U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ___________ to ______________
Commission File Number 0 - 14835
TRANSNATIONAL INDUSTRIES, INC.
(Name of small business issuer as specified in its charter)
Delaware 22-2328806
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Post Office Box 198
U.S. Route 1
Chadds Ford, Pennsylvania 19317
(Address of principal executive offices)
(610) 459-5200
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Act during the past 12 months (which is the period
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common stock, $0.20 par value
Outstanding at August 31, 1997: 324,220
Transitional Small Business Disclosure Format (check one):
YES NO X
(1)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
INDEX PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets -- July 31, 1997,
and January 31, 1997. 3-4
Condensed consolidated statements of operations -- Three
months ended July 31, 1997 and 1996; six months ended
July 31, 1997 and 1996. 5
Condensed consolidated statements of cash flows -- Six
months ended July 31, 1997 and 1996. 6
Notes to condensed consolidated financial statements --
July 31, 1997. 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
(2)
<PAGE>
I. FINANCIAL INFORMATION
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
July 31, January 31,
1997 1997
-------------------------------
(Unaudited) (Audited)
Assets
Current Assets
Cash $ 854 $ 953
Accounts receivable 873 1,077
Inventories 1002 983
Other current assets 177 123
-------------------------------
Total Current Assets 2,906 3,136
Machinery and Equipment
Machinery and equipment, at cost 2,595 2,308
Less accumulated depreciation 1,812 1,723
-------------------------------
Net Machinery and Equipment 783 585
Other Assets
Repair and maintenance inventories, less
provision for obsolescence 190 190
Computer software, less amortization 199 187
Excess of cost over net assets of business
acquired, less amortization 1,927 1,961
-------------------------------
Total Other Assets 2,316 2,338
-------------------------------
Total Assets $6,005 $6,059
===============================
See notes to condensed consolidated financial statements.
(3)
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TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
July 31, January 31,
1997 1997
------------------------------
(Unaudited) (Audited)
Liabilities and stockholders' equity
Current Liabilities:
Accounts payable $ 230 $ 228
Deferred maintenance 589 574
Other current liabilities 295 287
Billings in excess of cost and estimated earnings 584 940
Current maturities of long-term debt 199 542
------------------------------
Total Current Liabilities 1,897 2,571
Long Term Debt, less current maturities 1,321 979
Stockholders' Equity
Series B Cumulative Convertible Preferred Stock,
$0.01 par value - 1,744 shares authorized, issued
and outstanding (liquidating value $759,730) 399 399
Common Stock, $0.20 par value - authorized
1,000,000 shares; issued and outstanding:
324,220 shares 65 65
Additional paid-in capital 8,204 8,502
Accumulated deficit (5,881) (6,457)
------------------------------
Total stockholders' equity 2,787 2,509
------------------------------
Total liabilities and stockholders' equity $6,005 $6,059
==============================
See notes to condensed consolidated financial statements.
(4)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
July 31 July 31
------------------- -----------------
1997 1996 1997 1996
------------------- -----------------
Revenues $ 1,761 $ 1,486 $ 4,085 $ 3,196
Cost of Sales 1,208 979 2,917 2,186
-------- -------- -------- --------
Gross Margin 553 507 1,168 1,010
Selling expenses 141 127 267 248
Research and development 146 105 219 210
General and administrative expenses 191 179 377 362
-------- -------- -------- --------
478 411 863 820
-------- -------- -------- --------
Operating income 75 96 305 190
Interest expense 32 42 60 65
-------- -------- -------- --------
Income before income tax 43 54 245 125
Provision for income taxes 3 -- 14 6
-------- -------- -------- --------
Net income before extraordinary item 40 54 231 119
Extraordinary gain on elimination of
debt 345 -- 345 --
-------- -------- -------- --------
Net income 385 54 576 119
Preferred dividend requirement 12 12 24 24
-------- -------- -------- -------
Income applicable to common shares 373 42 552 95
======== ======== ======== ========
Income per common share
Before extraordinary item 0.08 0.10 0.52 0.22
Extraordinary gain on elimination of
debt 0.95 -- 0.87 --
-------- -------- -------- --------
Net income applicable to common 1.03 0.10 1.39 0.22
shares ======== ======== ======== ========
Weighted average common shares
outstanding 360,524 433,133 396,829 433,133
======== ======== ======== ========
See notes to condensed consolidated financial statements.
(5)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
Six months Ended
July 31,
---------------------
1997 1996
---------------------
Net cash provided (used) by operating activities 172 $ 712
Net cash provided (used) by investing activities (174) (62)
Net cash provided (used) for financing activities (97) (356)
---------------------
Increase (decrease) in cash (99) 294
Cash at beginning of period 953 339
---------------------
Cash at end of period $ 854 $ 633
=====================
See notes to condensed consolidated financial statements.
(6)
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TRANSNATIONAL INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
July 31, 1997
Note A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments are
of a normal recurring nature. Operating results for the three-month and six
month periods ended July 31, 1997, are not necessarily indicative of the results
to be expected for the fiscal year. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
January 31, 1997, contained in the Registrant's Annual Report on Form 10-KSB for
the year ended January 31, 1997.
Note B -- REFINANCING
On June 12, 1997, the Company and Spitz executed a series of agreements
with a new lender, whereby the proceeds from two new promissory notes were used
to retire all existing debt and a Stock Subscription Warrant held by the
Company's previous lender. Under an agreement with the previous lender, all
existing debt amounting to $1,373,000 as of June 12, 1997, and a Stock
Subscription Warrant to purchase 108,913 shares of the Company's Common Stock
for $0.20 per share were retired for a cash payment of $1,230,000. Debt
agreements executed with the new lender consist of an $820,000 term loan and an
$800,000 Revolving Credit Agreement. The term loan is payable with interest at
9.25% over five years in equal monthly installments of $17,122. The Revolving
Credit Agreement permits borrowing, subject to an asset based formula, of up to
$800,000 under a Revolving Credit Note. The Revolving Credit Note requires
monthly interest payments at prime plus 2% and also matures in five years. The
new debt agreements are secured by virtually all of the assets of the Company
and Spitz. Upon execution of the new debt agreements, proceeds of $820,000 from
the term note and $429,000 from the revolving credit agreement were used to fund
the $1,230,000 payment to the previous lender and a portion of other costs
related to the refinancing transactions. The initial revolving credit note
advance remained outstanding at July 31, 1997 and is recorded as debt with the
new term note and balances due under capital lease obligations in accordance
with the new maturity dates.
At July 31, 1997, $429,000 remained outstanding on the revolving credit
(7)
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note, resulting in unused borrowing capacity of $371,0000 under the new $800,000
Revolving Credit Agreement. At January 31, 1997, the borrowing limit under the
previous $500,000 Revolving Credit Agreement, reduced by $129,000 for an
outstanding standby letter of credit, also resulted in unused borrowing capacity
of $371,0000. The $129,000 standby letter of credit served as collateral on
outstanding surety bonds required to guarantee the performance of Spitz on
certain customer contracts. In June 1997, the Surety Company determined that the
Company's financial strength was sufficient for the level of bonding outstanding
and returned the standby letter of credit for cancellation.
The retirement of the $1,373,000 balance from the previous debt
agreements and the Stock Subscription Warrant for cash of $1,230,000 resulted in
a second quarter recording of a redemption of Additional Paid in Capital of
$298,000 and an extraordinary gain from the forgiveness of debt of $345,000, net
of related expenses of $96,000.
The retirement of the Stock Subscription Warrant also reduces the common
stock equivalents used in computing earnings per share resulting in an increase
in per share earnings on a proforma basis of approximately thirty-three percent.
Note C -- NEW CAPITAL LEASE
In July, 1997, a capital lease transaction was completed, whereby,
$235,496 of equipment acquired over the previous four months was sold to be
leased back to Spitz over a period of five years. The lease agreement requires
sixty monthly installments of $5,032 with a one dollar purchase option at the
end of the term. The equipment is used in a factory demonstration of the
Company's new ImmersaVision(TM) products. The new capital lease obligation is
recorded as debt with other lease obligations and the new bank notes payable.
Note D -- CONTINGENCIES
In the fiscal year ended January 31, 1996, Spitz became involved in a
dispute in connection with a public bid for the supply of planetarium equipment
for an expansion project at a public community college. Spitz's subcontract bid
was the lowest submitted and the general contractor for the project allegedly
used Spitz's pricing in submitting its total contract bid to the college. After
the total contract was awarded to the general contractor, however, the college's
architect alleged that Spitz's equipment did not conform to the bid
specifications. The bid for the equipment which the architect deemed to be in
conformance with the specifications was allegedly approximately $150,000 higher
than Spitz's bid. Because the Contractor has been forced to supply the more
expensive equipment, it is attempting to recover the $150,000 price differential
plus alleged related amounts due to adverse impacts on the project schedule from
various parties. At various times in 1996, the Contractor threatened to assert
its claim against Spitz because it had been unsuccessful in its attempts to
recover its alleged damages from the College or other involved parties. The
Company's management believes the bid specifications, to the extent that they
excluded Spitz's equipment, constituted an improper sole-source of equipment
which violates competitive bidding laws because the specifications appear to
have been copied from a competitor's equipment. The Company's management also
believes that the Spitz equipment meets all of the valid functional requirements
in the bid specifications. No lawsuit has been filed against Spitz or the
Company and the parties had discussed settling the matter. The Contractor has
(8)
<PAGE>
not threatened to carry out its assertion nor has it communicated with the
Company since July 1996. The Company's management believes that it is likely
that the parties will reach an agreement to resolve the dispute short of
litigation. It is too early to estimate a probable outcome and its effect, if
any, on Spitz. Accordingly, no liability for the potential claim has been
recorded at July, 31 1997.
At July 31, 1997 there were no outstanding standby letters of credit
issued by the Company. At January 31, 1997, there was an outstanding standby
letter of credit issued in the amount of $129,000 which was canceled in June
1997.
