<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number 00-22690
CONSOLIDATED STAINLESS, INC.
State of Incorporation: Delaware
IRS Employer Identification Number: 59-1669166
1601 East Amelia Street
Orlando, Florida 32803
(407) 896-4000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock
Warrants
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES NO X
----- -----
As of May 8, 1998, Consolidated Stainless, Inc. had outstanding
4,610,329 shares of Common Stock, par value $.01 per share.
Indicate by check mark whether the issuer has filed all documents
and reports required to be filed by Section 12,13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution under a plan
confirmed by a court.
YES NO X
----- -----
<PAGE>
TABLE OF CONTENTS
Item
Part I
Financial Information
1. FINANCIAL STATEMENTS
Page (s)
Balance Sheets .................................... 1 - 2
Statements of Operations ............................ 3
Statements of Cash Flows ............................ 4
Notes to Financial Statements ........................ 5 - 7
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .......... 8 - 11
Part II
Other Information
1. LEGAL PROCEEDINGS ......................................... 12 - 13
6. EXHIBITS AND REPORTS ON FORM 8-K ....................... 14
<PAGE>
PART I
Financial Information
Item 1. Financial Statements
CONSOLIDATED STAINLESS, INC.
(DEBTOR-IN-POSSESSION)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
3/31/98 12/31/97
---------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 35,535 $ 5,648
Accounts receivable:
Trade, less allowance for possible losses
of $410,846 and $377,748 4,156,666 6,074,981
Other 116,981 175,229
Inventories 14,734,878 17,434,164
Prepaid expenses 209,394 326,151
Deferred financing costs, less accumulated
amortization $90,000 and $589,721 - 79,167
Notes receivable 261,075 254,294
Deferred income taxes 398,042 398,042
-----------------------
TOTAL CURRENT ASSETS 19,912,571 24,747,676
PROPERTY AND EQUIPMENT, less
accumulated depreciation and amortization 14,701,793 15,123,911
OTHER ASSETS:
Due from stockholders 48,864 48,388
Other 277,135 240,531
------------------------
TOTAL OTHER ASSETS 325,999 288,919
-------------------------
TOTAL ASSETS $ 34,940,363 $40,160,506
---------------------------
---------------------------
</TABLE>
See the accompanying notes to the financial statements.
1
<PAGE>
CONSOLIDATED STAINLESS, INC.
(DEBTOR-IN-POSSESSION)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
3/31/98 12/31/97
-----------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Accounts payable $ 180,471 $ 70,897
Professional fees payable 427,991 47,707
Book overdrafts 159,664 60,844
Accrued expenses:
Payroll and related taxes 132,774 76,425
Interest 127,461 79,526
Other 131,311 20,850
--------------------------
TOTAL CURRENT LIABILITIES 1,159,672 356,249
LIABILITIES SUBJECT TO COMPROMISE 34,346,091 37,967,664
--------------------------
TOTAL LIABILITIES 35,505,763 38,323,913
COMMITMENTS AND CONTIGENCIES -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock $.01 par - shares authorized
2,000,000; none issued -- --
Common stock $.01 par - shares authorized
15,000,000; issued and outstanding 4,610,329 46,103 46,103
Additional paid-in capital 8,064,636 8,064,636
Deficit (8,676,139) (6,274,146)
----------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (565,400) 1,836,593
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $34,940,363 $40,160,506
---------------------------
---------------------------
</TABLE>
See the accompanying notes to the financial statements.
2
<PAGE>
CONSOLIDATED STAINLESS, INC.
(DEBTOR-IN-POSSESSION)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
3/31/98 3/31/97
------------------------
<S> <C> <C>
SALES $ 6,193,456 $13,371,684
COST OF SALES 5,711,114 11,945,608
------------------------
Gross profit 482,342 1,426,076
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,496,703 1,742,099
------------------------
Loss from operations (1,014,361) (316,023)
OTHER INCOME (EXPENSES):
Interest (713,308) (840,622)
Other 79,054 13,492
------------------------
(634,254) (827,130)
------------------------
Loss before reorganization costs and
taxes on income (benefit) (1,648,615) (1,143,153)
REORGANIZATION COSTS 753,253 --
------------------------
Loss before taxes on income (benefit) (2,401,868) (1,143,153)
TAXES ON INCOME (BENEFIT) 125 (366,316)
------------------------
NET LOSS $(2,401,993) $(776,837)
------------------------
------------------------
BASIC LOSS PER SHARE $(0.52) $(0.17)
------------------------
------------------------
DILUTED LOSS PER SHARE $(0.52) $(0.17)
------------------------
------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 4,610,329 4,465,866
-----------------------
-----------------------
</TABLE>
See the accompanying notes to the financial statements.
3
<PAGE>
CONSOLIDATED STAINLESS, INC.
(DEBTOR-IN-POSSESSION)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
3/31/98 3/31/97
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,401,993) $ (776,837)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation 421,481 401,907
Amortization 79,167 103,953
Loss (gain) on disposal of property and
equipment 637 (4,247)
Deferred income taxes -- (365,809)
Cash provided by (used for):
Accounts receivable 1,976,563 (2,080,170)
Due from stockholders (476) (6,360)
Inventories 2,699,286 1,169,485
Refundable income taxes -- 27,475
Prepaid expenses 116,757 (28,075)
Accounts payable 321,891 1,551,709
Interest payable 353,546 (89,896)
Accruals 159,048 (153,908)
----------------------
Net cash provided by (used for) operating activities 3,725,907 (250,773)
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (210,067)
Proceeds from the sale of property and equipment -- 4,247
Increase in notes receivable (6,781) --
Increase in other assets (36,604) (77,832)
--------------------
Net cash used for investing activities (43,385) (283,652)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in book overdrafts 98,820 (363,746)
Net proceeds (repayments) under revolving line of
credit (3,751,455) 5,396,536
Repayments of long-term debt -- (3,926,728)
Repayments of capital lease obligations -- (212,131)
Deferred financing costs -- (166,858)
---------------------
Net cash provided by (used for) financing
activities (3,652,635) 727,073
---------------------
Net increase in cash and cash equivalents 29,887 192,648
CASH AND CASH EQUIVALENTS, beginning of period 5,648 273,914
---------------------
CASH AND CASH EQUIVALENTS, end of period $ 35,535 $ 466,562
---------------------
---------------------
</TABLE>
See the accompanying notes to the financial statements.
4
<PAGE>
CONSOLIDATED STAINLESS, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - REORGANIZATION AND BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q, and do not include all of
the information and disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
for the year ended December 31, 1996. Note: A Form 10-K for the year ended
December 31, 1997 has not been prepared at the current time, due to the
excessive financial burden it would place on the Company. The accompanying
financial statements have not been examined by an independent accountant in
accordance with generally accepted auditing standards, but in the opinion
of management, such financial statements include all adjustments,
consisting only of normal recurring adjustments and accruals, to fairly
report the Company's financial position and results of operations. The
results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the fiscal year.
On December 15, 1997, (the "Petition Date"), the Company filed a voluntary
petition for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for
the District of Delaware. Management determined that filing the Chapter 11
petition would allow the Company the needed time and flexibility to
restructure its operations and provide the time and protection necessary to
restructure the Company's funding sources.
Since the Petition Date, the Company has continued in possession of its
assets and, as debtor-in-possession, is authorized to operate and manage
its business and enter into all transactions (including obtaining services,
inventories and supplies) that it could have entered into in the ordinary
course of business without approval of the Bankruptcy Court. A statutory
Creditors' Committee has been appointed in the Chapter 11 case.
In a Chapter 11 filing, substantially all liabilities as of the Petition
Date are subject to compromise or other treatment under a plan of
reorganization. For financial reporting purposes, those liabilities and
obligations whose disposition is dependent on the outcome of the Chapter 11
filing have been segregated and classified as liabilities subject to
compromise under reorganization proceedings in the accompanying balance
sheet (Note 2). Generally, actions to enforce or otherwise effect payment
of all pre-Chapter 11 liabilities as well as all pending litigation against
the Company are stayed while the Company continues its business operations
as Debtor-in-Possession. Schedules have been filed by the Company with the
Bankruptcy Court setting forth Its assets and liabilities as of the
Petition Date as reflected in the Company's accounting records.
Differences between amounts reflected in such schedules and claims filed by
creditors will be investigated and either resolved or adjudicated before
the Bankruptcy Court. The ultimate amount of and settlement terms for such
liabilities are subject to a plan of reorganization and accordingly are not
presently determinable.
5
<PAGE>
Under the Bankruptcy Code, the Company may elect to assume or reject real
estate leases and employment contracts, subject to Bankruptcy Court
approval. The Company will continue to analyze its executory contracts and
may assume or reject additional contracts.
The accompanying financial statements have been prepared in conformity with
principles of accounting applicable to a going concern, which contemplate the
realization of assets and the satisfaction of liabilities in the normal
course of business. As a result of the Chapter 11 filing and circumstances
relating to this event, such realization of assets and satisfaction of
liabilities is subject to uncertainty. A plan of reorganization could
materially change the amounts reported in the accompanying financial
statements, which do not give effect to adjustments to the carrying values of
assets and liabilities, which may be necessary as a consequence of a plan of
reorganization. The Company's ability to continue as a going concern is
contingent upon, among other things, its ability to formulate a plan of
reorganization that will be confirmed by the Bankruptcy Court, to achieve
satisfactory levels of profitability and cash flow from operations, to
maintain compliance with the Post-Petition Loan and Security Agreement and
the ability to obtain sufficient financing sources to meet future obligations.
NOTE 2 - LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization proceedings consist
of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
Priority debt: $ 709,663 $ 707,629
------------- --------------
------------- --------------
<S> <C> <C>
Secured liabilities:
Borrowings under revolving
credit facility 13,487,255 17,238,710
Mortgages, notes payable and
capital lease obligations
(including interest)
9,270,524 9,054,795
----------- -----------
Subtotal 22,757,779 26,293,505
----------- -----------
----------- -----------
Unsecured liabilities:
Trade and other payables
(including interest) 7,959,144 8,125,084
Convertible subordinated debt
(including interest) 2,919,505 2,841,446
----------- -----------
Subtotal 10,878,649 10,966,530
----------- -----------
----------- -----------
Total liabilities subject to compromise $34,346,091 $37,967,664
----------- -----------
----------- -----------
</TABLE>
6
<PAGE>
Any plan of reorganization ultimately approved by the Company's
pre-petition creditors and shareholders and confirmed by the Bankruptcy
Court may materially change the amounts and terms of these pre-petition
liabilities. Such amounts are estimated as of March 31, 1998 and December
31, 1997, and the Company anticipates that claims filed with the Bankruptcy
Court by the Company's creditors will be reconciled to the Company's
financial records. The additional liability arising from this
reconciliation process, if any, is not subject to reasonable estimation,
and accordingly, no provision has been recorded for these possible claims.
The termination of other contractual obligations and the settlement of
disputed claims may create additional pre-petition liabilities. Such
amounts, if any, will be recognized in the balance sheet as they are
identified and become subject to reasonable estimation.
NOTE 3 - EARNINGS (LOSS) PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128") for the period ended March 31, 1998.
SFAS 128 establishes new standards for computing and presenting earnings
per share ("EPS"). Specifically, SFAS 128 replaces the presentation of
primary EPS with a presentation of basic EPS, requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic earnings per share is
computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is
computed by dividing net income by the sum of the weighted average number
of common shares outstanding for the period plus the assumed exercise of
all dilutive securities. However, in the case of a loss per share,
dilutive securities outstanding would be antidilutive and would therefore
be excluded from the computation of diluted earnings per share.
The weighted average number of shares used to calculate basic earnings per
share was 4,610,329 and 4,465,866 for the three months ended March 31, 1998
and 1997, respectively. Diluted earnings per share were the same as basic
earnings per share.
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
The Company incurred long-term debt and capital lease obligations of $0 and
$66,835 in connection with the purchase of property and equipment and
during the three months ended March 31, 1998 and 1997, respectively.
7
<PAGE>
Consolidated Stainless, Inc.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995
The statements contained herein that are not historical facts may be
forward looking statements. The forward looking statements are subject to
certain risks and uncertainties, including without limitation those
identified below, which could cause actual results to differ materially
from historical results or those anticipated. Readers are cautioned not to
place undue reliance on these forward looking statements, which speak only
as of their dates.
The following factors could cause actual results to differ materially from
historical results or those anticipated: failure to maintain adequate
working capital financing; decisions made in the context of the Company's
pending bankruptcy proceedings which are adverse to the Company; adverse
economic conditions, the impact of competitive products and pricing,
product demand and acceptance risks, raw material and other increased
costs, customer delays or difficulties in the production of products, and
other risks detailed from time to time in Consolidated Stainless, Inc.'s
Securities and Exchange Commission filings.
Proceedings Under Chapter 11
On December 15, 1997, (the "Petition Date"), the Company commenced a
reorganization case by filing a voluntary petition (the "Chapter 11
Petition") for relief under chapter 11 ("Chapter 11") of title 11 of the
United States Code (as amended from time to time, the "Bankruptcy Code") in
the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"), case number 97-2593 (JJF). Management determined that
filing of the Chapter 11 Petition would allow the needed time and
flexibility to restructure the Company's operations and provide the time
and protection necessary to restructure the Company's funding sources.
Since the Petition Date, the Company has continued in possession of its
assets and, as debtor-in-possession, is authorized to operate and manage
its business and enter into all transactions (including obtaining services,
inventories and supplies) that it could have entered into in the ordinary
course of business without approval of the Bankruptcy Court. A statutory
Creditors' Committee has been appointed in the Chapter 11 case.
Subsequent to the filing of the Chapter 11 Petition, the Company sought and
obtained several orders from the Bankruptcy Court which were intended to
stabilize its business. The most significant of these orders: (1)
authorizing the Company to obtain secured post-petition financing ("DIP
Financing Agreement"); (2) authorized payment of certain pre-petition
liabilities, principally pre-petition wages and employee benefits; (3)
authorizing the Company to reject the employment agreement of the Executive
Vice President and Chief Financial Officer; (4) authorizing the Company to
reject the lease of the non-residential real property located in Houston,
Texas, thereby allowing the Company to reduce its administrative costs, by
consolidating its warehouse needs to its facilities in Florida; (5)
authorizing the Company to reject the lease of the non-residential real
property located in Lombard, Illinois, and enter into a new lease strictly
for a sales
8
<PAGE>
office in Addison, Illinois, thereby allowing the Company to reduce its
administrative costs, by consolidating its warehouse needs to its
facilities in Florida; (6) a bridge order extending the exclusive right to
file a plan of reorganization pending consideration of the motion of the
Bankruptcy Court.
The Company has developed a business plan with the implementation occurring
in stages. This approach gives the Company the flexibility to make
adjustments to the plan more efficiently. As a result of this business
plan and the Company's internal investigation discovering that the Chief
Executive Officer was involved in organizing two other stainless steel
companies (unrelated to Consolidated Stainless, Inc.) subsequent to the
Chapter 11 filing, the United States Trustee and the unsecured creditors'
committee have made separate motions to the Bankruptcy Court for the
appointment of a trustee (See Part II - Other Information).
The Company's financial statements have been prepared on a going concern
basis, which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. As a result of the Chapter
11 filing and circumstances relating to this event, such realization of
assets and satisfaction of liabilities is subject to uncertainty. A plan
of reorganization could materially change the amounts reported in the
accompanying financial statements, which do not give effect to adjustments
to the carrying values of assets and liabilities, which may be necessary as
a consequence of a plan of reorganization. The Company's ability to
continue as a going concern is contingent upon, among other things, its
ability to form a plan of reorganization that will be confirmed by the
Bankruptcy Court, to achieve satisfactory levels of profitability and cash
flow from operations, to maintain compliance with the DIP Financing
Agreement and the ability to obtain sufficient financing sources to meet
future obligations.
Results of Operations
Sales declined 53.7% to $6.2 million for the quarter ended March 31, 1998,
compared with $13.4 million for the three months ended March 31, 1997.
This decrease was the result of the following factors: continued softening
of demand in the stainless steel market, further declines in stainless
steel prices, the sale of the Flow Components division effective November
1, 1997, and the Company's announcement of its December 15, 1997 bankruptcy
filing.
Gross profit as a percentage of sales for the first quarter of 1998
decreased to 7.8%, as compared to 10.7% for the first quarter of 1997.
This decrease is primarily due to a decline in the monthly production of
stainless steel pipe and tubing, without a corresponding decline in
overhead costs, resulting in higher per unit manufacturing costs compared
with the corresponding period of the previous year. In order to minimize
its operating losses, the Company reduced its manufacturing workforce to a
skeleton crew in 1998, while it attempted to sell both its pipe and tube
manufacturing facilities in Auburndale, Florida and Lakeland, Florida,
respectively.
9
<PAGE>
Selling, general and administrative expenses decreased 14.1% in the first
three months of 1998 to $1.5 million, as compared with $1.7 million for the
first three months of 1997 due primarily to a decline in payroll costs
resulting from a cutback in compensation levels as well as a reduction in
the workforce in 1998.
Interest expense decreased 15.1% for the first quarter of 1998 as compared
with the first quarter in 1997. This was primarily due to a decrease in
the Company's indebtedness as the Company began downsizing its operations
through the sale of its Flow Components division and reductions in
inventory throughout the Company.
Other income of $0.1 million, in the first three months of 1998, resulted
primarily due to earnings from business interruption insurance.
Reorganization costs of $0.8 million were incurred in the first quarter of
1998 as the Company attempts to emerge from bankruptcy. Since the Chapter
11 filing occurred on December 15, 1997, no such costs were incurred for
the three months ended March 31, 1997.
The Company did not receive an income tax benefit in the first quarter of
1998, compared with a $0.4 million benefit in the comparable period in
1997, despite a $2.4 million loss. In accordance with Financial Accounting
Standards No. 109 "Accounting for Income Taxes", no further adjustment to
the valuation reserve or increase in the Company's tax benefit is warranted
as of March 31, 1998.
As a result of the foregoing factors, the net loss for the three months
ended March 31, 1998 was $2.4 million, as compared with $0.8 million
generated during the first quarter of 1997. This increased loss can be
primarily attributed to a decline in sales, reorganization costs associated
with the Chapter 11 filing, no income tax benefit for 1998 and higher per
unit manufacturing costs as described above.
Liquidity and Capital Resources
In connection with the Chapter 11 filing, the Company entered into its DIP
Financing Agreement with Mellon Bank, N.A. ("Mellon") on December 12, 1997.
The DIP Financing Agreement was to expire on March 8, 1998, unless certain
conditions were met by the Company. Although the Company did not meet all
of the required conditions, Mellon exercised its right to extend the loan,
per the DIP Financing Agreement, through June 1, 1998 (see below). Upon
expiration of this agreement, a new loan agreement will need to be entered
into with Mellon or some other lender. There is no guaranty that the
Company will be able to obtain such renewed financing on terms satisfactory
to the Company, or on any terms. The DIP Financing Agreement originally
allowed for an initial maximum borrowing amount of $19.0 million which
declined steadily to $15.0 million by June 1, 1998. The borrowing base
under the DIP Financing Agreement is 85% of qualified accounts receivable
and 65% of eligible inventory on pre-petition assets, and 80% of qualified
accounts receivable and 60% of eligible inventory on post-petition assets
with an initial over-advance of $2.75 million. Maximum advance limits are
set, on a declining basis throughout the term of the loan, for inventory
and the over-advance. The interest rate on the revolving line of credit
under the DIP Financing
10
<PAGE>
Agreement is a variable margin over the fluctuating prime rate of interest.
Additionally, the DIP Financing Agreement contains certain negative
covenants to be observed by the Company.
Borrowings under the DIP Financing Agreement are secured by all of the
assets of the Company. Additionally, such borrowings are personally
guaranteed up to $3.0 million in the aggregate by Harvey Adams, Chief
Executive Officer, and Ronald Adams, President.
The First and Second Modifications to the DIP Financing Agreement were
entered into on February 25, 1998 and March 4, 1998, respectively. These
modifications amended the maximum advance limits for inventory and the
over-advance.
On March 9, 1998, the Company entered into the Third Modification to the
DIP Financing Agreement (the "Third Modification"). The maximum borrowing
amount was changed by reducing it to $14.0 million by April 13, 1998. In
addition to amending the maximum borrowing amount and maximum advance
limits for inventory and the over-advance, the Third Modification extended
the DIP Financing Agreement until April 10, 1998.
On April 13, 1998, the Company entered into the Fourth Modification to the
DIP Financing Agreement (the "Fourth Modification"). In addition to
amending the maximum advance limit for inventory, the Fourth Modification
extended the DIP Financing Agreement until April 14, 1998. The Fourth
Modification also stipulated that if a further modification to the DIP
Financing Agreement were entered into by April 14, 1998, the DIP Financing
Agreement would be extended to June 1, 1998.
On April 14, 1998, the Company entered into the Fifth Modification to the
DIP Financing Agreement (the "Fifth Modification"). The maximum borrowing
amount was changed by reducing it to $13.0 million by May 23, 1998. The
advance rate percentages for accounts receivable and inventory remain
unchanged from the original DIP Financing Agreement. In addition to
amending the maximum borrowing amount and maximum advance limits for
inventory and the overadvance, the Fifth Modification requires that the
Texas, Illinois and Georgia distribution locations be closed no later than
April 22, 1998, May 8, 1998 and May 15, 1998, respectively. The Fifth
Modification further stipulates that as of May 31, 1998, Mellon shall have
no obligations to advance for any operational costs associated with the
manufacturing facilities.
The Company is in default of certain covenants included in the DIP
Financing Agreement, such as its failure to achieve projected monthly
sales. Accordingly, Mellon may exercise its rights and remedies under this
agreement, including but not limited to, an immediate termination of the
line of credit provided by Mellon, the cessation of any future advances
under the line of credit, acceleration of all indebtedness due under the
DIP Financing Agreement and foreclosure and taking possession of
substantially all of the Company's assets. While Mellon has not at the
present time chosen to seek such remedy, there is no guarantee that no such
action will be taken in the future.
On May 6, 1998, approximately $12.6 million was outstanding under the line
of credit owed to Mellon Bank.
11
<PAGE>
Consolidated Stainless, Inc.
(Debtor-in-Possession)
Part II: Other Information
Item 1. Legal Proceedings
Except as set forth below, there are no pending material proceedings
of a material nature in which the Company is a party, or to which any of
its respective properties are subject, which either individually or in the
aggregate may have a material adverse effect on the results of operations
or financial position of the Company.
A petition was filed with the Equal Employment Opportunity Commission
(the "EEOC") in Houston, Texas on December 10, 1997 in which Theresa K.
Reich, a former employee of the Company, filed a charge of sexual
discrimination. On that same day, Lynn Medley filed a petition with the
EEOC in Houston, Texas in which Medley, a former employee of the Company,
filed a charge of sexual discrimination. In both lawsuits, The EEOC has
issued a no-action letter on the matter. Both plaintiffs are seeking
compensatory and punitive damages with an unspecified amount of monetary
relief.
A motion was filed for relief from the automatic stay and/or for
adequate protection on February 24, 1998 and served March 2, 1998 at the
District Court of Delaware, by Phoenixcor, Inc. The amount at issue is
approximately $200,000. The Bankruptcy Court has not yet scheduled this
matter for a hearing. The plaintiff and the debtor have reached a
"standstill" agreement, pursuant to which Phoenixcor has agreed inter alia
to continue its motion until at least August 1 of this year, in exchange
for adequate protection payments from the debtor. The "standstill" is
without prejudice to the debtor's defenses to the motion. The Company is
in the process of documenting the "standstill" agreement.
SouthTrust Bank, N.A. filed a complaint with the Florida State Court,
State of Florida on December 4, 1997. This was a debt foreclosure action
involving two promissory notes. SouthTrust Bank is seeking $1,699,658,
the sum of both disputed notes, plus interest and legal fees in relief.
Another action was filed by SouthTrust Bank with the 11th Circuit Court in
Florida, for another debt foreclosure action, involving six promissory
notes against both the Company and Ronald J. Adams. Mr. Adams is being
sued personally on an alleged guaranty. The plaintiff is seeking close to
$2,000,000, the sum of the six notes in dispute plus added interest and
legal fees in relief. Both actions against the Company were stayed by
operation of the Company's Chapter 11 filing.
By motion papers dated April 23, 1998, the United States Trustee (the
"Trustee") moved the Bankruptcy Court for appointment of a trustee to
operate the business of the Company, or, in the alternative, for
appointment of an examiner. The Trustee alleged that certain of the
Company's officers, directors and employees have engaged in a course of
conduct that constituted self-dealing and an usurpation of corporate
opportunity, represented a conflict between a director's fiduciary duty to
the shareholders and a director's self-interests and constituted a breach
of duty and loyalty. The Trustee alleged, among other things, the
following factual bases for the foregoing allegations: Harvey Adams
breached his fiduciary duty by (i) forming two companies in
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apparent direct competition with the Company, (ii) issuing purchase orders
on the Company's computers for approximately $700,000 of stainless steel
products and (iii) using Company employees, equipment and transport to
unload approximately 45,000 pounds of this product purchased through the
newly formed companies at a Florida warehouse owned by him and thereafter
to inspect the product.
The motion is pending.
By motion papers dated April 29, 1998, the Official Committee of
Unsecured Creditors (the "Committee") in the Chapter 11 case also moved the
Bankruptcy Court for appointment of a trustee to operate the Company's
business. The Committee alleged two grounds for the motion: mismanagement
of the Company and irregularities and improprieties on the part of Harvey
and Ronald Adams, including alleged self-dealing, establishment of
competing businesses, usurpation of corporate opportunities belonging to
the Company, use of the Company's assets for personal gain and breach of
fiduciary duty. The Committee alleged, among other things, the following
factual bases for the foregoing allegations:
(a) Management has made no legitimate progress in seeking a purchaser
for the Company's manufacturing facilities.
(b) The Company has experienced substantial losses since the filing
of the Chapter 11 Petition, the Company's post-petition sales are
significantly below projected levels and senior management
(including Stephen Adams, brother of Harvey and Ronald Adams)
continues to receive compensation and benefits at excessive
levels in relation to the size of the Company and despite its
financial difficulties.
(c) The Committee alleged substantially the same improprieties as the
Trustee regarding Harvey Adams forming two competing stainless
steel companies and his placing purchase orders for $700,000 of
stainless steel product.
In addition, the Committee asserted that previously made reductions in
compensation and benefits for the three Adams brothers in the aggregate of
approximately 26% were inadequate, management's proposed business plan was
unacceptable and that operation of the Company under the plan has shown
continuing and increasing losses. The motion is pending.
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Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1 - Post-Petition Loan and Security Agreement dated as of December
12, 1997 with Mellon Bank, N.A.
10.2 - First Modification to Post-Petition Loan and Security
Agreement dated as of February 25, 1998 with Mellon Bank, N.A.
10.3 - Second Modification to Post-Petition Loan and Security
Agreement dated as of March 4, 1998 with Mellon Bank, N.A.
10.4 - Third Modification to Post-Petition Loan and Security
Agreement dated as of March 9, 1998 with Mellon Bank, N.A.
10.5 - Fourth Modification to Post-Petition Loan and Security
Agreement dated as of April 13, 1998 with Mellon Bank, N.A.
10.6 - Fifth Modification to Post-Petition Loan and Security
Agreement dated as of April 14, 1998 with Mellon Bank, N.A.
27 - Financial Data Schedule
(b) Form 8-K
(1) The Company filed a Form 8-K dated March 10, 1998 in
connection with its December 15, 1997 Chapter 11 filing and related
debtor-in-possession financing. A press release had been issued announcing
this event on December 16, 1997.
(2) A requirement of the Chapter 11 filing is that monthly operating
reports (Monthly Reports) be submitted to the United States Trustee and the
Bankruptcy Court. On March 27, 1998 the Company filed those previously
submitted Monthly Reports (i) for the period December 16 to December 31,
1997, (ii) for the month ending January 31, 1998, and (iii) for the month
ending February 28, 1998 on Form 8-K.
14
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONSOLIDATED STAINLESS, INC.
(Registrant)
Date: May 12, 1998 By: /s/Ronald J. Adams
------------------
Ronald J. Adams
President/Director
15
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POST-PETITION LOAN AND
SECURITY AGREEMENT
By and Between
MELLON BANK, N.A.
and
CONSOLIDATED STAINLESS, INC.
