FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995
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Commission File Number 000-17577
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CORE TECHNOLOGIES (PENNSYLVANIA), INC.
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(Exact Name of registrant as specified in its charter)
Delaware 22-2537194
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(state or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
110 Summit Drive - Suite 200, Exton, PA 19341-2838
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 524-7000
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CENTERCORE, INC.
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(Former name 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 and Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Number of shares outstanding as of November 13, 1995
Common Stock 8,887,326
<TABLE>
PART I
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
Consolidated Balance Sheets
<CAPTION>
September 30, December 31,
1995 1994
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(unaudited)
Assets
<S> <C> <C>
Current assets
Cash $ 92,000 $ 583,600
Receivables, less allowances ($1,854,700 --1995; $2,864,700 --1994) 4,249,100 5,024,900
Costs and estimated earnings in excess of billings on uncompleted contracts 526,500 292,500
Inventories 729,900 625,700
Notes receivable 1,243,400
Income taxes receivable 1,357,900
Other current assets 386,400 231,300
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Total current assets 7,227,300 8,115,900
Net assets of discontinued operations 7,157,300
Plant and equipment
Leasehold improvements 155,400 155,400
Machinery and equipment 949,600 816,900
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1,105,000 972,300
Less accumulated depreciation and amortization (595,200) (385,400)
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Net plant and equipment 509,800 586,900
Other assets
Excess of cost over net assets of businesses acquired 181,200 192,300
Notes receivable 1,569,400
Other 443,100 638,300
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Total other assets 2,193,700 830,600
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$ 9,930,800 $16,690,700
============ ============
See notes to consolidated financial statements
</TABLE>
<TABLE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
Consolidated Balance Sheets
<CAPTION>
September 30, December 31,
1995 1994
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(unaudited)
Liabilities and Stockholders' Deficit
<S> <C> <C>
Current liabilities
Accounts payable $ 3,462,000 $ 5,885,500
Accrued expenses 3,300,500 3,793,500
Billings in excess of costs and estimated earnings on uncompleted contracts 709,900 1,419,800
Current debt 0 8,396,100
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Total current liabilities 7,472,400 19,494,900
Long-term debt 4,707,700
Other liabilities 887,000 121,300
Redeemable convertible preferred stock issued to Safeguard Scientifics, Inc. 1,500,000 1,500,000
Stockholders' deficit
Common stock, $.01 par value; Authorized -- 20,000,000 shares;
Issued - (9,217,326 shares--1995; 10,767,326 shares--1994) 92,200 107,700
Additional paid-in capital 7,983,900 7,923,400
Accumulated deficit (12,291,900) (12,036,100)
Treasury stock at cost - 330,000 shares (420,500) (420,500)
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Total stockholders' deficit (4,636,300) (4,425,500)
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$ 9,930,800 $16,690,700
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See notes to consolidated financial statements
</TABLE>
<TABLE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
Consolidated Statements of Operations
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Net sales $ 4,000,000 $ 8,647,600 $13,943,400 $27,507,300
Cost of goods sold 3,002,400 7,724,300 10,709,200 24,108,600
----------- ------------ ------------ ------------
Gross profit 997,600 923,300 3,234,200 3,398,700
Expenses
Sales and marketing 350,700 743,100 1,284,100 2,499,100
General and administrative 418,100 900,600 1,631,100 2,789,600
Interest 196,600 200,200 574,800 435,100
965,400 1,843,900 3,490,000 5,723,800
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Income (loss) from continuing operations before income taxes 32,200 (920,600) (255,800) (2,325,100)
Benefit of income taxes 0 (1,051,900) 0 (1,780,000)
----------- ------------ ------------ ------------
Earnings (loss) from continuing operations 32,200 131,300 (255,800) (545,100)
Loss from discontinued operations 0 (772,000) 0 (1,841,100)
----------- ------------ ------------ ------------
Net earnings (loss) $32,200 ($640,700) ($255,800) ($2,386,200)
=========== ============ ============ ============
Earnings (loss) per share
Continuing operations $ .00 $ .01 $ (.03) $ (.05)
Discontinued operations .00 (.07) .00 $ (.18)
--- ----- --- -------
Net earnings (loss) $ .00 $ (.06) $ (.03) $ (.23)
====== ======= ======= =======
Weighted average shares outstanding 10,696,800 10,437,000 10,524,200 10,437,000
See notes to consolidated financial statements
</TABLE>
<TABLE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
Consolidated Statements of Cash Flows
(unaudited)
<CAPTION>
Nine Months Ended September 30,
1995 1994
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<S> <C> <C>
Operations
Net loss $ (255,800) $ (545,100)
Loss from discontinued operations (1,841,100)
Adjustments to reconcile net loss to cash from operations
Depreciation and amortization 245,800 353,000
Decrease in deferred taxes (81,100)
Cash from discontinued operations 7,157,300 5,625,100
Cash provided by (used in) changes in working capital items
Receivables 775,800 551,100
Inventories (104,200) 51,800
Contracts in progress (943,900) (2,278,800)
Other current assets (155,100) (74,700)
