and severally, by
Secom, L&H, Uniflow, and Form Flow, pursuant to that certain Amended and
Restated Continuing Guaranty, dated as of June 30, 1996, (as may be amended
and with all supplements thereto, the "Micanol Guaranty").
L. All of the obligations of L&H, Uniflow, Form Flow, Secom and
Micanol to NBD, whether then existing or thereafter created or arising, are
guaranteed by Milford pursuant to separate guaranties, each dated April 4,
1997, executed by Milford in favor of NBD (as may be amended, and with all
supplements thereto, the "Milford Loan Party Guaranties").
M. For convenience, the Secom Guaranty, the L&H Guaranty, the Uniflow
Guaranty, the Form Flow Guaranty, the Micanol Guaranty, and the Milford Loan
Party Guaranties are referred to herein, collectively, as the "Guaranties,"
and such Guaranties and all other documents and instruments executed by any
Guarantor in connection therewith are referred to herein, collectively, as
the "Guarantor Loan Documents."
N. For convenience, all of the foregoing documents, mortgages,
agreements, assignments and promissory notes set forth in Recitals A through
M above, together with any other documents, instruments, agreements or
promissory notes executed in connection with, or
E-3
<PAGE>
in furtherance of, any of the foregoing, as amended from time to time,
including as amended by this Agreement, but exclusive of all present or
future oral agreements between NBD and any one or more of the Parties, are
referred to herein, collectively, as the "Loan Documents."
O. On November 6, 1998 (i) there was $2,207,793.17 in principal owing
by Borrowers to NBD under the Revolving Credit Facility, (ii) there was $0 in
principal owing by Borrowers to NBD under the Line of Credit, (iii) there was
$625,592.35 in principal owing by Borrowers to NBD under the Term Loan, and
(iv) there was $644,680.00 in principal owing by Borrowers to NBD under the
Equipment Line, in each case, plus accrued but unpaid interest, costs and
expenses (including attorneys' fees) called for by the Credit Agreement. In
early 1998, substantially all of Milford's tangible assets were sold to a
third party unaffiliated with any Borrower and a portion of the proceeds of
such sale were applied to repay certain of Milford's obligations to NBD.
Milford remains a loan party Borrower and Guarantor under the Loan Documents,
however, and in that regard, Milford still has obligations to NBD. For
convenience, all of the obligations referred to in the immediately preceding
sentence, together with all other principal and interest due or becoming due
to NBD, together with the payment of all other sums, indebtedness and
liabilities of any and every kind now or hereafter owing and to become due
from Borrowers to NBD however created, incurred, evidenced, acquired or
arising, and whether direct or indirect, primary, secondary, fixed or
contingent, matured or unmatured, joint, several, or joint and several, and
whether for principal, interest, reimbursement obligations, indemnity
obligations, obligations under guaranty agreements, fees, costs, expenses, or
otherwise, all of Borrowers' obligations under this Agreement, together with
all other present and future obligations of Borrowers to NBD, are referred to
herein, collectively, as the "Obligations."
P. Each Party, jointly and severally, acknowledges and agrees that (i)
the Obligations, Guarantors' obligations under the Guarantor Loan Documents,
and all other obligations of any one or more of the Parties to NBD are owing
to NBD without setoff, recoupment, defense or counterclaim, in law or in
equity, of any nature or kind; (ii) the Obligations are secured by valid,
perfected, indefeasible, enforceable, first priority liens and security
interests in favor of NBD in, among other things (A) all of each Borrower's
present and future accounts, chattel paper, instruments, documents and
inventory, contracts and business records (but excluding computer hardware
and software), and all proceeds and products of all of the foregoing, as more
fully described in the Security Agreements; (B) specific equipment of Form
Flow located at 6901 Cogswell, Romulus, Michigan 48174, as more fully
described on Exhibit A to the Continuing Security Agreement dated August 22,
1997, executed by Form Flow in favor of NBD; (C) a Mazak ZTC-16B vertical
machining center, SN130013 and accessories owned by Form Flow as more fully
described in the Continuing Security Agreement dated November 5, 1997
executed by Form Flow in favor of NBD; (D) specific equipment of L&H located
at 38200 Ecorse Road, Romulus, Michigan 48174, as more fully described on
Exhibit A to the Continuing Security Agreement dated August 22, 1997,
executed by L&H in favor of NBD; (E) specific equipment of L&H located at
38200 Ecorse Road, Romulus, MI 48174-1350, as more fully described in the
Continuing Security Agreement dated November 5, 1997 executed by L&H in favor
of NBD; and (F) specific equipment of Uniflow located at
E-4
<PAGE>
26600 Heyn Drive, Novi, Michigan 48374, as more fully described on Exhibit A
to the Continuing Security Agreement dated August 22, 1997, executed by
Uniflow in favor of NBD. The Obligations are also secured by a first priority
lien, security interest and mortgage in favor of NBD with respect to the
Mortgaged Premises, as more fully described in the Secom Mortgage. For
convenience all collateral referred to above, together with all other
collateral described in the Loan Documents and all collateral heretofore,
simultaneously herewith or hereafter granted to NBD by any one or more of the
Parties to secure any of the Obligations or any one or more of the Parties'
other obligations to NBD, including, without limitation, the obligations of
any one or more of the Guarantors under the Guarantor Loan Documents, is
referred to, collectively, as the "Collateral."
Q. Each Party reaffirms, ratifies, confirms and approves its
obligations and duties under the Loan Documents, as modified by this
Agreement. Without limiting the generality of the immediately preceding
sentence, Guarantors hereby reaffirm, ratify, confirm and approve their
obligations and duties under the Guarantor Loan Documents, and the provisions
herein, and acknowledge and agree that the Guarantor Loan Documents extend
to, and cover, all of the Obligations, including the sums described in
Paragraph N above. Each Party, jointly and severally, reaffirms, ratifies and
confirms the liens, mortgages, assignments and security interests granted to
NBD in the Collateral under the Loan Documents or otherwise.
R. Borrowers are in default under Loan Documents for the following
reasons:
(i) Based on Borrowers' financial statements dated August 30, 1998
(the "August 1998 Financials"), Borrowers' Cash Flow Coverage Ratio is
less than 1.20 to 1.00;
(ii) Borrowers' Tangible Capital Funds are less than $10,000,000
(On August 31, 1998, Borrowers' Tangible Capital Funds were
$8,090,364.00);
(iii) Borrowers' Current Ratio is less than 1.25 to 1.00 (on
August 31, 1998, Borrowers' Current Ratio was 1.22 to 1.00);
(iv) Based on the Borrowers' financial statements for the quarter
ended June 30, 1998, Borrowers' total Funded Debt to EBITDA is greater
than 4.75 to 1.00, in violation of Borrowers' loan documents with G.E.
Capital Public Finance, Inc and Key Corp. (Under Section 7.1(f) of the
Loan Documents, a default by Borrowers with respect to a debt to other
lenders is a default under the Loan Documents); and
(v) Borrowers have failed to pay real and personal property taxes
on Borrowers' assets in an amount totaling approximately $250,000 in
the aggregate (the "Unpaid Taxes").
For convenience, the above-described defaults are referred to
collectively as the "Existing Defaults." Each Party represents and warrants,
after due inquiry and investigation,
E-5
<PAGE>
that none of them is aware of any other Events of Default or defaults, or of
any event which, with the passage of time, notice, or both, would become an
Event of Default or a default under the Loan Documents or this Agreement.
S. Each Party also acknowledges that based on the Existing Defaults,
NBD has the right, without further notice, to enforce its rights under the
Loan Documents (including the Guarantor Loan Documents) and applicable law.
Further, if NBD took such action, each Party acknowledges that NBD's actions
would be within NBD's rights under the Loan Documents (including the
Guarantor Loan Documents) and applicable law, and would be reasonable and
appropriate under the circumstances.
T. Each Party acknowledges and agrees that (i)NBD has fully performed
all of its obligations under the Loan Documents; (ii)NBD has no obligation to
continue to lend to Borrowers, or to forbear from enforcing its rights and
remedies beyond the Forbearance Period (as hereinafter defined); (iii) any
loans made after the date of this Agreement will be made in NBD's sole
discretion; and (iv) NBD has made no representations of any nature or kind
that funding in any amount will continue, or that the Forbearance Period (as
hereinafter defined) will be extended beyond the expiration thereof.
U. Each Party further acknowledges and agrees that the actions taken
by NBD to date in furtherance of the Loan Documents are reasonable and
appropriate under the circumstances and are within NBD's fights under the
Loan Documents and applicable law.
V. Each Party represents and warrants to NBD that it has received
direct and substantial economic benefit from all of the Obligations and that
it will continue to receive direct and substantial economic benefit from such
Obligations, and from any other loans made or which may be made in the future
to Borrowers.
W. NBD informed Borrowers on several occasions that NBD is concerned
about the Existing Defaults and that Borrowers must take steps to address
such Existing Defaults. The Parties have informed NBD that they have engaged
the services of an investment banking firm (the "Investment Banker") to
explore, among other things, potential acquisition candidates for the
business as a whole or for the various business segments of Borrowers. The
Parties have requested that NBD agree to waive the Existing Defaults to allow
the Parties, with the assistance of the Investment Banker, time to develop
and begin to implement a plan with respect to sale of the business as a whole
or Borrowers' various business segments.
X. Subject to the terms and conditions of this Agreement, and in
reliance on the Parties' agreements, acknowledgments, representations, and
warranties in this Agreement, NBD has agreed to amend the Loan Documents and
waive the Existing Defaults under the Loan Documents (including the Guarantor
Loan Documents), as set forth below.
E-6
<PAGE>
AGREEMENT
Based on the foregoing Recitals (which are incorporated herein as
agreements, representations, warranties, and covenants of the respective
Parties, as the case may be), and for other good and valuable consideration,
the adequacy and receipt of which are acknowledged by each Party hereto, NBD
and each Party agree as follows:
1. Waiver.
(a) Subject to the following conditions and those set forth below, NBD
agrees to waive the Existing Defaults through February 1, 1999 (the
"Extension Period"), at which time, unless earlier demand is made, all
Obligations shall be due and payable in full without further notice or demand
by NBD.
(b) NBD's agreement to waive the Existing Defaults through the
Extension Period is conditioned upon NBD receiving, on or before November 18,
1998 (the "Effective Date"), a fully-executed copy of this Agreement,
together with fully-executed copies of all of the exhibits that require
signature.
