<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from............... to................
Commission file number: 0-19450
OAKHURST COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1001 SANTERRE DRIVE, GRAND PRAIRIE, TEXAS 75050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 660-4499
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE PER SHARE NASDAQ SMALLCAP MARKET
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes..X... No......
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value at May 1, 1996 of the voting stock held by
non-affiliates of the registrant: $3,157,467
At May 1, 1996, the registrant had 3,195,235 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be filed pursuant to Section
14(a) of the Securities Exchange Act of 1934 in connection with the
registrant's 1996 annual meeting of stockholders are incorporated by reference
in Part III of this report.
<PAGE> 2
Item 1. PART I
General BUSINESS
Oakhurst Company, Inc. ("Oakhurst" or "the Company") was formed as
part of a merger transaction in July 1991, in which Steel City Products, Inc.
("SCPI") became a majority-owned subsidiary of Oakhurst. In accordance with
the merger agreement, Oakhurst owns 10% of the outstanding common stock of SCPI
and all of the SCPI Series A Preferred Stock, with the result that the
aggregate fair market value of SCPI's common stock and Series A Preferred Stock
owned by Oakhurst is equal to approximately 90% of the aggregate fair market
value of all the issued and outstanding capital stock of SCPI; and represents
90% of the voting stock of SCPI.
Pursuant to the merger, SCPI became a special, limited purpose
subsidiary that concentrates on its historical line of business, while any
growth and expansion opportunities are expected to be pursued by Oakhurst or
its subsidiaries. Because Oakhurst's ownership of SCPI is primarily in the
form of preferred stock, Oakhurst retains the value of SCPI, and Oakhurst's
income from SCPI is determined by the Series A Preferred stock dividend. This
form of ownership is designed to facilitate the preservation and utilization of
SCPI's net operating loss carryforwards, which amount to approximately $149
million.
Oakhurst, through SCPI and three wholly-owned subsidiaries, is
primarily a distributor of products to the automotive after-market. Its
largest business, which is conducted by SCPI under the trade name "Steel City
Products", is the distribution of automotive parts and accessories to
independent retailers from a facility in Pittsburgh, Pennsylvania.
In early 1994, Oakhurst adopted a program of diversification and
expansion within the automotive aftermarket, including through acquisitions,
intended to improve its long-term profit potential.
In January 1994, Oakhurst acquired all the outstanding capital stock
of H&H Distributors, Inc., d/b/a Harry Survis ("H&H"), a Pittsburgh-based
company involved in the distribution and installation of automotive
accessories, including stereos, alarms and cellular phones.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's"), a distributor of automotive
radiators based in Mt. Vernon, New York that operates seven facilities in New
York, Connecticut, New Jersey and Pennsylvania.
In October 1994, Oakhurst acquired all the outstanding capital stock
of Puma Products, Inc., ("Puma") (formerly LBI Corp.), a distributor of
after-market products to the light truck and van conversion industry from
facilities in Grand Prairie, Texas and Elkhart, Indiana.
In March 1995, Oakhurst formed a wholly-owned subsidiary, Oakhurst
Management Corporation ("OMC"), to coordinate the provision of corporate
administrative services to the Company and its subsidiaries. Certain officers
of the Company and its subsidiaries are now paid and are provided benefits by
Oakhurst Management Corporation.
STEEL CITY PRODUCTS, INC.
BACKGROUND
SCPI was incorporated in West Virginia in 1959, and in 1963 became
known as Heck's, Inc. In 1969, the "Steel City Products" automotive
distribution business was acquired. SCPI was reincorporated in Delaware under
the name Hallwood Industries Incorporated in fiscal 1991. The name was changed
to Steel City Products, Inc. in January 1993.
-1-
<PAGE> 3
For many years prior to 1990, Heck's, Inc. operated a Retail Division
consisting of a chain of discount department stores. In September 1990, all of
the assets of the Retail Division were sold to Retail Acquisition Corp.
("RAC"), an unrelated company.
OPERATIONS
SCPI primarily distributes automotive accessories. These products
include functional and decorative car and truck accessories (such as floor
mats, seat covers, mirrors, running boards and lights), car care products
(including waxes and paints), chemicals (such as antifreeze, windshield washer
fluid and motor oil) and car repair and maintenance items (including spark
plugs, windshield wipers, and air and oil filters). In fiscal 1996, the
product selection was expanded to include selected "hard parts" such as brake
rotors, and in the first quarter of fiscal 1997, SCPI introduced non-food pet
supplies to its merchandise selection. Although such pet supplies are not
typical of SCPI's historical merchandise mix, management determined that the
availability of existing customers which sell both pet supplies and automotive
accessories, combined with SCPI's distribution expertise and infrastructure,
offered an opportunity for increased sales, but there can be no assurance that
this will lead to new sales. For about twenty-five years, SCPI's operations
have been conducted from the same facility in Pittsburgh.
Certain of SCPI's business is performed on a service basis, which
involves visits by its sales personnel to customers' stores to count and
re-order merchandise; generally, these re-orders are transmitted electronically
to SCPI's offices in Pittsburgh and shipments are either made directly to each
of the customers' stores or pre-packed for onward shipment to stores by the
retailers' own distribution centers. Certain customers electronically transmit
their orders to SCPI's headquarters. Because many orders are generated
electronically and are shipped within a few days of receipt, the size of SCPI's
order backlog is not relevant to an understanding of the business. SCPI also
provides price ticketing and associated services to those of its customers who
request such services.
SOURCES OF SUPPLY
SCPI acquires its merchandise from a large number of suppliers, none
of which accounts for more than 15% of its revenues. Many of the products sold
by SCPI carry nationally-advertised brand names, but because of the diversity
and number of suppliers and products carried, the business is not generally
dependent on the continued availability of individual products or continued
dealings with existing supply sources. From time to time, market or seasonal
conditions may affect the availability of certain merchandise, but not to the
extent that the Company believes would materially impact its business.
Steel City generally carries in inventory only those products that its
customers have identified as necessary for their own merchandising needs, and
does not acquire significant quantities of other merchandise.
SEASONALITY
SCPI's business is seasonal, being slower in the early winter months
than at other times of the year. In anticipation of higher sales volume in the
spring and summer, SCPI carries higher inventories, beginning in February. As
is customary in the industry, many suppliers allow extended payment terms for
such inventory build-ups and in turn, SCPI grants extended payment terms to
many of its customers to facilitate their inventory build-ups.
SCPI's needs for working capital are affected by these seasonal
fluctuations (see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
CUSTOMER BASE
SCPI's customers include general merchandise retail chains, automotive
specialty stores, grocery chains, drug stores, hardware stores and other
automotive accessory distributors. Most customers are
-2-
<PAGE> 4
based in the northeastern United States, although stores operated by some
customers are located outside the northeastern states. There are no foreign
sales.
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive pressures facing regional mass
merchandisers and the growing influence of national automotive specialty
chains. These have led to fluctuations in the level of business that SCPI
enjoys with individual customers. In recent years, SCPI has lost some
significant customers and has suffered reductions in business as certain
customers have closed stores in the face of competition, have been forced into
bankruptcy, or have reduced their automotive merchandise selection.
Furthermore, some customers have changed their buying practices to acquire
certain merchandise direct from manufacturers rather than through distributors
such as Steel City Products. In its efforts to offset these trends, SCPI has
added new customers, expanded its product offerings to certain customers,
enlarged the territory that it serves and introduced new categories of
products.
Examples of the changes discussed above include the fact that SCPI's
largest customer in fiscal 1992, Fisher Big Wheel, represented a diminishing
percentage of its total revenues in each subsequent fiscal year and then closed
all of its stores in 1993 following a bankruptcy filing, and that in fiscal
1996, SCPI lost two of its largest customers: Jamesway Corporation ("Jamesway")
filed for bankruptcy in October 1995 and shortly thereafter closed all its
stores, and Forest City Auto Parts, Inc. ("Forest City") informed management in
November 1995 of its decision to change distributors (see table below).
Although SCPI added several new customers during fiscal 1995, fiscal
1996 and the first quarter of fiscal 1997, and expanded sales to certain
existing customers, it has not yet obtained enough new business to offset all
of the lost business and return sales to historical levels. Management
continually attempts to identify new customers, but there can be no assurance
that further customers will be secured. Based on present information,
management anticipates that SCPI's sales in fiscal 1997 will be less than in
fiscal 1996.
Sales attributable to SCPI were approximately $24.6 million, or 52% of
Oakhurst's consolidated sales, in fiscal 1996. The following table shows sales
to customers that individually have accounted for more than 10% of consolidated
sales during any of the latest three fiscal years (all of these customers being
attributable to SCPI) (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 29, 1996 February 28, 1995 February 26, 1994
------------------- ------------------- ---------------------
% of % of % of
Sales Total Sales Sales Total Sales Sales Total Sales
------ ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fisher Big Wheel -- -- -- -- $3,198 10%
Forest City $4,641 10% $6,046 14% $6,250 19%
Jamesway $3,975 8% $4,465 10% $6,332 20%
</TABLE>
Fisher Big Wheel and Jamesway both filed for Chapter 11 bankruptcy
protection in July 1993, and Fisher Big Wheel closed all of its stores in
December 1993. Jamesway emerged from bankruptcy in January 1995, and continued
to be one of SCPI's largest customers throughout this period until the second
quarter of fiscal 1996, when Jamesway began experiencing new financial
difficulty. In October 1995, Jamesway again filed for bankruptcy protection
and announced that it would close all of its stores.
During the third quarter of fiscal 1996, Forest City informed SCPI
that it had decided to change its source of supply, and sales to Forest City
ended in January 1996.
None of SCPI's business is based on government contracts, and there
are no long-term sales contracts with any customers.
-3-
<PAGE> 5
COMPETITION
The automotive parts and accessories distribution industry is highly
competitive, with several similar companies operating in SCPI's marketplace and
many of SCPI's suppliers also offer their products directly to retailers.
Management is unable to quantify SCPI's relative size in its industry or in
relation to its competitors. SCPI competes on the basis of the breadth of
merchandise offered, price, level of service, order fill rates and order
turnaround times. Management believes that SCPI's long history, good
reputation, experienced management, product variety, pricing, service levels
and high order fill rates enable it to compete favorably with other
distributors.
REGULATION
SCPI's management does not anticipate that existing or known pending
environmental legislation or other regulations will require major capital
expenditures or will affect its operations.
EMPLOYEES
SCPI employs approximately 65 persons, of whom about 50 are employed
in the headquarters office and distribution facility in Pittsburgh. Most of
the others are field personnel. Senior executives, including Bernard Frank (a
founder of Steel City Products in 1947), have many years of service with SCPI
and some are employed under long-term contracts.
The warehouse and certain office employees of SCPI are represented by
Local 636 of the International Brotherhood of Teamsters. SCPI believes that it
has experienced generally good labor relations, and no significant labor
disputes have affected its business in recent years. Renewal negotiations
related to the union agreement have continued beyond its expiration in November
1995.
H & H DISTRIBUTORS, INC.
BACKGROUND AND CUSTOMER BASE
The business operated by H&H was founded about sixty years ago and
operates under the name "Harry Survis Auto Center". Oakhurst acquired all the
capital stock of H&H in January 1994 from Harold Garfinkel, who owned and has
managed the business for many years. Mr. Garfinkel continues as President of
H&H under a long-term employment agreement.
The "Harry Survis" name is well known in the Pittsburgh market through
its long history and extensive ongoing advertising campaign. H&H sells and
installs products for the automotive aftermarket, both at wholesale and retail,
including automobile sound and alarm systems, sun roofs and other accessories.
In fiscal 1996, H&H added spoilers (wings) to its product selection, and in
fiscal 1997 will begin to offer light truck accessories.
In September 1994, H&H opened a second location, and in the first
quarter of fiscal 1997 it opened two additional locations, all in the
greater-Pittsburgh area.
In recent years, H&H has expanded its involvement in the cellular
phone business, and is currently one of the largest agents for Bell Atlantic
NYNEX Mobile Systems ("BANMS") in the Pittsburgh market, selling portable
cellular phones as well as installing phones in cars, and earning commissions
on the activation of new cellular subscribers for BANMS.
In addition to selling direct to the general public and to businesses,
H&H supplies accessories to many automobile dealers and provides installation
services for such products. H&H also uses a number of sub-agents in its
cellular phone business. There are no foreign sales.
-4-
<PAGE> 6
The cellular phone industry has recorded significant growth over the
past decade, with large numbers of new subscribers being added each year. The
industry is also constantly introducing innovations to existing systems,
including the change from "analog" to "digital" systems, and the introduction
of Personal Communication Services ("PCS"). The Company believes that this
growth environment and continued pattern of change within the industry present
opportunities for H&H, but in fiscal 1996 H&H experienced increased competition
following a significant increase in the number of retail outlets selling
cellular phones. In response to this situation, management opened two new
facilities in the first quarter of fiscal 1997 and restructured its cellular
sales force.
Sales attributable to H&H were approximately $4.6 million in fiscal
1996 and accounted for approximately 9% of Oakhurst's consolidated sales for
that year. H&H has a broad customer base, with no one customer representing a
material proportion of consolidated sales.
SOURCES OF SUPPLY
H&H acquires its accessory products from many well-known
manufacturers, and acquires its cellular phones from BANMS and direct from
manufacturers and other suppliers.
H&H has been an agent for BANMS since the Pittsburgh area cellular
system was established in 1984. Prior to its acquisition by Oakhurst, H&H
entered into a new five year agency agreement with BANMS, certain terms of
which have since been amended. BANMS also sells cellular phones and cellular
telephone service in competition with H&H.
SEASONALITY
The business conducted by H&H is seasonal, with higher revenues in the
summer months than at other times of the year. The cellular phone business
also experiences strong sales during the Christmas season.
COMPETITION
In its automotive accessories business, H&H competes with other
distributors of such products and with manufacturers that offer their products
directly to H&H's customer base. The Company believes that H&H differentiates
itself from such competition by its strong name recognition which the Company
believes has been synonymous with quality automotive products and installation
for over sixty years, supported by a wide selection of premium brand
accessories, and by experienced sales staff and installation technicians.
However, there can be no assurance that H&H will be able to continue to retain
its market position.
In its cellular phone business, in which H&H acts as an agent for
BANMS, H&H competes with other BANMS agents, with direct sales by BANMS
salespeople and retail outlets operated by BANMS, and with sales by AT&T
Wireless Communications (formerly "Cellular One") and its agents. As a
long-term BANMS agent in the Pittsburgh market, the Company believes that H&H's
experience and competitive position is enhanced by the recognition of the
"Harry Survis" name supported by a professional sales and installation staff.
However, the significant growth in the cellular phone industry has resulted in
a proliferation of retailers attempting to satisfy customers for these
services, and although the Company believes that such outlets generally fail to
provide services comparable to those which H&H delivers, there can be no
assurance that H&H will be able to maintain its competitive position.
REGULATION
While the cellular phone industry is regulated by the federal
government, such regulation has had no material adverse effect on the business
of H&H. It is anticipated that wireless communications activities will be
subject to some deregulation in the future, the effect of which on H&H's
cellular phone business cannot be predicted.
-5-
<PAGE> 7
EMPLOYEES
H&H employs an aggregate of approximately fifty persons at its
facilities in the greater Pittsburgh area. None of the employees is
represented by a labor union. Management believes that its relationship with
its employees is generally good, and H&H enjoys a high average length of
service among its employees.
DOWLING'S FLEET SERVICE CO., INC.
BACKGROUND AND CUSTOMER BASE
Dowling's was established in 1933. It operates two facilities in each
of New York, Connecticut and New Jersey, and in the first quarter of fiscal
1997 expanded to a seventh facility by the acquisition of all of the capital
stock of G&O Sales Company, a radiator distributor serving the greater
Philadelphia, Pennsylvania market. Dowling's is one of the largest
distributors of automotive radiators and related products in the northeastern
United States. Oakhurst acquired all the capital stock of Dowling's in August
1994 from James Dowling, who owned and managed the business for many years and
who is the son of the founder. Two long-service employees now manage the
business as President and Vice President under long-term employment agreements.
Most of Dowling's customers are radiator repair shops, which perform
repairs for car dealers, service stations and retail customers. Dowling's has
avoided a multi-level approach, so as to build strong allegiance from its
radiator repair shop customers, and has achieved a high market share in its
markets. There are no foreign sales. Dowling's has a broad customer base,
with no one customer representing a material proportion of consolidated sales.
The radiator replacement market has undergone important changes in
recent years. As manufacturers sought to reduce automobile weight,
aluminum/plastic radiators tended to replace the traditional copper/brass
models as original equipment. Initially, this product changeover extended
radiator lives, so that the replacement market experienced a decrease in
replacement demand. This trend is now reversing, as the aluminum/plastic
products are beginning to reach replacement age. Furthermore, these new
radiators are more difficult to repair than copper/brass, so that the
proportion of replacement to repair has increased. In addition, the number of
radiator models has increased in recent years. For these reasons, management
believes that repair shops have become more dependent on distributors for both
selection and service.
Sales attributable to Dowling's were approximately $11.6 million, or
25% of Oakhurst's consolidated revenues, in fiscal 1996.
SOURCES OF SUPPLY
Dowling's acquires its products from several well-known manufacturers,
and carries both name-brand and generic products. Because of its buying
position and storage facilities, Dowling's is able to obtain competitive
pricing from its suppliers. Dowling's concentrates on offering high quality
products and it purchases over sixty percent of the product it sells from a
major U.S. radiator manufacturer, Modine Manufacturing Company ("Modine"),
making Dowling's one of Modine's largest U.S. after-market customers.
SEASONALITY
Dowling's business is seasonal, with higher revenues in the hot summer
months and very cold winter months when automobile radiators are most affected
by extreme temperatures. Changes in weather patterns in Dowling's market area
may therefore affect its sales levels.
-6-
<PAGE> 8
COMPETITION
Dowling's competes with many other radiator distributors. Demand in
the radiator market was very strong in 1993 and 1994, which led to an increase
in the number of radiator distributors in Dowling's markets. Dowling's
reputation is based on its competitive pricing, quality products, and service
consisting of twice daily delivery to customers. Because of this, Oakhurst
believes that Dowling's is positioned to withstand such competition and to
build upon its historic sales and profits. However, there can be no assurances
that past levels of revenues and profitability can be maintained. In fact,
during fiscal 1996 one of Dowling's locations suffered a significant decline in
sales, due to the nearby opening of a competitor (see "Employees" below).
However, in the first quarter of fiscal 1997, Dowling's experienced an
improved competitive situation, with a return to historical levels of sales and
gross margins.
REGULATION
Dowling's management does not anticipate that any major capital
expenditures will be required by existing or known pending environmental
legislation or other regulations.
EMPLOYEES
Dowling's employs approximately fifty persons, none of whom is
represented by a union.
In March 1995, Dowling's suffered the loss of all five of its
employees at one major location to a new competitor with a resulting
significant loss of business. Most of these employees were re-hired in July
1995, and sales from this location subsequently returned to previous levels.
In other respects, Dowling's has not encountered any significant difficulties
in its employee relations.
PUMA PRODUCTS, INC.
BACKGROUND AND CUSTOMER BASE
Puma was founded in 1988 by Anthony N. Puma, from whom Oakhurst
acquired the business in October 1994. Mr. Puma continues as President under
a long-term employment agreement. Puma distributes accessories to automotive
and truck converters and restylers and to automotive accessory retail stores
throughout the U.S., with a market concentration in the five states around its
base in Grand Prairie, Texas, and in the Elkhart, Indiana market, where a new
facility was opened in September 1995. Puma's products include high quality
wood interior finishes for light trucks, sport utility vehicles and vans, and
other auto accessories including running boards, spoilers and exterior trim.
Puma has grown very rapidly since its founding by adding customers,
enlarging its market territory, and expanding its range of products. While the
Company believes that opportunity for expansion for Puma still exists, there
can be no assurance that Puma's past growth and profitability levels can be
maintained. Geographic expansion opportunities and new product lines are
currently under consideration. In November 1995, Puma developed a catalog to
support its efforts to enlarge its customer base, especially to small
accessories shops and restylers, and in the first quarter of fiscal 1997, Puma
expanded its wood accessories line to include vans. There are no foreign
sales.
In the past, a large proportion of Puma's business has been with
vehicle converters who, in turn, are dependent upon the availability of new
vehicles from the "Big Three" automobile manufacturers. In fiscal 1996,
shortages of such vehicles led to limits on the number of vehicles available to
converters and created an intensification of competition among suppliers to the
converter market, and to a consequent reduction in Puma's sales to these
customers. This decrease was only partly offset by increases in sales of
non-wood accessories.
Sales attributable to Puma were approximately $6.6 million, or about
14% of Oakhurst's consolidated revenues, for fiscal 1996.
-7-
<PAGE> 9
SOURCES OF SUPPLY
The wood products are developed to Puma's own specifications for most
domestic pickup trucks, sport utility vehicles and vans. Wood products, which
are mostly manufactured in Mexico, accounted for about half of Puma's sales in
fiscal 1996. Puma's non-wood products are acquired from established U.S.
suppliers and many carry brand names recognized in the industry.
Although from time to time Puma has experienced rapid growth in demand
for its wood products which has required an increase in the supply of such
products, management believes that its sources of supply are adequate for its
needs.
SEASONALITY
Although occasional seasonal sales interruptions can occur in relation
to a manufacturer's introduction of new vehicle models, Puma generally does not
otherwise experience significant seasonal sales fluctuations.
COMPETITION
Puma competes with many other distributors and also with manufacturers
of automotive interior wood products. Puma competes by offering high quality
products at competitive prices, enhanced by its volume purchasing ability and
ample storage facilities. Puma competes on a combination of price, quality and
its rapid order turnaround time which management believes is better than that
of its competitors.
REGULATION
Management does not anticipate that any major capital expenditures
will be required by existing or known pending environmental legislation or
other regulations.
EMPLOYEES
Puma employs approximately thirty persons, none of whom is represented
by a union. Many of its key employees have been with Puma since its inception,
and Puma believes that its relationships with its employees are generally good.
ITEM 2. PROPERTIES
SCPI operates its business from a 100,000 square-foot building that it
owns located in an industrial park in Pittsburgh, Pennsylvania. The original
building was constructed in 1970 and it has been expanded several times.
H&H is headquartered and operates from a 25,000 square foot building
near the downtown area of Pittsburgh, Pennsylvania, which is leased from Harold
Garfinkel, President and former owner of H&H. In fiscal 1995, H&H opened a
second facility comprised of approximately 1,100 square feet, which is located
in a shopping center in McMurray, Pennsylvania, and is leased for a remaining
term of 2.5 years from an independent landlord. In the first quarter of fiscal
1997, H&H expanded further through the lease, on short-term leases, of two mall
locations, located in Pittsburgh and Greensburg, Pennsylvania, and comprising
approximately 850 and 1,600 square feet, respectively.
Dowling's conducts it business from seven leased facilities
aggregating 92,000 square feet, which are located in Mt. Vernon and Hempstead,
New York, in Bridgeport and East Hartford, Connecticut, Hillside and Lodi, New
Jersey and in Philadelphia, Pennsylvania. Two of the facilities are leased
from James Dowling, the former owner of Dowling's. Dowling's main offices are
situated at the Mt. Vernon
-8-
<PAGE> 10
location. In fiscal 1997, Dowling's added the seventh location in
Philadelphia, Pennsylvania, comprised of 20,000 square feet, through an
acquisition (see Item 1, Business; Dowling's Fleet Service Company, Inc. -
Background and Customer Base); this location is leased from the former
shareholder.
Puma is headquartered and operates from a 27,000 square feet building
located in Grand Prairie, Texas which is leased from Tony Puma, President and
former owner of Puma Products. In fiscal 1996, Puma leased a second warehouse
of 8,000 square feet located in Elkhart, Indiana, which is leased for a
remaining term of 1.5 years from an independent landlord.
Oakhurst Management Corporation also maintains a corporate office in
the Grand Prairie facility.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended February 29, 1996.
-9-
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the names, ages, positions and a brief description
of the business experience during the last five years of the executive officers
of the Company and its subsidiaries, all of whom serve until they resign or are
removed from such offices by the respective Board of Directors.
MARK AUERBACH (58): Chairman of the Board of Directors, President, Chief
Executive Officer and Chief Financial Officer. Mr. Auerbach has been Chairman
of the Board, President, Chief Executive Officer and Chief Financial Officer
since December 18, 1995 succeeding Mr. Maarten Hemsley who resigned from these
positions effective as of such date. Mr. Auerbach has been Senior Vice
President and Chief Financial Officer since April 1993 of Central Lewmar, L.P.,
a fine paper merchant. From September 1992 until April 1993, he was a partner
of Marron Capital, L.P., an investment banking company. From 1990 to 1992, he
was President, Chief Executive Officer and Chairman of the Board of Implant
Technology, Inc., a manufacturer of artificial hip systems. He is a director
of Pharmaceutical Resources, Inc., a generic drug manufacturer, and Acorn
Venture Capital Corporation. Mr. Auerbach is a certified public accountant,
and has been a director of the Company since 1991.
BERNARD H. FRANK (75): Executive Vice President, Chief Operating Officer and
Director. Mr. Frank was appointed to these positions in May 1994. Mr. Frank
was a founder of the Steel City Products business which SCPI's predecessor
acquired in 1969; he has been associated with its business for approximately
forty-nine years. He is a director of SCPI and assumed the title of Chief
Executive Officer of SCPI in January 1993 and was appointed its Chairman in
March 1994. Mr Frank was selected to fill a vacancy on Oakhurst's Board of
Directors effective May 31, 1995.
ROGER M. BARZUN (54): Senior Vice President, Secretary and General Counsel.
Mr. Barzun has been Secretary and General Counsel of Oakhurst since August 1991
and a Senior Vice President since May 1994. He is also Secretary and General
Counsel of SCPI. Mr. Barzun has been a lawyer since 1968 and is a member of
the New York and Massachusetts bars.
RICHARD RANDOLPH (71): Senior Vice President. Mr. Randolph was a Vice
President of the Company from November 1991 until May 1994, when he became a
Senior Vice President. He has been President of Dick Randolph Associates, a
consulting firm, since 1988. Before that, he was credit manager of Mattel
Toys, Inc. for many years. Mr. Randolph has also been a director of SCPI since
1989.
JOHN R. RUDA (54): Executive Vice President - Marketing. Mr. Ruda was a
director and an executive officer (most recently as President) of SCPI for more
than five years until his resignation in December 1995, when he was elected to
his current position with Oakhurst.
LAURENCE D. FINMAN (37): Vice President. Mr. Finman has been Vice President
and Chief Operating Officer of the Company's Puma Products subsidiary since
shortly before its acquisition in October 1994 and was elected a Vice President
of the Company in December 1995. Prior to joining Puma, Mr. Finman held senior
management positions in a family-owned tire distribution business.
-10-
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed and traded on the Nasdaq
Small-Cap Market under the symbol OAKC.
The following table sets forth, for the periods indicated, the high
and low bid prices for the Company's Common Stock as reported by Nasdaq:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 29, 1996 FISCAL YEAR ENDED FEBRUARY 28, 1995
----------------------------------- -----------------------------------
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $3.38 $2.50 $3.75 $2.50
Second $2.50 $1.88 $4.75 $3.13
Third $2.25 $1.38 $4.94 $3.50
Fourth $1.50 $1.13 $3.88 $3.13
</TABLE>
The stock price ranges reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
There were approximately 3,600 holders of record of Oakhurst's common
stock on May 1, 1996.
-11-
<PAGE> 13
ITEM 6. SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial and other data of
Oakhurst Company, Inc. and subsidiaries and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which follows, and with the Consolidated Financial Statements and
related Notes.
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26, FEBRUARY 27, FEBRUARY 29,
1996 (a) 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales.................................... $ 47,339 $ 43,142 $ 32,386 $ 33,584 $ 29,893
========== ========== ========== ========== ==========
(Loss) income from continuing operations
before income taxes and minority
interest............................... $ (2,158) $ 1,442 $ 786 $ 472 $ 210
Current income tax benefit (expense) .... 115 (155) (112) (148) (44)
Deferred income tax expense.............. (2,000) (468) (235) (115) (56)
Minority interest in SCPI's loss (income)
attributable to common stockholders.... - - - 533 (11)
---------- ---------- ---------- ---------- ----------
(Loss) income from continuing operations (4,043) 819 439 742 99
Income (loss) from
discontinued operations (b)........... 65 90 - (44) 130
---------- ---------- ---------- ---------- ----------
Net (loss) income....................... $ (3,978) $ 909 $ 439 $ 698 $ 229
========== ========== ========== ========== ==========
PER SHARE AMOUNTS:
(Loss) income from continuing operations $ (1.27) $ 0.27 $ 0.16 $ 0.27 $ 0.03
Income (loss) from
discontinued operations............... 0.02 0.03 - (0.02) 0.05
---------- ---------- ---------- ---------- ----------
Net (loss) income....................... $ (1.25) $ 0.30 $ 0.16 $ 0.25 $ 0.08
========== ========== ========== ========== ==========
BALANCE SHEET STATISTICS:
Total assets............................ $ 26,117 $ 33,301 $ 18,767 $ 14,632 $ 14,508
Long-term obligations................... $ 7,569 $ 6,612 $ 1,429 $ 1,766 $ 2,660
Book value per share of common stock.... $ 3.41 $ 4.65 $ 4.39 $ 2.20 $ 1.88
</TABLE>
(a) Results for fiscal 1996 include a net non-cash deferred tax charge of $2
million, primarily relating to an increase in the Company's valuation
allowance of its deferred tax asset (see Note 7 to the Consolidated
Financial Statements).
(b) In fiscal 1991, SCPI sold its Retail Division to RAC as discussed in Note 8
to the Consolidated Financial Statements. SCPI remained contingently
liable for most mortgage debt, and for many lease obligations of the Retail
Division following the sale. RAC was forced into bankruptcy in March
1991. RAC's Reorganization Plan (the "RAC Plan") contained provisions for
releases in favor of SCPI together with an injunction against further
actions by contingent creditors against SCPI. Accordingly, SCPI was
released from further liability except for payment of the Creditor Notes as
further described in Notes 5 and 8 of the Consolidated Financial
Statements.
-12-
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Management believes that the corporate structure resulting from the
merger transaction, whereby Steel City Products Inc. ("SCPI") became a special,
limited purpose, majority-owned subsidiary of Oakhurst Company, Inc.
("Oakhurst"), will facilitate capital formation by Oakhurst while permitting
Oakhurst and SCPI to file consolidated tax returns so that both may utilize the
tax benefits (including approximately $149 million of net operating loss
carryforwards) attributable to SCPI. Through Oakhurst's ownership of SCPI,
primarily in the form of preferred stock, Oakhurst retains the value of SCPI,
and receives substantially all of the benefit of SCPI's operations through
dividends on such preferred stock. Oakhurst's ownership of SCPI facilitates
the preservation and utilization of SCPI's net operating loss carryforwards.
Until 1994, Oakhurst's principal business, which is conducted by SCPI
under the trade name "Steel City Products", was the distribution of automotive
parts and accessories to independent retailers from a facility in Pittsburgh,
Pennsylvania.
In January 1994, Oakhurst acquired all the outstanding capital stock
of H&H Distributors, d/b/a Harry Survis ("H&H"), a Pittsburgh-based company
that distributes and installs automotive accessories, including stereos, alarms
and cellular phones, for an aggregate purchase price of approximately $1.4
million that consisted of cash and the issuance of a short-term note payable of
$165,000 to the seller.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's"), a New York-headquartered
distributor of automotive radiators and related products, for an aggregate
purchase price of approximately $5.5 million that consisted of $4 million in
cash, a note and earn-out payable aggregating $1 million issued to the seller,
and convertible debt of $500,000 issued to certain executives of Dowling's. In
fiscal 1996, the purchase price of Dowling's was reduced by approximately
$825,000 through the reduction of the note and earn-out payable to the former
owner as the result of the settlement of an arbitration proceeding brought by
Oakhurst against the former owner. In March 1997, the terms of the convertible
debt were modified (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
In October 1994, Oakhurst acquired all of the outstanding capital
stock of Puma Products, Inc. ("Puma"), a Texas-based distributor of
after-market products to the light truck and van conversion industry, for an
aggregate purchase price of approximately $4.2 million that consisted of cash
of $1.2 million, notes payable and an earn-out payable issued to the seller
aggregating approximately $2.3 million, and the issuance of 266,667 shares of
Oakhurst's common stock. In fiscal 1996, certain terms of the acquisition
notes were modified (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
SIGNIFICANT EVENTS AND TRENDS
SCPI SUBSIDIARY
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive pressures facing regional mass
merchandisers and the growing influence of automotive specialty chains. These
have led to fluctuations in the level of business that SCPI enjoys with
individual customers. In recent years, SCPI has lost some significant
customers and has suffered reductions in business as certain customers have
closed stores in the face of competition, have been forced into bankruptcy, or
have reduced their automotive merchandise selection. Furthermore, some
customers have changed their buying practices to acquire certain merchandise
direct from manufacturers rather than through distributors such as SCPI, and
one significant customer changed to an alternate distributor.
In fiscal 1993, SCPI's two then-largest customers filed for bankruptcy
protection. One of these customers closed all its stores in December 1993; the
other, Jamesway Corporation ("Jamesway")
-13-
<PAGE> 15
reorganized and emerged from Chapter 11 in January 1995. Jamesway continued to
be one of SCPI's largest customers until October 1995, when it again filed for
protection under the U.S. Bankruptcy Code, and shortly thereafter closed all
its stores. In the first seven months of fiscal 1996 through September 1995,
when sales to Jamesway ended, SCPI's sales to this customer were approximately
$4 million.
In November 1995, Forest City Auto Parts, Inc. ("Forest City")
informed SCPI of its decision to change its source of supply; sales to Forest
City ceased in January 1996. In fiscal 1996, sales to Forest City were
approximately $4.6 million.
In its efforts to offset these trends, SCPI strengthened its sales
team to help identify new customers and better serve existing customers,
expanded its product offerings to certain customers and enlarged the territory
that it serves. In fiscal 1996, SCPI began offering certain "hard parts" such
as brake rotors, and in the first quarter of fiscal 1997, SCPI introduced a new
merchandise category of non-food pet supplies. Although such pet supplies are
not typical of SCPI's historical merchandise mix, management determined that
the availability of existing customers which sell both pet supplies and
automotive accessories, combined with SCPI's distribution expertise and
infrastructure, offered an opportunity for increased sales.
During fiscal 1996, SCPI added two new large customers (NHD and Ames)
and other new customers, and in the first quarter of fiscal 1997 added another
large customer (Rich's), and expanded sales to certain other customers.
However, the level of sales to such customers is currently not sufficient to
offset the loss of the Jamesway and Forest City business. Without further
customer additions or significant increases in sales to existing customers,
sales in fiscal 1997 are expected to be lower than in fiscal 1996. In
anticipation of this reduction, management substantially reduced SCPI's
inventory levels and eliminated certain operating and overhead expenses.
H&H SUBSIDIARY
Despite the opening of a new facility in September 1994, sales at H&H
in fiscal 1996 were lower than in the prior year, due to reduced demand for car
accessories and increased competition in the cellular phone business, combined
with a decrease in the commission rate earned on each phone activation. These
factors placed pressure on gross margins, although margins improved somewhat in
the second half of fiscal 1996.
In response to these trends, management increased advertising and
promotions for car accessories and introduced new accessories to help improve
sales, and in the first quarter of fiscal 1997, H&H opened two new facilities
at malls in the greater Pittsburgh market area and restructured its sales
force.
DOWLING'S SUBSIDIARY
During the first half of fiscal 1996, Dowling's was faced with intense
competitive pressures in one of its markets due to the nearby opening of a
competitor that hired five Dowling's employees. Management's efforts to
overcome this competition succeeded in returning sales to historical levels
during the second half of fiscal 1996. Dowling's other facilities were also
adversely affected in the first half of fiscal 1996 by increased competition in
a generally weak market. This first half situation placed pressure on
Dowling's gross margins throughout fiscal 1996, but margins began to improve
during the second half of the year.
In the first quarter of fiscal 1997, Dowling's acquired an existing
radiator distributor in Philadelphia, Pennsylvania for approximately $200,000,
and in the same period Dowling's experienced an improved competitive situation
and a strengthening of demand in its existing markets, with a return to
historical levels of sales and gross margins.
-14-
<PAGE> 16
PUMA SUBSIDIARY
Beginning in the first quarter of fiscal 1996, the strong retail
demand for light trucks and sport utility vehicles had an adverse impact on
sales by Puma, because vehicle manufacturers sought to satisfy dealer demand at
the expense of converters, which represented an important segment of Puma's
customers. This situation led to an intensification of competition among
suppliers to the converter market, and for the remainder of fiscal 1996 Puma's
sales continued at lower levels than in the prior year. In response to this
situation, and in furtherance of Oakhurst's plans to develop the long-term
potential of Puma, management opened a second facility (in Elkhart, Indiana,
center of the vehicle conversion industry) during the second quarter of fiscal
1996, continued to strengthen its management team, especially its sales
department, and has enlarged its product offering, including the addition of
van products to its wood line, and introduced an extensive catalog targeted at
the restyler and accessories retailer market. These efforts succeeded in
increasing sales of non-wood accessories, but until April 1996, when Puma's
management intensified its efforts to recapture key converter accounts in
anticipation of the model year change, sales of wood accessories continued at
lower levels than in the past.
During the first quarter of fiscal 1997, Puma's gross margins
reflected an improvement over historical levels, due to changes in product mix
and in the source of certain products.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING AND LINE OF CREDIT
In addition to cash derived from the operations of its four
subsidiaries, Oakhurst's liquidity and financing requirements are determined
principally by the working capital needed to support each subsidiary's level of
business, together with the need for capital expenditures and the cash required
to repay debt. Each subsidiary's level of working capital needs vary primarily
with the amounts of inventory carried which can change seasonally, the size and
timeliness of payment of receivables from customers, especially at the SCPI
subsidiary which from time to time grants extended payment terms for seasonal
inventory build-ups; and the amount of credit extended by suppliers. At
February 29, 1996, Oakhurst's debt primarily consisted of (i) the SCPI Term
Loan of $1.7 million, and the Oakhurst Credit Agreement with a balance of $3.8
million, which were refinanced in March 1996 by the Fixed Asset Loan and the
Credit Facility, respectively (see below), (ii) debt in connection with the
fiscal 1995 acquisitions of Dowling's and Puma, and (iii) the SCPI Creditor
Notes (see below).
In recent years, SCPI's operations were more profitable than in fiscal
1996 and its cash flow was sufficient to fund its own working capital needs, to
repay the scheduled principal reductions required by the Creditor Notes and
Term Loan, and to pay dividends to and make loans to Oakhurst.
In fiscal 1994, accumulated cash was used to acquire the H&H
subsidiary. In fiscal 1995, accumulated cash and borrowings under the Term
Loan and the Credit Agreement were used to satisfy the cash portion of the
purchase price of Dowling's and of Puma.
Continuing operations provided cash flow of approximately $2.5 million
in fiscal 1995. However, in fiscal 1996 continuing operations provided cash
flow of only $125,000. A reduction of approximately $1.2 million in working
capital levels which resulted from the lower levels of sales, particularly at
the SCPI subsidiary, was offset by a cash operating loss of $1.1 million (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations").
At November 30, 1995, Oakhurst and SCPI did not meet certain covenants
under the outstanding bank debt, and in March 1996, Oakhurst obtained
replacement financing from an institutional lender that provides a total
facility of $9.5 million, comprising a new SCPI term loan of $1.5 million (the
"Fixed Asset Loan") and a maximum revolving credit facility of $8 million (the
"Revolver") (collectively, the "Credit Facility"), and the amounts outstanding
under the Term Loan and existing Credit Agreement were repaid. The Credit
Facility provides a significant increase in financing available to Oakhurst and
its subsidiaries.
-15-
<PAGE> 17
The Credit Facility is secured by the accounts receivable,
inventories, and fixed assets of all of Oakhurst's subsidiaries. Like the Term
Loan that it replaced, the Fixed Asset Loan is secured by SCPI's building in
Pittsburgh, but provides a more beneficial amortization schedule of twenty-four
monthly principal and interest payments of approximately $32,000, with the
remaining principal balance due on April 1, 1998. The Fixed Asset Loan
provides for prepayment without penalty, and contains a provision for the
release of SCPI's building as collateral in the event of a refinancing, subject
to a right of first refusal by the current lender to refinance the loan on the
same terms as offered by a new lender.
Borrowings under the Credit Facility bear interest at the higher of
the Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings
under the Revolver are subject to a borrowing base that is calculated according
to defined levels of Oakhurst's subsidiaries' accounts receivable and
inventories. The Credit Facility has an initial term of two years, with
automatic renewal terms of one year each upon payment of a renewal fee of 0.5%
thereof, unless earlier terminated as provided for in the agreement, and
contains certain customary restrictive financial and non-financial covenants,
including the maintenance of defined subsidiary and consolidated tangible net
worth levels and consolidated current ratio, and limitations on cash dividends.
In February 1996, Oakhurst settled an arbitration proceeding that it
had brought in connection with the acquisition of Dowling's, with the result
that debt, interest, and earn-out payments due principally in fiscal 1996 and
1997 to the seller of that business, were decreased by approximately $950,000.
In February 1996, a $600,000 note issued to the seller in connection
with the acquisition of Puma that was due to be fully repaid in fiscal 1997 was
rescheduled to provide for five annual payments of $120,000 beginning in fiscal
1999.
In March 1996, convertible debt of $500,000 issued in connection with
the Dowling's acquisition that was due to be paid in full in fiscal 1998 or, at
the holders option, converted into Oakhurst common stock at that time, was
renegotiated into the form of cash payments made in March 1996 of approximately
$109,000, and the issuance of two long-term notes aggregating $440,000 payable
through fiscal 2001. The new notes eliminated the stock conversion option.
The creditor notes that were issued by SCPI in connection with the
bankruptcy of Retail Acquisition Corp., (the "Creditor Notes") (see Note 8 to
the consolidated financial statements) are payable in six equal annual
installments through July 1998, subject to a prepayment requirement whereby if
defined cash flow exceeds $900,000, $1,000,000 and $1,100,000 in each of fiscal
1995, 1996 and 1997, respectively, holders of the Creditor Notes may tender for
prepayment a portion thereof in the amount of the excess defined cash flow, but
not to exceed approximately $400,000 per annum. SCPI did not meet such
prepayment criteria in either of fiscal 1996 and fiscal 1995. The Creditor
Notes have been discounted using an imputed interest rate of 7.5% and are
included in the net obligation of the discontinued business segment.
In fiscal 1997, management expects sales to be lower than in fiscal
1996, principally due to the loss by SCPI in fiscal 1996 of two major
customers, which is expected to be only partly offset by new SCPI customers and
by increased sales by Dowling's.
As part of a strategic evaluation of its business, SCPI has reduced
expenses so as to mitigate negative cash flow from operations while new
customers and product lines are sought. Oakhurst undertook similar reviews in
connection with its other subsidiaries to address the causes of the fiscal 1996
operating loss. Management expects that, subject to unforeseen circumstances,
these efforts will result in a positive operating cash flow in fiscal 1997, but
there can be no assurance that the Company can obtain a sufficient number of
new customers or sufficient levels of new business to return it to
profitability. Management has also limited capital expenditures and plans a
small reduction in working capital levels during fiscal 1997. However, it is
expected that these sources of cash flow will be somewhat less than debt
service requirements in fiscal 1997.
