UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-9603
STEVENS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2159407
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5500 Airport Freeway, Fort Worth, Texas 76117
(Address of principal executive offices) (zip code)
817/831-3911
(Registrant s telephone number, including area code)
__________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (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 XX No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer s
classes of common stock, as of the latest practicable date.
Title of Each Class Outstanding at
August 7,1998
Series A Stock, $0.10 Par Value 7,390,899
Series B Stock, $0.10 Par Value 2,097,134
<PAGE>
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
December 31, 1997 and June 30, 1998
(unaudited)
Consolidated Condensed Statements of Operations 4
Three and Six months ended June 30, 1998 and 1997
(unaudited)
Consolidated Condensed Statements of 5
Stockholders Equity December 31, 1997 and
Six months ended June 30, 1998 (unaudited)
Consolidated Condensed Statements of Cash Flows 6
Six months ended June 30, 1998 and 1997
(unaudited)
Notes to Consolidated Condensed Financial 7
Statements (unaudited)
Item 2.Management s Discussion and Analysis of 10
Financial Condition and Results of Operations
Part II. OTHER INFORMATION
Item 1.Legal Proceedings 14
Item 4.Submission of Matters to a Vote of Security 15
Holders
Item 6.Exhibits and Reports on Form 8-K 15
CAUTIONARY STATEMENT - This Form 10-Q may contain statements which
constitute "forward-looking" information as that term is defined in
the Private Securities Litigation Reform Act of 1995 or by the
Securities and Exchange Commission ("SEC") in its rules, regulations
and releases. Stevens International, Inc. (the "Company") cautions
investors that any such forward-looking statements made by the
Company are not guarantees of future performance and that actual
results may differ materially from those in the forward-looking
statements. Some of the factors that could cause actual results to
differ materially from estimates contained in the Company's forward-
looking statements are set forth in the Form 10-K for the year ended
December 31, 1997.
<PAGE>
<TABLE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except share data)
June 30, 1998 December 31, 1997
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash $ 2,895 $ 211
Trade accounts receivable, less
allowance for losses of $298 and
$374 in 1998 and 1997, respectively 2,038 3,158
Costs and estimated earnings in excess
of billings on long-term contracts 2,726 2,209
Inventory (Note 3) 5,469 6,610
Other current assets 1,484 759
Assets held for sale (Note 6) 6,250 14,735
Total current assets 20,862 27,682
Property, plant and equipment, net 2,534 2,409
Other assets, net 1,659 1,799
$25,055 $31,890
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Trade accounts payable $ 2,627 $ 2,691
Billings in excess of costs and
estimated earnings on
long-term contracts --- 133
Other current liabilities 4,951 6,322
Income taxes payable 75 ---
Customer deposits 699 802
Advances from affiliates 950 950
Current portion of long-term debt(Note 4) 6,137 27,678
Total current liabilities 15,439 38,576
Long-term debt 4,382 55
Accrued pension costs 2,870 2,870
Commitments and contingencies
Stockholders equity:
Preferred stock, $0.10 par value,
2,000,000 shares authorized, none
issued and outstanding --- ---
Series A common stock, $0.10 par
value, 20,000,000 shares authorized,
7,340,000 shares issued and
outstanding at June 30, 1998 and
December 31, 1997, respectively 739 739
Series B common stock, $0.10 par
value, 6,000,000 shares authorized,
2,098,000 shares issued and
outstanding at June 30, 1998 and
December 31, 1997, respectively 210 210
Additional paid-in-capital 41,091 39,941
Foreign currency translation adjustment (1,084) (769)
Excess pension liability adjustment (2,245) (2,245)
Retained (deficit) (36,347) (47,487)
Total stockholders equity (deficit) 2,364 (9,611)
$25,055 $31,890
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 5,343 $ 7,311 $15,040 $16,091
Cost of sales 5,163 7,883 12,075 15,712
Gross profit (loss) 180 (572) 2,965 379
Selling, general and 1,993 1,846 4,221 4,753
administrative expenses
Operating income (loss) (1,813) (2,418) (1,256) (4,374)
Other income (expense):
Interest income --- 3 --- 15
Interest expense (376) (805) (1,201) (1,869)
Other, net (103) (185) (251) (176)
Gain on sale of assets (Note 6) 2,702 --- 2,702 ---
2,223 (987) 1,250 (2,030)
Income (loss) before income
taxes and extraordinary item 410 (3,405) (6) (6,404)
Income tax (expense) benefit (75) --- (75) ---
Income (loss) before
extraordinary item 335 (3,405) (81) (6,404)
Extraordinary item (Note 4):
Gain on early extinguishment
of debt, net of tax effect 11,221 --- 11,221 ---
Net income (loss) $11,556 $(3,405) $11,140 $(6,404)
Earnings (loss) per share -
basic (Note 8):
Income (loss) before
extraordinary item $0.04 $(0.36) $(0.01) $(0.68)
Gain on early extinguishment
of debt 1.18 --- 1.18 ---
Net income (loss) - basic $1.22 $(0.36) $1.17 $(0.68)
Earnings (loss) per share -
diluted (Note 8):
Income (loss) before
extraordinary item $0.03 $(0.36) $(0.01) $(0.68)
Gain on early extinguishment
of debt 1.10 --- 1.10 ---
Net income (loss) - diluted $1.13 $(0.36) $1.09 $(0.68)
Weighted average number of
shares of common stock
outstanding during the periods -
basic (Note 8) 9,488 9,451 9,488 9,451
Weighted average number of shares
of common and common stock
equivalents outstanding during
the periods - diluted (Note 8) 10,190 9,451 10,190 9,451
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(Amounts in thousands)
Shares Amount
------ -------
<S> <C> <C>
Series A Stock
Balance, December 31, 1997 7,391 $ 739
Conversion of Series B stock
to Series A stock --- ---
----- -------
Balance, June 30, 1998 7,391 $ 739
===== =======
Series B Stock
Balance, December 31, 1997 2,098 $ 210
Conversion of Series B stock
to Series A stock --- ---
----- -------
Balance, June 30, 1998 2,098 $ 210
===== =======
Additional Paid-In Capital
Balance, December 31, 1997 $39,941
Warrants awarded to related
party (Note 4) 1,150
-------
Balance, June 30, 1998 $41,091
=======
Foreign Currency Adjustment
Balance, December 31, 1997 $ (769)
Translation adjustments (315)
-------
Balance, June 30, 1998 $(1,084)
=======
Pension Liability Adjustment
Balance, December 31, 1997 $(2,245)
Balance, June 30, 1998 $(2,245)
=======
Retained Earnings (Deficit)
Balance, December 31, 1997 $(47,487)
Net income for six months
ended June 30, 1998 11,140
-------
Balance, June 30, 1998 $(36,347)
=======
Stockholders Equity at June 30, 1998 $2,364
=======
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
Six Months Ended June 30,
1998 1997
<S> <C> <C>
Cash provided by operations:
Net income (loss) $11,140 $(6,404)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 557 1,588
Other (314) (157)
Changes in operating assets and liabilities:
Trade accounts receivable 1,120 4,752
Contract costs in excess of
billings (651) 375
Inventory 1,142 (28)
Refundable Income Taxes --- 2,396
Other assets (780) 1,746
Trade accounts payable (64) (5,332)
Other liabilities (1,399) (2,760)
Total cash provided by (used in )
operating activities 10,751 (3,824)
Cash provided by (used in) investing activities:
Additions to property, plant and equipment (203) (27)
Disposal of Zerand Division (1998) and
Bernal Division (1997) 8,200 14,298
Total cash provided by (used in)
investing activities 7,997 14,271
Cash provided by (used in) financing
activities:
Net proceeds from (repayments of) long-
term debt 4,327 (12,242)
(Decrease) in current portion of long-
term debt (20,391) ---
Total cash provided by (used in)
financing activities (16,064) (12,242)
Increase (decrease) in cash and temporary
investments 2,684 (1,795)
Cash and temporary investments at
beginning of period 211 3,338
Cash and temporary investments at end of
period $2,895 $1,543
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest $ 466 $ 532
Income taxes -0- (2,311)
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. The consolidated condensed balance sheet as of June 30, 1998, the
consolidated condensed statement of stockholders equity for the
period ended June 30, 1998, the consolidated condensed statements
of operations for the three and six months ended June 30, 1998 and
1997, and the consolidated condensed statements of cash flows for
the six month periods then ended have been prepared by the Company
without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position as of June 30, 1998 and the
results of operations for the three and six months ended June 30,
1998 and 1997 and the cash flows for the six months ended June 30,
1998 and 1997 have been made. The December 31, 1997 consolidated
condensed balance sheet is derived from the audited consolidated
balance sheet as of that date. Complete financial statements for
December 31, 1997 and related notes thereto are included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1997 (the "1997 Form 10-K").
The above financial statements have been prepared in accordance
with the instructions to Form 10-Q and therefore do not include all
information included in the 1997 Form 10-K. The results of
operations for the three and six months ended June 30, 1998 and
1997 are not necessarily indicative of the results to be expected
for the full year.
2. The Company designs, manufactures, markets and services web-fed
packaging and printing systems and related equipment for its
customers in the packaging industry and in the specialty/commercial
and banknote and security segments of the printing industry. The
Company also markets and manufactures high-speed image processing
systems primarily for use in the banknote and security printing
industry. The Company combines various types of equipment capable
of converting and printing, among other items, food and beverage
containers, liquid container cartons, banknotes, postage stamps,
lottery tickets, direct mail inserts, personal checks and business
forms. The Company's technological and engineering capabilities
allow it to combine any of the four major printing technologies
(offset, flexography, rotogravure and intaglio) in its systems.
Complete press systems are capable of multiple color and multiple
size printing and perform such related functions as numbering,
punching, perforating, slitting, cutting, creasing, folding and
stacking. The presses can be custom engineered for non-standard
form size and special auxiliary functions.
3. Inventories consist of the following:
June 30, December 31,
1998 1997
(Amounts in thousands)
Finished product $ 881 $1,413
Work in progress 2,567 2,723
Raw materials 2,021 2,474
$5,469 $6,610
<PAGE>
4. On June 30, 1998 the Company refinanced a major portion of its debt
structure as part of its plan to dramatically reduce its
debt. Through a combination of new secured bank borrowings of
approximately $6 million, and loans from its Chairman, CEO and
principal shareholder, Paul I. Stevens, aggregating $4.5 million,
the Company has paid off both its Senior bank lender and its Senior
Subordinated notes, aggregating approximately $19.5 million. The
repayment of the Company's Senior Subordinated notes resulted in an
extraordinary gain on early extinguishment of debt of approximately
$11.2 million, or $1.10 per share. The secured bank credit
facilities have first liens on certain assets of the Company,
principally inventory, accounts receivable, and the Company's Texas
real estate and machining center in Ohio. Paul I. Stevens' loans
have first liens on certain assets of the Company, principally
certain Ohio assets that are being held for sale, a $1 million
escrow hold back on the sale of Zerand, the assets of a foreign
subsidiary, and certain accounts receivable for new equipment being
installed at a customer location.
On June 29, 1998 the Board of Directors of the Company approved the
issuance to Paul I. Stevens of warrants to purchase 680,000 shares
of Series A Common Stock of the Company at $0.50 per share as
consideration for his loans to the Company and his personal
guarantee of $4 million of the new bank borrowings. The warrants
enable Mr. Stevens to buy 680,000 shares of stock with certain
restrictions over the next 5 years at the indicated price. The
Company has obtained a fairness opinion on the value of the loans
and guarantees of Mr. Stevens. The Board of Directors has
determined that the value of the warrants issued to Mr. Stevens is
less than the fair value of his loans and guarantees. For
accounting purposes, an amount of $1.15 million was reflected in
the June 30, 1998 balance sheet as a debt discount and an increase
in paid-in capital based upon the Black-Scholes formula for valuing
warrants and options.
For a description of the status of the bank credit facility at June
30, 1998, see "Liquidity and Capital Resources". Substantially all
assets of the Company continue to be pledged as collateral on the
Company s credit facilities.
5. As a result of the Company's continuing liquidity problems, the
Company has been the subject of lawsuits, from time to time, with
respect to the Company's inability to pay certain vendors on a
timely basis. To date, all of such actions have been settled. The
Company is subject to various claims, including product liability
claims, which arise in the ordinary course of business, and is a
party to various legal proceedings that constitute ordinary routine
litigation incidental to the Company's business. A successful
product liability claim brought against the Company in excess of
its product liability coverage could have a material adverse effect
upon the Company's business, operating results and financial
condition.
<PAGE>
In management's opinion, the Company has adequate legal defenses
and/or insurance coverage in respect to each of these legal actions
and does not believe that they will materially affect the
Company's operations, liquidity, or financial position. See "Legal
Proceedings" herein and in the 1997 Form 10-K.
6. A description of the Company's divestitures in 1998 and 1997
follow:
Sale of Hamilton Machining Center in July 1998
On July 28, 1998 the Company sold the real and personal property at
its Hamilton, Ohio machining center ("HMC") and the major portion
of its machinery and equipment at its assembly facility in
Hamilton, Ohio for an aggregate consideration of approximately
$4.35 million. This transaction resulted in the recording of a
second quarter 1998 loss on sale of assets of approximately $0.8
million. Proceeds of the transaction were used to repay the $4
million secured bridge term loan from the Company's new bank lender
(the "Bridge Loan") which was loaned to the Company on June 30,
1998, transaction fees and certain real and personal property
taxes. HMC had outside sales of $1.2 million and operating losses
of $0.35 million in 1997. The Company has replaced certain of the
capabilities of its machining center with a group of new and
traditional suppliers.
Sale of Assets of Zerand Division in April 1998
On April 27, 1998, the Company sold substantially all the assets of
its Zerand division to Valumaco Incorporated, a new company formed
for the asset purchase. In addition, Valumaco Incorporated assumed
certain liabilities of the Zerand division. The assets sold
included the real property, platen die cutter systems, and other
original Zerand products such as delivery equipment, wide-web
rotogravure printing systems, stack flexographic printing systems,
unwind and butt splicer systems, and related spare parts, accounts
payable, and other assumed liabilities. Excluded from the proposed
transaction were the System 2000 flexographic printing systems and
the System 9000 narrow-web rotogravure printing systems produced at
the Zerand division and related accounts receivable, inventory and
engineering drawings. The sale price was approximately $13.7
million, which consisted of cash proceeds of $10.1 million, a one-
year $1 million escrow "hold back", and the purchaser s assumption
of approximately $2.6 million of certain liabilities of Zerand,
including the accounts payable.
This transaction resulted in an approximate $10 million reduction
of the Company's senior secured bank debt. In 1997, Zerand
contributed sales of approximately $11.6 million and approximately
$1.8 million of income before interest, corporate charges and
taxes. The Company realized an approximate $3.6 million gain on
the sale of Zerand assets.
<PAGE>
Sale of Bernal Division in March 1997
In March 1997, the Company sold substantially all the assets of its
Bernal division including the product technology and related
intangibles to Bernal International, Inc., a new company formed for
the asset purchase. The cash proceeds were approximately $15
million, and in addition, the purchaser assumed certain liabilities
of Bernal, including the accounts payable. This transaction
resulted in a $12 million permanent reduction of the Company's
senior debt. In 1996, Bernal contributed sales of approximately
$17.8 million and approximately $0.7 million income before
interest, corporate charges and taxes.