(c) Anything here to the contrary notwithstanding, NBD's waiver shall
be deemed null and void and of no further force and effect if during the
Extension Period there are further Events of Default or defaults under the
Loan Documents, including this Agreement, or if any Party fails to fully
comply with all the terms and conditions of this Agreement or any of the
other Loan Documents.
2. Financial Covenants During Extension Period. Attached hereto as
Exhibit A is a copy of projections prepared by Borrowers (the "Projections")
of operating results and cash flows through March 31, 1999. In accordance
with the Projections, and as an accommodation to Borrowers, anything to the
contrary in the Loan Documents notwithstanding, through the Extension Period,
the following financial covenants shall be applicable, rather than the Cash
Flow Coverage Ratio, Tangible Capital Funds and Current Ratio covenants set
forth in the Credit Agreement:
(a) Borrowers' Total Equity shall not be less than $7,000,000. For
the purposes of this covenant, "Total Equity" means book net worth
determined in accordance with generally acceptable accounting
principles;
(b) Borrowers' Total Liabilities to Total Equity shall not exceed
2.5 to 1.0. Notwithstanding anything in the Loan Documents to the
contrary, for the purposes of this covenant, "Total Liabilities" means
all liabilities of Borrowers of any nature whatsoever;
(c) Borrowers' Current Ratio shall not be less than 0.6 to 1.0;
and
E-7
<PAGE>
(d) Borrowers' EBITD shall not be less than $125,000 for the month
of October, 1998, not less than $65,000 for the month of November,
1998 and not less than negative $45,000 for the month of December,
1998.
3. Interest. Notwithstanding anything to the contrary in the Loan
Documents, prior to the occurrence of a default or Event of Default under
this Agreement or any of the other Loan Documents (excluding the Existing
Defaults during the Forbearance Period, but including a worsening of such
Existing Defaults) (a) all Obligations shall bear interest computed on the
basis of the actual number of days elapsed in a year of 360 days at the rate
of 1% per annum ab.ove the rate announced from time to time by NBD as its
prime rate, which may not be the lowest rate charged by NBD to any of its
customers (the "Applicable Rate"). After the occurrence of an Event of
Default or default under this Agreement or the Loan Documents (excluding the
Existing Defaults during the Forbearance Period, but including a worsening of
such Existing Defaults), all of such Obligations at NBD's sole discretion
shall bear interest at the rate of 3% per annum above the Applicable Rate
(the "Default Rate"). Notwithstanding the foregoing, in no event whatsoever
shall the rate of interest charged under this Agreement or any agreement or
note executed in connection herewith or referred to or incorporated herein
exceed the highest rate permitted by applicable law. The fact that NBD is
entitled to receive a higher rate of interest upon default is to compensate
NBD for increased administrative and monitoring costs and shall not in any
manner be deemed to have waived or modified any of NBD's rights in connection
with the occurrence of a default or any Event of Default under this Agreement
or any other Loan Document.
4. Increase in Line of Credit and Termination of Improvement Line,
Equipment Line Credit, and Revolving Credit Facility.
(a) The $4,000,000 Revolving Credit Facility described in Recital
B(i), the Improvement Line described in Recital C, and the Equipment Line of
Credit described in Recital C are hereby terminated. No further advances
under the Revolving Credit Facility, the Improvement Line, or the Equipment
Line of Credit will be made.
(b) Anything to the contrary in the Loan Documents notwithstanding,
and as reflected by the amendments to the Credit Agreement described in
paragraphs 4, 5 and 6 below, NBD's commitment and obligation to make Loans is
terminated. NBD's uncommitted credit authorization to Borrowers referred to
in Section 2.1(b) of the Credit Agreement shall remain in place but in the
principal sum not to exceed $3,000,000 in the aggregate at any one time
outstanding, which uncommitted credit authorization shall be evidenced by a
Second Amended and Restated Master Demand Business Loan Note as more fully
described in Section 12 below. Under this uncommitted credit authorization,
NBD, in its sole and absolute discretion, may decide whether or not to make
any future Loans to Borrowers. NBD may refuse to advance for any reason or
for no reason at any time, even if Borrowers have collateral availability to
borrow under the Loan Documents and no Event of Default or default has
occurred under such Loan Documents. The fact that NBD in its sole and
absolute discretion makes one or more Loans after the date of this Agreement
does not in any way obligate NBD to make any other Loans
E-8
<PAGE>
under the Revolving Loan Authorization or otherwise.
5. Revised Definitions.
(a) The following definitions in Section 1.1 of the Credit Agreement
are hereby amended in their entirety to read as follows:
"Authorization Amount" means an uncommitted credit authorization
to Borrowers under Section 2.1(b) in the principal sum not to exceed
$3,000,000, in the aggregate at any time outstanding.
"Current Ratio" means the relationship, expressed as a numerical
ratio, which (i) the amount of current assets of the Loan Parties,
determined on a Combined basis, which would be properly classified as
a current asset under GAAP, bears to (ii) the amount of current
liabilities of the Loan Parties determined on a Combined basis, which
would be properly classified as current liabilities under GAAP. For
the purposes of this definition, current assets shall not include
assets that represent capital equipment being held for sale over the
next six month, and current liabilities shall not include debt
associated with such assets.
"Tangible Capital Funds" means Tangible Net Worth plus
Subordinated Debt.
"Termination Date" means the earlier to occur of (a) the date on
which a demand for payment of the obligations is made by NBD, (b)
February 1, 1999, and (c) the date on which NBD's obligations shall be
terminated pursuant to Section 7.2.
(b) The definition of "Borrowing Base" contained in Section 1.1 of the
Credit Agreement is hereby amended by changing the last sentence at the end
of that definition to read as follows: "In no event will the amount included
in the Borrowing Base under clause (b) above (for Eligible Inventory) exceed
$500,000."
(c) The definition of "Commitment" contained in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety.
6. Changes With Respect to Revolving Loans. Section 2.1 of the Credit
Agreement is hereby amended as follows:
(a) Section 2.1(a) of the Credit Agreement is deleted in its entirety;
(b) Section 2. l(b) of the Credit Agreement is hereby amended to read
in its entirety as follows:
E-9
<PAGE>
(b) Revolving Loan Authorization. Subject to the terms and
conditions of this Agreement, NBD may, in its sole and absolute
discretion, make Revolving Loans to the Borrowers, jointly and
severally, from the Effective Date and before the Termination Date
as Borrowers may from time to time request from NBD; provided,
however, that the aggregate principal amount of all Revolving
Loans which are outstanding hereunder shall not at any time exceed
the Authorization Amount; provided, further, that the aggregate
principal amount of all Revolving Loans which NBD shall make
pursuant to this Section 2. l(b) at any time shall not, when added
to the principal balance of the Revolving Loans outstanding at
such time plus the aggregate face amount of all outstanding L/Cs,
exceed (i) the borrowing base at such time; or (ii) the
Authorization Amount at such time. The Revolving Loans advanced
under this Section 2.1(b) shall be evidenced by a Second Amended
and Restated Master Demand Business Loan Note of Borrower in
substantially the form of Exhibit B to the Amendment and
Forbearance Agreement by and among Borrowers and NBD. Such Note
shall be dated the Effective Date and stated to mature on demand.
Interest shall accrue on the unpaid principal balance of the
Revolving Loans from time to time outstanding under this Section
2.1(b) at the applicable rate(s) and shall be payable in
accordance with Section 4.2. Subject to the other terms and
conditions of this Agreement, and subject to NBD's sole and
absolute discretion, the Revolving Loans may be borrowed, repaid
and re-borrowed prior to the Termination Date. Although such Note
shall be expressed to be payable in the maximum amount of
$3,000,000, the Borrowers shall be obligated to pay only the
unpaid principal balance of the Revolving Loans, together with
interest thereon and other amounts due in connection therewith as
provided herein and in the Note. The proceeds of the Revolving
Loans shall be used by the Borrowers for working capital or other
general corporate purposes of the Loan Parties.
7. Issuance of Letters of Credit. The introductory paragraph of
Section 2.3(a) of the Credit Agreement is hereby amended to read in its
entirety as follows:
(a) Issuance of L/Cs. Upon the request by the Borrowers (with no
less than three Business Days prior written application in such form
as requested by NBD), and provided there is sufficient availability
under the Borrowing Base and Authorization, NBD may, in its sole and
absolute discretion, issue for the account of any Borrower standby or
commercial letters of credit, upon the following conditions:
E-10
<PAGE>
8. Sale of the Press. The Parties have informed NBD that they are
attempting to sell a 900 ton press (the "Press"), which has been partially
paid for but has never been delivered to Borrowers. The Parties have informed
NBD that they have been told that the Press is expected to sell for between
$600,000-$700,000. The Parties acknowledge that NBD advanced to Borrowers
$246,403, which funds were utilized as a down payment on the Press. The
Parties have informed NBD that the sale proceeds on the Press will be
delivered to NBD immediately upon receipt to be applied by NBD to the
Obligations in any order NBD determines in its sole discretion. It is NBD's
current intention to apply the proceeds it receives from the sale of the
Press to the balance outstanding on the Amended Equipment Term Note (as
defined in Section 11), but NBD reserves the right to apply such sale
proceeds in its sole discretion to the Obligations in any manner it deems
appropriate.
9. Reporting Requirements.
(a) Sections 6.1(d)(iv) and (v) of the Credit Agreement are hereby
amended in their entirety to read as follows:
(iv) daily, a Borrowing Base Certificate in a form and detail
reasonably acceptable to Bank, executed by the chief financial
officers of the Loan Parties and completed as of the end of the
preceding day sent by facsimile with the originals to follow by U.S.
Mail;
(v) as soon as available and in any event within 15 days after the
end of each calendar month, a report listing the accounts receivable
aging, accounts payable aging and inventory of all of the Loan
Parties, in a form and detail reasonably acceptable to Bank, executed
by the chief financial officers if, the Loan Parties and completed as
of the end of the most recently ended month;
(b) Sections 6.1(d)(ix) and(x) are added to the Credit Agreement as
follows:
(ix) Within 15 days after the end of each month, a balance sheet
as of the end of such month and statements of income, retained
earnings and cash flows from the beginning of the fiscal year to the
end of such month, certified as correct by one of Borrowers'
authorized agents; and
(x) Such other documents, certificates, financial reports or
statements as Bank may reasonably request.
