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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from February 1, 1996 to December 31, 1996
Commission File Number 000-25132
ICHOR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 25-1741849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Oxford Drive, Monroeville, Pennsylvania 15146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 412-856-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $1,309,000 as of March 17, 1997, computed on the
basis of the average of the high and low trading prices on such date.
As of March 17, 1997, there were 4,922,720 shares of the Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Proxy Statement to be filed within 120 days of the period
ended December 31, 1996 are incorporated by reference into Part III. Certain
exhibits in Part IV are incorporated by reference from prior filings made by
the Registrant under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended.
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<PAGE> 2
FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent they are not based on historical
events, constitute forward-looking statements. Forward-looking statements
include, without limitation, statements regarding the outlook for future
operations, forecasts of future costs and expenditures, evaluation of market
conditions, the outcome of legal proceedings, the adequacy of reserves, or
other business plans. Investors are cautioned that forward-looking statements
are subject to an inherent risk that actual results may vary materially from
those described herein. Factors that may result in such variance, in addition
to those accompanying the forward-looking statements, include changes in
interest rates, prices, and other economic conditions; actions by competitors;
natural phenomena; actions by government authorities; uncertainties associated
with legal proceedings; technological development; future decisions by
management in response to changing conditions; and misjudgments in the course
of preparing forward-looking statements.
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TABLE OF CONTENTS
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PAGE
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PART I
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ITEM 1. BUSINESS....................................................... 4
ITEM 2. PROPERTIES..................................................... 11
ITEM 3. LEGAL PROCEEDINGS...............................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS............................................... 12
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.....................................12
ITEM 6. SELECTED FINANCIAL DATA........................................ 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................17
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 17
ITEM 11. EXECUTIVE COMPENSATION......................................... 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.......................................... 18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 18
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K............................................ 18
SIGNATURES................................................................ 43
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PART I
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ITEM 1. BUSINESS
The Company
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ICHOR Corporation was incorporated in July 1994 pursuant to the laws of the
Commonwealth of Pennsylvania under the name "PDG Remediation, Inc.". In
November 1996, the Company reincorporated under the laws of the State of
Delaware and changed its name to "ICHOR Corporation". In this document,
unless the context otherwise requires, the "Company" refers to ICHOR
Corporation and its subsidiaries.
General
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The Company is in the environmental services business, including remediation
and recycling. Its operations consist of providing remediation services to
assist commercial, industrial and government clients in complying with
environmental laws and regulations and re-refining petroleum waste products
and disposing of oily waste waters. The Company's remediation services range
from initial assessment of site contamination through the design and
implementation of remediation and treatment systems to remove contamination.
In December 1996, the Company acquired a waste oil processing facility which
is in the process of being brought on-line and can convert waste oil into
distillate and other recycled petroleum products and process and dispose of
oily waste waters. This plant is one of only four such facilities in North
America and is located in McCook, Illinois (the "McCook Facility"). The
Company initially plans to use the McCook Facility to produce distillate for
processing into either gasoline or base oil, depending on market conditions.
The Company's environmental remediation services business is conducted through
its wholly-owned subsidiary ICHOR Services, Inc. formerly called PDG
Environmental Services, Inc. ("Services") and its recycling business,
primarily consisting of the McCook Facility, is conducted through its wholly-
owned subsidiary Ortek Inc.
The Company was initially a wholly-owned subsidiary of PDG Environmental, Inc.
("PDGE"), who in 1994 transferred its environmental remediation services
business to the Company, including two operating entities, being Services and
GeoLogic Recovery Systems ("GeoLogic"), a limited partnership. In February
1995, the Company went public and PDGE's ownership was reduced to 59.5% of the
Company's common stock. The Company's initial operations included remediation
services offices located in Melbourne and Tallahassee, Florida, and
Pittsburgh, Pennsylvania and a thermal treatment facility in Florida operated
by GeoLogic.
In 1995, the Company responded to changes in the Florida market by closing its
Tallahassee remediation office. Further, it discontinued the operations of
GeoLogic, including the thermal treatment facility, and sold the same in April
1996. It also sold its Melbourne, Florida remediation services operation in
November 1996.
In July 1996, the Company's former parent, PDGE, transferred its 59.5%
interest in the Company to Drummond Financial Corporation ("Drummond"). In
December 1996, the Company acquired a wholly-owned subsidiary of Logan
International Corp. ("Logan") whose sole asset was a loan receivable (the
"McCook Loan") in consideration of a promissory note in the amount of $1.4
million which matures on
<PAGE> 5
December 16, 1999 and bears interest at the rate of 8% per annum and the
issuance of 2,500,000 shares of the Company's common stock. As a result of
the transaction, Logan acquired 50.3% of the Company's issued shares of common
stock. Logan and Drummond are controlled by the same company. In December
1996, pursuant to the McCook Loan and a bankruptcy court action, the Company
acquired the McCook Facility. The purchase price for the McCook Facility was
credited against the amount outstanding under the McCook Loan.
The Company intends to expand its business by the acquisition of niche and
synergistic businesses in the environmental services industry.
Operations
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The Company's remediation and decontamination operations are located in
Monroeville, Pennsylvania, with services offered throughout the Northeast,
Midwest, Mid-Atlantic and Southeastern states. The Company provides a broad
range of remediation services, including assessments to determine the nature
and extent of contamination, feasibility studies to evaluate the
technologically and economically applicable remedial technologies, remedial
design and actions, and operations maintenance of installed remedial systems.
The Company focuses primarily on remediation of facilities contaminated by
hazardous substances and the remediation of contamination caused by leakage
from underground storage tanks ("USTs"). The Company's strategy is to be a
technically oriented "hands on" remediation specialist able to determine,
manage and implement all aspects of a clean-up project. The sites which
typically require these services include industrial plants, laboratories,
disposal sites and government facilities. The Company's strategy for its
environmental remediation business is to continue to develop its industrial
clients in the Mid-Atlantic and Southeastern states and to pursue the large
federal remediation market with major contractors and as a qualified small
business.
The Company has senior technical staff experienced in providing remediation
and decontamination services to both the public and private sectors. Several
key contracts have been obtained by the Company, including serving as a
remedial action contractor for the U.S. Navy at multiple facilities under a
contract with J.A. Jones Management Services ("Jones"), and providing similar
remediation services for major industrial clients based in Pittsburgh. During
the year ended January 31, 1995, the Company formed an alliance with Jones and
jointly bid on a major remediation project for the U.S. Navy, at which time
the Company executed an exclusive subcontractor pre-selection agreement with
Jones. As a result of this alliance, the Company serves as a subcontractor to
Jones with respect to a $15 million per year contract with the U.S. Navy for
remediation services, under which the Company expects annual revenues to be
approximately $2 million to $5 million per year for up to the next two years.
Most of the Company's environmental remediation contracts are obtained on a
cost plus basis wherein the Company is reimbursed at standard rates for time
expended and expenses incurred, although some projects are secured on a fixed
price basis.
The McCook Facility was not operated in 1996. When operational, it processes
waste oil into distillate, which can be further processed into base oil and
then into blended lube oil. The facility has a current distillate production
capacity of approximately one million gallons per month. The distillate can
be sold to other manufacturers of lube oil or to crude oil refineries which
use the distillate as feed stock for gasoline. Any distillate which is
further processed into base lube oil can also be sold to other lube oil
<PAGE> 6
manufacturers or further processed into end user lube oil. The McCook
Facility also processes and disposes of oily waste waters for customers in the
greater Chicago area and can process approximately 13,000 to 15,000 gallons
per day.
The McCook Facility's basic refining and processing capabilities include the
following: (i) wipe film evaporation treatment, which is a form of vacuum
distillation used to remove impurities from waste oil to enhance the quality
of the Company's distillate; (ii) atmospheric distillation of oily waste
waters, which separates oil from water and removes other impurities; and (iii)
fractional distillation, which distills products by multiple cuts according to
their various boiling points.
Since acquiring the McCook Facility in December 1996, the Company has made
extensive preparations to commence operations. Operating permits are in the
process of being transferred, an environmental plan has been developed for
site remediation, relationships with customers and suppliers have been re-
established, an inventory of raw material has been accumulated and the
facility's workforce and operations have been reorganized. All administrative
functions involving the McCook Facility have been consolidated with the
Company's head office administration in Monroeville, Pennsylvania. The McCook
Facility is expected to commence operations early in the second quarter of
1997 and produce distillate for sale to lube oil customers or gasoline
producers, depending on market conditions.
Environmental Laws
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The Company's environmental services business is primarily derived from and
regulated by federal laws and regulations. Most environmental laws and
regulations are promulgated by the U.S. Congress and federal departments and
agencies, such as the U.S. Environmental Protection Agency ("EPA") and the
U.S. Occupational Safety and Health Administration ("OSHA"), which are
responsible for protecting and monitoring certain natural resources (such as
air, water and soil), and occupational working conditions. Many of the
federal regulations contemplate enforcement by state agencies and adoption by
the states of similar regulations which must meet the minimum federal
requirements. In areas of environmental law where federal regulation is
silent, the states may adopt their own environmental laws. Local governments
such as counties and municipalities may also enact and enforce environmental
laws that address local concerns. Federal laws which impact the Company's
environmental remediation business include those described below.
Occupational Safety and Health Administration Reform Act. OSHA has
promulgated various regulations setting forth standards for disclosure of
health hazards in the workplace and for responses thereto. The Company's
field staff receive safety and health training in accordance with OSHA
regulations.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA") and the Superfund Amendments and Reauthorization Act of 1986
("Superfund"). CERCLA provides for the investigation and remediation of
existing contaminated hazardous waste sites and other releases of hazardous
substances into the environment. Superfund imposes strict joint and several
liability on owners and operators of contaminated facilities and disposal
facility owners and operators for the costs of investigation and remedial
action. CERCLA provides the EPA with the authority to compel private parties
to undertake a clean-up.
Resource Conservation and Recovery Act ("RCRA") and Hazardous and Solid Waste
Amendments of 1984. RCRA, as amended, provides a comprehensive framework for
the regulation of the generation, handling, transportation, treatment and
disposal of hazardous wastes. Facilities that treat, store or dispose
<PAGE> 7
of hazardous wastes must obtain an RCRA permit from the EPA or appropriate
state agency, and must comply with certain operating, financial responsibility
and disclosure requirements. Regulations have been issued pursuant to RCRA
covering areas such as permitting assistance, remediation of environmental
contamination associated with USTs, municipal solid waste disposal and land
disposal of hazardous wastes. RCRA also imposes land disposal restrictions on
certain listed hazardous wastes which do not meet specified treatment
standards, prescribes more stringent standards for hazardous waste disposal,
sets standards for USTs, and provides for corrective action at or near sites
of waste management units.
Environmental Protection Agency Underground Storage Tank Regulations. The UST
regulations were promulgated under RCRA and apply to petroleum products and
hazardous substances as defined by CERCLA. USTs that are used to store
gasoline, diesel fuel, fuel oil, waste oil and hazardous materials must be
registered with the appropriate state regulatory agency, designed or upgraded
to meet construction and operational standards, and monitored to insure
against leaking. Owners and operators are further required to report leaks
and undertake appropriate corrective action.
Environmental Remediation Market
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Projects involving remediation and potential closure of contaminated
facilities are primarily generated by: (i) clean-up programs funded by federal
agencies (e.g., Superfund, Department of Energy and Department of Defense);
(ii) RCRA corrective actions and closures mandated by regulations affecting
both government and industry; and (iii) vendors in real estate transfers.
Superfund and equivalent state programs typically cover clean-up at inactive
commercial and government disposal facilities and manufacturing facilities.
The RCRA corrective action program makes permitting contingent upon acceptable
programs to manage inactive waste management units that are part of active
facilities; the RCRA closure market involves closure of RCRA permitted sites
in accordance with regulation. The transfer of real estate often involves an
environmental assessment of the land, groundwater and buildings being
transferred. If contamination is discovered, generally either clean-up occurs
or the property is not transferred.
The environmental remediation of federal facilities presents the largest
growth area of the domestic environmental market. The private sector
remediation market is also very significant. Some major industrial companies
are carrying substantial liabilities on their balance sheets, which are often
associated with non-revenue generating assets. These liabilities generally
increase with time and inhibit the sale of non-productive assets.
Revitalization of historically industrialized regions is hampered by the
reluctance of developers to recondition existing facilities or build new
plants in areas which carry potentially significant environmental liabilities.
As a result, facilities are often built in open lands which do not have a
history of industrialization. Consequently, industrial areas are experiencing
declining usage and "green" areas are becoming industrialized. Both local
economies and the environment are experiencing negative impacts. As a result,
federal and state authorities have begun to promulgate rules encouraging the
redevelopment of historically industrialized regions.
The Company has historically performed a substantial amount of work under the
RCRA corrective action program, and, in particular, has remediated sites
contaminated by USTs where state programs funded by taxes on fuel and
petroleum products, rather than expenditures of the major oil companies,
provide the impetus for clean-up.
The Company's Florida remediation operation focused on a Florida State funded
site rehabilitation program known as the "EDI Program", which provided for the
remediation of contaminated sites related
<PAGE> 8
to the storage of petroleum and petroleum products. During the year ended
January 31, 1996, the EDI Program was substantially modified to establish a
protocol for continued work on sites based on their priority ranking and pre-
approval process for both the scope and cost of work for petroleum clean-up
program tasks (the "Pre-Approval Program"). As a result of the changes in the
EDI Program, the Company's backlog of sites to be remediated was significantly
reduced, which resulted in substantially decreased revenues and significant
operating losses during the last three quarters of the period ended January
31, 1996 and the 11 months ended December 31, 1996. Additionally, the volume
at the Company's divested thermal treatment facility was significantly reduced
by the EDI Program changes.
Re-Refined Lube Oil Market
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The market for the McCook Facility's recycled waste oil products is dependent
on factors such as the market prices for virgin lube oils and fuels. Since
December 1996, the market price for virgin lube oil fell from approximately
$1.05 per gallon to $0.65 per gallon, which has created a spread between crude
oil prices and lube oil prices, which are at an all-time low. As a result,
the Company is focusing its marketing efforts on the sale of distillate to
refineries which use the distillate to produce gasoline, as fuel markets are
relatively strong.
The Company is also focusing its marketing efforts on niche markets.
Specifically, the Company believes that opportunities exist to market its
products to "tolling" customers (where the customer provides feedstock and
purchases the distillate) in the specialty lube oil market (metal working and
railroad lubricants). Furthermore, the Company believes that as a low-cost
provider of quality distillate, it is positioned to market distillate to
traditional re-refiners and finishers. Despite the foregoing, the current
depressed spread between crude and lube oil prices has restricted the
Company's market opportunities.
The Company is also looking to the sale of its distillate as vacuum gas-oil as
an entree to the catcracking feedstock market. The distillate will be sold to
refineries which use the distillate to produce gasoline and diesel fuel. The
fuel markets, which are relatively strong, historically have trended upward
during the spring and summer seasons. This use of re-refined waste oil
products as catcracker feedstock represents a new application in the industry
and, consequently, has required extensive testing of the Company's distillate
by various refineries. To date, the product has been approved as catcracker
feedstock at four refineries. The margins in this market may be volatile as
the potential outside influences on the fuel markets are broad and include
crude prices, geography, transportation and terminal requirements, and market
pressure discounting.
Government Regulation
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Government regulations impact on all aspects of the Company's environmental
remediation and recycling operations, including the disposal of residual
chemical wastes, operating procedures, waste water discharges, fire
protection, safety standards, worker and community right-to-know, and
emergency response plans. Government authorities have the power, under
various circumstances, to enforce compliance, and violators may be subject to
civil or criminal penalties. Private individuals may also have the right to
sue to enforce compliance with certain of the governmental requirements.
Operating permits for the McCook Facility are required from both federal and
state environmental agencies. Such permits must be renewed periodically and
government authorities have the power, under various circumstances, to revoke,
modify, or deny the issuance, transfer or renewal of these permits.
<PAGE> 9
When operating, the McCook Facility is authorized to accept non-hazardous oils
and lubricant fluids, oily waste waters and LUST waters. The facility's
operating permits and waste stream permits are periodically renewed, subject
to approval of the state environmental protection agency, the principal
regulator responsible for such permits. The facility also has a discharge
authorization permit with respect to waste water treatment processes. The
McCook Facility has certain soil and groundwater contamination for which the
Company has accrued $0.8 million for remediation and also has PCB's stored on-
site for which the Company is developing a plan for removal in 1997. The
Company does not believe these contaminants pose any immediate health or
safety threats.
The Company may be subject to liability for investigation and clean-up costs
under CERCLA and RCRA and parallel state and local laws. In addition, the
Company may be subject to liability under UST regulations if during removal of
USTs, the Company causes the discharge of oil or petroleum products or
hazardous substances.
The Company believes it is in substantial compliance with all of the federal,
state and local statutes and regulations which affect its business.
Nonetheless, the Company may incur denials, fines and penalties from time to
time, some of which could have a material adverse impact on its business.
Suppliers and Customers
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The Company is not limited to any one supplier or subcontractor in performing
its environmental services. The Company's remediation customers include
private sector clients who are often responsible for multiple contaminated
facilities and industrial and government sector clients. Revenues from three
customers provided 66% of the Company's revenues during the 11 months ended
December 31, 1996 and revenues in connection with Jones provided 43% of the
Company's total revenues during such period. During the year ended January
31, 1996, revenues from Jones contributed 24% of the Company's total revenues.
The largest volume of subcontracted services is in the area of analytical
testing.
Purchasers of services and products refined at the McCook Facility may include
railroad companies, independent producers of oily waste waters, packaged
lubricant companies, pure base oil and distillate finished product bulk
blenders and packagers and crude oil refineries. The Company's recycled waste
oil products may be sold either through fixed or market price contracts or
into the spot market depending on the Company's product mix. The Company is
currently negotiating with several purchasers who may purchase substantially
all of the production of the McCook Facility on a committed basis. The
Company expects that, when operational, revenues from the McCook Facility will
be lower during the winter months, primarily because of the liquid nature of
the wastes processed by the facility and the logistical problems caused by
below freezing temperatures. Particularly harsh weather conditions in the
Midwest regions served by the McCook Facility could adversely effect the
Company's overall results of operations.
The primary material purchased for the McCook Facility is waste oil, and
independent waste collectors are the primary source thereof. The Company is
currently negotiating with vendors for a long-term committed supply of waste
oil for the McCook Facility. The McCook Facility has a capacity to process
approximately 1.25 million gallons of waste oil per month. Waste oil is
currently procured in the spot market where the Company must compete for waste
products with seasonal demands of asphalt companies and other low grade fuel
burners. This competition for the purchase of waste oil, which is heightened
during the spring/summer road construction seasons, causes the price of waste
oil to fluctuate
<PAGE> 10
based on the supply and demand for such products. The Company can give no
assurances that it will be able to obtain sufficient streams of waste oil at
reasonably competitive prices.
Backlog
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The Company's environmental remediation business has completed its work under
the EDI Program, and in November 1996, the Company sold its contracts to
provide remediation services for USTs for private customers through the Pre-
Approval Program. The Company continues to serve as a subcontractor to Jones
to provide remediation services to the U.S. Navy under a contract which is
expected to continue for up to the next two years. At December 31, 1996, the
Company's environmental remediation backlog was approximately $2.5 million.
The Company is also negotiating several contracts to supplement the catcracker
feedstock spot market for its waste oil recycling business. These contracts
will generally require six-month term commitments with minimum supply
requirements and open overages.
Insurance
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The Company maintains commercial general liability and umbrella liability
policies which provide aggregate coverage limits of $2.0 million and $5.0
million, respectively. In connection with its environmental remediation
business, the Company also maintains contractors pollution and professional
liability insurance which provides an aggregate coverage limit of $3.0
million. In connection with the McCook Facility, the Company has obtained
pollution liability and property insurance policies which provide aggregate
and blanket coverage limits of $2.0 million and $7.0 million, respectively.
Competitive Conditions
- - ----------------------
The Company's environmental services business is highly competitive.
Remediation services are provided by several national firms with significant
financial resources and personnel and numerous small local firms. The ability
of the Company to compete in this area depends on its ability to price its
services competitively and to maintain a reputation for safety and quality.
The recycled waste oil products which can be manufactured at the McCook
Facility and marketed for industry or public consumption will face strong
competition from a variety of re-refined and virgin-based products, including
those of the major oil companies. Competition from virgin oil-based products
may continue to adversely impact the market for recycled waste oil products
until the public better understands that quality is not sacrificed by using a
recycled waste oil product. Such competitors include companies that are well
established and have greater marketing, financial and operational resources
than the Company.
Employees
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At December 31, 1996, the Company had 32 full-time employees. Approximately
18 of the Company's personnel are technical specialists, including
geotechnical engineers, geologists, environmental engineers, scientists,
technicians and CADD operators. The Company has 6 pumpers, operators and
maintenance workers at the McCook Facility who are represented by Local 7-507
of the Oil, Atomic and Chemical Workers Union. The balance of the Company's
employees are management and administrative personnel. The Company also hires
laborers and operators on a temporary basis as required for its projects.
<PAGE> 11
ITEM 2. PROPERTIES
The Company's headquarters, administrative facilities and remediation services
operation are located in Monroeville, Pennsylvania in approximately 7,500
square feet of leased space. The Company's lease expires in February 2000.
In December 1996, the Company acquired the McCook Facility, which is located
on approximately six acres of land in McCook, Illinois, on the outskirts of
Chicago. The facility includes, among other things, seven distillation
towers, evaporators, stills, agitators, fume incinerators, boilers, oil water
separators, numerous storage tanks having a total capacity of two million
gallons, water cooling towers, two filter presses, two railroad sidings,
numerous railroad tank cars and forklifts. The McCook Facility converts waste
oil into distillate and processes and disposes of oily waste waters. The
facility has a capacity of approximately one million gallons per month of
distillate and can process approximately 13,000 to 15,000 gallons of oily
waste water per day. No assurances can be given that the estimated capacity
of the McCook Facility will be fully utilized. The McCook Facility has certain
soil and groundwater contamination for which the Company has accrued $0.8
million for remediation costs.
The Company believes that these facilities are adequate for its current needs
and, where applicable, additional space is available for future expansion.
ITEM 3. LEGAL PROCEEDINGS
In 1996, the Company and International Surplus Lines Insurance, Inc. ("ISLIC")
settled litigation with respect to insurance advances made by ISLIC pursuant
to which the Company agreed to pay a total of $1,135,000 without interest in
equal monthly payments of $37,833.33 over a 30-month period.
