<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended Commission file number
September 30, 1996 0-24012
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ALLIED DEVICES CORPORATION
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(Exact name of Registrant as specified in its charter)
Nevada 13-3087510
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(State of incorporation) (IRS Employer
Identification Number)
2365 Milburn Avenue, Baldwin, New York 11510
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 223-9100
Securities registered pursuant to Section 12 (b) of the Exchange Act:
Securities registered under Section 12 (g) of the Exchange Act:
Title Class Number of Shares Outstanding
as of December 13, 1996
- ---------------------------- ----------------------------
Common Stock, $.001 par value 4,401,842
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB ____
Issuer's revenues for its most recent fiscal year: $17,793,072
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last sale price on December 13, 1996 is approximately
$5,058,478.
<PAGE>
PART I
ITEM 1 - BUSINESS
Allied Devices Corporation ("Allied Devices" or the "Company") is a
broad-line manufacturer and distributor of high precision mechanical
components used in the manufacture and maintenance of industrial and
commercial instruments and equipment. The Company has the capability
of producing close tolerance parts and intricate assemblies at
competitive costs and with short lead times. The Company's business
strategy is to provide prompt service and technical support in certain
industrial and high technology markets where customers are generally
accustomed to extended lead times, missed deadlines and otherwise poor
customer service and support.
The Company's major product groups include precision servo and drive-
train assemblies, gears and gear products, instrument related
fasteners, and related components and sub-assemblies built to customer
specifications. Allied Devices' customers are primarily original
equipment manufacturers ("OEMs").
Allied Devices' principal marketing tool is its highly effective
technical manual of standardized instrument components available
through the Company. This catalog is in the hands of buyers and
engineers throughout the United States and generates sales nationwide.
Management estimates that the Company has distributed more than 85,000
copies of its catalog over the last decade, of which approximately
35,000 copies were distributed during the last three fiscal years.
The current edition, published in 1994, is over 650 pages in length.
Management intends to update and re-issue the catalog during fiscal
1997 as part of its overall marketing plan.
The breadth and standardized nature of the product line result in
multiple applications in most industries, stimulating demand at the
level of both OEMs and distributors. The Company sells to a wide
range of industries, such as medical and operating room equipment;
aerospace instrumentation; robotics; laser equipment; computer
peripherals; factory automation equipment and controls; machine tool
builders; research and development facilities; semiconductor equipment
makers; nuclear control devices; scientific instrumentation; and
optics.
A typical customer is an OEM selling high ticket capital goods
equipment. The components supplied by Allied Devices going into such
equipment generally constitute a small percentage of the OEM's direct
cost of manufacturing, typically $300 to $600 per unit. Failure to
deliver reliable quality in a timely manner can have an impact far in
excess of the modest direct cost of the parts. As a result, the
majority of Allied Devices' customers deem it imperative that parts
supplied be on time and of reliably high quality. While these
performance criteria are not contractual requirements, they are
critical determinants in the placement of repeat business.
2
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ITEM 1 - BUSINESS (continued)
Allied Devices has structured itself as far as possible to provide the
service of "one stop shopping" for mechanical instrument components.
Further, the Company's organization and inventory policies are
designed to provide fast and timely response to customer orders, and
to support "just in time" methods of purchasing being used by more and
more companies. Because the Company's lead times in response to
customer orders are generally short (four weeks or less), backlog is
not a meaningful indicator of business trends; therefore, no effort is
made to monitor backlog accurately. Based on new orders, the Company
is projecting growth in revenues of approximately 15% and availability
of related incremental cash flow in planning for fiscal 1997.
Allied Devices' sales volume is not dependent on just a few large
customers. The Company draws from a customer list of over 6,000,
thereby minimizing its vulnerability to the fortunes of any one
industry or group of customers. In each of the past three years, the
Company's twenty largest customers have represented as many as ten
different industries and account collectively for only about 30% of
shipments. Geographic concentration is relatively low and fluctuates
with conditions in each of the regions served. Allied Devices uses
independent multi-line manufacturers' representatives to gain national
coverage, thereby fielding some 70 salespeople in virtually all
significant territories in the United States.
As the market for the Company's products has evolved, the Company has
met its customers' needs by dividing operations into two areas:
Catalog Sales and Distribution ("Catalog Operations") and
Manufacturing and Subcontracting ("Manufacturing Services"). These
two areas of the Company have been defined solely for internal
operating effectiveness. Both areas serve the same markets and
customer base and do not represent separate business segments.
CATALOG OPERATIONS
The majority of product sold through Catalog Operations is either
manufactured by Catalog Operations or procured from the Manufacturing
Services operations of the Company. What is not manufactured
internally is purchased from a broad variety of reliable sources under
distributorship agreements or similar arrangements. This operation
includes telephone sales, inventory and shipping, gear-making,
assembly and light manufacturing operations. This part of the Company
also sells certain of its standard catalog products to its major
competitors on a wholesale basis. In the aggregate, revenues for the
Catalog Operations were approximately as follows for the last three
years ended September 30th.
1996 $15,145,000
1995 $13,363,000
1994 $10,509,000
3
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CATALOG INDUSTRY COMPETITION
The Company competes directly with W.M. Berg Co., a subsidiary of BTR
Ltd.; PIC Design, a subsidiary of Wells Benrus; Nordex Inc.; and
Sterling Instrument, a division of Designatronics. Each of these
companies publishes a catalog similar to that issued by the Company,
offering a wide range of mechanical instrument components adhering to
a single set of standards. In addition, there are many other
companies offering a limited selection of materials or "single
product" catalogs, most often not adhering to any widely accepted set
of standards. This marketplace is highly competitive, yet management
believes, based upon feedback from vendors and customers, that the
Company's operating principles of immediate product availability,
excellent quality control, competitive pricing and responsive customer
service and technical support have permitted the Company to maintain
and improve its market position.
MANUFACTURING SERVICE OPERATIONS
The Company's strategy has called for manufacturing the majority of
the products that it sells. Management believes that such vertical
integration ensures quality control, timely deliveries, control of
priorities and cost efficiencies. As a result, the Company has
several manufacturing divisions, each with specialized capabilities.
In order to promote maximum utilization of productive equipment, each
manufacturing operation markets its surplus machine time
independently. The following operations, which are divisions of
Allied Devices, comprise Manufacturing Services:
Absolute Precision Co. A sophisticated computer numerically
Ronkonkoma, New York controlled ("CNC") machine shop
specialized in close tolerance,
intricate machining of complex parts
that are sold direct to end users and
through Catalog Operations.
Adco Devices Co. A screw-machine house manufacturing
Freeport, New York instrument quality shoulder screws,
thumb screws, nuts, shafting, pins,
knobs and washers. Standard stock and
custom components are sold to numerous
jobbers, distributors and wholesalers.
Astro Instrument Co. A general machine shop with diversified
Joplin, Missouri CNC and conventional capabilities,
dealing principally with an established
customer base in several industries.
Each of the support operations in Manufacturing Services contributes
to the Company's line of standard components and sells them to Catalog
Operations and to other catalog houses at uniform list prices. In
addition, each operation bids for specialized custom manufacturing
work in the open market, taking on machining jobs on fixed price
contracts. While long runs are periodically accepted, the structure
of Manufacturing Services' organization and production facilities
favors shorter runs with higher margins. Pricing is based on combined
material cost and standard hourly shop rates for labor and overhead.
4
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Approximate revenues for Manufacturing Services were as follows for
the last three years:
Year Ended September 30,
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1996 1995 1994
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Sales to Catalog
Operations * $2,812,000 $2,319,000 $1,703,000
Sales to outside
Customers 2,648,000 2,158,000 1,671,000
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Total Revenues $5,460,000 $4,477,000 $3,374,000
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* These revenue figures for Sales to Catalog Operations represent
interdivisional sales that are eliminated in consolidation.
The Company does not report results for Catalog Operations and
Manufacturing Services separately, but management believes that both
divisions make a positive contribution to operations. While the
Company has stepped up efforts to market its Manufacturing Services,
management believes that existing capacity will be sufficient to
support a substantial increase in volume without adding to current
production facilities. Operations are now generally single shift,
representing an estimated 60% of capacity, giving the Company the
flexibility to respond to increases in sales volume.
MANUFACTURING SERVICES COMPETITION
Each of the divisions in Manufacturing Services faces intense
competition from the many thousands of machine shops and screw machine
houses throughout the United States. Each division endeavors to
differentiate itself from its competition on the basis of: i)
accepting short-run work; ii) offering short lead times; iii)
providing exceptional responsiveness to customer requirements; and iv)
conforming consistently to unbending quality standards.
QUALITY ASSURANCE
Although not legally required to do so in order to conduct its current
business, the Company has emphasized rigorous standards of high
quality in its products and in its manufacturing methods. This has
led to the development of an internal quality control manual that sets
forth both policy and procedures used throughout the Company. This
manual meets or exceeds the requirements of MIL-STD-45208A, which
defines acceptable standards for small business suppliers to the U.S.
Government. In management's opinion, loss of qualification under MIL-
STD-45208A would not have a material impact on the Company's ability
to do business; likewise, in management's opinion, such qualification
provides an indication to customers and potential customers of the
degree of diligence that the Company exercises in adhering to
acceptable procedures in pursuit of consistent quality. The Company's
measuring instruments are calibrated to standards traceable to the
National Bureau of Standards.
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To ensure consistent awareness and application of quality procedures,
the Company has established an on-going program of meetings, lessons
and training sessions through its quality assurance manager,
disseminating information on policies, procedures and new
developments. Management has begun to develop and implement a program
of continuous improvement in pursuit of qualification under "Total
Quality Management" and ISO-9000 (a voluntary set of standards and
guidelines provided by the International Standards Organization),
which program is in its early stages. The Company intends to complete
the program and apply for ISO certification during its fiscal year
1997.
EXPANSION PLANS
Management has developed a plan to expand the size of the Company.
Basically, the plan has four elements: (1) expand the core business
through more intensive marketing efforts; (2) add products within the
existing line of business; (3) expand beyond the Company's core
business into related lines of business through an acquisition program
that will not only add volume but provide marketing, operating and
administrative synergies; and (4) raise additional equity capital as
required to reduce the Company's indebtedness, thereby lowering
financial leverage while expansion plans are being implemented.
Certain elements of management's marketing plans have been carried out
(principally an advertising campaign and publication of an expanded
catalog), while others are in development. Management is pursuing its
acquisition strategy but has not yet entered into any agreements with
any potential acquisition candidates. During fiscal 1994, the Company
raised approximately $1,298,000 of new equity capital through the
private placement of Common Stock, applying virtually all of the funds
raised to reduction of indebtedness. During fiscal 1995, the Company
raised approximately $81,000 of new equity capital from the exercise
of 62,500 Class B Warrants, applying such funds to working capital.
Likewise, during fiscal 1996, the Company raised approximately $56,000
from the exercise of warrants. Additional funds, if and when raised,
will also be applied, at management's discretion, to working capital,
thus being available for use in routine operations or for carrying out
the Company's expansion plans.
MARKETING PROGRAMS
The Company has developed a program to stimulate substantial growth
within its existing line of business. Feedback from customers and
informal market research indicate that Allied Devices does not have
widespread customer awareness in the markets it serves. Thus the
principal thrust of the Company's plan is to make its target markets
more aware of the Company's range of capabilities and the usefulness
of standardized components in general. The program is divided into
modules and is being implemented as management deems appropriate.
The plan includes expansion of the Company's advertising campaign,
begun on a restricted budget in 1993. As part of the program,
management has undertaken to improve, on a continuous basis, the
standards of service and support provided to the Company's customers.
Phasing in of expanded engineering support, assembly capabilities, new
products, and electronic accessibility for customers are also
important elements of the Company's program. Management believes that
implementation of its plan will result in accelerated growth of sales
and profits.
6
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ACQUISITION PROGRAM
As part of its plans for growth, management intends to carry out an
acquisition program. By its own assessment, management views the
market in which it competes as large (over $1 billion), highly
fragmented, and poised for consolidation. Strategically, management
intends to focus on acquiring businesses with the following
characteristics: (a) significant potential for sales growth; (b) high
prospects for synergy and/or consolidation in marketing,
manufacturing and administrative support functions; (c) relatively
high gross margins (30% or more); (d) effective operating management
in place; (e) a reputation for quality in its products; and (f)
represents lateral or vertical integration. Management has begun the
process of assessing prospective candidates.
OTHER FACTORS
Raw materials for the Company's operations are readily available from
multiple sources, such as bar stock of stainless steel and aircraft
grade aluminum from metal distributors. Management expects no change
to this situation in the foreseeable future. The technological
maturity of the Company's product line has resulted in general
stability of demand in its markets and of availability of raw
materials at stable prices. No material portion of the Company's
business is subject to renegotiation of profits or termination of
contracts at the election of the United States government or its prime
contractors. Procurement of patents is not material to the Company's
present marketing program.
REGULATION
The Company is not subject to any particular form of regulatory
control. The Company does not expect that continued compliance with
existing federal, state or local environmental regulations will have a
material effect on its capital expenditures, earnings or competitive
position.
EMPLOYEES
The Company currently employs 62 salaried and 106 hourly personnel.
Wage rates and benefits are competitive in the labor markets from
which the Company draws. Thirty-two of its hourly employees are
represented by two local unions (19 by the National Organization of
Industrial Trade Unions ("NOITU") and 13 by Local 999 of the
Teamsters). The three year contract with Local 999 expires in August
1997, and the three year contract with NOITU expires in November 1997.
Management knows of no material issues that would enter into
negotiations for renewal of either of its collective bargaining
agreements. The Company has had no strikes, walkouts or other forms
of business disruption attributable to poor labor relations.
Relations with employees and the unions are open and constructive.
7
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CAPITAL EQUIPMENT
The Company uses a wide variety of machinery and equipment in
manufacturing and assembly of its product line. While most of the
equipment is owned by the Company or its subsidiaries, certain key
pieces of equipment are leased. Eight leases, covering seven CNC
machines and the Company's computer system, have original lease terms
ranging from three to five years, with purchase options at the end of
each lease. Rates vary from 8.5% to 13.9%, and expiration dates range
from 1998 to 2000. The principal amount outstanding under these
leases was approximately $395,000 as of September 30, 1996.
ITEM 2 - PROPERTIES
Listed below are the principal plants and offices of the Company. All
property occupied by the Company is leased except as otherwise noted.
<TABLE>
<CAPTION>
Location Square Lease Expiration Principal Activities
Feet
---------------- ---------- ------------------ --------------------------
<S> <C> <C> <C>
Baldwin, NY 16,000 December 1996* Catalog Manufacturing and
Distribution Operations
Freeport, NY 10,000 November 1996* Screw Machine Operations
Freeport, NY 5,200 February 1998 Catalog Manufacturing
Operations
Ronkonkoma, NY 7,200 June 1998 CNC Machine Shop
Joplin, MO 13,000 (Owned) CNC and Conventional
Machine Shop
</TABLE>
* New leases for facilities in Baldwin, NY, and Freeport, NY are in
negotiation. In both cases, the Company has been a tenant for over 10
years, and management foresees no difficulty in arriving at terms
satisfactory to both the Company and its respective landlords.
8
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ITEM 3 - LEGAL PROCEEDINGS
The Company knows of no litigation pending, threatened, or
contemplated, or unsatisfied judgements, or any proceedings in which
it or any of its officers or directors in their capacity as such is a
party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock was listed on NASDAQ SmallCap Market
("NASDAQ") as of November 17, 1994. Trading in the Company's stock
has been generally active since then, with a total of 2,127 trades
during fiscal 1996 representing approximately 7,004,100 shares (as
reported by NASDAQ in their monthly statistical summaries). As of
September 30, 1996, the Company had 413 holders of record of its
common stock. The Company has 19 listed market-makers, and trading
during the fiscal year occurred at prices ranging from a low of $1.75
to a high of $4.50. The trading ranges by quarter for the year were
as follows:
High Low
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First Quarter $4.00 $1.75
Second Quarter $4.25 $2.812
Third Quarter $4.50 $2.75
Fourth Quarter $4.00 $2.75
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following selected consolidated financial data have been derived from the
audited financial statements of Allied Devices Corporation. The selected
financial data should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this Form 10-KSB.
Year Ended September 30,
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1996 1995 1994
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STATEMENT OF
OPERATIONS
DATA:
Net sales $17,793,072 $15,521,373 $12,180,122
Net income $1,001,029 $787,302 $456,715
Earnings per
share $0.20 $0.15 $0.10
Weighted average
number of shares
outstanding 5,785,085 5,654,858 4,931,010
BALANCE SHEET
DATA:
Total assets $10,337,840 $9,403,535 $8,724,025
Working capital $6,466,813 $3,428,117 $2,705,993
Long-term debt $2,642,401 $497,541 $548,031
Stockholders'equity $5,807,364 $4,749,963 $3,859,632
RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1996, COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1995.
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding the Company's current business strategy,
the Company's projected sources and uses of cash, and the Company's plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; competitive factors; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and factors described from time to time in the reports
filed by the Company with the Securities and Exchange Commission. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, which statements are made pursuant to the Private Litigation Reform
Act of 1995 and, as a result, are pertinent only as of the date made.
10
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Net sales for fiscal 1996 were $17,793,000 as compared to $15,521,000 in fiscal
1995, an increase of 14.6%, with continuing growth materializing in both Catalog
Operations and Manufacturing Services. Management continues to attribute this
strength to a combination of factors: (1) the cumulative effect of a continuing
series of advertisements running regularly in various industry/trade magazines,
helping to create more wide-spread awareness of the Company and its products and
services; (2) the carrying out of various programs of continuous improvement,
particularly in the areas of customer service and support; (3) a program to
expand the range of support services provided to the Company's larger customers;
and (4) continued strength in certain sectors of the U.S. economy serviced by
the Company. In particular, the aerospace instrumentation, medical equipment,
robotics and scientific instrumentation sectors remained strong throughout the
year. This was partially offset during the fourth quarter of fiscal 1996 by a
downturn in the semiconductor equipment sector; the timing of a recovery of this
business is uncertain, but management projects that it will occur in the second
half of fiscal 1997.
The Company's gross margin was 33.60% of net sales in fiscal 1996, up from
32.87% in fiscal 1995. This improvement is accounted for by the following
factors: (1) the Company shipped a higher volume of product on relatively stable
costs of factory operations, increasing gross margins by 2.10%; and (2) net
materials expense increased as a percentage of sales, reducing gross margins by
1.37%. The Company did not increase prices materially in fiscal 1996 but expects
to do so in fiscal year 1997.
Selling, general and administrative expenses as a percentage of net sales were
23.2% in fiscal 1996, as compared to 23.3% in fiscal 1995. This improvement is
attributable to the following factors: (1) selling and shipping expenses and
commissions increased by $131,000 over the prior year but decreased as a
percentage of net sales by approximately 0.2% as shipping volume rose at a
greater rate than spending on implementation of the Company's marketing
strategy; (2) administrative payroll, benefits, and expenses rose $244,000 as
compared to the prior year, but not at the same rate as shipping volume,
resulting in a decrease of such expenses of 0.2% as a percentage of net sales;
and (3) other administrative expenses (collectively) increased as a percentage
of net sales by approximately 0.3% or $125,000 as compared to the prior year.
Interest expense decreased by $50,000 in fiscal 1996, as the Company lowered
its borrowings and negotiated more favorable rates with its lending
institutions.
Provision for income taxes in fiscal 1996 was $593,000, or 37% of pre-tax
income. See the notes to the consolidated financial statements for a
reconciliation to the federal statutory rate.
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RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1995, COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1994.
Net sales for fiscal 1995 were $15,521,000 as compared to $12,180,000 in fiscal
1994, an increase of 27.4%, with continuing growth materializing in both Catalog
Operations and Manufacturing Services. Management attributes this strength to a
combination of factors: (1) the cumulative effect of a continuing series of
advertisements being run regularly in several industry/trade magazines, helping
to create more wide-spread awareness of the Company, its products and services;
(2) the carrying out of various programs of continuous improvement, particularly
in the areas of customer service and support; (3) a program to expand the range
of support services provided to the Company's larger customers; and (4)
continued strength in most of the sectors of the U.S. economy serviced by the
Company.
The Company's gross margin continued to improve to 32.87% of net sales in fiscal
1995, from 32.66% in fiscal 1994. This improvement is accounted for by the
following factors: (1) the Company shipped a higher volume of product on
relatively stable costs of factory operations, increasing gross margins by 1.28%
and (2) net materials expense increased as a percentage of sales, reducing gross
margins by 1.07%. The Company did not increase prices in fiscal 1995.
Selling, general and administrative expenses as a percentage of net sales were
23.3% in fiscal 1995, as compared to 24.6% in fiscal 1994. This improvement is
attributable to the following factors: (1) administrative payroll, benefits, and
expenses rose, but not at the same rate as shipping volume, resulting in a
decrease of such expenses of 1.6% as a percentage of net sales and (2) selling
and shipping expenses and commissions rose as a percentage of net sales by
approximately 0.3% as the Company continued to carry out its marketing strategy.
Interest expense increased by $33,000 in fiscal 1995, as higher interest rates
during the year slightly more than offset lower levels of borrowings.
Provision for income taxes in fiscal 1995 was $381,615. See the notes to the
consolidated financial statements for a reconciliation to the federal statutory
rate.
LIQUIDITY AND FINANCIAL RESOURCES
The Company's financial condition remained stable during fiscal 1996 as cash
generated from operations provided $38,000 over the course of the year and
borrowings (net) provided for $72,000. In addition, $56,000 of new equity
capital was raised from the exercise of certain warrants issued by the Company.
These funds and cash on hand were used for capital expenditures amounting to
$310,000. Net working capital increased by $3,039,000 to $6,467,000 during the
year. This increase is principally attributable to the following changes in
current assets and current liabilities:
- - Accounts receivable (net of reserve for doubtful accounts) increased by
$11,000. While sales increased by 14.6%, credit management practices
resulted in a reduction of the average collection period from 51 days at the
end of fiscal 1995 to 45 days at the end of fiscal 1996, which resulted in a
nominal increase in receivables.
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- - Inventories increased 18.4%, or $914,000, during the fiscal year, with the
turnover rate decreasing from 2.1 times in fiscal 1995 to 2.0 times at the
end of fiscal 1996. Of this increase, a portion ($275,000) was planned as
part of a strategy to increase sales of the Company's line of screw machine
products. A second portion ($350,000) was budgeted to support the growth in
sales in Catalog Operations. The balance ($289,000) built up in the fourth
quarter of fiscal 1996 as certain orders from customers in the semiconductor
equipment industry were rescheduled to be shipped during fiscal 1997.
Management expects all of these orders to be shipped by the end of the third
quarter of fiscal 1997. As a general rule, prompt service, product
availability and quick turnaround of production orders are key factors in
gaining a strong competitive position in the Company's markets. Substantial
inventories are, in management's judgment, a necessity in responding to
demanding delivery requirements imposed by the Company's customers. As the
Company's growth continues, management expects to see improvement in the
inventory turnover rate.
- - Current liabilities, exclusive of current portions of long-term debt and
capital lease obligations, decreased by $2,064,000, as the Company
entered into a new credit facility (see below - $1,604,000), shortened its
average payment period on accounts payable and accrued expenses from 45 days
in fiscal 1995 to 36 days in fiscal 1996 ($229,000), and prepaid certain
income taxes payable ($231,000).
- - Current portions of long-term debt and capital lease obligations, including
notes payable to related parties, decreased by $204,000 (net) as the Company
paid off the balance of related party obligations ($143,000) and reduced its
current portion of other notes and leases ($61,000) primarily as a result of
entering into the new credit facility (see below). The related party debt
that was paid off represented the repayment of funds advanced to the Company
in 1987 by three members of management and one Director.
- - Cash balances decreased by $144,000.
Management believes that the Company's working capital as now constituted will
be adequate for the needs of the on-going core business. During fiscal 1995,
management had concluded that its banking agreements would become a financial
constraint during fiscal 1996 if growth in sales volume continued at or above
the rates of fiscal 1995. Thus, in January, 1996, the Company negotiated and
closed various improvements on certain asset-based lending agreements with its
bank. As the year progressed, management concluded that asset-based borrowing
was inappropriate to the Company's size and stage of growth and negotiated an
agreement with another institution. In September, 1996, the Company closed on a
three-year committed revolving credit agreement, providing for a credit line of
$4 million and an equipment line of $1.7 million, with rates 1/2 to 1-1/2 points
lower and with fewer and less restrictive covenants than in the old asset-based
line. Using the new credit line, the Company paid off all borrowings under the
prior credit agreement and at fiscal year end was borrowing approximately
$2,366,000.
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Management believed that, in light of the Company's expansion objectives, the
Company's working capital would not be adequate to provide for all of the on-
going cash needs of the business, particularly in funding acquisitions.
Therefore, in 1994, management undertook a campaign to raise new equity capital,
initially through a private placement of Common Stock. During fiscal 1994, the
Company realized net proceeds of approximately $1,298,000 from this private
placement. During fiscal 1995, the Company further realized net proceeds of
approximately $81,000 from the exercise (by public warrantholders) of 62,500
warrants to purchase Common Stock. Management expects to require additional
financing to carry out its acquisition objectives. Success in this part of the
Company's growth program will rely, in large measure, upon completion of
additional financing. The Company is not relying on receipt of such funds in
its operating budgets or projections. It is important to note that, absent new
capital, the Company will not be in a position to undertake some of the most
promising elements of management's plans for expansion. In the event that new
equity funds are raised, management intends to implement its plans and will do
so in keeping with its judgment at that time as to how best to deploy any such
capital.
Outlay for capital expenditures in fiscal 1996 amounted to $310,000 ($574,000
including capital lease acquisitions), as compared to $253,000 ($500,000
including capital lease acquisitions) in fiscal 1995. These expenditures
represent three facets of the Company's capital spending program: (1) a
continuation of management's program of continuous improvement through
modernization and automation of facilities ($120,000), (2) additions to capacity
to allow for expanded volumes of business ($229,000), and (3) purchase and
installation of a comprehensive new computer system ($225,000). Capital
spending plans for fiscal 1997 call for additional investment in software for
the Company's computer system and continued additions to high-efficiency
production machinery, with total expenditures projected to be approximately
$350,000. Management expects to fund such spending plans out of working
capital.
VULNERABILITY TO RECESSION
The Company's cost structure is largely made up of "fixed costs", with "variable
costs" accounting for less than 42% of net sales. The Company could, therefore,
experience materially adverse effects on profitability from any marked downturn
in sales volume until management was able to reduce fixed costs. Because the
Company's delivery lead-times are relatively short, there is as a result little
backlog at any given time, and the effect of a downturn in sales volume would be
felt almost immediately.
14
<PAGE>
EXPANSION PLANS
Management has developed a plan to expand the size of the Company. The plan
has four basic elements: (1) expand the core business through more intensive
marketing efforts; (2) add products within the existing line of business; (3)
expand beyond the Company's core business into related lines of business through
an acquisition program that will not only add volume but provide marketing,
operating and administrative synergies; and (4) raise additional equity capital
to reduce the Company's indebtedness, thereby lowering financial leverage while
expansion plans are being implemented. Certain elements of management's
marketing plans have commenced (principally an advertising campaign and
publication of a new and expanded catalog), while others are in development.
Management is currently pursuing its acquisition strategy but has not yet
entered into any agreements with any potential acquisition candidates. During
fiscal 1995, the Company raised approximately $81,000 of new equity capital
through the private placement of Common Stock, applying virtually all of the
funds raised to reduction of indebtedness. During fiscal 1996, the Company
raised approximately $56,000 from the exercise of warrants, and options,
applying all of such funds to working capital. Additional funds, if and when
raised, will be applied, at management's discretion, to working capital, thus
being available for use in routine operations or for carrying out the Company's
expansion plans (see above).
IMPACT OF INFLATION AND OTHER BUSINESS CONDITIONS
Management believes that inflation has no material impact on the operations of
the business. The Company has been able to react to increases in material and
labor costs through a combination of greater productivity and selective price
increases. The Company has no exposure to long-term fixed price contracts.
The Company's growth is directly related to the strength exhibited by its
customers in a range of industries. Early projections for fiscal 1997 indicate
that this pattern of customer strength will continue.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." The Company will adopt SFAS No. 121 as of October 1, 1996.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 established a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure.
Effective October 1, 1996, the Company intends to adopt the employee stock-based
compensation provisions of SFAS No. 123 by disclosing the pro forma net income
and pro forma net income per share amounts, assuming the fair value method was
adopted October 1, 1995.
The Company does not expect that the adoption of SFAS 121 and 123 will have a
material effect on the Company's financial statements or results of operations.
15
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
(1) Financial Statements
See index to Financial Statements on Page F-2.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
16
<PAGE>
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS
The Executive Officers and Directors of the Company are as follows:
Name Age Position(s) Held with Company
- --------------------------------------------------------------------------------
Mark Hopkinson 49 Chairman of the Board of Directors
P.K. Bartow 48 President and Director
Salvator Baldi 74 Executive Vice President
and Director
Andrew J. Beck 48 Director and Assistant Secretary
Gail F. Lieberman 53 Director
Michael Michaelson 74 Director
Robert J. Smallacombe 63 Director
17
<PAGE>
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS (Continued)
Brief biographies of the Executive Officers and Directors of the
Company are set forth below. All Directors hold office until the next
Annual Stockholders' Meeting or until their death, resignation,
retirement, removal, disqualification or until their successors have
been elected and qualified. Vacancies in the existing Board may be
filled by majority vote of the remaining Directors. Officers of the
Company serve at the will of the Board of Directors. There are no
written employment contracts outstanding.