Accounts payable (2,423,500) (1,106,600)
Accrued expenses (698,400) (130,000)
Taxes on income 1,586,100 (1,988,200)
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Cash provided (used) by operations 5,184,100 (1,464,600)
Financing activities
Borrowings (repayments) of debt (5,543,000) 2,000,400
Cash provided (used) by financing activities (5,543,000) 2,000,400
Investing activities
Expenditures for plant and equipment (132,700) (109,800)
Other, net (495,700)
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Cash (used) in investing activities (132,700) (605,500)
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Increase (decrease) in cash (491,600) (69,700)
Cash beginning of year 583,600 376,900
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Cash end of period $ 92,000 $ 307,200
=========== ===========
See notes to consolidated financial statements
</TABLE>
CORE TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
SEPTEMBER 30, 1995
1. Organization and Business Operations
The accompanying unaudited interim consolidated financial
statements were prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. The Summary of Accounting Policies
and Notes to Consolidated Financial Statements included in the 1994
Annual Report should be read in conjunction with the accompanying
statements. These statements include all adjustments (consisting
only of normal recurring adjustments) which the Company believes
are necessary for a fair presentation of the statements. The
interim operating results are not necessarily indicative of the
results for a full year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In 1995 the Company decided to significantly downsize the Maris
business by concentrating on the low voltage security and fire alarm
business and selected smart highway applications. The majority of net
sales in the third quarter of 1994 represented bonded correctional
facility and airport projects that the Company has not pursued in 1995.
Due to declining furniture sales, particularly to the federal
government, the Company decided to dispose of the furnishings segment.
On August 25, 1995 the Company sold all of the assets of the domestic
furnishings segment including Corel Corporate Seating for cash and notes
receivable. The Company has applied the proceeds of the sale to pay
down its bank debt. The UK furnishings business will be sold to local
management in return for notes receivable. The Canadian operation was
sold to Safeguard Scientifics, Inc. in April 1995. Accordingly, the
furnishings segment has been presented as a discontinued operation.
In connection with the above described sale of the Company's
Furnishings Business, the Company has changed its name to Core
Technologies (Pennsylvania), Inc. This name change was approved by the
stockholders of the Company at its 1994 Annual Meeting of Stockholders
held on May 6, 1994.
Effective September 29, 1995 Safeguard Scientifics (Delaware),
Inc. contributed to the capital of the Company 2,000,000 shares of the
Company's Common Stock and sold to George E. Mitchell, President and
Chief Executive officer of the Company, Frederick B. Franks, III, Vice
President and Chief Financial Officer of the Company and Philip J.
Donnelly, a Vice President of the Company, an aggregate 2,500,000 shares
of Common Stock. Prior to the above transactions, Safeguard was the
beneficial owner of 66.55% of the Company's outstanding Common Stock.
Subsequent to the above the above transactions, Safeguard became the
beneficial owner of 36.05% of the Company's outstanding Common Stock.
The above information regarding Safeguard's beneficial ownership of the
common stock includes 15,000 shares of the Company's Convertible
Preferred Stock which are convertible by Safeguard into 1,500,000 shares
of Common Stock.
Continuing operations reflect the results of the on-going
businesses of Maris Equipment Company ("Maris") and Airo Clean. Because
of the disposition of the furnishings segment and the change in the
focus of the business, comparisons from year to year are not meaningful.
Review of continuing operations
Net sales for the third quarter were $4.0 million compared to $8.6
million for the comparable period in 1994. Third quarter 1994 sales
included $4.0 million of bonded correctional facility and airport
projects which were subsequently turned over to the bonding companies.
The Company reported pre-tax income from continuing operations of $32,200
in the third quarter of 1995, versus a pre-tax loss of $920,600 from
continuing operations in the third quarter of 1994. In the third quarter
of 1994, the Company also reported a net loss from discontinued operations
of $772,000 and received a tax benefit of income taxes in the amount of
$1,051,900.
For the nine months ended September 30, 1995, net sales were $13.9
million compared to $27.5 million for the same period in 1994. Last
year's sales included $15.2 million of bonded correctional facility and
airport projects which were subsequently turned over to the bonding
companies. The pre-tax loss from continuing operations in the nine month
period of 1995 was $255,800 compared to a pre-tax loss from continuing
operations of $2,325,100 in the 1994 period.In the nine month 1994 period,
the Company also reported a net loss from discontinued operations in the
amount of $1,841,000, and received a tax benefit of income taxes in the
amount of $1,780,000.
Third quarter 1995 Maris sales were $3.1 million compared to $7.8
million in 1994. Maris had large bonded correctional facility and
airport projects sales of $4.0 million in 1994. Maris sales for the nine
month period ending September 30, 1995 were $10.3 million compared to
$24.7 million for the same period in 1994. Maris 1994 sales included
$15.2 million of large bonded correctional facility and airport projects
for the same nine month period in 1994.
