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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ x / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1997, or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-16115
IMPCO TECHNOLOGIES, INC.
----------------
(Exact name of registrant as specified in its charter)
Delaware 91-1039211
- ------------------------ --------------------
(State of Incorporation) IRS Employer I.D. No.
16804 Gridley Place, Cerritos, CA 90703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 860-6666
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
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Number of shares outstanding of each of the issuer's classes of common
stock, as of November 30, 1997:
6,126,253 shares of Common Stock, $.001 par value per share
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, 1997 and April 30, 1997
-----------
ASSETS
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October 31, April 30,
1997 1997
----------- -----------
(unaudited)
Current assets:
Cash $ 1,571,101 $ 1,975,903
Accounts receivable 9,118,014 11,456,539
Less allowance for doubtful accounts 346,930 288,111
----------- -----------
Net accounts receivable 8,771,084 11,168,428
Inventories:
Raw materials and parts 8,151,376 7,717,710
Work-in-process 656,535 754,576
Finished goods 6,312,838 5,711,966
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Total inventories 15,120,749 14,184,252
Other current assets 2,256,159 2,575,055
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Total current assets 27,719,093 29,903,638
Equipment and leasehold improvements:
Dies, molds and patterns 4,876,983 4,272,220
Machinery and equipment 5,340,941 4,846,940
Office furnishings and equipment 4,375,578 4,130,351
Leasehold improvements 2,118,304 1,997,174
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16,711,806 15,246,685
Less accumulated depreciation and amortization 9,206,373 8,026,594
----------- -----------
Net equipment and leasehold improvements 7,505,433 7,220,091
Intangibles arising from acquisitions 11,053,275 11,351,802
Less accumulated amortization 3,294,966 2,950,805
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Net intangibles arising from acquisitions 7,758,309 8,400,997
Other assets 1,256,201 1,588,364
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$44,239,036 $47,113,090
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----------- -----------
See accompanying notes.
2
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IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, 1997 and April 30, 1997
(Continued)
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
October 31, April 30,
1997 1997
----------- -----------
(unaudited)
Current liabilities:
Notes payable $ 69,882 $ 328,839
Accounts payable 3,794,852 4,538,243
Accrued payroll obligations 1,609,881 1,564,028
Accrued warranty obligations 320,778 275,760
Income taxes payable 568,772 563,947
Other accrued expenses 1,948,005 2,869,218
Current portion of long-term loans 1,126,618 1,515,585
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Total current liabilities 9,438,788 11,655,620
Line of credit 5,000,000 5,450,000
Term loans - Bank of America NT&SA 1,453,121 3,592,013
Term loan - DEPA Holding B.V. 1,993,896 2,154,399
Other long term liabilities 1,288,512 1,524,906
Minority Interest 841,903 673,044
Commitments and contingencies - -
Stockholders' equity:
1993 Series 1 Preferred Stock, $0.01 par value,
5,950 shares authorized, issued and
outstanding $5,950,000 liquidation value 5,650,000 5,650,000
Common stock, $.001 par value, authorized
25,000,000 shares; 5,983,753 issued and
outstanding at October 31, 1997
(5,814,587 at April 30, 1997) 5,984 5,815
Additional paid-in capital relating to
common stock 30,110,224 29,342,121
Shares held in trust (24,820) (8,814)
Accumulated deficit (10,785,479) (12,467,953)
Foreign currency translation adjustment (733,093) (458,061)
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Total stockholders' equity 24,222,816 22,063,108
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$44,239,036 $47,113,090
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----------- -----------
See accompanying notes.
3
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IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three and six months ended October 31, 1997 and 1996
---------
Three Months Ended Six Months Ended
October 31, October 31,
----------------------- -----------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
Revenue:
Product sales $15,729,795 $14,014,203 $29,880,881 $28,193,494
Contract revenue 2,432,468 632,566 4,570,705 1,601,907
----------- ----------- ----------- -----------
Net revenue 18,162,263 14,646,769 34,451,586 29,795,401
Costs and expenses:
Cost of sales 9,755,652 8,635,561 18,574,808 17,744,681
Research and
development expense 3,277,732 2,086,686 6,343,346 4,370,441
Selling, general and
administrative expense 3,395,055 2,853,435 6,484,904 5,516,346
----------- ----------- ----------- -----------
Total costs and expenses 16,428,439 13,575,682 31,403,058 27,631,468
----------- ----------- ----------- -----------
Operating income 1,733,824 1,071,087 3,048,528 2,163,933
Financing charges 222,277 302,806 501,925 526,985
----------- ----------- ----------- -----------
Income before income taxes
and minority interest in
income of consolidated
subsidiaries 1,511,547 768,281 2,546,603 1,636,948
Provision for income taxes 253,237 63,167 392,667 181,000
Minority interest in income
of consolidated
subsidiaries 118,708 64,940 173,963 103,360
----------- ----------- ----------- -----------
Net income before dividends 1,139,602 640,174 1,979,973 1,352,588
Dividends on preferred stock 148,749 145,029 297,499 290,061
----------- ----------- ----------- -----------
Net income $ 990,853 $ 495,145 $ 1,682,474 $ 1,062,527
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per common share
Primary $0.15 $0.09 $0.26 $0.19
Fully diluted $0.15 $0.09 $0.25 $0.19
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Number of shares used in
per share calculation
Primary 6,812,122 6,754,392 6,803,027 6,755,780
Fully diluted 7,935,611 6,754,392 6,803,027 6,755,780
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes.
4
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IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended October 31, 1997 and 1996
---------------
Six Months Ended
October 31,
------------ ------------
1997 1996
------------ ------------
Net cash provided by operating activities $ 3,884,675 $ 501,152
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements (1,415,688) (609,201)
Investment in IMPCO Pty - (4,655,514)
Other, net 189,188 100,026
------------ ------------
Net cash used in investing activities (1,226,500) (5,164,689)
Cash flows from financing activities:
Net borrowings on line of credit (450,000) 3,700,000
Payments on notes payable (258,957) (417,891)
Proceeds from issuance of bank term loans - 3,970,451
Proceeds from issuance of common stock 752,266 23,278
Payments on term loan (1,987,548) (570,883)
Payments of other long-term liabilities (752,209) (181,439)
Dividends on preferred stock (297,499) (290,061)
------------ ------------
Net cash (used in)\provided by
financing activities (2,993,947) 6,233,455
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Translation Adjustment (69,030) -
Net (decrease)\increase in cash (404,802) 1,569,918
Cash beginning of year 1,975,903 811,148
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Cash, end of quarter $ 1,571,101 $ 2,381,066
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See accompanying notes.
5
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IMPCO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 and 1996
--------------
1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited
and reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for the fair presentation of
the financial position and operating results for the interim periods. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and the results of
operations, contained in the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1997. The condensed consolidated balance sheets of
IMPCO Technologies, Inc. [effective September 15, 1997, AirSensors, Inc.
changed its name to IMPCO Technologies, Inc.] as of October 31, 1997 includes
the accounts of the Company, its wholly-owned subsidiary IMPCO Technologies,
Pty. Ltd., and its majority-owned subsidiary IMPCO Europe Media B.V. The
results of operations for the six months ended October 31, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending April 30, 1998.
2) REDEMPTION OF COMMON STOCK PURCHASE WARRANTS
On October 27, 1997, IMPCO Technologies, Inc. called for redemption of all
of its 1993 Common Stock Purchase Warrants. The redemption date was December
12, 1997.
3) AMENDED BANK OF AMERICA AGREEMENT
On October 7, 1997 IMPCO amended its credit facility with Bank of America
NT&SA by extending the term of the revolving line of credit for a twelve
month period ending August 31, 1999. The amended credit facility also
increased the revolving line of credit by $4,000,000 to $12,000,000, and
added a $4,000,000 term loan facility for possible future acquisitions. On
September 23, 1997, the Company expanded the capital lease facility from
$3,525,000 to $5,525,000 and extended the expiration date to August 31, 2003.
Including the revolving line of credit, the capital lease facility and the
acquisition facilities, the total Bank of America credit facility was
$23,922,500 at October 31, 1997.
(i) REVOLVING LINE OF CREDIT
The revolving line of credit bears interest, payable monthly, at a
fluctuating per annum rate equal to the Bank of America reference rate (which
was 8.5% on October 31, 1997). The Company may elect to have all or portions
of the line bear interest at an alternative interest rate (Offshore rate which
was 7.375% on October 31, 1997) agreed upon by the Bank and IMPCO for periods
of not less than 30 days nor more than one
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year. At October 31, 1997, the total outstanding line of credit balance of
$5,000,000 was subject to the offshore rate.
The total amount available under the revolving line of credit is limited
to the lesser of $12,000,000 or the Company's borrowing base. The borrowing
base is the sum of (i) 75% of the balance due on the Company's accounts
receivable books excluding intercompany receivables and accounts receivable,
carried in the books and records of any foreign subsidiary of the Company,
plus (ii) 20% of the book value of the Company's inventory consisting of raw
materials located in the United States, plus (iii) 40% of the book value of
the Company's inventory consisting of finished goods located in the United
States. The borrowing base is calculated on the last day of the preceding
fiscal quarter and applied to the current fiscal quarter. At October 31,
1997, IMPCO's borrowing base was $6,600,000.