-16-
<PAGE> 18
Management believes that the greater availability of financing
pursuant to the Credit Facility, together with steps taken in response to the
recent loss of certain significant customers and to the reduced operating
profits in fiscal 1996, will provide adequate funding for the Company's working
capital, debt service and capital expenditure requirements, including seasonal
fluctuations.
CAPITAL EXPENDITURES
The Company has no outstanding commitments for significant capital
expenditures.
TAX LOSS CARRYFORWARDS
At February 29, 1996, SCPI and Oakhurst had net operating tax loss
carryforwards (the "Tax Benefits") of approximately $149 million, which
principally expire in the years 2001 through 2005, and which shelter most of
SCPI's income from federal income taxes. A change in control of SCPI or
Oakhurst in any three-year period exceeding 50% may lead to the loss of the
majority of the Tax Benefits. In order to reduce the likelihood of such a
change of control occurring, SCPI's and Oakhurst's Certificates of
Incorporation include restrictions on the registration of transfers of stock
resulting in, or increasing, individual holdings exceeding 4.5% of each
company's common stock.
Since the regulations governing the Tax Benefits are highly complex
and may be changed from time to time, and since SCPI's and Oakhurst's attempts
to reduce the likelihood of a change of control occurring may not be
successful, management is unable to determine the likelihood of the continued
availability of the Tax Benefits. However, management believes that the Tax
Benefits are currently available in full and intends to take all appropriate
steps to help ensure that they remain available. Should the Tax Benefits
become unavailable to SCPI or Oakhurst, most future income of any consolidated
affiliate would not be shielded from federal taxation, thus reducing funds
otherwise available for corporate purposes (see Note 7 to the consolidated
financial statements).
As of February 29, 1996, Oakhurst is required to earn approximately
$12 million of consolidated taxable income before the expiration of the tax
benefits to realize the net recorded tax benefit.
FORWARD LOOKING STATEMENTS
From time to time the information provided by the Company or
statements made by its employees may contain so-called "forward looking"
information that involves risks and uncertainties. In particular, statements
contained in Item 1 - "Business" and in this Item 7 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations," which are not
historical facts (including, but not limited to statements concerning
anticipated sales, profit levels, customers and cash flows) are forward looking
statements. The Company's actual future results may differ significantly from
those stated in any forward looking statements. Factors that may cause such
differences include, but are not limited to the factors discussed above as well
as the accuracy of the Company's internal estimates of revenue and operating
expense levels. Each of these factors and others are discussed from time to
time in the Company's Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
Operations in fiscal 1995 include Steel City Products and H&H,
together with Dowling's and Puma for the respective periods of ownership, and
the administrative costs of SCPI and Oakhurst. Fiscal 1996 includes a full
year of results for Oakhurst and its consolidated subsidiaries, and there was
one additional day than in fiscal 1995, but the effect of this on results of
operations was not material.
-17-
<PAGE> 19
Fiscal Year Ended February 29, 1996 Compared with Fiscal Year Ended February
28, 1995
Compared with the prior year, sales increased by approximately $4.2
million, or 10%. Increased sales of about $7.7 million resulted from the full
year of sales attributable to Dowling's ($4.5 million) and Puma ($3.2 million).
Sales by existing businesses decreased by approximately $3.5 million.
Compared with the prior year, sales attributable to SCPI decreased by
about $2.7 million. SCPI sales increases aggregating $3 million resulted
primarily from the addition of several new customers, together with higher
sales to several existing customers. These sales increases were offset by
decreases at SCPI of $5.7 million, with a reduction in sales to Jamesway of
approximately $490,000, following that customer's bankruptcy in October 1995, a
reduction of $1.4 million in sales to Forest City, following that customer's
decision during the third quarter to change its source of supply, together with
other sales decreases attributable to SCPI's customers in the Northeast market
and certain other smaller SCPI customers that resulted from intense competitive
pressures on those customers and reduced sales of spring product lines due to a
rainy spring season. The remainder of the decrease resulted from lower sales
to other customers that have downsized or eliminated their automotive
departments, have filed bankruptcy, or that have changed their source of
supply.
Sales attributable to H&H decreased by approximately $840,000, despite
the opening of a second location in September 1994. Approximately 65% of the
decrease is attributed to reduced equipment sales and commission revenues
associated with H&H's cellular phone business as a result of increased
competition in the current year, combined with a reduced commission structure
related to cellular activations. The balance of the reduction is due to lower
sales of car accessories and lower installation fees earned.
Other income decreased by $184,000 compared with the prior year,
principally due to the recovery by SCPI of $175,000 in fiscal 1995 that was
placed in escrow in prior years as part of SCPI's predecessor's bankruptcy.
Consolidated gross profits were $10 million (21.2% of sales), compared
with $10.8 million (24.9% of sales) last year. The decrease in gross profits
resulted from the lower sales levels discussed above, combined with decreases
in gross margins. In addition to the fact that gross margin levels earned by
the newly-acquired businesses are expected to be at somewhat lower levels than
those earned by the Company's traditional businesses, each of the four
operating companies encountered a reduction in gross margins in fiscal 1996
compared with fiscal 1995. SCPI's margin reduction resulted primarily from
more competitive pricing to customers. H&H earned lower gross margins because
of increased promotions and the impact of a lower commission structure on its
cellular phone business. Dowling's was affected by increased competition,
especially in one of its Connecticut markets. Puma lowered pricing to many of
its customers, while absorbing certain manufacturers' price increases.
Operating, selling and administrative expenses increased by $1.7
million. Approximately $1.8 million is attributable to the two businesses
acquired in the prior year. SCPI's operating and selling expenses decreased by
approximately $40,000, along with lower SCPI executive salaries and profit
sharing expenses of approximately $300,000. There were higher corporate
overheads necessitated by the larger company, and expenses of approximately
$130,000 which related to a registration statement filing in fiscal 1996.
There was an increase in the provision for doubtful accounts of
$583,000 when compared with the prior year, of which $415,000 is attributable
to SCPI where the provision was increased by $150,000 in connection with the
balances due from Jamesway (one of SCPI's largest customers) at the end of the
current year second quarter, and by $265,000 to provide for the bankruptcies of
several of SCPI's small customers that occurred during the current year,
together with provisions for several other past due and disputed accounts.
Dowling's also included a provision of approximately $140,000, primarily
resulting from the bankruptcy of a customer in the fourth quarter.
-18-
<PAGE> 20
Amortization of the excess of costs over net assets acquired
("goodwill") increased by $149,000 compared with the prior year, as a result of
the acquisitions in fiscal 1995.
Interest expense increased by $235,000 principally as a result of the
debt incurred in connection with the acquisitions and higher average levels of
working capital borrowings.
Although there was a loss from continuing operations in the current
fiscal year, compared with income in the prior year, income tax expense
increased by $1.3 million because of a current year charge to deferred tax
expense of $2 million, that resulted from an increase in the valuation
allowance of the deferred tax asset.
Fiscal Year Ended February 28, 1995 Compared with Fiscal Year Ended February
26, 1994
Compared with the fiscal 1994, sales in fiscal 1995 increased by 33%,
or by $10.8 million. Increased sales of $15.5 million resulted from the
acquisitions; $5.1 million, $7.1 million and $3.3 million for H&H, Dowling's
and Puma, respectively, for the periods of ownership. These increases were
offset by a decrease in sales of $4.7 million by SCPI.
In fiscal 1995, SCPI suffered a decline in sales compared with fiscal
1994 of approximately $4.7 million, a decrease of 14.6%, as it was unable to
fully replace the sales to a large customer that was liquidated in fiscal 1994,
and as another of its large customers closed stores and bought more products on
a factory-direct basis. Sales decreases attributable to these two customers
were approximately $5.1 million; there was a net increase of approximately
$400,000 in sales by SCPI to all other customers following intensive efforts to
replace the lost business.
Other income increased by $287,000. Of the increase, $175,000 is
attributable to the recovery by SCPI of amounts placed in escrow in prior years
as part of SCPI's predecessor's bankruptcy.
Gross profits increased by $4.2 million, or by 65%, and as a
percentage of sales, increased from 20.2% to 24.9%. The increase is entirely
due to the acquisitions, with increased margins of approximately $2.7 million
earned by H&H (twelve months this year compared with one month last year) and
margins of approximately $1.5 million and $740,000 earned by Dowling's and
Puma, respectively. Gross margin earned by H&H at approximately 55% were at
much higher rates than traditionally earned by the Company; however, this is
offset by higher operating, selling and administrative costs which approximate
45% of H&H's sales.
These increases in gross profits were partially offset by a decrease
in gross profits attributable to SCPI of approximately $750,000 compared with
fiscal 1994. The decrease resulted from the reduction in SCPI's sales,
combined with an addition to the LIFO reserve of $25,000 compared with a
reduction in the reserve last year of $70,000.
Operating, selling and administrative costs reflected an increase of
82%, or $4.2 million, primarily as a result of the acquisitions, with $2.2
million, $940,000 and $510,000 attributable to H&H, Dowling's and Puma,
respectively. SCPI's results also included an increase of $210,000, primarily
due to increased sales expenses that were necessary to maintain the changing
customer base and identify new customers. Oakhurst's overhead expenses
increased as a result of the business growth. These factors, together with the
higher percentage of H&H's operating, selling and administrative costs to H&H's
sales, explain the increase in overhead expenses from 15.6% of sales last year
to 21.4% this year.
Amortization of the excess of costs over net assets acquired
("goodwill") was $290,000, compared with $11,000 in fiscal 1994 as a result of
the acquisitions.
The provision for doubtful accounts decreased by $852,000 in fiscal
1995 compared with fiscal 1994, when SCPI required a significant provision for
doubtful accounts related to two of its largest customers that filed for
Chapter 11 bankruptcy protection.
-19-
<PAGE> 21
Interest expense increased by $255,000 in fiscal 1995 compared with
fiscal 1994, reflecting interest on new debt that was issued in connection with
acquisitions, and on higher average working capital borrowings to support the
newly acquired businesses.
In fiscal 1995, pre-tax operating profits of approximately $1.3
million were contributed by the newly acquired businesses ($525,000 by H&H,
$570,000 by Dowling's and $250,000 by Puma).
Income from discontinued operations for fiscal 1995 of $90,000
reflected decreases in SCPI's reserve for contingent liabilities relating to
its former retail division, net of an income tax provision of $46,000.
The Company incurred a loss during the fourth quarter of fiscal 1995
as a result of decreased sales levels and higher expense due to increased sales
efforts. Also, corporate overhead expense increased during the quarter as a
result of the acquisitions of Dowling's and Puma.
-20-
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets: February 29, 1996 and February 28, 1995 . . . . . F-2
Consolidated Statements of Operations for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . F-6
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal years ended
February 29, 1996 and February 28, 1995 . . . . . . . . . . . . . . . . . F-18
Financial Statement Schedules for the fiscal years ended February 29, 1996,
February 28, 1995 and February 26, 1994:
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . F-20
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
NONE
-21-
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding the Company's
directors is included in its Proxy Statement to be filed pursuant to Schedule
14A in connection with the Company's 1996 annual meeting of shareholders under
the section captioned "Election of Directors" and is incorporated herein by
reference thereto. Information regarding the Company's executive officers is
set forth in Part I above, under the caption "Executive Officers of the
Registrant" and will be incorporated herein by reference thereto or will be
filed as an amendment to this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the sections captioned
"Directors' Compensation" and "Executive Compensation", and is incorporated
herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the section captioned
"Security Ownership of Certain Beneficial Owners and Management," and is
incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the section captioned
"Certain Relationships and Related Transactions" and "Compensation Committee
Interlocks and Insider Participation," and is incorporated herein by reference
thereto.
-22-
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets: February 29, 1996 and February
28, 1995
Consolidated Statements of Operations for the fiscal years
ended February 29, 1996, February 28, 1995 and February 26,
1994
Consolidated Statements of Stockholders' Equity for the
fiscal years ended February 29, 1996, February 28, 1995 and
February 26, 1994
Consolidated Statements of Cash Flows for the fiscal years
ended February 29, 1996, February 28, 1995 and February 26,
1994
Notes to Consolidated Financial Statements
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal
years ended February 29, 1996 and February 28, 1995
2. The following Financial Statement Schedules for the fiscal years
ended February 29, 1996, February 28, 1995 and February 26, 1994
are submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or the notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2.1 Agreement and Plan of Merger dated as of May 20, 1991 (filed as Appendix A to the Proxy
Statement/Prospectus dated April 16, 1991 of the Company and Steel City Products,
Inc.).
3.1 Restated and Amended Certificate of Incorporation (filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-K for the fiscal quarter ended August 31, 1996).
3.2 By-laws (filed as Appendix C to the Proxy Statement/Prospectus of the Company and Steel
City Products, Inc. dated April 16, 1991).
</TABLE>
-23-
<PAGE> 25
<TABLE>
<S> <C>
4.1 Agreement and Plan of Merger dated as of May 20, 1991 (see Exhibit 2, above).
*10.1 Form of Option Agreement dated August 29, 1991 with directors and executive officers
(filed as Exhibit 10(b) to the Company's Annual report on Form 10-K for the fiscal
year ended February 29, 1992).
10.2 Agreement dated June 11, 1991 with Prudential-Bache Special Situations Fund (filed as
Exhibit 10(q) to the Annual Report on Form 10-K of Steel City Products, Inc. for the
fiscal year ended March 3, 1990).
*10.3 Employment Agreement with Harold Garfinkel dated as of November 1, 1993 (filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 26, 1994).
10.4 Agreement between Harold Garfinkel and H&H Distributors, Inc. dated as of November 1,
1993 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 26, 1994).
10.5 Credit Agreement by and between Steel City Products, Inc. and Integra Bank Pittsburgh
(filed as Exhibit 10.1 to SCPI's Quarterly Report on Form 10-Q for the period ended
August 27, 1994).
10.6 Mortgage and Security Agreement by and between Steel City Products, Inc. and Integra
Bank Pittsburgh (filed as Exhibit 10.2 to SCPI's Quarterly Report on Form 10-Q for the
period ended August 27, 1994).
10.7 Credit Agreement by and between Oakhurst Capital, Inc. and Integra Bank Pittsburgh
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period
ended August 27, 1994).
10.8 Pledge and Security agreements between Oakhurst Capital, Inc. and Integra Bank
Pittsburgh (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the period ended August 27, 1994).
10.9 Purchase and Sale Agreement relating to the acquisition of Dowling's Fleet Service
Company, Inc. by Oakhurst Capital, Inc., also containing employment agreements with
James Dowling, Robert Keane and Joseph Quattrochi (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended August 27, 1994).
*10.10 Stock Purchase Agreement dated as of October 20, 1994 among Oakhurst Capital, Inc.,
Puma Products (formerly LBI Corporation) and Anthony Puma also containing employment
agreements with Anthony Puma and Laurence Finman (filed as an exhibit to Oakhurst's
Form 8-K filed on October 26, 1994).
10.11 Lease agreements by and between James Dowling and Dowling's Fleet Service Company, Inc.
(filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1995).
10.12 Lease agreement by and between Anthony Puma and Puma Products (filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1995).
</TABLE>
-24-
<PAGE> 26
<TABLE>
<S> <C>
*10.13 The 1994 Omnibus Stock Plan with form of option agreement (filed as Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1995).
*10.14 The 1994 Non-Employee director Stock Option Plan with form of option agreement (filed
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1995).
10.15 Letter agreement dated January 3, 1996 between SCPI and Integra Bank Pittsburgh
amending the Credit Agreement, dated August 1, 1994 between SCPI and Integra (filed as
Exhibit 10.17 to Oakhurst's Registration Statement on Form S-1, file #333-00173, filed
on January 12, 1996).
10.16 Letter agreement dated January 3, 1996 between Oakhurst and Integra Bank Pittsburgh
amending the Credit Agreement, dated August 1, 1994 between Oakhurst and Integra (filed
as Exhibit 10.16 to Oakhurst's Registration Statement on Form S-1, file #333-00173,
filed on January 12, 1996).
10.17 Loan and Security Agreement; Schedule to Loan and Security Agreement; Secured
Promissory Note with FINOVA Capital Corporation all dated March 28, 1996 - filed
herewith.
10.18 Open-End Mortgage between Steel City Products, Inc. and FINOVA Capital Corporation
dated March 28, 1996 - filed herewith.
10.19 Consulting Agreement with Bryanston Management, Ltd, dated as of December 19, 1995 -
filed herewith.
*10.20 Consulting Agreement with Mark Auerbach dated as of December 19, 1995 and Options
Agreement with Mark Auerbach dated as of December 19, 1995 - filed herewith.
*10.21 Employment Agreement between Oakhurst Management Corporation and John R. Ruda dated as
of December 19, 1995 - filed herewith.
11 Statement of re-computation of per-share earnings - filed herewith.
22 Subsidiaries: Steel City Products, Inc.
H&H Distributors, Inc.
Dowling's Fleet Service Company, Inc.
Puma Products, Inc.
Oakhurst Management Corporation
27 Financial Data Schedule (EDGAR transmission only) - filed herewith.
- -----------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the Company's fourth fiscal quarter ended February 29, 1996.
</TABLE>
-25-
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
OAKHURST COMPANY, INC.
Date: June 4, 1996 By: /s/ Mark Auerbach
-----------------------------------
Mark Auerbach
Chairman of the Board, Chief
Executive Officer, Chief
Financial Officer, Principal
Accounting Officer, and
Director (duly authorized
officer)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Bernard H. Frank, Mark Auerbach,
and Roger M. Barzun jointly and severally his true and lawful attorneys-in-fact
and agent with full powers of substitution for him and in his name, place and
stead in any and all capacities to sign on his behalf, individually and in each
capacity stated below and to file any and all amendments to this Annual Report
on Form 10-K with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises as fully as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
---------- ------ ----
<S> <C> <C>
/s/ Bernard H. Frank Chief Operating Officer June 4, 1996
- ------------------------------------------- Director
Bernard H. Frank
/s/ John D. Abernathy Director June 4, 1996
- ------------------------------------------
John D. Abernathy
/s/ Robert M. Davies Director June 4, 1996
- -------------------------------------------
Robert M. Davies
/s/ Joel S. Lever Director June 4, 1996
- ----------------------------------------------
Joel S. Lever
/s/ Anthony N. Puma Director June 4, 1996
- ------------------------------------------
Anthony N. Puma
/s/ Richard Randolph Director June 4, 1996
- ------------------------------------------
Richard Randolph
</TABLE>
-26-
<PAGE> 28
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Oakhurst Company, Inc.:
We have audited the accompanying consolidated balance sheets of Oakhurst
Company, Inc. (formerly Oakhurst Capital, Inc.) and subsidiaries as of February
29, 1996 and February 28, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended February
29, 1996, February 28, 1995, and February 26, 1994. Our audits also included
the financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Oakhurst Company, Inc. and
subsidiaries as of February 29, 1996 and February 28, 1995, and the results of
their operations and their cash flows for the years ended February 29, 1996,
February 28, 1995 and February 26, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective February 28, 1993
to conform with Statement of Financial Accounting Standards No. 109.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 17, 1996
-F1-
<PAGE> 29
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 318 $ 314
Trade accounts receivable, less allowance of
$558 and $282, respectively.................... 4,027 5,760
Commissions receivable.......................... 230 226
Other receivables............................... 564 498
Inventories..................................... 8,080 10,400
Deferred tax asset.............................. 145 620
Other........................................... 467 280
-------- ---------
Total current assets.................. 13,831 18,098
-------- ---------
Property and equipment, at cost................... 3,216 2,993
Less accumulated depreciation................... (1,109) (921)
-------- ---------
2,107 2,072
-------- ---------
Deferred tax asset, less valuation allowance
of $46,800 and $44,300, respectively............ 3,941 5,466
Excess of cost over net assets acquired, net...... 6,035 7,399
Other assets...................................... 203 266
-------- ---------
10,179 13,131
-------- ---------
$ 26,117 $ 33,301
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, related party..................... $ - $ 532
Accounts payable................................ 5,762 8,066
Accrued compensation............................ 369 757
Current maturities of long-term obligations..... 284 617
Current maturities of long-term obligations,
related parties................................ 169 800
Net obligation of discontinued business segment-
current portion................................ 465 505
Other........................................... 600 577
-------- ---------
Total current liabilities............. 7,649 11,854
-------- ---------
Long-term obligations:
Net obligation of discontinued business segment. 678 985
Long-term debt.................................. 5,179 3,237
Long-term debt, related parties................. 1,574 1,800
Convertible debt, related parties............... - 517
Other long-term obligations..................... 138 73
-------- ---------
7,569 6,612
-------- ---------
Commitments and contingencies.....................
Stockholders' equity:
Preferred stock, par value $0.01; authorized
1,000 shares, none issued.................... - -
Common stock, par value $0.01 per share;
authorized 14,000,000 shares; issued
3,195,235 and 3,189,326 shares, respectively. 32 32
Additional paid-in capital...................... 46,522 46,480
Deficit (Reorganized on August 26, 1989)........ (35,654) (31,676)
Treasury stock, at cost, 207 common shares...... (1) (1)
-------- ---------
Total stockholders' equity............ 10,899 14,835
-------- ---------
$ 26,117 $ 33,301
======== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-F2-
<PAGE> 30
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
Sales........................................... $ 47,339 $ 43,142 $ 32,386
Other income.................................... 471 655 368
------------ ------------ -------------
47,810 43,797 32,754
------------ ------------ -------------
Cost of goods sold, including occupancy and
buying expenses............................... 37,321 32,384 25,849
Operating, selling and administrative expenses.. 10,952 9,243 5,073
Provision for doubtful accounts................. 610 27 879
Amortization of excess of cost over net assets
acquired...................................... 439 290 11
Interest expense................................ 646 411 156
------------ ------------ -------------
49,968 42,355 31,968
------------ ------------ -------------
(Loss) income from continuing
operations before income taxes................ (2,158) 1,442 786
------------ ------------ -------------
Current income tax benefit (expense)............ 115 (155) (112)
Deferred income tax expense..................... (2,000) (468) (235)
------------ ------------ -------------
(1,885) (623) (347)
------------ ------------ -------------
(Loss) income from continuing operations........ (4,043) 819 439
Discontinued operations:
Income on disposal, less income tax expense
of $0 and $46 in fiscal 1996 and fiscal
1995, respectively.......................... 65 90 -
------------ ------------ -------------
Net (loss) income............................... $ (3,978) $ 909 $ 439
============ ============ =============
Per share amounts:
(Loss) income from continuing operations...... $ (1.27) $ 0.27 $ 0.16
Income from discontinued operations........... 0.02 0.03 -
------------ ------------ -------------
Net (loss) income............................. $ (1.25) $ 0.30 $ 0.16
============ ============ =============
Weighted average number of shares outstanding
used in computing per share amounts........... 3,194,021 3,076,801 2,788,812
============ ============ =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-F3-
<PAGE> 31
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTALS
------- --------- --------- ---------- -----------
<S> <C> <C>
BALANCE AT FEBRUARY 27, 1993............. $ 26 $ 38,669 $ (33,024) $ (1) $ 5,670
Cumulative effect of the
adoption of SFAS 109 resulting
in a net deferred tax asset............ 1,500 1,500
Net income............................... 439 439
Deferred tax benefit resulting from a
reduction in the valuation allowance
of the deferred tax asset.............. 3,735 3,735
------- --------- --------- ---------- -----------
BALANCE AT FEBRUARY 26, 1994............. 26 43,904 (32,585) (1) 11,344
Net income............................... 909 909
Deferred tax benefit resulting from a
reduction in the valuation allowance
of the deferred tax asset.............. 1,600 1,600
Exercise of warrants..................... 3 329 332
Issuance of Common Stock in connection with
the acquisition of Puma Products, Inc.. 3 647 650
------- --------- --------- ---------- -----------
BALANCE AT FEBRUARY 28, 1995............. 32 46,480 (31,676) (1) 14,835
Net loss................................. (3,978) (3,978)
Employee stock award..................... 19 19
Other.................................... 23 23
------- --------- --------- ---------- -----------
BALANCE AT FEBRUARY 29, 1996............. $ 32 $ 46,522 $ (35,654) $ (1) $ 10,899
======= ========= ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-F4-
<PAGE> 32
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
(Loss) income from continuing operations.................... $ (4,043) $ 819 $ 439
Adjustments to reconcile income from continuing
operations to net cash (used in) provided by operating
activities:
Depreciation and amortization............................. 873 596 153
Deferred tax expense...................................... 2,000 514 235
Loss on retirement of assets.............................. 37 - -
Employee stock award...................................... 19 - -
Other..................................................... 23 - -
Other changes in operating assets and liabilities:
Accounts receivable....................................... 1,667 (213) 1,112
Inventories............................................... 2,320 (1,051) 851
Accounts payable.......................................... (2,304) 1,759 (1,754)
Other..................................................... (467) 68 (75)
-------- -------- --------
Net cash provided by (used in) operating activities of:
Continuing operations....................................... 125 2,492 961
Discontinued operations..................................... (282) (161) (296)
-------- -------- --------
Net cash (used in) provided by operating activities:.......... (157) 2,331 665
-------- -------- --------
Cash flows from investing activities:
Additions to property and equipment......................... (430) (633) (36)
Acquisition of subsidiaries, net of cash acquired........... - (5,208) (1,038)
Net change in the excess of cost over net assets acquired... (284) - -
Other....................................................... - (35) (28)
-------- -------- --------
Net cash used in investing activities......................... (714) (5,876) (1,102)
-------- -------- --------
Cash flows from financing activities:
Net borrowings under revolving credit agreement............. 2,225 1,360 -
Repayment of notes payable.................................. (548) (406) -
Principal payments on long-term obligations................. (802) (1,058) (176)
Exercise of warrants........................................ - 332 -
Proceeds from issuance of long-term debt.................... - 2,560 -
Note payable issued in connection
with the acquisition of a subsidiary....................... - - 165
-------- -------- --------
Net cash provided by (used in) financing activities........... 875 2,788 (11)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.......... 4 (757) (448)
Cash and cash equivalents at beginning of period.............. 314 1,071 1,519
-------- -------- --------
Cash and cash equivalents at end of period.................... $ 318 $ 314 $ 1,071
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for operating activities:
Interest................................................... $ 722 $ 334 $ 154
======== ======== ========
Income taxes, net of refunds received...................... $ 9 $ 20 $ 227
======== ======== ========
</TABLE>
Non-cash investing and financing activities:
Fiscal year ending February 29, 1996:
Capital lease obligations of $76 were incurred in connection with leases
of new equipment.
A note and an earn-out payable totaling $825 were canceled in connection
with the settlement of an arbitration proceeding involving the former
owner of a subsidiary which was acquired in fiscal 1995, and another
earn-out payable was reduced by $400 as a result of the earnings trends of
another subsidiary also acquired in fiscal 1995.
Fiscal year ending February 28, 1995:
Convertible debt of $500, notes and earn-outs payable totaling $3,300, and
discounted restricted common stock of $650 were issued in connection with
the acquisition of subsidiaries.
The accompanying notes are an integral part of
these consolidated financial statements.
-F5-
<PAGE> 33
OAKHURST COMPANY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Oakhurst Company, Inc. ("Oakhurst" or "the Company"), formerly
Oakhurst Capital, Inc., was formed as a result of a merger transaction (the
"merger") in fiscal 1992 between Steel City Products, Inc. ("SCPI") and an
Oakhurst subsidiary. The merger resulted in a restructuring of SCPI such that
it became a majority-owned subsidiary of Oakhurst. In accordance with the
merger, Oakhurst owns 10% of the outstanding common stock of SCPI and all of
SCPI's Series A Preferred Stock. The merger was structured such that the
aggregate fair market value of SCPI's common stock and Series A Preferred Stock
owned by Oakhurst would be approximately 90% of the aggregate fair market value
of the issued and outstanding common and voting preferred stock of SCPI.
Accordingly, Oakhurst controls approximately 90% of the voting power of SCPI.
The accompanying consolidated financial statements reflect this control and
include the accounts of SCPI.
Oakhurst acquired all of the outstanding capital stock of H&H
Distributors d/b/a Harry Survis, ("H&H"), of Dowling's Fleet Service Co., Inc.
("Dowling's") and of Puma Products, Inc. (formerly LBI Corp.) ("Puma") in
January 1994, August 1994 and October 1994, respectively. In March 1995,
Oakhurst formed Oakhurst Management Corporation ("OMC"), a wholly-owned
subsidiary, to coordinate the provision of certain corporate administrative,
legal, and accounting services to the Company and its subsidiaries. The
accompanying consolidated financial statements include the accounts of these
subsidiaries for the respective periods of ownership, and all significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principals, which requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Business Activities:
The Company's operations at this time consist of four subsidiaries
primarily engaged in the wholesale distribution trade to the automotive
aftermarket. SCPI is a wholesale distributor operating under the trade name
Steel City Products selling primarily to discount retail chains and other
segments of the mass market, hardware, drug and grocery retail industries, and
to automotive specialty stores, based mainly in the Northeastern United States.
H&H is involved in the retail and wholesale distribution and installation of
automotive accessories, including stereos, alarms and cellular phones, in
western Pennsylvania. Dowling's is a wholesale distributor of automotive
radiators and related parts serving mostly radiator repair shops in the New
York, Connecticut, New Jersey and greater Philadelphia, Pennsylvania markets.
Puma is a wholesale distributor of high quality truck and van conversion
products to automotive and truck converters, restylers and accessories
retailers throughout the United States, with a market concentration around its
facilities in Grand Prairie, Texas and Elkhart, Indiana (see Note 3).
Fiscal Year:
The Company's fiscal year ends on the last day of February. Prior to
fiscal 1995, the Company's fiscal year end was the Saturday closest to the end
of February. The effect of the change on the consolidated financial statements
was not material.
-F6-
<PAGE> 34
Cash and Cash Equivalents:
For the purpose of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories:
The Company's inventories are stated at the lower of cost or market.
Cost is determined by the last in, first out method (LIFO) for 56% and 61% of
the Company's inventories at February 29, 1996 and February 28, 1995,
respectively, and by the first in, first out (FIFO) method for the remaining
inventories. Had all the Company's inventories been valued using the FIFO
method, they would have been approximately $388,000 and $437,000 higher than
reported at February 29, 1996 and February 28, 1995, respectively.
Property and Equipment:
Depreciation and amortization are computed using the straight-line
method. Estimated useful lives used for computing depreciation and
amortization are: buildings, 15-40 years; building improvements, 5-20 years;
leasehold improvements, 3-25 years; and office furniture, equipment and
vehicles, 3-10 years. Depreciation expense was approximately $430,000,
$305,000 and $140,000 in fiscal 1996, 1995 and 1994, respectively.
Excess of Costs Over Net Assets Acquired:
The excess of cost over net assets acquired is associated with the
acquisition of Oakhurst's subsidiaries and is amortized over periods ranging
from 15 to 40 years. The unamortized values at February 29, 1996 and February
28, 1995, are net of accumulated amortization of approximately $816,000 and
$377,000, respectively.
Oakhurst assesses whether its excess of costs over net assets acquired
is impaired at each balance sheet date based upon an evaluation of undiscounted
projected cash flow through the remaining amortization period. If an
impairment is determined, the amount of such impairment is calculated based
upon the estimated fair value of the asset.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. Management believes that the adoption of SFAS No. 121 in
fiscal 1997 will not have a material impact on the Company's carrying value of
such assets.
Revenue Recognition:
Revenues are recognized at the time products are shipped or installation
occurs.
Federal Income Taxes:
Oakhurst accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The standard requires an asset and liability
approach to accounting for income taxes. Deferred tax liabilities and assets
are recognized for the future tax consequences of events that have already been
recognized in the financial statements or tax returns. Net deferred tax assets
are recognized to the extent that realization of such benefits is considered
more likely than not. Changes in enacted tax rates or laws may result in
adjustments to the recorded deferred tax assets or liabilities in the period
that the tax law is enacted (see Note 7).
-F7-
<PAGE> 35
Computation of Per Share Amounts:
Income per share amounts attributable to common stockholders are
computed on the basis of the weighted average number of outstanding common
shares and common stock equivalents determined by applying the treasury stock
method to stock options and warrants outstanding. Loss per share amounts do
not include common stock equivalents since that would reduce the net loss per
share.
2. CORPORATE REORGANIZATION
Under the merger (see Note 1), SCPI is required for a period of five
years following the merger to issue to Oakhurst (or cancel) such number of
shares of Series A Preferred Stock and/or common stock as shall be necessary,
in accordance with periodic determinations, to maintain Oakhurst's aggregate
stock ownership of SCPI at 90%. In accordance with a revaluation of the
Company as of February 26, 1994, the Series A Preferred shares outstanding were
reduced to 1,938,526 to reflect a decrease in the valuation to $10.1 million.
The decrease in the valuation as of February 26, 1994 was primarily
attributable to the abandonment of a proposed Oakhurst financing transaction.
Revaluations of SCPI as of February 28, 1995 and February 29, 1996,
respectively, have not yet been completed. Management expects that the
revaluation as of the end of February 29, 1996, when complete, will result in a
further decrease in the valuation of SCPI because of changes in the business
climate that occurred during fiscal 1996. Accordingly, additional Series A
Preferred shares outstanding may be canceled once such valuation is complete.
During fiscal 1993, the cumulative dividends on SCPI's Series A
Preferred Stock exceeded SCPI's net income for that year, thus creating a loss
attributable to SCPI's common stockholders in excess of Oakhurst's minority
interest and, accordingly, Oakhurst reduced to zero the minority interest
liability related to SCPI. At such time as SCPI's cumulative net income
attributable to common stockholders from the effective date of the merger
exceeds the cumulative Series A Preferred Stock dividends in arrears, Oakhurst
will again reflect the appropriate minority interest liability.
The Series A Preferred Stock carries a dividend rate of $0.5228 per
share and has a redemption price and liquidation preference of $5.2282 per
share plus any accumulated dividends in arrears. Through February 29, 1996,
dividends of approximately $5.2 million have accumulated since the effective
date of the merger; of this amount, approximately $3.6 million has been
declared by SCPI's Board of Directors and paid through fiscal 1995.
Approximately $1.6 million of undeclared dividends in arrears was outstanding
as of February 29, 1996.
3. ACQUISITIONS AND ARBITRATION
In January 1994, Oakhurst acquired all of the outstanding capital
stock of H&H. The purchase price of approximately $1.4 million consisted of
approximately $1.2 million in cash (funded by a loan from SCPI) and a note
payable to the seller for the balance, which was paid in July 1994. In
addition, Oakhurst incurred acquisition costs of approximately $50,000.
In August 1994, Oakhurst acquired all of the outstanding capital stock
of Dowling's. The purchase price of approximately $5.5 million consisted of $4
million in cash, a note payable to the seller of $700,000 that provided for
interest at prime and that was due in two annual installments commencing with
the first anniversary of the closing date, earn-out payments that were
estimated at $300,000 and convertible debt of $500,000 that was issued to
certain executives of Dowling's, which accrued interest at 6% and was due on
August 1, 1997 or was convertible, at the executives' option, to an aggregate
of 120,346 shares of Oakhurst common stock on such date. In addition, Oakhurst
incurred acquisition costs of approximately $290,000.
On March 1, 1996, the convertible debt issued in connection with the
Dowling's acquisition was renegotiated into the form of cash payments made in
March 1996 of approximately $109,000 (including accrued interest), and the
issuance of two long-term notes payable through March 1, 2001 aggregating
$440,000 (the "DFS Notes") (see Note 5). The DFS Notes do not contain a stock
conversion option.
-F8-
<PAGE> 36
On February 2, 1996, Oakhurst entered into a settlement agreement (the
"Settlement") in connection with an arbitration proceeding that it had
commenced in July 1995 in connection with the acquisition of Dowling's. As a
result of the Settlement, all current and future amounts to be paid by Oakhurst
to the seller pursuant to the purchase and sale agreement were reduced to a sum
of $175,000. Accordingly, the aggregate purchase price of Dowling's was
reduced by approximately $1 million. Pursuant to the Settlement, Oakhurst was
also relieved of accrued and future interest charges on the note payable, and
amounts due under an employment and non-compete agreement.
The cash portion of the purchase price of Dowling's was funded by
Series A Preferred stock dividends of $2.8 million from SCPI (funded by the
Term Loan), by advances from SCPI and by advances under the Credit Agreement
(see Note 5).
In October 1994, Oakhurst acquired all of the outstanding capital
stock of Puma. The purchase price of approximately $4.2 million consisted of
$1.2 million in cash, a note payable to the seller of $600,000 which had
provided for interest at prime plus 1% and which had been due in two annual
installments commencing with the first anniversary of the closing date, a note
payable to the seller of approximately $750,000 that provided for interest at
prime plus 1% payable in fiscal 1996 (see Note 5), earn-out payments which were
initially estimated at $1,100,000 and the issuance of 266,667 shares of
Oakhurst's common stock, which was valued at $650,000 and is restricted for up
to three years following issuance. The purchase agreement provides for bonus
earn-out payments to be made to the former shareholder over five years in the
event that earnings exceed historical levels, to a maximum additional payment
of $500,000; however, based upon current earning trends of Puma, such bonus
earn-out payments are not anticipated. There was no earn-out earned during
fiscal 1996.
The cash purchase portion of the acquisition price of Puma was funded
by available cash and by borrowings under the Credit Agreement. In addition,
Oakhurst incurred acquisition costs of approximately $250,000.
The former owners and certain senior executives of these acquisitions,
except for the former owner of Dowling's, continue with the respective
subsidiaries under long-term employment contracts. Accordingly, amounts
payable to them with respect to the acquisitions have been classified as
related-party obligations.
The acquisitions were accounted for using the purchase method of
accounting. The excess of approximately $839,000, $2.8 million and $2.9
million, respectively, of the purchase prices over the fair values allocated to
H&H's, Dowling's and Puma's net assets, is being amortized over 15 years.
In connection with the acquisitions, assets were acquired and
liabilities were assumed as follows (in thousands):
<TABLE>
<CAPTION>
H&H Dowling's Puma
--- --------- ----
<S> <C> <C> <C>
Fair value of assets acquired . . . . . . . . . . $2,075 $7,080 $4,609
Liabilities assumed . . . . . . . . . . . . . . . 640 1,927 675
------ ------ ------
Net assets acquired . . . . . . . . . . . . . . $1,435 $5,153 $3,934
====== ====== ======
</TABLE>
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the above acquisitions had occurred
at the beginning of the fiscal years ending February 28, 1995 and February 26,
1994 (in thousands, except per share):
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED ENDED
FEBRUARY 28, 1995 FEBRUARY 26, 1994
----------------- -----------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . $53,219 $54,719
Net income . . . . . . . . . . . . . $ 1,157 $ 1,028
Earnings per share . . . . . . . . . $0.36 $0.32
</TABLE>
-F9-
<PAGE> 37
The above pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations that
would actually have resulted had the acquisitions been in effect on the dates
indicated or that may result in the future. Specifically, these amounts do not
reflect the benefit of reductions in executive compensation and certain other
administrative expenses which may be realized in subsequent years following the
acquisitions.
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ -----------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170 $ 170
Buildings . . . . . . . . . . . . . . . . . . . . . . . . 830 830
Leasehold and building improvements . . . . . . . . . . . 547 452
Office furniture, equipment and vehicles . . . . . . . . 1,669 1,541
------- ------
3,216 2,993
Less accumulated depreciation . . . . . . . . . . . . . . (1,109) (921)
------- ------
$ 2,107 $2,072
======= ======
</TABLE>
5. LINE OF CREDIT AND LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Term loan, due monthly through
July 1996 (refinanced in March 1996; see below) . . . . . . . . $1,663 $2,245
Revolving Credit Agreement through July 1996
(refinanced in March 1996; see below) . . . . . . . . . . . . . . . 3,750 1,525
Puma acquisition note, due in five annual installments beginning
in March 1998 (see Note 3) . . . . . . . . . . . . . . . . . . . . . 600 600
Puma estimated earn-out, payable in five annual installments
through May 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 600 1,000
Convertible debt payable in August 1997
(rescheduled in March 1996; see Note 3) . . . . . . . . . . . . . . 543 517
Dowling's acquisition note (see Note 3) . . . . . . . . . . . . . . . . . -- 700
Dowling's estimated earn-out (see Note 3) . . . . . . . . . . . . . . . . -- 300
Capital lease obligations for computer and warehouse equipment,
due monthly through August 2001 . . . . . . . . . . . . . . . . . . 66 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 157
------ ------
7,344 7,044
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 1,417
------ ------
$6,891 $5,627
====== ======
</TABLE>
In August 1994, Oakhurst entered into a two year revolving credit
agreement (the "Credit Agreement") that, until its amendment, provided for
maximum borrowings of $3 million, subject to a borrowing base as defined in the
Credit Agreement.
In August 1994, SCPI obtained a four year term loan in the amount of
$2,560,000 (the "Term Loan"), which was secured by a mortgage on SCPI's real
estate, and was guaranteed by Oakhurst and its subsidiaries, supported by a
pledge of the capital stock of Oakhurst's subsidiaries. The Term Loan provided
for monthly repayments beginning in September 1994 and interest at a fixed rate
of 9.25%.
-F10-
<PAGE> 38
The Credit Agreement was amended during the third quarter of fiscal
1996 to reflect the Puma acquisition. Such amendment provided for an increase
in maximum borrowings to $4 million subject to a borrowing base and eliminated
all of the financial covenants, except for certain amended subsidiary and
consolidated net worth requirements. The Term Loan was also amended to reflect
such revised covenants. The amended Credit Agreement provided for interest at
prime plus 1.5%, and was secured by the accounts receivable, inventory and
capital stock of Oakhurst's subsidiaries.
At November 30, 1995, Oakhurst did not meet the amended consolidated
net worth covenant, and requested a modification of such covenant. The
modification was granted by the bank on January 3, 1996, in exchange for
Oakhurst's and SCPI's agreement to accelerate the maturity date of the Term
Loan to July 31, 1996, and to increase the interest rates on the Term Loan and
on borrowings under the Credit Agreement by 1.25% and 1%, respectively,
effective February 28, 1996.
On March 28, 1996, Oakhurst obtained replacement financing from an
institutional lender that provides for a total facility for Oakhurst and its
subsidiaries of $9.5 million, comprising a new SCPI term loan of $1.5 million
(the "Fixed Asset Loan"), and a maximum revolving credit facility of $8 million
(the "Revolver") (collectively, the "Credit Facility"), and the amounts
outstanding under the Term Loan and Credit Agreement were repaid. Accordingly,
the Credit Agreement and Term Loan have been presented as of February 29, 1996
reflecting the terms of the refinancing.
Borrowings under the Credit Facility bear interest at the higher of
the Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings
under the Revolver are subject to a borrowing base that is calculated according
to defined levels of Oakhurst's subsidiaries' accounts receivable and
inventories. The Credit Facility has an initial term of two years, with
automatic renewal terms of one year each upon payment of a renewal fee of 0.5%
thereof, unless earlier terminated as provided for in the agreement, and
contains certain restrictive financial covenants, including among other things,
the maintenance of defined subsidiary and consolidated tangible net worth
levels and consolidated current ratios, and limitations on annual cash
dividends.
The Credit Facility is secured by the accounts receivable,
inventories, and fixed assets of Oakhurst and its subsidiaries, contains
certain Revolver prepayment penalties, and provides for the payment of loan
management fees, unused Revolver facility fees and examination fees. Oakhurst
paid closing costs of approximately $225,000 in connection with the Credit
Facility, of which $25,000 was prepaid at February 29, 1996.
The Fixed Asset Loan provides for twenty-four monthly principal and
interest payments based on a five year amortization schedule, with the
remaining principal balance due on April 1, 1998. The Fixed Asset Loan
provides for prepayment without penalty, and contains a provision for the
release of SCPI's building as collateral for the Credit Facility in the event
of a refinancing of the Fixed Asset Loan, subject to a right of first refusal
by the current lender to refinance the Fixed Asset Loan on the same terms as
offered by a new lender.
