UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5005
SELAS CORPORATION OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1069060
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
DRESHER, PENNSYLVANIA 19025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(215) 646-6600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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.
(X) YES ( ) NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT OCTOBER 28, 1998
COMMON SHARES, $1.00 PAR VALUE 5,251,517 (exclusive of 363,564
treasury shares)
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SELAS CORPORATION OF AMERICA
I N D E X
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 . . . . . 3, 4
Consolidated Statements of Operations for the
Three Months Ended September 30, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1998 and 1997. . . 6
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1998 and 1997 . . . . . . . . . . . . . . . . . . 7
Consolidated Statement of Shareholders' Equity
for the Nine Months Ended September 30, 1998 . . . 8
Notes to Consolidated Financial Statements . . . 9, 10, 11,
12,13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 14,15,16,
17,18,19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . 20
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SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Assets
September 30, December 31,
1998 1997
(Unaudited) (Audited)
Current assets
Cash, including cash equivalents of
$1,853,000 in 1998 and $2,579,000
in 1997 . . . . . . . . . . . . . . $ 4,177,680 $ 3,034,903
Accounts receivable (including unbilled
receivables of $4,887,000 in 1998
and $6,574,000 in 1997, less allowance
for doubtful accounts of $1,090,000 in
1998 and $681,000 in 1997) . . . . . 30,759,111 30,931,625
Inventories . . . . . . . . . . . . . 14,187,131 9,999,140
Deferred income taxes . . . . . . . . 2,227,717 2,840,423
Other current assets . . . . . . . . . 1,455,383 919,608
Total current assets . . . . . . . 52,807,022 47,725,699
Investment in unconsolidated affiliate . 473,635 472,689
Property, plant and equipment
Land . . . . . . . . . . . . . . . . 1,077,522 1,041,869
Buildings . . . . . . . . . . . . . . 11,297,043 10,839,950
Machinery and equipment . . . . . . . 26,121,249 22,720,633
38,495,814 34,602,452
Less: Accumulated depreciation . . . 19,718,360 17,284,665
Net property, plant and equipment . 18,777,454 17,317,787
Deferred pension cost. . . . . . . . . . 15,636 56,973
Deferred income taxes . . . . . . . . . 1,675 --
Excess of cost over net assets of acquired
subsidiaries less accumulated amortization
of $2,168,000 and $1,696,000 . . . . . 16,206,327 15,502,201
Other assets including patents, less
amortization . . . . . . . . . . . . . 614,134 719,715
$88,895,883 $81,795,064
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
September 30, December 31,
1998 1997
(Unaudited) (Audited)
Current liabilities
Notes payable . . . . . . . . . . . . . . $ 5,102,794 $ 975,804
Current maturities of long-term debt . . 3,220,635 2,618,463
Accounts payable . . . . . . . . . . . . 14,001,942 14,336,607
Federal, state and foreign income taxes . 855,004 693,240
Customers' advance payments on contracts 2,052,162 902,592
Guarantee obligations and estimated
costs of service . . . . . . . . . . . 2,841,544 2,705,293
Other accrued liabilities . . . . . . . 6,362,394 6,851,846
Total current liabilities . . . . 34,436,475 29,083,845
Long-term debt . . . . . . . . . . . . 6,985,602 7,015,080
Pension plan obligation . . . . . . . . 15,636 56,973
Other postretirement benefit obligations 3,952,476 4,024,217
Deferred income taxes. . . . . . . . . . -- 1,215,436
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 5,591,524 and 5,589,324
shares issued, respectively. . . . . . 5,591,524 5,589,324
Additional paid-in capital . . . . . . 11,801,383 11,792,878
Retained earnings . . . . . . . . . . . 25,667,530 23,130,255
Accumulated other comprehensive income 827,194 268,993
Less: 363,564 common shares held in
treasury, at cost . . . . . . . (381,937) (381,937)
Total shareholders' equity . . . 43,505,694 40,399,513
$88,895,883 $81,795,064
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30, September 30,
1998 1997
Sales, net $25,202,822 $28,328,138
Operating costs and expenses
Cost of sales 19,420,092 22,852,879
Selling, general and
administrative expenses 4,382,623 3,735,121
Operating income 1,400,107 1,740,138
Interest (expense) (298,873) (247,341)
Interest income 34,477 71,872
Other income (expense), net 314,575 156,937
Income before income taxes 1,450,286 1,721,606
Income taxes 532,503 582,448
Net income $ 917,783 $ 1,139,158
=========== ===========
Earnings per share
Basic
Income per common and
common equivalent share $.18 $.22
=========== ===========
Weighted average common
shares outstanding 5,228,000 5,214,000
Diluted
Income per common and
common equivalent share $.17 $.21
=========== ===========
Weighted average common
shares outstanding 5,308,000 5,373,000
Comprehensive income $ 1,538,995 $ 1,103,761
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended
September 30, September 30,
1998 1997
Sales, net $72,291,184 $86,334,612
Operating costs and expenses
Cost of sales 54,765,344 67,931,495
Selling, general and
administrative expenses 13,314,715 11,632,796
Operating income 4,211,125 6,770,321
Interest (expense) (841,114) (764,952)
Interest income 82,154 207,360
Other income (expense), net 258,979 (146,599)
Income before income taxes 3,711,144 6,066,130
Income taxes 468,235 2,385,789
Net income $ 3,242,909 $ 3,680,341
=========== ===========
Earnings per share
Basic
Income per common and
common equivalent share $.62 $.71
=========== ===========
Weighted average common
shares outstanding 5,227,000 5,212,000
Diluted
Income per common and
common equivalent share $.61 $.69
=========== ===========
Weighted average common
shares outstanding 5,315,000 5,322,000
Comprehensive income $ 3,801,110 $ 2,930,990
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30, September 30,
1998 1997
Cash flows from operating activities:
Net income . . . . . . . . . . . . . $ 3,242,909 $ 3,680,341
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization . . . 2,794,372 2,608,439
Equity in (income) of unconsoli-
dated affiliate . . . . . . . . . (946) (1,967)
(Gain) loss on sale of property and
equipment . . . . . . . . . . . (905) 6,105
Deferred taxes . . . . . . . . . . (576,420) (508,732)
Changes in operating assets and liabilities:
Decrease in accounts receivable . 2,001,507 3,507,647
(Increase) in inventories . . . . . (2,658,561) (1,674,593)
(Increase) decrease in other assets 6,199 (360,902)
Increase (decrease) in accounts
payable . . . (1,248,454) 965,971
(Decrease) in accrued expenses . . (1,838,257) (2,508,456)
Increase (decrease) in customer
advances . . . . . . . . . . . 23,033 (4,206,834)
Increase (decrease) in other
liabilities . . 3,042 (10,653)
Net cash provided by
operating activities . . . . . 1,747,519 1,496,366
Cash flows from investing activities:
Purchases of property, plant and
equipment . . . . . . . . . . . . . (2,680,254) (2,592,533)
Proceeds from sale of property, plant
and equipment . . . . . . . . . . . 5,900 8,052
Acquisition of subsidiary companies,
net of cash acquired . . . . . . . . (1,748,568) (5,151,620)
Net cash (used) by investing
activities . . . . . . . . . (4,422,922) (7,736,101)
Cash flows from financing activities:
Proceeds from short-term bank
borrowings 3,956,107 670,119
Proceeds from long-term borrowings -- 176,793
Proceeds from borrowings to acquire
subsidiary company . . . . . . . . . 2,495,840 3,500,000
Repayments of short-term bank
borrowings . . . . . . . . . . . . . -- (7,404)
Repayments of long-term debt . . . . (2,201,731) (2,192,339)
Proceeds from exercise of stock
options . . . . . . . . . . . . . . 10,196 91,269
Payment of dividends . . . . . . . . (705,634) (695,065)
Net cash provided by
financing facilities . . . . . 3,554,778 1,543,373
Effect of exchange rate changes on
cash . . . . . . . . . . . . . . . . 263,402 (615,586)
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . 1,142,777 (5,311,948)
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . 3,034,903 8,343,820
Cash and cash equivalents, end of
period . . . . . . . . . . . . . . . $ 4,177,680 $ 3,031,872
=========== ===========
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SELAS CORPORATION OF AMERICA
Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 1998
(Unaudited)
Common Stock Additional
Number of Paid-In
Shares Amount Capital
Balance, January 1, 1998 5,589,324 $5,589,324 $11,792,878
Net income
Exercise of stock options 2,200 2,200 8,505
Cash dividends paid
($.135 per share)
Foreign currency translation
gain
Comprehensive income
Balance, September 30, 1998 5,591,524 $5,591,524 $11,801,383
========= ========== ===========
Accumulated
Other
Retained Comprehensive Comprehensive
Earnings Income Income
Balance, January 1, 1998 $23,130,255 $ 268,993
Net income 3,242,909 $3,242,909
Exercise of stock options
Cash dividends paid
($.135 per share) (705,634)
Foreign currency translation
gain 558,201 558,201
Comprehensive income $3,801,110
==========
Balance, September 30, 1998 $25,667,530 $ 827,194
========== ==========
Total
Treasury Shareholders'
Stock Equity
Balance, January 1, 1998 $ (381,937) $40,399,513
Net income 3,242,909
Exercise of stock options 10,705
Cash dividends paid
($.135 per share) (705,634)
Foreign currency translation
gain 558,201
Comprehensive income
Balance, September 30, 1998 $ (381,937) $43,505,694
========== ==========
(See accompanying notes to the consolidated financial statements)
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
1. In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly Selas Corporation of
America's consolidated financial position as of September 30, 1998 and
December 31, 1997, and the consolidated results of its operations for
the three and nine months ended September 30, 1998 and 1997 and
consolidated statements of shareholders' equity and cash flows for the
nine months then ended. The interim operating results are not
necessarily indicative of the results to be expected for an entire
year.
2. The accounting policies followed by the Company are set forth in note 1
to the Company's financial statements in the 1997 Selas Corporation of
America Annual Report.
3. Acquisitions
In February, 1998, the Company acquired the stock of CFR, a Paris,
France firm in the engineered industrial furnace business. The
principal market served by CFR is engineered batch and continuous
furnaces for heat treating both ferrous and non-ferrous metals, along
with supplying furnaces for the hardening and etching of glass and
ceramic tableware. CFR had sales for the year ended December 31, 1997
of 107.5 million French francs (FF) or approximately $18.3 million.
The purchase price was 15 million FF or approximately $2.5 million
which was paid for by additional bank borrowings of 15 million FF at a
fixed rate of 5.65% which requires quarterly payments of FF 750,000 for
5 years. During the second quarter of 1998, the Company also acquired
the remaining minority interest in SEER, a Givry, France firm which
specializes in automating, controlling and monitoring industrial
processes. The majority interest in SEER was acquired by the Company
with the purchase of CFR.
In May, 1998, a subsidiary of the Company acquired the stock of IMB
Electronic Products, Inc., a Santa Fe Springs, CA firm that produces
precision electro-mechanical parts for the telecommunications and audio
industries. IMB manufactures film capacitors which are energy storage
devices used primarily to resist changes in voltage. IMB had sales for
fiscal 1997 of $2.9 million. The purchase price was $1.3 million which
was paid in cash.
These acquisitions have been accounted for as purchases and the results
of CFR, SEER and IMB have been included in the accompanying
consolidated financial statements since the dates of the acquisitions.
The purchase price was allocated to assets and liabilities based on the
estimated fair value as of the dates of the acquisitions. Such
allocations have been based on preliminary estimates of fair value
which may be revised at a later date.
In February 1997, the Company acquired the assets and certain
liabilities of the Rodan Division of Ketema, Inc. Under the
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
3. Acquisitions (Continued)
Purchase Agreement, the Company agreed to deliver to Ketema additional
purchase price, payable in the Company's Common Shares, based upon the
performance of the acquired business during a one year period ending
in February 1998. In October 1998, the Company tendered 23,557 Common
Shares to Ketema in satisfaction of this requirement.
4. Inventories consist of the following:
September 30, December 31,
1998 1997
Raw material $3,695,033 $3,054,544
Work-in-process 4,939,476 2,721,964
Finished products and
components 5,552,622 4,222,632
Total $14,187,131 $9,999,140
=========== ==========
5. Income Taxes
Consolidated income taxes for the nine month periods ended September
30, 1998 and 1997 are $468,000 and $2,386,000 which result in
effective tax rates of 12.6% and 39.3%, respectively. The rate of
tax in relation to pre-tax income in 1998 is lower because in the
second quarter, the Company reduced the valuation allowance applied
against domestic postretirement benefit obligations by $724,512 and
against certain domestic employee pension plan obligations by
$33,694. The reduction in the valuation allowance was based on
several factors including: recent acquisitions, future income
projections, past earnings history and trends, reasonable and prudent
tax planning strategies, and the expiration dates of carryforwards.
The Company has determined that it is more likely than not that the
$758,206 of deferred tax assets will be realized. The remaining
valuation allowance of approximately $863,971 is maintained against
deferred tax assets which the Company has determined are not more
than likely to be realized.
6. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 215 lawsuits as of December 31, 1997 (155 as of
December 31, 1996) alleging that plaintiffs have or may have
contracted asbestos-related diseases as a result of exposure to
asbestos products or equipment containing asbestos sold by one or
more named defendants. Due to the noninformative nature of
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)-
(Continued)
6. Legal Proceedings (continued)
the complaints, the Company does not know whether any of the
complaints state valid claims against the Company. The Company is
also one of approximately 500 defendants in a class action on behalf
of approximately 2,700 present or former employees of a Texas steel
mill alleging that products supplied by the defendants created a
poisonous atmosphere that caused unspecified physical harm. These
cases are being defended by one or more of the Company's insurance
carriers presently known to be "at risk." The lead carrier has
settled approximately 11 and 17 claims in 1997 and 1996,
respectively, with no request for the Company to participate in any
settlement. The lead carrier has informed the Company that the
primary policy for the period July 1, 1972 - July 1, 1975 has been
exhausted and that the lead carrier will no longer provide a defense
under that policy. The Company has requested that the lead carrier
substantiate this situation. The Company has contacted
representatives of the Company's excess insurance carrier for some or
all of this period. The Company does not believe that the asserted
exhaustion of the primary insurance coverage for this period will
have a material adverse effect on the financial condition, liquidity,
or results of operations of the Company. Management is of the
opinion that the number of insurance carriers involved in the defense
of the suits and the significant number of policy years and policy
limits to which these insurance carriers are insuring the Company
make the ultimate disposition of these lawsuits not material to the
Company's consolidated financial position or results of operations.
In 1995, a dispute which was submitted to arbitration, arose under a
contract between a customer and a subsidiary of the Company.
Substantial claims were asserted against the subsidiary Company under
the terms of the contract. The Company recorded revenue of
approximately $1,400,000 in 1994 and has an uncollected receivable of
$140,000. The Company believes that the disposition of this claim
will not materially affect the Company's consolidated financial
position or results of operations.
7. Statements of Cash Flows
Supplemental disclosures of cash flow information:
Nine Months Ended
September 30, September 30,
1998 1997
Interest received . . . . . . . $ 76,544 $ 176,480
Interest paid . . . . . . . . . $ 717,955 $ 660,870
Income taxes paid . . . . . . . $1,613,440 $1,469,521
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)-
(Continued)
8. Accounts Receivable
At September 30, 1998, the Company had $2,095,986 of trade accounts
receivable due from major U.S. automotive manufacturers and $3,533,137
of trade accounts receivable due from hearing aid manufacturers. The
Company also had $10,971,351 in receivables from long-term contracts for
customers in the steel industry in North America, Europe and Asia.
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
(Continued)
9. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
For the Three Months
Ended September 30, 1998
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $ 917,783 5,227,525 $ .18
=========
Effect Of Dilutive Securities
Stock options 56,969
Earnings contingency 23,557
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $ 917,783 5,308,051 $ .17
=====================================
For the Nine Months
Ended September 30, 1998
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $3,242,909 5,226,781 $ .62
=========
Effect Of Dilutive Securities
Stock options 64,659
Earnings contingency 23,557
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $3,242,909 5,314,997 $ .61
=====================================
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Consolidated net sales decreased to $25.2 million and $72.3 million for the
three and nine months ended September 30, 1998 compared to $28.3 million
and $86.3 million for the same periods ended September 30, 1997. Net sales
for the heat processing segment decreased to $12.1 million and $32.9
million for the three and nine month periods ended September 30, 1998
compared to $16.4 million and $51 million for the same periods in 1997.
The decline in sales for the three and nine month periods was due in part
to lower sales backlog of large engineered contracts as of the beginning of
fiscal year 1998 as compared to the beginning of fiscal year 1997. The
February, 1998 acquisition of CFR, a French Company, generated sales of
$3.5 million and $8.6 million for the quarter and year-to-date which
partially offset some of the sales decline for the periods. Sales and
earnings of large engineered contracts are recognized on the percentage-of-
completion method and generally require more than twelve months to
complete. Consolidated backlog for the heat processing segment was up to
$26.4 million at September 30, 1998 compared to $16.9 million for the same
period in 1997. Sales for the Company's precision electromechanical and
plastics components segment increased to $9.5 million and $27.4 million for
the three and nine month periods ended September 30, 1998 compared to $8.6
million and $24.6 million for the same periods in 1997. The increase in
sales is partially attributable to the acquisition of RTI Electronics
(RTIE) in February 1997 and IMB Electronic Products Inc. (IMB) in May 1998.
Also impacting this segment's increased sales were higher sales of hybrid
electromechanical systems and plastic component sales to its hearing health
customers. Sales for the tire holders, lifts and related products segment
increased to $3.6 million and $12 million for the three and nine months
ended September 30, 1998 compared to $3.3 million and $10.7 million for the
same periods last year. The increased sales are due to higher unit sales
of the Company's tire lifts to the automotive industry.
The Company's gross profit margin as a percentage-of-sales increased to 23%
and 24.3% for the three and nine month periods ended September 30, 1998
compared to 19.3% and 21.4% for the same periods in 1997. Gross profit
margins for the heat processing segment increased to 20% and 20.9% for the
three and nine months ended September 30, 1998 compared to 11.7% and 15.6%
for the same periods in 1997. Gross profit in the heat processing segment
vary markedly from contract to contract, depending on customer
specifications and other conditions related to the contract. The third
quarter's gross profit margin in 1997 was lower than the current quarter
due to higher costs for a contract that was nearing completion last year.
