FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended April 2, 1995
Commission file number 1-9298
RAYTECH CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1182033
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 512, One Corporate Drive
Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
203-925-8023
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
As of April 2, 1995, 3,219,368 shares of the Registrant's common
stock, par value $1.00, were issued and outstanding.
Page 1 of 23 <PAGE>
RAYTECH CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Balance Sheets as
at April 2, 1995 and January 1, 1995 3
Condensed Consolidated Statements of
Operations for the thirteen weeks ended
April 2, 1995 and April 3, 1994 4
Condensed Consolidated Statements of Cash
Flows for the thirteen weeks ended
April 2, 1995 and April 3, 1994 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
Exhibit 11 - Earnings Per Share Computation 23
-2-<PAGE>
RAYTECH CORPORATION
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
<CAPTION>
April 2, Jan. 1,
As at 1995 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,949 $ 4,778
Trade accounts receivable, less allowance of $598
for 1995 and $519 for 1994 19,307 13,718
Inventories 22,648 22,859
Other current assets 3,447 5,019
Total current assets 48,351 46,374
Property, plant and equipment 113,960 111,147
Less accumulated depreciation 71,016 70,292
Net property, plant and equipment 42,944 40,855
Other assets 4,609 4,580
Total assets $ 95,904 $ 91,809
LIABILITIES
Current liabilities
Notes payable $ 4,707 $ 4,928
Current portion of long-term debt (including $6,166 and
$6,855 due to Raymark in 1995 and 1994, respectively) 7,296 8,001
Accounts payable 10,335 12,055
Accrued liabilities 22,807 20,993
Total current liabilities 45,145 45,977
Long-term debt due to Raymark 29,690 30,627
Long-term debt - 245
Postretirement benefits other than pensions 7,888 7,593
Other long-term liabilities 3,954 3,651
Total liabilities 86,677 88,093
Minority interest - -
SHAREHOLDERS' EQUITY
Capital stock
Cumulative preference stock, no par value
800,000 shares authorized, none issued & outstanding
Common stock, par value $1.00 -
7,500,000 shares authorized, 5,351,424 and 5,351,024
issued and outstanding in fiscal 1995 and 1994, respectively 5,351 5,351
Additional paid in capital 70,148 70,148
Accumulated deficit (64,673) (69,250)
Cumulative translation adjustment 2,962 2,028
13,788 8,277
Less treasury shares at cost (4,561) (4,561)
Total shareholders' equity 9,227 3,716
Total liabilities and shareholders' equity $ 95,904 $ 91,809
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<PAGE>
RAYTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<CAPTION>
April 2, April 3,
For the 13 Weeks Ended 1995 1994
<S> <C> <C>
Net sales $ 49,913 $ 43,555
Cost of sales 35,524 31,774
Gross profit 14,389 11,781
Selling, general and administrative expenses (6,959) (6,426)
Operating profit 7,430 5,355
Interest expense (98) (92)
Interest expense - Raymark (509) (587)
Other income, net 294 81
Income before provision for income taxes 7,117 4,757
Provision for income tax (2,540) (1,767)
Net income $ 4,577 $ 2,990
Net income per share $ 1.33 $ .89
Average shares outstanding 3,443,600 3,342,696
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
RAYTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
April 2, April 3,
For the 13 Weeks Ended 1995 1994
<S> <C> <C>
Net cash provided by operating activities $ 1,414 $ 6,382
Cash flow from investing activities:
Capital expenditures (2,408) (2,306)
Proceeds on sale of property, plant and equipment 1,921 -
Net cash used in investing activities (487) (2,306)
Cash flow from financing activities:
Proceeds from short-term borrowings 10,000 1,197
Payments on short-term borrowings (10,788) (2,754)
Principal payments on long-term debt (576) (52)
Proceeds of borrowings from Raymark - 500
Payments on borrowings from Raymark (1,459) (1,395)
Net cash used in financing activities (2,823) (2,504)
Effect of exchange rate changes on cash 67 -
Net change in cash and cash equivalents (1,829) 1,572
Cash and cash equivalents at beginning of period 4,778 2,990
Cash and cash equivalents at end of period $ 2,949 $ 4,562
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
RAYTECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
NOTE: For purposes of the notes and Item 2, Raytech Corporation
and its subsidiaries are referenced on a consolidated basis
as "Raytech" or the "Company" where appropriate.
NOTE A - RESTRUCTURING OF RAYTECH, CHAPTER 11 PROCEEDINGS
AND OTHER LITIGATION
The restructuring of the Company in October 1986 was for
the stated purpose of separating Raytech from Raymark Industries,
Inc.'s ("Raymark") substantial asbestos-related liabilities and
litigation. For a further discussion of this matter, please refer
to Raytech's 1994 Form 10-K, Part 1, Item 1, Pages 4-8. As part of
the restructuring process of Raytech, Raymark common stock was
divested and sold as of May 20, 1988 to Asbestos Litigation
Management, Inc.
Despite the restructuring plan implementation and
subsequent divestiture of Raymark, Raytech was named a co-defendant
with Raymark and other named defendants in approximately 3,300
asbestos-related lawsuits as a successor in liability to Raymark.
The dollar value of these lawsuits cannot be calculated as most
complaints either over inflate claims, state only jurisdictional
minimums or do not specify damages at all. Until February 1989,
the defense of all such lawsuits was provided to Raytech by Raymark
in accordance with the indemnification agreement included as a
condition of the purchase of the Wet Clutch and Brake Division and
German subsidiary from Raymark in 1987. In February 1989, an
involuntary petition in bankruptcy was filed against Raymark and
remains pending. Subsequent to the involuntary bankruptcy
proceedings against Raymark, a restrictive funding order was issued
by an Illinois Circuit Court, which required one of Raymark's
insurance carriers to pay claims but not defense costs, and another
insurance carrier had been declared insolvent. These circumstances
caused Raymark to be unable to fund the costs of defense to Raytech
under its indemnification agreements. Raymark's cost of defense
and disposition of cases up to the automatic stay of litigation
under the involuntary bankruptcy proceedings has been approximately
$333 million of Raymark's total insurance coverage of approximately
$395 million. Of the $62 million remaining, $32 million is covered
by the insolvent carrier and the remaining is either blocked due to
lower levels not being exhausted or does not provide for defense of
the claims.
<PAGE>
In a case decided in October 1988 in a U. S. District
Court in Oregon, Raytech was ruled under Oregon equity law to be a
successor to Raymark's asbestos-related liability. The liability
of the case was settled for an immaterial amount. The successor
decision was appealed by Raytech and in October 1992 the Ninth
Circuit Court of Appeals affirmed the District Court's judgment on
the grounds stated in the District Court's opinion. The effect of
this decision beyond the immediate case is not known, but it has
set a precedent under Oregon law. Counsel has advised that the
Court orders limit this decision to Oregon; however, it cannot be
predicted whether trials of the facts under other states' laws
would result in similar or dissimilar orders.
As the result of the above factors and in order to obtain
a ruling binding across all jurisdictions as to whether Raytech is
liable as a successor for asbestos-related and other claims,
including claims yet to be filed relating to the operations of
Raymark or its predecessors, on March 10, 1989, Raytech filed a
petition seeking relief under Chapter 11 of Title 11, United States
Code in the United States Bankruptcy Court, District of
Connecticut. Under Chapter 11, substantially all litigation
against Raytech has been stayed while the debtor corporation and
its non-filed operating subsidiaries continue to operate their
businesses in the ordinary course under the same management and
without disruption to employees, customers or suppliers. In the
Bankruptcy Court a creditors' committee was appointed, comprised
primarily of asbestos claimants' attorneys.
Since the bankruptcy filing, several entities have
asserted claims in Bankruptcy Court, alleging environmental and
pension liabilities of Raymark based upon the same theories of
successor liability against Raytech as alleged by asbestos
claimants. These claims are not covered by the class action
referenced below and will be resolved in the bankruptcy case. The
environmental claims include a claim by the Pennsylvania Department
of Environmental Resources ("DER") to perform certain activities in
connection with Raymark's Pennsylvania manufacturing facility,
which includes submission of an acceptable closure plan for a
landfill containing hazardous waste products located at the
facility and removal of accumulated baghouse dust from its
operations. In March 1991, the Company entered a Consent Order,
which required Raymark to submit a revised closure plan which
provides for the management and removal of hazardous waste, for
investigating treatment and monitoring of any contaminated
groundwater and for the protection of human health and environment
at the site, all relating to the closure of the Pennsylvania
landfill and to pay a nominal civil penalty. The estimated cost
for Raymark to comply with the order is $1.2 million. The DER has
reserved its right to reinstitute an action against the Company and
the other parties to the DER order in the event Raymark fails to
comply with its obligations under the Consent Order. Another
environmental claim was filed against the Company by the U. S.
<PAGE>
Environmental Protection Agency for civil penalties charged Raymark
in the amount of $12 million arising out of alleged Resource
Conservation and Recovery Act violations at Raymark's Connecticut
manufacturing facility.
Under bankruptcy rules, the debtor-in-possession has an
exclusive period in which to file a reorganization plan. Such
exclusive period had been extended by the Bankruptcy Court pending
the conclusion of the successor liability litigation. However, in
December 1992, the creditors' committee filed a motion to terminate
the exclusive period to file a plan of reorganization. At a
hearing in May 1993 the motion was denied by the Bankruptcy Court
but was appealed by the creditors' committee. In November 1993,
the U. S. District Court reversed the Bankruptcy Court and
terminated the exclusive period to file a plan of reorganization
effective in January 1994. Accordingly, any party in interest,
including the debtor, the creditors' committee, or a creditor may
file a plan of reorganization.
In May 1994, Raytech filed a Plan of Reorganization
("Debtor's Plan") in the U.S Bankruptcy Court for the purpose of
seeking confirmation allowing Raytech to emerge from the bankruptcy
filed March 10, 1989. Important conditions precedent to
confirmation of the Debtor's Plan include a final judgment in the
litigation to determine whether Raytech is a successor to the
liabilities of Raymark and a resolution of the environmental claims
or other claims filed or to be filed by governmental agencies. The
Debtor's Plan provides that in the event Raytech is found to be a
successor, it is to establish a successor trust funded by an amount
determined to be the difference between what Raytech should have
paid for the businesses purchased from Raymark less the amount
actually paid and less amounts to be paid for environmental and
other claims. This remedy would satisfy its obligations as a
successor in full and render all claimants unimpaired, thereby
eliminating the need for balloting and all equity shareholders
would retain their interests in full. Raytech believes the
Debtor's Plan to be confirmable. In September 1994, the Creditors'
Committee filed its own Plan of Reorganization in competition to
the Debtor's Plan ("Creditors' Plan"). The Creditors' Plan calls
for the elimination of Raytech Corporation and its stockholders to
be replaced with a new Raytech. All of the stock of new Raytech
would then be distributed to unsecured claimants, environmental
claimants and both past and future asbestos disease claimants on a
formulated basis set forth in the Plan. Current stockholders of
Raytech would receive nothing under the Plan. Raytech believes the
Creditors' Plan is unconfirmable and will vigorously contest
attempts to have it confirmed while it continues to try to get the
Debtor's Plan confirmed. The outcome of these matters is expected
to take considerable time and is uncertain. If an adverse plan is
confirmed, it would have a material adverse impact on Raytech and
its stockholders.