In June 1995, Klein v. PDG Remediation, Inc., et al., No. CIV-4954 (DAB), was
filed in the United States District Court for the Southern District of New
York asserting federal securities law claims against the Company, its
directors and certain of its officers, PDGE and the underwriters of the
Company's initial public offering. The Klein action is brought as a purported
class action on behalf of all purchasers of the Company's common stock from
February 9, 1995, the effective date of the initial public offering, through
May 23, 1995. The plaintiff alleges that the defendants issued or
participated in issuing a registration statement and prospectus which
contained material misstatements or omissions, which were relied upon by the
plaintiff. Specifically, the plaintiff alleges that the defendants knew or
should have known that the Florida reimbursement program in which the Company
participates was operating at a deficit and was being revised to eliminate
funding of remediation activities for lower priority sites. The plaintiff is
seeking certification of the action as a class action and rescission of the
purchase of shares of common stock by the members of the purported class or
statutory damages, as well as interest, attorneys' fees and other costs and
expenses.
On September 1, 1995, an answer was filed on behalf of the Company, its
officers and directors and PDGE which generally denied the plaintiff's claims.
The plaintiff has filed a motion for class certification which is pending.
The Company believes that the allegations are without merit or that there are
meritorious defenses to the allegations, and intends to defend the action
vigorously. However, if the plaintiff is successful in its
<PAGE> 12
claims, a judgement rendered against the Company and the other defendants may
have a material adverse effect on the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Information Statement was sent by the Company to its shareholders in
October 1996, in connection with a proposed change in the jurisdiction of
incorporation of the Company from the Commonwealth of Pennsylvania to the
State of Delaware (the "Re-incorporation") pursuant to an agreement and plan
of merger between PDG Remediation, Inc. and ICHOR Corporation, a Delaware
corporation. As the consent of shareholders holding 59.5% of the votes
entitled to be cast was obtained, the action was approved and no further
consents were solicited. No shareholders exercised their dissent rights with
respect to the Re-incorporation, which became effective in November 1996.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information. The Company's common stock is listed for trading on
NASDAQ under the symbol "PDG". The following information reflects the high
and low sale prices per share as reported by NASDAQ since the Company's
listing in February 1995.
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low
- - -------------------- ------------ ------------
<S> <C> <C>
1995
April 30.......................... $ 4.75 $ 2.25
July 31........................... 2.50 1.00
October 31........................ 1.25 0.50
January 31, 1996.................. 1.13 0.63
1996
April 30.......................... 1.41 0.98
July 31........................... 1.38 0.75
September 30(1)................... 1.19 0.56
December 31....................... 1.75 0.63
1997
March 17.......................... 1.63 1.13
</TABLE>
- - ------------
(1) In September 1996, the Company changed its fiscal year end from January 31
to December 31.
(b) Shareholders. At March 17, 1997, the Company had approximately 13
stockholders of record, some of which are securities clearing agencies and
intermediaries.
(c) Dividends. The Company has not paid dividends with respect to its common
stock and has no intention to pay dividends in the foreseeable future.
(d) Recent Sales of Unregistered Securities. In December 1996, the Company
acquired the McCook Loan from Logan for an aggregate purchase price of $2.4
million through the issuance of 2,500,000 shares of the Company's common stock
and a promissory note in the amount of $1.4 million, which
<PAGE> 13
matures on December 16, 1999 and bears interest at the rate of 8% per annum.
The common shares were issued in reliance on the exemption from registration
under section 4(2) of the Securities Act of 1933, as amended, and the rules
promulgated thereunder, as transactions not involving a public offering.
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected consolidated financial data for the
Company for the 11 months ended December 31, 1996 and the four fiscal years
ended January 31, 1996, 1995, 1994 and 1993. The operations of the Company
have been restated for the fiscal years ended January 31, 1995, 1994 and 1993
to reflect GeoLogic as a discontinued operation.
<TABLE>
<CAPTION>
For the 11 For the Years Ended January 31,
Months ended -----------------------------------------------
December 31, 1996 1996 1995(1) 1994 1993
----------------- -----------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Contract revenues...... $ 4,050 $ 4,779 $ 9,361 $ 5,346 $ 3,758
Gross margin........... 994 1,386 2,568 1,791 1,125
Income (loss) from
operations............ (1,211) (858) 614 3 124
Other expense.......... (278) (392) (499) (229) (83)
Income (loss) from
continuing operations. (1,489) (1,250) 84 (226) 29
Net (loss) income...... (1,399) (2,858) 896 206 57
COMMON SHARE DATA
Income (loss) from
continuing operations
per common share...... (0.58) (0.51) 0.04 (0.12) 0.02
Net (loss) income per
common share.......... (0.54) (1.16) 0.48 0.11 0.03
Weighted average common
shares outstanding.... 2,586 2,456 1,870 1,870 1,870
BALANCE SHEET DATA
Working capital........ 1,182 2,257 6,296 3,406 2,376
Total assets........... 6,608 5,614 10,824 6,045 6,926
Long-term obligations.. 2,911 20 3,579 1,588 2
Total stockholders'
equity................ 1,987 2,438 2,995 2,239 2,551
</TABLE>
- - -----------------
(1) Includes an extraordinary item related to the early extinguishment of debt
totaling $222,000 ($0.12 per common share).
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and the
financial condition of the Company for the 11 months ended December 31, 1996,
and the years ended January 31, 1996 and January 31, 1995 should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere herein. In September 1996, the Company changed its fiscal
year end from January 31 to December 31. As a result, the comparison of the
11 months ended December 31, 1996 to the year ended January 31, 1996 is a
comparison between an 11 month period and a 12 month period.
11 Months Ended December 31, 1996 Compared to Year Ended January 31, 1996
- - -------------------------------------------------------------------------
Contract revenues for the 11 months ended December 31, 1996 decreased to $4.1
million from $4.8 million for the year ended January 31, 1996, primarily as a
result of the continued decline in revenues at the Company's Florida
remediation services operation due to changes in the EDI Program, the sale of
the Florida remediation services operation effective November 1, 1996 and the
sale of GeoLogic effective January 31, 1996. The decrease in revenues was
partially offset by an increase in revenues under a large federal contract
with Jones, which accounted for approximately 43% of the Company's revenues in
the current period. The Company's Florida operation provided 27% of the
Company's revenues in the 11 months ended December 31, 1996 compared to 61% in
the year ended January 31, 1996.
Contract costs for the period ended December 31, 1996 decreased to $3.1
million from $3.4 million for the period ended January 31, 1996. The
Company's gross margin decreased to $1.0 million or 25% of revenues for the 11
months ended December 31, 1996 from $1.4 million or 29% of revenues for the
year ended January 31, 1996, primarily as a result of the reduction in
revenues and reduced margins at the Company's Florida remediation services
operation.
Selling, general and administrative expenses for both the 11 months ended
December 31, 1996 and the year ended January 31, 1996 were $2.2 million. The
increase in the selling, general and administrative expenses is principally
due to higher legal and accounting costs associated with certain litigation
involving the Company, certain insurance costs, costs associated with a
proposed acquisition, and increased marketing efforts at the Company's Florida
remediation services operation prior to same being sold.
The Company reported a loss from operations of $1.2 million in the 11 months
ended December 31, 1996 compared to a loss of $0.9 million in the year ended
January 31, 1996.
Interest expense was $0.4 million in both the period ended December 31, 1996
and the period ended January 31, 1996, as a result of increased long-term debt
and an increase in amounts funded under the Sirrom Agreements (as hereinafter
defined) in the current period. Other income was $0.1 million in the period
ended December 31, 1996, compared to $14,000 for the period ended January 31,
1996.
The Company had income from discontinued operations of $90,000 in the 11
months ended December 31, 1996 as a result of a reduction in the reserve for
operating losses for GeoLogic, which was sold effective January 31, 1996. The
Company had a loss from discontinued operations of $0.8 million and a loss on
disposal of GeoLogic of $0.8 million for the year ended January 31, 1996.
The Company's net loss for the 11 months ended December 31, 1996 was $1.4
million or $0.54 per share compared to $2.9 million or $1.16 per share for the
year ended January 31, 1996.
<PAGE> 15
During the 11 months ended December 31, 1996, the Company had made some
progress towards the replacement of revenues lost due to the changes in the
EDI Program by increasing its backlog of high priority sites eligible under
the new Pre-Approval Program in the State of Florida. However, delays under
the new program prevented the Company from commencing work on these high
priority sites. As a result of the ongoing losses which the Company continued
to experience at its Florida remediation services operation, this operation
was sold for its approximate book value effective November 1, 1996 to Custom
Biologicals, Inc. of Boca Raton, Florida.
Year Ended January 31, 1996 Compared to January 31, 1995
- - --------------------------------------------------------
During the year ended January 31, 1996, the Company's contract revenues
decreased by approximately 49% to $4.8 million compared to $9.4 million for
the year ended January 31, 1995. The Company experienced a significant
reduction of approximately 63% in contract revenues during the year ended
January 31, 1996 at its Florida remediation services operation due to the
changes in the EDI Program which substantially decreased the Company's
available backlog of sites upon which it was able to continue to perform work.
The Company's Florida operations provided 61% of the Company's revenues during
the year ended January 31, 1996 compared to 85% during the year ended January
31, 1995. Contract revenues at the Company's Pennsylvania remediation
services operation increased by approximately 34% in the period ended January
31, 1996 compared to the period ended January 31, 1995, and partially offset
the reduction experienced at the Florida remediation services operation. The
increase in contract revenues within the Pennsylvania remediation services
operation was principally due to the U.S. Navy subcontract with Jones.
The Company's gross margin decreased to $1.4 million in the year ended January
31, 1996 compared to $2.6 million in the year ended January 31, 1995, which is
attributable to the significantly lower contract revenues at the Florida
remediation services operation as a result of the EDI Program changes. Gross
margins as a percentage of contract revenues at the Company's Florida
remediation services operation increased in the period ended January 31, 1996
compared to the period ended January 31, 1995. The Company's gross margin at
its Pennsylvania remediation services operation in the year ended January 31,
1996 decreased on higher contract revenues principally due to lower margins on
certain fixed price contracts.
Selling, general and administrative expenses increased to $2.2 million in the
year ended January 31, 1996 from $2.0 million in the year ended January 31,
1995. Although the Company implemented cost reductions at its Florida
remediation services operation, which included closing the Tallahassee office,
staff reductions at its Melbourne office and the reallocation of a portion of
its workforce to the Company's Pennsylvania remediation services operation,
these reductions were more than offset by increased marketing and bidding
activity in an effort to replace the revenues lost as a result of the EDI
Program changes. The Pennsylvania remediation services operation also
experienced an increase in selling, general and administrative expenses in the
year ended January 31, 1996 compared to the year ended January 31, 1995
associated with increased bidding activity. Selling, general and
administrative expenses associated with the Company's corporate office
remained constant when comparing the year ended January 31, 1996 and the year
ended January 31, 1995.
The Company had a loss from operations of $0.9 million in the year ended
January 31, 1996 compared to income from operations of $0.6 million in the
year ended January 31, 1995.
Interest expense decreased to $0.4 million in the period ended January 31,
1996 compared to $0.5 million in the period ended January 31, 1995. The
Company's interest expense in the period ended January 31, 1995 included
$94,000 related to the amortization of the estimated fair market value of
warrants. Although
<PAGE> 16
the Company's average interest rate was significantly lower in the period
ended January 31, 1996 compared to the period ended January 31, 1995 (11.5%
versus 14.7%), the average outstanding borrowings were fairly constant when
comparing the two periods. In addition, the Company was required to pay
ongoing interest expense on certain receivables which were funded by a third
party.
As the Company had a loss in the period ended January 31, 1996, no income
taxes were provided. The Company had an income tax provision from continuing
operations of $31,000 during the year ended January 31, 1995.
In connection with the sale of the thermal treatment facility of its
subsidiary, GeoLogic, the Company has reflected the operations of this entity
as discontinued for the year ended January 31, 1996 and the year ended January
31, 1995. The loss associated with the operation of this facility totalled
$0.8 million in the year ended January 31, 1996 compared with income from
discontinued operations of $0.6 million in the year ended January 31, 1995.
The significant loss from operations related to the Company's thermal
treatment facility in the year ended January 31, 1996 is the direct result of
the substantial reduction in volume processed at the facility combined with a
significantly lower price realized per ton processed, which the Company feels
is indirectly attributable to the EDI Program changes and the corresponding
impact of these changes on the thermal treatment market in the State of
Florida. The overall change in the thermal treatment market in the State of
Florida prompted the Company to sell the thermal treatment facility. The
Company also recorded a loss on the disposition of the thermal treatment
facility of $0.8 million in the period ended January 31, 1996.
The Company had an extraordinary gain on the extinguishment of debt of $0.2
million in the year ended January 31, 1995.
The Company had a net loss of $2.9 million or $1.16 per share in the year
ended January 31, 1996 compared to net income of $0.9 million or $0.48 per
share for the year ended January 31, 1995.
Liquidity and Capital Resources
- - -------------------------------
At December 31, 1996, the Company's cash and cash equivalents totalled $0.6
million, a net increase of $0.2 million from $0.4 million at January 31, 1996.
At December 31, 1996, the Company had $1.3 million held in escrow, compared to
$1.0 million at January 31, 1996.
The Company currently maintains two separate agreements with Sirrom
Environmental Funding, LLC (the "Sirrom Agreements") which have enabled the
Company, to fund amounts billed under the EDI Program at the prime rate of
interest (as defined) plus 2% for amounts up to $0.8 million and prime plus 3%
for additional amounts up to $4.0 million. The Company is advanced 100% of
amounts billed and is required to deposit 10% and 34%, respectively, of such
amounts into an escrow account to cover potential disallowances, future
interest costs, and a commitment fee. At December 31, 1996, the Company had
been advanced approximately $4.8 million under the Sirrom Agreements.
In May 1996, the State of Florida passed legislation which provides for State
funding of the existing backlog under the EDI Program through the issuance of
bonds, thereby enabling reimbursement applications submitted under the EDI
Program to be paid on an accelerated basis. However, accelerated payments are
to be discounted at the rate of 3.5% effective January 1, 1997, and the
present value of an application will be based upon the accelerated settlement
date of a reimbursement application rather than the original settlement date.
The Company anticipates that this process will include the early release of
the cash which the Company holds in escrow, and the termination of interest
obligations in the third or fourth quarter of
<PAGE> 17
1997. The Company will not be able to determine the impact of discounting on
its operating results until a schedule of anticipated payment dates is
established. However, the Company may be required to record an adjustment to
reflect the negative impact of the discounting on its results of operations
and financial condition.
In January 1997, the Company established a line of credit with Drummond in the
amount of $0.3 million. The Company also established a line of credit in
January 1997 with another lender in the amount of $0.8 million to fund the
working capital requirements of the McCook Facility.
Net cash provided by operating activities was $0.4 million for the period
ended December 31, 1996, compared to $2.3 million for the period ended January
31, 1996. Operating activities provided cash primarily as a result of the
Company's reduction in accounts receivables of $1.2 million in the 11 months
ended December 31, 1996. In the year ended January 31, 1996, account
receivables were reduced by $3.3 million.
Investing activities used cash of approximately $83,000 in the period ended
December 31, 1996 compared to using cash of $58,000 in the period ended
January 31, 1996, primarily as a result of the purchase of property and
equipment of $115,000 and $58,000, respectively.
Financing activities used cash of $25,000 in the period ended December 31,
1996 compared to using cash of $1.9 million in the period ended January 31,
1996. In the period ended January 31, 1996, the Company used proceeds from
its initial public offering and the refinancing of indebtedness under lines of
credit to make principal payments on certain indebtedness.
The Company believes that the cash generated from operations and its lines of
credit should enable the Company to meet its ongoing liquidity requirements.
The Company is closely monitoring its liquidity requirements and continues to
implement cost reductions and conserve cash as necessary.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required with
respect to this Item 8, and as listed in Item 14 of this annual report, are
included in this annual report commencing on page 21.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Company's definitive proxy statement to be
filed within 120 days of the end of the Company's fiscal year.
<PAGE> 18
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Company's definitive proxy statement to be
filed within 120 days of the end of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the Company's definitive proxy statement to be
filed within 120 days of the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's definitive proxy statement to be
filed within 120 days of the end of the Company's fiscal year.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
INDEX
(a) (1) FINANCIAL STATEMENTS
Independent Auditors' Report
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(3) LIST OF EXHIBITS
2.1 Agreement and Plan of Merger dated October 1, 1996 between ICHOR
Corporation and PDG Remediation, Inc. Incorporated by reference to
Schedule 14C dated September 17, 1996.
3.1 Articles of Incorporation.(1)
3.2 Bylaws.(1)
<PAGE> 19
10.1 Warrant Agency Agreement.(2)
10.2 Form of Representative's Warrant Agreement between the Company and
Coleman and Company Securities, Inc.(2)
10.3 Loan Agreement between Drummond Financial Corporation (formerly
CVD Financial Corporation) and ICHOR Services, Inc. (formerly PDG
Environmental Services, Inc.) dated October 28, 1993 in the amount
of $2,500,000.(2)
10.4 Amended and Restated Loan Agreement between Drummond Financial
Corporation (formerly CVD Financial Corporation) and ICHOR
Services, Inc. (formerly PDG Environmental Services, Inc.) dated
September 6, 1994 in the amount of $4,000,000.(2)
10.5 Loan Modification dated February 8, 1995 among Drummond Financial
Corporation (formerly CVD Financial Corporation), the Company and
certain other companies.(2)
10.6 Master Funding and Indemnification Agreement between ICHOR
Services, Inc. (formerly PDG Environmental Services, Inc.) and
Sirrom Environmental Funding, LLC dated August 21, 1995.
Incorporated by reference to the Company's quarterly report on
Form 10-Q for the quarter ended July 31, 1995.
10.7 Master Funding and Indemnification Agreement between ICHOR
Services, Inc. (formerly PDG Environmental Services, Inc.) and
Sirrom Environmental Funding, LLC dated January 27, 1995.
Incorporated by reference to the Company's quarterly report on
Form 10-Q for the quarter ended October 31, 1995.
10.8 Warrant Agreement between the Company and Sirrom Environmental
Funding, LLC dated August 21, 1995.(1)
10.9 Letter Agreements dated July 15, 1994 among J.A. Jones
Construction Services Company, the Company and U.S. Navy Contract
N62470-23-D-3033.(2)
10.10 Subcontract Agreement between J.A. Jones Construction Services
Company and ICHOR Services, Inc. (formerly PDG Environmental
Services, Inc.).(2)
10.11 Amended 1994 Stock Option Plan.(3)
10.12 1995 Qualified Incentive Stock Option Plan.(3)
10.13 Employment contract for John M. Musacchio dated November 30,
1995.(1)
10.14 Purchase Agreement dated as of January 31, 1996 between Specialty
Environmental, Inc. and the Company.(1)
10.15 Purchase Agreement dated December 13, 1996 between the Company and
Logan International Corp.(4)
<PAGE> 20
10.16 Order of Court of the Honorable Jack B. Schmeitterer of the United
States Bankruptcy Court of the Northern District of Illinois,
Eastern Division approving the sale of assets of Enviropur Waste
Refining and Technology, Inc. to Ortek Inc. (formerly BC Ventures
Limited).(4)
10.17 Loan Agreement dated January 15, 1997 between Ortek Inc. and
Volendam Investments Limited.
10.18 Loan Agreement dated January 15, 1997 among Drummond Financial
Corporation, the Company and ICHOR Services, Inc.
11 Statement re computation of per share earnings.
21 List of subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Article 5 - Financial Data Schedule for the 11 months ended
December 31, 1996.
- - ---------------------
(1) Incorporated by reference to the Company's Form 10-K dated
January 31, 1996.
(2) Incorporated by reference to the Company's registration statement
on Form S-1 (No. 33-82092).
(3) Incorporated by reference to ICHOR Corporation's Definitive Schedule
14A dated July 8, 1996.
(4) Incorporated by reference to the Company's Form 8-K dated
December 17, 1996.
(b) REPORTS ON FORM 8-K
Reports on Form 8-K were filed on the following dates reporting under the
indicated items:
Dated November 19, 1996
Item 1. Change in Control of Registrant.
Item 5. Other Events.
Dated December 17, 1996
Item 1. Change in Control of Registrant.
Item 2. Acquisition or Disposition of Assets.
Item 7. Financial Statements and Exhibits.
Form 8-K/A dated December 17, 1996
Item 1. Change in Control of Registrant.
Item 7. Financial Statements and Exhibits.
Dated January 10, 1996
Item 4. Changes in Registrant's Certified Accountant.
Item 5. Other Information.
<PAGE> 21
- - ------------------------------------------------------------------------------
PETERSON SULLIVAN P.L.L.C.
601 Union Street Suite 2300 Seattle WA 98101 (206) 382-7777 fax 382-7700
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Ichor Corporation and Subsidiaries
We have audited the consolidated balance sheet of Ichor Corporation and
Subsidiaries (formerly PDG Remediation, Inc.) as of December 31, 1996, and the
related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the eleven months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated balance sheet of Ichor Corporation and
Subsidiaries as of January 31, 1996, and the consolidated statements of
operations, changes in shareholders' equity, and cash flows for the years
ended January 31, 1996 and 1995, were audited by other auditors whose report
dated March 8, 1996, (except for Note 3, the date of which was April 25,
1996), expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ichor
Corporation and Subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the eleven months then ended in conformity
with generally accepted accounting principles.
/s/ Peterson Sullivan P.L.L.C.