Gross profit margins for the precision electromechanical and plastics
components segment
-15
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
decreased to 28.5% and 30.5% for the three and nine month periods ended
September 30, 1998 compared to 35.3% and 35.7% for the same periods in
1997. The lower gross profit margins are partially attributable to the
acquisitions of RTIE in February, 1997 and IMB in May, 1998 as their
products, while profitable, do not achieve the historical gross profit
margins of this business segment. Also impacting the lower gross profit
margins, but to a lesser degree, is the mix of product sales between the
periods as precision electromechanical and plastic components have varying
gross profit margins. Further impacting the gross profit margins for the
quarter was severe price competition from RTIE's competition. Gross profit
margins for the tire holders, lifts and related products increased to 18.7%
and 19.8% for the three and nine month periods ended September 30, 1998
compared to 15% and 16.2% for the same periods in 1997. The improved gross
profit margins are due to increased units sold and improved manufacturing
efficiencies.
Selling, general and administrative expenses increased to $4.4 million and
$13.3 million for the three and nine months ended September 30, 1998
compared to $3.7 million and $11.6 million for the same periods in 1997.
The increase is primarily due to higher selling and administrative expenses
for the companies acquired this year, CFR in February and IMB in May.
Interest expense for the three and nine months ended September 30, 1998
increased to $299,000 and $841,000 compared to $247,000 and $765,000 for
the same periods in 1997. The increase in expense is due to an increase in
outside borrowings in the current year. Interest income decreased to
$35,000 and $82,000 for the three and nine months ended September 30, 1998
compared to $72,000 and $207,000 for the same periods in 1997 due to lower
balances available for investment.
Other income (expense) includes gains on foreign exchange of $215,000 and
$222,000 for the three and nine months ended September 30, 1998 compared to
a gain of $161,000 for the three months ended September 30, 1997 and a loss
of $68,000 for the nine months ended September 30, 1997.
Consolidated income taxes for the nine month periods ended September 30,
1998 and 1997 are $468,000 and $2,386,000 which result in effective tax
rates of 12.6% and 39.3%, respectively. The rate of tax in relation to
pre-tax income in 1998 is lower because in the second quarter, the Company
reduced the valuation allowance applied against domestic postretirement
benefit obligations by $724,512 and against certain domestic employee
pension plan obligations by
-16
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
$33,694. The reduction in the valuation allowance was based on several
factors including: recent acquisitions, future income projections, past
earnings history and trends, reasonable and prudent tax planning
strategies, and the expiration dates of carryforwards. The Company has
determined that it is more likely than not that the $758,206 of deferred
tax assets will be realized. The remaining valuation allowance of
approximately $863,971 is maintained against deferred tax assets which the
Company has determined are not more than likely to be realized.
Consolidated net income for the three and nine months periods ended
September 30, 1998 is $917,000 and $3,243,000 compared to $1,139,000 and
$3,680,000 for the same periods in 1997. The lower earnings in the current
year are due to lower sales and higher selling and administrative (due
primarily to recent acquisitions) partially offset by improved gross profit
margins. The lower year-to-date earnings are also favorably impacted by a
reduction in the valuation allowance of deferred tax assets of
approximately $750,000.
Liquidity and Capital Resources
Consolidated net working capital decreased to $18.4 million at September
30, 1998 from $18.6 million at December 31, 1997. The $.2 million decrease
is due to the acquisition of CFR and IMB, dividend payments and capital
additions, partially offset by the earnings for the nine months ended
September 30, 1998. The major changes in components of working capital
were higher current liabilities of $5.4 million, due to short-term
borrowings to finance the CFR and IMB acquisitions, higher inventories of
$4.2 million (primarily acquisition related) and higher cash balances of
$1.1 million.
In May, 1998, a subsidiary of the Company acquired the stock of IMB
Electronic Products Inc. (IMB) of Santa Fe Springs, California for
approximately $1.3 million in cash. IMB is a manufacturer of film
capacitors, energy storage devices used primarily to resist changes in
voltage. The Company's sales for the year ended December 31, 1997 were
approximately $3 million.
In February, 1998, the Company acquired the stock of CFR, a Paris, France
firm in the engineered industrial furnace business. The principal market
served by CFR is engineered batch and continuous furnaces for heat treating
both ferrous and non-ferrous metals, glass and ceramic tableware. CFR had
sales for the year ended December 31, 1997 of 107.5 million French francs
(FF) or approximately $18.3 million. The purchase price was 15 million FF
or approximately $2.5 million and the assumption of certain liabilities
which was paid for by additional bank borrowings of 15 million FF which
will be paid off over five years at a fixed annual interest rate of 5.65%.
-17-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company currently has a program underway to remediate by March 31, 1999
all of the Company's significant computer systems that are not Year 2000
compliant. The program is divided into three major components: (1) identif-
ication of all information technology systems ("IT Systems") and non-
information technology systems ("Non-IT Systems") that are not Year 2000 com-
pliant; (2) repair or replacement of the identified non-compliant systems;
and (3) testing of the repaired or replaced systems. Approximately 25% of
the IT Systems the Company uses are in-house developed. Commercially devel-
oped software, the majority of which is periodically upgraded through exist-
ing maintenance contracts, accounts for the balance. Part (1) and (2) of the
Company's Year 2000 program are substantially complete. Review of
accounting and financial reporting systems is finished, and the Company is
continuing to review Non-IT Systems that have embedded microprocessors in
various types of equipment. Part (2), repairing and replacing, has been
completed for both in-house and commercially developed IT systems. Part (3),
testing, is underway and the Company has targeted March 31, 1999 as a
completion date.
The Company has been inquiring of certain key suppliers and business partners
about their Year 2000 readiness. While no assurances can be given that key
suppliers and business partners will remedy their own Year 2000 issues, the
Company to date has not identified any material impact on its ability to con-
tinue normal business operations with suppliers or other third parties who
fail to address the Year 2000 issue.
Actual costs associated with implementation of the Company's Year 2000
program are expected to be insignificant to the Company's operations and
financial condition. Costs of $75,000 to $100,000, primarily for software
and outside services, are expected to be incurred. Significantly all of
these costs are expected to be expensed.
The Company will continue to monitor and evaluate the impact of the Year
2000 issue on its operations. Until the Company has completed the final
testing part of its program, the risks from potential Year 2000 failures
cannot be fully assessed. Due to this situation, the Company cannot now
begin final contingency plans. These plans will be developed as potential
Year 2000 failures are identified in the final testing stages. Nevertheless,
if remediation is not accomplished successfully in a timely fashion and suc-
cessful contingency plans are not implemented, the Company believes the Year
2000 issue could have a material adverse effect on the Company.
-18-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
A significant portion of the heat processing segment sales are denominated
in foreign currencies, primarily the French franc. Generally, the income
statement effect of changes in foreign currencies is partially or wholly
offset by the European subsidiaries' ability to make corresponding price
changes in the local currency.
On January 1, 1999, eleven of fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their
existing currencies ("legacy currencies") and one common currency - the
Euro. The Euro will then trade on currency exchanges and may be used in
business transactions. The conversion to the Euro will eliminate currency
exchange risk between the member countries. Beginning in January 2002, new
Euro-denominated bills and coins will be issued, and legacy currencies will
be withdrawn from circulation. The Company has recognized this situation
and is currently in the process of developing a plan to address any issue
being raised by the currency conversion. Possible issues include, but are
not limited to, the need to adapt computer and financial systems to
recognize Euro-denominated transactions, as well as the impact of one
common currency on pricing. The Company anticipates these issues to be
resolved in conjunction with any Year 2000 issues. However, due to the
uncertainty of this matter, the Company can not guarantee any definite
outcome or result on operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement
standardizes the accounting for derivative instruments, including
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The statement is
effective for fiscal year beginning after June 15, 1999. Management has
not yet determined the impact that the adoption of this statement may have
on earnings, financial condition or liquidity of the Company. The Company
plans to adopt SFAS No. 133 as permitted by this accounting standard by
January 1, 2000.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
-19-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
In February, 1998, the FASB issued SFAS No. 132 "Employers' Disclosure
about Pensions and Other Postretirement Benefits." This Statement revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
The Company plans to adopt these accounting standards in connection with
the preparation of the December 31, 1998 consolidated financial statements
as permitted by SFAS No. 131 and No. 132. The adoption of these standards
is not expected to have a material impact on consolidated results,
financial condition, or long-term liquidity.
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-1 "Accounting For the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998.
In April 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-5, "Reporting as the costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of
start-up costs and organization costs. The SOP requires costs related to
start-up activities and organization costs be expensed as incurred. The
statement is effective for financial statements for fiscal year beginning
after December 15, 1998.
The Company plans to adopt these SOP's in connection with the preparations
of the December 31, 1999 consolidated financial statements as permitted by
SOP 98-1 and 98-5. The adoption of these standards will not have a
material impact on consolidated results, financial conditions, or long-term
liquidity.
The Company believes that its present working capital position, combined
with funds expected to be generated from operations and the available
borrowing capacity through its revolving credit loan facilities, will be
sufficient to meet its anticipated cash requirements for operating needs
and capital expenditures for 1998.
Forward-Looking and Cautionary Statements
The Company and its representatives may from time to time make written or
oral forward-looking statements, including those contained in the foregoing
Management's Discussion and Analysis. Actual results may differ materially
from those contained in or implied by such forward-looking statements due to
competition, foreign currency and other global economic factors, the failure
of the Company or its material suppliers or customers to remedy Year 2000 is-
sues and other factors. In order to take advantage of the "safe harbor" prov-
isions of the Private Securities Litigation Reform Act of 1995, the Company
has identified in its Annual Report on Form 10-K for the year ending December
31, 1997, certain other important factors which could cause the Company's
actual results, performance or achievement to differ materially from those
that may be contained in or implied by any forward-looking statement made by
or on behalf of the Company. All such forward-looking statements are quali-
fied by reference to the cautionary statements herein and in such Report on
Form 10-K.
-20-
SELAS CORPORATION OF AMERICA
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4A. Amended and Restated Credit Agreement dated July 31, 1998
among the Company, Deuer Manufacturing, Inc., Resistance
Technology, Inc., RTI Export, Inc. and RTI Electronics,
Inc.
4B. Amended and Restated Revolving Credit Note, dated July 31,
1998, of the Company in favor of First Union National
Bank.
10B. Non-Employee Directors' Stock Option Plan and Form of
Stock Option Agreements under such Plan. Exhibit 4 to the
Company's Registration Statement on Form S-8 filed on
October 30, 1998 is hereby incorporated herein by
reference.
(b) Reports on Form 8-K - The Company did not file any reports on
Form 8-K during the quarter for which this report is filed.
SELAS CORPORATION OF AMERICA
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELAS CORPORATION OF AMERICA
(Registrant)
Date: November 12, 1998
Robert W. Ross
Vice President and CFO
EXHIBIT INDEX
EXHIBITS:
4A. Amended and Restated Revolving Credit Note, dated July 31,
1998, of the Company in favor of First Union National Bank.
4B. Amended and Restated Credit Agreement dated July 31, 1998
among the Company, Deuer Manufacturing, Inc., Resistance
Technology, Inc., RTI Export, Inc. and RTI Electronics, Inc.
10A. Supplemental Retirement Plan (Amended and Restated effective
June 1, 1998.)
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$4,000,000.00 July __, 1998
Philadelphia, Pennsylvania
FOR VALUE RECEIVED, the undersigned SELAS CORPORATION OF AMERICA, a
Pennsylvania corporation, with principal offices at 2034 Limekiln Pike, Dresher,
Pennsylvania 19025 (the "Borrower"), promises to pay to the order of FIRST UNION
NATIONAL BANK, a national banking association, successor by way of merger to
First Fidelity Bank, N.A., Pennsylvania (the "Bank"), with an office at Broad
and Walnut Streets, Philadelphia, Pennsylvania 19109, on the Revolving Credit
Termination Date (as defined in the Credit Agreement defined below), the
principal sum of Four Million Dollars ($4,000,000.00) or such lesser principal
amount as is actually outstanding under the Revolving Credit Facility (as
defined in the Credit Agreement) on such date, and with interest on the unpaid
principal balance hereof payable as set forth below. All such principal and
interest shall be payable in lawful money of the United States of America in
immediately available funds on a Business Day at the offices of the Bank set
forth above.
Until maturity (whether by acceleration or otherwise), the outstanding
principal balance hereunder shall bear interest at the rates and shall be
payable at the times and in the manner set forth in the Credit Agreement.
Subsequent to maturity, including after judgment, interest on the outstanding
principal balance hereunder shall accrue at an annual rate which shall be two
percent (2%) above the rate of interest otherwise payable hereunder.
This Amended and Restated Revolving Credit Note (herein, the "Note")
arises out of a certain Amended and Restated Credit Agreement, dated the date
hereof, by and among Borrower, Deuer Manufacturing, Inc., Resistance Technology,
Inc., RTI Electronics, Inc., RTI Export, Inc. and the Bank, (as amended from
time to time, the "Credit Agreement"). Capitalized terms used but not otherwise
defined in this Note shall have the respective meanings given to such terms in
the Credit Agreement. Reference is made to the Credit Agreement for a statement
of the respective rights and obligations of the parties and the terms and
conditions therein provided under which the principal hereof and accrued
interest thereon, if any, may become immediately due and payable. The collateral
specified in the applicable Collateral Security Documents shall secure the
obligations of Borrower under this Note.
Notwithstanding the face amount of this Note, Borrower's liability
hereunder shall be limited at all times to the actual aggregate outstanding
indebtedness to Bank (principal, interest and fees) under the Revolving Credit
Facility, as established by Bank's books and records, which books and records
shall be conclusive absent manifest error.
The occurrence of an Event of Default under the Credit Agreement
constitutes an Event of Default under this Note and entitles Bank, in
accordance with the Credit Agreement, to declare this Note immediately due
and payable in full.
Borrower hereby waives presentment, demand for payment, notice of
dishonor or acceleration, protest and notice of protest, and any and all other
notices or demands in connection with the delivery, acceptance, performance,
default or enforcement of this Note, excepting any notice requirements set forth
in the Credit Agreement.
In the event any interest rate applicable hereto is in excess of the
highest rate allowable under applicable law, then the rate of such interest will
be reduced to the highest rate not in excess of such maximum allowable interest
and any excess previously paid by Borrower shall be deemed to have been applied
against principal.
If Borrower subscribes to Bank's cash management services and such
services are applicable to the Revolving Credit Facility, the terms of such
service shall control the manner in which funds are transferred between the
applicable demand deposit account and the Revolving Credit Facility for credit
or debit to the line of credit.
BORROWER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ATTORNEYS OR
THE PROTHONOTARY OR CLERK OF ANY COURT OF THE COMMONWEALTH OF PENNSYLVANIA, OR
ELSEWHERE, TO APPEAR FOR BORROWER AT ANY TIME FOLLOWING THE OCCURRENCE OF AN
EVENT OF DEFAULT UNDER THE CREDIT AGREEMENT IN ANY SUCH COURT IN AN APPROPRIATE
ACTION THERE OR ELSEWHERE BROUGHT OR TO BE BROUGHT AGAINST BORROWER BY ANY BANK
ON THIS NOTE, WITH OR WITHOUT DECLARATIONS FILED, AS OF ANY TERM OR TIME OF
COURT THERE OR ELSEWHERE TO BE HELD AND THEREIN TO CONFESS OR ENTER JUDGMENT
AGAINST BORROWER FOR ALL SUMS DUE BY BORROWER TO BANKS UNDER THIS NOTE AND THE
CREDIT AGREEMENT, TOGETHER WITH THE COSTS OF SUIT AND REASONABLE ATTORNEYS'
FEES, AND FOR SO DOING THIS NOTE OR COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A
SUFFICIENT WARRANT.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY
RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION HEREON OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR THE CREDIT AGREEMENT OR
THE MAKING OF THE LOAN OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF BORROWER OR BANKS OR ANY OF THEM. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR BANK'S ENTERING INTO THE CREDIT
AGREEMENT.
BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE
REVIEW AND EXECUTION OF THIS NOTE AND FURTHER ACKNOWLEDGES THAT THE MEANING AND
EFFECT OF THE CONFESSION OF JUDGMENT AND WAIVER OF JURY TRIAL HAVE BEEN FULLY
EXPLAINED TO SUCH BORROWER BY SUCH COUNSEL.
Borrower's liability under this Note shall include all fees and
expenses provided in the Credit Agreement.
This Note shall be binding upon Borrower and its successors and
assigns and shall inure to the benefit of the Bank and its successors and
assigns and shall be governed as to validity, interpretation and effect by the
laws of the Commonwealth of Pennsylvania.
This Note amends and restates in its entirety the terms of that
certain Amended and Restated Revolving Credit Note, dated July 21, 1995
(together with all amendments and modifications thereto, the "Existing Note"),
by the Borrower in favor of the Bank. This Note is not intended to extinguish
the Borrower's obligations under the Existing Note or to constitute a novation
thereof.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the undersigned, by its duly authorized officer,
has caused this Amended and Restated Revolving Credit Note to be executed, under
seal, on the day and year first above written.
ATTEST: SELAS CORPORATION OF AMERICA
By: By:
Stephen F. Ryan, Robert W. Ross, Secretary
Director
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "AGREEMENT") is made this
___ day of July, 1998, by and among SELAS CORPORATION OF AMERICA, a Pennsylvania
corporation (the "BORROWER"), DEUER MANUFACTURING, INC., an Ohio corporation
("DEUER"), RESISTANCE TECHNOLOGY, INC., a Minnesota corporation ("RTI"), RTI
EXPORT, INC., a Barbados corporation ("RTIE"), RTI ELECTRONICS, INC., a Delaware
corporation ("RTI ELECTRONICS" and, together with Deuer, RTI and RTIE, the
"GUARANTORS"), and FIRST UNION NATIONAL BANK, a national banking association,
successor by way of merger to First Fidelity Bank, N.A., Pennsylvania (the
"BANK").
BACKGROUND
A. The Bank, the Borrower, Deuer and RTI are parties to that certain
Credit Agreement, dated October 20, 1993, as amended (the "ORIGINAL CREDIT
AGREEMENT"), pursuant to which the Bank has made available: (1) to the Borrower,
among other things, term loans in the aggregate amount of $15,050,000.00 and a
revolving credit facility in a maximum principal amount of $2,000,000.00; (2) to
Deuer, a revolving credit facility in a maximum principal amount of $500,000.00;
and (3) to RTI, a revolving credit facility in a maximum principal amount of
$1,000,000.00 (collectively, the "EXISTING LOANS").
