-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AL3wwWtAWkIN17iqPyogMdcmihzOwN29cPMVnWmJ0mzeX86+hXkXzIEHHBN+PVtr pkg3ZIutk8ZVmzpDMs3I9w== 0000950124-96-002883.txt : 19960629 0000950124-96-002883.hdr.sgml : 19960629 ACCESSION NUMBER: 0000950124-96-002883 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 32 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960627 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRUM INDUSTRIES INC CENTRAL INDEX KEY: 0000351127 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL TRUCKS TRACTORS TRAILERS & STACKERS [3537] IRS NUMBER: 341654011 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09607 FILM NUMBER: 96587237 BUSINESS ADDRESS: STREET 1: 6135 TRUST DR STREET 2: STE 104A CITY: HOLLAND STATE: OH ZIP: 43528 BUSINESS PHONE: 419-868-34 MAIL ADDRESS: STREET 1: 6135 TRUST DRIVE STREET 2: SUITE 104A CITY: HOLLAND STATE: OH ZIP: 43528 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY RESOURCES OF NORTH DAKOTA INC DATE OF NAME CHANGE: 19881116 10-K 1 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 0-9607 CENTRUM INDUSTRIES, INC. ------------------------ (Exact name of registrant as specified in its charter) DELAWARE 45-0341067 - ------------------------------- ------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) WATERPLACE SOUTH, 6135 TRUST DRIVE, SUITE 104A, HOLLAND, OH 43528 - ----------------------------------------------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (419) 868-3441 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ----------------------------- ------------------------ NONE NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON CAPITAL STOCK, $.05 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 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. [] Aggregate market value of voting stock held by non-affiliates of the registrant at May 31, 1996 (computed by reference to actual trades during the preceding 12-month period): $8,832,486. Number of shares outstanding of common stock, $.05 par value, as of May 31, 1996: 6,508,527. 2 CENTRUM INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1996 TABLE OF CONTENTS
PART I PAGE Item I. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 PART II Item 5. Market for Centrum's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . 11 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 13 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . 21 PART III Item 10. Directors and Executive Officers of Centrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . 52 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 53
2 3 PART I ITEM 1. BUSINESS (a) General Development of Business FORMATION AND HISTORY OF THE HOLDING COMPANY AND THE BOARD OF DIRECTORS Centrum Industries, Inc. ("Centrum", the "Company" or the "Company and its subsidiaries") is a Delaware corporation based, since 1989, in Northwest, Ohio, which has undergone considerable change over the past five years. (In this document, years reflect the fiscal year ended March 31, unless otherwise noted.) Centrum was incorporated in North Dakota in 1977 under the name "Energy Resources of North Dakota, Inc." From 1977 until 1989, Centrum's principal business was the purchase and resale of oil and gas leases and the exploration and development of oil and gas properties. In 1988, when Energy Resources Limited Partnership acquired 1,175,000 shares (61.9%) of Centrum's issued and outstanding common stock, the reorganized Board of Directors determined it would be in the shareholders' best interest to change Centrum's business strategy and to move Centrum's principal place of business to Sylvania, Ohio. In August 1988, Centrum sold all of its producing interests in oil and gas to Aspen Exploration Corporation ("Aspen") in exchange for 850,000 shares of Aspen common stock. In December 1994, Centrum sold its shares in Aspen stock for $34,000. Since 1989, Centrum has operated as a holding company, with ownership, from time to time, of both portfolio securities and stock of operating companies. In November 1990, Centrum's shareholders approved the recapitalization and reincorporation of Centrum in the State of Delaware. In the merger, the shareholders of Energy Resources of North Dakota and old Centrum received one share of common stock of new Centrum in exchange for each share of common stock held. In September 1992, Centrum's Board of Directors adopted a restructuring plan. In October 1992, William C. Davis was elected Chairman of the Board and Chief Executive Officer and George H. Wells was elected President and Chief Operating Officer by the Board. The Board also appointed Mr. Wells to the Board of Directors. Mr. Wells has significant experience operating large manufacturing corporations, having served as a senior executive with National Forge Corporation and Doehler-Jarvis for a combined period of 12 years. In May 1995, Mr. Wells was appointed President and Chief Executive officer. Mr. Davis was named Vice President. HISTORY OF ACQUISITIONS - CONTINUING OPERATIONS In August 1990, Centrum formed a wholly-owned subsidiary known as LaSalle Exploration, Inc. ("LaSalle"), which acquired an 87.5% leasehold interest for all mineral rights in a 308.5 acre plot located in Chatham Township in Medina County, in Northeastern Ohio (the "Techno-Chatham Project") for a purchase price of $78,691. LaSalle also purchased, as part of the same transaction, $21,309 in drilling and miscellaneous equipment. LaSalle has been and is continuing to explore for oil through a shallow sand waterflood project on eight acres of land at the Techno-Chatham Project. However, this project has been essentially dormant since March 1992. 3 4 In November 1990, LaSalle entered into a management contract for the Techno-Chatham Project with F. Michael Syring, which resulted in the March 1992 issuance of 70,000 shares of Centrum's participating preferred stock with a liquidation value of $10 per share. The preferred shares entitle the holders to participate in a 20% net working interest in the Techno-Chatham project once Centrum's gross investment is recovered. On May 17, 1993, all the outstanding common stock of Micafil, Inc. "(Micafil"), a Delaware corporation, was purchased by Centrum from Asea Brown Boveri, Inc. ("ABB"). Micafil designs and manufacturers armature winding machines for motors primarily used in the automotive industry and in industrial applications. The purchase method of accounting was used to account for this business combination. The total purchase price of approximately $1,750,000 was paid in the form of two promissory notes issued to the seller. The terms of the notes were as follows: a promissory note in the amount of $1,650,000 plus interest at 8%, principal and interest payable in 60 monthly installments of $33,456; and a promissory note in the amount of $100,000 plus interest at 8% with a $52,533 principal interest payment due December 30, 1993 and the final principal and interest payment due March 31, 1994. The principal amount of the second note included $84,000 relating to a five year non-competition agreement with the seller. During 1995, the Company repaid the remainder of the $100,000 note and reached an agreement to restructure the $1,650,000 note. On September 2, 1993, the Company purchased the stock of American Handling, Inc. ("AH") through a subsidiary merger. AH is engaged in the business of designing, manufacturing and installing material handling equipment. AH became a wholly-owned subsidiary of Centrum, and holders of issued and outstanding shares of AH common stock received an aggregate amount of 2,681,620 shares of Centrum's restricted common stock with a fair market value, estimated by the management of Centrum, of $2,294,000. Additionally, four employees of AH converted existing options in AH for 241,828 shares of Centrum's common stock having an option exercise price of $.372 per share. On March 8, 1996, the Company purchased all of the outstanding stock of McInnes Steel Company ("McInnes") through a subsidiary merger. McInnes, with operating subsidiaries located in Northwestern Pennsylvania, produces open die steel forgings for the power generation, compressor and other industrial markets. McInnes also produces seamless steel rolled rings for bearing and special machine manufacturers and nonferrous castings for the glass container manufacturers and pump and valve industries. Sales of McInnes' products are made to both domestic and international customers. The purchase method of accounting was used to account for this business combination. The total purchase price of approximately $12.3 million was financed primarily in the form of new debt agreements and the sale of the Company's common stock. The first agreement consists of a promissory note issued to a commercial bank for $2,850,000, payable monthly at 1.25% above the prime rate, and a line- of-credit for the lesser of $15,500,000 or "borrowing base," as defined in the agreement. The second debt agreement is a Note and Warrant Purchase Agreement which provides for $2,500,000 aggregate principal amount of 11% convertible debt with warrants for the purchase of 1,250,000 shares of the Company's common stock for $2 per share. Additional funds to finance the acquisition were obtained through the sale of 485,500 shares of the Company's common stock for net proceeds of $637,050. The remaining funds were provided by the issuance of $1,239,000 aggregate principal amount of term notes which bear interest at 2% per month to certain of the Company's shareholders and directors. Additionally, two employees of McInnes received options to purchase 110,333 shares of Centrum's common stock for $.64 per share in exchange for certain options to purchase McInnes stock. 4 5 Centrum's management has been exploring other potential acquisitions of manufacturing companies consistent with its long-term strategy. History of Acquisitions - Discontinued Operations In March 1989, Centrum formed a wholly-owned subsidiary known as J.R.'s Marketplace, Inc. ("JR's"), which owned and operated a retail supermarket located in Middletown, Ohio. The assets were purchased from Cardinal Foods, Inc. on April 3, 1989. Due to negative economic changes in Middletown and increased competition, JR's did not generate sufficient cash flow to cover operations and expenses. In May 1991, Centrum sold all of JR's assets to Cardinal Foods, Inc. and JR's ceased to do business. In May 1991, a wholly-owned subsidiary, Acme Quality Products, Inc. ("Acme"), was incorporated under the laws of Delaware. Such subsidiary purchased the tire hardware division of Acme Quality Products, Inc., a Michigan corporation. The assets were purchased for cash, notes and the assumption of liabilities aggregating approximately $3.5 million. The assets acquired included the machinery and equipment used in the manufacture of tire hardware for the automotive aftermarket. Primary products included tire gauges, tire valves, valve extensions, fitting chucks and tire repair products. On July 31, 1992, Acme voluntarily surrendered its assets to the secured creditor and ceased operations. (b) Financial Information about Industry Segments Information relating to the amounts of revenue, operating profit or loss and identifiable assets attributable to each of the Company's industry segments for 1994-1996 is included in Note 13 to the Consolidated Financial Statements. (c) Narrative Description of the Business Oil and Gas LaSalle is engaged in the Techno-Chatham Project on eight of its 308.5 acres under lease in Medina County, in Northeastern Ohio. This waterflood project involves four injection wells and four recovery wells. As of this date, the project has not progressed beyond the pilot stage. LaSalle has no full-time employees. During 1994, due to continued uncertainties regarding the timing of future commercial production and potential future cash flows, management determined that the aforementioned factors have resulted in economic impairment. As a result, management recorded a $240,338 provision to write the properties down to their estimated fair market value. Motor Production Systems Micafil designs and manufactures armature and stator winding machines and complete production systems for small fractional horsepower electric motors used primarily in the automotive and consumer durable goods markets. Micafil's sales are made directly to the end users of the products. In addition to the sale of machines and machining lines, revenue is also generated from rebuilding and retrofitting existing machines and selling replacement parts. Micafil's business is not dependent on any single customer, although Micafil services a relatively small number of customers in a given year, only some of which may place orders in any year. 5 6 The material used in the production process generally consists of steel and aluminum and purchased electrical and mechanical components such as valves, cylinders and motors. Micafil has local sources for its production material and there is ready availability for all components although some items require longer lead time due to machining or special order items. Micafil is one of four major suppliers of small fractional horsepower motor equipment in the world. No single competitor has a dominant position. Competition is based upon product performance, price, delivery time, and local plant preference. Management believes that Micafil has a strong reputation for product performance but in some cases is at a competitive disadvantage in terms of pricing due to the high quality of product produced compared to its competitors for the same or similar applications. As of May 31, 1996, the backlog in firm orders was valued at approximately $6.2 million, and production for all such orders is current. This backlog amount represents a 188% increase from the backlog as of May 31, 1995 of approximately $3.2 million. At March 31, 1996, Micafil had 47 employees. Material Handling Systems AH is a full service provider of material handling systems and components to companies with warehouse and distribution facilities. AH designs, supplies and installs complete material handling systems directly to end users and original equipment manufacturers. AH also sells material handling components through its general products sales force, which includes catalog sales. AH's principal market is the automotive aftermarket, although approximately 45% of new business comes from new markets such as hardware, office products, candy, tobacco, lawn and garden, catalog fulfillment and consumer electronics. AH has multiple customers, many of which provide repeat business. During fiscal 1996 and 1995, AH's sales to a customer in the automotive aftermarket contributed approximately 13% and 12% of AH's sales, respectively. During fiscal 1995, AH's sales to a customer in the sporting goods industry contributed 12% of AH's sales. Loss of any one or a few customers may have a significant impact on AH's results of operations. Raw materials are purchased to manufacture mezzanines and consist mainly of raw steel. Other material handling products, such as shelving, rack and conveyor, are purchased from multiple suppliers. Raw materials and material handling products are readily available from many different suppliers. The industry and AH have minimal working capital requirements due to the large amount of revenues derived from drop shipped goods. Generally, all goods drop shipped are special orders enabling AH to maintain minimal inventory levels and still meet customer demand. AH does not provide extended payment terms to customers and sales invoice terms are generally net ten days. The material handling equipment industry competes primarily on price, product performance guarantees and the extent of services which can be provided. Management believes that AH has a reputation for leadership in facilities planning and system design, inventory analysis and determination of equipment needs, procurement and installation of equipment, and coordinated relocation of customer inventory. There are few direct 6 7 competitors of AH which provide the turnkey service provided by AH. Competition is primarily in the individual phases of the work performed by AH. For example, a competitor may provide construction and installation services or design services, but few competitors provide the range of services provided by AH. The competitors of AH compete primarily on price. Because of its expertise, guarantee of product performance and its commitment to service, AH has a premier reputation as a leader in serving the automotive aftermarket industry and is known for its ability to sustain a high level of customer satisfaction. AH's strategy for growth is to pursue market expansion in those market areas where AH's expertise can command a premium margin. As of May 31, 1996, the backlog of firm orders is valued at approximately $6.2 million, and production for all such orders is current. This backlog represents a 5% increase from the backlog as of May 31, 1995 of approximately $5.9 million. At March 31, 1996, AH had 87 employees. Metal Forming Operations On March 8, 1996, Centrum acquired all of the outstanding common stock of McInnes, a Pennsylvania corporation for approximately $12.3 million through a subsidiary merger. McInnes, headquartered in Corry, Pennsylvania, is comprised of three distinct business units, two of which operate under the tradenames McInnes Steel Company ("MSC") and McInnes Rolled Rings ("MRR"). The third business unit, Erie Bronze and Aluminum Company ("EBA"), and Eballoy Glass Products Company ("Eballoy"), whose operations are located in Erie, Pennsylvania, are wholly-owned subsidiaries of McInnes Services, Inc. Approximately 85% of the Metal Forming Operations' sales are made domestically. MSC, which accounts for approximately 60% of the Metal Forming Operations' sales, is a leading supplier of open die steel forgings. Major markets served by MSC include power generation, compressor, and miscellaneous commercial forgings. A majority of MSC's sales are made to a small number of customers including General Electric and Westinghouse. Loss of either of these customers could have a significant impact on MSC's results of operations. Approximately one-half to three-fourths of MSC's customers provide repeat business. Sales are made through MSC's direct sales force. MSC generally enters into fixed price transactions with its customers using "cost plus" pricing procedures based on MSC's estimated manufacturing costs plus a markup which is designed to cover administrative costs and provide a profit margin. Because of this arrangement, MSC is subject to both positive and negative exposure relative to significant fluctuations in the price of steel. MRR, located in Erie, Pennsylvania, was established in 1992 upon the construction of an $8 million state-of-the-art, fully automated seamless ring rolling mill and accounts for approximately 20 - 25% of the Metal Forming Operations' sales. In addition, MRR is currently in the process of expanding its operations to include heat treating. It is expected that gross margins will improve as MRR will be able to eliminate certain services currently performed by outside processors. MRR's customers include various bearing and special machine manufacturers. EBA, located in Erie Pennsylvania, accounts for approximately 15 - 20% of the Metal Forming Operations' sales and is a leading producer of nonferrous castings for the glass container, and pump and valve industries, as well 7 8 as for a variety of other commercial applications. EBA is capable of producing castings ranging in a size from one ounce to 1,000 pounds in either bronze or aluminum. Eballoy produces finished machined components for EBA's sales to the glass container industry. The primary raw material used by the group consists of steel, which is purchased from both regional and national suppliers. Orders are placed with these suppliers for both stock material and to satisfy specific customer requirements. There are currently no long-term contracts for the purchase of steel. McInnes is required to maintain an inventory of stock materials due to the variety of its products and customer demands regarding lead times. As of May 31, 1996, the backlog in firm orders of the Metal Forming Operations was valued at approximately $16 million and production for all such orders is current. At March 31, 1996, McInnes had 300 employees. Approximately 125 employees at MSC are represented by a collectively bargained agreement which expires on October 1, 1997. Approximately 55 employees at EBA are represented by a collectively bargained agreement which expires on August 1, 1997. Approximately 8 employees at Eballoy are represented by a collectively bargained agreement which expires on October 2, 1996. Management believes that it has good relations with its employees. (d) Compliance with Environmental Regulations The Company's continuing compliance with existing federal, state and local provisions dealing with the protection of the environment is not expected to have a material effect upon the Company's capital expenditures, earnings, competitive position or liquidity. EBA is a direct defendant in two governmental cost recovery actions and other related private party actions at a waste disposal site. With regard to the most significant cost recovery action, EBA has negotiated a settlement which has been approved in federal court. In addition, EBA and other parties are responsible for performing certain cleanup work at the site pursuant to a government order. Private party suits and actual cleanup costs in excess of governmental estimates can affect the reliability of the Company's loss estimates. In addition, unasserted claims are not reflected in the Company's cost estimates. Pursuant to the environmental statutes, the Company may be found jointly and severally liable to the government for cleanup costs; however, management believes that the current status of government settlements and group cleanup participation at the site indicates that the liability will be shared by responsible parties. Currently, there are at least 14 parties participating in various settlements of the cost recovery actions, and 18 parties participating in a pro rata cost sharing arrangement with respect to the site cleanup work. The Company has negotiated an insurance settlement which requires the carrier to reimburse the Company for site expenses, subject to a ceiling. At March 31, 1996, the Company has recorded liabilities of $695,800, of which $350,000 is recorded as a current liability. At March 31, 1996, the Company has recorded a receivable from its insurance carrier which is included in current assets. Funds are expected to be paid over approximately three years. The total anticipated site costs and private suits are not expected to materially exceed the recorded accruals and insurance settlement. 8 9 ITEM 2. PROPERTIES Centrum's principal facilities are set forth in the table below:
Location Use Size Leased/Owned - -------- --- ---- ------------ CORPORATE OFFICES Holland, Ohio Corporate Office 400 Sq. Feet Leased MATERIAL HANDLING SYSTEMS Cleveland, Ohio Administration/Sales Office 13,000 Sq. Feet Leased (1) Production/Warehousing 27,000 Sq. Feet Leased (1) Cleveland, Ohio Warehousing 1,000 Sq. Feet Leased Cleveland, Ohio Warehousing 10,000 Sq. Feet Leased MOTOR PRODUCTION SYSTEMS Englewood, Ohio Administration/Sales Office 10,000 Sq. Feet Owned Production/Warehousing 33,000 Sq. Feet Owned OIL AND GAS Medina County, Ohio Oil & Gas Exploration 308.5 acres Leased (2) Metal Forming Operations Corry, Pennsylvania Administration/Sales Office Production/Warehousing 180,000 Sq. Feet Owned Fairview, Pennsylvania Administration/Sales Office Production/Warehousing 60,000 Sq. Feet Owned Erie, Pennsylvania Administration/Sales Office Production/Warehousing 49,000 Sq. Feet Owned Erie, Pennsylvania Production 11,000 Sq. Feet Leased
(1) In February 1996, AH exercised an option to purchase this space for approximately $1,150,000. The terms of this deal are currently being negotiated. (2) Represents mineral rights. 9 10 ITEM 3. LEGAL PROCEEDINGS The Company's continuing compliance with existing federal, state and local provisions dealing with the protection of the environment is not expected to have a material effect upon the Company's capital expenditures, earnings, competitive position or liquidity. EBA is a direct defendant in two governmental cost recovery actions and other related private party actions at a waste disposal site. With regard to the most significant cost recovery action, EBA has negotiated a settlement which has been approved in federal court. In addition, EBA and other parties are responsible for performing certain cleanup work at the site pursuant to a government order. Private party suits and actual cleanup costs in excess of governmental estimates can affect the reliability of the Company's loss estimates. In addition, unasserted claims are not reflected in the Company's cost estimates. Pursuant to the environmental statutes, the Company may be found jointly and severally liable to the government for cleanup costs; however, management believes that the current status of government settlements and group cleanup participation at the site indicates that the liability will be shared by responsible parties. Currently, there are at least 14 parties participating in various settlements of the cost recovery actions, and 18 parties participating in a pro rata cost sharing arrangement with respect to the site cleanup work. The Company has negotiated an insurance settlement which requires the carrier to reimburse the Company for site expenses, subject to a ceiling. At March 31, 1996, the Company has recorded liabilities of $695,800, of which $350,000 is recorded as a current liability. At March 31, 1996, the Company has recorded a receivable from its insurance carrier which is included in current assets. Funds are expected to be paid over approximately three years. The total anticipated site costs and private suits are not expected to materially exceed the recorded accruals and insurance settlement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS This item is not applicable. 10 11 PART II ITEM 5. MARKET FOR CENTRUM'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Centrum's common stock was quoted on the National Association of Securities Dealers Automatic Quotation System (NASDAQ) (Symbol-CIII) for the period April 2, 1981 through May 1992. Centrum was delisted from the NASDAQ in May 1992, because it did not maintain net worth of $3 million, as required by NASDAQ rules which became effective in early 1992. Stock trades between May 1992 and September 1995 were primarily made through Continental Capital, Inc. generally at a quoted price of between $0.75 and $1 per share. Continental Capital, Inc. is a shareholder of the Company and its Chairman and Chief Executive Officer was, from 1988 to 1995, Centrum's Chairman of the Board and Chief Executive Officer and, since June 1995, was a Director and Vice President of Centrum and, since December 1995, is a Director, Vice President and Secretary of Centrum. See Item 10 "Directors and Executive Officers of Centrum," and Item 12 "Security Ownership of Certain Beneficial Owners and Management." Since September 1995, the Company has been quoted on the Over-the-Counter market (OTC) on what is called the Bulletin Board. The market maker for Centrum is Hill Thompson, located in New York City. The trading symbol remains CIII. Since becoming quoted on the Bulletin Board, there have been trades ranging from a low of $.25 per share in September 1995 to a high of $2.25 in March 1996. Approximately 58,600 shares of common stock have been traded on the Bulletin Board. As of March 31, 1996 and 1995, there were approximately 1,000 shareholders of record. Shareholders are entitled to receive dividends when and as declared by the Board of Directors. However, Centrum has never paid a dividend, and intends to retain any earnings to finance the development of its business and, accordingly, does not anticipate payment of any dividends in the foreseeable future. Furthermore, any proposed dividends must be approved, in advance, by both Huntington National Bank, the lender for Centrum's bank line of credit, and the holders of the 11% convertible, unsecured notes payable. 11 12 ITEM 6. SELECTED FINANCIAL DATA The following five-year selected financial data should be read in conjunction with the Consolidated Financial Statements that appear elsewhere in this report.
As of and for the Years Ended March 31, --------------------------------------- 1996 1995 1994 1993 1992 SUMMARY OF OPERATIONS: Net sales $27,525,702 $18,292,696 $ 8,760,667 Other income (expense) (402,520) (270,912) (483,599) $ (132,258) $ (230,008) Income (loss) from continuing operations before income taxes and extraordinary items 1,063,054 386,927 (1,112,897) (436,780) (372,780) Provision for income taxes 257,814 223,679 ----------- ----------- ----------- ---------- ----------- Income (loss) from continuing operations 805,240 163,248 (1,112,897) (436,780) (372,780) Loss from discontinued operations (12,060) (635,417) Extraordinary item 32,017 ----------- ----------- ----------- ---------- ----------- Net income (loss) $ 805,240 $ 163,248 $(1,112,897) $ (416,823) $(1,008,197) =========== =========== =========== ========== =========== PER SHARE DATA: Income (loss) from continuing operations $ .13 $ .03 $ (.26) $ (.21) $ (.20) Loss from discontinued operations (.01) (.33) Extraordinary item .02 ----------- ----------- ----------- ---------- ----------- Net income (loss) $ .13 $ .03 $ (.26) $ (.20) $ (.53) =========== =========== =========== ========== =========== FINANCIAL POSITION: Current assets $23,195,165 $ 5,393,369 $ 3,450,374 $ 231,910 $ 24,632 Current liabilities 24,219,677 4,432,101 5,810,033 508,600 823,502 Working capital (deficiency) (1,024,512) 961,268 (2,359,659) (276,690) (798,870) Total assets 40,611,748 9,547,336 7,941,039 697,504 557,683 Long-term liabilities 12,809,079 3,609,487 1,035,499 325,000 7,954 Shareholders' equity (deficiency) 3,582,992 1,505,748 1,095,507 (136,096) (273,773) OTHER DATA: Common shares and common share equivalents: Weighted average outstanding during the year 6,086,981 5,850,005 4,280,741 2,078,658 1,898,102 Outstanding at year end 6,170,860 5,745,360 5,473,056 2,611,436 1,898,102
12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The discussion and analysis of Centrum Industries, Inc.'s financial condition and results of operations should be read together with the consolidated financial statements and notes thereto which begin on page 22. OVERVIEW Centrum is a publicly traded holding company that acquires and operates companies that have strong niche positions in their industries. During 1996, Centrum completed its third and largest acquisition in three years. As a holding company, the Company's long-range strategy is to own and acquire control of companies in basic manufacturing industries located primarily in the Great Lakes region, which the Company can increase in value in the public market. All of the Company's present manufacturing subsidiaries were acquired subsequent to April 1993. RESULTS OF OPERATIONS The Company's operations subsequent to March 8, 1996, have been classified into five business segments: material handling systems, motor production systems, metal forming operations, oil and gas, and corporate office. The material handling systems segment was established with the acquisition of American Handling, Inc. ("AH") on September 2, 1993, and consists of the design, manufacture and installation of material handling equipment for warehouse and distribution applications. The motor production system segment was established with the acquisition of Micafil, Inc. ("Micafil") on May 17, 1993, and consists of the manufacture of armature winding machines and complete production systems for numerous complex manufacturing processes. The metal forming operations segment was established on March 8, 1996 with the acquisition of McInnes Steel Company, and consists of open die forging, bronze and aluminum casting and rolled ring operations. The oil and gas segment was established in August 1990 with the purchase of a leasehold interests and miscellaneous equipment to explore for oil through a shallow sand waterflood project on eight acres of land. The Corporate office segment does not generate sales but functions to oversee the operating divisions and pursue future acquisitions. Year ended March 31, 1996 compared to March 31, 1995. Consolidated results Net sales for 1996 increased by $9.2 million or 50% to $27.5 million. The primary reason for the increase in sales was a $6.5 million increase at the material handling segment. In addition, consolidated sales for 1996 include sales by the metal forming operations segment of $2.5 million for the period from March 8, 1996 (the date Centrum acquired McInnes) to March 31, 1996. Gross margins of $7.2 million increased by $2.4 million from the prior year and increased slightly to 26.2% from 26.1% of sales. Selling, general and administrative expenses increased by $1.7 million to $5.8 million, reflecting the increased level of operations, but decreased as a percent of sales from 22.5% for fiscal 1995 to 20.9% for the current year. Interest expense increased by $.2 million to $.5 million primarily reflecting the increased level of debt required to fund the McInnes acquisition. The 1996 consolidated income tax provision of $258,000 increased over the prior year's provision of $224,000. The slight increase was due to a higher current provision, reflecting the improved profitability of the consolidated group, which was somewhat offset by a deferred income tax benefit of $191,000. During 1996, net 13 14 operating losses of approximately $820,000 were used to offset income taxes payable. However, in accordance with Statement of Financial Standards No. 109, "Accounting for Income Taxes" (FAS 109), utilization of net operation losses (NOLs) relating to net operating losses of AH and Micafil which were fully reserved at the time they were acquired resulted in a $192,000 decrease to goodwill and other intangibles, rather than as a reduction of income tax expense. See Note 9 to the Consolidated Financial Statements for further information. Results for each of the individual segments are as follows. Material Handling Systems Revenues for 1996 were $19.5 million, which was an increase of $6.5 million or 50% of the revenue generated in 1995. The primary reasons for the increase was the continued repositioning of AH into leading-edge high tech systems integration markets and the ongoing strength of the manufacturing sector economies. Gross margins of $5.1 million, or 26.3% of sales for 1996, reflected a slight decrease over the prior year's margin of 26.9%. Selling, general and administrative expenses for 1996 were $3.7 million, which is an increase of $1.0 million over 1995. The increase in selling, general and administrative expenses is primarily due to increased wages, reflecting AH's expanding operations, and increased bonus expense as a result of improved profitability. As a percent of sales, the 1996 selling, general and administrative expenses decreased to 19.1% of sales from 20.8% in 1995. The decrease in 1996 is due to an increase in sales volume which covered a greater proportion of fixed expenses. Interest expense decreased from $78,000 in 1995 to $49,000 in 1996 as a result of decreased borrowings. Motor Production Systems Revenues for 1996 were $5.5 million, which was an increase of $.2 million from the prior year. The primary reason for the increase is the continued improvement in the appliance and power tool markets. Gross margins of $1.4 million, or 24.9% of sales improved over the prior year's gross margin of 24.2%. The gross margin improvement is due to Micafil accepting a larger proportion of higher margin contracts as a result of increased demand within the industry. Selling, general and administrative expenses for 1996 were $.9 million or $.2 million higher than the previous year. As a percent of sales, selling, general and administrative expenses increased from 16.1% in 1995 to 16.5% in 1996. The increase was primarily due to an increase in the number of administrative personnel. Oil and Gas The oil and gas segment recorded a loss of $32,500 in 1996 as compared to a loss of $26,500 in 1995. No significant improvements were made to the properties during 1996 or 1995. Corporate Office During 1996, the corporate office recorded general and administrative expenses of $.6 million, as compared to $.5 million in the prior year. The increase was the result of an increase in payroll expense of $.2 million, primarily related to bonuses and the additional wages of an executive officer appointed in 1996, which was partially offset by a $.1 million decrease in expenses related to acquisitions efforts which were not successful. Interest expense for 1996 was $242,000 as compared to $130,000 in 1995. The increase in interest expense was due to debt incurred primarily in connection with the acquisition of McInnes. 14 15 YEAR ENDED MARCH 31, 1995 COMPARED TO MARCH 31, 1994 Consolidated results Net sales for 1995 increased by $9.5 million or 109% to $18.3 million. The reason for the increase is primarily due to 1995 being a full year of operations whereas 1994 included the results of the material handling segment and the motor production systems segment for seven and 10 1/2 months in 1994, respectively. Gross margins of $4.8 million increased by $2.7 million from the prior year and were 26.1% of sales as compared to 23.9% in 1994. Selling, general and administrative expenses increased by $1.4 million to $4.1 million, reflecting the increased level of operations, but decreased as a percent of sales from 31.1% for fiscal 1994 to 22.5% for 1995. The improvements in gross margin and selling, general and administrative expenses were primarily due to cost cutting measures which were implemented in 1994 upon the acquisition of AH and Micafil and the increase in sales, which covered a larger volume of fixed overhead costs. Interest expense increased by $.1 million to $.3 million primarily due to debt issued in connection with the Micafil acquisition being outstanding for a full year. The income tax provision for 1995 was $224,000 and reflects the increased profitability of AH and Micafil. None of this amount was payable due to the availability of NOLs at AH and Micafil. NOLs at AH and Micafil represent preacquisition NOLs which were fully reserved at the time AH and Micafil were acquired by Centrum. In accordance with FAS 109, utilization of these preacquisition NOLs results in a reduction of goodwill and other intangible assets, rather than a reduction of income tax expense. See Note 9 to the Consolidated Financial Statements. Results for each of the individual segments are as follows. Material Handling Systems Revenues for 1995 were $13.0 million, which was an increase of $7.0 million or 117% of the revenue generated in 1994. The primary reason for the increase is due to 1995 being a full year of operations, as compared to approximately seven months for fiscal 1994. Gross margins of $3.5 million, or 26.9% of sales for 1995 reflected a slight improvement over the prior year's margin of 26.7%. Selling, general and administrative expenses for 1995 were $2.7 million, which is an increase of $1.2 million over 1994. The increase in selling, general and administrative expenses is primarily due to the current year reflecting a full year of operations as compared to approximately seven months for 1994. As a percent of sales, the 1995 selling, general and administrative expenses decreased to 20.8% of sales from 25.0% in 1994. The decrease in 1995 is due to an increase in sales volume which covered a greater proportion of fixed selling, general, and administrative expenses. Interest expense increased from $53,000 in 1994, to $78,000 in 1995 which represents a full year of interest expense during 1995, as compared to approximately seven months in 1994 and is somewhat offset by an overall reduction in the level of debt outstanding at AH. Motor Production Systems Revenues for 1995 were $5.3 million, which was an increase of $2.6 million from the prior year. The primary reason for the increase is the resurgence of the automotive industry, which is the segment's primary market, and continued improvements in the appliance and power tool markets. Additionally, results for 1995 represent a full year of operations, whereas 1994 represents only 10 1/2 months. Gross margins of $1.3 million or 24.2% of sales improved over the prior year's gross margin percent of 18.5%. The gross margin improvement is due to the greater volume of sales, which absorbed a larger amount of fixed overhead and larger and more profitable contracts. Selling, general and administrative expenses for 1995 were $.9 million or $.2 million higher than the 15 16 previous year. As a percent of sales, selling, general and administrative expenses decreased from 25.9% in 1994 to 17.0% in 1995. The decrease represents both the reduction in staffing following Centrum's acquisition of Micafil and the increase in sales volume which covered a greater proportion of fixed selling, general and administrative expenses. Interest expense increased from $113,000 in 1994 to $123,000 in 1995 due to the $1.7 million in debt used to finance the acquisition of Micafil being outstanding for all of 1995 as compared to 10 1/2 months in 1994. Oil and Gas The oil and gas segment recorded a loss of $26,500 in 1995 as compared to a loss of $272,000 in 1994. During 1994, as a result of continued uncertainties regarding the timing of future commercial production and potential future cash flows, management determined that the aforementioned factors resulted in economic impairment and recorded a $240,000 provision to write the oil and gas properties down to approximately $89,000, which management believes to be their fair market value. No significant improvements were made to the properties during 1995 or 1994. Corporate Office During 1995 and 1994, the corporate office recorded general and administrative expenses of $.5 million. Interest expense for 1995 and 1994 was $130,000 and $72,000, respectively. The increase in interest expense represents a higher level of debt outstanding during 1995, as compared to 1994. LIQUIDITY AND CAPITAL RESOURCES CASH PROVIDED BY OPERATING ACTIVITIES Cash provided by operating activities for the year ended March 31, 1996 was $510,000, which was an improvement from cash used for operating activities of $131,000 and $351,000 for the years ended March 31, 1995 and 1994, respectively. The improvement in operating cash flow reflects the increasing profitability of the consolidated group. During 1996 and 1995, the primary use of cash for operating activities was a $2.2 million and $1.8 million increase, respectively, in accounts receivable, due to the increasing fourth quarter revenues at AH and Micafil. The increases in accounts receivable were partially offset by increases in accounts payable of $1.7 million and $.7 million at March 31, 1996 and 1995, respectively, which reflects the increased level of operations at the operating subsidiaries. Net income for 1996, 1995 and 1994 included depreciation and amortization expense of $314,000, $260,000 and $161,000, respectively, and the recording of a non-cash income tax provision of $191,000 and $224,000, during 1996 and 1995, respectively, for the utilization of fully reserved, preacquisition net operating losses at AH and Micafil. During 1994, a non-cash provision of $240,000 was recorded to write down the assets at LaSalle. See Notes 4 and 9 to the Consolidated Financial Statements. CASH FLOWS FROM FINANCING AND INVESTING ACTIVITIES To meet operating expenses and to finance acquisitions, during the period from 1994 through 1996, Centrum relied upon a combination of net proceeds from new capital and debt. During 1996, Centrum initiated a Private Placement Offering ("Offering") for 2.4 million shares of its common stock. The stock is being offered in Units of 12,000 shares at a cost of $18,000 per Unit. Through March 31, 1996, 485,500 shares of common stock have been sold for $637,050, which is net of $91,200 in issuance costs and expenses. The Units are being 16 17 offered by Continental Capital, Inc. See Item 13, "Certain Relationships and Related Transactions." During 1995, proceeds of $247,000 were generated from the sale of stock to new and existing shareholders. Centrum also obtained funds for operating expenses from the proceeds of several private placements of debt. Beginning in March 1993, Centrum has offered up to an aggregate amount of $2 million of debentures with common stock warrants for a term of one year from date of sale. Centrum has the option to extend the renewal date for one year periods for a maximum of three years. The attached warrant permits the holder to purchase Centrum stock at $1 per share. Each $10,000 of debt has a warrant for 1,000 shares while the debt is outstanding. Under this private placement, $25,000 principal amount of debentures were sold in 1996, $116,000 principal amount of debentures were sold in 1995, and $493,000 were sold in 1994. During 1996, $75,000 of the debentures previously sold in this private placement were repaid. Beginning in January 1995, Centrum has offered unsecured five year term notes with attached warrants. The notes bear interest at prime plus .5%. The warrants allow the note holder to purchase 20,000 shares of the Company's common stock for each $50,000 of notes held at a purchase price of $1 per share. There were $550,000 of notes sold in 1996 and $650,000 in 1995. The proceeds from these sales were used to fund corporate office operations. During 1996, $83,000 of these notes were repaid. No warrants were exercised in 1996, 1995, or 1994. Subsequent to December 1995, the debt private placements were terminated. The acquisition of McInnes was primarily financed in the form of new debt agreements and proceeds from the sale of the Company's common stock. The first debt agreement consists of a promissory note issued to a commercial bank for $2,850,000 payable in monthly installments at 1.25% above the prime rate and a line-of-credit for the lesser of $15.5 million or "borrowing base," as defined in the agreement. As of March 31, 1996, approximately $13.2 million in total loans and commitments was available of which the Company had borrowed $7,886,486 and had stand-by letters of credit issued of approximately $4.6 million. The second debt agreement is a Note and Warrant Purchase Agreement which provides for $2.5 million aggregate principal amount of 11% convertible debt with warrants for the purchase of 1,250,000 shares of the Company's common stock for $2 per share. Additional funds to finance the acquisition were obtained through the sale of 485,500 shares of the Company's common stock for net proceeds of $637,050. The remaining funds were provided by the issuance of $1,239,000 aggregate principal amount of term notes which bear interest at 2% per month to certain of the Company's shareholders and directors and are to be repaid by August 1996 from the anticipated proceeds of additional sales from the Offering. The Company has an option to extend repayment on these notes for one six month period. The acquisition of AH was made through the issuance of common stock. At March 31, 1995, AH had borrowings of $285,000 under a secured line of credit which permitted borrowings of up to a maximum of either $700,000 or a borrowing base, as defined in the loan agreement. This agreement expired in September 1995. AH also has $350,000 of term debt borrowings outstanding as of March 31, 1996 and 1995. These notes are for a term of one year and AH has the option to extend the notes for an additional year. The acquisition of Micafil was made through the issuance of two term notes to the seller. These term notes were for a total of $1,750,000 and provided for principal and interest payments to be made for a five year period. During 1995, the Company repaid the remainder of the $100,000 note and reached an agreement to restructure the $1,650,000 note. See Note 7 to the Consolidated Financial Statements. 17 18 As further described under Item 1, LaSalle acquired a leasehold interest for all mineral rights. LaSalle acquired the funds to pay the purchase price of $78,691 for the leasehold project and the equipment purchase in the amount of $21,309 from an investment by Centrum. Centrum's management believes that continuance of the pilot program requires minimal additional operating expenditures, and management does not anticipate that any material capital expenditures will be required to determine whether sufficient oil can be recovered to be marketable. LaSalle's ability to generate revenues is dependent upon the recovery of oil reserves which have not been proven to date. As of March 31, 1996, the Company has executed an option to purchase certain warehousing and office space now being leased by AH for approximately $1,150,000. The terms of this deal are still being negotiated. Centrum has no other material commitments for capital expenditures. Additions to property, plant and equipment were approximately $526,000 in 1996, $99,000 in 1995 and $47,000 in 1994. The financing provided by the commercial bank (Bank) for the acquisition (Bank Loan) has been secured by substantially all the real and personal property of Centrum and its direct and indirect subsidiaries and contains various financial, operational and reporting covenants, including a prohibition on the Company from incurring new secured debt or new unsecured debt in excess of certain thresholds or from making any business acquisitions, unless a waiver is first obtained from the Bank. The Bank permits certain management fees and advances to be paid by certain of the Company's subsidiaries to Centrum, and Centrum will use these advances primarily for payment of principal and interest expense and for working capital purposes. Management believes that such management fees and advances are permitted in amounts adequate to service Centrum's financial obligations. The 11% convertible subordinated debt (Notes) are convertible at any time at the option of the holder (Holders) to shares of the Company's common stock at a price of $2.00 per share. The warrants are exercisable at an initial exercise price of $2.00 per share, subject to various anti-dilution adjustments affecting the exercise price and/or the number of shares subject to the warrants. The Notes are presently secured by the guarantees of two of the Company's subsidiaries, American Handling, Inc. and Micafil, Inc., and the Notes have been subordinated to the Bank Loan. The Notes agreement contains various financial, operational, and reporting covenants and requirements including a requirement that each of the Holders must approve certain financial and operational transactions of the Company, including the incurrence of new secured or unsecured debt, with certain exceptions, and any business acquisitions. Additionally, the Company may not pay dividends or issue additional shares of common stock (with certain exceptions), without the prior approval of the Holders. The Company has also entered into an Equity Holders Agreement, in which the Company has agreed to use its best efforts to cause two persons designated by the Holders to be nominated to the Company's Board of Directors, if requested by the Holders. At March 31, 1996, the Company has $11.2 million in NOLs available which would reduce income tax payable in future years. However, there are uncertainties related to both the amount and ultimate realization of the NOLs. See Note 9 to the Consolidated Financial Statements. The Company is involved in routine litigation and various legal efforts incidental to the normal operations of its business. In management's opinion, none of these matters will have a materially adverse effects on the Company's liquidity or results of operations. See also "Environmental Matters," below. 18 19 Centrum management believes that sufficient funds for future operations and acquisitions can be raised from persons who are accredited investors in accordance with the private offering requirements of federal and state securities laws and through funds available under the line of credit agreement and through cash flows generated by the operating subsidiaries. ENVIRONMENTAL MATTERS The Company's continuing compliance with existing federal, state and local provisions dealing with the protection of the environment is not expected to have a material effect upon the Company's capital expenditures, earnings, competitive position or liquidity. EBA is a direct defendant in two governmental cost recovery actions and other related private party actions at a waste disposal site. With regard to the most significant cost recovery action, EBA has negotiated a settlement which has been approved in federal court. In addition, EBA and other parties are responsible for performing certain cleanup work at the site pursuant to a government order. Private party suits and actual cleanup costs in excess of governmental estimates can affect the reliability of the Company's loss estimates. In addition, unasserted claims are not reflected in the Company's cost estimates. Pursuant to the environmental statutes, the Company may be found jointly and severally liable to the government for cleanup costs; however, management believes that the current status of government settlements and group cleanup participation at the site indicates that the liability will be shared by responsible parties. Currently, there are at least 14 parties participating in various settlements of the cost recovery actions, and 18 parties participating in a pro rata cost sharing arrangement with respect to the site cleanup work. The Company has negotiated an insurance settlement which requires the carrier to reimburse the Company for site expenses, subject to a ceiling. At March 31, 1996, the Company has recorded liabilities of $695,800, of which $350,000 is recorded as a current liability. At March 31, 1996, the Company has recorded a receivable from its insurance carrier which is included in current assets. Funds are expected to be paid over approximately three years. The total anticipated site costs and private suits are not expected to materially exceed the recorded accruals and insurance settlement. OUTLOOK Operating revenues are expected to increase in 1997 due primarily to the inclusion of McInnes' results for the full year. Backlogs for the Metal Forming Operations have increased 29% to $16 million from December 1995 to April 1996. Sales for this segment are expected to exceed $40 million during 1997. AH has achieved revenue growth of 50% and 29% for 1996 and 1995 (on an annualized basis), respectively. However, AH may not be able to sustain the significant revenue gains experienced over the past two years due to general economic conditions as well as operational constraints. Operations at Micafil are expected to be strong throughout 1997 given the backlogs which currently exist. Interest expense for 1997 is expected to increase by approximately $1.4 million to $2 million, assuming consistent interest rates and amounts outstanding, primarily due to the debt incurred with the acquisition of McInnes. The Company has bonus programs in place which result in the granting of 12 1/2% to 25% of each segment's pre tax profit, before intercompany management charges, which 19 20 will reduce future profit improvements proportionally. Each segment is considered to be a separate unit for profit sharing purposes. During 1997, management will work to improve operating results at its existing subsidiaries and to integrate the operations of McInnes. In addition, management will continue to investigate potential acquisitions which operate in niche markets and have strong barriers to entry. This annual report on Form 10-K, including "Business" and "Management's Discussion and Analysis of Results of Operations and Financial Condition," contains forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Such factors and uncertainties include, but are not limited to: the impact of the level of the Company's indebtedness; the impact of changes in interest rates on the Company's variable rate borrowings; restrictive covenants contained in the Company's various debt documents; general economic conditions; the Company's dependence on a few large customers; price fluctuations in the raw materials used by the Company, particularly steel; competitive conditions in the Company's markets; and the impact of federal, state and local environmental requirements (including the impact of current or future environmental claims against the Company). As a result, the Company's operating results may fluctuate, especially when measured on a quarterly basis. 20 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Financial Statement Schedules Financial Statements: Page ---- Report of Independent Accountants 22 Consolidated Balance Sheet at March 31, 1996 and 1995 23 Consolidated Statement of Operations for the three years ended March 31, 1996 24 Consolidated Statement of Changes in Shareholders' Equity for the three years ended March 31, 1996 25 Consolidated Statement of Cash Flows for the three years ended March 31, 1996 26-27 Notes to Consolidated Financial Statements 28-46 Financial Statement Schedule for the three years ended March 31, 1996 II - Valuation and Qualifying Accounts 47
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This item is not applicable. 21 22 Report of Independent Accountants To the Board of Directors and Shareholders of Centrum Industries, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Centrum Industries, Inc. and its subsidiaries at March 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 2 to the consolidated financial statements, on March 8, 1996, the Company acquired McInnes Steel Company. PRICE WATERHOUSE LLP Toledo, Ohio June 7, 1996 22 23 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
March 31, 1996 1995 Assets Current assets: Cash and cash equivalents $ 2,100,749 $ 472,673 Accounts receivable, less allowance for doubtful accounts of $93,761 and $60,658, respectively 10,979,166 3,273,719 Cost and estimated earnings in excess of billings on uncompleted contracts 372,699 482,044 Inventories, net 9,395,244 1,111,196 Prepaid expenses and other 347,307 53,737 ----------- ---------- Total current assets 23,195,165 5,393,369 ----------- ---------- Oil and gas properties 88,908 88,908 ----------- ---------- Property, plant and equipment, net 11,062,201 1,121,981 ----------- ---------- Other assets: Deferred income tax benefits 2,066,393 Goodwill, less accumulated amortization of $404,494 and $286,510, respectively 2,439,616 2,786,891 Debt issuance costs 1,133,412 50,638 Other 626,053 105,549 ----------- ---------- Total other assets 6,265,474 2,943,078 ----------- ---------- Total assets $40,611,748 $9,547,336 =========== ========== Liabilities and Shareholders' Equity Current liabilities: Bank line of credit $ 7,886,486 $ 285,000 Current portion of long-term debt 2,976,425 186,726 Accounts payable 9,506,022 2,433,680 Accrued employee costs 1,012,655 347,243 Accrued interest 138,055 274,471 Deposits 268,394 289,009 Income taxes payable 251,143 Deferred income taxes 122,974 Other accrued expenses 2,057,523 615,972 ----------- ---------- Total current liabilities 24,219,677 4,432,101 ----------- ---------- Long-term debt, less current portion 11,982,409 3,609,487 ----------- ---------- Other liabilities 826,670 ----------- ---------- Commitments and contingent liabilities (Note 10) Shareholders' equity: Preferred stock - $.05 par value, 1,000,000 shares authorized, 70,000 issued and outstanding (liquidation preference of $10 per share) 3,500 3,500 Common stock - $.05 par value, 15,000,000 shares authorized, 6,170,860 and 5,745,360 issued and outstanding at March 31, 1996 and 1995, respectively 308,543 287,268 Additional paid-in capital 5,318,767 4,068,038 Accumulated deficit (2,047,818) (2,853,058) ----------- ---------- Total shareholders' equity 3,582,992 1,505,748 ----------- ---------- Total liabilities and shareholders' equity $40,611,748 $9,547,336 =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 23 24 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996 1995 1994 Net sales $27,525,702 $18,292,696 $ 8,760,667 Cost of goods sold 20,306,567 13,516,489 6,668,265 ----------- ----------- ----------- Gross profit 7,219,135 4,776,207 2,092,402 Selling, general and administrative expenses 5,753,561 4,118,368 2,721,700 ----------- ----------- ----------- Operating income (loss) 1,465,574 657,839 (629,298) ----------- ----------- ----------- Other income (expense): Interest income 18,206 2,638 10,540 Interest expense (515,538) (331,287) (238,047) Provision for impairment of oil and gas properties (Note 4) (240,338) Miscellaneous 94,812 57,737 (15,754) ----------- ----------- ----------- Total other expense (402,520) (270,912) (483,599) ----------- ----------- ----------- Income (loss) before income taxes 1,063,054 386,927 (1,112,897) ----------- ----------- ----------- Provision for income taxes: Current 448,838 Deferred (191,024) 223,679 ----------- ----------- ----------- Total provision for income taxes 257,814 223,679 ----------- ----------- ----------- Net income (loss) $ 805,240 $ 163,248 $(1,112,897) =========== =========== =========== Net income (loss) per common share: $ .13 $ .03 $ (.26) =========== =========== =========== Weighted average number of common and common equivalent shares 6,243,174 5,850,005 4,280,741 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 24 25 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Preferred Stock Common Stock Additional -------------------- --------------------- Paid-in Accumulated Shares Amount Shares Amount Capital Deficit Balance, March 31, 1993 70,000 $3,500 2,611,436 $130,572 $1,683,741 $(1,903,409) Issuance of common stock 2,861,620 143,081 2,150,919 Net loss for year (1,112,897) ------ ------ --------- -------- ---------- ----------- Balance, March 31, 1994 70,000 3,500 5,473,056 273,653 3,834,660 (3,016,306) Issuance of common stock 272,304 13,615 233,378 Net income for year 163,248 ------ ------ --------- -------- ---------- ----------- Balance, March 31, 1995 70,000 3,500 5,745,360 287,268 4,068,038 (2,853,058) Purchase of stock (60,000) (3,000) (57,000) Issuance of common stock 485,500 24,275 612,775 Issuance of warrants 600,000 Issuance of options 94,954 Net income for year 805,240 ------ ------ --------- -------- ---------- ----------- Balance, March 31, 1996 70,000 $3,500 6,170,860 $308,543 $5,318,767 $(2,047,818) ====== ====== ========= ======== ========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 25 26 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996 1995 1994 Cash flows from operating activities: Net income (loss) $ 805,240 $ 163,248 $(1,112,897) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation 157,573 82,276 51,645 Amortization 156,711 177,557 108,953 Deferred income taxes (191,024) Reduction of goodwill for utilization of preacquisition net operating loss 190,564 223,679 Provision for impairment of oil and gas properties 240,338 Changes in assets and liabilities that provided (used) operating cash, net of acquisitions: Accounts receivable (2,216,194) (1,848,417) 46,922 Costs and estimated earnings in excess of billings on uncompleted contracts 109,345 67,411 (370,196) Inventories (111,597) 141,520 (72,754) Accounts payable 1,664,084 731,367 747,988 Prepaid expenses and other (213,923) (31) 167,202 Accrued expenses and other 159,144 130,188 (158,433) ------------ ----------- ----------- Net cash provided by (used for) operating activities 509,923 (131,202) (351,232) ------------ ----------- ----------- Cash flows from investing activities: Purchase of McInnes, net of cash acquired (12,306,627) Additions to oil and gas properties (8,671) Purchase of property and equipment (525,940) (98,768) (38,350) Proceeds from disposal of equipment 10,000 Payment received on note receivable 50,500 Proceeds from sale of marketable equity securities 34,000 ------------ ----------- ----------- Net cash provided by (used for) investing activities $(12,822,567) $ (64,768) $ 3,479 ------------ ----------- -----------
The accompanying notes are an integral part of the consolidated financial statements. 26 27 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1996 1995 1994 Cash flows from financing activities: Proceeds from issuance of notes payable $ 6,386,136 $ 774,501 $ 565,902 Debt issue costs (884,501) Repayments of notes payable (339,450) (331,000) (170,189) Net proceeds (repayments) on short-term debt 7,601,485 (109,000) (125,200) Proceeds from the issuance of common stock 637,050 246,993 Proceeds from issuance of warrants 600,000 Repurchase of common stock (60,000) ----------- --------- ---------- Net cash provided by financing activities 13,940,720 581,494 270,513 ----------- --------- ---------- Increase (decrease) in cash and cash equivalents 1,628,076 385,524 (77,240) Cash and cash equivalents at beginning of year 472,673 87,149 164,389 ----------- --------- ---------- Cash and cash equivalents at end of year $ 2,100,749 $ 472,673 $ 87,149 =========== ========= ========== Supplemental disclosure of cash flow information: Cash paid for interest $ 651,954 $ 282,635 $ 117,036 =========== ========= ========== Supplemental disclosures of non-cash financing and investing activities: Issuance of options to purchase 110,333 shares of common stock at $.64 per share $ 94,954 =========== Issuance of 2,861,620 shares of common stock in exchange for all of the outstanding common stock of American Handling, Inc. $2,294,000 ========== Issuance of promissory notes for all of the outstanding common stock of Micafil, Inc. $1,750,000 ==========
The accompanying notes are an integral part of the consolidated financial statements. 27 28 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Centrum Industries, Inc. (the Company) is a holding company. At March 31, 1996, the Company's subsidiaries included the following companies: - McInnes Steel Company (McInnes or Metal Forming Operations) - McInnes, with operating subsidiaries located in Northwestern Pennsylvania, produces open die steel forgings for the power generation, compressor and other industrial markets. McInnes also produces seamless steel rolled rings for bearing and special machine manufacturers and nonferrous castings for the glass container manufacturers and pump and valve industries. Sales of McInnes' products are made to both domestic and international customers. McInnes was purchased by Centrum on March 8, 1996 (see Note 2). - American Handling, Inc. (AH or Material Handling Systems) - AH, located in Cleveland, Ohio, designs, manufactures and installs material handling equipment for various domestic manufacturing companies. - Micafil, Inc. (Micafil or Motor Production Systems) - Micafil, located in Dayton, Ohio, manufactures armature winding machines and completed production systems primarily for domestic customers in the appliance and automotive industries. - LaSalle Exploration, Inc. (LaSalle or Oil and Gas) - LaSalle was formed to explore for oil through a shallow sand waterflood project on eight acres in Northeastern Ohio. CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated. USE OF ESTIMATES The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are utilized by the Company to reduce foreign exchange risks relating to export sales. The Company does not hold or issue derivative financial instruments for trading purposes. Gains or losses on contracts designated as hedges for identifiable foreign currency firm commitments are deferred and included in the measurement of the related foreign currency transaction. 28 29 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) At March 31, 1996, the Company had one forward exchange contract to purchase German marks totaling approximately $362,000. The notional value of the contract is equal to the sale of inventory, payment for which is denominated in German marks. The contract expires on May 15, 1996. The counterparties to the Company's derivative financial instrument contracts are multinational commercial banks or other financial institutions. Neither the risks of counterparty nonperformance nor the economic consequences of counterparty nonperformance associated with these contracts are considered by the Company to be material. DEBT ISSUANCE COSTS Debt issuance costs are deferred and amortized over the life of the related note utilizing the interest method for debt with scheduled principal payments, otherwise utilizing the straight-line method over the life of the debt agreement. Accumulated amortization was $42,033 and $17,132 at March 31, 1996 and 1995, respectively. ENVIRONMENTAL LIABILITIES AND EXPENDITURES The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. The Company determines its liability on a site-by-site basis and records a liability at the time when it is probable and can be reasonably estimated. Unasserted claims are not included in the estimated liability. The Company's estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. INVENTORIES Inventories are valued at the lower of cost or market. Inventory cost at Micafil is principally determined by the specific identification method. Effective April 1, 1995, to better match revenues and expenses, the Company changed its method of accounting for inventories, other than those held by Micafil, from the first in, first out (FIFO) method to the last in, first out (LIFO) method. The effect of the change was not material. At March 31, 1996, approximately 94% of inventory is valued on the LIFO method. 29 30 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) OIL AND GAS PROPERTIES The Company uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties and costs of uncompleted wells that find proved reserves, including costs to drill and equip exploratory wells and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves and geological and geophysical costs are charged to expense when incurred. Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Support equipment and other property and equipment are depreciated over their estimated useful lives. GOODWILL The Company has classified as goodwill the cost in excess of fair value of the net assets acquired in the AH purchase transaction. Goodwill is being amortized by the straight-line method over 20 years, which is the period expected to be benefitted. Management reviews goodwill and other long-lived assets for impairment whenever events and circumstances indicate that recovery of the asset's carrying value is unlikely. In performing the reviews for recoverability, management compares the carrying value of the asset against the estimated future cash flows expected to result from the use of the asset and its eventual disposition. If the cash flows are less than the carrying value, the asset is written down to its estimated fair market value. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation is computed over the estimated useful lives using the straight-line method for financial reporting purposes. REVENUE RECOGNITION Sales of products and services, primarily made by McInnes and AH, are recognized as products are shipped and services are performed. The estimated sales value of performance under significant contracts, primarily relating to armature winding equipment and completed production systems supplied by Micafil, is recognized under the percentage-of-completion method of accounting measured by the contract costs incurred to date as a percentage of total estimated contract costs. Sales and gross profit are adjusted prospectively for revisions in estimated total contract costs and contract values. Contracts executed by Micafil generally have terms of less than one year. 30 31 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL INSTRUMENTS The carrying amount of the Company's financial instruments, which include cash and cash equivalents, accounts receivable, marketable equity securities, accounts payable and foreign exchange contracts approximate their fair market values at March 31, 1996 and 1995. Variable rate debt and debt maturing within one year with a carrying value of $18,323,834 approximates its fair market value at March 31, 1996. Long-term, fixed rate debt with a carrying value of $4,521,486 had a fair market value of approximately $3,660,000 at March 31, 1996. The carrying value of short and long-term debt approximated its fair market value at March 31, 1995. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company sells its products to distributors and original equipment manufacturers in a variety of industries including the automotive and consumer durable products industries. The Company performs continuing credit evaluations of its customers and, in certain circumstances, the Company may require letters of credit from its customers. Historically, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. PENSION PLANS Annual net periodic pension costs under the Company's defined benefit pension plans, arising from the acquisition of McInnes, are determined on an actuarial basis. The Company's policy is to fund these costs as accrued, including the amortization of obligations arising due to plan amendments over the period benefited, through deposits with the trustee. Benefits are determined based upon employees' length of service. POSTRETIREMENT BENEFITS OTHER THEN PENSIONS Annual net postretirement benefits liability and expenses, arising from the acquisition of McInnes, are determined on an actuarial basis. The Company's current policy is to pre- fund these benefits to the extent allowable under current IRS guidelines. Benefits are determined primarily based upon employees' length of service and include applicable employee cost sharing. INCOME TAXES Current tax liabilities and assets are recognized for the estimated taxes payable or refundable on the tax returns for the current year. Deferred tax liabilities or assets are recognized for the estimated future tax effects attributable to temporary differences and carryforwards that result from events that have been recognized in either the financial statements or the tax returns, but not both. The measurement of current deferred tax liabilities and assets is based on provisions of enacted tax laws. Deferred tax assets are reduced, if necessary, by the amount of any tax benefits that are not expected to be realized. 31 32 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS (LOSS) PER SHARE Primary earnings (loss) per common and common equivalent share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during the respective periods, computed in accordance with the assumptions required by the treasury stock method. Common equivalent shares include shares that would be issuable upon the exercise of outstanding warrants and options reduced by the number of shares that are assumed to be purchased by the Company with the proceeds from the exercise of the warrants and options. The shares purchased by the Company are assumed to be purchased at the average market price existing during the respective years and exclude options and warrants that are anti-dilutive. STATEMENT OF CASH FLOWS For purposes of the consolidated statement of cash flows, the Company considers all cash and highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year's presentation. 2. ACQUISITIONS On March 8, 1996 the Company purchased all of the outstanding stock of McInnes through a subsidiary merger. The purchase method of accounting was used to account for this business combination. The total purchase price of approximately $12,300,000 was financed primarily in the form of new debt agreements and proceeds from the sale of the Company's common stock. The first debt agreement consists of a promissory note issued to a commercial bank for $2,850,000 payable monthly at 1.25% above the prime rate and a line-of- credit for the lesser of $15,500,000 or "borrowing base," as defined in the agreement. The second debt agreement is a Note and Warrant Purchase Agreement which provides for $2,500,000 aggregate principal amount of 11% convertible debt with warrants for the purchase of 1,250,000 shares of the Company's common stock for $2 per share. Additional funds to finance the acquisition were obtained through the sale of 485,500 shares of the Company's common stock for net proceeds of $637,050. The remaining funds were provided by the issuance of $1,239,000 aggregate principal amount of term notes which bear interest at 2% per month to certain of the Company's shareholders and directors. 32 33 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS (CONTINUED) On May 17, 1993, the Company agreed to purchase all of the outstanding capital stock of Micafil. The purchase method of accounting was used to account for this business combination. The total purchase price of approximately $1,750,000 was in the form of two promissory notes issued to the seller. The first promissory note, in the amount of $1,650,000, has been restructured as discussed at Note 7. The second promissory note was in the amount of $100,000 plus interest at 8% with a $52,333 principal and interest payment due December 30, 1993 and the final principal and interest payment due March 31, 1994. The second note was repaid during 1995. The principal amount of the second note includes $84,000 relating to a non-competition agreement. On September 2, 1993, the Company purchased all of the outstanding stock of AH through a subsidiary merger. The purchase method of accounting was used to account for this business combination. AH became a wholly-owned subsidiary of the Company, and holders of issued and outstanding shares of AH common stock received an aggregate amount of 2,861,620 shares of the Company's common stock with an estimated fair market value of $2,294,000. The operating results of each acquisition are included in the Company's consolidated statement of operations from the respective dates of acquisition. The following unaudited information presents the Company's results of operations for the years ended March 31, 1996 and 1995 as if the acquisitions of McInnes had occurred at the beginning of each of the periods presented. The pro forma information is not necessarily indicative of the results of operations which would have actually been obtained during such periods.
FOR THE YEARS ENDED MARCH 31, MARCH 31, 1996 1995 (UNAUDITED) Sales $62,248,000 $52,408,000 Net loss $(2,177,000) $(2,366,000) Net loss per common share $ (.31) $ (.34) Weighted average number of common and common equivalent shares 6,937,750 6,997,550
33 34 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INVENTORIES Inventories consisted of the following at March 31:
1996 1995 Raw materials $5,035,001 $ 515,308 Work in process 4,332,492 248,297 Finished goods 305,798 455,176 ---------- ---------- 9,673,291 1,218,781 LIFO reserve 172,720 Reserve for excess of cost over market (450,767) (107,585) ---------- ---------- $9,395,244 $1,111,196 ========== ==========
4. OIL AND GAS PROPERTIES Oil and gas properties consist of the following at March 31, 1996 and 1995: Mineral interests in oil and gas properties $ 78,691 Development costs 10,217 ---------- $ 88,908 ==========
The entire balance of the Company's oil and gas properties represents one shallow sand waterflood project. As the project is still in the development stage, no determination can presently be made as to the extent of proved oil reserves, if any, that may be contained in the project. During 1994, due to continued uncertainties regarding the timing of future commercial production and potential future cash flows, management determined that the aforementioned factors, as to the timing or magnitude of future production, resulted in economic impairment. As a result, management recorded a $240,338 provision to write the properties down to $88,908, which management believes approximates the fair market value at March 31, 1996 and 1995. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at March 31:
1996 1995 Land $ 298,679 $ 44,249 Building 3,038,821 675,697 Machinery and equipment 7,455,583 261,647 Furniture and fixtures 331,209 236,861 Vehicles 252,469 60,514 ----------- ---------- Total 11,376,761 1,278,968 Less accumulated depreciation (314,560) (156,987) ----------- ---------- $11,062,201 $1,121,981 =========== ==========
34 35 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. BANK LINE OF CREDIT In connection with the acquisition of McInnes, a new debt agreement was entered into with Huntington National Bank (Huntington) which permits the Company to borrow up to $15,500,000 on a revolving basis, subject to available collateral, which consists of eligible accounts receivable, equipment and inventory. Interest accrues on the unpaid portion of the borrowings at the Huntington's prime rate (8.25% at March 31, 1996) plus .75%. Borrowings under the agreement and commitments for a stand by letter of credit are secured by all of McInnes' cash, trade and other accounts receivable, inventory, equipment and intangible assets. In addition, Huntington has either a first or second secured interest in McInnes' real property. The total carrying value of security at March 31, 1996, including second mortgages, was $27,723,000. At March 31, 1996, approximately $13.2 million in total loans and commitments was available of which the Company had borrowed $7,886,486 and had commitments relating to a stand by letter of credit of approximately $4.6 million. The agreement places, among other things, restrictions or limitations on McInnes' ability to pay dividends, to pay management fees to other affiliates or Centrum, and to make capital expenditures and incur rent expense exceeding certain specified levels in any year. The agreement requires McInnes to maintain minimum specified tangible net worth levels, maintain a specified fixed charge coverage ratio and not exceed a specified ratio of total liabilities to tangible net worth. At March 31, 1996, McInnes was not in compliance with two of the covenants. Huntington has waived compliance with respect to these covenants through September 30, 1996 at which time management believes McInnes will be in compliance. The agreement also requires the Company to pay monthly collateral administration and an annual facility fees aggregating $96,000 per year and contains early termination fees of up to $370,000. The agreement expires on February 28, 1999. During 1995, AH had a secured bank line of credit in the maximum amount of $700,000 or "borrowing base," as defined in the loan agreement, if lower. At March 31, 1995, the entire line of credit was available. Under the agreement, interest was payable monthly at the bank's prime rate plus 2%. A commitment fee, computed at the rate of 1/2 of 1% per annum on the average daily unused amount of the total bank commitment, was payable quarterly. This agreement terminated on September 30, 1995. 7. LONG-TERM DEBT Long-term debt consisted of the following at March 31: 1996 1995 Note payable to Huntington National Bank in monthly installments of $39,584. The note bears interest at the prime rate (8.25% at March 31, 1996) plus 1.25%. Outstanding principal and accrued interest are due on April 1, 1999. This note is secured by the property specified by the Huntington line of credit (see Note 6). $ 2,810,416 35 36 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT (CONTINUED)
1996 1995 $2.5 million aggregate principal amount of 11% convertible, unsecured subordinated notes and warrants. The notes are convertible for up to 1,250,000 shares of Centrum's common stock and include warrants for the purchase of 1,250,000 shares of Centrum's common stock at $2 per share. The notes are recorded net of $600,000 allocated to the warrants. The implicit interest rate on the note is 14.5% and the outstanding balance is due in March 2001. This agreement places certain restrictions on the Company, including the requirement that the holders of the notes approve, in advance, any dividends, the incurrence of new debt (with certain exceptions), and acquisitions. $ 1,900,000 Industrial development revenue bonds payable in annual installments. Interest is set at a daily variable rate (1996 weighted average rate was 3.36%) and payable monthly. The bonds mature on November 1, 2001. McInnes pays an annual commitment fee of 3% on the amount committed under a direct pay letter of credit issued by a bank as a credit enhancement for the bonds. This note is secured by the property specified by the Huntington line of credit (see Note 6). 4,500,000 Note payable to the former owner of Micafil, originally due in monthly installments of $33,456 including interest at 8% per annum. The note is secured by the land and building at Micafil. (Total carrying value of the security was $736,830 at March 31, 1996). During 1995, an agreement was reached to restructure this note. Under the revised terms of the note, $50,000 in accrued interest was paid by the Company and $146,948 in accrued interest was forgiven by the creditor. The revised terms specify monthly installments of $13,346, including interest at an implicit rate of 8.61% per annum, through June 2005. A balloon payment of $1,452,384, with interest accruing at 8.61% from the date of the restructuring, will be payable in June 2005. 1,671,361 $ 1,536,213 Unsecured notes payable to shareholders and directors of the Company. The notes bear interest at 2% per month. The notes are to be repaid by August 1996. The notes can be extended by the Company for one six month period. 1,239,000
36 37 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT (CONTINUED) 1996 1995 Unsecured notes payable to individuals, including $405,000 and $425,000 at March 31, 1996 and 1995, respectively, to certain shareholders of the Company. The notes bear interest at 10% to 12% with interest payable semi-annually. The notes are due one year after being issued and may be renewed for an additional term of one year at the Company's option. (A) $ 675,000 $ 745,000 Unsecured notes payable to individuals, including $275,000 and $313,000 at March 31, 1996 and 1995, respectively, to certain shareholders of the Company, with attached warrants. The notes are for a term of one year at the rate of 10% per annum. Principal and interest payments are due one year from the note date. The attached warrants allow the note holders to purchase 1,000 shares of the Company's common stock for each $10,000 of notes held at a purchase price of $1 per share. (B) 659,000 709,000 Unsecured five year term notes payable to individuals, including $555,000 and $500,000 at March 31, 1996 and 1995, respectively, to certain shareholders of the Company, with attached warrants. The notes bear interest at prime (8.25% at March 31, 1996) plus 0.5% to 1.0%. Principal and interest payments are due monthly. The attached warrants allow the note holders to purchase 20,000 shares of the Company's common stock for each $50,000 of notes held at a purchase price of $1 per share. 1,117,348 650,000 City of Erie Enterprise Development Zone term note payable in monthly principal and interest installments of $4,625. The note bears interest at 3% per annum and matures on November 2, 2002. The note is secured by specific property with a carrying value of $866,729 at March 31, 1996. 330,709 Unsecured note payable to an individual with interest imputed at 8.66% per annum. Payments under the note agreement are due as follows: $100,000 in August 1995 and $56,000 in August 1996; with interest applied at the prime lending rate. 56,000 156,000 ----------- ---------- 14,958,834 3,796,213 Less current maturities (2,976,425) (186,726) ----------- ---------- Noncurrent portion of long-term debt $11,982,409 $3,609,487 =========== ==========
37 38 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT (CONTINUED) (A) The unsecured notes payable to individuals contain an option that permits the Company to extend the notes for one year. Management intends to extend the notes that mature in fiscal 1997; accordingly, such notes have been classified as noncurrent. (B) The unsecured notes payable to individuals with attached warrants contain an option that permits the Company to extend the notes for two additional one year terms. Management intends to extend the notes that mature in fiscal 1997; accordingly, such notes have been classified as noncurrent. The aggregate scheduled maturities of long-term debt for the fiscal years subsequent to March 31, 1996 are as follows: 1997 $ 2,976,425 1998 2,767,204 1999 2,921,769 2000 1,128,219 2001 2,717,966 Thereafter 2,447,251 ----------- $14,958,834 ===========
8. POSTEMPLOYMENT BENEFITS PENSION PLANS McInnes has two noncontributory defined benefit pension plans covering substantially all of its hourly employees. Monthly benefits are based upon a rate per year of service and vest upon the completion of five years of service. The Company's funding policy is to contribute amounts sufficient to satisfy ERISA funding requirements. Following is a summarization of the funded status and amounts recognized for the McInnes' defined benefit pension plans in the consolidated balance sheet at March 31, 1996:
ASSETS ACCUMULATED EXCEED BENEFITS ACCUMULATED EXCEED BENEFITS ASSETS Projected benefits obligation $(3,752,913) $(338,046) Plan assets at fair value, primarily intermediate bonds and common stock 3,950,115 247,016 ----------- --------- Projected benefit obligation less than (in excess of) plan assets 197,202 (91,030) Unrecognized net (gain) loss 4,427 (15,568) ----------- --------- Prepaid (accrued) pension cost $ 201,629 $(106,598) =========== =========
38 39 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. POSTEMPLOYMENT BENEFITS (CONTINUED) PENSION PLANS (CONTINUED) At March 31, 1996, $3,577,873 of projected benefit obligations were vested. Net pension cost for the defined pension plans for the period from March 8, 1996 (the date the Company acquired McInnes) through March 31, 1996 was not material. The discount rates used in determining the actuarial present value of the projected benefit obligations was 7.50% at March 31, 1996. The expected long-term rate of return on plan assets was 8.0%. McInnes, Micafil and AH also sponsor individual 401(k) profit sharing plans covering substantially all salaried employees. The Company's contributions to these plans in 1996, 1995 and 1994 were $50,900, $33,600 and $37,900, respectively. OTHER POSTEMPLOYMENT BENEFITS Certain of the McInnes' employees are entitled to other postemployment benefits (OPEBs), comprised primarily of health insurance benefits under the terms of various agreements and based on a specified amount per month. At March 31, 1996, OPEB liabilities, net of plan assets, of $112,000 are included in the Other Liabilities caption of the consolidated balance sheet. The funded status of the plans at March 31, 1996 was as follows: Actuarial present value of: Fully eligible active participants $ (53,000) Other active participants (128,000) Retired participants (1,093,000) ----------- Accumulated benefit obligation (1,274,000) Plan assets at fair value 1,253,000 ----------- Unfunded status (21,000) Unrecognized net loss (91,000) ----------- Net postretirement benefit liability $ (112,000) ===========
The net periodic postretirement benefit cost for the period from March 8, 1996 through March 31, 1996 was not material. Investments in these plans consist of investments in money market funds, fixed income securities, investment contracts and equity mutual funds. As of March 31, 1996, the discount rate was 7.50%. A medical costs trend rate of 6% per year is assumed up to a maximum benefit of $3,120 per year pre age 65 and $924 post age 64. An increase in the assumed medical trend rate of 1% would increase the accumulated post retirement benefit obligation as of March 31, 1996 by approximately $7,000. The effect of an increase in the assumed medical trend rate of 1% on the service and interest cost components for the period ended March 31, 1996 would not be material. 39 40 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES The difference between the total income tax provision computed using the federal statutory income tax rates and the Company's effective tax rate is as follows:
FOR THE YEAR ENDED MARCH 31, 1996 1995 1994 Federal statutory rate 34.0% 34.0% (34.0)% Amortization of intangibles 5.0 15.6 3.3 Utilization of fully reserved preacquisition net operating losses 17.9 19.7 Change in valuation allowance (38.0) (16.4) 29.9 Other 5.4 4.9 0.8 ---- ---- ---- Effective tax rate 24.3% 57.8% 0.0% ==== ==== ====
During 1996 and 1995, the Company reduced its income taxes payable by $278,000 and $224,000, respectively, through the use of net operating losses (NOLs). However, utilization of preacquisition NOLs of $191,564 and $223,679 for 1996 and 1995, respectively, which were fully reserved at the time of the acquisition, were recorded as a reduction of goodwill and other intangibles, rather than as a reduction of income tax expense. Deferred income tax assets and liabilities are comprised of the following at March 31:
1996 1995 Assets: Environmental liabilities $ 217,957 Vacation 208,026 $ 25,991 Bonus 146,158 22,100 Consulting agreement 139,258 Other employee-related accruals 122,209 Other 141,858 153,773 Property, plant and equipment 417,435 Inventory 55,273 Net operating loss and alternative minimum tax carryforwards 4,927,253 2,224,223 ---------- ------------ Deferred tax assets before valuation allowance 5,902,719 2,898,795 Valuation allowance (3,286,184) (2,898,795) ---------- ------------ Deferred tax assets after valuation allowance 2,616,535 - ---------- ------------ Liabilities: Inventory (471,460) Property, plant and equipment (201,656) ---------- ------------ Deferred tax liabilities (673,116) - ---------- ------------ Net deferred tax asset $1,943,419 $ - ========== ============
40 41 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES (CONTINUED) At March 31, 1996, the Company had approximately $11,955,000 in federal and state net operating losses (NOLs) available which expire in the years 2003 through 2010, and AMT credit carryforwards of $862,500 which do not expire. Under Section 382 of the United States Internal Revenue Code of 1986, as amended (the Code), the NOLs may be subject to limitations. If certain stock ownership changes described in the Code occur in the future, these restrictions would further limit the Company's future use of its NOLs. The Company has recorded a deferred tax asset of $4,927,253 reflecting the federal and state tax benefit of loss carryforwards and alternative minimum tax credits. Realization is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards. Although realization is not assured, management believes that it is more likely than not that a portion of the deferred tax asset relating to the federal loss carryforwards will be realized. As a result, the 1996 tax provision was reduced by $127,000. A valuation allowance has been established with respect to the portion of deferred tax assets relating to state loss and income tax credit carryforwards for which the Company is uncertain as to future realization due to limitations on their use. The amount of the valuation allowance could be increased or reduced in the near term if estimates of future taxable income during the carryforward period changes substantially. 10. COMMITMENTS AND CONTINGENT LIABILITIES LITIGATION The Company is involved in routine litigation and various legal efforts incidental to the normal operations of its business. In management's opinion, none of these matters will have a materially adverse effect on the Company's consolidated financial position or results of operations. ENVIRONMENTAL Erie Bronze (Erie), a subsidiary of McInnes, is a direct defendant in two governmental cost recovery actions and other related private party actions at a waste disposal site. With regard to the most significant cost recovery action, Erie has negotiated a settlement which has been approved in federal court. In addition, Erie and other parties are responsible for performing certain cleanup work at the site pursuant to a government order. 41 42 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) ENVIRONMENTAL (CONTINUED) Private party suits and actual cleanup costs in excess of governmental estimates can affect the reliability of the Company's loss estimates. In addition, unasserted claims are not reflected in the Company's cost estimates. Pursuant to the environmental statutes, the Company may be found jointly and severally liable to the government for cleanup costs; however, management believes that the current status of government settlements and group cleanup participation at the site indicates that the liability will be shared by responsible parties. Currently, there are at least 14 parties participating in various settlements of the cost recovery actions, and 18 parties participating in a pro rata cost sharing arrangement with respect to the site cleanup work. The Company has negotiated an insurance settlement which requires the carrier to reimburse the Company for site expenses subject to a ceiling. At March 31, 1996, the Company has recorded liabilities of $695,800, of which $350,000 was recorded as current liabilities and has recorded a receivable from its insurance carrier which is included in current assets. Funds are expected to be paid over approximately three years. The total anticipated site costs and private suits are not expected to materially exceed the recorded liabilities. LEASE COMMITMENTS The Company leases an operating facility and office space for a base annual rental of $230,000, plus increases based on the consumer price index, under a lease agreement expiring in fiscal 1997. The Company also leases certain equipment and vehicles under operating lease agreements which expire at various dates through fiscal 2000. The aggregate minimum commitments relating to these operating leases for each of the five fiscal years following March 31, 1996 are set forth below: 1997 $306,124 1998 139,885 1999 55,291 2000 16,768 2001 - -------- $518,068 ========
The Company also leases office space and additional warehouse space on a month to month basis. Total rental expense under all of the above agreements was $336,652, $358,642 and $380,000 for the years ended March 31, 1996, 1995 and 1994, respectively. LETTERS OF CREDIT At March 31, 1996, McInnes had a $4.6 million letter of credit issued as a credit enhancement for the Erie County Development Authority bonds (see Note 7). OTHER During February 1996, AH exercised its option to purchase its main office and manufacturing facility, which currently is being leased, for approximately $1,150,000, of which $900,000 will be financed by seller. The agreement was still being negotiated at March 31, 1996. 42 43 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. CAPITAL STOCK The Company is a Delaware corporation with two classes of stock, common stock and serial preferred stock. The preferred stock is issuable in series and the Board of Directors, at their discretion, may fix for each series (1) the rate of dividend, (2) the price at and the terms and conditions on which shares may be redeemed, (3) the amount payable per share in the event of voluntary or involuntary liquidation, (4) sinking fund provisions, (5) the terms and conditions on which shares may be converted, if a convertible series, and (6) voting rights, if any. In 1992, the Company exchanged 70,000 shares of participating preferred stock for a 25% interest in the Techno-Chatham Project (the Project) (a LaSalle investment). The preferred stock has no stated coupon rate, redemption or convertible features, but has a liquidation value of $10 per share. The Company is committed to paying dividends based on 25% of the oil and gas revenue of the Project, net of incurred expenses, after the Company has received the return of its gross investment in the Project. During 1996, the Company initiated a Private Placement Offering for 2.4 million shares of its common stock. The stock is being offered in Units of 12,000 shares at a cost of $18,000 per Unit. Through March 31, 1996, 485,500 shares of common stock have been sold for $637,050, which is net of $91,200 in issuance costs and expenses. The units are being offered by Continental Capital Securities, Inc. (see Note 12). During 1996, the Company repurchased 60,000 shares of its common stock for $60,000. During 1995, the Company issued 232,000 shares of common stock for $232,000 in cash. In addition, options to acquire 40,304 shares of common stock were exercised at $.372 per share. In September 1993, the Company issued 2,861,620 shares of common stock for all of the outstanding common stock of AH. 12. RELATED PARTIES Continental Capital, Inc. (Continental) is a shareholder of the Company and its Chairman and Chief Executive Officer was, during 1994 and 1995, the Company's Chairman and Chief Executive Officer and, since June 1995, was a Director and Vice President of the Company and, since December 1995, is a Director, Vice President and Secretary. In 1996, 1995 and 1994, the Company paid Continental $132,500, $15,000 and $58,000, respectively, for fees related to the issuance of stock and debt. 43 44 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. RELATED PARTIES (CONTINUED) At March 31, 1996 and 1995, the Company had unsecured notes payable to certain of its shareholders as described in Note 7. 13. BUSINESS SEGMENT INFORMATION At March 31, 1996, the Company's operations have been classified into five business segments as described in Note 1. Summarized financial information by business segment for fiscal 1996, 1995 and 1994 is as follows:
MATERIAL MOTOR METAL HANDLING PRODUCTION FORMING OIL CORPORATE 1996 SYSTEMS SYSTEMS OPERATIONS AND GAS OFFICE TOTAL Net sales to unaf- filiated customers $19,451,267 $ 5,534,536 $ 2,539,899 $27,525,702 Operating profit (loss) 1,409,694 468,409 229,937 $ (33,200) $ (609,266) 1,465,574 Identifiable assets 8,236,864 3,016,597 27,624,426 115,349 1,618,512 40,611,748 Depreciation 59,496 31,094 63,373 3,044 566 157,573 Amortization 150,225 6,486 156,711 Capital expenditures 67,948 17,274 433,695 7,023 525,940 1995 Net sales to unaf- filiated customers $12,969,997 $ 5,322,699 $18,292,696 Operating profit (loss) 739,397 434,827 $ (28,272) $ (488,113) 657,839 Identifiable assets 6,086,694 3,044,195 117,399 299,048 9,547,336 Depreciation 45,003 33,223 3,044 1,006 82,276 Amortization 160,654 16,903 177,557 Capital expenditures 88,702 10,066 98,768 1994 Net sales to unaf- filiated customers $ 6,041,724 $ 2,718,943 $ 8,760,667 Operating profit (loss) 127,925 (231,961) $ (35,054) $ (490,208) (629,298) Identifiable assets 5,347,393 2,405,392 122,021 66,233 7,941,039 Depreciation 19,399 25,831 3,044 3,371 51,645 Amortization 93,715 15,238 108,953 Capital expenditures 36,550 1,800 38,350
44 45 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. STOCK OPTIONS AND WARRANTS During 1996, in connection with the acquisition of McInnes, two officers of McInnes received options for 110,333 shares of common stock having an exercise price of $.64 per share resulting in $94,954 in additional paid-in capital. In addition, during 1996, officers and employees of the Company received options for 350,000 and 295,000 shares of the Company's common stock with exercise prices of $1.00 and $1.50, per share, respectively. The following summarizes the stock option and warrant transactions for the years ended March 31, 1996 and 1995:
NUMBER PER SHARE OF SHARES OPTION PRICE Outstanding at March 31, 1994 575,162 $.372-.75 Stock option activity for the year ended March 31, 1995 Granted Exercised 40,304 $.372 Cancelled ----------- Outstanding at March 31, 1995 534,858 $.372-.75 Stock option activity for the year ended March 31, 1996 Granted 755,333 $.64 - 1.50 Exercised Cancelled ----------- Outstanding at March 31, 1996 1,290,191 $.372 - 1.50 ===========
During 1996, the Company issued 1,125,000 warrants to purchase its common stock for $2 per share for a period of eight years. The warrants, which were issued in connection with the 11% convertible subordinated notes, have been valued at $600,000. In addition, warrants to purchase 220,000 shares of the Company's common stock for $1.00 per share were issued during 1996 in connection with individual debt agreements with certain shareholders. During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." This statement sets forth standards for accounting for stock-based compensation or allows companies to continue to account for stock-based compensation under the current requirements and make additional disclosure in the notes to the financial statements. It is the Company's intention to continue to account for stock-based compensation in accordance with current requirements and provide the additional disclosure in the notes to the financial statements in 1997. 45 46 CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. SALES TO MAJOR CUSTOMER During fiscal 1996 and 1994, the Company's sales to its largest customer totaled $3.5 and $1.2 million or 13% and 14% of sales, respectively. All of these sales were recorded by the material handling business segment to a customer engaged in the sale of automotive parts. 46 47 Centrum Industries, Inc. Schedule II - Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E - -------------------------- -------- ---------------------------- -------- -------- Additions ---------------------------- Balance at Charged to Charged to Beginning Costs and Other Accounts Deductions Balance at Description of Period Expenses -Describe -Describe End of Period - -------------------------- --------- -------- ------------- ---------- ------------- Year ended March 31, 1996 Valuation allowance for excess cost over market $107,585 $40,282 $ 316,202 (A) $ (13,302) (B) $ 450,767 Valuation allowance for LIFO reserve (172,720) (A) (172,720) Valuation allowance for accounts receivable 60,658 19,491 56,403 (A) (42,791) (C) 93,761 Valuation allowance for note receivable 24,733 24,733 Valuation allowance for lease receivable 6,782 (6,782) (D) Year ended March 31, 1995 Valuation allowance for marketable equity securities $337,875 $ (337,875) (E) Valuation allowance for obsolete inventory 186,121 (78,536) (B) $ 107,585 Valuation allowance for accounts receivable 64,047 $47,265 (50,654) (C) 60,658 Valuation allowance for note receivable 24,733 24,733 Valuation allowance for lease receivable 6,782 6,782 Year Ended March 31, 1994 Valuation allowance for marketable equity securities $286,875 $51,000 $ 337,875 Valuation allowance for obsolete inventory 197,699 $(11,578) (B) 186,121 Valuation allowance for accounts receivable $ 64,047 (A) 64,047 Valuation allowance for note receivable 24,733 24,733 Valuation allowance for lease receivable 6,782 6,782
(A) - Valuation allowance was in the opening balance sheet of a company acquired by Centrum. (B) - Based on the physical inventory, the need for inventory obsolescence allowance was reduced. (C) - Allowance for doubtful accounts was reduced by the amount of accounts written off. (D) - Allowance for lease receivable was reduced by the amount of lease written off. (E) - The marketable equity securities were sold during 1995. 47 48 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CENTRUM The directors and executive officers of Centrum at March 31, 1996 were as follows: George H. Wells Age 52 Chief Executive Officer since May 1995. President and Chief Operating Officer from 1992 to May 1995. Director since 1992. William C. Davis Age 50 Vice President and Secretary since December 1995. Vice President since May 1995. Chief Executive Officer, from 1992 to May 1995. Director since 1988. Thomas E. Seiple Age 50 Director, since 1988. Robert J. Fulton Age 53 Director, since 1993. David L. Hart Age 50 Director, since 1988. John R. Ayling Age 51 Director, since 1988. Anthony J. DiVita Age 41 Chief Financial Officer and Treasurer, since May 1995. Anthony A. Montani Age 57 President and Chief Operating Officer, McInnes Steel Company, since March 1996. Timothy M. Hunter Age 33 Vice President, Chief Financial Officer, Secretary/Treasurer, McInnes Steel Company, since March 1996.