7. Due to accumulated losses, there are no recoverable income taxes
for the six months ended June 30, 1998 and 1997. The tax expense
of $75,000 for the three and six months ended June 30, 1998 is due
to the alternative minimum taxes imposed on the gain on sale of
assets.
8. In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" ("EPS") which established new standards
for computing and presenting EPS. SFAS No. 128 replaced the
presentation of primary EPS with a presentation of basic EPS.
Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock. EPS amounts for 1998 and 1997 have been presented
and, where appropriate, restated to conform to the SFAS No. 128
requirements. Since the Series A and Series B stock have identical
dividend and participation rights in the Company s earnings, they
have been considered to be comparable in the calculation.
9. Comprehensive income, as defined in Statement of Financial
Accounting Standards No. 130, includes foreign currency translation
adjustments and is calculated below:
Three Months Six Months Ended
Ended
June 30, June 30,
1998 1997 1998 1997
Net earnings (loss) $11,556 $(3,405) $11,140 $(6,404)
Foreign Currency Translation
Adjustments (98) 25 (315) (157)
Comprehensive income (loss) $11,458 $(3,380) $10,825 $(6,561)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Six Months Ended June 30, 1998 and 1997
Sales The Company's sales for the six months ended June 30, 1998
decreased by $1.1 million (or 6.5%) compared to sales in the same
period in 1997 due primarily to sales decreases in packaging products
($1.4 million) principally as a result of the sale of Zerand on April
27, 1998, offset by increases in specialty web products sales ($0.2
million) and French service and repair sales ($0.2 million). Sales and
gross profit in 1997 include $0.7 million in proceeds from the sale of
certain press system contract rights. The Company sold these rights in
lieu of a long repossession and resale process. Sales in 1998 included
$4.3 million of Zerand sales which division was sold by the Company in
April, 1998.
Gross Profit The Company s gross profit for the six months ended June
30, 1998 increased by $2.6 million compared to gross profit in the same
period in 1997 due primarily to shipment of products at near normal
product margins. Gross profit margin for 1998 increased to 19.7% of
sales as compared to 2.4% for 1997. This increase in gross profit
margin in 1998 was due primarily to product mix, shipment of products at
near normal margins, and decreased warranty expenses. Sales and gross
profit in 1997 include $0.7 million in proceeds from the sale of certain
press system contract rights. The Company sold these rights in lieu of
a long repossession and resale process.
Selling, General and Administrative Expenses The Company s selling,
general and administrative expenses decreased by $0.5 million (or 11.2%)
for the six months ended June 30, 1998 compared to the same period in
1997 due to cost reduction efforts at corporate headquarters and at all
divisions in connection with the reduced volume of sales, as well as the
impact of the sale of Bernal and Zerand. Selling, general and
administrative expenses for the six months ended June 30, 1998 were
28.1% of sales compared to 29.5% of sales for the same period in 1997
due to continuing cost reductions in 1998.
Other Income (Expense) The Company s interest expense decreased by
$0.6 million for the six months ended June 30, 1998 compared to the
same period in 1997 due to the reduced borrowings in 1998 resulting from
the application of the Zerand and Bernal sale proceeds to pay down bank
indebtedness, offset by an increased cost of borrowing in 1998.
Interest income was negligible for the six months ended June 30, 1998
and 1997.
<PAGE>
Comparison of Three Months Ended June 30, 1998 and 1997
Sales The Company's sales for the three months ended June 30, 1998
decreased by $1.9 million (or 26.9%) compared to sales in the same
period in 1997 due primarily to sales decreases in packaging products
($1.1 million) resulting from the sale of Zerand on April 27, 1998, and
specialty web products ($1.1 million) offset by increases in French
service and repair ($0.3 million). Sales in 1998 included $0.7 million
of Zerand sales which division was sold by the Company in April, 1998.
Gross Profit (Loss) The Company s gross profit for the three months
ended June 30, 1998 increased by $0.8 million compared to gross profit
(loss) in the same period in 1997 due primarily to reduced warranty
expenses in 1998 for packaging systems and specialty web products.
Gross profit margin for the second quarter of 1998 increased to 3.4% of
sales as compared to (7.8%) for 1997. This increase in gross profit
margin in 1998 was due primarily to reduced warranty costs in 1998 and
the absence of any major cost overruns in 1998.
Selling, General and Administrative Expenses The Company s selling,
general and administrative expenses increased by $0.1 million (or 8%)
for the three months ended June 30, 1998 compared to the same period in
1997 due to a reversal of $1.0 million in the allowance for losses on
collection of trade accounts receivable in the 1997 period and offset by
continuing cost reduction efforts at corporate headquarters and the sale
of Zerand. Selling, general and administrative expenses for the three
months ended June 30, 1998 were 37.3% of sales compared to 25.2% of
sales for the same period in 1997 due to the decrease in sales in 1998
described above without corresponding decrease in expenses.
Other Income (Expense) The Company s interest expense decreased by
$0.4 million for the three months ended June 30, 1998 compared to the
same period in 1997 due to the reduced borrowings in 1998 resulting from
the application of the Zerand and Bernal sale proceeds to pay down bank
indebtedness, offset by an increased cost of borrowing in 1998.
Interest income was negligible for the three months ended June 30, 1998
and 1997.
TAX MATTERS
The Company's effective state and federal income tax rate ("effective
tax rate") was 18.3% and 0% for the three months and over 100% and 0%
for the six months ended June 30, 1998 and 1997, respectively. The
income taxes in 1998 result from the alternative minimum tax on sale of
certain assets, primarily Zerand. Due to accumulated losses, there are
no recoverable income taxes for the six months ended June 30, 1998 and
1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
On June 30, 1998 the Company refinanced a major portion of its secured
indebtedness ("the Debt Restructuring") as part of its plan to
dramatically reduce its debt. Through a combination of new secured bank
borrowings of approximately $6 million, and loans from its Chairman, CEO
and principal shareholder, Paul I. Stevens, aggregating $4.5 million,
the Company has paid off both its Senior secured bank lender and its
secured Senior Subordinated Notes, aggregating approximately $19.5
million. Repayment of the secured Senior Subordinated Notes resulted in
an extraordinary gain on early extinguishment of debt of approximately
$11.2 million, or $1.10 per share.
The new bank credit facilities have first liens on certain assets of the
Company, principally inventory, accounts receivable, and the Company's
Texas real estate and machining center in Ohio. Paul I. Stevens' loans
have first liens on certain assets of the Company, principally certain
Ohio assets that are being held for sale, a $1 million escrow holdback
on the sale of Zerand, the assets of a foreign subsidiary, and certain
accounts receivable for new equipment being installed at a customer
location.
Interest on the new bank loans range from 1 1/4% to 2 1/2% over prime
with maturity of 90 days on the Bridge Loan and a two-year maturity on
the revolving credit facility. The amount borrowed on the revolving
credit facility was approximately $2 million on June 30, 1998. The
Company paid in full the Bridge Loan on July 28, 1998 from the sale of
HMC and the major portion of its machinery and equipment at its
assembly facility in Hamilton, Ohio. The secured loan from Paul I.
Stevens is due June 30, 2000 and bears interest of 2% over bank prime.
As a result of its sale of Zerand (see Note 6 of Notes to Consolidated
Condensed Financial Statements), the Company was able to make principal
payments on its bank credit facility of approximately $10 million on
April 27, 1998.
The Company requires capital primarily to fund its ongoing operations,
to service its existing debt and to pursue its strategic objectives
including new product development and penetration of international
markets. The Company's working capital needs typically increase because
of a number of factors, including the duration of the manufacturing
process and the relatively large size of most orders.
Net cash provided by (used in) operating activities (before working
capital requirements) was $11.38 and ($4.97) million for the six months
ended March 31, 1998 and 1997, respectively. Working capital (used)
provided cash of ($0.63) and $1.15 million for the six months ended June
30, 1998 and 1997, respectively. During periods of lower sales such as
1997 and the first six months of 1998, the Company's working capital
generally provides cash as receivables are collected and inventory is
utilized. Alternatively, the Company's working capital needs increase
during periods of sales growth because of a number of factors, including
the duration of the manufacturing process and the relatively large size
of most orders.
<PAGE>
Under its credit facility at June 30, 1998, the Company's maximum
borrowings were limited to a borrowing base formula, which could not
exceed $7.5 million in the form of direct borrowings and letters of
credit. As of June 30, 1998 there was $2.0 million in direct borrowings
and $8,600 in standby letters of credit outstanding under the bank
credit facility, with additional availability for such borrowings of
$0.6 million.
At June 30, 1998, $2.0 million of the Company's bank borrowings were at
the lender's prime rate of interest (8.50%) plus 2.5%, or a total of 11%
interest. The amounts borrowed under the credit facility have been used
for working capital.
The borrowings under the bank credit facility are subject to various
restrictive covenants related to financial ratios as well as limitations
on capital expenditures and additional indebtedness. The Company is not
allowed to pay dividends.
With the above described Debt Restructuring, and assuming that one of
several strategic, financial alternatives, principally the additional
sale of assets and loans from Paul I. Stevens, among others presently
being pursued by the Company is consummated, management believes that
cash flow from operations will be adequate to fund its existing
operations and repay scheduled indebtedness over the next 12 months.
There can be no assurance that future sales of assets, if any, can be
successfully accomplished on terms acceptable to the Company. Under
current circumstances, the Company's ability to continue as a going
concern depends upon the further redeployment of assets, and a return to
profitable operations. If the Company is unsuccessful in its efforts,
it may continue to be unable to meet its obligations or fulfill the
covenants in its revised debt agreements, as well as other obligations,
making it necessary to undertake such other actions as may be
appropriate to preserve asset values.
In addition, the Company may incur, from time to time, additional short-
and long-term bank indebtedness (under its new credit facility or
otherwise) and may issue, in public or private transactions, its equity
and debt securities to provide additional funds necessary for the
continued pursuit of the Company's operational strategies. The
availability and terms of any such sources of financing will depend on
market and other conditions. There can be no assurance that such
additional financing will be available or, if available, will be on
terms and conditions acceptable to the Company.
Backlog and Orders The Company s backlog of unfilled orders at June 30,
1998 was approximately $6.3 million compared to $12.0 million at
December 31, 1997 (excluding Zerand backlog), a decrease of (47.5%).
The backlog decrease consists primarily of decreases in the orders for
major press systems. The backlog at June 30 in each of the preceding
five years has ranged from a low of $6.3 million in 1998 to a high of
$68.0 million in 1995.
<PAGE>
The reduction in backlog is the result of a reduced order flow in 1997
and 1998. Orders (excluding Zerand) for the six months ended June 30,
1998 were $5.0 million compared to $5.4 million for the comparable
period in 1997, a decrease of $0.4 million while shipments decreased
$1.1 million. The Company believes the above noted reduced order flow
is the result of fluctuations in the flow of major printing and
packaging system orders, and in part to liquidity problems faced by the
Company. As a result, the Company is continuing to adjust its rate of
future production and accompanying costs to match this reduced order
flow.
When sales are recorded under the completed contract method of
accounting, the Company normally experiences a six to nine month lag
between the time new orders are booked and the time they are reflected
in sales and results of operations. Larger orders, which are accounted
for using the percentage of completion method of accounting, are
reflected in sales and results of operations as the project progresses
through the manufacturing cycle.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In 1997, the Company filed a suit seeking damages and injunctive relief
against Paul W. Bergland, a former vice-president, for, among other
things, theft of trade secrets, fraud, breach of contract, and breach of
a confidential relationship. On March 3, 1997, Bergland filed his
original answer and a counterclaim. ConverTek, Inc., a corporation in
which Bergland claims an ownership interest, has joined the suit as a
counterclaimant against the Company. This litigation was settled in
July 1998 with no payment of damages on the part of any of the parties
to the lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1998 Annual Meeting of Stockholders (the "Meeting")
on May 21, 1998. At the Meeting, the stockholders of the Company
considered and voted upon the following matters, with the results
indicated:
(1) The following directors, constituting all of the directors of the
Company, were elected to serve as directors for the ensuing year:
Series A Nominees Votes For Votes Withheld
John W. Stodder 6,754,193 76,859
Edgar H. Schollmaier 6,759,527 71,525
Series B Nominees
Paul I. Stevens 2,094,516 162
Richard I. Stevens 2,094,603 75
Constance I. Stevens 2,094,678 ---
Robert H. Brown, Jr. 2,094,678 ---
James D. Cavanaugh 2,094,678 ---
Michel A. Destresse 2,094,678 ---
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit
3.1 Second Amended and Restated Certificate of
Incorporation of the Company. (1)
3.2 Bylaws of the Company, as amended. (2)
4.1 Specimen of Series A Common Stock Certificate. (3)
4.2 Specimen of Series B Common Stock Certificate. (4)
10.1 Loan Agreement dated June 30, 1998 by and between
Wells Fargo Bank, National Association and the
Company. (*)
10.2 Loan Agreement dated June 30, 1998 by and between
Paul I. Stevens and the Company. (*)
11.1 Computation of Net Income per Common Share. (*)
27.1 Financial Data Schedule. (*)
* Filed herewith.
(1) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990 and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 33-15279) and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 33-24486) and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Company's report on Form 8-
A filed August 19, 1988 and incorporated herein by reference.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K dated April 27,
1998 to report the sale of its Zerand Division under Item 2.
Acquisition or Disposition of Assets.
The Registrant filed a Current Report on Form 8-K dated May 21,
1998 to report a change in the Registrant's Certifying Accountant
under Item 4, Changes in the Registrant's Certifying Accountant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Stevens International, Inc. has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
STEVENS INTERNATIONAL, INC.
Date: August 12, 1997 By: /s/ Paul I. Stevens
Paul I. Stevens
Chief Executive Officer
and Acting Chief Financial Officer
EXHIBIT 10.1
LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into as
of June 30, 1998 by and between Wells Fargo Bank, National Association
("Lender") and Stevens International, Inc., a Delaware corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into
certain financing arrangements with Borrower pursuant to which Lender
may make loans and provide other financial accommodations to Borrower;
and
WHEREAS, Lender is willing to make such loans and provide
such financial accommodations on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual conditions
and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Section 1 or
Article 9 of the Uniform Commercial Code shall have the meanings given
therein unless otherwise defined in this Agreement. Any accounting
term used herein unless otherwise defined or set forth in this
Agreement shall have the meanings customarily given to such term in
accordance with GAAP. For purposes of this Agreement, the following
terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of
Borrower to payment of or goods sold or leased for services rendered,
which are not evidenced by instruments or chattel paper, and whether or
not earned by performance.
1.2 " Affiliate" shall mean any Person controlling,
controlled by or under common control with any other Person. For
purposes of this definition, "control" (including "controlled by" and
"under common control with") means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership
of voting securities or otherwise.
<PAGE>
1.3 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish
and revise in good faith reducing the amount of Revolving Loans and
Letters of Credit which would otherwise be available to Borrower under
the lending formula(s) provided for herein: (a) to reflect events,
conditions, contingencies or risks which, as determined by Lender in
good faith, do or may affect either (i) the Collateral or its value,
(ii) the assets, business or prospects of Borrower or any Obligor, or
(iii) the security interests and other rights of Lender in the
Collateral (including the enforceability, perfection and priority
thereof), or (b) to reflect Lender's good faith belief that any
collateral report or financial information furnished by or on behalf of
Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect, or (c) in respect of
any state of facts which Lender determines in good faith constitutes an
Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.
