<PAGE>
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, 1998, 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: (562) 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
------ ------
Number of shares outstanding of each of the issuer's classes of common
stock, as of November 30, 1998:
7,193,686 shares of Common Stock, $.001 par value per share
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, 1998 and April 30, 1998
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1998 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash......................................... $ 3,086,412 $ 2,617,869
Accounts receivable.......................... 18,959,433 14,528,000
Less allowance for doubtful accounts........ 360,145 314,794
----------- -----------
Net accounts receivable.................... 18,599,288 14,213,206
Inventories:
Raw materials and parts...................... 9,760,809 9,565,310
Work-in-process.............................. 1,000,670 1,055,411
Finished goods............................... 7,827,686 7,308,190
----------- -----------
Total inventories........................... 18,589,165 17,928,911
Other current assets.......................... 2,425,542 2,731,963
----------- -----------
Total current assets....................... 42,700,407 37,491,949
Equipment and leasehold improvements:
Dies, molds and patterns..................... 5,313,706 5,039,892
Machinery and equipment...................... 7,509,794 7,074,004
Office furnishings and equipment............. 5,316,531 4,968,605
Leasehold improvements....................... 2,891,650 2,288,022
Land and buildings .......................... 267,000 267,000
----------- -----------
21,298,681 19,637,523
Less accumulated depreciation
and amortization............................ 11,780,780 10,613,052
----------- -----------
Net equipment and leasehold improvements.... 9,517,901 9,024,471
Net intangibles arising from acquisition..... 9,692,207 9,759,100
Other assets.................................. 945,624 1,109,888
----------- -----------
$62,856,139 $57,385,408
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
2
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, 1998 and April 30, 1998
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1998 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable................ ............ 5,715,788 5,606,922
Accrued payroll obligations.................. 1,818,082 1,848,425
Income taxes payable......................... 439,947 746,587
Other accrued expenses....................... 3,295,301 1,807,032
Current portion of term loans................ 1,658,912 1,408,225
----------- -----------
Total current liabilities................... 12,928,030 11,417,191
Lines of credit............................... 5,936,392 3,047,805
Term loans--Bank of America NT&SA............. 4,616,193 3,799,395
Term loan--DEPA Holding BV.. ................ - 1,820,000
Other long term liabilities................... 1,803,803 1,927,166
Minority interest............................. 47,377 1,068,500
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; 7,193,686 issued and
outstanding at October 31, 1998 and 7,091,601
at April 30, 1998 ........................... 7,194 7,092
Additional paid-in capital
relating to common stock.................... 39,336,003 38,386,357
Shares held in trust. ..................... (54,473) (36,759)
Accumulated deficit........................... (5,820,902) (8,197,885)
Foreign currency translation adjustment...... (1,593,478) (1,503,454)
----------- -----------
Total stockholders' equity.................. 37,524,344 34,305,351
----------- -----------
$62,856,139 $57,385,408
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
3
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three and six months ended October 31, 1998 and 1997
--------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product sales $16,901,597 $15,729,795 $34,088,744 $29,880,881
Contract revenue 3,419,653 2,432,468 6,105,866 4,570,705
----------- ----------- ----------- -----------
Net revenue 20,321,250 18,162,263 40,194,610 34,451,586
Costs and expenses:
Cost of sales 11,927,339 9,755,652 22,842,473 18,574,808
Research and
development expense 3,481,544 3,277,732 6,481,627 6,343,346
Selling, general and
administrative expense 3,398,880 3,395,055 6,770,100 6,484,904
----------- ----------- ----------- -----------
Total costs and expenses 18,807,763 16,428,439 36,094,200 31,403,058
----------- ----------- ----------- -----------
Operating income 1,513,487 1,733,824 4,100,410 3,048,528
Interest Expense 274,363 222,277 526,863 501,925
----------- ----------- ----------- -----------
Income before income taxes,
minority interest in
income of consolidated
subsidiaries and dividends 1,239,124 1,511,547 3,573,547 2,546,603
Provision for income taxes 193,060 253,237 893,387 392,667
Minority interest in income
of consolidated
subsidiaries 5,761 118,708 6,915 173,963
----------- ----------- ----------- -----------
Net income before dividends 1,040,303 1,139,602 2,673,245 1,979,973
Dividends on preferred stock 147,512 148,749 296,262 297,499
----------- ----------- ----------- -----------
Net income applicable
to common stock $ 892,791 $ 990,853 $ 2,376,983 $ 1,682,474
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share
Basic $0.12 $0.17 $0.33 $0.29
Diluted $0.11 $0.15 $0.30 $0.26
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Number of shares used in
per share calculation
Basic 7,176,832 5,823,246 7,166,957 5,818,917
Diluted 7,870,564 7,768,971 8,970,566 6,511,922
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
4
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended October 31, 1998 and 1997
--------------------------
<TABLE>
<CAPTION>
Six Months Ended
October 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 292,067 $ 4,047,304
Cash flows from investing activities:
Investment in IMPCO BV (692,521) -
Purchase of equipment and leasehold
improvements (1,507,474) (1,415,688)
Proceeds from sale of equipment 77,233 26,559
----------- -----------
Net cash used in investing activities (2,122,762) (1,389,129)
