==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1999
Commission file number 0-14299
SECOM GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0410875
(State or other jurisdiction of (IRS Employer I.D. Number)
incorporation or organization)
46035 GRAND RIVER AVENUE 48374
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 248-305-9410
Indicate by check mark whether the registrant (1) has filed all reports 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
requirement for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Title of Class Number of Shares Outstanding
Common Stock 1,067,100 as of May 10, 1999
==============================================================================
<PAGE>
SECOM GENERAL CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
INDEX
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements ----
Consolidated Balance Sheets............................... 1
Consolidated Statements of Operations..................... 3
Consolidated Statements of Cash Flows..................... 4
Notes to Interim Consolidated Financial Statements........ 5
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations....................... 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................... 16
Item 2. Changes in Securities..................................... 16
Item 3. Defaults in Securities.................................... 16
Item 4. Submission of Matters to a Vote of Security Holders...... 16
Item 5. Other Information......................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................... 16
<PAGE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
ASSETS (Unaudited)
Mar. 31 1999 Sept. 30 1998
------------ -------------
<S> <C> <C>
Current assets
Cash $ 67,900 $ 104,600
Accounts receivable
Trade 3,358,300 4,139,000
Other 529,200 163,500
Inventories 3,156,600 4,044,800
Prepaid expenses 307,100 286,500
Deferred tax assets 614,800 603,900
Property, plant and equipment held for sale 1,440,000 1,440,000
Machinery and equipment of discontinued subsidiary -- 4,200,000
----------- -----------
Total current assets 9,473,900 14,982,300
Property, plant and equipment, net 11,094,800 12,189,200
Intangible assets 122,300 146,700
Other assets 1,731,500 549,500
----------- -----------
Total assets $22,422,500 $27,867,700
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
Mar. 31 1999 Sept. 30 1998
------------ -------------
<S> <C> <C>
Current liabilities
Current maturities of long-term debt $ 4,261,800 $ 4,724,900
Long-term debt classified as current 5,871,700 6,623,300
Accounts payable 1,521,300 2,925,800
Accrued wages and benefits 786,700 779,000
Accrued restructuring costs 295,000 416,000
Other accrued expenses 500,500 746,700
Debt secured by assets of discontinued subsidiary -- 2,349,800
------------ ------------
Total current liabilities 13,237,000 18,565,500
Deferred tax liabilities 960,100 960,100
------------ ------------
Total liabilities 14,197,100 19,525,600
------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity
Common stock, $.10 par value, authorized 10,000,000 shares;
outstanding 1,067,100 shares 106,700 533,500
Additional paid-in capital 18,827,500 18,400,800
Accumulated deficit (10,708,800) (10,592,200)
------------ ------------
Total stockholders' equity 8,225,400 8,342,100
------------ ------------
Total liabilities and stockholders' equity $ 22,422,500 $ 27,867,700
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------------------------
Three Months Ended Mar. 31, Six Months Ended Mar. 31,
--------------------------- -----------------------------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 7,414,900 $ 8,545,000 $14,730,600 $16,899,100
Cost of sales:
Production 5,998,100 7,636,700 12,231,700 15,098,200
Restructuring charges -- 900,000 -- 900,000
----------- ----------- ----------- -----------
Gross profit 1,416,800 8,300 2,498,900 900,900
Selling, general and
administrative expenses 1,126,700 1,524,200 2,271,700 2,754,800
Other restructuring charges -- 1,762,000 -- 1,762,000
----------- ----------- ----------- -----------
Income (loss) from operations 290,100 (3,277,900) 227,200 (3,615,900)
----------- ----------- ----------- -----------
Other income (expense)
Interest (207,700) (277,200) (422,500) (530,500)
Other, net 44,900 (66,400) 67,800 (19,000)
----------- ----------- ----------- -----------
Other expense - net (162,800) (343,600) (354,700) (549,500)
----------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes 127,300 (3,621,500) (127,500) (4,165,400)
Income tax (expense) benefit (43,300) 322,700 10,900 404,700
----------- ----------- ----------- -----------
Income (loss) from continuing operations 84,000 (3,298,800) (116,600) (3,760,700)
Discontinued operations
Loss from operations of
discontinued subsidiary -- (620,800) -- (1,071,700)
----------- ----------- ----------- -----------
Net income (loss) $ 84,000 $(3,919,600) $ (116,600) $(4,832,400)
=========== =========== =========== ===========
Income (loss) per common share
(basic and diluted):
Continuing operations $ 0.08 $ (3.09) $ (0.11) $ (3.52)
Discontinued operations -- (0.58) -- (1.00)
----------- ----------- ----------- -----------
Net income (loss) per common share $ 0.08 $ (3.67) $ (0.11) $ (4.52)
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------------------------
Three Months Ended Mar. 31, Six Months Ended Mar. 31,
---------------------------- --------------------------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 84,000 $(3,919,600) $ (116,600) $(4,832,400)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 569,900 669,500 1,140,100 1,398,000
Deferred income taxes expense (benefit) 43,300 (313,600) (10,900) (405,600)
Provision for doubtful accounts -- 65,200 17,900 82,200
Loss (gain) on sale of assets -- 600 (1,000) 600
Restructuring charges -- 3,237,400 -- 3,237,400
Changes in operating assets and liabilities
which provided (used) cash:
Trade and other receivables 240,900 623,800 114,300 1,269,000
Inventories 443,600 (221,800) 846,500 165,000
Prepaids (108,700) (18,400) (20,600) 28,900
Other assets -- (79,200) -- (87,200)
Trade accounts payable (306,200) (1,169,900) (1,224,600) (14,800)
Accrued liabilities (108,200) 79,200 (158,700) (3,900)
Net cash (used in) provided by discontinued operations (52,500) 3,095,000 319,000 2,116,300
----------- ----------- ----------- -----------
Net cash provided by operating activities 806,100 2,048,200 905,400 2,953,500
----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of property, plant
and equipment -- 2,500,000 2,000 2,503,000
Collections on notes receivable 37,100 3,300 74,800 6,400
Capital expenditures -- (360,100) (13,000) (1,047,900)
Net cash provided by (used in) discontinued operations 4,000 (84,600) 2,558,600 (160,600)
----------- ----------- ----------- -----------
Net cash provided by investing activities 41,100 2,058,600 2,622,400 1,300,900
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net change in bank line of credit (563,400) (2,180,000) (450,600) (2,939,000)
Proceeds from long-term obligations -- 258,500 -- 395,900
Retirements of common stock -- -- -- (11,900)
Payments on long-term obligations classified as current (408,900) (1,525,200) (764,100) (2,112,200)
Net cash used in discontinued operations -- (385,300) (2,349,800) (64,000)
----------- ----------- ----------- -----------
Net cash used in financing activities (972,300) (3,832,000) (3,564,500) (4,731,200)
----------- ----------- ----------- -----------
Net (decrease) increase in cash (125,100) 274,800 (36,700) (476,800)
Cash, beginning of period 193,000 121,700 104,600 873,300
----------- ----------- ----------- -----------
Cash, end of period $ 67,900 $ 396,500 $ 67,900 $ 396,500
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The consolidated financial statements included herein have been
prepared by Secom General Corporation (the "Company") without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations.