<PAGE>
In June 1989 Raytech filed a class action in the
Bankruptcy Court against all present and future asbestos claimants
seeking a declaratory judgment that it not be held liable for the
asbestos-related liabilities of Raymark. It was the desire of
Raytech to have this case heard in the U. S. District Court, and
since the authority of the Bankruptcy Court is referred from the
U. S. District Court, upon its motion and argument the U. S.
District Court withdrew its reference of the case to the Bankruptcy
Court and thereby agreed to hear and decide the case. In September
1991, the U. S. District Court issued a ruling dismissing one count
of the class action citing as a reason the preclusive effect of the
1988 Oregon case, previously discussed, under the doctrine of
collateral estoppel (conclusiveness of judgment in a prior action),
in which Raytech was ruled to be a successor to Raymark's asbestos
liability under Oregon law. The remaining counts before the U. S.
District Court involve the transfer of Raymark's asbestos-related
liabilities to Raytech on the legal theories of alter-ego and
fraudulent conveyance. Upon a motion for reconsideration, the
U. S. District Court affirmed its prior ruling in February 1992.
The dismissal of the successor liability count is considered to be
serious for it extends the impact of this case beyond Oregon. When
the other counts are ruled upon the Company has the right to appeal
the ruling. In February 1992, the U. S. District Court transferred
the case in its entirety to the U. S. District Court for the
Eastern District of Pennsylvania. Such transfer was made by the
U. S. District Court without motion from any party in the interest
of the administration of justice as stated by the U. S. District
Court. In December 1992, Raytech filed a motion to activate the
case and to obtain rulings on the remaining counts. The motion was
denied by the U. S. District Court. In October 1993, the
creditors' committee asked the Court to certify the previous
dismissal of the successor liability count. In February 1994, the
U. S. District Court granted the motion to certify which allowed
the successor liability dismissal to be appealed to the Third
Circuit Court of Appeals. The Company filed such appeal in March
1994, and it has been briefed and argued and awaits the Court
ruling.
Costs incurred by the Company for asbestos-related
liabilities are indemnified by Raymark under the 1987 acquisition
agreements. By agreement, Raymark has reimbursed the Company in
part for such indemnified costs by payment of the amounts due in
Raytech common stock of equivalent value. Under such agreement,
Raytech has received 926,821 shares in 1989, 177,570 shares in
1990, 163,303 in 1991 and 80,000 shares in 1993. The Company's
acceptance of its own stock was based upon an intent to control
dilution of its outstanding stock. In 1992, the indemnified costs
were reimbursed by offsetting certain payments due Raymark from the
Company under the 1987 acquisition agreements. Costs incurred in
1994 were applied as a reduction of the note obligations pursuant
to the agreements.
<PAGE>
In October 1992, the Secretary of the Department of Labor
filed suit against Raymark and certain named fiduciaries in the
U. S. District Court for Connecticut naming the Company as a
successor to Raymark, alleging the breach of fiduciary duties
required under ERISA in connection with the purchase of a group
annuity contract from Executive Life Insurance Company to fund the
benefits of participants and beneficiaries of three pension plans.
Executive Life was placed in conservatorship by the California
Insurance Commission in April 1991. The Department of Labor filed
a claim against Raytech in the Bankruptcy Court in the amount of
$22.8 million for successor liability to the damages alleged in the
suit. The impact of this litigation is unknown at this time.
Discovery in the suit is proceeding.
A lawsuit was filed in the Wayne County, Michigan, Court
in July 1993 by a former sales agent against Raybestos Products
Company ("RPC"), a wholly-owned subsidiary of the Company, alleging
entitlement to post-termination commissions in the amount of $4
million. A trial was held in October 1994 and ruled a mistrial due
to a split (hung) jury. A new trial began in March 1995, and
during the trial, the parties settled the dispute which provided
for payment of $70 by RPC in return for a dismissal of the suit and
full release.
In February 1994, a jury in the U. S. District Court for
the Southern District of Indiana returned a verdict in favor of RPC
for $2.9 million plus costs and against Gilbert W. Younger and
Transgo, a corporation. RPC had sued the defendants in 1990 for
defamation of products and injurious falsehoods concerning RPC's
manufactured products. In April 1994, the Court granted RPC its
costs, attorneys' fees and interest in addition to the damages
awarded by the jury. The defendants filed for bankruptcy under
Chapter 11 in 1992 and the defendant's plan of reorganization was
confirmed in September 1994 by a California Bankruptcy Court.
Under the plan of reorganization and ordered by the Court, the
total amount of the awarded damages has been placed in a secured
escrow account pending appeals. In April 1995, the 7th Circuit
Court of Appeal affirmed the verdict except for the award of
prejudgment interest. No amount has been recorded by the Company
pending further legal proceedings and the ultimate realization of
the award.
Management believes that the restructuring plan, including
the acquisitions of businesses from Raymark and the Raymark
divestiture created for the purpose to legally separate Raytech and
its acquired businesses from Raymark's asbestos-related and other
liabilities will be upheld in the court proceedings.
However, the outcome of these matters is uncertain and should
Raytech receive an adverse ruling in the District Court or
bankruptcy under the doctrines of successor liability, piercing the
corporate veil or fraudulent conveyance, there would be a material
adverse impact on Raytech as it does not have the resources needed
to fund Raymark's substantial uninsured asbestos-related
<PAGE>
liabilities, environmental and pension liabilities and related
costs of litigation.
The ultimate liability, if any, of the Company with
respect to asbestos-related, environmental, pension or other claims
cannot presently be determined. Accordingly, no provision for such
liability has been recorded in the financial statements. The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. An unfavorable
ruling on the matters described above would have a material adverse
effect on the Company's results of operations and financial
position. These uncertainties raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
NOTE B - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments necessary
to fairly present the financial position of Raytech as of
April 2, 1995 and January 1, 1995, the results of operations for
the thirteen weeks ended April 2, 1995 and statements of cash flows
for the thirteen weeks ended April 2, 1995. Except for the matters
disclosed herein, all adjustments are of a normal recurring nature.
The financial statements contained herein should be read in
conjunction with the financial statements and related notes filed
on Form 10-K for the year-ended January 1, 1995.
The year-end condensed balance sheet data was derived from
audited financial statements but does not include all disclosures
required by generally accepted accounting principles.
NOTE C - INVENTORIES
Inventories consist of the following:
April 2, 1995 January 1, 1995
Raw material $ 6,815 $ 6,367
Work in process 6,468 6,524
Finished goods 9,365 9,968
$22,648 $22,859
NOTE D - RELATED PARTIES
During the first three months of 1995, the Company
purchased yarn from Universal Friction Composites, a related party,
in the amount of $563, and at April 2, 1995, the related payable
amounted to $179.
<PAGE>
Effective March 31, 1995, Allomatic Products Company
("APC"), a majority-owned subsidiary, declared a cash dividend of
$2.81 per share payable in equal quarterly installments to
shareholders of record in March 1995. The fourth quarter
installment of the dividend declared in 1994 was paid in March
1995. As of April 2, 1995, 34,208 shares, or 33% of the
outstanding shares, were held by Universal Friction Composites,
Inc., a corporation directed by Bradley C. Smith, as President, a
son of Craig R. Smith, and 7% of the outstanding shares were held
by Bradley C. Smith, individually. Accordingly, the total
beneficial interest of Craig R. Smith is 40%.
NOTE E - WARRANTS
The 4,000,000 warrants authorized by the Company in 1986
have expired effective October 1, 1994 by the terms of the
warrants. Of the 3,998,148 warrants issued, none were exercised
prior to the expiration date. The authorized shares of stock count
has been reduced from 11,500,000 to 7,500,000 reflecting the
termination of the registration of shares to cover the exercise of
warrants.
NOTE F - LOAN AGREEMENT
In March 1995, RPC, a wholly-owned subsidiary of the
Company, entered into a five-year loan agreement with The CIT
Group/Credit Finance, Inc., which provides for RPC to borrow up to
$15 million, consisting of a revolving line of credit of $10
million and a term loan of $5 million at an interest rate of 1.75%
above the prime rate. The amount of borrowing is predicated on
satisfying a borrowing base formula related to levels of certain
accounts receivable and inventories. The loans are collateralized
by accounts receivable, inventory and machinery and equipment at
RPC. The purpose of the loan is for working capital, capital
expenditures, acquisitions and possible settlement of successor
liability issues. Under the terms of the loan agreement, RPC is
required to maintain certain cash flow levels and is prohibited
from declaring or paying dividends, except under certain
conditions. The amount outstanding under this loan at April 2,
1995 was $0.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Summary
Net income for the first quarter of 1995 amounted to
$4,577 or $1.33 per share as compared with $2,990 or $.89 per share
reported in the same period of fiscal 1994, which is an improvement
of 53%. This is basically a result of additional sales volume in
the market segments that the Company sells its products and a
return to profitability of the Company's German dry friction
business.
Net Sales
Net sales for the first quarter of fiscal 1995 increased
by 15% to $49,913 as compared with $43,555 for the same period a
year ago. This overall improvement is a continuation of strong
1994 performance in the construction, agriculture and automotive
market segments. In addition, the Company has reported modest
improvement within the European product market segment.
Gross Margin
Gross profit margin for the first quarter of fiscal 1995
is up 22% as compared with the first quarter of 1994. As a result
of the company's German consolidation program implemented and
completed in 1994, the company's German dry friction business has
returned to profitability.
Selling, General and Administrative Expense
Selling, general and administrative expenses in the first
quarter of 1995 increased to $6,959 as compared with $6,426 in the
first quarter of 1994. The increase is primarily due to higher
levels of research and development costs and selling and shipping
costs related to increased sales volume.
Interest Expense
Interest expense remained consistent with the same period
a year ago and relates principally to the interest on the debt to
Raymark.
Liquidity and Capital Resources
During the first quarter of fiscal 1995, the Company
generated positive cash flow from operating activities in the
amount of $1.4 million. The positive cash flow is the result of
the favorable earnings during the first quarter of fiscal 1995.
Capital expenditures in the first quarter of fiscal 1995 amounted
to $2.4 million, which is consistent with the Company's projected
spending plan for 1995.
<PAGE>
At April 2, 1995, the Company's wholly-owned German
subsidiary (Raybestos Industrie-Produkte GmbH) had available unused
lines of credit amounting to DM2,436 ($1,771) which expire as
follows: DM934 ($679) August 31, 1995; DM1,230 ($894) on demand;
DM262 ($191) which expires June 30, 1995 and DM10 ($7) on demand.
In September 1993 and January 1994, Raytech Composites,
Inc., a wholly-owned subsidiary of the Company, entered loan
agreements with Raymark for $2.5 million and $3 million,
respectively, and as of April 2, 1995 has borrowed $2.5 million and
$.5 million under the loan agreements, respectively. The loans
bear interest at 6% per annum with principal and accrued interest
due at an extended date in April 1996.
In March 1995, Raybestos Products Company ("RPC"), a
wholly-owned subsidiary of the Company, entered into a loan
agreement with The CIT Group/Credit Finance, Inc., which provides
for RPC to borrow up to $15 million, consisting of a revolving line
of credit of $10 million and a term loan of $5 million at an
interest rate of 1.75% above the prime rate. The loans are
collateralized by accounts receivable, inventory and machinery and
equipment at RPC. The purpose of the loan is for working capital,
capital expenditures, acquisitions and possible settlement of
successor liability issues. The amount outstanding under this loan
at April 2, 1995 was $0.