Cash flows from financing activities:
Net borrowings (payments) under lines of credit 2,929,999 (450,000)
Payments on notes payable - (258,957)
Proceeds from issuance of bank term loans 2,098,000 -
Proceeds from issuance of common stock 949,748 763,782
Payments to acquire shares held in trust (17,714) (11,516)
Payments on term loans (2,914,775) (1,987,548)
Payments of capital lease obligation (431,295) (752,209)
Dividends on preferred stock (296,262) (297,499)
----------- -----------
Net cash provided by (used in)
financing activities 2,317,701 (2,993,947)
----------- -----------
Translation Adjustment (18,463) (69,030)
Net increase (decrease) in cash 468,543 (404,802)
Cash beginning of year 2,617,869 1,975,903
----------- -----------
Cash, end of period $ 3,086,412 $ 1,571,101
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
5
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998 and 1997
----------------------
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, 1998. Certain reclassifications have been made to
the fiscal year 1998 financial statements to conform to the current year
presentation. The condensed consolidated balance sheet of IMPCO
Technologies, Inc. (IMPCO or the Company), as of July 31, 1998 includes the
accounts of the Company, its wholly owned subsidiaries, IMPCO Technologies
B.V. (IMPCO BV) and IMPCO Technologies, Pty. Limited (IMPCO Pty), and its
majority owned subsidiary Grupo I.M.P.C.O. Mexicano (IMPCO Mexicano). The
results of operations for the three and six months ended October 31, 1998 are
not necessarily indicative of the results that may be expected for the entire
year ending April 30, 1999.
2) BANK OF AMERICA AGREEMENT
Including the revolving line of credit, the capital lease facility and
the acquisition facilities, the total Bank of America credit facility was
$29,259,000 at October 31, 1998.
LINES OF CREDIT - At October 31, 1998, the outstanding line of credit
balance was $5,300,000 of which $950,000 was subject to the bank's reference
rate less .50 percent (which was 7.50 percent on October 31, 1998),
$3,000,000 was subject to an alternative interest rate (offshore rate which
was 6.75 percent at October 31, 1998), $1,000,000 was subject to an
alternative interest rate (offshore rate which was 6.47 percent at October
31, 1998) and $350,000 was borrowed by IMPCO Mexicano and subject to the Bank
of America Mexico (BAMSA) cost of funds plus 1.50 percent (28.62 percent at
October 31, 1998). The Company may elect to have all or portions of the U.S.
borrowings bear interest at an alternative interest rate agreed upon by the
Bank for periods of not less than 30 days nor more than one year.
TERM LOAN FOR ACQUISITION OF 51% OF IMPCO BV - At October 31, 1998, the
total outstanding balance was $820,000 which was subject to a fixed interest
rate of 7.90 percent.
TERM LOAN FOR THE ACQUISITION OF ALGAS CARBURETION - At October 31,
1998, the total outstanding balance was $2,805,000 which was subject to a
fixed interest rate of 7.74 percent.
TERM LOAN FOR ACQUISITION OF 49% OF IMPCO BV - At October 31, 1998, the
total outstanding balance was $623,000 which was subject to a fixed interest
rate of 7.80 percent.
IMPCO BV TERM LOAN - At October 31, 1998, the total outstanding balance
was $2,027,000 which was subject to the Amsterdam Inter-Bank Offer Rate plus
1.50 percent (4.88 percent at October 31, 1998).
6
<PAGE>
CAPITAL LEASE FACILITY - At October 31, 1998, approximately $2,544,000
was outstanding on the capital lease facility which is included in other
accrued expenses and other long term liabilities. At October 31, 1998,
approximately $2,440,000 remained available on the capital lease facility.
For the amount outstanding, $1,330,000 was fixed at 8.50 percent, $913,000
was fixed at 8.20 percent, $235,000 was subject to the variable rate of
interest based on Bank of America's London Branch 3-month LIBOR rate plus
2.15 percentage points (7.39 percent at October 31, 1998), and the remaining
balance of $66,000 was subject to LIBOR plus 2.00 percentage points (7.24
percent at October 31, 1998).
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, 1998, the Company was in compliance with all covenants.
3) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
----------------------- ---------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net income before dividends $1,040,303 $1,139,602 $2,673,245 $1,979,973
Dividends on preferred stock (147,512) (148,749) (296,262) (297,499)
---------- --------- ---------- ----------
Numerator for basic earnings per
share - income available to
common stockholders to common stock 892,791 990,853 2,376,983 1,682,474
Effect of dilutive securities:
Preferred stock dividends - 148,750 296,262 -
---------- --------- --------- ---------
Numerator for diluted earnings per
share - income available to
common stockholders after
assumed conversions $892,791 $1,139,603 $2,673,245 $1,682,474
Denominator:
Denominator for basic earnings per
Share -- weighted-average shares 7,176,832 5,823,246 7,166,957 5,818,917
Effect of dilutive securities:
Employee stock options 687,187 398,717 669,375 343,273
Warrants 6,545 423,519 9,470 349,732
Convertible preferred stock - 1,123,489 1,124,764 -
--------- --------- --------- ---------
Dilutive potential common shares 693,732 1,945,725 1,803,609 693,005
Denominator for diluted earnings per
share -- adjusted weighted-average
shares and assumed conversions 7,870,564 7,768,971 8,970,566 6,511,922
--------- --------- --------- ---------
Basic earnings per share $0.12 $0.17 $0.33 $0.29
--------- --------- --------- ---------
Diluted earnings per share $0.11 $0.15 $0.30 $0.26
--------- --------- --------- ---------
</TABLE>
7
<PAGE>
4) INCOME TAXES
The effective income tax rate for the current year has been reduced from
30 percent, as reported during the first quarter of the current year, to 25
percent as a result of the research and development tax credit extension
signed into law on October 21, 1998. The Federal tax credit is extended
through June 30, 1999 and retroactive from July 1, 1998.
5) COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. SFAS 130 requires foreign currency translation adjustments, which
prior to adoption were reported separately in stockholders' equity; to be
included in other comprehensive income.
The components of comprehensive income for the three month and six month
periods ended October 31, 1998, and October 31, 1997, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
--------------------- ----------------------
1998 1997 1998 1997
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net income........................... $ 892,791 $990,853 $2,376,983 $1,682,474
Foreign currency translation
adjustment...................... 285,502 (43,303) (90,024) (275,032)
---------- ---------- ---------- ----------
Comprehensive income................. $1,178,293 $947,550 $2,286,959 $1,407,442
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
6) SUBSEQUENT EVENTS
On December 4, 1998, the Company acquired certain assets of the Crusader
Engine division of Thermo Power for approximately USD $3,900,000. The
Crusader Engine division provides engine dressing and related devices for
material handling engines. The Company funded $3,190,000 of the purchase
price using the Bank of America acquisition facility and $710,000 using the BA
capital lease facility. Management has not completed its allocation of the
purchase price but does not expect the purchase price to exceed the net assets
acquired by a material amount.
8
<PAGE>
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 Operations 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 Company's April 30, 1998 Form
10-K filed July 29, 1998 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, 1998,
increased by approximately $2,159,000 or 12 percent and $5,743,000 or 17
percent, respectively, as compared to the same periods in the prior fiscal
year. Motor vehicle OEM upfit sales, primarily from the General Motors (GM)
program, represented 81 percent of this increase for the three month period
and represented 67 percent of the increase for the six month period ended
October 31, 1998.
Product sales for the three months and six months ended October 31, 1998,
increased by 7 percent and 14 percent, respectively, as compared to the same
periods in the prior fiscal year. During the current quarter, the increase
in product sales was unfavorably reduced by $179,000 or 1 percent as a result
of a strengthening U.S. Dollar against foreign currencies. For the six month
period, the increase in product sales was unfavorably reduced by $579,000 or
2 percent as a result of a strengthening U.S. Dollar against foreign
currencies. The following table sets forth the Company's product sales by
application (all dollars in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
-------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Motor vehicle products $ 7,208 $ 5,560 $13,813 $10,779
Forklifts and other material
handling equipment 7,084 7,419 15,027 13,431
Small portable to
large stationary engines 2,610 2,751 5,249 5,671
-------- -------- -------- --------
Total product sales $16,902 $15,730 $34,089 $29,881
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
9
<PAGE>
MOTOR VEHICLE PRODUCTS - During the three months and six months ended
October 31, 1998, net revenue attributable to the Company's motor vehicle
products increased by 21 percent and 23 percent, respectively, as compared to
the same periods in the prior fiscal year.
Revenue attributable to direct motor vehicle OEM upfits with the
Company's systems increased from $1,045,000 to $2,801,000 or 168 percent
during the three months ended October 31, 1998, and increased from $1,243,000
to $5,094,000 or 310 percent during the six months ended October 31, 1998, as
compared to the same periods in the prior fiscal year. The revenue in the
current fiscal year represents sales of mid-1998 GM pick-up trucks and GM
mid-size automobiles upfit with the Company's bi-fuel natural gas fuel
system, and sales of medium-duty dedicated Liquid Propane Gas (LPG) kits
under a cross-license agreement with GM. Upfit revenues for the current
quarter would have been slightly higher than revenues actually realized if
there had not been delivery delays of vehicles scheduled for conversion
during the quarter. The direct OEM upfit revenue in the first quarter of
fiscal year 1998 represented initial sales of mid-1997 GM pick-ups upfit with
the Company's bi-fuel natural gas fuel system. Management anticipates that
the commercialization by GM of model year 1998 and 1999 Chevrolet and GMC
pickup trucks and other vehicles with the Company's systems will result in
significantly higher OEM upfit revenue during fiscal year 1999 compared to
fiscal year 1998. Additionally, management expects direct OEM upfit revenues
to be significantly higher during the remaining half of the current year
compared to the first half of this year due to higher customer orders and the
make-up of conversions from the second quarter caused by delivery delays.
These are forward looking statements.
During the three months and six months ended October 31, 1998, sales for
the Company's motor vehicle component parts decreased by $108,000 or 2
percent and $818,000 or 9 percent, respectively, as compared to the same
periods in the prior fiscal year. For both the three month and six month
periods, the decreases were primarily attributable to lower product sales for
aftermarket conversions in the U.S. market due to regulatory requirements
shifting the automotive conversion market to direct OEM upfits.