Mark Hopkinson, age 49, has been Chairman of the Board since 1981,
when he and Mr. Bartow organized the acquisition of the Company. He
also served as President of the Company from 1981 until March 1994.
He is a graduate of the University of Pennsylvania and of the Harvard
Graduate School of Business Administration. Prior to acquiring Allied
Devices, he was a management consultant, working originally with
Theodore Barry & Associates from 1977 to 1978 and later as an
independent and with the Nicholson Group from 1978 to 1981. The focus
of his work in the period leading up to 1981 was development of
emerging growth companies, both in the United States and in lesser
developed countries. He served as an officer in the United States
Navy from 1969 to 1972.
P.K. Bartow, age 48, has been President of the Company since March
1994. He also served as Vice President of the Company from when he and
Mr. Hopkinson organized its acquisition in 1981 until March 1994.
Prior to acquiring Allied Devices, Mr. Bartow had joined the Nicholson
Group in 1978, and performed facility and feasibility studies for
emerging growth companies. While at Allied Devices, he has been the
Director of Marketing from 1981 onwards, and in that capacity has set
up a network of independent manufacturers' representatives across the
United States and in the United Kingdom, Israel and selected regions
in Canada. He has also organized and published Allied Devices' 650+
page catalog. Mr. Bartow received a B.A. degree from Williams College
in 1970, and a M.Arch degree from the University of Pennsylvania in
1974.
Salvator Baldi, age 74, was one of the original founders of the
Company in 1947. He has been a Director of the Company since February
1994. The business was started as a general machine shop and
developed through the years as a supplier to certain principal
competitors of the Company in the market for standardized precision
mechanical parts. By the late 1970's, the Company had advanced from
vendor to competitor, offering its own catalog of components. He and
his partners sold the Company to the investor group assembled by Mr.
Hopkinson and Mr. Bartow in October 1981, with Mr. Baldi remaining
with the Company under an employment contract. By the time his
contract expired two years later, Mr. Baldi had negotiated to
repurchase an interest in the Company. He currently works on an
abbreviated work schedule.
18
<PAGE>
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS (Continued)
Andrew J. Beck, age 48, has been a partner with the law firm of Haythe
& Curley since prior to 1989. He became a Director of the Company in
March 1994. Mr. Beck holds a B.A. in economics from Carleton College
and a J.D. from Stanford University Law School.
Gail F. Lieberman, age 53, is currently Chief Financial Officer of The
Thompson Corp. Financial & Professional Publishing Group. She became
a director of the Company in February 1994. Prior to her current
association, Ms. Lieberman was Managing Director of Moody's Investors
Service, where she was employed from January 1994 to December 1996.
Prior to that she was Executive Vice President and Chief Financial
Officer at Scali, McCabe, Sloves, Inc. since 1982. She holds a B.A.
in Mathematics and Physics and an M.B.A. in Finance from Temple
University.
Michael Michaelson, age 74, has been a Director of the Company since
1990. He has been President and sole stockholder of Rainwater
Enterprises, Ltd. since 1979, providing management and marketing
consultation services to clients principally in publishing and related
industries. He is also on the boards of directors of the following
companies: Metro Tel Corp., a publicly held company in the
telecommunications field; and Theater Crafts Associates, a magazine
publisher. From 1986 to 1989, he was Chairman of the Council on
Economic Priorities. From 1977 to 1979, he was co-founder and
Chairman of the Board of Games Magazine, which was sold to Playboy
magazine in 1979. From 1970 to 1978, Mr, Michaelson worked for
Publishers Clearing House, where he was Senior Vice President. From
1968 to 1970, he was President and Founder of Campus Subscriptions,
Inc. Mr. Michaelson served in the United States Army in the South
Pacific during World War II, where he was a Company Commander in the
35th infantry, 25th division and received the Bronze Star and the
Purple Heart. He received a B.S. degree from New York University in
1948.
Mr. Robert J. Smallacombe, age 63, has been a Director of the Company
since August, 1996, when he was appointed to the Board by the
unanimous vote of the other Directors. For more than five years, he
has been the principal of Executive Advisory Group, a management
consulting firm. In the capacity of consultant, he is currently
serving as a Director of North Star Health Services Inc. From 1994
till May, 1996, as consultant, he served as President of O'Brien
Environmental Energy and O'Brien Energy Services. From February, 1993
till July, 1994, as consultant, he served as CEO of Cardinal
Publishing Co. Prior to that, he was working as a management
consultant and business broker. He currently serves as a Director to
Emons Transportation Company and to North Star Health Services Inc.
SECTION 16 (a) REPORTING REQUIREMENTS
Under Section 16 (a) of the Securities Exchange Act of 1934, directors
and executive officers of the Company are required to make certain
filings on a timely basis with the Securities and Exchange Commission.
One director and executive officer, Mark Hopkinson, failed to make a
timely filing of a statement on Form 4 regarding a transaction in the
Company's stock. Mr. Hopkinson has subsequently filed the necessary
report.
19
<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth the salary and bonus compensation paid
during the fiscal years ended September 30, 1996, 1995 and 1994 to the
Chairman and Chief Executive Officer of the Company. No other
Executive Officer of the Company received fiscal 1996 salary and bonus
compensation which exceeded $100,000. The Company's Directors receive
$1250 per meeting for their services as such and reimbursement for any
expenses they may incur in connection with their services as
Directors.
<TABLE>
<CAPTION>
Summary Compensation Table
------------------------------------------------------------------------------------------------
Name and Principal Other Annual Long Term Compensation
Position Fiscal Year Salary Compensation Awards-Options SAR's
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mark Hopkinson,
Chairman and Chief
Executive Officer 1996 $98,098 $0 29,000
1995 $90,116 $0 4,600
1994 $86,918 $0 225,000
</TABLE>
Under the terms of the Company's 1993 Incentive Stock Option Plan, the
following options were granted to the Chief Executive Officer of the
Company during fiscal year 1996.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
------------------------------------------------------------------------------------------------
Name Number of Securities % of Total Options Exercise or Expiration
Underlying Options Granted to Employees Base Price Date
Granted in Fiscal Year ($/Sh)
------------------------------------------------------------------------------------------------
Mark Hopkinson 10,000 $2.50 3/18/06
10,000 $2.25 4/19/06
9,000 $3.00 6/21/06
Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mark Hopkinson - $ - 295,260/0 $240,885/0
</TABLE>
(1) In-the-money options are those for which the fair market value of
the underlying Common Stock exceeds the exercise price of the
option. The value of the in-the-money options is determined in
accordance with regulations of the Securities and Exchange
Commission by subtracting the aggregate exercise price of the
option from the aggregate year-end value of the underlying Common
Stock.
20
<PAGE>
No compensation to management has been waived or accrued to date.
Under the terms of its employee stock option plan (adopted in October,
1993 and amended in December, 1995), the Board of Directors is
empowered at its discretion to award options to purchase an aggregate
of 1,250,000 shares of the Company's common stock to key employees.
Prior to fiscal 1996, the Company had granted options to purchase an
aggregate of 939,600 shares to key employees and Directors, with
exercise prices ranging from $.35 to $2.35 per share. During fiscal
1996, the Company granted options to purchase 148,000 shares the
Company's common stock, at exercise prices ranging from $2.00 to $3.25
per share to three individuals (one non-management member of the Board
of Directors and two non-executive managers).
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number and percentage of the
Company' shares of common stock owned of record and beneficially by
each person or entity owning more than 5% of such shares and by all
executive officers and directors, as a group: (i) at 9/30/96; and (ii)
after the exercise of all Class B Warrants issued as part of the units
sold to the public pursuant to the Illustrious Mergers, Inc. offering
in February, 1991:
<TABLE>
<CAPTION>
Name Number of Current After Warrant
Shares Percentage Exercises (9)
Owned Percentage
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mark Hopkinson (1) (3) (8)
2365 Milburn Avenue
P.O. Box 502
Baldwin, NY 11510 1,011,671 21.54% 18.54%
P.K. Bartow (1) (4) (8)
2365 Milburn Ave.
P.O. Box 502
Baldwin, NY 11510 856,655 18.39% 15.81%
Salvator Baldi (1) (5) (8)
2365 Milburn Ave.
P.O. Box 502
Baldwin, NY 11510 787,157 16.99% 14.60%
Michael Michaelson (2)(6)(8)
2365 Milburn Ave.
P.O. Box 502
Baldwin, NY 11510 250,084 5.38% 4.62%
Walter S. Grossman
277 North Avenue
Westport, CT 06880 231,549 5.38% 4.57%
Gail F. Lieberman (2) (7)
175 E. 79th Street
New York, NY 10021 110,000 2.44% 2.09%
Andrew J. Beck (2) (10)
71 Willow Street, Apt. 1
Brooklyn, NY 11201 10,000 0.23% 0.19%
Robert J. Smallacombe (2) (11)
98 Merrick Road
Indiana, PA 15701 43,000 0.97% 0.83%
All Executive Officers and
Directors as a Group (7 persons) 3,068,567 54.82% 48.26%
</TABLE>
21
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Continued)
(1) Officer and Director
(2) Director only.
(3) Mark Hopkinson is General Partner of the Hopkinson Family
Partnership (in which he has exclusive management rights), which
owns 700,000 of the shares included herein. Mr. Hopkinson owns
16,411 shares in his own name. Also included in Mr. Hopkinson's
shareholdings are 65,660 shares represented by warrants
exercisable by Mr. Hopkinson until December 31, 1999 and 229,600
shares represented by currently exercisable options. Mr.
Hopkinson disclaims beneficial ownership of 1,200 shares owned by
his wife.
(4) Included in Mr. Bartow's shareholdings are 31,722 shares
represented by warrants exercisable by Mr. Bartow until December
31, 1999 and 225,000 shares represented by currently exercisable
options.
(5) Included in Mr. Baldi's shareholdings are 5,898 shares
represented by warrants exercisable by Mr. Baldi until December
31, 1999 and 225,000 shares represented by currently exercisable
options.
(6) Included in Mr. Michaelson's shareholdings are 140,084 shares
represented by warrants exercisable by Mr. Michaelson until
December 31, 1999 and 100,000 shares represented by currently
exercisable options. Mr. Michaelson disclaims ownership of
97,500 shares owned by his wife.
(7) Consists of 100,000 shares represented by currently exercisable
options.
(8) As consideration for various services rendered to the Company in
the period 1983 until 1990, the Company issued certain
stockholders warrants to purchase up to 340,000 shares of common
stock at prices ranging from $0.30 to $0.70 per share.
(9) These percentages do not include the exercise of any of the
Allied Devices warrants or options other than the exercise of all
of the Class B Warrants.
(10) Consists of 10,000 shares represented by currently exercisable
options.
(11) Consists of 43,000 shares represented by options, 3,000 of which
were exercisable at September 30, 1996, and 40,000 of which will
vest by February, 1997.
22
<PAGE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Inapplicable.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required to be filed as a part of the form are
listed in the attached Index to Exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
fiscal 1996.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALLIED DEVICES CORPORATION
------------------------------
Mark Hopkinson
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant in the capacities and on the
dates indicated.
Signatures Title Date
- ---------- ----- ----
____________________ Chairman of the Board,
Mark Hopkinson Principal Executive Officer,
and Director January ___, 1997
____________________
Philip Key Bartow President and Director January ___, 1997
____________________
Salvator Baldi Director January ___, 1997
____________________
Michael Michaelson Director January ___, 1997
____________________
Andrew J. Beck Director January ___, 1997
24
<PAGE>
Signatures Title Date
- ---------- ----- ----
______________________
Gail F. Lieberman Director January ___, 1997
______________________
Robert J. Smallacombe Director January ___, 1997
______________________ Principal Financial Officer
Paul Cervino and Principal Accounting Officer January ___, 1997
25
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit Description Page Number
- -------------- ------------------- -----------
10 Revolving Credit Agreement
Dated as of September 4,
1996 between the Company
and The Chase Manhattan
Bank
11.01 EPS Calculation
27 Financial Data Schedules
Copies of the exhibits filed with the Annual Report on
Form 10-KSB do not accompany copies hereof for distribution to
stockholders of the Company. The Company will furnish a copy of
any of such exhibits to any stockholder requesting the same.
26
<PAGE>
CONSENT OF BDO SEIDMAN, LLP
Allied Devices Corporation
Baldwin, New York
We hereby consent to the incorporation by reference and inclusion in the
Prospectus constituting part of this Registration Statement of our report dated
December 27, 1996 relating to the consolidated financial statements of Allied
Devices Corporation and subsidiaries appearing in the Company's Annual Report on
Form 10-KSB for the year ended September 30, 1996.
BDO SEIDMAN, LLP
January 8, 1997
S-1
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
- -------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
F-1
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets F-4
Statements of income F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
Notes to financial statements F-8 - F-18
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Allied Devices Corporation
Baldwin, New York
We have audited the accompanying consolidated balance sheets of Allied Devices
Corporation and subsidiaries as of September 30, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allied Devices Corporation and
subsidiaries at September 30, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Mitchel Field, New York
December 27, 1996
F-3
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (NOTE 4)
CURRENT:
Cash $ 54,919 $ 198,486
Accounts receivable, net of allowance for doubtful accounts of $58,080
and $49,622, respectively (Notes 4 and 6) 2,193,606 2,182,111
Inventories (Notes 2, 4 and 6) 5,882,556 4,968,370
Prepaid expenses and other current assets 41,619 52,993
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,172,700 7,401,960
PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION (NOTES 3, 4 AND 6) 1,965,746 1,756,398
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET OF
ACCUMULATED AMORTIZATION OF $327,748 AND $305,834 110,577 132,491
OTHER ASSETS 88,817 112,686
- ---------------------------------------------------------------------------------------------------------------------------------
$10,337,840 $9,403,535
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Revolving loan payable (Note 4) $ - $1,604,038
Accounts payable 1,092,758 1,368,391
Income taxes payable (Note 9) 55,693 286,505
Accrued expenses and other (Note 5) 438,035 391,137
Notes payable to related parties - 142,598
Current portion of long-term debt and capital lease obligations (Note 6) 119,401 181,174
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,705,887 3,973,843
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (NOTE 6) 2,642,401 497,541
DEFERRED INCOME TAXES (NOTE 9) 182,188 182,188
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,530,476 4,653,572
- ---------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS (NOTES 7 AND 8)
STOCKHOLDERS' EQUITY (NOTE 8)
Common stock, $.001 par value, authorized 25,000,000 shares, issued
and outstanding 4,401,842 and 4,296,842 4,402 4,297
Additional paid-in capital 2,409,086 2,352,819
Retained earnings 3,393,876 2,392,847
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 5,807,364 4,749,963
- ---------------------------------------------------------------------------------------------------------------------------------
$10,337,840 $9,403,535
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1996 1995
- --------------------------------------------------------------------------------
NET SALES $17,793,072 $15,521,373
COST OF SALES 11,815,271 10,418,976
- --------------------------------------------------------------------------------
GROSS PROFIT 5,977,801 5,102,397
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,120,136 3,619,998
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS 1,857,665 1,482,399
INTEREST EXPENSE, NET 263,568 313,482
- --------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR TAXES ON INCOME 1,594,097 1,168,917
TAXES ON INCOME (NOTE 9) 593,068 381,615
- --------------------------------------------------------------------------------
NET INCOME $1,001,029 $787,302
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET INCOME PER SHARE $.20 $.15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,785,085 5,654,858
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common-Stock $0.001 par
valuee
-----------------------
Additional Total
Number of Paid-in Retained stockholders'
Shares Amount Capital Earnings equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994 4,234,342 $4,234 $2,249,853 $1,605,545 $3,859,632
PROCEEDS FROM ISSUANCE OF
COMMON STOCK (NOTE 8) 62,500 63 80,720 - 80,783
ISSUANCE OF OPTIONS AND
WARRANTS TO PURCHASE
COMMON STOCK (NOTE 8) - - 22,246 - 22,246
NET INCOME - - - 787,302 787,302
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995 4,296,842 4,297 2,352,819 2,392,847 4,749,963
NET INCOME - - - 1,001,029 1,001,029
PROCEEDS FROM THE EXERCISE OF
OPTIONS AND WARRANTS TO
PURCHASE COMMON STOCK
(NOTE 8) 105,000 105 56,267 - 56,372
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 4,401,842 $4,402 $2,409,086 $3,393,876 $5,807,364
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,001,029 $787,302
- --------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Reserve on note receivable - 50,000
Provision for doubtful accounts 8,458 9,518
Depreciation and amortization 387,009 336,428
Deferred income taxes - (111,558)
Compensation charge for warrants and options
issued - 22,246
(Increase) decrease in:
Accounts receivable (19,953) (271,404)
Inventories (914,186) (330,892)
Prepaid expenses and other current assets 11,374 9,585
Other assets 23,869 (11,484)
Increase (decrease) in:
Accounts payable and accrued expenses (228,735) 287,765
Income taxes payable (230,812) 133,096
- --------------------------------------------------------------------------------
Total adjustments (962,976) 123,300
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 38,053 910,602
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (309,806) (252,603)
- --------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (309,806) (252,603)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock, options
and warrants 56,372 80,783
Repayment of revolving loan and term loan (2,275,500) (360,004)
Proceeds from revolving credit facility 2,366,338 -
Principal payments on long-term debt and
capital lease obligations (232,888) (213,928)
Proceeds from additional financing under old
bank agreement and term loan 356,462 -
Payments under old borrowing agreement - (360,004)
Payment on related party debt (142,598) (74,692)
- --------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES 128,186 (567,841)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (143,567) 90,158
CASH, BEGINNING OF PERIOD 198,486 108,328
- --------------------------------------------------------------------------------
CASH, AT END OF PERIOD $54,919 $198,486
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SUMMARY OF (a) BUSINESS
ACCOUNTING POLICIES
The Company is comprised of Allied Devices
Corporation (ADCO), and its wholly-owned
subsidiary, Empire Tyler Company (Empire and
collectively the Company).
The Company is engaged primarily in the
manufacture and distribution of standard precision
mechanical components and a line of screw machine
products. The Company sells all its products to
the same base of customers located throughout the
United States. Because the Company's product line
comprises a comparable group of precision
manufactured parts sold to a similar customer
base, it considers itself to be engaged in a
single business segment.
(b) BASIS OF PRESENTATION
The consolidated financial statements include the
accounts of ADCO and its subsidiary. All
significant intercompany balances and transactions
have been eliminated.
(c) 1INVENTORIES
Inventories are valued at the lower of cost (last-
in, first-out (LIFO) method) or market.
Management periodically analyzes inventories for
obsolescence and records writeoffs as required.
Such writeoffs have historically been immaterial.
(d) DEPRECIATION AND AMORTIZATION
Property, plant and equipment is stated at cost.
Depreciation and amortization of property, plant
and equipment is computed using the straight-line
method over the estimated useful lives of the
assets. The estimated useful lives are as
follows:
Buildings and improvements 30 years
Machinery and equipment 10 years
Furniture, fixtures and
office equipment 5-7 years
Tools, molds and dies 8 years
Leasehold improvements Lease term
F-8
<PAGE>
- --------------------------------------------------------------------------------
(e) INCOME TAXES
The Company and its subsidiary file a
consolidated federal income tax return and
separate state income tax returns.
Deferred tax assets and liabilities are
recognized for the future tax consequences
attributable to differences between the
financial statement carrying amounts of
existing assets and liabilities and their
respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax
rates expected to apply to taxable income in
the years in which those temporary differences
are expected to be recovered or settled. The
effect on deferred tax assets and liabilities
of a change in tax rate is recognized in income
in the period that includes the enactment date.
(f) EARNINGS PER SHARE
Earnings per share is based on the weighted
average number of shares of common stock and
common stock equivalents outstanding during
each period. Earnings per share is computed
using the treasury stock method, modified for
options and warrants outstanding in excess of
20% of the outstanding shares of the Company's
common stock. Under the treasury stock method
the number of shares outstanding reflects the
use of the proceeds from the assumed exercise
of stock options and warrants to repurchase
shares of the Company's common stock at the
average market value during the period. The
proceeds generated from the assumed exercise of
options and warrants in excess of 20% of the
outstanding shares of common stock are applied
to the assumed repayment of company debt with
the assumed related interest expense savings
being included in the Company's results of
operations for earnings per share computations.
(g) INTANGIBLE ASSETS
The excess of cost over the fair value of net
assets acquired is being amortized over a
period of 20 years.
F-9
<PAGE>
(h) REVENUE RECOGNITION
Sales are recognized upon shipment of products.
All sales are shipped F.O.B. shipping point and
are not sold subject to a right of return
unless the products are defective. The
Company's level of returns arising from
defective products has historically been
immaterial. The Company provides an allowance
for estimated returns when sales are recorded.
Such allowances are not material.
(i) USE OF ESTIMATES
In preparing financial statements in conformity
with generally accepted accounting principles,
management is required to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and the disclosure of
contingent assets and liabilities. Actual
results could differ from those estimates.
(j) FAIR VALUE FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments,
including cash and short-term debt,
approximated fair value as of September 30,
1996 and 1995. The carrying value of long-term
debt and obligations under capital leases,
including the current portion, approximates
fair value as of September 30, 1996 and 1995
based upon the borrowing rates currently
available to the Company for bank loans with
similar terms and average maturities.
(k) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121,
Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of.
The Company will adopt SFAS No. 121 as of
October 1, 1996.
F-10
<PAGE>
- --------------------------------------------------------------------------------
In October 1995, FASB issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS
No. 123 established a fair value method for
accounting for stock-based compensation plans
either through recognition or disclosure.
Effective October 1, 1996, the Company intends
to adopt the employee stock-based compensation
provisions of SFAS No. 123 by disclosing the
pro forma net income and pro forma net income
per share amounts, assuming the fair value
method was adopted October 1, 1995.
The Company does not expect that the adoption
of SFAS 121 and 123 will have a material effect
on the Company's financial statements or
results of operations.
(l) RECLASSIFICATIONS
Certain 1995 balances were reclassified to
conform with the 1996 presentation.
2. INVENTORIES Inventories are summarized as follows:
SEPTEMBER 30, 1996 1995
-----------------------------------------------
Raw materials $238,325 $273,553
Work-in-process 512,527 538,730
Finished goods 6,404,976 5,328,138
-----------------------------------------------
7,155,828 6,140,421
Less: adjustment to LIFO 1,273,272 1,172,051
-----------------------------------------------
$5,882,556 $4,968,370
-----------------------------------------------
-----------------------------------------------
The adjustment to LIFO represents the excess of
current cost (valued at first-in, first-out
FIFO) over the LIFO value of the inventories.
F-11
<PAGE>
- --------------------------------------------------------------------------------
3. PROPERTY, PLANT Property, plant and equipment consists of the
AND EQUIPMENT following:
SEPTEMBER 30, 1996 1995
----------------------------------------------------
Machinery and equipment $4,552,650 $4,104,342
Tools, molds and dies 1,502,276 1,416,974
Furniture, fixtures and
office equipment 402,730 399,331
Leasehold improvements 167,180 152,249
Building and improvements 93,530 93,530
Land 5,000 5,000
----------------------------------------------------
6,723,365 6,171,426
Less: accumulated
depreciation and
amortization 4,757,620 4,415,028
----------------------------------------------------
$1,965,746 $1,756,398
----------------------------------------------------
----------------------------------------------------
Included in machinery and equipment and office
equipment at September 30, 1996 and 1995 is
approximately $560,000 and $295,000, respectively of
equipment under capital lease agreements (see Note 6)
with related accumulated amortization amounts of
approximately $226,000 and $55,000, respectively.
4. REVOLVING CREDIT During most of fiscal 1996, the Company was party
AGREEMENT to an asset-based revolving demand loan agreement
with a bank, providing for borrowings of up to the
lesser of $2,500,000 or 80% of eligible receivables
and 20% of eligible inventory up to a maximum of
$850,000, as defined in the agreement. Interest was
computed at 0.5% above the bank's commercial lending
rate, and principal amounts were collateralized by a
security interest in substantially all assets of the
Company.
In September, 1996, the Company entered into a new
credit agreement with a different bank and repaid all
amounts outstanding under the agreements with its
prior lender. Under the terms of its new three-year
committed revolving credit agreement, the Company may
borrow up to the lesser of $4,000,000 or 85% of
eligible receivables and 30% of eligible inventory up
to a maximum of $2,000,000, and interest is computed
at the bank's prime lending rate (8.25% at September
30, 1996) or at 1.25% to 1.75% over the London
InterBank Over-night Rate (LIBOR), at the Company's
option, as defined in the agreement. As part of the
same credit package, the Company may borrow
additional funds, secured by the Company's machinery
and equipment, with up to $700,000 available against
existing assets and up to $1,000,000 available for
new acquisitions of machinery and equipment. The
credit facility is secured by a first priority
security interest in the Company's assets. In
addition, the Company must meet certain financial
covenants. As of the end of 1996, borrowings under
this credit agreement were approximately $2,366,000.
F-12
<PAGE>
- --------------------------------------------------------------------------------
5. ACCRUED EXPENSES AND Accrued expenses consist of the following:
OTHER
SEPTEMBER 30, 1996 1995
----------------------------------------------------
Commissions $232,712 $232,679
Payroll and related 45,000 92,622
Other 160,323 65,836
----------------------------------------------------
$438,035 $391,137
----------------------------------------------------
----------------------------------------------------
6. LONG-TERM DEBT AND Long term debt consists of the following:
CAPITAL LEASE
OBLIGATIONS
SEPTEMBER 30, 1996 1995
----------------------------------------------------
Revolving credit facility,
due September, 1999
(Note 4) $2,366,338 $ -
Capital lease obligations
with varying monthly
payments and interest
rates ranging from 8.5%
to 13% per annum maturing
1996 through 2001; secured
by an interest in machinery
and equipment (Note 3) 395,464 243,715
$575,000 term promissory
note payable to a bank
repaid during fiscal 1996
(Note 4) - 435,000
----------------------------------------------------
Subtotal 2,761,802 678,715
Less: current maturities 119,401 181,174
----------------------------------------------------
Long-term debt and capital
lease obligations $2,642,401 $497,541
----------------------------------------------------
----------------------------------------------------
F-13
<PAGE>
- --------------------------------------------------------------------------------
The following is a schedule by years of future
minimum lease payments under capital leases, together
with the present value of the net minimum lease
payments as of September 30, 1996:
1997 $152,615
1998 138,991
1999 104,988
2000 64,916
2001 3,448
----------------------------------------------------
Total minimum lease payments 464,958
Less: amount representing interest 69,494
----------------------------------------------------
Present value of net minimum
lease payments $395,464
----------------------------------------------------
----------------------------------------------------
The following is a schedule of long term debt
maturities (including capital lease obligations) as
of September 30, 1996:
1996 $119,401
1997 117,606
1998 93,330
1999 2,428,042
2000 3,423
----------------------------------------------------
$2,761,802
----------------------------------------------------
----------------------------------------------------
7. LEASES The Company rents facilities in Baldwin, Ronkonkoma
and Freeport, New York under various operating lease
agreements expiring through December 1996. In
addition, the Company also leases certain machinery
and equipment and office equipment under various
capital lease agreements expiring through 2000 (see
Note 6).
F-14
<PAGE>
- --------------------------------------------------------------------------------
Most of the Company's operating leases are on a month
to month basis. Rent expense amounted to
approximately $256,000 and $250,000 for the fiscal
years ended September 30, 1996 and 1995,
respectively.
8. STOCKHOLDERS' EQUITY (a) WARRANTS
At September 30, 1996 and 1995, the Company had
1,275,414 and 1,313,764 stock warrants
outstanding, respectively. The warrants to
purchase the Company's common stock were held
by the following parties:
Officers/stockholders/consultants (1) 515,414
Public (2) 760,000
----------------------------------------------
1,275,414
----------------------------------------------
----------------------------------------------
(1) Each warrant held by members of management
and certain stockholders grants them the
right to purchase one share of common
stock at various prices between $0.30 and
$0.70 per share. These warrants were
granted prior to September 30, 1987 and
expire at various dates between April 15,
1997 and April 15, 1998.
During fiscal 1996 and 1995 the Company
issued warrants to purchase 60,000 and
200,000 shares of common stock,
respectively, at prices ranging from $3.00
to $4.25 per share to financial
consultants to the Company.
(2) 760,000 Class B stock warrants outstanding
are registered securities originally
issued in the Company's initial public
offering and held by the public. Each
warrant grants the holder the right to
purchase 1 share of common stock. The
exercise price per warrant is $2.50. The
warrants expire January 31, 1997.
F-15
<PAGE>
- --------------------------------------------------------------------------------
(b) INCENTIVE STOCK OPTION PLAN
In October 1993, the Board of Directors adopted
an incentive stock option plan. The Plan, as
amended on December 11, 1995, allows the Board
of Directors to issue options to purchase an
aggregate of 1,250,000 shares of the Company's
common stock to key employees.