The two year Puma note was rescheduled with the seller on February 1,
1996 to provide for five equal installments of $120,000 each, beginning in
March 1998, and for interest at prime minus 1% through March 1, 1998, and prime
plus 1% thereafter.
The DFS Notes, formerly convertible debt (see Note 3), bear interest
at 6% and provide for repayment in quarterly installments of $22,000 each,
together with accrued interest thereon, beginning in June 1996.
-F11-
<PAGE> 39
Long-term obligations, including the present value of the Creditor
Notes (see Note 8), mature during each fiscal year as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM CREDITOR
FISCAL OBLIGATIONS NOTES TOTAL
------ ----------- --------- ---------
<S> <C> <C> <C>
1997 . . . . . . . . . . . . . . . . . . $ 453 $ 386 $ 839
1998 . . . . . . . . . . . . . . . . . . 463 329 792
1999 . . . . . . . . . . . . . . . . . . 5,268 349 5,617
2000 . . . . . . . . . . . . . . . . . . 427 -- 427
2001 . . . . . . . . . . . . . . . . . . 440 -- 440
Thereafter . . . . . . . . . . . . . . . 292 -- 292
------ ------ ------
$7,343 $1,064 $8,407
====== ====== ======
</TABLE>
6. FINANCIAL INSTRUMENTS
Financial instruments at February 29, 1996 consists of the following
(in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
---------- --------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . $ 318 $ 318
Creditor Notes . . . . . . . . . . . . $1,064 $1,046
Long-term obligations (the Term Loan,
Credit Agreement and acquisition
notes) . . . . . . . . . . . . . . $6,556 $6,556
</TABLE>
The fair values of the instruments were based upon the rate available
to the Company for instruments of the same maturities. The Creditor Notes,
which are non-interest bearing, were discounted using a current market rate of
11.75% to determine current fair value.
7. INCOME TAXES AND DEFERRED TAX ASSET
At February 29, 1996, Oakhurst has, for tax reporting purposes, net
operating tax loss carryforwards of approximately $149 million which
principally expire in the years 2001 through 2005. Under SFAS No. 109,
Oakhurst is required to recognize currently the estimated realizable value of
the future benefit of its net operating tax loss carryforwards along with other
tax benefits. The initial adoption of SFAS No. 109, effective February 28,
1993, resulted in the recognition of a deferred tax asset $1.5 million, net of
a valuation allowance of $49.5 million, with a corresponding increase of $1.5
million in additional paid-in capital. The accounting treatment to increase
paid-in capital results from SCPI's quasi-reorganization accounting in 1990.
Any subsequent utilization of the net operating tax loss carryforwards is
accounted for as a reduction of the deferred tax asset.
Fluctuations in market conditions and trends warrant periodic
management reviews of the recorded valuation allowance to determine if an
increase or decrease in such allowance would be appropriate. Accordingly,
management re-evaluated the allowance as of February 26, 1994 in light of
earnings trends and an acquisition, and determined that a reduction in the
valuation allowance of approximately $3.7 million was appropriate. During the
year ended February 29, 1996, SCPI experienced significant changes in its
customer base. As a result, management undertook an extensive review and
strategic evaluation of SCPI's operations to determine the impact of this lost
business on SCPI's future levels of revenues and profits, and to evaluate
future customer and product opportunities. In addition, the Company's other
operating subsidiaries have encountered lower sales and profits in the current
fiscal year than had been anticipated by management.
These efforts, combined with management's consideration of current
trends and historical operations, led management to conclude that the current
impact of these events warranted an increase of approximately $2.5 million in
the deferred tax asset valuation allowance with a corresponding charge to
deferred tax expense.
-F12-
<PAGE> 40
If future profit levels exceed current expectations, and economic or business
changes warrant upward revisions in the estimate of the realizable value of net
operating tax loss carryforwards, the consequent reduction in the valuation
allowance would result in a corresponding deferred tax benefit in future
results of operations to the extent of the charge of $2.5 million to deferred
tax expense for the fiscal year ended February 29, 1996, and any benefit in
excess of such charge would be reflected as an addition to paid-in capital.
As of February 29, 1996, Oakhurst is required to earn approximately
$12 million of consolidated taxable income before the expiration of the tax
benefits to realize the net recorded tax benefit, as adjusted.
The deferred tax effects of temporary differences are not significant,
and current income taxes payable represent state income taxes.
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current tax (benefit) expense . . . . $ (115) $623 $347
Current tax benefit from utilization of
net operating tax loss carryforwards . -- (468) (235)
------ ---- ----
(115) 155 112
Increase in valuation allowance
of the deferred tax asset . . . . . . 2,482 -- --
Deferred tax (benefit) expense . . . . . (482) 468 235
------ ---- ----
Income tax expense . . . . . . . . . . . $1,885 $623 $347
====== ==== ====
</TABLE>
During the fiscal year ended February 29, 1996, SCPI settled a dispute
over a tax refund claimed from the state of Kentucky by SCPI's predecessor, and
accordingly, recorded a refund of approximately $142,000, including
approximately $35,000 in interest.
The income tax provision differs from the amount using the statutory
federal income tax rate of 34% applied to income or loss from continuing
operations for the following reasons (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Tax (benefit) expense at the U.S.
federal statutory rate . . . . . . . . . . . $ (734) $490 $267
State income tax (benefit) expense,
net of refunds and federal benefit . . . . . (75) 95 58
Increase in deferred tax asset
valuation allowance . . . . . . . . . . . . 2,482 -- --
Non-deductible costs . . . . . . . . . . . . . 212 98 22
Non-taxable escrow refund . . . . . . . . . . -- (60) --
------ ---- ----
Income tax expense . . . . . . . . . . . $1,885 $623 $347
====== ==== ====
</TABLE>
-F13-
<PAGE> 41
The availability of the net operating tax loss carryforwards may be
adversely affected by future ownership changes of SCPI or Oakhurst; at this
time, such changes cannot be predicted. Oakhurst's approximate estimated
operating tax loss carryforwards at February 29, 1996 expire as follows (in
thousands):
<TABLE>
<S> <C>
2001 . . . . . . . . . . . . $ 12,000
2002 . . . . . . . . . . . . 52,000
2003 . . . . . . . . . . . . 22,000
2004 . . . . . . . . . . . . 49,000
2005 . . . . . . . . . . . . 13,000
2010 . . . . . . . . . . . . 1,000
---------
$ 149,000
=========
</TABLE>
8. DISCONTINUED OPERATIONS
SCPI disposed of its former Retail Division to an unrelated company,
Retail Acquisition Corp. ("RAC") in September 1990 when RAC acquired
substantially all of the assets of the former division and assumed
substantially all of its liabilities. SCPI remained contingently liable for
certain of these liabilities. In early 1991, SCPI received notices of default
in respect of the leased properties that SCPI had transferred to RAC. In March
1991, RAC was forced into bankruptcy by a group of creditors which included
SCPI. Pursuant to RAC's bankruptcy reorganization plan, which became effective
in September 1992, SCPI participated in a global settlement pursuant to which
SCPI issued $2.5 million of non-interest bearing notes (the "Creditor Notes")
solely for the benefit of contingent creditors. In return, SCPI and Oakhurst
were relieved of any further obligations to contingent creditors, except for
payment on the Creditor Notes.
The Creditor Notes, which are non-interest bearing, are payable in
equal annual installments through July 1998, subject to a prepayment provision
whereby if defined cash flow exceeds $900,000, $1,000,000 and $1,100,000 in
fiscal 1995, 1996 and 1997, respectively, holders of Creditor Notes may tender
for prepayment a portion thereof in the amount of the defined excess cash flow,
but not to exceed approximately $400,000 per annum. In fiscal 1995 and in
fiscal 1996, SCPI did not meet the defined criteria for such prepayment. The
Creditor Notes have been discounted using an imputed interest rate of 7.5% and,
together with accrued interest thereon, principally comprise the net obligation
of the discontinued business segment. Imputed interest expense of
approximately $76,000, $96,000 and $128,000 is included in results of
continuing operations for fiscal 1996, 1995 and 1994, respectively.
The accompanying consolidated statements of operations and cash flows
reflect any income or loss associated with the disposal of the former Retail
Division as discontinued operations. Income from discontinued operations of
$65,000 and $90,000 for the periods ended February 29, 1996 and February 28,
1995, primarily reflected decreases in SCPI's reserve for contingent
liabilities relating to the former retail division, net of an income tax
provision of $46,000 for fiscal 1995.
9. STOCK OPTIONS
In fiscal 1995, the Board of Directors and shareholders approved two
stock option plans, the 1994 Omnibus Stock Plan (the "Omnibus Plan") and the
1994 Non-Employee Director Stock Option Plan (the "Director Plan"). Under both
plans, the exercise price of the option granted may not be less than the fair
market value of the common stock on the date of the grant, and the term of the
grant may not exceed ten years.
The Omnibus Plan initially provided for the issuance of a maximum of
350,000 shares of Oakhurst's common stock pursuant to the grant of incentive
stock options to employees of Oakhurst and its subsidiaries, and the grant of
non-qualified stock options, stock or restricted stock to employees,
consultants, directors and officers of Oakhurst and its subsidiaries. In
fiscal 1996, the Board of Directors adopted an amendment to the
-F14-
<PAGE> 42
plan whereby the maximum amount of shares issuable under the Omnibus Plan was
increased to 500,000 shares. Such amendment is subject to approval by the
shareholders.
In fiscal 1995, options covering 313,084 shares were granted at prices
ranging from $2.75 to $3.875 and in fiscal 1996, the price of 162,985 of such
options was reduced to $2.00 per share, and a further 129,500 options were
granted at prices ranging from $1.25 to $3.125, subject to the approval of the
Omnibus Plan amendment by the shareholders. The options generally vest over a
four year period and expire ten years from the date of the grant; however
100,000 of such options vest over a one year period. At February 29, 1996 and
February 28, 1995, no options had been exercised and options covering 254,959
and 136,234 shares, respectively, were exercisable.
The Director Plan (a "formula plan" under rule 16.3-3 of the Securities
Exchange Act of 1934) provides for the issuance of up to 100,000 shares of
common stock pursuant to options granted to directors who are not employees of
the Company. In April 1994, pursuant to the terms of the plan, eight
non-employee directors were each granted a fully-vested option to purchase
3,000 shares (24,000 shares in the aggregate) of common stock at $2.75 per
share, the market value on the date of the grant, to remain exercisable for ten
years following the grant date. On May 1 of each subsequent year, each
non-employee director holding office on such date will receive a
fully-exercisable ten year option to purchase an additional 3,000 shares. In
fiscal 1996, options to purchase 24,000 shares were granted at $3.375 per
share. None of these options had been exercised at February 29, 1996 and
February 28, 1995, respectively, and 6,000 shares that had been issued under
the fiscal 1995 grant expired during fiscal 1996, upon the resignation of two
directors.
In fiscal 1992, the Board of Directors granted options to purchase
194,388 shares of Oakhurst's common stock to key employees and to certain
members of the Board of Directors. The exercise price of the options, which
was equal to the market value of the stock at the date of the grant, is $2.75.
During fiscal 1996, 1995 and 1994, no options were exercised, and during fiscal
1995, 14,996 options were forfeited. All 179,392 options outstanding are fully
vested and will remain exercisable through 2001.
In connection with SCPI's predecessor's emergence in fiscal 1990 from
Chapter 11 bankruptcy proceedings, warrants to purchase 366,837 shares of
common stock were issued and were exercisable at a price of $1.00 per share
through September 28, 1994. As a result of the merger (see Note 1), the
warrant holders, upon exercise, were entitled to one share each of SCPI's and
Oakhurst's common stock for the aggregate purchase price of $1.00. During
fiscal 1995, 331,622 shares were purchased pursuant to these warrants and
35,215 warrants expired.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which requires adoption no
later than fiscal years beginning after December 15, 1995. The new standard
defines a fair value method of accounting for stock options and similar equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of adoption.
Oakhurst has not yet determined if it will elect to change to the fair value
method, nor has it determined the effect the new standard will have on net
income and earnings per share should it elect to make such a change. Adoption
of the new standard will have no effect on Oakhurst's cash flows.
-F15-
<PAGE> 43
10. EMPLOYEE PENSION PLAN
Steel City Products maintains a defined contribution profit-sharing
retirement plan ("the SCP Plan") covering substantially all its employees,
whereby employees may contribute a percentage of compensation, limited to
maximum allowed amounts under the Internal Revenue Code. Through fiscal 1995,
the SCP Plan provided for a 25% matching employer contribution and an annual
discretionary contribution determined by SCPI's Board of Directors. Total
expenses related to the SCP Plan were $150,000 for each of the years ended
February 28, 1995 and February 26, 1994. In October 1995, the 25% SCP Plan
matching employer contribution was suspended until further notice, and a
discretionary contribution was not made for fiscal 1996.
Through December 31, 1995, Dowling's maintained a profit-sharing plan
for all employees over the age of twenty-one with 1,000 hours of defined
service. Employer contributions to the plan are made on an annual basis at the
discretion of management. Total expense was approximately $29,000 and $8,000
in fiscal 1996 and fiscal 1995, respectively.
Through December 31, 1995, H&H maintained a defined contribution
profit-sharing retirement plan for all employees over the age of 21 who have
met one year of defined eligibility service. Employer contributions to the
plan are made on an annual basis at the discretion of management. There were
no plan related expenses in fiscal 1996, and such expense was approximately
$12,000 in fiscal 1995.
On June 1, 1995, by amendment to the SCP Plan, Oakhurst and Puma were
incorporated into the SCP Plan, the Plan was renamed the Oakhurst Company
Profit Sharing Plan (the "Profit Sharing Plan"), and on January 1, 1996 H&H and
Dowling's were also incorporated into the Profit Sharing Plan, and Dowling's
merged its former plan's assets and liabilities into the Profit Sharing Plan.
The Profit Sharing Plan covers substantially all persons employed by the
Company and its subsidiaries and provides for discretionary employer
contributions, the level of which, if any, may vary by subsidiary and is to be
determined annually by each company's Board of Directors.
11. LEASES
The Company leases its corporate office and certain of its
subsidiaries' offices and warehouses under operating leases which expire over
the next five years. Generally, leases are net leases that require the payment
of executory expenses such as real estate taxes, insurance, maintenance and
other operating costs. The leases generally provide for renewal options.
Certain of these leases are with related parties (see Note 14).
Minimum annual rentals for all operating leases having initial
noncancelable lease terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1997 . . . . . . . . . . . . . . . . . . $ 607
1998 . . . . . . . . . . . . . . . . . . 568
1999 . . . . . . . . . . . . . . . . . . 529
2000 . . . . . . . . . . . . . . . . . . 329
2001 . . . . . . . . . . . . . . . . . . 152
------
Total future minimum rental payments $2,185
======
</TABLE>
Total rent expense for all operating leases amounted to approximately
$600,000 and $420,000 for fiscal 1996 and fiscal 1995, respectively. There
were no material operating leases prior to fiscal 1995.
12. COMMITMENTS AND CONTINGENCIES
SCPI has employment agreements with two senior executives that provide
termination rights in the event of a change in control of SCPI, as defined.
The rights include payments ranging from six to twenty-four
-F16-
<PAGE> 44
months of the executives' base salaries, along with continuation of benefits
and certain other payments to each executive. Each agreement also provides for
substantially the same provisions in the event that the executive's employment
were to be terminated by SCPI without cause. The agreements expire in August
1996, and contain certain renewal options.
In fiscal 1994, 1995, and 1996, Oakhurst entered into employment
agreements with certain senior executives of Oakhurst, H&H, Dowling's and Puma
that provide for certain termination rights in the event that the executive's
employment were to be terminated by Oakhurst without cause. The employment
agreements expire between February 1997 and October 1999.
Management is unaware of any other significant contingencies.
13. MAJOR CUSTOMERS
Sales to each of those major customers representing individually more
than 10% of Oakhurst's consolidated sales were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 29, 1996 February 28, 1995 February 26, 1994
------------------- -------------------- -------------------
% of % of % of
Sales Total Sales Sales Total Sales Sales Total Sales
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Customer "A" -- -- -- -- $3,198 10%
Customer "B" $4,641 10% $6,046 14% $6,250 19%
Customer "C" $3,975 8% $4,465 10% $6,332 20%
</TABLE>
In July 1993, SCPI's two then-largest customers filed for protection
under Chapter 11 of the United States Bankruptcy Code, at which time
approximately $1.2 million was outstanding from them to SCPI. As a result,
SCPI ultimately wrote off approximately $879,000 of these customer's
receivables.
One of these customers (customer A), closed all its stores in December
1993; the other customer, customer C, reorganized and emerged from Chapter 11
in January 1995. Customer C continued to be one of SCPI's largest customers
throughout this period until the second quarter of fiscal 1996, when management
curtailed the level of credit allowed to such customer after becoming aware
that it was experiencing new financial difficulties. In October 1995, customer
C again filed for protection under the U.S. Bankruptcy Code and announced that
it would close all its stores; the fiscal 1996 provision for doubtful accounts
contains a write-off of approximately $150,000 relating to this customer.
During the third quarter of fiscal 1996, customer B informed SCPI that
it had decided to change its source of supply, and sales to this customer ended
in January 1996.
14. RELATED PARTY TRANSACTIONS
From November 1989 until June 1993, SCPI engaged The Hallwood Group
Incorporated ("Hallwood"), a principal stockholder of Oakhurst until February
1994, under a financial advisory agreement. SCPI paid Hallwood approximately
$83,000 in fiscal 1994 in connection with this agreement.
Prior to fiscal 1994, SCPI and Oakhurst entered into agreements with
Integra Management Company ("IMC") to provide corporate office administrative
functions and certain tax services. IMC was a wholly owned subsidiary of
Hallwood until October 1992, when it became a wholly owned subsidiary of
Integra Hotels, Inc., formerly Integra - A Hotel and Restaurant Company. Mr.
Hemsley, Oakhurst's Chairman until December 1995, was President of both IMC and
Integra until March 1994. The agreements were approved by the Company's Board
of Directors, and were terminated in May 1994. SCPI paid IMC $11,000 in fiscal
1995 and $60,000 in fiscal 1994 pursuant to these agreements. Oakhurst paid
IMC $6,750 and $36,000 in fiscal 1995 and 1994, respectively, pursuant to these
agreements.
-F17-
<PAGE> 45
In fiscal 1994, H&H entered into a seven-year lease with Harold
Garfinkel, the President and former owner of H&H, for the principal property
from which it conducts its business. The lease has one option to renew for an
additional five years, and requires annual lease payments of $144,000. H&H
paid Mr. Garfinkel $144,000 in each of fiscal 1996 and 1995, and $12,000 in
fiscal 1994 under this lease.
In fiscal 1995, Puma entered into a six-year lease with Anthony Puma,
the President and former owner of Puma, for the facility in which it conducts
its business. The lease has one option to renew for an additional four years,
contains an option to rent additional space that is exercisable every two
years, and requires minimum annual lease payments of approximately $80,000.
Puma paid Mr. Puma approximately $80,000 and $20,000 in fiscal 1996 and fiscal
1995, respectively, under this lease.
In fiscal 1995, Dowling's entered into two five-year leases with James
Dowling, for a facility in New York in which Dowling's is headquartered and
operates a warehouse, and for a facility in Connecticut where Dowling's
operates a warehouse. Mr. Dowling is the former owner of Dowling's and was
Vice Chairman of Dowling's until his resignation in fiscal 1996. Both leases
have one option to renew for an additional five years and require aggregate
annual rent payments of $211,000. Dowling's paid Mr. Dowling approximately
$122,000 in fiscal 1995 under these leases.
15. PREDECESSOR BANKRUPTCY
During fiscal 1995, SCPI recovered funds placed into escrow in prior
years as a part of SCPI's predecessor's bankruptcy in the amount of
approximately $175,000, which amount is included in other income. SCPI's
predecessor emerged from bankruptcy in 1990.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL 1996 FIRST SECOND THIRD FOURTH
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . $ 13,026 $ 13,517 $ 11,580 $ 9,216
Gross profit . . . . . . . . . . . . . . . . . 2,887 2,827 2,480 1,824
Loss from continuing operations . . . . . . . . (216) (449) (2,420) (958)
Income from discontinued operations . . . . . . -- -- -- 65
Net loss . . . . . . . . . . . . . . . . . . . (216) (449) (2,420) (893)
Per Share:
Loss from continuing operations . . . . . . . $ (.07) $ (.14) $ (.76) $ (.30)
Net loss . . . . . . . . . . . . . . . . . . $ (.07) $ (.14) $ (.76) $ (.28)
Average number of shares outstanding . . . . . 3,190,365 3,195,235 3,195,235 3,195,235
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995 FIRST SECOND THIRD FOURTH
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . $ 9,869 $ 9,891 $ 11,329 $ 12,053
Gross profit . . . . . . . . . . . . . . . . . 2,418 2,467 2,946 2,927
Income (loss) from continuing operations. . . . 294 403 379 (257)
Income from discontinued operations . . . . . . -- 66 6 18
Net income (loss) . . . . . . . . . . . . . . 294 469 385 (239)
Per Share:
Income (loss) from continuing operations . . $ .10 $ .13 $ .11 $ (.08)
Net income (loss) . . . . . . . . . . . . . . $ .10 $ .15 $ .12 $ (.08)
Average number of shares outstanding . . . . . 2,866,277 3,034,650 3,318,073 3,182,734
</TABLE>
-F18-
<PAGE> 46
The net loss in third quarter of fiscal 1996 was primarily caused by a
deferred tax charge of $2 million related to an increase in the valuation
allowance of the deferred tax asset, and by reduced sales and profit levels due
to the loss of a major customer that filed bankruptcy. The loss in the fourth
quarter of fiscal 1996 was due principally to the loss of certain other
customers and to increases in the provision for doubtful accounts.
During fiscal 1996 and fiscal 1995, the previous estimate to provide
for the disposal of the discontinued Retail Division was reduced.
Oakhurst incurred a loss during the fourth quarter of fiscal 1995 as a
result of decreased sales levels and higher expenses due to increased sales
efforts. Corporate overhead expense increased during the quarter as a result
of the acquisition of Dowling's and Puma.
A reclassification of approximately $115,000 was made from
discontinued operations to continuing operations in the third quarter of fiscal
1995 results of operations, which related to the recovery of escrowed funds
associated with SCPI's predecessor's bankruptcy.
-F19-
<PAGE> 47
SCHEDULE II
OAKHURST COMPANY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED CHARGES TO BALANCE
BEGINNING TO COSTS OTHER ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD AND EXPENSES -DESCRIBE - DESCRIBE OF PERIOD
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts deducted
from trade accounts receivable:
Years ended:
February 29, 1996................. $ 282 $ 610 $ - $ 334 (A) $ 558
========= ========= ========== ====== =========
February 28, 1995................. $ 320 $ 27 $ - $ 65 (A) 282
========= ========= ========== ====== =========
February 26, 1994................. $ 304 $ 879 $ - $ 863 (A) 320
========= ========= ========== ====== =========
</TABLE>
(A) Amounts were deemed uncollectible.
-F20-
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2.1 Agreement and Plan of Merger dated as of May 20, 1991 (filed as Appendix A to the Proxy
Statement/Prospectus dated April 16, 1991 of the Company and Steel City Products,
Inc.).
3.1 Restated and Amended Certificate of Incorporation (filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-K for the fiscal quarter ended August 31, 1996).
3.2 By-laws (filed as Appendix C to the Proxy Statement/Prospectus of the Company and Steel
City Products, Inc. dated April 16, 1991).
4.1 Agreement and Plan of Merger dated as of May 20, 1991 (see Exhibit 2, above).
*10.1 Form of Option Agreement dated August 29, 1991 with directors and executive officers
(filed as Exhibit 10(b) to the Company's Annual report on Form 10-K for the fiscal
year ended February 29, 1992).
10.2 Agreement dated June 11, 1991 with Prudential-Bache Special Situations Fund (filed as
Exhibit 10(q) to the Annual Report on Form 10-K of Steel City Products, Inc. for the
fiscal year ended March 3, 1990).
*10.3 Employment Agreement with Harold Garfinkel dated as of November 1, 1993 (filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 26, 1994).
10.4 Agreement between Harold Garfinkel and H&H Distributors, Inc. dated as of November 1,
1993 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 26, 1994).
10.5 Credit Agreement by and between Steel City Products, Inc. and Integra Bank Pittsburgh
(filed as Exhibit 10.1 to SCPI's Quarterly Report on Form 10-Q for the period ended
August 27, 1994).
10.6 Mortgage and Security Agreement by and between Steel City Products, Inc. and Integra
Bank Pittsburgh (filed as Exhibit 10.2 to SCPI's Quarterly Report on Form 10-Q for the
period ended August 27, 1994).
10.7 Credit Agreement by and between Oakhurst Capital, Inc. and Integra Bank Pittsburgh
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period
ended August 27, 1994).
10.8 Pledge and Security agreements between Oakhurst Capital, Inc. and Integra Bank
Pittsburgh (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the period ended August 27, 1994).
10.9 Purchase and Sale Agreement relating to the acquisition of Dowling's Fleet Service
Company, Inc. by Oakhurst Capital, Inc., also containing employment agreements with
James Dowling, Robert Keane and Joseph Quattrochi (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended August 27, 1994).
*10.10 Stock Purchase Agreement dated as of October 20, 1994 among Oakhurst Capital, Inc.,
Puma Products (formerly LBI Corporation) and Anthony Puma also containing employment
agreements with Anthony Puma and Laurence Finman (filed as an exhibit to Oakhurst's
Form 8-K filed on October 26, 1994).
10.11 Lease agreements by and between James Dowling and Dowling's Fleet Service Company, Inc.
(filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1995).
10.12 Lease agreement by and between Anthony Puma and Puma Products (filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1995).
*10.13 The 1994 Omnibus Stock Plan with form of option agreement (filed as Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1995).
*10.14 The 1994 Non-Employee director Stock Option Plan with form of option agreement (filed
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1995).
10.15 Letter agreement dated January 3, 1996 between SCPI and Integra Bank Pittsburgh
amending the Credit Agreement, dated August 1, 1994 between SCPI and Integra (filed as
Exhibit 10.17 to Oakhurst's Registration Statement on Form S-1, file #333-00173, filed
on January 12, 1996).
10.16 Letter agreement dated January 3, 1996 between Oakhurst and Integra Bank Pittsburgh
amending the Credit Agreement, dated August 1, 1994 between Oakhurst and Integra (filed
as Exhibit 10.16 to Oakhurst's Registration Statement on Form S-1, file #333-00173,
filed on January 12, 1996).
10.17 Loan and Security Agreement; Schedule to Loan and Security Agreement; Secured
Promissory Note with FINOVA Capital Corporation all dated March 28, 1996 - filed
herewith.
10.18 Open-End Mortgage between Steel City Products, Inc. and FINOVA Capital Corporation
dated March 28, 1996 - filed herewith.
10.19 Consulting Agreement with Bryanston Management, Ltd, dated as of December 19, 1995 -
filed herewith.
*10.20 Consulting Agreement with Mark Auerbach dated as of December 19, 1995 and Options
Agreement with Mark Auerbach dated as of December 19, 1995 - filed herewith.
*10.21 Employment Agreement between Oakhurst Management Corporation and John R. Ruda dated as
of December 19, 1995 - filed herewith.
11 Statement of re-computation of per-share earnings - filed herewith.
22 Subsidiaries: Steel City Products, Inc.
H&H Distributors, Inc.
Dowling's Fleet Service Company, Inc.
Puma Products, Inc.
Oakhurst Management Corporation
27 Financial Data Schedule (EDGAR transmission only) - filed herewith.
</TABLE>
- -----------------
* Management contract or compensatory plan or arrangement.
<PAGE> 1
Exhibit 10.17
[LOGO - FINOVA]
LOAN AND SECURITY AGREEMENT
BORROWERS: (1) OAKHURST COMPANY, INC.
(2) STEEL CITY PRODUCTS, INC.
(3) PUMA PRODUCTS, INC.
(4) H&H DISTRIBUTORS, INC.
(5) DOWLING'S FLEET SERVICE CO., INC.
(6) OAKHURST MANAGEMENT CORPORATION
(7) OAKHURST HOLDINGS, INC.
(8) G&O SALES COMPANY
ADDRESSES: (1) 1001 SANTERRE DRIVE
GRAND PRAIRIE, TEXAS 75050
(2) 630 ALPHA DRIVE
PITTSBURGH, PENNSYLVANIA 15238
(3) 1001 SANTERRE DRIVE
GRAND PRAIRIE, TEXAS 75050
(4) 5101 BAUM BLVD.
PITTSBURGH, PENNSYLVANIA 15224
(5) 389 EAST THIRD STREET
MT. VERNON, NEW YORK 10550
(6) 1001 SANTERRE DRIVE
GRAND PRAIRIE, TEXAS 75050
(7) 3513 CONCORD PIKE, SUITE 3720
WILMINGTON, DELAWARE 19803
(8) 1522-24 FAIRMOUNT AVENUE
PHILADELPHIA, PENNSYLVANIA 19130
DATE: MARCH 28, 1996
THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated the date set forth above,
is entered into by and among the borrowers named above, jointly and severally
(individually, a "Borrower", and collectively, the "Borrowers"), whose
addresses are set forth above, and FINOVA CAPITAL CORPORATION ("FINOVA"), whose
address is 355 South Grand Avenue, Los Angeles, California 90071.
<PAGE> 2
RECITALS
WHEREAS, Puma, H&H, DFS and OMC are wholly-owned subsidiaries, and
SCPI is a majority owned subsidiary, of Oakhurst, G&O is a wholly subsidiary of
DFS, and all of the capital stock of OH is owned by SCPI, DFS, Puma and H&H,
and constitute an integrated distributor of automotive related accessories; and
WHEREAS, the directors of Oakhurst view SCPI, Puma, H&H, DFS, OMC, OH
and G&O as sufficiently dependent upon each other and so inter-related, that
any advances made by FINOVA to any of them hereunder would benefit all of the
constituent entities as a result of their consolidated operations and identity
of interests and that, to varying degree, all of the Borrowers, through OMC and
OH, rely on each other for management and financial resources; and
WHEREAS, each of the Borrowers hereunder has requested that FINOVA
treat them as co-borrowers, as a single, consolidated business enterprise,
jointly and severally responsible for the Obligations hereunder; and
WHEREAS, FINOVA is willing to proceed on the basis of treating all the
borrowing entities as a single, consolidated business enterprise and to view
their operations on a consolidated basis as requested by the Borrowers; and
WHEREAS, FINOVA is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. LOANS.
1.1 Total Facility. Upon the terms and conditions set forth herein and
provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default, shall have
occurred and be continuing, FINOVA shall, upon the Borrowers' request, make
advances to the Borrowers from time to time in an aggregate outstanding
principal amount not to exceed the Total Facility amount (the "Total Facility")
set forth on the schedule hereto (the "Schedule"), consisting of the Fixed
Asset Loan to SCPI and Revolving Loans with specified Eligible Receivables and
Eligible Inventory sublines to each of the Borrowers, subject to deduction of
reserves for accrued interest and such other reserves as FINOVA deems proper
from time to time, and less amounts FINOVA may be obligated to pay in the
future on behalf of the Borrowers. The Schedule is an integral part of this
Agreement and all references to "herein", "herewith" and words of similar
import shall for all purposes be deemed to include the Schedule.
1.2 Loans. Advances under the Total Facility ("Loans") shall be comprised
of the amounts shown on the Schedule.
1.3 Overlines. If at any time or for any reason the outstanding amount of
advances made pursuant hereto exceeds any of the dollar or percentage
limitations contained in the Schedule (any such excess, an "Overline"), then
the Borrowers shall, upon FINOVA's demand, immediately pay to FINOVA, in cash,
the full amount of such Overline. Without limiting the Borrowers' obligation
to repay to FINOVA on demand the amount of any Overline, the Borrowers agree to
pay FINOVA interest on the outstanding principal amount of any Overline, on
demand, at the rate set forth on the Schedule.
1.4 Loan Account. All advances made hereunder shall be added to and
deemed part of the Obligations when made. FINOVA may from time to time charge
all Obligations of the Borrowers to the Borrowers' loan account with FINOVA.
2. CONDITIONS PRECEDENT.
2
<PAGE> 3
2.1 Initial Advance. The obligation of FINOVA to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of FINOVA and its
counsel, of each of the following conditions on or prior to the date hereof:
(a) Loan Documents. FINOVA shall have received each of the following Loan
Documents: (i) this Agreement and the Schedule; (ii) the Fixed Asset Note in
such amount and on such terms and conditions as FINOVA shall specify, executed
by Borrowers; (iii) such Blocked Account or Dominion Account agreements as
FINOVA shall require; (iv) such security agreements, intellectual property
assignments and deeds of trust as FINOVA may require with respect to this
Agreement, executed by each of the parties thereto and, if applicable, duly
acknowledged for recording or filing in the appropriate governmental offices;
and (v) such other documents, instruments and agreements in connection herewith
as FINOVA shall require, executed, certified and/or acknowledged by such
parties as FINOVA shall designate;
(b) Terminations by Existing Lender. The Borrowers' existing secured
lenders with the exception of Permitted Encumbrances, including, but not
limited to, the term and revolving Indebtedness to Integra Bank, shall have
executed and delivered UCC termination statements and other documentation
evidencing the termination of their liens and security interests in the assets
of the Borrowers or a subordination agreement in form and substance
satisfactory to FINOVA in its sole discretion;
(c) Charter Documents. FINOVA shall have received copies of each of the
Borrowers' respective By-laws and Articles or Certificate of Incorporation, as
amended, modified, or supplemented to the Closing Date, certified by the
respective secretaries of the Borrowers;
(d) Good Standing. FINOVA shall have received a certificate of corporate
status with respect to each of the Borrowers, dated within ten (10) days of the
Closing Date, by the applicable Secretary of State of the state of
incorporation of each Borrower, which certificates shall indicate that the
applicable Borrower is in good standing in such state;
(e) Foreign Qualification. FINOVA shall have received certificates of
corporate status with respect to each of the Borrowers, each dated within ten
(10) days of the Closing Date, issued by the Secretary of State of each state
in which such party's failure to be duly qualified or licensed would have a
material adverse effect on its financial condition or assets, indicating that
such party is in good standing;
(f) Authorizing Resolutions and Incumbency. FINOVA shall have received a
certificate from the Secretary of each of the Borrowers attesting to (i) the
adoption of resolutions of each of the Borrowers' Board of Directors
authorizing the borrowing of money from FINOVA and the execution and delivery
of this Agreement and the other Loan Documents to which the Borrowers are a
party, and authorizing specific officers of the Borrowers to execute same, and
(ii) the authenticity of original specimen signatures of such officers;
(g) Property Insurance. FINOVA shall have received the insurance
certificates and certified copies of policies required by Section 4.4 hereof,
all in form and substance satisfactory to FINOVA and its counsel;
(h) Title Insurance. FINOVA shall have received binding commitments to
issue such title insurance with respect to Collateral which is comprised of
real property as it shall determine;
(i) Searches; Certificates of Title. FINOVA shall have received searches
reflecting the filing of its financing statements and fixture filings in such
jurisdictions as it shall determine, and shall have received certificates of
title with respect to the Collateral which shall have been duly executed in a
manner sufficient to perfect all of the security interests granted to FINOVA;
(j) Landlord and Mortgagee Waivers. Borrowers shall have obtained for the
benefit of FINOVA landlord and mortgagee waivers from the lessors and
mortgagees of all locations where any Collateral is located;
(k) Fees. Borrowers shall have paid all fees payable by it on the Closing
Date pursuant to this Agreement;
(l) Opinion of Counsel. FINOVA shall have received, in form and substance
satisfactory to FINOVA, the opinion letter of counsel(s) to Borrowers with
respect to this Agreement and the security interests and liens of FINOVA with
respect to the Collateral and such other matters as FINOVA may request in its
sole discretion;
3
<PAGE> 4
(m) Officer Certificate. FINOVA shall have received a certificate of the
President and the Chief Financial Officer or similar official of each Borrower,
attesting to the accuracy of each of the representations and warranties of each
Borrower set forth in this Agreement and the fulfillment of all conditions
precedent to the initial advance hereunder;
(n) Solvency Certificate. FINOVA shall have received a signed certificate
of the duly elected Chief Financial Officer of each Borrower concerning the
solvency and financial condition of each of the Borrowers, on FINOVA's standard
form;
(o) Blocked Account. The Blocked Account referred to in Section 7.3 hereof,
and such additional procedures for the submission of cash collections as FINOVA
shall require, shall have been established to the satisfaction of FINOVA in its
sole discretion;
(p) Environmental Assessment. If required by FINOVA, the Borrowers shall
have caused a Phase I Environmental Assessment to be conducted on the property
or properties owned or occupied by the Borrowers, all at the Borrowers' own
expense and the results of such assessment(s) shall have been in form and
substance satisfactory to FINOVA in its sole discretion. Such assessment(s)
shall have included, in FINOVA's discretion, core samplings, and shall have
been conducted by an environmental engineer acceptable to FINOVA;
(q) Environmental Certificate. FINOVA shall have received an Environmental
Certificate from each of the Borrowers, in form and substance satisfactory to
FINOVA in its discretion, with respect to all locations where any Collateral is
located;
(r) Material Agreements. FINOVA shall have reviewed and found satisfactory
all material agreements to which any of the Borrowers is a party, including,
without limitation, the agreements whereby Oakhurst acquired all of the issued
and outstanding capital stock of H&H, DFS and Puma, the Settlement Agreement
between James J. Dowling, former owner of DFS, and Oakhurst, and the agreements
whereby DFS acquired all of the issued and outstanding common stock of G&O;
(s) Real Property Appraisal. FINOVA shall have received, from a real estate
appraiser acceptable to it, an update to the appraisal of the real property of
SCPI located at 630 Alpha Drive, Pittsburgh, Pennsylvania 15238, in form and
substance acceptable to FINOVA, which appraisal report shall value the real
property at market in an amount sufficient, in FINOVA's determination, to
support the Fixed Asset Loan;
(t) A/R and A/P Reporting. Borrowers shall have (i) utilized their best
efforts to convert the accounts receivable and accounts payable agings of SCPI
from due date to invoice date, and (ii) converted the accounts payable aging of
Puma from due date to invoice date;
(u) Support Agreement. FINOVA shall have received a Support Agreement from
Mr. Mark Auerbach, President of Oakhurst, in form and substance satisfactory to
FINOVA; and
(v) Other Matters. All other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed or recorded and shall be in form and substance satisfactory to FINOVA
and its counsel.
2.2 Subsequent Advances. The obligation of FINOVA to make any advance shall
be subject to the further conditions precedent that, on and as of the date of
such advance:
(a) the representations and warranties of the Borrowers set forth in this
Agreement shall be accurate, before and after giving effect to such advance or
issuance and to the application of any proceeds thereof;
(b) no Event of Default and no event which, with notice or passage of time
or both, would constitute an Event of Default has occurred and is continuing,
or would result from such advance or issuance or from the application of any
proceeds thereof;
(c) no material adverse change has occurred in the business, operations,
financial condition, or assets of any Borrower or in the prospect of repayment
of the Obligations; and
(d) FINOVA shall have received such other approvals, opinions or documents
as FINOVA shall reasonably request.
3. INTEREST RATE AND OTHER CHARGES.
4
<PAGE> 5
3.1 Interest; Fees. The Borrowers shall pay FINOVA interest on the daily
outstanding balance of the Borrowers' loan account at the per annum rate set
forth on the Schedule. The Borrowers shall also pay FINOVA the fees set forth
on the Schedule.
3.2 Default Interest Rate. Upon the occurrence and during the continuation
of an Event of Default, the Borrowers shall pay FINOVA interest on the daily
outstanding balance of the Borrowers' loan account at a rate per annum which is
two (2) percentage points in excess of the rate which would otherwise be
applicable thereto pursuant to the Schedule.
3.3 Examination Fees. The Borrowers agree to pay to FINOVA an examination
fee in the amount set forth on the Schedule in connection with each audit or
examination of the Borrowers, or any of them, performed by FINOVA prior to or
after the date hereof. Without limiting the generality of the foregoing, the
Borrowers shall pay to FINOVA an initial examination fee in an amount equal to
the amount set forth on the Schedule. Such initial examination fee shall be
deemed fully earned at the time of payment and due and payable upon the closing
of this transaction, and shall be deducted from any good faith deposit paid by
the Borrowers to FINOVA prior to the date of this Agreement.
3.4 Excess Interest. The contracted for rate of interest of the loan
contemplated hereby, without limitation, shall consist of the following: (i) the
interest rate set forth on the Schedule, calculated and applied to the principal
balance of the Obligations in accordance with the provisions of this Agreement;
(ii) the Annual Cash Flow Recapture Prepayment set forth on the Schedule; (iii)
interest after an Event of Default, calculated and applied to the amount of the
Obligations in accordance with the provisions hereof; and (iv) all Additional
Sums (as herein defined), if any. The Borrowers agree to pay an effective
contracted for rate of interest which is the sum of the above-referenced
elements. The examination fees, attorneys fees, expert witness fees, collateral
monitoring fees, closing fees, facility fees, Termination Fees, Minimum Interest
Charges, other charges, goods, things in action or any other sums or things of
value paid or payable by Borrowers (collectively, the "Additional Sums"),
whether pursuant to this Agreement or any other documents or instruments in any
way pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by the Borrowers as, and shall be deemed
to be, additional interest and for such purposes only, the agreed upon and
"contracted for rate of interest" of this lending transaction shall be deemed to
be increased by the rate of interest resulting from the inclusion of the
Additional Sums.
It is the intent of the parties to comply with the usury laws of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
the Borrowers or otherwise in connection with the loan evidenced hereby, (b)
the maturity of the Obligations is accelerated in whole or in part, or (c) all
or part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither the Borrowers nor any other person or entity now or
hereafter liable for the payment of the Obligations shall be obligated to pay
the amount of such interest to the extent that it is in excess of the Maximum
Interest Rate, (3) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal amount of the
Obligations or refunded to the Borrowers, at FINOVA's option, and (4) the
effective rate of interest shall be automatically reduced to the Maximum
Interest Rate. It is further agreed, without limiting the generality of the
foregoing, that to the extent permitted by the Applicable Usury Law; (x) all
calculations of interest which are made for the purpose of determining whether
such rate would exceed the Maximum Interest Rate shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated term
of the loan evidenced hereby, all interest at any time contracted for, charged
or received from the Borrowers or otherwise in connection with such loan; and
(y) in the event that the effective rate of interest on the loan should at any
5
<PAGE> 6
time exceed the Maximum Interest Rate, such excess interest that would
otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to FINOVA from time to time, if and when the
effective interest rate on the loan otherwise falls below the Maximum Interest
Rate, to the extent that interest paid to the date of calculation does not
exceed the Maximum Interest Rate, until the entire amount of interest which
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law has been paid in full. The Borrowers further agree that
should the Maximum Interest Rate be increased at any time hereafter because of
a change in the Applicable Usury Law, then to the extent not prohibited by the
Applicable Usury Law, such increases shall apply to all indebtedness evidenced
hereby regardless of when incurred; but, again to the extent not prohibited by
the Applicable Usury Law, should the Maximum Interest Rate be decreased because
of a change in the Applicable Usury Law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
4. COLLATERAL.
4.1 Security Interest in the Collateral. To secure the payment and
performance of the Obligations when due, the Borrowers hereby grant to FINOVA a
security interest in all of their respective now owned or hereafter acquired or
arising Inventory, Equipment, Receivables, and General Intangibles, including,
without limitation, all of their respective Deposit Accounts, money, any and
all property now or at any time hereafter in FINOVA's possession (including
claims and credit balances) and all proceeds (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties), all
products and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which FINOVA may be granted a
lien or security interest, including, but not limited to, certain real property
of SCPI located in Pittsburgh, Pennsylvania, is referred to herein,
collectively, as the "Collateral").
