SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE YEAR ENDED DECEMBER 31, 1996.
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
Commission File Number
0-20240
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AMERICAN WHITE CROSS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1342417
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
349 Lake Road
Dayville, Connecticut 06241
------------------------------------------------------------
(Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code: (860) 774-8541
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Securities registered pursuant to Section 12(b) of the Act: None
-----
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value -------------
- --------------
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]
As of December 31, 1996, 6,675,891 shares of Common Stock were outstanding.
The aggregate market value of Common Stock held by nonaffiliates as of
March 17, 1997 was approximately $1,170,289, based on the bid price as
reported on such date on the Nasdaq National Market.
<PAGE>
Document Incorporated by Reference
----------------------------------
Portions of the Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of Registrant's
year end are incorporated by reference in Part III.
Part I
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Item 1. Business
- -----------------
(a) Organization -
------------
American White Cross, Inc. (the "Company") manufactures and
markets a wide variety of health and personal care products. The
Company's business was founded in 1925, became a division of
National Patent Development Corporation ("NPDC") in 1972 and was
reorganized in April 1991 as National Patent Medical Partnership,
L.P. (the "Partnership"). Pursuant to the reorganization, Vamic,
Inc. ("Vamic", formerly Clifcor Medical Corp.) acquired a 51%
interest in the Partnership and became the general partner, and
National Patent Medical Inc. ("NPMI", a wholly owned subsidiary
of NPDC), acquired the remaining 49% interest in the Partnership
and became the limited partner.
In November 1992, NPM Healthcare Products, Inc. which was formed
for such purpose, succeeded to the assets, liabilities and
business of the Partnership (the "Corporate Reorganization").
In May 1993, the Company acquired all of the outstanding capital
stock of The American White Cross Laboratories, Inc. ("AWCL") and
its wholly owned subsidiary, Weaver Manufacturing Corporation
("Weaver"). In March 1994, AWCL was merged into the Company and
the Company changed its name from NPM Healthcare Products, Inc.
to American White Cross, Inc.
Unless the context otherwise requires, all references to the
Company include Acme/Chaston Puerto Rico, Inc. ("Acme/Chaston")
and Weaver, the Company's wholly owned subsidiaries, and the
Company's predecessor entities.
See Note 2 to the Company's consolidated financial statements for
a discussion of the Company's filing for protection under Chapter
11 of the U.S. Code (the "Bankruptcy Code") in the U.S.
Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") on July 17, 1996 (the "Chapter 11 Filing").
-2-
<PAGE>
(b) General Development of Business -
-------------------------------
The Company manufactures and markets a wide variety of health and
personal care products including disposable first aid products
such as adhesive bandages, sterile pads, first aid kits and
waterproof tape. The Company also produces and sells products
manufactured primarily from cotton (the "Cotton Business"),
including cotton swabs, pharmaceutical coil used in the packaging
of drugs and vitamins in bottles, cosmetic puffs, rounds and
squares, cotton rolls and sterile cotton balls. The Company
sells its products either under its customer's private label or
under the Company's label. The Company also sells adhesive
bandages under its own national brands, including Looney Tunes
(trademark), Space Jam (trademark), and Batman (trademark), each
marketed under license from the Warner Bros. Division of Time
Warner Entertainment Company, L.P., and Peanuts (trademark),
marketed under license from United Feature Syndicate, Inc., and
STAT-STRIP (registered), patented easy opening bandages.
The Company sells its products principally to the consumer and
healthcare markets. In the consumer market, the Company sells
its products to approximately 300 retailers including mass
merchandisers such as Wal-Mart, the Company's largest customer,
and Target; drug stores such as CVS, Revco and Rite Aid; and
supermarkets such as A&P and Kroger. The Company develops
private label programs for retailers, including store brands and
value brands, and also sells products to them under its own
national brands. Store brand products are sold under a
retailer's own label and compete with nationally advertised brand
products while value brand products are typically sold by
retailers under promotional programs and by smaller retailers who
do not have store brand programs.
In the healthcare market, the Company sells its private label
products to major hospital distributors including ABCO, Baxter
and Moore Medical, primarily for resale under the distributor's
own label. The Company sells cotton coil to pharmaceutical
companies which include McNeil, Bristol Myers/Squibb,
Burroughs-Wellcome, and American Home Products, and other
products to industrial safety suppliers such as Conney Safety.
The Company also manufactures and sells first aid kits for
automotive accounts such as Mercedes-Benz, Lexus and BMW.
-3-
<PAGE>
To a lesser extent, the Company also sells adhesive bandages,
adhesive tape and various other products supplied under contracts
awarded to the Company by various United States governmental
agencies. Outside the United States, the Company sells adhesive
bandages and various other products primarily to distributors in
Canada, Australia, New Zealand, Russia, and the Far East.
On March 20, 1997, the Company entered into a definitive
agreement to sell the Cotton Business (see Note 18 to the
Company's consolidated financial statements).
(c) Financial Information About Industry Segments -
---------------------------------------------
The Company is engaged in one industry segment, disposable health
and personal care products.
(d) Narrative Description of Business -
---------------------------------
(i) Products
--------
The Company manufactures and markets disposable health and
personal care products. The Company's most significant
products in terms of sales are adhesive bandages, cotton
swabs, pharmaceutical coil, and cosmetic puffs, rounds and
squares, which accounted for approximately 32%, 15%, 13% and
12%, respectively, of the Company's 1996 sales. The Company's
principal products are described below.
Adhesive Bandages. The Company manufactures and markets
private label adhesive bandage products. These products are
made of a variety of materials such as sheer, clear and
flexible fabric, in varying counts and of various sizes,
which the Company markets to retailers, hospital
distributors and certain industrial accounts such as first
aid kit packers. The Company also manufactures and markets
a patented easy opening adhesive bandage under the Company's
STAT-STRIP (registered) brand. In addition, the Company
manufactures and markets licensed branded adhesive bandages
as well as internally developed specialty adhesive bandages
targeted at the children's market. The Company's primary
licenses include Looney Tunes (trademark), Space Jam
(trademark), and Batman (trademark), each marketed under
license from the Warner Bros. Division of Time Warner
Entertainment Company, L.P. and Peanuts (trademark),
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<PAGE>
marketed under license from United Feature Syndicate, Inc.
The Company also develops and markets internally-developed
products including Glitter Strips, a holographic adhesive
bandage.
Sterile Pads. The Company manufactures non-adhesive sterile
pads in various sizes and markets these products to
retailers and hospital distributors. These products are
generally used for wound dressings.
First Aid Kits. The Company markets first aid kits and
other first aid products to various industrial safety
suppliers, automotive manufacturers such as Mercedes-Benz,
Lexus and BMW, and other distributors.
Waterproof Tape. The Company manufactures both private
label adhesive waterproof tape and heavyweight waterproof
tape and offers these products to all markets served by the
Company.
Cotton Swabs. The Company manufactures cotton swabs and
markets such products to retailers, including Wal-Mart under
Wal-Mart's Equate (registered) label. The Company offers
its customers a choice of paper stick swabs as well as
plastic and colored stick swabs.
Pharmaceutical Coil. The Company manufactures coil used by
pharmaceutical companies in the packaging of drugs and
vitamins in bottles. The coil, which is generally made of
cotton, is manufactured by the Company and is marketed by
the Company under its Snopure brand.
Cosmetic Puffs, Rounds and Squares. The Company
manufactures cosmetic puffs, rounds and squares and markets
these products to retailers. These products are generally
used for the application and removal of cosmetics and as an
aid in cleansing the skin.
Cotton Rolls and Sterile Cotton Balls. The Company
manufactures cotton rolls and sterile cotton balls and
markets these products to retailers and hospital
distributors.
Other Products. The Company's other products consist
principally of a broad line of wound dressings, surgical
sponges, eye pads, stockinette and esmark products, surgical
cauteries and podiatry products.
-5-
<PAGE>
On March 20, 1997, the Company entered into a definitive
agreement to sell the Cotton Business (see Note 18 to the
Company's consolidated financial statements).
(ii) Sales and Marketing
-------------------
The Company's products are sold either directly by Company
employees or by outside sales representative organizations
under the supervision of the Company's internal sales
directors. The Company's consumer sales organization
consists of a vice president of consumer sales reporting to
the President, who oversees a combination of direct
salespersons and independent sales representative
organizations. The Company's healthcare sales are primarily
managed by an outside sales agency which reports to the
President. The sales representatives generally have agreed
with the Company that if they sell the Company's products,
they will not sell products that compete with those
products.
In the consumer market, the Company focuses on developing
customized marketing programs for the retailer's private
label products. The Company develops in-store merchandising
displays and other promotional programs to stimulate a
consumer purchase. These include floor displays, trial size
programs, bonus sizes, coupons and promotional packs.
As part of its reorganization efforts under Chapter 11 of
the U. S. Bankruptcy Code, the Company is modifying its
focus to be a preferred supplier of quality disposable first
aid products, dedicated to customer satisfaction and product
innovation through the use of its core strengths in
manufacturing technology and distribution (see Note 2 to the
Company's consolidated financial statements).
The Company also designs customized labels and packaging for
all of its products. In-house design capabilities,
including electronic multicolor pre-press facilities, enable
the Company to work closely with customers in developing and
customizing package designs.
(iii) Customers
---------
In the consumer market, the Company's customers include
approximately 300 retailers, including mass merchandisers
such as Wal-Mart, the Company's largest customer, and
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<PAGE>
Target; drug stores such as CVS, Revco and Rite-Aid; and
supermarkets such as A&P and Kroger. The Company's
healthcare customers include medical and surgical supply
distributors such as ABCO, Baxter and Moore Medical, which
supply products to primary and secondary healthcare
facilities, including hospitals, physicians' offices,
surgery centers and other off-site clinics. The Company's
customers also include ethical and over-the-counter
pharmaceutical manufacturers such as McNeil, Bristol
Myers/Squibb, Burroughs-Wellcome, and American Home
Products, and vitamin repackagers. The Company also
manufactures and sells first aid kits for automotive
accounts such as Mercedes-Benz, Lexus and BMW.
To a lesser extent, the Company also sells adhesive
bandages, adhesive tape and various other products under
contracts awarded to the Company by various United States
governmental agencies. Outside the United States, the
Company sells adhesive bandages and various other products
primarily to distributors in Canada, Australia, New Zealand,
Russia and the Far East.
For the years ended 1996, 1995 and 1994, Wal-Mart, the
Company's largest customer, accounted for approximately
$12.1 million (13.8%), $11.1 million (12.7%) and $10.3
million (11.5%), respectively, of the Company's sales. The
loss of, or a significant reduction in purchases by, this
customer could have a material adverse effect on the
Company.
(iv) Manufacturing and Distribution
------------------------------
The Company manufactures the majority of the products it
markets. Its manufacturing facilities are located in
Dayville and Pomfret, Connecticut; Houston, Texas; Elmwood
Park, New Jersey; and Canovanas, Puerto Rico. Certain of
the Company's products are packaged in Mexico on a contract
basis.
The Company's distribution facilities are located in
Dayville, Connecticut and Houston, Texas. The Company
distributes products to its customers in Puerto Rico from
its Canovanas, Puerto Rico facility. Several of the
Company's customers take delivery of their products at the
Company's distribution facilities. In most cases, the
Company uses either freight contract carriers or common
carriers to deliver its products.
-7-
<PAGE>
(v) Raw Materials
-------------
Most of the Company's raw materials, including cotton and
paper products which comprise a significant percentage of
the Company's purchases, are available from a variety of
suppliers. Cotton and paper prices have historically been
subject to wide fluctuations and are affected by numerous
factors beyond the control of the Company, including
economic and political conditions, weather, availability and
cost of other substitute materials and levels of supply and
demand. A persistent significant increase in the price of
these materials or decrease in their availability could have
a material adverse effect on the Company.
(vi) Competition
-----------
Consumer Products. The consumer health and personal care
products markets are highly competitive. Competition is
based principally on price, quality of products and customer
service. The Company believes it competes favorably with
respect to these factors.
Several of the consumer retail markets in which the Company
competes are dominated by nationally advertised brand
products marketed by established consumer packaged goods
companies. The Company seeks to provide private label
products with quality equivalent to nationally advertised
brand products at substantial cost savings to consumers and
increased profit potential to retailers. With the
divestiture of the Cotton Business (see Note 18 to the
Company's consolidated financial statements), the Company is
refocusing its efforts to be a preferred supplier of quality
disposable first aid products, dedicated to customer
satisfaction and product innovation through the use of its
core strengths in manufacturing technology and distribution.
The Company's primary competition in consumer retail
products is generally product specific. Although some
crossover exists, the Company faces a different set of
primary competitors in adhesive bandages, cotton swabs and
cosmetic puffs, rounds and squares.
Healthcare Products. Competitors in the hospital market
range from small single-line manufacturers to large
multi-line conglomerates. The Company believes that its
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<PAGE>
strength lies in its low-cost cotton balls, adhesive
bandages and surgical sponges, which are sold through an
extensive medical and surgical distribution network. Major
competitors in the pharmaceutical coil market consist of
small to medium-sized companies with resources similar to
those of the Company. The Company believes it has a
significant share of the market for pharmaceutical coil,
which has been obtained through favorable pricing, quality
and service provided to customers.
(vii) Governmental Regulation and Health Issues
-----------------------------------------
Approval from the Food and Drug Administration (the "FDA")
is not required for marketing or distribution of the
Company's products. The FDA does, however, have regulatory
authority over the Company's manufacturing practices. The
Company is registered with the FDA as a manufacturer of
various Class I and Class II medical devices and various
wound-management devices. The primary forms of governmental
regulation in connection with the Company's products are the
current "good manufacturing practices" and "good laboratory
practices" guidelines administered by the FDA. These
guidelines describe the procedures required to manufacture,
store, package and distribute medical products for use by
humans. The Company is subject to periodic FDA site
inspections. Promotional claims made with respect to health
and personal care products are also subject to regulation by
the FDA as well as by the Federal Trade Commission under its
general authority to prevent unfair and deceptive trade
practices. Possible enforcement actions for violation of FDA
regulations range from written citations for minor
infractions to plant shutdowns in serious cases. The Company
believes that it operates in substantial compliance with the
regulations, guidelines and practices summarized above.
(viii) Trademarks and Licenses
-----------------------
While the Company has certain trademarks which it believes
have value in marketing its products, the Company does not
believe that such trademarks are of material importance to
its business as a whole. Federally registered trademarks
have a perpetual life as long as they are renewed on a
timely basis and used properly as trademarks, subject to the
right of third parties to seek cancellation of the marks.
-9-
<PAGE>
The Company has acquired the United States patent rights and
related technology required to manufacture its easy-opening
adhesive strip (STAT-STRIP, registered). The term of the
agreement extends until the relevant United States patents
expire in 1997 and 2000.
The Company markets various products under non-exclusive
licenses from the Warner Bros. Division of Time Warner
Entertainment Co., L.P., including adhesive bandages and
adhesive bandages with imprints of certain characters such
as Bugs Bunny, Daffy Duck and Tazmanian Devil. Additional
licenses have been obtained from Warner Bros. for use of
Space Jam (trademark) characters (including Michael Jordan)
and Batman (trademark). The Company also licenses the
Peanuts (trademark) characters from United Feature
Syndicate, including Charley Brown, Snoopy and Lucy. These
licenses have terms ranging in length from one year to 28
months and provide for royalty payments to the licenser
based on varying percentages of net sales.
(ix) Employees
---------
As of March 8, 1997, the Company had approximately 592
full-time employees, of whom 23 were engaged in sales or
marketing functions, 22 in general and administrative
positions and the remainder in manufacturing, distribution
and quality assurance. Approximately 198 hourly employees
are represented by Amalgamated Clothing and Textile Workers
Union, AFL-CIO, CLC Local 1196T, under a contract which
expires April 8, 1998. The Company believes that current
relations with its employees are satisfactory.
Item 2. Properties
- -------------------
The Company leases the following facilities, other than the Elmwood Park,
New Jersey facility which it owns:
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<PAGE>
Approximate
Square
Location Type of Facility Footage Expiration Date
- -------- ---------------- ------- ---------------
Houston, Texas Manufacturing, 253,000 April 30, 2013
Distribution and
Administrative
Dayville, Connecticut Manufacturing, 210,000 March 31, 2006
Distribution
and Administrative
E. Killingly, Connecticut Distribution 120,000 April 4, 1997
Canovanas, Puerto Rico Manufacturing and 22,550 December 15, 1998
Distribution
Pomfret, Connecticut Manufacturing 12,600 Month to Month
Elmwood Park, New Jersey Manufacturing 12,500 Owned
Dana Point, California Administrative 1,430 November 30, 1998
On March 20, 1997, the Company entered into a definitive agreement to sell
the Cotton Business. In connection with the sale, the Company will assign
the Canovanas, Puerto Rico facility lease to the purchaser and, following
the expiration of a supply agreement with the purchaser, will close the
Dayville, Connecticut and the E. Killingly, Connecticut facilities (see
Note 18 to the Company's consolidated financial statements).
The Company believes that its present facilities will be adequate for all
of its reasonably foreseeable manufacturing, distribution and
administrative requirements, or that alternative or additional facilities
can be obtained at a reasonable cost.
Item 3. Legal Proceedings
- --------------------------
As part of the Company's Chapter 11 Filing, creditors of the Company are
required to file proofs of claim with the Bankruptcy Court. These claims
will have to be reconciled with schedules of liabilities filed by the
Company with the Bankruptcy Court and the differences will have to be
resolved or litigated (see Note 2 to the Company's consolidated financial
statements).
The Company is not a party to any pending legal proceedings other than
routine litigation incidental to its business. In connection with the
acquisition of AWCL, the Company entered into employment agreements with
certain owners and employees of AWCL. One of these contracts was
subsequently terminated by the Company for cause. The former employee
advised the Company in 1993 that he believed the termination was without
support and has filed a claim for approximately $1,050,000 with the
Bankruptcy Court. Former shareholders of AWCL filed claims with the
-11-
<PAGE>
Bankruptcy Court aggregating approximately $3,300,000 related to the
deferred portion of the AWCL acquisition purchase price. A former customer
of the Company filed a claim with the Bankruptcy Court for approximately
$5,000,000 alleging, among other things, breach of contract and unfair
trade practices (see Note 16 to the Company's consolidated financial
statements for a discussion of these claims).
These matters have been stayed by the Chapter 11 Filing and the Company
does not believe that the outcome of these matters will have a material
adverse effect on the Company's consolidated financial condition or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
Part II
- -------
Item 5. Market for Registrant's Common Stock and Related Stockholder
- ----------------------------------------------------------------------
Matters
-------
The following table sets forth, for the periods indicated, the high and low
sale price per share of the Common Stock as reported by the Nasdaq National
Market.
High Low
---- ---
Year ended December 31, 1995
First quarter $ 3 1/2 $ 2 1/2
Second quarter 2 7/8 2 1/8
Third quarter 3 3/4 2 1/2
Fourth quarter 3 1/8 2 1/4
Year ended December 31, 1996
First quarter 2 3/4 2 1/8
Second quarter 2 7/16 1 3/16
Third quarter 1 3/8 1/4
Fourth quarter 1/2 1/8
As of December 31, 1996, an aggregate of 6,675,891 shares of Common Stock
were issued and outstanding. There were 71 record holders as of such date.
The Company has not made any cash distributions or paid any cash dividends
with respect to its Common Stock. Provisions of the Company's debt
agreements and the Bankruptcy Code restrict the payment of dividends.
-12-
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The selected consolidated financial information as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996
presented below has been derived from the consolidated financial statements
of the Company appearing elsewhere in this Form 10-K, which have been
audited by Arthur Andersen LLP, independent public accountants. The
selected consolidated financial information as of December 31, 1994, 1993
and 1992 and for the years ended December 31, 1993 and 1992 has been
derived from the consolidated financial statements of the Company audited
by Arthur Andersen LLP, independent public accountants, which are not
included herein.
The comparability of the Company's results of operations and financial
condition from period to period has been affected by acquisitions that have
been made by the Company and the Chapter 11 Filing. The following selected
consolidated financial information (in thousands, except per share amounts)
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-
K. No dividends were declared or paid for any period presented.
-13-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994 1993(1) 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales $87,798 $87,351 $90,005 $76,554 $49,277
Cost of sales 81,380 73,088 72,591 57,217 37,199
------ ------ ------ ------ ------
Gross profit 6,418 14,263 17,414 19,337 12,078
Operating expenses:
Selling 12,786 12,387 13,611 10,986 7,703
General and administrative 5,169 3,866 3,927 4,019 2,108
Nonrecurring expenses (2) - 1,028 5,328 - -
Impairment of long-lived
assets (6) 7,343 - - - -
Interest expense 3,791 3,365 1,982 1,487 1,010
Other income (3) (17) (33) (11) (50)
Reorganization items 2,147 - - - -
------ ------ ------ ------ ------
(Loss) income before
(provision for) benefit
from income taxes (24,815) (6,366) (7,401) 2,856 1,307
(Provision for) benefit from
income taxes (3) (5,093) 1,672 2,643 (725) -
------ ------ ------ ------ ------
Net (loss) income $(29,908) $(4,694) $(4,758) $2,131 $1,307
------ ------ ------ ------ ------
Net(loss) income per share $ (4.48) $ (.70) $ (.81) $ .52
====== ====== ====== ======
Weighted average shares
outstanding 6,676 6,676 5,843 4,121
====== ====== ====== ======
Corporate Reorganization
pro forma (4):
Net income $1,017
======
Net income
per share $ .37
======
Weighted average shares
outstanding (5) 2,741
======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital(7,8) $10,972 $12,371 $13,657 $ 4,255 $10,390
Total assets 54,405 78,416 68,783 71,404 30,127
Long-term debt and capital
lease obligations,
less current portion(7) - 19,577 13,847 10,952 4,038
Liabilities subject to
compromise (7) 35,371 - - - -
Total equity (deficit) (2,874) 27,034 29,642 20,430 18,147
(1)Includes the results of operations of AWCL subsequent to its acquisition
by the Company on May 25, 1993.
(2)For 1995 and 1994, reflect restructuring charges further described in
Note 12 to the Company's consolidated financial statements.
(3)See Note 15 to the Company's consolidated financial statements for a
discussion of the provision for (benefit from) income taxes.
(4)Reflects the income tax expense that the Company would have been
required to provide had the Corporate Reorganization occurred on
January 1, 1992.
(5)Assumes that for period prior to November 24, 1992, the closing date of
the Company's initial public offering, Vamic exchanged its interest in
the Partnership for 1,326,000 shares of Common Stock and that NPMI
exchanged its interest in the Partnership for 1,274,000 shares of
Common Stock, which represents the 574,000 shares received by NPMI and
700,000 shares sold by the Company in such offering the proceeds of
which were paid to NPMI. For periods subsequent to November 23, 1992,
the amount is based on the actual weighted average shares outstanding.
(6)See Note 4 to the Company's consolidated financial statements for
discussion of the Impairment of long-lived assets.
(7)See Note 7 to the Company's consolidated financial statements for
discussion of liabilities subject to compromise.
(8)In 1996, excludes amounts classified as liabilities subject to
compromise.