1.4 "Belknap Facility" shall mean the land located at 5700
E. Belknap Street, Fort Worth, Texas 76711, and all improvements
thereon.
1.5 "Business Day" shall mean any day, except Saturday, on
which Lender is open for the conduct of general banking business.
1.6 "Cash Collateral Account" shall have the meaning set
forth in Section 6.1 hereof.
1.7 "Collateral" shall mean all the property in which
Borrower or an Obligor grants or is required to grant to Lender a
security interest or lien, as described in Section 5 hereof.
1.8 "DTPA" shall mean the Texas Deceptive Trade Practices
Consumer Protection Act, Subchapter E of Chapter 17 of the Texas
Business and Commerce Code.
1.9 "Eligible Accounts" shall mean Accounts created by
Borrower which are and continue to be acceptable to Lender based on the
criteria set forth below. In general, Accounts shall be Eligible
Accounts if:
(a) such Accounts arise from the actual and bona fide
sale and delivery of goods by Borrower or rendition of services
by Borrower in the ordinary course of Borrower's business which
transactions are completed in accordance with the terms and provisions
contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety
(90) days after the date of the original invoice thereto;
(c) such Accounts comply with the terms and
conditions applicable thereto contained in the Security Agreement
executed in connection therewith;
<PAGE>
(d) such Accounts do not arise from sales on
consignment, guaranteed sale, sale and return, sale on approval, or
other terms under which payment by the account debtor may be
conditional or contingent;
(e) the chief executive office of the account debtor
with respect to such Accounts is located in the United States of
America, or, at Lender's option, if: (i) the account debtor has
delivered to Borrower an irrevocable letter of credit issued or
confirmed by a bank satisfactory to Lender, sufficient to cover such
Account, in form and substance satisfactory to Lender and, if required
by Lender, the original of such letter of credit has been delivered to
Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii)
such Account is subject to credit insurance payable to Lender issued by
an insurer and on terms and in an amount acceptable to Lender, or (iii)
the account debtor resides in a province of Canada which recognizes
Lender's perfection and enforcement rights as to Accounts by reason of
the filing of a UCC-1 in the state of Borrower's chief executive
office, or (iv) such Account is otherwise acceptable in all respects to
Lender (subject to such lending formula with respect thereto as Lender
may determine);
(f) such Accounts do not consist of progress
billings, bill and hold invoices or retainage invoices;
(g) the account debtor with respect to such Accounts
has not asserted a counterclaim, defense or dispute and does not have,
and does not engage in transactions which may give rise to, any right
of setoff against such Accounts;
(h) there are no facts, events or occurrences which
would impair the validity, enforceability or collectability of such
Accounts or reduce the amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority,
valid and perfected security interest of Lender and any goods giving
rise thereto are not, and were not at the time of the sale thereof,
subject to any liens except those permitted in this Agreement;
(j) neither the account debtor nor any officer,
employee or agent of the account debtor with respect to such Accounts
is an officer, employee or agent of or affiliated with Borrower
directly or indirectly by virtue of family membership, ownership,
control, management or otherwise;
(k) the account debtors with respect to such Accounts
are not any foreign government, the United States of America, any State
or any political subdivision, department, agency or instrumentality
thereof, unless, if the account debtor is the United States of America,
any State or any political subdivision, department, agency or
instrumentality thereof, upon Lender's request, the Federal Assignment
of Claims Act of 1940, as amended, or any similar State or local law,
if applicable, has been complied with in a manner satisfactory to
Lender;
<PAGE>
(l) there are no proceedings or actions pending
against any account debtor with respect to such Accounts from such
account debtor which might result in any material adverse change in any
such account debtor's financial condition;
(m) such Accounts of a single account debtor or its
affiliates do not constitute more than twenty-five (25%) of all
otherwise Eligible Accounts (but the portion of the Accounts not in
excess of such percentage may be deemed Eligible Accounts) and such
other Accounts as Lender may approve in its sole discretion;
(n) such Accounts are not owed by any account debtor
who has Accounts unpaid more than ninety (90) days after the date of
the original invoice therefor and which constitute more than twenty-
five (25%) percent of the total Accounts from such account debtor;
(o) such Accounts are owed by account debtors whose
total indebtedness to Borrower does not exceed the credit limit with
respect to such account debtors as reasonably determined by Lender from
time to time (but the portion of the Accounts not in excess of such
credit limit may still be deemed Eligible Accounts); and
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised
from time to time by Lender in good faith. Any Accounts which are not
Eligible Accounts shall nevertheless be part of the Collateral.
1.10 "Eligible Inventory" shall mean Inventory owned by
Borrower which is and remains acceptable to Lender for lending purposes
and is located at one of the addresses set forth in Schedule I to this
Agreement; provided however, that if any such location is owned by a
party other than Borrower, Lender shall have obtained from the owner
thereof an agreement relative to Lender's rights with respect to such
Inventory, in form and content satisfactory to Lender; and provided
further that in no event however shall Eligible Inventory include: (a)
work-in-process; (b) inventory subject to a security interest or lien
in favor of any person other than Lender, except those permitted in
this Agreement; and (c) inventory which is not subject to the first
priority, valid and perfected security interest of Lender. General
criteria for Eligible Inventory may be established and revised from
time to time by Lender in good faith. Any Inventory which is not
Eligible Inventory shall nevertheless be part of the Collateral.
1.11 "Equipment" shall mean all of Borrower's now owned
and hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles, tools,
furniture, fixtures, all attachments, accessions and property now or
hereafter affixed thereto or used in connection therewith, and
substitutions and replacements thereof, wherever located.
1.12 "Event of Default" shall mean the occurrence or
existence of any event or condition described in Section 10.1 hereof.
<PAGE>
1.13 "GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect from time to
time as set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and the statements and pronouncements of the Financial
Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied, except that, for
purposes of Section 8.10 hereof, GAAP shall be determined on the basis
of such principles in effect on the date hereof and consistent with
those used in the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.14 "General Intangibles" shall mean 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).
1.15 "Hamilton Facility" shall mean the land located at
2175 Schlichter Drive, Hamilton, Ohio 45011, and all improvements
thereon.
1.16 "Guarantor" shall mean Paul Stevens, an individual.
1.17 "Indebtedness" shall mean any and all amounts owing or
to be owing by Borrower to Lender in connection with the Line of Credit
Note, this Agreement, and other liabilities of Borrower to Lender from
time to time existing, including without limitation guaranties of
indebtedness, letters of credit and obligations acquired from third
persons, whether in connection with this or other transactions, and all
amounts owing or to be owing by Borrower to any agent bank of Lender
pursuant to any Letter of Credit Agreement, overdraft agreement or
other agreement or financial accommodation.
1.18 "Information Certificate" shall mean the Information
Certificate of Borrower constituting Exhibit A hereto containing
material information with respect to Borrower, its business and assets
provided by or on behalf of Borrower to Lender in connection with the
preparation of this Agreement and the other Loan Documents and the
financing arrangements provided for herein.
1.19 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process, finished
goods and all other inventory of whatsoever kind or nature, wherever
located.
1.20 "Letters of Credit" shall mean commercial or standby
letters of credit issued by Lender from time to time under the Line of
Credit.
<PAGE>
1.21 "Letter of Credit Agreement" shall have the meaning
set forth in Section 2.2 hereof.
1.22 "Letter of Credit Obligations" shall mean at any time,
the aggregate amount available to be drawn, plus amounts drawn and not
yet reimbursed, under Letters of Credit.
1.23 "Line of Credit" shall mean a revolving line of credit
under which Lender agrees to make Revolving Loans and issue Letters of
Credit, subject to the terms and conditions of this Agreement.
1.24 "Line of Credit Note" shall have the meaning set forth
in Section 2.1 hereof.
1.25 "Loan Documents" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements, subordination
agreements, and other agreements, documents and instruments now or at
any time hereafter executed and/or delivered by Borrower or any Obligor
in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.26 "Loans" shall mean the Line of Credit and the Term
Loan.
1.27 "Maximum Line Amount" shall mean the amount of
$7,500,000.
1.28 "Maximum Nonusurious Interest Rate" shall mean the
maximum nonusurious interest rate allowable under applicable United
States federal law and under the laws of the State of Texas as
presently in effect and, to the extent allowed by such laws, as such
laws may be amended from time to time to increase such rate.
1.29 "Net Amount of Eligible Accounts" shall mean the gross
amount of Eligible Accounts less (a) sales, excise or similar taxes
included in the amount thereof and (b) returns, discounts, claims,
credits and allowances of any nature at any time issued, owing,
granted, outstanding, available or claimed with respect thereto.
1.22 " Obligor" shall mean any guarantor, endorser,
acceptor, surety or other person liable on or with respect to the
Loans, or any of them, or who is the owner of any property which is
security for the Loans, or any of them, other than Borrower. If
Borrower is a partnership, each general partner is an Obligor.
1.30 "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
trustee, unincorporated organization, government or any agency or
political subdivision thereof, or any other form of entity.
1.31 "Property" shall mean any interest in any kind of
property or asset, whether real, personal or mixed, or tangible or
intangible.
<PAGE>
1.32 "Purchase Order UCC Financing Statement" shall mean a
UCC Financing Statement in standard form executed by Borrower in favor
of a customer and covering only specific component parts or equipment
constituting work-in-process owned by such customer, for which a
purchase order contract has been executed, and as to which the specific
parts or equipment at all times are segregated in Borrower's facility
as separate and apart from any inventory or equipment owned by
Borrower.
1.33 "Records" shall mean all of Borrower's present and
future books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other shipping
evidence, statements, correspondence, memoranda, credit files and other
data relating to the Collateral or any account debtor, together with
the tapes, disks, diskettes and other data and software storage media
and devices, file cabinets or containers in or on which the foregoing
are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.34 "Revolving Loans" shall mean advances made by Lender
to Borrower on a revolving basis under the Line of Credit, as set forth
in Section 2.1 hereof.
1.35 "Rights to Payment" shall mean all Accounts, General
Intangibles, contract rights, chattel paper, documents, instruments,
letters of credit, bankers acceptances and guaranties, and all present
and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, and
shall include without limitation, (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and
credit and other insurance related to the Collateral, (b) rights of
stoppage in transit, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, (c)
goods described in invoices, documents, contracts or instruments with
respect to, or otherwise representing or evidencing, Accounts or other
Collateral, including without limitation, returned, repossessed and
reclaimed goods, and (d) deposits by and property of account debtors or
other persons securing the obligations of account debtors, monies,
securities, credit balances, deposits, deposit accounts and other
property of Borrower now or hereafter held or received by or in transit
to Lender or any of its affiliates or at any other depository or other
institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise.
1.36 "SSMI Collateral" shall mean 100% of the ownership
interests in Societe Specialisee dans le Materiel d Imprimerie.
1.37 "Subordination Agreement" shall mean a Subordination
Agreement of even date herewith executed by and among Borrower, Lender
and Gurarantor.
1.38 "Subordinated Debt" shall mean the loans evidenced by
a $3,950,000 note of even date herewith from the Guarantor to Borrower.
1.39 "Subordinated Debt Liens" shall mean all liens and
security interests given to secure the Subordinated Debt.
<PAGE>
1.40 "Subordinated Debt Documents" shall mean all
instruments or documents evidencing the Subordinated Debt or the
Subordinated Liens.
1.41 "Support Agreement" shall mean the a Support Agreement
of even date herewith executed by Guarantor and covering the Term Note.
1.42 "Tangible Net Worth" shall mean, at any time, the
aggregate of total stockholders equity plus subordinated debt less any
intangible assets.
1.43 "Term Loan" shall mean the term loan described in
Section 2.4 hereof.
1.44 "Term Note" shall have the meaning set forth in
Section 2.4 hereof.
1.45 "Value" shall mean, as determined by Lender in good
faith, with respect to Inventory, the lower of (a) cost computed on a
first-in-first-out basis in accordance with GAAP, or (b) market value.
1.46 "Walnut Facility" shall mean the land located at 851
Walnut Street, Hamilton, Ohio, and all improvements thereon.
1.47 "Working Capital" shall mean, at any time, total
current assets less total current liabilities. Current liabilities
shall include the unpaid balance of the Line of Credit Note.
1.48 "Zerand Holdback" shall mean all rights, titles and
interests of Borrower in and to that certain Escrow Agreement ("Escrow
Agreement") dated April 27, 1998, by and among Valumaco Incorporated, a
Delaware corporation, Borrower and Banca Commerciale Intaliana, New
York Branch, as escrow agent, and the "Deposit" and the "Escrowed
Funds" thereunder (as defined therein), and all rights, titles and
interests of Borrower in and to that certain "earn out" provision
(Section 2.5) of that certain Sale and Purchase Agreement concerning
the Zerand Division of Stevens International, Inc., between Borrower
and Valumaco Incorporated, as buyer;
<PAGE>
SECTION 2. CREDIT FACILITIES
2.1 Line of Credit
(a) Lending Formula. Subject to and upon the terms
and conditions contained herein, Lender agrees to make Revolving Loans
(pursuant to Section 2.1 hereof) and issue Letters of Credit (pursuant
to Section 2.2 hereof) under a line of credit (the "Line of Credit")
from time to time in amounts requested by Borrower up to an aggregate
outstanding principal amount equal to the lesser of: (i) the Maximum
Amount; or (ii) the sum of:
(A) eighty-five percent (85%) of the Net Amount
of Eligible Accounts; plus
(B) twenty-five percent (25%) of the Value of
Eligible Inventory, less
(C) any Availability Reserves.
(b) Reduction of Lending Formula. Lender may, in its
discretion, from time to time, upon not less than five (5) days prior
notice to Borrower, (i) reduce the lending formula with respect to
Eligible Accounts to the extent that Lender determines in good faith
that: (A) the dilution with respect to the Accounts for any period
(based on the ratio of (1) the aggregate amount of reductions in
Accounts other than as a result of payments in cash to (2) the
aggregate amount of total sales) has increased in any material respect
or may be reasonably anticipated to increase in any material respect
above historical levels, or (B) the general creditworthiness of account
debtors has declined, or (ii) reduce the lending formula with respect
to Eligible Inventory to the extent that Lender determines that: (A)
the number of days of the turnover of the Inventory for any period has
changed in any material respect, or (B) the liquidation value of the
Eligible Inventory, or any category thereof, has decreased, or (C) the
nature and quality of the Inventory has deteriorated. In determining
whether to reduce the lending formula(s), Lender may consider events,
conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing
Availability Reserves.
(c) Overadvance. In the event that the outstanding
amount of any component of the Loans, or the aggregate amount of the
outstanding Loans and Letter of Credit Obligations, exceed the amounts
available under the lending formulas, the sublimits for Letters of
Credit set forth in Section 2.2 or the Maximum Line Amount, as
applicable, such event shall not limit, waive or otherwise affect any
rights of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any time or
from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
(d) Line of Credit Note. Borrower's obligation to
repay Revolving Loans made under the Line of Credit shall be evidenced
by a promissory note executed by Borrower, substantially in the form of
Exhibit B hereto ("Line of Credit Note").