Information concerning the backgrounds and occupations for directors and executive officers is as follows: George H. Wells has been Chief Executive Officer since June 1995 and President and Chief Operating Officer from October 1992 to June 1995. From 1990 to October, 1991, he served as President and Chief Executive Officer and Director of Doehler Jarvis, a Toledo, Ohio based producer of die cast and semi-permanent mold aluminum components utilized by the automotive industry and in general industrial applications. From 1985 to 1989, he served as President and Chief Operating Officer and as a Director of National Forge Company of Irvine, Pennsylvania, which produced precision machined components. William C. Davis is President, Chairman and Director of Continental Capital Corporation, positions which he has held for over five years. From 1988 to 1995, he was the Chairman of the Board and Chief Executive Officer of Centrum. Since 1995, he has been a Vice President and Secretary of Centrum. Thomas E. Seiple has owned and operated United Roofing, a construction business, for over five years. 48 49 Robert J. Fulton has been a director since 1993. From 1990 until December 1992, he served as Executive Vice President and Chief Operating Officer and a Director of Doehler-Jarvis. From 1986 through 1990, he served as a Director and Vice President in Charge of marketing and manufacturing of National Forge Company. David L. Hart has worked as a manufacturer's representative in the automotive industry and has been President of his own firm, Lee Hart Associates, for over five years. John R. Ayling has worked as a registered representative in the stock brokerage business since 1969. He is currently President of Continental Capital Management, Inc., a majority owned subsidiary of Continental Capital Corporation. Anthony J. DiVita was appointed to the position of Chief Financial Officer and Treasurer in June 1995 and has been Treasurer of American Handling, Inc. since 1991. Anthony A. Montani has been President and Chief Operating Officer of McInnes Steel Company since March 1996. He has been active in the forging industry for over 30 years. He has been with McInnes Steel Company for over 5 years, serving in his most recent capacity as Vice-President of Sales and Marketing, and as a Director. Timothy M. Hunter was appointed Vice-President, Chief Financial Officer and Secretary/Treasurer of McInnes Steel Company in March 1996. He has been with McInnes Steel Company since 1986 where he most recently served as Treasurer and as a Director. Section 16(a) Beneficial Ownership Reporting Deficiencies During 1996, Moramerica Capital Corporation, First New England Capital Limited Partnership, and North Dakota Small Business Investment Company were late in filing their Reports on Form 3 in March 1996. David L. Hart was late in filing his Report on Form 4 for the month of February 1996. ITEM 11. EXECUTIVE COMPENSATION The following table shows compensation paid or awarded by Centrum during the fiscal years ended March 31, 1996, 1995, and 1994 to the current executive officers of Centrum for services in all capacities. No compensation was awarded to any other executive officers of Centrum. 49 50 SUMMARY COMPENSATION TABLE
Annual Compensation --------------------------------------------------------- Name and Other annual All other principal position Year Salary Bonus compensation compensation(2) - ----------------------------------------------------------------------------------------------------- George H. Wells 1996 $ 175,000 $ 56,000 $ 6,860 1995 $ 175,000 $ 20,000 $ 11,094 1994 $ 175,000 $ 2,500 Robert J. Fulton 1996 $ $ (Effective April 1995 $ 42,799 $ 52,500(1) $ 7,655 1993) 1994 $ 7,500 $ 4,845 Anthony J. DiVita 1996 $ 82,824 $ 30,000 $ 5,030 1995 $ 68,912 $ 4,400 1994 $ 71,601 $ 4,065 Anthony A. Montani 1996 $ 106,769 $ 6,439 1995 $ 104,000 $ 6,439 1994 $ 100,462 $ 5,451 Timothy M. Hunter 1996 $ 64,523 $ 6,044 1995 $ 62,400 $ 5,051 1994 $ 60,277 $ 4,721 - -----------------------
(1) Consulting fees (2) Automobile lease 50 51 OPTION GRANTS IN 1996
Number of Percent of securities total options underlying granted to Exercise or options employees in base price Expiration Grant date granted fiscal year per share date(1) value (2) ------- --------------- ------------- --------------- --------------- George H. Wells 150,000 19.9% $1.00 $75,000 William C. Davis 100,000 13.2% 1.00 50,000 Robert J. Fulton 100,000 13.2% 1.00 50,000 Anthony A. Montani 150,000 19.9% 1.50 90,000 Timothy M. Hunter 125,000 16.5% 1.50 75,000 - -----------------
(1) The options expire following termination of employment. (2) Based on the Constant Elasticity Variance of the Black-Scholes model using the following assumptions: (a) a five year option term; (b) 80% volatility rate; and (c) 0% dividend yield. Actual gain, if any, is dependent upon the actual performance of the shares of common stock underlying these options. There is no assurance that the amounts shown in this column will be achieved. No options were exercised for the fiscal year ended March 31, 1996 by any of the named executives included in the summary compensation table. The directors of Centrum do not receive any compensation for their attendance at Board meetings nor are they reimbursed for out-of-pocket expenses for travel to and from Board meetings. BOARD REPORT ON EXECUTIVE COMPENSATION Compensation is determined by Centrum's Board of Directors, excluding interested parties. The Board of Directors engaged Mr. Wells pursuant to an Employment Agreement dated October 12, 1992 for an annual salary of $175,000, commencing November 15, 1992. The Board also awarded Mr. Wells options to purchase 166,667 shares of Centrum's common stock at an exercise price of $.75. In addition, Mr. Wells purchased 166,667 share of stock for $125,000. The Board reserved the right in the agreement to terminate Mr. Wells for cause. In addition to his salary, Mr. Wells is entitled to receive a performance bonus of 5% of Centrum's consolidated before tax profit beginning with Centrum's 1993 fiscal year and ending with the 1996 fiscal year. For the 1996 fiscal year, Mr. Wells was awarded a bonus of $56,000. In hiring Mr. Wells and setting his salary, the Board of Directors took into account Centrum's severe financial situation and the need for an experienced, senior executive to obtain improvement and to accomplish the Board's long-term goals. 51 52 By the Board of Directors (excluding, when applicable, those interested), William C. Davis Thomas E. Seiple David L. Hart John R. Ayling ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows beneficial ownership of Centrum as of March 31, 1996:
Number of shares of Centrum common stock beneficially owned % of class ------------------ --------------- John R. Ayling 568,536 9.2% Thomas E. Seiple 60,000 * William C. Davis 100,000 1.6% David L. Hart 163,333 2.6% George H. Wells 483,334 7.8% Robert J. Fulton 433,334 7.0% Anthony A. Montani 216,200 3.5% Timothy M. Hunter 169,133 2.7%
* Less than 0.1% ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Continental Capital, Inc. (Continental) is a shareholder of the Company and its Chairman and Chief Executive Officer was, from 1998 to 1995, a Director and Chief Executive Officer of the Company and has been a Vice President and Director since June 1995 and has been a Director, Vice President and Secretary since December 1995. In 1996 and 1995, the Company paid $47,500 and $15,000, respectively, to Continental for fees relating to the issuance of debt. In 1996, the Company paid Continental $85,000 for fees relating to the issuance of stock. A Centrum shareholder, who, prior to 1993, was a director, provides certain legal and consulting services to the Company. During 1996 and 1995, the Company paid the shareholder $12,000 and $24,000, respectively, for such services. At March 31, 1996 and 1995, the Company had unsecured notes payable to certain of its shareholders. See Note 7 to the Consolidated Financial Statements. 52 53 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of the report: 1. A list of the financial statements filed as part of this report is submitted as a separate section, the index to which is located on page 21. 2. A list of financial statement schedules required to be filed by Item 8 is located on page 21. 3. Exhibits The following exhibits are included in this report or are incorporated herein by reference: Exhibit No./Description of Exhibit 3.1 Certificate of Incorporation, as amended (filed herewith). 3.2 Bylaws (filed herewith). 3.3 Participating Preferred Agreement (filed herewith). 4.1 The instruments defining the rights of the holders of debentures issued in calendar year 1995, with options at $1.00 per share are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 4.2 The instruments defining the rights of the holders of certain notes, styled as "Loans," issued in 1991-1993, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 4.3 The instruments defining the rights of the holders of certain subordinated notes originally issued by American Handling, Inc. in 1991, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 4.4 The instruments defining the rights of the holders of certain notes, styled as "Loans With Warrants," issued in 1993-1995, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 53 54 4.5 The 11% Convertible Subordinated Notes issued in March 1996 in the aggregate principal amount of $2,500,000 (issued together with warrants for 1,250,000 shares of the Company's common stock) are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such instruments to the Commission upon request. 4.6 Certain subordination agreements executed in March 1996 by new and existing noteholders of the Company are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 4.7 The instruments defining the rights of the holders of Bridge Notes, issued in March 1996 in the aggregate principal amount of $1,239,000, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such instruments to the Commission upon request. 4.8 The instruments defining the rights of the holders of certain debt incurred in the acquisition of Micafil, Inc., in May 1993, including the restatements of such original instruments, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such instruments to the Commission upon request. 4.9 Reimbursement Agreement, dated as of February 29, 1996, with respect to a letter of credit issued by The Huntington National Bank, relating to $6,000,000 Erie County Industrial Development Authority Variable Rate Demand Industrial Development Revenue Bonds (McInnes Steel Company Project) (filed herewith). 4.10 Installment Sales Agreement, dated as of November 1, 1991, relating to the loan of proceeds from the sale of $6,000,000 Erie County Industrial Development Authority Variable Rate Demand Industrial Development Revenue Bonds (McInnes Steel Company Project) (filed herewith). 9.1 Equity Holders Agreement dated as of February 29, 1996, effective as of March 8, 1996, by and among First New England Capital Limited Partnership, Moramerica Capital Corp., North Dakota Small Business Investment Company, Centrum Industries, Inc. and certain shareholders of Centrum Industries, Inc. (filed herewith). 10.1 Agreement and Plan of Reorganization by and among Centrum Industries, Inc., Centrum Merging Corporation, and McInnes Steel Company, dated as of December 7, 1995 (filed as Exhibit 7(c) to the Company's Report on Form 8-K, filed with the Commission on December 22, 1996, and incorporated herein by reference.) 54 55 10.2 Agreement and Plan of Merger by and among Centrum Merging Corporation and McInnes Steel Company, with Centrum Industries, Inc., as a parent party, dated March 8, 1996 (filed as Exhibit 7(a) to the Company's Report on Form 8-K, filed with the Commission on March 22, 1996, and incorporated herein by reference.) 10.3 Note and Warrant Purchase Agreement dated as of February 29, 1996 and effective as of March 8, 1996, by and among Moramerica Capital Corporation, First New England Capital Limited Partnership, and North Dakota Small Business Investment Company and Centrum Industries, Inc. with respect to 11% convertible, subordinated notes and warrants for the purchase of 1,250,000 shares of common stock (filed herewith). 10.4 Common Stock Warrant dated as of February 29, 1996 and effective as of March 8, 1996, issued to Moramerica Capital Corporation for 627,445 shares of common stock (filed herewith). 10.5 Common Stock Warrant dated as of February 29, 1996 and effective as of March 8, 1996, issued to First New England Capital Limited Partnership for 375,000 shares of common stock (filed herewith). 10.6 Common Stock Warrant dated as of February 29, 1996 and effective as of March 8, 1996, issued to First New England Capital Limited Partnership and North Dakota Small Business Investment Company for 247,555 shares of common stock (filed herewith). 10.7 Put Agreement by and among Moramerica Capital Corporation, First New England Capital Limited Partnership and North Dakota Small Business Investment Company and Centrum Industries, Inc. (filed herewith). 10.8 Registration Rights Agreement dated as of February 29, 1996, effective as of March 8, 1996, by and among Moramerica Capital Corporation, First New England Capital Limited Partnership and North Dakota Small Business Investment Company and Centrum Industries, Inc. (filed herewith). 10.9 Loan and Security Agreement dated as of February 29, 1996, by and among The Huntington National Bank and McInnes Steel Company, Eballoy Glass Products Company, Erie Bronze & Aluminum Company and McInnes International, Inc. as Borrowers, and Centrum Industries, Inc. and McInnes Services, Inc. as Guarantors (filed herewith). 10.10 Continuing Guaranty Unlimited of Centrum Industries, Inc., dated as of February 29, 1996 (filed herewith). 10.11 Form of Common Stock Warrant, issued in connection with the debt instruments referenced in Exhibits 4.5 above (filed herewith). 10.12 Loan Agreement by and between the City of Erie by and through the Enterprise Development Zone Revolving Loan Fund and McInnes Steel Company dated as of November 2, 1995 (filed herewith). 55 56 10.13 Employment Agreement with George H. Wells (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992, and incorporated herein by reference.) 10.14 Employment Agreement with Anthony A. Montani (filed herewith). 10.15 Employment Agreement with Timothy M. Hunter (filed herewith). 10.16 Services Agreement with Stephen J. Mahoney (filed herewith). 10.17 Stock Option Agreement with Anthony A. Montani (filed herewith). 10.18 Stock Option Agreement with Anthony A. Montani (filed herewith). 10.19 Stock Option Agreement with Timothy M. Hunter (filed herewith). 10.20 Stock Option Agreement with Timothy M. Hunter (filed herewith). 10.21 Bonus and Stock Option Plan of McInnes Steel Company and its Subsidiaries (filed herewith). 10.22 Bonus and Stock Option Plan of Micafil, Inc. (filed herewith). 10.23 Bonus and Stock Option Plan of American Handling, Inc. (filed herewith). 11 Computation of earnings per share (filed herewith). 21 Subsidiaries (direct and indirect) of the Company (filed herewith). 27 Financial Data Schedules (b) Reports on Form 8-K On March 22, 1996, the Company filed a Current Report on Form 8-K to report on the completion of its acquisition of McInnes Steel Company. No financial statements were filed with this Form 8-K. 56 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Centrum has duly caused this reported to be signed on its behalf by the undersigned, thereunto duly authorized. CENTRUM INDUSTRIES, INC. By: /s/ George H. Wells ---------------------------------- George H. Wells Chief Executive Officer Date: June 20, 1996 ------------------------------- 57 58 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Centrum in the capacities and on the dates indicated.
Signature Date /s/ George H. Wells Principal June 20, 1996 -------------------------------------- Executive George H. Wells Officer Chief Executive Officer, Member - Board of Directors /s/ Anthony J. DiVita June 20, 1996 -------------------------------------- Anthony J. DiVita Treasurer and Chief Financial Officer /s/ William C. Davis June 20, 1996 -------------------------------------- William C. Davis Vice President, Secretary /s/ Thomas E. Seiple June 20, 1996 -------------------------------------- Thomas E. Seiple Member - Board of Directors /s/ David L. Hart June 20, 1996 -------------------------------------- David L. Hart Member - Board of Director /s/ Robert J. Fulton June 20, 1996 -------------------------------------- Robert J. Fulton Member - Board of Directors /s/ John R. Ayling June 20, 1996 -------------------------------------- John R. Ayling Member - Board of Directors
58 59 Exhibit Index -------------
Exhibit No. Description of Exhibit - ----------- ---------------------- 3.1 Certificate of Incorporation, as amended (filed herewith). 3.2 Bylaws (filed herewith). 3.3 Participating Preferred Agreement (filed herewith). 4.1 The instruments defining the rights of the holders of debentures issued in calendar year 1995, with options at $1.00 per share are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 4.2 The instruments defining the rights of the holders of certain notes, styled as "Loans," issued in 1991-1993, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 4.3 The instruments defining the rights of the holders of certain subordinated notes originally issued by American Handling, Inc. in 1991, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 4.4 The instruments defining the rights of the holders of certain notes, styled as "Loans With Warrants," issued in 1993-1995, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request.
60 4.5 The 11% Convertible Subordinated Notes issued in March 1996 in the aggregate principal amount of $2,500,000 (issued together with warrants for 1,250,000 shares of the Company's common stock) are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such instruments to the Commission upon request. 4.6 Certain subordination agreements executed in March 1996 by new and existing noteholders of the Company are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. 4.7 The instruments defining the rights of the holders of Bridge Notes, issued in March 1996 in the aggregate principal amount of $1,239,000, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such instruments to the Commission upon request. 4.8 The instruments defining the rights of the holders of certain debt incurred in the acquisition of Micafil, Inc., in May 1993, including the restatements of such original instruments, are not being filed herewith, as permitted by Regulation Section 229.601(b)(4)(iii), because such securities do not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company hereby agrees to furnish a copy of such instruments to the Commission upon request. 4.9 Reimbursement Agreement, dated as of February 29, 1996, with respect to a letter of credit issued by The Huntington National Bank, relating to $6,000,000 Erie County Industrial Development Authority Variable Rate Demand Industrial Development Revenue Bonds (McInnes Steel Company Project) (filed herewith). 4.10 Installment Sales Agreement, dated as of November 1, 1991, relating to the loan of proceeds from the sale of $6,000,000 Erie County Industrial Development Authority Variable Rate Demand Industrial Development Revenue Bonds (McInnes Steel Company Project) (filed herewith). 9.1 Equity Holders Agreement dated as of February 29, 1996, effective as of March 8, 1996, by and among First New England Capital Limited Partnership, Moramerica Capital Corp., North Dakota Small Business Investment Company, Centrum Industries, Inc. and certain shareholders of Centrum Industries, Inc. (filed herewith). 10.1 Agreement and Plan of Reorganization by and among Centrum Industries, Inc., Centrum Merging Corporation, and McInnes Steel Company, dated as of December 7, 1995 (filed as Exhibit 7(c) to the Company's Report on Form 8-K, filed with the Commission on December 22, 1996, and incorporated herein by reference.)
61 10.2 Agreement and Plan of Merger by and among Centrum Merging Corporation and McInnes Steel Company, with Centrum Industries, Inc., as a parent party, dated March 8, 1996 (filed as Exhibit 7(a) to the Company's Report on Form 8-K, filed with the Commission on March 22, 1996, and incorporated herein by reference.) 10.3 Note and Warrant Purchase Agreement dated as of February 29, 1996 and effective as of March 8, 1996, by and among Moramerica Capital Corporation, First New England Capital Limited Partnership, and North Dakota Small Business Investment Company and Centrum Industries, Inc. with respect to 11% convertible, subordinated notes and warrants for the purchase of 1,250,000 shares of common stock (filed herewith). 10.4 Common Stock Warrant dated as of February 29, 1996 and effective as of March 8, 1996, issued to Moramerica Capital Corporation for 627,445 shares of common stock (filed herewith). 10.5 Common Stock Warrant dated as of February 29, 1996 and effective as of March 8, 1996, issued to First New England Capital Limited Partnership for 375,000 shares of common stock (filed herewith). 10.6 Common Stock Warrant dated as of February 29, 1996 and effective as of March 8, 1996, issued to First New England Capital Limited Partnership and North Dakota Small Business Investment Company for 247,555 shares of common stock (filed herewith). 10.7 Put Agreement by and among Moramerica Capital Corporation, First New England Capital Limited Partnership and North Dakota Small Business Investment Company and Centrum Industries, Inc. (filed herewith). 10.8 Registration Rights Agreement dated as of February 29, 1996, effective as of March 8, 1996, by and among Moramerica Capital Corporation, First New England Capital Limited Partnership and North Dakota Small Business Investment Company and Centrum Industries, Inc. (filed herewith). 10.9 Loan and Security Agreement dated as of February 29, 1996, by and among The Huntington National Bank and McInnes Steel Company, Eballoy Glass Products Company, Erie Bronze & Aluminum Company and McInnes International, Inc. as Borrowers, and Centrum Industries, Inc. and McInnes Services, Inc. as Guarantors (filed herewith). 10.10 Continuing Guaranty Unlimited of Centrum Industries, Inc., dated as of February 29, 1996 (filed herewith). 10.11 Form of Common Stock Warrant, issued in connection with the debt instruments referenced in Exhibits 4.5 above (filed herewith). 10.12 Loan Agreement by and between the City of Erie by and through the Enterprise Development Zone Revolving Loan Fund and McInnes Steel Company dated as of November 2, 1995 (filed herewith).
62 10.13 Employment Agreement with George H. Wells (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992, and incorporated herein by reference.) 10.14 Employment Agreement with Anthony A. Montani (filed herewith). 10.15 Employment Agreement with Timothy M. Hunter (filed herewith). 10.16 Services Agreement with Stephen J. Mahoney (filed herewith). 10.17 Stock Option Agreement with Anthony A. Montani (filed herewith). 10.18 Stock Option Agreement with Anthony A. Montani (filed herewith). 10.19 Stock Option Agreement with Timothy M. Hunter (filed herewith). 10.20 Stock Option Agreement with Timothy M. Hunter (filed herewith). 10.21 Bonus and Stock Option Plan of McInnes Steel Company and its Subsidiaries (filed herewith). 10.22 Bonus and Stock Option Plan of Micafil, Inc. (filed herewith). 10.23 Bonus and Stock Option Plan of American Handling, Inc. (filed herewith). 11 Computation of earnings per share (filed herewith). 21 Subsidiaries (direct and indirect) of the Company (filed herewith). 27 Financial Data Schedules
EX-3.1 2 EX-3.1 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF CENTRUM MERGER CORPORATION FIRST. The name of the corporation is Centrum Merger Corporation. SECOND. The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. Section 1. Authorized Shares. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is sixteen million (16,000,000) shares, of which (i) seven million five hundred thousand (7,500,000) shares, of a par value of $.05 per share, shall be Class A Common Stock (the "Class A Common Stock"), (ii) seven million five hundred thousand (7,500,000) shares, of a par value of $.05 per share, shall be Class B Common Stock (the "Class B Common Stock"), and (iii) one million (1,000,000) shares, of a par value of $.05 per share, shall be Preferred Stock (the "Preferred Stock"). Section 2. Class A Common Stock and Class B Common Stock. The rights, preferences, qualifications, limitations and restrictions of the Class A Common Stock and the Class B Common Stock are as follows: A. Voting Rights 1. Each share of Class A Common Stock shall entitle the holder thereof to one vote upon each matter coming before any meeting of stockholders. Each share of Class B Common Stock shall entitle the holder thereof to one vote upon each matter coming before any meeting of stockholders; provided, however, that each share of Class B Common Stock, when voting as a single class under the General Corporation Law of the State of Delaware with shares of any other class of securities of the Corporation, shall entitle the holder thereof to ten (10) votes. Except as set forth herein, all actions submitted in a vote of stockholders shall be voted on by the holders of Class A Common Stock and Class B Common Stock (as well as the holders of any series of Preferred Stock, if any, entitled to vote thereon) voting together as a single class. 2. The holders of Class A Common Stock and Class B Common Stock shall each be entitled to vote separately as a class with respect to (i) amendments to this 2 Certificate of Incorporation that alter or change the powers, preferences or special rights of their respective class of stock so as to affect them adversely, and (ii) such other matters as require class votes under the General Corporation Law of the State of Delaware. B. Dividends 1. Holders of Class A Common Stock and Class B Common Stock shall be entitled to receive dividends on an equal per share basis, out of funds legally available therefor, when and as declared by the Board of Directors. 2. No dividends payable in shares of Class B Common Stock shall be declared on Class A Common Stock and no dividends payable in shares of Class A Common Stock shall be declared on Class B Common Stock. C. Conversion of Class B Common Stock 1. Each share of Class B Common Stock may at any time be converted into one (1) fully paid and nonassessable share of Class A Common Stock. 2. The holders of a certificate or certificates for Class B Common Stock, in order to effect the conversion of shares represented thereby, shall surrender the certificate or certificates to the Corporation or to the Transfer Agent, accompanied by a written notice of the election to convert and by instruments of transfer, in form satisfactory to the Corporation and to the Transfer Agent, duly executed by such holder or his duly authorized attorney, and the necessary stock transfer stamps or equivalent funds, if required pursuant to subparagraph 6 below. 3. As promptly as practicable after the surrender for conversion of a certificate or certificates representing shares of Class B Common Stock in the manner provided in subparagraph 2, the Corporation shall issue and deliver or cause to be issued and delivered to the person entitled thereto a certificate for the number of full shares of the Class A Common Stock issuable upon such conversion. The conversion shall be deemed to have been effected on the date of the surrender of the certificate or certificates representing shares of Class B Common Stock, and the person in whose name the certificate or certificates of the Class A Common Shares issuable upon conversion are to be issued shall be deemed the holder of record of the shares as of that date. 4. No adjustments with respect to dividends on shares of Class A Common Stock or Class B Common Stock shall be made in connection with any convention of shares of Class B Common Stock into shares of Class A Common Stock. -2- 3 5. The Corporation shall at all times have authorized but unissued, or in its treasury, a number of shares of Class A Common Stock sufficient for the conversion of all shares of Class B Common Stock from time to time outstanding. 6. The issuance of a certificate or certificates for shares of Class A Common Stock upon conversion of shares of Class B Common Stock shall be made without charge for any stamp or similar tax in respect of such issuance. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Class B Common Stock converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. D. Preemptive Rights Holders of the Class A Common Stock and Class B Common Stock shall have no preemptive right to subscribe to any securities issued by the Corporation. E. Rights Upon Liquidation In the event of dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, holders of the Class A Common Stock and Class B Common Stock shall be entitled to payment out of the assets of the Corporation ratably in accordance with the number of shares held by them respectively. Section 3. Preferred Stock. A. Shares of Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. All shares of any one series shall be of equal rank and identical in all respects. B. The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, with such voting powers, full or limited, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in this Certificate of Incorporation, or any amendment thereto, including (but without limiting the generality of the foregoing) the following: 1. The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors -3- 4 in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors. 2. The dividend rate or rates on the shares of such series and the relation which such dividends shall bear to the dividends payable on any other class or classes or of any other series of capital stock, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate. 3. Whether the shares of such series shall be redeemable, the limitations and restrictions with respect to such redemption, the time or times when, the price or prices at which and the manner in which such shares shall be redeemable, including the manner of selecting share of such series for redemption if less than all shares are to be redeemed. 4. The rights to which the holders of shares of such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, which rights may vary, depending on whether such liquidation, dissolution, distribution or winding up is voluntary or involuntary, and, if voluntary, may vary at different dates. 5. Whether the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof. 6. Whether the shares of such series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class of classes of capital stock of the Corporation, and, if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of such conversion or exchange. 7. The voting powers, full and/or limited, if any, of the shares of such series; and whether and under what conditions the shares of such series (alone or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a single class, for the election of one or more additional directors of the corporation in case of dividend arrearage or other specified events, or upon other matters. -4- 5 8. Whether the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences or rights of any such other series. 9. Any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. C. No dividends shall be paid or declared or set apart on any particular series of Preferred Stock in respect of any period unless accumulated dividends shall be or shall have been paid, or declared and set apart for payment, pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with such particular series, so that the amount of dividends declared on such particular series shall bear the same ratio to the amount declared on each such other series as the dividend rate of such particular series shall bear to the dividend rate of such other series. D. Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the Board of Directors creating any series of Preferred Stock pursuant to this Section 3, the holders of the Preferred Stock shall have no voting power with respect to any matter whatsoever. E. Shares of Preferred Stock redeemed, converted, exchanged, purchased, retired or surrendered to the corporation, or which have been issued and reacquired in any manner, shall, upon compliance with any applicable provisions of the General Corporation Law of the State of Delaware, have the status of authorized and unissued shares of Preferred Stock and may be reissued by the Board of Directors as part of the series of which they were originally a part or may be reclassified into and reissued as part of a new series or as a part of any other series, all subject to the protective conditions or restrictions of any outstanding series of Preferred Stock. FIFTH. The name and mailing address of the incorporator are Joan S. Vander Linde, Schiff Hardin & Waite, 7200 Sears Tower, Chicago, Illinois 60606. SIXTH. In furtherance and not in limitation of the powers conferred by statute, the board of directors of the corporation is expressly authorized to adopt, amend or repeal the By-laws of the corporation. SEVENTH. A person who was or is a director of the corporation shall not be personally, liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived -5- 6 any improper personal benefit. Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. If the Delaware General Corporation Law is amended to further eliminate or limit, or to authorize further elimination or limitation of the personal liability of directors for breach of fiduciary duty as a director, then the personal liability of a director to this corporation or stockholders shall be eliminated or limited to the full extent permitted by the Delaware General Corporation Law. EIGHTH. Elections of directors need not be by written ballot unless the By-Laws of the corporation shall so provide. NINTH. The corporation elects not to be governed by Section 203 of the Delaware General Corporation Law entitled "Business Combinations with Interested Stockholders." TENTH. Action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders. ELEVENTH. Notwithstanding any other provision of this Certificate of Incorporation or the By-Laws of the corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the By-Laws of the corporation), any director or the entire Board of Directors of the corporation may be removed at any time, but only for cause and only by the affirmative vote of the holders of at least 66 2/3% of the then outstanding voting stock. Cause for removal shall be deemed to exist only if the director whose removal is proposed has been convicted of a felony by, a court of competent jurisdiction or has been adjudged by a court of competent jurisdiction to be liable for negligence or misconduct in the performance of such director's duty to the corporation and such conviction or adjudication is no longer subject to direct appeal. TWELFTH. The Corporation reserves the right to amend its certificate of incorporation, and to thereby change or repeal any provision therein contained from time to time, in the manner prescribed at the time by statute, and all rights conferred upon stockholders by such certificate of incorporation are granted subject to this reservation. The undersigned, being the incorporator herein above named, has executed this Certificate of Incorporation this 26th day of October, 1990, thereby acknowledging under penalties of perjury that the foregoing is the act and deed of the undersigned and that the facts stated therein are true. /s/ Joan Vander Linde -------------------------------------------- Joan S. Vander Linde -6- 7 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is dated as of this 16th day of November, 1990 between Centrum Industries, Inc., a North Dakota corporation ("Centrum North Dakota") and Centrum Merger Corporation, a Delaware corporation ("Centrum Delaware"). Centrum North Dakota and Centrum Delaware are sometimes referred to jointly as the "Constituent Corporations". WITNESSETH: WHEREAS, Centrum Delaware is a corporation duly organized and existing under the laws of the State of Delaware; and WHEREAS, Centrum North Dakota is a corporation duly organized and existing under the laws of the State of North Dakota; and WHEREAS, the total number of shares of stock which Centrum Delaware has authority to issue is 15,000,000 shares of Common Stock $.05 par value, consisting of seven million five hundred thousand (7,500,000) shares of Class A Common Stock, $.05 par value (the "Class A Common Stock," and seven million five hundred thousand (7,500,000) shares of Class B Common Stock, $.05 par value (the "Class B Common Stock") and 1,000,000 shares of Preferred Stock, $.05 par value, of which 1,0000 shares of Class B Common Stock are issued and outstanding and held by Centrum North Dakota; and WHEREAS, the total number of shares which Centrum North Dakota has authority to issue is 7,500,000 shares of Common Stock, $.05 par value, of which 1,898,102 shares are issue and outstanding; and WHEREAS, the Boards of Centrum Delaware and Centrum North Dakota have each determined that it is advisable that Centrum North Dakota be merged with and into Centrum Delaware (the name of which will become "Centrum Industries, Inc." upon the effective date of the merger) and have approved such merger on the terms and subject to the conditions hereinafter set forth in accordance with the applicable provisions of the laws of the State of Delaware and the State of North Dakota permitting such merger; NOW, THEREFORE, in consideration of the foregoing and of the agreements, covenants and provisions hereinafter set forth, Centrum Delaware and Centrum North Dakota have agreed and do hereby agree as follows: ARTICLE I Subject to the approval of the shareholders of Centrum North Dakota, Centrum North Dakota and Centrum Delaware shall be merged into a single corporation in accordance with the applicable provisions of the laws of the State of North Dakota and the State of Delaware by Centrum North Dakota merging with and into Centrum Delaware, and Centrum Delaware shall be the surviving corporation (sometimes referred to herein as the "Surviving Corporation") 8 effective upon the date when (a) the Agreement is filed with the Secretary of State of the State of Delaware in accordance with the General Corporation Law of the State of Delaware, and (b) Articles of Merger relating to this Agreement are filed with the Secretary of State of the State of North Dakota in accordance with the North Dakota Business Corporation Law (the "Effective Date"). ARTICLE II As of the Effective Date: (a) The Constituent Corporations shall be a single corporation which shall be Centrum Delaware as the Surviving Corporation, and the separate existence of Centrum North Dakota shall cease except to the extent provided by the laws of the State of North Dakota in the case of a corporation after its merger into another corporation. (b) Centrum Delaware shall succeed to all of the rights, privileges, powers and property, including without limitation, all rights, privileges, franchises, patents, trademarks, licenses, registrations and other assets of every kind and description, of the Constituent Corporations, in the manner of and as more fully set forth in Section 259 of the General Corporation Law of the State of Delaware and in Section 10-19.1-102 of the North Dakota Business Corporation Act. Centrum Delaware shall succeed to all debts, liabilities and obligations of the Constituent Corporations, and any claim existing or action or proceeding pending against, and all rights of creditors in response of, and all liens upon any property of the Constituent Corporations as if incurred or contracted by it, all as more fully set forth in Section 259 of the General Corporation Law of the State of Delaware and in Section 10-19.1-102 of the North Dakota Business Corporation Act. (c) All corporate acts, plans, policies, agreements, arrangements, approvals and authorizations of Centrum North Dakota, its shareholders, Board of Directors and committees thereof, officers and agents, which were valid and effective immediately prior to the Effective Date of the merger shall be taken for all purposes as the acts, plans, policies, agreements, arrangements, approvals and authorities of the Surviving Corporation and shall be as effective and binding thereon as the same were with respect to Centrum North Dakota. The employees and agents of Centrum North Dakota shall become the employees and agents of the Surviving Corporation and Continue to be entitled to the same rights and benefits which they enjoyed as employees and agents of Centrum North Dakota. (d) The Certificate of Incorporation of Centrum Delaware shall be amended by striking out ARTICLE FIRST thereof and substituting in lieu thereof the following: "ARTICLE FIRST: The name of the corporation is "Centrum Industries, Inc", -2- 9 and, as so amended shall be the Certificate of Incorporation of the Surviving Corporation until the same shall be amended or changed in accordance with Delaware law. (e) The By-Laws of Centrum Delaware as in effect on the Effective Date of the merger shall be and constitute the By-Laws of the Surviving Corporation until the same shall be altered, amended or repealed. (f) The director and officers of Centrum North Dakota in office on the Effective Date of the merger shall be and constitute the directors and officers of the Surviving Corporation until the next annual meeting of the stockholders of the Surviving Corporation and until their respective successors shall have been elected and shall have qualified, or until their earlier resignation, removal, or replacement. ARTICLE III The manner and basis of converting the shares of Centrum North Dakota into shares of the Surviving Corporation and the cancellation and retirement of shares of Centrum Delaware shall be as follows: (a) As of the Effective Date, by virtue of the merger and without any further action on the part of the Constituent Corporations or their shareholders, the 1,000 shares of Class B Common Stock of Centrum Delaware owned by Centrum North Dakota immediately prior to the Effective Date of the merger shall be cancelled and retired, and all rights in respect thereof shall cease. (b) As of the Effective Date, by virtue of the merger and without any further action on the part of the Constituent Corporations or their shareholders, each share of Common Stock of Centrum North Dakota, $.05 par value, issued and outstanding immediately prior to the Effective Date of the merger shall be changed and converted into one fully paid and nonassessable share of Class B Common Stock of the Surviving Corporation, $.05 par value. Outstanding certificates representing shares of Class B Common Stock of Centrum North Dakota shall thenceforth represent the same number of shares of Common Stuck of the Surviving Corporation, and the holder thereof shall have precisely the same rights which he would have had if such certificates had been issued by the Surviving Corporation. ARTICLE IV If at any time the Surviving Corporation shall consider or be advised that any further assignment or assurance in law is necessary or desirable to vest in the Surviving Corporation the title to any property or rights of Centrum North Dakota, the proper officers and directors of Centrum North Dakota shall, and will, execute and make all such proper assignments and -3- 10 assurances in law and do all things necessary or appropriate to vest such property or rights in the Surviving Corporation and otherwise to carry out the purposes of this Agreement; and the officers and directors of the Surviving Corporation are fully authorized in the name of Centrum North Dakota, or otherwise, to take any and all such action. ARTICLE V This Agreement shall be submitted to the shareholders of each of the Constituent Corporations as provided by law, and shall take effect, and be deemed and be taken to be the Agreement and Plan of Merger of the Constituent Corporations, upon the approval or adoption thereof by the shareholders of each of the Constituent Corporations in accordance with all applicable laws, and upon the certification, execution, acknowledgement, filing and recording of such documents and the doing of such acts and things as shall be required for accomplishing the merger under all applicable laws. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and abandoned by Centrum North Dakota by appropriate resolution of its Board of Directors at any time prior to the Effective Date of the merger in the event that for any reason consummation of the merger is deemed inadvisable in the opinion of the Board of Directors of Centrum North Dakota. In the event of the termination and abandonment of this Agreement pursuant to the preceding sentence, this Agreement shall become void and have no effect, without any liability on the part of either of the Constituent Corporations, or their respective shareholders, directors or officers in respect thereof. ARTICLE VI Centrum Delaware, as the Surviving Corporation, hereby agrees that (a) it may be served with process in the State of North Dakota in any proceeding for the enforcement of any obligation of Centrum North Dakota and in any proceeding for the enforcement of the rights of a dissenting shareholder of Centrum North Dakota, (b) the Secretary of State of North Dakota is irrevocably appointed as its agent to accept service of process in any such proceeding at the address set forth herein, and (c) it will promptly pay to the dissenting shareholders of Centrum North Dakota the amount, if any, to which they are entitled under Section 10-19.1-87 of the North Dakota Business Corporation Act. -4- 11 IN WITNESS WHEREOF, each of the Constituent Corporations, pursuant to authority duly given by resolutions adopted by its Board of Directors, has caused this Agreement to be executed as of the day and year aforesaid. Centrum Industries, Inc. A North Dakota corporation By /s/ John R. Ayling -------------------------------------- Chairman of the Board ATTEST: By Merle E. Pheasant ------------------------- Centrum Merger Corporation A Delaware corporation By /s/ John R. Ayling -------------------------------------- Chairman of the Board ATTEST: By Merle E. Pheasant ------------------------- -5- 12 CENTRUM MERGER CORPORATION SECRETARY'S CERTIFICATE The undersigned, Merle E. Pheasant, Jr., Secretary of Centrum Merger Corporation, a Delaware corporation (the "Corporation"), does hereby certify that the sole stockholder of the outstanding stock of the Corporation dispensed with a meeting and consented in writing on November 16, 1990, pursuant to Section 228 of the General Corporation Law of the State of Delaware, to the adoption of the attached Agreement and Plan of Merger dated November 16, 1990 between Centrum Industries, Inc. and the Corporation. IN WITNESS WHEREOF, I have executed this Certificate this 7th day of December, 1990. /s/ Merle E. Pheasant, Jr. ------------------------------------- Merle E. Pheasant, Jr., Secretary 13 CENTRUM INDUSTRIES, INC. SECRETARY'S CERTIFICATE The undersigned, Merle E. Pheasant, Jr., Secretary of Centrum Industries, Inc., a North Dakota corporation (the "Corporation"), does hereby certify that the attached Agreement and Plan of Merger between Centrum Merger Corporation and the Corporation was submitted to the stockholders entitled to vote at the annual meeting of the Corporation. At said meeting, the Agreement and Plan of Merger was considered by the stockholders entitled to vote, and, a vote having been taken for the adoption or rejection by them of the Agreement and Plan of merger, a majority of the outstanding stock of the corporation entitled to vote was voted for the adoption of the Agreement and Plan of Merger. IN WITNESS WHEREOF, I have executed this Certificate this 7th day of December, 1990. /s/ Merle E. Pheasant, Jr. ------------------------------------- Merle E. Pheasant, Jr., Secretary 14 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF CENTRUM INDUSTRIES, INC. Pursuant to the general corporate laws of the State of Delaware, Section 242, the undersigned corporation executes the following Certificate of Amendment to the Articles of Incorporation of Centrum Industries, Inc.: 1. The present name of the corporation is Centrum Industries, Inc. 2. The authentication number for the corporation assigned by Michael Harkins, Secretary of State of the State of Delaware, is 12835976 on October 26, 1990. 3. The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent at such address is The Corporation Trust Company. The address of the corporation's principal place of business is 5580 Monroe Street, Suite 100, Sylvania, Ohio 43560. 4. Article FOURTH, is hereby amended to read as follows: Section 1. Authorized shares. The total number of shares of all classes of capital stock which the corporation shall have authority to issue is sixteen million (16,000,000) shares, of which fifteen million (15,000,000) shares, of a par value of $.05 per share, shall be Common Shares, and one million (1,000,000) shares, of a par value of $.05 per share, shall be Preferred Stock. Section 2. Capital Stock . The rights, preferences, qualifications, limitations and restrictions on the capital stock are as follows: A. Voting rights. Each share of Common Stock shall entitle the holder thereof to one (1) vote upon each matter coming before any meeting of the stockholders. Each share of Preferred Stock shall have no vote. B. Dividends. 15 Holders of Common Stock shall be entitled to receive dividends on an equal per share basis, out of funds legally available therefor, when and as declared by the Board of Directors. Holders of Preferred Stock shall be entitled to Preferred Stock dividends under agreement entered into between the Corporation and the Preferred Stockholder. C. Preemptive Rights. Holders of Common Stock and Preferred Stock shall have no preemptive right to subscribe to any securities issued by the Corporation. D. Rights Upon Liquidation. In the event of dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to payment out of the assets of the Corporation ratably in accordance with the number of shares held by them respectively. The remaining Sections of Article FOURTH shall not be amended and shall remain as originally stated. Article SEVENTH, is hereby amended to add to the existing Article: (v) actions or inactions proved by clear and convincing evidence that the director or officer deliberately intended to cause injury to the Corporation or recklessly disregarded the interests of the Corporation and a director or officer shall perform his duties including his duties as a member of a committee upon which he may serve, in good faith, in a manner he reasonably believes to be in or not opposed to the best interests of the Corporation, and with the care, that an ordinary prudent person in a like position would use under similar circumstances and personal liability of a director or officer shall not be limited for breach of the director's or officer's duty of loyalty to the Corporation or its stockholders or for the acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or for any transaction from which the director or officer derived an improper personal benefit. (vi) The Corporation shall have the power to indemnify a director or officer within the authority of the statutes of the State of Delaware but no indemnification shall be available in respect of any claim, issue or matter as to which the director or officer shall have been adjudged to be liable to the Corporation or its shareholders. The Corporation shall have the right to indemnify a director or officer beyond the boundaries or statutes -2- 16 of the State of Delaware only where consistent with the statute wherein the director or officer has acted in good faith or in the best interests of the Corporation. The Corporation shall also have the authority for permissive indemnification of a director or officer of the Corporation for actions where the director or officer is not successful on the merits of the case. 5. The foregoing amendments to the Articles of Incorporation of Centrum Industries, Inc. were duly adopted at the Annual Meeting of Shareholders of the Corporation held on the 15th day of March 1994, by overwhelming majority of the shareholders present in person or by proxy. Signed this 4th day of May 1994, By /s/ George H. Wells ------------------------------------- George H. Wells, President By /s/ William L. Faulkner ------------------------------------- William L. Faulkner, Secretary Centrum Industries, Inc. -3- EX-3.2 3 EX-3.2 1 EXHIBIT 3.2 BYLAWS OF THE SURVIVING CORPORATION (A DELAWARE CORPORATION) ARTICLE 1 OFFICES: REGISTERED AGENT Section 1.1. Registered Office And Agent. The corporation shall maintain in the State of Delaware a registered office and a registered agent whose business office is identical with such registered office. Section 1.2. Principal Business Office. The corporation shall have its principal business office at such location within or without the State of Delaware as the board of directors may from time to time determine. The corporation may have other offices within or without the State of Delaware. ARTICLE 2 STOCKHOLDERS Section 2.1. Annual Meeting. The annual meeting of the stockholders shall be held on the third Thursday in September each year, at the hour of 10:00 A.M., for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. Section 2.2. Special Meetings. Special meetings of the stockholders of the corporation may be called by the chairman of the board, president or by the board of directors. Section 2.3. Place of Meetings. The board of directors may designate any place, either within or without the State Of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the board of directors, but if no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal business office of the corporation; provided, however, that for any meeting of the stockholders for which a waiver of notice designating a place is signed by all of the stockholders, then that shall be the place for the holding of such meeting. Section 2.4. Notice Of Meetings. Written or printed notice stating the place, date and hour of the meeting of the stockholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of 2 record entitled to vote at the meeting, not less than 10 nor more than 60 days before the date of the meeting, or in the case of a meeting called for the purpose of acting upon a merger or consolidation not less than 20 nor more than 60 days before the meeting. Such notice shall be given by or at the direction of the secretary. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his or her address as it appears on the records of the corporation, with postage thereon prepaid. If delivered (rather than mailed) to such address, such notice shall be deemed to be given when so delivered. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than 30 days or unless a new record date is fixed for the adjourned meeting. Section 2.5. Waiver Of Notice. A waiver of notice in writing signed by a stockholder entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a stockholder in person or by proxy at a meeting of stockholders shall constitute a waiver of notice of such meeting except when the stockholder or his or her proxy attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 2.6. Meeting of All Stockholders. If all of the stockholders shall meet at any time and place, either within or without the State of Delaware, and shall, in writing signed by all of the stockholders, waive notice of, and consent to the holding of, a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting any corporate action may be taken. Section 2.7. Record Dates. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting (or 20 days if a merger or consolidation is to be acted upon at such meeting). If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the next day preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; 3 provided, however, that the board of directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the certificate of incorporation of the corporation or by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered in the manner required by law to the corporation at its registered office in the State of Delaware or at its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of the corporation's stockholders are recorded. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the certificate of incorporation or by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. (d) Only those who shall be stockholders of record on the record date so fixed as aforesaid shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to consent to such corporate action in writing, or to receive payment of such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding the transfer of any stock on the books of the corporation after the applicable record date. Section 2.8. Lists Of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before each meeting of stockholders, a complete list 4 of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the municipality where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, for inspection by any stockholder who may be present. Section 2.9. Quorum and Vote Required For Action. Except as may otherwise be provided in the certificate of incorporation of the corporation, the holders of stock of the corporation having a majority of the total votes which all of the outstanding stock of the corporation would be entitled to cast at the meeting, when present in person or by proxy, shall constitute a quorum at any meeting of the stockholders; provided, however, that where a separate vote by a class or classes of stock is required, the holders of stock of such class or classes having a majority of the total votes which all of the outstanding stock of such class or classes would be entitled to cast at the meeting, when present in person or by proxy, shall constitute a quorum entitled to take action with respect to the vote on the matter. Unless a different number of votes is required by statute or the certificate of incorporation of the corporation, (a) if a quorum is present with respect to the election of directors, directors shall be elected by a plurality of the votes cast by those stockholders present in person or represented by proxy at the meeting and entitled to vote on the election of directors, and (b) in all matters other than the election of directors, if a quorum is present at any meeting of the stockholders, a majority of the votes entitled to be cast by those stockholders present in person or by proxy shall be the act of the stockholders except where a separate vote by class or classes of stock is required, in which case, if a quorum of such class or classes is present, a majority of the votes entitled to be cast by those stockholders of such class or classes present in person or by proxy shall be the act of the stockholders of such class or classes. If a quorum is not present at any meeting of stockholders, then holders of stock of the corporation who are present in person or by proxy representing a majority of the votes cast may adjourn the meeting from time to time without further notice and, where a separate vote by a class or classes of stock is required on any matter, then holders of stock of such class or classes who are present in person or by proxy representing a majority of the votes of such class or classes cast may adjourn the meeting with respect to the vote on that matter from time to time without further notice. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. Withdrawal of stockholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. 5 Section 2.10. Proxies. Each stockholder entitled to vote at a meeting of the stockholders or to express consent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no proxy shall be valid after three years from its date unless otherwise provided in the proxy. Such proxy shall be in writing and shall be filed with the secretary of the corporation before or at the time of the meeting or the giving of such written consent, as the case may be. Section 2.11. Voting Of Shares. Each stockholder of the corporation shall be entitled to such vote (in person or by proxy) for each share of stock having voting power held of record by such stockholder as shall be provided in the certificate of incorporation of the corporation or, absent provision therein fixing or denying voting rights, shall be entitled to one vote per share. Section 2.12. Voting By Ballot. Any question or any election at a meeting of the stockholders may be decided by voice vote unless the presiding officer shall order that voting be by ballot or unless otherwise provided in the certificate of incorporation of the corporation or required by statute. Section 2.13. Inspectors. At any meeting of the stockholders the presiding officer shall appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders. Each report of an inspector shall be in writing and signed by him or a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. ARTICLE 3 DIRECTORS Section 3.1. Powers. The business and affairs of the corporation shall be managed under the direction of its board of directors which may do all such lawful acts and things as are not by statute or by the certificate of incorporation of the corporation or by these by-laws directed or required to be exercised or done by the stockholders. Section 3.2. Number, Election, Term Of Office And Qualifications. The number of directors which shall constitute the whole board shall be six. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.3, and each director elected shall hold office until his or her successor is elected and 6 qualified or until his or her earlier death, resignation or removal in a manner permitted by statute or these by-laws. Directors need not be stockholders. Section 3.3. Vacancies. Vacancies occurring in the board of directors and newly-created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and any director so chosen shall hold office until the next annual election of directors and until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal in a manner permitted by statute or these by-laws. Section 3.4. Regular Meetings. A regular meeting of the board of directors shall be held immediately following the close of, and at the same place as, each annual meeting of stockholders. No notice of any such meeting, other than this by-law, shall be necessary in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at such time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors or as shall be specified in a written waiver signed by all of the directors. The board of directors may provide, resolution, the time and place for the holding of additional regular meetings without notice other than such resolution. Section 3.5. Special Meetings. Special meetings of the board may be called by the chairman of the board, president or any two directors. The person or persons calling a special meeting of the board shall fix the time and place at which the meeting shall be held and such time and place shall be specified in the notice of such meeting. Section 3.6. Notice. Notice of any special meeting of the board of directors shall be given at least two days previous thereto by written notice to each director at his or her business address or such other address as he or she may have advised the secretary of the corporation to use for such purpose. If delivered, such notice shall be deemed to be given when delivered to such address or to the person to be notified. If mailed, such notice shall be deemed to be given two business days after deposit in the United Stated mail so addressed, with postage thereon prepaid. If given by telegraph, such notice shall be deemed to be given the next business day following the day the telegram is given to the telegraph company. Such notice may also be given by telephone or other means not specified herein, and in each such case shall be deemed to be given when actually received by the director to be notified. Notice of any meeting of the board of directors shall set forth the time and place of the meeting. Neither the business to be transacted at, nor the purpose of, any meeting of the of directors (regular or special) need be specified in the notice or waiver of notice of such meeting. 7 Section 3.7. Waiver Of Notice. A written waiver of notice, signed by a director entitled to notice of a meeting of the board of directors or of a committee of such board of which the director is a member, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice to that director. Attendance of a director at a meeting of the board of directors or of a committee of such board of which the director is a member shall constitute a waiver of notice of such meeting except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 3.8. Quorum And Vote Required For Action. At all meetings of the board of directors, a majority of the number of directors fixed by these by-laws shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors except as may be otherwise specifically provided by statute, the certificate of incorporation or the corporation or these by-laws. If a quorum shall not be present at any meeting of the board of directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.9. Attendance By Conference Telephone. Members of the board of directors or any committee designated by the board may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such a meeting. Section 3.10. Presumption Of Assent. A director of the corporation who is present at a duly convened meeting of the board of directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 3.11. Informal Action. Unless otherwise restricted by statute, the certificate of incorporation of the corporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, or a written consent thereto is signed by all the directors or by all the members of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board of directors or of such committee. 8 Section 3.12. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and at each meeting of a committee of the board of directors of which they are members. The board of directors, irrespective of any personal interest of any of its members, shall have authority to fix compensation of all directors for services to the corporation as directors, officers or otherwise. ARTICLE 4 COMMITTEES Section 4.1. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors with respect to the management of the business affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority of the board in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution, these by-laws, or the certificate of incorporation of the corporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors and the board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Additionally, in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. 4.2. Committee Records. Each committee shall keep regular 9 minutes of its meetings and report the same to the board of directors when required. ARTICLE 5 OFFICERS Section 5.1. Designation; Number; Election. The board of directors, at its initial meeting and thereafter at its first regular meeting after each annual meeting of stockholders, shall choose the officers of the corporation. Such officers shall be a president, a secretary, and a treasurer, and such vice presidents, assistant secretaries and, assistant treasurers as the board of directors may choose. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Any two or more offices may be held by the same person. Except as provided in Article 6, election or appointment as an officer shall not of itself create contract rights. Section 5.2. Salaries. The salaries of all officers and agents of the corporation chosen by the board of directors shall be fixed by the board of directors, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. Section 5.3. Term Of Office; Removal; Vacancies. Each officer of the corporation chosen by the board of directors shall hold office until the next annual appointment of officers by the board of directors and until his or her successor is appointed and qualified, or until his or her earlier death, resignation or removal in the manner hereinafter provided. Any officer or agent chosen by the board of directors may be removed at any time by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any vacancy occurring in any office of the corporation at any time or any new offices may be filled by the board of directors for the unexpired portion of the term. Section 5.4. Chairman of the Board. The chairman of the board shall call each meeting of the board of directors to order and shall act as chairman of each such meeting. He or she shall discharge such other duties as may be prescribed by the board of directors from time to time. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors, the chairman of the board may execute for the corporation certificates for its shares (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized, and he or she may (without previous authorization by the board of directors) 10 execute such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires and he or she may accomplish such execution in each case either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. Section 5.5. President. The president shall be subject to the direction and control of the board of directors, shall be in charge of the business of the corporation. In general, the president shall discharge all duties incident to the principal executive office of the corporation and such other duties as may be prescribed by the board of directors from time to time. Without limiting the generality of the foregoing, the president shall see that the resolutions and directions of the board of directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the board of directors; shall preside at all meetings of the stockholders and, if he or she is a director of the corporation, of the board of directors; and, except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors, may execute for the corporation certificates for its shares of stock (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) execute such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, and may accomplish such execution in each case either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. The president may vote all securities which the corporation is entitled to vote except as and to the extent such authority shall be vested in a different officer or agent of the corporation by the board of directors. Section 5.6. Vice Presidents. The vice president (and, in the event there is more than one vice president, each of the vice presidents) shall render such assistance to the president in the discharge of his or her duties as the president may direct and shall perform such other duties as from time to time may be assigned by the president or by the board of directors. In the absence of the president or in the event of his or her inability or refusal to act, the vice president (or in the event there may be more than one vice-president, the vice presidents in the order designated by the board of directors, or by the president if the board of directors has not made such a designation, or in the absence of any designation, then in the order of seniority of tenure as vice president) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Except in those 11 instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors or these by-laws, the vice president (or each of them if there are more than one) may execute for the corporation certificates for its shares of stock (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) execute such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, and may accomplish such execution in each case either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. Section 5.7. Treasurer. The treasurer shall be the principal accounting and financial officer of the corporation and as such shall perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned by the board of directors or the president. Without limiting the generality of the foregoing, the treasurer shall have charge of and be responsible for the maintenance of adequate books of account for the corporation and shall have charge and custody of all funds and securities of the corporation and be responsible therefor and for the receipt and disbursement thereof. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors may determine. Section 5.8. Secretary. The secretary shall perform all duties incident to the office of secretary and such other duties as from time to time may be assigned by the board of directors or president. Without limiting the generality of the foregoing, the secretary shall (a) record the minutes of the meetings of the stockholders and the board of directors in one or more books provided for that purpose and shall include in such books the actions by written consent of the stockholders and the board of directors; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by statute; (c) be the custodian of the corporate records and the seal of the corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) sign with the president, or a vice president, or any other officer thereunto authorized by the board of directors, certificates for shares of stock of the corporation (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) sign with such other officers as aforesaid such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, in each case according to the requirements of the form of 12 the instrument, except when a different mode of execution is expressly prescribed by the board of directors; and (f) have general charge of the stock transfer books of the corporation. Section 5.9. Assistant Treasurers And Assistant Secretaries. The assistant treasurers and assistant secretaries shall perform such duties as shall be assigned to them by the treasurer, in the case of assistant treasurers, or the secretary, in the case of assistant secretaries, or by the board of directors or president in either case. Each assistant secretary may sign with the president, or a vice president, or any other officer thereunto authorized by the board of directors, certificates for shares of stock of the corporation (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) sign with such other officers as aforesaid such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, in each case according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors. The assistant treasurers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. ARTICLE 6 INDEMNIFICATION Section 6.1. Indemnification Of Directors And Officers. The corporation shall, to the fullest extent to which it is empowered to do so by the General Corporation law of Delaware or any other applicable laws, as may from time to time be in effect, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or, investigative, by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. Section 6.2. Advancement of Expenses. Expenses incurred by an officer or director of the corporation in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall be ultimately determined that he or she is not entitled to be indemnified as authorized by the General Corporation Law of Delaware. 13 Section 6.3. Contract With The Corporation. The provisions of this Article 6 shall be deemed to be contract between the corporation and each person who serves as such officer or director in any such capacity at any time while this Article and the relevant provisions of the General Corporation law of Delaware or other applicable laws, if any, are in effect, and any repeal or modification of any such law or of this Article 6 shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in, whole or in part upon any such state of facts. Section 6.4. Indemnification Of Employees And Agents. Persons who are not covered by the foregoing provisions of this Article 6 and who are or were employees or agents of the corporation, or are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint-venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors. Section 6.5. Other Rights Of Indemnification. The indemnification and the advancement of expenses provided or permitted by this Article 6 shall not be deemed exclusive of any other rights to which those indemnified may be entitled by law or otherwise, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. ARTICLE 7 LIMITATION ON DIRECTOR'S LIABILITY The personal liability for monetary damages to the corporation or its stockholders of a person who serves as a director of the corporation shall be limited if and to the extent provided at the time in the certificate of incorporation of the corporation, as then amended. ARTICLE 8 CERTIFICATES OF STOCK AND THEIR TRANSFER Section 8.1. Form And Execution Of Certificates. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the president or a vice president and by the secretary or an assistant secretary of the corporation, certifying the number of shares owned. Such certificates shall be in such form as may be determined by the board of directors. During the period while more than one class of stock of the corporation is authorized there will be set forth on the face or back of the certificates which the corporation shall issue to represent each class or series of stock a statement that the corporation will furnish, without charge to each stockholder 14 who so requests, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. In case any officer, transfer agent or registrar of the corporation who has signed, or whose facsimile signature has been placed upon, any such certificate shall have ceased to be such officer, transfer agent or registrar of the corporation, before such certificate is issued by the corporation, such certificate may nevertheless be issued and delivered by the corporation with the same effect as if the officer, transfer agent or registrar who signed, or whose facsimile signature was placed upon, such certificate had not ceased to be such officer, transfer agent or registrar of the corporation. Section 8.2. Replacement Certificates. The board of directors may direct a new certificate to be issued in place of any certificate evidencing shares of stock of the corporation theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and may require such owner to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. The board of directors may delegate its authority to direct the issuance of replacement stock certificates to the transfer agent or agents of the corporation upon such conditions precedent may be prescribed by the board. Section 8.3. Transfers Of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares of stock of the corporation duly endorsed or accompanied by proper evidence of succession, assignment, or other authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books, provided the corporation or a transfer agent of the corporation shall not have received a notification of adverse interest and that the conditions of Section 8-401 of Title 6 of the Delaware Code have been met. Section 8.4. Registered Stockholders. The corporation shall be entitled to treat the holder of record (according to the books of the corporation) of any share or shares of its stock as the holder in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other party whether or not the corporation shall have express or other notice thereof, except as expressly provided by the laws of the State of Delaware. 15 ARTICLE 9 CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 9.1. Contracts. The board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; provided, however, that this Section 9.1 shall not be a limitation on the powers of office granted under Article 5 of these by-laws. Section 9.2. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. Section 9.3. Checks, Drafts And Other Instruments. All checks, drafts or other orders for the payment of money and all notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers or such agent or agents of the corporation and in such manner as from time to time may be determined by the resolution of the board of directors or by an officer or officers of the corporation designated by the board of directors to make such determination. Section 9.4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors, or an officer or officers designated by the board of directors, may select. ARTICLE 10 MISCELLANEOUS PROVISIONS Section 10.1. Dividends. Subject to any provisions of any applicable statute or of the certificate of incorporation, dividends may be declared upon the capital stock of the corporation by the board of directors at any regular or special meeting thereof; and such dividends may be paid in cash, property or shares of stock of the corporation. Section 10.2. Reserves. Before payment of any dividends, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the board of directors from to time, in its discretion, determines to be proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporations or for such other purpose as the board of directors shall determine to be conducive to the interests of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 16 Section 10.3. Voting Stock Of Other Corporations. In the absence of specific action by the board of directors, the president shall have authority to represent the corporation and to vote, on behalf of the corporation, the securities of other corporations, both domestic and foreign, held by the corporation. Section 10.4. Fiscal Year. The fiscal year of the corporation shall begin on the first day of April in each year and end the last day of the next following March 31. Section 10.5. Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise applied. Section 10.6. Severability. If any provision of these by-laws, or its application thereof to any person or circumstances, is held invalid, the remainder of these by-laws and the application of such provision to other persons or circumstances shall not be affected thereby. Section 10.7. Amendment. These by-laws may be amended or repealed, or new by-laws may be adopted, by the board of directors of the corporation. These by-laws may also be amended or repealed, or new by-laws may be adopted, by action taken by the stockholders of the corporation. 17 Amendments adopted by the Board of Directors on May 10, 1993: A. Article 2, Section 2.1 of the Bylaws is hereby amended and restated to read as follows: Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months of the last annual meeting of stockholders. B. Article 3, Section 3.2 of the Bylaws is hereby amended and restated to read as follows: Number, Election, Term of Office, and Qualification of Directors The number of directors which shall constitute the whole Board shall be such number as the Board of Directors shall from time to time have designated by resolution, except that in the absence of any such designation, such number shall be six (6). The directors shall be elected at the annual meeting of the stockholders, except as provided in this Section 3.2 and as provided in Section 3.3. Directors need not be stockholders. Each director shall be elected for a term of one year and until his or her successor is elected and qualified, except as otherwise provided herein or required by law. Whenever the authorized number of directors is increased between annual meetings of the stockholders, a majority of the directors then in office shall have the power to elect such new directors for the balance of a term and until their successors are elected and qualified. Any decrease in the authorized number of directors shall not become effective until the expiration of the term of the directors then in office unless, at the time of such decrease, there shall be vacancies on the board which are being eliminated by the decrease. EX-3.3 4 EX-3.3 1 EXHIBIT 3.3 AGREEMENT This Agreement entered into this 26th day of March 1992, by and between K. Michael Syring, ("Syring"), an individual residing in Toledo, Lucas County, Ohio and Centrum Industries, Inc., ("Centrum"), a Delaware corporation with offices in Sylvania, Lucas County, Ohio. WHEREAS, Syring is a party to an Agreement dated November 19, 1990, by and between Syring and LaSalle Exploration, Inc., ("LaSalle") a wholly owned corporate subsidiary of Centrum Industries, Inc. FURTHER, Syring desires to assign said interest in the Agreement to Centrum in exchange for Centrum issuing to Syring seventy thousand shares of Preferred Participating stock at a value of ten dollars ($10.00) per share NOW THEREFORE, upon the issuance to Syring of seventy thousand shares of Centrum Preferred Participating stock, receipt of which is hereby acknowledged, Syring hereby assigns to Centrum his entire interest in the Agreement dated November 19, 1990. THIS AGREEMENT executed this 26th day of March 1992 by the undersigned. Witness: /s/ Merle Pheasant /s/ K. Michael Syring - -------------------------- -------------------------- K. Michael Syring /s/ Merle Pheasant /s/ John R. Ayling - -------------------------- -------------------------- Centrum Industries, Inc. John R. Ayling, Chairman 2 AGREEMENT THIS AGREEMENT, entered into this 19th day of November, 1990, by and between K. Michael Syring ("Syring") an individual and LaSalle Exploration, Inc., ("LaSalle"), an Ohio corporation to protect both parties in regards to mutual business interests in the oil and gas industry. WHEREAS, Syring has introduced LaSalle to a business opportunity known as the Chatham Oil Pool Flood Properties ("Chatham"), described herein as Exhibit "A" owned by Jerry Picker ("Picker"), Bob Alkire ("Alkire") and Berman Schaffer ("Schaffer") collectively referred to as "Lessors" consisting of certain mineral leases known as the Techino Chatham Leases ("Leases"). WHEREAS, LaSalle herein agrees to pay Lessors the sum of One Hundred Thousand Dollars ($100,000.00) for said Leases and further agrees to secure financing in the amount of One Hundred Fifty Thousand Dollars ($150,000.00) for the initial phase of development of Chatham. Payment to Lessors shall be pursuant to a separate contract wherein LaSalle is insured of full repayment of said monies in the event certain permits necessary to initiate flood operations on Chatham for purposes of the production of oil and gas interests are not granted. In addition, LaSalle herein grants Syring authority to engage Picker on a contractual basis to assist LaSalle in the development of the Leases through the first phase of flooding referred to as five spot development meaning the process of using offsetting injection wells to secure oil from Chatham at a fee not to exceed Twenty Thousand Dollars ($20,000.00) annually. LaSalle herein acknowledges numerous technical field operations necessary before permits to inject water through offset wells will be granted such as: 1. Plugging abandoned gas wells within 1350 feet of the flood area at a cost estimated to be $3,000.00. 2. Monitoring 5 existing wells drilled and partially cased for fluid levels below fresh water zones. 3. Drilling of a successful water supply on Chatham sufficient to supply injection wells. This is deemed not necessary for a permit. 4. Construction of a building and a pump house for year round operations on Chatham at an approximate cost of $20-25,000.00. This is deemed not necessary for a permit. LaSalle herein acknowledges initial working capital needs of approximately Twenty Five Thousand Dollars ($25,000.00) required for insurance, bonding, permits, survey costs and miscellaneous 3 expenses before operations can begin. LaSalle further agrees as an inducement to Syring for services rendered to LaSalle by Syring to: 1. Provide Syring with a twenty five percent (25%) in the net working interest in Chatham after LaSalle and any partners or affiliates have received a one hundred percent (100%) return on invested capital plus a ten percent (10%) annual return on invested capital if the above stated returns and interest are paid within thirty six (36) months from the date injection begins on the property. 2. In the event said returns are not paid within the thirty six (36) month period plus interest at ten percent (10%) per annum, upon payment of the above monies plus interest, Syring will receive a twenty percent (20%) net working interest in Chatham. 3. In the event additional monies exceeding those enumerated above are invested in Chatham, the receipt back of Two Hundred Fifty Thousand Dollars ($250,000.00) plus interest at ten percent (10%) per annum shall serve as a benchmark to begin percentage participation by Syring in Chatham. 4. The Board of Directors of LaSalle shall appoint Syring as Vice President of Operations and LaSalle shall hold Syring harmless for any debts incurred by LaSalle. 5. As Vice President of Operations for LaSalle, Syring shall act as a finder giving LaSalle first right of refusal on all properties and investments located by him. For any future properties, Syring shall be entitled to a similar percentage participation as outlined in this Agreement and in consideration thereof Syring herein agrees to negotiate in good faith on behalf of LaSalle. 6. In the event LaSalle or any affiliates is unable to continue expansion into further oil and gas investments or elects not to continue in these areas, LaSalle as a further inducement to Syring hereby grants unto Syring's wife a first right of refusal to purchase properties at a purchase price based upon the average of three (3) independent appraisals. Said option shall include not only Syring's wife but any of her heirs or assigns. 7. Syring hereby agrees to present to LaSalle any prospect for a period of ten (10) years from the date of this agreement and hereby agrees not to participate in any competing business with LaSalle without first obtaining the prior written approval from LaSalle. 4 8. Syring hereby agrees to serve as an officer of LaSalle for a period of one (1) year from the date of this agreement at a salary of One Dollar ($1.00) and LaSalle hereby agrees to pay or reimburse Syring for all approved expenses. Expenses are to be approved on a monthly basis by the Board of Directors of LaSalle. THIS AGREEMENT shall constitute the entire agreement between the parties and shall be effective on the date first above written. /s/ K. Michael Syring ------------------------------------ K. Michael Syring /s/ John R. Ayling ------------------------------------ LaSalle Exploration, Inc. by its Chairman --------------------------- EX-4.9 5 EX-4.9 1 EXHIBIT 4.9 REIMBURSEMENT AGREEMENT DATED AS OF FEBRUARY 29, 1996 BETWEEN THE HUNTINGTON NATIONAL BANK AND MCINNES STEEL COMPANY Relating to Erie County Industrial Development Authority Variable Rate Demand Industrial Development Revenue Bonds (McInnes Steel Company Project) Porter, Wright, Morris & Arthur 41 South High Street Columbus, Ohio 43215 2 TABLE OF CONTENTS 1. Definitions And Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.4 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2. Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3. Letter of Credit Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Other Documents and Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.3 Right of Set-Off Against the Borrower; Additional Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4. Conditions to Issuance and Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.1 Conditions to Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.2 Confirmation of Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.3 Closing of Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5. Reimbursement and Other Payments; Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5.1 Reimbursement and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5.2 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.3 Increased Costs Due to Change in Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.4 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.5 Termination and Extension of Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.6 Pledge of Custody Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.7 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6. Events of Default and Remedies Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.2 Remedies Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.3 Cumulative Remedies; No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.1 Nonliability of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.2 No Representations by the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.3 No Third Parties Benefitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 7.4 Indemnity by the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 7.5 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-i- 3 7.6 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.7 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.8 Amendments; Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.9 Cumulative Remedies; No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.10 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.13 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 7.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 7.15 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 7.16 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-ii- 4 REIMBURSEMENT AGREEMENT THIS REIMBURSEMENT AGREEMENT is entered into as of February 29, 1996, by and between MCINNES STEEL, INC., a Pennsylvania corporation (the "Borrower") and THE HUNTINGTON NATIONAL BANK, a national banking association (the "Bank"). 1. Definitions And Accounting Terms. 1.1 Defined Terms. As used in this Reimbursement Agreement, the following terms shall have the meaning set forth respectively after each: "Agreement" means this Reimbursement Agreement, either as originally executed or as it may from time to time be supplemented or amended. "ALTA Policy" means the policy of title insurance covering the Property required pursuant to Section 4.1.1 (f) of this Agreement. "Authority" means the Erie County Industrial Development Authority, its successors and assigns. "Bond Documents" means all of the instruments and agreements which have been or may hereafter be executed from time to time by the Trustee, the Authority and/or the Borrower in connection with the Bonds, including without limitation the following, as from time to time supplemented or amended: (i) the Trust Indenture; and (ii) the Bonds. "Bonds" means the Erie County Industrial Development Authority Variable Rate Industrial Development Revenue Bonds, (McInnes Steel Company Project), Series 1991. "Borrower's Representative" means each of one or more Persons authorized in writing from time to time by the Borrower, with the approval of the Bank, to deliver certificates and other documents, instruments and material to the Bank pursuant to this Agreement. "Business Day" means any day of the year, other than (a) a Saturday; (b) a Sunday; (c) a day on which commercial banks located in any one or more of the cities in which the principal corporate trust office of the Trustee, the principal offices of the Bank and/or the Remarketing Agent are located are required or authorized by law to remain closed; or (d) a day on which the New York Stock Exchange is closed. "Custody Bonds" shall have the meaning ascribed thereto in Section 4.04(a) of the Trust Indenture and are pledged by the Borrower to the Bank pursuant to Section 5.6 of this Agreement. 5 "Event of Default" means each of those events so designated in Article 6 of this Agreement. "Financing Statements" means the UCC-1 financing statements covering the personal property in which security interests are created pursuant to the Letter of Credit Documents required pursuant to Section 3.1(b) of this Agreement, as from time to time supplemented or amended. "GAAP" means generally accepted accounting principles applied on a consistent basis. "Improvements" means the improvements now or hereafter located on the Property. "Letter of Credit" means the letter of credit to be issued by the Bank pursuant to this Agreement, either as originally executed or as it may from time to time be modified, extended, renewed or replaced. "Letter of Credit Documents" means, collectively, this Agreement and the Security Documents, as from time to time supplemented or amended with the written consent of the Bank. "Loan Agreement" means the Loan and Security Agreement between the Borrower (among others) and the Bank;, dated February 29, 1996, as from time to time supplemented or amended. "Loans" shall have the meaning attributed thereto in the Loan Agreement. "Mortgage" means the Open-End Mortgage, Assignment of Rents and Security Agreement of even date herewith executed and delivered by the Authority and the Borrower to the Bank, as from time to time supplemented or amended with the written consent of the Bank. "Permitted Encumbrances" means the utility, access and other easements, rights-of-way, mineral rights, restrictions and exceptions of record, encumbrances, irregularities and clouds on title encumbering the Property and described in Schedule B - I, or described as subordinated to the lien of the Mortgage on Schedule B - 2, of the policy of title insurance in favor of the Bank insuring the lien of the Mortgage on the Property, as from time to time supplemented or amended with the prior written consent of the Bank. "Person" means and includes an individual, corporation, partnership, limited liability company, trust, unincorporated organization or association and a government or any department or agency thereof. -2- 6 "Personal Property" means all of the Borrower's right, title and interest in and to all inventory, equipment, furnishings and fixtures now owned or hereafter acquired, located on, or used in connection with, the Property; all permits, licenses and approvals necessary to operate the Project; and all of the Borrower's accounts, including without limitation those arising from all the rents and revenues of the Project, including those now due, past due, or to become due, by virtue of any lease, license or other agreement for the occupancy or use of all, or any portion, of the Project. "Prime Rate" means the interest rate per annum established by The Huntington National Bank from time to time as such bank's prime commercial rate based on its consideration of economic, money market, business and competitive factors, and is not necessarily such bank's most favored rate. Subject to any minimum or maximum rate limitations specified by applicable law, the Prime Rate will automatically and immediately change from time to time effective as of the effective date of each such change in the prime commercial rate of such bank. "Project" means the Property, the Project Facilities and the Personal Property, which are owned and operated by the Borrower. "Project Facilities" means the manufacturing facility described in Exhibit B hereto, together with any additions, modifications and substitutions to those facilities. "Property" means the approximately 6.497-acre tract of real estate located in Erie, Pennsylvania, in which the Authority owns fee simple title and the Borrower owns a land contract vendee's interest, upon which the Project Facilities are located, which real estate is more fully described in the Mortgage. "Remarketing Agent" means the Remarketing Agent as designated from time to time pursuant to the provisions of the Trust Indenture. "Security Documents" means, collectively, the Mortgage, the Financing Statements, and any other deed of trust, mortgage, hypothecated mortgage, security agreement, financing statement, guaranty or assignment now, heretofore or hereafter executed to secure the obligations of the Borrower under this Agreement, in each case either as originally executed or as the same may from time to time be supplemented or amended with the written consent of the Bank. "Trustee" means PNC Bank, National Association, a national banking association, successor to Marine Bank, with its principal corporate trust office located in Erie, Pennsylvania, or its successors as trustee under the Trust Indenture. "Trust Indenture" means the Trust Indenture dated as of November 1, 1991, executed and delivered between the Authority and the Trustee, as from time to time supplemented or amended. -3- 7 1.2 Use of Defined Terms. All capitalized terms used and not otherwise defined herein shall have the meaning ascribed thereto in the Loan Agreement. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any number of the members of the relevant class. 1.3 Accounting Terms. All accounting terms not specifically defined in this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, GAAP. 1.4 Exhibits. All Exhibits to this Agreement, either as now existing or as the 2. Letter of Credit. The Borrower entered into the Bond Documents in order to cause the issuance of the Bonds, so that the Bond Proceeds could be used to finance the Project. Among other credit facilities to be extended to the Borrower and related Persons by the Bank, as more fully described in the Loan Agreement, the Borrower has requested the Bank to issue an irrevocable letter of credit in the form attached hereto as Exhibit "A" to replace a letter of credit currently securing repayment of the Bonds and issued by PNC Bank, National Association. The Letter of Credit shall have a stated amount in an aggregate amount not exceeding $4,610,959 of which an amount not exceeding $4,500,000 shall be available to pay the principal amount of the Bonds or the principal portion of the purchase price of the Bonds, and an amount not exceeding $110,959 shall be available to pay for interest accrued on the Bonds or the interest portion of the purchase price of the Bonds for up to a maximum of 60 days at the actual interest rate on the Bonds not to exceed an interest rate of 15% per annum, all as more particularly provided in the Letter of Credit. The Bank is willing to issue the Letter of Credit on the terms and conditions contained in this Agreement, the other Letter of Credit Documents and the Loan Agreement. 3. Letter of Credit Documents. 3.1 Security Documents. In consideration of the Bank's entry into this Agreement and the other Letter of Credit Documents, and as security for the prompt payment when due of all sums of principal, purchase price and interest advanced by the Bank pursuant to the Letter of Credit as well as for payment of any other sums owing pursuant to the Loan Agreement, this Agreement or any of the other Letter of Credit Documents, together with any and all extensions, renewals, modifications and amendments thereof and as security for the performance and observance of all of the covenants, agreements and conditions contained in the Letter of Credit, the Loan Agreement, this Agreement and all of the other Letter of Credit Documents, the Borrower shall, at its sole expense, execute and deliver or cause to be executed and delivered to the Bank and record or cause to be recorded, if appropriate, the following documents, each of which shall be in such form and content, and executed by such persons and/or entities, as the Bank shall in its reasonable discretion require: (a) the Mortgage; and -4- 8 (b) the Financing Statements. 3.2 Other Documents and Actions. The Borrower agrees to execute, acknowledge and/or deliver or cause to be executed, acknowledged and/or delivered to the Bank such other instruments, agreements and documents, and to take such actions, upon request by the Bank, as the Bank may reasonably require in order to carry out the purposes of the Loan Agreement, this Agreement and the other Letter of Credit Documents, and the transactions contemplated thereby, and to protect and/or further the validity, priority and/or enforceability of the Security Documents or subject to the Security Documents and the security interests thereby created, any property, together with any renewals, additions, substitutions, replacements or betterments thereto, intended by the terms of the Loan Agreement, this Agreement or the other Letter of Credit Documents to be covered by the Security Documents. 3.3 Right of Set-Off Against the Borrower; Additional Collateral. (a) Upon the occurrence and during the continuance of any Event of Default hereunder, the Bank is hereby authorized at any time and from time to time, without prior notice to the Borrower (any such notice being expressly waived by the Borrower) and to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Borrower, against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Loan Agreement or the Letter of Credit Documents, irrespective of whether or not the Bank shall have made any demand hereunder and although such obligations may be unmatured. (b) The Bank agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank under this Section 3.3 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Bank may have. 4. Conditions to Issuance and Closing. 4.1 Conditions to Issuance. The obligation of the Bank to issue the Letter of Credit is subject to the following conditions precedent, in addition to and not in lieu of those set forth in the Loan Agreement, unless specifically waived in writing by the Bank: 4.1.1 The Bank shall have received all of the following, each of which shall be in form and substance satisfactory to the Bank: (a) manually executed counterparts of the Letter of Credit Documents and the fees and expenses required by Section 5.1 of this Agreement to be paid on the date of issuance of the Letter of Credit; -5- 9 (b) all of the opinions, certificates, and other documents specified in Section 7.07 of the Trust Indenture (except to the extent that such opinions, certificates and other documents are for the benefit of the Trustee and are waived by the Trustee) or requested by the Bank pursuant to the Loan Agreement and the Letter of Credit Documents; (c) a written opinion of counsel for the Borrower in form and substance satisfactory to the Bank; (d) a written opinion of counsel, in form and substance satisfactory to the Bank, covering such matters relating to the Bond Documents as may be required by the Bank; (e) a current survey (or current certification of an existing survey) of the Property certified to the Bank and the title insurance company issuing the ALTA Policy issued by a registered surveyor in conformity with the Bank's survey requirement standards locating the buildings on the Property, all access roads, easements and other encumbrances set forth in the ALTA Policy; (f) (i) a standard ALTA mortgagee title insurance commitment, in form and substance and issued by a title insurance company satisfactory to the Bank, together with satisfactory evidence of reinsurance of a portion of the title insurance company's obligations under the final policy of title insurance if required by the Bank in its discretion, naming the Bank as insured in a policy amount of not less than $5,500,000.00, reflecting the Authority's marketable title in and to, and the Borrower's land contract vendee's interest in and to, the Project and containing only exceptions acceptable to the Bank; and (ii) after closing and recording, a final policy of title insurance on the ALTA 1970 (Revised 1984) form naming the Bank as insured, containing no exceptions for filed or unfiled mechanics' or materialmens' liens, the rights of parties in possession or as to matters of survey, together with such endorsements and coverages as may from time to time be required by the Bank, and insuring the Mortgage as a valid first lien on the Project, subject only to Permitted Encumbrances, all in conformity to the Bank's title insurance requirements; (g) evidence satisfactory to the Bank that there is satisfactory ingress to and egress from the Property; (h) evidence satisfactory to the Bank indicating that no portion of the Property is located in a flood hazard area designated by the U.S. Department of Housing and Urban Development; (i) receipt with respect to the Project of: (i) a current zoning letter from the appropriate governmental authority indicating the final and unappealable zoning classification of the Project, a copy of the applicable portion of the zoning code -6- 10 indicating the permitted uses and restrictions in such zoning classification, and a certificate of the Borrower or the Borrower's engineer, that the Project is in compliance therewith; (ii) evidence of the availability of public water, sewer and all other utilities necessary for the use and operation of the Project and that the capacities of each such utility are sufficient to adequately service the Project; and (iii) copies of all governmental approvals required to occupy and operate the Project; (j) receipt of (i) a "Phase I" environmental report in conformity with the Bank's Phase I environmental report requirements for the Project addressed to the Bank prepared by a licensed environmental engineering firm acceptable to the Bank, which report must indicate to the Bank's satisfaction that the Project is free from hazardous substance contamination and (ii) such other evidence of compliance of the Project with applicable federal, state and local environmental laws, regulations and requirements as the Bank may require; (k) receipt with respect to the Borrower of: (i) a current certified copy of its Articles of Incorporation, as amended, certified by the Secretary of State of Pennsylvania; (ii) a current certificate of good standing from the Secretary of State of Pennsylvania; and (iii) a copy of its Code of Regulations, as amended, certified by its Secretary or Assistant Secretary; (l) receipt of certified copies of resolutions of the Board of Directors of the Borrower authorizing it to enter into the Loan Agreement and the Letter of Credit Documents to which it is a party, which resolutions shall designate the names of the officers of the Borrower authorized to execute such documents, (m) a descriptive, narrative appraisal of the Project in form acceptable to the Bank and certifying a valuation reasonably satisfactory to the Bank, by an MAI appraiser acceptable to the Bank; and (n) such additional certificates, documents, consents or opinions, in form and substance satisfactory to the Bank, as the Bank may reasonably, request. 4.2 Confirmation of Filing. The Bank shall have received confirmation to its satisfaction that the Letter of Credit Documents have been duly executed, acknowledged, delivered and recorded or filed, as appropriate. 4.3 Closing of Other Transactions. All of the other Loans contemplated by the Loan Agreement shall have closed, simultaneously with the issuance of the Letter of Credit. -7- 11 5. Reimbursement and Other Payments; Extension. 5.1 Reimbursement and Other Payments. The Borrower hereby agrees to pay to the Bank: (a) on the date of any Interest Draft, Tender Draft or Redemption Draft (as such terms are defined in the Letter of Credit), a sum equal to the amount of such Interest Draft, Tender Draft or Redemption Draft, plus the sum of One Hundred Dollars ($100.00) for each drawing made on the Letter of Credit; (b) on demand, all reasonable amounts expended, advanced or incurred by the Bank to satisfy any obligation of the Borrower under this Agreement or any other Letter of Credit Document or to enforce the rights of the Bank under this Agreement or any other Letter of Credit Document or Bond Document (including without limitation any costs incurred by the Bank in connection with any insolvency or bankruptcy proceeding affecting the Borrower, any Guarantor, or any tenant, sub-tenant, licensee or occupant with respect to any portion of the Project or any other guarantor of the Borrower's obligations under this Agreement, the Loan Agreement or any of the Security Documents, which amounts will include all court costs, reasonable attorneys' fees, fees of auditors and accountants and investigation expenses reasonably incurred by the Bank in connection with any such matters; (c) on demand, except as otherwise provided herein, interest on any and all amounts unpaid by the Borrower to the Bank when due under this Agreement or any other Letter of Credit Document from the date such amounts become due until paid in full at a fluctuating rate per annum (computed on the basis of a year of 360 days but calculated on the actual number of days outstanding) equal to two percent (2%) per annum in excess of the Prime Rate; (d) on demand, any other amounts owing to the Bank by the Borrower under this Agreement or any of the other Letter of Credit Documents; (e) on the date of issuance of the Letter of Credit (i) all attorneys' fees and out-of-pocket expenses incurred by the Bank counsel and Bond counsel in connection with the negotiation, preparation and execution of this Agreement, the Letter of Credit and any and all of the other Letter of Credit Documents and security documents in connection therewith and the transactions contemplated thereby (including any amendments hereto or thereto or consents or waivers hereunder or thereunder); and (ii) all fees, charges or taxes for the recording or filing of Security Documents paid by the Bank; (f) on the date of issuance of the Letter of Credit, the initial fee equal to $46,878.08 for the period from the date of issuance through and including June 30, 1996 (the "Initial Fee"); and -8- 12 (g) on each July 1, October 1, January 1 and April 1 thereafter that the Letter of Credit remains in effect, for the ensuing calendar quarter commencing on the first day of that month (a "Fee Period"), a quarterly fee (the "Quarterly Fee") equal to 0.75% of the undrawn amount available to be drawn under the Letter of Credit on such date (which amount will take into account all reductions or increases in such undrawn amount through such preceding quarter), payable in advance on the next succeeding July 1, October 1, January 1 and April 1 of the commencement of such Fee Period. If subsequent to the payment of a Quarterly Fee under this subsection, any amount is reinstated under the Letter of Credit which increases the undrawn amount available to be drawn under the Letter of Credit to an amount greater than the amount on which such fee was calculated (the "Increase Amount"), the Borrower will pay to the Bank the Quarterly Fee on the Increase Amount within five days of demand therefor by the Bank. In no event shall the Bank have any obligation to make reimbursement or to otherwise account to the Borrower in respect of fees paid by the Borrower as a result of any reduction in the undrawn amount under the Letter of Credit and/or any later adjustment to a fixed rate of interest on the Bonds at less than the maximum interest rate of 15% per annum. If at any point in time the Borrower fixes the interest rate on the Bonds at a rate less than the maximum rate of 15% per annum, the Quarterly Fee due and payable thereafter shall be due and payable on the undrawn amount of such Letter of Credit representing the actual rate of interest on the Bonds for the next respective Fee Period, if fixed for such Fee Period, but if the rate of interest on the Bonds can vary during such Fee Period, the Quarterly Fee shall be calculated on the assumed maximum interest rate of 15% per annum. The payments to be made by the Borrower pursuant to this Agreement are in addition to, and not in lieu of or substitution for, payments to be made to the Bank pursuant to the Loan Agreement and the other agreements and documents executed in connection therewith. 5.2 Payments. All payments by the Borrower to the Bank hereunder shall be made in lawful currency of the United States of America and in immediately available funds before 2:00 p.m., Columbus, Ohio time on the date when such payment is due at the office of the Bank at 41 South High Street, Columbus, Ohio 43215, Attention: International Division, Letter of Credit Department, or at such other location as the Bank shall designate to the Borrower from time to time in writing. Any payment received and accepted by the Bank after such time shall be considered for all purposes (including the calculation of interest, to the extent permitted by law) as having been made on the Bank's next following Business Day. If the date for any payment hereunder falls on a day that is not a Business Day, then for all purposes of this Agreement the same shall be deemed to have fallen on the next following Business Day, and such extension of time shall in such case be included in the computation of payments of interest. 5.3 Increased Costs Due to Change in Law. If any change in any law or regulation or in the interpretation thereof by any court or administrative agency shall either (i) -9- 13 impose, modify or deem applicable any reserve, special deposit or similar requirement against or in connection with letters of credit issued by the Bank, or (ii) impose on the Bank any other condition regarding this Agreement or the Letter of Credit (other than changes in the rates of income taxation generally applicable to the Bank), and the result of any such event shall be to increase the cost to the Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be determined by the Bank's reasonable allocation of the aggregate of such cost increases resulting from such events), then (a) the Bank shall so notify the Borrower, and (b) upon receipt of such notice from the Bank, the Borrower shall promptly pay to the Bank from time to time as specified by the Bank additional amounts which shall be sufficient to compensate the Bank for such increased costs, together with interest on each such amount for the period from the date of such notice until payment in full thereof at the Prime Rate plus two percent (2%) (computed on the basis of a year of 360 days but calculated on the actual number of days outstanding). A certificate setting forth in reasonable detail such increased cost incurred by the Bank as a result of any such event, submitted by the Bank to the Borrower, shall be prima facie evidence, absent manifest error, as to the amount thereof. 5.4 Obligations Absolute. The obligations of the Borrower under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid and performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of the Letter of Credit, or any of the Letter of Credit Documents, the Loan Agreement or the Bond Documents or any other agreement or instrument related thereto; (b) any amendment or waiver of, or any consent to departure from, the terms of the Letter of Credit or any of the Letter of Credit Documents, the Loan Agreement or the Bond Documents or any other agreement or instrument related thereto; (c) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any Person for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the Letter of Credit, any of the other Letter of Credit Documents, the Bonds, the Loan Agreement or any other agreement or instrument related thereto, or in connection with the Project, the Loans or any unrelated transaction; (d) any statement, draft or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever (except to the extent acceptance or reliance upon any such statement, draft or other document is a result of the Bank's gross negligence or willful misconduct); -10- 14 (e) the surrender or impairment of any security for the performance or observance of the terms of this Agreement, any of the other Letter of Credit Documents, the Loan Agreement or any other agreement related thereto; or (f) any other circumstance, happening or omission whatsoever, whether or not similar to any of the foregoing, provided, that such circumstance, happening or omission is not a result of the Bank's gross negligence or willful misconduct. 5.5 Termination and Extension of Letter of Credit. The Letter of Credit shall terminate in accordance with the terms and conditions of the Letter of Credit; provided, however, that, subject to such terms and conditions, the Expiration Date, as set forth in the Letter of Credit, may be extended pursuant to, and otherwise in accordance with, the following terms and conditions: (a) On November 6, 1999, and, if so extended on November 6, 1999, on November 6, 2000, if the Extension Notice (as hereinafter described) shall have theretofore been timely delivered by the Bank to the Borrower and the Trustee, the Expiration Date shall be extended for one full year. If the Expiration Date is so extended, the Trustee shall, not later than thirty (30) days thereafter, surrender the outstanding Letter of Credit to the Bank and accept, upon such surrender, a substitute irrevocable letter of credit in the form of Exhibit A to this Agreement, dated the date of such substitution and having an Expiration Date which is one year later than the Expiration Date, but otherwise having terms identical to the surrendered Letter of Credit. In lieu of surrendering the Letter of Credit and accepting a substitute therefor, the Trustee may accept a written notice of extension from the Bank notifying the Trustee that the Bank has extended the Expiration Date for a period of one year. (b) Not later than 6 months prior to November 6, 1999, and, if extended on November 6, 1999, not later than 6 months prior to November 6, 2000, and, provided the Bank has theretofore timely given the Borrower and the Trustee the Extension Notice, the Bank may, in its sole discretion, by notice in writing given by the Bank to the Borrower and the Trustee (the "Extension Notice"), advise the Borrower and the Trustee that the Expiration Date will be extended in accordance with paragraph (a) of this Section 5.5. In the event the Bank determines not to extend the Expiration Date, the Bank agrees to give the Borrower at least 6 months' written notice of such determination. 5.6 Pledge of Custody Bonds. (a) As security for the payment and performance of all obligations of the Borrower to the Bank hereunder and under the other Letter of Credit Documents, the Borrower hereby agrees that upon the making of a Tender Draft (as defined in the Letter of Credit) the Borrower will forthwith deliver to the Trustee for the benefit of the Bank Bonds free and clear of all other liens and encumbrances in an aggregate principal -11- 15 amount equal to the amount of such Tender Draft, less (i) any portion of such Tender Draft representing interest on the Bonds so purchased, and (ii) the amounts the Bank is reimbursed by 2:00 p.m. Columbus, Ohio time on the Bond Purchase Date corresponding to the date of such Tender Draft (collectively, the "Custody Bonds"), and the Borrower hereby grants to the Bank a security interest in the Custody Bonds and in the proceeds thereof. (b) The Borrower hereby agrees to deliver or cause to be delivered immediately to the Trustee for the benefit of the Bank the Custody Bonds which shall be held by the Trustee in its custody and control for the benefit of the Bank in accordance with Section 4.04 of the Trust Indenture. The Borrower further agrees to cause the Trustee to enter into its registration books as the address to which payments of principal, premium, if any, and interest with respect to Custody Bonds are to be sent, the Bank's address for notices pursuant to Section 7.11 hereof as in effect from time to time. (c) If the Borrower shall become entitled to receive or shall receive any Custody Bonds, any payment of interest with respect to the Custody Bonds, or any and all other proceeds thereof, the Borrower shall accept any such items as the Bank's agent, shall hold them in trust for the Bank, and shall deliver them forthwith to the Bank in the exact form received, with the Borrower's endorsement to the order of the Bank when necessary, to be held by the Bank, subject to the terms hereof, as security for the payment and performance of all obligations of the Borrower hereunder and under the other Letter of Credit Documents, except that the Bank shall credit all payments and proceeds received by the Bank directly against the Borrower's obligations under Section 5.1 of this Agreement as provided below. (d) All principal, premium, if any, and interest paid on the Custody Bonds shall be retained by the Bank (or if received by the Borrower shall be forthwith delivered by it to the Bank in the original form received) and applied by the Bank to the payment of amounts due the Bank from the Borrower hereunder, under the Loan Agreement and under the other Letter of Credit Documents. (e) If the Borrower makes or causes to be made to the Bank a payment of a Tender Draft pursuant to Section 5.l(a) hereof, or a Remarketing Agent resells Custody Bonds on behalf of the Borrower, the Bank agrees to release from the lien of this Agreement and, if the Custody Bonds are in the Bank's possession, to deliver to the Borrower or the Remarketing Agent as the case may be, Custody Bonds, endorsed in blank without recourse in an aggregate principal amount equal to the amount of such payment with respect to principal so made, or the principal amount of the Custody Bonds so resold to the extent that the proceeds of such resale are delivered to the Bank. (f) In addition to the rights and remedies granted to the Bank in this Agreement, the Bank shall have all of the rights and remedies of a secured party under Chapter 1309 of the Ohio Revised Code and such other rights and remedies as are -12- 16 granted to a secured party in similar situations to the extent of the security interest granted under paragraph (a) above. (g) The Borrower shall be liable for the deficiency if the proceeds of any sale or other disposition of the Custody Bonds by the Bank are insufficient to pay all amounts to which the Bank is entitled, including principal and interest as provided herein, and the reasonable fees of any outside attorneys employed by the Bank to collect such deficiency. 5.7 Reinstatement. (a) In connection with any Tender Draft, upon (1)(i) receipt by the Bank or the Trustee of immediately available funds in an amount equal to the principal amount of the Bonds that have been remarketed in accordance with Section 4.01 of the Trust Indenture, and (ii) receipt by the Bank from the Trustee of a certificate with respect to such reinstatement in the form of Annex 5 attached to the Letter of Credit, or (2) Bonds for the Bank's benefit in the aggregate principal amount equal to the unpaid amount of the principal portion of such Tender Draft delivered by the Borrower or on its behalf, registered or recorded in the name of the Borrower as pledgor and the Bank as pledgee in accordance with Section 5.6 hereof, or (3) the Bank's otherwise advising the Trustee in writing that such reinstatement shall occur, as provided in the Letter of Credit, the Trustee's right to draw on the Letter of Credit shall automatically be reinstated in an amount equal to the principal portion plus the interest portion of such Tender Draft, or the aggregate principal amount of such Bonds plus the interest portion of such Tender Draft, as the case may be. (b) In the event of an Interest Draft, the Stated Amount shall automatically be reinstated in the amount of the related Interest Draft at the close of business on the fifteenth day following the date of such draft unless the Bank shall have delivered to the Trustee a written notice specifically referring to the Letter of Credit stating that an Event of Default has occurred under this Agreement and is continuing and that such reinstatement shall not occur. 6. Events of Default and Remedies Upon Default. 6.1 Events of Default. The occurrence of any one or more of the following, whatever the reason therefor, shall constitute an Event of Default hereunder: (a) The Borrower shall fail to pay any amount of principal, purchase price or interest or any other sum owing under this Agreement or any other Letter of Credit Document on the due date thereof; or (b) An Event of Default occurs and is existing under the Loan Agreement. -13- 17 6.2 Remedies Upon Default. Upon the occurrence of any Event of Default, in addition to and not in lieu of all rights and remedies available to the Bank under the Loan Agreement and the other agreements and documents executed in connection therewith, in law or at equity, the Bank may, at its option, do any or all of the following: (a) Declare the principal of all amounts owing under this Agreement and the other Letter of Credit Documents (including all obligations secured by the Security Documents) and all other indebtedness of the Borrower to the Bank, together with interest thereon, to be forthwith due and payable, regardless of any other specified maturity or due date, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character, and without the necessity of prior recourse to any security; (b) Implement any remedies available to the Bank under or in connection with the Bond Documents, including without limitation instructing the Trustee, in the Bank's sole discretion, to accelerate the maturity of the Bonds and causing and paying a full or partial drawing under the Letter of Credit (whether or not any amounts have previously been paid under the Letter of Credit) and exercising all of the rights and remedies available to the Bank in connection therewith; (c) If the Event of Default may be cured by the Bank by taking actions or making payments of money, the Bank shall have the right (but not the obligation) to take such actions (including without limitation the retention of attorneys and the commencement or prosecution of actions on its own behalf or on behalf of the Borrower), and to make such payments and pay for the costs of such actions (including without limitation attorneys' fees and court costs) from its own funds; provided, that the taking of such actions at the Bank's expense or the making of such payments by the Bank out of the Bank's own funds shall not be deemed to cure such Event of Default, and the same shall not be so cured unless and until the Borrower shall have reimbursed the Bank, for such payment, together with interest at the Prime Rate plus two percent (2%), from the date of such payment until the date of reimbursement. If the Bank advances its own funds for such purposes, such funds shall be secured by the Security Documents, notwithstanding that such advances may cause the total amount advanced hereunder to exceed the amount committed to be advanced pursuant to this Agreement, and the Borrower shall immediately upon demand reimburse the Bank therefore with interest at the Prime Rate plus two percent (2%), from the date of such advance until the date of reimbursement; and (d) Exercise any and all of its rights under the Letter of Credit Documents, the Loan Agreement or the other agreements and documents executed in connection therewith, or the Bond Documents, or otherwise as a secured creditor, including, without limitation, foreclosing on any security, and exercising any other rights with respect to security whether under the Security Documents or any other agreement -14- 18 or as provided by law, all in such order and in such manner as the Bank in its sole discretion may determine. 6.3 Cumulative Remedies; No Waiver. All remedies of the Bank provided for herein are cumulative and shall be in addition to any and all other rights and remedies provided in the Letter of Credit, the Security Documents, the Bond Documents, any of the Letter of Credit Documents or the Loan Agreement or the other agreements and documents executed in connection with the Loan Agreement, or provided by law from time to time. The exercise of any right or remedy by the Bank hereunder shall not in any way constitute a cure or waiver of default hereunder or under the Letter of Credit, the Security Documents, the Bond Documents, any of the Letter of Credit Documents, or the Loan Agreement or the other agreements and documents executed in connection with the Loan Agreement, nor invalidate any notice of default or any act done pursuant to any such notice, nor prejudice the Bank in the exercise of any rights hereunder or under the Letter of Credit, the Security Documents, the Bond Documents, the Letter of Credit Documents or the Loan Agreement, unless in the exercise of said right, the Bank realizes all amounts owed to it under the Letter of Credit, this Agreement, the Security Documents, the Bond Documents, the Letter of Credit Documents, the Loan Agreement and the other agreements and documents executed in connection with the Loan Agreement, and all Events of Default are cured. No waiver by the Bank of any default or breach by the Borrower hereunder shall be implied from any omission by the Bank to take action on account of such default if such default persists or is other than the default expressly made the subject of the waiver. Any such express waiver shall be operative only for the time and to the extent therein stated. Any waiver of any covenant, term or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by the Bank to or of any act by the Borrower shall not be deemed to waive or render unnecessary consent or approval to or of any subsequent act. 7. Miscellaneous. 7.1 Nonliability of the Bank. The Borrower acknowledges and agrees that: (a) The Bank shall not be responsible or liable to the Borrower for the use which may be made of the Letter of Credit or for any acts or omissions of the Trustee and any beneficiary or transferee in connection therewith; (b) The Bank shall not be responsible or liable to the Borrower for the validity, sufficiency or genuineness of documents (except as to the Bank's signatures thereon), or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged (except to the extent acceptance or reliance upon such documents is a result of the Bank's gross negligence or willful misconduct); and (c) The Bank shall not be responsible or liable to the Borrower as a result of any circumstances in any way related to the making or failure to make payment -15- 19 under the Letter of Credit, other than as a result of the gross negligence or willful misconduct of the Bank. 7.2 No Representations by the Bank. By accepting or approving anything required to be observed, performed or fulfilled, or to be given to the Bank pursuant to this Agreement or any of the other Letter of Credit Documents or Bond Documents, including any certificate, statement of profit and loss or other financial statement, survey, appraisal or insurance policy, the Bank shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or representation to anyone with respect thereto by the Bank. The Bank may accept documents in connection with the Letter of Credit or any of the other Letter of Credit Documents or Bond Documents which appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. 7.3 No Third Parties Benefitted. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of the Borrower and the Bank in connection with the Letter of Credit. It is made for the sole protection of the Borrower and the Bank, and the Bank's successors and assigns. No other Person shall have any rights of any nature hereunder or by reason hereof. 7.4 Indemnity by the Borrower. The Borrower hereby indemnifies and holds harmless the Bank and its directors, officers, agents and employees (collectively the "indemnitees") from and against: (a) any and all claims, demands, actions or causes of action that are asserted against any indemnitee by any Person if the claim, demand, action or cause of action directly or indirectly relates to a claim, demand, action or cause of action that the Person has or asserts against the Borrower, whether in connection with the Letter of Credit, the Bonds, any of the Bond Documents, any of the Letter of Credit Documents or this Agreement, or otherwise; (b) any and all claims, demands, actions or causes of action that are asserted against any indemnitee by any Person and arising from or in connection with (I) any statement or omission, actual or alleged, in the Bond Documents, or (ii) any breach or default, actual or alleged, of the representations, warranties, covenants, conditions or agreements contained in this Agreement or any of the other Letter of Credit Documents or in any of the Bond Documents; and (c) any and all liabilities, losses, costs or expenses (including court costs and attorneys' fees) that any indemnitee suffers or incurs as a result of the assertion of any claim, demand, action or cause of action specified in Section 7.4(a) or Section 7.4(b) of this Agreement. -16- 20 Any obligation or liability of the Borrower to any indemnitee as provided in this Section 7.4 shall be secured by the Security Documents. The indemnity contained in this Section 7.4 shall not extend to any claims, demands, actions, causes of action, liabilities, losses, costs or expenses which result solely from the gross negligence or willful misconduct of the Bank. 7.5 Commissions. The Borrower hereby indemnifies and holds the Bank harmless from any responsibility, cost and/or liability, including any attorneys' fees incurred, in connection with any claim by any Person for the payment of any commission, charge or brokerage fee in connection with the Bonds or any of the other transactions contemplated in connection with this Agreement arising by virtue of any action taken, directly or indirectly, by the Borrower. 7.6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, subject to the provisions of Article 6 of the Loan Agreement. 7.7 Execution in Counterparts. This Agreement and any other Letter of Credit Document may be executed in any number of counterparts and any party hereto or thereto may execute any counterpart, each of which when executed and delivered will be deemed to be an original and all of which counterparts of this Agreement or any other Letter of Credit Document, as the case may be, taken together will be deemed to be but one and the same instrument. The execution of this Agreement or any other Letter of Credit Document by any party hereto or thereto will not become effective until counterparts hereof or thereof, as the case may be, have been executed by all the parties hereto or thereto. 7.8 Amendments; Consents. No amendment, modification, supplement, termination or waiver of any provision of this Agreement or any of the Letter of Credit Documents, and no consent to any departure by the Borrower therefrom, may in any event be effective unless in writing signed by the Bank, and then only in the specific instance and for the specific purpose given. 7.9 Cumulative Remedies; No Waiver. The rights, powers and remedies of the Bank under the Letter of Credit Documents are cumulative and not exclusive of any right, power or remedy provided by law or equity or otherwise. No failure or delay on the part of the Bank in exercising any right, power or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power or remedy preclude any other or further exercise of any other right, power or remedy. 7.10 Survival of Representations and Warranties. All representations and warranties of the Borrower contained herein or in the Loan Agreement or any other Letter of Credit Document will survive the delivery of the Letter of Credit, and are material and have been or will be relied upon by the Bank, notwithstanding any investigation made by the Bank or on behalf of the Bank. For the purpose of the foregoing, all statements contained in any -17- 21 certificate, agreement or other writing delivered by or on behalf of the Borrower pursuant hereto or pursuant to the Loan Agreement or any other Letter of Credit Document or in connection with the transactions contemplated hereby or thereby shall be deemed to be covenants, representations and warranties of the Borrower contained herein or in the Loan Agreement or in any other Letter of Credit Documents, as the case may be. 7.11 Notices. All notices, requests, demands, directions and other communications provided for in this Agreement shall be given in the manner provided for notices in the Loan Agreement. 