In the opinion of management, the financial statements as of March
31, 1999 reflect all adjustments (consisting only of normal
recurring accruals) which are considered necessary to present a
fair statement of the results for the periods then ended. These
financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto
included in the Company's Form 10-K and Annual Report for the
fiscal year ended September 30, 1998.
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: metal parts forming and
tooling. In March 1998, the Company discontinued its production
machining segment and in October 1998 completed the disposition of
its remaining assets (see Note 2). Accordingly, results of
operations of Milford for the three and six month periods ended
March 31, 1998 have been restated as discontinued operations.
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 significant operating losses and negative cash flows. 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
5
<PAGE>
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.
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.
Reclassifications
Certain reclassifications have been made to the prior period
balances for comparative purposes.
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.
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 $533,100 as of March
31, 1999 and $508,600 as of September 30, 1998. Management reviews
the carrying value of goodwill on an ongoing basis to assess its
recoverability.
Earnings (Loss) Per Common Share
At the annual shareholders meeting on April 12, 1999, shareholders
approved a one-for-five reverse stock split effective April 14,
1999. All "shares outstanding" and "per share" amounts have been
restated to reflect the one-for-five reverse stock split.
Earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the year and includes a
dual presentation and reconciliation of "basic" and "diluted" per
share amounts. Diluted reflects the potential dilution of all
common stock equivalents. At March 31, 1999 options to purchase
69,200 shares 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. As of March 31, 1998
options to purchase 125,600 and 127,600 shares, respectively, for
the three and six month periods then ended, were excluded
6
<PAGE>
from the computation. A reconciliation of the denominators used in
the basic and diluted share calculation for continuing operations
follows for the three and six months ended March 31:
(Unaudited)
Three Months Six Months
1999 1998 1999 1998
--------- --------- --------- ---------
Denominator:
Weighted average shares
outstanding, basic 1,067,100 1,067,100 1,067,100 1,067,200
Incremental shares from
assumed conversion of options -- -- -- 2,000
--------- --------- --------- ---------
Weighted average shares
outstanding, diluted 1,067,100 1,067,100 1,067,100 1,069,200
========= ========= ========= =========
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.
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 were recorded
at their net realizable values as of September 30, 1998.
The $2.7 million in cash received from the sale was used to retire
$2.3 million in term debt secured by those assets and the balance
was used to reduce accounts payable and the line of credit. Terms
of the $1.5 million promissory note require four annual
installments of $375,000, plus interest at 8.5%, beginning
September 1, 1999.
7
<PAGE>
3. INVENTORIES
Inventories at March 31, 1999 and September 30, 1998 consist of
the following components (in thousands):
(Unaudited)
Mar. 31 1999 Sept. 30, 1998
------------ --------------
Raw materials $ 245 $ 562
Work-in-process 1,075 1,366
Finished goods 1,837 2,117
------ ------
Total $3,157 $4,045
====== ======
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following assets at
March 31, 1999 and September 30, 1998 (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
Mar. 31 1999 Sept. 30, 1998 Life
------------ -------------- ------------
<S> <C> <C> <C>
Machinery and equipment $14,218 $14,344 2 to 20 years
Building and improvements 4,707 4,705 3 to 30 years
Land and improvements 448 448
Furniture and fixtures 1,718 1,716 3 to 7 years
Vehicles 123 123 3 years
------- -------
Total 21,214 21,336
Less accumulated depreciation 10,119 9,147
------- -------
Net book value $11,095 $12,189
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt principally consists of a bank line of credit, real
estate mortgages, equipment term notes and industrial revenue
bonds.
During fiscal 1998, the Company violated certain bank 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
extended continuing credit, up to $3 million at prime plus 1%,
through February 1, 1999. In February 1999 the Company signed a
second extension agreement for the period through May 1, 1999. The
Company expects to promptly complete negotiations with its primary
lender to extend the current arrangement on similar terms.
Borrowings on the bank line of credit are collateralized by
accounts receivable and inventory and 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 a minimum total
equity, current ratio and EBITDA. The Company is working closely
with its secured lenders and has made all scheduled debt payments
on a timely basis, through April 1999. Management believes it can
extend current debt facilities with existing lenders or refinance
with other lenders on a continuing basis.
8
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
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 appealed the delisting and as a result,
the trading of its' stock has been moved to The Nasdaq SmallCap
Market under the symbol SECMC. The trading symbol will remain
SECMC until the Nasdaq Listing Qualifications Panel has confirmed
the Company's compliance with all minimum listing requirements of
the SmallCap Market.
7. SUPPLEMENTAL CASH FLOWS INFORMATION
Cash payments for interest and income taxes for the three and six
months ended March 31, 1999 and 1998, respectively, were (in
thousands):
(Unaudited)
Three Months Six Months
1999 1998 1999 1998
---- ---- ---- ----
Interest:
Continuing operations 207 281 398 531
Discontinued operations -- 104 27 251
Income taxes:
Continuing operations -- -- -- 10
Discontinued operations -- -- -- --
During the quarter ended December 31, 1998, the Company received a
$1.5 million note as partial consideration in connection with the
sale of the remaining Milford assets and business (see Note 2).
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
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 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 operates in two business segments: Metal Parts Forming
and Tooling. The Metal Parts Forming Segment manufactures cold forged and
cold headed parts, while the Tooling Segment provides perishable tooling for
the cold heading industry.
Consolidated net sales from continuing operations decreased by
13.2% for the quarter ended March 31, 1999, compared to the same quarter in
the prior year. The decrease in consolidated net sales for the comparative
periods was due to the discontinuance of unprofitable product lines at
Uniflow and lower sales primarily to the Tooling Group's larger customers.
Despite the sales decline, the Company recorded income from continuing
operations of $84,000 or $0.08 per share in the current quarter, compared to
a loss from continuing operations of ($3,299,000) or ($3.09) per share in the
prior year quarter. The improvement in results from continuing operations was
due primarily to Uniflow. Uniflow's results improved for two reasons; (1) it
recorded $2,662,000 of restructuring charges in the prior year quarter; and
(2) in the current quarter it continued to benefit from the part price
increases implemented in October 1998 as part of its restructuring plan. The
Tooling Group was also able to improve its operating results through
shop-floor cost containment steps
The Company's cash flows from operations, amounts available on
its line of credit and cash generated from the sales of the Milford
production machining line assets was sufficient to fund operations through
the end of the fiscal quarter ended March 31, 1999, including the timely
payment of all scheduled debt obligations. The Company is working closely
with its secured lenders and has made all scheduled debt payments on a timely
basis, through April 1999. During the course of the current fiscal year, the
Company has signed two consecutive three-month loan extension agreements with
its primary lender. Currently the Company is negotiating with its primary
lender to extend its credit facility, which expired May 1, 1999. The Company
expects to promptly complete negotiations on a new agreement with terms
comparable to the previous agreements.