Management believes that the Company will generate
sufficient cash flow from operations during the balance of 1995 to
meet all of the Company's obligations arising in the ordinary
course of operations.<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The formation of Raytech and the implementation of the
restructuring plan more fully described in Item 1 of Form 10-K
filed for the fiscal year 1994 was for the purpose of providing a
means to acquire and operate businesses in a corporate structure
that would not be subject to any asbestos-related or other
liabilities of Raymark.
Prior to the formation of Raytech, Raymark was first sued
in an asbestos-related claim in 1971 and has since been named as a
defendant in more than 88,000 lawsuits in which substantial damages
have been sought for injury or death from exposure to airborne
asbestos fibers. More than 35,000 of such lawsuits were disposed
of by settlements, dismissals, summary judgments and trial verdicts
at a cost in excess of $333 million principally covered by
Raymark's insurance. Subsequent to the sale of Raymark in 1988,
lawsuits continued to be filed against Raymark at the rate of
approximately 1,000 per month until an involuntary petition in
bankruptcy was filed against Raymark in February 1989 which stayed
all its litigation and remains pending.
Despite the restructuring plan implementation and
subsequent divestiture of Raymark, Raytech was named a co-defendant
with Raymark and other named defendants in approximately 3,300
asbestos-related lawsuits as a successor in liability to Raymark.
The dollar value of these lawsuits cannot be calculated as most
complaints either over inflate claims, state only jurisdictional
minimums or do not specify damages at all. Until February 1989,
the defense of all such lawsuits was provided to Raytech by Raymark
in accordance with the indemnification agreement included as a
condition of the purchase of the Wet Clutch and Brake Division and
German subsidiary from Raymark in 1987. However, subsequent to the
involuntary bankruptcy proceedings against Raymark, a restrictive
funding order was issued by an Illinois Circuit Court which
required one of Raymark's insurance carriers to pay claims but not
defense costs and another insurance carrier has been declared
insolvent. These circumstances caused Raymark to be unable to fund
the costs of defense to Raytech under its indemnification
agreements. Raymark's cost of defense and disposition of cases up
to the automatic stay of litigation under the involuntary
bankruptcy proceedings has been approximately $333 million of
Raymark's total insurance coverage of approximately $395 million.
Of the $62 million remaining, $32 million is covered by the
insolvent carrier and the remaining is either blocked due to lower
levels not being exhausted or does not provide for defense of the
claims.
<PAGE>
In October 1988, in a case captioned Raymond A. Schmoll v.
ACands, Inc., et al., the U. S. District Court for the District of
Oregon ruled, under Oregon equity law, Raytech to be a successor to
Raymark's asbestos-related liability. In this case the liability
was negotiated to settlement for a negligible amount. The
successor decision was appealed and in October 1992, the Ninth
Circuit Court of Appeals affirmed the District Court's judgment on
the grounds stated in the District Court's opinion. The effect of
this decision beyond the immediate case is not known, but it has
set a precedent under Oregon law. Counsel has advised that the
court orders limit this decision to Oregon; however, it cannot be
predicted whether trials of the facts under other states' laws
would result in similar or dissimilar orders.
As the result of the above factors and in order to obtain
a ruling binding across all jurisdictions on whether Raytech is
liable as a successor for asbestos-related and other claims
including claims yet to be filed relating to the operations of
Raymark or Raymark's predecessors, on March 10, 1989 Raytech filed
a petition seeking relief under Chapter 11 of Title 11, United
States Code in the United States Bankruptcy Court, District of
Connecticut. Under Chapter 11, substantially all litigation
against Raytech has been stayed while the debtor corporation and
its non-filing operating subsidiaries continue to operate their
businesses in the ordinary course. In the Bankruptcy Court a
creditors' committee was appointed, comprised primarily of asbestos
claimants' attorneys.
Since the bankruptcy filing several entities have asserted
claims in Bankruptcy Court alleging environmental and pension
liabilities of Raymark based upon the same theories of successor
liability against Raytech as alleged by asbestos claimants. These
claims are not covered by the class action referenced below and
will be resolved in the bankruptcy case. The environmental claims
include a claim of the Pennsylvania Department of Environmental
Resources ("DER") to perform certain activities in connection with
Raymark's Pennsylvania manufacturing facility, which includes
submission of an acceptable closure plan for a landfill containing
hazardous waste products located at the facility and removal of
accumulated baghouse dust from its operations. In March 1991, the
Company entered a Consent Order which required Raymark to submit a
revised closure plan which provides for the management and removal
of hazardous waste, for investigating, treatment and monitoring of
any contaminated groundwater and for the protection of human health
and environment at the site, all relating to the closure of the
Pennsylvania landfill and to pay a nominal civil penalty. The
estimated cost for Raymark to comply with the order is $1.2
million. The DER has reserved its right to reinstitute an action
against the Company and the other parties to the DER order in the
event Raymark fails to comply with its obligations under the
Consent Order. Another environmental claim was filed against the
Company by the U.S. Environmental Protection Agency for civil
penalties charged Raymark in the amount of $12 million arising out
<PAGE>
of alleged Resource Conservation and Recovery Act violations at
Raymark's Connecticut manufacturing facility.
Under bankruptcy rules, the debtor-in-possession has an
exclusive period in which to file a reorganization plan. Such
exclusive period had been extended by the Bankruptcy Court pending
the conclusion of the successor liability litigation. However, in
December 1992, the creditors' committee filed a motion to terminate
the exclusive period to file a plan of reorganization. At a
hearing in May 1993 the motion was denied by the Bankruptcy Court
but was appealed by the creditors' committee. In November 1993,
the U. S. District Court reversed the Bankruptcy Court and
terminated the exclusive period to file a plan of reorganization
effective in January 1994. Accordingly, any party in interest,
including the debtor, the creditors' committee or a creditor may
file a plan of reorganization.
In May 1994, Raytech filed a Plan of Reorganization ("Debtor's
Plan") in the U.S Bankruptcy Court for the purpose of seeking
confirmation allowing Raytech to emerge from the bankruptcy filed
March 10, 1989. Important conditions precedent to confirmation of
the Debtor's Plan include a final judgment in the litigation to
determine whether Raytech is a successor to the liabilities of
Raymark and a resolution of the environmental claims or other
claims filed or to be filed by governmental agencies. The Debtor's
Plan provides that in the event Raytech is found to be a successor,
it is to establish a successor trust funded by an amount determined
to be the difference between what Raytech should have paid for the
businesses purchased from Raymark less the amount actually paid and
less amounts to be paid for environmental and other claims. This
remedy would satisfy its obligations as a successor in full and
render all claimants unimpaired, thereby eliminating the need for
balloting and all equity shareholders would retain their interests
in full. Raytech believes the Debtor's Plan to be confirmable. In
September 1994, the Creditors' Committee filed its own Plan of
Reorganization in competition to the Debtor's Plan (Creditor's
Plan). The Creditors' Plan calls for the elimination of Raytech
Corporation and its stockholders to be replaced with a new Raytech.
All of the stock of new Raytech would then be distributed to
unsecured claimants, environmental claimants and both past and
future asbestos disease claimants on a formulated basis set forth
in the Plan. Current stockholders of Raytech would receive nothing
under the Plan. Raytech believes the Creditors' Plan is
unconfirmable and will vigorously contest attempts to have it
confirmed while it continues to try to get the Debtor's Plan
confirmed. The outcome of these matters is expected to take
considerable time and is uncertain. If an adverse plan is
confirmed, it would have a material adverse impact on Raytech and
its stockholders.
In June 1989 Raytech filed a class action in the Bankruptcy
Court captioned Raytech v. Earl White, et al. against all present
and future asbestos claimants seeking a declaratory judgment that
<PAGE>
it not be held liable for the asbestos-related liabilities of
Raymark. It was the desire of Raytech to have this case heard in
the U. S. District Court, and since the authority of the Bankruptcy
Court is referred from the U. S. District Court, upon its motion
and argument the U. S. District Court withdrew its reference of the
case to the Bankruptcy Court and thereby agreed to hear and decide
the case. In September 1991, the U. S. District Court issued a
ruling dismissing one count of the class action citing as a reason
the preclusive effect of the 1988 Schmoll case recited above under
the doctrine of collateral estoppel (conclusiveness of judgment in
a prior action), in which Raytech was ruled to be a successor to
Raymark's asbestos liability under Oregon law. The remaining
counts before the U. S. District Court involve the transfer of
Raymark's asbestos-related liabilities to Raytech on the legal
theories of alter-ego and fraudulent conveyance. Upon a motion for
reconsideration, the U. S. District Court affirmed its prior ruling
in February 1992. The dismissal of the successor liability count
is considered to be serious for it extends the impact of the
Schmoll case beyond Oregon. When the other counts are ruled upon
the Company has the right to appeal the ruling and is considering
such action pending such ruling. In February 1992, the U. S.
District Court for Connecticut transferred the case in its entirety
to the U. S. District Court for the Eastern District of
Pennsylvania. Such transfer was made by the U. S. District Court
without motion from any party in the interest of the administration
of justice as stated by the U. S. District Court. In December
1992, Raytech filed a motion to activate the case and to obtain
rulings on the remaining counts. The motion was denied by the
U. S. District Court. In October 1993, the creditors' committee
asked the Court to certify the previous dismissal of the successor
liability count. In February 1994, the U. S. District Court
granted the motion to certify which allowed the successor liability
dismissal to be appealed to the Third Circuit Court of Appeal. The
Company filed such appeal in March 1994 and it has been briefed and
argued and awaits the Court ruling.
Costs incurred by the Company for asbestos related
liabilities are indemnified by Raymark under the 1987 acquisition
agreements. By agreement, Raymark has reimbursed the Company in
part for such indemnified costs by payment of the amounts due in
Raytech common stock of equivalent value. Under such agreement,
Raytech received 926,821 shares in 1989, 177,570 shares in 1990,
163,303 in 1991 and 80,000 shares in 1993. The Company's
acceptance of its own stock was based upon an intent to control
dilution of its outstanding stock. In 1992 the indemnified costs
were reimbursed by offsetting certain payments due Raymark from the
Company under the 1987 acquisition agreements. Cost incurred in
1994 were applied as a reduction of the note obligations pursuant
to the agreements.
In October 1992, the Secretary of the Department of Labor
filed suit against Raymark and certain named fiduciaries in the
U. S. District Court for Connecticut captioned Robert B. Reich,
<PAGE>
Secretary of the U. S. Department of Labor vs. Raymark Industries,
Inc, et al. naming the Company as a successor to Raymark, alleging
the breach of fiduciary duties required under ERISA in connection
with the purchase of a group annuity contract from Executive Life
Insurance Company to fund the benefits of participants and
beneficiaries of three pension plans. Executive Life was placed in
conservatorship by the California insurance Commission in April
1991. The Department of Labor filed a claim against Raytech in the
Bankruptcy Court in the amount of $22.8 million for successor
liability to the damages alleged in the suit. The impact of this
litigation is unknown at this time. Discovery in the suit is
proceeding.
A lawsuit was filed in the Wayne County, Michigan, Court in
July 1993 by a former sales agent against Raybestos Products
Company ("RPC"), a wholly-owned subsidiary of the Company, Bigelow
v. RPC, alleging entitlement to post termination commissions in the
amount of $4 million. A trial was held in October 1994 and ruled a
mistrial due to a split (hung) jury. A new trial began in March
1995, and during the trial the parties settled the dispute which
provided for payment of $70 by RPC in return for a dismissal of the
suit and full release.