Maris gross profits excluding large bonded correctional facility
and airport projects as a percentage of sales increased to 22.8% in the
third quarter of 1995 from 16.3% in the same period in 1994. Including
large bonded correctional facility and airport projects Maris' gross
profits as a percentage of sales were 9.6% for the third quarter of
1994. For nine months ending September 30, 1995, Maris' gross margin
excluding large bonded correctional facility and airport projects was
20.8% compared to 17.4% in 1994. Including large bonded correctional
facility and airport projects Maris' gross margin was 11.4% for nine
months ending September 30, 1994.
Third quarter 1995 Airo Clean sales were $.9 million compared to
$.8 million in 1994. For nine months ended September 30, 1995, Airo
Clean sales were $3.6 million compared to $2.8 million in 1994. Airo
Clean gross profit as a percentage of sales increased to 32.6% in the
third quarter of 1995 from 21.5% in the same period in 1994. For the
nine month period ending September 30, 1995, Airo Clean's gross margin
as a percentage of sales was 30.1% compared to 20.6% in 1994. Airo
Clean's improved margins can be attributed to selectively increasing its
selling prices, improved manufacturing efficiencies and obtaining price
concessions from its vendors.
Sales and marketing expenses decreased in the third quarter of
1995 by $392,400 compared to 1994 due to cost reductions implemented at
Maris and Airo Clean. Sales efforts at Maris are being concentrated in
expanding the electronic security systems business, which typically has
had higher gross profits than the effectively discontinued correctional
facility and airport hardware construction business. The competitive
environment and the difficulty in estimating costs and collecting
revenues had adversely impacted Maris' 1994 gross margins on long-term
correctional facility and airport construction projects. The shorter
completion cycle coupled with a less competitive environment has enabled
Maris to achieve higher gross margins in the electronic security systems
business. The Company has elected to concentrate on the electronic
security systems business due to the Company's expertise and the higher
potential profits resulting from the relatively high gross margins.
Marketing efforts at Airo Clean have been focused on promoting the
BioShield and Ultraguard products which are air scrubbing devices for
controlling airborne pathogens and targeted for the health care
industry. In the third quarter 1995 Airo Clean acquired the Laminar Air
Flow Patient product line from Isolation Technology Systems, a provider
of sterile cleanroom products to the Health Care and Hospital
industries. The purchase price is payable only out of the gross margin
the Company receives on sales of this product line. Laminar air flow
patient isolation is a necessary component of bone marrow transplant
procedures and Airo Clean will use this new product line to enhance its
offering to the hospital and health care markets.
Third quarter 1995 general and administrative expenses decreased
$482,500 compared to 1994 due principally to staff reductions and salary
freezes implemented at Maris and Airo Clean. The Company continues to
closely monitor and control costs and recognizes that a significantly
downsized business in 1995 is necessary for survival. As a percentage
of net sales, sales and marketing and general and administrative
expenses increased slightly in the third quarter of 1995 compared to the
third quarter of 1994, as a result of decreased sales. The Company
believes that additional sales can be achieved without a proportional
increase in business infrastructure.
Interest expense in the third quarter of 1995 was $196,600
compared to $200,200 for the comparable period in 1994. The decrease in
1995 reflects a reduction in debt achieved through the use of the
proceeds of the sale of the Company's furnishings segment
The Company currently is not able to utilize any tax benefits from
the losses incurred. The Company has generated an unrecorded loss carry
forward of approximately $3 million which is available to off-set future
income until the year 2010.
Liquidity and Capital Resources
In August, 1995 the Company successfully negotiated an amendment
to its existing bank credit agreement which now provides a $6.0 million
credit line facility, and restructured financial covenants through March
31, 1997. This facility is secured by an aggregate $4.5 million
letters of credit from Safeguard through June 30, 1997. Borrowings bear
interest at prime plus 1 1/4% of the outstanding loan balance. The
Company believes that the combination of afeguard's letters of credit and
the working capital assets of the on going business will be sufficient to
support the borrowing under this facility. As of November 13, 1995
outstanding borrowings under the credit facility were $4.7 million.
In August 1995 as a result of the sale of the furnishings segment,
$2.3 million cash consideration was applied to reduce the Company's
outstanding bank borrowings. In addition to the cash consideration at
close, the Company received an aggregate of $1.7 million in
Installment Notes payable in 1996 and received a $2.0 million
Subordinate Note, which bears interest at a rate of 8% per annum.
Interest commences to accrue on August 25, 1996. The principal amount
of the Subordinate Note will be amortized on a seven year level schedule
with semi-annual payments and a balloon payment due on August 25, 2000.
Interest and principal payments will commence February 25, 1997. The
aggregate purchase price of the Furnishings Business was $6.0 million
which is almost $500,000 less than the estimated purchase price indicated
in the Company's Information Statement mailed to its stockholder on
August 4, 1995. The decrease in purchase price is due to the change in
working capital (defined as accounts receivable plus inventory minus
accounts payable).