As of September 30, 1996, the Company had
issued options to purchase an aggregate of
1,087,600 shares of the Company's common stock
to members of the Company's Board of Directors
and employees. The options expire 10 years
from issuance and are exercisable at prices
ranging from $.35 to $3.00. During the year
ended September 30, 1996, 10,000 options were
exercised, 992,600 options were exercisable,
and 162,400 options remain to be granted under
the Plan.
Changes in qualified and non-qualified options and
warrants outstanding are summarized as follows:
<TABLE>
<CAPTION>
Warrants Options
----------------------------------------------------------------------
Option price per
Shares Exercise Price Shares share
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding
October 1,
1994 1,095,000 $.30 - $2.50 905,000 $1.00 - $2.35
Granted 285,864 2.00 - 3.00 34,600 .35 - 3.00
Cancelled (4,600) (.35) - -
Exercised (62,500) (2.50) - -
Expired - - - -
---------------------------------------------------------------------------------------
Outstanding
September 30
1995 1,313,764 .30 - 2.50 939,600 .35 - 3.00
Granted 60,000 3.25 - 4.25 148,000 2.00 - 3.00
Cancelled (3,350) .35
Exercised (95,000) (.35) - (2.50) (10,000) 1.00
Expired
---------------------------------------------------------------------------------------
Outstanding
September 30,
1996 1,275,414 $.30 - $4.25 1,077,600 $.35 - $3.00
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
- --------------------------------------------------------------------------------
9. TAXES ON INCOME Provisions for income taxes on income in the
consolidated statement of operations consist of the
following:
YEAR ENDED SEPTEMBER 30, 1996 1995
-------------------------------------------------------
Current:
Federal $546,143 $425,133
State 46,925 68,050
-------------------------------------------------------
Total current 593,068 493,183
-------------------------------------------------------
Deferred:
Federal - (111,568)
-------------------------------------------------------
- (111,568)
-------------------------------------------------------
Total taxes on income $593,068 $381,615
-------------------------------------------------------
-------------------------------------------------------
Deferred tax (assets) liabilities consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 1995
-------------------------------------------------------------------------
<S> <S> <C>
Tax depreciation in excess of book $235,463 $232,600
Provision for bad debts (19,863) (17,000)
Provision on note receivable
(included in other assets) (34,000) (34,000)
Investment tax credit carryforward (15,000) (15,000)
-------------------------------------------------------------------------
Deferred tax liabilities 166,600 166,600
Valuation allowance 15,588 15,588
-------------------------------------------------------------------------
Net deferred tax liabilities $182,188 $182,188
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
- --------------------------------------------------------------------------------
The provision for income taxes on income before taxes
differs from the amounts computed applying the
applicable Federal statutory rates due to the
following:
YEAR ENDED SEPTEMBER 30, 1996 1995
-------------------------------------------------------
Provision for Federal income
taxes at the statutory rate $541,993 $397,432
Increase (decrease):
State taxes, net of Federal
tax benefit 30,970 23,137
Other 20,105 (38,954)
-------------------------------------------------------
Provision for taxes on income $593,068 $381,615
-------------------------------------------------------
-------------------------------------------------------
10. CASH FLOWS YEAR ENDED SEPTEMBER 30, 1996 1995
-------------------------------------------------------
Supplemental disclosure of cash
flow information
Cash paid during the year:
Interest $249,168 $313,482
-------------------------------------------------------
-------------------------------------------------------
Income taxes $551,408 $360,077
-------------------------------------------------------
-------------------------------------------------------
Supplemental schedule of non-cash
investing and financing:
Equipment acquired under
capital lease $264,637 $126,500
-------------------------------------------------------
-------------------------------------------------------
F-18
<PAGE>
EXHIBIT 10
REVOLVING CREDIT AGREEMENT
dated as of September 4, 1996
between
ALLIED DEVICES CORPORATION, as "Borrower"
and
THE CHASE MANHATTAN BANK, as "Bank"
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS; ACCOUNTING TERMS.
Section 1.01 Definitions
Section 1.02 Accounting Terms
ARTICLE 2 THE CREDIT.
Section 2.01 Revolving Credit Loans
Section 2.02 Borrowing Base Formula
Section 2.03 The Revolving Credit Note
Section 2.04 Use of Proceeds
Section 2.05 Borrowing Procedures for Revolving Credit Loans
Section 2.06 Prepayments
Section 2.07 Changes of Commitment
Section 2.08 Certain Notices
Section 2.09 Minimum Amounts
Section 2.10 Interest on Revolving Credit Loans
Section 2.11 Revolving Credit Commitment Fee
Section 2.12 Payments Generally
Section 2.13 Capital Requirements
Section 2.14 HLT Classification
Section 2.15 Additional Costs
Section 2.16 Limitation on Types of Loans
Section 2.17 Illegality
Section 2.18 Compensation
Section 2.19 Survival
Section 2.20 Late Payment Fee
Section 2.21 Default Interest
Section 2.22 Excess of Borrowing Base Formula
Section 2.23 Interest Periods
ARTICLE 3 CONDITIONS PRECEDENT.
Section 3.01 Documentary Conditions Precedent
Section 3.02 Additional Conditions Precedent
Section 3.03 Deemed Representations
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.
Section 4.01 Incorporation, Good Standing and Due Qualification
<PAGE>
Section 4.02 Corporate Power and Authority; No Conflicts
Section 4.03 Legally Enforceable Agreements
Section 4.04 Litigation
Section 4.05 Financial Statements
Section 4.06 Ownership and Liens
Section 4.07 Taxes
Section 4.08 ERISA
Section 4.09 Subsidiaries and Ownership of Stock
Section 4.10 Credit Arrangements
Section 4.11 Operation of Business
Section 4.12 Hazardous Materials
Section 4.13 No Default on Outstanding Judgments or Orders
Section 4.14 No Defaults on Other Agreements
Section 4.15 Labor Disputes and Acts of God
Section 4.16 Governmental Regulation
Section 4.17 Partnerships
Section 4.18 No Forfeiture
Section 4.19 Solvency
Section 4.20 Permits and Licenses
ARTICLE 5 AFFIRMATIVE COVENANTS.
Section 5.01 Maintenance of Existence
Section 5.02 Conduct of Business
Section 5.03 Maintenance of Properties
Section 5.04 Maintenance of Records
Section 5.05 Maintenance of Insurance
Section 5.06 Compliance with Laws
Section 5.07 Right of Inspection
Section 5.08 Reporting Requirements
Section 5.09 Payment of Obligations
Section 5.10 Notice of Subsidiaries and/or Affiliates
Section 5.11 Maintenance of Licenses and Permits
Section 5.12 Continued Perfection of Lien and Security Agreement
Section 5.13 Notice of Adverse Change
ARTICLE 6 NEGATIVE COVENANTS.
Section 6.01 Debt
Section 6.02 Guaranties, Etc.
Section 6.03 Liens
Section 6.04 Investments
Section 6.05 Dividends
Section 6.06 Sale of Assets
<PAGE>
Section 6.07 Stock of Subsidiaries, Etc.
Section 6.08 Transactions with Affiliates
Section 6.09 Mergers, Etc.
Section 6.10 Acquisitions
Section 6.11 No Activities Leading to Forfeiture
Section 6.12 Change in Senior Management
Section 6.13 Sale of Notes/Accounts Receivable
Section 6.14 Prepayment of Outstanding Debt
ARTICLE 7 FINANCIAL COVENANTS.
Section 7.01 Current Ratio
Section 7.02 Debt Service Ratio
Section 7.03 Leverage Ratio
<PAGE>
ARTICLE 8 EVENTS OF DEFAULT.
Section 8.01 Events of Default
Section 8.02 Remedies
Section 8.03 Lock Box Arrangement
ARTICLE 9 MISCELLANEOUS
Section 9.01 Amendments and Waivers
Section 9.02 Usury
Section 9.03 Expenses
Section 9.04 Survival
Section 9.05 Assignment; Participations
Section 9.06 Notices
Section 9.07 Setoff
Section 9.08 Jurisdiction; Immunities
Section 9.09 Table of Contents; Headings
Section 9.10 Severability
Section 9.11 Counterparts
Section 9.12 Integration
Section 9.13 Governing Law
EXHIBITS
Exhibit A Promissory Note
Exhibit B Guaranty
Exhibit C Security Agreement
Exhibit D Declaration of Restrictions
Exhibit E Borrowing Base Certificate
Exhibit F Landlord Waiver
SCHEDULES
Schedule I Subsidiaries of Borrower
Schedule II Credit Arrangements
Schedule III Hazardous Materials
<PAGE>
REVOLVING CREDIT AGREEMENT dated as of September 4, 1996, between ALLIED
DEVICES CORPORATION, a corporation organized under the laws of the State of
Nevada and authorized to do business under the laws of the State of New York
(the "Borrower") and THE CHASE MANHATTAN BANK, a banking corporation organized
under the laws of the State of New York (the "Bank").
The Borrower desires that the Bank extend credit as provided herein and the
Bank is prepared to extend such credit. Accordingly, the Borrower and the Bank
agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.01. DEFINITIONS. As used in this Agreement the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and VICE VERSA):
"Acquisition" means any transaction pursuant to which the Borrower or any
of its Subsidiaries, (a) acquires, or enters into an agreement to acquire,
equity securities (or warrants, options or other rights to acquire such
securities) of any corporation or other business entity which is not then a
Subsidiary of the Borrower, pursuant to a solicitation of tenders therefor, or
in one or more negotiated block, market or other transaction not involving a
tender offer, or a combination of any of the foregoing, which results in the
Borrower having a controlling interest in such corporation or other business
entity, or (b) makes any entity not then a Subsidiary of the Borrower a
Subsidiary of the Borrower, or causes any such entity to be merged into the
Borrower or any of its Subsidiaries, in any case pursuant to a merger, purchase
of assets or any reorganization providing for the delivery or issuance to the
holders of such entity's then outstanding securities, in exchange for such
securities, of cash or securities of the Borrower or any of its Subsidiaries, or
a combination thereof, or (c) purchases all or substantially all of the business
or assets of any entity.
"Affiliate" means any Person: (a) which directly or indirectly controls,
or is controlled by, or is under common control with, the Borrower or any of its
Subsidiaries; (b) which directly or indirectly beneficially owns or holds 5% or
more of any class of voting stock of the Borrower or any such Subsidiary; (c)
6
<PAGE>
which 5% or more of the voting stock of which is directly or indirectly
beneficially owned or held by the Borrower or such Subsidiary; or (d) which is a
partnership in which the Borrower or any of its Subsidiaries is a general
partner; or (e) which is a limited liability company in which the Borrower or
any of its Subsidiaries is a member. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
Notwithstanding the above, excluded from the definition of Affiliate shall
be any natural person or institutional investor.
"Agreement" means this Credit Agreement, as amended or supplemented from
time to time. References to Articles, Sections, Exhibits, Schedules and the
like refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
"Amortization" means amortization in accordance with GAAP.
"Banking Day" means any day on which commercial banks are not authorized or
required to close in New York City.
"Borrowing Base" means at any time an amount equal to the sum of (i)
eighty-five percent (85%) (the "Accounts Receivable Advance Rate") of the
Borrower's "Eligible Accounts Receivable" and (ii) the lower of (x) thirty
percent (30%) (the "Inventory Advance Rate" and together with the Accounts
Receivable Advance Rate shall be collectively referred to as the "Advance
Rates") of the Borrower's "Eligible Inventory", or (y) Two Million and 00/100
($2,000,000.00) Dollars. At all times, the Bank shall require that 100% of the
Revolving Credit Loans shall not exceed the then current Borrowing Base.
Notwithstanding the above, the Bank reserves the right to change the
Accounts Receivable Advance Rate and/or Inventory Advance Rate in its sole
discretion whether such change is based upon the results of a field audit or
otherwise, upon 30 days prior written notice to the Borrower.
7
<PAGE>
"Borrowing Base Certificate" means a certificate signed by the Chairman of
the Board, President or the Chief Financial Officer of the Borrower in the form
of Exhibit E annexed hereto with such changes as the Bank may require from time
to time.
"Capital Expenditures" means for any period, the sum of (a) the Dollar
amount of gross expenditures (including obligations under Capital Leases) made
for fixed assets, real property, plant and equipment, and all renewals,
improvements, additions, and replacements thereto (but not repairs thereof)
incurred during such period which would be treated as Capital Expenditures in
accordance with GAAP and (b) the portion of all payments with respect to which
are required to be capitalized on the balance sheet of the lessor in accordance
with GAAP.
"Capital Lease" means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.
"Change In Control" means an event which results in any Person owning a
majority of the voting securities of the Borrower or which results in Mark
Hopkinson ceasing to hold his current position as an executive officer of the
Borrower or ceasing to be involved in the day to day management of the Borrower.
"Closing Date" means the date this Agreement and all Facility Documents
have been executed by the Borrower, the Guarantors and the Bank.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means all personal property of the Borrower and each of the
Guarantors whether now existing or hereafter arising, which is subject or which
is to be subject to the Liens granted by the Security Agreement.
"Commitment" means the obligation of the Bank to make the Revolving Credit
Loans to the Borrower under this Agreement in the maximum aggregate principal
amount of $4,000,000.00, as such amount may be reduced or otherwise modified
from time to time pursuant to the terms and conditions of this Agreement.
8
<PAGE>
"Consolidated Capital Expenditures" means Capital Expenditures of the
Borrower and its Consolidated Subsidiaries, as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Current Assets" means Current Assets of the Borrower and its
Consolidated Subsidiaries, as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Current Liabilities" means Current Liabilities of the
Borrower and its Consolidated Subsidiaries, as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Debt Service Ratio" means the ratio of (i) consolidated Net
Income of the Borrower and its Subsidiaries before taxes (excluding
extraordinary gains net of cash taxes, if any) plus consolidated depreciation
and amortization expenses plus consolidated interest expense minus consolidated
unfunded Capital Expenditures minus consolidated cash dividends minus
consolidated cash tax payments to (ii) consolidated interest expense plus the
consolidated Current Portion of Long Term Debt. All categories shall be
measured on a consolidated basis over the immediately preceding four fiscal
quarters with the exception of the consolidated Current Portion of Long Term
Debt which shall be measured over the future four fiscal quarters.
"Consolidated Funded Debt" means Funded Debt of the Borrower and its
Consolidated Subsidiaries, as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or are
required to be consolidated with the accounts of the Borrower in accordance with
GAAP.
"Consolidated Tangible Net Worth" means Effective Net Worth of the Borrower
and its Consolidated Subsidiaries, as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Total Assets" means for any date with respect to the Borrower
and its Consolidated Subsidiaries, the consolidated aggregated amount which
would, in conformity with GAAP, be included under assets on the balance sheet of
the Borrower and its Consolidated Subsidiaries as at such date.
9
<PAGE>
"Consolidated Total Liabilities" means for any date, the consolidated
aggregate amount, without duplication, of (i) all indebtedness outstanding of
the Borrower and its Consolidated Subsidiaries for borrowed money, (ii)
indebtedness for the deferred purchase price of property or services (including
trade obligations), (iii) obligations under capital leases, and (iv) all other
liabilities recorded on the consolidated financial statements of the Borrower
and its Subsidiaries in accordance with GAAP.
"Current Assets" means all assets of the Borrower and its Consolidated
Subsidiaries treated as current assets in accordance with GAAP.
"Current Liabilities" means all liabilities of the Borrower and its
Consolidated Subsidiaries treated as current liabilities in accordance with
GAAP, including without limitation (a) all obligations payable on demand or
within one year after the date in which the determination is made and (b)
installment and sinking fund payments required to be made within one year after
the date on which determination is made.
"Current Portion of Long Term Debt" means, on the date of determination
with respect to any entity, that portion of such entity's Funded Debt (including
Capital Leases) that is due and payable within the next 12 months.
"Debt" means, without duplication, with respect to any Person: (a)
indebtedness of such Person for borrowed money; (b) indebtedness for the
deferred purchase price of property or services; (c) Unfunded Benefit
Liabilities of such Person (if such Person is not the Borrower, determined in a
manner analogous to that of determining Unfunded Benefit Liabilities of the
Borrower); (d) the face amount of any outstanding letters of credit issued for
the account of such Person; (e) obligations arising under acceptance facilities;
(f) guaranties, endorsements (other than for collection in the ordinary course
of business) and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any Person, or otherwise to assure a
creditor against loss; (g) obligations secured by any Lien on property of such
Person; (h) obligations of such Person as lessee under Capital Leases; and (i)
indebtedness of such Person evidenced by a note, bond, indenture or similar
instrument and all other liabilities
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recorded on such Person's financial statements in accordance with GAAP.
"Declaration of Restrictions" means that certain agreement made by Borrower
and Guarantor to Bank dated as of the date hereof, whereby Borrower and
Guarantor agree and covenant not to transfer, assign or otherwise further
encumber the interest of the Borrower or Guarantor in the approximate 13,000
square foot building and property owned by Empire-Tyler Corporation and located
in Joplin, Missouri, so long as any indebtedness is owed by the Borrower and/or
Guarantor to the Bank or while the Commitment is in effect.
"Default" means any event which with the giving of notice or lapse of time,
or both, would become an Event of Default.
"Default Rate" means a rate per annum equal to 2% above the Prime Rate as
in effect from time to time.
"Depreciation" means depreciation determined in accordance with GAAP.
"Dividends" means, for any period, dividends paid by the applicable Person.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Effective Net Worth" means, at any particular date with respect to any
Person, the amount of excess of Consolidated Total Assets over Consolidated
Total Liabilities, excluding subordinated debt, the subordination of which must
be satisfactory to the Bank in its sole discretion, which would, in conformity
with GAAP, be included under shareholders' equity on a balance sheet of such
entity as at such date, excluding, however, from the determination of
Consolidated Total Assets, without duplication (i) all intangible assets,
including, without limitation, organizational expenses, patents, trademarks,
copyrights, goodwill, covenants not to compete, research and developmental
costs, training costs, and deferred charges, (ii) all amounts due at any time
and from time to time from Affiliates, and (iii) all shareholder loans.
"Eligible Accounts Receivable" means accounts receivable of the Borrower
for which: (i) delivery of the merchandise or
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rendition of the service reflected in the applicable invoice has been completed;
(ii) no return, rejection or repossession has occurred; (iii) such merchandise
or services have been finally accepted by the account debtor without material
dispute, setoff, defense, or counterclaim; (iv) are not subject to offset or
deduction; (v) the Bank continues to be satisfied with the credit standing of
the account debtor in relation to the amount of credit extended; and (vi) are
not more than 90 days from invoice date. Ineligible accounts receivable shall
be determined by the Bank in its sole and absolute discretion and would include,
without limitation, accounts receivable where (i) the account debtor with
respect thereto is an Affiliate of the Borrower; (ii) the account debtor with
respect thereto is not located in the United States, however foreign accounts
receivable that are insured under an insurance policy which such policy to be
reviewed and satisfactory to the Bank in all respects, and under which policy
the Bank is named as loss payee, will be considered as Eligible Accounts
Receivable; (iii) the account debtor with respect thereto is also a supplier to
or creditor of the Borrower, unless such supplier or creditor has executed a
no-offset letter satisfactory to the Bank, provided however that to the extent
that the Bank has not received such no-offset letter and the account debtor's
account receivable due to the Borrower exceeds the account payable due from the
Borrower to the account debtor (the "Payable"), such excess shall be considered
Eligible Accounts Receivable to the extent that such Payable does not exceed
(10%), of total accounts receivable from that account debtor; (iv) the account
receivable is owing from an account debtor of which more than 50% of the total
accounts receivable from such account debtor are more than 90 days past due; (v)
the account receivable is owing from an account debtor of which there are credit
balances; (vi) the account receivable is a government receivable; (vii) the
account debtor has commenced a voluntary case under the federal bankruptcy laws,
as now constituted or hereafter amended, or made an assignment for the benefit
of creditors, or if a decree or order for relief has been entered by a court
having jurisdiction in the premises in respect of the account debtor in an
involuntary case under any state or federal bankruptcy laws, as now constituted
or hereafter amended, or if any other petition or other application for relief
under any state or federal bankruptcy law has been filed against the account
debtor, or if the account debtor has failed, suspended business, ceased to be
solvent, called a meeting of its creditors, or consented to or suffered a
receiver, trustee, liquidator or
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custodian to be appointed for it or for all or a significant portion of its
assets or affairs; and (viii) the sale to the account debtor is on a guaranteed
sale, sale-and-return, sale on approval, consignment or any other repurchase or
return basis or is evidenced by chattel paper. The foregoing criteria for
eligibility may be revised from time to time by the Bank in its exclusive
judgement.
"Eligible Inventory" means inventory of the Borrower including raw
materials such as bar stock stainless steel and aircraft grade aluminum and
finished goods consisting of standardized instrument components as sold through
the Borrower's current catalog (i) upon which the Bank has obtained a first
priority perfected security interest; (ii) for which the Bank has received a
properly executed landlord waiver, in form satisfactory to the Bank (should such
Eligible Inventory be located at a leased location); (iii) for which the
Borrower has made a sale within the past 360 days; (iv) which would not be
classified as "obsolete" inventory by the Borrower; (v) which is located in the
United States and (vi) which shall be at all times acceptable to the Bank in all
respects. In no event shall "Eligible Inventory" include work in process
inventory. All inventory or product built to specific customer specifications
shall be considered Eligible Inventory until June 30, 1997. At June 30, 1997 or
such date thereafter when the Borrower can provide detailed information on
inventory or product built to specific customer specifications, such inventory
shall be included as Eligible Inventory to the extent that there is a purchase
contract specifying delivery within the next ninety (90) days. The foregoing
criteria for eligibility may be revised from time to time by the Bank in its
exclusive judgment. Reserves against inventory may be established from time to
time at the sole discretion of the Bank in order to preserve collateral quality.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or Hazardous Materials or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage,
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disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which the Borrower is a member, or (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Borrower is a member.
"Event of Default" has the meaning given such term in Section 8.01.
"Facility Documents" means this Agreement, the Note, the Guaranty, the
Security Agreements, Declaration of Restrictions and any and all other documents
made by Borrower and/or Guarantor to Bank in connection with the Revolving
Credit Loan and/or this Agreement.
"Forfeiture Proceeding" means any action, proceeding or investigation
affecting the Borrower, Guarantor or any of their Subsidiaries or Affiliates
before any court, governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or the receipt of notice by any such party
that any of them is a suspect in or a target of any governmental inquiry or
investigation, which may result in an indictment of any of them or the seizure
or forfeiture of any of their property.
"Funded Debt" means, with respect to any Person, all Debt of such Person
for money borrowed which by its terms matures more than one year from the date
as of which such Funded Debt is incurred, and any Debt of such Person for money
borrowed maturing within one year from such date which is renewable or
extendable at the option of the obligor to a date beyond one year from such date
(whether or not theretofore renewed or extended), including any such
indebtedness renewable or extendable at the option of the obligor under, or
payable from the proceeds of other indebtedness which may
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be incurred pursuant to, the provisions of any revolving credit agreement or
other similar agreement.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, applied on a basis consistent with
those used in the preparation of the financial statements referred to in Section
4.05, except for any changes therein required by a change in GAAP.
"Grantor" has the meaning given such term in the Security Agreement.
"Guarantor" means Empire-Tyler Corporation and all Subsidiaries and
Affiliates, now existing or hereafter formed or acquired of the Borrower or any
Guarantor.
"Guaranty" means the guaranty in the form of Exhibit B to be delivered by a
Guarantor under the terms of this Agreement.
"Hazardous Materials" means any material, whether animate or inanimate,
raw, processed or waste by-product, which in itself or as found or used, is
potentially toxic, noxious or harmful to the health or safety of human or animal
life or vegetation, regardless of whether such material be found on or below the
surface of the ground, in any surface or underground water, or airborne in
ambient air or in the air inside of any structure built or located upon or below
the surface of the ground, or in any machinery, equipment or inventory located
or used in any such structure, including, but in no event limited to, all
hazardous materials, hazardous wastes, toxic substances, infectious wastes,
pollutants and contaminants from time to time defined or classified as such
under any Environmental Law regardless of the quantity found, used, manufactured
or removed from a given location.
"Interest Expense" means with respect to any entity, such entity's interest
expense as reflected in its financial statements and calculated in accordance
with GAAP.
"Interest Determination Date" shall mean the date on which a Floating Rate
Option Loan is converted to a LIBOR Option Loan and in the case of a LIBOR
Option Loan, the last day of the interest period.
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"Interest Period" means the period commencing on the date a Loan is made
and ending, as the Borrower may select pursuant to Section 2.05 and in the case
of LIBOR Option Loans, either 1,2,3 or 6 months (subject to availability)
thereafter.
"Interest Rate" means either of the following interest rate options to be
selected by the Borrower:
(i) FLOATING RATE OPTION: Upon same Banking Day written notice to the
Bank, the Prime Rate per annum in effect from time to time. Interest
shall be computed on an actual/360 day basis and including any time
extended by reason of Saturdays, Sundays and holidays. Revolving
Credit Loans subject to the Floating Rate Option shall be in
minimum amounts of $100,000.00; or
(ii) LIBOR OPTION: Upon three (3) Banking Days written notice to the
Bank, the Bank's reserve adjusted London Interbank Offering Rate
("LIBOR") for corresponding deposits of U.S. Dollars, plus the LIBOR
Margin for periods of 1,2,3 and 6 months (subject to availability),
but in any event not beyond the Revolving Credit Termination Date and
for an amount not less than $500,000.00.
"LIBOR Margin" shall be determined and adjusted on a semi-annual basis
based upon the ratio of Consolidated Total Liabilities to Consolidated Tangible
Net Worth (the "Leverage Ratio"). Upon the receipt and satisfactory review by
the Bank of the consolidated financial statement of the Borrower for the fiscal
semi-annual period ended March 31, 1996 and for each fiscal semi-annual period
thereafter, the LIBOR Margin shall be determined based upon the Leverage Ratio
as contemplated below:
LEVERAGE RATIO LIBOR MARGIN (360 DAY BASIS)
-------------- ----------------------------
Level 1 < .49 1.50%
Level 2 > .50 but < 1.25 1.75%
Level 3 > 1.25 2.00%
Level 1 and 2 interest rates shall be available to the Borrower provided that
(i) the Borrower's financial statements are received
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within the required time frame pursuant to this Agreement and (ii) no Event of
Default has occurred and is continuing under this Agreement. Provided that
there is no Event of Default under this Agreement or any related documents, the
referenced interest rates shall become effective and shall pertain to each new
LIBOR Option Loan five business days after the receipt by the Bank of the
consolidated financial statements of the Borrower for such period together with
a certificate of the Borrower demonstrating the calculation of the Leverage
Ratio and shall remain in effect for the succeeding period until the receipt by
the Bank of the financial statements for the next succeeding fiscal period.
However, should such financial statements not be submitted to the Bank within
the required time frames, LIBOR Margin shall be that outlined above for Level 3.
The Bank shall not be deemed to have waived any Event of Default or any of its
remedies in connection with the foregoing.
"Lending Office" means, the lending office of the Bank (or of an affiliate
of the Bank) designated as such on its signature page hereof or such other
office of the Bank (or of an affiliate of the Bank) as the Bank may from time to
time specify to the Borrower.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loans" means the Revolving Credit Loans.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA
to which contributions have been made by the Borrower or any ERISA Affiliate and
which is covered by Title IV of ERISA.
"Net Income" means with respect to any Person for any period, such Person's
net income after taxes for such period as reflected on such entity's financial
statements.
"Note" means the Revolving Credit Note in the form of Exhibit "A" annexed
hereto evidencing the Loans.
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"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
"Plan" means any employee benefit or other plan established or maintained,
or to which contributions have been made, by the Borrower or any ERISA Affiliate
and which is covered by Title IV of ERISA, other than a Multiemployer Plan.
"Prime Rate" means that rate of interest from time to time announced by the
Bank at the Principal Office as its prime commercial lending rate.
"Principal Office" means the principal office of the Bank, presently
located at 270 Park Avenue, New York, New York 10017.
"Regulation G, T, U or X" means Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System as the same may be amended or
supplemented from time to time.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA as to which events the PBGC by regulation has not waived the requirement
of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence
of such event, provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA shall be a Reportable Event
regardless of any waivers given under Section 412(d) of the Code.
"Revolving Credit Commitment" means the obligation of the Bank to extend
Revolving Credit Loans to the Borrower in accordance with the terms hereof in
the aggregate principal amount of $4,000,000.00 as such amount may be reduced or
otherwise modified from time to time in accordance with the terms hereof.
"Revolving Credit Loans" means any Loan made by the Bank pursuant to
Section 2.01 hereof.
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"Revolving Credit Note" means a promissory note of the Borrower in the form
of Exhibit A hereto evidencing the Revolving Credit Loans made by the Bank
hereunder.
"Revolving Credit Termination Date" means the earlier of (i) the date on
which the Revolving Credit Loans are paid in full and the Revolving Credit
Commitments shall terminate hereunder and the obligations of the Borrower in
connection therewith have been satisfied or (ii) the date three (3) years from
the date hereof; provided that if such date is not a Business Day, the Revolving
Credit Termination Date shall be the next succeeding Business Day.
"Security Agreements" means the Security Agreement to be delivered by
Borrower and Guarantors under the terms of this Agreement.