In February 1994, a jury in the U. S. District Court for the
Southern District of Indiana returned a verdict in favor of RPC for
$2,980 plus costs and against Gilbert W. Younger and Transgo, a
corporation. RPC had sued the defendants in 1990 for defamation of
products and injurious falsehoods concerning RPC's manufactured
products. In April 1994, the Court granted RPC its costs,
attorneys' fees and interest in addition to the damages awarded by
the jury. The defendants filed for bankruptcy under Chapter 11 in
1992, and the defendant's plan of reorganization was confirmed in
September 1994 by a California Bankruptcy Court. Under the plan of
reorganization and ordered by the Court, the total amount of the
awarded damages has been placed in a secured escrow account pending
appeals. In April 1995, the 7th Circuit Court of Appeal affirmed
the verdict except for the award of prejudgment interest. No
amount has been recorded by the Company pending further legal
proceedings and the ultimate realization of the award.
Management believes that the restructuring plan, including the
acquisitions of businesses from Raymark and the Raymark
divestiture, created for the purpose to legally separate Raytech
and its acquired businesses from Raymark's asbestos-related and
other liabilities, will be upheld in the court proceedings.
However, the outcome of these matters is uncertain and should
Raytech receive an adverse ruling in the District Court or in
bankruptcy under the doctrines of successor liability, piercing the
corporate veil or fraudulent conveyance, there would be a material
adverse impact on Raytech as it does not have the resources needed
<PAGE>
to fund Raymark's substantial uninsured asbestos-related
liabilities, environmental and pension liabilities and related
costs of litigation.
The ultimate liability, if any, of the Company with respect to
asbestos-related, environmental, pension or other claims cannot
presently be determined. Accordingly, no provision for such
liability has been recorded in the financial statements. The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. An unfavorable
ruling on the matters described above would have a material adverse
effect on the Company's results of operations and financial
position. These uncertainties raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
<PAGE>
ITEM 6(a). EXHIBITS
(10) Loan and Security Agreement - The CIT Group/
Credit Finance, Inc.
(11) Statement re. Computation of Per Share Earnings
ITEM 6(b). REPORTS ON 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly authorized.
RAYTECH CORPORATION
By:
Albert A. Canosa
Vice President, Treasurer
and Chief Financial Officer
Date: May 11, 1995
<TABLE>
FORM 10-Q
RAYTECH CORPORATION AND SUBSIDIARIES
PART II
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(dollars in thousands, except per share data)
<CAPTION>
For the Thirteen Weeks Ended
April 2, April 3,
1995 1994
<S> <C> <C>
Net income as reported $ 4,577 $ 2,990
Shares outstanding at beginning of year 3,218,968 3,199,133
Add weighted average of stock options
exercised 180 1,259
Deduct weighted average shares to treasury (2)
Add common equivalent shares
for assumed exercise of
employee stock options 224,452 142,306
Weighted average number of shares
used in calculation of primary
income per share 3,443,600 3,342,696
Income per share $1.33 $.89
Primary income per common share $1.33 $ .89
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
<RESTATED>
<CIK> 0000797917
<NAME> RAYTECH CORP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> APR-02-1995
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<CASH> 2,949
<SECURITIES> 0
<RECEIVABLES> 19,905
<ALLOWANCES> 598
<INVENTORY> 22,648
<CURRENT-ASSETS> 48,351
<PP&E> 113,960
<DEPRECIATION> 71,016
<TOTAL-ASSETS> 95,904
<CURRENT-LIABILITIES> 45,145
<BONDS> 0
<COMMON> 5,351
0
0
<OTHER-SE> 3,876
<TOTAL-LIABILITY-AND-EQUITY> 95,904
<SALES> 49,913
<TOTAL-REVENUES> 49,913
<CGS> 35,524
<TOTAL-COSTS> 35,524
<OTHER-EXPENSES> 9,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 607
<INCOME-PRETAX> 7,117
<INCOME-TAX> 2,540
<INCOME-CONTINUING> 4,577
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,577
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
</TABLE>
Exhibit 10
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit accommodations
to be made by Lender to Borrower.
SECTION 1. PARTIES
1.1 The "Borrower" is the person, firm, corporation or other
entity, identified as the Borrower in Section 10.6(c) and its
successors and assigns. If more than one Borrower is specified in
Section 10.6(c), all references to Borrower shall mean each of
them, jointly and severally, individually and collectively, and the
successors and assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc. and
its successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and
conditions contained herein, make revolving loans to Borrower
("Revolving Loans") in amounts requested by Borrower from time to
time, but not in excess of the Net Availability existing
immediately prior to the making of the requested loan and provided
the requested loan would not cause the outstanding Obligations to
exceed the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section 10.1(a)
hereof.
(b) The "Gross Availability" shall be calculated at any
time as the product obtained by multiplying the outstanding amount
of Eligible Accounts, net of all taxes, discounts, allowances and
credits given or claimed, by the Eligible Accounts Percentage set
forth in Section 10.1(b) ("Accounts Availability"),
plus: the product(s) obtained by multiplying the
applicable Eligible Inventory Percentage(s), if
any, set forth in Section 10.1(b) by the values (as
determined by Lender based on the lower of cost or
market) of Eligible Inventory, but the amount so
added shall not exceed any sublimits set forth in
Section 10.1(c),
minus: any Reserves.
(c) The "Net Availability" shall be calculated at any
time as an amount equal to the Gross Availability minus the
aggregate amount of all then-outstanding Obligations to Lender
<PAGE>
other than the then outstanding principal balance of the Term Loan,
if any.
(d) "Eligible Accounts" are accounts created by Borrower
in the ordinary course of its business which are and remain
acceptable to Lender for lending purposes. General criteria for
Eligible Accounts are set forth below but may be revised from time
to time by Lender, in its sole judgment, on fifteen (15) days'
prior written notice to Borrower. Lender shall, in general, deem
accounts to be Eligible Accounts if: (i) such accounts arise from
bona fide completed transactions and have not remained unpaid for
more than the number of days after the invoice date set forth in
Section 10.1(d); (ii) the amounts of the accounts reported to
Lender are absolutely owing to Borrower and do not arise from sales
on consignment, guaranteed sale or other terms under which payment
by the account debtors may be conditional or contingent; (iii)(A)
the account debtor's chief executive office or principal place of
business is located in the United States ("Domestic Account
Debtor"), or (B) with respect to any account debtor whose chief
executive office or principal place of business is located outside
of the United States ("Foreign Account Debtor"), such Foreign
Account Debtor is a wholly owned subsidiary of a Domestic Account
Debtor ("Domestic Subsidiary Account Debtor"), or (C) with respect
to any Foreign Account Debtor that is not a Domestic Subsidiary
Account Debtor, any account owing by such Foreign Account Debtor
("Foreign Account") is either (1) insured by a foreign credit
insurance policy in form, substance and amount satisfactory to
Lender, which policy, together with the proceeds thereof, shall be
duly assigned to Lender, or (2) secured by a letter of credit
issued by a bank acceptable to Lender, in form, substance and
amount satisfactory to Lender, which letter of credit, together
with the proceeds thereof, shall be duly assigned to Lender; (iv)
such accounts do not arise from progress billings or retainages or
bill and hold sales; (v) there are no contra relationships,
setoffs, counterclaims or disputes existing with respect thereto
and there are no other facts existing or threatened which would
impair or delay the collectibility of all or any portion thereof;
(vi) the goods giving rise thereto were not at the time of the sale
subject to any liens except those permitted in this Agreement;
(vii) such accounts are not accounts with respect to which the
account debtor or any officer or employee thereof is an officer,
employee or agent of or is affiliated with Borrower, directly or
indirectly, whether by virtue of family membership, ownership,
control, management or otherwise; (viii) such accounts are not
accounts with respect to which the account debtor is the United
States or any State or political subdivision thereof or any
department, agency or instrumentality of the United States, any
State or political subdivision, unless there has been compliance
with the Assignment of Claims Act or any similar State or local
law, if applicable; (ix) Borrower has delivered to Lender or
Lender's representative such original documents as Lender may have
<PAGE>
requested pursuant to Section 5.8 hereof in connection with such
accounts and Lender shall have received a verification of such
account, satisfactory to it, if sent to the account debtor or any
other obligor or any bailee pursuant to Section 5.4 hereof; (x)
there are no facts existing or threatened which might result in any
adverse change in the account debtor's financial condition; (xi)
(A) such accounts owed by Caterpillar, Inc. or its affiliates do
not represent more than thirty-five (35%) percent of all otherwise
Eligible Accounts, and (B) such accounts owed by any single account
debtor or its affiliates (other than Caterpillar, Inc., or its
affiliates) do not represent more than twenty (20%) percent of all
otherwise Eligible Accounts (accounts excluded from Eligible
Accounts solely by reason of this subsection (xi) shall
nevertheless be considered Eligible Accounts to the extent of the
amount of such accounts which does not exceed the respective
percentages set forth above of all otherwise Eligible Accounts);
(xii) such accounts are not owed by an account debtor who is or
whose affiliates are past due upon other accounts owed to Borrower
comprising more than fifty (50%) percent of the accounts of such
account debtor or its affiliates owed to Borrower; (xiii) such
accounts are owed by account debtors whose total indebtedness to
Borrower does not exceed the amount of any customer credit limits
as established, and changed, from time to time by Lender on notice
to Borrower (accounts excluded from Eligible Accounts solely by
reason of this subsection (xiii) shall nevertheless be considered
Eligible Accounts to the extent the amount of such accounts does
not exceed such customer credit limit); and (xiv) such accounts are
owed by account debtors deemed creditworthy at all times by Lender.
(e) "Eligible Inventory" is inventory consisting of raw
materials and finished goods owned by Borrower which is and remains
acceptable to Lender for lending purposes and is located at one of
the addresses set forth in Section 10.6(e).
(f) Lender shall have a continuing right to deduct
reserves in determining the Gross Availability ("Reserves"), and to
increase and decrease such Reserves from time to time, if and to
the extent that, in Lender's sole judgement, such Reserves are
necessary to protect Lender against any state of facts which does,
or would, with notice or passage of time or both, constitute an
Event of Default or have an adverse effect on any Collateral.
Lender may, at its option, implement Reserves by designating as
ineligible a sufficient amount of accounts or inventory which would
otherwise be Eligible Accounts or Eligible Inventory so as to
reduce Gross Availability by the amount of the intended Reserve.
(g) Subject to the terms and conditions hereof,
including but not limited to the existence of sufficient Gross and
Net Availability, Borrower agrees to borrow amounts from time to
time such that the outstanding Loans shall at all times equal or
exceed the principal amount set forth in Section 10.1(e) as the
<PAGE>
Minimum Borrowing. Borrower covenants, represents and warrants to
Lender that it will maintain Gross and Net Availability at all
times in amounts sufficient to permit Borrower to comply with the
Minimum Borrowing requirement. Borrower shall pay to Lender a fee
equal to the amount, if any, by which (i) the amount of interest
charges which would have been payable for each year of this
Agreement had the actual daily principal balance of the Loans for
each day during such year been equal to the Minimum Borrowing,
exceeds (ii) the actual interest charges payable upon the Loans for
such year. Such fee shall be payable on the last day of each year
during the Term of this Agreement or if this Agreement is
terminated in accordance with Section 9 hereof prior to an
anniversary of this Agreement, such fee shall be payable on the
effective date of termination of this Agreement. At Lender's
option, such fee may be charged to any account(s) of Borrower
maintained with Lender.
2.2 Term Loan. The amount of any term loan being made by
Lender to Borrower is set forth in Section 10.2 ("Term Loan").