February 21, 1997
Seattle, Washington
<PAGE> 22
- - ------------------------------------------------------------------------------
ERNST & YOUNG LLP One Oxford Centre Phone 412 644 7800
Pittsburgh, Pennsylvania 15219
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Ichor Corporation
We have audited the accompanying consolidated balance sheet of Ichor
Corporation (formerly PDG Remediation, Inc.) (the "Company") as of January 31,
1996, and the related consolidated statements of operations, shareholder's
equity, and cash flows for each of the two years in the period ended January
31, 1996. Our audits also included the accompanying financial statement
schedules. These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Ichor Corporation (formerly PDG Remediation, Inc.) at January 31, 1996, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended January 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 8, 1996, except for Note 3
as to which the date is April 25, 1996
<PAGE> 23
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and January 31, 1996
(In Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, January 31,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 628 $ 362
Cash held in escrow 1,254 968
Accounts receivable, less allowance for doubtful
accounts of $690 and $724 at December 31, 1996
and at January 31, 1996, respectively 434 1,626
Costs and estimated earnings in excess of billings
on uncompleted contracts 419 2,320
Prepaid expenses 157 137
------------ ------------
Total current assets 2,892 5,413
Property and Equipment, at cost 3,674 180
Other Assets 42 21
------------ ------------
$ 6,608 $ 5,614
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 531 $ 1,060
Other accrued liabilities 282 539
Accrued loss on discontinued operations - 140
Due to affiliate 420 -
Due to former parent - 117
Current portion of long-term debt 477 1,300
------------ ------------
Total current liabilities 1,710 3,156
Long-Term Liabilities
Debt 1,956 20
Other 955 -
------------ ------------
2,911 20
------------ ------------
Total Liabilities 4,621 3,176
Shareholders' Equity
Common stock, $.01 par value; 30,000,000
shares authorized; shares issued 4,970,320
at December 31, 1996 and 2,470,320 at
January 31, 1996 50 25
Preferred stock, $.01 par value; 5,000,000
shares authorized; none issued and outstanding - -
Additional paid-in capital 5,743 4,768
Retained deficit (3,754) (2,355)
------------ ------------
2,039 2,438
Less cost of 47,600 shares of common stock held
in treasury (52) -
------------ ------------
1,987 2,438
------------ ------------
$ 6,608 $ 5,614
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 24
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Eleven Months Ended December 31, 1996 and Years Ended
January 31, 1996 and 1995
(In Thousands of Dollars, Except for Per Share Amounts)
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Contract revenues $ 4,050 $ 4,779 $ 9,361
Contract costs 3,056 3,393 6,793
------------ ------------ ------------
994 1,386 2,568
Selling, general and
administrative expenses 2,205 2,244 1,954
------------ ------------ ------------
Income (loss) from operations (1,211) (858) 614
Other income (expense)
Interest expense (423) (406) (418)
Amortization of estimated fair
value of warrants - - (94)
Other 145 14 13
------------ ------------ ------------
(278) (392) (499)
------------ ------------ ------------
Income (loss) from continuing
operations before income taxes (1,489) (1,250) 115
Provision for income taxes - - 31
------------ ------------ ------------
Income (loss) from continuing
operations before extraordinary
item (1,489) (1,250) 84
Discontinued operations
Income (loss) from operations of
soil remediation facility (less
applicable income taxes of $159
for the year ended January 31, 1995) 90 (768) 590
Loss on disposal of soil remediation
facility - (840) -
------------ ------------ ------------
Income (loss) from discontinued
operations 90 (1,608) 590
------------ ------------ ------------
Income (loss) before extraordinary
item (1,399) (2,858) 674
Extraordinary item, gain on
extinguishment of debt(less
applicable income taxes of $60) - - 222
------------ ------------ ------------
Net income (loss) $ (1,399) $ (2,858) $ 896
============ ============ ============
Net income (loss) per common share
Income (loss) from continuing
operations $ (.58) $ (.51) $ .04
Discontinued operations .04 (.65) .32
Extraordinary item - - .12
------------ ------------ ------------
$ (.54) $ (1.16) $ .48
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 25
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Eleven Months Ended December 31, 1996 and Years Ended
January 31, 1996 and 1995
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Number Additional Retained
of Common Common Paid-in Treasury Earnings
Shares Stock Capital Stock (Deficit) Total
--------- ------ ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January
31, 1994 1,870,320 $ 19 $ 2,613 $ - $ (393) $ 2,239
Net Income for year
ended January 31,
1995 - - - 896 896
Revaluation of fair
market value of
375,000 warrants - (140) - - (140)
--------- ------ ---------- -------- --------- -------
Balance at January
31, 1995 1,870,320 19 2,473 - 503 2,995
Net loss for year
ended January 31,
1996 - - - (2,858) (2,858)
Common shares sold
in public offering 600,000 6 2,145 - - 2,151
Warrants sold in
initial public
offering - 100 - - 100
Issuance of 100,000
warrants - 50 - - 50
--------- ------ ---------- -------- --------- -------
Balance at January
31, 1996 2,470,320 25 4,768 - (2,355) 2,438
Net loss for eleven
months ended
December 31, 1996 - - - (1,399) (1,399)
Common shares issued
in the acquisition
of wholly-owned
subsidiary 2,500,000 25 975 - - 1,000
Repurchase of 47,600
shares of common
stock held in
treasury (47,600) - - (52) - (52)
--------- ------ ---------- -------- --------- -------
Balance at December
31, 1996 4,922,720 $ 50 $ 5,743 $ (52) $ (3,754) $ 1,987
========= ====== ========== ======== ========= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 26
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Eleven Months Ended December 31, 1996 and Years Ended January 31, 1996 and 1995
(In Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (1,399) $ (2,858) $ 896
Adjustments to reconcile net income
(loss) to cash flows from operating
activities
Provision for disposal of
discontinued operation - 840 -
Depreciation and amortization 189 239 224
Provision for losses on accounts
receivables 40 387 225
Gain on settlement of insurance
company accrual (149) - -
Extraordinary item - - (166)
Other 14 (8) 96
Changes in current assets and liabilities
Cash held in escrow (286) (817) (151)
Accounts receivable 1,176 3,279 (3,235)
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,901 2,063 (2,010)
Borrowings from (repayments to)
former parent (117) (541) 758
Prepaid expenses (40) (142) (40)
Accounts payable (530) 23 475
Billings in excess of costs and estimated
earnings on uncompleted contracts - (126) 46
Advances from parent 193 - -
Net assets of discontinued operations - (263) (36)
Other accrued liabilities (597) 202 7
Other (21) (3) 2
------------ ------------ ------------
Net cash provided by (used in)
operating activities 374 2,275 (2,909)
Cash Flows from Investing Activities
Purchase of property and equipment (115) (58) (134)
Proceeds from sale of property and
equipment 32 - 116
------------ ------------ ------------
Net cash used in investing
activities (83) (58) (18)
Cash Flows from Financing Activities
Proceeds from issuance of common shares - 2,151 -
Proceeds from warrants sold - 100 -
Purchase of stock held in treasury (52) - -
Proceeds from debt 51 3,676 3,688
Principal payments on debt (24) (7,789) (862)
------------ ------------ ------------
Net cash provided by (used in)
financing activities (25) (1,862) 2,826
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents 266 355 (101)
Cash and cash equivalents, beginning
of year 362 7 108
------------ ------------ ------------
Cash and cash equivalents, end
of year $ 628 $ 362 $ 7
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 27
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except for Per Share Amounts)
NOTE 1. THE CORPORATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History
- - -------
Ichor Corporation and Subsidiaries, formerly PDG Remediation, Inc. ("the
Corporation"), operated as a wholly-owned subsidiary of PDG Environmental,
Inc. ("PDGE") until February 1995, when 1,000,000 shares of the Corporation's
common stock and 1,000,000 warrants were sold to the public. The Corporation
sold 600,000 newly issued common shares and 1,000,000 warrants and received
net proceeds of approximately $2,251. PDGE sold 400,000 shares of the
Corporation's common stock it held which reduced its interest to approximately
59.5%. The warrants entitle the holder to purchase one share of common stock
at a $6 exercise price. The warrants may be exercised at any time and expire
on February 8, 2000.
Effective July 31, 1996, Drummond Financial Corporation ("Drummond") acquired
PDGE's interest in the Corporation. The acquisition was part of a plan by
Drummond's parent to financially restructure Drummond's loans outstanding to
other entities. As part of this acquisition, the Corporation changed its year
end to December 31 from January 31.
In December 1996, another subsidiary of Drummond's parent, Logan International
Corporation ("Logan"), acquired a 50.3% interest in the Corporation as part of
the transaction described in Note 2. At this point, Drummond's interest was
reduced to 29.6%.
Business Activities
- - -------------------
The Corporation is involved in the environmental industry, providing
environmental remediation services to the public and private sectors and
recycling waste oil at a facility located in Illinois. Remediation services
include assisting clients located primarily in the eastern U.S. in complying
with environmental laws and regulations, such as those concerning leaking
underground storage tanks and contaminated industrial facilities.
<PAGE> 28
NOTE 1. (CONTINUED)
Change in Fiscal Year
- - ---------------------
The change in the Corporation's fiscal year end resulted in an eleven month
period in 1996. Unaudited pro forma condensed consolidated results of
operations for the comparable 1995 and 1994 periods are as follows:
<TABLE>
<CAPTION>
Eleven months ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Contract revenues $ 4,050 $ 4,645 $ 8,776
Contract costs (3,056) (3,172) (6,520)
Selling, general and
administrative expenses (2,205) (1,974) (1,818)
Other expenses, net (278) (359) (442)
Provision for income taxes - - (36)
------------ ------------ ------------
Income (loss) from continuing
operations (1,489) (860) (40)
Discontinued operations 90 (732) 525
Extraordinary item - - 222
------------ ------------ ------------
Net income (loss) $ (1,399) $ (1,592) $ 707
============ ============ ============
Net income (loss) per common share
Loss from continuing
operations $ (.58) $ (.35) $ (.02)
Discontinued operations .04 (.30) .28
Extraordinary item - - .12
------------ ------------ ------------
$ (.54) $ (.65) $ .38
============ ============ ============
</TABLE>
The unaudited proforma results have been prepared for comparability purposes
only and may not necessarily reflect the results of operations had the 1995
and 1994 fiscal periods actually included eleven months.
Principles of Consolidation
- - ---------------------------
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries. Significant intercompany accounts and transactions of
continuing operations have been eliminated.
<PAGE> 29
NOTE 1. (CONTINUED)
Methods of Accounting for Contracts
- - -----------------------------------
Revenues for environmental remediation services on lump sum contracts are
recognized on the percentage-of-completion method, measured by the percentage
of costs incurred to date of total estimated contract costs. Revenues for
environmental remediation services on time-and-materials contracts are
recognized based on estimated multipliers applied to cost incurred to date.
These margins are adjusted to actual as the contract is completed.
Contract costs include direct labor and material costs and those indirect
costs related to contract performance, such as supplies, tools, depreciation,
repairs and insurance. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted
contracts are recognized in the period in which such losses are determined.
Because of the inherent uncertainties in estimating costs, it is at least
reasonably possible that the estimates used may change in the near term.
Cash and Cash Equivalents
- - -------------------------
Cash and cash equivalents consists principally of demand deposits at
commercial banks. Cash balances are occasionally in excess of federally
insured amounts.
Cash Held in Escrow
- - -------------------
Cash held in escrow represents amounts which are subject to withdrawal
restrictions and principally relate to a funding arrangement with Sirrom
Environmental Funding, LLC, described in Note 8, and work performed as a
subcontractor to certain companies.
Environmental Conservation
- - --------------------------
Liabilities for environmental conservation are recorded when it is probable
that obligations have been incurred and the amounts can be reasonably
estimated. Any potential recoveries of such liabilities are recorded when
there is an agreement with a reimbursing entity.
Taxes on Income
- - ---------------
The Corporation accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for expected future tax consequences of events that have been recognized in
the Corporation's financial statements or tax returns. In estimating future
tax consequences, the Corporation generally considers all expected future
events other than enactments of changes in the tax laws or rates.
<PAGE> 30
NOTE 1. (CONTINUED)
Earnings Per Share
- - ------------------
Earnings or loss per common share has been computed based upon the weighted
average number of common shares outstanding for the eleven months ended
December 31, 1996, and the years ended January 31, 1996 and 1995. Stock
options and warrants have not been reflected as exercised for purposes of
computing earnings or loss per share since the exercise of such options and
warrants would be antidilutive. The weighted average number of shares was
2,585,590, 2,456,000 and 1,870,320 for the eleven months ended December 31,
1996 and the years ended January 31, 1996 and 1995, respectively.
Depreciation
- - ------------
Property and equipment are depreciated over the estimated useful lives of the
assets using the straight-line method. Permits are amortized over a 40-year
period representing their estimated economic lives.
Use of Estimates
- - ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation
- - ------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Corporation has chosen to account for stock-based compensation using
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Corporation's stock at
the date of the grant over the amount an employee is required to pay for the
stock.
Reclassifications
- - -----------------
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
NOTE 2. ACQUISITION
In December 1996, the Corporation acquired all of the outstanding common
shares of a corporation which currently owns the waste oil recycling facility.
The subsidiary was acquired from Logan in
<PAGE> 31
NOTE 2. (CONTINUED)
exchange for 2.5 million shares of the Corporation's common stock and a
promissory note in the amount of $1,425. The cost of the assets acquired in
this nonmonetary transaction was approximately $3,619 and approximately $1,194
in liabilities were assumed. Because of the bankruptcy proceeding which
included the facility, as discussed below, no reliable financial information
with respect to the facility's results of operations are available prior to
December 21, 1996.
The acquired subsidiary's assets and liabilities include only those which
relate to the waste oil recycling facility. The facility had originally been
a part of an entity which declared bankruptcy. That entity had a secured loan
outstanding from Drummond when it declared bankruptcy. Through a series of
transactions, Logan acquired the subsidiary which held the loan. The loan was
valued at $2,425 based primarily on the independent appraisal of the waste oil
recycling facility. The subsidiary acquired the facility and its related
liabilities from the bankrupt estate on December 20, 1996. The facility was
not operated by the Corporation during 1996.
NOTE 3. DISCONTINUED OPERATION
In prior years, the Corporation provided services associated with the
decontamination of petroleum contaminated soils at its facility in Florida.
The services were supported by a state-sponsored program ("the Florida
program"). Because of significant changes in the Florida program, the
Corporation developed a plan during 1996 to exit the Florida soil remediation
market. As a result, the Corporation has accounted for this segment of its
business as a discontinued operation as of January 31, 1996.
The Corporation recorded a loss on disposition of $840 in the year ended
January 31, 1996, comprised of a write-off of the segment's net assets and a
$140 provision for costs associated with disposition. Net sales of the
segment were $1,500 and $3,900 for the years ended January 31, 1996 and 1995,
respectively. The income amount at December 31, 1996, results from a
reduction in the reserve for operating losses on the discontinued operation
established at January 31, 1996.
NOTE 4. ACCOUNTS RECEIVABLE AND MAJOR CUSTOMERS
During the eleven months ended December 31, 1996, revenues from three
customers were 66% of total revenues. During the year ended January 31, 1996,
revenues from one customer were 24% of total revenues. For the year ended
January 31, 1995, no single customer contributed 10% or more of the
Corporation's total revenues. It is the Corporation's policy not to require
collateral with respect to outstanding receivables. The Corporation
continuously reviews the creditworthiness of customers and, when necessary,
requests collateral to secure the performance of services.
<PAGE> 32
NOTE 4. (CONTINUED)
The Corporation has contracts to provide services involving the remediation of
underground storage tank sites for private customers under the Florida
program. Receivables under this program at December 31, 1996, January 31,
1996 and January 31, 1995, totaled $771, $2,000 and $4,942, respectively.
During the eleven months ended December 31, 1996, and the years ended January
31, 1996 and 1995, revenues equal to 19.9%, 60.9% and 79.7%, respectively, of
total revenues were attributable to this program.
The Corporation performed services as a subcontractor to companies with
respect to the Florida program. In certain circumstances, the Corporation has
provided an indemnification for any amounts which are not reimbursed. At
December 31, 1996, January 31, 1996 and January 31, 1995, the Corporation had
provided such indemnifications for $4,596, $7,011 and $3,137, respectively, of
work performed pursuant to such subcontractor arrangements. The Corporation
has provided for any potential future losses associated with these
indemnifications as part of its allowance for doubtful accounts.
NOTE 5. TRANSACTIONS WITH AFFILIATES
In addition to the transactions with Drummond and Logan discussed in Notes 1
and 2, the Corporation has advances from Drummond that total $420 at December
31, 1996. The advances are expected to be paid in March 1997.
During the year ended January 31, 1996, PDGE provided the Corporation with
certain management services principally related to insurance coverage and the
rental of office space. At January 31, 1996, the Corporation had an
outstanding payable of $117 to PDGE related to these services and the
settlement of intercompany balances subsequent to the initial public offering.
This amount was paid during the eleven months ended December 31, 1996.
During the years ended January 31, 1996 and 1995, PDGE provided certain
accounting and executive services on the basis of a management services
agreement between the entities. The charge for such services was $51 for the
year ended January 31, 1996, and $814 for the year ended January 31, 1995.
This relationship was terminated during the year ended January 31, 1996.
<PAGE> 33
NOTE 6. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
December 31, January 31,
1996 1996
------------ -----------
<S> <C> <C>
Revenues earned on uncompleted contracts $ 3,801 $ 4,539
Less billings to date 3,382 2,219
------------ -----------
$ 419 $ 2,320
============ ===========
</TABLE>
At December 31, 1996 and January 31, 1996, net under billings included $116
and $2,062, respectively, of amounts which were to be billed upon the
completion of certain program tasks as defined under the Florida program.
NOTE 7. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, January 31,
1996 1996
------------ -----------
<S> <C> <C>
Land, building and equipment $ 2,291 $ 617
Permits 1,750 -
------------ -----------
4,041 617
Less accumulated depreciation (367) (437)
------------ -----------
$ 3,674 $ 180
============ ===========
</TABLE>
NOTE 8. LINES OF CREDIT
On January 27, 1995, a wholly-owned subsidiary of the Corporation entered into
a credit agreement with Sirrom Environmental Funding, LLC, ("the Sirrom
Agreement") which provided $750 of funding in connection with clean-up
activities under the Florida program. The Sirrom Agreement enabled the
Corporation to fund the amounts which the Corporation billed under the Florida
program at the prime rate of interest, as defined, plus 2%. The ability to
draw on additional funding under the Sirrom Agreement expires on January 27,
1997. The Corporation is advanced 100% of amounts billed, and is required to
deposit 10% into an escrow account to cover potential disallowances. As of
December 31, 1996, and January 31, 1996, funding under this program was
approximately at its maximum level.
<PAGE> 34
NOTE 8. (CONTINUED)
On August 21, 1995, a wholly-owned subsidiary of the Corporation entered into
a second credit agreement with Sirrom Environmental Funding, LLC ("Second
Sirrom Agreement"), which provided $4,000 of funding relative to unbilled
amounts under the Florida program. The Second Sirrom Agreement, which expires
on August 21, 1997, enabled the Corporation to fund amounts billed at the
prime rate of interest, as defined, plus 3%. Although the Corporation is
advanced 100% of amounts billed, it is required to deposit 34% into an escrow
account to cover potential disallowances, future interest costs, and a
commitment fee of 2% of the total funding provided. The Corporation also
issued a warrant to purchase 100,000 shares of the Corporation's common stock
to Sirrom Environmental Funding, LLC at an exercise price of $1.37 per share
in conjunction with the execution of the Second Sirrom Agreement. The warrant
expires on January 31, 1999. The Corporation has recorded $50 as the
estimated fair market value of the warrant. As of December 31, 1996, and
January 31, 1996, the Corporation was advanced approximately $4,000 and $1,868
under the Second Sirrom Agreement, respectively.
The Corporation has a commitment for a $750 line of credit from another lender
which was established in 1997.
NOTE 9. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, January 31,
1996 1996
------------ -----------
<S> <C> <C>
Note payable to Logan as discussed in
Note 2, due December 1999, interest at
8% payable monthly, collateralized by
waste oil recycling facility $ 1,425 $ -
Amounts due to an insurance company in
monthly payments of $38. No interest is
charged on this debt. No interest has
been imputed since the amount is not
deemed material 945 1,284
Other notes payable with interest rates
ranging from 6.75% to 14.3% with various
maturities 63 36
------------ -----------
2,433 1,320
Less current portion 477 1,300
------------ -----------
$ 1,956 $ 20
============ ===========
</TABLE>
<PAGE> 35
NOTE 9. (CONTINUED)
Principal maturities for the years ending December 31 are as follows:
<TABLE>
<S> <C>
1997 $ 477
1998 476
1999 1,477
2000 3
-----------
Total $ 2,433
===========
</TABLE>
The Corporation paid approximately $442, $643 and $767 for interest costs
during the eleven months ended December 31, 1996, and the years ended January
31, 1996 and 1995.
The fair value of the note payable to Logan and other notes payable are
estimated to approximate the recorded values. The fair value of the amount
due to an insurance company is estimated to be $895 at December 31, 1996.
Fair values are based on the terms of the related debt.
NOTE 10. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of a reserve for environmental liability
and federal taxes.
The reserve for environmental liability cost amounts to $800 at December 31,
1996 and represents expected soil and groundwater remediation costs at the
waste oil recycling facility. However, the ultimate cost may differ from the
amount presently accrued.
NOTE 11. INCOME TAXES
The Corporation had net operating loss carryforwards of approximately $4,600
and $2,800 at December 31, 1996, and January 31, 1996, respectively. Of the
$4,600 carryover as of December 31, 1996, $500 expires in 2004, $1,800 expires
in 2010, and $2,300 expires in 2011. The Corporation's utilization of the
losses will be limited to the long-term exempt rate applied to the value of
the Corporation on an annual basis.
For financial reporting purposes, a valuation allowance of approximately
$1,945 and $1,003 was recognized at December 31, 1996 and January 31, 1996,
respectively, to offset the deferred tax asset related to these carryforwards
and other deferred tax assets. The valuation allowance increased during the
year ended January 31, 1996, and the eleven months ended December 31, 1996,
due to the uncertainty of utilizing operating tax losses in future years.
<PAGE> 36
NOTE 11. (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The significant components of
the Corporation's deferred tax assets as of December 31, 1996, and January 31,
1996, are as follows:
<TABLE>
<CAPTION> December 31, January 31,
1996 1996
------------ -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ - $ 414
Deferred tax assets:
Accounts receivable allowance 213 284
Net operating loss carryforwards 1,732 1,046
Other - 87
------------ -----------
Net deferred tax assets before
valuation allowance 1,945 1,003
Valuation allowance for deferred
tax assets (1,945) (1,003)
------------ -----------
Net deferred tax assets $ - $ -
============ ===========
</TABLE>
Significant components of the provision for income taxes on continuing
operations are as follows:
<TABLE>
<CAPTION> Eleven
months ended
December 31, Years ended January 31,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ 8
State - - 23
------------ ------------ ------------
Total income tax provision $ - $ - $ 31
============ ============ ============
</TABLE>
The reconciliation of income tax computed at the federal statutory rates to
income tax expense is as follows:
<TABLE>
<CAPTION>
Eleven
months ended
December 31, Years ended January 31,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rate $ (532) $ (425) $ 39
Limitation (benefit) of net
operating loss utilization 915 423 (24)
Other (383) 2 16
------------ ------------ ------------
$ - $ - $ 31
============ ============ ============
</TABLE>
<PAGE> 37
NOTE 12. STOCK OPTION PLANS
1994 Amended Stock Option Plan
- - ------------------------------
The Corporation maintains a stock option plan which provides for the issuance
of up to 350,000 shares of the Corporation's common stock to employees and
non-employee directors. Options to purchase 137,500 shares were granted on
July 21, 1994, at an option price of $5.00 per share, of which options to
purchase 93,500 shares were fully vested. The remaining options vest one
third each year following the date of grant.
Options to purchase an additional 15,000 shares of the Corporation's common
stock were granted on May 23, 1995, at an exercise price of $1.91 per share
and options to purchase 5,000 shares of the Corporation's common stock were
granted on December 13, 1995, at an exercise price of $.75 per share. These
options vest one third each year following the date of grant.
On October 2, 1995, pursuant to the terms of the stock option plan, options to
purchase 2,500 shares of the Corporation's common stock were granted to the
Corporation's non-employee directors at an exercise price of $1.34 per share.
These options vested on the date of grant.