The unused portion of the line of credit is subject to a commitment fee
of .1875% per annum. It is management's intent to renew the amount of its
present long-term obligation under the revolving line of credit for an
uninterrupted period extending beyond one year from the balance sheet date.
The line may be used for financing commercial letters of credit with a
maximum maturity of 180 days and standby letters of credit with a maximum
maturity of five years not to extend beyond April 30, 2002. The amount of
letters of credit outstanding at any one time may not exceed $2,000,000 for
commercial letters of credit and $750,000 for standby letters of credit. At
October 31, 1997, a standby letter of credit totaling $375,000 was
outstanding. The maximum amount available at any one time on the revolving
line of credit and the commercial letters of credit is $12,000,000, subject
to the borrowing base.
(ii) TERM LOAN FOR ACQUISITION OF MEDIA
This term loan bears interest, payable on a monthly basis, at the Bank's
reference rate. The Company may elect to have all or portions of the term loan
bear interest at an alternative interest rate agreed upon by the Bank and IMPCO
for periods of not less than 30 days nor more than one year. The alternative
interest rate is based on the Offshore rate plus 1.50%. Each alternative rate
portion must be for an amount not less than $500,000 and may not include any
portion of principal which is scheduled to be repaid before the last day of the
applicable interest period. On October 20, 1997, the Company entered into a 34
month interest rate swap agreement with Bank of America NT&SA ending August 31,
2000, that fixes the interest rate on the facility at 7.90%. At October 31,
1997, the total outstanding balance was $1,435,000.
(iii) TERM LOAN FOR THE ACQUISITION FOR ATECO
On October 31, 1997, the Company retired this facility early with a balloon
payment of $1,600,000.
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(iv) TERM LOAN FOR FUTURE ACQUISITION(S)
This term loan bears interest, payable on a monthly basis, at the Bank's
reference rate. The Company may elect to have all or portions of the term
loan bear interest at an alternative interest rate agreed upon by the Bank
and IMPCO for periods of not less than 30 days nor more than one year. The
alternative interest rate is based on the Offshore rate plus 2.00%. Each
alternative rate portion must be for an amount not less than $500,000 and may
not include any portion of principal which is scheduled to be repaid before
the last day of the applicable interest period. The company will repay
principal in 12 successive quarterly installments, starting on the last day
of the third month after funding. The first 11 installments will be equal to
1/12 of the original principal amount with the last installment equal to the
remaining balance. The term loan may be prepaid, with payments applied in
inverse order of maturity, in whole or in part, at any time. At October 31,
1997, there was no outstanding balance on this facility. On December 5,
1997, the Company utilized $3.3 million of the $4 million term loan for the
acquisition of Algas (see Note 4).
(v) CAPITAL LEASE FACILITY
The capital lease facility is available in incremental draws of $50,000
or more to finance acquisitions of equipment such as machinery, dies, molds,
office furniture, and motor vehicles. At October 31, 1997, approximately
$1,937,000 was outstanding and approximately $2,631,000 was available under
the capital lease facility. Each draw is to be repaid in twenty consecutive
quarterly installments. Each draw bears interest at either a variable rate
or fixed rate of interest. The fixed rate of interest is the U.S. Treasury
note bond-equivalent yield per annum corresponding to the number of months
remaining on the draw, plus 2.55 percentage points. The variable rate of
interest is equal to Bank of America's London Branch 3-month LIBOR rate plus
2.15 percentage points. At October 31, 1997, all draws were subject to the
variable rate of interest. The long-term and short-term portions of the
capital lease facility are included in other long term liabilities and other
accrued expenses, respectively, on the Company's balance sheet.
If the Company exercises an early termination option before the scheduled
expiration date of a capital lease, a termination charge will be assessed.
The termination charge is a sliding percentage (not to exceed 5%) of the
balance on the lease at time of termination.
8
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(vi) LOAN COVENANTS AND COLLATERAL
The Bank of America credit facility contains certain restrictions and
financial covenants, including liquidity, tangible net worth and cash flow
coverage thresholds, as well as limitations on other indebtedness, and is
secured by substantially all of the Company's assets. At October 31, 1997,
the Company was in compliance with all covenants.
4) TERM LOAN - BANK OF AMERICA, AUSTRALIA
In the second quarter, IMPCO Technologies Pty Ltd. made two prepayments
of A$250,000 (U.S. $175,000). At October 31, 1997, the outstanding balance
of the term loan was A$1,375,000 (U.S. $962,500).
5) SUBSEQUENT EVENTS
On December 5, 1997, the Company purchased certain assets of the Algas
Carburetion Division of PGI International. The purchase price of US$2,400,000
was paid in cash.
On the same day, the Company acquired a 90% interest in Industrias
Mexicanas de Products de Combustibles, S. de R.L. de C.V. ("IMPCO Mexicana").
The purchase price of US$960,000 was paid in cash. Immediately prior to the
Company's acquisition of a 90% ownership interest in IMPCO Mexicana, IMPCO
Mexicana acquired certain assets of the carburation division of Algas
Mexicana, de R.L. de C.V.
On December 12, 1997, the Company purchased from the bankruptcy trustee
of EDO Canada, Ltd. certain development, testing, quality control and
manufacturing equipment used for the manufacture of storage tanks for
compressed natural gas. The purchase price of US$790,000 was paid in cash.
9
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operation that are not historical in
nature are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to,
those identified in "Certain Factors" in the 10-K filed for the year ended
April 30, 1997 and other factors identified from time to time in the
Company's reports filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
- ---------------------
NET REVENUE
- -----------
Net revenue for the three months and six months ended October 31, 1997,
increased by $3.5 million (24%) and $4.7 million (16%), respectively, as
compared to the same periods in the prior fiscal year. Contract revenues,
primarily from the General Motors program, represented $1.8 million of the
increase for the three month period and represented $3.0 million of the
increase for the six month period ended October 31, 1997.
Product sales for the three months and six months ended October 31, 1997,
increased by 11% and 6%, respectively, as compared to the same periods in the
prior fiscal year. The following table sets forth the Company's product
sales by application (all dollars in thousands):
Three months ended Six months ended
October 31, October 31,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Motor vehicle $ 5,560 $ 5,929 $ 10,779 $ 11,079
Forklifts and other material
handling equipment 7,419 5,500 13,431 11,771
Small portable to
large stationary 2,751 2,585 5,671 5,343
-------- -------- -------- --------
Total product sales $15,730 $ 14,014 $ 29,881 $ 28,193
-------- -------- -------- --------
-------- -------- -------- --------
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During the three months and six months ended October 31, 1997, net
revenue attributable to the Company's motor vehicle products decreased by 6%
and 3%, respectively, as compared to the same periods in the prior fiscal
year. The following table sets forth the Company's worldwide motor vehicle
product sales by component parts and upfitting, (all dollars in thousands):
Three months ended Six months ended
October 31, October 31,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
Component parts $ 4,515 $ 5,737 $ 9,537 $ 9,724
Upfitting systems 1,045 192 1,243 1,355
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Total $ 5,560 $ 5,929 $ 10,779 $ 11,079
-------- -------- -------- --------
-------- -------- -------- --------
During the three months and six months ended October 31, 1997, sales for
the Company's motor vehicle component parts decreased by 21% and 2%,
respectively, as compared to the same periods in the prior fiscal year. This
decrease primarily resulted from lower product sales in Australia as a result
of a general economic slowdown and unfavorable price differentials between
petroleum and alternative fuels which negatively impact the Company's product
sales. Management anticipates that these conditions in Australia will
continue for the remainder of the current fiscal year. Management further
believes that revenues generated from component parts in the current fiscal
year will be comparable to sales realized during fiscal year 1997 due to
higher sales in North America and Latin America that offset lower sales in
Australia. This is a forward looking statement.
Revenue attributable to upfitting vehicles with the Company's systems
increased by 444% during the three months ended October 31, 1997, and
decreased by 8% during the six months ended October 31, 1997, as compared to
the same periods in the prior fiscal year. During the previous year, revenue
resulted from a program with Ford Motor Company in which IMPCO's bi-fuel
propane system was utilized on F-150 and F-250 pick-up trucks. The Ford
program materially ended in the first quarter of fiscal year 1997. During
the current year, the upfitting revenue represents sales of mid-1997 GM
pick-ups, as part of the General Motors program, upfit with the Company's
bi-fuel natural gas fuel system. Management anticipates additional upfitting
revenues from the General Motors program with significant increases realized
toward the end of the current fiscal year. This is a forward-looking
statement.
During the three months and six months ended October 31, 1997, sales of
the Company's products for forklifts and other material handling equipment
increased by approximately 35% and 14%, respectively, as compared to the same
periods in the prior fiscal year. During the three and six months ended
October 31, 1997, the Company
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increased revenue $1.0 million and $1.2 million, respectively, from its
European operations which primarily sells material handling equipment. The
remaining increase in sales was derived from domestic operations. Both
European and domestic operations realized an increase in demand for new
forklifts in the material handling industry. Management anticipates that the
worldwide revenues provided by forklift and other material handling equipment
will continue to be higher for the second half of fiscal year 1998 compared
to the second half of fiscal year 1997. This is a forward-looking statement.