Such Term Loan shall be evidenced by a Promissory Note delivered by
Borrower to Lender ("Promissory Note") and shall be repaid,
together with interest and other amounts, in accordance with
Section 2.5 of this Agreement, the other terms hereof and the
Promissory Note.
2.3 Accommodations.
(a) Lender may, in its sole discretion, issue or cause
to be issued, from time to time at Borrower's request and on terms
and conditions and for purposes satisfactory to Lender, credit
accommodations consisting of letters of credit, bankers'
acceptances, merchandise purchase guaranties or other guaranties or
indemnities for Borrower's account ("Accommodations"). Borrower
shall execute and perform additional agreements relating to the
Accommodations in form and substance acceptable to Lender and the
issuer of any Accommodations, all of which shall supplement the
rights and remedies granted herein. Any payments made by Lender or
any affiliate of Lender in connection with the Accommodations shall
constitute additional Revolving Loans to Borrower.
(b) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations, Borrower
shall pay monthly to Lender, on the first day of each month, a
charge on open Accommodations at the rate per annum set forth in
Section 10.3(a) (the "Accommodation Charges").
(c) No Accommodation will be issued unless the full
amount of the Accommodation requested, plus fees and costs for
issuance, is less than the Net Availability existing immediately
prior to the issuance of the requested Accommodation, or if the
requested Accommodation would cause the outstanding Obligations to
<PAGE>
exceed the Maximum Credit, or cause the open amount of
Accommodations to exceed, at any time, the Accommodation sublimit
set forth in Section 10.3(b).
(d) All indebtedness, liabilities and obligations of any
sort whatsoever, however arising, whether present or future, fixed
or contingent, secured or unsecured, due or to become due, paid or
incurred, arising or incurred in connection with any Accommodation
shall be included in the term "Obligations", as defined herein, and
shall include, without limitation, (i) all amounts due or which may
become due under any Accommodation; (ii) all amounts charged or
chargeable to Borrower or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is
involved with such Accommodations; (iii) Lender's Accommodation
Charges and all fees, costs and other charges of any issuer of any
Accommodation; and (iv) all duties, freight, taxes, costs,
insurance and all such other charges and expenses which may pertain
directly or indirectly to any Obligations or Accommodations or to
the goods or documents relating thereto.
(e) Borrower unconditionally agrees to indemnify and
hold Lender harmless from any and all loss, claim or liability
(including reasonable attorneys' fees) arising from any
transactions or occurrences relating to any Accommodation
established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptances thereunder,
including any such loss or claim due to any action taken by an
issuer of any Accommodation. Borrower further agrees to indemnify
and hold Lender harmless for any errors or omissions in connection
with the Accommodations, whether caused by Lender, by the issuer of
any Accommodation or otherwise. Borrower's unconditional
obligation to indemnify and hold Lender harmless under this
provision shall not be modified or diminished for any reason or in
any manner whatsoever, except for Lender's wilful misconduct.
Borrower agrees that any charges made to Lender by any issuer of
any Accommodation shall be conclusive on Borrower and may be
charged to Borrower's account.
(f) Lender shall not be responsible for: the conformity
of any goods to the documents presented; the validity or
genuineness of any documents; delay, default, or fraud by the
Borrower or shipper and/or anyone else in connection with the
Accommodations or any underlying transaction.
(g) Borrower agrees that any action taken by Lender, if
taken in good faith, or any action taken by an issuer of any
Accommodation, under or in connection with any Accommodation, shall
be binding on Borrower and shall not create any resulting liability
to Lender. In furtherance thereof, Lender shall have the full
right and authority to clear and resolve any questions of non-
compliance of documents; to give any instructions as to acceptance
<PAGE>
or rejection of any documents or goods; to execute for Borrower's
account any and all applications for steamship or airway
guarantees, indemnities or delivery orders; to grant any extensions
of the maturity of, time of payment for, or time of presentation
of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the
applications or Accommodations. All of the foregoing actions may
be taken in Lender's sole name, and the issuer thereof shall be
entitled to comply with and honor any and all such documents or
instruments executed by or received solely from Lender, all without
any notice to or any consent from Borrower. None of the foregoing
actions described in this subsection (g) may be taken by Borrower
without Lender's express written consent.
2.4 Certain Amounts Due on Demand. Lender may, in its sole
discretion, make or permit Revolving Loans, Accommodations or other
Obligations in excess of the Maximum Credit, Gross or Net
Availability or applicable formulas or sublimits. All or any
portion of such excess(es) shall become immediately due and
payable, upon Lender's demand.
2.5 Mandatory Prepayment in Respect of Term Loan.
(a) In addition to, and not in limitation of, any
provision contained in the Promissory Note, Borrower shall remit to
Lender the following mandatory prepayments in respect of the Term
Loan ("Mandatory Prepayments"):
(i) If the principal balance of the Term Loan
exceeds (1) as of the first anniversary of this Agreement, 90% of
the Annual Equipment Appraisal (as defined in Section 6.1 below)
prepared as of the first anniversary of this Agreement; or (2) as
of the second anniversary of this Agreement, 75% of the Annual
Equipment Appraisal prepared as of the second anniversary of this
Agreement; or (3) as of the third anniversary of this Agreement,
60% of the Annual Equipment Appraisal prepared as of the third
anniversary of this Agreement; or (4) 60% of the Annual Equipment
Appraisal prepared at any time after the third anniversary of this
Agreement, then, in each instance, Borrower shall pay to Lender the
amount by which the then outstanding principal balance of the Term
Loan exceeds the amount calculated under Section 2.5 (a)(i)(1),
(2), (3) and (4), respectively (each a "Prepayment"). Each
Prepayment shall be payable in six (6) equal, consecutive monthly
installments commencing with the month immediately following the
month in which any Prepayment in accordance with this Section
2.5(a)(i) is determined to be payable. The Prepayment shall be in
addition to the original regularly scheduled principal installments
due under the Promissory Note and shall be payable
contemporaneously with the regularly scheduled principal payments
due under the Promissory Note; and
<PAGE>
(ii) If Borrower's Cash Flow (as defined in Section
6.15 below) is less than $1,500,000 for any of the Borrower's
fiscal years ending at any time from the date hereof up to and
including the eighteenth (18th) month from the date hereof, then
Borrower shall pay to Lender an amount equal to the difference
between the then outstanding principal balance of the Term Loan and
eighty (80%) percent of the then current Annual Equipment
Appraisal. The mandatory prepayment payable pursuant to this
Section 2.5(a)(ii) shall be payable on demand.
(b) Each Mandatory Prepayment shall be applied against
the unpaid principal balance of the Term Loan in the inverse order
of maturities thereof.
SECTION 3. INTEREST AND FEES
3.1 (a) Interest on the Revolving Loans shall be payable by
Borrower on the first day of each month, calculated upon the
closing daily balances in the loan account of Borrower for each day
during the immediately preceding month, at the per annum rate set
forth as the Interest Rate in Section 10.4(a). The Interest Rate
shall increase or decrease by an amount equal to each increase or
decrease, respectively, in the Prime Rate, effective as of the date
of each such change. On and after any Event of Default or
termination or non-renewal hereof, interest on all unpaid matured
obligations shall accrue at a rate equal to two percent (2%) per
annum in excess of the Interest Rate otherwise payable until such
time as all Obligations are indefeasibly paid in full
(notwithstanding entry of any judgment against Borrower or the
exercise of any other right or remedy by Lender), and all such
interest shall be payable on demand. In no event shall charges
constituting interest exceed the rate permitted under any
applicable law or regulation, and if any provision of this
Agreement is in contravention of any such law or regulation, such
provision shall be deemed amended to conform thereto.
(b) The "Prime Rate" is the rate of interest publicly
announced by Chemical Bank in New York, New York, from time to time
as its prime rate (the Prime Rate is not intended to be the lowest
rate of interest charged by Chemical Bank to its borrowers).
3.2 (a) Borrower shall pay Lender on the date hereof, a
closing Facility Fee in the amount of $25,000, which fee is fully
earned as of the date hereof and shall be payable contemporaneously
with the execution of this Agreement;
(b) Borrower shall pay Lender for the initial Term of
this Agreement, annual Facility Fees in the amount set forth in
Section 10.4(b), which annual Facility Fees for the initial Term
shall be fully earned as of the date hereof and shall be payable
<PAGE>
annually on each anniversary date of this Agreement, commencing on
the first anniversary of the date of this Agreement; and
(c) For each renewal Term of this Agreement, Borrower
shall pay Lender an annual Facility Fee in the amount set forth in
Section 10.4(b). The Facility Fee for each renewal Term shall be
fully earned as of the first day of each Renewal Term and shall be
payable on the first day of each renewal Term.
3.3 Borrower shall pay Lender monthly, on the first day of
each month during the initial and each renewal Term an Account
Servicing Fee for the immediately preceding month (or part thereof)
in the amount set forth in Section 10.4(c).
3.4 Borrower shall pay Lender monthly, on the first day of
each month, in arrears, an Unused Line Fee for each month during
the initial and each renewal Term at the rate per annum set forth
in Section 10.4(d), calculated upon the amount, if any, by which
the Maximum Credit exceeds the average outstanding daily principal
balance during the preceding month of all Revolving Loans,
Accommodations and any Term Loan (collectively, the "Loans").
3.5 At Lender's option, all principal, interest, fees, costs,
expenses and other charges provided for in this Agreement, or in
any other agreement now or hereafter existing between Lender and
Borrower, may be charged to any loan account of Borrower maintained
by Lender. Interest, fees for Accommodations, the Unused Line Fee
and any other amounts payable by Borrower to Lender based on a per
annum rate shall be calculated on the basis of actual days elapsed
over a 360-day year.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 To secure the payment and performance in full of all
Obligations, Borrower hereby grants to Lender a continuing security
interest in and lien upon, and a right of setoff against, and
Borrower hereby assigns and pledges to Lender, all of the
Collateral, including any Collateral not deemed eligible for
lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans,
Term Loans, Accommodations and all other indebtedness, liabilities
and obligations of every kind, nature and description owing by
Borrower to Lender and/or its affiliates, including principal,
interest, charges, fees and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, whether
arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the
initial or any renewal Term or after the commencement of any case
with respect to Borrower under the United States Bankruptcy Code or
any similar statute, whether direct or indirect, absolute or
<PAGE>
contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, original, renewed
or extended and whether arising directly or howsoever acquired by
Lender including from any other entity outright, conditionally or
as collateral security, by assignment, merger with any other
entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or
otherwise and shall also include all amounts chargeable to Borrower
under this Agreement or in connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of
Borrower:
(a) All now owned and hereafter acquired right, title
and interest of Borrower in, to and in respect of all: accounts,
interests in goods represented by accounts, returned, reclaimed or
repossessed goods with respect thereto and rights as an unpaid
vendor; contract rights; chattel paper; general intangibles
(including, but not limited to, tax and duty refunds, registered
and unregistered patents, trademarks, service marks, copyrights,
trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists,
licenses, whether as licensor or licensee, choses in action and
other claims, and existing and future leasehold interests in
equipment, real estate and fixtures); documents; instruments;
letters of credit, bankers' acceptances or guaranties; cash monies,
deposits, securities, bank accounts, deposit accounts, credits and
other property now or hereafter held in any capacity by Lender, its
affiliates or any entity which, at any time, participates in
Lender's financing of Borrower or at any other depository or other
institution; agreements or property securing or relating to any of
the items referred to above;
(b) All now owned and hereafter acquired right, title
and interest of Borrower in, to and in respect of goods, including,
but not limited to:
(i) All inventory, wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or
description, including all raw materials, work-in-
process, finished goods, and materials to be used or
consumed in Borrower's business; and all names or marks
affixed to or to be affixed thereto for purposes of
selling same by the seller, manufacturer, lessor or
licensor thereof;
(ii) All equipment and fixtures, wherever located,
whether now owned or hereafter acquired, including,
without limitation, all machinery, equipment, motor
vehicles, furniture and fixtures, and any and all
<PAGE>
additions, substitutions, replacements (including spare
parts), and accessions thereof and thereto;
(iii) All consumer goods, farm products, crops,
timber, minerals or the like (including oil and gas),
wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description;
(c) All now owned and hereafter acquired right, title
and interests of Borrower in, to and in respect of any other
personal property in or upon which Lender has or may hereafter have
a security interest, lien or right of setoff;
(d) All present and future books and records relating to
any of the above including, without limitation, all computer
programs, printed output and computer readable data in the
possession or control of the Borrower, any computer service bureau
or other third party; and
(e) All products and proceeds of the foregoing in
whatever form and wherever located, including, without limitation,
all insurance proceeds and all claims against third parties for
loss or destruction of or damage to any of the foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Borrower is authorized to collect the accounts and any
other proceeds of Collateral on behalf of and in trust for Lender,
at Borrower's expense, but such authority shall automatically
terminate upon an Event of Default. Lender may modify or terminate
such authority at any time whether or not an Event of Default has
occurred and directly collect the accounts and other monetary
obligations included in the Collateral. Borrower shall, at
Borrower's expense and in the manner requested by Lender from time
to time, direct that remittances and all other proceeds of accounts
and other Collateral shall be (a) sent to a post office box
designated by and/or in the name of Lender, or in the name of
Borrower, but as to which access is limited to Lender and/or
(b) deposited into a bank account maintained in the name of Lender
and/or a blocked bank account under arrangements with the
depository bank under which all funds deposited to such blocked
bank account are required to be transferred solely to Lender. In
connection therewith, Borrower shall execute such post office box
and/or blocked bank account agreements as Lender shall specify.