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 flows from operations and amounts available on its
line of credit will be sufficient to fund continuing operations through
fiscal 1999.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF CONTINUING OPERATIONS BY SEGMENT
<TABLE>
<CAPTION>
METAL PARTS FORMING SEGMENT
(in thousands)
Three Months Ended Six Months Ended
------------------------------- --------------------------------
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
-------------- -------------- -------------- --------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 3,647 100.0 5,082 100.0 7,505 100.0 9,530 100.0
Gross Profit (Differential) 311 8.5 (1,183) (23.3) 456 6.1 (1,538) (16.1)
Operating Expenses 251 6.9 2,185 43.0 502 6.7 2,625 27.5
Operating Profit (Loss) (1) 60 1.6 (3,368) (66.3) (46) (0.6) (4,163) (43.6)
-----
(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").
Uniflow's sales decreased 28.2% in the current quarter compared to
the same period last year and 21.2% for the comparative six-month period. The
sales decrease was primarily related to the discontinuation of various cold
headed parts, primarily automotive starter motor shafts, which were
discontinued when the National FX cold former machine was sold in March 1998.
A decrease in sales of suspension housings was offset by an increase in
revenues from wheel studs. Management is continuing to review all of its
sales efforts with the objectives of retaining only profitable product lines
and obtaining new sales that fit within its current production capability.
Uniflow's gross profit was 8.5% of sales in the current quarter,
compared to a gross differential of (23.3%) of sales in the same prior year
period. For the six-month comparative periods, the gross profit
(differential), as a percentage of sales, was 6.1% and (16.1%), respectively.
The significant improvement in the current period is due principally to: (1)
the parts repricing instituted by Uniflow in October 1998; and (2) $900,000
of restructuring charges included in the prior period. The Company also
benefited from lower direct labor, supply and certain other overhead costs as
a result of the restructuring begun during the second fiscal quarter of 1998.
The Uniflow restructuring is still in process as the Company
continues to try to improve its production efficiencies, reduce labor and
overhead costs, and conclude ongoing negotiations with an automotive OEM
customer to recoup its fiscal year 1996 investment of over $3 million in new
equipment. Although the full impact of the restructuring is not known,
management believes that the restructuring effort has and will continue to
improve Uniflow's operating results. Should Uniflow continue to experience
lower sales, the Company believes the above steps would substantially
mitigate the negative impact on its gross profit.
Operating expenses were 6.9% of sales in the current quarter,
compared to 43% of sales in the prior year period. For the six-month
comparative periods, operating expenses as a percentage of sales were 6.7%
and 27.5%, respectively. The decrease in operating expenses was due to lower
personnel and sales related costs in the current quarter, and $1.8 million of
restructuring charges in the prior year quarter. Management anticipates
operating expenses to either remain stable or decline slightly as a
percentage of sales.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
TOOLING SEGMENT
(in thousands)
Three Months Ended Six Months Ended
------------------------------- --------------------------------
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
-------------- -------------- -------------- --------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales (1) 3,985 100.0 4,463 100.0 7,657 100.0 8,956 100.0
Gross Profit 952 23.9 985 22.0 1,735 22.7 2,089 23.3
Operating Expenses 518 13.0 635 14.2 1,024 13.4 1,149 12.8
Operating Profit (2) 434 10.9 350 7.8 711 9.3 940 10.5
- ---------
(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.
Tooling sales decreased by 10.7% in the current quarter compared
to the same quarter last year, while for the six-month comparative periods,
sales declined by 14.5%. The decrease in sales in the current year is
primarily attributable to lower sales orders from certain of the Tool Group's
larger accounts. These customers discontinued product lines or benefited from
longer tooling life. A significant component of the decline was L&H sales to
Uniflow, as Uniflow's tooling requirements were reduced because of the sale
of its National FX 1250 parts former in connection with restructuring efforts
begun in the second fiscal quarter of 1998. Management has added a
salesperson and is increasing customer contact by other management personnel
in order to increase sales. Management believes future sales will increase
slightly over the sales level for the quarter ended March 1999.
Tooling gross profit improved to 23.9% of sales in the current
quarter, compared to 22.0% of sales in the comparative 1998 quarter. The
gross profit for the six-month comparative periods, as a percentage of sales,
declined from 23.3% in 1998, to 22.7% in 1999. The increase in the gross
profit percentage for the current quarter was due to management's ability to
reduce material, labor and supply costs despite the decline in sales. The
decrease for the six-month comparative period, was primarily attributable to
the large gross profit decline in the December 1998 quarter. Management
intends to continue focusing on closely matching its material, direct labor
and supply costs to its sales volumes so as to achieve a higher gross margin.
Operating expenses decreased to 13.0% of sales in the current
quarter compared to 14.2% in the prior year period. For the six-month
comparative periods, operating expenses as a percentage of sales were 13.4%
and 12.8%, respectively. The decrease in the percentage for the current
quarter was due mainly to a reduction in personnel and lower state business
taxes.
DISCONTINUED SEGMENT - PRODUCTION MACHINING
During the second fiscal quarter of 1998, the Company discontinued
its Milford operation due to ongoing adverse operating results. Accordingly,
three and six-month results of operations for 1998 have been restated.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
CORPORATE EXPENSES
Unallocated corporate overhead was $376,000 in the current
quarter, compared to $478,000 in 1998. For the six-month comparative periods,
unallocated corporate overhead was $781,000 compared to $780,000 in the prior
year. The decrease in the current quarter is a result of lower personnel
costs. The six-month period is relatively unchanged as the decrease in
personnel costs was offset by higher professional fees associated with the
hiring of an investment banker and fees related with refinancing the line of
credit and other secured debt held by the Company's primary lender.
INTEREST EXPENSE
Interest expense was $208,000 in the current quarter, compared to
$277,000 in the prior year period. For the six-month comparative periods,
interest expense was $422,000 compared to $530,000, respectively. The
decrease in interest expense resulted from a reduction in secured debt,
primarily attributable to proceeds from various asset sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position was a negative $3.8 million
at March 31, 1999 and a negative $3.6 million at September 30, 1998. The
negative working capital position resulted from the reclassification of
long-term debt to current when the Company failed to satisfy certain bank
covenants as of March 31, 1999 and September 30, 1998, respectively.
Management believes that it will be able to refinance this debt on a
continuing basis in the coming months.
The increase in the working capital deficit was due to the
reclassification of $1.1 million, of the $1.5 million note, received from the
sale of the Milford starter motor machining line from "Machinery and
equipment of discontinued subsidiary" (a current asset) to "Other assets" (a
noncurrent asset), in accordance with generally accepted accounting
principles. The reclassification of the note receivable was offset by
substantial reductions in secured debt and accounts payable, due to asset
sales and improved cash flow from operations. The Company received the $1.5
million note and $2.7 million in cash from the sale of the Milford starter
motor machining line assets and business in October 1998. The Company used
$2.3 million of the cash to retire a term loan secured by those assets and
the balance was used to reduce accounts payable and the line of credit.