On December 13, 1995, the Corporation's outstanding options priced at $1.34,
$1.91 and $5.00 per share were repriced to $.75 per share. After repricing,
the fair value of options granted during the year ended January 31, 1996, was
$109 (weighted average fair value per option of $.74).
On August 22, 1996, pursuant to the terms of the stock option plan, options to
purchase 2,500 shares of the Corporation's common stock were granted to
certain non-employee directors of the Corporation at an exercise price of
$1.00 per share. These options vested on the date of the grant.
On September 3, 1996, options to purchase 40,000 shares of the Corporation's
common stock were granted to certain non-employee directors at an exercise
price of $1.1875 per share. These options vested at the date of the grant.
The fair value of options granted during the eleven months ended December 31,
1996, was $50 (weighted average fair value per option of $1.18).
<PAGE> 38
NOTE 12. (CONTINUED)
The following table summarizes information with respect to the 1994 Amended
Stock Option Plan.
<TABLE>
<CAPTION>
Weighted*
Average
Number of Exercise
Shares Price
--------- ---------
<S> <C> <C>
Outstanding at January 31, 1994 - $ -
Granted 137,500 .75
---------
Outstanding at January 31, 1995 137,500 .75
Granted 22,500 .75
Canceled - Reusable (12,500) .75
---------
Outstanding at January 31, 1996 147,500 .75
Granted 42,500 1.18
Canceled - Reusable (10,500) .75
---------
Outstanding at December 31, 1996 179,500 $ .81
========= =========
Exercisable at December 31, 1996 160,330 $ .86
========= =========
Reserved for future grants at
December 31, 1996 170,500
=========
</TABLE>
* As repriced at December 13, 1995.
All options have an expiration date ten years after issuance. No options have
been exercised.
1995 Qualified Incentive Stock Option Plan
- - ------------------------------------------
The Corporation's board of directors approved a second stock option plan on
August 15, 1996. This plan provides for the issuance of up to 150,000 shares
of the Corporation's common stock to key employees. Options to purchase
150,000 shares were granted on August 15, 1996, at an option price of $.75 per
share. All these options immediately vested. Due to a termination, options
to purchase 25,000 shares were relinquished. These options are reserved for
future grants. The fair value of options granted during the eleven months
ended December 31, 1996, was $89 (weighted average fair value per option of
$.72).
<PAGE> 39
NOTE 12. (CONTINUED)
The following table summarizes information with respect to the 1995 Qualified
Incentive Stock Option Plan:
<TABLE>
<CAPTION>
Weighted*
Average
Number of Exercise
Shares Price
--------- ---------
<S> <C> <C>
Outstanding at January 31, 1996 - $ -
Granted 150,000 .75
Canceled - Reusable (25,000) .75
---------
Outstanding at December 31, 1996 125,000 $ .75
========= =========
Exercisable at December 31, 1996 125,000 $ .75
========= =========
Reserved for future grants at
December 31, 1996 25,000
=========
</TABLE>
All options have an expiration date ten years after issuance. No options have
been exercised.
Compensation
- - ------------
For both the 1994 Amended Stock Option Plan and the 1995 Qualified Incentive
Stock Option Plan, when options are granted, or the exercise price is
adjusted, the exercise price cannot be less than the fair market value of the
Corporation's common stock (as defined). In accordance with Accounting
Principles Board Opinion No. 25, no compensation expense was recognized. Had
compensation expense been recognized on the basis of fair value pursuant to
Statement of Financial Accounting Standards No. 123, net loss and per share
data would have been adjusted as follows:
<TABLE>
<CAPTION> December 31, January 31,
1996 1996
------------ -----------
<S> <C> <C>
Net loss
- - -----------------
As reported $ (1,399) $ (2,858)
============ ===========
Pro forma $ (1,551) $ (2,953)
============ ===========
Per share data
- - -----------------
As reported $ (.54) $ (1.16)
============ ===========
Pro forma $ (.60) $ (1.20)
============ ===========
</TABLE>
<PAGE> 40
NOTE 12. (CONTINUED)
The fair value of each option granted is estimated on the grant date using the
Black Scholes model. The assumptions used in calculating fair value are as
follows:
Risk-free interest rate 5.0%
Expected life of the options 10 years
Expected volatility 111.5%
Expected dividend yield 0.0%
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Corporation has been named as a defendant in a purported class action
lawsuit filed in U.S. Federal Court involving all persons and entities who
purchased the Corporation's common stock from February 9, 1995, the effective
date of the initial public offering, through May 23, 1995. The plaintiff is
seeking certification of the action as a class action and recision for the
purchase of shares of common stock by members of the purported class or
statutory damages, as well as interest, attorneys' fees and other costs and
expenses. The Corporation believes that the plaintiff's allegations are
without merit or that there are meritorious defenses, and intends to defend
the action vigorously. However, if the plaintiff is successful, it may have
an adverse effect on the Corporation. No liability has been recorded in
connection with this lawsuit.
The Corporation leases certain facilities and equipment under non-cancelable
operating leases. Rental expense under operating leases totaled $219 for the
eleven months ended December 31, 1996, and $286 and $210 for the years ended
January 31, 1996 and 1995, respectively. Minimum rental payments under these
leases with initial or remaining terms of one year or more at December 31,
1996, due during the next five fiscal years are as follows: 1997 - $163; 1998
- - - $148; 1999 - $133; 2000 - $22; and 2001 - $0.
<PAGE> 41
- - ------------------------------------------------------------------------------
PETERSON SULLIVAN P.L.L.C.
601 Union Street Suite 2300 Seattle WA 98101 (206) 382-7777 fax 382-7700
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders
Ichor Corporation and Subsidiaries
Our report on the consolidated financial statements of Ichor Corporation and
Subsidiaries is included on page 21 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedule listed in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Peterson Sullivan P.L.L.C.
February 21, 1997
Seattle, Washington
<PAGE> 42
ICHOR CORPORATION AND SUBSIDIARIES
(Formerly PDG Remediation, Inc.)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Eleven Months Ended December 31, 1996 and the Years Ended
January 31, 1996 and 1995
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged Balance at
beginning Charged to other close
of period to income accounts(1) Deductions(2) of period
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Eleven Months Ended
December 31, 1996
Allowance for
doubtful accounts $ 724 $ 40 $ 130 $ 204 $ 690
========== ========= ========== =========== =========
Year Ended
January 31, 1996
Allowance for
doubtful accounts $ 307 $ 387 $ - $ (30) $ 724
========== ========= ========== =========== =========
Year Ended
January 31, 1995
Allowance for
doubtful accounts $ 183 $ 225 $ - $ 101 $ 307
========== ========= =========== =========== =========
</TABLE>
(1) Allowance for uncollectibility to reflect the fair value of receivables
purchased; recorded at the date of acquisition of the waste oil
recycling facility
(2) Uncollectible accounts written off, net of recoveries
<PAGE> 43
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 18, 1997
ICHOR CORPORATION
By: /s/ Michael J. Smith
---------------------------------
Michael J. Smith, President,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Michael J. Smith March 18, 1997
- - -----------------------------------
Michael J. Smith
President, Chief Financial Officer,
Treasurer and Director
/s/ Roy Zanatta March 18, 1997
- - -----------------------------------
Roy Zanatta
Secretary and Director
/s/ John Musacchio March 18, 1997
- - -----------------------------------
John Musacchio
Director
/s/ Edgar Berkey March 18, 1997
- - -----------------------------------
Edgar Berkey
Director
/s/ Leonard Petersen March 18, 1997
- - -----------------------------------
Leonard Petersen
Director
<PAGE> 44
EXHIBIT INDEX
-------------
Exhibit Number Description
- - -------------- -----------
2.1 Agreement and Plan of Merger dated October 1, 1996
between ICHOR Corporation and PDG Remediation, Inc.
Incorporated by reference to Schedule 14C dated September
17, 1996.
3.1 Articles of Incorporation.(1)
3.2 Bylaws.(1)
10.1 Warrant Agency Agreement.(2)
10.2 Form of Representative's Warrant Agreement between the
Company and Coleman and Company Securities, Inc.(2)
10.3 Loan Agreement between Drummond Financial Corporation
(formerly CVD Financial Corporation) and ICHOR Services,
Inc. (formerly PDG Environmental Services, Inc.) dated
October 28, 1993 in the amount of $2,500,000.(2)
10.4 Amended and Restated Loan Agreement between Drummond
Financial Corporation (formerly CVD Financial
Corporation) and ICHOR Services, Inc. (formerly PDG
Environmental Services, Inc.) dated September 6, 1994 in
the amount of $4,000,000.(2)
10.5 Loan Modification dated February 8, 1995 among Drummond
Financial Corporation (formerly CVD Financial
Corporation), the Company and certain other companies.(2)
10.6 Master Funding and Indemnification Agreement between
ICHOR Services, Inc. (formerly PDG Environmental
Services, Inc.) and Sirrom Environmental Funding, LLC
dated August 21, 1995. Incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarter
ended July 31, 1995.
10.7 Master Funding and Indemnification Agreement between
ICHOR Services, Inc. (formerly PDG Environmental
Services, Inc.) and Sirrom Environmental Funding, LLC
dated January 27, 1995. Incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarter
ended October 31, 1995.
10.8 Warrant Agreement between the Company and Sirrom
Environmental Funding, LLC dated August 21, 1995.(1)
10.9 Letter Agreements dated July 15, 1994 among J.A. Jones
Construction Services Company, the Company and U.S. Navy
Contract N62470-23-D-3033.(2)
10.10 Subcontract Agreement between J.A. Jones Construction
Services Company and ICHOR Services, Inc. (formerly PDG
Environmental Services, Inc.).(2)
<PAGE> 45
10.11 Amended 1994 Stock Option Plan.(3)
10.12 1995 Qualified Incentive Stock Option Plan.(3)
10.13 Employment contract for John M. Musacchio dated November
30, 1995.(1)
10.14 Purchase Agreement dated as of January 31, 1996 between
Specialty Environmental, Inc. and the Company.(1)
10.15 Purchase Agreement dated December 13, 1996 between the
Company and Logan International Corp.(4)
10.16 Order of Court of the Honorable Jack B. Schmeitterer of
the United States Bankruptcy Court of the Northern
District of Illinois, Eastern Division approving the sale
of assets of Enviropur Waste Refining and Technology,
Inc. to Ortek Inc. (formerly BC Ventures Limited).(4)
10.17 Loan Agreement dated January 15, 1997 between Ortek Inc.
and Volendam Investments Limited.
10.18 Loan Agreement dated January 15, 1997 among Drummond
Financial Corporation, the Company and ICHOR Services,
Inc.
11 Statement re computation of per share earnings.
21 List of subsidiaries of the Registrant.
23 Consent of Independent Auditors
27 Article 5 - Financial Data Schedule for the 11 months
ended December 31, 1996.
- - -----------------
(1) Incorporated by reference to the Company's Form 10-K dated
January 31, 1996.
(2) Incorporated by reference to the Company's registration statement
on Form S-1 (No. 33-82092).
(3) Incorporated by reference to ICHOR Corporation's Definitive Schedule
14A dated July 8, 1996.
(4) Incorporated by reference to the Company's Form 8-K dated
December 17, 1996.
<PAGE> 1
THIS LOAN AGREEMENT is dated for reference and made effective the 15th day of
January, 1997,
BETWEEN:
ORTEK INC., a corporation organized under the laws of
Washington, and having an office at 300 Oxford Drive,
Monroeville, PA 15146
(hereinafter called the "Borrower")
OF THE FIRST PART
AND:
VOLENDAM INVESTMENTS LIMITED, a corporation,
organized under the laws of Washington and having an
address care of Veerkade 2, NL-3016 de Rotterdam,
Netherlands
(hereinafter called the "Lender")
OF THE SECOND PART
WHEREAS the Borrower has requested that the Credit Facility (hereinafter
defined) be made available by the Lender to the Borrower;
AND WHEREAS the Lender has agreed to make the Credit Facility available to the
Borrower upon the terms and conditions set out herein;
NOW THEREFORE THIS LOAN AGREEMENT WITNESSES THAT in consideration of the
respective agreements hereinafter set forth and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto acknowledge, declare, covenant and agree as follows:
ARTICLE I
1. INTERPRETATION
1.1 Definitions
-----------
When used in this Loan Agreement (including the recitals) or in any amendment
or schedule hereto, the following terms shall, unless otherwise expressly
provided, have the following meanings, respectively:
<PAGE> 2
"Advance Date" means with respect to each Advance the date upon which such
Advance shall be made by the Lender to the Borrower;
"Advances" means advances made by the Lender to the Borrower or at the
Borrower's direction from time to time pursuant to the provisions hereof, and
includes Past Advances and "Advance" means any such advance;
"Ancillary Documents" means, collectively, the Note, the General Security
Agreement, the Mortgage and the Guarantee and "Ancillary Document" means any
one of them;
"Banking Day" means a day on which the Main Branch of the Royal Bank of Canada
is open for business in Vancouver, British Columbia;
"Commitment Fee" means $15,000;
"Credit Facility" means the credit facility in the Principal Sum established
by the Lender in favour of the Borrower pursuant to Section 2.1 hereof;
"Collateral" means all present or after acquired personal property of the
Borrower as more specifically set out in the General Security Agreement;
"Event of Default" means an event described in Section 7 hereof;
"Financing Statement(s)" means Uniform Commercial Code financing statements to
be executed and delivered by the Borrower to enable the Lender to perfect its
security interest in the Collateral;
"General Security Agreement" means an agreement to be entered into between the
Borrower and the Lender pursuant to which the Borrower shall grant a security
interest to and in favour of the Lender over all of its present and after-
acquired personal property including, without limiting the generality of the
foregoing, the personal property listed in Schedule "B" hereto, which
agreement shall be in a form satisfactory to the Lender and shall create a
first priority charge subject only to the Permitted Encumbrances;
"Guarantee" means a guarantee granted by the Guarantor in favour of the Lender
in respect of the Borrower's obligations to the Lender which Guarantee shall
be in substantially the form appended as Schedule "D" hereto;
"Guarantor" means ICHOR Corporation, a corporation organized under the laws of
Delaware, having an office at 1250 - 400 Burrard Street, Vancouver, B.C.;
"Interest Rate" means 11% per annum;
<PAGE> 3
"Loan Agreement" means this loan agreement and the schedules hereto;
"Maturity Date" means January 1, 1999;
"Mortgage" means a mortgage to be granted by the Borrower in favour of the
Lender pursuant to which the Borrower shall grant a first priority mortgage
and charge to and in favour of the Lender over the Mortgaged Lands, which
agreement shall be in a form satisfactory to the Lender;
"Mortgaged Lands" means the real property listed in Schedule "C" hereto;
"Note" means the promissory note delivered by the Borrower to the Lender, in
the form of Schedule "A" hereto, to evidence the maximum principal
indebtedness of the Borrower to the Lender hereunder;
"Past Advances" means advances, if any, made by the Lender to the Borrower or
at the Borrower's direction prior to the execution hereof;
"Permitted Encumbrances" means:
i) a lien in favour of the United States Internal Revenue Service and
a Mechanics Lien in favour of H.J. Moln & Sons Company, which
total in aggregate value less than $200,000;
ii) liens for taxes, assessments or governmental charges or levies not
at the time due and delinquent or the validity of which is being
contested at the time by the Borrower in good faith;
iii) any mortgage, lien, charge, security interest or other encumbrance
given to secure the whole or any part of the purchase price of any
property acquired from third parties subsequent to the date
hereof; and
iv) lease obligations entered into by the Borrower with any arms
length third party in respect of machinery and equipment used in
the ordinary course of business by the Borrower.
"Person" means an individual, a corporation, a partnership, a trustee, or any
unincorporated organization, and words importing persons have a similar
meaning;
"Principal Sum" means $750,000;
"Security" means the security to be provided by the Borrower to the Lender
described in Section 4.1 hereof.
<PAGE> 4
1.2 Headings, etc.
--------------
The division of this Loan Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this Loan Agreement.
1.3 Amendment
---------
No amendment of any provision of this Loan Agreement or the Ancillary
Documents shall be effective unless the same shall be in writing and signed by
each party thereto which is then a party to or, to whom a security interest
has been granted pursuant to, the respective document being amended.
1.4 Counterparts
------------
This Loan Agreement may be executed in any number of counterparts by one or
more parties hereto and such counterparts, each of which when so executed and
delivered, shall be deemed to be an original and all of which when taken
together shall constitute one and the same instrument.
An executed counterpart of this Loan Agreement may be delivered by facsimile
transfer or similar form of electronic communication from one party to the
other provided that an original executed counterpart is promptly delivered to
such receiving party.
1.5 Payments
--------
Whenever any payment to be made hereunder or under the Note shall be stated to
be due on a day which is not a Banking Day, such payment may be made on the
next succeeding Banking Day and such extension of time shall in such case be
included in the computation of the payment of interest hereunder, but shall
not in any event operate as a waiver by the Lender of any of its rights.
1.6 Severability
------------
If one or more provisions contained in this Loan Agreement and/or an Ancillary
Document shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions hereof and/or thereof shall not be affected or impaired thereby.
1.7 Currency
--------
Unless otherwise specified herein all references to "dollars" shall be
references to U.S. Currency.
<PAGE> 5
1.8 Schedules
---------
Schedules and other documents attached or referred to in this Loan Agreement
are an integral part of this Loan Agreement.
ARTICLE II
2. CREDIT
2.1 Credit Facility
---------------
Relying on each of the representations and warranties set out herein and
subject to the terms and conditions set forth herein, the Lender hereby
extends and agrees to make available to the Borrower, the Credit Facility in
the amount of the Principal Sum.
2.2 Nature of the Credit Facility
-----------------------------
Unless terminated earlier pursuant to Section 7 hereof, the Credit Facility
shall be available to the Borrower up to the Principal Sum on a revolving
basis until the Maturity Date when the whole of the outstanding amount of the
Credit Facility shall be repaid by the Borrower to the Lender.
2.3 Interest on Advances
--------------------
The Borrower shall pay to the Lender interest on Advances from the Lender at
the Interest Rate. Interest shall accrue daily in arrears and shall be
compounded monthly while such Advances are outstanding and shall be computed
on the basis of a year of 365 days and for actual days elapsed.
2.4 Default Interest
----------------
Default interest shall be paid on all interest payable hereunder which is
overdue. Default interest with respect to interest payable shall be
calculated daily and compounded monthly at the Interest Rate. Default
interest on overdue interest shall be paid on demand both before and after
default and judgment. Default interest shall be computed from and including
the date interest payable pursuant to the Loan Agreement becomes due and shall
be paid for so long as such amount or amounts remain unpaid.
2.5 Notice for Advances
-------------------
The Borrower shall give to the Lender not less than 24 hours notice of its
intention to take an Advance which notice shall specify the amount of the
Advance and the Advance Date. All Advances shall be requested and made in
multiples of $100,000 and shall be advanced from the
<PAGE> 6
Lender to the Borrower on the Advance Date by way of telegraphic or other
internal bank transfers or by such other method of delivery as may be set out
in the notice requisitioning the Advance and agreed upon by the Lender,
provided that the Lender may advance in multiples other than $100,000 and such
Advances shall be properly made. The first Advance shall be in the sum of
$300,000 and shall be made upon satisfaction of the Conditions set forth in
Section 2.6 hereof.
2.6 Conditions of the Advances
--------------------------
The Lender shall not make any Advance (other than Past Advances) unless on
such Advance Date all representations and warranties of the Borrower as set
out herein are true and correct and each of the following conditions is
satisfied as of such date:
(a) the execution and delivery by the Borrower to the Lender of the Loan
Agreement, and each of the Ancillary Documents (and all documents
contemplated thereby to be delivered contemporaneously therewith);
(b) registration of Financing Statements in a form or forms satisfactory to
the Lender in such registries as the Lender may require;
(c) the representations and warranties contained herein are true and
correct;
(d) the Borrower shall have complied with all of its covenants and
obligations in this Loan Agreement;
(e) registration of the Mortgage for filing in the appropriate registry
necessary to register the Lender's interest in the Mortgaged Lands; and
(f) no event which would constitute an Event of Default shall then exist.
The conditions set forth in this Section 2.6 are for the sole benefit of the
Lender and may be waived by the Lender from time to time in whole or in part,
and in respect of any Advance.
2.7 Commitment Fee
--------------
The Borrower hereby promises to pay and does hereby irrevocably authorize and
direct the Lender to deduct the Commitment Fee or any balance thereof
outstanding and remaining unpaid on the First Advance Date.
<PAGE> 7
ARTICLE III
3. REPAYMENTS OF PRINCIPAL AND INTEREST
3.1 Advances
--------
Subject to the terms and conditions of this Loan Agreement, the Lender agrees
to make advances under the Credit Facility subject to the following terms and
conditions and the Borrower agrees to accept Advances on the terms and
conditions set out herein. The Borrower covenants and agrees that:
(a) it shall pay to the Lender the Principal Sum or such portion thereof as
may be outstanding and all interest owing in respect thereof on the
Maturity Date; and
(b) it shall pay to the Lender interest on the unpaid Principal Sum
outstanding from the first Advance Date until such Principal Sum or part
thereof shall be repaid in full at a rate equal to the Interest Rate,
payable monthly in arrears on the first day of each month, the first
payment of interest to be made on the first day of the first month
following the first Advance Date.
3.2 Borrower's Right to Prepay Credit Facility
------------------------------------------
The Borrower may repay all or part of the Credit Facility from time to time.
Prepayments may be made at anytime without notice, bonus, penalty or premium.
3.3 Place of Payment of Principal and Interest
------------------------------------------
All payments of principal and interest due to the Lender shall be made on the
day that such amount is due to the Lender at the Lender's address provided for
in this Loan Agreement.
ARTICLE IV
4. SECURITY
4.1 Security
--------
As general and continuing security for the performance of its obligations
hereunder, and the prompt payment when due by the Borrower of its borrowings
under the Credit Facility and interest thereon and all other moneys for the
time being and from time to time owing by the Borrower hereunder, including
default interest, the Borrower shall execute or cause to be executed and
deliver to the Lender the following:
<PAGE> 8
(a) the Note;
(b) the General Security Agreement;
(c) the Mortgage; and
(d) the Guarantee.
The Security granted hereunder is in addition to and not in substitution for
any other security interest now or hereafter held by the Lender from the
Borrower or from any other person whomsoever and secures and is and shall at
all times be general and continuing security for the payment, performance and
satisfaction of any and all indebtedness and liability of the Borrower to the
Lender (including interest and default interest thereon) present or future,
direct or indirect, absolute or contingent, extended or renewed, wheresoever
and howsoever incurred and, without limiting the generality of the foregoing,
for the performance and satisfaction of all obligations of the Borrower to the
Lender under the Loan Agreement (all of which indebtedness, liability and
obligations are hereinafter collectively called the "Indebtedness"). If the
Security is not sufficient to satisfy all Indebtedness of the Borrower, the
Borrower acknowledges and agrees that the Borrower shall continue to be liable
for any Indebtedness remaining outstanding and the Lender shall be entitled to
pursue full payment thereof.