B. In connection with the Original Credit Agreement and in order to
evidence the Existing Loans:
1. The Borrower executed and delivered to the Bank, inter alia, (a)
a Term Note A dated, October 20, 1993 in the principal amount of $11,550,000.00
("TERM NOTE A"), (b) a Term Note C, dated February 21, 1997 in the principal
amount of $3,500,000.00 ("TERM NOTE C"), and (c) a Revolving Credit Note, dated
October 20, 1993 in the principal amount of $2,000,000.00, which was amended and
restated by an Amended and Restated Revolving Credit Note, dated July 21, 1995
in like principal amount (the "ORIGINAL SELAS REVOLVING CREDIT NOTE," and
together with Term Note A and Term Note C, collectively, the "ORIGINAL SELAS
NOTES");
2. Deuer executed and delivered to the Bank a Revolving Credit Note,
dated October 20, 1993 in the principal amount of $500,000.00, which was amended
and restated by an Amended and Restated Revolving Credit Note, dated July 21,
1995 in like principal amount (the "DEUER NOTE"); and
3. RTI executed and delivered to the Bank a Revolving Credit Note,
dated October 20, 1993 in the principal amount of $1,000,000.00, which was
amended and restated by an Amended and Restated Revolving Credit Note, dated
July 21, 1995 in like principal amount (the "RTI NOTE").
C. In connection with the Original Credit Agreement and in order to
secure the Existing Loans:
1. Borrower executed and delivered to the Bank the following
(collectively, the "SELAS COLLATERAL SECURITY DOCUMENTS"): (a) a Guaranty and
Suretyship Agreement, dated October 20, 1993 (together with all amendments and
modifications thereto, the "SELAS GUARANTY"), pursuant to which the Borrower
irrevocably, absolutely and unconditionally guaranteed and became surety for the
prompt and immediate payment and performance of certain of the obligations of
Deuer and RTI under the Original Credit Agreement with respect to the Deuer Note
and the RTI Note; (b) a Security Agreement, dated October 20, 1993 (together
with all amendments and modifications thereto, the "SELAS SECURITY AGREEMENT"),
pursuant to which the Borrower granted a first lien and security interest in
certain of its assets as security for the Borrower's obligations to the Bank
arising under the Original Credit Agreement, the Selas Guaranty or otherwise;
(c) UCC-1 Financing Statements for recording with the Pennsylvania Secretary of
State, the Prothonotary of Montgomery County, PA, and the Register of Deeds,
Montgomery County, PA; (d) a Pledge Agreement, dated October 20, 1993 (together
with all amendments and modifications thereto, the "SELAS PLEDGE AGREEMENT"),
pursuant to which the Borrower pledged 100% of the issued and outstanding
capital stock of Deuer, RTI and RTI Electronics to the Bank as security for the
Borrower's obligations under the Original Credit Agreement, the Selas Guaranty
and any other documents, agreements and instruments executed thereunder or in
connection therewith; and (e) a First Mortgage and Security Agreement, dated
October 20, 1993 (together with all amendments and modifications thereto, the
"SELAS MORTGAGE"), covering certain real property located in Dreshertown, Upper
Dublin Township, Montgomery County, Pennsylvania as security for the Borrower's
obligations to the Bank under the Original Credit Agreement, the Original Selas
Notes and the Selas Guaranty.
2. Deuer executed and delivered to the Bank the following
(collectively, the "DEUER COLLATERAL SECURITY DOCUMENTS"): (a) a Guaranty and
Suretyship Agreement, dated October 20, 1993 (together with all amendments and
modifications thereto, the "DEUER GUARANTY"), pursuant to which Deuer
irrevocably, absolutely and unconditionally guaranteed and became surety for the
prompt and immediate payment and performance of certain of the obligations of
the Borrower under the Original Credit Agreement; (b) a Security Agreement,
dated October 20, 1993 (together with all amendments and modifications thereto,
the "DEUER SECURITY AGREEMENT"), pursuant to which Deuer granted a first lien
and security interest in certain of its assets as security for Deuer's
obligations to the Bank arising under the Original Credit Agreement, the Deuer
Guaranty or otherwise; (c) UCC-1 Financing Statements for recording with the
Ohio Secretary of State and the Recorder, Montgomery County, OH; and (d) an
Open-End First Mortgage and Security Agreement, dated October 20, 1993 (together
with all amendments and modifications thereto, the "DEUER MORTGAGE"), covering
certain real property located in the City of Moraine, Montgomery County, Ohio as
security for Deuer's obligations to the Bank under the Original Credit
Agreement, the Deuer Note and the Deuer Guaranty.
3. RTI executed and delivered to the Bank the following
(collectively, the "RTI COLLATERAL SECURITY DOCUMENTS"): (a) a Guaranty and
Suretyship Agreement, dated October 20, 1993 (together with all amendments and
modifications thereto, the "RTI GUARANTY"), pursuant to which RTI irrevocably,
absolutely and unconditionally guaranteed and became surety for the prompt and
immediate payment and performance of certain of the obligations of the Borrower
under the Original Credit Agreement; (b) a Security Agreement, dated October 20,
1993 (together with all amendments and modifications thereto, the "RTI SECURITY
AGREEMENT"), pursuant to which RTI granted a first lien and security interest in
certain of its assets as security for RTI's obligations to the Bank arising
under the Original Credit Agreement, the RTI Guaranty or otherwise; (c) UCC-1
Financing Statements for recording with the Minnesota Secretary of State and
Ramsey County, Minnesota; and (d) a Patent and Trademark Security Agreement,
dated October 20, 1993 (together with all amendments and modifications thereto,
the "INTELLECTUAL PROPERTY SECURITY AGREEMENT"), pursuant to which RTI granted a
lien and security interest in certain patents, trademarks and other similar
intellectual property of RTI as security for RTI's obligations to the Bank
arising under the Original Credit Agreement, the RTI Guaranty or otherwise.
4. RTIE executed and delivered to the Bank the following
(collectively, the "RTIE COLLATERAL SECURITY DOCUMENTS"): (a) a Guaranty and
Suretyship Agreement, dated October 20, 1993 (together with all amendments and
modifications thereto, the "RTIE GUARANTY"), pursuant to which RTIE irrevocably,
absolutely and unconditionally guaranteed and became surety for the prompt and
immediate payment and performance of certain of the obligations of the Borrower
under the Original Credit Agreement; (b) a Security Agreement, dated October 20,
1993 (together with all amendments and modifications thereto, the "RTIE SECURITY
AGREEMENT"), pursuant to which RTIE granted a first lien and security interest
in certain of its assets as security for RTIE's obligations to the Bank arising
under the Original Credit Agreement, the RTIE Guaranty or otherwise; and (c)
UCC-1 Financing Statements for recording with the Minnesota Secretary of State
and Ramsey County, Minnesota.
5. RTI Electronics, Inc. executed and delivered to the Bank the
following (collectively, the "RTI ELECTRONICS COLLATERAL SECURITY DOCUMENTS"):
(a) a Guaranty and Suretyship Agreement, dated February 20, 1997 (together with
all amendments and modifications thereto, the "RTI ELECTRONICS GUARANTY"),
pursuant to which RTI Electronics irrevocably, absolutely and unconditionally
guaranteed and became surety for the prompt and immediate payment and
performance of certain of the obligations of the Borrower under the Original
Credit Agreement; (b) a Security Agreement, dated as of February 20, 1997
(together with all amendments and modifications thereto, the "RTI ELECTRONICS
SECURITY AGREEMENT"), pursuant to which RTI Electronics granted a lien and
security interest in certain of its assets as security for RTI Electronic's
obligations to the Bank arising under the Original Credit Agreement, the RTI
Electronics Guaranty or otherwise; and (c) UCC-1 Financing Statements for
recording with the Secretary of State of California, the County Clerk, Orange
County, CA, the Pennsylvania Secretary of State, and the Prothonotary,
Montgomery County, PA.
D. Subject to the terms and conditions of this Agreement, the Borrower,
the Guarantors and the Bank have agreed to increase the amount of the revolving
credit facility of the Borrower from $2,000,000.00 to $4,000,000.00 and to
terminate the revolving credit facilities of Deuer and RTI under the Original
Credit Agreement. The outstanding indebtedness under the Deuer Note and the RTI
Note will be repaid with advances made to the Borrower under the increased
revolving credit facility.
E. The parties have agreed to amend the Original Credit Agreement to
increase the revolving credit facility of the Borrower as set forth above and to
provide for certain other changes to the Original Credit Agreement as set forth
herein. For purposes of convenience, the parties are entering into this
Agreement to amend and restate the Original Credit Agreement in its entirety.
NOW, THEREFORE, in consideration of the foregoing background and the
promises and the agreements hereinafter set forth, and intending to be legally
bound hereby, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS. When used in this Agreement, the following terms shall
have the respective meanings set forth below.
"Accumulated Funding Deficiency" has the meaning ascribed to that
term in Section 412 of ERISA.
"Advance" means a borrowing under the Revolving Credit Facility,
including any advances pursuant to Section 2.6 or 3.3(b) of this Agreement and
any outstanding advances made under the Original Selas Revolving Credit Note.
"Advance Request Form" means the certificate in the form attached
hereto as Exhibit A to be delivered by the Borrower to the Bank as a condition
of each Advance.
"Affiliate" means: (i) any Person which directly or indirectly owns,
controls or holds five percent (5%) or more of the outstanding beneficial equity
interest in the specified Person; (ii) any Person of which five percent (5%) or
more of the outstanding beneficial equity interest is directly or indirectly
owned, controlled, or held by the specified Person; (iii) any Person which
directly or indirectly is under common control with the specified Person; (iv)
any officer, director or partner of the specified Person or any Affiliate
thereof; or (v) any immediate family member of any person who is an Affiliate.
Each Affiliate of the Borrower (other than those described in subclause (iv) and
(v) hereof), as of the date hereof, is identified on Schedule I-A attached
hereto. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Amended and Restated Credit Agreement and all
exhibits and schedules hereto, as each may be amended from time to time.
"Bank" means First Union National Bank, a national banking
association, formerly known as First Fidelity Bank, N.A., Pennsylvania, and its
respective successors and assigns.
"Base Rate" means the rate of interest established by the Bank from
time to time as its reference rate in making loans generally and does not
reflect the rate of interest charged to any particular borrower or class of
borrowers. The Borrower acknowledges that the Base Rate is not tied to any
external rate of interest and that the rate of interest charged hereunder, when
determined with reference to the Base Rate, shall change automatically and
immediately as of the date of any change in the Base Rate, without notice to the
Borrower.
"Base Rate Loan" means a Loan which bears interest based on the Base
Rate.
"Borrower" means Selas Corporation of America, a Pennsylvania
corporation, and its respective successors and assigns.
"Business Day" means a day of the year on which banks are required
or authorized to close in Philadelphia, PA and if the applicable Business Day
relates to any LIBOR Loan, a day of the year on which dealings are carried on in
the London interbank market.
"Capital Expenditure" means an expenditure for any fixed asset, or
any improvements or additions thereto, in each case having a useful life of more
than one (1) year and including any obligations to pay rent or other amounts
under a Capital Lease.
"Capital Lease" means individually and "Capital Leases" means
collectively capital leases and subleases, as defined in Statement 13 of the
Financial Accounting Standards Board dated November 1976, as amended and updated
from time to time.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, as amended from time to time, and all rules and
regulations promulgated in connection therewith.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and regulations with respect thereto in effect from time to time.
"Collateral" means the collateral security afforded to the Bank
under any of the Collateral Security Documents.
"Collateral Security Documents" means collectively, the Selas
Collateral Security Documents, the Deuer Collateral Security Documents, the RTI
Collateral Security Documents, the RTIE Collateral Security Documents and the
RTI Electronics Collateral Security Documents, in each case as amended pursuant
to this Agreement and as the same may hereafter be amended from time to time.
"Consolidated Subsidiary" means individually, and "Consolidated
Subsidiaries" means collectively, those Subsidiaries of the Borrower listed on
Schedule I-B attached hereto and any Subsidiaries hereafter created or acquired
whose accounts, financial results or position, for either federal income tax or
financial accounting purposes are consolidated with those of the Borrower.
"Contingent Liabilities" means, as to any Person, any guarantee of
payment or performance by such Person of any Indebtedness or other obligation of
any other Person, or any agreement to provide financial assurance with respect
to the financial condition, or the payment of the obligations of, such other
Person (including, without limitation, purchase or repurchase agreements,
reimbursement agreements with respect to letters of credit or acceptances,
indemnity arrangements, grants of security interests to support the obligations
of another Person, keepwell agreements and take-or-pay or through-put
arrangements) which has the effect of assuring or holding harmless any third
Person against loss with respect to one or more obligations of such third
Person; provided, however, the term Contingent Liabilities shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Liability of any Person shall be deemed
to be the lower of (a) an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Contingent Liability is made and
(b) the maximum amount for which such contingently liable Person may be liable
pursuant to the terms of the instrument embodying such Contingent Liability,
unless such primary obligation and the maximum amount for which such applicable
contingently liable Person may be liable are not stated or determinable, in
which case the amount of such Contingent Liability shall be such contingently
liable Person's maximum reasonably anticipated liability in respect thereof as
determined by it in good faith.
"Conversion", "Convert" and "Converted" each refer to a conversion
of Advances of one Type into Advances of the other Type pursuant to Section
2.5(c)(ii).
"Current Assets" means, as of the date of determination, all assets
which would, in accordance with GAAP, be classified as current assets, provided
that such term shall not include any Intangible Assets or restricted cash.
"Current Liabilities" means, as of the date of determination, all
liabilities (including tax and other proper accruals) which would, in accordance
with GAAP, be classified as current liabilities, but in any event including all
such liabilities, whether secured or unsecured, payable on demand or maturing
not more than one (1) year after such date.
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Default" means an event, condition or circumstance the occurrence
of which would, with the giving of notice or the passage of time or both,
constitute an Event of Default.
"Domestic Group" means the Borrower, Deuer, RTI, RTI Electronics and
RTIE.
"Dresher Real Property" means that certain real property more
particularly described on Schedule II-A hereto, together with improvements
thereon, located in Dresher, Pennsylvania and owned by the Borrower.
"EBIT" means, for any period, determined on a consolidated basis in
accordance with GAAP, net income of the applicable entity or entities for such
period plus the deductions for interest and tax expense taken in computing such
net income.
"Environmental Control Statutes" means any federal, state, county,
regional or local laws governing the control, storage, removal, spill, release
or discharge of Hazardous Substances, including without limitation CERCLA, the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Federal
Water Pollution Control Act, as amended by the Clean Water Act of 1976, the
Hazardous Materials Transportation Act, the Emergency Planning and Community
Right to Know Act of 1986, the National Environmental Policy Act of 1975, the
Oil Pollution Act of 1990, any similar or implementing state law, and in each
case including all amendments thereto and all rules and regulations promulgated
thereunder and permits issued in connection therewith.
"EPA" means the United States Environmental Protection Agency, or
any successor thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974,
all amendments thereto and all rules and regulations in effect at any time
thereunder.
"ERISA Affiliate" means any person that is a member of any group or
organization within the meaning of Code Section 414(b), (c), (m) or (o) of which
the Borrower or RTIE is a member.
"Event of Default" means an event described in Section 9.1 hereof.
"Excess Earnings" means, as to an entity for any fiscal year, EBIT
of such entity for such fiscal year plus the deductions for depreciation and
amortization expenses taken in computing such EBIT for such fiscal year, less
(i) principal and interest payments on funded debt; (ii) dividends paid by the
Borrower; (iii) taxes paid; and (iv) capital expenditures; in each case, for
such entity during such fiscal year.
"Existing Letters of Credit" means those certain letters of credit
issued by the Bank for the account of the Borrower prior to the date hereof,
being on the date hereof those listed on Schedule III attached hereto, each of
which shall be deemed a "Letter of Credit" under this Agreement.
"Fixed Charge Coverage Ratio" means, as of the date of
determination, with respect to the most-recently ended fiscal year of the
applicable entity, the ratio of: (a) the sum of EBIT and depreciation and
amortization for such period, to (b) the sum of principal and interest payments
made on Funded Debt and dividends paid during such period, in each case as
defined in accordance with GAAP.
"Foreign Subsidiaries" means collectively, those subsidiaries of the
Borrower identified on Schedule I-B attached hereto as foreign subsidiaries.
"Funded Debt" means, as of the date of determination, the aggregate
principal amount of all Indebtedness for:
(i) borrowed money, other than trade indebtedness incurred
in the normal and ordinary course of business for value received, having a final
maturity of one year or more from the date of determination;
(ii) installment purchases of real or personal property;
(iii) Capital Leases; and
(iv) guaranties of Funded Debt of others, without
duplication.
"GAAP" means generally accepted accounting principles set forth in
the Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements of the Financial Accounting
Standards Board (and in such other statements by such other entity as may have
administrative or regulatory authority or control over the Borrower) which are
applicable in the circumstances as of the date in question; and such principles
observed in a current period shall be comparable in all material respects to
those applied in a preceding period except to the extent otherwise required by
GAAP.
"Guarantor" means each of Deuer, RTI, RTI Electronics and RTIE.
"Hazardous Substance" means petroleum products and items defined in
the Environmental Control Statutes as "hazardous substances", "hazardous
wastes", "pollutants" or "contaminants" and any other toxic, reactive,
corrosive, carcinogenic, flammable or hazardous substance or other pollutant.
"Indebtedness" of any entity means and includes all obligations of
such entity which, in accordance with GAAP, shall be classified on a balance
sheet of such entity as liabilities of such entity and in any event shall
include all (i) obligations of such entity for borrowed money or which have been
incurred in connection with acquisition of property or assets, (ii) obligations
secured by any lien upon property or assets owned by such entity,
notwithstanding that such entity has not assumed or become liable for the
payment of such obligations, (iii) obligations created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such entity, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (iv) Capitalized Leases on which
such entity is obligated, (v) guarantees on which such entity is obligated, and
(vi) letters of credit and letter of credit reimbursement obligations on which
such entity is obligated.
"Intangible Assets" means for any entity, all assets of such entity
which would be classified in accordance with GAAP as intangible assets,
including without limitation, all franchises, licenses, permits, patents, patent
applications, copyrights, trademarks, trade-names, goodwill, experimental or
organization expenses and other like intangibles, treasury stock and unamortized
debt discount.