Additionally, during the three months and six months ended October 31, 1998,
sales from the Australian operation, which primarily sells motor vehicle
equipment, decreased by $493,000 and $706,000, respectively. These decreases
primarily resulted from the weakening of the Australian Dollar versus the
U.S. Dollar which negatively impacts the conversion of foreign currency
denominated sales. These decreases for the three month and six month periods
were partially offset by approximately $628,000 and $1,247,000, respectively,
in incremental revenues generated by the newly acquired Mexico operation
(acquired in December 1997). Management anticipates that revenues generated
from component parts for the remainder of the current fiscal year will be
comparable to sales realized during the same period in fiscal year 1998 as a
result of the increase in Mexico and Latin America sales offsetting the
downturn in U.S. aftermarket sales. This is a forward looking statement.
FORKLIFTS AND OTHER MATERIAL HANDLING EQUIPMENT - During the three
months and six months ended October 31, 1998, net revenue attributable to the
Company's products for forklifts and other material handling equipment
decreased by approximately 5 percent and increased by approximately 12
percent, respectively, as compared to the same periods in the prior fiscal
year. For the current quarter, the decrease in forklift related sales was
primarily attributable to a decline in the European, domestic and pacific rim
markets. All these markets realized decreases as a result of delayed
customer orders due to concern over general downturns in economic activity.
During the six months ended October 31, 1998, the Company increased revenue
$.8 million from its
10
<PAGE>
European operations which primarily sells material handling equipment. The
remaining increase in forklift related sales for the six month period was
derived from domestic operations. Management anticipates that sales for
forklifts and other material handling equipment for the remainder of fiscal
year 1999 will be comparable to the same period during fiscal year 1998. This
is a forward-looking statement.
SMALL PORTABLE TO LARGE STATIONARY ENGINES - During the three months and
six months ended October 31, 1998, net revenue for the Company's small
portable to large stationary engines decreased by $142,000 or 5 percent and
$422,000 or 7 percent, respectively, as compared to the same periods in the
prior fiscal year. These decreases were due to reduced large stationary
engine sales in the far east. Additionally, these decreases are related to
EPA regulations affecting the small engine aftermarket. Management
anticipates that net revenue for the Company's small portable to large
stationary engines in fiscal year 1999 will be comparable to fiscal year
1998. This is a forward-looking statement.
CONTRACT REVENUES - Contract revenue for the three and six months ended
October 31, 1998, increased by $1.0 million or 41 percent and $1.5 million or
34 percent, respectively, as compared to the same periods in the prior fiscal
year. This increase was due to the addition of several vehicle platforms and
new model years for existing platforms under the GM development contract.
For the three-month period ended October 31, 1998, contract revenue comprised
17 percent of total revenue compared to 14 percent for the same period in the
previous year. For the six-month period ended October 31, 1998, contract
revenue comprised 15 percent of total revenue compared to 13 percent for the
same period in the previous year. 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,
based on expected levels of contract completion at fiscal year end, that
contract revenue during the remainder of the current fiscal year will be
substantially higher than levels experienced during the same period of the
previous fiscal year. This is a forward-looking statement.
During the three months and six months ended October 31, 1998, the
Company's revenues were generated in the following geographic regions:
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
United States and Canada 58% 52% 58% 56%
Pacific Rim 10% 15% 11% 15%
Europe 18% 20% 19% 19%
Latin America 14% 13% 13% 11%
</TABLE>
GROSS PROFIT MARGIN
- -------------------
The Company's gross profit margin on product sales for the three month
period ended October 31, 1998 was 29 percent as compared to 38 percent for
the same period during the prior fiscal year. The Company's gross profit
margin on
11
<PAGE>
product sales for the six month period ended October 31, 1998 was 33 percent
as compared to 38 percent for the same period during the prior fiscal year.
For both the three month and six month period, the decreases are a result of
U.S. based reduced product margins on direct OEM upfit sales, partially
offset by increases in foreign-subsidiary based product margins.
U.S. BASED PRODUCT MARGINS - During the three months and six months
ended October 31, 1998 the Company's gross profit margin on U.S. based
product sales decreased from 41 percent to 27 percent and from 40 percent to
33 percent, respectively, as compared to the same periods in the prior fiscal
year. The gross profit margin during the current fiscal year is lower
primarily as a result of the significantly higher volume of direct OEM upfit
sales and inherently lower upfit margins on those sales. Additionally, the
delivery delays of vehicles scheduled for conversion reduced the number of
upfits resulting in higher unit overhead costs and lower gross margins.
Also, the Company experienced negative material usage variances connected
with the start-up of certain OEM programs and logistical problems with
transporting material.
The gross profit margin on U.S. based component sales during the current
fiscal year is slightly higher than the same period in the previous year as a
result of lower unit overhead costs due to higher sales volume and lower
manufacturing costs. Management anticipates that gross profit margins on
U.S. based component sales for the remainder of fiscal year 1999 will be
comparable to the same period during fiscal year 1998. Additionally,
management anticipates that percent profit margins will continue to be
unfavorably impacted by lower upfit margins as direct OEM upfit sales become
a larger segment of the Company's business. However, as the direct OEM upfit
business increases, overall gross profit amounts should increase. These are
forward-looking statements.