(c) Simultaneously with the execution of this Agreement, the Parties
shall provide to NBD all documents in their possession or control with
respect to the Investment Banker, including, without limitation, engagement
letters, preliminary analyses, time tables, correspondence, expressions of
interest from any third parties, and cost analyses, and other documents and
materials. Thereafter, immediately upon receipt, the Parties shall provide to
E-11
<PAGE>
NBD copies of all Investment Banker information. In addition, the Parties
hereby authorize NBD to speak directly to such Investment Banker regarding
the Investment Banker's progress with respect to marketing the business, so
long as a representative of Borrowers is present during such discussions.
10. Year 2000 Issues. Borrowers will take all actions reasonably
necessary to assure that Year 2000 Issues will not have a material adverse
effect on the business, operations or financial condition of Borrowers. Upon
NBD's request, Borrowers will provide NBD with a description of their plan to
address Year 2000 Issues, including updates and progress reports. Borrowers
will advise NBD of any reasonably anticipated material adverse effect on the
business, operations or financial condition of Borrowers as a result of Year
2000 Issues.
11. Amended and Restated Notes. The Revolving Note and the Line of
Credit Note are consolidated, amended, restated and replaced in their
entirety by a Second Amended and Restated Master Demand Business Loan Note,
in the form of Exhibit B attached hereto (the "Amended Revolving Note"). The
Term Note is amended and restated and replaced in its entirety by a Second
Amended and Restated Term Note in the form of Exhibit C attached hereto (the
"Amended Term Note"). The Equipment Line Note is amended, restated and
replaced in its entirety by a Second Amended and Restated Equipment Term Note
in the form of Exhibit D attached hereto (the "Amended Equipment Term Note").
The Improvement Loan Note was paid in full in early 1998 and, therefore, is
hereby canceled. For convenience, the Amended Revolving Note, the Amended
Term Note, and the Amended Equipment Line Note are referred to herein,
collectively, as the "Amended Notes." Any reference in any other document or
instrument (including, but not limited to, the Credit Agreement) to the
Revolving Note, the Line of Credit Note or the Equipment Term Note shall
constitute a reference to the Amended Notes. The Amended Notes are in
substitution and exchange for the Notes and shall not in any circumstances be
deemed a novation or to have paid, terminated, extinguished or discharged
Borrowers' indebtedness evidenced by such Notes, all of which indebtedness
shall continue under, and be evidenced and governed by, the Amended Notes.
12. Dominion of Funds and Lockbox Arrangements. Borrowers have
recently executed and delivered to NBD a Dominion of Funds Agreement,
attached hereto as Exhibit E. Borrowers agree to continue to operate within
the terms and conditions of the Dominion of Funds Agreement and also within
the terms and conditions of the Lockbox Agreement which they have previously
executed.
13. Amended and Restated Security Agreements, Second Amended and
Restated Mortgage. Simultaneously with the execution and of this Agreement,
Borrowers will execute and deliver to NBD (a) Amended and Restated Security
Agreements in the form of Exhibit G attached hereto (the "Amended Security
Agreements"), and (b) UCC-I Financing Statements in the form of Exhibit H
attached hereto (the "New UCC's"), pursuant to which Borrowers will grant to
NBD a blanket lien on all of Borrowers' assets, including machinery,
equipment, and general intangibles, other than the Other Lenders' M&E, as
defined below. Simultaneously with the execution of this Agreement, Secom
will execute and deliver to NBD a
E-12
<PAGE>
Second Amended and Restated Future Advance Mortgage on the Mortgaged Premises
in the form of Exhibit I attached hereto (the "Amended Mortgage"). Key Corp.
Leasing, Ltd., GE Capital Public Finance, Inc., and Amplicon (collectively,
the "Other Lenders") have liens and security interests in certain of
Borrowers' machinery, equipment (and with respect to Amplicon only, software)
and products and proceeds of the foregoing (the "Other Lenders' M&E").
Borrowers have informed NBD that it is an Event of Default under Borrowers'
loan documents with the Other Lenders for Borrowers to grant a lien to NBD on
the Other Lenders' M&E without such Other Lenders' consent and that they do
not believe such Other Lenders will consent. Thus, as noted above, the Other
Lenders' M&E will be excluded from the all asset lien provided for in the
Amended Security Agreements and the New UCC's.
14. Compensation. So long as any of the Obligations remain
outstanding, no loans, distributions, advances or other payments of any kind
or nature shall be made by any Borrower to any shareholder or any member of
their immediate families, other than the following:
(i) Reasonable cash compensation in an amount no greater than the
amount currently being paid to each such individual as of the date
hereof, provided that such cash compensation is paid for services
actually rendered by the applicable individual to Borrower;
(ii) Reasonable reimbursement for business expenses incurred in
the ordinary course of business; and
(iii) Employee benefits provided in the ordinary course of
business to other employees of Borrower consistent with past
practices.
15. Transactions with Affiliates. Without NBD's prior written consent,
which consent may be withheld at NBD's sole discretion, until all of the
Obligations are paid in full, no advances will be made by any Borrower to any
entity or individual affiliated with any Borrower, whether now existing or
formed in the future, except with respect to inter-company transactions
consistent with practice, and except for amounts to shareholders and members
of their immediate families specifically permitted by Paragraph 14 above.
16. NBD's Consultant. The Parties acknowledge that counsel to NBD may
hire a financial consultant (the "Consultant") to assist such counsel in its
evaluation of Borrowers' financial condition and Borrowers' relationship with
NBD. The Parties shall provide the Consultant access to Borrowers'
facilities, books and records and shall cooperate in good faith with the
Consultant and shall cause Borrowers' outside accountant (the "CPA") to
cooperate in good faith in connection with the provision of all information
requested by the Consultant (including copies of all information in the CPA's
possession relating to the Parties). All information provided to the
Consultant shall be held in confidence and used only by NBD and its agents in
connection with transactions with the Parties.
E-13
<PAGE>
17. Additional Covenants. In addition to the covenants already
contained in the Loan Documents or elsewhere in this Agreement, Borrowers
agree that the Loan Documents are hereby amended to include the following
covenants:
(a) Except as specifically provided herein, Borrowers shall not
make any loan or advance to any of their respective shareholders or
affiliates without the prior written consent of NBD, except in connection
with Borrowers' 401K Plan;
(b) Borrowers shall not incur any obligations for loans or leases
without the prior written consent of NBD;
(c) Borrowers shall permit NBD or its agents to perform audits of
the Collateral whenever deemed necessary by NBD. Borrowers shall compensate
NBD for those audits in accordance with NBD's schedule of fees, as may be
amended from time to time;
(d) Borrowers shall not permit any tax or other liens to be placed
on any of their property; provided, however, that it shall not be an Event of
Default hereunder if the manufacturer of the Press asserts a mechanic's lien
against such Press for nonpayment of the Purchase Price; and
(e) The Parties shall immediately notify NBD in writing of any
legal proceeding brought by or against any Borrower or any Guarantor.
18. Additional Reporting. In addition to any reports or information
required by the Loan Documents or this Agreement (which must be provided
timely), or that NBD may hereafter request, each
Party must provide NBD with:
(a) Within one day of receipt, copies of written notices of
default received from other creditors, and
(b) Within one day of gaining knowledge thereof, any adverse
information regarding any Party.
19. Defaults. In addition to any other Events of Default or defaults
provided for in the Loan Documents, and without waiver of the demand and
discretionary provisions of the Loan Documents, the occurrence of any of the
following constitutes an Event of Default and a. default under this Agreement
(and each Loan Document):
(a) If any Party fails to comply with any term or condition in
this Agreement (or any agreement referred to or incorporated herein) or the
Loan Documents (other than the Existing Defaults);
(b) If any material adverse change occurs in any Borrower's
financial condition or business prospects;
E-14
<PAGE>
(c) If any lender, supplier, creditor, lessor, bond holder or
representative thereof (collectively, "Creditor") of any Party shall
(i)obtain a judgment against any Party or (ii) receives from -------- any
Borrower any prepayments of obligations;
(d) If any representation or warranty made by any Party in this
Agreement or in connection with the negotiation hereof is untrue as of the
date made;
(e) If attachment by way of seizure, levy, lien or otherwise of
any assets of any one or more of the Parties;
(f) If the filing of any notice of lien, levy or assessment by any
government, department or agency or the fact that any taxes or debts owing
(including the Unpaid Taxes) become a lien or encumbrance upon any assets of
any of the Parties; and
(g) If any Borrower fails to pay or cause to be paid when due any
and all taxes with respect to such Borrower's business, including, without
limitation, payroll taxes and real property taxes, other than the Unpaid
Taxes.
(h) If any Borrower defaults under any agreement, document or
instrument by and among such Borrower and NBD or any of its affiliates, or by
and among such Borrower and any other bank, financial institution, lending
agency, or leasing agency who has provided financing of any nature to such
Borrower, including without limitation, the Other Lenders, except for those
defaults under the Borrowers' loan documents with the Other Lenders listed on
Exhibit J attached hereto (the "Other Lenders' Existing Defaults").
(i) If any of the Other Lenders accelerate the obligations owing
to them by any of the Borrowers, or otherwise attempt to enforce their rights
under any of their loan documents with any of the Borrowers, on account of
the Other Lenders Existing Defaults.
20. Written Documents Control. The Parties acknowledge and agree that
in the past, certain terms and provisions of the Loan Documents may not have
been complied with and may have been temporarily waived or modified through
certain temporary oral agreements or waivers among the Parties and NBD. Each
Party acknowledges and agrees that any and all of such oral agreements or
waivers are hereby terminated and each Party's duties, obligations, fights
and responsibilities with respect to the Loan Documents and this Agreement
shall be governed solely in accordance with the terms and conditions of the
written Loan Documents between the Parties and NBD, and this Agreement,
together with all written supplements or amendments, thereto or hereto, but
exclusive of all present or future oral agreements between NBD and any one or
more of the Parties.
21. Bank Accounts. The Parties represent and warrant to NBD that all
of the financial and bank accounts of Borrowers of any nature, including,
without limitation, checking and savings accounts, time deposit accounts and
operating and other deposit accounts and money market and other investment
accounts (collectively, the "Bank Accounts"), are
E-15
<PAGE>
maintained with NBD, and Borrowers maintain no such accounts with any other
bank, financial institution or other third party. The Parties acknowledge and
agree that Borrowers shall continue to maintain all of such Bank Accounts
with NBD, and all revenues of Borrowers will be deposited in an NBD Bank
Account immediately upon receipt.
22. No Overdrafts. The Parties acknowledge that, notwithstanding that
NBD may have honored overdrafts in the past, hereafter, neither NBD nor any
oF its affiliates will, under any circumstances, honor any checks or other
items presented to NBD or such affiliates for payment for which there are
insufficient available funds in any Borrower's accounts and NBD or. such
affiliates, as the case may be, may return any such items so presented.