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
Since the Chapter 11 Filing the Company has continued to manage its
business as a debtor-in-possession. Key activities during the post-
petition period have included: 1) obtaining post-petition financing, 2)
increasing cash flows through a number of operational changes such as
personnel layoffs and negotiated union concessions, 3) evaluating the
Company's strategic direction and cost structure, resulting in a
determination to discontinue certain product lines and to pursue the
divestiture of its Cotton Business (see Note 18 to the Company's
consolidated financial statements), 4) offsetting the effect of certain
customer account losses through a renewed sales effort and focus on
profitable core product lines and, 5) making progress in developing a
formal plan of reorganization.
In connection with this strategic and cost evaluation and the decision to
divest its Cotton Business, the Company recorded non-cash charges totaling
$13,217,000 during the last six months of 1996. These charges included
provisions for allowance for doubtful trade and other accounts receivable
($702,000), certain inventory valuation adjustments ($5,172,000), and
provisions related to the impairment of long-lived assets ($7,343,000),
including the reassessment of the carrying value of certain machinery and
equipment intended for divestiture and provisions for the reduction of
goodwill and other intangible assets (see Note 4 to the consolidated
financial statements).
The Company's 1996 actual results, 1996 proforma results, which exclude the
non-cash charges discussed above, and 1995 actual results are summarized as
follows, expressed as a percentage of sales:
<TABLE>
<CAPTION>
1996 1996 1995
Actual Proforma Actual
------- -------- -------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 92.7% 86.6% 83.7%
----- ----- -----
Gross Profit 7.3% 13.4% 16.3%
Selling Expenses 14.6% 14.6% 14.2%
General and Administrative 5.9% 5.3% 4.4%
Impairment of Long-Lived Assets 8.4% - -
Reorganization Items 2.4% 2.4% -
Nonrecurring Costs - - 1.2%
Interest Expense 4.3% 4.3% 3.8%
----- ----- -----
Loss before income taxes (28.3%) (13.2%) (7.3%)
===== ===== =====
</TABLE>
<PAGE>
-16-
1996 Compared to 1995
- ---------------------
Sales in 1996 were $87.8 million as compared to $87.4 million in 1995,
reflecting higher sales to the Company's healthcare and OEM customers,
particularly pharmaceutical coil and other cotton products produced under
contract for Johnson & Johnson Consumer Products, Inc. Sales of first aid
products to these markets also increased. Offsetting these gains were
losses in sales to the Company's consumer retail customers, particularly
branded and private label adhesive strips and cotton swabs.
Pro forma cost of sales in 1996 was $76.0 million, or 86.6% of sales as
compared to $73.1 million, or 83.7% of sales, in 1995. The increase in
cost of sales was primarily related to higher material costs, particularly
in the post-bankruptcy period, unfavorable product mix and a higher level
of sales allowances offered in order to improve cash flow. These increases
were partially offset with lower labor costs related to the full
implementation of the subcontract agreement with a Mexican facility as well
as increased labor efficiencies at the Company's Houston location.
Selling expenses were $12.8 million, or 14.6% of sales as compared to $12.4
million, or 14.2% of sales in 1995. Higher distribution costs, were caused
primarily by the duplication and relocation of warehouse operations from
Dayville to Houston during the first six months of the year. This increase
was partially offset by lower sales salaries and commissions.
Pro forma general and administrative expenses were $4.7 million, or 5.3% of
sales compared to $3.9 million, or 4.4% of sales in 1995. The increase was
due to a higher level of legal fees, travel, and telephone costs as well as
employee severance costs accrued related to the Chapter 11 Filing.
Reorganization items related to the Chapter 11 Filing were $2.1 million or
2.4% of sales in 1996.
Interest expense of $3.8 million, or 4.3% of sales exceeded 1995 by $.4
million. The increase was due to a significant increase of the debt
balance prior to the Chapter 11 Filing as well as the increase in interest
rates in the post-petition period. Interest expense recorded during 1996
was approximately $1.3 million less than interest expense for 1996 that was
required by certain contractual debt agreements as a result of the Chapter
11 Filing (see Notes 2 and 9 to the Company's consolidated financial
statements).
In 1996, the Company incurred a net loss of $29.9 million which included
approximately $13.2 million of asset valuation charges related to products
being divested or discontinued. The results for 1996 also included a $5.1
million provision for income taxes primarily to record a valuation
allowance on the Company's deferred tax assets (see Note 15 to the
-17-
<PAGE>
consolidated financial statements). Excluding these charges, as well as
the $2.1 million of bankruptcy-related professional fees, the Company's net
loss of $9.5 million was higher than the $4.7 million loss incurred in 1995
primarily due to the aforementioned increases in materials, distribution
and administrative expenses.
1995 Compared to 1994
- ---------------------
Sales in 1995 were $87.4 million as compared to $90.0 million in 1994, a
decrease of $2.6 million, or 2.9%. Sales in 1995 were impacted by the loss
of volume related to bringing the new Houston facility up to the Company's
historical operating capacity and efficiency. Sales were also impacted by
the Company's decision to forego certain promotional volume and sales to
certain governmental agencies in order to support higher net pricing in the
longer term. Sales of branded character adhesive bandages declined in 1995
due to competitive new character introductions. Partially offsetting these
losses were increases in sales of cotton products to both the Company's
consumer customers as well as to Johnson & Johnson Consumer Products, Inc.
Cost of sales in 1995 was $73.1 million, or 83.7% of sales, as compared to
$72.6 million, or 80.7% of sales, in 1994. The increase in cost of sales
percentage was primarily related to increased purchase cost of several key
raw materials, specifically raw cotton and paper-based materials, volume
losses and a change in the product mix toward less profitable cotton
products. The savings related to the relocation of the Company's
manufacturing facilities were lower than anticipated in 1995 due to
operational inefficiencies during the plant start-up phase.
Selling expenses were $12.4 million, or 14.2% of sales, as compared to
$13.6 million, or 15.1% of sales, in 1994. Freight, commissions and
distribution costs all represented a lower percentage of sales from prior
year levels.
General and administrative expenses were $3.9 million in both 1995 and 1994
as higher goodwill amortization was offset by lower bad debt expenses.
The Company's 1995 results included nonrecurring expenses of $1.0 million,
or 1.2% of sales. These costs primarily reflect amounts spent in excess of
the $5.3 million pre-tax restructuring charge taken in 1994 related to the
cost of facility relocations which were substantially completed in the
fourth quarter of 1995. The facilities relocation plan was completed
within the original 18 month estimate. Also charged to nonrecurring
expenses in 1995 was the settlement of a pension dispute with the union
representing the Company's employees in Connecticut.
-18-
<PAGE>
Interest expense was $3.4 million in 1995 compared to $2.0 million in 1994,
reflecting the higher level of debt outstanding during 1995.
The Company incurred a net loss of $4.7 million in 1995 compared to a net
loss of $4.8 million in 1994. The 1995 results reflect higher raw material
costs, lower sales volume and inefficiencies related to the Company's
relocation of operations, and an unfavorable product mix in 1995, while
1994 results reflect the impact of the one-time pre-tax restructuring
charge. The 1995 results were also negatively impacted by a reduction of
the Company's income tax benefit resulting from reserves established
related to the expiration of certain state operating losses.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996, the Company had working capital of $11.0 million and
a current ratio of 1.5 to 1 as compared to $12.4 million and 1.4 to 1 at
December 31, 1995. The December 31, 1996 amounts do not include
liabilities normally classified as current, but currently classified as
liabilities subject to compromise (see Notes 2 and 7 to the Company's
consolidated financial statements).
During 1996, net cash used in operating activities totaled $1.1 million. A
significant portion of the Company's $29.9 million net loss was comprised
of non-cash expenses and charges (including depreciation and amortization,
impairment of long-lived assets, valuation allowances for deferred tax
assets, and certain other inventory and receivables valuation adjustments)
as well as the impact of reducing inventory levels and the Bankruptcy Court
ordered stay on payment of pre-petition accounts payable.
The Company used $2.0 million in investing activities primarily due to
purchases of property, plant and equipment.
The amount available for borrowings under the Company's Revolving DIP
Facility is determined pursuant to a formula which is based upon the levels
of eligible accounts receivable and inventory subject to a maximum amount
of $30.0 million. Based on eligible receivables and inventory at December
31, 1996, the Company had approximately $2.5 million available for
additional borrowings at that time.
Management believes that the sale of the Cotton Business is a significant
step in its efforts to emerge from Bankruptcy. The adequacy of the
Company's available borrowings under the Revolving DIP Facility is
dependent upon a number of factors, including successful confirmation of a
formal plan of reorganization and, therefore, is not assured.
-19-
<PAGE>
Seasonality
- -----------
The Company experiences a seasonal decline in certain of its consumer
product lines, especially adhesive bandages, generally in the fourth
quarter and, to a lesser extent, in the first quarter of the year. The
Company believes that such seasonal decline results from scrapes and cuts
occurring more often in milder temperatures as well as retailers' need for
holiday promotional shelf space near year end.
Inflation
- ---------
Cotton and paper prices have historically been subject to wide fluctuations
and are affected by numerous factors beyond the control of the Company,
including economic and political conditions, weather, availability and cost
of other substitute materials and levels of supply and demand. A
persistent significant increase in the price of these materials or decrease
in their availability could have a material adverse effect on the Company.
Company Outlook
- ---------------
Since the Chapter 11 filing, the Company has continued to manage its
business as debtor-in-possession. Key activities during the post-petition
period have included: 1) obtaining post-petition financing which has
supported the continued operations of the business without interruption, 2)
increasing cash flows through a number of operational changes such as
personnel layoffs and negotiated union concessions, 3) evaluating the
Company's strategic direction and cost structure, resulting in a
determination to discontinue certain product lines and to pursue the
divestiture of its Cotton Business (see Note 18 to the Company's
consolidated financial statements), 4) offsetting the effect of certain
customer account losses through a renewed sales effort and focus on
profitable core product lines, and 5) making progress in developing a
formal plan of reorganization.
As part of the above process, the Company is modifying its focus to be a
preferred supplier of quality disposable first aid products, dedicated to
customer satisfaction and product innovation through the use of its core
strengths in manufacturing technology and distribution. Accordingly, on
March 20, 1997, the Company entered into a definitive agreement to sell the
Cotton Business (see Note 18 to the Company's consolidated financial
statements). The Company considers this to be a significant step in its
effort to emerge from bankruptcy.
-20-
<PAGE>
Accounting Pronouncements
- -------------------------
See Notes 4 and 11 to the Company's consolidated financial statements for a
summary of 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" and SFAS No. 123 "Accounting for Stock-Based
Compensation".
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The index to consolidated financial statements of the Registrant and its
subsidiaries and notes thereto, appears on Page F-1 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
None.
Part III
- --------
Information required by Items 10, 11, 12 and 13 (Directors and Executive
Officers of the Registrant, Executive Compensation and Security Ownership
of Certain Beneficial Owners and Management and Certain Relationships and
Related Transactions) is incorporated herein by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the Registrant's fiscal year.
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K
- -------------------------------------------------------------------------
(a) Documents Filed:
---------------
1. Financial Statements
For a listing of financial statements which are included
in this document see page F-1.
2. Financial Statement Schedules
Page
----
Report of Independent Public Accountants on Schedule 27
Schedule II - Valuation and Qualifying Accounts
as of December 31, 1996, 1995 and 1994 28
-21-
<PAGE>
3. Exhibits
Exhibit
Number Description
------- -----------
2.1 Stock Purchase Agreement, dated as of April 19, 1993, by
and among the Company and the stockholders of The
American White Cross Laboratories, Inc.
(Incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K dated April 19,
1993)
3.1 Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (Exhibit 3.2 to the IPO
Registration Statement)(2)
4.1 Specimen Common Stock Certificate of the Company (1)
4.2 Securities Purchase Agreement dated as of December 1,
1995 among the Company, Electra Investment Trust
P.L.C. ("Electra") and Electra Associates, Inc.
("EAI") (including Exhibit A - Form of Senior
Subordinated Note and Exhibits B-1 - B-4 - Forms of
Warrant Certificate but excluding all other
exhibits and schedules which are available upon
request to the Company) (6)
4.3 Registration Rights Agreement dated as of December 1,
1995 among the Company, Electra and EAI (6)
10.1 License agreement for STAT-STRIP (registered) (Exhibit
10.23 to the IPO Registration Statement) (2)
10.2 Lease dated April 8, 1991 for Dayville, Connecticut
property (Exhibit 10.7 to the IPO Registration
Statement) (2)
10.3 Form of amendment to Dayville, Connecticut lease
(Exhibit 10.8 to the IPO Registration Statement)
(2)
10.4 Amendment No. 2 dated as of November 24, 1994 to
Dayville, Connecticut lease
10.5 Lease dated April 8, 1991 for East Killingly,
Connecticut property (Exhibit 10.9 to the IPO
Registration Statement)2
10.6 Amendment dated as of April 4, 1992 to East Killingly,
Connecticut lease (Exhibit 10.10 to the IPO
Registration Statement) (2)
10.7 Lease dated as of May 1, 1993 between the Company and
Bradford Realty, Ltd. (Exhibit 10.14 to the 1994
Registration Statement)(1)
-22-
<PAGE>
10.8 First Amendment to Lease dated as of November 1, 1995
between the Company and Bradford Realty, Ltd. (6)
10.9 Amended and Restated Accounts Financing Agreement dated
May 25, 1993 (Exhibit 10.15 to the 1994
Registration Statement) (1)
10.10 Amendment No. 1 to the Amended and Restated Accounts
Financing Agreement (Exhibit 10.16 to the 1994
Registration Statement) (1)
10.11 Amendment No. 2 to the Amended and Restated Accounts
Financing Agreement (Exhibit 10.17 to the 1994
Registration Statement) (1)
10.12 Amendment No. 3 to the Amended and Restated Accounts
Financing Agreement (6)
10.13 Intentionally omitted
10.14 Form of stockholders agreement (Exhibit 10.14 to the
IPO Registration Statement) (2)
10.15 Contribution Agreement dated April 8, 1991 (Exhibit
10.21 to the IPO Registration Statement) (2)
10.16 Contribution Agreement in respect of the Corporate
Reorganization, together with exhibits thereto
(Exhibit 10.22 to the IPO Registration
Statement)(2)
10.17 Collective Bargaining Agreement dated August 1, 1994
with the Amalgamated Clothing & Textile Workers
Union (6)
10.18 Form of employment agreement with Howard Koenig
(Exhibit 10.16 to the IPO Registration
Statement)(2)
10.19 Amendment dated September 17, 1993 to Employment
Agreement with Howard Koenig (Exhibit 10.26 to the
1994 Registration Statement)(1)
10.20 Form of employment agreement with Scott Vertrees
(Exhibit 10.17 to the IPO Registration
Statement)(2)
10.21 Amendment dated September 17, 1993 to Employment
Agreement with Scott Vertrees (Exhibit 10.28 to the
1994 Registration Statement)(1)
10.22 1992 Stock Option Plan (Exhibit 10.18 to the IPO
Registration Statement)(2)
10.23 1992 Directors' Stock Option Plan (Exhibit 10.19 to
the IPO Registration Statement)(2)
10.24 401(k) Plan (Exhibit 10.20 to the IPO Registration
Statement)(2)
-23-
<PAGE>
10.25 Master Lease Agreement dated September 1, 1994 between
the Company and Banc One Leasing Corporation, and
Amendment No. 1 dated March 16, 1995 thereto (Exhibit
10.32 to the 1994 Annual Report)(3)
10.26 Addendum II to Master Lease Agreement dated September
1, 1995 (6)
10.27 Addendum III to Master Lease Agreement dated
November 30, 1995 (6)
10.28 Financing Lease Schedule to Master Lease Agreement
dated September 1, 1995, and Addendum I to
Financing Lease Schedule(6)
10.29 Employment agreement between the Company and Gary
E. Avalone dated June 14, 1994 (Exhibit 10.33 to the
1994 Annual Report)(3)
10.30 Employment agreement between the Company and Thomas M.
Rallo dated January 1, 1996 (6)
10.31 Employment agreement between the Company and John R.
Patnovic dated May 16, 1994 (Exhibit 10.35 to the
1994 Annual Report)(3)
10.32 License agreement with the Warner Bros. Division of
Time Warner Entertainment Company, L.P. dated
September 13, 1994 (Willy 2 (trademark))(Exhibit
10.36 to the 1994 Annual Report)(3, 4)
10.33 License agreement with the Warner Bros. Division of
Time Warner Entertainment Company, L.P. dated
November 16, 1994 (Looney Tunes
(trademark))(Exhibit 10.37 to the 1994 Annual
Report)(3, 4)
10.34 Manufacturing and Supply Agreement between the Company
and Johnson & Johnson Consumer Products, Inc. dated
September 27, 1994 (Exhibit 10.38 to the 1994
Annual Report) (3, 4)
10.35 Amendment No. 1 to the 1992 Directors' Stock Option
Plan (5)
10.36 First Amended Order Authorizing Post-Petition
Financing, granting senior liens and priority
administrative expense status, modifying the
automatic stay, and authorizing debtor to enter
into agreements with Congress Financial Corporation
(New England).
10.37 Amended Ratification and Amendment Agreement
-24-
<PAGE>
10.38 Final order pursuant to Section 364(c) of the
Bankruptcy Code and Rule 4001 of the Federal Rules
of Bankruptcy Procedure authorizing the debtors to
obtain post-petition financing, granting senior
liens and priority administrative expense status,
modifying the automatic stay, and authorizing
debtor to enter into agreements with Congress
Financial Corporation (New England).
21.1 Subsidiaries (1)
(1) Incorporated by reference to the indicated numbered
exhibit filed with the Company's Registration Statement
(the "1994 Registration Statement") on Form S-1, as
amended (Registration No. 33-76352), originally filed
with the Securities and Exchange Commission on March 11,
1994.
(2) Incorporated by reference to the indicated numbered
exhibit filed with the Company's Registration Statement
(the "IPO Registration Statement") on Form S-1, as
amended (Registration No. 33-47973), originally filed
with the Securities and Exchange Commission on May 18,
1992.
(3) Incorporated by reference to the indicated numbered
exhibit filed with the Company's Annual Report on Form 10-
K for the year ended December 31, 1994 (the "1994 Annual
Report").
(4) The Company has obtained confidential treatment of
portions of this exhibit in connection with the filing of
the 1994 Annual Report.
(5) Incorporated by reference to the Company's Proxy Statement
dated April 22, 1994.
(6) Incorporated by reference to the indicated numbered
exhibit with the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (the "1995 Annual
Report").
(b) Reports on Form 8-K:
-------------------
None
-25-
<PAGE>
(c) Exhibits:
--------
See Exhibit index included in Item 14(a) 3., which index is
incorporated by reference.
(d) Financial Statement Schedules:
-----------------------------
See Financial Statement Schedule appearing on page 28.
-26-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To American White Cross, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of American White
Cross, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995 and for each of the three years in the period ended
December 31, 1996, and have issued our report thereon dated March 12,
1997. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying schedule
on page 28 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 12, 1997
-27-
<PAGE>
Schedule II
<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
December 31, 1996, 1995 and 1994
(In thousands)
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Cost and at End
Description of Year Expenses Deductions(1) of Year
----------- ---------- -------- ------------- -------
<S> <C> <C> <C> <C>
December 31, 1994:
Allowance for
doubtful
accounts $585 $306 $221 $670
December 31, 1995:
Allowance for
doubtful
accounts 670 33 7 696
December 31, 1996:
Allowance for
doubtful
accounts 696 591 280 1,007
(1) Write off of uncollectible accounts net of recoveries.
</TABLE>
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, Registrant has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 31, 1997.
AMERICAN WHITE CROSS, INC.
By: /s/SCOTT VERTREES
-----------------------
Scott Vertrees
Vice Chairman of the Board of Directors,
Executive Vice President
and Chief Financial Officer
-29-
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities and on the
dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ HOWARD KOENIG
- ----------------------- Chairman of the Board of March 31, 1997
Howard Koenig Directors, President and Chief
Executive (Principal Executive
Officer)
/s/ SCOTT VERTREES
- ------------------------ Vice Chairman of the Board of March 31, 1997
Scott Vertrees Directors, Executive Vice
President, Chief Financial
Officer (Principal
Financial Officer)
/s/ NORBERT R. MARKERT
- ------------------------ Senior Vice President, Corporate March 31, 1997
Norbert R. Markert Development
/s/ THOMAS M. RALLO
- ------------------------ Senior Vice President, Finance March 31, 1997
Thomas M. Rallo and Administration (Principal
Accounting Officer)
/s/ ROBERTA M. GOLDRING
- ------------------------ Director March 31, 1997
Roberta M. Goldring
/s/ CLIFFORD J. GUNDLE
- ------------------------ Director March 31, 1997
Clifford J. Gundle
/s/ JULIUS WAGMAN
- ----------------------- Director March 31, 1997
Julius Wagman
- -----------------------
Edgar Wadley Director
-30-
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31,
1996 and 1995 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) for the Years Ended December 31,
1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-9
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American White Cross, Inc.:
We have audited the accompanying consolidated balance sheets of American
White Cross, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American White
Cross, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
accompanying consolidated statements of operations indicate that the
Company incurred significant losses in each of the three years ended
December 31, 1996. In addition, as discussed in Note 2 to the consolidated
financial statements, on July 17, 1996, the Company filed a voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code. These
matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are
discussed in Note 2 to the consolidated financial statements. The
Company's ability to continue as a going concern is dependent upon
acceptance of a plan of reorganization by the Bankruptcy Court and the
Company's creditors, maintaining on-going debtor-in-possession financing
and the success of future operations. The ultimate outcome of these
matters is not presently determinable. The accompanying consolidated
financial statements do not include any adjustments relating to these
uncertainties or the recoverability and classification of recorded asset
F-2
<PAGE>
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Also, the accompanying consolidated financial statements do not include
adjustments that the Company can be expected to record to adjust the
carrying values of assets and liabilities to to estimated fair values if
the Company emerges from reorganization under Chapter 11 of the U.S.