4.2 Perfection and Protection of Security Interest. The Borrowers shall, at
their expense, take all actions requested by FINOVA at any time to perfect,
maintain, protect and enforce FINOVA's security interest and other rights in
the Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof and executing and delivering such documents and titles in
connection with motor vehicles as FINOVA shall require, all in form and
substance satisfactory to FINOVA, (ii) maintaining a perpetual inventory and
complete and accurate stock records, (iii) delivering to FINOVA warehouse
receipts covering any portion of the Collateral located in warehouses and for
which warehouse receipts are issued, and, after the occurrence of any Event of
Default, transferring Inventory to warehouses designated by FINOVA, (iv)
placing notations on the Borrowers' respective books of account to disclose
FINOVA's security interest therein, and (v) delivering to FINOVA all letters of
credit on which the Borrowers, or any of them, are named beneficiary. FINOVA
may file, without the Borrowers' signature, one or more financing statements
disclosing FINOVA's security interest under this Agreement. The Borrowers
agree that a carbon, photographic, photostatic or other reproduction of this
Agreement or of a financing statement is sufficient as a financing statement.
If any Collateral is at any time in the possession or control of any
warehouseman, bailee or any of the Borrowers' agents or processors, the
Borrowers shall notify such Person of FINOVA's security interest in such
Collateral and, upon FINOVA's request, instruct them to hold all such
Collateral for FINOVA's account subject to FINOVA's instructions. From time to
time, the Borrowers shall, upon FINOVA's request, execute and deliver
confirmatory written instruments pledging the Collateral to FINOVA, but the
Borrowers' failure to do so shall not affect or limit FINOVA's security
interest or other rights in and to the Collateral. Until the Obligations have
been fully satisfied and FINOVA's obligation to make further advances hereunder
has terminated, FINOVA's security interest in the Collateral shall continue in
full force and effect.
4.3 Preservation of Collateral. FINOVA may, in its sole discretion, at any
time discharge any lien or encumbrance on the Collateral or bond the same, pay
any insurance, maintain guards, pay any service bureau, obtain any record or
take any other action to preserve the Collateral and charge the cost thereof to
the Borrowers' loan account as an Obligation.
4.4 Insurance. Borrowers will maintain and deliver evidence to FINOVA of
such insurance as is required by FINOVA, written by insurers, in amounts, and
with lender's loss payee and other endorsements, satisfactory to FINOVA. All
premiums with respect to such insurance shall be paid
6
<PAGE> 7
by Borrowers as and when due. Accurate and complete copies of the policies
shall be delivered by Borrowers to FINOVA. If a Borrower fails to comply with
this Section, FINOVA may (but shall not be required to) procure such insurance
at such Borrower's expense and charge the cost thereof to Borrowers' loan
account as an Obligation.
5. EXAMINATION OF RECORDS; FINANCIAL REPORTING.
5.1 Examinations. FINOVA shall at all reasonable times have full access to
and the right to examine, audit, make abstracts and copies from and inspect the
Borrowers' respective records, files, books of account and all other documents,
instruments and agreements relating to the Collateral and the right to check,
test and appraise the Collateral. The Borrowers shall deliver to FINOVA any
instrument necessary for FINOVA to obtain records from any service bureau
maintaining records for the Borrowers. All instruments and certificates
prepared by the Borrowers showing the value of any of the Collateral shall be
accompanied, upon FINOVA's request, by copies of related purchase orders and
invoices. FINOVA may, at any time after the occurrence of an Event of Default,
remove from the Borrowers' premises the Borrowers' respective books and records
(or copies thereof) or require the Borrowers to deliver such books and records
or copies to FINOVA. FINOVA may, without expense to FINOVA, use such of the
Borrowers' respective personnel, supplies and premises as may be reasonably
necessary for maintaining or enforcing FINOVA's security interest.
5.2 Reporting Requirements. The Borrowers shall furnish FINOVA, upon
request, such information and statements as FINOVA shall request from time to
time regarding the business affairs, financial condition and the results of its
operations of each of the Borrowers. Without limiting the generality of the
foregoing, each Borrower shall provide FINOVA with (i) copies of sales journals
or invoice registers, cash receipts journals, deposit slips and FINOVA's
standard-form collateral and loan report, daily; (ii) upon FINOVA's request,
copies of sales invoices, customer statements and credit memoranda issued,
remittance advices and reports; (iii) copies of shipping and delivery
documents, upon request; (iv) on or prior to the date set forth on the
Schedule, monthly agings and reconciliations of Receivables, payables reports,
inventory reports and unaudited financial statements with respect to the prior
month prepared on a basis consistent with such statements prepared in prior
months and otherwise in accordance with GAAP; (v) audited annual consolidated
and consolidating financial statements, prepared in accordance with GAAP
applied on a basis consistent with the most recent Prepared Financials provided
to FINOVA by Borrowers including balance sheets, income and cash flow
statements, accompanied by the unqualified report thereon of independent
certified public accountants acceptable to FINOVA, as soon as available, and in
any event, within one hundred twenty (120) days after the end of each of
Borrowers' fiscal years; and (vi) such certificates relating to the foregoing
as FINOVA may request, including, without limitation, a monthly certificate
from the president and the chief financial officer of each Borrower showing
such Borrower's compliance with each of the financial covenants set forth in
this Agreement, and stating whether any Event of Default has occurred or event
which, with giving of notice or the passage of time, or both, would constitute
an Event of Default, and if so, the steps being taken to prevent or cure such
Event of Default.
6. COLLATERAL REPORTING; INVENTORY.
6.1 Invoices. The Borrowers shall not re-date any invoice or sale from the
original date thereof or make sales on extended terms beyond those customary in
the Borrowers' industry, or otherwise extend or modify the term of any
Receivable. If the Borrowers, or any of them, become aware of any matter
affecting any Receivable, including information affecting the credit of the
account debtor thereon, the Borrowers shall promptly notify FINOVA in writing.
6.2 Instruments. In the event any Receivable is or becomes evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, the Borrowers shall immediately deliver such instrument to FINOVA
appropriately endorsed to FINOVA and, regardless of the form of any
presentment, demand, notice of dishonor, protest or notice of protest with
respect thereto, the Borrowers shall remain liable thereon until such
instrument is paid in full.
6.3 Physical Inventory. Borrowers shall conduct a physical count of the
Inventory at such intervals as FINOVA requests, but in all events no less than
once
7
<PAGE> 8
per year, and promptly supply FINOVA with a copy of such accounts accompanied
by a report of the value (calculated at the lower of cost or market value on a
first in, first out basis) of the Inventory and such additional information
with respect to the Inventory as FINOVA may request from time to time.
6.4 Returns. For so long as no Event of Default has occurred and is
continuing and subject to the provisions of Section 9.2, if any account debtor
returns any Inventory to the Borrowers in the ordinary course of their
respective businesses, the Borrowers shall promptly determine the reason for
such return and promptly issue a credit memorandum to the account debtor
(sending a copy to FINOVA if requested) in the appropriate amount. In the
event any attempted return occurs after the occurrence of any Event of Default,
the Borrowers shall (i) hold the returned Inventory in trust for FINOVA, (ii)
segregate all returned Inventory from all of the Borrowers' other property,
(iii) conspicuously label the returned Inventory as FINOVA's property, and (iv)
immediately notify FINOVA of the return of any Inventory, specifying the reason
for such return, the location and condition of the returned Inventory, and on
FINOVA's request deliver such returned Inventory to FINOVA. The Borrowers
shall not consign any Inventory in excess of Twenty-five Thousand Dollars
($25,000) consigned at any one time. The Borrowers shall notify FINOVA in
writing of the location and amount of any consigned Inventory.
7. PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL.
7.1 Principal Payments. Except where evidenced by notes or other
instruments, if any, issued or made by the Borrowers to FINOVA specifically
containing payment provisions which are in conflict with this Section 7.1 (in
which event the conflicting provisions of said notes or other instruments shall
govern and control), that portion of the Obligations consisting of principal
payable on account of Receivable Loans and Inventory Loans (if any) shall be
payable by the Borrowers to FINOVA immediately upon the earliest of (i) the
receipt by FINOVA or the Borrowers of any proceeds of any of the Collateral, to
the extent of said proceeds, (ii) the occurrence of an Event of Default in
consequence of which FINOVA elects to accelerate the maturity and payment of
such loans, or (iii) any termination of this Agreement pursuant to Section 16
hereof; provided, however, that any Overline shall be payable on demand
pursuant to the provisions of Section 1.3 hereof.
7.2 Collections. Until FINOVA notifies the Borrowers to the contrary, the
Borrowers may make collection of all Receivables for FINOVA and shall receive
all payments as trustee of FINOVA and immediately deliver all payments to
FINOVA in their original form as set forth below, duly endorsed in blank.
After the occurrence of any Event of Default, FINOVA or its designee may, at
any time, notify account debtors that the Receivables have been assigned to
FINOVA and of FINOVA's security interest therein, and may collect the
Receivables directly and charge the collection costs and expenses to the
Borrowers' loan account. The Borrowers agree that, in computing the charges
under this Agreement (and not for the purpose of determining borrowing
availability), all items of payment shall be deemed applied by FINOVA on
account of the Obligations two (2) Business Days after receipt by FINOVA of
good funds which have been finally credited to FINOVA's account, whether such
funds are received directly from the Borrowers or from the Blocked Account bank
or the Dominion Account bank, pursuant to Section 7.3 hereof, and this
provision shall apply regardless of the amount of the Obligations outstanding
or whether any Obligations are outstanding. FINOVA is not, however, required
to credit the Borrowers' account for the amount of any item of payment which is
unsatisfactory to FINOVA in its sole discretion and FINOVA may charge the
Borrowers' loan account for the amount of any item of payment which is returned
to FINOVA unpaid.
7.3 Establishment of a Lockbox Account or Dominion Account. All proceeds of
Collateral shall, at the direction of FINOVA, be deposited by the Borrowers
into a lockbox account, or such other "blocked account" as FINOVA may require
(each, a "Blocked Account") pursuant to an arrangement with such bank as may be
selected by the Borrowers and be acceptable to FINOVA. The Borrowers shall
issue to any such bank an irrevocable letter of instruction directing said bank
to transfer such funds so deposited to FINOVA, either to any account maintained
by FINOVA at said bank or by wire transfer to appropriate account(s) of FINOVA.
All funds deposited in a Blocked Account shall immediately become the sole
property of FINOVA and the Borrowers shall obtain the agreement by such bank to
waive any offset rights against the funds so deposited. FINOVA assumes no
responsibility for any Blocked
8
<PAGE> 9
Account arrangement, including without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, FINOVA may establish depository accounts in the
name of FINOVA at a bank or banks for the deposit of such funds (each, a
"Dominion Account") and the Borrowers shall deposit all proceeds of Receivables
and all cash proceeds of any sale of Inventory or, to the extent permitted
herein, Equipment or cause same to be deposited, in kind, in such Dominion
Accounts of FINOVA in lieu of depositing same to Blocked Accounts.
7.4 Payments Without Deductions. The Borrowers shall pay principal,
interest, and all other amounts payable hereunder, or under any related
agreement, without any deduction whatsoever, including, but not limited to, any
deduction for any setoff or counterclaim.
7.5 Collection Days Upon Repayment. In the event the Borrowers repay the
Obligations in full at any time hereafter, such payment in full shall be
credited (conditioned upon final collection) to the Borrowers' loan account two
(2) Business Days after FINOVA's receipt thereof.
7.6 Monthly Accountings. FINOVA shall provide the Borrowers monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on the
Borrowers and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by FINOVA), unless the
Borrowers notify FINOVA in writing to the contrary within forty-five (45) days
after each account is rendered, describing the nature of any alleged errors or
admissions.
8. POWER OF ATTORNEY.
The Borrowers appoint FINOVA and its designees as the Borrowers' attorney, with
the power to endorse the Borrowers' name on any checks, notes, acceptances,
money orders or other forms of payment or security that come into FINOVA's
possession; to sign the Borrowers' name on any invoice or bill of lading
relating to any Receivable, on drafts against customers, on assignments of
Receivables, on notices of assignment, financing statements and other public
records, on verifications of accounts and on notices to customers or account
debtors; to send requests for verification of Receivables to customers or
account debtors; after the occurrence of any Event of Default, to notify the
post office authorities to change the address for delivery of the Borrowers'
mail to an address designated by FINOVA and to open and dispose of all mail
addressed to the Borrowers; and to do all other things FINOVA deems necessary
or desirable to carry out the terms of this Agreement. The Borrowers hereby
ratify and approve all acts of such attorney. Neither FINOVA nor any of its
designees shall be liable for any acts or omissions nor for any error of
judgment or mistake of fact or law while acting as the Borrowers' attorney.
This power, being coupled with an interest, is irrevocable until the
Obligations have been fully satisfied and FINOVA's obligation to provide loans
hereunder shall have terminated.
9. RECEIVABLES.
9.1 Eligibility. The Borrowers represent and warrant that each Receivable
covers and shall cover a bona fide sale or lease and delivery by them of goods
or the rendition by them of services in the ordinary course of their business,
and shall be for a liquidated amount and FINOVA's security interest shall not
be subject to any offset, deduction, counterclaim, rights of return or
cancellation, lien or other condition. If any representation or warranty
herein is breached as to any Receivable or any Receivable ceases to be an
Eligible Receivable for any reason other than payment thereof, then FINOVA may,
in addition to its other rights hereunder, designate any and all Receivables
owing by that account debtor as not Eligible Receivables; provided, that FINOVA
shall in any such event retain its security interest in all Receivables,
whether or not Eligible Receivables, until the Obligations have been fully
satisfied and FINOVA's obligation to provide loans hereunder has terminated.
9.2 Disputes. The Borrowers shall notify FINOVA promptly of all disputes or
claims and settle or adjust such disputes or claims at no expense to FINOVA,
but no discount, credit or allowance shall be granted to any account debtor and
no returns of merchandise shall be accepted by the Borrowers without FINOVA's
consent, except for discounts, credits and allowances made or given in the
ordinary course of the Borrowers' respective businesses. FINOVA may, at any
time after the occurrence of an Event of Default, settle or adjust disputes or
claims directly with account debtors for amounts and upon terms which FINOVA
considers advisable in its
9
<PAGE> 10
reasonable credit judgment and, in all cases, FINOVA shall credit the
Borrowers' loan account with only the net amounts received by FINOVA in payment
of any Receivables.
10. EQUIPMENT.
The Borrowers shall keep and maintain the Equipment in good operating condition
and repair and make all necessary replacements thereto to maintain and preserve
the value and operating efficiency thereof at all times consistent with the
Borrowers' respective past practices, ordinary wear and tear excepted. With
the exception of SCPI for its owned real property, the Borrowers shall not
permit any item of Equipment to become a fixture (other than a trade fixture)
to real estate or an accession to other property.
11. OTHER LIENS; NO DISPOSITION OF COLLATERAL.
The Borrowers represent, warrant and covenant that (a) all Collateral is and
shall continue to be owned by it free and clear of all liens, claims and
encumbrances whatsoever (except for FINOVA's security interest, Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by FINOVA in its sole discretion from time to time in writing), and (b) the
Borrowers shall not, without FINOVA's prior written approval, sell, encumber or
dispose of or permit the sale, encumbrance or disposal of any Collateral or any
interest of the Borrowers therein, except for the sale of Inventory in the
ordinary course of the Borrowers' respective businesses. In the event FINOVA
gives any such prior written approval, the same may be conditioned on the sale
price being equal to, or greater than, an amount acceptable to FINOVA. The
proceeds of any such sales shall be remitted to FINOVA pursuant to this
Agreement for application to the Obligations.
12. GENERAL REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers represents and warrants that:
12.1 Due Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the State set forth on the Schedule, is
qualified and authorized to do business and is in good standing in all states
in which such qualification and good standing are necessary in order for it to
conduct its business and own its property, and has all requisite power and
authority to conduct its business as presently conducted, to own its property
and to execute and deliver each of the Loan Documents to which it is a party
and perform all of its Obligations thereunder, and has not taken any steps to
wind-up, dissolve or otherwise liquidate its assets;
12.2 Other Names. Except as set forth on Schedule 12.2, it has not, during
the preceding five (5) years, been known by or used any other corporate or
fictitious name except as set forth on the Schedule, nor has it been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any person during such time;
12.3 Due Authorization. Its execution, delivery and performance of the Loan
Documents to which it is a party have been authorized by all necessary
corporate action and do not and shall not constitute a violation of any
applicable law or of its Articles or Certificate of Incorporation or By-Laws or
any other document, agreement or instrument to which it is a party or by which
it or its assets are bound;
12.4 Binding Obligation. Each of the Loan Documents to which it is a party
is the legal, valid and binding obligation of such Borrower enforceable against
such Borrower in accordance with its terms;
12.5 Intangible Property. It possesses adequate assets, licenses, patents,
patent applications, copyrights, trademarks, trademark applications and trade
names for the present and planned future conduct of its business without any
known conflict with the rights of others, and each is valid;
12.6 Capital. It has capital sufficient to conduct its business, is able to
pay its debts as they mature and owns property having a fair salable value
greater than the amount required to pay all of its debts (including contingent
debts);
12.7 Material Litigation. It has no pending or overtly threatened
litigation, actions or proceedings which would materially and adversely affect
its business, assets, operations, prospects or condition, financial or
otherwise, or the Collateral or any of FINOVA's interests therein;
12.8 Title; Security Interests of FINOVA. It has good, indefeasible and
merchantable title to the Collateral owned by such Borrower and, upon the
10
<PAGE> 11
filing of UCC-1 Financing Statements and the recording of any mortgages or
deeds of trust with respect to real property, in each case in the appropriate
offices, this Agreement and such documents shall create valid and perfected
first priority liens in the Collateral, subject only to Permitted Encumbrances;
12.9 Restrictive Agreements; Labor Contracts. It is not a party or subject
to any contract or subject to any charge, corporate restriction, judgment,
decree or order materially and adversely affecting its business, assets,
operations, prospects or condition, financial or otherwise, or which restricts
its right or ability to incur Indebtedness, and it is not party to any labor
dispute. In addition, no labor contract is scheduled to expire during the
Initial Term of this Agreement, except as disclosed to FINOVA in writing prior
to the date hereof;
12.10 Laws. It is not in violation of any applicable statute, regulation,
ordinance or any order of any court, tribunal or governmental agency, in any
respect materially and adversely affecting the Collateral or its business,
assets, operations, prospects or condition, financial or otherwise;
12.11 Consents. It has obtained or caused to be obtained or issued any
required consent of a governmental agency or other Person in connection with
the financing contemplated hereby;
12.12 Defaults. It is not in default with respect to any note, indenture,
loan agreement, mortgage, lease, deed or other agreement to which it is a party
or by which it or its assets are bound, nor has any event occurred which, with
the giving of notice or the lapse of time, or both, would cause such a default;
12.13 Financial Condition. The Prepared Financials fairly present the
Borrowers' financial condition and results of operations and those of such
other Persons described therein as of the date thereof; there are no material
omissions from the Prepared Financials or other facts or circumstances not
reflected in the Prepared Financials; and there has been no material and
adverse change in such financial condition or operations since the date of the
initial Prepared Financials delivered to FINOVA hereunder;
12.14 ERISA. None of the Borrowers, any ERISA Affiliate, or any Plan is or
has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a) or any of the published
interpretations thereunder, nor have any of the Borrowers or any ERISA
Affiliate received any notice to such effect. No notice of intent to terminate
a Plan has been filed under Section 4041 of ERISA, nor has any Plan been
terminated under ERISA. The PBGC has not instituted proceedings to terminate,
or appointed a trustee to administer, a Plan. No lien upon the assets of the
Borrowers has arisen with respect to a Plan. No prohibited transaction or
Reportable Event has occurred with respect to a Plan. Neither the Borrowers
nor any ERISA Affiliate has incurred any withdrawal liability with respect to
any Multiemployer Plan. The Borrowers and each ERISA Affiliate have made all
contributions required to be made by them to any Plan or Multiemployer Plan
when due. There is no accumulated funding deficiency in any Plan, whether or
not waived;
12.15 Taxes. The Borrowers have filed all tax returns and such other reports
as they are required by law to file and have paid or made adequate provision
for the payment on or prior to the date when due of all taxes, assessments and
similar charges that are due and payable;
12.16 Locations. The Borrowers' chief executive office and the offices and
locations where the Borrowers keep the Collateral (except for Inventory in
transit) are at the locations set forth on the Schedule, except to the extent
that such locations may have been changed after notice to FINOVA in accordance
with Section 13.5 below;
12.17 Business Relationships. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between the Borrowers and any customer or any group
of customers whose purchases individually or in the aggregate are material to
the respective businesses of the Borrowers, or with any material supplier, and
there exists no present condition or state of facts or circumstances which
would materially and adversely affect the Borrowers or prevent the Borrowers
from conducting such business after the consummation of the transactions
contemplated by this Agreement in substantially the same manner in which it has
heretofore been conducted;
11
<PAGE> 12
12.18 Capitalization
(a) All of the issued and outstanding shares of the capital stock of Puma, H&H,
DFS and OMC, and approximately ninety percent (90%) of the issued and
outstanding shares of the capital stock of SCPI, are directly and beneficially
owned and held by Oakhurst, all of the issued and outstanding shares of the
capital stock of G&O are directly and beneficially owned and held by DFS, and
all of the issued and outstanding shares of the capital stock of OH are directly
and beneficially held by certain subsidiaries of Oakhurst in the percentages set
forth in the definition of "OH" below, and all of such shares have been duly
authorized and are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed in writing to
FINOVA;
(b) Each Borrower is solvent and will continue to be solvent after the creation
of the Obligations, the security interests of FINOVA and the other transaction
contemplated hereunder, is able to pay its debts as they mature and has (and has
reason to believe it will continue to have) to carry on its business and all
businesses in which it is about to engage. The assets and properties of each
Borrower at a fair valuation and at their present fair salable value are, and
will be, greater than the Indebtedness of such Borrower, and including
subordinated and contingent liabilities computed at the amount which, to the
best of such Borrower's knowledge, represents an amount which can reasonably be
expected to become an actual or matured liability; and
12.19 Reaffirmations. Each request for a loan made by the Borrowers pursuant
to this Agreement shall constitute (i) an automatic representation and warranty
by the Borrowers to FINOVA that there does not then exist any Event of Default
and (ii) a reaffirmation as of the date of said request of all of the
representations and warranties of the Borrowers contained in this Agreement and
the other Loan Documents.
13. AFFIRMATIVE COVENANTS.
The Borrowers covenant that, so long as any Obligation remains outstanding and
this Agreement is in effect, they shall:
13.1 Expenses. Promptly reimburse FINOVA for all costs, fees and expenses
incurred by FINOVA in connection with the negotiation, preparation, execution,
delivery, administration and enforcement of each of the Loan Documents,
including, but not limited to, the attorneys' and paralegals' fees of in-house
and outside counsel, expert witness fees, lien, title search and insurance fees,
appraisal fees, all charges and expenses incurred in connection with any and all
environmental reports and environmental remediation activities, and all other
costs, expenses, taxes and filing or recording fees payable in connection with
the transactions contemplated by this Agreement, including without limitation
all such costs, fees and expenses as FINOVA shall incur or for which FINOVA
shall become obligated in connection with (i) any inspection or verification of
the Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and FINOVA's
security interest therein, including, without limitation, the defense or
prosecution of any action involving FINOVA and the Borrowers or any third party,
(iv) enforcement of any of FINOVA's rights and remedies with respect to the
Obligations or Collateral, and (v) consultation with FINOVA's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed. The
Borrowers shall also pay all FINOVA charges in connection with bank wire
transfers, forwarding of loan proceeds, deposits of checks and other items of
payment, returned checks, establishment and maintenance of lockboxes and other
Blocked Accounts, and all other bank and administrative matters, in accordance
with FINOVA's schedule of bank and administrative fees and charges in effect
from time to time;
13.2 Taxes. File all tax returns and pay or make adequate provision for the
payment of all taxes, assessments and other charges on or prior to the date
when due;
13.3 Notice of Litigation. Promptly notify FINOVA in writing of any
litigation, suit or administrative proceeding which may materially and
adversely affect the Collateral or the Borrowers' respective businesses,
assets, operations, prospects or condition, financial or otherwise, whether or
not the claim is covered by insurance;
13.4 ERISA. Notify FINOVA in writing (i) promptly upon the occurrence of any
event described in Paragraph 4043 of ERISA, other than a
12
<PAGE> 13
termination, partial termination or merger of a Plan or a transfer of a Plan's
assets and (ii) prior to any termination, partial termination or merger of a
Plan or a transfer of a Plan's assets;
13.5 Change in Location. Notify FINOVA in writing forty-five (45) days prior
to any change in the location of the Borrowers' chief executive office or the
location of any Collateral, or the Borrowers', or any of their, opening or
closing of any other place of business;
13.6 Corporate Existence. Maintain their respective corporate existences and
their respective qualifications to do business and good standing in all states
necessary for the conduct of their respective businesses and the ownership of
their respective property and maintain adequate assets, licenses, patents,
copyrights, trademarks and trade names for the conduct of their respective
businesses;
13.7 Labor Disputes. Promptly notify FINOVA in writing of any labor dispute
to which any Borrower is or may become subject and the expiration of any
collective bargaining agreements to which any Borrower is a party or bound;
13.8 Violations of Law. Promptly notify FINOVA in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to any Borrower, which may materially and
adversely affect the Collateral or the Borrowers' respective businesses,
assets, prospects, operations or condition, financial or otherwise;
13.9 Defaults. Notify FINOVA in writing within five (5) Business Days of any
Borrower's default under any material note, indenture, loan agreement,
mortgage, lease or other agreement to which the Borrowers, or any of them, are
a party or by which the Borrowers, or any of them, are bound, or of any other
default under any Indebtedness of Borrowers or any of them;
13.10 Capital Expenditures. Promptly notify FINOVA in writing of the making
of any Capital Expenditure materially affecting any of the Borrowers'
respective businesses, assets, prospects, operations or condition, financial or
otherwise;
13.11 Books and Records. Keep adequate records and books of account with
respect to their respective business activities in which proper entries are
made in accordance with GAAP, reflecting all of its financial transactions;
13.12 Leases; Warehouse Agreements. Provide FINOVA with (i) copies of all
agreements between the Borrowers, or any of them, and any landlord or
warehouseman which owns any premises at which any Collateral may, from time to
time, be located, and (ii) without limiting the landlord and mortgagee waivers
to be provided pursuant to Section 2.1(j) above, landlord and mortgagee waivers
in form acceptable to FINOVA with respect to all locations where any of
Collateral is hereafter located;
13.13 Additional Documents. At FINOVA's request, promptly execute or cause to
be executed and delivered to FINOVA any and all documents, instruments or
agreements deemed necessary by FINOVA to facilitate the collection of the
Obligations or the Collateral or otherwise to give effect to or carry out the
terms or intent of this Agreement or any of the other Loan Documents. Without
limiting the generality of the foregoing, if any of the Receivables with a face
value in excess of $1,000.00 arises out of a contract with the United States of
America or any department, agency, subdivision or instrumentality thereof, the
Borrowers shall promptly notify FINOVA of such fact in writing and shall
execute any instruments and take any other action required or requested by
FINOVA to comply with the provisions of the Federal Assignment of Claims Act;
and
13.14 Financial Covenants. Comply with the financial covenants set forth on
the Schedule.
14. NEGATIVE COVENANTS.
Without FINOVA's prior written consent, which consent FINOVA may withhold in
its sole discretion, so long as any Obligation remains outstanding and this
Agreement is in effect, the Borrowers shall not:
14.1 Mergers. Merge or consolidate with or acquire any other Person, or make
any other material change in their respective capital structures or in their
respective businesses or operations which might adversely affect the repayment
of the Obligations;
14.2 Loans. Except as set forth on the Schedule, make advances, loans or
extensions of credit to, or invest in, any Person;
14.3 Dividends. Except as set forth on the Schedule, declare or pay cash
dividends upon any of
13
<PAGE> 14
their stock or distribute any of their property or redeem, retire, purchase or
acquire directly or indirectly any of their stock;
14.4 Adverse Transactions. Enter into any transaction which materially and
adversely affects the Collateral or their ability to repay the Obligations in
full as and when due;
14.5 Indebtedness of Others. Become directly or contingently liable for the
Indebtedness of any Person, except by endorsement of instruments for deposit,
except for Indebtedness of the other Borrowers pursuant to this Agreement;
14.6 Repurchase. Except as set forth in Section 6.4, make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on
approval, consignment, or any other repurchase or return basis;
14.7 Name. Use any corporate or fictitious name other than its corporate
name as set forth in its Articles or Certificate of Incorporation on the date
hereof or as set forth on the Schedule;
14.8 Prepayment. Prepay any Indebtedness other than trade payables and other
than the Obligations;
14.9 Capital Expenditure. Make or incur any Capital Expenditure if, after
giving effect thereto, the aggregate amount of all Capital Expenditures by the
Borrowers in any fiscal year would exceed the amount set forth on the Schedule;
14.10 Compensation. Pay total compensation, including salaries, withdrawals,
fees, bonuses, commissions, drawing accounts and other payments, whether
directly or indirectly, in money or otherwise, except as set forth on the
Schedule, during any fiscal year to all of the Borrowers' executives, officers
and directors (or any relative thereof) in an amount in excess of the amount
set forth on the Schedule;
14.11 Indebtedness. Create, incur, assume or permit to exist any Indebtedness
(including Indebtedness in connection with Capital Leases) in excess of the
amount set forth on the Schedule, other than (i) the Obligations; (ii) trade
payables and other contractual obligations to suppliers and customers incurred
in the ordinary course of business; (iii) other Indebtedness existing on the
date of this Agreement and reflected in the Prepared Financials (except
Indebtedness paid on the date of this Agreement from proceeds of the initial
advances hereunder); (iv) Indebtedness in the approximate amount of One Hundred
Five Thousand Dollars ($105,000) incurred or to be incurred by DFS in acquiring
all of the issued and outstanding capital stock of G&O and Indebtedness in the
amount of approximately Three Hundred and Fifteen Thousand Dollars ($315,000)
pursuant to a non-competition agreement entered into between G&O, DFS and the
seller of the capital stock of G&O; and (v) additional Indebtedness permitted
by this Agreement.
14.12 Affiliate Transactions. Except as set forth below, sell, transfer,
distribute or pay any money or property to any Affiliate, or invest in (by
capital contribution or otherwise) or purchase or repurchase any stock or
Indebtedness, or any property, of any Affiliate, or become liable on any
guaranty of the indebtedness, dividends or other obligations of any Affiliate.
Notwithstanding the foregoing, the Borrowers may pay compensation permitted by
Section 14.10 to employees who are Affiliates and, if no Event of Default has
occurred, the Borrowers may engage in transactions with Affiliates in the
normal course of business, in amounts and upon terms which are fully disclosed
to FINOVA and which are no less favorable to the Borrowers than would be
obtainable in a comparable arm's length transaction with a Person who is not an
Affiliate;
14.13 Nature of Business. Enter into any new business or make any material
change in any of the Borrowers' respective business objectives, purposes or
operations;
14.14 FINOVA's Name. Use the name of FINOVA in connection with any of the
Borrowers' respective businesses or activities, except in connection with
internal business matters or as required in dealings with governmental agencies
and financial institutions or with trade creditors of the Borrowers, solely for
credit reference purposes; or
14.15 Margin Security. Own, purchase or acquire (or enter into any contract
to purchase or acquire) any "margin security" as defined by any regulation of
the Federal Reserve Board as now in effect or as the same may hereafter be in
effect.
15. ENVIRONMENTAL MATTERS.
15.1 Definitions. The following definitions apply to the provisions of this
Section 15:
14
<PAGE> 15
(a) the term "Applicable Law" shall include, but shall not be limited to,
each statute named or referred to in this Section 15.1 and all rules and
regulations thereunder, and any other local, state and/or federal laws, rules,
regulations or ordinances, whether currently in existence or hereafter enacted,
which govern, to the extent applicable to the Property or to the Borrowers, (i)
the existence, cleanup and/or remedy of contamination on real property; (ii)
the protection of the environment from soil, air or water pollution, or from
spilled, deposited or otherwise emplaced contamination; (iii) the emission or
discharge of hazardous substances into the environment; (iv) the control of
hazardous wastes; or (v) the use, generation, transport, treatment, removal or
recovery of Hazardous Substances;
(b) The term "Hazardous Substance" shall mean (i) any oil, flammable
substance, explosives, radioactive materials, hazardous wastes or substances,
toxic wastes or substances or any other wastes, materials or pollutants which
either pose a hazard to the Property or to persons on or about the Property or
cause the Property to be in violation of any Applicable Law; (ii) asbestos in
any form which is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment which contain dielectric fluid containing
levels of polychlorinated biphenyls, or radon gas; (iii) any chemical, material
or substance defined as or included in the definition of "hazardous
substances," "waste," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," or "toxic substances" or words
of similar import under any Applicable Law, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 USC Section Section 9601 et seq.; the Resource Conservation and
Recovery Act ("RCRA"), 42 USC Section Section 6901 et seq.; (iv) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority which may or could pose a hazard to the
health or safety of the occupants of the Property or the owners and/or
occupants of property adjacent to or surrounding the Property, or any other
person coming upon the Property or adjacent property; and (v) any other
chemical, materials or substance which may or could pose a hazard to the
environment; and
(c) the term "Property" shall mean all real property, wherever located, in
which any Borrower or any Affiliate of any Borrower has any right, title or
interest, whether now existing or hereafter arising, and including, without
limitation, as owner, lessor or lessee.
15.2 Covenants and Representations.
(a) The Borrowers represent and warrant that there have not been during the
period of the Borrowers' possession of any interest in the Property and, to the
best of their knowledge after reasonable inquiry, there have not been at any
other times, any activities on the Property involving, directly or indirectly,
the use, generation, treatment, storage or disposal of any Hazardous Substances
except in compliance with Applicable Law (i) under, on or in the land included
in the Property, whether contained in soil, tanks, sumps, ponds, lagoons,
barrels, cans or other containments, structures or equipment, (ii) incorporated
in the buildings, structures or improvements included in the Property,
including any building material containing asbestos, or (iii) used in
connection with any operations on or in the Property.
(b) Without limiting the generality of the foregoing and to the extent not
included within the scope of this Section 15.2, the Borrowers represent and
warrant that they are in full compliance with Applicable Law and have received
no notice from any person or any governmental agency or other entity of any
violation by the Borrowers, or any of them, or by any of their Affiliates of
any Applicable Law.
(c) The Borrowers shall be solely responsible for and agree to indemnify
FINOVA, protect and defend FINOVA with counsel reasonably acceptable to FINOVA,
and hold FINOVA harmless from and against any claims, actions, administrative
proceedings, judgments, damages, punitive damages, penalties, fines, costs,
liabilities (including sums paid in settlements of claims), interest or losses,
attorneys' fees (including any fees and expenses incurred in enforcing this
indemnity), consultant fees, expert fees, and other out-of-pocket costs or
expenses actually incurred by FINOVA (collectively, the "Environmental Costs"),
that may, at any time or from time to time, arise directly or indirectly from
or in connection with: (i) the presence, suspected presence, release or
suspected release of any Hazardous Substance whether into the air, soil,
surface water or groundwater of or at the Property, or any other violation of
Applicable Law, or (ii) any breach of the foregoing representations and
covenants; except to the extent any of the foregoing result from the actions of
FINOVA, its employees, agents and
15
<PAGE> 16
representatives. All Environmental Costs incurred or advanced by FINOVA shall
be deemed to be made by FINOVA in good faith and shall constitute Obligations
hereunder.
16. TERM; TERMINATION.
16.1 Term. The initial term of this Agreement shall be as set forth on the
Schedule (the "Initial Term") and shall be automatically renewed for successive
periods of one (1) year (each, a "Renewal Term"), unless earlier terminated as
provided herein.
16.2 Prior Notice. Each party shall have the right to terminate this
Agreement at the end of the Initial Term or at the end of any Renewal Term by
giving the other party written notice not less than sixty (60) days prior to
the effective date of such termination, by registered or certified mail.
16.3 Payment in Full. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
16.4 Early Termination; Termination Fee. In addition to the procedure set
forth in Section 16.2, the Borrowers may terminate this Agreement at any time
but only upon sixty (60) days' prior written notice and prepayment of the
Obligations. Upon any such early termination by the Borrowers or any
termination of this Agreement by FINOVA upon the occurrence of an Event of
Default, then, and in any such event, the Borrowers shall pay to FINOVA upon
the effective date of such termination a fee (the "Termination Fee") in an
amount equal to the amount shown on the Schedule.
17. DEFAULT.
17.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(a) The Borrowers fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(b) Any of the Borrowers or any other Loan Party fails or neglects to
perform, keep, or observe any Obligation including, but not limited to, any
term, provision, condition, covenant or agreement contained in any Loan
Document to which the Borrowers or such other Loan Party is a party;
(c) Any material adverse change occurs in the business, assets, operations,
prospects or condition, financial or otherwise, of any of the Borrowers;
(d) The prospect of repayment of any portion of the Obligations or the value
or priority of FINOVA's security interest in the Collateral is materially
impaired;
(e) Any material portion of any of the Borrowers' assets is seized,
attached, subjected to a writ or distress warrant, is levied upon or comes into
the possession of any judicial officer;
(f) Any of the Borrowers shall generally not pay its debts as they become
due or shall enter into any agreement (whether written or oral), or offer to
enter into any agreement, with all or a significant number of its creditors
regarding any moratorium or other indulgence with respect to its debts or the
participation of such creditors or their representatives in the supervision,
management or control of the business of such Borrower;
(g) Any bankruptcy or other insolvency proceeding is commenced by any of the
Borrowers, or any such proceeding is commenced against any of the Borrowers and
remains undischarged or unstayed for forty-five (45) days;
(h) Any notice of lien, levy or assessment is filed of record with respect
to any of the Borrowers' assets other than in respect of Permitted
Encumbrances;
(i) Any judgments are entered against any of the Borrowers in an aggregate
amount exceeding Twenty-Five Thousand Dollars ($25,000);
(j) Any default shall occur under any material agreement between any of the
Borrowers and any third party including, without limitation, any default which
would result in a right by such third party to accelerate the maturity of any
Indebtedness of such Borrower to such third party;
(k) Any representation or warranty made or deemed to be made by any of the
Borrowers, any Affiliate of any of the Borrowers or any other Loan Party in any
Loan Document or any other statement, document or report made or delivered to
FINOVA in connection therewith shall prove to have been misleading in any
material respect;
16
<PAGE> 17
(l) The Validator dies, or terminates or attempts to terminate his Support
Agreement or becomes subject to any bankruptcy or other insolvency proceeding
and any such incident is not cured through a replacement Validator acceptable
to FINOVA within one hundred and twenty (120) days of the occurrence of any
such incident;
(m) Any Prohibited Transaction or Reportable Event shall occur with respect
to a Plan which could have a material adverse effect on the financial condition
of any of the Borrowers; any lien upon the assets of any of the Borrowers in
connection with any Plan shall arise; any of the Borrowers or any of its ERISA
Affiliates shall fail to make full payment when due of all amounts which such
Borrower or any of its ERISA Affiliates may be required to pay to any Plan or
any Multiemployer Plan as one or more contributions thereto; any of the
Borrowers or any of its ERISA Affiliates creates or permits the creation of any
accumulated funding deficiency, whether or not waived; or
(n) Any transfer of more than ten percent (10%) of the issued and
outstanding shares of common stock or other evidence of ownership of any of the
Borrowers, with the exception of transfers of the shares of the capital stock
of Oakhurst or SCPI for as long as Oakhurst or SCPI, as the case may be, is a
public reporting company under the Securities Exchange Act of 1934, as amended.
17.2 Remedies. Upon the occurrence of an Event of Default, FINOVA may, at
its option and in its sole discretion and in addition to all of its other
rights under the Loan Documents, terminate this Agreement and declare all of
the Obligations to be immediately payable in full. The Borrowers agree that
FINOVA shall also have all of its rights and remedies under applicable law,
including, without limitation, the default rights and remedies of a secured
party under the Code and upon the occurrence of an Event of Default Borrowers
hereby consent to the appointment of a receiver by FINOVA in any action
initiated by FINOVA pursuant to this Agreement and to the jurisdiction and
venue set forth in Section 19.7 hereof, and Borrowers waive notice and posting
of a bond in connection therewith. Further, FINOVA may, at any time, take
possession of the Collateral and keep it on the Borrowers' premises, at no cost
to FINOVA, or remove any part of it to such other place(s) as FINOVA may
desire, or the Borrowers shall, upon FINOVA's demand, at the Borrowers' sole
cost, assemble the Collateral and make it available to FINOVA at a place
reasonably convenient to FINOVA. FINOVA may sell and deliver any Collateral at
public or private sales, for cash, upon credit or otherwise, at such prices and
upon such terms as FINOVA deems advisable, at FINOVA's discretion, and may, if
FINOVA deems it reasonable, postpone or adjourn any sale of the Collateral by
an announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. The Borrowers agree that FINOVA has
no obligation to preserve rights to the Collateral or marshall any Collateral
for the benefit of any Person. FINOVA is hereby granted a license or other
right to use, without charge, the Borrowers' labels, patents, copyrights, name,
trade secrets, trade names, trademarks and advertising matter, or any similar
property, in completing production, advertising or selling any Collateral and
the Borrowers' rights under all licenses and all franchise agreements shall
inure to FINOVA's benefit. Any requirement of reasonable notice shall be met if
such notice is mailed postage prepaid to the Borrowers at their address set
forth in the heading to this Agreement at least five (5) days before sale or
other disposition. The proceeds of sale shall be applied, first, to all
attorneys fees and other expenses of sale, and second, to the Obligations in
such order as FINOVA shall elect, in its sole discretion. FINOVA shall return
any excess to the Borrowers and the Borrowers shall remain liable for any
deficiency to the fullest extent permitted by law.
17.3 Standards for Determining Commercial Reasonableness. The Borrowers and
FINOVA agree that the following conduct by FINOVA with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by FINOVA, including, but not limited to, FINOVA's use in
its sole discretion of other or different times, places and manners of noticing
and conducting any disposition of Collateral shall not be deemed unreasonable):
Any public or private disposition as to which on no later than the fifth
calendar day prior thereto written notice thereof is mailed or personally
delivered to the Borrowers and, with respect to any public disposition, on no
later than the fifth calendar day prior thereto notice thereof describing in
general non-specific terms, the Collateral to be disposed of is published once
in a newspaper of general circulation in the county where the sale is to be
conducted. The public disposition shall be at any place designated by FINOVA,
with or without the Collateral being present, and which commences at any time
between 8:00 a.m. and 5:00 p.m. (provided that no notice of
17
<PAGE> 18
any public or private disposition need be given to the Borrowers if the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market). Without limiting the generality
of the foregoing, the Borrowers expressly agree that, with respect to any
disposition of accounts, instruments and general intangibles, it shall be
commercially reasonable for FINOVA to direct any prospective purchaser thereof
to ascertain directly from the Borrowers any and all information concerning the
same, including, but not limited to, the terms of payment, aging and
delinquency, if any, the financial condition of any obligor or account debtor
thereon or guarantor thereof, and any collateral therefor.