During the three months and six months ended October 31, 1997, sales for
the Company's small portable to large stationary engines increased by 6%, as
compared to the same periods in the prior fiscal year. This increase was
primarily attributable to an increased demand for large and small power
generator units used in power replacement and recreational applications.
Although, there was an increase in the quarterly results as compared to the
same periods in the previous fiscal year, management anticipates that revenue
generated from the Company's small portable to large stationary engines in
fiscal year 1998 will be comparable to fiscal year 1997. This is a forward-
looking statement.
Contract revenue for the three and six months ended October 31, 1997,
increased by $1.8 million (284%) and $3.0 million (185%), respectively, as
compared to the same periods in the prior fiscal year. For the three-month
period ended October 31, 1997, contract revenue comprised 14% of total
revenue compared to 4% for the same period in the previous year. For the
six-month period ended October 31, 1997, contract revenue comprised 13% of
total revenue compared to 5% for the same period in the previous year. These
increases were due to the addition of several vehicle platforms under the
development contract with General Motors Corporation. Contract revenue is
principally recognized by the percentage of completion method. Profits
expected to be realized on contracts are based on the Company's estimates of
total contract sales value and costs at completion. These estimates are
reviewed and revised periodically throughout the lives of the contracts.
Management anticipates that contract revenue during the remainder of the
current fiscal year will be substantially higher than levels experienced
during the second half of the previous fiscal year. This is a forward-looking
statement.
During the three months and six months ended October 31, 1997, the Company's
revenues were generated in the following geographic regions:
Three months ended Six months ended
October 31, October 31,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
United States and Canada 52% 44% 56% 53%
Pacific Rim 15% 28% 15% 22%
Europe 20% 15% 19% 15%
Latin America 13% 13% 11% 10%
GROSS PROFIT MARGIN
- -------------------
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The Company's gross profit margin on product sales for the three months
ended October 31, 1997, was $6.0 million (38%) as compared to $5.4 million
(38%) during the prior fiscal year. For the current three month period, the
Company's domestic operations contributed $.6 million to this increase solely
through higher sales volume. The European operations contributed $.2 million
to gross profit but realized lower gross profit margins in the current period
compared to the prior year due to higher imported material costs resulting from
a weaker Dutch guilder. The Company's Australian operation realized lower
gross profits ($.2 million) as a result of lower sales volume and a weakening
of the Australian dollar, but realized a slightly higher margin for the current
period as compared to the same period in the prior year.
The Company's gross profit margin on product sales for the six months
ended October 31, 1997, was $11.3 million (38%) as compared to $10.4 million
(37%) during the prior fiscal year. For the six month period, the Company's
gross profit margin on product sales was favorably impacted by higher margins
on component sales in the United States and Australia. This increase in
product contribution margin was partially offset by lower margins on upfitter
sales and lower profit margins on component sales in Europe due partially to
the weakening of the Dutch guilder. Management anticipates that overall
percent profit margin will decrease as upfitter sales become a larger segment
of the Company's business. However, as the upfitter business increases,
overall gross profit amounts will increase. This is a forward-looking
comment.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development ("R&D") expense for the three months and six months
ended October 31, 1997 was $3,277,732 and $6,343,346, respectively of which
$1,334,512 (41%) and $2,480,773 (39%), respectively, were directly related
to the General Motors' program. R&D expense for the three months and six
months ended October 31, 1996 was $2,086,686 and $4,370,441, respectively
of which $939,861 (45%) and $1,714,885 (39%) were directly related to the
General Motors program. The remaining increase in R&D expense for the
three month and six month periods was primarily for internally funded
product and other contract R&D work. Management believes the Company's
future success depends on its ability to design, develop and market new
products that interface successfully with new engine electronic technology,
and which meet mandated emission standards. Management anticipates that R&D
expense during fiscal year 1998 will be significantly higher than the levels
experienced during fiscal year 1997 due to internally funded development work
and new product development under the GM contract and other contract
development work. This is a forward-looking statement.
SELLING, GENERAL AND ADMINISTRATIVE
- -----------------------------------
Selling, general and administrative (SG&A) expense for the three months
and six months ended October 31, 1997, increased by
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approximately $.5 million (19%) and $1.0 million (18%), respectively as
compared to the same periods in the prior fiscal year. For the six month
period, the increase in SG&A expense was primarily due to the inclusion of
IMPCO Pty's SG&A expenses for a six months in the current fiscal year versus
only four months during the same period in the previous fiscal year. The
remaining increase in SG&A expense for the current six month period and for
the current quarter resulted from additional administrative expenses from the
U.S. operations. These expenses included administrative salaries, incentive
compensation, and legal expenses. Management anticipates that SG&A expense
for fiscal year 1998 will be higher than fiscal year 1997, primarily as a
result of including a full year of the Company's Australian operation and
additional expenses to support anticipated growth in revenues. However, as a
percentage of net revenues, SG&A expense is expected to be lower for the
current fiscal year as compared to fiscal year 1997. This is a
forward-looking statement.
FINANCING CHARGES ----------------- Financing charges for the three
months and six months ended October 31, 1997, decreased by $80,000 (26%) and
$25,000 (5%) as compared to the same periods in the prior fiscal year. This
decrease is a result of lower borrowings on the Company's line of credit in
the current fiscal year as compared to the prior year and as a result of
prepayments on long-term borrowings. Management anticipates that financing
charges for fiscal year 1998 will decrease as compared to fiscal year 1997 as
a result of repayment of debt with funds anticipated to be received from the
Company's redemption of its Common Stock Purchase Warrants. (see note 2).
This is a forward-looking statement.
PROVISION FOR INCOME TAXES
- --------------------------
The estimated effective annual tax rate for fiscal year 1998 has been
reduced by the presumed utilization of approximately $3,631,000 of federal net
operating loss carryforwards and estimated research and development credits of
$300,000. For federal income tax purposes, at October 31, 1997, the Company had
net operating loss carryforwards of approximately $1,200,000 available to
offset future taxable income. At October 31, 1997, the deferred tax asset
account was $1,600,000. Management has determined, based on the Company's
history of prior operating earnings and its expectations for the future, that
operating income of the Company will more likely than not be sufficient to
recognize fully these net deferred tax assets. This is a forward-looking
statement.
LIQUIDITY AND CAPITAL RESOURCES
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14
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The Company uses cash generated from its operations and external
financing to fund capital expenditures, pay dividends on the preferred stock
and invest in and operate its existing operations and new businesses. These
sources are sufficient to meet all current obligations on a timely basis.
This is a forward-looking statement.
The Company's financial condition remains strong. The ratio of current
assets to current liabilities was 2.85 and 2.57 at October 31, 1997 and April
30, 1997, respectively. During the current year, the total amount of working
capital increased by $92,000 to $18,156,000 at October 31, 1997. Net cash
provided by operating activities was $3,885,000 during the current six month
period, compared to $501,000 for the same period in the previous year. The
increase in cash provided by operating activities during the current period
resulted from net income and a $1,942,000 decrease in accounts receivable. This
change was partially offset by a $651,000 increase in inventory due to a
temporary buildup of inventory in anticipation of future upfitter and core
product sales.
Net cash used in investing activities in the first six months of fiscal
year 1998 was approximately $1,227,000, which represents normal capital
expenditures for dies, molds and patterns and machinery and equipment.
Management projects that capital expenditures during fiscal year 1998 will be
higher than fiscal year 1997, primarily relating to equipment enhancements and
facilities for the development and production of new products, and the addition
of testing equipment and facilities. The Company expects to fund a major
portion of these expenditures from cash generated from operations and by use of
its bank credit facility. This is a forward-looking statement.
Net cash used in financing activities during the current six month period
was approximately $2,994,000. The Company decreased its borrowing under the
operating line of credit by $450,000 and made $2,247,000 in principal
repayments on term loan and notes. Approximately $1,675,000 of the loan and
note payments represented pre-payments. The Company also received
approximately $750,000 from the issuance of common stock as a result of the
exercise of Common Stock Purchase Warrants. The Company expects to receive
an additional $7,750,000 from the Common Stock Purchase Warrants. This is a
forward-looking statement.
The Company has a $12,000,000 revolving line of credit which was subject
to a $6,600,000 borrowing base at October 31, 1997 and a $5,525,000
capital lease facility with Bank of America. At October 31, 1997, approximately
$5,000,000 and $1,937,000 was outstanding under the revolving line of credit
and the capital lease facility, respectively. The revolving line of credit
expires on August 31, 1999, and the capital lease facility expires on December
31, 2003. In addition, the Company's subsidiary in the Netherlands has a
3,000,000 NLG (U.S. $1,526,000) credit facility with Mees Pierson, a financial
institution
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in the Netherlands. At October 31, 1997, there was no outstanding balance on
the Dutch credit facility.