FOREIGN-SUBSIDIARY BASED PRODUCT MARGINS - During the three months and
six months ended October 31, 1998 the Company's gross profit margin on
foreign-subsidiary based product sales increased from 32 percent to 34
percent and from 33 percent to 34 percent, respectively, as compared to the
same periods in the prior fiscal year. During the current fiscal year, the
Company's gross profit margin on foreign-subsidiary based product sales was
favorably impacted by the newly acquired Mexico subsidiary which has realized
higher margins than the European and Australian subsidiaries. This increase
was partially offset by higher material costs at the European subsidiary as a
result of a strengthening U.S. Dollar against the Dutch Guilder and higher
transfer pricing between the U.S. parent and the subsidiary. Management
anticipates that gross profit percentages at the foreign operations could be
lower in the future as a result of the strengthening U.S. Dollar versus
foreign currencies and adjustments to transfer pricing. This is a
forward-looking statement.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development ("R&D") expense for the three months and six
months ended October 31, 1998 increased approximately $204,000 or 6 percent
and $138,000 or 2 percent, respectively, as compared to the same periods in
the prior fiscal year. R&D expense is primarily for system development and
application engineering of the Company's products under the funded General
Motors contract, other funded contract R&D work with VarietyPerkins and the
Southern California Air Quality Management District, and for internally
funded product and component development work. For the three months ended
October 31, 1998, R&D expense directly related to externally funded R&D work,
primarily the GM program, decreased from $1.8 million in fiscal year 1999 to
$1.6 million in
12
<PAGE>
fiscal year 1998. For the six months ended October 31, 1998, R&D expense
directly related to externally funded R&D work, primarily the GM program,
decreased from $3.5 million in fiscal year 1998 to $3.0 million in fiscal
year 1999. These decreases are a result of improved productivities
resulting from knowledge transfer over multiple platforms. For the three
months ended October 31, 1998, R&D expense directly related to internally
funded R&D work increased from $1.5 million in fiscal year 1998 to $1.9
million in fiscal year 1999. For the six months ended October 31, 1998, R&D
expense directly related to internally funded R&D work increased from $2.8
million in fiscal year 1998 to $3.5 million in fiscal year 1999. This
increase is a result of additional efforts to develop new advanced technology
and products. 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 and advanced fuel storage technology. Management
anticipates that R&D expense during fiscal year 1999 will be higher than the
levels experienced during fiscal year 1998 due to internally funded
development work and new produc 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, 1998, increased by approximately $4,000 or
under 1 percent and $285,000 or 4 percent, respectively, as compared to the
same periods in the prior fiscal year. For the three month period, the newly
acquired Mexico operation added $192,000 in SG&A expenses to the consolidated
amount. This increase was mostly offset by lower SG&A expense from the
Australian operation primarily due to the effect of currency conversion as
the weaker Australian dollar versus the U.S. Dollar resulted in lower U.S.
Dollar values. For the six month period, the newly acquired Mexico operation
added $378,000 in SG&A expenses to the consolidated amount. This increase was
partially offset by lower SG&A expense from the Australian operation
primarily due to the effect of currency conversion. The remaining increase
in SG&A expense for the current six month period resulted from additional
administrative expenses from the European operations. These expenses
included administrative salaries, employee-related costs, and incentive
compensation. Management anticipates that SG&A expense for fiscal year 1999
will be higher than fiscal year 1998 primarily as a result of including a
full year of the Company's Mexico 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 1998. These are forward-looking statements.
INTEREST EXPENSE
- -----------------
Interest expense for the three months and six months ended October 31,
1998, increased by $52,000 or 23 percent and $25,000 or 5 percent,
respectively, as compared to the same periods in the prior fiscal year. For
the current year, the increase is a result of higher borrowings on the
Company's lines of credit in the current quarter as compared to the same
period in the prior year and as a result of higher long-term borrowings to
fund the Algas Carburetion acquisition (December 1997) and the purchase of
the remaining 49 percent interest of IMPCO BV (May 1998). The higher
interest expense was partially offset by lower interest rates on the
Company's credit facility with Bank of America and prepayments on certain
long-term borrowings from funds received from the Company's redemption of its
common stock purchase warrants.
13
<PAGE>
Management anticipates that financing charges for fiscal year 1999 will be
higher as compared to fiscal year 1998. This is a forward-looking statement.
PROVISION FOR INCOME TAXES
- --------------------------
The estimated effective annual tax rate of 25 percent for fiscal year
1999 is significantly higher than the previous year due to the exhaustion of
federal net operating loss carryforwards during the previous fiscal year.
The current year provision includes presumed utilization of estimated
research and development credits of $1,900,000. The effective rate for the
current year has been reduced from 30 percent, as reported during the first
quarter of the current year, to 25 percent as a result of the Federal
research and development tax credit extension signed into law on October 21,
1998. At October 31, 1998, net deferred tax assets, included in other
current and other assets, was approximately $750,000. 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 and that the estimated effective annual tax rate in the future years
will approximate the statutory rate. This is a forward-looking statement.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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.
Management believes that such sources of funds will be sufficient to meet the
needs of its business for the foreseeable future. This is a forward-looking
statement.