5.2 All Obligations shall be payable at Lender's office set
forth below or at Lender's bank designated in Section 10.6(b) or at
such other bank or place as Lender may expressly designate from
time to time for purposes of this Section. Lender shall apply all
proceeds of accounts or other Collateral received by Lender and all
<PAGE>
other payments in respect of the Obligations to the Revolving Loans
whether or not then due or to any other Obligations then due, in
whatever order or manner Lender shall determine. For purposes of
determining Gross and Net Availability, remittances and other
payments with respect to the Collateral and Obligations will be
treated as credited to the loan account of Borrower maintained by
Lender and Collateral balances to which they relate, upon the date
of Lender's receipt of advice from Lender's bank that such
remittances or other payments have been credited to Lender's
account or in the case of remittances or other payments received
directly in kind by Lender, upon the date of Lender's deposit
thereof at Lender's bank, subject to final payment and collection.
In computing interest charges, the loan account of Borrower
maintained by Lender will be credited with remittances and other
payments one (1) business day after immediately available or
collected funds have been credited to Lender's account at such
bank.
5.3 Lender shall render to Borrower monthly a loan account
statement. Each statement shall be considered correct and binding
upon Borrower as an account stated, except to the extent that
Lender receives, within sixty (60) days after the mailing of such
statement, written notice from Borrower of any specific exceptions
by Borrower to that statement.
5.4 Lender may, at any time, whether or not an Event of
Default has occurred, without notice to or assent of Borrower,
(a) notify any account debtor that the accounts and other
Collateral which includes a monetary obligation have been assigned
to Lender by Borrower and that payment thereof is to be made to the
order of and directly to Lender, (b) send, or cause to be sent by
its designee, requests (which may identify the sender by a
pseudonym) for verification of accounts and other Collateral
directly to any account debtor or any other obligor or any bailee
with respect thereto, and (c) demand, collect or enforce payment of
any accounts or such other Collateral, but without any duty to do
so, and Lender shall not be liable for any failure to collect or
enforce payment thereof. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee,
shall state that the accounts and such other Collateral have been
assigned to Lender and are payable directly and only to Lender.
5.5 Borrower hereby appoints Lender and any designee of
Lender as Borrower's attorney-in-fact and authorizes Lender or such
designee, at Borrower's sole expense, to exercise at any times in
Lender's or such designee's discretion all or any of the following
powers, which powers of attorney, being coupled with an interest,
shall be irrevocable until all Obligations have been paid in full:
(a) receive, take, endorse, assign, deliver, accept and deposit, in
the name of Lender or Borrower, any and all cash, checks,
commercial paper, drafts, remittances and other instruments and
<PAGE>
documents relating to the Collateral or the proceeds thereof, (b)
transmit to account debtors, other obligors or any bailees notice
of the interest of Lender in the Collateral or request from account
debtors or such other obligors or bailees at any time, in the name
of Borrower or Lender or any designee of Lender, information
concerning the Collateral and any amounts owing with respect
thereto, (c) notify account debtors or other obligors to make
payment directly to Lender, or notify bailees as to the disposition
of Collateral, (d) take or bring, in the name of Lender or
Borrower, all steps, actions, suits or proceedings deemed by Lender
necessary or desirable to effect collection of or other realization
upon the accounts and other Collateral, (e) after an Event of
Default, change the address for delivery of mail to Borrower and to
receive and open mail addressed to Borrower, (f) after an Event of
Default, extend the time of payment of, compromise or settle for
cash, credit, return of merchandise, and upon any terms or
conditions, any and all accounts or other Collateral which includes
a monetary obligation and discharge or release the account debtor
or other obligor, without affecting any of the Obligations, and (g)
execute in the name of Borrower and file against Borrower in favor
of Lender financing statements or amendments with respect to the
Collateral.
5.6 Borrower hereby releases and exculpates Lender, its
officers, employees and designees, from any liability arising from
any acts under this Agreement or in furtherance thereof, whether as
attorney-in-fact or otherwise, whether of omission or commission,
and whether based upon any error of judgment or mistake of law or
fact, except for willful misconduct. In no event will Lender have
any liability to Borrower for lost profits or other special or
consequential damages.
5.7 After written notice by Lender to Borrower and
automatically, without notice, after an Event of Default, Borrower
shall not, without the prior written consent of Lender in each
instance, (a) grant any extension of time of payment of any of the
accounts or any other Collateral which includes a monetary
obligation, (b) compromise or settle any of the accounts or any
such other Collateral for less than the full amount thereof, (c)
release in whole or in part any account debtor or other person
liable for the payment of any of the accounts or any such other
Collateral, or (d) grant any credits, discounts, allowances,
deductions, return authorizations or the like with respect to any
of the accounts or any such other Collateral.
5.8 At such times as Lender may request and in the manner
specified by Lender, Borrower shall deliver to Lender or Lender's
representative original invoices, agreements, proofs of rendition
of services and delivery of goods and other documents evidencing or
relating to the transactions which gave rise to accounts or other
<PAGE>
Collateral, together with customer statements, schedules describing
the accounts or other Collateral and/or statements of account and
confirmatory assignments to Lender of the accounts or other
Collateral, in form and substance satisfactory to Lender and duly
executed by Borrower. Without limiting the provisions of Section
5.7, Borrower's granting of credits, discounts, allowances,
deductions, return authorizations or the like will be promptly
reported to Lender in writing. In no event shall any such schedule
or confirmatory assignment (or the absence thereof or omission of
any of the accounts or other Collateral therefrom) limit or in any
way be construed as a waiver, limitation or modification of the
security interests or rights of Lender or the warranties,
representations and covenants of Borrower under this Agreement.
Any documents, schedules, invoices or other paper delivered to
Lender by Borrower may be destroyed or otherwise disposed of by
Lender six (6) months after receipt by Lender, unless Borrower
requests their return in writing in advance and makes prior
arrangements for their return, at Borrower's expense.
5.9 From time to time as requested by Lender, at the sole
expense of Borrower, Lender or its designee shall have access,
prior to an Event of Default during reasonable business hours and
on or after an Event of Default at any time, to all of the premises
where Collateral is located for the purposes of inspecting the
Collateral, and all Borrower's books and records, and Borrower
shall permit Lender or its designee to make such copies of such
books and records or extracts therefrom as Lender may request.
Without expense to Lender, Lender may use such of Borrower's
personnel, equipment, including computer equipment, programs,
printed output and computer readable media, supplies and premises
for the collection of accounts and realization on other Collateral
as Lender, in its sole discretion, deems appropriate. Borrower
hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to Lender at Borrower's expense all financial
information, books and records, work papers, management reports and
other information in their possession regarding Borrower.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender
the following, the truth and accuracy of which, and compliance with
which, shall be continuing conditions of the making of loans or
other credit accommodations by Lender to Borrower:
6.1 Borrower shall keep and maintain its books and records in
accordance with generally accepted accounting principles,
consistently applied. Borrower shall, at its sole expense, on or
before the third (3rd) business day of each week, deliver to Lender
true and complete inventory reports for the immediately preceding
week, and on or before the fifteenth (15th) day of each month,
deliver to Lender true and complete monthly agings of its accounts
<PAGE>
receivable and accounts and notes payable, monthly inventory
reports and monthly internally prepared interim financial
statements, certified, as to its accuracy, by an officer of the
Borrower, all in such form, and together with such other
information with respect to the business of Borrower or any
guarantor, as Lender may request. Annually, Borrower shall deliver
audited financial statements of Borrower accompanied by the report
and opinion thereon of independent certified public accountants
acceptable to Lender ("Annual Certified Statement"), as soon as
available, but in no event later than ninety (90) days after the
end of Borrower's fiscal year. In addition to, and not in
limitation of the foregoing, Borrower, at the Borrower's sole cost
and expense, shall provide Lender with an equipment appraisal
(based upon auction sale value) as of the date of this Agreement,
prepared by an appraiser acceptable to Lender, which equipment
appraisal shall be updated annually, at Borrower's sole cost and
expense, by a desktop review, and performed by an appraiser
acceptable to Lender ("Annual Equipment Appraisal").
6.2 Borrower may from time to time render invoices to account
debtors under its trade names set forth in Section 10.6(g) after
Lender has received prior written notice from Borrower of the use
of such trade names and as to which, Borrower agrees that: (a) each
trade name does not refer to another corporation or other legal
entity, (b) all accounts and proceeds thereof (including any
returned merchandise) invoiced under any such trade names are owned
exclusively by Borrower and are subject to the security interest of
Lender and the other terms of this Agreement, and (c) all schedules
of accounts and confirmatory assignments including any sales made
or services rendered using the trade name shall show Borrower's
name as assignor and Lender is authorized to receive, endorse and
deposit to any loan account of Borrower maintained by Lender all
checks or other remittances made payable to any trade name of
Borrower representing payment with respect to such sales or
services.
6.3 Borrower shall promptly notify Lender in writing of any
loss, damage, investigation, action, suit, proceeding or claim
relating to a material portion of the Collateral or which may
result in any material adverse change in Borrower's business,
assets, liabilities or condition, financial or otherwise.
6.4 Borrower's books and records concerning accounts and its
chief executive office are and shall be maintained only at the
address set forth in Section 10.6(d). Borrower's only other places
of business and the only other locations of Collateral, if any, are
and shall be the addresses set forth in Section 10.6 hereof, except
Borrower may change such locations or open a new place of business
after thirty (30) days prior written notice to Lender. Prior to
any change in location or opening of any new place of business,
Borrower shall execute and deliver or cause to be executed and
<PAGE>
delivered to Lender such financing statements, financing documents
and security and other agreements as Lender may reasonably require,
including, without limitation, those described in Section 6.14.