23. Authority 10 Debit Accounts. If any payment called for by the Loan
Documents, this Agreement Or any other agreement referred to or incorporated
herein, or any other present or future agreements between NBD or any of its
affiliates on the one hand, or any party on the other hand, is not paid when
and as called for under the terms of such agreement, then NBD or any of its
affiliates may debit any one or more of any Party's accounts at NBD or any of
its affiliates for such amount. The fact that NBD or any of its affiliates
has debited any such account will in no way waive or diminish any default for
the failure to make such payment when and as due.
24. No Further Forbearance Implied. Each Party acknowledges that NBD
has no obligation to continue making Loans or extend the term of the
Forbearance Period or forbear from enforcing its fights and remedies after
the Forbearance Period, and nothing contained herein or otherwise is intended
to be or is a promise or agreement to continue making Loans, or to extend the
term of the Forbearance Period beyond the expiration thereof. Furthermore, no
future agreement by NBD to continue making Loans, or to extend the term of
the Forbearance Period beyond the expiration thereof, or any other agreement,
is valid or enforceable unless it is contained in a written agreement signed
by NBD.
25. Forbearance Fee. In consideration for NBD agreeing to forbear from
exercising its rights and remedies under the Loan Documents with respect to
the Existing Defaults as provided herein, Borrowers shall pay to NBD a
forbearance fee in the amount of $35,000 (the "Forbearance Fee")
simultaneously with the execution of this Agreement.
26. Expenses, Fees and Costs; Indemnification
(a) Each Party, jointly and severally, shall be responsible for the
payment of all fees and out-of-pocket disbursements incurred by NBD,
including fees of counsel and court costs, in any way arising from or in
connection with this Agreement, any Collateral, any Loan Document, any
Obligations, or the business relationship between NBD on the one hand and any
one or more of the Parties on the other hand, including, without limitation:
(1) Audit Fees (as defined in Paragraph 27 below); (2) all fees and expenses
(including recording fees and insurance policy fees) of NBD and counsel for
NBD for the preparation, examination, approval, negotiation, execution and
delivery of, or the closing of any of the transactions contemplated by,
E-16
<PAGE>
this Agreement or any of the Loan Documents; (3) all fees and out-of-pocket
disbursements incurred by NBD, including attorneys' fees, in any way arising
from or in connection with any action taken by NBD to monitor, advise,
administer, enforce or collect any of the Obligations (including under this
Agreement, the Guarantor Loan Documents, and any other Loan Document, or
otherwise), or any other obligations of any one or more of the Parties,
whether joint, joint and several, or several, under this Agreement, any Loan
Document, any other existing or future document or agreement, or arising from
or relating to the business relationship between NBD, on the one hand, and
any one or more of the Parties, on the other hand, or otherwise securing any
of the Obligations, including any actions to lift the automatic stay or to
otherwise in any way monitor or participate in any bankruptcy, reorganization
or insolvency proceeding of any one or more of the Parties; (4) all expenses
and fees (including attorneys' fees) incurred in relation to, in connection
with, in defense of or in prosecution of any litigation instituted by any one
or more of the Parties, NBD, or any third party, against or involving NBD
arising from, relating to, or in connection with any of the Obligations, or
any one or more of the Parties' other obligations, this Agreement, any
Collateral, any Loan Document, or the business relationship between NBD, on
the one hand, and any one or more of the Parties, on the other hand,
including any so-called "lender liability" action, any claim and delivery or
other action for possession of, or foreclosure on, any of the Collateral,
post-judgment enforcement of any rights or remedies including enforcement of
any judgments, and prosecution of any appeals (whether discretionary or as of
right and whether in connection with pre-judgment or post-judgment matters);
(5) all costs, expenses, and fees incurred by NBD or its agents in connection
with appraisals and reappraisals of all or any of the Collateral (and each
Party must fully cooperate with such appraisers and make its property
available for appraisal in connection with as many appraisals as NBD may
request); (6) all costs, expenses, and fees incurred by NBD or its counsel in
connection with consultants, including, without limitation, the Consultant,
expert witnesses, or other professionals retained by NBD or its counsel, to
assist, advise, or give testimony with respect to any matter relating to the
Collateral, the Obligations, the Loan Documents, the Guaranty, or the
business relationship between NBD, on the one hand, and any one or more of
the Parties, on the other hand (and each Party must fully cooperate with such
Consultant, expert witness or other professional and shall make its premises,
books and records, accounting systems, computer systems and other media for
the recordation of information available to such persons); and (7) all costs,
expenses and fees incurred by NBD in connection with any environmental
investigations including, but not limited to, Phase I, Phase II and Phase III
environmental audits (and each Party agrees that NBD or its agents may enter
on its premises at any time to conduct such environmental investigations).
Each Party's agreement, jointly and severally, to be responsible for NBD's
attorneys' fees and costs applies regardless of whether or not NBD prevails
in whole or in part in any action, proceeding, litigation, or otherwise, and
regardless of the nature of any action or litigation or the theories or bases
of recovery or defense. Each Party, jointly and severally, agrees to
indemnify NBD for all Claims (as hereinafter defined) which may be imposed
on, incurred by, or asserted against NBD in connection with this Agreement,
any Loan Document, or the transactions contemplated hereby or thereby, or the
business relationship between NBD, on the one hand, and any one or more of
the Parties, on the other hand.
E-17
<PAGE>
(b) All of the foregoing costs, expenses, reimbursement
obligations, and indemnification obligations are part of the Obligations and
are secured by all of the Collateral.
(c) "Claims" means any demand, claim, action or cause of action,
damage, liability, loss, cost, debt, expense, obligation, tax, assessment,
charge, lawsuit, contract, agreement, undertaking or deficiency, of any kind
or nature, whether known or unknown, fixed, actual, accrued or contingent,
liquidated or unliquidated (including interest, penalties, attorneys' fees
and other costs and expenses incident to proceedings or investigations
relating to any of the foregoing or the defense of any of the foregoing),
whether or not litigation has commenced.
27. Verification of Accounts/Audits. Attached hereto as Exhibit F is a
true and complete list, including accurate addresses and contact persons of
all of each Borrower's customers and account debtors. The Parties agree that,
NBD, through its employees or authorized agents, is permitted to send a
letter to and otherwise contact each Borrower's customers and account debtors
to Verify account receivable balances. In addition, NBD shall be permitted
full and complete access to each Borrower's facilities, and books and records
to conduct audits as often as NBD reasonably desires. The cost of such audits
is part of the Obligations, is secured by all Collateral, and must be paid by
Borrowers within ten (10) days of receipt of an invoice therefor (the "Audit
Fees"). The Audit Fees are in addition to all other interest, fees, costs,
and expenses provided for in the Loan Documents or this Agreement.
28. Other Documents. Each Party must execute, or cause to be executed,
any documents requested by NBD to carry out the intent of or to implement
this Agreement, the Guarantor Loan Documents, or any other Loan Document.
29. Cross Default/Cross Collateralization/Remedies. An Event of
Default or a default under this Agreement (or any agreement referred to or
incorporated herein)as an Event of Default or a default under each document
and agreement comprising the Loan Documents (including the Guarantor Loan
Documents), and an Event of Default or a default under any document or
agreement comprising the Loan Documents (including the Guarantor Loan
Documents) is an Event of Default or a default under the terms of this
Agreement (and all agreements referred to or incorporated herein).
Immediately upon the occurrence of an Event of Default or a default under
this Agreement, any Loan Document or any document executed in connection
herewith or referenced herein, and without notice or an opportunity to cure
such Event of Default or default, NBD has the right to exercise any remedies
provided in this Agreement, the Loan Documents, and under applicable law, and
the Forbearance Period will automatically expire at NBD's election, without
further notice and, at NBD's election but without notice, all of each Party's
obligations to NBD (including the Obligations and the Guarantors' obligations
under the Guarantor Loan Documents) will be immediately due and payable. In
any event, from and after the earlier of expiration of the Forbearance Period
or the occurrence of an Event of Default or a default under this Agreement or
any Loan Document, NBD may immediately take action to enforce its rights and
remedies under the Loan Documents (including enforcement action on account of
the Existing Defaults), this Agreement, and applicable law, including
collecting the Obligations and foreclosing on the Collateral. Each of
E-18
<PAGE>
the Parties acknowledges and agrees that it was and remains each Party's
intent that a default by any Party under any of its Obligations to NBD shall
be deemed to be a default under each document or agreement evidencing all of
the other Parties' Obligations to NBD, and all Collateral pledged by a Party
to secure that Party's Obligations to NBD also secures all of the other
Parties' Obligations to NBD. Each Party agrees to execute and deliver to NBD
any security agreements, financing statements or other documents NBD may deem
necessary or desirable to effectuate the above-referenced provisions. ABSENT
THE PRIOR OCCURRENCE OF AN EVENT OF DEFAULT, DEFAULT OR PRIOR DEMAND FOR
PAYMENT, ALL OBLIGATIONS, AND GUARANTORS' OBLIGATIONS UNDER THE GUARANTOR
LOAN DOCUMENTS ARE DUE AND PAYABLE IN FULL AT THE EXPIRATION OF THE
FORBEARANCE PERIOD.
30. Loan Documents, Guaranties and Secom Mortgage Continue. Except as
expressly modified and amended by the terms of this Agreement, all other
terms and conditions of the Loan Documents (including the Guarantor Loan
Documents and the Secom Mortgage) remain in full force and effect and are
hereby ratified, confirmed, and approved. If there is an express conflict
between the terms of this Agreement and the terms of the Loan Documents, the
terms of this Agreement govern and control. Without limiting the generality
of the foregoing, (a) each Guarantor acknowledges and agrees that the
Guaranties extend to cover all of the Obligations of Borrowers to NBD,
including without limitation, all of such Obligations under this Agreement
and under the Loan Documents, and (b) each Party acknowledges and agrees that
the Secom Mortgage extends to cover all of Borrowers' Obligations to NBD,
including without limitation, all of such Obligations under this Agreement
and under the Loan Documents.