7.12 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio. 7.13 Severability of Provisions. Any provision in any Letter of Credit Document that is held to be inoperative, unenforceable or invalid shall be inoperative, unenforceable or invalid without affecting the remaining provisions, and to this end the provisions of all Letter of Credit Documents are declared to be severable. 7.14 Headings. Article and section headings in this Agreement are included for convenience of reference only and are not part of this Agreement for any other purpose. 7.15 Time of the Essence. Time is of the essence for all purposes under this Agreement and the other Letter of Credit Documents. 7.16 WAIVER OF JURY TRIAL. THE BANK AND THE BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF THEM WITH RESPECT THERETO. THIS WAIVER SHALL NOT IN ANY WAY EFFECT THE BANK'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY WARRANT OF ATTORNEY OR COGNOVIT PROVISION CONTAINED HEREIN OR IN ANY RELATED INSTRUMENT OR AGREEMENT. NEITHER THE BORROWER NOR THE BANK SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER THE BORROWER OR THE BANK EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM. -18- 22 7.17 Warrant of Attorney. The Borrower authorizes any attorney-at-law to appear in any Court of Record in the State of Ohio or in any other state or territory of the United States after the obligations hereunder become due, whether by acceleration or otherwise, to waive the issuing and service of process, and to confess judgment against the Borrower in favor of the Bank for the amount then appearing due, together with costs of suit, and thereupon to waive all rights of appeal and stays of execution. IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed on its behalf by its duly authorized representative and the Bank has caused this Agreement to be executed on its behalf by its duly authorized officer as of the date first above written. WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE. MCINNES STEEL COMPANY By: /s/ Timothy M. Hunter -------------------------------- Title: Secretary/Treasurer ----------------------------- THE HUNTINGTON NATIONAL BANK By: /s/ Bill T. Frazier -------------------------------- Title: Vice President ----------------------------- -19- 23 The Huntington National Bank HUNTINGTON P.O. Box 1558 BANKS Columbus, Ohio 43216 Direct Telephone Number EXHIBIT A IRREVOCABLE LETTER OF CREDIT NO. 106192 February 29, 1996 PNC Bank, National Association, Trustee 901 State Street Erie, Pennsylvania 16501 Attention: Corporate Trust Department Dear Sirs: 1. At the request of McInnes Steel Company, a Pennsylvania corporation (the "Company"), we hereby establish in your favor, as successor to Marine Bank, Trustee (the "Trustee") under the Trust Indenture dated as of November 1, 1991 (the "Indenture") between the Trustee and Erie County Industrial Development Authority (the "Issuer"), pursuant to which $6,000,000.00 aggregate principal amount of Variable Rate Demand Revenue Bonds, Series of 1991 (McInnes Steel Company Project) (the "Bonds") were issued by the Issuer, our Irrevocable Letter of Credit No. 106192 (the "Letter of Credit") in the amount of $4,610,959.00 (as more fully described below), effective immediately and expiring at 5:00 p.m. on November 6, 1999 or, if such day is not a Business Day (as defined in the Indenture), on the next succeeding Business Day (the "Stated Expiration Date"), unless, at our option, we deliver to you a written amendment signed by an authorized signer (specifically referring to "THE HUNTINGTON NATIONAL BANK Irrevocable Letter of Credit No.106192") extending the Stated Expiration Date to the date set forth in such amendment, in which case this Letter of Credit shall expire on such extended Stated Expiration Date unless further extended, it being understood that we shall be under no obligation herein to grant any such extension. This Letter of Credit is subject to automatic termination as provided in paragraph 8 hereof. 2. We hereby irrevocably authorize you to draw on us in accordance with the terms and conditions hereinafter set forth, by one or more drafts on us, an aggregate amount not exceeding Four Million Six Hundred Ten Thousand Nine Hundred Fifty-Nine and no/100 Dollars ($4,610,959.00) (as reduced and reinstated from time to time in accordance with the provisions hereof, the "Letter of Credit Amount"), of which (i) an aggregate amount not exceeding $4,500,000.00 (as reduced and reinstated from time to time in accordance with the provisions hereof, the "Principal Component") may be drawn upon with respect to principal of the Bonds and (ii) an aggregate amount not exceeding $110.959.00 (as reduced and reinstated from time to time in accordance with the provisions hereof, the "Interest Component") may be 24 drawn upon with respect to interest accrued on the Bonds. The Principal Component shall not THE HUNTINGTON NATIONAL BANK Irrevocable Letter of Credit No. 106192 Page 2 be available to pay amounts corresponding to the interest on the Bonds, and the Interest Component shall not be available to pay amounts corresponding to principal of the Bonds. 3. Funds under this Letter of Credit are available to you at the time specified below, (a) in one or more drawings by one or more of your drafts, each dated the date of its presentation and stating on its face: "Drawn under The Huntington National Bank Irrevocable Letter of Credit No. 106192", accompanied by one or more of your certificates in the form of Annex 1 attached hereto appropriately completed and executed (any such draft accompanied by such certificate being herein called an "Interest Draft"); (b) in one or more drawings by one or more of your drafts, each dated the date of its presentation and stating on its face "Drawn under The Huntington National Bank Irrevocable Letter of Credit No.106192", accompanied by one or more of your certificates in the form of Annex 2 attached hereto appropriately completed and executed (any such draft accompanied by such certificate being herein called a "Tender Draft"); and (c) in one or more drawings by one or more of your drafts, each dated the date of its presentation and stating on its face "Drawn under The Huntington National Bank Irrevocable Letter of Credit No.106192 ", accompanied by one or more of your certificates in the form of Annex 3 attached hereto appropriately completed and executed (any such draft accompanied by such certificate being herein called a "Redemption Draft"). Each such draft and certificate shall be presented at our office at The Huntington National Bank, 41 South High Street, Columbus, Ohio 43287, Attention: International Department, or such other office of ours that we hereafter designate by written notice to you, and shall be made either (i) in the form of a letter on your letterhead manually signed by one of your officers and addressed to us at The Huntington National Bank, 41 South High Street, Columbus, Ohio 43287, Attention: International Department, or at any other office of ours that we hereafter designate by written notice delivered to you, or (ii) in the form of a tested telex sent by one of your officers, such telex number that may be designated by us by written notice delivered to you, or (iii) in the form of a telecopy transmission of the documents described in clause (i) of this sentence to Telecopier No. (614) 480-4354 pr Telecopier No. (614) 480-3761(with transmission confirmed by call to Telephone No. (614) 480-4374) or such other telecopier and telephone numbers that we hereunder designate by written notice delivered to you. If a drawing is made by telex or telecopier, it must contain an additional certification by you that originals of the draft and certificate on your letterhead manually signed by one of your officers will be mailed to us concurrently by first class United States mail. If we receive your Interest Draft or Redemption Draft at such office, all in strict conformity with the terms and conditions of this Letter of Credit at or prior to 9:00 A.M., on a Business Day, we will honor the same in accordance with your payment instructions by 12:00 noon on the later of (a) the Business Day on which you present to us your draft and certificate or (b) the "Value Date" set forth in such certificate; and if we receive your Interest Draft or Redemption Draft at such office, all in strict conformity with the terms and conditions of this Letter of Credit, after 9:00 A.M., on a Business Day, we will honor the same in accordance with your payment instructions by 12:00 noon on the later of (1) the Business Day immediately 25 THE HUNTINGTON NATIONAL BANK Irrevocable Letter of Credit No. 106192 Page 3 following the Business Day on which you present to us your draft and certificate or (2) the "Value Date" set forth in such certificate. If we receive your Tender Draft at such office with respect to Bonds bearing interest at the Daily Rate (as defined in its Indenture), all in strict conformity with the terms and conditions of this Letter of Credit, at or prior to 12:00 noon, on a Business Day, we will honor the same in accordance with your payment instructions by 2:00 p.m. on the later of (x) the Business Day on which you present to us your draft and certificate or (y) the "Value Date" set forth in such certificate; and if we receive your Tender Draft at such office, all in strict conformity with the terms and conditions of this Letter of Credit, after 12:00 noon, on a Business Day, we will honor the same in accordance with your payment instructions by 2:00 p.m. on the later of (i) the Business Day immediately following the Business Day on which you present to us your draft and certificate or (ii) the "Value Date" set forth in such certificate. If we receive your Tender Draft at such office with respect to Bonds bearing interest at the Weekly or Monthly Rate (as such terms are defined in the Indenture), all in strict conformity with the terms and conditions of this Letter of Credit, at or prior to 4:00 p.m. on a Business Day, we will honor the same in accordance with your payment instructions by 10:00 a.m. on the later of (o) the Business Day immediately following the Business Day on which you present to us your draft and certificate or (p) the "Value Date" as set forth in such certificate. For purposes of this Letter of Credit, we shall be deemed to have "honored" a draft at the time at which we commence a wire transfer of immediately available funds in accordance with your instructions. 4. As used herein the term "Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which commercial banking institutions in Columbus, Ohio, Erie, Pennsylvania or New York, New York or in any other city where your principal office or our office or the principal office of the Remarketing Agent is located are required or authorized by law (including executive order) to close or on which any of such offices is closed for a reason not related to financial conditions. References to any time of day in this Letter of Credit shall refer to Eastern standard time or Eastern daylight saving time. as in effect in Columbus, Ohio on such day. 5. Each drawing honored by us hereunder shall reduce the Letter of Credit Amount and the respective Principal and Interest Components thereof by the respective amounts of such drawing and the corresponding components of such drawing. In addition, the Letter of Credit Amount and the respective Principal and Interest Components thereof shall be reduced automatically, without notice to you, upon our receipt from you of a certificate in the form of Annex 4 attached hereto appropriately completed and executed, each such reduction to be (i) in the amounts necessary to reduce the Letter of Credit Amount and the Principal and Interest Components thereof to the respective amounts specified by you in such certificate and (ii) effective on the Business Day on which we receive such certificate from you. No drawing hereunder honored by us shall exceed the Letter of Credit Amount at the time of such drawing, 26 as the Letter of Credit Amount has been reduced and reinstated in accordance with the terms THE HUNTINGTON NATIONAL BANK Irrevocable Letter of Credit No. 106192 Page 4 hereof, and no component of any such drawing corresponding to principal of or interest on the Bonds shall exceed the corresponding Principal and Interest Component of the Letter of Credit Amount as such Component has been reduced and reinstated in accordance with the terms hereof. 6. On the fifteenth calendar day following the date of each drawing under this Letter of Credit by your Interest Draft, the Letter of Credit Amount and the Interest Component shall be automatically reinstated by an amount equal to the amount of such drawing, unless before said fifteenth day, we give written notice specifically referring to "The Huntington National Bank Irrevocable Letter of Credit No. 106192 " signed by our authorized officer and received by you, to the effect that an Event of Default has occurred under the Reimbursement Agreement dated as of February 29, 1996 between the Company and us and such reinstatement shall not occur, in which case such reinstatement shall not occur. 7. Following any drawing under this Letter of Credit by your Tender Draft, the Letter of Credit Amount and the Principal and Interest Components thereof shall be reinstated with respect to such drawing (a) automatically when and to the extent that both (i) we have received reimbursement for such drawing in immediately available funds (or you have received immediately available funds which, pursuant to Section 4.04 of the Indenture, you will immediately remit to us as reimbursement for such drawing, such funds to be remitted to the attention of our International Department stating that they are repayments for Tender Drafts drawn under The Huntington National Bank Letter of Credit No. 106192) and (ii) you have delivered to us a certificate in respect of such reinstatement in the form of Annex 5 attached hereto appropriately completed and executed, which may be sent by tested telex or telecopier in the manner, to the numbers and with the confirmations and follow-up mailings described in paragraph 3 of this Letter of Credit or (b) when and to the extent that we, at our option, upon the Company's request, otherwise advise you in writing that such reinstatement shall occur, it being understood that we shall have no obligation to grant any such reinstatement except as provided in clause (a) of this sentence. 8. This Letter of Credit shall automatically terminate upon the first to occur of: (a) the Stated Expiration Date (as such date may have been extended), (b) the date on which we receive a certificate from you in the form of Annex 6 attached hereto, appropriately completed and executed, to the effect that there are no Bonds Outstanding (as defined in the Indenture) other than bonds secured by a Replacement Letter of Credit (as defined in the Indenture) or (c) the date on which the final drawing available hereunder is honored. This Letter of Credit shall be promptly surrendered to us by you upon such termination. The Company's election to convert the mode whereby interest is calculated to a Fixed Rate, and thereafter the actual Conversion, 27 THE HUNTINGTON NATIONAL BANK Irrevocable Letter of Credit No. 106192 Page 5 will not effect a termination of this Letter of Credit. 9. This Letter of Credit is transferable in its entirety (but not in part) to any transferee who you certify to us has succeeded you as Trustee under the Indenture, and may be successively transferred. Transfer of this Letter of Credit to such transferee shall be effected by the presentation to us of this Letter of Credit accompanied by a certificate substantially in the form of Annex 7 attached hereto appropriately completed and executed. 10. Only you (or a transferee permitted by the terms of this Letter of Credit) may make drawings under this Letter of Credit. Upon the payment to you or your account of the amount specified in a draft drawn hereunder, we shall be fully discharged of our obligation under this Letter of Credit with respect to such draft, and we shall not thereafter be obligated to make any further payments under this Letter of Credit with respect to such draft. 11. This Letter of Credit sets forth in full the terms of our undertaking, and this undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein or in which this Letter of Credit is referred to or to which this Letter of Credit relates, except only the drafts and certificates referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement, except such drafts and certificates. All drafts and certificates referred to herein that are presented to us from time to time shall become an integral part of this Letter of Credit and shall be binding on any transferee permitted by the terms of this Letter of Credit. Payment of all drawings honored under this Letter of Credit will be made with our own funds. 12. This Letter of Credit is subject to the "Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chamber of Commerce, Publication No. 500" (the "Uniform Customs"). This Letter of Credit shall be deemed a contract made under the laws of the State of Ohio and shall, as to matters not governed by the UCP, be governed and construed and in accordance with the laws and said state, without regard to principles of conflicts of law. Very truly yours, THE HUNTINGTON NATIONAL BANK By:_________________________________ Title:______________________________ 28 ANNEX 1 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 To: The Huntington National Bank 41 South High Street Columbus, Ohio 43287 Attention: International Department CERTIFICATE FOR INTEREST DRAWING OF ACCRUED INTEREST ON VARIABLE RATE DEMAND REVENUE BONDS, SERIES OF 1991 (McINNES STEEL COMPANY PROJECT) ISSUED BY ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY The undersigned, a duly authorized officer of PNC BANK, NATIONAL ASSOCIATION, successor to Marine Bank, TRUSTEE (the "Trustee") under the Trust Indenture dated as of November 1, 1991 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies, with reference to Irrevocable Letter of Credit No.106192 (the "Letter of Credit") issued by The Huntington National Bank (the "Bank") in favor of the Trustee (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit, or if not so defined therein, in the Indenture), that: 1. The Trustee is the Trustee under the Indenture for the holders of the Bonds. 2. This Certificate accompanies a draft in the amount of $____________ by which the Trustee is making a drawing under the Letter of Credit in respect of the payment of accrued interest on Bonds, which payment is due on or before ____________ (the "Value Date"). None of such Bonds is a Company Bond or a Custody Bond as defined in the Indenture. 3. The Trustee has not received a notice from the Bank that reinstatement of the Letter of Credit in respect of any Interest Draft shall not occur. 4. The amount of the draft accompanying this Certificate (i) is being drawn against the Interest Component of the Letter of Credit Amount and does not exceed the Letter of Credit Amount, as reduced and reinstated in accordance with the terms of the Letter of Credit, or the Interest Component, as reduced and reinstated in accordance with the terms of the Letter of Credit, (ii) was computed in accordance with the terms and conditions of the Bonds and the Indenture, (iii) does not include any amount in respect of interest on Bonds which was included in any Interest Draft, Tender Draft or Redemption Draft presented and not dishonored on or prior to the date of this Certificate, and (iv) shall be applied pursuant to the provisions of the Bonds and the Indenture to the payment of accrued interest on Bonds which are not Company Bonds or Custody Bonds. 29 ANNEX 1 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 5. If this Certificate and the accompanying draft are initially presented by telex or telecopier, the originals of such draft and this Certificate on the Trustee's letterhead manually signed by one of its officers are being mailed to you concurrently by first class United States mail. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the day of the ______ day of ____________________ , 19_. PNC BANK, NATIONAL ASSOCIATION, TRUSTEE By___________________________________ Name_________________________________ Title__________________________________ 30 ANNEX 2 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 To: The Huntington National Bank 41 South High Street Columbus, Ohio 43287 Attention: International Department CERTIFICATE FOR INTEREST DRAWING IN RESPECT OF PRINCIPAL AND ACCRUED INTEREST ON VARIABLE RATE DEMAND REVENUE BONDS, SERIES OF 1991 (McINNES STEEL COMPANY PROJECT) ISSUED BY ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY The undersigned, a duly authorized officer of PNC BANK, NATIONAL ASSOCIATION, successor to Marine Bank, TRUSTEE (the "Trustee") under the Trust Indenture dated as of November 1, 1991 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies. with reference to Irrevocable Letter of Credit No. 106192 (the "Letter of Credit") issued by The Huntington National Bank (the "Bank") in favor of the Trustee (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit, or if not so defined therein, in the Indenture), that: 1. The Trustee is the Trustee under the Indenture for the holders of the Bonds. 2. This Certificate accompanies a draft in the amount of $_________________ by which the Trustee is making a drawing under the Letter of Credit in respect of the payment of the purchase price of Bonds, corresponding to the principal thereof and accrued interest thereon, tendered for purchase pursuant to the provisions of the Indenture and in the case of Bonds tendered pursuant to Section 4.01 of the Indenture, not successfully remarketed by the Remarketing Agent (as defined in the Indenture) with the purchase price therefor received as required under the terms of the Indenture. Such Bonds are herein called Tendered Bonds". The purchase price payment for the Tendered Bonds is due on or before __________________ (the "Value Date"). None of the Tendered Bonds is presently a Company Bond or a Custody Bond as defined in the Indenture. 3. The amount of the draft accompanying this Certificate is equal to the sum of (i) $___________________ being drawn against the Principal Component of the Letter of Credit Amount in respect of the payment of the portion of the purchase price of the Tendered Bonds corresponding to the principal thereof and (ii) $________________ being drawn against the Interest Component of the Letter Of Credit Amount in respect of the portion of the purchase price of the Tendered Bonds corresponding to accrued interest thereon. 31 ANNEX 2 to The Huntington National Bank Irrevocable Letter of Credit No.106192 4. The amount of the draft accompanying this Certificate does not exceed the Letter of Credit Amount, as reduced and reinstated in accordance with the terms of the Letter of Credit. Neither of the components of the amount of the draft set forth in paragraph 3 of this Certificate exceeds the corresponding component of the Letter of Credit Amount as reduced and reinstated in accordance with the terms of the Letter of Credit. The amount of the draft accompanying this Certificate (i) was computed in accordance with the terms and conditions of the Bonds and the Indenture, (ii) does not include any amount in respect of principal of or interest on the Bonds which was included in any Interest Draft, Tender Draft or Redemption Draft presented and not dishonored on or prior to the date of this Certificate and (iii) shall be applied pursuant to the provisions of the Bonds and the Indenture, to the payment of purchase price of the Tendered Bonds. 5. If this Certificate and the accompanying sight draft are initially presented by telex or telecopier, the originals of such draft and this Certificate on the Trustee's letterhead manually signed by one of its officers are being mailed to you concurrently by first class United States mail. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the day of the ______ day of ________________, 19_. PNC BANK, NATIONAL ASSOCIATION, TRUSTEE By___________________________________ Name_________________________________ Title__________________________________ 32 ANNEX 3 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 To: The Huntington National Bank 41 South High Street Columbus, Ohio 43287 Attention: International Department CERTIFICATE FOR REDEMPTION OR FINAL PAYMENT DRAWING IN RESPECT OF PRINCIPAL AND ACCRUED INTEREST ON VARIABLE RATE DEMAND REVENUE BONDS, SERIES OF 1991 (McINNES STEEL COMPANY PROJECT) ISSUED BY ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY The undersigned, a duly authorized officer of PNC BANK, NATIONAL ASSOCIATION, successor to Marine Bank, TRUSTEE (the "Trustee") under the Trust Indenture dated as of November 1, 1991 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies, with reference to Irrevocable Letter of Credit No.106192 (the "Letter of Credit") issued by The Huntington National Bank (the "Bank") in favor of the Trustee (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit, or if not so defined therein, in the Indenture), that: 1. The Trustee is the Trustee under the Indenture for the holders of the Bonds. 2. This Certificate accompanies a draft in the amount of $________ by which the Trustee is making a drawing under the Letter of Credit in respect of the payment of principal of and accrued interest on Bonds (other than Company Bonds or Custody Bonds as defined in the Indenture) upon the applicable event indicated in paragraph 3 of this Certificate, which payment is due on or before _________ (the "Value Date"). 3. The Trustee is presenting this Certificate and the accompanying draft in connection with (check and complete one): [ ] An optional redemption of the Bonds in the principal amount of $______ pursuant to Section 9.01 of the Indenture. After such redemption, $______ principal amount of the Bonds will remain outstanding and will not presently be Company Bonds or Custody Bonds. [ ] A sinking fund redemption of the Bonds in the principal amount of $______ pursuant to Section 9.05 of the Indenture. After such redemption, $______ principal amount of the Bonds will remain outstanding and will not presently be Company Bonds or Custody Bonds. 33 ANNEX 3 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 [ ] The payment of the Bonds upon acceleration of the maturity thereof pursuant to Section 11.02 of the Indenture. [ ] The payment of the Bonds at final maturity thereof pursuant to Section 6.02 of the Indenture. 4. The amount of the draft accompanying this Certificate is equal to the sum of (i) $________ being drawn against the Principal Component of the Letter of Credit Amount in respect of the principal of Bonds (other than Bonds which are presently Company Bonds or Custody Bonds) and (ii) $________ being drawn against the Interest Component of the Letter of Credit Amount in respect of interest accrued on such Bonds. 5. The amount of the draft accompanying this Certificate does not exceed the Letter of Credit Amount, as reduced and reinstated in accordance with the terms of the Letter of Credit. Neither of the components of the amount of the draft set forth in paragraph 4 of this Certificate exceeds the corresponding component of the Letter of Credit Amount, as reduced and reinstated in accordance with the terms of the Letter of Credit. The amount of the draft accompanying this Certificate (i) was computed in accordance with the terms and conditions of the Bonds and the Indenture. (ii) does not include any amount in respect of principal of or interest on the Bonds which was included in any Interest Draft, Tender Draft or Redemption Draft presented and not dishonored on or prior to the date of this Certificate, and (iii) shall be applied pursuant to the provisions of the Bonds and the Indenture to the payment of the principal of and accrued interest on Bonds which are not Company Bonds or Custody Bonds. 6. If this Certificate and the accompanying draft are initially presented by telex or telecopier, the originals of such draft and this Certificate on the Trustee's letterhead manually signed by one of its officers are being mailed to you concurrently by first class United States mail. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the day of the ______ day of _______________, 19_. PNC BANK, NATIONAL ASSOCIATION, TRUSTEE By___________________________________ Name_________________________________ Title__________________________________ 34 ANNEX 4 to The Huntington National Bank Irrevocable Letter of Credit No 106192 To: The Huntington National Bank 41 South High Street Columbus, Ohio 43287 Attention: International Department CERTIFICATE FOR REDUCING THE HUNTINGTON NATIONAL BANK (THE "BANK") IRREVOCABLE LETTER OF CREDIT NO.106192 (THE "LETTER OF CREDIT") SUPPORTING VARIABLE RATE DEMAND REVENUE BONDS, SERIES OF 1991 (McINNES STEEL COMPANY PROJECT) ISSUED BY ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY The undersigned, a duly authorized officer of PNC BANK, NATIONAL ASSOCIATION, successor to Marine Bank. TRUSTEE (the "Trustee") under the Trust Indenture dated as of November 1, 1991 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued. hereby certifies that (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit, or if not so defined therein, in the Indenture): 1. The Trustee is the Trustee under the Indenture for the holders of the Bonds 2. Pursuant to the provisions of the Bonds and the Indenture $________ principal amount of the Bonds have been redeemed or are deemed to have been paid pursuant to Article XVII of the Indenture, and the remaining aggregate principal amount of the Bonds Outstanding is $________ 3. Pursuant to the terms of the Letter of Credit, the Bank is hereby directed to reduce the Letter of Credit Amount and the Principal and Interest Components thereof, effective on the Business Day on which you receive this Certificate, so that after such reduction the Letter of Credit Amount shall be $________ of which $________ shall be the Principal Component and $________ shall be the Interest Component (calculated on the basis of 60 days interest on the Outstanding Bonds and a 365-day year, at an assumed maximum interest rate of 15% per annum). 4. If this Certificate is initially presented by telex or telecopier, the originals of this Certificate on the Trustee's letterhead manually signed by one of its officers are being mailed to you concurrently by first class United States mail. 35 ANNEX 4 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the day of the ______ day of ________________, 19_. PNC BANK, NATIONAL ASSOCIATION, TRUSTEE By___________________________________ Name_________________________________ Title__________________________________ 36 ANNEX 5 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 To: The Huntington National Bank 41 South High Street Columbus, Ohio 43287 Attention: International Department CERTIFICATE FOR REINSTATING THE HUNTINGTON NATIONAL BANK (THE ("BANK") IRREVOCABLE LETTER OF CREDIT NO. 106192 (THE "LETTER OF CREDIT") SUPPORTING VARIABLE RATE DEMAND REVENUE BONDS, SERIES OF 1991 (McINNES STEEL COMPANY PROJECT) ISSUED BY ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY The undersigned, a duly authorized officer of PNC BANK, NATIONAL ASSOCIATION, successor to Marine Bank. TRUSTEE (the "Trustee") under the Trust Indenture dated as of November 1, 1991 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies that (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit. or if not so defined therein, in the Indenture): 1. The Trustee is the Trustee under the Indenture for the holders of the Bonds. 2. On the date of this Certificate $_____________ aggregate principal amount of Bonds are being purchased upon a remarketing thereof by the Remarketing Agent (as defined in the Indenture). All of such Bonds were heretofore purchased (or anticipated to be purchased) with the proceeds of one or more Tender Drafts in the total drawing amount, of $________________ of which proceeds $___________ was drawn in respect of principal of such Bonds and $________ was drawn in respect of accrued interest on such Bonds. Prior to the date of this Certificate there has been no reinstatement of the Letter of Credit Amount with respect to amounts drawn by such Tender Drafts to purchase such Bonds. 3. The Paying Agent has received for immediate payment (or repayment) to the Bank in respect of the Bonds described in paragraph 2 of this Certificate the total amount of $________, consisting of $_______________ from the Remarketing Agent, $________________ from the Company and $_________ from the Bank. Such total amount is being paid to the Bank at the above address with reference to Letter of Credit No.106192, pursuant to Section 4.04 of the Indenture, as reimbursement for amounts drawn under the Letter of Credit by the Tender Drafts described in paragraph 2 of this Certificate; provided that, unless such reimbursement is being made on the same day that payment of such Tender Drafts was received by the Trustee from the Bank, the Trustee will release the Bonds described in paragraph 2 of this Certificate for remarketing and will make such payment to the Bank only upon receipt by the Trustee of telephonic confirmation from the Bank of the reinstatement described in paragraph 6 below. Such confirmation shall be made to the Trustee at (814) 871-9314, Attention: Corporate Trust 37 ANNEX 5 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 Department (which confirmation shall thereafter be sent in writing to the Trustee at its address on file with you). 4. Of the total amount referred to in paragraph 3 of this Certificate, $________ represents the aggregate principal amount of Bonds described in paragraph 2 of this Certificate and $________ represents accrued interest on such Bonds. 5. Payment of the total amount referred to in paragraph 3 of this Certificate, together with other amounts heretofore paid to the Bank by or on behalf of the Company, represents reimbursement for the entire outstanding balance of all amounts drawn in respect of the Bonds described in paragraph 2 of this Certificate. The foregoing certification is made in reliance upon representations by the Company and/or the Bank to the Trustee that, upon payment of such amounts, the Bank will be fully reimbursed for all Tender Drafts (or allocable portions thereof) presented to the Bank to purchase such Bonds. No Certification is made by the Trustee as to the payment of interest accrued pursuant to the Reimbursement, Credit and Security Documents described in the Letter of Credit on the amounts drawn by such Tender Drafts. 6. Pursuant to paragraph 7 of the Letter of Credit, the Letter of Credit Amount shall be automatically reinstated by an amount equal to $__________ (which does not exceed the aggregate amount of the Tender Drafts, or allocable portions thereof, paid by the Bank to purchase such Bonds) of which $_________ (which does not exceed the aggregate amount of such Tender Drafts, or allocable portions thereof, drawn against the Principal Component) shall be applied to the Principal Component and $__________ (which does not exceed the aggregate amount of such Tender Drafts, or allocable portions thereof, drawn against the Interest Component) shall be applied to the Interest Component. 7. If this Certificate is initially presented by telex or telecopier, the original of this Certificate on the Trustee's letterhead manually signed by one of its officers is being mailed to you concurrently by first class United States mail. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the day of the ______ day of ________________ , 19_. PNC BANK, NATIONAL ASSOCIATION, TRUSTEE By___________________________________ Name_________________________________ Title__________________________________ 38 ANNEX 6 to The Huntington National Bank Irrevocable Letter of Credit No.106192 To: The Huntington National Bank 41 South High Street Columbus, Ohio 43287 Attention: International Department CERTIFICATE FOR TERMINATING THE HUNTINGTON NATIONAL BANK (THE "BANK") IRREVOCABLE LETTER OF CREDIT NO.106192 (THE "LETTER OF CREDIT") SUPPORTING VARIABLE RATE DEMAND REVENUE BONDS, SERIES OF 1991 (McINNES STEEL COMPANY PROJECT) ISSUED BY ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY The undersigned, a duly authorized officer of PNC BANK, NATIONAL ASSOCIATION, successor to Marine Bank, TRUSTEE (the "Trustee") under the Trust Indenture dated as of November 1, 1991 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies that (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit, or if not so defined therein, in the Indenture): 1. The Trustee is the Trustee under the Indenture for the holders of the Bonds. 2. Pursuant to the Indenture and the Letter of Credit, the Letter of Credit shall be terminated on the date the Bank receives this Certificate, and the Trustee is herewith surrendering the Letter of Credit for cancellation, because no Bonds remain outstanding other than Bonds secured by a replacement Letter of Credit. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the day of the _______ day of _______________, 19_. PNC BANK, NATIONAL ASSOCIATION, TRUSTEE By___________________________________ Name_________________________________ Title__________________________________ 39 ANNEX 7 to The Huntington National Bank Irrevocable Letter of Credit No. 106192 To: The Huntington National Bank 41 South High Street Columbus, Ohio 43287 Attention: International Department Re: The Huntington National Bank Irrevocable Letter of Credit No. 106192 Gentlemen: For value received, the undersigned beneficiary hereby irrevocably transfers to: (Name of Transferee) (Address) all rights of the undersigned beneficiary to draw under the above Letter of Credit in its entirety. Said transferee has succeeded to the undersigned, successor to Marine Bank, as Trustee under the Trust Indenture dated as of November 1, 1991 between Erie County Industrial Development Authority and Marine Bank, as Trustee. By this transfer, all rights of the undersigned beneficiary in such Letter of Credit are transferred to the transferee and the transferee shall have the sole rights as beneficiary thereof, including sole rights relating to any amendments whether increases or extensions or other amendments and whether now existing or hereafter made. All amendments are to be advised direct to the transferee without necessity of any consent of or notice to the undersigned beneficiary. The original of such Letter of Credit is returned herewith, and in accordance therewith we ask you to transfer the Letter of Credit to the transferee in the Letter of Credit Amount (as defined in the Letter of Credit) with provision for reinstating or increasing the Letter of Credit Amount with respect to all drawings by Interest Drafts and Tender Drafts (as defined in the 40 Letter of Credit) with respect to which the Letter of Credit Amount of the original Letter of Credit may be reinstated, and forward it directly to the transferee with your customary notice of transfer. Very truly yours, SIGNATURE AUTHENTICATED PNC BANK, NATIONAL ASSOCIATION, TRUSTEE __________________________ By___________________________________ __________________________ Title__________________________________ (Authorized Signature) 41 EXHIBIT B PROJECT FACILITIES The Project Facilities consist in part of a one-story 29,955 square foot building and related furnishings, machinery and equipment now or hereafter to be incorporated into said building as constructed on approximately 6.5 acres of land, located in the City of Erie, Erie County, Pennsylvania. Such land on which such building is located is more fully described in Exhibit B-1 attached hereto. The following is an itemization of the Project Facilities furnishings, machinery and equipment components as the same were identified as part of the Project Facilities at the time of initial acquisition: Machinery, Fixtures and Equipment, including, but not limited to: Ring Mill: - The Ring Mill is a Wagner, Type RAW 63/63 - 1600/315, radial axial rolling machine, custom engineered to McInnes specification. The machine is computer controlled, has an axial and radial rolling force of 63 metric tons and is capable of rolling seamless rings with an outside diameter ranging from 100 mm - 1600 mm (4" - 63"), ring height from 20 mm - 315 mm (1 " - 12") and a maximum ring weight of 630 KG (1,400 lbs.) Hydraulic Press - The Hydraulic Press is an open die forging - ring preform press and will be utilized in preforming blanks for the Ring Mill. The Press is a four column, push down of moving cylinder design with a capacity of 1,200 U.S. tons to 1,800 U.S. tons. Ring blanks prepared on this press will typically weigh 10 KG (25 lbs.) and greater. Mechanical Press - The Mechanical Press is a 1,600 U.S. ton to 2,500 U.S. ton forging press that will be utilized in preforming ring blanks for the Ring Mill in the smaller than 10 KG (25 lbs.) size range. Forge Furnaces - To support the flexibility of the Wagner Ring Mill four Forge Furnaces were needed. Heat Treat Furnaces - Two Heat Treat Furnaces were initially budgeted to handle several heat treat cycles. The design parameters were based on a single car bottom style furnace, with a working chamber size of 72 inches width, 144 inches depth and 36 inches in height. Temperatures to 1,500 degrees Fahrenheit can be expected with heat uniformity of +/- 15 degrees Fahrenheit. Electrical Service Upgrades - Two Transformers were required for the building. 42 The transformers have been sized to provide current and future anticipated demands. The 12,500 volt primary service was stepped down to two secondary services through the respective transformers, one being 4,160 volts, 2,000 KVA and the second a 480 volt, 1,500 KVA service. TOGETHER with all additions thereto, substitutions therefor, replacements thereof, and proceeds thereof, and together also with all other fixtures, furnishings, machinery and equipment of whatever description hereinafter incorporated into, becoming a part of or erected upon the aforesaid 6.5 acres of land and the building constructed thereon so as to constitute a complete and assembled economic unit and manufacturing facility. B-2 EX-4.10 6 EX-4.10 1 EXHIBIT 4.10 INSTALLMENT SALE AGREEMENT Between ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and McINNES STEEL COMPANY and ASSIGNMENT to MARINE BANK, as Trustee Dated as of November 1, 1991 2 TABLE OF CONTENTS
Page ---- Recitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I Definitions Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.2 Rules of Construction; Time of Day . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE II Representations and Findings Section 2.1 Company Representations . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.2 Issuer Representations and Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE III Acquisition and Construction of Project Facilities Section 3.1 Transfer of Project Facilities; Possession and Quiet Enjoyment by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3.2 Contracts for Project Facilities . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.3 Provisions with Respect to Title . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.4 Description of Project Facilities . . . . . . . . . . . . . . . . . . . . . 8 Section 3.5 Notices and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.6 Additions and Changes to Project Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE IV Financing of Project Section 4.1 Issuance of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 4.2 Construction Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 4.3 Bonds Not to Become Arbitrage Bonds . . . . . . . . . . . . . . . . . . . . 10 Section 4.4 Restriction on Use of Bond Proceeds . . . . . . . . . . . . . . . . . . . . 10 Section 4.5 Three-Year Expenditure Requirement . . . . . . . . . . . . . . . . . . . . . 10 Section 4.6 Completion of Project Facilities; Excess Bond Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 4.7 No "Same Issue" Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4.8 Fixed Rate Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4.9 Election of $10,000,000 Limit . . . . . . . . . . . . . . . . . . . . . . . 11
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Page ---- ARTICLE V Sale and Purchase of Project Facilities Section 5.1 Sale and Purchase of Project Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 5.2 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 5.3 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 5.4 Acceleration of Payment to Redeem Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 5.5 Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 5.6 Obligations Absolute and Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 5.7 Assignment of Issuer's Rights . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5.8 Conveyance of Title to Company . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE VI Covenants of Company Section 6.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.2 Maintenance and Operation of Project Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 section 6.3 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.4 Payment of Compensation and Expenses of Trustee, Paying Agent and Remarketing Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 6.5 Payment of Issuer's Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 6.6 Indemnity Against Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 6.7 Taxes, Other Governmental Charges and Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 6.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 6.9 Damage to or Condemnation of Project Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 6.10 Limitation of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 6.11 Company's Lease of Project Facilities. . . . . . . . . . . . . . . . . . . . 21 Section 6.12 Granting of Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 6.13 Recording and Filing Requirements . . . . . . . . . . . . . . . . . . . . . 22 Section 6.14 Restricted and Prohibited Activities . . . . . . . . . . . . . . . . . . . . 23 Section 6.15 Limitation an Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 23 Section 6.16 $40,000,000 Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 6.17 Arbitrage Rebate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 6.18 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 6.19 Notice and Certification With Respect to Bankruptcy Proceedings . . . . . . . . . . . . . . . . . . . . 24
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Page ---- ARTICLE VII Events of Default and Remedies Section 7.1 Events of Default; Acceleration . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.2 Payment of Purchase Price on Default; Suit Therefor . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 7.3 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 7.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 7.5 Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE VIII Miscellaneous Section 8.1 Limitation of Liability of Issuer . . . . . . . . . . . . . . . . . . . . . 30 Section 8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 8.3 Assignment of Company's Rights; Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 8.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 8.5 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 8.6 Amounts Remaining in Funds . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 8.7 No Warranty by Issuer of Condition Suitability or Zoning of Project . . . . . . . . . . . . . . . . . . . . . 32 Section 8.8 Company's Federal Income Taxation . . . . . . . . . . . . . . . . . . . . . 33 Section 8.9 Survival of Covenants, Conditions and Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 8.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 8.11 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 8.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 8.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 8.14 Receipt of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Exhibit A - Real Estate Description Exhibit B - Description of Project Facilities Exhibit C - Purchase Price Principal Amortization Assignment
-iv- 5 INSTALLMENT SALE AGREEMENT dated as of November 1, 1991 (this "Financing Agreement" or "Sale Agreement") between ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Issuer"), a public instrumentality and body corporate and politic of the Commonwealth of Pennsylvania and McINNES STEEL COMPANY (the "Company"), a Pennsylvania corporation. It is RECITED as follows: A. Under the Pennsylvania Industrial and Commercial Development Authority Law, Act of August 23, 1967, P.L. 251, as amended, including by the Act of December 29, 1971, P.L. 647 (the "Act"), the Issuer is authorized to enter into agreements providing for the acquisition, construction and equipping of industrial and commercial development projects and the sale thereof to industrial or commercial occupants for the public purposes of promoting the health, safety and general welfare of the people of the Commonwealth of Pennsylvania by alleviating unemployment, maintaining employment at a high level, and creating and developing business opportunities in the Commonwealth of Pennsylvania. B. The Issuer has undertaken the financing of costs of a project (the "Project") involving the acquisition of certain improved industrial real estate commonly known as 1533 East Twelfth Street, Erie, Erie County, Pennsylvania and the acquisition of certain machinery and equipment to be installed on and constructed into such real estate (the "Project Facilities") and the sale thereof to the Company for use as a manufacturing facility. The Project Facilities real estate is fully described on Exhibit A hereto, and the Project Facilities machinery and equipment are as described on Exhibit B hereto. The Issuer and the Company intend that the Issuer's bonds issued to finance the Project will constitute an exempt small issue for the purposes of Section 144(a)(4)(A) of the United States Internal Revenue Code of 1986, as amended, and rules and regulations promulgated thereunder (collectively the "Code") so that interest on such bonds will not be included in the gross income of the recipients thereof for federal income tax purposes. NOW, THEREFORE, in consideration of the foregoing and intending to be legally bound, the Issuer and the Company hereby agree as follows: 6 ARTICLE I DEFINITIONS Section 1.1 Definitions. In this Agreement (except as otherwise expressly provided or unless the context otherwise requires) the following terms shall have the meanings specified in the foregoing recitals: Act Company Financing Agreement Project Issuer Project Facilities Code In addition, the following terms shall have the meanings specified in this Section, unless the context otherwise requires: "Agreement" means this Financing Agreement. "Bank" means Marine Bank, as issuer of the original Letter of Credit, and any bank or financial institution issuing any replacement Letter of Credit. "Bond" or "Bonds" means the Issuer's Variable Rate Demand Industrial Development Revenue Bonds (McInnes Steel Company Project, Series of 1991) issued under the Indenture in the original aggregate principal amount of $6,000,000. "Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in New York, New York or Erie, Pennsylvania, or in any other city in which the Principal Office of the Trustee, the Paying Agent, the Remarketing Agent or the Bank, is located, are required or authorized by law (including executive order) to close or on which the Principal Office of the Trustee, the Paying Agent, the Remarketing Agent or the Bank is closed for reasons not related to financial conditions, or (iii) a day on which the New York Stock Exchange is closed. "Condemnation Award" means any award or payment (less any expenses, including attorneys fees, incurred by the Issuer, the Trustee, the Bank or the Company in connection therewith) which may be made with respect to the Project Facilities as a result of (i) the taking of all or a portion of the Project Facilities by the exercise of the right of eminent domain by any governmental body, or by any person, firm or corporation acting under governmental authority (or a bona fide sale in lieu of such taking) or (ii) the alteration of the grade of any street. -2- 7 "Contracts" means the contracts and purchase orders awarded by the Company pursuant to Section 3.2. "Cost" or "Costs" means any costs of or in respect to the project or the Project Facilities now or hereafter permitted under the Act. Without limiting the generality of the foregoing, such costs may include: (i) amounts payable to contractors and suppliers (including fees for designing Project Facilities where the designs are provided by the contractor or supplier); (ii) costs of labor, services, materials, supplies and equipment furnished by the Company (including shipping costs) plus the Company's standard overhead charge; (iii) architectural, engineering, legal and other professional fees, marketing costs and brokerage commissions; (iv) interest on the Bonds to the extent permitted by the Act; and (v) costs of financing, including but not limited to bond discount, printing expense, mortgage taxes and recording fees, Trustee, Paying Agent and Remarketing Agent fees accrued prior to completion of the Project Facilities, and legal and accounting fees. "Event of Default" means any of the events described in Section 7.1. "Force Majeure" means any cause, circumstance or event not reasonably within the control of the Company, including, without limitation, the following: acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the government of the United States or of the State or any of their departments, agencies, political subdivisions or officials, or any civil disturbances; riots; epidemics; landslides; lightning; earthquakes; fires; hurricanes; storms; droughts; floods; washouts; arrests; restraint of government and people; explosions; breakage, malfunction or accident to facilities, machinery, transmission pipes or canals; partial or entire failure of utilities; and shortages of labor, materials, supplies or transportation. "Indenture" means the Issuer's Trust Indenture dated as of the date hereof delivered to the Trustee, as amended or supplemented at the time in question. "Letter of Credit" means the Bank's Irrevocable Letter of Credit dated _________________, 1991 and in favor of the Paying Agent, for the account of the Company, or any substitute therefor or any replacement Letter of Credit or Fixed Rate Letter of Credit delivered to the Paying Agent pursuant to Section 7.05. 7.07 or 7.09 of the Indenture. "Mortgage and Security Agreement" means the Mortgage and Security Agreement dated as of the date hereof delivered by the -3- 8 Company and the Issuer to Trustee with respect to the Project Facilities as security for the Bonds. "Paying Agent" means the entity appointed as such by the Issuer and accepting such appointment for the time being pursuant to Article XIII of the Indenture, initially Bankers Trust Company, New York, New York. "Purchase Price" means the price to be paid by the Company for the Project Facilities pursuant to Section 5.3. "Reimbursement Agreement" means the Reimbursement, Credit and Security Agreement dated as of the date hereof between the Company and the Bank, as the same may be amended from time to time and filed with the Trustee and the Paying Agent, and any agreement of the Company with the Bank issuing a replacement Letter of Credit setting forth the obligations of the Company to such Bank arising out of any payments under the replacement Letter of Credit and which provides that it shall be deemed to be a Reimbursement Agreement for purposes of the Indenture. "Remarketing Agent" means Tucker Anthony Incorporated of New York, New York, and its successors in such capacity as provided in Section 14.01 of the Indenture. "State" means the Commonwealth of Pennsylvania. "Trustee" means Marine Bank, as Trustee, 901 State Street, Erie, Pennsylvania, and its successors in the trust under the Indenture. All other capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to them in the Indenture. Section 1.2 Rules of Construction; Time of Day. In this Financing Agreement, unless otherwise indicated, (i) defined terms may be used in the singular or the plural and the use of any gender includes all genders, (ii) the words "hereof," "herein," "hereto," "hereby" and "hereunder" refer to this entire Financing Agreement, and (iii) all references to particular Articles or Sections are references to the Articles or Sections of this Financing Agreement. References to any time of the day in this Financing Agreement shall refer to Eastern Standard Time or Eastern Daylight Saving Time, as in effect in the City of Erie, Pennsylvania on such day. -4- 9 ARTICLE II REPRESENTATIONS AND FINDINGS Section 2.1 Company Representations. The Company represents that: (a) It is a corporation duly organized and existing under the laws of the Commonwealth of Pennsylvania, and is duly qualified to conduct its business under the laws of the Commonwealth. The making and performance of this Financing Agreement on the Company's part have been duly authorized in accordance with the terms and provisions of the Company's articles of incorporation and bylaws and will not violate or conflict with any governmental rule or regulation or with any agreement, instrument or document by which the Company or any of its properties are bound. (b) The Company is financially responsible and engaged in industrial activities in the State requiring substantial capital and creating substantial employment opportunities, and the Project will promote the purposes of the Act and the health, safety and general welfare of the people of the State by alleviating unemployment and maintaining employment at a high level and by creating and developing business opportunities in the State. (c) The Company intends to operate the Project as an industrial development project within the meaning of the Act. (d) The Project Facilities are located wholly within the City of Erie in the County of Erie, Pennsylvania, and consist of land or property of a character subject to allowance for depreciation under Section 167 of the Code. (e) The proceeds of the Bonds will not exceed the Costs of the Project. (f) The Company has acquired or will acquire before they are needed all permits and licenses and has satisfied or will satisfy all other requirements necessary for the acquisition, construction, equipping and operation of the Project Facilities. Section 2.2 Issuer Representations and Findings. The Issuer hereby represents and confirms its findings that: (a) The Issuer is a public body corporate and politic established in the State pursuant to the Act, is authorized and empowered by the provisions of the constitution and laws of the -5- 10 State (including the Act) and its resolutions dated July 17, 1991 and November __, 1991 (collectively, the "Resolution") to enter into the transactions contemplated by this Agreement and to carry out its obligations hereunder. The Project constitutes and will constitute an industrial development project within the meaning of the Act. (b) Based on representations and information furnished to the Issuer by or on behalf of the Company, the Issuer has found that the Company is engaged in industrial activities in the State requiring substantial capital and creating substantial employment opportunities, that the Project will promote the health, safety and general welfare of the people of the State and the public purposes of the Act by alleviating unemployment and maintaining employment at a high level and by creating and developing business opportunities in the State, and that the Company is financially responsible to assume its obligations prescribed by this Agreement and the Act. (c) The Project Facilities are and shall be located wholly within the boundaries of the County of Erie within the State. (d) The Project, the issuance of the Bonds and the execution of this Financing Agreement and the Indenture have been approved by the Issuer at one or more duly constituted meetings at which a quorum was present and acting. (e) The Project has been approved (1) by a publicly elected local official, after a public hearing held upon at least two weeks prior notice, as required by the Code, and (2) by the State's Secretary of Commerce as required by the Act. (f) Except as otherwise permitted by this Financing Agreement, the Issuer covenants that it has not and will not pledge the income and revenues derived from this Agreement other than to secure the Bonds and the related obligations of the Company to the Bank under the Reimbursement Agreement. ARTICLE III ACQUISITION AND CONSTRUCTION OF PROJECT FACILITIES Section 3.1 Transfer of Project Facilities; Possession and Quiet Enjoyment by Company. Acquisition of or work on certain portions of the Project Facilities may have been commenced or completed on or before the date the Issuer issues the Bonds -6- 11 pursuant to this Financing Agreement. The Company hereby grants, conveys and assigns to the Issuer all of its right, title and interest in and to the Project Facilities. Issuer has requested that the Company at closing and settlement of the Bonds grant, convey and assign or cause to be granted, conveyed and assigned, to the Issuer, by deed, bill of sale, lease, assignment, license, grant of easement or other appropriate instrument, such interests as it may have in the Project Facilities and such additional rights as the Issuer shall require in order to comply with the Act, and Company agrees to comply with that request. The Issuer agrees that so long as no Event of Default hereunder or under the Indenture has occurred and is continuing, the Company, on performing the covenants and conditions contained herein, shall and may peaceably and quietly have, hold, enjoy and possess the Project Facilities free from molestation, eviction or disturbance by the Issuer or by any other person or persons claiming the same, by, through or under the Issuer. The Issuer agrees that it will not create any lien, encumbrance or charge upon the Project Facilities other than the security intended to be given under the Indenture and the Mortgage and Security Agreement or the security intended to be given to the Bank to secure the Company's obligations under the Reimbursement Agreement, and that the Issuer will not grant any easement, license, right of way or other rights or privileges in the nature of easements with respect to the Project Facilities, or otherwise encumber the Project Facilities, without the prior written consent of the Company. Section 3.2 Contracts for Project Facilities. The Company has awarded or will award contracts and purchase orders (collectively, the "Contracts") covering the acquisition, construction and equipping of the Project Facilities. Subject to Force Majeure, the Company will proceed diligently with the acquisition, construction and equipping of the Project Facilities to completion. The Company will pay all sums required to complete the same to the extent that the cost thereof is not provided pursuant to this Financing Agreement and the Indenture. The Company will have full responsibility for preparing, administering, amending and enforcing the Contracts and litigating or settling claims thereunder, and will be entitled to all warranties, guarantees and indemnities provided under the Contracts and by law. Subject to the provisions of Sections 3.6 and 4.2, the Company may make additions to, deletions from or changes in the Project Facilities without prior consultation with the Issuer or the Trustee. Section 3.3 Provisions With Respect to Title. The Contracts will provide and it is hereby agreed that title to the improvements and related equipment included in the Project Facilities shall pass directly from the contractor to the Issuer, as the materials and equipment constituting the same are -7- 12 delivered, erected, installed and/or put in place or as payments are made to the respective contractors therefor. If a Contract covers work in addition to work on the Project Facilities, the Company will cause the contractor thereunder to deliver separate requisitions and invoices to the Company for the work on the Project Facilities. The Company and the Issuer agree that all of the Company's right, title and interest in and to the Project Facilities has vested or will vest in the Issuer as provided in Section 3.1 and this Section, and that the Issuer's title to the Project Facilities shall constitute ownership and not a security interest; provided that the Company alone shall be entitled to deduct all depreciation on, and take any available tax credits in respect of, the Project Facilities on the Company's income tax returns. Section 3.4 Description of Project Facilities. As the acquisition and construction of the Project Facilities proceeds, and as improvements, additions, deletions and changes pursuant to Section 3.6 are proposed by the Company, the Company will supplement the information contained in Exhibit B to this Agreement by filing with the Issuer and the Trustee, information showing: (a) a description of the nature, function and size of improvements, fixtures and equipment to be included as part of the Project Facilities; (b) the contractors performing work on the Project Facilities; and (c) the estimated costs of the Project Facilities. The Company will revise Exhibit B and such supplemental information to reflect material additions to, deletions from and changes in the Project Facilities and will notify the Issuer and the Trustee of such modifications so that the Issuer and the Trustee will be able to ascertain the nature, location and estimated costs of the facilities covered by this Financing Agreement. Section 3.5 Notices and Permits. The Company shall give or cause to be given all notices and comply or cause compliance with all laws, ordinances, municipal rules and regulations and requirements of public authorities applying to or affecting the conduct of the work on the Project Facilities, and the Company will defend and save the Issuer, its members, officers, agents and employees, harmless from all fines due to failure to comply therewith. The Company shall procure or cause to be procured all permits and licenses necessary for the prosecution of the acquisition and construction of the Project Facilities. -8- 13 Section 3.6 Additions and Changes to Project Facilities. Subject to the provisions of Sections 4.2 and 6.15 of this Agreement, the Company may, at its option and at its own cost and expense, at any time and from time to time, make such improvements, additions and changes to and deletions from the Project Facilities as it may deem to be desirable for its uses and purposes, provided that (a) if an addition, deletion or change occurs prior to completion of the Project Facilities and if such addition, deletion or change is substantial in relation to the Bonds, then the Company shall have first obtained and filed with the Issuer and the Trustee an opinion of counsel qualified by experience to render such an opinion to the effect that such addition, deletion or change is permitted under the Act and will not adversely affect the exclusion from gross income of interest on the Bonds for federal income tax purposes; (b) the Company will obtain the Issuer's approval of any addition to the Project Facilities not generally described in Exhibit B on the date of delivery of this Agreement; (c) such improvements, additions and changes shall constitute part of the Project Facilities and be subject to the liens and security interests created by this Financing Agreement and the Mortgage and Security Agreement; and (d) without the prior written consent of the Issuer and the Trustee, the Company shall not permit any alienation, removal, demolition, substitution, improvement, alteration or deterioration of the Project Facilities or any other act which might impair or reduce the usefulness or value thereof, or the security provided under this Financing Agreement or the Mortgage and Security Agreement unless any item of property so removed by the Company shall be replaced by other property of similar value so that the original cost of all property so removed from the Project Facilities is never greater than the original cost of the property replacing the same. Upon written request of the Company, the Trustee shall execute termination statements for any filings made to perfect the security interests created by Section 5.2 for any fixture or item of equipment permanently removed from the Project Facilities by the Company pursuant to this Section. ARTICLE IV FINANCING OF PROJECT Section 4.1 Issuance of Bonds. In order to finance the Project Facilities, the Issuer will issue and sell the Bonds up to the maximum aggregate principal amount of $6,000,000. The Bonds will be issued under and secured by the Indenture, and will be additionally secured by the Mortgage and Security Agreement and this Financing Agreement. The Bonds will be payable solely from payments made by the Company pursuant to the -9- 14 terms hereof, or from other moneys available for such purchase under the terms of the Indenture. The net proceeds of the Bonds shall be deposited as provided in Section 2.11 of the Indenture. Section 4.2 Acquisition Fund. The net proceeds of the Bonds (exclusive of accrued interest, if any) will be deposited in the Acquisition Fund established under the Indenture for payment of Costs of the Project upon requisition by the Company as provided in Section 5.02 of the Indenture. The Company agrees that the sums so requisitioned from the Acquisition Fund will be used only for the Costs of the Project as set forth in such requisitions, and will not be used for any other purpose. The Company shall have the right to enforce payments from the Acquisition Fund upon compliance with the procedures set forth in Section 5.02 of the Indenture; provided that during the continuance of an Event of Default as defined in the Indenture, the Acquisition Fund shall be held for the benefit of Registered Holders of the Bonds in accordance with the provisions of the Indenture. In the event of any deletion of facilities from the Project Facilities prior to the completion of the Project Facilities, the Company shall restore to the Acquisition Fund the full amount of any payments theretofore made from the Acquisition Fund on account of such deleted facilities. Section 4.3 Bonds Not to Become Arbitrage Bonds. As provided in Article VIII of the Indenture, the Trustee will invest moneys held by the Trustee as directed by the Company. The Issuer and the Company hereby covenant to each other and to the Registered Holders of the Bonds that, notwithstanding any other provision of this Financing Agreement or any other instrument, they will neither make nor instruct the Trustee to make any investment or other use of the Acquisition Fund or other proceeds of the Bonds which would cause the Bonds to be arbitrage bonds under Section 148 of the Code and the rules and regulations thereunder, and that they will comply with the requirements of such Section and related Code rules and regulations throughout the term of the Bonds. Section 4.4 Restriction on Use of Bond Proceeds. The Company (i) shall not use or direct the use of moneys from the Acquisition Fund in any way, or take or omit to take any other action, so as to cause the interest on any Bonds to become subject to Federal income tax, (ii) shall not use more than 2% of the proceeds of the Bonds for costs of issuance thereof, (iii) shall use at least 95% of the proceeds of the Bonds for Costs constituting land or property of a character subject to an allowance for depreciation for federal tax purposes within the meaning of Section 167 of the Code, and (iv) shall not use the proceeds of the Bonds to acquire, construct or install facilities, the nature of which would cause the interest on the -10- 15 Bonds to be included in gross income of the recipients thereof for federal income tax purposes. Section 4.5 Three-Year Expenditure Requirement. Except to the extent otherwise approved by an opinion of counsel qualified by experience to render such an opinion furnished by the Company to the Trustee, within three years of the Series Issue Date of the Bonds, the Company shall have completed the Project Facilities and caused all of the proceeds of the Bonds to be expended for Costs of the Project or to be transferred from the Acquisition Fund to the Bond Fund as described in Section 4.6. Section 4.6 Completion of Project Facilities; Excess Bond Proceeds. When the Company certifies to the Trustee and the Issuer, in the manner provided in Section 5.03 of the Indenture, that the Project Facilities are complete, any amounts remaining in the Acquisition Fund will be transferred to the Acquisition Fund Surplus Account in the Bond Fund and applied by the Trustee in accordance with Section 5.03 of the Indenture. Such application shall constitute payment of a portion of, and shall be credited against, the Purchase Price due from the Company to the Issuer as and to the extent provided in the Indenture. If for any reason the amount in the Acquisition Fund proves insufficient to pay all Costs of the Project, the Company will pay the remainder of such Costs. Section 4.7 No "Same Issue" Bonds. Neither the Company nor any other principal user of the Project Facilities, nor any related person, within the meaning of Section 144(a)(3) of the Code, has participated, or will participate, in the offering for sale or sale of any issue of private activity bonds within the meaning of Section 141 of the Code, which are or will be required to be aggregated with the Bonds as part of the "same issue" within the meaning of Revenue Ruling 81-216, or any subsequently proposed, temporary or final Treasury Regulations in substitution therefor. Section 4.8 Fixed Rate Conversion. Subject to and upon compliance with the applicable provisions of the Indenture, including Sections 3.03 and 4.02 thereof, the rate of interest on the Bonds may be converted to a Fixed Rate at the direction of the Company. Any and all fees and expenses in connection with any such conversion shall be paid by the Company. Section 4.9 Election of $10,000,000 Limit. The Issuer hereby elects to have the $10,000,000 limit of Section 144(a)(4) of the Code apply to the Bonds. -11- 16 ARTICLE V SALE AND PURCHASE OF PROJECT FACILITIES Section 5.1 Sale and Purchase of Project Facilities. The Issuer hereby agrees to sell to the Company, who hereby agrees to purchase, the Project Facilities, under and subject to all easements covenants, reversions, conditions and restrictions existing at the time of conveyance pursuant to Section 5.8 hereof, for the Purchase Price set forth in Section 5.3 hereof. Section 5.2 Security. (a) In order to secure its obligations hereunder, the Company agrees that the Issuer shall have a security interest in all the Company's right, title and interest in and to all funds and investments thereof now or hereafter held by the Trustee or the Paying Agent under the Indenture as security for the payment of the Bonds, including without limitation any and all construction funds, debt service funds and other funds (excepting only the Rebate Fund created by Section 6.05 of the Indenture) and securities and other instruments comprising investment thereof and interest and other income derived therefrom held as security for the payment of the Bonds. The terms of this Section 5.2(a) shall constitute a security agreement within the meaning of the State Uniform Commercial Code. (b) As security for the Bonds, the Company and the Issuer shall execute and deliver the Mortgage and Security Agreement to the Trustee. In order to secure their obligations thereunder, the Company and Issuer agree that the Trustee shall have a lien on and security interest in all the Company's and Issuer's right, title and interest in and to all real estate, fixtures, furnishings and equipment constituting parts of the Project Facilities, Exhibits A and B, now owned or hereafter acquired, all substitutions and replacements therefor, and all proceeds thereof, including all insurance proceeds. The terms of this Section 5.2(b) shall constitute a security agreement within the meaning of the State Uniform Commercial Code. (c) The Company agrees that its interest in the Project Facilities and its rights hereunder are and shall be subject to the rights of the Trustee under the Indenture and the Mortgage and Security Agreement. Section 5.3 Payment of Purchase Price. The Purchase Price to be paid by the Company for the Project Facilities will be an amount equal to the principal of, premium (if any) on and interest on the Bonds. The Purchase Price shall be payable by -12- 17 the Company in installments which, as to amounts and due dates, substantially correspond to the payments of the principal of, premium (if any) on and interest on the Bonds, as required by the Indenture. Payments of installments of such part of the Purchase Price as are attributable to the interest on the Bonds shall commence on December __, 1991. So as to assure the Sinking Fund Redemption of the Bonds in accordance with Section 9.__ of the Indenture, payments of installments of the Purchase Price as are attributable to the principal of the Bonds shall commence on October 31, 1994 and shall be made on the dates and in the amounts as specified and scheduled on Exhibit C hereof; but provided, however, that in respect to the payment of the installment of the Purchase Price as is scheduled to be paid by the Company there shall be, consistent with the provisions of Section 8.02(c) of the Indenture, a credit to the Company on account of interest or income received on the investment of moneys in the Bond Fund under the Indenture. In addition to its obligation hereunder to pay the Purchase Price, the Company also agrees to pay or cause to be paid to the Trustee any amount necessary to enable the Paying Agent to effect the purchase of Bonds tendered for optional or mandatory purchase pursuant to Article IV of the Indenture to the extent that moneys are not otherwise available therefor from the proceeds of the remarketing of such Bonds and/or from drawings on the Letter of Credit. Such installments of Purchase Price and other payment obligations shall be reduced to the extent that other moneys are available under the Indenture for such payments by the Trustee or the Paying Agent and a credit in respect thereof has been granted pursuant to the terms of the Indenture. It is the intention of the Issuer and the Company that, notwithstanding any other provision of this Agreement, the Trustee, as assignee of the Issuer, shall receive funds from or on behalf of the Company at such times and in such amounts as will enable the Issuer to meet all of its obligations under the Bonds, including any such obligations surviving the payment of the Bonds. Section 5.4 Acceleration of Payment to Redeem Bonds. Whenever the Bonds are subject to optional redemption pursuant to the Indenture, the Issuer will, but only upon request of the Company, direct the Trustee and the Paying Agent to call the same for redemption as provided in the Indenture. Whenever the Bonds are subject to mandatory redemption pursuant to the Indenture, the Company will cooperate with the Issuer, the Trustee and the Paying Agent in effecting such redemption. In the event of any optional or mandatory redemption of the Bonds, the Company will pay or cause to be paid on or before the date of redemption an amount equal to the applicable redemption price as a prepayment of that portion of the Purchase Price corresponding to the principal of the Bonds to be redeemed, together with applicable premium (if any) and interest accrued to the date of redemption. -13- 18 Section 5.5 Letter of Credit. Concurrently with the issuance of the Bonds, the Company shall cause the Letter of Credit to be delivered to the Paying Agent. The Company may also from time to time cause the Letter of Credit to be extended or another Letter of Credit to be delivered in replacement therefor, to the extent permitted by the terms of the Indenture. It is anticipated that so long as any Letter of Credit is held by the Paying Agent, all payments of principal of and interest on the Bonds will be funded from draws on the Letter of Credit and that moneys representing payments of Purchase Price will be applied to reimburse the Bank for such draws. Section 5.6 Obligations Absolute and Unconditional. The obligations of the Company to make or cause to be made payments of the Purchase Price shall be absolute and unconditional without defense or set off by reason of any default by the Contractors under the Contracts or by the Issuer under this Financing Agreement or under any other agreement between the Company and the Issuer or for any other reason, including without limitation failure to complete the Project Facilities, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project Facilities, commercial frustration of purpose, or failure of the Issuer to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Financing Agreement, it being the intention of the parties that the payments required of the Company hereunder will be paid in full when due without any delay or diminution whatsoever. Payments of the Purchase Price and additional sums required to be paid by or on behalf of the Company hereunder shall be received by the Issuer or the Trustee as net sums and the Company agrees to pay or cause to be paid all charges against or which might diminish such net sums. Section 5.7 Assignment of Issuer's Rights. As security for the payment of the Bonds, the Issuer will assign to the Trustee all the Issuer's rights under this Financing Agreement (except the rights of the Issuer to receive payments under Sections 6.4 and 6.5 hereof). The Company consents to such assignment and agrees to make or cause to be made directly to the Trustee without defense or set-off by reason of any dispute between the Company and the Trustee, all Purchase Price and other payments required under Sections 5.3 and 5.4. Whenever the Company is required to obtain the consent of the Issuer hereunder, the Company shall also obtain the consent of the Trustee. Section 5.8 Conveyance of Title to Company. Settlement for the Project Facilities shall take place on the date of final payment of all amounts to be paid by or on behalf of the Company -14- 19 under the terms of this Financing Agreement and the discharge of the liens of the Indenture and the Mortgage and Security Agreement (or, at the Company's election, within 30 days after such payment and release), provided that no Event of Default has occurred and is continuing and provided that settlement shall be held only after the Company gives 10 days prior written notice to the Issuer of said settlement. At settlement, the Issuer will convey to the Company (or its assignee or nominee), by bill of sale containing a covenant of special warranty and such other instruments as may then be necessary, the Project Facilities, excepting, however, any part of the Project Facilities taken by eminent domain (or conveyed by a bona fide sale in lieu thereof) during the term of this Financing Agreement and subject, nevertheless, to all easements, covenants, reversions, conditions and restrictions existing at the time of the conveyance to the Issuer pursuant to Section 3.1 or thereafter created or permitted by the Issuer with the Company's consent or otherwise created under circumstances beyond the Issuer's control. The Company agrees to pay all charges and costs including but not limited to legal fees, recording fees, notary fees and any other similar fees and charges which must be paid in order to complete settlement and in connection with the conveyance of the interest of the Issuer in the Project Facilities from the Issuer to the Company hereunder and, with respect to any security agreement made by the Issuer with the Company's consent, all security interest termination costs and fees. The Company agrees that the Issuer shall not be responsible for any inaccuracies in any settlement sheet in connection with the foregoing. ARTICLE VI COVENANTS OF COMPANY Section 6.1 Maintenance of Existence. The Company will maintain its existence and its qualification to do business in the State. Section 6.2 Maintenance and Operation of Project Facilities. (a) During the term of this Agreement, the Company will at its own cost and expense keep and maintain, or cause to be kept and maintained, in good repair and condition (excepting reasonable wear and tear) the Project Facilities and all additions and improvements thereto, and pay, or cause to be paid, any utility charges and other costs and expenses arising out of its or its tenants' occupancy of the Project Facilities. -15- 20 (b) The Company agrees to timely pay for any improvements to the Project Facilities lawfully done or lawfully ordered to be done by any municipal, state or Federal authority and to comply in all material respects at its own cost and expense with all lawful and enforceable notices received from public authorities from and after the date hereof, which affect the Project Facilities and the use and operation thereof, other than those improvements, orders and notices, the amount, validity or application of which is at the time being contested, in whole or in part, in good faith by appropriate proceedings. (c) The Company will maintain and use the Project Facilities as a manufacturing facility or, subject to the provisions of Section 6.11, lease them to tenants for such use and will not use or permit the use of the Project Facilities in any manner which would result in a violation of Section 144(a)(8) or Section 147(e) of the Code. Section 6.3 Compliance With Laws. With respect to the Project Facilities and any improvements and additions thereto, the Company will at all times comply with all applicable requirements of federal, state and local laws and with all applicable requirements of any agency, board or commission created under the laws of the State or of any other duly constituted public authority, and will use, and permit the use of, the Project Facilities only for such purposes as are lawful under the Act; provided that the Company shall be deemed in compliance with this Section so long as it is contesting in good faith any such requirement by appropriate legal proceedings, and is in compliance with the applicable provisions of the Mortgage and Security Agreement. Section 6.4 Payment of Compensation and Expenses of Trustee, Paying Agent and Remarketing Agent. The Company will pay the Trustee's and Paying Agent's reasonable compensation and expenses under the Indenture, including all costs of redeeming Bonds thereunder. The Company will also pay the reasonable compensation of the Remarketing Agent for the performance of its duties and services under the Indenture and the Remarketing Agreement. Section 6.5 Payment of Issuer's Fees and Expenses. The Company will pay the Issuer's standard administration fees and all reasonable expenses, including without limitation legal and accounting fees, incurred by the Issuer in connection with the issuance of the Bonds and the performance by the Issuer of its functions and duties under this Financing Agreement and the Indenture. The Issuer's standard administration fees in respect of this Agreement are $30,000.00 payable to the Economic Development Corporation of Erie County upon the execution and delivery of this Agreement, plus any amount necessary at the -16- 21 execution hereof and on each anniversary of the date hereof so long as any Bonds remain Outstanding, the same to defray the cost of an annual audit with respect to the Bonds. Section 6.6 Indemnity Against Claims. In the exercise of the powers of the Issuer, the Trustee or the Paying Agent hereunder or under the Indenture, including (without limitation) the application of moneys, the investment of funds and the exercise of remedies upon the occurrence of an Event of Default, neither the Issuer, the Trustee, the Paying Agent nor their members, directors, officers, employees or agents shall be accountable to the Company for any action taken or omitted by any of them in good faith and with the belief that it is authorized or within the discretion or rights or powers conferred. The Issuer, the Trustee, the Paying Agent and their members, directors, commissioners, officers, employees and agents shall be protected in acting upon any paper or document believed to be genuine, and any of them may conclusively rely upon the advice of counsel and may (but need not) require further evidence of any fact or matter before taking any action. No recourse shall be had by the Company for any claims based hereon or on the Indenture against any member, director, commissioner, officer, employee or agent of the Issuer, the Trustee or the Paying Agent alleging personal liability on the part of such person unless such claims are based upon willful misconduct of such person. The Company will indemnify and hold harmless the Issuer, the Trustee, the Paying Agent and each member, director, officer, employee and agent of the Issuer, the Trustee or the Paying Agent against any and all claims, losses, damages or liabilities, joint and several, to which the Issuer, the Trustee, the Paying Agent or any member, director, commissioner, officer, employee or agent of the Issuer, the Trustee or the Paying Agent may become subject, insofar as such loses, claims, damages or liabilities (or actions in respect thereof) arise directly or indirectly out of the Project or are based upon any other act or omission in connection with the Project by the Issuer, the Trustee or the Paying Agent, unless the losses, damages or liabilities arise from the gross negligence or willful misconduct of the person to be indemnified. In the event any claim is made or action brought against the Issuer, the Trustee, the Paying Agent or any member, director, officer, employee or agent of the Issuer, the Trustee or the Paying Agent, except for claims or actions brought which arise from the gross negligence or willful misconduct of such person, the Issuer, the Trustee or the Paying Agent may direct the Company to assume the defense of the claim and any action brought thereon and pay all reasonable expenses (including attorney's fees) incurred therein; or the Issuer, the Trustee or the Paying Agent may assume the defense of any such claim or action, the reasonable cost (including attorney's fees) of which shall be paid by the Company upon written request of the Issuer, -17- 22 the Trustee or the Paying Agent to the Company. The counsel selected by the Issuer, the Trustee or the Paying Agent to conduct such defense shall be approved by the Company, which approval shall not be unreasonably withheld. The Company may engage its own counsel to participate in the defense of any such action. The defense of any such claim shall include the taking of all actions necessary or appropriate thereto. Section 6.7 Taxes, Other Governmental Charges and Utility Charges. The Company shall pay, or cause to be paid before the same become delinquent, all taxes, assessments, whether general or special, and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project Facilities, including any equipment or related property installed or brought by the Company therein or thereon (including, without limitation, any taxes levied upon or with respect to the revenues or income of the Issuer with respect to the sale of the Project Facilities), and all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project Facilities. With respect to special assessments or other governmental charges that lawfully may be paid in installments over a period of years, the Company shall be obligated to pay only such installments as are required to be paid during the term hereof. If the Project Facilities are not taxed because of any interest the Issuer may have in respect thereof, the Company shall pay to the political subdivisions in which the Project Facilities are located an amount equal to the ad valorem taxes that would be otherwise due and payable. Such amounts in lieu of taxes shall be payable by the Company directly to the political subdivisions in which the Project Facilities are located. The Company may, at its expense, in good faith contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom, unless the Issuer or the Trustee shall notify the Company that, in the opinion of counsel, by nonpayment of any such items the lien of the Mortgage and Security Agreement will be materially endangered or the Project Facilities or any part thereof will be subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid promptly. The Company agrees that it will not use, as a basis for contesting or adjudicating any taxes or assessments upon the Project Facilities, the fact that the Issuer has an ownership interest therein. The Company also agrees to comply at its own cost and expense with all notices received from public authorities from and after the date hereof. If the Company shall fail to pay any of the foregoing items required by this Section to be paid by it, the Issuer or the Trustee may (but shall be under no obligation to) pay the same and any amounts so advanced therefor by the Issuer or the Trustee shall become an additional -18- 23 obligation of the Company to the one making the advance, which amounts, together with interest thereon from the date thereof at a variable rate equal to the rate of interest announced by the Trustee from time to time as its prime interest rate, the Company agrees and covenants to pay. Such interest shall be considered to be additional indebtedness secured hereby. Section 6.8 Insurance. (a) The Company shall at its own cost and expense obtain or cause to be obtained insurance policies, naming the Company and the Issuer as insureds (and the Trustee and the Bank as mortgagees as applicable), insuring against such risks, and in such amounts, as are customarily insured against by entities owning facilities of like size and type to the Project Facilities, paying as the same become due and payable, all premiums in respect thereof, including without limitation: (1) from the commencement of acquisition of the Project Facilities and thereafter, until the completion of construction, builders' "all risk" insurance to the extent of the full insurable value of the Project Facilities, provisions for which Company shall require in all Contracts; (2) from and after the completion of the acquisition of the Project Facilities, fire insurance with standard extended coverage endorsements, and vandalism and malicious mischief insurance, at all times in an amount equal to 100% of the replacement cost of the Project Facilities, exclusive of excavations and foundations; (3) comprehensive general liability insurance with minimum limits of $500,000 per person and $500,000 per occurrence, and property damage coverage with a minimum limit of $500,000, together with umbrella liability coverage in the amount of $2,000,000 per person and $2,000,000 per occurrence; (4) Workers' compensation coverage and any other type of insurance required by the laws of the State; and (5) as applicable, business interruption insurance covering the expenses of operating the Project Facilities for a period of not less than four months following any damage to or destruction of the Project Facilities, or rent abatement insurance against any abatement of rent or other payments or failure to perform any other duties or obligations required under any leases of the Project Facilities resulting from fire or other casualty covered under the above fire and extended coverage policy, in an amount not less than four months rent payable -19- 24 to the Company as lessor under such leases, plus in the case of a net lease, payment of real estate taxes and water and sewer rents borne by the lessee thereunder. (b) The Company shall require that any contractor employed for installation and placement of the Project Facilities provide comprehensive general liability coverage and workers compensation coverage in amounts customarily carried by contractors with respect to such construction. (c) The insurance policies or endorsements required by this Section shall cover the entire Project Facilities and shall provide that the coverage will not be reduced or cancelled without 30 days prior written notice to the Issuer, the Trustee and the Bank. The Company shall provide the Issuer, the Trustee and the Bank with certificates from the insurers at such times as may be necessary (but in no event less than once each year) to show that insurance is being maintained as required by this Section. Section 6.9 Damage to or Condemnation of Project Facilities. In the event of damage, destruction or condemnation of part or all of the Project Facilities, the Company shall either: (i) restore the Project Facilities or (ii) if permitted by the terms of the Bonds, direct the Issuer to call the Bonds for extraordinary optional redemption. Damage to, destruction of or condemnation of all or a portion of the Project Facilities shall not terminate this Financing Agreement, or cause any abatement of or reduction in the payments to be made by the Company or otherwise affect the respective obligations of the Issuer or the Company, except as set forth in this Financing Agreement. Subject to the provisions of the Mortgage and Security Agreement and any security agreement held by the Bank, in the event of damage, destruction or condemnation of the Project Facilities or any part thereof, the net proceeds of any insurance policies or the proceeds of any Condemnation Award shall, at the election of the Company if no Event of Default hereunder or under the Indenture has occurred and is continuing, be applied to the repair or restoration of the portion of the Project Facilities which is the subject of such damage or destruction, or which remains after such condemnation, or, if extraordinary optional redemption of the Bonds is permitted by the terms of the Bonds, deposited in the General Debt Service Account of the Bond Fund as a prepayment of the Purchase Price and applied pursuant to the Indenture with respect to such redemption of the Bonds. Section 6.10 Limitation of Liens. The Company shall not create or suffer to be created by any other person any lien or charge upon the Acquisition Fund or the Project Facilities or any part thereof or upon the rents, contributions, charges, -20- 25 receipts or revenues therefrom, other than liens thereon in favor of the Issuer, the Trustee or the Bank and, with the prior approval of the Bank, liens on the Project Facilities subordinate to the liens created by the Mortgage and Security Agreement and this Financing Agreement and any security agreement delivered to the Bank; provided that nothing in this Financing Agreement shall limit the right of the Company to enforce payments from the Acquisition Fund pursuant to Section 5.02 of the Indenture. The Company further agrees to pay or cause to be discharged or make adequate provision to satisfy and discharge, within 90 days after the same shall become due, any such lien or charge and also all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid, might be or become a lien upon the Acquisition Fund, the Project Facilities or any part thereof of the revenues or income therefrom. Nothing in this Section shall require the Company to pay or cause to be discharged or make provision for any such lien or charge so long as the validity thereof shall be contested in good faith and so long as the Acquisition Fund and the Project Facilities are not subject to loss or forfeiture in whole or part. The Issuer shall cooperate with the Company in any such contest and shall cooperate with the Company with respect to obtaining any necessary releases of liens or other encumbrances on the Project Facilities. Section 6.11 Company's Lease of Project Facilities. The Company may lease any portion of the Project Facilities, but only subject to the following conditions: (a) The Company shall have obtained the written consent to such lease of (i) the Issuer, (ii) if required by the Issuer or applicable laws, regulations, rules or guidelines, the State Department of Commerce, and (iii) if an Event of Default "has occurred and is continuing, the Trustee; (b) No such lease shall relieve the Company of its obligation to make the payments required under Sections 5.3 and 5.4 or to perform all other covenants hereunder, for which the Company shall remain primarily liable; (c) The Company shall deliver to the Issuer and the Trustee a copy of such lease within 30 days of the delivery thereof to the Company; (d) If the tenant would be deemed a "principal user" or "test period beneficiary" of the Project Facilities for purposes of Section 144(a) of the Code, the Company shall have obtained and submitted to the Issuer and the Trustee an opinion of counsel qualified by experience to render such an opinion that the proposed lease will not have an adverse effect on the -21- 26 exclusion of interest on the Bonds from gross income for federal income tax purposes; (e) Not more than an aggregate of 25% of the Project Facilities shall be leased to provide facilities the primary purpose of which is provision of retail food and beverage service, automobile sales or service, recreation or entertainment, nor shall such facilities furnish more than 25% of the rental revenues produced by the Project Facilities; and (f) Such lease shall contain covenants (i) forbidding any use of the leased premises which would constitute a violation of Section 144(a)(8) or Section 147(e) of the Code and (ii) if and as appropriate in the opinion of counsel qualified by experience to render such an opinion, with respect to the $10,000,000 limit of Section 144(a)(4)(A) of the Code and the $40,000,000 limit of Section 144(a)(10) of the Code. Section 6.12 Granting of Licenses, etc. If no Event of Default under this Agreement has occurred and is continuing, the Company may, with the prior consent of the Trustee and the Bank and notwithstanding anything contained in this Financing Agreement to the contrary, at any time or times, grant licenses and other rights or privileges in the nature thereof with respect to any property included in the Project Facilities, free from the lien of this Financing Agreement and the Mortgage and Security Agreement, or release licenses and other rights or privileges, all with or without consideration and upon such terms and conditions as the Company shall determine. The Issuer agrees that it will execute and deliver or will cause the execution and delivery of, and will cause and direct the Trustee and the Bank to execute and deliver, any instrument necessary or appropriate to confirm and grant or release any such license or other right or privilege, upon receipt by the Issuer, the Trustee and the Bank of: (a) A copy of the instrument of grant or release; (b) A written application signed by the Company requesting such instrument; and (c) A certificate executed by the Company, and such other persons as the Issuer may reasonably require, stating that such grant or release is not detrimental to the proper conduct of the business of the Company, and that such grant or release will not impair the effective use or interfere with the efficient and economical operation of the Project Facilities and will not in any material respect weaken, diminish or impair the security intended to be given by the Mortgage and Security Agreement or to be given by any security agreement to the Bank. -22- 27 If the instrument of grant shall so provide, any such license or right of such other parties thereunder shall be superior to the rights of the Issuer, the Trustee and the Bank under this Financing Agreement, the Mortgage and Security Agreement, or any security agreement to the Bank, and shall not be affected by any termination of this Financing Agreement or default on the part of the Company hereunder. Section 6.13 Recording and Filing Requirements. This Financing Agreement (or a memorandum hereof) shall be recorded in the office for the recording of deeds in and for the County of Erie, Pennsylvania and in such other place or places as may be required by law at the expense of the Company. The Company shall at the request of the Trustee and at the Company's own expense cause financing statements under Article IV of the State Uniform Commercial Code to be filed in the places required by law in order to perfect the security interests created by Section 5.2 naming the Issuer as first secured party and the Trustee as assignee. The Company shall furnish to the Trustee such opinions of counsel as the Trustee may request setting forth what actions, if any, should be taken by the Company, the Issuer or the Trustee to preserve such security interests in favor of the Trustee, and the right, title and interest of the Trustee in and to the trust estate under the Indenture. The Company shall execute and file or cause to be executed and filed all further instruments as shall be required by law to preserve such security interests, and shall furnish satisfactory evidence to the Trustee of the filing and refiling of such instruments. Section 6.14 Restricted and Prohibited Activities. (a) The Company covenants that not more than 25% of the proceeds of the Bonds shall be used (directly or indirectly) to provide any facilities the primary purposes of which is to provide retail food or beverage services, automobile sales or services, or the provision of recreation or entertainment, within the meaning of Section 144(a)(8) of the Code. (b) The Company covenants that no portion of the proceeds of the Bonds shall be used (directly or indirectly) to provide any facilities to be used for a private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, racetrack, airplane, skybox or other private luxury box, health club facility, facility primarily used for gambling, or store, the principal business of which is the sale of alcoholic beverages for consumption off premises, within the meaning of Section 144(a)(8) or Section 147(e) of the Code. -23- 28 Section 6.15 Limitation on Capital Expenditures. Without having first obtained an approving opinion of counsel qualified by experience to render such an opinion, the Company will not make or permit to be made any capital expenditures, within the meaning of Section 144(a)(4)(A) of the Code, with respect to the Project Facilities or any other facilities in the City of Erie, Erie County, Pennsylvania or with respect to any facilities contiguous or integrated with any such facilities within the meaning of Sections 1.103-10(b)(2)(ii)(e) and 1.103-10(d)(2) of the Treasury Regulations (in this Section, "integrated facilities"), of which the Company, any tenant, any other person who is a principal user of the Project Facilities or any related person is the owner, occupant or other principal user (in this Section, "capital expenditures"), which, when added to (i) the face amount of the Bonds and (ii) the outstanding amount of any other governmental obligations described in Section 144(a) of the Code issued with respect to any facilities located in the City of Erie, Erie County, Pennsylvania or with respect to any integrated facilities, of which the Company, any tenant, any other person who is a principal user of the Project Facilities or any related person is the owner, occupant or other principal user, would make the total of such face amount, such outstanding amount and all capital expenditures for the six-year period beginning three years before the date of original issuance of the Bonds exceed $10,000,000, or such other limit as may, in the opinion of such counsel, be permitted under the Code. Section 6.16 $40,000,000 Limit. The Company will not permit any person to become a principal user of the Project Facilities or a related person with respect to the Company any tenant or any such principal user, and will not become a principal user or permit any tenant or any such principal user or related person to become a principal user of any other facilities, within the meaning of Section 144(a) of the Code, within the three-year period following the date that the Project Facilities are first placed in service if, as a result thereof, the $40,000,000 limit of Section 144(a)(10) of the Code would be violated with respect to the Bonds. Section 6.17 Arbitrage Rebate. Within 30 days after the end of each Bond Year, the Company shall determine the Excess Investment Earnings and deliver moneys to the Trustee for deposit into the Rebate Fund (or instruct the Trustee to transfer to the Rebate Fund moneys representing available arbitrage earnings in the Acquisition Fund or the Bond Fund) in an aggregate amount equal to the Excess Investment Earnings, if any. The Company shall instruct the Trustee to withdraw from the Rebate Fund and pay over to the United States (1) not less frequently than once each five years after the date of original delivery and payment for the Bonds, an amount equal to 90% of the net aggregate amount of Excess Investment Earnings deposited -24- 29 into the Rebate Fund during such period, plus all investment earnings on amounts on deposit in the Rebate Fund during such period (and not theretofore paid to the United States), and (2) not later than 30 days after the redemption, payment at maturity or other retirement of the last Bond, 100% of all moneys in the Rebate Fund. Section 6.18 Affiliates. The Company shall certify to the Trustee, the Paying Agent and the Remarketing Agent the names of any and all persons and companies controlled by or under common control with the Company and agrees to update such certification upon the addition or deletion of any such person or company. Section 6.19 Notice and Certification With Respect to Bankruptcy Proceedings. The Company shall promptly notify the Trustee of the occurrence of any of the following events and shall keep the Trustee informed of the status of any petition in bankruptcy filed (or bankruptcy, insolvency or similar proceeding otherwise commenced) against the Company: (i) application by the Company for or consent by the Company to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, or (ii) admission by the Company in writing of its inability to pay its debts generally as they become due, or (iii) general assignment by the Company for the benefit of creditors, or (iv) adjudication of the Company as a bankrupt or insolvent, or (v) commencement by the Company of a voluntary case under the United States Bankruptcy Code or filing by the Company of a voluntary petition or answer seeking reorganization of the Company, an arrangement with creditors of the Company or an order for relief or seeking to take advantage of any insolvency law or filing by the Company of an answer admitting the material allegations of an insolvency proceeding or action by the Company for the purpose of effecting any of the foregoing, or (vi) without the application, approval or consent of the Company, commencement of a proceeding in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Company an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Company or of all or any substantial part of its assets, or other relief in respect thereof under any bankruptcy or insolvency law. -25- 30 ARTICLE VII EVENTS OF DEFAULTS AND REMEDIES Section 7.1 Events of Default; Acceleration. Each of the following events is hereby defined as, and is declared to be and to constitute, an "Event of Default" hereunder: (a) Failure by the Company to make or cause to be made any payment required to be made under Section 5.3 or 5.4 on or before the date the same is due; or (b) Failure or refusal by the Company to comply with any of its other covenants hereunder and such failure or refusal shall continue for a period of 60 days after written notice thereof has been given to the Company and the Bank by the Issuer or the Trustee; provided that if such failure is of such nature that it can be corrected but not within 60 days, it will not be an Event of Default so long as prompt corrective action is instituted and is diligently pursued; or (c) The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, or (ii) admit in writing its inability to pay its debts generally as they become due, or (iii) make a general assignment for the benefit of creditors, or (iv) be adjudicated a bankrupt or insolvent, or (v) commence a voluntary case under the United States Bankruptcy Code, or file a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief, or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization, or insolvency proceeding, or action shall be taken by it for the purpose of effecting any of the foregoing, or (vi) have instituted against it, without the application, approval or consent of the Company, a proceeding in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Company an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Company or of all or any substantial part of its assets, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the Company in good faith, the same shall (A) result in the entry of an order for relief or any such adjudication or appointment or (B) remain unvacated, undismissed and undischarged for a period of 60 days; or -26- 31 (d) For any reason the Bonds are declared due and payable by acceleration in accordance with Section 11.02 of the Indenture; or (e) If the Trustee and the Paying Agent receive notice from the Bank (i) that an Event of Default as defined in the Reimbursement Agreement has occurred and is continuing and (ii) requesting the Trustee to declare the principal of the outstanding Bonds immediately due and payable; or (f) If the Trustee and the Paying Agent receive notice from the Bank prior to the 15th day following a drawing under the Letter of Credit for interest on Bonds which remain outstanding after the application of the proceeds of such drawing, that the Letter of Credit will not be reinstated with respect to such interest: then and in each and every such case the Trustee (as assignee of the Issuer), by notice in writing to the Company, may, if such Event of Default has not been cured, declare all sums which the Company is obligated to pay under this Agreement to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Agreement contained to the contrary notwithstanding. In case the Trustee shall have proceeded to enforce any right under this Agreement and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Issuer and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Issuer and its assignee or the Trustee shall continue as though no proceeding had been taken. Section 7.2 Payment of Purchase Price on Default; Suit Therefor. (a) The Company covenants that, in case it shall fail to pay or cause to be paid any sum payable by or on behalf of the Company under Section 5.3 or 5.4 as and when the same shall become due and payable whether at maturity or by acceleration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee the whole amount of the Purchase Price that then shall have become due and payable under such Sections, and, in addition thereto, such further amounts as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee and the Paying Agent, their agents and counsel, and any and all expenses and liabilities incurred by the Issuer, the Trustee or the Paying Agent. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee shall be entitled and -27- 32 empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company and collect in the manner provided by law out of the property of the Company the moneys adjudged or decreed to be payable. (b) In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company under the federal bankruptcy laws or any other applicable law, or in case a receiver or trustee shall have been appointed for the benefit of the creditors or the property of the Company, the Trustee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of the Purchase Price, including accrued interest, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Company, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to Issuer or the Trustee, and to pay to the Issuer, the Trustee or the Paying Agent any amount due it for compensation and expenses, including counsel fees incurred by it up to the date of such distribution. Section 7.3 Other Remedies. Whenever all sums which the Company is obligated to pay under this Agreement shall have been declared to be immediately due and payable, the Issuer or the Trustee shall be entitled to any one or more of the following remedies, but only to the extent they are not prohibited by the Act, or other State law or State court decisions: (a) The Company shall upon demand of the Issuer or the Trustee surrender forthwith the possession of the Project Facilities, and it shall be lawful for the Issuer or the Trustee, by such, officer or agent as it may appoint, to take possession of all or any part of the Project Facilities together with the books, papers and accounts of the Company located at the Project Facilities and pertaining thereto, and to hold, operate and manage the same, and from time to time make such repairs and improvements as the Issuer or the Trustee shall deem wise. (b) The Company hereby irrevocably authorizes and empowers any attorney authorized to practice in the State who shall be designated by the Issuer or its assignee (including the -28- 33 Trustee), as attorney for the Company, as well as for all persons claiming by, through or under the Company, to sign an agreement for entering against the Company in any competent court an amicable action in ejectment for possession of the Project Facilities (without any stay of execution or appeal), against the Company and all persons claiming by, through or under the Company and therein confess judgment for the recovery by the Issuer or its assignee of possession of the Project Facilities, by which this Agreement (or a copy hereof verified by an affidavit by an officer of the Issuer or its assignee) shall be a sufficient warrant; whereupon if the Issuer or its assignee so desires, a Writ of Possession may be issued forthwith, without any prior writ or proceeding whatsoever, the Company hereby releasing and agreeing to release the Issuer, its assignee, and said attorney from all errors and defects whatsoever of a procedural nature in entering such action or judgment or in causing such writ or writs to be issued or in any proceeding thereon or concerning the same, provided that the Issuer or its assignee shall have filed in such action an affidavit made by some one on the Issuer's or its assignee's behalf setting forth the facts necessary to authorize the entry expressly agreed that if for any reason after such action has been commenced, the same shall be discontinued, marked satisfied of record or be determined, and the possession of the Project Facilities remain in or be restored to the Company, the Issuer and its assignee shall have the right upon any other or subsequent Event of Default, to bring one or more further amicable actions in the manner hereinbefore set forth to recover possession of the Project Facilities, and the authority and power above given to any such attorney shall extend to all such further amicable actions. (c) The Issuer or the Trustee may lease the Project Facilities or any part thereof, in the name and for the account of the Company, receive and sequester the rents, revenues, issues, earnings, income, products and profits therefrom, collect rentals and enforce all other remedies of the Company under any existing leases for any part of the Project Facilities, and apply such receipts and any moneys received from any receiver of any part of the Project Facilities in the manner provided in the Indenture, and the Company shall remain liable for any deficiency in its obligations under Sections 5.3 and 5.4 after the application of such receipts and moneys. Whenever all payments under this Financing Agreement which have become due shall be paid and all defaults made good, the Issuer or the Trustee shall surrender possession of the Project Facilities to the Company, the same right of entry, however, to exist upon any subsequent Event of Default. (d) The Issuer or the Trustee may terminate this Financing Agreement and resell the Project Facilities at a -29- 34 private or public sale and the moneys collected under such resale will be applied as provided in the Indenture, and the Company shall remain liable for any deficiency in its obligations under Sections 5.3 and 5.4 after the application of such proceeds. (e) The Issuer or the Trustee shall be entitled to all the remedies under Article IX is of the State Uniform Commercial Code as secured party in respect of the property subject to the security interests created under Section 5.2, including without limitation, the right to take possession of such property and sell the same at private or public sale, the proceeds of such sale to be applied as provided in the Indenture. (f) The Issuer or the Trustee may take whatever action may be available at law or in equity as may appear necessary or desirable to collect the Purchase Price and any other amounts payable by the Company hereunder, or to enforce performance and observance of any obligation, agreement or covenant of the Company under this Financing Agreement. (g) The Trustee may exercise any and all such rights and remedies as it may have as Secured Party of the Mortgage and Security Agreement. If any statute or rule of law shall validly limit the amount of damage to be paid under this Section to less than the amount provided in this Section, the Issuer or the Trustee shall be entitled to the maximum amount allowable under such statute or rule of law. Section 7.4 Waiver. The Company expressly waives any right of redemption with respect to the Project Facilities that it may have under the laws of the State. The Company hereby waives and relinquishes the benefits of any present or future law exempting the Project Facilities from attachment, levy or sale on execution, or any part of the proceeds arising from the sale thereof, and all benefit of stay of execution or other process. Section 7.5 Rights Cumulative. No remedy conferred upon or reserved to the Issuer or the Trustee by this Agreement is intended to be exclusive of any other available remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter available at law or in equity. No waiver by the Issuer or the Trustee of any breach by the Company of any of its obligations, agreements or covenants hereunder shall be a waiver of any subsequent breach, and no delay or omission to exercise any right or power shall impair any such right or power or shall -30- 35 be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. ARTICLE VIII MISCELLANEOUS Section 8.1 Limitation of Liability of Issuer. In the event of any default by the Issuer hereunder, the liability of the Issuer to the Company shall be enforceable only out of its interest in the Project Facilities and under this Financing Agreement and there shall be no other recourse for damages by the Company against the Issuer, its members, officers, employees and agents or any of the property now or hereafter owned by the Issuer. Section 8.2 Notices. All notices and other communications provided for hereunder shall be in writing and sent by United States certified or registered mail, return receipt requested, or by telegraph, telex, telecopier or private delivery service or personal service, addressed as follows: The Issuer: Erie County Industrial Development Authority 2103 East 33rd Street Erie, Pennsylvania 16510 Attention: Secretary The Company: McInnes Steel Company 441 East Main Street Corry, Pennsylvania 16407 Attention: President With Copy To: James E. Spoden, Esquire 100 State Street, Suite 700 Erie, Pennsylvania 16507 The Trustee: Marine Bank, Trustee 901 State Street Erie, Pennsylvania 16501 Attention: Manager, Corporate Trust -31- 36 The Paying Agent: Bankers Trust Company 4 Albany Street New York, New York _____ Attention: ________________________ ________________________ The Bank Marine Bank 901 State Street Erie, Pennsylvania 16501 Attention: Corporate Banking Department Letter of Credit Division Section 8.3 Assignment of Company's Rights; Successors and Assigns. The Company shall not assign this Financing Agreement or any interest of the Company herein, either in whole or in part, without the prior written consent of the Trustee, which consent shall be given if the following conditions are fulfilled: (i) the assignee assumes in writing all of the obligations of the Company hereunder; (ii) neither the validity nor the enforceability of this Financing Agreement shall be adversely affected by such assignment; (iii) the Project shall continue in the opinion of counsel qualified by experience to render such opinion to be a "project" as such term is defined in the Act after such assignment; (iv) such assignment shall not, in the opinion of counsel qualified by experience to render such opinion, have an adverse effect on the exclusion of interest on Bonds for federal income tax purposes; (v) approval by the Issuer, which approval shall not be unreasonably withheld; (vi) approval, if deemed necessary by the Issuer, by the State Department of Commerce; and (vii) if a Letter of Credit is held by the Paying Agent, consent of the Bank. For purposes of this Section 8.3, no assignment shall be deemed to have occurred (a) upon foreclosure by the Bank, or a conveyance in lieu thereof, or any other transfer to the Bank or to a nominee of the Bank which is an affiliate of Bank, or (b) by reason of a change in the identity of the stockholders or partners of the Company. Subject to the foregoing, this Financing Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns, and the terms "Issuer" and "Company" shall, where the context requires, include the respective successors and assigns of such persons. No assignment pursuant to this Section shall release the Company from its obligations under this Agreement, unless, if a Letter of Credit is held by the Paying Agent, the Bank consents to such release. -32- 37 Section 8.4 Amendments. This Financing Agreement may not be amended except as permitted by the Indenture. Any such amendment shall be by an instrument in writing signed by the parties. Section 8.5 Term of Agreement. This Financing Agreement and the respective obligations of the parties hereto shall be in full force and effect from the date hereof until (i) the principal or redemption price of, premium, if any, on and all interest on the Bonds shall have been paid, or provision for such payment shall have been made pursuant to the terms of the Indenture, (ii) the lien of the Indenture shall have been discharged pursuant to Section 17.01 thereof, (iii) the Company shall have satisfied all its obligations under the Reimbursement Agreement, and (iv) the Company and the Issuer shall have satisfied their respective obligations under Section 5.8 hereof. Section 8.6 Amounts Remaining in Funds. It is agreed by the parties that any amounts remaining in the Bond Fund or Acquisition Fund after payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and of the fees, charges and expenses of the Trustee, the Paying Agent and the Issuer in accordance with the Indenture, shall, upon release of the Indenture pursuant to Section 17.01 thereof, be paid by the Trustee to the Bank to the extent of any unreimbursed drawing under the Letter of Credit or any other obligations owing by the Company to the Bank under the Reimbursement Agreement. Any remaining moneys shall belong to and be paid by the Trustee to the Company or such other person as may be entitled thereto as an overpayment of the Purchase Price. Section 8.7 No Warranty by Issuer of Condition, Suitability or Zoning of Project Facility. The Issuer makes no warranty, either express or implied, as to the condition of the Project Facilities or any part thereof or that they will be suitable for the Company's purposes or needs. The Company acknowledges and agrees that the Issuer is not a dealer in property of such kind, and that the Issuer has not made, and does not hereby make, any representation or warranty or covenant with respect to the merchantability, fitness for a particular purpose, condition or suitability of the Project Facilities in any respect or in connection with or for the purposes and uses of the Company or its tenants. The Issuer makes no representations as to the zoning of the land included in the Project Facilities. Section 8.8 Company's Federal Income Taxation. Consistent with the terms and conditions of this Agreement, the Issuer agrees that the Company shall be deemed the owner of the Project -33- 38 Facilities for federal income tax purposes and further agrees to cooperate fully with the Company in obtaining favorable federal income tax treatment of this sale and the Project Facilities subject hereto. For such purposes, the parties acknowledge their intent to create a valid installment purchase agreement herein, with legal title to the Project Facilities held by Issuer prior to transfer of such title to Company pursuant to Section 5.8 hereof. Section 8.9 Survival of Covenants, Conditions and Representations. All covenants, conditions and representations of the Company contained herein which, by nature, impliedly or expressly involve performance in any particular manner after the delivery of the Issuer's title or which cannot be ascertained to have been performed until after the said delivery, shall survive said delivery. Section 8.10 Severability. If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable, nor invalidate the other provisions hereof, all of which shall be liberally construed in favor of the Issuer and the Trustee in order to effect the provisions of this Agreement. Section 8.11 Applicable Law. This Financing Agreement shall be deemed to be a contract made in the State and governed by the laws of the State. Section 8.12 Headings. The captions or headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any provision hereof. Section 8.13 Counterparts. This Financing Agreement may be executed in any number of counterparts, each of which when duly executed and delivered shall be an original; but such counterparts together constitute but one and the same instrument. Section 8.14 Receipt of Indenture. The Company hereby acknowledges that it has received an executed copy of the Indenture and is familiar with its provisions, and agrees that its rights hereunder are subject to the provisions of the Indenture, that it will comply with and be bound by all of the provisions of the Indenture that are binding on the Issuer, that it will take all such actions as are required or contemplated of the Company under the Indenture to preserve and protect the rights of the Trustee and of the Bondholders thereunder, and -34- 39 that the Company will not take any action which would cause a default thereunder. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above. ERIE COUNTY INDUSTRIAL DEVELOPMENT [SEAL] AUTHORITY Attest Robert H. Ploehn By Edward F. Bordonaro -------------------- -------------------------------- Secretary Chairman [SEAL] McINNES STEEL COMPANY Attest James E. Spoden By Timothy M. Hunter --------------------- -------------------------------- Asst. Secretary Treasurer -35- 40 COMMONWEALTH OF PENNSYLVANIA ) ) ss: COUNTY OF ERIE ) On this, the 7th day of November, 1991, before me, the undersigned notary public, personally appeared Edward F. Bordonaro, who acknowledged himself to be the Chairman of Erie County Industrial Development Authority, a body corporate and politic, and that he as such officer, being authorized to do so, executed the foregoing Financing Agreement for the purposes therein contained by signing the name of said body corporate and politic by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. Beverly J. McChesney ------------------------------- Notary Public My Commission Expires Notarial Seal Beverly J. McChesney, Notary Public (NOTARIAL SEAL) Erie, Erie County My Commission Expires Sept. 5, 1994 COMMONWEALTH OF PENNSYLVANIA ) ) ss: COUNTY OF ERIE ) On this, the 7th day of November, 1991, before me the undersigned notary public, personally appeared Timothy M. Hunter, who acknowledged himself to be the President of McInnes Steel Company, a Pennsylvania corporation, and that he as such officer, being authorized to do so, executed the foregoing Financing Agreement for the purposes therein contained by signing the name of said corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. Beverly J. McChesney ----------------------------- Notary Public My Commission Expires Notarial Seal Beverly J. McChesney, Notary Public (NOTARIAL SEAL) Erie, Erie County My Commission Expires Sept. 5, 1994 -36- 41 EXHIBIT A REAL ESTATE DESCRIPTION OF PROJECT FACILITIES ALL that certain piece or parcel of land situate in the City of Erie, County of Erie and Commonwealth of Pennsylvania, bounded and described as follows, to-wit: BEGINNING at a concrete monument in the South right-of-way line of East 12th Street, an 80 foot wide right-of-way, said point of beginning being located South 25 degrees 46 feet 10 inches East, a distance of 40.00 feet from a city monument at the intersection of the center line of East 12th Street and the line common to reserve number 47 and 48; thence South 25 degrees 46 feet 10 inches East, a distance of 772.13 feet to a concrete monument; thence South 63 degrees 35 feet West, along the North right-of-way line of the Penn Central Railroad a distance of 300.02 feet to a concrete monument thence North 25 degrees 46 feet 10 inches West, a distance of 374.36 feet to a concrete monument, thence South 64 degrees 00 feet 35 inches West, a distance of 127.59 feet to a concrete monument in the center line of a 30 foot wide common drive; thence along said center line North 25 degrees 46 feet 10 inches West, a distance of 400.00 feet to a point in the South right-of-way line of East 12th Street, an 80 foot wide right-of-way, said point being located South 25 degrees 46 feet 10 inches East, a distance of 40 feet from a city monument located at the intersection of the center line of East 12th Street and the center line of Gilson Avenue; thence along the South right-of-way line North 64 degrees 00 feet 35 inches East passing over a concrete monument at a distance of 127.59 feet a total distance of 427.59 feet to a concrete monument and the place of beginning. Together with all improvements thereon, including a manufacturing facility and office facility and commonly known as East 12 Street, Erie, Pennsylvania. A-1 42 EXHIBIT B PROJECT FACILITIES The Project Facilities consist in part of a one-story 29,955 square foot building and related furnishings, machinery and equipment now identified for or hereafter to be incorporated into said building as constructed on approximately 6.5 acres of land, located in the City of Erie, Erie County, Pennsylvania. Such land on which such building will be located is more fully described in the foregoing Exhibit A. The following is an itemization of the Project Facilities furnishings, machinery and equipment components as the same are identified as part of the Project Facilities as of November 7, 1991: Machinery, Fixtures and Equipment, including, but not limited to: Ring Mill - The Ring Mill is a Wagner, Type RAW 63/63 - 16OO/315, radial axial rolling machine, custom engineered to McInnes specification. The machine is computer controlled, has an axial and radial rolling force of 63 metric tons and is capable of rolling seamless rings with an outside diameter ranging from 100 mm - 1600 mm (4" - 63"), ring height from 20 mm - 315 mm (1" - 12") and a maximum ring weight of 630 KG (1,400 lbs.) Hydraulic Press - The Hydraulic Press is an open die forging - ring preform press and will be utilized in preforming blanks for the Ring Mill. The Press is a four column, push down, of moving cylinder design with a capacity of 1,200 U.S. tons to 1,800 U.S. tons. Ring blanks prepared on this press will typically weight 10 KG (25 lbs.) and greater. Mechanical Press - The Mechanical Press is a 1,600 U.S. ton to 2,500 U.S. ton forging press that will be utilized in preforming ring blanks for the Ring Mill in the smaller than 10 KG (25 lbs.) size range. The Mechanical Press is much faster than a Hydraulic Press, resulting in less contact time, and less heat loss, which is important in the preparation of small ring blanks. Preparation of large ring blanks on a Mechanical Press is not possible due to its slower operating characteristics. Forge Furnaces - To support the flexibility of the Wagner Ring Mill four Forge Furnaces will be needed. Two of the four furnaces shall be rated at 1,200 pound of through put per hour each. They shall use electricity or natural gas as the means in which to heat product. They shall have a modified slot design 43 for access. The heating chamber size will be approximately 36 inches in depth and 84 inches in width. Two larger furnaces capable of 2,000 pounds minimum will be utilized for the larger stock sizes. These furnaces will be of the box design, having a door which moves vertically for access to the heating chamber. The chamber size shall be approximately 84 inches in depth, 84 inches in width, and 48 inches in height. Heat Treat Furnaces - Two Heat Treat Furnaces are initially budgeted to handle several heat treat cycles. The design parameters will be based on a single car bottom style furnace, with a working chamber size of 72 inches width, 144 inches depth and 36 inches in height. Temperatures to 1,500 degrees Farenheit can be expected with heat uniformity of +/- 15 degrees Farenheit. Electrical Service Upgrades - Due to the substantial electrical loads which the Ring Mill and Hydraulic Press require, two Transformers are required for the building. When purchased, the incoming electrical power is 115 KVA. Although efficient for warehousing operations, the voltage and capacity were grossly inadequate. The transformers have been sized to provide current and future anticipated demands. The 12,500 volt primary service will be stepped down to two secondary services through the respective transformers, one being 4,160 volts, 2,000 KVA and the second a 480 volt, 1,500 KVA service. TOGETHER with all additions thereto, substitutions therefor, replacements thereof, and proceeds thereof, and together also with all other fixtures, furnishings, machinery and equipment of whatever description hereinafter incorporated into, becoming a part of or erected upon the aforesaid 6.5 acres of land and the building constructed thereon so as to constitute a complete and assembled economic unit and manufacturing facility. B-2 44 EXHIBIT C Required Amortization of Principal of $6,000,000 Purchase Price, per Section 5.3 of the Financing Agreement Principal shall be paid in accordance with the following schedule. If any specified payment date is not a Business Day, the payment date shall be construed to mean the Business Day next preceding the specified payment date.