"Solvent" means when used with respect to any Person on a particular date,
that on such date: (a) the present fair saleable value of its assets is in
excess of the total amount of its liabilities, including, without limitation,
the reasonably expected amount of such Person's obligations with respect to
contingent liabilities, (b) the present fair saleable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its Debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur Debts or liabilities beyond such Person's ability to pay as such Debts and
liabilities mature and (d) such Person is not engaged in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or joint venture, whether now existing or hereafter formed or
acquired, or other entity and (i) in the case of a corporation, of which at
least a majority of the securities or other ownership interests having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by such Person and (ii) in the case of a partnership or joint
venture, of which a majority of the partnership or other ownership interests are
at the time owned by such Person and/or Subsidiaries of such Person.
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"Unfunded Benefit Liabilities" means, with respect to any Plan, the amount
(if any) by which the present value of all benefit liabilities (within the
meaning of Section 4001(a)(16) of ERISA) under the Plan exceeds the fair market
value of all Plan assets allocable to such benefit liabilities, as determined on
the most recent valuation date of the Plan and in accordance with the provisions
of ERISA for calculating the potential liability of the Borrower or any ERISA
Affiliate under Title IV of ERISA.
Section 1.02. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP.
ARTICLE 2. THE CREDIT.
Section 2.01. REVOLVING CREDIT LOANS. (a) Subject to the terms and
conditions of this Agreement, and relying on the representations and warranties
set forth herein, the Bank agrees to make Revolving Credit Loans in Dollars (the
"Revolving Credit Loans") to the Borrower from time to time from and including
the date hereof to and including the Revolving Credit Termination Date, up to
but not exceeding in the aggregate principal amount at any one time outstanding,
the amount of the Commitment. Subject to the foregoing limits, the Borrower may
borrow, repay, reborrow, on or after the date hereof and prior to the Revolving
Credit Termination Date, all or a portion of the Revolving Credit Commitment
hereunder. The Revolving Credit Loans may be made at the Floating Rate Option,
the LIBOR Option, or a combination thereof.
(b) The principal amount of each Revolving Credit Loan shall be due and payable
on the earlier of (i) the last day of the Interest Period therefor or (ii) the
Revolving Credit Termination Date .
Section 2.02. BORROWING BASE FORMULA. The Loans shall be extended and
maintained upon the Borrowing Base formula. The total outstandings under this
Agreement, including any requested borrowings, must either be equal to or less
than the amount determined each month and before each borrowing to be the
Borrower's Borrowing Base formula up to a limit of $4,000,000.00. The
borrowings are contingent upon the Bank's receipt of the most current monthly
aging of accounts receivable, the most current monthly inventory report and
Borrowing Base Certificate of the
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Borrower. These reports must be delivered to the Bank not more than fifteen
(15) days from the last day of each month. A current Borrowing Base Certificate
(as of the last day of the preceding month prior to the drawdown) must be
submitted to the Bank before each drawdown;
Section 2.03. THE REVOLVING CREDIT NOTE. The Revolving Credit Loans shall
be evidenced by a single Revolving Credit Note in favor of the Bank
substantially in the form of Exhibit A with appropriate insertions, duly
executed and completed by the Borrower. The Bank is hereby authorized to record
the date and amount of each Revolving Credit Loan, the date and amount of each
payment or prepayment of principal thereof and the principal amount subject
thereto in the Bank's records and/or on the schedules annexed to and
constituting a part of the Note, and any such recordation shall constitute PRIMA
FACIE evidence of the accuracy of the information so recorded; provided that the
failure to make any such recordation shall not in any way affect the Borrower's
obligation to repay the Revolving Credit Loans. The Revolving Credit Note (a)
shall be dated the date hereof, (b) shall be stated to mature on the Revolving
Credit Termination Date and (c) shall bear interest from and including the date
hereof on the unpaid principal amount thereof from time to time outstanding as
provided herein.
Section 2.04. USE OF PROCEEDS. (a) The Borrower shall use the proceeds
of the Revolving Credit Loans to refinance existing bank loans and for general
working capital purposes. No part of the proceeds of any of the Revolving
Credit Loans will be used for any purpose which violates the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System
as in effect on the date of making such Loans.
(b) The Borrower agrees to indemnify the Bank and hold the Bank harmless
from and against any and all liabilities, losses, damages, costs and expenses of
any kind (including, without limitation, the reasonable fees and disbursements
of counsel for the Bank in connection with any investigative, administrative or
judicial proceeding, whether or not the Bank shall be designated a party
thereto) which may be incurred by the Bank, relating to or arising out of any
actual or proposed use of proceeds of Revolving Credit Loans hereunder.
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Section 2.05 BORROWING PROCEDURES FOR REVOLVING CREDIT LOANS. The
Borrower may request a borrowing under the Revolving Credit Commitment hereunder
as provided in Section 2.08. On the date of such borrowing, the Bank shall,
subject to the conditions of this Agreement, make available to the Borrower, in
immediately available funds, the amount of such borrowing by crediting an
account of the Borrower designated by the Borrower and maintained with the Bank.
If the amount of said request for borrowing, when combined with all outstanding
Revolving Credit Loans exceeds the Borrowing Base formula, the Bank shall not be
obligated to make said Loan.
Section 2.06. PREPAYMENTS. On any Revolving Credit Loans subject to the
Floating Rate Option the Borrower shall have the right to make prepayments of
principal, at any time or from time to time, provided that the Borrower shall
give the Bank notice of each such prepayment as provided in Section 2.08, and
any prepayment must be in minimum amounts of $100,000.00.
On any Revolving Credit Loans subject to the LIBOR Option, the Borrower
shall have the right to make prepayments of principal only on the last day of
the Interest Period corresponding to each Revolving Credit Loan provided that
the Borrower shall give the Bank notice of each such prepayment as provided in
Section 2.08 and any prepayment must be in minimum amounts of $100,000.00.
Section 2.07. CHANGES OF COMMITMENT. The Borrower shall have the right to
reduce or terminate the amount of unused Commitment at any time or from time to
time, provided that: (a) the Borrower shall give notice of each such reduction
or termination to the Bank as provided in Section 2.08; and (b) each partial
reduction shall be in an aggregate amount at least equal to $100,000.00. The
Commitment once reduced or terminated may not be reinstated.
Section 2.08. CERTAIN NOTICES. Notices by the Borrower to the Bank of
each borrowing pursuant to Section 2.05, and each prepayment pursuant to Section
2.06, and each reduction or termination of the Commitment pursuant to Section
2.07 shall be irrevocable and shall be effective only if received by the Bank
not later than 12:00 noon New York City time, and in the case of borrowings and
prepayments, given on or prior to the Banking Day therefor. In the case of
reductions or termination of the Commitment, the Bank shall be given notice
three Banking Days prior thereto. Each such notice shall specify the Loans to
be borrowed
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or prepaid, and the Interest Rate and the amount (subject to Section 2.09) and
the date of the borrowing or prepayment (which shall be a Banking Day). Each
such notice of reduction or termination shall specify the amount of the
Commitment to be reduced or terminated. Any notice of borrowing that does not
specify an Interest Rate option or if a Libor Option Loan matures and Bank does
not receive notice of an Interest Rate Option, the Interest Rate shall be deemed
a Floating Rate Option Loan and any request for a LIBOR Option Loan which does
not request an Interest Period shall be deemed to be a LIBOR Option Loan with an
Interest Period of one (1) month.
Section 2.09. MINIMUM AMOUNTS. Except for borrowings which exhaust the
full remaining amount of the Commitment, and prepayments (in the case of
Floating Rate Option Loans) which result in the prepayment of all Loans, each
borrowing and prepayment of principal of a Loan shall be in an amount of at
least equal to or a multiple of $100,000.00 ($500,000.00 in the case of LIBOR
Option Loan).
Section 2.10. INTEREST ON REVOLVING CREDIT LOANS.. The Borrower shall pay
interest, computed at the "Interest Rate" in effect, on the outstanding and
unpaid principal amount of each Revolving Credit Loan made under this Agreement.
Interest shall be payable (i) monthly in arrears commencing the last business
day of the first month following the date hereof, (ii) on any Interest
Determination Date, and (iii) on the Revolving Credit Termination Date.
Section 2.11. REVOLVING CREDIT COMMITMENT FEE. (a) The Borrower shall pay
to the Bank a commitment fee (the "Commitment Fee") equal to one-quarter of one
percent (0.25%) per annum on the average daily unused portion of the Revolving
Credit Commitment. The Commitment Fee shall be due and payable in arrears on
the last day of each calendar quarter commencing the first calendar quarter
immediately following the Closing Date and on the Revolving Credit Termination
Date.
Section 2.12. PAYMENTS GENERALLY. All payments under this Agreement or
the Note shall be made in Dollars in immediately available funds not later than
1:00 p.m. New York City time on the relevant dates specified above (each such
payment made after such time on such due date to be deemed to have been made on
the next
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succeeding Banking Day) at the Lending Office of the Bank, provided that, when a
new Revolving Credit Loan is to be made by the Bank on a date the Borrower is to
repay any principal of any outstanding Revolving Credit Loans, the Bank shall
apply the proceeds thereof to the payment of principal to be repaid and only an
amount equal to the difference between the principal to be borrowed and the
principal to be repaid shall be made available by the Bank to the Borrower as
provided in Section 2.05 or paid by the Borrower to the Bank pursuant to this
Section 2.12, as the case may be. The Bank shall debit the Borrower's demand
deposit account maintained with the Bank for all principal payments, interest
payments and payments of any and all fees due the Bank on said due dates. The
Borrower shall, at the time of making each payment under this Agreement or the
Note, specify to the Bank the principal or other amount payable by the Borrower
under this Agreement or the Note to which such payment is to be applied (and in
the event that it fails to so specify, or if a Default or Event of Default has
occurred and is continuing, the Bank may apply such payment as it may elect in
its sole discretion). If the due date of any payment under this Agreement or
the Note would otherwise fall on a day which is not a Banking Day, such date
shall be extended to the next succeeding Banking Day and interest shall be
payable for any principal so extended for the period of such extension. If the
due date of any payment under this Agreement or the Note would otherwise fall on
a day which is not a Banking Day, such date shall be, in the case of LIBOR
Option Loans, extended to the next succeeding Banking Day unless the next
succeeding Banking Day would fall in the next calendar month, in which case such
date shall be on the next preceding Banking Day. All payments under this
Agreement shall be made by the Borrower without defense, setoff or counterclaim
to the Bank on the date when due and shall be made in lawful money of the United
States of America in immediately available funds.
Section 2.13. CAPITAL REQUIREMENTS. (a) The Borrower shall pay to the
Bank from time to time on demand such amounts as the Bank may determine to be
necessary to compensate the Bank for any costs which the Bank determines are
attributable to its obligation to extend credit hereunder in respect of any
amount of capital maintained by the Bank or any of its affiliates pursuant to
any law or regulation of any jurisdiction or any interpretation, directive or
request (whether or not having the force of law) of any court or governmental or
monetary authority, whether in effect on the date of this Agreement or
thereafter. Without limiting the foregoing,
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such compensation shall include an amount equal to any reduction in return on
assets or return on equity to a level below that which the Bank could have
achieved but for such law, regulation, interpretation, directive or request.
The Bank will notify the Borrower if it is entitled to compensation pursuant to
this Section as promptly as practicable after it determines to request such
compensation.
(b) Determinations and allocations by the Bank for purposes of this
Section as to the effect of capital requirements on its obligation to extend
credit, and of the additional amounts required to compensate the Bank under this
Section shall be conclusive, provided that such determinations and allocations
are conclusive absent manifest error. For purposes of this Section 2.13, in
calculating the amount necessary to compensate the Bank for any such cost, the
Bank shall calculate the amount payable to it in a manner consistent with the
manner in which it shall calculate similar compensation payable to it by other
borrowers having provisions in their credit agreements comparable to this
Section 2.13.
Section 2.14. HLT CLASSIFICATION. If, after the date hereof, the Bank has
received notice from any governmental authority, central bank or comparable
agency having jurisdiction over the Bank that the definition of highly leveraged
transaction has been modified with the result that its Loans hereunder are
classified as a "highly leveraged transaction" (an "HLT Classification") or if
the Borrower takes any action which causes this transaction to be subject to HLT
Classification the Bank shall promptly give notice of such HLT Classification to
the Borrower. The Bank and the Borrower shall commence negotiations in good
faith to agree on whether and, if so, the extent to which commitment fees,
interest rates and/or margins hereunder should be increased so as to reflect
such HLT Classification. If the Borrower and the Bank fail to agree on such
increases within thirty (30) days after notice is given as provided above, then
(i) the Bank shall, by notice to the Borrower immediately terminate the
Commitment, and (ii) the Borrower shall be obligated to prepay on the date of
such termination of the Commitment each outstanding Loan by paying the aggregate
principal amount to be prepaid together with all accrued interest thereon to the
date of such prepayment; provided that, if the Borrower prepays any LIBOR Option
Loans pursuant to this clause, the Borrower shall compensate the Bank for any
resulting
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funding losses. The Bank acknowledges that a HLT Classification is not a
Default or an Event of Default hereunder.
Section 2.15. ADDITIONAL COSTS. (a) Borrower shall pay to Bank from time
to time such amounts as Bank may determine to be necessary to compensate it for
any costs which the Bank determines are attributable to its making or
maintaining any LIBOR Option Loan under this Agreement or its undertaking to
make or maintain any such LIBOR Option Loans hereunder, or any reduction in any
amount receivable by Bank hereunder in respect of any such LIBOR Option Loans or
such undertaking (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), resulting from any regulatory change
applicable to Bank which: (i) changes the basis of taxation of any amounts
payable to Bank under this Agreement in respect of any of such LIBOR Option
Loans (other than federal and state taxes imposed on the net income of Bank on
account of any of such LIBOR Option Loans by the jurisdiction in which the Bank
is located); or (ii) imposes or modifies any reserve, special deposit, deposit
insurance or assessment, capital or similar requirements relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, Bank; or (iii) imposes any other condition affecting this
Agreement (or any of such extensions of credit or liabilities ). Bank will
notify Borrower of any event occurring after the date of this Agreement which
will entitle Bank to compensation pursuant to this Section 2.15 as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. All payments required from Borrower hereunder shall be made
within fifteen (15) days of Borrower's receipt of notice that such payments are
due.
(b) Without limiting the effect of the foregoing provisions of this
Section 2.15, in the event that, by reason of any regulatory change applicable
to Bank, Bank either (i) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits or other
liabilities of Bank which includes deposits by reference to which the LIBOR
Option Interest Rate is determine, as provided in this Agreement or a category
of extensions of credit or other assets of Bank which includes LIBOR Option
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if Bank so elects by notice to
Borrower, the undertaking of Bank to make such LIBOR Option Loans, or to renew
the LIBOR Option Interest Rate or to convert any
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interest rate option to the LIBOR Option Interest Rate shall be suspended until
the date such applicable regulatory change ceases to be in effect, and Borrower
shall on the last day of the then current Interest Period for such affected
outstanding Loans, pay such Loans in accordance with this Agreement.
(c) Determinations and allocations by Bank for purposes of this Section
2.15 of the effect of any applicable regulatory change on its costs of making or
maintaining such LIBOR Option Loans or on amounts receivable by it in respect of
such LIBOR Option Loans, and of the additional amounts required to compensate
Bank in respect of any Additional Costs, shall be conclusive, provided that such
determinations are made in good faith on a reasonable basis and are made in a
manner consistent with the manner in which it shall calculate similar
compensation payable to it by other borrowers having provisions in their credit
agreements comparable to this Section 2.15.
Section 2.16. LIMITATION ON TYPES OF LOANS. Anything herein to the
contrary notwithstanding, if Bank determines (which determination shall be
conclusive) that the relevant rates of interest which are the basis of the LIBOR
Option Interest Rate do not adequately cover the cost to Bank of making or
maintaining the LIBOR Option Loans, then Bank shall give Borrower prompt notice
thereof, and so long as such condition remains in effect, Bank shall be under no
obligation to make such LIBOR Option Loans and Borrower shall, on the last
day(s) of the current Interest Period(s) for the outstanding LIBOR Option Loans
of the affected type, pay such LIBOR Option Loans in accordance with this
Agreement.
Section 2.17. ILLEGALITY. Notwithstanding any other provisions in this
Agreement, in the event that it becomes unlawful for Bank to (a) honor its
undertaking to make LIBOR Option Loans hereunder, or (b) maintain such LIBOR
Option Loans hereunder, then Bank shall promptly notify Borrower thereof and
Bank's undertaking to make such LIBOR Option Loans shall be suspended until such
time as Bank may again make and maintain such affected LIBOR Option Loans and
LIBOR Option Interest Rate, and Borrower shall, on the last day(s) of the then
current Interest Period(s) for the outstanding LIBOR Option Loans (or on such
earlier date as Bank may specify to Borrower, due to the illegality of
maintaining such
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LIBOR Option Loans), pay such LIBOR Option Loans in accordance with this
Agreement.
Section 2.18. COMPENSATION. Borrower shall pay to Bank, upon the request
of Bank and within fifteen (15) days of such request, such amount or amounts as
shall be sufficient (in the reasonable opinion of Bank) to compensate it for any
loss, cost or expense which Bank determines is attributable to:
(a) any payment or prepayment of a LIBOR Option Loan, where such payment
or prepayment occurs on a date other than the last day of an Interest Period for
the respective LIBOR Option Loans (whether by reason of demand by Bank for
payment or otherwise); or
(b) any failure by Borrower to, on the date specified therefor in the
relevant notice under this Agreement, enter into a LIBOR Option Loan.
Without limiting the foregoing, such compensation shall include an amount equal
to the excess, if any, of (i) the amount of interest which otherwise would have
accrued on the principal amount so paid or prepaid or not borrowed for the
period from and including the date of such payment or prepayment or failure to
borrow to but excluding the last day of the then current Interest Period for
such LIBOR Option Loan (or, in the case of a failure to borrow to but excluding
the last day of the Interest Period for such LIBOR Option Loan which would have
commenced on the date specified therefor in the relevant notice) at the
applicable rate of interest for such LIBOR Option Loan provided for herein over
(ii) the amount of interest (as reasonably determined by Bank) the reference
bank would have bid in the London interbank market (if such Loan is a LIBOR
Option Loan) for U.S. Dollar deposits for amounts comparable to such principal
amount and maturities comparable to such Interest Period. A determination of
the Bank as to the amounts payable pursuant to this Section 2.18 shall be
conclusive absent manifest error.
Section 2.19. SURVIVAL. The undertaking of Borrower under this Article 2
shall survive the repayment of the Loans and termination of the Revolving Credit
Commitment.
Section 2.20. LATE PAYMENT FEE. If Borrower fails to maintain sufficient
available funds on the respective payment due dates in
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its demand deposit account maintained with the Bank, as set forth in Section
2.12, for the payment of principal, interest and/or fees due the Bank, the
Borrower shall be required to pay additional interest on said late payment by
calculating the amount of principal and/or interest and/or fees past due times
(x) the Prime Rate plus two percent (2%) per annum/(360 days) times (y) the
number of days the payment(s) are past due.
Section 2.21. DEFAULT INTEREST. Notwithstanding any other provision of
this Agreement, upon the occurrence and during the continuance of an Event of
Default, each Loan outstanding hereunder shall bear interest at a rate per annum
equal to the Default Rate until such Event of Default has been either cured or
waived by the Bank. No payment of the default interest shall be required in
respect to any amount for which a payment has been made pursuant to Section
2.20.
Section 2.22. EXCESS OF BORROWING BASE FORMULA. If at any time the total
outstandings of the Revolving Credit Loans exceed the maximum amount available
under the Borrowing Base formula, upon notice by the Bank to the Borrower, the
Borrower shall reduce the outstanding balance of the Revolving Credit Loans, on
the same day as notice is received by the Borrower, in an amount sufficient to
reduce the total outstandings of the Revolving Credit Loans to be within the
maximum amount available under the Borrowing Base formula. Said payments shall
be applied first to Floating Rate Option Loans and then the balance to the
reduction of LIBOR Option Loans.
Section 2.23. INTEREST PERIODS. In the case of each Loan, the Borrower
shall select an Interest Period of any duration in accordance with the
definition of Interest Period in Section 1.01, subject to the following
limitations: (a) no Interest Period may extend beyond the Revolving Credit
Termination Date; and (b) if an Interest Period would end on a day which is not
a Banking Day, such Interest Period shall be extended to the next Banking Day
unless such Banking Day would fall in the next calendar month in which event
such Interest Period shall end on the immediately preceding Banking Day.
ARTICLE 3. CONDITIONS PRECEDENT.
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Section 3.01. DOCUMENTARY CONDITIONS PRECEDENT. The obligation of the
Bank to make the Revolving Credit Loan constituting the initial borrowing is
subject to the condition precedent that the Bank shall have received on or
before the date of such Revolving Credit Loan each of the following, in form and
substance satisfactory to the Bank and its counsel:
(a) the Note duly executed by the Borrower;
(b) the Guaranty duly executed by each Guarantor;
(c) a certificate of the Secretary or Assistant Secretary of the Borrower
and each Guarantor, dated the Closing Date, attesting to all corporate action
taken by the Borrower and each Guarantor, including resolutions of its Board of
Directors authorizing the execution, delivery and performance of the Facility
Documents to which it is a party and each other document to be delivered
pursuant to this Agreement together with certified copies of the certificate or
articles of incorporation and the by laws and any amendments thereto of the
Borrower and Guarantor; each such certificate shall be executed by the
respective Secretary or Assistant Secretary of the Borrower and Guarantor and
shall state that the resolutions and corporate documents thereby certified have
not been amended, modified , revoked or rescinded as of the date of the initial
borrowing of the Loans;
(d) a certificate of the Secretary or Assistant Secretary of the Borrower
and Guarantor, dated the Closing Date, certifying the names and true signatures
of the officers of the Borrower and Guarantor authorized to sign the Facility
Documents to which it is a party and the other documents to be delivered by the
Borrower and Guarantor under this Agreement;
(e) a certificate of a duly authorized officer of the Borrower and
Guarantor, dated the Closing Date, stating that the representations and
warranties in Article 4 are true and correct on such date as though made on and
as of such date and that no event has occurred and is continuing which
constitutes a Default or Event of Default;
(f) a "long form" certificate of good standing of the Borrower and
Guarantor;
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(g) the Security Agreements duly executed by the Borrower and Guarantor
together with (a) Financing Statements on Form UCC-1 under the Uniform
Commercial Code for all jurisdictions necessary or, in the opinion of the Bank,
desirable to perfect the security interests created by the Security Agreement
and (b) UCC search results indicating that no party claims an interest in any of
the Collateral;
(h) satisfactory evidence that the Borrower's current lenders, including
Fleet Bank, N.A., shall have been (or shall concurrently be) paid in full, all
commitments shall have been terminated, all guaranties of Borrower and Guarantor
shall have been released and that all liens granted to such lenders by Borrower
and/or Guarantor shall have been terminated, which evidence shall include UCC-3
Termination Statements for all UCC-1 Financing Statements filed on behalf of
such lenders;
(i) a favorable opinion of counsel for the Borrower and Guarantor, dated
the Closing Date, which must be deemed acceptable to the Bank and its counsel;
(j) a Declaration of Restrictions of Guarantor, dated the Closing Date, in
substantially the form of Exhibit D and as to such other matters as the Bank may
request;
(k) an all-risk property insurance policy issued by a company satisfactory
to the Bank in its sole and absolute discretion, naming the Bank, as loss payee
and additional insured and a general public liability insurance policy
satisfactory to the Bank, in its sole discretion, naming the Bank as additional
insured. Said insurance policies must be issued by licensed New York insurance
companies maintaining an "A" rating or better by A.M. Best Insurance Guide;
(l) all documentation required by the terms and conditions of this
Agreement;
(m) the consolidated financial statements of the Borrower and its
Subsidiaries for the fiscal year ended September 30, 1995 and the interim
consolidated financial statements of the Borrower and its Subsidiaries for the
nine (9) month period ending June 30, 1996, which each must be in a form and
substance satisfactory to the Bank;
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(n) a payoff letter from Fleet Bank, N.A. evidencing the full repayment and
satisfaction of all obligations of the Borrower and Guarantors under all
existing credit facilities with Fleet Bank, N.A.;
(o) the most recent (to be dated within 30 days of the date hereof) aging
of accounts receivable of the Borrower, in form and substance satisfactory to
the Bank;
(p) the most recent (to be dated within 30 days of the date hereof)
inventory designation schedule of the Borrower (and other inventory reports to
be determined by the Bank);
(q) an updated Borrowing Base Certificate which is dated as of the date
hereof;
(r) a field audit report which must be satisfactory in form and substance
to the Bank;
(s) landlord waivers for all leased locations where assets of the Borrower
and Guarantors are located, in the form of Exhibit F annexed hereto and which
must be satisfactory in form and substance to the Bank and the Bank's counsel;
(t) due diligence reports with respect to the Borrower and the Guarantors
including, without limitation, bank checkings, trade checkings, customer
checkings and litigation checkings and all due diligence with respect to
management;
(u) all material loan or credit agreements entered into by the Borrower or
any Guarantor and all material shareholder, employee and management agreements
with respect to the Borrower or any Guarantor;
(v) a schedule of all lease agreements affecting the Borrower and the
Guarantor which such schedule shall include without limitation the lessor, the
lessee, the term of the lease, the annual lease expenditure, the expiration of
the lease and whether such lease is an operating or capital lease;
(w) the agreement for the Borrower's private placement of the common stock
completed during 1994;
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(x) nothing shall have occurred to the Borrower and/or Guarantor, which in
the Bank's sole judgment could, individually or in aggregate, have a material
adverse effect on (a) the rights and remedies of the Bank under the definitive
documentation for the Revolving Credit Loan, (b) the ability of the Borrower and
the Guarantor to perform their respective obligations or (c) the business,
property, assets, liabilities, condition (financial or otherwise), operations,
results of operations or prospects of the Borrower or any Guarantor prior to and
after giving effect to the financing contemplated herein;
(y) such other documents, instruments, approvals, opinions and evidence as
the Bank may reasonably require;
(z) the Borrower shall have paid or caused to be paid all fees required to
be paid hereunder or in connection herewith which are accrued through the date
hereof including audit and legal fees;
(aa) the Borrower and the Guarantor shall have obtained all consents,
permits and approvals required in connection with the execution, delivery and
performance by the Borrower of its obligations hereunder and under the other
Facility Documents and such consents, permits and approvals shall continue in
full force and effect;
(bb) the satisfactory evidence to the Bank that the Borrower and the
Guarantor are not in default with respect to any material contractual
obligations to which they are a party;
(cc) satisfactory evidence that no litigation is pending or threatened
against the Borrower or the Guarantor which, if adversely determined, may have a
materially adverse effect upon the business, properties, assets, financial or
other condition of the Borrower and the Guarantor or on the ability of the
Borrower or the Guarantor to perform its obligations hereunder or under the
Facility Documents;
(dd) satisfactory evidence that the Borrower and the Guarantor are in
compliance with all applicable laws and regulations, including without
limitation all Environmental Laws, which, if the Borrower and the Guarantor were
not in compliance therewith, may have a materially adverse effect upon the
business, properties, assets, financial or other condition of the Borrower and
the
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Guarantor or on the ability of the Borrower and the Guarantor to perform its
obligations hereunder or under the Facility Documents; and
(ee) all legal matters in connection with this financing shall be
satisfactory to the Bank and its counsel.
Section 3.02. ADDITIONAL CONDITIONS PRECEDENT. The obligation of the Bank
to make the Loans pursuant to a borrowing which increases the amount outstanding
hereunder (including the initial borrowing) shall be subject to the further
conditions precedent that on the date of such Loan:
(a) the following statements shall be true and the Bank shall have
received a certificate signed by the Chairman of the Board or President or
Chief Financial Officer of the Borrower and Guarantor dated the date of such
Revolving Credit Loan stating that:
(i) the representations and warranties contained in Article 4, in the
Guaranty and in Article 2 of the Security Agreement, are true and
correct on and as of the date of such Loan as though made on and as of
such date; and
(ii) no Default or Event of Default has occurred and is continuing, or
would result from such Loan;
(b) the Bank shall have received the Borrowing Base Certificate; and
(c) the Bank shall have received such approvals, opinions or documents as
the Bank may reasonably request.
Section 3.03. DEEMED REPRESENTATIONS. Each notice of borrowing hereunder
and acceptance by the Borrower of the proceeds of such borrowing shall
constitute a representation and warranty that the statements contained in
Section 3.02(a) are true and correct both on the date of such notice and, unless
the Borrower otherwise notifies the Bank prior to such borrowing, as of the date
of such borrowing.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.
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The Borrower and each Guarantor (as appropriate) hereby represent and warrant
that:
Section 4.01. INCORPORATION, GOOD STANDING AND DUE QUALIFICATION. Each of
the Borrower and its Subsidiaries and Guarantor are duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its assets and to
transact the business in which it is now engaged or proposed to be engaged, and
is duly qualified as a foreign corporation and in good standing under the laws
of each other jurisdiction in which such qualification is required.