(9)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations
Revenues in the second quarter and first six months of fiscal 1998 were
$1,761,000 and $4,085,000 compared to $1,486,000 and $3,196,000 in the
comparable periods of fiscal 1997. The increase of $275,000 (19%) for the
quarter was due to higher dome revenues which were partially offset by lower
planetarium revenues. The increase of $889,000 (28%) for the six month period
resulted from higher revenues from all of the Company's products. Revenues from
ImmersaVision, the Company's new line of video projection products, amounted to
$22,000 and $177,000 in the second quarter and first six months of fiscal 1998,
as the Company successfully completed its first installation of ElectricSky.
Planetarium revenues were $599,000 and $1,449,000 in the second quarter and
first six months of fiscal 1998 compared to $706,000 and $1,182,000 in the
comparable periods of fiscal 1997, a decrease of $107,000 (15%) for the quarter
and an increase of $267,000 (23%) for the six month period. The decrease in
planetarium revenues for the quarter was due to a reduction in the sales backlog
of new and refurbished systems for the educational market. For the first six
months of fiscal 1998, the second quarter decrease was offset by high revenues
on new and refurbished systems in the first quarter. Planetarium revenues
include amounts attributable to the sale of maintenance and parts of $375,000
and $702,000 in the second quarter and first six months of fiscal 1998 compared
to $284,000 and $565,000 in the comparable periods of fiscal 1997, an increase
of $91,000 (32%) and $137,000 (24%), respectively. The increase in maintenance
and parts revenues was due to an increase in sales to customers without
preventive maintenance agreements as well as the timing of performance on
preventive maintenance agreements. Dome revenues were $1,140,000 and $2,459,000
in the second quarter and first six months of fiscal 1998 compared to $780,000
and $2,014,000 in the comparable periods of fiscal 1997, an increase of $360,000
(46%) and $445,000 (22%), respectively. The high level of dome revenue in fiscal
1998 was attributable to installation activity on a dome for a large ride
simulator, exterior and interior domes for a special museum, and a dome used for
a special projection application at a theme retail complex. This increase was
largely offset by lower revenue from film theater domes, which was higher than
normal in the first half of fiscal 1997. Revenue levels in the first and second
quarters of fiscal 1998 are not necessarily indicative of the levels expected
for future quarters. While sales prospects remain good and bookings have
improved, the revenue backlog has been depleted by the high volume of work
completed in the recent months. Uncertainty in the timing and delivery of new
sales are expected to cause revenue levels to continue fluctuating in future
quarters.
Gross margins were on the low side of historical averages at 31.4% and 28.6% in
the second quarter and first six months of fiscal 1998 compared to 34.1% and
31.6% in the comparable periods of fiscal 1997. Gross margins in the first six
months of fiscal 1998 improved from volume related efficiencies in production
but were offset by lower gross margins on dome installation activity, cost
overruns on certain planetarium projects and introductory pricing on the sale of
the first ImmersaVision system. The low margins on dome installation activity
resulted from the lower profit margins on change orders to recover costs
overruns as dictated by construction contract terms inherent in many of the
Company's customer contracts. Selling expenses increased $14,000 (11%) and
$19,000 (8%) in the second quarter and first six months of fiscal 1998 compared
to the comparable periods of fiscal 1997. The increase in selling expenses is
attributable to the introduction the new ImmersaVision products and costs
(10)
<PAGE>
associated with the hosting by Spitz of a regional planetarium society meeting.
Research and development expenses increased $41,000 (39%) and $9,000 (4%) in the
second quarter and first six months of fiscal 1998 compared to the comparable
periods of fiscal 1997. The increase in the second quarter was due to increased
efforts in the development and enhancement of ImmersaVision and existing
planetarium products. The second quarter increase was largely offset by a first
quarter decrease which resulted from the high utilization of engineering
resources on customer contract activities and a $19,000 investment of
engineering resources in capitalized computer software production early in
fiscal 1998. Research and development expenses are expected to continue at
increased levels in subsequent quarters as efforts continue in the development
and enhancement of ImmersaVision and existing planetarium products. General and
administrative expenses increased $12,000 (7%) and $15,000 (4%) in the second
quarter and the first six months of fiscal 1998 compared to the comparable
periods of fiscal 1997 due to inflationary increases and incentive compensation
awards recorded in fiscal 1998.
Reported net interest expense amounted to $32,000 and $60,000 in the second
quarter and first six months of fiscal 1998 compared to $42,000 and $65,000 in
the comparable periods of fiscal 1997. The $32,000 and $60,000 reported in the
first quarter and first six months of fiscal 1998 consisted of $38,000 and
$77,000 paid on debt obligations, offset by $6,000 and $17,000 of interest
income earned on cash invested. The $42,000 and $65,000 reported in the first
quarter and first six months of fiscal 1997 consisted of $46,000 and $90,000 (of
which $18,000 was applied against the book value of debt and $72,000 was charged
to expense) paid on debt obligations, offset by $4,000 and $7,000 of interest
income earned on cash invested. The Company continues to pay no federal income
taxes as federal taxable income is offset by the utilization of net operating
loss carryforwards. The provision for income taxes consists of state income
taxes.
As a result of the above, the Company reported net income before extraordinary
item of $40,000 and $231,000 in the second quarter and first six months of
fiscal 1998 compared to net income of $54,000 and $119,000 for the comparable
periods of fiscal 1997. In the second quarter of fiscal 1998, an extraordinary
gain from the elimination of debt of $345,000 was recorded as a result of the
refinancing of the Company's debt agreements. The addition of the extraordinary
gain resulted in net income of $385,000 and $576,000 for the second quarter and
first six months of fiscal 1998. As stated above, revenue levels are expected to
fluctuate in the future quarters. Accordingly, the profit recorded in the first
six months should not be considered indicative of the results expected for the
remaining of fiscal 1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $172,000 in the first six months
of fiscal 1998 compared to $712,000 provided in the first six months of fiscal
1997. The $172,000 provided by operations in the first six months of fiscal 1998
consisted of $392,000 provided from earnings offset by $220,000 used by changes
in operating assets and liabilities. The $712,000 provided by operations in the
first six months of fiscal 1997 consisted of $267,000 provided from earnings
offset by $18,000 of interest payments booked against debt plus $463,000
provided by changes in operating assets and liabilities.
The $172,000 provided by operations in the first six months of fiscal 1998 was
offset by $97,000 of scheduled principal payments on debt obligations, payment
of $77,000 of expenses related to refinancing transactions, and $97,000 invested
in capital assets. Of the $712,000 provided by operations in the first six
months of fiscal 1997, $268,000 was used to make principal payments on the
(11)
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revolving credit note, $88,000 was used to make principal payments on debt
obligations and $62,000 was invested in capital assets. The net result was a
$99,000 decrease in cash balances during the first six months of fiscal 1998
compared to a $294,000 increase during the first six months of fiscal 1997.
In addition to $97,000 invested in capital assets in the first six months of
fiscal 1998, the Company acquired $235,000 of equipment which it financed
through a capital lease obligation. The equipment is used in an in-house demo of
the Company's ImmersaVision products. The financing alternatives for the
ImmersaVision demo equipment were heavily influenced by the outcome of efforts
to refinance the Company's bank debt agreements. Therefore, the equipment was
purchased for cash in the first and second quarters of fiscal 1998 and the
financing was deferred. On June 12, 1997 the bank debt agreements were
refinanced. In July, 1997, a capital lease transaction was completed, whereby
the $235,000 of equipment was sold to be leased back to Spitz over a period of
five years. The lease agreement requires sixty monthly installments of $5,032
with a one dollar purchase option at the end of the term.
On June 12, 1997, the Company entered into a series of debt agreements with a
new lender, a commercial bank, whereby proceeds from two new promissory notes
payable to the new lender were used to retire previous bank debt and a Stock
Subscription Warrant. The prior debt agreements were scheduled to mature in
August 1997 and carried a balance due at June 12, 1997 of $1,373,000. The
previous lender agreed to accept $1,230,000 in full satisfaction for all
existing debt and the surrender of Stock Subscription Warrant to purchase
108,913 shares of the Company's Common Stock for $0.20 per share. Debt
agreements executed with the new lender consist of an $820,000 term loan and an
$800,000 Revolving Credit Agreement. The term loan is payable with interest at
9.25% over five years in equal monthly installments of $17,122. The Revolving
Credit Agreement permits borrowing, subject to an asset based formula, of up to
$800,000 under a Revolving Credit Note. The Revolving Credit Note requires
monthly interest payments at prime plus 2% and also matures in five years. Upon
execution of the new debt agreements, proceeds of $820,000 from the term note
and $410,000 from the revolving credit agreement were used to fund the
$1,230,000 payment to the previous lender. Principal and interest payments over
the next year required under the new loan agreements will be approximately
$40,000 lower than previously scheduled payments under the old loan agreements
The initial advance under the new revolving credit agreement also included an
additional amount to partially fund closing costs, which increased the total to
$429,000. This resulted in unused borrowing capacity under the new $800,000
revolving credit agreement of $371,000. At January 31, 1997 the borrowing limit
under the previous $500,000 Revolving Credit Agreement, reduced by $129,000 for
an outstanding standby letter of credit also resulted in unused borrowing
capacity of $371,0000. The $129,000 standby letter of credit served as
collateral on outstanding surety bonds required to guarantee the performance of
Spitz on certain customer contracts. In June 1997, the Surety Company determined
that the Company's financial strength was sufficient for the level of bonding
outstanding and returned the standby letter of credit for cancellation..
In addition to the unused borrowing capacity of $371,000, liquidity is provided
by cash balances of $854,000 at July 31, 1997 compared to $953,000 at January
31, 1997. The next source of liquidity, trade accounts receivable, decreased to
$873,000 at July 31, 1997 compared to $1,077,000 at January 31, 1997.
The retirement of the previous debt agreements and the Stock Subscription
(12)
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Warrant for $1,230,000 resulted in a redemption of Additional Paid in Capital of
$298,000 and an extraordinary gain from the forgiveness of debt of approximately
$345,000, net of related expenses, recorded in the second quarter of fiscal
1998. The retirement of the Stock Subscription Warrant eliminated the
corresponding twenty-five percent dilution of common shareholders equity.