"Interest Period" means, with respect to any LIBOR Loan:
(a) initially, the period commencing on, as the case may be, the
date of borrowing or Conversion with respect to such LIBOR Loan and ending one,
two or three months thereafter as selected by the Borrower in its notice of
borrowing as provided in Section 2.6 or its notice of conversion as provided in
Section 2.5(c)(ii); and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such LIBOR Loan and ending one, two or
three months thereafter as selected by the Borrower by irrevocable notice to the
Bank not less than three (3) Business Days prior to the last day of the then
current Interest Period with respect to such LIBOR Loan;
provided that the foregoing provisions relating to Interest Periods are subject
to the following:
(i) if any Interest Period pertaining to a LIBOR Loan would
otherwise end on a day which is not a Business Day, that Interest Period shall
be extended to the next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into the next calendar month,
in which event such Interest Period shall end on the immediately preceding
Business Day;
(ii) any Interest Period pertaining to a LIBOR Loan that begins
on the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on the
last Business Day of a calendar month; and
(iii) the Borrower may not select any Interest Period which
ends after the Revolving Credit Termination Date.
"LC Fees" has the meaning ascribed to such term in Section 3.3(a) of
this Agreement.
"Letter of Credit" means individually, and "Letters of Credit" means
collectively, the letter(s) of credit in the form agreed upon by the Borrower
and the Bank at the time of issuance of the applicable Letter of Credit pursuant
to the terms and conditions of Section 3 hereof, including, without limitation,
the Existing Letters of Credit.
"LIBOR Adjusted Rate" means, with respect to each day during each
Interest Period pertaining to a LIBOR Loan, the rate determined in accordance
with the following formula:
LIBOR Base Rate
1.00 - LIBOR Reserve Requirements
"LIBOR Base Rate" means, with respect to each day during each
Interest Period pertaining to a LIBOR Loan, the rate per annum for deposits in
United States dollars for a period equal to the relevant Interest Period which
appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the day that
is two (2) Business Days prior to the commencement of such Interest Period (or
if not so reported, then as determined by the Bank from another recognized
source of interbank quotation).
"LIBOR Loan" means a Loan which bears interest based on the LIBOR
Adjusted Rate for the applicable Interest Period.
"LIBOR Market Index Loan" means a Loan which bears interest based on
the LIBOR Market Index Rate.
"LIBOR Market Index Rate" means, for any day, the per annum rate for
one-month deposits in United States dollars as reported on Telerate page 3750 as
of 11:00 a.m., London time, on such day, or if such day is not a Business Day,
then the immediately preceding Business Day (or if not so reported, then as
determined by the Bank from another recognized source of interbank quotation).
"LIBOR Reserve Requirements" means, for any day, the aggregate
(without duplication) of the applicable rates (expressed as a decimal) of
reserve requirements for the Bank (including, without limitation, basic,
supplemental, marginal and emergency reserves), in effect on such day under
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor) with respect to Eurocurrency funding currently referred to as
"Eurocurrency liabilities" in Regulation D.
"Loans" means the Term Loans, all Advances and all Reimbursement
Obligations of the Borrower under this Agreement.
"Local Authorities" means individually and collectively the state
and local governmental authorities and administrative agencies which govern the
commercial or industrial facilities owned or operated by the Borrower.
"Material Adverse Effect" means either singly or in the aggregate, a
material adverse effect on the business, financial condition or prospects of the
Borrower and its Consolidated Subsidiaries as a result of any condition,
circumstance or contingency arising after the date hereof.
"Minnesota Real Property" means that certain real property more
particularly described on Schedule II-B hereto, together with improvements
thereon, located in Vadnais Heights, Minnesota and owned by RTI.
"Net Worth" means, as of the date of determination, the excess of
the Total Assets of the applicable entity over its Total Liabilities at such
date.
"Notes" means the Term Notes and the Revolving Credit Note.
"Ohio Real Property" means that certain real property more
particularly described on Schedule II-C hereto, together with improvements
thereon, located in Moraine, Ohio and owned by Deuer.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Investments" means (i) investments in commercial paper
maturing in 180 days or less from the date of issuance which is rated A1 or
better by Standard & Poor's Corporation or P1 or better by Moody's Investors
Services, Inc.; (ii) investments in direct obligations of the United States of
America or obligations of any agency thereof which are guaranteed by the United
States of America, provided that such obligations mature within twelve (12)
months of the date of acquisition thereof; and (iii) investments in certificates
of deposit maturing within one (l) year from the date of acquisition thereof
issued by a bank or trust company organized under the laws of the United States
or any state thereof, having capital, surplus and undivided profits aggregating
at least $500,000,000 and the long-term deposits of which are rated Al or better
by Moody's Investors Services, Inc. or equivalent by Standard & Poor's
Corporation.
"Person" means an individual partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Plan" means any pension benefit or welfare benefit plan as defined
in Sections 3(1), (2) or (3) of ERISA maintained or sponsored by, contributed
to, or covering employees of, the Borrower or any ERISA Affiliate.
"Reimbursement Obligations" means the Borrower's obligations with
respect to drafts paid by the Bank under a Letter of Credit as set forth in
Section 3.3(c) hereof, to the extent that the Borrower has not otherwise
discharged same pursuant to Sections 3.3(a) or (b) hereof.
"Release" means any spill, leak, emission, discharge or the pumping,
pouring, emptying, disposing, injecting, escaping, leaching or dumping of a
Hazardous Substance.
"Restricted Payments" means redemptions, repurchases, dividends and
distributions of any kind in respect of the Borrower's capital stock and
payments of principal and interest on Subordinated Debt.
"Revolving Credit Commitment" means the maximum aggregate principal
amount which the Bank has agreed to advance to the Borrower under the Revolving
Credit Facility, being on the date hereof Four Million Dollars ($4,000,000.00).
"Revolving Credit Facility" means the revolving credit facility made
available to the Borrower under this Agreement, including the letter of credit
facility made available under Section 3 hereof, in the maximum principal amount
of the Revolving Credit Commitment.
"Revolving Credit Note" has the meaning ascribed to such term in
Section 2.2 of this Agreement.
"Revolving Credit Termination Date" means the earlier of (i) August
1, 2000 (as such date may be extended from time to time in accordance with
Section 2.8 hereof) or (ii) the date on which the Revolving Credit Commitment is
terminated pursuant to Section 9.2 hereof.
"Rolling Period" means, as of any date, the most recent four (4)
consecutive fiscal quarters of the applicable entity completed on or before such
date.
"Shares" of any corporation means any and all shares of capital
stock of such corporation of any class or other shares, interests, participation
or other equivalents (however designated) in the capital of such corporation.
"Subordinated Debt" means Indebtedness of the Borrower subordinated
to the Loans with subordination provisions in form and substance satisfactory to
Bank.
"Subsidiary" with respect to any entity means any corporation of
which such entity and/or one or more other Subsidiaries of such entity shall at
the time own Shares (however designated) having ordinary voting power for the
election of at least a majority of the board of directors (or other governing
body) of such corporation, other than Shares having such power only by reason of
the happening of a contingency. Unless otherwise specified, the term
"Subsidiary" means a subsidiary of the Borrower.
"Swap Agreements" means any and all swap agreements (as defined in
11 U.S.C. section 101) now or hereafter entered into between the Borrower and
the Bank or any Affiliate thereof.
"Tangible Capital Funds" means, as of the date of determination, the
sum of Net Worth plus Subordinated Debt of the applicable entity, less its
Intangible Assets.
"Telerate Page 3750" means the display designed as "Page 3750" on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying London interbank offered rates of
major banks).
"Term Loan A" means the term loan made by the Bank to the Borrower
which is evidenced by Term Note A.
"Term Loan C" means the term loan made by the Bank to the Borrower
which is evidenced by Term Note C.
"Term Loans" means Term Loan A and Term Loan C.
"Term Notes" means Term Note A and Term Note C.
"Total Assets" means, at any time, all assets of an entity, as
defined in accordance with GAAP.
"Total Liabilities" means, at any time, all liabilities of an
entity, as defined in accordance with GAAP.
"Type" means, when used in reference to an Advance, either a Base
Rate Loan, a LIBOR Market Index Loan or a LIBOR Loan.
1.2 RULES OF CONSTRUCTION.
(a) GAAP. Except as otherwise provided herein, financial and
accounting terms used in the foregoing definitions or elsewhere in this
Agreement, shall be defined in accordance with GAAP. In the event that, after
the date hereof, any aspect of GAAP or the interpretation or administration
thereof shall have been modified, amended, augmented or otherwise changed, as a
consequence of which any calculation involved in any term, provision, covenant
or condition of this Agreement shall result in any materially different amount,
the parties shall appropriately modify this Agreement to give effect to the
intent of the parties as of the date hereof.
(b) Use of term "Consolidated." Any term defined in Section 1.1
hereof, when modified by the word "Consolidated," shall have the meaning given
to such term herein as to the Borrower and all entities whose accounts,
financial results or position, for either federal income tax or financial
accounting purposes, are consolidated with those of the Borrower in accordance
with GAAP.
SECTION 2
CREDIT FACILITIES
2.1 THE FACILITIES.
(a) The Term Loans. The Borrower hereby acknowledges, agrees and
confirms that the Borrower is indebted to the Bank for repayment of Term Loan A
and Term Note C and all liabilities and obligations related thereto, including
without limitation the principal amount of $____________ outstanding as of the
date hereof under Term Note A and the principal amount of $____________
outstanding as of the date hereof under Term Note C, together with accrued and
continually accruing interest, and any and all costs and fees reimbursable to
the Bank pursuant to this Agreement, the Term Notes and all other documents
executed and delivered pursuant to or in connection with the Original Credit
Agreement or this Agreement, which amounts are owing without claim,
counterclaim, recoupment, defense or set-off of any kind, nature or description
whatsoever. Amounts repaid or prepaid under Term Note A and Term Note C may not
be reborrowed hereunder.
(b) Revolving Credit Facility. From time to time prior to the
Revolving Credit Termination Date, subject to the provisions below, the Bank
shall make Advances to the Borrower, which the Borrower may repay and reborrow,
and issue Letters of Credit for the Borrower's account (including Existing
Letters of Credit) pursuant to and in accordance with Section 3 hereof, draws on
which may be funded by Advances, up to an aggregate outstanding principal amount
not to exceed at any time the Revolving Credit Commitment as from time to time
in effect; provided that availability under the Revolving Credit Commitment as
from time to time in effect shall be reduced by (i) the outstanding aggregate
principal amount of all Advances made under this Section 2.1(b) or Section
3.3(b) hereof, (ii) the undrawn amount of any outstanding Letters of Credit
(including without limitation, Existing Letters of Credit), and (iii) the amount
of any Reimbursement Obligations.
2.2 REVOLVING CREDIT NOTE. The Borrower shall execute and deliver to
the Bank an amended and restated promissory note of the Borrower payable to the
order of the Bank in a principal amount equal to the amount of the Revolving
Credit Commitment, substantially in the form attached hereto as Exhibit B (the
"REVOLVING CREDIT NOTE"). The Revolving Credit Note shall amend and restate the
Original Selas Revolving Credit Note in its entirety and shall evidence the
aggregate indebtedness of the Borrower to the Bank resulting from the Advances
made by the Bank under the Revolving Credit Facility, including without
limitation any outstanding advances made under the Original Selas Revolving
Credit Note. Upon receipt of the Revolving Credit Note, the Bank will cancel
the Original Selas Revolving Credit Note, the Deuer Note and the RTI Note, and
return them to the Borrower.
2.3 USE OF PROCEEDS. Funds advanced under the Revolving Credit Facility
shall be used for working capital and general corporate purposes of the
Borrower, to fund advances or contributions by the Borrower to its Domestic
Subsidiaries for their working capital and general corporate purposes, to
satisfy all outstanding obligations under the Deuer Note and the RTI Note, and
to fund payments under Section 3.3(b) hereof with respect to standby Letters of
Credit issued for the account of the Borrower pursuant to and in accordance with
Section 3 hereof. Deuer and RTI hereby acknowledge and agree that, upon
execution of this Agreement by all parties hereto, the revolving credit
facilities which the Bank had made available to Deuer and RTI under the Original
Credit Agreement shall terminate and neither Deuer nor RTI shall have any right
to borrow under this Agreement.
2.4 REPAYMENT; PREPAYMENTS.
(a) Term Loan A.
(i) Scheduled Payments. Subject to the application of
prepayments made pursuant to Section 2.4(a)(ii) and 2.4(a)(iii) hereof, Term
Loan A shall continue to be payable in consecutive monthly principal
installments of $137,500.00 each, commencing August 1, 1998 and continuing on
the first day of each month thereafter with the final installment of the
remaining principal balance of Term Loan A due and payable together with all
interest accrued thereon and all fees and costs payable in connection therewith
on June 1, 2000.
(ii) Mandatory Prepayments. On or before each May 15 for each
fiscal year, the Borrower shall pay to the Bank, as a mandatory prepayment of
Term Loan A, an amount equal to forty percent (40%) of Excess Earnings of the
Domestic Group for the previous fiscal year, which amount will be applied to
scheduled principal payment installments of Term Loan A in the inverse order of
their maturities. The Chief Financial Officer of the Borrower shall provide to
the Bank on or before March 31 of each year, a certification of the calculation
of the amount of Excess Earnings for the previous fiscal year.
(iii) Optional Prepayments. The Borrower may prepay the
balance outstanding under Term Loan A at any time and from time to time;
provided that (i) prepayments from the proceeds of net income or additional
equity may be made without premium or penalty; (ii) with respect to prepayments
of Term Loan A made with the proceeds of Indebtedness (including proceeds of any
refinancing and proceeds of loans (including the Loans) made by the Bank), the
Borrower shall pay to the Bank a prepayment fee of three percent (3%) of the
amount prepaid; and (iii) prepayments will be applied to the outstanding
principal in the inverse order of maturity of the installments thereof.
(iv) Swap Agreements. Any prepayment of Term Loan A shall
not release the obligations of the Borrower under any Swap Agreement.
(b) Term Loan C.
(i) Scheduled Payments. Subject to the application of
prepayments made pursuant to Section 2.4(b)(ii) and 2.4(b)(iii) hereof, Term
Loan C shall continue to be payable in consecutive monthly principal
installments of $58,333.33 each, commencing August 1, 1998 and continuing on the
first day of each month thereafter, with the final installment of the remaining
principal balance of Term Loan C, together with all interest accrued thereon and
all fees and costs payable in connection therewith, due and payable on February
1, 2002.
(ii) Mandatory Prepayments. After Term Loan A is repaid in
full, on or before May 15 of each fiscal year, the Borrower shall pay to the
Bank an amount equal to forty percent (40%) of Excess Earnings of the Domestic
Group for the previous fiscal year, as a mandatory prepayment of Term Loan C, to
be applied to scheduled principal payment installments of Term Loan C, in the
inverse order of their maturities. The Chief Financial Officer of the Borrower
shall provide to the Bank on or before March 31 of each year a certification of
the calculation of the amount of Excess Earnings for the previous fiscal year.
(iii) Optional Prepayments. The Borrower shall have the right
to prepay Term Loan C in whole at any time or in part from time to time;
provided, however, that (A) any such prepayment shall be applied to the
outstanding principal of Term Loan C in the inverse order of maturity of the
installments thereof, and (B) any such prepayment shall be accompanied by any
additional payment required to compensate the Bank for any loss, cost or expense
incurred as a result of such prepayment as provided in Section 2.14 hereof and
any amount due in connection with the termination of any Swap Agreement entered
into for purposes of hedging Term Loan C.
(iv) Swap Agreements. Any prepayment of Term Loan C shall
not release the obligations of the Borrower under any Swap Agreement.
(c) Revolving Credit Facility. The aggregate outstanding principal
balance under the Revolving Credit Facility shall be due and payable on the
Revolving Credit Termination Date. Upon one (1) Business Day's prior written
notice by the Borrower to the Bank, the Borrower may repay in whole or in part
the aggregate amount outstanding under the Revolving Credit Facility at any time
provided that: (i) such repayments prior to the Revolving Credit Termination
Date shall not reduce the Revolving Credit Commitment and may be reborrowed,
(ii) any repayment of less than all of the outstanding Advances shall be in an
amount equal to or in excess of $50,000.00 and multiples of $50,000.00 in excess
thereof, and (iii) if any prepayment of a LIBOR Loan shall be made on a date
which is not the last day of the Interest Period applicable to such LIBOR Loan,
the Borrower shall also pay to the Bank any amount due to the Bank pursuant to
Section 2.14 hereof.
2.5 INTEREST.
(a) Term Loan A. In the absence of an Event of Default or Default
hereunder, the outstanding principal balance of Term Loan A shall continue to
bear interest at the rate of 6.75% per annum, payable by the Borrower monthly on
the first day of each month and upon the maturity of Term Loan A. Interest will
be calculated on the basis of a 360-day year and the actual number of days
elapsed.
(b) Term Loan C. In the absence of an Event of Default or Default
hereunder, the outstanding principal balance of Term Loan C shall continue to
bear interest at the LIBOR Adjusted Rate plus 150 basis points (1.50%), payable
by the Borrower on the last day of the applicable Interest Period and upon the
maturity of Term Loan C. Interest will be calculated on the basis of a 360-day
year and the actual number of days elapsed.
(c) Revolving Credit Facility.
(i) In the absence of an Event of Default or Default
hereunder, the outstanding principal balance of each Advance shall bear interest
at the following interest rates (in each case calculated on the basis of a three
hundred sixty (360) day year and the actual number of days elapsed):
(A) Each Advance which is a Base Rate Loan shall bear
interest at the Base Rate, payable by the Borrower monthly on the first day of
each month and on the Revolving Credit Termination Date.
(B) Each Advance which is a LIBOR Market Index Loan
shall bear interest at the LIBOR Market Index Rate plus 125 basis points
(1.25%), payable by the Borrower monthly on the first day of each month and on
the Revolving Credit Termination Date.
(C) Each Advance which is a LIBOR Loan shall bear
interest at the LIBOR Adjusted Rate plus 125 basis points (1.25%), payable by
the Borrower on the last day of the applicable Interest Period and on the
Revolving Credit Termination Date.
(ii) The Borrower may on any Business Day, upon notice given
to the Bank not later than 12:00 noon on (A) the third Business Day prior to the
date of the proposed Conversion into a LIBOR Loan and (B) the first Business Day
prior to the date of the proposed Conversion into a Base Rate Loan or a LIBOR
Market Index Loan, Convert all or any portion of an Advance from one Type to
another Type; provided, however, that any Conversion of LIBOR Loans into Base
Rate Loans or LIBOR Market Index Loans shall be made only on the last day of an
Interest Period for such LIBOR Loan and any conversion of a Base Rate Loan or a
LIBOR Market Index Loan into a LIBOR Loan shall be in an amount not less than
the minimum amount specified in Section 2.6(a)(i). Each such notice of
Conversion shall, within the restrictions specified above, specify (A) the date
of such Conversion, (B) the particular Advances to be Converted, and (C) if such
Conversion is into a LIBOR Loan, the duration of the initial Interest Period for
such LIBOR Loan. Each notice of Conversion shall be irrevocable and binding
upon the Borrower.