Dated: December ___, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
1. DEFINITIONS........................................................2
1.1 "Accounting Terms"............................................2
1.2 "Adjusted Maximum Amount".....................................2
1.3 "Affiliate"...................................................2
1.4 "Agreement"...................................................2
1.5 "Applicable Line Margin"......................................2
1.6 "Applicable Out-of-Formula Margin"............................2
1.7 "Bank"........................................................2
1.8 "Bank Indebtedness"...........................................2
1.9 "Bankruptcy Code".............................................2
1.10 "Bankruptcy Court"............................................2
1.11 "Base Rate"...................................................3
1.12 "Borrower"....................................................3
1.13 "Borrowing Base"..............................................3
1.14 "Budget"......................................................3
1.15 "Business Day"................................................3
1.16 "Capitalized Leases"..........................................3
1.17 "Capitalized Lease Obligations"...............................3
1.18 "Case"........................................................3
1.19 "Cash Collateral Account".....................................3
1.20 "Change in Control"...........................................3
1.21 "Collateral"..................................................3
1.22 "Contract Period".............................................3
1.23 "Corporation".................................................3
1.24 "EBITDA"......................................................4
1.25 "Eligible Inventory"..........................................4
1.26 "Eligible Receivables"........................................4
1.27 "Environmental Affiliate".....................................5
1.28 "Environmental Cleanup Site"..................................5
1.29 "Environmental Consultants"...................................5
1.30 "Environmental Requirements"..................................5
1.31 "ERISA".......................................................5
1.32 "ERISA Plan"..................................................5
1.33 "Event of Default"............................................5
1.34 "Extension Budget"............................................5
1.35 "Final Sale Date".............................................5
1.36 "GAAP"........................................................5
1.37 "Guarantors"..................................................5
1.38 "Indebtedness"................................................5
1.39 "Interim Financing Order".....................................6
1.40 "Inventory Sublimit"..........................................6
1.41 "Line"........................................................6
1.42 "Line Base Rate"..............................................6
1.43 "Line Note"...................................................6
1.44 "Loan Documents"..............................................6
1.45 "Manufacturing Facility"......................................6
1.46 "Maximum Amount"..............................................6
1.47 "Maximum Surety Amount".......................................6
1.48 "Mortgaged Property"..........................................6
1.49 "Net Income" or "Net Loss"....................................6
1.50 "Net Proceeds"................................................6
1.51 "Net Proceeds Payable to Bank"................................7
1.52 "Officer Compensation"........................................7
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
1.53 "Out-Of-Formula Advance"............................................7
1.54 "Out-of-Formula Base Rate"..........................................7
1.55 "Permanent Financing Order".........................................7
1.56 "Permitted Encumbrance".............................................7
1.57 "Permitted Out-of-Formula Advance"..................................7
1.58 "Person"............................................................7
1.59 "Petition"..........................................................7
1.60 "Petition Date".....................................................7
1.61 "Post-Petition Accounts Payable"....................................7
1.62 "Post-Petition Eligible Inventory"..................................7
1.63 "Post-Petition Eligible Receivables"................................8
1.64 "Pre-Petition Accounts Payable".....................................8
1.65 "Pre-Petition Balance"..............................................8
1.66 "Pre-Petition Credit Facility"......................................8
1.67 "Pre-Petition Eligible Inventory"...................................8
1.68 "Pre-Petition Eligible Receivables".................................8
1.69 "Pre-Petition Loan Agreement".......................................8
1.70 "Pre-Petition Loan Documents".......................................8
1.71 "Prime Rate"........................................................8
1.72 "Real Property".....................................................8
1.73 "Special Materials".................................................8
1.74 "Subordinated Indebtedness".........................................8
1.75 "Subsidiary"........................................................9
1.76 "Surety Agreement"..................................................9
1.77 "Surety Collateral".................................................9
1.78 "Value".............................................................9
2. ACKNOWLEDGMENTS AND RELEASES.............................................9
2.1 General Acknowledgments.............................................9
2.2 Confirmation of Existing Indebtedness...............................9
2.3 Release.............................................................9
3. THE LINE; USE OF PROCEEDS...............................................10
3.1 Line of Credit.....................................................10
3.2 Use of Proceeds....................................................11
3.3 Method of Advances.................................................11
3.4 Letters of Credit..................................................11
3.5 Closing............................................................12
4. INTEREST RATE...........................................................12
4.1 Interest Rate On the Line..........................................12
4.2 Interest Rate on the Pre-Petition Balance..........................12
4.3 Default Interest...................................................12
4.4 Post Judgment Interest.............................................12
4.5 Calculation........................................................12
4.6 Limitation of Interest to Maximum Lawful Rate......................12
5. PAYMENTS AND FEES........................................................13
5.1 Interest Payments on the Line......................................13
5.2 Interest Payments on the Pre-Petition Credit Facility..............13
5.3 Principal Payments on the Line.....................................13
5.4 Principal Payments on the Pre-Petition Credit Facility.............13
5.5 Payments from Sales of Assets......................................13
5.6 Letter of Credit Fees..............................................13
5.7 Loan Fee...........................................................13
5.8 Enhancement Fee....................................................13
5.9 Usage Fee..........................................................14
5.10 Collateral Management Fee..........................................14
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
5.11 Late Charge........................................................14
5.12 Payment Method.....................................................14
5.13 Application of Payments............................................14
5.14 Loan Account.......................................................15
5.15 Indemnity; Loss of Margin..........................................15
6. SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF .
COLLATERAL..............................................................16
6.1 Personal Property..................................................16
6.2 Real Property......................................................17
6.3 Insurance..........................................................17
6.4 Surety.............................................................18
6.5 Validity Assurance and Management Support Letter...................18
6.6 General............................................................18
6.7 Liens Perfected Without Further Action.............................18
6.8 Collection of Receivables; Proceeds of Collateral..................18
7. REPRESENTATIONS AND WARRANTIES..........................................19
7.1 Valid Organization, Good Standing and Qualification................19
7.2 Licenses...........................................................20
7.3 Subsidiaries.......................................................20
7.4 Financial Statements...............................................20
7.5 Pending Litigation or Proceedings..................................20
7.6 Due Authorization; No Legal Restrictions...........................20
7.7 Enforceability.....................................................21
7.8 Governmental Consents..............................................21
7.9 Taxes..............................................................21
7.10 Title to Collateral................................................21
7.11 Addresses..........................................................21
7.12 Current Compliance.................................................21
7.13 Pension Plans......................................................21
7.14 Intellectual Property..............................................22
7.15 Eligible Inventory Warranties......................................22
7.16 Eligible Account Warranties........................................22
7.17 Business Interruptions.............................................23
7.18 Accuracy of Representations and Warranties.........................23
8. GENERAL COVENANTS........................................................23
8.1 Payment of Principal, Interest and Other Amounts Due...............23
8.2 Limitation on Sale and Leaseback...................................23
8.3 Limitation on Indebtedness.........................................23
8.4 Investments and Loans..............................................24
8.5 Guaranties.........................................................24
8.6 Disposition of Assets..............................................24
8.7 Merger; Consolidation; Business Acquisitions; Subsidiaries.........24
8.8 Taxes; Claims for Labor and Materials..............................24
8.9 Liens..............................................................25
8.10 Existence; Approvals; Qualification; Business Operations;
Compliance with Laws...............................................25
8.11 Maintenance of Properties, Intellectual Property...................26
8.12 Insurance..........................................................26
8.13 Inspections; Examinations..........................................27
8.14 Pension Plans......................................................28
8.15 Bank of Account....................................................28
8.16 Maintenance of Management..........................................28
8.17 Capital Stock; Dividends...........................................28
8.18 Transactions with Affiliates.......................................28
8.19 Name or Address Change.............................................28
8.20 Notices............................................................29
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
8.21 Additional Documents and Future Actions............................29
8.22 Accounts Receivable................................................29
8.23 Material Adverse Contracts.........................................30
8.24 Restrictions on Use of Proceeds....................................30
8.25 Subordinated Indebtedness..........................................30
8.26 Life Insurance.....................................................31
8.27 Interim Financing Order; Permanent Financing Order.................31
8.28 Permanent Financing Order..........................................31
8.29 Year End...........................................................31
8.30 Capital Expenditures...............................................31
8.31 Officer Compensation...............................................31
8.32 Compensation to Chasnov............................................31
8.33 Cash Collateral....................................................31
8.34 Opening Balance Sheet..............................................31
8.35 Sale of Manufacturing Facilities...................................31
9. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS....................32
9.1 Annual Statements..................................................32
9.2 Cash Budget Statements.............................................32
9.3 Monthly Statements.................................................32
9.4 10-K; 10-Q Statements..............................................33
9.5 Weekly Collateral and Payables Statements..........................33
9.6 Accounts Receivable Borrowing Base Information and
Related Documents..................................................33
9.7 Inventory Borrowing Base Information and Related Documents.........33
9.8 Audit Reports......................................................33
9.9 Reports to Governmental Agencies and Other Creditors...............33
9.10 Requested Information..............................................34
9.11 Compliance Certificates............................................34
9.12 Accountant's Certificate...........................................34
9.13 Guarantor's Annual Statements......................................34
10. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS.............................34
10.1 Representations...................................................34
10.2 Real Property.....................................................35
10.3 Covenant Regarding Compliance.....................................35
10.4 Notices...........................................................35
10.5 Indemnity.........................................................36
10.6 Testing...........................................................36
10.7 Survival..........................................................36
10.8 Definitions.......................................................36
11. CONDITIONS OF CLOSING...................................................37
11.1 Loan Documents....................................................37
11.2 Representations and Warranties....................................37
11.3 No Default........................................................38
11.4 Proceedings and Documents.........................................38
11.5 Interim Financing Order...........................................38
11.6 Delivery of Other Documents.......................................38
11.7 Lockbox/Cash Collateral Account; Operating Account................39
11.8 Non-Waiver of Rights..............................................39
12. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES...............................39
12.1 Representations and Warranties....................................39
12.2 No Default........................................................39
12.3 Other Requirements................................................39
13. DEFAULT AND REMEDIES....................................................40
13.1 Events of Default.................................................40
13.2 Remedies; Waiver of Automatic Stay................................42
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
13.3 Sale or Other Disposition of Collateral...........................43
13.4 Actions with Respect to Accounts..................................43
13.5 Set-Off...........................................................45
13.6 Turnover of Property Held by Bank.................................45
13.7 Delay or Omission Not Waiver......................................46
13.8 Remedies Cumulative; Consents.....................................46
13.9 Certain Fees, Costs, Expenses, Expenditures and Indemnification...46
13.10 Time is of the Essence............................................47
13.11 Acknowledgment of Confession of Judgment Provisions...............47
14. COMMUNICATIONS AND NOTICES..............................................47
14.1 Communications and Notices........................................47
15. WAIVERS.................................................................48
15.1 Waivers...........................................................48
15.2 Forbearance.......................................................49
15.3 Limitation on Liability...........................................49
16. SUBMISSION TO JURISDICTION..............................................50
16.1 Submission to Jurisdiction........................................50
17. MISCELLANEOUS...........................................................50
17.1 Brokers...........................................................50
17.2 Use of Bank's Name................................................50
17.3 No Joint Venture..................................................50
17.4 Survival..........................................................50
17.5 No Assignment by Borrower.........................................51
17.6 Assignment or Sale by Bank........................................51
17.7 Publicity.........................................................51
17.8 Binding Effect....................................................51
17.9 Severability......................................................51
17.10 No Third Party Beneficiaries......................................51
17.11 Modifications.....................................................52
17.12 Holidays..........................................................52
17.13 Law Governing.....................................................52
17.14 Integration.......................................................52
17.15 Exhibits and Schedules............................................52
17.16 Headings..........................................................52
17.17 Counterparts......................................................52
17.18 Waiver of Jury Trial..............................................52
</TABLE>
POST-PETITION LOAN AND SECURITY AGREEMENT
THIS POST-PETITION LOAN AND SECURITY AGREEMENT (the "Agreement") is made
effective the ______ day of December, 1997, by and between CONSOLIDATED
STAINLESS, INC. ("Borrower") and MELLON BANK, N.A. ("Bank").
BACKGROUND
A. Borrower intends to file a voluntary petition (the "Petition") for relief
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court
for the District of Delaware.
B. Upon filing the Petition, Borrower intends to continue to operate its
business and
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manage its properties as a debtor-in-possession pursuant to Sections 1107 and
1108 of the Bankruptcy Code.
C. An immediate and ongoing need exists for Borrower to obtain additional
funds in order to continue the operation of its business as a
debtor-in-possession under Chapter 11 of the Bankruptcy Code and, accordingly,
Borrower has requested that Bank extend post-petition financing, make revolving
credit advances and incur letter of credit obligations.
D. Borrower's request for such financing requires that the Bank extend to
Borrower a substantial additional Out-of-Formula Advance, which may not be
adequately secured by existing collateral. To induce Bank to extend such
post-petition financing, Borrower has offered, inter alia, to grant to Bank
additional collateral and other protection to provide security for the
post-petition financing.
E. Bank is willing to provide such continuing post-petition financing and
incur such additional obligations upon the terms and conditions set forth in
this Agreement, including without limitation the grant of additional collateral.
F. It is contemplated by the parties hereto that on or after the Petition
Date, the Bankruptcy Court will enter the Interim Financing Order, which will
approve this Agreement and will authorize the Borrower, pursuant to Section 364
of the Bankruptcy Code, to incur interim secured and super priority indebtedness
under the terms and conditions of this Agreement.
G. In accordance with the Interim Financing Order, the Permanent Financing
Order (when entered into by the Bankruptcy Court), and this Agreement and the
other Loan Documents, Bank will make post-petition loans and other financial
accommodations to Borrower.
H. Capitalized terms not otherwise defined herein will have the meaning set
forth therefore in Section 1 of this Agreement. This Background shall be
construed as part of the Agreement.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any extensions of credit now or hereafter made to or for the
benefit of Borrower by Bank, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. DEFINITIONS. The following words and phrases as used in capitalized form in
this Agreement, whether in the singular or plural, shall have the meanings
indicated:
1.1 "Accounting Terms". As used in this Agreement, or any certificate,
report or other document made or delivered pursuant to this Agreement,
accounting terms not defined elsewhere in this Agreement shall have the
respective meanings given to them under GAAP.
1.2 "Adjusted Maximum Amount" means (a) the Maximum Amount, less (b) the
Pre- Petition Balance.
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1.3 "Affiliate", as to any Person, means each other Person that directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Person in question.
1.4 "Agreement" shall have the meaning set forth in the initial paragraph of
this Agreement.
1.5 "Applicable Line Margin" shall mean initially one and one-quarter
percent (1.25%); provided that, if (a) advances against Borrower's Eligible
Inventory are not in excess of forty percent (40%) of the Value of Borrower's
Eligible Inventory, and (b) no Out-Of-Formula Advances exist, and (c) no Event
of Default has occurred, all as determined by Bank in its sole discretion, the
Applicable Base Rate Margin shall be reduced to one-half of one percent (1/2 of
1%).
1.6 "Applicable Out-of-Formula Margin" shall mean three percent (3%).
1.7 "Bank" shall have the meaning set forth in the initial paragraph of this
Agreement.
1.8 "Bank Indebtedness" shall mean all obligations and Indebtedness of
Borrower to Bank, whether now or hereafter owing or existing, including, without
limitation, all obligations under the Pre-Petition Loan Documents, all
obligations under the Loan Documents, all obligations to reimburse Bank for
payments made by Bank pursuant to any letter of credit issued for the account or
benefit of Borrower by Bank, all other obligations or undertakings now or
hereafter made by or for the benefit of Borrower to or for the benefit of Bank
under any other agreement, promissory note or undertaking now existing or
hereafter entered into by Borrower with Bank, including, without limitation, all
obligations of Borrower to Bank under any guaranty or surety agreement and all
obligations of Borrower to immediately pay to Bank the amount of any overdraft
on any deposit account maintained with Bank, together with all interest and
other sums payable in connection with any of the foregoing.
1.9 "Bankruptcy Code" means Title 11 of the United States Bankruptcy Code,
11 U.S.C., Section 101, et seq., or any successor statute thereof.
1.10 "Bankruptcy Court" means the United States Bankruptcy Court for the
District of Delaware or any other United States Bankruptcy Court which obtains
jurisdiction of the Case.
1.11 "Base Rate" means the per annum rate determined by Bank (which
determination shall be deemed conclusive absent manifest error) to be the higher
of (a) Bank's Prime Rate, or (b) the effective Federal Funds Rate plus one-half
of one percent (1/2 of 1%) per annum.
1.12 "Borrower" shall have the meaning set forth in the initial paragraph of
this Agreement.
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1.13 "Borrowing Base" means, as of any date, an amount equal to (a) the sum
of up to (i) eighty-five percent (85%) of the amount of Borrower's Pre-Petition
Eligible Receivables, plus (ii) eighty percent (80%) of the amount of Borrower's
Post-Petition Eligible Receivables, plus (iii) sixty-five percent (65%) of the
Value of Borrower's Pre-Petition Eligible Inventory, plus (iv) sixty percent
(60%) of the Value of Borrower's Post-Petition Eligible Inventory, plus (v) the
Permitted Out-of- Formula Advance, if available, minus (b) the Pre-Petition
Balance.
1.14 "Budget" means that certain Budget and Cash Flow Projections dated
December ___________, 1997, prepared by Borrower and attached hereto as Exhibit
"A", as the same may be updated from time to time pursuant to Section 3.1(d)
hereof. The Budget includes, without limitation, statements of receipts and
disbursements and availability reports prepared on a weekly cash basis for the
Contract Period, and balance sheets, profit and loss statements and cash flow
statements prepared on a monthly accrual basis for the Contract Period.
1.15 "Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Philadelphia, Pennsylvania are authorized by law to
close.
1.16 "Capitalized Leases" means all lease obligations which have been or
should be, in accordance with GAAP, capitalized on the books of the lessee.
1.17 "Capitalized Lease Obligations" means all amounts payable with respect
to a Capitalized Lease, determined in accordance with GAAP.
1.18 "Case" shall mean Borrower's proceeding under Chapter 11 of the United
States Bankruptcy Code in the Bankruptcy Court initiated by the filing of the
Petition.
1.19 "Cash Collateral Account" shall have the meaning set forth in Section
6.8(b).
1.20 "Change in Control" shall have the same meaning as provided for such
term in that certain Convertible Subordinated Note Purchase Agreement between
Borrower, Guarantors and SunTrust Banks, Inc. dated October 18, 1996, as the
same may be amended from time to time.
1.21 "Collateral" shall have the meaning set forth in Section 6.6.
1.22 "Contract Period" shall have the meaning set forth in Section 3.1.
1.23 "Corporation" means a corporation, partnership, trust, unincorporated
organization, association or joint stock company.
1.24 "EBITDA" for any period, means Net Income of Borrower for such period,
plus the aggregate amounts deducted in determining Net Income in respect of (i)
interest expense on Indebtedness of Borrower for such period, (ii) income tax
expense for such period, (iii) depreciation for such period, (iv) amortization
for such period, and (v) Chapter 11 expenses for
8
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such period, all as determined in accordance with GAAP.
1.25 "Eligible Inventory" means inventory in the possession of Borrower
which complies with the representations set forth in Section 7.15, and meets all
specifications established by Bank in its sole discretion from time to time.
Without limiting the generality of the foregoing, Eligible Inventory shall not
include: (a) inventory consisting of fuels; (b) inventory consisting of stores;
(c) inventory which is not in good condition or not currently usable or salable
in the ordinary course of Borrower's business as determined by Bank; (d)
inventory consisting of finished goods which do not meet the specifications of
the purchase order for which such inventory was produced; (e) inventory with
respect to which Bank does not have a first and valid, fully perfected security
interest; (f) inventory consisting of packaging, shipping materials or supplies;
(g) inventory produced in violation of the Fair Labor Standards Act and subject
to the so-called "hot goods" provision contained in Title 29 U.S.C. Section
215(a)(1); (h) slow-moving inventory; (i) tooling; (j) inventory located with a
processor; (k) consigned inventory; (l) inventory consisting of controlled
substance or substances for which Bank would need a license or permit to sell or
dispose of; (m) inventory in transit (except between locations of Borrower
described on Schedule 7.11 hereto and other locations of Borrower established in
accordance with the terms and conditions of this Agreement); (n) work-in-process
inventory in excess of the sublimit set forth in Section 3.1 below; and (o)
inventory which is subject to a potential claim of reclamation. In the event
that any item or items of inventory previously scheduled, listed or referred to,
in any statement or report by or on behalf of Borrower and upon which Borrower
is basing availability under the Line ceases to be Eligible Inventory (other
than by reason of the sale of such inventory in the ordinary course of
Borrower's business), Borrower shall notify Bank thereof immediately.
1.26 "Eligible Receivables" means accounts receivable of Borrower in which
Bank has a prior, perfected, first priority lien which have been due no more
than ninety (90) days from the invoice date, are not subject to offsets,
deductions, counterclaims, discounts (other than prompt payment discounts not in
excess of five percent (5%) of the face amount thereof), credit, charge back,
freight claim, allowance or adjustment, which comply with the representations
set forth in Section 7.16 and which meet all specifications established by Bank
in its sole discretion from time to time. Without limiting the generality of the
foregoing, Eligible Receivables shall not include: (a) non-trade receivables;
(b) foreign accounts receivable not secured by domestic letters of credit in
form and from issuers satisfactory to Bank, which letters of credit must be
assigned to Bank; (c) contra-accounts; (d) intercompany accounts or accounts
from other affiliated corporations, organizations or individuals; (e) accounts
receivable from the United States government or any of its agencies which have
not been assigned to Bank under the Assignment of Claims Act; (f) finance
charges; (g) lease receivables; (h) accounts receivable owed by a Person if
fifty percent (50%) or more of such Person's accounts receivable owed to
Borrower are ninety (90) days or more past due; (i) accounts receivable of poor
credit quality; and (j) accounts receivable concentrated in individuals. In the
event that any account receivable previously scheduled, listed or referred to in
any certificate, statement or report by Borrower and upon which Borrower is
basing availability under the Line ceases to be an Eligible Receivable (other
than by reason of agings in the ordinary course of business and payments due
from Borrower to its account debtors in the ordinary course of business),
Borrower shall notify Bank
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thereof immediately.
1.27 "Environmental Affiliate" shall have the meaning set forth in Section
10.8(a).
1.28 "Environmental Cleanup Site" shall have the meaning set forth in
Section 10.8(b).
1.29 "Environmental Consultants" shall have the meaning set forth in Section
10.6.
1.30 "Environmental Requirements" shall have the meaning set forth in
Section 10.8(c).
1.31 "ERISA" shall have the meaning set forth in Section 7.13.
1.32 "ERISA Plan" shall have the meaning set forth in Section 7.13.
1.33 "Event of Default" means each of the events specified in Section 13.1.
1.34 "Extension Budget" shall have the meaning set forth in Section
3.1(d)(i).
1.35 "Final Sale Date" has the meaning set forth in Section 8.31.
1.36 "GAAP" means generally accepted accounting principles in the United
States of America, in effect from time to time, consistently applied and
maintained.
1.37 "Guarantors" means Harvey B. Adams and Ronald J. Adams, and "Guarantor"
means either of Harvey B. Adams or Ronald J. Adams.
1.38 "Indebtedness", as applied to a Person, means:
(a) all items (except items of capital stock or of surplus) which in
accordance with GAAP would be included in determining total liabilities as shown
on the liability side of a balance sheet of such Person as at the date as of
which Indebtedness is to be determined;
(b) to the extent not included in the foregoing, all indebtedness,
obligations, and liabilities secured by any mortgage, pledge, lien, conditional
sale or other title retention agreement or other security interest to which any
property or asset owned or held by such Person is subject (to the extent of the
value of such asset or property), whether or not the indebtedness, obligations
or liabilities secured thereby shall have been assumed by such Person; and
(c) to the extent not included in the foregoing, all indebtedness,
obligations and liabilities of others which such Person has directly or
indirectly guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business), sold with recourse, or agreed (contingently or
otherwise) to purchase or repurchase or otherwise acquire or in respect of which
such Person has agreed to supply or advance funds (whether by way of loan, stock
purchase,
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capital contribution or otherwise) or otherwise to become directly or indirectly
liable.
1.39 "Interim Financing Order" shall mean the Order to be entered by the
Bankruptcy Court pursuant to Section 364(c) and (d) of the Bankruptcy Code and
Bankruptcy Rule 4001(c), authorizing the Borrower to incur post-petition secured
and super-priority indebtedness in accordance with this Agreement on an interim
basis in substantially the form annexed hereto as Exhibit "B".
1.40 "Inventory Sublimit" shall have the meaning set forth in Section
3.1(b).
1.41 "Line" shall have the meaning set forth in Section 3.1(a).
1.42 "Line Base Rate" means the Base Rate plus the Applicable Line Margin.
1.43 "Line Note" shall have the meaning set forth in Section 3.1(a).
1.44 "Loan Documents" means this Agreement, the Line Note, the Surety
Agreement and all other documents, executed or delivered by Borrower or
Guarantors pursuant to this Agreement, as they may be amended, supplemented or
restated from time to time.
1.45 "Manufacturing Facility" means either of the manufacturing facilities
of Borrower listed on Schedule 1.45, and "Manufacturing Facilities" means both
such manufacturing facilities of Borrower.
1.46 "Maximum Amount" means at any time the applicable dollar amount set
forth on Schedule 1.46 attached hereto.
1.47 "Maximum Surety Amount" shall have the meaning set forth in Section
6.4.
1.48 "Mortgaged Property" shall have the meaning set forth in Section 6.2.
1.49 "Net Income" or "Net Loss" means income or loss, as applicable, of
Borrower after income and franchise taxes and shall have the meaning given such
term by GAAP, provided that there shall be specifically excluded therefrom: (a)
gains from the sale of assets (other than sales of inventory in the ordinary
course of business); (b) net income of any Person in which Borrower has an
ownership interest, unless received by Borrower in a cash distribution or unless
it is Net Income of a wholly owned Subsidiary of Borrower formed with the prior
written consent of and subject to such terms and conditions as are established
by Bank and which for financial reporting purposes consolidates its operations
and assets with those of Borrower; and (c) any gains arising from extraordinary
items, as defined by GAAP.
1.50 "Net Proceeds" means (a) the gross sale price (including all cash and
the fair market value of all other assets given to or for the benefit of
Borrower) paid or payable to Borrower in connection with the sale of the fixed
assets of a Manufacturing Facility, less (b) the sum of (i) an amount sufficient
to obtain a full and complete release of those liens and security interests
encumbering all or any part of the fixed assets of the Manufacturing Facility
sold which have priority over the liens and security
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interests in favor of Bank, plus (ii) all reasonable and customary costs of sale
directly related to such sale.
1.51 "Net Proceeds Payable to Bank" means (a) the Net Proceeds, less (b) any
amount paid or payable from Net Proceeds pursuant to the Interim Financing Order
and/or the Permanent Financing Order.
1.52 "Officer Compensation" means, as applied to any Guarantor, the sum of
all amounts paid to or for the benefit of such Person and his immediate family
by Borrower for (a) salary; (b) bonuses; (c) pension and/or profit-sharing
contributions; (d) automobiles, including without limitation automobile
allowances, lease and/or installment payments, insurance premiums, repairs and
licensing and inspection fees; and (e) country club and other club fees, as set
forth on Schedule 1.52 attached hereto.
1.53 "Out-Of-Formula Advance" means the amount by which the then outstanding
principal balance of the Line exceeds the Borrowing Base, subject to such other
restrictions on advances as are otherwise set forth in this Agreement.
1.54 "Out-of-Formula Base Rate" means the Base Rate plus the Applicable
Out-of-Formula Margin.
1.55 "Permanent Financing Order" shall mean an Order entered by the
Bankruptcy Court, and to which no stay has been entered and which has not been
vacated, modified or overturned, in form and substance acceptable to Bank,
authorizing the incurrence by Borrower of permanent post-petition secured and
super-priority indebtedness in accordance with this Agreement.
1.56 "Permitted Encumbrance" shall have the meaning set forth in Section
8.9.
1.57 "Permitted Out-of-Formula Advance" means, the applicable dollar amounts
determined in accordance with Schedule 1.57 attached hereto.
1.58 "Person" means an individual, a Corporation or a government or any
agency or subdivision thereof, or any other entity.
1.59 "Petition" shall have the meaning set forth in Paragraph A of the
Background.
1.60 "Petition Date" means the date on which the Petition is filed with the
Bankruptcy Court.
1.61 "Post-Petition Accounts Payable" means accounts payable of Borrower
arising on or after the Petition Date.
1.62 "Post-Petition Eligible Inventory" means Eligible Inventory acquired on
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or after the Petition Date.
1.63 "Post-Petition Eligible Receivables" means Eligible Receivables arising
under invoices dated before or after the Petition Date for shipments made after
the Petition Date.
1.64 "Pre-Petition Accounts Payable" means accounts payable of Borrower
arising before the Petition Date.
1.65 "Pre-Petition Balance" shall mean, as of any date, the outstanding
principal balance of, all accrued and unpaid interest on and all other sums due
and owing in connection with the Pre- Petition Credit Facility.
1.66 "Pre-Petition Credit Facility" shall mean that certain revolving line
of credit in the maximum amount of up to Twenty-Two Million Dollars
($22,000,000.00) extended by Bank to Borrower under the Pre-Petition Loan
Agreement.
1.67 "Pre-Petition Eligible Inventory" means Eligible Inventory in the
possession of Borrower prior to the Petition Date.
1.68 "Pre-Petition Eligible Receivables" means Eligible Receivables arising
under invoices dated prior to the Petition Date for shipments made prior to the
Petition Date.
1.69 "Pre-Petition Loan Agreement" shall mean that certain Loan and Security
Agreement between Bank and Borrower dated March 10, 1997, as amended.
1.70 "Pre-Petition Loan Documents" shall mean, collectively, the
Pre-Petition Loan Agreement, all documents evidencing the Borrower's obligation
to repay the Pre-Petition Credit Facility and all other documents executed
and/or delivered in connection with or collateral to any of the foregoing.
1.71 "Prime Rate" means the annual interest rate established from time to
time by Bank and generally known by Bank as its "prime rate", whether published
by it publicly or only for the internal guidance of its loan officers. The prime
rate is used merely as a pricing index and is not and should not be considered
to represent the lowest or best rate available to a borrower.
1.72 "Real Property" shall have the meaning set forth in Section 10.2.
1.73 "Special Materials" shall have the meaning set forth in Section
10.8(d).