FOREIGN CURRENCY RISK
- ---------------------
The results and financial condition of the Company's international
operations are affected by changes in exchange rates between certain foreign
currencies and the U.S. dollar. The Company's exposure to fluctuations in
currency exchange rates has increased as a result of the expansion of
international subsidiaries. The functional currency for all of the Company's
international subsidiaries is the local currency of the subsidiary. An
increase in the value of the U.S. dollar increases costs incurred by the
subsidiaries because most of its international subsidiaries' inventory
purchases are U.S. dollar denominated. The Company monitors this risk and
attempts to minimize the exposure through the management of cash disbursements
and receipts in local currencies.
The Company seeks to hedge its foreign currency economic risk by minimizing
its U.S. dollar investment in foreign operations using foreign currency term-
loans to finance the operations of its foreign subsidiaries. The term loans
are denominated in local currencies and are included in the local balance
sheets.
INTEREST RATE RISK
- ---------------------
The Company uses interest rate swap agreements to manage its exposure to
interest rate changes and stabilize the cost of borrowed funds. When an
agreement is executed, the swap is linked to a specific debt instrument. The
Company enters into such agreements with Bank of America, which in the opinion
of management, will not expose the Company to undue credit loss exposure.
16
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Part II - OTHER INFORMATION
Items 1-5 Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
--------
Exhibit 10.1 - Amended Loan Agreement for IMPCO Technologies,
Inc. as borrower and Bank of America National Trust and Savings
Association, as lendor, dated October 7, 1997.
Exhibit 11.1 - Computation of net income per share.
(b) Reports on Form 8-K
-------------------
Form 8-K filed on September 12, 1997 reporting on the Company's name
change to IMPCO Technologies, Inc.
Form 8-K filed on October 27, 1997 reporting on the Company's call
for redemption of its outstanding Common Stock Purchase Warrants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPCO Technologies, Inc.
(Registrant)
Date: December 15, 1997 By /s/Thomas M. Costales
---------------------
Thomas M. Costales
Chief Financial Officer
and Treasurer
[Authorized Signatory]
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BUSINESS LOAN AGREEMENT
This Agreement dated as of October 7, 1997, is between Bank of
America National Trust and Savings Association (the "Bank") and IMPCO
Technologies, Inc. (the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank
will provide a line of credit ("Facility No. 1") to the Borrower. The
amount of the line of credit (the "Facility No. 1 Commitment") is Twelve
Million Dollars ($12,000,000).
(b) This is a revolving line of credit with a within line
facility for letters of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) If at any time the outstanding principal balance of
advances under the line of credit exceeds the Borrowing Base, the Borrower
will prepay the amount of the excess within ten (10) days of notice from
the Bank. "Borrowing base" means the lesser of Twelve Million Dollars
($12,000,000) or the sum of (i) 75% of the balance due on the Borrower's
accounts receivable excluding intercompany receivables and accounts
receivable carried in the books and records of any foreign subsidiary of
Borrower, PLUS (ii) 20% of the book value of the Borrower's inventory
consisting of raw materials located in the United States, PLUS (iii) 40%
of the book value of the Borrower's inventory consisting of finished goods
located in the United States, all as determined from the Borrower's
financial statements as of the last day of the immediately preceding
fiscal quarter of the Borrower.
1.2 AVAILABILITY PERIOD. The line of credit is available between
the date of this Agreement and August 31, 1999 (the "Expiration Date") unless
the Borrower is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional
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interest rate as described below, the interest rate is the Bank's
Reference Rate.
(b) The Reference Rate is the rate of interest publicly
announced from time to time by the Bank in San Francisco, California, as
its Reference Rate. The Reference Rate is set by the Bank based on
various factors, including the Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its customers at,
above, or below the Reference Rate. Any change in the Reference Rate
shall take effect at the opening of business on the day specified in the
public announcement of a change in the Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on October 31, 1997, and
then monthly thereafter until payment in full of any principal outstanding
under this line of credit.
(b) The Borrower will repay in full all principal and any
unpaid interest or other charges outstanding under this line of credit no
later than the Expiration Date. Any amount bearing interest at an
optional interest rate (as described below) may be repaid at the end of
the applicable interest period, which shall be no later than the
Expiration Date.
1.5 OPTIONAL INTEREST RATE. Instead of the interest rate based on
the Bank's Reference Rate, the Borrower may elect the optional interest rate
listed below for this Facility No. 1 during interest periods agreed to by the
Bank and the Borrower. The optional interest rate shall be subject to the
terms and conditions described later in this Agreement. Any principal amount
bearing interest at an optional rate under this Agreement is referred to as a
"Portion." The optional interest rate available is the Cayman Rate plus 1.75
percentage points.
1.6 LETTERS OF CREDIT. This line of credit may be used for
financing:
(i) commercial letters of credit with a maximum maturity of 180
days but not to extend more than 90 days beyond the Expiration Date. Each
commercial letter of credit will require drafts payable at sight.
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(ii) standby letters of credit with a maximum maturity of five
(5) years but not to extend beyond April 30, 2002.
(iii) The amount of the letters of credit outstanding at any
one time (including amounts drawn on letters of credit and not yet
reimbursed) may not exceed Two Million Dollars ($2,000,000) for commercial
letters of credit and Seven Hundred Fifty Thousand Dollars ($750,000) for
standby letters of credit.
(iv) The following letter of credit is outstanding from the
Bank for the account of the Borrower:
Letter of Credit Number Amount
----------------------- ------
LASB #227940 $375,000
As of the date of this Agreement, this letter of credit shall be deemed to
be outstanding under this Agreement, and shall be subject to all the terms
and conditions stated in this Agreement.
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option
of the Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described
elsewhere in this Agreement.
(b) if there is a default under this Agreement, to immediately
prepay and make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a
letter of credit is subject to the Bank's written approval and must be in
form and content satisfactory to the Bank and in favor of a beneficiary
acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for
Commercial Letter of Credit or Application and Agreement for Standby
Letter of Credit.
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(e) to pay any issuance and/or other fees that the Bank
notifies the Borrower will be charged for issuing and processing letters
of credit for the Borrower.
(f) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other charges.
(g) to pay the Bank a non-refundable fee equal to 1.5% per
annum of the outstanding undrawn amount of each standby letter of credit,
payable annually in advance, calculated on the basis of the face amount
outstanding on the day the fee is calculated.
2. FACILITY NO. 2: EXISTING TERM LOAN A
2.1 OUTSTANDING TERM LOAN A. There is outstanding from the Bank to
the Borrower a term loan in the original principal amount of Two Million Fifty
Thousand Dollars ($2,050,000). This term loan is currently subject to the
terms and conditions of Facility No. 2 of the Business Loan Agreement dated as
of June 25, 1996. As of the date of this Agreement, the term loan shall be
deemed to be outstanding as Facility No. 2 under this Agreement, and shall be
subject to all the terms and conditions stated in this Agreement.
2.2 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference Rate.
(b) The Borrower may prepay the loan in full or in part at any
time. The prepayment will be applied to the most remote installment of
principal due under this Agreement.
2.3 REPAYMENT TERMS.
(a) The Borrower will pay all accrued but unpaid interest on
October 31, 1997 and then monthly thereafter until payment in full of the
principal of this loan.
(b) The Borrower will repay the principal amount of Facility
No. 2 in thirteen (13) equal successive quarterly installments of One
Hundred Two Thousand
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Five Hundred Dollars ($102,500) each, starting November 30, 1997.
On August 31, 2000, the Borrower will repay the remaining principal
balance plus any interest then due.
2.4 OPTIONAL INTEREST RATES. Instead of the interest rate based on
the Bank's Reference Rate, the Borrower may elect the optional interest rates
listed below for this Facility No. 2 during interest periods agreed to by the
Bank and the Borrower. The optional interest rates shall be subject to the
terms and conditions described later in this Agreement. Any principal amount
bearing interest at an optional rate under this Agreement is referred to as a
"Portion." The following optional interest rates are available:
(a) the Cayman Rate plus 1.50 percentage points.
(b) the LIBOR Rate plus 1.50 percentage points
3. FACILITY NO. 3: EXISTING TERM LOAN B
3.1 OUTSTANDING TERM LOAN B. There is outstanding from the Bank
to the Borrower a term loan in the original principal amount of Two Million
Dollars ($2,000,000). This term loan is currently subject to the terms and
conditions of Facility No. 3 of the Business Loan Agreement dated as of June
25, 1996. As of the date of this Agreement, the term loan shall be deemed to
be outstanding as Facility No. 3 under this Agreement, and shall be subject
to all the terms and conditions stated in this Agreement.
3.2 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference Rate.
(b) The Borrower may prepay the loan in full or in part at any
time. The prepayment will be applied to the most remote installment of
principal due under this Agreement.
3.3 REPAYMENT TERMS.
(a) The Borrower will pay all accrued but unpaid interest on
October 31, 1997 and then monthly thereafter and upon payment in full of
the principal of the loan.
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<PAGE>
(b) The Borrower will repay principal in eight (8) equal
successive quarterly installments of One Hundred Thousand Dollars
($100,000) starting October 31, 1997. On July 31, 1999 the Borrower will
repay the remaining principal balance plus any interest then due.