(iii) If the Borrower shall fail to select the duration of any
Interest Period for any LIBOR Loan in accordance with the provisions contained
in definition of Interest Period, the Bank will forthwith so notify the
Borrower, whereupon each such LIBOR Loan will automatically, on the last day of
the then existing Interest Period therefor, Convert into a LIBOR Market Index
Loan.
(d) Default Rate. Notwithstanding the foregoing subsections (a),
(b) and (c), upon the occurrence and during the continuance of an Event of
Default or Default hereunder, including after maturity (whether by acceleration
or otherwise) and before and after judgment, the Borrower hereby agrees to pay
to Bank interest on the outstanding principal balance of the Loans and, to the
extent permitted by law, overdue interest with respect thereto, at the rate of
two percent (2%) per annum above the interest rates otherwise applicable to such
Loans pursuant to Sections 2.5(a), (b) and (c), respectively.
2.6 ADVANCES UNDER THE REVOLVING CREDIT FACILITY.
(a) The Borrower shall give the Bank written notice (which notice
may be transmitted by telecopier, provided that the Bank receives an original
executed Advance Request Form within 24 hours thereafter) not later than eleven
o'clock (11:00) a.m. on the date of each requested Advance under the Revolving
Credit Facility in the case of Base Rate Loans and LIBOR Market Index Loans, and
on the date which is three (3) Business Days prior to the date of each requested
Advance under the Revolving Credit Facility in the case of LIBOR Loans, in
either case specifying the date, amount, Interest Period (in the case of LIBOR
Loans), and purpose thereof. Such notice shall be in the form of the Advance
Request Form attached hereto as Exhibit A, shall be certified by the chief
executive or chief financial or accounting officer (or the equivalent thereof)
of the Borrower and shall contain the following information and representations,
which shall be deemed affirmed and true and correct as of the date of the
requested Advance:
(i) the aggregate amount of the requested Advance, which
shall be in multiples of $50,000.00 but not less than the lesser of $100,000.00
or the unborrowed balance of the Revolving Credit Commitment;
(ii) confirmation of the Borrower's compliance with Sections
6.15 through 6.18 following such Advance; and
(iii) statements that the representations and warranties set
forth in Section 4 hereof (other than those that relate to a specific date only)
are true and correct as of the date thereof; no Event of Default or Default
hereunder has occurred and is then continuing; and that there has been no
material adverse change in the financial condition, operations or business of
the Borrower and its Consolidated Subsidiaries since the date of the quarterly
and audited annual financial statements most recently delivered by the Borrower
to the Bank pursuant to Sections 4.8(a), 6.2 and 6.3 of this Agreement.
(b) Subject to the satisfaction of the terms and conditions hereof,
the Bank shall make the requested Advance available to the Borrower by crediting
such amount to the Borrower's deposit account with the Bank, or by wiring such
funds in accordance with the instructions set forth on Schedule IV hereto, not
later than two o'clock (2:00) p.m. on the day of the requested Advance.
(c) Each request for an Advance pursuant to this Section 2.6 shall
be irrevocable and binding on the Borrower.
2.7 REDUCTION OF REVOLVING CREDIT COMMITMENT. The Borrower shall have
the right at any time and from time to time, upon five (5) Business Days' prior
written notice to the Bank, to reduce the Revolving Credit Commitment in whole
or in part in increments aggregating $250,000.00 or multiples thereof without
penalty or premium, provided that (i) on the effective date of such reduction
the Borrower shall make a prepayment under the Revolving Credit Facility in an
amount, if any, by which the aggregate outstanding principal balance outstanding
under the Revolving Credit Facility exceeds the amount of the Revolving Credit
Commitment, as then so reduced, together with accrued interest on the amount so
prepaid; and (ii) notwithstanding any such partial or total reduction, any and
all Collateral pledged by the Borrower shall continue to secure the remaining
obligations of the Borrower as provided herein and in the Collateral Security
Documents to which the Borrower is a party. Any reduction of the Revolving
Credit Commitment pursuant to this Section 2.7 shall be permanent, and the
Revolving Credit Commitment cannot thereafter be restored or increased without
the written consent of the Bank.
2.8 REVOLVING LOAN TERMINATION DATE. The Revolving Credit Commitment of
the Bank shall terminate on the Revolving Credit Termination Date without notice
or demand. The Revolving Credit Termination Date may be extended by the parties
for successive one-year periods as follows: (i) not less than ninety (90) days
prior to the then applicable Revolving Credit Termination Date, the Borrower
shall deliver a written request for such extension to the Bank; and (ii)
following the receipt of such request, and not less than thirty (30) days prior
to such Revolving Credit Termination Date, the Bank shall notify the Borrower
whether the Bank has approved the Borrower's request for an extension. The
failure of the Bank to send the Borrower written approval of its request for an
extension shall be deemed a denial of such request. The Bank's decision to
approve or decline such extension request shall be in the Bank's sole
discretion.
2.9 PAYMENTS. All payments of principal, interest, fees and other
amounts due hereunder, including any prepayments thereof, shall be made by the
Borrower to the Bank in immediately available funds before twelve o'clock
(12:00) noon, Philadelphia, Pennsylvania time, on any Business Day at the
principal office of the Bank located in Philadelphia, Pennsylvania. The Bank
may, and the Borrower authorizes the Bank to, debit its account, if any, with
the Bank for the amount of any payment as and when such payment becomes due
hereunder. The Bank will notify the Borrower promptly following the occurrence
of such debit. Notwithstanding the foregoing, the Bank and any Affiliate may,
and the Borrower authorizes the Bank and any Affiliate to, debit any account
and/or certificate of deposit maintained by the Borrower with the Bank or any
Affiliate for the amount of any payment, as and when such payment becomes due
hereunder, whether such payment is for accrued interest, principal or expense,
even if debiting such account results in a loss or reduction of interest to the
Borrower or the imposition of a penalty applicable to the early withdrawal of
time deposits. Such authorization shall not affect the Borrower's obligation to
pay as and when due all amounts payable hereunder, whether or not there are
sufficient funds in any accounts of the Borrower. The Borrower agrees to fund
its respective accounts from time to time in amounts sufficient to make the
payments hereunder as and when they become due. The foregoing rights of the Bank
and its Affiliates to debit the Borrower's accounts shall be in addition to, and
not in limitation of, any rights of set-off which the Bank and/or any Affiliate
may have hereunder or under any of the Notes, any of the Collateral Security
Documents, or otherwise.
2.10 COMMITMENT FEE. The Borrower shall pay to the Bank a non-refundable
commitment fee of 18.75 basis points per annum on the unborrowed portion of the
Revolving Credit Commitment from the date hereof through the Revolving Credit
Termination Date, which fee shall be payable at the offices of the Bank,
quarterly in arrears on the first day of each January, April, July and October,
as billed by the Bank. The commitment fee shall be calculated on the basis of
the actual number of days elapsed over a year of three hundred sixty (360) days.
For purposes of calculating the commitment fee payable pursuant to this Section
2.10, the face amount of all issued, outstanding and undrawn Letters of Credit
shall be deemed to have been borrowed under Section 2 hereof.
2.11 REQUIREMENTS OF LAW. In the event that the enactment or promulgation
after the date hereof of any law, regulation, treaty or directive or any change
therein or in the interpretation or application thereof or compliance by the
Bank with any request or directive made after the date hereof (whether or not
having the force of law) from any central bank or other governmental authority,
agency or instrumentality:
(a) does or shall subject the Bank to any tax of any kind
whatsoever with respect to this Agreement, the Notes or any Loans made hereunder
(excluding any net income tax (or franchise tax imposed in lieu of a net income
tax) imposed on the Bank as a result of a present or former connection or nexus
between the jurisdiction of the government or taxing authority imposing such tax
and the Bank other than that arising solely from the Bank's having executed,
delivered or performed its obligations or received a payment under, or enforced,
this Agreement, the Notes or the Collateral Security Documents), or change the
basis of taxation of payments to the Bank of principal, commitment fee, interest
or any other amount payable hereunder (except for changes in the rate of any tax
presently imposed on the Bank);
(b) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held by,
or deposits or other liabilities in or for the account of, advances or loans by,
or other credit extended by, or any other acquisition of funds by, any office of
the Bank which are not otherwise included in the determination of the LIBOR
Adjusted Rate, the LIBOR Market Index Rate or any fixed rate hereunder; or
(c) does or shall impose on the Bank any other condition,
and if the result of any of the foregoing is to increase the cost to the Bank of
making, renewing or maintaining advances or extensions of credit to the Borrower
or to reduce any amount receivable from the Borrower thereunder, then, in any
such case, the Borrower shall promptly pay to the Bank, upon its demand, any
additional amounts necessary to compensate the Bank for such additional cost or
reduced amount receivable which the Bank deems to be material as determined by
the Bank with respect to this Agreement, the Notes or the Loans made hereunder.
If the Bank becomes entitled to claim any additional amounts pursuant to this
Section 2.11, it shall promptly notify the Borrower of the event by reason of
which it has become so entitled. A certificate setting forth calculations as to
any additional amounts payable pursuant to the foregoing sentence submitted by
the Bank to the Borrower shall be conclusive in the absence of demonstrated
error.
2.12 CAPITAL ADEQUACY. If the Bank shall have determined that the
adoption after the date hereof of any applicable law, rule or regulation
regarding capital adequacy, or any change therein after the date hereof, or any
change after the date hereof in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive after the date hereof regarding capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital as a consequence of its obligations hereunder to a level
below that which the Bank could have achieved but for such adoption, change or
compliance (taking into consideration the Bank's policies with respect to
capital adequacy) by an amount deemed by the Bank to be material, then from time
to time, within 15 days after demand by the Bank, the Borrower shall pay to the
Bank such additional amount or amounts as will compensate the Bank for such
reduction. The Bank will promptly notify the Borrower in writing of any event
of which it has knowledge, occurring after the date hereof, which will entitle
the Bank to compensation pursuant to this Section 2.12 and such notice of the
amount due pursuant to this Section 2.12 shall be conclusive in the absence of
demonstrated error. In the event the Bank requests additional compensation
pursuant to this Section 2.12, the Borrower, upon one (1) Business Day's notice
to the Bank of its intent to do so, may prepay all, but not less than all, of
its obligations under Term Loan A, which prepayment shall not be subject to the
prepayment penalty required pursuant to Section 2.4(a) hereof; provided,
however, that in the event the Borrower provides such notice to the Bank of its
intent to prepay Term Loan A, the Bank may, upon notice to the Borrower, rescind
its demand for such additional compensation. Upon such rescission the
above-referenced prepayment penalty shall be applicable to all subsequent
prepayments specified in Section 2.4(a) hereof, other than such prepayments
proposed to be made as a result of a subsequent demand for additional
compensation hereunder.
2.13 INABILITY TO DETERMINE LIBOR BASE RATE OR LIBOR MARKET INDEX RATE.
In the event, and on each occasion, that prior to the first day of the
commencement of any Interest Period for a LIBOR Loan and prior to the first day
of any month for a LIBOR Market Index Loan, the Bank shall have determined
(which determination shall be conclusive and binding upon the Borrower) that
dollar deposits in the principal amount of such LIBOR Loan or LIBOR Market Index
Loan, as applicable, are not generally available in the London Interbank Market,
or that the rate at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to the Bank of making or maintaining the
principal amount of such LIBOR Loan and/or LIBOR Market Index Loan, or that
reasonable means do not exist for ascertaining the LIBOR Base Rate or LIBOR
Market Index Rate, the Bank shall, as soon as practicable thereafter, give
written, telegraphic or telephonic notice of such determination to the Borrower.
After such notice shall have been given and until the circumstances giving rise
to such notice no longer exist, each request for a LIBOR Loan or LIBOR Market
Index Loan, or for conversion to or maintenance of a LIBOR Loan or LIBOR Market
Index Loan pursuant to the terms of this Agreement, shall be deemed to be for a
Base Rate Loan. Each determination by the Bank hereunder shall be conclusive
absent error in calculation.
2.14 INDEMNITY. The Borrower agrees to indemnify the Bank and to hold
the Bank harmless from any loss, cost, or expense which the Bank may sustain or
incur as a consequence of: (a) default by the Borrower in payment of the
principal of or interest on any LIBOR Loan or LIBOR Market Index Loan,
including, without limitation, any loss, cost, or expense arising from
additional interest or fees payable by the Bank to lenders of funds obtained by
it in order to maintain any LIBOR Loan or LIBOR Market Index Loan hereunder, (b)
default by the Borrower in making a borrowing of a LIBOR Loan after the Borrower
has given a notice of borrowing in accordance with Section 2.6 hereof; or (c)
default by the Borrower in making any prepayment of a LIBOR Loan after the
Borrower has given a notice thereof. This covenant shall survive for two years
following the termination of this Agreement and payment of the Notes.
SECTION 3
LETTERS OF CREDIT
3.1 AVAILABILITY OF CREDITS.
(a) Terms of Letters of Credit. Subject to the terms and conditions
set forth herein, the Bank shall from time to time prior to the Revolving Credit
Termination Date issue Letters of Credit for the account of the Borrower (and
for the benefit of the Borrower or any of the Domestic Group) on the following
terms and conditions:
(i) at the time of issuance of the Letter of Credit, the
face amount of such Letter of Credit aggregated with (A) the face amount of all
other Letters of Credit then outstanding hereunder and (B) all amounts
outstanding under the Revolving Credit Facility shall not exceed in the
aggregate the Revolving Credit Commitment;
(ii) the final expiry date of each Letter of Credit shall be
on or before the Revolving Credit Termination Date;
(iii) there shall not exist at the time of issuance of the
Letter of Credit, and as a result thereof, any Event of Default or Default;
(iv) the Borrower shall have completed and delivered to the
Bank (A) the Advance Request Form and (B) a Letter of Credit Application, as
provided in Section 3.2 hereof;
(v) each Letter of Credit issued under this Section 3 shall
be required by the Borrower (and for the benefit of the Borrower or any of the
Domestic Group) in the ordinary course of its respective business; and
(vi) the Borrower shall have paid any and all LC Fees then
outstanding or due in connection with such issuance.
(b) Existing Letters of Credit. The parties acknowledge and agree
that the Existing Letters of Credit are deemed to be Letters of Credit issued
under and subject to the provisions of this Agreement and this Section 3.
(c) Extension of Letters of Credit. Notwithstanding the provisions
of this Section 3.1 requiring that the final expiry date of each Letter of
Credit be on or before the Revolving Credit Termination Date, the Bank may
issue, upon the Borrower's request if required by a proposed beneficiary, a
Letter of Credit which by its terms may be extended beyond the Revolving Credit
Termination Date. With respect to any such Letter of Credit issued hereunder,
the Borrower hereby agrees that it will deliver on or before the issuance of
such Letter of Credit cash collateral in an amount equal to one hundred percent
(100%) of the outstanding undrawn amount of each such Letter of Credit pursuant
to Section 3.4(d) hereof.
3.2 APPROVAL AND ISSUANCE. The Borrower shall provide to the Bank not
less than five (5) Business Days' prior written notice of each request for the
issuance of a Letter of Credit by delivery of an Advance Request Form and a
Letter of Credit Application in the form attached hereto as Exhibit C. Each
Advance Request Form submitted by the Borrower to the Bank requesting the
issuance of a Letter of Credit shall (a) be certified by the chief executive or
chief financial officer or controller of the Borrower, (b) list all Letters of
Credit outstanding as of such date and, for each Letter of Credit so listed, its
face amount, outstanding undrawn balance and expiration date, and (c) represent
as to the matters set forth in Section 2.6(a)(i), (ii) and (iii) hereof.
3.3 OBLIGATIONS OF THE BORROWER.
(a) The Borrower agrees to pay to the Bank in connection with each
Letter of Credit issued hereunder: (i) immediately upon the demand of the Bank,
the amount paid by the Bank with respect to such Letter of Credit, (ii)
immediately upon demand of the Bank, the amount of any draft presented
purporting to be drawn under such Letter of Credit provided that the draft and
accompanying documents conform to the terms of the Letter of Credit but subject
to the terms of Section 3.5 hereof (whether or not the Bank has at such time
honored such draft) and any other amounts paid thereunder (it being understood
that the Bank is not required to make demand upon or proceed against any other
party or to resort to any Collateral before obtaining payment from the
Borrower); (iii) upon the issuance of each Letter of Credit and, with respect to
each renewal thereof, pro rata on the basis of the length of the renewal period,
a fee to the Bank equal to one percent (1%) per annum on the face amount of each
standby Letter of Credit, and upon demand by the Bank, all other standard
issuance, negotiation and other fees and commissions at the standard rates
charged from time to time by the Bank to its customers generally (collectively,
the "LC FEES"); and (iv) interest on any Indebtedness outstanding with respect
to such Letter of Credit, whether for funds paid on drafts on such Letter of
Credit, or otherwise (but such Indebtedness shall not include undrawn balances
of such Letter of Credit issued hereunder) calculated at the rate and paid at
the times and in the manner set forth for the calculation and payment of
interest in Section 2.5 hereof. Interest under clause (iv) above shall accrue on
amounts paid on a Letter of Credit (if not reimbursed by the Borrower on the
same day) from the date of payment by the Bank, whether or not demand is made,
until such amounts are reimbursed by the Borrower whether before, at or after
demand.
(b) In the absence of an Event of Default or Default hereunder, and
subject to the provisions of this Agreement, the Bank hereby agrees to advance
funds to the Borrower under the Revolving Credit Facility to make the payments
required under Sections 3.3(a)(i) and (ii) hereof with respect to amounts paid
or payable on account of a draft drawn under a Letter of Credit. The Borrower's
obligation to reimburse the Bank for such advance shall be deemed an "Advance"
under Section 2 of this Agreement; and such Advance shall bear interest from the
date of such Advance (without duplication of interest accrued under Sections
3.3(a)(iv) and 3.3(c) hereof), be repayable, prepayable, and otherwise subject
to all the terms and conditions hereof as if advanced by the Bank pursuant to
Section 2.6 hereof.