31. Reservation of Rights/No Waivers. This Agreement grants a limited
forbearance until the expiration of the Forbearance Period on the terms and
conditions set forth in this Agreement. Except for such forbearance through
the expiration of the Forbearance Period, all of NBD's rights and remedies
against each Party and the Collateral are expressly reserved, including all
fights and remedies resulting from, or arising in connection with, the
Existing Defaults. Likewise, nothing herein is a waiver of any Existing
Defaults, or other defaults existing as of the date hereof, or an agreement
to consent to further worsening of such Existing Defaults, or new Events of
Default or defaults, or in any way prejudices NBD's rights and remedies under
the Loan Documents (including the Guarantor Loan Documents), or applicable
law. Further, NBD has the right to waive any terms, provisions, or conditions
in this Agreement or the Loan Documents in its sole discretion, and any such
waiver does not prejudice, waive, or reduce any other fight or remedy which
NBD may have against any one or more of the Parties. No waiver of fights or
any condition of this Agreement, the Loan Documents, or any other agreement
by NBD is effective unless the same is contained in a writing signed by an
authorized agent of NBD.
E-19
<PAGE>
32. Credit Inquiries. In the event customers, buyers, investors,
potential alternative financing sources, or other parties ask NBD about the
current lending relationship among NBD and any one or more of the Parties,
each Party agrees that NBD may refer such inquiries to the appropriate Party.
33. Entire Agreement, Etc.
(a) This Agreement and the Exhibits hereto constitute the Parties'
and NBD's entire understanding with respect to the subject matter hereof.
Modifications or amendments to this Agreement must be in writing and signed
by the party to be charged in order to be effective. This Agreement is
governed by the internal laws of the State of Michigan (without regard to
conflicts of law principles). This Agreement is binding on each Party and its
respective successors, assigns, heirs, and personal representatives and shall
inure to NBD's benefit and its successors and assigns. If any provision of
this Agreement conflicts with any applicable statute or law, or is otherwise
unenforceable, such offending provision is null and void only to the extent
of such conflict or unenforceability, and is deemed separate from and does
not invalidate any other provision of this Agreement.
(b) This Agreement is being entered into among competent persons
who are experienced in business and represented by counsel (or who have had
the opportunity to be represented by counsel), and has been reviewed by the
Parties and their counsel, if any. Therefore, any ambiguous language in this
Agreement will not necessariiy be construed against any particular party as
the drafter of such language.
(c) This Agreement may be executed in any number of counterparts
with the same effect as if all signatories had signed the same document. All
counterparts must be construed together to constitute one instrument.
Facsimile copies of signatures are to be treated as original signatures for
all purposes.
(d) References in the Loan Documents and all other documents
executed in connection with the Loan Documents (as each of the foregoing is
amended hereby) to the Loan Documents mean the Loan Documents as amended by
this Agreement.
(e) The term "including" means including, without limitation, and
the term "includes" means includes, without limitation.
(f) All headings are inserted for convenience only and do not
affect the construction or interpretation of this Agreement.
E-20
<PAGE>
34. Additional Representations. Each Party represents and warrants to
NBD that:
(a) Each Borrower's execution, delivery, and performance of this
Agreement and all agreements and documents delivered in connection herewith
by such Borrower, have been duly authorized by all necessary corporate action
and do not and will not require any consent or approval of such Borrower's
stockholders, violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in
effect having applicability to such Borrower or it articles of incorporation
or bylaws, or result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which such Borrower is a party or by which it or its properties
may be bound or affected.
(b) No authorization, consent, approval, license, exemption of or
filing a registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery or performance by any Borrower of
this Agreement and all agreements and documents delivered in connection with
this Agreement.
(c) This Agreement and all agreements and documents delivered
pursuant hereto by any one or more of the Parties are the legal, valid and
binding obligations of each such Party enforceable against each such Party in
accordance with the terms thereof.
(d) After giving effect to the amendments contained herein and
effected pursuant hereto, all representations and warranties contained in the
Loan Documents are true and correct on and as of the date hereof with the
same force and effect as if made on and as of the date hereof.
(e) Except for the Existing Defaults, each Party has duly and
properly performed, complied with and observed each of its covenants,
agreements, and obligations contained in the Loan Documents.
(f) Borrowers' audited financial statement for the fiscal year
ended September 30, 1997, and Borrowers' interim financial statements for the
nine-month period ended June 30, 1998, copies of which have been furnished to
NBD, fairly present Borrowers' financial condition at such dates and the
results of Borrowers' operations for the periods indicated, all substantially
in accordance with generally accepted accounting principles applied on a
consistent basis.
(g) No Party has assigned any claim, set off or defense to any
individual or entity.
(h) This Agreement and all of the Exhibits and other written
material delivered by any one or more of the Parties to NBD in connection
with the transactions contemplated hereby do not contain any statement that
is false or misleading with respect to any
E-21
<PAGE>
material fact and do not omit to state a material fact necessary in order to
make the statements therein not false or misleading. There is no additional
fact of which any Party is aware that has not been disclosed in writing to
NBD that materially affects adversely or, so far as each Party can reasonably
foresee, will materially affect adversely, any Party's financial condition or
business prospects.
(i) All Parties executing this Agreement in a representative
capacity warrant that they have authority to execute this Agreement and
legally bind the entity they represent.
35. Survival; Reliance. All agreements, representations and warranties
made in this Agreement (and all agreements referred to or incorporated
herein) survive the execution of this Agreement (and all documents and
agreements referred to or incorporated herein). Notwithstanding anything in
this Agreement (or any documents or agreements referred to or incorporated
herein) to the Contrary, no investigation or inquiry by NBD (including by its
agents) with respect to any matter which is the subject of any
representation, warranty, covenant or other agreement set forth herein or
therein is intended, nor shall it be interpreted, to limit, diminish or
otherwise affect the full scope and effect of any such representation,
warranty, covenant or other agreement. All terms, covenants, agreements,
representations and warranties of each Party made herein (or in any documents
or agreements referred to or incorporated herein), or in any certificate or
other document delivered or to be delivered pursuant hereto, are deemed to be
material and to have been relied upon by NBD, notwithstanding any
investigation heretofore or hereafter made by NBD or its agents.
36. Notices. Any notice or other communication required or permitted
to be given under this Agreement or any of the Loan Documents must be in
writing and delivered personally, telegraphed, telecopied or telexed, or
mailed (by certified or registered mail or by recognized overnight courier),
postage prepaid, and is deemed given when so delivered personally,
telegraphed or telexed, or if mailed, one day after the date of mailing,
addressed as follows (or to any another address as to which any party so
advises the other parties in writing):
(a) If to Borrowers
or Guarantors: Secom General Corporation
46035 Grand River Avenue
Novi, Michigan 48374
Telecopy (248) 347-2829
Attn: Paul Clemente
(b) If to NBD: NBD Bank
701 First National Building
Detroit, Michigan 48226
Telecopy: (313) 225-4355
Attn: Oliver J. Glenn, III
E-22
<PAGE>
With a copy to: Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226-3583
Telecopy: (313) 465-8026
Attn: Carol A. Clark
37. Discretionary Loans; Demand Obligations. Notwithstanding any
provisions of this Agreement, it is understood and agreed that NBD is at no
time obligated to make any Loan, despite compliance with any express
conditions precedent thereto, and NBD may at any time make demand for payment
of the Obligations, notwithstanding that there may then exist no Event of
Default or default. ABSENT PRIOR DEMAND BY NBD, OR A WRITTEN AGREEMENT SIGNED
BY NBD TO THE CONTRARY, ALL OF THE OBLIGATIONS SHALL BE DUE AND PAYABLE IN
FULL ON THE EARLIER OF (A) A DEFAULT UNDER THE LOAN DOCUMENTS, INCLUDING THIS
AGREEMENT, OR (B) THE EXPIRATION OF THE FORBEARANCE PERIOD.
38. Impairment of Collateral. The execution and delivery of this
Agreement (and all agreements and documents referred to herein) does not
impair or affect any other security (by endorsement or otherwise) for the
Obligations, or any one or more of the Parties' other obligations to NBD. No
security taken before or after as security for the Obligations impairs or
affects this Agreement (or any agreement or document referred to herein). All
present and future additional security is to be considered as cumulative
security.
39. Time Is of the Essence. Each Party acknowledges and agrees that
time is of the essence as to each and every term and provision of this
Agreement and each Loan Document.
40. Adverse Events. Promptly upon gaining knowledge thereof or at such
time as any Party should have known thereof, each Party must inform NBD of
the occurrence of any Event of Default, or default, or any event which with
the lapse of time or service of notice or both would constitute an Event of
Default or default under this Agreement or any of the Loan Documents, or of
any other occurrence which has or could reasonably be expected to have a
materially adverse effect on any Party's business, properties, or financial
condition or upon any Party's ability to comply with its obligations under
this Agreement or the Loan Documents (including the Guarantor Loan
Documents).
41. Non-Waiver. No failure or delay on the part of NBD in the exercise
of any power or fight, and no course of dealing between any one or more of
the Parties or any Personal Guarantor and NBD, operates as a waiver of such
power or right, nor shall any single or partial exercise of any power or
right preclude other or further exercise thereof or the exercise of any other
power or right. The remedies provided for herein are cumulative and not
exclusive of any remedies which may be available to NBD at law or in equity.
No notice to or demand on any Party not required hereunder or under the Loan
Documents entitles any such Party to any other or further notice or demand in
similar or other circumstances, or waives NBD's right to any other or further
action in any circumstances without notice or demand. Any waiver of an
E-23
<PAGE>
provision of this Agreement or the Loan Documents and any consent to any
departure by any one or more of the Parties from the terms of any provision
of this Agreement or the Loan Documents, is effective only if in writing
signed by an authorized officer of NBD, and only in the specific instance and
for the specific purpose for which given.
42. No Other Promises or Inducements. There are no promises or
inducements which have been made to any signatory hereto to cause such
signatory to enter into this Agreement other than those which are set forth
in this Agreement.
43. Additional Agreements. Prior to or simultaneously with the
execution and delivery of this Agreement (or such other date as is indicated
below), the Parties shall cause to be executed and delivered to NBD the
following documents:
(a) The Amended Notes executed by Borrowers;
(b) The Amended and Restated Security Agreements and the New UCC's
executed by Borrowers;
(c) The list of customers and account debtors;
(d) The Second Amended and Restated Future Advance Mortgage
executed by Secom;
(e) Certificate of Resolutions in the form attached as Exhibit K
hereto, executed by Borrower;
(f) A Security Agreement and UCC-I Financing Statement in the form
of Exhibit L attached hereto, executed by Milford;
(g) A UCC-I Financing Statement covering equipment owned by
Uniflow and financed by NBD as described on such UCC-1 Financing Statement in
the form of Exhibit M attached hereto;
(h) Executed demand deposit account signature cards and
resolutions for all of Borrowers' operating accounts in the form of Exhibit N
attached hereto; and
(i) Such other financing statements, resolutions, searches and
other documents and agreements reasonably required by NBD, to effectuate the
transactions contemplated by this Agreement.