1.74 "Subordinated Indebtedness" means that certain Indebtedness of Borrower
owed to (a) Harvey B. Adams in the principal amount of One Hundred Thousand
Dollars ($100,000.00); (b) Burton R. Chasnov in the principal amount of One
Hundred Thousand Dollars ($100,000.00); (c) SunTrust Banks, Inc. in the
principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00)
plus interest thereon which has been deferred and not paid; and (d) other
Indebtedness of Borrower hereafter incurred and subordinated to the Bank
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Indebtedness, all of which Indebtedness must be subordinated to all Bank
Indebtedness and otherwise be in amounts and on terms acceptable to Bank in its
sole discretion.
1.75 "Subsidiary" means a Corporation: (a) which is organized under the laws
of the United States or any State thereof, or any other county or jurisdiction;
(b) which conducts substantially all of its business and has substantially all
of its assets within the United States; and (c) of which more than fifty percent
(50%) of its outstanding voting stock of every class (or other voting equity
interest) is owned by Borrower or one or more of its Subsidiaries.
1.76 "Surety Agreement" shall have the meaning set forth in Section 6.4.
1.77 "Surety Collateral" means that real property and all improvements
thereon described on Schedule 1.77 attached hereto.
1.78 "Value" with respect to Eligible Inventory means the lower of average
cost or market value determined in accordance with GAAP, exclusive of any
transportation, processing or handling charges.
2. ACKNOWLEDGMENTS AND RELEASES.
2.1 General Acknowledgments. Borrower and Guarantors hereby jointly and
severally acknowledge and agree that:
(a) Neither this Agreement nor any other agreement entered in
connection herewith or pursuant to the terms hereof shall be deemed or construed
to be a compromise, satisfaction, reinstatement, accord and satisfaction,
novation or release of any of the Pre-Petition Loan Documents, or any rights or
obligations thereunder, or a waiver by Bank of any of its rights under the
Pre-Petition Loan Documents or at law or in equity.
(b) All liens, security interests, rights and remedies granted to the
Bank in the Pre- Petition Loan Documents are hereby renewed, confirmed and
continued, and shall also secure the performance by Borrower of its obligations
hereunder.
(c) It has no defense, set-off, counterclaim or challenge against the
payment of any sums owing under the Pre-Petition Loan Documents, or the
enforcement of any of the terms or conditions thereof.
2.2 Confirmation of Existing Indebtedness. Borrower and Guarantors hereby
confirm and acknowledge that the Pre-Petition Balance is validly and duly owing
to Bank, including all sums included therein for accrued and unpaid interest,
legal fees and expenses and earned and unpaid fees due to Bank under the
Pre-Petition Loan Documents.
2.3 Release. Borrower and Guarantors acknowledge and agree that they have no
claims, suits or causes of action against Bank and hereby jointly and severally
remise, release and forever discharge Bank, its officers, directors,
shareholders, employees, agents, successors and assigns, and any of them, from
any claims, suits or causes of action whatsoever, in law or at
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equity, which Borrower or any Guarantor has or may have arising from any act,
omission or otherwise, at any time up to and including the date of this
Agreement.
3. THE LINE; USE OF PROCEEDS.
3.1 Line of Credit.
(a) Establishment of Line. Bank will establish for Borrower for and
during the period from the date hereof and until March 8, 1998 (as such period
may be extended hereunder, the "Contract Period"), subject to the terms and
conditions hereof, a revolving line of credit (the "Line") pursuant to which
Bank will from time to time make loans or other extensions of credit to Borrower
in an aggregate amount not exceeding at any time the lesser of: the (i)
Borrowing Base, or (ii) Adjusted Maximum Amount. Within the limitations set
forth in this Section 3.1, Borrower may borrow, repay and reborrow under the
Line. The Line shall be subject to all terms and conditions set forth in all of
the Loan Documents which terms and conditions are incorporated herein.
Borrower's obligation to repay the loans and extensions of credit under the Line
shall be evidenced by Borrower's promissory note (the "Line Note") in the
maximum face amount of Nineteen Million Dollars ($19,000,000.00), which shall be
in the form attached hereto as Exhibit "C", with the blanks appropriately filled
in.
(b) Inventory Sublimits. Notwithstanding the foregoing, the aggregate
maximum amount of advances against the Value of that portion of Borrower's
Eligible Inventory consisting of work-in-process will at no time exceed the
applicable amounts set forth on Schedule 3.1(b) attached hereto and the maximum
amount of advances against the Value of all of Borrower's Eligible Inventory
(including, without limitation, work-in-process) (the "Inventory Sublimit") will
at no time exceed the applicable amounts set forth on Schedule 3.1 attached
hereto.
(c) Reserves. Bank may, in its sole discretion, require that certain
reserves be established against certain Eligible Receivables or Eligible
Inventory from time to time and Bank may also, in its sole discretion, increase
or decrease the advance rates under the Borrowing Base.
(d) Extension of Contract Period. Bank agrees that the Contract Period
will be extended through and including June 1, 1998, without the payment of any
additional fee, if Borrower complies with the following conditions to the
satisfaction of Bank:
(i) on or before twenty (20) days prior to the end of the Contract
Period, Borrower shall deliver to Bank a budget and cash flow projections for
the extension period based upon performance which Borrower reasonably believes
is likely to occur (the "Extension Budget"), prepared in the same form as the
Budget; and
(ii) the Extension Budget must show that (A) by June 1, 1998,
without including any reduction arising from the sale of the Manufacturing
Facilities, (1) the Maximum Amount will reduce to an amount not to exceed
Fifteen Million Dollars ($15,000,000.00), and (2) the Inventory Sublimit will
reduce to an amount not to exceed Eight Million Dollars
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($8,000,000.00); (B) the Permitted Out-of-Formula Advance will reduce by at
least One Hundred Thousand Dollars ($100,000.00) per month; and (C) EBITDA for
the entire period set forth in the Extension Budget, is equal to or greater than
EBITDA for the entire period set forth in the original Budget, all as determined
by Bank, in the exercise of its reasonable discretion, based on its review of
the Extension Budget.
Provided that the Extension Budget is timely delivered to Bank, if Bank
determines that the Extension Budget does not comply with this Section 3.1(d),
Bank will notify Borrower in writing of its decision not to extend the Contract
Period at least ten (10) days prior to the end of the Contract Period.
3.2 Use of Proceeds. Borrower agrees to use advances under the Line for the
purposes and in the approximate amounts set forth in the Budget. Except as
otherwise provided in the Interim Financing Order or the Permanent Financing
Order, none of the loans or advances under this Agreement may be used by
Borrower or any other person or entity to contest in any proceeding or any other
action the validity, binding effect or enforceability of the Pre-Petition Loan
Documents, the Loan Documents or the amount of the Pre-Petition Balance.
3.3 Method of Advances. On any Business Day, Borrower may request an advance
under the Line by delivering to the bank officer designated by Bank by no later
than 11:00 a.m. Philadelphia time on the Business Day that such advance is
requested to be funded, a completed and executed borrowing base certificate
together with such supporting and back-up documentation as Bank may from time to
time require. Subject to the terms and conditions of this Agreement, Bank may
make the proceeds of an advance available to Borrower by crediting such proceeds
to Borrower's operating account with Bank. Each request for an advance under the
Line shall be conclusively presumed to be made by a Person authorized by
Borrower to do so. However, Bank may require that specified officers of Borrower
sign each borrowing base certificate.
3.4 Letters of Credit. Bank, at its sole discretion, may issue for the
account of Borrower merchandise letters of credit in form and content
satisfactory to Bank, at its sole discretion, with a term not to exceed the
earlier to occur of (a) ninety (90) days, or (b) the expiration date of the
Contract Period. Notwithstanding the foregoing, (i) at no time shall the
aggregate face amount of all outstanding letters of credit issued under the Line
exceed the amount of One Million Dollars ($1,000,000.00); and (ii) at no time
shall the principal balance of the Line, plus the aggregate face amount of all
outstanding letters of credit issued under the Line exceed the amount of the
loans and extensions of credit then available to Borrower under the Line
pursuant to Section 3.1 above.
Borrower will execute a letter of credit application and letter of credit
agreement, and such other documents as may be required by Bank in connection
with the issuance of letters of credit hereunder. The outstanding face amount of
all letters of credit issued by Bank pursuant hereto will reduce Borrower's
ability to borrow under the Line as if such face amount were an advance under
the Line. In the event that Bank pays any sums due pursuant to such letters of
credit for any reason, such payment shall be deemed to be an advance under the
Line repayable
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by Borrower pursuant to the terms hereof.
In the event that the Line is terminated for any reason or demand is made
thereunder, Borrower will deposit with Bank an amount equal to the undrawn face
amount of all letters of credit then outstanding which have been issued
hereunder, plus all fees related thereto or to accrue thereunder. Such funds
will be held and applied by Bank as cash collateral to secure Borrower's
obligations hereunder in respect of such letters of credit.
3.5 Closing. Closing hereunder will take place at the offices of Wolf,
Block, Schorr & Solis-Cohen LLP, at 350 Sentry Parkway, Building 640, Blue Bell,
PA 19422 effective on the date of this Agreement.
4. INTEREST RATE.
4.1 Interest Rate On the Line. Interest will accrue on (a) the unpaid
principal balance of the Line (other than that portion supported by the
Permitted Out-of-Formula Advance or the Pre- Petition Balance) from the date of
advance until final payment thereof at the Line Base Rate (such rate to change
automatically and simultaneously with any change in the Line Base Rate); and (b)
on the unpaid principal balance of the Line supported by the Permitted
Out-of-Formula Advance (including any portion of the Permitted Out-of-Formula
Advance included in the Pre-Petition Balance) from date of advance until final
payment thereof at the Out-of-Formula Base Rate (such rate to change
automatically and simultaneously with any change in the Out-of-Formula Base
Rate).
4.2 Interest Rate on the Pre-Petition Balance. Interest on the unpaid
balance of the Pre-Petition Balance (other than any portion of the Pre-Petition
Balance which is part of Permitted Out-of-Formula Advance) will accrue interest
from the date hereof until final payment thereof at the default rate set forth
in the Pre-Petition Loan Agreement, which Bank hereby agrees to reduce to a per
annum rate equal to one and three-quarters percent (1 3/4%) in excess of the
Base Rate.
4.3 Default Interest. Interest will accrue on the unpaid principal balance
of the Line after the occurrence of an Event of Default or following expiration
of the Contract Period at a rate which is three percent (3%) in excess of the
Line Base Rate.
4.4 Post Judgment Interest. Any judgment obtained for sums due hereunder or
under the Loan Documents will accrue interest at the applicable default rate set
forth above until paid.
4.5 Calculation. Interest will be computed on the basis of a year of 360
days and paid for the actual number of days elapsed.
4.6 Limitation of Interest to Maximum Lawful Rate. In no event will the rate
of interest payable hereunder exceed the maximum rate of interest permitted to
be charged by applicable law (including the choice of law rules) and any
interest paid in excess of the permitted
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rate will be refunded to Borrower. Such refund will be made by application of
the excessive amount of interest paid against the outstanding principal balance
of the Line. If the excessive amount of interest paid exceeds the principal
balance under the Line then outstanding and the Pre-Petition Balance, the
portion exceeding such outstanding amount will be refunded in cash by Bank. Any
such crediting or refunding will not cure or waive any default by Borrower.
Borrower agrees, however, that in determining whether or not any interest
payable hereunder exceeds the highest rate permitted by law, any non-principal
payment, including without limitation prepayment fees and late charges, will be
deemed to the extent permitted by law to be an expense, fee, premium or penalty
rather than interest.
5. PAYMENTS AND FEES.
5.1 Interest Payments on the Line. Borrower will pay interest on the
principal balance of the Line monthly in arrears, on the first day of each
calendar month commencing January 1, 1998.
5.2 Interest Payments on the Pre-Petition Credit Facility. Borrower will pay
interest on outstanding balance of the Pre-Petition Balance monthly in arrears,
on the first day of each calendar month commencing January 1, 1998.
5.3 Principal Payments on the Line. Borrower will pay the outstanding
principal balance of the Line, together with all accrued and unpaid interest
thereon, and any other sums due pursuant to the terms hereof, ON DEMAND after
the occurrence of an Event of Default or immediately upon expiration of the
Contract Period. If any Out-Of-Formula Advance arises or exists under the Line
for any reason whatsoever, including inventory or accounts becoming ineligible
or required reserves, Borrower will repay such Out-Of-Formula Advance
immediately, without demand, except for the Permitted Out-of-Formula Advance.
5.4 Principal Payments on the Pre-Petition Credit Facility. Borrower will
pay the Pre-Petition Balance, together with all accrued and unpaid interest
thereon, and all other sums due under the Pre-Petition Loan Documents ON DEMAND
after the occurrence of an Event of Default or immediately upon expiration of
the Contract Period.
5.5 Payments from Sales of Assets. In addition to any other payments
required hereunder, Borrower will pay to Bank, contemporaneously with closing on
the sale of all or any portion of the fixed assets of a Manufacturing Facility,
the Net Proceeds Payable to Bank from such sale. Such payments shall be applied
against the Bank Indebtedness in accordance with the provisions of Section 5.13
after payment of the fee described in Section 5.8 below. Any amounts paid to
Bank pursuant to this Section 5.5 and not applied against the fee due under
Section 5.8 below, shall permanently reduce the Maximum Amount and the Permitted
Out-of-Formula Advance and shall also permanently reduce the Inventory Sublimit
only to the extent such Net Proceeds Payable to Bank are attributable to the
sale of any of Borrower's inventory.
5.6 Letter of Credit Fees. For each issuance or renewal of a merchandise
letter of credit hereunder, Borrower will pay to Bank an issuance or renewal fee
in an amount equal to
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one and one-half percent (1.5%) of the face amount of such merchandise letter of
credit, payable coincident with and as a condition of the issuance or renewal of
such merchandise letter of credit. In addition, Borrower shall pay such other
fees and charges in connection with the negotiation or cancellation of each
merchandise letter of credit as may be customarily charged by Bank. Such fees
shall be computed on the basis of a year of 360 days.
5.7 Loan Fee. Borrower shall pay to Bank a loan fee equal to one-half of one
percent (1/2 of 1%) of the initial Maximum Amount, which fee shall be paid
contemporaneously herewith.
5.8 Enhancement Fee. If all or any portion of the fixed assets of a
Manufacturing Facility is sold, transferred or assigned, Borrower shall pay to
Bank from Net Proceeds Payable to Bank an enhancement fee equal to the lesser of
(a) one-half of one percent (1/2 of 1%) of the gross sales price (including all
cash and the fair market value of all other assets given to or for the benefit
of Borrower); or (b) the amount of the Net Proceeds Payable to Bank. Such fee
shall be due and payable at closing on such sale, assignment or transfer.
5.9 Usage Fee. So long as the Line is outstanding and has not been
terminated, Borrower shall unconditionally pay to Bank a fee equal to one
quarter of one percent (1/4 of 1%) per annum of the daily unused portion of the
Line, which fee shall be computed on a monthly basis in arrears and shall be due
and payable on the first day of each calendar month commencing on January 1,
1998. The daily unused portion of the Line shall be calculated as the difference
between the Adjusted Maximum Amount (or such greater amount if the Maximum
Amount is ever increased by written agreement of Bank and Borrower), minus the
sum of the outstanding principal balance of cash advances under the Line, as of
the close of business on the date such calculation is made.
5.10 Collateral Management Fee. So long as the Line has not been terminated
pursuant to the terms hereof, and the Bank Indebtedness has not been satisfied
in full, Borrower shall unconditionally pay to Bank a non-refundable monthly
collateral management fee of Five Thousand Dollars ($5,000.00), payable in
advance, commencing on the date of closing hereunder.
5.11 Late Charge. In the event that Borrower fails to pay any principal,
interest or other fees or expenses payable hereunder for a period of at least
fifteen (15) days after such payment is first due, in addition to paying such
sums, Borrower will pay to Bank a late charge equal to five percent (5%) of such
past due payment as compensation for the expenses incident to such past due
payment. The foregoing late charge will not be imposed on a payment of the
principal balance of the Bank Indebtedness which is due by reason of
acceleration.
5.12 Payment Method. Borrower irrevocably authorizes Bank to debit all
payments required to be made by Borrower hereunder, on the date due, from any
deposit account maintained by Borrower with Bank. Otherwise, Borrower will be
obligated to make such payments directly to Bank. All payments are to be made in
immediately available funds. If Bank accepts payment in any other form, such
payment shall not be deemed to have been made
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until the funds comprising such payment have actually been received by or made
available to Bank.
5.13 Application of Payments. Any and all payments on account of the Bank
Indebtedness will be applied to (a) all costs and fees payable to Bank hereunder
or under the Loan Documents; (b) accrued and unpaid interest due on the
Pre-Petition Credit Facility; (c) accrued and unpaid interest due on the Line;
(d) the Pre-Petition Balance; (e) the Permitted Out-of-Formula Advance; and (f)
the remaining principal balance of the Line, in such order as Bank, in its
discretion, elects. If Borrower makes a payment or payments and such payment or
payments, or any part thereof, are subsequently invalidated, declared to be
fraudulent or preferential, set aside or are required to be repaid to a trustee,
receiver, or any other person under any bankruptcy act, state or federal law,
common law or equitable cause, then to the extent of such payment or payments,
the obligations or part thereof hereunder intended to be satisfied shall be
revived and continued in full force and effect as if said payment or payments
had not been made.
5.14 Loan Account. Bank will open and maintain on its books a loan account
(the "Loan Account") with respect to advances made, repayments, prepayments, the
computation and payment of interest and fees and the computation and final
payment of all other amounts due and sums paid to Bank under this Agreement.
Except in the case of manifest error in computation, the Loan Account will be
conclusive and binding on the Borrower as to the amount at any time due to Bank
from Borrower under this Agreement or the Line Note. Bank will deliver to
Borrower a summary of the activity in the Loan Account on a monthly basis.
5.15 Indemnity; Loss of Margin. Borrower will indemnify Bank against any
loss or expense which Bank sustains or incurs as a consequence of an Event of
Default, including, without limitation, any failure of Borrower to pay when due
(at maturity, by acceleration or otherwise) any principal, interest, fee or any
other amount due under this Agreement or the other Loan Documents. If Bank
sustains or incurs any such loss or expense it will from time to time notify
Borrower in writing of the amount determined in good faith by the Bank to be
necessary to indemnify Bank for the loss or expense. Such amount will be due and
payable by Borrower to Bank within ten (10) days after presentation by Bank of a
statement setting forth a brief explanation of and Bank's calculation of such
amount, which statement shall be conclusively deemed correct absent manifest
error. Any amount payable to the Bank under this Section will bear interest at
the default rate payable under the Line from the due date until paid, both
before and after judgment.
In the event that any present or future law, rule, regulation, treaty or
official directive or the interpretation or application thereof by any central
bank, monetary authority or governmental authority, or the compliance with any
guideline or request of any central bank, monetary authority or governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to any amounts payable under
this Agreement or the other Loan Documents by Borrower or otherwise with respect
to the transactions contemplated under this Agreement or the other Loan
Documents (except for taxes
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on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof); or
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit, capital maintenance, capital adequacy, or similar
requirement against assets held by, or deposits in or for the account of, or
loans or advances or commitment to make loans or advances by, or letters of
credit issued or commitment to issue letters of credit by, the Bank; or
(c) imposes upon Bank any other condition with respect to advances or
extensions of credit or the commitment to make advances or extensions of credit
under this Agreement, and the result of any of the foregoing is to increase the
costs of Bank, reduce the income receivable by or return on equity of Bank or
impose any additional expense upon Bank with respect to any advances or
extensions of credit or commitments to make advances or extensions of credit
under this Agreement, Bank shall so notify Borrower in writing. Borrower agrees
to pay Bank the amount of such increase in cost, reduction in income, reduced
return on equity or capital, or additional expense within ten (10) days after
presentation by Bank of a statement concerning such increase in cost, reduction
in income, reduced return on equity or capital, or additional expense. Such
statement shall set forth a brief explanation of the amount and Bank's
calculation of the amount (in determining such amount the Bank may use any
reasonable averaging and attribution methods), which statement shall be
conclusively deemed correct absent manifest error. If the amount set forth in
such statement is not paid within ten (10) days after such presentation of such
statement, interest will be payable on the unpaid amount at the default rate
payable under the Line from the due date until paid, both before and after
judgment.
6. SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF COLLATERAL
6.1 Personal Property. As security for the full and timely payment and
performance of all Bank Indebtedness, Borrower hereby grants to Bank a security
interest in all of Borrower's personal property including, without limitation,
all of the following:
(a) All of Borrower's present and future accounts, contract rights,
chattel paper, instruments and documents and all other rights to the payment of
money whether or not yet earned, for services rendered or goods sold, consigned,
leased or furnished by Borrower or otherwise, together with (i) all goods
(including any returned, rejected, repossessed or consigned goods), the sale,
consignment, lease or other furnishing of which shall be given or may give rise
to any of the foregoing; (ii) all of Borrower's rights as a consignor,
consignee, unpaid vendor or other lienor in connection therewith, including
stoppage in transit, set-off, detinue, replevin and reclamation; (iii) all
general intangibles related thereto; (iv) all guaranties, mortgages, security
interests, assignments, and other encumbrances on real or personal property,
leases and other agreements or property securing or relating to any accounts;
(v) choses-in-action, claims and judgments; (vi) any return or unearned premiums
which may be due upon cancellation of any insurance policies; and (vii) all
products and proceeds of any of the foregoing.
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(b) All of Borrower's present and future inventory (including but not
limited to goods held for sale or lease or furnished or to be furnished under
contracts for service, raw materials, work-in-process, finished goods and goods
used or consumed in Borrower's business) whether owned, consigned or held on
consignment, together with all merchandise, component materials, supplies,
packing, packaging and shipping materials, and all returned, rejected or
repossessed goods sold, consigned, leased or otherwise furnished by Borrower,
all documents of title covering any of such goods or inventory and all products
and proceeds of any of the foregoing.
(c) All of Borrower's present and future general intangibles (including
but not limited to tax refunds and rebates, manufacturing and processing rights,
designs, patent rights and applications therefor, trademarks and registrations
or applications therefor, trade names, brand names, logos, inventions,
copyrights and all applications and registrations therefor), licenses, permits,
approvals, software and computer programs, license rights, royalties, trade
secrets, methods, processes, know-how, formulas, drawings, specifications,
descriptions, label designs, plans, blueprints, patterns and all memoranda,
notes and records with respect to any research and development, and all products
and proceeds of any of the foregoing.
(d) All of Borrower's present and future machinery, equipment,
furniture, fixtures, motor vehicles, tools, dies, jigs, molds and other articles
of tangible personal property of every type together with all parts,
substitutions, accretions, accessions, attachments, accessories, additions,
components and replacements thereof, all documents of title covering all of such
goods and inventory and all manuals of operation, maintenance or repair, and all
products and proceeds of any of the foregoing.
(e) All of Borrower's present and future general ledger sheets, files,
records, customer lists, books of account, invoices, bills, certificates or
documents of ownership, bills of sale, business papers, correspondence, credit
files, tapes, cards, computer runs and all other data and data storage systems
whether in the possession of Borrower or any service bureau.
(f) All letters of credit now existing or hereafter issued naming
Borrower as a beneficiary or assigned to Borrower, including the right to
receive payment thereunder, and all documents and records associated therewith.
(g) All of Borrower's investment property and financial assets.
(h) All deposits, funds, instruments, documents, policies, evidence and
certificates of insurance, securities, chattel paper and other assets of
Borrower or in which Borrower has an interest and all proceeds thereof, now or
at any time hereafter on deposit with or in the possession or control of Bank or
owing by Bank to Borrower or in transit by mail or carrier to Bank or in the
possession of any other Person acting on Bank's behalf, without regard to
whether Bank received the same in pledge, for safekeeping, as agent for
collection or otherwise, or whether Bank has conditionally released the same,
and in all assets of Borrower in which Bank now has or may at any time hereafter
obtain a lien, mortgage, or security interest for any reason.
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(i) All of Borrower's now existing or hereafter arising post-Petition
Date causes of action, including, without limitation, causes of action under
Sections 544, 545, 546, 547, 548, 549 and 550 of the Bankruptcy Code.
6.2 Real Property. As further security for the Bank Indebtedness, Borrower
shall grant to Bank mortgage liens encumbering the real property listed on
Schedule 6.2 attached hereto, and all improvements thereon and all rights,
licenses, permits and approvals related thereto, together with an assignment of
all rents and leases related thereto subject only to the liens set forth on
Schedule 6.2 (collectively, the "Mortgaged Property").
6.3 Insurance. As further security for the Bank Indebtedness, Borrower (and
all owners and beneficiaries applicable thereto) shall assign and grant to Bank
a security interest in a life insurance policy and the proceeds payable
thereunder issued by and maintained with an insurance company acceptable to
Bank, insuring the lives of Harvey B. Adams and Ronald J. Adams, each in an
amount at least equal to One Million Dollars ($1,000,000.00). Such insurance
collateral shall be in addition to all insurance required to be maintained under
Section 8.12 hereof.
6.4 Surety. As further security for the Bank Indebtedness, Borrower shall
cause to be executed and delivered to Bank, the absolute, unconditional, joint
and several surety agreement (the "Surety Agreement") of Guarantors with terms
and conditions satisfactory to Bank, including, without limitation, the
following: (a) the liability of Guarantors under the Surety Agreement shall be
limited to an aggregate principal amount equal to Three Million Dollars
($3,000,000.00) (the "Maximum Surety Amount"), together with all costs incurred
in collecting such sums; (b) the liability of the Guarantors shall be secured by
mortgage liens encumbering the Surety Collateral; and (c) Bank will not proceed
against Guarantors under the Surety Agreement for a period of six (6) months
after the occurrence of an Event of Default under the Surety Agreement.
6.5 Validity Assurance and Management Support Letter. As further security
for the Bank Indebtedness, Borrower shall cause to be executed and delivered to
Bank (a) a validity assurance and management support letter from each of Harvey
B. Adams, Ronald J. Adams and Burton R. Chasnov; and (b) a validity assurance
from Daniel A. Rashy, all in form and content satisfactory to Bank.
6.6 General. The collateral described above in Sections 6.1, 6.2, 6.3, 6.4
and 6.5 is collectively referred to herein as the "Collateral". The
above-described security interests, assignments, liens and guarantees shall not
be rendered void by the fact that no Bank Indebtedness exists as of any
particular date, but shall continue in full force and effect until the Bank
Indebtedness has been repaid, and Bank has no agreement or commitment
outstanding pursuant to which Bank may extend credit to or on behalf of
Borrower. IT IS THE EXPRESS INTENT OF THE BORROWER THAT ALL OF THE COLLATERAL
SHALL SECURE NOT ONLY THE OBLIGATIONS UNDER THE LOAN DOCUMENTS, BUT ALSO THE
PRE-PETITION BALANCE AND ALL OTHER PRESENT AND FUTURE BANK INDEBTEDNESS (as
defined herein).
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6.7 Liens Perfected Without Further Action. The post-petition liens and
security interests granted to the Bank pursuant to this Agreement are perfected
without further action by the Bank. The Bank may, but shall not be required to,
file any Uniform Commercial Code financing statements and/or mortgages in any
jurisdiction or take any other or further action to validate or perfect the
security interest and liens granted to it pursuant to and in accordance with
this Agreement and the taking of such actions by the Bank shall not be deemed a
violation of the automatic stay of Bankruptcy Code Section 362. If the Bank
deems it convenient, the Borrower shall, upon the Bank's request, execute and
deliver to the Bank, all in form and substance satisfactory to the Bank, any
other documents, instruments or writings to evidence the terms of this Agreement
and/or the Bank's liens and security interests granted herein, and the Bank may
request from time to time the execution and delivery of Uniform Commercial Code
financing statements, continuation statements, amendments to financing
statements, mortgages, and any other instruments and/or documents relating to
the borrowing of amounts hereunder and/or the security interests and liens
granted hereunder. Borrower also irrevocably authorizes the Bank to file a
carbon, photographic or other reproduction of this Agreement and any Order
entered pursuant hereto as a financing statement and/or mortgage, and agrees
that such filing is sufficient as a financing statement and/or mortgage.
6.8 Collection of Receivables; Proceeds of Collateral.
(a) Borrower will collect its accounts receivable only in the ordinary
course of business. Borrower will notify all of its account debtors to forward
all accounts receivable collections owed to Borrower to a lockbox maintained by
Bank, and will execute such lockbox agreements as may be required by Bank and
will pay to Bank all customary fees in connection with such lockbox arrangement.
Immediately upon receipt, Borrower will forward to Bank all other checks, drafts
and other monies received by Borrower which are proceeds of the Collateral to
the lockbox maintained by Bank.
(b) All accounts receivable collections of Borrower and all checks,
drafts and other monies received by Borrower which are proceeds of the
Collateral will be deposited in a non-interest bearing cash collateral account
maintained at Bank (the "Cash Collateral Account"). Bank will have sole dominion
and control over all items and funds in the Cash Collateral Account and such
items and funds may be withdrawn only by Bank.
(c) Solely for purposes of calculating interest on the balance of the
Line, all items deposited into the Cash Collateral Account will be credited by
Bank as payments of the principal balance of the Pre-Petition Balance and the
Line, as applicable, on the Business Day on which such items are deposited into
the Cash Collateral Account. As compensation for the foregoing arrangement,
Borrower will pay to Bank a sum equal to one day's interest on all such
deposits, at the interest rate set forth in Section 4.2. Borrower will reimburse
Bank on demand for the amount of any items credited as provided above and
subsequently returned unpaid. Bank may terminate the foregoing arrangement upon
notice to Borrower.