In the second quarter of 1995, the Company entered into an agreement
with the parties from whom it acquired Maris, to significantly restructure
the original purchase transaction. Under this agreement the seller
agreed to offset its $3.6 million note receivable from the Company in
exchange for releases from its indemnification liabilities to the Company
under the original asset purchase agreement. The principal sureties have
agreed to release the Company from its indemnity obligations under certain
construction projects in return for 300,000 shares of CenterCore stock,
cash payments of $487,000 and additional payments equal to 20% of Maris'
net earnings in 1998-2002 up to $1 million in the aggregate. The
Company has negotiated with principal vendors and is continuing to
arrange repayment schedules with its vendors to supply the Company with
materials needed to meet current requirements.
Safeguard has made cash advances to the Company totaling $887,000
to cover the closing costs of the sale of the furniture division and the
cash payments to the sureties. Safeguard is not contractually obligated
to satisfy any of the Company' obligations with the exception of the
$4.5 million of letters of credit used as collateral under the Company's
bank credit facility.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Prior to August 25, 1995, the Company was not in
compliance with certain financial covenants under its
bank credit agreement although the bank continued to
extend credit to the Company. Effective August 25,
1995, the bank waived the previous non-compliance and
amended the financial covenants of the bank credit
agreement. As of September 30, 1995, the Company was
not in default of the amended bank credit agreement.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Stockholders (the
"Meeting") was held on August 24, 1995.
(b) At the Meeting, each of the nominees for
director, George E. Mitchell, Anthony A. Nichols and
Richard P. Richter were elected to the Board of
Directors by the affirmative vote of 8,894,757
shares, with 0 voting against and 0 abstentions or
withheld votes.
(c) In addition to the election of directors, at the
Meeting:
(i) The stockholders approved a proposal to amend
the Company's 1993 Stock Option Plan to
increase the number of shares of Common Stock
which may be issued upon exercise of options
granted or to be granted from 500,000 to
1,200,000; and
(ii) The stockholders adopted a proposal to approve
the sale of the Company's furnishings business.
This transaction is described in the Company's
current Report on Form 8-K dated August 25,
1995.
Each of the above proposals was approved by the affirmative
vote of 8,894,757 shares, with 0 voting against the
proposal and 0 abstentions.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number
10.1 Second Amendment to Loan and Security Agreement
between the Company, certain of its affiliates
and Mellon Bank, dated August 25, 1995
27 Financial Data Schedule (electronic filing
only)
(b) Reports of Form 8-K
The Company filed two current reports on From 8-K
which were dated during the quarter for which this
quarterly report is filed:
(i) Current report dated August 25, 1995,
reported Item 3, Item 5 and Item 7 and
incorporated by reference pro forma
financial information required pursuant to
Article 11 of Regulation S-X from the
Company's definitive Information Statement
dated August 4, 1995.
(ii) Current Report dated September 29, 1995
reported Item 1 and contained no financial
statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
(Registrant)
Date: November 13, 1995 /s/ George E. Mitchell
----------------------------------
George E. Mitchell,
President and Chief Executive Officer
Date: November 13, 1995 /s/ Frederick B. Franks, III
----------------------------------
Frederick B. Franks, III
Vice President - Finance and Treasurer
(Principal Financial and Accounting
Officer)
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement ("Second
Amendment") is made this 25th day of August, 1995 by and among
CENTERCORE, INC. ("CenterCore"), CENTERCORE CANADA, INC. ("CCI"),
CENTERCORE SYSTEMS OF PENNSYLVANIA, INC. ("CSPI"), CENTERCORE U.K.
LIMITED ("CUK"), CENTERCORE OFFICE ENVIRONMENTS (S.A.) LTD. ("COE"),
MARIS EQUIPMENT CO, INC. ("Maris"), AIRO CLEAN, INC. ("Airo Clean") and
COREL CORPORATION SEATING, INC. ("COREL") (CenterCore, CCI, CSPI, CUK,
COE, Maris, Airo Clean and Corel to be referred to hereinafter
collectively as "Borrowers" and each to be referred to singularly as a
"Borrower") and MELLON BANK, N.A. ("Lender").
BACKGROUND
A. On March 4, 1994, Borrower and Lender entered into a certain
Loan and Security Agreement, as previously amended ("Loan Agreement")
and certain agreements, documents and instruments related thereto
(together with the Loan Agreement, the "Existing Financing Agreements").
B. Borrowers have informed Lender that Centercore and Corel
would like to sell certain of their assets ("Assets Being Sold")
pursuant to and as described in that certain Asset Purchase Agreement
dated May 26, 1995 among The CenterCore Group, Inc. ("Buyer") and
CenterCore and Corel ("Purchase Agreement") and certain other
agreements, documents and instruments related thereto (collectively,
"Asset Sale Agreements"). Borrowers have asked Lender for permission to
sell such Assets Being Sold free and clear of Lender's existing liens
thereon ("Asset Sale").