(c) If any payment by the Bank of a draft drawn under a Letter of
Credit is not advanced pursuant to Section 3.3(b) hereof because of the
occurrence or continuation of an Event of Default hereunder and is not otherwise
reimbursed by the Borrower prior to or on the date of such payment, the amount
of such payment shall thereupon be deemed for purposes hereof a "Reimbursement
Obligation" hereunder. Such Reimbursement Obligation shall bear interest at the
default rate set forth in Section 2.5(d) hereof with respect to amounts
outstanding under the Revolving Credit Facility (without duplication of interest
accrued under Sections 3.3(a)(iv) and 3.3(b) hereof), shall be repayable upon
demand. Notwithstanding the foregoing, the creation of such Reimbursement
Obligation shall not in any way limit the Bank's ability to treat as an Event of
Default hereunder the Borrower's failure to make such reimbursement.
3.4 COLLATERAL SECURITY.
(a) The indebtedness, liabilities and obligations of the Borrower
under this Section 3, however created or incurred, whether now existing or
hereafter arising, due or to become due, absolute or contingent, direct or
indirect, secured or unsecured, are among the obligations secured by the
security interests, liens and encumbrances created by the Selas Collateral
Security Documents which the Borrower has delivered to the Bank, as well as by
the other Collateral Security Documents, and the Bank is entitled to the benefit
of the collateral security granted thereunder with respect to such indebtedness.
(b) Notwithstanding the payment in full of the Loan, or the
occurrence of Revolving Credit Termination Date, the Collateral shall continue
to secure the indebtedness, liabilities and obligations of the Borrower under
this Section 3, until all Letters of Credit shall have expired and payment in
full of all indebtedness, liabilities and obligations under this Section 3 shall
have occurred, except as provided in subsection (c) below.
(c) If the Borrower shall have deposited with the Bank cash
collateral (in the form of First Union National Bank certificates of deposit
("FUNB CDS")) or U.S. Treasury securities with maturities no more than ninety
(90) days from the date of deposit ("U.S. TREASURY BILLS") (discounted in
accordance with customary banking practice to present value to determine amount)
in an amount equal at all times to one hundred percent (100%) of the outstanding
undrawn amount of all Letters of Credit (all interest on such deposited cash
collateral and U.S. Treasury Bills also to be held by the Bank as additional
cash collateral) on or before the Revolving Credit Termination Date and shall
have irrevocably paid in full the Loans and all other indebtedness, liabilities
and obligations of the Borrower to the Bank under this Agreement (including all
indebtedness and fees due and owing under this Section 3 other than for undrawn
balances of Letters of Credit and other fees and liabilities not yet accrued
thereunder), the Borrower shall be entitled to the release of the Collateral and
the termination of all covenants of the Borrower under this Agreement (except
under this Section 3).
(d) On the Revolving Credit Termination Date or the occurrence of
an Event of Default, the Bank may require (and in the case of an Event of
Default occurring under Section 9.1(h) it shall be required automatically) that
the Borrower deliver to the Bank, unless previously delivered to the Bank under
subsection (c) above, cash (to be invested in FUNB Cds) or U.S. Treasury Bills
with maturities of not more than 90 days from the date of delivery (discounted
in accordance with customary banking practice to present value to determine
amount) in an amount equal at all times to one hundred percent (100%) of the
outstanding undrawn amount of all Letters of Credit, such cash or U.S. Treasury
Bills and all interest earned thereon to constitute cash collateral for all such
Letters of Credit. At such time as such cash collateral or U.S. Treasury Bills
is required to be and has not been deposited, the Bank shall be entitled to
liquidate such of the other Collateral as is necessary or appropriate in its
sole judgment so as to create such cash collateral.
(e) Any cash collateral deposited under subsections (c) and (d)
above shall be held by the Bank, and invested and reinvested at the expense and
the written direction of the Borrower, in U.S. Treasury Bills with maturities of
no more than thirty (30) days from the date of investment. Interest earned on
such collateral shall be distributed to the Borrower quarterly.
3.5 GENERAL TERMS OF CREDITS. The following terms and conditions apply
with respect to each Letter of Credit (a "CREDIT") notwithstanding anything to
the contrary contained herein:
(a) The Borrower assumes all risks of the acts or omissions of the
beneficiary of each Credit with respect to the use of the Credit or with respect
to the beneficiary's obligations to the Borrower. Neither the Bank nor any of
its officers or directors shall be liable or responsible for: (i) the use which
may be made of the Credit or for any acts or omissions of the beneficiary in
connection therewith) (ii) the accuracy, truth, validity, sufficiency or
genuineness of documents, or of any endorsement thereon, even if such documents
should in fact prove to be in any or all respects false, misleading, inaccurate,
invalid, insufficient, fraudulent or forged; (iii) the payment by the Bank
against presentation of facially conforming documents; (iv) any other
circumstances whatsoever in making or failing to make payment under a Credit
provided the Bank acts in good faith and without gross negligence with respect
thereto; or (v) any inaccuracy, interruption, error or delay in transmission or
delivery of correspondence or documents by post, telegraph or otherwise. In
furtherance and not in limitation of the foregoing, the Bank may accept facially
conforming documents without responsibility for further investigation,
regardless of any notice or information to the contrary.
(b) To the extent any failure to comply with the provisions of this
Section 3.5(b) could, either individually or in the aggregate, result in a
material adverse change in the financial condition, business, operations or
prospects of the Borrower and its Consolidated Subsidiaries, the Borrower agrees
to procure or to cause the beneficiaries of each Credit to procure promptly any
necessary import and export or other licenses for the import or export or
shipping of any goods referred to in or pursuant to a Credit and to comply and
to cause the beneficiaries to comply with all foreign and domestic governmental
regulations with respect to the shipment and warehousing of such goods or
otherwise relating to or affecting such Credit, including governmental
regulations pertaining to transactions involving designated foreign countries or
their nationals, and to furnish such certificates in that respect as the Bank
may at any time reasonably require, and to keep such goods adequately covered by
insurance in amounts, with carriers and for such risks as shall be customary in
the industry and to cause the Bank's interest to be endorsed on such insurance
and to furnish the Bank at its request with reasonable evidence thereof. Should
such insurance (or lack thereof) upon said goods for any reason not be
reasonably satisfactory to the Bank, the Bank may (but is not obligated to)
obtain, at the Borrower's expense, insurance satisfactory to the Bank.
(c) In connection with each Credit, neither the Bank nor any
correspondent shall be responsible for: (i) any breach of contract between the
Credit beneficiaries and the Borrower; (ii) any laws, customs, and regulations
which may be effective in any jurisdiction where any negotiation and/or payment
of such Credit occurs; (iii) failure of documents (other than documents required
by the terms of the Credit) to accompany any draft at negotiation; or (iv)
failure of any entity to note the amount of any document or draft on the reverse
of such Credit or to surrender or to take up such Credit or to forward documents
other than documents required by the terms of the Credit. In connection with
each Credit, the Bank shall not be responsible for any error, neglect or default
of any correspondent. None of the above shall affect, impair or prevent the
vesting of the Bank's rights or powers hereunder. If a Credit provides that
payment is to be made by the Bank's correspondent, neither the Bank nor such
correspondent shall be responsible for the failure of any of the documents
specified in such Credit to come into the Bank's hands, or for any delay in
connection therewith, and the Borrower's obligation to make reimbursement shall
not be affected by such failure or delay in the receipt of any such documents.
(d) Notwithstanding the foregoing, with respect to any Credit, the
Borrower shall have a claim against the Bank, and the Bank shall be liable to
the Borrower, to the extent, but only to the extent, of any direct, as opposed
to indirect or consequential, damages suffered by the Borrower caused by (i) the
Bank's willful misconduct or gross negligence and; (ii) the Bank's failure to
make payments under a presentation under a Credit that strictly complies with
the terms of the Credit in all respects.
To the extent not inconsistent with this Agreement, the Uniform
Customs and Practices for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 are hereby made a part of this Agreement
with respect to obligations in connection with each Credit.
SECTION 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
4.1 ORGANIZATION AND GOOD STANDING. The Borrower and each of its
Consolidated Subsidiaries is duly organized and existing and in good standing,
under the laws of the state (or other jurisdiction) of its incorporation, has
the power and authority to carry on its business as now conducted, and is
qualified to do business in all other states (or other jurisdictions) in which
the nature of its business or the ownership of its properties requires such
qualification.
4.2 POWER AND AUTHORITY; VALIDITY OF AGREEMENT. The Borrower and each of
the Guarantors has the power and authority under the laws of the state (or other
jurisdiction) of its incorporation and under its articles or certificate of
incorporation and by-laws to enter into and perform this Agreement and all other
agreements and documents executed and delivered pursuant to this Agreement to
which it is a party and actions required of the Borrower hereunder and
thereunder; and all actions (corporate or otherwise) necessary or appropriate
for the Borrower's and each Guarantor's execution and performance of this
Agreement and all other agreements and documents to which it is a party and
actions required of the Borrower and each of the Guarantors hereunder and
thereunder have been taken, and, upon their execution, the same will constitute
the valid and binding obligations of the Borrower to the extent it is a party
thereto, enforceable in accordance with their terms.
4.3 NO VIOLATION OF LAWS OR AGREEMENTS. The making and performance of
this Agreement and the other documents, agreements and actions required of the
Borrower and each of the Guarantors hereunder and thereunder will not violate
any provisions of any law or regulation, federal, state or local, or the
articles of incorporation and by-laws of the Borrower or any Guarantor or result
in any breach or violation of, or constitute a default under, any agreement or
instruments by which the Borrower or any Guarantor or its respective property
may be bound.
4.4 COMPLIANCE. The Borrower: (a) is in compliance in all material
respects with all applicable laws and regulations, federal, state and local
(including without limitation those administered by the Local Authorities),
material to the conduct of its business and operations; and (b) possesses all
the franchises, permits, licenses, certificates of compliance and approval and
grants of authority necessary or required in the conduct of its business; and
the same are valid, binding, enforceable and subsisting without any defaults
thereunder or enforceable adverse limitations thereon and are not subject to any
proceedings or claims opposing the issuance, development or use thereof or
contesting the validity thereof; and, except as described on Schedule V, no
authorization, consent, approval, waiver, license or formal exemptions from, nor
any filing, declaration or registration with, any court or consents,
governmental agency or regulatory authority (federal, state or local) or
non-governmental entity, under the terms of contracts or otherwise, is required
by reason of or in connection with the Borrower's execution and performance of
this Agreement and all other agreements and documents executed and delivered
pursuant to this Agreement to which it is a party and actions required of the
Borrower hereunder and thereunder.
4.5 LITIGATION. Except as set forth on Schedule V hereto or on the
financial statements furnished to the Bank pursuant to Section 4.8(a) hereof,
there are no actions, suits, proceedings or claims which are pending or, to the
best of the Borrower's knowledge or information, threatened against the Borrower
which, either singly or in the aggregate, are reasonably likely to have a
Material Adverse Effect.
4.6 TITLE TO ASSETS. The Borrower and each of its Consolidated
Subsidiaries has good and marketable title to all of its real property and good
title to all of its other properties and assets, in each case, free and clear of
any liens and encumbrances, except the security interests granted to the Bank
hereunder and under the Collateral Security Documents, except as permitted
pursuant to Section 7.4 hereof and as otherwise disclosed in the title reports
furnished to the Bank pursuant to Section 5.1(m) hereof, and all such assets are
in good order and repair and fully covered by the insurance required under
Section 6.7 hereof.
4.7 CAPITAL STOCK. As of the date of execution of this Agreement, the
number of shares and classes of the outstanding capital stock of the Borrower
and each of its Consolidated Subsidiaries is accurately set forth on Schedule VI
attached hereto; all such shares are validly issued, fully paid and
non-assessable, and the issuance and sale thereof are in compliance with all
applicable federal and state securities and other applicable laws.
4.8 ACCURACY OF INFORMATION; FULL DISCLOSURE.
(a) All financial statements furnished to the Bank, including the
annual financial statement for the Borrower and its Consolidated Subsidiaries
and for the period ending December 31, 1997, and the interim financial
statements dated March 31, 1998, copies of which have been furnished to the
Bank, have been prepared in accordance with GAAP, and all such financial
statements furnished to the Bank hereunder, fairly present in all material
respects the financial condition of the Borrower and its Consolidated
Subsidiaries, as of the dates and for the periods covered (subject in the case
of interim financial statements, to normal recurring year-end adjustments and
the absence of notes) and discloses all liabilities, as of such dates, of the
Borrower and its Consolidated Subsidiaries in each case which are required to be
disclosed under GAAP, and there has been no material adverse change in the
financial condition or business of the Borrower and its Consolidated
Subsidiaries from the date of the latest of such statements to the date hereof;
and
(b) All financial statements and other documents furnished by the
Borrower to the Bank in connection with this Agreement do not and will not
contain any untrue statement of material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading. The
Borrower has disclosed in reasonable detail to the Bank in writing any and all
events which have occurred and could reasonably be expected to materially and
adversely affect the business, properties, operations or condition, financial or
otherwise, of the Borrower and its Consolidated Subsidiaries, considered as a
whole, or the Borrower's ability to perform its obligations under this
Agreement, and all other documents, agreements and actions required by the
Borrower hereunder and thereunder.
4.9 TAXES AND ASSESSMENTS. (a) The Borrower and each of the Guarantors
has filed all required tax returns or has filed for extensions of time for the
filing thereof, and has paid all applicable federal, state and local taxes,
other than taxes not yet due or which may be paid hereafter without penalty;
provided that no such taxes shall be required to be paid if they are being
contested in good faith by appropriate proceedings and are covered by
appropriate reserves maintained in cash or cash equivalents and in accordance
with GAAP and (b) the Borrower and each of the Guarantors has no knowledge of
any deficiency or additional assessment in connection therewith not provided for
in the financial statements required hereunder or otherwise disclosed in writing
to the Bank.
4.10 FUNDED DEBT. The Borrower has no presently outstanding Funded Debt
or similar obligations including contingent obligations and obligations under
leases of property from others, except the Funded Debt and obligations described
in Schedule VII hereto or in the financial statements which have been furnished
to the Bank from time to time pursuant to Sections 4.8(a), 6.2 and 6.3 hereof.
4.11 INVESTMENTS. As of the date of this Agreement, except as set forth
on Schedules I-A and I-B hereto, the Borrower has no Subsidiaries, Affiliates,
or investments in or loans to any other individuals or business entities, other
than (a) Permitted Investments, and (b) those described in Schedule VIII hereto.
4.12 ERISA. Except as disclosed in Schedule IX hereto or on the most
recently submitted financial statements furnished to the Bank from time to time
pursuant to Sections 4.8(a), 6.2 and 6.3 hereof:
(a) The Borrower and each ERISA Affiliate is in compliance in all
material respects with all applicable provisions of ERISA and the regulations
promulgated thereunder;
(b) Neither the Borrower nor any ERISA Affiliate maintains or
contributes to or has maintained or contributed to any multiemployer plan (as
defined in section 4001 of ERISA);
(c) Neither the Borrower nor any ERISA Affiliate sponsors or
maintains any Plan under which there is an Accumulated Funding Deficiency,
whether or not waived;
(d) The excess of the aggregate liability for accrued benefits and
other ancillary benefits under each defined benefit pension Plan that is or will
be sponsored or maintained by the Borrower, or any ERISA Affiliate (determined
on the basis of the actuarial assumptions prescribed for valuing benefits under
terminating single-employer defined benefit plans under Title IV of ERISA) over
the aggregate fair market value of the assets under each such defined Plan is
not likely to have a Material Adverse Effect;
(e) The aggregate liability of the Borrower and the ERISA
Affiliates arising out of or relating to a failure of any Plan to comply with
the provisions of ERISA or the Code, will not have a Material Adverse Effect;
(f) There exists no unrecorded liability (determined on the basis
of actuarial assumptions utilized by the actuary for the Plan in preparing the
most recent Annual Report) of the Borrower, or any ERISA Affiliate under any
Plan, program or arrangement providing post-retirement life or health benefits
that is likely to have a Material Adverse Effect;
4.13 FEES AND COMMISSIONS. The Borrower: (a) owes no fees or commissions
of any kind, and (b) knows of no claim for any fees or commissions, in either
case in connection with the Borrower's obtaining the Loans from the Bank, except
those provided herein.
4.14 NO EXTENSION OF CREDIT FOR SECURITIES. The Borrower is not now, nor
at any time has it been engaged principally, or as one of its important
activities, in the business of extending or arranging for the extension of
credit, for the purpose of purchasing or carrying any margin stock or margin
securities; nor will the proceeds of the Loan be used by the Borrower, directly
or indirectly, for such purposes.
4.15 PERFECTION OF SECURITY INTERESTS. Except as otherwise provided in
this Agreement, no action, including any filing or recording of any document, is
necessary in order to establish, perfect and maintain the Bank's first priority
security interests (to the extent that a security interest therein may be
perfected by the filing of financing statements) in such assets created by the
Collateral Security Documents (subject to no prior liens and encumbrances other
than those permitted pursuant to Section 7.4 hereof) except for the periodic
filing of continuation statements with respect to financing statements filed
under the Uniform Commercial Code of applicable jurisdiction and, to the extent
applicable to any Collateral, any filings with the United States Copyright
Office or the United States Patent and Trademark Office and any action or filing
in compliance with the Federal Assignment of Claims Act.
4.16 PERFECTION OF MORTGAGE LIEN. Except as otherwise provided in this
Agreement, no action, including the filing or recording of any document, is
necessary to establish, perfect and/or maintain the Bank's first priority
perfected lien in the Dresher Real Property or the Ohio Real Property.
4.17 PERFECTION OF PLEDGE. No action, including any filing or recording
of any document, is necessary under present law in order to establish, perfect
and/or maintain the first priority security interest in all of the outstanding
shares of capital stock of Deuer, RTI, RTI Electronics and RTIE created by the
Selas Pledge Agreement.
4.18 HAZARDOUS SUBSTANCES. Except as disclosed on Schedule X attached
hereto:
(a) The Borrower and each of its Consolidated Subsidiaries: (i) has
received all permits and filed all notifications necessary to carry on its
respective business (other than permits and notifications the absence of which
is not reasonably likely, either singly or in the aggregate, to result in a
Material Adverse Effect); and (ii) is in compliance in all respects with all
Environmental Control Statutes other than any failure to comply with such
Environmental Control Statutes which failure is not reasonably likely, either
singly or in the aggregate, to result in a Material Adverse Effect.
(b) The Borrower and each of its Consolidated Subsidiaries has
given no written or oral notice, nor has it failed to give any required notice,
to EPA or any state or local agency with regard to any actual or imminently
threatened Release of Hazardous Substances on properties owned, leased or
operated by the Borrower or used in connection with the conduct of its
respective business and operations, which Release is reasonably likely, either
singly or in the aggregate, to result in a Material Adverse Effect.