Payment Beginning Principal Ending Date Balance Payable Balance ------- --------- --------- ------- October 31, 1994 $6,000,000 $700,000 $5,300,000 October 31, 1995 5,300,000 800,000 4,500,000 October 31, 1996 4,500,000 700,000 3,800,000 October 31, 1997 3,800,000 800,000 3,000,000 October 31, 1998 3,000,000 700,000 2,300,000 October 31, 1999 2,300,000 800,000 1,500,000 October 31, 2000 1,500,000 700,000 800,000 October 31, 2001 800,000 800,000 -0-
C-1 45 ASSIGNMENT KNOW ALL MEN BY THESE PRESENTS that Erie County Industrial Development Authority (the "Issuer"), does hereby assign, transfer and set over to Marine Bank, as Trustee, a corporation and bank and trust company organized and existing under the laws of the Commonwealth of Pennsylvania, having its principal corporate trust office at 901 State Street, Erie, Pennsylvania, (the "Trustee") under the Trust Indenture dated as of November 1, 1991 (the "Indenture") of the Issuer, all right, title and interest of the Issuer in and to the Installment Sale Agreement (the "Agreement") dated as of December 1, 1988 between the Issuer and McInnes Steel Company, as well as the Purchase Price (as defined therein) and other payments payable or which may become payable thereunder, the same to be held in trust and applied by the Trustee as provided in the Indenture, and the Issuer does hereby constitute and appoint the Trustee, its true and lawful attorney for it and in its name to collect and receive payment of any and all of said Purchase Price and other payments and to give good and sufficient receipts therefor, hereby ratifying and confirming all that said attorney may do in the premises. The Trustee may, but, except as otherwise provided in the Indenture, shall not be required to, institute any proceedings or take any action in its name or in the name of the Issuer to enforce payment or collection of any or all of such payments on account of said Purchase Price and other payments. Notwithstanding such assignment and transfer, so long as the Issuer shall not be in default under the Indenture, (a) the Issuer shall have the right and duty to give all approvals and consents permitted or required under the Agreement subject to any restrictions of the Indenture; (b) the Issuer shall have the right to execute supplements and/or amendments to the Agreement to the extent and in the manner permitted by the Indenture and by the Agreement; (c) there shall be no responsibility on the part of the Trustee for the duties or obligations of the Issuer contained in the Agreement and in any supplements and/or amendments thereto; and (d) the Issuer shall be entitled to indemnification and payment for its expenses, all in accordance with the Agreement. 1 of 2 46 IN WITNESS WHEREOF, the Issuer has caused this Assignment to be duly executed in its name by its Chairman or Vice Chairman, and its corporate seal to be hereunto affixed and attested by its Secretary or Assistant Secretary, and this Assignment to be dated as of December 1, 1988. ERIE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By Edward F. Bordonaro ------------------------------- Chairman [SEAL] Attest: Robert H. Ploehn ----------------------- Secretary COMMONWEALTH OF PENNSYLVANIA ) ) ss: COUNTY OF ERIE ) On this, the 7th day of November, 1991, before me, a Notary Public, personally appeared Edward F. Bordonaro, known to me to be the Chairman of the aforesaid Authority, and being authorized to do so, he did acknowledge the foregoing Assignment as the act and deed of said Authority. WITNESS my hand and official seal. Beverly J. McChesney --------------------------- Notary Public Notarial Seal Beverly J. McChesney, Notary Public Erie, Erie County My Commission Expires, Sept. 5, 1994 2 of 2 EX-9.1 7 EX-9.1 1 EXHIBIT 9.1 EQUITY HOLDERS AGREEMENT This Equity Holders Agreement ("Agreement") is dated as of February 29, 1996 and is effective as of March 8, 1996 by and among FIRST NEW ENGLAND CAPITAL LIMITED PARTNERSHIP, having its principal place of business at 100 Pearl Street, Hartford, Connecticut 06103 ("First New England"), MORAMERICA CAPITAL CORP., having its principal place of business c/o InvestAmerica Investment Advisors, Inc., 101 Second Street S.E., Suite 800, Cedar Rapids, Iowa 52401 ("MorAmerica"), and NORTH DAKOTA SMALL BUSINESS INVESTMENT COMPANY A NORTH DAKOTA LIMITED PARTNERSHIP, having its principal place of business c/o InvestAmerica N.D. Management, Inc., 101 Second Street S.E., Suite 800, Cedar Rapids, Iowa 52401 ("NDSBIC") (First New England, MorAmerica and NDSBIC are hereinafter sometimes collectively referred to as the "Investors" and individually as an "Investor"), CENTRUM INDUSTRIES, INC., a Delaware corporation having its principal place of business at 6135 Trust Drive, Suite 104A, Holland, Ohio 43528 (the "Company"), and the individuals and entities whose signatures appear at the end of this Agreement (the "Existing Shareholders") (the Investors and the Existing Shareholders are hereinafter sometimes collectively referred to as the "Equity Holders"). RECITALS The following facts set forth the background to this Agreement: A. Simultaneously with the execution of this Agreement, the Company is entering into a Note and Warrant Purchase Agreement with the Investors (the "Purchase Agreement") providing for the issuance by the Company to each Investor of an 11% Convertible Subordinated Note due March 31, 2001 (each a "Note", and collectively, the "Notes"), aggregating $2,500,000 in principal amount and one or more warrants (each a "Warrant", and collectively, the "Warrants") to purchase a certain number of the shares of common stock of the Company. B. As part of the transaction, the Company and the Investors are also entering into a Put Agreement (the "Put Agreement") relating to the transfer of the Warrants and the Securities (as such term is defined in the Put Agreement) between the Company and the Investors. C. The Company, the Investors and the Existing Shareholders desire to set forth certain understandings regarding the management of the Company and the transfers of Securities or other securities of the Company. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the Company and the Investors agree as follows: 1. Management of the Company 1.1 (a) Each of the Equity Holders agrees that from and after the date hereof such Equity Holder will vote (or cause to be voted) all of the voting stock of the 2 Company owned or held of record by such Equity Holder in favor of the election and continuation in office of a Board of Directors consisting of not less than eight and not more than nine members, one (1) of which shall be designated by First New England (or its successors or assigns) and one (1) of which shall be designated jointly by MorAmerica and NDSBIC (or their respective successors and assigns). Each such designee shall, in the reasonable judgment of the Investor designating such designee, be qualified to serve on such Board of Directors. (b) The Company and the Equity Holders each agrees that it will use its best efforts to cause the election of any Board member designated by the Investors pursuant to Section 1.1(a) hereof (an "Investor Candidate") at each annual or special meeting of the Company's shareholders at which directors are to be elected, including but not limited to the following: (i) the Company shall cause the name of each Investor Candidate to be included in the slate of directors submitted to the Company's shareholders for approval at such annual or special meeting; and (ii) the Company shall, in its proxy solicitation materials and other communications to its shareholders in connection with such meeting, recommend that shareholders vote "for" each of the Investor Candidates. (c) The Company shall use its best efforts to cause its Board of Directors to designate a Compensation Committee and an Audit Committee, to the extent and only to the extent that such committees have not heretofore been designated by the Board of Directors. and to appoint one (1) of the Investor Candidates on each of the Compensation Committee and Audit Committee of the Board of Directors. 1.2 The Company shall use its best efforts in accordance with Section 1.1 hereof to cause the election as a director of the Company of each director then serving and previously designated pursuant to Section 1.1 if such director is still eligible to serve as a director unless the Investor that designated such person designates another person as its director designee. No Equity Holder shall vote to remove any member of the Board of Directors designated in accordance with Section 1.1 or this Section 1.2 unless the Investor that designated such person so votes and then the other Equity Holders shall likewise so vote. 1.3 Each Equity Holder hereby grants to and is deemed to have executed in favor of First New England, MorAmerica or NDSBIC, as the case may be, a proxy to vote all of the voting stock of the Company owned by the grantor of the proxy for the election to the Board of Directors of the Company of the Investor Candidates designated by First New England or MorAmerica and NDSBIC, as the case may be, in accordance with Sections 1.1 and 1.2. This proxy is coupled with an interest and is irrevocable by the Equity Holders during the term of this Agreement. 1.4 The Board of Directors shall meet at least quarterly during the term of the Notes, provided, however, that upon the occurrence and continuation of an Event of Default under the Purchase Agreement, the Requisite Interest of Investors may elect to require that the Board of Directors meet at least once every month. The Investors shall be entitled to at least fourteen (14) days' advance written notice of each regularly scheduled meeting of the Board of -2- 3 Directors or the shareholders of the Company. Emergency meetings of the Board of Directors may be scheduled with reasonable advance notice of such meetings. 1.5 (a) The reasonable out-of-pocket costs and expenses incurred by any Investor Candidate in performing his or her duties as a member of the Board of Directors of the Company, including but not limited to reasonable travel and lodging costs incurred in connection with attending meetings of the Board of Directors and stockholders of the Company, shall be reimbursed by the Company promptly upon submission of written invoices therefor documenting such costs and expenses in reasonable detail. In addition, (i) if at any time one of the positions on the Board of Directors reserved for the Investors pursuant to Section 1.1 hereof are not occupied, the Company shall reimburse any and all reasonable out-of-pocket costs and expenses, including but not limited to reasonable travel and lodging costs, incurred by not more than one (1) alternate director or other representative of the Investors in attending any meeting of the Board of Directors and the stockholders of the Company, and (ii) if at any time both of the positions on the Board of Directors reserved for the Investors pursuant to Sections 1.1 and 1.2 hereof are not occupied, the Company shall reimburse any and all reasonable out-of-pocket costs and expenses, including but not limited to reasonable travel and lodging costs, incurred by not more than two (2) alternate directors or other representatives of the Investors in attending any meeting of the Board of Directors and the stockholders of the Company. (b) Each Investor who is not represented on the Board of Directors by an Investor Candidate designated pursuant to Section 1.1 or Section 1.2 as a member of such Board shall have the right to designate an observer to attend meetings of the Company's directors and stockholders. Each such observer shall receive notice of all meetings and access to all information provided the members of the Board of Directors or stockholders, as the case may be, and, subject to Section 1.5(a), shall be permitted to attend such meetings at the expense of the Company, provided that the Company shall not be required to bear such expenses for more than two (2) observers in connection with each such meeting. 1.6 The Company and the Equity Holders agree that members of the Board of Directors shall not be compensated for their services, but each such member and each designee under Section 1.5 hereof shall be reimbursed for all of his/her reasonable expenses incurred in connection with his/her attendance at meetings of the Board of Directors. 1.7 For purposes of this Agreement, a "Requisite Interest" at any time means the Investors owning one hundred percent (100%) of the Total Shares (as defined in the Put Agreement) at such time. 2. Director Indemnification. In the event that any director contemplated by this Agreement shall be made or threatened to be made a party to any action, suit or proceeding with respect to which he may be entitled to indemnification by the Company pursuant to its Certificate of Incorporation or otherwise, he shall be entitled to be represented in such action, suit or proceeding by counsel of his choice and the reasonable expenses of such representation shall be -3- 4 reimbursed by the Company to the extend provided in or authorized by said Certificate of Incorporation or other provision and permitted by applicable law. 3. Option to Participate in Change of Control. 3.1 If at any time after February 28, 1999, either (a) the Company receives a bona fide offer to engage in a "Change in Control Event" (as defined in the Put Agreement), or (b) any of the Equity Holders receives a bona fide offer to engage in a "Change in Control Event" (as deemed in the Put Agreement), then: (i) the Company or such Equity Holder, as the case may be, shall deliver prompt written notice of the same to the Investors and all other parties to this Agreement, which notice shall set forth in reasonable detail the identity of the offeror and the terms and conditions of such offer; (ii) if within forty-five (45) days after receiving such notice, a Requisite Interest of the Investors notifies the Company and the Equity Holders in writing that the Investors desire to give effect to this Section 3.1, then the Company shall, at its option, subject to the requirements of applicable law, either (x) take all necessary and appropriate corporate action to accept the bona fide offer or otherwise consummate the Change in Control Event, or (y) purchase, within fourteen (14) days after receiving such written notice, all of the Warrants and Securities then outstanding for a purchase price per share and upon the same terms and conditions as such bona fide offer; and (iii) in the event that a Change of Control Event to be consummated pursuant to clause (x) of Section 3.1(ii) shall result in a sale, transfer or exchange of less than all of the voting stock of the Company (whether through sale, merger, consolidation or otherwise), each Investor shall participate in the sale, transfer or exchange pursuant to the Change of Control Event on a pro rata basis, based upon a fraction, (a) the numerator of which is the sum of (I) the number of shares of Warrant Issuable Stock (as defined in the Put Agreement) for all Warrants held by it, plus (II) the number of shares of all Securities held by it, and (b) the denominator of which is the total number of shares of voting stock to be sold pursuant to such Change of Control Event. The failure of a Requisite Interest of the Investors to notify the Company in writing of the Investors' desire to give effect to this Section 3.1 within such forty-five (45) day period shall be deemed a waiver by the Investors of this Section 3.1 solely with respect to such Change of Control Event. 4. Participation in Senior Management Compensation. (a) In any Change in Control Event, whether or not Section 3.1 hereof is applicable and, if applicable whether or not the Investors have elected to give effect to the provisions of such Section 3.1, each Investor shall be entitled to receive from the Company, in addition to any other consideration which the Investors may receive in such Change in Control Event, an amount equal to the product of (i) -4- 5 the aggregate amount, discounted to present value using a discount rate equal to the rate of interest on the Notes, of "Excess Compensation" (as defined below) to be received by the Company's "Senior Management" (as defined below) on and after the date such Change in Control Event is consummated (the "Closing Date"), multiplied by (ii) a fraction, (A) the numerator of which is the sum of (I) the number of shares of Warrant Issuable Stock for all Warrants held by such Investor, plus (II) the number of shares of Securities held by such Investor, in each case immediately prior to the Closing Date, and (B) the denominator of which is the sum of (I) the number of shares of the Company's common stock issued and outstanding (including, without limitation, all Securities), plus (II) the number of shares of Warrant Issuable Stock, in each case immediately prior to the Closing Date. Such amount shall be payable to the Investors on the Closing Date. (b) For purposes of this Agreement: (i) "Excess Compensation" means the aggregate compensation and remuneration (including but not limited to deferred compensation payable in any calendar year after the calendar year in which the Closing Date occurs), other than "Excluded Compensation" (as defined below), to be received by Senior Management on and at any time after the Closing Date, discounted to present value at a discount rate equal to the rate of interest on the Notes; (ii) "Excluded Compensation" means an amount equal to the annual base salaries and bonuses actually received by Remaining Senior Management during the twelve (12) months immediately preceding the Closing Date; (iii) "Remaining Senior Management" shall mean members of Senior Management who, pursuant to written, non-contingent employment agreements between each such member and the Company or its successor-in-interest will remain employed by the Company or such successor-in-interest on a full-time basis for a period of at least twelve months following the Closing Date; and (iv) "Senior Management" means any of the Company's officers, any of the Company's directors, and any of the Company's employees owning two (2%) percent or more of the issued and outstanding common stock of the Company, in each case during the twelve (12) months immediately prior to the Closing Date. 5. Legally Available Funds. (a) If the Company is obligated to make any payment to any Investor pursuant to Sections 3 or 4 hereof (each a "Participation Payment" and collectively the "Participation Payments"), the failure of the Company to have sufficient funds legally available to make any such Participation Payment shall not excuse the Company's failure to make such Participation Payment in accordance with the terms of this Agreement, and the Company shall be and remain liable for the full amount of all sums payable in accordance with the terms hereof until paid in full. However, the provisions of this Section 5 shall not be construed so as to require the -5- 6 Company to make any Participation Payment other than out of funds legally available therefor under Delaware law; accordingly, if the Company does not at the time such Participation Payment is payable have sufficient funds legally available for such Participation Payment, then the Company shall use those funds that are legally available to partially make such Participation Payment. In the event that a Participation Payment is payable to more than one Investor, all partial payments of Participation Payments shall be made pro rata among the Investors, based upon the allocation formula given in subsection (b) of this Section 5. At any time thereafter when additional funds of the Company become available, the Company will immediately use such funds to pay all unpaid portions of Participation Payments. Such payment of unpaid Participation Payments shall be made pro rata among the Investors in accordance with the formula given in subsection (b) hereof below to the extent that legally available funds are not then available to fully satisfy all unpaid Participation Payments. (b) In the event of any required pro rata payment of Participation Payments among the Investors in accordance with the provisions of subsection (a) of this Section 5, the amount of such pro rata payment to be made to each Investor entitled thereto shall be the product of (i) the amount of legally available funds, multiplied by (ii) a fraction, (A) the numerator of which is the amount of the unpaid Participation Payment owing to such Investor, and (B) the denominator of which is the total unpaid Participation Payments owing to all Investors. (c) If the Company is obligated to make Participation Payments, and if the Company does not have sufficient funds legally available therefore, then the Company shall take any and all action necessary to increase its legally available funds to an amount sufficient therefore, subject, however, to the terms and conditions of the Finance Documents. 6. Notices. Whenever any party hereto desires or is required to give any notices, demand, or request with respect to this Agreement, each such communication shall be in writing and shall be effective only if it is delivered by personal service or delivered by a nationally recognized overnight courier, in each case addressed to the parties hereto at their respective addresses set forth in the Purchase Agreement or set forth beneath such party's signature at the end of this Agreement. Any party may change its address for such communications by giving notice thereof to the other party in conformity with this Section. 7. Assignment; Binding Effect; Definitions. Each Investor's rights hereunder may be assigned to any person or entity to whom the Notes, Warrants or Securities are legally transferred. This Agreement shall be binding on the parties hereto and their respective legal representatives, successors and assigns and on the transferees of any Securities now owned or hereafter acquired by them, and shall inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. Terms herein defined in the singular number shall include the plural, and terms defined in the plural number shall include the singular number, as the context may require. The neuter gender shall also denote the masculine and the feminine where the context so permits. The headings in this Agreement are for purposes of reference only and shall not be considered in construing this Agreement. -6- 7 8. Entire Agreement; Amendment and Waiver. This Agreement contains the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior negotiations, commitments, agreements and understandings heretofore had between them with respect thereto. This Agreement may be amended, and compliance with any provisions of this Agreement may be omitted or waived, by the written agreement of all parties. A waiver on one occasion shall not constitute a waiver on any further occasion. 9. Counterparts; Signatories. This Agreement may be executed in more than one counterpart, each of which shall be deemed to be an original and all of which, together, shall constitute one and the same instrument. Each of the parties hereto agrees that its respective obligations hereunder are not contingent upon the execution of this Agreement by all intended parties hereto. In the event that not all of the intended parties hereto execute this Agreement, this Agreement shall nonetheless be legal and binding upon, and enforceable in accordance with its terms against, each party hereto who has executed a counterpart to this Agreement. 10. Applicable Law. This Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of Delaware, including but not limited to the General Corporation Law of the State of Delaware, without regard to its conflict of law rules. 11. Legend. Each certificate for Securities shall bear a legend stating in substance as follows: The shares of stock represented by this certificate are subject to the terms and provisions of an Equity Holders' Agreement dated as of February 29, 1996 among the Company and certain holders of capital stock of the Company, as amended. The Company will furnish a copy of the Equity Holders' Agreement to the holder hereof upon written request and without charge. 12. Specific Enforcement. The Company acknowledges and agrees that the recovery of money damages will not constitute an adequate remedy for breach of the provisions of this Agreement. Accordingly, the Company agrees that the provisions of this Agreement may be specifically enforced against the Company (in addition to any other remedies available for breach of this Agreement); and the Company hereby waives the defense in any equitable proceeding that there is an adequate remedy at law for any such breach. 13. Termination. The provisions of this Agreement shall terminate upon (i) payment in full of all obligations due under the Notes and (ii) either (A) the expiration of the Warrants (whether as a result of the full exercise thereof or by the teens thereof) or (B) the date upon which the shares issuable upon the full exercise of the Warrants is less than ten percent (10%) of the total shares issuable upon the full exercise of the Warrants on the date of this Agreement. -7- 8 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. CENTRUM INDUSTRIES, INC. By: /s/ George H. Wells ------------------- George Wells Its President -8- 9 FIRST NEW ENGLAND CAPITAL LIMITED PARTNERSHIP By: FINEC Corp., its General Partner By: -------------------------------- Richard Klaffky Its President (Duly Authorized) MORAMERICA CAPITAL CORPORATION By: InvestAmerica Investment Advisors, Inc. its Investment Adviser By: /s/ David Schroder ----------------------------- David Schroder, its President (Duly Authorized) -9- 10 NORTH DAKOTA SMALL BUSINESS INVESTMENT COMPANY, A NORTH DAKOTA LIMITED PARTNERSHIP By: InvestAmerica ND Management, Inc., its Investment Adviser By: /s/ David Schroder ----------------------------------- David Schroder, its President (Duly Authorized) --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -10- 11 FIRST NEW ENGLAND CAPITAL LIMITED PARTNERSHIP By: FINEC Corp., its General Partner By: /s/ Richard Klaffky -------------------------------- Richard Klaffky Its President (Duly Authorized) MORAMERICA CAPITAL CORPORATION By: InvestAmerica Investment Advisors, Inc., its Investment Adviser By: ----------------------------- David Schroder, its President (Duly Authorized) NORTH DAKOTA SMALL BUSINESS INVESTMENT COMPANY, A NORTH DAKOTA LIMITED PARTNERSHIP By: InvestAmerica ND Management, Inc., its Investment Adviser By: /s/ David Schroder -------------------------------------- David Schroder, its President (Duly Authorized) --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -11- 12 /s/ George H. Wells George H. Wells --------------- Name (Print): Address: 10707 Obee Road Whitehouse, OH 43571 ---------------------------------- ---------------------------------- /s/ John R. Ayling John R. Ayling -------------- Name (Print): Address: --------------------------- 1400 Rivercrest Perrysburg, OH 43551 ----------------------------------- /s/ David L. Hart ----------------- Name (Print): David L. Hart Address: --------------------------- 2520 Middlesex Dr. Toledo, OH 43606 ----------------------------------- /s/Thomas E. Seiple ------------------- Name (Print): Thomas E. Seiple Address: 26570 Carrington Blvd. Perrysburg, Ohio 43551 ----------------------------------- /s/ William C. Davis -------------------- Name (Print): William C. Davis Address: --------------------------- ----------------------------------- ----------------------------------- ----------------------------------- -12- 13 --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- /s/ Robert J. Fulton -------------------- Name (Print): Robert J. Fulton Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -13- 14 --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -14- 15 --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -15- 16 --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -16- 17 --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -17- 18 --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -18- 19 --------------------------------- Name (Print): Address: ------------------------- --------------------------------- --------------------------------- --------------------------------- -19- EX-10.3 8 EX-10.3 1 EXHIBIT 10.3 CENTRUM INDUSTRIES, INC. $2,500,000 Debt and Equity Financing ______________________________________________ Note And Warrant Purchase Agreement ______________________________________________ Dated as of February 29, 1996 and Effective as of March 8, 1996 2 TABLE OF CONTENTS I. THE NOTES AND THE WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Issuance and Sale of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Prepayment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 The Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Performance; No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.4 Certificate of Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 Tax Clearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.7 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.8 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.9 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.10 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.11 Sale of Other Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.12 Processing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.13 Payment of Counsel Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.14 Changes in Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.15 Absence of Adverse Change or Litigation . . . . . . . . . . . . . . . . . . . . . . . 4 2.16 Infusion of Equity; Bridge Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.17 Subordination of Certain Existing Debt . . . . . . . . . . . . . . . . . . . . . . . 5 2.18 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 III. REPRESENTATIONS AND WARRANTIES OF CENTRUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.1 Organization, Standing, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.3 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.6 Material Adverse Changes, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.7 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.8 Existing Indebtedness, Liens, Investments and Transactions with Affiliates . . . . . 7 3.9 Title and Condition of Properties; Liens . . . . . . . . . . . . . . . . . . . . . . 7 3.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.11 Patents' Copyrights, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.12 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.13 Litigation; Observance of Agreements, Statutes and Orders, etc. . . . . . . . . . . . 9 3.14 Authorization and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.15 Compliance with Other Instruments, etc. . . . . . . . . . . . . . . . . . . . . . . . 9 3.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3 3.17 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.18 Deferred Compensation Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.19 Governmental Consent, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.20 Offer of Notes and Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.21 Investment Company Act Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.22 Regulation U, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.23 Foreign Credit Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.24 Brokers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 IV. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.2 Financial Statements and Information . . . . . . . . . . . . . . . . . . . . . . . . 14 4.3 Material Events and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.4 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.5 Books of Record and Account; Reserves . . . . . . . . . . . . . . . . . . . . . . . . 17 4.6 Payment of Taxes; Corporate Existence; Maintenance of Properties; Compliance with Laws; Lines of Business; Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.8 Payment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.9 Attendance at Directors' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.10 "C" Corporation Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.12 Management Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.13 Management Succession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.14 Directors' and Officers' Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.15 Environmental Compliance and Identification . . . . . . . . . . . . . . . . . . . . . 20 4.16 NASDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.17 Micafil and American Handling Disclosure . . . . . . . . . . . . . . . . . . . . . . 21 4.18 McInnes Steel, et al. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.19 Anti-Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 V. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.1 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.2 Ratio of Total Liabilities to Net Worth . . . . . . . . . . . . . . . . . . . . . . . 26 5.3 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.1 Restriction on Dividends. Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.2 Limitation on Loans, Advances and Investments . . . . . . . . . . . . . . . . . . . . 27 6.3 Restrictions on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6.4 Restriction on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 6.5 Restrictions on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.6 Limitation on Transactions with Affiliates and Others . . . . . . . . . . . . . . . . 31 6.7 Limitation on Acquisitions and Mergers . . . . . . . . . . . . . . . . . . . . . . . 31 6.8 Lines of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4 6.9 Incentive Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 VII. DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 7.1 Events of Default Defined; Acceleration of Maturity . . . . . . . . . . . . . . . . . 32 7.2 Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.3 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.4 Remedies Not Waived . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.5 Notice of Action by Noteholders or Claimed Defaults . . . . . . . . . . . . . . . . . 34 VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8.1 Registration, Transfer and Exchange of Notes and Warrants . . . . . . . . . . . . . . 34 8.2 Replacement of Lost, Stolen, Destroyed or Mutilated Notes or Warrants . . . . . . . . 35 8.3 Amendment and Waiver; Offer to Purchase Notes . . . . . . . . . . . . . . . . . . . . 36 8.4 Method of Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 8.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 8.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 8.7 Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 8.8 Survival of Agreements, Representations and Warranties, etc.. . . . . . . . . . . . . 38 8.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.10 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.12 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.13 Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 8.14 Prejudgment Remedy Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 8.15 Limitation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 8.16 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5 NOTE AND WARRANT PURCHASE AGREEMENT Dated as of February 29, 1996 Effective as of March 8, 1996 To each of the Investors named in Exhibit A (the "Investors") Ladies and Gentlemen: Centrum Industries, Inc., a Delaware corporation ("Centrum") and each of its direct Subsidiaries named in Exhibit A-1 (with Centrum, collectively the "Companies" and individually a "Company"), hereby agrees with you as follows: I. THE NOTES AND THE WARRANTS 1.1 Issuance and Sale of Notes. (a) Centrum has authorized the issue and sale of its 11% Subordinated Convertible Notes due March 31, 2001 (together with any note issued in exchange therefor or replacement thereof, the "Notes"), in the aggregate principal amount of $2,500,000. The Notes are to be in such form and bear interest and be payable on such terms as are prescribed in Section 1.1(b) hereof. Simultaneously with the execution hereof, Centrum is issuing and selling to you Notes in the principal amount set forth opposite your name on Exhibit A annexed hereto. The purchase price of the Notes is the face amount thereof and, simultaneously herewith, each of you is paying the purchase price for the Note that you are purchasing by wire transfer of funds to an account of Centrum. (b) The Notes will be in the form of Exhibit B annexed hereto. The Notes will bear interest from the date hereof at the rate of 11% per annum, payable monthly on the last day of each month, commencing on March 31, 1996 and at maturity. Upon the occurrence and during the continuation of a Default or Event of Default hereunder, interest shall accrue on the outstanding principal amount and all other indebtedness hereunder at the rate of 14% per annum. Further, in the event that Centrum for any reason (including the operation of the Subordination Agreement (as defined in Section 8.12 hereof)) fails to pay any regularly scheduled installment of interest within ten (10) days after the date it is due and payable, without in any way affecting any right of any holder of a Note to declare an Event of Default to have occurred, a late charge equal to five percent (5%) of the unpaid amount shall be assessed against Centrum for each month that said amount is late, and shall be immediately due and payable without demand or notice of any kind. The minimum late charge shall be $15.00. (c) The Notes shall be convertible into common shares of Centrum in accordance with the terms set forth in the Notes and in the Warrants (hereinafter defined). 6 1.2 Prepayment of Notes. The Notes may be prepaid in whole at any time, or in part from time to time, together with all accrued but unpaid interest as of the date of such prepayment, without premium or penalty, provided that the minimum aggregate amount of principal that may be repaid on any occasion is $100,000. Prepayments shall be applied first to interest accrued to the date of prepayment and then to principal payments due in inverse order of maturity. In the event of prepayment of less than the whole of all Notes, the amount of the prepayment shall be allocated to, and shall be paid on account of, each Note in the proportion which the original principal amount thereof bears to the original principal amount of all Notes. 1.3 The Warrants. (a) Simultaneously with the execution hereof, Centrum is issuing and delivering to you warrants in the form of Exhibit C attached hereto, exercisable at an exercise price of $2.00 per share, for an aggregate of 1,250,000 shares (subject to adjustment as more particularly described in such warrants) of the Common Stock (as defined in such warrants) of Centrum on a fully diluted basis (together with any warrants issued pursuant to Section 4.19 hereof, the "Warrants"). The aggregate purchase price of the Warrants is $25.00 and, simultaneously herewith, each of you is paying the purchase price for the Warrants that you are purchasing by wire transfer of funds. Such Warrants are exercisable not later than March 8, 2004. (b) Centrum and the Investors, having adverse interests and as a result of arm's length bargaining, agree that (i) none of the Investors nor any of their affiliates has rendered or has agreed to render any services to Centrum in connection with this Agreement or the issuance of the Notes and Warrants; (ii) the Warrants are not being issued as compensation; and (iii) the aggregate fair market value of the Warrants is $25.00. Centrum and the Investors recognize that this Agreement determines the original issue discount to be taken into account with respect to the Notes and they agree to adhere to this Agreement for such purposes. (c) Simultaneously with the execution hereof, Centrum is entering into a Put Agreement with you providing the terms and conditions upon which you shall have the right to require Centrum to purchase the Warrants and the Securities. 1.4 Definitions. Certain capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in Section 8.12 hereof. II. CONDITIONS TO CLOSING Your obligation to purchase and pay for the Notes and the Warrants to be sold to you at the closing of the transactions described in the Agreement (the "Closing") is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 2.1 Representations and Warranties. The representations and warranties of Centrum in this Agreement shall be correct when made and at the time of the Closing. 2 7 2.2 Performance; No Default. Each Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes and the Warrants (and the application of the proceeds thereof as contemplated by Schedule 4.1) no Default or Event of Default shall have occurred and be continuing. 2.3 Compliance Certificates. (a) Officer's Certificate. Each Company shall have delivered to you a Certificate, executed by the President of such Company and dated the date of the Closing, certifying that (i) the conditions specified in Sections 2.1 and 2.2 have been fulfilled and (ii) such Company is not in default and no waiver of default is currently in effect with respect to any obligations relating to any Indebtedness of such Company, and no event has occurred or condition exists and is continuing with respect to any such Indebtedness that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Secretary's Certificate. Each Company shall have delivered to you a certificate executed by the Secretary of such Company, certifying as to the resolutions, articles of incorporation or certificate of incorporation, as applicable, and by-laws of such Company attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes, Warrants and the other Finance Documents. 2.4 Certificate of Good Standing. Each Company shall have delivered to you the certificate of incorporation (certified by the Secretary of the State of its jurisdiction of incorporation) and bylaws of such Company together with certificates of good standing with respect to such Company issued by the Secretary of State of each jurisdiction in which the nature of its business requires it to be qualified to do business. 2.5 Tax Clearance. Each Company shall have delivered to you a tax clearance letter from the Department of Revenue of each jurisdiction described in Section 2.4 relating to such Company. 2.6 Opinions of Counsel. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing from Fuller & Henry, covering such matters incident to the transactions contemplated hereby and incident to the Reorganization Plan as you or your counsel may request. 2.7 Environmental Matters. Centrum shall have delivered to you such environmental assessment reports as requested by you, and such reports shall be satisfactory to you in all respects, and you shall have conducted and completed all environmental due diligence reviews and examinations of the Companies. 3 8 2.8 Guaranty. You shall have received the guaranty of each Company other than Centrum in your favor, in form and substance satisfactory to you in all respects. 2.9 Due Diligence. You shall have completed your customary due diligence and the results thereof shall be satisfactory to you in all respects. 2.10 Approvals. You shall have obtained all necessary or appropriate approvals from your Executive Committees or Boards of Directors to consummate the transactions contemplated herein pursuant to the terms and conditions contained in this Agreement and the other Finance Documents. 2.11 Sale of Other Notes. Contemporaneously with the Closing Centrum shall sell to each of the Investors and each of the Investors shall purchase the Notes and Warrants to be purchased by them at the Closing. 2.12 Processing Fees. In addition to the processing fees previously paid to you, Centrum shall have paid First New England Capital Limited Partnership the remaining portion of the processing fee due it in the amount of $15,000 and shall have paid InvestAmerica Investment Advisors, Inc. for allocation between MorAmerica Capital Corporation and North Dakota Small Business Investment Company, a North Dakota Limited Partnership the remaining portion of the processing fees due them in the amount of $10,000. 2.13 Payment of Counsel Fees. Without limiting the provisions of Section 8.5, Centrum shall have paid on or before the Closing the fees, charges and disbursements of your counsel to the extent reflected in a statement of such counsel rendered to Centrum at the Closing, provided that Centrum shall not be required to pay more than $50,000 of such fees, but you shall be required to pay all of such charges and disbursements, even if the amount thereof, when combined with such fees, would exceed $50,000. 2.14 Changes in Corporate Structure. Each Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Section 3.5, except in accordance with the terms set forth in the Reorganization Plan. 2.15 Absence of Adverse Change or Litigation. There has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise of the Companies taken as a whole, from that set forth in the most recent financial statements and pro forma financial statements previously delivered to you. There is no action, proceeding or investigation pending or threatened (nor any basis therefor known to Centrum) (a) against the Companies, (b) against any other Person that might result, either in any case or in the aggregate, in any material adverse change in the condition (financial or otherwise), or the operations, management or prospects of any Company or in its material properties and assets, or in any 4 9 material liability on the part of any Company, or that challenges, or seeks to prevent, the transactions contemplated in this Agreement or in the Reorganization Plan. 2.16 Infusion of Equity; Bridge Notes. Prior to or contemporaneously with the Closing, Centrum shall have raised and received at least $1,900,000 in new capital, at lease $700,000 of which shall be from the purchase of Common Stock pursuant to the offering described in the Confidential Private Placement Memorandum of Centrum dated November 15, 1995, and the remainder of which shall be in the form of bridge loans from current shareholders of Centrum or from other individuals, which bridge loans shall be unsecured and shall be subordinated to the Notes pursuant to subordination agreements containing terms and conditions satisfactory to the Investors in their sole discretion. 2.17 Subordination of Certain Existing Debt. Prior to or contemporaneously with the Closing, Centrum shall have obtained from the Persons listed in the sections of Schedule 3.8 entitled "Loans" and "Loans with Warrants" and representing at least $700,000 of the aggregate principal amount of Indebtedness described in such sections, a subordination agreement in favor of the Investors with respect to such Indebtedness in form and substance satisfactory to the Investors. 2.18 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions, including with limitation the Finance Documents, shall be satisfactory to you and your counsel, and you and your counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. III. REPRESENTATIONS AND WARRANTIES OF CENTRUM To induce you to purchase the Notes and the Warrants, Centrum represents and warrants to you as to itself and, with respect to each other Company, to the best of its knowledge and subject to the provisions of Section 4.17, (which representations and warranties shall survive the delivery of the Notes and the Warrants) that: 3.1 Organization, Standing, etc. Each Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite corporate power and authority to own, lease and operate its properties, to carry on its business as now conducted and now proposed to be conducted, to execute, deliver and enter into the Finance Documents, to issue and sell the Notes and Warrants and to perform and carry out the terms of the Finance Documents. 3.2 Subsidiaries. On the date hereof, and following the consummation of the transactions contemplated in the Reorganization Plan, Centrum has no direct or indirect Subsidiaries other than as set forth in Schedule 3.2, attached hereto. 5 10 3.3 Qualification. Each Company is duly qualified or licensed to do business and in good standing in each jurisdiction in which the character of the properties owned or leased or the nature of the activities conducted makes such qualification or licensing necessary. 3.4 Capital Stock. (a) Schedule 3.4 attached hereto sets forth the authorized capital stock of each Company and the number of shares of each class of such authorized capital stock that are issued and outstanding. All outstanding shares of capital stock of the Companies other than Centrum are owned of record and beneficially as set forth in Schedule 3.4 and the owners of record and beneficially of more than five percent (5%) of the outstanding capital stock of Centrum are set forth in Schedule 3.4. Except as set forth on Schedule 3.4 and except for the Warrants and the Notes, there are no authorized or outstanding rights, options, warrants or agreements for the purchase from, or sale or issuance by, the Companies of any capital stock or securities convertible into or exchangeable for capital stock. (b) All of the outstanding shares of capital stock of the Companies are validly issued and outstanding, fully paid and non-assessable and not subject to preemptive rights on the part of the holders of any class of securities of such Company. Except for the Warrants and the Notes and as set forth in Schedule 3.4, Centrum has no obligations or commitments to issue any capital stock to Centrum tn any employee or other person. (c) Centrum has duly reserved for issuance all Securities issuable upon exercise of the Warrants and conversion of the Notes, and the Securities, when issued in accordance with the terms of the Warrants and the Notes, will be validly issued and outstanding, fully paid, and nonassessable, with no personal liability attaching to the ownership thereof. 3.5 Financial Statements. You have been furnished with (a) audited financial statements for the years, 1994 and 1995, inclusive for Centrum, (b) management prepared internal financial statements for the nine months ended December 31, 1995 for Centrum, and (c) audited financial statements for the years 1993 through 1994 for McInnes Steel. All such financial statements present fairly the financial position of the Companies and McInnes Steel for the respective periods indicated. You have also been furnished with financial projections for the Companies for the years 1996 through 2002, dated as of February 4, 1996; such projections are made in good faith, and are based on factual assumptions which Centrum believes to be reasonable in light of the economic, market, financial, political and other information available to Centrum on February 4, 1996. 3.6 Material Adverse Changes, etc. Since December 31, 1995, (a) there has been no change in the assets, liabilities, financial condition or prospects of the Companies that, either in any case or in the aggregate, has been materially adverse to the Companies; and (b) none of the condition (financial or otherwise), operations, management or prospects of the Companies nor any of their respective material properties or assets have been affected by any occurrence or development (whether or not insured against) which has materially adversely affected the 6 11 Companies. Each Company is not insolvent; and, immediately after giving effect to the issuance of the Notes and the Warrants and the consummation of the transactions contemplated hereby, and by the Reorganization Plan, each Company will not be insolvent. 3.7 Tax Returns and Payments. Each Company has properly prepared and filed (subject to any properly claimed extensions) all tax returns required by law to be filed and has paid all taxes (including installments of estimated taxes), assessments and other governmental charges levied upon any of its properties, assets, income or franchises, other than those not yet delinquent. Each Company has duly withheld and collected all taxes, levies and other assessments that it is required by law to withhold or to collect and has held for payment or paid over such withheld amounts to the proper governmental authorities as required by law. The charges, accruals and reserves on the books of each Company in respect of federal, state or other taxes for all fiscal periods are adequate. Each Company has not executed any waiver or waivers that would have the effect of extending the applicable statute of limitations in respect of income tax liabilities. Each Company knows of no unpaid assessments for additional taxes for any fiscal period nor of any basis therefor. Each Company is not being audited or challenged for any federal or state income tax liability for any period by the Internal Revenue Service or any state taxing authority. 3.8 Existing Indebtedness, Liens, Investments and Transactions with Affiliates. Schedule 3.8 attached hereto correctly describes as of the date hereof (a) all outstanding Indebtedness of the Companies in respect of Borrowed Money, (b) all mortgages, pledges, Liens, security interests, leases, charges and encumbrances to which any of the properties and assets of each Company are subject, (c) all loans, advances and Investments of each Company, and (d) all transactions with Affiliates of each Company. Each Company is not in default and no waiver of default is currently in effect in the payment of the principal of or interest on any Indebtedness. No waiver of default is currently in effect with respect to any other obligations relating to any Indebtedness of each Company. No event has occurred or condition exists and is continuing with respect to any Indebtedness of any Company that would permit (or that with notice or the lapse of time, or both, would permit) one or more persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. 3.9 Title and Condition of Properties; Liens. (a) Each Company has and, upon consummation of the transactions contemplated by this Agreement, each Company will continue to have good and marketable title to all of its properties and assets and such properties or assets are not and will not be upon consummation of the transactions contemplated by this Agreement subject to any material mortgage, pledge, Lien, security interest, lease, charge or encumbrance except for Liens in favor of Huntington and as described in Schedule 3.9. (b) Except as set forth in Schedule 3.9, none of the properties or assets of the Companies are held under or subject to any lease (except for leasehold improvements that have 7 12 been or are being amortized in accordance with applicable provisions of the Code) or as conditional vendee under any conditional sale or other title retention agreement. Each Company enjoys peaceful and undisturbed possession under all leases under which it operates, and all of such leases are valid, subsisting and in full force and effect. None of such leases contains any provision restricting incurrence of Indebtedness by the lessee, or any unusual or burdensome provision that materially adversely affects or in the future may (so far as Centrum can now foresee) materially adversely affect the operations of the Companies. (c) Without material exception, all assets used in the business or operations of the Companies are in good operating condition and repair, and suitable for use in the operation of the Companies, and none of said assets that (singly or when aggregated with other assets) is material to the business or operations of the Companies is obsolete. 3.10 Insurance. Except as set forth on Schedule 3.10, each Company carries insurance covering its properties and business against loss from fire and all other hazards and risks of the character usually insured against by similar companies, and in such amounts as is customary for the type and scope of its properties and business. 3.11 Patents, Copyrights, etc.. Except as set forth on Schedule 3.11, no patents, copyrights, trade names, trademarks, service marks, or non-governmental licenses ("Intellectual Property Rights") are material to the conduct of the business of the Companies as now or as proposed to be conducted. Each Company owns or has the full right to use all such material Intellectual Property Rights set forth on Schedule 3.11. Centrum has no knowledge, and has not received any notice to the effect, that the manner in which each Company conducts or proposes to conduct its business (including the use of any name, process, method, or know-how) may infringe or conflict with the Intellectual Property Rights of others. 3.12 Material Contracts. Except as set forth on Schedule 3.12, each Company is not a party to or obligated under, and none of the business, properties or assets of any Company is subject to: (a) any contract for the construction or purchase of capital improvements, or for the purchase of any materials, supplies, or equipment, involving the expenditure of more than $50,000; (b) any employment, consulting, management, or noncompetition agreement not terminable at will without liability on less than 30 days notice; (c) any bonus, pension, retirement, profit sharing or other plan or agreement providing for employee benefits other than group health insurance, sick pay, and vacation pay plans for employees generally; (d) any license, franchise, or similar agreement; 8 13 (e) any mortgage, indenture, note, guarantee or other obligations for or relating to Borrowed Money other than in favor of Huntington, or, in the case of Micafil, Inc., in favor of Asea Brown Boveri, Inc.; (f) any contract with any labor union or association of employees; (g) any Guaranty, other than in favor of Huntington; (h) any agreement, contract, or commitment that is expected by such Company to be performed at or result in a loss, or which materially and adversely affects the financial condition, business, properties, or assets of such Company or the Companies taken as a whole; (i) any lease of real or personal property material to the operations of such Company; or (j) any agreement with any broker, finder, investment banker or underwriter. Centrum has heretofore provided you with a true and complete copy of each contract, agreement, lease, and commitment listed on Schedule 3.12 and requested by you. Each such contract, agreement, lease or commitment is in full force and effect, is binding upon the parties thereto, no material default has occurred thereunder, and no event has occurred that, with the giving of notice, the passage of time, or both, would constitute a material default thereunder. 3.13 Litigation; Observance of Agreements, Statutes and Orders, etc.. There is no action, proceeding or investigation pending or threatened (nor any basis therefor known to Centrum) (a) against the Companies or any Company or (b) against any other Person that might result, either in any case or in the aggregate, in any material adverse change in the condition (financial or otherwise), operations, management or prospects of any Company or in its material properties and assets, or in any material liability on the part of any Company. Each Company is not in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or governmental, regulatory or judicial authority, nor is it in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any governmental, regulatory or judicial authority. 3.14 Authorization and Binding Effect. The execution and delivery of the Finance Documents and the performance of the transactions contemplated hereby and thereby have been duly authorized by all necessary action of the Companies. The Finance Documents constitute the legal, valid and binding obligations of the Companies, enforceable against the Companies in accordance with their terms. 3.15 Compliance with Other Instruments, etc.. Each Company is not in violation of any term of its articles or certificate of incorporation, as applicable, or by-laws, nor is any Company in violation of any indenture, mortgage, deed of trust, loan, purchase or credit 9 14 agreement, lease or any other agreement or instrument, or any judgment, decree, order, statute, or governmental rule or regulation applicable to such Company in any way that materially adversely affects or in the future may (so far as Centrum can now foresee) materially adversely affect the condition (financial or otherwise), operations, management or prospects of such Company; and the execution, delivery and performance of the Finance Documents will not result in any such violation or be in conflict with or constitute a default under any such term, or result in the creation of any mortgage, Lien, charge or encumbrance upon any of the properties or assets of such Company pursuant to any such term except where such has been waived and consented to by means of any waivers and consents delivered to you herewith. There is no such term that materially adversely affects or in the future may (so far as Centrum can now foresee) materially adversely affect the condition (financial or otherwise), operations, management or prospects the Companies. 3.16 Environmental Matters. Except as set forth on Schedule 3.16: (a) The Companies have each substantially complied and each is in compliance in all material respects with all Environmental Laws; (b) The Companies have each obtained and complied and each is in compliance in all material respects with the terms of each and every permit, certificate, license, approval, registration or authorization (collectively "Permits") relating to the environment or to the protection of public health or safety from pollution or environmental contamination of any kind that is required in connection with the conduct of its business. A list of all Permits including the name of the granting authority, the expiration date and a brief description thereof is set forth on Schedule 3.16; (c) No notice, notification, demand, request for information, citation, summons or order (collectively, "Environmental Notices") has been received, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any governmental or other entity arising out of or in connection with the matters described in subsections (a) or (b) above or arising out of or in connection with any presence, use, generation, treatment, storage, recycling, transportation, disposal, release or threat of release, whether or not lawful or intentional, (as those terms are defined in federal and state laws, including without limitation, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Superfund Amendments and Reauthorization Act of 1986, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act or the Clean Water Act) of any Hazardous Substances, whether or not such Hazardous Substance is designated or listed in any federal, state or local environmental statutes, ordinances, rules, regulations or orders; 10 15 (d) To the best of Centrum's knowledge, no circumstances exist that could give rise to any Environmental Notice or to any complaint or penalty of the type described in subsection (c) above; (e) The Companies have not stored any Hazardous Substances on real properties now or formerly owned, leased or operated by them, nor have the Companies disposed of any Hazardous Substances in a manner contrary to any Environmental Laws. (f) The Companies are not a party to any contract, agreement or other commitment under which any Company is obligated to indemnify any third party other than Huntington for any liabilities, losses or damages (or any costs or expenses related thereto) arising out of or in connection with any presence, use, generation, treatment, storage, recycling transportation, disposal or release of any Hazardous Substances. 3.17 ERISA. Except as set forth in Schedule 3.17, (a) Each Employee Benefit Plan is in material compliance with the applicable provisions of ERISA and the Code. No Termination Event has occurred or is reasonably expected to occur, and no condition exists, nor has any event occurred, that could result in any Termination Event, as a result of any of which Centrum or ERISA Affiliate could incur a material liability. If any Employee Benefit Plan were terminated, neither Centrum nor any ERISA Affiliate would incur any material liability. No Employee Benefit Plan that is subject to Section 302 of ERISA or Section 412 of the Code has incurred any "accumulated funding deficiency" (as defined in such Sections), whether or not waived, as of the end of the most recent fiscal year of such plan ended prior to the date hereof. No Employee Benefit Plan provides death or medical benefits (including insured benefits) to employees beyond their retirement or other termination of service, except death or medical benefits required by law or death benefits under a plan qualified under section 401(a) of the Code or death benefits under a deferred compensation arrangement accrued as liabilities on the books of Centrum or ERISA Affiliate. (b) Centrum and all ERISA Affiliates have made all required contributions to Multiemployer Plans. Neither Centrum nor any ERISA Affiliate has incurred, or would reasonably expect to incur, any Withdrawal Liability upon a complete or partial withdrawal from any Multiemployer Plan. To the best of Centrum's knowledge, no Multiemployer Plan is, or is reasonably expected to be or become, insolvent, in reorganization or terminated within the meaning of Title IV of ERISA. (c) Neither Centrum, any ERISA Affiliate, any Person entitled to indemnification or reimbursement from Centrum or ERISA Affiliate, any Employee Benefit Plan, nor to Centrum's best knowledge any Multiemployer Plan, has engaged in any transaction or conduct that could, directly or indirectly, result in any material liability of Centrum or ERISA Affiliate of Centrum pursuant to Sections 409, 502(i) or 4069 of ERISA or Sections 4971, 4975 or 4976 of the Code. 11 16 (d) The consummation of the transactions contemplated by this Agreement will not result in and prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code for which an exemption is not available. (e) Schedule 3.17 attached hereto is a complete and correct list of all Employee Benefit Plans and Multiemployer Plans. 3.18 Deferred Compensation Arrangements. Except as set forth in Schedule 3.18, attached hereto, the Companies have not entered into any employment contracts or deferred compensation plans, incentive compensation plans, executive compensation plans, arrangements or commitments not required to be disclosed pursuant to Section 3.17 hereof (other than normal policies regarding holidays, vacations and salary continuation during short periods of illness). With respect to any such plan, arrangement or commitment: (a) Each plan, arrangement, or commitment complies currently, and has complied in the past, both as to form and operation with its terms and the provisions of the Code and ERISA and all applicable laws, rules and regulations; (b) The disclosure and reporting provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 have been satisfied; (c) Each plan and arrangement set forth in Schedule 3.18 is legally valid and binding and is in full force and effect; (d) No contributions required to be made by any Company under any such plan, arrangement or commitment are currently delinquent; (e) There are no actions, suits or claims pending (other than routine claims for benefits) or, to the best of Centrum's knowledge which could be reasonably expected to be asserted against any such plan, arrangement, or commitment; and (f) Each Company has performed all obligations required to be performed by it under each plan, arrangement, or commitment and the Companies are not in default or in violation of, and Centrum does not have any knowledge of any such default or violation by any other party to any and all such plans or arrangements. 3.19 Governmental Consent, etc.. Except for the requirements of the United States Securities and Exchange Commission, the Blue Sky laws and regulations of the states of Connecticut, Iowa, North Dakota and Ohio and otherwise as set forth in Schedule 3.19, no consent, approval or authorization of, or declaration or filing with any governmental, regulatory or judicial authority is required in connection with the execution and delivery of, or the consummation of the transactions contemplated by, the Finance Documents or the offer, issue, sale and delivery of the Notes and Warrants as contemplated by this Agreement. 12 17 3.20 Offer of Notes and Warrants. Except for (i) the offering being made pursuant to that certain Confidential Private Placement Memorandum of Centrum dated November 15, 1995, and (ii) notes receivable from existing shareholders of Centrum in the initial aggregate principal amount required under Section 2.16 hereof, neither Centrum nor any Person acting on its behalf has directly or indirectly offered the Notes or Warrants or any part thereof or any similar securities for issue or sale to, or solicited any offer to buy any of the same from, anyone other than you and not more than 35 investors who are not accredited investors as defined in Regulation D issued under the Securities Act of 1933. Neither Centrum nor any Person acting on its behalf has taken or will take any action that would bring the issuance and sale of the Notes and Warrants within the provisions of Section 5 of the Securities Act of 1933, as amended, or the registration or qualification provisions of any applicable blue sky or other securities laws. 3.21 Investment Company Act Status. Centrum is not an "investment company" or a company "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. 3.22 Regulation U, etc.. Centrum does not own and will not use all or any part of the proceeds of the sale of the Notes and Warrants to acquire and has no intention of acquiring, any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (herein called a "margin security"). The proceeds of the sale of the Notes and Warrants will be used as provided in Section 4.1. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purpose of reducing or retiring any Indebtedness that was originally incurred to purchase or carry, any margin security or for any other purpose that might constitute the transactions contemplated hereby a "purpose credit" within the meaning of said Regulation U or cause this Agreement to violate Regulation G, Regulation T, Regulation U, Regulation X, or any other regulation of the Board of Governors of the Federal Reserve System, or the Securities Exchange Act of 1934 (the "1934 Act"), each as now in effect. 3.23 Foreign Credit Restraints. Neither the consummation of the transactions contemplated by this Agreement nor the use of the proceeds of the sale of the Notes and Warrants will violate any provision of any applicable statute, regulation or order of, or any restriction imposed by, the United States of America or any authorized official, board, department, instrumentality or agency thereof relating to the control of foreign or overseas lending, investment or business. 3.24 Brokers, etc.. Except as set forth on Schedule 3.24, attached hereto, neither Centrum nor any Person acting on behalf of Centrum has dealt with any broker, finder, commission agent or other Person in connection with the sale of the Notes and Warrants and the transactions contemplated by this Agreement, and neither Centrum nor any such Person is under any obligation to pay any broker's fee, finder's fee or commission in connection with such transactions. 13 18 3.25 Disclosure. Neither this Agreement nor any other document, certificate or statement furnished to you by or on behalf of the Companies in connection with the transactions contemplated hereby, taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in the light of the circumstances under which such statements were made, not misleading. There is no fact known to the Companies that materially adversely affects or in the future may (so far as Centrum can now foresee) materially adversely affect the condition (financial or otherwise), operations, management or prospects of the Companies that has not been set forth in this Agreement or in the other documents, certificates or statements furnished to you by or on behalf of the Companies prior to the date hereof in connection with the transactions contemplated hereby. IV. AFFIRMATIVE COVENANTS From and after the date of this Agreement until the Notes shall have been paid in full and, in the case of Sections 4.1, 4.2(h), 4.4, 4.6, 4.8, 4.9, 4.10, 4.11 and 4.19, so long as any Warrant remains outstanding, the Companies will duly perform and observe each and all of the covenants and agreements hereinafter set forth: 4.1 Use of Proceeds. (a) The proceeds of the sale of the Notes and Warrants will be used to partially finance the acquisition of McInnes Steel as contemplated in the Reorganization Plan, for working capital of Centrum, and to finance those future acquisitions by Centrum of the equity or assets of other Persons permitted under the terms of this Agreement, all as more particularly set forth in Schedule 4.1. (b) Centrum will not, directly or indirectly, use any part of such proceeds for any purpose that would violate any provision of (i) Regulation G, Regulation T, Regulation U, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System, or the 1934 Act, each as now in effect, or (ii) any other applicable statute, regulation, rule, order or restriction. 4.2 Financial Statements and Information. Centrum will furnish to each of you so long as you shall hold any Note, Warrant or Security, and to each other holder from time to time of any Note, Warrant or Security: (a) as soon as available and in any event within 30 days after the end of each month, a consolidated balance sheet of Centrum and its Subsidiaries as of the end of such period, and the related consolidated statements of income, stockholders' equity and cash flows for such period and for the portion of such fiscal year ended on the last day of such period, in each case setting forth in comparative form the corresponding figures for the same period and portion of the next preceding fiscal year, all prepared in reasonable detail and in accordance with generally accepted accounting principles applied on a consistent basis except for the absence of 14 19 footnotes and subject to year-end adjustments, none of which shall be material individually or in the aggregate, and certified by the chief financial officer of Centrum; (b) as soon as available and in any event within 90 days after the end of each fiscal year of Centrum, a consolidated balance sheet of Centrum and its Subsidiaries as of the end of such year and the related consolidated statements of income, stockholders' equity and cash flows for such year, in each case setting forth in comparative form the corresponding figures for the preceding fiscal year, all in reasonable detail and accompanied by the report on such financial statements of a "big six" accounting firm or another independent certified public accountants of national standing selected by Centrum and acceptable to the Requisite Holders in their sole discretion, which report (i) shall state that the audit of such accountants in connection with such financial statements has been conducted in accordance with generally accepted auditing standards and that such accountants believe that such audit provides a reasonable basis for their opinion; and (ii) shall include the opinion of such accountants without qualification as to any matter that such financial statements present fairly in all material respects the financial position of Centrum as of the end of such fiscal year and the results of its operations and cash flows for such fiscal year, in conformity with generally accepted accounting principles, except as otherwise specifically set forth in such report; (c) together with each delivery of financial statements pursuant to the foregoing subsections (a) and (b), an Officers' Certificate (i) stating that the signers are familiar with the terms of this Agreement and the Notes and with the transactions and condition of Centrum during the fiscal period covered by such financial statements, and that, after due inquiry, the signers do not have knowledge of the existence, during such period or as of the date of such Officers' Certificate, of any condition or event that constitutes or, after notice or lapse of time or both, would constitute an Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Centrum has taken or is taking or proposes to take with respect thereto, and (ii) showing in reasonable detail and to your satisfaction all computations required to demonstrate compliance, during and at the end of the fiscal period covered by such financial statements, with the provisions of Article V; (d) upon the request of the Requisite Holders, together with each delivery of financial statements pursuant to the foregoing subsection (b), a separate certificate of the independent certified public accountants reporting on such financial statements (i) stating that their examination in connection with such financial statements has been made in accordance with generally accepted auditing standards and has included a review of the relevant terms of this Agreement and the Notes as they relate to accounting matters, and (ii) stating that their examination has not disclosed the existence, during or at the end of the fiscal year covered by such financial statements, of anything that would cause them to believe that Centrum has failed to comply with any of the terms, covenants, provisions or conditions of any material agreement to which the company is a party including this Agreement, and, if their examination has disclosed such a condition or event, specifying the nature and period of existence thereof; 15 20 (e) promptly upon receipt thereof, copies of all reports (including, without limitation, audit reports and so-called management letters) or written comments submitted to the Companies by independent certified public accountants in connection with each annual, interim or special audit in respect of the financial statements or the accounts of the Companies made by such accountants; (f) not later than 30 days prior to the start of each fiscal year of Centrum, an annual budget with detailed monthly projections for each fiscal year made in good faith and based on reasonable factual assumptions; such budgets shall be in a format reasonably acceptable to the Requisite Holders, shall state the underlying assumptions, shall have been approved by Centrum's Board of Directors, and shall be accompanied by a written statement of Centrum's chief financial officer certifying as to such approval; (g) such other information relating to the Companies as from time to time may reasonably be requested by you, including, but not limited to, copies of any and all financial information submitted by the Companies to Huntington in accordance with the Huntington Loan Agreement; and (h) no later than two (2) Business Days after (i) each issuance, granting or transfer of Employee Stock Rights (capitalized terms used but not defined in this subsection (h) shall have the respective meanings given to them in Section 4.19 hereof), (ii) each exercise of a Note Option (whether partial or complete), and (iii) each exercise (whether partial or complete) of any other options, warrants, conversion rights or other rights to acquire Common Stock (collectively, "Other Options"), a report identifying (A) the specific Employee Stock Rights issued, granted or transferred, the specific Note Option exercised, or the specific Other Options exercised, as the case may be, and (B) the number of shares of Common Stock issuable or issued pursuant to such issuance, grant, transfer or exercise, as the case may be. Such report shall have attached thereto a copy of the instrument issuing, granting or transferring such Employee Stock Rights, Note Option or Other Options, as the case may be, and, in the case of a Note Option or Other Options, shall also have attached thereto a copy of the executed instrument by which such Note Option or Other Options has been exercised. You and any subsequent holder of the Notes are hereby authorized to deliver a copy of any financial statement delivered to you pursuant to this Section 4.2 to any regulatory body having jurisdiction over you or it, as the case may be. 4.3 Material Events and Reports. The Companies will furnish to you (it being understood and agreed that in the event a Form 8-K is filed with respect to any event described below, the delivery of such Form 8-K to the Investors within two (2) days of the filing thereof shall satisfy the requirements of this Section 4.3 with respect to such event); (a) Prompt notice of any development, financial, environmental or otherwise, that could materially and adversely affect the business, properties or affairs of Centrum or of 16 21 the Companies, taken as a whole, or the ability of the Companies to perform their respective obligations under any of the Finance Documents; (b) Prompt notice of any material adverse change in the condition, financial or otherwise, of Centrum or of the Companies, taken as a whole, or of the occurrence of any Event of Default under this Agreement, or of the occurrence of any event that upon the giving of notice or lapse of time or both would constitute such an Event of Default; (c) Immediate notice by telephone (confirmed by written notice) of (i) the occurrence of any default respecting Indebtedness of any Company, or the Companies taken as a whole for borrowed money (including the deferred purchase price of property) or under Capital Leases in an amount in excess of $50,000 in the aggregate, or, as to any event that requires notice from the holder or holders of such Indebtedness in order to constitute such default, the receipt of such notice, or, as to the occurrence of any event that does not require notice from the holder of such Indebtedness but that with the lapse of time would constitute such default, the occurrence of such event, (ii) the waiver by the holder or holders of any Indebtedness in excess of $50,000 in the aggregate of any such default or of any such event, (iii) acceleration by the holder or holders of any Indebtedness in excess of $50,000 in the aggregate of the maturity thereof, and (iv) any action by the holder or holders of any Indebtedness in excess of $50,000 in the aggregate to exercise its rights respecting any collateral for such Indebtedness. Each Company shall, immediately upon receipt thereof by such Company, transmit to you a copy of any notice from any holder of such Indebtedness relating to any of the foregoing. 4.4 Inspection. Centrum will permit any individual acting on behalf of any holder of any Note or Warrant on reasonable notice (unless a Default or Event of Default had occurred and is continuing in which case no prior notice shall be required) to visit and inspect any of the properties of the Companies, to examine its and their respective books of account (and to make copies thereof and take extracts therefrom) and to discuss their affairs, finances and accounts with, and to be advised as to the same by, their computer billing companies, collection agencies, officers and independent certified public accountants, all at such reasonable times and intervals as you may desire. 4.5 Books of Record and Account; Reserves. The Companies will: (a) at all times keep proper books of record and account in which full, true and correct entries shall be made of its transactions in accordance with generally accepted accounting principles applied consistently with prior periods to fairly reflect the financial condition of the Companies for the periods in question; and (b) set aside on its books from its earnings for each fiscal year all such proper reserves, including reserves for depreciation, depletion, obsolescence and amortization of its properties during such fiscal year, as shall be required in accordance with generally accepted accounting principles in connection with its business. 17 22 4.6 Payment of Taxes; Corporate Existence; Maintenance of Properties; Compliance with Laws; Lines of Business; Proprietary Rights. The Companies will: (a) pay and discharge promptly as they become due and payable all taxes, assessments and other governmental charges or levies imposed upon it or its income or upon any of its property, real, personal or mixed, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies) that, if unpaid, might by law become a Lien or charge upon its property; provided that no Company shall be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings or other appropriate actions promptly initiated and diligently conducted and if such Company shall have set aside on its books such reserves, if any, with respect thereto as are required by generally accepted accounting principles and deemed adequate by such Company and its independent certified public accountants; (b) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises, provided that nothing in this subsection (b) shall prevent the withdrawal by any Company of its qualification as a foreign corporation in any jurisdiction, if, in the judgment of such Company, such withdrawal is in the best interests of such Company and is not disadvantageous in any material respect to you; (c) maintain and keep its properties in good repair, working order and condition, ordinary wear and tear excepted, and from time to time make all needful and proper repairs, renewals and replacements so that the business carried on in connection therewith may be properly and advantageously conducted at all times; (d) comply with all applicable statutes, rules, regulations and orders of, and all applicable restrictions imposed by, all governmental authorities, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, applicable statutes, rules, regulations, orders and restrictions relating to Hazardous Substances, environmental, safety and other similar standards or controls) and with the provisions of all leases to which it is a party or under which it occupies property so as to prevent any loss or forfeiture thereof or thereunder and with all other obligations that it incurs pursuant to any contract or agreement, whether oral or written, express or implied, as such obligations become due; provided that a Company shall not be required by reason of this subsection to comply therewith at any time while such Company shall be contesting its obligation to do so in good faith by appropriate proceedings or other appropriate actions promptly initiated and diligently conducted, and if it shall have set aside on its books such reserves, if any, with respect thereto as are required by generally accepted accounting principles and deemed adequate by such Company and its independent certified public accountants; 18 23 (e) possess and maintain all material Proprietary Rights necessary to the conduct of its business and own all right, title and interest in and to, or have a valid license for, all material Proprietary Rights used by it in the conduct of its business and not take any action, or fail to take any action, that would result in the invalidity, abuse, misuse or unenforceability of such Proprietary Rights or that would infringe upon any Proprietary Rights of another Person. 4.7 Insurance. Each Company will maintain with financially sound and reputable insurers insurance with respect to the properties and business of such Company against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or a similar business and similarly situated, in such amounts (but in no event shall the deductibles under such insurance policies exceed $5,000) and by such methods as shall be customary for such corporations and deemed adequate by Centrum. In addition, each Company shall obtain and maintain other insurance policies insuring against those risks and hazards that the Requisite Holders may designate, from such insurers and in such amounts as are acceptable to the Requisite Holders, and Centrum shall maintain an insurance policy on the life of George Wells with a death benefit of $1,800,000 in your favor, which death benefit will be reduced dollar for dollar to the extent of principal repayments on the Notes, commencing at such time as the aggregate outstanding principal under the Notes is equal to $1,800,000 (the "Wells Insurance Policy"). The Wells Insurance Policy shall at all times be assigned collaterally to MorAmerica Capital Corporation as your agent, for the ratable benefit of each of you. 4.8 Payment of Indebtedness. The Companies will: (a) pay or cause to be paid the principal of and the premium or other prepayment charge, if any, and interest on all Indebtedness for borrowed money or arising under a Capital Lease or conditional sale or other title retention agreement, whether heretofore or hereafter incurred or assumed by it, when and as the same shall become due and payable subject to any, applicable grace period; (b) faithfully perform, observe and discharge all covenants, conditions and obligations imposed on it by all instruments evidencing such Indebtedness and all indentures and other agreements securing such Indebtedness or pursuant to which such Indebtedness is issued; and (c) not permit the occurrence of any act or omission that is or may be declared to be a default under any such instrument, indenture or agreement. 4.9 Attendance at Directors' Meetings. In addition to and not in limitation of your rights under the Equity Holders Agreement, Centrum will permit each of you to designate an agent or representative from time to time to attend any and all meetings of the board of directors of Centrum and of any committees established by such board and will give each of you prior written notice of such meetings simultaneously with delivery of such notice to the directors. Centrum will pay on demand all reasonable out-of-pocket expenses for such agent or 19 24 representatives in connection with their attendance at such meetings as provided in Section 1.5(a) of the Equity Holders Agreement. 4.10 "C" Corporation Status. Each Company shall maintain at all times its status as a corporation taxed pursuant to Subchapter "C" of the Internal Revenue Code. 4.11 SBIC Information. Centrum shall permit representatives of the Small Business Administration access to Centrum's records to confirm Centrum's use of proceeds as specified in Section 4.1 above. Promptly after request made by any Investor which is a small business investment company licensed under the Small Business Investment Act of 1958, as amended (the "SBIC Act"), Centrum shall provide such information as such Investor may request to enable such Investor to comply with its record keeping, reporting, and other obligations under the SBIC Act and under the regulations of the Small Business Administration thereunder, provided that such Investor shall, if permitted under applicable law, request that the Small Business Administration treat any material nonpublic information supplied by such Investor as confidential. 4.12 Management Compensation. The Compensation Committee of Centrum's Board of Directors shall develop officers' compensation guidelines, which guidelines shall, among other things, require that all adjustments to annual base salaries of officers shall be performance- based. During any year, aggregate increases in the annual base salaries of officers of Centrum shall not exceed 115% (or such greater or lesser percentage as shall be permitted by the Huntington Loan Agreement at the relevant time of reference) above the aggregate annual base salaries of officers of Centrum payable during the immediately preceding year, unless the Requisite Holders have consented in writing to such excess. Any consent granted on one occasion shall not be a waiver of or a bar to the withholding of consent on any other occasion. 4.13 Management Succession. Centrum shall deliver to you, no later than September 1, 1996, a plan providing for management succession, which plan shall be satisfactory to the Requisite Holders in all respects. 4.14 Directors' and Officers' Insurance. Centrum shall, within thirty (30) days of the Closing obtain Directors' and Officers' Insurance covering its Board of Directors and senior executive officers in amounts and from insurance companies satisfactory to the Requisite Holders in their sole direction. 4.15 Environmental Compliance and Identification. Each Company hereby indemnifies the Investors and holds the Investors harmless from and against any loss, damage, cost, expense or liability (including strict liability) directly or indirectly arising from or attributable to the generation, storage, release, threatened release, discharge, disposal or presence (whether prior to or during the term of the Notes or Warrants) of Hazardous Substances on, under or about any real property owned, leased, or used by any Company (the "Premises") (whether by such Company or any employees, agents, contractors or subcontractors of such Company or any predecessor in title or any third persons occupying or present on the Premises), or the breach 20 25 of any representations and warranties regarding the Premises, including, without limitation: (a) those damages or expenses arising under the Environmental Laws; (b) the costs of any repair, cleanup or detoxification of the Premises, including the soil and ground water thereof, and the preparation and implementation of any closure, remedial or other required plans; (c) damage to any natural resources; and (d) all reasonable costs and expenses incurred by the Investors in connection with clauses (a), (b) and (c) including, but not limited to a reasonable attorneys' fees. The indemnification provided for herein shall not apply to any losses, liabilities, damages, injuries, expenses or costs which: (i) arise from the gross negligence or willful misconduct of the Investors, or (ii) relate to Hazardous Substances placed or disposed of on the Premises following any acquisition by the Investors of title to the Premises through foreclosure or otherwise. 4.16 NASDAQ. In the event that Centrum attempts to be listed or re-listed on the NASDAQ stock exchange, it shall, not more than ten (10) days prior to filing its application for such listing or re-listing, notify the Investors in writing of such application, which notice shall contain a list of those covenants in this Agreement which, in the opinion of its securities counsel (which opinion shall be addressed to the Investors as well as the Company and shall be attached to such notice and which counsel shall be acceptable to the Requisite Holders, it being understood and agreed that Fuller & Henry shall be acceptable to the Requisite Holders), would operate as a bar to such listing or re-listing. Such covenants shall, without any further action by any Person, be deemed to be of no force and effect from and after the date of such application, provided that if either (i) such listing or re-listing does not become effective within ninety (90) days following the date of such application or (ii) the Company thereafter withdraws or is otherwise de-listed from NASDAQ, such covenants shall immediately be reinstated simultaneously with the happening of either such event. 4.17 Micafil and American Handling Disclosure. Centrum shall, within thirty (30) days following the Closing, update the schedules to this Agreement to include such information concerning American Handling, Inc. and Micafil, Inc. as would have been required had American Handling, Inc. and Micafil, Inc. made the representations and warranties set forth in Article III as of the Closing. 4.18 McInnes Steel, et al. Guaranties. At any time at which Huntington permits any "Borrower" under the Huntington Loan Agreement or McInnes Services, Inc. to issue its guarantee in favor of the Investors, Centrum shall cause such Person to promptly execute and deliver such guarantee in form and substance satisfactory to the Investors and to execute an amendment to this Agreement in form and substance satisfactory to the Investors, wherein such Person becomes a party to this Agreement and agrees to be bound by the terms and conditions hereof, provided that if any covenant contained in this Agreement would, as to such "Borrower" or McInnes Services, Inc., be more restrictive than the comparable covenant in the Huntington Loan Documents (but only to the extent that a comparable covenant exists therein) then the covenant contained in this Agreement shall, as to such "Borrower" or McInnes Services, Inc., 21 26 but as to no other Person whatsoever, be deemed to be amended so as to be substantively identical to such comparable covenant in the Huntington Loan Documents. 4.19 Anti-Dilution. (a) Stock Plan Adjustments. (i) The terms defined in this Section 4.19(a)(i) shall have the following respective meanings: (1) "Employee Stock Rights" shall mean options, warrants, rights to purchase Common Stock and all other rights issued, granted or transferred after the Closing by a Company, Borrower (as such term is defined in Section 4.18 hereof) or Subsidiary to its employees entitling such employees to obtain Common Stock or securities which are directly or indirectly convertible into Common Stock. (2) "Pre-Threshold Event Make-Whole Percentage " shall mean, for any Investor, the percentage equivalent of a fraction, (A) the numerator of which is the sum of (I) the total number of shares issuable pursuant to all Warrants then owned by such Investor immediately prior to the occurrence of a Threshold Event, plus (II) the total number of shares of Securities then owned by such Investor immediately prior to the occurrence of such Threshold Event, and (B) the denominator of which is the sum of (I) the total number of shares of Common Stock (including without limitation all Securities then owned by all Investors) then outstanding immediately prior to such Threshold Event, plus (II) the total number of shares issuable pursuant to all Warrants then owned by all Investors immediately prior to the occurrence of such Threshold Event, plus (III) the total number of shares of Common Stock issuable under all Employee Stock Rights existing immediately prior to such Threshold Event. (3) "Post-Threshold Event Make-Whole Percentage" shall mean, for any Investor and as of each time of determination, the percentage equivalent of a fraction, (A) the numerator of which is the sum of (I) the total number of shares issuable pursuant to all Warrants then owned by such Investor immediately after a Threshold Issuance, plus (II) the total number of shares of Securities then owned by such Investor immediately after a Threshold Issuance and (B) the denominator of which is the sum of (I) the total number of shares of Common Stock (including 22 27 without limitation all Securities then owned by all Investors) then outstanding immediately after a Threshold Issuance, plus (II) the total number of shares issuable pursuant to all Warrants then owned by all Investors immediately after a Threshold Issuance, plus (III) the total number of shares of Common Stock issuable under all Employee Stock Rights existing immediately after a Threshold Issuance. (4) "Stock Plan Exercise Price" shall mean, with respect to any Employee Stock Rights, the per share exercise price, conversion price or purchase price for shares issuable pursuant to such Employee Stock Rights (5) "Threshold Issuance" shall mean each issuance, granting or transfer of Employee Stock Rights upon and after the occurrence of a Threshold Event. (6) "Threshold Event" shall mean such time after the Closing as the Companies shall have granted, issued or transferred Employee Stock Rights pursuant to which with the sum of the number shares of Common Stock issued or issuable under all such Employee Stock Rights equals or exceeds 630,000 shares. The shares of Common Stock issuable or issued to George Wells as referenced in clause (d) of Section 3.3(i) of each of the Warrants issued on the effective date of this Agreement (the "Wells Options") shall be included in the calculation of such 630,000 shares. For purposes of the definitions contained in this Section 4.19(a)(i), all references to Warrants or Securities "owned" by an Investor shall be deemed to include reference to Warrants or Securities which such Investor is entitled to own due to prior operation of this Section 4.19 or due to exercise of any Warrants, but which have not yet been issued and/or delivered by Centrum to such Investor. (ii) In no event shall the Exercise Price pursuant to any Employee Stock Rights (other than the Wells Options) be below $2.00 per share. (iii) Upon and after the occurrence of a Threshold Event, upon each Threshold Issuance, Centrum shall simultaneously issue to each Investor one or more Warrants pursuant to which each such Investor shall be entitled to obtain upon the exercise thereof those number of shares of Common Stock that, together with the number of shares of Securities then owned by such Investor and the number of shares of Common Stock issuable pursuant to Warrants then owned by such Investor, shall make 23 28 such Investor's Post-Threshold Event Make-Whole Percentage equal to such Investor's Pre-Threshold Event Make-Whole Percentage. Each such Warrant shall be in the form and contain the provisions set forth in Exhibit C hereto, with appropriate insertions in the blank spaces contained in such Exhibit, except that (A) the exercise price for such Warrant shall be the same as the Stock Plan Exercise Price of the Employee Stock Rights with respect to which such Warrant was issued and (B) clause (b) of Section 3.3(i) and Section 3.5 of Exhibit C shall not be included in any Warrants issued pursuant to this Section 4.19 (and Section references shall be adjusted accordingly). (b) Note Option Adjustments. (i) The terms defined in this Section 4.19(b)(i) shall have the following respective meanings: (1) "Exercise Event" shall mean each full or partial exercise of any Note Option. (2) "Note Option" shall mean (a) each option to acquire shares of Common Stock identified in Schedule 3.8 hereto under the heading "$2,500,000 Financing", pursuant to which the holders thereof are entitled to acquire up to an aggregate of 480,000 shares of such Common Stock (and all conversion rights under each related note identified in such Schedule) and (b) any and all other options, warrants, rights to purchase Common Stock and all other rights issued, granted or transferred by a Company, Borrower (as such term is defined in Section 4.18 hereof) or Subsidiary to any Person entitling such Person to obtain Common Stock or securities which are directly or indirectly convertible into Common Stock (collectively, "Rights"), that have not been disclosed by the Companies in this Agreement including without limitation the Schedules hereto (nothing contained herein shall be deemed a waiver of any Event of Default or remedy therefor with respect to any Company's failure to disclose such Rights, nor shall the adjustments provided for herein be deemed an adequate or exclusive remedy for such failure or Event of Default). (3) "Note Option Exercise Price" shall mean, with respect to any Note Option, the per share exercise price, conversion price or purchase price for shares issuable pursuant to such Note Option. (4) "Pre-Exercise Event Make-Whole Percentage" shall mean for any Investor, the percentage equivalent of a fraction, the (A) 24 29 numerator of which is the sum of (I) the total number of shares issuable pursuant to all Warrants then owned by such Investor immediately prior to the occurrence of an Exercise Event, plus (II) the total number of shares of Securities then owned by such Investor immediately prior to the occurrence of such Exercise Event, and (B) the denominator of which is the sum of (I) the total number of shares of Common Stock (including without limitation all Securities then owned by all Investors) then outstanding immediately prior to such Exercise Event, plus (II) the total number of shares issuable pursuant to all Warrants then owned by all Investors immediately prior to the occurrence of such Exercise Event. (5) "Post-Exercise Event Make-Whole Percentage" shall mean for any Investor, the percentage equivalent of a fraction, the (A) numerator of which is the sum of (I) the total number of shares issuable pursuant to all Warrants then owned by such Investor immediately after the occurrence of an Exercise Event, plus (II) the total number of shares of Securities then owned by such Investor immediately after the occurrence of such Exercise Event, and (B) the denominator of which is the sum of (I) the total number of shares of Common Stock (including without limitation all Securities then owned by all Investors) then outstanding immediately after such Exercise Event, plus (II) the total number of shares issuable pursuant to all Warrants then owned by all Investors immediately after the occurrence of such Exercise Event. For purposes of the definitions contained in this Section 4.19(b)(i), all references to Warrants or Securities "owned" by an Investor shall be deemed to include reference to Warrants or Securities which such Investor is entitled to own due to prior operation of this Section 4.19 or due to exercise of any Warrants, but which have not yet been issued and/or delivered by Centrum to such Investor. (ii) Within five (5) days after each occurrence of an Exercise Event, the Company shall issue to each Investor one or more Warrants pursuant to which each such Investor shall be entitled to obtain upon the exercise thereof those number of shares of Common Stock that, together with the number of shares of Securities then owned by such Investor and the number of shares of Common Stock issuable pursuant to Warrants then owned by such Investor, shall make such Investor's Post-Exercise Event Make-Whole Percentage equal to such Investor's Pre-Exercise Event Make-Whole Percentage. Each such Warrant shall be in the form and contain the provisions set forth in Exhibit C hereto, with appropriate 25 30 insertions in the blank spaces contained in such Exhibit, except that (A) the exercise price for such Warrant shall be the same as the Note Option Exercise Price of the Note Option with respect to which such Warrant was issued and (B) clause (b) of Section 3.3(i) and Section 3.5 of Exhibit C shall not be included in any Warrants issued pursuant to this Section 4.19 (and Section references shall be adjusted accordingly). (c) Benefits of Finance Documents. Each Warrant issued pursuant to this Section 4.19 (and all Securities issued pursuant to such Warrant) shall be entitled to the rights and benefits of the Finance Documents. (d) No Other Issuance. Each Company other than Centrum shall not, and Centrum shall cause its other Subsidiaries to not, issue, grant or transfer to any Person (other than a Company or a Subsidiary) its capital stock, or any securities which are directly or indirectly convertible into its capital stock, or any options, warrants, or other rights to purchase its capital stock. V. FINANCIAL COVENANTS From and after the date of this Agreement until the Notes shall have been paid in full, Centrum shall (as to itself and its Subsidiaries) on a consolidated basis: 5.1 Net Worth. Maintain at all times a consolidated Net Worth of not less than the following amounts at the end of each fiscal year specified below:
Fiscal Year Ending Minimum Net Worth ------------------ ----------------- 3/31/96 $ 2,906,000 3/31/97 $ 5,153,000 3/31/98 $ 7,361,000 3/31/99 $ 9,763,000
5.2 Ratio of Total Liabilities to Net Worth. Maintain at all times a ratio of consolidated Total Liabilities to consolidated Net Worth of not greater than the following amounts at the end of each fiscal year specified below:
Fiscal Year Ending Maximum Ratio ------------------ ------------- 3/31/96 10.9:1.0 3/31/97 5.4:1.0 3/31/98 3.5:1.0 3/31/99 2.4:1.0