<PAGE>
(e) Reduction of Maximum Line Amount. Borrower shall
have the right to reduce permanently the Maximum Line Amount in an
increment of $1,000,000 during the term of the Line of Credit to a
Maximum Line Amount no less than $3,500,000. Such right hereunder may
be exercised only once during the term of the Line of Credit. In order
to exercise such right, Borrower shall give Lender thirty (30) days
prior written notice of such intent to reduce the Maximum Line Amount,
and such reduction shall be effective on the first day of the first
calendar month following such thirty (30) days.
2.2 Letters of Credit.
(a) Issuance. Subject to, and upon the terms and
conditions contained herein, at the request of Borrower, Lender agrees
from time to time during the term of this Agreement to issue Letters of
Credit for the account of Borrower containing terms and conditions
acceptable to Lender, provided however that no Letter of Credit shall
have an expiration date beyond the maturity date of the Line of Credit
set forth in Section 11.1 hereof.
(b) Letter of Credit Sublimits. No Letters of Credit
shall be issued unless, on the date of the proposed issuance of any
Letter of Credit, the Revolving Loans available to Borrower (subject to
the Maximum Line Amount and Availability Reserves) are equal to 100% of
the face amount of such Letters of Credit. Except in Lender's
discretion, the amount of all Letter of Credit Obligations shall not at
any time exceed $2,000,000.
(c) Letter of Credit Agreement. Each Letter of
Credit shall be subject to the additional terms and conditions of the
Letter of Credit Agreement and related documents, if any, required by
Lender in connection with the issuance thereof (each, a "Letter of
Credit Agreement"). Each draft paid by Lender under a Letter of Credit
shall be deemed a Revolving Loan under the Line of Credit and shall be
repaid by Borrower in accordance with the terms and conditions of this
Agreement applicable to such Revolving Loans; provided however, that if
the Line of Credit is not available, for any reason whatsoever, at the
time any draft is paid by Lender, or if Revolving Loans are not
available under the Line of Credit at such time due to any limitation
on borrowings set forth herein, then the full amount of such draft
shall be immediately due and payable, together with interest thereon,
from the date such amount is paid by Lender to the date such amount is
fully repaid by Borrower, at the rate of interest applicable to
Revolving Loans. In such event, Borrower agrees that Lender, at
Lender's sole discretion, may debit Borrower's deposit account with
Lender for the amount of any such draft.
2.3 Availability Reserves. All Revolving Loans and
Letters of Credit otherwise available to Borrower pursuant to the
lending formula(s) or sublimits, and subject to the Maximum Amount and
other applicable limits hereunder shall be subject to Lender's
continuing right to establish and revise Availability Reserves.
<PAGE>
2.4 Term Loan.
(a) Term Loan. Subject to the terms and conditions
of this Agreement, Lender hereby agrees to make a loan to Borrower in
the principal amount of $4,000,000 ("Term Loan"), the proceeds of which
shall be used to refinance outstanding indebtedness of Borrower to its
existing senior subordinated note holders. Borrower's obligation to
repay the Term Loan shall be evidenced by a promissory note
substantially in the form of Exhibit C attached hereto ("Term Note"),
all terms of which are incorporated herein by this reference. Lender's
commitment to grant the Term Loan shall terminate on the date of
execution of this Agreement.
(b) Repayment. The principal amount of the Term Loan
shall be repaid in accordance with the provisions of the Term Note.
(c) Prepayment. Borrower may prepay principal on the
Term Loan, at any time and from time to time, without premium or
penalty, solely in accordance with the provisions of the Term Note.
2.5 Guaranties. All Indebtedness of Borrower evidenced by
the Term Note to Lender pursuant to this Agreement shall be guaranteed
by Guarantor, and all Indebtedness evidenced by the Line of Credit Note
pursuant to this Agreement shall be supported by the Support Agreement,
each, as evidenced by and subject to the terms of guaranties or support
agreements in form and substance satisfactory to Lender.
2.6 Subordination of Debt. All obligations of Borrower to
Guarantor shall be subject to the terms of subordination agreements in
form and substance satisfactory to Lender.
SECTION 3. INTEREST AND FEES
3.1 Interest. The outstanding principal balance of
Revolving Loans and the Term Loan shall bear interest at the rate(s)
set forth in the Line of Credit Note and the Term Note, respectively.
3.2 Letter of Credit Fees. Borrower shall pay to Lender
fees upon the issuance or amendment of each Letter of Credit and upon
the payment by Lender of each draft under any Letter of Credit
determined in accordance with Lender's WellsCredit Division's standard
fees and charges in effect at the time any Letter of Credit is issued
or amended or any draft is paid, including:
(a) a per annum letter of credit fee equal to 1.75%
of the face amount of any standby Letter of Credit for each year such
Letter of Credit is stated to be outstanding, payable upon issuance of
such Letter of Credit; and
(b) a fee equal to 1.75% per annum on the average
daily amount available to be drawn during each month under outstanding
commercial Letters of Credit, which fee shall be due and payable in
arrears on the first day of each month.
<PAGE>
3.3 Closing Fee. Borrower shall pay to Lender as a
closing fee the amount of $37,500 for the loan evidenced by the Line of
Credit and $40,000 for the loan evidenced by the Term Loan, which shall
be fully earned as of and payable on the date hereof.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly
an unused line fee for the Line of Credit equal to a rate per annum of
three eighths of one percent (.375%) of the amount by which the Maximum
Line Amount exceeds the average daily principal balance of the
outstanding Revolving Loans and Letter of Credit Obligations during the
immediately preceding month (or part thereof) while this Agreement is
in effect and for so long thereafter as any of the Revolving Loans or
Letter of Credit Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
3.5 Computation and Payment. Interest (and fees computed
on a per annum basis) shall be computed on the basis of a 360-day year,
actual days elapsed. Interest shall be payable at times and place set
forth in the Line of Credit Note and the Term Note.
SECTION 4. CONDITIONS PRECEDENT
4.1 Initial Credit. The obligation of Lender to initially
extend the credit contemplated by this Agreement is subject to
the fulfillment to Lender's satisfaction of all of the following
conditions:
(a) Approval of Lender Counsel. All legal matters
incidental to the extension of credit by Lender shall be satisfactory
to counsel of Lender.
(b) Documentation. Lender shall have received, in
form and substance satisfactory to Lender, each of the following, duly
executed:
(1) This Agreement;
(2) The Line of Credit Note;
(3) The Term Note;
(4) Corporate Borrowing Resolution;
(5) The Letter of Credit Agreement;
(6) UCC-1 Financing Statement(s);
(7) Security Agreement(s);
(8) Lock Box Agreement;
(9) All guaranties and support agreements
required hereby with such authorizations
as Lender shall require from each guarantor.
(10) All subordination agreements required hereby.
(11) Such other documents as Lender may require
under any other Section of this Agreement.
(c) Financial Condition. There shall have been no
material adverse change, as determined by Lender, in the financial
condition or business of Borrower or any Obligor, nor any material
decline, as determined by Lender, in the market value of any collateral
required hereunder or a substantial or material portion of the assets
of Borrower or any Obligor.
<PAGE>
(d) Insurance. Borrower shall have delivered to
Lender evidence of insurance coverage on all Borrower's property, in
form, substance, amounts, covering risks and issued by companies
satisfactory to Lender, and where required by Lender, with loss payable
endorsements in favor of Lender including without limitation, policies
of fire and extended coverage insurance covering all real property
collateral required hereby, with replacement cost and mortgagee loss
payable endorsements, and such policies of insurance against specific
hazards affecting any such real property as may be required by
governmental regulation or Lender.
(e) Title Insurance. Lender shall have received a
standard form of Mortgagee Policy of Title Insurance, with such
endorsements as Lender may require, issued by a company and in form and
substance satisfactory to Lender, in such amount as Lender shall
require, insuring Lender's lien on the Belknap Facility in the amount
of $750,000, and insuring Lender's lien on the Walnut Facility in the
amount of $500,000, each to be of the priority set forth in Section 5
hereof, subject only to such exceptions as Lender shall approve in its
discretion, with all costs thereof to be paid by Borrower.
(f) Security Interests. Lender shall have received
evidence, in form and substance satisfactory to Lender, that Lender has
valid perfected and first priority security interests in and liens upon
the Collateral and any other property which is intended to be security
for the Loans or the liability of any Obligor in respect thereof,
subject only to the security interests and liens permitted herein or in
the other Loan Documents.
(g) Field Review. Lender shall have completed a
field review of the Records and such other information with respect to
the Collateral as Lender may require to determine the amount of
Revolving Loans available to Borrower, the results of which shall be
satisfactory to Lender.
(h) Other Documents. Lender shall have received, in
form and substance satisfactory to Lender, all consents, waivers,
acknowledgments and other agreements from third persons which Lender
may deem necessary or desirable in order to permit, protect and perfect
its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other
Loan Documents, including without limitation, acknowledgments by
lessors, mortgagees and warehousemen of Lender's security interests in
the Collateral, waivers by such persons of any security interests,
liens or other claims by such persons to the Collateral and agreements
permitting Lender access to, and the right to remain on, the premises
to exercise its rights and remedies and otherwise deal with the
Collateral.
(i) Opinion. Lender shall have received, in form and
substance satisfactory to Lender, such opinion letters of counsel to
Borrower with respect to the Loan Documents and such other matters as
Lender may request.
<PAGE>
(j) Availability. Borrower shall have a minimum of
$500,000 of availability for Revolving Loans in addition to the amount
paid or to be paid to Borrower's prior lender to retire Borrower's line
of credit with such prior lender and bringing all other obligations to
a current status satisfactory to Lender.
(k) Senior Subordinated Debt. Borrower shall fully
paid the outstanding Senior Subordinated Debt contemporaneous with the
initial advance under the Line of Credit.
(l) New Subordinated Debt. Borrower shall have
received a $3,000,000 loan from Paul I. Stevens which shall be on
terms and conditions, including subordination to the Indebtedness,
satisfactory to Lender.
(m) Letter of Credit. Lender shall have received and
approved a true and correct copy of the letters of credit ("Hamilton
Letters of Credit") furnished by Cincinnati Industrial Auctioneers,
Inc. in connection with its acquistion of the Hamilton Facility, which
shall be partially assigned to Lender to the extent of $4,000,000.
4.2 Subsequent Credit. The obligation of Lender to make
each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Lender's satisfaction of each of the
following conditions:
(a) Compliance. The representations and warranties
contained herein and each of the other Loan Documents shall be true on
and as of the date of the signing of this Agreement and on the date of
each extension of credit by Lender pursuant hereto, with the same
effect as though such representations and warranties had been made on
and as of each such date, and on each such date, no Event of Default as
defined herein, and no condition, event or act which with the giving of
notice or the passage of time or both would constitute such an Event of
Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Lender shall have received all
additional documents which may be required in connection with such
extension of credit.
SECTION 5. GRANT OF SECURITY INTEREST
As security for all Indebtedness of Borrower to Lender
Borrower grants to Lender liens and security interests of first
priority in the following property and interests in property, whether
now owned or hereafter acquired or existing, and wherever located: all
Rights to Payment, Inventory, Equipment and Records, the Hamilton
Facility and the Belknap Property, and a lien and security interest of
second priority in the following property and interests in property,
whether now owned or hereafter acquired or existing, and wherever
located: the Walnut Facility,, the Zerand Holdback, and the SSMI
Collateral, and all products and proceeds of any of the foregoing, in
any form, including without limitation, insurance proceeds and all
claims against third parties for loss or damage to or destruction of
any or all of the foregoing.
<PAGE>
All of the foregoing shall be evidenced by and subject to
the terms of such documents as Lender shall reasonably require, all in
form and substance satisfactory to Lender. Borrower shall reimburse
Lender, immediately upon demand, for all costs and expenses incurred by
Lender in connection with any of the foregoing security, including
without limitation filing and recording fees and costs of environmental
studies, appraisals, audits and title insurance.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Cash Collateral Account.
(a) Cash Collateral Account. Borrower shall, at
Borrower's expense and in the manner requested by Lender from time to
time, direct that remittances and all other collections and proceeds of
Accounts and other Collateral shall be deposited into a lock box
account maintained in Lender's name. In connection therewith, Borrower
shall execute such lockbox agreement as Lender shall require. Borrower
shall maintain with Lender, and Borrower hereby grants to Lender a
security interest in, a non-interest bearing deposit account over which
Borrower shall have no control ("Cash Collateral Account") and into
which the proceeds of all Borrower's Rights to Payment shall be
deposited immediately upon their receipt.
(b) Calculations. For purposes of calculating
interest on the Line of Credit, such payments or other funds received
will be applied (conditional upon final collection) as a principal
reduction on the Line of Credit two (2) Business Days following the
date of receipt by Lender's WellsCredit Division of the inter-branch
advice of deposit that such payments or other funds have been deposited
in the Cash Collateral Account. For purposes of calculating the amount
of the Revolving Loans available to Borrower such payments will be
applied (conditional upon final collection) to the Line of Credit on
the Business Day of receipt by the WellsCredit Division, if such
advices are received within sufficient time (in accordance with
Lender's usual and customary practices as in effect from time to time)
to credit Borrower's loan account on such day, and if not, then on the
next Business Day.
(c) Immediate Deposit. Borrower and all of its
affiliates, subsidiaries, shareholders, directors, employees or agents
shall, acting as trustee for Lender, receive, as the property of
Lender, any monies, checks, notes, drafts, or any other payment
relating to and/or proceeds of Accounts or other Collateral which come
into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the
Cash Collateral Account, or remit the same or cause the same to be
remitted, in kind, to Lender. In no event shall the same be commingled
with Borrower's own funds.
<PAGE>
6.2 Statements. Lender shall render to Borrower each
month a statement setting forth the balance in Borrower's loan
account(s) maintained by Lender for Borrower pursuant to the provisions
of this Agreement, including principal, interest, fees, costs and
expenses. Each such statement shall be subject to subsequent
adjustment by Lender but shall, absent manifest errors or omissions, be
considered correct and deemed accepted by Borrower and conclusively
binding upon Borrower as an account stated except to the extent that
Lender receives a written notice from Borrower of any specific
exceptions of Borrower thereto within sixty (60) days after the date
such statement has been mailed by Lender. Until such time as Lender
shall have rendered to Borrower a written statement as provided above,
the balance in Borrower's loan account(s) shall be presumptive evidence
of the amounts due and owing to Lender by Borrower.
6.3 Payments. All amounts due under any of the Loan
Documents shall be payable to the Cash Collateral Account as provided
in Section 6.1 hereof or such other place as Lender may designate from
time to time. Lender may apply payments received or collected from
Borrower or for the account of Borrower (including, without limitation,
the monetary proceeds of collections or of realization upon any
Collateral) to such of the Loans, whether or not then due, in such
order and manner as Lender determines. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided
for in this Agreement or the other Loan Documents may be charged
directly to the loan account(s) of Borrower. Borrower shall make all
payments due Lender free and clear of, and without deduction or
withholding for or on account of, any setoff, counterclaim, defense,
duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of
Borrower's obligations to Lender under this Agreement, Lender is
required to surrender or return such payment or proceeds to any person
or entity for any reason, then the obligations intended to be satisfied
by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or
proceeds had not been received by Lender. Borrower shall be liable to
pay to Lender, and does hereby indemnify and hold Lender harmless for
the amount of any payments or proceeds surrendered or returned. This
Section 6.3 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or proceeds.