The Company's financial condition remains strong. The ratio of current
assets to current liabilities was 3.30 and 3.28 at October 31, 1998 and April
30, 1998, respectively. During the current year, the total amount of working
capital increased by approximately $3,698,000 to $26,075,000 at October 31,
1998. Net cash provided by operating activities was $292,000 during the
current six month period, compared to $4,047,000 for the same period in the
previous year. The decrease in cash provided by operating activities during
the current six month period compared to the same period in the prior year
resulted primarily from an increase in accounts receivable, partially offset
by an increase in other accrued expenses. The increase in accounts
receivable and other accrued expenses was mostly due to increased billings on
the GM contract and shipments of OEM upfit vehicles. This change was
partially offset by a $695,000 increase in net income.
The Company's foreign subsidiaries generated net cash from operating
activities of approximately $685,000 during the current six month period
compared to $230,000 during the same period in the previous year. This
increase in net cash provided by operating activities from foreign operations
is primarily a result of income from operations, an increase in accounts
payable, and a decrease in accounts receivable primarily from the European
and Australian operations. This increase in cash flow was partially offset
by cash requirements to fund working capital at IMPCO Mexicano in the current
year. There are currently no restrictions on the transfer of foreign
subsidiary funds within the Company; however, the Company generally
re-invests these funds in the foreign subsidiaries as needed.
Net cash used in investing activities in the first six months of fiscal
year 1999 was approximately $2,123,000 compared to $1,389,000 for the same
14
<PAGE>
period in the prior year. This increase is primarily from the purchase of
the remaining 49 percent interest in the Company's European subsidiary (Impco
BV) during the first quarter of the current year, which resulted in a net use
of cash of approximately $693,000. Capital expenditures for dies, molds and
patterns, machinery and equipment, and leasehold improvements totaled
$1,507,000 during the current six month period, compared to $1,416,000 for
the same period in the previous year. Management projects capital
expenditures during the current year, primarily relating to equipment
enhancements and facilities for the development and production of new
products, to be comparable to expenditures during fiscal year 1998. The
Company expects to fund a major portion of these expenditures from cash
generated from operations and/or by use of its bank credit facility. These
are forward-looking statements.
Net cash used in financing activities during the current six month period
was approximately $2,318,000. The Company increased its borrowing under the
operating line of credit by $2,914,000 primarily for material purchases and
to fund receivables. The Company received $2,098,000 on a bank term loan to
fund the IMPCO BV acquisition. Additionally, during the current six month
period, the Company received approximately $950,000 in proceeds from the
issuance of common stock from the exercise of stock options. Payments made
on term loans, including the retirement of the DEPA Holding BV term loan,
were approximately $2,915,000.
The Company has a $12,000,000 revolving line of credit, a $6,000,000
acquisition facility, and approximately $2,440,000 of available credit under
a capital lease facility with Bank of America. At October 31, 1998,
approximately $5,300,000 and $2,554,000 was outstanding under the revolving
line of credit and the capital lease facility, respectively. The revolving
line of credit expires on August 31, 2000, the acquisition facility expires
on August 31, 1999, and the capital lease facility expires on September 1,
2004. In addition, the Company's subsidiary in the Netherlands has a
3,000,000 NLG (U.S. $1,600,000) credit facility with Mees Pierson, a
financial institution in the Netherlands. At October 31, 1998, approximately
1,187,000 NLG (U.S. $636,000) was outstanding under the Dutch credit facility.
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest and foreign
exchange rates. While these hedging instruments are subject to fluctuations
in value, such fluctuations are generally offset by the value of the
underlying exposures being hedged. The Company is not a party to leveraged
derivatives and does not hold or issue financial instruments for speculative
purposes.
FOREIGN CURRENCY MANAGEMENT - 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 growth of its 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 forward currency contracts
and the management of cash disbursements in local currencies. The Company
uses forward currency contracts, which typically expire within one year, to
hedge payments related to the purchase of goods at international
subsidiaries.
15
<PAGE>
Realized gains and losses on these contracts are recognized as part of cost
of sales in the same period as the hedged transactions. At October 31, 1998,
the Company had currency forward currency contracts protecting U.S.$1,200,000
in inventory purchases. At October 31, 1998 the fair value of forward
currency contracts approximated contract values.
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 and lines of credit to finance the operations of its
foreign subsidiaries. The term loans and lines of credit are denominated in
local currencies and translated to U.S. Dollars at period end exchange rates.
INTEREST RATE MANAGEMENT - The Company uses interest rate swap
agreements with Bank of America to manage its exposure to interest rate
changes and stabilize the cost of borrowed funds. When an agreement is
executed, the interest rate swap is matched as a hedge to a specific debt
instrument and has the same notional amount and tenor as the related debt
instrument principal. Since the interest rate instruments effectively hedge
the underlying interest rate exposure, the net cash amounts paid or received
on the agreements are accrued and recognized as an adjustment to interest
expense. At October 31, 1998, the Company had $6,491,000 secured under
fixed interest rate agreements at a weighted-average fixed interest rate of
7.99%. Absent these fixed rate agreements, the weighted-average variable
rate for this debt at October 31, 1998 would have been 7.16%. Fair value of
these instruments is based on estimated current settlement cost. At October
31, 1998 the fair value of interest rate swap agreements was approximately
($155,000).