Section 4.02. CORPORATE POWER AND AUTHORITY; NO CONFLICTS. The execution,
delivery and performance by the Borrower and/or Guarantor of the Facility
Documents to which it is a party have been duly authorized by all necessary
corporate action and do not and will not: (a) require any consent or approval
of its stockholders; (b) contravene its charter or by-laws; (c) violate any
provision of, or require any filing (other than the filing of the financing
statements contemplated by the Security Agreement), registration, consent or
approval under, any law, rule, regulation (including, without limitation,
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System
as in effect from time to time), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the Borrower
or any of its Subsidiaries or Affiliates; (d) result in a breach of or
constitute a default or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected;
(e) result in, or require, the creation or imposition of any Lien (other than as
created under the Security Agreement), upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower; or (f) cause the
Borrower (or any Subsidiary or Affiliate, as the case may be) to be in default
under any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.
Section 4.03. LEGALLY ENFORCEABLE AGREEMENTS. Each Facility Document to
which the Borrower and/or Guarantor is a party is, or when delivered under this
Agreement will be, a legal, valid and binding obligation of the Borrower and/or
Guarantor enforceable
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against the Borrower and/or Guarantor in accordance with its terms, except to
the extent that such enforcement may be limited by applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights generally.
Section 4.04. LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower and/or Guarantor, threatened,
against or affecting the Borrower and/or Guarantor or any of their Subsidiaries
before any court, governmental agency or arbitrator, which may, in any one case
or in the aggregate, materially adversely affect the condition (financial or
otherwise), operations, properties, prospects or business of the Borrower and/or
Guarantor or any such Subsidiary or the ability of the Borrower and/or Guarantor
to perform its obligations under the Facility Documents to which it is a party.
Section 4.05. FINANCIAL STATEMENTS. The consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries for the fiscal year ended September
30, 1995, and the related consolidated income statement and statements of cash
flows and changes in stockholders' equity of the Borrower and its Consolidated
Subsidiaries for the fiscal year then ended, and the accompanying footnotes,
together with the opinion thereon, of BDO Seidman, LLP, independent certified
public accountants, and the interim financial statement of the Borrower and its
Consolidated Subsidiaries for the period ended June 30, 1996, copies of each of
which have been furnished to the Bank, are complete and correct in all material
respects and fairly present the financial condition of the Borrower and its
Subsidiaries as at such dates and the results of the operations of the Borrower
and its Subsidiaries for the periods covered by such statements, all in
accordance with GAAP consistently applied, subject (in the case of the interim
financial statements) to normal year-end audit adjustments. There are no
liabilities of the Borrower or any of its Subsidiaries, fixed or contingent,
which are material but are not reflected in the financial statements or in the
notes thereto, other than liabilities arising in the ordinary course of business
since September 30, 1995. No information, exhibit or report furnished by the
Borrower to the Bank in connection with the negotiation of this Agreement
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein not misleading.
Since September 30, 1995, there has been no material adverse change in the
condition (financial or
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otherwise), business, operations or prospects of the Borrower or any of its
Subsidiaries.
Section 4.06. OWNERSHIP AND LIENS. Each of the Borrower and its
Subsidiaries has title to, or valid leasehold interests in, all of its
properties and assets, real and personal, including the properties and assets,
and leasehold interests reflected in the financial statements referred to in
Section 4.05 (other than any properties or assets disposed of in the ordinary
course of business), and none of the properties and assets owned by the Borrower
or any of its Subsidiaries and none of its leasehold interests is subject to any
Lien, except as disclosed in such financial statements or as may be permitted
hereunder and except for the Lien created by the Security Agreement.
Section 4.07. TAXES. Each of the Borrower and its Subsidiaries has filed
all tax returns (federal, state and local) required to be filed and has paid all
taxes, assessments and governmental charges and levies thereon to be due,
including interest and penalties.
Section 4.08. ERISA. Each Plan, and, to the best knowledge of the
Borrower, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other applicable Federal or
state law, and no event or condition is occurring or exists concerning which the
Borrower would be under an obligation to furnish a report to the Bank in
accordance with Section 5.08(i) hereof. As of the most recent valuation date
for each Plan, each Plan was "fully funded", which for purposes of this Section
4.08 shall mean that the fair market value of the assets of the Plan is not less
than the present value of the accrued benefits of all participants in the Plan,
computed on a Plan termination basis. To the best knowledge of the Borrower, no
Plan has ceased being fully funded as of the date these representations are made
with respect to any Loan under this Agreement.
Section 4.09. SUBSIDIARIES AND OWNERSHIP OF STOCK. Schedule I is a
complete and accurate list of the Subsidiaries of the Borrower, showing the
jurisdiction of incorporation or organization of each Subsidiary and showing the
percentage of the Borrower's ownership of the outstanding stock or other
interest of each such
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Subsidiary. All of the outstanding capital stock or other interest of each such
Subsidiary has been validly issued, is fully paid and nonassessable and is owned
by the Borrower free and clear of all Liens.
Section 4.10. CREDIT ARRANGEMENTS. Schedule II is a complete and correct
list of all credit agreements, indentures, purchase agreements, guaranties,
Capital Leases and other investments, agreements and arrangements presently in
effect providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which the Borrower or any of its Subsidiaries is in any
manner directly or contingently obligated; and the maximum principal or face
amounts of the credit in question, outstanding and which can be outstanding, are
correctly stated, and all Liens of any nature given or agreed to be given as
security therefor are correctly described or indicated in such Schedule II.
Section 4.11. OPERATION OF BUSINESS. Each of the Borrower and its
Subsidiaries possesses all licenses, permits, franchises, patents, copyrights,
trademarks and trade names, or rights thereto, to conduct its business
substantially as now conducted and as presently proposed to be conducted, and
neither the Borrower nor any of its Subsidiaries is in violation of any valid
rights of others with respect to any of the foregoing, which violation, in any
one case or in the aggregate, may reasonably be expected to have a material
adverse affect on the consolidated financial condition, operations, business,
properties or prospects of the Borrower and its Subsidiaries.
Section 4.12. HAZARDOUS MATERIALS. The Borrower and each of its
Subsidiaries have obtained all permits, licenses and other authorizations which
are required under all Environmental Laws, except to the extent failure to have
any such permit, license or authorization would not have a material adverse
effect on the consolidated financial condition, operations, business, properties
or prospects of the Borrower and its Subsidiaries. The Borrower and each of its
Subsidiaries are in compliance with the terms and conditions of all such
permits, licenses and authorizations, and are also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations schedules and timetables contained in any applicable Environmental
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Law or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply would not have a material adverse effect
on the consolidated financial condition, operations, business, properties or
prospects of the Borrower and its Subsidiaries.
In addition, except as set forth in Schedule III hereto:
(a) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
governmental or other entity with respect to any alleged failure by the Borrower
or any of its Subsidiaries to have any permit, license or authorization required
in connection with the conduct of the business of the Borrower or any of its
Subsidiaries or with respect to any generation, treatment, storage, recycling,
transportation, release or disposal, or any release as defined in 42 U.S.C.
Section 9601(22) ("RELEASE"), of any substance regulated under Environmental
Laws ("HAZARDOUS MATERIALS") generated by the Borrower or any of its
Subsidiaries.
(b) Neither the Borrower nor any of its Subsidiaries has handled any
Hazardous Materials, other than as a generator, on any property now or
previously owned or leased by the Borrower or any of its Subsidiaries to an
extent that it has, or may reasonably be expected to have, a material adverse
effect on the consolidated financial condition, operations, business or
prospects taken as a whole of the Borrower and its Subsidiaries; and
(i) no polychlorinated biphenyl is or has been present at any
property now or previously owned or leased by the Borrower or any of
its Subsidiaries;
(ii) no asbestos is or has been present at any property now or
previously owned or leased by the Borrower or any of its Subsidiaries;
(iii) there are no underground storage tanks for Hazardous Materials,
active or abandoned, at any property now or previously owned or leased
by the Borrower or any of its Subsidiaries; and
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(iv) no Hazardous Materials have been Released, in a reportable
quantity, where such a quantity has been established by statute,
ordinance, rule, regulation or order, at, on or under any property now
or previously owned by the Borrower or any of its Subsidiaries.
(c) Neither the Borrower nor any of its Subsidiaries has transported or
arranged for the transportation of any Hazardous Material to any location which
is listed on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed
for possible inclusion on the National Priorities List by the Environmental
Protection Agency in the Comprehensive Environmental Response and Liability
Information System as provided by 40 C.F.R. Section 300.5 ("CERCLIS") or on any
similar state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against the
Borrower or any of its Subsidiaries for clean-up costs, remedial work, damages
to natural resources or for personal injury claims, including, but not limited
to, claims under CERCLA.
(d) No Hazardous Materials generated by the Borrower or any of its
Subsidiaries have been recycled, treated, stored, disposed of or Released by the
Borrower or any of its Subsidiaries at any location other than those listed in
Schedule III hereto.
(e) No oral or written notification of a Release of a Hazardous Material
has been filed by or on behalf of the Borrower or any of its Subsidiaries and no
property now or previously owned or leased by the Borrower or any of its
Subsidiaries is listed or proposed for listing on the National Priorities List
promulgated pursuant to CERCLA, on CERCLIS or on any similar state list of sites
requiring investigation or clean-up.
(f) There are no Liens arising under or pursuant to any Environmental Laws
on any of the real property or properties owned or leased by the Borrower or any
of its Subsidiaries, and no government actions have been taken or are in process
which could subject any of such properties to such Liens and neither the
Borrower nor any of its Subsidiaries would be required to place any notice or
restriction relating to the presence of Hazardous Materials at any property
owned by it in any deed to such property.
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(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
the Borrower or any of its Subsidiaries in relation to any property or facility
now or previously owned or leased by the Borrower or any of its Subsidiaries
which have not been made available to the Bank.
Section 4.13. NO DEFAULT ON OUTSTANDING JUDGMENTS OR ORDERS. Each of the
Borrower and its Subsidiaries has satisfied all judgments and neither the
Borrower nor any of its Subsidiaries is in default with respect to any judgment,
writ, injunction, decree, rule or regulation of any court, arbitrator or
federal, state, municipal or other governmental authority, commission, board,
bureau, agency or instrumentality, domestic or foreign.
Section 4.14. NO DEFAULTS ON OTHER AGREEMENTS. Neither the Borrower nor
any of its Subsidiaries is a party to any indenture, loan or credit agreement or
any lease or other agreement or instrument or subject to any charter or
corporate restriction which could have a material adverse effect on the
business, properties, assets, operations or condition, financial or otherwise,
of the Borrower or any of its Subsidiaries, or the ability of the Borrower to
carry out its obligations under the Facility Documents to which it is a party.
Neither the Borrower nor any of its Subsidiaries is in default in any respect in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument material to its business
to which it is a party.
Section 4.15. LABOR DISPUTES AND ACTS OF GOD. Neither the business nor
the properties of the Borrower or of any of its Subsidiaries are affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), materially and adversely
affecting such business or properties or the operation of the Borrower or such
Subsidiary.
Section 4.16. GOVERNMENTAL REGULATION. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Investment Company Act of 1940, the Interstate Commerce
Act, the Federal Power Act or
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any statute or regulation limiting its ability to incur indebtedness for money
borrowed as contemplated hereby.
Section 4.17. PARTNERSHIPS. Neither the Borrower nor any of its
Subsidiaries is a partner in any partnership.
Section 4.18. NO FORFEITURE. Neither the Borrower nor any of the
Guarantors is engaged in or proposes to be engaged in the conduct of any
business or activity which could result in a Forfeiture Proceeding and no
Forfeiture Proceeding against any of them is pending or threatened.
Section 4.19. SOLVENCY.
(a) The present fair saleable value of the assets of the Borrower after
giving effect to all the transactions contemplated by the Facility Documents and
the funding of all Commitments hereunder exceeds the amount that will be
required to be paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Borrower and its Subsidiaries as they
mature.
(b) The property of the Borrower does not constitute unreasonably small
capital for the Borrower to carry out its business as now conducted and as
proposed to be conducted including the capital needs of the Borrower.
(c) The Borrower does not intend to, nor does it believe that it will,
incur debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be received by the Borrower, and of
amounts to be payable on or in respect of debt of the Borrower). The cash
available to the Borrower after taking into account all other anticipated uses
of the cash of the Borrower, is anticipated to be sufficient to pay all such
amounts on or in respect of debt of the Borrower when such amounts are required
to be paid.
(d) The Borrower does not believe that final judgments against it in
actions for money damages will be rendered at a time when, or in an amount such
that, the Borrower will be unable to satisfy any such judgments promptly in
accordance with their terms (taking into account the maximum reasonable amount
of such judgments in any such actions and the earliest reasonable time at
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which such judgments might be rendered). The cash available to the Borrower
after taking into account all other anticipated uses of the cash of the Borrower
(including the payments on or in respect of debt referred to in paragraph (c) of
this Section 4.19), is anticipated to be sufficient to pay all such judgments
promptly in accordance with their terms.
Section 4.20. PERMITS AND LICENSES. The Borrower, Guarantor and each of
their Subsidiaries have all the necessary permits and licenses to lawfully own
and operate their businesses.
ARTICLE 5. AFFIRMATIVE COVENANTS.
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement, the Borrower and each Guarantor shall:
Section 5.01. MAINTENANCE OF EXISTENCE. Preserve and maintain, and cause
each of its Subsidiaries to preserve and maintain, its corporate existence and
good standing in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each of its Subsidiaries to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
required.
Section 5.02. CONDUCT OF BUSINESS. Continue, and cause each of its
Subsidiaries to continue, to engage in an efficient and economical manner in a
business of the same general type as conducted by it on the date of this
Agreement.
Section 5.03. MAINTENANCE OF PROPERTIES. Maintain, keep and preserve, and
cause each of its Subsidiaries to maintain, keep and preserve, all material
items of its properties, (tangible and intangible) necessary or useful in the
proper conduct of its business in good working order and condition, ordinary
wear and tear excepted.
Section 5.04. MAINTENANCE OF RECORDS. Keep, and cause each of its
Subsidiaries to keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP, reflecting all financial
transactions of the Borrower, the Guarantor and their Subsidiaries.
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Section 5.05. MAINTENANCE OF INSURANCE. Maintain, and cause each of its
Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in the same or a similar business and
similarly situated, which insurance may provide for reasonable deductibility
from coverage thereof. With respect to all such insurance coverage, the
Borrower shall cause the Bank to be named additional insured as to all liability
coverage and cause the Bank to be named loss payee and additional insured as to
all property insurance coverage. The Borrower shall provide to the Bank,
promptly upon receipt thereof, evidence of the annual renewal of each such
policy.
Section 5.06. COMPLIANCE WITH LAWS. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
paying before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property, except any such taxes, assessments
or charges being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established.
Section 5.07. RIGHT OF INSPECTION. (a) At any reasonable time and from
time to time, and upon reasonable notice, permit the Bank or any agent or
representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the properties of, the Borrower and
any of its Subsidiaries and Guarantor, and to discuss the affairs, finances and
accounts of the Borrower and any such Subsidiary and Guarantor with any of their
respective officers and directors and the Borrower's and Guarantor's independent
accountants.
(b) In the sole discretion of the Bank, the Bank may reasonably perform
field inventory and accounts receivable audits on the Borrower and Guarantor to
be performed by an organization acceptable to the Bank one time each year and
upon an Event of Default, at the sole cost and expense of the Borrower. The
Bank may perform additional field inventory and/or accounts receivable audits
upon reasonable notice to the Borrower at the Bank's sole cost and expense.
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Section 5.08. REPORTING REQUIREMENTS. Borrower shall furnish to the Bank
and where applicable shall cause the Guarantor to furnish to the Bank:
(a) as soon as available and in any event within one hundred twenty [120]
days after the end of each fiscal year of the Borrower, a consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and
a consolidated income statement and consolidated statements of cash flows and
changes in stockholders' equity of the Borrower and its Subsidiaries each on an
audited basis for such fiscal year, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and period in
the prior fiscal year and all prepared in accordance with GAAP and as to the
statements accompanied by an opinion thereon acceptable to the Bank by BDO
Seidman, LLP or other independent accountants of national standing and
acceptable to the Bank in their sole discretion selected by the Borrower;
(b) as soon as available and in any event within sixty (60) days after the
end of each of the first three quarters of each fiscal year of the Borrower and
its Subsidiaries, a balance sheet of the Borrower as of the end of such quarter
and a consolidated income statement of the Borrower and its Subsidiaries for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, all in reasonable detail and stating in comparative form the
respective figures for the corresponding date and period in the previous fiscal
year and all internally prepared in accordance with GAAP and certified by the
chief financial officer of the Borrower (subject to year-end adjustments);
(c) promptly upon receipt thereof, copies of any reports submitted to the
Borrower or any of its Subsidiaries or Guarantor, including a copy of the
management letter, by independent certified public accountants in connection
with examination of the financial statements of the Borrower or any such
Subsidiary or Guarantor made by such accountants;
(d) simultaneously with the delivery of the annual financial statements
referred to above, a certificate of the chief financial officer of the Borrower
and Guarantor (i) certifying that to the best of his knowledge no Default or
Event of Default has occurred
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and is continuing or, if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto, and (ii) with computations
demonstrating compliance with the covenants contained in Article 7;
(e) simultaneously with the delivery of the annual financial statements
referred to in Section 5.08(a), a certificate of the independent public
accountants who audited such statements to the effect that, in making the
examination necessary for the audit of such statements, they have obtained no
knowledge of any condition or event which constitutes a Default or Event of
Default, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or event
of which they have knowledge and the nature and status thereof;
(f) as soon as available and in any event within fifteen (15) days after
the end of each month, the monthly accounts receivable aging, inventory reports
of the preceding month and Borrowing Base Certificate as of the last business
day of the immediately preceding month in a form satisfactory to the Bank.
Notwithstanding the foregoing, the Borrower and Guarantors shall provide
inventory reporting commencing the month ended June 30, 1997, and each month
thereafter which shall include actual work-in-progress and usage (movement)
reports, provided however if the Borrower can not input historical data required
to prepare usage (movement) reports by June 30, 1997, such reporting shall begin
with the month ended November 30, 1997. The usage report shall provide a
breakdown of raw materials and finished goods and the most recent usage date for
each;
(g) promptly after the commencement thereof, notice of all actions, suits,
and proceedings before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, affecting the Borrower
or any of its Subsidiaries or Guarantor which, if determined adversely to the
Borrower or such Subsidiary or Guarantor, could have a material adverse effect
on the condition (financial or otherwise), properties, prospects, or operations
of the Borrower or such Subsidiary or Guarantor;
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(h) as soon as possible and in any event within two (2) days after the
occurrence of each Default or Event of Default a written notice setting forth
the details of such Default or Event of Default and the action which is proposed
to be taken by the Borrower and/or Guarantor with respect thereto;
(i) as soon as possible, and in any event within two (2) days after the
Borrower knows or has reason to know that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan have occurred or
exist, a statement signed by a senior financial officer of the Borrower setting
forth details respecting such event or condition and the action, if any, which
the Borrower or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC by the
Borrower or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA,
with respect to a Plan, as to which PBGC has not by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within
30 days of the occurrence of such event (provided that a failure to
meet the minimum funding standard of Section 412 of the Code or
Section 302 of ERISA including, without limitation, the failure to make
on or before its due date a required installment under Section 412(m)
of the Code or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with Section
412(d) of the Code) and any request for a waiver under Section 412(d)
of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice of
intent to terminate any Plan or any action taken by the Borrower or an
ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan by
the Borrower or any ERISA Affiliate that
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results in liability under Section 4201 or 4204 of ERISA (including the
obligation to satisfy secondary liability as a result of a purchaser
default) or the receipt by the Borrower or any ERISA Affiliate of
notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it
intends to terminate or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days;
(vi) the adoption of an amendment to any Plan that pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA would result
in the loss of tax-exempt status of the trust of which such Plan is a
part if the Borrower or an ERISA Affiliate fails to timely provide
security to the Plan in accordance with the provisions of said
Sections;
(vii) any event or circumstance exists which may reasonably be
expected to constitute grounds for the Borrower or any ERISA Affiliate
to incur liability under Title IV of ERISA or under Sections
412(c)(11) or 412(n) of the Code with respect to any Plan; and
(viii) the Unfunded Benefit Liabilities of one or more Plans increase
after the date of this Agreement in an amount which is material in
relation to the financial condition of the Borrower and its
Subsidiaries, on a consolidated basis;
(j) promptly after the request of the Bank, copies of each annual report
filed pursuant to Section 104 of ERISA with respect to each Plan (including, to
the extent required by Section 104 of ERISA, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information referred to in Section 103) and each annual report
filed with respect to each Plan under Section 4065 of ERISA; provided, however,
that in the case of a Multiemployer Plan, such annual reports shall be furnished
only if they are available to the Borrower or an ERISA Affiliate;
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(k) promptly after the furnishing thereof, copies of any statement or
report furnished to any other party pursuant to the terms of any indenture, loan
or credit or similar agreement and not otherwise required to be furnished to the
Bank pursuant to any other clause of this Section 5.08;
(l) promptly after the sending or filing thereof, copies of all proxy
statements, financial statements and reports which the Borrower, the Guarantors
or any of their Subsidiaries sends to its stockholders, and copies of all
regular, periodic and special reports, and all registration statements which the
Borrower or any such Subsidiary files with the Securities and Exchange
Commission or any governmental authority which may be substituted therefor, or
with any national securities exchange;
(m) promptly after the commencement thereof or promptly after the Borrower
and/or any Guarantor knows of the commencement or threat thereof, notice of any
Forfeiture Proceeding; and
(n) such other information respecting the condition or operations,
financial or otherwise, of the Borrower and/or any Guarantor or any of its
Subsidiaries as the Bank may from time to time reasonably request.
Section 5.09. PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy
as and when due and payable or before they become delinquent by their specific
terms, or if there are no specific terms, before an action for collection is
commenced, as the case may be, all of its material Debt and other material
obligations of whatever nature (including any obligation for taxes and wages),
except for any such obligation being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established.
Section 5.10. NOTICE OF SUBSIDIARIES AND/OR AFFILIATES. Borrower shall
provide Bank and cause Guarantor to provide Bank with written notice, fifteen
(15) days prior to the creation, establishment or acquisition of any Subsidiary
or Affiliate of the Borrower and/or Guarantor. The Borrower shall and shall
cause Guarantor to have each Subsidiary or Affiliate execute a Guaranty and
Security Agreement within two (2) Business Days of said creation, establishment
or acquisition and shall furnish a legal
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opinion of the Borrower and/or Guarantor's legal counsel and all other such
documentation as the Bank or its counsel may require.
Section 5.11. MAINTENANCE OF LICENSES AND PERMITS. Maintain and cause
each of its Subsidiaries to maintain all licenses and permits required of the
Borrower, Guarantor and each of their Subsidiaries in order to lawfully own and
operate their businesses.
Section 5.12 CONTINUED PERFECTION OF LIEN AND SECURITY AGREEMENT. Record
or file or rerecord or refile the Facility Documents or a financing statement or
any other filing or recording or refiling or rerecording in each and every
office where and when necessary to preserve and perfect the security interests
of the Facility Documents.
Section 5.13. NOTICE OF ADVERSE CHANGE. Promptly, but in any event not
later than one Banking Day after any change or information shall have come to
the attention of the Chief Financial Officer of the Borrower, Guarantor and/or
any of their Subsidiaries, notify the Bank in writing of (a) any material
adverse change in the business or the operation, prospects, properties or assets
or to the condition, financial or otherwise, of the Borrower, Guarantor and/or
any of their Subsidiaries disclosing the nature thereof, and (b) any information
which indicates that any financial statements which are the subject of any
representation contained in this Agreement, or which are furnished to the Bank
pursuant to this Agreement, fail, in any material respect, to present fairly the
financial condition and results of operations purported to be presented therein,
disclosing the nature thereof.
ARTICLE 6. NEGATIVE COVENANTS.
So long as the Revolving Credit Note shall remain unpaid or the Bank shall
have any Commitment under this Agreement, the Borrower and/or Guarantor shall
not:
Section 6.01. DEBT. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist any Debt
without prior written consent from the Bank, except:
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(a) Debt of the Borrower under this Agreement or the Revolving Credit Note
or any other Debt of the Borrower or Guarantors to the Bank;
(b) Debt described in Section 4.10, to be scheduled satisfactory to the
Bank, but no renewals, extensions or refinancing thereof, provided however that
any refinance shall be permitted provided there is no increase in the aggregate
amount of such debt or no increase in the amount of the scheduled payments;
(c) Debt subordinated to the Bank in a form and substance satisfactory to
the Bank and with the prior written consent of the Bank;
(d) Unsecured indebtedness of a Guarantor owing to the Borrower or another
Guarantor and unsecured indebtedness of the Borrower owing to a Guarantor;
(e) Debt of the Borrower to any such Subsidiary or of any Subsidiary to the
Borrower or another such Subsidiary;
(f) Debt of the Borrower or any such Subsidiary secured by purchase money
Liens permitted by Section 6.03;
(g) The Borrower's and its Subsidiaries unsecured accounts payable to trade
creditors for goods or services which are not aged more than ninety (90) days
from billing date and current operating liabilities (other than for borrowed
money) which are not more than ninety (90) days past due, in each case incurred
in the ordinary course of business and paid within the specified time, unless
contested in good faith and by appropriate proceedings or as agreed to by the
specific trade creditor.
Section 6.02. GUARANTIES, ETC. Assume, guarantee, endorse or otherwise be
or become directly or contingently responsible or liable, or permit any of its
Subsidiaries to assume, guarantee, endorse or otherwise be or become directly or
indirectly responsible or liable (including, but not limited to, an agreement to
purchase any obligation, stock, assets, goods or services or to supply or
advance any funds, asset, goods or services, or an agreement to maintain or
cause such Person to maintain a minimum working capital or net worth or
otherwise to assure the creditors of any Person against loss) for the
obligations of any Person,
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except: (a) guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; (b)
existing guaranties, to be scheduled satisfactory to the Bank; and (c) the
guaranty of indebtedness hereunder or any other indebtedness to the Bank.
Section 6.03. LIENS. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien,
upon or with respect to any of its properties, now owned or hereafter acquired,
except:
(a) Liens securing the Loans hereunder or any other Liens granted in favor
of the Bank;
(b) Liens for taxes or assessments or other government charges or levies,
statutory Liens or deposits under Social Security if not yet due and payable or
if due and payable if they are being contested in good faith by appropriate
proceedings and for which appropriate reserves are maintained in conformity with
GAAP;
(c) Liens imposed by law, such as mechanic's, supplier's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due or which are being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established;
(d) Liens, pledges or deposits under worker's compensation, unemployment
insurance, social security or similar legislation (other than ERISA);
(e) Liens, deposits or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases (permitted
under the terms of this Agreement), public or statutory obligations, surety,
stay, appeal, indemnity, performance or other similar bonds, or other similar
obligations arising in the ordinary course of business;
(f) judgment and other similar Liens arising in connection with court
proceedings; provided that the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being actively contested
in good faith and by appropriate proceedings;
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(g) easements, rights-of-way, restrictions and other similar encumbrances
which, in the aggregate, do not materially interfere with the occupation, use
and enjoyment by the Borrower or any such Subsidiary of the property or assets
encumbered thereby in the normal course of its business or materially impair the
value of the property subject thereto;
(h) purchase money Liens on any property hereafter acquired or the
assumption of any Lien on property existing at the time of such acquisition, or
a Lien incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease; provided that:
(i) any property subject to any of the foregoing is acquired by the
Borrower or any such Subsidiary in the ordinary course of its business
and the Lien on any such property is created contemporaneously with
such acquisition;
(ii) each such Lien shall attach only to the property so acquired and
fixed improvements thereon and shall not exceed the lesser of the
purchase price or the fair market value of the property acquired;
(iii) the Debt secured by any such Liens shall not exceed $100,000.00
at any time outstanding in the aggregate;
(iv) the obligations secured by such Lien are permitted by the
provisions of Section 6.01;
(v) no other covenants are violated; and
(i) Liens existing on the date hereof and described in Section 4.10 herein,
not to be renewed or rescheduled.
Section 6.04. INVESTMENTS. Make, or permit any of its Subsidiaries to
make, any loan or advance to any Person or purchase or otherwise acquire, or
permit any such Subsidiary to purchase or otherwise acquire, any capital stock,
assets (other than purchases of assets in the ordinary course of business),
obligations or other securities of, make any capital contribution to, or
otherwise invest in, or acquire any interest in, any Person without prior
written consent from the Bank, except: (a) direct obligations of the United
States of America or any agency thereof with maturities
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of one year or less from the date of acquisition; (b) commercial paper of a
domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1"
by Moody's Investors Service, Inc.; (c) certificates of deposit in U.S. Dollars
with maturities of one year or less from the date of acquisition issued by any
commercial bank operating within the United States of America having capital and
surplus in excess of $1,000,000,000.00; (d) for stock, obligations or securities
received in settlement of debts (created in the ordinary course of business)
owing to the Borrower or any such Subsidiary; (e) any Acceptable Acquisition
permitted by Section 6.10; (f) money market funds with assets of
$2,500,000,000.00 or more; (g) tax exempt securities maturing within one (1)
year rated A or better by Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (h) loans and advances from the Borrower to any Guarantor or (i)
purchases of warrants permitted by Section 6.05.