This Section 6.3 shall survive the payment of Borrower's obligations
under the Loan Documents and the termination of this Agreement.
<PAGE>
6.4 Use of Proceeds. Borrower shall use the initial
proceeds of the Loans provided by Lender to Borrower hereunder only
for: (a) payments to each of the persons listed in the disbursement
order furnished by Borrower to Lender on or about the date hereof; and
(b) costs, expenses and fees in connection with the preparation,
negotiation, execution and delivery of this Agreement and the other
Financing Agreements. All other Loans made or Letters of Credit
provided by Lender to Borrower pursuant to the provisions hereof shall
be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by
the terms of this Agreement. None of the proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying any
margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any
margin security or for the any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System,
as amended.
SECTION 7. REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties
to Lender, which representations and warranties shall survive the
execution of this Agreement and shall continue in full force and effect
until the full and final payment, and satisfaction and discharge, of
all obligations of Borrower to Lender subject to this Agreement.
7.1 Legal Status. Borrower is a corporation duly
organized and existing and in good standing under the laws of the State
of Delaware, and is qualified or licensed to do business, and is in
good standing as a foreign corporation, if applicable, in all
jurisdictions in which such qualification or licensing is required or
in which the failure to so qualify or to be so licensed could have a
material adverse effect on Borrower.
7.2 Authorization and Validity. The Loan Documents have
been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and
binding agreements and obligations of Borrower or the party which
executes the same, enforceable in accordance with their respective
terms.
7.3 No Violation. The execution, delivery and performance
by Borrower of each of the Loan Documents do not violate any provision
of any law or regulation, or contravene any provision of the
Certificate of Incorporation or By-Laws of Borrower, or result in a
breach of or default under any contract, obligation, indenture or other
instrument to which Borrower is a party or by which Borrower may be
bound.
7.4 No Claims. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits
or proceedings before any governmental authority, arbitrator, court
or administrative agency which may adversely affect the financial
condition or operation of Borrower other than those disclosed by
Borrower to Lender in the Information Certificate.
<PAGE>
7.5 Correctness of Financial Statement. The financial
statement of Borrower dated April 30, 1998, heretofore delivered by
Borrower to Lender presents fairly the financial condition of Borrower;
discloses all liabilities of Borrower that are required to be reflected
or reserved against under GAAP, whether liquidated or unliquidated,
fixed or contingent; and has been prepared in accordance with generally
accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in
the financial condition of Borrower, nor has Borrower mortgaged,
pledged or granted a security interest in or encumbered any of its
assets or properties except as disclosed by Borrower to Lender in
writing in the Information Certificate or as permitted by this
Agreement.
7.6 Income Tax Returns. Except as set forth in the
Information Certificate, Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to
any year.
7.7 No Subordination. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which
Borrower may be bound that requires the subordination in right of
payment of any of Borrower's obligations subject to this Agreement to
any other obligation of Borrower.
7.8 Permits, Franchises. Borrower possesses, and will
hereafter possess, all permits, memberships, franchises, contracts and
licenses required and rights to all trademarks, trade names, if any,
patents, and fictitious names necessary to enable it to conduct the
business in which it is now engaged in compliance with applicable law.
7.9 ERISA. Except to the extent described in Schedule 7.9
herein, Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower
has not violated any provision of any defined employee pension benefit
plan (as defined in ERISA) maintained or contributed to by Borrower
(each, a "Plan"); no Reportable Event as defined in ERISA has occurred
and is continuing with respect to any Plan initiated by Borrower;
Borrower has met its minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
7.10 Other Obligations. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any
other material lease, commitment, contract, instrument or obligation.
<PAGE>
7.11 Environmental Matters. Except as disclosed by
Borrower to Lender in writing prior to the date hereof, Borrower is in
compliance in all material respects with all applicable Federal or
state environmental, hazardous waste, health and safety statutes and
any rules or regulations adopted pursuant thereto, which govern or
affect any of Borrower's operations and/or properties, including
without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and
Recovery Act of 1976, and the Federal Toxic Substances Control Act, as
any of the same may be amended, modified or supplemented from time to
time. None of the operations of Borrower is the subject of any Federal
or state investigation evaluating whether any remedial action involving
a material expenditure is needed to respond to a release of any toxic
or hazardous waste or substance into the environment. Borrower has no
material contingent liability in connection with any release of any
toxic or hazardous waste or substance into the environment.
7.12 Real Property Collateral. Except as disclosed by
Borrower to Lender in writing prior to the date hereof, with respect to
any real property Collateral required hereby:
(a) All taxes, governmental assessments, insurance
premiums, and water, sewer and municipal charges, and rents (if any)
which previously became due and owing in respect thereof have been paid
as of the date hereof.
(b) There are no mechanics' or similar liens or
claims which have been filed for work, labor or material (and no rights
are outstanding that under law could give rise to any such lien) which
affect all or any interest in any such real property and which are or
may be prior to or equal to the lien thereon in favor of Lender.
(c) There is no pending, or to the best of Borrower's
knowledge threatened, proceeding for the total or partial condemnation
of all or any portion of any such real property.
SECTION 8. AFFIRMATIVE COVENANTS
Borrower covenants that so long as Lender remains committed
to extend credit to Borrower pursuant to the terms of this Agreement
or any liabilities (whether direct or contingent, liquidated or
unliquidated) of Borrower to Lender under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of
Borrower subject hereto, Borrower shall:
8.1 Punctual Payments. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents
at the times and place and in the manner specified therein, and
immediately upon demand by Bank, the amount by which the outstanding
principal balance of Revolving Loans and/or Letter of Credit
Obligations at any time exceeds any limitation applicable thereto.
<PAGE>
8.2 Records and Premises. Maintain proper books and
records in which true and complete entries shall be made of all
dealings or transactions of or in relation to Collateral and the
business of Borrower in accordance with GAAP. From time to time as
requested by Lender, at the cost and expense of Borrower, allow Lender
or its designee complete access to all of Borrower's premises during
normal business hours and after notice to Borrower, or at any time and
without notice to Borrower if an Event of Default exists or has
occurred and is continuing, for the purposes of inspecting, verifying
and auditing the Collateral and all of Borrower's books and records,
including, without limitation, the Records, and promptly furnish to
Lender such copies of such books and records or extracts therefrom as
Lender may request, and allow Lender during normal business hours to
use such of Borrower's personnel, equipment, supplies and premises as
may be reasonably necessary for the foregoing, and if an Event of
Default exists or has occurred and is continuing, for the collection of
Accounts and realization of other Collateral.
8.3 Collateral Reporting. Borrower shall provide Lender
with the following documents in a form satisfactory to Lender:
(a) on a regular basis as required by Lender, a
schedule of Accounts, including without limitation, daily sales, credit
and adjustment journals and cash receipts;
(b) on or before the 5th day after and as of the end
of each week, (i) perpetual inventory reports, and (ii) inventory
reports by category;
(c) upon Lender's request, (i) copies of customer
statements and credit memos, remittance advices and reports, and copies
of deposit slips and bank statements, (ii) copies of shipping and
delivery documents, and (iii) copies of purchase orders, invoices and
delivery documents for Inventory and Equipment acquired by Borrower;
(d) on or before the 10th day after and as of the end
of each month (or more frequently as Lender may request), (i) agings of
accounts receivable, and (ii) agings of accounts payable;
(e) upon Lender's request, Borrower shall, at its
expense, no more than once in any twelve (12) month period, but at any
time or times as Lender may request on or after an Event of Default,
deliver or cause to be delivered to Lender written reports or
appraisals as to the Collateral in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender,
addressed to Lender or upon which Lender is expressly permitted to
rely; and
(f) such other reports as to the Collateral as Lender
shall request from time to time. If any of Borrower's records of the
Collateral are prepared or maintained by an accounting service,
contractor, shipper or other agent, Borrower hereby irrevocably
authorizes such service, contractor, shipper or agent to deliver such
records, reports, and related documents to Lender and to follow
Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.
<PAGE>
8.4 Financial Statements. Provide to Lender all of the
following, in form and detail satisfactory to Lender:
(a) not later than ninety (90) days after and as of
the end of each fiscal year the audited consolidated balance sheets and
certified consolidating worksheets of Borrower and its subsidiaries as
at the end of such year and the audited consolidated operating
statements of Borrower and its subsidiaries as at the end of such year
(showing income, expenses and surplus), setting forth in each case in
comparative form figures for the previous fiscal year, all prepared
in accordance with generally accepted accounting principles and
accompanied by an opinion acceptable to Lender of an independent
certified public accountant acceptable to Lender; and within ten (10)
days after filing, but in no event later than each October 10, copies
of Borrower's filed Federal income tax returns for such year;
(b) not later than twenty (20) days after and as of
the end of each month, the consolidated and consolidating balance
sheets of Borrower and its subsidiaries as at the end of such month and
the consolidated and consolidating operating statements of Borrower and
its subsidiaries for such month (showing income, expenses and surplus
for such month and for the period from the beginning of the fiscal year
to the end of such month), all prepared in accordance with generally
accepted accounting principles, certified by the principal financial
officer of Borrower;
(c) not later than thirty (30) days after and as of
the end of each calendar year, a financial statement of each Obligor,
prepared in accordance with generally accepted accounting principles,
certified by each such Obligor, and within ten (10) days after filing,
but in no event later than each October 10, copies of each Obligor's
filed Federal income tax returns for such year;
(d) contemporaneously with each annual and monthly
financial statement of Borrower required hereby, a certificate of the
president or chief financial officer of Borrower that the financial
statements delivered pursuant thereto fairly present the financial
condition of the Borrower and that there exists no Event of Default nor
any condition, act or event which with the giving of notice or the
passage of time or both would constitute an Event of Default; and
(e) as soon as practicable and in any event by the
last day of each fiscal year of Borrower, a plan and financial forecast
for Borrower's next succeeding fiscal year including, without
limitation, (1) a forecasted balance sheet, statement of income and
statement of cash flows for such fiscal year, (2) forecasted balance
sheets, statements of income and statements of cash flows for each
fiscal month of such fiscal year; and as soon as practicable, all
material amendments, updates and revisions, if any, to the information
provided pursuant to this paragraph; and
<PAGE>
(f) not later than five (5) days after filing
thereof, copies of all proxy statements, financial statements, reports,
and notices sent or made available generally by Borrower to its
security holders or to any holders of its debt and all regular,
periodic and special reports, and all registration statements filed
with the Securities and Exchange Commission or a governmental authority
that may be substituted therefor, or with any national securities
exchange; and
(g) from time to time such other information as
Lender may reasonably request, which may include, without limitation,
budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower.
8.5 Compliance. Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and franchises
necessary for the conduct of its business; and comply with the
provisions of all documents pursuant to which Borrower is organized
and/or which govern Borrower's continued existence and with the
requirements of all laws, rules, regulations and orders of any
governmental authority applicable to Borrower or its business.
8.6 Insurance. Maintain and keep in force insurance of
the types and in amounts customarily carried in lines of business
similar to Borrower's, including but not limited to fire, extended
coverage, public liability, property damage and workers' compensation,
carried with companies and in amounts satisfactory to Lender, and
deliver to Lender from time to time at Lender's request schedules
setting forth all insurance then in effect. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost
of repairs or replacement of Collateral and/or to payment of the
Borrower's Obligations to Lender under this Agreement, whether or not
then due, in any order and in such manner as Lender may determine or
hold such proceeds as cash collateral for such Obligations.
8.7 Facilities. Keep all Borrower's properties useful or
necessary to Borrower's business in good repair and condition, and from
time to time make necessary repairs, renewals and replacements thereto
so that Borrower's properties shall be fully and efficiently preserved
and maintained.
8.8 Taxes and Other Liabilities. Pay and discharge when
due any and all indebtedness, obligations, assessments and taxes, both
real or personal, including without limitation, Federal and state
income taxes and state and local property taxes and assessments, except
such (a) as Borrower may in good faith contest or as to which a bona
fide dispute may arise, and (b) for which Borrower has made provision,
to Lender's satisfaction, for eventual payment thereof in the event
Borrower is obligated to make such payment.
8.9 Litigation. Promptly give notice in writing to Lender
of any litigation pending or threatened in writing against Borrower
with a claim in excess of $50,000.
<PAGE>
8.10 Financial Condition. Maintain Borrower's financial
condition as follows:
(a) Working Capital not at any time less
than $2,700,000.
(b) Tangible Net Worth not at any time less
than - $500,000.
(c) Capital expenditures, inclusive of
capitalized lease expenditures, not greater
than depreciation in any fiscal year.
8.11 Notice to Lender. Promptly (but in no event more than
five (5) days after the occurrence of each such event or matter) give
written notice to Lender in reasonable detail of: (a) the occurrence
of any Event of Default, or any condition, event or act which with the
giving of notice or the passage of time or both would constitute such
an Event of Default; (b) the occurrence and nature of any Reportable
Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; and (c) any termination or
cancellation of any insurance policy which Borrower is required to
maintain, or any loss through liability or property damage, or through
fire, theft or any other cause affecting Borrower's property. Provide
not less than thirty (30) days prior written notice to Lender of any
change in the name or the organizational structure of Borrower.
8.12 Further Assurances. At the request of Lender at any
time and from time to time, duly execute and deliver, or cause to be
duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be
necessary or proper to evidence, perfect, maintain and enforce the
security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or
any of the other Loan Documents, at Borrower's expense. Lender may at
any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of
Revolving Loans and issuing Letters of Credit contained herein are
satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Revolving Loans or provide any
further Letters of Credit until Lender has received such certificate
and, in addition, Lender has determined that such conditions are
satisfied. Where permitted by law, Borrower hereby authorizes Lender
to execute and file one or more UCC financing statements signed only by
Lender.
<PAGE>
8.13 Year 2000 Covenant. Borrower agrees to perform all
acts reasonably necessary to ensure that (a) Borrower and any business
in which Borrower holds a substantial interest, and (b) all customers,
suppliers and vendors that are material to Borrower's business, become
Year 2000 Compliant in a timely manner. Such acts shall include,
without limitation, performing a comprehensive review and assessment of
all of Borrower's systems and adopting a detailed plan, with itemized
budget, for the remediation, monitoring and testing of such systems.
As used herein, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods or
systems utilized by or material to the business operations or financial
condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Bank such certifications or other
evidence of Borrower's compliance with the terms hereof as Bank may
from time to time require.
8.14 Hamilton Letters of Credit. Borrower agrees to draw
in full on the Hamilton Letters of Credit in the event Borrower is
entitled to make such draw under the terms thereof.
SECTION 9. NEGATIVE COVENANTS
Borrower further covenants that so long as Lender remains
committed to Borrower pursuant to the terms of this Agreement or any
liabilities (whether direct or contingent, liquidated or unliquidated)
of Borrower to Lender under any of the Loan Documents remain
outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower will not without the Lender's prior written
consent:
9.1 Other Indebtedness. Create, incur, assume or permit
to exist any indebtedness or liabilities resulting from borrowings,
loans or advances, whether secured or unsecured, matured or unmatured,
liquidated or unliquidated, joint or several, except the liabilities of
Borrower to Lender and any other liabilities of Borrower existing as
of, and disclosed to Lender prior to, the date hereof in the
Information Certificate. Notwithstanding the foregoing, Borrower may
finance Accounts which Lender excludes from Eligible Accounts with
Lender's consent, such consent not to be unreasonably withheld or
delayed, upon ten (10) days prior written notice to Lender, which
notice shall include a copy of the proposed financing, and the
underlying contract pertaining to such proposed financed Account.