In summary, as a result of the replacement of the debt agreements, total debt
was lowered by $124,000 while maintaining overall credit capacity, payment
schedules were favorably adjusted, near term maturity dates were extended to
five years, and the Company's common shareholders benefited by the return of a
beneficial ownership of twenty five percent of their equity in the Company.
The new debt agreements, combined with current assets and cash flow from
operations, assuming reasonably consistent revenue levels, should provide the
Company with adequate liquidity for the foreseeable future. The strengthening
financial condition of the Company should also improve the Company's ability to
raise additional funds for expansion of its products through other capital
resources.
(13)
<PAGE>
II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No.Description of Document
- ----------------------------
10.1 Line of Credit Agreement, dated June 12, 1997, between First Keystone
Savings Bank, the Company, and Spitz, Inc.*
10.2 Line of Credit Note, dated June 12, 1997, of the Company and Spitz, Inc.
to First Keystone Savings Bank.*
10.3 Term Note, dated June 12, 1997, of the Company and Spitz, Inc. to First
Keystone Savings Bank.*
10.4 Agreement, dated June 12, 1997 between the Company, Spitz,Inc.and Comerica
Bank. *
27 Financial Data Schedules*
- ---------------------------
*filed electronically herewith
(b) The Registrant did not file any reports on Form 8-K during the three months
ended July 31, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TRANSNATIONAL INDUSTRIES, INC.
/s/ Paul L. Dailey, Jr.
--------------------------
Date: September 12, 1997 Paul L. Dailey, Jr.
------------------
Secretary-Treasurer
Signing on Behalf of Registrant
and as Chief Financial Officer
(14)
LINE OF CREDIT AGREEMENT
Between
FIRST KEYSTONE FEDERAL SAVINGS BANK ("Bank")
and
TRANSNATIONAL INDUSTRIES, INC. and
SPITZ, INC.
(Collectively, jointly and severally referred to as "Borrower"),
Made this 12th day of June 1997.
SECTION 1 - THE LINE OF CREDIT
1.1 Bank will lend to Spitz, Inc. (hereinafter referred to as "Spitz"),
and Spitz may borrow from Bank, the aggregate sum of Eight Hundred Thousand
($800,000.00) Dollars, (the "Loan") pursuant to the terms of this Agreement. The
indebtedness to Bank under the Loan is the joint and several obligation and
liability of Spitz and Transnational Industries, Inc. (hereinafter collectively,
jointly and severally referred to as the "Borrower") evidenced by that certain
Line of Credit Note executed by Borrower and delivered to Bank of even date
herewith (the "Note"), in the full amount of the Loan, due and payable in
accordance with the terms thereof. Bank has even date herewith extended to
Borrower a certain other credit facility in the principal sum of Eight Hundred
Twenty Thousand ($820,000.00) Dollars evidenced by that certain Promissory Note
(the "Term Note") made by Borrower and delivered to Bank even date herewith (the
"Term Loan").
1.2 MAXIMUM REVOLVING CREDIT LIMIT. Provided there exists no Event of
Default hereunder (as hereinafter defined), principal advances of available
funds under the Loan shall be advanced to Spitz at Spitz's written request from
time to time until July 1, 2002, provided, however, the aggregate amount
advanced, less repayments, shall not exceed the sum
(1)
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of Eight Hundred Thousand ($800,000.00) Dollars at any one time outstanding (the
"Maximum Credit Limit"). Bank shall not be obligated to fund all or any part of
a requested advance under the Loan if such advance would cause the aggregate
amount advanced, less repayments, to exceed the Maximum Credit Limit.
Notwithstanding anything herein to the contrary, Bank shall not be obligated to
fund, and Spitz shall not be permitted to receive, all or any part of any
advance requested under the Loan which advance would cause the aggregate amount
advanced under the Loan and the Term Loan, less repayments, to exceed the sum
of; (i) eighty (80%) percent of the Borrower's "Qualified Accounts Receivable"
(as hereinafter defined) and (ii) fifty (50%) percent of Borrower's "Qualified
Inventory" (as hereinafter defined) and (iii) Five Hundred Two Thousand
($502,000.00) Dollars representing the orderly liquidation value of the
Borrower's machinery and equipment, which figure may, from time to time, be
reduced, but not increased, by the Bank based upon any reduction in the orderly
liquidation value of the Borrower's machinery and equipment (such a
determination to be at the Bank's sole and absolute discretion.
"Qualified Accounts Receivable" shall mean accounts receivable earned by
Borrower in the ordinary course of business for services rendered and goods sold
to customers for which there are no claims of offset or defense, and which, in
the opinion of Bank, are not of doubtful collectability, and which have been
outstanding for one hundred twenty (120) days or less, as reflected on the most
recent, certified statement of accounts receivable delivered to Bank. "Qualified
Inventory" shall be valued at the lesser of the cost or present market value
determined in accordance with generally accepted accounting principles,
consistently applied, and shall mean
(2)
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all inventory which is in good merchantable condition, is not obsolete or
discontinued, which would properly be classified as "raw materials", "work in
process", or "finished goods inventory" under generally accepted accounting
principles, and which has been fully paid for from Borrower's own funds and for
which no security interest exists except the security interest to be granted in
favor of Lender as herein contemplated. An account receivable or item of
inventory which is at any time a Qualified Account Receivable or an item of
Qualified Inventory, but which subsequently fails to meet any of the foregoing
requirements, shall cease to be a Qualified Account Receivable or an item of
Qualified Inventory as the case may be, for so long as such failure continues.
1.3 PROCEDURE FOR DISBURSEMENTS. Advance requests shall be made in writing
and signed by Charles Holmes or Paul Dailey, the President and Chief Financial
officer of Spitz respectively, or such other officers and/or employees of Spitz
as Spitz may from time to time authorize. Spitz must deliver to Bank written
notice one (1) business day in advance of making any request for an advance of
Twenty-Five Thousand ($25,000.00) Dollars or more. Further, Bank, in its sole
and absolute discretion, may refuse to honor any request for an advance made by
any person or entity other than Spitz notwithstanding any power or authority
granted such person or entity by Spitz, unless Spitz has secured Bank's prior
written acknowledgment and consent to the granting of such power or authority.
Advances of available funds under the Loan (after any initial advance at the
time of closing) shall be advanced to Spitz upon request and deposited into
Spitz's account with Bank.
(3)
<PAGE>
1.4 REPAYMENT AND INTEREST. Interest will be calculated for the actual
number of days that principal is outstanding based on a three hundred sixty
(360) day year, as provided in the Note. Borrower shall repay the Loan when and
as required under the Note.
1.5 VOLUNTARY PREPAYMENT. Borrower may prepay the principal of the Loan in
whole at any time, or in part from time to time as set forth in the Note.
Partial prepayments will be applied first on account of interest, then on
account of other sums due under the Loan, other than principal, and then on
account of principal.
SECTION 2 - CONDITIONS PRECEDENT TO BORROWING The obligation of
Bank to make any advance under the Loan is subject to the
following conditions precedent:
2.1 Borrower shall have complied with all of the terms and conditions of
the Bank's Commitment Letter dated May 15, 1997 and accepted by Borrower on May
20, 1997, including without limitation the execution and delivery of all
certificates and documents therein required.
2.2 Borrower shall execute and deliver to Bank such further certificates
and documents as Bank may reasonably require from time to time.
2.3 Borrower shall not be in default of any of Borrower's agreements and
covenants set forth herein and Borrower shall not be in default of any
obligation owing to Bank including, without limitation, Borrower's obligations
evidenced by the Note or the Term Note.
2.4 Borrower's representations and warranties set forth herein shall be
and remain unbroken, true and correct.
(4)
<PAGE>
SECTION 3 - REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower represents,warrants and covenants to Bank that:
3.1 This Agreement, the Note, the Security Agreement of even date
herewith, and any and all other documents executed by Borrower and delivered to
Bank in connection with the Loan (collectively the "Loan Documents") and any and
all documents executed by Borrower and delivered to Bank in connection with the
Term Loan (collectively the "Term Loan Documents"), when executed and delivered,
will be valid and binding obligations of the Borrower, enforceable in accordance
with their respective terms.
3.2 No event has occurred which with the passage of time or the giving of
notice or both could be an Event of Default hereunder, under the Loan Documents
or under the Term Loan Documents.
3.3 There are no suits in law or equity or proceedings before any
governmental instrumentality pending, or to the knowledge of Borrower threatened
against Borrower, the adverse result of which would be reasonably likely to in
any material respect affect the property or operations of Borrower.
3.4 Borrower has filed or obtained a valid extension to file all required
Federal, state and local tax returns and has paid all taxes as shown to be due
on said returns.
3.5 The facts set forth in Borrower's Affidavit of Business Purposes
executed and delivered unto Bank even date herewith in connection with the Loan
are true and correct.
(5)
<PAGE>
3.6 No financing statement (other than; (i) any which may have been filed
on behalf of the Bank, and (ii) security interests in favor of the owner of
equipment which may, from time to time, be leased by Borrower) covering any of
the Collateral (as defined in the Security Agreement and in the Pledge Agreement
of even date herewith respectively) is on file in any public office; Borrower is
and will be the owner of all Collateral (other than equipment which may, from
time to time, be leased by Borrower), free of all liens and claims whatsoever,
other than the security interest created under the Security Agreement, with full
power and authority to execute the Loan Documents and the Term Loan Documents
and to perform Borrower's obligations thereunder, and to subject the Collateral
to the security interest under the Security Agreement and the Pledge Agreement;
and all information with respect to Collateral and account debtors set forth in
any schedule, certificate or other writing at any time heretofore or hereafter
furnished by Borrower to Bank, and all other written information heretofore or
hereafter furnished by Borrower to Bank, is and will be true and correct in all
material respects as of the date furnished. SECTION 4 - ADDRESSES
4.1 Borrower's mailing address and office where Borrower keeps its records
concerning all accounts receivable is P.O. Box 198, Route 1, Chadds Ford,
Pennsylvania 19317.