C. Borrowers have also requested that Lender waive certain
existing defaults under the Existing Financing Agreements and make
certain modifications to the Existing Financing Agreements.
D. Lender has agreed to waive such defaults and to amend the
Existing Financing Agreements in accordance with the terms and
conditions hereof.
E. All capitalized terms used but not defined herein shall have
the meanings ascribed thereto in the Loan Agreement.
NOW THEREFORE, with the foregoing background incorporated by
reference herein and made a part hereof, the parties hereto, intending
to be legally bound, promise and agree as follows:
SECTION 1. THE REVOLVING CREDIT
1.1. Affirmation of Revolving Credit. The outstanding
principal balance of all Advances under the Revolving Credit is, as of
August 24, 1995, $6,183,534.60, which amount, together with all accrued
but unpaid interest, fees and expenses related thereto, is owing without
defense, setoff, counterclaim, recoupment or deduction of any nature.
1.2. Maximum Revolving Credit Amount. The definition of
Maximum Revolving Credit Amount as set forth in Section 1.1 of the Loan
Agreement is hereby deleted in its entirety and replaced by the
following:
Maximum Revolving Credit Amount --$6,000,000, which may, in
Lender's discretion, be reduced by all payments under the
Asset Purchase Agreements, and the New Safeguard Guaranty,
received by Lender from time to time.
1.3. Extension of Revolving Credit Maturity Date.
(a) The definition of Revolving Credit Maturity Date as
set forth in the Section 1.1 of Loan Agreement is hereby
deleted in its entirety and replaced by the following:
Revolving Credit Maturity Date - March 31, 1997.
(b) The Loan Agreement is hereby amended by deleting
subsection 2.1(c) thereof in its entirety and replacing such
subsection with the following:
(c) The term of the Revolving Credit shall expire on the
Revolving Credit Maturity Date. On such date, all of the
outstanding Obligations under the Revolving Credit, unless
having been sooner demanded by Lender pursuant to the terms
hereof or of the Revolving Credit Note, shall be due and
payable in full and after which due date no further advances
or extensions of credit shall be available from Lender.
1.4 Revolving Credit Limits. The Loan Agreement is hereby
amended by deleting Section 2.2 thereof in its entirety and replacing
such Section with the following:
2.2. Revolving Credit Limits. Subject to the terms and
conditions of this Agreement, at no time shall the aggregate
Revolving Credit Loans exceed the lesser of (i) the Maximum
Revolving Credit Amount; and (ii) the aggregate sum (the
"Borrowing Base") of (x) fifty percent (50%) of Qualified
Accounts of Maris; (y) eighty percent (80%) of Qualified
Accounts of Airo Clean; and (z) the undrawn face amount of
the Safeguard $3,940,000 Letter of Credit (as defined in the
Second Amendment to Loan and Security Agreement dated August
25, 1995); provided however, that Advances against accounts
of Airo Clean shall not exceed Seven Hundred and Fifty
Thousand ($750,000) Dollars and; Advances against accounts
of Maris shall not exceed Two Million ($2,000,000) Dollars.
1.5 Interest. (a) The definition of Prime Based Loan as set
forth in Section 1.1 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
Prime Based Loan - That portion of the Revolving Credit
Loans on which interest accrues at the per annum rate equal
to one and one quarter percent (1 1/4%) in excess of
Lender's Prime Rate.
(b) The Loan Agreement is further amended by deleting the
first sentence of Section 2.4(a) thereof and replacing such sentence
with the following:
The unpaid principal balance of cash Advances under the
Revolving Credit shall bear interest, subject to the terms
hereof, at the per annum rate equal to one and one-quarter
percent (1 1/4%) in excess of Lender's Prime Rate.
SECTION 2. AFFIRMATIONS.
2.1 Affirmation of Lien and Debt. Except as expressly provided
in this Agreement, (a) Borrowers each covenant, confirm and agree that
as security for the Obligations, Lender has, and shall continue to have,
and is hereby granted a continuing lien on and security interest in the
Collateral, including without limitation, all rights to receive any
payments of any kind at any time due or to become due under the Asset
Sale Agreements (including without limitation the Subordinated Note and
Installment Payments, as defined in the Purchase Agreement) and the
rights of Borrowers, or any of them, thereunder, (b) nothing herein
contained is intended in any way to limit or impair or release any
liens, security interests or encumbrances that Lender already has or may
have in any Borrowers' property, and (c) nothing herein contained is
intended to discharge, release, satisfy or alter any existing
indebtedness or obligations of Borrowers or any of them to Lender.