9.2 Merger, Consolidation, Transfer of Assets. Merge into
or consolidate with any corporation or other entity; make any
substantial change in the conduct or nature of Borrower's business;
acquire all or substantially all of the assets of any corporation or
other entity; nor sell, lease, transfer or otherwise dispose of all or
a substantial or material part of its assets except in the ordinary
course of business and except for the sales of the Hamilton Facility,
the Walnut Facility, and the SSMI Collateral.
<PAGE>
9.3 Guaranties. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments
for deposit or collection in the ordinary course of business),
accommodation endorser or otherwise for, nor pledge or hypothecate any
assets of Borrower as security for, any liabilities or obligations of
any other person or entity, except as disclosed in the Information
Certificate.
9.4 Loans, Advances, Investments. Make any loans or
advances to or investments in any Person.
9.5 Dividends, Distributions. Declare or pay any dividend
or distribution either in cash, stock or any other property on
Borrower's stock now or hereafter outstanding; nor redeem, retire,
repurchase or otherwise acquire any shares of any class of Borrower's
stock now or hereafter outstanding.
9.6 Pledge of Assets. Mortgage, pledge, grant or permit
to exist a security interest in, or lien upon, any of its assets of any
kind, now owned or hereafter acquired, except any of the foregoing in
favor of Lender, a security interest in favor of Guarantor covering
certain assets of Borrower as described in the Subordinated Debt
Documents, and except as set forth in the Information Certificate.
Notwithstanding the foregoing, Borrower may execute and deliver to
customers of Borrower a Purchase Order UCC Financing Statement with
Lender's consent, such consent not to be unreasonably withheld, upon
ten (10) days prior written notice to Lender, which notice shall
include a copy of the proposed Purchase Order UCC Financing Statement
and the underlying contract to such proposed Purchase Order UCC
Financing Statement.
9.7 New Collateral Location. Open any new location unless
Borrower (a) gives Lender thirty (30) days prior written notice of the
intended opening of any such new location, and (b) executes and
delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral
at such location, including without limitation, UCC-1 financing
statements.
SECTION 10. EVENTS OF DEFAULT
10.1 Events of Default. The occurrence of any of the
following shall constitute an "Event of Default" under this Agreement:
(a) B o r rower shall fail to pay when due any
principal, interest, fees or other amounts payable under any of the
Loan Documents.
(b) Any financial statement or certificate (including
the Information Certificate) furnished to Lender in connection with, or
any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished
or made.
<PAGE>
(c) Any other default in the performance of or
compliance with any obligation, agreement or other provision contained
in this Agreement.
(d) Any default in the payment or performance of any
obligation, or any defined event of default, under the terms of any
contract or instrument (other than any of the Loan Documents) pursuant
to which Borrower or any Obligor has incurred any debt or other
liability to any person or entity, including Lender, including the
Subordinated Debt Documents, and, if the debt or other liability is
owed to a party other than Lender, the amount thereof exceeds $50,000.
(e) Any default in the payment or performance of any
obligation, or any defined event of default, under any of the Loan
Documents other than this Agreement, and the expiration of any
applicable grace period thereunder.
(f) The filing of a notice of judgment lien against
Borrower or any Obligor; or the recording of any abstract of judgment
against Borrower or any Obligor in any county in which Borrower or such
Obligor has an interest in real property; or the service of a notice of
levy and/or of a writ of attachment or execution, or other like
process, against the assets of Borrower or any Obligor; or the entry of
a judgment against Borrower or any Obligor; and with respect to any of
the foregoing, the amount in dispute is in excess of $50,000.
(g) Borrower or any Obligor shall become insolvent,
or shall suffer or consent to or apply for the appointment of a
receiver, trustee, custodian or liquidator of itself or any of its
property, or shall generally fail to pay its debts as they become due,
or shall make a general assignment for the benefit of creditors;
Borrower or any Obligor shall file a voluntary petition in bankruptcy,
or seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy
Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or
federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the
Bankruptcy Code or any other applicable state or federal law relating
to bankruptcy, reorganization or other relief for debtors is filed or
commenced against Borrower or any Obligor and the same is not dismissed
within thirty (30) days, or Borrower or any Obligor shall file an
answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower or any Obligor
shall be adjudicated a bankrupt, or an order for relief shall be
entered by any court of competent jurisdiction under the Bankruptcy
Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors.
(h) There shall exist or occur any event or condition
which Lender in good faith believes impairs, or is substantially likely
to impair, the prospect of payment or performance by Borrower of its
obligations under any of the Loan Documents.
<PAGE>
(i) The death or incapacity of any guarantor
hereunder. The dissolution or liquidation of Borrower; or Borrower or
any such guarantor or any of their directors, stockholders or members,
shall take action seeking to effect the dissolution or liquidation of
Borrower.
(j) Any change in ownership during the term of this
Agreement of an aggregate of twenty-five percent (25%) or more (in a
single transaction or in a series of related transactions) of the
Series Preferred B Stock of Borrower.
(k) Any Obligor revokes or terminates (or attempts or
purports to revoke or terminate) its guarantee, endorsement or other
agreement in favor of Lender. Any creditor of Borrower which has
executed a subordination in favor of Lender revokes or terminates (or
attempts or purports to revoke or terminate) such subordination.
(l) The indictment or threatened indictment of
Borrower or any Obligor under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against
Borrower or any Obligor, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of
the property of Borrower or such Obligor.
(m) Any member of Borrower's Senior Management shall
cease, for any reason, to be employed by Borrower on a full-time basis.
Senior Management means Paul I. Stevens and Richard I. Stevens.
(n) The sale, transfer, hypothecation, assignment or
encumbrance, whether voluntary, involuntary or by operation of law,
without Lender's prior written consent, of all or any part of or
interest in any real property Collateral required hereby, except as
permitted in this Agreement.
10.2 Remedies.
(a) Generally.If an Event of Default shall occur,
(a) any indebtedness of Borrower under any of the Loan Documents, any
term thereof to the contrary notwithstanding, shall at Lender's option
and without notice become immediately due and payable without
presentment, demand, protest or notice of dishonor, notice of default,
notice of intent to accelerate the maturity thereof, notice of
acceleration of the maturity thereof, or other notice of any kind, all
of which are hereby expressly waived by Borrower; (b) the obligation,
if any, of Lender to permit further borrowings hereunder shall
immediately cease and terminate; and (c) Lender shall have all rights,
powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to
any or all security for any credit accommodation from Lender subject
hereto and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and
remedies of Lender in connection with each of the Loan Documents may be
exercised at any time by Lender and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies
provided by law or equity.
<PAGE>
(b) Notice and Cure. Notwithstanding the foregoing,
upon the occurrence of an Event of Default under Sections 10.1(b) or
10.1(c), or a breach of Section 8.10, if Borrower shall have provided
written notice of same to Lender, thereupon, Borrower shall have ten
(10) days from the date of such notice in which to cure same.
(c) Notice of Certain Conditions. Notwithstanding
the foregoing, upon the occurrence of an event described in Sections
10.1(h), (j), (k), (l), or (m), Borrower shall have two (2) Business
Days from the date of written notice from Lender in which to cure same
before such event constitutes an Event of Default; provided, Borrower
shall immediately notify Lender in writing of an event described in
Sections 10.1, (j), (k), (l), or (m), otherwise, Borrower shall not be
entitled to any cure period under this subsection.
10.3 Right of Setoff. Upon the occurrence of any Event of
Default, or if Borrower becomes insolvent, however evidenced, Lender
and any agent bank of Lender is hereby authorized at any time and from
time to time, without notice to Borrower (any such notice being
expressly waived by Borrower), to setoff and apply any and all deposits
(general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Lender or any agent
bank of Lender to or for the credit or the account of Borrower against
any and all of the indebtedness of Borrower to Lender, irrespective of
whether or not Lender shall have made any demand under this Agreement
or the Line of Credit Note and although such obligations may be
unmatured. Lender agrees promptly to notify Borrower after any such
setoff and application, provided that the failure to give such notice
shall not affect the validity of such setoff and application. The
rights of Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which
Lender may have. The rights contained in this section shall inure to
the benefit of any participant in any loans made hereunder.
SECTION 11. TERM OF AGREEMENT AND MISCELLANEOUS
11.1 Term.
(a) Maturity Date. This Agreement and the other Loan
Documents shall become effective as of the date set forth on the first
page hereof. This Agreement and the other Loan Documents (excluding
the Term Note) and shall continue in full force and effect for a term
ending on the date three (3) years from the date hereof. Upon the date
of termination of the Loan Documents, Borrower shall pay to Lender, in
full, all outstanding and unpaid obligations under this Agreement and
the other Loan Documents and shall furnish cash collateral to Lender in
such amounts as Lender determines are reasonably necessary to secure
Lender from loss, cost, damage or expense, including attorneys' fees
and legal expenses, in connection with any contingent obligations,
including issued and outstanding Letters of Credit and checks or other
payments provisionally credited to the obligations and/or as to which
Lender has not yet received final and indefeasible payment. Interest
shall be due until and including the next Business Day, if the amounts
so paid by Borrower to the bank account designated by Lender are
received in such bank account later than 12:00 noon, California time.
The Term Note shall be due and payable ninety (90) days from the date
hereof.
<PAGE>
(b) Continuing Obligations. No termination of this
Agreement or the other Loan Documents shall relieve or discharge
Borrower of its respective duties, obligations and covenants under this
Agreement or the other Loan Documents until all Borrower's obligations
under this Agreement and the other Loan Documents have been fully and
finally discharged and paid, and Lender's continuing security interest
in the Collateral and the rights and remedies of Lender hereunder,
under the other Loan Documents and applicable law, shall remain in
effect until all such obligations have been fully and finally
discharged and paid.
(c) Early Termination Fee. If for any reason (other
than as set forth below in this Section, this Agreement is terminated
prior to the end of the then current term of this Agreement, 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 as a result thereof, Borrower
agrees to pay to Lender, upon the effective date of such termination,
an early termination fee in the amount set forth below if such
termination is effective in the period indicated:
Amount Period
(i) 3.0% of Maximum Line Amount Date hereof to and
including first anniver-
sary date hereof.
(ii) 2.0% of Maximum Line Amount After first anniversary
date hereof to and in-
cluding second anniver-
sary date hereof.
(iii) 1.0% of Maximum Line Amount After second anniversary
date hereof to the and
including third anniver-
sary date hereof.
Such early termination fee shall be presumed to be the amount of
damages sustained by Lender as a result of such early termination and
Borrower agrees that it is reasonable under the circumstances currently
existing.
(d) No Early Termination Fee. No early termination
fee shall be payable if a group or division of Wells Fargo Bank (other
than the WellsCredit Division or the workout group), or an affiliate of
Wells Fargo Bank extends credit to Borrower, which credit refinances
and/or replaces in full the credit facilities granted under this
Agreement.
<PAGE>
11.2 No Waiver. No delay, failure or discontinuance of
Lender in exercising any right, power or remedy under any of the Loan
Documents shall affect or operate as a waiver of such right, power or
remedy; nor shall any single or partial exercise of any such right,
power or remedy preclude, waive or otherwise affect any other or
further exercise thereof or the exercise of any other right, power or
remedy. Any waiver, permit, consent or approval of any kind by Lender
of any breach of or default under any of the Loan Documents must be in
writing and shall be effective only to the extent set forth in such
writing.
11.3 Notices. All notices, requests and demands which any
party is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to each party
at the following address:
BORROWER:
STEVENS INTERNATIONAL, INC.
5500 Airport Freeway
Fort Worth, Texas 76117
Attn: Chairman of the Board
with a copy to:
STEVENS INTERNATIONAL, INC.
5500 Airport Freeway
Fort Worth, Texas 76117
Attn: Chief Accounting Officer
with a copy to:
JACKSON WALKER, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attn: Charles D. Maguire, Jr.
LENDER: WELLS FARGO BANK,
NATIONAL ASSOCIATION
Mr. Tom Stoltz
Wells Credit Division
245 S. Los Robles
Pasadena, CA 90101
or to such other address as any party may designate by written notice
to all other parties. Each such notice, request and demand shall be
deemed given or made as follows: (a) if sent by hand delivery, upon
delivery; (b) if sent by mail, upon the earlier of the date of receipt
or three (3) days after deposit in the U.S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
<PAGE>
11.4 Costs, Expenses and Attorneys' Fees. Borrower shall
pay to Lender immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys'
fees (to include outside counsel fees and all allocated costs of
Lender's in-house counsel), incurred by Lender in connection with
(a) the negotiation and preparation of this Agreement and each other of
the Loan Documents, Lender's continued administration hereof and
thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) all out-of-pocket 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 for Lender's examiners in the field and office at
Lender's WellsCredit Division's rate in effect from time to time,
(c) the enforcement of Lender's rights and/or the collection of any
amounts which become due to Lender under any of the Loan Documents, and
(d) the prosecution or defense of any action in any way related to any
of the Loan Documents, including without limitation any action for
declaratory relief, and including any of the foregoing incurred in
connection with any bankruptcy proceeding relating to Borrower.
11.5 Successors, Assignment. This Agreement shall be
binding on and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of the
parties; provided however, that Borrower may not assign or transfer its
interest hereunder without the prior written consent of Lender. Lender
reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Lender's
rights and benefits under each of the Loan Documents. In connection
therewith, Lender may disclose all documents and information which
Lender now has or may hereafter acquire relating to any credit extended
by Lender to Borrower, Borrower or its business, any Obligor or the
business of any Obligor, or any Collateral required hereunder, subject
to compliance with applicable laws.
11.6 Entire Agreement, Amendment. This Agreement and each
other of the Loan Documents constitute the entire agreement between
Borrower and Lender with respect to any extension of credit by Lender
subject hereto and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof.
This Agreement may be amended or modified only by a written instrument
executed by each party hereto.
11.7 No Third Party Beneficiaries. This Agreement is made
and entered into for the sole protection and benefit of the parties
hereto and their respective permitted successors and assigns, and no
other person or entity shall be a third party beneficiary of, or have
any direct or indirect cause of action or claim in connection with,
this Agreement or any other of the Loan Documents to which it is not a
party.
11.8 Time. Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.
<PAGE>
11.9 Severability of Provisions. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or
any remaining provisions of this Agreement.
11.10 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas, except
to the extent that Lender has greater rights or remedies under Federal
law, whether as a national bank or otherwise, in which case such choice
of Texas law shall not be deemed to deprive Lender of such rights and
remedies as may be available under Federal law.
11.11 Renewal, Extension or Rearrangement. All provisions
of this Agreement relating to the Line of Credit Note or other
Indebtedness shall apply with equal force and effect to each and all
promissory notes hereinafter executed which in whole or in part
represent a renewal, extension, increase or rearrangement of any part
of the Indebtedness originally represented by the Line of Credit Note
or of any part of such other Indebtedness. Any provision of this
Agreement to be performed during the "term of this Agreement," "term
hereof" or similar language, shall include any extension period.