E-24
<PAGE>
44. Subordination Agreements. ANYTHING CONTAINED IN THIS AGREEMENT OR
IN ANY OTHER AGREEMENT TO THE CONTRARY NOTWITHSTANDING, NOTHING CONTAINED IN
THIS AGREEMENT OR IN ANY OTHER AGREEMENT RESTRICTS OR PROHIBITS NBD'S RIGHT
TO BLOCK, STOP OR PROHIBIT PAYMENTS TO ANY SUBORDINATED CREDITOR(S) ON
ACCOUNT OF THE EXISTING DEFAULTS OR OTHERWISE. Without limiting the
generality of the previous sentence and notwithstanding any provision of any
Subordination Agreement to the contrary, Guarantors agree jointly and
severally that all amounts owing by any Borrower to any of them, however
evidenced, present or future (the "Subordinated Indebtedness") are
subordinated to all of the Obligations, AND HEREBY WAIVE ALL RIGHTS TO
RECEIVE PAYMENTS ON OR RELATED TO THE SUBORDINATED INDEBTEDNESS UNTIL SUCH
TIME AS NBD HAS RECEIVED PAYMENT IN FULL WITH RESPECT TO THE OBLIGATIONS.
45. Payments to Shareholders. Effective immediately, all dividends,
distributions and other payments to shareholders, present or future, whether
by way of stock redemption, payments on preferred stock, or deferred
compensation, principal or interest, shall cease in their entirety, except
for those payments specifically permitted by this Agreement, or those in
connection with a 401K Plan.
46. STATUTE OF FRAUDS. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. ALL
PRIOR AND CONTEMPORANEOUS ORAL AGREEMENTS, IF ANY, BETWEEN NBD, ON THE ONE
HAND, AND ANY ONE OR MORE OF THE PARTIES, ON THE OTHER HAND, ARE MERGED INTO
THIS AGREEMENT AND DO NOT SURVIVE THE EXECUTION OF THIS AGREEMENT.
47. RELEASE. AS OF THE DATE HEREOF EACH PARTY REPRESENTS AND WARRANTS
THAT HE, SHE OR IT IS AWARE OF, AND POSSESSES, NO CLAIMS OR CAUSES OF ACTION
AGAINST NBD. NOTWITHSTANDING THIS REPRESENTATION AND AS FURTHER CONSIDERATION
FOR THE AGREEMENTS AND UNDERSTANDINGS HEREIN, EACH PARTY INDIVIDUALLY,
JOINTLY, SEVERALLY, AND JOINTLY AND SEVERALLY, IN EVERY CAPACITY, INCLUDING
BUT NOT LIMITED TO, AS SHAREHOLDERS, OFFICERS, PARTNERS, DIRECTORS,
INVESTORS, OR CREDITORS OF ANY ONE OR MORE OF THE PARTIES, EACH OF THEIR
EMPLOYEES, AGENTS, EXECUTORS, SUCCESSORS AND ASSIGNS, HEREBY RELEASES NBD,
ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, AFFILIATES,
SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM ANY LIABILITY, CLAIM, RIGHT OR
CAUSE OF ACTION WHICH NOW EXISTS, OR HEREAFTER ARISES, WHETHER KNOWN OR
UNKNOWN, ARISING FROM OR IN ANY WAY RELATED TO FACTS IN EXISTENCE AS OF THE
DATE HEREOF. BY WAY OF EXAMPLE AND NOT
E-25
<PAGE>
LIMITATION, THE FOREGOING INCLUDES ANY CLAIMS IN ANY WAY RELATED TO ACTIONS
TAKEN OR OMITTED TO BE TAKEN BY NBD UNDER THE LOAN DOCUMENTS, THE BUSINESS
RELATIONSHIP WITH NBD AND ALL OTHER OBLIGATIONS OF ANY NATURE OR KIND OF ANY
ONE OR MORE OF THE PARTIES, ANY ORAL AGREEMENTS OR UNDERSTANDINGS (ACTUAL OR
ALLEGED), ANY BANKING RELATIONSHIPS THAT ANY ONE OR MORE OF THE PARTIES HAS
OR MAY HAVE HAD WITH NBD AT ANY TIME AND FOR ANY REASON INCLUDING, BUT NOT
LIMITED TO, DEMAND DEPOSIT ACCOUNTS, OR OTHERWISE.
48. WAIVER OF JURY TRIAL AND BOND; SUBMISSION TO JURISDICTION;
AND ACKNOWLEDGMENT.
(a) ANY JUDICIAL PROCEEDING AGAINST ANY ONE OR MORE OF THE PARTIES
BROUGHT BY NBD WITH RESPECT TO ANY TERM OR CONDITION OF THIS AGREEMENT, THE
LOAN DOCUMENTS OR ANY OTHER PRESENT OR FUTURE AGREEMENT BETWEEN ANY ONE OR
MORE OF THE PARTIES AND NBD MAY BE BROUGHT BY NBD IN A COURT OF COMPETENT
JURISDICTION IN THE STATE OF MICHIGAN, UNITED STATES OF AMERICA, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY AND NBD ACCEPT FOR
THEMSELVES AND IN CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND
IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER PRESENT AND
FUTURE AGREEMENT BETWEEN ANY ONE OR MORE OF THE PARTIES AND NBD. EACH PARTY
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THEM, AND CONSENTS THAT
ALL SUCH SERVICE OF PROCESS MAY BE MADE BY MAIL OR MESSENGER DIRECTED TO THEM
AT THEIR ADDRESSES SET FORTH IN THIS AGREEMENT. EACH OF THE PARTIES WAIVES
ANY BOND OR SURETY OR SECURITY UPON SUCH BOND OR SURETY WHICH MIGHT, BUT FOR
THIS WAIVER, BE REQUIRED OF NBD. NOTHING CONTAINED IN THIS SECTION AFFECTS
NBD'S RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
AFFECTS NBD'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY ONE OR MORE
OF THE PARTIES OR ANY ONE OR MORE OF THEIR PROPERTIES IN THE COURTS OF ANY
OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY PARTY AGAINST NBD
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT
OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
PRESENT OR FUTURE AGREEMENT BETWEEN ANY ONE OR MORE OF THE PARTIES AND NBD,
MUST BE BROUGHT ONLY IN A COURT LOCATED IN THE STATE OF MICHIGAN. EACH PARTY
WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED
E-26
<PAGE>
HEREUNDER OR IN CONNECTION HEREWITH AND MAY NOT ASSERT ANY DEFENSE BASED ON
LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NONCONVENIENS.
(b) EACH PARTY ACKNOWLEDGES THAT (1) HE, SHE OR IT HAS FULLY READ
ALL OF THIS AGREEMENT AND HAS BEEN GIVEN THE OPPORTUNITY TO CONSULT WITH
COUNSEL AND OTHER ADVISORS OF HIS, HER OR ITS CHOICE, AND AFTER CONSULTING
WITH SUCH COUNSEL OR ADVISORS, KNOWLINGLY, VOLUNTARILY AND WITHOUT DURESS,
COERCION, UNLAWFUL RESTRAINT, INTIMIDATION OR COMPULSION, ENTERS INTO THIS
AGREEMENT, BASED UPON SUCH ADVICE AND COUNSEL AND IN THE EXERCISE OF HIS, HER
OR ITS BUSINESS JUDGMENT, (2) THIS AGREEMENT HAS BEEN ENTERED INTO IN
EXCHANGE FOR GOOD AND VALUABLE CONSIDERATION, RECEIPT OF WHICH THE PARTIES
HERETO ACKNOWLEDGE, (3) HE, SHE OR IT HAS CAREFULLY AND COMPLETELY READ ALL
OF THE TERMS AND PROVISIONS OF THIS AGREEMENT AND IS NOT RELYING ON THE
OPINIONS OR ADVICE OF NBD OR HIS, HER OR ITS AGENTS OR REPRESENTATIVES IN
ENTERING INTO THIS AGREEMENT.
(c) THE PARTIES HERETO ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY
IS A CONSTITUTIONAL RIGHT, BUT THAT THIS RIGHT MAY BE WAIVED. NBD AND EACH
PARTY EACH HEREBY KNOWINGLY, VOLUNTARILY AND WITHOUT COERCION, WAIVE ALL
RIGHTS TO A TRIAL BY JURY OF ALL DISPUTES ARISING OUT OF OR IN RELATION TO
THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENTS BETWEEN ANY OF THE
PARTIES. NO PARTY WILL BE DEEMED TO HAVE RELINQUISHED THE BENEFIT OF THIS
WAIVER OF JURY TRIAL UNLESS SUCH RELINQUISHMENT IS IN A WRITTEN INSTRUMENT
SIGNED BY THE PARTY TO WHICH SUCH RELINQUISHMENT WILL BE CHARGED. EACH PARTY
AND NBD AGREE THAT ANY OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THEIR CONSENT TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY AND THE OTHER AGREEMENTS SET FORTH IN
THIS AGREEMENT.
WITNESS NBD BANK
/s/ Scott J. Konieczny By: /s/ Oliver J. Glenn, III
Name: Oliver J. Glenn, III
Title: Vice President
[Signatures continued on Page 28]
E-27
<PAGE>
[Signatures continued from Page 27]
WITNESS SECOM GENERAL CORPORATION
/s/ Scott J. Konieczny By: /s/ Paul D. Clemente
Name: Vice President
Title:
Subscribed and sworn to before me this 25th day of Nov., 1998.
/s/ Marlene Baynes
Notary Public, Oakland County, MI
My Commission Expires: 5-28-2002
WITNESS FORM FLOW, INC.
/s/ Scott J. Konieczny By: /s/ Paul D. Clemente
Name:
Title: Director
Subscribed and sworn to before me this 25th day of Nov., 1998.
/s/ Marlene Baynes
Notary Public, Oakland County, MI
My Commission Expires: 5-28-2002
WITNESS L & H DIE, INC.
/s/ Scott J. Konieczny By: /s/ Paul D. Clemente
Name:
Title: Director
Subscribed and sworn to before me this 25th day of Nov., 1998.
/s/ Marlene Baynes
Notary Public, Oakland County, MI
My Commission Expires: 5-28-2002
[Signatures continued on Page 29]
MARLENE BAYNES
Notary Public, Oakland County, MI
My Commission Expires 5-28-2002
E-28
<PAGE>
WITNESS MICANOL, INC.