Bankruptcy Code as a going concern.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 12, 1997
F-2.1
<PAGE>
<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
(Dollar amounts in thousands)
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash $ 440 $ 848
Accounts receivable, net of allowances for
doubtful accounts and discounts of $1,007
and $696 in 1996 and 1995 8,955 10,089
Inventory 19,843 28,171
Prepaid expenses 1,027 765
Supplies 1,511 1,367
Other current assets 1,104 1,875
Deferred income taxes - 1,061
------ ------
Total current assets 32,880 44,176
------ ------
Property, plant and equipment, net of
accumulated depreciation of $17,974
and $15,520 in 1996 and 1995 15,946 21,827
------ ------
Other assets:
Goodwill, net of accumulated amortization
of $587 and $421 in 1996 and 1995 4,388 6,461
Trademarks, licenses and customer list, net
of accumulated amortization of $777 and
$561 in 1996 and 1995 180 616
Organization and deferred financing costs,
net of accumulated amortization of $1,317
and $1,004 in 1996 and 1995 869 1,046
Non-competition agreements, net of accumulated
amortization of $358 and $258 in 1996 and 1995 142 242
Deferred income taxes - 4,048
------ ------
Total other assets 5,579 12,413
------ ------
Total assets $ 54,405 $ 78,416
====== ======
</TABLE>
<PAGE>
F-3
<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
(Continued)
(Dollar amounts in thousands)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities not subject to compromise:
Revolving DIP facility $ 16,827 $ -
Current portion of long-term debt and capital
lease obligations - 17,451
Accounts payable 2,108 12,608
Other accrued expenses 2,973 1,746
------ ------
Total current liabilities not
subject to compromise 21,908 31,805
Long-term debt and capital lease obligations,
less current portion, not subject to
compromise - 19,577
Liabilities subject to compromise (Note 7) 35,371 -
------ ------
Total liabilities 57,279 51,382
------ ------
Commitments and contingencies (Notes 2, 3,
7, 8, 16 and 18)
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000
shares authorized, none outstanding - -
Common stock, $.01 par value, 20,000,000 shares
authorized, 6,675,891 issued and outstanding 67 67
Additional paid-in capital 33,990 33,990
Accumulated deficit (36,931) (7,023)
------ ------
Total stockholders' equity (deficit) (2,874) 27,034
------ ------
Total liabilities and stockholders'
equity (deficit) $ 54,405 $ 78,416
====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
(In thousands, except per share amounts)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales $ 87,798 $ 87,351 $ 90,005
Cost of sales 81,380 73,088 72,591
------ ------ ------
Gross profit 6,418 14,263 17,414
------ ------ ------
Operating expenses:
Selling 12,786 12,387 13,611
General and administrative 5,169 3,866 3,927
Nonrecurring (Note 12) - 1,028 5,328
Impairment of long-lived assets (Note 4) 7,343 - -
Interest expense (1996 less than
contractual interest by $1,300, Note 9) 3,791 3,365 1,982
Other income (3) (17) (33)
------ ------ ------
Loss before reorganization items and
(provision for) benefit from income taxes (22,668) (6,366) (7,401)
Reorganization items:
Professional fees (2,147) - -
------ ------ ------
Loss before (provision for)
benefit from income taxes (24,815) (6,366) (7,401)
(Provision for) benefit from income taxes (5,093) 1,672 2,643
------ ------ ------
Net loss $ (29,908) $ (4,694) $ (4,758)
====== ====== ======
Net loss per share $ (4.48) $ (0.70) $ (0.81)
====== ====== ======
Weighted average shares outstanding 6,676 6,676 5,843
====== ====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1996, 1995 and 1994
(In thousands)
<CAPTION>
Stockholders' Equity (Deficit)
-------------------------------------------------
Retained
Common Stock Additional Earnings
------------- Paid-In (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1993 4,068 $ 41 $ 17,960 $ 2,429 $ 20,430
Proceeds from sale of
common stock, net of
offering expenses of
$817 2,608 26 13,944 - 13,970
Net loss - - - (4,758) (4,758)
----- --- ------ ------- -------
Balance, December 31,
1994 6,676 67 31,904 (2,329) 29,642
Warrants issued in
conjunction with
offering of sub-
ordinated notes
payable - - 2,086 - 2,086
Net loss - - - (4,694) (4,694)
----- --- ------ ------- -------
Balance, December 31,
1995 6,676 67 33,990 (7,023) 27,034
Net loss - - - (29,908) (29,908)
----- --- ------ ------- -------
Balance, December 31,
1996 6,676 $ 67 $ 33,990 $ (36,931) $ (2,874)
===== === ====== ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(In thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <S> <S> <S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (29,908) $ (4,694) $ (4,758)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 3,510 3,059 2,935
Impairment of long-lived assets 7,343 - -
Cash flow effect of
restructuring charge, net
of deferred income tax
benefit of $1,880 in 1994 - (3,065) 3,448
Provision for (benefit from)
deferred income taxes 5,109 (1,735) (815)
Accretion of subordinated
notes payable 142 21 -
Changes in operating assets
and liabilities -
Accounts receivable 1,134 725 1,805
Inventory 8,328 (5,995) 3,292
Prepaid expenses, supplies
and other current assets 365 (631) (141)
Accounts payable and accrued
expenses 2,908 5,732 (12,368)
------- ------- -------
Net cash used in
operating activities (1,069) (6,583) (6,602)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant (1,883) (3,616) (3,003)
and equipment
Reimbursement of plant and
equipment costs - 976 -
Other assets (166) (343) (378)
------- ------- -------
Net cash used in
investing activities (2,049) (2,983) (3,381)
------- ------- -------
</TABLE>
F-7
<PAGE>
<TABLE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(Continued)
(In thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) on Revolving
DIP Facility/revolving credit
loan, net 4,589 1,934 (8,190)
Proceeds from other long-term debt - 3,000 12,507
Repayments of long-term debt (1,236) (2,306) (6,492)
Repayments of capital lease
obligations (507) (1,210) (964)
Proceeds from issuance of
subordinated notes payable
and related warrants - 9,000 -
Deferred financing costs (136) (902) (62)
Net proceeds from sale of
common stock - - 13,970
------- ------- -------
Net cash provided by
financing activities 2,710 9,516 10,769
------- ------- -------
Net (decrease) increase
in cash (408) (50) 786
CASH, beginning of year 848 898 112
------- ------- -------
CASH, end of year $ 440 $ 848 $ 898
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements, including Note 3 - Supplemental Cash Flow
Information.
</TABLE>
F-8
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1.BUSINESS AND ORGANIZATION:
American White Cross, Inc. (the "Company") manufactures and markets a
wide variety of health and personal care products including disposable
first aid products such as adhesive bandages, sterile pads, first aid kits
and waterproof tape. The Company also produces and sells products
manufactured primarily from cotton (the "Cotton Business"), including
cotton swabs, pharmaceutical coil used in the packaging of drugs and
vitamins in bottles, cosmetic puffs, rounds and squares, cotton rolls and
sterile cotton balls.
The Company's business was founded in 1925, became a division of National
Patent Development Corporation ("NPDC") in 1972 and was reorganized in
April 1991 as National Patent Medical Partnership, L.P. (the
"Partnership"). Pursuant to the formation of the Partnership, Vamic, Inc.
("Vamic", formerly Clifcor Medical Corp.) acquired a 51% interest in the
Partnership and became the general partner, and National Patent Medical
Inc. ("NPMI"), a wholly owned subsidiary of NPDC, acquired the remaining
49% interest in the Partnership and became the limited partner.
In November 1992, NPM Healthcare Products, Inc., which was formed for
such purpose, succeeded to the assets, liabilities and business of the
Partnership.
In May 1993, the Company acquired all of the outstanding capital stock of
The American White Cross Laboratories, Inc. ("AWCL") and its wholly owned
subsidiary, Weaver Manufacturing Corporation ("Weaver"). In March 1994,
AWCL was merged into the Company and the Company changed its name from NPM
Healthcare Products, Inc. to American White Cross, Inc.
Unless otherwise noted, all references to the Company include Weaver and
Acme/Chaston Puerto Rico, Inc. ("Acme/Chaston"), the Company's wholly owned
subsidiaries, and the Company's predecessor entities.
See Note 2 for a discussion of the Company's filing for protection under
Chapter 11 of the U.S. Bankruptcy Code on July 17, 1996 and Note 18 for a
discussion of an agreement to sell the Cotton Business (unaudited).
F-9
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. STATUS OF CHAPTER 11 PROCEEDINGS:
On July 17, 1996 (the "Filing Date"), the Company and its wholly owned
subsidiaries, Weaver and Acme/Chaston, filed voluntary petitions for
reorganization under Chapter 11 (the "Chapter 11 Filing") of Title 11 of
the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") and
are currently operating their respective businesses as debtors-in-
possession pursuant to section 1107 and 1108 of the Bankruptcy Code. On
July 29, 1996, a single unsecured creditors' committee was appointed by the
U.S. Trustee for the District of Delaware pursuant to Section 1102 of the
Bankruptcy Code (the "Creditors' Committee"). The Creditors' Committee has
the right to review and object to certain business transactions and is
expected to participate in the negotiation of the Company's plan of
reorganization.
As of the Filing Date, actions to collect pre-petition indebtedness have
been automatically stayed pursuant to Section 362 of the Bankruptcy Code
(subject to order of the Bankruptcy Court) and, in certain circumstances,
other pre-petition contractual obligations may not be enforced against the
Company. In addition, the Company may reject pre-petition executory
contracts and lease obligations, and parties affected by these rejections
may file claims with the Bankruptcy Court in accordance with the
reorganization process. Substantially all liabilities as of the Filing
Date are subject to being paid or compromised under a plan of
reorganization to be voted upon by impaired classes of creditors and equity
security holders and approved by the Bankruptcy Court (see Note 7).
On July 17, 1996, the Company entered into a ratification and amendment
of its loan agreement with Congress Financial (the "Congress Financing") to
provide a working capital, debtor-in-possession facility, (the "Revolving
DIP Facility") to the Company through December 31, 1996. The facility was
subsequently extended to May 13, 1997. The amount available for borrowings
is based upon the levels of eligible accounts receivable and inventory,
subject to maximum borrowings of $30,000,000. Under the Revolving DIP
Facility, the formulas for calculating available borrowing were modified,
increasing the amount the Company can borrow by up to $1,500,000. In
exchange for this increase, the Company, (i) pledged previously
unencumbered collateral, (ii) granted a second lien position to Congress
Financial on certain machinery and equipment and, (iii) paid a $50,000
facility fee, along with an additional $20,000 facility fee at the time of
extension. The interest rate increased to 2% above prime rate (10.25% at
F-10
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996) from the prime rate plus 1 3/4% at December 31, 1995.
The Revolving DIP Facility, approved by the Bankruptcy Court on August 13,
1996, contains certain financial covenants, related to performance against
weekly cash flow projections provided by the Company. Borrowings
outstanding on the Revolving DIP Facility at December 31, 1996 were
$16,827,000. Based on eligible receivables and inventory at December 31,
1996, the Company had approximately $2,500,000 available for additional
borrowings.
Since the Filing Date, the Company has continued to manage its business
as a debtor-in-possession. Key activities during the post-petition period
have included: 1) obtaining post-petition financing, 2) increasing cash
flows through a number of operational changes such as personnel layoffs and
negotiated union concessions, 3) evaluating the Company's strategic
direction and cost structure, resulting in a determination to discontinue
certain product lines and also to pursue the divestiture of its Cotton
Business (see Note 18), 4) offsetting the effect of certain customer
account losses through a renewed sales effort and focus on profitable core
product lines, and 5) making progress in developing a formal plan of
reorganization. By a court order in March 1997, the Company has received
an extension of it's exclusive period to file a plan of reorganization to
June 14, 1997.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reporting Periods
- -----------------
The Company's first three fiscal quarters include 13 weeks and end on a
Sunday. The first fiscal quarter of each year also includes the period
from January 1 to the first Sunday of January. The Company's year end is
December 31.
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the
consolidated operations of the Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
the consolidated financial statements.
F-11
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles 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. These statements have been prepared on a
going concern basis, which assumes continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, such realization of assets and liquidation of liabilities is
subject to significant uncertainty in light of the Chapter 11 Filing (see
Note 2) and the amount to be realized from the sale of the Cotton Business
(see Note 18). Such accompanying consolidated financial statements,
consequently, do not reflect all potential adjustments to the carrying
value of assets or amounts and classification of liabilities that might be
necessary pursuant to a plan of reorganization. The Company expects to
adjust the carrying value of assets and liabilities to estimated fair
values if the Company emerges as a going concern from Chapter 11 under the
"Fresh-Start" accounting provisions of AICPA Statement of Position 90-7.
Under the reorganization proceedings, the Company may sell or otherwise
realize assets, and liquidate or settle liabilities, for amounts other than
those reflected in the consolidated financial statements.
Account Reclassifications
- -------------------------
Certain amounts in the accompanying consolidated financial statements
have been reclassified to conform with the current year presentation.
Revenue Recognition
- -------------------
Revenue is recorded upon the shipment of products to the customer.
Inventory
- ---------
Inventory is valued at the lower of cost, using the first-in, first-out
(FIFO) method, or market.
F-12
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are carried at cost. Major additions and
betterments are capitalized, while replacements, maintenance and repairs
which do not extend the lives of the assets are charged to operations as
incurred. Upon the disposition of property, plant and equipment, any
resulting gain or loss is recognized in income.
Depreciation and amortization of plant and equipment are provided for,
commencing when such assets become operational, primarily on the straight-
line basis over the following estimated useful lives:
Useful Lives
------------
Building 20 years
Machinery and equipment 5 to 15 years
Furniture and fixtures 5 to 10 years
Leasehold improvements Shorter of asset life or term of lease
Intangible Assets and Deferred Costs
- ------------------------------------
Intangible assets and deferred costs are amortized on the straight-line
basis over the following estimated useful lives:
Useful Lives
------------
Goodwill 40 years
Trademarks and licenses 10-20 years
Customer list 25 years
Organization costs 5 years
Deferred financing costs Term of financing
Non-competition agreements 5 years
Goodwill, which represents the excess of the purchase price over the fair
values of net assets acquired in connection with certain acquisitions, is
amortized on a straight-line basis over an expected forty year life. The
recoverability of intangible assets and deferred costs is subject to
uncertainty as a result of the Chapter 11 Filing and may be affected by a
plan of reorganization (see Note 2).
F-13
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". This statement requires the Company to recognize deferred tax
assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial statement carrying
amounts and the tax bases of assets and liabilities and net operating loss
carryforwards available for tax reporting purposes, using the applicable
tax rates for the years in which the differences are expected to reverse.
A valuation allowance is recorded on deferred tax assets unless realization
is more likely than not.
Reorganization Items
- --------------------
Professional fees and expenditures directly related to the Chapter 11
Filing are classified as reorganization costs and expensed as incurred.
Net Loss Per Share
- ------------------
Net loss per share has been calculated using the weighted average number
of shares outstanding. The effect of stock options and warrants during
each period is not dilutive and, therefore, not considered.
Supplemental Cash Flow Information
- ----------------------------------
Following is a summary of cash paid for interest and income taxes and non-
cash transactions for the years ended December 31, 1996, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year -
Interest (Note 9) $3,334 $3,312 $1,964
Income taxes 51 78 85
Non-cash transactions -
Capital lease obligations - 1,220 1,099
Reduction in deferred purchase price
payable in conjunction with AWCL
acquisition (Note 16) - - 2,911
</TABLE>
F-14
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. IMPAIRMENT OF LONG-LIVED ASSETS:
Effective January 1, 1996, the Company adopted SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." In accordance with SFAS No. 121 and in connection with the
Company's decision to discontinue certain product lines and to pursue the
divestiture of the Cotton Business (see Note 18), the Company recorded non-
cash charges totaling $7,343,000 to write down certain assets to the
expected future net proceeds from the sale of such assets. The actual net
proceeds ultimately realized could differ materially from these estimates
(see Note 18, unaudited). These charges included the reassessment of the
carrying value of certain machinery and equipment ($5,052,000) and goodwill
and other intangible assets ($2,291,000) primarily related to the Cotton
Business.
5.INVENTORY:
Inventory as of December 31, 1996 and 1995 consists of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 7,044 $10,037
Work in process 2,059 2,848
Finished goods 10,740 15,286
------ ------
$19,843 $28,171
====== ======
</TABLE>
F-15
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6.PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment as of December 31, 1996 and 1995 consists
of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1996 1995
---- ----
<S> <C> <C>
Land $ 100 $ 100
Building 290 290
Machinery and equipment 30,379 34,148
Leasehold improvements 1,758 1,282
Furniture and fixtures 1,393 1,527
------ ------
33,920 37,347
Less: Accumulated depreciation 17,974 15,520
------ ------
$15,946 $21,827
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995 and 1994
was approximately $2,714,000, $2,390,000 and $2,380,000, respectively.
7. LIABILITIES SUBJECT TO COMPROMISE:
Pursuant to Section 362 of the Bankruptcy Code, the commencement of the
Chapter 11 Filing imposed an automatic stay, applicable generally to
creditors and other parties in interest, of: (i) the commencement or
continuation of a judicial, administrative or other action or proceeding
against the Company that was or could have been commenced prior to
commencement of the Chapter 11 Filing or to recover for a claim that arose
prior to commencement of the Chapter 11 Filing; (ii) the enforcement
against the Company or its property of any judgments obtained prior to
commencement of the Chapter 11 Filing; (iii) the taking of any action to
obtain possession of property of the Company to exercise control over
property of the Company; (iv) the creation, perfection or enforcement of
any lien against the property of the Company's bankruptcy estate; (v) any
act to create, perfect or enforce against property of the Company any lien
F-16
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
that secures a claim that arose prior to the commencement of the Chapter 11
Filing; (vi) the taking of any action to collect, assess or recover claims
against the Company that arose before commencement of the Chapter 11
Filing; (vii) the setoff of any debt owing to the Company that arose prior
to commencement of the Chapter 11 Filing against any claim against the
Company; or (viii) the commencement or continuation of a proceeding before
the United States Tax Court concerning the Company. Any entity may apply
to the Bankruptcy Court, upon an appropriate showing of cause, for relief
from the automatic stay to exercise the foregoing remedies.
Pursuant to the provisions of the Bankruptcy Code, liabilities arising
prior to the Chapter 11 Filing may not be paid without prior approval of
the Bankruptcy Court. Pre Chapter 11 Filing liabilities that are expected
to be settled as part of a plan of reorganization are denoted as
liabilities subject to compromise and include the following (all or a
portion of which may be disputed by the Company (dollars in thousands)):
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Accounts payable $11,717
Term loans:
Notes payable to Bank One 11,636
Other notes:
Subordinated notes payable to Electra 7,079
Subordinated note payable to NPMI 1,700
Other 73
Capital lease obligations 2,702
Accrued interest 264
Other accrued expenses 200
-------
Total liabilities subject to compromise $35,371
=======
</TABLE>
Liabilities subject to compromise under reorganization proceedings
include the Company's present estimates of substantially all liabilities,
except the Revolver, as of the Chapter 11 Filing. As discussed above,
payment of these liabilities, including the maturity of debt obligations,
are stayed while the Company continues to operate its business as debtor-in-
possession. The Company notified all known or identifiable potential
claimants for the purpose of identifying all pre-petition claims against
the Company. Additional bankruptcy claims and pre-petition liabilities may
F-17
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
arise by termination of contractual obligations, Bankruptcy Court
determination of allowed claims, and as certain contingent and/or
potentially disputed bankruptcy claims are settled for amounts which may
differ from those shown in the consolidated balance sheets.
The Bankruptcy Court entered an order setting January 17, 1997 as the
deadline for filing proofs of claim in the Chapter 11 Filing (except for
proofs of claim arising from the rejection of unexpired leases or executory
contracts, which must be filed within the later of (i) the time period
established by the Bankruptcy Court in a final order approving such
rejection, and (ii) if no such time period is or was established, thirty
(30) days from and after the date of entry of such final order approving
such rejection). Creditors who fail to file proofs of claim in respect of
pre-Filing Date claims before this date are barred from thereafter
asserting such claims against the Company, the reorganized Company or any
of their respective affiliates.
Any plan of reorganization ultimately approved by the Company's impaired
pre-petition creditors and stockholders and confirmed by the Bankruptcy
Court may materially change the amounts and terms of these pre-petition
liabilities. Such amounts are estimated as of December 31, 1996, and the
Company anticipates that claims filed with the Bankruptcy Court by the
Company's creditors will be reconciled to the Company's financial records.
The additional liability arising from this reconciliation process, if any,
is not subject to reasonable estimation, and accordingly, no provision has
been recorded for these possible claims. The termination of other
contractual obligations and the settlement of disputed claims may create
additional pre-petition liabilities. Such amounts, if any, will be
recognized in the consolidated balance sheet and statement of operations as
they are identified and become subject to reasonable estimation.
8.FINANCING ARRANGEMENTS:
Amounts outstanding as of the Filing Date related to debt and capital
lease obligations at December 31, 1995, excluding the revolving credit loan
which was amended and represents the Revolving DIP Facility (see Note 2),
are included in "Liabilities subject to compromise" in the accompanying
consolidated balance sheet as of December 31, 1996 (see Note 7). No
payments have been made on the amounts subject to compromise since the
Filing Date except as noted below. Long-term debt and capital lease
obligations at December 31, 1995 consisted of the following (in thousands):
F-18
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
December 31, 1995
-----------------
<S> <C>
Revolving credit loan (see Note 2) $12,238
Term loans payable to Bank One 12,772
Subordinated notes payable to Electra 6,936
Subordinated note payable to NPMI 1,800
Capital lease obligations 3,209
Other 73
------
37,028
Less: Current portion, including
revolving credit loan 17,451
------
$19,577
======
</TABLE>
On September 1, 1994, the Company refinanced its machinery and equipment
with Bank One for $12,500,000. The term loan is secured by substantially
all of the Company's machinery and equipment, other than the equipment
which collateralizes capital lease obligations, and bears interest at a
fixed rate of 9%. Payments were due in sixty equal monthly installments of
approximately $260,000, which includes principal and interest, through
September 15, 1999. The Company also entered into two term loans with Bank
One on September 1, 1995 for aggregate proceeds of $3,000,000. The loans
are secured by machinery and equipment located in Mexico and Puerto Rico,
excluding any equipment which secures capital lease obligations. The loans
bear interest at 11.57% per annum and mature on September 1, 2000.
Payments were due in sixty equal installments, of principal and interest,
of approximately $66,000. Pursuant to an adequate protection order signed
by the Bankruptcy Court on February 3, 1997, the Company is required to
make aggregate principal payments of $50,000 per month for the period
November 1, 1996 through March 31, 1997 related to these loans.
On December 1, 1995, the Company issued senior subordinated notes for
proceeds of $9,000,000. The senior subordinated notes are subordinate in
right of payment to the revolving credit facility and to the term loans (up
to a maximum aggregate principal amount of $44,000,000) and are guaranteed
by the Company's subsidiaries. The notes were due on December 1, 2003 and
bore interest at an annual rate of 8% through December 1, 1996. The
F-19
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
interest rate was to increase by 2% annually until December 1, 1999 at
which time the rate would have been 16%. Interest was accrued through the
Filing Date at the rate to be paid for each period.
Warrants were also issued to the investors in the senior subordinated
notes to purchase up to 1,334,511 shares of the Company's common stock at
an exercise price of $1 per share. The estimated fair value of the
warrants of $2,086,000 was recorded as a reduction in the carrying value of
the debt. The discount was amortized on the straight-line basis until the
Filing Date.
The Company issued a subordinated note payable to NPMI in the principal
amount of $1,800,000 in connection with the formation of the Partnership
(see Note 1). The note bore interest at a rate per annum equal to the
prime rate plus 1/2%. The Company refinanced this note in April 1996, in
the principal amount of $1,750,000, after a principal payment of $50,000.
The note bore interest at a rate per annum equal to the prime rate plus
1/2% (8.75% at December 31, 1996). The note was due in twenty-seven
monthly installments beginning April 11, 1996.