26 31 5.3 Fixed Charge Coverage Ratio. Maintain at all times specified below a ratio of (a) EBITDA to (b) Fixed Charges of not less than 1.00 to 1.00. The ratio of EBITDA to Fixed Charges of Centrum and its Subsidiaries shall be determined (beginning with the month ending May 31, 1996) as of the last day of each month for the twelve month period ending on such date, or, if fewer than twelve months have occurred since April 1, 1996, for the period beginning April 1, 1996, to such date. VI. NEGATIVE COVENANTS From and after the date of this Agreement until the Notes shall have been paid in full, and in the case of Section 6.6, so long as any Warrant remains outstanding, each Company shall not, without the prior written consent of the Requisite Holders: 6.1 Restriction on Dividends. Etc.. Make or commit to make: (a) any dividend or other distribution, direct or indirect, on account of any shares of such Company now or hereafter outstanding; or (b) any redemption, retirement, purchase or other acquisition of its capital stock, except for repurchase of the Warrants and Securities pursuant to the terms of the Put Agreement, and, in the event of the death of George Wells, redemption of the Common Stock of Centrum owned by George Wells on the date of his death, provided that such redemption shall only be made from the proceeds of insurance policies owned by Centrum on the life of George Wells, and provided, further, that in the case of the Wells Insurance Policy such redemption shall only be made from any proceeds in excess of amounts received by you or maintained in your favor pursuant to Section 4.7; or (c) any issuance, direct or indirect, of any shares of capital stock of the Companies now or hereafter outstanding, or of any warrants, rights or options to acquire any such shares or require any such issuance except (i) for the offering described in the Confidential Private Placement Memorandum of Centrum dated November 15, 1995, (ii) pursuant to the Warrants and the Notes, (iii) pursuant to those existing stock plans identified in Schedule 3.4, attached hereto, to the extent permitted under Section 6.9 hereof, and under any amendments thereto permitted under Section 6.9 hereof, (iv) the Wells Options, or (v) any other issuance permitted under Section 6.9 hereof. 6.2 Limitation on Loans, Advances and Investments. Make or own any Investment other than: (a) readily marketable obligations of, or fully and unconditionally guaranteed (as to both principal and interest) by, the United States of America and having a maturity not in excess of 12 months from the date of acquisition thereof; 27 32 (b) commercial paper having a maturity not in excess of 270 days from the date of issuance thereof and having a rating of "A-1" or better from Standard & Poor's Corporation or "P-1" or better from Moody's Investors Service, Inc.; (c) shares of so-called "money market funds" registered under the Investment Company Act of 1940, as amended, organized or operating in the United States of America, investing only in obligations of the character described in subsections (a) and (b) of this Section 6.2; (d) certificates of deposit issued by any bank with a capital and surplus of at least $100,000,000 organized under the laws of the United States of America or any state thereof (provided that such certificates of deposit have a maturity of one year or less from the date of purchase by any Company) and any money market account with any bank or brokerage firm organized under the laws of the United States of America with capital and surplus of not less than $100,000,000; (e) accounts receivable arising from transactions in the ordinary course of business; (f) contingent liabilities represented by endorsements of negotiable instruments for collection or deposit in the ordinary course of business; (g) advances, deposits, down payments and prepayments on account of firm purchase orders made in the ordinary course of business; (h) travel and other like advances to officers and employees in the ordinary course of business; (i) investments existing on the date hereof and listed in Schedule 3.8 attached hereto; (j) investments in or advances to Subsidiaries; and (k) any distributions by a Company (other than Centrum) to Centrum. 6.3 Restrictions on Indebtedness. Create, incur, suffer or permit to exist, or assume or guarantee, either directly or indirectly, or otherwise become or remain liable with respect to, any Indebtedness, except the following: (a) Indebtedness to the Investors arising hereunder; (b) Indebtedness outstanding on the date of this Agreement as set forth on Schedule 3.8 attached hereto and additional Indebtedness not to exceed (i) $250,000 in the aggregate for all of the Companies on an annual basis, and (ii) in the event that any "Borrower" 28 33 under the Huntington Loan Documents or McInnes Services, Inc. becomes a party to this Agreement pursuant to Section 4.18 hereof, an amount with respect to any or all of such Persons as shall be mutually agreed to by such Person and the Requisite Holders; (c) Indebtedness on account of current liabilities (other than for money borrowed) incurred in the normal and ordinary course of business; (d) Indebtedness in respect of (i) taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Section 4.6(a) hereof, (ii) judgments or awards that have been in force for less than the applicable appeal period so long as execution is not levied thereunder or in respect of which Centrum shall at the time in good faith be prosecuting an appeal or proceedings for review in a manner satisfactory to you and in respect of which a stay of execution shall have been obtained pending such appeal or review, and (iii) endorsements made in connection with the deposit of items for credit or collection in the ordinary course of business; (e) Indebtedness of Centrum in favor of Huntington arising under the Huntington Loan Agreement or any Indebtedness incurred to refinance such Indebtedness but not in excess of the outstanding principal balance of such Indebtedness being refinanced on the date of such refinancing; (f) Indebtedness of Centrum outstanding on the date of this Agreement in favor of Asea Brown Boveri, Inc. arising in connection with the financing of Micafil, Inc.'s corporate headquarters or any Indebtedness incurred to refinance such Indebtedness but not in excess of such Indebtedness being refinanced on the date of such refinancing; or (g) Indebtedness of American Handling, Inc. in a maximum original principal amount of $1,150,000 and containing terms and conditions satisfactory to the Requisite Holders in correction with the purchase by American Handling, Inc. of its corporate headquarters. (h) Indebtedness of American Handling, Inc. in a maximum original principal amount of $750,000 and containing terms and conditions satisfactory to the Requisite Holders in connection with extensions of credit by Huntington. (i) Indebtedness of Micafil, Inc. in a maximum original principal amount of $250,000 and containing terms and conditions satisfactory to the Requisite Holders in connection with extensions of credit by Huntington. 6.4 Restriction on Liens. Create, assume, incur or suffer to exist any mortgage, Lien, pledge, charge, security interest or other encumbrance of any kind in respect of any property of any character of any Company (whether owned on the date hereof or hereafter acquired) or (ii) give its consent to the subordination of any right or claim of any Company to any right or claim of any other Person except the following: 29 34 (a) Liens (other than the Lien created by Section 4068 of ERISA) for taxes or assessments or other governmental charges or levies, to the extent that nonpayment thereof shall be permitted by the proviso in Section 4.6(a); (b) pledges or deposits to secure obligations under workers' compensation laws or similar legislation, including Liens or judgments thereunder that are not currently dischargeable; (c) pledges or deposits to secure performance in connection with bids, tenders, contracts (other than contracts for the payment of money) or leases made in the ordinary course of business to which any Company is a party as lessee (to the extent otherwise permitted by the terms of this Agreement); (d) deposits to secure public or statutory obligations of any Company; (e) materialmen's, mechanics', carriers', workers', repairmen's or other like Liens arising in the ordinary course of business (to the extent that such Liens are not required to be discharged under Section 4.6(a), or deposits to obtain the release of such Liens; (f) deposits to secure or in lieu of surety, appeal or customs bonds to which any Company is a party; (g) Liens created by or resulting from any litigation or legal proceeding that is currently being contested in good faith by appropriate proceedings or other appropriate actions promptly initiated and diligently conducted; (h) landlord's Liens (imposed by law) under leases to which any Company is a party; (i) zoning restrictions, easements, licenses, restrictions on the use of real property or minor defects or irregularities in title thereto that (individually or in the aggregate) do not materially impair the use of such property in the operation of the business of the Companies or the value of such property for the purpose of such business; (j) the liens in the Investors' favor arising under Section 4.7 hereof; (k) the Liens and other security interests existing on the date hereof and securing the Indebtedness outstanding on the date hereof and referred to in Schedule 3.8 attached hereto; (l) Liens in favor of Huntington or any replacement lender thereof but only to secure Indebtedness permitted by Section 6.3(e); (m) Liens securing Indebtedness described in Schedule 6.3; 30 35 (n) Liens permitted by the Huntington Loan Agreement; and (o) Liens securing Indebtedness permitted by Sections 6.3(f), 6.3(g), 6.3(h) and 6.3(i). 6.5 Restrictions on Fundamental Changes, Dispositions or Business Activities. (a) Sell, lease or otherwise dispose of any assets except for the sale, lease or other disposition of inventory or other property in the ordinary course of business, but excluding the sale, without recourse, of accounts receivable to a factor or other financing entity; liquidate, dissolve or wind up (or suffer any liquidation, dissolution or winding up); or (b) amend, revise or modify any Company's articles or certificate of incorporation, as applicable, or by-laws where such amendment, revision or modification is materially adverse to the interests of the Investors. 6.6 Limitation on Transactions with Affiliates and Others. Engage in any transaction with an Affiliate of the Companies or any other Person on terms less favorable to the Companies in any material respect than would be obtainable at the time in comparable transactions made by the Companies on an arm's-length basis. 6.7 Limitation on Acquisitions and Mergers. Enter into any merger or consolidation with or acquisition of all or substantially all of the assets or capital stock of any Person. 6.8 Lines of Business. Engage, or permit its Subsidiaries to engage, in any business other than the businesses in which they are primarily engaged on the date of this Agreement. 6.9 Incentive Stock Plans. (i) Adopt or create any new incentive stock plan or bonus plan with respect to any Company, (ii) issue or award any stock, options, warrants or the like or require any such issuance to any Person other than the Investors except in accordance with the terms of those existing stock plans identified in Schedule 3.4, and except for the Wells Options, or (iii) maintain the existence of those stock plans described in Schedule 3.4 (a) in the case of American Handling, Inc. and Micafil Inc., after March 31, 1997 and (b) in the case of McInnes Steel, McInnes Services, Inc. or any "Borrower" under the Huntington Loan Agreement, after March 31, 1999; provided, however that, notwithstanding anything else contained in Article VI hereof, this Section 6.9 shall cease to be in effect and binding upon the Companies at such time as (i) the sum of (A) the total number of shares issuable upon the full exercise of all of the then Warrants owned by each Investor, plus (B) the total number of shares of Securities then owned by all of the Investors, is less then fifty (50%) of (ii) the sum of, for each Warrant issued prior to the time of determination, the total number of shares issuable upon the full exercise of such Warrant at the time such Warrant was first issued (by way of example only if Warrants for 100 shares of Common Stock were issued on the anniversary hereof for each of the next three years (but before the date of determination), the total number of shares obtained by the calculation contained in clause (ii) of this proviso shall be 300, even if any or all of such Warrants were partially or fully exercised prior to the date of determination). 31 36 VII. DEFAULT; REMEDIES 7.1 Events of Default Defined; Acceleration of Maturity. If any one or more of the following events ("Events of Default") shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body or by operation of the Subordination Agreement): (a) if default shall be made in the due and punctual payment of all or any part of principal or interest on any Note when and as the same shall become due and payable, whether at the stated maturity thereof, by notice of or demand for prepayment, or otherwise; (b) if default shall be made in the performance or observance of any covenant, agreement or condition contained in Sections 4, 5 or 6 (other than Sections 4.5, 4.6, 4.7, 4.9 (but only with respect to the requirements thereof relating to payment), 4.10, 4.13 and 6.6, which shall be governed by Subparagraph 7.1(c); (c) if default shall be made in the performance or observance of any other of the covenants, agreements or conditions contained in this Agreement and such default shall have continued for a period of 30 days after Centrum's receipt of written notice of such default (unless such default is on account of failure to give a required notice, in which event such 30 day cure period shall commence with the date of such default); (d) if any Company shall: (1) apply for or consent to the appointment of a receiver, trustee or liquidator of it or any of its property; (2) admit in writing its inability to pay its debts as they mature; (3) make a general assignment or trust mortgage for the benefit of creditors; (4) file a petition seeking relief under Title 11 of the United States Code or under any other federal or state bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or file an answer admitting the material allegations of a petition filed against it in any proceeding under any such law; or (5) take corporate action for the purpose of effecting any of the foregoing; 32 37 (e) if an order of relief under Title 11 of the United States Code shall be entered against any Company, or any other order, judgment or decree shall be entered against any Company by any court of competent jurisdiction, approving a petition seeking bankruptcy, reorganization, readjustment of debt, dissolution, liquidation, or winding up of the company, or appointing a receiver, trustee or liquidator of such Company, or if any petition seeking an order of relief under Title 11 of the United States Code or any other such petition is filed against any Company and is not stayed or dismissed within 60 days after the date of such filing; (f) if the Companies, either individually or in the aggregate shall fail to make any payment due on any obligation for borrowed money or on any other Indebtedness (other than the Notes) or on any Guaranty of any Indebtedness or on any obligation under any lease, including, without limitation, any Capital Lease, or under any conditional sale or other title retention agreement in an aggregate amount in excess of $50,000, which default continues beyond any period of grace allowed by any written instrument evidencing such obligation; or an event shall occur that constitutes an event of default under such instrument if the effect thereof is to cause or permit the holder thereof to accelerate the maturity of such obligation; (g) if final judgment for the payment of money that, to, together with all other outstanding final judgments for the payment of money against the Companies, either individually or in the aggregate not covered by insurance, exceeds an aggregate of $50,000 shall be rendered by a court of record against the Companies either individually or in the aggregate, and such Company or Companies shall not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within 60 days from the date of entry thereof and within such period of 60 days, or such longer period during which execution of such judgment shall have been stayed, move to vacate such judgment or appeal therefrom and cause the execution thereof to be stayed pending determination of such motion or during such appeal; (h) if any representation or warranty made by Centrum herein or in any certificate or other instrument delivered under or pursuant to any provision hereof, shall have been false or incorrect in any material respect on the date as of which made, or shall on such date have been breached in any material respect, as the case may be, provided, that to the extent any such representation or warranty is qualified by a materiality standard it shall not be further qualified as to materiality by this subsection (h); (i) if, for any reason, including death or disability and in case of such disability such disability shall continue for ninety (90) out of one hundred and ten (110) consecutive days, George Wells shall fail to be actively involved on a full time basis in the management and operation of Centrum and a successor acceptable to the Requisite Holders shall not be in place within (a) in the case of such disability, thirty (30) days after the one hundred ten (110) consecutive day period described above, and (2) in all other cases, within one hundred twenty (120) days of the cessation of George Wells to be actively involved as described above; 33 38 (j) if the Companies shall be in default under any other Finance Document beyond any applicable grace period; then, in the case of an Event of Default of the character described in subsections (a), (b), (c), (f), (g), (h), (i), or (j) of this Section 7.1 and at the option of the Requisite Holders exercised by written notice to Centrum, the principal of all Notes shall forthwith become due and payable, together with interest accrued thereon, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and Centrum shall forthwith upon any such acceleration pay to the holder or holders of all of the Notes then outstanding the entire principal of and interest accrued on the Notes. Upon the occurrence of an Event of Default of the character described in subsections (d) or (e) of this Section 7.1, the principal of all Notes shall forthwith become due and payable, together with interest accrued thereon, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived and Centrum shall forthwith upon any such acceleration pay to the holder or holders of the Notes the entire principal of and interest accrued on the Notes. 7.2 Suits for Enforcement. In case any one or more of the Events of Default specified in Section 7.1 shall have occurred and be continuing, you or the holder of any Note may proceed to protect and enforce your rights either by suit in equity or by action at law, or both whether for the specific performance of any covenant or agreement in this Agreement or in aid of the exercise of any power granted in this Agreement, or you or the holder of any Note may proceed to enforce the payment of such Note or to enforce any other legal or equitable right of the holder of such Note. 7.3 Remedies Cumulative. No remedy herein conferred upon you or the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 7.4 Remedies Not Waived. No course of dealing between the Companies and you or the holder of any Note and no delay in exercising any rights hereunder or under any Note shall operate as a waiver of any of your rights or any rights of any holder of such Note. 7.5 Notice of Action by Noteholders or Claimed Defaults. If the holder or holders of any Note shall accelerate the maturity thereof as provided in Section 7.1, or if the holder of any Note or other obligation or security of the Companies shall give any notice of a claimed default or Event of Default or shall take any other action with respect to a claimed default or Event of Default, immediately upon obtaining knowledge thereof Centrum will give each holder of any outstanding Notes written notice specifying such action and the nature and status of the claimed default or Event of Default. VIII. MISCELLANEOUS 8.1 Registration, Transfer and Exchange of Notes and Warrants. 34 39 (a) The Notes issued hereunder shall be issued in registered form. Centrum shall keep at its principal executive office a register in which, subject to such reasonable regulations as it may prescribe, but at its expense (other than transfer taxes, if any), Centrum shall provide for the registration and transfer of the Notes. Any Notes purchased by Centrum shall be canceled, shall not be reissued, and shall not be "outstanding" as such term is used in this Agreement. (b) Whenever any Note shall be surrendered by the holder thereof at the principal executive office of Centrum for transfer or exchange, Centrum at its expense will execute and deliver in exchange therefor a new Note or Notes as may be requested by such holder, subject to compliance with any, legend appearing on such Note or Notes, in the same aggregate unpaid principal amount as the aggregate unpaid principal amount of the Note or Notes so surrendered (adjusted for the occurrence of any conversion pursuant to the terms of the Notes and the Warrants), provided that any transfer tax relating to such transaction shall be paid by the holder requesting the exchange. Each such new Note shall be in registered form, shall be dated as of the date to which interest has been paid on the unpaid principal amount of the Note or Notes so surrendered (or dated the date of the surrendered Note or Notes if no interest has been paid thereon), and shall be in such principal amount and registered in such name or names as such holder may designate in writing, provided that each Note shall be for a principal amount of at least $50,000. Every Note presented or surrendered for registration of transfer shall be duly endorsed, or shall be accompanied by a written instrument of transfer duly executed, by the holder of such Note or its attorney-in-fact duly authorized in writing. (c) Centrum may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payment of the principal of and interest on such Note and for all other purposes, whether or not such Note be overdue, and Centrum shall not be affected by any notice to the contrary except as provided in this Section 8.1. (d) No Note or Warrant may be offered, sold or otherwise transferred unless an opinion of counsel satisfactory to Centrum is obtained to the effect that registration of such Note or Warrant is not required under the Securities Act of 1933, as amended (the "Act"). Notwithstanding the foregoing and any provision of the Warrants, any Investor, may transfer a Note or Warrant to any other Investor or to any partner or stockholder thereof who delivers to Centrum a written representation that the transfer is exempt from registration under the Act. 8.2 Replacement of Lost, Stolen, Destroyed or Mutilated Notes or Warrants. Upon receipt of evidence reasonably satisfactory to Centrum of the loss, theft, destruction or mutilation of any Note or Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity bond in such reasonable amount as Centrum may determine (or, in the case of any Note or Warrant held by the original holder thereof or its nominee, upon delivery of an indemnity agreement reasonably satisfactory to Centrum), or, in the case of any such mutilation, upon the surrender of such Note or Warrant for cancellation, Centrum, at its expense, will execute and deliver, in lieu of such lost, stolen, destroyed or mutilated Note or Warrant, a new Note or Warrant of like tenor. 35 40 8.3 Amendment and Waiver; Offer to Purchase Notes. (a) Any term, covenant, agreement or condition of this Agreement, the Notes or any of the other Finance Documents may be amended, with the consent of Centrum, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by one or more substantially concurrent written instruments signed by the Requisite Holders, except that, without the written consent of each holder of the Notes then outstanding, no such amendment, waiver or modification shall (i) (subject to the provisions of Section 7.1) change the amount or time of any prepayment or payment of principle of, or reduce the rate or change the time of payment or method of computation of interest or prepayment premium on the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment, waiver or modification, (iii) amend or modify any of Sections 7.1, 7.3 or 8.3, (iv) change the exercise price or time of exercise of any Warrant, or (v) release any collateral from any security interest arising under any Finance Documents. (b) Centrum will not solicit, request or negotiate for or with respect to any proposed amendment or waiver of any of the provisions of this Agreement or the Notes or with respect to any purchase of any Note by it, directly or indirectly through an Affiliate, unless each holder of the Notes (irrespective of the amount of Notes then owned by it) shall be informed thereof by Centrum and shall be afforded the opportunity of considering the same and shall be supplied by Centrum with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any amendment or waiver effected pursuant to this Section 8.3 shall be delivered by Centrum to each holder of Notes forthwith following the date on which the same shall have been executed and delivered by the holder or holders of the requisite principal amount of outstanding Notes. Centrum will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any amendment or waiver of any of the terms and provisions of this Agreement or any Note, or any purchase by it, directly or indirectly through an Affiliate, of any Note unless such remuneration is concurrently paid, on the same terms, ratably to the holders of all of the Notes then outstanding. (c) Any amendment or waiver pursuant to this Section 8.3 shall be binding upon all of the holders of the Notes, upon each future holder of any Note, and upon Centrum. No notation need be made on the Notes at the time outstanding unless requested in writing by Centrum, but any Notes executed and delivered thereafter may, at the option of Centrum, bear a notation referring to any such amendment or waiver then in effect. (d) In determining whether the holders of the requisite principal amount of outstanding Notes have given any authorization, consent or waiver under this Section 8.3, Notes owned by Centrum or any Affiliate of Centrum shall be disregarded and deemed not to be outstanding. 36 41 8.4 Method of Payment of Notes. Irrespective of any provision hereof or of the Notes to the contrary, so long as you or any other holder shall hold any Note, Centrum agrees to make all payments of the principal of and interest on such Note to you or such other holder at the address for such purpose specified on Exhibit A attached hereto or at such other address as you or such holder may designate in writing, without requiring any presentation or surrender of such Note, except that any Note paid or prepaid in full shall be surrendered to Centrum and canceled. 8.5 Expenses. Centrum will, on demand, pay your expenses, including those expenses and fees incurred with respect to due diligence review and investigation of Company in connection with your entering into the transactions contemplated by this Agreement, and the reasonable fees and disbursements of counsel, incident to (i) the drafting, negotiation and preparation of the Finance Documents, (ii) any request to you for your consent to contemplated acts not otherwise permitted pursuant to the terms of the Finance Documents, (iii) any waiver, amendment, or modification of the terms thereof, and (iv) collection of any sums due, or enforcement of any of the provisions, thereunder, including court costs and reasonable attorneys' fees and disbursements, to the extent permitted by law, provided that solely in the case of subparagraph (i) of this Section 8.5, Centrum shall only be obligated to pay all fees up to a maximum amount of $50,000 and shall be required to pay all such disbursements even if the amount thereof, when added to the amount of such fees, would exceed $50,000. This covenant shall survive the payment of the Notes, the exercise or expiration of the Warrants and the termination of this Agreement. 8.6 Taxes. Centrum agrees to pay all taxes and fees (including interest and penalties), including, without limitation, all recording and filing fees, transfer and documentary stamp and similar taxes, that may be payable in respect of the execution and delivery of this Agreement and the execution and delivery (but not the transfer) of the Notes, the Warrants and the Securities or in respect of any amendment of or waiver under or with respect to this Agreement, the Notes, the Warrants, and the Securities and will defend, indemnify and hold harmless you and all subsequent holders of the Notes, the Warrants and the Securities against any loss or liability resulting from nonpayment or delay in payment of any such tax. The obligations of Centrum under this Section 8.6 shall survive the payment of the Notes, the exercise or expiration of the Warrants and the termination of this Agreement. 8.7 Communications. All communications provided for herein shall be personally delivered, sent by overnight courier or faxed (provided that on the same day a written copy thereof is personally delivered, or sent by overnight courier), addressed as follows: 37 42 (a) If to Centrum or any Company, at: Centrum Industries, Inc. 6135 Trust Drive Suite 104A Holland, Ohio Attn: President Telefax No.: (419) 868-3940 with a copy to: John W. Hilbert, II, Esq. Fuller & Henry One Seagate - 17th Floor P.O. Box 2088 Toledo, OH 43604-2606 Telefax No.: (419) 247-2665 (b) If to you, at your address set forth on Exhibit A attached hereto; with a copy to: Morris W. Kutcher, Esq. or James C. Schulwolf, Esq. Pepe & Hazard Goodwin Square Hartford, CT 06103 Telefax No.: (203) 522-2796 (c) If to any other Person who is the holder of any Note, at the address for the purpose of such holder as it appears on the Note register maintained pursuant to Section 8.1. The address of any Company may be changed at any time and from time to time and shall be the most recent such address furnished in writing by such Company to you and to each other Person who is the holder of any outstanding Note. Your address for any purpose hereof or of any other Person who is the holder of any Note outstanding hereunder may be changed at any time and from time to time and shall be the most recent such address furnished in writing by you or such other Person to Centrum. Any communication provided for herein shall become effective only upon and at the time of receipt by the Person to whom it is given. 8.8 Survival of Agreements, Representations and Warranties, etc.. All agreements, representations and warranties contained herein or made to you in writing by or on behalf of the Companies in connection with the transactions contemplated hereby shall survive the execution 38 43 and delivery of this Agreement, the issue, sale and delivery of the Notes and Warrants and payment therefor, any disposition of Notes and Warrants by you and any investigation at any time made by you or on your behalf; however, all such agreements, representations and warranties shall terminate as to any holder of a Note when he/she or it no longer holds any Notes and shall in any event terminate when the Notes are paid in full. 8.9 Successors and Assigns. This Agreement shall bind and inure to the benefit of and be enforceable by the Companies and you, successors to the Companies and your successors any assigns, and, in addition, shall inure to the benefit of and be enforceable of each holder from time to time of and Note who, upon acceptance of such Note, shall become a party to this Agreement so as to be entitled to enforce the provisions and enjoy the benefits hereof. 8.10 Purchase for Investment. You have made certain representations and warranties in those certain affidavits executed by each of you and dated as of the date hereof. You understand that the Notes and Warrants are being sold to you in a transaction that is exempt from the registration requirements of the Securities Act of 1933, as amended, and that, in making the representations and warranties contained in Section 3.20, Centrum and its counsel, Fuller & Henry, are relying, to the extent applicable, upon your representations and warranties contained therein. 8.11 Governing Law. This Agreement and the Notes and Warrants (including the validity thereof and the rights and obligations of the parties hereunder and thereunder) and all amendments and supplements hereof and thereof and all waivers and consents hereunder and thereunder shall be construed in accordance with and governed by the internal laws of the State of Connecticut without regard to its conflicts of law rules. 8.12 Definitions. (a) The terms defined in this Section 8.12(a), whenever used and capitalized in this Agreement, shall, unless the context otherwise requires, have the following respective meanings: "Affiliate" of any Person shall mean (i) any officer, director or shareholder of Centrum, (ii) any relative (by blood or marriage) of any such Person, or (iii) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person. "Borrowed Money" shall mean any obligation to repay money, any Indebtedness evidenced by notes, bonds, debentures, guaranties or similar obligations and any obligation under a conditional sale or other title retention agreement, the net aggregate rentals under any Capital Leases or any lease that is the substantial equivalent of the financing of the property so leased and any reimbursement obligation for any standby letter of credit. "Business Day" shall mean a day on which commercial banks are required to be open for business in Hartford, Connecticut, Columbus, Ohio, and Cedar Rapids, Iowa. 39 44 "Capital Lease" shall mean any lease or similar arrangement which is of such nature that the payment obligations of the lessee or obligor thereunder are required to be capitalized and shown as liabilities upon the balance sheet of such lessee or obligor prepared in accordance with generally accepted accounting principles. "Centrum" shall have the meaning specified at the beginning of this Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Common Stock" shall mean any and all capital stock, however designated, that is not limited as to amount of dividends or that is not limited as to the amount of distributions upon liquidation or dissolution of the Company. "Company" or "Companies" shall have the meaning specified at the beginning of this Agreement. "Default" shall mean any event which, but for the passage of time or the giving of notice, or both, would constitute an Event of Default. "EBITDA" shall mean for any period, (i) the sum of the amounts for such period of (A) Net Income, (B) Interest Expense, (C) charges for federal, state, local and foreign income taxes, (D) depreciation, amortization expense and non-cash charges which were deducted in determining net income, (E) extraordinary losses (and any unusual losses arising outside the ordinary course of business not included in extraordinary losses determined in accordance with GAAP) and (F) other non-operating expenses including, without limitation, LIFO adjustments, which have been deducted in the determination of net income, minus (ii) the sum of the amounts for such period of (X) extraordinary gains (and any unusual gains arising outside the ordinary course of business not included in extraordinary gains determined in accordance with GAAP), (Y) other non-operating income not already excluded from the determination of net income and (Z) to the extent not deducted from total interest expense, any net payment received during such period under interest rate contracts and any interest income received in respect of its cash investments. "Employee Benefit Plan" shall mean an "employee benefit plan" as defined in Section 3(3) of ERISA maintained by Centrum or by any ERISA Affiliate for employees of Centrum, any Subsidiary, Affiliate of Centrum or ERISA Affiliate, or in which any such employees participate, other than a Multiemployer Plan. "Environmental Laws" shall mean any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the 40 45 environment, including but not limited to those related to Hazardous Substances or wastes, air emissions and discharges to waste or public systems. "Environmental Notices" shall have the meaning specified in Section 3.16. "Equity Holders Agreement" means that certain Equity Holders Agreement of even date herewith by and among Centrum, the Investors and the Existing Shareholders (as defined in preamble thereto). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and rulings thereunder. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) that, together with Centrum, would be treated as a single employer under Section 4001(b) of ERISA, or that is a member of a group of which Centrum is a member and that is under common control within the meaning of Section 414 of the Code. "Event of Default" shall have the meaning specified in Section 7.1. "Existing Investments" shall mean the Investments described in Schedule 3.8 delivered herewith. "Finance Documents" shall mean this Agreement, the Notes, the Guarantee, the Warrants, the Equity Holders Agreement, the Put Agreement and the Registration Rights Agreement, each among the applicable Company and you dated as of the date hereof, the collateral assignment of the Wells Insurance Policy, and all other agreements, documents and instruments at any time executed (whether concurrently herewith or subsequent to the date hereof) and delivered by the applicable Company in connection with this Agreement and any of the other foregoing agreements, documents or instruments. "Fixed Charges" shall mean with respect to any period, the sum of (a) all amounts paid or accrued or due and payable (without duplication), for federal, state, local and foreign income taxes of Centrum and its Subsidiaries for such period, as determined in conformity with GAAP, plus (b) scheduled principal payments on term obligations and capital leases for such period, plus (c) capital expenditures (net of the amounts of such capital expenditure financed by purchase money indebtedness approved by the Investors or permitted hereunder and the principal portion of capital lease indebtedness permitted by this Agreement) made in accordance with the terms of this Agreement during such period; plus (d) Interest Expense. "GAAP" shall mean generally accepted accounting principles, consistently applied. 41 46 "Guarantees" shall mean the Agreement of Guarantee of each of the Companies other than Centrum in favor of the Investors, of even date herewith. "Guaranty" of any Person shall mean any obligation of such Person guaranteeing, directly or indirectly, any Indebtedness, liability or other obligation of any other Person in any manner, but in any event including all endorsements (other than for collection or deposit in the ordinary course of business), all discounts with recourse and all obligations incurred through an agreement, contingent or otherwise, (i) to purchase the obligations of any other Person or any security therefor or to advance or supply funds for the payment or purchase of such obligations, (ii) to purchase, sell or lease (as lessee or lessor) property, products, materials or supplies or to purchase or sell transportation or services, primarily for the purpose of enabling the obligor to make payment of such obligations or to assure the owner of such obligations against loss, regardless of the delivery or non-delivery of the property, products, materials or supplies or the furnishing or nonfurnishing of the transportation or services, or (iii) to provide funds for the payment of, or obligating such Person to make, any loan, advance, capital contribution or other investment in the obligor for the purpose of assuring a minimum equity, asset base, working capital or other balance sheet condition for any date or to provide funds for the payment of any obligation, dividend or stock liquidation payment, or otherwise to supply funds to or in any manner invest in the obligor. "Hazardous Substances" shall mean any and all pollutants, toxic or hazardous wastes, flammable substances, explosives, radioactive materials or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "Huntington" shall mean The Huntington National Bank. "Huntington Loan Agreement" shall mean that certain Loan and Security Agreement, of even date herewith between Huntington, McInnes Steel, Eballoy Glass Products Company, Erie Bronze & Aluminum Company, and McInnes International, Inc.. as Borrowers, and Centrum and McInnes Services, Inc. as Guarantors, as amended and in effect from time to time. "Huntington Loan Documents" shall mean those documents and instruments of even date herewith executed by the Companies or any "Borrower" or "Guarantor" (as defined in the Huntington Loan Agreement) in favor of Huntington, evidencing or securing the obligations described in the Huntington Loan Agreement, as amended or in effect from time to time. "Indebtedness" of any Person shall mean all indebtedness, liabilities and other obligations of such Person (other than items of shareholders' equity) that would, in 42 47 accordance with generally accepted accounting principles, be classified upon a balance sheet of such Person as liabilities of such Person, but in any event including: 1. all Guaranties of such Person; 2. all indebtedness, liabilities and other obligations secured by any mortgage, Lien, pledge, charge, security interest or other encumbrance in respect of property owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligations; 3. all indebtedness, liabilities and other obligations of such Person arising under any conditional sale or other title retention agreement, whether or not the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property; 4. the amount of the obligation required to be recorded by the lessee in respect of any Capital Lease under which such Person is lessee; and 5. the face amount of any letter of credit issued on behalf of Centrum. "Interest Expense" means, for any period, as determined in conformity with GAAP, total interest expense, whether paid or accrued or due and payable (without duplication), including without limitation the interest component of capital lease obligations for such period, all bank fees, commissions, discounts and other fees and charges owed with respect to the Letter of Credit (as defined in the Huntington Loan Agreement) and net costs under interest rate contracts. "Investment" shall mean any investment made by stock purchase, capital contribution, loan, advance, acquisition of Indebtedness, Guaranty, or otherwise. "Lien" shall mean any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. "McInnes Steel" shall mean McInnes Steel Company, a Pennsylvania corporation. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in section 4001(a)(3) of ERISA to which Centrum, any Subsidiary, Affiliate of Centrum or ERISA Affiliate is making or accruing an obligation to make contributions, or has on or after January 1, 1990, made or accrued an obligation to make contributions. 43 48 "Multiple Employer Plan" shall mean each Employee Benefit Plan that is subject to Title IV of ERISA to which Centrum, any Subsidiary, Affiliate of Centrum or ERISA Affiliate and more than one employer other than Centrum, a Subsidiary, Affiliate of Centrum or ERISA Affiliate is making or accruing an obligation to make contributions, that has within any of the preceding five plan fiscal years made or accrued an obligation to make contributions or, in the event that any such plan has been terminated, to which Centrum, any Subsidiary, Affiliate of Centrum or ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan fiscal years preceding the date of termination of such plan. "Net Income" for any period shall mean the consolidated net income (or deficit) after taxes of Centrum and its Subsidiaries for such period, which in accordance with GAAP would be included as net income on the statements of income of Centrum and its Subsidiaries for such period. "Net Worth" shall mean shareholders' equity determined in accordance with GAAP. "Notes" shall have the meaning specified in Section 1.1. "Officers' Certificate" shall mean a certificate signed on behalf of Centrum by the chief financial officer of Centrum. "Permits" shall have the meaning specified in Section 3.16. "Person" shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof or therein. "PBGC" shall mean the Pension Benefit Guaranty Corporation, and shall also mean any successor thereto. "Proprietary Rights" shall mean any patents, registered and common law trademarks, service marks, trade names, copyrights, licenses and other similar rights (including, without limitation, know-how, trade secrets and other confidential information) and applications for each of the foregoing, if any. "Reorganization Plan" shall mean that certain Agreement and Plan of Reorganization dated December 5, 1995 by and among Company, Centrum Merging Corporation and McInnes Steel Company, as amended by that certain Addendum No. 1 to the Agreement and Plan of Reorganization dated February 5, 1996, and as further amended by Addendum No. 2 to the Agreement and Plan of Reorganization dated as of March 1, 1996. "Requisite Holders" shall mean, for so long as any Notes are outstanding, the holder or holders of 100% or more of the aggregate outstanding principal amount of all 44 49 Notes (excluding any Note at the time held by Centrum or any Affiliate of Centrum), and, in the event that no Notes are outstanding, the holder or holders of 100% of the Total Shares. "SBA" shall mean the United States Small Business Administration established pursuant to the Small Business Act of 1958, as amended and any public or private successor thereto. "SBIC" shall mean a licensee under the SBIC Act. "SBIC Act" shall mean the Small Business Investment Act of 1958, as amended. "Security" shall mean (i) Common Stock issued upon exercise of a Warrant and (ii) Common Stock issued upon conversion of all or any portion of a Note. "Subordinated Debt" shall mean Centrum's Indebtedness under the Notes. "Subordination Agreement" shall mean that certain agreement by and among Huntington and the Investors pursuant to which, subject to terms and conditions stated therein, the investors have agreed to subordinate certain rights under the Finance Documents to rights of Huntington under the Huntington Loan Agreement. "Subsidiary" shall mean any Person a majority (by number of votes) of the voting stock of which is owned, directly or indirectly, by Centrum or a Subsidiary of Centrum. "Termination Event" shall mean (i) a "reportable event" as such term is described in Section 4043 of ERISA (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC), with respect to any Employee Benefit Plan; (ii) the withdrawal of Centrum, any Subsidiary, Affiliate of Centrum or ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a "substantial employer," as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by Centrum, any Subsidiary, Affiliate of Centrum or ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan; (iii) the submission to a governmental authority of a request for a waiver of minimum funding standards required by ERISA or the Code, with respect to any Employee Benefit Plan; 45 50 (iv) the disclosure to affected parties of a notice of intent to terminate an Employee Benefit Plan under Section 4041 of ERISA other than in a "standard termination" within the meaning of Section 4041 of ERISA; (v) the institution of proceedings to terminate an Employee Benefit Plan by the PBGC under Section 4042 of ERISA: or (vi) any other event or condition that might reasonably constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Employee Benefit Plan. "Total Liabilities" shall mean with respect to Centrum and its Subsidiaries (a) all indebtedness for borrowed money or for the deferred purchase price of property or services, (b) any other indebtedness which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations with respect to any letter of credit issued for the account of Centrum or any of its Subsidiaries, (d) all obligations in respect of acceptances issued or created for the account of Centrum or any of its Subsidiaries, (e) lease obligations which, in accordance with GAAP, should be capitalized, (f) all liabilities (including lease obligations) secured by any lien or encumbrance on any property owned by Centrum or any of its Subsidiaries even though such Person has not assumed or otherwise become liable for the payment hereof, (g) all obligations of Centrum and its Subsidiaries with respect to interest rate protection agreements (valued at the termination value thereof computed in accordance with a method approved by the International Swap Dealers Association), and (i) all other obligations of Centrum and its Subsidiaries which, in accordance with GAAP, would be classified upon a balance sheet as liabilities (except capital stock and surplus earned). "Total Shares" shall mean shall mean, as of any date of determination, the sum of (1) the number of shares of Common Stock which would be acquired upon the exercise in whole of all outstanding Warrants, taking into account any adjustments in such number of shares as provided for in such Warrants, plus (2) the number of shares of Common Stock theretofore issued pursuant to the exercise of Warrants, plus (3) the number of shares of Common Stock theretofore issued pursuant to the conversion of Notes in whole or in part. "Warrants" shall have the meaning specified in Section 1.3. "Wells Insurance Policy" shall have the meaning specified in Section 4.7 hereof. "Wells Options" shall have the meaning specified in Section 4.19 hereof. "Withdrawal Liability" shall have the meaning specified under Part 1 of Subtitle E of Title IV of ERISA. 46 51 (b) The use of any gender shall include all genders. The singular number shall include the plural and the plural the singular as the context may require. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms. The words "include," "including," and "such as" shall each be construed as if followed by the phrases "without being limited to." The words "herein," "hereof," "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular Section hereof unless expressly so stated. The word "you" shall be construed to refer to each Investor. The section headings herein are for convenience of reference only and shall not affect in any way the interpretation of any of the provisions hereof. (c) All accounting terms used herein that are not expressly defined in this Agreement shall have the respective meanings given to them in accordance with generally accepted accounting principles. Except as otherwise provided in this Agreement, all computations made pursuant to this Agreement shall be made in accordance with generally accepted accounting principles as in effect from time to time and all balance sheets and other financial statements shall be prepared in accordance with generally accepted accounting principles. 8.13 Waiver of Trial by Jury. CENTRUM HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL, TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND CENTRUM HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND YOU MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF COMPANY S CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY EXCEPT AS PROHIBITED BY LAW. CENTRUM WAIVES ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. Centrum (a) certifies that neither you nor any of your representatives, agents or attorneys has represented, expressly or otherwise, that you would not, in the event of litigation, seek to enforce the foregoing waivers, and (b) acknowledges that, in entering into the this Agreement and the other Finance Documents you are relying upon, among other things, the Waivers and certifications contained in this Section 8.13. 47 52 8.14 Prejudgment Remedy Waiver. TO INDUCE YOU TO ACCEPT THIS AGREEMENT, CENTRUM AGREES THAT THE TRANSACTIONS EVIDENCED BY THE NOTES, THIS AGREEMENT AND ALL OTHER FINANCE DOCUMENTS ARE AND EVIDENCE A COMMERCIAL TRANSACTION AND NOT A CONSUMER TRANSACTION AND WAIVES ANY RIGHT TO A NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED OR ANY OTHER JURISDICTION AFFECTING PREJUDGMENT REMEDIES AND AUTHORIZES YOUR ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER AND WAIVES ANY CLAIM IN TORT, CONTRACT OR OTHERWISE AGAINST YOUR ATTORNEY WHICH MAY ARISE OUT OF SUCH ISSUANCE OF THE WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER. CENTRUM ACKNOWLEDGES AND STIPULATES THAT SUCH WAIVER AND AUTHORIZATION GRANTED ABOVE ARE MADE KNOWINGLY AND FREELY AND AFTER FULL CONSULTATION WITH COUNSEL. SPECIFICALLY, CENTRUM RECOGNIZES AND UNDERSTANDS THAT THE EXERCISE OF YOUR RIGHTS DESCRIBED ABOVE MAY RESULT IN THE ATTACHMENT OF OR LEVY AGAINST CENTRUM'S PROPERTY, AND SUCH WRIT FOR A PREJUDGMENT REMEDY WILL NOT HAVE THE PRIOR WRITTEN APPROVAL OR SCRUTINY OF A COURT OF LAW OR OTHER JUDICIAL OFFICER NOR WILL CENTRUM HAVE THE RIGHT TO ANY NOTICE OR PRIOR HEARING WHERE CENTRUM MIGHT CONTEST SUCH A PROCEDURE. THE INTENT OF CENTRUM IS TO GRANT YOU FOR GOOD AND VALUABLE CONSIDERATION THE RIGHT TO OBTAIN SUCH A PREJUDGMENT REMEDY AND TO ASSURE THAT ANY SUCH PREJUDGMENT REMEDY OBTAINED IS VALID AND CONSTITUTIONAL. 8.15 Limitation of Interest. It is the intent of the Companies and the Investors in the execution of this Agreement and the Notes and all other instruments securing the Notes to contract in strict compliance with the usury laws of the state governing the loans evidenced by the Notes. In furtherance thereof, each Investor and the Companies stipulate and agree that notwithstanding anything contained herein, in the Notes or in the other Finance Documents, none of the terms and provisions contained in the Finance Documents shall ever be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by the laws of the state governing the loans evidenced by the Notes. In the event it is determined that any holder of any Note has collected monies which are deemed to constitute interest and are deemed to increase the effective interest rate on such Note to a rate in excess of that permitted to be charged by the laws of the state governing the loans evidenced by the Notes, all such sums shall be applied to reduce the outstanding principal amount of such Note to zero. Any excess thereafter shall be refunded to Centrum. All sums paid or agreed to be paid to the holder of any Note for the use, forbearance or detention of the indebtedness of Company evidenced thereby, outstanding from time to time shall, to the extent permitted by applicable law, and only to the extent necessary to preclude exceeding the limit of validity prescribed by law, be amortized, pro-rated, allocated and spread from the date of disbursement of the proceeds of such Note until payment in full of 48 53 such Note so that the actual rate of interest on account of such indebtedness is uniform throughout the balance of the term hereof. 8.16 Miscellaneous. Except for the Finance Documents, this Agreement embodies the entire agreement and understanding between you and the Companies and supersedes all prior agreements and understandings relating to the subject matter hereof. In case any provision in the Notes, Warrants or this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts but all such counterparts shall together constitute but one and the same instrument. This Agreement may be reproduced by any photographics, photostatic, microfilm, micro-card, miniature photographic, facsimile or other similar process and the original thereof may be destroyed. The parties agree that any such reproduction shall to the extent permitted by law, be as admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not the reproduction was made in the regular course of business) and that any enlargement, facsimile or further reproduction shall likewise be admissible in evidence. 8.17 (a) If you are in agreement with the foregoing please sign below, whereupon this letter shall become a binding agreement under seal between you and the Companies. Very truly yours, CENTRUM INDUSTRIES, INC. By /s/ George H. Wells ----------------------------------- George Wells Title: President (Duly Authorized) AMERICAN HANDLING, INC. By /s/ George H. Wells ----------------------------------- Print Name: Title: MICAFIL, INC. By /s/ George H. Wells ----------------------------------- Print Name: Title: 49 54 The foregoing Agreement is hereby agreed to as of the date thereof. FIRST NEW ENGLAND CAPITAL LIMITED PARTNERSHIP By: FINEC Corp., its General Partner By: /s/ Richard C. Klaffky ---------------------------------- Richard Klaffky Its President MORAMERICA CAPITAL CORPORATION By: InvestAmerica Investment Advisors, Inc., its Investment Advisor By: /s/ David Schroder ---------------------------------- David Schroder Its President NORTH DAKOTA SMALL BUSINESS INVESTMENT COMPANY, A NORTH DAKOTA LIMITED PARTNERSHIP By: InvestAmerica ND Management, Inc. its Investment Advisor By: /s/ David Schroder ---------------------------------- David Schroder Its President 50 55 EXHIBIT A Names and Addresses of Investors Notes Purchased -------------------------------- --------------- First New England Capital Limited Partnership $750,000 100 Pearl Street Hartford, CT 06103 Attn: Richard Klaffky, President MorAmerica Capital Corporation $1,254,890 c/o InvestAmerica Investment Advisors, Inc. 101 2nd Street, S.E., Suite 800 Cedar Rapids, IA 52401 Attn: David Schroder, President North Dakota Small Business Investment Compa- $495,110 ny, a North Dakota Limited Partnership c/o InvestAmerica ND Management, Inc. 101 2nd Street, S.E., Suite 800 Cedar Rapids, IA 52401 Attn: David Schroder, President EX-10.4 9 EX-10.4 1 EXHIBIT 10.4 COMMON STOCK WARRANT March 8, 1996 NEITHER THIS WARRANT, NOR THE STOCK TO BE ISSUED UPON EXERCISE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER ANY STATE SECURITIES LAWS (THE "STATE SECURITIES LAWS"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH. WARRANT Void after March 8, 2004 No. 2 Warrant to Purchase Common Stock $.05 Par Value This certifies that MORAMERICA CAPITAL CORPORATION ("Purchaser"), having an address of c/o InvestAmerica Investment Advisors, Inc., 101 2nd Street S.E., Suite 800, Cedar Rapids, Iowa 52401, or any party to whom this Warrant is assigned in compliance with the terms hereof (Purchaser and any such assignee being hereafter sometimes referred to as "Holder"), is entitled to subscribe to and purchase, (i) during the period commencing at the date first set forth above and ending at 5 p.m. Toledo, Ohio local time, on the "Expiration Date" (as defined below), SIX HUNDRED TWENTY-SEVEN THOUSAND FOUR HUNDRED FORTY-FIVE (627,445) shares of fully paid and nonassessable Common Stock (as hereinafter defined of CENTRUM INDUSTRIES, INC. (the "Company"), a Delaware corporation with its principal place of business at 6135 Trust Drive, Suite 104A, Holland, Ohio 43528. This Warrant is one of a series of Warrants identical in form issued by the Company pursuant to the Agreement (as defined below), and the Holder, by acceptance hereof, agrees to be bound by the provisions of such Agreement as applicable to this Warrant. The purchase price of each such share of Common Stock shall be the Warrant Price as defined below. This Warrant was originally issued to Purchaser pursuant to the Agreement (as defined below). 2 ARTICLE I DEFINITIONS 1.1 "Aggregate Price" shall mean the product, at any time of reference, of (i) the Warrant Price multiplied by (ii) the number of shares of Warrant Stock. 1.2 "Agreement" shall mean that certain Note and Warrant Purchase Agreement entered into by and between Purchaser, among others, and the Company of even date herewith. 1.3 "Common Stock" shall mean and include the Company's common stock, par value $.05, as constituted on the date hereof, and shall also include any capital stock of any class or series of the Company's hereafter authorized which shall substitute for or replace the Common Stock as constituted on the date hereof; provided, however, that in the event the Company authorizes one or more classes or series of capital stock qualifying as "Common Stock" for purposes of the foregoing definition, in addition to the class of authorized capital stock denominated as "Common Stock" in the Company's Certificate of Incorporation as of the date hereof, the Holder shall have the right to designate at each time it exercises its rights hereunder the class or series of authorized capital stock that it elects to purchase in satisfaction of its rights hereunder. 1.4 "Common Stock Equivalents" shall mean Convertible Securities and Rights. 1.5 "Convertible Securities" means any securities which are directly or indirectly convertible into Common Stock. 1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum Consideration by (ii) Maximum Shares Upon Exercise. 1.7 "Expiration Date" means March 8, 2004. 1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of Common Stock issuable under a Common Stock Equivalent upon complete exercise and full conversion of all Rights or Convertible Securities represented thereby, computed without regard to contingent adjustments to the number of shares issuable upon exercise and conversion. 1.9 "Minimum Consideration" means the minimum aggregate consideration paid or payable at any time for the purchase of the Common Stock Equivalents during the term of the Common Stock Equivalents, and upon complete exercise and full conversion of the Common Stock Equivalents, computed without regard to contingent adjustments to exercise or conversion price. 2 3 1.10 "Notes" means the Company's 11% Convertible Subordinated Notes due March 31, 2001, one or more of which has been issued by the Company on the date hereof to the Purchaser, among others, together with any note issued in exchange therefor or replacement thereof. 1.11 "Rights" means any options, warrants, or rights to purchase Common Stock or Convertible Securities. 1.12 "Warrant Price" shall mean Two and 00/100 ($2.00) Dollars for each share of Common Stock subject, however, to reduction pursuant to Section 3.5 hereof. 1.13 "Warrant Stock" shall mean 627,445 shares of Common Stock, subject to reduction as provided in Section 2.2 hereof. ARTICLE II EXERCISE AND PAYMENT 2.1 Cash Exercise. The purchase rights represented by this Warrant may be exercised by Holder, in whole or in part, by written notice of exercise delivered to the Company at least twenty (20) days prior to the intended date of exercise and by the surrender of this Warrant at the principal office of the Company, and by the payment to the Company, by certified, cashier's or other check acceptable to the Company, of an amount equal to the aggregate Warrant Price of the shares being purchased. 2.2 Deemed Exercise Upon Conversion of Notes. In lieu of exercising this Warrant pursuant to Section 2.1, Holder may elect to convert all or a portion of the outstanding principal balance of any of the Notes into shares of Common Stock at a conversion price equal to the Warrant Price pursuant to the terms of such Note, in which event this Warrant shall be deemed, without further act or instrument, to have been exercised for a number of shares of Common Stock equal to the number of shares of Common Stock received by the Purchaser upon such conversion, and the number of shares of Warrant Stock subject to this Warrant shall be reduced by an equal number of shares, and this Warrant shall remain in full force and effect with respect to such reduced number of shares of Warrant Stock. The foregoing conversion shall be effected by delivery of a written notice to the Company at least twenty (20) days prior to the intended date of conversion specifying the amount of outstanding principal to be converted. By way of example and illustration only, if the Purchaser elects to convert $100,000 of the outstanding principal balance of a Note and receives 50,000 shares of Common Stock upon such conversion, the number of shares of Warrant Stock subject to this Warrant shall be reduced from 627,445 to 3 4 577,445 and this Warrant shall remain in full force and effect with respect to such 577,445 shares of Warrant Stock. 2.3 Stock Certificate. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to Holder within a reasonable time and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the number of shares of Common Stock with respect to which this Warrant shall not have been exercised shall also be issued to Holder within such time. 2.4 Stock Fully Paid; Reservation of Shares. The Company covenants and agrees that all Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof (excluding taxes based on the income of Holder), provided that any such shares of Common Stock shall be subject to the restrictions, obligations and duties imposed upon stockholders of the Company pursuant to that certain Equity Holders' Agreement, of even date herewith, among the Company and the Purchaser, among others, as the same may be amended and supplemented to and including the date hereof (the "Equity Holders' Agreement"), and shall be subject to applicable restrictions imposed by relevant federal and state securities laws relating to capital stock sold in a private placement. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for issuance a sufficient number of shares of its Common Stock as would be required upon the full exercise of the rights represented by this Warrant. 2.5 Fractional Shares. No fractional share of Common Stock will be issued in connection with any exercise hereof, but in lieu of a fractional share upon complete exercise hereof, Holder may purchase a whole share at the then effective Warrant Price. ARTICLE III CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: 3.1 Reclassification, Consolidation or Merger. In case of: (i) any reclassification or change of outstanding securities issuable upon exercise of this Warrant; (ii) any consolidation or 4 5 merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification, change or exchange of outstanding securities issuable upon exercise of this Warrant); or (iii) any sale or transfer to another corporation of all, or substantially all, of the property of the Company, then, and in each such event, the Company or such successor or purchasing corporation, as the case may be, shall execute a new Warrant which will provide that Holder shall have the right to exercise such new Warrant and purchase upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of securities, money and property receivable upon such reclassification, change, consolidation, merger, sale or transfer by a holder of one share of Common Stock issuable upon exercise of this Warrant had this Warrant been exercised immediately prior to such reclassification, change, consolidation, merger, sale or transfer. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 3 and the provisions of this Section 3.1, shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales and transfers. 3.2 Subdivision or Combination of Shares. If the Company shall at any time while this Warrant remains outstanding and unexercised in whole or in part: (i) divide its Common Stock, the Warrant Price shall be proportionately reduced; or (ii) combine shares of is Common Stock, the Warrant Price shall be proportionately increased. 3.3 Adjustment for Issue or Sale of Shares at Less Than the Warrant Price. If, in a transaction other than an issuance excepted from these provisions as set forth below or an issuance that causes an adjustment under Sections 3.1 or 3.2, the Company shall at any time or from time to time, issue any additional shares of Common Stock without consideration or for a net consideration per share less than the Warrant Price in effect immediately prior to such issuance, then, and in each case, the Warrant Price shall be lowered to an amount equal to the lowest per share price received, or deemed received, by the Company as consideration for such Shares. For purposes of this Section 3.3: (i) There shall be no adjustment under this Section 3.3 for any sales or issuances: (a) in a transaction in which an adjustment will be made pursuant to Section 3.1 or 3.2; or (b) upon exercise or conversion of Common Stock Equivalents outstanding on the original date of issuance of this Warrant; or (c) pursuant to that certain Confidential Private Placement Memorandum of the Company dated November 15, 1995 for the sale of up to 2,400,000 shares of the Company's common stock at a price of $1.50 per share; or (d) upon the Company's granting to George 5 6 Wells, no later than ninety (90) days after March 31, 1996 fiscal year at the discretion of the Company's Board of Directors, based upon satisfaction of certain incentive goals, an option or options to purchase up to 150,000 shares of the Company's common stock at a price of $1.50 per share; (ii) The issuance of Common Stock Equivalents shall be deemed an issuance at such time of the shares of Common Stock underlying the Common Stock Equivalents. If the Effective Price shall be less than the Warrant Price at the time of such issuance, then an adjustment in the Warrant Price shall be made upon each such issuance in the manner provided in this Section 3.3. No adjustment of the Warrant Price shall be made under this Section 3.3 upon the issuance of shares of Common Stock upon the exercise or conversion of Common Stock Equivalents if an adjustment has previously been made as above provided. Any adjustment of the Warrant Price shall be disregarded, if, as and when such Common Stock Equivalents expire or are cancelled without being exercised so that the Warrant Price effective immediately upon such cancellation or expiration shall be equal to the Warrant Price in effect at the time of the issuance of the expired or cancelled Common Stock Equivalents, with such additional adjustments as would have been made to the Warrant Price had the expired or cancelled Common Stock); Equivalents not been issued. 3.4 Other Action Affecting Common Stock. (a) If the Company takes any action affecting its Common Stock after the date hereof (including dividends and distributions), other than an action described in any of Sections 3.1 and 3.2 hereof, which would have a material adverse effect upon Holder's rights hereunder, the Warrant Price shall be adjusted downward in such manner and at such time as the Board of Directors of the Company shall in good faith determine to be equitable under the circumstances. (b) In case the Company shall make any distribution of its assets to holders of its Common Stock as a liquidation or partial liquidation dividend or by ways of return of capital, or other than as a dividend payable out of earnings or surplus legally available for dividends under the laws of the state of incorporation of the Company, and Holder exercises this Warrant within thirty (30) days after the later of (i) the record date for the determination of the holders of Common Stock entitled to such distribution of assets and (ii) the date upon which notice of such distribution is delivered by the Company to Holder, Holder shall be entitled to receive, for no additional consideration, in addition to the Warrant Stock, the amount of such assets (or, at the option of the Company. a sum equal to the value thereof at the time of such distribution, such value to be determined 6 7 by the Board of Directors of the Company in good faith) that would have been payable to the Holder had it been the holder of record of the Warrant Stock on such record date. (c) In case the Company shall liquidate or wind up its affairs, the Holder shall be entitled, upon the exercise hereof, to receive, in lieu of the shares of Warrant Stock; that the Holder would have been entitled to receive, the same kind and amount of assets as would have been issued, paid or otherwise distributed to the Holder upon such dissolution, liquidation or winding up with respect to such shares of Warrant Stock, had the Holder been the holder of record of such shares of Warrant Stock on the record date for the determination of those entitled to receive any such distribution; provided, however, that all rights under this Warrant shall terminate on a date fixed by the Company, such date to be not earlier than the date of commencement of proceedings for dissolution, liquidation or winding up and not later than thirty (30) days after such date of commencement, unless the Holder shall have, prior to such termination date, exercised this Warrant. Written notice of such termination of rights under this Warrant shall be given to the Holder at least thirty (30) days prior to such termination date. 3.5 Adjustment with Respect to Common Stock Offering. The Company shall complete an offering of its common stock within the period ending February 28, 1997. If such offering shall result in the Company's receipt by such date of aggregate proceeds (after deduction of offering expenses) in an amount less than $1,800,000, then, effective March 1, 1997, the Warrant Price per share shall be reduced by an amount equal to the product of (i) $0.50, multiplied by the difference between (A) 1 and (B) the decimal equivalent of a fraction, the numerator of which is the amount of aggregate proceeds (net of offering expenses) received by the Company by February 28, 1997, and the denominator of which is $1,800,000. The Warrant Price shall not be adjusted pursuant to this Section 3.5 if the aggregate proceeds (after deduction of offering expenses) received by the Company by such date as a result of such offering exceeds $1,800,000. 3.6 Time of Adjustments to the Warrant Price. All adjustments to the Warrant Price and the number of shares purchasable hereunder, unless otherwise specified herein, shall be effective as of the earlier of: (i) the date of issue (or date of sale, if earlier) of the security causing the adjustment; (ii) the effective date of a division or combination of shares; (iii) the record date of any action of holders of the Company's capital stock of any class taken for the purpose of dividing or combining shares or entitling shareholders to receive a distribution or dividends. 7 8 3.7 Notice of Adjustments. In each case of an adjustment in the Warrant Price and the number of shares purchasable hereunder, the Company, at its expense, shall cause the Treasurer or chief financial officer of the Company to compute such adjustment and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company shall promptly mail a copy of each such certificate to Holder pursuant to Section 6.9 hereof. 3.8 Duration of Adjusted Warrant Price. Following each adjustment of the Warrant Price such adjusted Warrant Price shall remain in effect until a further adjustment of the Warrant Price. 3.9 Adjustment of Number of Shares. Upon each adjustment of the Warrant Price pursuant to this Section 3, the number of shares of Warrant Stock shall be adjusted to the nearest whole share, to the number obtained by dividing the Aggregate Price by the Warrant Price as adjusted. ARTICLE IV TRANSFER, EXCHANGE AND LOSS 4.1 Transfer. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant or Warrants representing the Warrants so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant or Warrants with respect to the Warrants not so transferred. Notwithstanding the foregoing, Holder shall not be entitled to transfer a number of shares or an interest in this Warrant representing less than five percent (5%) of the aggregate shares initially covered by this Warrant. Any transferee shall be subject to the same restrictions on transfer with respect to this Warrant as the Purchaser. 4.9 Securities Laws. Upon any issuance of shares of Common Stock upon exercise of this warrant, it shall be the Company's responsibility to comply with the requirements of: (1) the 1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3) any applicable listing requirements of any national securities exchange; (4) any state securities regulation or "Blue Sky" laws; and (5) requirements under any other law or regulation applicable to the issuance or transfer of such shares. If required by the Company, in connection with each issuance of shares of Common Stock upon exercise of this Warrant, the Holder will give: (i) assurances in writing, satisfactory to the Company, that such shares are not being purchased with a view to the distribution thereof in violation of applicable laws, (ii) sufficient information, in writing, to enable the 8 9 Company to rely on exemptions from the registration or qualification requirements of applicable laws, if available, with respect to such exercise, (iii) the legal opinion required by the restrictive legend set forth at the beginning of this Warrant, and (iv) its cooperation to the Company in connection with such compliance. 4.3 Exchange. Subject to compliance with applicable federal and state securities laws, this Warrant is exchangeable at the principal office of the Company for Warrants to purchase the same number of shares of Common Stock purchasable hereunder, each new Warrant to represent the right to purchase such number of shares of Common Stock as Holder shall designate at the time of such exchange. Each new Warrant shall be identical in form and content to this Warrant, except for appropriate changes in the number of shares of Common Stock covered thereby, the aggregate purchase price of such shares, the percentage stated in Section 4.1 above, and any other changes which are necessary in order to prevent the Warrant exchange from changing the respective rights and obligations of the Company and the Holder as they existed immediately prior to such exchange. 4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it of the ownership of, and the loss, theft, destruction or mutilation of, this Warrant and (in the case of loss, theft, or destruction) of indemnity satisfactory to it, and (in the case of mutilation) upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant. ARTICLE V HOLDER RIGHTS 5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by virtue hereof, shall be entitled to any rights as a shareholder of the Company. Holder shall have all rights of a shareholder with respect to securities purchased upon exercise hereof at the time of cash or deemed exercise pursuant to Sections 2.1 and 2.2 hereof. 5.2 Registration Rights. The Company agrees that any shares of Common Stock issued to Holder upon exercise of this Warrant shall be subject to the registration rights set forth in the Registration Rights Agreement of even date herewith among the Company, the Purchaser and others. 9 10 ARTICLE VI MISCELLANEOUS 6.1 Additional Covenants by the Company. The Company further covenants and agrees that it will: a. Give each Holder prompt written notice of any intended changes to the composition of its capital structure, whether by issuance of new securities or otherwise; b. Give each Holder written notice of any shareholders' meeting and will allow a representative of each Holder to attend such meetings; c. Give each Holder at least five days' prior written notice of any action that the Company intends to take by shareholders' written consent; d. Allow, upon reasonable notice and at reasonable times, the inspection of its minute book and other corporate records by a representative of the Holder; and e. Not engage, other than on arm's length terms, in any transaction with any of its shareholders or affiliates (as such term is defined under Rule 144 issued by the Securities and Exchange Commission under the 1933 Securities Act, as amended). 6.2 Governmental Approvals. The Company will from time to time take all action which may be necessary to obtain and keep effective any and all permits, consents and approvals of governmental agencies and authorities and securities acts filings under federal and state laws, which may be or become requisite in connection with the issuance, sale, and delivery of this Warrant, and the issuance. sale and delivery of the shares of Common Stock or other securities or property issuable or deliverable upon exercise of this Warrant. 6.1 Governing Laws. It is the intention of the parties hereto that except as set forth below, the internal laws of the State of Connecticut, U.S.A. (irrespective of its choice of law principles) shall govern the validity of this warrant, the construction of its terms. and the interpretation and enforcement of the rights and duties of the parties hereto, provided that the corporation laws of the State of Delaware shall govern the procedural and substantive matters pertaining to the due authorization, issuance, delivery and exercise of this Warrant and the shares of Common Stock upon exercise hereof. Except as set forth below, the parties hereby agree that any suit to enforce any provision of this Warrant 10 11 arising out of or based upon this Warrant or the business relationship between any of the parties hereto shall be brought in the United States District Court for the District of Delaware or the courts of the State of Delaware located in Wilmington, Delaware. Each party hereby agrees that such courts shall have personal jurisdiction and venue with respect to such party, and each party hereby submits to the personal jurisdiction and venue of such courts. In addition to the foregoing jurisdiction, Holder at its sole option, may commence any such suit in any jurisdiction in which the Company has a business office or is incorporated. 6.4 Binding Upon Successors and Assigns. Subject to, and unless otherwise provided in, this Warrant, each and all of the covenants, terms provisions, and agreements contained herein shall be binding upon, and inure to the benefit of the permitted successors. executors, heirs, representatives, administrators and assigns of the parties hereto. 6.5 Severability. If any one or more provisions of this Warrant, or the application thereof, shall for any reason and to any extent be invalid or unenforceable, the remainder of this Warrant and the application of such provisions to other persons or circumstances shall be interpreted so as best to reasonably effect the intent of the parties hereto. The parties further agree to replace any such void or unenforceable provisions of this Warrant with valid and enforceable provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. 6.6 Default, Amendment and Waivers. This Warrant may be amended upon the written consent of the Company and the Holder. The waiver by a party of any breach hereof for default in payment of any amount due hereunder or default in the performance hereof shall not be deemed to constitute a waiver of any other default or any succeeding breach or default. It shall be an event of default under this Warrant if the Company breaches any term or condition hereof or fails to perform any obligation as and when required hereunder and such breach or failure is not cured within thirty (30) days after receiving written notice thereof from Holder. Upon such event of default, the Warrant Price for all shares shall be reduced by one-fifth and thereafter shall continue to be reduced by one-fifth from the then adjusted Warrant Price for each successive thirty (30) day period in which such breach is not cured. 6.7 No Waiver. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions. 6.8 Attorneys' Fees. Should suit be brought to enforce or interpret any part of this Warrant, the prevailing party shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys fees to be fixed by the court (including without 11 12 limitation, costs, expenses and fees on any appeal). The prevailing party shall be the party entitle to recover its costs of suit, regardless of whether such suit proceeds to final judgment. A party not entitled to recover its costs shall not be entitled to recover attorneys' fees. No sum for attorneys' fees shall be counted in calculating the amount of a judgment for purposes of determining if a party is entitled to recover costs or attorneys' fees. 6.9 Notices. Whenever any party hereto desires or is required to give any notices, demand, or request with respect to this Warrant, each such communication shall be in writing and shall be effective only if it is delivered by personal service or delivered by a nationally recognized overnight courier, in each case addressed to the parties hereto at their respective addresses set forth at the beginning of this Agreement. Such communication shall be effective when they are received by the addressee thereof. Any party may change its address for such communications by giving notice thereof to the other party in conformity with this Section. 6.10 Time. Time is of the essence of this Warrant. 6.11 Construction of Agreement. This Warrant has been negotiated by the respective parties hereto and their attorneys and the language hereof shall not be construed for or against any party. 6.12 No Endorsement. Holder understands that no federal or state securities administrator has made any finding or determination relating to the fairness of investment in the Company or purchase of the Common Stock hereunder and that no federal or state securities administrator has recommended or endorsed the offering of securities by the Company hereunder. 6.13 Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person, persons, entity or entities may require. 6.14 Further Assurances. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances, as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby, and to carry into effect the intents and purposes of this Warrant. 12 13 IN WITNESS WHEREOF, the undersigned Company has caused this Common Stock Warrant to be executed and delivered on the date first above written by its President, thereunto duly authorized. COMPANY: Centrum Industries, Inc. By: /s/ George H. Wells ----------------------------------- George Wells Its President 13 EX-10.5 10 EX-10.5 1 EXHIBIT 10.5 COMMON STOCK WARRANT March 8, 1996 NEITHER THIS WARRANT, NOR THE STOCK TO BE ISSUED UPON EXERCISE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER ANY STATE SECURITIES LAWS (THE "STATE SECURITIES LAWS"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH. WARRANT Void after March 8, 2004 No. 1 Warrant to Purchase Common Stock $.05 Par Value This certifies that FIRST NEW ENGLAND CAPITAL LIMITED PARTNERSHIP ("Purchaser"), having an address of 100 Pearl Street, Hartford, Connecticut 06103, or any party to whom this Warrant is assigned in compliance with the terms hereof (Purchaser and any such assignee being hereafter sometimes referred to as "Holder"), is entitled to subscribe to and purchase, (i) during the period commencing at the date first set forth above and ending at 5 p.m. Toledo, Ohio local time, on the "Expiration Date" (as defined below), THREE HUNDRED SEVENTY-FIVE THOUSAND (375,000) shares of fully paid and nonassessable Common Stock (as hereinafter defined) of CENTRUM INDUSTRIES, INC. (the "Company"), a Delaware corporation with its principal place of business at 6135 Trust Drive, Suite 104A, Holland, Ohio 43528. This Warrant is one of a series of Warrants identical in form issued by the Company pursuant to the Agreement (as defined below), and the Holder, by acceptance hereof, agrees to be bound by the provisions of such Agreement as applicable to this Warrant. The purchase price of each such share of Common Stock shall be the Warrant Price as defined below. This Warrant was originally issued to Purchaser pursuant to the Agreement (as defined below). ARTICLE I DEFINITIONS 1.1 "Aggregate Price" shall mean the product, at any time of reference, of (i) the Warrant Price multiplied by (ii) the number of shares of Warrant Stock. 2 1.2 "Agreement" shall mean that certain Note and Warrant Purchase Agreement entered into by and between Purchaser, among others, and the Company of even date herewith. 1.3 "Common Stock" shall mean and include the Company's common stock, par value $.05, as constituted on the date hereof, and shall also include any capital stock of any class or series of the Company's hereafter authorized which shall substitute for or replace the Common Stock as constituted on the date hereof; provided, however, that in the event the Company authorizes one or more classes or series of capital stock qualifying as "Common Stock" for purposes of the foregoing definition, in addition to the class of authorized capital stock denominated as "Common Stock" in the Company's Certificate of Incorporation as of the date hereof, the Holder shall have the right to designate at each time it exercises its rights hereunder the class or series of authorized capital stock that it elects to purchase in satisfaction of its rights hereunder. 1.4 "Common Stock Equivalents" shall mean Convertible Securities and Rights. 1.5 "Convertible Securities" means any securities which are directly or indirectly convertible into Common Stock. 1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum Consideration by (ii) Maximum Shares Upon Exercise. 1.7 "Expiration Date" means March 8, 2004. 1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of Common Stock issuable under a Common Stock Equivalent upon complete exercise and full conversion of all Rights or Convertible Securities represented thereby, computed without regard to contingent adjustments to the number of shares issuable upon exercise and conversion. 1.9 "Minimum Consideration" means the minimum aggregate consideration paid or payable at any time for the purchase of the Common Stock Equivalents during the term of the Common Stock Equivalents, and upon complete exercise and full conversion of the Common Stock Equivalents, computed without regard to contingent adjustments to exercise or conversion price. 1.10 "Notes" means the Company's 11% Convertible Subordinated Notes due March 31, 2001, one or more of which has been issued by the Company on the date hereof to the Purchaser, among others, together with any note issued in exchange therefor or replacement thereof. 2 3 1.11 "Rights" means any options, warrants, or rights to purchase Common Stock or Convertible Securities. 1.12 "Warrant Price" shall mean Two and 00/100 ($2.00) Dollars for each share of Common Stock subject, however, to reduction pursuant to Section 3.5 hereof. 1.13 "Warrant Stock" shall mean 375,000 shares of Common Stock, subject to reduction as provided in Section 2.2 hereof. ARTICLE II EXERCISE AND PAYMENT 2.1 Cash Exercise. The purchase rights represented by this Warrant may be exercised by Holder, in whole or in part, by written notice of exercise delivered to the Company at least twenty (20) days prior to the intended date of exercise and by the surrender of this Warrant at the principal office of the Company, and by the payment to the Company, by certified, cashier's or other check acceptable to the Company, of an amount equal to the aggregate Warrant Price of the shares being purchased. 2.2 Deemed Exercise Upon Conversion of Notes. In lieu of exercising this Warrant pursuant to Section 2.1, Holder may elect to convert all or a portion of the outstanding principal balance of any of the Notes into shares of Common Stock at a conversion price equal to the Warrant Price pursuant to the terms of such Note, in which event this Warrant shall be deemed, without further act or instrument, to have been exercised for a number of shares of Common Stock equal to the number of shares of Common Stock received by the Purchaser upon such conversion, and the number of shares of Warrant Stock subject to this Warrant shall be reduced by an equal number of shares, and this Warrant shall remain in full force and effect with respect to such reduced number of shares of Warrant Stock. The foregoing conversion shall be effected by delivery of a written notice to the Company at least twenty (20) days prior to the intended date of conversion specifying the amount of outstanding principal to be converted. By way of example and illustration only, if the Purchaser elects to convert $100,000 of the outstanding principal balance of a Note and receives 50,000 shares of Common Stock upon such conversion, the number of shares of Warrant Stock subject to this Warrant shall be reduced from 375,000 to 325,000 and this Warrant shall remain in full force and effect with respect to such 325,000 shares of Warrant Stock. 2.3 Stock Certificate. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to Holder within a reasonable time and, unless this Warrant has been fully exercised or has 3 4 expired, a new Warrant representing the number of shares of Common Stock with respect to which this Warrant shall not have been exercised shall also be issued to Holder within such time. 2.4 Stock Fully Paid; Reservation of Shares. The Company covenants and agrees that all Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof (excluding taxes based on the income of Holder), provided that any such shares of Common Stock shall be subject to the restrictions, obligations and duties imposed upon stockholders of the Company pursuant to that certain Equity Holders' Agreement, of even date herewith, among the Company and the Purchaser, among others, as the same may be amended and supplemented to and including the date hereof (the "Equity Holders' Agreement"), and shall be subject to applicable restrictions imposed by relevant federal and state securities laws relating to capital stock sold in a private placement. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for issuance a sufficient number of shares of its Common Stock as would be required upon the full exercise of the rights represented by this Warrant. 2.5 Fractional Shares. No fractional share of Common Stock will be issued in connection with any exercise hereof, but in lieu of a fractional share upon complete exercise hereof, Holder may, purchase a whole share at the then effective Warrant Price. ARTICLE III CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: 3.1 Reclassification, Consolidation or Merger. ln case of: (i) any reclassification or change of outstanding securities issuable upon exercise of this Warrant; (ii) any consolidation or merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification, change or exchange of outstanding securities issuable upon exercise of this Warrant); or (iii) any sale or transfer to another corporation of all, or substantially all, of the property of the Company, then, and in each such event, the Company or such successor or purchasing corporation, as the case may be, shall execute 4 5 a new Warrant which will provide that Holder shall have the right to exercise such new Warrant and purchase upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of securities, money and property receivable upon such reclassification, change, consolidation, merger, sale or transfer by a holder of one share of Common Stock issuable upon exercise of this Warrant had this Warrant been exercised immediately prior to such reclassification, change, consolidation, merger, sale or transfer. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 3 and the provisions of this Section 3.1, shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales and transfers. 3.2 Subdivision or Combination of Shares. If the Company shall at any time while this Warrant remains outstanding and unexercised in whole or in part: (i) divide its Common Stock, the Warrant Price shall be proportionately reduced; or (ii) combine shares of is Common Stock, the Warrant Price shall be proportionately increased. 3.3 Adjustment for Issue or Sale of Shares at Less Than the Warrant Price. If, in a transaction other than an issuance excepted from these provisions as set forth below or an issuance that causes an adjustment under Sections 3.1 or 3.2, the Company shall at any time or from time to time, issue any additional shares of Common Stock without consideration or for a net consideration per share less than the Warrant Price in effect immediately prior to such issuance, then, and in each case, the Warrant Price shall be lowered to an amount equal to the lowest per share price received, or deemed received, by the Company as consideration for such Shares. For purposes of this Section 3.3: (i) There shall be no adjustment under this Section 3.3 for any sales or issuances: (a) in a transaction in which an adjustment will be made pursuant to Section 3.1 or 3.2; or (b) upon exercise or conversion of Common Stock Equivalents outstanding on the original date of issuance of this Warrant; or (c) pursuant to that certain Confidential Private Placement Memorandum of the Company dated November 15, 1995 for the sale of up so 2,400,000 shares of the Company's common stock at a price of $1.50 per share; or (d) upon the Company's granting to George Wells, no later than ninety (90) days after March 31, 1996 at the discretion of the Company's Board of Directors, based upon satisfaction of certain incentive goals, an option or options to purchase up to 150,000 shares of the Company's common stock at a price of $1.50 per share; 5 6 (ii) The issuance of Common Stock Equivalents shall be deemed an issuance at such time of the shares of Common Stock underlying the Common Stock Equivalents. If the Effective Price shall be less than the Warrant Price at the time of such issuance, then an adjustment in the Warrant Price shall be made upon each such issuance in the manner provided in this Section 3.3. No adjustment of the Warrant Price shall be made under this Section 3.3 upon the issuance of shares of Common Stock upon the exercise or conversion of Common Stock Equivalents if an adjustment has previously been made as above provided. Any adjustment of the Warrant Price shall be disregarded, if, as and when such Common Stock Equivalents expire or are cancelled without being exercised so that the Warrant Price effective immediately upon such cancellation or expiration shall be equal to the Warrant Price in effect at the time of the issuance of the expired or cancelled Common Stock Equivalents, with such additional adjustments as would have been made to the Warrant Price had the expired or cancelled Common Stock Equivalents not been issued. 3.4 Other Action Affecting Common Stock. (a) If the Company takes any action affecting its Common Stock after the date hereof (including dividends and distributions), other than an action described in any of Sections 3.1 and 3.2 hereof, which would have a material adverse effect upon Holder's rights hereunder, the Warrant Price shall be adjusted downward in such manner and at such time as the Board of Directors of the Company shall in good faith determine to be equitable under the circumstances. (b) In case the Company shall make any distribution of its assets to holders of its Common Stock as a liquidation or partial liquidation dividend or by way of return of capital, or other than as a dividend payable out of earnings or surplus legally available for dividends under the laws of the state of incorporation of the Company, and Holder exercises this Warrant within thirty (30) days after the later of (i) the record date for the determination of the holders of Common Stock entitled to such distribution of assets and (ii) the date upon which notice of such distribution is delivered by the Company to Holder, Holder shall be entitled to receive, for no additional consideration, in addition to the Warrant Stock, the amount of such assets (or, at the option of the Company, a sum equal to the value thereof at the time of such distribution, such value to be determined by the Board of Directors of the Company in good faith) that would have been payable to the Holder had it been the holder of record of the Warrant Stock on such record date. (c) In case the Company shall liquidate or wind up its affairs, the Holder shall be entitled, upon the exercise hereof, to receive, in lieu of the shares of Warrant Stock that the Holder would have been entitled to receive, the same kind and amount of assets as would have been issued, paid or otherwise distributed to the Holder upon such 6 7 dissolution, liquidation or winding up with respect to such shares of Warrant Stock, had the Holder been the holder of record of such shares of Warrant Stock on the record date for the determination of those entitled to receive any such distribution; provided, however, that all rights under this Warrant shall terminate on a date fixed by the Company, such date to be not earlier than the date of commencement of proceedings for dissolution, liquidation or winding up and not later than thirty (30) days after such date of commencement, unless the Holder shall have, prior to such termination date, exercised this Warrant. Written notice of such termination of rights under this Warrant shall be given to the Holder at least thirty (30) days prior to such termination date. 3.5 Adjustment with Respect to Common Stock Offering. The Company shall complete an offering of its common stock within the period ending February 28, 1997. If such offering shall result in the Company's receipt by such date of aggregate proceeds (after deduction of offering expenses) in an amount less than $1,800,000, then, effective March 1, 1997, the Warrant Price per share shall be reduced by an amount equal to the product of (i) $0.50, multiplied by the difference between (A) 1 and (B) the decimal equivalent of a fraction, the numerator of which is the amount of aggregate proceeds (net of offering expenses) received by the Company by February 28, 1997, and the denominator of which is $1,800,000. The Warrant Price shall not be adjusted pursuant to this Section 3.5 if the aggregate proceeds (after deduction of offering expenses) received by the Company by such date as a result of such offering exceeds $1,800,000. 3.6 Time of Adjustments to the Warrant Price. All adjustments to the Warrant Price and the number of shares purchasable hereunder, unless otherwise specified herein, shall be effective as of the earlier of: (i) the date of issue (or date of sale, if earlier) of the security causing the adjustment; (ii) the effective date of a division or combination of shares; (iii) the record date of any action of holders of the Company's capital stock of any class taken for the purpose of dividing or combining shares or entitling shareholders to receive a distribution or dividends. 3.7 Notice of Adjustments. In each case of an adjustment in the Warrant Price and the number of shares purchasable hereunder, the Company, at its expense, shall cause the Treasurer or chief financial officer of the Company to compute such adjustment and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company shall promptly mail a copy of each such certificate to Holder pursuant to Section 6.9 hereof. 7 8 3.8 Duration of Adjusted Warrant Price. Following each adjustment of the Warrant Price, such adjusted Warrant Price shall remain in effect until a further adjustment of the Warrant Price. 3.9 Adjustment of Number of Shares. Upon each adjustment of the Warrant Price pursuant to this Section 3, the number of shares of Warrant Stock shall be adjusted to the nearest whole share, to the number obtained by dividing the Aggregate Price by the Warrant Price as adjusted. ARTICLE IV TRANSFER, EXCHANGE AND LOSS 4.1 Transfer. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant or Warrants representing the Warrants so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant or Warrants with respect to the Warrants not so transferred. Notwithstanding the foregoing, Holder shall not be entitled to transfer a number of shares or an interest in this Warrant representing less than five percent (5%) of the aggregate shares initially covered by this Warrant. Any transferee shall be subject to the same restrictions on transfer with respect to this Warrant as the Purchaser. 4.2 Securities Laws. Upon any issuance of shares of Common Stock upon exercise of this Warrant, it shall be the Company's responsibility to comply with the requirements of: (1) the 1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3) any applicable listing requirements of any national securities exchange; (4) any state securities regulation or "Blue Sky" laws; and (5) requirements under any other law or regulation applicable to the issuance or transfer of such shares. If required by the Company, in connection with each issuance of shares of Common Stock upon exercise of this Warrant, the Holder will give: (i) assurances in writing, satisfactory to the Company, that such shares are not being purchased with a view to the distribution thereof in violation of applicable laws, (ii) sufficient information, in writing, to enable the Company to rely on exemptions from the registration or qualification requirements of applicable laws, if available, with respect to such exercise, (iii) the legal opinion required by the restrictive legend set forth at the beginning of this Warrant, and (iv) its cooperation to the Company in connection with such compliance. 4.3 Exchange. Subject to compliance with applicable federal and state securities laws, this Warrant is exchangeable at the principal office of the Company for Warrants to purchase 8 9 the same number of shares of Common Stock purchasable hereunder, each new Warrant to represent the right to purchase such number of shares of Common Stock as Holder shall designate at the time of such exchange. Each new Warrant shall be identical in form and content to this Warrant, except for appropriate changes in the number of shares of Common Stock covered thereby, the aggregate purchase price of such shares, the percentage stated in Section 4.1 above, and any other changes which are necessary in order to prevent the Warrant exchange from changing the respective rights and obligations of the Company and the Holder as they existed immediately prior to such exchange. 4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it of the ownership of, and the loss, theft, destruction or mutilation of, this Warrant and (in the case of loss, theft, or destruction) of indemnity satisfactory to it, and (in the case of mutilation) upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant. ARTICLE V HOLDER RIGHTS 5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by virtue hereof, shall be entitled to any rights as a shareholder of the Company. Holder shall have all rights of a shareholder with respect to securities purchased upon exercise hereof at the time of cash or deemed exercise pursuant to Sections 2.1 and 2.2 hereof. 5.2 Registration Rights. The Company agrees that any shares of Common Stock issued to Holder upon exercise of this Warrant shall be subject to the registration rights set forth in the Registration Rights Agreement of even date herewith among the Company, the Purchaser and others. ARTICLE VI MISCELLANEOUS 6.1 Additional Covenants by the Company. The Company further covenants and agrees that it will: a. Give each Holder prompt written notice of any intended changes to the composition of its capital structure, whether by issuance of new securities or otherwise; 9 10 b. Give each Holder written notice of any shareholders' meeting and will allow a representative of each Holder to attend such meetings; c. Give each Holder at least five days' prior written notice of any action that the Company intends to take by shareholders' written consent; d. Allow, upon reasonable notice and at reasonable times, the inspection of its minute book and other corporate records by a representative of the Holder; and e. Not engage, other than on arm's length terms, in any transaction with any of its shareholders or affiliates (as such term is defined under Rule 144 issued by the Securities and Exchange Commission under the 1933 Securities Act, as amended). 6.2 Governmental Approvals. The Company will from time to time take all action which may be necessary to obtain and keep effective any and all permits, consents and approvals of governmental agencies and authorities and securities acts filings under federal and state laws, which may be or become requisite in connection with the issuance, sale, and delivery of this Warrant, and the issuance, sale and delivery of the shares of Common Stock or other securities or property issuable or deliverable upon exercise of this Warrant. 6.3 Governing Laws. It is the intention of the parties hereto that except as set forth below, the internal laws of the State of Connecticut, U.S.A. (irrespective of its choice of law principles) shall govern the validity of this warrant, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto' provided that the corporation laws of the State of Delaware shall govern the procedural and substantive matters pertaining to the due authorization, issuance, delivery and exercise of this Warrant and the shares of Common Stock upon exercise hereof. Except as set forth below, the parties hereby agree that any suit to enforce any provision of this Warrant arising out of or based upon this Warrant or the business relationship between any of the parties hereto shall be brought in the United States District Court for the District of Delaware or the courts of the State of Delaware located in Wilmington, Delaware. Each party hereby agrees that such courts shall have personal jurisdiction and venue with respect to such party, and each party hereby submits to the personal jurisdiction and venue of such courts. In addition to the foregoing jurisdiction, Holder at its sole option, may commence any such suit in any jurisdiction in which the Company has a business office or is incorporated. 10 11 6.4 Binding Upon Successors and Assigns. Subject to, and unless otherwise provided in, this Warrant, each and all of the covenants, terms, provisions, and agreements contained herein shall be binding upon, and inure to the benefit of the permitted successors, executors, heirs, representatives, administrators and assigns of the parties hereto. 6.5 Severability. If any one or more provisions of this Warrant, or the application thereof, shall for any reason and to any extent be invalid or unenforceable, the remainder of this Warrant and the application of such provisions to other persons or circumstances shall be interpreted so as best to reasonably effect the intent of the parties hereto. The parties further agree to replace any such void or unenforceable provisions of this Warrant with valid and enforceable provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. 6.6 Default, Amendment and Waivers. This Warrant may be amended upon the written consent of the Company and the Holder. The waiver by a party of any breach hereof for default in payment of any amount due hereunder or default in the performance hereof shall not be deemed to constitute a waiver of any other default or any succeeding breach or default. It shall be an event of default under this Warrant if the Company breaches any term or condition hereof or fails to perform any obligation as and when required hereunder and such breach or failure is not cured within thirty (30) days after receiving written notice thereof from Holder. Upon such event of default, the Warrant Price for all shares shall be reduced by one-fifth and thereafter shall continue to be reduced by one-fifth from the then adjusted Warrant Price for each successive thirty (30) day period in which such breach is not cured. 6.7 No Waiver. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions . 6.8 Attorneys' Fees. Should suit be brought to enforce or interpret any part of this Warrant, the prevailing party shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys fees to be fixed by the court (including without limitation, costs, expenses and fees on any appeal). The prevailing party shall be the party entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. A party not entitled to recover its costs shall not be entitled to recover attorneys' fees. No sum for attorneys' fees shall be counted in calculating the amount of a judgment for purposes of determining if a party is entitled to recover costs or attorneys' fees. 6.9 Notices. Whenever any party hereto desires or is required to give any notices. demand, or request with respect to this Warrant, each such communication shall be in writing and 11 12 shall be effective only if it is delivered by personal service or delivered by a nationally recognized overnight courier, in each case addressed to the parties hereto at their respective addresses set forth at the beginning of this Agreement. Such communication shall be effective when they are received by the addressee thereof. Any party may change its address for such communications by giving notice thereof to the other party in conformity with this Section. 6.10 Time. Time is of the essence of this Warrant. 6.11 Construction of Agreement. This Warrant has been negotiated by the respective parties hereto and their attorneys and the language hereof shall not be construed for or against any party. 6.12 No Endorsement. Holder understands that no federal or state securities administrator has made any finding or determination relating to the fairness of investment in the Company or purchase of the Common Stock hereunder and that no federal or state securities administrator has recommended or endorsed the offering of securities by the Company hereunder. 6.13 Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person, persons, entity or entities may require. 6.14 Further Assurances. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances, as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby, and to carry into effect the intents and purposes of this Warrant. IN WITNESS WHEREOF, the undersigned Company has caused this Common Stock Warrant to be executed and delivered on the date first above written by its President, thereunto duly authorized. COMPANY: Centrum Industries, Inc. By: /s/ George H. Wells ------------------------------------ George H. Wells Its President 12 EX-10.6 11 EX-10.6 1 EXHIBIT 10.6 COMMON STOCK WARRANT March 8, 1996 NEITHER THIS WARRANT, NOR THE STOCK TO BE ISSUED UPON EXERCISE HEREOF, HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER ANY STATE SECURITIES LAWS (THE "STATE SECURITIES LAWS"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH. WARRANT Void after March 8, 2004 No. 3 Warrant to Purchase Common Stock $.05 Par Value This certifies that North Dakota Small Business Investment Company, a North Dakota Limited Partnership ("Purchaser"), having an address of c/o InvestAmerica ND Management, Inc., 101 2nd Street S.E., Suite 800, Cedar Rapids, Iowa 52401, or any party to whom this Warrant is assigned in compliance with the terms hereof (Purchaser and any such assignee being hereafter sometimes referred to as "Holder"), is entitled to subscribe to and purchase, (i) during the period commencing at the date first set forth above and ending at 5 p.m. Toledo, Ohio local time, on the "Expiration Date" (as defined below), TWO HUNDRED FORTY-SEVEN THOUSAND FIVE HUNDRED FIFTY-FIVE (247,555) shares of fully paid and nonassessable Common Stock (as hereinafter defined) of Centrum Industries, inc. (the "Company"'), a Delaware corporation with its principal place of business at 6135 Trust Drive, Suite 104A, Holland, Ohio 43528. This Warrant is one of a series of Warrants identical in form issued by the Company pursuant to the Agreement (as defined below), and the Holder, by acceptance hereof, agrees to be bound by the provisions of such Agreement as applicable to this Warrant. The purchase price of each such share of Common Stock shall be the Warrant Price as defined below. This Warrant was originally issued to Purchaser pursuant to the Agreement (as defined below). 2 ARTICLE I DEFINITIONS 1.1 "Aggregate Price" shall mean the product, at any time of reference, of (i) the Warrant Price multiplied by (ii) the number of shares of Warrant Stock. 