Management believes that internally generated cash from operations
and amounts available on the bank line of credit will be sufficient to
satisfy scheduled debt payments as well as fund continuing working capital
requirements. Additionally, the Company expects to improve its liquidity and
reduce outstanding debt by selling noncore assets. These noncore assets total
$1.4 million and are classified as "Property, plant and equipment held for
sale" on the balance sheet.
Net cash provided by operating activities, before changes in
working capital items, was $697,000 in the quarter ended March 31, 1999,
while working capital changes and discontinued operations provided $109,000
of cash, for a net cash provided by operating activities of $806,000. The
improvement in income from continuing operations primarily contributed to the
improved cash flow from operations, before discontinued operations. Working
capital items provided cash as substantial reductions in accounts receivable
and inventories were only partially offset by increases in prepaids and
accounts payable.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
In the prior year comparative quarter, net cash used in operating
activities, before changes in working capital items, was $260,000, while
working capital changes and discontinued operations provided $2.31 million in
cash, for net cash provided by operating activities of $2.05 million. An
accounts payable decrease and inventory increase, combined with an accounts
receivable decrease used $786,000 of cash, while discontinued operations
provided $3.09 million. The $3.09 million primarily reflects the sale of the
Milford fluid brake valve equipment, facility and business.
For the six months ended March 31, 1999, net cash provided by
operating activities, before changes in working capital items, was $1.03
million, while working capital items used $443,000 in cash and discontinued
operations provided $319,000, for a total of $905,000 of cash provided by
operations. The improvement in income from continuing operations, partially
offset by accounts payable, accounts receivable and inventory decreases, was
primarily responsible for the cash provided by operations. For the six-month
period, cash provided by discontinued operations resulted from collection of
accounts receivables and was partially reduced by a decline in accounts
payable.
For the six months ended March 31, 1998, net cash used in
operating activities, before changes in working capital items, was $520,000,
while working capital items provided $1.35 million in cash and discontinued
operations provided $2.12 million, for a total of $2.95 million of cash
provided by operations. Cash provided by working capital items was due to
improved accounts receivable collections. Cash provided by discontinued
operations primarily reflects the sale of the Milford fluid brake valve
equipment, facility and business.
Net cash provided by investing activities was $41,000 in the
current quarter, primarily due to collections on outstanding notes
receivable. The $2.06 million provided by investing activities in the March
31, 1998 quarter resulted from the sale of Uniflow's FX 1250 cold former
machine for $2.5 million in cash, offset by capital expenditures primarily
for the expansion of the L&H Die facility.
For the six months ended March 31, 1999, cash provided by
investing activities was $2.62 million, of which $2.56 million resulted from
the sale of Milford's remaining machinery, equipment and business. In the
prior year comparative period, cash provided by investing activities was $1.3
million. The sale of Uniflow's FX 1250 cold former generated $2.5 million of
cash, offset by capital expenditures which totaled $1.05 million, for
expansion of the L&H Die facility, various production equipment and the
corporate wide computer system.
Net cash used in financing activities in the quarter ended March
31, 1999, was $972,000. The Company reduced borrowings under its bank line of
credit by $563,000 and made scheduled principal payments of $409,000. In the
prior year comparative quarter, financing activities used $3.83 million of
cash. The Company reduced its bank line of credit borrowings by $2.18 million
and made principal payments of $1.52 million, including an early principal
payment of $1.3 million related to the sale of Uniflow's FX 1250 cold former
in March 1998.
For the six months ended March 31, 1999, cash used in financing
activities was $3.56 million. The Company reduced its bank line of credit
borrowings by $451,000 and made scheduled debt payments totaling $764,000.
Discontinued operations used $2.35 million for extinguishing secured debt
related to the sale of Milford's remaining machinery, equipment and business.
In the prior year comparative period, financing activities used $4.73 million
of cash. The Company reduced its bank line of credit borrowings by $2.94
million and made principal payments of $2.11 million, including an early
principal payment of $1.3 million related to the sale of Uniflow's FX 1250
cold former.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
YEAR 2000 DATE CONVERSION
The Company utilizes a computer network comprised of both Local
Area Networks ("LAN's") and Wide Area Networks ("WAN's"). The network
hardware and software are approximately 90% Year 2000 compliant and the
Company believes they will be fully compliant by the Company's fiscal
year-end, September 30, 1999. All of the various hardware and software used
in the administration of the network and the Company's manufacturing,
engineering and financial processes are purchased from third party vendors.
The manufacturing, engineering and financial software applications used by
the Company are approximately 75% compliant and are expected to be fully
compliant by the end of the current fiscal year.
Additionally, the Company has various personal desktop and laptop
computers that run word processing, database and spreedsheet software. The
Company is currently in the process of upgrading all the software run on
these computers with versions that are Year 2000 compliant and estimates
completing these upgrades by the end of the Company's September 30, 1999
fiscal year.
Over the last two fiscal years, the Company has expended
approximately $55,000 to make its hardware and software Year 2000 compliant.
In addition, the Company estimates that it will spend approximately $25,000
to complete its Year 2000 compliance program. The additional expenditures are
approximately 40% of the Company's information technology budget for fiscal
year ended September 30, 1999. As amounts are expended for Year 2000
compliance they are paid for by cash flows from continuing operations.
The Company believes that the steps it is and has taken
regarding Year 2000 compliance will allow its operations to run normally on
January 1, 2000 and thereafter. The possibility exists, however, that certain
stand alone computers or software may not be upgraded timely or unforeseen
circumstances may arise that interrupt certain areas of the Company's
business or operations. In the case of any such occurrence, the Company
believes that it can implement a solution within a matter of days and no
material interruption of its business or operations will occur.
The Company is seeking certification of Year 2000 compliance from
its significant third party vendors. If any of the Company's suppliers or
customers does not successfully and/or timely complete their Year 2000
compliance, the Company's business or operations could be adversely affected.
The Company has not generated and does not intend to generate any disaster
contingency plans regarding the Year 2000 compliance issue.
15
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults in Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
At the Company's annual meeting held on April 12, 1999,
shareholders approved an amendment to the Certificate of Incorporation of the
Company which would effect a reverse stock split at the rate of one new share
for each five shares previously outstanding. The amendment became effective
April 14, 1999.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
See the Exhibit Index on the following page.