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires entities to disclose the fair value of financial instruments, both
assets and liabilities, recognized and not recognized in the balance
sheets, for which it is practicable to estimate fair value. For purposes
of this disclosure, the fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Fair value is
based on quoted market prices for the same or similar financial
instruments. The uncertainties related to the outcome of the Company's
Chapter 11 Filing and the resulting effect upon the ultimate value of the
Company's financial assets and liabilities add significantly to the
uncertain nature of any estimate of fair value. The estimates of fair
value required under SFAS No. 107 require the application of broad
assumptions and estimates. Accordingly, any actual exchange of such
financial instruments could occur at a value significantly different from
the amounts disclosed.
Amounts outstanding on the Company's term loans, subordinated notes
payable and capital lease obligations are subject to adjustment at the
direction of the Bankruptcy Court. In addition, the timing of the ultimate
payment of these liabilities, as well as interest, if any, is also subject
F-20
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
to determination by the Bankruptcy Court. Accordingly, it is not
practicable to determine the fair value of these liabilities. The Company
believes that the carrying value of the Revolving DIP Facility (see Note 2)
approximates its fair value as of December 31, 1996. SFAS No. 107
disclosures for 1995 have been omitted due to the Chapter 11 Filing.
9. INTEREST EXPENSE:
For the year ended December 31, 1996, interest expense in the accompanying
consolidated statement of operations is comprised of the following (in
thousands):
Interest expense
Revolving DIP Facility/
Revolving credit loan $1,999
Term loans 1,103
Subordinated debt 494
Other 195
------
Total interest expense $3,791
======
Interest expense recorded during 1996 was approximately $1.3 million less
than interest expense for 1996 that was required by the related contractual
debt agreements as a result of the Chapter 11 Filing (see Note 2).
10. STOCKHOLDERS' EQUITY:
In connection with the Company's initial public offering of 2,150,000
shares of common stock in 1992, the Company sold warrants to purchase
100,000 shares of common stock to representatives of the underwriters at an
exercise price of $8.40 per share. The warrants were exercisable
commencing November 17, 1993 and expire on November 17, 1997. As of
December 31, 1996, no warrants had been exercised.
In April 1994, the Company completed the public sale of 2,608,300 shares
of common stock at an offering price of $6.00 per share. The net proceeds
to the Company, after underwriting discounts and other offering expenses,
were approximately $13,970,000.
F-21
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the issuance of subordinated notes payable to certain
investors (see Note 8), warrants to purchase up to 1,334,511 shares of the
Company's common stock at $1.00 per share were issued. As of December 31,
1996, 1,101,523 warrants were exercisable and no warrants had been
exercised. The remaining warrants generally become exercisable between
1999 and 2005 depending on the trading price of the Company's common stock.
The warrants all expire on December 1, 2005, except in certain
circumstances.
In connection with the issuance of the two term loans in September 1995,
warrants to purchase 10,000 shares of the Company's common stock were
issued to the lender. The warrants are exercisable at a per share price of
$.01 and expire on September 1, 2000. As of December 31, 1996, no warrants
have been exercised.
As of December 31, 1996, there were 6,675,891 shares of common stock
outstanding of which Vamic owned 1,326,000 shares of common stock, or
19.9%.
11. STOCK OPTION PLANS:
In November 1992, the Company's Board of Directors adopted the 1992 Stock
Option plan. In May 1995, the Plan was amended to increase the number of
shares reserved for issuance to 1,272,500 shares. The amendment also
limited the aggregate amount of options received by an individual in any
calendar year to options convertible to 250,000 shares of common stock.
These options vest in three equal installments on the six month, 18-month
and 30-month anniversaries of the date of grant. As of December 31, 1996,
options to acquire 763,750 shares, net of cancellations, had been granted
pursuant to the plan and options to acquire 508,750 shares were available
for grant.
The Board of Directors also adopted, in November 1992, the 1992
Directors' Stock Option plan, a stock option plan for certain non-employee
directors of the Company. A total of 37,500 shares of stock had been
reserved for issuance under this plan. In May 1994, the plan was amended
to increase the amount reserved for issuance thereunder to 97,500 shares.
This amendment also contains provisions for the grant of options to
purchase 7,500 shares to each non-employee director on the date such
director is first elected to the Board of Directors. The options vest in
F-22
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
three equal annual installments commencing on the first anniversary of the
date of grant. As of December 31, 1996, options to acquire 57,500 shares
had been granted pursuant to the directors' plan, of which 300 had been
exercised, and options to acquire 40,000 shares were available for grant.
A summary of the status of the Company's two stock option plans at December
31, 1996, 1995, and 1994 and changes during the years then ended is
presented in the table and narrative below. All options were granted at
the fair market value of the common stock on the date of grant of the
option.
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 804,200 $5.94 681,950 $6.71 584,700 $7.03
Granted 232,500 2.29 147,500 2.50 122,000 5.52
Canceled (215,750) 4.45 (25,250) 6.73 (24,750) 8.35
------- ------- -------
Outstanding at
end of year 820,950 5.30 804,200 5.94 681,950 6.71
======= ======= =======
Exercisable at
end of year 647,616 6.08 518,699 6.64 299,218 6.75
======= ======= =======
Weighted average
fair value of
options granted $1.34 $1.49 N/A
==== ==== ===
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 123 requires the
measurement of the fair value of stock options to be included in the
statement of operations or disclosed in the notes to financial statements.
The Company has determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion No. 25
and elect the disclosure-only alternative under SFAS No. 123. The Company
F-23
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
has computed the pro forma information required under SFAS No. 123 for
options granted in 1995 and 1996 using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 and proforma compensation cost for the
Company's stock option plans for 1996 and 1995 was not material.
Accordingly, no pro forma amounts are presented.
12. NONRECURRING EXPENSES:
The Company's results for 1994 include a pre-tax charge to earnings of
$5,328,000 taken in the second quarter of 1994 related to the accrual of
the estimated cost to restructure certain of its facilities. Additionally,
the 1995 results include costs of $886,000 over the amount initially
reserved. The restructuring plan was designed to reduce the number of the
Company's manufacturing and distribution facilities and shift production to
modernized facilities which offer lower labor and general operating costs.
Also charged to nonrecurring expenses in 1995 was approximately $142,000
related to the settlement of a pension dispute with the union representing
the Company's employees in Connecticut.
13. BENEFIT PLANS:
Certain factory employees of the Company participate in a union sponsored
multi-employer pension plan. Contributions to the plan (which are
determined in accordance with the union contract and are based upon hours
worked and eligible employees) for the years ended December 31, 1996, 1995
and 1994 were approximately $139,000, $224,000 and $296,000, respectively.
In August 1996, the Company and the union agreed to suspend cash
contributions to the plan. The Company has continued to accrue amounts due
in accordance with the plan. Accrued contributions at December 31, 1996
were $48,000.
Substantially all employees of the Company, except for certain unionized
employees and employees of Acme/Chaston are covered by a defined
contribution benefit plan intended to comply with Section 401(k) of the
Internal Revenue Code. Each year, eligible participants may elect to make
salary reduction contributions on their behalf up to a maximum of the
lesser of 15% of compensation or the annual maximum contribution
established by the Internal Revenue Service. Participants may also make
voluntary after-tax contributions to the plans. The Company makes
contributions in an amount equal to one-tenth of the first 10% of
participants' salary reduction contributions. Contributions to the plans
by the Company for the years ended December 31, 1996, 1995 and 1994 were
approximately $15,000, $22,000 and $27,000, respectively.
F-24
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. RELATED PARTY TRANSACTIONS:
In connection with formation of the Partnership, the Company entered into
operating lease agreements with NPDC for the Company's Dayville
manufacturing, distribution and administrative facility and its East
Killingly distribution facility. The Dayville lease, as amended, provides
for annual rent of $630,000 subject to an annual cost of living escalator.
This lease expires in 2006. The Company extended the East Killingly lease
at an annual rent of $78,750 through April 1997. For the years ended
December 31, 1996, 1995 and 1994, rental expense under these leases was
approximately $764,000, $748,000 and $582,000, respectively.
The above lease agreements provide for NPDC to pay to an affiliate of
Vamic, 50% of (i) the excess of the monthly rental payments under the
leases over the monthly interest, principal and other payments due under
the related mortgage obligation and (ii) any proceeds in excess of the
outstanding mortgage obligations upon sale of the properties.
The Company also leases a manufacturing and distribution facility in
Houston, Texas from an affiliate of Vamic. The Company entered into the
lease in May 1993. In 1995, the lease was amended to provide for the
lessor to build a warehouse extension to the facility. The amended lease
provides for annual rent through 2013 based upon percentage occupancy by
the Company and subject to an annual cost of living escalator. Rent
expense related to the lease for the years ended December 31, 1996, 1995
and 1994 was approximately $825,000, $609,000 and $466,000, respectively.
15. INCOME TAXES:
The (provision for) benefit from income taxes for the years ended
December 31, 1996, 1995 and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current $ 16 $ (63) $ (52)
Deferred (5,109) 1,735 2,695
------ ------ ------
Total $(5,093) $ 1,672 $ 2,643
====== ====== ======
</TABLE>
F-25
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of the difference between the statutory federal income
tax rate and the effective income tax rate for the years ended December 31,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal
benefit 2.0 1.4 2.3
Nondeductible goodwill amortization (3.9) (2.3) (0.6)
Change in valuation allowance (52.6) (12.1) -
Other - 5.3 -
---- ---- ----
Effective tax rate (20.5%) 26.3% 35.7%
===== ===== =====
</TABLE>
As of December 31, 1996 and 1995, the Company had net deferred tax assets
resulting primarily from net operating loss carryforwards partially offset
by deferred tax liabilities primarily related to plant and equipment.
During the year ended December 31, 1996, as a result of continuing losses
incurred by the Company, management determined that it was no longer more
likely than not that the value of the deferred tax asset would be realized.
As a result, a valuation allowance was recorded in 1996 to fully offset the
$5.1 million deferred tax asset recorded as of December 31, 1995.
As of December 31, 1996 the Company had available approximately $32
million of Federal and state net operating loss carryforwards for income
tax reporting purposes that expire, if unused, in 2009 - 2011 for federal
purposes and in 1999 - 2001 for state purposes. Usage of the net operating
loss carryforwards is restricted in the event of certain changes in
ownership.
According to Section 936 of the Internal Revenue Code, one-half of
Acme/Chaston's earnings are included in the Company's tax returns and taxed
in the United States. In September 1992, Acme/Chaston was granted a 10-
year partial Puerto Rico tax exemption equivalent to 60% of its income,
property tax and Puerto Rico municipal license taxes under the Puerto Rico
Industrial Incentive Act of 1987, as amended. Acme/Chaston's earnings are
also subject to a 10% toll tax if they are repatriated to the United
States. As of December 31, 1996, the amount accrued for toll taxes was
approximately $150,000.
F-26
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. COMMITMENTS AND CONTINGENCIES:
As part of the Chapter 11 Filing, creditors of the Company are required
to file proofs of claim with the Bankruptcy Court. These claims will have
to be reconciled with schedules of liabilities filed by the Company with
the Bankruptcy Court and the differences will have to be resolved or
litigated (see Notes 2 and 7).
The Company leases its operating facilities, a distribution facility and
certain manufacturing and office equipment under operating leases. Future
minimum payments under operating leases as of December 31, 1996 are as
follows (in thousands):
Amount
------
1997 $ 1,841
1998 1,733
1999 1,592
2000 1,551
2001 1,522
Thereafter 12,915
Rental expense for operating leases for the years ended December 31,
1996, 1995 and 1994 was approximately $2,134,000, $2,626,000 and
$2,134,000, respectively. Due to the Chapter 11 Filing, the Company may
reject pre-petition lease obligations (see Notes 2 and 7).
The Company markets various products, including adhesive bandages with
imprints of certain characters, under non-exclusive licenses. These
products accounted for an aggregate of approximately 6.5%, 6.1% and 8.4% of
the Company's sales for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company expensed approximately $532,000, $397,000 and
$739,000 for the years ended December 31, 1996, 1995, and 1994,
respectively, under these agreements. The Company has a license agreement
for use of certain manufacturing technology which requires minimum
royalties of $100,000 per year until the agreement expires in 2000.
The Company has employment agreements, subject to assumption by the
Company and approval by the Bankruptcy Court, with certain officers which
provide for base salaries, plus bonuses based on the Company achieving
annual operating income amounts, as defined. The agreements also provide
F-27
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
for termination payments to be made to certain of these employees in the
event of a change in control of the Company or the involuntary removal of
the employee from the board of directors of the Company. Upon such event,
the Company would have to pay the individuals an amount equal to 35 months
of his base salary as in effect as of the termination date plus three times
the amount of the largest annual bonus payable to such employees, or a
minimum aggregate amount of approximately $1.9 million as of December 31,
1996.
The purchase agreement related to the Company's 1993 acquisition of all
the outstanding stock of AWCL provided for a reduction in the purchase
price in certain circumstances. Subsequent to the acquisition, the Company
reviewed various aspects of the condition and operations of AWCL and, as a
result thereof, has made certain adjustments to AWCL's historical financial
statements as of and for the years ended December 31, 1992 and 1991. In
connection therewith, the Company is seeking additional reductions to the
purchase price, which under the purchase agreement are based on a multiple
of the amount of the adjustments to the historical financial statements, in
an aggregate amount substantially in excess of the balance due ($2,911,000)
on the deferred portion of the purchase price otherwise payable to the
sellers. As a result of the adjustments, the Company offset the $2,911,000
purchase price due against goodwill in 1994. The sellers dispute the
Company's claims and filed a claim with the Bankruptcy Court for
approximately $3,300,000. Additionally, in connection with the acquisition
of AWCL, the Company entered into employment agreements with certain former
owners and employees. One of these contracts, which provided for a base
annual salary of $350,000 through 1996, was subsequently terminated by the
Company for cause based on provisions in the employment agreement. The
former employee advised the Company in 1993 that he believed the
termination was without support and in 1996 filed a claim with the
Bankruptcy Court for approximately $1,050,000. The Company believes these
claims are without merit.
A former customer of the Company filed a claim with the Bankruptcy Court
for approximately $5,000,000 alleging, among other things, breach of
contract and unfair trade practices. The Company believes this claim to be
without merit.
F-28
<PAGE>
AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company is a party to various litigation arising in the normal course
of business. This litigation has been stayed as a result of the Chapter 11
Filing. Management believes the disposition of these matters will not have
a material adverse effect on the Company's consolidated results of
operations or financial condition.
Most of the Company's raw materials, including cotton and paper which
comprise a significant percentage of the Company's purchases, are purchased
from a variety of suppliers. Cotton and paper prices have historically been
subject to wide fluctuations and are affected by numerous factors beyond
the control of the Company, including economic and political conditions,
weather, availability and cost of other substitute materials and levels of
supply and demand. A persistent significant increase in the price of these
materials or decrease in their availability could have a material adverse
effect on the Company.
17. SIGNIFICANT CUSTOMER:
A single customer accounted for approximately 13.8%, 12.7% and 11.5% of
the Company's sales for the years ended December 31, 1996, 1995 and 1994,
respectively.
18. SUBSEQUENT EVENT (UNAUDITED):
On March 20, 1997 the Company entered into a definitive agreement for the
sale of its Cotton Business. The Cotton Business sales were approximately
$41 million, or 47% of the Company's sales, for the year ended December 31,
1996. The primary terms of the transaction include cash of $10,000,000,
which approximates the carrying value of the Cotton Business assets,
primarily inventory and equipment to be sold, subject to adjustment for
equipment and inventory values as of the closing date, and the assumption
of the Canovanas, Puerto Rico facility lease. The contract provides for
$8,500,000 to be paid at closing and the remaining $1,500,000 held in
escrow. The proceeds will be paid to secured creditors holding liens on
the assets sold. Additionally, the Company will enter into a supply
agreement for up to nine months from the closing date to manufacture cotton
products for the purchaser using equipment sold to the purchaser. This
agreement is subject to Bankruptcy Court approval.
F-29
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 440
<SECURITIES> 0
<RECEIVABLES> 9962
<ALLOWANCES> (1007)
<INVENTORY> 19843
<CURRENT-ASSETS> 32880
<PP&E> 33920
<DEPRECIATION> 17974
<TOTAL-ASSETS> 54405
<CURRENT-LIABILITIES> 21908
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> (2941)
<TOTAL-LIABILITY-AND-EQUITY> 54405
<SALES> 87798
<TOTAL-REVENUES> 87798
<CGS> 81380
<TOTAL-COSTS> 81380
<OTHER-EXPENSES> 17955
<LOSS-PROVISION> 9490
<INTEREST-EXPENSE> 3791
<INCOME-PRETAX> (24815)
<INCOME-TAX> 5093
<INCOME-CONTINUING> (29908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29908)
<EPS-PRIMARY> (4.48)
<EPS-DILUTED> 0
</TABLE>
Exhibit 10.36
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- --------------------------------x
: Chapter 11
In re: : Case No. 96-1109 (PJW)
:
AMERICAN WHITE CROSS, INC., :
a Delaware corporation, :
ACME/CHASTON PUERTO RICO, INC, :
a Delaware corporation, :
WEAVER MANUFACTURING CORPORATION,
a New Jersey corporation, :
:
Debtors. :
- --------------------------------x
FIRST AMENDED ORDER AUTHORIZING POST-PETITION FINANCING,
GRANTING SENIOR LIENS AND PRIORITY ADMINISTRATIVE EXPENSE
STATUS, MODIFYING THE AUTOMATIC STAY, AND AUTHORIZING DEBTOR TO
ENTER INTO AGREEMENTS WITH CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
---------------------------------------------------------------
THIS MATTER came before the Court on December , 1996, in
connection with amending the Final Order Pursuant to Section 364(c) of
the Bankruptcy Code and Rule 4001 of the Federal Rules of Bankruptcy
Procedure Authorizing the Debtors to Obtain Post-Petition Financing,
Granting Senior Liens and Priority Administrative Expense Status,
Modifying the Automatic Stay, and Authorizing Debtor to Enter Into
Agreements with Congress Financial Corporation (New England)
("Congress"), dated August 13, 1996 (the "Final Financing Order"), and
-1-
<PAGE>
upon the subjoined consent of American White Cross, Inc., Acme/Chaston
Puerto Rico, Inc. and Weaver Manufacturing
Corporation, Debtors and Debtors-in-Possession (collectively,
"Debtors"), Congress Financial Corporation (New England) and the
Official Committee of Unsecured Creditors:
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that:
1. All of the terms and conditions of the Final Financing Order,
dated August 13, 1996 are ratified and reaffirmed and shall remain in
full force and effect until May 13, 1997, except that the terms and
conditions of the Final Financing Order are modified as follows:
(a) Paragraph 31 of the Final Financing Order is amended to
require the Debtors to prepare and provide to Congress, by no later than
December 20, 1996, in form and substance acceptable to Congress, weekly
cash flow projections ("Cash Flow Projections") for the period December
31, 1996 through and including March 31, 1997, and by no later than
February 15, 1997, in form and substance acceptable to Congress, weekly
Cash Flow Projections for the period April 1, 1997 through and including
May 13, 1997, in form and substance substantially similar to the weekly
Cash Flow Projections previously prepared by the Debtor and dated July
12, 1996 and August, 1996, respectively. The parties understand that
based upon the amount of proceeds realized from the sale of the Debtor's
-2-
<PAGE>
cotton division, (the "Sale"), the Cash Flow Projections may require
modification following the Sale. It shall be an Event of Default, (as
such term is used in the Final Financing Order), if, for any consecutive
the Ending Availability, as such term appears in the Cash Flow
Projections, is fifteen (15%) percent or more below the amount reflected
in the "Budget" annexed as amended Exhibit "E" to the Order Authorizing
the Debtors to Obtain Interim Post-Petition Financing, Granting Senior
Liens and Priority Administrative Expense Status, Modifying the
Automatic Stay, and Authorizing Debtor to Enter Into Agreements with
Congress Financial Corporation (New England).
(b) Paragraph 16 of the Final Financing Order is hereby amended
to reflect that the termination date of December 31, 1996 stated
therein has been, and for all purposes shall be, extended to May 13, 1997.
2. All of the terms and conditions of the Amended Ratification
and Amendment Agreement ("Ratification Agreement") dated as of August 12,
1996, are ratified and reaffirmed and shall remain in full force and
effect until May 13, 1997, except that the terms and conditions of the
Ratification Agreement are modified as follows:
(a) Section 6.2(e) of the Ratification Agreement is hereby
amended and replaced with the following:
"Anything in the Financing Agreements to the contrary
notwithstanding, the Availability Reserves shall be permanently
increased in an amount equal to the proceeds received by Lender
pursuant to the sale of Debtor's Collateral outside the ordinary
course of Debtor's business prior to May 13, 1997, in accordance
with the terms of Section 6.12(a)(ii) hereof."
-3-
<PAGE>
(b) Section 6.8(i) of the Ratification Agreement is hereby
amended to reflect that the termination date of December 31, 1996 stated
therein has been, and for all purposes shall be, extended to May 13, 1997.
(c) Section 6.12 of the Ratification Agreement is hereby
amended and replaced with the following:
"Sale of Collateral. Anything in the Financing Agreements to
the contrary notwithstanding, and provided no Event of Default
has occurred, if any sale of Collateral is made by or on behalf
of Debtor outside the ordinary course of Debtor's business prior
to May 13, 1997, in an amount, after subtracting all related
fees and expenses relating to the costs associated with such
sale, which exceeds the advances made by Lender to Debtor with
respect to such Collateral, the proceeds of such sale shall be
distributed as follows: (a) Lender shall receive (i) the
proceeds of such sale, after subtracting all fees and expenses
relating to the costs associated with such sale, which equals
the amount of the advances made by Lender to Debtor with respect
to such Collateral plus (ii) fifty (50%) percent of the proceeds
of such sale in excess thereof (the "Collateral Sale Surplus")
but not to exceed the amount of Supplemental Advance outstanding
at that time and (b) the Debtor shall be credited with the
remaining amount of the Collateral Sale Surplus."
(d) The $50,000.00 Debtor-in-Possession Facility Fee referred
to at Section 7 of the Ratification Agreement and paid in full upon the
entry of the Final Financing Order is hereby amended and increased to
$70,000.00.
3. All of the modifications to the Final Financing Order and
-4-
<PAGE>
the Ratification Agreement as stated herein shall take effect as of
January 1, 1997, and until such date, the existing terms and conditions of
the Final Financing Order and the Ratification Agreement shall remain in
full force and effect.
Dated: Wilmington, Delaware
December , 1996
------------------------------
UNITED STATES BANKRUPTCY JUDGE
AGREED AND ACKNOWLEDGED:
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND)
By:
---------------------------
Title:
------------------------
-5-
<PAGE>
AMERICAN WHITE CROSS, INC.
Debtor and Debtor-in-Possession
By:
---------------------------
Title:
------------------------
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
-6-
<PAGE>
ACME/CHASTON PUERTO RICO, INC.