6.5 Borrower has and at all times will continue to have good
and marketable title to all of the Collateral, free and clear of
all liens, security interests, claims or encumbrances of any kind
except in favor of Lender and except, if any, those set forth on
Schedule A hereto.
6.6 Borrower shall not directly or indirectly: (a) sell,
lease, transfer, assign, abandon or otherwise dispose of any part
of the Collateral or any material portion of its other assets
(other than sales of inventory to buyers in the ordinary course of
business) or (b) consolidate with or merge with or into any other
entity, or permit any other entity to consolidate with or merge
with or into Borrower or (c) form or acquire any interest in any
firm, corporation or other entity or .
or trade name or otherwise conduct business under any assumed name
or fictitious name. Notwithstanding any term or provision of this
Section 6.6, provided no Event of Default then exists, Borrower may
sell, assign or otherwise transfer not more than thirty (30%)
percent of its issued and outstanding capital stock, provided that,
after giving effect to, any such sale, assignment or transfer, the
controlling ownership of Borrower remains unchanged.
6.7 Borrower shall at all times maintain, with financially
sound and reputable insurers, casualty insurance with respect to
the Collateral and other assets. All such insurance policies shall
be in such form, substance, amounts and coverage as may be
satisfactory to Lender and shall provide for thirty (30) days'
prior written notice to Lender of cancellation or reduction of
coverage. Borrower hereby irrevocably appoints Lender and any
designee of Lender as attorney-in-fact for Borrower to obtain at
Borrower's expense, any such insurance should Borrower fail to do
so and, after an Event of Default, to adjust or settle any claim or
other matter under or arising pursuant to such insurance or to
amend or cancel such insurance. Borrower shall deliver to Lender
evidence of such insurance and a lender's loss payable endorsement
satisfactory to Lender as to all existing and future insurance
policies with respect to the Collateral. Borrower shall deliver to
Lender, in kind, all instruments representing proceeds of insurance
received by Borrower. Lender may apply any insurance proceeds
received at any time to the cost of repairs to or replacement of
any portion of the Collateral and/or, at Lender's option, to
payment of or as security for any of the Obligations, whether or
not due, in any order or manner as Lender determines.
6.8 Borrower is and at all times will continue to be in
compliance with the requirements of all material laws, rules,
regulations and orders of any governmental authority relating to
<PAGE>
its business (including laws, rules, regulations and orders
relating to taxes, payment and withholding of payroll taxes,
employer and employee contributions and similar items, securities,
employee retirement and welfare benefits, employee health and
safety, or environmental matters) and all material agreements or
other instruments binding on Borrower or its property. All of
Borrower's inventory shall be produced in accordance with the
requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all rules, regulations and orders related thereto.
Borrower shall pay and discharge all taxes, assessments and
governmental charges against Borrower or any Collateral prior to
the date on which penalties are imposed or liens attach with
respect thereto, unless the same are being contested in good faith
and, at Lender's option, Reserves are established for the amount
contested and penalties which may accrue thereon.
6.9 With respect to each account deemed an Eligible Account,
except as reported in writing to Lender, Borrower has no knowledge
that any of the criteria for eligibility are not or are no longer
satisfied. As to each account, except as disclosed in writing to
Lender at the time such account arises (a) each is valid and
legally enforceable and represents an undisputed bona fide
indebtedness incurred by the account debtor for the sum reported to
Lender, (b) each arises from an absolute and unconditional sale of
goods, without any right of return or consignment, or from a
completed rendition of services, (c) each is not, at the time such
account arises, subject to any defense, offset, dispute, contra
relationship, counterclaim, or any given or claimed credit,
allowance or discount, and (d) all statements made and all unpaid
balances and other information appearing in the invoices,
agreements, proofs of rendition of services and delivery of goods
and other documentation relating to the accounts, and all
confirmatory assignments, schedules, statements of account and
books and records with respect thereto, are true and correct and in
all respects what they purport to be.
6.10 With respect to Borrower's equipment, Borrower shall keep
the equipment in good order and repair, and in running and
marketable condition, ordinary wear and tear excepted.
6.11 Borrower shall at all times maintain working capital and
net worth (each as determined in accordance with generally accepted
accounting principles, in effect on the date hereof, consistently
applied) in the amounts set forth in Section 10.5 and Borrower
shall not, directly or indirectly, expend or commit to expend, for
fixed or capital assets (including capital lease obligations) an
amount in excess of the capital expenditure limit set forth in
Section 10.5 in any fiscal year of Borrower.
6.12 (a) Borrower will not, directly or indirectly: (i) lend
or advance money or property to, guarantee or assume indebtedness
<PAGE>
of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity, except that, Borrower shall be
permitted to guaranty the obligations of its subsidiary, Raybestos
U.K., Ltd, arising under or relating to such subsidiary's lease of
real property; or (ii) declare, pay or make any dividend,
redemption or other distribution on account of any shares of any
class of stock of Borrower now or hereafter outstanding, or (iii)
make any payment of the principal amount of or interest on any
indebtedness owing to any officer, director, shareholder, or
affiliate of Borrower, except that, provided that no Event of
Default then exists, Borrower may make loans to any affiliate or
subsidiary provided that the aggregate outstanding principal amount
of such loans outstanding at any one time shall not exceed
$1,000,000; or (iv) make any loans or advances to any officer,
director, employee, shareholder or affiliate of Borrower; or (v)
enter into any sale, lease or other transaction with any officer,
director, employee, shareholder or affiliate of Borrower on terms
that are less favorable to Borrower than those which might be
obtained at the time from persons who are not an officer, director,
employee, shareholder or affiliate of Borrower, except that,
Borrower may sell inventory, at Borrower's cost, to its affiliates
or subsidiaries as set forth on Schedule B annexed hereto.
(b) Notwithstanding anything to the contrary contained
herein, Borrower shall be permitted to declare, make or pay a
distribution to Raytech Composites, Inc. or Raymark Industries,
Inc. provided that, in each instance, Borrower provides Lender with
five (5) business days prior written notice of the date of any
contemplated distribution or payment ("Distribution Date") and
that, as of the Distribution Date, (i) no Event of Default then
exists, (ii) Borrower has no payables which are past due for more
than one hundred twenty (120) days after invoice date, and (iii)
the Net Availability, as determined by Lender, is not less than
$1,000,000, after giving effect to any such contemplated
distribution or payment.
6.13 Borrower shall pay, on Lender's demand, all costs,
expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the
Obligations, Lender's rights in the Collateral, this Agreement and
all other existing and future agreements or documents contemplated
herein or related hereto, including any amendments, waivers,
supplements or consents which may hereafter be made or entered into
in respect hereof, or in any way involving claims or defense
asserted by Lender or claims or defense against Lender asserted by
Borrower, any guarantor or any third party directly or indirectly
arising out of or related to the relationship between Borrower and
Lender or any guarantor and Lender, including, but not limited to
the following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with
<PAGE>
respect to Borrower or any guarantor under the United States
Bankruptcy Code or any similar statute: (a) all costs and expenses
of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles
taxes and mortgage recording taxes and fees, if applicable); (b)
all title insurance and other insurance premiums, appraisal fees,
fees incurred in connection with any environmental report, audit or
survey and search fees; (c) all fees relating to the wire transfer
of loan proceeds and other funds and fees for returned checks; (d)
all expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations
of the Collateral and Borrower's operations, plus a per diem charge
at the rate of $650 per person, per day for Lender's examiners in
the field and office; and (e) the costs, fees and disbursements of
in-house and outside counsel to Lender.
6.14 At the request of Lender, at any time and from time to
time, at Borrower's sole expense, Borrower shall execute and
deliver or cause to be executed and delivered to Lender, such
agreements, documents and instruments, including waivers, consents
and subordination agreements from mortgagees or other holders of
security interests or liens, landlords or bailees, and do or cause
to be done such further acts as Lender, in its discretion, deems
necessary or desirable to create, preserve, perfect or validate any
security interest of Lender or the priority thereof in the
Collateral and otherwise to effectuate the provisions and purposes
of this Agreement. Borrower hereby authorizes Lender to file
financing statements or amendments against Borrower in favor of
Lender with respect to the Collateral, without Borrower's signature
and to file as financing statements any carbon, photographic or
other reproductions of this Agreement or any financing statements
signed by Borrower.
6.15 Commencing with Borrower's fiscal year ending December
31, 1995, and for each fiscal year thereafter, so long as any of
Borrower's Obligations to Lender remain outstanding, Borrower shall
have positive Cash Flow for each fiscal year in an amount of not
less than $1,500,000. For the purposes of this Agreement, "Cash
Flow" shall mean for each fiscal year of Borrower the sum of (a)
net income (loss), plus, (b) the sum of depreciation and
amortization, less, (c) debt service, less, (d) capital
expenditures.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 All Obligations shall be immediately due and payable,
without notice or demand, and any provisions of this Agreement as
to future loans and credit accommodations by Lender shall terminate
automatically, upon the termination or non-renewal of this
Agreement or, at Lender's option, upon or at any time after the
<PAGE>
occurrence or existence of any one or more of the following "Events
of Default":
(a) Borrower fails to pay when due any of the
Obligations or fails to perform any of the terms of this Agreement
or any other existing or future financing, security or other
agreement between Borrower and Lender or any affiliate of Lender;
(b) Any representation, warranty or statement of fact
made by Borrower to Lender in this Agreement or any other
agreement, schedule, confirmatory assignment or otherwise, or to
any affiliate of Lender, shall prove inaccurate or misleading;
(c) Any guarantor revokes, terminates or fails to
perform any of the terms of any guaranty, endorsement or other
agreement of such party in favor of Lender or any affiliate of
Lender;
(d) Any judgment or judgments aggregating in excess of
$100,000 or any injunction or attachment is obtained against
Borrower or any guarantor which remains unstayed for a period of
ten (10) days or is enforced;
(e) Borrower or any guarantor or a general partner of a
guarantor or Borrower (which is a partnership), being a natural
person, dies, or Borrower or any guarantor which is a partnership
or corporation, is dissolved, or Borrower or any guarantor which is
a corporation fails to maintain its corporate existence in good
standing, or the usual business of Borrower or any guarantor ceases
or is suspended;
(f) Any change in the chief executive officer, chief
operating officer, chief financial officer or controlling ownership
of Borrower;
(g) Borrower or any guarantor becomes insolvent, makes
an assignment for the benefit of creditors, makes or sends notice
of a bulk transfer or calls a general meeting of its creditors or
principal creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction
now or hereafter in effect (whether at law or in equity) is filed
by or against Borrower or any guarantor;
(i) The indictment or threatened indictment of Borrower
or any guarantor under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against
<PAGE>
Borrower or any guarantor, pursuant to which statute or proceedings
the penalties or remedies sought or available include forfeiture of
any of the property of Borrower or such guarantor;
(j) Any default or event of default under any financing,
security or other agreement, document or instrument at any time
executed and/or delivered to, with or in favor of Lender or any of
its affiliates by any affiliate of Borrower; or
(k) Lender in good faith believes that either (i) the
prospect of payment or performance of the Obligations is impaired
or (ii) the Collateral is not sufficient to secure fully the
Obligations.