(d) Borrower agrees that all monies, checks, notes, instruments, drafts
or other
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payments relating to or constituting proceeds of any accounts receivable or
other Collateral of Borrower which come into the possession or under the control
of Borrower or any employees, agents or other persons acting for or in concert
with Borrower, shall be received and held in trust for Bank and such items shall
be the sole and exclusive property of Bank. Immediately upon receipt thereof,
Borrower and such other persons shall remit the same or cause the same to be
remitted, in kind, to Bank. Borrower shall deliver or cause to be delivered to
Bank, with appropriate endorsement and assignment to Bank with full recourse to
Borrower, all instruments, notes and chattel paper constituting an account
receivable or proceeds thereof or other Collateral. Bank is hereby authorized to
open all mail addressed to Borrower and endorse all checks, drafts or other
items for payment on behalf of Borrower. Bank is granted a power of attorney by
Borrower with full power of substitution to execute on behalf of Borrower and in
Borrower's name or to endorse Borrower's name on any check, draft, instrument,
note or other item of payment or to take any other action or sign any document
in order to effectuate the foregoing. Such power of attorney being coupled with
an interest is irrevocable until the Bank Indebtedness has been paid in full and
Bank has no further commitment or obligation to make any advances under the
Line.
7. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as follows:
7.1 Valid Organization, Good Standing and Qualification. Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, has full power and authority to execute, deliver
and comply with the Loan Documents, and to carry on its business as it is now
being conducted and is duly licensed or qualified as a foreign corporation in
good standing under the laws of each other jurisdiction in which the character
or location of the properties owned by it or the business transacted by it
requires such licensing or qualification and the failure to be so qualified
would have a material adverse effect on the Collateral, business operations or
financial condition of Borrower.
7.2 Licenses. Borrower and its employees, servants and agents have all
licenses, registrations, approvals and other authority as may be necessary to
enable it to own and operate its business and perform all services and business
which it has agreed to perform in any state, municipality or other jurisdiction,
except where the failure to have such licenses, registrations, approvals or
other authority would not have a material adverse affect on the Collateral,
business, operations or financial condition of Borrower or the ability of
Borrower to perform its obligations under the Loan Documents.
7.3 Subsidiaries. Borrower owns no shares of stock or other equity interests
in any Person, directly or indirectly (by any Subsidiary or otherwise).
7.4 Financial Statements. Borrower has furnished to Bank the audited
financial statements of Borrower certified without qualification by independent
public accountants as of December 31, 1996 and all management and comment
letters from such accountants in connection therewith, and its internally
prepared financial statements as of October 31, 1997. Such financial statements
of Borrower (together with the related notes and comments), are
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correct and complete, fairly present the financial condition and the assets and
liabilities of Borrower at such date, and have been prepared in accordance with
GAAP.
7.5 Pending Litigation or Proceedings. Except as set forth on Schedule 7.5
attached hereto, there are no judgments outstanding or actions, suits or
proceedings pending or, to the best of Borrower's knowledge, threatened against
or affecting Borrower, at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
7.6 Due Authorization; No Legal Restrictions. The execution and delivery by
Borrower of the Loan Documents, the consummation of the transactions
contemplated by the Loan Documents and the fulfillment and compliance by
Borrower with the respective terms, conditions and provisions of the Loan
Documents: (a) have been duly authorized by all requisite corporate action of
Borrower; (b) will not conflict with or result in a breach of, or constitute a
default (or might, upon the passage of time or the giving of notice or both,
constitute a default) under, any of the terms, conditions or provisions of any
applicable statute, law, rule, regulation or ordinance or Borrower's Certificate
of Incorporation or By-Laws or any indenture, mortgage, loan or credit agreement
or instrument to which Borrower is a party or by which Borrower may be bound or
affected, or any judgment or order of any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign; and
(c) will not result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of
Borrower under the terms or provisions of any such agreement or instrument,
except liens in favor of Bank.
7.7 Enforceability. The Loan Documents have been duly executed by Borrower
and delivered to Bank and constitute legal, valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their terms.
7.8 Governmental Consents. Except for Bankruptcy Court approval, no consent,
approval or authorization of or designation, declaration or filing with any
governmental authority on the part of Borrower (and not obtained by Borrower
prior to the date hereof) is required in connection with the execution, delivery
or performance by Borrower of the Loan Documents or the consummation of the
transactions contemplated thereby.
7.9 Taxes. Except as set forth on Schedule 7.9 attached hereto, Borrower has
filed all tax returns which it is required to file and has paid, or made
provision for the payment of, all taxes which have or may have become due
pursuant to such returns or pursuant to any assessment received by Borrower.
Such tax returns are complete and accurate in all material respects. Borrower
knows of no proposed additional assessment or basis for any assessment of
additional taxes.
7.10 Title to Collateral. The Collateral is and will be owned by Borrower
free and clear of all liens and other encumbrances of any kind (including liens
or other encumbrances upon properties acquired or to be acquired under
conditional sales agreements or other title retention devices), excepting only
the Permitted Encumbrances. Borrower will defend the
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Collateral against any claims of all persons or entities other than the Bank.
7.11 Addresses. During the past five (5) years, Borrower has not been known
by any names (including trade names) other than those set forth in Schedule 7.11
attached hereto and has not been located at any addresses other than those set
forth on Schedule 7.11 attached hereto. The portions of the Collateral which are
tangible property and Borrower's books and records pertaining thereto will at
all times be located at the addresses set forth on Schedule 7.11; or such other
location determined by Borrower after prior notice to Bank and delivery to Bank
of any items requested by Bank to maintain perfection and priority of Bank's
security interests and access to Borrower's books and records. Schedule 7.11
identifies the chief executive office of Borrower.
7.12 Current Compliance. Borrower is currently in compliance with all of the
terms and conditions of the Loan Documents.
7.13 Pension Plans. Except as disclosed on Schedule 7.13 hereto: (a)
Borrower has no obligations with respect to any employee pension benefit plan
("ERISA Plan") (as such term is defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); (b) no events, including, without
limitation, any "Reportable Event" or "Prohibited Transaction" (as those terms
are defined under ERISA), have occurred and are continuing in connection with
any ERISA Plan of Borrower which might constitute grounds for the termination of
any such ERISA Plan by the Pension Benefit Guaranty Corporation ("PBGC") or for
the appointment by any United States District Court of a trustee to administer
any such ERISA Plan; (c) all of Borrower's ERISA Plans meet with the minimum
funding standards of Section 302 of ERISA; and (d) Borrower has no existing
liability to the PBGC. Borrower is not subject to or bound to make contributions
to any "multi-employer plan" as such term is defined in Section 4001(a)(3) of
ERISA.
7.14 Intellectual Property. Borrower owns or possesses the irrevocable right
to use all of the patents, trademarks, service marks, trade names, copyrights,
licenses, franchises and permits and rights with respect to the foregoing
necessary to own and operate the Borrower's properties and to carry on its
business as presently conducted and presently planned to be conducted without
conflict with the rights of others. Schedule 7.14 sets forth an accurate list
and description of each such patent, trademark, service mark, trade name,
copyright, license, franchise and permit and right with respect to the
foregoing, together with all registration or application numbers or information
with respect thereto.
7.15 Eligible Inventory Warranties. With respect to Eligible Inventory from
time to time scheduled, listed or referred to in any certificate, statement or
report prepared by or for Borrower and delivered to Bank and upon which Borrower
is basing availability under the Line, Borrower warrants and represents that:
(a) such inventory is located at the address or addresses listed on Schedule
7.11 attached hereto and is not in transit (except between locations of Borrower
described on Schedule 7.11 hereto and other locations of Borrower established in
accordance with the terms and conditions of this Agreement); (b) Borrower has
good, indefeasible and merchantable title to such inventory and such inventory
is not subject to any lien
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or security interest whatsoever except for the prior, perfected security
interest granted to Bank; (c) such inventory is of good and merchantable
quality, free from any defects; (d) such inventory is not subject to any
licensing, patent, royalty, trademark, trade name or copyright agreements with
any third parties; and (e) the completion of the manufacture and sale or other
disposition of such inventory by Bank following an Event of Default shall not
require the consent of any person and shall not constitute a breach or default
under any contract or agreement to which Borrower is a party or to which the
inventory is subject.
7.16 Eligible Account Warranties. With respect to all Eligible Receivables
from time to time scheduled, listed or referred to in any certificate, statement
or report prepared by or for Borrower and delivered to Bank and upon which
Borrower is basing availability under the Line, Borrower warrants and represents
that: (a) the accounts arose in the ordinary course of Borrower's business; (b)
the accounts are genuine, are in all respects what they purport to be, and are
not evidenced by any chattel paper, note, instrument or judgment; (c) Borrower
has absolute title to such accounts and the accounts represent undisputed, bona
fide transactions completed in accordance with the terms thereof and as
represented to Bank; (d) no payments have been or will be made thereon,
except payments immediately delivered to Bank pursuant to the Loan Documents;
(e) there are no setoffs, counterclaims, disputes, discounts (other than prompt
payment discounts not in excess of five percent (5%) of the face amount
thereof), credits, charge backs, freight claims, allowances or adjustments
existing or asserted with respect thereto and Borrower has not made any
agreement with any account debtor for any deduction therefrom; (f) there are no
facts, events or occurrences which impair the validity or enforcement thereof or
may reduce the amount payable thereunder as shown on any certificates,
statements or reports, prepared by or for Borrower and delivered to Bank,
Borrower's books and records and all invoices and statements delivered to Bank
with respect thereto; (g) to the best of Borrower's knowledge, all account
debtors have the capacity to contract and are solvent; (h) the goods sold giving
rise thereto are not subject to any lien, claim, encumbrance or security
interest except that of Bank; (i) to the best of Borrower's knowledge, there are
no proceedings or actions which are threatened or pending against any account
debtor which might result in any material adverse change in such account
debtor's financial condition; (j) the account is not an account with respect to
which the account debtor is an Affiliate of Borrower or a director, officer or
employee of Borrower or its Affiliates; (k) the account does not arise with
respect to goods which have been returned, rejected, lost or damaged or which
have not been shipped or arise with respect to services which have not been
fully performed and accepted as satisfactory by the account debtor; (l) the
account is not an account with respect to which the account debtor's obligation
to pay the account is conditional upon the account debtor's approval or is
otherwise subject to any repurchase obligation or return right, as with sales
made on a consignment bill-and-hold, guaranteed sale, sale-and-return, or sale
on approval basis; (m) the amounts shown on the applicable certificates,
statements, on Borrower's books and records and all invoices and statements
which may be delivered to Bank with respect to such accounts are actually and
absolutely owing to Borrower and are not in any way contingent (except in
connection with Borrower's standard product warranties); and (n) the accounts
have not been sold, assigned or transferred to any other Person and no Person
except Borrower has any claim thereto or (with the exception of the applicable
account debtor) any claims to the goods sold.
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7.17 Business Interruptions. Within five (5) years prior to the date hereof,
neither the business, Collateral nor operations of Borrower have been materially
and adversely affected in any way by any casualty, strike, lockout, combination
of workers, order of the United States of America, or any state or local
government, or any political subdivision or agency thereof, directed against
Borrower. There are no pending or threatened labor disputes, strikes, lockouts
or similar occurrences or grievances against the business being operated by
Borrower.
7.18 Accuracy of Representations and Warranties. No representation or
warranty by Borrower contained herein or in any certificate or other document
furnished by Borrower pursuant hereto or in connection herewith fails to contain
any statement of material fact necessary to make such representation or warranty
not misleading in light of the circumstances under which it was made. There is
no fact which Borrower knows or should know and has not disclosed to Bank, which
does or may materially and adversely affect Borrower, or any of its operations.
8. GENERAL COVENANTS. Except with the prior written consent of Bank, Borrower
will comply with the following:
8.1 Payment of Principal, Interest and Other Amounts Due. Borrower will pay
when due all Bank Indebtedness and all other amounts payable by it hereunder.
8.2 Limitation on Sale and Leaseback. Borrower will not enter into any
arrangement whereby it will sell or transfer any real property or improvements
thereon or other fixed assets owned by it and then or thereafter rent or lease
as lessee such property, improvements or assets or any part thereof, or other
property which any Borrower shall intend to use for substantially the same
purposes as the property sold or transferred.
8.3 Limitation on Indebtedness. Borrower will not have at any time
outstanding to any Person other than Bank, any Indebtedness for borrowed money,
Capitalized Lease Obligations, or any outstanding letters of credit issued for
Borrower's account, except:
(a) Pre-Petition Accounts Payable;
(b) Current accounts payable incurred in the ordinary course of
Borrower's business, accrued expenses and other current items arising out of
transactions (other than borrowings) in the ordinary course of Borrower's
business;
(c) Existing Indebtedness for borrowed money and for Capitalized Lease
Obligations described on Schedule 8.3; and
(d) Letters of credit issued pursuant to this Agreement.
8.4 Investments and Loans. Borrower will not have or make any investments in
all or a material portion of the capital stock or securities of any Person, or
any loans, advances or extensions of credit to any Person, except to customers
in the ordinary course of Borrower's
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business.
8.5 Guaranties. Borrower will not directly or indirectly guarantee, endorse
(other than for collection or deposit in the ordinary course of business),
discount, sell with recourse or for less than the face value or agree
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
otherwise become directly or indirectly liable for, or agree (contingently or
otherwise) to supply or advance funds (whether by loan, stock purchase, capital
contribution or otherwise) in respect of, any Indebtedness, obligations or
liabilities of any Person.
8.6 Disposition of Assets. Borrower will not sell, lease, transfer or
otherwise dispose of all, substantially all, or any material portion of its
property or assets, except for (a) sales of inventory in the ordinary course for
fair consideration, and (b) any other sale approved by the Bankruptcy Court,
provided that Bank received from Borrower two (2) Business Days prior written
notice of Borrower's intention to submit such sale to the Bankruptcy Court for
approval, which notice shall include a draft of the proposed agreement of sale
and other sale documents.
8.7 Merger; Consolidation; Business Acquisitions; Subsidiaries. Borrower
will not (a) merge into or consolidate with any Person, or (b) acquire any
material portion of the stock, ownership interests, assets or business of any
Person, permit any Person to merge into it, or form any new Subsidiaries.
8.8 Taxes; Claims for Labor and Materials. Borrower will pay or cause to be
paid when due all taxes, assessments, governmental charges or levies imposed
upon it or its income, profits, payroll or any property belonging to it,
including without limitation all withholding taxes, and all claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon any
of its properties or assets; provided that Borrower shall not be required to pay
any such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings promptly initiated
and diligently conducted by Borrower and neither execution, foreclosure nor levy
shall have been commenced in respect thereof and Borrower shall have set aside
on its books adequate reserves with respect thereto. Borrower will not file or
consent to the filing of, any consolidated income tax return with any Person
other than a Subsidiary.
8.9 Liens. Borrower will not create, incur or permit to exist any mortgage,
pledge, encumbrance, lien, security interest or charge of any kind (including
liens or charges upon properties acquired or to be acquired under conditional
sales agreements or other title retention devices) on its property or assets,
whether now owned or hereafter acquired, or upon any income, profits or proceeds
therefrom, except (all of the following being collectively, the "Permitted
Encumbrances"):
(a) Security interests and mortgages held by Bank;
(b) Liens incurred or deposits made in the ordinary course of business
(i) in connection with worker's compensation, unemployment insurance, social
security and other like laws, (ii) to secure the performance of statutory
obligations or bids, tenders or contracts, not
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incurred in connection with either (A) the borrowing of money or (B) the
deferred purchase price of goods or inventory, or (iii) liens for taxes,
assessments or other governmental charges not delinquent, or being contested in
good faith by appropriate proceedings;
(c) Encumbrances consisting of zoning restrictions, easements,
restrictions on the use of real property or minor irregularities of title
thereto, none of which materially impairs the use of such property by Borrower
in the operation of its business; and
(d) Liens and security interests listed on Schedule 8.9 attached
hereto.
Borrower shall not enter into any agreement with any other Person which
shall prohibit Borrower from granting, creating or suffering to exist, or
otherwise restrict in any way (whether by covenant, by identifying such event as
a default under such agreement or otherwise) the ability of Borrower to grant,
create or suffer to exist, any lien, security interest or other charge or
encumbrance upon or with respect to any of its assets in favor of Bank.
Borrower will not apply for or obtain any letters of credit for the payment
of or to secure the payment for any inventory or other assets to be acquired by
Borrower, except letters of credit issued by Bank, at its discretion.
8.10 Existence; Approvals; Qualification; Business Operations; Compliance
with Laws. Borrower (a) will obtain, preserve and keep in full force and effect
its separate corporate existence and all rights, licenses, registrations and
franchises necessary to the proper conduct of its business or affairs; (b) will
qualify and remain qualified as a foreign corporation in each jurisdiction in
which the character or location of the properties owned by it or the business
transacted by it requires such qualification and the failure to be so qualified
would have a material adverse effect on the Collateral, business operations or
financial condition of Borrower; (c) subject to limitations imposed by the
Bankruptcy Court and/or the Bankruptcy Code and except for the termination of
manufacturing operations at any Manufacturing Facility, will continue to operate
its business in substantially the same manner as presently operated; and (d)
will comply in all material respects with the requirements of all applicable
laws and all rules, regulations (including environmental regulations) and orders
of regulatory agencies and authorities having jurisdiction over it.
8.11 Maintenance of Properties, Intellectual Property. Borrower will
maintain, preserve, protect and keep or cause to be maintained, preserved,
protected and kept its real and personal property used or useful in the conduct
of its business in good working order and condition, reasonable wear and tear
excepted, and will pay and discharge when due the cost of repairs to and
maintenance of the same.
With respect to any and all trademarks, registrations, copyrights, patents,
patent rights and applications for any of the foregoing, Borrower shall maintain
and protect the same and shall, in the exercise of its reasonable business
judgment, take and assert such remedies as are available to Borrower to prevent
any other Person from infringing upon or claiming any interest in any such
trademarks, registrations, copyrights, patents, patent rights or application for
any of the foregoing.
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Borrower will notify Bank immediately of: (a) Borrower's learning of the
creation by Borrower or any of its employees of any significant inventions
relating to Borrower's business; (b) Borrower's learning of any changes or
improvements made to an invention created or owned by Borrower or any of its
employees and relating to Borrower's business; (c) the filing of any patent or
trademark application, whether domestic or foreign, by Borrower or, if Borrower
will have any rights therein, any of its employees; (d) the grant of any patent
or trademark, whether domestic or foreign, to Borrower or, if Borrower will have
any rights therein, any of its employees; or (e) Borrower's intent to abandon a
patent or trademark.
Borrower will, if requested by Bank: (i) execute and deliver to Bank
assignments, financing statements, patent mortgages or such other documents, in
form and substance acceptable to Bank, necessary to perfect and maintain Bank's
security interest in all existing and future patents, patent applications,
trademarks, trademark applications, and other general intangibles owned by
Borrower; (ii) furnish Bank with evidence satisfactory to Bank that all actions
necessary to maintain and protect each trademark and patent owned by Borrower or
its employees and relating to Borrower's business have been taken in a timely
manner; and (iii) execute and deliver to Bank an agreement permitting Bank to
exercise all of Borrower's rights in, to and under any patent or trademark owned
by Borrower or, to the extent Borrower has any rights therein, any of its
employees.
8.12 Insurance. Borrower will carry adequate insurance issued by an insurer
acceptable to Bank, in amounts acceptable to Bank (at least adequate to comply
with any co-insurance provisions) and against all such liability and hazards as
are usually carried by entities engaged in the same or a similar business
similarly situated or as may be required by Bank, and in addition, will carry
business interruption insurance in such amounts as may be required by Bank. In
the case of insurance on any of the Collateral, Borrower shall carry insurance
in the full insurable value thereof and cause Bank to be named as insured
mortgagee with respect to all real property, loss payee (with a lender's loss
payable endorsement) with respect to all personal property, and additional
insured with respect to all liability insurance, as its interests may appear,
with thirty (30) days' notice to be given Bank by the insurance carrier prior to
cancellation or material modification of such insurance coverage.
Borrower shall cause to be delivered to Bank the insurance policies therefor
or in the alternative, evidence of insurance and at least thirty (30) Business
Days prior to the expiration of any such insurance, additional policies or
duplicates thereof or in the alternative, evidence of insurance evidencing the
renewal of such insurance and payment of the premiums therefor. Borrower shall
direct all insurers that in the event of any loss thereunder or the cancellation
of any insurance policy, the insurers shall make payments for such loss and pay
all return or unearned premiums directly to Bank and not to Borrower and Bank
jointly.
In the event of any loss, Borrower will give Bank immediate notice thereof
and Bank may make proof of loss whether the same is done by Borrower. Bank is
granted a power of attorney by Borrower with full power of substitution to file
any proof of loss in Borrower's or Bank's name, to endorse Borrower's name on
any check, draft or other instrument evidencing insurance
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proceeds, and to take any action or sign any document to pursue any insurance
loss claim. Such power being coupled with an interest is irrevocable until all
Bank Indebtedness is paid in full and Bank has no further funding commitment
under or in respect of the Line.
In the event of any loss, Bank, at its option, may: (a) retain and apply all
or any part of the insurance proceeds to reduce, in such order and amounts as
Bank may elect, the Bank Indebtedness; or (b) disburse all or any part of such
insurance proceeds to or for the benefit of Borrower for the purpose of
repairing or replacing Collateral after receiving proof satisfactory to Bank of
such repair or replacement or the estimated cost thereof, in either case without
waiving or impairing the Bank Indebtedness or any provision of this Agreement.
Borrower shall not take out any insurance on the Collateral without having Bank
named as loss payee or additional insured thereon. Borrower shall bear the full
risk of loss from any loss of any nature whatsoever with respect to the
Collateral.
8.13 Inspections; Examinations. Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by Borrower at any time to exhibit
and deliver to Bank copies of any and all of Borrower's financial statements,
trial balances or other accounting records of any sort in the accountant's or
auditor's possession and copies of all reports submitted to Borrower by such
accountants or auditors, including management letters, "comment" letters and
audit reports, and to disclose to Bank any information they may have concerning
Borrower's financial status and business operations. Borrower further authorizes
all federal, state and municipal authorities to furnish to Bank copies of
reports or examinations relating to Borrower, whether made by Borrower or
otherwise.
The officers of Bank, or such Persons as any of them may designate, may
visit and inspect any of the properties of Borrower, examine (either by Bank's
employees or by independent accountants) any of the Collateral or other assets
of Borrower, including the books of account of Borrower, and discuss the
affairs, finances and accounts of Borrower with its officers and with its
independent accountants, at such times as Bank may desire. Provided no Event of
Default shall have occurred, Bank will visit Borrower's locations only upon
reasonable notice and during normal business hours.
Bank may conduct at any time and from time to time, and Borrower will fully
cooperate with, field examinations of the inventory, accounts receivable and
business affairs of Borrower. Borrower shall reimburse Bank for all costs and
expenses incurred by Bank in connection with any audit conducted hereunder,
including, without limitation, the sum of Six Hundred Dollars ($600.00) per day
per individual involved in such audit; provided that, if no Event of Default has
occurred hereunder, Bank will only be entitled to reimbursement of audit
expenses which do not exceed Four Thousand Dollars ($4,000.00) in the aggregate
per month on a cumulative basis.
8.14 Pension Plans. Borrower will: (a) keep in full force and effect any and
all ERISA Plans which are presently in existence or may, from time to time, come
into existence under ERISA, unless such ERISA Plans can be terminated without
material liability to Borrower in connection with such termination (as
distinguished from any continuing funding obligation); (b) make contributions to
all of Borrower's ERISA Plans in a timely manner and in a sufficient
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amount to comply with the minimum funding requirements of ERISA; (c) comply with
all material requirements of ERISA which relate to such ERISA Plans so as to
preclude the occurrence of any Reportable Event, Prohibited Transaction or
material "accumulated funding deficiency" as such term is defined in ERISA; and
(d) notify Bank immediately upon receipt by Borrower of any notice of the
institution of any proceeding or other action which may result in the
termination of any ERISA Plan and deliver to Bank, promptly after the filing or
receipt thereof, copies of all reports or notices which Borrower files or
receives under ERISA with or from the Internal Revenue Service, the PBGC, or the
U.S. Department of Labor.
8.15 Bank of Account. Except for payroll accounts, accounts with a balance
not to exceed at any time Five Hundred Dollars ($500.00) for locations not
accessible to Bank branches or as otherwise expressly permitted by Bank,
Borrower will maintain all its bank accounts with Bank.
8.16 Maintenance of Management. Borrower will cause its business to be
continuously managed by its present senior management team consisting of Harvey
B. Adams, Ronald J. Adams and Burton R. Chasnov or such other persons (serving
in such management positions) as may be reasonably satisfactory to Bank.
8.17 Capital Stock; Dividends. Borrower will not redeem, repurchase or
otherwise make any payment or distribution to acquire any of its capital stock.
Borrower will not pay cash dividends or make other distributions on account of
its capital stock. The foregoing shall not preclude Borrower from implementing
stock splits or paying stock dividends.
8.18 Transactions with Affiliates. Except for those disclosed on Schedule
8.18 attached hereto, Borrower will not enter into or conduct any transaction
with any Affiliate except on terms that would be usual and customary in a
similar transaction between Persons not affiliated with each other and except as
disclosed to Bank. Borrower will not make any loans or extensions of credit to
any of its Affiliates, shareholders, directors or officers, except for the
existing loans described in Schedule 8.18 attached hereto. Borrower will cause
all of its Indebtedness at any time owed to its Affiliates, shareholders,
directors and officers to be subordinated in all respects to all present and
future Bank Indebtedness and will not make any payments thereon, except as
approved by Bank in writing.
8.19 Name or Address Change. Borrower shall not change its name or the
address of its principal executive office except upon thirty (30) days prior
written notice to Bank and delivery to Bank of any items requested by Bank to
maintain perfection and priority of Bank's security interests and access to
Borrower's books and records.
8.20 Notices. Borrower will promptly notify Bank of: (a) any action or
proceeding brought against Borrower wherein such action or proceeding would, if
determined adversely to Borrower, result in any material liability of Borrower;
(b) the occurrence of any Event of Default; (c) any fact, condition or event
which, with the giving of notice or the passage of time or both, could become an
Event of Default; (d) the failure of Borrower to observe any of its undertakings
under the Loan Documents; or (e) any material adverse change in the assets,
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business, operations or financial condition of Borrower.
8.21 Additional Documents and Future Actions. Borrower will, at its sole
cost, take such actions and provide Bank from time to time with such agreements,
financing statements and additional instruments, documents or information as
Bank may in its discretion deem necessary or advisable to perfect, protect,
maintain or enforce the security interests in the Collateral, to permit Bank to
protect or enforce its interest in the Collateral, or to carry out the terms of
the Loan Documents. Borrower hereby authorizes and appoints Bank as its
attorney-in-fact, with full power of substitution, to take such actions as Bank
may deem advisable to protect the Collateral and its interests thereon and its
rights hereunder, to execute on Borrower's behalf and file at Borrower's expense
financing statements, and amendments thereto, in those public offices deemed
necessary or appropriate by Bank to establish, maintain and protect a
continuously perfected security interest in the Collateral, and to execute on
Borrower's behalf such other documents and notices as Bank may deem advisable to
protect the Collateral and its interests therein and its rights hereunder. Such
power being coupled with an interest is irrevocable until the Bank Indebtedness
is paid in full and Bank has no further funding commitment under or in respect
of the Line. Borrower irrevocably authorizes the filing of a carbon,
photographic or other copy of this Agreement, or of a financing statement, as a
financing statement and agrees that such filing is sufficient as a financing
statement.
8.22 Accounts Receivable. Unless Bank notifies Borrower in writing that it
dispenses with any one or more of the following requirements, Borrower will: (a)
inform Bank immediately of the rejection of goods, claims made or delay in
delivery or performance in regard to any account or contract right upon which
Borrower has based availability for advances under the Line and will adjust the
Borrowing Base calculation under the Line to reduce the availability for
advances under the Line by the applicable percentage of the amount of such
account; (b) make no change in any account upon which Borrower has based
availability for advances under the Line, unless such change is reflected in the
Borrowing Base calculation; (c) furnish to Bank all information received by
Borrower materially adversely affecting the financial standing of any account
debtor whose account or contract right has been specifically assigned to Bank;
(d) pay Bank the amount loaned against any account or contract right if the
goods are returned by purchaser or the contract is canceled or terminated or
adjust the Borrowing Base calculation to reduce the availability for advances
under the Line by the applicable percentage of the amount of such account; (e)
immediately notify Bank if any of its accounts arise out of contracts with the
United States or any department, agency or instrumentality thereof, and execute
any instruments and take any steps required by Bank in order that all monies due
and to become due under such contract shall be assigned to Bank and notice
thereof given to the Government under the Federal Assignment of Claims Act; and
(f) deliver to Bank, with appropriate endorsement or assignment, any instrument
or chattel paper representing an account or contract right. Any permission
granted to Borrower by Bank to omit any of the requirements of this Section 8.22
may be revoked by Bank at any time.