Debtor and Debtor-in-Possession
By:
---------------------------
Title:
------------------------
WEAVER MANUFACTURING CORPORATION
Debtor and Debtor-in-Possession
By:
---------------------------
Title:
------------------------
THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS
By:
---------------------------
Title:
------------------------
-7-
<PAGE>
Exhibit 10.37
AMENDED RATIFICATION AND AMENDMENT AGREEMENT
AMENDED RATIFICATION AND AMENDMENT AGREEMENT (the
"Ratification Agreement") dated as of August 12, 1996, by and
between AMERICAN WHITE CROSS, INC., a Delaware corporation, as
Debtor and Debtor-in-Possession ("Debtor"), the surviving
corporation of the merger of The American White Cross Laboratories,
Inc. ("AWCL") into NPM Healthcare Products, Inc. ("NPM"), whose
name was thereafter changed to American White Cross, Inc., and
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND), a Massachusetts
corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Debtor, Weaver Manufacturing Corporation
("Weaver") and Acme/Chaston Puerto Rico, Inc. ("Acme"; and together
with Weaver, collectively, "Guarantors") have commenced cases under
Chapter 11 of Title 11 of the United States Code in the United
States Bankruptcy Court for the District of Delaware and Debtor and
Guarantors have retained possession of their respective assets and
are authorized under the Bankruptcy Code to continue the operation
of their respective businesses as debtors-in-possession; and
WHEREAS, prior to the commencement of the Chapter 11 Case
(as hereinafter defined), Lender made loans and advances to AWCL
and NPM secured by certain assets and properties of AWCL and NPM as
set forth in the Guarantor Agreements (as hereinafter defined),
each of Guarantors guaranteed the obligations of each of AWCL and
NPM to Lender as set forth in the Guarantor Agreements and AWCL
merged into and with NPM, with NPM as the surviving corporation,
whose name was thereafter changed to American White Cross, Inc.;
and
WHEREAS, the Bankruptcy Court has entered a Final
Financing Order, Granting Senior Liens and Priority Administrative
Expense, Modifying Automatic Stay and Authorizing the Debtors to
Ratify, Assume, Amend and Enter into Agreements with Congress
Financial Corporation (New England) (the "Interim Financing Order")
-1-
<PAGE>
pursuant to which Lender may make post-petition loans and advances
to Debtor and Guarantors secured by all assets and properties of
Debtor as set forth in the Interim Financing Order and the
Financing Agreements; and
WHEREAS, the Final Financing Order, or any Interim
Financing Order, provides that as a condition to the making of such
post-petition loans and advances, Debtor shall execute and deliver
this Ratification Agreement; and
WHEREAS, Debtor desires to reaffirm its obligations
pursuant to the Financing Agreements and acknowledge its continuing
liabilities to Lender thereunder in order to induce Lender to make
such post-petition loans and advances to Debtor; and
WHEREAS, Debtor has also requested that Lender make
amendments to certain of the Financing Agreements and Lender is
willing to do so subject to the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of the foregoing, the
mutual covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Lender and Debtor mutually covenant, warrant
and agree as follows:
1. DEFINITIONS
1.1 Additional Definitions. As used herein, the
following terms shall have the respective meanings given to them
below and the Financing Agreements (and any defined terms similar
to those set forth below) shall be deemed and are hereby amended to
include, in addition and not in limitation, each of the following
definitions:
(a) "Accounts Agreement" shall mean the
Accounts Financing Agreement [Security Agreement], dated May 25,
1993, by and among Lender, AWCL and NPM and the Covenant Supplement
to the Accounts Financing Agreement [Security Agreement], dated May
25, 1993, by and among Lender, AWCL and NPM (the "Covenant
Supplement"), and each other supplement to the Accounts Financing
Agreement [Security Agreement], each as heretofore amended and
supplemented, including without limitation, pursuant to the terms
-2-
<PAGE>
of the First Amendment to Financing Agreements, dated as of
November 30, 1993, the Second Amendment to Financing Agreements,
dated March 1, 1994 and the Third Amendment to Financing
Agreements, dated as of October 6, 1995, as all of the foregoing
now exist, are modified hereby or are hereafter amended, modified,
supplemented, extended, renewed, restated or replaced.
(b) "Availability Reserves" shall mean, as of
any date of determination, such amounts as Lender may from time to
time establish and revise in good faith reducing the amount of
loans which would otherwise be available to Debtor under the
lending formulas provided for herein: (a) to reflect events,
conditions, contingencies or risks which, as determined by Lender
in good faith, do or may affect either (i) the Collateral or any
other property which is security for the Obligations or its value,
(ii) the assets, business or prospects of Debtor or any Obligor or
(iii) the security interests and other rights of Lender in the
Collateral (including the enforceability, perfection and priority
thereof) or (b) to reflect Lender's good faith belief that any
collateral report or financial information furnished by or on
behalf of Debtor or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c)
in respect of any state of facts which Lender determines in good
faith constitutes an Event of Default of may, with notice or
passage of time or both, constitute an Event of Default.
(c) "Bankruptcy Code" shall mean the United
States Bankruptcy Code, being Title 11 of the United States Code as
enacted in 1978, as the same has heretofore been or may hereafter
be amended, recodified, modified or supplemented, together with all
rules, regulations and interpretations thereunder or related
thereto.
(d) "Bankruptcy Court" shall mean the United
States Bankruptcy Court or the United States District Court for the
District of Delaware.
(e) "Chapter 11 Case" shall mean the Chapter
11 Case of the Debtor under the Bankruptcy Code referred to as In
re: American White Cross, Inc. pending in the Bankruptcy Court.
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(f) "Collateral" shall mean, collectively,
the PrePetition Collateral (as defined herein) and the Post-
Petition Collateral (as defined herein).
(g) "Equipment" shall mean, collectively, all
equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, dies, jigs,
furniture, trade fixtures and fixtures, whether owned or leased,
and all interests of Debtor under or pursuant to any lease of
equipment, whether as lessor or lessee, all attachments, accessions
and property now or hereafter affixed thereto or used in connection
therewith, substitutions and replacements thereof, wherever
located, whether now owned or hereafter acquired by Debtor,
including without limitation, all equipment listed on Exhibit A
hereto.
(h) "Financing Agreements" shall mean,
collectively, the Accounts Agreement (as defined herein), together
with all supplements, agreements, notes, documents, instruments and
guarantees at any time executed and/or delivered in connection
therewith or related thereto, including, but not limited to, the
Guarantor Agreements and the agreements listed on Exhibit B hereto,
as all of the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(i) "Financing Order" shall mean the
Interim Financing Order, the Final Financing Order and such other
orders relating thereto or authorizing the granting of credit by
Lender to the Debtors on an emergency, interim, permanent or final
basis pursuant to Section 364 of the Bankruptcy Code as may be
issued or entered by the Bankruptcy Court.
(j) "Guarantor Agreements" shall mean,
collectively, the Guarantee and Waiver, dated May 25, 1993, by
Weaver in favor of Lender of the obligations of Debtor to Lender,
the Amended and Restated Guarantee and Waiver, dated May 25, 1993,
by Acme in favor of Lender of the obligations of Debtor to Lender,
the General Security Agreement, dated May 25, 1993, by Weaver in
favor of Lender, the Amendments to Factor's Lien Contract and other
Puerto Rico Security Documents, dated May 25, 1993, by Acme in
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favor of Lender, together with all supplements, agreements and
documents at any time executed and/or delivered in connection
therewith or related thereto, as all of the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed
restated or replaced.
(k) "Petition Date" shall mean the date of
the commencement of the Chapter 11 Case.
(l) "Pre-Petition Collateral" shall mean all
"Collateral" as such term is defined in the Accounts Agreement and
all other security for the Pre-Petition Obligations as provided in
the Financing Agreements immediately prior to the Petition Date,
including, without limitation, the assets and properties of each of
Guarantors upon which Lender is granted a security interest or lien
pursuant to the Guarantor Agreements.
(m) "Pre-Petition Obligations" shall mean
all loans, advances, debts, obligations, liabilities, indebtedness,
covenants and duties of Debtor to Lender of every kind and
description, however evidenced, whether direct or indirect,
absolute or contingent, joint or several, secured or unsecured, due
or not due, primary or secondary, liquidated or unliquidated,
arising before the Petition Date and whether arising under or
related to the Financing Agreements, by operation of law or
otherwise and whether incurred by Debtor as principal, surety,
endorser, guarantor or otherwise and including, without limitation,
all principal, interest, financing charges, unused line fees,
servicing fees, early termination fees, other fees, commissions,
costs, expenses and attorneys' and accountants' fees and expenses
incurred in connection with any of the foregoing.
(n) "Post-Petition Collateral" shall mean
all the assets and properties of each of Guarantors upon which
Lender is granted a security interest or lien pursuant to the
Guarantor Agreements and all of the following types or items of
property of Debtor and all other property of the Debtor's estate
upon which Lender is granted a security interest or lien pursuant
to the Financing Order or any other order entered or issued by the
Bankruptcy Court or by any United States Bankruptcy or District
Court Judge:
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(A) all present and future: (1) accounts,
contract rights, general intangibles, chattel paper, documents and
instruments (collectively, "Accounts"), including, without
limitation, all obligations for the payment of money arising out of
the sale, lease or other disposition of goods or other property or
rendition of services; (2) all monies, securities and other
property and the proceeds thereof, now or hereafter held or
received by, or in transit to, Lender from or for Debtor, whether
for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of Debtor's deposits (general or special),
balances, sums and credits with Lender at any time existing; (3)
all of Debtor's right, title and interest, and all of Debtor's
rights, remedies, security and liens, in, to and in respect of the
Accounts and other Collateral, including, without limitation,
rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security
for the obligations of any Account Debtor, and credit and other
insurance; (4) all of Debtor's right, title and interest in, to and
in respect of all goods relating to, or which by sale have resulted
in, Accounts including, without limitation, all goods described in
invoices, documents, contracts or instruments with respect to, or
otherwise representing or evidencing, any Accounts or other
Collateral, including, without limitation, all returned, reclaimed
or repossessed goods; (5) all deposit accounts; (6) all books,
records, ledger cards, computer programs, and other property and
general intangibles evidencing or relating to the Accounts,
Inventory, Equipment and any other Collateral or any Account
Debtor, together with the file cabinets or containers in which the
foregoing are stored; (7) all other general intangibles of every
kind and description, including without limitation, trade names,
trademarks and service marks, and the goodwill of the business
symbolized thereby, patents, copyrights and applications for the
foregoing, licenses, whether as licensor or licensee, Federal,
State, local, foreign and duty tax refund claims of all kinds, any
present and future rights, interests or claims to any refunds,
monies or sums for overpayments in or to any employee benefit plan
of Debtor, or upon termination of any such plan, including, without
limitation, Debtor's interest in any employer reversion (as defined
by the Internal Revenue Code of 1986), any refunds, monies or sums
remitted to Debtor with respect to any such overpayments in or to
any such plan or upon termination of any such plan, processes,
drawings, blueprints, customer lists, choses in action and other
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claims and existing and future leasehold interests in equipment,
real estate and fixtures, letters of credit, bankers' acceptances
and guaranties;
(B) all raw materials, work-in-process,
finished goods and all other inventory of whatsoever kind or
nature, wherever located, whether now owned or hereafter existing
or acquired by Debtor, including, without limitation, all wrapping,
packaging, advertising, shipping materials and all other goods
consumed in Debtor's business, all labels and other devices, names
or marks affixed or to be affixed thereto for purposes of selling
or identifying the same or the seller, manufacturer, lessor or
licensor thereof and all right, title and interest therein and
thereto;
(C) Equipment;
(D) all books, records, documents, other
property and general intangibles at any time relating to the
inventory and the Equipment;
(E) all claims, rights, interests, assets
and properties recovered by or on behalf of Debtor or any trustee
of Debtor (whether in Debtor's Chapter 11 Case or any subsequent
case to which the Chapter 11 Case is converted), including, without
limitation, all property recovered as a result of transfers or
obligations avoided or actions maintained or taken pursuant to
Sections 550, 552, 545, 547, 548, 549 and 553 of the Bankruptcy
Code; and
(F) all products and proceeds of the
foregoing, in any form, including, without limitation, insurance
proceeds and any claims against third parties for loss or damage to
or destruction of any or all of the foregoing.
(o) "Post-Petition Obligations" shall mean
all now existing and hereafter arising loans, advances, letter of
credit accommodations, debts, obligations, liabilities, covenants
and duties of Debtor to Lender of every kind and description,
however evidenced, whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or not due,
primary or secondary, liquidated or unliquidated, arising on and
after the Petition Date and whether arising on or after the
conversion or dismissal of the Chapter 11 Case, or before, during
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and after the confirmation of any plan of reorganization in the
Chapter 11 Case, and whether arising under or related to this
Agreement, the other Financing Agreements, a Financing Order, by
operation of law or otherwise, and whether incurred by Debtor as
principal, surety, endorser, guarantor or otherwise and including,
without limitation, all principal, interest, financing charges,
unused line fees, servicing fees, early termination fees, other
fees, commissions, costs, expenses and attorneys' and accountants'
fees and expenses incurred in connection with any of the foregoing.
1.2 Amendments to Definitions in Financing Agreements.
(a) All references to the term "Accounts
Agreement" in any of the Financing Agreements shall be deemed and
each such reference is hereby amended to mean the Accounts
Agreement, as defined herein and amended hereby and ratified,
assumed and adopted by Debtor pursuant to the terms hereof and the
Financing Order, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
(b) All references to the term "Collateral"
in any of the Financing Agreements or any other term referring to
the security for the Pre-Petition Obligations in any of the
Financing Agreements shall be deemed and each such reference is
hereby amended to mean, collectively, the Pre-Petition Collateral
and the Post-Petition Collateral.
(c) All references to Debtor, including,
without limitation, to the terms "Borrower", "Debtor", "us", "we"
or "our" in any of the Financing Agreements, shall be deemed and
each such reference is hereby amended to mean and include the
Debtor as defined herein, and its successors and assigns (including
any trustee or other fiduciary hereafter appointed as its legal
representative or with respect to the property of the estate of
such corporation whether under Chapter 11 of the Bankruptcy Code or
any subsequent Chapter 7 case and its successor upon conclusion of
the Chapter 11 Case of such corporation).
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(d) All references to Lender, including,
without limitation, to the terms "Congress", "you" or "your" in any
of the Financing Agreements, shall be deemed and each such
reference is hereby amended to mean and include Lender as defined
herein, and its successors and assigns.
(e) All references to the term "Financing
Agreements" in any of the Financing Agreements shall be deemed and
each such reference is hereby amended to include, in addition and
not in limitation, this Agreement, all of the Financing Agreements
as ratified, assumed and adopted by Debtor pursuant to the terms
hereof, as amended and supplemented hereby, and the Financing
Order, as each of the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
(f) All references to the term
"Obligations" in this Agreement and in any of the Financing
Agreements shall be deemed and each such reference in the Financing
Agreements is hereby amended to mean, both the Pre-Petition
Obligations and the Post-Petition Obligations.
1.3 Interpretation.
(a) For purposes of this Agreement,
unless otherwise defined or amended herein, including, but not
limited to, those terms used and/or defined in the recitals hereto,
all terms used herein shall have the respective meanings assigned
to such terms in the Accounts Agreement (as defined herein).
(b) All references to the terms
"Lender", "Debtor" or any other person pursuant to the definitions
in the recitals hereto or otherwise shall include its respective
successors and assigns.
(c) All references to any term in the
singular shall include the plural and all references to any term in
the plural shall include the singular.
(d) All terms not specifically defined
herein which are defined in the UCC shall has the meaning set forth
therein, except that the term "Lien" or "lien" shall has the
meaning set forth in section 101(37) of the Bankruptcy Code.
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2. ACKNOWLEDGMENT
2.1 Pre-Petition Obligations. Debtor hereby
acknowledges, confirms and agrees that Debtor is indebted to Lender
for the Pre-Petition Obligations, as of the close of business on
July 16, 1996, in respect of the loans and other credit
accommodations made pursuant to the Financing Agreements in the
principal amount of approximately $21,375,656.96 together with
interest accrued and accruing thereon, in each case together with
costs, expenses, fees (including reasonable attorneys' fees and
legal expenses) and other charges now or hereafter owed by Debtor
to Lender, all of which are unconditionally owing by Debtor to
Lender, without offset, defense or counterclaim of any kind, nature
and description whatsoever.
2.2 Acknowledgment of Security Interests. Debtor
and Guarantors hereby acknowledge, confirm and agree that Lender
has and shall continue to have valid, enforceable and perfected
first priority and senior security interests in and liens upon all
Pre-Petition Collateral heretofore granted to Lender pursuant to
the Financing Agreements and Guarantor Agreements as in effect
immediately prior to the Petition Date to secure all of the
Obligations, as well as valid and enforceable first priority and
senior security interests in and liens upon all Post-Petition
Collateral granted to Lender under the Financing Order or hereunder
or under any of the other Financing Agreements, Guarantor
Agreements or otherwise granted to or held by Lender.
2.3 Binding Effect of Documents.
(a) Debtor hereby acknowledges, confirms and
agrees that: (i) each of the Financing Agreements to which it is a
party has been duly executed and delivered to Lender by Debtor and
each is in full force and effect as of the date hereof, the (ii)
agreements and obligations of Debtor contained in the Financing
Agreements constitute the legal, valid and binding obligations of
Debtor enforceable against Debtor in accordance with their
respective terms and Debtor has no valid defense, offset or
counterclaim to the enforcement of such obligations, and (iii)
Lender is and shall be entitled to all of the rights, remedies and
benefits provided for in the Financing Agreements and the Financing
Order.
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(b) Each of Guarantors hereby acknowledges,
confirms and agrees that: (i) each of the Guarantor Agreements to
which it is a party has been duly executed and delivered to Lender
by such Guarantor and each is in full force and effect as of the
date hereof, (ii) the agreements and obligations of each Guarantor
contained in the Guarantor Agreements constitute the legal, valid
and binding obligations of each Guarantor enforceable against each
Guarantor in accordance with their respective terms and Guarantors
have no valid defense, offset or counterclaim to the enforcement of
such obligations and (iii) Lender is and shall be entitled to all
of the rights, remedies and benefits provided for in the Guarantor
Agreements, the Financing Agreements and the Financing Order.
3. ADOPTION AND RATIFICATION
(a) Debtor hereby (i) ratifies, assumes, adopts
and agrees to be bound by the Financing Agreements and (ii) agrees
to pay all of the Pre-Petition Obligations in accordance with the
terms of the Financing Agreements and the Financing Order. All of
the Financing Agreements are hereby incorporated herein by
reference and are hereby and shall be deemed adopted and assumed in
full by Debtor, as Debtor and Debtor-in-Possession, and considered
as agreements between Debtor and Lender. Debtor hereby ratifies,
restates, affirms and confirms all of the terms and conditions of
the Financing Agreements, as amended and supplemented pursuant
hereto and the Financing Order, and Debtor agrees to be fully
bound, as Debtor and Debtor-in-Possession, by the terms of the
Financing Agreements to which Debtor is a party.
(b) Each Guarantor hereby (i) ratifies, assumes,
adopts and agrees to be bound by the Guarantor Agreements and (ii)
agrees to pay all of the Pre-Petition Obligations in accordance
with the terms of the Guarantor Agreements, the Financing
Agreements and the Financing Order. All of the Guarantor
Agreements are hereby incorporated herein by reference and are
hereby and shall be deemed adopted and assumed in full by each of
Guarantors, as Debtor and Debtor-in-Possession, and considered as
agreements between each Guarantor and Lender. Each Guarantor
hereby ratifies, restates, affirms and confirms all of the terms
and conditions of the Guarantor Agreements and Financing
Agreements, as amended and supplemented pursuant hereto and the
Financing Order, and each Guarantor agrees to be fully bound, as
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Debtor and Debtor-in-Possession, by the terms of the Guarantor
Agreements to which it is a party. Each Guarantor is authorized to
execute and deliver to Lender a letter agreement ratifying the
Guarantor Agreements to which such Guarantor is a party.
4 GRANT OF SECURITY INTEREST
4.1 Existing Collateral
(a) As collateral security for the prompt performance,
observance and payment in full of all of the Obligations (including
the Pre-Petition Obligations and the Post-Petition Obligations),
Debtor, as Debtor and Debtorin-Possession, and each Guarantor, as
Debtor and Debtor-in-Possession, hereby grant, pledge and assign to
Lender, and also confirm, reaffirm and restate the prior grant to
Lender of, continuing security interests in and liens upon, and
rights of setoff against, all of the Collateral.
(b) Debtor hereby grants, pledges and assigns to Lender,
and also confirms, reaffirms and restates the prior grant to Lender
of continuing security interests in and liens upon, and rights of
setoff against certain real property owned by Debtor pursuant to
the Mortgage, dated October 27, 1993, by AWCL in favor of Lender,
and more particularly described in Exhibit C hereto, as collateral
security for the prompt performance, observance and payment in full
of the Obligations (including the PrePetition Obligations and the
Post-Petition Obligations) in the outstanding principal amount not
to exceed $500,000 plus interest, costs and expenses.
4.2 Additional Collateral. As additional security for
the prompt performance, observance and payment in full of all
Obligations (including the Pre-Petition Obligations and the Post-
Petition Obligations), Debtor, as Debtor and Debtor-in-Possession,
hereby grants to Lender a continuing security interest in, a lien
upon, and a right of setoff against, and Debtor hereby assigns,
transfers and pledges to Lender (a) the Equipment; (b) all books,
records, documents, other property and general intangibles at any
time relating to the Equipment; and (c) all products and proceeds
of the foregoing, in any form, including, without limitation,
insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
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5 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
In addition to the continuing representations, warranties
and covenants heretofore and hereafter made by Debtor to Lender,
whether pursuant to the Financing Agreements or otherwise, and not
in limitation thereof, Debtor hereby represents, warrants and
covenants to Lender the following (which shall survive the
execution and delivery of this Agreement), the truth and accuracy
of which, or compliance with, being a continuing condition of the
making of loans by Lender:
5.1 Financing Order. The Financing Order has been
duly entered, is valid, subsisting and continuing and has not
beenvacated, modified, reversed on appeal, or vacated or modified
by any order of the Bankruptcy Court and is not subject to any
pending appeal or stay.
5.2 Use of Proceeds. All loans provided by Lender to
Debtor pursuant to the Financing Order, the Accounts Agreement or
otherwise, shall be used by Debtor for general operating and
working capital purposes in the ordinary course of Debtor's
business. No portion of any administrative expense claim or other
claim relating to the Chapter 11 Case shall be paid with the
proceeds of such loans provided by Lender to Debtor, other than
those administrative expense claims and other claims relating to
the Chapter 11 Case directly attributable to the operation of the
business of Debtor.
5.3 Defaults Under Other Indebtedness. The Debtor-in-
Possession is not in default in the payment of any amounts at any
time due on any material indebtedness arising after the Petition
Date owed by the Debtor-in-Possession or in the performance of any
other material terms or covenants of any evidence of such
Indebtedness or of any mortgage, security agreement, indenture,
pledge or other agreement relating thereto or securing such
Indebtedness.
5.4 Equipment
(a) Debtor is and shall be, with respect to the
Equipment, the owner of such Equipment free from any lien, security
interest, claim and encumbrance of any kind, except in favor of
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Lender and as set forth on Exhibit E annexed hereto and made a part
hereof.