18. DEFINITIONS.
18.1 Defined Terms. As used in this Agreement, the following terms have the
definitions set forth below:
"Affiliate" means any Person controlling, controlled by or under common control
with any of the Borrowers. For purposes of this definition, "control" means
the possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of any Person, whether through
ownership of common or preferred stock or other equity interests, by contract
or otherwise. Without limiting the generality of the foregoing, each of the
following shall be an Affiliate: any officer, director, employee or other
agent of any of the Borrowers, any shareholder or subsidiary of any of the
Borrowers, and any other Person with whom or which any of the Borrowers has
common shareholders, officers or directors.
"Annual Cash Flow Recapture Prepayment" has the meaning set forth on the
Schedule.
"Business Day" means any day on which commercial banks in both Los Angeles,
California and Phoenix, Arizona are open for business.
"Capital Expenditures" means all expenditures made and liabilities incurred for
the acquisition of any fixed asset or improvement, replacement, substitution or
addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by any of the Borrowers that, in
accordance with GAAP, should be capitalized for financial reporting purposes
and reflected as a liability on the consolidated balance sheet of the
Borrowers.
"Closing Date" means the date of the initial advance made by FINOVA pursuant to
this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in the State
of Arizona from time to time.
"Collateral" has the meaning set forth in Section 4.1 above.
"Current Assets" at any date means the amount at which the current assets of
the Borrowers would be shown on a consolidated balance sheet of the Borrowers
as at such date, prepared in accordance with GAAP, provided that amounts due
from Affiliates and investments in Affiliates shall be excluded therefrom.
"Current Liabilities" at any date means the amount at which the current
liabilities of the Borrowers would be shown on a consolidated balance sheet of
the Borrowers as at such date, prepared in accordance with GAAP, provided that
liabilities owing to Affiliates shall be excluded therefrom.
"DFS" means Dowling's Fleet Services Co., Inc., a New York corporation, a
co-borrower hereunder, and a wholly owned direct subsidiary of Oakhurst.
"Deposit Accounts" has the meaning set forth in Section 9105 of the Code.
"Eligible Inventory" means Inventory which FINOVA, in its sole judgment, deems
Eligible Inventory, based on such considerations as FINOVA may from time to
time deem appropriate. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory unless, in FINOVA's sole judgment, such
Inventory (i) consists of finished goods, in good, new and salable condition
which are not obsolete, discontinued, unmerchantable, unserviceable or slow
moving (Inventory held by a Borrower in excess of 180 days), and are not
comprised of raw materials, work in process, packaging, materials or supplies;
(ii) meets all standards imposed by any governmental agency or authority; (iii)
conforms in all respects to the warranties and representations set forth
herein; (iv) is not Inventory purchased or sold on consignment;
18
<PAGE> 19
(v) is at all times subject to FINOVA's duly perfected, first priority security
interest; and (v) is situated at a location in compliance with Section 12.16
hereof. Inventory of G&O shall not be considered Eligible Inventory, subject
to the future review and approval of such inventory as eligible by FINOVA in
its discretion.
"Eligible Receivables" means Receivables arising in the ordinary course of the
business of the Borrowers, with the exception of G&O, from the sale of goods or
the rendition of services, which FINOVA, in its sole judgment, shall deem
eligible based on such considerations as FINOVA may from time to time deem
appropriate. Without limiting the foregoing, a Receivable shall not be deemed
to be an Eligible Receivable if (i) the account debtor has failed to pay the
Receivable within a period of ninety (90) days after invoice due date, provided
that such invoice due date shall be within one hundred twenty (120) days of
invoice date, to the extent of any amount remaining unpaid after such period;
(ii) the account debtor has failed to pay more than twenty-five percent (25%)
of all outstanding Receivables owed by it to Borrowers within ninety (90) days
after invoice due date, provided that such invoice due date shall be within one
hundred twenty (120) days of invoice date; (iii) the account debtor is an
Affiliate of any Borrower; (iv) the goods relating thereto are placed on
consignment, "bill and hold", guaranteed sale or other terms pursuant to which
payment by the account debtor may be conditional; (v) the account debtor is not
located in the United States, unless the Receivable is supported by a letter of
credit or other form of guaranty or security, in each case in form and
substance satisfactory to FINOVA; (vi) the account debtor is the United States
or any department, agency or instrumentality thereof or any State of the United
States; (vii) any Borrower is or may become liable to the account debtor for
goods sold or services rendered by the account debtor to such Borrower; (viii)
the account debtor's total obligations to the Borrowers exceed fifteen percent
(15%) of all Eligible Receivables (with exception of Receivables owing by Bell
Atlantic NYNEX Mobile Systems to H&H, which Receivables shall be considered
ineligible to the extent the aggregate amount thereof outstanding at any time
exceeds Two Hundred Thousand Dollars ($200,000)) on a consolidated basis to the
extent of such excess; (ix) the account debtor disputes liability or makes any
claim with respect thereto (up to the amount of such liability or claim), or is
subject to any insolvency or bankruptcy proceeding, or becomes insolvent, fails
or goes out of a material portion of its business; (x) the amount thereof
consists of late charges or finance charges; (xi) the amount thereof consists
of a credit balance more than ninety (90) days past due; or (xii) the face
amount of such single Receivable exceeds Twenty-Five Thousand Dollars
($25,000), unless accompanied by evidence of the shipment of the goods relating
thereto satisfactory to FINOVA in its sole discretion. Receivables of G&O
shall not be considered Eligible Receivables, subject to the future review and
approval of such Receivables as eligible by FINOVA in its discretion. Further,
Eligible Receivables shall not include any sales subject to a merchant
agreement for credit card transactions.
"Equipment" means all of the Borrowers' present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in the Borrowers' respective operations or owned by the
Borrowers and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to any of the foregoing, wherever located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not incorporated and
whether or not foreign) which is or may hereafter become a member of a group of
which any of the Borrowers is a member and which is treated as a single
employer under ERISA Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 17.1 of this
Agreement.
"Fixed Asset Loan" has the meaning set forth on the Schedule.
"Fixed Asset Note" has the meaning set forth on the Schedule.
"G&O" means G&O Sales Company, a Pennsylvania corporation, and a wholly owned
subsidiary of DFS.
"General Intangibles" means all general intangibles of the Borrowers, whether
now owned or hereafter created or acquired by the Borrowers, including, without
limitation, all choses in action, causes of
19
<PAGE> 20
action, corporate or other business records, Deposit Accounts, inventions,
designs, drawings, blueprints, patents, patent applications, trademarks and the
goodwill of the business symbolized thereby, names, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, customer lists,
security and other deposits, rights in all litigation presently or hereafter
pending for any cause or claim (whether in contract, tort or otherwise), and
all judgments now or hereafter arising therefrom, all claims of the Borrowers
against FINOVA, rights to purchase or sell real or personal property, rights as
a licensor or licensee of any kind, royalties, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims (including
without limitation credit, liability, property and other insurance) tax refunds
and claims, computer programs, discs, tapes and tape files, claims under
guaranties, security interests or other security held by or granted to the
Borrowers to secure payment of any of the Receivables by an account debtor, all
rights to indemnification and all other intangible property of every kind and
nature (other than Receivables).
"H&H" means H&H Distributors, Inc., a Pennsylvania corporation, a co-borrower
hereunder, and a wholly owned direct subsidiary of Oakhurst.
"Indebtedness" means all of the Borrowers' present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by any of the Borrowers, even though such Borrower has not
assumed or become liable therefor, (iii) obligations and liabilities created or
arising under any Capital Leases or conditional sales contract or other title
retention agreement with respect to property used or acquired by any of the
Borrowers, even though the rights and remedies of the lessor, seller or lender
are limited to repossession, (iv) all unfunded pension fund obligations and
liabilities and (v) deferred taxes.
"Initial Term" has the meaning set forth on the Schedule.
"Inventory" means all of the Borrowers' now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in the Borrowers' respective
businesses or used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise or other personal
property, and all documents of title or other documents representing them.
"Inventory Loans" has the meaning set forth on the Schedule.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by the Borrowers and payable to FINOVA, and any other agreement
entered into in connection with this Agreement, together with all alterations,
amendments, changes, extensions, modifications, refinancings, refundings,
renewals, replacements, restatements, or supplements, of or to any of the
foregoing.
"Loan Party" means the Borrowers, the Validator, and each other party, if any
(other than FINOVA), to any Loan Document.
"Multiemployer Plan" means a "multiemployer plan" as defined in ERISA Sections
3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of any of the
Borrowers or any ERISA Affiliate.
"OH" means Oakhurst Holdings, Inc., a Delaware corporation, a co-borrower
hereunder, with respect to which all of the issued and outstanding capital
stock is owned of record and beneficially by the following subsidiaries of
Oakhurst in the percentages stated: SCPI-45.6%; Puma-28.7%; DFS-8.9%; and
H&H-16.8%
"OMC" means Oakhurst Management Corporation, a Texas corporation, a co-borrower
hereunder, and a wholly owned direct subsidiary of Oakhurst.
"Oakhurst" means Oakhurst Company, Inc., a Delaware corporation, a co-borrower
hereunder, and the direct parent of SCPI, Puma, H&H, DFS and OMC.
20
<PAGE> 21
"Obligations" means all present and future loans, advances, debts,
liabilities, obligations, covenants, duties and indebtedness at any time owing
by the Borrowers to FINOVA, whether evidenced by this Agreement, any note or
other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by FINOVA in the
Borrowers' debts owing to others), absolute or contingent, due or to become
due, including, without limitation, all interest, charges, expenses, fees,
attorney's fees, expert witness fees, examination fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, Termination Fees,
Annual Cash Flow Recapture Prepayment, Minimum Interest Charges and any other
sums chargeable to the Borrowers hereunder or under any other agreement with
FINOVA.
"Overlines" has the meaning set forth in Section 1.3 hereof.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Encumbrance" means each of the liens, mortgages and other security
interests set forth on the Schedule and incorporated herein by this reference.
"Person" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or
any agency or political division thereof, or any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for employees
of the Borrowers or any ERISA Affiliate, other than a Multiemployer Plan.
"Prepared Financials" means the balance sheets of the Borrowers as of the date
set forth in the Schedule, and as of each subsequent date on which audited
balance sheets are delivered to FINOVA from time to time hereunder, and the
related statements of operations, changes in stockholder's equity and changes
in cash flow for the periods ended on such dates.
"Prohibited Transaction" means any transaction described in Section 406 of
ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c)(2) of the IRC.
"Puma" means Puma Products, Inc., a Texas corporation, a co-borrower hereunder,
and a wholly owned direct subsidiary of Oakhurst.
"Receivable Loans" has the meaning set forth on the Schedule.
"Receivables" means all of the Borrowers' now owned and hereafter acquired
accounts (whether or not earned by performance), proceeds of any letters of
credit naming any of the Borrowers as beneficiary, contract rights, chattel
paper, instruments, documents and all other forms of obligations at any time
owing to any of the Borrowers, all guaranties and other security therefor,
whether secured or unsecured, all merchandise returned to or repossessed by any
of the Borrowers, and all rights of stoppage in transit and all other rights or
remedies of an unpaid vendor, lienor or secured party.
"Renewal Term" has the meaning set forth on the Schedule.
"Reportable Event" means a reportable event described in Section 4043 of ERISA
or the regulations thereunder, a withdrawal from a Plan described in Section
4063 of ERISA, or a cessation of operations described in Section 4068(f) of
ERISA.
"Revolving Loans" has the meaning set forth on the Schedule.
"SCPI" means Steel City Products, Inc., a Delaware corporation, a co-borrower
hereunder, and a majority owned direct subsidiary of Oakhurst.
"Tangible Net Worth" at any date means (i) if determined on a consolidated
basis for all Borrowers, the Borrowers' net worth as determined on a
consolidated basis in accordance with GAAP, consistently applied, minus the
intangible assets of the Borrowers, but including any deferred tax asset; and
(ii) if determined with respect to an individual Borrower, such Borrower's net
worth determined in accordance with GAAP, consistently applied, minus the
intangible assets of the Borrower, but including intercompany Indebtedness owed
to the Borrower by other Borrowers.
21
<PAGE> 22
"Total Facility" has the meaning set forth on the Schedule.
"Validator" means Mr. Mark Auerbach.
18.2 Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with generally accepted accounting principles, consistently applied. All
other terms contained in this Agreement, unless otherwise indicated, shall have
the meanings provided by the Code, to the extent such terms are defined
therein.
19. MISCELLANEOUS.
19.1 Recourse to Security; Certain Waivers. All Obligations shall be payable
by the Borrowers as provided for herein and, in full, at the termination of
this Agreement; recourse to security shall not be required at any time. The
Borrowers waive presentment and protest of any instrument and notice thereof,
notice of default and, to the extent permitted by applicable law, all other
notices to which the Borrowers might otherwise be entitled.
19.2 No Waiver by FINOVA. Neither FINOVA's failure to exercise any right,
remedy or option under this Agreement, any supplement, the Loan Documents or
other agreement between FINOVA and the Borrowers nor any delay by FINOVA in
exercising the same shall operate as a waiver. No waiver by FINOVA shall be
effective unless in writing and then only to the extent stated. No waiver by
FINOVA shall affect its right to require strict performance of this Agreement
except as covered by the waiver. FINOVA's rights and remedies shall be
cumulative and not exclusive.
19.3 Binding on Successor and Assigns. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
FINOVA's and the Borrowers' respective representatives, successors and assigns.
19.4 Severability. If any provision of this Agreement shall be prohibited or
invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
19.5 Amendments; Assignments. This Agreement may not be modified, altered or
amended, except by an agreement in writing signed by the Borrowers and FINOVA.
The Borrowers may not sell, assign or transfer any interest in this Agreement
or any other Loan Document, or any portion thereof, including, without
limitation, any of the Borrowers' rights, title, interests, remedies, powers
and duties hereunder or thereunder. The Borrowers hereby consent to FINOVA's
participation, sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement and any of the other Loan Documents, or of
any portion hereof or thereof, including, without limitation, FINOVA's rights,
title, interests, remedies, powers and duties hereunder or thereunder. In
connection therewith, FINOVA may disclose all documents and information which
FINOVA now or hereafter may have relating to the Borrowers or their respective
businesses. To the extent that FINOVA assigns its rights and obligations
hereunder to a third party, FINOVA shall thereafter be released from such
assigned obligations to the Borrowers and such assignment shall effect a
novation between the Borrowers and such third party.
19.6 Integration. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan Documents, reflect the entire understanding of
the parties with respect to the transactions contemplated hereby.
19.7 Governing Law; Waivers. THIS AGREEMENT SHALL BE INTERPRETED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE
STATE OF ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE. THE BORROWERS HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF ARIZONA
OR, AT THE SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. THE BORROWERS WAIVE ANY OBJECTION
OF FORUM NON CONVENIENS AND VENUE. THE BORROWERS WAIVE PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON THEM, AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE
IN THE MANNER SET FORTH IN SECTION 19.13 HEREOF FOR THE GIVING OF NOTICE. THE
BORROWERS FURTHER WAIVE ANY RIGHT THEY MAY OTHERWISE HAVE TO COLLATERALLY
22
<PAGE> 23
ATTACK ANY JUDGMENT ENTERED AGAINST THEM.
19.8 Survival. All of the representations and warranties of the Borrowers
contained in this Agreement shall survive the execution, delivery and
acceptance of this Agreement by the parties. No termination of this Agreement
or of any guaranty of the Obligations shall affect or impair the powers,
obligations, duties, rights, representations, warranties or liabilities of the
parties hereto and all shall survive any such termination.
19.9 Evidence of Obligations. Each Obligation may, in FINOVA's discretion,
be evidenced by notes or other instruments issued or made by the Borrowers to
FINOVA. If not so evidenced, such Obligation shall be evidenced solely by
entries upon FINOVA's books and records.
19.10 Collateral Security. The Obligations shall constitute one loan secured
by the Collateral. FINOVA may, in its sole discretion, (i) exchange, enforce,
waive or release any of the Collateral, (ii) apply Collateral and direct the
order or manner of sale thereof as it may determine, and (iii) settle,
compromise, collect or otherwise liquidate any Collateral in any manner without
affecting its right to take any other action with respect to any other
Collateral.
19.11 Application of Collateral. FINOVA shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to any
portion of the Obligations in such order and manner as FINOVA shall determine
in its sole discretion. To the extent that the Borrowers make a payment or
FINOVA receives any payment or proceeds of the Collateral for the Borrowers'
benefit which is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or any other party under any bankruptcy law, common law or
equitable cause, then, to such extent, the Obligations or part thereof intended
to be satisfied shall be revived and continue as if such payment or proceeds
had not been received by FINOVA.
19.12 Loan Requests. Each oral or written request for a loan by any Person
who purports to be any employee, officer or authorized agent of any of the
Borrowers shall be made to FINOVA on or prior to 11:30 a.m., Philadelphia time,
on the Business Day on which the proceeds thereof are requested to be paid to
the Borrowers and shall be conclusively presumed to be made by a Person
authorized by the Borrowers to do so and the crediting of a loan to the
Borrowers' operating account shall conclusively establish the Borrowers'
obligation to repay such loan. Unless and until the Borrowers otherwise direct
FINOVA in writing, all loans shall be wired to the Borrowers' operating account
set forth on the Schedule.
19.13 Notices. Any notice required hereunder shall be in writing and
addressed to the Borrowers and FINOVA at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or
otherwise, or upon deposit in the United States mail, postage prepaid.
19.14 Brokerage Fees. The Borrowers agree to indemnify and hold FINOVA
harmless against any and all claims for any brokerage fee or other commission
incurred by Borrowers with respect to the financing transactions herein
contemplated.
19.15 Disclosure. No representation or warranty made by the Borrowers in this
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to the
Borrowers or which reasonably should be known to the Borrowers which the
Borrowers have not disclosed to FINOVA in writing with respect to the
transactions contemplated by this Agreement which materially and adversely
affects the business, assets, operations, prospects or condition (financial or
otherwise), of the Borrowers.
19.16 Publicity. FINOVA is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation
of this transaction and the aggregate amount thereof. The Borrower may issue
appropriate press releases concerning this transaction with the prior review
and written approval of FINOVA, which approval shall not be unreasonably
withheld.
19.17 Captions. The Section titles contained in this Agreement are without
substantive meaning and are not part of this Agreement.
19.18 Injunctive Relief. The Borrowers recognize that, in the event they fail
to perform, observe or discharge any of their Obligations under this
23
<PAGE> 24
Agreement, any remedy at law may prove to be inadequate relief to FINOVA.
Therefore, FINOVA, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
19.19 Counterparts. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
19.20 Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.
19.21 Time of Essence. Time is of the essence for the performance by the
Borrowers of the Obligations set forth in this Agreement.
19.22 Limitation of Actions. The Borrowers agree that any claim or cause of
action by the Borrowers against FINOVA, or any of FINOVA's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, whether or not relating hereto
or thereto, occurred, done, omitted or suffered to be done by FINOVA, or by
FINOVA's directors, officers, employees, agents, accountants or attorneys,
whether sounding in contract or in tort or otherwise, shall be barred unless
asserted by the Borrowers by the commencement of an action or proceeding in a
court of competent jurisdiction by the filing of a complaint within one year
after the first act, occurrence or omission upon which such claim or cause of
action, or any part thereof, is based and service of a summons and complaint on
an officer of FINOVA or any other person authorized to accept service of
process on behalf of FINOVA, within 30 days thereafter. The Borrowers agree
that such one-year period of time is a reasonable and sufficient time for the
Borrowers to investigate and act upon any such claim or cause of action. The
one-year period provided herein shall not be waived, tolled, or extended except
by a specific written agreement of FINOVA. This provision shall survive any
termination of this Loan Agreement or any other agreement.
19.23 Liability. Neither FINOVA nor any FINOVA Affiliate shall be liable for
any indirect, special, incidental or consequential damages in connection with
any breach of contract, tort or other wrong relating to this Agreement or the
Obligations or the establishment, administration or collection thereof
(including without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if FINOVA has been advised of the possibility of such
damages. Neither FINOVA, nor any FINOVA Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by any or all of the Borrowers through the ordinary
negligence of FINOVA, or any FINOVA Affiliate. "FINOVA Affiliate" shall mean
FINOVA's directors, officers, employees, agents, attorneys or other person or
entity affiliated with or representing FINOVA.
19.24 Notice of Breach by FINOVA. The Borrowers agree to give FINOVA written
notice of (i) any action or inaction by FINOVA or any attorney of FINOVA in
connection with any Loan Documents that may be actionable against FINOVA or any
attorney of FINOVA or (ii) any defense to the payment of the Obligations for
any reason, including, but not limited to, commission of a tort or violation of
any contractual duty or duty implied by law. The Borrowers agree that unless
such notice is fully given as promptly as possible (and in any event within
thirty (30) days) after the Borrowers have knowledge, or with the exercise of
reasonable diligence should have had knowledge, of any such action, inaction or
defense, the Borrowers shall not assert, and the Borrowers shall be deemed to
have waived, any claim or defense arising therefrom.
19.25 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND EACH OF THE BORROWERS
HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; (II) ANY
OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND ANY OR ALL
OF THE BORROWERS; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR ANY OR
ALL OF THE BORROWERS OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER
24
<PAGE> 25
PERSONS AFFILIATED WITH FINOVA OR ANY OR ALL OF THE BORROWERS; IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
19.26 Receipt of Funds. In this document or any related document, whenever
there is a reference to the "receipt by FINOVA of funds", or any similar
language regarding receipt of funds by FINOVA, in order to be credited to the
applicable account on the date that good funds were received by FINOVA (either
directly or through a bank account or lock box arrangement, etc.), the funds
must reach FINOVA no later than 10:00 a.m. on that date (using the time zone of
the FINOVA office where the Borrower's loan is managed on the date the transfer
of funds is made). Any funds reaching FINOVA after 10:00 a.m. will be credited
to the appropriate account on the next immediately following Business Day.
19.27 Suretyship Waivers and Consents. Oakhurst, SCPI, Puma, H&H, DFS, OMC,
OH and G&O (for the purposes of this Section 19.27, each a "Debtor") each
acknowledge that the obligations of such Debtor undertaken herein might be
construed to consist, at least in part, of the guaranty of obligations of
Persons other than such Debtor (including the other Debtor parties hereto) and,
in full recognition of that fact, each Debtor consents and agrees that FINOVA
may, at any time and from time to time, without notice or demand, whether
before or after any actual or purported termination, repudiation or revocation
of this Agreement by any one or more Debtors, and without affecting the
enforceability or continuing effectiveness hereof as to each Debtor: (a)
supplement, restate, modify, amend, increase, decrease, extend, renew,
accelerate or otherwise change the time for payment or the terms of the
Obligations or any part thereof, including any increase or decrease of the
rate(s) of interest thereon; (b) supplement, restate, modify, amend, increase,
decrease or waive, or enter into or give any agreement, approval or consent
with respect to, the Obligations or any part thereof, or any of the Loan
Documents or any additional security or guaranties, or any condition, covenant,
default, remedy, right, representation or term thereof or thereunder; (c)
accept new or additional instruments, documents or agreements in exchange for
or relative to any of the Loan Documents or the Obligations or any part
thereof; (d) accept partial payments on the Obligations; (e) receive and hold
additional security or guaranties for the Obligations or any part thereof; (f)
release, reconvey, terminate, waive, abandon, fail to perfect, subordinate,
exchange, substitute, transfer or enforce any security or guaranties, and apply
any security and direct the order or manner of sale thereof as FINOVA in its
sole and absolute discretion may determine; (g) release any Person from any
personal liability with respect to the Obligations or any part thereof; (h)
settle, release on terms satisfactory to FINOVA or by operation of applicable
laws or otherwise liquidate or enforce any Obligations and any security
therefor or guaranty thereof in any manner, consent to the transfer of any
security and bid and purchase at any sale; or (i) consent to the merger, change
or any other restructuring or termination of the corporate, partnership or
other form of existence of any Debtor or any other Person, and correspondingly
restructure the Obligations, and any such merger, change, restructuring or
termination shall not affect the liability of any Debtor or the continuing
effectiveness hereof, or the enforceability hereof with respect to all or any
part of the Obligations.
Upon the occurrence and during the continuance of any Event of Default,
FINOVA may enforce this Agreement independently as to each Debtor and
independently of any other remedy or security FINOVA at any time may have or
hold in connection with the Obligations, and it shall not be necessary for
FINOVA to marshal assets in favor of any Debtor or any other Person or to
proceed upon or against or exhaust any security or remedy before proceeding to
enforce this Agreement. Each Debtor expressly waives any right to require
FINOVA to marshal assets in favor of any Debtor or any other Person or to
proceed against any other Debtor or any collateral provided by any Person, and
agrees that FINOVA may proceed against Debtors or any collateral in such order
as it shall determine in its sole and absolute discretion.
FINOVA may file a separate action or actions against any Debtor, whether
action is brought or prosecuted with respect to any security or against any
other Person, or whether any other Person is joined in any such action or
actions. Each Debtor agrees that FINOVA and any Debtor and any Affiliate of any
Debtor may deal with each other in connection with the Obligations or
otherwise, or alter any contracts or agreements now or hereafter existing
between any of them, in any manner whatsoever, all without in any way altering
or affecting the continuing efficacy of this Agreement.
25
<PAGE> 26
FINOVA's rights hereunder shall be reinstated and revived, and the
enforceability of this Agreement shall continue, with respect to any amount at
any time paid on account of the Obligations which thereafter shall be requested
to be restored or returned by FINOVA, all as though such amount had not been
paid. The rights of FINOVA created or granted herein and the enforceability of
this Agreement at all times shall remain effective to cover the full amount of
all the Obligations even though the Obligations, including any part thereof or
any other security or guaranty therefor, may be or hereafter may become invalid
or otherwise unenforceable as against any Debtor and whether or not any other
Debtor shall have any personal liability with respect thereto.
To the maximum extent permitted by applicable law, each Debtor expressly
waives any and all defenses now or hereafter arising or asserted by reason of
(a) any disability or other defense of any other Debtor with respect to the
Obligations, (b) the unenforceability or invalidity of any security or guaranty
for the Obligations or the lack of perfection or continuing perfection or
failure of priority of any security for the Obligations, (c) the cessation for
any cause whatsoever of the liability of any other Debtor (other than by reason
of the full payment and performance of all Obligations), (d) any failure of
FINOVA to marshal assets in favor of any Debtor or any other Person, (e) any
failure of FINOVA to give notice of sale or other disposition of Collateral to
any Debtor or any other Person or any defect in any notice that may be given in
connection with any sale or disposition of Collateral, (f) any failure of
FINOVA to comply with applicable law in connection with the sale or other
disposition of any Collateral or other security for any Obligation, including
any failure of FINOVA to conduct a commercially reasonable sale or other
disposition of any Collateral or other security for any Obligation, (g) any act
or omission of FINOVA or others that directly or indirectly results in or aids
the discharge or release of any of any Debtor or the Obligations or any
security or guaranty therefor by operation of law or otherwise, (h) any law
which provides that the obligation of a surety or guarantor must neither be
larger in amount nor in other respects more burdensome than that of the
principal or which reduces a surety's or guarantor's obligation in proportion
to the principal obligation, (i) any failure of FINOVA to file or enforce a
claim in any bankruptcy or other proceeding with respect to any Person, (j) the
election by FINOVA of the application or non-application of Section 1111(b)(2)
of the United States Bankruptcy Code, (k) any extension of credit or the grant
of any lien under Section 364 of the United States Bankruptcy Code, (l) any use
of cash collateral under Section 363 of the United States Bankruptcy Code, (m)
any agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any Person, (n) the avoidance of any
lien in favor of FINOVA for any reason, or (o) any action taken by FINOVA that
is authorized by this Section or any other provision of any Loan Document.
Until such time as all of the Obligations have been fully, finally, and
indefeasibly paid in full in cash: (i) each Debtor hereby waives and postpones
any right of subrogation it has or may have as against any other Debtor with
respect to the Obligations; and (ii) in addition, each Debtor also hereby
waives and postpones any right to proceed or to seek recourse against or with
respect to any property or asset of any other Debtor. Each Debtor expressly
waives all setoffs and counterclaims and all presentments, demands for payment
or performance, notices of nonpayment or nonperformance, protests, notices of
protest, notices of dishonor and all other notices or demands of any kind or
nature whatsoever with respect to the Obligations, and all notices of
acceptance of this Agreement or of the existence, creation or incurring of new
additional Obligations.
In the event that all or any part of the Obligations at any time are
secured by any one or more deeds of trust or mortgages or other instruments
creating or granting liens on any interests in real property, each Debtor
authorizes FINOVA on FINOVA's behalf, upon the occurrence of and during the
continuance of any Event of Default, at its sole option, without notice or
demand and without affecting the obligations of any Debtor, the enforceability
of this Agreement, or the validity or enforceability of any liens of, or for
the benefit of, FINOVA on any Collateral, to foreclose any or all of such deeds
of trust or mortgages or other instruments by judicial or nonjudicial sale.
Further, each Debtor waives all rights and defenses arising out of an election
of remedies by FINOVA, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Debtor's rights of subrogation and reimbursement against the
principal by the operation of Section 580d of the California Code of Civil
Procedure or otherwise.
To the fullest extent permitted by applicable law, each Debtor expressly
waives any defenses to the enforcement of this Agreement or any rights of
26
<PAGE> 27
FINOVA created or granted hereby or to the recovery by FINOVA against any
Debtor or any other Person liable therefor of any deficiency after a judicial
or nonjudicial foreclosure or sale, even though such a foreclosure or sale may
impair the subrogation rights of Debtors and may preclude Debtors from
obtaining reimbursement or contribution from other Debtors. Each Debtor
expressly waives (i) any suretyship defenses or benefits that it otherwise
might or would have under applicable law, and (ii) the right, if any, to
require FINOVA to disclose to such Debtor any information it may now have or
hereafter acquire concerning the other Debtor's character, credit, Collateral,
financial condition or other matters. Each Debtor has established adequate
means to obtain from the other Debtor on a continuing basis financial and
other information pertaining to such Debtor's business and affairs, and assumes
the responsibility for being and keeping itself informed of the financial and
other conditions of the other Debtor and of all circumstances bearing upon the
risk of nonpayment of the Obligations which diligent inquiry would reveal.
Each Debtor expressly waives any right to receive notice of any judicial or
nonjudicial foreclosure or sale of any real property or interest therein of
another Debtor that is subject to any such deeds of trust or mortgages or other
instruments and any Debtor's failure to receive any such notice shall not
impair or affect such Debtor's obligations or the enforceability of this
Agreement or any rights of FINOVA created or granted hereby. WITHOUT LIMITING
THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS
SECTION, EACH DEBTOR WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION
OF REMEDIES BY FINOVA, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A
NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR THE OBLIGATIONS, HAS
DESTROYED SUCH DEBTOR'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE
PRINCIPAL DEBTOR BY THE OPERATION OF LAW OR OTHERWISE.
FINOVA need not inquire into the powers of any of the Debtors or the
authority of any of their respective officers, directors, partners or agents
acting or purporting to act in their behalf, and any obligations created in
reliance upon the purported exercise of such power or authority is hereby
guaranteed. All obligations of Debtors to FINOVA heretofore, now or hereafter
created shall be deemed to have been granted at Debtors' special insistence and
request and in consideration of and in reliance upon this Agreement.
Debtors and each of them warrant and agree that each of the waivers and
consents set forth herein are made after consultation with legal counsel and
with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Debtors otherwise
may have against other Debtors, FINOVA or others, or against Collateral. If any
of the waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be effective
to the maximum extent permitted by law.
BORROWERS:
<TABLE>
<S> <C>
OAKHURST COMPANY, INC. WITNESSED BY: [STAMP]
By /s/ MARK AUERBACH /s/ JOE A. CRUZ
--------------------------------------- ----------------------------------------
Title Chairman & Chief Executive Officer
----------------------------------
Federal Employer Identification No.: 25-1655321
STEEL CITY PRODUCTS, INC. WITNESSED BY: [STAMP]
By /s/ MARK AUERBACH /s/ JOE A. CRUZ
--------------------------------------- ----------------------------------------
Title Chief Financial Officer
----------------------------------
Federal Employer Identification No.: 55-0437067
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
PUMA PRODUCTS, INC. WITNESSED BY: [STAMP]
By /s/ MARK AUERBACH /s/ JOE A. CRUZ
--------------------------------------- ----------------------------------------
Title Vice President
Federal Employer Identification No.: 75-2274827
H&H DISTRIBUTORS, INC. WITNESSED BY: [STAMP]
By /s/ MARK AUERBACH /s/ JOE A. CRUZ
--------------------------------------- ----------------------------------------
Title Vice President
Federal Employer Identification No.: 25-1202693
DOWLING'S FLEET SERVICE CO., INC. WITNESSED BY: [STAMP]
By /s/ MARK AUERBACH /s/ JOE A. CRUZ
--------------------------------------- ----------------------------------------
Title Vice President
Federal Employer Identification No.: 13-1854847
OAKHURST MANAGEMENT CORPORATION WITNESSED BY: [STAMP]
By /s/ MARK AUERBACH /s/ JOE A. CRUZ
--------------------------------------- ----------------------------------------
Title Vice President
Federal Employer Identification No.: 75-2593542
OAKHURST HOLDINGS, INC. WITNESSED BY: [STAMP]
By /s/ MARK AUERBACH /s/ JOE A. CRUZ
--------------------------------------- ----------------------------------------
Title Vice President
Federal Employer Identification No.: 51-0372685
G&O SALES COMPANY WITNESSED BY: [STAMP]
By /s/ MARK AUERBACH /s/ JOE A. CRUZ
--------------------------------------- ----------------------------------------
Title Vice President
Federal Employer Identification No.: __________
</TABLE>
28
<PAGE> 29
FINOVA:
FINOVA CAPITAL CORPORATION
By /s/ RON MONTGOMERY
---------------------------
Title Vice President
---------------------
[LOAN AND SECURITY AGREEMENT TO BE EXECUTED BEFORE A NOTARY PUBLIC]
29
<PAGE> 30
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: (1) OAKHURST COMPANY, INC.
(2) STEEL CITY PRODUCTS, INC.
(3) PUMA PRODUCTS, INC.
(4) H&H DISTRIBUTORS, INC.
(5) DOWLING'S FLEET SERVICE CO., INC.
(6) OAKHURST MANAGEMENT CORPORATION
(7) OAKHURST HOLDINGS, INC.
(8) G&O SALES COMPANY
ADDRESSES: (1) 1001 SANTERRE DRIVE
GRAND PRAIRIE, TEXAS 75050
(2) 630 ALPHA DRIVE
PITTSBURGH, PENNSYLVANIA 15238
(3) 1001 SANTERRE DRIVE
GRAND PRAIRIE, TEXAS 75050
(4) 5101 BAUM BOULEVARD
PITTSBURGH, PENNSYLVANIA 15238
(5) 389 EAST THIRD STREET
MT. VERNON, NEW YORK 10550
(6) 1001 SANTERRE DRIVE
GRAND PRAIRIE, TEXAS 75050
(7) 3513 CONCORD PIKE, SUITE 3720
WILMINGTON, DELAWARE 19803
(8) 1522-24 FAIRMOUNT AVENUE
PHILADELPHIA, PENNSYLVANIA 19130
DATE: MARCH 28, 1996
This Schedule forms an integral part of the Loan and Security
Agreement between the above Borrowers and FINOVA Capital Corporation dated the
above date, and all references herein and therein to "this Agreement" shall be
deemed to refer to said Agreement and to this Schedule.
<PAGE> 31
TOTAL FACILITY (SECTION 1.1):
The Total Facility for all Loans is Nine Million Five Hundred Thousand
Dollars ($9,500,000). The Total Facility for Revolving Loans is Eight Million
Dollars ($8,000,000).
LOANS (SECTION 1.2):
A. REVOLVING LOANS: a revolving line of credit to the Borrowers
consisting of loans against the Eligible Receivables of each Borrower
("Receivable Loans") and against the Eligible Inventory of each Borrower
("Inventory Loans" and, together with the Receivable Loans, the "Revolving
Loans") in an aggregate outstanding principal amount at any time for all
Borrowers which shall not exceed the lesser of:
(a) an amount of the Total Facility for Revolving Loans; or
(b) the sum of
(i) the aggregate Receivable Loans to the Borrowers,
each in an amount equal to eighty percent (80%) of the net amount of
each Borrower's Eligible Receivables, but not to exceed with respect
to each Borrower, the amounts set forth below:
<TABLE>
<CAPTION>
Maximum Advance Against
Borrower Eligible Accounts
-------- -----------------
<S> <C>
Oakhurst $0
SCPI $3,800,000
Puma $1,000,000
H&H $700,000
DFS $2,500,000
OMC $0
OH $0
G&O $0;
</TABLE>
less a Dilution reserve equal to five percent (5%) of each Borrower's
total Eligible Receivables from time to time, which Dilution reserve
may be adjusted periodically by FINOVA, in its reasonable credit
judgment, upward or downward by the percentage which Dilution varies
from a prior period's total Dilution by more than two and one-half
percent (2.5%); plus
(ii) the aggregate Inventory Loans to the Borrowers,
each in an amount equal to forty-five percent (45%) of the value of
each Borrower's Eligible Inventory, calculated at the lower of cost or
market valued and determined on a first-in, first-out basis, but not
to exceed with respect to each Borrower, the amounts set forth below:
S-2
<PAGE> 32
<TABLE>
<CAPTION>
Maximum Advance Against
Borrower Eligible Accounts
-------- -----------------
<S> <C>
Oakhurst $0
SCPI $2,700,000
Puma $700,000
H&H $200,000
DFS $1,400,000
OMC $0
OH $0
G&O $0;
</TABLE>
provided, however, that FINOVA shall advance Inventory Loans to the Borrowers,
subject to the foregoing subline limits, in an amount equal to twenty-five
percent (25%) of the value of that portion of each Borrower's Inventory, which
would otherwise be deemed ineligible because such Inventory had been held by a
Borrower in excess of 180 days and therefore considered slow moving, consisting
of out-of-season Inventory purchased under special purchase arrangements and
held in anticipation of being sold at the next seasonal market; and provided
further, however, that the aggregate outstanding principal amount of Inventory
Loans to the Borrowers shall not exceed at any time Four Million Dollars
($4,000,000); and provided further, however, that the aggregate outstanding
principal amount of Inventory Loans and Receivable Loans to the Borrowers shall
not exceed at any time the Total Facility for Revolving Loans of Eight Million
Dollars ($8,000,000).
B. FIXED ASSET LOAN: a term loan to the Borrowers, advanced to SCPI, and
secured primarily by certain real property of SCPI ("Fixed Asset Loan") in an
aggregate outstanding principal amount not to exceed One Million Five Hundred
Thousand Dollars ($1,500,000); provided, that the Fixed Asset Loan, if any,
shall be in such amounts and on such terms and conditions as are set forth on
that certain Secured Promissory Note ("Fixed Asset Note") of Borrowers in favor
of FINOVA dated the date hereof. The Borrowers may refinance the Fixed Asset
Loan at any time at their election without penalty, provided that FINOVA shall
(i) have been offered the first opportunity by the Borrowers to provide such
refinancing of the Fixed Asset Loan on the same material financial terms and
conditions as actually provided by the refinancing lender and (ii) have
declined to provide the requested refinancing of the Fixed Asset Loan.
CONDITIONS PRECEDENT (SECTION 2.1):
The obligation of FINOVA to make the initial advance hereunder is subject
to the fulfillment, to the satisfaction of FINOVA and its counsel, of each of
the following conditions, in addition to the conditions set forth in Sections
2.1 and 2.2: (a) the Borrowers shall have cash and excess borrowing
availability under the Revolving Loans facility of not less than One Million
Dollars ($1,000,000), after giving effect to the initial advance hereunder and
after giving effect to the payment in full of all of the Borrowers' accounts
payable outstanding for more than thirty (30) days after their invoice due date
and all book overdrafts; and (b) there shall have been no
S-3
<PAGE> 33
material adverse change in the business, operations, profits or prospects of
any of the Borrowers, or in the condition of the assets of any of the
Borrowers, between November 30, 1995 and the date hereof. The Borrowers shall
cause the conditions precedent set forth in Section 2.1 of this Agreement and
set forth above in this Schedule to be satisfied on or before March 15, 1996.
INTEREST AND FEES (SECTION 3.1):
Interest. The Borrowers shall pay FINOVA interest on the daily outstanding
balance of the Borrowers' loan account at a per annum rate of one and one-half
(1.5) percentage points in excess of the rate of interest announced publicly by
Citibank, N.A., from time to time as its "base rate" (or any successor
thereto), which may not be such institution's lowest rate (the "Base Rate").
The interest rate chargeable hereunder shall be increased or decreased, as the
case may be, without notice or demand of any kind, upon the announcement of any
change in the Base Rate. Each change in the Base Rate shall be effective
hereunder on the first day following the announcement of such change, provided,
that a cumulative change of less than one-fourth of one percent (0.25%) shall
not be considered. Interest charges and all other fees and charges herein
shall be computed on the basis of a year of 360 days and actual days elapsed
and shall be payable to FINOVA in arrears on the first day of each month.
Minimum Interest Charge. With respect to each calendar month or portion
thereof during the term of this Agreement (excluding the calendar month in
which this Agreement is executed), the Borrowers shall also pay FINOVA, on the
first day of the next month, as a minimum charge, the amount by which accrued
interest for such month or portion thereof is less than Five Thousand Dollars
($5,000) (the "Minimum Interest Charge"). Notwithstanding the occurrence of
any Event of Default hereunder or termination of this Agreement by FINOVA as a
result thereof, the Minimum Interest Charge shall be paid by Borrowers for the
unexpired portion of the Initial Term or any Renewal Term of this Agreement.
Closing Fee. At the closing of this transaction, the Borrowers shall pay
to FINOVA a closing fee in an amount equal to one percent (1%) of the amount of
the Total Facility for all Loans, Ninety-Five Thousand Dollars ($95,000), which
shall be deemed fully earned at the time of payment.
Collateral Management Fee. At the closing of this transaction and on the
first day of each month thereafter, Borrowers shall pay FINOVA a collateral fee
of One Thousand Dollars ($1,000) which shall be deemed fully earned at the time
of each payment.
Unused Line Fee. Borrowers shall pay to FINOVA a fee equal to one-quarter
of one percent (0.25%) per annum multiplied by the average daily difference
between (i) the Total Facility for Revolving Loans and (ii) the outstanding
aggregate principal balances of all Revolving Loans to the Borrowers. Such fee
shall be payable quarterly, in arrears, commencing on the first day of the
fourth month following the Closing Date and continuing on the first day of each
three (3) month quarterly period, or portion thereof, thereafter during the
term of this Agreement.
S-4
<PAGE> 34
Renewal Fee. In the event that the Initial Term of this Agreement is
extended for a Renewal Term as provided in Section 16.1 hereof, the Borrowers
shall pay to FINOVA, a renewal fee in an amount equal to one-half of one
percent (0.5%) of the Total Facility for Revolving Loans, payable on the first
Business Day of the Renewal Tern, which fee shall be deemed fully earned at the
time of payment.
Examination Fees. The Borrowers agree to pay to FINOVA an examination fee
in the amount of Five Hundred Dollars ($500) per person per day in connection
with each audit or examination of any of the Borrowers performed by FINOVA
prior to or after the date hereof. Without limiting the generality of the
foregoing, the Borrowers shall pay to FINOVA an initial examination fee in an
amount equal to $500 per person per day. Such initial examination fee shall be
deemed fully earned at the time of payment and due and payable upon the closing
of this transaction, and shall be deducted from any good faith deposit paid by
the Borrowers to FINOVA prior to the date of this Agreement. Borrowers shall
also reimburse FINOVA for all out-of-pocket costs and expenses incurred by
FINOVA in connection with each audit or examination.