4.2 Conflicts
---------
If a conflict or inconsistency exists between a provision of this Loan
Agreement and a provision of the Ancillary Documents or any part thereof, then
the provisions of this Loan Agreement shall prevail. Notwithstanding the
foregoing, if there is any right or remedy of the Lender set out in the
Ancillary Documents or any part thereof which is not set out or provided for
in this Loan Agreement, such additional right or remedy shall not constitute a
conflict or inconsistency. The Lender acknowledges that the Principal Sum
evidenced by the Note may exceed the principal and interest due or accruing
due from the Borrower to the Lender hereunder and the Lender covenants not to
demand or require payment of a principal sum in excess of that payable
hereunder.
4.3 Return of Security
------------------
Upon payment of all principal and interest due from the Borrower to the Lender
under this Loan Agreement, the Lender shall forthwith upon receipt of written
notice requiring return of the Security surrender its interest in and deliver
the Security to the Borrower.
<PAGE> 9
ARTICLE V
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Borrower
----------------------------------------------
The Borrower represents and warrants to the Lender as set forth in this part
of the Loan Agreement. All representations and warranties shall survive all
borrowings and no investigation at any time made by or on behalf of a Lender
shall diminish in any respect whatsoever its right to rely thereon. The
Borrower represents and warrants to the Lender as follows:
(a) the Borrower has full corporate power and authority to own its
properties and to enter into and perform its obligations under this Loan
Agreement and the Ancillary Documents and to do all acts and things and
execute and deliver all other documents as are required hereunder or
thereunder to be done, observed or performed by it in accordance with
their terms;
(b) the Borrower has taken all necessary action to authorize the creation,
execution, delivery and performance of this Loan Agreement and the
Ancillary Documents and to observe and perform the provisions of each in
accordance with its terms as of the date hereof and the Loan Agreement
and each of the Ancillary Documents has been duly executed by the
Borrower, as required, and when delivered will be legal, valid and
binding obligations of the Borrower, as applicable, enforceable in
accordance with its terms, save as enforcement may be limited by
applicable bankruptcy, insolvency, moratorium and similar laws at the
time in effect affecting the rights of creditors generally and subject
to equitable principles which may limit the availability of certain
remedies;
(c) the Borrower is a corporation, validly existing and in good standing
with respect to the filing of required corporate returns under the laws
of Washington and is duly qualified, in good standing and authorized to
do business in all jurisdictions where the character of the properties
owned by it or the nature of the business transacted by it makes such
qualification necessary;
(d) the execution and delivery and performance of the Loan Agreement and the
Ancillary Documents will not contravene any material provision of any
regulation, order or permit applicable to the Borrower or cause a
conflict with or contravention of either of their constating documents
or cause a breach of or constitute a default under or require any
consent under any agreement or instrument to which the Borrower is a
party or by which the Borrower is bound except such as have been
obtained;
(e) the Borrower is not in default under any agreement or instrument to
which it is a party in any way which materially adversely affects its
business and there are no suits or judicial proceedings or proceedings
before any governmental commission, board or other agency
<PAGE> 10
pending or to the knowledge of the Borrower threatened against the
Borrower which involve a significant risk of a judgment or liability
which, if satisfied, would have a materially adverse affect upon the
financial position of the Borrower or the ability to borrow or meet the
Borrower's obligations under the Loan Agreement;
(f) the Borrower has good and marketable title to or, with respect to its
leasehold and leased assets, enforceable rights to the use and enjoyment
of, the assets, interest and rights charged, granted, transferred or
assigned in the Lender's Security free and clear of all liens,
mortgages, encumbrances, equities or claims of every kind and nature
whatsoever, except for Permitted Encumbrances; and
(g) the Borrower is not in default under any guarantee, bond, debenture,
note or other instrument evidencing any indebtedness or under the terms
of any instrument pursuant to which any of the foregoing has been issued
or made and delivered and, to the knowledge of the Borrower there exists
no state of facts which, after notice or lapse of time or both would
constitute such a default;
ARTICLE VI
6. COVENANTS
6.1 Covenants of the Borrower
-------------------------
The Borrower covenants to the Lender as follows and confirms that the Lender
is relying upon such covenants that:
(a) the Borrower will duly and punctually pay all principal, interest and
default interest required to be paid by the Borrower hereunder in the
manner specified herein;
(b) the Borrower will maintain its corporate existence at all times;
(c) the Borrower will observe and perform all of its covenants contained in
this Loan Agreement and the Ancillary Documents;
(d) subject to the Permitted Encumbrances, the Borrower will not sell,
assign, give, transfer, pledge, mortgage, charge, create a security
interest in or otherwise encumber any of the Collateral or Mortgaged
Lands other than pursuant to the General Security Agreement and the
Mortgage;
(e) the Borrower will at all times keep adequately insured by a financially
sound or reputable insurer (and will provide satisfactory evidence
thereof to the Lender on request) all assets
<PAGE> 11
and property of a character customarily insured by persons engaged in
the same or similar businesses, similarly situated, including inventory
and business interruption insurance against loss or damage of the kinds,
customarily insured against by such persons and in such amounts as are
customarily insured for by such persons and that the Borrower will
forthwith notify the Lender upon the happening of any significant loss
and will duly and punctually pay or cause to be paid all premiums and
other sums of money for maintaining such insurance and will, at the
request of the Lender, cause the Lender to be designated as first loss
payee under any contract of insurance maintained by the Borrower over
the Collateral or the Mortgaged Lands;
(f) the Borrower will file all material returns including income tax returns
and filings in all required jurisdictions and will provide copies
thereof to the Lender on request;
(g) the Borrower will pay all taxes (except taxes in dispute which are being
contested in good faith) including interest and penalties and to pay or
make adequate reserves for the ultimate payment of any tax payment which
is being contested; and
(h) the Borrower will permit from time to time, as requested by the Lender,
any person designated by the Lender to examine its financial records and
will cause the chief financial officer or such other senior officer as
may be appropriate, to discuss and explain, as the case may be, any of
its affairs, finances and accounts and to provide such other information
pertaining to its business as the said representative may reasonably
require and will, upon request, provide such representative with copies
of its monthly accounts receivable listings and monthly financial
statements.
ARTICLE VII
7. EVENTS OF DEFAULT
7.1 Events of Default
-----------------
The occurrence of any one or more of the following events shall constitute a
default under this Loan Agreement:
(a) the Borrower shall fail to pay any principal hereunder when the same
becomes due and payable and such default shall have continued for a
period of five consecutive days after notice thereof has been given by
the Lender to the Borrower;
(b) the Borrower shall fail to pay any interest or default interest
hereunder when the same becomes due and payable and such default shall
have continued for a period of five consecutive days after notice
thereof has been given by the Lender to the Borrower;
<PAGE> 12
(c) any representation, warranty or certification made by the Borrower
herein or in relation hereto or in any other agreement to which the
Borrower and the Lender are a party shall prove to have been materially
incorrect when made;
(d) the Borrower shall fail to perform any material term, covenant or
agreement contained herein on its part to be performed or observed and
such default shall have continued for a period of 15 consecutive days
after notice thereof has been given by the Lender to the Borrower;
(e) the Borrower shall generally not pay its debts as such debts become due,
or shall indicate in writing its inability to pay such debts generally,
or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Borrower seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding-
up, reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry
of an order for relief or the appointment of a receiver, trustee or
other similar official for it or for any part of its property or the
Borrower shall take any corporate action to authorize any of the actions
set forth above;
(f) the Borrower shall fail to pay the principal of or premium or interest
on any debt of the Borrower which is outstanding in an aggregate
principal amount in excess of $100,000 when the same becomes due and
payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) or if any other event shall occur
specified in any agreement or instrument relating to any such debt, if
the effect of such event is to permit the acceleration of the maturity
of such debt; or debt of the Borrower which is outstanding in an
aggregate principal amount exceeding $100,000 shall be validly declared
to be due and payable prior to the stated maturity thereof;
(g) any judgment or order for the payment of money in excess of $100,000
shall be rendered against the Borrower;
(h) the Borrower shall, after February 28, 1997, temporarily or permanently
effectively cease or significantly curtail its operations or business;
or
(i) in the opinion of the Lender there occurs any material adverse change
from the date hereof or any days subsequent hereto in the financial
condition, business, operations, assets, properties or prospects of the
Borrower.
7.2 Acceleration
------------
Upon the occurrence of an Event of Default and at any time thereafter,
provided the Event of Default has not been waived by the Lender or the
Borrower has not theretofore remedied all outstanding
<PAGE> 13
Events of Default within the prescribed time period or such longer period of
time as the Lender may permit, the Lender may, by notice to the Borrower:
(a) terminate the obligation of the Lender hereunder to make any further
Advances under the Credit Facility;
(b) declare the entire principal amount of the Advances then outstanding and
all accrued and unpaid interest thereon and all other amounts due
hereunder to be immediately due and payable with interest thereon at the
rate or rates as determined herein to the date of actual payment
thereof.
ARTICLE VIII
8. MISCELLANEOUS
8.1 Notices
-------
Any demand, notice or communication to be made or given hereunder shall be in
writing and may be made or given by personal delivery or by transmittal by
facsimile addressed to the respective parties as follows:
To the Borrower: Ortek Inc.
300 Oxford Drive
Monroeville, PA 15146
Attention: President
Facsimile: (412) 856-6057
To the Lender: Volendam Investments Limited
c/o Veerkade 2, NL-3016 de Rotterdam,
Netherlands
Attention: President
Facsimile: 311 041 18321
or to such other address or facsimile number as any party may from time to
time notify the others in accordance with this Section 8.1. Any demand,
notice or communication, if made or given by personal delivery, shall be
conclusively deemed to have been given on the day of actual delivery thereof,
or if made or given by telecopy shall be conclusively deemed to have been
given on the first Banking Day following the transmittal thereof.
<PAGE> 14
8.2 Expenses
--------
The Borrower agrees to pay promptly to the Lender on demand, all reasonable
legal fees and other reasonable expenses which are incurred from time to time
by the Lender in relation to the documentation, preparation, registration,
negotiation and execution of this Loan Agreement and the Ancillary Documents
and all expenses which are incurred from time to time by the Lender in respect
of the enforcement of the Loan Agreement and the Security.
8.3 Governing Law and Jurisdiction
------------------------------
Notwithstanding any applicable conflict of laws principles, the Borrower
hereby irrevocably agrees that any legal action or proceedings against it with
respect to this Loan Agreement may be brought in the courts of the Province of
British Columbia or in such other court as the Lender may elect and, by
execution and delivery of this Loan Agreement, the Borrower hereby irrevocably
submits and attorns to the jurisdiction of each such court. This Loan
Agreement shall be governed by and construed in accordance with the laws in
force in the Province of British Columbia.
8.4 Benefit of the Agreement
------------------------
This Loan Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
8.5 Further Assurances and Security
-------------------------------
The Borrower will do, execute and deliver all such further acts, documents and
things as the Lender may require for the purpose of giving effect to this Loan
Agreement or further securing the obligations of the Borrower arising
hereunder and the Borrower agrees to provide to the Lender such replacement,
supplementary or additional security as the Lender may require from time to
time.
8.6 Assignments and Participations
------------------------------
The Borrower may not assign any or all of its rights and/or obligations
hereunder or under the Ancillary Documents without the prior written consent
of the Lender. The Lender may assign any or all of its rights and/or
obligations hereunder or under the Ancillary Documents, and without limiting
the generality of the foregoing, may assign any or all of its rights and/or
obligations with respect to any specific Advance and/or the Security or any
part thereof.
8.7 Entire Agreement
----------------
This Loan Agreement comprises the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior
understandings and agreements between the parties
<PAGE> 15
with respect thereto. There are no representations, warranties, terms,
conditions, undertakings or collateral agreements express, implied or
statutory, between the parties with respect to the subject matter hereof other
than as expressly set forth in this Loan Agreement.
8.8 Waiver or Modification
----------------------
No failure or delay on the part of the Lender in exercising any right, power
or privilege hereunder shall impair such right, power or privilege or operate
as a waiver thereof nor shall any single or partial exercise of such right,
power or privilege preclude any further exercise thereof or the exercise of
any other right, power or privilege hereunder. The rights and remedies herein
provided are cumulative and not exclusive of any rights and remedies provided
by law. No amendment, modification or waiver of any condition of the Loan
Agreement or consent to any departure by the Borrower therefrom shall, in any
event, be effective unless the same shall be in writing and signed by the
Lender. No notice to or demand on the Borrower shall by reason thereof
entitle the Borrower to any other or further notice of demand in similar or
other circumstances unless specifically provided for in the Loan Agreement.
IN WITNESS WHEREOF the parties hereto have caused this Loan Agreement to be
executed effective as of the date first above written.
ORTEK INC.
By: /s/ John M. Musacchio
------------------------
Name: John M. Musacchio
------------------------
Title: President
------------------------
VOLENDAM INVESTMENTS LIMITED
By: /s/ John Donnelly
------------------------
Name: John Donnelly
------------------------
Title: Chairman/Director
------------------------
<PAGE> 16
SCHEDULE "A"
PROMISSORY NOTE
FOR VALUE RECEIVED the undersigned hereby promises to pay, on January 1, 1999,
to Volendam Investments Limited the principal sum of Seven Hundred Fifty
Thousand ($750,000) U.S. Dollars, together with interest at the applicable
rate specified in that certain Loan Agreement dated January 15, 1997, between
Volendam Investments Limited and Ortek Inc. (the "Loan Agreement"), on such
principal amount or part thereof outstanding from time to time from the date
or dates of advance thereof and interest on overdue interest at the rate
specified in the Loan Agreement, as well after as before judgment and both
before and after default, until payment in full in the manner specified in the
Loan Agreement, such interest to be calculated in the manner and paid in
arrears as specified in the Loan Agreement.
All capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Loan Agreement.
This Note is issued pursuant to the Loan Agreement and is subject to all of
the provisions thereof.
All payments of principal and interest shall be made at the place and times
and for value on the date due in the manner set forth in the Loan Agreement.
Notwithstanding any applicable conflict of laws principles, this Note shall be
governed by and construed in accordance with the laws of British Columbia and
the undersigned hereby attorns to the jurisdiction of the Courts of British
Columbia or such other Court as Volendam Investments Limited may elect.
NOTICE OF PRESENTMENT, PROTEST AND DISHONOUR ARE HEREBY WAIVED.
DATED at , , this day of January, 1997.
---------- ---------- ----------
ORTEK INC.
Per:
----------------------
<PAGE> 17
SCHEDULE "B"
SPECIFICALLY CHARGED PERSONAL PROPERTY
All present and after acquired personal property owned by the Borrower
including all personal property owned by the Borrower and located at the
premises commonly known as 7601 West 47th Street, McCook, Illinois (the
"McCook Facility"), and all replacements therefore, including, without
limitation, all of the following described property and all of the Borrower's
licenses, permits, certifications, patents, trademarks and, except as defined
in the Excluded Assets hereinbelow, all causes of action and litigation
rights, to the extent such personal property relates to or affects the
maintenance and operation of the McCook Facility (collectively, the "Assets"):
A. All machinery, equipment (including all transportation and office
equipment), fixtures, trade fixtures, tools, dies and furniture,
including, without limitation, all such items which are located in or at
the McCook Facility.
B. All inventories of work in process, semi-finished and finished goods,
raw materials, promotional materials, replacement and spare parts,
packaging materials, operating supplies, including without limitation
all memorandum and non-memorandum inventory.
C. All office supplies, production supplies, spare parts, other
miscellaneous supplies, and other tangible property of any kind,
including, without limitation, all property of any kind located in any
building, warehouse, office or other space.
D. All prepayments and prepaid expenses, including, without limitation,
utility or leasehold deposits relating to the Borrower's business.
E. All lists, records and other information pertaining to accounts,
personnel and referral sources, all lists and records pertaining to
suppliers and customers, and all books and records of every kind
(including without limitation those evidenced by computer) relating to
the Borrower's business.
F. All permits, licenses, certifications and approvals from all permitting,
licensing, accrediting and certifying agencies, and the rights to all
data and records held by such permitting, licensing and certifying
agencies, relating to the Borrower's business.
G. All trade and other accounts receivable arising from the Borrower's
business.
<PAGE> 18
SCHEDULE "C"
REAL PROPERTY
The land referred to is situated in the State of Illinois, County of Cook, and
is described as follows:
The East 6.0 acres of that part of the North half of the Northwest quarter of
Section 12, Township 38 North, Range 12, East of the third principal meridian,
lying West of and adjoining the East 200 feet thereof and North of the
Northwesterly line of the 26 foot right of way of the Chicago and Illinois
Western Railroad.
ALSO
A parcel of land 26 feet wide located in the Northwest Quarter of Section 12,
Township 38 North, Range 12, East of the third principal meridian, in McCook,
Illinois, more particularly described as follows: Beginning at the Easterly
line of property conveyed by the Chicago and Illinois Western Railroad to the
Village of McCook by deed dated January 2, 1969 and recorded January 8, 1969
as Document Number 20722252, said parcel being 26 feet wide and extending
Easterly a distance of 342 feet, more or less, to a line which is parallel
with and 200 feet Westerly from the North and South center line of said
Section 12, as measured at right angles thereto; the Southerly line of said 26
foot wide parcel being located 150 feet Northerly of and parallel to the
Northerly line of the Atchison, Topeka and Santa Fe Railroad, all in Cook
County, Illinois.
ALSO
Above 26 foot strip of land is subject to an easement granted to the
Metropolitan Sanitary District of Greater Chicago by Chicago and Illinois
Western Railroad September 26, 1957.
Permanent Real Estate Index Numbers: 18-12-101-011; 18-12-101-024; and 18-12-
101-049
<PAGE> 19
Schedule "D"
GUARANTEE
---------
THIS DEED OF GUARANTEE dated for reference the 15th day of January, 1997, by
ICHOR CORPORATION of 1250 - 400 Burrard Street, Vancouver, B.C. (the
"Guarantor") and delivered to Volendam Investments Limited (the "Creditor")
witnesses that whereas:
A. The Guarantor, having a direct or indirect interest in the financial
prospects of Ortek Inc. of 300 Oxford Drive, Monroeville, Pennsylvania,
15146 (the "Debtor"), has requested that the Creditor carry on or
continue to carry on business with the Debtor;
B. The Guarantor has agreed to guarantee unconditionally all of the
indebtedness of the Debtor to the Creditor which now exists or which
from time to time hereafter exists;
C. The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, re-advances, debts, obligations and
liabilities of the Debtor to the Creditor heretofore, now or hereafter
made, incurred or created, whether voluntary or involuntary and however
arising, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether the Debtor may be
liable individually or jointly with others and whether recovery thereon
may be or hereafter becomes otherwise unenforceable and irrespective of
the genuineness, validity or regularity thereof, of any security
therefor or of the existence or extent of such security;
NOW THEREFORE in consideration of the premises and for other good and valuable
consideration given by the Creditor, the receipt and sufficiency whereof is
hereby acknowledged by the Guarantor, the Guarantor agrees with the Creditor
as follows:
1. REPRESENTATIONS AND WARRANTIES
The Guarantor makes the following representations and warranties which shall
be continuing representations and warranties so long as any indebtedness shall
remain unpaid:
1.1 Rights
------
The Guarantor has full power to make and carry out this guarantee.
1.2 Guarantee Valid
---------------
This guarantee is a legal, valid and binding obligation of the
Guarantor enforceable in accordance with its terms, and if the
Guarantor is a corporation, the directors of the
<PAGE> 20
Guarantor have passed a resolution which is now in effect and which
confirms that the directors of the Guarantor are of the opinion that
the giving of this guarantee is in the best interests of the Guarantor.
1.3 No Conflict
-----------
The execution and delivery of this guarantee does not, and the
performance of this guarantee agreement, indenture or undertaking to
which the Guarantor is a party or by which it or any of its property is
or may be bound or affected does not, and will not, cause any security
interest, lien or other encumbrance to be created or imposed upon any
such property.
1.4 Litigation
----------
There is no litigation or other proceeding pending or, to the knowledge
of the Guarantor, threatened against, or affecting, him or his
properties which, if determined adversely to the Guarantor, would have
a materially adverse effect on the financial condition, properties or
operations of the Guarantor, and the Guarantor is not in default with
respect to any order, writ, injunction, decree or demand of any court
or other governmental or regulatory authority.
1.5 Accuracy of Recitals
--------------------
Recital paragraphs A, B and C hereof are accurate and form part of this
guarantee.
1.6 Financial Benefit
-----------------
The Guarantor hereby acknowledges and warrants that it has derived or
expects to derive a financial advantage from each and every loan or
other extension of credit, and from each and every renewal, extension,
release of collateral or forbearance from pursuit or other
relinquishment of legal rights, made or granted or to be made or
granted by the Creditor to the Debtor.
2. GUARANTEE
2.1 Guarantee
---------
The Guarantor unconditionally guarantees and promises to pay or cause
to be paid to or to the order of the Creditor, on demand, the
indebtedness of the Debtor to the Creditor in accordance with the
provisions of this Guarantee.
<PAGE> 21
2.2 Continuing Guarantee
--------------------
This is a continuing guarantee and this guarantee shall not be
determined or affected by, and the Creditor's rights hereunder shall
not be prejudiced by, any of the death, the bankruptcy or
reorganization, the loss or diminution of capacity or winding-up or
dissolution of the Debtor, the Guarantor or any person or persons who
is or are or shall become responsible in any way for payment of the
indebtedness or any part thereof, or by any change in the name,
structure, memorandum, letters patent, articles, organization or
management of the Debtor or the Guarantor. If the Debtor shall
amalgamate or otherwise merge with one or more other corporations, this
guarantee shall continue and apply to all debts and liabilities owing
to the Creditor by the corporation continuing from amalgamation or
merger.
2.3 Nature of Guarantee
-------------------
The liability of the Guarantor hereunder is independent of the
obligations of the Debtor and a separate action or separate actions may
be brought and prosecuted against the Guarantor whether such action is
brought or prosecuted against the Debtor or whether the Debtor is
joined in any such action or actions. The liability of the Guarantor
hereunder is independent of and not in consideration of or contingent
upon the liability of any other person (including any other party
comprising the Guarantor if more than one party executes this
instrument as Guarantor) under this or any similar instrument and the
release of, or cancellation by, any signer of this or any similar
instrument shall not act to release or otherwise affect the liability
of the Guarantor hereunder. The Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the
enforcement thereof to the fullest extent permitted by law. Any part
payment by the Debtor or other circumstance which operates to toll any
statute of limitations as to the Debtor shall operate to toll any
statute of limitations as to the Guarantor.