/s/ Scott J. Konieczny By: /s/ Paul D. Clemente
Name:
Title: Director
Subscribed and sworn to before me this 25th day of Nov., 1998.
/s/ Marlene Baynes
Notary Public, Oakland County, MI
My Commission Expires: 5-28-2002
WITNESS UNIFLOW CORPORATION
/s/ Scott J. Konieczny By: /s/ Paul D. Clemente
Name:
Title: Director
Subscribed and sworn to before me this 25th day of Nov., 1998.
/s/ Marlene Baynes
Notary Public, Oakland County, MI
My Commission Expires: 5-28-2002
MMC MANUFACTURING CORP. F/K/A
WITNESS MILFORD MANUFACTURING,
CORPORATION
/s/ Scott J. Konieczny By: /s/ Paul D. Clemente
Name: Vice President
Title:
Subscribed and sworn to before me this 25th day of Nov., 1998.
/s/ Marlene Baynes
Notary Public, Oakland County, MI
My Commission Expires: 5-28-2002
MARLENE BAYNES
Notary Public, Oakland County, MI
My Commission Expires 5-28-2002
E-29
<PAGE>
EXHIBITS
Exhibit A: Projections
Exhibit B: Second Amended and Restated Master Demand Business Loan Note
(attached)
Exhibit C: Second Amended and Restated Term Note (attached)
Exhibit D: Second Amended and Restated Equipment Term Note (attached)
Exhibit E: Dominion of Funds Agreement
Exhibit F: List of Borrowers' Customers
Exhibit G: Amended Security Agreements
Exhibit H: New UCC's
Exhibit I: Second Amended and Restated Mortgage
Exhibit J: Other Lenders' Existing Defaults
Exhibit K: Certificate of Resolutions
Exhibit L: Milford Security Agreement and UCC-1 Financing Statement
Exhibit M: Uniflow UCC-1 Financing Statement
Exhibit N: Demand Deposit Account Signature Cards and Resolutions
E-30
<PAGE>
Exhibit "B"
SECOND AMENDED AND RESTATED
MASTER DEMAND BUSINESS LOAN NOTE
Amount: (DELTA) $3,000,000 Dated: as of November 25, 1998
Made at Detroit, Michigan.
FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to
pay to the order of NBD BANK ("Bank"), at its offices in Detroit, Michigan or
at such other place as the holder of this note may from time to time
designate in writing on demand, the principal sum of (DELTA) Three Million
(DELTA) and 00/100 Dollars (DELTA)($3,000,000.00), together with interest on
the outstanding balance thereof as provided below. THIS NOTE IS PAYABLE ON
DEMAND. Until demand, the undersigned shall make monthly payments of accrued
interest commencing on December 1, 1998, and continuing on the 1st day of
each consecutive month thereafter. Unpaid interest under the Prior Notes
(defined below) is due on December 1, 1998.
The indebtedness under this Note outstanding from time to time prior
to maturity (whether by demand, acceleration or otherwise) or the occurrence
of an Event of Default shall bear interest on the basis of a year of 360 days
for the actual number of days elapsed in each month, at the rate of 1% per
annum above the Bank's Prime Rate (the "Applicable Rate"), as more fully
provided in the Amended and Restated Revolving Credit and Loan Agreement
dated as of June 30, 1996, as amended by First Amendment to Revolving Credit
and Loan Agreement dated as of August 22, 1997, Second Amendment to Revolving
Credit and Loan Agreement dated as of January 1, 1998, and an Amendment and
Forbearance Agreement (the "Forbearance Agreement") dated the date hereof (as
so amended and as may be further amended from time to time, the "Credit
Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings given them in the Credit Agreement. As used herein, the "Prime Rate"
shall be the per annum rate of interest from time to time announced by the
Bank (or any successor thereto) as its prime rate, which prime rate may not
be the lowest `rate of interest charged by the Bank to any of its customers.
Any change in the Prime Rate shall immediately effect a change in the rate of
interest payable hereunder.
After maturity, or from and after an Event of Default, the outstanding
principal balance under this Note shall bear additional interest from and
after such maturity date or the occurrence of the Event of Default, at a rate
of three (3%) percentage points per annum above the Applicable Rate until the
Note is fully paid or the Event of Default is fully cured (the "Default
Rate").
If any payment is not received by Bank within fifteen days after its
due date, the Bank may assess and the undersigned agree to pay a late fee
equal to the lesser of 5% of the past due amount or the Late Fee Cap. The
Late Fee Cap is $350 and is based on the original principal amount of this
Note.
Principal of and interest on this Note shall be payable in lawful
money of the United States of America. The undersigned agrees to pay all
costs of collection and enforcement of this Note, including reasonable
attorneys' fees and court costs
E-31
<PAGE>
The indebtedness under this Note may be prepaid in whole or in part at
any time. In addition to the payments described above, additional payments on
this Note may be due and payable pursuant to the terms of the Credit
Agreement.
Bank is hereby authorized by Borrowers to record on its books and
records, the date and amount of each Revolving Loan, the Loan Period, the
applicable interest rate (including any changes therein), the amount of each
payment of principal thereon and such other information as appropriate, which
books and records shall constitute rebuttable presumptive evidence of the
information so recorded, provided, however, that any failure by Bank to
record any such information shall not relieve Borrowers of their obligation
to repay the outstanding principal amount of all Revolving Loans made by
Bank, all accrued interest thereon and any amount payable with respect
thereto in accordance with the terms of this Note and the Credit Agreement.
This Note is given pursuant to the terms and conditions of the Credit
Agreement, including the Forbearance Agreement. This Note is secured by,
among other collateral, the collateral granted to Lender under the terms of
the Credit Agreement, including the Forbearance Agreement, and the Loan
Documents. The occurrence of any default under the Credit Agreement,
including the Forbearance Agreement, or any of the Loan Documents (as such
documents may have been amended by the Credit Agreement), or any document or
instrument referred to or incorporated into any of the foregoing shall be
deemed a default under this Note and shall entitle the holder of this Note to
accelerate the maturity of the debt evidenced by this Note and to have all
rights and remedies afforded by law or available under the Credit Agreement,
including the Forbearance Agreement, the Loan Documents and under all other
agreements referred to or executed in connection with any of the foregoing.
This Note consolidates, amends and restates (but does not discharge)
certain existing obligations evidenced by a Line of Credit Note, dated as of
June 30, 1996 in the original principal amount of $2,000,000, and an Amended
and Restated Revolving Credit Note, dated June 30, 1996, in the original
principal amount of $4,000,000, all from the undersigned,to Bank ("Prior
Notes"). Any references in the Credit Agreement or any other agreement to the
Prior Notes shall hereafter constitute a reference to this Note.
The undersigned, and all endorsers and guarantors, hereby severally
waive valuation and appraisement, presentment, protest and demand, notice of
protest, demand and dishonor and nonpayment of this Note, and expressly agree
that the maturity of this Note, or any payment due under this Note, may be
extended from time to time without in any way affecting the liability of the
undersigned or such endorsers or guarantors.
E-32
<PAGE>
This Note, made and executed in the State of Michigan, shall be
governed and construed according to the internal laws of the State of
Michigan.
SECOM GENERAL CORPORATION,
a Delaware corporation
By: ______________________
Name: Paul Clemente
Its: Vice President
46035 Grand River Ave.
Novi, Michigan 48374
UNIFLOW CORPORATION
By: ______________________
Paul Clemente
Its: Vice President
26600 Heyn Drive
Novi, Michigan 48450
MICANOL, INC.
By: ______________________
Paul Clemente
Its: Vice President
P.O. Box 881
46001 Grand River
Novi, Michigan 48376
L&H DIE, INC.
By: ______________________
Paul Clemente
Its: Vice President
38200 Ecorse Road
Romulus, Michigan 48174
FORM FLOW, INC.
By: ______________________
Paul Clemente
Its: Vice President
6901 Cogswell
Romulus, Michigan 48174
[Signature of Milford Manufacturing continued on Page 4]
E-33
<PAGE>
[Signature of Milford Manufacturing continued from Page 3]
MMC MANUFACTURING CORP., f/k/a
MILFORD MANUFACTURING, CORPORATION
By: _____________________________
Name:________________________
Its:_________________________
101 Oak Street
Milford, Michigan 48381
E-34
<PAGE>
Exhibit "C"
SECOND AMENDED AND RESTATED
TERM NOTE
Amount: $625,592.35 Dated: as of November 25, 1998
Due Date: (DELTA) Demand or February 1, 1999 Made at Detroit, Michigan
FOR VALUE RECEIVED, the undersigned promise to pay to the order of NBD
BANK ("Bank"), at its offices in Detroit, Michigan or at such other place as
the holder of this Note may from time to time designate in writing, the
principal sum of SIX HUNDRED TWENTY-FIVE THOUSAND, FIVE HUNDRED NINETY-TWO
AND 35/100 Dollars ($625,592.35), together with interest on the outstanding
balance thereof at 1% above the Bank's Prime Rate (the "Note Rate"), as more
fully provided in the Credit Agreement referred to below, payable as follows:
Unless earlier demand for payment is made, principal is payable in 2 monthly
installments (DELTA) in the amount of $5,000 plus accrued interest on
December 6, 1998 and January 6, 1999, followed by a balloon payment of all
remaining principal and interest on (DELTA) February 1, 1999. As used herein,
the "Prime Rate" shall be the per annum rate of interest from time to time
announced by the Bank (or any successor thereto) as its prime rate, which
prime rate may not be the lowest rate of interest charged by the Bank to any
of its customers. Any change in the Prime Rate shall immediately effect a
change in the rate of interest payable hereunder.
After maturity, or from and after an Event of Default, described
below, the outstanding principal balance under this Note shall bear
additional interest from and after such maturity date or the occurrence of
the Event of Default, at a rate of three (3%) percentage points per annum
above the Note Rate until the Note is fully paid or the Event of Default is
fully cured (the "Default Rate").
The indebtedness under this Note outstanding from time to time shall
bear interest on the basis of a year of 360 days for the actual number of
days elapsed in each month. Principal of and interest on this Note shall be
payable in lawful money of the United States of America. The undersigned
agrees to pay all costs of collection and enforcement of this Note, including
reasonable attorneys' fees and court costs.
If any payment is not received by Bank within fifteen days after its
due date, the Bank may assess and the undersigned agree to pay a late fee
equal to the lesser of 5% of the past due amount or the Late Fee Cap. The
Late Fee Cap is $200 and is based on the original principal amount of this
Note.