7.2 Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all rights and remedies provided
in this Agreement, any other agreements between Borrower and
Lender, the Uniform Commercial Code or other applicable law, all of
which rights and remedies may be exercised without notice to
Borrower, all such notices being hereby waived, except such notice
as is expressly provided for hereunder or is not waivable under
applicable law. All rights and remedies of Lender are cumulative
and not exclusive and are enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting
the foregoing, Lender may (a) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender, (b)
with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or
complete processing, manufacturing and repair of all or any portion
of the Collateral, (c) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (d) collect,
foreclose, receive, appropriate, setoff and realize upon any and
all Collateral, (e) extend the time of payment of, compromise or
settle for cash, credit, return of merchandise, and upon any terms
or conditions, any and all accounts or other Collateral which
includes a monetary obligation and discharge or release the account
debtor or other obligor, without affecting any of the Obligations,
(f) sell, lease, transfer, assign, deliver or otherwise dispose of
any and all Collateral (including, without limitation, entering
into contracts with respect thereto, by public or private sales at
any exchange, broker's board, any office of Lender or elsewhere) at
such prices or terms as Lender may deem reasonable, for cash, upon
credit or for future delivery, with the Lender having the right to
purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of
redemption of Borrower, which right or equity of redemption is
hereby expressly waived and released by Borrower. If any of the
Collateral is sold or leased by Lender upon credit terms or for
<PAGE>
future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, seven (7)
days prior notice by Lender to Borrower designating the time and
place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover
any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which
might otherwise be required.
7.3 Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of any of the Obligations,
in whole or in part (including reasonable attorneys' fees and legal
expenses incurred by Lender with respect thereto or otherwise
chargeable to Borrower) and in such order as Lender may elect,
whether or not then due. Borrower shall remain liable to Lender
for the payment of any deficiency together with interest at the
highest rate provided for herein and all costs and expenses of
collection or enforcement, including reasonable attorneys' fees and
legal expenses.
7.4 Lender may, at its option, cure any default by Borrower
under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing
with respect to the Collateral and pay any amount, incur any
expense or perform any act which, in Lender's sole judgment, is
necessary or appropriate to preserve, protect, insure, maintain, or
realize upon the Collateral. Lender may charge Borrower's loan
account for any amounts so expended, such amounts to be repayable
by Borrower on demand. Lender shall be under no obligation to
effect such cure, payment, bonding or discharge, and shall not, by
doing so, be deemed to have assumed any obligation or liability of
Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND
CONSENTS
8.1 Borrower and Lender each waive all rights to trial by
jury in any action or proceeding instituted by either of them
against the other which pertains directly or indirectly to this
Agreement, the Obligations, the Collateral, any alleged tortious
conduct by Borrower or Lender, or, in any way, directly or
indirectly, arises out of or relates to the relationship between
Borrower and Lender. In no event will Lender be liable for lost
profits or other special or consequential damages.
<PAGE>
8.2 Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or
description in any action or proceeding instituted by Lender with
respect to this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto, except compulsory
counterclaims.
8.3 Borrower hereby irrevocably submits and consents to the
nonexclusive jurisdiction of the State and Federal Courts located
in the State in which the office of Lender designated in Section
10.6(a) is located and any other State where any Collateral is
located with respect to any action or proceeding arising out of
this Agreement, the Obligations, the Collateral or any matter
arising therefrom or relating thereto. In any such action or
proceeding, Borrower waives personal service of the summons and
complaint or other process and papers therein and agrees that the
service thereof may be made by mail directed to Borrower at its
chief executive office set forth herein or other address thereof of
which Lender has received notice as provided herein, service to be
deemed complete five (5) days after mailing, or as permitted under
the rules of either of said Courts. Any such action or proceeding
commenced by Borrower against Lender will be litigated only in a
Federal Court located in the district, or a State Court in the
State and County, in which the office of Lender designated in
Section 10.6(a) is located and Borrower waives any objection based
on forum non conveniens and any objection to venue in connection
therewith.
8.4 Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of
its rights or remedies unless such waiver shall be in writing and
signed by an authorized officer of Lender. A waiver by Lender of
any right or remedy on any one occasion shall not be construed as
a bar to or waiver of any such right or remedy which Lender would
otherwise have on any future occasion, whether similar in kind or
otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon
execution and delivery by Borrower and Lender and shall continue in
full force and effect for a term of five (5) years from the date
hereof and shall be deemed automatically renewed for successive
terms of two (2) years thereafter unless terminated as of the end
of the initial or any renewal term (each a "Term") by either party
giving the other written notice at least sixty (60) days prior to
the end of the then current Term.
9.2 Borrower may also terminate this Agreement by giving
Lender at least thirty (30) days prior written notice at any time
<PAGE>
upon payment in full of all of the Obligations as provided herein,
including the early termination fee provided below. Lender shall
also have the right to terminate this Agreement at any time upon or
after the occurrence of an Event of Default. If Lender terminates
this Agreement upon or after the occurrence of an Event of Default,
or if Borrower shall terminate this Agreement as permitted herein
effective prior to the end of the then-current Term, in addition to
all other Obligations, Borrower shall pay to Lender, upon the
effective date of termination, in view of the impracticality and
extreme difficulty of ascertaining actual damages and by mutual
agreement of the parties as to a reasonable calculation of Lender's
lost profits, an early termination fee equal to (a) three and one-
half (3 1/2%) percent of the Maximum Credit, if such termination
occurs prior to the first anniversary of this Agreement, or (b) two
(2%) percent of the Maximum Credit if such termination occurs on or
after the first anniversary of this Agreement, but prior to the
second anniversary of this Agreement, or (c) one (1%) percent of
the Maximum Credit if such termination occurs on or after the
second anniversary of this Agreement, but on or prior to the third
anniversary of this Agreement. There shall be no early termination
fee after the third anniversary of this Agreement.
9.3 Upon termination of this Agreement by Borrower, as
permitted herein, in addition to payment of all Obligations which
are not contingent, Borrower shall deposit such amount of cash
collateral as Lender determines is necessary to secure Lender from
loss, cost, damage or expense, including reasonable attorneys'
fees, in connection with any open Accommodations or remittance
items or other payments provisionally credited to the Obligations
and/or to which Lender has not yet received final and indefeasible
payment.
9.4 Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set
forth in Section 10.6(a) and to Borrower at its chief executive
office set forth in Section 10.6(d), or to such other address as
either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given
or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy (fax), immediately upon receipt; if by
overnight delivery service, one day after dispatch; and if by first
class or certified mail, five (5) days after mailing (except such
notice shall be effective immediately upon mailing by first class,
certified mail in the case of notice of termination (non-renewal)
by Lender of Borrower given to the other pursuant to Section 9.1).
9.5 If any provision of this Agreement is held to be invalid
or unenforceable, such provision shall not affect this Agreement as
a whole, but this Agreement shall be construed as though it did not
contain the particular provision held to be invalid or
unenforceable.<PAGE>
9.6 This Agreement and the Promissory Note referred to in
Section 2.2, if any, contains the entire agreement of the parties
as to the subject matter hereof, all prior commitments, proposals
and negotiations concerning the subject matter hereof being merged
herein. Neither this Agreement nor any provision hereof shall be
amended, modified or discharged orally or by course of conduct, but
only by a written agreement signed by an authorized officer of
Lender. This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective
successors and assigns, except that any obligation of Lender under
this Agreement shall not be assignable nor inure to the successors
and assigns of Borrower.
9.7 No termination of this Agreement shall relieve or
discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all
Obligations to Lender have been indefeasibly paid and satisfied in
full, including, without limitation, the continuation and survival
in full force and effect of all security interests and liens of
Lender in and upon all then existing and thereafter arising or
acquired Collateral and all warranties and waivers of Borrower.
9.8 All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement and all references to the
singular or plural herein shall also mean the plural or singular,
respectively.
9.9 This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender
set forth in Section 10.6(a) below is located.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]<PAGE>
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit: $15,000,000
(b) Gross Availability Formulas:
(i) Eligible Accounts Percentage: Subject to the
succeeding terms of this Section 10.1(b)(i),
85%. If the aggregate amount of Borrower's
credits, allowances, discounts, write-offs,
contra-accounts, and other offsets which
reduce the value of accounts receivable, as
determined by Lender, in its sole discretion,
divided by gross invoices ("Dilution
Percentage") is equal to or greater than 3%,
then the Eligible Accounts Percentage shall be
reduced by the percentage point or points, or
fraction thereof, by which the Dilution
Percentage exceeds 3%. The Dilution
Percentage shall be calculated on a rolling 90
day average. In addition to, and not in
limitation of, the foregoing, the maximum
aggregate outstanding amount of Revolving
Loans made against Eligible Accounts which are
owing by any Domestic Subsidiary Account
Debtor shall not exceed the aggregate amount
of $500,000 outstanding at any one time.
(ii) Eligible Inventory Percentage:
(A) 50% for finished goods inventory; and
(B) For raw material inventory:
i) For coil steel raw material
inventory, the applicable Eligible
Inventory Percentage shall be 50%;
ii) For fibers raw material inventory,
the applicable Eligible Inventory
Percentage shall be 45%;
iii) For powder metal raw material
inventory, the applicable Eligible
Inventory Percentage shall be 45%;
iv) For graphite raw material inventory,
the applicable Eligible Inventory
Percentage shall be 45%;
<PAGE>
v) For resin raw material inventory,
the applicable Eligible Inventory
Percentage shall be 35%; and
vi) For rubber raw material inventory,
the applicable Eligible Inventory
Percentage shall be 35%.
(c) Inventory Sublimit(s): The maximum aggregate
outstanding amount of Revolving Loans made by
Lender to Borrower hereunder against Eligible
Inventory shall not exceed at any one time
outstanding one hundred (100%) percent of the
aggregate outstanding amount of Revolving Loans
made by Lender to Borrower hereunder from time to
time against Eligible Accounts.
(d) Maximum days after Invoice
Date for Eligible Accounts: 90 days
(e) Minimum Borrowing: $5,000,000
10.2 Term Loan: $4,513,875
10.3 Accommodations:
(a) Lender's Charge for
Accommodations: None
(b) Sublimit for Accommodations: N/A
10.4 Fees:
(a) Interest Rate: Prime Rate plus 1.75% per annum
(b) Facility Fee .50% of the Maximum Credit
(c) Account Servicing Fee: None
(d) Unused Line Fee: None
10.5 Financial Covenants:
(a) Working Capital: N/A
(b) Net Worth: N/A
(c) Capital Expenditures: N/A
10.6 (a) Lender's Office: 135 West 50th Street
New York, New York 10020
(b) Lender's Bank: CHEMICAL BANK
270 Park Avenue
New York, New York 10017<PAGE>
(c) Borrower: RAYBESTOS PRODUCTS COMPANY
(d) Borrower's Chief
Executive Office: One Corporate Drive
Suite 512
Shelton, CT 06484
(e) Locations of Eligible
Inventory Collateral: 1204 Darlington Avenue
Crawfordsville, IN 47933
(f) Borrower's Other Offices
and
Locations of Collateral: None
(g) Borrower's Trade Names
for Invoicing: Raybestos
IN WITNESS WHEREOF, Borrower and Lender have duly executed
this Agreement this 29th day of March, 1995.
LENDER: BORROWER:
THE CIT GROUP/CREDIT FINANCE, INC. RAYBESTOS PRODUCTS COMPANY
By: By:
Title: Title: <PAGE>
SCHEDULE A
Permitted Liens
None<PAGE>
SCHEDULE B
Affiliates and Subsidiaries of Borrower