SECTION 5 - BORROWER'S AFFIRMATIVE COVENANTS
Borrower covenants that so long as any indebtedness to Bank under the Note is
outstanding and unpaid, Borrower will:
(6)
<PAGE>
5.1 Use the proceeds of the Loan for business purposes of Spitz only. 5.2
Give prompt notice to Bank of all litigation or proceedings
affecting Borrower which, if adversely determined, may have a material adverse
effect on the financial or business condition of Borrower; and without limiting
the foregoing, give notice of any claim asserted against Borrower for an amount
exceeding $50,000.00.
5.3 Furnish the following financial information to Bank at Borrower's sole
cost and expense:
(a) Within ninety (90) days following the end of Borrower's fiscal
year and each fiscal quarter, respectively, in each year, Borrower shall deliver
to Bank the Borrower's Annual Report on Form 10-KSB and quarterly report on Form
10-QSB, each of which will include financial statements consisting of a balance
sheet, income statement and statement of source and application of funds for
Borrower. Such financial statements for Borrower (i) shall, in the case of the
annual statements be accompanied by an audit opinion by a certified public
accounting firm selected and paid for by Borrower and satisfactory to Bank (it
being agreed that the Borrower's current certified public accounting firm is
acceptable to the Bank), (ii) shall be prepared in accordance with generally
accepted accounting principles consistently applied, (iii) shall be in form
reasonably satisfactory to Bank and (iv) shall be certified as true, correct and
complete by the Borrower's chief financial officer.
(b) Within thirty (30) days of the end of each month, Borrower shall
deliver to Bank an accounts receivable aging report listing all Qualified
Accounts Receivable in a format and
(7)
<PAGE>
with such information as Bank may require, which shall be certified as true,
correct and complete by the Borrower's chief financial officer.
(c) Upon request of Bank, within thirty (30) days of the end of each
month, Borrower shall deliver to Bank a schedule listing all Qualified Inventory
in a format and with such information as Bank may require, which shall be
certified as true, correct and complete by the Borrower's chief financial
officer.
(d) Borrower shall deliver to Bank such other financial information
as to Borrower as Bank from time to time may request, all such information to be
provided in form and time frame reasonably satisfactory to Bank.
(e) Within thirty (30) days of the date the same are due for filing
(including any available extensions properly applied for) Borrower shall deliver
to Bank copies of Borrower's Federal Income Tax Returns. All copies of such
returns shall be certified by Borrower as true and correct and as actually filed
with the Internal Revenue Service.
5.4 Borrower shall maintain and deliver annually to Bank, at the sole cost
and expense of Borrower, and in form and substance satisfactory to Bank and
Bank's counsel, evidence of insurance coverage as follows:
(a) Original or certified copies of the following policies of
insurance maintained by Borrower at Borrower's expense, issued by a company or
companies, in amounts, forms, and with deductibles satisfactory to the Bank:
(8)
<PAGE>
(i) Comprehensive general liability insurance covering all
operations of Borrower in connection with the Collateral,
with a combined single limit of not less than $1,000,000.00
per occurrence for bodily injury (including death) and
property damage; and
(ii) "All risk" insurance with replacement cost endorsement,
with respect to the Collateral, in an amount not less than
the amount of the Loan.
(b) The all risk coverage policy as to the Collateral shall name the
Bank as loss payee under a standard loss payable clause containing a
non-contribution provision excluding the Bank from the operation of any
coinsurance clause in such policy.
(c) All such policies shall be issued by companies having a Best's
financial rating of A or better and a size class rating of 7 or larger, and
shall be endorsed to require thirty (30) days notice to Bank in the event of any
cancellation or change in coverage.
5.5 Borrower shall establish and maintain a significant banking
relationship with Bank, to include, without limitation, Borrower's maintaining
of all operating accounts with Bank and Borrower's depositing of all collected
receivables through such operating accounts.
5.6 Borrower shall not create or permit to exist any other lien on, or
security interest in, the Collateral (other than security interests in favor of
the owner of equipment which may, from time to time, be leased by Borrower) or
any other property of Borrower, without the prior written consent of Bank.
(9)
<PAGE>
5.7 Borrower shall store all of Borrower's inventory and equipment at
Borrower's place of business and shall take such steps as are reasonably
necessary to safeguard and care for such inventory and equipment. Upon request
of Bank, Borrower shall deliver to Bank copies of all invoices for purchased
inventory.
5.8 Borrower shall maintain as a "Minimum Stockholders' Equity" as of the
last day of each fiscal year after the date hereof, the following:
For Year End Minimum Stockholders' Equity
January 31, 1998 $2,500,000.00
January 31, 1999 $2,750,000.00
January 31, 2000 $3,050,000.00
January 31, 2001 $3,400,000.00
January 31, 2002 $3,840,000.00
The term "Minimum Stockholders' Equity" shall mean the Total Stockholders'
equity as reflected on the Borrower's Consolidated Balance Sheet included in
Borrower's Annual Report on form 10- KSB for the fiscal year ending on January
31.
5.9 Borrower shall not declare or pay any dividend which would cause the
Minimum Stockholders' Equity to fall below the minimum sums set forth herein,
nor shall Borrower declare or pay any dividend if Bank has declared an Event of
Default under the Loan or the Term Loan during the continuance thereof.
SECTION 6 - EVENTS OF DEFAULT
6.1 Each of the following shall be an event of default ("Event of
Default") hereunder: (a) The occurrence of an Event of Default under
the Note, the Security
Agreement and/or the Loan Documents;
(10)
<PAGE>
(b) The occurrence of any event of default under the Term Note and/or
the Term Loan Documents;
(c) The continuance for thirty (30) days after notice to Borrower of
Borrower's failure to perform and/or observe as and when required any obligation
or covenant set forth in this Agreement (except for defaults of Section 5.8
above, for which no opportunity to cure need be given);
(d) Any financial statement, representation or warranty of Borrower
proves to have been materially incorrect when made;
(e) The occurrence of any Event of Default (as defined therein) under
any other Agreement between Borrower and Bank;
(f) Any proceeding under the Bankruptcy Act or under any law of the
United States or of any state relating to insolvency, receivership,
reorganization, or debt adjustment is instituted by Borrower or if such
proceeding is instituted against Borrower and is consented to by Borrower or
remains undismissed for sixty (60) days, or if Borrower is adjudicated a
bankrupt, or a trust or receiver is appointed for any substantial part of
Borrower's property, or if Borrower makes an assignment for the benefit of
creditors, or becomes insolvent; or
(g) In the Bank's sole but reasonable discretion, a material adverse
change occurring in the financial condition of Borrower when compared to the
financial condition of the Borrower set forth in the financial statements
included within the Borrower's Annual Report on Form 10-KSB for the fiscal year
ended January 31, 1997.
(11)
<PAGE>
SECTION 7 - REMEDIES OF BANK
7.1 Upon the occurrence and during the continuance of any Event of
Default, Bank may, in its sole discretion do any or all of the following:
(a) Exercise any and all rights and remedies available to Bank at
law or in equity;
(b) Refuse to make any further advances under the Loan; (c) Set-off
any monies deposited in accounts of any nature
maintained in and with Bank by Borrower;
(d) (i) Demand, collect, receive payment of, receipt for and give
discharges and releases of all or any of Borrower's accounts receivable and
moneys to become due in respect thereof; (ii) settle, compromise, compound or
adjust all or any of Borrower's accounts receivable; (iii) commence and
prosecute any and all suits, actions or proceedings in law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any of
Borrower's accounts receivable or to enforce any rights in respect thereof; (iv)
settle, compromise, compound, adjust or defend any actions, suits or proceedings
relating or pertaining to all or any of the accounts receivable; (v) file any
claim or take any other action or proceeding which Bank may deem necessary or
appropriate to protect and preserve and realize upon the security interest of
Bank in the accounts receivable and the proceeds thereof; and (vi) generally
sell, assign, transfer, make any agreement with respect to or otherwise deal
with all or any of the Collateral as fully and completely as though the Bank
were the absolute owner thereof for all purposes. Upon request
(12)
<PAGE>
of Bank, Borrower will, at Borrower's sole cost and expense during the
continuance of an Event of Default, notify account debtors to make payment to
the Bank of any amounts due or to become due thereunder; and
(e) Exercise any and all rights and remedies available to Bank under
the Note and Security Agreement.
7.2 No remedy of Bank shall be exhausted by the initial exercise thereof,
but rather Bank may exercise all remedies from time to time and as often as
Bank, in its judgment, may deem desirable.
SECTION 8 - MISCELLANEOUS
8.1 SURVIVAL OF REPRESENTATIONS. All covenants, agreements,
representations and warranties made herein and in the Loan Documents shall
survive the making by Bank of the Loan and the execution and delivery of the
Loan Documents and shall continue in full force and effect so long as any
indebtedness of Borrower to Bank is outstanding.
8.2 FURTHER ASSURANCE. Borrower agrees to execute and deliver to Bank such
additional instruments as Bank may reasonably request from time to time to
effectuate the purposes of this Agreement and to perfect and continue Bank's
security interest in the Collateral.
8.3 WAIVER OF BANK. Bank shall not be deemed by any act of omission or
commission to have waived any of its rights or remedies hereunder unless such
waiver is in writing and signed by Bank and then only to the extent specifically
set forth in such writing. A waiver on one event shall not be construed as
(13)
<PAGE>
continuing or as a bar to or waiver of any right or remedy in a subsequent
event.
8.4 EXPENSES OF BANK. Borrower will pay all of Bank's expenses (including
Bank's reasonable attorney fees) in connection with the transactions
contemplated hereby, the preparation of documents pertaining to such
transactions, the enforcement of this Agreement and the Note and in the exercise
by Bank of any of its rights hereunder, under the Note, or under any of the
other Loan Documents (provided, however, that the Borrower's maximum liability
with respect to the Bank's attorneys' fee in connection with the closing of the
transactions contemplated hereby shall be $5,000.00).
8.5 NOTICES. Any notice required herein to be sent to Borrower may be
mailed by first class mail to Borrower at the address specified in Section 4.1
hereof, or such other address as Borrower may hereafter designate to Bank in
writing.