(c) Neither the Borrower nor any of its Consolidated Subsidiaries
has received notice that it is potentially responsible for costs of clean-up or
remediation of any actual or imminently threatened Release of Hazardous
Substances pursuant to any Environmental Control Statute, which costs of clean
up are reasonably likely, either singly or in the aggregate, to result in a
Material Adverse Effect.
4.19 SOLVENCY. To the best knowledge of the Borrower, the Borrower and
each of its Consolidated Subsidiaries is solvent such that (i) the fair value of
its assets (including without limitation the fair salable value of the goodwill
and other intangible property of the Borrower and each of its Consolidated
Subsidiaries) is greater than the total amount of its liabilities, including
without limitation, contingent liabilities, (ii) the present fair salable value
of its assets (including without limitation the fair salable value of the
goodwill and other Intangible Assets of the Borrower and each of its
Consolidated Subsidiaries) is not less than the amount that will be required to
pay the probable liability on its respective debts as they become absolute and
matured, (iii) it is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business. Neither the Borrower nor any of its Consolidated
Subsidiaries intends to, or believes that it will, incur debts or liabilities
beyond its ability to pay as such debts and liabilities mature, nor is the
Borrower or any of its Consolidated Subsidiaries engaged in a business or
transaction, or about to engage in a business or transaction, for which its
property would constitute unreasonably small capital after giving due
consideration to the prevailing practice and industry in which it is engaged.
For purposes of this Section 4.19, in computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be computed
at the amount which, in light of all the facts and circumstances existing at
such time, represents the amount that reasonably can be expected to become an
actual matured liability.
4.20 FOREIGN ASSETS CONTROL REGULATIONS. Neither the borrowing by the
Borrower nor its use of the proceeds of the Loan will violate the Foreign Assets
Control Regulations, the Foreign Funds Control Regulations, the Transactions
Control Regulations, the Cuban Assets Control Regulations, the Iranian Assets
Control Regulation, or the Libyan Sanctions Regulations of the United States
Treasury Department (31 C.F.R. Subtitle B, Chapter V, as amended).
4.21 INVESTMENT COMPANY ACT. After review of all applicable shareholder
records and all filings under section13 of the Securities and Exchange Act of
1934, the Borrower is not, directly or indirectly controlled by or acting on
behalf of any entity which is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.22 PUBLIC UTILITY HOLDING COMPANY ACT. The execution, delivery and
performance of this Agreement, the Notes and the Collateral Security Documents
do not require any filing, authorization or consent under the Public Utility
Holding Company Act of 1935, as amended (the "1935 Act").
SECTION 5
CONDITIONS
5.1 FIRST ADVANCE. The obligation of the Bank to make the first Advance
under the Revolving Credit Commitment, as amended by this Agreement, or to issue
any Letter of Credit, shall be subject to the Bank's receipt of the following
documents, each in form and substance satisfactory to the Bank:
(a) Promissory Note. The Revolving Credit Note, duly executed by
the Borrower.
(b) Authorization Documents. A certified copy of the articles of
incorporation, bylaws and resolutions of the Board of Directors of the Borrower
authorizing the Borrower's execution and full performance of this Agreement and
all other documents and actions required hereunder and thereunder, and an
incumbency certificate setting forth the officers of the Borrower and those
persons authorized to execute this Agreement and related documents.
(c) Amendments to Collateral Security Agreements. The following
amendments to the Collateral Security Agreement duly executed by the parties
listed below, together with financing statements, landlord waivers, mortgagee
consents and waivers and evidence of any other recordations required by
applicable law or by the Bank to perfect or to continue the perfected status of
the liens and security interests intended to be created thereunder:
(i) An Amendment to the Selas Security Agreement, duly
executed by the Borrower, substantially in the form attached hereto as Exhibit
D;
(ii) An Amendment to the Deuer Security Agreement, duly
executed by Deuer, substantially in the form attached hereto as Exhibit E;
(iii) An Amendment to the RTI Security Agreement, duly
executed by RTI, substantially in the form attached hereto as Exhibit F;
(iv) An Amendment to the RTI Electronics Security Agreement,
duly executed by RTI Electronics, substantially in the form attached hereto as
Exhibit G;
(v) An Amendment to the RTIE Security Agreement, duly executed
by RTIE, substantially in the form attached hereto as Exhibit H;
(vi) A Second Amended and Restated Pledge Agreement amending
and restating the Selas Pledge Agreement in its entirety, duly executed by the
Borrower, substantially in the form attached hereto as Exhibit I;
(vii) An Amendment to the Deuer Guaranty, the RTI Guaranty,
the RTI Electronics Guaranty and the RTI Guaranty, duly executed by each of
Deuer, RTI, RTI Electronics and RTIE, substantially in the form attached hereto
as Exhibit J;
(viii) An Amendment to the Intellectual Property Security
Agreement, duly executed by RTI, substantially in the form attached hereto as
Exhibit K;
(ix) A Third Amendment to the Selas Mortgage, duly executed by
the Borrower, substantially in the form attached hereto as Exhibit L; and
(x) A Third Amendment to the Deuer Mortgage, duly executed by
Deuer, substantially in the form attached hereto as Exhibit M.
(d) Opinion of Counsel. An opinion letter from Drinker Biddle &
Reath, LLP, counsel to the Borrower and the Guarantors, substantially in the
form attached hereto as Exhibit N.
(e) Insurance. Certificates of insurance including lender's loss
payable and standard mortgagee endorsements in favor of the Bank with respect to
the Borrower's and each Guarantor's fire, casualty, liability and other
insurance covering its respective property and business.
(f) Advance Request. A completed Advance Request Form required
under Section 2.6(a) for the Borrower, and any other documents or information
reasonably required by the Bank in connection therewith.
(g) Fees. Payment of any LC Fees required pursuant to Section 3
hereof.
(h) Title Insurance. A marked-up title report of a title insurance
company or companies satisfactory to the Bank, representing such title insurance
company's or companies' commitments to issue in favor of the Bank at the expense
of the Borrower and Deuer, as applicable to such commitment, a standard form
title insurance policy insuring the lien of the mortgage or deed of trust, as
applicable, covering the Dresher Real Property, and the Ohio Real Property, each
in an amount satisfactory to Bank and subject to no other liens except as listed
therein and acceptable by the Bank.
(i) Searches. Uniform Commercial Code, tax and judgment searches
against the Borrower and each of the Guarantors in those offices and
jurisdictions as the Bank shall reasonably request.
(j) Other Documents. Such additional documents as the Bank
reasonably may request.
5.2 SUBSEQUENT ADVANCES.
(a) Revolving Credit Commitment. The obligation of the Bank to make
additional Advances under the Revolving Credit Commitment and issue Letters of
Credit under the Revolving Credit Facility shall be subject to the Bank's
receipt of a completed Advance Request Form.
(b) Additional Condition to Bank's Obligations. It shall be a
condition to the Bank's obligation hereunder to make any Advance or issue any
Letter of Credit under the Revolving Credit Facility that the representations
and warranties set forth herein and in the Collateral Security Documents shall
be true and correct as if made on the date of such advance or Advance (other
than representations and warranties that are expressly made only as to another
date), that no Event of Default or Default shall have occurred and be continuing
on the date of, or be caused by, such advance or Advance, that all fees required
pursuant to Section 2.10 and Section 3 hereof have been paid as and when due,
and there shall have been no material adverse change in the financial condition
or business of the Borrower and its Consolidated Subsidiaries since the date
hereof.
SECTION 6
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any indebtedness of the
Borrower to the Bank is outstanding, the Borrower will and will cause each of
the Guarantors to:
6.1 EXISTENCE AND GOOD STANDING. Preserve and maintain its existence as
a corporation and its good standing in all jurisdictions in which it conducts
business and the validity of all its franchises, licenses, permits, certificates
of compliance or grants of authority required in the conduct of its business.
6.2 QUARTERLY FINANCIAL STATEMENTS. Furnish to the Bank within
forty-five (45) days of the end of each fiscal quarter in each year, unaudited
quarterly consolidated and consolidating financial statements with respect to
the Borrower and its Consolidated Subsidiaries, in form and substance as
required by the Bank, including (i) a consolidated and consolidating balance
sheet, (ii) a consolidated and consolidating statement of income, (iii) a
consolidated and consolidating statement of cash flows, and (iv) a certificate
showing the calculation of the covenants set forth in Sections 6.15 through 6.18
hereof, prepared in accordance with GAAP consistently applied (except with
respect to changes in GAAP as to which the Borrower's independent certified
public accountants have concurred), together with a certificate executed by the
chief executive and chief financial officers of the Borrower stating that the
financial statements fairly present in all material respects the financial
condition of the Borrower and its Consolidated Subsidiaries as of the date and
for the periods covered and that as of the date of such certificate there exists
no violation of any provision of this Agreement or the happening of any Event of
Default or Default.
6.3 ANNUAL FINANCIAL STATEMENTS. Furnish to the Bank within ninety (90)
days after the close of each fiscal year: (a) audited consolidated annual
financial statements for the Borrower and its Consolidated Subsidiaries,
including the types of financial statements and information required under
Section 6.2 hereof, which consolidated financial statements shall be prepared in
accordance with GAAP and shall be certified without qualification (except with
respect to changes in GAAP as to which the Borrower's independent certified
public accountants have concurred) by KPMG Peat Marwick or another independent
certified public accounting firm satisfactory to the Bank; and (b)
management-prepared consolidated and consolidating annual financial statements
for the Borrower and its Consolidated Subsidiaries, including the types of
financial statements and information required under Section 6.2 hereof; and
cause the Bank to be furnished, upon the completion of the annual audit
referenced in clause (a) above, with a certificate signed by such accountants to
the effect that to the best of their knowledge there exists no Event of Default
or Default hereunder with respect to matters covered in their audit or, if any
such Event of Default or Default does exist, stating the nature thereof.
6.4 PUBLIC INFORMATION. Deliver to the Bank: (i) promptly upon
transmission thereof, copies of all such financial statements, proxy statements,
notices and reports as it shall send to its stockholders, copies of all
registration statements (without exhibits), and all annual, quarterly or other
reports which it files with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the Securities and
Exchange Commission) including without limitation, Forms 10Q and Forms 10K; and
(ii) within fourteen days of the Borrower's receipt thereof, but in no event
later than September 30th of each fiscal year, copies of the auditors' annual
management letters delivered to the Borrower for the previous fiscal year.
6.5 OTHER PERIODIC REPORTS. Deliver to the Bank, within the periods set
forth below, the following reports and information:
(a) within forty-five (45) days after the end of each fiscal
quarter, and monthly, upon request of the Bank, an aging summary report of the
accounts receivable of each of the Borrower and its Consolidated Subsidiaries;
(b) within forty-five (45) days after the end of each fiscal
quarter, a schedule of contracts in progress and contract backlog report for
each of the Borrower and its Consolidated Subsidiaries; and
(c) on or before December 31 of each year, a budget for each of the
Borrower and its Consolidated Subsidiaries, including planned capital
expenditures, for the succeeding fiscal year.
6.6 BOOKS AND RECORDS. Keep and maintain satisfactory and adequate books
and records of account in accordance with GAAP and make or cause the same to be
made available to the Bank or its agents or nominees at any reasonable time upon
reasonable notice for inspection and to make extracts thereof and permit the
Bank to discuss contents of same with senior officers of the Borrower or such
Guarantor and also with outside auditors and accountants of the Borrower or such
Guarantor.
6.7 INSURANCE. Keep and maintain all of its property and assets in good
order and repair and fully covered by insurance with reputable and financially
sound insurance companies against such hazards and in such amounts as is
customary in the industry, under policies requiring the insurer to furnish
reasonable notice to the Bank and opportunity to cure any non-payment of
premiums prior to termination of coverage; and, furnish the Bank with
certificates of such insurance and endorsements thereto including a lender's
loss payable clause in favor of the Bank with respect to personal property and a
standard mortgagee clause in favor of the Bank with respect to real property.
6.8 LITIGATION; EVENT OF DEFAULT. Notify the Bank in writing immediately
of the institution of any litigation, the commencement of any administrative
proceedings, the happening of any event or the assertion or threat of any claim,
in each case, which could have a Material Adverse Effect, or the occurrence of
any Event of Default or Default hereunder.
6.9 TAXES. Pay and discharge all taxes, assessments or other
governmental charges or levies imposed on it or any of its property or assets
prior to the date on which any penalty for non-payment or late payment is
incurred, unless the same are (a) currently being contested in good faith by
appropriate proceedings diligently prosecuted and (b) are covered by appropriate
reserves maintained in accordance with GAAP.
6.10 COSTS AND EXPENSES. Pay or reimburse the Bank for all out-of-pocket
costs and expenses (including without limitation attorneys' fees and
disbursements) the Bank may pay or incur in connection with the preparation and
review of this Agreement, all documentation related thereto, all amendments,
waivers and consents in connection therewith, the making of the Loan and
issuance of Letters of Credit, and the collection, administration or enforcement
of the same, including without limitation fees and disbursements incurred in
defense of or to retain amounts of principal, interest or fees paid. All
obligations provided for in this Section 6.10 shall survive any termination of
this Agreement and the repayment of the Loan.
6.11 ADDITIONAL COLLATERAL. Execute, deliver and record, or cause to be
executed, delivered and recorded, at any time upon the Bank's request and at the
Borrower's cost and expense and in form and substance satisfactory to the Bank,
any of the following instruments in favor of the Bank as additional Collateral
for the Loan: (i) mortgages on the Borrower's and any Guarantor's real property
and certificates of title encumbrances against any of their respective vehicles
(it being understood that a first priority mortgage on Minnesota Real Property
shall be required in the event that RTI's Indebtedness to John Alden Life
Insurance Company has been satisfied), (ii) assignments of leases of real or
personal property leased by the Borrower or any Guarantor from or to others,
(iii) specific assignments by the Borrower or any Guarantor of easements,
licenses, permits, certificates of compliance and certificates of approval
issued by regulatory authorities, franchises or like grants of authority or
service agreements, and (iv) any other like assignments or agreements
specifically covering the Borrower's or any Guarantor's properties or assets.
6.12 COMPLIANCE; NOTIFICATION.
(a) Comply in all respects with all local, state and federal laws
and regulations applicable to its business, including without limitation the
Environmental Control Statutes, the Securities and Exchange Act of 1934 and all
laws and regulations of the Local Authorities, and the provisions and
requirements of all franchises, permits, certificates of compliance and approval
issued by regulatory authorities and other like grants of authority held by
the Borrower or any Guarantor; and notify the Bank immediately in detail of any
actual or alleged failure to comply with or perform, breach, violation or
default under any such laws or regulations or under the terms of any of such
franchises or licenses, grants of authority, or of the occurrence or existence
of any facts or circumstances which with the passage of time, the giving of
notice or otherwise could create such a breach, violation or default or could
occasion the termination of any of such franchises or grants of authority.
(b) With respect to the Environmental Control Statutes, immediately
notify the Bank when, in connection with the conduct of the Borrower's or any
Guarantor's business or operations, any entity (including without limitation EPA
or any state or local agency) provides oral or written notification to such
entity, or the Borrower or any Guarantor otherwise becomes aware of a condition
with regard to an actual or imminently threatened Release of Hazardous
Substances and notify the Bank in detail immediately upon the receipt by the
Borrower or any Guarantor of an assertion of liability under the Environmental
Control Statutes, of any actual or alleged failure to comply with or perform,
breach, violation or default under any such statutes or regulations or of the
occurrence or existence of any facts, events or circumstances which with the
passage of time, the giving of notice, or both, could create such a breach,
violation or default.
6.13 ERISA. (a) Comply, and cause each ERISA Affiliate to comply, in all
material respects with the provisions of ERISA to the extent applicable to any
Plan maintained for the employees of the Borrower or any Guarantor or any ERISA
Affiliate; (b) do or cause to be done all such acts and things that are required
to maintain the qualified status of each Plan; (c) not incur any material
Accumulated Funding Deficiency or any material liability to the PBGC (as
established by ERISA); (d) notify the Bank in writing (promptly after it has
come to the attention of senior management of the Borrower) of the assertion
of any "reportable event" or other event described in Section 4043 of ERISA
(relating to the soundness of a Plan) (except for those events for which a
thirty (30) day notice period has been waived under regulations promulgated by
the United States Department of Labor) or the PBGC's intention to assert a
material liability against it or impose a lien on the Borrower's or any
Guarantor's or any ERISA Affiliate's properties or assets) and (e) refrain from
engaging in any prohibited transactions or actions causing possible liability
under Section 502 of ERISA which, either singly or in the aggregate, is or are
likely to have a Material Adverse Effect.
6.14 DEPOSIT ACCOUNTS. The Borrower shall maintain all of its primary
deposit accounts with the Bank.
6.15 CONSOLIDATED TANGIBLE CAPITAL FUNDS. Maintain, as of each June 30
and December 31, Consolidated Tangible Capital Funds for the Borrower and its
Consolidated Subsidiaries of not less than $21,443,000.00, increasing on a
semi-annual basis, commencing on each June 30 and December 31, on a cumulative
basis, by an amount equal to (i) sixty percent (60%) of consolidated net income
(as determined in accordance with GAAP) for the preceding semi-annual period,
with no reduction for losses accrued during any such semi-annual period; and
1(ii) sixty percent (60%) of the aggregate amount of contributions to
capital
during such semi-annual period.
6.16 CONSOLIDATED TOTAL LIABILITIES AND CONTINGENT LIABILITIES TO
CONSOLIDATED TANGIBLE CAPITAL FUNDS.
Maintain, as of the last day of each fiscal quarter, a ratio of (a) Consolidated
Total Liabilities of the Borrower and its Consolidated Subsidiaries plus the
Contingent Liabilities of Selas S.A. which are guaranteed by the Borrower, to
(b) Consolidated Tangible Capital Funds of the Borrower and its Consolidated
Subsidiaries, of not more than 3.00 to 1.0.
6.17 CONSOLIDATED CURRENT RATIO. Maintain, as of the last day of each
fiscal quarter, a Consolidated Current Ratio of not less than 1.30 to 1.0.
6.18 CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Maintain, as of the last
day of each fiscal year, a Fixed Charge Coverage Ratio for the Borrower and its
Consolidated Subsidiaries of 1.5 to 1.0 for the preceding Rolling Period.
6.19 MANAGEMENT CHANGES. Notify the Bank in writing immediately after any
change of its senior management personnel.