REPORTING REQUIREMENTS (SECTION 5.2):
1. Each Borrower shall provide FINOVA with monthly agings, aged by invoice
date, and reconciliations of Receivables, with listings of Borrowers'
concentrated accounts, within ten (10) days after the end of each month.
2. Each Borrower shall provide FINOVA monthly with open accounts payable
listings, aged by invoice date, and outstanding or held check registers, within
ten (10) days after the end of each month.
3. Each Borrower shall provide FINOVA with inventory certificates, accompanied
by monthly perpetual inventory reports for Inventory valued on a first-in,
first-out basis at the lower of cost or market (in accordance with GAAP),
accompanied by such other inventory reports, including but not limited to a
physical inventory count report, as are reasonably requested by FINOVA, all
within ten (10) days after the end of each month. When available in
conjunction with Borrowers' annual audit, Borrowers shall submit to FINOVA the
report of their annual physical inventory count.
4. Each Borrower shall provide FINOVA with monthly unaudited financial
statements within thirty (30) days after the end of each month.
5. Borrowers shall provide FINOVA with quarterly unaudited consolidated and
consolidating financial statements within forty-five (45) days after the end of
each fiscal quarter.
6. Borrowers shall provide FINOVA with annual consolidated and consolidating
operating budgets (including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Borrowers within thirty
(30) days prior to the end of each fiscal year of Borrowers.
S-5
<PAGE> 35
BORROWER INFORMATION:
Borrowers' States of Incorporation (Section 12.1):
Oakhurst - Delaware
SCPI - Delaware
Puma - Texas
H&H - Pennsylvania
DFS - New York
OMC - Texas
OH - Delaware
G&O - Pennsylvania
Fictitious Names/Prior Corporate Names (Section 12.2):
Oakhurst
--------
Hallwood Holdings Incorporated
Oakhurst Capital, Inc.
SCPI
----
Harris & Frank
Hallwood Industries Incorporated
Puma
----
LBI Corp.
H&H
---
Harry Survis Auto Center
PA Cellular Phone Co.
Borrowers' Locations (Section 12.16):
Oakhurst
--------
1001 Santerre Drive
Grand Prairie, Texas 75050
SCPI
----
630 Alpha Drive
Pittsburgh, Pennsylvania 15238
H&H
---
5101 Baum Boulevard
Pittsburgh, Pennsylvania 15224
S-6
<PAGE> 36
4015 Washington Road
McMurray, Pennsylvania 15317
Puma
----
1001 Santerre Drive
Grand Prairie, Texas 75050
2421 S. Nappanee Street
Ellkhart, Indiana 46550
DFS
---
389 East Third Street
Mt. Vernon, New York 10550
293C Peninsula Boulevard
Hempstead, New York 11550
1901 State Street
Bridgeport, Connecticut 06605
1288 Main Street
East Hartford, Connecticut 06608
487 Hillside Avenue
Hillside, New Jersey 07205
2 Victor Street
Lodi, New Jersey 07205
G&O
---
1522-24 Fairmont Avenue
Philadelphia, Pennsylvania 19130
Permitted Encumbrances (Section 18.1):
Liens in favor of FINOVA;
Deposits under workers' compensation, unemployment insurance and social
security or similar laws or to secure the performance of bids, tenders or
leases or to secure indemnity, performance or other similar bonds in the
ordinary course of business;
S-7
<PAGE> 37
Liens for taxes, assessments or other governmental charges or levies on
property of a Borrower, if the same are not at the time delinquent or can
thereafter be paid without penalty or are being contested in good faith and
pursuant to appropriate proceedings, provided that notice thereof is given
to FINOVA and adequate reserves therefor are established; and
The Liens reflected in the following UCC-1 Financing Statements:
Oakhurst
None (except for FINOVA filings)
Puma
None (other than FINOVA's filings)
H&H
Financing Statement No. 17321463, filed on May 15, 1989 with the Secretary of
the Commonwealth, Pennsylvania by Alpine Electronics of America, Inc.
Financing Statement No. 22440644, filed on September 30, 1993 with the
Secretary of the Commonwealth, Pennsylvania by National Auto Center, Inc.
Financing Statement No. 0426489, filed on May 15, 1989 with the Prothonotary of
Allegheny County, Pennsylvania by Alpine Electronics of America, Inc.
DFS
Financing Statement No. 109449, filed on August 6, 1980 with the New York
Department of State by General Motors Corporation
Financing Statement No. 089683, filed on May 3, 1985 with the New York
Department of State by General Motors Corporation
Financing Statement No. 089684, filed on May 3, 1985 with the New York
Department of State by General Motors Corporation
Financing Statement No. 195386, filed on September 13, 1991 with the New York
Department of State by General Motors Corporation
S-8
<PAGE> 38
Financing Statement No. 95-007900, filed on May 23, 1995 with the Nassau
County, New York Clerk by General Motors Corporation
Financing Statement No. 91-08648, filed on September 17, 1991 with the
Westchester County, New York Clerk by General Motors Corporation
Financing Statement No. 938351, filed on September 12, 1991 with the
Connecticut Secretary of State by General Motors Corporation
Financing Statement No. 1622249, filed on May 22, 1995 with the Connecticut
Secretary of State by General Motors Corporation
Financing Statement No. 1603273, filed on February 6, 1995 with the Connecticut
Secretary of State by Monarch Sales Corporation, and subsequently assigned to
Lewis/Boyle, Inc.
Financing Statement No. 002514, filed on June 12, 1995 with the Bergen County,
New Jersey County Clerk by General Motors Corporation
SCPI
Financing Statement No. 9440438, filed on January 17, 1979 with the Secretary
of the Commonwealth, Pennsylvania by Ford Motor Company
Financing Statement No. 19450927, filed on March 1, 1991 with the Secretary of
the Commonwealth, Pennsylvania by General Motors Corporation
Financing Statement No. 19931246, filed on August 1, 1991 with the Secretary of
the Commonwealth, Pennsylvania by Bell Atlantic Systems Leasing International,
Inc., and subsequently assigned to Pitney Bowes Credit Corporation
Financing Statement No. 22520833, filed on October 26, 1993 with the Secretary
of the Commonwealth, Pennsylvania by Mahaffey Equipment Division, Penngate
Handling Systems, Inc., and subsequently assigned to Raymond Leasing
Corporation
Financing Statement No. 23290077, filed on July 5, 1994 with the Secretary of
the Commonwealth, Pennsylvania by Allegheny Clarklift, Inc.
Financing Statement No. 24131535, filed on March 31, 1995 with the Secretary of
the Commonwealth, Pennsylvania by Mahaffey Equipment Division/Penngate, and
assigned to Raymond Leasing Corporation
Financing Statement No. 24361780, filed on June 12, 1995 with the Secretary of
the Commonwealth, Pennsylvania by IBM Credit Corporation
Financing Statement No. 24651174, filed on October 12, 1995 with the Secretary
of the Commonwealth, Pennsylvania by Textron Financial Corporation
S-9
<PAGE> 39
Financing Statement No. 20101099, filed on September 27, 1991 with the
Secretary of the Commonwealth, Pennsylvania by Splitfire Corporation against
Harris & Frank, Inc.
Financing Statement No. 1041-1979, filed on October 17, 1983 with the Allegheny
County, Pennsylvania Prothonotary by Ford Motor Company
Financing Statement No. 2392-1991, filed on March 18, 1991 with the Allegheny
County, Pennsylvania Prothonotary by General Motors Corporation
Financing Statement No. 4435-1994, filed on July 1, 1994 with the Allegheny
County, Pennsylvania Prothonotary by Allegheny Clarklift, Inc.
Financing Statement No. 3940-1995, filed on June 13, 1995 with the Allegheny
County, Pennsylvania Prothonotary by IBM Credit Corporation
Financing Statement No. 6762-1995, filed on October 13, 1995 with the Allegheny
County, Pennsylvania Prothonotary by Textron Financial Corporation
Financing Statement No. 8152-1991, filed on September 27, 1991 with the
Allegheny County, Pennsylvania Prothonotary by Splitfire Corporation against
Harris & Frank, Inc.
PRINCIPAL PAYMENTS (SECTION 7.1):
For so long as the Fixed Asset Loan is outstanding, Borrowers shall, at the
sole option of FINOVA, pay to FINOVA an annual cash flow recapture prepayment
(the "Annual Cash Flow Recapture Prepayment"), on the earlier of (i) the date
they deliver their consolidated annual audited financial statements pursuant to
Section 5.2(4) hereof for each fiscal year, commencing with such financial
statements for the fiscal year in which the Closing Date occurs or (ii) 120
days after the end of each such fiscal year, in an amount equal to twenty-five
percent (25%) of Excess Cash Flow for such most recently-ended fiscal year.
Each Borrower shall be primarily liable for the Annual Cash Flow Recapture
Prepayment in the ratio that its Excess Cash Flow bears to the total of the
aggregate Excess Cash Flow of all Borrowers. Each payment of the Annual Cash
Flow Recapture Prepayment shall be accompanied by a certificate of the Chief
Financial Officer of Oakhurst setting forth the calculation of the Annual Cash
Flow Recapture Prepayment and certifying that such calculation was made on the
basis of the financial statements attached thereto. FINOVA shall not be bound
by Borrowers' calculation of the Annual Cash Flow Recapture Prepayment, and in
the event FINOVA at any time determines that the amount that should have been
paid by Borrowers under this Section exceeds the amount actually paid,
Borrowers shall pay such excess to FINOVA on demand. Any prepayments required
under this Section 7.1 shall be applied to the Obligations then outstanding,
including, but not limited to, the outstanding principal balance of the Fixed
Asset Loan, in such manner as FINOVA shall determine in its sole discretion.
S-10
<PAGE> 40
FINANCIAL COVENANTS (SECTION 13.14):
The Borrowers shall comply with the following financial covenants.
Compliance shall be determined on a consolidated basis at the Oakhurst level
quarterly, and on an individual Borrower basis as of the end of each month,
except as otherwise stated as provided below:
Current Ratio: Borrowers shall maintain at all times a consolidated ratio
of Current Assets to Current Liabilities of not less than
1.0 : 1.0.
Tangible Net Worth: Borrowers shall maintain a consolidated Tangible Net Worth
of not less than Three Million Dollars ($3,000,000) for
the period from the Closing Date though November 30, 1996,
and of not less than Two Million Five Hundred Dollars
($2,500,000) thereafter. Each of the Borrowers listed
below shall maintain at all times a Tangible Net Worth of
not less than the amounts set forth opposite their names
below:
<TABLE>
<S> <C>
Borrower Tangible Net Worth
-------- ------------------
SCPI $3,500,000
Puma $2,000,000
H&H $900,000
DFS $900,000
</TABLE>
For the purpose of determining the Tangible Net Worth of each Borrower, the
Fixed Asset Loan shall be allocated in full to SCPI, and only direct Revolving
Loan advances shall be allocated to each Borrower.
NEGATIVE COVENANTS (SECTION 14):
Capital Expenditures: The Borrowers shall not make or incur any Capital
Expenditure if, after giving effect thereto, the
aggregate amount of all Capital Expenditures
actually made by the Borrowers in any fiscal year
would exceed Three Hundred Thousand Dollars
($300,000).
Compensation: The Borrowers shall not pay total compensation,
including salaries, withdrawals, fees, bonuses,
commissions, drawing accounts and other payments,
whether directly or indirectly, in money or
otherwise, to all of the Borrowers' executives,
officers and directors (or any relative thereof)
during Borrowers' 1997 fiscal year in an amount
in excess of One Million Four Hundred Ten
Thousand Dollars ($1,410,000), or in excess of
One Million Six Hundred Twenty-Five Thousand
Dollars ($1,625,000) during any of Borrowers'
fiscal years thereafter (excluding stock options
granted and similar non-cash compensation
S-11
<PAGE> 41
and payments made, however classified, which are
considered by FINOVA as acquisition related
expense).
Indebtedness: The Borrowers shall not create, incur, assume or
permit to exist any Indebtedness (including
Indebtedness in connection with Capital Leases)
in excess of One Hundred Thousand Dollars
($100,000) in the aggregate, in any year without
the prior written consent of FINOVA, other than
(i) the Obligations, (ii) trade payables and
other contractual obligations to suppliers and
customers incurred in the ordinary course of
business, (iii) other Indebtedness existing on
the date of this Agreement and reflected in the
Prepared Financials (other than Indebtedness paid
on the date of this Agreement from proceeds of
the initial advances hereunder) and (iv)
Indebtedness permitted under "Permitted
Intercompany Transactions" below.
Permitted
Intercompany
Transactions: (a) At the Closing Date, SCPI, Puma, H&H and DFS
may make upstream advances to Oakhurst, in order
to fund the repayment of outstanding revolving
Indebtedness to Integra Bank in the approximate
outstanding principal amount of Four Million
Dollars ($4,000,000), whether such advances are
in the form of dividends on capital stock
including, but not limited to, the Series A
Preferred Stock of SCPI, or as additional loans
to Oakhurst as determined by the Borrowers in
their discretion, up to the maximum amounts set
forth opposite their names below, which advances
may be made at Closing provided that: (i) no
Event of Default shall have occurred or be
continuing hereunder; (ii) no Event of Default
shall occur as a result of any such upstream
advance; and (iii) after giving effect to an
upstream advance, SCPI, Puma, H&H and DFS, as the
case may be, shall have the excess borrowing
availability under the Revolving Loans of not
less than the amounts set forth opposite their
names below after giving effect to the payment in
full of all accounts payable outstanding for more
than thirty (30) days after their invoice due
date, other current Indebtedness then due and all
book overdrafts relating to accounts payable or
other liabilities which are thirty (30) days or
more past due.
<TABLE>
<CAPTION>
Maximum Closing Required
Borrower Advance to Oakhurst Excess Availability
-------- ------------------- -------------------
<S> <C> <C>
SCPI $2,000,000 $850,000
Puma $ 366,000 $ 50,000
H&H $ 200,000 $ 50,000
DFS $1,400,000 $ 50,000
</TABLE>
S-12
<PAGE> 42
(b) On an ongoing basis, SCPI, Puma, H&H and DFS
may make upstream advances to Oakhurst, whether
such advances are in the form of dividends on
capital stock or loans, as they shall determine
from time to time, up to an aggregate maximum
amount of Two Million Four Hundred Thousand
Dollars ($2,400,000) in upstream advances during
Borrowers' 1997 fiscal year, and up to an
aggregate maximum amount of Two Million Three
Hundred Thousand Dollars ($2,300,000) in upstream
advances during Borrowers' 1998 fiscal year, and
during each fiscal year thereafter, which
advances may be made from time to time provided
that: (i) no Event of Default shall have occurred
or be continuing hereunder; (ii) no Event of
Default shall occur as a result of any such
upstream advance, and (iii) after giving effect
to an upstream advance, SCPI, Puma, H&H and DFS,
as the case may be, shall have excess borrowing
availability under the Revolving Loans of not
less than Fifty Thousand Dollars ($50,000) after
giving effect to the payment in full of all
accounts payable outstanding for more than thirty
(30) days after their invoice due date, similar
other current Indebtedness then due and all book
overdrafts relating to accounts payable or other
liabilities which are thirty (30) days or more
past due.
TERM (SECTION 16.1):
The initial term of this Agreement shall be two
(2) years from the date hereof (the "Initial
Term") and shall be automatically renewed for
successive periods of one (1) year each (each, a
"Renewal Term"), unless earlier terminated as
provided in Section 16 or 17 or elsewhere in this
Agreement.
TERMINATION FEE (SECTION 16.4):
The Termination Fee provided in Section 16.4 shall be an amount equal to
the following applicable percentage of the Total Facility for Revolving Loans:
(i) two percent (2%), if such early termination occurs on or prior to
the first anniversary of this Agreement; and
(ii) one percent (1%), if such early termination occurs after the first
anniversary of this Agreement and on or prior to the second anniversary of this
Agreement.
S-13
<PAGE> 43
ADDITIONAL DEFINITIONS (SECTION 18.1):
"Dilution" means, as of the date of determination, the total
of all chargebacks, returns, advertising claims,
discounts, contra accounts, write-offs in favor of
or held by account debtors and any other item that
could reduce or otherwise impair the full and
timely collection of Accounts, expressed as a
percentage of cash collections plus dilutive
items, determined on a three (3) month rolling
basis.
"Excess Cash Flow" means for any period, Operating Cash Flow for
such period minus the sum of (i) Total Debt
Service for such period and (ii) income and
franchise taxes paid or required to be paid by
Borrower(s) during such period.
"GAAP" means generally accepted accounting principles in
the United States consistently applied and
maintained throughout the period indicated and
consistent with the prior financial practice of
Borrowers and any predecessor, except for changes
mandated by the Financial Accounting Standards
Board or any similar accounting authority of
comparable standing. Whenever any accounting
term is used herein which is not otherwise
defined, it shall be interpreted in accordance
with GAAP.
"Operating Cash Flow" means for any period, the net income or loss of
Borrower(s), on a consolidated basis, determined
in accordance with GAAP, plus (i) the following
items, to the extent deducted in determining net
income or loss: (a) depreciation; (b)
amortization and any other non-cash items; (c)
interest expense; and (d) accrued income and
franchise tax expenses; minus (ii)(a) Capital
Expenditures permitted under Section 14 hereof
and that are actually made during such period and
(b) income and franchise taxes actually paid or
required to be paid by Borrower(s) during such
period.
"Prepared Financials" means the consolidated and consolidating balance
sheets of Oakhurst as of November 30, 1995, and
as of each subsequent date on which audited
consolidated and consolidating balance sheets are
delivered to FINOVA from time to time hereunder,
and the related statements of operations, changes
in stockholder's equity and changes in cash flow
for the periods ended on such dates.
"Total Debt Service" means for any period, the sum of: (i) regularly
scheduled payments of principal and interest
during the period in respect of Indebtedness
irrespective of whether the regularly scheduled
payment was actually made during the period, and
(ii) any payments of principal or interest in
respect of Indebtedness not regularly scheduled
for payment during the period but actually made
during the period.
S-14
<PAGE> 44
DISBURSEMENT (SECTION 19.12):
Unless and until the Borrowers otherwise direct FINOVA in writing, all
loans shall be wired to the Borrowers' following operating accounts:
(a) SCPI:
Integra Bank/Pittsburgh
ABA No. 043-000-122
Account No. 755861203
Re: Steel City Products, Inc.
(b) H&H:
Integra Bank/Pittsburgh
ABA No. 043-000-122
Account No. 11104524
Re: H&H Distributors, Inc.
(c) Puma:
Integra Bank/Pittsburgh
ABA No. 043-000-122
Account No. 11098008
Re: Puma Products, Inc.
(d) DFS:
Integra Bank/Pittsburgh
ABA No. 043-000-122
Account No. 11094687
Re: Dowling's Fleet Service Co., Inc.
BORROWERS: FINOVA:
OAKHURST COMPANY, INC. FINOVA CAPITAL CORPORATION
BY: /s/ MARK AUERBACH BY: /s/ RON MONTGOMERY
-------------------------------------- ---------------------
TITLE: Chairman & CEO TITLE: Vice President
----------------------------------- ---------------------
WITNESSED BY:
/s/ JOE A. CRUZ [STAMP]
- -------------------------------
S-15
<PAGE> 45
STEEL CITY PRODUCTS, INC.
BY: /s/ MARK AUERBACH
-------------------------------------
TITLE: Chief Financial Officer
----------------------------------
WITNESSED BY:
/s/ JOE A. CRUZ
- ---------------------------------------- [STAMP]
PUMA PRODUCTS, INC.
BY: /s/ MARK AUERBACH
-------------------------------------
TITLE: Vice President
----------------------------------
WITNESSED BY:
/s/ JOE A. CRUZ
- --------------------------------------- [STAMP]
H & H DISTRIBUTORS, INC.
BY: /s/ MARK AUERBACH
-----------------------------------
TITLE: Vice President
--------------------------------
WITNESSED BY:
/s/ JOE A. CRUZ
- -------------------------------------- [STAMP]
DOWLING'S FLEET SERVICE CO., INC.
BY: /s/ MARK AUERBACH
-----------------------------------
TITLE: Vice President
--------------------------------
WITNESSED BY:
/s/ JOE A. CRUZ
- -------------------------------------- [STAMP]
S-16
<PAGE> 46
OAKHURST MANAGEMENT CORPORATION
BY: /s/ MARK AUERBACH
------------------------------------
TITLE: Vice President
---------------------------------
WITNESSED BY:
/s/ JOE A. CRUZ
- --------------------------------------- [STAMP]
OAKHURST HOLDINGS, INC.
BY: /s/ MARK AUERBACH
------------------------------------
TITLE: Vice President
---------------------------------
WITNESSED BY:
/s/ JOE A. CRUZ
- -------------------------------------- [STAMP]
G&O SALES COMPANY
BY: /s/ MARK AUERBACH
-----------------------------------
TITLE: Vice President
--------------------------------
WITNESSED BY:
/s/ JOE A. CRUZ
- -------------------------------------- [STAMP]
[THIS SCHEDULE MUST BE EXECUTED BEFORE A NOTARY PUBLIC]
S-17
<PAGE> 47
[LOGO - FINOVA]
SECURED PROMISSORY NOTE
$1,500,000 AS OF MARCH 28, 1996
FOR VALUE RECEIVED, the undersigned, OAKHURST COMPANY, INC., a
Delaware corporation, STEEL CITY PRODUCTS, INC., a Delaware corporation, PUMA
PRODUCTS, INC., a Texas corporation, H&H DISTRIBUTORS, INC., a Pennsylvania
corporation, DOWLING'S FLEET SERVICE CO., INC., a New York corporation,
OAKHURST MANAGEMENT CORPORATION, a Texas corporation, OAKHURST HOLDINGS, INC.,
a Delaware corporation, and G&O SALES COMPANY, a Pennsylvania corporation,
hereby jointly and severally, promise to pay to FINOVA CAPITAL CORPORATION,
("FINOVA"), or order, at 355 South Grand Avenue, Suite 2400, Los Angeles,
California 90071, or at such other address as the holder may specify in
writing, the principal sum of One Million Five Hundred Dollars ($1,500,000)
plus interest in the manner and upon the terms and conditions set forth below.
This Secured Promissory Note ("Note") is made pursuant to that certain Loan and
Security Agreement of even date between the undersigned and FINOVA (the
"Agreement"), the provisions of which are incorporated herein by this
reference. Capitalized terms herein, unless otherwise noted, shall have the
meaning set forth in the Agreement.
1 RATE AND PAYMENT OF INTEREST.
The principal balance of this Note shall bear interest at a
per annum rate of one and one-half (1.5) percentage points in excess of the
rate of interest announced publicly by Citibank, N.A., from time to time as its
"base rate" (or any successor thereto), which may not be such institution's
lowest rate (the "Base Rate"). The interest rate chargeable hereunder shall be
increased or decreased, as the case may be, without notice or demand of any
kind, upon the announcement of any change in the Base Rate. Each change in the
Base Rate shall be effective hereunder on the first day following the
announcement of such change, provided, that a cumulative change of less than
one-fourth (0.25) of one percentage point shall not be considered. Interest
charges and all other fees and charges herein shall be computed on the basis of
a year of three hundred sixty (360) days and actual days elapsed and shall be
payable to FINOVA in arrears on the first day of each month hereafter at its
address set forth above.
2 SCHEDULE OF PAYMENTS.
Principal and interest under this Note shall be due and
payable in accordance with the following schedule:
a. Twenty-Four (24) equal successive monthly
installments, consisting of a portion of principal and all accrued but unpaid
interest to date, in the amount of Thirty-One Thousand Six Hundred Eighty-Six
and 37/100 Dollars ($31,686.37) each on the first Business Day of each calendar
month, commencing April 1, 1996; and
<PAGE> 48
b. a final installment of all remaining principal,
accrued and unpaid interest and all other sums payable pursuant to the Loan
Documents on April 1, 1998.
3 PREPAYMENT.
Prepayment may be made under this Note in whole or in part,
subject to the Termination Fee and permitted refinancing, as applicable, as set
forth in the Agreement.
4 HOLDER'S RIGHT OF ACCELERATION.
If the Agreement is terminated for any reason whatsoever, or
if there shall occur an Event of Default or if this Note is not paid when due,
the entire remaining principal balance and all accrued and unpaid interest and
other fees and charges with respect to this Note shall, at FINOVA's option,
become immediately due and payable.
5 HOLDER'S RIGHTS UPON DEFAULT.
If any Event of Default occurs, then from the date such Event
of Default occurs until it is cured or waived in writing, in addition to any
agreed upon charges, the principal balance of this Note shall thereafter, at
FINOVA's option, bear interest at two (2.00) percentage points per annum in
addition to the rate set forth in Section 1 above, calculated over a year of
three hundred sixty (360) days.
6 ADDITIONAL RIGHTS OF HOLDER.
If any installment of principal or interest hereunder is not
paid when due, the holder shall have, in addition to the rights set forth
herein, in the Agreement and under law, the right to compound interest by
adding the unpaid interest to principal, with such amount thereafter bearing
interest at the rate provided in this Note.
7 GENERAL PROVISIONS.
7.1 If this Note is not paid when due or upon the occurrence of an
Event of Default, the undersigned further promises to pay all costs
of collection, foreclosure fees, reasonable attorneys' fees and
expert witness fees incurred by the holder, whether or not suit is
filed hereon, and the fees, costs and expenses as provided in the
Agreement.
7.2 The undersigned hereby consents to any and all renewals,
replacements and/or extensions of time for payment of this Note
before, at or after maturity.
7.3 The undersigned hereby consents to the acceptance, release or
substitution of security for this Note.
7.4 Presentment for payment, notice of dishonor, protest and
notice of protest are hereby expressly waived.
7.5 The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the
interest rate set forth on the Schedule, calculated and applied to
the principal balance of this Note in accordance with the provisions
of this Note; (ii) interest after an Event of Default, calculated and
applied to the amounts due under this Note in accordance with the
provisions hereof; and
2
<PAGE> 49
(iii) all Additional Sums (as herein defined), if any. Borrower
agrees to pay an effective contracted for rate of interest which is
the sum of the above-referenced elements. All examination fees,
attorneys fees, expert witness fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, Supplemental
Interest, Termination Fees, Minimum Interest Charges, other charges,
goods, things in action or any other sums or things of value paid or
payable by Borrower (collectively, the "Additional Sums"), whether
pursuant to this Note, the Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or
otherwise with respect to this lending transaction, that under any
applicable law may be deemed to be interest with respect to this
lending transaction, for the purpose of any applicable law that may
limit the maximum amount of interest to be charged with respect to
this lending transaction, shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the
agreed upon and "contracted for rate of interest" of this lending
transaction shall be deemed to be increased by the rate of interest
resulting from the inclusion of the Additional Sums.
It is the intent of the parties to comply with the usury law of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is
agreed that notwithstanding any provisions to the contrary in this
Note, or in any of the documents securing payment hereof or otherwise
relating hereto, in no event shall this Note or such documents
require the payment or permit the collection of interest in excess of
the maximum contract rate permitted by the Applicable Usury Law (the
"Maximum Interest Rate"). In the event (a) any such excess of
interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the loan evidenced hereby,
(b) the maturity of the indebtedness evidenced by this Note is
accelerated in whole or in part, or (c) all or part of the principal
or interest of this Note shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or
received in connection with the loan evidenced hereby, would exceed
the Maximum Interest Rate, then in any such event (1) the provisions
of this paragraph shall govern and control, (2) neither Borrower nor
any other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the Maximum Interest Rate, (3) any
such excess which may have been collected shall be either applied as
a credit against the then unpaid principal amount hereof or refunded
to Borrower, at FINOVA's option, and (4) the effective rate of
interest shall be automatically reduced to the Maximum Interest Rate.
It is further agreed, without limiting the generality of the
foregoing, that to the extent permitted by the Applicable Usury Law;
(x) all calculations of interest which are made for the purpose of
determining whether such rate would exceed the Maximum Interest Rate
shall be made by amortizing, prorating, allocating and spreading
during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with such loan; and (y) in
the event that the effective rate of interest on the loan should at
any time exceed the Maximum Interest Rate, such excess interest that
would otherwise have been collected had there been no ceiling imposed
by the Applicable Usury Law shall be paid to FINOVA from time to
time, if and when the effective interest rate on the loan otherwise
falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest
Rate, until the entire amount of interest which would otherwise have
been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Borrower further agrees that should
the Maximum Interest Rate be increased at any time hereafter because
of a change in the Applicable Usury Law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to
all indebtedness evidenced hereby regardless of when incurred; but,
again to the extent not prohibited by the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a change in
the Applicable Usury Law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
7.6 No delay or omission on the part of the holder of this Note in
exercising any right shall operate as a waiver thereof or of any
other right.
7.7 No waiver by the holder of this Note upon any one occasion
shall be effective unless in writing nor shall it be construed as a
bar or waiver of any right or remedy on any future occasion.
3
<PAGE> 50
7.8 Time is of the essence for the performance by the undersigned
of the obligations set forth in this Note.
7.9 Should any one or more of the provisions of this Note be
determined illegal or unenforceable, all other provisions shall
nevertheless remain effective.
7.10 This Note cannot be changed, modified, amended or
terminated orally.
7.11 This Note shall be governed by, construed and enforced in
accordance with the laws of the State of Arizona, without reference
to the principles of conflicts of laws thereof.
7.12 THE UNDERSIGNED HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO
THIS NOTE, AND ACKNOWLEDGES THAT LENDER ALSO WAIVES SUCH RIGHT.
7.13 THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, HEREBY
IRREVOCABLY AUTHORIZE THE PROTHONOTARY, CLERK OF THE COURT, OR ANY
ATTORNEY OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA,
OR ANY OTHER STATE, TO APPEAR FOR THE UNDERSIGNED AND CONFESS
JUDGMENT AGAINST THE UNDERSIGNED AND IN FAVOR OF FINOVA, ITS
SUCCESSORS AND ASSIGNS, FOR THE UNPAID PRINCIPAL BALANCE HEREOF,
UNPAID INTEREST THEREON, REASONABLE ATTORNEYS' FEES AND ALL OTHER
INDEBTEDNESS OF ANY OF THE UNDERSIGNED TO FINOVA UNDER THE LOAN
DOCUMENTS. THE AUTHORITY TO ENTER JUDGMENT SHALL NOT BE EXHAUSTED BY
ONE EXERCISE HEREOF, BUT SHALL CONTINUE FROM TIME TO TIME UNTIL FULL
PAYMENT OF ALL INDEBTEDNESS OF THE UNDERSIGNED HEREUNDER AND UNDER
THE LOAN DOCUMENTS. NOTWITHSTANDING THE ENTRY OF ANY JUDGMENT UNDER
THIS NOTE, THE UNPAID PRINCIPAL BALANCE UNDER THIS NOTE SHALL
CONTINUE TO BEAR INTEREST AT THE RATE SET FORTH HEREIN.
8 SECURITY FOR THIS NOTE.
This Note is secured by real property and other collateral
described in the Agreement and is subject to all of the terms and conditions
set forth in the Agreement and related collateral documents, including, but not
limited to, the remedies specified therein.
IN WITNESS WHEREOF, this Note has been executed and delivered
as of the date first set forth above.
OAKHURST COMPANY, INC.
By /s/ MARK AUERBACH
-----------------------------------
Title Chairman and Chief Executive Officer
-----------------------------------
STEEL CITY PRODUCTS, INC.
By /s/ MARK AUERBACH
-----------------------------------
Title Chief Financial Officer
-----------------------------------
4
<PAGE> 51
PUMA PRODUCTS, INC.
By /s/ MARK AUERBACH
------------------------------------------
Title VICE PRESIDENT
----------------------------------------
H&H DISTRIBUTORS, INC.
By /s/ MARK AUERBACH
------------------------------------------
Title VICE PRESIDENT
----------------------------------------
DOWLING'S FLEET SERVICE CO., INC.
By /s/ MARK AUERBACH
------------------------------------------
Title VICE PRESIDENT
----------------------------------------
OAKHURST MANAGEMENT CORPORATION
By /s/ MARK AUERBACH
------------------------------------------
Title VICE PRESIDENT
----------------------------------------
OAKHURST HOLDINGS, INC.
By /s/ MARK AUERBACH
-----------------------------------------
Title VICE PRESIDENT
---------------------------------------
G&O SALES COMPANY
By /s/ MARK AUERBACH
-----------------------------------------
Title VICE PRESIDENT
---------------------------------------
5
<PAGE> 1
EXHIBIT 10.18
OPEN-END MORTGAGE
THIS MORTGAGE SECURES FUTURE ADVANCES.
THIS MORTGAGE made this 27th day of March, 1996, but effective this
28th day of March, 1996, between STEEL CITY PRODUCTS, INC. (formerly known as
Hallwood Industries Incorporated, successor by merger to Heck's, Inc., a West
Virginia corporation), a Delaware Corporation with an address at 630 Alpha
Drive, Pittsburgh, Pennsylvania 15238 ("Mortgagor") and FINOVA CAPITAL
CORPORATION, with an address at 355 South Grand Avenue, Suite 2400, Los
Angeles, California 90071 ("Mortgagee").
W I T N E S S E T H:
WHEREFORE, Mortgagor has executed and delivered to Mortgagee a Secured
Promissory Note bearing even date herewith, wherein Mortgagor together with
Oakhurst Company, Inc., Puma Products, Inc., H&H Distributors, Inc., Dowling's
Fleet Services Co., Inc., Oakhurst Holdings, Inc., G&O Sales Company and
Oakhurst Management Corporation (each a "Borrower"), jointly and severally
promise to pay to Mortgagee the principal sum of One Million Five Hundred
Thousand Dollars ($1,500,000) lawful money of the United States of America
(that, together with any and all restatements thereof or amendments thereto, is
referred to herein as the "Note") evidencing certain indebtedness owed by
Mortgagor to Mortgagee pursuant to that certain Loan and Security Agreement of
even date herewith by and between Mortgagor, each Borrower and Mortgagee (the
Note, the Loan and Security Agreement together with any and all documents or
instruments executed in connection therewith hereinafter referred to as the
"Financing Agreements"), all of which are incorporated herein by reference;
WHEREFORE, as further security for any and all obligations owing from
Mortgagor and each Borrower to Mortgagee under the Financing Agreements
("Obligations"), Mortgagor has agreed to give Mortgagee a first lien mortgage
on certain property owned by Mortgagor according to the terms of this Mortgage.
NOW, THEREFORE, in consideration of the indebtedness of Mortgagor and
each Borrower to Mortgagee which Mortgagor acknowledges and confirms is
valuable and of benefit to Mortgagor, and as security for payment to Mortgagee
of the Obligations, and for performance of the agreements, conditions,
covenants, provisions and stipulations contained herein and therein, Mortgagor
has granted, conveyed, aliened, enfeoffed, released, confirmed and mortgaged,
and by these presents does hereby grant, convey, alien, enfeoff, release,
confirm and mortgage unto Mortgagee, all those certain tracts or parcels of
land commonly known as 630 Alpha Drive, Pittsburgh, Pennsylvania located in the
Township of O'Hara,
<PAGE> 2
Allegheny County, Pennsylvania and more particularly described in Exhibit "A"
attached hereto and made a part hereof (hereinafter referred to as the "Land").
TOGETHER WITH all of Mortgagor's right, title and interest now owned
or hereafter acquired in:
(a) all easements, rights-of-way, gores of land, streets,
ways, alleys, passages, rights, waters, water courses, water rights and powers,
riparian rights, mineral rights, privileges, tenements, hereditaments and
appurtenances whatsoever in any way belonging, relating or appertaining to any
of the Land or which hereafter shall in any way belong, relate or be
appurtenant thereto, whether now owned or hereafter acquired by Mortgagor, and
the reversions and remainders; and
(b) all rents, issues and profits thereof; and
(c) all buildings and other improvements erected or
hereafter erected upon the Land and all building materials, fixtures, building
machinery and building equipment delivered on site to the Land during the
course of, or in connection with, the construction of, or reconstruction of, or
remodeling of any buildings and improvements from time to time during the term
hereof; and
(d) all fixtures, appliances, machinery, furniture and
equipment of any nature whatsoever, and other articles of personal property now
or at any time hereafter installed in, attached to or situated in or upon the
Land or any buildings and improvements now or hereafter erected on, upon, under
or forming a part of the Land, or used or intended to be used in connection
with the Land, or in the operation of any buildings and improvements now or
hereafter erected thereon, or in the operation or maintenance of any such
building or improvement, plant or business situate thereon, whether or not the
personal property is or shall be affixed thereto; and
(e) all licenses (including but not limited to operating
licenses or similar matters), contracts, management contracts or agreements,
franchise agreements, permits, bonds, authorities or certificates required or
used in connection with the ownership of, or the operation or maintenance of
the real property or improvements or personal property, provided that no such
contract, agreement, license or the like shall be binding upon Mortgagee except
with Mortgagee's prior consent; and
(f) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or liquidated claims, including,
without limitation, proceeds of insurance and condemnation awards.
All of the Land, buildings and improvements, fixtures, machinery,
furniture, equipment, tenements, hereditaments and appurtenances, proceeds and
other property interests above described and hereby mortgaged are sometimes
collectively referred to herein as the "Mortgaged Property".
-2-
<PAGE> 3
TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed or
mentioned and intended so to be, unto Mortgagee, in fee simple, forever.
PROVIDED ALWAYS, and this instrument is upon the express condition
that, if Mortgagor pays to Mortgagee the principal sum mentioned in the Note,
the interest thereon and all other sums payable by Mortgagor and any Borrower
to Mortgagee as are secured hereby, in accordance with the provisions of the
Financing Agreements, the Note and this Mortgage, at the times and in the
manner specified, without deduction, fraud or delay, and Mortgagor performs and
complies with all the agreements, conditions, covenants, provisions and
stipulations contained herein and in the Financing Agreements, then this
Mortgage and the estate hereby granted shall cease and become void.
1. Mortgagor's Representations. Mortgagor warrants and
represents that it possesses a good and marketable title to an indefeasible fee
simple estate in the Mortgaged Property; that Mortgagor has full power and
lawful authority to subject the Mortgaged Property to the lien of this Mortgage
in the manner and form herein provided; that it shall be lawful for Mortgagee
at all times to enter upon, hold, occupy and enjoy the Mortgaged Property and
every part thereof; that the Mortgaged Property is free from all liens and
encumbrances subject only to those title exceptions listed in the mortgagee
title insurance policy approved by and issued to Mortgagee, insuring the
priority of the lien of this Mortgage; that all information, reports, papers
and data given to Mortgagee with respect to the Mortgaged Property or Mortgagor
are accurate in all material respects; that no notice of taking by eminent
domain or condemnation of any part of the Mortgaged Property has been received,
and Mortgagor has no knowledge that any of such is contemplated; that the
Mortgaged Property and the present use and occupancy thereof are in compliance
with all applicable laws, rules, ordinances, statutes and regulations; and that
no part of the Mortgaged Property is located in an area designated by any
federal, state or local governmental entity as having a special flood hazard.
2. Payment and Performance. Mortgagor and each Borrower
shall pay to Mortgagee, in accordance with the terms of the Financing
Agreements and this Mortgage, the principal and interest, and other sums
therein set forth; shall perform and comply with all the agreements,
conditions, covenants, provisions and stipulations of the Financing Agreements
and this Mortgage; and shall timely perform all of its material obligations and
duties as landlord under any lease of all or any portion of the Mortgaged
Property now or hereafter in effect.
3. Maintenance of Mortgaged Property. Mortgagor shall
keep and maintain or cause to be kept and maintained all buildings and
improvements now or at any time hereafter erected on the Mortgaged Property and
the sidewalks and curbs abutting them, in good order and condition and in a
rentable and tenantable state of repair, and will make or cause to be made, as
and when necessary for such purpose, all repairs, renewals and replacements,
structural and nonstructural, exterior and interior, ordinary and
extraordinary, foreseen and unforeseen. Mortgagor shall abstain from and shall
not permit the commission of waste in or about the Mortgaged Property; shall
not remove or demolish, or alter the structural character of, any building
erected at any time on or constituting a part of the Mortgaged Property or
alter the exterior of the building, without the prior written
-3-
<PAGE> 4
consent of Mortgagee; and shall not permit the Mortgaged Property to become
vacant, deserted or abandoned. Mortgagor further covenants and agrees to
maintain in good condition on the Mortgaged Property all items of inventory,
equipment and any other personal property necessary for or used in the
maintenance and operation of the Mortgaged Property, free of any security
interest (except a security interest in favor of Mortgagee), and, upon request,
to furnish to Mortgagee financing statements, continuation certificates and
such other documents necessary to perfect and maintain in favor of Mortgagee a
security interest in such personal property.
4. Insurance.
(a) Mortgagor shall keep the Mortgaged Property
continuously insured, to the extent of its full insurable value, against loss
or damage by fire, with extended coverage and business interruption coverage
and against such other hazards (including, without limitation, coverage against
loss or damage by vandalism, malicious mischief, sprinkler leakage and flood)
as Mortgagee may reasonably require, and shall maintain comprehensive general
public liability property damage and workmen's compensation insurance, in an
insurance company or companies qualified to insure property located in
Pennsylvania and satisfactory to Mortgagee, and in such total amounts as
Mortgagee may reasonably require from time to time. Such insurance shall
contain agreed amount endorsements, inflation guard endorsements and
replacement cost endorsements reasonably satisfactory to Mortgagee. During the
course of any construction or repair of improvements on the Mortgaged Property
for which builder's risk insurance may be obtained, Mortgagor shall acquire and
maintain builder's completed value risk insurance against all risks of physical
loss, including collapse and transit coverage, during construction of such
improvements, with deductibles not to exceed $10,000 in non-reporting form,
covering the total value of work performed and equipment, supplies and
materials furnished. Mortgagor shall also obtain insurance affording
protection against rental loss in an amount of not less than the rent payable
during the then current twelve (12) month period in the event of any damage
caused by the perils referred to above. All policies of insurance, including
policies for any amounts carried in excess of the required minimum and policies
not specifically required by Mortgagee, shall be in form reasonably
satisfactory to Mortgagee, shall name Mortgagee as the insured and a loss payee
endorsement, shall be maintained in full force and effect, shall be assigned
and delivered to Mortgagee, with premiums prepaid, as collateral security for
payment of the indebtedness secured hereby, shall be endorsed with a standard
mortgagee clause in favor of Mortgagee (substantially equivalent to the
Pennsylvania standard mortgagee endorsement and a loss payee endorsement) not
subject to contribution, and shall provide for at least thirty (30) days'
notice of cancellation, termination, modification, refusal to renew or
reduction to Mortgagee. If the insurance, or any part thereof, shall expire,
or be withdrawn, or become void or unsafe by Mortgagor's breach of any
condition thereof, or become void or unsafe by reason of the failure or
impairment of the capital of any company in which the insurance may then be
carried, or if for any reason in the reasonable opinion of Mortgagee the
insurance shall be unsatisfactory to Mortgagee, Mortgagor shall place new
insurance on the Mortgaged Property satisfactory to Mortgagee. All renewal
policies, with premiums paid, shall be delivered to Mortgagee at least thirty
(30) days before expiration of the old policies.