2.2 Further Assurances. Upon the execution of this Second
Amendment, and thereafter as may be reasonably requested by Lender,
Borrower shall take all actions requested by Lender, including without
limitation, executing and delivery all assignments, instruments,
documents and agreements deemed necessary by Lender to further assist
Lender in effectuating the terms and intent of the Existing Financing
Agreements and this Second Amendment and in assuring continued effective
and proper perfection of Lender's liens, security interests and
encumbrances in the Collateral. Without limiting the generality of the
foregoing, Borrowers shall (a) deliver to Lender the original
Subordinated Note upon their receipt thereof, (b) make all necessary
arrangements so that all payments under the Asset Purchase Agreements
are made directly to Lender, and (c) execute all UCC-3 amendments or
other documents requested by Lender as a result of CenterCore's name
change referenced in paragraph 4.7 below.
SECTION 3. AMENDMENT FEE
3.1. Amendment Fee. Contemporaneously with the execution
hereof, Borrower shall pay to Lender the sum of Sixty Thousand Dollars
($60,000) ("Amendment Fee").
SECTION 4. REPRESENTATIONS AND WARRANTIES
Each Borrower warrants and represents to Lender that:
4.1 Prior Representation. By execution of this
Second Amendment, each Borrower reconfirms all warranties and
representations made to Lender under the Existing Financing Agreements
and restates such warranties and representations as of the date hereof,
all of which shall be deemed continuing until all of the Obligations are
paid and satisfied in full.
4.2 Authorization. The execution and delivery by each Borrower
of this Second Amendment and the performance by each of them of the
transactions herein contemplated are and will be within their respective
corporate or partnership powers, as applicable, have been duly
authorized by all necessary corporate or partnership action, and are not
and will not be in contravention of any order of court or other agency
of government, of law or the terms of any Borrower's Articles of
Incorporation, Bylaws, Partnership Agreement or Certificate of Limited
Partnership or of any indenture, agreement or undertakings to which any
of them is a party or by which the property of any such Borrower is
bound, or be in conflict with, result in a breach of, or constitute
(with due notice and/or lapse of time) a default under any such
indenture, agreement or undertaking or result in the imposition of any
lien, charge or encumbrance of any nature on any of the properties of
each such Borrower.
4.3 Valid, Binding and Enforceable. This Second Amendment and
any instrument, document or agreement executed and delivered in
connection herewith, will be valid, binding and enforceable in
accordance with their terms.
4.4 Events of Default under Existing Financing Agreements. After
taking into account the waivers contained in Section 9 herein, no
default or Event of Default has occurred or is currently existing and no
event has occurred, which with the passage of time, giving of notice, or
both, would result in a default or Event of Default occurring under any
of the Existing Financing Agreements.
4.5 Asset Sale Agreements. Borrowers have delivered to Lender
true and correct copies of all Asset Sale Agreements.
4.6 Closing of Asset Sale. Subject only to the execution and
delivery of this Second Amendment, the closing of the Asset Sale has
been unconditionally concluded under the terms of the Asset Sale
Agreements.
4.7 Name Change. Borrowers have informed Lender and hereby
confirm that, immediately following the date hereof, CenterCore shall
change its name to "Core Technologies, Inc."
SECTION 5. BORROWER'S COVENANTS.
5.1 No Obligations. Borrowers acknowledge and agree that Lender
has no duty or obligation to perform any undertaking, agreement or
liability of any kind of Borrowers under any of the Asset Sale
Agreements.
5.2 Amendment of Asset Sale Agreements. Borrowers shall not
amend any of the terms of any of the Asset Sale Agreements without the
prior written consent of Lender.
5.3 Lender Expenses. Borrowers acknowledge and affirm their
obligations to pay all costs and expenses previously incurred by Lender
in connection with the Existing Financing Agreements as well as all
expenses incurred by Lender in connection with this Second Amendment,
and all other expenses and costs of Lender as provided in Section 9.5 of
the Loan Agreement.
5.4 Financial Covenant Modifications.
(a) Section 6.12(a) (Capital Expenditures) is modified to
provide that Borrowers shall not expend for Capital Expenditures, on a
consolidated basis, more than $200,000 in any fiscal year, on a non-
cumulative basis.
(b) Section 6.12(b) (Working Capital) is modified to
provide that Borrower shall have and maintain Working Capital, on a
consolidated basis, of not less than (i.e., the actual number, if
negative, must be a smaller negative number than the applicable negative
number set forth below) the following amounts as of and during the
following periods:
($6,200,000) 8/31/95 through 10/30/95
( 6,050,000) 10/31/95 through 12/30/95
( 5,800,000) 12/31/95 through 3/30/96
( 5,750,000) 3/31/96 through 6/29/96
( 5,700,000) 6/30/96 through 9/29/96
( 5,650,000) 9/30/96 through 12/30/96
( 5,600,000) 12/31/96 and thereafter
(c) Section 6.12(c) (Effective Net Worth) is modified to
provide that Borrower shall have and maintain an Effective Net Worth, on
a consolidated basis, of not less than (i.e., the actual number, if
negative, must be a smaller negative number than the applicable negative
number set forth below) the following amounts as of and during the
following periods:
($3,850,000) 8/31/95 through 10/30/95
( 3,675,000) 10/31/95 through 12/30/95
( 3,475,000) 12/31/95 through 3/30/96
( 3,425,000) 3/31/96 through 6/29/96
( 3,375,000) 6/30/96 through 9/29/96
( 3,325,000) 9/30/96 through 12/30/96
( 3,275,000) 12/31/96 and thereafter
(d) Section 6.12(e) (Net Income) is modified to provide
that Borrowers shall achieve a Net Income, on a consolidated basis, of
not less than ($400,000) for the fiscal year ending December 31, 1995
and $200,000 for the fiscal year ending December 31, 1996.