6.20 TRANSACTIONS AMONG AFFILIATES. Cause all transactions between and
among Affiliates to be on an arms length basis and on such terms and conditions
as are customary in the applicable industry between and among unrelated
entities.
6.21 OTHER INFORMATION. Provide the Bank with any other documents and
information, financial or otherwise, reasonably requested by the Bank from time
to time.
SECTION 7
NEGATIVE COVENANTS
So long as any indebtedness of the Borrower to the Bank remains outstanding
hereunder, the Borrower covenants and agrees that, without the Bank's prior
written consent, it will not and it will not permit any of the Guarantors to:
7.1 INDEBTEDNESS. Borrow any monies or create any Funded Debt except (i)
borrowings from the Bank hereunder; (ii) trade Indebtedness in the normal and
ordinary course of business for value received; (iii) Indebtedness of the
Borrower and the Guarantors not exceeding $500,000 in the aggregate under
Capitalized Leases or secured by purchase money security interests in capital
equipment acquired by the Borrower or any Guarantor; and (iv) intercompany
Indebtedness permitted under Section 7.3.
7.2 GUARANTIES. Guarantee or assume or agree to become liable in any
way, either directly or indirectly, for any additional Indebtedness of others
except (i) endorsements of checks or drafts in the ordinary course of business;
and (ii) the guarantee by the Borrower of the Indebtedness of any of its
Consolidated Subsidiaries or the guarantee by any of Borrower's Consolidated
Subsidiaries of the Indebtedness of the Borrower or any of its Consolidated
Subsidiaries, provided such Indebtedness is (i) not prohibited by this
Agreement; (ii) accrued after the date hereof; and (iii) in favor of the Bank.
7.3 LOANS AND ADVANCES. Make any loans or advances to any entity except
loans and advances by the Borrower to any of its Consolidated Subsidiaries which
are evidenced by a promissory note, substantially in the form attached hereto as
Exhibit O, which shall be endorsed in favor of the Bank.
7.4 LIENS AND ENCUMBRANCES. Create, permit or suffer the creation of any
liens, security interests, or any other encumbrances on any of its property,
real or personal (or the property of any Subsidiary, including without
limitation, Foreign Subsidiaries) except in favor of the Bank as security for
the Loan, and except (i) liens securing purchase money indebtedness for the
purchase of capital equipment or obligations under Capitalized Leases with
respect to capital equipment, provided that (A) such liens are limited to such
capital equipment, and (B) the incurrence of such purchase money indebtedness or
Capitalized Lease obligations is permitted under Section 7.1(iii) hereof; (ii)
liens for taxes, assessments or other governmental charges, federal, state or
local, which are not yet due and payable, without penalty, or are then being
currently contested in good faith by appropriate proceedings and are covered by
appropriate reserves maintained in accordance with GAAP; (iii) pledges or
deposits to secure obligations under workmen's compensation, unemployment
insurance or social security laws or similar legislation; (iv) deposits to
secure performance or payment bonds, bids, tenders, contracts, leases,
franchises or public and statutory obligations required in the ordinary course
of business; and (v) deposits to secure surety, appeal or custom bonds required
in the ordinary course of business.
7.5 ADDITIONAL NEGATIVE PLEDGE. Agree or covenant with or promise any
entity other than the Bank that it will not pledge its assets or properties or
otherwise grant any liens, security interests or encumbrances on its property on
terms similar to those set forth in Section 7.4 hereof.
7.6 RESTRICTED PAYMENTS. Make any Restricted Payments; provided,
however, that so long as there exists no Event of Default or Default under this
Agreement, and to the extent that following payment thereof, the Borrower shall
remain in compliance with the provisions of Section 6.15 through 6.18 hereof,
(a) the Borrower and any Guarantor may pay dividends to their respective
shareholders; (b) each Guarantor shall pay to the Borrower dividends (which are
otherwise authorized in accordance with applicable law and the Guarantor's
articles of incorporation and bylaws) in such amounts, if any, as are necessary
to permit the Borrower to make its regularly scheduled payments on its Funded
Debt; and (c) the Borrower may make regularly scheduled payments of interest and
principal on Subordinated Debt, if any.
7.7 TRANSFER OF ASSETS; LIQUIDATION.
(a) Sell, lease, transfer or otherwise dispose of all or any
portion of its assets, real or personal, other than such transactions in the
normal and ordinary course of business for value received; or
(b) discontinue, liquidate, or change in any material respect any
substantial part of its operations or business(es).
7.8 ACQUISITIONS AND INVESTMENTS. Purchase or otherwise acquire
(including without limitation by way of share exchange) any part or amount of
the capital stock or assets of, or make any investments (other than Permitted
Investments, subject to the conditions and limitations set forth in the
definition thereof) in, any other firm or corporation; or enter into any new
business activities or ventures not directly related to its present business; or
merge or consolidate with or into any other firm or corporation; or create any
subsidiary corporations or joint ventures; or permit any of Borrower's
Consolidated Subsidiaries to do any of the foregoing (any of the foregoing
transactions being referred to herein as an "ACQUISITION"), if the total
consideration for such Acquisition exceeds $1,500.000.00 or if such
consideration, when added to the total consideration for all other Acquisitions
consummated by the Borrower and any of its Consolidated Subsidiaries in fiscal
year 1998, exceeds $5,400,000.00, or otherwise in the same fiscal year, exceeds
$2,500,000.00. For purposes of this restriction, the consideration for an
Acquisition shall include all consideration of any form, including without
limitation cash, notes, stock or other securities or property and the assumption
of indebtedness.
7.9 CAPITAL EXPENDITURES. Make Capital Expenditures (not including
Acquisitions) in excess of $4,000,000.00 in the aggregate for the Borrower's
Consolidated Subsidiaries in any fiscal year.
7.10 USE OF PROCEEDS. Use any of the proceeds of the Loan, directly or
indirectly, to purchase or carry margin securities within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System or engage
as its principal business in the extension of credit for purchasing or carrying
such securities.
7.11 AMENDMENTS TO DOCUMENTS. Amend or permit the amendment of
organizational documents of Deuer, RTI, RTI Electronics or RTIE.
SECTION 8
ADDITIONAL COLLATERAL AND RIGHT OF SET OFF
8.1 ADDITIONAL COLLATERAL. As additional collateral for the payment of
any and all of the Borrower's or any Guarantor's indebtedness and obligations to
the Bank, whether matured or unmatured, now existing or hereafter incurred or
created hereunder or otherwise, the Borrower hereby grants to the Bank a
security interest in and lien upon all funds, balances or other property of any
kind of the Borrower, or in which the Borrower has an interest, limited to the
interest of the Borrower, therein, whether now or hereafter in the possession,
custody or control of the Bank.
8.2 RIGHT OF SET-OFF. The Bank is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set-off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by the Bank to or for the
credit or the account of the Borrower against any and all of the obligations of
the Borrower now or hereafter existing under this Agreement, the Notes, and the
Collateral Security Documents, irrespective of whether the Bank shall have made
any demand under document and although such obligations may be unmatured. The
Bank agrees promptly to notify the Borrower after any such set-off and
application made by the Bank; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application. The Bank's
rights under this Section 8 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Bank may
have.
SECTION 9
DEFAULT
9.1 EVENTS OF DEFAULT. Each of the following events shall be an Event
of Default hereunder:
(a) If the Borrower or any of its Consolidated Subsidiaries shall
fail to pay when due any installment of principal, interest, fees, costs,
expenses or any other sum payable to the Bank hereunder, under any of the Notes,
any of the Collateral Security Documents, or otherwise;
(b) If any representation or warranty made herein or in connection
herewith or in any statement, certificate or other document furnished hereunder
is false or misleading in any material respect when made;
(c) If the Borrower or any of its Consolidated Subsidiaries shall
default in the payment or performance of any Funded Debt to another entity
either singly or in the aggregate in excess of $1,000,000.00, whether now or
hereafter incurred;
(d) If the Borrower or any of its Consolidated Subsidiaries or any
other applicable entity shall default in or fail to observe at any test date the
covenants set forth in Sections 6.15 through 6.18 hereof;
(e) If the Borrower or any of its Consolidated Subsidiaries shall
default in the performance of any other agreement or covenant contained herein
(other than as provided in subsections (a), (b) or (d) above) or in any document
executed or delivered in connection herewith, including without limitation any
Collateral Security Document and such default shall continue uncured for twenty
(20) days after notice thereof to the Borrower or any of its Consolidated
Subsidiaries given by the Bank;
(f) If: (i) any person or group within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the rules and regulations promulgated thereunder shall have beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act), directly or indirectly, of
securities of the Borrower (or other securities convertible into such
securities) representing twenty-five percent (25%) of the combined voting power
of all securities of the Borrower entitled to vote in the election of directors
(hereinafter called a "Controlling Person"); or (ii) a majority of the Board of
Directors of the Borrower shall cease for any reason to consist of (A)
individuals who on the date hereof were serving as directors of the Borrower or
(B) individuals who subsequently become members of the Board if such
individuals' nomination for election or election to the board is recommended or
approved by a majority of the Board of Directors of the Borrower. For purposes
of clause (i) above, a person or group shall not be a Controlling Person if such
person or group holds voting power in good faith and not for the purpose of
circumventing this Section 8.1(f) as an agent, bank, broker, nominee, trustee,
or holder of revocable proxies given in response to a solicitation pursuant to
the 1934 Act, for one or more beneficial owners who do not individually, or, if
they are a group acting in concert, as a group, have the voting power specified
in clause (i) above;
(g) If custody or control of any substantial part of the property
of the Borrower or any of its Consolidated Subsidiaries shall be assumed by any
governmental agency or any court of competent jurisdiction at the instance of
any governmental agency; if any material license or franchise of the Borrower or
any of its Consolidated Subsidiaries (if any hereafter exist or are required)
shall be suspended, revoked or otherwise terminated; or if any governmental
regulatory authority or judicial body shall make any other final non-appealable
determination the effect of which would be to affect materially and adversely
the operations of the Domestic Group, on a consolidated basis, or the Borrower,
individually, as now conducted; or
(h) If the Borrower or any of its Consolidated Subsidiaries:
becomes insolvent, bankrupt or generally fails to pay its debts as such debts
become due; is adjudicated insolvent or bankrupt; admits in writing its
inability to pay its debts; shall suffer a custodian, receiver or trustee for it
or substantially all of its property to be appointed and if appointed without
its consent, not be discharged within thirty (30) days; makes an assignment for
the benefit of creditors; or suffers proceedings under any law related to
bankruptcy, insolvency, liquidation or the reorganization, readjustment or the
release of debtors to be instituted against it and if contested by it not
dismissed or stayed within ten (10) days; if proceedings under any law related
to bankruptcy, insolvency, liquidation, or the reorganization, readjustment or
the release of debtors is instituted or commenced by the Borrower or any of its
Consolidated Subsidiaries; if any order for relief is entered relating to any of
the foregoing proceedings; if the Borrower or any of its Consolidated
Subsidiaries shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or if the Borrower or any of its
Consolidated Subsidiaries shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or
(i) the aggregate unfunded pension liabilities and unrecognized
retiree welfare liability of one or more Employee Benefit Plans have increased
(other than as a result of a change after the date hereof in any actuarial
assumption used in connection with the calculation of such amount which change
is required in accordance with sound actuarial practice) after the date of this
Agreement in an amount in excess of $1,000,000.00;
(j) any event or condition shall occur or exist with respect to any
activity or substance regulated under the Environmental Control Statutes and as
a result of such event or condition, the Borrower or any of its Consolidated
Subsidiaries, or any combination thereof has incurred or in the opinion of the
Bank is reasonably likely to incur a liability in excess of $1,000,000.00,
singly or in the aggregate, during any consecutive twelve (12) month period;
(k) if any judgment, writ, warrant or attachment or execution or
similar process which calls for payment or presents liability in excess of
$1,000,000.00 shall be rendered, issued or levied against the Borrower or any of
its Consolidated Subsidiaries or its respective property and such process shall
not be paid, waived, stayed, vacated, discharged, settled, satisfied or fully
bonded within sixty (60) days after its issuance or levy.
9.2 REMEDIES. Upon the happening of any Event of Default and at any time
thereafter, at the election of the Bank, with notice to the Borrower (except if
an Event of Default described in Section 9.1(h) shall occur in which case
acceleration shall occur automatically without notice), the Bank may declare the
entire unpaid balance, principal, interest and fees, of all Indebtedness of the
Borrower to the Bank, hereunder or otherwise, to be immediately due and payable.
Upon such declaration (and, upon the occurrence of an Event of Default described
in Section 9.1(h) hereof, without such declaration or other notice), the Bank
shall have no further obligation to make any Advances or issue any Letters of
Credit under the Revolving Credit Facility and the immediate right to enforce or
realize on any Collateral in any manner or order it deems expedient without
regard to any equitable principles of marshalling or otherwise. In addition to
any rights granted hereunder or in any documents delivered in connection
herewith, the Bank shall have all the rights and remedies granted by any
applicable law, all of which shall be cumulative in nature.
SECTION 10
MISCELLANEOUS
10.1 INDEMNIFICATION AND RELEASE PROVISIONS. The Borrower hereby agrees
to defend the Bank and its directors, officers, agents, employees and counsel
from, and hold each of them harmless against, any and all losses, liabilities
(including without limitation settlement costs and amounts, transfer taxes,
documentary taxes, or assessments or charges made by any governmental
authority), claims, damages, interest, judgments, costs, or expenses, including
without limitation fees and disbursements of counsel, incurred by any of them
arising out of
or in connection with or by reason of this Agreement, the making of the Loans,
the issuance of any letter of credit, or any Collateral Security Document,
including without limitation, any and all losses, liabilities, claims, damages,
interests, judgments, costs or expenses relating to or arising under any
Environmental Control Statute or the application of any such Statute to the
Borrower's or any of its Consolidated Subsidiaries' respective properties or
assets. The Borrower hereby releases, and shall cause each Guarantor to release,
the Bank and its directors, officers, agents, employees and counsel from any and
all claims for loss, damages, costs or expenses caused or alleged to be caused
by any act or omission on the part of either of them. All obligations provided
for in this Section 10.1 shall survive any termination of this Agreement and the
repayment of the Loan.
10.2 PARTICIPATIONS AND ASSIGNMENTS. The Borrower hereby acknowledges and
agrees that the Bank may at any time: (a) grant participations in all or any
portion of the Loans or any Note or of its right, title and interest therein or
in or to this Agreement (collectively, "PARTICIPATIONS") to any other lending
office or to any other bank, lending institution or other entity which has the
requisite sophistication to evaluate the merits and risks of investments in
Participations ("PARTICIPANTS"); provided, however, that: (i) all amounts
payable by the Borrower hereunder shall be determined as if the Bank had not
granted such Participations; and (ii) any agreement pursuant to which the Bank
may grant a Participation: (x) shall provide that the Bank shall retain the sole
right and responsibility to enforce the obligations of the Borrower hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provisions of this Agreement; (y) such participation agreement
may provide that the Bank will not agree to any modification, amendment or
waiver of this Agreement without the consent of the Participant if such
modification, amendment or waiver would reduce the principal of or rate of
interest on the Loans or postpone the date fixed for any payment of principal of
or interest on the Loans; and (z) shall not relieve the Bank from its
obligations, which shall remain absolute, to make Advances hereunder; and (b)
assign, in one or more transactions, up to an aggregate amount equal to forty
percent (40%) of its rights under the Loans with notice to Borrower.
10.3 BINDING AND GOVERNING LAW. This Agreement and all documents executed
hereunder shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns and shall be governed as to
their validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania.
10.4 SURVIVAL. All agreements, representations, warranties and covenants
of the Borrower contained herein or in any documentation required hereunder
shall survive the execution of this Agreement and the making of the Loan
hereunder and, except for Sections 6.10 and 10.1 which provide otherwise, will
continue in full force and effect as long as any Indebtedness of the Borrower to
the Bank remains outstanding.
10.5 NO WAIVER; DELAY. If the Bank shall waive any power, right or remedy
arising hereunder or under any applicable law, such waiver shall not be deemed
to be a waiver upon any later occurrence or recurrence of any of said events. No
delay by the Bank in the exercise of any power, right or remedy shall, under any
circumstances, constitute or be deemed to be a waiver, express or implied, of
the same and no course of dealing between the parties hereto shall constitute a
waiver of the Bank's powers, rights or remedies. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
10.6 MODIFICATION; WAIVER. Except as otherwise provided in this
Agreement, no modification or amendment hereof, or waiver or consent hereunder,
shall be effective unless made in a writing signed by appropriate officers of
the parties hereto.
10.7 HEADINGS. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
10.8 NOTICES. Any notice, request or consent required hereunder or in
connection herewith shall be deemed satisfactorily given if in writing
(including facsimile transmissions) and delivered by hand or mailed (registered
or certified mail) to the parties at their respective addresses or telecopier
number set forth below or such other addresses or telecopier numbers as may be
given by any party to the others in writing:
if to Borrower:
Selas Corporation of America
2034 Limekiln Pike
Dresher, PA 19025
Attention: Vice President - Treasurer
Telecopier: (215) 646-3536
if to the Bank:
First Union National Bank
Broad and Walnut Streets
Philadelphia, PA 19109<PAGE>
Attention: ___________________
Telecopier: (215) 985-8764
with a copy to:
First Union National Bank
0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,242,909
[EPS-PRIMARY] .62
[EPS-DILUTED] .61
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Selas Corporation of America for the nine months
ended September 30, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,031,872
<SECURITIES> 0
<RECEIVABLES> 35,413,042
<ALLOWANCES> 696,410
<INVENTORY> 9,605,982
<CURRENT-ASSETS> 50,653,351
<PP&E> 33,971,623
<DEPRECIATION> 16,946,992
<TOTAL-ASSETS> 84,851,921
<CURRENT-LIABILITIES> 31,657,561
<BONDS> 7,696,204
0
0
<COMMON> 5,577,324
<OTHER-SE> 34,403,599
<TOTAL-LIABILITY-AND-EQUITY> 84,851,921
<SALES> 86,334,612
<TOTAL-REVENUES> 86,334,612
<CGS> 67,931,495
<TOTAL-COSTS> 67,931,495
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,081
<INTEREST-EXPENSE> 764,952
<INCOME-PRETAX> 6,066,130
<INCOME-TAX> 2,385,789
<INCOME-CONTINUING> 3,680,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,680,341
<EPS-PRIMARY> .71
<EPS-DILUTED> .69
</TABLE>