11.12 Waivers. No course of dealing on the part of Lender,
its officers, employees, consultants or agents, nor any failure or
delay by Lender with respect to exercising any right, power or
privilege of Lender under the Line of Credit Note, this Agreement or
any other Security Instrument shall operate as a waiver thereof, except
as otherwise provided in Section 8.02 hereof.
11.13 Cumulative Rights. Rights and remedies of Lender
under the Line of Credit Note, this Agreement and each other Security
Instrument shall be cumulative, and the exercise or partial exercise of
any such right or remedy shall not preclude the exercise of any other
right or remedy.
<PAGE>
11.14 Interest. It is the intention of the parties hereto
to conform strictly to applicable usury laws now in force.
Accordingly, if the transactions contemplated hereby would be usurious
under applicable law, then, in that event, notwithstanding anything to
the contrary in the Line of Credit Note, this Agreement or in any other
Security Instrument or agreement entered into in connection with or as
security for the Line of Credit Note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under
applicable law that is contracted for, charged or received under the
Line of Credit Note, this Agreement or under any of the other aforesaid
Loan Documents or agreements or otherwise in connection with the Line
of Credit Note shall under no circumstances exceed the maximum amount
of interest permitted by applicable law, and any excess shall be
credited on the Line of Credit Note by the holder thereof (or, if the
Line of Credit Note shall have been paid in full, refunded to
Borrower); (ii) determination of the rate of interest for determining
whether the loans hereunder are usurious shall be made by amortizing,
prorating, allocating and spreading, during the full stated term of
such loans, all interest at any time contracted for, charged or
received from Borrower in connection with such loans, and any excess
shall be canceled, credited or refunded as set forth in (i) herein; and
(iii) in the event that the maturity of the Line of Credit Note is
accelerated by reason of an election of the holder thereof resulting
from any Default or Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the
maximum amount permitted by applicable law, and excess interest, if
any, provided for in this Agreement or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited on the Line of Credit Note (or, if
the Line of Credit Note shall have been paid in full, refunded to
Borrower).
11.15 Multiple Originals. This Agreement may be executed
in two (2) or more copies; each fully executed copy shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
11.16 Exhibits. All exhibits to this Agreement are
incorporated herein by this reference for all purposes. The exhibits
may be attached hereto, or bound together with or separately from this
Agreement, and such binding shall be effective to identify such
exhibits as if attached to this Agreement.
11.17 No Triparty Loan. Texas Revised Civil Statutes
Annotated, Title 79, chapter 15 (which regulates certain revolving loan
accounts and revolving triparty accounts) shall not apply to the loans
evidenced by this Agreement or the Line of Credit Note.
11.18 Applicable Rate Ceiling. Unless changed in accordance
with law, the applicable rate ceiling under Texas law shall be the
indicated (weekly) rate ceiling from time to time in effect as provided
in Texas Revised Civil Statutes Annotated, article 5069, chapter 1D, as
amended.
11.19 Performance and Venue. Venue for any action in
connection herewith shall be in Harris County, Texas.
<PAGE>
11.20 Negotiation of Documents. This Agreement, the Line
of Credit Note and all other Loan Documents have been negotiated by the
parties at arm's length, each represented by its own counsel to the
extent desired, and the fact that the documents have been prepared by
Lender's counsel, after such negotiation, shall not be cause to
construe any of such documents against Lender.
11.21 Notices Received by Lender. Any instrument in
writing, telex, telegram, telecopy or cable received by Lender in
connection with any loan hereunder, which purports to be dispatched or
signed by or on behalf of Borrower, shall conclusively be deemed to
have been signed by such party, and Lender may rely thereon and shall
have no obligation, duty or responsibility to determine the validity or
genuineness thereof or authority of the Person or Persons executing or
dispatching the same.
11.22 Debtor-Creditor Relationship. None of the terms of
this Agreement or of any other document executed in conjunction
herewith or related hereto shall be deemed to give Lender the rights or
powers to exercise control over the business or affairs of Borrower.
The relationship between Borrower and Lender created by this Agreement
is only that of debtor-creditor.
11.23 Release of Liability. To the maximum extent
permitted by law from time to time in effect, Borrower hereby
knowingly, voluntarily and intentionally (and after it has consulted
with its own attorney) irrevocably and unconditionally agrees that no
claim may be made by Borrower against Lender or any of its affiliates,
participants, shareholders, directors, officers, employees, attorneys,
accountants, or agents or any of its or their successors and assigns,
for any actual, special, indirect, consequential or punitive damages in
respect of any breach or wrongful conduct (whether the claim is based
on contract, tort or statute) arising out of, or related to, the
transactions contemplated by any of this Agreement, the Line of Credit
Note, the Loan Documents or any other related documents, or any act,
omission, or event occurring in connection herewith or therewith. In
furtherance of the foregoing, Borrower hereby waives, releases and
agrees not to sue upon any claim for any such damages, whether or not
accrued and whether or not known or suspected to exist in its favor,
and Borrower shall indemnify and hold harmless lender and its
affiliates, participants, shareholders, directors, officers, employees,
attorneys, accountants and agents and their successors and assigns of
and from any such claims. Upon the full payment of the Indebtedness,
and prior to Lender releasing any lien or security interest in Property
given to secure the Indebtedness, Borrower, shall (i) execute a release
agreement, in form and substance satisfactory to Lender, releasing
Lender and Lender's affiliates, participants, shareholders, directors,
officers, employees, agents and attorneys from any and all claims,
demands, actions, causes of action, costs, expenses and liabilities
whatsoever, known or unknown, at law or in equity, which Borrower may
have, as of the date of execution of such release or in the future,
against Lender and Lender's affiliates, participants, shareholders,
directors, officers, employees, agents and attorneys, arising out of or
in connection with this Agreement or any related documents, and (ii)
provide evidence satisfactory to Lender that all outstanding taxes,
including all sale, excise and similar taxes have been paid.
<PAGE>
11.24 DTPA Waiver. Borrower acknowledges and agrees, on
Borrower's own behalf and on behalf of any permitted assigns and
successors hereafter, that the DTPA is not applicable to this
transaction. Accordingly, Borrower's rights and remedies with respect
to the transaction contemplated under this Agreement and with respect
to all acts or practices of Lender, past, present or future, in
connection with such transaction, shall be governed by legal principles
other than the DTPA. In furtherance thereof, Borrower agrees as
follows:
(a) Borrower represents that Borrower has the
knowledge and experience in financial and business matters that enable
Borrower to evaluate the merits and risks of the business transaction
that is the subject of this Agreement. Borrower also represents that
Borrower is not in a significantly disparate bargaining position in
relation to Lender. Borrower has negotiated the loan documents with
Lender at arm's length and have willingly entered into the loan
documents.
(b) Borrower represents that (i) Borrower has been
represented by Jackson Walker L L P. as legal counsel in the
transaction contemplated by this Agreement and (ii) such legal counsel
was not directly or indirectly identified, suggested or selected by
Lender or an agent of Lender.
(c) This Agreement relates to a transaction involving
total consideration by Borrower of more than $100,000.00 and does not
involve the Borrower's residence.
Borrower agrees, on Borrower's own behalf and on behalf of Borrower's
permitted assigns and successors, that all of the Borrower' rights
and remedies under the DTPA are WAIVED AND RELEASED, including
specifically, without limitation, all rights and remedies under the
DTPA resulting from or arising out of any and all acts or practices of
Lender in connection with this transaction, whether such acts or
practices occur before or after the execution of this Agreement.
In furtherance thereof, Borrower agrees that by signing this Agreement,
Borrower and any permitted assigns and successors are bound by the
following waiver:
Waiver of Consumer Rights. Borrower waives
its rights under the Deceptive Trade
Practices--Consumer Protection Act, Section
17.41 et seq., Business & Commerce Code, a
law that gives consumers special rights and
protection. After consultation with an
attorney of Borrower's own selection,
Borrower voluntarily consents to this waiver.
<PAGE>
11.25 Arbitration.
(a) Arbitration. Upon the demand of any party, any
Dispute shall be resolved by binding arbitration (except as set forth
in (e) below) in accordance with the terms of this Agreement. A
"Dispute" shall mean any action, dispute, claim or controversy of any
kind, whether in contract or tort, statutory or common law, legal or
equitable, now existing or hereafter arising under or in connection
with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities,
transactions or obligations of any kind related directly or indirectly
to any of the Loan Documents, including without limitation, any of the
foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any
party may by summary proceedings bring an action in court to compel
arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all
costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall
be administered by the American Arbitration Association ("AAA") or such
other administrator as the parties shall mutually agree upon in
accordance with the AAA Commercial Arbitration Rules. All Disputes
submitted to arbitration shall be resolved in accordance with the
Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in
Texas selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms
and procedures set forth herein shall control. All statutes of
limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein
shall be deemed to be a waiver by any party that is a bank of the
protections afforded to it under 12 U.S.C. [ARTICLE] 91 or any
similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to
exercise self-help remedies such as setoff, foreclosure against or sale
of any real or personal property collateral or security, or to obtain
provisional or ancillary remedies, including without limitation
injunctive relief, sequestration, attachment, garnishment or the
appointment of a receiver, from a court of competent jurisdiction
before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration or reference hereunder.
<PAGE>
(d) Arbitrator Qualifications and Powers; Awards.
Arbitrators must be active members of the Texas State Bar or retired
judges of the state or federal judiciary of Texas, with expertise in
the substantive laws applicable to the subject matter of the Dispute.
Arbitrators are empowered to resolve Disputes by summary rulings in
response to motions filed prior to the final arbitration hearing.
Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of Texas, (ii) may grant any remedy or
relief that a court of the state of Texas could order or grant within
the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery
of all costs and fees, to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the Texas Rules of
Civil Procedure or other applicable law. Any Dispute in which the
amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly waives any
right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by
majority vote of a panel of three arbitrators; provided however, that
all three arbitrators must actively participate in all hearings and
deliberations.
(e) Judicial Review. Notwithstanding anything herein
to the contrary, in any arbitration in which the amount in controversy
exceeds $25,000,000, the arbitrators shall be required to make
specific, written findings of fact and conclusions of law. In such
arbitrations (A) the arbitrators shall not have the power to make any
award which is not supported by substantial evidence or which is based
on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and
the conclusions of law are not erroneous under the substantive law of
the state of Texas, and (C) the parties shall have in addition to the
grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (1)
whether the findings of fact rendered by the arbitrators are supported
by substantial evidence, and (2) whether the conclusions of law are
erroneous under the substantive law of the state of Texas. Judgment
confirming an award in such a proceeding may be entered only if a court
determines the award is supported by substantial evidence and not based
on legal error under the substantive law of the state of Texas.
(f) Real Property Collateral; Judicial Reference.
Notwithstanding anything herein to the contrary, no Dispute shall be
submitted to arbitration if the Dispute concerns indebtedness secured
directly or indirectly, in whole or in part, by any real property
unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii)
all parties to the arbitration waive any rights or benefits that might
accrue to them by virtue of the single action rule statute of Texas,
thereby agreeing that all indebtedness and obligations of the parties,
and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable.
<PAGE>
(g) Miscellaneous. To the maximum extent practicable,
the AAA, the arbitrators and the parties shall take all action
required to conclude any arbitration proceeding within 180 days
of the filing of the Dispute with the AAA. No arbitrator or other
party to an arbitration proceeding may disclose the existence, content
or results thereof, except for disclosures of information by a party
required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review
rights set forth herein. If more than one agreement for arbitration
by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or
the subject matter of the Dispute shall control. This arbitration
provision shall survive termination, amendment or expiration of any of
the Loan Documents or any relationship between the parties.
11.26 Final Expression. THIS WRITTEN LOAN AGREEMENT, THE
NOTES AND THE SECURITY INSTRUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first written above.
LENDER:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:
Bruce L. Bell, Vice President
BORROWER:
STEVENS INTERNATIONAL, INC.
By:
Paul I. Stevens
Chairman of the Board
and Chief Executive Officer
<PAGE>
EXHIBIT "A"
Information Certificate
EXHIBIT "B"
Line of Credit Note
EXHIBIT "C"
Term Note
SCHEDULE I
Inventory
EXHIBIT 10.2
SUBORDINATED PROMISSORY NOTE
$3,950,000.00 June 30, 1998
FOR VALUE RECEIVED, the undersigned, Stevens International, Inc., a
Delaware corporation ("Maker"), whose address is 5500 Airport
Freeway, Fort Worth, Texas 76117-5985, promises to pay to the order
of Paul Stevens ("Payee"), whose address is P. O. Box 950, La Jolla,
CA 92038, the principal sum of Three Million Nine Hundred Fifty
Thousand and No/100 Dollars ($3,950,000.00), or such greater or
lesser amount as may be outstanding in accordance with the provisions
of this Note, together with interest on the unpaid principal balance
from day to day at a per annum rate equal to the lesser of (a) the
Highest Lawful Rate (as hereinafter defined), or (b) the Prime Rate
(as hereinafter defined) plus two percent (2%). Interest shall
accrue on any matured, unpaid amounts at the Past Due Rate.
As used in this Note, the following terms shall have the following
meanings:
"Highest Lawful Rate" means the maximum nonusurious rate of
interest per annum permitted by the law of the State of Texas,
including to the extent permitted by applicable law, any amendments
thereof hereafter or any new law hereafter coming into effect to
the extent a higher Highest Lawful Rate is permitted thereby. For
purposes of determining the Highest Lawful Rate under the
applicable Laws of the State of Texas, the applicable rate ceiling
shall be the "weekly ceiling" as defined in and computed in
accordance with Article 5069-1D.003 of the Texas Revised Civil
Statutes, as hereafter amended or supplemented. The Highest Lawful
Rate shall be applied by taking into account all amounts
characterized by applicable law as interest on the debt evidenced
by this Note, so that the aggregate of all interest does not exceed
the maximum nonusurious amount permitted by applicable law.
"Guaranty" means the Guaranty Agreement of even date herewith
executed by Stevens International, SA, a French corporation, in
favor of Payee, guaranteeing the payment of the obligations of
Maker under this Note and the other Subordinated Loan Documents.
"Past Due Rate" means a rate per annum equal to the Highest
Lawful Rate.
"Primary Security" means the Zerand Holdback and the
collateral covered by the Walnut Mortgage and the SSMI Pledge.
"Prime Rate" means the rate per annum most recently
established by Wells Fargo Bank, National Association, as its
"prime rate".
"Revolving Credit Facility" means the line of credit available
to Maker under the Senior Loan Agreement in the maximum amount of
$7,500,000.00.
<PAGE>
"Schlichter Mortgage" means that certain Mortgage, Assignment
of Leases and Rents and Security Agreement, of even date herewith,
executed by Maker and granting to Payee a second priority mortgage
lien against the real property located at 2175 Schlichter Dr.,
Hamilton, Butler County, Ohio, 45011, as more particularly
described in the Schlichter Mortgage.
"Security Agreement" means that certain Security Agreement, of
even date herewith, executed by Maker in favor of Payee, granting
to Payee (a) a first priority security interest in and to the
Zerand Holdback, and all proceeds thereof, and (b) a second and
subordinate security interest in and to the accounts, rights to
payment, contract rights, chattel paper, general intangibles,
inventory, equipment and other goods and personal property of
Maker, whether now owned or hereafter acquired, and all proceeds
thereof.