(e) Section 6.12(f) (Current Ratio) is modified to
provide that Borrowers shall have and maintain a Current Ratio, on a
consolidated basis, of not less than the following as of and during the
following respective periods:
0.67 to 1 8/31/95 through 12/30/95
0.65 to 1 12/31/96 through 6/29/96
0.57 to 1 6/30/96 through 12/30/96
0.55 to 1 12/31/96 and thereafter
SECTION 6. LETTERS OF CREDIT.
As additional security for the Obligations, Borrowers shall cause
Safeguard Scientifics, Inc. ("Safeguard") to deliver to Lender (a) two
(2) Standby Letters of Credit; one in the face amount of $3,940,000
("Safeguard $3,940,000 Letter of Credit") and the other in the face
amount of $600,000, each in form and substance, and to be drawn on
conditions satisfactory to Lender (collectively, "Letters of Credit"),
and (b) its guaranty, in form and substance satisfactory to Lender,
covering the first Installment Payment due under the Purchase Agreement
("New Safeguard Guaranty").
SECTION 7. WAIVER.
Each Borrower represents and warrants to Lender that all Events of
Default existing as of this date are set forth on Exhibit A attached
hereto and made part hereof ("Existing Defaults"). In consideration of
the terms and conditions hereof, Lender hereby waives all such Existing
Defaults. Such waiver shall not constitute a waiver of any subsequent
defaults or Events of Default under the Existing Financing Agreements,
as amended hereby or hereafter amended or modified. Upon the occurrence
of any such future defaults or Events of Default, Lender shall be
entitled to exercise any power, right or remedy available to it whether
under the Existing Financing Agreements as amended hereby or as further
modified or amended, at law, or equity, or both. All such powers,
rights and remedies shall be cumulative and not exclusive of any other
power, right or remedy of Lender.
SECTION 8. CONSENT OF LENDER.
Upon this Second Amendment becoming effective pursuant to
its terms, Lender hereby consents to the Asset Sale on the terms set
forth in the Asset Sale Agreements and releases its liens upon the
Assets Being Sold.
SECTION 9. INCORPORATION INTO EXISTING FINANCING AGREEMENTS.
This Second Amendment and all instruments, documents and
agreements executed in connection herewith are incorporated into and
made a part of the Existing Financing Agreements, the terms and
provisions of which, unless expressly modified by this Second Amendment,
are each ratified and confirmed and continue unchanged and in full force
and effect.
SECTION 10. CONDITIONS TO EFFECTIVENESS.
The effectiveness of this Second Amendment is subject to the
satisfactory completion, as determined by Lender, of the following
conditions. All documents required to be delivered to Lender shall be
in form and substance satisfactory to Lender and its counsel.
10.1 Second Amendment to Loan and Security Agreement. This
Second Amendment executed and delivered by each Borrower and Lender.
10.2 Authorization Documents. Each Borrower shall have delivered
to Lender evidence that all necessary corporate action authorizing such
Borrower's execution of and performance under this Second Amendment has
been taken.
10.3 Event of Default. Other than those Events of Default waived
pursuant to Section 7 herein, there are no defaults or Event of Default
outstanding under the Existing Financing Agreements as of the date
hereof.
10.4 Lender's Expenses. Borrowers shall have paid all
expenses (including, without limitation, all counsel fees and costs and
all search costs and filing fees) incurred by Lender in the preparation
and negotiation and documentation of this Second Amendment and all prior
agreements with Lender for which Borrowers have been billed.
10.5 Collateral Documents. Borrowers shall have delivered to
Lender all documents which Lender deems necessary to obtain and/or
maintain a perfected security interest in all Collateral.
10.6 Asset Sale Agreements. Borrowers shall have delivered to
Lender true and correct copies of the Asset Sale Agreements.
10.7 Amendment Fees. Borrowers shall have paid to Lender the
Amendment Fee described in Section 3 above.
10.8 Limited Guarantees. Borrowers shall have caused to be
delivered to Lender limited personal guaranties executed by George
Mitchell and Fred Franks, respectively.
10.9 Replacement Support Agreements. Borrowers shall have caused
to be delivered to Lender a new Support Agreement and Validity Guaranty
(independent of the Guaranties referred to in paragraph 10.8 above) from
each of George Mitchell and Fred Franks in substitution for the Support
Agreements previously delivered by them to Lender.