1.2 "Agreement" shall mean that certain Note and Warrant Purchase Agreement entered into by and between Purchaser, among others, and the Company of even date herewith. 1.3 "Common Stock" shall mean and include the Company's common stock, par value $.05, as constituted on the date hereof, and shall also include any capital stock of any class or series of the Company's hereafter authorized which shall substitute for or replace the Common Stock as constituted on the date hereof; provided, however, that in the event the Company authorizes one or more classes or series of capital stock qualifying as "Common Stock" for purposes of the foregoing definition, in addition to the class of authorized capital stock denominated as "Common Stock" in the Company's Certificate of Incorporation as of the date hereof, the Holder shall have the right to designate at each time it exercises its rights hereunder the class or series of authorized capital stock that it elects to purchase in satisfaction of its rights hereunder. 1.4 "Common Stock Equivalents" shall mean Convertible Securities and Rights. 1.5 "Convertible Securities" means any securities which are directly or indirectly convertible into Common Stock. 1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum Consideration by (ii) Maximum Shares Upon Exercise 1.7 "Expiration Date" means March 8, 2004. 1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of Common Stock issuable under a Common Stock Equivalent upon complete exercise and full conversion of all Rights or Convertible Securities represented thereby, computed without regard to contingent adjustments to the number of shares issuable upon exercise and conversion. 1.9 "Minimum Consideration" means the minimum aggregate consideration paid or payable at any time for the purchase of the Common Stock Equivalents during the term of the Common Stock Equivalents, and upon complete exercise and full conversion of the Common Stock Equivalents, computed without regard to contingent adjustments to exercise or conversion price. 2 3 1.10 "Notes" means the Company's 11% Convertible Subordinated Notes due March 31, 2001, one or more of which has been issued by the Company on the date hereof to the Purchaser, among others, together with any note issued in exchange therefor or replacement thereof. 1.11 "Rights" means any options, warrants, or rights to purchase Common Stock or Convertible Securities. 1.12 "Warrant Price" shall mean Two and 00/100 ($2.00) Dollars for each share of Common Stock subject, however, to reduction pursuant to Section 3.5 hereof. 1.13 "Warrant Stock" shall mean 247,555 shares of Common Stock, subject to reduction as provided in Section 2.2 hereof. ARTICLE II EXERCISE AND PAYMENT 2.1 Cash Exercise. The purchase rights represented by this Warrant may be exercised by Holder, in whole or in part, by written notice of exercise delivered to the Company at least twenty (20) days prior to the intended date of exercise and by the surrender of this Warrant at the principal office of the Company, and by the payment to the Company, by certified, cashier's or other check acceptable to the Company, of an amount equal to the aggregate Warrant Price of the shares being purchased. 2.2 Deemed Exercise Upon Conversion of Notes. In lieu of exercising this Warrant pursuant to Section 2.1, Holder may elect to convert all or a portion of the outstanding principal balance of any of the Notes into shares of Common Stock at a conversion price equal to the Warrant Price pursuant to the terms of such Note, in which event this Warrant shall be deemed, without further act or instrument, to have been exercised for a number of shares of Common Stock equal to the number of shares of Common Stock received by the Purchaser upon such conversion, and the number of shares of Warrant Stock subject to this Warrant shall be reduced by an equal number of shares, and this Warrant shall remain in full force and effect with respect to such reduced number of shares of Warrant Stock. The foregoing conversion shall be effected by delivery of a written notice to the Company at least twenty (20) days prior to the intended date of conversion specifying the amount of outstanding principal to be converted. By way of example and illustration only, if the Purchaser elects to convert $100,000 of the outstanding principal balance of a Note and receives 50,000 shares of Common Stock upon such conversion, the number of shares of Warrant Stock subject to this Warrant shall be reduced from 247,555 to 197,555 and this Warrant shall remain in full force and effect with respect to such 197,555 shares of Warrant Stock. 3 4 2.3 Stock Certificate. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to Holder within a reasonable time and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the number of shares of Common Stock with respect to which this Warrant shall not have been exercised shall also be issued to Holder within such time. 2.4 Stock Fully Paid; Reservation of Shares. The Company covenants and agrees that all Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof (excluding taxes based on the income of Holder), provided that any such shares of Common Stock shall be subject to the restrictions, obligations and duties imposed upon stockholders of the Company pursuant to that certain Equity Holders' Agreement, of even date herewith, among the Company and the Purchaser, among others, as the same may be amended and supplemented to and including the date hereof (the "Equity Holders' Agreement"), and shall be subject to applicable restrictions imposed by relevant federal and state securities laws relating to capital stock sold in a private placement. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for issuance a sufficient number of shares of its Common Stock as would be required upon the full exercise of the rights represented by this Warrant. 2.5 Fractional Shares. No fractional share of Common Stock will be issued in connection with any exercise hereof, but in lieu of a fractional share upon complete exercise hereof, Holder may purchase a whole share at the then effective Warrant Price. ARTICLE III CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: 3.1 Reclassification, Consolidation or Merger. In case of: (i) any reclassification or change of outstanding securities issuable upon exercise of this Warrant; (ii) any consolidation or merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification, change or exchange of outstanding securities issuable upon exercise of this Warrant); or (iii) any sale or transfer to another corporation of all, 4 5 or substantially all, of the property of the Company, then, and in each such event, the Company or such successor or purchasing corporation, as the case may be, shall execute a new Warrant which will provide that Holder shall have the right to exercise such new Warrant and purchase upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of securities, money and property receivable upon such reclassification, change, consolidation, merger, sale or transfer by a holder of one share of Common Stock issuable upon exercise of this Warrant had this Warrant been exercised immediately prior to such reclassification, change, consolidation, merger, sale or transfer. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 3 and the provisions of this Section 3.1, shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales and transfers. 3.2 Subdivision or Combination of Shares. If the Company shall at any time while this Warrant remains outstanding and unexercised in whole or in part: (i) divide its Common Stock, the Warrant Price shall be proportionately reduced; or (ii) combine shares of is Common Stock, the Warrant Price shall be proportionately increased. 3.3 Adjustment for Issue or Sale of Shares at Less Than the Warrant Price. If, in a transaction other than an issuance excepted from these provisions as set forth below or an issuance that causes an adjustment under Sections 3.1 or 3.2, the Company shall at any time or from time to time, issue any additional shares of Common Stock without consideration or for a net consideration per share less than the Warrant Price in effect immediately prior to such issuance, then, and in each case, the Warrant Price shall be lowered to an amount equal to the lowest per share price received, or deemed received, by the Company as consideration for such Shares. For purposes of this Section 3.3: (i) There shall be no adjustment under this Section 3.3 for any sales or issuances: (a) in a transaction in which an adjustment will be made pursuant to Section 3.1 or 3.2; or (b) upon exercise or conversion of Common Stock Equivalents outstanding on the original date of issuance of this Warrant; or (c) pursuant to that certain Confidential Private Placement Memorandum of the Company dated November 15, 1995 for the sale of up to 2,400,000 shares of the Company's common stock at a price of $1.50 per share; or (d) upon the Company's granting to George Wells, no later than ninety (90) days after March 31, 1996 fiscal year at the discretion of the Company's Board of Directors, based upon satisfaction of certain incentive goals, an option or options to purchase up to 150,000 shares of the Company's common stock at a price of $1.50 per share; 5 6 (ii) The issuance of Common Stock Equivalents shall be deemed an issuance at such time of the shares of Common Stock underlying the Common Stock Equivalents. If the Effective Price shall be less than the Warrant Price at the time of such issuance, then an adjustment in the Warrant Price shall be made upon each such issuance in the manner provided in this Section 3.3. No adjustment of the Warrant Price shall be made under this Section 3.3 upon the issuance of shares of Common Stock upon the exercise or conversion of Common Stock Equivalents if an adjustment has previously been made as above provided. Any adjustment of the Warrant Price shall be disregarded, if, as and when such Common Stock Equivalents expire or are cancelled without being exercised so that the Warrant Price effective immediately upon such cancellation or expiration shall be equal to the Warrant Price in effect at the time of the issuance of the expired or cancelled Common Stock Equivalents, with such additional adjustments as would have been made to the Warrant Price had the expired or cancelled Common Stock Equivalents not been issued. 3.4 Other Action Affecting Common Stock. (a) If the Company takes any action affecting its Common Stock after the date hereof (including dividends and distributions), other than an action described in any of Sections 3.1 and 3.2 hereof, which would have a material adverse effect upon Holder's rights hereunder, the Warrant Price shall be adjusted downward in such manner and at such time as the Board of Directors of the Company shall in good faith determine to be equitable under the circumstances. (b) In case the Company shall make any distribution of its assets to holders of its Common Stock as a liquidation or partial liquidation dividend or by way of return of capital, or other than as a dividend payable out of earnings or surplus legally available for dividends under the laws of the state of incorporation of the Company, and Holder exercises this Warrant within thirty (30) days after the later of (i) the record date for the determination of the holders of Common Stock entitled to such distribution of assets and (ii) the date upon which notice of such distribution is delivered by the Company to Holder, Holder shall be entitled to receive, for no additional consideration, in addition to the Warrant Stock, the amount of such assets (or, at the option of the Company, a sum equal to the value thereof at the time of such distribution, such value to be determined by the Board of Directors of the Company in good faith) that would have been payable to the Holder had it been the holder of record of the Warrant Stock on such record date. (c) In case the Company shall liquidate or wind up its affairs, the Holder shall be entitled, upon the exercise hereof, to receive, in lieu of the shares of Warrant Stock that the Holder would have been entitled to receive, the same kind and amount of assets as would have been issued, paid or otherwise distributed to the Holder upon such dissolution, liquidation or winding up with respect to such shares of Warrant Stock, had 6 7 the Holder been the holder of record of such shares of Warrant Stock on the record date for the determination of those entitled to receive any such distribution; provided, however, that all rights under this Warrant shall terminate on a date fixed by the Company, such date to be not earlier than the date of commencement of proceedings for dissolution, liquidation or winding up and not later than thirty (30) days after such date of commencement, unless the Holder shall have, prior to such termination date, exercised this Warrant. Written notice of such termination of rights under this Warrant shall be given to the Holder at least thirty (30) days prior to such termination date. 3.5 Adjustment with Respect to Common Stock Offering. The Company shall complete an offering of its common stock within the period ending February 28, 1997. If such offering shall result in the Company's receipt by such date of aggregate proceeds (after deduction of offering expenses) in an amount less than $1,800,000, then, effective March 1, 1997, the Warrant Price per share shall be reduced by an amount equal to the product of (i) $0.50, multiplied by the difference between (A) 1 and (B) the decimal equivalent of a fraction, the numerator of which is the amount of aggregate proceeds (net of offering expenses) received by the Company by February 28, 1997, and the denominator of which is $1,800,000. The Warrant Price shall not be adjusted pursuant to this Section 3.5 if the aggregate proceeds (after deduction of offering expenses) received by the Company by such date as a result of such offering exceeds $1,800,000. 3.6 Time of Adjustments to the Warrant Price. All adjustments to the Warrant Price and the number of shares purchasable hereunder, unless otherwise specified herein, shall be effective as of the earlier of: (i) the date of issue (or date of sale, if earlier) of the security causing the adjustment; (ii) the effective date of a division or combination of shares; (iii) the record date of any action of holders of the Company's capital stock of any class taken for the purpose of dividing or combining shares or entitling shareholders to receive a distribution or dividends. 3.7 Notice of Adjustments. In each case of an adjustment in the Warrant Price and the number of shares purchasable hereunder, the Company. at its expense, shall cause the Treasurer or chief financial officer of the Company to compute such adjustment and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company shall promptly mail a copy of each such certificate to Holder pursuant to Section 6.9 hereof. 7 8 3.8 Duration of Adjusted Warrant Price. Following each adjustment of the Warrant Price, such adjusted Warrant Price shall remain in effect until a further adjustment of the Warrant Price. 3.9 Adjustment of Number of Shares. Upon each adjustment of the Warrant Price pursuant to this Section 3, the number of shares of Warrant Stock shall be adjusted to the nearest whole share, to the number obtained by dividing the Aggregate Price by the Warrant Price as adjusted. ARTICLE IV TRANSFER, EXCHANGE AND LOSS 4.1 Transfer. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant or Warrants representing the Warrants so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant or Warrants with respect to the Warrants not so transferred. Notwithstanding the foregoing, Holder shall not be entitled to transfer a number of shares or an interest in this Warrant representing less than five percent (5%) of the aggregate shares initially covered by this Warrant. Any transferee shall be subject to the same restrictions on transfer with respect to this Warrant as the Purchaser. 4.2 Securities Laws. Upon any issuance of shares of Common Stock upon exercise of this Warrant, it shall be the Company's responsibility to comply with the requirements of: (1) the 1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3) any applicable listing requirements of any national securities exchange; (4) any state securities regulation or "Blue Sky'' laws; and (5) requirements under any other law or regulation applicable to the issuance or transfer of such shares. If required by the Company, in connection with each issuance of shares of Common Stock upon exercise of this Warrant, the Holder will give: (i) assurances in writing, satisfactory to the Company, that such shares are not being purchased with a view to the distribution thereof in violation of applicable laws, (ii) sufficient information, in writing, to enable the Company to rely on exemptions from the registration or qualification requirements of applicable laws, if available, with respect to such exercise, (iii) the legal opinion required by the restrictive legend set forth at the beginning of this Warrant and (iv) its cooperation to the Company in connection with such compliance. 4.3 Exchange. Subject to compliance with applicable federal and state securities laws, this Warrant is exchangeable at the principal office of the Company for Warrants to purchase the same number of shares of Common Stock purchasable hereunder, each new Warrant 8 9 to represent the right to purchase such number of shares of Common Stock as Holder shall designate at the time of such exchange. Each new Warrant shall be identical in form and content to this Warrant, except for appropriate changes in the number of shares of Common Stock covered thereby, the aggregate purchase price of such shares, the percentage stated in Section 4.1 above, and any other changes which are necessary in order to prevent the Warrant exchange from changing the respective rights and obligations of the Company and the Holder as they existed immediately prior to such exchange. 4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it of the ownership of, and the loss, theft, destruction or mutilation of, this Warrant and (in the case of loss, theft, or destruction) of indemnity satisfactory to it, and (in the case of mutilation) upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant. ARTICLE V HOLDER RIGHTS 5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by virtue hereof, shall be entitled to any rights as a shareholder of the Company. Holder shall have all rights of a shareholder with respect to securities purchased upon exercise hereof at the time of cash or deemed exercise pursuant to Sections 2.1 and 2.2 hereof. 5.2 Registration Rights. The Company agrees that any shares of Common Stock issued to Holder upon exercise of this Warrant shall be subject to the registration rights set forth in the Registration Rights Agreement of even date herewith among the Company, the Purchaser and others. ARTICLE VI MISCELLANEOUS 6.1 Additional Covenants by the Company. The Company further covenants and agrees that it will: a. Give each Holder prompt written notice of any intended changes to the composition of its capital structure, whether by issuance of new securities or otherwise; b. Give each Holder written notice of any shareholders' meeting and will allow a representative of each Holder to attend such meetings; 9 10 c. Give each Holder at least five days' prior written notice of any action that the Company intends to take by shareholders' written consent; d. Allow, upon reasonable notice and at reasonable times, the inspection of its minute book and other corporate records by a representative of the Holder; and e. Not engage, other than on arm's length terms, in any transaction with any of its shareholders or affiliates (as such term is defined under Rule 144 issued by the Securities and Exchange Commission under the 1933 Securities Act, as amended). 6.2 Governmental Approvals. The Company will from time to time take all action which may be necessary to obtain and keep effective any and all permits, consents and approvals of governmental agencies and authorities and securities acts filings under federal and state laws, which may be or become requisite in connection with the issuance, sale, and delivery of this Warrant, and the issuance, sale and delivery of the shares of Common Stock or other securities or property issuable or deliverable upon exercise of this Warrant. 6.3 Governing Laws. It is the intention of the parties hereto that except as set forth below, the internal laws of the State of Connecticut, U.S.A. (irrespective of its choice of law principles) shall govern the validity of this warrant, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto, provided that the corporation laws of the State of Delaware shall govern the procedural and substantive matters pertaining to the due authorization. issuance, delivery and exercise of this Warrant and the shares of Common Stock upon exercise hereof. Except as set forth below, the parties hereby agree that any suit to enforce any provision of this Warrant arising out of or based upon this Warrant or the business relationship between any of the parties hereto shall be brought in the United States District Court for the District of Delaware or the courts of the State of Delaware located in Wilmington, Delaware. Each party hereby agrees that such courts shall have personal jurisdiction and venue with respect to such party, and each party hereby submits to the personal jurisdiction and venue of such courts. In addition to the foregoing jurisdiction, Holder at its sole option, may commence any such suit in any jurisdiction in which the Company has a business office or is incorporated. 6.4 Binding Upon Successors and Assigns. Subject to, and unless otherwise provided in, this Warrant, each and all of the covenants, terms provisions, and agreements contained herein shall be binding upon, and inure to the benefit of the permitted successors, executors, heirs, representatives, administrators and assigns of the parties hereto. 10 11 6.5 Severability. If any one or more provisions of this Warrant, or the application thereof, shall for any reason and to any extent be invalid or unenforceable, the remainder of this Warrant and the application of such provisions to other persons or circumstances shall be interpreted so as best to reasonably effect the intent of the parties hereto. The parties further agree to replace any such void or unenforceable provisions of this Warrant with valid and enforceable provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. 6.6 Default, Amendment and Waivers. This Warrant may be amended upon the written consent of the Company and the Holder. The waiver by a party of any breach hereof for default in payment of any amount due hereunder or default in the performance hereof shall not be deemed to constitute a waiver of any other default or any succeeding breach or default. It shall be an event of default under this Warrant if the Company breaches any term or condition hereof or fails to perform any obligation as and when required hereunder and such breach or failure is not cured within thirty (30) days after receiving written notice thereof from Holder. Upon such event of default, the Warrant Price for all shares shall be reduced by one-fifth and thereafter shall continue to be reduced by one-fifth from the then adjusted Warrant Price for each successive thirty (30) day period in which such breach is not cured. 6.7 No Waiver. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions. 6.8 Attorneys' Fees. Should suit be brought to enforce or interpret any part of this Warrant, the prevailing party shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys fees to be fixed by the court (including without limitation, costs, expenses and fees on any appeal). The prevailing party shall be the party entitle to recover its costs of suit, regardless of whether such suit proceeds to final judgment. A party not entitled to recover its costs shall not be entitled to recover attorneys' fees. No sum for attorneys' fees shall be counted in calculating the amount of a judgment for purposes of determining if a party is entitled to recover costs or attorneys' fees. 6.9 Notices. Whenever any party hereto desires or is required to give any notices, demand, or request with respect to this Warrant, each such communication shall be in writing and shall be effective only if it is delivered by personal service or delivered by a nationally recognized overnight courier, in each case addressed to the parties hereto at their respective addresses set forth at the beginning of this Agreement. Such communication shall be effective when they are received by the addressee thereof. Any party may change its address for such communications by giving notice thereof to the other party in conformity with this Section. 11 12 6.10 Time. Time is of the essence of this Warrant. 6.11 Construction of Agreement. This Warrant has been negotiated by the respective parties hereto and their attorneys and the language hereof shall not be construed for or against any party. 6.12 No Endorsement. Holder understands that no federal or state securities administrator has made any finding or determination relating to the fairness of investment in the Company or purchase of the Common Stock hereunder and that no federal or state securities administrator has recommended or endorsed the offering of securities by the Company hereunder. 6.13 Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person, persons, entity or entities may require. 6.14 Further Assurances. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances, as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby, and to carry into effect the intents and purposes of this Warrant. IN WITNESS WHEREOF, the undersigned Company has caused this Common Stock Warrant to be executed and delivered on the date first above written by its President, thereunto duly authorized. COMPANY: Centrum Industries, Inc. By: /s/ George H. Wells ---------------------------- George Wells Its President EX-10.7 12 EX-10.7 1 EXHIBIT 10.7 THIS AGREEMENT IS SUBJECT TO A SUBORDINATION AGREEMENT DATED AS OF THE DATE HEREOF AMONG THE COMPANY, THE INVESTORS (AS HEREIN DEFINED) AND THE HUNTINGTON NATIONAL BANK (THE "LENDER"), THAT, AMONG OTHER THINGS, SUBORDINATES THE COMPANY'S OBLIGATIONS TO SAID INVESTORS TO THE COMPANY'S OBLIGATIONS TO THE LENDER. PUT AGREEMENT AGREEMENT made and entered into by and among MORAMERICA CAPITAL, CORPORATION, FIRST NEW ENGLAND CAPITAL LIMITED PARTNERSHIP and NORTH DAKOTA SMALL BUSINESS INVESTMENT COMPANY, A NORTH DAKOTA LIMITED PARTNERSHIP (collectively, the "INVESTORS") and CENTRUM INDUSTRIES, INC. (the "COMPANY"). R E C I T A L S A. Simultaneously with the execution of this Agreement, the Company is entering into a Note and Warrant Purchase Agreement with the Investors (the "PURCHASE AGREEMENT") providing for the issuance by the Company to each Investor of (i) an 11% Convertible Subordinated Note due March 31, 2001, such notes aggregating $2,500,000.00 in principal amount and (ii) one or more Warrants to purchase Common Stock of the Company. B. The Company and the Investors desire to set forth certain understandings respecting said Warrants and the Securities (as hereinafter defined). NOW, THEREFORE, in consideration of the mutual and dependent covenants hereinafter set forth, the Company and the Investors agree as follows: 1. Definitions. a. As used herein, the following terms shall have the following meanings: "Change In Control Event" shall mean the occurrence of any of the following after the date hereof: (i) any Person or related Persons constituting a Group become the "beneficial owners" (as such term is used in Rule 13d-3 under the Exchange Act as in effect on the date hereof), directly or indirectly, of more than 30% of the total voting power of all classes then outstanding of the Company's voting stock, or (ii) the acquisition by any Person or related Persons constituting a Group (a) of the power to elect, appoint or cause the election of at least a majority of the members of the board of directors of the Company through beneficial ownership of the capital stock of the Company or otherwise, or (b) of all or substantially all of the properties and assets of the Company, or (iii) the merger or consolidation of the Company with or into any other person, firm or entity if the Company is not the surviving entity in such merger or consolidation. "Common Stock" shall mean any and all capital stock of the Company, however designated, that is not limited as to amount of dividends or that is not limited as to the amount of distributions upon liquidation or dissolution of the Company. 2 "Earnings Value" shall mean an amount, the calculation of which shall be based upon the Company's audited financial statements for the most recent full fiscal year preceding the Exercise Date, which is equal to a multiple of five and one-half (5.5) times the Company's earnings before interest, taxes, depreciation and amortization as set forth in such audited financial statements or as otherwise determined by the Company's independent certified public accountants, which determination shall be binding and conclusive upon the parties hereto in the absence of demonstrable error. "Exchange Act" shall mean the Securities Exchange Act of 1934 as in effect on the date hereof. "Exercise Date" shall mean, with respect to a Warrant or Security. the date of exercise by the Requisite Holders, in the manner herein provided, of the right to require the Company to purchase such Warrant or Security. "Fair Market Value" of the Company shall mean fair market value determined in accordance with Section 4 hereof. "Group" shall mean such term as used in Rule 13d-5 under the Exchange Act. "Holder" shall mean any person who holds a legal or beneficial interest in a Warrant or Security. "Lender" shall mean The Huntington National Bank. "Note" shall have the meaning ascribed to such term in the Purchase Agreement. "Person" shall mean such term is used in Sections 13(d) and 14(d) of the Exchange Act. "Purchase Price" shall mean either the purchase price for the Warrants determined pursuant to Section 3.a of this Agreement or the purchase price for the Securities determined pursuant to 3.b of this Agreement. In no event shall the Purchase Price as so determined be reduced or discounted on account of the fact that a Warrant or Security may represent a minority interest in the Company, or may not be freely transferable under federal or state securities laws, or for any other reason. "Put Option" shall mean each right of the Requisite Holders to require the Company to purchase outstanding Warrants and Securities in accordance with Section 2 hereof. "Qualified Public Offering" shall mean a public offering of Common Stock of the same class of stock issuable pursuant to the Warrants and the Notes on a firmly underwritten basis pursuant to a registration statement on Forms S-1, S-2 -2- 3 or SB-2 (or similar form of general application prescribed by the Securities and Exchange Commission) filed under the Securities Act of 1933, as amended. "Requisite Holders" shall mean the Holders of 100% of the Total Shares. "Security" shall mean (i) Common Stock issued upon exercise of a Warrant and (ii) Common Stock issued upon conversion of all or any portion of a Note. "Subordination Agreement" shall have the meaning ascribed to such term in the Purchase Agreement. "Total Shares" shall mean, as of any date of determination, the sum of (1) the number of shares of Warrant Issuable Stock, plus (2) the number of shares of Common Stock theretofore issued pursuant to the exercise of Warrants, plus (3) the number of shares of Common Stock theretofore issued pursuant to the conversion of Notes in whole or in part. "Warrant" shall mean a Warrant issued to an Investor or other Holder by the Company pursuant to the Purchase Agreement, representing the right to acquire shares of the Company's Common Stock, together with any and all warrants, options or rights (including but not limited to rights under convertible securities other than the Notes) that may be issued to an Investor or other Holder in replacement or substitution therefor. "Warrant Issuable Stock" shall mean, for any Warrant, Common Stock which would be acquired upon the exercise thereof, taking into account any adjustments in such number of shares as provided for in such Warrants. "Warrant Percentage" shall mean, as of any date of determination, and for any Warrant, the percent equivalent of a fraction, (i) the numerator of which is the total number of shares of Warrant Issuable Stock, and (ii) the denominator of which is the sum of (a) the total number of shares of Common Stock of the Company then outstanding (including, without limitation all Securities), plus (b) the total number of shares of Warrant Issuable Stock of all Warrants. "Year" shall mean each period of twelve (12) consecutive calendar months beginning with the effective date of this Agreement. b. Terms defined in this Agreement in the singular shall have a comparable meaning when used in the plural, and vice versa. The neuter gender shall also denote the masculine and feminine where the context so permits. The words "hereof", "herein" and "hereunder", and words of similar import, when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The headings in this Agreement are for purposes of reference only and shall not be considered in construing this Agreement. -3- 4 2. Put By Investors. a. The Requisite Holders shall have the right to require the Company to purchase all or a portion of the outstanding Warrants and Securities held by all Holders (a "Put Option"): (i) At any time after the date hereof, upon the occurrence of a Change In Control Event, provided that the Requisite Holders exercise such right within one year of the last date upon which each Investor obtains actual knowledge of the occurrence or such change in Control Event, subject, however to subsection (b) of this Section 2; or (ii) At any time after the last day of the fifth (5th) Year. b. The failure of the Requisite Holders to exercise a Put Option upon any occasion shall not be deemed a bar to or a waiver of the right of the Requisite Holders to exercise a Put Option on any other occasion. A Put Option shall be exercisable only by notice given in the manner provided in Section 6 below. The Purchase Price payable to each Holder upon the exercise of the Put Option shall be determined pursuant to Section 3 hereof, provided that such Holder may, in its sole discretion, net the Aggregate Price (as defined in the Warrant) of the outstanding Warrants and the value of the Securities (after giving effect in either case to all adjustments required by Article III of the Warrant) against the Purchase Price therefor. The Purchase Price shall be payable as provided in Section 5 hereof, subject to the provisions of Section 5(h) hereof. 3. Purchase Price. Upon the exercise of a Put Option: a. the Purchase Price payable by the Company to each Holder with respect to a Warrant shall be determined as follows: (i) If, on the Exercise Date, the Fair Market Value of the Company shall be less than the Earnings Value of the Company, then the Purchase Price shall be, for each such Warrant, the Earnings Value multiplied by the Warrant Percentage on such Exercise Date; (ii) If, on the Exercise Date, the Fair Market Value of the Company exceeds the Earnings Value of the Company, then the Purchase Price shall be, for each Warrant, the Fair Market Value of the Company multiplied by the Warrant Percentage on such Exercise Date. b. the Purchase Price payable by the Company to each Holder with respect to Securities shall be determined as follows: (i) If, on the Exercise Date, the Fair Market Value of the Company shall be less than the Earnings Value of the Company, then the Purchase Price shall be the Earnings Value multiplied by a fraction, the numerator of which shall be the number of shares of Securities to be sold and the denominator of which shall be the sum of (a) the number of shares of Common Stock of the Company outstanding on the Exercise Date (including, without limitation, all Securities), plus (b) the number of shares of Warrant Issuable Stock of all Warrants. -4- 5 (ii) If, on the Exercise Date, the Fair Market Value of the Company exceeds the Earnings Value of the Company, then the Purchase Price shall be the Fair Market Value of the Company multiplied by a fraction, the numerator of which shall be the number of shares of Securities to be sold and the denominator of which shall be the sum of (a) the number of shares of Common Stock of the Company outstanding on the Exercise Date (including, without limitation, all Securities), plus (b) the number of shares of Warrant Issuable Stock of all Warrants. 4. Fair Market Value. If, within thirty (30) days after the Exercise Date, the Company and the Requisite Holders agree upon the Fair Market Value of the Company, then the Fair Market Value shall be as so agreed. If, within such thirty (30) day period, the Requisite Holders and the Company agree upon an appraiser to determine such Fair Market Value, then such appraiser shall make such determination and such appraisal shall govern. If the Company and the Requisite Holders do not, within thirty (30) days after the Exercise Date, agree as to such Fair Market Value or as to a single appraiser to determine Fair Market Value, then the Requisite Holders shall, by notice to the Company, appoint one appraiser, and the Company shall, by notice to all of the Holders, appoint one appraiser, both of whom shall be disinterested, experienced in the appraisal of companies engaged in businesses similar to those of the Company at the time of such appointment, and shall belong to a recognized professional association. If either the Requisite Holders or the Company shall fail to appoint such an appraiser within thirty (30) days after the lapse of such thirty (30) day period, then the appraiser appointed by the party (the Requisite Holders being deemed a "party" for the purpose of this Section 4) that does appoint an appraiser shall make the appraisal of such Fair Market Value and such appraisal shall govern. If two appraisers are appointed and they agree upon such Fair Market Value, their joint determination shall govern. If said two appraisers cannot reach agreement within 30 days after the appointment of the last appraiser to be appointed, the two appraisers selected shall promptly appoint a third appraiser who is disinterested, experienced in the appraisal of companies engaged in businesses similar to those of the Company at the time of such appointment, and a member of a recognized professional association, and the agreed decision of the three appraisers shall govern or, if the three appraisers cannot agree as to such Fair Market Value, then the average of the two appraisals closest in amount shall be considered such Fair Market Value. In determining Fair Market Value, the exercise price for any Warrants to be sold to the Company shall be deemed to have been paid to the Company. In addition, with respect to any assets owned by the Company that represent interests in other companies, Fair Market Value shall be determined hereunder without reduction or discount of the value of any such assets on account of the fact that such assets may represent a minority interest in such other companies or may not be freely transferable under federal or state securities laws, or for any other reason. All appraisal reports shall be rendered in writing and shall be signed by the appraiser(s). The appraised Fair Market Value of the Company, determined as herein provided, shall be final and conclusive on the Company and the Holders and shall be enforceable in any court having jurisdiction over a proceeding brought to seek such enforcement. The costs of appraisal shall be borne 50% by the Company and 50% by the Holders. 5. Closing. a. The Closing of the purchase and sale of the Warrants and Securities pursuant to this Agreement (the "Closing") shall take place on, and payment for such Warrants or Securities shall be made in accordance herewith on the later of (A) the one hundred twentieth (120th) day -5- 6 after the Exercise Date and (B) the thirtieth (30th) day following the determination of Fair Market Value pursuant to Section 4 of the Agreement. Notwithstanding anything herein to the contrary, the Purchase Price for all outstanding Warrants and Securities shall in any case be immediately due and payable in full, without the need for notice from, demand by or any other action of, the Holders thereof if there shall occur an Event of Default described in either Subsection (d) or (e) of Section 7.1 of the Purchase Agreement (whether or not any Note is then outstanding). The Closing shall take place at 10:00 A.M. on the closing date at the Company's principle offices, or at such other locations as the parties may mutually agree. b. The Purchase Price shall be paid by the Company at the Closing in cash, by wire transfer of funds or by bank cashier's or certified check, against delivery by the Holders of the Warrant and Securities, duly endorsed for transfer to the Company, which Warrants and Securities shall be delivered to the Company free and clear of all liens and encumbrances of any kind, nature and description. c. If at the Closing the Company fails for any reason to pay the Purchase Price for any Warrant or Security, then any portion of such cash amount due that is not paid shall bear interest from the date of closing at a rate of interest equal to lesser of (i) 18% per annum and (ii) the highest rate of interest allowed by applicable law. The provisions of this Section 5.c shall not be construed to limit any other right or remedy that any Holder may have on account of failure by the Company to purchase any Warrant or Security as herein provided. d. If at the Closing the Company fails for any reason to pay the entire Purchase Price as provided herein for any Warrant and Security, and if any fiscal year-end of the Company occurs while such failure continues, then, at the option of the Requisite Holders, the Earnings Value of the Company shall be recomputed so that all components used in the calculation thereof shall be based upon the amounts for and at the end of such recently ended fiscal year, and the Purchase Price shall be recomputed accordingly; provided, however, that the Requisite Holders shall, following any such recomputation, have the right, in their sole discretion, to require that the Purchase Price remain an amount calculated without giving effect to any such recomputation pursuant to this Section 5.d. Nothing contained in this Section 5.d shall be deemed to impair any Holder's right to interest under Section 5.c hereof. e. If a Put Option is exercised pursuant to this Agreement, the failure of the Company to have sufficient funds legally available for the purchase of any Warrants or Securities shall not excuse the Company's failure to purchase such Warrants or Securities in accordance with the terms of this Agreement, and the Company shall be and remain liable for the full amount of all sums payable in accordance with the terms hereof until paid in full, and all adjustments contemplated hereby or by the Warrants on account of such failure (including, without limitation, the adjustments contemplated by Section 5.d above) shall be made as contemplated hereby and thereby. However, the provisions of this Section 5 shall not be construed so as to require the Company to make any purchase of or payment for any Warrants or Securities other than out of funds legally available therefor under Delaware law; accordingly, if the Company does not, at the time of a closing, have sufficient funds legally available for the purchase of any Warrant or Security that it is obligated to purchase, then the Company shall use those funds that are legally available to purchase the maximum shares of Securities or portion of the Warrant or Warrants representing the right to purchase such maximum number of shares, pro rata among the Holders, based upon the allocation formula given in Section 5.f, below. At -6- 7 any time thereafter when additional funds of the Company become legally available, the Company will immediately use such funds to purchase all shares of Securities, or the Warrant or Warrants representing the right to purchase such shares that it is then obligated to purchase and pay for hereunder. Such purchase shall be pro rata among the Holders in accordance with the formula given in Section 5.f below to the extent that legally available funds are then not available to purchase all such shares or Warrants. No Holder shall, however, be required to sell any Warrants or Securities to the Company unless and until the Company purchases, with legally available funds, such Warrant or Security in accordance herewith. f. In the event of any required pro rata purchase of Warrants or Securities among the Holders thereof in accordance with the provisions of Section 5.e above, the amount of Warrants (or portions thereof) or Securities to be purchased from each Holder shall be the product of (i) the total number of shares of Securities and Warrant Issuable Stock to be purchased in accordance with Section 5.e, multiplied by (ii) a fraction, (A) the numerator of which is sum of (I) the number of such Holder's shares of Securities plus (II) the number of shares of Warrant Issuable Stock, and (B) the denominator of which is the sum of (I) the total number of shares of Securities of all Holders plus (II) the total number of shares of Warrant Issuable Stock of all Holders. g. If the Company is obligated to purchase any Warrants or Securities, and if the Company does not have sufficient funds legally available therefor, then the Company shall take any and all action necessary to increase its legally available funds to an amount sufficient therefor, including, without limitation, a recapitalization or a revaluation of its assets. h. The Company shall make each payment required under this Agreement when and as required but only to the extent that such payment is a "Permitted Payment" (as such term is defined in the Subordination Agreement). Any payment required hereunder but not made because it is not a "Permitted Payment" shall be made immediately upon it becoming a "Permitted Payment". 6. Notice; Action by Requisite Holders. All Notices hereunder shall be in writing and shall be deemed given when personally delivered or delivered by a nationally recognized overnight courier, in each case addressed to the intended recipients thereof at their addresses determined pursuant to the Purchase Agreement. All action by the Requisite Holders, including without limitation the election to exercise a Put Option in accordance with Section 2 hereof, or any agreement as to Fair Market Value or the appointment of an appraiser in accordance with Section 4 hereof, shall be evidenced by a writing executed by the Requisite Holders (or by any number of counterpart writings executed by not less than 100% of the Holders of the Total Shares, which taken together shall be deemed to be a single writing executed by the Requisite Holders, notwithstanding that all of the Requisite Holders are not signatories to the same counterpart). 7. Termination. This Put Agreement shall terminate upon the earlier of the date that is: a. the one hundred eighty-first (181st) day after the completion of a Qualified Public Offering (the "Offering Period Termination Date") provided, however, that each of the following conditions shall have been satisfied: -7- 8 (i) as of the date immediately preceding the Offering Period Termination Date, the aggregate proceeds (after deduction of offering expenses including but not limited to underwriting and sales commissions) received by the Company as a result of such Qualified Public Offering equals or exceeds ten million ($10,000,000) dollars; (ii) the shares offered to the public pursuant to such Qualified Public Offering (the "Offered Shares") during the period commencing on the date that the Offered Shared are first offered to the public (the "Offering Date") and ending on the date of the completion thereof (the "Completion Date") are sold to the public a price per share of no less than $5.50; (iii) at all times during the period commencing on the Completion Date and ending on the date immediately preceding the Offering Period Termination Date (the "Offering Period"), the Offered Shares were listed on the New York Stock Exchange, the American Stock Exchange, the NASDAQ -- National Market Issues system or the NASDAQ -- Small-Cap Issues system; and (iv) the average bid price for the Offered Shares during the Offering Period, as reported on the exchange or system upon which they are listed shall be equal to or greater than $5.50 per share: b. the date immediately following the last day of the eighth (8th) Year; or c. the date upon which Notes, Warrants or Securities are outstanding. Certain of the other Finance Documents (as such term is defined in the Purchase Agreement) expressly refer to this Agreement when defining terms contained therein. All capitalized terms defined herein which are defined in such Finance Documents by reference to this Agreement shall survive the termination of this Agreement for the purpose of providing the intended definitions in such other Finance Documents. 8. Multiple Holders. Subject to applicable securities laws, each Holder has the right to transfer any Security and all or any portion of any Warrant to third party Holders. The rights of such third-party Holder as the Holder of the Warrants or Securities shall apply equally to such subsequent Holders. 9. Miscellaneous. a. This Agreement may be executed in any number of counterparts which, when executed and delivered by all parties hereto, shall be binding on all parties hereto and shall constitute one Agreement, notwithstanding that all parties are not signatory to the same counterpart. b. This Agreement shall he binding upon and shall inure to the benefit of the Company, each Investor, and their respective successors and assigns. c. The Company shall pay to each Holder, on demand, all costs and expenses (including, without limitation, court costs and reasonable attorneys' fees) paid or incurred by -8- 9 such Holder in collecting any sums due from, or enforcing any other obligation of, the Company hereunder. d. This Agreement shall be construed and enforced in accordance with, and shall be governed by, the internal laws of the State of Connecticut without regard to its conflicts of law rules. IN WITNESS WHEREOF, the Company and the Investors have caused this Agreement to be executed by their respective representatives hereunto duly authorized, under seal as of the 29th day of February, 1996, but the effective date of this Agreement shall be March 8, 1996. CENTRUM INDUSTRIES, INC. By: /s/ George Wells -------------------------------- George Wells Its President (Duly Authorized) FIRST NEW ENGLAND CAPITAL LIMITED PARTNERSHIP By: FINEC Corp., its General Partner By: /s/ Richard Klaffky -------------------------------- Richard Klaffky, its President (Duly Authorized) MORAMERICA CAPITAL CORPORATION By: InvestAmerica Investment Advisors, Inc., its Investment Adviser By: /s/ David Schroder -------------------------------- David Schroder, its President (Duly Authorized) -9- 10 NORTH DAKOTA SMALL BUSINESS INVESTMENT COMPANY, A NORTH DAKOTA LIMITED PARTNERSHIP By: InvestAmerica ND Management, Inc., its Investment Adviser By: /s/ David Schroder -------------------------------------- David Schroder, its President (Duly Authorized) -10- EX-10.8 13 EX-10.8 1 EXHIBIT 10.8 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement ("Agreement") is made as of February 28, 1996 and effective March 8, 1996, by and among MORAMERICA CAPITAL CORPORATION, FIRST NEW ENGLAND CAPITAL LIMITED PARTNERSHIP and NORTH DAKOTA SMALL BUSINESS INVESTMENT COMPANY, A NORTH DAKOTA LIMITED PARTNERSHIP (collectively, the "Investors") and CENTRUM INDUSTRIES, INC. (the "Company"). In consideration of the mutual covenants hereinafter set forth the Company and the Investors agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms have the following meanings: "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall have the meaning ascribed to it in the Notes and warrants. "Holder" shall mean a holder of a Warrant and/or a Note so long as such holder continues to hold the Warrant, Note or any Registrable Securities, and subject to Section 9 hereof, any other holder of any Warrant, Note or Registrable Securities as hereinafter defined. "Note" or "Notes" shall mean the Company's 11% Convertible Subordinated Notes in the aggregate principal amount of $2,500,000 issued pursuant to the Purchase Agreement. "Purchase Agreement" shall mean the Note and Warrant Purchase Agreement of even date herewith providing for the sale by the Company to the Investors of the Notes and Warrants. The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. "Registrable Securities" shall mean (i) shares of Common Stock issued or issuable upon exercise of a Warrant, (ii) shares of Common Stock issued or issuable upon conversion of any portion of the Notes and (iii) any Common Stock issued in respect of such securities upon any stock split, stock dividend, recapitalization or similar event. "Registration Expenses" shall mean all expenses incurred by the Company in compliance with Section 2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursement of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company and expenses of regular annual and periodic audits, which shall be paid in any event by the Company) and the expenses associated with the Company's obligations under Section 4 hereof. 2 "Restricted Securities" shall refer collectively to the securities of the Company required to bear a legend under applicable securities laws. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of one counsel for the Holders. "Warrant" or "Warrants" shall mean any Common Stock Warrant, and any other warrant of any series or designation, for shares of Common Stock, issued and sold pursuant to the Purchase Agreement. 2. Piggyback Registration Rights (a) If the Company shall determine to register any of its securities either for its own account or the account of any security holder or holders (other than a Holder), other than a registration relating solely to employee benefit plans or pursuant to a registration statement on Form S-4 or the then equivalent of such form, the Company will: (i) Promptly give to all Holders written notice thereof; and (ii) Except as set forth in Section 2(b), include in such registration (and any related qualification under state blue sky laws and other compliance filings, and in any underwriting involved therein), all the Registrable Securities specified in a written request or requests, given by each Holder within fifteen (15) days after the written notice from the Company is given. (b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise each Holder as part of the written notice given pursuant to Section 2(a)(i). In such event the right of each Holder to registration pursuant to this Section 2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. Each such Holder, together with the Company and the other persons distributing their securities through such underwriting, shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected or approved for underwriting by the Company. Notwithstanding any other provision of this Section 2, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, the underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of each Holder's Registrable Securities which would otherwise be underwritten pursuant hereto. The Company shall so advise all persons requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following manner: before any Holder shall be entitled to include Registrable Securities in the registration, there shall first be included in such registration (i) the number of securities -2- 3 which the Company proposed to offer and sell for its own account, and (ii) securities with respect to which the holders have requested inclusion pursuant to any and all registration rights which have been granted by the Company prior to the date hereof, and then, to the extent permitted by the underwriter, there shall be included in such registration that number of securities which persons having registration rights on parity with the Holders shall have requested to be included in such registration, with any limitation on the number of securities so included to be imposed pro rata on all Holders and all other persons to the extent they request inclusion therein. If any Holder or any officer, director or other security holder requesting registration disapproves of the term of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 3. Expenses of Registration. All Registration Expenses incurred on behalf of each Holder in connection with any registration, qualification or compliance pursuant to this Agreement shall be borne by the Company, and all Selling Expenses shall be borne by each Holder and all other holders of the securities so registered pro rata on the basis of the number of their shares so registered. 4. Registration Procedures. In the case of each registration effected by the Company pursuant to this Agreement, the Company will advise each Holder in writing as to the initiation of each registration and as to the completion thereof. The Company will: (a) Keep such registration effective for a period of ninety (90) days or until each Holder has completed the distribution described in the registration statement relating thereto, whichever first occurs. (b) Furnish such number of prospectuses and other documents incident thereto as each Holder from time to time may reasonably request. (c) Register or qualify the Registrable Securities covered by such registration under such other securities or blue sky laws of such jurisdiction (subject to the approval of any managing underwriter involved) as each Holder shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable each Holder to consummate the disposition in such jurisdictions of the Registrable Securities; provided, however, that the Company shall not be obligated, by reason thereof, to qualify as a foreign corporation in any jurisdiction where it would not otherwise be required to qualify or consent to general service of process in any such jurisdiction or subject itself to taxation as doing business in any such jurisdiction. (d) Notify each Holder promptly after the Company shall receive notice or have knowledge that any registration statement, supplement or amendment has become effective, any registration statement is required to be amended or supplemented, any stop order has been issued, of the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of a proceeding for that purpose, or of the happening of any event as a result of which, the prospectus included in such registration statement as then in effect, includes an untrue statement of a material fact or omits to -3- 4 state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. (e) Make every reasonable effort to obtain at the earliest possible moment the withdrawal of any order suspending the effectiveness of a registration statement or suspending the qualification of any of the Registrable Securities for sale in any jurisdiction. (f) Promptly prepare and furnish to each Holder a reasonable number of copies of a supplement to or an amendment of a prospectus as may be necessary so that such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. (g) Include the Registrable Securities for listing on any national securities exchange on which the Company's Common Stock is listed. (h) Make available for inspection by a representative of each Holder, any underwriters participating in any disposition pursuant hereto, and any attorney or accountant retained by such Holders or such underwriters, upon reasonable notice during normal business hours all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with such registration; provided that any such records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such persons unless disclosure of such records, information or documents is required by court or administrative order. (i) Make generally available to its securities holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. 5. Indemnification (a) In the event of the registration of any Holder's Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each such Holder, each underwriter, if any, of such shares, and each other person, if any, who controls each such Holder or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which each such Holder, the underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein (as such may be amended or supplemented), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Holder, each such underwriter, and each such controlling person for -4- 5 any legal or any other expenses reasonably incurred by such Holder, such underwriter or controlling person, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, such preliminary prospectus, or such final prospectus (as such may be amended or supplemented) in reliance upon and in conformity with, written information furnished to the Company by the Holder, the underwriter or controlling person specifically for use in preparation thereof. (b) In the event of the registration by the Company of any Holder's Registrable Securities, such Holder will indemnify and hold harmless the Company, each underwriter and each person who controls the Company or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, any prospectus or preliminary prospectus contained therein, or amendment or supplement thereto, or arises out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which untrue statement or alleged untrue statement or omission or alleged omission was made therein in reliance upon and in conformity with, written information furnished to the Company by such Holder specifically for use in connection with the preparation thereof; and will reimburse the Company, each such controlling person and each such underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. (c) Each party entitled to indemnification under this Section 5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any indemnified Party to give notice as provided herein shall no relieve the Indemnifying Party of its obligations under this Section 5. No indemnifying Party, in the defense of any such claim of litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified Party of a release from all liability in respect to such claim or litigation. -5- 6 6. Information by Holder. Each Holder shall furnish in writing to the Company such information regarding such Holder as the Company may reasonably request and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. 7. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of the Restricted Securities to the public without registration, the Company agrees to: (a) Use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after ninety (90) days following the effective date of the registration under the Securities Act filed by the Company for an offering of its securities to the general public; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") at any time during which it is subject to such reporting requirements; and (c) So long as any Holders own any Restricted Securities, furnish to each requesting Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time during which it is subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as such Holder may reasonably request in availing itself of an) rule or regulation of the Commission allowing such Holder to sell any such securities without registration. 8. Transfer of Registration Rights. The right to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned by any Holder to a transferee or assignee, provided (i) the Company is, within a reasonable time after such transfer furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and (ii) the transferee or assignee agrees in writing to be bound by the provisions of this Agreement. 9. "Market Stand-Off" Agreement. Each Holder agrees, if requested by the Company and the underwriter of Common Stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by him during such period of time as may be required by the underwriter (but no more than one hundred eighty (180) days) following the effective date of any registration statement of the Company filed under the Securities Act with respect to any underwritten public offering of securities by the Company, provided that the Company's officers and directors and a majority of other holders of securities of the Company shall also enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the securities subject to the foregoing restrictions until the end of said one hundred eighty (180) day period. -6- 7 10. Termination of Registration Rights. The right to cause the Company to register securities granted by the Company under this Agreement shall terminate with respect to any Holder at such time as all of the Registrable Securities of such Holder can be sold (in a single transaction) in accordance with Rule 144. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. CENTRUM INDUSTRIES, INC. By: /s/ George H. Wells ------------------- Title: (Duly Authorized) The foregoing Agreement is hereby agreed to as of the date thereof. FIRST NEW ENGLAND CAPITAL MORAMERICA CAPITAL LIMITED PARTNERSHIP CORPORATION By: FINEC Corp., By: InvestAmerica Investment Advisors, Inc. Its general partner Its Investment Advisor By /s/ Richard C. Klaffky By: /s/ David Schroder ------------------------ ------------------------- Richard Klaffky David Schroder Title: President Title: President (Duly Authorized) (Duly Authorized) NORTH DAKOTA SMALL BUSINESS INVESTMENT COMPANY, A NORTH DAKOTA LIMITED PARTNERSHIP By: InvestAmerica, N.D. Management, Inc. Its Investment Advisor By: /s/ David Schroder -------------------------------------- David Schroder Title: President (Duly Authorized) -7- EX-10.9 14 EX-10.9 1 EXHIBIT 10.9 LOAN AND SECURITY AGREEMENT dated as of February 19, 1996 BETWEEN THE HUNTINGTON NATIONAL BANK, as Lender AND McINNES STEEL COMPANY, EBALLOY GLASS PRODUCTS COMPANY, ERIE BRONZE & ALUMINUM COMPANY, AND McINNES INTERNATIONAL, INC., as Borrowers AND CENTRUM INDUSTRIES, INC. MCINNES SERVICES, INC. as Guarantors Porter, Wright, Morris & Arthur 41 South High Street Columbus, Ohio 43215 2
TABLE OF CONTENTS 1. Extensions of Credit . . . . . . . . . . . . . . . . . . . . 5 1.1 The Loans . . . . . . . . . . . . . . . . . . . . . . . . 5 1.2 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . 5 1.3 Letter of Credit . . . . . . . . . . . . . . . . . . . . . 6 1.4 Pending Defaults . . . . . . . . . . . . . . . . . . . . . 6 2. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.1 Eligible Accounts . . . . . . . . . . . . . . . . . . . . 6 2.2 Eligible Raw Materials Inventory . . . . . . . . . . . . . 7 2.3 Eligible Material Content of WIP Inventory . . . . . . . . 7 2.4 Eligible Inventory . . . . . . . . . . . . . . . . . . . . 7 2.5 Eligible Equipment . . . . . . . . . . . . . . . . . . . . 8 2.6 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . 8 3. Terms and Uses of Loan. . . . . . . . . . . . . . . . . . . . . 8 3.1 Interest Rates and Fees . . . . . . . . . . . . . . . . . . 8 3.2 Terms and Advances . . . . . . . . . . . . . . . . . . . . 9 3.3 Costs and Expenses . . . . . . . . . . . . . . . . . . . . 9 3.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 9 3.5 Early Termination Fee . . . . . . . . . . . . . . . . . . 9 3.6 The Guarantors and Guarantor Collateral . . . . . . . . . 10 3.7 Other Collateral Securing the Loans . . . . . . . . . . . 10 3.8 Increased Capital . . . . . . . . . . . . . . . . . . . . 10 4. Security Agreement . . . . . . . . . . . . . . . . . . . . . . 11 4.1 Grant of Security Interest . . . . . . . . . . . . . . . . 11 4.2 Representations and Covenants Regarding the Collateral . . 12 4.3 Lockbox and Collection of Accounts . . . . . . . . . . . . 12 4.4 Cash Collection Account . . . . . . . . . . . . . . . . . 13 4.5 Application of Proceeds from Collection of Accounts; Setoff; Government Accounts; Perfection; Lien Notation . . . . . . 13 4.6 Collateral Insurance . . . . . . . . . . . . . . . . . . . 14 4.7 Books and Records . . . . . . . . . . . . . . . . . . . . 14 4.8 Collateral Administration and Warranties Regarding the Inventory and the Accounts . . . . . . . . . . . . . . . 14 4.9 Preservation and Disposition of Collateral . . . . . . . . 15 4.10 Extensions and Compromises . . . . . . . . . . . . . . . . 16 4.11 Financing Statements . . . . . . . . . . . . . . . . . . . 16 4.12 Bank's Appointment as Attorney-in-Fact . . . . . . . . . . 16 4.13 Remedies on Default . . . . . . . . . . . . . . . . . . . 17 5. Warranties and Representations . . . . . . . . . . . . . . . . 18 5.1 Corporate Organization and Authority . . . . . . . . . . . . 18 5.2 Borrowing is Legal and Authorized . . . . . . . . . . . . 18
3 5.3 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.4 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.5 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.6 Financial Statements; Full Disclosure . . . . . . . . . . . . . . . . 19 5.7 Financial Projections . . . . . . . . . . . . . . . . . . . . . . . . 19 5.8 Litigation; Adverse Effects . . . . . . . . . . . . . . . . . . . . . 19 5.9 No Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.10 Government Consent . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.11 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.12 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.13 ERISA Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.14 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.15 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . 22 5.16 Warranties and Representations . . . . . . . . . . . . . . . . . . . . 23 6. Borrower Business Covenants . . . . . . . . . . . . . . . . . . . . . . . 23 6.1 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . 23 6.2 Maintenance of Properties and Corporate Existence . . . . . . . . . 24 6.3 Sale of Assets, Merger, Subsidiaries, Tradenames and Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.4 Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . 25 6.5 Other Borrowings and Contingent Liabilities . . . . . . . . . . . . 25 6.6 Sale of Accounts; No Consignment . . . . . . . . . . . . . . . . . . 25 6.7 Minimum Security . . . . . . . . . . . . . . . . . . . . . . . . . . 25 6.8 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 6.9 Acquisition of Capital Stock . . . . . . . . . . . . . . . . . . . . 26 6.10 Trade Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . 26 6.11 Compensation of Officers and Affiliated Persons . . . . . . . . . . 26 6.12 Cash Dividends and Other Distributions . . . . . . . . . . . . . . . 26 6.13 Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . 26 6.14 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.15 Ratio of Total Liabilities to Tangible Net Worth . . . . . . . . . . 27 6.16 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . 28 6.17 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . 29 6.18 Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . 29 6.19 Operating Lease Rentals . . . . . . . . . . . . . . . . . . . . . . 29 6.20 Environmental Compliance and Indemnification . . . . . . . . . . . . 29 6.21 Maintenance of Accounts . . . . . . . . . . . . . . . . . . . . . . 30 6.22 Accounts Payable Turnover Days . . . . . . . . . . . . . . . . . . . 30 6.23 Accounts Receivable Turnover Days . . . . . . . . . . . . . . . . . . 30 6.24 Inventory Turnover Days . . . . . . . . . . . . . . . . . . . . . . 30 6.25 Expense Reduction . . . . . . . . . . . . . . . . . . . . . . . . . 30 7. Financial Information and Reporting . . . . . . . . . . . . . . . . . . . 30
4 8. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 33 8.2 Default Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 9.2 Access to Accountants . . . . . . . . . . . . . . . . . . . . . . . . 35 9.3 Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . 35 9.4 Survival; Successors and Assigns . . . . . . . . . . . . . . . . . . . 35 9.5 Amendment and Waiver, Duplicate Originals . . . . . . . . . . . . . . 36 9.6 Uniform Commercial Code and Generally Accepted Accounting Principles. . 36 9.7 Enforceability and Governing Law . . . . . . . . . . . . . . . . . . . 36 9.8 Waiver of Right to Trial by Jury . . . . . . . . . . . . . . . . . . . 37 9.9 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 9.10 No Consequential Damages . . . . . . . . . . . . . . . . . . . . . . . 37 9.11 Conditions Precedent to the Loans . . . . . . . . . . . . . . . . . . 37 9.12 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.13 Conditions Precedent to Subsequent Money Advances . . . . . . . . . . 38 10. Index of Definitions . . . . . . . . . . . . . . . . . . . . . . . . 39
Exhibits Exhibit A- 1 -Revolving Note Exhibit A-2 - Term Note Exhibit A- 3 - Letter of Credit Reimbursement Agreement Exhibit B - Schedule of Permitted Encumbrances Exhibit C - Schedule of Business Locations Exhibit D - Conditions Precedent to Initial Disbursement Schedule 2.5 - Levy Equipment Appraisal and Valuation Letter Schedule 5.3 - Tax Disclosure Schedule 5.4 - Capital Structure Schedule 5.8 - Litigation Disclosure Schedule 5.13 - ERISA Disclosure Schedule 5.14 - Labor Disclosure Schedule 5.15 - Environmental Disclosure Schedule 6.3 - Schedule of Tradenames Schedule 6.5 - Permitted Borrowings of Borrowers and Guarantors Schedule 6.11 - Compensation Schedule Schedule 6.19 - Operating Lease Schedule Schedule 6.20 - Environmental Compliance Schedule 6.21 - Schedule of Payroll Accounts Schedule 8.1 (i) - Individual Noteholders 5 LOAN AND SECURITY AGREEMENT This agreement (this "Agreement") is entered into at Columbus, Ohio, between and among The Huntington National Bank (the "Bank") as lender, McInnes Steel Company ("MSC"), Eballoy Glass Products Company ("Eballoy"), Erie Bronze & Aluminum Company ("EBA"), and McInnes International, Inc., as borrowers (the foregoing shall be referred to herein collectively as "Borrowers" and separately as a "Borrower"), and Centrum Industries, Inc. ("Centrum") and McInnes Services, Inc. ("MSI"), as guarantors (collectively the "Guarantors" and separately a "Guarantor") as of the 29th day of February, 1996. The Borrowers and the Guarantors shall also be referred to herein collectively as the "Companies" and separately as a "Company." 1. Extensions of Credit. 1.1 The Loans. The Bank, subject to the terms and conditions hereof, will make loans and advances and extend credit to the Borrowers up to the aggregate sum of the principal sum of loans plus the stated value of letters of credit of $18,350,000.00 (collectively the "Loans"). Subject to the terms and conditions hereof, the Loans shall be comprised of (a) revolving loans and advances to the Borrowers, which shall not exceed the aggregate principal sum of $15,500,000.00 (collectively the "Revolving Loans" and individually a "Revolving Loan"), (b) a direct pay letter of credit up to the maximum stated value of $4,500,000.00 plus accrued interest of $110,959.00 for the account of MSC (the "Letter of Credit"), and (c) a term loan facility to MSC up to the principal sum of $2,850,000.00 (the "Term Loan"); provided, however, that notwithstanding the individual limitations set forth above with respect to the Revolving Loans and the Letter of Credit, the aggregate principal balance of the Revolving Loans, plus the stated value outstanding of the Letter of Credit shall not exceed the sum of $15,500,000.00. 1.2 Borrowing Base. The principal balance of the Revolving Loans made to any Borrower, plus the aggregate stated value outstanding at any time of Letter of Credit issued for such Borrower, shall not exceed such Borrower's Borrowing Base. "Borrowing Base" shall mean, with respect to any Borrower, the sum of the following with respect to such Borrower (a) the lesser of 70% of Eligible Raw Materials Inventory or $3,500,000.00; plus (b) the lesser of 60% of Eligible Material Content of WIP Inventory or $1,500,000.00, plus (c) the Eligible Equipment Availability, plus (d) 85% of Eligible Accounts (collectively the "Borrowing Base"). The Bank, in its sole good faith discretion, reserves the right upon notice to the Borrowers to increase or decrease the foregoing percentages or the maximum dollar amount attributable to any category of Eligible Inventory. "Eligible Equipment Availability" shall mean with respect to Eligible Equipment the following amounts with respect to the following periods: (i) from the date of this Agreement through and including December 30, 1996, with respect to MSC, the sum of $3,700,000, with respect to EBA, the sum of $767,000, and with respect to Eballoy, the sum of $283,000, (ii) beginning December 31, 1996, and continuing through and including December 30, 1997, with respect to MSC, the sum of $3,083,333, with respect to EBA, the sum of $586,500, and with respect to Eballoy, the sum of $235,833, 6 (iii) beginning December 31, 1997, and continuing through and including December 30, 1998, and with respect to MSC, the sum of $2,466,667, with respect to EBA, the sum of $406,000, with respect to Eballoy, the sum of $188,667, and (iv) beginning December 31, 1998, and continuing at all times thereafter, with respect to MSC, the sum of $ 1,850,000, with respect to EBA, the sum of $225,500, and with respect to Eballoy, the sum of $141,500, minus with respect to each applicable period the appraised value of any Equipment that is sold, transferred or disposed of pursuant to the terms of this Agreement or becomes obsolete after December 27, 1995. 1.3 Letter of Credit. The terms and conditions of the Letter of Credit shall be as set forth in the Reimbursement Agreement dated of even date herewith (the "Reimbursement Agreement"), and attached as Exhibit A-3 hereto, and any amendment, modification or supplement thereto. 1.4 Pending Defaults. The Bank shall have no obligation to advance or readvance any sums pursuant to the Loans at any time when a set of facts or circumstances exists, which, by themselves, upon the giving of notice, the lapse of time, or any one or more of the foregoing would constitute an Event of Default under this Agreement (a "Pending Default"). 2. Eligibility. 2.1 Eligible Accounts. The term "Eligible Accounts" means with respect to any Borrower the portion of such Borrower's accounts that the Bank determines from time to time in good faith, based on credit policies, market conditions, such Borrower's business and other criteria, is eligible for use in calculating the Borrowing Base. Without limiting the Bank's right to determine which accounts are Eligible Accounts, no account will be an Eligible Account in calculating the Borrowing Base, unless, at a minimum, such account is unconditionally due and owing to such Borrower from a party (the "Account Debtor") that meets the qualifications stated herein, conforms to the warranties regarding the Accounts contained in this Agreement, and meets all the following requirements until it is collected in full: (a) the account is due and payable (in U.S. dollars), exclusive of sales or other taxes, and not more than 90 days have elapsed from the original invoice therefor, or if a special dating program has been approved in writing by the Bank, the account is due and payable on a date permitted by the terms of such dating program and is not past-due; (b) the account arises from the completed performance of a sale of goods and/or related services, does not constitute a progress billing or advance billing, and, if involving a sale of goods, all such goods have been lawfully shipped and invoiced to the Account Debtor, and if requested by the Bank, copies of all invoices, together with all shipping documents and delivery receipts evidencing such shipment have been delivered to the Bank; (c) the account does not arise from a contract with any government or agency thereof; (d) the account is not subject to any prior assignment, claim, lien, security interest, or subject to any levy or setoff; (e) the account is not subject to any credit, contra account, allowance, adjustment, return of goods, or discount (collectively a "Contra"), provided, however, that unless the Account Debtor has asserted a Contra, if the amount of the account exceeds the amount of the Contra, such excess shall be considered for eligibility if such excess meets all other requirements 7 of this Section 2.1; (f) the account does not arise from an Affiliate; (g) the account arises from an Account Debtor other than General Electric Company ("GE") or Westinghouse Electric Company ("Westinghouse"), and does not, when added to all other accounts of the Account Debtor with all of the Borrowers, produce an aggregate indebtedness from the Account Debtor of more than 20% of the total of all the Borrowers' Eligible Accounts, or, the account arises from GE or Westinghouse and does not, when added to all other accounts of GE or Westinghouse with all of the Borrowers, produce an aggregate indebtedness from such Account Debtor of more than 25% of the total of all the Borrowers' Eligible Accounts; (h) the Account Debtor is not subject to bankruptcy, receivership or similar proceedings, is not insolvent and the Bank is not aware that such Account Debtor is in default of any material obligations or has suffered a Material Adverse Effect; (i) the account is not evidenced by any chattel paper, promissory note, payment instrument or written agreement and does not arise from a consumer transaction; (j) the account does not arise from an Account Debtor whose mailing address or executive office is located outside the United States or Canada (unless the payment for the goods which give rise to such account is assured by an irrevocable letter of credit received by such Borrower, such letter of credit is from a financial institution acceptable to the Bank, the same has been assigned to the Bank and the original has been delivered to the Bank, or the same has been confirmed by a financial institution acceptable to the Bank and is in form and substance acceptable to the Bank, payable in the full amount of the account in United States dollars at a place of payment located within the United States); (k) the account does not arise from an Account Debtor to whom goods are shipped on a "cash on delivery" or C.O.D. basis; (1) the account does not arise from an Account Debtor, having 20% or more of its accounts with all of the Borrowers (in dollar value) not Eligible Accounts pursuant to this Section 2.1; and (m) the Bank has not notified the Borrower that the account or the Account Debtor is unsatisfactory or unacceptable (although the Bank reserves the right to do so in its sole good faith discretion at any time). 2.2 Eligible Raw Materials Inventory. The term "Eligible Raw Materials Inventory," with respect to any Borrower, means that portion of such Borrower's Eligible Inventory consisting of Raw Materials Inventory, as set forth in such Borrower's general ledger account, which shall be determined in the same manner as on the date of this Agreement, and shall be valued at the lesser of cost (on a FIFO basis) or market. 2.3 Eligible Material Content of WIP Inventory. The term "Eligible Material Content of WIP Inventory," with respect to any Borrower, means that portion of such Borrower's Eligible Inventory consisting of Work-ln-Process -- Materials, as set forth in such Borrower's general ledger account, which shall be determined in the same manner as on the date of this Agreement, and shall be valued at the lesser of cost (on a FIFO basis) or market. The terms Eligible Raw Materials Inventory and Eligible Material Content of WIP Inventory shall be mutually exclusive. 2.4 Eligible Inventory. The term "Eligible Inventory", with respect to any Borrower, means that portion of such Borrower's inventory that the Bank determines in good faith from time to time, based on credit policies, market conditions, such Borrower's business and other matters, is eligible for use in calculating the Borrowing Base. For purposes of determining the Borrowing Base, Eligible Inventory (unless the Bank agrees otherwise in writing) shall not include work in 8 process (except to the extent of Eligible Material Content of WIP Inventory only), slow-moving, obsolete or discontinued inventory, supply items, packaging, or the freight portion of raw materials, inventory in the control of a third person for processing, storage or any other reason (unless such Borrower shall have provided to the Bank a processor's waiver or bailee's waiver in form satisfactory to the Bank), consigned inventory, or inventory in transit. 2.5 Eligible Equipment. The term "Eligible Equipment" means that portion of the following Borrowers' equipment that is listed in a certain appraisal by Norman Levy Associates, Inc., dated December 27, 1995 (the "Levy Appraisal"), and used solely in connection with the operations of MSC, EBA, or Eballoy, except for and excluding all equipment located at or used in connection with MSC's Rolled Ring Division in Erie, Pennsylvania (the "Rolled Ring Division Equipment"), that the Bank determines in good faith from time to time based upon credit policies, market conditions, and other matters, is eligible. For such purpose, no equipment shall be Eligible Equipment unless, at a minimum, (a) such item of equipment is owned solely by MSC, EBA, or Eballoy and is not Rolled Ring Division Equipment, (b) the Bank has a first and exclusive perfected security interest with respect to such item of equipment, (c) the Bank is lender loss payee with respect to such equipment, (d) if such item of equipment is located on property not owned by a Borrower, such Borrower has obtained a landlord's waiver and mortgagee's waiver, if applicable, or a bailee's waiver with respect to such equipment, and (e) such equipment is currently used in the operation of such Borrower's business. Each Borrower's equipment shall be valued consistent with the method of valuation described in a certain letter from Norman Levy Associates, Inc. to George H. Wells of Centrum Industries dated December 27, 1995, attached hereto as a portion of Schedule 2.5 or as reflected in a more recent appraisal satisfactory to the Bank in all respects, in its sole and absolute good faith discretion, by an appraiser approved by the Bank. 2.6 Reserves. The Bank reserves the right to deduct from any advances to be made hereunder such amounts as the Bank may deem proper and necessary, in its sole good faith discretion, to establish reserves for the creditworthiness of the Account Debtors, market fluctuations in the value of inventory, the payment of taxes or contingent liabilities, customer advances and deposits, payment of interest, fees, and expenses payable under this Agreement or any other agreement in favor of the Bank, and such other purposes as the Bank may deem appropriate. In addition, from the date of this Agreement through and including the funding of a certain loan from the Pennsylvania Industrial Development Authority in an amount not less than $525,000.00 (the "PIDA Loan"), the Bank shall maintain a specific reserve of $200,000.00, and thereafter through and including the later of December 31, 1996, or until such time after the date hereof that MSC has paid not less than the principal sum of $700,000 of those certain Erie County Industrial Development Authority Variable Rate Demand Revenue Bonds, Series of 1991 (the "IRB"), the Bank shall maintain a specific reserve for such principal payment of $700,000. Such reserve shall be released after the time set forth in the immediately preceding sentence provided that no Event of Default has occurred hereunder. 3. Terms and Uses of Loan. 3.1 Interest Rates and Fees. The Borrowers jointly and severally agree to pay the Bank (a) each month interest on the unpaid balance of the Loans at the rates of interest set forth in the 9 note or notes evidencing the Loans; (b) beginning with the date of this Agreement and continuing on the first of each month thereafter a collateral administration fee in respect of the Revolving Loans equal to $3,000.00; (c) no later than the execution of this Agreement, and on each anniversary date of this Agreement, an annual facility fee equal to $60,000.00; and (d) beginning on the date of this Agreement and continuing on each July 1, October 1, and January 1 and April 1 thereafter the fees set in the Reimbursement Agreement a equal to 3% per annum of the stated amount of the Letter of Credit. 3.2 Terms and Advances. The Loans shall be evidenced by a note or by one or more notes or reimbursement agreements subsequently executed in substitution therefor, each in substantially the form set forth in Exhibit A-1, A-2 and A-3 attached hereto. Repayment of the Loans shall be made in accordance with the terms of the promissory notes or reimbursement agreement then outstanding pursuant to this Agreement. 3.3 Costs and Expenses. The Borrowers jointly and severally agree to pay service charges, analysis fees, audit fees in the amount of $500.00 per day per auditor for each audit conducted by the Bank, plus out-of-pocket expenses, provided, however, in the absence of the occurrence of an Event of Default hereunder, such audits will not exceed four audits per calendar year, and all costs and expenses incidental to or in connection with the Loans or any service provided by the Bank, the enforcement of the Bank's rights in connection therewith, any amendment or modification of this Agreement or any other loan documents, any sale or attempted sale of any interest herein to a participant or co-lender, any litigation, contest, dispute, proceeding or action in any way relating to the Collateral or to this Agreement, whether any of the foregoing are incurred prior to or after maturity, the occurrence of an Event of Default, or the rendering of a judgment. Such costs shall include, but not be limited to, fees and out-of-pocket expenses of the Bank's counsel, recording fees, inspection fees, revenue stamps and note and mortgage taxes. 3.4 Use of Proceeds. The net proceeds of the Loans will be used to pay in full all of the Borrowers' existing bank indebtedness, to provide for working capital requirements of the Borrowers and for any other business purpose in the Borrowers' businesses. In addition, the proceeds of the loan may be used to satisfy certain obligations of MSC incurred in collection with a certain Agreement and Plan of Reorganization by and among Centrum, Centrum Merging Corporation, and MSC, dated December 5, 1995 (the "Transactions"). 3.5 Early Termination Fee. The Borrowers jointly and severally agree to pay to the Bank an early termination fee of $370,000.00 if the Borrowers terminate or prepay in full the Loans prior to the Maturity Date; provided, however, that if the Borrowers terminate or prepay in full the Loans within the two years immediately preceding the Maturity Date, such early termination fee shall be $185,000.00. "Maturity Date" shall mean February 28, 1999, or any extended maturity date of the Revolving Loans, as the same may be extended from time to time by the Bank, in its sole and absolute discretion. The Borrowers further agree that any early termination fee set forth in this Section 3.5 shall be due and payable to the Bank regardless of whether such prepayment results from the Borrowers' voluntary prepayment or from the Bank's exercise of any of its rights after an Event of Default hereunder; provided, however, that if the Loans are paid in full solely as a result of insurance proceeds resulting from the damage, destruction, or 10 condemnation of the Collateral, the Real Estate Collateral, the Guarantor Collateral, the Non-Recourse Guarantor Collateral, or the Other Collateral, then the Bank agrees that the above early termination fee shall be zero. 3.6 The Guarantors and Guarantor Collateral. Each of the Guarantors shall unconditionally guarantee the full and prompt payment of the Loans, shall evidence its obligation by executing and delivering to the Bank a Continuing Guaranty Unlimited (the "Guaranties") (the guaranty agreement of Centrum shall include, inter alia, a requirement that such Guarantor will maintain Tangible Net Worth in accordance with the provisions of Section 6.14 below), and shall secure its obligations under each of the Guaranties with a first and exclusive security interest, assignment, pledge, and mortgage on all of its stock or securities (except for the stock of Micafil, Inc.), business assets, motor vehicles, and real estate, whether now owned or hereafter acquired pursuant to security agreements, assignments, pledges, and mortgages in form satisfactory to the Bank (the "Guarantor Collateral"). In addition, Micafil, Inc., and American Handling, Inc. shall each, on a non-recourse basis, guaranty the Loans, shall evidence its obligations by executing and delivering to the Bank a Non-Recourse Guaranty (the "Non-Recourse Guaranties"), and shall secure the obligations under the Non-Recourse Guaranties, with a first and exclusive security interest, assignment, pledge, and mortgage on all of their respective business assets, motor vehicles and real estate, whether now owned or hereafter acquired pursuant to security agreements, pledges, and mortgages in form satisfactory to the Bank subject to any liens or encumbrances permitted by the terms of such documents (the "Non-Recourse Guarantor Collateral "), provided, however, that if the Bank, in its sole discretion, does not provide a credit facility in the amount of $250,000.00 to Micafil, Inc., then the Bank agrees to subordinate its security interests with respect to the business assets of Micafil, Inc. to the extent of $250,000.00 in favor of another senior lender. 3.7 Other Collateral Securing the Loans. In addition to the Collateral (as defined below), the Loans shall be secured by first and exclusive open-end mortgages, assignments of rents and security agreements in all of the real property interests whether now owned or hereafter acquired, whether owned or leased of the Borrowers (the "Real Estate Collateral"); provided, however, that the Bank's mortgage interests in the Borrowers' real estate interests shall be subject to the liens and encumbrances set forth in Exhibit B attached hereto, (b) a first and exclusive security interest in all of the Borrowers' motor vehicles and interests in capital stock; and (c) the life insurance referred to in Section 6.2 below (collectively the "Other Collateral"). 3.8 Increased Capital. If after the date hereof the Bank determines that (i) the adoption or implementation of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other governmental authority or quasi-governmental authority exercising jurisdiction, power or control over the Bank or banks or financial institutions generally (whether or not having the force of law), compliance with which affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (ii) the amount of such capital is increased by or based upon (A) the making or maintenance by the Bank of its Loans, any participation in or obligation to participate in the Loans, Letter of Credit or other advances made hereunder or the existence of any obligation to make the Loans or (B) the issuance or maintenance by the Bank of, or the existence of the Bank's obligation to issue, Letter of Credit, then, in any such case, 11 upon written demand by the Bank, the Borrower shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank or such corporation therefor. Such demand shall be accompanied by a statement as to the amount of such compensation and include a summary of the basis for such demand with detailed calculations. Such statement shall be conclusive and binding for all purposes, absent manifest error. 4. Security Agreement. 4.1 Grant of Security Interest. Each of the Borrowers hereby grants, pledges, conveys and assigns to the Bank continuing security interests in the following property, whether such Borrower's interest therein be as owner, co-owner, lessee, consignee, secured party or otherwise, and whether the same be now owned or existing or hereafter arising or acquired, and wherever located, together with all substitutions, replacements, additions and accessions therefor or thereto, all documents, negotiable documents, documents of title, warehouse receipts, storage receipts, dock receipts, dock warrants, express bills, freight bills, airbills, bills of lading, and other documents relating thereto, all products thereof and all cash and non-cash proceeds thereof including, but not limited to, notes, drafts, checks, instruments, insurance proceeds, indemnity proceeds, warranty and guaranty proceeds (herein the "Proceeds"): (a) all inventory including, but not limited to, all goods, merchandise and other personal property furnished under any contract of service or intended for sale or lease, all parts, supplies, raw materials, work in process, finished goods, materials used or consumed, and repossessed and returned goods (herein the "Inventory"); (b) all accounts, accounts receivable, contract rights, chattel paper, general intangibles, income or other tax refunds, preference recoveries and all claims in respect of any transfers of any kind, instruments, negotiable documents, notes, drafts, acceptances and other forms of obligations, all books, records, ledger cards, computer programs, computer software, and other documents or property, including without limitation such items which are evidencing or relating to the accounts and inventory and including, but not limited to, any of the foregoing arising from or in connection with the sale, lease or other disposition of Inventory (herein the "Accounts"); (c) all machinery, equipment, tools, dies, molds, rolling stock, furniture, furnishings and fixtures including, but not limited to, all manufacturing, fabricating, processing, transporting and packaging equipment, power systems, heating, cooling and ventilating systems, lighting and communications systems, electric, gas and water distribution systems, food service systems, fire prevention, alarm and security systems, laundry systems and computing and data processing systems (herein the "Equipment"); (d) all trade names, trademarks, trade secrets, service marks, data bases, software and software systems, including the source and object codes, information systems, discs, tapes, customer lists, telephone numbers, credit memoranda, goodwill, patents, patent applications, patents pending, copyrights, royalties, literary rights, licenses and franchises (herein the "Intellectual Property"); and (e) all deposit accounts, whether general, special, time, demand, provisional, or final, all cash or monies wherever located, any and all deposits or other sums at any time credited by or due, any and all policies, certificates of insurance, securities, goods, choses in action, cash and property, which now or hereafter are at any time in the possession or control of the Bank or in transit by mail or carrier to or from the Bank, or in the possession of any third party acting in the Bank's behalf, without regard to whether the Bank received the same in pledge for safekeeping, as agent for collection or transmission or otherwise, or whether the Bank has conditionally released the same (herein the 12 "Deposits") (all of the Accounts, the Inventory, the Equipment, the Intellectual Property, the Deposits and the Proceeds herein are collectively termed the "Collateral"). The security interests hereby granted are to secure the prompt and full payment and complete performance of all Obligations to the Bank. The word "Obligations" means all indebtedness, debts and liabilities (including principal, interest, late charges, collection costs, attorneys' fees and the like) of each of the Borrowers to the Bank, whether now existing or hereafter arising, either created by any of the Borrowers alone or together with another or others, primary or secondary, secured or unsecured, absolute or contingent, liquidated or unliquidated, direct or indirect, whether evidenced by note, draft, application for letter of credit or otherwise, and any and all renewals of or substitutes therefor, including all indebtedness owed to the Bank in connection with the Loans. The continuing security interests granted hereby shall extend to all present and future Obligations, whether or not the Obligations are reduced or extinguished and thereafter increased or reincurred, whether or not the Obligations are related to the indebtedness identified above by class, type or kind and whether or not the Obligations are specifically contemplated as of the date hereof. The absence of any reference to this Agreement in any documents, instruments or agreements evidencing or relating to any Obligation secured hereby shall not limit or be construed to limit the scope or applicability of this Agreement. 4.2 Representations and Covenants Regarding the Collateral. Each of the Borrowers represents, warrants and covenants as follows: such Borrower (a) except for the security interests granted hereby, any liens set forth in Exhibit B, and liens permitted by this Agreement, is, or as to Collateral arising or to be acquired after the date hereof, shall be, the sole and exclusive owner of the Collateral, and the Collateral is and shall remain free from any and all liens, security interests, encumbrances, claims and interests, and no security agreement, financing statement, equivalent security or lien instrument or continuation statement covering any of the Collateral is on file or of record in any public office; (b) shall not create, permit or suffer to exist, and shall take such action as is necessary to remove, any claim to or interest in or lien or encumbrance upon the Collateral except the security interest granted hereby and any liens or encumbrances set forth in Exhibit B, and shall defend the right, title and interest of the Bank in and to the Collateral against all claims and demands of all persons and entities at any time claiming the same or any interest therein; (c) shall maintain its principal place of business and chief executive office at the address set forth in paragraph 9.1 of this Agreement, and the records concerning the Collateral shall be kept at that address unless the Bank shall give its prior written consent otherwise; (d) shall keep the Collateral at the locations set forth in Exhibit C attached hereto and maintain no other place of business or place where Collateral is located, except as shown in Exhibit C attached hereto; (e) shall deliver to the Bank at least thirty (30) days prior to the occurrence of any of the following events, written notice of such impending events: (i) a change in the principal place of business or chief executive office; (ii) the opening or closing of any place of business; or (iii) a change in name, identity or corporate structure. 4.3 Lockbox and Collection of Accounts. Each of the Borrowers shall cause all of its accounts to be collected through a lockbox arrangement with the Bank and shall execute a lockbox agreement in form and substance satisfactory to the Bank. Within 5 days after the date 13 of this Agreement, each Borrower shall notify all existing Account Debtors to remit payments to the address specified in such lockbox agreement, and all invoices rendered after the date hereof shall bear such address. The Bank at any time after the occurrence of an Event of Default may notify Account Debtors on any Collateral that the Collateral has been assigned to the Bank and shall be paid to the Bank through the lockbox or otherwise. Upon request of the Bank at any time after the occurrence of an Event of Default the Borrowers agree to notify such Account Debtors and indicate on all billings that the accounts are payable to the Bank. 4.4 Cash Collection Account. The collections through the lockbox arrangement shall be deposited into cash collection accounts maintained with the Bank (the "Cash Collection Account"), over which the Bank alone shall have the power of withdrawal. If any of the Borrowers makes collections on any of the Collateral, it shall hold in trust for the Bank the proceeds received from collections, and turn over all checks, drafts, cash and other remittances and proceeds to the Bank each business day in the exact form in which they are received, together with a collection report in form acceptable to the Bank. Said proceeds shall be deposited in the Cash Collection Accounts. Prior to the occurrence of an Event of Default, the Bank shall apply the whole or any part of the collected funds on deposit in the Cash Collection Accounts against the principal and/or interest of the Revolving Loans, and after the occurrence of an Event of Default, the Bank may apply such funds to the Term Loan or any other indebtedness or Obligations, and any portion of said funds on deposit in the Cash Collection Accounts which the Bank elects not to apply to the Obligations may be paid over and deposited by Bank to the Borrowers' commercial accounts. The Bank, at the Bank's sole discretion, may credit amounts deposited in the Cash Collection Accounts to the Loans on the day of deposit. To compensate the Bank for this arrangement, the Bank charges, and each of the Borrowers agrees to pay a fee which is calculated in accordance with the Bank's standard practices and procedures as if the deposits in the Cash Collection Accounts were not applied to the Revolving Loan until one business day after deposit in the Cash Collection Accounts, with interest charged on the daily deposits in the Cash Collection Account at the interest rates applicable to the Revolving Loan. Such amount is charged to the Borrowers monthly. 4.5 Application of Proceeds from Collection of Accounts; Setoff; Government Accounts; Perfection; Lien Notation. All amounts received by the Bank representing payment of Accounts or proceeds from the sale of Inventory or of the Collateral shall be applied by the Bank prior to the occurrence of an Event of Default to the Revolving Loans, and after any Event of Default to the payment of the Obligations in such order of preference as the Bank may determine. Each of the Borrowers also authorizes the Bank at any time after the occurrence of an Event of Default without notice, to appropriate and apply any balances, credits, deposits, accounts or money of such Borrower in the Bank's possession, custody or control to the payment of any of the Obligations whether or not the Obligations are due or matured. If any of the Accounts arise out of contracts with or orders from the United States or any department, agency or instrumentality thereof, such Borrower shall immediately (i) notify the Bank thereof in writing and (ii) execute any instrument and take any steps which the Bank deems necessary pursuant to the Federal Assignment of Claims Act of 1940, as amended (41 U.S.C. Section 15) in order that all money due and to become due under such contract or order shall be assigned to the Bank. Each of the Borrowers agrees to execute, deliver, file and record all such notices, affidavits, assignments, financing statements and other instruments as shall in the judgment of the Bank be 14 necessary or desirable to evidence, validate and perfect the security interest of the Bank in the Accounts. If certificates of title are issued or outstanding with respect to any Inventory or Equipment, such Borrower will cause the interest of the Bank to be properly noted thereon at the Borrowers' expense. 4.6 Collateral Insurance. Each of the Borrowers shall have and maintain insurance at all times with respect to all Inventory and Equipment insuring against risks of fire (including so-called extended coverage), explosion, theft, sprinkler leakage and such other casualties as the Bank may designate, containing such terms, in such form, for such amounts, for such periods and written by such companies as may be satisfactory to the Bank, and each such policy shall contain a clause or endorsement satisfactory to the Bank that names the Bank as additional insured and loss payee, as its interests may appear, and that provides that no act, default or breach of warranty or condition of the insured or any other person shall affect the right of the Bank to recover under such policy or policies of insurance or to pay any premium in whole or in part relating thereto. All policies of insurance shall provide for thirty (30) days' written minimum notice of cancellation or alteration to the Bank. The Borrowers shall deliver to the Bank certified copies of all policies of insurance and evidence of the payment of all premiums therefor. Each of the Borrowers hereby irrevocably appoints the Bank (and any of the Bank's officers, employees or agents designated by the Bank) as attorney-in-fact in obtaining and cancelling such insurance and in making, settling and adjusting all claims under such policies of insurance, endorsing any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. In the event of failure to provide insurance as herein provided, the Bank may, at its option, provide such insurance, and the Borrowers shall pay to the Bank, upon demand, the cost thereof. Should said sum not be paid to the Bank upon demand, interest shall accrue thereon from the date of demand until paid in full at the highest rate set forth in any document or instrument evidencing any of the Obligations. 4.7 Books and Records. Each Borrower shall at all times keep accurate and complete records of the Collateral, including without limitation, a perpetual inventory with respect to raw materials and, beginning as of June 30, 1996, a perpetual inventory with respect to work-in-process inventory, and complete and accurate stock records, and at all reasonable times and from time to time, shall allow the Bank, by or through any of its officers, agents, attorneys or accountants, to examine, inspect and make extracts from such books and records and to arrange for verification of the Collateral directly with Account Debtors or by other methods and to examine and inspect the Collateral wherever located. In addition, upon request of the Bank, each Borrower shall provide the Bank with copies of agreements with, purchase orders from, and invoices to, the Account Debtors, and copies of all shipping documents, delivery receipts, and such other documentation and information relating to the Collateral as the Bank may require. 4.8 Collateral Administration and Warranties Regarding the Inventory and the Accounts. (a) Each Borrower shall promptly perform, on request of the Bank, such acts as the Bank may determine to be necessary or advisable to create, perfect, maintain, preserve, protect and continue the perfection of any lien and security interest provided for in this Agreement or otherwise to carry out the intent of this Agreement, including, without limitation, (i) obtaining waivers or other similar documents reasonably necessary to permit the enforcement of the 15 remedies of the Bank hereunder, (ii) delivering to the Bank warehouse receipts covering any portion of the Inventory located in warehouses and for which warehouse receipts are issued, (iii) transferring Inventory to warehouses designated by the Bank or leasing warehouses containing the Inventory to the Bank or its designee, (iv) delivering to the Bank copies, and originals upon the Bank's request, of all letters of credit on which such Borrower is named beneficiary, and (vi) if any Inventory is at any time in the possession or control of a warehouseman, bailee or any agent, notifying such person of the Bank's lien and security interest in the Collateral and, upon the Bank's request, instructing such persons to hold all Collateral for the Bank's account subject to the Bank's instruction; (b) each of the Accounts is based on an actual bona fide, and genuine (i) sale and delivery of goods or (ii) rendering or performance of services in the ordinary course of business, the Account Debtors have accepted such goods or services and unconditionally owe and are obligated to pay the full amounts reflected in the invoices according to the terms thereof without any defense, offset or counterclaim, (c) all of the shipping and delivery receipts and other documents to be given to the Bank with respect to the Accounts will be genuine, and if there are any disputes with any of the Accounts, such Borrower will notify the Bank promptly and resolve or settle such dispute at no expense or detriment to the Bank; (d) the Borrowers shall not (i) extend, amend or otherwise modify the terms of any Account, (ii) amend, modify or waive any term or condition of any contractual obligation related thereto or (iii) redate any invoice or sale or make sales on extended dating beyond that customary in such Borrower's industry; provided, however, that the Borrowers may extend, amend or otherwise modify the terms of any Account in the ordinary course of business, if such extension, amendment, modification or waiver does not cause an Account to become or otherwise remain (but for such action) an Eligible Account. 