16
<PAGE>
Part II - OTHER INFORMATION
Items 1,2,3,5 Not applicable.
Item 4. Submission of matters to a vote of security holders
(a) The annual meeting of stockholders was held on October 15, 1998.
(b) The following were elected as directors for terms expiring in 2001:
Paul Mlotok
Ulrich Ruetz
Robert M. Stemmler
The names of each of the other directors whose terms of office continue
are as follows:
Norman L. Bryan
Christopher G. Mumford
Don J. Simplot
Edward L. Scarff
Rawland F. Taplett
Douglas W. Toms
(c) The stockholders voted upon the ratification of the appointment of
Ernst & Young LLP as independent auditors as follows:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstention non-votes
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Common Stock 6,078,653 120,206 15,974 -0-
Preferred Stock 5,950 -0- -0- -0-
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS:
Exhibit 10.16 - Amended Loan Agreement between IMPCO Technologies,
Inc. as borrower and Bank of America National Trust and
Savings Association, as lendor, dated September 11, 1998.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended
October 31, 1998.
17
<PAGE>
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 14, 1998 By /s/ THOMAS M. COSTALES
------------------------
Thomas M. Costales
Chief Financial Officer
and Treasurer
[Authorized Signatory]
18
<PAGE>
EXHIBIT 10.16
BUSINESS LOAN AGREEMENT
This Agreement dated as of September 11, 1998, is between Bank of
America National Trust and Savings Association (the "Bank") and IMPCO
Technologies, Inc. (the "Borrower").
1. FACILITY NO. 1: REVOLVING 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), MINUS a One Million U.S. Dollars
($1,000,000) line of credit provided by Bank of America Mexico Sociedad
Anonima to Grupo I.M.P.C.O. Mexicano, S. de R.L. de C.V., a subsidiary of
the Borrower (the "Mexico Commitment").
(b) This is a revolving line of credit with a within line
facility for letters of credit. During the availability period, the
Borrower may prepay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of advances under the line of credit plus the outstanding amounts
of any letters of credit and not yet reimbursed plus the Mexico Commitment
to exceed the Facility No. 1 Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the
date of this Agreement and August 31, 2000 (the "Revolving Line Expiration
Date") unless the Borrower is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference Rate MINUS one-
half (0.50%) of one percentage point.
(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 September 30, 1998, and
then monthly thereafter until payment in full of any principal outstanding
under this line of credit.
-1-
<PAGE>
(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 Revolving Line 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 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. 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 following optional interest rates are available:
(a) the Cayman Rate plus 1.25 percentage points.
(b) the LIBOR Rate plus 1.25 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 Revolving Line
Expiration Date. Each commercial letter of credit will require drafts
payable at sight.
(ii) standby letters of credit with a maximum maturity of one
(1) year but not to extend beyond the Revolving Line Expiration Date.
(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 One Million Dollars ($1,000,000) 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:
<TABLE>
<CAPTION>
LETTER OF CREDIT NUMBER AMOUNT
----------------------- --------
<S> <C>
LASB #227940 $375,000
</TABLE>
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, except that this letter of credit
may expire no later than February 28, 2001.
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.
-2-
<PAGE>
(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.
(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 1.25% 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
October 7, 1997. 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
September 30, 1998 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 eight (8) equal successive quarterly installments of One Hundred Two
Thousand Five Hundred Dollars ($102,500) each, starting November 30, 1998.
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
-3-
<PAGE>
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 Four Million
Dollars ($4,000,000), which was funded in two disbursements. The first
disbursement was for Three Million Three Hundred Thousand Dollars
($3,300,000) (the "First Disbursement"), and the second disbursement was for
Six Hundred Ninety Two Thousand Five Hundred Twenty and 78/100 Dollars
($692,520.78) (the "Second Disbursement"). This loan is currently subject to
the terms and conditions of Facility No. 4 of the Business Loan Agreement
dated as of October 7, 1997. 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 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 as follows:
(i) The Borrower will repay principal of the First Disbursement
in 12 successive quarterly installments of One Hundred Sixty Five
Thousand Dollars ($165,000) starting December 5, 1998. On December
5, 2002, the Borrower will repay the remaining principal balance
plus any interest then due under the First Disbursement.
(ii) The Borrower will repay the principal of the Second
Disbursement in 18 successive quarterly installments of Thirty Four
Thousand Six Hundred Twenty-Six Dollars ($34,626) on the 15th day
of each quarter starting October 15, 1998. On April 15, 2003, the
Borrower will repay the remaining principal balance plus any
interest then due under the Second Disbursement.
-4-
<PAGE>
3.4 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. 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 following optional interests rate are available:
(a) the Cayman Rate plus 1.75 percentage points.
(b) the LIBOR Rate plus 1.75 percentage points.
4. FACILITY NO.4: NON-REVOLVING LINE OF CREDIT AMOUNT AND TERMS
4.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank
will provide a line of credit ("Facility No. 4") to the Borrower. The
amount of the line of credit (the "Facility No. 4 Commitment") is Six
Million Dollars ($6,000,000).