Borrower will, if requested by Bank: (a) give Bank assignments, in form
acceptable to Bank, of specific accounts or groups of accounts and monies due
and to become due under specific contracts and specific general intangibles; (b)
furnish to Bank a copy, with such
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duplicate copies as Bank may request, of the invoice applicable to each account
specifically assigned to Bank or arising out of a contract right, bearing a
statement that such account has been assigned to Bank and such additional
statements as Bank may require; (c) mark its records evidencing its accounts in
a manner satisfactory to Bank so as to show which accounts have been assigned to
Bank; (d) furnish to Bank satisfactory evidence of the shipment and receipt of
any goods specified by Bank and the performance of any services or obligations
covered by accounts or contracts in which Bank has a security interest; (e) pay
Bank the unpaid portion of the amount advanced under the Line in respect of any
account or contract right upon which Borrower has based availability for
advances under the Line, or adjust the Borrowing Base under the Line by the
applicable percentage of the amount of such account, if (i) such account is not
paid within ninety (90) days of its invoice date, (ii) the subject account
debtor does not accept the goods or services, (iii) any petition under the
Bankruptcy Code or any similar Federal or State statute is filed by or against
the subject account debtor, or (iv) Bank shall at any time reject the account as
unsatisfactory; and until such payment or adjustment is made by Borrower, Bank
may retain any such account or contract right as security and may charge any
deposit account of Borrower with any such amounts; (f) join with Bank in
executing a financing statement, notice, affidavit or similar instrument, in
form satisfactory to Bank, and such continuation statements and other
instruments as Bank may from time to time request and pay the cost of filing the
same in any public office deemed advisable by Bank; (g) give Bank such financial
statements, reports, certificates, lists of purchasers (showing names,
addresses, and amounts owing) and other data concerning its accounts, contracts,
collections, inventory, general intangibles and other matters as Bank may from
time to time specify; (h) segregate cash proceeds of Collateral so that they may
be identified readily, and deliver the same to the Bank at such time or times
and in such manner and form as the Bank may direct; (i) furnish such witnesses
as may be necessary to establish legal proof of the Collateral or records
relating to the Collateral; and (j) obtain from any owner, encumbrancer or other
person having an interest in the property where any Collateral is located,
written consent to Bank's removal of the Collateral therefrom, without liability
on the part of Bank to such owner, encumbrancer or other person, or from any
such owner, encumbrancer or other person such waivers of any interest in the
Collateral as Bank may require.
8.23 Material Adverse Contracts. Neither Borrower nor either Guarantor will
become or be a party to any contract or agreement which might reasonably be
expected to have a materially adverse impact on its or either Guarantor's
ability to perform under this Agreement, the Surety Agreement or any other
agreement with Bank to which it or either Guarantor is a party.
8.24 Restrictions on Use of Proceeds. Borrower will not carry or purchase
with the proceeds of the Line any "margin security" within the meaning of
Regulations U, G, T or X of the Board of Governors of the Federal Reserve
System.
8.25 Subordinated Indebtedness. Borrower will not make any payments on or
prepay or otherwise accelerate payment of any Subordinated Indebtedness.
8.26 Life Insurance. Borrower will cause to be maintained the life insurance
coverage required under Section 6.3 and will deliver to Bank evidence of such
coverage showing all
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premiums paid for the subsequent 12-month period at least thirty (30) days prior
to the expiration of such insurance policy.
8.27 Interim Financing Order; Permanent Financing Order. Borrower shall at
all times comply with all terms and conditions of the Interim Financing Order
and the Permanent Financing Order.
8.28 Permanent Financing Order. Borrower will use its best efforts to cause
the Permanent Financing Order to be entered by the Bankruptcy Court on or before
forty-five (45) days after the date of entry of the Interim Financing Order,
provided that such Permanent Financing Order shall be entered on or before sixty
(60) days after the date of entry of the Interim Financing Order.
8.29 Year End. Borrower shall not change its fiscal year end without Bank's
prior written consent.
8.30 Capital Expenditures. Borrower and Guarantors agree that Borrower shall
not make any capital expenditures or incur any Capitalized Lease Obligations.
8.31 Officer Compensation. Officer Compensation payable to any Guarantor by
Borrower shall be limited to the applicable amounts set forth on Schedule 1.48
attached hereto. Ten percent (10%) of the base salary payable to Harvey B. Adams
by Borrower and five percent (5%) of the base salary payable to Ronald J. Adams
by Borrower shall be deferred and not paid until consummation of the sale of the
fixed assets of the Manufacturing Facilities, or either of them, which result in
the payment to Bank of Net Proceeds Payable to Bank in an aggregate amount of at
least One Million Five Hundred Thousand Dollars ($1,500,000.00) (the "Final Sale
Date"). Compensation paid to Guarantors after the Final Sale Date shall not be
subject to such deferral. Any Officer Compensation deferred pursuant to this
provision may be paid to Guarantors after the earlier of (a) entry of a final
order of the Bankruptcy Court approving a plan of reorganization of Borrower; or
(b) satisfaction of all Bank Indebtedness and termination of Bank's obligations
hereunder.
8.32 Compensation to Chasnov. Compensation payable to Burton Chasnov shall
be limited to the amount set forth on Schedule 8.32 attached hereto.
8.33 Cash Collateral. Borrower shall give at least two (2) Business Days'
prior written notice to Bank before scheduling a hearing on any motion
requesting the use of cash collateral (as such term is defined in Section 363 of
the Bankruptcy Code) in which Bank has an interest.
8.34 Opening Balance Sheet. On or before January 15, 1998, Borrower shall
deliver to Bank its balance sheet dated as of the Petition Date.
8.35 Sale of Manufacturing Facilities. Borrower shall use its best efforts
to sell the fixed assets of the Manufacturing Facilities.
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9. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS. Borrower will maintain
books of record and account in which full, correct and current entries in
accordance with GAAP will be made of all of Borrower's dealings, business and
affairs, and Borrower will deliver or cause to be delivered to Bank the
following:
9.1 Annual Statements. As soon as available and in any event within ninety
(90) days after the end of each fiscal year of Borrower:
(a) the audited income and retained earnings statements of Borrower for
such fiscal year,
(b) the audited balance sheet of Borrower as at the end of such fiscal
year, and
(c) the audited statement of cash flows of Borrower for such fiscal
year,
setting forth in comparative form the corresponding figures as at the end of the
previous fiscal year, all in reasonable detail, including all supporting
schedules and comments. The foregoing statements and balance sheets shall be
prepared in accordance with GAAP and shall be audited by BDO Seidman, LLP,
Borrower's current independent certified public accountants, or such other
independent certified public accountants of recognized standing acceptable to
Bank in the reasonable exercise of its discretion, with respect to which such
accountants shall deliver their audit opinion and accountant prepared management
letter. As soon as available and in any event within seventy (70) days after the
end of each fiscal year of Borrower, Borrower shall deliver to Bank the
foregoing statements in draft form.
9.2 Cash Budget Statements. As soon as available and in any event on
Wednesday of each week, a report, in form and content acceptable to Bank,
comparing Borrower's actual results of operation (on a cash basis) for the week
just ended to the results forecasted in the Budget for such week, which report
shall include, without limitation, actual receipts and disbursements, cash flow
and availability.
9.3 Monthly Statements. As soon as available and in any event within thirty
(30) days after the end of each calendar month:
(a) the income and retained earnings statements of Borrower for such
month and for the portion of the fiscal year then ended,
(b) the balance sheet of Borrower as of the end of such month and for
the portion of the fiscal year then ended, and
(c) the statement of cash flows of Borrower for such month and for the
portion of the fiscal year then ended (in a form acceptable to Bank),
setting forth in comparative form the corresponding figures as at the end of the
corresponding
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month of the previous fiscal year (if applicable) and the budgeted figures based
upon the Budget, all in reasonable detail, subject to year-end adjustments, and
certified by the chief financial officer of Borrower to be accurate and to have
been prepared in accordance with GAAP.
9.4 10-K; 10-Q Statements. Copies of Borrower's 10-K and 10-Q statements
promptly upon the filing of such statements with the Securities and Exchange
Commission but in any event within five (5) days thereafter.
9.5 Weekly Collateral and Payables Statements. As soon as available and in
any event on Wednesday of each week, (a) a schedule of Borrower's accounts
receivable, identifying all Pre- Petition Eligible Receivables and Post-Petition
Eligible Receivables, and the aging thereof by open invoice of each customer of
Borrower; (b) a schedule of Borrower's accounts payable, identifying
Pre-Petition Accounts Payable and Post-Petition Accounts Payable, and an aging
thereof by open invoice; and (b) a schedule of Borrower's inventory, identifying
all Pre-Petition Eligible Inventory and Post-Petition Eligible Inventory, all
certified as to accuracy by the chief financial officer of Borrower. Borrower
will also provide Bank with all information reasonably requested by Bank with
respect to any account debtor.
9.6 Accounts Receivable Borrowing Base Information and Related Documents. On
each Business Day, an accounts receivable assignment and a sales, collection and
credit report in the form and content reasonably acceptable to Bank and a copy
of Borrower's sales, collection and credit journal entries for the Business Day
then ended, together with such additional information and details as may be
requested by Bank, all certified as to accuracy by the chief financial officer,
or corporate controller or assistant corporate controller of Borrower. Such
report shall specifically identify Pre-Petition Eligible Receivables and
Post-Petition Eligible Receivables.
9.7 Inventory Borrowing Base Information and Related Documents. On each
Business Day, an inventory certification in the form and content reasonably
acceptable to Bank, together with such additional information and details as may
be requested by Bank, including without limitation specific identification of
all Pre-Petition Eligible Inventory and Post-Petition Eligible Inventory, all
certified as to accuracy by the chief financial officer, corporate controller or
assistant corporate controller of Borrower.
9.8 Audit Reports. Promptly upon receipt thereof, one copy of each other
report submitted to Borrower, by independent accountants, including management
letters, "comment" letters, in connection with any annual, interim or special
audit report made by them of the books of Borrower.
9.9 Reports to Governmental Agencies and Other Creditors. With reasonable
promptness, copies of all such financial reports, statements and returns which
Borrower shall file with any federal or state department, commission, board,
bureau, agency or instrumentality and any report or statement delivered by
Borrower to any supplier or other creditor in connection with any payment
restructuring.
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9.10 Requested Information. With reasonable promptness, all such other data
and information in respect of the condition, operation and affairs of Borrower
as Bank may reasonably request from time to time.
9.11 Compliance Certificates. Within the periods provided in Sections 9.1
and 9.3 above, a certificate of the chief financial officer or corporate
controller of Borrower: (a) stating that Borrower has observed, performed and
complied with each and every undertaking contained herein (or, as applicable,
the nature of any non-compliance and the action taken or proposed to be taken by
Borrower with respect thereto); and (b) certifying that as of the date of such
certification, there does not exist any Event of Default or any occurrence or
state of affairs which with the giving of notice, passage of time or both would
constitute an Event of Default (or, if any Event of Default or incipient Event
of Default exists, the nature thereof and the action being taken or proposed to
be taken by Borrower with respect thereto). Such certificate will be in form and
content reasonably acceptable to Bank.
9.12 Accountant's Certificate. Within the period provided in Section 9.1, a
report of the independent public accountants who render an opinion with respect
to the financial statements referred to therein, stating that they have reviewed
the terms of this Agreement and that in making the examinations necessary to
their certification mentioned in Section 9.1, they have reviewed the accounts
and condition of Borrower during the accounting period covered by their
certificate and that such review did not disclose the existence of any condition
or event which constitutes an Event of Default or would, upon giving notice or
passage of time or both, constitute an Event of Default (or if such conditions
or events existed, describing them).
9.13 Guarantor's Annual Statements. On or before April 15 of each year, or
more frequently, as requested by Bank, financial statements of each Guarantor,
in a form reasonably satisfactory to Bank, and upon filing thereof, a copy of
the annual federal tax returns (including all applicable schedules) of each
Guarantor, certified by the subject Guarantor to be accurate and complete.
Notwithstanding the foregoing, (a) Ronald J. Adams shall deliver to Bank
contemporaneously herewith, his current financial statements in form reasonably
satisfactory to Bank, certified by Ronald J. Adams to be accurate and complete;
and (b) Harvey B. Adams shall deliver to Bank by not later than January 18,
1998, his current financial statements in form reasonably satisfactory to Bank,
certified by Harvey B. Adams to be accurate and complete.
10. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS.
10.1 Representations. Borrower represents to Bank as follows: (a) the
Environmental Affiliates are in compliance in all material respects with all
Environmental Requirements and Borrower has no knowledge of any circumstances
which may prevent or interfere with such compliance in the future; (b) the
Environmental Affiliates have all licenses, permits, approvals and
authorizations required under applicable Environmental Requirements unless the
failure to have the same would not have a material adverse effect on the
business operations, Collateral or financial condition of Borrower; (c) there
are no pending or threatened claims against any of the Environmental Affiliates
or any of their assets related to the failure to comply with any Environmental
Requirements, or any facts or circumstances which could give rise to a material
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claim; (d) no facility or property now or previously owned, operated or leased
by any Environmental Affiliate is an Environmental Cleanup Site; (e) no
Environmental Affiliate has treated, stored, transported, handled or disposed of
Special Materials at or adjacent to any Environmental Cleanup Site except in
compliance with all applicable Environmental Requirements; (f) there are no
liens or claims for cost reimbursement outstanding or threatened against any
Environmental Affiliate or any of their assets, or any facts or circumstances
which could give rise to such a lien or claim; and (g) there are no facts or
circumstances which, under the provisions of any Environmental Requirements,
could restrict the use, occupancy or transferability of any of the Collateral or
any of the facilities owned, leased or operated by any Environmental Affiliate.
10.2 Real Property. Borrower represents and warrants to Bank that there are
no Special Materials presently located on or, to the best of its knowledge, near
any real property owned, leased or operated by any Environmental Affiliate
(collectively, "Real Property") except for Special Materials which are and have
at all times been treated, stored, transported, handled and disposed of in
compliance with all Environmental Requirements. Borrower represents to Bank that
the Real Property is not now being used nor, to the best of its knowledge, has
it ever been used in the past for activities involving Special Materials,
including but not limited to the use, generation, collection, storage,
treatment, or disposal of any Special Materials except for Special Materials
which are and have at all times been treated, stored, transported, handled and
disposed of in compliance with all Environmental Requirements. Without limiting
the generality of the foregoing, the Real Property is not being used nor, to the
best of Borrower's knowledge, has it ever been used in the past for a landfill,
surface impoundment or other area for the treatment, storage or disposal of
solid waste (including solid waste such as sludge).
10.3 Covenant Regarding Compliance. Borrower shall take or cause all
Environmental Affiliates to take, at Borrower's and such Environmental
Affiliate's sole expense, such actions as may be necessary to comply with all
Environmental Requirements, as hereinafter defined. If any Environmental
Affiliate shall fail to take such action, Bank may make advances or payments
towards performance or satisfaction of the same but shall be under no obligation
to do so. All sums so advanced or paid, including all sums advanced or paid by
Bank in connection with any judicial or administrative investigation or
proceeding relating thereto, including, without limitation, attorney's fees,
fines, or other penalty payments, shall be at once repayable by Borrower and all
sums so advanced or paid shall become a part of the Bank Indebtedness.
The Environmental Affiliates will maintain all licenses, permits, approvals
and authorizations required under applicable Environmental Requirements. In
connection with off-site treatment, storage, handling, transportation or
disposal of Special Materials, the Environmental Affiliates will conduct such
activities only at facilities and with carriers who operate in compliance with
all Environmental Requirements and will obtain certificates of compliance or
disposal from all contractors retained in connection with such activities.
10.4 Notices. In the event Borrower becomes aware of any past, present or
future facts or circumstances which have given rise or could give rise to a
claim against any Environmental Affiliate related to a failure to comply with
any Environmental Requirements, Borrower will
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promptly give Bank notice thereof, together with a written statement of an
officer of Borrower setting forth the known details thereof and the action with
respect thereto taken or proposed to be taken by the Environmental Affiliates.
10.5 Indemnity. Borrower agrees to indemnify, defend and hold harmless Bank,
its parents, subsidiaries, successors and assigns, and any officer, director,
shareholder, employee, Affiliate or agent of Bank, for all loss, liability,
damage, cost and expenses, including, without limitation, attorney's fees and
disbursements (including the reasonable allocated cost of in-house counsel and
staff) arising from or related to: (a) the release of any Special Materials at
any facility at any time owned, leased or operated by Borrower or any
Environmental Affiliates, (b) the release of any Special Materials treated,
stored, transported, handled, generated or disposed of by or on behalf of
Borrower or any Environmental Affiliates, at any third party owned site; (c) any
claim against Borrower or any Environmental Affiliate that they have failed to
comply with all Environmental Requirements; and (d) the breach by Borrower of
any representation or covenant in this Section 10; provided that this indemnity
shall not protect any Person from its own willful misconduct.
10.6 Testing. Bank shall have the right from time to time to designate such
persons ("Environmental Consultants") as Bank may select to visit, inspect,
examine and test all properties owned, leased or operated by and all products
and wastes generated, treated, stored, transported, handled or disposed of by or
on behalf of any Environmental Affiliate, for the purpose of investigating
compliance with Environmental Requirements, any actual or potential claims
related thereto, and any condition which could result in potential liability,
cost or expenses to Bank. Borrower will permit, and will cause all Environmental
Affiliates to permit, such Environmental Consultants to have access to all of
such properties, products and wastes and all books, records and reports related
to compliance by the Environmental Affiliates with all Environmental
Requirements. Borrower will supply, and will cause all Environmental Affiliates
to supply, Bank or the Environmental Consultants with all information, records,
correspondence, audits, reviews and materials related to compliance by the
Environmental Affiliates with all Environmental Requirements and will make
available to Bank or the Environmental Consultants appropriate personnel
employed by or consultants retained by the Environmental Affiliates having
knowledge of such matters.
Provided that an Event of Default has occurred and is continuing or Bank has
a good faith belief that an Environmental Affiliate has failed to comply with
any Environmental Requirements, the cost of such visits, inspections,
examination and tests shall be borne by the Borrower and, if in any such event,
Bank pays such costs, such sums shall be at once repayable by Borrower and all
sums so advanced or paid by Bank shall become part of the Bank Indebtedness.
Notwithstanding the foregoing, Bank shall have no obligation to perform any
tests, examinations or inspections or to monitor the Environmental Affiliates'
compliance with all Environmental Requirements.
10.7 Survival. The representations and covenants of Borrower contained in
this Section 10, including without limitation the indemnification obligation of
Borrower, shall survive the occurrence of any event whatsoever, including the
payment of the Bank Indebtedness
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or any investigation by or knowledge of Bank.
10.8 Definitions. For purposes of the foregoing:
(a) "Environmental Affiliate" means Borrower and any other Person for
whom Borrower at any time has any liability (contingent or otherwise) with
respect to any claims arising out of the failure of Borrower or such person to
comply with all applicable Environmental Requirements.
(b) "Environmental Cleanup Site" shall mean any location which is
listed or proposed for listing on the National Priorities List, on CERCLIS or on
any similar state list of sites requiring investigation or cleanup, or which is
the subject of any pending or threatened action, suit, proceeding or
investigation related to or arising from any alleged violation of any
Environmental Requirements.
(c) "Environmental Requirements" means any and all applicable federal,
state or local laws, statutes, ordinances, regulations or standards,
administrative or court orders or decrees, common law doctrines or private
agreements, relating to (i) pollution or protection of the environment and
natural resources, (ii) exposure of employees or other persons to Special
Materials, (iii) protection of the public health and welfare from the effects of
Special Materials and their products, by-products, wastes, emissions, discharges
or releases, and (iv) regulation, licensing, approval or authorization of the
manufacture, generation, use, formulation, packaging, labeling, transporting,
distributing, handling, storing or disposing of any Special Materials.
(d) "Special Materials" means any and all materials which, under
Environmental Requirements, require special handling in use, generation,
collection, storage, treatment or disposal, or payment of costs associated with
responding to the lawful directives of any court or agency of competent
jurisdiction. Special Materials shall include, without limitation: (i) any
flammable substance, explosive, radioactive material, hazardous material,
hazardous waste, toxic substance, solid waste, pollutant, contaminant or any
related material, raw material, substance, product or by- product of any
substance specified in or regulated or otherwise affected by any Environmental
Requirements (including but not limited to any "hazardous substance" as defined
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980 as amended or any similar state or local law), (ii) any toxic chemical or
other toxic substance from or related to industrial, commercial or institutional
activities, and (iii) asbestos, gasoline, diesel fuel, motor oil, waste and used
oil, heating oil and other petroleum products or compounds, polychlorinated
biphenyls, radon, urea formaldehyde and lead-containing materials.
11. CONDITIONS OF CLOSING. The obligation of Bank to make available the Line is
subject to the performance by Borrower of all of its agreements to be performed
hereunder and to the following further conditions (any of which may be waived by
Bank):
11.1 Loan Documents. Borrower and all other required persons and entities
will have executed and delivered to Bank the Loan Documents.
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11.2 Representations and Warranties. All representations and warranties of
Borrower set forth in the Loan Documents will be true at and as of the date
hereof.
11.3 No Default. No condition or event shall exist which would constitute an
Event of Default hereunder (or would, upon the giving of notice or the passage
of time or both, constitute such an Event of Default).
11.4 Proceedings and Documents. All proceedings taken by Borrower in
connection with the transactions contemplated by this Agreement and all
documents incident to such transactions shall be reasonably satisfactory in form
and substance to Bank and Bank's counsel, and Bank shall have received all
documents or other evidence which it reasonably may request in connection with
such proceedings and transactions. Borrower shall have delivered to Bank a
certificate, in form and substance reasonably satisfactory to Bank, dated the
date hereof and signed on behalf of Borrower by an officer of Borrower,
certifying (a) true copies of the Articles of Incorporation and bylaws of
Borrower in effect on such date, (b) true copies of all corporate actions taken
by Borrower relative to the Loan Documents, and (c) the names, true signatures
and incumbency of the officers of Borrower authorized to execute and deliver
this Agreement and the other Loan Documents. Bank may conclusively rely on such
certificate unless and until a later certificate revising the prior certificate
has been received by Bank.
11.5 Interim Financing Order. Delivery to Bank of the Interim Financing
Order as approved by the Bankruptcy Court.
11.6 Delivery of Other Documents. The following documents shall have been
delivered by or on behalf of Borrower to Bank:
(a) Good Standing and Tax Lien Certificates. A good standing
certificate of the Department of State of Delaware certifying to the good
standing and corporate status of Borrower, good standing/foreign qualification
certificates from all other jurisdictions in which Borrower is required to be
qualified to do business, and tax lien certificates for Borrower from each
jurisdiction in which Borrower is required to be qualified to do business.
(b) Authorization Documents. Evidence of authorization of Borrower's
execution and full performance of this Agreement, the Loan Documents and all
other documents and actions required hereunder.
(c) Insurance. Evidence of the insurance coverage required under
Section 8.12.
(d) Opinion of Counsel. An opinion of counsel for Borrower and
Guarantors in form and content satisfactory to Bank.
(e) Life Insurance. Evidence of the life insurance coverage and the
assignment thereof as required under Section 6.3.
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(f) Lien Search. Copies of record searches (including UCC searches and
judgments, suits, tax and other lien searches) confirming that Bank has or will
receive a first priority security interest in the Collateral, except as
otherwise provided in this Agreement, acceptable to Bank.
(g) Financial Reporting. All 10-K, 10-Q and other reports filed or
required to be filed by Borrower with the Securities and Exchange Commission
through the date hereof.
(h) Personal Financial Statements. Current personal financial
statements of Ronald J. Adams, in form and content reasonably satisfactory to
Bank.
(i) Environmental. Evidence satisfactory to Bank that Borrower is in
compliance in all material respects with all applicable federal, state and local
environmental laws, rules and regulations and that no environmental hazards
exist upon any property owned or operated by Borrower.
(j) Budget. The Budget, in form and content reasonably acceptable to
Bank.
(k) Other Documents. Such other documents as may be reasonably required
to be submitted to Bank by the terms hereof or of any Loan Document.
11.7 Lockbox/Cash Collateral Account; Operating Account. Establishment with
Bank of the lockbox, the Cash Collateral Account referred to in Section 6.8
above and Borrower's main operating account.
11.8 Non-Waiver of Rights. By completing the closing hereunder, or by making
advances hereunder, Bank does not thereby waive a breach of any warranty or
representation made by Borrower or either Guarantor hereunder or any agreement,
document or instrument delivered to Bank or otherwise referred to herein, and
any claims and rights of Bank resulting from any breach or misrepresentation by
Borrower or either Guarantor are specifically reserved by Bank.
12. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES. Subsequent advances shall be
conditioned upon the following conditions and each request by Borrower for an
advance shall constitute a representation by Borrower to Bank that each
condition has been met or satisfied:
12.1 Representations and Warranties. All representations and warranties of
Borrower contained herein or in the Loan Documents shall be true at and as of
the date of such advance as if made on such date, and each request for an
advance shall constitute reaffirmation by Borrower that such representations and
warranties are then true, or to the extent any such representations or
warranties are not true as of the date of such advance, the events which render
such representations and warranties untrue shall have been disclosed to Bank in
writing prior to such advance being made.
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12.2 No Default. No condition or event shall exist at or as of the date of
such advance which would constitute an Event of Default hereunder (or would,
upon the giving of notice or the passage of time or both, constitute such an
Event of Default).
12.3 Other Requirements. Bank shall have received all certificates,
authorizations, affidavits, schedules and other documents which are provided for
hereunder or under the Loan Documents, or which Bank may reasonably request.
13. DEFAULT AND REMEDIES.
13.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an Event or Events of Default hereunder:
(a) The failure of Borrower to pay any amount of principal or interest
on the Bank Indebtedness, or any fee or other sums payable hereunder, on the
date on which such payment is due, whether on demand, at the stated maturity or
due date thereof, or by reason of any requirement for the prepayment thereof, by
acceleration or otherwise;
(b) The failure of Borrower or any Guarantor to duly perform or observe
any other obligation, covenant or agreement on its part contained herein or in
any other Loan Document;
(c) The failure of Borrower to achieve the projected monthly amounts
for sales, cash receipts, cash disbursements and EBITDA as set forth on the
Budget, based, inter alia, upon Bank's review of the Budget, the monthly
statements to be delivered to Bank in accordance with Section 9.3, the weekly
cash budget statements to be delivered to Bank in accordance with Section 9.2
and the results of any audits performed by or for Bank, provided that no Event
of Default shall occur if Borrower's actual sales, cash receipts, cash
disbursements and/or EBITDA for the month in question do not vary in an adverse
manner from the projected amounts therefor set forth on the Budget for that
month by more than ten percent (10%).
(d) Any representation or warranty of Borrower in any of the Loan
Documents is discovered to be untrue in any material respect or any statement,
certificate or data furnished by Borrower pursuant hereto is discovered to be
untrue in any material respect as of the date as of which the facts therein set
forth are stated or certified;
(e) Borrower voluntarily or involuntarily dissolves or is dissolved,
terminates or is terminated or both Guarantors die;
(f) Either Guarantor dies, unless Borrower shall have, within ten (10)
days after such event, (i) replaced such deceased Guarantor with a management
person acceptable to Bank in its reasonable discretion, and (ii) delivered
evidence satisfactory to Bank that the estate of such deceased Guarantor has
fully assumed the obligations of such Guarantor under the Surety Agreement;
(g) Borrower is enjoined, restrained, or in any way prevented by the
order of
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any court or any administrative or regulatory agency, the effect of which order
restricts Borrower from conducting all or any material part of its business;
(h) A material and adverse change occurs in Borrower's operations,
management or financial condition or in the value of the Collateral;
(i) Any material uninsured damage to, or loss, theft, or destruction
of, any of the Collateral occurs;
(j) Any strike, lockout, labor dispute, embargo, condemnation, act of
God or public enemy, or other casualty loss occurs resulting in the cessation or
substantial curtailment of production or other revenue producing activities at
any facility of Borrower for more than sixty (60) consecutive days;
(k) The loss, suspension, revocation or failure to renew any license or
permit now held or hereafter acquired by Borrower, which loss, suspension,
revocation or failure to renew would likely have a material adverse effect on
the business profits, assets or financial condition of Borrower;
(l) Any breach by Borrower or any creditor of its obligations under any
subordination agreement now or hereafter executed in favor of Bank;
(m) A Change in Control shall have occurred;
(n) The Bankruptcy Court shall enter an order appointing a trustee
under Section 1104 of the Bankruptcy Code in the Case;
(o) The Interim Financing Order shall cease to be in full force and
effect and the Permanent Financing Order shall not have been entered prior to
cessation;
(p) The Permanent Financing Order shall not have been entered by the
Bankruptcy Court within sixty (60) days after the date of entry of the Interim
Financing Order;
(q) From and after the date of entry thereof, the Permanent Financing
Order shall cease to be in full force and effect;
(r) The Interim Financing Order or the Permanent Financing Order is
amended, supplemented, stayed, reversed, vacated or otherwise nullified without
the consent of the Bank;
(s) The Bankruptcy Court enters an order appointing a responsible
officer or an examiner with powers beyond those set forth in Sections 1106(a)(3)
and (a)(4) and 1106(b) of the Bankruptcy Code;
(t) The Bankruptcy Court enters an order confirming a Plan of
Reorganization in the Case and such Plan of Reorganization becomes effective;
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(u) The Bankruptcy Court enters an order converting the Case to a case
under Chapter 7 of the Bankruptcy Code or dismissing the Case;
(v) There arises any other lien or claim having priority senior to or
pari passu with the claims or liens of the Bank under the Loan Documents;
(w) The Borrower or any Guarantor contests or brings an action
objecting to (a) the validity or priority of (i) the liens in favor of the Bank
under the Pre-Petition Loan Documents or the Loan Documents, or (ii) the
Pre-Petition Balance; or (b) the extent, validity or perfection of the Bank's
liens and security interests in the Collateral; or (c) the validity or
enforceability of this Agreement or any of the Loan Documents; or
(x) Failure by Borrower to comply with any of the terms and conditions
of the Interim Financing Order or the Permanent Financing Order.