4.9 Preservation and Disposition of Collateral. Each Borrower shall (a) obtain, prior to the placement of any Collateral in or upon any leased or mortgaged real property, a waiver from the lessor and/or the mortgagee, as the case may be, with respect to the rights (whether present or future) of the lessor or mortgagee with respect to that Collateral; (b) advise the Bank promptly, in writing and in reasonable detail, (i) of any material encumbrance or claim asserted against any of the Collateral except as disclosed in Exhibit B attached hereto; (ii) of any material change in the composition of the Collateral; and (iii) of the occurrence of any other event that would have a material adverse effect upon the aggregate value of the Collateral or upon the security interest of the Bank; (c) not sell or otherwise dispose of the Collateral, except as otherwise permitted by this Agreement (including without limitation Section 6.3 below); (d) keep the Collateral in good condition and shall not misuse, abuse, secrete, waste or destroy any of the same; and (e) not use the Collateral in violation of any statute, ordinance, regulation, rule, decree or order; (f) not permit to become liens any taxes, assessments, or governmental charges or levies upon the Accounts or the Inventory. At its option, the Bank may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance and preservation of the Collateral. Each of the Borrowers agrees to reimburse the Bank upon demand for any payment made or any expense incurred (including reasonable attorneys' fees) by the Bank pursuant to the foregoing authorization. Should said sum not be paid to the Bank upon demand, interest shall accrue thereon, from the date of demand until paid in full, at the highest rate set forth in any document or instrument evidencing any of the Obligations. 16 4.10 Extensions and Compromises. With respect to any Collateral, each Borrower assents to all extensions or postponements of the time of payment thereof or any other indulgence in connection therewith, to each substitution, exchange or release of Collateral, to the addition or release of any party primarily or secondarily liable, to the acceptance of partial payments thereon and to the settlement, compromise or adjustment thereof, all in such manner and at such time or times as the Bank may deem advisable. The Bank shall have no duty as to the collection or protection of Collateral or any income therefrom, nor as to the preservation of rights against prior parties, nor as to the preservation of any right pertaining thereto, beyond the safe custody of Collateral in the possession of the Bank. 4.11 Financing Statements. At the request of the Bank, each Borrower shall join with the Bank in executing, delivering and filing one or more financing statements in a form satisfactory to the Bank and shall pay the cost of filing the same in all public offices wherever filing is deemed by the Bank to be necessary or desirable. A carbon, photographic or other reproduction of this Agreement or of a financing statement shall be sufficient as a financing statement, provided, however, the Bank shall not file a copy of this Agreement unless such Borrower shall fail to execute and deliver a financing statement after a written request by the Bank. 4.12 Bank's Appointment as Attorney-in-Fact. Each Borrower hereby irrevocably constitutes and appoints the Bank and any officer or agent thereof, with full power of substitution, as such Borrower's true and lawful attorney-in-fact with full irrevocable power and authority in its place and stead and in its name or in the Bank's own name, from time to time in the Bank's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby grants to the Bank the power and right, on behalf of such Borrower, without notice to or assent: (a) to execute, file and record all such financing statements, certificates of title and other certificates of registration and operation and similar documents and instruments as the Bank may deem necessary or desirable to protect, perfect and validate the Bank's security interest in the Collateral (provided, however, the Bank agrees not to exercise the power granted by this subsection (a) until and unless it has requested that such Borrower execute such financing statement, certificate or similar documents, and such Borrower has failed to do so); (b) to receive, collect, take, indorse, sign, and deliver in such Borrower's or the Bank's name, any and all checks, notes, drafts, or other documents or instruments relating to the Collateral; and (c) upon the occurrence of an Event of Default, (i) to notify postal authorities to change the address for delivery of the Borrower's mail to an address designated by the Bank, (ii) to open such mail delivered to the designated address, (iii) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other documents relating to the Collateral; (iv) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (v) to defend any suit, action or proceeding brought with respect to any Collateral; (vi) to negotiate, settle, compromise or adjust any account, suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as the Bank may deem appropriate; and (vii) generally, to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully 17 and completely as though the Bank were the absolute owner thereof for all purposes, and to do, at the Bank's option, at any time or from time to time, all acts and things which the Bank deems necessary to protect, preserve or realize upon the Collateral and the Bank's security interest therein, in order to effect the intent of this Agreement. Each Borrower hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. The powers conferred upon the Bank hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon the Bank to exercise any such powers. The Bank shall be accountable only for amounts that the Bank actually receives as a result of the exercise of such powers and neither the Bank nor any of its officers, directors, employees or agents shall be responsible to the Borrower for any act or failure to act, except for the Bank's own gross negligence or willful misconduct. 4.13 Remedies on Default. Upon the occurrence of an Event of Default, the Bank shall have the rights and remedies of a secured party under this Agreement, under any other instrument or agreement securing, evidencing or relating to the Obligations and under the law of the State of Ohio or any other applicable state law. Without limiting the generality of the foregoing, the Bank shall have the right to take possession of the Collateral and all books and records relating to the Collateral and for that purpose the Bank may enter upon any premises on which the Collateral or books and records relating to the Collateral or any part thereof may be situated and remove the same therefrom. Except for the notices specified below of time and place of public sale or disposition or time after which a private sale or disposition is to occur, each of the Borrowers expressly agrees that the Bank, without demand of performance or other demand, advertisement or notice of any kind to or upon such Borrower or any other person or entity (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase or sell or otherwise dispose of and deliver the Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any of the Bank's offices or elsewhere at such prices as the Bank may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Bank shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption. Each of the Borrowers further agrees, (a) at the Bank's request, to assemble the Collateral and to make it available to the Bank at such places as the Bank may reasonably select and (b) to allow the Bank to use or occupy such Borrower's premises, without charge, for the purpose of effecting the Bank's remedies in respect of the Collateral. The Bank shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any or all of the Collateral or in any way relating to the rights of the Bank hereunder, including reasonable attorneys' fees and legal expenses, to the payment in whole or in part of the Obligations, in such order as the Bank may elect, and only, after so paying over such net proceeds and after the payment by the Bank of any other amount required by any provision of law, need the Bank account for the surplus, if any. To the extent permitted by applicable law, each Borrower waives all claims, damages and demands against the Bank arising 18 out of the repossession, retention, sale or disposition of the Collateral and agrees that the Bank need not give more than ten days' notice pursuant to the terms of this Agreement of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Each of the Borrowers shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which the Bank is entitled and shall also be liable for the costs of collecting any of the Obligations or otherwise enforcing the terms thereof or of this Agreement, including reasonable attorneys' fees. 5. Warranties and Representations. In order to induce the Bank to enter into this Agreement and to make the Loans and the other financial accommodations to the Borrowers and to the Guarantors and to issue the Letter of Credit described herein, each Borrower represents and warrants to the Bank that the following statements are true and correct: 5.1 Corporate Organization and Authority. Each of the Companies (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of such Company's incorporation; (b) has all requisite corporate power and authority and all necessary material licenses and permits to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted; and (c) is not doing business or conducting any activity in any jurisdiction in which it has not duly qualified and become authorized to do business, unless the failure to so qualify will not have or is not likely to have a Material Adverse Effect. 5.2 Borrowing is Legal and Authorized. (a) The Board of Directors of each Company has duly authorized the execution and delivery of this Agreement and of the notes, reimbursement agreements and guaranties and documents contemplated herein; this Agreement, and such other documents executed in connection with this Agreement will constitute valid and binding obligations enforceable in accordance with their respective terms; (b) the execution of this Agreement and related notes and documents and the compliance with all the provisions of this Agreement (i) are within the corporate powers of each of the Companies and (ii) are legal and will not conflict with, result in any breach in any of the provisions of, constitute a default under, or result in the creation of any lien or encumbrance upon any property of such Company under the provisions of, any agreement, charter instrument, bylaw, or other instrument to which such Company is a party or by which it may be bound; (c) there are no limitations in any indenture, contract, agreement, mortgage, deed of trust or other agreement or instrument to which any of the Companies is now a party or by which such Company may be bound with respect to the payment of principal or interest on any indebtedness, or such Company's ability to incur indebtedness including the notes to be executed in connection with this Agreement. 5.3 Taxes. Except as set forth in Schedule 5.3 attached hereto, all tax returns required to be filed by any of the Companies in any jurisdiction have in fact been filed, and all taxes, assessments, fees and other governmental charges upon the Companies or upon any of their properties, which are due and payable have been paid. The Companies do not know of any proposed additional tax assessment against it. The accruals for taxes on the books of the Companies for its current fiscal period are adequate. 19 5.4 Capital Structure. Centrum owns 100% of the capital stock of MSC. MSC owns 100% of the capital stock of McInnes Services, Inc. McInnes Services, Inc. owns 100% of the stock of Eballoy, EBA and McInnes International, Inc. The corporate structure of each of the Borrowers and MSI is set forth in Schedule 5.4 attached hereto accurately represents to the Bank the following: (a) the classes of capital stock of each of the Borrowers and MSI and par value of each such class, all as authorized by the Articles of Incorporation of each and the number of shares of each such class of stock issued and outstanding, the registered owner or holder (legally or beneficially) thereof, and the certificate numbers evidencing the foregoing. All shares of all classes of capital stock issued are fully paid and nonassessable. The Borrowers and MSI do not have outstanding any other stock or other equity security, or any other instrument convertible to an equity security of any of them, or any commitment, understanding, agreement or arrangement to issue, sell or have outstanding any of the foregoing. 5.5 Compliance with Law. Each Company (a) is not in violation of any laws, ordinances, governmental rules or regulations to which it is subject, and (b) has not failed to obtain any licenses, permits, franchises or other governmental or environmental authorizations necessary to the ownership of its properties or to the conduct of its business, which violation or failure might have or is likely to have a Material Adverse Effect. 5.6 Financial Statements; Full Disclosure. The financial statements of the Borrowers and MSI for the fiscal year ending December 31, 1994 and for the Guarantor for the fiscal year ending March 31, 1995, which have been supplied to the Bank, have been prepared in accordance with generally accepted accounting principles consistently applied and fairly represent each Company's financial condition as of such date, and the financial statements of the Borrowers and the Guarantors for the interim period ending December 31, 1995, which have been supplied to the Bank, fairly represent each Company's financial condition as of such date. No material adverse change in any of the Borrowers' or any Guarantor's financial condition has occurred since such dates.The financial statements referred to in this paragraph do not, nor does this Agreement or any written statement furnished by the Borrowers or the Guarantors to the Bank in connection with obtaining the Loans, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. 5.7 Financial Projections. The financial analyses, reports, business plans, projections, and pro forma financial statements which have been supplied to the Bank have been prepared in accordance with generally accepted accounting principles consistently applied and are based on reasonable, good faith assumptions about the Borrowers' and MSI's financial conditions and projected financial conditions as of the dates of such financial information or projections. No adverse change has occurred which would materially alter any such analyses, reports, business plans, financial statements, projections, or assumptions. Furthermore, none of the foregoing analyses or financial information referred to in this paragraph, contain any untrue statement of a material fact or a material fact necessary to make the statements contained therein or herein not misleading. 5.8 Litigation; Adverse Effects. Except as set forth in Schedule 5.8 attached hereto, there is no action, suit, audit, proceeding, investigation or arbitration (or series of related actions, suits, proceedings, investigations or arbitrations) before or by any governmental authority or 20 private arbitrator pending or, to the knowledge of any of the Companies, threatened against any of the Companies or any property of any of the Companies (i) challenging the validity or the enforceability of any of this Agreement, or any loan document, agreement, or instrument executed in connection herewith, or (ii) which has had, shall have or is reasonably likely to have a Material Adverse Effect. None of the Companies are (A) in violation of any applicable requirements of law which violation shall have or is likely to result in a Material Adverse Effect, or (B) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or governmental authority, in each case which shall have or is likely to have a Material Adverse Effect. "Material Adverse Effect" means a material adverse effect upon (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of any Borrower or Guarantor, (b) the ability of any Borrower or Guarantor to perform its obligations under this Agreement or any document, agreement, guaranty, or instrument executed in connection herewith, or (c) the ability of the Bank to enforce the terms of this Agreement, or any document, agreement, guaranty, or instrument executed in connection herewith. 5.9 No Insolvency. On the date of this Agreement and after giving effect to all indebtedness of the Borrowers (including the Loans), each of the Borrowers and MSI (a) will be able to pay its obligations as they become due and payable; (b) has assets, the present fair saleable value of which exceeds the amount that will be required to pay its probable liability on its obligations as the same become absolute and matured; (c) has sufficient property, the sum of which at a fair valuation exceeds all of its indebtedness; and (d) will have sufficient capital to engage in its business. In addition, each Borrower's grant of its respective Collateral, Real Estate Collateral, and Other Collateral for the Loans constitutes fair consideration and reasonably equivalent value because such Borrower has received or will receive the proceeds of the Loans. 5.10 Government Consent. Neither the nature of any of the Companies or of the business or properties of any Company, nor any relationship between any Company and any other entity or person, nor any circumstance in connection with the execution of this Agreement, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority as a condition to the execution and delivery of this Agreement and the notes and documents contemplated herein. 5.11 Title to Properties. Each of the Companies (a) has good title to all the property in which it has a property interest, free from any liens and encumbrances, except as set forth on Exhibit B attached to this Agreement, and (b) has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property whether now owned or hereafter acquired to be subject to a lien or encumbrance except as provided in this paragraph. 5.12 No Defaults. No event has occurred and no condition exists which would constitute an Event of Default pursuant to this Agreement. None of the Companies are in violation in any material respect of any term of any agreement, charter instrument, bylaw or other instrument to which any of the Companies is a party or by which such Company may be bound. 21 5.13 ERISA Matters. None of the Borrowers or the Guarantors maintains or contributes to any employee pension benefit plan defined in Section 3(2) of ERISA in respect of which such Company is, or within the immediately preceding three years was, an "employer," as defined in Section 3(5) of ERISA (a "Plan") other than those listed on Schedule 5.13 attached hereto. Each Plan which is intended to be qualified under Section 401(a) of the Internal Revenue Code as currently in effect has been determined by the IRS to be so qualified, and each trust related to any such Plan has been determined to be exempt from federal income tax under Section 501 (a) of the Internal Revenue Code as currently in effect. None of the Borrowers or the Guarantors know of any reason why such Plans or trusts are no longer qualified or exempt following such determination by the IRS. Except as disclosed in Schedule 5 13, none of the Borrowers or the Guarantors maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA. The Borrowers and the Guarantors are in compliance in all material respects with the responsibilities, obligations or duties imposed on them by the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute ("ERISA"), the Internal Revenue Code and regulations promulgated thereunder with respect to all Plans. No defined benefit plan, defined in Section 3(35) of ERISA or Section 412 of the Internal Revenue Code, in respect of which any Company is, or within the immediately preceding three years was, an "employer," as defined in ERISA (a "Benefit Plan") has incurred any accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Internal Revenue Code) whether or not waived. None of the Borrowers, the Guarantors nor any fiduciary of any Plan which is not a Multiemployer Plan (i) has engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code or (ii) has taken or failed to take any action whereby any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA has been incurred or with the passage of time will, if unremedied, be incurred with respect to any Benefit Plan, and no such liability has been asserted against any of the Borrowers or the Guarantors. None of the Borrowers or the Guarantors has any potential liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA. None of the Borrowers or the Guarantors has incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. Schedule B to the most recent annual report filed with the IRS with respect to each Benefit Plan and furnished to the Bank is complete and accurate. Since the date of each such Schedule B, there has been no material adverse change in the funding status or financial condition of the Benefit Plan relating to such Schedule B. None of the Borrowers or the Guarantors has (i) failed to make a required contribution or payment to a "multiemployer plan," as defined in Section 4001(a)3 of ERISA, which is, or within the immediately preceding six years was, contributed to by any Company ("Multiemployer Plan") or (ii) except as disclosed on Schedule 5.13 attached hereto, made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan. None of the Borrowers or the Guarantors has failed to make a required installment or any other required payment under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment. None of the Borrowers or the Guarantors is required to provide security to a Benefit Plan under Section 401(a)(29) of the Internal Revenue Code due to a Plan amendment that results in an increase in current liability for the plan year. Except as disclosed on Schedule 5.13 the Borrowers or any of them does not have, by reason of the transactions contemplated hereby any obligation to make any payment to any employee pursuant to any Plan 22 or existing contract or arrangement. The Companies have given to the Bank copies of all of the following: each Benefit Plan and related trust agreement (including all amendments to such Plan and trust) in existence, or for which any of the Companies has taken any corporate action to authorize the adoption thereof, and in respect of which any of the Companies is currently an "employer" as defined in section 3(5) of ERISA, and the most recent summary plan description, actuarial report, determination letter issued by the IRS and Form 5500 filed in respect of each such Benefit Plan in existence; a listing of all of the Multiemployer Plans currently contributed to by any of the Companies with the aggregate amount of the most recent annual contributions required to be made by such Company to each such Multiemployer Plan, any information which has been provided to such Company regarding withdrawal liability under any Multiemployer Plan and the collective bargaining agreement pursuant to which such contribution is required to be made; each employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees of such Company after termination of employment other than as required by Section 601 of ERISA, the most recent summary plan description for such plan and the aggregate amount of the most recent annual payments made to terminated employees under each such plan. 5.14 Labor Matters. (a) Except as set forth in Schedule 5.14 attached hereto, there is no collective bargaining agreement covering any of the employees of any of the Borrowers or Guarantors. To the knowledge of each Borrower and Guarantor, except as set forth on schedule 5.14, no attempt to organize the employees of any Borrower or Guarantor is pending, threatened, planned or contemplated; (b) Set forth in Schedule 5.14 is a list of all material consulting agreements, executive employment agreements, executive compensation plans, deferred compensation agreements, employee pension plans or retirement plans, employee profit sharing plans, employee stock purchase and stock option plans, severance plans, group life insurance, hospitalization insurance or other employee benefit plans of each Borrower and Guarantor providing for benefits for employees of each Borrower and Guarantor. 5.15 Environmental Protection. Except as set forth in Schedule 5.15 attached hereto, or as disclosed in certain Phase I Environmental Reports dated January 6, 1996, prepared by Conestoga-Rovers & Associates and delivered to the Bank, none of the Companies (a) has actual knowledge of the permanent placement, burial or disposal of any Hazardous Substances (as hereinafter defined) on any real property owned, leased, or used by any Company (the "Premises"), of any spills, releases, discharges, leaks, or disposal of Hazardous Substances that have occurred or are presently occurring on, under, or onto the Premises, or of any spills, releases, discharges, leaks or disposal of Hazardous Substances that have occurred or are occurring off the Premises as a result of the improvement, operation, or use of the Premises which would result in non-compliance with any of the Environmental Laws (as hereinafter defined) and which might have a Material Adverse Effect; (b) is in violation of any applicable Environmental Laws; (c) knows of any pending or threatened environmental civil, criminal or administrative proceedings against the any of the Companies relating to Hazardous Substances; (d) knows of any facts or circumstances that would give rise to any future civil, criminal or administrative proceeding against any of the Companies relating to Hazardous Substances; and (e) will permit any of its employees, agents, contractors, subcontractors, or any other person occupying or present on the Premises to generate, manufacture, store, dispose or release on, 23 about or under the Premises any Hazardous Substances which would result in the Premises not complying with the Environmental Laws. As used herein, "Hazardous Substances" shall mean and include all hazardous and toxic substances, wastes, materials, compounds, pollutants and contaminants (including, without limitation, asbestos, polychlorinated biphenyls, and petroleum products) which are included under or regulated by the Comprehensive Environmental Response, Compensation and Liability Act, as amended (42 U.S.C. Section 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901, et seq.), the Water Quality Act of 1987, as amended (33 U.S.C. Section 1251, et seq.), the Clean Water Act, as amended (33 U.S.C. Section 1321 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Sec. 136, et seq.), the National Environmental Policy Act of 1969, as amended (42 U.S.C. Sec. 4321, et seq.), and the Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.), and any other federal, state or local statute, ordinance, law, code, rule, regulation or order regulating or imposing liability (including strict liability) or standards of conduct regarding Hazardous Substances (hereinafter the "Environmental Laws"), but does not include such substances as are permanently incorporated into a structure or any part thereof in such a way as to preclude their subsequent release into the environment, or the permanent or temporary storage or disposal of household hazardous substances by tenants, and which are thereby exempt from or do not give rise to any violation of any Environmental Laws. 5.16 Warranties and Representations. On the date of each advance pursuant to the Loans, the warranties and representations set forth in Section 5 hereof shall be true and correct on and as of such date with the same effect as though such warranties and representations had been made on and as of such date, except to the extent that such warranties and representations expressly relate to an earlier date. 6. Borrower Business Covenants. Each of the Companies covenants that on and after the date of this Agreement until terminated pursuant to the terms of this Agreement, or so long as any of the indebtedness provided for herein remains unpaid: 6.1 Payment of Taxes and Claims. Such Company will pay (a) all taxes, estimated payments, assessments and governmental charges or levies imposed upon it or its property or assets or in respect of any of its franchises, businesses, income or property before any penalty or interest accrues thereon; and (b) all claims of materialmen, mechanics, carriers, warehousemen, landlords, bailees and other like persons, (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a lien or encumbrance upon any of such Company's property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided. however, that no such taxes, assessments and governmental charges referred to in clause (a) above or claims referred to in clause (b) above are required to be paid if being contested in good faith by such Company, by appropriate proceedings diligently instituted and conducted, without danger of any material risk to the Collateral or the Bank's interest therein, without any of the same becoming a lien upon the Collateral, and if such reserve or other 24 appropriate provision, if any, as shall be required in conformity with GAAP, shall have been made therefor. 6.2 Maintenance of Properties and Corporate Existence. Such Company shall (a) maintain its property in good condition and make all renewals, replacements, additions, betterments and improvements thereto which it deems necessary; (b) maintain, with financially sound and reputable insurers, (i) insurance with respect to its properties and business against such casualties and contingencies, of such types (including but not limited to fire and casualty, public liability, products liability, larceny, embezzlement or other criminal misappropriation insurance) and in such amounts as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated, with each such policy of insurance containing a clause or endorsement satisfactory to the Bank that names the Bank as additional insured and loss payee, as its interest may appear, and that provides that no act, default or breach of warranty or condition of such Company or any other person shall affect the right of the Bank to recover under such policy or policies of insurance or to pay any premium in whole or in part relating thereto, in such amounts as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated and (ii) life insurance with respect to George H. Wells in an amount not less than $950,000.00, all rights and benefits of which shall be collaterally assigned to the Bank; (c) keep true books of records and accounts in which full and correct entries will be made of all its business transactions, and reflect in its financial statements adequate accruals and appropriations to reserves; (d) do or cause to be done all things necessary (i) to preserve and keep in full force and effect its existence, rights and franchises, and (ii) to maintain its status as a corporation duly organized and existing and in good standing under the laws of the state of its incorporation; and (e) not be in violation of any laws, ordinances, or governmental rules and regulations or fail to obtain any licenses, permits, franchises or other governmental authorizations necessary to the ownership of its properties or to the conduct of its business, which violation or failure to obtain might have or is likely to have a Material Adverse Effect. 6.3 Sale of Assets, Merger, Subsidiaries, Tradenames and Conduct of Business. Such Company shall not (a) except in the ordinary course of business, sell, lease, transfer or otherwise dispose of, any of its assets, provided, however, such Company shall be permitted to dispose of equipment that is obsolete or no longer useful in the ordinary course of such Company's business, provided that such disposition is not in excess of the aggregate sum of $50,000.00 in any fiscal year; provided, further, that such Company provides notice to the Bank of the sale of such equipment; and provided, further, if such equipment is Eligible Equipment or is the Rolled Ring Division Equipment, such Company obtains the prior written consent of the Bank, and the proceeds of such disposition are applied to the Term Loan in inverse order of maturity of installments, (b) consolidate with, merge into, enter into partnerships or joint ventures with or make investments in any other entity, or permit any other entity to consolidate with or merge into it, provided, however, that Centrum shall be permitted to make investments in MSC, (c) acquire all or substantially all of the assets or business of any other person or entity, or (d) create or acquire any subsidiaries or conduct business under any other tradenames without the prior written consent of the Bank. Such Company has no subsidiaries except as disclosed in Schedule 5.4 attached hereto and conducts business only in the name(s) of such Company and the tradenames set forth in Schedule 6.3 attached hereto. None of the Borrowers 25 or MSI shall engage in any business other than the businesses engaged in by such Company on the date hereof and any business or activities which are substantially similar or related thereto. 6.4 Negative Pledge. Such Company will not cause or permit or agree or consent to cause or permit in the future (upon the happening of a contingency or otherwise), any of its real or personal property, whether now owned or hereafter acquired, to become subject to a lien or encumbrance, except: (i) liens in connection with deposits required by workers' compensation, unemployment insurance, social security and other like laws; (ii) taxes, assessments, reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other similar title exceptions or encumbrances affecting real property, provided they do not in the aggregate materially detract from the value of the Bank's lien or mortgage in such property or materially interfere with its use in the ordinary conduct of business; (iii) inchoate liens arising under ERISA to secure the contingent liability of such Company; (iv) liens or encumbrances as set forth in Exhibit attached to this Agreement; and (v) liens in connection with borrowings permitted by Section 6.5 below. In addition, such Company will not grant or agree to provide in the future (upon the happening of a contingency or otherwise), a "negative pledge" or other covenant or agreement similar to this Section 6.4 in favor of any other lender, creditor or third party. 6.5 Other Borrowings and Contingent Liabilities. Except for the credit extensions set forth on Schedule 6.5 attached hereto, intercompany loans and advances obtained by Centrum from American Handling, Inc., which in the aggregate, shall not exceed the Maximum Upstream Limit (as defined in Section 6.13 below), the Loans, the IRB, and capitalized lease agreements and/or purchase money financing transactions secured by the item or items being purchased in an amount not to exceed the purchase price of such item or items that, in the aggregate, do not exceed the sum of $100,000.00 in any one fiscal year; the Companies, in the aggregate, will not (a) create or incur extensions of credit or indebtedness for borrowed money, including without limitation, letters of credit, or capitalized lease agreements or (b) guarantee, indorse or otherwise become surety for or upon the obligations of others, except by indorsement of negotiable instruments for deposit or collection in the ordinary course of business. For the purposes of this Agreement, capitalized lease agreements shall be valued at the purchase price of the item or items being purchased in such fiscal year. 6.6 Sale of Accounts; No Consignment. Such Company shall not sell, factor, assign, or encumber, except to the Bank and except for the factoring of certain accounts receivable from Account Parties located in China, with the prior written approval of the Bank and subject to any terms and conditions that the Bank in its sole and absolute discretion may impose, any of its Accounts or notes receivable. Such Company shall not permit any of its Inventory to be sold or transferred on consignment or acquire or possess any of its Inventory on consignment. 6.7 Minimum Security. Such Borrower shall maintain, as minimum security for such Borrower's Revolving Loans, Eligible Raw Materials Inventory, Eligible Material Content of WIP Inventory, Eligible Accounts and, if applicable, Eligible Equipment Availability having an aggregate value such that such Borrower's Borrowing Base will equal or exceed the aggregate unpaid principal balance of such Borrower's Revolving Loans, and if such Borrower fails to do so, such Borrower shall immediately pay to the Bank the difference between the aggregate 26 unpaid principal balance of such Borrower's Revolving Loans and such Borrower's Borrowing Base. 6.8 Management. Centrum shall not permit any material change in its management, nor shall it permit Timothy M. Hunter to cease to be active in the management of the Borrowers' business, unless Mr. Hunter shall be replaced with a person of similar qualifications expertise, experience and knowledge. 6.9 Acquisition of Capital Stock. Without the prior written consent of the Bank, such Company shall not redeem or acquire any of its own capital stock or any warrants or any securities relating to such capital stock or any debt or debt securities of such Company except through (a) the use of the net proceeds from the simultaneous sale of an equivalent amount of its capital stock for the same purchase or redemption price, and (b) with respect to George H. Wells' stock in Centrum, through the use of any life insurance proceeds on the life of Mr. Wells which are not collaterally assigned to secure the Loans, provided, however, notwithstanding the foregoing, Centrum may pay "Permitted Payments," as such term is defined in a certain Subordination Agreement - Investors, dated of even date herewith, entered into by, between and among, the Bank, the Borrowers, the Guarantors, Micafil, Inc., American Handling, Inc., First New England Capital Limited Partnership, MorAmerica Capital Corporation, and North Dakota Small Business Investment Company dated of even date herewith. 6.10 Trade Accounts Payable. Such Company shall not permit more than 10% of its trade accounts payable to be past due for more than 30 days. 6.11 Compensation of Officers and Affiliated Persons. Such Company shall not pay total compensation, including bonuses, fringe and other allied benefits, to the executive officers set forth in Schedule 6.11 or any subsequent executive officers holding the positions of such persons, in an annual amount in excess of 115% of the amounts set forth in Schedule 6.11 attached hereto. 6.12 Cash Dividends and Other Distributions. Without the prior written consent of the Bank, such Company shall not declare or pay any cash dividends in any fiscal year. Such Company shall make no other distributions of any kind to shareholders. 6.13 Transactions With Affiliates. Except for a certain existing loan from MSI to EBA (the "MSI Loan"), such Company shall not directly or indirectly enter into or permit to exist any transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any of its affiliates, shareholders or any affiliates of either of the foregoing, on terms that are less favorable to such Company than those which might be obtained at the time from persons or entities who are not affiliated with such Company or its shareholders. "Affiliate" shall mean any individual, partnership, corporation, or other entity which, directly or indirectly, is in control of, is controlled by, or is under common control with such Company. For the purposes of this definition,"control" of such entity shall mean the power, directly or indirectly, to vote five percent or more of the securities, units or other measures having ordinary voting power for the election of directors, management committees, or similar committees of such entity, or the power to direct or cause the direction of the management and 27 policies of such entity, whether by contract or otherwise. The Borrowers shall not enter into with any Affiliate any management contracts, allocation agreements or agreements to pay any expenses of any Affiliate ("Management Agreements") in excess of the aggregate sum of $150,000.00 in any fiscal year. In addition, Centrum shall not cause or permit Micafil, Inc. to enter into any Management Agreements which pay to Centrum or any other Affiliate in excess of $240,000.00 in any fiscal year, paid on a monthly basis. In addition, Centrum shall not cause or permit American Handling, Inc. to enter into any Management Agreements or to make advances from American Handling, Inc. to Centrum or to any other Affiliate which in the aggregate result in the transfer of funds or the payment of amounts in excess of the Maximum Upstream Limit. "Maximum Upstream Limit" shall mean with respect to American Handling, Inc. 100% of all amounts in excess of the sum of (a) the unconsolidated shareholders' equity of American Handling, Inc. as of the end of its immediately preceding fiscal year, plus (b) the sum of $100,000.00. The Maximum Upstream Limit shall be determined as of the end of each fiscal year of American Handling, Inc. Furthermore, Centrum agrees that it shall not cause or permit American Handling, Inc. to obtain a revolving loan or line of credit from any senior lender, without the prior written consent of the Bank. 6.14 Tangible Net Worth. The Borrowers and MSI, on a consolidated basis, shall maintain at all times a consolidated Tangible Net Worth of not less than the following amounts for the periods specified below: (a) from the date of this Agreement through and including May 30, 1996, not less than $2,300,000.00, and (b) beginning May 31, 1996, and continuing at all times thereafter, not less than $2,500,000.00. "Tangible Net Worth" shall mean shareholders' equity, minus the sum of all of the following: (i) the excess of cost over the value of net assets of purchased businesses, rights, and other similar intangibles, (ii) organizational expenses, (iii) intangible assets (to the extent not reflected in the foregoing), (iv) goodwill, (v) deferred charges or defend financing costs, (vi) loans or advances to and/or accounts or notes receivable from Affiliates, (vii) leasehold improvements, (viii) non-compete agreements, and (ix) any other asset not directly related to the operation of the business of the Borrowers. 6.15 Ratio of Total Liabilities to Tangible Net Worth. The Borrowers and MSI, on a consolidated basis, shall maintain at all times a ratio of consolidated Total Liabilities to consolidated Tangible Net Worth of not greater than the following amounts for the periods specified below: (a) Not greater than 9.00 to 1.00 from the date of this Agreement through and including May 30, 1996; and 28 (b) not greater than 8.50 to 1.00 beginning May 31, 1996, and continuing at all times thereafter. "Total Liabilities" shall mean with respect to the Borrowers and MSI (a) all indebtedness for borrowed money or for the deferred purchase price of property or services, (b) any other indebtedness which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations with respect to any letter of credit issued for the account of the Borrowers or MSI, (d) all obligations in respect of acceptances issued or created for the account of the Borrowers or MSI, (e) lease obligations which, in accordance with GAAP, should be capitalized, (f) all liabilities (including lease obligations) secured by any lien or encumbrance on any property owned by any of the Borrowers or MSI even though such Company has not assumed or otherwise become liable for the payment thereof, (g) all obligations of the Borrowers or MSI with respect to interest rate protection agreements (valued at the termination value thereof computed in accordance with a method approved by the International Swap Dealers Association), and (i) all other obligations of the Borrower or MSI which, in accordance with GAAP, would be classified upon a balance sheet as liabilities (except capital stock and surplus earned). 6.16 Fixed Charge Coverage Ratio. The Borrowers and MSI, on a consolidated basis, shall maintain at all times specified below a ratio of (a) EBITDA to (b) Fixed Charges of not less than 1.20 to 1.00. The ratio of EBITDA to Fixed Charges of the Borrowers and MSI shall be determined (beginning with the month ending May 31, 1996) as of the last day of each month for the twelve month period ending on such date, or, if fewer than twelve months have occurred since April 1, 1996, for the period beginning April 1, 1996, to such date. "EBITDA" shall mean for any period, (i) the sum of the amounts for such period of (A) Net Income, (B) Interest Expense, (C) charges for federal, state, local and foreign income taxes, (D) depreciation, amortization expense and non-cash charges which were deducted in determining net income, (E) extraordinary losses (and any unusual losses arising outside the ordinary course of business not included in extraordinary losses determined in accordance with GAAP) and (F) other non-operating expenses including, without limitation, LIFO adjustments, which have been deducted in the determination of net income, minus (ii) the sum of the amounts for such period of (X) extraordinary gains (and any unusual gains arising outside the ordinary course of business not included in extraordinary gains determined in accordance with GAAP), (Y) other non-operating income not already excluded from the determination of net income and (Z) to the extent not deducted from total interest expense, any net payments received during such period under interest rate contracts and any interest income received in respect of its cash investments. "Fixed Charges" shall mean with respect to any period, the sum of (a) all amounts paid or accrued or due and payable (without duplication), for federal, state, local and foreign income taxes of the Borrowers and MSI for such period, as determined in conformity with GAAP, plus (b) scheduled principal payments on term obligations and capital leases for such period, plus (c) capital expenditures (net of the amount of such capital expenditures financed by (i) purchase money indebtedness approved by the Bank or permitted hereunder and (ii) the principal portion of capital lease indebtedness permitted by this Agreement) made in accordance with the terms of this Agreement during such period; plus (d) Interest Expense. 29 "Net Income" for any period shall mean the consolidated net income (or deficit) after taxes of the Borrowers and MSI for such period, which in accordance with GAAP would be included as net income on the statements of income of the Borrowers and MSI for such period. "Interest Expense" means, for any period, as determined in conformity with GAAP, total interest expense, whether paid or accrued or due and payable (without duplication), including without limitation the interest component of capital lease obligations for such period, all bank fees, commissions, discounts and other fees and charges owed with respect to Letter of Credit and net costs under interest rate contracts. 6.17 Capital Expenditures. The Borrowers and MSI, on a consolidated basis, will not make any expenditure for fixed or capital assets, including by way of the incurrence of capitalized lease obligations, expenditures for maintenance and repairs which should be capitalized in accordance with generally accepted accounting principles or otherwise in excess of $715,000.00 in any fiscal year. Centrum will not make any expenditure for fixed or capital assets, including by way of the incurrence of capitalized lease obligations, expenditures for maintenance and repairs which should be capitalized in accordance with generally accepted accounting principles or otherwise in excess of $100,000.00 in any fiscal year. 6.18 Loans and Advances. Except for the MSI Loan, the Borrowers and MSI, on a consolidated basis, will not make any loans or advances to any person, corporation or entity if such loans or advances will exceed an aggregate total outstanding at any one time of $25,000.00. 6.19 Operating Lease Rentals. The Borrowers and MSI have entered into the operating leases as set forth in Schedule 6.19 attached hereto The Borrowers and MSI, on a consolidated basis, will not without the prior written approval of the Bank enter into operating leases providing in the aggregate for annual rentals which exceed $165,000.00. 6.20 Environmental Compliance and Indemnification. Each of the Borrowers hereby indemnifies the Bank and holds the Bank harmless from and against any loss, damage, cost, expense or liability (including strict liability) directly or indirectly arising from or attributable to the generation, storage, release, threatened release, discharge, disposal or presence (whether prior to or during the term of the Loans) of Hazardous Substances on, under or about the Premises (whether by such Borrower or any employees, agents, contractors or subcontractors of such Borrower or any predecessor in title or any third persons occupying or present on the Premises), or the breach of any of the representations and warranties regarding the Premises, including, without limitation: (a) those damages or expenses arising under the Environmental Laws; (b) the costs of any repair, cleanup or detoxification of the Premises, including the soil and ground water thereof, and the preparation and implementation of any closure, remedial or other required plans; (c) damage to any natural resources; and (d) all reasonable costs and expenses incurred by the Bank in connection with clauses (a), (b) and (c) including, but not limited to reasonable attorneys' fees. In addition, MSC at its expense agrees to cause completion or remediation, to the satisfaction of the Bank, of each of those environmental conditions set forth in Schedule 6.20 attached hereto, and no later than the time periods set forth in Schedule 6.20, the compliance or completion of each such condition shall be certified by an environmental consultant satisfactory to the Bank. 30 The indemnification provided for herein shall not apply to any losses, liabilities, damages, injuries, expenses or costs which: (i) arise from the gross negligence or willful misconduct of the Bank, or (ii) relate to Hazardous Substances placed or disposed of on the Premises after the Bank acquires title to the Premises through foreclosure or otherwise. 6.21 Maintenance of Accounts. Except for an existing account at PNC Bank, National Association, which is subject to a Blocked Account and shall be closed within 60 days of the date of this Agreement, the payroll accounts set forth on Schedule 6.21 attached hereto, and an operating account at PNC Bank (Delaware) which, in the aggregate shall not exceed $10,000.00 at any time, and an operating account of Centrum at Capital Bank, N.A., which account shall not exceed $10,000.00 at any time, each of the Borrowers and the Guarantors shall maintain all of its operating and deposit accounts at the Bank. 6.22 Accounts Payable Turnover Days. At any time, on a consolidated basis, the Borrower's Accounts Payable Turnover Days shall not exceed 60. "Accounts Payable Turnover Days" shall mean the ratio of such Borrower's (a) average month-end balance of trade accounts payable for such period, to (b) the Average Daily Cost of Sales for such period. "Average Daily Cost of Sales" shall mean the total cost of sales for such period divided by the number of days in such period. Such ratio shall be determined as of the last day of each month for the twelve month period ending on such date or, if fewer than twelve months have occurred since the date of this Agreement, for the period from the date of this Agreement to such date. 6.23 Accounts Receivable Turnover Days. At any time, on a consolidated basis, the Borrowers' Accounts Receivable Turnover Days shall not exceed 75. "Accounts Receivable Turnover Days" shall mean the ratio of such Borrower's (a) average month-end balance of trade accounts receivable for such period, to (b) the Average Daily Sales for such period. "Average Daily Sales" shall mean the Company's total sales for such period divided by the number of days in such period. Such ratio shall be determined as of the last day of each month for the twelve month period ending on such date or, if fewer than twelve months have occurred since the date of this Agreement, for the period from the date of this Agreement to such date. 6.24 Inventory Turnover Days. At any time, on a consolidated basis, the Borrowers' Inventory Turnover Days shall not exceed 110. "Inventory Turnover Days " shall mean the ratio of such Borrower's (a) average month-end balance of inventory at cost, to (b) the Average Daily Cost of Sales for such period. Such ratio shall be determined as of the last day of each month for the twelve month period ending on such date, or, if fewer than twelve months have occurred since the date of this Agreement, for the period from the date of this Agreement to such date. 6.25 Expense Reduction. The Borrowers shall be in full and complete compliance with that certain letter agreement relating to the Borrowers' plan of reduction and elimination of certain expenses. 7. Financial Information and Reporting. The Companies shall deliver the following to the Bank: 31 (a) within 45 days after the first month of each fiscal year, and within 30 days after the end of each other month, consolidated and consolidating financial statements, including balance sheets and statements of income and surplus, and statements of cash flows, of each of the Borrowers and the Guarantors, certified by the president or chief financial officer of Centrum or MSC (a "Financial Officer") as fairly representing each Borrower's and Guarantor's financial condition as of the end of such period; (b) within 45 days after the first month of each fiscal year, and within 30 days after the end of each month, statements signed by a Financial Officer certifying the compliance of each Borrower and Guarantors with the terms of this Agreement and the calculation of the financial covenants contained in Section 6 above; (c) through and including June 30, 1996, within 10 days after the end of each month, and thereafter within 5 days after the end of each month, a current loan and collateral report, or other writings for each Borrower satisfactory to the Bank for the calculation of, or setting forth the calculation of, the Borrowing Base with respect to each Borrower; (d) daily, a loan and collateral report, together with supporting information, unless the Borrowing Base availability, as reflected on the Bank's system, exceeds the Revolving Loans by $500,000 or more; (e) within 20 days after the end of each month, an accounts reconciliation report and an inventory reconciliation report for each Borrower, in form satisfactory to the Bank, signed by a Financial Officer, in detail satisfactory to the Bank; (f) within 20 days after the end of each month, an inventory detail report of each Borrower, signed by a Financial Officer, in form satisfactory to the Bank; (g) within 20 days after the end of each month for each of the Borrowers and MSI, a report, in form satisfactory to the Bank, signed by a Financial Officer setting forth the number and dollar total of accounts receivable past due for not more than 30 days, the number and dollar total past due for not more than 60 days, the number and dollar total past due for not more than 90 days, and the number and dollar total past due for more than 90 days; (h) within 20 days after the end of each month (beginning with the month ending May 31, 1996), a report for each of the Borrowers and MSI, in form satisfactory to the Bank, signed by a Financial Officer setting forth the number, dollar amount and party of accounts payable remaining due and payable less than 31 days from the date of the original invoice therefor, less than 61 days from the date of the original invoice therefor, less than 91 days from the date of the original invoice therefor, and more than 90 days from the date of the original invoice therefor; 32 (i) within 90 days after the end of each fiscal year, audited unqualified consolidated financial statements for the Borrowers and MSI, together with consolidating schedules, prepared in accordance with generally accepted accounting principles consistently applied and certified by independent public accountants satisfactory to the Bank, containing a balance sheet, statements of income and surplus, statements of cash flows and reconciliation of capital accounts, along with any management letters written by such accountants; (j) within 90 days after the end of each fiscal year, audited unqualified financial statements for Centrum together with consolidating schedules prepared in accordance with generally accepted accounting principles consistently applied and certified by independent public accountants satisfactory to the Bank, containing a balance sheet, statements of income and surplus, statements of cash flows and reconciliation of capital accounts, along with any management letters written by such accountants; (k) promptly upon the filing or release, as the case may be, copies of any Securities and Exchange Commission or State Securities Law disclosures, filings, documents or any press releases; (l) within 90 days after the end of each fiscal year, a statement signed by independent public accountants certifying that the Borrowers, MSI and Centrum are in compliance with the terms of this Agreement; (m) no later than 30 days prior to the end of each fiscal year, financial projections for each of the Borrowers and the Guarantors for the current fiscal year, on a monthly basis, including a projected income statement, balance sheet, and cash flow and comparative information for the comparative period of the preceding fiscal year; (n) immediately upon becoming aware of the existence of any Pending Default, Event of Default or breach of any term or conditions of this Agreement, a written notice specifying the nature and period of existence thereof and what action such Borrower or Guarantor is taking or proposes to take with respect thereto; (o) within 20 days after filing, a true and complete copy of each Borrower and Guarantor's federal and state income tax return together with all schedules attached thereto; (p) within 90 days after the date of this Agreement an audited opening balance sheet of the Borrowers and MSI, prepared in accordance with GAAP and certified by independent accountants satisfactory to the Bank; (q) within 90 days after the end of each fiscal year beginning March 31, 1997, a multi-media compliance report updating the environmental conditions at each of 33 MSC, Eballoy, and EBA certified by an environmental consultant approved by the Bank; (r) at the request of the Bank, such other information as the Bank may from time to time reasonably require. 8. Default 8.1 Events of Default. Each of the following shall constitute an "Event of Default" hereunder: (a) the failure by the Borrowers to make any payment of principal, interest or any other sum due and payable under any note or reimbursement agreement executed in connection with this Agreement on or before the date such payment is due; (b) the failure by any Borrower or Guarantor to perform or observe any agreement, term, or covenant applicable to it contained in Sections 1.2, 3 (except for and excluding Sections 3.3 and 3.5), 3.3 or 3.5 (with prior notice to the Borrowers) 4, 6 (except for and excluding Sections 6.2(c), (d), and (e), 6.10, and 6.11 or 7 of this Agreement; (c) the failure by any Borrower or Guarantor to comply with any other provision of this Agreement applicable to it, or to perform or observe any covenant contained in any mortgage, security agreement or other agreement in favor of the Bank, and such failure continues for more than 30 days after such failure shall first become known to any Financial Officer; (d) any warranty, representation or other statement by or on behalf of any Company contained in this Agreement or in any instrument furnished in compliance with or in reference to this Agreement is false or misleading in any material respect, (e) any Company becomes insolvent or makes an assignment for the benefit of creditors, or consents to the appointment of a trustee, receiver or liquidator; (f) bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings are instituted by any of the Companies, or against any of the Companies, and in the latter case, are not dismissed or withdrawn within 30 days after the filing of such proceedings; (g) a final judgment or judgments for the payment of money aggregating in excess of $50,000.00 is or are outstanding against any of the Companies, and any such judgment or judgments have not been discharged in full or stayed; (h) the occurrence of any event which allows the acceleration of the maturity of any indebtedness of any Company to the Bank, any of the Bank's affiliates, or any material indebtedness to any other person, corporation or entity under any indenture, agreement or undertaking; (i) the occurrence of any "Event of Default" under a certain Note and Warrant Purchase Agreement (the "Note Agreement") between Centrum, American Handling, Inc., Micafil, Inc., and the "Investors" as defined in the Note Agreement dated as of February 29, 1996, or any default under any agreement related thereto, including without limitation, a certain Put Agreement between Centrum and the Investors dated as of February 29, 1996, or the occurrence of any breach, default, or Event of Default under the terms of those certain promissory notes issued by Centrum to those noteholders set forth on Schedule 8.1(i) each dated as of February 29, 1996; (j) the default by, dissolution of, or death of any guarantor, insurer or other surety for any of the Companies; (k) a Change of Control of any of the Borrowers or the Guarantors shall have occurred ("Change of Control" shall mean (i) the replacement of a majority of the Board of Directors of any entity from the directors who constituted the Board of Directors on the date of this Agreement for any reason other than death or disability, and such replacement shall not have been approved by the Board of Directors of such entity as constituted on the date of this Agreement (or as changed over time with the approval of the Board of Directors of such entity) or (ii) a company person, entity or group of 34 companies or entities acting in concert, shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases, exercise of the stock pledge or otherwise, have become the beneficial owner (within the meaning of Rule 13d.3 under the Securities Exchange Act of 1934, as amended) of (A) any securities of the Borrowers or MSI or (B) securities of Centrum representing more than 30% of the combined voting power of the then outstanding securities of Centrum ordinarily having the right to vote in the election of directors); or (1) the Bank, in its sole good faith discretion, determines that a Material Adverse Effect has occurred. 8.2 Default Remedies. If an Event of Default exists, the Bank may immediately exercise any right, power or remedy permitted to the Bank by law or any provision of this Agreement, and shall have, in particular, without limiting the generality of the foregoing, the right to declare the entire principal and all interest accrued on all notes then outstanding pursuant to this Agreement to be forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower. 9. Miscellaneous. 9.1 Notices. (a) All communications under this Agreement or under the notes executed pursuant hereto shall be in writing and shall be mailed by facsimile or by a nationally recognized overnight delivery service (1) if to the Bank, at the following address, or at such other address as may have been furnished in writing to MSC and Centrum by the Bank: The Huntington National Bank 41 South High Street Columbus, Ohio 43215 Attn: Bill T. Frazier Vice President Facsimile: 614-480-5073 with a copy to: Porter, Wright, Morris & Arthur 41 South High Street Columbus, Ohio 43215 Attn: Timothy E. Grady, Esq. Facsimile: 614-227-2100 (2) if to the Borrowers or MSI or Centrum, at the following addresses, or at such other address as may have been furnished in writing to the Bank by such Company: McInnes Steel Company 441 East Main Street Corry, Pennsylvania 16407 Attn: Chief Financial Officer Facsimile: 814-664-2372 35 Centrum Industries, Inc. 6135 Trust Drive, Suite 104A Holland, Ohio 43528 Attn: George H. Wells Chief Executive Officer Facsimile: 419-868-3940 with a copy to: Fuller & Henry One Seagate 17th Floor Toledo, Ohio 43604-2606 Attn: Jack W. Hilbert, II, Esq. Facsimile: 419-247-2665 (b) any notice so addressed and sent by overnight delivery shall be deemed to be given one day after the same is delivered to the overnight delivery service, and any notice sent by telecopier shall be deemed to be given when confirmed. 9.2 Access to Accountants. Each of the Companies hereby irrevocably authorizes its certified public accountants to provide to the Bank any and all information that the Bank requests from time to time with regard to any of the Companies, and to discuss with the Bank from time to time any and all matters relating to any of the Companies In furtherance of the foregoing, each of the Companies hereby waives any privilege or claim of confidentiality to the extent such might otherwise prevent such accountants from providing such information to the Bank or discussing such matters with the Bank. 9.3 Reproduction of Documents. This Agreement and all documents relating hereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received by the Bank at the closing or otherwise, and (c) financial statements, certificates and other information previously or hereafter furnished to the Bank, may be reproduced by the Bank by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process and the Bank may destroy any original document so reproduced. Each of the Companies agrees and stipulates that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the Bank in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. 9.4 Survival; Successors and Assigns. All warranties, representations, and covenants made by any of the Companies herein or on any certificate or other instrument delivered by any Company or on its behalf under this Agreement shall be considered to have been relied upon by the Bank and shall survive the closing of the Loans regardless of any investigation made by the Bank on its behalf under this Agreement shall be considered to have been relied upon by the Bank and shall survive the closing of the Loans regardless of any investigation made by the Bank 36 on its behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by any Company. This Agreement shall inure to the benefit of and be binding upon the heirs, successors and assigns of each of the parties. 9.5 Amendment and Waiver, Duplicate Originals. All references to this Agreement shall also include all amendments, extensions, renewals, modifications, and substitutions thereto and thereof made in writing and executed by both the Companies and the Bank. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Companies and the Bank; provided however that nothing herein shall change the Bank's sole discretion (as set forth elsewhere in this Agreement) to make advances, determinations, decisions or to take or refrain from taking other actions. No delay or failure or other course of conduct by the Bank in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. 9.6 Uniform Commercial Code and Generally Accepted Accounting Principles. Unless the context otherwise requires, or terms are defined in this Agreement, all terms used herein which are defined in the Uniform Commercial Code as enacted in Ohio shall have the meaning stated therein, and all accounting terms shall be determined in accordance with generally accepted accounting principles, consistently applied ("GAAP"). The Borrowers' fiscal year begins on January 1, and ends on December 31, provided, however, beginning April 1, 1996, the Borrowers' and the Guarantors' fiscal years will begin on April 1 and end on March 31 of the immediately succeeding fiscal year. None of the Companies shall change its fiscal year without the prior written consent of the Bank except as permitted by this paragraph. 9.7 Enforceability and Governing Law. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction, as to such jurisdiction, shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. No delay or omission on the part of the Bank in exercising any right shall operate as a waiver of such right or any other right. All of the Bank's rights and remedies, whether evidenced hereby or by any other agreement or instrument, shall be cumulative and may be exercised singularly or concurrently. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio; provided, however, that to the extent that the creation, validity, attachment, perfection, priority, maintenance or continuation of the security interests created by this Agreement, or the mortgage interest created by the mortgages executed in connection herewith, in effect of such matters in respect to particular collateral, is governed by the laws of the Commonwealth of Pennsylvania, then the laws of such jurisdiction shall apply, and the provisions of this Agreement relating to the creation, validity, attachment, perfection, priority, maintenance or continuation of such security interests or mortgage interests and the effect of such matters in respect of such Collateral shall be governed and construed in accordance with the laws of such jurisdiction. Each of the Companies agrees that any legal suit, action or proceeding arising out of or relating to this Agreement may be instituted in a state or federal court of appropriate subject matter jurisdiction 37 in the State of Ohio; waives any objection which it may have now or hereafter to the venue of any suit, action or proceeding; and irrevocably submits to the jurisdiction of any such court in any such suit, action or proceeding. 9.8 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PART TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 9.9 Advertising. Each of the Companies agrees that the Bank may advertise or otherwise disclose for marketing purposes the extent and nature of the credit extended or to be extended and other services provided by the Bank in connection with or relating in any way to the Loans. 9.10 No Consequential Damages. No claim may be made by any of the Companies, any officers, directors, or agents against the Bank or its affiliates, directors, officers, employees, attorneys or agents for any special, indirect, punitive, or consequential damages in respect of any breach or wrongful conduct (whether the claim therefor is based in contract, tort or duty imposed by law) in connection with, arising out of or in any way related to the transactions contemplated and relationship established by this Agreement, or any act, omission or event occurring in connection therewith, and each of the Companies hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 9.11 Conditions Precedent to the Loans. The obligation of the Bank to make the Loans requested to be made shall be subject to satisfaction of the following conditions precedent: (a) The Bank shall receive on or before the date of the initial advance hereunder all of the following: (i) this Agreement, the promissory notes and other agreements, documents and instruments described in Exhibit D attached hereto, each duly executed where appropriate and in form and substance satisfactory to the Bank; and (ii) such additional documentation as the Bank may reasonably request. 38 (b) Without limiting the foregoing, each of the respective Companies hereby directs its counsel, MacDonald Illig Jones & Britton LLP and Fuller & Henry P.L.L., to prepare and deliver to the Bank the respective opinions referred to in Exhibit D. 9.12 Indemnity. Each of the Companies shall indemnify the Bank from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, fees and disbursements of counsel) which may be imposed on, incurred by, or asserted against the Bank in any litigation, proceeding or investigation instituted or conducted by any governmental agency or instrumentality or any other person or entity with respect to any aspect of, or any transaction contemplated by, or referred to in, or any matter related to, this Agreement, whether or not the Bank is a party thereto, except to the extent that any of the foregoing arises out of the willful misconduct of the Bank, as determined in a final, non-appealable judgment by a court of competent jurisdiction. 9.13 Conditions Precedent to Subsequent Money Advances. The obligation of Bank to make any disbursement or advance subsequent to the initial disbursement or initial advance under the Loans, of any portion of any of the Loans is subject to all the conditions and requirements of this Agreement and delivery of the following required documents, or other action, all of which are conditions precedent: (a) Compliance. Each of the Companies shall have complied and shall then be in compliance with all the terms, covenants and conditions of the Agreement which are binding upon it. (b) Continuation of Representations and Warranties: The representations and warranties herein contained shall be true, with the same effect as though such representations and warranties had been made at the time of the making of such advance, and any request for an advance hereunder shall be deemed a representation and warranty of same. (c) Confirmation of Conditions Precedent: Each of the Companies shall then be in compliance with and able to confirm all the foregoing conditions precedent with the same effect as though such conditions precedent were requirements to the making of any advance contemplated herein. 9.14 Confidentiality. The Bank shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with the Bank's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, and in any event may make disclosure reasonably required by a participant in connection with the contemplated participation, or as required or requested by any governmental authority or representative thereof, or pursuant to legal process, or to its accountants, attorneys and other advisors and shall require any such participant to agree to comply with this Section 9.14. 39 10. Index of Definitions. "Account Debtor" is defined in Section 2. 1. "Accounts" is defined in Section 4.1. "Accounts Payable Turnover Days" is defined in Section 6.22. "Accounts Receivable Turnover Days" is defined in Section 6.23. "Affiliate" is defined in Section 6.13. "Agreement" is defined in the preamble. "Average Daily Cost of Sales" is defined in Section 6.22. "Average Daily Sales" is defined in Section 6.23. "Bank" is defined in the preamble. "Benefit Plan" is defined in Section 5.13. "Borrower" and "Borrowers" are defined in the preamble. "Borrowing Base" is defined in Section 1.2. "Cash Collection Account" is defined in Section 4.4. "Centrum" is defined in the Preamble. "Change of Control" is defined in Section 8.1. "Collateral" is defined in Section 4.1. "Company" and "Companies" are defined in the preamble. "Contra" is defined in Section 2.1. "Control" is defined in Section 6.13. "Deposits" is defined in Section 4.1. "EBA" is defined in the preamble. "Eballoy" is defined in the preamble. 40 "EBITDA" is defined in Section 6.16. "Eligible Accounts" is defined in Section 2.1. "Eligible Equipment" is defined in Section 2.5. "Eligible Equipment Availability" is defined in Section 1.2. "Eligible Material Content of WIP Inventory" is defined in Section 2.3. "Eligible Raw Materials Inventory" is defined in Section 2.2. "Employer" is defined in Section 5.13. "Environmental Laws" is defined in Section 5.15. "Equipment" is defined in Section 4.1. "ERISA" is defined in Section 5.13. "Event of Default" is defined in Section 8.1. "Financial Officer" is defined in Section 7. "Fixed Charges" is defined in Section 6.16. "GAAP" is defined in Section 9.6. "GE" is defined in Section 2.1. "Guarantor" and "Guarantors" is defined in the preamble. "Guarantor Collateral" is defined in Section 3.6. "Guaranties" is defined in Section 3.6. "Hazardous Substances" is defined in Section 5.15. "Intellectual Property" is defined in Section 4.1. "Interest Expense" is defined in Section 6.16. "IRB" is defined in Section 2.6. "Inventory" is defined in Section 4.1. 41 "Inventory Turnover Days" is defined in Section 6.24. "Letters of Credit" is defined in Section 1.1. "Levy Appraisal" is defined in Section 2.5. "Loans" is defined in Section 1.1. "Maturity Date" is defined in Section 3.5. "Material Adverse Effect" is defined in Section 5.8. "Maximum Upstream Limit" is defined in Section 6.13. "MSC" is defined in the preamble. "MSI" is defined in the preamble. "MSI Loan" is defined in Section 6.13. "Multiemployer Plan" is defined in Section 5.13. "Net Income" is defined in Section 6.16. "Non-Recourse Guaranties" is defined in Section 3.6. "Non-Recourse Guarantor Collateral" is defined in Section 3.6. "Obligations" is defined in Section 4.1. "Other Collateral" is defined in Section 3.7. "Pending Default" is defined in Section 1.4. "PIDA Loan" is defined in Section 2.6. "Plan" is defined in Section 5.13. "Premises" is defined in Section 5.15. "Proceeds" is defined in Section 4.1. "Real Estate Collateral" is defined in Section 3.7. "Reimbursement Agreement" is defined in Section 1.3. 42 "Revolving Loan" and "Revolving Loans" are defined in Section 1.1. "Rolled Ring Division Equipment" is defined in Section 2.5. "Tangible Net Worth" is defined in Section 6.14. "Term Loan" is defined in Section 1.1. "Total Liabilities" is defined in Section 6.15. "Transactions" is defined in Section 3.4. "Westinghouse" is defined in Section 2.1. Each of the parties has signed this Agreement as of the date set forth in the preamble above. McINNES STEEL COMPANY By /s/ Timothy M. Hunter -------------------------- Its Secretary/Treasurer -------------------------- McINNES STEEL SERVICES, INC. By /s/ Timothy M. Hunter -------------------------- Its Secretary/Treasurer -------------------------- EBALLOY GLASS PRODUCTS COMPANY By /s/ Timothy M. Hunter -------------------------- Its Secretary/Treasurer -------------------------- ERIE BRONZE & ALUMINUM COMPANY By /s/ Timothy M. Hunter -------------------------- Its Secretary/Treasurer -------------------------- 43 McINNES INTERNATIONAL, INC. By /s/ Timothy M. Hunter -------------------------- Its Secretary/Treasurer -------------------------- CENTRUM INDUSTRIES, INC. By /s/ George Wells -------------------------- Its President -------------------------- THE HUNTINGTON NATIONAL BANK By /s/ Bill T. Frazier -------------------------- Its Vice President -------------------------- EX-10.10 15 EX-10.10 1 EXHIBIT 10.10 ________________________________________________________________________________ GUARANTOR: Centrum Industries, Inc. BORROWER: McInnes Steel Company ADDRESS: 6135 Trust Drive ADDRESS: 441 East Main Street Suite 104A Corry, PA 16407 Holland, OH 43528 BORROWER: Eballoy Glass Products Company ADDRESS: 2103 East 33rd Street Erie, Pennsylvania 16510 BORROWER: Erie Bronze & Aluminum Company ADDRESS: 6300 West Ridge Road Erie, Pennsylvania 16505 BORROWER: McInnes International, Inc. ADDRESS: Guardian Building Havensight, 2nd Floor P.O. Box 12150 St. Thomas, V.1.00801 ________________________________________________________________________________ CONTINUING GUARANTY UNLIMITED For the purpose of inducing The Huntington National Bank (hereinafter referred to as "Bank") to lend money or extend credit to McInnes Steel Company, Eballoy Glass Products Company, Erie Bronze & Aluminum Company and McInnes International. Inc. (hereinafter collectively referred to as "Borrower"), the undersigned (hereinafter referred to as "Guarantor") hereby unconditionally guarantees the prompt and full payment to Bank when due, whether by acceleration or otherwise, of all Obligations of any kind for which Borrower is now or may hereafter become liable to Bank in any manner. The word "Obligations" is used in its most comprehensive sense and includes, without limitation, all indebtedness, debts and liabilities (including principal, interest, late charges, collection costs, attorneys' fees and the like) of Borrower to Bank, either created by Borrower alone or together with another or others, primary or secondary, secured or unsecured, absolute or contingent, liquidated or unliquidated, direct or indirect whether evidenced by note, draft, application for letter of credit, agreements of guaranty or otherwise, and any and all renewals of, extensions of or substitutes therefor. The word "Obligations" shall include, BUT NOT BE LIMITED TO, all indebtedness owed by Borrower to Bank by reason of credit extended or to be extended to Borrower in the principal amount of $18,350,000.00, pursuant to a certain Loan and Security Agreement dated of even date herewith, by and between Borrower, McInnes Services, Inc., Debtor and the Bank, together with all amendments or modifications thereto or restatements thereof from time to time (the "Loan Agreement") and one or more instruments of indebtedness and related documents. Guarantor hereby promises that if one or more of the Obligations are not paid promptly when due, Guarantor will, upon request of Bank, pay the Obligations to Bank, irrespective of any action or lack of action on Bank's part in connection with the acquisition, perfection, possession, enforcement or disposition of any or all Obligations or any or all security therefor or otherwise, and further irrespective of any invalidity in any or all Obligations, the unenforceability thereof or the insufficiency, invalidity or unenforceability of any security therefor. Guarantor waives notice of any and all acceptances of this Continuing Guaranty Unlimited ("Guaranty"). This Guaranty is a continuing guaranty, and, in addition to covering all present Obligations of Borrower to Bank, will 2 extend to all future Obligations of Borrower to Bank, whether such Obligations are reduced, amended, or entirely extinguished and thereafter increased or reincurred. This Guaranty is made and will remain in effect until the Obligations are paid in full and until the Borrower has no right to request further advances under the documents or instruments evidencing the Obligations. Bank's rights hereunder shall be reinstated and revived, and this Guaranty shall be fully enforceable, with respect to any amount at any time paid on account of the Obligations which thereafter shall be required to be restored or returned by Bank upon the bankruptcy, insolvency or reorganization of Borrower, Guarantor, or any other person, or as a result of any other fact or circumstance, all as though such amount had not been paid. In the event Guarantor at any time shall pay any sums on account of any Obligations or take any other action in performance of any Obligations, Guarantor shall be subrogated to the rights, powers, privileges and remedies of the Borrower in respect of such Obligations; provided that all such rights of subrogation and all claims and indebtedness arising therefrom shall be, and Guarantor hereby agrees that the same are, and shall be at all times, in all respects subordinate and junior to all Obligations, and provided, further, that Guarantor hereby agrees that Guarantor shall not seek to exercise any such rights of subrogation, reimbursement, exoneration, or indemnity whatsoever or any rights of recourse to any security for any of the Obligations unless or until all Obligations shall have been indefeasibly paid in full in cash and duly and fully performed. Guarantor waives presentment, demand, protest, notice of protest and notice of dishonor or other nonpayment of any and all Obligations and further waives notice of sale or other disposition of any collateral or security now held or hereafter acquired by Bank. Guarantor agrees that no extension of time, whether one or more, nor any other indulgence granted by Bank to Borrower, or to Guarantor, and no omission or delay on Bank's part in exercising any right against, or in taking any action to collect from or pursue Bank's remedies against Borrower or Guarantor, or any of them, will release, discharge or modify the duties of Guarantor. Guarantor agrees that Bank may, without notice to or further consent from Guarantor, release or modify any collateral, security or other guaranties now held or hereafter acquired, or substitute other collateral, security or other guaranties, and no such action will release, discharge or modify the duties of Guarantor hereunder. Guarantor further agrees that Bank will not be required to pursue or exhaust any of its rights or remedies against Borrower or Guarantor, or any of them, with respect to payment of any of the Obligations, or to pursue, exhaust or preserve any of its rights or remedies with respect to any collateral, security or other guaranties given to secure the Obligations, or to take any action of any sort, prior to demanding payment from or pursuing its remedies against Guarantor. In addition to its other obligations set forth in this Guaranty, Guarantor shall cause Borrower and McInnes Services, Inc. on a consolidated basis, to maintain at all times a "Tangible Net Worth" (as defined in the Loan Agreement) of, at minimum, the amounts as of the dates specified in Section 6.14 of the Loan Agreement. If at any time during the term of this Guaranty, the Tangible Net Worth of Borrower and McInnes Services, Inc., on a consolidated basis, shall be below the minimum amounts during the applicable time periods set forth in Section 6.14 of the Loan Agreement, Guarantor agrees, in each such instance, without notice or demand of any kind, within thirty (30) days of the last day of the month in which the Tangible Net Worth does not meet such minimum amounts, to contribute to McInnes Steel Company's shareholders' equity in the form of common stock or preferred stock, in form and substance satisfactory to the Bank, the amount necessary to bring the Tangible Net Worth in compliance with Section 6.14 of the Loan Agreement. Guarantor agrees that any legal suit, action or proceeding arising out of or relating to this Guaranty may be instituted in a state or federal court of appropriate subject matter jurisdiction in the State of Ohio; waives any objection which Guarantor may have now or acquire hereafter to the venue of any such suit, action or proceeding; and irrevocably submits to the jurisdiction of any such court in any such suit, action or proceeding. -2- 3 WAIVER OF RIGHT TO TRIAL BY JURY GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF GUARANTOR OR BANK WITH RESPECT TO THIS GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT GUARANTOR OR BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR TO THE WAIVER OF THE RIGHT OF GUARANTOR TO TRIAL BY JURY. Guarantor hereby authorizes any attorney at law to appear for Guarantor in any action on any or all Obligations guaranteed hereby at any time after such Obligations become due, whether by acceleration or otherwise, in any court of record in or of the State of Ohio or elsewhere, to waive the issuing and service of process against, and confess judgment against Guarantor in favor of Bank for the amount that may be due, including interest, late charges, collection costs, attorneys' fees and the like as provided for in said Obligations, and costs of suit, and to waive and release all errors in said proceedings and judgments, and all petitions in error and rights of appeal from the judgments rendered. If any Obligation of Borrower is assigned by Bank, this Guaranty will inure to the benefit of Bank's assignee, and to the benefit of any subsequent assignee, to the extent of the assignment or assignments, provided that no assignment will operate to relieve Guarantor from any duty to Bank hereunder with respect to any unassigned Obligation. In the event that any one or more of the provisions contained in this Guaranty or any application thereof shall be determined to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and any other applications thereof shall not in any way be affected or impaired thereby. This Guaranty shall be construed in accordance with the law of the State of Ohio. The liabilities evidenced hereby may from time to time be evidenced by another guaranty or guaranties given in substitution or reaffirmation hereof. Any security interest or mortgage which secures the liabilities evidenced hereby shall remain in full force and effect notwithstanding any such substitution or reaffirmation. If at the time of payment of the Obligations and any discharge hereof, Guarantor shall be then directly or contingently liable to Bank as maker, indorser, surety or guarantor of any other loan or obligation whether the same shall be evidenced by a note, bill of exchange, agreement of guaranty or other instrument, then Bank may continue to hold any collateral of Guarantor as security therefor, even though this Guaranty shall have been surrendered to Guarantor. Bank shall not be bound to take any steps necessary to preserve any rights in the collateral against prior parties. If any Obligations hereunder are not paid when due, Bank may, at its option, demand, sue for, collect or make any compromise or settlement it deems desirable with reference to any collateral, and shall have the rights of a secured party under the law of the State of Ohio. Guarantor shall be liable for any deficiency. -3- 4 Executed and delivered at Columbus, Ohio, this 29th day of February, 1996. GUARANTOR: CENTRUM INDUSTRIES, INC. By: /s/ George H. Wells ----------------------- Its: President ----------------------- WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. -4- EX-10.11 16 EX-10.11 1 EXHIBIT 10.11 WARRANT For good and valuable consideration receipt of which is hereby acknowledged, Maker hereby agrees as part of this Promissory Note to establish a Warrant in the name of the Creditor for the right to purchase authorized but as yet unissued common stock in the Maker. For each Unit as defined in the Confidential Private Placement Memorandum dated February 23, 1993, the "Memorandum" (being a $10,000 Promissory Note), Creditor shall receive one Warrant to purchase one thousand (1,000) shares of authorized but as yet unissued shares of common stock in Maker at a purchase price of One Dollar ($1) per share. Said shares will be issued from authorized but as yet unissued shares of common stock and will be subject to "Restrictions on Transferability" as defined in the Memorandum. This Warrant shall be a part of this Promissory Note and shall not be severable. This Warrant shall be exercisable at the sole decision of the Creditor at any time during the period of this Promissory Note, renewal or rerenewal thereof. Creditor shall exercise the Warrant by giving Maker a check in the amount of One Thousand Dollars ($1,000) along with written instructions that the Warrant is being exercised. Maker shall thereafter issue as soon as possible the share certificate in the name of the Creditor. CENTRUM INDUSTRIES, INC. By: ___________________________ Title: _________________________ EX-10.12 17 EX-10.12 1 EXHIBIT 10.12 LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into on this 2nd day of November, 1995, by and between the CITY OF ERIE by and through the ENTERPRISE DEVELOPMENT ZONE REVOLVING LOAN FUND, (hereinafter, the "Lender") and MCINNES STEEL COMPANY, with its principal place of business located at 441 East Main Street, Corry, Pennsylvania 16407 (hereinafter, the "Borrower"). 1. The Borrower desires to borrow from the Lender the sum of Three Hundred Forty-Nine Thousand Five Hundred and no/100 ($349,500.00) Dollars for use in the conduct of its business known as MCINNES ROLLED RINGS, 1533 BAST 12TH STREET, ERIE, PA 16511, A DIVISION OF MCINNES STEEL COMPANY. 2. Lender has determined that it will lend to Borrower, a qualifying entity, the sum of Three Hundred Forty-Nine Thousand Five Hundred and no/100 ($349,500.00) Dollars. 3. The loan of Three Hundred Forty-Nine Thousand Five Hundred and no/100 ($349,500.00) Dollars to the Borrower on the date hereof as a qualifying business concern shall be made in accordance with the terms and conditions of this Agreement, a Promissory Note (a copy of which is attached hereto as Exhibit A) (the "Note"), a Mortgage on the land and buildings located at 1533 East 12th Street, Erie, PA 16511, and in reliance upon the representations and warranties of the Borrower set forth herein. 4. This Agreement, the Note and Mortgage (collectively the "Loan Documents") are hereby incorporated by reference. NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the Lender and the Borrower agree to the following: I. THE LOAN 1. Subject to the terms and conditions contained in the Loan Documents and in reliance upon the representations and warranties of the Borrower set forth therein, the Lender agrees to make and the Borrower agrees to accept the Loan, the proceeds of which shall be disbursed by the Lender to the Borrower on the date of the execution of the Note and Mortgage. 2. The principal balance of the Loan and interest thereon shall be paid by the Borrower to the Lender in the manner provided in the Note. 3. The loan shall bear and Borrower shall pay Lender interest at the rate of three (3%) percent per annum. 2 4. The loan, including interest established pursuant to Paragraph 3, immediately above, shall be amortized over a period of eighty-four (84) months. II. THE COLLATERAL 1. As security for payment of the Note and all other charges associated therewith, the Borrower hereby grants to the Lender a continuing security interest in all of the machinery and equipment of McInnes Steel Company located in Erie or Corry. The security interest shall be a second lien on the machinery and equipment. 2. As additional security for payment of the Note and all interest and other charges associated therewith, the Borrower hereby grants to the Lender a mortgage on the land and buildings located at 1533 East 12th Street, Erie, PA 16511. This mortgage lien will be junior in lien priority and distribution to liens of PNC Bank, or successor Lender, and the Pennsylvania Industrial Development Authority. 3. The Borrower agrees to execute any and all documents that shall be necessary or desirable, from time to time, to create, perfect, continue, or maintain the security interest of the Lender in the Collateral. 4. The Lender will have all rights with respect to the security interest in the Collateral as are provided under the Uniform Commercial Code. 5. The Borrower shall obtain property insurance in the minimum amount of Three Hundred Forty-Nine Thousand Five Hundred and no/100 ($349,500.00) Dollars on both the personal and real property described above. The insurance policy(ies) shall identify the City of Erie as a loss payee. III. REPRESENTATIONS AND WARRANTIES 1. As an inducement for the Lender to make the Loan, the Borrower represents and warrants to the Lender the following: (a) The Borrower is a corporation duly organized and operating in accordance with the laws of the Commonwealth of Pennsylvania. (b) No other persons or entities have an ownership interest in the Borrower. (c) The execution, delivery and performance by the Borrower of the Loan Documents is within power of the Borrower. (d) The execution, delivery and performance of the Loan Documents will not violate any provision of law, any order of any 3 court or other agency or government, any provisions of any agreement, or other instrument to which the Borrower is a party or by which it or any of its assets are bound, or conflict with, result in a breach of, or constitute a default under any agreement or other instrument binding upon the Borrower, or result in the creation or imposition of any lien, charge, or encumbrance of any nature upon any of the assets of the Borrower, other than those in favor of the Lender arising out of the Loan Documents. (e) The Loan Documents, when duly executed, will be valid and binding obligations of the Borrower which are fully enforceable in accordance with their terms. (f) There is no action, suit, examination, review or proceeding by or before any court of law, governmental instrumentality, or agency now pending or, to the knowledge of the Borrower, threatened against the Borrower, or against any of its assets or rights, which if adversely determined, would materially impair its right to carry on business as now being conducted or contemplated or which would materially adversely affect its financial condition. (g) The Borrower has filed, or caused to be filed, all federal, state and local tax returns which are required to be filed, and has paid all taxes as are shown on such returns, or in any assessment received by it, to the extent that such taxes have become due. (h) The Borrower has all licenses, franchises, consents, permits, approvals and authorizations required in connection with the conduct of its business as now being conducted or contemplated; and they are in full force and effect without any modification, amendment, or revocation which would materially adversely affect the conduct of its business. (i) The Borrower has no knowledge of any claim or reason to believe that it is or may be infringing on or otherwise acting adversely to the rights of any person under or in respect of any patent, trademark, service mark, trade name, copyright, license, or other similar intangible right. (j) All oral and written information which has been provided by the Borrower does not contain any untrue statement of a material fact or does not omit a material fact that is necessary to make the information true and not misleading. 2. Borrower shall make no loans to its shareholders, employees or officers until the debt created hereby is paid in full or until Lender gives its prior written approval. 3. The representations and warranties set forth herein shall survive the execution of this Agreement, the making of the Loan and will continue in full force and effect for the entire term of this Agreement after the delivery of the Loan Documents and until the 4 Loan and all remaining obligations are paid in full by the Borrower. IV. AFFIRMATIVE COVENANTS 1. During the term of this Agreement and until repayment in full of the Loan and all remaining obligations by the Borrower, including all interest and other charges associated therewith, the Borrower agrees as follows: (a) Upon the request of the Lender, the Borrower will be required to submit various financial information pertaining to the Borrower including, but not limited to, an income statement, a balance sheet and a statement of changes in financial position, all of which are prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved, which financial information the Lender may require to be certified in accordance with generally accepted accounting principles by an independent certified public accountant, selected by the Borrower and satisfactory to the Lender. (b) The Borrower will maintain, with financially sound and reputable insurers, appropriate amounts of insurance to protect its properties, the Collateral and the Borrower's business against losses or damages of the kind customarily insured by corporations or businesses similarly situated to that of the Borrower including, but not limited to, adequate fire and extended coverage, insurance, business interruption insurance, necessary workers' compensation insurance, products liability insurance and such other insurance as may be reasonably required by law or as may be reasonably required in writing by the Lender; and the Lender shall be named as the insured or loss payee with respect to all of the foregoing insurance. The Borrower will, upon request, furnish to the Lender a schedule of all insurance it carries setting forth in detail the amount and type of such insurance. (c) The Borrower will maintain in good condition, repair and working order, all properties used or useful in its business including, but not limited to, the Collateral. (d) The Borrower will pay all debts incurred in the ordinary course of business and other obligations in accordance with normal terms or any applicable grace periods or duly contest the obligation pursuant to any applicable law or statute. The Borrower will pay all taxes, assessments and other governmental charges levied upon any of its properties or assets or in respect to its franchises, business, income or profits before it becomes delinquent or duly contest the obligation pursuant to any applicable law or statute. (e) The Borrower will promptly notify the Lender in writing of any event or material adverse change in the condition, 5 operations, business, financial or otherwise, of the Borrower which, if existing at the date hereof, would require qualification of the representations and warranties set forth herein. (f) The Borrower will make available for inspection by the lender its books, computer software programs, records and properties when reasonably requested to do so and will promptly furnish the Lender with such information regarding its business operations and financial condition as the Lender may request, all of which shall be maintained by the Lender in confidence. V. NEGATIVE COVENANTS 1. The Borrower agrees that during the term of this Agreement and until repayment in full of the Loan and all remaining obligations by the Borrower, including all interest and other charges associated therewith, without the prior written consent of the Lender: (a) The Borrower will not, directly or indirectly, purchase, sell, lease, sublease, transfer or otherwise dispose of its properties or assets for less than full and adequate consideration. (b) Except as expressly permitted herein, the Borrower will not pay any bonus or additional compensation to any related person in excess of amounts in effect as of the date of this Agreement, except any bonus or additional compensation which would not in the aggregate materially impair the financial condition of the Borrower. (c) The Borrower will not undertake any merger, consolidation, liquidation, dissolution, incorporation, or change in existence, structure, or ownership. VI. EVENTS OF DEFAULT 1. The occurrence of any one or more of the following events shall constitute an event of default ("Event of Default") under this Agreement: (a) If the Borrower fails to pay any installment of interest or principal under the Note within ten (10) days after such payment becomes due; (b) If any representation or warranty made herein by the Borrower or any other oral information, written statement, certificate, product report, or financial statement at any time furnished by or for the Borrower in connection herewith, proves to be false or erroneous in any material respect when made; 6 (c) If the Borrower fails to perform or observe any other provision, covenant, or agreement contained in this Agreement (other than mentioned in subparagraph (a) hereof) or in the remaining Loan Documents and such failure remains unremedied for twenty (20) days after the Lender has given written notice to the Borrower to cure the same; (d) If the Borrower discontinues business, or if there occurs a material adverse change in the business, properties, or the condition or operations, financial or otherwise, of the Borrower which continues unremedied for twenty (20) days after the Lender has given written notice to the Borrower; (e) If the Borrower is adjudicated as bankrupt or insolvent, or ceases, is unable, or admits in writing its inability to pay its debts as they mature, or makes an appointment for the benefit of its creditors; (f) If the Borrower applies for, or consents to, the appointment of any receiver, trustee, or similar officer for it or for all or any substantial part of its property, or any such receiver, trustee, or similar officer is appointed without the application or consent of the Borrower and such appointment continues thereafter undischarged for a period of twenty (20) days, or if the Borrower institutes, or consents to the institution of (by petition, application, answer, consent or otherwise), any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation, or similar proceeding relating to it under the laws of any jurisdiction, or if any such proceeding is instituted against the Borrower and remains thereafter unstayed or undismissed for a period of twenty (20) days; or (g) Any judgment, writ, warrant of attachment or execution or similar process is issued or levied against a substantial part of the property of the Borrower and such judgment, writ or similar process is not released, vacated, or fully bonded within twenty (20) days after its issue or levy. VII. REMEDIES UPON DEFAULT 1. If an Event of Default shall occur, the Lender shall have the following rights: (a) In the event that one or more of the Events of Default set forth in Article VI, Paragraph 1, subparagraphs (a) through (d) hereof occurs and is not waived by the Lender, then, in any such event, and at any time thereafter, the Lender may, at its option, terminate the Loan Agreement and declare the unpaid principal of, and all interest and other charges, if any, then accrued on, the Note and any other liabilities hereunder, and all other indebtedness of the Borrower to the Lender immediately due and payable in full, without presentment, demand, protest, or other 7 notice of any kind, all of which the Borrower hereby expressly waives. (b) Upon the happening of an Event of Default referred to in Article VI, Paragraph 1, subparagraphs (e) through (g) hereof, the Note and all other obligations of the Borrower to the Lender then existing will become immediately due and payable in full, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. (c) The remedies in this Article are in addition to, not in limitation of, any other right, power, or remedy, either in law, in equity or otherwise, to which the Lender may be entitled. No failure or delay on the part of the Lender in exercising any right, power or remedy will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other rights the Lender may have. VIII. MISCELLANEOUS 1. No waiver of any provision of the Loan Documents or consent to departures therefrom, is effective unless made in writing and signed by the Lender. No such consent or waiver extends beyond the particular case and purpose involved. No notice or demand given in any case constitutes a waiver of the right to take other action in the same, similar or instances without such notice or demand. No amendment of this Agreement is effective unless made in writing and signed by the Borrower and the Lender. 2. The Borrower agrees to pay all costs and expenses in connection with the preparation, execution, delivery and administration of the Loan Documents, as well as such legal fees and expenses incurred in connection with the enforcement of the Loan Documents. 3. The Loan Documents will be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. Headings and titles herein are for convenience only and will not influence the construction or interpretation of the terms of this Agreement. The Borrower expressly agrees to venue and personal jurisdiction in Erie County, Pennsylvania. 4. All written communications must be addressed to the Lender or to the Borrower, as the case may be, at their respective addresses set forth above or at such other address as either party may designate to the other in writing. Such communications will be effective upon deposit in the United States mail by certified mail, properly addressed with postage prepaid. 5. All agreements, representations, warranties and covenants made by the Borrower and the Shareholder will survive the making of the Loan hereunder and will bind the parties, their successors and 8 assigns, and inure to the benefit of the parties and their respective successors and assigns. 6. If any provision of this Loan Agreement, or any covenant, stipulation, obligation, agreement, act, or action made, assumed, entered into, or taken is for any reason held to be illegal or invalid in any jurisdiction, such a legality or invalidity shall not affect any provision or any other covenant, stipulation, obligation, agreement, act, or action made, assumed, entered into, or taken, each of which shall be construed and enforced as if such a legal or invalid portion were not contained herein and shall not affect the enforceability of that provision in any other jurisdiction. IN WITNESS WHEREOF, this Loan Agreement is executed and sealed by the parties on the day and year first above written. CITY OF ERIE, by and through the ENTERPRISE DEVELOPMENT ZONE REVOLVING LOAN FUND Attest: By: /s/ Joyce A. Savacchia ---------------------------- /s/ James Klemm Mayor - -------------------------------- City Clerk By: /s/ Brenda A. Pundt ---------------------------- City Controller BORROWER MCINNES STEEL COMPANY Attest: By: Timothy M. Hunter, Treasurer /s/ James E. Spoden, Asst. Secy. ---------------------------- - -------------------------------- EX-10.14 18 EX-10.14 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT THIS AGREEMENT is made this 29th day of February, 1996, by and between MCINNES STEEL COMPANY, a Pennsylvania corporation (hereinafter called "Corporation") whose principal place of business is located at 441 E. Main Street, Corry, Pennsylvania 16407, and ANTHONY A. MONTANI (hereafter called "Employee"), an individual residing at 691 Wayne Street, Corry, Pennsylvania 16407. WITNESSETH: WHEREAS, Centrum Industries, Inc., a Delaware corporation ("Centrum"), Employee, and other stockholders are parties to an Agreement and Plan of Reorganization (hereafter referred to as the "Acquisition Agreement"), dated December 5, 1995, as amended February 5, 1996, pursuant to which a subsidiary of Centrum is to be merged into the Corporation; and WHEREAS, Employee owns a substantial portion of the outstanding capital stock of the Corporation and will receive direct financial benefits from the consummation of the transactions set forth in the Acquisition Agreement; and WHEREAS, as a material and significant inducement to Centrum to enter into and consummate the transactions set forth in the Acquisition Agreement, Employee has agreed to remain in employment of the Corporation and assist Centrum in matters relating to the change of ownership contemplated by the Acquisition Agreement; and WHEREAS, Employee has extensive experience and abilities which are valuable to Centrum in assisting in the operation of the Corporation; and WHEREAS, Centrum is desirous of having Employee employed with the Corporation upon the terms and conditions of this Agreement, which terms and conditions are agreeable to Employee. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and intending to be legally bound thereby, the parties agree as follows: 1. EMPLOYMENT. For a term of three (3) years commencing February 29, 1996, and ending on February 28, 1999, the Corporation agrees to employ Employee, and Employee agrees to serve the Corporation. During the term of his employment, Employee shall, on a full-time basis, devote his full time, attention and energies to the business of the Corporation; shall render efficient, industrious and loyal services; and shall assume and perform such responsibilities and duties in connection therewith as may be assigned to him from time to time by the Chairman of the Board of the Corporation (hereinafter called the "Chairman") as more particularly described in Paragraph 2 hereof. Termination of Employee's employment for cause, as provided in Paragraph 7 of this Agreement, or a voluntary termination by Employee, shall constitute a failure of Employee to comply with the terms of this paragraph. Subject to termination as hereinafter provided, this Agreement shall be automatically renewed from year to year on the anniversary day of each year ensuing thereafter commencing upon the expiration of the three year term of this Agreement, unless within thirty (30) days prior to any such 2 renewal date, either party to this Agreement shall notify the other in writing that this Agreement shall terminate and end at the close of the then current employment term. 2. DUTIES. Employee shall initially serve as President and Chief Operating Officer of the Corporation and shall render such services as are necessary to carry out the duties of said position and such additional duties of an executive nature as may be assigned to him from time to time by the Chairman. 3. COMPENSATION. During Employee's employment under this Agreement, the Corporation agrees to pay Employee compensation of an annual salary equal to the sum of One Hundred Forty Thousand Dollars ($140,000.00), such salary to be increased annually as determined by the Board of Directors and in no event less than the greater of: (x) the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (1982-1984=100), or (y) four percent (4%) per year. 4. EXPENSES. (a) During the term of this Agreement, Employee shall be entitled to continue to use at no additional expense the company car currently driven by Employee or a similar replacement vehicle at the expiration of the current car lease, consistent with the Corporation's practices currently in effect. Employee shall be reimbursed for all reasonable expenses incurred in the operation and maintenance of such car consistent with the Corporation reimbursement procedures and practices currently in effect. (b) The Corporation will reimburse Employee for all reasonable and necessary expenses, including without limiting the foregoing, travel, entertainment, and promotional expenses, incurred by Employee in carrying out his duties under this Agreement upon the presentation to the Corporation by Employee from time to time of an itemized account of such expenses in such form as may be required by the Corporation. 5. FRINGE BENEFITS. During the period of his employment, Employee shall be afforded the right to participate in any and all group insurance, medical and health care plans and other employee benefit plans as are generally made available to other employees of the Corporation and the right to participate in the profit-sharing plans and stock option plans of Centrum consistent with executives of other Centrum companies. Copies of all such Centrum executive profit sharing plans and stock option plans, or an appropriate detailed description of such plans has been provided to the Employee as of the date of this Agreement. Employee shall be entitled to five (5) weeks and one (1) personal day of paid vacation leave during each one (1) year period of the term of this Agreement, the scheduling of which shall be subject to the approval of the Chairman. In addition to the foregoing fringe benefits, Employee shall be entitled to participate in: (a) a medical reimbursement plan for senior executives which shall supplement the Corporation's medical and health care plans available to other employees to reimburse Employee for medical and other health care costs not otherwise covered by such group plans, in an amount not to exceed Three Thousand Five Hundred Dollars ($3,500.00) per year. 2 3 (b) Corporation-sponsored whole life insurance contract in the amount of One Hundred Thousand Dollars ($100,000.00). (c) payment for annual dues, membership fees and assessments for the Aviation Country Club and the Corry Country Club. (d) executive tax return preparation. (e) continued participation in the Nonqualified Deferred Compensation Agreement entered into as of December 31, 1988, in connection with the termination of the McInnes Steel Company Salaried Employees' Defined Pension Plan (it being understood that the Corporation is not assuming any additional obligations other than as expressly provided for in the Nonqualified Deferred Compensation Agreement). (f) such sick leave, sick pay and disability benefits in accordance with the Corporation's existing policy for key executive employees. Pursuant to the Centrum Stock Option Plan (the "Plan"), Centrum will grant to the Employee a stock option (the "Option"), intending to qualify as a nonqualified option or (as described in Treas.Reg. Section 1.83-7 or any successor regulation thereto), to purchase one hundred fifty thousand (150,000) shares of Centrum Common Stock, Five Cents ($.05) par value per share (the "Common Stock"), at a purchase price of One and 50/100 Dollars ($1.50) per share, with seventy-five thousand (75,000) shares to vest after one (1) year of the term of this Agreement and the balance of the shares to vest after two (2) years of the term of this Agreement, all as provided in the Plan and Stock Option Agreement entered into on the date hereof between Centrum and the Employee; provided, however, in the event that Employee's employment with the Corporation is terminated other than for cause prior to the first anniversary of the term of this Agreement, options for seventy-five thousand (75,000) shares shall vest in Employee. 6. ILLNESS, OTHER MEDICAL DISABILITY OR DEATH. If Employee should be prevented from performing his duties by reason of incapacity or disability for a period of six (6) months or more, service and compensation (other than that which shall have accrued and remains unpaid) under this Agreement will cease. When such illness or other medical disability has ended, Employee shall resume his duties under this Agreement and again become entitled to receive compensation hereunder. Such illness or other medical disability shall not extend the terms of this Agreement. If Employee should be prevented from performing his duties by reason of death, the Corporation shall pay any salary or disability payment due for the month of Employee's death to Employee's designated beneficiary or surviving spouse, in the order named, or if none to the personal representative of Employee's estate, as the case may be, and this Agreement shall be terminated and of no further force and effect upon such payment. 7. TERMINATION FOR CAUSE. Corporation may discharge Employee at any time for: (a) an act of theft; embezzlement or felony related to his employment duties with the Corporation; 3 4 (b) conviction of a crime of moral turpitude or dishonesty; (c) habitual intoxication or drug addiction; (d) any material violation of any express direction or any reasonable rule or regulation established by the Corporation from time to time regarding the conduct of its business; provided that the Employee shall have received written notice of such failure and a reasonable opportunity to discuss the matter with the Board of Directors, followed by a reasonable opportunity for the Employee to correct his failure and comply with such rule of the Board of Directors, or any act or omission constituting gross misconduct which is or is intended to be injurious to the Corporation; (e) the willful failure of Employee to perform his duties hereunder; or (f) any material violation by Employee of the terms and conditions of this Agreement or any other agreement between the Corporation and Employee, in which event the Corporation shall have no further obligations or liabilities hereunder after the date of such discharge, other than payment of salary, bonus,or fringe benefits, the rights to which have accrued and remain unpaid. 8. SEVERANCE PAYMENTS. Upon the concurrence of a "Severance Event" as hereafter defined, the Corporation shall continue to pay to Employee for the Severance Period the monthly base salary Employee was receiving from the Corporation immediately prior to the occurrence of such Severance Event; provided, however, such severance payments to Employee shall be reduced by any salary or consulting income received by Employee from any source during the Severance Period. In the event Employee breaches any provision of this Agreement, all obligations of the Corporation to make severance payments to Employee pursuant to this Agreement shall cease. For purposes of this Agreement, a "Severance Event" shall mean: (i) the termination of Employee's employment with the Corporation by the Corporation other than a termination for cause as provided for in paragraph 7 hereof; or (ii) the failure of the parties to renew this Agreement at the expiration of the term specified herein or at the expiration of any subsequent term agreed to by the parties. The "Severance Period" shall mean a period of time equal to the remaining term of this Agreement following a Severance Event; provided, however, in no event shall the Severance Period be less than one (1) year. 9. NON-COMPETITION, TRADE SECRETS, ETC. As an inducement to the Corporation to execute this Agreement, (a) Employee covenants and agrees with the Corporation that at all times during the term of his employment hereunder, including extensions thereof, and for a term equal to one (1) year following his termination of employment with the Corporation or any of its subsidiaries (the "Restrictive Period"), within the area where the Corporation presently does business (including, without limitation, the United States east of the Mississippi River, the Canadian provinces of Ontario and Quebec, China and Japan), and where the Corporation does business at the time of termination of Employee (the "Restrictive Area"), he shall not directly or indirectly: 4 5 (i) solicit, induce or encourage any employee of the Corporation or any of its subsidiaries to terminate his or her relationship with the Corporation or any of its subsidiaries; or (ii) employ or establish a business relationship which is competitive with the Corporation or any of its subsidiaries with any individual who was employed by the Corporation or any of its subsidiaries during the preceding twelve (12) month period; or (iii) encourage or assist any individual or entity in a business which is competitive with the Corporation or any of its subsidiaries to employ or establish a business relationship with any individual who was employed by the Corporation or any of its subsidiaries during the preceding twelve (12) month period; or (iv) solicit, induce or encourage any suppliers, customers or prospective customers to terminate or reduce in scope their relationship with the Corporation or any of its subsidiaries; or (v) solicit or assist any individual or entity in the solicitation of business from, or performance of work for, any customers or prospective customers of the Corporation; or (vi) engage in (as a principal, agent, consultant, partner, director, officer, employee, stockholder, investor or otherwise), alone or in association with any person or entity, or be financially interested in, any business which is competitive with the Corporation. Notwithstanding the foregoing, Employee shall be entitled to hold shares of a publicly-traded company so long as such shares do not represent more than one percent (1%) of the outstanding capital of such company. (b) For purposes of paragraph 9, "customers" shall mean those customers for whom the Corporation supplied products to or performed services during the twelve (12) months preceding the date in question, and "prospective customers" shall mean persons or entities whose business was solicited by the Corporation during the twelve (12) months preceding the date in question. (c) Employee shall not use for his personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company, (i) any information regarding the business methods, business policies, business strategies, marketing plans, survey procedures, statistical techniques, research or development projects or results, trade secrets or other confidential knowledge or processes of, or developed by, the Corporation, or (ii) any confidential data on or relating to past, present or prospective customers of the Corporation, or 5 6 (iii) budgets, forecasts, pricing information or unpublished financial information or any other confidential information relating to or dealing with the business operations or activities of the Corporation. (d) Employee acknowledges and agrees that (i) the covenants set forth herein are essential elements of the transactions contemplated by the Acquisition Agreement, that Employee is receiving adequate consideration hereunder, and that such covenants are reasonable and necessary in order to protect the legitimate interests of the Corporation; (ii) the Corporation will not have any adequate remedy at law if Employee violates the terms hereof or fails to perform any of his obligations hereunder; and (iii) the Corporation shall have the right, in addition to any other rights either may have under applicable law, to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief to restrain any breach or threatened breach of, or otherwise to specifically enforce any such covenant or any other obligations of Employee under this Agreement, as well as to obtain damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Corporation may be entitled. (e) If the Restrictive Period or the Restrictive Area set forth in paragraph 9(a) should be adjudged unreasonable in any proceeding, then the Restrictive Period shall be reduced by such number of months or the Restrictive Area shall be reduced by the elimination of such unreasonable portion thereof, or both, so that such restrictions may be enforceable for such time and in the manner adjudged to be reasonable. If Employee violates any of the restrictions contained in paragraph 9(a), then the restrictive period shall not run in favor of Employee from the time of the commencement of any such violation until such time as such violation shall be cured by Employee. 10. INFORMATION REGARDING AGREEMENT. During the term of this Agreement and during the Restrictive Period, Employee shall not make the terms and conditions of this Agreement known to any business, entity, or persons engaged in activities competitive with the Corporation's business with which he becomes associated subsequent to the termination of his employment with the Corporation prior to his association with any such business, entity or persons. The Corporation shall have the right to make the terms of this Agreement known to third persons. 11. RETURN OF COMPANY PROPERTY. At the time of Employee's termination of employment with the Corporation or upon demand by the Corporation, whichever is sooner, Employee shall promptly turn over to the Corporation all files, documents, business records and any other records, documents, writings of any kind whatsoever, and all assets of any kind whatsoever, that belong to the Corporation. Employee shall not copy or record in any manner whatsoever the information contained in the foregoing materials and shall turn over any copies or recordings of any kind whatsoever containing information derived directly or indirectly from the aforestated materials. 6 7 12. SURVIVAL OF COVENANTS. The covenants in Sections 9, 10 and 11 and acknowledgments of the Employee set forth in this Agreement shall survive the termination of this Agreement, regardless of the cause therefor. 13. REMEDIES. In the event of any violation of any of the covenants contained in Sections 9, 10 or 11, the Corporation shall be authorized to obtain preliminary and permanent injunctive relief as well as an equitable accounting of any profits or benefits arising out of such violation, which rights and remedies shall be cumulative and in addition to any other rights or remedies to which the Corporation may be entitled. In the event of the violation of any of the restrictions contained in Sections 9, 10 or 11, the period, if any, therein specified shall abate during the time of violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. 14. WAIVER. The waiver by the Corporation of the breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent breach by it. No waiver by the Corporation shall be legally operative unless reduced to writing and executed by the President of the Corporation. 15. NOTICES. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered if delivered personally or by recognized overnight courier service or by facsimile to the parties at the following addresses (or at such other address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt): (i) If to Employee: Anthony A. Montani 691 Wayne Street Corry, Pennsylvania 16407 with a COPY, given in the manner prescribed above, to: James E. Spoden, Esq. MacDonald, Illig, Jones & Britton 100 State Street Suite 700 Erie, Pennsylvania 16507 Fax No.: (814) 454-4647 (ii) If to Corporation: McInnes Steel Company 441 E. Main Street Corry, Pennsylvania 16407 Attn: President Fax No.: (814) 664-9452 7 8 and Centrum Industries, Inc. 6135 Trust Drive Suite 104A Holland, Ohio 43528 Attention: George H. Wells, President and Chief Operating Officer Fax No.: (419) 868-3442 with a COPY, given in the manner prescribed above, to: John W. Hilbert, II, Esq. Fuller & Henry P.L.L. One SeaGate, Suite 1700 P.O. Box 2088 Toledo, Ohio 43603-2088 Fax No.: (419) 247-2665 16. ENTIRE AGREEMENT; AMENDMENT OR TERMINATION; WAIVER. This Agreement (and Plan and Option Agreement referred to herein) constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended or terminated except by a written instrument, signed by each of the parties hereto, expressing such amendment or termination. No failure on the part of any party to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 17. GENERAL TERMS. This Agreement is personal in nature and (a) neither of the parties hereto shall assign or transfer this Agreement without the written consent of the other, except that the Corporation may assign or transfer this Agreement (i) to any successor corporation in the event of merger, consolidation or transfer or sale of the business of the Corporation in which Employee is engaged; or (ii) to a parent or subsidiary corporation which may be organized to conduct the business of the Corporation, in which Employee is engaged. (b) In any of the aforesaid events, Employee shall remain liable to the Corporation, or its successor and assignees. 18. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 19. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania; provided, however, that if any 8 9 provision of this Agreement shall be deemed invalid or unenforceable under the laws of the Commonwealth of Pennsylvania, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio. 20. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Corporation has caused its appropriate officer to sign this Agreement, and Employee has signed this Agreement. MCINNES STEEL COMPANY By /s/ George H. Wells -------------------------- EMPLOYEE /s/ Anthony A. Montani ------------------------------ WITNESS: ANTHONY A. MONTANI /s/ John D. Gillespie /s/ James E. Spoden - --------------------- ------------------------------ 9 EX-10.15 19 EX-10.15 1 EXHIBIT 10.15 EMPLOYMENT AGREEMENT THIS AGREEMENT is made this 29th day of February, 1996, by and between MCINNES STEEL COMPANY, a Pennsylvania corporation (hereinafter called "Corporation") whose principal place of business is located at 441 E. Main Street, Corry, Pennsylvania 16407, and TIMOTHY M. HUNTER (hereinafter called "Employee") an individual residing at 4138 Mountain Laurel Drive, Erie, Pennsylvania 16510. WITNESSETH: WHEREAS, Centrum Industries, Inc., a Delaware corporation ("Centrum"), Employee, and other stockholders are parties to an Agreement and Plan of Reorganization (hereafter referred to as the "Acquisition Agreement"), dated December 5, 1995, as amended February 5, 1996 pursuant to which a subsidiary of Centrum is to be merged into the Corporation; and WHEREAS, Employee owns a portion of the outstanding capital stock of the Corporation directly and as a participant in the Corporation's Employee Stock Ownership Plan and will receive direct financial benefits from the consummation of the transactions set forth in the Acquisition Agreement; and WHEREAS, as a material and significant inducement to Centrum to enter into and consummate the transactions set forth in the Acquisition Agreement, Employee has agreed to remain in employment of the Corporation and assist Centrum in matters relating to the change of ownership contemplated by the Acquisition Agreement; and WHEREAS, Employee has extensive experience and abilities which are valuable to Centrum in assisting in the operation of the Corporation; and WHEREAS, Centrum is desirous of having Employee employed with the Corporation upon the terms and conditions of this Agreement, which terms and conditions are agreeable to Employee. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and intending to be legally bound thereby, the parties agree as follows: 1. EMPLOYMENT. For a term of three (3) years commencing February 29, 1996 1996, and ending on February 28, 1999, the Corporation agrees to employ Employee, and Employee agrees to serve the Corporation. During the term of his employment, Employee shall, on a full-time basis, devote his full time, attention and energies to the business of the Corporation; shall render efficient, industrious and loyal services; and shall assume and perform such responsibilities and duties in connection therewith as may be assigned to him from time to time by the President of the Corporation as more particularly described in Paragraph 2 hereof. Termination of Employee's employment for cause, as provided in Paragraph 7 of this Agreement, or a voluntary termination by Employee, shall constitute a failure of Employee to comply with the terms of this paragraph. Subject to termination as hereinafter provided, this Agreement shall be automatically renewed from year to year on the anniversary 2 day of each year ensuing thereafter commencing upon the expiration of the three year term of this Agreement, unless within thirty (30) days prior to any such renewal date, either party to this Agreement shall notify the other in writing that this Agreement shall terminate and end at the close of the then current employment term. 2. DUTIES. Employee shall initially serve as Vice-President and Chief Financial Officer of the Corporation and shall render such services as are necessary to carry out the duties of said position and such additional duties of an executive nature as may be assigned to him from time to time by the Chairman of the Board of the Corporation (hereinafter called the "Chairman") or by the President of the Corporation. 3. COMPENSATION. During Employee's employment under this Agreement, the Corporation agrees to pay Employee compensation of an annual salary equal to the sum of Ninety Thousand Dollars ($90,000.00), such salary to be increased annually as determined by the Board of Directors and in no event less than the greater of: (x) the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (1982-1984=100), or (y) four percent (4%) per year. 4. EXPENSES. (a) During the term of this Agreement, Employee shall be entitled to continue to use at no additional expense the company car currently driven by Employee or a similar replacement vehicle at the expiration of the current car lease, consistent with the Corporation's practices currently in effect. Employee shall be reimbursed for all reasonable expenses incurred in the operation and maintenance of such car consistent with the Corporation reimbursement procedures and practices currently in effect. (b) The Corporation will reimburse Employee for all reasonable and necessary expenses, including without limiting the foregoing, travel, entertainment, and promotional expenses, incurred by Employee in carrying out his duties under this Agreement upon the presentation to the Corporation by Employee from time to time of an itemized account of such expenses in such form as may be required by the Corporation. 5. FRINGE BENEFITS. During the period of his employment, Employee shall be afforded the right to participate in any and all group insurance, medical and health care plans and other employee benefit plans as are generally made available to other employees of the Corporation and the right to participate in the profit-sharing plans and stock option plans of Centrum consistent with executives of other Centrum companies. Copies of all such Centrum executive profit sharing plans and stock option plans, or an appropriate detailed description of such plans has been provided to the Employee as of the date of this Agreement. Employee shall be entitled to three (3) weeks and one (1) personal day of paid vacation leave during each one (1) year period of the term of this Agreement, the scheduling of which shall be subject to the approval of the President of the Corporation. In addition to the foregoing fringe benefits, Employee shall be entitled to participate in: 2 3 (a) a medical reimbursement plan for senior executives which shall supplement the Corporation's medical and health care plans available to other employees to reimburse Employee for medical and other health care costs not otherwise covered by such group plans, in an amount not to exceed Three Thousand Five Hundred Dollars ($3,500.00) per year. (b) Corporation-sponsored whole life insurance contract in the amount of One Hundred Thousand Dollars ($100,000.00). (c) payment for annual dues, membership fees and assessments for the Aviation Country Club and the Corry Country Club. (d) executive tax return preparation. (e) such sick leave, sick pay and disability benefits in accordance with the Corporation's existing policy for key executive employees. Pursuant to the Centrum Stock Option Plan (the "Plan"), Centrum will grant to the Employee a stock option (the "Option"), intending to qualify as a nonqualified option or (as described in Treas.Reg. Section 1.83-7 or any successor regulation thereto), to purchase one hundred twenty-five thousand (125,000) shares of Centrum Common Stock, Five Cents ($.05) par value per share (the "Common Stock"), at a purchase price of One and 50/100 Dollars ($1.50) per share, with sixty-two thousand five hundred (62,500) shares to vest after one (1) year of the term of this Agreement and the balance of the shares to vest after two (2) years of the term of this Agreement, all as provided in the Plan and Stock Option Agreement entered into on the date hereof between Centrum and the Employee; provided, however, in the event that Employee's employment with the Corporation is terminated other than for cause prior to the first anniversary of the term of this Agreement, options for sixty-two thousand five hundred (62,500) shares shall vest in Employee. 6. ILLNESS, OTHER MEDICAL DISABILITY OR DEATH. If Employee should be prevented from performing his duties by reason of incapacity or disability for a period of six (6) months or more, service and compensation (other than that which shall have accrued and remains unpaid) under this Agreement will cease. When such illness or other medical disability has ended, Employee shall resume his duties under this Agreement and again become entitled to receive compensation hereunder. Such illness or other medical disability shall not extend the terms of this Agreement. If Employee should be prevented from performing his duties by reason of death, the Corporation shall pay any salary or disability payment due for the month of Employee's death to Employee's designated beneficiary or surviving spouse, in the order named, or if none to the personal representative of Employee's estate, as the case may be, and this Agreement shall be terminated and of no further force and effect upon such payment. 7. TERMINATION FOR CAUSE. Corporation may discharge Employee at any time for: (a) an act of theft; embezzlement or felony related to his employment duties with the Corporation; (b) conviction of a crime of moral turpitude or dishonesty; 3 4 (c) habitual intoxication or drug addiction; (d) any material violation of any express direction or any reasonable rule or regulation established by the Corporation from time to time regarding the conduct of its business; provided that the Employee shall have received written notice of such failure and a reasonable opportunity to discuss the matter with the Board of Directors, followed by a reasonable opportunity for the Employee to correct his failure and comply with such rule of the Board of Directors, or any act or omission constituting gross misconduct which is or is intended to be injurious to the Corporation; (e) the willful failure of Employee to perform his duties hereunder; or (f) any material violation by Employee of the terms and conditions of this Agreement or any other agreement between the Corporation and Employee, in which event the Corporation shall have no further obligations or liabilities hereunder after the date of such discharge, other than payment of salary, bonus, or fringe benefits, the rights to which have accrued and remain unpaid. 8. SEVERANCE PAYMENTS. Upon the concurrence of a "Severance Event" as hereafter defined, the Corporation shall continue to pay to Employee for the Severance Period the monthly base salary Employee was receiving from the Corporation immediately prior to the occurrence of such Severance Event; provided, however, such severance payments to Employee shall be reduced by any salary or consulting income received by Employee from any source during the Severance Period. In the event Employee breaches any provision of this Agreement, all obligations of the Corporation to make severance payments to Employee pursuant to this Agreement shall cease. For purposes of this Agreement, a "Severance Event" shall mean: (i) the termination of Employee's employment with the Corporation by the Corporation other than a termination for cause as provided for in paragraph 7 hereof; or (ii) the failure of the parties to renew this Agreement at the expiration of the term specified herein or at the expiration of any subsequent term agreed to by the parties. The "Severance Period" shall mean a period of time equal to the remaining term of this Agreement following a Severance Event; provided, however, in no event shall the Severance Period be less than one (1) year. 9. NONCOMPETITION, TRADE SECRETS, ETC. As an inducement to the Corporation to execute this Agreement, (a) Employee covenants and agrees with the Corporation that at all times during the term of his employment hereunder, including extensions thereof, and for a term equal to one (1) year following his termination of employment with the Corporation or any of its subsidiaries (the "Restrictive Period"), within the area where the Corporation or any of its subsidiaries presently do business (including, without limitation, the United States east of the Mississippi River, the Canadian provinces of Ontario and Quebec, China and Japan), and where the Corporation does business at the time of termination of Employee (the "Restrictive Area"), he shall not directly or indirectly: 4 5 (i) solicit, induce or encourage any employee of the Corporation or any of its subsidiaries to terminate his or her relationship with the Corporation or any of its subsidiaries; or (ii) employ or establish a business relationship which is competitive with the Corporation or any of its subsidiaries with any individual who was employed by the Corporation or any of its subsidiaries during the preceding twelve (12) month period; or (iii) encourage or assist any individual or entity in a business which is competitive with the Corporation or any of its subsidiaries to employ or establish a business relationship with any individual who was employed by the Corporation or any of its subsidiaries during the preceding twelve (12) month period; or (iv) solicit, induce or encourage any suppliers, customers or prospective customers to terminate or reduce in scope their relationship with the Corporation or any of its subsidiaries; or (v) solicit or assist any individual or entity in the solicitation of business from, or performance of work for, any customers or prospective customers of the Corporation; or (vi) engage in (as a principal, agent, consultant, partner, director, officer, employee, stockholder, investor or otherwise), alone or in association with any person or entity, or be financially interested in, any business which is competitive with the Corporation. Notwithstanding the foregoing, Employee shall be entitled to hold shares of a publicly-traded company so long as such shares do not represent more than one percent (1%) of the outstanding capital of such company. (b) For purposes of paragraph 9, "customers" shall mean those customers for whom the Corporation or any of its subsidiaries supplied products to or performed services during the twelve (12) months preceding the date in question, and "prospective customers" shall mean persons or entities whose business was solicited by the Corporation or any of its subsidiaries during the twelve (12) months preceding the date in question. (c) Employee shall not use for his personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company, (i) any information regarding the business methods, business policies, business strategies, marketing plans, survey procedures, statistical techniques, research or development projects or results, trade secrets or other confidential knowledge or processes of, or developed by, the Corporation or any of its subsidiaries, or (ii) any confidential data on or relating to past, present or prospective customers of the Corporation or any of its subsidiaries, or 5 6 (iii) budgets, forecasts, pricing information or unpublished financial information or any other confidential information relating to or dealing with the business operations or activities of the Corporation or any of its subsidiaries. (d) Employee acknowledges and agrees that (i) the covenants set forth herein are essential elements of the transactions contemplated by the Acquisition Agreement, that Employee is receiving adequate consideration hereunder, and that such covenants are reasonable and necessary in order to protect the legitimate interests of the Corporation; (ii) the Corporation will not have any adequate remedy at law if Employee violates the terms hereof or fails to perform any of his obligations hereunder; and (iii) the Corporation shall have the right, in addition to any other rights either may have under applicable law, to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief to restrain any breach or threatened breach of, or otherwise to specifically enforce any such covenant or any other obligations of Employee under this Agreement, as well as to obtain damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Corporation may be entitled. (e) If the Restrictive Period or the Restrictive Area set forth in paragraph 9(a) should be adjudged unreasonable in any proceeding, then the Restrictive Period shall be reduced by such number of months or the Restrictive Area shall be reduced by the elimination of such unreasonable portion thereof, or both, so that such restrictions may be enforceable for such time and in the manner adjudged to be reasonable. If Employee violates any of the restrictions contained in paragraph 9(a), then the restrictive period shall not run in favor of Employee from the time of the commencement of any such violation until such time as such violation shall be cured by Employee. 10. INFORMATION REGARDING AGREEMENT. During the term of this Agreement and during the Restrictive Period, Employee shall not make the terms and conditions of this Agreement known to any business, entity, or persons engaged in activities competitive with the Corporation's business with which he becomes associated subsequent to the termination of his employment with the Corporation prior to his association with any such business, entity or persons. The Corporation shall have the right to make the terms of this Agreement known to third persons. 11. RETURN OF COMPANY PROPERTY. At the time of Employee's termination of employment with the Corporation or upon demand by the Corporation, whichever is sooner, Employee shall promptly turn over to the Corporation all files, documents, business records and any other records, documents, writings of any kind whatsoever, and all assets of any kind whatsoever, that belong to the Corporation. Employee shall not copy or record in any manner whatsoever the information contained in the foregoing materials and shall turn over any copies or recordings of any kind whatsoever containing information derived directly or indirectly from the aforestated materials. 6 7 12. SURVIVAL OF COVENANTS. The covenants in Sections 9, 10 and 11 and acknowledgments of the Employee set forth in this Agreement shall survive the termination of this Agreement, regardless of the cause therefor. 13. REMEDIES. In the event of any violation of any of the covenants contained in Sections 9, 10 or 11, the Corporation shall be authorized to obtain preliminary and permanent injunctive relief as well as an equitable accounting of any profits or benefits arising out of such violation, which rights and remedies shall be cumulative and in addition to any other rights or remedies to which the Corporation may be entitled. In the event of the violation of any of the restrictions contained in Sections 9, 10 or 11, the period, if any, therein specified shall abate during the time of violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. 14. WAIVER. The waiver by the Corporation of the breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent breach by it. No waiver by the Corporation shall be legally operative unless reduced to writing and executed by the President of the Corporation. 15. NOTICES. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered if delivered personally or by recognized overnight courier service or by facsimile to the parties at the following addresses (or at such other address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt): (i) If to Employee: Timothy M. Hunter 4138 Mountain Laurel Drive Erie, Pennsylvania 16510 with a COPY, given in the manner prescribed above, to: James E. Spoden, Esq. MacDonald, Illig, Jones & Britton 100 State Street Suite 700 Erie, Pennsylvania 16507 Fax No.: (814) 454-4647 (ii) If to Corporation: McInnes Steel Company 441 E. Main Street Corry, Pennsylvania 16407 Attn: President Fax No.: (814) 664-9452 7 8 and Centrum Industries, Inc. 6135 Trust Drive Suite 104A Holland, Ohio 43528 Attention: George H. Wells, President and Chief Operating Officer Fax No.: (419) 868-3442 with a COPY, given in the manner prescribed above, to: John W. Hilbert, II, Esq. Fuller & Henry, P.L.L. One SeaGate, Suite 1700 P.O. Box 2088 Toledo, Ohio 43603-2088 Fax No.: (419) 247-2665 16. ENTIRE AGREEMENT; AMENDMENT OR TERMINATION; WAIVER. This Agreement (and Plan and Option Agreement referred to herein) constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended or terminated except by a written instrument, signed by each of the parties hereto, expressing such amendment or termination. No failure on the part of any party to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 17. GENERAL TERMS. This Agreement is personal in nature and (a) neither of the parties hereto shall assign or transfer this Agreement without the written consent of the other, except that the Corporation may assign or transfer this Agreement (i) to any successor corporation in the event of merger, consolidation or transfer or sale of the business of the Corporation in which Employee is engaged; or (ii) to a parent or subsidiary corporation which may be organized to conduct the business of the Corporation, in which Employee is engaged. (b) In any of the aforesaid events, Employee shall remain liable to the Corporation, or its successor and assignees. 18. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 8 9 19. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania; provided, however, that if any provision of this Agreement shall be deemed invalid or unenforceable under the laws of the Commonwealth of Pennsylvania, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio. 20. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Corporation has caused its appropriate officer to sign this Agreement, and Employee has signed this Agreement. MCINNES STEEL COMPANY By /s/ George H. Wells ------------------------ EMPLOYEE Witness: /s/ Timothy M. Hunter --------------------------- TIMOTHY M. HUNTER /s/ John D. Gillespie - --------------------- 9 EX-10.16 20 EX-10.16 1 EXHIBIT 10.16 SERVICES AGREEMENT THIS AGREEMENT is made this 29th day of February, 1996, by and between MCINNES STEEL COMPANY, a Pennsylvania corporation (hereinafter called "Corporation"), and STEPHEN J. MAHONEY (hereinafter called "Mahoney"). W I T N E S S E T H: WHEREAS, Mahoney has extensive managerial experience and abilities and has been in the continuous full-time employ of the Corporation for thirty (30) years, most recently serving in the capacity as President. WHEREAS, Corporation is now a wholly owned subsidiary of Centrum Industries, Inc., a Delaware corporation ("Centrum"). Corporation wishes to retain the services of Mahoney and Mahoney wishes to provide services to the Corporation on the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the foregoing, and as a condition to Centrum's obligation to consummate the transactions contemplated in the Agreement and Plan of Reorganization ("Acquisition Agreement"), the parties, each intending to be legally bound, agree as follows: 1. SERVICE. Corporation hereby agrees to retain Mahoney and Mahoney hereby agrees to serve Corporation for the period and upon the terms and conditions contained in this Agreement. 2. TERM. This Agreement shall be for a term of four (4) years, commencing as of February 29, 1996 and ending on February 28, 2000, unless sooner terminated as hereinafter provided. 3. OFFICE AND DUTIES. (a) Throughout the term of this Agreement, Mahoney agrees to serve the Corporation as a general consultant and advisor to the management of the Corporation on matters pertaining to the business of the Corporation. Subject to the limitations provided in paragraph 3(b) of this Agreement, Mahoney shall be available to render consultive and advisory services to the Corporation when requested by the Chairman of the Board of the Corporation (the "Chairman") or such other officer of the Corporation as may be designated from time to time by the Chairman, on an as needed basis. Mahoney shall report only to the Chairman, and, subject to the limitations provided in paragraph 3(b) of this Agreement, shall devote his best efforts and such time as shall be necessary to perform his duties and to advance the interests of the Corporation. (b) Commencing on the date hereof, Mahoney shall be available at such times and places as shall be deemed necessary by the Chairman during the Corporation's regular business hours for a maximum of: forty-five (45) days in year one and up to thirty (30) 2 days in each year thereafter during the term of this Agreement. The parties hereto recognize that the nature of the services to be rendered by Mahoney during the second, third and fourth years of the term of this Agreement will not require his presence at the premises where the Corporation's business is being conducted or elsewhere for any particular or minimum amount of time. His services may be rendered to the Corporation at such times as are convenient to him and at and from such places to which he may travel or at which he may be permanently or temporarily residing. Mahoney's death or disability prior to the expiration of the term of this Agreement shall not result in any diminution or forfeiture of the compensation which he is to be paid pursuant to paragraph 4 and, in the event of his death, it shall be paid to his widow or, if none, to his estate. (c) Throughout the term of this Agreement and subject to the limitation in subparagraph 3(b) of this Agreement, Mahoney shall devote such working time, energy, skill and best efforts to the performance of his duties hereunder in a manner which will faithfully and diligently further the business and interests of Corporation. 4. COMPENSATION. For all of the services rendered by Mahoney to the Corporation, Mahoney shall receive an annual consulting fee of: One Hundred Thousand Dollars ($100,000) for year one; Seventy Five Thousand Dollars ($75,000) for year two; Seventy Five Thousand Dollars ($75,000) for year three; and Fifty Thousand Dollars ($50,000) year four, payable in periodic installments in accordance with the Corporation's regular payroll practices in effect from time to time. 5. FRINGE BENEFITS. During the term of this Agreement, the Corporation will reimburse Mahoney for up to Seven Hundred Fifty and 00/100 Dollars ($750.00) per year for tax preparation services. Until such time that Mahoney reaches age 65, Mahoney shall be entitled to participate in and receive the benefits of Corporation's group medical and dental plans or programs made available to other executive officers of Corporation which shall be and remain comparable to those offered by the Corporation immediately prior to the date hereof. After Mahoney reaches age 65, the Corporation will provide a Medicare Supplementing Policy (like 65+) of the kind heretofore provided to retiring executive officers of the Corporation. For the term of this Agreement and thereafter to the extent consistent with the past practices of the Corporation, the Corporation shall reimburse Mahoney under the prescription/medical reimbursement plan, up to a maximum of Three Thousand Five Hundred Dollars ($3,500.00) per year, and provide to Mahoney while he lives in Corry, Pennsylvania, landscape and snow removal services generally made available to other executive officers of the Corporation. -2- 3 6. AUTOMOBILE AND EXPENSES. (a) The Corporation will purchase or lease and make available to Mahoney a new Lincoln Continental automobile for his exclusive use during the term of this Agreement with an option in his favor to purchase the automobile at the price specified in the lease at the expiration of the term of this Agreement. Mahoney shall be reimbursed for all reasonable expenses incurred in the operation and maintenance of such car consistent with the Corporation reimbursement procedures and practices in effect from time to time. (b) During the term of this Agreement, the Corporation will reimburse Mahoney for all reasonable expenses incurred by Mahoney at the request of the Chairman in connection with the performance of Mahoney's duties hereunder upon receipt of vouchers therefor and in accordance with Corporation's regular reimbursement procedures and practices in effect from time to time. 7. Intentionally deleted. 8. CORPORATION PROPERTY. All materials or data of any kind furnished to Mahoney by Corporation or Centrum, or developed by Mahoney on behalf of Corporation or Centrum, or at the request of Corporation or Centrum, or otherwise in connection with Mahoney's services hereunder, are and shall remain the sole property of Corporation or Centrum, whichever applicable; if Corporation or Centrum requests the return of such materials at any time during, at or after the termination of Mahoney's employment, Mahoney shall immediately deliver the same to Corporation or Centrum, whichever applicable. 9. NONCOMPETITION, TRADE SECRETS, ETC. (a) Mahoney agrees that, except as set forth herein, for a period of five (5) years from the date hereof, within the area of the North American Free Trade Agreement, he shall not directly or indirectly: (i) solicit, induce or encourage any employee of Centrum, any of its affiliates of Centrum (the "Centrum Affiliates") or the Corporation or any of its subsidiaries to terminate his or her relationship with Centrum, the Centrum Affiliates or the Corporation or any of its subsidiaries; or (ii) employ or establish a business relationship with any individual who was employed by Centrum, the Centrum Affiliates or the Corporation or any of its subsidiaries during the preceding twelve (12) month period; or -3- 4 (iii) encourage or assist any individual or entity in a business which is competitive with Centrum, the Centrum Affiliates or the Corporation or any of its subsidiaries to employ or establish a business relationship with any individual who was employed by Centrum, the Centrum Affiliates, the Corporation or any of its subsidiaries during the preceding twelve (12) month period; or (iv) solicit, induce or encourage any suppliers, customers or prospective customers to terminate or reduce in scope their relationship with Centrum, the Centrum Affiliates or the Corporation or any of its subsidiaries; or (v) solicit or assist any individual or entity in the solicitation of business from, or performance of work for, any customers or prospective customers of Centrum, the Centrum Affiliates or the Corporation or any of its subsidiaries; or (vi) engage in (as a principal, agent, consultant, partner, director, officer, employee, stockholder, investor or otherwise), alone or in association with any person or entity, or be financially interested in, any business which is competitive with Centrum, the Centrum Affiliates or the Corporation or any of its subsidiaries. Notwithstanding the foregoing, Mahoney shall be entitled to hold shares of a publicly-traded company so long as such shares do not represent more than one percent (1%) of the outstanding capital of such company. (b) For purposes of paragraph 9, "customers" shall mean those customers to or for whom Centrum, the Centrum Affiliates or the Corporation supplied products or performed services during the twelve (12) months preceding the date in question, and "prospective customers" shall mean persons or entities whose business was solicited by Centrum, the Centrum Affiliates or the Corporation or any of its subsidiaries during the twelve (12) months preceding the date in question. (c) Mahoney shall not use for his personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company, (i) any confidential information regarding the business methods, business policies, business strategies, marketing plans, survey procedures, statistical techniques, research or development projects or results, trade secrets or other processes of, or developed by, the Corporation, or (ii) any confidential data on or relating to past, present or prospective customers of the Corporation, or (iii) budgets, forecasts, pricing information or unpublished financial information or any other confidential information relating to or dealing with the business operations or activities of the Corporation. -4- 5 (d) Mahoney acknowledges and agrees that (i) the covenants set forth in this paragraph 9 are essential elements of the transactions contemplated by the Acquisition Agreement, that Mahoney is receiving adequate consideration hereunder, and that such covenants are reasonable and necessary in order to protect the legitimate interests of Centrum, the Centrum Affiliates, and the Corporation; (ii) Centrum, the Centrum Affiliates, and the Corporation will not have any adequate remedy at law if Mahoney violates the terms hereof or fails to perform any of his obligations hereunder; and (iii) Centrum, the Centrum Affiliates, and the Corporation shall have the right, in addition to any other rights any of them may have under applicable law, to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief to restrain any breach or threatened breach of, or otherwise to specifically enforce any such covenant or any other obligations of Mahoney under, this Agreement, as well as to obtain damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which Centrum or the Corporation may be entitled. (e) If the period of time or territorial scope of any restriction set forth in paragraph 9(a) should be adjudged unreasonable in any proceeding, then the period of time shall be reduced by such number of months or the territory shall be reduced by the elimination of such unreasonable portion thereof, or both, so that such restrictions may be enforceable for such time and in the manner adjudged to be reasonable. If Mahoney violates any of the restrictions contained in paragraph 9(a), then the restrictive period shall not run in favor of Mahoney from the time of the commencement of any such violation until such time as such violation shall be cured by Mahoney. 10. INDEPENDENT CONTRACTOR. Mahoney shall conduct any and all services pursuant to this Agreement as an independent contractor. No relationship of employer and employee, joint venture or partnership will be created by this Agreement. Mahoney will act hereunder as an independent contractor, and except as expressly provided herein, with no claim under this Agreement or otherwise against the Corporation for vacation pay, sick leave, retirement benefits, social security, workers compensation, disability or unemployment insurance benefits. Except as otherwise specifically set forth in paragraph 6 of this Agreement, Mahoney shall be solely responsible for, and shall not have any claim against, the Corporation, for any business expenses incurred by Mahoney as a result of or in performance of his obligation under this Agreement. As an independent contractor, Mahoney will be responsible for the payment of any applicable federal, state and local taxes that may arise as a result of monies he shall receive from the Corporation. Mahoney shall promptly pay all said applicable taxes and, upon request, furnish the Corporation with evidence of said payment. -5- 6 Mahoney agrees to indemnify the Corporation for any monies paid by reason of Mahoney's failure to pay any applicable federal, state or local taxes on any amounts paid to Mahoney under the terms of this Agreement. 11. MISCELLANEOUS. (a) INDULGENCES, ETC. Neither the failure nor any delay on the part of Centrum, any Centrum Affiliate, or the Corporation to exercise any right, remedy, power or privilege under this Agreement (a "Right") shall operate as a waiver thereof, nor shall any single or partial exercise of any Right preclude any other or further exercise of the same or of any other Right, nor shall any waiver of any Right with respect to any occurrence be construed as a waiver of such Right with respect to any other occurrence. No waiver shall be effective against Centrum or the Corporation unless it is in writing and is signed by Centrum or the Corporation, as the case may be. (b) NOTICES. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered if delivered personally or by recognized overnight courier service or by facsimile to the parties at the following addresses (or at such other address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt): (i) If to Mahoney: Stephen J. Mahoney 19019 Hillcrest Drive Corry, Pennsylvania 16407-0901 with a COPY, given in the manner prescribed above, to: Edward Walsh, Esq. Vetter, Price 805 Third Avenue 22nd Floor New York, NY 10022 Fax No.: (212) 407-7799 (ii) If to Corporation or Centrum, or an Centrum Affiliate: Centrum Industries, Inc. 6135 Trust Drive Suite 104A Holland, Ohio 43528 Attention: George Wells, President Fax No.: (419) 868-3442 -6- 7 with a COPY, given in the manner prescribed above, to: John W. Hilbert II, Esq. Fuller & Henry P.L.L. One SeaGate, Suite 1700 P.O. Box 2088 Toledo, Ohio 43603-2088 Fax No.: (419) 247-2665 (c) HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (d) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Pennsylvania; provided, however, that if any provision of this Agreement shall be deemed invalid or unenforceable under the laws of the State of Pennsylvania, this Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. (e) BINDING NATURE OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of Centrum, the Centrum Affiliates, and the Corporation and their respective successors and assigns and shall be binding upon Mahoney, his heirs and legal representatives. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. MCINNES STEEL COMPANY By /s/ George H. Wells ------------------------ MAHONEY /s/ Stephen J. Mahoney ---------------------------- STEPHEN J. MAHONEY -7- EX-10.17 21 EX-10.17 1 EXHIBIT 10.17 CENTRUM INDUSTRIES, INC. STOCK OPTION AGREEMENT THIS AGREEMENT is made as of this 29th day of February, 1996, by and between Centrum Industries, Inc., a Delaware corporation ("Centrum") and Anthony A. Montani ("Employee"). WHEREAS, pursuant to the Agreement and Plan of Reorganization between Centrum, Centrum Merging Corporation, and McInnes Steel Company ("McInnes") dated December 5, 1995, as amended February 5, 1996, McInnes has agreed to enter into an employment agreement with the Employee and Centrum has further agreed, in connection with such employment agreement, to grant the Employee an option to purchase shares of Centrum's common stock, effective upon the Effective Date of Merger, as defined therein, according to the terms and conditions of this Stock Option Agreement; and WHEREAS, the Centrum Board of Directors has approved the grant of the stock option pursuant to this Agreement to Employee as an inducement to Employee to remain in the employ of Centrum or a Centrum affiliate. NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereto agree as follows: SECTION 1 - GRANT OF OPTION. Subject to the vesting schedule set forth in Section 2, Centrum hereby grants to Employee the right and option to purchase from it, on the following terms and conditions, all or any part of an aggregate of One Hundred Fifty Thousand (150,000) shares of Centrum's common stock $.05 value (the "Shares"). The purchase price for all Shares shall be One and 50/00 Dollar ($1.50) per share, exercisable and payable as hereinafter provided. SECTION 2 - VESTING SCHEDULE. The Employee's right to the option granted in Section 1 shall be conditional and subject to the Employee's continued employment with McInnes, Centrum, or a Centrum affiliate. Except as provided in Section 5, the option shall be deemed to be unconditional and fully vested, as follows: A. If the Employee leaves the employ of McInnes, Centrum, or a Centrum affiliate prior to December 31, 1996, then no shares will deemed to be vested, and the Employee shall not be entitled to purchase any Shares pursuant to this option. B. If the employee remains an employee of McInnes, Centrum or a Centrum affiliate through December 31, 1996, then as of January 1, 1997 the Employee shall have the unconditional and unrestricted right to exercise the option with respect to fifty percent (50)% of the Shares. 2 C. If the employee remains an employee of McInnes, Centrum, or a Centrum affiliate through December 31, 1997, then as of January 1, 1998 the Employee shall have the unconditional and unrestricted right to one hundred percent (100%) of the Shares. The portion of the Shares for which the Employee may exercise the option unconditionally and without restriction as provided in this Section 2 shall hereinafter be referred to as the "Vested Shares." SECTION 3 - EXERCISE OF OPTION; CHANGE OF CONTROL. The Employee may elect to exercise the option with respect to Vested Shares at any time on or after January 1, 1997. Notwithstanding the above, if Centrum's officers or directors execute a letter of intent (binding or non- binding) by which Centrum will become a party to a transaction which will effect a "Change of Control" of Centrum, Employee must exercise his options with respect to the Vested Shares within the thirty (30) day period following the date of notice to Employee that a letter of intent has been entered into, or else the option and all rights granted by this Agreement, to the extent those rights have not been exercised, will terminate and become null and void. No partial exercise of such option may be for less than one (1) full Share. For purposes of this Agreement "Change of Control" shall be effected if (i) Centrum merges with or into or consolidates with another corporation following the requisite approval of the shareholders of Centrum of such merger or consolidation and, after giving effect to such merger or consolidation, less than fifty-one (51%) of the then outstanding voting securities of the surviving or resulting corporation represent or were issued in exchange for voting securities of Centrum outstanding immediately prior to such merger or consolidation; (ii) there is a sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of Centrum following the requisite approval of the shareholders of Centrum of such transaction or series of transactions; or (iii) the requisite approval of the shareholders of Centrum is obtained to approve any plan or proposal for the liquidation or dissolution of Centrum. The option shall be exercisable with respect to Vested Shares only by Employee during his lifetime and only if Employee was an employee of McInnes, Centrum or a Centrum affiliate on the date three (3) months prior to the date of exercise. If Employee is disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), the reference to the three (3) month period above shall be read as one (1) year. SECTION 4 - METHOD OF EXERCISE. The option granted under this Agreement shall be exercisable as provided above, upon written notice to Centrum and the payment in cash to Centrum of the full purchase price of the Vested Shares which the Employee elects to purchase. SECTION 5 - TERMINATION OF EMPLOYMENT. In the event that an Employee shall cease to be employed by McInnes, Centrum, or a Centrum affiliate, whether voluntarily or involuntarily, for any reason other than death or disability, all of Employee's rights to further exercise his option(s) as to Vested Shares shall expire six (6) months after the date of termination of employment; provided, however, that if 2 3 the Employee is terminated "without cause," as defined in his employment agreement with McInnes prior to the first anniversary of the date of such employment agreement, then, notwithstanding Section 2 of this Agreement, the number of Shares which shall be deemed to be Vested Shares under this Agreement shall be one-half (1/2) of the total number of shares granted pursuant to Section 1; and, provided, further, that no option shall be exercisable after the expiration date set forth in Section 7. A leave of absence with the express written consent of Centrum shall not be considered termination of employment for purposes of this Section 5. SECTION 6 - DEATH OR DISABILITY OF EMPLOYEE. In the event of the death or disability of an Employee while employed by McInnes, Centrum, or a Centrum affiliate, his right to purchase Vested Shares may be exercised (to the extent that Employee was entitled to do so at the date of his death or disability) by him or, in the case of the death of Employee, by his personal representative or by any person or persons who shall have acquired the option directly from Employee by will or by the laws of descent and distribution, at any time within three (3) months after the date of his death or disability; provided that if an Employee is disabled as defined in Section 3 of this Agreement, the three (3) month period referred to above shall be read as one (1) year. Notwithstanding anything herein to the contrary, no option shall be exercisable after the expiration of the term of the option set forth in Section 7. SECTION 7 - TERMINATION OF OPTION. The option and all rights granted by this Agreement, to the extent those rights have not been exercised will terminate and become null and void at 5:00 p.m. on February 28, 2006. SECTION 8 - SHARES AS INVESTMENT. By accepting this option, the Employee acknowledges that any and all Shares purchased pursuant to the exercise of the option under this Agreement shall be acquired for investment and not for distribution, and upon the delivery of any and all of the Shares due to the exercise of the option granted hereunder, the Employee shall deliver to Centrum a representation in writing and in a form acceptable to Centrum that such Shares are being acquired in good faith for investment and not for distribution. This Section 8 shall not apply in the event that the Shares have been registered pursuant to the Securities Act of 1933 and applicable state securities laws. SECTION 9 - RESTRICTIONS ON SHARES. The Shares issued pursuant to the exercise of the option granted in Section 1 shall not be registered under federal securities laws or the securities of any state and will, therefore, be deemed restricted and certain restrictions will be applicable upon the resale of such security. Each Share will, upon issuance, contain a restrictive legend in substantially the following form: The common stock represented by this certificate has not been registered under the Securities Act of 1933, as amended or under the securities laws of any state. Each holder desiring to transfer the common stock must furnish Centrum with a written opinion reasonably satisfactory to Centrum in the form and substance from counsel reasonably satisfactory to Centrum by reason of 3 4 experience to the effect that the holder may transfer the common stock as desired without registration under the Securities Act or the securities laws of any state. This Section 9 shall not apply in the event that the Shares have been registered pursuant to the Securities Act of 1933 and applicable state securities laws. SECTION 10 - DILUTION OR OTHER AGREEMENT. In the event that additional Shares are issued pursuant to a stock split or a stock dividend, the number of Shares then covered by each outstanding option granted hereunder shall be increased proportionately with no increase in the total purchase price of the Shares then so covered. If the issued and outstanding Shares are reduced by a reverse stock split or other combination of Shares, (other than by a transaction described in Section 3 of this Agreement), the number of Shares then covered by each outstanding option granted hereunder shall be reduced proportionately with no reduction in the total price of the Shares then so covered. In the event that Centrum should transfer assets to another corporation and distribute the stock of such other corporation without the surrender of Shares, and if such distribution is not taxable as a dividend and no gain or loss is recognized by reason of Section 355 of the Code, or some similar section, then the total purchase price of the Shares shall be reduced by an amount which bears the same ratio to the total purchase price then in effect as the market value of the stock distributed with respect to the Shares immediately following the distribution, bears to the aggregate of the market value of such time of a Share and the stock distributed in respect thereof. No fractional shares shall be issued, and any fractional Shares resulting from the computations pursuant to this Section 10, shall be eliminated from the option. No adjustment shall be made for cash dividends or the issuance to stockholders of rights to subscribe for additional Shares or other securities. SECTION 11 - RIGHT OF SHAREHOLDER. The Employee shall not have any rights or privileges of a shareholder of Centrum in respect with the Shares transferable upon exercise of the option granted under this Agreement, unless and until certificates representing such Shares shall have been endorsed, transferred, and delivered and the transferee has caused his name to be entered as the shareholder of record on the books of Centrum. SECTION 12 - NON-TRANSFERABILITY. The option shall not be transferable and the option may be exercised, during the lifetime of the Employee only by him. Except as specifically provided in this Agreement, the option may not be assigned, transferred, pledged or hypothecated in any way, shall not be assignable by operation of law, including but not limited to a decree in a domestic relations proceeding, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the option, and the levy of any execution, attachment, or similar process upon the option in violation of this Agreement, shall be null and void and without effect. 4 5 SECTION 13 - AFFILIATE. As used herein, the term "affiliate" shall mean any present or any future corporation which would be deemed an affiliate of Centrum in Rule 12b-2 of the regulations promulgated pursuant to the Securities Exchange Act of 1934. SECTION 14 - NOTICES. Any notice to be given under the terms of this Agreement shall be addressed to Centrum in care of its President at 6135 Trust Drive, Suite 104A, Holland, Ohio 43528 with a copy to John W. Hilbert II, Esq., Fuller & Henry P.L.L., One SeaGate, 17th Floor, P. O. Box 2088, Toledo, Ohio 43603 and any notice to be given to Employee shall be addressed to him at 691 Wayne Street, Corry, Pennsylvania 16407, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed duly given when mailed by prepaid regular, registered, or certified mail. SECTION 15 - BINDING EFFECT. This Agreement shall be binding upon Employee and his executors administrators, and representatives and assigns, and upon Centrum and its successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. CENTRUM INDUSTRIES, INC. By: /s/ George H. Wells ------------------------------ George H. Wells, President and Chief Executive Officer "EMPLOYEE" /s/ Anthony A. Montani ----------------------------------- Anthony A. Montani 5 EX-10.18 22 EX-10.18 1 EXHIBIT 10.18 CENTRUM INDUSTRIES, INC. STOCK OPTION AGREEMENT THIS AGREEMENT is made as of this 29th day of February, 1996, by and between Centrum Industries, Inc., a Delaware corporation ("Centrum") and Anthony A. Montani ("Employee"). WHEREAS, pursuant to the Agreement and Plan of Reorganization between Centrum, Centrum Merging Corporation, and McInnes Steel Company ("McInnes") dated December 5, 1995, as amended February 5, 1996, Centrum has agreed, upon the Employee's election to defer cash payment for the Employee's options for McInnes common stock, to grant an option to purchase shares of Centrum's common stock, effective upon the Effective Date of Merger, as defined therein, according to the terms and conditions of this Stock Option Agreement; and NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereto agree as follows: SECTION 1 - GRANT OF OPTION. Centrum hereby grants to Employee the right and option to purchase from it, on the following terms and conditions, all or any part of an aggregate of Sixty-Six Thousand Two Hundred (66,200) shares of Centrum's common stock $.05 value (the "Shares"). The purchase price for all Shares shall be 64/00 Dollar ($.64) per share, exercisable and payable as hereinafter provided. SECTION 2 - EXERCISE OF OPTION; CHANGE OF CONTROL. Except as otherwise expressly set forth herein, the Employee may elect to exercise the option at any time after the Effective Date of Merger. Notwithstanding the above, if Centrum's officers or directors execute a letter of intent (binding or non-binding) by which Centrum will become a party to a transaction which will effect a "Change of Control" of Centrum, Employee must exercise his options within the thirty (30) day period following the date of notice to Employee that a letter of intent has been entered into, or else the option and all rights granted by this Agreement, to the extent those rights have not been exercised, will terminate and become null and void. No partial exercise of such option may be for less than one (1) full Share. For purposes of this Agreement "Change of Control" shall be effected if (i) Centrum merges with or into or consolidates with another corporation following the requisite approval of the shareholders of Centrum of such merger or consolidation and, after giving effect to such merger or consolidation, less than fifty-one (51%) of the then outstanding voting securities of the surviving or resulting corporation represent or were issued in exchange for voting securities of Centrum outstanding immediately prior to such merger or consolidation; (ii) there is a sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of Centrum following the requisite approval of the shareholders of Centrum of such transaction or series of transactions; or (iii) the requisite approval of the shareholders 2 of Centrum is obtained to approve any plan or proposal for the liquidation or dissolution of Centrum. The option shall be exercisable only by Employee during his lifetime and only if Employee was an employee of McInnes, Centrum or a Centrum affiliate on the date three (3) months prior to the date of exercise. If Employee is disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), the reference to the three (3) month period above shall be read as one (1) year. SECTION 3 - METHOD OF EXERCISE. The option granted under this Agreement shall be exercisable as provided above, upon written notice to Centrum and the payment in cash to Centrum of the full purchase price of the Shares which the Employee elects to purchase. SECTION 4 - TERMINATION OF EMPLOYMENT. In the event that an Employee shall cease to be employed by McInnes, Centrum, or a Centrum affiliate, whether voluntarily or involuntarily, for any reason other than death or disability, all of Employee's rights to further exercise his option(s) shall expire ten (10) days after the date of termination of employment; provided, however, that no option shall be exercisable after the expiration date set forth in Section 6. A leave of absence with the express written consent of Centrum shall not be considered termination of employment for purposes of this Section 4. SECTION 5 - DEATH OR DISABILITY OF EMPLOYEE. In the event of the death or disability of an Employee while employed by McInnes, Centrum, or a Centrum affiliate, his right to purchase Shares may be exercised (to the extent that Employee was entitled to do so at the date of his death or disability) by him or, in the case of the death of Employee, by his personal representative or by any person or persons who shall have acquired the option directly from Employee by will or by the laws of descent and distribution, at any time within three (3) months after the date of his death or disability; provided that if an Employee is disabled as defined in Section 2 of this Agreement, the three (3) month period referred to above shall be read as one (1) year. Notwithstanding anything herein to the contrary, no option shall be exercisable after the expiration of the term of the option set forth in Section 6. SECTION 6 - TERMINATION OF OPTION. The option and all rights granted by this Agreement, to the extent those rights have not been exercised will terminate and become null and void at 5:00 p.m. on February 28, 2006. SECTION 7 - SHARES AS INVESTMENT. By accepting this option, the Employee acknowledges that any and all Shares purchased pursuant to the exercise of the option under this Agreement shall be acquired for investment and not for distribution, and upon the delivery of any and all of the Shares due to the exercise of the option granted hereunder, the Employee shall deliver to Centrum a representation in writing and in a form acceptable to Centrum that such Shares are being acquired in good faith for investment and not for distribution. This Section 7 shall not apply in the event that the Shares have been registered pursuant to the Securities Act of 1933 and applicable state securities laws. 2 3 SECTION 8 - RESTRICTIONS ON SHARES. The Shares issued pursuant to the exercise of the option granted in Section 1 shall not be registered under federal securities laws or the securities of any state and will, therefore, be deemed restricted and certain restrictions will be applicable upon the resale of such security. Each Share will, upon issuance, contain a restrictive legend in substantially the following form: The common stock represented by this certificate has not been registered under the Securities Act of 1933, as amended or under the securities laws of any state. Each holder desiring to transfer the common stock must furnish Centrum with a written opinion reasonably satisfactory to Centrum in the form and substance from counsel reasonably satisfactory to Centrum by reason of experience to the effect that the holder may transfer the common stock as desired without registration under the Securities Act or the securities laws of any state. This Section 8 shall not apply in the event that the Shares have been registered pursuant to the Securities Act of 1933 and applicable state securities laws. SECTION 9 - DILUTION OR OTHER AGREEMENT. In the event that additional Shares are issued pursuant to a stock split or a stock dividend, the number of Shares then covered by each outstanding option granted hereunder shall be increased proportionately with no increase in the total purchase price of the Shares then so covered. If the issued and outstanding Shares are reduced by a reverse stock split or other combination of Shares, (other than by a transaction described in Section 3 of this Agreement), the number of Shares then covered by each outstanding option granted hereunder shall be reduced proportionately with no reduction in the total price of the Shares then so covered. In the event that Centrum should transfer assets to another corporation and distribute the stock of such other corporation without the surrender of Shares, and if such distribution is not taxable as a dividend and no gain or loss is recognized by reason of Section 355 of the Code, or some similar section, then the total purchase price of the Shares shall be reduced by an amount which bears the same ratio to the total purchase price then in effect as the market value of the stock distributed with respect to the Shares immediately following the distribution, bears to the aggregate of the market value of such time of a Share and the stock distributed in respect thereof. No fractional shares shall be issued, and any fractional Shares resulting from the computations pursuant to this Section 10, shall be eliminated from the option. No adjustment shall be made for cash dividends or the issuance to stockholders of rights to subscribe for additional Shares or other securities. SECTION 10 - RIGHT OF SHAREHOLDER. The Employee shall not have any rights or privileges of a shareholder of Centrum in respect with the Shares transferable upon exercise of the option granted under this Agreement, unless and until certificates representing such Shares shall have been endorsed, transferred, and delivered and the transferee has caused his name to be entered as the shareholder of record on the books of Centrum. 3 4 SECTION 11 - NON-TRANSFERABILITY. The option shall not be transferable and the option may be exercised, during the lifetime of the Employee only by him. Except as specifically provided in this Agreement, the option may not be assigned, transferred, pledged or hypothecated in any way, shall not be assignable by operation of law, including but not limited to a decree in a domestic relations proceeding, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the option, and the levy of any execution, attachment, or similar process upon the option in violation of this Agreement, shall be null and void and without effect. SECTION 12 - AFFILIATE. As used herein, the term "affiliate" shall mean any present or any future corporation which would be deemed an affiliate of Centrum in Rule 12b-2 of the regulations promulgated pursuant to the Securities Exchange Act of 1934. SECTION 13 - NOTICES. Any notice to be given under the terms of this Agreement shall be addressed to Centrum in care of its President at 6135 Trust Drive, Suite 104A, Holland, Ohio 43528 with a copy to John W. Hilbert, Esq., Fuller & Henry P.L.L., One SeaGate, 17th Floor, P.O. Box 2088, Toledo, Ohio 43603 and any notice to be given to Employee shall be addressed to him at 691 Wayne St., Corry, Pennsylvania 16407, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed duly given when mailed by prepaid regular, registered, or certified mail. SECTION 14 - BINDING EFFECT. This Agreement shall be binding upon Employee and his executors administrators, and representatives and assigns, and upon Centrum and its successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. CENTRUM INDUSTRIES, INC. By: /s/ George H. Wells ------------------------------ George H. Wells, President and Chief Executive Officer "EMPLOYEE" /s/ Anthony A. Montani -------------------------------- Anthony A. Montani 4 EX-10.19 23 EX-10.19 1 EXHIBIT 10.19 CENTRUM INDUSTRIES, INC. STOCK OPTION AGREEMENT THIS AGREEMENT is made as of this 29th day of February 1996, by and between Centrum Industries, Inc., a Delaware corporation ("Centrum") and Timothy M. Hunter ("Employee"). WHEREAS, pursuant to the Agreement and Plan of Reorganization between Centrum, Centrum Merging Corporation, and McInnes Steel Company ("McInnes") dated December 5, 1995, as amended February 5, 1996, McInnes has agreed to enter into an employment agreement with the Employee and Centrum has further agreed, in connection with such employment agreement, to grant the Employee an option to purchase shares of Centrum's common stock, effective upon the Effective Date of Merger, as defined therein, according to the terms and conditions of this Stock Option Agreement; and WHEREAS, the Centrum Board of Directors has approved the grant of the stock option pursuant to this Agreement to Employee as an inducement to Employee to remain in the employ of Centrum or a Centrum affiliate. NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereto agree as follows: SECTION 1 - GRANT OF OPTION. Subject to the vesting schedule set forth in Section 2, Centrum hereby grants to Employee the right and option to purchase from it, on the following terms and conditions, all or any part of an aggregate of One Hundred Twenty-Five Thousand (125,000) shares of Centrum's common stock $.05 value (the "Shares"). The purchase price for all Shares shall be One and 50/00 Dollar ($1.50) per share, exercisable and payable as hereinafter provided. SECTION 2 - VESTING SCHEDULE. The Employee's right to the option granted in Section 1 shall be conditional and subject to the Employee's continued employment with McInnes, Centrum, or a Centrum affiliate. Except as provided in Section 5, the option shall be deemed to be unconditional and fully vested, as follows: A. If the Employee leaves the employ of McInnes, Centrum, or a Centrum affiliate prior to December 31, 1996, then no shares will deemed to be vested, and the Employee shall not be entitled to purchase any Shares pursuant to this option. B. If the employee remains an employee of McInnes, Centrum or a Centrum affiliate through December 31, 1996, then as of January 1, 1997 the Employee shall have the unconditional and unrestricted right to exercise the option with respect to fifty percent (50)% of the Shares. 2 C. If the employee remains an employee of McInnes, Centrum, or a Centrum affiliate through December 31, 1997, then as of January 1, 1998 the Employee shall have the unconditional and unrestricted right to one hundred percent (100%) of the Shares. The portion of the Shares for which the Employee may exercise the option unconditionally and without restriction as provided in this Section 2 shall hereinafter be referred to as the "Vested Shares." SECTION 3 - EXERCISE OF OPTION; CHANGE OF CONTROL. The Employee may elect to exercise the option with respect to Vested Shares at any time on or after January 1, 1997. Notwithstanding the above, if Centrum's officers or directors execute a letter of intent (binding or non- binding) by which Centrum will become a party to a transaction which will effect a "Change of Control" of Centrum, Employee must exercise his options with respect to the Vested Shares within the thirty (30) day period following the date of notice to Employee that a letter of intent has been entered into, or else the option and all rights granted by this Agreement, to the extent those rights have not been exercised, will terminate and become null and void. No partial exercise of such option may be for less than one (1) full Share. For purposes of this Agreement "Change of Control" shall be effected if (i) Centrum merges with or into or consolidates with another corporation following the requisite approval of the shareholders of Centrum of such merger or consolidation and, after giving effect to such merger or consolidation, less than fifty-one (51%) of the then outstanding voting securities of the surviving or resulting corporation represent or were issued in exchange for voting securities of Centrum outstanding immediately prior to such merger or consolidation; (ii) there is a sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of Centrum following the requisite approval of the shareholders of Centrum of such transaction or series of transactions; or (iii) the requisite approval of the shareholders of Centrum is obtained to approve any plan or proposal for the liquidation or dissolution of Centrum. The option shall be exercisable with respect to Vested Shares only by Employee during his lifetime and only if Employee was an employee of McInnes, Centrum or a Centrum affiliate on the date three (3) months prior to the date of exercise. If Employee is disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), the reference to the three (3) month period above shall be read as one (1) year. SECTION 4 - METHOD OF EXERCISE. The option granted under this Agreement shall be exercisable as provided above, upon written notice to Centrum and the payment in cash to Centrum of the full purchase price of the Vested Shares which the Employee elects to purchase. SECTION 5 - TERMINATION OF EMPLOYMENT. In the event that an Employee shall cease to be employed by McInnes, Centrum, or a Centrum affiliate, whether voluntarily or involuntarily, for any reason other than death or disability, all of Employee's rights to further exercise his option(s) as to Vested Shares shall expire six (6) months after the date of termination of employment; provided, however, that if 2 3 the Employee is terminated "without cause," as defined in his employment agreement with McInnes prior to the first anniversary of the date of such employment agreement, then, notwithstanding Section 2 of this Agreement, the number of Shares which shall be deemed to be Vested Shares under this Agreement shall be one-half (1/2) of the total number of shares granted pursuant to Section 1; and, provided, further, that no option shall be exercisable after the expiration date set forth in Section 7. A leave of absence with the express written consent of Centrum shall not be considered termination of employment for purposes of this Section 5. SECTION 6 - DEATH OR DISABILITY OF EMPLOYEE. In the event of the death or disability of an Employee while employed by McInnes, Centrum, or a Centrum affiliate, his right to purchase Vested Shares may be exercised (to the extent that Employee was entitled to do so at the date of his death or disability) by him or, in the case of the death of Employee, by his personal representative or by any person or persons who shall have acquired the option directly from Employee by will or by the laws of descent and distribution, at any time within three (3) months after the date of his death or disability; provided that if an Employee is disabled as defined in Section 3 of this Agreement, the three (3) month period referred to above shall be read as one (1) year. Notwithstanding anything herein to the contrary, no option shall be exercisable after the expiration of the term of the option set forth in Section 7. SECTION 7 - TERMINATION OF OPTION. The option and all rights granted by this Agreement, to the extent those rights have not been exercised will terminate and become null and void at 5:00 p.m. on February 28, 2006. SECTION 8 - SHARES AS INVESTMENT. By accepting this option, the Employee acknowledges that any and all Shares purchased pursuant to the exercise of the option under this Agreement shall be acquired for investment and not for distribution, and upon the delivery of any and all of the Shares due to the exercise of the option granted hereunder, the Employee shall deliver to Centrum a representation in writing and in a form acceptable to Centrum that such Shares are being acquired in good faith for investment and not for distribution. This Section 8 shall not apply in the event that the Shares have been registered pursuant to the Securities Act of 1933 and applicable state securities laws. SECTION 9 - RESTRICTIONS ON SHARES. The Shares issued pursuant to the exercise of the option granted in Section 1 shall not be registered under federal securities laws or the securities of any state and will, therefore, be deemed restricted and certain restrictions will be applicable upon the resale of such security. Each Share will, upon issuance, contain a restrictive legend in substantially the following form: The common stock represented by this certificate has not been registered under the Securities Act of 1933, as amended or under the securities laws of any state. Each holder desiring to transfer the common stock must furnish Centrum with a written opinion reasonably satisfactory to Centrum in the form and substance from counsel reasonably satisfactory to Centrum by reason of 3 4 experience to the effect that the holder may transfer the common stock as desired without registration under the Securities Act or the securities laws of any state. This Section 9 shall not apply in the event that the Shares have been registered pursuant to the Securities Act of 1933 and applicable state securities laws. SECTION 10 - DILUTION OR OTHER AGREEMENT. In the event that additional Shares are issued pursuant to a stock split or a stock dividend, the number of Shares then covered by each outstanding option granted hereunder shall be increased proportionately with no increase in the total purchase price of the Shares then so covered. If the issued and outstanding Shares are reduced by a reverse stock split or other combination of Shares, (other than by a transaction described in Section 3 of this Agreement), the number of Shares then covered by each outstanding option granted hereunder shall be reduced proportionately with no reduction in the total price of the Shares then so covered. In the event that Centrum should transfer assets to another corporation and distribute the stock of such other corporation without the surrender of Shares, and if such distribution is not taxable as a dividend and no gain or loss is recognized by reason of Section 355 of the Code, or some similar section, then the total purchase price of the Shares shall be reduced by an amount which bears the same ratio to the total purchase price then in effect as the market value of the stock distributed with respect to the Shares immediately following the distribution, bears to the aggregate of the market value of such time of a Share and the stock distributed in respect thereof. No fractional shares shall be issued, and any fractional Shares resulting from the computations pursuant to this Section 10, shall be eliminated from the option. No adjustment shall be made for cash dividends or the issuance to stockholders of rights to subscribe for additional Shares or other securities. SECTION 11 - RIGHT OF SHAREHOLDER. The Employee shall not have any rights or privileges of a shareholder of Centrum in respect with the Shares transferable upon exercise of the option granted under this Agreement, unless and until certificates representing such Shares shall have been endorsed, transferred, and delivered and the transferee has caused his name to be entered as the shareholder of record on the books of Centrum. SECTION 12 - NON-TRANSFERABILITY. The option shall not be transferable and the option may be exercised, during the lifetime of the Employee only by him. Except as specifically provided in this Agreement, the option may not be assigned, transferred, pledged or hypothecated in any way, shall not be assignable by operation of law, including but not limited to a decree in a domestic relations proceeding, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the option, and the levy of any execution, attachment, or similar process upon the option in violation of this Agreement, shall be null and void and without effect. 4 5 SECTION 13 - AFFILIATE. As used herein, the term "affiliate" shall mean any present or any future corporation which would be deemed an affiliate of Centrum in Rule 12b-2 of the regulations promulgated pursuant to the Securities Exchange Act of 1934. SECTION 14 - NOTICES. Any notice to be given under the terms of this Agreement shall be addressed to Centrum in care of its President at 6135 Trust Drive, Suite 104A, Holland, Ohio 43528 with a copy to John W. Hilbert II, Esq., Fuller & Henry P.L.L., One SeaGate, 17th Floor, P. O. Box 2088, Toledo, Ohio 43603 and any notice to be given to Employee shall be addressed to him at 4138 Mountain Laurel Drive, Erie, Pennsylvania 16510, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed duly given when mailed by prepaid regular, registered, or certified mail. SECTION 15 - BINDING EFFECT. This Agreement shall be binding upon Employee and his executors administrators, and representatives and assigns, and upon Centrum and its successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. CENTRUM INDUSTRIES, INC. By: /s/ George H. Wells ------------------------------------ George H. Wells, President and Chief Executive Officer "EMPLOYEE" /s/ Timothy M. Hunter ------------------------------------ Timothy M. Hunter 5 EX-10.20 24 EX-10.20 1 EXHIBIT 10.20 CENTRUM INDUSTRIES, INC. STOCK OPTION AGREEMENT THIS AGREEMENT is made as of this 29th day of February, 1996, by and between Centrum Industries, Inc., a Delaware corporation ("Centrum") and Timothy M. Hunter ("Employee"). WHEREAS, pursuant to the Agreement and Plan of Reorganization between Centrum, Centrum Merging Corporation, and McInnes Steel Company ("McInnes") dated December 5, 1995, as amended February 5, 1996, Centrum has agreed, upon the Employee's election to defer cash payment for the Employee's options for McInnes common stock, to grant an option to purchase shares of Centrum's common stock, effective upon the Effective Date of Merger, as defined therein, according to the terms and conditions of this Stock Option Agreement; and NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereto agree as follows: SECTION 1 - GRANT OF OPTION. Centrum hereby grants to Employee the right and option to purchase from it, on the following terms and conditions, all or any part of an aggregate of Forty-Four Thousand One Hundred Thirty-Three (44,133) shares of Centrum's common stock $.05 value (the "Shares"). The purchase price for all Shares shall be 64/00 Dollar ($.64) per share, exercisable and payable as hereinafter provided. SECTION 2 - EXERCISE OF OPTION; CHANGE OF CONTROL. Except as otherwise expressly set forth herein, the Employee may elect to exercise the option at any time after the Effective Date of Merger. Notwithstanding the above, if Centrum's officers or directors execute a letter of intent (binding or non-binding) by which Centrum will become a party to a transaction which will effect a "Change of Control" of Centrum, Employee must exercise his options within the thirty (30) day period following the date of notice to Employee that a letter of intent has been entered into, or else the option and all rights granted by this Agreement, to the extent those rights have not been exercised, will terminate and become null and void. No partial exercise of such option may be for less than one (1) full Share. For purposes of this Agreement "Change of Control" shall be effected if (i) Centrum merges with or into or consolidates with another corporation following the requisite approval of the shareholders of Centrum of such merger or consolidation and, after giving effect to such merger or consolidation, less than fifty-one (51%) of the then outstanding voting securities of the surviving or resulting corporation represent or were issued in exchange for voting securities of Centrum outstanding immediately prior to such merger or consolidation; (ii) there is a sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of Centrum following the requisite approval of the shareholders of Centrum of such transaction or series of transactions; or (iii) the requisite approval of the shareholders 2 of Centrum is obtained to approve any plan or proposal for the liquidation or dissolution of Centrum. The option shall be exercisable only by Employee during his lifetime and only if Employee was an employee of McInnes, Centrum or a Centrum affiliate on the date three (3) months prior to the date of exercise. If Employee is disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), the reference to the three (3) month period above shall be read as one (1) year. SECTION 3 - METHOD OF EXERCISE. The option granted under this Agreement shall be exercisable as provided above, upon written notice to Centrum and the payment in cash to Centrum of the full purchase price of the Shares which the Employee elects to purchase. SECTION 4 - TERMINATION OF EMPLOYMENT. In the event that an Employee shall cease to be employed by McInnes, Centrum, or a Centrum affiliate, whether voluntarily or involuntarily, for any reason other than death or disability, all of Employee's rights to further exercise his option(s) shall expire ten (10) days after the date of termination of employment; provided, however, that no option shall be exercisable after the expiration date set forth in Section 6. A leave of absence with the express written consent of Centrum shall not be considered termination of employment for purposes of this Section 4. SECTION 5 - DEATH OR DISABILITY OF EMPLOYEE. In the event of the death or disability of an Employee while employed by McInnes, Centrum, or a Centrum affiliate, his right to purchase Shares may be exercised (to the extent that Employee was entitled to do so at the date of his death or disability) by him or, in the case of the death of Employee, by his personal representative or by any person or persons who shall have acquired the option directly from Employee by will or by the laws of descent and distribution, at any time within three (3) months after the date of his death or disability; provided that if an Employee is disabled as defined in Section 2 of this Agreement, the three (3) month period referred to above shall be read as one (1) year. Notwithstanding anything herein to the contrary, no option shall be exercisable after the expiration of the term of the option set forth in Section 6. SECTION 6 - TERMINATION OF OPTION. The option and all rights granted by this Agreement, to the extent those rights have not been exercised will terminate and become null and void at 5:00 p.m. on February 28, 2006. SECTION 7 - SHARES AS INVESTMENT. By accepting this option, the Employee acknowledges that any and all Shares purchased pursuant to the exercise of the option under this Agreement shall be acquired for investment and not for distribution, and upon the delivery of any and all of the Shares due to the exercise of the option granted hereunder, the Employee shall deliver to Centrum a representation in writing and in a form acceptable to Centrum that such Shares are being acquired in good faith for investment and not for distribution. This Section 7 shall not apply in the event that the Shares have been registered pursuant to the Securities Act of 1933 and applicable state securities laws. 2 3 SECTION 8 - RESTRICTIONS ON SHARES. The Shares issued pursuant to the exercise of the option granted in Section 1 shall not be registered under federal securities laws or the securities of any state and will, therefore, be deemed restricted and certain restrictions will be applicable upon the resale of such security. Each Share will, upon issuance, contain a restrictive legend in substantially the following form: The common stock represented by this certificate has not been registered under the Securities Act of 1933, as amended or under the securities laws of any state. Each holder desiring to transfer the common stock must furnish Centrum with a written opinion reasonably satisfactory to Centrum in the form and substance from counsel reasonably satisfactory to Centrum by reason of experience to the effect that the holder may transfer the common stock as desired without registration under the Securities Act or the securities laws of any state. This Section 8 shall not apply in the event that the Shares have been registered pursuant to the Securities Act of 1933 and applicable state securities laws. SECTION 9 - DILUTION OR OTHER AGREEMENT. In the event that additional Shares are issued pursuant to a stock split or a stock dividend, the number of Shares then covered by each outstanding option granted hereunder shall be increased proportionately with no increase in the total purchase price of the Shares then so covered. If the issued and outstanding Shares are reduced by a reverse stock split or other combination of Shares, (other than by a transaction described in Section 3 of this Agreement), the number of Shares then covered by each outstanding option granted hereunder shall be reduced proportionately with no reduction in the total price of the Shares then so covered. In the event that Centrum should transfer assets to another corporation and distribute the stock of such other corporation without the surrender of Shares, and if such distribution is not taxable as a dividend and no gain or loss is recognized by reason of Section 355 of the Code, or some similar section, then the total purchase price of the Shares shall be reduced by an amount which bears the same ratio to the total purchase price then in effect as the market value of the stock distributed with respect to the Shares immediately following the distribution, bears to the aggregate of the market value of such time of a Share and the stock distributed in respect thereof. No fractional shares shall be issued, and any fractional Shares resulting from the computations pursuant to this Section 10, shall be eliminated from the option. No adjustment shall be made for cash dividends or the issuance to stockholders of rights to subscribe for additional Shares or other securities. SECTION 10 - RIGHT OF SHAREHOLDER. The Employee shall not have any rights or privileges of a shareholder of Centrum in respect with the Shares transferable upon exercise of the option granted under this Agreement, unless and until certificates representing such Shares shall have been endorsed, transferred, and delivered and the transferee has caused his name to be entered as the shareholder of record on the books of Centrum. 3 4 SECTION 11 - NON-TRANSFERABILITY. The option shall not be transferable and the option may be exercised, during the lifetime of the Employee only by him. Except as specifically provided in this Agreement, the option may not be assigned, transferred, pledged or hypothecated in any way, shall not be assignable by operation of law, including but not limited to a decree in a domestic relations proceeding, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the option, and the levy of any execution, attachment, or similar process upon the option in violation of this Agreement, shall be null and void and without effect. SECTION 12 - AFFILIATE. As used herein, the term "affiliate" shall mean any present or any future corporation which would be deemed an affiliate of Centrum in Rule 12b-2 of the regulations promulgated pursuant to the Securities Exchange Act of 1934. SECTION 13 - NOTICES. Any notice to be given under the terms of this Agreement shall be addressed to Centrum in care of its President at 6135 Trust Drive, Suite 104A, Holland, Ohio 43528 with a copy to John W. Hilbert, Esq., Fuller & Henry P.L.L., One SeaGate, 17th Floor, P.O. Box 2088, Toledo, Ohio 43603 and any notice to be given to Employee shall be addressed to him at 4138 Mountain Laurel Drive, Erie, Pennsylvania 16510, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed duly given when mailed by prepaid regular, registered, or certified mail. SECTION 14 - BINDING EFFECT. This Agreement shall be binding upon Employee and his executors administrators, and representatives and assigns, and upon Centrum and its successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first set forth above. CENTRUM INDUSTRIES, INC. By: /s/ George H. Wells ------------------------------ George H. Wells, President and Chief Executive Officer "EMPLOYEE" /s/ Timothy M. Hunter --------------------------------- Timothy M. Hunter 4 EX-10.21 25 EX-10.21 1 EXHIBIT 10.21 MCINNES STEEL COMPANY AND ITS SUBSIDIARIES BONUS AND STOCK OPTION PLAN 1. "Profit" for purposes of this Plan shall be defined as pretax profit of McInnes, before corporate administrative charge and before bonus payments. 12.5% of the profit shall be paid in cash bonus to the employees of McInnes based upon the following distribution: 25% to key employees - maximum of 3 people in this category; 25% to key managers - which shall be limited to a maximum of 7 people; and 50% to all salaried employees. 2. For every $100,000 of Profit, options for 10,000 shares of Centrum Stock shall be set aside for McInnes management. The stock options shall be at market as of the close of business on the last day of Centrum's fiscal year. The options shall be valid for a 10-year period and be subject to the detailed provisions of Centrum's stock option agreement, similar in form to the stock agreements signed in connection with the merger of Centrum Subsidiary into McInnes Steel Company with respect to "roll-over options." The options shall be distributed as follows: 60% to "key employees" as described in Section 1 of this Plan; and 40% to "key managers", which shall be limited to a maximum of 7 people. Through fiscal year ended 3/31/96 EX-10.22 26 EX-10.22 1 EXHIBIT 10.22 MICAFIL, INC. 1. "Profit" for purposes of this Plan supplement shall be defined as pretax profit of Micafil, before corporate administrative charges and before bonus payments. Twelve and one-half percent (12.5%) of the profit shall be paid in cash bonus to the employees of Micafil based upon the following distribution: 25% to key employees - Maximum of 3 people in this category; 25% to key managers - which shall be limited to a maximum of 7 people; and 50% to all salaried employees. 2. For every $100,000 of Profit, stock options for 10,000 shares of Centrum stock shall be set aside for management of Micafil. The stock options shall be at market as of the close of business on the last day of Centrum's fiscal year. The options shall be valid for a 10-year period and be subject to the detailed provisions of Centrum's stock option agreement. The options shall be distributed as follows: 60% to "key employees" as described in Section 1 of this Plan supplement; and 40% to "key managers", which shall be limited to a maximum of 7 people. Through fiscal year ended 3/31/96 EX-10.23 27 EX-10.23 1 EXHIBIT 10.23 AMERICAN HANDLING, INC. 1. "Profit" for purposes of this Plan shall be defined as pretax profit of AHI, before corporate administrative charges and before bonus payments. Twenty percent (20%) of the profit shall be paid in cash bonuses to the employees of AHI based upon the following distribution: 50% to "key employees" - no more than three people may be included in this category; 25% to all other salaried employees; and 25% to all hourly employees. 2. Five percent of profit shall be paid into the profit sharing retirement plan and allocated to employees in accordance with the terms and conditions of such plan. 3. For every $100,000 of Profit, options for 10,000 shares of Centrum Stock shall be set aside for AHI management. The stock options shall be at market as of the close of business on the last day of Centrum's fiscal year. The options shall be valid for a 10-year period and be subject to the detailed provisions of Centrum's stock option agreement. The options shall be distributed as follows: 60% to "Key employees" as described in Section 1 of this Plan supplement; and 40% to "Key managers", which shall be limited to a maximum of 7 people. Through fiscal year ended 3/31/96 EX-11 28 EX-11 1 CENTRUM INDUSTRIES, INC. EXHIBIT 11 WEIGHTED SHARES OUTSTANDING MARCH 31, 1996
SHARES OF COMMON STOCK - ---------------------- SHARES DAYS DATES OUTSTANDING OUTSTANDING AVERAGE ----------------- ------------ ----------- ------- 4/01/95 - 4/11/95 5,745,360 11 172,675 4/12/95 - 4/12/95 5,735,360 1 15,670 4/13/95 - 4/19/95 5,715,360 6 93,694 4/19/95 - 12/17/95 5,685,360 242 3,759,172 12/18/95 - 1/24/96 5,705,360 36 561,183 1/13/96 - 2/11/96 5,778,360 28 442,060 2/12/96 - 2/15/96 5,829,360 3 47,782 2/16/96 - 2/21/96 5,841,360 5 79,800 2/22/96 - 2/22/96 5,853,360 1 15,993 2/23/96 - 2/27/96 5,949,360 4 65,020 2/28/96 - 2/29/96 5,985,360 1 16,353 2/29/96 - 2/29/96 5,997,360 1 16,386 3/01/96 - 3/3/96 6,009,360 2 32,838 3/4/96 - 3/6/96 6,027,360 2 32,936 3/7/96 - 3/7/96 6,075,360 1 16,599 3/8/96 - 3/11/96 6,126,360 3 50,216 3/12/96 - 3/31/96 6,170,860 19 320,345 ---- --------- 366 5,738,725 ==== =========
COMMON STOCK EQUIVALENTS NET - ------------------------ AVERAGE OUTSTANDING EXERCISE MARKET NET SHARE DAYS WEIGHTED NUMBER PRICE PROCEEDS PRICE REPURCHASED INCREASE OUTSTANDING AVERAGE - -------------------------- -------- --------- ----------- ----------- ----------- --------- 201,521 0.04 7,497 1.50 4,998 196,523 366 196,523 110,333 0.06 7,061 1.50 4,708 105,625 23 6,638 333,334 0.75 250,001 1.50 166,667 166,667 366 166,667 350,000 1.00 350,000 1.50 233,333 116,667 312 99,454 63,400 1.00 63,400 1.50 42,267 21,133 366 21,133 223 1.00 223 1.50 149 74 223 45 480,000 1.00 480,000 1.50 320,000 160,000 32 13,989 ------- 504,449 =======
Weighted average common shares outstanding 5,738,725 Weighted average common equivalent shares outstanding 504,449 ---------- 6,243,174 ========== Net income $ 805,240 ========== Weighted average common and common equivalent shares outstanding 6,243,174 ========== Earnings Per Share $ 0.13 ==========
EX-21 29 EX-21 1 EXHIBIT 21 CENTRUM INDUSTRIES, INC. Direct and indirect subsidiaries of Centrum: American Handling, Inc. Micafil, Inc. LaSalle Exploration, Inc. McInnes Steel Company McInnes Services, Inc. Erie Bronze and Aluminum Company Eballoy Glass Products Company McInnes International, Inc. EX-27.1 30 EX-27.1
5 1 YEAR MAR-31-1996 MAR-31-1996 2,100,749 0 11,072,927 93,761 9,395,244 23,195,165 11,376,761 314,560 40,611,748 24,219,677 0 0 3,500 308,543 3,270,949 40,611,748 27,525,702 27,638,720 20,306,567 26,060,128 0 0 515,538 1,063,054 257,814 805,240 0 0 0 805,240 .13 0
EX-27.2 31 EX-27.2
5 1 YEAR MAR-31-1994 MAR-31-1994 87,149 0 1,489,349 64,047 1,252,716 3,450,374 1,180,201 74,712 7,941,039 5,810,033 0 0 3,500 273,653 818,354 7,941,039 8,760,667 8,806,453 6,668,265 9,389,965 0 0 240,338 (1,112,897) 0 (1,112,897) 0 0 0 (1,112,897) (.26) 0
EX-27.3 32 EX-27.3
5 1 YEAR MAR-31-1995 MAR-31-1995 472,673 0 3,334,377 60,658 1,111,196 5,393,369 1,278,968 156,987 9,547,336 4,432,101 0 0 3,500 287,268 1,214,980 9,547,336 18,292,696 18,353,071 13,516,489 17,634,857 0 0 331,287 386,927 223,679 163,248 0 0 0 163,248 .03 0
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