3.4 OPTIONAL INTEREST RATE. Instead of the interest rate based on
the Bank's Reference Rate, the Borrower may elect the optional interest rate
listed below for this Facility No. 3 during interest periods agreed to by the
Bank and the Borrower. The optional interest rate shall be subject to the
terms and conditions described later in this Agreement. Any principal amount
bearing interest at an optional rate under this Agreement is referred to as a
"Portion." The optional interest rate available is the Cayman Rate plus 2.10
percentage points.
4. FACILITY NO. 4: NEW TERM LOAN
4.1 LOAN AMOUNT. The Bank agrees to provide a term loan ("Facility
No. 3") to the Borrower in the amount of Four Million Dollars ($4,000,000) (the
"Facility No. 3 Commitment").
4.2 AVAILABILITY PERIOD. The loan is available in one disbursement
from the Bank between the date of this Agreement and August 31, 1998 unless
the Borrower is in default.
4.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference Rate.
(b) The Borrower may prepay the loan in full or in part at any
time. The prepayment will be applied to the most remote installment of
principal due under this Agreement.
4.4 REPAYMENT TERMS.
(a) The Borrower will pay all accrued but unpaid interest on
the last day of the first month after funding and then monthly thereafter
and upon payment in full of the principal of the loan.
(b) The Borrower will repay principal in 12
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successive quarterly installments, starting on the last day of the third
month after funding. The first 11 installments shall each has equal to
1/12 of the original principal amount, and the twelve shall installments
shall be equal to the then remaining principal balance.
4.5 OPTIONAL INTEREST RATE. Instead of the interest rate based on
the Bank's Reference Rate, the Borrower may elect the optional interest rate
listed below for this Facility No. 4 during interest periods agreed to by the
Bank and the Borrower. The optional interest rate shall be subject to the
terms and conditions described later in this Agreement. Any principal amount
bearing interest at an optional rate under this Agreement is referred to as a
"Portion." The optional interest rate available is the Cayman Rate plus 2.00
percentage points.
5. OPTIONAL INTEREST RATES
5.1 OPTIONAL RATES. Each optional interest rate is a rate per
year. Interest will be paid on the last day of each interest period, and on
the last day of each month during the interest period. At the end of any
interest period, the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated another optional interest
rate for the Portion. No Portion will be converted to a different interest
rate during the applicable interest period. Upon the occurrence of an event
of default under this Agreement, the Bank may terminate the availability of
optional interest rates for interest periods commencing after the default
occurs.
5.2 CAYMAN RATE. The election of Cayman Rates shall be subject to
the following terms and requirements:
(a) The interest period during which the Cayman Rate will be in
effect will be no shorter than 30 days and no longer than one year. The
last day of the interest period will be determined by the Bank using the
practices of the offshore dollar inter-bank market.
(b) Each Cayman Rate Portion will be for an amount not less
than Five Hundred Thousand Dollars ($500,000).
(c) The Borrower may not elect a Cayman Rate with respect to
any principal amount which is scheduled to be repaid before the last day
of the applicable interest
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period.
(d) The "Cayman Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
Cayman Rate = CAYMAN BASE RATE
--------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Cayman Base Rate" means the interest rate at
which the Bank's Grand Cayman Branch, Grand Cayman, British West
Indies, would offer U.S. dollar deposits for the applicable interest
period to other major banks in the offshore dollar inter-bank market.
(ii) "Reserve Percentage" means the total of the
maximum reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent.
The percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special, and
other reserve percentages.
(e) Each prepayment of a Cayman Rate Portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied by
the amount of accrued interest on the amount prepaid, and a prepayment fee
as described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement. The prepayment fee shall be equal to the amount (if any)
by which:
(i) the additional interest which would have been
payable during the interest period on the amount prepaid had it not
been prepaid, exceeds
(ii) the interest which would have been recoverable by
the Bank by placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market, or
other
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<PAGE>
appropriate money market selected by the Bank for a period
starting on the date on which it was prepaid and ending on the last
day of the interest period for such Portion (or the scheduled payment
date for the amount prepaid, if earlier).
(f) The Bank will have no obligation to accept an election for
a Cayman Rate Portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a Cayman Rate Portion are
not available in the offshore Dollar inter-bank market; or
(ii) the Cayman Rate does not accurately reflect the
cost of a Cayman Rate Portion.
5.3 LIBOR RATE. The election of LIBOR Rates shall be subject to the
following terms and requirements:
(a) The interest period during which the LIBOR Rate will be in
effect will be one, two, three, four, five, six, seven, eight, nine, ten,
eleven, or twelve months. The first day of the interest period must be a
day other than a Saturday or a Sunday on which the Bank is open for
business in California, New York and London and dealing in offshore
dollars (a "LIBOR Banking Day"). The last day of the interest period and
the actual number of days during the interest period will be determined by
the Bank using the practices of the London inter-bank market.
(b) Each LIBOR Rate portion will be for an amount not less than
Five Hundred Thousand Dollars ($500,000).
(c) The "LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
-------------------------------
(1.00 - Reserve Percentage)
Where,
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(i) "London Inter-Bank Offered Rate" means the
interest rate at which the Bank's London Branch, London, Great
Britain, would offer U.S. dollar deposits for the applicable interest
period to other major banks in the London inter-bank market at
approximately 11:00 a.m. London time two (2) London Banking Days
before the commencement of the interest period. A "London Banking
Day" is a day on which the Bank's London Branch is open for business
and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the
maximum reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent.
The percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special, and
other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate portion
no later than 12:00 noon San Francisco time on the LIBOR Banking Day
preceding the day on which the London Inter-Bank Offered Rate will be set,
as specified above.
(e) The Borrower may not elect a LIBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last day of
the applicable interest period.
(f) Any portion of the principal balance already bearing
interest at the LIBOR Rate will not be converted to a different rate
during its interest period.
(g) Each prepayment of a LIBOR Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by the amount
of accrued interest on the amount prepaid and a prepayment fee as
described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement. The prepayment fee shall be equal to the amount (if any)
by which:
(i) the additional interest which would have been
payable during the interest period on the amount
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prepaid had it not been prepaid, exceeds
(ii) the interest which would have been recoverable by
the Bank by placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market, or
other appropriate money market selected by the Bank, for a period
starting on the date on which it was prepaid and ending on the last
day of the interest period for such portion (or the scheduled payment
date for the amount prepaid, if earlier).
(h) The Bank will have no obligation to accept an election for
a LIBOR Rate portion if any of the following described events has occurred
and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a LIBOR Rate portion are not
available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the
cost of a LIBOR Rate portion.
6. FEES, EXPENSES AND COSTS
6.1 EXPENSES. The Borrower agrees to immediately repay the Bank for
expenses that include, but are not limited to, filing, recording and search
fees, appraisal fees, title report fees, and documentation fees.
6.2 REIMBURSEMENT COSTS.
(a) The Borrower agrees to reimburse the Bank for any expenses
it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not
limited to, reasonable attorneys' fees, including any allocated costs of
the Bank's in-house counsel.
(b) The Borrower agrees to reimburse the Bank for the cost of
periodic audits and appraisals of the personal property collateral
securing this Agreement, at such intervals as the Bank may reasonably
require. The audits and appraisals may be performed by employees of the
Bank or by independent appraisers.
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7. COLLATERAL
7.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under
this Agreement will be secured by personal property the Borrower now owns or
will own in the future as listed below. The collateral is further defined in
security agreement(s) executed by the Borrower. In addition, all personal
property collateral securing this Agreement shall also secure all other present
and future obligations of the Borrower to the Bank (excluding any consumer
credit covered by the federal Truth in Lending law, unless the Borrower has
otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of the Borrower to the Bank shall also
secure this Agreement.
(a) Machinery, equipment, and fixtures.
(b) Inventory.
(c) Receivables.
(d) Patents, trademarks and other general intangibles.
8. DISBURSEMENTS, PAYMENTS AND COSTS
8.1 REQUESTS FOR CREDIT. Each request for an extension of credit
will be made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
8.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and
each payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by
the Bank from time to time;
(b) made for the account of the Bank's branch selected by the
Bank from time to time;
(c) made in immediately available funds, or such other type of
funds selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the
Bank may, at its discretion, require the
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Borrower to sign one or more promissory notes.
8.3 TELEPHONE AND TELEFAX AUTHORIZATION.
(a) The Bank may honor telephone or telefax instructions for
advances or repayments or for the designation of optional interest rates
and telefax requests for the issuance of letters of credit given by any
one of the individuals authorized to sign loan agreements on behalf of the
Borrower, or any other individual designated by any one of such authorized
signers.
(b) Advances will be deposited in and repayments will be
withdrawn from the Borrower's account number 12331-16650, or such other of
the Borrower's accounts with the Bank as designated in writing by the
Borrower.
(c) The Borrower indemnifies and excuses the Bank (including
its officers, employees, and agents) from all liability, loss, and costs
in connection with any act resulting from telephone or telefax
instructions it reasonably believes are made by any individual authorized
by the Borrower to give such instructions. This indemnity and excuse will
survive this Agreement's termination.