2.4 Guarantor as Principal Debtor
-----------------------------
For the purpose of greater clarity it is hereby declared to be the
intention of the Debtor, the Creditor and the Guarantor that this
guarantee shall be construed so as to impose the like obligation upon
the Guarantor as if the Guarantor had covenanted as principal jointly
and severally with the Debtor to be directly responsible for and to pay
the indebtedness.
2.5 Terms of Payment
----------------
In implementation of the foregoing,
<PAGE> 22
(a) the Guarantor guarantees that the indebtedness will be paid to
the Creditor strictly in accordance with the terms and provisions
of any agreement, express or implied, which has been made or may
hereafter be made by the Debtor, regardless of any law,
regulation or decree, now or hereafter in effect, which might in
any manner affect any of the terms or provisions of any such
agreement or rights of the Creditor as against the Debtor with
respect to any of the indebtedness or cause or permit to be
invoked, any alteration in the time, amount or manner of payment
by the Debtor of any of the indebtedness, and
(b) in each instance when the Debtor shall have agreed, relative to
any of the indebtedness hereby guaranteed, to pay or provide the
Creditor with any amount of money, if such amount is not actually
paid or provided as and when agreed or within such time as the
Creditor deems reasonable, the Guarantor will, upon request, and
as the Creditor may elect, pay or provide the amount in the exact
currency and place as agreed by the Debtor.
All such payments shall be made without set-off or counterclaim and
free and clear of, and without deduction for or on account of, any
present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions, withholdings or restrictions or
conditions of any nature whatsoever now or hereafter imposed, levied,
calculated, withheld or assessed by any country or any political
subdivision or taxing authority thereof.
2.6 Creditor's Records Conclusive
-----------------------------
The statement in writing of an officer of the Creditor given from time
to time of the amount of the indebtedness shall be binding on and
conclusive against the Guarantor.
2.7 Authorization
-------------
The Guarantor authorizes the Creditor without notice or demand and
without affecting the liability of the Guarantor hereunder, from time
to time to:
(a) renew, compromise, extend, accelerate or otherwise change the
time for payment of, or otherwise change the terms of, the
indebtedness or any part thereof, including increasing or
decreasing the rate of interest payable thereon by the Debtor;
(b) take and hold security for the payment of this guarantee or the
indebtedness or any part thereof, and exchange, enforce, waive or
release any such security and
<PAGE> 23
apply any such security and direct the order or manner of sale
thereof, all as the Creditor in its discretion may determine;
(c) release or substitute any one or more endorsers, guarantors
and/or other obligors of this guarantee or the indebtedness or
any part thereof;
(d) grant any other indulgence to the Debtor, the Guarantor or any
other person in respect of the indebtedness or any other part
thereof, or any instrument representing or relating thereto and
to compromise and settle with all or any of such persons as the
Creditor shall see fit.
2.8 Security
--------
This guarantee and the agreements of the Guarantor herein contained
shall take effect and shall be and are hereby declared to be binding
upon the Guarantor notwithstanding any defect in or omission from any
securities instrument under which the Creditor has taken or may
hereafter take any security for the indebtedness or any part thereof,
or any non-registration or non-filing or defective registration or
filing thereof and notwithstanding any failure or diminution of the
security intended to be created thereby. The Guarantor hereby further
agrees:
(a) that neither any release of, nor any loss of or in respect of,
any security received by the Creditor from the Debtor or anyone
else, whether occasioned through the fault of the Creditor or
otherwise shall discharge (pro tanto or otherwise), limit or
diminish the liability of the Guarantor under this guarantee;
(b) that the Creditor may take securities from and give the same up
to, may abstain from taking securities from or from perfecting
securities of, may accept compositions from, and pay otherwise
deal with, the Debtor and all other persons (including the
Guarantor) as the Creditor may see fit.
2.9 Waivers
-------
The Guarantor waives the right to require the Creditor to proceed
against the Debtor or any other person, to proceed against or to
endeavour to enforce or exhaust any security held from the Debtor or
anyone else, or to pursue any other remedy in the Creditor's power
whatsoever and the Guarantor waives any right the Guarantor may have to
require the property of the Debtor to be applied to the discharge of
the indebtedness before being entitled to payment of the indebtedness
from the Guarantor. The Creditor may, at its election, exercise any
right or remedy it may have against the Debtor or any security held by
the Creditor, including, without limitation, the right to
<PAGE> 24
foreclosure upon any such security or to exercise any power of sale
without affecting or impairing in any way the liability of the
Guarantor hereunder, and the Guarantor waives any defence arising out
of absence, impairment or loss of any right of reimbursement,
contribution or subrogation or any other right or remedy of the
Guarantor against the Debtor, or any such security, whether resulting
from such election or exercise of rights or remedies by the Creditor,
or otherwise. The Guarantor waives any defence arising by reason of
the cessation from any cause whatsoever of the liability, either in
whole or in part, of the Debtor to the Creditor for the indebtedness or
any part thereof. Without limiting any of the foregoing or
section 2.10, the Guarantor also waives all right to question in any
way the Creditor's present or future method of dealing with the Debtor
or any person or persons now or hereafter liable to the Creditor for
the indebtedness or any part thereof, or with any security now or
hereafter held by the Creditor or with any property covered by such
security, including any rights under so-called "seize or sue"
legislation.
2.10 Additional Waivers and Deferral of Subrogation
----------------------------------------------
Until all of the indebtedness has been paid in full, including such
part thereof as shall exceed the limit, if any, of liability of the
Guarantor hereunder,
(a) the Guarantor shall have no right of subrogation to, and waives
any right to enforce, any remedy which the Creditor now has or
may hereafter have against the Debtor in respect of the
indebtedness,
(b) the Guarantor waives any benefit of, and any right to participate
in, any security, whether real or personal property or otherwise,
now or hereafter held by the Creditor for the indebtedness hereby
guaranteed, or any part thereof.
The Guarantor waives all presentments, demands for performance, notices
of non-performance, protests, notices of protest, notices of dishonour
and notices of acceptance of this guarantee and of the existence,
creation or incurring of new or additional indebtedness of the Debtor
to the Creditor. The Guarantor also waives the benefit of any rights
of division. The Guarantor assumes the responsibility for being
informed and keeping itself informed of the financial condition of the
Debtor, the level of the indebtedness which diligent inquiry would
reveal and agrees that the Creditor and of all other circumstances
bearing upon the risk of non-payment of the indebtedness and agrees
that the Creditor shall have no duty to advise the Guarantor of
information now or hereafter known to it regarding such financial
condition or any such circumstances.
<PAGE> 25
2.11 Powers of Debtor
----------------
Where the Debtor is a corporation, partnership or other organization,
it is not necessary for the Creditor to inquire into the powers of the
Debtor or the officers, directors, partners, trustees or agents acting
or purporting to act on behalf of the Debtor and any indebtedness made
or created in reliance upon the professional exercise of such powers
shall form part of the indebtedness even though such indebtedness is or
was irregularly, fraudulently, defectively or informally made or
created by or in excess of the powers of the Debtor or of any of its
officers, directors, partners, trustees or agents and notwithstanding
that the Creditor has specific notice of any limitation on any of the
powers of the Debtor or any of its officers, directors, partners,
trustees or agents.
2.12 Bankruptcy and Dissolution
--------------------------
Upon the bankruptcy of the Debtor, or where the Debtor is a
corporation, upon the dissolution, winding up or other distribution of
assets of the Debtor or of any surety or guarantor for any of the
indebtedness or any part thereof, the Creditor's rights shall not be
affected or impaired by any omission by the Creditor to prove its claim
or to prove its full claim and the Creditor may prove or not prove such
claim as it sees fit and may refrain from valuing any security held by
the Creditor without in any way releasing, reducing, or otherwise
affecting the liability to the Creditor of the Guarantor and until all
of the indebtedness has been fully paid, the Creditor shall have the
right to include in its claim the amount of all sums paid by the
Guarantor under this Guarantee and to prove and rank for and receive
dividends in respect of such claim, any and all right of the Guarantor
to prove and rank for such sums paid by the Guarantor and to receive
the full amount of all dividends in respect thereof being hereby
assigned and transferred to the Creditor. All dividends, compositions,
and money received by the Creditor from the Debtor, the Guarantor or
any other person or estate that is capable of being applied by the
Creditor in reduction of the indebtedness shall be regarded for all
purposes as payments in gross, and the Creditor shall be entitled to
prove in respect of the whole of the indebtedness against the Debtor or
the estate of the Debtor, as the case may be, upon the bankruptcy,
dissolution, winding up or other distribution of assets of the Debtor.
2.13 Notice of Termination
---------------------
The Guarantor may terminate its liability for additional indebtedness
under the continuing guarantee by giving at least 60 days' notice to
the Creditor. The liability of the Guarantor shall continue until the
expiry of such notice and after expiry of such notice the Guarantor
shall remain liable under this guarantee in respect of all indebtedness
to the Creditor on the date such notice expired and interest thereon as
<PAGE> 26
herein provided, and also in respect of any contingent or future
liabilities incurred by the Debtor to the Creditor on or before such
expiry date but maturing thereafter.
3. MISCELLANEOUS
3.1 Survival of Warranties
----------------------
All agreements representations and warranties made herein shall survive
the execution and delivery of this guarantee.
3.2 Failure or Indulgence Not Waiver
--------------------------------
No failure or delay on the part of the Creditor in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise by the Creditor of any such
power, right or privilege preclude any other or further exercise of any
such power, right or privilege. All powers, rights and privileges of
the Creditor are cumulative to, and not exclusive of, any powers,
rights or privileges otherwise available.
3.3 Modification of Guarantee
-------------------------
No alteration, modification or waiver of this guarantee or any of its
terms, provisions or conditions shall be binding on the Creditor unless
made in writing over the signature of a duly authorized officer of the
Creditor.
3.4 Entire Agreement
----------------
Upon the execution and delivery by the Guarantor to the Creditor of
this guarantee, the guarantee shall be deemed to be finally and
unconditionally executed and delivered by the Guarantor and shall not
be subject to or affected by any promise or condition affecting or
limiting the liability of the Guarantor except as expressly set forth
herein. No statement, representation, agreement or promise on the part
of the Creditor or any officer, employee or agent thereof unless
expressly stated herein forms any part of this guarantee or has induced
the making hereof or shall be deemed to affect the Guarantor's
liability hereunder. There are no agreements, promises,
representations, warranties, or other statements, express or implied,
made by or on behalf of the Guarantor which are collateral hereto.
<PAGE> 27
3.5 Severability
------------
In case any provision in this guarantee shall be invalid, illegal or
unenforceable, such provision shall be severable from the remainder of
this guarantee and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
3.6 Jurisdiction and Governing Law
------------------------------
Notwithstanding any applicable conflict of laws principles, the
Guarantor hereby irrevocably agrees that any legal action or
proceedings against it with respect to this Guarantee may be brought in
the courts of the Province of British Columbia or in such other court
as the Creditor may elect and, by execution and delivery of this
Guarantee, the Guarantor hereby irrevocably submits and attorns to the
jurisdiction of each such court. This Guarantee shall be governed by
and construed in accordance with the laws in force in the Province of
British Columbia.
3.7 Enurement and Assignability
---------------------------
This guarantee shall be binding upon the Guarantor and its successors
and assigns and shall enure to the benefit of the Creditor and its
successors and assigns. The Creditor may assign this guarantee or any
of its rights and powers hereunder without notice and free of all
equities, with respect to all or any of the indebtedness and in such
event the assignee and further assignees shall have the same rights and
remedies as if originally named herein in place of the Creditor, free
of all intervening equities.
3.8 Multiple Guarantor and Creditor
-------------------------------
If more than one party executes this instrument as Guarantor, then the
provisions hereof shall be read with all grammatical changes thereby
rendered necessary and each reference to the Guarantor shall include
each and every one of them severally, all representations, warranties,
covenants and agreements of the Guarantor herein shall be deemed to be
joint and several representations, warranties, covenants and agreements
of each such party, and any notice shall be deemed to have been given
to each party comprising the Guarantor when such notice is first given
to any such parties. If this instrument is given to or is in favour of
more than one party as the Creditor the provisions hereof shall be read
with all grammatical changes thereby rendered necessary and each such
party or any one or more of them shall be entitled to enforce all of
the rights and remedies of the Creditor hereunder against the Guarantor
or any one or more of them.
<PAGE> 28
3.9 Headings
--------
Headings of the articles and sections of this guarantee are inserted
for convenience only and shall not be deemed to constitute a part
hereof or considered in its interpretation.
3.10 Expenses and Fees
-----------------
The Guarantor hereby agrees to be responsible for and to pay all costs
and expenses, including, without limitation, all fees and disbursements
of accountants, lawyers and other advisors and consultants which are
incurred by the Creditor in connection with the creation, execution and
delivery, administration and enforcement of this guarantee and the
collection of the indebtedness or any part thereof, whether such
collection be from the Debtor or from the Guarantor or anyone else.
3.11 Postponement
------------
All debts and liabilities of every nature and kind, whether now or
hereafter in existence, of the Debtor to the Guarantor are hereby
postponed to the indebtedness of the Debtor to the Creditor and all
money received by the Guarantor in respect of or on account of any of
the said debts or liabilities shall be received and held as trustee for
the Creditor and shall be forthwith paid to the Creditor without
demand.
3.12 Guarantor Not to Take Security
------------------------------
Without the prior written consent of the Creditor, the Guarantor will
not take or hold security from the Debtor for any purpose. The
Guarantor agrees that any security from time to time held by the
Guarantor, whether or not with the consent of the Creditor, and all
proceeds of such security, shall be held in trust for the Creditor and
dealt with as directed by the Creditor.
3.13 Interpretation
--------------
Wherever the singular or masculine or neuter is used herein, the same
shall be construed as meaning the plural or the feminine or body
corporate or vice-versa, where the context or the parties hereto so
require.
3.14 Guarantee Not in Substitution
-----------------------------
This guarantee is in addition to and not in substitution for any other
guarantee or other security held or which may hereafter be held by the
Creditor.
<PAGE> 29
3.15 Further Assurances
------------------
The Guarantor agrees to promptly do all such further acts, and promptly
execute and deliver all such further documents, as the Creditor may
consider necessary or advisable for the purpose of giving effect to or
carrying out the provisions and intent of this guarantee.
IN WITNESS WHEREOF the Guarantor has caused this guarantee to be duly executed
under seal, in the case of a corporation by its duly authorized officer or
officers, effective as of the date first written above.
SIGNED, SEALED and DELIVERED )
by ICHOR CORPORATION )
in the presence of: ) ICHOR CORPORATION
)
)
- - ------------------------------ ) (s)
Name ) --------------------
)
- - ------------------------------ )
Address )
)
- - ------------------------------ )
)
- - ------------------------------ )
Occupation )
This is page 11 of a Deed of Guarantee by ICHOR Corporation in favour of
VOLENDAM INVESTMENTS LIMITED dated for reference the 15th day of January,
1997.
<PAGE> 1
THIS LOAN AGREEMENT is dated for reference and made effective the 15th day of
January, 1997,
BETWEEN:
ICHOR CORPORATION, a corporation organized under
the laws of Delaware, and having an office at 300 Oxford
Drive, Monroeville, Pennsylvania, 15146
(hereinafter called "ICHOR")
OF THE FIRST PART
AND:
ICHOR SERVICES, INC., a corporation, organized under
the laws of Delaware and having an office at 300 Oxford
Drive, Monroeville, Pennsylvania, 15146
(hereinafter called "ISI")
OF THE SECOND PART
(ICHOR and ISI are hereinafter collectively called the "Borrowers")
AND:
DRUMMOND FINANCIAL CORPORATION, a corporation, organized
under the laws of Delaware and having an address at 1250,
400 Burrard Street, Vancouver, British Columbia, V6C 3A6
(hereinafter called the "Lender")
OF THE THIRD PART
WHEREAS the Borrowers have requested that the Credit Facility (hereinafter
defined) be made available by the Lender to the Borrowers;
AND WHEREAS the Lender has agreed to make the Credit Facility available to the
Borrowers upon the terms and conditions set out herein;
NOW THEREFORE THIS LOAN AGREEMENT WITNESSES THAT in consideration of the
respective agreements hereinafter set forth and for other good and valuable
consideration (the receipt
<PAGE> 2
and sufficiency of which are hereby acknowledged), the parties hereto
acknowledge, declare, covenant and agree as follows:
ARTICLE I
1. INTERPRETATION
1.1 Definitions
-----------
When used in this Loan Agreement (including the recitals) or in any amendment
or schedule hereto, the following terms shall, unless otherwise expressly
provided, have the following meanings, respectively:
"Advance Date" means with respect to each Advance the date upon which such
Advance shall be made by the Lender to the Borrowers;
"Advances" means advances made by the Lender to the Borrowers or at the
Borrowers' direction from time to time pursuant to the provisions hereof, and
"Advance" means any such advance;
"Ancillary Documents" means, collectively, the Note and the General Security
Agreement and "Ancillary Document" means any one of them;
"Banking Day" means a day on which the Main Branch of the Royal Bank of Canada
is open for business in Vancouver, British Columbia;
"Credit Facility" means the credit facility in the Principal Sum established
by the Lender in favour of the Borrowers pursuant to Section 2.1 hereof;
"Collateral" means all present or after acquired personal property of the
Borrowers as more specifically set out in the General Security Agreement(s);
"Financing Statement(s)" means Universal Commercial Code financing statements
to be executed by the Borrowers to enable the Lender to perfect its security
interests in the Collateral;
"General Security Agreement(s)" means agreement(s) between the Borrowers and
the Lender pursuant to which the Borrowers grant a security interest to and in
favour of the Lender over all of their present and after-acquired personal
property which agreement(s) shall be in substantially the form appended as
Schedule "B" hereto;
"Interest Rate" means 10% per annum;
"Loan Agreement" means this loan agreement and the schedules hereto;
<PAGE> 3
"Note" means the promissory note delivered by the Borrowers to the Lender, in
the form of Schedule "A" hereto, to evidence the maximum principal
indebtedness of the Borrowers to the Lender hereunder;
"Person" means an individual, a corporation, a partnership, a trustee, or any
unincorporated organization, and words importing persons have a similar
meaning;
"Principal Sum" means $250,000;
"Security" means the security to be provided by the Borrowers to the Lender
described in Section 4.1 hereof.
1.2 Headings, etc.
--------------
The division of this Loan Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this Loan Agreement.
1.3 Amendment
---------
No amendment of any provision of this Loan Agreement or the Ancillary
Documents shall be effective unless the same shall be in writing and signed by
each party thereto which is then a party to or, to whom a security interest
has been granted pursuant to, the respective document being amended.
1.4 Counterparts
------------
This Loan Agreement may be executed in any number of counterparts by one or
more parties hereto and such counterparts, each of which when so executed and
delivered, shall be deemed to be an original and all of which when taken
together shall constitute one and the same instrument.
An executed counterpart of this Loan Agreement may be delivered by facsimile
transfer or similar form of electronic communication from one party to the
other provided that an original executed counterpart is promptly delivered to
such receiving party.
1.5 Payments
--------
Whenever any payment to be made hereunder or under the Note shall be stated to
be due on a day which is not a Banking Day, such payment may be made on the
next succeeding Banking Day and such extension of time shall in such case be
included in the computation of the payment of interest hereunder, but shall
not in any event operate as a waiver by the Lender of any of its rights.
<PAGE> 4
1.6 Severability
------------
If one or more provisions contained in this Loan Agreement and/or an Ancillary
Document shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions hereof and/or thereof shall not be affected or impaired thereby.
1.7 Currency
--------
Unless otherwise specified herein all references to "dollars" shall be
references to U.S. Currency.
1.8 Schedules
---------
Schedules and other documents attached or referred to in this Loan Agreement
are an integral part of this Loan Agreement.
ARTICLE II
2. CREDIT
2.1 Credit Facility
---------------
Relying on each of the representations and warranties set out herein and
subject to the terms and conditions set forth herein, the Lender hereby
extends and agrees to make available to the Borrower, the Credit Facility in
the amount of the Principal Sum.
2.2 Nature of the Credit Facility
-----------------------------
The Credit Facility shall be available to the Borrowers up to the Principal
Sum on a revolving basis subject to termination following demand for payment
as hereinafter provided. Notwithstanding the foregoing, the Borrowers
acknowledge that the Lender may at any time, in its absolute discretion,
refuse to make any Advance requested under the Loan Agreement notwithstanding
that the Borrowers are in compliance with their covenants set out herein, and
without limiting the generality of the foregoing shall be entitled to refuse
to make an advance if:
(a) the Borrowers shall fail to pay any principal hereunder when the
same becomes due and payable;
(b) the Borrower shall fail to pay any interest or default interest
hereunder when the same becomes due and payable;
<PAGE> 5
(c) any representation, warranty or certification made by the Borrower
or the Guarantor herein or in relation hereto or in any other
agreement to which the Borrower or the Guarantor and the Lender
are a party shall prove to have been incorrect when made;
(d) either Borrower shall fail to perform any term, covenant or
agreement contained herein on its part to be performed or observed;
(e) either Borrower shall generally not pay its debts as such debts
become due, or shall indicate in writing its inability to pay such
debts generally, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against
either Borrower seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of its debts under
any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee or other similar official
for it or for any part of its property or the Borrower or the
Guarantor shall take any corporate action to authorize any of the
actions set forth above;
(f) either Borrower shall fail to pay the principal of or premium or
interest on any debt of either Borrower which is outstanding in an
aggregate principal amount in excess of $5,000 when the same
becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) or if any other
event shall occur specified in any agreement or instrument relating
to any such debt, if the effect of such event is to permit the
acceleration of the maturity of such debt; or debt of either
Borrower which is outstanding in an aggregate principal amount
exceeding $5,000 shall be validly declared to be due and payable
prior to the stated maturity thereof;
(g) any judgment or order for the payment of money in excess of $5,000
shall be rendered against either Borrower;
(h) either Borrower shall engage in any business not currently carried
on by it and such engagement shall constitute in the opinion of the
Lender an event which has an adverse effect on the ability of
either Borrower to perform its obligations under the Loan
Agreement; or
(i) in the opinion of the Lender there occurs any adverse change from
the date hereof or any date subsequent hereto in the financial
condition, business, operations, assets, properties or prospects of
either Borrower.
<PAGE> 6
2.3 Interest on Advances
--------------------
The Borrowers shall pay to the Lender interest on Advances from the Lender at
the Interest Rate. Interest shall accrue daily in arrears and shall be
compounded monthly while such Advances are outstanding and shall be computed
on the basis of a year of 365 days and for actual days elapsed and shall be
payable on demand.
2.4 Default Interest
----------------
Default interest shall be paid on all interest payable hereunder which is
overdue. Default interest with respect to interest payable shall be
calculated daily and compounded monthly at the Interest Rate. Default
interest on overdue interest shall be paid on demand both before and after
default and judgment. Default interest shall be computed from and including
the date interest payable pursuant to the Loan Agreement becomes due and shall
be paid for so long as such amount or amounts remain unpaid.