8.6 SEVERABILITY. If any provision hereof is found by a court of competent
jurisdiction to be unenforceable, the parties hereto intend all other provisions
to be absolutely unaffected.
8.7 DESCRIPTIVE HEADINGS. The descriptive headings of the sections hereof
are for convenience of reference only and in no way affect this Agreement.
8.8 COMPLETE AGREEMENT. Together with the Note and the other documents
delivered pursuant hereto, this Agreement states the complete agreement between
the parties.
(14)
<PAGE>
Waivers or modifications hereof must be in writing signed by the party to be
charged with the effect thereof.
8.9 GOVERNING LAW. This Agreement and the Loan Documents have been
executed and delivered in the Commonwealth of Pennsylvania and shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
8.10 INTERPRETATION. The parties agree and acknowledge that the use herein
and in other documents being entered into between the Borrower and Bank of even
date herewith of the phrase "upon the occurrence and during the continuance of
an Event of Default" and other similar phrases, does not mean and shall not be
interpreted to mean that, subsequent to such time as the Bank has accelerated
amounts due to it upon the occurrence of an Event of Default, the Borrower can
cure the Event of Default by paying less than the amount that has been so
accelerated. Notwithstanding anything in the foregoing sentence to the contrary,
upon the occurrence of an Event of Default and prior to Banks acceleration of
the sums due or exercise of any other remedy of Bank, Borrower does not have the
right to cure the Event of Default, and Bank shall not be obligated to accept
any payment or other performance tendered to cure the Event of Default. Further,
in the event Bank waives an Event of Default and permits Borrower to cure such
Event of Default, such waiver shall not constitute a waiver of any subsequent
Event of Default or create or be interpreted to create any right of Borrower to
cure any subsequent Event of Default.
(15)
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have executed this Agreement as of the day and year first above written.
BANK:
FIRST KEYSTONE FEDERAL SAVINGS
BANK
By: /s/ A. Charles Amentt Jr. (SEAL)
Attest: (SEAL)
Witnesses Present: BORROWER:
TRANSNATIONAL INDUSTRIES, INC.
By: /s/ Charles H. Holmes Jr. (SEAL)
Attest: /s/ Paul L. Dailey (SEAL)
Witnesses Present: BORROWER:
SPITZ, INC.
By: /s/Charles H. Holmes Jr. (SEAL)
Attest: /s/ Paul L. Dailey (SEAL)
(16)
LINE OF CREDIT
NOTE
Media, Pennsylvania
Maximum Credit Limit: $800,000.00 Date: June 12, 1997
FOR VALUE RECEIVED, WITHOUT DEFALCATION AND INTENDING TO BE LEGALLY
BOUND HEREBY, Transnational Industries, Inc. and Spitz, Inc., (hereinafter
collectively, jointly and severally referred to as the "Debtor"), promises to
pay to the order of First Keystone Federal Savings Bank, a corporation organized
and existing under the laws of the United States of America, (hereinafter
"Bank") at its offices located at 22 West State Street, Media, Pennsylvania
19063 or such other place as the holder hereof may from time to time direct, the
sum of Eight Hundred Thousand ($800,000.00) Dollars, or so much thereof as may
be advanced from time to time, and remain unpaid, under that certain Line of
Credit Agreement dated even date herewith (the "Line of Credit Agreement")
payable on the 1st day of July, 2002, together with interest from the date
hereof at the per annum rate of two (2.0% ) percent above the Wall Street Prime
Rate (hereinafter defined) in effect from time to time (the "Rate"), the
effective date of any change in the Rate to be the date of change of the Wall
Street Prime Rate, to be paid as follows:
(i) On July 1, 1997 a payment of interest only on the daily principal
balance outstanding from the date hereof to June 30, 1997, and thereafter a
payment of interest only on the daily principal balance outstanding from the
date hereof in monthly installments of said interest payable on the first day of
August, 1997, and on the same day of each month thereafter until July 1, 2002
(the "Maturity Date"), at which time the entire indebtedness evidenced by this
Note, including, without limitation, the entire outstanding principal balance
and accrued interest thereon, together with any other sums due and payable under
this Note, shall be payable in full;
(ii) The Wall Street Prime Rate is the "Prime Rate" published in the
"Money Rates" section of The Wall Street Journal, or the average "Prime Rate" if
more than one is published. If The Wall Street Journal ceases to be published or
goes on strike or is otherwise not published for any period of time, or if it
ceases to publish a "Prime Rate", then Bank may use any similar published prime
or base rate; and
(iii) The amount of any monthly installment shall be the result obtained
by multiplying the product of the outstanding balance on any day times the
applicable Rate by a fraction, the numerator of which is the actual number of
days during the period for which the calculation is being made that any given
outstanding balance is applicable, and the denominator of which is three hundred
sixty (360).
I. ADVANCES: Subject to the terms and conditions of this Note and
the Line of Credit Agreement, Bank agrees to advance to Spitz, Inc. from time to
time and until July 1, 2002,(the "Maturity Date"), such sums as Spitz, Inc. may
request, in writing, not to exceed at any time outstanding the principal sum of
(1)
<PAGE>
Eight Hundred Thousand ($800,000.00) Dollars (the "Maximum Credit Limit").
Within the limits of this Note and the Line of Credit Agreement and prior to the
Maturity Date Spitz, Inc. may borrow, repay, and borrow again.
II. SECURITY: The payment of this Note is secured by, inter alia, that
certain Security Agreement, Pledge Agreement and UCC-1 Financing Statements of
even date herewith encumbering the Collateral as defined in the Security
Agreement and the Pledge Agreement respectively.
III. ADVANCES FOR PROTECTION OF SECURITY INTEREST: In the event Debtor
fails to pay any cost or expense relating to the protection of the Collateral as
defined in the Security Agreement and the Pledge Agreement respectively, then
Bank may, at its option and without prior notice, advance sums on behalf of
Debtor in payment of any of the aforesaid, including, without limitation,
charges and claims, prior liens and insurance premiums without prejudice to the
right of enforcement of the within indebtedness or the other remedies of Bank as
hereinafter set forth by reason of the failure of Debtor to make payment of the
same; and all such sums so advanced by Bank shall be added to and become part of
the within indebtedness, with interest on each advance at the Rate, from the
dates of the respective expenditures, shall be secured by the security for this
Note, and shall be payable by Debtor to Bank upon demand. The production of a
receipt by the Bank shall be conclusive proof of a payment or advance authorized
hereby and the amount and validity thereof. The provisions of this paragraph
shall apply after the entry of a judgment in any collection action based upon
this Note or the security for this Note and Debtor shall be obligated to pay to
Bank any post judgment advances made by Bank pursuant to this paragraph.
IV. REPAYMENTS: Debtor may at any time prepay the principal outstanding
balance hereof in whole or in part without penalty or premium, provided that
Debtor gives written notice to Bank prior to or contemporaneously with any such
prepayment of principal. Partial prepayments shall be applied first on account
of interest, then on account of other sums due under this Note, other than
principal, and then on account of principal.
V. DEFAULT RATE OF INTEREST: In the event Debtor fails to pay any amount
due under this Note when due or as demanded, then interest shall at all times
during the continuance of such payment default accrue on all sums due under this
Note at the Rate plus five (5%) percent per annum (the "Default Rate").
VI. LATE CHARGE: In the event any monthly installment shall become
overdue for a period of fifteen (15) days, Debtor shall promptly pay to Bank a
late charge of five (5) cents for each dollar so overdue.
(2)
<PAGE>
VII. DEFAULT. (a) Each of the following shall constitute an event of
default by Debtor ("Event of Default") hereunder:
(i) any installment of interest, or principal and
interest, or any other sum required hereunder remains unpaid for the period of
fifteen (15) days after it shall become due in accordance with the provisions
hereof; or
(ii) the continuance for thirty (30) days after
notice of any default, other than a monetary default, in the performance of any
of the terms, covenants, agreements, obligations undertakings, provisions or
conditions contained herein; or
(iii) the occurrence of any Event of Default under the
provisions of the Security Agreement and/or the Pledge Agreement, or
(iv) the occurrence of an Event of Default under any
other obligation or indebtedness of Debtor to Bank including, without
limitation, the occurrance of any Event of Default under that certain Term Note
made by Debtor and delivered to Bank even date herewith in the original
principal amount of $820,000.00, or
(v) in the Bank's sole but reasonable discretion, a
material adverse change occurring in the financial condition of Debtor when
compared to the financial condition of the Debtor set forth in the financial
statements included within the Debtor's Annual Report on Form 10-KSB for the
fiscal year ended January 31,1997, or
(vi) any transfer, sale or other disposition of fifty
(50%) percent or more of the legal or beneficial ownership interests in
Transnational Industries, Inc., or
(vii) any transfer, sale or other disposition of any
legal or beneficial ownership interest in Spitz, Inc., other than to Bank
pursuant to the Pledge Agreement.
(b) Upon the occurrence and during the continuance of an Event of
Default, the entire unpaid principal balance hereof, together with interest
accrued thereon at the Rate hereinbefore specified to the date of Event of
Default and thereafter at the Default Rate, and all other sums due by Debtor
hereunder, under the Security Agreement, or under the Pledge Agreement together
with reasonable attorney's fees, shall, upon the declaration of Bank,
immediately become due and payable without presentment, demand or further action
of any kind, and payment of the same may be enforced and recovered in whole or
in part at any time by the entry of judgment on this Note or any other judicial
proceeding and the issuance of a writ of execution thereon upon any real or
personal property of Debtor; and Bank may also recover all costs of suit and
other expenses, including the cost of the title search, in connection therewith.
(3)
<PAGE>
(c) Upon the occurrence and during the continuance of an Event of
Default and upon the acceleration of the entire unpaid balance of principal of
this Note, interest shall continue to accrue thereafter at the Default Rate
until this Note, and all sums due hereunder, are paid in full, including the
period following the entry of any judgment. Interest after default at the
Default Rate shall be calculated on the basis of a three hundred sixty (360) day
year, but charged for the actual number of days elapsed.