16
<PAGE>
Exhibit Description Page
- ------- ----------- ----
10.1 First Amendment to Amendment and Extension Agreement
between NBD Bank as Lender and Secom General Corporation
and Subsidiaries as Borrowers. 19
10.2 Third Amended and Restated Term Note, in the amount of
$610,592, between NBD Bank as Lender and Secom General
Corporation and Subsidiaries as Borrowers. 33
10.3 Third Amended and Restated Equipment Term Note, in the
amount of $612,430, between NBD Bank as Lender and Secom
General Corporation and Subsidiaries as Borrowers. 35
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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
(Registrant)
By: /s/ Paul Clemente May 14, 1999
--------------------------------------
Paul Clemente
Vice President
By: /s/ Scott J. Konieczny May 14, 1999
-------------------------------------
Scott J. Konieczny
Chief Financial Officer
-18-
FIRST AMENDMENT TO
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 "), MMC Manufacturing Corp. f/k/a
Milford Manufacturing, Corporation ("Milford "), Tri-Tec Plastics
Corporation ("Tri-Tec"), and Triple Tool, Inc. ("Triple Tool") enter into
this First Amendment to Amendment and Extension Agreement (this "First
Amendment" on February 2, 1999, effective February 1, 1999. 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, Tri-Tec pursuant to the
Tri-Tec/Uniflow Guaranty (defined herein), Triple Tool pursuant to the Triple
Tool/Uniflow Guaranty (defined herein), 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, Guarantors, Tri-Tec and Triple Tool are referred to
herein, collectively, as the "Parties" and, individually, as a "Party."
RECITALS
A. Secom, Form Flow, L&H, Micanol, Uniflow, Milford and NBD are
parties to an Amendment and Extension Agreement dated as of November 25, 1998
("Extension Agreement"). Capitalized terms used but not defined in this First
Amendment have the same meanings as in the Extension Agreement.
B. On January 11, 1999, there was (i) $2,333,309.49 in principal
owing by the Borrowers to NBD under the Line of Credit, (ii) $615,592.35 in
principal owing by the Borrowers to NBD under the Term Loan, and (iii)
$623,180 in principal owing by the Borrowers to NBD under the Equipment Line
of Credit Note, plus accrued but unpaid interest costs and expenses
(including attorneys' fees) called for by the Loan Documents (all of these
obligations together with all other principal and interest due or becoming
due to NBD together with 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, however 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
and all of the Borrowers' obligations under the Extension Agreement and this
First Amendment, together with all other present and future obligations of
the Borrowers to NBD, and Tri-Tec's obligations pursuant to the
Tri-Tec/Uniflow Guaranty, and Triple Tool's obligations pursuant to the
Triple Tool/Uniflow Guaranty, are collectively referred to as the
"Obligations").
C. Tri-Tec acknowledges and agrees it executed a Continuing Security
Agreement dated December 19, 1991, (the "Tri-Tec Security Agreement")
granting NBD a first prior lien on
<PAGE>
a portion of its assets, including, but not limited to, accounts, chattel
paper and general intangibles, to secure the portion of the Obligations
attributed to Secom, L&H, Form Flow, Uniflow, Micanol, and Triple Tool.
Triple Tool acknowledges and agrees it executed a Continuing Security
Agreement dated December 19, 1991, (the "Triple Tool Security Agreement")
granting NBD a first prior lien on a portion of its assets, including, but
not limited to, accounts, chattel paper, and general intangibles, to secure
the portion of the Obligations attributed to Secom, L&H, Form Flow, Uniflow,
Micanol, and Tri-Tec.
D. Tri-Tec acknowledges and agrees that it executed a Continuing
Guaranty, for the benefit of NBD, dated April 3, 1992, guaranteeing all of
the obligations of Uniflow to NBD, then existing or thereafter arising (the
"Tri-Tec/Uniflow Guaranty"). Triple Tool acknowledges and agrees that it
executed a Continuing Guaranty for the benefit of NBD, dated April 3, 1992,
guaranteeing all of the obligations of Uniflow to NBD, then existing or
thereafter arising (the "Triple Tool/Uniflow Guaranty").
E. Each Party acknowledges and agrees that (a) the Extension
Agreement is in full force and effect; (b) NBD has fully performed all of its
obligations under the Loan Documents (including the Extension Agreement); (c)
NBD has no obligation to continue to lend to the Borrowers, and any future
loans will be made in NBD's sole discretion; (d) NBD has no obligation to
forbear from enforcing its rights and remedies beyond February 1, 1999, and
(e) NBD has made no representation or agreement that funding in any amount
will continue, or that the Extension Period will be extended beyond its
expiration date.
F. Each Party also acknowledges and agrees that the actions taken by
NBD to date in furtherance of the Loan Documents (including the Extension
Agreement) are reasonable and appropriate under the circumstances and are
within NBD's rights under the Loan Documents and applicable law.
G. The Parties have requested that NBD amend the Extension Agreement
in order to extend the Extension Period to May 1, 1999, and amend the
financial covenants based upon the updated cash flow projections provided by
the Borrowers, attached hereto and made a part hereof as Exhibit A (the
"Updated Cash Flow Projections"), all as specified herein.
H. As set forth in this First Amendment, NBD and the Parties have
agreed to amend the Extension Agreement and have reached certain other
agreements.
AGREEMENT
Based on the foregoing Recitals (which are incorporated into this
First Amendment as agreements, representations, warranties and covenants of
the respective Parties, as the case may
2
<PAGE>
be), and for other good and valuable consideration, the receipt and adequacy
of which is mutually acknowledged by the parties hereto, each of the Parties
and NBD agree as follows:
1. Amendments to the Extension Agreement.
(a) Paragraph 1(a) of the Extension Agreement is hereby amended
in its entirety and replaced by the following:
"(a) Subject to the following conditions and those set forth
below, NBD agrees to waive the Existing Defaults through May 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) Paragraph 2 of the Extension Agreement is hereby amended in its
entirety and replaced by the following:
2. Financial Covenants During Extension Period. Attached to
the First Amendment as Exhibit A is a copy of projection prepared
be Borrowers (the "Projections") of operating results and cash
flows through June 30, 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 $7,750,000. For
the purposes of this covenant, "Total Equity" means book net worth
determined in accordance with generally accepted accounting
principles;
(b) Borrowers' Total Liabilities to Total Equity shall not
exceed 2.1 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 0.65 to
1.0;
(d) Borrowers' EBITD shall not be less than negative $45,000
for the month of December, 1998; and
3
<PAGE>
(e) Borrowers' EBITDA shall not be less than $200,000 for the
month of January, 1999, not less than $215,000 for the month of
February, 1999, not less than $225,000 for the month of March,
1999, and not less than $225,000 for the month of April, 1999."
2. Extension Fee/Legal Fees and Expenses. In consideration for NBD
to extend the Extension Period, simultaneously with the execution of this
First Amendment, Borrowers must pay to NBD a $35,000 fee (the "Extension
Fee"), which shall be deemed fully, earned when due. In addition, the
Borrowers must also pay, simultaneously with the execution of this First
Amendment, $5,075.86, which represents reimbursement for legal fees and
expenses incurred by NBD for the months of November and December, 1998.