(b) This is a non-revolving line of credit with a term repayment
option. Any amount borrowed, even if repaid before the expiration date of
this line of credit permanently reduces the remaining available line of
credit.
(c) The Borrower agrees not to permit the outstanding principal
balance of advances under the line of credit to exceed the Facility No. 4
Commitment.
4.2 AVAILABILITY PERIOD. The line of credit is available between the
date of this Agreement and August 31, 1999 (the "Non-Revolving Line Expiration
Date") 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 MINUS one-
quarter (0.25%) of one percentage point.
(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.
-5-
<PAGE>
4.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on September 30, 1998, and
then monthly thereafter until payment in full of any principal outstanding
under this line of credit.
(b) The Borrower will repay principal of each separate advance
in 20 successive quarterly installments, each equal to 1/20 of the amount
of the advance, payable commencing on the last day of the third month after
the funding of such advance.
4.5 OPTIONAL INTEREST RATES. Instead of the interest rates 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 following optional interest rates are available:
(a) the Cayman Rate plus 1.50 percentage points.
(b) the LIBOR Rate plus 1.50 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 period.
-6-
<PAGE>
(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 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.
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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,
(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.
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(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 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.
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
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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 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
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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 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.
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<PAGE>
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 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 (2.00)
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:
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.
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<PAGE>
9.4 INSURANCE. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
9.5 GUARANTIES.
(a) A Continuing Guaranty (Multicurrency) executed by the
Borrower in the amount of Two Million One Hundred Thousand U.S. Dollars
(U.S. $2,100,000) guarantying the Obligations of IMPCO Technologies, B.V.,
and
(b) A Continuing Guaranty (Multicurrency) executed by the
Borrower in the amount of One Million U.S. Dollars (U.S. $1,000,000)
guarantying the obligations of Grupo I.M.P.C.O. Mexicano, S. de R.L. de
C.V. arising in connection with the Mexico Commitment together with
Corporate Resolutions Authorizing Execution of Guaranty (Multicurrency).
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
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.
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<PAGE>
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.
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.
10.14 YEAR 2000 PROBLEM. On the basis of a comprehensive review and
assessment of the Borrower's systems and equipment and inquiry made of the
Borrower's material suppliers, vendors and customers, the Borrower reasonably
believes that the "Year 2000 problem" (that is, the inability of computers,
as well as embedded microchips in non-computing devices, to perform properly
date-sensitive functions with respect to certain dates prior to and after
December 31, 1999), including costs of remediation, will not result in a
material adverse change in the operations, business, properties, condition
(financial or otherwise) or prospects of the Borrower. The Borrower has
developed feasible contingency plans adequately to ensure uninterrupted and
unimpaired business operation in the event of failure its own or a third
party's systems or equipment due to the Year 2000 problem, including those of
vendors, customers, and suppliers, as well as a general failure of or
interruption in its communications and delivery infrastructure.
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 the acquisition of Grupo I.M.P.C.O. Mexicano and an interest in
IMPCO, B.V.; and Facility No. 4 only for the financing of Acceptable
Acquisitions. For purposes of this
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Agreement, "Acquisition" (collectively, "Acquisitions") 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" (collectively, "Acceptable Acquisitions")
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 requested by the Bank from time to time:
(a) Within 90 days of each 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 each fiscal quarter'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 90 days of each fiscal year end, copies of the
Borrower's Form 10-K Annual Report.
(d) Within 45 days of each fiscal quarter, copies of the
Borrower's Form 10-Q Quarterly Report.
(e) Within 90 days of each fiscal year end, consolidated and
consolidating projections for the then current fiscal year of the Borrower.
(f) 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.
11.3 QUICK RATIO. To maintain on a consolidated basis a ratio of quick
assets to current liabilities of at least 0.70:1.0.
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"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 on a quarterly basis.
11.4 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible
net worth equal to Twenty Million Nine Hundred Thirty Three Thousand Dollars
($20,933,000), PLUS, as of each April 30, commencing April 30, 1999, 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
but including 100% of any additional paid in capital from additional equity
issuances or otherwise), 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 1.40:1.0. "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 1.35:1.00.
"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 and/or any other
subsidiary or affiliate of BankAmerica Corporation), 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.
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(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 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 preserve all rights,
privileges, and franchises the Borrower now has.
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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 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).
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(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.
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.
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.
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<PAGE>
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 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.
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<PAGE>
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);
(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 must consent to submission of the claim or controversy to
-21-
<PAGE>
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 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.
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<PAGE>
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, 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.
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<PAGE>
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 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 October 7, 1997 between the Bank,
the Borrower, and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.
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<PAGE>
This Agreement is executed as of the date stated at the top of the
first page.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION IMPCO TECHNOLOGIES, INC.
By: /s/ Jeff Thom By: /s/ Thomas M. Costales
----------------------------- ------------------------------
Title: Vice President Title: Chief Financial Officer
Address where notices to the Bank By:_______________________________
are to be sent:
Title:____________________________
525 S. Flower Street, Mezzanine
Level
Los Angeles, CA 90071 Address where notices to the
Borrower are to be sent:
16804 Gridley Place
Cerritos, CA 90701-1792
-25-
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