(d) The rights and remedies provided herein, in the Security
Agreement, or in the Pledge Agreement shall be cumulative and concurrent and
shall not be exclusive of any right or remedy provided by law, in equity or
otherwise. Said rights and remedies may, at the sole discretion of Bank, be
pursued singly, successively or together as often as occasion therefor shall
arise, against Debtor and/or the Collateral or any other security for this Note,
as applicable. No failure on the part of Bank to exercise any of such rights or
remedies shall be deemed a waiver of any such rights or remedies or of any Event
of Default hereunder.
(e) Upon the occurrence and during the continuance of an Event of
Default, Bank shall have the right, but not the duty, to cure such default, in
part or in its entirety, and all amounts expended or debts incurred by Bank,
including reasonable attorneys' fees, shall be deemed to be advances to Debtor,
shall be added to the principal due under this Note, shall be secured by the
security for this Note, and shall be payable by Debtor to Bank upon demand with
interest at the Default Rate.
VIII. WARRANT OF ATTORNEY.
THE FOLLOWING SECTION SETS FORTH WARRANTS OF ATTORNEY FOR ANY ATTORNEY
TO CONFESS JUDGMENTS AGAINST DEBTOR. IN GRANTING THESE WARRANTS OF ATTORNEY TO
CONFESS JUDGMENTS AGAINST DEBTOR, DEBTOR HEREBY KNOWINGLY, INTENTIONALLY,
VOLUNTARILY, AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS DEBTOR MAY HAVE TO
PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS
AND LAWS OF THE COMMONWEALTH OF PENNSYLVANIA AND THE UNITED STATES OF AMERICA.
UPON DEBTOR'S FAILURE TO PAY ANY SUM DUE HEREUNDER AS AND WHEN DUE OR
DEMANDED DEBTOR DOES HEREBY IRREVOCABLY AUTHORIZE AND EMPOWER ANY ATTORNEY OF
THE PROTHONOTARY OF ANY COURT OF RECORD OF THE COMMONWEALTH OF PENNSYLVANIA OR
ELSEWHERE TO APPEAR FOR DEBTOR IN ANY SUCH COURT, AND WITH OR WITHOUT A
COMPLAINT OR DECLARATION FILED, IN AN APPROPRIATE ACTION BROUGHT AGAINST DEBTOR
ON THIS NOTE, TO ENTER AND CONFESS JUDGMENT AGAINST DEBTOR IN FAVOR OF BANK OR
ITS SUCCESSORS AND ASSIGNS, FOR THE ENTIRE AMOUNT DUE TO BANK UPON SUCH EVENT
(4)
<PAGE>
OF DEFAULT AS PROVIDED HEREIN, TOGETHER WITH COSTS OF SUIT AND REASONABLE
ATTORNEYS' FEES, BUT IN NO EVENT LESS THAN FIVE THOUSAND ($5,000.00) DOLLARS;
AND FOR SO DOING THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A
SUFFICIENT WARRANT. THE AUTHORITY HEREIN GRANTED TO APPEAR, ENTER AND CONFESS
JUDGMENT SHALL NOT BE EXHAUSTED BY ANY ONE OR MORE EXERCISES THEREOF OR BY ANY
DEFECTIVE EXERCISE THEREOF, BUT SHALL CONTINUE AND BE EXERCISABLE FROM TIME TO
TIME UNTIL THE FULL PAYMENT OF ALL AMOUNTS DUE FROM DEBTOR TO BANK HEREUNDER AND
UNDER THE LINE OF CREDIT AGREEMENT IS MADE.
DEBTOR ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF LEGAL COUNSEL IN
THE REVIEW AND EXECUTION OF THIS NOTE AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING PROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE
BEEN FULLY EXPLAINED TO DEBTOR BY SUCH COUNSEL AND AS EVIDENCE OF SUCH FACT
SIGNS ITS INITIALS.
(Initials of Officer of Debtor) (Initials of Officer of Debtor)
IX. WAIVER OF BENEFIT AND DEFECTS. Debtor hereby waives the benefit of
any laws now or hereafter enacted providing for any stay of execution,
marshaling of assets, exemption from civil process, redemption, extension of
time for payment, or valuation or appraisement of all or any part of the
Collateral or any other security for this Note, exempting all or any part of the
Collateral, or any other security for this Note from attachment, levy or sale
upon any such execution or conflicting with any provision of this Note. Debtor
waives and releases Bank and said attorney or attorneys from all errors, defects
and imperfections whatsoever in confessing any such judgment or in any
proceedings relating thereto or instituted by Bank hereunder. Debtor hereby
agrees that any property that may be levied upon pursuant to a judgment obtained
under this Note may be sold upon any execution thereon in whole or in part, and
in any manner and order that Bank, in its sole discretion may elect.
X. MISCELLANEOUS: Debtor hereby waives protest, notice of protest,
presentment, dishonor, notice of dishonor and demand. Debtor agrees to reimburse
Bank for all costs and expenses including reasonable counsel fees incurred by
Bank in connection with the enforcement hereof. The rights and privileges of
Bank under this Note shall inure to the benefit of its successors and assigns.
All representations, warranties and agreements of Debtor made in connection with
this Note shall bind Debtor's successors and assigns. If any provision of this
Note shall for any reason be held to be invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision hereof, but
this Note shall be construed as
(5)
<PAGE>
if such invalid or unenforceable provision had never been contained herein. This
Note has been delivered in, and shall be governed by the laws of the
Commonwealth of Pennsylvania.
The Debtor agrees and acknowledges that the use herein and in other
documents being entered into between the Debtor and Bank of even date herewith
of the phrase "upon the occurrence and during the continuance of an Event of
Default" and other similar phrases, does not mean and shall not be interpreted
to mean that, subsequent to such time as the Bank has accelerated amounts due to
it upon the occurrence of an Event of Default, the Debtor can cure the Event of
Default by paying less than the amount that has been so accelerated.
Notwithstanding anything in the foregoing sentence to the contrary, upon the
occurrence of an Event of Default and prior to Banks acceleration of the sums
due or exercise of any other remedy of Bank, Debtor does not have the right to
cure the Event of Default, and Bank shall not be obligated to accept any payment
or other performance tendered to cure the Event of Default. Further, in the
event Bank waives an Event of Default and permits Debtor to cure such Event of
Default, such waiver shall not constitute a waiver of any subsequent Event of
Default or create or be interpreted to create any right of Debtor to cure any
subsequent Event of Default.
XI. NO WAIVER. The granting, with or without notice, of any extension or
extensions of time for payment of any sum or sums due hereunder, or for the
performance of any covenant, provision, condition or agreement contained herein,
in the Security Agreement, or in the Pledge Agreement, or the granting of any
other indulgence, or the taking or releasing or subordinating of any security
for the indebtedness evidenced hereby, or any other modification or amendment of
this Note, the Security Agreement, or the Pledge Agreement will in no way
release or discharge the liability of Debtor, whether or not granted or done
with the knowledge or consent of Debtor.
XII. NOTICES: All notices, invoices, requests and other communications
hereunder shall be in writing and shall be sent by first class mail, postage
prepaid, and addressed as follows:
For Bank:
First Keystone Federal Savings Bank
22 West State Street
Media, PA 19063
Attention: A. Charles Amentt Jr., Vice President
For Debtor:
Transnational Industries, Inc.
P.O.Box 198
Route 1
Chadds Ford PA 19317
(6)
<PAGE>
and
Spitz, Inc.
P.O.Box 198
Route 1
Chadds Ford PA 19317
Attention: Mr. Paul L. Dailey, Vice President
with a copy (which shall not constitute notice) to:
Finn Dixon & Herling LLP
One Landmark Square, Suite 1400
Stamford, CT 06901
Attn: David I. Albin, Esq.
XIII. GOVERNING LAW: This Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
XIV. JOINT AND SEVERAL LIABILITY: Each and every entity signing this
Note is fully and personally obligated to keep all of the promises made in this
Note including, without limitation, the promises to pay the full amount owed.
Bank may enforce its rights under this Note against each entity signing this
Note individually or jointly.
XV. WAIVER OF JURY TRIAL: BY ITS EXECUTION AND DELIVERY OF THIS NOTE,
THE DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS NOTE, THE LINE OF CREDIT
AGREEMENT, ANY OTHER DOCUMENT OR INSTRUMENT RELATED HERETO OR THERETO, ANY OF
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE BANK OR THE
DEBTOR IN CONNECTION HEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE BANK TO ENTER INTO THIS NOTE.
(7)
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, Debtor has
duly executed this Note the day and year first above written and has hereunto
set hand and seal.
WITNESS: DEBTOR:
Transnational Industries, Inc.
By:/s/ Charles H. Holmes Jr.
Attest:/s/ Paul L. Dailey
WITNESS: DEBTOR:
Spitz, Inc.
By:/s/ Charles H. Homes Jr.
Attest:/s/ Paul L. Dailey
(8)
TERM NOTE
Media, Pennsylvania
Maximum Credit Limit: $820,000.00 Date: June 12, 1997
FOR VALUE RECEIVED, WITHOUT DEFALCATION AND INTENDING TO BE LEGALLY
BOUND HEREBY, Transnational Industries, Inc. and Spitz, Inc., (hereinafter
collectively, jointly and severally referred to as the "Debtor"), promises to
pay to the order of First Keystone Federal Savings Bank, a corporation organized
and existing under the laws of the United States of America, (hereinafter
"Bank") at its offices located at 22 West State Street, Media, Pennsylvania
19063 or such other place as the holder hereof may from time to time direct, the
sum of Eight Hundred Twenty Thousand ($820,000.00) Dollars, together with
interest from the date hereof at the per annum rate of nine and one-quarter
(9.250% ) percent (the "Rate"), payable in sixty (60) equal monthly installments
calculated based on a five (5) year amortization period, to be paid as follows:
(i) On July 1, 1997 a payment of interest only on the daily principal
balance outstanding from the date hereof to June 30, 1997, and commencing August
1, 1997, and on the first day of each and every month thereafter, Debtor shall
pay to Bank the principal, together with interest accruing hereunder at the
Rate, in arrears, in sixty (60) consecutive, and successive monthly installments
in the amount of Seventeen Thousand One Hundred Twenty-One Dollars and Fifty Two
Cents ($17,121.52) each until July 1, 2002 (the "Maturity Date") at which time
the entire indebtedness evidenced by this Note and accrued interest thereon
together with any other sums due and payable under this Note shall be payable in
full.