8.4 DIRECT DEBIT (PRE-BILLING).
(a) The Borrower agrees that the Bank will debit the Borrower's
deposit account number 12331-16650, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower (the
"Designated Account") on the date each payment of principal and interest
and any fees from the Borrower becomes due (the "Due Date"). If the Due
Date is not a banking day, the Designated Account will be debited on the
next banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will
mail to the Borrower a statement of the amounts that will be due on that
Due Date (the "Billed Amount"). The calculation will be made on the
assumption that no new extensions of credit or payments will be made
between the date of the billing statement and the Due Date, and that there
will be no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account
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for the Billed Amount, regardless of the actual amount due on that date
(the "Accrued Amount"). If the Billed Amount debited to the Designated
Account differs from the Accrued Amount, the discrepancy will be treated
as follows:
(i) If the Billed Amount is less than the Accrued
Amount, the Billed Amount for the following Due Date will be
increased by the amount of the discrepancy. The Borrower will not be
in default by reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued
Amount, the Billed Amount for the following Due Date will be
decreased by the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The
Bank will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the
Designated Account to cover each debit. If there are insufficient funds
in the Designated Account on the date the Bank enters any debit authorized
by this Agreement, the debit will be reversed.
8.5 BANKING DAYS. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which the Bank is
open for business in California. For amounts bearing interest at an offshore
rate (if any), a banking day is a day other than a Saturday or a Sunday on
which the Bank is open for business in California and dealing in offshore
dollars. All payments and disbursements which would be due on a day which is
not a banking day will be due on the next banking day. All payments received
on a day which is not a banking day will be applied to the credit on the next
banking day. For amounts bearing interest at a LIBOR Rate, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for
business in California, New York and London and dealing in offshore dollars.
8.6 TAXES. If any payments to the Bank under this Agreement are
made from outside the United States, the Borrower will not deduct any foreign
taxes from any payments it makes to the Bank. If any such taxes are imposed
on any payments made by
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the Borrower (including payments under this paragraph), the Borrower will pay
the taxes and will also pay to the Bank, at the time interest is paid, any
additional amount which the Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been
imposed. The Borrower will confirm that it has paid the taxes by giving the
Bank official tax receipts (or notarized copies) within 30 days after the due
date.
8.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand,
for the Bank's costs or losses arising from any statute or regulation, or any
request or requirement of a regulatory agency which is applicable to all
national banks or a class of all national banks. The costs and losses will be
allocated to the loan in a manner determined by the Bank, using any reasonable
method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
8.8 INTEREST CALCULATION. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis of a
360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used.
8.9 DEFAULT RATE. Upon the occurrence and during the continuation
of any default under this Agreement, principal amounts outstanding under this
Agreement will at the option of the Bank bear interest at a rate which is two
(2.00) percentage points higher than the rate of interest otherwise provided
under this Agreement. This will not constitute a waiver of any default.
Installments of principal which are not paid when due under this Agreement
shall continue to bear interest until paid. Any interest, fees or costs which
are not paid when due shall bear interest at the Bank's Reference Rate plus two
(2.0) percentage points. This may result in compounding of interest.
9. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrower under this Agreement:
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9.1 AUTHORIZATIONS. Evidence that the execution, delivery and
performance by the Borrower of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
9.2 SECURITY AGREEMENTS. Signed original security agreements,
assignments, financing statements and fixture filings (together with collateral
in which the Bank requires a possessory security interest), which the Bank
requires.
9.3 EVIDENCE OF PRIORITY. Evidence that security interests and
liens in favor of the Bank are valid, enforceable, and prior to all others'
rights and interests, except those the Bank consents to in writing.
9.4 INSURANCE. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
9.5 GUARANTY. Guaranty signed by the Borrower with respect to
indebtedness of IMPCO Technologies Pty Limited ("ITPL"), in the amount of Two
Million Dollars ($2,000,000).
9.6 OTHER ITEMS. Any other items that the Bank reasonably requires.
10. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid
in full, the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation:
10.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly
formed and existing under the laws of the state where organized.
10.2 AUTHORIZATION. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
10.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and
binding agreement of the Borrower, enforceable against the Borrower in
accordance with its terms, and any instrument or agreement required hereunder,
when executed and delivered, will be similarly legal, valid, binding and
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enforceable.
10.4 GOOD STANDING. In each state in which the Borrower does
business, it is properly licensed, in good standing, and, where required, in
compliance with fictitious name statutes.
10.5 NO CONFLICTS. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
10.6 FINANCIAL INFORMATION. All financial and other information
that has been or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge
of the Borrower's financial condition.
(b) in compliance with all government regulations that apply.
10.7 LAWSUITS. There is no lawsuit, tax claim or other dispute
pending or threatened against the Borrower which, if lost, would impair the
Borrower's financial condition or ability to repay the loan, except as have
been disclosed in writing to the Bank.
10.8 COLLATERAL. All collateral required in this Agreement is owned
by the grantor of the security interest free of any title defects or any liens
or interests of others, other than security interests of BA Leasing & Capital
Group in certain equipment.
10.9 PERMITS, FRANCHISES. The Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary
to enable it to conduct the business in which it is now engaged.
10.10 OTHER OBLIGATIONS. The Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
10.11 INCOME TAX RETURNS. The Borrower has no knowledge of any
pending assessments or adjustments of its income
tax for any year.
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10.12 NO EVENT OF DEFAULT. There is no event which is, or with
notice or lapse of time or both would be, a default under this Agreement.
10.13 LOCATION OF BORROWER. The Borrower's place of business (or,
if the Borrower has more than one place of business, its chief executive
office) is located at the address listed under the Borrower's signature on this
Agreement.
11. COVENANTS
The Borrower agrees, so long as credit is available under this
Agreement and until the Bank is repaid in full:
11.1 USE OF PROCEEDS. To use the proceeds of (i) Facility No. 1 only
for the Borrower's working capital and other general corporate purposes; (ii)
Facility No. 2 only for the Borrower's acquisition of a 51% ownership in
Technisch Bureau Media BV and related acquisition costs; (iii) Facility No. 3
only for ITPL's acquisition of the assets of Ateco Equipment Pty Limited
("AEPL") and related acquisition costs; and Facility No. 4 only for the
financing of an Acceptable Acquisition. For purposes of this Agreement,
"Acquisition" means any transaction or series of related transactions for the
purpose of or resulting, directly or indirectly, in (a) the acquisition of all
or substantially all of the assets of a person or entity or any business or
division of a person or entity, (b) the acquisition of in excess of 50% of the
capital stock, partnership interests, membership interests or equity of any
entity, or otherwise causing any entity to become a subsidiary, or (c) a merger
or consolidation or any other combination with another entity (other than an
entity that is a subsidiary) provided that the Borrower is the surviving
entity; "Acceptable Acquisition" means an Acquisition where (i) the Acquisition
has been approved by the board of directors or similar governing body of the
entity, whose assets, business, or securities are to be acquired or purchased,
(ii) immediately after such Acquisition, the Borrower would be in compliance
with the terms and conditions of this Agreement on a pro forma basis, and (iii)
the business of the person or entity to be acquired is substantially similar to
the existing business of the Borrower.
11.2 FINANCIAL INFORMATION. To provide the following financial
information and statements in form and content acceptable to the Bank, and such
additional information as
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requested by the Bank from time to time:
(a) Within 90 days of the fiscal year end, the Borrower's
annual financial statements. These financial statements must be audited
by a Certified Public Accountant acceptable to the Bank. The statements
shall be prepared on a consolidated and consolidating basis.
(b) Within 30 days of the period's end, the Borrower's
quarterly financial statements. These financial statements may be
Borrower prepared. The statements shall be prepared on a consolidated and
consolidating basis.
(c) Within the period(s) provided in subparagraphs (a) and (b)
above, a compliance certificate signed by an authorized financial officer
of the Borrower setting forth (i) the information and computations (in
sufficient detail) to establish that the Borrower is in compliance with
all financial covenants at the end of the period covered by the financial
statements then being furnished and (ii) whether there existed as of the
date of such financial statements and whether there exists as of the date
of the certificate, any default under this Agreement and, if any such
default exists, specifying the nature thereof and the action the Borrower
is taking and proposes to take with respect thereto.
(d) Within 30 days after the end of each quarter, a borrowing
certificate setting forth the amount of accounts receivable and inventory
as of the last day of such quarter.
(e) Within 30 days after the end of each fiscal quarter,
statements showing an aging of the Borrower's receivables.
(f) Within 30 days after the end of each fiscal quarter,
statements showing an aging of the Borrower's accounts payable.
11.3 QUICK RATIO. To maintain on a consolidated basis a ratio of
quick assets to current liabilities of at least 0.60:1.0.
"Quick assets" means cash, short-term cash investments, net trade
receivables and marketable securities not classified as long-term
investments. This covenant will be calculated
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on a quarterly basis.