2.5 Notice for Advances
-------------------
The Borrowers shall give to the Lender not less than 24 hours notice of their
intention to take an Advance which notice shall specify the amount of the
Advance, the Advance Date. All Advances shall be requested and made in
multiples of $1,000 and shall be advanced from the Lender as directed by the
Borrower on the Advance Date by way of telegraphic or other internal bank
transfers or by such other method of delivery as may be set out in the notice
requisitioning the Advance and agreed upon by the Lender, provided that the
Lender may advance in multiples other than $1,000 and such Advances shall be
properly made.
2.6 Conditions of the Advances
--------------------------
The Lender shall not make an initial Advance unless on such Advance Date all
representations and warranties of the Borrowers as set out herein are true and
correct and each of the following conditions is satisfied as of such date:
(a) the execution and delivery by the Borrowers to the Lender of the Loan
Agreement, the Note and the General Security Agreement;
(b) the execution and delivery by the Borrowers to the Lender of all such
documents as in the opinion of counsel to the Lender are necessary or
appropriate to render effective the Security and protect the rights of
the Lender in respect thereof, including:
(i) certified copies of the constating documents of the Borrowers and
any amendments thereto;
<PAGE> 7
(ii) certificates of good standing of the Borrowers;
(iii) certified copies of resolutions of the boards of directors of the
Borrowers authorizing the Borrowers to execute and deliver and
perform their obligations under the Loan Agreement and authorizing
the execution, delivery and performance of the Ancillary Documents
to which each is a party and the delivery of the instruments,
agreements, certificates and other documents contemplated herein
and therein and the manner in which and by whom the foregoing
documents are to be executed and delivered;
(iv) incumbency certificates of the Borrowers setting forth the names
of their directors and officers and specimen signatures of the
individuals who sign the Loan Agreement, the Ancillary Documents
and the instruments, agreements, certificates and other documents
provided for or contemplated therein; and
(v) a favourable opinion of counsel for the Borrowers (in form and
content satisfactory to the solicitors for the Lender) to the
effect that:
(A) each of the Borrowers exists as a company in its
jurisdiction of organization and is in good standing with
respect to all required corporate filings;
(B) the Borrowers have the corporate power and capacity to
borrow money in the manner herein contemplated and have the
corporate capacity to grant security therefor in the manner
herein contemplated and to enter into, observe and perform
the terms and obligations on its part to be observed and
performed under the Loan Agreement and the Ancillary
Documents;
(C) the Borrowers have duly authorized, executed and delivered
the Loan Agreement and the Ancillary Documents to which it
is a party and the Loan Agreement and the Ancillary
Documents constitute valid and binding obligations of the
Borrowers, and the Loan Agreement is enforceable against the
Borrowers in accordance with its terms, save as enforcement
may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws at the time in
effect affecting the rights of creditors generally and
subject to equitable principles which may limit the
availability of certain remedies;
(D) insofar as they are aware in their capacity as counsel for
the Borrowers, there are no actions, proceedings or
investigations pending or threatened which question the
validity of the Loan
<PAGE> 8
Agreement and the Ancillary Documents or the validity of any
act to be taken pursuant thereto; and
(c) registration of Financing Statements in a form or forms satisfactory to
the Lender in such registries as the Lender may require;
(d) the representations and warranties contained herein are true and
correct; and
(e) the Borrowers shall have complied with all of their covenants and
obligations in this Loan Agreement.
The conditions set forth in this Section 2.6 are for the sole benefit of the
Lender and may be waived by the Lender from time to time in whole or in part.
ARTICLE III
3. REPAYMENTS OF PRINCIPAL AND INTEREST
3.1 Repayment of Credit Facility
----------------------------
The Lender may at any time, in its absolute discretion, terminate the
availability of the Credit Facility and demand payment of all monies due
thereunder within a reasonable period of time from the date of demand. After
the lapse of such reasonable period of time, the Borrowers shall immediately
pay to the Lender all amounts outstanding under the Credit Facility, including
principal, interest and default interest. For the purposes of this provision,
a reasonable period of time shall be five (5) days unless the Lender
reasonably determines that the value of the Borrowers' businesses or the
Security would be reduced or the ability of the Lender to realize on such
security would be impaired by such delay or any part thereof. The Borrowers
acknowledge that the Credit Facility is made available by the Lender on a
demand basis and that the Lender is entitled to demand payment from the
Borrowers at any time notwithstanding that the Borrowers are in compliance
with its covenants herein.
3.2 Borrowers' Right to Prepay Credit Facility
------------------------------------------
The Borrowers may repay all or part of the Credit Facility from time to time.
Prepayments may be made at anytime without notice, bonus, penalty or premium.
3.3 Place of Payment of Principal and Interest
------------------------------------------
All payments of principal and interest due to the Lender shall be made on the
day that such amount is due to the Lender at the Lender's address provided for
in this Loan Agreement.
<PAGE> 9
ARTICLE IV
4. SECURITY
4.1 Security
--------
As general and continuing security for the performance of their obligations
hereunder, and the prompt payment when due by the Borrowers of their
borrowings under the Credit Facility and interest thereon and all other moneys
for the time being and from time to time owing by the Borrowers hereunder,
including default interest, the Borrowers shall execute or cause to be
executed and deliver to the Lender, on or before the first Advance Date, the
following:
(a) the Note; and
(b) the General Security Agreements.
The Security granted hereunder is in addition to and not in substitution for
any other security interest now or hereafter held by the Lender from either
Borrower or from any other person whomsoever and secures and is and shall at
all times be general and continuing security for the payment, performance and
satisfaction of any and all indebtedness and liability of the Borrowers to the
Lender (including interest and default interest thereon) present or future,
direct or indirect, absolute or contingent, extended or renewed, wheresoever
and howsoever incurred and, without limiting the generality of the foregoing,
for the performance and satisfaction of all obligations of the Borrowers to
the Lender under the Loan Agreement (all of which indebtedness, liability and
obligations are hereinafter collectively called the "Indebtedness"). If the
Security is not sufficient to satisfy all Indebtedness of the Borrowers, the
Borrowers acknowledge and agrees that the Borrowers shall continue to be
liable for any Indebtedness remaining outstanding and the Lender shall be
entitled to pursue full payment thereof.
4.2 Conflicts
---------
If a conflict or inconsistency exists between a provision of this Loan
Agreement and a provision of the Ancillary Documents or any part thereof, then
the provisions of this Loan Agreement shall prevail. Notwithstanding the
foregoing, if there is any right or remedy of the Lender set out in the
Ancillary Documents or any part thereof which is not set out or provided for
in this Loan Agreement, such additional right or remedy shall not constitute a
conflict or inconsistency. The Lender acknowledges that the Principal Sum
evidenced by the Note may exceed the principal and interest due or accruing
due from the Borrowers to the Lender hereunder and the Lender covenants not to
demand or require payment of a principal sum in excess of that payable
hereunder.
<PAGE> 10
4.3 Return of Security
------------------
Upon payment of all principal and interest due from the Borrowers to the
Lender under this Loan Agreement, the Lender shall forthwith upon receipt of
written notice requiring return of the Security surrender its interest in and
deliver the Security to the Borrowers.
ARTICLE V
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Borrowers
-----------------------------------------------
The Borrowers represent and warrant to the Lender as set forth in this part of
the Loan Agreement. All representations and warranties shall survive all
borrowings and no investigation at any time made by or on behalf of a Lender
shall diminish in any respect whatsoever its right to rely thereon. The
Borrowers represent and warrant to the Lender as follows:
(a) each of the Borrowers has full corporate power and authority to own its
properties and to enter into and perform its obligations under this Loan
Agreement and the Ancillary Documents and to do all acts and things and
execute and deliver all other documents as are required hereunder or
thereunder to be done, observed or performed by it in accordance with
their terms;
(b) each of the Borrowers has taken all necessary action to authorize the
creation, execution, delivery and performance of this Loan Agreement and
to observe and perform the provisions of each in accordance with its
terms as of the date hereof and the Loan Agreement and each of the
Ancillary Documents has been duly executed by the Borrowers, as
required, and when delivered will be legal, valid and binding
obligations of the Borrowers, enforceable in accordance with their
terms, save as enforcement may be limited by applicable bankruptcy,
insolvency, moratorium and similar laws at the time in effect affecting
the rights of creditors generally and subject to equitable principles
which may limit the availability of certain remedies;
(c) each of the Borrowers is a company, validly existing and in good
standing with respect to the filing of required corporate returns under
the laws of its jurisdiction and is duly qualified, in good standing and
authorized to do business in all jurisdictions where the character of
the properties owned by it or the nature of the business transacted by
it makes such qualification necessary;
(d) the execution and delivery and performance of the Loan Agreement and the
Ancillary Documents will not contravene any material provision of any
regulation, order or permit
<PAGE> 11
applicable to the Borrowers or cause a conflict with or contravention of
either of their constating documents or cause a breach of or constitute
a default under or require any consent under any agreement or instrument
to which either Borrower is a party or by which either Borrower is bound
except such as have been obtained;
(e) neither Borrower is in default under any agreement or instrument to
which it is a party in any way which materially adversely affects its
business and there are no suits or judicial proceedings or proceedings
before any governmental commission, board or other agency pending or to
the knowledge of either Borrower or threatened against either Borrower
which involves a significant risk of a judgment or liability which, if
satisfied, would have a materially adverse affect upon the financial
position of either Borrower or the ability to borrow or meet the
Borrowers' obligations under the Loan Agreement;
(f) each Borrower has all leases, licenses, permits and consents as are
essential for the carrying on of its business in the manner in which its
business is carried on and all such leases, licenses, permits and
consents are in full force and effect and no proceedings relating
thereto are pending or known to either Borrower which materially
adversely affects its business;
(g) neither Borrower is in default under any guarantee, bond, debenture,
note or other instrument evidencing any indebtedness or under the terms
of any instrument pursuant to which any of the foregoing has been issued
or made and delivered and, to the knowledge of either Borrower there
exists no state of facts which, after notice or lapse of time or both
would constitute such a default;
(h) ICHOR has furnished to the Lenders its most recent audited financial
statements for the fiscal year ended January 31, 1996, all such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis, except as
stated therein or in the notes thereto, and present fairly the financial
position of the Borrowers as at the date thereof; and
(i) since January 1, 1996, there has been no material adverse change in the
financial condition of the Borrowers from that shown in the financial
statements delivered to the Lender other than in the ordinary course of
their respective businesses, and any such change in the ordinary course
of their respective businesses has not been materially adverse to the
businesses of the Borrowers except as disclosed to the Lender;
<PAGE> 12
ARTICLE VI
6. COVENANTS
6.1 Covenants of the Borrowers
--------------------------
The Borrowers jointly and severally covenant to the Lender as follows and
confirm that the Lender is relying upon such covenants that:
(a) the Borrowers will duly and punctually pay all principal, interest and
default interest required to be paid by the Borrowers hereunder in the
manner specified herein;
(b) the Borrowers will maintain their corporate existence at all times;
(c) the Borrowers will observe and perform all of their covenants contained
in this Loan Agreement and the Ancillary Documents;
(d) the Borrower will not sell, assign, give, transfer, pledge, mortgage,
charge, create a security interest in or otherwise encumber any of the
Collateral other than pursuant to the General Security Agreement(s);
(e) ICHOR will keep or cause to be kept proper books of account and shall
furnish to the Lender within ninety (90) days after the close of each
fiscal year copies of its annual consolidated audited financial
statements reported on by its auditor and accompanied by their signed
report and within forty-five (45) days of the close of each fiscal
quarter shall provide copies of its quarterly consolidated unaudited
financial statements including a consolidated balance sheet, a
consolidated statement of earnings and retained earnings and a
consolidated statement of changes of financial position signed by the
chief financial officer of ICHOR;
(f) the Borrowers will at all times keep adequately insured by a financially
sound or reputable insurer (and will provide satisfactory evidence
thereof to the Lender on at least an annual basis and on request) all
assets and property of a character customarily insured by persons
engaged in the same or similar businesses, similarly situated, including
inventory and business interruption insurance against loss or damage of
the kinds, customarily insured against by such persons and in such
amounts as are customarily insured for by such persons and that the
Borrower will forthwith notify the Lender upon the happening of any
significant loss and will duly and punctually pay or cause to be paid
all premiums and other sums of money for maintaining such insurance and
will, at the request of the Lender, cause the Lender to be designated as
first loss payee under any contract of insurance maintained by either
Borrower over the Collateral;
<PAGE> 13
(g) the Borrowers will file all material returns including income tax
returns and filings in all required jurisdictions;
(h) the Borrowers will pay all taxes (except taxes in dispute which are
being contested in good faith) including interest and penalties and will
pay or make adequate reserves for the ultimate payment of any tax
payment which is being contested; and
(i) the Borrowers will permit from time to time, as requested by the Lender,
any person designated by the Lender to examine their financial records
and will cause ICHOR's chief financial officer or such other senior
officer as may be appropriate, to discuss and explain, as the case may
be, any of their affairs, finances and accounts and to provide such
other information pertaining to its business as the said representative
may reasonably require;
ARTICLE VII
7. MISCELLANEOUS
7.1 Notices
-------
Any demand, notice or communication to be made or given hereunder shall be in
writing and may be made or given by personal delivery or by transmittal by
facsimile addressed to the respective parties as follows:
To the Borrowers ICHOR Corporation
300 Oxford Drive
Monroeville, Pennsylvania, 15146
Fax: (412) 856-6057
ICHOR Services, Inc.
300 Oxford Drive
Monroeville, Pennsylvania, 15146
Fax: (412) 856-6057
To the Lender: Drummond Financial Corporation
1250 - 400 Burrard Street
Vancouver, B.C. V6C 3A6
Attention: President
Fax: (604) 683-3205
<PAGE> 14
or to such other address or facsimile number as any party may from time to
time notify the others in accordance with this Section 7.1. Any demand,
notice or communication, if made or given by personal delivery, shall be
conclusively deemed to have been given on the day of actual delivery thereof,
or if made or given by telecopy shall be conclusively deemed to have been
given on the first Banking Day following the transmittal thereof.
7.2 Governing Law and Jurisdiction
------------------------------
Notwithstanding any applicable conflict of laws principles, the Borrower
hereby irrevocably agrees that any legal action or proceedings against it with
respect to this Loan Agreement may be brought in the courts of the Province of
British Columbia or in such other court as the Lender may elect and, by
execution and delivery of this Loan Agreement, the Borrower hereby irrevocably
submits and attorns to the jurisdiction of each such court. This Loan
Agreement shall be governed by and construed in accordance with the laws in
force in the Province of British Columbia.
7.3 Benefit of the Agreement
------------------------
This Loan Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
7.4 Further Assurances and Security
-------------------------------
The Borrowers will do, execute and deliver all such further acts, documents
and things as the Lender may require for the purpose of giving effect to this
Loan Agreement or further securing the obligations of the Borrowers arising
hereunder and the Borrowers agree to provide to the Lender such replacement,
supplementary or additional security as the Lender may require.
7.5 Assignments and Participations
------------------------------
The Borrowers may not assign any or all of their rights and/or obligations
hereunder or under the Ancillary Documents without the prior written consent
of the Lender. The Lender may assign any or all of its rights and/or
obligations hereunder or under the Ancillary Documents, and without limiting
the generality of the foregoing, may assign any or all of its rights and/or
obligations with respect to any specific Advance and/or the Security or any
part thereof.
7.6 Joint and Several Obligations
-----------------------------
The obligations of the Borrowers hereunder and under the Ancillary Documents
are joint and several.
<PAGE> 15
7.7 Entire Agreement
----------------
This Loan Agreement and the Ancillary Documents comprise the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior understandings and agreements between the parties with
respect thereto. There are no representations, warranties, terms, conditions,
undertakings or collateral agreements express, implied or statutory, between
the parties with respect to the subject matter hereof other than as expressly
set forth in this Loan Agreement.
IN WITNESS WHEREOF the parties hereto have caused this Loan Agreement to be
executed effective as of the date first above written.
ICHOR CORPORATION
By: /s/ John M. Musacchio
---------------------------
Name: John M. Musacchio
-------------------------
Title: President
------------------------
ICHOR SERVICES, INC.
By: /s/ John M. Musacchio
---------------------------
Name: John M. Musacchio
-------------------------
Title: President
------------------------
DRUMMOND FINANCIAL CORPORATION
By: /s/ Roy Zanatta
---------------------------
Name: Roy Zanatta
-------------------------
Title: Secretary
------------------------
<PAGE> 16
SCHEDULE "A"
PROMISSORY NOTE
FOR VALUE RECEIVED the undersigned hereby jointly and severally promise to
pay, upon demand, to DRUMMOND FINANCIAL CORPORATION the principal sum of Two
Hundred Fifty Thousand ($250,000) U.S. Dollars, together with interest at the
applicable rate specified in that certain Loan Agreement dated January 15,
1997, between Drummond Financial Corporation, ICHOR Corporation and ICHOR
Services, Inc. (the "Loan Agreement"), on such principal amount or part
thereof outstanding from time to time from the date or dates of advance
thereof and interest on overdue interest at the rate specified in the Loan
Agreement, as well after as before judgment and both before and after default,
until payment in full in the manner specified in the Loan Agreement, such
interest to be calculated in the manner and paid in arrears as specified in
the Loan Agreement.
All capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Loan Agreement.
This Note is issued pursuant to the Loan Agreement and is subject to all of
the provisions thereof.
All payments of principal and interest shall be made at the place and times
and for value on the date due in the manner set forth in the Loan Agreement.
Notwithstanding any applicable conflict of laws principles, this Note shall be
governed by and construed in accordance with the laws of British Columbia and
the undersigned hereby attorns to the jurisdiction of the Courts of British
Columbia or such other Court as Drummond Financial Corporation may elect.
NOTICE OF PRESENTMENT, PROTEST AND DISHONOUR ARE HEREBY WAIVED.
DATED at , , the day of January, 1997.
---------- ---------- -----
ICHOR CORPORATION
Per:
--------------------
ICHOR SERVICES, INC.
Per:
--------------------
<PAGE> 17
SCHEDULE "B"
GENERAL SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made effective the 15th day of January, 1997,
BETWEEN:
ICHOR SERVICES, INC., a corporation organized under
the laws of Delaware, and having an office at 300 Oxford
Drive, Monroeville, Pennsylvania, 15146
(the "Debtor")
OF THE FIRST PART
AND:
DRUMMOND FINANCIAL CORPORATION, a corporation
organized under the laws of Delaware and having
an address at 1250, 400 Burrard Street, Vancouver,
British Columbia, V6C 3A6
(the "Secured Party")
OF THE SECOND PART
1. SECURITY INTEREST
1.1 For consideration and as security for the payment and performance of
the Obligations referred to in clause 3 hereof, the Debtor, subject to
the exceptions set out in clause 2, hereby mortgages, charges, assigns
and transfers to the Secured Party, and grants to the Secured Party a
security interest in, all the Debtor's right, title and interest in and
to all presently owned or held and after acquired or held personal
property, assets and undertakings of the Debtor (other than real
property), of whatever nature or kind and wheresoever situate and all
proceeds thereof and therefrom (all of which is hereinafter
collectively called the "Collateral") including, without limiting the
generality of the foregoing:
<PAGE> 18
(a) Equipment
---------
All equipment, including, without limiting the generality of the
foregoing, machinery, tools, fixtures, furniture, furnishings,
chattels, motor vehicles, vessels and other tangible personal
property that is not Inventory, and all parts, components,
attachments, accessories, accessions, replacements,
substitutions, additions and improvements to any of the
foregoing (all which is hereinafter collectively called the
"Equipment");
(b) Inventory
---------
All inventory, including, without limiting the generality of the
foregoing, goods acquired or held for sale or lease or furnished
or to be furnished under contracts of rental service, all raw
materials, work in process, finished goods, returned goods,
repossessed goods, and all packaging materials, supplies and
containers relating to or used or consumed in connection with any
of the foregoing (all of which is hereinafter collectively called
the "Inventory");
(c) Accounts
--------
All debts, accounts, claims, monies and choses in action which
now are, or which may at any time hereafter be, due or owing to
or owned by the Debtor and all books, records, documents, papers
and electronically recorded data recording, evidencing or
relating to the said debts, accounts, claims, monies and choses
in action or any part thereof (all of which is hereinafter
collectively called the "Accounts");
(d) Other Personal Property
-----------------------
All documents of title, chattel paper, instruments, securities
and money and all other goods of the Debtor that are not
Equipment, Inventory or Accounts;
(e) Intangibles
-----------
All contractual rights, licenses, goodwill, patents trademarks,
trade names, copyrights and other intellectual property of the
Debtor, all other choses in action of the Debtor of every kind
which now are, or which may at any time hereafter be, due or
owing to or owned by the Debtor, and all other intangible
property of the Debtor which is not Accounts, chattel paper,
instruments, documents of title, securities or money.
<PAGE> 19
2. EXCEPTIONS
2.1 The last 10 days of the term created by any lease or agreement therefor
are hereby excepted out of any charge or security interest created by
this Security Agreement but the Debtor shall stand possessed of the
reversion thereby remaining upon trust to assign and dispose thereof to
any third party as the Secured Party shall direct.
2.2 There shall be excluded from the security interests hereby created any
consumer goods of the Debtor.
3. OBLIGATIONS SECURED
3.1 This Security Agreement and the security interests hereby created are
in addition to and not in substitution for any other security interest
now or hereafter held by the Secured Party from the Debtor or from any
other person whomsoever and shall be general and continuing security
for the payment of all indebtedness and liability of the Debtor to the
Secured Party (including interest thereon), present and future,
absolute or contingent, joint or several, direct or indirect, matured
or not, extended or renewed, wheresoever and howsoever incurred, and
any ultimate balance thereof, including all future advances and
re-advances, and for the performance of all obligations of the Debtor
to the Secured Party, whether or not contained in this Security
Agreement (all of which indebtedness, liability, and obligations are
hereinafter collectively called the "Obligations").
4. PROHIBITIONS
4.1 Without the prior written consent of the Secured Party the Debtor shall
not have power to:
(a) create or permit to exist any security interest in, charge,
encumbrance or lien over, or claims against any of its property,
assets, or undertakings which ranks or could in any event rank in
priority to or pari passu with any security interest created by
this Security Agreement; or
(b) grant, sell, or otherwise assign its chattel paper.
5. ATTACHMENT
5.1 The Debtor acknowledges that the security interests hereby created
attach upon the execution of this Security Agreement (or in the case of
any after acquired property, upon the date of acquisition thereof),
that value has been given, and that the Debtor has, or in the case of
after acquired property will have, rights in the Collateral.