The indebtedness under this Note may be prepaid in whole or in part at
any time.
This Note is given pursuant to the terms and conditions of the Amended
and Restated Revolving Credit and Loan Agreement dated as of June 30, 1996,
as amended by First Amendment to Amended and Restated Revolving Credit and
Loan Agreement dated as of August 22, 1997, Second Amendment to Revolving
Credit and Loan Agreement dated as of January 1, 1998, and an Amendment and
Forbearance Agreement (the "Forbearance Agreement") dated the date hereof (as
so amended and as may be further amended from time to
E-35
<PAGE>
time, the "Credit Agreement"). Capitalized terms not otherwise defined herein
shall have the meanings given them in the Credit Agreement. This Note is
secured by, among other collateral, the collateral granted to Lender under
the terms of the Credit Agreement, including the Forbearance Agreement, and
the Loan Documents. The occurrence of any Event of Default under the Credit
Agreement, including the Forbearance Agreement, or any default under any of
the Loan Documents or any document or instrument referred to or incorporated
into any of the foregoing shall be deemed an Event of Default under this Note
and shall entitle the holder of this Note to accelerate the maturity of the
debt evidenced by this Note and to have all rights and remedies afforded by
law or available under the Credit Agreement, including the Forbearance
Agreement, the Loan Documents and under all other agreements referred to or
executed in connection with any of the foregoing.
This Second Amended and Restated Term Note, among other things, amends
and restates (but does not discharge) the indebtedness outstanding under that
certain Amended and Restated Term Note dated as of June 30, 1996, in the
original principal amount of $775,000. Any reference in any other document or
instrument to the foregoing notes shall constitute a reference to this Second
Amended and Restated Term Note.
The undersigned, and all endorsers and guarantors, hereby severally
waive valuation and appraisement, presentment, protest and demand, notice of
protest, demand and dishonor and nonpayment of this Note, and expressly agree
that the maturity of this Note, or any payment due under this Note, may be
extended from time to time without in any way affecting the liability of the
undersigned or such endorsers or guarantors.
This Note, made and executed in the State of Michigan, shall be
governed and construed according to the internal laws of the State of
Michigan.
SECOM GENERAL CORPORATION,
a Delaware corporation
By: ______________________
Name: Paul Clemente
Title: Vice President
46035 Grand River Ave.
Novi, Michigan 48374
E-36
<PAGE>
Exhibit "D"
SECOND AMENDED AND RESTATED EQUIPMENT TERM NOTE
Amount: $644,680 Dated: as of November 25, 1998
Due Date: (DELTA) Demand or February 1, 1999 Made at Detroit, Michigan.
FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to
pay to the order of NBD BANK ("Bank"), at its offices in Detroit, Michigan or
at such other place as the holder of this note may from time to time
designate in writing, the principal sum of SIX HUNDRED FORTY-FOUR THOUSAND,
SIX HUNDRED EIGHTY AND 00/100 Dollars ($644,680), together with interest on
the outstanding balance thereof as provided below, payable as follows:
(DELTA) Unless earlier demand for payment is made, principal is payable in 2
equal monthly installments equal to $10,750 of the principal, beginning on
December 1, 1998 and January 1, 1999, followed by a balloon payment of all
remaining principal and interest on (DELTA) February 1, 1999. Interest is
payable in monthly payments of accrued interest commencing on December 1,
1998, and continuing on the first day of each consecutive month thereafter
until maturity. Accrued interest since the last payment on the Prior Note
(defined below) shall be due on December 1, 1998.
The indebtedness under this Note outstanding from time to time prior
to maturity (whether by acceleration or otherwise) or the occurrence of an
Event of Default shall bear interest on the basis of a year of 360 days for
the actual number of days elapsed in each month, at the rate of 1% per annum
over the rate announced from time to time as Bank's Prime Rate (the
"Applicable Rate"), as more fully described in the Amended and Restated
Revolving Credit and Loan Agreement dated as of June 30, 1996, as amended by
First Amendment to Amended and Restated Revolving Credit and Loan Agreement,
dated as of August 22, 1997, Second Amendment to Amended and Restated
Revolving Credit and Loan Agreement dated as of January 1, 1998, and an
Amendment and Forbearance Agreement (the "Forbearance Agreement") dated as of
the date hereof (as so amended and as may be further amended from time to
time, the "Credit Agreement"). Capitalized terms not otherwise defined herein
shall have the meanings given them in the Credit Agreement.
After maturity, or from and after an Event of Default, the outstanding
principal balance under this Note shall bear additional interest from and
after such maturity date or the occurrence of the Event of Default, at a rate
of three (3%) percentage points per annum above the Applicable Rate until the
Note is fully paid or the Event of Default is fully cured (the "Default
Rate").
If any payment is not received by Bank within fifteen days after its
due date, the Bank may assess and the undersigned agree to pay a late fee
equal to the lesser of 5% of the past due amount or the Late Fee Cap. The
Late Fee Cap is $200 and is based on the original principal amount of this
Note.
Principal of and interest on this Note shall be payable in lawful
money of the United States of America. The undersigned agrees to pay all
costs of collection and enforcement of this Note, including reasonable
attorneys' fees and court costs.
The indebtedness under this Note may be prepaid in whole or in part at
any time subject to any applicable indemnity payment under the Credit
Agreement.
E-37
<PAGE>
This Note is given pursuant to the terms and conditions of the Credit
Agreement, including the Forbearance Agreement. This Note is secured by,
among other collateral, the collateral granted to Bank under the terms of the
Credit Agreement, including the Forbearance Agreement, and the Loan
Documents. The occurrence of any default under the Credit Agreement,
including the Forbearance Agreement, or any of the Loan Documents (as such
documents may have been amended by the Credit Agreement), or any document or
instrument referred to or incorporated into any of the foregoing shall be
deemed a default under this Note and shall entitle the holder of this Note to
accelerate the maturity of the debt evidenced by this Note and to have all
rights and remedies afforded by law or available under the Credit Agreement,
including the Forbearance Agreement, the Loan Documents and under all other
agreements referred to or executed in connection with any of the foregoing.
Bank is hereby authorized by Borrowers to record on its books and
records, the Loan Period, the applicable interest rate (including any changes
therein), the amount of each payment of principal thereon and such other
information as appropriate, which books and records shall constitute
rebuttable presumptive evidence of the information so recorded, provided,
however, that any failure by Bank to record any such information shall not
relieve Borrowers of their obligation to repay the outstanding principal
amount of all Equipment Advances made by Bank, all accrued interest thereon
and any amount payable with respect thereto in accordance with the terms of
this Note and the Credit Agreement.
This Note amends and restates (but does not discharge) the Amended and
Restated Equipment Line Note dated as of January 1, 1998, in the original
principal amount of $1,500,000, from the undersigned to Bank (the "Prior
Note"). Any reference in the Credit Agreement or any other agreement to the
Prior Note shall hereafter constitute a reference to this Note.
The undersigned, and all endorsers and guarantors, hereby severally
waive valuation and appraisement, presentment, protest and demand, notice of
protest, demand and dishonor and nonpayment of this Note, and expressly agree
that the maturity of this Note, or any payment due under this Note, may be
extended from time to time without in any way affecting the liability of the
undersigned or such endorsers or guarantors.
E-38
<PAGE>
This Note, made and executed in the State of Michigan, shall be
governed and construed according to the internal laws of the State of
Michigan.
SECOM GENERAL CORPORATION,
a Delaware corporation
By: _____________________________
Name:________________________
Its:_________________________
46035 Grand River Ave.
Novi, Michigan 48374
UNIFLOW CORPORATION
By: _____________________________
Name:________________________
Its:_________________________
26600 Heyn Drive
Novi, Michigan 48450
MICANOL, INC.
By: _____________________________
Name:________________________
Its:_________________________
P.O. Box 881
46001 Grand River
Novi, Michigan 48376
L & H DIE, INC.
By: _____________________________
Name:________________________
Its:_________________________
38200 Ecorse Roa
Romulus, Michigan 48174
[Signatures continued on Page 4]
E-39
<PAGE>
[Signatures continued from Page 3]
FORM FLOW, INC.
By: _____________________________
Name:________________________
Its:_________________________
6901 Cogswell
Romulus, Michigan 48174
MMC MANUFACTURING CORP., f/k/a
MILFORD MANUFACTURING, CORPORATION
By: _____________________________
Name:________________________
Its:_________________________
101 Oak Street
Milford, MI 48381
E-40
EXHIBIT NO. 22
SUBSIDIARIES
Form Flow, Inc.
6901 Cogswell
Romulus, Michigan 48174
L & H Die, Inc.
38200 Ecorse Road
Romulus, Michigan 48174
Micanol, Inc.
38200 Ecorse Road
Romulus, Michigan 48174
Uniflow Corporation
46001 Grand River Avenue
Novi, Michigan 48374
E-41
[Letterhead of Deloitte & Touche LLP]
Deloitte &
Touche LLP
____________ _________________________________________
Suite 900 Telephone (313) 396-3000
600 Renaissance Center
Detroit, Michigan 48243-1704
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
33-45177 and 33-43557 of Secom General Corporation on Form S-8 of our report
dated December 5, 1997 (January 11, 1999 as to Note 2), appearing in this
Annual Report on Form 10-K of Secom General Corporation for the year ended
September 30, 1998.
Detroit, Michigan
January 11, 1999
E-42
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-45177 and 33-43557 of Secom General Corporation on Form S-8 of our report
dated January 11, 1999, appearing in this Annual Report on Form 10-K of Secom
General Corporation for the year ended September 30, 1998.
REHMANN ROBSON, P.C.
Farmington Hills, Michigan
January 11, 1999
E-43
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 104,600
<SECURITIES> 0
<RECEIVABLES> 4,273,500
<ALLOWANCES> (134,500)
<INVENTORY> 4,044,800
<CURRENT-ASSETS> 14,982,300
<PP&E> 21,336,300
<DEPRECIATION> 9,147,100
<TOTAL-ASSETS> 27,867,700
<CURRENT-LIABILITIES> 18,565,500
<BONDS> 0
<COMMON> 533,500
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,876,700
<SALES> 31,725,500
<TOTAL-REVENUES> 31,725,500
<CGS> 29,846,700
<TOTAL-COSTS> 37,511,400
<OTHER-EXPENSES> (129,600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 953,700
<INCOME-TAX> (543,900)
<INCOME-PRETAX> 0
<INCOME-CONTINUING> (6,066,100)
<DISCONTINUED> (120,700)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,945,400)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