Section 6.05. DIVIDENDS. Declare or pay any dividends, purchase, redeem,
retire or otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as such
whether in cash, assets or in obligations of the Borrower, or allocate or
otherwise set apart any sum for the payment of any dividend or distribution on,
or for the purchase, redemption or retirement of any shares of its capital
stock, or make any other distribution by reduction of capital or otherwise in
respect of any shares of its capital stock or permit any of its Subsidiaries to
purchase or otherwise acquire for value any stock of the Borrower or another
such Subsidiary, except that Borrower may redeem warrants in an amount not to
exceed $100,000.00 in any fiscal year provided that no Default or Event of
Default exists or would result therefrom and except dividends from Subsidiaries
paid directly to the Borrower.
Section 6.06. SALE OF ASSETS. Sell, lease, assign, transfer or otherwise
dispose of or enter into any sale leaseback transaction, or permit any of its
Subsidiaries to sell, lease, assign, transfer or otherwise dispose of or enter
into any sale leaseback transaction of any of its now owned or hereafter
acquired assets except: (a) for inventory disposed of in the ordinary course of
business; (b) the sale or other disposition of assets no longer used or useful
in the conduct of its business; and (c) that any such Subsidiary may sell,
lease, assign, or otherwise transfer its assets to the Borrower.
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Section 6.07. STOCK OF SUBSIDIARIES, ETC. Sell or otherwise dispose of
any shares of capital stock of any of its Subsidiaries or permit any such
Subsidiary to issue any additional shares of its capital stock, except
directors' qualifying shares.
Section 6.08. TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate or permit any of its Subsidiaries
to enter into any transaction, including, without limitation, the purchase, sale
or exchange of property or the rendering of any service, with any Affiliate,
except in the ordinary course of and pursuant to the reasonable requirements of
the Borrower's or such Subsidiary's business and upon fair and reasonable terms
no less favorable to the Borrower or such Subsidiary than would obtain in a
comparable arm's length transaction with a Person not an Affiliate.
Section 6.09. MERGERS, ETC. Merge or consolidate with, or sell, assign,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to, any Person, or acquire all or substantially all of the
assets or the business of any Person (or enter into any agreement to do any of
the foregoing), or permit any of its Subsidiaries to do so except: (a) that
upon thirty (30) days prior written notice to the Bank, any Guarantor may merge
with any other Guarantor or with the Borrower provided that the Borrower is the
surviving entity, and; (b) for Acceptable Acquisitions as contemplated below in
Section 6.10.
Section 6.10. ACQUISITIONS. Make any Acquisition without the prior written
consent from the Bank other than Acceptable Acquisitions.
"Acceptable Acquisitions" shall be defined as those acquisitions of the
stock or assets (excluding real property) of another person or entity of any
kind, which meet the following criteria: (i) the Borrower is the surviving
entity, (ii) the proposed acquiree is in the same general line of business as
the Borrower and the Guarantor (or the assets to be acquired are utilized in the
same general line of business as the Borrower and the Guarantor), (iii) the
proposed acquiree is incorporated or organized in the United States, (iv) the
acquisition is to be non-
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hostile in nature, (v) prior to and immediately following such acquisition,
there shall not be a Default or Event of Default under the terms of this
Agreement, (vi) all third party consents and approvals necessary in connection
with the acquisition shall have been obtained, (vii) evidence that such stock or
assets are to be purchased free and clear of any liens or encumbrances other
than any liens or encumbrances permitted under this Agreement and, in the case
of stock, free of any restrictions other than those acceptable to the Bank,
(viii) if the proposed acquiree becomes a Subsidiary of the Borrower (1) the
Bank and its counsel shall be satisfied with all issues relating to
consideration for such entity to guaranty and pledge all of its assets as
Collateral and (2) such Subsidiary shall immediately (a) execute and deliver its
Guarantee of the Borrower's obligations under the Revolving Credit Commitment in
form and substance satisfactory to the Bank and its counsel and (b) pledge all
of its assets as Collateral to secure the Borrower's obligations under the
Revolving Credit Commitment and shall execute all such documentation required by
the Bank to perfect a first priority security interest in such Collateral, all
to be in form and substance satisfactory to the Bank and its counsel; (ix)
evidence that the proposed acquiree is in compliance with all environmental,
federal, state and local laws, rules and regulations with respect to all real
estate which is to be acquired by the Borrower; and (x) the aggregate
consideration to be paid by the Borrower (including without limitation, cash,
stock, transaction costs, guarantees and other contingent obligations, assumed
liabilities, compensation to be paid to former shareholders of the proposed
acquiree pursuant to any employment agreements, consulting agreements or
non-compete agreements, fees, earn-out provisions, any deferred portions of the
purchase price or any other costs paid in connection with the acquisition)
(collectively, "Consideration") does not exceed $2,000,000.00 in aggregate
during the term of this Agreement. The Bank shall have the right in its sole
discretion to reset the financial covenants to reflect the effects of the
acquisition immediately upon the consummation of said acquisition and the
Borrower and the Guarantors will execute any amendment or documents deemed
necessary by the Bank and its counsel.
In addition to all Acquisitions meeting the above criteria, the Bank shall
have received prior to the consummation of said Acceptable Acquisition, for its
satisfactory review and approval, the following: (i) copies of all documentation
(including but not limited to financial information and otherwise with respect
to the
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Borrower, the Guarantors, the proposed acquiree and the proposed transaction, in
a level of detail satisfactory to the Bank, including evidence of compliance
with this Agreement) related to the Acceptable Acquisitions as may be required
by the Bank; (ii) (a) evidence that the Acquisitions shall not double the
Consolidated Total Liabilities (including non-perpetual preferred stock) and
shall not result in a leverage ratio as measured by Consolidated Total
Liabilities (including non-perpetual preferred stock) to Consolidated Total
Assets (the "Leverage Ratio") higher than 50% (for the purposes hereof,
Consolidated Total Liabilities and Consolidated Total Assets shall be of the
Borrower and its Subsidiaries); or (b) evidence that the acquisition shall not
result in a Leverage Ratio higher than 75% and shall not cause 25% or more of
the Consolidated Total Liabilities (including non-perpetual preferred stock)
after the acquisition to be derived from past or present buyouts, acquisitions
or recapitalizations (for the purposes hereof, Consolidated Total Liabilities
and Consolidated Total Assets shall be of the Borrower and its Subsidiaries);
and (iii) such other information, documentation, information (financial or
otherwise) or certificates as the Bank shall reasonably request, all in form and
substance satisfactory to the Bank.
Section 6.11. NO ACTIVITIES LEADING TO FORFEITURE. Neither the Borrower
nor any of its Subsidiaries or Affiliates shall engage in, or propose to be
engaged in, the conduct of any business or activity which could result in a
Forfeiture Proceeding.
Section 6.12. CHANGE IN SENIOR MANAGEMENT: Make any change in the
Chairman of the Board or President of the Borrower or any of its Subsidiaries or
Affiliates without the written consent of the Bank.
Section 6.13. SALE OF NOTES/ACCOUNTS RECEIVABLE. Sell, transfer, discount
or otherwise dispose of notes, accounts receivable or other rights to receive
payment, with or without recourse, except for collection in the ordinary course
of business.
Section 6.14. PREPAYMENT OF OUTSTANDING DEBT. Prepay any outstanding
Debt, in whole or in part, except for: i) any Debt owed to the Bank; and ii) as
permitted in Section 6.01(b).
ARTICLE 7. FINANCIAL COVENANTS.
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So long as the Revolving Credit Note shall remain unpaid or the Bank shall
have any Commitment under this Agreement:
Section 7.01. CURRENT RATIO. The Borrower and its Subsidiaries shall
maintain a minimum ratio of Consolidated Current Assets of the Borrower and its
Subsidiaries to Consolidated Current Liabilities of the Borrower and its
Subsidiaries (including, without limitation, all outstanding Revolving Credit
Loans) of 1.50 to 1.0 at any time.
Section 7.02. DEBT SERVICE RATIO. The Borrower and its Subsidiaries shall
maintain a minimum Consolidated Debt Service Ratio of 1.25 to 1.0 at any time.
Section 7.03. LEVERAGE RATIO. The Borrower shall maintain a ratio of
Consolidated Total Liabilities (excluding subordinated debt, if any) to
Consolidated Tangible Net Worth (plus subordinated debt, if any) of not greater
than 1.50 to 1.0 at any time.
ARTICLE 8. EVENTS OF DEFAULT.
Section 8.01. EVENTS OF DEFAULT. Any of the following events shall be an
"Event of Default":
(a) the Borrower shall: (i) fail to pay the principal of or interest on the
Note as and when due and payable; or (ii) fail to pay any fee or other amount
due hereunder as and when due and payable; or (iii) fail to pay the principal of
or interest on any current or future Debt owed to the Bank; or
(b) any representation or warranty made or deemed made by the Borrower in
this Agreement or in any other Facility Document or by Guarantor in any Facility
Document to which it is a party or which is contained in any certificate,
document, opinion, financial or other statement furnished at any time under or
in connection with any Facility Document shall prove to have been incorrect in
any material respect on or as of the date made or deemed made; or
(c) the Borrower shall: (i) fail to perform or observe any term, covenant
or agreement contained in Section 2.04, 2.21, 5.07, 5.08, 5.10, 5.11, 5.12 or
Articles 6 or 7; or (ii) fail to perform or observe any term, covenant or
agreement on its part to be
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performed or observed in any Facility Document and such failure shall continue
for 15 consecutive days; or
(d) the Borrower or any Guarantor or any Affiliate or their respective
Subsidiaries shall: (i) fail to pay any indebtedness in excess of $10,000.00 in
the aggregate (other than the Note), including but not limited to indebtedness
for borrowed money, of the Borrower, such Guarantor or such Affiliate or
Subsidiary, as the case may be, or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise); or (ii) fail to perform or observe any term, covenant or condition
on its part to be performed or observed under any agreement or instrument
relating to any such indebtedness, when required to be performed or observed, if
the effect of such failure to perform or observe is to accelerate, or to permit
the acceleration of, after the giving of notice or passage of time, or both, the
maturity of such indebtedness, whether or not such failure to perform or observe
shall be waived by the holder of such indebtedness; or any such indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof; or
(e) the Borrower, Guarantor or any Affiliate or their respective
Subsidiaries: (i) shall generally not, or be unable to, or shall admit in
writing its inability to, pay its debts as such debts become due; or (ii) shall
make an assignment for the benefit of creditors, petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for it or a
substantial part of its assets; or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (iv) shall have had any such petition or application filed or any
such proceeding shall have been commenced, against it, in which an adjudication
or appointment is made or order for relief is entered, or which petition,
application or proceeding remains undismissed for a period of 30 days or more;
or shall be the subject of any proceeding under which its assets may be subject
to seizure, forfeiture or divestiture; or (v) by any act or omission shall
indicate its consent to, approval of or acquiescence in any such petition,
application or proceeding or order for relief or the appointment of a custodian,
receiver or trustee for all or any substantial part of its property; or (vi)
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shall suffer any such custodianship, receivership or trusteeship to continue
undischarged for a period of 30 days or more; or
(f) one or more final judgments, decrees or orders for the payment of money
in excess of $50,000.00 in the aggregate shall be rendered against the Borrower,
or Guarantor or any of their respective Subsidiaries and such judgments, decrees
or orders shall continue unsatisfied and in effect for a period of 30
consecutive days without being vacated, discharged, satisfied or stayed or
bonded pending appeal; or
(g) any event or condition shall occur or exist with respect to any Plan or
Multiemployer Plan concerning which the Borrower is under an obligation to
furnish a report to the Bank in accordance with Section 5.08(i) hereof and as a
result of such event or condition, together with all other such events or
conditions, the Borrower or any ERISA Affiliate has incurred or in the opinion
of the Bank is reasonably likely to incur a liability to a Plan, a Multiemployer
Plan, the PBGC, or a Section 4042 Trustee (or any combination of the foregoing)
which is material in relation to the financial position of the Borrower and its
Subsidiaries, on a consolidated basis; or
(h) the Unfunded Benefit Liabilities of one or more Plans have increased
after the date of this Agreement in an amount which is material (as specified in
Section 8.01(g) hereof); or
(i) the Guaranty shall at any time after its execution and delivery and for
any reason cease to be in full force and effect or shall be declared null and
void, or the validity or enforceability thereof shall be contested by the
Guarantor or the Guarantor shall deny it has any further liability or obligation
thereunder or shall fail to perform its obligations thereunder; or
(j) the Security Agreement shall at any time after its execution and
delivery and for any reason cease: (A) to create a valid and perfected first
priority security interest in and to the property purported to be subject to
such Agreement; or (B) to be in full force and effect or shall be declared null
and void, or the validity or enforceability thereof shall be contested by the
Grantor or the Grantor shall deny it has any further liability or obligation
under the Security Agreement or the Grantor shall fail to perform any of its
obligations thereunder; or
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(k) if Borrower, Guarantor and/or their Subsidiaries shall materially alter
the nature of their business; or
(l) if Borrower, Guarantor and/or their Subsidiaries shall change their
fiscal year ends; or
(m) if Borrower, Guarantor and/or their Subsidiaries shall change their tax
status from a "C" corporation; or
(n) if Borrower, Guarantor and/or their Subsidiaries shall change
accounting treatments and reporting practices except as otherwise required or
permitted by changes in GAAP; or
(o) if the Borrower or Guarantor shall incur a consolidated net loss (which
shall be calculated inclusive of extraordinary losses in any period but
exclusive of extraordinary gains in any period) for any fiscal quarter or any
fiscal year; or
(p) if there shall occur a Change In Control of the Borrower or any
Guarantor; or
(q) if there is a default under the Declaration of Restrictions.
Section 8.02. REMEDIES. If any Event of Default shall occur and be
continuing, the Bank may, by notice to the Borrower, (a) declare the Commitment
to be terminated, whereupon the same shall forthwith terminate, and (b) declare
the outstanding principal of the Note, all interest thereon and all other
amounts payable under this Agreement and the Note to be forthwith due and
payable, whereupon the Note, all such interest and all such amounts shall become
and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided that, in the case of an Event of Default referred to in
Section 8.01(e) above, the Commitment shall be immediately terminated, and the
Note, all interest thereon and all other amounts payable under this Agreement
shall be immediately due and payable without notice, presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
Section 8.03. LOCK BOX ARRANGEMENT. If any Event of Default shall occur,
the Bank may, in addition to any and all other
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remedies afforded to the Bank as per the terms of the Facility Documents, in its
sole and absolute discretion, require the Borrower to commence a lock-box
account arrangement with the Bank, on terms and conditions satisfactory to the
Bank in all respects.
ARTICLE 9. MISCELLANEOUS.
Section 9.01. AMENDMENTS AND WAIVERS. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement may be amended or
modified only by an instrument in writing signed by the Borrower and the Bank,
and any provision of this Agreement may be waived only by an instrument signed
by the Borrower and the Bank. No failure on the part of the Bank to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof or preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
Section 9.02. USURY. Anything herein to the contrary notwithstanding, the
obligations of the Borrower under this Agreement and the Note shall be subject
to the limitation that payments of interest shall not be required to the extent
that receipt thereof would be contrary to provisions of law applicable to the
Bank limiting rates of interest which may be charged or collected by the Bank.
Section 9.03. EXPENSES. The Borrower shall reimburse the Bank on demand
for all costs, expenses, and charges (including, without limitation, reasonable
fees and charges of external legal counsel for the Bank and costs allocated by
its internal legal department) incurred by the Bank in connection with the
preparation, performance, or enforcement of this Agreement or the Note, provided
that the Borrower shall only be liable for up to $7,500.00, plus disbursements,
of such legal fees in connection with the preparation of the Facility Documents.
The Borrower agrees to indemnify the Bank and its directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation or litigation or other proceedings
(including any threatened investigation or litigation or other proceedings)
relating to any actual or proposed use by the Borrower or any
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Subsidiary of the proceeds of the Loans, including without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation or litigation or other proceedings, but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified.
Section 9.04. SURVIVAL. The obligations of the Borrower under Sections
2.13, 2.15 and 9.03 shall survive the repayment of the Loans and the termination
of the Commitment.
Section 9.05. ASSIGNMENT; PARTICIPATIONS. (a) This Agreement shall be
binding upon, and shall inure to the benefit of, the Borrower, the Bank and
their respective successors and assigns, except that the Borrower may not assign
or transfer its rights or obligations hereunder. The Bank may assign, or sell
participations in, all or any part of the Revolving Credit Commitment or any
Loan to another bank or other entity which is not a competitor of the Borrower
or its Subsidiaries, in which event (i) in the case of an assignment, upon
notice thereof by the Bank to the Borrower, the assignee shall have, to the
extent of such assignment (unless otherwise provided therein), the same rights,
benefits and obligations as it would have if it were the Bank hereunder; and
(ii) in the case of a participation, the participant shall have no rights under
the Facility Documents. The agreement executed by the Bank in favor of the
participant shall not give the participant the right to require the Bank to take
or omit to take any action hereunder except action directly relating to (i) the
extension of a payment date with respect to any portion of the principal of or
interest on any amount outstanding hereunder allocated to such participant, (ii)
the reduction of the principal amount outstanding hereunder or (iii) the
reduction of the rate of interest payable on such amount or any amount of fees
payable hereunder to a rate or amount, as the case may be, below that which the
participant is entitled to receive under its agreement with the Bank. The Bank
may furnish any information concerning the Borrower in the possession of the
Bank from time to time to assignees and participants (including prospective
assignees and participants);
(b) In addition to the assignments and participations permitted under
paragraph (a) above, the Bank may assign and pledge all or any portion of its
Loans and Note to (i) any affiliate of the Bank or (ii) any Federal Reserve Bank
as collateral security
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pursuant to Regulation A of the Board of Governors of the Federal Reserve System
and any Operating Circular issued by such Federal Reserve Bank. No such
assignment shall release the Bank from its obligations hereunder.
Section 9.06. NOTICES. Unless the party to be notified otherwise notifies
the other party in writing as provided in this Section, and except as otherwise
provided in this Agreement, notices shall be given to the Bank and to the
Borrower by ordinary mail or telex addressed to such party at its address on the
signature page of this Agreement. Notices shall be effective: (a) if given by
mail, 72 hours after deposit in the mails with first class postage prepaid,
addressed as aforesaid; and (b) if given by telex, when the telex is transmitted
to the telex number as aforesaid; provided that notices to the Bank shall be
effective upon receipt.
Section 9.07. SETOFF. The Borrower agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim the
Bank may otherwise have, the Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held by it
or any of its Affiliates for the account of the Borrower at any of the Bank's or
any of its Affiliates offices, in Dollars or in any other currency, against any
amount payable by the Borrower under this Agreement or the Note which is not
paid when due (regardless of whether such balances are then due to the
Borrower), in which case it shall promptly notify the Borrower thereof; provided
that the Bank's failure to give such notice shall not affect the validity
thereof.
SECTION 9.08. JURISDICTION; IMMUNITIES. (A) THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES
FEDERAL COURT SITTING IN NASSAU OR SUFFOLK COUNTIES OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTE, AND THE
BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT.
THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE
BORROWER AT ITS ADDRESS SPECIFIED IN SECTION 9.06. THE BORROWER AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
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PROVIDED BY LAW. THE BORROWER FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH
STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF
FORUM NON CONVENIENS. THE BORROWER FURTHER AGREES THAT ANY ACTION OR PROCEEDING
BROUGHT AGAINST THE BANK SHALL BE BROUGHT ONLY IN NEW YORK STATE OR UNITED
STATES FEDERAL COURT SITTING IN NASSAU OR SUFFOLK COUNTIES. EACH OF THE PARTIES
HERETO WAIVE ANY RIGHT IT MAY HAVE TO JURY TRIAL.
(b) Nothing in this Section 9.08 shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the right of
the Bank to bring any action or proceeding against the Borrower or its property
in the courts of any other jurisdictions.
(c) To the extent that the Borrower has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether from
service or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, the Borrower
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement and the Note.
Section 9.09. TABLE OF CONTENTS; HEADINGS. Any table of contents and the
headings and captions hereunder are for convenience only and shall not affect
the interpretation or construction of this Agreement.
Section 9.10. SEVERABILITY. The provisions of this Agreement are intended
to be severable. If for any reason any provision of this Agreement shall be
held invalid or unenforceable in whole or in part in any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 9.11. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
Section 9.12. INTEGRATION. The Facility Documents set forth the entire
agreement between the parties hereto relating to the
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transactions contemplated thereby and supersede any prior oral or written
statements or agreements with respect to such transactions.
SECTION 9.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ALLIED DEVICES CORPORATION
By:_____________________________________
Mark Hopkinson, Chairman of the Board
Address for Notices:
2365 Milburn Avenue
Baldwin, New York 11510
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THE CHASE MANHATTAN BANK
By:_____________________________________
Stephen M. Zajac,
Assistant Vice President
Lending Office and Address for Notices:
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
STATE OF NEW YORK)
SS.:
COUNTY OF SUFFOLK)
On this 4th day of September, 1996, before me personally came Mark
Hopkinson, to me known, who being by me duly sworn, did depose and say that he
resides at 340 East 57th Street, Apt 3b, New York, New York 10022; that he is
the Chairman of the Board of ALLIED DEVICES CORPORATION, the corporation
described in and which executed the foregoing instrument; that by Order of the
Board of Directors of said corporation, he signed his name thereto.
__________________________
Notary Public
STATE OF NEW YORK)
) SS.
COUNTY OF SUFFOLK)
On this 4th day of September, 1996, before me personally came
Stephen M. Zajac, to me known , who being by me duly sworn did depose and say
that he resides at 395 North Service Road, Melville, New York; that he is the
Assistant Vice President of THE CHASE MANHATTAN BANK, the corporation described
in and which executed the foregoing instrument; that he signed his name thereto
by order of the Board of Directors of said corporation.
_____________________________
Notary Public
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EXHIBIT A
PROMISSORY NOTE
$4,000,000.00 Melville, New York
September 4, 1996
For value received, ALLIED DEVICES CORPORATION, a corporation organized
under the laws of the State of Nevada (the "Borrower"), having an office at 2365
Milburn Avenue, Baldwin, New York 11510 hereby promises to pay to the order of
THE CHASE MANHATTAN BANK (the "Bank") at the office of the Bank, at 395 North
Service Road, Melville, New York 11747, for the account of the Lending Office of
the Bank, the principal sum of Four Million and 00/100 Dollars---$4,000,000.00
or, if less, the amount loaned by the Bank to the Borrower pursuant to the
Revolving Credit Agreement referred to below, in lawful money of the United
States of America and in immediately available funds, on the date(s) and in the
manner provided in said Revolving Credit Agreement. The Borrower also promises
to pay interest on the unpaid principal balance hereof, for the period such
balance is outstanding, at said principal office for the account of said Lending
Office, in like money, at the rates of interest as provided in the Revolving
Credit Agreement referred to below, on the date(s) and in the manner provided in
said Revolving Credit Agreement. This Note shall mature on the Revolving Credit
Termination Date.
The date and amount of each type of Loan made by the Bank to the Borrower
under the Revolving Credit Agreement referred to below, and each payment of
principal thereof, shall be recorded by the Bank on its books and, prior to any
transfer of this Note (or, at the discretion of the Bank, at any other time),
endorsed by the Bank on the schedule attached hereto or any continuation
thereof, provided however that failure of the Bank to set forth such Revolving
Credit Loans, payments or other information on the attached schedule shall not
in any manner affect the liability of the Borrower to repay the Revolving Credit
Loans made by the Bank in accordance with this Note.
This is the Note referred to in that certain Revolving Credit Agreement (as
amended from time to time the "Revolving Credit
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Agreement") dated as of September 4, 1996 between the Borrower and the Bank and
evidences the Loans made by the Bank thereunder. All terms not defined herein
shall have the meanings given to them in the Revolving Credit Agreement.
The Revolving Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain Events of Default and for
prepayments on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.
This Note shall be governed by, and interpreted and construed in accordance
with, the laws of the State of New York.
ALLIED DEVICES CORPORATION
By:_____________________________________
Mark Hopkinson, Chairman of the Board
STATE OF NEW YORK)
SS.:
COUNTY OF SUFFOLK)
On this 4th day of September, 1996, before me personally came Mark
Hopkinson, to me known, who being by me duly sworn, did depose and say that he
resides at 340 East 57th Street, Apt 3b, New York, New York 10022; that he is
the Chairman of the Board of ALLIED DEVICES CORPORATION, the corporation
described in and which executed the foregoing instrument; that by Order of the
Board of Directors of said corporation, he signed his name thereto.
__________________________
Notary Public
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<TABLE>
<CAPTION>
Type Type
Amount of of Maturity Amount of Balance
Date of Loan Loan Interest Date Payment Outstanding Notation by
- ---- ------- ---- -------- ---- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
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EXHIBIT B
GUARANTY OF PAYMENT
Melville, New York
September 4, 1996
WHEREAS, Allied Devices Corporation, a Nevada Corporation having an office
at 2365 Milburn Avenue, Baldwin, New York 11510 (the "BORROWER"), has applied to
THE CHASE MANHATTAN BANK, a New York banking corporation having an office at 395
North Service Road, Melville, New York 11747 (together with any of its
subsidiaries and/or affiliates and wherever located the "BANK") for loans in the
maximum principal sum of $4,000,000.00 (the "LOAN"), which Loan will be
evidenced by the Note, and advanced pursuant to the Revolving Credit Agreement,
all as described and defined in Exhibit A attached hereto;
WHEREAS, Bank is willing to make the Loan to the Borrower only if the
undersigned executes and delivers this Guaranty and guarantees payment to Bank
of the Debt (as herein defined) in the manner hereinafter provided;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, and in order to induce Bank to make the Loan to the Borrower, the
undersigned hereby acknowledges, agrees and confirms that all of the above
recitals are true, correct and complete and hereby covenants and agrees with
Bank as follows:
1. The undersigned guarantees jointly and severally, absolutely,
irrevocably and unconditionally, to Bank the performance and observance of every
agreement and condition contained in the Loan Documents (hereinafter defined)
and the full and punctual payment when due of all the Debt notwithstanding that
advances of the Loan have been, or may be, made in the face of a default under
the Loan Documents or otherwise not in compliance with the lending criteria set
forth in the Loan Agreement. The term ``DEBT'' as used in this Guaranty shall
mean all liabilities of the Borrower to Bank of whatever nature, whether now
existing or
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hereafter incurred, whether created directly or acquired by Bank, by assignment
or otherwise, whether matured or unmatured and whether absolute or contingent,
all principal, interest, additional interest (including specifically all
interest accruing from and after the commencement of any case, proceeding or
action under any existing or future laws relating to bankruptcy, insolvency or
similar matters with respect to the Borrower) and other sums of any nature
whatsoever which may or shall become due and payable pursuant to the provisions,
including but not limited to, of the Note, the Revolving Credit Agreement or
any other document or instrument now or hereafter executed and/or delivered in
connection therewith or otherwise with respect to the Loan (said Note, Revolving
Credit Agreement and other documents and instruments, collectively, the ``LOAN
DOCUMENTS'') (all of the above unaffected by modification thereof in any
bankruptcy or insolvency proceeding), and even though Bank may not have an
allowed claim for the same against the Borrower as a result of any bankruptcy or
insolvency proceeding.
2. The undersigned agrees that the undersigned shall indemnify and hold
Bank harmless and defend Bank at the undersigned's sole cost and expense against
any loss or liability, cost or expense (including, but not limited to,
reasonable attorneys' fees and disbursements of Bank's counsel, whether in-house
staff, retained firms or otherwise), and all claims, actions, procedures and
suits arising out of or in connection with:
(a) any ongoing matters arising out of the transaction contemplated
hereby, this Guaranty, the Debt, the Note, the Revolving Credit Agreement or any
other Loan Document;
(b) any amendment to, or restructuring of, this Guaranty, the Debt,
the Note, the Revolving Credit Agreement or any of the other Loan Documents; and
(c) any and all lawful action that may be taken by Bank in connection
with the enforcement of the provisions of this Guaranty, the Note, the Revolving
Credit Agreement or any of the other Loan Documents, whether or not suit is
filed in connection with the same, or in connection with the undersigned, the
Borrower and/or any Subsidiary or Affiliate (as defined in the Revolving Credit
Agreement) of any thereof becoming a party to a voluntary or
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involuntary federal or state bankruptcy, insolvency or similar proceeding.
All sums expended by Bank shall be payable on demand and, until reimbursed by
the Borrower or by the undersigned pursuant hereto, shall bear interest at the
Default Rate, as set forth in the Revolving Credit Agreement.