3. References to Loan Documents. All references (a) to Loan
Documents include the Extension Agreement, the First Amendment, the Tri-Tec
Security Agreement, the Triple Tool Security Agreement, and all security
agreements, pledge agreements, notes, assignments and other documents and
instruments executed by the Borrowers in connection with or in furtherance of
the Extension Agreement and the First Amendment; (b) to Guarantor Loan
Documents include the Extension Agreement, the First Amendment, the
Tri-Tec/Uniflow Guaranty, the Triple Tool/Uniflow Guaranty, and all security
agreements, guaranties, pledge agreements, notes, assignments and other
documents and instruments executed by the Guarantors, Tri-Tec, or Triple Tool
in connection with or in furtherance of Extension Agreement and the First
Amendment; (c) to Obligations include all of each Borrower's, Tri-Tec's and
Triple Tool's obligations to NBD under the Loan Documents, Extension
Agreement, the First Amendment, and all documents, instruments and agreements
executed in connection with or in furtherance of these agreements, including
the Obligations as defined hereunder; and (d) to Collateral include all
collateral security granted to NBD in accordance with the Extension
Agreement, the First Amendment, the Tri-Tec Security Agreement, and the
Triple Tool Security Agreement, and all documents, instruments and agreements
executed in connection with or in furtherance of either or both of these
agreements to secure any of the Obligation or any other obligation of any one
or more of the Parties to NBD, (e) and to Guaranties includes the
Tri-Tec/Uniflow Guaranty and the Triple Tool/Uniflow Guaranty.
4. Additional Documents. Each of the Parties agrees to execute any
documents reasonably deemed necessary or appropriate by NBD to carry out the
intent of or implement this First Amendment or any of the other Loan
Documents.
5. Loan Document Remain In Force. Except as expressly modified and
amended by the terms of this First Amendment, all of the other terms and
conditions of the Loan Documents (including the Extension Agreement and the
Guaranties and all documents and agreements referred to or incorporated
therein or executed in connection therewith) remain in full force and effect
and are hereby ratified, confirmed and approved. Each Party, jointly and
4
<PAGE>
severally, reaffirms, ratifies and confirms the liens, mortgages, assignments
and security interests granted to NBD in the Collateral under the Loan
Documents (including the Extension Agreement) or otherwise and acknowledges
and agrees that any and all collateral security heretofore, simultaneously
herewith or hereafter granted to NBD by any Party shall secure all of that
Party's present and future obligations to NBD and all present and future
obligations of any one or more of the other Parties to NBD. If there is an
express conflict between the terms of this First Amendment and the terms of
the Loan Documents (including the Extension Agreement), the terms of this
First Amendment shall govern and control. Furthermore, as of the date hereof,
each of the Parties hereby restates and republishes each representation,
warranty, covenant, and agreement contained in the Loan Documents (including
the Extension Agreement) and each such representation, warranty, covenant and
agreement is incorporated herein by reference. Without limiting the
generality of the immediately preceding sentence, each of the Parties
acknowledges and agrees that each of the Guaranties remain in full force and
effect and extends cover all of the Obligations, that all subordination
agreements given by any of the Parties in favor of NBD remain in full force
and effect and are hereby ratified and confirmed. Each of the Parties hereby
consents to all of the terms and conditions of this First Amendment and of
all agreements referred to or incorporated herein.
6. Reservation of Rights.
(a) Notwithstanding anything to the contrary in this First
Amendment, all of NBD's rights and remedies against each of the Parties are
expressly reserved. Likewise, nothing herein shall be deemed to constitute a
waiver of any default existing as of the date hereof, a further worsening of
such default, or new Events of Default or defaults, except for the Existing
Defaults, or shall in any way prejudice the rights and remedies of NBD the
Loan Documents (including the Extension Agreement and any of the Guaranties)
or applicable law. Further, NBD shall have the right to waive any conditions
set forth in this First Amendment or the Loan Documents, in its sole
discretion, and any waiver shall not prejudice, waive or reduce any other
right or remedy which NBD may have against any of the Parties. However, the
Parties to this First Amendment and the Loan Documents agree that no waiver
by NBD of any right or condition of this First Amendment or the Loan
Documents shall be effective unless contained in a writing signed by an
authorized agent of NBD.
(b) ANYTHING CONTAINED IN THIS FIRST AMENDMENT OR IN ANY OTHER
AGREEMENT TO THE CONTRARY NOTWITHSTANDING, NOTHING CONTAINED IN THIS FIRST
AMENDMENT OR IN ANY OTHER AGREEMENT SHALL IN ANY WAY RESTRICT OR PROHIBIT
NBD'S RIGHT TO BLOCK, STOP OR PROHIBIT PAYMENTS TO ANY SUBORDINATED
CREDITOR(S).
5
<PAGE>
7. Entire Agreement, Etc.
(a) This First Amendment constitutes the entire understanding the
Parties and NBD with respect to the subject matter hereof and may only be
modified or amended by a writing signed by the party to be charged. This
First Amendment shall be governed by the internal laws of the State of
Michigan that are applicable to contracts made and to be performed wholly
within the State of Michigan, without regard to conflict of law principles.
This First Amendment is binding on each Party and its successors, assigns,
heirs and personal representatives, and shall inure to the benefit of NBD,
and its successors and assigns. If any of the provisions of this First
Amendment are in conflict with any applicable statute or rule of law or
otherwise unenforceable, the offending provision shall be null and void to
the extent of such conflict or unenforceability only, and shall be deemed
separate from and shall not invalidate any other provision of this First
Amendment.
(b) This First Amendment 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 First Amendment will not necessarily be construed against any
particular party as the drafter of that language.
(c) This First Amendment may be executed in counterparts, each of
which shall be deemed an original, but together they shall constitute one and
the same instrument. Facsimile copies of signatures shall be treated as
original signatures for all purposes.
(d) From and after the date of this First Amendment references in
the Loan Documents and all other documents executed pursuant to or in
connection with the Loan Documents (as each of the foregoing is amended
hereby or pursuant hereto), to the Loan Documents (including the Extension
Agreement) shall be deemed references to the Loan Documents (including the
Extension Agreement) as amended hereby.
(e) The terms "include", "includes", and "including" are to be
treated as if followed by "without limitation" whether or not they are
followed by these words or words with a similar meaning.
(f) All headings are inserted for convenience of reference only and
shall not affect any construction or interpretation of this First Amendment.
8. Additional Representations. Each Party represents and warrants to the
NBD that:
(a) (i) The execution, delivery and performance of this First
Amendment by the Parties and all agreements and documents delivered pursuant
hereto by the Parties have been
6
<PAGE>
duly authorized by all necessary corporate action and does not and will not
require any consent or approval of their stockholders, violate any provision
of any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to them or of
their 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 the Parties are a party or by
which any of them or any of their property may be bound or affected; (ii) 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 the Parties of
this First Amendment and all agreements and documents delivered pursuant
hereto; and (iii) this First Amendment 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 Party enforceable against each Party in
accordance with the terms thereof.