(b) The only locations of the Equipment are those
addresses listed on Exhibit F annexed hereto and made a part
hereof. Exhibit F sets forth the owner and/or operator of the
premises at such addresses for all locations which Debtor does not
own and operate and all mortgages, if any, with respect to the
premises. Debtor shall not remove any Equipment from such
locations without the prior written consent of Lender.
(c) Debtor shall at all times maintain, with
financially sound and reputable insurers, casualty and hazard
insurance with respect to the Equipment for not less than its full
market value and against all risks to which it may be exposed. All
such insurance policies shall be in such form, substance, amounts
and coverage as may be satisfactory to Lender and shall provide for
thirty (30) days' minimum prior cancellation notice in writing to
Lender. Lender may act as attorney for Debtor in obtaining,
adjusting, settling, amending and cancelling such insurance.
Debtor shall promptly (i) obtain endorsements to all existing and
future insurance policies with respect to the Equipment specifying
that the proceeds of such insurance shall be payable to Lender and
Debtor as their interests may appear and further specifying that
Lender shall be paid regardless of any act, omission or breach of
warranty by Debtor, (ii) deliver to Lender an original executed
copy of, or executed certificate of the insurance carrier with
respect to, such endorsement and, at Lender's request, the original
or a certified duplicate copy of the underlying insurance policy
and (iii) deliver to Lender such other evidence which is
satisfactory to Lender of compliance with the provisions hereof.
(d) Debtor shall promptly notify Lender in
writing of the details of any loss, damage, investigation, action,
suit, proceeding or claim relating to the Equipment or which would
result in any material adverse change in Debtor's business,
properties, assets, goodwill or condition, financial or otherwise.
(e) At Lender's option, Lender may apply any
insurance monies received at any time to the cost of repairs to or
replacement for the Equipment and/or to payment of any of the
Obligations, whether or not due, in any order and in such manner as
Lender in its sole discretion, may determine.
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(f) Upon Lender's request, at any time and from
time to time, Debtor shall, at its sole cost and expense, execute
and deliver to Lender written reports or appraisals as to the
Equipment listing all items and categories thereof, describing the
condition of same and setting forth the value thereof the lower of
net cost less depreciation, fair market value and/or liquidation
value of the Equipment), in such form as is satisfactory to Lender.
(g) Debtor shall, at its own expense, keep the
Equipment in first class order, repair, running and marketable
condition.
(h) Debtor shall (i) use, store and maintain the
Equipment with all reasonable case and caution and (ii) use the
Equipment for lawful purposes only and in conformity with
applicable laws, ordinances and regulations.
(i) The Equipment is and shall be used in
Debtor's business and not for personal, family, household or
farming use.
(j) The Equipment is now and shall remain
personal property and Debtor shall not permit any of the Equipment
to be or become a part of or affixed to real property without (i)
prior written notice to Lender and Lender's written consent and
(ii) first making all arrangements, and delivering or causing to be
delivered to Lender, such agreements and other documentation
requested by Lender for the protection and preservation of Lender's
security interests and liens, in form and satisfactory to Lender,
including, without limitation, waivers and subordination agreements
by any landlords or mortgages of statutory and non-statutory liens
and rights of distraint.
(k) Debtor assumes all responsibility and liability
arising from or relating to the use, sale or other disposition of
the Equipment.
6. AMENDMENTS
6.1 Sublimits. Anything in the Financing
Agreements to the contrary notwithstanding, all sublimits set forth
in the Financing Agreements shall be applied on an aggregate basis
considering together both Pre-Petition Obligations and Post-
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Petition Obligations in respect of any formula or other provision
to which a sublimit may apply.
6.2 Formulas and Availability Reserves.
(a) Anything in the Financing Agreements to the
contrary notwithstanding, all loans otherwise available to Debtor
pursuant to the lending formulas and subject to the Maximum Credit
and other applicable limits under the Financing Agreements shall be
subject to Lender's continuing right to establish and revise
Availability Reserves.
(b) Anything in the Financing Agreements to the
contrary notwithstanding, the borrowing formulas and the
Availability Reserve provisions shall be applied on an aggregate
basis considering together Pre-Petition Collateral and Post-
Petition Collateral deemed by Lender to be eligible for lending
purposes.
(c) Anything in the Financing Agreements to the
contrary notwithstanding, the loans otherwise available to Debtor
shall be subject to an Availability Reserve for the amount of
claims for outstanding and unpaid administrative expenses or other
claims which are or, in Congress' sole determination, may be senior
to Congress' liens in the property of Debtor's estate pursuant to
the Financing Order or otherwise.
(d) Anything in the Financing Agreements to the
contrary notwithstanding, except in Lender's sole discretion, any
postpetition increase in the outstanding principal amount of loans
by Lender to Debtor based upon the post-petition increases of the
percentages used in the borrowing formulas of (i) the Net Amount of
Eligible Accounts in accordance with Section 6.3 hereof and (ii)
the Value of Eligible Inventory (i.e., 60% being increased to 65%)
in accordance with Section 6.11 hereof, shall not exceed the
aggregate principal amount of $1,500,000 inclusive of any amounts
previously advanced as provided for at Section 6.2(d) of the
Ratification and Amendment Agreement, dated July 18, 1996
("Supplemental Advance").
(e) Anything in the Financing Agreements to
the contrary notwithstanding, the Availability Reserves shall be
permanently increased in an amount equal to the proceeds received
by Lender pursuant to the sale of Debtor's Collateral outside the
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ordinary course of Debtor's business prior to December 31, 1996, in
accordance with the terms of Section 6.12(a)(ii) hereof.
6.3 Accounts Advances. Section 2.1 of the Accounts
Agreement is hereby deleted in its entirety and the following
substituted therefor:
"2.1 You shall, in your discretion, make loans to us
from time to time, at our request, of in the aggregate up to
ninety (90%) percent of the Net Amount of Eligible Accounts
(or such greater or lesser percentage thereof as you shall
in your sole discretion determine from time to time)."
6.4 Interest and Fees. Section 3.1 of the Accounts
Agreement is hereby deleted in its entirety and the following
substituted therefor:
"3.1 Interest shall be payable by us to you on the
first day of each month upon the closing daily balances in
our loan account for each day during the immediately
preceding month, at a rate equal to two (2%) percent per
annum in excess of the prime commercial interest rate (the
"pre-default rate") from time to time publicly announced by
CoreStates Bank, N.A., Philadelphia, Pennsylvania, whether
or not such announced rate is the best rate available at
such bank. The interest rate charged hereunder shall
increase or decrease by an amount equal to each increase or
decrease, respectively, in said prime loan rate, effective
on the first day of the month after any change in said prime
loan rate based on the prime loan rate in effect on the last
day of the month in which any such change occurs."
6.5 Conduct of Accounts. A new Section 5.5 is hereby
inserted into the Accounts Agreement following Section 5.4 thereof,
which new section shall read as follows:
"5.5 You shall apply payments received or collected from us
or any guarantors of the Obligations or for our account
(including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral, whether
received by you pursuant to any lockbox, blocked account or
other similar agreement or otherwise) to the Obligations in
such order and manner as you, in your discretion, shall
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determine. You shall have the continuing and exclusive
right to apply and reverse and reapply any and all such
proceeds and payments to any portion of the Obligations.
Without limiting the generality of the foregoing, you may,
in your discretion, apply any such payments or proceeds
first to the Pre-Petition Obligations until such PrePetition
Obligations are paid and satisfied in full."
6.6 Additional Financial Reporting Requirements.
Section 6.4 of the Accounts Agreement is hereby amended by adding
the following sentence at the end thereof:
"We will provide you with copies of all financial
reports, schedules and other materials and information
relating to the Collateral or the financial condition of the
Debtors at any time furnished by us, or on our behalf, to
the Bankruptcy Court, the U.S. Trustee, any creditors'
committee or any of our shareholders, concurrently with the
delivery thereof to the Bankruptcy Court, the U.S. Trustee,
any creditors' committee creditors' committee or
shareholders, as the case may be."
6.7 Events of Default.
(a) Section 8.1(d), (e) and (f) of the
Accounts Agreement are hereby deleted in their entirety and the
following substituted therefor: "[Intentionally Deleted]"
(b) Section 6 of the Covenant Supplement is
hereby amended by adding the following Sections:
"6(c) any judgment, order or any other relief is
obtained by any person in the Bankruptcy Court or otherwise
against Debtor in connection with the default by Debtor in
the payment of any principal or interest, if any, due on any
indebtedness owed by Debtor, or in the performance of any of
the other terms or covenants or evidence of such
indebtedness, of any mortgage, security agreement,
indenture, pledge or other agreement relating thereto or
securing such indebtedness with respect to such contract,
lease, license or other obligations owed to any person other
than Lender; or
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6(d) the occurrence of any condition or event
which permits Lender to exercise any of the remedies set
forth in the Financing Order, including, without limitation,
any "Event of Default", as defined in the Financing Order;
or
6(e) the termination or non-renewal of the
Financing Agreements as provided for in paragraphs "30" or
"32" of the Final Financing Order; or
6(f) Debtor suspends or discontinues or is
enjoined by any court or governmental agency from continuing
to conduct all or any material part of its business, except
as contemplated by this agreement or the Financing Order, or
if a trustee, receiver or custodian is appointed for Debtor
or any of its properties; or
6(g) there shall be a material adverse change
in Debtor's business, assets or condition (financial or
otherwise) after the date of the commencement of the Chapter
11 case; or
6(h) conversion of Debtor's Chapter 11 Case to
a Chapter 7 case under the Bankruptcy Code; or
6(i) dismissal of Debtor's Chapter 11 Case or
any subsequent Chapter 7 case either voluntarily or
involuntarily; or
6(j) the grant of a lien on or other interest
in any of Debtor's property or an administrative expense
claim other than such administration expense claim permitted
by the Financing Order or the Financing Agreement by the
grant of or allowance by the Bankruptcy Court which is
superior to or ranks in parity with Lender's security
interest in or lien upon the Collateral; or
6(k) the Financing Order shall be modified,
reversed, revoked, remanded, stayed, rescinded, vacated or
amended on appeal or by the Bankruptcy Court without the
prior written consent of Lender (and no such consent shall
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be implied from any other authorization or acquiescence by
Lender); or
6(l) the appointment of a trustee pursuant to
Sections 1104(a)(1) or 1104(a)(2) of the Bankruptcy Code; or
6(m) the appointment of an examiner with
expanded or special powers pursuant to Section 1104(a) of
the Bankruptcy Code; or
6(n) the filing of a plan of reorganization by
Debtor or on its behalf which does not provide for payment
in full of the Obligations on the effective date thereof; or
6(o) for any consecutive four week period
commencing July 15, 1996, either (i) the "New Receivables",
as such term is used in the cash flow projections provided
by Debtor to Lender pursuant to the Financing Order (the
"Cash Flow Projections") or (ii) the "Ending Availability",
as such term is used in the Cash Flow Projections, is
fifteen (15%) percent or more below the amount reflected in
the "Budget" annexed as an exhibit to the Financing Order."
6(p) any party, other than Lender, commences a
foreclosure action or otherwise seeks to enforce any junior
lien or other right such party may have in and to any property
of the estates of the Debtors upon which Lender holds or
asserts a lien or security interest.
6.8 Term. The first sentence of Section 9.1 of
the Accounts Agreement is hereby deleted in its entirety and the
following substituted therefor:
"This Agreement shall become effective as of the
date hereof and shall continue in full force and effect for
a term ending on the earlier of (i) December 31, 1996 or
(ii) the date of expiration of Debtor's authority under the
Financing Order to borrow on the terms and conditions set
forth therein and in the Financing Agreements, unless sooner
terminated pursuant to the terms hereof or the terms of the
Financing Order or unless extended by further order of the
Bankruptcy Court with your written consent."
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<PAGE>
6.9 Applicable Law. Section 11.3 of the
Accounts Agreement is hereby deleted in its entirety and the
following substituted therefor:
"This Agreement and the other Financing Agreements and
all other documents referred to herein or therein are being
delivered in New York, New York and together with all
transactions and the obligations and rights hereunder and
thereunder shall be governed by, construed and interpreted
in accordance with the laws of the State of New York, except
to the extent that the provisions of the Bankruptcy Court
are applicable and specifically conflict with the
foregoing."
6.10 Notices. Section 10.1 of the Accounts
Agreement is hereby amended by adding that any notices, requests
and demands also by sent to the following parties:
If to Debtor with a copy to: Stutman, Treister & Glatt
3699 Wilshire Boulevard
Los Angeles, California 90010
Facsimile No. (213) 251-5288
Attn: Herman L. Glatt, Esq.
K. John Shaffer, Esq.
If to Lender with a copy to: Otterbourg, Steindler, Houston &
Rosen, P.C.
230 Park Avenue
New York, New York 10169 Facsimile No. (212)
682-6104 Attn: Jonathan N. Helfat, Esq.
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<PAGE>
6.11 Inventory Loans.
(a) Section 2 of the Letter Agreement re:
Inventory Loans, dated May 25, 1993, by AWCL and NPM in favor of
Lender (the "Inventory Loan Letter") is hereby deleted in its
entirety and the following substituted therefor:
"2. In addition to loans which may be made by you to
uspursuant to Section 2 of the Accounts Agreement, you
shall, inyour sole discretion, make loans to us from time to
time, at our request, of in the aggregate up to the
following percentages of Value of the following categories
of Eligible Inventory (or such greater or lesser percentages
thereof as you shall, in your sole discretion, determine
from time to time ):
-65% of all raw materials wherever located;
-65% of all finished goods wherever located;
-50% of all packaging supplies subject to buyback
agreements with customers;
-25% of packaging supplies otherwise deemed eligible by
you;
(b) Section 3 of the Inventory Loan Letter is hereby
deleted in its entirety and the following substituted therefor:
"3. Except in your sole discretion, the outstanding
aggregate principal amount of loans by you to both of us pursuant
to this letter shall not exceed, at any time, the lower of (a) the
aggregate amount of the above percentages of Value of Eligible
Inventory or (b) $15,000,000."
6.12 Sale of Collateral. Anything in the Financing
Agreements to the contrary notwithstanding, and provided no Event
of Default has occurred, if any sale of Collateral is made by or on
behalf of Debtor outside the ordinary course of Debtor's business
prior to December 31, 1996, in an amount, after subtracting all
related fees and expenses relating to the costs associated with
such sale, which exceeds the advances made by Lender to Debtor with
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respect to such Collateral, the proceeds of such sale shall be
distributed as follows: (a) Lender shall receive (i) the proceeds
of such sale, after subtracting all fees and expenses relating to
the costs associated with such sale, which equals the amount of the
advances made by Lender to Debtor with respect to such Collateral
plus (ii) fifty (50%) percent of the proceeds of such sale in
excess thereof (the "Collateral Sale Surplus") but not to exceed
the amount of Supplemental Advance outstanding at that time and (b)
the Debtor shall be credited with the remaining amount of the
Collateral Sale Surplus.
7. DEBTOR-IN-POSSESSION FACILITY FEE.
Debtor shall pay to Lender a Debtor-in-Possession
Facility Fee in an amount equal to $50,000, which fee shall be
fully earned as of and payable on the effective date of the
Financing Order. At Lender's option, Lender may charge such fee
directly to any loan account of Debtor with Lender. If the Debtor-
in-Possession Facility Fee is paid in full prior to the entry of
the Final Financing Order, then no additional Debtor-inPossession
Facility Fee shall be due to Lender.
8. CONDITIONS PRECEDENT.
It shall be a condition precedent to the effectiveness of
this Ratification Agreement that Lender shall have received
evidence of insurance and loss payee endorsements required
hereunder and under the other Financing Agreements, in form and
substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee.
9. WAIVERS
(a) Lender hereby waives the Pre-Petition Events
of Default as set forth in Section 6 of the Covenant Supplement, as
annexed hereto as Exhibit "D".
(b) Lender hereby waives the Pre-Petition Events
of Default arising prior to the date hereof as set forth in
Sections 8.1(a), (b) and (e) of the Accounts Agreement.
(c) Lender has not waived and is not by this
Ratification Agreement waiving, and has no intention of waiving,
any other Event of Default which may have occurred prior to the
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<PAGE>
date hereof, or may be continuing on the date hereof or any Event
of Default which may occur after the date hereof, and Lender
reserves the right, in its discretion, to exercise any or all of
its rights and remedies arising under the terms of the Financing
Agreements as a result of any Event of Default.
10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement
nor any other instrument or document referred to herein or therein
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is
sought.
10.2 Further Assurances. Debtor and Guarantors shall,
at Debtor's expense, at any time or times duly execute and deliver,
or shall cause to be duly executed and delivered, such further
agreements, instruments and documents, including, without
limitation, additional security agreements, collateral assignments,
Uniform Commercial Code financing statements or amendments or
continuations thereof, landlord's or mortgagee's waivers of liens
and consents to the exercise by Lender of all the rights and
remedies hereunder, under any of the other Financing Agreements,
any Financing Order or applicable law with respect to the
Collateral, and do or cause to be done such further acts as may be
necessary or proper in Lender's opinion to evidence, perfect,
maintain and enforce the security interests of Lender, and the
priority thereof, in the Collateral and to otherwise effectuate the
provisions or purposes of this Agreement, any of the other
Financing Agreements or the Financing Order. Upon the request of
Lender, at any time and from time to time, Debtor and Guarantors
shall, at Debtor's cost and expense, do, make, execute, deliver and
record, register or file, financing statements, mortgages, deeds of
trust, deeds to secure debt, and other instruments, acts, pledges,
assignments and transfers (or cause the same to be done) and will
deliver to Lender such instruments evidencing items of Collateral
as may be requested by Lender.
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10.3 Headings. The headings used herein are for
convenience only and do not constitute matters to be considered in
interpreting this Agreement.
10.4 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an
original, but all of which shall together constitute one and the
same agreement.
10.5 Additional Events of Default. The parties
hereto acknowledge, confirm and agree that the failure of Debtor to
comply with any of the covenants, conditions and agreements
contained herein or in any other agreement, document or instrument
at any time executed by Debtor in connection herewith shall
constitute an Event of Default under the Financing Agreements.
10.6 Costs and Expenses. Debtor shall pay to Lender
on demand all reasonable costs and expenses that Lender pays or
incurs in connection with the negotiation, preparation,
consummation, administration, enforcement, and termination of this
Agreement and the other Financing Agreements and the Financing
Order, including, without limitation: attorneys' and paralegals'
fees and disbursements of counsel to Lender; costs and expenses
(including attorneys' and paralegals' fees and disbursements) for
any amendment, supplement, waiver, consent, or subsequent closing
in connection with this Agreement, the other Financing Agreements,
the Financing Order and the transactions contemplated thereby;
costs and expenses of lien searches; taxes, fees and other charges
for recording any agreements or documents with the office of
Patents and Trademarks, the Copyright Office or any other
governmental authority, and the filing of UCC financing statements
and continuations, and other actions to perfect, protect, and
continue the security interests and liens of Lender in the
Collateral; sums paid or incurred to pay any amount or take any
action required of Debtor under the Financing Agreements or the
Financing Order that Debtor fail to pay or take; costs of
appraisals, inspections and verifications of the Collateral and
including travel, lodging, and meals for inspections of the
Collateral and the Debtor's operations by Lender or its agent and
to attend court hearings or otherwise in connection with the
Chapter 11 Case; costs and expenses of preserving and protecting
the Collateral; and costs and expenses (including attorneys' and
paralegals' fees and disbursements) paid or incurred to obtain
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<PAGE>
payment of the Obligations, enforce the security interests and
liens of Lender, sell or otherwise realize upon the Collateral, and
otherwise enforce the provisions of this Agreement, the other
Financing Agreements and the Financing Order, or to defend any
claims made or threatened against Lender arising out of the
transactions contemplated hereby (including, without limitation,
preparations for and consultations concerning any such matters).
The foregoing shall not be construed to limit any other provisions
of the Financing Agreements regarding costs and expenses to be paid
by Debtor. All sums provided for in this Section 8.6 shall be part
of the Obligations, shall be payable on demand, and shall accrue
interest after demand for payment thereof at the highest rate of
interest then payable under the Financing Agreements. Lender is
hereby irrevocably authorized to charge any amounts payable
hereunder directly to any of the account(s) maintained by Lender
with respect to Debtor.
10.7 Effectiveness. This Agreement shall become
effective upon the execution hereof by Lender and the entry of the
Financing Order.
IN WITNESS WHEREOF, the parties hereto has caused this
Agreement to be duly executed as of the day and year first above
written.
AMERICAN WHITE CROSS, INC.
Debtor and Debtor-in-Possession
By: -------------------------------------
Title:-----------------------------------
CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
By: --------------------------------------
Title: -----------------------------------
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WEAVER MANUFACTURING CORPORATION
Debtor and Debtor-in-Possession
By: --------------------------------------
Title: -----------------------------------
ACME/CHASTON PUERTO RICO, INC.
Debtor and Debtor-in-Possession
By: --------------------------------------
Title: -----------------------------------
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<PAGE>
EXHIBIT A
Equipment
A-1
<PAGE>
EXHIBIT B
Agreements
A. Financing Agreements
1. Amended and Restated Accounts Financing Agreement
[Security Agreement], dated May 25, 1993, between Congress
Financial Corporation ("Lender") and American White Cross, Inc.
("Debtor"), the surviving corporation of the merger of The
American White Cross Laboratories, Inc. ("AWCL") into NPM
Healthcare Products, Inc. ("NPM"), whose name was thereafter
changed to American White Cross, Inc.
2. Covenant Supplement to Accounts Financing Agreement
[Security Agreement], dated May 25, 1993, between Lender and
Debtor.
3. Inventory and Equipment Security Agreement Supplement
to Amended and Restated Accounts Financing Agreement [Security
Agreement], dated May, 1993, by Debtor in favor of Lender.
4. Inventory and Equipment Security Agreement Supplement
to Amended and Restated Accounts Financing Agreement [Security
Agreement], dated May, 1993, by Debtor in favor of Lender.
5. Letter Agreement re: Inventory Loans, dated May 25,
1993, by Debtor in favor of Lender.
6. Collateral Assignment of Trademarks (Security
Agreement), dated May 25, 1993, between Debtor and Lender.
7. Amendment to Collateral Assignment of Trademarks
(Security Agreement), dated May 25, 1993, between Debtor and
Lender.
8. Collateral Assignment of Patents (Security Agreement),
dated May 25, 1993, between Debtor and Lender.
9. Collateral Assignment of Rights under Stock Purchase
Agreement, dated May, 1993, between Debtor and Lender.
10. Amendments to Financing Agreements:
(a) First Amendment to Accounts Financing Agreement,
dated as of November 30, 1993;
B-1
<PAGE>
(b) Second Amendment to Accounts Financing
Agreement, dated March 1, 1994;
(c) Third Amendment to Accounts Financing Agreement,
dated as of October 6, 1995;
11. Term Note, dated May 25, 1993, issued by NPM payable to
the order of Lender in the original principal amount of
$4,250,000 .
12. Term Note, dated May 25, 1993, issued by AWCL
payable to the order of Lender in the original principal amount
of $1,750,000 .
13. Mortgage and Security Agreement, dated October 27,
1993, by Debtor in favor of Lender.
14. Mortgagee Agreement, dated April 8, 1991, between
Lender and Centerbank.