3. The undersigned hereby represents and warrants that all
representations and warranties contained in the Loan Documents are true and
correct, that there has occurred no event of default under the Loan Documents,
that all financial statements of the undersigned heretofore delivered to Bank by
or on behalf of the undersigned are true and correct in all material respects
and fairly present the financial condition of the undersigned as of the
respective dates thereof, and no material adverse change has occurred in the
financial conditions reflected therein since the respective dates thereof. In
addition, the undersigned covenants that so long as any portion of the Debt
remains outstanding and unpaid, the undersigned will, unless otherwise consented
to in writing by Bank:
(a) furnish to Bank, as soon as available, but in any event within
one hundred twenty (120) days next following the end of each fiscal year of the
undersigned, executed tax returns, including all supporting schedules, for such
fiscal year and containing a fully itemized statement of profit and loss and of
surplus and a balance sheet, which financial statements shall be in form and
substance reasonably satisfactory to Bank, such statement accompanied by a
certificate signed by the undersigned certifying on the date thereof that:
(i) such financial statement is true, correct and complete and (ii) either that
no default nor event which upon notice or lapse of time or both would constitute
a default has occurred hereunder or, if such default exists, the nature thereof
and the period of time it has existed (a ``CERTIFICATION''); and
(b) furnish to Bank, within ten (10) days after request, such further
detailed financial and other information (including, but not limited to,
financial statements) as may be reasonably requested by Bank with respect to the
undersigned, or any affiliate of, or entity controlled by the undersigned, as of
a date not earlier than that specified by Bank in such request, together with a
Certification with respect thereto.
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4. In addition to any right available to Bank under applicable law or any
other agreement, the undersigned hereby gives to Bank a continuing lien on,
security interest in and right of set-off against all moneys, securities and
other property of the undersigned and the proceeds thereof, now on deposit or
now or hereafter delivered, remaining with or in transit in any manner to Bank,
its correspondents, participants or its agents from or for the undersigned,
whether for safekeeping, custody, pledge, transmission, collection or otherwise
or coming into possession of Bank in any way, and also, any balance of any
deposit account and credits of the undersigned with, and any and all claims of
the undersigned against, Bank at any time existing, as collateral security for
the payment of the Debt and all of the other obligations of the undersigned
under this Guaranty, including fees, contracted with or acquired by Bank,
whether joint, several, absolute, contingent, secured, matured or unmatured (for
the purposes of this paragraph 4 and paragraphs 6, 8 and 16 below, collectively,
the "LIABILITIES") , hereby authorizing Bank at any time or times, without prior
notice, to apply such balances, credits or claims, or any part thereof, to such
Liabilities in such amounts as it may select, whether contingent, unmatured or
otherwise and whether any collateral security therefore is deemed adequate or
not. The collateral security described herein shall be in addition to any
collateral security described in any separate agreement executed by the
undersigned. Bank, in addition to any right available to it under applicable
law or any other agreement, shall have the right, at its option, to immediately
set off against any Liabilities all monies owed by Bank in any capacity to the
undersigned, whether or not due, and Bank shall, at its option, be deemed to
have exercised such right to set off and to have made a charge against any such
money immediately upon the occurrence of any events of default set forth below,
even though such charge is made or entered on the books of Bank subsequent to
those events.
5. All moneys available to Bank for application in payment or reduction
of the Debt may be applied by Bank in such manner and in such amounts and at
such time or times and in such order, priority and proportions as Bank may see
fit to the payment or reduction of such portion of the Debt as Bank may elect.
6. The undersigned hereby expressly agrees that this Guaranty is
independent of, and in addition to, all collateral granted, pledged or assigned
under the Loan Documents, and the
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undersigned hereby consents that from time to time, before or after any default
by the Borrower, with or without further notice to or assent from the
undersigned:
(a) any security at any time held by or available to Bank for any
obligation of the Borrower, or any security at any time held by or available to
Bank for any obligation of any other person or party primarily, secondarily or
otherwise liable for all or any portion of the Debt, any other Liabilities
and/or any other obligations of the Borrower or any other person or party, other
than Bank, under any of the Loan Documents (``OTHER OBLIGATIONS''), including
any guarantor of the Debt and/or any of such Other Obligations, may be
accelerated, settled, exchanged, surrendered or released and Bank may fail to
set off and may release, in whole or in part, any balance of any deposit account
or credit on its books in favor of the Borrower, or of any such other person or
party;
(b) any obligation of the Borrower, or of any such other person or
party, may be changed, altered, renewed, extended, continued, accelerated,
surrendered, compromised, settled, waived or released in whole or in part, or
any default with respect thereto waived; and
(c) Bank may extend further credit in any manner whatsoever to the
Borrower, and generally deal with the Borrower or any of the abovementioned
security, deposit account, credit on its books or other person or party as Bank
may see fit;
and the undersigned shall remain bound in all respects under this Guaranty,
without any loss of any rights by Bank and without affecting the liability of
the undersigned, notwithstanding any such exchange, surrender, release, change,
alteration, renewal, extension, continuance, compromise, waiver, inaction,
extension of further credit or other dealing. In addition, all moneys available
to Bank for application in payment or reduction of the Debt and/or any Other
Obligations may be applied by Bank in such manner and in such amounts and at
such time or times and in such order, priority and proportions as Bank may see
fit.
7. The undersigned hereby waives:
(a) notice of acceptance of this Guaranty and of the making of the
Loan or any advance thereof by Bank to the Borrower;
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(b) presentment and demand for payment of the Debt or any portion
thereof;
(c) protest and notice of dishonor or default to the undersigned or
to any other person or party with respect to the Debt or any portion thereof;
(d) all other notices to which the undersigned might otherwise be
entitled; and
(e) any demand under this Guaranty.
8. If any of the following events should occur:
(a) default under any of the Loan Documents and its continuance
beyond any applicable notice and/or grace periods therein contained;
(b) the undersigned violates any provision of this Guaranty;
(c) default under the Declaration of Restrictions made by the
undersigned to the Bank dated the date hereof("DECLARATION OF RESTRICTION");
(d) the undersigned commences any case, proceeding or other action
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeks to have an order for relief entered with respect to it, or seeks to be
adjudicated a bankrupt or insolvent, or seeks reorganization, arrangement,
adjustment, liquidation, dissolution, composition or other relief with respect
to it or its debts, or seeks the appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
property;
(e) the undersigned makes a general assignment for the benefit of
creditors;
(f) there is commenced against the undersigned, any case, proceeding
or other action of a nature referred to in subparagraph (d) above or seeking the
issuance of a warrant of attachment, execution, distraint or similar process
against all or
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any substantial part of its property, which case, proceeding or other action
results in the entry of an order for relief or remains undismissed, undischarged
or unbonded for a period of 60 days;
(g) the undersigned takes any action indicating its consent to,
approval of, or acquiescence in, or in furtherance of, any of the acts set forth
in subparagraphs (d) and (f) above;
(h) the undersigned admits in writing its inability to pay its debts
as they mature; or
(i) the undersigned terminates or dissolves or suspends its usual
business activities or conveys, sells, leases, transfers or otherwise disposes
of all or a substantial part of its property, business or assets other than in
the ordinary course of business;
then, and in such event, Bank may declare the Liabilities to be, and the same
shall become, immediately due and payable.
9. This is a guaranty of payment and performance and not of collection
and the undersigned further waives any right to require that any action be
brought against the Borrower or any other person or party or to require that
resort be had to any security or to any balance of any deposit account or credit
on the books of Bank in favor of the Borrower or any other person or party. Any
payment on account of or reacknowledgment of the Debt by the Borrower, or any
other party liable therefor, shall be deemed to be made on behalf of the
undersigned and shall serve to start anew the statutory period of limitations
applicable to the Debt.
10. Each reference herein to Bank shall be deemed to include its
successors and assigns, in whose favor the provisions of this Guaranty shall
also inure. Each reference herein to the undersigned shall be deemed to include
the successors and assigns of the undersigned, all of whom shall be bound by the
provisions of this Guaranty, provided, however, that the undersigned shall in no
event nor under any circumstance have the right, without obtaining the prior
written consent of Bank, to assign or transfer the undersigned's obligations and
liabilities under this Guaranty, in whole or in part, to any other person, party
or entity.
11. The term ``UNDERSIGNED'' as used herein shall, if this Guaranty is
signed by more than one party, unless otherwise stated
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herein, mean the ``undersigned and each of them'' and each undertaking herein
contained shall be their joint and several undertaking. Bank may proceed
against none, one or more of the undersigned at one time or from time to time as
it sees fit in its sole and absolute discretion. If any party hereto shall be a
partnership, the agreements and obligations on the part of the undersigned
herein contained shall remain in force and application notwithstanding any
changes in the individuals composing the partnership and the term
``undersigned'' shall include any altered or successive partnerships, but the
predecessor partnerships and their partners shall not thereby be released from
any obligations or liability hereunder. If any party hereto shall be a
corporation, the agreements and obligations on the part of the undersigned
herein contained shall remain in force and application notwithstanding the
merger, consolidation, reorganization or absorption thereof, and the term
``undersigned'' shall include such new entity, but the old entity shall not
thereby be released from any obligations or liabilities hereunder.
12. No delay on the part of Bank in exercising any right or remedy under
this Guaranty or failure to exercise the same shall operate as a waiver in whole
or in part of any such right or remedy. No notice to or demand on the
undersigned shall be deemed to be a waiver of the obligations of the undersigned
or of the right of Bank to take further action without notice or demand as
provided in this Guaranty. No course of dealing between the undersigned and
Bank shall change, modify or discharge, in whole or in part, this Guaranty or
any obligations of the undersigned hereunder.
13. This Guaranty may only be modified, amended, changed or terminated by
an agreement in writing signed by Bank and the undersigned. No waiver of any
term, covenant or provision of this Guaranty shall be effective unless given in
writing by Bank and if so given by Bank shall only be effective in the specific
instance in which given. The execution and delivery hereafter to Bank by the
undersigned of a new instrument of guaranty or any reaffirmation of guaranty, of
whatever nature, shall not terminate, supersede or cancel this instrument,
unless expressly so provided therein, and all rights and remedies of Bank
hereunder or under any instrument of guaranty hereafter executed and delivered
to Bank by the undersigned shall be cumulative and may be exercised singly or
concurrently.
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14. The undersigned acknowledges that this Guaranty and the undersigned's
obligations under this Guaranty are and shall at all times continue to be
absolute, irrevocable and unconditional in all respects, and shall at all times
be valid and enforceable irrespective of any other agreements or circumstances
of any nature whatsoever which might otherwise constitute a defense to this
Guaranty and the obligations of the undersigned under this Guaranty or the
obligations of any other person or party (including, without limitation, the
Borrower) relating to this Guaranty or the obligations of the undersigned
hereunder or otherwise with respect to the Debt, including, but not limited to,
the realization upon any collateral given, pledged or assigned as security for
all or any portion of the Debt, or the filing of a petition under Title 11 of
the United States Code with regard to the Borrower or the undersigned, or the
commencement of an action or proceeding for the benefit of the creditors of the
Borrower or the undersigned, or the obtaining by Bank of title to any collateral
given, pledged or assigned as security for the Debt by reason of the foreclosure
or enforcement of any pledge or security agreement, the acceptance of a deed or
assignment in lieu of foreclosure or sale, or otherwise. This Guaranty sets
forth the entire agreement and understanding of Bank and the undersigned with
respect to the matters covered by this Guaranty and the undersigned acknowledges
that no oral or other agreements, understandings, representations or warranties
exist with respect to this Guaranty or with respect to the obligations of the
undersigned under this Guaranty, except those specifically set forth in this
Guaranty.
15. This Guaranty has been validly authorized, executed and delivered by
the undersigned. The undersigned represents and warrants to Bank that it has
the corporate power to do so and to perform its obligations under this Guaranty
and this Guaranty constitutes the legally binding obligation of the undersigned
fully enforceable against the undersigned in accordance with the terms hereof.
The undersigned further represents and warrants to Bank that:
(a) neither the execution and delivery of this Guaranty nor the
consummation of the transactions contemplated hereby nor compliance with the
terms and provisions hereof will violate any applicable provision of law or any
applicable regulation or other manifestation of governmental action; and
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(b) all necessary approvals, consents, licenses, registrations and
validations of any governmental regulatory body, including, without limitation,
approvals required to permit the undersigned to execute and carry out the
provisions of this Guaranty, for the validity of the obligations of the
undersigned hereunder and for the making of any payment or remittance of any
funds required to be made by the undersigned under this Guaranty, have been
obtained and are in full force and effect.
16. Notwithstanding any payments made by the undersigned pursuant to the
provisions of this Guaranty, the undersigned irrevocably waives all rights to
enforce or collect upon any rights which it now has or may acquire against the
Borrower either by way of subrogation, indemnity, reimbursement or contribution
for any amount paid under this Guaranty or by way of any other obligations
whatsoever of the Borrower to the undersigned, nor shall the undersigned file,
assert or receive payment on any claim, whether now existing or hereafter
arising, against the Borrower in the event of the commencement of a case by or
against the Borrower under Title 11 of the United States Code. In the event
either a petition is filed under said Title 11 of the United States Code with
regard to the Borrower or the commencement of an action or proceeding for the
benefit of the creditors of the Borrower, this Guaranty shall at all times
thereafter remain effective in regard to any payments or other transfers of
assets to Bank received from or on behalf of the Borrower prior to notice of
termination of this Guaranty and which are or may be held voidable on the
grounds of preference or fraud, whether or not the Debt has been paid in full.
The provisions of this paragraph 16 shall survive the term of this Guaranty and
the payment in full of the Debt and all other Liabilities and the termination of
any commitment to make any further advances of Loan proceeds pursuant to the
Revolving Credit Agreement.
17. Any notice, request or demand given or made under this Guaranty shall
be in writing and shall be hand delivered or sent by postage prepaid registered
or certified mail, return receipt requested, and shall be deemed given three (3)
business days after being postmarked and addressed as follows if sent by
registered or certified mail, return receipt requested:
If to Bank:
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The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attn: Stephen M. Zajac,
Assistant Vice President
If to the undersigned:
Empire - Tyler Corporation
603 Tyler
Joplin, Missouri 64801
Attention: Mark Hopkinson, President
Each party to this Guaranty may designate a change of address by notice
given, as herein provided, to the other party fifteen (15) days prior to the
date such change of address is to become effective.
18. This Guaranty is, and shall be deemed to be, a contract entered into
under and pursuant to the laws of the State of New York and shall be in all
respects governed, construed, applied and enforced in accordance with the laws
of the State of New York without regard to principles of conflicts of laws. The
undersigned acknowledges and agrees that this Guaranty is, and is intended to
be, an instrument for the payment of money only, as such phrase is used in
Section 3213 of the Civil Practice Law and Rules of the State of New York, and
the undersigned has been fully advised by its counsel of Bank's rights and
remedies pursuant to said Section 3213.
19. The undersigned agrees to submit to personal jurisdiction in the State
of New York in any action or proceeding arising out of this Guaranty. In
furtherance of such agreement, the undersigned hereby agrees and consents that
without limiting other methods of obtaining jurisdiction, personal jurisdiction
over the undersigned in any such action or proceeding may be obtained within or
without the jurisdiction of any court located in New York and that any process
or notice of motion or other application to any such court in connection with
any such action or proceeding may be served upon the undersigned by registered
or certified mail to, or by personal service at, the last known address of the
undersigned, whether such address be within or without the jurisdiction of any
such court. The undersigned hereby further agrees that the venue of any
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litigation arising in connection with the Debt or in respect of any of the
obligations of the undersigned under this Guaranty, shall, to the extent
permitted by law, be in Nassau or Suffolk Counties.
20. The undersigned absolutely, unconditionally and irrevocably waives any
and all right to assert or interpose any defense (other than the final and
indefeasible payment in full of the Debt), setoff, counterclaim or crossclaim of
any nature whatsoever with respect to this Guaranty or the obligations of the
undersigned under this Guaranty, or the obligations of any other person or party
(including without limitation, the Borrower) relating to this Guaranty, or the
obligations of the undersigned hereunder or otherwise with respect to the Loan
in any action or proceeding brought by Bank to collect the Debt, or any portion
thereof, or to enforce the obligations of the undersigned under this Guaranty
(provided, however, that the foregoing shall not be deemed a waiver of the right
of the undersigned to assert any compulsory counterclaim maintained in a court
of the United States, or of the State of New York if such counterclaim is
compelled under local law or rule of procedure, nor shall the foregoing be
deemed a waiver of the right of the undersigned to assert any claim which would
constitute a defense, setoff, counterclaim or crossclaim of any nature
whatsoever against Bank in any separate action or proceeding). The undersigned
hereby undertakes and agrees that this Guaranty shall remain in full force and
effect for all of the obligations and liabilities of the undersigned hereunder,
notwithstanding the maturity of the Loan, whether by acceleration, scheduled
maturity or otherwise.
21. No exculpatory provisions which may be contained in the Note, the
Revolving Credit Agreement or in any other Loan Document shall in any event or
under any circumstances be deemed or construed to modify, qualify, or affect in
any manner whatsoever the obligations and liabilities of the undersigned under
this Guaranty.
22. The obligations and liabilities of the undersigned under this Guaranty
are in addition to the obligations and liabilities of the undersigned under the
Other Guaranties (as hereinafter defined). The discharge of any or all of the
undersigned's obligations and liabilities under any one or more of the Other
Guaranties by the undersigned or by reason of operation of law or
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otherwise shall in no event or under any circumstance constitute or be deemed to
constitute a discharge, in whole or in part, of the undersigned's obligations
and liabilities under this Guaranty. Conversely, the discharge of any or all of
the undersigned's obligations and liabilities under this Guaranty by the
undersigned or by reason of operation of law or otherwise shall in no event or
under any circumstance constitute or be deemed to constitute a discharge, in
whole or in part, of the undersigned's obligations and liabilities under any of
the Other Guaranties. The term ``OTHER GUARANTIES'' as used herein shall mean
any other guaranty of payment, guaranty of performance, indemnification
agreement or other guaranty or instrument creating any obligation or undertaking
of any nature whatsoever (other than this Guaranty) now or hereafter executed
and delivered by the undersigned to Bank in connection with the Loan.
23. This Guaranty may be executed in one or more counterparts by some or
all of the parties hereto, each of which counterparts shall be an original and
all of which together shall constitute a single agreement of guaranty. The
failure of any party listed below to execute this Guaranty, or any counterpart
hereof, or the ineffectiveness for any reason of any such execution, shall not
relieve the other signatories from their obligations hereunder .
24. The undersigned hereby irrevocably and unconditionally waives, and
Bank by its acceptance of this Guaranty irrevocably and unconditionally waives,
any and all right to trial by jury in any action, suit or counterclaim arising
in connection with, out of or otherwise relating to this Guaranty.
IN WITNESS WHEREOF, the undersigned has/have duly executed this Guaranty
the day and year first above set forth.
Empire-Tyler Corporation, a
Missouri Corporation
By:___________________________
Name: Mark Hopkinson
Title: President
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STATE OF NEW YORK)
) SS.:
COUNTY OF SUFFOLK)
On the 4th day of September, 1996, before me personally came Mark
Hopkinson, to me known, who, being by me duly sworn, did depose and say that he
resides at 340 East 57th Street, Apt 3b, New York, New York 10022; that he is
President of Empire - Tyler Corporation, the corporation described in and which
executed the above instrument; and that he signed his name thereto by authority
of the Board of Directors of said corporation.
_____________________________
Notary Public
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EXHIBIT A
NOTE: The term "NOTE" as used in this Guaranty shall mean a certain
Promissory Note dated September 4, 1996, in the maximum principal sum of
$4,000,000.00 to be given by the Borrower to Bank.
REVOLVING CREDIT AGREEMENT : The term "REVOLVING CREDIT AGREEMENT" as
used in this Guaranty shall mean a certain Revolving Credit Agreement dated as
of September 4, 1996, entered into between Bank and the Borrower.
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EXHIBIT C
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made
this 4th day of September, 1996, by and between:
ALLIED DEVICES CORPORATION, a Nevada corporation authorized to do business
under the laws of the State of New York, having an office at 2365 Milburn
Avenue, Baldwin, New York 11510 (hereinafter referred to as the "Debtor"), and
THE CHASE MANHATTAN BANK, a banking corporation organized under the laws of
the State of New York, having an office at 395 North Service Road, Melville, New
York 11747 (together with any of its subsidiaries and/or affiliates and wherever
located hereinafter referred to as the "Secured Party").
W I T N E S S E T H
WHEREAS, the Secured Party and the Debtor have entered into a Revolving
Credit Agreement dated as of September 4, 1996 (as it may hereafter be amended
or otherwise modified from time to time, being the "Agreement") pursuant to
which the Secured Party may lend to the Debtor the aggregate principal amount
set forth therein, upon and subject to the terms and conditions thereof;
WHEREAS, it is a condition precedent to the obligation of the Secured Party
to extend credit to the Debtor provided for in the Agreement that the Debtor
shall execute and deliver this Security Agreement; and
WHEREAS, all capitalized terms used herein without definition shall have
the respective meanings ascribed thereto in the Agreement.
NOW, THEREFORE, in consideration of the Collateral, hereinafter defined,
and in order to induce the Secured Party to continue to extend credit to the
Debtor, the Debtor agrees with the Secured Party as follows:
1. SECURITY INTEREST.
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(a) GRANT OF SECURITY. As security for the Obligations (as defined in
Section l(b) hereof), the Debtor hereby assigns and pledges to the Secured
Party, and hereby grants to the Secured Party a first priority security interest
in, all of the Debtor's right, title and interest, whether now existing or
hereafter arising or acquired, in and to the following (collectively, the
"Collateral"):
All personal property, inventory, fixtures and equipment of Debtor wherever
located and whether now owned or in existence or hereafter acquired or created
of every kind and description, tangible or intangible, including goods,
documents, instruments, general intangibles, chattel paper, accounts and
contract rights, such terms having the meanings ascribed by the UCC.
The term "accounts" shall mean, without limiting the generality of the
foregoing, any and all now existing or hereafter arising rights to payment held
by the Debtor, whether in the form of accounts receivable, notes, drafts,
acceptance or other forms of obligations and receivables now or hereafter
received by or belonging to the Debtor for (A) inventory sold or leased by it,
(B) services rendered by it, or (C) advances or loans made by it to customers,
together with all guarantees and security therefore and all proceeds thereof,
whether cash proceeds or otherwise, including, without limitation, all right,
title and interest of the Debtor in the inventory which gave rise to any such
accounts, including, without limitation, the right to stoppage in transit and
all returned, rejected, rerouted or repossessed inventory.
(b) SECURITY FOR OBLIGATIONS. This Security Agreement secures the payment
of all obligations of Debtor to the Secured Party, now or hereafter existing
under the Agreement, under any promissory notes or other documents evidencing
indebtedness under or related to or contemplated by the Agreement or under or in
connection with a guaranty dated the date hereof and executed by the Debtor in
favor of the Secured Party or any other document or instrument executed in
connection therewith, whether for principal, interest, fees, expenses or
otherwise, together with all costs of collection or enforcement, including,
without limitation, reasonable attorneys' fees incurred in any collection
efforts or in any judicial proceeding (including, without limitation, bankruptcy
or reorganization) (all such obligations being the "Obligations").
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(c) DEBTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding,
(i) the Debtor shall remain liable to perform all of its duties and obligations
under the transactions giving rise to the Collateral to the same extent as if
this Security Agreement had not been executed, (ii) the exercise by the Secured
Party of any of the rights hereunder shall not release the Debtor from any of
its duties or obligations under the transactions giving rise to the Collateral,
which shall remain unchanged as if this Security Agreement had not been
executed, and (iii) the Secured Party shall have no obligation or liability
under the transactions giving rise to the Collateral by reason of this Security
Agreement, nor shall Secured Party be obligated to perform any of the
obligations or duties of the Debtor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
(d) CONTINUING AGREEMENT. This Security Agreement shall create a continuing
security interest in the Collateral and shall remain in full force and effect
until the indefeasible payment in full of the Obligations and until the
Agreement shall no longer be in effect. Upon the indefeasible payment in full of
the Obligations and when the Agreement shall no longer be in effect, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Debtor.
2. DEBTOR'S TITLE; LIENS AND ENCUMBRANCES.
The Debtor represents and warrants that the Debtor is, or to the extent
that this Security Agreement states that the Collateral is to be acquired
after the date hereof, will be, the owner of the Collateral, having good and
marketable title thereto, free from any and all liens, security interests,
encumbrances and claims, except as permitted by the Agreement. The Debtor
will not create or assume or permit to exist any such lien, security
interest, encumbrance or claim on or against the Collateral except as created
by this Security Agreement or as permitted by the Agreement, and the Debtor
will promptly notify the Secured Party of any such other claim, lien,
security interest or other encumbrance made or asserted against the
Collateral and will defend the Collateral against any such claim, lien,
security interest or other encumbrance.
3. REPRESENTATIONS AND WARRANTIES; LOCATION OF COLLATERAL
AND RECORDS; BUSINESS AND TRADE NAMES OF DEBTOR.
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(a) The Debtor represents and warrants that it has no place of business,
offices where Debtor's books of account and records are kept, or places where
the Collateral is used, stored or located, except as set forth on Schedule I
annexed hereto, and covenants that the Debtor will promptly notify the Secured
Party of any change in the foregoing representation. The Debtor shall at all
times maintain its records as to the Collateral at its chief place of business
at the address referred to on Schedule I and at none other. The Debtor further
covenants that except for Collateral delivered to the Secured Party or an agent
for the Secured Party, the Debtor will not store, use or locate any of the
Collateral at any place other than as listed on Schedule I annexed hereto;
provided that the Debtor may change any such address upon at least 30 days prior
written notice to the Secured Party.
(b) The Debtor represents and warrants that it currently uses, and during
the last five years has used, no business or trade names, except as set forth on
Schedule I annexed hereto, and covenants that the Debtor will promptly notify
the Bank, in sufficient detail, of any changes in, additions to, or deletions
from the business or trade names used by the Debtor for billing purposes.
(c) The Debtor represents and warrants that it has complied and is in
compliance with the provisions of the Fair Labor Standards Act, including,
without limitation, the minimum wage and overtime rules of that Act, and
covenants that the Debtor will continue to comply with the provisions of such
Act.
4. PERFECTION OF SECURITY INTEREST.
The Debtor will execute all such financing statements pursuant to the
Uniform Commercial Code or other notices appropriate under applicable law, as
Secured Party may require, each in form satisfactory to the Secured Party and
will pay all filing or recording costs with respect thereto, and all costs of
filing or recording this Security Agreement or any other instrument, agreement
or document executed and delivered pursuant hereto or to the Agreement
(including the cost of all federal, state or local mortgage, documentary, stamp
or other taxes), in each case, in all public offices where filing or recording
is reasonably deemed by the Secured Party to be necessary or desirable. The
Debtor hereby authorizes the Secured Party to take all action (including,
without
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limitation, the filing of any Uniform Commercial Code financing statements or
amendments thereto without the signature of the Debtor or by signing of the
Debtor's name to any such financing statements as its attorney-in-fact) which
the Secured Party may deem reasonably necessary or desirable to perfect or
otherwise protect the liens and security interests created hereunder and to
obtain the benefits of this Security Agreement.
5. GENERAL COVENANTS.
The Debtor shall:
(a) furnish the Secured Party from time to time at the Secured Party's
request written statements and schedules further identifying and describing the
Collateral in such detail as the Secured Party may reasonably require;
(b) advise the Secured Party promptly, in sufficient detail,
of any substantial change in the Collateral, and of the occurrence of any event
which would have a material adverse effect on the value of the Collateral or on
the Secured Party's security interest therein;
(c) comply with all acts, rules, regulations and orders of any legislative,
administrative or judicial body or of fiscal authority applicable to the
Collateral or any part thereof or to the operation of the Debtor's business
except where the failure to comply (a) is non-material and (b) has no effect on
the value of the Collateral or on the ability of the Secured Party to exercise
its rights and remedies hereunder; provided, however, that the Debtor may
contest any acts, rules, regulations, orders and directions of such bodies or
officials in any reasonable manner which will not, in the Secured Party's
opinion, adversely affect the Secured Party's rights or the priority of its
security interests in the Collateral;
(d) perform and observe all covenants, restrictions and conditions
contained in the Agreement providing for payment of taxes, maintenance of
insurance and otherwise relating to the Collateral, as though such covenants,
restrictions and conditions were fully set forth in this Security Agreement;
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(e) promptly notify the Secured Party of all disputes with account debtors
involving amounts in excess of $100,000;
(f) promptly execute and deliver to the Secured Party such further deeds,
mortgages, assignments, security agreements or other instruments, documents,
certificates and assurances and take such further action as the Secured Party
may from time to time in its sole discretion deem necessary to perfect, protect
or enforce the Secured Party's security interests in the Collateral or otherwise
to effect the intent of this Security Agreement and the Agreement;
(g) keep or cause to be kept the Collateral in good working order, repair,
running and marketable condition, ordinary wear and tear excepted, at the
Debtor's own cost and expense; and
(h) not assign, sell, mortgage, lease, transfer, pledge, grant a security
interest in or lien upon, encumber or otherwise dispose of or abandon, any part
or all of the Collateral, without the express prior written consent of the
Secured Party, except (i) for the sale from time to time in the ordinary course
of business of the Debtor of such items of Collateral as may constitute part of
the business inventory of the Debtor; and (ii) as otherwise expressly provided
in the Agreement.