"Security Documents" means, collectively, the Security
Agreement, the SSMI Pledge, the Walnut Mortgage, the Texas
Mortgage, the Schlichter Mortgage and all other mortgages, security
agreements and other instruments and agreements under or pursuant
to which a security interest is now or hereafter granted to Payee
to secure Maker s payment of this Note and the performance of its
other obligations under the Subordinated Loan Documents.
"Senior Lender" means Wells Fargo Bank, National Association.
"Senior Loan Agreement" means that certain Loan Agreement, of
even date herewith, by and between Maker and Senior Lender,
providing for the extension to Maker by Senior Lender of the Term
Loan and the Revolving Credit Facility.
"SSMI" means Societe Specialisee dans le Materiel
d'Imprimerie, a French corporation.
"SSMI Pledge" means that certain Pledge Agreement, of even
date herewith, executed by Stevens International, SA, a French
corporation, pledging to Payee as security for the payment of the
Note, (a) all of the issued and outstanding shares evidencing 100%
of the ownership interest in SSMI (or such lesser percentage as may
be required to comply with applicable laws as provided in the SSMI
Pledge), and all proceeds thereof, and (b) all proceeds payable to
the holder of the ownership interest in SSMI as a result of a sale
or other disposition of all or any substantial portion of the
assets of SSMI.
"Subordinated Loan Documents" means this Note, the Security
Documents and the Guaranty.
<PAGE>
"Subordination Agreement" means that certain Subordination
Agreement of even date herewith by and among Maker, Payer and
Senior Lender, providing for the subordination of the indebtedness
of Maker to Payee under the Subordinated Loan Documents to the
indebtedness and obligations of Maker to Lender under or pursuant
to the Senior Loan Agreement, subject to the rights of priority of
Payee with respect to the Primary Security and the proceeds
thereof.
"Term Loan" means the term loan extended to Maker by Senior
Lender pursuant to the Senior Loan Agreement in the amount of
$4,000,000.00.
"Texas Mortgage" means that certain Deed of Trust and Security
Agreement, of even date herewith, executed by Maker in favor of
Charles D. Maguire, Trustee for the benefit of Payee, granting a
deed of trust lien (and power of sale) against the real property
located at 5700 Belknap, Fort Worth, Tarrant County, Texas, 76117
as more particularly described in the Texas mortgage.
"Walnut Mortgage" means that certain Mortgage, Assignment of
Leases and Rents and Security Agreement, of even date herewith,
executed by Maker and granting to Payee a first priority mortgage
lien against the real property located at 851 Walnut, Hamilton,
Butler County, Ohio, 45011 as more particularly described in the
Walnut Mortgage.
"Warrant" means a Warrant from Maker in favor of Payee for the
purchase of up to One Million shares of the common stock of Maker
at $.01 per share.
"Zerand Holdback" means (a) all rights, titles and interests
of Maker in and to that certain Escrow Agreement by and among
Valumaco Incorporated, a Delaware corporation ("Valumaco"), Maker
and Banca Commerciale Italiana, New York Branch (the "Escrow
Agent"), and the "Deposit" and the "Escrowed Funds" thereunder (as
defined therein) and (b) all rights, titles and interests of Maker
in and to the "earn-out" provision (Section 2.5) of that certain
Sale and Purchase Agreement Concerning the Zerand Division of
Stevens International, Inc., between Maker, as seller, and
Valumaco, as buyer, dated April 14, 1998.
Interest accrued on the principal balance of this Note shall be due
and payable in arrears quarterly commencing September 30, 1998 and
continuing on the last day of each calendar quarter thereafter until
the principal balance of this Note has been paid in full, subject
to the subordination provisions contained in the Subordination
Agreement. The principal balance of this Note and all accrued and
unpaid interest hereon shall be due and payable in full on June 30,
2000.
<PAGE>
Payments of interest due under this Note may be made by Maker, at
its option, either (a) in lawful money of the United States of
America in immediately available funds, or (b) if there has occurred
an Event of Default (defined below) which is then continuing and by
virtue of which the payment of interest under this Note is prohibited
under the Subordination Agreement, by delivery to Payee by Maker of a
request for a principal advance under this Note to be applied to the
payment of such accrued interest (an "Interest Payment Advance"), in
either case delivered to Payee at P.O. Box 950, La Jolla, California,
92122, or in accordance with such other directions or at such other
address as Payee may notify Maker in writing from time to time.
Each Interest Payment Advance shall be recorded by Payee on the
Schedule of Advances attached hereto as Exhibit A, but Payee's
failure to so record any such Interest Payment Advance shall not
relieve Maker of its obligation to repay any such Interest Payment
Advance in accordance with the terms applicable to the obligations
evidenced by this Note.
Mandatory payments of principal under this Note shall be due and
payable immediately upon Maker s receipt, and to the extent of, any
proceeds (of any nature whatsoever) from the sale or other
disposition of any of the Primary Security (less the reasonably and
customary expenses incurred by Maker in connection therewith).
Maker shall have the right to prepay this Note at any time, in
whole or in part, without premium or penalty, provided that each such
prepayment shall be payable in lawful money of the United States of
America in immediately available funds, and each such prepayment
shall be applied first to accrued and unpaid interest and next to the
principal balance of this Note.
The proceeds of the indebtedness evidenced by this Note shall be
used solely for the following purposes:
(a) The amount of $2,500,000.00 shall be advanced by Maker
concurrently with (and contingent upon) the advance of the proceeds
of the Term Loan to retire, release and discharge in full the
indebtedness, obligations and security interests of Maker in favor
of Mutual of NewYork and Aetna Life Insurance Company; and
(b) The renewal and extension of that certain promissory note
in the original principal amount of $950,000.00, executed by Maker
and payable to the order of Payee, dated ________________________ .
(c) The amount of $500,000.00 (or such lesser amount as may
be advanced) to finance such of Maker's accounts receivable,
outside of the Revolving Credit Facility, as Payee shall approve in
its sole discretion.
<PAGE>
The indebtedness evidenced by this Note is guaranteed by the
Guaranty and secured by the Security Documents, and is entitled to
the benefits thereof. In addition, Maker agrees to issue to Payee
the Warrant within thirty (30) days following the date of this Note,
conditioned upon the obtainment by Maker of an opinion of an
independent firm as to the "fairness" of such issuance, which Warrant
(and all related documentation) shall be in form and substance
acceptable to Payee in all respects.
Without notice or demand (which are hereby waived), the entire
unpaid principal balance of, and all accrued interest on, this Note
shall immediately become due and payable at the option of the holder
hereof upon the occurrence of any of the following events ("Events of
Default"):
(a) The failure or refusal of Maker to make any payment of
this Note on the date when due in accordance with the terms hereof
and the continuance of such failure for a period of ten (10) days
following Maker s receipt of written notice of such failure from
Payee.
(b) The failure or refusal of Maker to punctually and
properly perform, observe and comply in all material respects with
each covenant, agreement or condition contained herein or in any
document, instrument or agreement executed in connection herewith
and the breach of such covenant, agreement or condition is not
cured to Payee's satisfaction within 30 days after Maker's receipt
of written notice of such breach from Payee.
(c) Maker shall (i) execute an assignment for the benefit of
creditors, or (ii) admit in writing its inability, or otherwise,
fail, to pay its debts generally as they become due or (iii) suffer
the appointment of a receiver, trustee, custodian or similar
fiduciary.
(d) Any petition for an order for relief shall be filed by or
against Maker under the United States Bankruptcy Code (if filed
against Maker, and the continuation of such proceeding for more
than sixty (60) days).
(e) An event of default shall occur under the Senior Loan
Agreement which results in the acceleration of the indebtedness
evidenced by the Senior Loan Agreement.
If an Event of Default shall occur, the holder of this Note may
proceed to protect and enforce any and all rights it may have,
whether by contract, at law or in equity, including but not limited
the foreclosure of its liens and security interests securing payment
hereof and the exercise any of its other rights, powers and remedies
under this Note, under any other Subordianted Loan Document.
<PAGE>
All of the rights, remedies, powers and privileges (together,
"Rights") of the holder hereof provided for in this Note and in any
other Subordiante Loan Document are cumulative of each other and of
any and all other Rights at law or in equity. The resort to any
Right shall not prevent the concurrent or subsequent employment of
any other appropriate Right. No single or partial exercise of any
Right shall exhaust it, or preclude any other or further exercise
thereof, and every Right may be exercised at any time and from time
to time. No failure by the holder hereof to exercise, nor delay in
exercising any Right, including but not limited to the right to
accelerate the maturity of this Note, shall be construed as a waiver
of any Default or as a waiver of the Right. Without limiting the
generality of the foregoing provisions, the acceptance by the holder
hereof from time to time of any payment under this Note which is past
due or which is less than the payment in full of all amounts due and
payable at the time of such payment, shall not (i) constitute a
waiver of or impair or extinguish the right of the holder hereof to
accelerate the maturity of this Note or to exercise any other Right
at the time or at any subsequent time, or nullify any prior exercise
of any such Right, or (ii) constitute a waiver of the requirement of
punctual payment and performance or a novation in any respect.
If any holder of this Note retains an attorney in connection with
any Event of Default or at maturity or to collect, enforce or defend
this Note or any other Subordinated Loan Document in any lawsuit or
in any probate, reorganization, bankruptcy or other proceeding, or if
Maker sues any holder in connection with this Note or any other
Subordinated Loan Document and does not prevail, then Maker agrees to
pay to each such holder, in addition to principal, interest and any
other sums owing to holder under the Subordianted Loan Documents, all
reasonable costs and expenses incurred by such holder in trying to
collect this Note or in any such suit or proceeding, including
reasonable attorneys' fees.
Each notice, request and demand to be given pursuant to the
provisions of this Note shall be deemed given or made, if sent by
mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, or, if sent by
any other means, upon delivery, in each case to the address of Debtor
given above, or to such other address as any party may designate by
written notice to the other party.
.
Maker, and each surety, endorser, guarantor, and other party ever
liable for the payment of any sum of money payable on this Note
jointly and severally at all times waive presentment, protest, notice
of nonpayment, notice of intention to accelerate and of acceleration,
notice of protest and nonpayment or dishonor, notice of intent to
demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and
partial payments before or after maturity, without prejudice to the
holder.
<PAGE>
THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
TO THE EXTENT SET FORTH IN THE SUBORDINATION AGREEMENT TO THE
OBLIGATIONS (INCLUDING INTEREST) OWED BY PAYEE TO THE HOLDER OF THE
NOTES ISSUED PURSUANT TO THE SENIOR LOAN AGREEMENT AS THE SAME HAS
BEEN AND HEREAFTER MAY BE SUPPLEMENTED, MODIFIED OR AMENDED FROM TIME
TO TIME; AND EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF,
SHALL BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.
This note is being executed and delivered in the State of Texas,
and the laws of such state shall govern the construction validity,
enforcement and interpretation hereof, except to the extent federal
laws otherwise govern the validity, construction, enforcement and
limitation hereof.
All of the covenants, stipulations, promises and agreements
contained in this Note by or on behalf of Maker shall bind its
successors and assigns, whether so expressed or not.
Regardless of any provision contained herein, or in any document
executed in connection herewith, Payee shall never be entitled to
receive, collect, or apply, as interest on the indebtedness evidenced
hereby, any amount in excess of the Highest Lawful Rate, and in the
event Payee ever receives, collects, or applies, as interest, any
such excess, such amount which would be excessive interest shall be
deemed a partial prepayment of principal and treated hereunder as
such; and if, the principal hereof is paid in full, any remaining
excess shall be refunded to Maker. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the
Highest Lawful Rate, Maker and Payee shall, to the maximum extent
permitted under applicable law, (a) characterize any nonprincipal
payment as an expense, fee, or premium rather than as interest,
(b) exclude voluntary prepayments and the effects thereof, and
(c) prorate, allocate, and spread, the total amount of interest
throughout the entire contemplated term hereof, provided, that if the
principal balance hereof is paid and performed in full prior to the
end of the full contemplated term hereof, and if the interest
received for the actual period of existence thereof exceeds the
Highest Lawful Rate, Payee shall either apply or refund to Maker the
amount of such excess as herein provided, and in such event, Payee
shall not be subject to any penalties provided by any laws for
contracting for, charging, or receiving interest in excess of the
Highest Lawful Rate.
THIS NOTE REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of
the day and year first above written.
STEVENS INTERNATIONAL, INC.
By: ________________________________
Richard Stevens
President
<PAGE>
SCHEDULE OF INTEREST PAYMENT ADVANCES
Beginning Ending
Principal Balance Date Interest Payment Advance Principal Balance
<TABLE>
EXHIBIT 11.1
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME (LOSS) PER COMMON SHARE
(UNAUDITED)
(Amounts in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic and diluted:
Weighted average shares
outstanding- basic 9,488 9,451 9,488 9,451
Assumed exercise of Series A and
B stock options (Treasury stock method) 185 --- 185 ---
Assumed exercise of warrants 517 --- 517 ---
------ ------ ------ ------
Total common share equivalents -
diluted 10,190 9,451 10,190 9,451
====== ====== ====== ======
Income (loss) before
extraordinary item $ 335 $(3,405) $ (81) $(6,404)
Extraordinary item (Note 4):
Gain on early extinguishment
of debt, net of tax effect 11,221 --- 11,221 ---
------ ------ ------ ------
Net income (loss) $11,556 $(3,405) $11,140 $(6,404)
====== ====== ====== ======
Earnings (loss) per share - basic
(Note 8)
Income (loss) before
extraordinary item $0.04 $(0.36) $(0.01) $(0.68)
Gain on early extinguishment
of debt $1.18 --- 1.18 ---
------ ------ ------ ------
Net income (loss) - basic $1.22 $(0.36) $1.17 $(0.68)
====== ====== ====== ======
Earnings (loss) per share -
diluted (Note 8)
Income (loss) before
extraordinary item $0.03 $(0.36) $(0.01) $(0.68)
Gain on early extinguishment
of debt 1.10 --- 1.10 ---
------ ------ ------ ------
Net income (loss) - diluted $1.13 $(0.36) $1.09 $(0.68)
====== ====== ====== ======
See notes to consolidated condensed financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF STEVENS INTERNATIONAL, INC. AND
SUBSIDIARIES AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,895
<SECURITIES> 0
<RECEIVABLES> 2,336
<ALLOWANCES> 298
<INVENTORY> 5,469
<CURRENT-ASSETS> 20,862
<PP&E> 4,387
<DEPRECIATION> 1,853
<TOTAL-ASSETS> 25,055
<CURRENT-LIABILITIES> 15,439
<BONDS> 4,382
0
0
<COMMON> 949
<OTHER-SE> 1,415
<TOTAL-LIABILITY-AND-EQUITY> 25,055
<SALES> 15,040
<TOTAL-REVENUES> 15,040
<CGS> 12,075
<TOTAL-COSTS> 16,296
<OTHER-EXPENSES> 251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,201
<INCOME-PRETAX> (6)
<INCOME-TAX> (75)
<INCOME-CONTINUING> (81)
<DISCONTINUED> 0
<EXTRAORDINARY> 11,221
<CHANGES> 0
<NET-INCOME> 11,140
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.09
</TABLE>