<PAGE> 20
6. REPRESENTATIONS AND WARRANTIES
6.1 The Debtor, if a company or a partnership, represents and warrants that
this Security Agreement is granted in accordance with resolutions of
the directors (and of the shareholders as applicable) or of the
partners, as the case may be, of the Debtor and all other matters and
things have been done and performed so as to authorize and make the
execution and delivery of this Security Agreement, and the performance
of the Debtor's obligations hereunder, legal, valid and binding.
6.2 The Debtor represents and warrants that the Debtor lawfully owns and
possesses all presently held Collateral and has good title thereto,
free from all security interests, charges, encumbrances, liens and
claims, save only the charges or security interests, if any, shown in
the schedule hereto and those consented to in writing by the Secured
Party, and the Debtor has good right and lawful authority to grant a
security interest in the Collateral as provided by this Security
Agreement.
7. COVENANTS OF THE DEBTOR
7.1 The Debtor covenants that at all times while this Security Agreement
remains in effect the Debtor will:
(a) defend the title to the Collateral for the benefit of the Secured
Party against the claims and demands of all persons;
(b) fully and effectually maintain and keep maintained the security
interests hereby created valid and effective;
(c) maintain insurance on the Collateral with an insurer, of kinds,
for amounts and payable to such person or persons, all as the
Secured Party may require;
(d) maintain the Collateral in good order and repair;
(e) forthwith pay:
(i) all taxes, assessments, rates, duties, levies, government
fees, claims and dues lawfully levied, assessed or imposed
upon it or the Collateral when due, unless the Debtor shall
in good faith contest its obligations so to pay and shall
furnish such security as the Secured Party may require; or
(ii) all security interests, charges, encumbrances, liens and
claims which rank or could in any event rank in priority to
any security interest created by this Security Agreement,
other than the charges or security
<PAGE> 21
interests, if any, shown in the Schedule hereto and those
consented to in writing by the Secured Party;
(f) forthwith pay all costs, charges, expenses and legal fees and
disbursements (on a solicitor and his own client basis) which may
be incurred by the Secured Party in:
(i) inspecting the Collateral;
(ii) negotiating, preparing, perfecting and registering this
Security Agreement and other documents, whether or not
relating to this Security Agreement;
(iii) investigating title to the Collateral;
(iv) taking, recovering, keeping possession of and insuring the
Collateral; or
(v) all other actions and proceedings taken in connection with
the preservation of the Collateral and the enforcement of
this Security Agreement and of any other security interest
held by the Secured Party as security for the Obligations;
(g) at the Secured Party's request at any time and from time to time
execute and deliver such further and other documents and
instruments and do all acts and things as the Secured Party in
its absolute discretion requires in order to confirm and perfect,
and maintain perfection of, the security interests and charges
hereby created in favour of the Secured Party upon any of the
Collateral;
(h) notify the Secured Party promptly of:
(i) any change in the information contained herein relating to
the Debtor, its address, its business or the Collateral;
(ii) the details of any material acquisition of the Collateral;
(iii) any material loss or damage to the Collateral;
(iv) any material default by any account debtor in payment or
other performance of his obligations to the Debtor with
respect to any Accounts; or
<PAGE> 22
(v) the return to or repossession by the Debtor of the
Collateral where such return or repossession of the
Collateral is material in relation to the business of the
Debtor;
(i) prevent the Collateral, other than Inventory sold, leased, or
otherwise disposed of as permitted hereby, from being or becoming
an accession to other property not covered by this Security
Agreement;
(j) permit the Secured Party and its representatives, at all
reasonable times, access to all its property, assets and
undertakings and to all its books of account and records for the
purpose of inspection and render all assistance necessary for
such inspection; and
(k) deliver to the Secured Party from time to time promptly upon
request:
(i) any documents of title, instruments, securities and chattel
paper; constituting, representing or relating to
Collateral;
(ii) all books of account and all records, ledgers, reports,
correspondence, schedules, documents, statements, lists and
other writings relating to the Collateral for the purpose
of inspecting, auditing or copying the same;
(iii) all financial statements prepared by or for the Debtor
regarding the Debtor's business;
(iv) all policies and certificates of insurance relating to the
Collateral; and
(v) such information concerning the Collateral, the Debtor and
the Debtor's business and affairs as the Secured Party may
require.
7.2 The Debtor, if a company, covenants that at all times while this
Security Agreement remains in effect, without the prior written consent
of the Secured Party, it will not:
(a) declare or pay any dividends;
(b) purchase or redeem any of its shares or otherwise reduce its
share capital;
(c) become guarantor of any obligation; or
(d) become an endorser in respect of any obligation or otherwise
become liable upon any note or other obligation other than bills
of exchange deposited to the bank account of the Debtor.
<PAGE> 23
8. PERFORMANCE OF OBLIGATIONS
If the Debtor fails to perform its Obligations hereunder, the Secured Party
may, but shall not be obliged to, perform any or all of such Obligations
without prejudice to any other rights and remedies of the Secured Party
hereunder, and any payments made and any costs, charges, expenses and legal
fees and disbursements (on a solicitor and his own client basis) incurred in
connection therewith shall be payable by the Debtor to the Secured Party
forthwith with interest until paid at the highest rate borne by any of the
Obligations and such amounts shall be a charge upon and security interest in
the Collateral in favour of the Secured Party prior to all claims subsequent
to this Security Agreement.
9. RESTRICTIONS ON SALE OR DISPOSAL OF COLLATERAL
9.1 Except as herein provided, without the prior written consent of
the Secured Party the Debtor will not:
(a) sell, lease or otherwise dispose of the Collateral;
(b) release, surrender or abandon possession of the Collateral; or
(c) move or transfer the Collateral from its present location.
9.2 Provided that the Debtor is not in default under this Security
Agreement, at any time without the consent of the Secured Party the
Debtor may lease, sell, license, consign or otherwise deal with items
of Inventory in the ordinary course of its business and for the
purposes of carrying on its business.
10. DEFAULT
The Debtor shall be in default under this Security Agreement, unless waived by
the Secured Party, in any of the following events:
(a) the Debtor makes default in payment when due of any indebtedness
or liability of the Debtor to the Secured Party; or
(b) the Debtor is in breach of any term, condition, obligation or
covenant to the Secured Party, or any representation or warranty
to the Secured Party is untrue, whether or not contained in this
Security Agreement; or
(c) the Debtor makes an assignment for the benefit of its creditors,
is declared bankrupt, makes a proposal or otherwise takes
advantage of provisions for relief under any bankruptcy or
insolvency legislation or any proceedings shall be instituted
against the Debtor seeking to adjudicate it bankrupt or insolvent
or
<PAGE> 24
seeking liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of its debts under
any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee or other similar official
for it or for any part of its property, or the Debtor shall take
any corporate action to authorize any of the actions set forth
above; or
(d) a receiver, receiver and manager or receiver-manager of all or
any part of the Collateral is appointed; or
(e) an order of execution against the Collateral or any part thereof
remains unsatisfied for a period of 10 days; or
(f) without the prior written consent of the Secured Party, the
Debtor creates or permits to exist any charge, encumbrance or
lien on or claim against or any security interest in, any of the
Collateral which ranks or could in any event rank in priority to
or pari passu with any security interest or charge created by
this Security Agreement; or
(g) the holder of any other charge, encumbrance or lien on or claim
against, or security interest in, any of the Collateral does
anything to enforce or realize on such charge, encumbrance, lien,
claim or security interest; or
(h) if the Debtor is a company or a partnership, an order is made or
an effective resolution is passed for winding up the Debtor; or
(i) the Debtor, if a company, enters into any reconstruction,
reorganization, amalgamation, merger or other similar arrangement
with any other person; or
(j) the Debtor, if an individual, dies or is declared incompetent by
a court of competent jurisdiction; or
(k) the Secured Party in good faith believes and has commercially
reasonable grounds to believe that the prospect of payment or
performance of any of the Obligations is impaired or that any of
the Collateral is or is about to be placed in jeopardy.
11. ENFORCEMENT
11.1 Upon any default under this Security Agreement the Secured Party may
declare any or all of the Obligations not payable on demand to become
immediately due and payable and the security hereby constituted will
immediately become enforceable. To enforce and realize on the security
constituted by this Security Agreement the Secured Party
<PAGE> 25
may take any action permitted by law or in equity, as it may deem
expedient, and in particular without limiting the generality of the
foregoing, the Secured Party may do any of the following:
(a) appoint by instrument a receiver, receiver and manager or
receiver-manager (the person so appointed is hereinafter called
the "Receiver") of the Collateral, with or without bond as the
Secured Party may determine, and from time to time in its
absolute discretion remove such Receiver and appoint another in
its stead;
(b) enter upon any premises of the Debtor and take possession of the
Collateral with power to exclude the Debtor, its agents and its
servants therefrom, without becoming liable as a mortgagee in
possession;
(c) preserve, protect and maintain the Collateral and make such
replacements thereof and repairs and additions thereto as the
Secured Party may deem advisable; or
(d) sell, lease or otherwise dispose of all or any part of the
Collateral, whether by public or private sale or lease or
otherwise, in such manner, at such price as can be reasonably
obtained therefor and on such terms as to credit and with such
conditions of sale and stipulations as to title or conveyance or
evidence of title or otherwise as to the Secured Party may seem
reasonable, provided that if any sale is on credit the Debtor
will not be entitled to be credited with the proceeds of any such
sale, lease or other disposition until the monies therefor are
actually received.
11.2 A Receiver appointed pursuant to this Security Agreement shall be the
agent of the Debtor and not of the Secured Party and to the extent
permitted by law or to such lesser extent permitted by its appointment,
shall have all the powers of the Secured Party hereunder, and in
addition shall have power to carry on the business of the Debtor and
for such purpose from time to time to borrow money either secured or
unsecured, and if secured by a security interest on any of the
Collateral; such security interest may rank before or pari passu with
or behind any security interest created by this Security Agreement, and
if it does not so specify such security interest shall rank before the
security interests created by this Security Agreement.
11.3 Subject to the claims, if any, of the creditors of the Debtor ranking
in priority to this Security Agreement, all amounts realized from the
disposition of Collateral pursuant to this Security Agreement will be
applied as the Secured Party, in its absolute discretion, may direct as
follows:
<PAGE> 26
(a) in payment of all costs, charges and expenses (including legal
fees and disbursements on a solicitor and his own client basis)
incurred by the Secured Party in connection with or incidental
to:
(i) the exercise by the Secured Party of all or any of the
powers granted to it pursuant to this Security Agreement;
or
(ii) the appointment of the Receiver and the exercise by the
Receiver of all or any of the powers granted to it pursuant
to this Security Agreement, including the Receiver's
reasonable remuneration and all outgoings properly payable
by the Receiver;
(b) in or toward payment to the Secured Party of all principal and
other monies (except interest) due in respect of the Obligations;
and
(c) in or toward payment to the Secured Party of all interest
remaining unpaid in respect of the Obligations. Subject to
applicable law and the claims, if any, of other creditors of the
Debtor, any surplus will be paid to the Debtor.
12. DEFICIENCY
If the amounts realized from the disposition of the Collateral are not
sufficient to pay the Obligations in full the Debtor will immediately pay to
the Secured Party the amount of such deficiency.
13. RIGHTS CUMULATIVE
All rights and remedies of the Secured Party set out in this Security
Agreement are cumulative and no right or remedy contained herein is intended
to be exclusive but each will be in addition to every other right or remedy
contained herein or in any existing or future security agreement or now or
hereafter existing at law, in equity or by statue, or pursuant to any other
agreement between the Debtor and the Secured Party that may be in effect from
time to time.
14. LIABILITY OF SECURED PARTY
The Secured Party shall not be responsible or liable for any debts contracted
by it, for damages to persons or property or for salaries or non-fulfillment
of contracts during any period when the Secured Party shall manage the
Collateral upon entry, as herein provided, nor shall the Secured Party be
liable to account as mortgagee in possession or for anything except actual
receipts or be liable for any loss on realization or for any default or
omission for which a mortgagee in possession may be liable. The Secured Party
shall not be bound to do, observe or perform or to see to the observance or
performance by the Debtor of any obligations or covenants imposed upon the
Debtor nor shall the Secured Party, in the case of securities, instruments or
chattel paper, be
<PAGE> 27
obliged to preserve rights against other persons, nor shall the Secured Party
be obliged to keep any of the Collateral identifiable. The Debtor hereby
waives any applicable provision of law permitted to be waived by it which
imposes higher or greater obligations upon the Secured Party than aforesaid.
15. APPOINTMENT OF ATTORNEY
The Debtor hereby irrevocably appoints the Secured Party or the Receiver, as
the case may be, with full power of substitution, to be the attorney of the
Debtor for and in the name of the Debtor to sign, endorse or execute under
seal or otherwise any deeds, documents, transfers, cheques, instruments,
demands, assignments, assurances or consents that the Debtor is obliged to
sign, endorse or execute and generally to use the name of the Debtor and to do
all things as may be necessary or incidental to the exercise of all or any of
the powers conferred on the Secured Party or the Receiver, as the case may be,
pursuant to this Security Agreement.
16. ACCOUNTS
Notwithstanding any other provision of this Security Agreement, the Secured
Party may collect, realize, sell or otherwise deal with the Accounts or any
part thereof in such manner, upon such terms and conditions and at such time
or times, whether before or after default, as may seem to it advisable, and
without notice to the Debtor. All monies or other forms of payment received
by the Debtor in payment of any Account will be received and held by the
Debtor in trust for the Secured Party.
17. APPROPRIATION OF PAYMENTS
Any and all payments made in respect of the Obligations from time to time and
monies realized from any security interests held therefor (including monies
collected in accordance with or realized on any enforcement of this Security
Agreement) may be applied to such part or parts of the Obligations as the
Secured Party may see fit, and the Secured Party may at all times and from
time to time change any appropriation as the Secured Party may see fit.
18. LIABILITY TO ADVANCE
None of the preparation, execution, perfection and registration of this
Security Agreement or the advance of any monies shall bind the Secured Party
to make any advance or loan or further advance or loan, or renew any note or
extend any time for payment of any indebtedness or liability of the Debtor to
the Secured Party.
19. WAIVER
The Secured Party may from time to time and at any time waive in whole or in
part any right, benefit or default under any clause of this Security Agreement
but any such waiver of any right,
<PAGE> 28
benefit or default on any occasion shall be deemed not to be a waiver of any
such right, benefit or default thereafter, or of any other right, benefit or
default, as the case may be.
20. NOTICE
Notice may be given to either party by sending it through the post by prepaid
mail or by delivery to the party for whom it is intended, at the principal
address of such party provided herein or at such other address as may be given
in writing by such party to the other, and any notice if posted shall be
deemed to have been given at the expiration of three business days after
posting and if delivered, on delivery.
21. EXTENSIONS
The Secured Party may grant extensions of time and other indulgences, take and
give up security, accept compositions, compound, compromise, settle, grant
releases and discharges, refrain from perfecting or maintaining perfection of
security interests, and otherwise deal with the Debtor, account debtors of the
Debtor, sureties and others and with the Collateral and other security
interests as the Secured Party may see fit without prejudice to the liability
of the Debtor or the Secured Party's right to hold and realize on the security
constituted by this Security Agreement.
22. NO MERGER
This Security Agreement shall not operate so as to create any merger or
discharge of any of the Obligations, or any assignment, transfer, guarantee,
lien, contract, promissory note, bill of exchange or security interest of any
form held or which may hereafter be held by the Secured Party from the Debtor
or from any other person whomsoever. The taking of a judgment with respect to
any of the Obligations will not operate as a merger of any of the covenants
contained in this Security Agreement.
23. ASSIGNMENT
The Secured Party may, without further notice to the Debtor, at any time
assign, transfer or grant a security interest in this Security Agreement and
the security interests granted hereby. The Debtor expressly agrees that the
assignee, transferee or secured party, as the case may be, shall have all of
the Secured Party's rights and remedies under this Security Agreement and the
Debtor will not assert any defense, counterclaim, right of set-off or
otherwise any claim which it now has or hereafter acquires against the Secured
Party in any action commenced by such assignee, transferee or secured party,
as the case may be, and will pay the Obligations to the assignee, transferee
or secured party, as the case may be, as the Obligations become due.
<PAGE> 29
24. SATISFACTION AND DISCHARGE
Any partial payment or satisfaction of the Obligations, or any ceasing by the
Debtor to be indebted to the Secured Party, shall be deemed not to be a
redemption or discharge of this Security Agreement. The Debtor shall be
entitled to a release and discharge of this Security Agreement upon full
payment and satisfaction of all Obligations and upon written request by the
Debtor and payment to the Secured Party of all costs, charges, expenses and
legal fees and disbursements (on a solicitor and his own clients basis)
incurred by the Secured Party in connection with the Obligations and such
release and discharge.
25. ENUREMENT
This Security Agreement shall enure to the benefit of the Secured Party and
its successors and assigns, and shall be binding upon the respective heirs,
executors, personal representatives, successors and permitted assigns of the
Debtor.
26. INTERPRETATION
26.1 In this Security Agreement:
(a) "Collateral" has the meaning set out clause 1 hereof and any
reference to Collateral shall, unless the context otherwise
requires, be deemed a reference to Collateral as a whole or any
part thereof; and
(b) "Debtor" and the personal pronoun "it" or "its" and any verb
relating thereto and used therewith shall be read and construed
as required by and in accordance with the context in which such
words are used depending upon whether the Debtor is one or more
individuals, corporations or partnerships and if more than one,
shall apply and be binding upon each of them severally.
26.2 The invalidity or unenforceability of the whole or any part of any
clause of this Security Agreement shall not affect the validity or
enforceability of any other clause or the remainder of such clause.
26.3 The headings of the clauses of this Security Agreement have been
inserted for reference only and do not define, limit, alter or enlarge
the meaning of any provision of this Security Agreement.
26.4 This Security Agreement shall be governed by the laws of Pennsylvania.
27. COPY OF AGREEMENT AND FINANCING STATEMENT
The Debtor hereby:
<PAGE> 30
(a) acknowledges receiving a copy of this Security Agreement, and
(b) waives all rights to receive from the Secured Party a copy of any
financing statement, financing change statement or verification
statement filed at any time in respect of this Security
Agreement.
IN WITNESS WHEREOF the Debtor has executed this Security Agreement effective
the date first above written.
SIGNED, SEALED and DELIVERED )
by ICHOR SERVICES, INC. )
in the presence of: ) ICHOR SERVICES, INC.
)
)
- - ------------------------------ ) Per:
Witness ) --------------------
)
- - ------------------------------ )
Address )
)
- - ------------------------------ )
)
- - ------------------------------ )
Occupation )
Principal Address of Debtor:
300 Oxford Drive
Monroeville, Pennsylvania 15146
<PAGE> 1
ICHOR CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Eleven Months Ended December 31, 1996, and Years Ended January 31, 1996 and 1995
(In Thousands of Dollars, Except for Per Share Amounts)
<TABLE>
<CAPTION>
December 31, January 31, January 31,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 2,585,590 2,456,000 1,870,320
=========== =========== ===========
Fully Diluted:
Weighted average shares outstanding 2,585,590 2,456,000 1,870,320
Common stock equivalents 146,574 69,000 -
----------- ----------- -----------
2,732,164 2,525,000 1,870,320
=========== =========== ===========
Income (loss) from continuing operations
before extraordinary item $ (1,489) $ (1,250) $ 84
Income (loss) from discontinued operations 90 (1,608) 590
Extraordinary item - - 222
----------- ----------- -----------
Net income (loss) $ (1,399) $ (2,858) $ 896
=========== =========== ===========
Earnings per share
Primary (a) (c)
Income (loss) from continuing
operations $ (.58) $ (.51) $ .04
Discontinued operations .04 (.65) .32
Extraordinary item - - .12
----------- ----------- -----------
Net income (loss) $ (.54) $ (1.16) $ .48
=========== =========== ===========
Fully Diluted (b) (c)
Income (loss) from continuing
operations $ (.54) $ (.49) $ .04
Discontinued operations .03 (.64) .32
Extraordinary item - - .12
----------- ----------- -----------
Net income (loss) $ (.51) $ (1.13) $ .48
=========== =========== ===========
</TABLE>
(a) In accordance with generally accepted accounting principles, stock
options and warrants have not been reflected as exercised for purposes of
computing the primary loss per common share on the registrant's
Consolidated Statement of Operations for the eleven months ended December
31, 1996, and the year ended January 31, 1996, since the exercise of such
options and warrants would be antidilutive.
(b) In accordance with generally accepted accounting principles, fully
diluted earnings per share have not been reported on the registrant's
Consolidated Statement of Operations for the eleven months ended December
31, 1996, and the year ended January 31, 1996, since the exercise of
stock options and warrants has an antidilutive effect on earnings per
share.
(c) The earnings per common share for the year ended January 31, 1995, has
been computed based upon the weighted average shares outstanding of
1,870,000 which were owned by PDGE.
<PAGE> 1
ICHOR CORPORATION
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Shareholding at
December 31, 1996
Name of Subsidiary Jurisdiction of Incorporation (Direct)
- - ------------------ ----------------------------- -----------------
<S> <C> <C>
ICHOR Services, Inc. (formerly
PDG Environmental Services, Inc. State of Delaware 100%
Ortek Inc. (formerly BC Ventures
Limited) State of Washington 100%
501164 B.C. Ltd. Province of British Columbia, Canada 100%
</TABLE>
<PAGE> 1
- - ------------------------------------------------------------------------------
PETERSON SULLIVAN P.L.L.C.
601 Union Street Suite 2300 Seattle WA 98101 (206) 382-7777 fax 382-7700
Certified Public Accountants
Consent of Independent Auditors
-------------------------------
We hereby consent to the incorporation by reference in the registration
statements (No. 333-15831 and 333-15829) on Forms S-8 of Ichor Corporation and
Subsidiaries of our report dated February 21, 1997, relating to the balance
sheet of Ichor Corporation and Subsidiaries as of December 31, 1996, and the
related statements of operations, shareholders' equity and cash flows for the
eleven months ending December 31, 1996, which report appears in the Annual
Report of Form 10-K for the year ended December 31, 1996 of Ichor Corporation
and Subsidiaries.
/s/ Peterson Sullivan P.L.L.C.
February 21, 1997
Seattle, Washington
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated financial statements and notes included in this Form 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 628
<SECURITIES> 0
<RECEIVABLES> 1,124
<ALLOWANCES> 690
<INVENTORY> 0
<CURRENT-ASSETS> 2,892
<PP&E> 4,041
<DEPRECIATION> 367
<TOTAL-ASSETS> 6,608
<CURRENT-LIABILITIES> 1,710
<BONDS> 1,956
0
0
<COMMON> 50
<OTHER-SE> 1,989
<TOTAL-LIABILITY-AND-EQUITY> 6,608
<SALES> 4,050
<TOTAL-REVENUES> 4,050
<CGS> 3,056
<TOTAL-COSTS> 3,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 423
<INCOME-PRETAX> (1,489)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,489)
<DISCONTINUED> 90
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,399)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