-4-
<PAGE> 5
(b) In the event of loss, Mortgagor will give
immediate notice thereof to Mortgagee, and Mortgagee may make proof of loss if
not made promptly by Mortgagor. Each insurance company concerned is hereby
authorized and directed to make payment under such insurance, including return
of unearned premiums, directly to Mortgagee instead of to Mortgagor and
Mortgagee jointly, and Mortgagor appoints Mortgagee, irrevocably, as
Mortgagor's attorney-in-fact to endorse any draft therefor. Mortgagee shall
have the right to retain and apply the proceeds of any such insurance, at its
election, to reduction of the indebtedness secured hereby, or to restoration or
repair of the property damaged on such terms as Mortgagee may specify, at
Mortgagee's sole and absolute discretion. If Mortgagee elects to retain and
apply such proceeds to the reduction of the indebtedness secured hereby,
Mortgagee shall have the right in its sole and absolute discretion to apply any
such proceeds, in such order and in such amounts as Mortgagee may elect,
against: (i) any amounts payable by Mortgagor hereunder or under the Financing
Agreements, and/or (ii) accrued and unpaid interest under the Note and on the
other Obligations, and/or (iii) the outstanding principal balance of the Note
or the other Obligations. No application of insurance proceeds to the payment
of the Obligations shall postpone any of the current installments of principal
or interest becoming due under such Financing Agreements until such Financing
Agreements and all interest and other sums due hereunder and thereunder have
been paid in full.
(c) Such policies of insurance and all renewals
thereof are hereby assigned to Mortgagee as additional security for payment of
the indebtedness hereby secured and Mortgagor hereby agrees that any values
available thereunder upon cancellation or termination of any of said policies
or renewals, whether in the form of return of premiums or otherwise, shall be
payable to Mortgagee as assignee thereof. If Mortgagee becomes the owner of
the Mortgaged Property or any part thereof by foreclosure or otherwise, such
policies, including all right, title and interest of Mortgagor thereunder,
shall become the absolute property of Mortgagee. In addition, Mortgagor will
deliver the originals or certified copies of all such policies to Mortgagee,
and, not less than thirty (30) days prior to the expiration date of each such
policy, will deliver to Mortgagee a renewal policy or policies (or certified
copies of such policies) marked "premium paid" or accompanied by other evidence
of payment satisfactory to Mortgagee. Mortgagor shall not change the present
use of any portion of the Mortgaged Property in any manner or permit any
condition to exist on the Mortgaged Property which would permit an insurer to
cancel or increase the premium for any insurance policy or invalidate such
policy in whole or in part. Mortgagor shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to
be maintained under this Paragraph 4 unless Mortgagee is included thereon as a
named insured with loss payable to Mortgagee under a non-contributory mortgagee
clause satisfactory to Mortgagee. Mortgagor shall immediately notify Mortgagee
whenever any such separate insurance is taken out, specifying the insurer
thereunder and full particulars as to the policies evidencing the same.
5. Taxes and Other Charges. Mortgagor shall pay at
least fifteen (15) days before they are due and payable and before any
interest, charge or penalty is due thereon, without any deduction, defalcation
or abatement, all taxes, assessments, levies, liabilities, obligations,
encumbrances, water and sewer rents and all other charges or claims of every
nature and kind which may be imposed, suffered, placed, assessed, levied, or
filed at any
-5-
<PAGE> 6
time against Mortgagor, the Mortgaged Property or any part thereof or against
the interest of Mortgagee therein, or with respect to the Financing Agreements
or Mortgage and/or the ownership of either thereof by Mortgagee, or which by
any present or future law may have priority over the indebtedness secured
hereby either in lien or in distribution out of the proceeds of any judicial
sale, without regard to any law heretofore or hereafter to be enacted imposing
payment of the whole or of any part upon Mortgagee; and insofar as any such
tax, assessment, levy, liability, obligation or encumbrance is of record, the
same shall be promptly satisfied and discharged of record and the original
official document (such as, for instance, the tax receipt or the satisfaction
paper officially endorsed or certified) shall be placed in the hands of
Mortgagee not later than five (5) days prior to the due date thereof.
Provided, however, that if, pursuant to this Mortgage or otherwise, Mortgagor
shall have deposited with Mortgagee before the due date thereof sums sufficient
to pay any such taxes, assessments, levies, water and sewer rents, charges or
claims, and Mortgagor is not otherwise in default, they shall be paid by
Mortgagee; and provided further, that if Mortgagor is not in default hereunder
and in good faith and by appropriate legal action shall contest the validity of
any such item, or the amount thereof, and shall have established on its books
or by deposit of cash with Mortgagee, as Mortgagee may elect, a reserve for the
payment thereof in such amount as Mortgagee may require (including any interest
and penalties which may be payable in connection therewith), then Mortgagor
shall not be required to pay the item or to produce the required receipts,
while the reserve is maintained and so long as the contest operates to prevent
collection, and is maintained and prosecuted with diligence, and shall not have
been terminated or discontinued adversely to Mortgagor. Further, Mortgagor
will not apply for or claim any deduction, by reason of this Mortgage, from the
taxable value of all or any part of the Mortgaged Property. It is expressly
agreed that no credit shall be claimed or allowed on the interest payable on
the Note or the Obligations because of any taxes or other charges paid.
6. Installments for Insurance, Taxes and Other Charges.
Without limiting the effect of Paragraphs 4 and 5 hereof, Mortgagee may require
Mortgagor to pay to Mortgagee (or to such other entity as Mortgagee shall
designate), monthly with the monthly installments of interest (or the monthly
installments of principal and interest when applicable), an amount equal to
one-twelfth (1/12) of the annual premiums for the insurance policies referred
to hereinabove and the annual real estate taxes, water and sewer rents, any
special assessments, charges or claims and any other item which at any time may
be or become a lien upon the Mortgaged Property prior to the lien of this
Mortgage; and on demand from time to time Mortgagor shall pay to Mortgagee any
additional sums necessary to pay the premiums and other items, all as estimated
by Mortgagee. The amounts so paid shall be security for the premiums and other
items and shall be used in payment thereof if Mortgagor is not otherwise in
default hereunder. No amount so paid shall be deemed to be trust funds but may
be commingled with general funds of Mortgagee and no interest shall be payable
thereon. If, pursuant to any provision of this Mortgage or the Note, the whole
amount of the unpaid principal debt becomes due and payable, Mortgagee shall
have the right, in its sole and absolute discretion, to apply any amount so
held, in such order and in such amounts as Mortgagee may elect, against: (a)
any amounts payable by Mortgagor hereunder or under the Financing Agreements,
and/or (b) accrued and unpaid interest under the Note or any other Obligations,
and/or (c) the outstanding principal balance of the Note or the other
Obligations. At Mortgagee's option, Mortgagee from time to time may waive, and
after any such waiver
-6-
<PAGE> 7
may reinstate, the provisions of this paragraph requiring the monthly payments.
Mortgagor will furnish to Mortgagee bills and other requests for payment in
sufficient time to enable Mortgagee to pay such taxes, assessments, levies,
charges and fees as provided above.
7. Corporate Existence and Taxes. If Mortgagor or any
successor or grantee of Mortgagor is a corporation, it shall keep in effect its
existence and rights as a corporation under the laws of the state of its
incorporation and its right to own property and transact business in the state
in which the Mortgaged Property is situated during the entire time that it has
any ownership interest in the Mortgaged Property. For all periods during which
title to the Mortgaged Property or any part thereof shall be held by a
corporation or association subject to corporate taxes or taxes similar to
corporate taxes, Mortgagor shall file returns for such taxes with the proper
authorities, bureaus or departments and it shall pay, when due and payable and
before interest or penalties are due thereon, all taxes owing by Mortgagor to
the United States, to such state of incorporation and to the state in which the
Mortgaged Property is situated and any political subdivision thereof, and shall
produce to Mortgagee receipts showing payment of any and all such taxes,
charges or assessments prior to the last dates upon which such taxes, charges
or assessments are payable without interest or penalty charges, and within ten
(10) days of receipt thereof all settlements, notices of deficiency or
overassessment and any other notices pertaining to Mortgagor's tax liability
which may be issued by the United States, such state of incorporation, the
state in which the Mortgaged Property is situated and any political subdivision
thereof.
8. Documentary and Other Stamps. If at any time the
United States, the state in which the Mortgaged Property is located or any
political subdivision thereof, or any department or bureau of any of the
foregoing, shall require documentary, revenue or other stamps on the Financing
Agreements secured hereby or this Mortgage, Mortgagor on demand shall pay for
them with any interest or penalties payable thereon.
9. Future Taxes. If hereafter any law or ordinance
shall be adopted imposing a tax directly or indirectly on Mortgagee with
respect to the Mortgaged Property, the value of Mortgagor's equity therein, or
the indebtedness evidenced by the Financing Agreements and secured by this
Mortgage, Mortgagee, at its election, shall have the right at any time after
the tax has been imposed to give Mortgagor written notice declaring that the
Obligations shall be due on a specified date not less than sixty (60) days
thereafter which notice shall specify the nature of the tax which is the basis
for acceleration; provided, however, that such election shall be ineffective
if, prior to the specified date, Mortgagor lawfully pays the tax (in addition
to all other payments required hereunder) and agrees to pay the tax whenever it
becomes due and payable thereafter, which agreement shall then constitute a
part of this Mortgage.
10. Security Agreement.
(a) This Mortgage constitutes a security agreement
within the meaning of the Uniform Commercial Code as enacted this date in the
Commonwealth of Pennsylvania (the "Uniform Commercial Code"). Mortgagor hereby
grants to Mortgagee a security interest in all that property included in the
Mortgaged Property which might otherwise be deemed "personal property",
including, but not limited to, all furniture, furnishings, fixtures, equipment,
-7-
<PAGE> 8
machinery, leases, rents, issues, profits, contract rights, accounts, general
intangibles and all other property used or useable in connection with the
Mortgaged Property, whether now owned or hereafter acquired by Mortgagor, and
all substitutions, accretions and component parts, replacements thereof, and
additions thereto and all cash and non-cash proceeds thereof.
(b) Mortgagor shall execute, deliver, file and
refile any financing statements, continuation statements, or other security
agreements Mortgagee may require from time to time to confirm the lien of this
Mortgage with respect to such property. Without limiting the foregoing,
Mortgagor hereby irrevocably appoints Mortgagee attorney-in-fact for Mortgagor
to execute, deliver and file such instruments for and on behalf of Mortgagor.
Mortgagor shall pay, or at Mortgagee's election shall reimburse Mortgagee for,
all filing fees in connection therewith. Mortgagor shall not change its
principal place of business without giving Mortgagee at least thirty (30) days
prior written notice thereof, which notice shall be accompanied by new
financing statements executed by Mortgagor in the same form as the financing
statements delivered to Mortgagee on the date hereof except for the change of
address.
(c) Upon any Event of Default hereunder or under
the Financing Agreements, Mortgagee shall have, in addition to any other rights
and remedies hereunder or under the Financing Agreements, all of the rights and
remedies granted to a secured party under the Uniform Commercial Code with
respect to such personal property. To the extent permitted by law, Mortgagor
and Mortgagee agree that the items set forth on the financing statements shall
be treated as part of the real estate and improvements regardless of the fact
that such items are set forth in the financing statements. Such items are
contained in the financing statements to create a security interest in favor of
Mortgagee in the event such items are determined to be personal property under
the law. Notwithstanding any release of any or all of that property included
in the Mortgaged Property which is deemed "real property", any proceedings to
foreclose this Mortgage or its satisfaction of record, the terms hereof shall
survive as a security agreement with respect to the security interest created
hereby and referred to above until the repayment or satisfaction in full of the
obligations of Mortgagor as are now or hereafter evidenced by the Financing
Agreements.
(d) To the extent permitted under the Uniform
Commercial Code, Mortgagor waives all rights of redemption and all other rights
and remedies of a debtor thereunder and all formalities prescribed by law
relative to the sale or disposition of the personal property after the
occurrence of an Event of Default hereunder and to all other rights and
remedies of Mortgagor with respect thereto. In exercising its right to take
possession of the personal property upon the occurrence of an Event of Default
hereunder, Mortgagee may enter upon the Mortgaged Property without being guilty
of trespass or any other wrong-doing, and without liability for damage thereby
occasioned.
(e) Mortgagor shall reimburse Mortgagee, on
demand, for all reasonable expenses of retaking, holding, preparing for sale,
lease or other use or disposition, selling, leasing or otherwise using or
disposing of the personal property which are incurred or paid by Mortgagee,
including, without limitation, all attorneys' fees, legal
-8-
<PAGE> 9
expenses and costs, and all such expenses shall be added to Mortgagor's
obligations to Mortgagee and shall be secured hereby.
11. Compliance with Laws and Regulations. Mortgagor
shall comply with all laws, ordinances, regulations and orders of all federal,
state, municipal and other governmental authorities relating to the Mortgaged
Property. Mortgagor will pay all license fees and similar municipal charges
for the use of the Mortgaged Property and any other areas now or hereafter
comprising part thereof or used in connection therewith and will not, unless so
required by a governmental agency having jurisdiction, discontinue use or
occupancy of any portion of the Mortgaged Property without the prior written
consent of Mortgagee. The Mortgagor shall not take or permit any action with
respect to the Mortgaged Property which will in any manner impair the security
of this Mortgage.
12. Inspection. Mortgagee and any persons authorized by
Mortgagee shall have the right at any time, to enter the Mortgaged Property at
a reasonable hour to inspect and photograph its condition and state of repair
and/or for the purpose of appraising the same.
13. Declaration of No Set-Off. Within one (1) week after
being requested to do so by Mortgagee, Mortgagor shall certify to Mortgagee or
to any proposed assignee of this Mortgage, in a writing duly acknowledged, the
amount of principal, interest and other charges then owing on the obligation
secured by this Mortgage and by prior liens, if any, and whether Mortgagor
claims any set-offs or defenses against Mortgagor's obligation to pay such
amounts, and if so the precise basis for such set-offs or defenses.
14. Financial Statements. So that Mortgagee will have a
full and clear understanding of the operation of the Mortgaged Property and the
financial standing of Mortgagor, Mortgagor shall furnish Mortgagee, within
ninety (90) days after the end of each fiscal year of Mortgagor during the
entire term of the Loan and Security Agreement, with statements reflecting, in
reasonable detail, a balance sheet for the operation of the Mortgaged Property,
a fully itemized statement of the gross income and expenses of the Mortgaged
Property for such fiscal year, including an itemized rent roll, and a balance
sheet and profit and loss statement for Mortgagor, all reviewed by a certified
public accountant. Mortgagor agrees to make the books and accounts relating to
the Mortgaged Property and Mortgagor's operations available for inspection by
Mortgagee, or its representatives, upon written request at any reasonable time.
15. Required Notices. Mortgagor shall notify Mortgagee
promptly of the occurrence of any of the following:
(a) a fire or other casualty causing damage to
the Mortgaged Property;
(b) receipt of notice of eminent domain
proceedings or condemnation of all or any part of the Mortgaged Property;
-9-
<PAGE> 10
(c) receipt of notice from any governmental
authority relating to the structure, use or occupancy of the Mortgaged
Property;
(d) receipt of any notice from any tenant of all
or any portion of the Mortgaged Property;
(e) substantial change in the occupancy of the
Mortgaged Property;
(f) commencement of any litigation affecting the
Mortgaged Property other than accident claims fully covered by insurance and
for which the insurance carrier has acknowledged liability; or
(g) receipt of any notice from the holder or
claimant of any lien or security interest in the Mortgaged Property or any part
thereof.
16. Condemnation.
(a) In the event of any condemnation or taking of
any part of the Mortgaged Property by eminent domain, alteration of the grade
of any street, or other injury to or decrease in the value of the Mortgaged
Property by any public or quasi-public authority or corporation, all proceeds
(that is, the award or agreed compensation for the damages sustained) allocable
to Mortgagor are hereby assigned by Mortgagor to Mortgagee to further secure
the payment of the indebtedness secured hereby. No settlement for damages
sustained shall be made by Mortgagor without Mortgagee's prior written
approval. Mortgagee is authorized and empowered (but not required) to collect
and receive any such condemnation award and all condemnation proceeds which
then shall be applied in the order and in the amounts that Mortgagee, in
Mortgagee's sole discretion, may elect, to the reduction of the indebtedness
secured hereby, or toward payment to Mortgagor, on such terms as Mortgagee may
specify, to be used for the sole purpose of altering, restoring or rebuilding
any part of the Mortgaged Property which may have been altered, damaged or
destroyed as a result of the taking, alteration of grade or other injury to the
Mortgaged Property. Mortgagor shall execute such further assignments of any
such awards as Mortgagee may require. If Mortgagee elects to apply such
proceeds to reduction of the indebtedness secured hereby, Mortgagee shall have
the right in its sole and absolute discretion to apply any such proceeds, in
such order and in such amounts as Mortgagee may elect, against any amounts
payable by Mortgagor hereunder or under the Financing Agreements.
(b) If prior to the receipt of the proceeds by
Mortgagee the Mortgaged Property shall have been sold on foreclosure of this
Mortgage, Mortgagee shall have the right to receive the proceeds to the extent
of:
(i) any deficiency found to be due to
Mortgagee in connection with the foreclosure sale, with legal interest thereon,
and
(ii) reasonable counsel fees, costs and
disbursements incurred by Mortgagee in connection with collection of the
proceeds and the proceedings to establish the deficiency.
-10-
<PAGE> 11
(c) If the amount of the initial award of damages
for the condemnation is insufficient to pay in full the indebtedness secured
hereby with interest and other appropriate charges, Mortgagee shall have the
right to prosecute to final determination or settlement an appeal or other
appropriate proceedings in the name of Mortgagee or Mortgagor, for which
Mortgagee is hereby appointed irrevocably as attorney-in-fact for Mortgagor,
which appointment, being for security, is irrevocable. In that event, the
expenses of the proceedings, including counsel fees, shall be paid first out of
the proceeds and only the excess, if any, paid to Mortgagee shall be credited
against the amounts due under this Mortgage.
(d) Nothing herein shall limit the rights
otherwise available to Mortgagee, at law or in equity, including the right to
intervene as a party to any condemnation proceeding.
(e) No application of condemnation proceeds to
the payment of the Obligations shall postpone any of the current installments
of principal or interest becoming due under the Financing Agreements until the
Financing Agreements and all interest and other sums due thereunder and
hereunder are paid in full.
17. Leases.
(a) Mortgagor hereby assigns to Mortgagee all
existing and future leases (the "Leases") and all rents and profits of the
Mortgaged Property as further security for the payment of the indebtedness
hereby secured and Mortgagor grants to Mortgagee the right to enter upon the
Mortgaged Property for the purposes of collecting the same and to let the
Mortgaged Property or any part thereof. This assignment and grant shall
continue in effect until the indebtedness secured by this Mortgage is paid.
Mortgagee hereby waives the right to collect said rents and profits, and
Mortgagor shall be entitled to collect and receive the same until default in
this Mortgage or the Financing Agreements, and Mortgagor agrees to use such
rents and profits in payment of principal and interest becoming due on this
Mortgage and in payment of taxes, assessments, sewer rents, water rents and
charges becoming due as aforesaid, but such privilege of Mortgagor may be
revoked by Mortgagee upon default without notice. Mortgagor shall not, without
the written consent of Mortgagee, receive or collect rent or other charge for a
period of more than one month in advance. Mortgagee shall not be deemed to
have accepted the assignment except as a pledge or be obligated as lessor by
virtue of this assignment except by a separate and express written agreement of
Mortgagee.
(b) Mortgagor hereby authorizes and instructs
each and every present and future tenant of any of the Mortgaged Premises to
pay all rents directly to Mortgagee and to perform all other obligations of
that tenant for the direct benefit of Mortgagee, as if Mortgagee were the
landlord under the lease with that tenant, immediately upon receipt of a demand
by Mortgagee to make such payment or perform such obligations. No tenant shall
have any responsibility to ascertain whether such demand is permitted hereunder
or whether a default shall have occurred. Mortgagor hereby waives any right,
claim or demand it may now or hereafter have against any such tenant by reason
of such payment of rents or performance of obligations to Mortgagee; and any
such payment or performance to Mortgagee shall discharge the obligations of the
tenant to make such payment or
-11-
<PAGE> 12
performance to Mortgagor. Mortgagor shall indemnify Mortgagee and hold
Mortgagee harmless from any and all liability under any lease and for any and
all claims and demands which may be asserted against Mortgagee by reason of any
alleged obligations to perform any provision of any lease, except as to
Mortgagee's own gross negligence or willful misconduct.
(c) Mortgagor will deliver to Mortgagee upon
written request a statement under oath setting forth the names of all tenants
occupying space in the Mortgaged Property, a brief description of the space
occupied, the rental payable and the date of expiration of the respective
leases, and the status of the rental payments due thereunder.
(d) Mortgagor shall promptly (i) perform all of
the provisions of the Leases on the part of the landlord thereunder to be
performed; (ii) enforce all of the provisions of the Leases on the part of the
tenants thereunder to be performed; and (iii) appear in and defend any action
or proceeding arising under, growing out of or in any manner connected with the
Leases or the obligations of Mortgagor as landlord or of the tenants
thereunder.
(e) Mortgagor shall not enter into any lease or
agreement to lease all or any part of the Mortgaged Property (i) without
obtaining the prior written approval of the tenant and form and substance of
the lease by Mortgagee; and (ii) unless, at Mortgagee's option, landlord's
interest in any such lease is assigned to Mortgagee, on such form of assignment
as Mortgagee shall specify, as collateral security for the obligations secured
hereby.
18. No Other Financing or Liens. Without the prior
written consent of Mortgagee, which Mortgagee can grant or withhold in its sole
and absolute discretion, Mortgagor shall not create or cause or permit to exist
any lien on, or security interest in the Mortgaged Property or any part thereof
(whether or not such lien or security interest is subordinate to the lien of
this Mortgage), including any furniture, fixtures, appliances, machinery,
equipment, or other items of personal property which are intended to be or
become part of the Mortgaged Property, or securing repayment of monies paid to
or for the benefit of Mortgagor or any Borrower, except as otherwise permitted
in the Loan Agreement.
19. No Transfer. Without the prior written consent of
Mortgagee, which Mortgagee can grant or withhold in its sole and absolute
discretion, Mortgagor will abstain from and will not cause or permit any
transfer of title to, beneficial interest in, or any estate or other interest
in the Mortgaged Property or any part thereof, or any interest in Mortgagor,
voluntarily or by operation of law, whether by sale, exchange, conveyance,
merger, division, consolidation or otherwise, if such will result in the
transfer of control of all or any portion of the Mortgaged Property to other
than Mortgagor, or in a change in the ownership and/or control of Mortgagor.
Any consent given by Mortgagee hereunder shall pertain only to the proposed
transfer for which the consent was requested and shall not obligate Mortgagee
to approve any further transfers.
-12-
<PAGE> 13
20. Right to Remedy Defaults. In the event that
Mortgagor should fail to pay corporate taxes, real estate or other taxes,
assessments, water and sewer rents, charges and claims on or before the date on
which any penalty may be imposed with respect thereto, or fail to pay insurance
premiums, or fail to make necessary repairs, or permit waste, or fail to comply
with any other provision of this Mortgage or the Financing Agreements,
Mortgagee, at its election and without notice to Mortgagor, shall have the
right to make any payment or expenditure and to take any action which Mortgagor
should have made or taken, or which Mortgagee deems reasonably necessary to
protect the security of this Mortgage or the Mortgaged Property, without
prejudice to any of Mortgagee's rights or remedies available hereunder or
otherwise, at law or in equity. All such sums, as well as costs, advanced by
Mortgagee pursuant to this Mortgage shall be due immediately from Mortgagor to
Mortgagee, shall be secured hereby, and shall bear interest at the Default Rate
(as defined in the Note) from the date of payment by Mortgagee until the date
of repayment. Notwithstanding the foregoing, Mortgagee shall not exercise its
right to pay overdue corporate taxes, real estate or other taxes, assessments,
water and sewer rents, charges and claims, provided that Mortgagee has a good
faith dispute regarding the same and is diligently disputing any such corporate
tax, real estate or other tax, assessment, water and sewer rent, charge or
claim.
21. Actions of Mortgagee. Without affecting the lien
and/or priority of this Mortgage upon the Mortgaged Property or any part
thereof or affecting the liability of Mortgagor or any other person liable for
payment of all or any part of the indebtedness secured by this Mortgage or for
performance of any obligation contained herein Mortgagee may, at any time and
from time to time without notice to or the consent of any other person or
entity (except for Mortgagor in the case of a modification of the terms of the
Financing Agreements or this Mortgage), extend the time of payment of the
indebtedness secured hereby, agree to modify the terms of the Financing
Agreements or this Mortgage, release any person liable for payment of any
indebtedness secured hereby or for performance of any obligation, release all
or any part of the security held for the indebtedness secured hereby or
exercise or refrain from exercising or waive any right Mortgagee may have.
22. Additional Advances; Future Indebtedness. Without
limiting any other provisions of this Mortgage, Mortgagee may make future
advances, and this Mortgage shall secure repayment of such advances and the
interest thereon, for the payment of taxes, assessments, maintenance charges,
insurance premiums, or costs similar or dissimilar incurred for the protection
of the Mortgaged Property or for the lien of this Mortgage, expenses incurred
by Mortgagee by reason of default by Mortgagor, or advances made under a
construction loan to enable the completion of the improvements for which the
construction loan was originally made. This Mortgage shall further constitute
as security for any and all present and future loans and advances that may be
made by Mortgagee to Mortgagor or by Mortgagee to any Borrower under the Note
or the Loan and Security Agreement at any time or times hereafter whether or
not any reference is made to this Mortgage at the time that such loans or
advances are made.
23. Notices to Mortgagee. Mortgagor agrees that any
notice given by Mortgagor to Mortgagee purportedly pursuant to 42 PA. C.S.A.
Section 8143 shall be given by registered or certified mail, return receipt
requested, to the address of Mortgagee specified on page 1 of this Mortgage and
only to that address, and such notice shall be deemed to have
-13-
<PAGE> 14
been received no earlier than the date actually and physically received at the
address on page 1.
24. Notice to Prior Lienholders. Mortgagor hereby
authorizes Mortgagee, without liability and at Mortgagee's sole discretion, to
give notice in form and substance satisfactory to Mortgagee of the lien and
security interest created by this Mortgage to a holder of a previously recorded
mortgage which is a lien on the Mortgaged Property in order, among other
things, to subordinate further advances by such mortgage holder.
25. Events of Default. Each of the following shall
constitute an event of default (hereinafter called "Event of Default" or
"Default") hereunder:
(a) The failure of Mortgagor to pay any sum due
under this Mortgage, following the expiration of the applicable notice and
grace periods, if any.
(b) Any event of default under the Financing
Agreements by any party.
(c) Material breach by any Borrower or Mortgagor
of any warranty or material untruth of any representation contained in this
Mortgage or the Financing Agreements.
(d) If Mortgagor shall be in default under any
mortgage or other lien against all or any portion of the Mortgaged Property or
any document executed or delivered in connection therewith.
(e) If Mortgagor shall cause or permit any
transfer of title to, beneficial interest in, or any estate or other interest
in the Mortgaged Property or any part thereof, or any interest in Mortgagor,
voluntarily or by operation of law (other than by execution on the Financing
Agreements or foreclosure under this Mortgage), whether by sale, exchange,
conveyance, merger, division, consolidation or otherwise, if such will result
in the transfer of control of all or any portion of the Mortgaged Property to
other than Mortgagor, or in a change in the ownership and/or control of
Mortgagor, except as otherwise permitted in Paragraph 19 herein.
(f) If any inferior lien encumbers the Mortgaged
Property or any part thereof without the express written consent of the
Mortgagee which can be granted or withheld in Mortgagee's sole discretion.
(g) If any of the following occurs with respect
to Mortgagor, any Borrower, any guarantor or surety of Mortgagor's or any
Borrower's obligations: (i) insolvency, assignment for the benefit of
creditors, the entry of an order for relief under The Bankruptcy Code of 1978,
as amended, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"), or the
filing of a bill in equity or the initiation of other proceedings for the
appointment of a receiver of assets; (ii) the voluntary filing of a petition or
initiation of other proceedings in any court for a composition with creditors
for relief in any manner from the payment of debts when due under any state or
federal law; or (iii) the institution of any proceedings in
-14-
<PAGE> 15
bankruptcy or for the appointment of a receiver, liquidator, trustee or other
such officer under any state or federal law by any creditor which is not
dismissed within sixty (60) days.
(h) Should any federal or state tax lien or any
claim or lien for labor or materials be filed of record against Mortgagor or
the Mortgaged Property or any part thereof; however, after prior notice to
Mortgagee, in the case of any material item, Mortgagor, at its own expense, may
contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due diligence, the amount or validity or application in
whole or in part of any of the taxes or lien for labor or materials, provided
that (i) no default exists under the Financing Agreements or the Mortgage, (ii)
such proceeding shall suspend the collection of the taxes from Mortgagor and
from the Mortgaged Property, (iii) such proceeding shall be permitted under and
be conducted in accordance with the provisions of any other instrument to which
Mortgagor or the Mortgaged Property is subject and shall not constitute a
default thereunder, (iv) neither the Mortgaged Property nor any part thereof or
interest therein will, in the reasonable opinion of Mortgagee, be in danger of
being sold, forfeited, terminated, canceled or lost, (v) Mortgagor shall have
set aside adequate reserves for payment of the taxes, together with all
interest and penalties thereon, and (vi) Mortgagor shall have furnished such
security as may be required in the proceeding, or as may be reasonably
requested by Mortgagee to insure the payment of any such taxes, together with
all interest and penalties thereon.
(i) The entry of final judgment against Mortgagor
if such judgment is not satisfied, set aside or superseded by bond or appeal
within fifteen (15) days after entry.
(j) The receipt by Mortgagee of written notice
from either Mortgagor, any guarantor or surety of Mortgagor's obligations or
any other party, purportedly sent to terminate, limit or restrict future
advances, whether or not such notice is sent pursuant to the provisions of 42
PA.C.S.A. Sections 8143(B) or 8143(C) and whether or not such notice is
effective thereunder.
(k) Mortgagor's noncompliance or nonperformance
of any other term, covenant or condition contained in this Mortgage, if such
failure continues for fifteen (15) days or more after written notice from
Mortgagee to Mortgagor; provided that if the default in question is curable,
but is not reasonably susceptible of cure within said fifteen (15) day period
(not including Mortgagor's inability to cure for financial reasons), and if
Mortgagor commences to cure in good faith within said fifteen (15) day period
and thereafter proceeds in good faith and due diligence to effectuate a cure
without interruption or unreasonable delay, then said fifteen (15) day period
shall be extended for the additional time reasonably necessary to complete such
cure, but in no event to exceed thirty (30) additional days. Notwithstanding
the foregoing, however, (i) the aforesaid grace periods under subparagraphs
25(a) and (b) shall not be applicable to paragraphs 4, 5, and 7 herein and are
applicable only to such defaults as are reasonably susceptible of cure, and
shall not affect the imposition or collection of any late charge or default
interest under the Financing Agreements, and (ii) there shall not be any
cumulation of grace periods under this Mortgage and Financing Agreements with
respect to any particular default or event, and if any such default or event
has an associated grace period specified under the Financing Agreements or in
this Mortgage which is different from that set forth herein, then the more
restrictive provision shall apply.
-15-
<PAGE> 16
26. Remedies.
(a) Upon the happening of any Event of Default,
the entire unpaid balance of the principal, the accrued interest and all other
sums secured by this Mortgage shall become immediately due and payable, at the
option of Mortgagee, without notice or demand.
(b) When the entire indebtedness shall become due
and payable, either because of maturity or because of the occurrence of any
Event of Default, or otherwise, then forthwith:
(i) Foreclosure. Mortgagee may
institute an action of mortgage foreclosure against the Mortgaged Property, or
take such other action at law or in equity for the enforcement of this Mortgage
and realization on the mortgage security or any other security herein or
elsewhere provided for, as the law may allow, and may proceed therein to final
judgment and execution for the entire unpaid balance of the principal debt,
with interest at the rate stipulated in the Financing Agreements to the date of
default, and thereafter at the Default Rate (as defined in the Note), together
with all other sums due by Mortgagor in accordance with the provisions of the
Financing Agreements and this Mortgage, including all sums which may have been
loaned by Mortgagee to Mortgagor after the date of this Mortgage, and all sums
which may have been advanced by Mortgagee for taxes, water or sewer rents,
charges or claims, payments on prior liens, insurance or repairs to the
Mortgaged Property, all costs of suit, reasonable attorneys' fees and other
expenses in connection therewith, together with interest at such rate on any
judgment obtained by Mortgagee from and after the date of any Sheriff's sale
until actual payment is made by the Sheriff of the full amount due Mortgagee;
or
(ii) Possession. Mortgagee may enter
into possession of the Mortgaged Property, manage, lease and operate the
Mortgaged Property, collect therefrom all rentals (which term shall also
include sums payable for use and occupancy) and, after deducting all costs of
collection and administration expense, apply the net rental to any or all of
the following in such order and amounts as Mortgagee, in Mortgagee's sole
discretion, may elect: the payment of taxes, water and sewer rents, charges and
claims, insurance premiums and all other carrying charges, and to the
maintenance, repair or restoration of the Mortgaged Property, and on account
and in reduction of the principal or interest, or both, hereby secured; in and
for that purpose Mortgagor hereby assigns to Mortgagee all rentals due and to
become due under any lease or leases or rights to use and occupancy of the
Mortgaged Property hereafter created, as well as all rights and remedies
provided in such lease or leases or at law or in equity for the collection of
the rentals. For the purpose of obtaining possession of the Mortgaged Property
in the event of any default hereunder, under the Loan Agreement, or under the
Note, Mortgagor hereby authorizes and empowers any attorney of any court of
record in the Commonwealth of Pennsylvania or elsewhere, as attorney for
Mortgagor and all persons claiming under or through Mortgagor, to sign an
agreement for entering in any competent court an amicable action in ejectment
for possession of the Mortgaged Property and to appear for and confess judgment
against Mortgagor, and against all persons claiming under or through Mortgagor,
in favor of Mortgagee, for recovery by Mortgagee of possession thereof, for
which this Mortgage, or a
-16-
<PAGE> 17
copy thereof verified by affidavit, shall be a sufficient warrant; and
thereupon a writ of possession may immediately issue for possession of the
Mortgaged Property, without any prior writ or proceeding whatsoever and without
any stay of execution. If for any reason after such action has been commenced
it shall be discontinued, or possession of the Mortgaged Property shall remain
in or be restored to Mortgagor, Mortgagee shall have the right for the same
default or any subsequent default to bring one or more further amicable actions
as above provided to recover possession of the Mortgaged Property. Mortgagee
may bring an amicable action in ejectment and confess judgment therein before
or after the institution of proceedings to foreclose this Mortgage or to
enforce the Note or the other Obligations, or after entry of judgment therein
or on the Note or the other Obligations, or after a Sheriff's sale of the
Mortgaged Property in which Mortgagee is the successful bidder, it being the
understanding of the parties that the authorization to pursue such proceedings
for obtaining possession and confession of judgment therein is an essential
part of the remedies for enforcement of the Mortgage and the Financing
Agreements, and shall survive any execution sale to Mortgagee; or
(iii) Receiver. Mortgagee may, upon any
proper action or proceeding being commenced for the foreclosure of this
Mortgage, apply for, and Mortgagee as a matter of right, without consideration
of the value of the Mortgaged Property as security for the amount due
Mortgagee, or of the solvency of any person, firm or corporation obligated for
the payment of such amount, shall be entitled to, the appointment by any
competent court or tribunal, without prior demand or notice to any party, of a
receiver of rents and profits and rental value of the Mortgaged Property, with
power to take possession of the Mortgaged Property, including possession from
Mortgagor if in possession and occupying any portion of the Mortgaged Property,
and in the latter case to require Mortgagor, as a condition of remaining in
possession and occupation, to pay the reasonable rental value for the use and
occupation thereof, with further power to lease and repair the Mortgaged
Property and to renovate same to suit new tenants and with such other powers as
may be deemed necessary, and such receiver after deducting all proper charges
and expenses attending the execution of the said trust as receiver, shall each
month pay over to Mortgagee the residue of the said rents and profits and
rental value, to be applied by Mortgagee to the payment of the amount remaining
secured hereby, or to any deficiency (whether or not any judgment therefor may
be entered and irrespective of the market value of the Mortgaged Property)
which may exist in the event of foreclosure by sale after applying the proceeds
of the sale of the Mortgaged Property to the payment of the amount due,
including interest, costs and expenses of such foreclosure and sale, or in the
event of strict foreclosure to the payment of any deficiency existing
thereunder. A receiver, while in possession of the Mortgaged Property, shall
have the right to make repairs and to make improvements necessary or advisable
in its or his opinion to preserve the Mortgaged Property, or to make and keep
them rentable to the best advantage, and Mortgagee may advance moneys to a
receiver for such purposes. Any moneys so expended or advanced by Mortgagee or
by a receiver shall be repaid so far as possible out of the rents collected
after payment of other expenses properly chargeable against said rents, and any
unpaid balance of moneys so advanced or expended shall be added to and become a
part of the debt secured by this Mortgage.
-17-
<PAGE> 18
(c) Mortgagee shall have the right, from time to
time, to bring an appropriate action to recover any sums required to be paid by
Mortgagor under the terms of this Mortgage, as they become due, without regard
to whether or not the principal indebtedness or any other sums secured by the
Financing Agreements and this Mortgage shall be due, and without prejudice to
the right of Mortgagee thereafter to bring an action of Mortgage Foreclosure,
or any other action, for any default by Mortgagor existing at the time the
earlier action was commenced.
(d) Any real estate sold pursuant to any writ or
order of execution issued on a judgment obtained by virtue of the Financing
Agreements or this Mortgage, or pursuant to any other judicial proceedings
under the Mortgage, may be sold in one parcel, as an entirety, or in such
parcels, and in such manner or order as Mortgagee, in its sole discretion, may
elect.
27. Cumulative Rights. The rights and remedies of
Mortgagee as provided in this Mortgage and the Financing Agreements, shall be
cumulative and concurrent; may be pursued separately, successively or together
against Mortgagor or against the Mortgaged Property, or both, at the sole
discretion of Mortgagee; and may be exercised as often as occasion therefor
shall arise. The failure to exercise any such right or remedy shall in no
event be construed as a waiver or release thereof.
28. No Waiver Implied. Any failure by Mortgagee to
insist upon strict performance by Mortgagor of any of the terms and provisions
of this Mortgage or the Financing Agreements shall not be deemed to be a waiver
of any of the terms or provisions of the Mortgage or Financing Agreements, and
Mortgagee shall have the right thereafter to insist upon strict performance by
Mortgagor of any and all of them. Neither Mortgagor nor any other person now
or hereafter obligated for payment of all or any part of the sums now or
hereafter secured by this Mortgage shall be relieved of such obligation by
reason of the failure of Mortgagee to comply with any request of Mortgagor or
of any other person so obligated to take action to foreclose on this Mortgage
or otherwise enforce any provisions of the Mortgage or the Note, or by reason
of the release, regardless of consideration, of all or any part of the security
held for the Obligations secured by this Mortgage, or by reason of any
agreement or stipulation between any subsequent owner of the Mortgaged Property
and Mortgagee extending the time of payment or modifying the terms of the
Mortgage or Financing Agreements without first having obtained the consent of
Mortgagor or such other person; and in the latter event Mortgagor and all such
other persons shall continue to be liable to make payments according to the
terms of any such extension or modification agreement, unless expressly
released and discharged in writing by Mortgagee.
29. Tax Assessment Appeals. With respect to any real
estate tax assessment on the Mortgaged Property, Mortgagee shall have the right
to prosecute to final determination or settlement an appeal or other
appropriate proceedings in the name of Mortgagee or Mortgagor, for which
Mortgagee is hereby appointed as attorney-in-fact for Mortgagor, which
appointment is irrevocable (said authorization being coupled with an interest).
In the event such an appeal or other proceeding is taken, the expenses of the
proceedings, including counsel fees, shall be payable by Mortgagor to Mortgagee
upon demand and such sums shall be secured by this Mortgage.
-18-
<PAGE> 19
30. Waiver of Jury Trial. Mortgagor irrevocably waives
jury trial and the right thereto in any and all disputes involving Mortgagor or
Mortgagor's parent, affiliates or related entities or any officer, director,
shareholder, attorney or partner of any of them, whether hereunder or under any
other agreements, notes, papers, instruments or documents heretofore or
hereafter executed or any other contract whether similar or dissimilar. This
shall be deemed a covenant enforceable independently of all other provisions of
this Mortgage.
31. Other Waivers. Mortgagor hereby waives and releases:
(a) all errors, defects and imperfections in any
proceeding instituted by Mortgagee under the Financing Agreements or this
Mortgage, or both;
(b) all benefit that might accrue to Mortgagor by
virtue of any present or future law exempting the Mortgaged Property, or any
part of the proceeds arising from any sale thereof, from attachment, levy or
sale on execution, or providing for any stay of execution, exemption from civil
process or extension of time for payment;
(c) unless specifically required herein, all
notices of Mortgagor's default or of Mortgagee's election to exercise, or
Mortgagee's actual exercise of any option under the Financing Agreements or
this Mortgage;
(d) after sale or sales of the Mortgaged Property
any right under any statute heretofore or hereafter enacted to redeem the
property so sold or any part thereof; and
(e) any right to have the Mortgaged Property
marshaled upon any foreclosure hereunder. The right is hereby given by
Mortgagor and reserved by Mortgagee to make partial release or releases of
security hereunder, agreeable to Mortgagee without notice to, or the consent,
approval or agreement of other parties in interest, which partial release or
releases shall not impair in any manner the validity of or priority of this
Mortgage on the security remaining, nor release the personal liability of
Mortgagor for the debt hereby secured.
Mortgagor hereby expressly waives all benefit or
advantage of any such law or laws to the extent that it lawfully may, and
covenants not to hinder, delay or impede the execution of any power herein
granted or delegated to Mortgagee, but to suffer and permit the execution of
every power as though no such law or laws had been made or enacted.
32. Environmental Representations and Covenants.
(a) For purposes of this paragraph, "Hazardous
Substances" means those elements and compounds which are designated as such in
Section 101(14) of the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), 42 U.S.C. Section 9601(14) or 40 C.F.R. Section 302,
any substance containing petroleum as that term is used in Section 9001 of the
Resource Conservative and Recovery Act, 42 U.S.C. Section 6991, 40 C.F.R.
Section 280.1, or any "Pollutant" or "Contaminant" as defined in Section
104(a)(2) of CERCLA, and any other hazardous substances as that term may be
further defined in applicable state or
-19-
<PAGE> 20
local laws; and "Wastes" means any hazardous waste, residual waste, solid waste
or other waste as those terms are defined in applicable federal, state or local
laws.
(b) Mortgagor represents and warrants that to the
best of its knowledge, no Hazardous Substances and no Wastes are present on the
Mortgaged Property including, without limitation, asbestos or
urea-formaldehyde, and there has been no use of the Mortgaged Property that
may, under any federal, state, or local environmental statute, ordinance or
regulation, require, at any time, any closure or cessation of the use of the
Mortgaged Property and/or impose, at any time, upon Mortgagor or its successors
any response costs or other monetary obligations. Mortgagor further represents
and warrants that to the best of its knowledge, it has not been identified in
any litigation, administrative proceeding or investigation as a responsible
party or potentially responsible party for any liability for response costs,
natural resource damages or other damages or liability for prior disposal or
releases of Hazardous Substances, Wastes or other environmental pollutants or
contaminants; and that no lien or superlien has been recorded, filed or
otherwise asserted against any real or personal property of Mortgagor for any
cleanup costs or other response costs incurred in connection with any
environmental contamination that is attributable, in whole or in part, to
Mortgagor.