11.4 TANGIBLE NET WORTH. To maintain on a consolidated basis
tangible net worth equal to Eleven Million Five Hundred Thousand Dollars
($11,500,000), plus, as of each April 30, commencing April 30, 1997, an amount
equal to 50% of the Borrower's net income after income taxes (without
subtracting losses) earned in the preceding 12 month period.
"Tangible net worth" means the gross book value of assets (excluding
goodwill, patents, trademarks, trade names, organization expense, treasury
stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like
intangibles, less total liabilities, including but not limited to accrued
and deferred income taxes, and any reserves against assets. This covenant
will be calculated on a quarterly basis.
11.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH. To maintain on a
consolidated basis a ratio of total liabilities to tangible net worth not
exceeding the ratios indicated for each period specified below:
Period Ratio
------ -----
From the date of this Agreement
through October 31, 1997 2.30:1.00
From and including November 1, 1997
to and including April 30, 1998 2.40:1.00
From May 1, 1998 to and including
January 31, 1999 2.20:1.00
From and including February 1,
1999, and thereafter 2.00:1.00
"Total liabilities" means the sum of current liabilities plus long term
liabilities. This covenant will be calculated on a quarterly basis.
11.6 CASH FLOW RATIO. To maintain on a consolidated basis a cash
flow ratio of at least 1.50:1.00 from and including the date hereof to and
including January 31, 1998, and 1.35:1.00 thereafter.
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"Cash flow ratio" means the ratio of cash flow to the current portion of
long term liabilities. "Cash flow" is defined as net income from
operations and investments, plus interest expense, depreciation,
amortization and other non-cash charges, less dividends and maintenance
capital expenditures not exceeding One Million Five Hundred Thousand
Dollars ($1,500,000), divided by the sum of interest expense plus current
portion of long term debt. This ratio will be calculated at the end of
each fiscal quarter, using the results of that quarter and each of the 3
immediately preceding quarters. The current portion of long term
liabilities will be measured as of the last day of the preceding fiscal
year.
11.7 OTHER DEBTS. Not to have outstanding or incur any direct or
contingent liabilities (other than those to the Bank), or become liable for the
liabilities of others without the Bank's written consent. This does not
prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade
credit, and incurring indebtedness for services rendered, similar in
nature and amount to such indebtedness incurred by the Borrower in the
past.
(b) Endorsing negotiable instruments received in the usual
course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Liabilities in existence on the date of this Agreement
disclosed in writing to the Bank.
(e) Additional debts for purchase money transactions including
capital leases, conditional sales or other title retention contracts with
respect to property used or acquired, which do not exceed a total
principal amount of Three Hundred Thousand Dollars ($300,000) for each
annual accounting period.
11.8 OTHER LIENS. Not to create, assume, or allow any security
interest or lien (including judicial liens) on property the Borrower now or
later owns, except:
(a) Deeds of trust and security agreements in
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favor of the Bank.
(b) Liens for taxes not yet due.
(c) Additional purchase money security interests and similar
liens in property acquired after the date of this Agreement, to secure
transactions permitted under Paragraph 11.7(e).
11.9 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over One Hundred Thousand Dollars ($100,000)
against the Borrower.
(b) any substantial dispute between the Borrower and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's business
condition (financial or otherwise), operations, properties or prospects,
or ability to repay the credit.
(e) any change in the Borrower's name, legal structure, place
of business, or chief executive office if the Borrower has more than one
place of business.
11.10 BOOKS AND RECORDS. To maintain adequate books and records.
11.11 AUDITS. To allow the Bank and its agents to inspect the
Borrower's properties and examine, audit and make copies of books and records
at any reasonable time. If any of the Borrower's properties, books or records
are in the possession of a third party, the Borrower each authorizes that third
party to permit the Bank or its agents to have access to perform inspections or
audits and to respond to the Bank's requests for information concerning such
properties, books and records.
11.12 COMPLIANCE WITH LAWS. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
11.13 PRESERVATION OF RIGHTS. To maintain and
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preserve all rights, privileges, and franchises the Borrower now has.
11.14 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
11.15 PERFECTION OF LIENS. To help the Bank perfect and protect its
security interests and liens, and reimburse it for related costs it incurs to
protect its security interests and liens.
11.16 COOPERATION. To take any action reasonably requested by the
Bank to carry out the intent of this Agreement.
11.17 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk
property damage insurance policies covering the tangible property
comprising the collateral. Each insurance policy must be in an amount
acceptable to the Bank. The insurance must be issued by an insurance
company acceptable to the Bank and must include a lender's loss payable
endorsement in favor of the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance
satisfactory to the Bank as to amount, nature and carrier covering
property damage (including loss of use and occupancy) to any of the
Borrower's properties, public liability insurance including coverage for
contractual liability, product liability and workers' compensation, and
any other insurance which is usual for the Borrower's business.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to
deliver to the Bank a copy of each insurance policy, or, if permitted by
the Bank, a certificate of insurance listing all insurance in force.
11.18 ADDITIONAL NEGATIVE COVENANTS. Except with respect to an
Acceptable Acquisition financed under Facility No. 4, not to, without the
Bank's written consent:
(a) engage in any business activities substantially different
from the Borrower's present
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business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, or other combination,
or become a partner in a partnership, a member of a joint venture, or a
member of a limited liability company, for a total consideration
(including assumption of debt) which, when added to any consideration
(including assumption of debt) for transactions described in subparagraph
(c) below, would exceed One Million Dollars ($1,000,000).
(d) sell, lease, transfer or dispose of all or a substantial
part of the Borrower's business or the Borrower's assets except in an
aggregate amount not exceeding Two Hundred Thousand Dollars ($200,000) in
any fiscal year.
(e) acquire or purchase a business or its assets for a
consideration (including assumption of debt) which, when added to any
consideration (including assumption of debt) for transactions described in
subparagraph (c) above, would exceed One Million Dollars ($1,000,000).
(f) sell, assign, lease, transfer or otherwise dispose of any
assets for less than fair market value, or enter into any agreement to do
so.
(g) enter into any sale and leaseback agreement covering any of
its fixed or capital assets.
(h) voluntarily suspend its business for more than 7 days in
any 30 day period.
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12. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss
or liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrower's property
or operations or property leased to the Borrower. The indemnity includes but
is not limited to attorneys' fees (including the reasonable estimate of the
allocated cost of in-house counsel and staff). The indemnity extends to the
Bank, its parent, subsidiaries and all of their directors, officers, employees,
agents, successors, attorneys and assigns. For these purposes, the term
"hazardous substances" means any substance, material, or waste which is or
becomes designated as "hazardous," "toxic," "pollutant,", or "contaminant" or a
similar designation or regulation under any federal, state or local law
(whether under common law, statute, regulation, or otherwise) or judicial
interpretation of such, including without limitation petroleum or natural gas.
This indemnity will survive repayment of the Borrower's obligations to the
Bank.
13. DEFAULT
If any of the following events occurs, the Bank may do one or more of
the following: declare the Borrower in default, stop making any additional
credit available to the Borrower, and require the Borrower to repay its entire
debt immediately and without prior notice. If an event of default occurs under
the paragraph entitled "Bankruptcy," below, with respect to the Borrower, then
the entire debt outstanding under this Agreement will automatically be due
immediately.
13.1 FAILURE TO PAY. The Borrower fails to make a payment under
this Agreement within 10 days after the date when due.
13.2 LIEN PRIORITY. The Bank fails to have an enforceable first
lien (except for any prior liens to which the Bank has consented in writing) on
or security interest in any property given as security for this loan.
13.3 FALSE INFORMATION. The Borrower has given the Bank false or
misleading information or representations.
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13.4 BANKRUPTCY. The Borrower files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower or the Borrower makes a
general assignment for the benefit of creditors. The default will be deemed
cured if any bankruptcy petition filed against the Borrower is dismissed within
a period of 60 days after the filing; provided, however, that the Bank will not
be obligated to extend any additional credit to the Borrower during that
period.
13.5 RECEIVERS. A receiver or similar official is appointed for the
Borrower's business, or the business is terminated.
13.6 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one
or more trade creditors against the Borrower in an aggregate amount of Two
Hundred Fifty Thousand Dollars ($250,000) or more in excess of any insurance
coverage.
13.7 JUDGMENTS. Any judgments or arbitration awards are entered
against the Borrower, or the Borrower enters into any settlement agreements
with respect to any litigation or arbitration, in an aggregate amount of Two
Hundred Fifty Thousand Dollars ($250,000) or more in excess of any insurance
coverage.
13.8 GOVERNMENT ACTION. Any government authority takes action that
the Bank believes materially adversely affects the Borrower's financial
condition or ability to repay.
13.9 MATERIAL ADVERSE CHANGE. A material adverse change occurs in
the Borrower's business condition (financial or otherwise), operations,
properties or prospects, or ability to repay the credit.
13.10 CROSS-DEFAULT. Any default occurs under any agreement in
connection with any credit the Borrower has obtained from anyone else or which
the Borrower has guaranteed and such default is not cured or waived within any
cure period applicable thereto.
13.11 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination
agreement, security agreement, or other document required by this Agreement is
violated or no longer in effect.