10.10 Safeguard Guaranty. Borrowers shall have caused to be
delivered to Lender the New Safeguard Guaranty.
10.11 Letters of Credit. Borrowers shall have caused to have
been delivered to Lender the Letters of Credit.
10.12 Evidence of Indebtedness. Borrower shall have delivered
to Lender all notes, instruments and other evidence of indebtedness
executed in connection with the Asset Sale and all assignments deemed
necessary by Lender to perfect its lien on Borrowers' rights under the
Asset Sale Agreements.
10.13 UCC-1's. Borrowers shall have caused to be delivered to
Lender such UCC-1 Financing Statements to be filed against Buyer in
connection with the Asset Sale noting Lender as Borrower's assignee as
Lender shall require.
10.14 Other Documents. Borrowers shall have delivered such other
documents, instruments and agreements required by Lender.
10.15. Limits on Closing Date Advances. As of the date of
execution and effectiveness of this Second Amendment, the principal
balance of all Advances under the Revolving Credit (after taking into
account the cash payment under the Purchase Agreement, assuming (as is
required by Lender) such payment has been received by Lender) shall not
exceed $4,800,000 and the excess borrowing availability under the
Borrowing Base (as defined above) shall not be less than $400,000.
SECTION 11. MISCELLANEOUS
11.1 Integrated Amendment. The Existing Financing Agreements and
this Second Amendment shall be construed as integrated and complementary
of each other, and as augmenting and not restricting Lender's powers,
rights, remedies and security. If, after applying the foregoing, an
inconsistency still exists, the provisions of this Second Amendment
shall control.
11.2 Headings. The headings of any paragraph of this Second
Amendment are for convenience only and shall not be used to interpret
any provision of this Second Amendment.
11.3 Survival. All warranties, representations and covenants
made by any Borrower herein, in the Existing Financing Agreements or any
agreement referred to herein or on any certificate, document or other
instrument delivered by any Borrower or on such Borrower's behalf under
this Second Amendment, shall be considered to have been relied upon by
Lender. All warranties, representations and covenants made by any
Borrower hereunder or under any other agreement or instrument shall be
deemed continuing until the Obligation are satisfied in full.
11.4 Successors and Assigns. This Second Amendment shall inure
to the benefit of and be binding upon the successors and assigns of
Lender. No rights are intended to be created hereunder or under any
related instruments, documents or agreements for the benefit of any
third party beneficiary. Borrowers may not assign their rights or
delegate their duties hereunder.
11.5 Governing Law. This Second Amendment and the rights and
obligations of the parties hereto shall be governed by and interpreted
in accordance with the laws of the Commonwealth of Pennsylvania without
regard to its otherwise applicable principles of conflict of law.
11.6 Severability. The invalidity or unenforceability of any
provision of this Second Amendment shall not affect the validity or
enforceability of the remaining provisions.
11.7 Waivers. Neither any failure nor any delay on the part of
Lender in exercising any right, power or privilege hereunder or under
the Existing Financing Agreements shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of that or any other right, power or privilege.
11.9 Counterparts. This Second Amendment may be executed by
the parties hereto in several counterparts, each of which constitutes an
original and all such counterparts taken together shall constitute one
and the same agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this
Second Amendment the day and year first above written.
BORROWERS:
CENTERCORE, INC.
By: /s/
Attest:/s/
CENTERCORE CANADA, INC.
By:/s/
Attest:/s/
(Signatures continued on following page)
(Signatures continued from previous page)
CENTERCORE SYSTEMS OF PENNSYLVANIA, INC.
By: /s/
Attest: /s/
CENTERCORE U.K. LIMITED
By: /s/
Attest: /s/
CENTERCORE OFFICE ENVIRONMENTS (S.A.) LTD.
By:/s/
Attest:/s/
MARIS EQUIPMENT COMPANY, INC.
By: /s/
Attest: /s/
AIRO CLEAN, INC.
By: /s/
Attest: /s/
COREL CORPORATION SEATING, INC.
By:/s/
Attest: /s/
LENDER
MELLON BANK, N.A.
By: /s/
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(000 OMITTED EXCEPT PER SHARE DATA)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 92,000
<SECURITIES> 0
<RECEIVABLES> 6,103,800
<ALLOWANCES> 1,854,700
<INVENTORY> 729,900
<CURRENT-ASSETS> 7,227,300
<PP&E> 1,105,000
<DEPRECIATION> 595,200
<TOTAL-ASSETS> 9,930,800
<CURRENT-LIABILITIES> 7,427,400
<BONDS> 0
<COMMON> 92,200
1,500,000
0
<OTHER-SE> (4,728,500)
<TOTAL-LIABILITY-AND-EQUITY> 9,930,800
<SALES> 13,943,400
<TOTAL-REVENUES> 13,943,400
<CGS> 10,709,200
<TOTAL-COSTS> 10,709,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 574,800
<INCOME-PRETAX> (255,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (288,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