(ii) Interest on this Note shall be calculated on the basis of a three
hundred sixty (360) day year, but charged for the actual number of days elapsed.
I. SECURITY: The payment of this Note is secured by, inter alia, that
certain Security Agreement, Pledge Agreement and UCC-1 Financing Statements of
even date herewith encumbering the Collateral as defined in the Security
Agreement and in the Pledge Agreement respectively.
II. ADVANCES FOR PROTECTION OF SECURITY INTEREST: In the event Debtor
fails to pay any cost or expense relating to the protection of the Collateral as
defined in the Security Agreement and in the Pledge Agreement respectively, then
Bank may, at its option and without prior notice, advance sums on behalf of
Debtor in payment of any of the aforesaid, including, without limitation,
charges and claims, prior liens and insurance premiums without prejudice to the
right of enforcement of the within indebtedness or the other remedies of Bank as
hereinafter set forth by reason of the failure of Debtor to make payment of the
same; and all such sums so advanced by Bank shall be added to and become part of
the within indebtedness, with
(1)
<PAGE>
interest on each advance at the Rate, from the dates of the respective
expenditures, shall be secured by the security for this Note, and shall be
payable by Debtor to Bank upon demand. The production of a receipt by the Bank
shall be conclusive proof of a payment or advance authorized hereby and the
amount and validity thereof. The provisions of this paragraph shall apply after
the entry of a judgment in any collection action based upon this Note or the
security for this Note and Debtor shall be obligated to pay to Bank any post
judgment advances made by Bank pursuant to this paragraph.
III. REPAYMENTS: Debtor may at any time prepay the principal outstanding
balance hereof in whole or in part without penalty or premium, provided that
Debtor gives written notice to Bank prior to or contemporaneously with any such
prepayment of principal. Partial prepayments shall be applied first on account
of interest, then on account of other sums due under this Note, other than
principal, and then on account of principal.
IV. DEFAULT RATE OF INTEREST: In the event Debtor fails to pay any
amount due under this Note when due or as demanded, then interest shall at all
times during the continuance of such payment default accrue on all sums due
under this Note at the Rate plus five (5%) percent per annum (the "Default
Rate").
V. LATE CHARGE: In the event any monthly installment shall become
overdue for a period of fifteen (15) days, Debtor shall promptly pay to Bank a
late charge of five (5) cents for each dollar so overdue.
VI. DEFAULT. (a)Each of the following shall constitute an event of
default by Debtor ("Event of Default") hereunder:
(i)any installment of interest, or principal and interest,or
any other sum required hereunder remains unpaid for the period of fifteen (15)
days after it shall become due in accordance with the provisions hereof; or
(ii) the continuance for thirty (30) days after notice of
any default, other than a monetary default, in the performance of any of the
terms, covenants, agreements, obligations undertakings, provisions or conditions
contained herein; or
(iii) the occurrence of any Event of Default under the
provisions of the Security Agreement or the Pledge Agreement, or
(iv)the occurrence of an Event of Default under any other
obligation or indebtedness of Debtor to Bank including, without limitation, the
occurrence of any Event of Default under that certain Line of Credit Note made
by Debtor and delivered to Bank even date herewith in the original principal
amount of $800,000.00, or
(2)
<PAGE>
(v) in the Bank's sole but reasonable discretion, a material
adverse change occurring in the financial condition of Debtor when compared to
the financial condition of the Debtor set forth in the financial statements
included within the Debtor's Annual Report on Form 10- KSB for the fiscal year
ended January 31, 1997. in the sole opinion of Bank, a material adverse change
has occurred in the financial condition or credit rating of Debtor, or
(vi)any transfer, sale or other disposition of fifty (50%)
percent or more of the legal or beneficial ownership interests in Transnational
Industries, Inc., or
(vii) any transfer, sale or other disposition of any legal
or beneficial ownership interest in Spitz, Inc., other than to Bank pursuant to
the Pledge Agreement.
(b) Upon the occurrence and during the continuance of an Event of
Default, the entire unpaid principal balance hereof, together with interest
accrued thereon at the Rate hereinbefore specified to the date of Event of
Default and thereafter at the Default Rate, and all other sums due by Debtor
hereunder, under the Security Agreement, or under the Pledge Agreement together
with reasonable attorney's fees, shall, upon the declaration of Bank,
immediately become due and payable without presentment, demand or further action
of any kind, and payment of the same may be enforced and recovered in whole or
in part at any time by the entry of judgment on this Note or any other judicial
proceeding and the issuance of a writ of execution thereon upon any real or
personal property of Debtor; and Bank may also recover all costs of suit and
other expenses, including the cost of the title search, in connection therewith.
(c) Upon the occurrence and during the continuance of an Event of
Default and upon the acceleration of the entire unpaid balance of principal of
this Note, interest shall continue to accrue thereafter at the Default Rate
until this Note, and all sums due hereunder, are paid in full, including the
period following the entry of any judgment. Interest after default at the
Default Rate shall be calculated on the basis of a three hundred sixty (360) day
year, but charged for the actual number of days elapsed.
(d) The rights and remedies provided herein, in the Security
Agreement, or the Pledge Agreement shall be cumulative and concurrent and shall
not be exclusive of any right or remedy provided by law, in equity or otherwise.
Said rights and remedies may, at the sole discretion of Bank, be pursued singly,
successively or together as often as occasion therefor shall arise, against
Debtor and/or the Collateral or any other security for this Note, as applicable.
No failure on the part of Bank to exercise any of such rights or remedies shall
be deemed a waiver of any such rights or remedies or of any Event of Default
hereunder.
(e) Upon the occurrence and during the continuance of an Event of
Default, Bank shall have the right, but not the duty, to cure such default, in
part or in its entirety, and all amounts expended or debts incurred by Bank,
including reasonable attorneys' fees, shall be deemed to be advances to Debtor,
shall be added to the principal due under this Note, shall be
(3)
<PAGE>
secured by the security for this Note, and shall be payable by Debtor to Bank
upon demand with interest at the Default Rate.
VII. WARRANT OF ATTORNEY.
THE FOLLOWING SECTION SETS FORTH WARRANTS OF ATTORNEY FOR ANY ATTORNEY
TO CONFESS JUDGMENTS AGAINST DEBTOR. IN GRANTING THESE WARRANTS OF ATTORNEY TO
CONFESS JUDGMENTS AGAINST DEBTOR, DEBTOR HEREBY KNOWINGLY, INTENTIONALLY,
VOLUNTARILY, AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS DEBTOR MAY HAVE TO
PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS
AND LAWS OF THE COMMONWEALTH OF PENNSYLVANIA AND THE UNITED STATES OF AMERICA.
UPON DEBTOR'S FAILURE TO PAY ANY SUM DUE HEREUNDER AS AND WHEN DUE OR
DEMANDED DEBTOR DOES HEREBY IRREVOCABLY AUTHORIZE AND EMPOWER ANY ATTORNEY OF
THE PROTHONOTARY OF ANY COURT OF RECORD OF THE COMMONWEALTH OF PENNSYLVANIA OR
ELSEWHERE TO APPEAR FOR DEBTOR IN ANY SUCH COURT, AND WITH OR WITHOUT A
COMPLAINT OR DECLARATION FILED, IN AN APPROPRIATE ACTION BROUGHT AGAINST DEBTOR
ON THIS NOTE, TO ENTER AND CONFESS JUDGMENT AGAINST DEBTOR IN FAVOR OF BANK OR
ITS SUCCESSORS AND ASSIGNS, FOR THE ENTIRE AMOUNT DUE TO BANK UPON SUCH EVENT OF
DEFAULT AS PROVIDED HEREIN, TOGETHER WITH COSTS OF SUIT AND REASONABLE
ATTORNEYS' FEES, BUT IN NO EVENT LESS THAN FIVE THOUSAND ($5,000.00) DOLLARS;
AND FOR SO DOING THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A
SUFFICIENT WARRANT. THE AUTHORITY HEREIN GRANTED TO APPEAR, ENTER AND CONFESS
JUDGMENT SHALL NOT BE EXHAUSTED BY ANY ONE OR MORE EXERCISE THEREOF OR BY ANY
DEFECTIVE EXERCISES THEREOF, BUT SHALL CONTINUE AND BE EXERCISABLE FROM TIME TO
TIME UNTIL THE FULL PAYMENT OF ALL AMOUNTS DUE FROM DEBTOR TO BANK HEREUNDER.
DEBTOR ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF LEGAL COUNSEL IN
THE REVIEW AND EXECUTION OF THIS NOTE AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING PROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE
BEEN FULLY EXPLAINED TO DEBTOR BY SUCH COUNSEL AND AS EVIDENCE OF SUCH FACT
SIGNS ITS INITIALS.
(Initials of Officers of Debtor) (Initials of Officers of Debtor)
(4)
<PAGE>
VIII. WAIVER OF BENEFIT AND DEFECTS. Debtor hereby waives the benefit of
any laws now or hereafter enacted providing for any stay of execution,
marshaling of assets, exemption from civil process, redemption, extension of
time for payment, or valuation or appraisement of all or any part of the
Collateral or any other security for this Note, exempting all or any part of the
Collateral, or any other security for this Note from attachment, levy or sale
upon any such execution or conflicting with any provision of this Note. Debtor
waives and releases Bank and said attorney or attorneys from all errors, defects
and imperfections whatsoever in confessing any such judgment or in any
proceedings relating thereto or instituted by Bank hereunder. Debtor hereby
agrees that any property that may be levied upon pursuant to a judgment obtained
under this Note may be sold upon any execution thereon in whole or in part, and
in any manner and order that Bank, in its sole discretion may elect.