13.12 OTHER BANK AGREEMENTS. The Borrower fails to meet the
conditions of, or fails to perform any obligation under any other agreement the
Borrower has with the Bank or any
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affiliate of the Bank, including without limitation BA Leasing & Capital
Group.
13.13 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. This includes any
failure or anticipated failure by the Borrower to comply with any financial
covenants set forth in this Agreement, whether such failure is evidenced by
financial statements delivered to the Bank or is otherwise known to the
Borrower or the Bank. If, in the Bank's opinion, the breach is capable of
being remedied, the breach will not be considered an event of default under
this Agreement for a period of thirty (30) days after the date on which the
Bank gives written notice of the breach to the Borrower; provided, however,
that the Bank will not be obligated to extend any additional credit to the
Borrower during that period.
14. ENFORCING THIS AGREEMENT; MISCELLANEOUS
14.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently applied.
14.2 CALIFORNIA LAW. This Agreement is governed by California law.
14.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the
Borrower's and the Bank's successors and assignees. The Borrower each agrees
that it may not assign this Agreement without the Bank's prior consent. The
Bank may sell participations in or assign this loan, and may exchange financial
information about the Borrower with actual or potential participants or
assignees. If a participation is sold or the loan is assigned, the purchaser
will have the right of set-off against the Borrower.
14.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies
or claims between the Borrower and the Bank, including but not limited to
those that arise from:
(i) This Agreement (including any renewals,
extensions or modifications of this Agreement);
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(ii) Any document, agreement or procedure related to
or delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any
business conducted between the Borrower and the Bank, including
claims for injury to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such
controversies or claims will be settled by arbitration in accordance with
the United States Arbitration Act. The United States Arbitration Act will
apply even though this Agreement provides that it is governed by
California law.
(c) Arbitration proceedings will be administered by the
American Arbitration Association and will be subject to its commercial
rules of arbitration.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this paragraph is
the equivalent of the filing of a lawsuit, and any claim or controversy
which may be arbitrated under this paragraph is subject to any applicable
statute of limitations. The arbitrators will have the authority to decide
whether any such claim or controversy is barred by the statute of
limitations and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable,
the arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding
may be submitted to any authorized court of law to be confirmed and
enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation to the Bank secured
by real property located in California. In this case, both the Borrower
and the Bank
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must consent to submission of the claim or controversy to
arbitration. If both parties do not consent to arbitration, the
controversy or claim will be settled as follows:
(i) The Borrower and the Bank will designate a
referee (or a panel of referees) selected under the auspices of the
American Arbitration Association in the same manner as arbitrators
are selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of
referees) will be appointed by a court as provided in California Code
of Civil Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the
panel) will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the
referee (or the panel) will be entered as a judgment in the court
that appointed the referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or
the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after
the arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to
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submit the controversy or claim to arbitration if the other party contests
the lawsuit. However, if the controversy or claim arises from or relates
to an obligation to the Bank which is secured by real property located in
California at the time of the proposed submission to arbitration, this
right is limited according to the provision above requiring the consent of
both the Borrower and the Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing
this Agreement, the Bank has the option to exercise the power of sale
under the deed of trust or mortgage, or to proceed by judicial
foreclosure.
14.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default,
it may enforce a later default. Any consent or waiver under this Agreement
must be in writing.
14.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
14.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with
the enforcement or preservation of any rights or remedies under this Agreement
and any other documents executed in connection with this Agreement, and
including any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any
similar or successor statute, the Bank is entitled to recover costs and
reasonable attorneys' fees incurred by the Bank related to the preservation,
protection, or enforcement of any rights of the Bank in such a case. As used
in this paragraph, "attorneys' fees" includes the allocated costs of the Bank's
in-house counsel.
14.8 ONE AGREEMENT. This Agreement and any related security or
other agreements required by this Agreement,
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collectively:
(a) represent the sum of the understandings and agreements
between the Bank and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the
Bank and the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final,
complete and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
14.9 INDEMNIFICATION. The Borrower will indemnify and hold the Bank
harmless from any loss, liability, damages, judgments, and costs of any kind
relating to or arising directly or indirectly out of (a) this Agreement or any
document required hereunder, (b) any credit extended or committed by the Bank
to the Borrower hereunder, and (c) any litigation or proceeding related to or
arising out of this Agreement, any such document, or any such credit. This
indemnity includes but is not limited to attorneys' fees (including the
allocated cost of in-house counsel). This indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys, and assigns. This indemnity will survive repayment of
the Borrower's obligations to the Bank. All sums due to the Bank hereunder
shall be obligations of the Borrower, due and payable immediately without
demand.
14.10 NOTICES. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses
as the Bank, the Borrower may specify from time to time in writing.
14.11 HEADINGS. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.
14.12 COUNTERPARTS. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so
-31-
<PAGE>
executed, shall be deemed an original but all such counterparts shall
constitute but one and the same agreement.
14.13 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the
Business Loan Agreement entered into as of June 25 1996 among the Bank, the
Borrower, and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA NATIONAL TRUST BORROWER
AND SAVINGS ASSOCIATION
IMPCO TECHNOLOGIES, INC.
By: /s/ Karim Teymourtache
By: /s/ Thomas M. Costales
-------------------------
Title: Vice President ----------------------------
Title: CFO
Address where notices to the
Bank are to be sent: By:
----------------------------
525 S. Flower Street,
Mezzanine Level Title:
Los Angeles, CA 90071 -------------------------
Address where notices to the
Borrower are to be sent:
16804 Gridley Place
Cerritos, CA 90701-1792
-32-
<PAGE>
IMPCO Technologies, INC.
COMPUTATION OF NET INCOME PER SHARE
Six months ended October 31, 1997 and 1996
---------------
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY CALCULATION:
Net income $ 1,139,603 $ 640,174 $1,979,974 $1,352,588
Dividends on
preferred stock (148,750) (145,029) (297,500) (290,061)
----------- ----------- ----------- -----------
Net income applicable
to common stock 990,853 495,145 1,682,474 1,062,527
Add: Effect of treasury
stock on repayment
of borrowings 55,598 117,244 84,159 190,476
Add: Effect of treasury
stock on purchase of
investments/securities - - - -
----------- ----------- ----------- -----------
Net income applicable to
common stock for
calculation of net
income per share $ 1,046,451 $ 612,389 $1,766,633 $1,253,003
Weighted average number
of common shares
outstanding 5,823,246 5,686,848 5,818,917 5,683,454
Dilutive effect of
outstanding stock
options and warrants (As
determined by application
of the modified treasury
stock method) 988,876 1,067,544 984,110 1,072,326
---------- ----------- ---------- ----------
Weighted average number
of common shares, as
adjusted for calculation
of net income per share 6,812,122 6,754,392 6,803,027 6,755,780
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Net income per share $0.15 $0.09 $0.26 $0.19
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
FULLY DILUTED CALCULATION:
<S> <C> <C> <C> <C>
Net income applicable to
common stock for
calculation of net income
per share before effect
of treasury stock on
repayment of borrowings $ 1,139,603 $ 495,145 $1,682,474 $1,062,527
Add: Effect of treasury
stock on repayment
of borrowings 37,287 117,244 34,050 190,476
Add: Effect of treasury
stock on purchase of
investments/securities - - - -
----------- ----------- ----------- -----------
Net income applicable to
common stock for
calculation of net
income per share $ 1,176,890 $ 612,389 $1,716,524 $1,253,003
Weighted average number
of common shares
outstanding 5,823,246 5,686,848 5,818,917 5,683,454
Dilutive effect of
outstanding stock
options and warrants (As
determined by application
of the modified treasury
stock method) 988,876 1,067,544 984,110 1,072,326
Assuming conversion of
preferred stock 1,123,489 - - -
----------- ----------- ----------- -----------
Weighted average number
of common shares, as
adjusted for calculation
of net income per share 7,935,611 6,754,392 6,803,027 6,755,780
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share
Primary $0.15 $0.09 $0.26 $0.19
Fully-diluted $0.15 $0.09 $0.25 $0.19
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(1) The conversion of preferred stock was not assumed for the six-month
period ending October 31, 1997 since its effect would be antidilutive.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> OCT-31-1997
<CASH> 1,571,101
<SECURITIES> 0
<RECEIVABLES> 9,118,014
<ALLOWANCES> 346,930
<INVENTORY> 15,120,749
<CURRENT-ASSETS> 27,719,093
<PP&E> 16,711,806
<DEPRECIATION> 9,206,373
<TOTAL-ASSETS> 44,239,036
<CURRENT-LIABILITIES> 9,438,788
<BONDS> 0
0
5,650,000
<COMMON> 5,984
<OTHER-SE> 18,566,832
<TOTAL-LIABILITY-AND-EQUITY> 44,239,036
<SALES> 29,880,881
<TOTAL-REVENUES> 34,451,586
<CGS> 18,574,808
<TOTAL-COSTS> 31,403,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 501,925
<INCOME-PRETAX> 2,546,603
<INCOME-TAX> 392,667
<INCOME-CONTINUING> 1,979,973
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,682,474
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.25
</TABLE>