6. ASSIGNMENT OF INSURANCE.
At or prior to the date hereof, the Debtor shall deliver to Secured
Party copies of, or certificates of the issuing companies with respect to,
endorsements of any and all policies of insurance owned by the Debtor
covering or in any manner relating to the Collateral, in form and substance
satisfactory to the Secured Party naming the Secured Party as additional
insured party as its interests may appear with respect to liability coverage
and as loss payee with respect to property and extended insurance coverage,
and indicating that no such policy will be terminated, or reduced in coverage
or amount, without at least thirty (30) days prior written notice from the
insurer to the Secured Party. As further security for the due payment and
performance of the Obligations, the Debtor hereby assigns to the Secured
Party all sums, including returned or unearned premiums, which may become
payable under or in respect of any policy of insurance owned by the Debtor
covering or in any manner relating to the Collateral, and the Debtor hereby
directs each insurance company issuing any such policy to make payment of
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sums directly to the Secured Party. The Debtor hereby appoints the Secured Party
as the Debtor's attorney-in-fact and authorizes the Secured Party in the
Debtor's or in the Secured Party's name to endorse any check or draft
representing any such payment and to execute any proof of claim, subrogation
receipt and any other document required by such insurance company as a condition
to or otherwise in connection with such payment, and, upon the occurrence of any
Event of Default, to cancel, assign or surrender any such policies. All such
sums received by the Secured Party shall be applied by the Secured Party to
satisfaction of the Obligations or, to the extent that such sums represent
unearned premiums in respect of any policy of insurance on the Collateral
refunded by reason of cancellation, toward payment for similar insurance
protecting the respective interests of the Debtor and the Secured Party, or as
otherwise required by applicable law.
7. FIXTURES.
It is the intent of the Debtor and the Secured Party that none of the
Collateral is or shall be regarded as fixtures, as that term is used or defined
in Article 9 of the Uniform Commercial Code, and the Debtor represents and
warrants that it has not made and is not bound by any lease or other agreement
which is inconsistent with such intent. Nevertheless, if the Collateral or any
part thereof is or is to become attached or affixed to any real estate, the
Debtor will, upon request, furnish the Secured Party with a disclaimer or
subordination in form satisfactory to the Secured Party of the holder of any
interest in the real estate to which the Collateral is attached or affixed,
together with the names and addresses of the record owners of, and all other
persons having interest in, and a general description of, such real estate.
8. COLLECTIONS.
(a) The Debtor may collect all checks, drafts, cash or other remittances
(i) in payment of any of its accounts, contract rights or general intangibles
constituting part of the Collateral, (ii) in payment of any Collateral sold,
transferred, leased or otherwise disposed of, or (iii) in payment of or in
account of its accounts, contracts, contract rights, notes, drafts, acceptances,
general intangibles, chooses in action and all other forms of obligations
relating to any of the Collateral so sold, transferred, or leased or otherwise
disposed of, and all of the foregoing amounts so
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collected after the occurrence and during the continuance of an Event of Default
shall be held in trust by the Debtor for, and as the property of, the Secured
Party and shall not be commingled with other funds, money or property of the
Debtor.
(b) After the occurrence and during the continuance of an Event of Default,
the Debtor will immediately upon receipt of all such checks, drafts, cash or
other remittances in payment of any of its accounts, contract rights or general
intangibles constituting part of the Collateral, deliver any such items to the
Secured Party accompanied by a remittance report in form supplied or approved by
the Secured Party, such items to be delivered to the Secured Party in the same
form received, endorsed or otherwise assigned by the Debtor where necessary to
permit collection of such items and, regardless of the form of such endorsement,
the Debtor hereby waives presentment, demand, notice of dishonor, protest,
notice of protest and all other notices with respect thereto.
(c) After the occurrence and during the continuance of an Event of Default,
the Debtor will immediately upon receipt of all such checks, drafts, cash or
other remittances in payment for any Collateral sold, transferred, leased or
otherwise disposed of, or in payment or on account of its accounts, contracts,
contract rights, notes, drafts, acceptances, general intangibles, choses in
action and all other forms of obligations relating to any of the Collateral so
sold, transferred, leased or otherwise disposed of, deliver any such items to
the Secured Party accompanied by a remittance report in form supplied or
approved by the Secured Party, such items to be delivered to the Secured Party
in the same form received, endorsed or otherwise assigned by the Debtor where
necessary to permit collection of such items and, regardless of the form of such
endorsement, the Debtor hereby waives presentment, demand, notice of dishonor,
protest, notice of protest and all other notices with respect hereto.
(d) After the occurrence and during the continuance of an Event of Default,
the Debtor will promptly notify the Secured Party in writing of the return or
rejection of any goods represented by any accounts, contract rights or general
intangibles and the Debtor shall forthwith account therefore to the Secured
Party in cash without demand or notice and until such payment has been received
by the Secured Party the Debtor will receive and hold all such goods separate
and apart, in trust for and subject to the security
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interest in favor of the Secured Party, and the Secured Party is authorized to
sell, for the Debtor's account and at the Debtor's sole risk, all or any part of
such goods.
(e) All of the foregoing remittances shall be applied and credited by the
Secured Party first to satisfaction of the Obligations or as otherwise required
by applicable law, and to the extent not so credited or applied, shall be paid
over to the Debtor.
9. RIGHTS AND REMEDIES.
In the event of the occurrence and continuance of any Event of Default, the
Secured Party shall at any time thereafter have the right, with or without (to
the extent permitted by applicable law) notice to the Debtor, as to any or all
of the Collateral, by any available judicial procedure or without judicial
process, to take possession of the Collateral and without purpose of taking
possession of or removing the Collateral, and, generally, to exercise any and
all rights afforded to a secured party under the Uniform Commercial Code or
other applicable law. Without limiting the generality of the foregoing, the
Debtor agrees that the Secured Party shall have the right to sell, lease, or
otherwise dispose of all or any part of the Collateral, whether in its then
condition or after further preparation or processing, either at public or
private sale or at any broker's board, in lots or in bulk, for cash or for
credit, with or without warranties or representations, and upon such terms and
conditions, all as the Secured Party in its sole discretion may deem advisable,
and it shall have the right to purchase at any such sale; and, if any Collateral
shall require rebuilding, repairing, maintenance, preparation, or is in process
or other unfinished state, the Secured Party shall have the right, at its sole
option and discretion, to do such rebuilding, repairing, preparation, processing
or completion of manufacturing, for the purpose of putting the Collateral in
such saleable or disposable form as it shall deem appropriate. At the Secured
Party's request, the Debtor shall assemble the Collateral and make it available
to the Secured at places which the Secured Party shall select, whether at the
Debtor's premises or elsewhere, and make available to the Secured Party, without
rent, all of the Debtor's premises and facilities for the purpose of the Secured
Party's taking possession of, removing or putting the Collateral in saleable or
disposable form. The proceeds of any such sale, lease
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or other disposition of the Collateral shall be applied first to the expenses of
retaking, holding, storing, processing and preparing for sale, selling, and the
like, and to the attorneys' fees and legal expenses incurred by the Secured
Party, and then to satisfaction of the Obligations, and to the payment of any
other amounts required by applicable law, after which the Secured Party shall
account to the Debtor for any surplus proceeds. If, upon the sale, lease or
other disposition of the Collateral, the proceeds thereof are insufficient to
pay all amounts to which the Secured Party is legally entitled, the Debtor will
be liable for the deficiency, together with interest thereon, at the rate
prescribed in the Agreement, and the fees of any attorneys employed by the
Secured Party to collect such deficiency. To the extent permitted by applicable
law, the Debtor waives all claims, damages and demands against the Secured Party
arising out of the repossession, removal, retention or sale of the Collateral.
10. COSTS AND EXPENSES.
Any and all fees, costs and expenses, of whatever kind or nature, including
the reasonable attorneys' fees and legal expenses incurred by the Secured Party,
in connection with the preparation of this Security Agreement and all other
documents relating hereto and the consummation of this transaction, the filing
or recording of financing statements and other documents (including all taxes in
connection therewith) in public offices, the payment or discharge of any taxes,
insurance premiums, encumbrances or otherwise protecting, maintaining or
preserving the Collateral and the Secured Party's security interest therein,
whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions or proceedings arising out of or related to the
transaction to which this Security Agreement relates, shall be borne and paid by
the Debtor on demand by the Secured Party and until so paid shall be added to
the principal amount of the Obligations and shall bear interest at the rate
prescribed in the Agreement.
11. POWER OF ATTORNEY.
The Debtor authorizes the Secured Party and does hereby make, constitute
and appoint the Secured Party, and any officer or agent of the Secured Party,
with full power of substitution, as the Debtor's true and lawful
attorney-in-fact, with power, in its own name or in the name of the Debtor, upon
the occurrence and
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continuance of an Event of Default: (a) to endorse any notes, checks, drafts,
money orders, or other instruments of payment (including payments payable under
or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of the Secured Party; (b) to sign and endorse any invoice,
freight or express bill, bill of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection with
accounts, and other documents relating to Collateral; (c) to pay or discharge
any taxes, liens, security interest or other encumbrances at any time levied or
placed on or threatened against the Collateral; (d) to demand, collect, receipt
for, compromise, settle and sue for monies due in respect of the Collateral; (e)
to receive, open and dispose of all mail addressed to the Debtor and to notify
the Post Office authorities to change the address for delivery of mail addressed
to the Debtor to such address as the Secured Party may designate; and (f)
generally to do, at the Secured Party's option and at the Debtor's expense, at
any time, or from time to time, all acts and things which the Secured Party
deems necessary to protect, preserve and realize upon the Collateral and the
Secured Party's security interest therein in order to effect the intent of this
Security Agreement and the Agreement, all as fully and effectually as the Debtor
might or could do; and the Debtor hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof. All acts of said attorney or
designee are hereby ratified and approved and said attorney or designee shall
not be liable for any acts of commission or omission, nor for any error of
judgment or mistake of fact or law except for its own gross negligence or
willful misconduct. This power of attorney shall be irrevocable for the term of
this Security Agreement and thereafter as long as any of the Obligations shall
be outstanding.
12. NOTICES.
Unless the party to be notified otherwise notifies the other party in
writing as provided in this Section, notices shall be given hereunder by
certified or registered mail or by recognized overnight delivery services to any
party at its address on the signature page of this Security Agreement. Notices
shall be effective (a) if given by registered or certified mail, on the third
day after deposit in the mails with postage prepaid, addressed as aforesaid or
(b) if given by recognized overnight delivery service, on the business day
following deposit with such
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service, addressed as aforesaid; provided that all notices to the Secured Party
shall be effective on receipt.
13. OTHER SECURITY.
To the extent that the Obligations are now or hereafter secured by property
other than the Collateral or by the guarantee, endorsement or property of any
other person, then the Secured Party shall have the right in its sole discretion
to pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Party's
rights and remedies hereunder.
14. DEPOSITS.
Any and all deposits or other sums at any time credited by or due from the
Secured Party to the Debtor, whether in regular or special depository accounts
or otherwise, shall at all times constitute additional Collateral for the
Obligations, and may be set-off by the Secured Party against any Obligations
that are then due and payable (after expiration of any applicable cure period)
at any time, whether or not other collateral held by the Secured Party is
considered to be adequate. No provision of this Section 14 shall permit the
Secured Party to set-off balances on accounts established by the Debtor as trust
accounts for third parties.
15. MISCELLANEOUS.
(a) Beyond the safe custody thereof, the Secured Party shall as to the
Debtor have no duty as to the collection of any Collateral in its possession or
control or in the possession or control of any agent or nominee of the Secured
Party, or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto.
(b) No course of dealing between the Debtor and the Secured Party, nor any
failure to exercise, nor any delay in exercising, on the part of the Secured
Party, any right, power or privilege hereunder or under the Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
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(c) All of the Secured Party's rights and remedies with respect to the
Collateral, whether established hereby or by the Agreement, or by any other
agreements, instruments or documents or by law, shall be cumulative and may be
exercised singly or concurrently.
(d) The provisions of this Security Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Security Agreement in any jurisdiction.
(e) This Security Agreement (including this subsection) is subject to
modification only by a writing signed by all of the parties hereto.
(f) The benefits and burdens of this Security Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties hereto; provided, however, that the rights and obligations of the Debtor
under this Security Agreement shall not be assigned or delegated without the
prior written consent of the Secured Party (exercisable in its sole discretion),
and any purported assignment or delegation without such consent shall be void.
16. TERM OF AGREEMENT.
The term of this Security Agreement shall commence on the date hereof and
shall continue in full force and effect, and be binding upon the Debtor, until
all of the Obligations have been fully paid and performed and such payment and
performance have been acknowledged in writing by the Secured Party, whereupon
this Security Agreement shall terminate.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first written above.
ALLIED DEVICES CORPORATION, as Debtor
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By: ______________________________________
Name: Mark Hopkinson
Title: Chairman of the Board
Address for Notices:
2365 Milburn Avenue
Baldwin, New York 11510
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THE CHASE MANHATTAN BANK, as Secured Party
By: ______________________________________
Name: Stephen M. Zajac
Title: Assistant Vice President
Address for Notices:
395 North Service Road
Melville, New York 11747
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SCHEDULE I
TO
SECURITY AGREEMENT
Offices Where Records Are Kept
2365 Milburn Avenue
Baldwin, New York 11510
Other Locations Where Collateral
Is Stored, Used or Located:
603 Tyler
Joplin, Missouri 64801
393 South Main Street
Freeport, New York 11520
32 Johns Place
Freeport, New York 11520
2115 9th Avenue
Ronkonkoma, New York 11779
Business and Trade Names
Used by Debtor:
ADCO Devices Company
Stroba Manufacturing Company
Astro Instrument Company
Absolute Precision Company
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SCHEDULE A
TO
UCC-1 FINANCING STATEMENT
NAMING ALLIED DEVICES CORPORATION, AS DEBTOR, AND
THE CHASE MANHATTAN BANK, AS SECURED PARTY
All of the Debtor's right, title and interest, whether now existing or
hereafter arising, in and to the following:
(a) All personal property, inventory, fixtures and equipment of Debtor
wherever located and whether now owned or in existence or hereafter acquired or
created of any kind and description, tangible or intangible, including goods,
documents, instruments, general intangibles, chattel paper, accounts and
contract rights, such terms having the meanings ascribed by the UCC.
The term "accounts" shall mean, without limiting the generality of the
foregoing, any and all now existing or hereafter arising rights to payment held
by the Debtor, whether in the form of accounts receivable, notes, drafts,
acceptances or other forms of obligations and receivables now or hereafter
received by or belonging to the Debtor for (A) inventory sold or leased by it,
(B) services rendered by it, or (C) advances or loans made by it to customers,
together with all guarantees and security therefor and all proceeds thereof,
whether cash proceeds or otherwise, including, without limitation, all right,
title and interest of the Debtor in the inventory which gave rise to any such
accounts, including, without limitation, the right to stoppage in transit and
all returned, rejected, rerouted or repossessed inventory.
(b) All sums, including returned or unearned premiums, which may become
payable under or in respect of any policy of insurance owned by the Debtor
covering or in any manner relating to the Collateral.
(c) Any and all deposits or other sums at any time credited by or due from
the Secured Party to the Debtor whether in regular or special depository
accounts or otherwise.
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EXHIBIT "D"
DECLARATION OF RESTRICTIONS
DECLARATION OF RESTRICTIONS made this 4th day of September, 1996 by
EMPIRE-TYLER CORPORATION, having an office at 603 Tyler, Joplin, Missouri 64801
(the "DECLARANT").
W I T N E S S E T H:
WHEREAS, the Declarant is the owner of the fee interest in the
premises commonly known as 603 Tyler, Joplin, Missouri 64801 as more
particularly described in Exhibit A attached hereto and made a part hereof (the
"PREMISES").
WHEREAS, the Declarant wishes to set forth herein a declaration of its
intention with respect to encumbrances affecting the Premises.
NOW, THEREFORE, the Declarant hereby declares as follows:
1. Allied Devices Corporation (the "Borrower") has executed and
delivered to The Chase Manhattan Bank (the "Bank") this date a promissory note
(the "Note") and a Revolving Credit Loan Agreement (the "Agreement") each made
between the Borrower and the Bank. To further secure the obligations of
Borrower arising out of the Note and Agreement, the Declarant has executed and
delivered to the Bank its guaranty (the "Guaranty") dated the date hereof.
2. The Declarant agrees not to transfer, assign or otherwise further
encumber the interest of the Declarant in the Premises without the consent of
the Bank, in its sole discretion, nor shall the Declarant, in any manner, amend
this Declaration so long as: (i) any indebtedness is owed by the Borrower to
Bank under the terms of the Note and Agreement; or (ii) if the Bank has any
obligation to make loans under the Note or Agreement; or (iii) if Declarant has
obligations to the Bank under the Guaranty, the Note or Agreement.
3. If the indebtedness owed by the Borrower to Bank is not repaid in
full in accordance with the terms of the Note and/or Agreement the Declarant
shall execute any and all documentation
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deemed necessary by Bank to provide Bank with security interest in the Premises,
including, but not limited to a mortgage, collateral assignment of leases and
rents and UCC-1 financing statements, all in form and substance satisfactory to
Bank. The Declarant also agrees to reimburse Bank for any and all expenses,
including, but not limited to attorneys' fees, recording fees, title charges and
mortgage recording taxes, incurred by Bank with respect to the granting by the
Declarant to Bank of the aforementioned security interest.
4. This Declaration shall be binding upon the successors and assigns
of the Declarant.
5. This Declaration may not be changed or modified orally.
6. This Declaration shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the Declarant has executed this Declaration at
Melville, New York this 4th day of September, 1996.
EMPIRE-TYLER CORPORATION
By:_______________________________
Name: Mark Hopkinson
Title: President
Witness:
_________________________
STATE OF NEW YORK)
) ss:
COUNTY OF SUFFOLK)
On the 4th day of September, 1996, before me personally came Mark
Hopkinson, to me known, who, being by me duly sworn, did depose and say that he
resides at 340 East 57th Street, Apt 3b, New York, New York 10022; that he is
President of EMPIRE-TYLER CORPORATION, the corporation described in and which
executed the
104
<PAGE>
above instrument; and that he signed his name thereto by authority of the Board
of Directors of said corporation.
__________________________________
Notary Public
105
<PAGE>
EXHIBIT A
(Description of Premises)
The land referred to in this Declaration of Restriction is situated in the
County of Jasper, State of Missouri, and described as follows:
All of Lots Numbered Eleven (11), Twelve (12), Thirteen (13), Fourteen
(14), Fifteen (15), Sixteen (16), Seventeen (17), Eighteen (18), Nineteen (19),
and Twenty (20) in SALZER'S FIRST ADDITION to the City of Joplin, Jasper County,
Missouri, according to the recorded plat thereof, and all that portion of the
vacated alley lying between Lots 11 through 15 both inclusive, and 16 through 20
both inclusive, and all of the vacated South one-half of Sixth Street lying
North of the adjoining Lots 11 through 15 both inclusive.
Said premises being more commonly known as 603 Tyler Avenue, Joplin, Missouri
64801.
106
<PAGE>
EXHIBIT "E"
ALLIED DEVICES CORPORATION
BORROWING BASE CERTIFICATE
DATE:____________________
(000's omitted)
1. Net accounts receivable of ALLIED DEVICES CORPORATION ("Allied") as
of:__________
Current $_________
31-60 days past invoice $_________
61-90 days past invoice $_________
Over 90 days past invoice $_________
Total net accounts receivable $_________
2. Computation of Borrowing Base:
A. Total accounts receivable of Allied as of:_________ $_________
Less the following deductions:
Accounts receivable more than 90 days from invoice date ______________
Foreign accounts receivable* ______________
Account debtor (see Agreement) ______________
Cross-aging (more than 50% are more than 90 days past due) ______________
Credit balances ______________
Government accounts receivable ______________
Consignment sales ______________
Other (per Agreement) ______________
*unless insured with a policy satisfactory to the Bank, naming the Bank
as loss payee.
B. Total deductions: $_________
C. Eligible Accounts Receivable: (A-B) $_________
D. Accounts Receivable Advance Rate X85%
E. Available accounts receivable (C times D) $_________
F. Perpetual inventory of Allied as of __________, 199__ $_________
Less the following deductions:
(i) Inventory subject to liens (other than the Bank) ______________
(ii) Inventory held at locations without landlord waiver ______________
(iii) Inventory "obsolete" ** ______________
(iv) Inventory without a sale for more than one year** ______________
(v) Inventory held at locations outside the U.S. ______________
(vi) Work in process** ______________
(vii) Inventory built to customer specifications for which
there is no purchase contract specifying delivery
within the next 90 days *** ______________
G. Total deductions $_________
**(iii) and (iv) shall be reported to the Bank beginning with the month ended
June 30, 1997 and monthly thereafter provided however, that if the Borrower can
not input historical data required to report (iii) and (iv) by June 30, 1997,
such reporting shall begin with the month ended November 30, 1997. (vi) shall
be calculated from the Closing Date until the month ended May 31, 1997 as the
higher of (a) 10% of perpetual inventory as reported for the month or (b) the
percentage work in process to total inventory reported on the last quarterly
financial statement of Allied
107
<PAGE>
provided to the Bank under Section 5.08 (a) and (b). For the month ending June
30, 1997 and thereafter, Allied shall provide actual work in process levels.
***All Inventory built to customer specifications shall be included in inventory
for the Borrowing Base Certificate prior to 6/30/97. At 6/30/97 or such date
thereafter when the Borrower can provide detailed information on such inventory,
such inventory shall be included in inventory on the Borrowing Base Certificate,
to the extent that F.(vii) shall be completed at such time.
H. Eligible (F-G) $________
I. Inventory Advances Rate X30%
J. Eligible Inventory times Inventory Advance Rate $________
K. Available inventory (the lower of J or $2,000,000.00) $________
L. Total Borrowing Base (E plus K) $________
M. Aggregate Revolving Credit Loans outstanding at (Date:______) $________
N. Net available equals lesser of L minus M or $4,000,000.00 minus M
(if negative, our check for line N amount is attached) $________
O. Amount of loan requested (if any) $________
P. Net available after Loan request [the lesser of L minus (M plus O)
or ($4,000,000.00 minus (M plus O) $________
The undersigned hereby represents and warrants to the Bank that all information
set forth herein, including, without limitation, the information regarding the
status of Allied's accounts receivable and Allied's inventory, are true,
complete and accurate. The undersigned further acknowledges that the Bank will
rely on the information contained herein in making Loans to the undersigned.
The undersigned certifies that (i) no Event of Default or event which upon
notice, lapse of time or both constitute an Event of Default has occurred and is
continuing under the Agreement, and (ii) the undersigned has performed all
agreements and satisfied all conditions under the Agreement required to be
performed by it on or prior to the date hereof. Capitalized terms used herein
and not defined shall have the meaning set forth in the Agreement dated as of
September 4, 1996 among the undersigned and the Bank.
ALLIED DEVICES CORPORATION
By:_______________________
Title
108
<PAGE>
EXHIBIT F
WAIVER OF LANDLORD'S LIEN
This Agreement made this 4th day of September, 1996, by and among
THE CHASE MANHATTAN BANK, a New York banking corporation having an office at 395
North Service Road, Melville, New York 11747 (hereinafter called "Bank"), ALLIED
DEVICES CORPORATION, a Nevada corporation having an office at 2365 Milburn
Avenue, Baldwin, New York 11510 (hereinafter called "Borrower"), and ____
_____________________________________________ having an office at
__________________________________________, (hereinafter called "Landlord");
WHEREAS, Landlord, under a written lease with Borrower, has leased
premises at __________________________________________ (hereinafter called the
"Premises") to the Borrower; and
WHEREAS, the Borrower has requested the loan (hereinafter called
the "Loan") from the Bank for the purposes of refinancing existing debt of the
Borrower and for general working capital purposes; and
WHEREAS, the Bank desires to make the Loan to the Borrower provided
the Bank has a first position security interest lien on all of the Borrower's
personal property, inventory, fixtures and equipment wherever located and
whether now owned or in existence or hereafter acquired or created of every kind
and description, tangible or intangible, including goods, documents,
instruments, general intangibles, chattel paper, accounts and contract rights,
such terms having the meanings ascribed by the UCC (hereinafter called the
"Assets"); and
WHEREAS, Landlord has the right by virtue of the laws of the State
of New York to enforce collection of rent due by distraint on Borrower's
property on the Premises and the Landlord has an interest in property placed on
the Premises by Borrower which may be regarded as fixtures;
NOW, THEREFORE, in consideration of the mutual covenants contained,
the parties agree as follows:
109
<PAGE>
1. Bank shall make the Loan to the Borrower which Loan shall be
secured by a first security interest loan on the Assets.
2. The Assets shall remain personal property of the Borrower even
though it may be affixed to the Premises until the Loan has been paid by
Borrower to Bank together with all interest thereon or until Borrower defaults
in the payment of the Loan.
3. Landlord waives any right, title or interest in the Assets that
Landlord may have by reason of said Assets being attached to or resting on the
Premises for the duration of Bank's security interest in the Assets which shall
exist until Borrower has paid Bank the outstanding balance of the Loan. The
Bank shall be entitled to remove the Assets from the Premises at any reasonable
time should Borrower default on payment of the Loan under the terms of the
documents evidencing the Loan.
4. Bank shall not be responsible for the condition of the Premises
after removal of the Assets so long as reasonable care is exercised in the
removal. Landlord shall not be responsible for the condition of the Assets
while the Assets remains on the Premises and under the control of the Borrower.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the date first above set forth.
THE CHASE MANHATTAN BANK - Bank
By:_____________________________________
Stephen M. Zajac,
Assistant Vice President
ALLIED DEVICES CORPORATION - Borrower
By:_____________________________________
Mark Hopkinson, Chairman of the Board
_____________________ - Landlord
By:_____________________________
110
<PAGE>
STATE OF NEW YORK)
) ss.:
COUNTY OF SUFFOLK)
On this 4th day of September, 1996, before me personally came
Stephen M. Zajac to me known, who being by me duly sworn, did depose and say
that he resides at 395 North Service Road, Melville, New York 11747; that he is
the Assistant Vice President of The Chase Manhattan Bank, the corporation
described in and which executed the foregoing instrument; that by order of the
Board of Directors of said corporation, he signed his name thereto.
_______________________________
Notary Public
STATE OF NEW YORK)
) ss.:
COUNTY OF SUFFOLK)
On this 4th day of September, 1996, before me personally came Mark
Hopkinson to me known, who being by me duly sworn, did depose and say that he
resides at 340 East 57th Street, Apt 3b, New York, New York 10022; that he is
the Chairman of the Board of ALLIED DEVICES CORPORATION, the corporation
described in and which executed the foregoing instrument; that by order of the
Board of Directors of said corporation, he signed his name thereto.
_______________________________
Notary Public
STATE OF NEW YORK)
) ss.:
COUNTY OF SUFFOLK)
On this ____ day of _________, 1996, before me personally came
________________________ to me known, who being by me duly sworn, did depose and
say that he resides at ______________________ ____________________; that he is
the _________________ of the corporation described in and which executed the
foregoing instrument; that by order of the Board of Directors of said
corporation, he signed his name thereto.
_______________________________
Notary Public
111
<PAGE>
SCHEDULE I
Subsidiaries of Borrower
Jurisdiction Percentage
Name and Address of Incorporation of Ownership
- ---------------- ---------------- ------------
EMPIRE-TYLER CORPORATION Missouri 100%
603 Tyler
Joplin, Missouri 64801
112
<PAGE>
SCHEDULE II
Credit Arrangements
(to be Supplied by Borrower)
113
<PAGE>
SCHEDULE III
Hazardous Materials
-NONE-
114
<PAGE>
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
EPS CALCULATION - PRIMARY AND FULLY DILUTIVE
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR END CALCULATION:
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED SHARES OUTSTANDING 4,296,842 1,001,029
OPTIONS ----------
WARRANTS WEIGHTING ----------
7,500 33.33% 2,500
25,000 75.56% 18,889
62,500 75.56% 47,222
10,000 33.33% 3,333
-------------
-------------
4,368,786
INTEREST
EQUIVALENT SHARES ADD BACK
----------------- ----------
1ST QTR 1,453,646 35,578
2ND QTR 1,450,479 30,388
3RD QTR 1,378,646 28,363
4TH QTR 1,382,423 34,884
----------------- ----------
5,665,194 1,416,298 129,213 129,213
------------ ---------- ----------
5,785,085 $1,130,242 $0.20
------------ ---------- -----
------------ ---------- -----
</TABLE>
EXHIBIT 11.01
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 54,919
<SECURITIES> 0
<RECEIVABLES> 2,251,686
<ALLOWANCES> 58,080
<INVENTORY> 5,882,556
<CURRENT-ASSETS> 8,172,700
<PP&E> 6,723,365
<DEPRECIATION> 4,757,620
<TOTAL-ASSETS> 10,337,840
<CURRENT-LIABILITIES> 1,705,887
<BONDS> 2,642,401
0
0
<COMMON> 4,402
<OTHER-SE> 5,802,962
<TOTAL-LIABILITY-AND-EQUITY> 10,337,840
<SALES> 17,793,072
<TOTAL-REVENUES> 17,793,072
<CGS> 5,977,801
<TOTAL-COSTS> 5,977,801
<OTHER-EXPENSES> 4,120,136<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263,568
<INCOME-PRETAX> 1,594,097
<INCOME-TAX> 593,068
<INCOME-CONTINUING> 1,001,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,001,029
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
<FN>
<F1>Selling, general and administrative
</FN>
</TABLE>