IX. MISCELLANEOUS: Debtor hereby waives protest, notice of protest,
presentment, dishonor, notice of dishonor and demand. Debtor agrees to reimburse
Bank for all costs and expenses including reasonable counsel fees incurred by
Bank in connection with the enforcement hereof. The rights and privileges of
Bank under this Note shall inure to the benefit of its successors and assigns.
All representations, warranties and agreements of Debtor made in connection with
this Note shall bind Debtor's successors and assigns. If any provision of this
Note shall for any reason be held to be invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision hereof, but
this Note shall be construed as if such invalid or unenforceable provision had
never been contained herein. This Note has been delivered in, and shall be
governed by the laws of the Commonwealth of Pennsylvania.
The Debtor agrees and acknowledges that the use herein and in other
documents being entered into between the Debtor and Bank of even date herewith
of the phrase "upon the occurrence and during the continuance of an Event of
Default" and other similar phrases, does not mean and shall not be interpreted
to mean that, subsequent to such time as the Bank has accelerated amounts due to
it upon the occurrence of an Event of Default, the Debtor can cure the Event of
Default by paying less than the amount that has been so accelerated.
Notwithstanding anything in the foregoing sentence to the contrary, upon the
occurrence of an Event of Default and prior to Banks acceleration of the sums
due or exercise of any other remedy of Bank, Debtor does not have the right to
cure the Event of Default, and Bank shall not be obligated to accept any payment
or other performance tendered to cure the Event of Default. Further, in the
event Bank waives an Event of Default and permits Debtor to cure such Event of
Default, such waiver shall not constitute a waiver of any subsequent Event of
Default or create or be interpreted to create any right of Debtor to cure any
subsequent Event of Default.
X. NO WAIVER. The granting, with or without notice, of any extension or
extensions of time for payment of any sum or sums due hereunder, or for the
performance of any covenant, provision, condition or agreement contained herein,
in the Security Agreement, or in the Pledge Agreement, or the granting of any
other indulgence, or the taking or releasing or subordinating of any security
for the indebtedness evidenced hereby, or any other modification or amendment of
this Note, the Security Agreement, or the Pledge Agreement, will in no way
release or
(5)
<PAGE>
discharge the liability of Debtor, whether or not granted or done with the
knowledge or consent of Debtor.
XI. NOTICES: All notices, invoices, requests and other communications
hereunder shall be in writing and shall be sent by first class mail, postage
prepaid, and addressed as follows:
For Bank:
First Keystone Federal Savings Bank
22 West State Street
Media, PA 19063
Attention: A. Charles Amentt Jr., Vice President
For Debtor:
Transnational Industries, Inc.
P.O.Box 198
Route 1
Chadds Ford PA 19317
and
Spitz, Inc.
P.O.Box 198
Route 1
Chadds Ford PA 19317
Attention: Mr. Paul L. Dailey, Vice President
with a copy (which shall not constitute notice) to:
Finn Dixon & Herling LLP
One Landmark Square, Suite 1400
Stamford, CT 06901
Attn.: David I. Albin, Esq.
XII. GOVERNING LAW: This Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
XIII. JOINT AND SEVERAL LIABILITY: Each and every entity signing this
Note is fully and personally obligated to keep all of the promises made in this
Note including, without limitation, the promises to pay the full amount owed.
Bank may enforce its rights under this Note against each entity signing this
Note individually or jointly.
(6)
<PAGE>
XIV. WAIVER OF JURY TRIAL: BY ITS EXECUTION AND DELIVERY OF THIS NOTE,
THE DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS NOTE, THE LINE OF CREDIT
AGREEMENT, ANY OTHER DOCUMENT OR INSTRUMENT RELATED HERETO OR THERETO, ANY OF
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE BANK OR THE
DEBTOR IN CONNECTION HEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE BANK TO ENTER INTO THIS NOTE.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Debtor has
duly executed this Note the day and year first above written and has hereunto
set hand and seal.
WITNESS: DEBTOR:
Transnational Industries, Inc.
By:/s/ Charles H. Holmes Jr.
Attest:/s/ Paul L. Dailey
WITNESS: DEBTOR:
Spitz, Inc.
By:/s/ Charles H. Holmes Jr.
Attest:/s/ Paul L. Dailey
(7)
AGREEMENT
Agreement dated June 12, 1997 among Transnational
Industries, Inc. ("Guarantor"), Spitz, Inc. ("Obligor")
and Comerica Bank ("Comerica").
The parties agree:
1. As of the date of this Agreement, Obligor and Guarantor are indebted to
Comerica as of June 12, 1997, as follows:
Maker Note Principal Interest
- -------------------------------------------------------------
Obligor Revolving 0 0
Obligor Term $1,352,000.00 $4,349.33
Guarantor Term $21,782.68 $0
plus fees and expenses (the "Indebtedness"). In addition, Comerica is the holder
of a Stock Subscription Warrant ("Warrant") dated as of April 1, 1994 to
purchase 2,178,268 shares of common stock of Guarantor.
2. Concurrently with execution of this Agreement, Obligor and Guarantor
shall pay $1,235,849.33 to Comerica in immediately available funds
(consisting of principal of $1,230,000, accrued interest of $4,349.33
and fees and expenses of $1,500).
3. Obligor and Guarantor acknowledge that the Revolving Credit Loan has
expired and that Comerica has no obligation to lend to Obligor and
Guarantor under that facility or otherwise.
4. Obligor and Guarantor have prepared certain UCC-3 termination
statements for execution by Comerica, as scheduled on Exhibit A. Upon
receipt from Comerica, Obligor and Guarantor accept the responsibility
and expense of filing all such UCC-3 termination statements.
5. Upon fulfillment of the requirements of the Obligor and Guarantor in
paragraph 2, Comerica shall, subject to paragraph 7 below, accept the
payment under paragraph 2 as payment in full of the Indebtedness and
shall:
(a) execute and deliver to Obligor or its designee the UCC-3
termination statements identified on Exhibit A;
(b) return to Guarantor the Warrant;
(c) return to the respective obligors the $500,000 Revolving
Credit Note by Obligor dated April 1, 1994, the $1,800,00
(1)
<PAGE>
Convertible Term Note by Obligor dated April 1, 1994 and the
$21,782.68 Term Note by Guarantor dated April 1, 1994, each
marked "PAID".
6. Obligor and Guarantor understand that Comerica may have to report the
cancellation of indebtedness to the Internal Revenue Service.
7. The Indebtedness may not represent all amounts owing to Comerica
because of returned items, insufficient funds checks, partial credits
and provisional credits taken into consideration in calculating the
Indebtedness, and because of any disgorgements of any nature, required
to be made by Comerica in the future based on the avoidance of any
previous payments to Comerica on the Indebtedness, whether such
avoidance is pursued under the United States Bankruptcy Code or
otherwise (collectively, the "Adjustments"). Because of the possibility
of Adjustments, Obligor and Guarantor agree to indemnify Comerica from
any and all losses or deficiencies caused by any Adjustments which arise
(at any time), and agree to pay, and hold Comerica harmless with respect
to all Adjustments.
8. In consideration of Comerica's acceptance of a discounted payment of
the Convertible Term Note by Obligor dated and the Term Note by
Guarantor and its return of the Warrant, Obligor and Guarantor knowingly
and voluntarily release Comerica, its employees, agents, affiliates,
subsidiaries, successors and assigns, from any claim, right or cause of
action which now exists or hereafter arises as a result of such acts,
omissions or events occurring prior to the date hereof, whether known or
unknown, arising from or in any way related to the Indebtedness, the
Loan Documents or the relationship among Comerica, Obligor and Guarantor
or any of them. Obligor and Guarantor shall also defend and hold
harmless Comerica from any claim or damages of Obligor and Guarantor, or
any of them, or any third party against Comerica arising from or
relating to the Indebtedness, the Loan Documents, this Agreement or the
business relationship among the Comerica Obligor and Guarantor.
9. The parties covenant and agree to execute and deliver all such
documents and to take all such further actions, including the provision
of information, as the other may reasonably deem necessary, from time to
time, to carry out the intent and purpose of this Agreement and to
consummate the transaction contemplated.
10. The agreements, representations and warranties of the parties shall
survive the consummation of the assignment.
(2)
<PAGE>
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of Michigan without reference to conflicts of
laws.
12. This Agreement sets forth the entire agreement and understanding of
the parties, and supersedes all prior agreements and understanding
between the parties with respect to the assignment. This Agreement shall
be binding on, and inure to the benefit of, the parties and their heirs,
successors and assigns.
13. This Agreement may be signed in counterparts, each of which shall be
an original and both of which taken together shall constitute one
agreement.
14. This Agreement may not be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against
which enforcement of such change, waiver, discharge or termination is
sought.
TRANSNATIONAL INDUSTRIES, INC.
By:/s/ Charles H. Holmes Jr.
Its: President
SPITZ, INC.
By:/s/ Charles H. Holmes Jr.
Its: President
COMERICA BANK
By:/s/ Timothy K. McLaughlin
Its: Vice President
(3)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Transnational Industries, Inc. as of
July 31, 1997 and the related condensed consolidated statement of operations and
statement of cash flows for the six months then ended and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 854
<SECURITIES> 0
<RECEIVABLES> 873
<ALLOWANCES> 0
<INVENTORY> 1002
<CURRENT-ASSETS> 2906
<PP&E> 2595
<DEPRECIATION> 1812
<TOTAL-ASSETS> 6005
<CURRENT-LIABILITIES> 1897
<BONDS> 0
0
399
<COMMON> 65
<OTHER-SE> 2323
<TOTAL-LIABILITY-AND-EQUITY> 6005
<SALES> 4085
<TOTAL-REVENUES> 4085
<CGS> 2907
<TOTAL-COSTS> 2907
<OTHER-EXPENSES> 219
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 245
<INCOME-TAX> 14
<INCOME-CONTINUING> 231
<DISCONTINUED> 0
<EXTRAORDINARY> 345
<CHANGES> 0
<NET-INCOME> 576
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 0
</TABLE>