13.2 Remedies; Waiver of Automatic Stay.
(a) Remedies. At the option of Bank, upon the occurrence and during the
continuance of an Event of Default:
(i) The entire unpaid principal of the Line, all other Bank
Indebtedness, or any part thereof, all interest accrued thereon, all fees due
hereunder and all other obligations of Borrower to Bank hereunder or under any
other agreement, note or otherwise arising will become immediately due and
payable without any further demand or notice;
(ii) The Line will immediately terminate and Borrower will receive
no further extensions of credit thereunder;
(iii) Bank may increase the interest rate on the Line to the
applicable default rate set forth herein;
(iv) Bank may reduce availability for advances under the formula
set forth in Section 3.1 or require additional reserves without notice;
(v) Bank may enter the premises occupied by Borrower and take
possession of the Collateral and any records relating thereto; and
(vi) Bank may exercise each and every right and remedy granted to
it under the Loan Documents, under the Uniform Commercial Code and under any
other applicable law or at equity.
(b) Waiver of Stay. Upon the occurrence of an Event of Default, the
automatic stay provided by Section 362 of the United States Bankruptcy Code
shall be deemed automatically vacated without further order of the Bankruptcy
Court and Bank shall be
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immediately permitted, inter alia, to pursue all of its remedies against
Borrower and its assets and seek payment of all Bank Indebtedness; provided
that, irrespective of whether or not an Event of Default has occurred hereunder,
if any creditor seeks relief from the automatic stay provisions of Section 362
of the Bankruptcy Code, Bank shall have the right to take any action reasonably
necessary to preserve and protect its interest in the Collateral to the extent
affected by such motion for relief.
(c) Limitation on Execution. Notwithstanding the foregoing, Bank shall
not commence any proceeding at law or in equity seeking the sale, seizure,
foreclosure or transfer of any non-cash assets of Borrower unless and until Bank
has given Borrower five (5) Business Days' prior written notice. Nothing
contained herein shall limit (i) the Bank's remedies described in Sections
13.2(a)(i), (ii), (iii) and (iv); (ii) the Bank's right to collect receivables
in accordance with the provisions of Section 13.4 hereof; or (iii) the Bank's
right to confess judgment.
13.3 Sale or Other Disposition of Collateral. The sale, lease or other
disposition of the Collateral, or any part thereof, by Bank after an Event of
Default may be for cash, credit or any combination thereof, and Bank may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale, and in lieu of actual payment of such purchase price, may set-off
the amount of such purchase price against the Bank Indebtedness then owing. Any
sales of the Collateral may be adjourned from time to time with or without
notice. Bank may cause the Collateral to remain on Guarantor's premises or
otherwise or to be removed and stored at premises owned by other persons, at
Borrower's expense, pending sale or other disposition of the Collateral.
Borrower, at Bank's request, shall assemble the Collateral consisting of
inventory and tangible assets and make such assets available to Bank at a place
to be designated by Bank. Bank shall have the right to conduct such sales on
Borrower's premises, at Borrower's expense, or elsewhere, on such occasion or
occasions as Bank may see fit. Any notice required to be given by Bank of a
sale, lease or other disposition or other intended action by Bank with respect
to any of the Collateral which is deposited in the United States mail, postage
prepaid and duly addressed to Borrower at the address specified in Section 14.1
below, at least five (5) Business Days prior to such proposed action, shall
constitute fair and reasonable notice to Borrower of any such action. The net
proceeds realized by Bank upon any such sale or other disposition, after
deduction for the expenses of retaking, holding, storing, transporting,
preparing for sale, selling or otherwise disposing of the Collateral incurred by
Bank in connection therewith and all other costs and expenses related thereto
including reasonable attorney fees, shall be applied in such order as Bank, in
its sole discretion, elects, toward satisfaction of the Bank Indebtedness. Bank
shall account to Borrower for any surplus realized upon such sale or other
disposition, and Borrower shall remain liable for any deficiency. The
commencement of any action, legal or equitable, or the rendering of any judgment
or decree for any deficiency shall not affect Bank's security interest in the
Collateral. Borrower agrees that Bank has no obligation to preserve rights to
the Collateral against any other parties. Bank is hereby granted a license or
other right to use, during the continuance of an Event of Default, without
charge, Borrower's labels, general intangibles, intellectual property,
equipment, real estate, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of,
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advertising for sale and selling any inventory or other Collateral and
Borrower's rights under all contracts, licenses, approvals, permits, leases and
franchise agreements shall inure to Bank's benefit. Bank shall be under no
obligation to marshall any assets in favor of Borrower or any other party or
against or in payment of any or all of the Bank Indebtedness.
13.4 Actions with Respect to Accounts. Borrower hereby irrevocably makes,
constitutes and appoints Bank (and any of Bank's designated officers, employees
or agents) as its true and lawful attorney-in-fact, with full power of
substitution, with power to sign its name and to take any of the following
actions, in its name or the name of Bank, as Bank may determine, without notice
to Borrower and at Borrower's expense:
(a) Verify the validity and amount of or any other matter relating to
the Collateral by mail, telephone, telecopy or otherwise;
(b) Notify all account debtors that Borrower's accounts have been
assigned to Bank and that Bank has a security interest therein;
(c) Direct all account debtors to make payment of all Borrower's
accounts directly to Bank and forward invoices directly to such account debtors;
(d) Take control in any manner of any cash or non-cash items of payment
or proceeds of such accounts;
(e) Notify the United States Postal Service to change the address for
delivery of mail addressed to Borrower to such address as Bank may designate;
provided that Bank agrees to promptly deliver to Borrower all mail other than
proceeds of collateral received by Bank as a result of any such change of
Borrower's address;
(f) Have access to any lockbox or postal boxes into which Borrower's
mail is deposited and receive, open and dispose of all mail addressed to
Borrower relating to the Collateral (any sums received pursuant to the exercise
of the rights provided in Sections 13.4 (a) through (f) above may, at Bank's
option, be deposited in the cash collateral account provided for herein);
(g) Take control in any manner of any rejected, returned, stopped in
transit or repossessed goods relating to any accounts;
(h) Enforce payment of and collect any accounts, by legal proceedings
or otherwise, and for such purpose Bank may:
(i) Demand payment of any accounts or direct any account debtors
to make payment of accounts directly to Bank;
(ii) Receive and collect all monies due or to become due to
Borrower;
(iii) Exercise all of Borrower's rights and remedies with respect
to the
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collection of accounts;
(iv) Settle, adjust, compromise, extend, renew, discharge or
release the accounts;
(v) Sell or assign the accounts on such terms, for such amount and
at such times as Bank deems advisable;
(vi) Prepare, file and sign Borrower's name or names on any Proof
of Claim or similar document in any proceeding filed under federal or state
bankruptcy, insolvency, reorganization or other similar law as to any account
debtor;
(vii) Prepare, file and sign Borrower's name or names on any
Notice of Lien, Claim of Mechanic's Lien, Assignment or Satisfaction of Lien or
Mechanic's Lien or similar document in connection with the Collateral;
(viii) Endorse the name of Borrower upon any chattel papers,
documents, instruments, invoices, freight bills, bills of lading or similar
documents or agreements relating to the accounts or goods pertaining thereto or
upon any checks or other media of payment or evidences of a security interest
relating to the Collateral that may come into Bank's possession;
(ix) Sign the name of Borrower to verifications of accounts and
notices thereof sent by account debtors to Borrower; or
(x) Take all other actions necessary or desirable to protect
Borrower's or Bank's interest in the accounts.
Borrower ratifies and approves all acts of said attorneys and agree that
said attorneys shall not be liable for any acts of commission or omission, nor
for any error of judgment or mistake of fact or law, except willful misconduct.
This power, being coupled with an interest, is irrevocable. Borrower agrees to
assist Bank in the collection and enforcement of its accounts and not to hinder,
delay or impede Bank in its collection or enforcement of said accounts until the
Bank Indebtedness is paid in full and Bank has no further funding commitment
under or in respect of the Line.
13.5 Set-Off. Without limiting the rights of Bank under applicable law, Bank
has and may exercise a right of set-off, a lien against and a security interest
in all property of Borrower now or at any time in Bank's possession in any
capacity whatsoever, including but not limited to any balance of any deposit,
trust or agency account, or any other bank account with Bank, as security for
all Bank Indebtedness. At any time and from time to time during the continuance
of an Event of Default, Bank may without notice or demand, 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 Bank to or for the
credit of Borrower against any or all of the Bank Indebtedness.
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If any bank account of Borrower with Bank is attached or otherwise liened or
levied upon by any third party, Bank need not await the running of any
applicable grace period hereunder, but Bank shall have and be deemed to have the
immediate right of set-off and may apply the funds or amount thus set-off
against Borrower's obligations to Bank.
13.6 Turnover of Property Held by Bank. Borrower and Guarantors irrevocably
authorize any Affiliate of Bank, during the continuance of an Event of Default,
at the request of Bank and without further notice, to turnover to Bank any
property of Borrower or any Guarantor held by such Affiliate, including without
limitation funds and securities held for Borrower's or Guarantors' account and
to debit, for the benefit of the Bank, any deposit account maintained by
Borrower or Guarantors with such Affiliate (even if such deposit account is not
then due or there results a loss or reduction of interest or the imposition of
as penalty in accordance with law applicable to the early withdrawal of time
deposits), in the amount requested by Bank up to the amount of the Bank
Indebtedness, and to pay or transfer such amount or property to Bank for
application to the Bank Indebtedness. The provisions of this Section 13.6 as
they relate to Guarantors shall be limited to Guarantors' maximum liability
under the Surety Agreement.
13.7 Delay or Omission Not Waiver. Neither the failure nor any delay on the
part of Bank to exercise any right, remedy, power or privilege under the Loan
Documents upon the occurrence of any Event of Default or otherwise shall operate
as a waiver thereof or impair any such right, remedy, power or privilege. No
waiver of any Event of Default shall affect any later Event of Default or shall
impair any rights of Bank. No single, partial or full exercise of any rights,
remedies, powers and privileges by Bank shall preclude further or other exercise
thereof. No course of dealing between Bank and Borrower shall operate as or be
deemed to constitute a waiver of Bank's rights under the Loan Documents or
affect the duties or obligations of Borrower.
13.8 Remedies Cumulative; Consents. The rights, remedies, powers and
privileges provided for herein shall not be deemed exclusive, but shall be
cumulative and shall be in addition to all other rights, remedies, powers and
privileges in Bank's favor at law or in equity. Whenever the Bank's consent or
approval is required or permitted, except as otherwise specifically provided for
in this Agreement, such consent or approval shall be at the sole and absolute
discretion of Bank.
13.9 Certain Fees, Costs, Expenses, Expenditures and Indemnification. Except
as otherwise specifically provided for in this Agreement, Borrower agrees to pay
on demand all costs and expenses of Bank relating to Bank's relationship with
Borrower, including without limitation:
(a) all costs and expenses in connection with the preparation, review,
negotiation, execution, delivery and administration of the Loan Documents, and
the other documents to be delivered in connection therewith or any amendments,
extensions and increases to any of the foregoing (including, without limitation,
reasonable attorney's fees and expenses, and the cost of appraisals and
reappraisals of Collateral), and the cost of periodic lien searches
52
<PAGE>
and tax clearance certificates, as Bank deems advisable.
(b) all losses, costs and expenses in connection with the enforcement,
protection and preservation of Bank's rights or remedies under the Loan
Documents, or any other agreement relating to any Bank Indebtedness, or in
connection with legal advice relating to the rights or responsibilities of Bank
(including without limitation court costs, reasonable attorney's fees and
expenses of accountants and appraisers); and
(c) any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of the Loan Documents, and
all liabilities to which Bank may become subject as the result of delay in
paying or omission to pay such taxes.
In the event Borrower shall fail to pay taxes, insurance, assessments, costs
or expenses which it is required to pay hereunder, or fails to keep the
Collateral free from security interests or lien (except as expressly permitted
herein), or fails to maintain or repair the Collateral as required hereby, or
otherwise breaches any obligations under the Loan Documents, Bank in its
discretion, may make expenditures for such purposes and the amount so expended
(including reasonable attorney's fees and expenses, filing fees and other
charges) shall be payable by Borrower on demand and shall constitute part of the
Bank Indebtedness.
With respect to any amount required to be paid by Borrower under this
Section, in the event Borrower fails to pay such amount on demand, Borrower
shall also pay to Bank interest thereon at the default rate set forth in Section
4.3 for the Line.
Borrower agrees to indemnify and hold harmless, Bank and Bank officers,
directors, shareholders, employees and agents, from and against any and all
claims, liabilities, losses, damages, costs and expenses (whether or not such
person is a party to any litigation), including reasonable attorney's fees and
costs and costs of investigation, document production, attendance at depositions
or other discovery with respect to or arising out of this Agreement, the use of
any proceeds advanced hereunder, the transactions contemplated hereunder, or any
claim, demand, action or cause of action being asserted against Borrower or any
of its Affiliates, except to the extent arising out of any such indemnified
Person's willful misconduct.
Borrower's obligations under this Section shall survive termination of this
Agreement and repayment of the Bank Indebtedness.
13.10 Time is of the Essence. Time is of the essence in Borrower's
performance of its obligations under the Loan Documents.
13.11 Acknowledgment of Confession of Judgment Provisions. BORROWER AND
GUARANTORS ACKNOWLEDGE AND AGREE THAT THE LINE NOTE, THE SURETY AGREEMENT AND
THE LOAN DOCUMENTS CONTAIN PROVISIONS WHEREBY BANK MAY ENTER JUDGMENT BY
CONFESSION AGAINST BORROWER OR GUARANTORS, AS APPLICABLE. BEING FULLY AWARE OF
THEIR RIGHTS TO PRIOR NOTICE AND HEARING ON THE QUESTION OF THE VALIDITY OF ANY
53
<PAGE>
CLAIMS THAT MAY BE ASSERTED AGAINST THEM BY BANK UNDER THE LINE NOTE, THE SURETY
AGREEMENT AND LOAN DOCUMENTS, BEFORE JUDGMENT CAN BE ENTERED, BORROWER AND
GUARANTORS HEREBY WAIVE THESE RIGHTS AND AGREE AND CONSENT TO BANK ENTERING
JUDGMENT AGAINST BORROWER AND GUARANTORS BY CONFESSION. ANY PROVISION IN A
CONFESSION OF JUDGMENT IN ANY OF THE LOAN DOCUMENTS FOR AN ATTORNEY'S COLLECTION
COMMISSION SHALL IN NO WAY LIMIT BORROWER'S OR GUARANTORS' LIABILITY TO
REIMBURSE BANK FOR ALL REASONABLE LEGAL FEES ACTUALLY INCURRED BY BANK, EVEN IF
SUCH FEES ARE IN EXCESS OF THE ATTORNEY'S COLLECTION COMMISSION PROVIDED FOR IN
SUCH CONFESSION OF JUDGMENT.
14. COMMUNICATIONS AND NOTICES.
14.1 Communications and Notices. All notices, requests and other
communications made or given in connection with the Loan Documents shall be in
writing and, unless receipt is stated herein to be required, shall be deemed to
have been validly given if delivered personally to the individual or division or
department to whose attention notices to a party are to be addressed, or by
private carrier, or registered or certified mail, return receipt requested, or
by telecopy with the original forwarded by first-class mail, in all cases, with
charges prepaid, addressed as follows, until some other address (or individual
or division or department for attention) shall have been designated by notice
given by one party to the other:
To Borrower: Consolidated Stainless, Inc.
1601 East Amelia Street
Orlando, FL 32803
Attention: Ronald J. Adams, President
Telecopier No.: (407) 895-5441
with a copy to: Saul, Ewing, Remick & Saul
3800 Centre Square West
Philadelphia, PA 19102
Attention: Alan R. Gordon, Esquire
Telecopier No.: (215) 972-7725
with a copy to: Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel
Citicorp Center
153 E. 53rd Street
New York, NY 10022
Attention: Richard Tilton, Esquire
Telecopier No.: (212) 223-7161
To Bank: Mellon Bank, N.A.
1735 Market Street, 6th Floor
Philadelphia, PA 19101
54
<PAGE>
Attention: John M. DePledge, Vice President
Telecopier No.: (215) 553-0201
with a copy to: Wolf, Block, Schorr & Solis-Cohen, LLP
350 Sentry Parkway, Bldg. 640
Blue Bell, PA 19422
Attention: Bruce R. Lesser, Esquire
Telecopier No.: (610) 238-0374
15. WAIVERS.
15.1 Waivers. In connection with any proceedings under the Loan Documents,
including without limitation any action by Bank in replevin, foreclosure or
other court process or in connection with any other action related to the Loan
Documents or the transactions contemplated hereunder, Borrower waives:
(a) all errors, defects and imperfections of a procedural nature in
such proceedings;
(b) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof from attachment,
levy or sale under execution, or providing for any stay of execution to be
issued on any judgment recovered under any of the Loan Documents or in any
replevin or foreclosure proceeding, or otherwise providing for any valuation,
appraisal or exemption;
(c) all rights to inquisition on any real estate, which real estate may
be levied upon pursuant to a judgment obtained under any of the Loan Documents
and sold upon any writ of execution issued thereon in whole or in part, in any
order desired by Bank;
(d) presentment for payment, demand, notice of demand, notice of
non-payment, protest and notice of protest of any of the Loan Documents,
including the Line Note;
(e) any requirement for bonds, security or sureties required by
statute, court rule or otherwise;
(f) any demand for possession of Collateral prior to commencement of
any suit; and
(g) all rights to claim or recover attorney's fees and costs in the
event that Borrower is successful in any action to remove, suspend or prevent
the enforcement of a judgment entered by confession, unless such judgment is
removed or suspended or enforcement thereof prevented as a result of a
determination by a court of competent jurisdiction that such judgment was
improperly entered.
55
<PAGE>
15.2 Forbearance. Bank may release, compromise, forbear with respect to,
waive, suspend, extend or renew any of the terms of the Loan Documents, without
notice to Borrower.
15.3 Limitation on Liability. Borrower shall be responsible for and Bank is
hereby released from any claim or liability in connection with:
(a) Safekeeping any Collateral;
(b) Any loss or damage to any Collateral;
(c) Any diminution in value of the Collateral; or
(d) Any act or default of another Person.
Bank shall only be liable for any act or omission on its part constituting
wilful misconduct. In the event that Bank breaches its required standard of
conduct, Borrower agrees that Bank's liability shall be only for direct damages
suffered and shall not extend to consequential or incidental damages. In the
event Borrower brings suit against Bank in connection with the transactions
contemplated hereunder and Bank is found not to be liable, Borrower will
indemnify and hold Bank harmless from all costs and expenses, including
reasonable attorney's fees, incurred by Bank in connection with such suit. This
Agreement is not intended to obligate Bank to take any action with respect to
the Collateral or to incur expenses or perform any obligation or duty of
Borrower.
16. SUBMISSION TO JURISDICTION.
16.1 Submission to Jurisdiction. Borrower and Guarantors hereby consent to
the exclusive jurisdiction of any state or federal court located within the
Commonwealth of Pennsylvania, and irrevocably agree that, subject to the Bank's
election, all actions or proceedings relating to the Loan Documents or the
transactions contemplated hereunder shall be litigated in such courts, and
Borrower and Guarantors waive any objection which they may have based on lack of
personal jurisdiction, improper venue or forum non conveniens to the conduct of
any proceeding in any such court and waive personal service of any and all
process upon them, and consent that all such service of process be made by mail
or messenger directed to them at the address set forth in Section 14.1. Nothing
contained in this Section 16.1 shall affect the right of Bank to serve legal
process in any other manner permitted by law or affect the right of Bank to
bring any action or proceeding against Borrower, Guarantors or their property in
the courts of any other jurisdiction.
17. MISCELLANEOUS.
17.1 Brokers. The transaction contemplated hereunder was brought about and
entered into by Bank and Borrower acting as principals and without any brokers,
agents or finders being the effective procuring cause hereof. Borrower
represents to Bank that Borrower has not
56
<PAGE>
committed Bank to the payment of any brokerage fee or commission in connection
with this transaction. If any such claim is made against Bank by any broker,
finder or agent or any other Person, Borrower agrees to indemnify, defend and
hold Bank harmless against any such claim, at Borrower's own cost and expense,
including Bank's attorneys' fees. Borrower further agrees that until any such
claim or demand is adjudicated in Bank's favor, the amount claimed and/or
demanded shall be deemed part of the Bank Indebtedness secured by the
Collateral.
17.2 Use of Bank's Name. Borrower shall not use Bank's name or the name of
any of Bank's Affiliates in connection with any of its business or activities
except as may otherwise be required by the rules and regulations of the
Securities and Exchange Commission or any like regulatory body and except as may
be required in its dealings with any governmental agency.
17.3 No Joint Venture. Nothing contained herein is intended to permit or
authorize Borrower to make any contract on behalf of Bank, nor shall this
Agreement be construed as creating a partnership, joint venture or making Bank
an investor in Borrower.
17.4 Survival. All covenants, agreements, representations and warranties
made by Borrower and Guarantors in the Loan Documents or made by or on their
behalf in connection with the transactions contemplated herein shall be true at
all times this Agreement is in effect (or, if untrue, the events which render
such covenants, agreements, representations and warranties untrue shall have
been disclosed to Bank in writing) and shall survive the execution and delivery
of the Loan Documents, any investigation at any time made by Bank or on its
behalf and the making by Bank of the loans or advances to Borrower. All
statements contained in any certificate, statement or other document delivered
by or on behalf of Borrower pursuant hereto or in connection with the
transactions contemplated hereunder shall be deemed representations and
warranties by Borrower.
17.5 No Assignment by Borrower. Borrower may not assign any of its rights
hereunder without the prior written consent of Bank, and Bank shall not be
required to lend hereunder except to Borrower.
17.6 Assignment or Sale by Bank.
(a) Sale by Bank. Bank may, in its sole discretion, sell, assign or
participate all or a portion of its interest in the Loan Documents and/or the
Bank Indebtedness and in connection therewith may make available to any
prospective purchaser, assignee or participant any information relative to
Borrower in its possession.
(b) Modification of Loan Documents. Upon Lender's written request,
Borrower and Guarantors will execute and deliver a modification agreement or
agreements, in form and content acceptable to Bank, amending the Loan Documents,
inter alia, to (i) admit new lenders; (ii) confer certain powers and rights on
Bank or its nominee as agent; (iii) issue new notes evidencing Borrower's
obligation to each lender; (iv) establish that the obligations of the lenders
are several, not joint; (v) confirm the grant of security interests and liens in
and to the Collateral for the benefit of all lenders; (vi) establish a mechanism
for funding loan requests,
57
<PAGE>
collection and disbursements among the lenders; (vii) permit the delegation of
duties by the agent; (viii) establish methods for resignation and replacement of
the agent; (ix) define rights of lenders, including, without limitation, voting
rights and enforcement rights; and (x) provide for indemnification of (A) the
agent by the lenders, and (B) the lenders by the Borrower. Borrower and
Guarantors further agree to execute any additional documents, instruments and
agreements necessary to consummate the transaction contemplated by such
amendment, including, without limitation, new notes and UCC-3 amendments, all of
which additional documents and instruments shall be in form and content
acceptable to Bank.
17.7 Publicity. Bank may use its reasonable discretion in disclosing the
fact of the financing under this Agreement to any public forum including,
without limitation, "tombstone" announcements in the print media whether
individually or part of a general advertisement.
17.8 Binding Effect. This Agreement and all rights and powers granted hereby
will bind and inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
17.9 Severability. The provisions of this Agreement and all other Loan
Documents are deemed to be severable, and the invalidity or unenforceability of
any provision shall not affect or impair the remaining provisions which shall
continue in full force and effect.
17.10 No Third Party Beneficiaries. The rights and benefits of this
Agreement and the Loan Documents shall not inure to the benefit of any third
party.
17.11 Modifications. No modification of this Agreement or any of the Loan
Documents shall be binding or enforceable unless in writing and signed by or on
behalf of the party against whom enforcement is sought.
17.12 Holidays. If the day provided herein for the payment of any amount or
the taking of any action falls on a Saturday, Sunday or public holiday at the
place for payment or action, then the due date for such payment or action will
be the next succeeding Business Day.
17.13 Law Governing. This Agreement has been made, executed and delivered in
the Commonwealth of Pennsylvania and will be construed in accordance with and
governed by the laws of such Commonwealth.
17.14 Integration. The Loan Documents shall be construed as integrated and
complementary of each other, and as augmenting and not restricting Bank's
rights, powers, remedies and security. The Loan Documents contain the entire
understanding of the parties thereto with respect to the matters contained
therein and supersede all prior agreements and understandings between the
parties with respect to the subject matter thereof and do not require parol or
extrinsic evidence in order to reflect the intent of the parties. In the event
of any inconsistency between the terms of this Agreement and the terms of the
other Loan Documents, the terms of this Agreement shall prevail.
58
<PAGE>
17.15 Exhibits and Schedules. All exhibits and schedules attached hereto are
hereby made a part of this Agreement.
17.16 Headings. The headings of the Articles, Sections, paragraphs and
clauses of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part of this Agreement.
17.17 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
17.18 Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT OR ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CONSOLIDATED STAINLESS, INC.
By:
---------------------------------------------
Burton R. Chasnov, Executive Vice President
[CORPORATE SEAL]
MELLON BANK, N.A.
By:
---------------------------------------------
John M. DePledge, Vice President
The undersigned, intending to be legally bound, but subject in all cases to the
limitation on liability contained in the undersigned's Surety Agreement, hereby
join in the representations and
59
<PAGE>
warranties and consent to and agree to be bound by the terms, conditions and
covenants applicable to the undersigned as set forth in the foregoing Loan and
Security Agreement, including without limitation the acknowledgements and
agreements set forth in Sections 2.1, 2.2 and 2.3 and the waivers set forth in
Sections 15.1 and Section 17.18.
----------------------------------------------
HARVEY B. ADAMS
----------------------------------------------
RONALD J. ADAMS
60
<PAGE>
STATE OF FLORIDA :
: SS
COUNTY OF :
------------------------
On this, the ________ day of December, 1997, before me, a notary public,
personally appeared HARVEY B. ADAMS, known to me (or satisfactorily proven) to
be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein contained.
---------------------------------------
Notary Public
My Commission Expires:
61
<PAGE>
STATE OF FLORIDA :
: SS
COUNTY OF :
------------------------
On this, the ________ day of December, 1997, before me, a notary public,
personally appeared RONALD J. ADAMS, known to me (or satisfactorily proven) to
be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein contained.
---------------------------------------
Notary Public
My Commission Expires:
62
<PAGE>
BUDGET AND CASH FLOW PROJECTIONS
(See Attached)
EXHIBIT "A"
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
FORM OF INTERIM FINANCING ORDER
(See Attached)
EXHIBIT "B"
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
FORM OF NOTE
(See Attached)
EXHIBIT "C"
TO
POST=PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
MANUFACTURING FACILITIES
1. 95 Bennett Street, Auburndale, Florida
2. 3825 East Maine Street, Lakeland, Florida
SCHEDULE 1.45
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
MAXIMUM AMOUNT
<TABLE>
<CAPTION>
Time Period Maximum Amount
----------- --------------
<S> <C>
From the Petition Date to and including $ 19,000,000.00
December 21, 1997
From December 22, 1997 to and including 18,250,000.00
January 18, 1998
From January 19, 1998 to and including 17,500,000.00
February 1, 1998
From February 2, 1998 to and including 17,000,000.00
February 15, 1998
From February 16, 1998 to and including 16,500,000.00
February 28, 1998
From March 1, 1998 to and including 16,000,000.00
May 31, 1998
From June 1, 1998 and at all times thereafter 15,000,000.00
</TABLE>
SCHEDULE 1.46
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
OFFICER COMPENSATION
<PAGE>
<TABLE>
<CAPTION>
Guarantor Officer Compensation (Based on attached break down of amounts)
- --------- --------------------------------------------------------------
<S> <C>
Harvey Adams Base Salary - $26,042 per month
Officer Compensation - $30,665 per month
Ronald Adams Base Salary - $15,625 per month
Officer Compensation - $20,278 per month
</TABLE>
SCHEDULE 1.52
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
PERMITTED OUT-OF-FORMULA ADVANCES
<TABLE>
<CAPTION>
Time Period Permitted Out-of-Formula Advances
----------- ---------------------------------
<S> <C>
From Petition Date to and including $ 2,750,000.00 - Required Reduction
February 8, 1998
From February 9, 1998 to and including $ 2,600,000.00 - Required Reduction
February 28, 1998
From March 1, 1998 to and including $ 2,400,000.00 - Required Reduction
March 31, 1998
From April 1, 1998 to and including $ 2,300,000.00 - Required Reduction
April 30, 1998
From May 1, 1998 to and including $ 2,200,000.00 - Required Reduction
May 31, 1998
From June 1, 1998 and at all times thereafter $ 2,100,000.00 - Required Reduction
</TABLE>
"Required Reduction" means (a) the sum of (i) eighty percent (80%) of the amount
by which the Borrower's ineligible receivables is less than $1,380,000.00, plus
(ii) sixty-five percent (65%) of the amount by which the Value of Borrower's
ineligible inventory is less than $1,337,000.00, less (b) $100,000.00.