(b) After giving effect to the amendments contained herein and
effected pursuant hereto, all of the 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.
(c) 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.
(d) The financial statement of the Borrowers for the two month
period ended November 30, 1998, a copy of which has been furnished to NBD,
presents fairly the financial condition of the Borrowers at such date and the
results of the operations of the Borrowers for the period indicated, all
substantially in accordance with generally accepted accounting principles
applied on a consistent basis, and since this date there has been no material
adverse change in any Borrower's financial condition.
(e) No one or more of the Parties has assigned any claim, set off or
defense to any individual or entity.
(f) This First Amendment and all of the written materials 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 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.
7
<PAGE>
(g) All Parties executing this First Amendment in a representative
capacity warrant that they have authority to execute this First Amendment and
legally bind the entity they represent.
9. Survival; Reliance. All agreements, representations and
warranties made in this First Amendment (and all agreements referred to or
incorporated herein) shall survive the execution of this First Amendment
(and all documents and agreements referred to or incorporated herein).
Notwithstanding anything in this First Amendment (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, covenants, agreements referred to or incorporated
herein), or in any certificate or other document delivered or to be delivered
pursuant hereto shall be deemed to be material and to have been relied upon
by NBD, notwithstanding any investigation heretofore or hereafter made by NBD
or its agent.
10. Impairment of Collateral. The execution and delivery of this
First Amendment (and all agreements and documents referred to herein) in no
manner shall 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 heretofore or hereafter as security for
the Obligations shall impair in any manner or affect this First Amendment (or
any agreement or document referred to herein). All present and future
additional security is cumulative security.
11. Time Is of the Essence. Each of the Parties acknowledges and
agrees that time is of the essence as to each and every term and provision of
this First Amendment and each of the Loan Documents.
12. Non-Waiver. No failure or delay on the part of NBD in the
exercise of any power or right, and no course of dealing between any one or
more of the Parties and NBD, shall operate 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
shall in any event entitle any such Party to any other or further notice or
demand in similar or other circumstances or constitute a waiver the right of
NBD to any other or further action in any circumstances without notice or
demand. Any waiver of any provision of this First Amendment 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 First Amendment or the Loan
Documents, shall be 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.
8
<PAGE>
13. 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 First Amendment other than those which are set
forth in this First Amendment.
14. STATUTE OF FRAUDS. THIS FIRST AMENDMENT 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 FIRST AMENDMENT AND SHALL NOT SURVIVE THE EXECUTION OF THIS FIRST
AMENDMENT.
15. RELEASE. 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 RELEASE 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 LIMITATION, THE FORGOING 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.
16. WAIVER OF JURY TRIAL AND ACKNOWLEDGMENT.
(a) EACH PARTY ACKNOWLEDGES THAT (1) THEY HAVE FULLY READ ALL OF
THIS FIRST AMENDMENT AND HAVE BEEN GIVEN THE OPPORTUNITY TO CONSULT WITH
COUNSEL AND OTHER ADVISORS OF THEIR CHOICE, AND AFTER CONSULTING WITH SUCH
COUNSEL AND/OR
9
<PAGE>
ADVISORS, KNOWINGLY, VOLUNTARILY AND WITHOUT DURESS, COERCION, UNLAWFUL
RESTRAINT, INTIMIDATION OR COMPULSION, ENTER INTO THIS FIRST AMENDMENT, BASED
UPON SUCH ADVICE AND COUNSEL AND IN THE EXERCISE OF THEIR BUSINESS JUDGMENT,
(2) THIS FIRST AMENDMENT HAS BEEN ENTERED INTO IN EXCHANGE FOR GOOD AND
VALUABLE CONSIDERATION, RECEIPT OF WHICH THE PARTIES HERETO ACKNOWLEDGE,
(3) THEY HAVE CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS
OF THIS FIRST AMENDMENT AND ARE NOT RELYING ON THE OPINIONS OR ADVICE OF NBD
OR ITS RESPECTIVE AGENTS OR REPRESENTATIVES IN ENTERING INTO THIS FIRST
AMENDMENT.
(b) 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 FIRST AMENDMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENTS BETWEEN ANY
OF THE PARTIES. NO PARTY SHALL 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 AGREES 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.
WITNESS NBD BANK
/s/ Scott J. Koniezy By: /s/ Oliver J. Glenn
- ------------------------------- -------------------------------
Oliver J. Glenn, Vice President
[Signatures continued on following page]
10
<PAGE>
[Signatures continued from preceding page]
WITNESS SECOM GENERAL CORPORATION
/s/ Scott J. Koniezy By: /s/ Paul D. Clemente
- ------------------------------- ----------------------------
Paul D. Clemente, Vice President
Subscribed and sworn to before me this 2nd day of January, 1999.
---
/s/ Marlene Baynes MARLENE BAYNES
- ------------------------------------- Notary Public, Oakland County, MI
Notary Public, _________County, MI My Commission Expires 05/28/2002
My Commission Expires: ____________
WITNESS FORM FLOW, INC.
/s/ Scott J. Koniezy By: /s/ Paul D. Clemente
- ------------------------------- ----------------------------
Paul D. Clemente, Director
Subscribed and sworn to before me this 2nd day of January, 1999.
---
/s/ Marlene Baynes MARLENE BAYNES
- ------------------------------------- Notary Public, Oakland County, MI
Notary Public, _________County, MI My Commission Expires 05/28/2002
My Commission Expires: ____________
[Signatures continued on following page]
11
<PAGE>
[Signatures continued from preceding page]
WITNESS L & H DIE, INC.
/s/ Scott J. Koniezy By: /s/ Paul D. Clemente
- ------------------------------- ----------------------------
Paul D. Clemente, Director
Subscribed and sworn to before me this 2nd day of January, 1999.
---
/s/ Marlene Baynes MARLENE BAYNES
- ------------------------------------- Notary Public, Oakland County, MI
Notary Public, _________County, MI My Commission Expires 05/28/2002
My Commission Expires: ____________
WITNESS MICANOL, INC.
/s/ Scott J. Koniezy By: /s/ Paul D. Clemente
- ------------------------------- ----------------------------
Paul D. Clemente, Director
Subscribed and sworn to before me this 2nd day of January, 1999.
---
/s/ Marlene Baynes MARLENE BAYNES
- ------------------------------------- Notary Public, Oakland County, MI
Notary Public, _________County, MI My Commission Expires 05/28/2002
My Commission Expires: ____________
[Signatures continued on following page]
12
<PAGE>
[Signatures continued from preceding page]
WITNESS UNIFLOW CORPORATION
/s/ Scott J. Koniezy By: /s/ Paul D. Clemente
- ------------------------------- ----------------------------
Paul D. Clemente, Director
Subscribed and sworn to before me this 2nd day of January, 1999.