15. Lock Box and Blocked Account Agreement, dated May 28,
1993, by and among Philadelphia National Bank, incorporated as
CoreStates Bank, N.A., Debtor and Lender.
B. UCC-1 Financing Statements
1. UCC-1 Financing Statements - NPM
(a) New York
(b) New Jersey
(c) Connecticut
(d) Texas
(e) Illinois
(f) Nevada
2. UCC-1 Financing Statements - AWCL
(a) New York
(b) New Jersey
(c) Connecticut
(d) Texas
(e) Illinois
(f) Nevada
B-2
<PAGE>
C. Guarantor Agreements
1. Amended and Restated Guarantee and Waiver, dated May
25, 1993, by Acme/Chaston Puerto Rico, Inc. ("Acme") in favor of
Lender of the obligations of Debtor to Lender
2. Guarantee and Waiver, dated May 25, 1993, by Weaver
Manufacturing Corporation ("Weaver") in favor of Lender of the
obligations of Debtor to Lender
3. General Security Agreement, dated May 25,
1993, by Weaver in favor of Lender
4. Amendments to Factor's Lien Contract and
other Puerto Rico Security Documents, dated May 25, 1993, by Acme
in favor of Lender
B-3
<PAGE>
EXHIBIT C
Legal Description
See real property descriptions annexed hereto.
C-1
<PAGE>
EXHIBIT D
Lender hereby waives the Events of Default arising prior to
the date hereof as set forth in Section 6 of the Covenant
Supplement.
Lender hereby waives the Events of Default arising prior to
the date hereof as set forth in Sections 8.1(a), (b) and (e) of
the Accounts Agreement.
D-1
<PAGE>
EXHIBIT E
Existing Liens on Equipment
[To be provided by Debtor]
E-1
<PAGE>
EXHIBIT F
Locations of Equipment
[To be provided by Debtor]
F-1
<PAGE>
Exhibit 10.38
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: : Case No. 96-1109 (PJW)
:
AMERICAN WHITE CROSS, INC., : Chapter 11
a Delaware corporation, : Jointly Administered
ACME/CHASTON PUERTO RICO, INC., :
a Delaware corporation, :
WEAVER MANUFACTURING CORPORATION, : This Document Applies
a New Jersey corporation, : To All Cases
:
Debtors. :
FINAL ORDER PURSUANT TO SECTION 364(c) OF THE
BANKRUPTCY CODE AND RULE 4001 OF THE FEDERAL RULES
OF BANKRUPTCY PROCEDURE AUTHORIZING THE DEBTORS TO
OBTAIN POST-PETITION FINANCING, GRANTING SENIOR LIENS
AND PRIORITY ADMINISTRATIVE EXPENSE STATUS, MODIFYING
THE AUTOMATIC STAY, AND AUTHORIZING DEBTOR TO ENTER INTO
AGREEMENTS WITH CONGRESS FINANCIAL CORPORATION (NEW ENGLAND)
-------------------------------------------------------------
THIS MATTER came before the Court on August 12, 1996, upon the
Motion of American White Cross, Inc., Debtor and Debtor-in-Possession
("AWC"), Acme/Chaston Puerto Rico, Inc., Debtor and Debtor-in-Possession
("ACPR") and Weaver Manufacturing Corporation, Debtor and Debtor-in
Possession ("WMC"; collectively, "the Debtors"), filed on July 18, 1996,
seeking, inter alia:
------------
(i) authority pursuant to Sections 364(c)(1),
364(c)(2) and 364(c)(3) of the United States Bankruptcy Code, 11 U.S.C.
Sections 101, et seq. (the "Bankruptcy Code"), and Rules 4001 and 9014 of
the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), for AWC to
obtain postpetition loans and advances on a permanent basis from Congress
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<PAGE>
Financial Corporation (New England) ("Congress"), in accordance with the
formulas set forth in the Financing Agreements (as hereinafter defined), as
amended by the Ratification and Amendment Agreement as of July 18, 1996
(the "Ratification Agreement"), secured by first priority security
interests in and liens upon all of the Debtors' now existing and hereafter
acquired personal property, except as provided for at paragraph 11 of this
Order, including, without limitation, all accounts, sales contracts,
purchase orders, inventory, machinery, equipment, general intangibles and
fixtures and certain real property, and the proceeds thereof, pursuant to
Sections 364(c)(2) and 364(c)(3) of the Code;
(ii) authority for the Debtors to ratify, extend, adopt
and amend the existing loan, financing and security agreements by and
between the Debtors and Congress;
(iii) approval of the terms and conditions of the loan,
financing, security and guarantee agreements by and between the Debtors and
Congress as ratified, adopted and amended;
(iv) the modification of the automatic stay; and
(v) the granting to Congress of super-priority
administrative claim status pursuant to Section 364(c)(1) of the Code.
IT APPEARING THAT each of the parties set forth below
received due notice of the Final Hearing pursuant to Rules 4001(c)(1) and
1007(d) of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"):
the Office of the United States Trustee, the attorneys for Congress,
Bank One and all creditors known to the Debtors who may have liens against
the Debtors' assets, the United States Internal Revenue Service, the
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<PAGE>
Pension Benefit Guaranty Corporation, the twenty (20) largest unsecured
creditors of the Debtors, all landlords and/or mortgagors of the premises
at which any of the Debtors' inventory or equipment is located, and all
equipment lessors of the Debtors; and it further
APPEARING that each of the Debtors filed a voluntary petition for
relief under chapter 11 of the Bankruptcy Code on July 17, 1996 (the
"Petition Date") and is continuing in the management and possession of its
business and properties as debtors-in-possession pursuant to Sections 1107
and 1108 of the Code; and it further
APPEARING that Congress and the Debtors have represented to this
Court that prior to the commencement of the Debtors' Chapter 11 Cases
Congress had made loans and advances to AWC, as the surviving entity of a
merger between NPM Healthcare Products, Inc. and The American White Cross
Laboratories, Inc., pursuant to the terms of certain loan and financing
agreements, security agreements and mortgages executed and delivered by the
Debtors with, to or in favor of Congress, including, without limitation,
the agreements set forth at Exhibit "A" annexed to the Interim Order
Pursuant to Section 364(c)(1) of the Bankruptcy Code and Rule 4001 of the
Federal Rules of Bankruptcy Procedure Authorizing the Debtors to Obtain
Post-Petition Financing, Granting Senior Liens and Priority Administrative
Expense Status, Modifying the Automatic Stay and Authorizing the Debtors to
Enter into Agreements with Congress Financial Corporation (New England),
entered July 19, 1996, (the "Interim Financing Order"); the Uniform
Commercial Code financing statements filed by Congress against the Debtors
set forth at Exhibit "B" annexed to the Interim Financing Order and the
mortgage securing the repayment of the principal amount of $500,000 plus
fees, costs and expenses, recorded by Congress against AWC's real property
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<PAGE>
located in Elmwood Park, New Jersey as set forth on Exhibit "C" to the
Interim Financing Order (all of such loan and security agreements,
mortgages, financing statements, and all other related agreements,
documents, notes, instruments and guarantees creating or evidencing
indebtedness of the Debtors or granting collateral security of the Debtors
in favor of Congress, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, being
referred to herein collectively as the "Financing Agreements"; and all
capitalized terms used in this Order and not otherwise defined in this
Order shall have the meanings ascribed to such terms in the Financing
Agreements, as amended); and it further
APPEARING that WMC, pursuant to the Guarantee and Waiver dated
May 25, 1993, and ACPR, pursuant to the Amended and Restated Guarantee and
Waiver dated May 25, 1993, (copies of the Guarantees are set forth at
Exhibit "D" annexed to the Interim Financing Order; collectively, the
"Guarantees"), absolutely and unconditionally guaranteed the payment and
performance of all present and future obligations, liabilities and
indebtedness of AWC to Congress, including, without limitation, the Pre
Petition Debt and the Post-Petition Debt (as hereinafter defined), secured,
respectively, by the assets of WMC and ACPR; and it further
APPEARING that Congress and the Debtors have represented to the
Court that the principal amount of all obligations, liabilities and
indebtedness of the Debtors to Congress, both absolute and contingent,
existing as of the close of business on July 16, 1996, consisting of
Obligations (as defined in the Financing Agreements) made pursuant to the
Financing Agreements in the principal amount of not less than
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<PAGE>
$21,375,656.96, together with interest accrued and accruing thereon and
fees, costs, expenses and other charges accrued and accruing with respect
thereto (collectively, the "Pre-Petition Debt"), is fully secured pursuant
to the Financing Agreements by perfected and valid first priority security
interests in, and liens upon, all of the Debtors' existing and hereafter
acquired "Collateral" (as defined in the Financing Agreements,
collectively, the "Pre-Petition Collateral"); and it further
APPEARING that the value of the Debtors' pre-petition assets
subject to the liens of Congress substantially exceeds Congress' Pre
Petition Debt; and it further
APPEARING that without the financing proposed by the Motion, the
Debtors will not have the funds necessary to pay their post-petition
payroll, payroll taxes, inventory suppliers, overhead and other expenses
necessary for the continued operation of the Debtors' business and the
management and preservation of the Debtors' assets and properties; and it
further
APPEARING that the Debtors have requested that Congress make
loans and advances to AWC in order to provide funds to be used by the
Debtors for their general operating, working capital and other business
purposes in the ordinary course of the Debtors' business; and it further
APPEARING that all such additional loans, advances and other
financial accommodations by Congress will benefit the Debtors, their
estates and creditors; and it further
-5-
<PAGE>
APPEARING that Congress is willing to make such loans and
advances and provide such other credit accommodations on a secured basis as
more particularly described herein and subject to the terms and conditions
contained herein; and it further
APPEARING that the ability of the Debtors to continue in business
and remain viable entities and thereafter reorganize under chapter 11 of
the Bankruptcy Code depends upon obtaining such financing from Congress;
and it further
APPEARING that the Debtors have prepared a Cash Flow Projection
(as hereinafter defined) through the week ending September 27, 1996, and
dated July 12, 1996, which is annexed to the Interim Financing Order as
Exhibit "E" and made a part hereof (the "Budget"), and which has been
reviewed by the Debtors and their respective managements and sets forth,
among other things, the anticipated New Receivables and Ending Availability
of the Debtors for the periods covered thereby, and has been relied upon by
Congress in determining to enter into post-petition financing arrangements
with the Debtors; and it further
APPEARING that without an increase in Congress' advance rate of
an additional $1,000,000 (over and above the advance of $500,000 as
provided for in the Interim Financing Order), as is provided for in the
Amended Ratification Agreement (as hereinafter defined), the Debtors will
not be able to meet their Cash Flow Projections (as hereinafter defined)
-6-
<PAGE>
and will not be able to meet their expenses or operate their business; and
it further
APPEARING that in order to enable the Debtors to reorganize their
businesses, Congress is willing to make additional advances to the Debtors
on a secured basis as described herein and subject to the terms and
conditions contained herein; and it further
APPEARING that the relief requested in the Motion is necessary,
essential, and appropriate for the continued operation of the Debtors'
business and the management and preservation of their assets and properties
and is in the best interests of the Debtors, their estate and creditors;
and it further
APPEARING that this Court has jurisdiction to enter this Order
pursuant to 28 U.S.C. Sections 157(b)(2)(A), (D) and (M) and 1334.
NOW, THEREFORE, upon the Motion for permanent financing, the
files and pleadings in these cases, the record of the proceedings
heretofore held before this Court with respect to the Motion and upon
completion of the final hearing and after due deliberation and sufficient
cause appearing therefor, the Court hereby finds as follows:
A. The Debtors are unable to obtain unsecured credit
allowable under Section 503(b)(1) of the Bankruptcy Code, or pursuant to
Sections 364(a) and (b) of the Bankruptcy Code.
B. No other source of financing exists on terms more
favorable than those offered by Congress.
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C. The Motion was filed on July 18, 1996, and the
Debtors have provided actual notice of the terms of this Order, whether by
telephone, telecopy, overnight courier or by-hand delivery to the Office
of the United States Trustee, the attorneys for Congress, Bank One and
all creditors known to the Debtors who may have liens against the Debtors'
assets, the United States Internal Revenue Service, the Pension Benefit
Guaranty Corporation, the twenty (20) largest unsecured creditors of each
of the Debtors, all landlords and/or mortgagors of the premises at which
any of the Debtors' inventory or equipment is located, and all equipment
lessors of the Debtors, all as more fully described in the Certificate of
Service filed by counsel for the Debtors. Sufficient and adequate notice
of the Order and the hearing with respect thereto have been given pursuant
to Bankruptcy Rules 2002, 4001(c) and (d) and 9014 and Section 102(1) of
the Code as required by Section 364(c) of the Code and no further notice
of, or hearing on the relief sought in, the Motion is necessary or
required.
D. Consideration of this Motion for permanent financing
constitutes a "core proceeding" as defined in 28 U.S.C. Sections
157(b)(2)(A), (D), (G), (K), (M) and (O). This Court has jurisdiction over
this proceeding and the parties and property affected hereby pursuant to 28
U.S.C. Sections 157 and 1334.
E. The terms of the Financing Agreements between the
Debtors and Congress, including, without limitation, the Amended
Ratification Agreement (as hereinafter defined), pursuant to which post-
petition loans, advances and other credit accommodations may be made or
provided to AWC by Congress, have been negotiated in good faith and at
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arms' length and are in the best interests of the Debtors, their estates
and creditors.
F. Good, adequate and sufficient cause has been shown to
justify the granting of the relief requested herein, and the immediate
entry of this Order.
G. A Committee pursuant to Section 1102 of the
Bankruptcy Code has been appointed in these Chapter 11 Cases.
ACCORDINGLY, IT IS HEREBY ORDERED, ADJUDGED AND DECREED, that:
1. The Motion for permanent financing is granted and
approved to the extent provided below. This Order shall hereinafter be
referred to as the "Final Financing Order".
2. Good, adequate and sufficient notice of the hearing
requesting the entry of this Order and the hearing thereon has been
provided in accordance with Sections 102(1) and 364(c)(1), (2) and (3) of
the Bankruptcy Code and Bankruptcy Rule 2002.
3. The relief granted by this Court pursuant to this Final
Financing Order is necessary to avoid immediate and irreparable harm to the
Debtors' estates.
4. AWC is hereby authorized and empowered immediately to
borrow from Congress pursuant to the terms of this Order and the terms and
conditions set forth in the Financing Agreements, in such amount or amounts
as may be made available to the Debtors by Congress ("Post-Petition Debt")
in accordance with the formulas set forth in the Financing Agreements, as
amended by the Amended Ratification Agreement (as hereinafter defined).
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5. The Debtors shall use the proceeds of the loans and
advances made, and other credit accommodations provided, by Congress to the
Debtors for the payment of employee salaries, payroll, taxes, the purchase
of inventory and other general operating and working capital purposes in
the ordinary course of the Debtors' business, including amounts paid for
such purposes, which may constitute administrative expense claims under the
Bankruptcy Code attributable to the operation of the Debtors' business and
expenditures authorized by order of the Court.
6. The Debtors are authorized and directed to execute,
deliver, perform and comply with the terms and covenants of the Amended
Ratification and Amendment Agreement, dated as of August 12, 1996 (the
"Amended Ratification Agreement"), pursuant to which the Debtors shall
ratify, extend, assume, adopt and amend the Financing Agreements and agree
to be bound thereby and the Debtors agree to perform and comply with the
terms and covenants of the Financing Agreements, as amended. The Amended
Ratification Agreement modifies the Financing Agreements to, among other
things, provide for a lien in favor of Congress on the AWC's Equipment and
equity in the leasehold equipment, provide for sharing between the Debtors
and Congress upon the disposition of Collateral out of the ordinary course
of business, increase the lending formulas and modify the Termination
Date. The Amended Ratification Agreement shall be substantially in the
form annexed hereto as Exhibit "A", and shall be deemed included in the
definition herein of Financing Agreements.
7. The terms and conditions of the Financing Agreements,
as so ratified, are extended, assumed, adopted and amended, shall be deemed
to be incorporated into the terms and conditions of this Order and shall be
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sufficient and conclusive evidence of the borrowing arrangements between
the Debtors and Congress and of the Debtors' assumption and adoption of the
terms and conditions of the Financing Agreements for all purposes,
including the payment of all interest, fees, servicing fees, unused line
fees, early termination fees, other fees and expenses, including attorneys'
fees and legal expenses as more fully set forth in the Financing
Agreements.
8. The Debtors acknowledge and agree that: (a) the
Financing Agreements are valid and binding agreements and obligations of
the Debtors, (b) the principal amount of the Pre-Petition Debt due and
payable to Congress by the Debtors, according to the Debtors' books and
records as of the close of business on July 16, 1996, consists of loans in
the principal amount of approximately $21,375,656.96, plus interest accrued
and accruing thereon and fees, costs, expenses and other charges accrued
and accruing with respect thereto, (c) Congress' security interests in and
liens upon the Pre-Petition Collateral are valid, perfected, first priority
(subject to paragraphs 9 and 11 herein and except for prior liens expressly
permitted in the Financing Agreements), enforceable and non-voidable, (d)
Congress' pre-petition claims against the Debtors are allowable and are
valid, enforceable and nonvoidable in the amount of the Pre-Petition Debt
as set forth in Congress' books and records, (e) the Debtors do not
possess and may not assert any claim, counterclaim, setoff or defense of
any kind or nature that would in any way affect the validity,
enforceability and non-avoidability of the Pre-Petition Debt and Congress'
security interests in and liens upon the Pre-Petition Collateral or would
in any way reduce or affect the obligation of the Debtors to pay the Pre-
Petition Debt, and (f) Congress and its agents, officers, directors and
employees are released and discharged from all claims and causes of action
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arising out of the Financing Agreements or Congress' relationship with the
Debtors prior to the entry of this Order.
9. The extent, validity, perfection, priority and enforce
ability of Congress' pre-petition liens are for all purposes subject only
to the rights of any duly appointed Creditors' Committee in the Debtors'
Chapter 11 Cases (the "Committee") and Bank One, for a period of ninety
(90) days from the date of entry of the Order retaining counsel to the , to
file a complaint pursuant to Bankruptcy Rule 7001, to invalidate or
subordinate Congress' Pre-Petition Debt and/or to object to the extent,
validity, perfection or priority of Congress' pre-petition security
interests. If such complaint is not so timely filed, the Pre-Petition Debt
and Congress' security interests and liens shall be recognized as valid,
binding, allowed, in full force and effect and entitled to first priority
(except for prior liens expressly permitted in the Financing Agreements, if
any, to the extent entitled to priority as provided in paragraph 11 below)
with respect to all parties in these Chapter 11 Cases pursuant to Section
506(a) and (b) of the Bankruptcy Code.
10. To secure the prompt payment and performance of any and
all obligations, liabilities and indebtedness of the Debtors to Congress of
whatever kind or nature or description now existing or hereafter arising,
including, without limitation, all Pre-Petition Debt and all post-petition
obligations, liabilities and indebtedness of the Debtors arising under the
Financing Agreements (collectively, the "Indebtedness"), Congress shall
have and is hereby granted, effective on and after the date of this Order,
valid and perfected first priority security interests and liens, superior
to all other creditors of the estates of the Debtors except for prior liens
expressly permitted in the Financing Agreements or to the extent entitled
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to priority as provided in paragraph 11 below (including Bank One), in and
upon certain personal property and fixtures and certain real property of
the Debtors and their bankruptcy estates, of whatever kind or nature,
whether acquired prior to or after the filing of the petition commencing
the Debtors' Chapter 11 Cases, including, without limitation, and by way of
general description:
(a) all present and future: (i) accounts, contract rights,
purchase orders, sales contracts, general intangibles, chattel paper,
documents and instruments (collectively "Accounts"), including, without
limitation, all obligations for the payment of money arising out of the
sale, lease or other disposition of goods or other property or rendition of
services; (ii) all monies, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, Congress
from or for the Debtors, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of the Debtors' deposits
(general or special), balances, sums and credits with Congress at any time
existing; (iii) all of the Debtors' rights, remedies and interest with
respect to the Accounts and other collateral, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or
secured party, guaranties or other contracts or suretyship with respect to
the Accounts, deposits or other security for the obligations of any account
debtor, and credit and other insurance; (iv) all of the Debtors' right,
title and interest in, to and in respect of all goods relating to, or which
by sale have resulted in Accounts, including, without limitation, all goods
described in invoices, documents, contracts or instruments with respect to,
or otherwise representing or evidencing, any Accounts or other Collateral,
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including, without limitation, all returned, reclaimed or repossessed
goods; (v) all deposit accounts; (vi) all books, ledgers cards, computer
programs, and other property and general intangibles evidencing or relating
to the Accounts and any other Collateral, together with the file cabinets,
disks, software, computer programs or containers in which the foregoing are
stored (subject to the rights of the Committee to have access to the
foregoing); and (vii) all other general intangibles of every kind and
description, including, without limitation, (A) trade names and trademarks,
and the goodwill of the business symbolized thereby, (B) patents, (C)
copyrights, (D) licenses, (E) federal, state and local tax refund claims of
all kinds, (F) amounts due to the Debtors from any of the Debtors'
subsidiaries in respect of intercompany loans and advances, and (G) any
reversionary interest or surplus in any overfunded benefit plan
administered by one or more of the Debtors and the Debtors' equity, if any,
in any leased machinery and equipment, provided, that, notwithstanding the
foregoing, Congress shall limit its lien on the net proceeds, if any,
whether arising by suit or settlement from an action commenced by AWC or
one or more affiliated entities or any predecessors in interest against the
sellers of American White Cross Laboratories, Inc., to one-half (1/2) of the
net recovery, not to exceed $500,000, after the payment of all fees and
expenses associated with the litigation and/or settlement of this action;
(b) all raw materials, work-in-process, finished goods and
all other inventory of whatsoever kind or nature, wherever located, whether
now owned or hereafter existing or acquired by the Debtors, including,
without limitation, all wrapping, packaging, advertising, shipping
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materials and all other goods consumed in the Debtors' businesses, all
labels and other devices, names or marks affixed or to be affixed thereto
for purposes of selling or identifying the same or the seller or
manufacturer thereof and all right, title and interest therein and thereto;
(c) a certain parcel of real property owned by AWC and
located in Elmwood Park, New Jersey ("Existing Real Property Collateral"),
as more particularly described in Exhibit "C" to the Interim Financing
Order, as collateral security for: (i) Pre-Petition Debt in the principal
amount of approximately $500,000, plus interest, costs and expenses; and
(ii) Post-Petition Debt in the principal amount of up to $500,000, plus
interest, costs and expenses;
(d) subject only to the prior perfected lien of Bank One
(as referred to at paragraph 11), certain Equipment, as more particularly
described in the Amended Ratification Agreement, including, without
limitation, all equipment, machinery, computers and computer hardware,
vehicles, tools, dies, jigs, furniture, trade fixtures and fixtures, all
attachments, accessions and property now or hereafter affixed thereto or
used in connection therewith, substitutions and replacements thereof,
wherever located, whether now owned or hereafter acquired by the Debtors,
all books, records, documents, other property and general intangibles at
any time relating to the equipment, other than all unencumbered Equipment
as referred to at paragraph 10(f) hereunder, in an amount not to exceed One
Million Dollars ($1,000,000);
(e) all proceeds of the foregoing, in any form,
including, without limitation, insurance proceeds and any claims against
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third parties for loss or damage to or destruction of any or all of the
foregoing (collectively, the "Post-Petition Collateral"; and together and
collectively with all other property described as Collateral in the
Financing Agreements, the "Collateral"); and
(f) all Equipment existing on the Petition
Date which is unencumbered and not subject to the claims of any secured
party shall be available on a pro rata basis as collateral for a lien in
favor of all unsecured trade creditors of the Debtors who have unpaid and
past due trade credit extended during the Chapter 11 Cases (collectively,
the "Trade Liens") in an amount not to exceed the value of the unencumbered
Equipment. Notwithstanding the foregoing and irrespective of the amount of
trade credit extended to the Debtors, one-half (1/2) the value of the
unencumbered Equipment shall at all times remain unencumbered by Congress.