SCHEDULE 1.57
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
SURETY COLLATERAL
1. 1914 and 1918 S. Orange Blossom Trail, Apopka, Florida, owned by R & H
Partners
2. 2201 Old Highway 60, Mulberry, Florida, owned by Harvey B. Adams
<PAGE>
SCHEDULE 1.77
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
SUBLIMITS ON INVENTORY AND WIP ADVANCES
A. Inventory Sublimit
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From Petition Date to and $12,000,000.00
including December 28, 1997
From December 29, 1997 to and $11,500,000.00
including January 11, 1998
From January 12, 1998 to and $11,000,000.00
including January 18, 1998
From January 19, 1998 to and $10,500,000.00
including February 1, 1998
From February 2, 1998 to and $10,000,000.00
including February 15, 1998
From February 16, 1998 to and $9,500,000.00
including February 22, 1998
From February 23, 1998 to $9,000,000.00
and including February 28, 1998
From March 1, 1998 to and $8,750,000.00
including May 31, 1998
From June 1, 1998 and at all times thereafter $8,000,000.00
</TABLE>
B. WIP Sublimit
<TABLE>
<CAPTION>
Time Period WIP Sublimit
----------- ------------
<S> <C>
From Petition Date to and $800,000.00
including February 1, 1998
From February 2, 1998 $750,000.00
to and including February 28, 1998
From March 1, 1998 and at all times thereafter $ 0.00
</TABLE>
<PAGE>
SCHEDULE 3.1(b)
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
BORROWER'S REAL ESTATE AND EXISTING LIENS
A. Real Estate
1. 4270 McEver Industrial Drive, Acworth, Georgia
2. 6890 Cherry Avenue, Long Beach, California
3. 95 Bennett Street, Auburndale, Florida
4. 3825 E. Main Avenue, Lakeland, Florida
5. 980 State Road 37 South, Mulberry, Florida
B. Existing Liens
(See Attached)
<PAGE>
SCHEDULE 6.2
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
PENDING AND THREATENED LITIGATION
(See Attached)
<PAGE>
SCHEDULE 7.5
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
TAXES
(See Attached)
<PAGE>
SCHEDULE 7.9
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
NAMES AND ADDRESSES OF BORROWER
(See Attached)
<PAGE>
SCHEDULE 7.11
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
PENSION PLANS
(See Attached)
<PAGE>
SCHEDULE 7.13
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
INTELLECTUAL PROPERTY
(See Attached)
<PAGE>
SCHEDULE 7.14
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
PERMITTED INDEBTEDNESS
(See Attached)
<PAGE>
SCHEDULE 8.3
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
PERMITTED ENCUMBRANCES
(See Attached)
<PAGE>
SCHEDULE 8.9
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
TRANSACTIONS WITH AFFILIATES
(See Attached)
<PAGE>
SCHEDULE 8.18
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
CHASNOV COMPENSATION
(See Attached)
<PAGE>
SCHEDULE 8.32
TO
POST-PETITION LOAN AND SECURITY AGREEMENT
<PAGE>
FIRST MODIFICATION TO POST-PETITION LOAN AND SECURITY AGREEMENT
THIS FIRST MODIFICATION (the "Modification") is made effective as of the
______ day of February, 1998, by and between CONSOLIDATED STAINLESS, INC. (the
"Borrower"), RONALD J. ADAMS and HARVEY B. ADAMS (collectively, the "Guarantors"
and each, a "Guarantor"), and MELLON BANK, N.A. (the "Bank"). Borrower and
Guarantors are sometimes collectively referred to herein as the "Obligors".
BACKGROUND
A. Pursuant to a certain Post-Petition Loan and Security Agreement dated
December 12, 1997 by and between Borrower and Bank, (the "Loan Agreement"), Bank
agreed, subject to the terms and conditions stated therein, to extend to
Borrower a line of credit up to the maximum amount as defined therein (the
"Line").
B. By that certain Surety Agreement dated December 12, 1997, Guarantors
agreed to guarantee and become sureties for certain obligations of Borrower to
Bank, including those arising under the Loan Documents.
C. Borrower has requested that Bank consent to the modification of certain
provisions of the Loan Agreement, which Bank is willing to do upon and subject
to the terms and conditions of this Amendment.
D. All capitalized terms not defined herein shall have the meanings set
forth therefor in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. ACKNOWLEDGE OF DEFAULTS. Borrower hereby confirms and acknowledges that
it is in default of its respective obligations under the Loan Documents as a
result, inter alia, of (a) Borrower's failure to achieve projected monthly sales
as required in Article 13.1(c) of the Loan Agreement, and (b) Borrower exceeding
the inventory sublimit and permitted overadvance as originally scheduled under
the Loan Agreement. Borrower further acknowledges and agrees that Bank has
certain rights and remedies available to it as a result of the occurrence of
such defaults, including the right to confess judgment against the Borrower and
each Guarantor. BORROWER EXPRESSLY AGREES THAT NOTHING CONTAINED HEREIN SHALL BE
DEEMED TO CONSTITUTE A WAIVER OR RELEASE OF ANY EXISTING EVENTS OF DEFAULTS OR
OF ANY RIGHTS AND REMEDIES AVAILABLE TO BANK AS A RESULT THEREOF.
2. MODIFICATIONS.
The Loan Agreement shall be amended, effective as of the date hereof, as
follows:
(a) Schedule 1.57 shall be modified by substituting the following Schedule
1.57:
1
<PAGE>
PERMITTED OUT-OF-FORMULA ADVANCES
<TABLE>
<CAPTION>
Time Period Permitted Out-of-Formula Advances
----------- ---------------------------------
<S> <C>
From Petition Date to and including $ 2,750,000.00 - Required Reduction
February 8, 1998
From February 9, 1998 to and including $ 2,600,000.00 - Required Reduction
February 23, 1998
From February 24, 1998 to and including $ 2,545,000.00 - Required Reduction
March 2, 1998
On March 3, 1998 $ 2,475,000.00 - Required Reduction
From March 4, 1998 to and including $ 2,400,000.00 - Required Reduction
March 31, 1998
From April 1, 1998 to and including $ 2,300,000.00 - Required Reduction
April 30, 1998
From May 1, 1998 to and including $ 2,200,000.00 - Required Reduction
May 31, 1998
From June 1, 1998 and at all times thereafter $ 2,100,000.00 - Required Reduction
</TABLE>
"Required Reduction" means (a) the sum of (i) eighty percent (80%) of the amount
by which the Borrower's ineligible receivables is less than $1,380,000.00, plus
(ii) sixty-five percent (65%) of the amount by which the Value of Borrower's
ineligible inventory is less than $1,337,000.00, less (b) $100,000.00.
(b) Schedule 3.1(b) shall be modified by substituting the following Schedule
3.1(b):
SUBLIMITS ON INVENTORY AND WIP ADVANCES
A. Inventory Sublimit
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From Petition Date to and $12,000,000.00
including December 28, 1997
From December 29, 1997 to and $11,500,000.00
including January 11, 1998
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From January 12, 1998 to and $11,000,000.00
including January 18, 1998
From January 19, 1998 to and $10,500,000.00
including February 1, 1998
From February 2, 1998 to and $10,000,000.00
including February 15, 1998
From February 16, 1998 to and $ 9,500,000.00
including March 2, 1998
On March 3, 1998 $ 9,400,000.00
From March 4, 1998 to and $ 8,750,000.00
including May 31, 1998
From June 1, 1998 and at all times thereafter $ 8,000,000.00
</TABLE>
B. WIP Sublimit
<TABLE>
<CAPTION>
Time Period WIP Sublimit
----------- ------------
<S> <C>
From Petition Date to and $ 800,000.00
including February 1, 1998
From February 2, 1998 $ 750,000.00
to and including February 23, 1998
From February 24, 1998
to and including March 3, 1998 $ 500,000.00
From March 4, 1998 and at all times thereafter $ 0.00
</TABLE>
3. OTHER REFERENCES. All references in the Loan Agreement and all the Loan
Documents to the term "Loan Documents" shall mean the Loan Documents as defined
therein, and this Amendment, and any and all other documents executed and
delivered by Borrower pursuant to and in connection herewith.
4. APPLICATION OF INSURANCE PROCEEDS. Bank shall reverse application of
$83,000.00 of insurance proceeds received by Bank from a reduction of the
Permitted Overadvance to the reduction of the loan balance. Bank shall apply
$55,000.00 of insurance proceeds received by Bank to a reduction of the
Permitted Overadvance as reflected on the amendment to Schedule 1.57 as set
forth herein.
3
<PAGE>
5. FURTHER AGREEMENTS AND REPRESENTATIONS. Obligors hereby:
(a) Ratify, confirm and acknowledge that the Loan Agreement, as amended
hereby, and the other Loan Documents continue to be valid, binding and in full
force and effect;
(b) Covenant and agree to perform all of their respective obligations under
the Loan Agreement, as amended hereby, and the Loan Documents;
(c) Acknowledge and agree that as of the date hereof, no Obligor has any
defense, set-off, counterclaim or challenge against the payment of any sums
constituting Bank Indebtedness or the enforcement of any of the terms of the
Loan Agreement, as amended hereby, or any of the other Loan Documents;
(d) Ratify and confirm that all representations and warranties of the
Obligors, contained in the Loan Agreement and/or the other Loan Documents, are
true and complete on and as of the date hereof, as if made on and as of the date
hereof;
(e) Acknowledge and agree that nothing contained herein shall be deemed to
impair, reduce or release in any manner whatsoever any of the Obligations of
Guarantors under the Surety Agreement;
(f) Represent and warrant that the execution and delivery of this Amendment
by Obligors and all documents and agreements to be executed and delivered
pursuant to the terms hereof;
(i) have been duly authorized by all requisite corporate action by
Borrower;
(ii) will not conflict with or result in the breach of or constitute a
default (upon the passage of time, delivery of notice or both) under Borrower's
Certificate of Incorporation or By-Laws or any applicable statute, law, rule,
regulation or ordinance or any indenture, mortgage, loan or other document or
agreement to which any Obligor is a party or by which any of them is bound or
affected; and
(iii) will not result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the property or assets of
any Obligor, except liens in favor of the Bank or as permitted hereunder or
under the Loan Documents;
(g) Represent and warrant that all of the information described in the
foregoing Background is accurate; and
(h) Acknowledge and agree that Obligors' failure to comply with or perform
any of their respective covenants, agreements or obligations contained in this
Amendment or any other documents executed and delivered by any of them in
connection herewith will, subject to applicable notice, grace and cure periods,
constitute an Event of Default under the Loan Agreement and each of the Loan
Documents.
6. NO NOVATION. Nothing contained herein and no actions taken pursuant to
the terms hereof are intended to constitute a novation of the Loan Agreement or
any of the Loan Documents
4
<PAGE>
and shall not constitute a release, termination or waiver of any of the liens,
security interests, rights or remedies granted to Bank in the Loan Documents.
7. NO FURTHER AMENDMENTS. Nothing contained herein constitutes an agreement
or obligation by Bank to grant any further amendments to any of the Loan
Documents.
8. INCONSISTENCIES. To the extent of any inconsistency between the terms and
conditions of this Amendment and the terms and conditions of the Loan Agreement
or the Loan Documents, the terms and conditions of this Amendment shall prevail.
All terms and conditions of the Loan Agreement and the Loan Documents not
inconsistent herewith shall remain in full force and effect, and are hereby
ratified and confirmed by Borrower.
9. CONSTRUCTION. All references to the Loan Agreement therein or in any of
the other Loan Documents shall be deemed to be a reference to the Loan
Agreement, as amended hereby.
10. BINDING EFFECT. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
11. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
12. HEADINGS. The headings of the sections of this Amendment are inserted
for convenience only and shall not be deemed to constitute a part of this
Amendment.
13. COUNTERPARTS. This amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
effective as of the day and year first above written.
CONSOLIDATED STAINLESS, INC.
By:
--------------------------------------
Name/Title:
------------------------------
----------------------------------------(SEAL)
RONALD J. ADAMS
----------------------------------------(SEAL)
HARVEY B. ADAMS
[SIGNATURES CONTINUED ON THE NEXT PAGE]
5
<PAGE>
[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]
MELLON BANK, N.A.
By:
--------------------------------------
Name/Title:
------------------------------
6
<PAGE>
SECOND MODIFICATION TO POST-PETITION LOAN AND SECURITY AGREEMENT
THIS SECOND MODIFICATION (the "Modification") is made effective as of the
______ day of March, 1998, by and between CONSOLIDATED STAINLESS, INC. (the
"Borrower"), RONALD J. ADAMS and HARVEY B. ADAMS (collectively, the "Guarantors"
and each, a "Guarantor"), and MELLON BANK, N.A. (the "Bank"). Borrower and
Guarantors are sometimes collectively referred to herein as the "Obligors".
BACKGROUND
A. Pursuant to a certain Post-Petition Loan and Security Agreement dated
December 12, 1997 by and between Borrower and Bank as modified on February ,
1998, (the "Loan Agreement"), Bank agreed, subject to the terms and conditions
stated therein, to extend to Borrower a line of credit up to the maximum amount
as defined therein (the "Line").
B. By that certain Surety Agreement dated December 12, 1997, Guarantors
agreed to guarantee and become sureties for certain obligations of Borrower to
Bank, including those arising under the Loan Documents.
C. Borrower has requested that Bank consent to the modification of certain
provisions of the Loan Agreement, which Bank is willing to do upon and subject
to the terms and conditions of this Amendment.
D. All capitalized terms not defined herein shall have the meanings set
forth therefor in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. ACKNOWLEDGE OF DEFAULTS. Borrower hereby confirms and acknowledges that
it is in default of its respective obligations under the Loan Documents
as a result, inter alia, of (a) Borrower's failure to achieve projected
monthly sales as required in Article 13.1(c) of the Loan Agreement, and
(b) Borrower exceeding the inventory sublimit and permitted overadvance
as originally scheduled under the Loan Agreement. Borrower further
acknowledges and agrees that Bank has certain rights and remedies
available to it as a result of the occurrence of such defaults, including
the right to confess judgment against the Borrower and each Guarantor.
BORROWER EXPRESSLY AGREES THAT NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO CONSTITUTE A WAIVER OR RELEASE OF ANY EXISTING EVENTS OF DEFAULTS OR
OF ANY RIGHTS AND REMEDIES AVAILABLE TO BANK AS A RESULT THEREOF.
2. MODIFICATIONS.
The Loan Agreement shall be amended, effective as of the date hereof, as
follows:
a. Schedule 1.57 shall be modified by substituting the following Schedule
1.57:
<PAGE>
PERMITTED OUT-OF-FORMULA ADVANCES
<TABLE>
<CAPTION>
Time Period Permitted Out-of-Formula Advances
----------- ---------------------------------
<S> <C>
From Petition Date to and including $ 2,750,000.00 - Required Reduction
February 8, 1998
From February 9, 1998 to and including $ 2,600,000.00 - Required Reduction
February 23, 1998
From February 24, 1998 to and including $ 2,545,000.00 - Required Reduction
March 2, 1998
From March 3, 1998 to including $ 2,475,000.00 - Required Reduction
March 6, 1998
From March 7, 1998 to and including $ 2,400,000.00 - Required Reduction
March 31, 1998
From April 1, 1998 to and including $ 2,300,000.00 - Required Reduction
April 30, 1998
From May 1, 1998 to and including $ 2,200,000.00 - Required Reduction
May 31, 1998
From June 1, 1998 and at all times thereafter $ 2,100,000.00 - Required Reduction
</TABLE>
"Required Reduction" means (a) the sum of (i) eighty percent (80%) of the amount
by which the Borrower's ineligible receivables is less than $1,380,000.00, plus
(ii) sixty-five percent (65%) of the amount by which the Value of Borrower's
ineligible inventory is less than $1,337,000.00, less (b) $100,000.00.
b. Schedule 3.1(b) shall be modified by substituting the following Schedule
3.1(b):
SUBLIMITS ON INVENTORY AND WIP ADVANCES
A. Inventory Sublimit
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From Petition Date to and $12,000,000.00
including December 28, 1997
From December 29, 1997 to and $11,500,000.00
including January 11, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From January 12, 1998 to and $11,000,000.00
including January 18, 1998
From January 19, 1998 to and $10,500,000.00
including February 1, 1998
From February 2, 1998 to and $10,000,000.00
including February 15, 1998
From February 16, 1998 to and $ 9,500,000.00
including March 2, 1998
On March 3, 1998 $ 9,400,000.00
From March 4, 1998 to and $ 9,350,000.00
including March 6, 1998
From March 7, 1998 to and $ 8,750,000.00
including May 31, 1998
From June 1, 1998 and at all times thereafter $ 8,000,000.00
</TABLE>
B. WIP Sublimit
<TABLE>
<CAPTION>
Time Period WIP Sublimit
----------- ------------
<S> <C>
From Petition Date to and $ 800,000.00
including February 1, 1998
From February 2, 1998 $ 750,000.00
to and including February 23, 1998
From February 24, 1998
to and including March 3, 1998 $ 500,000.00
From March 4, 1998
to and including March 6, 1998 $ 400,000.00
From March 7, 1998 and at all times thereafter $ 0.00
</TABLE>
3. OTHER REFERENCES. All references in the Loan Agreement and all the Loan
Documents to the term "Loan Documents" shall mean the Loan Documents as
defined therein, and this Amendment, and any and all other documents
executed and delivered by Borrower pursuant to
<PAGE>
and in connection herewith.
4. APPLICATION OF INSURANCE PROCEEDS. Bank shall reverse application of
$83,000.00 of insurance proceeds received by Bank from a reduction of the
Permitted Overadvance to the reduction of the loan balance. Bank shall apply
$55,000.00 of insurance proceeds received by Bank to a reduction of the
Permitted Overadvance as reflected on the amendment to Schedule 1.57 as set
forth herein.
5. FURTHER AGREEMENTS AND REPRESENTATIONS. Obligors hereby:
a. Ratify, confirm and acknowledge that the Loan Agreement, as amended
hereby, and the other Loan Documents continue to be valid, binding and
in full force and effect;
b. Covenant and agree to perform all of their respective obligations under
the Loan Agreement, as amended hereby, and the Loan Documents;
c. Acknowledge and agree that as of the date hereof, no Obligor has any
defense, set-off, counterclaim or challenge against the payment of any
sums constituting Bank Indebtedness or the enforcement of any of the
terms of the Loan Agreement, as amended hereby, or any of the other
Loan Documents;
d. Ratify and confirm that all representations and warranties of the
Obligors, contained in the Loan Agreement and/or the other Loan
Documents, are true and complete on and as of the date hereof, as if
made on and as of the date hereof;
e. Acknowledge and agree that nothing contained herein shall be deemed to
impair, reduce or release in any manner whatsoever any of the
Obligations of Guarantors under the Surety Agreement;
f. Represent and warrant that the execution and delivery of this Amendment
by Obligors and all documents and agreements to be executed and
delivered pursuant to the terms hereof;
i. have been duly authorized by all requisite corporate action by
Borrower;
ii. will not conflict with or result in the breach of or constitute a
default (upon the passage of time, delivery of notice or both)
under Borrower's Certificate of Incorporation or By-Laws or any
applicable statute, law, rule, regulation or ordinance or any
indenture, mortgage, loan or other document or agreement to which
any Obligor is a party or by which any of them is bound or
affected; and
iii. will not result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the property
or assets of any Obligor, except liens in favor of the Bank or as
permitted hereunder or under the Loan Documents;
<PAGE>
g. Represent and warrant that all of the information described in the
foregoing Background is accurate; and
h. Acknowledge and agree that Obligors' failure to comply with or perform
any of their respective covenants, agreements or obligations contained
in this Amendment or any other documents executed and delivered by any
of them in connection herewith will, subject to applicable notice,
grace and cure periods, constitute an Event of Default under the Loan
Agreement and each of the Loan Documents.
6. NO NOVATION. Nothing contained herein and no actions taken pursuant to the
terms hereof are intended to constitute a novation of the Loan Agreement or
any of the Loan Documents and shall not constitute a release, termination or
waiver of any of the liens, security interests, rights or remedies granted
to Bank in the Loan Documents.
7. NO FURTHER AMENDMENTS. Nothing contained herein constitutes an agreement or
obligation by Bank to grant any further amendments to any of the Loan
Documents.
8. INCONSISTENCIES. To the extent of any inconsistency between the terms and
conditions of this Amendment and the terms and conditions of the Loan
Agreement or the Loan Documents, the terms and conditions of this Amendment
shall prevail. All terms and conditions of the Loan Agreement and the Loan
Documents not inconsistent herewith shall remain in full force and effect,
and are hereby ratified and confirmed by Borrower.
9. CONSTRUCTION. All references to the Loan Agreement therein or in any of the
other Loan Documents shall be deemed to be a reference to the Loan
Agreement, as amended hereby.
10. BINDING EFFECT. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
11. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
12. HEADINGS. The headings of the sections of this Amendment are inserted for
convenience only and shall not be deemed to constitute a part of this
Amendment.
13. COUNTERPARTS. This amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument,
and any party hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
effective as of the day and year first above written.
CONSOLIDATED STAINLESS, INC.
By:
--------------------------------------
<PAGE>
Name/Title:
-------------------------------
-----------------------------------------(SEAL)
RONALD J. ADAMS
-----------------------------------------(SEAL)
HARVEY B. ADAMS
[SIGNATURES CONTINUED ON THE NEXT PAGE]
[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]
MELLON BANK, N.A.
By:
--------------------------------------
Name/Title:
-------------------------------
<PAGE>
THIRD MODIFICATION TO POST-PETITION LOAN AND SECURITY AGREEMENT
THIS THIRD MODIFICATION (the "Modification") is made effective as of the 9th
day of March, 1998, by and between CONSOLIDATED STAINLESS, INC. (the
"Borrower"), RONALD J. ADAMS and HARVEY B. ADAMS (collectively, the "Guarantors"
and each, a "Guarantor"), and MELLON BANK, N.A. (the "Bank"). Borrower and
Guarantors are sometimes collectively referred to herein as the "Obligors".
BACKGROUND
A. Pursuant to a certain Post-Petition Loan and Security Agreement dated
December 12, 1997 by and between Borrower and Bank as modified on February 24,
1998 and on March 4, 1998, (the "Loan Agreement"), Bank agreed, subject to the
terms and conditions stated therein, to extend to Borrower a line of credit up
to the maximum amount as defined therein (the "Line").
B. By that certain Surety Agreement dated December 12, 1997, Guarantors
agreed to guarantee and become sureties for certain obligations of Borrower to
Bank, including those arising under the Loan Documents.
C. Borrower has requested that Bank consent to the modification of certain
provisions of the Loan Agreement, which Bank is willing to do upon and subject
to the terms and conditions of this Amendment.
D. All capitalized terms not defined herein shall have the meanings set
forth therefor in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. ACKNOWLEDGE OF DEFAULTS. Borrower hereby confirms and acknowledges that it
is in default of its respective obligations under the Loan Documents as a
result, inter alia, of (a) Borrower's failure to achieve projected monthly
sales as required in Article 13.1(c) of the Loan Agreement, and (b) Borrower
exceeding the Inventory Sublimit, WIP Sublimit and Permitted Overadvance as
originally scheduled under the Loan Agreement. Borrower further acknowledges
and agrees that Bank has certain rights and remedies available to it as a
result of the occurrence of such defaults, including the right to confess
judgment against the Borrower and each Guarantor. BORROWER EXPRESSLY AGREES
THAT NOTHING CONTAINED HEREIN SHALL BE DEEMED TO CONSTITUTE A WAIVER OR
RELEASE OF ANY EXISTING EVENTS OF DEFAULTS OR OF ANY RIGHTS AND REMEDIES
AVAILABLE TO BANK AS A RESULT THEREOF.
2. MODIFICATIONS.
The Loan Agreement shall be modified, effective as of the date hereof, as
follows:
a. Schedule 1.57 shall be modified by substituting the following Schedule
1.57:
<PAGE>
PERMITTED OUT-OF-FORMULA ADVANCES
<TABLE>
<CAPTION>
Time Period Permitted Out-of-Formula Advances
----------- ---------------------------------
<S> <C>
From Petition Date to and including $ 2,750,000.00 - Required Reduction
February 8, 1998
From February 9, 1998 to and including $ 2,600,000.00 - Required Reduction
February 23, 1998
From February 24, 1998 to and including $ 2,545,000.00 - Required Reduction
March 2, 1998
From March 3, 1998 to including $ 2,475,000.00 - Required Reduction
March 15, 1998
From March 16, 1998 to and including $ 2,450,000.00 - Required Reduction
April 5, 1998
From April 6, 1998 to and including $ 2,425,000.00 - Required Reduction
April 10, 1998
From April 11, 1998 to and including $ 2,300,000.00 - Required Reduction
April 30, 1998
From May 1, 1998 to and including $ 2,200,000.00 - Required Reduction
May 31, 1998
From June 1, 1998 and at all times thereafter $ 2,100,000.00 - Required Reduction
</TABLE>
"Required Reduction" means the sum of (i) eighty percent (80%) of the amount by
which the Borrower's ineligible receivables is less than $1,023,000.00, plus
(ii) sixty-five percent (65%) of the amount by which the Value of Borrower's
ineligible inventory is less than $1,182,000.00.
b. Schedule 3.1(b) shall be modified by substituting the following Schedule
3.1(b):
SUBLIMITS ON INVENTORY AND WIP ADVANCES
A. Inventory Sublimit
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From Petition Date to and $12,000,000.00
including December 28, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From December 29, 1997 to and $11,500,000.00
including January 11, 1998
From January 12, 1998 to and $11,000,000.00
including January 18, 1998
From January 19, 1998 to and $10,500,000.00
including February 1, 1998
From February 2, 1998 to and $10,000,000.00
including February 15, 1998
From February 16, 1998 to and $9,500,000.00
including March 2, 1998
On March 3, 1998 $9,400,000.00
From March 4, 1998 to and $9,350,000.00
including March 8, 1998
From March 9, 1998 to and $9,150,000.00
including March 15, 1998
From March 16, 1998 to and $9,000,000.00
including March 29, 1998
From March 30, 1998 to and $8,700,000.00
including April 5, 1998
From April 6, 1998 to and $8,400,000.00
including May 31, 1998
From June 1, 1998 and at all times thereafter $8,000,000.00
</TABLE>
B. WIP Sublimit
<TABLE>
<CAPTION>
Time Period WIP Sublimit
----------- ------------
<S> <C>
From Petition Date to and $800,000.00
including February 1, 1998
From February 2, 1998 $750,000.00
to and including February 23, 1998
From February 24, 1998
to and including March 3, 1998 $500,000.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Time Period WIP Sublimit
----------- ------------
<S> <C>
From March 4, 1998
to and including March 22, 1998 $400,000.00
From March 23, 1998
to and including April 10, 1998 $350,000.00
From April 11, 1998 and at all times thereafter $ 0.00
</TABLE>
c. Schedule 1.46 shall be modified by substituting the following Schedule
1.46:
MAXIMUM AMOUNT
<TABLE>
<CAPTION>
Time Period Maximum Amount
----------- --------------
<S> <C>
From the Petition Date to and including $ 19,000,000.00
December 21, 1997
From December 22, 1997 to and including 18,250,000.00
January 18, 1998
From January 19, 1998 to and including 17,500,000.00
February 1, 1998
From February 2, 1998 to and including 17,000,000.00
February 15, 1998
From February 16, 1998 to and including 16,500,000.00
February 28, 1998
From March 1, 1998 to and including 16,000,000.00
March 8, 1998
From March 9, 1998 to and including 15,000,000.00
March 22, 1998
From March 23, 1998 to and including 14,750,000.00
April 5, 1998
From April 6, 1998 to and including 14,500,000.00
April 12, 1998
From April 13, 1998 and at all times thereafter 14,000,000.00
</TABLE>
<PAGE>
d. Paragraph 3.1(d) shall be modified by substituting the following revised
Paragraph 3.1(d):
Extension of Contract Period. Bank agrees that the Contract Period will be
extended through and including April 10, 1998, without the payment of any
additional fee pursuant to the Agreement as modified herein. Bank agrees that
the Contract Period will be extended through and including June 1, 1998 without
the payment of any additional fee, if Borrower complies with the following
conditions to the satisfaction of Bank:
(i) on or before March 24, 1998, Borrower shall deliver to Bank a
budget and cash flow projections for the extension period based upon performance
which Borrower reasonably believes is likely to occur (the "Extension Budget"),
prepared in the same form as the Budget; and
(ii) the Extension Budget must show that (A) by June 1, 1998, without
including any reduction arising from the sale of the Manufacturing Facilities,
(1) the Maximum Amount will reduce to an amount not to exceed Fourteen Million
Dollars ($14,000,000.00), and (2) the Inventory Sublimit will reduce to an
amount not to exceed Eight Million Dollars ($8,000,000.00); (B) the Permitted
Out-of-Formula Advance will reduce by at least One Hundred Thousand Dollars
($100,000.00) per month; and (C) EBITDA for the entire period set forth in the
Extension Budget, is equal to or greater than EBITDA for the entire period set
forth in the original Budget, all as determined by Bank, in the exercise of its
reasonable discretion, based on its review of the Extension Budget.
Provided that the Extension Budget is timely delivered to Bank, if Bank
determines that the Extension Budget does not comply with this Section 3.1(d),
Bank will notify Borrower in writing of its decision not to extend the Contract
Period on or before April 6, 1998.
3. OTHER REFERENCES. All references in the Loan Agreement and all the Loan
Documents to the term "Loan Documents" shall mean the Loan Documents as
defined therein, and this Modification, and any and all other documents
executed and delivered by Borrower pursuant to and in connection herewith.