(c) Mortgagor covenants to and agrees with
Mortgagee that (i) Mortgagor will not, nor will it permit any tenant or other
occupant of the Mortgaged Property to, store, use or generate any Hazardous
Substance in or on the Mortgaged Property (except as disclosed in Environmental
Certificate and as permitted by the Loan Agreement); and (ii) Mortgagor will
not, nor will it permit any tenant or other occupant of the Mortgaged Property
to, treat or dispose of any Wastes in or on the Mortgaged Property, nor will
Mortgagor, for more than the maximum period of time allowed by the applicable
federal, state or local law without being required to obtain a permit or
approval therefor, store any Wastes in or on the Mortgaged Property. Prior to
engaging in any of the actions or omissions decribed in the preceding sentence,
Mortgagor shall first obtain the written consent of Mortgagee, which consent
shall not be unreasonably withheld, but Mortgagee reserves the right, as a
condition thereto, to require written confirmation in the form acceptable to
Mortgagee and its counsel that: (aa) Mortgagor has obtained all necessary
permits and approvals to perform such activities; (bb) Mortgagor will perform
such activities in compliance with all applicable laws in a safe and effective
manner that will not endanger persons or property and will not diminish the
value of any collateral or other security provided by Mortgagor to Mortgagee to
secure any and all advances hereunder; (cc) Mortgagor has obtained adequate
insurance or posted adequate surety to insure that Mortgagor will have
sufficient resources to contain, control, abate and remedy any and all
contamination of collateral and the environment that might foreseeably result,
in the case of any Hazardous Substances, from any release of any such
Substances or materials containing any such Substances that would be generated,
stored or used by Mortgagor in or about the Mortgaged Property; or, in the case
of any Wastes, from any release of contamination from any such Wastes that
would be treated, disposed of or stored by Mortgagor in or on the Mortgaged
Property.
(d) Mortgagor shall indemnify and hold Mortgagee
harmless from any and all liability, loss or damage suffered or incurred as a
result of a claim, demand, cost or judgment in favor of a third party (which
obligations shall survive payment of the Financing
-20-
<PAGE> 21
Agreements and satisfaction of this Mortgage), including without limitation a
governmental authority, arising from the deposit, storage, disposal, burial,
dumping, injecting, spilling, leaking or other placement or release in or on
the Mortgaged Property of Hazardous Substances or Wastes proven to have
occurred subsequent to the date hereof, including but not limited to:
(i) Liability for costs of removal or remedial
action incurred by the United Stated Government or the Commonwealth of
Pennsylvania, or response costs incurred by any other person, or damages from
injury to, destruction of, or loss of natural resources, including the
reasonable costs of assessing such injury, destruction or loss, incurred
pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9607;
(ii) Liability for response costs, fines, damages
or penalties incurred pursuant to the provisions of the Pennsylvania Clean
Streams Law, 35 P.S.A. Section 691.1 et. seq. (supp. 1982), and the
Pennsylvania Solid Waste Management Act, 35 P.S.A. Section 6018.101 et. seq.
(Purdon supp. 1983);
(iii) Liability for cost and expenses of abatement,
correction or cleanup, fines, damages, response costs or penalties which arise
from the provisions of any other statute, state or federal; and
(iv) Liability for personal injury or property
damage caused by any such deposit, storage, disposal, burial, dumping,
injecting, spilling, leaking, placement or release and arising under any
statutory or common-law tort theory, including damages assessed for the
maintenance of the public or private nuisance, response costs or for the
carrying on of an abnormally dangerous activity.
33. Further Assurances. Mortgagor will execute and
deliver such further instruments and perform such further acts as may be
requested by Mortgagee from time to time to confirm the provisions of this
Mortgage or the Financing Agreements, to carry out more effectively the
purposes of this Mortgage or the Financing Agreements, or to confirm the
priority of the lien created by this Mortgage on any property, rights or
interest encumbered or intended to be encumbered by the lien of this Mortgage
or the Financing Agreements.
34. Late Charge. In the event that any of the payments
of principal and interest or other sums due under the Financing Agreements or
this Mortgage shall become overdue for a period of fifteen (15) days, Mortgagor
shall pay to Mortgagee a late charge at the rate of five percent (5%) of such
delinquent payment, in order to defray part of the extra expense involved in
handling delinquent payments. Such late charge shall be secured by this
Mortgage.
35. Indemnification. Mortgagor hereby irrevocably agrees
to indemnify and save harmless Mortgagee from and against any and all loss or
damage of whatsoever kind and from any suits, claims or demands, including,
without limitation, Mortgagee's reasonable
-21-
<PAGE> 22
legal fees and expenses, on account of any matter or thing arising out of this
Mortgage or in connection herewith excepting obligations which arise solely as
a result of the Mortgagee's gross negligence or willful misconduct.
36. Counsel Fees. If Mortgagee becomes a party to any
suit or proceeding affecting the Mortgaged Property or title thereto, the lien
created by this Mortgage or Mortgagee's interest therein, or if Mortgagee
engages counsel to collect any of the indebtedness or to enforce performance of
the agreements, conditions, covenants, provisions or stipulations of this
Mortgage or the Financing Agreements, Mortgagee's costs, expenses and
reasonable counsel fees, whether or not suit is instituted, shall be paid to
Mortgagee by Mortgagor, on demand, with interest at the then effective rate set
forth in the Note, and until paid they shall be deemed to be part of the
indebtedness evidenced by the Financing Agreements and secured by this
Mortgage.
37. Communications. All communications required under
this Mortgage or the Financing Agreements shall be in writing, and shall be
sent by nationally recognized overnight courier, addressed to the Mortgagor or
Mortgagee at the addresses as either party may designate from time to time by
notice to the other in the manner set forth herein.
38. Covenant Running with the Land. Any act or agreement
to be done or performed by Mortgagor shall be construed as a covenant running
with the land and shall be binding upon Mortgagor and its successors and
assigns as if they had personally made such agreement.
39. Amendment. This Mortgage cannot be changed or
amended except by agreement in writing signed by the party against whom
enforcement of the change is sought.
40. Applicable Law. This Mortgage shall be governed by
and construed according to the laws, including the conflict of law rules, of
the Commonwealth of Pennsylvania.
41. Interpretation. Whenever used in this Mortgage,
unless the context clearly indicates a contrary intent:
(a) The word "Mortgagor" shall mean the entity
which executes this Mortgage and any subsequent owner of the Mortgaged Property
and his respective heirs, executors, administrators, successors and assigns;
(b) The word "Mortgagee" shall mean the person or
entity specifically named herein as "Mortgagee" or any subsequent holder of
this Mortgage;
(c) The word "entity" shall mean individual,
corporation, partnership or unincorporated association;
(d) The use of any gender shall include all
genders;
-22-
<PAGE> 23
(e) The singular number shall include the plural
and the plural the singular as the context may require.
42. Captions. The captions preceding the text of the
paragraphs or subparagraphs of this Mortgage are inserted only for convenience
of reference and shall not constitute a part of this Mortgage, nor shall they
in any way affect its meaning, construction or effect.
43. Taxpayer Federal I.D. Number. In accordance with the
requirements of Section 6050J of the Internal Revenue Code, as amended (the
"Code"), Mortgagor's Tax I.D. Number for federal tax reporting purposes is 25-
1655321 and Mortgagor agrees to cooperate with Mortgagee in supplying such
information and executing such documentation as Mortgagee reasonably-requires
to comply with the provisions of Section 6050J of the Code.
44. Non-Merger. Mortgagor intends and agrees that this
Mortgage shall NOT merge into any judgment entered or recovered by Mortgagee
against Mortgagor under the Financing Agreements or under or pursuant to any
other note, document or instrument. Notwithstanding the recovery or entry of
any such judgment against Mortgagor, all of the terms, provisions, covenants,
undertakings and agreement of Mortgagor whether hereunder or under the
Financing Agreements or any other note, document or undertaking of Mortgagor,
whether relating thereto or not, shall remain in full force and effect and
shall be enforceable strictly in accordance with their terms as fully as though
no such judgment had been entered or recovered against Mortgagor.
45. Inconsistent Terms. In the event of any
inconsistency between this Mortgage and the Loan and Security Agreement, the
terms of the Loan and Security Agreement shall govern.
-23-
<PAGE> 24
46. Counterparts. This Mortgage may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage to be
effective as of the day and year first above written.
"MORTGAGOR"
STEEL CITY PRODUCTS, INC.
By: /s/ MARK AUERBACH
-------------------------------------
Title: Chief Financial Officer
----------------------------------
The address of the within named Mortgagee is:
FINOVA CAPITAL CORPORATION
355 South Grand Avenue
Suite 2400
Los Angeles, CA 90071
/s/ [ILLEGIBLE]
-------------------------------
On Behalf of Mortgagee
-24-
<PAGE> 25
STATE/COMMONWEALTH OF NEW YORK :
: ss
COUNTY OF NEW YORK :
On this, the 27th day of March, 1996, before me, the subscriber, a
Notary Public in and for the State and County aforesaid, personally appeared
Mark Auerbach who acknowledged himself to be the Chief Financial Officer of
Steel City Products, Inc. and who I am satisfied is such person who signed the
within Mortgage on behalf of said corporation.
WITNESS my hand and seal the day and year aforesaid.
/s/ JOE A. CRUZ
---------------------------------------------
Notary Public
My Commission Expires: JOE A. CRUZ
Notary Public State of New York
NO. 4977399
Qualified in BRONX COUNTY
My Commission Expires FEB 4, 1997
-25-
<PAGE> 26
EXHIBIT A
ALL THAT CERTAIN parcel of ground situate in the Township of O'Hara,
County of Allegheny and Commonwealth of Pennsylvania, and being a part of the
property shown in Plan No. 1, RIDC-Allegheny County Industrial Park as recorded
in Plan Book Volume 77, pages 22 and 29, as amended and supplemented, bounded
and described as follows, to-wit:
BEGINNING at a point in the easterly line of Alpha Drive as laid out
in said Plan No. 1, RIDC-Allegheny County Industrial Park, said point being
distant northwardly along said easterly line of Alpha Drive, the following two
(2) courses and distances from the intersection of the northerly line of Gamma
Drive with the said easterly line of Alpha Drive:
1. by the arc of a circle having a radius of 230.00 feet
and deflecting to the right a distance of 149.04 feet to a point;
2. North 0 degrees 59' 40" West a distance of 1855.31
feet to a point at the northwesterly corner of property now or
formerly of Tri-State Realty, Inc., said point being the place of
beginning;
thence from said place of beginning continuing northwardly along said easterly
line of Alpha Drive North 0 degrees 59' 40" West, a distance of 227.16 feet to
a point of curve; thence continuing northwardly along said easterly line of
Alpha Drive by the arc of a circle having a radius of 960.00 feet and
deflecting to the right, a distance of 103.87 feet to a point; thence
westwardly along said easterly line of Alpha Drive South 89 degrees 00' 20"
West a distance of 0.03 feet to a point; thence continuing northwardly along
said easterly line of Alpha Drive North 4 degrees 46' 54" East, a distance of
183.57 feet to a point; thence eastwardly along property now or formerly of
Allegheny County Workhouse and Inebriate Asylum North 89 degrees 00' 20" East,
a distance of 555.79 feet to a point; thence southwardly along said property
now or formerly of Allegheny County Workhouse and Inebriate Asylum South 0
degrees 59' 40" East, a distance of 513.47 feet to a point at the northeast
corner of property now or formerly of Tri-State Realty, Inc.; thence westwardly
along said property South 89 degrees 00' 20" West, a distance of 579.84 feet to
a point at the place of beginning.
CONTAINING 6.768 acres.
BEING designated in the Deed Registry Office of Allegheny County as
Block 226-S, Lot 10 and Block 226-M, Lot 2.
<PAGE> 1
EXHIBIT 10.19
CONSULTING AGREEMENT
MAARTEN D. HEMSLEY
&
OAKHURST COMPANY, INC.
Agreement (this "AGREEMENT") effective as of this 19th day of December 1995 by
and between Oakhurst Company, Inc. (the "COMPANY") and Bryanston Management,
Ltd. ("BML") upon the following terms and conditions:
1. TERM: The term of this Agreement shall commence on
January 1, 1996 and shall continue thereafter on
a month-to-month basis until terminated by a
party as hereinafter provided.
2. SERVICES: (a) BML shall provide financial and operating
consulting services of substantially the same
kind as Maarten D. Hemsley ("MR. HEMSLEY")
has heretofore provided as an employee of the
Company and Steel City Products, Inc. BML
shall perform such services solely through
Mr. Hemsley at such places and at such times
as BML deems appropriate. The amount of Mr.
Hemsley's time that is necessary to provide
such services shall be in the discretion of
BML.
(b) No restrictions will be placed on other
activities of BML or Mr. Hemsley provided
that they are not competitive with those of
the Company and that they do not interfere
with the fulfillment by BML of its
obligations under this Agreement.
3. CONSULTING FEE: The Company shall pay BML a fixed fee at the rate
of eighty-five thousand dollars ($85,000) per
annum in approximately equal monthly installments
on or about the fifteenth day of each month.
4. OTHER CONSIDERATION: As further consideration for BML's consulting
services --
(a) The Company shall make available to Mr.
Hemsley medical, dental and long term
disability insurance coverage to the extent
in effect on the date hereof. The Company
shall pay all of the costs of such medical
and dental insurance. BML and the Company
shall each pay one-half of the Company's
out-of-pocket cost of the long term
disability insurance coverage.
(b) The Company shall make available to BML the
BMW automobile heretofore used by Mr.
Hemsley, and BML shall pay to the Company on
a monthly basis the difference between the
monthly lease fee of such automobile in
effect on the date hereof and five hundred
dollars ($500). The Company shall reimburse
to BML or itself pay, as the case may be, all
costs required to repair, maintain and
operate such automobile (except gasoline for
private use by BML's employees) including
excise taxes, and the costs of collision,
fire, theft and liability insurance in
reasonable amounts and with reasonable
deductibles.
Page 1 of 3
<PAGE> 2
(c) The Company shall make available to BML (for
use by Mr. Hemsley) the Company-owned office
equipment that was heretofore used by Mr.
Hemsley when he was an employee of the
Company.
5. BUSINESS EXPENSES: BML shall be reimbursed for all reasonable
business expenses incurred by Mr. Hemsley in the
performance of services hereunder, including,
but without limitation thereto, travel from
BML's offices to the Company's facilities.
6. TERMINATION: Either party may terminate this Agreement and
the consulting services provided hereunder upon
six (6) calendar months prior written notice to
the other party.
7. NOTICES: Notices that are required or permitted hereunder
shall be given by hand delivery, by delivery to
a courier service providing next-business-day
delivery and proof of receipt, or by facsimile
transmission, as follows:
If to the Company, at: 1001 Santerre Drive
Grand Prairie, Texas 75050
Attention: President
Facsimile No.: (214) 660-4465
With a copy to: Mark Auerbach
Central Paper Company
60 McClellan Street
Newark, NJ 07114
Facsimile No.: (201) 623-2714
and
Roger M. Barzun
60 Hubbard Street
Concord, Massachusetts 01742
Facsimile No.: (508) 287-4275
If to BML at: Bryanston Management, Ltd.
82 Powder Point Avenue
Duxbury, Massachusetts 02332
Attention: President
Facsimile No.: (617) 934-0843
or, to such other address of a party as that party shall notify the other party
in the manner provided herein.
9. ENTIRE
AGREEMENT ETC. (a) This Agreement contains the entire
understanding of the parties; shall not be
amended except by written agreement of the
parties signed by each of them; and shall be
binding upon and inure to the benefit of the
Page 2 of 3
<PAGE> 3
parties and their successors, personal
representatives and assigns.
(b) No representation, affirmation of fact,
course of prior dealings, promise or
condition in connection herewith or usage of
the trade not incorporated herein shall be
binding on the parties.
(c) No waiver of any term or condition contained
herein shall be binding upon the parties
unless made in writing and signed by the
party to be bound thereby.
(d) The captions of the paragraphs herein are for
convenience only and shall not be used to
construe or interpret this Agreement.
In Witness Whereof, the parties have executed and delivered this Agreement as
of the date first set forth above.
OAKHURST COMPANY, INC. BRYANSTON MANAGEMENT, LTD.
By: /s/ MARK AUERBACH By: /s/ MAARTEN D. HEMSLEY
------------------------------- -------------------------------
Mark Auerbach Maarten D. Hemsley
Chairman President
Page 3 of 3
<PAGE> 1
EXHIBIT 10.20
CONSULTING AGREEMENT
MARK AUERBACH & OAKHURST COMPANY, INC.
Agreement (this "AGREEMENT") made effective this 19th day of December 1995 by
and between Oakhurst Company, Inc. (the "COMPANY") and Mark Auerbach ("MR.
AUERBACH") upon the following terms and conditions:
1. TERM:
(a) The term of this Agreement shall commence on December 19, 1995
and shall continue through December 31, 1996.
(b) The Company shall have the option to extend this Agreement for
an additional one-year period commencing January 1, 1997 and
ending December 31, 1997 by giving Mr. Auerbach written notice
of such extension on or before October 1, 1996.
(c) During the last three calendar months of the Term (as defined
below), upon the request of the Company, Mr. Auerbach shall
resign his Chairmanship of the Board of Directors and any or
all of the officer positions with the Company and its
subsidiaries. Any such resignations, however, shall not
relieve the Company of its obligation to continue to pay Mr.
Auerbach the consulting fee provided for herein through end of
the Term.
(d) The initial the term of this Agreement together with the
extension thereof if the Company shall exercise its option to
extend are hereinafter referred to as the "TERM".
2. SERVICES:
(a) Mr. Auerbach shall provide to the Company the services of a
Chairman of the Board of Directors, a Chief Executive Officer
and a Chief Financial Officer. Mr. Auerbach shall devote such
time to the rendering of such services as is appropriate and
commensurate with the responsibilities of those offices and he
shall perform such services at such times and at such places
as he shall deem necessary and appropriate.
(b) No restrictions will be placed on other activities of Mr.
Auerbach, subject, however, to Section 6(a)(iv), below,
provided that such activities are not competitive with those
of the Company and that they do not interfere with the
fulfillment by Mr. Auerbach of his obligations under this
Agreement.
3. CONSULTING FEE: The Company shall pay Mr. Auerbach a consulting fee
of ten thousand dollars ($10,000) per month. This fee shall be paid
monthly in advance on or about the first business day of each calendar
month during the Term.
4. STOCK OPTION: Effective on the date hereof, the Company is granting
to Mr. Auerbach a ten-year stock option to purchase one hundred
thousand (100,000) shares of the Company's common stock. The option
shall be set forth in the form of the non-qualified stock option
agreement attached as Exhibit A.
5. BUSINESS EXPENSES: Mr. Auerbach shall be reimbursed in accordance
with Company policies for all reasonable business expenses incurred by
him in the performance of his consulting services hereunder,
including, but without limitation thereto, travel from his office
and/or residence to the Company's facilities. Mr. Auerbach's expense
reports will be subject to review on a periodic basis by the Board of
Directors of the Company.
Page 1 of 3
<PAGE> 2
6. TERMINATION:
(a) Termination By the Company: This Agreement may be terminated
by the Company only pursuant to the following provisions:
i. For Cause, by written notice to Mr. Auerbach and
payment to him of his consulting fees accrued, but
not paid through the date of termination.
ii. Without Cause upon payment to Mr. Auerbach in a lump
sum the consulting fees that would have otherwise
have been paid to him hereunder for the balance of
the Term, but for such termination.
iii. "Cause" shall mean any act or acts by Mr. Auerbach of
dishonesty or fraud or that constitute serious moral
turpitude; or misconduct of a material nature or a
material breach in connection with the performance by
him of his responsibilities hereunder.
iv. Upon ninety (90) days' prior written notice to Mr.
Auerbach if a majority of the directors of the
Company other than Mr. Auerbach determines in good
faith in the exercise of their sole and absolute
discretion that he has failed to devote adequate time
to rendering the services provided for hereunder.
v. Upon the death or permanent disability of Mr.
Auerbach, but only after continued payment of his
consulting fees for a period of three (3) months
after his death or permanent disability.
(b) Termination By Mr. Auerbach: This Agreement may be terminated
by Mr. Auerbach on ninety (90) days' prior written notice to
the Company. The Company may deem any such notice given by Mr.
Auerbach as a resignation by him, effective upon the giving of
such notice, of all of the directorships and offices then held
by him in the Company and its subsidiaries, but the Company
shall nevertheless continue to pay to him his consulting fees
during such ninety-day period.
7. NOTICES: All notices required or permitted under this Agreement shall
be in writing and shall be deemed given either (a) when hand delivered
to a party; (b) when deposited with a courier service with instructions
to provide next-business-day delivery and proof of delivery; or (c)
when sent by facsimile transmission as follows:
If to the Company, at: 1001 Santerre Drive
Grand Prairie, Texas 75050
Attention: General Counsel
Facsimile No.: (214) 660-4465
with a copy to Robert M. Davies
434 North Street
Greenwich, Connecticut 06830
Facsimile No.: (203) 625-9841
If to Mr. Auerbach at: 108 Barnes Road
Stamford, Connecticut 06902
Facsimile No.: (203) 968-2718
Page 2 of 3
<PAGE> 3
or to such other address of a party as that party shall notify the
other party in the manner provided herein.
8. PRORATION: To the extent that Mr. Auerbach's consulting fees need
to be prorated for a period of less than a full calendar month, his
consulting fees shall be deemed earned on a daily basis and shall be
pro rated based on a 365-day year.
9. ENTIRE AGREEMENT ETC.
(a) This Agreement together with Exhibit A hereto contains the
entire understanding of the parties; shall not be amended
except by written agreement of the parties signed by each
of them; and shall be binding upon and inure to the benefit
of the parties and their successors, personal
representatives and assigns.
(b) The words "herein", "hereof", "hereunder", "hereby",
"herewith" and words of similar import when used in this
Agreement shall be construed to refer to this Agreement as
a whole.
(c) No waiver of any term or condition contained herein shall
be binding upon the parties unless made in writing and
signed by the party to be bound thereby.
(d) The captions of the paragraphs herein are for convenience
only and shall not be used to construe or interpret this
Agreement.
In Witness Whereof, the parties have executed and delivered this Agreement as
of the date first set forth above.
OAKHURST COMPANY, INC.
By: /s/ ROBERT M. DAVIES /s/ MARK AUERBACH
------------------------------ ------------------------------
Robert M. Davies Mark Auerbach
Chairman, Compensation Committee
Page 3 of 3
<PAGE> 4
OAKHURST COMPANY, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
Grantee: MARK AUERBACH
Grant Date: DECEMBER 19, 1995
Option Shares: 100,000
Date All Shares are Exercisable: DECEMBER 19, 1996
Last Day to Exercise Option: DECEMBER 19, 2006
This Option Agreement dated as of the Grant Date set forth above is made
between Oakhurst Company, Inc. and you, MARK AUERBACH, and evidences the
Company's grant of a non-qualified stock option (the "Option") to purchase the
number of Option Shares of the Company's Common Stock, $0.01 par value, per
share, set forth above at the per-share option prices set forth below pursuant
to the terms and conditions of this Option Agreement.
This Option has been granted pursuant to a Consulting Agreement dated December
19, 1995 between you and the Company (the "Consulting Agreement").
1. Exercisability and Option Exercise Price.
(a) The Option Shares shall become exercisable in two (2) equal
installments, as follows:
i. 50,000 shares from and after the Grant Date at a
per-share option exercise price of one dollar and
twenty-five cents ($1.25); and
ii. 50,000 shares from and after December 19, 1996 at a
per-share option exercise price of two dollars
($2.00).
(b) provided however, that if prior to December 19, 1996 --
i. the Company terminates the Consulting Agreement for
Cause (as defined and as provided for therein);
ii. the Company gives you notice of termination of the
Consulting Agreement pursuant to Section 6(a)(iv)
thereof; or
iii. you give the Company notice of termination of the
Consulting Agreement pursuant to Section 6(b)
thereof;
then the second installment of 50,000 shares shall
not become exercisable hereunder.
(c) Except as otherwise provided herein, you may purchase any one
or more of the Option Shares that become exercisable at a
given date from that date through and including the Last Day
to Exercise Option, set forth above.
2. Exercises. For an exercise to be effective, the Company must receive
from you:
(a) A written notice directed to the Secretary of the Company,
signed by you stating the Option Grant Date and the number of
whole Option Shares you wish to purchase; and
(b) Payment for the Option Shares either (a) by cashier's or
certified check; or (b) with the consent of the Stock Plans
Committee of the Board of Directors, by the transfer to the
Company of Company common stock having a fair market value
equal to the purchase price of the Option Shares being
purchased, all according to the rules and regulations of such
Committee.
3. Issuance of Option Shares.
(a) You will have no rights as a shareholder of the Company with
respect to any Option Shares purchased under this Option until
a certificate representing such shares has been issued and
delivered to you.
<PAGE> 5
(b) The Company will not be obligated to deliver a certificate for
any Option Shares to you unless --
i. Provision acceptable to the Company has been made for
the payment of any federal, state and local taxes
that are due or that are required to be withheld by
the Company because of the purchase of the Option
Shares; and
ii. There has been compliance with all federal and state
laws and regulations that the Company deems
applicable, and all other legal matters in connection
with the issuance and delivery of the Option Shares
have been approved by the Company's counsel.
4. Non-Transferability. Except as expressly otherwise provided in the
Plan, this Option is exercisable only by you during your lifetime. In
addition, this Option may not be assigned or transferred except by
will or according to the laws of descent and distribution in the
absence of a will.
5. The 1994 Omnibus Stock Plan.
(a) A copy of the Company's 1994 Omnibus Stock Plan (the "Plan")
is furnished to you with this Agreement. If an amendment to
the Plan that has been adopted by the Board of Directors to
increase the number of shares that may be issued under the
Plan from 350,000 shares to 500,000 shares is approved by the
stockholders of the Company, this option shall relate to
shares issuable under the Plan.
(b) If such amendment is not so approved, this Option shall not
relate to any shares issuable under the Plan, but shall
instead relate to other authorized but unissued shares of the
Corporation's common stock.
(c) In the case of any ambiguity in, or any conflict between or
among, the terms of the Consulting Agreement, this Option
Agreement and, to the extent applicable, the Plan, the
provisions of those documents shall take precedence in the
following, descending order: the Consulting Agreement, this
Option Agreement and the Plan.
6. Adjustments. The number and kind of shares issuable under this Option
Agreement and the per-share option prices will be adjusted to account
for reorganizations, mergers, recapitalization, or the like in the
manner and to the extent provided for in Paragraph 13 of the Plan,
irrespective of whether the Option Shares are issuable under the Plan
or not.
In Witness Whereof, the parties have executed this Option Agreement as of the
Grant Date.
OAKHURST COMPANY, INC. GRANTEE
BY: /s/ ROBERT M. DAVIES /s/ MARK AUERBACH
---------------------------- --------------------------------
Robert M. Davies Mark Auerbach
Chairman, Compensation Committee
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
JOHN R. RUDA
&
OAKHURST MANAGEMENT CORPORATION
Agreement (this "Agreement") dated as of this 19th day of December 1995 by and
between OAKHURST MANAGEMENT CORPORATION (the "Company") and JOHN R. RUDA ("Mr.
Ruda").
BACKGROUND
Mr. Ruda has been a valued employee of Steel City Products, Inc. (SCPI) for
many years in executive positions and as a result, has developed valuable
marketing and selling skills. SCPI is now one of a number of companies with a
common parent, Oakhurst Company, Inc. (Oakhurst). Oakhurst wishes to employ
Mr. Ruda's talents on a company-wide basis to assist in the building of all of
its businesses, starting with possible new directions for SCPI, itself.
Accordingly, the Company, as the administrative arm of Oakhurst, desires to
enter into this Agreement to secure Mr. Ruda's services on the terms and
conditions set forth herein for the benefit of Oakhurst and its affiliates.
Therefore in consideration of the mutual covenants set forth herein and other
good and valuable consideration, the receipt ans sufficiency of which are
hereby acknowledged, it is agreed as follows:
1. TERM: The "Initial Term" of this Agreement shall commence March 1,
1996 and shall continue through February 28, 1997 unless sooner
terminated as provided below. This Agreement shall terminate at the
expiration of the Initial Term unless it is extended by agreement of
the parties.
2. RESPONSIBILITIES: Mr. Ruda shall be elected a Vice President of the
Company, Senior Vice President--Marketing of Oakhurst and, subject
to the supervision of the Company's President, shall carry out such
marketing and sales tasks relating to the Company and its affiliates
as the Company shall direct. Mr. Ruda shall not be required to
change the location of his residence in the Pittsburgh area in order
to carry out his responsibilities hereunder.
3. SALARY: The Company shall pay Mr. Ruda a base salary of eight
thousand three hundred thirty-three dollars and thirty four cents
($8,333.34) per month, payable at the same time as other officers of
the Company are paid.
4. BENEFITS:
(a) Mr. Ruda shall be entitled to three weeks vacation per
twelve-months of employment and substantially the same
family health and related insurance coverages as he was
receiving prior to the date hereof. He shall also be
entitled to life insurance in the amount of two hundred
fifty thousand dollars ($250,000) to be provided at
Company expense. Mr. Ruda may continue participation in a
401(k) Plan maintained by the Company or one of its
affiliates, and shall continue to participate in the SCPI
retirement plan in the manner and to the extent he
participated in that plan prior to the date of this
Agreement.
(b) The Company shall continue to make available for Mr.
Ruda's use an automobile on the same basis as he is being
provided an automobile on the date hereof.
Page 1 of 5
<PAGE> 2
5. BONUS: Mr. Ruda shall be eligible for a bonus (the "Bonus") as
provided in Exhibit A.
6. BUSINESS EXPENSES: Mr. Ruda shall be reimbursed in accordance with
Company policy from time to time in effect for all reasonable and
itemized business expenses incurred by him in the performance of his
duties. Such expenses will be subject to the review and approval of
the President of the Company.
7. INDEMNIFICATION: Mr. Ruda shall be indemnified by the Company with
respect to claims made against him as a director, officer and/or
employee of the Company and as a director, officer and/or employee
of any affiliate of the Company to the fullest extent permitted by
the Certificate of Incorporation and the laws of the State of Texas.
8. NON-DISCLOSURE: During his employment by the Company and
thereafter, Mr. Ruda shall not disclose to any person, firm or
corporation any trade, technical or technological secrets, any
details of the organization or business affairs, any customer lists
of the Company and/or its affiliates or any other information
relating to the business of the Company or its affiliates that
constitutes a trade secret or that is not generally known.
9. NON-COMPETITION:
(a) So long as he is an employee of the Company or one of its
affiliates, and (i) for a period of six (6) months from
and after the date that his employment shall cease for
whatever reason (except as otherwise provided below), or
(ii) for a period of eighteen (18) months from the
commencement of the Initial Term, whichever of the periods
set forth in (i) or (ii), above, is longer, Mr. Ruda,
individually or in conjunction with others shall not
either directly or indirectly within the Market Area (as
hereinafter defined) engage directly or indirectly in any
business that any affiliate of the Company conducts at the
date of the termination of Mr. Ruda's employment or in any
new or different business in which any affiliate of the
Company or Mr. Ruda has or had developed preliminary plans
to engage at such date.
(b) The ownership of less than one percent (1%) of the
outstanding stock of a publicly traded corporation shall
not be deemed to be engaged, solely by reason thereof, in
any of its businesses.
(c) This covenant shall not apply to any new or different
business conducted by any affiliate of the Company, or to
any planned new geographic area after the date of the
termination of his employment as to which Mr. Ruda did not
have a substantial involvement in its planning and/or
conduct.
(d) The "Market Area" at any given time shall consist of the
State of Pennsylvania and all other states in which SCPI
or any of its affiliates is at the time selling products
amounting to at least ten percent (10%) of the total
revenues of SCPI or of such affiliate, as the case may be.
(e) Notwithstanding the foregoing, in the event that the
Company fails to offer Mr. Ruda a renewal of this
Agreement and a continuation of his employment for at
least an additional one-year period at the same base
salary, with substantially the same benefits and with a
comparable bonus program, he shall thereafter no longer be
subject to the non-competition obligations contained in
this Paragraph 9.
Page 2 of 5
<PAGE> 3
10. TERMINATION BY THE COMPANY: Mr. Ruda's employment may be terminated
by the Company only pursuant to the following provisions:
(a) For Cause, (as defined below), by written notice to Mr.
Ruda, in which event the Company shall pay to him his
salary through the date of termination to the extent not
theretofore paid.
(b) Without Cause --
i. during the Initial Term, by written notice to
Mr. Ruda, in which event the Company shall pay
to him in a lump sum his salary for the balance
of the Initial Term, and any portion of the
Bonus due him for such term as provided in
Exhibit A; or
ii. upon the expiration of the Initial Term or
thereafter, on sixty (60) days' prior written
notice, in which event the Company shall
continue to pay him his salary through such
sixty-day period and shall pay to him any
portion of the Bonus earned to the date of
termination, as provided in Exhibit A.
(c) Upon the death or permanent disability of Mr. Ruda, by
giving sixty (60) days' prior written notice to Mr. Ruda
or his personal representative, as the case may be, in
which event the Company shall pay to him his salary
through the date of termination to the extent not
theretofore paid, and any portion of the Bonus earned to
the date of termination, as provided in Exhibit A.
(d) Definition of Cause: "Cause" for purposes of termination
by the Company shall mean serious misconduct by Mr. Ruda
in connection with his employment; substantial failure by
him to perform his responsibilities as an employee; any
act of dishonesty or fraud; the commission of a felony; or
the breach by him of any material obligation to the
Company including, but not limited to any obligation of
confidentiality, non-disclosure or non-competition.
11. TERMINATION BY MR. RUDA: Mr. Ruda may terminate his employment
under this Agreement only pursuant to the following provisions:
(a) For Cause, upon the expiration of fifteen (15) days after
giving notice of a breach of this Agreement by the Company
unless within such fifteen-day period the Company has
cured the basis of such Cause, or if a cure is not
possible within a fifteen-day period, if it has diligently
and in good faith commenced to effect such cure.
(b) Without Cause, on sixty (60) days' prior written notice to
the Company, in which event the Company may deem any such
notice given by Mr. Ruda as a resignation by him,
effective upon the giving of such notice, of all of the
directorships and offices then held by him in the Company
and its subsidiaries, but the Company shall nevertheless
continue to pay to him his salary during such sixty-day
period.
(c) Definition of Cause: "Cause" for purposes of termination
by Mr. Ruda shall consist of the breach by the Company in
the performance of any of its obligations set forth in
this Agreement or breach of any statutory obligation to Mr.
Ruda.
12. NOTICES: All notices required or permitted under this Agreement
shall be in writing and shall be deemed given either (a) when hand
delivered to a party; (b) when deposited with a
nationally-recognized delivery service with instructions to provide
next-business-day delivery and proof of delivery; or (c) in the case
of a notice to the Company, when sent by facsimile transmission as
follows:
Page 3 of 5
<PAGE> 4
If to the Company, at: If to Mr. Ruda at:
Oakhurst Management Corporation John R. Ruda
1001 Santerre Drive 2505 Foxbriar
Grand Prairie, Texas 75050 Wexford, Pennsylvania 15090
Attention: President
Facsimile No.: (214) 660-4465
with a copy to:
Roger M. Barzun
60 Hubbard Street
Concord, Massachusetts 01742
Facsimile No.: (508) 287-4276
or, to such other address of a party as that party shall notify the
other party in the manner provided herein.
13. PRORATION: To the extent that proration is not otherwise provided
for in this Agreement, all amounts payable to Mr. Ruda under this
Agreement shall be deemed earned on a daily basis and shall be pro
rated based on a 365-day year.
14. ENTIRE AGREEMENT ETC.:
(a) This Agreement together with Exhibit A contains the entire
understanding of the parties on the subject matter hereof;
shall not be amended and no term hereof shall be waived
except by written agreement of the parties signed by each
of them; shall be binding upon and inure to the benefit of
the parties and their successors, personal representatives
and permitted assigns; may be executed in one or more
counterparts, each of which shall be deemed an original
hereof, but all of which shall constitute but one and the
same agreement; and shall not be assignable by Mr. Ruda
without the prior written consent of the Company.
(b) The words "herein", "hereof", "hereunder", "hereby",
"herewith" and words of similar import when used in this
Agreement shall be construed to refer to this Agreement as
a whole. The word "including" shall mean including, but
not limited to any enumerated items.
(c) No representation, affirmation of fact, course of prior
dealings, promise or condition in connection herewith or
usage of the trade not expressly incorporated herein shall
be binding on the parties.
(d) The failure to insist upon strict compliance with any
term, covenant or condition contained herein shall not be
deemed a waiver of such term, nor shall any waiver or
relinquishment of any right at any one or more times be
deemed a waiver or relinquishment of such right at any
other time or times.
(e) The captions of the paragraphs herein are for convenience
only and shall not be used to construe or interpret this
Agreement.
15. PRIOR AGREEMENT: This Agreement supersedes that certain Employment
Agreement dated as of September 1, 1993 between SCPI and Mr. Ruda
(the "Prior Agreement"), and by execution hereof Mr. Ruda and SCPI
agree (i) to terminate the Prior Agreement effective
Page 4 of 5
<PAGE> 5
as of the date hereof; and (ii) to waive any and all claims that
either of them may have had, may now have or may hereafter have
arising out of the Prior Agreement, it being the intent of Mr. Ruda
and SCPI that neither shall have any liability to the other under
the Prior Agreement from and after the date of this Agreement.
In Witness Whereof, the parties have executed and delivered this Agreement as
of the date first set forth above.
OAKHURST MANAGEMENT CORPORATION
By: /s/ MAARTEN D. HEMSLEY /s/ JOHN R. RUDA
----------------------------- -----------------------------------
Maarten D. Hemsley John R. Ruda
President
CONSENT
Steel City Products, Inc. hereby consents to the terms of Section 15 of that
certain Employment Agreement dated as of December 19, 1995 by and between John
R. Ruda and Oakhurst Management Corporation effective this 19th day of December
1995.
STEEL CITY PRODUCTS, INC.
By: /s/ BERNARD H. FRANK
-------------------------------
Bernard H. Frank
Chief Executive Officer
Page 5 of 5
<PAGE> 6
EXHIBIT A
EMPLOYMENT AGREEMENT BETWEEN
JOHN R. RUDA & OAKHURST MANAGEMENT CORPORATION
1. BONUS FOR THE 1997 FISCAL YEAR: The Bonus for the 1997 fiscal year
shall be equal to a percentage of the Net Revenues (as defined below)
derived from sales of products during the 1997 fiscal year, as
follows:
(a) One percent (1%) of the Net Revenues of SCPI that exceed
seventeen million dollars ($17,000,000) up to and including
twenty-one million dollars ($21,000,000); plus
(b) One-half of one percent (0.5%) of the Net Revenues of SCPI
that exceed twenty-one million dollars ($21,000,000) up to and
including twenty-three million dollars ($23,000,000); plus
(c) One-quarter of one percent (0.25%) of the Net Revenues of SCPI
that exceed twenty-three million dollars ($23,000,000); plus
(d) One percent (1%) of the Net Revenues of SCPI derived from the
sale of pet supplies; plus
(e) One-half of one percent (0.5%) of the Net Revenues derived
from New Product Categories (as defined below).
2. BONUS IN A SUBSEQUENT FISCAL YEAR: In the event that this Agreement
shall be renewed, the parties shall agree upon a bonus program for the
subsequent fiscal year.
3. BONUS PRORATION: In the event that Mr. Ruda's employment is
terminated by the Company for other than Cause prior to the end of a
fiscal year, he shall nevertheless be entitled to the Bonus calculated
for the period from the beginning of the fiscal year in which the
termination occurred through the last day of the fiscal month in which
such termination became effective, with appropriate proration of the
threshold amounts set forth above.
4. PAYMENT OF BONUS: The Company shall pay the Bonus to Mr. Ruda within
one hundred (100) days after the end of each fiscal year as to which
he is entitled to the Bonus hereunder, except that if Mr. Ruda's
employment is terminated by the Company for other than Cause prior to
the end of such a fiscal year, the Company shall pay the Bonus
computed according to the foregoing paragraph within ninety (90) days
after the date of termination. No Bonus shall be paid in the event
that Mr. Ruda terminates his employment with the Company without
Cause.
5. DEFINITIONS:
(a) For purposes of this Agreement, "fiscal year" and "fiscal
month" shall refer to the fiscal year and month of the Company
being used at the date of this Agreement. In the event that
the fiscal year or month of the Company is changed for any
reason, an equitable adjustment shall be made so that no
portion of the Bonus that would otherwise have been payable
hereunder shall by reason of such change become not payable.
(b) "Net Revenues" shall mean all revenues derived from the sale
of products less returned products, discounts, freight and
insurance and less all taxes collected from customers and
remitted to a taxing authority.
(c) "New Product Categories" shall mean a type of product not
heretofore sold by an affiliate of the Company (other than
SCPI) that is designated as such by the Company prior to any
sales thereof having been made, it being the intention of the
parties that the decision to undertake the sale of goods of a
new type shall be in the complete discretion of the Company.
(End of Exhibit A)
<PAGE> 1
EXHIBIT 11
Exhibit 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING SHARES
INCLUDING COMMON
STOCK EQUIVALENTS
--------------------
<S> <C>
Fiscal year ended February 29, 1996......... 3,195,721
Fiscal year ended February 28, 1995......... 3,076,801
Fiscal year ended February 26, 1994......... 2,788,812
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING SHARES
OF COMMON STOCK
--------------------
<S> <C>
Fiscal year ended February 29, 1996......... 3,194,021
Fiscal year ended February 28, 1995......... 2,815,424
Fiscal year ended February 26, 1994......... 2,582,689
</TABLE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
CONTINUING OPERATIONS
-----------------------------
TOTAL (000'S) PER SHARE
------------- ---------
<S> <C> <C>
Fiscal year ended February 29, 1996.. $(4,043) $(1.27)
Fiscal year ended February 28, 1995.. $ 819 $ 0.27
Fiscal year ended February 26, 1994.. $ 439 $ 0.16
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
STOCKHOLDERS
----------------------------
TOTAL (000'S) PER SHARE
------------- ---------
<S> <C> <C>
Fiscal year ended February 29, 1996.. $(3,978) $(1.25)
Fiscal year ended February 28, 1995.. $ 909 $ 0.30
Fiscal year ended February 26, 1994.. $ 439 $ 0.16
</TABLE>
Note: Income per share amounts attributable to common stockholders are
computed on the basis of the weighted average number of outstanding
common shares and common stock equivalents determined by applying the
treasury stock method to stock options and warrants outstanding. Loss
per share amounts do not include common stock equivalents since that
would reduce the net loss per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 318
<SECURITIES> 0
<RECEIVABLES> 4,585
<ALLOWANCES> 558
<INVENTORY> 8,080
<CURRENT-ASSETS> 13,831
<PP&E> 3,216
<DEPRECIATION> 1,019
<TOTAL-ASSETS> 26,117
<CURRENT-LIABILITIES> 7,649
<BONDS> 7,569
<COMMON> 32
0
0
<OTHER-SE> 10,867
<TOTAL-LIABILITY-AND-EQUITY> 26,117
<SALES> 47,339
<TOTAL-REVENUES> 47,810
<CGS> 37,321
<TOTAL-COSTS> 37,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 610
<INTEREST-EXPENSE> 646
<INCOME-PRETAX> (2,158)
<INCOME-TAX> 1,885
<INCOME-CONTINUING> (4,043)
<DISCONTINUED> (65)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,978)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> 0
</TABLE>