Congress shall be granted a lien on the other onehalf (1/2) of the value of
the unencumbered Equipment subject only to reduction on a dollar for dollar
basis for any unpaid and outstanding trade credit extended during these
Chapter 11 Cases.
11. Notwithstanding anything to the contrary set forth in
this Order, including paragraph 10 of this Order, the security interests in
and liens of Congress upon the Collateral shall not have priority over the
senior liens on the Debtors' property (including Bank One), provided,
that, (i) such liens are valid, perfected and non-voidable in accordance
with applicable law and (ii) the foregoing is without prejudice to the
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rights of the Debtors, the Committee or any other party in interest,
including Congress, to object to the allowance of such liens or institute
any actions or adversary proceedings with respect thereto. All net
proceeds of Bank One's collateral shall, subject to (i) and (ii)
immediately above, be paid to Bank One upon sale or other disposition of
Bank One's collateral. All such creditors, including Bank One, shall
receive notice from the Debtors of the sale or other disposition of assets
in which any creditor of the estates asserts an interest other than in the
Debtors' inventory sold in the ordinary course of business.
12. Congress shall have all rights and remedies with
respect to the Debtors, the Indebtedness and the Collateral as are set
forth in the Financing Agreements and this Order.
13. The Financing Agreements shall be subject to
termination in Congress' sole and complete discretion as to any future
loans, advances and other credit accommodations to be made or provided by
Congress to the Debtors immediately upon the occurrence of any Event of
Default (as defined in the Financing Agreements) or the termination of
AWC's authorization to borrow from Congress pursuant to the Financing
Agreements or if sooner provided by Order of this Court.
14. The Debtors shall provide Congress with additional
and/or updated budgets and projections in such form and such detail as may
be reasonably requested by Congress ("Additional Budgets"), subject to
Congress' acceptance thereof for purposes hereof and of the Financing
Agreements.
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15. Congress may, in its discretion and upon receipt, apply
the proceeds of the Collateral or any other amounts received by Congress in
respect of the Indebtedness in such order or manner as Congress may deem
appropriate, including, first to the Pre-Petition Debt until such Pre
Petition Debt is paid and satisfied in full.
16. If on or after December 31, 1996, the Debtors are still
in possession of their assets, and have not yet sold in the ordinary course
of their businesses, or liquidated pursuant to an Order of this Court,
substantially all of the assets of the Debtors located in the State of
Connecticut, and Congress has not been granted relief from the automatic
stay pursuant to paragraphs 24, 30 or 32 of this Order, then neither the
Debtors nor the Committee will, subject to the terms set forth below,
oppose the terms and conditions of one or more applications of Congress for
Bankruptcy Court approval to conduct one or more sales of these assets at
either public auction (without reserve), or private sale. Such sale or
sales shall be conducted pursuant to Section 363 of the Bankruptcy Code, on
notice to creditors and subject to higher and better offers, until
substantially all of the Debtors' assets remaining in Connecticut have been
sold. The net proceeds of these sales, after payment in full of all
expenses, shall be paid to Congress until the Congress Indebtedness shall
be indefeasibly paid in full. If on or after December 31, 1996 Congress
chooses in its discretion to liquidate the Collateral located in
Connecticut, then Congress shall give written notice to Bank One, the
Debtors and the Committee. Thereafter and for a period of forty-five (45)
days, the parties will attempt to sell to a mutually acceptable buyer or
buyers the Collateral located in Connecticut as going concerns. If
unsuccessful, then the parties will choose a mututally acceptable
liquidator or auctioneer and thereafter liquidate the Collateral located
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in Connecticut. These terms of sale shall not in any manner adversely
affect the validity, extent or priority of any liens granted to Congress.
17. In accordance with Sections 552(b) and 361 of the Code,
the value, if any, in any of the Collateral, in excess of the amount of the
Indebtedness secured by such Collateral after satisfaction of the post
petition obligations, liabilities and indebtedness of the Debtors to
Congress, shall constitute additional security for the repayment of the Pre
Petition Debt and adequate protection for the use by the Debtors of the
Collateral.
18. This Order shall be sufficient and conclusive evidence
of the validity, perfection and priority of all of the security interests
and mortgages in and liens upon the property of the estates of the Debtors
granted to Congress as set forth herein, without the necessity of filing,
recording or serving any financing statements, mortgages or other documents
which may otherwise be required under federal or state law in any
jurisdiction or the taking of any other action to validate or perfect the
security interests and liens granted to Congress in this Order and the
Financing Agreements. Such security interests, mortgages and liens granted
to Congress shall be prior and senior to all security interests, liens,
claims, and encumbrances of all other creditors in and to such property,
except for prior liens permitted in the Financing Agreements to the extent
entitled to priority as provided in paragraph 11 of this Order and the
Financing Agreements. If Congress shall, in its discretion, elect for any
reason to file any such financing statements, mortgages or other documents
with respect to such security interests and liens, the Debtors are
authorized and directed to execute, or cause to be executed, all such
financing statements, mortgages or other documents upon Congress'
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reasonable request and the filing, recording or service thereof (as the
case may be) of such financing statements, mortgages or similar documents
shall be deemed to have been made at the time of and on the Petition Date.
Congress may, in its discretion, file a certified copy of this Order in any
filing or recording office in any county or other jurisdiction in which the
Debtors have an interest in real or personal property and, in such event,
the subject filing or recording officer is authorized and directed to file
or record such certified copy of this Order.
19. The Debtors are hereby authorized and directed to
perform all acts, and execute and comply with the terms of such other
documents, instruments, and agreements in addition to the above Financing
Agreements, as Congress may reasonably require as evidence of and for the
protection of the Indebtedness and the Collateral or which may be otherwise
deemed necessary by Congress to effectuate the terms and conditions of this
Order and the Financing Agreements, each of such documents, instruments,
and agreements being included in the definition of "Financing Agreements"
contained herein.
20. The Debtors are authorized and directed either to
deposit or cause to be deposited into the Blocked Accounts (as hereinafter
defined), or to remit, in kind, immediately to Congress all monies, checks,
drafts and any other payments received from its account debtors and other
parties, now or hereafter obligated to pay one or more of the Debtors for
inventory or other property of the estate, before depositing said payment.
Congress is authorized to apply such payments and proceeds received by it
to the Indebtedness as set forth in this Order and the Financing
Agreements.
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21. The Debtors are each authorized and directed, at
Congress' request, to: (a) continue the existing Blocked Account agreements
with CoreStates Bank, N.A., formerly known as Philadelphia National Bank
(collectively, the "Blocked Account"), and such other banks as are
designated in the Financing Agreements, and any bonding requirements set
forth in Section 345 of the Bankruptcy Code, if applicable, are hereby
waived; (b) deposit all proceeds of Collateral received by one or more of
the Debtors into the Blocked Account established for the benefit of
Congress; (c) instruct all account debtors and other parties, now or
hereafter obligated to pay one or more of the Debtors for goods and
services provided by the Debtors to them, or for inventory or other
property of the Debtors' estates in which Congress has a security interest,
to remit such payments to the Blocked Account, or, at Congress' election,
directly to Congress; and (d) enter into such agreements as may be
necessary to effectuate the foregoing.
22. The Debtors are authorized and directed to remit, or
cause to be remitted, to Congress, all monies, checks, drafts and all cash
proceeds of the Collateral now in the possession of the Debtors or any
other party, or hereafter coming into the possession of the Debtors or any
other party, and Congress is authorized to apply such monies and cash
proceeds and the proceeds of any checks and drafts thereof as set forth in
this Order and the Financing Agreements.
23. The Debtors are authorized and directed, without
further order of this Court, to pay or reimburse Congress for all present
and future reasonable costs and expenses, including attorneys' fees and
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legal expenses, paid or incurred by Congress to effectuate the financing
transactions as provided in this Order and the Financing Agreements, all of
which unpaid fees, commissions, costs and expenses shall be and are
included as part of the principal amount of the Indebtedness, and shall be
secured by the Collateral.
24. The automatic stay provisions of Section 362 of the
Bankruptcy Code are vacated and modified to the extent necessary to permit
Congress to implement the terms and conditions of the Financing Agreements
and the provisions of this Order.
25. The Debtors are authorized and directed to deliver to
Congress, unless there is a written waiver by Congress in each instance,
all of the documentation, balance sheets, statements of profit and loss,
financial statements, cash flow and other projections, earnings forecasts,
schedules, agings, reports, schedules, financial statements, assignments,
insurance policies and endorsements, access, inspection, audits and other
information which the Debtors are required to provide to Congress under the
Financing Agreements and the Committee.
26. For all Indebtedness of the Debtors to Congress now
existing or hereafter arising pursuant to the Financing Agreements or
otherwise, and in addition to the foregoing, Congress is granted an allowed
super-priority administrative claim in accordance with Section 364(c)(1) of
the Bankruptcy Code having priority in right of payment over any and all
other obligations, liabilities and indebtedness of the Debtors, now in
existence or hereafter incurred by the Debtors and over any and all
administrative expenses or priority claims of the kind specified in, or
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ordered pursuant to, Sections 326, 330, 331, 503(b), 506(c) or 507(b) of
the Bankruptcy Code.
27. The super priority administrative expense claim, and
the security interests and liens granted to Congress pursuant to the Final
Financing Order and the Financing Agreements, shall be subject and
subordinate to (1) the allowance of compensation for services rendered and
reimbursement of expenses incurred by professionals retained by the
Committee (determined without regard to fees and expenses that may be paid
on an interim basis), provided, however, that Congress shall not be
responsible for the payment or reimbursement of any fees or disbursements
of the Committee incurred in connection with the assertion or joinder in
any claim, counter-claim, action, proceeding, application, motion,
objection, defense or other contested matter, the purpose of which is to
seek any order, judgment, determination or similar relief: (i)
invalidating, setting aside, avoiding, subordinating, in whole or in part,
the Indebtedness or Congress' liens and security interests in any of the
Collateral; or (ii) preventing, hindering or delaying, whether directly or
indirectly, Congress' assertion, enforcement or realization upon any
Collateral; (2) fees required to be paid to the Office of the United States
Trustee under 28 U.S.C. Section 1930(a)(6), and (3) the actual and
necessary expenses, other than compensation and reimbursement pursuant to
Section 503(b)(1) of the Bankruptcy Code, incurred by a member of the
Committee, if such expenses are incurred in the performance of the duties
of the Committee (determined without regard to expenses that may be paid on
an interim basis) ((1) through (3) are collectively referred to herein as
the "Chapter 11 Professionals"); provided however, that the aggregate
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amount of the Chapter 11 Professionals' fees and expenses entitled to
priority over the super priority administrative expense claim and liens and
security interests of Congress shall not exceed Two Hundred and Fifty
Thousand ($250,000) Dollars (the "Carve Out").
28. Except as provided in paragraph 10(f) hereof, the
Debtors shall not sell, transfer, lease, encumber or otherwise dispose of
any portion of the property of its estate without the prior written consent
of Congress (and no such consent shall be implied from any other action,
inaction or acquiescence by Congress), except (a) for sales of the Debtors'
inventory in the ordinary course of its business or (b) on an unsecured or
junior secured basis subordinate in all respects to the liens,
administrative claims and rights of Congress and on terms acceptable to
Congress.
29. No costs or expenses of administration which have or
may be incurred in the Debtors' Chapter 11 Cases, any conversion of any of
the Debtors' Chapter 11 Cases pursuant to Section 1112 of the Bankruptcy
Code, pursuant to Section 506(c) of the Bankruptcy Code, or in any future
proceedings or cases related hereto, shall be charged against Congress, its
claims, or the Collateral, without the prior written consent of Congress,
and no such consent shall be implied from any other action, inaction or
acquiescence by Congress and no obligations incurred or payments or other
transfers made by or on behalf of the Debtors on account of the financing
arrangements with Congress shall be avoidable or recoverable from Congress
under Sections 547, 548, 550, 553 or any other provision of the Bankruptcy
Code.
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30. In the event of the occurrence of any of the following:
(a) the failure of one or more of the Debtors to perform in any material
respect any of its obligations pursuant to this Order, (b) the occurrence
of any "Event of Default" under the Financing Agreements, (c) failure to
comply with the Budget (as such Budget may be amended from time to time),
as provided for at paragraph 31 hereof, (d) the termination or non-renewal
of the Financing Agreements as provided for in the Financing Agreement, or
if sooner provided for by Order of this Court, (e) conversion of one or
more of the Debtors' Chapter 11 Cases to a case under chapter 7 of the
Bankruptcy Code, (f) the appointment of a Trustee appointed pursuant to
Section 1104(a)(1) of the Bankruptcy Code, or appointed pursuant to Section
1104(a)(2) of the Bankruptcy Code, in one or more of the Debtors' Chapter
11 Cases, (g) the entry of any order modifying, reversing, revoking,
staying, rescinding, vacating or amending this Order without the express
prior written consent of Congress (and no such consent shall be implied
from any other action, inaction or acquiescence by Congress), or (h) the
filing of a plan of reorganization by the Debtors or jointly with the
Debtors which does not provide for the payment in full of the Indebtedness
on confirmation (the foregoing being referred to in this Order,
individually, as an "Event of Default," and collectively, "Events of
Default"); then (unless such Event of Default is specifically waived in
writing by Congress, which waiver shall not be implied from any other
action, inaction or acquiescence by Congress) and upon or after the
occurrence of any of the foregoing, and at all times thereafter, after
giving five (5) business days notice in writing, served by overnight
delivery service or telefax upon each of a representative of the Debtors,
the Debtors' Counsel, counsel to the Committee, if any, a Trustee if
appointed and the United States Trustee: (1) all of the Indebtedness shall
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become immediately due and payable, and (2) Congress shall be entitled to
the entry of an Order vacating or modifying the automatic stay provided for
pursuant to Section 362 of the Bankruptcy Code and any other restriction on
the enforcement of its liens and security interests or any other rights
under the Financing Agreements granted to Congress or pursuant to this
Order, and (3) Congress, without further notice, hearing or approval of the
Court, shall be and is hereby authorized, in its discretion, to take any
and all actions or remedies which Congress may deem appropriate to proceed
against and realize upon the Collateral and any other property of the
Debtors' estate upon which Congress has been or may hereafter be granted
liens and security interests to obtain repayment of the Indebtedness.
Congress shall have no obligation to lend or advance any additional funds
to AWC or provide other financial accommodations to the Debtors upon or
after the occurrence of an Event of Default.
31. Having prepared weekly Cash Flow Projections, dated
July 12, 1996 through the week ending September 27, 1996, a copy of which
is annexed as Exhibit "E" to the Interim Financing Order, the Debtors shall
prepare, by no later than August 15, 1996, in form and substance acceptable
to Congress, weekly cash flow projections for the period October 4, 1996
through and including December 31, 1996, in form and substance
substantially similar to the weekly Cash Flow Projections previously
prepared and dated July 12, 1996. It shall be an Event of Default, as
provided for in the Financing Agreements and pursuant to this Order, if,
for any consecutive four week period commencing July 15, 1996, the New
Receivables, as that term appears in the Cash Flow Projections, is fifteen
(15%) percent or more below the amount reflected in the Budget, or if the
Ending Availability, as that term appears in the Budget, for any
consecutive four week period commencing July 15, 1996, is fifteen (15%)
percent or more below the amount reflected in the Budget.
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32. Unless an Event of Default set forth in Paragraph 30
above occurs sooner, upon the expiration of AWC's authority to borrow from
Congress pursuant to this Order, all of the Indebtedness shall immediately
become due and payable and Congress shall be automatically and completely
relieved from the effect of any stay, including, without limitation, any
stay under Section 362 of the Bankruptcy Code or any other restriction on
the enforcement of the liens and security interests or any other rights
granted to Congress pursuant to the terms and conditions of the Financing
Agreements or this Order, and Congress shall be and is hereby authorized,
in its discretion, to take any and all actions and remedies which Congress
may deem appropriate and to proceed against and realize upon the Collateral
and any other property of the estates of the Debtors upon which it has been
or may hereafter be granted liens and security interests to obtain
repayment of the Indebtedness, including, without limitation, all such
actions and remedies set forth in the Financing Agreements (except if the
authority of the Debtors to borrow from Congress shall be extended with the
prior written consent of Congress, which consent shall not be implied from
any other action, inaction or acquiescence by Congress).
33. Until all of the Indebtedness shall have been
indefeasibly paid and satisfied in full: (a) no other party shall
foreclose or otherwise seek to enforce any junior lien or other right such
other party may have in and to the Collateral and (b) upon and after the
occurrence of an Event of Default, and prior to Congress being granted
relief from the automatic stay, Congress, in its discretion, in connection
with the liquidation of any of the Collateral may use any real or personal
property, equipment, trademarks, tradenames, copyrights, licenses, patents
or any other assets of the Debtors owned by or subject to a lien or lease
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of any third party and which is used by the Debtors in its business subject
only to the payment of reasonable and ordinary use and occupation charges.
34. Upon the payment in full of all Indebtedness due Congress,
Congress and the Debtors shall each be released from any and all
obligations pursuant to the terms of this Order and/or the Financing
Agreements.
35. All post-petition advances under the Financing
Agreements are made in reliance on this Order and there shall not at any
time be entered in any of the Debtors' Chapter 11 Cases any order which (a)
authorizes the use of cash collateral of the Debtors in which Congress has
an interest, or the sale, lease, or other disposition of property of the
estates of the Debtors in which Congress has a lien or security interest or
(b) under Section 364 of the Bankruptcy Code authorizes the obtaining of
credit or the incurring of indebtedness secured by a lien or security
interest which is equal or senior to a lien or security interest in
property in which Congress holds a lien or security interest, or which is
entitled to priority administrative claim status which is equal or superior
to that granted to Congress herein; unless, in each instance (i) Congress
shall have given its express prior written consent thereto, no such consent
being implied from any other action, inaction or acquiescence by Congress,
or (ii) such other order requires that the Congress Indebtedness shall
first be indefeasibly paid in full, including all debts and obligations of
the Debtors to Congress which arise or result from the obligations, loans,
security interests and liens authorized herein. The security interests and
liens granted to Congress hereunder and the rights of Congress pursuant to
this Order with respect to the Indebtedness and the Collateral shall not be
altered, modified, extended, impaired, or affected by any plan of
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reorganization of the Debtors and, if Congress shall expressly consent in
writing that the Indebtedness shall not be repaid in full upon confirmation
thereof, shall continue after confirmation and consummation of any such
plan.
36. In making advances to AWC under the Financing
Agreements or by collecting the Indebtedness and obligations due from the
Debtors, Congress shall not be deemed to be in control of the operations of
the Debtors or to be acting as a "responsible person" or "owner" or
"operator" with respect to the operation or management of the Debtors,
including, without limitation, with respect to the Collateral or any real
property not part of the Collateral (as such terms, or any similar terms,
are used in the United States Comprehensive, Environmental Response,
Compensation and Liability Act, as amended or any similar federal or state
statute).
37. The provisions of this Order and any actions taken
pursuant hereto shall survive entry of any order which may be entered
converting one or more of the Debtors' Chapter 11 Cases to a chapter 7 case
or any order which may be entered confirming or consummating any plan of
reorganization of one or more of the Debtors, and the terms and provisions
of this Order as well as the priorities in payment, liens, and security
interests granted pursuant to this Order and the Financing Agreements shall
continue in these cases, whether they are under chapter 11 or chapter 7 of
the Bankruptcy Code, and such priorities in payment, liens and security
interests shall maintain their priority as provided by this Order until
all Indebtedness is indefeasibly paid and satisfied; provided, that, all
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obligations and duties of Congress hereunder, under the Financing
Agreements or otherwise with respect to any future loans and advances or
otherwise shall terminate immediately upon the earlier of the date of any
Event of Default or the date that a plan of one or more of the Debtors
becomes effective unless Congress has given its express prior written
consent thereto, no such consent being implied from any other action,
inaction or acquiescence by Congress.
38. The provisions of this Order shall inure to the benefit
of the Debtors and Congress and shall be binding upon each of the Debtors
and Congress and their respective successors and assigns, including any
Trustee or other fiduciary hereafter appointed as a legal representative of
the Debtors or with respect to property of the estates of the Debtors,
whether under chapter 11 of the Bankruptcy Code or any subsequent chapter 7
case, and shall also be binding upon all creditors of the Debtors and other
parties in interest.
39. If any or all of the provisions of this Order are
hereafter modified, vacated or stayed, such modification, vacation or stay
shall not affect (a) the validity of any obligation, indebtedness or
liability incurred by the Debtors to Congress prior to the effective date
of such modification, vacation or stay, or (b) the validity or
enforceability of any security interest, lien, or priority authorized or
created hereby or pursuant to the Financing Agreements. Notwithstanding
any such modification, vacation or stay, any indebtedness, obligations or
liabilities incurred by the Debtors to Congress prior to the effective
date of such modification, vacation or stay shall be governed in all
respects by the provisions of this Order, and Congress shall be entitled
to all the rights, remedies, privileges and benefits granted herein and
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pursuant to the Financing Agreements with respect to all such
indebtedness, obligations or liabilities. The obligations and
indebtedness of the Debtors to Congress under the Financing Agreements
shall not be discharged by the entry of an order confirming a plan of
reorganization in these Chapter 11 Cases and, pursuant to Section
1141(d)(4) of the Bankruptcy Code, unless and until Congress is paid in
full prior to or concurrently with the entry of such order.
40. The Debtors irrevocably waive any right to seek any
modifications or extensions of this Order without the prior written
consent of Congress, and no such consent shall be implied by any other
action, inaction or acquiescence by Congress.
41. To the extent the terms and conditions of the
Financing Agreements are in conflict with the terms and conditions of this
Order, the terms and conditions of this Order shall control.
42. The terms of the financing arrangements between the
Debtors and Congress were negotiated in good faith and at arms' length
between the Debtors and Congress and any advances which are caused to be
made to AWC by Congress pursuant to the Financing Agreements are deemed to
have been extended in good faith, as the term is used in Section 364(e) of
the Bankruptcy Code, and shall be entitled to the full protection of
Section 364(e) of the Bankruptcy Code in the event that this Order or any
provision hereof is vacated, reversed or modified, on appeal or otherwise.
Dated: Wilmington, Delaware
August , 1996
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UNITED STATES BANKRUPTCY JUDGE
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