4. FURTHER AGREEMENTS AND REPRESENTATIONS. Obligors hereby:
a. Ratify, confirm and acknowledge that the Loan Agreement, as amended
hereby, and the other Loan Documents continue to be valid, binding and
in full force and effect;
b. Covenant and agree to perform all of their respective obligations under
the Loan Agreement, as amended hereby, and the Loan Documents;
c. Acknowledge and agree that as of the date hereof, no Obligor has any
defense, set-off, counterclaim or challenge against the payment of any
sums constituting Bank Indebtedness or the enforcement of any of the
terms of the Loan Agreement, as amended
<PAGE>
hereby, or any of the other Loan Documents;
d. Ratify and confirm that all representations and warranties of the
Obligors, contained in the Loan Agreement and/or the other Loan
Documents, are true and complete on and as of the date hereof, as if
made on and as of the date hereof;
e. Acknowledge and agree that nothing contained herein shall be deemed to
impair, reduce or release in any manner whatsoever any of the
Obligations of Guarantors under the Surety Agreement;
f. Represent and warrant that the execution and delivery of this Amendment
by Obligors and all documents and agreements to be executed and
delivered pursuant to the terms hereof;
i. have been duly authorized by all requisite corporate action by
Borrower;
ii. will not conflict with or result in the breach of or constitute a
default (upon the passage of time, delivery of notice or both)
under Borrower's Certificate of Incorporation or By-Laws or any
applicable statute, law, rule, regulation or ordinance or any
indenture, mortgage, loan or other document or agreement to which
any Obligor is a party or by which any of them is bound or
affected; and
iii. will not result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the property
or assets of any Obligor, except liens in favor of the Bank or as
permitted hereunder or under the Loan Documents;
g. Represent and warrant that all of the information described in the
foregoing Background is accurate; and
h. Acknowledge and agree that Obligors' failure to comply with or perform
any of their respective covenants, agreements or obligations contained
in this Amendment or any other documents executed and delivered by any
of them in connection herewith will, subject to applicable notice,
grace and cure periods, constitute an Event of Default under the Loan
Agreement and each of the Loan Documents.
5. NO NOVATION. Nothing contained herein and no actions taken pursuant to the
terms hereof are intended to constitute a novation of the Loan Agreement or
any of the Loan Documents and shall not constitute a release, termination or
waiver of any of the liens, security interests, rights or remedies granted
to Bank in the Loan Documents.
6. NO FURTHER AMENDMENTS. Nothing contained herein constitutes an agreement or
obligation by Bank to grant any further amendments to any of the Loan
Documents.
7. INCONSISTENCIES. To the extent of any inconsistency between the terms and
conditions of this Amendment and the terms and conditions of the Loan
Agreement or the Loan Documents, the terms and conditions of this Amendment
shall prevail. All terms and conditions of the Loan
<PAGE>
Agreement and the Loan Documents not inconsistent herewith shall remain in
full force and effect, and are hereby ratified and confirmed by Borrower.
8. CONSTRUCTION. All references to the Loan Agreement therein or in any of the
other Loan Documents shall be deemed to be a reference to the Loan
Agreement, as amended hereby.
9. BINDING EFFECT. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
10. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
11. HEADINGS. The headings of the sections of this Amendment are inserted for
convenience only and shall not be deemed to constitute a part of this
Amendment.
12. COUNTERPARTS. This amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument,
and any party hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
effective as of the day and year first above written.
CONSOLIDATED STAINLESS, INC.
By:
-----------------------------------------
Name/Title:
---------------------------------
-------------------------------------------(SEAL)
RONALD J. ADAMS
-------------------------------------------(SEAL)
HARVEY B. ADAMS
MELLON BANK, N.A.
By:
-----------------------------------------
Name/Title:
---------------------------------
<PAGE>
FOURTH MODIFICATION TO POST-PETITION LOAN AND SECURITY AGREEMENT
THIS FOURTH MODIFICATION (the "Modification") is made effective as of the
day of April, 1998, by and between CONSOLIDATED STAINLESS, INC. (the
"Borrower"), RONALD J. ADAMS and HARVEY B. ADAMS (collectively, the "Guarantors"
and each, a "Guarantor"), and MELLON BANK, N.A. (the "Bank"). Borrower and
Guarantors are sometimes collectively referred to herein as the "Obligors".
BACKGROUND
A. Pursuant to a certain Post-Petition Loan and Security Agreement dated
December 12, 1997 by and between Borrower and Bank as modified on February 24,
1998, March 4, 1998 and on March 9, 1998, (the "Loan Agreement"), Bank agreed,
subject to the terms and conditions stated therein, to extend to Borrower a line
of credit up to the maximum amount as defined therein (the "Line").
B. By that certain Surety Agreement dated December 12, 1997, Guarantors
agreed to guarantee and become sureties for certain obligations of Borrower to
Bank, including those arising under the Loan Documents.
C. Borrower has requested that Bank consent to the modification of certain
provisions of the Loan Agreement, which Bank is willing to do upon and subject
to the terms and conditions of this Amendment.
D. All capitalized terms not defined herein shall have the meanings set
forth therefor in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. ACKNOWLEDGE OF DEFAULTS. Borrower hereby confirms and acknowledges that it
is in default of its respective obligations under the Loan Documents as a
result, inter alia, of (a) Borrower's failure to achieve projected monthly
sales as required in Article 13.1(c) of the Loan Agreement, and (b) Borrower
exceeding the Inventory Sublimit, WIP Sublimit and Permitted Overadvance as
originally scheduled under the Loan Agreement. Borrower further acknowledges
and agrees that Bank has certain rights and remedies available to it as a
result of the occurrence of such defaults, including the right to confess
judgment against the Borrower and each Guarantor. BORROWER EXPRESSLY AGREES
THAT NOTHING CONTAINED HEREIN SHALL BE DEEMED TO CONSTITUTE A WAIVER OR
RELEASE OF ANY EXISTING EVENTS OF DEFAULTS OR OF ANY RIGHTS AND REMEDIES
AVAILABLE TO BANK AS A RESULT THEREOF.
2. MODIFICATIONS.
The Loan Agreement shall be modified, effective as of the date hereof,
as follows:
a. Schedule 1.57 shall be modified by substituting the following Schedule
1.57:
<PAGE>
PERMITTED OUT-OF-FORMULA ADVANCES
<TABLE>
<CAPTION>
Time Period Permitted Out-of-Formula Advances
----------- ---------------------------------
<S> <C>
From Petition Date to and including $ 2,750,000.00 - Required Reduction
February 8, 1998
From February 9, 1998 to and including $ 2,600,000.00 - Required Reduction
February 23, 1998
From February 24, 1998 to and including $ 2,545,000.00 - Required Reduction
March 2, 1998
From March 3, 1998 to including $ 2,475,000.00 - Required Reduction
March 15, 1998
From March 16, 1998 to and including $ 2,450,000.00 - Required Reduction
April 5, 1998
From April 6, 1998 to and including $ 2,425,000.00 - Required Reduction
April 10, 1998
From April 11, 1998 to and including $ 2,300,000.00 - Required Reduction
April 30, 1998
From May 1, 1998 to and including $ 2,200,000.00 - Required Reduction
May 31, 1998
From June 1, 1998 and at all times thereafter $ 2,100,000.00 - Required Reduction
</TABLE>
"Required Reduction" means the sum of (i) eighty percent (80%) of the amount by
which the Borrower's ineligible receivables is less than $1,023,000.00, plus
(ii) sixty-five percent (65%) of the amount by which the Value of Borrower's
ineligible inventory is less than $1,182,000.00.
b. Schedule 3.1(b) shall be modified by substituting the following Schedule
3.1(b):
SUBLIMITS ON INVENTORY AND WIP ADVANCES
A. Inventory Sublimit
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From Petition Date to and $12,000,000.00
including December 28, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From December 29, 1997 to and $11,500,000.00
including January 11, 1998
From January 12, 1998 to and $11,000,000.00
including January 18, 1998
From January 19, 1998 to and $10,500,000.00
including February 1, 1998
From February 2, 1998 to and $10,000,000.00
including February 15, 1998
From February 16, 1998 to and $9,500,000.00
including March 2, 1998
On March 3, 1998 $9,400,000.00
From March 4, 1998 to and $9,350,000.00
including March 8, 1998
From March 9, 1998 to and $9,150,000.00
including March 15, 1998
From March 16, 1998 to and $9,000,000.00
including March 29, 1998
From March 30, 1998 to and $8,700,000.00
including April 5, 1998
From April 6, 1998 to and $8,600,000.00
including April 10, 1998
From April 11, 1998 to and $8,400,000.00
including May 31, 1998
From June 1, 1998 and at all times thereafter $8,000,000.00
</TABLE>
B. WIP Sublimit
<TABLE>
<CAPTION>
Time Period WIP Sublimit
----------- ------------
<S> <C>
From Petition Date to and $800,000.00
including February 1, 1998
From February 2, 1998 $750,000.00
to and including February 23, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Time Period WIP Sublimit
----------- ------------
<S> <C>
From February 24, 1998
to and including March 3, 1998 $500,000.00
From March 4, 1998
to and including March 22, 1998 $400,000.00
From March 23, 1998
to and including April 10, 1998 $350,000.00
From April 11, 1998
to and including April 14, 1998 $325,000.00
From April 15, 1998 and at all times thereafter $ 0.00
</TABLE>
c. Schedule 1.46 shall be modified by substituting the following Schedule
1.46:
MAXIMUM AMOUNT
<TABLE>
<CAPTION>
Time Period Maximum Amount
----------- --------------
<S> <C>
From the Petition Date to and including $ 19,000,000.00
December 21, 1997
From December 22, 1997 to and including 18,250,000.00
January 18, 1998
From January 19, 1998 to and including 17,500,000.00
February 1, 1998
From February 2, 1998 to and including 17,000,000.00
February 15, 1998
From February 16, 1998 to and including 16,500,000.00
February 28, 1998
From March 1, 1998 to and including 16,000,000.00
March 8, 1998
From March 9, 1998 to and including 15,000,000.00
March 22, 1998
From March 23, 1998 to and including 14,750,000.00
April 5, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Time Period Maximum Amount
----------- --------------
<S> <C>
From April 6, 1998 to and including 14,500,000.00
April 12, 1998
From April 13, 1998 and at all times thereafter 14,000,000.00
</TABLE>
d. Paragraph 3.1(d) shall be modified by substituting the following revised
Paragraph 3.1(d):
Extension of Contract Period. Bank agrees that the Contract Period will be
extended through and including April 14, 1998, without the payment of any
additional fee pursuant to the Agreement as modified herein. Bank agrees that
the Contract Period will be extended through and including June 1, 1998 without
the payment of any additional fee, if Borrower and Bank enter into a further
modification to the Loan Agreement, on terms and conditions acceptable to Bank,
on or before April 14, 1998.
3. OTHER REFERENCES. All references in the Loan Agreement and all the Loan
Documents to the term "Loan Documents" shall mean the Loan Documents as
defined therein, and this Modification, and any and all other documents
executed and delivered by Borrower pursuant to and in connection herewith.
4. FURTHER AGREEMENTS AND REPRESENTATIONS. Obligors hereby:
a. Ratify, confirm and acknowledge that the Loan Agreement, as amended
hereby, and the other Loan Documents continue to be valid, binding and
in full force and effect;
b. Covenant and agree to perform all of their respective obligations under
the Loan Agreement, as amended hereby, and the Loan Documents;
c. Acknowledge and agree that as of the date hereof, no Obligor has any
defense, set-off, counterclaim or challenge against the payment of any
sums constituting Bank Indebtedness or the enforcement of any of the
terms of the Loan Agreement, as amended hereby, or any of the other
Loan Documents;
d. Ratify and confirm that all representations and warranties of the
Obligors, contained in the Loan Agreement and/or the other Loan
Documents, are true and complete on and as of the date hereof, as if
made on and as of the date hereof;
e. Acknowledge and agree that nothing contained herein shall be deemed to
impair, reduce or release in any manner whatsoever any of the
Obligations of Guarantors under the Surety Agreement;
f. Represent and warrant that the execution and delivery of this Amendment
by Obligors and all documents and agreements to be executed and
delivered pursuant to the terms
<PAGE>
hereof;
i. have been duly authorized by all requisite corporate action by
Borrower;
ii. will not conflict with or result in the breach of or constitute a
default (upon the passage of time, delivery of notice or both)
under Borrower's Certificate of Incorporation or By-Laws or any
applicable statute, law, rule, regulation or ordinance or any
indenture, mortgage, loan or other document or agreement to which
any Obligor is a party or by which any of them is bound or
affected; and
iii. will not result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the property
or assets of any Obligor, except liens in favor of the Bank or as
permitted hereunder or under the Loan Documents;
g. Represent and warrant that all of the information described in the
foregoing Background is accurate; and
h. Acknowledge and agree that Obligors' failure to comply with or perform
any of their respective covenants, agreements or obligations contained
in this Amendment or any other documents executed and delivered by any
of them in connection herewith will, subject to applicable notice,
grace and cure periods, constitute an Event of Default under the Loan
Agreement and each of the Loan Documents.
5. NO NOVATION. Nothing contained herein and no actions taken pursuant to the
terms hereof are intended to constitute a novation of the Loan Agreement or
any of the Loan Documents and shall not constitute a release, termination or
waiver of any of the liens, security interests, rights or remedies granted
to Bank in the Loan Documents.
6. NO FURTHER AMENDMENTS. Nothing contained herein constitutes an agreement or
obligation by Bank to grant any further amendments to any of the Loan
Documents.
7. INCONSISTENCIES. To the extent of any inconsistency between the terms and
conditions of this Amendment and the terms and conditions of the Loan
Agreement or the Loan Documents, the terms and conditions of this Amendment
shall prevail. All terms and conditions of the Loan Agreement and the Loan
Documents not inconsistent herewith shall remain in full force and effect,
and are hereby ratified and confirmed by Borrower.
8. CONSTRUCTION. All references to the Loan Agreement therein or in any of the
other Loan Documents shall be deemed to be a reference to the Loan
Agreement, as amended hereby.
9. BINDING EFFECT. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
10. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
<PAGE>
11. HEADINGS. The headings of the sections of this Amendment are inserted for
convenience only and shall not be deemed to constitute a part of this
Amendment.
12. COUNTERPARTS. This amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument,
and any party hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
effective as of the day and year first above written.
CONSOLIDATED STAINLESS, INC.
By:
-----------------------------------------
Name/Title:
----------------------------------
---------------------------------------------(SEAL)
RONALD J. ADAMS
---------------------------------------------(SEAL)
HARVEY B. ADAMS
MELLON BANK, N.A.
By:
-----------------------------------------
Name/Title:
----------------------------------
<PAGE>
FIFTH MODIFICATION TO POST-PETITION LOAN AND SECURITY AGREEMENT
THIS FIFTH MODIFICATION (the "Modification") is made effective as of the
_____ day of April, 1998, by and between CONSOLIDATED STAINLESS, INC. (the
"Borrower"), RONALD J. ADAMS and HARVEY B. ADAMS (collectively, the "Guarantors"
and each, a "Guarantor"), and MELLON BANK, N.A. (the "Bank"). Borrower and
Guarantors are sometimes collectively referred to herein as the "Obligors".
BACKGROUND
A. Pursuant to a certain Post-Petition Loan and Security Agreement dated
December 12, 1997 by and between Borrower and Bank as modified on February 24,
1998, on March 4, 1998, on March 9, 1998 and on April 13, 1998, (the "Loan
Agreement"), Bank agreed, subject to the terms and conditions stated therein, to
extend to Borrower a line of credit up to the maximum amount as defined therein
(the "Line").
B. By that certain Surety Agreement dated December 12, 1997, Guarantors
agreed to guarantee and become sureties for certain obligations of Borrower to
Bank, including those arising under the Loan Documents.
C. Borrower has requested that Bank consent to the modification of certain
provisions of the Loan Agreement, which Bank is willing to do upon and subject
to the terms and conditions of this Modification.
D. All capitalized terms not defined herein shall have the meanings set
forth therefor in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. ACKNOWLEDGMENT OF DEFAULTS. Borrower hereby confirms and acknowledges that
it is in default of its respective obligations under the Loan Documents as a
result, inter alia, of (a) Borrower's failure to achieve projected monthly
sales as required in Article 13.1(c) of the Loan Agreement, and (b) Borrower
exceeding the Inventory Sublimit, WIP Sublimit and Permitted Overadvance as
originally scheduled under the Loan Agreement. Borrower further acknowledges
and agrees that Bank has certain rights and remedies available to it as a
result of the occurrence of such defaults, including the right to confess
judgment against the Borrower and each Guarantor. BORROWER AND GUARANTORS
EXPRESSLY AGREE THAT NOTHING CONTAINED HEREIN SHALL BE DEEMED TO CONSTITUTE
A WAIVER OR RELEASE OF ANY EXISTING EVENTS OF DEFAULTS OR OF ANY RIGHTS AND
REMEDIES AVAILABLE TO BANK AS A RESULT THEREOF.
<PAGE>
2. MODIFICATIONS.
The Loan Agreement shall be modified, effective as of the date hereof, as
follows:
a. Schedule 1.57 shall be modified by substituting the following Schedule
1.57:
PERMITTED OUT-OF-FORMULA ADVANCES
<TABLE>
<CAPTION>
Time Period Permitted Out-of-Formula Advances
----------- ---------------------------------
<S> <C>
From Petition Date to and including $ 2,750,000.00 - Required Reduction
February 8, 1998
From February 9, 1998 to and including $ 2,600,000.00 - Required Reduction
February 23, 1998
From February 24, 1998 to and including $ 2,545,000.00 - Required Reduction
March 2, 1998
From March 3, 1998 to including $ 2,475,000.00 - Required Reduction
March 15, 1998
From March 16, 1998 to and including $ 2,450,000.00 - Required Reduction
April 5, 1998
From April 6, 1998 to and including $ 2,425,000.00 - Required Reduction
April 24, 1998
From April 25, 1998 to and including $ 2,400,000.00 - Required Reduction
May 8, 1998
From May 9, 1998 to and including $ 2,375,000.00 - Required Reduction
May 15, 1998
From May 16, 1998 to and including $ 2,350,000.00 - Required Reduction
May 22, 1998
From May 23, 1998 to and including $ 2,300,000.00 - Required Reduction
May 31, 1998
From June 1, 1998 and at all times thereafter $ 2,100,000.00 - Required Reduction
</TABLE>
"Required Reduction" means the sum of (i) fifty percent (50%) of the proceeds of
Borrower's pre-
2
<PAGE>
petition date accounts receivable that are ninety days or more past invoice date
as of April 10, 1998, plus (ii) sixty-five percent (65%) of the amount by which
the Value of Borrower's ineligible inventory is less than $1,000,000.00.
Notwithstanding anything in the Loan Agreement, fifty percent (50%) of the
proceeds of the collection of pre-petition date accounts receivable that are
ninety days or more past invoice date as of April 10, 1998 shall be applied to
the reduction of the Permitted Out-of-Formula Advance at the Bank's discretion.
b. Schedule 3.1(b) shall be modified by substituting the following
Schedule 3.1(b):
SUBLIMITS ON INVENTORY AND WIP ADVANCES
A. Inventory Sublimit
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From Petition Date to and $12,000,000.00
including December 28, 1997
From December 29, 1997 to and $11,500,000.00
including January 11, 1998
From January 12, 1998 to and $11,000,000.00
including January 18, 1998
From January 19, 1998 to and $10,500,000.00
including February 1, 1998
From February 2, 1998 to and $10,000,000.00
including February 15, 1998
From February 16, 1998 to and $9,500,000.00
including March 2, 1998
On March 3, 1998 $9,400,000.00
From March 4, 1998 to and $9,350,000.00
including March 8, 1998
From March 9, 1998 to and $9,150,000.00
including March 15, 1998
From March 16, 1998 to and $9,000,000.00
including March 29, 1998
From March 30, 1998 to and $8,700,000.00
including April 5, 1998
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Time Period Inventory Sublimit
----------- ------------------
<S> <C>
From April 6, 1998 to and $8,400,000.00
including April 17, 1998
From April 18, 1998 to and including $8,200,000.00
April 24, 1998
From April 25, 1998 to and including $8,000,000.00
May 1, 1998
From May 2, 1998 to and including $7,800,000.00
May 15, 1998
From May 16, 1998 to and including $7,600,000.00
May 22, 1998
From May 23, 1998 and at all times thereafter $7,400,000.00
</TABLE>
B. WIP Sublimit
<TABLE>
<CAPTION>
Time Period WIP Sublimit
----------- ------------
<S> <C>
From Petition Date to and $800,000.00
including February 1, 1998
From February 2, 1998 $750,000.00
to and including February 23, 1998
From February 24, 1998
to and including March 3, 1998 $500,000.00
From March 4, 1998
to and including March 22, 1998 $400,000.00
From March 23, 1998
to and including April 10, 1998 $350,000.00
From April 11, 1998 $325,000.00
to and including April 19, 1998
From April 20, 1998 $250,000.00
to and including May 29, 1998
From May 30, 1998 and at all times thereafter $ 0.00
</TABLE>
4
<PAGE>
c. Schedule 1.46 shall be modified by substituting the following Schedule
1.46:
MAXIMUM AMOUNT
<TABLE>
<CAPTION>
Time Period Maximum Amount
----------- --------------
<S> <C>
From the Petition Date to and including $19,000,000.00
December 21, 1997
From December 22, 1997 to and including 18,250,000.00
January 18, 1998
From January 19, 1998 to and including 17,500,000.00
February 1, 1998
From February 2, 1998 to and including 17,000,000.00
February 15, 1998
From February 16, 1998 to and including 16,500,000.00
February 28, 1998
From March 1, 1998 to and including 16,000,000.00
March 8, 1998
From March 9, 1998 to and including 15,000,000.00
March 22, 1998
From March 23, 1998 to and including 14,750,000.00
April 5, 1998
From April 6, 1998 to and including 14,500,000.00
April 12, 1998
From April 13, 1998 to and including 13,750,000.00
April 24, 1998
From April 25, 1998 to and including 13,500,000.00
May 15, 1998
From May 16, 1998 to and including 13,250,000.00
May 22, 1998
From May 23, 1998 and at all times thereafter 13,000,000.00
</TABLE>
5
<PAGE>
d. Paragraph 8.6 shall be modified by substituting the following Paragraph
8.6:
8.6 Disposition of Assets. Borrower shall not sell, lease, transfer or
otherwise dispose of any portion of its inventory either in bulk
(meaning the lesser of five percent (5%) or more of existing inventory
or $250,000.00), or other than in the ordinary course of business,
unless Bank receives from Borrower three (3) Business Days prior
written notice of Borrower's intention to accept such sale or submit
such sale to the Bankruptcy Court for approval, which notice shall
include a draft of the proposed agreement of sale and other sale
documents, and the Bank consents in writing to any such proposed sale
prior to acceptance or the filing of any motion or application to the
Bankruptcy Court seeking to approve same, which consent shall not be
unreasonably withheld.
e. The following Paragraph 8.36 shall be added to the Loan Agreement:
8.36 Closing of Distribution Locations. The following distribution
locations shall be closed by no later than the corresponding date set
forth below, and all inventory from such locations shall be moved to
the Borrower's Jacksonville or Auburndale locations:
(a) Houston, Texas - April 22, 1998;
(b) Chicago, Illinois - May 8, 1998; and
(c) Acworth, Georgia - May 15, 1998.
f. The following paragraph 8.37 shall be added to the Loan Agreement:
8.37 Financing of Manufacturing Facilities. As of May 31, 1998, Bank
shall have no obligation to advance any sums to Borrower for any
operational costs associated with the manufacturing facilities
including, but not limited to, payroll, payroll taxes and employee
benefits.
g. The following paragraph 8.38 shall be added to the Loan Agreement:
8.38 Accounts Receivable Collections. Borrower shall deliver to Bank
and Bank's counsel via telecopy on Tuesday of each week for the prior
week a status and update report on all collection efforts with respect
to Borrower's accounts receivable that are
6
<PAGE>
ninety (90) days or more past invoice date as of April 10, 1998
("Delinquent Accounts") in a form satisfactory to Bank, which report
shall include the name of each account, the amount due on each account,
any action taken on each account, the last conversation or
communication with respect to each account, and the status of any
litigation on each account. If Borrower fails to collect $150,000.00 of
the pre-petition date Delinquent Accounts by May 8, 1998 or $300,000.00
of pre- petition date Delinquent Accounts by May 29, 1998, Borrower
shall retain a collection agency determined by Bank to collect all pre-
petition date Delinquent Accounts. The Borrower shall not compromise,
other than in the ordinary course of business including short
shipments, damages, returns, adjustments and billing errors, the amount
of any account receivable or settle any litigation with respect to any
account receivable without Bank's prior written consent.
h. Paragraph 8.16 shall be modified by substituting the following
Paragraph 8.16:
8.16 Maintenance of Management. Borrower shall cause its business to be
continuously managed by its present senior management team consisting
of Harvey B. Adams and Ronald J. Adams.
3. OTHER REFERENCES. All references in the Loan Agreement and all the Loan
Documents to the term "Loan Documents" shall mean the Loan Documents as
defined therein, and this Modification, and any and all other documents
executed and delivered by Borrower pursuant to and in connection herewith.
4. FURTHER AGREEMENTS AND REPRESENTATIONS. Obligors hereby:
a. Ratify, confirm and acknowledge that the Loan Agreement, as amended
hereby, and the other Loan Documents continue to be valid, binding and
in full force and effect;
b. Covenant and agree to perform all of their respective obligations under
the Loan Agreement, as amended hereby, and the Loan Documents;
c. Acknowledge and agree that as of the date hereof, no Obligor has any
defense, set-off, counterclaim or challenge against the payment of any
sums constituting Bank Indebtedness or the enforcement of any of the
terms of the Loan Agreement, as amended hereby, or any of the other
Loan Documents;
d. Ratify and confirm that all representations and warranties of the
Obligors,
7
<PAGE>
contained in the Loan Agreement and/or the other Loan
Documents, are true and complete on and as of the date hereof, as if
made on and as of the date hereof;
e. Acknowledge and agree that nothing contained herein shall be deemed to
impair, reduce or release in any manner whatsoever any of the
Obligations of Guarantors under the Surety Agreement;
f. Represent and warrant that the execution and delivery of this Amendment
by Obligors and all documents and agreements to be executed and
delivered pursuant to the terms hereof;
i. have been duly authorized by all requisite corporate action by
Borrower;
ii. will not conflict with or result in the breach of or constitute a
default (upon the passage of time, delivery of notice or both)
under Borrower's Certificate of Incorporation or By-Laws or any
applicable statute, law, rule, regulation or ordinance or any
indenture, mortgage, loan or other document or agreement to which
any Obligor is a party or by which any of them is bound or
affected; and
iii. will not result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the property
or assets of any Obligor, except liens in favor of the Bank or as
permitted hereunder or under the Loan Documents;
g. Represent and warrant that all of the information described in the
foregoing Background is accurate; and
h. Acknowledge and agree that Obligors' failure to comply with or perform
any of their respective covenants, agreements or obligations contained
in this Amendment or any other documents executed and delivered by any
of them in connection herewith will, subject to applicable notice,
grace and cure periods, constitute an Event of Default under the Loan
Agreement and each of the Loan Documents.
5. NO NOVATION. Nothing contained herein and no actions taken pursuant to the
terms hereof are intended to constitute a novation of the Loan Agreement or
any of the Loan Documents and shall not constitute a release, termination or
waiver of any of the liens, security interests, rights or remedies granted
to Bank in the Loan Documents.
6. NO FURTHER AMENDMENTS. Nothing contained herein constitutes an agreement or
obligation by Bank to grant any further amendments to any of the Loan
Documents.
8
<PAGE>
7. INCONSISTENCIES. To the extent of any inconsistency between the terms and
conditions of this Amendment and the terms and conditions of the Loan
Agreement or the Loan Documents, the terms and conditions of this Amendment
shall prevail. All terms and conditions of the Loan Agreement and the Loan
Documents not inconsistent herewith shall remain in full force and effect,
and are hereby ratified and confirmed by Borrower.
8. CONSTRUCTION. All references to the Loan Agreement therein or in any of the
other Loan Documents shall be deemed to be a reference to the Loan
Agreement, as amended hereby.
9. BINDING EFFECT. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
10. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
11. HEADINGS. The headings of the sections of this Amendment are inserted for
convenience only and shall not be deemed to constitute a part of this
Amendment.
12. COUNTERPARTS. This amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument,
and any party hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
effective as of the day and year first above written.
CONSOLIDATED STAINLESS, INC.
By:
--------------------------------------
Name/Title:
-------------------------------
-----------------------------------------(SEAL)
RONALD J. ADAMS
-----------------------------------------(SEAL)
HARVEY B. ADAMS
MELLON BANK, N.A.
9
<PAGE>
By:
--------------------------------------
Name/Title:
-------------------------------
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 1 THROUGH 3 OF THE COMPANY'S
FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 35,535
<SECURITIES> 0
<RECEIVABLES> 4,567,512
<ALLOWANCES> 410,846
<INVENTORY> 14,734,878
<CURRENT-ASSETS> 19,912,571
<PP&E> 20,103,179
<DEPRECIATION> 5,401,386
<TOTAL-ASSETS> 34,940,363
<CURRENT-LIABILITIES> 1,159,672
<BONDS> 34,346,091
0
0
<COMMON> 46,103
<OTHER-SE> (611,503)
<TOTAL-LIABILITY-AND-EQUITY> 34,940,363
<SALES> 6,193,456
<TOTAL-REVENUES> 6,193,456
<CGS> 5,711,114
<TOTAL-COSTS> 5,711,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33,750
<INTEREST-EXPENSE> 713,308
<INCOME-PRETAX> (2,401,868)
<INCOME-TAX> 125
<INCOME-CONTINUING> (2,401,993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,401,993)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