---
/s/ Marlene Baynes MARLENE BAYNES
- ------------------------------------- Notary Public, Oakland County, MI
Notary Public, _________County, MI My Commission Expires 05/28/2002
My Commission Expires: ____________
MMC MANUFACTURING CORP., F/K/A
WITNESS MILFORD MANUFACTURING, CORPORATION
/s/ Scott J. Koniezy By: /s/ Paul D. Clemente
- ------------------------------- ----------------------------
Paul D. Clemente, Director
Subscribed and sworn to before me this 2nd day of January, 1999.
---
/s/ Marlene Baynes MARLENE BAYNES
- ------------------------------------- Notary Public, Oakland County, MI
Notary Public, _________County, MI My Commission Expires 05/28/2002
My Commission Expires: ____________
[Signatures continued on following page]
13
<PAGE>
[Signatures continued from preceding page]
WITNESS TRI-TEC PLASTICS CORPORATION
/s/ Scott J. Koniezy By: /s/ Paul D. Clemente
- ------------------------------- ----------------------------
Paul D. Clemente
Name: Paul D. Clemente
----------------------
Title: Director
---------------
Subscribed and sworn to before me this 2nd day of January, 1999.
---
/s/ Marlene Baynes MARLENE BAYNES
- ------------------------------------- Notary Public, Oakland County, MI
Notary Public, _________County, MI My Commission Expires 05/28/2002
My Commission Expires: ____________
WITNESS TRIPLE TOOL, INC.
/s/ Scott J. Koniezy By: /s/ Paul D. Clemente
- ------------------------------- ----------------------------
Paul D. Clemente
Name: Paul D. Clemente
----------------------
Title: Director
---------------
Subscribed and sworn to before me this 2nd day of January, 1999.
---
/s/ Marlene Baynes MARLENE BAYNES
- ------------------------------------- Notary Public, Oakland County, MI
Notary Public, _________County, MI My Commission Expires 05/28/2002
My Commission Expires: ____________
Exhibit A: Updated Cash Flow Projections
14
THIRD AMENDED AND RESTATED
TERM NOTE
Amount: $610,592.35 Dated: as of February 1, 1999
Due Date: Demand or May 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 TEN THOUSAND, FIVE HUNDRED NINETY-TWO AND 35/100
Dollars ($610,592.35), 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 3 monthly
installments in the amount of $5,000 plus accrued interest on February 6,
1999, March 6, 1999, and April 6, 1999. followed by a balloon payment of all
remaining principal and interest on May 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, as 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
Extension Agreement dated as of November 25, 1998, as amended by First
Amendment to Amendment and Extension Agreement, dated as of February 2, 1999,
but effective as of February 1, 1999 (as so amended and as may be further
amended
<PAGE>
from time to time, the "Extension Agreement") (collectively, 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. This Note is secured by, among other
collateral, the collateral granted to Lender under the terms of the Credit
Agreement, including the Extension Agreement, and the Loan Documents. The
occurrence of any Event of Default under the Credit Agreement, including the
Extension 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 Extension Agreement, the Loan Documents
and under all other agreements referred to or executed in connection with
any of the foregoing.
This Third Amended and Restated Term Note, among other things, amends
and restates (but does not discharge) the indebtedness outstanding under that
certain Second Amended and Restated Term Note dated as of November 25, 1998,
in the original principal amount of $625,592.35. Any reference in any other
document or instrument to the foregoing Note shall constitute a reference to
this Third 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: /s/ Paul D. Clemente
---------------------
Name: Paul Clemente
Title: Vice President
46035 Grand River Ave.
Novi, Michigan 48374
2
THIRD AMENDED AND RESTATED EQUIPMENT TERM NOTE
Amount: $612,430 Dated: as of February 1, 1999
Due Date: Demand or May 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 TWELVE THOUSAND,
FOUR-HUNDRED THIRTY AND 00/100 Dollars ($612,430), together with interest on
the outstanding balance thereof as provided below, payable as follows: Unless
earlier demand for payment is made, principal is payable in 3 equal monthly
installments equal to $10,750 of the principal, on February 1, 1999, March 1,
1999, and April 1, 1999, followed by a balloon payment of all remaining
principal and interest on May 1, 1999. Interest is payable in monthly
payments of accrued interest commencing on Feb 1, 1999, 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 February 1, 1999.
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 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 Extension Agreement dated as of
November 25, 1998, as amended by First Amendment to Amendment and Extension
Agreement, dated February 2, 1999, but effective as of February 1, 1999 (as
so amended and as may be further unended from time to time, the "Extension
Agreement") (collectively, 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.
<PAGE>
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.
This Note is given pursuant to the terms and conditions of the Credit
Agreement, including the Extension Agreement. This Note is secured by, among
other collateral, the collateral granted to Bank under the terms of the
Credit Agreement, including the Extension Agreement, and the Loan Documents.
The occurrence of any default under the Credit Agreement, including the
Extension 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 Extension 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 Second
Amended and Restated Equipment Term Note dated as of November 25, 1998, in
the original principal amount of $644,680, 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.
2
<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: /s/ Paul D. Clemente
------------------------
Name: Paul D. Clemente
Its: Vice President
46035 Grand River Ave.
Novi, Michigan 48374
UNIFLOW CORPORATION
By: /s/ Paul D. Clemente
------------------------
Name: Paul D. Clemente
Its: Director
26600 Heyn Drive
Novi, Michigan 48450
MICANOL, INC.
By: /s/ Paul D. Clemente
------------------------
Name: Paul D. Clemente
Its: Director
P.O. Box 881
46001 Grand River
Novi, Michigan 48376
L & H DIE, INC.
By: /s/ Paul D. Clemente
------------------------
Name: Paul D. Clemente
Its: Director
38200 Ecorse Road
Romulus, Michigan 48174
[Signatures continued on Page 41
3
<PAGE>
[Signatures continued from Page 3]
FORM FLOW, INC. By:
By: /s/ Paul D. Clemente
------------------------
Name: Paul D. Clemente
Its: Director
6901 Cogswell
Romulus, Michigan 48174
MMC MANUFACTURING CORP., f/k/a
MILFORD MANUFACTURING, CORPORATION
By: /s/ Paul D. Clemente
------------------------
Name: Paul D. Clemente
Its: Director
101 Oak Street
Milford, MI 48381
4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> $ 67,900
<SECURITIES> 0
<RECEIVABLES> 3,492,800
<ALLOWANCES> (134,500)
<INVENTORY> 3,156,600
<CURRENT-ASSETS> 9,473,900
<PP&E> 21,214,200
<DEPRECIATION> 10,119,400
<TOTAL-ASSETS> 22,422,500
<CURRENT-LIABILITIES> 13,237,000
<BONDS> 0
<COMMON> 106,700
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,422,500
<SALES> 14,730,600
<TOTAL-REVENUES> 14,730,600
<CGS> 12,231,700
<TOTAL-COSTS> 14,503,400
<OTHER-EXPENSES> (67,800)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 422,500
<INCOME-TAX> (10,900)
<INCOME-PRETAX> 0
<INCOME-CONTINUING> (116,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,600)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
