0000892569-95-000502.txt : 19950915 0000892569-95-000502.hdr.sgml : 19950915 ACCESSION NUMBER: 0000892569-95-000502 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950914 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIMCO INC /DE/ CENTRAL INDEX KEY: 0000791243 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 330251163 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14828 FILM NUMBER: 95573946 BUSINESS ADDRESS: STREET 1: 265 BRIGGS AVE CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145464460 MAIL ADDRESS: STREET 2: 265 BRIGGS AVENUE CITY: COSTA MESA STATE: CA ZIP: 92626 FORMER COMPANY: FORMER CONFORMED NAME: CIMCO DATE OF NAME CHANGE: 19900926 10-Q 1 CIMCO FORM 10-Q FOR PERIOD ENDING JULY 31, 1995 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 1995 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to ___________ Commission File Number: 0-16249 CIMCO, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 265 Briggs Avenue, Costa Mesa, California 92626 (Address of principal executive offices) (Zip Code) 33-0251163 (I.R.S. Employer Identification No.) Registrant's telephone number, including area code: (714) 546-4460 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 ninety (90) days. Yes X No --- --- The registrant had 2,960,481 shares of common stock outstanding as of September 13, 1995. 2 CIMCO, INC. AND SUBSIDIARIES INDEX
PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets - July 31, 1995 (Unaudited) and April 30, 1995 3 Consolidated Statements of Operations (Unaudited) - Three Months Ended July 31, 1995 and 1994 4 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended July 31, 1995 and 1994 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10
-2- 3 CIMCO INC. AND SUBSIDIARIES PART 1- FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS
(Unaudited) July 31, 1995 April 30, 1995 ------------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,056,708 $ 802,887 Short-term cash investments -- -- Accounts receivable, less allowance for doubtful accounts of $209,000 at July 31, 1995 and $204,000 at April 30, 1995 17,400,502 16,451,712 Federal income tax receivable 761,000 761,000 Inventories - at lower of cost or market Raw materials 7,046,497 6,234,425 Work in process 1,246,243 1,010,435 Finished goods 3,825,647 4,014,030 ------------ ----------- 12,118,387 11,258,890 Prepaid expenses 345,363 408,132 ------------ ----------- Total current assets 32,681,960 29,682,621 PROPERTY, PLANT AND EQUIPMENT - at cost Land 3,459,712 3,459,712 Buildings 10,015,875 9,959,966 Machinery and equipment 33,359,123 33,375,057 Leasehold improvements 2,007,141 2,077,330 ------------ ----------- 48,841,851 48,872,065 Less accumulated depreciation and amortization 22,670,174 22,570,610 ------------ ----------- 26,171,677 26,301,455 OTHER ASSETS Other 2,262,307 2,598,734 ------------ ----------- $ 61,115,944 $58,582,810 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 13,819,450 $ 14,390,500 Notes payable to bank 4,389,327 3,816,327 Accounts payable 13,487,535 10,177,863 Accrued expenses 2,236,070 2,427,811 Income taxes payable 40,661 325,950 ------------ ----------- Total current liabilities 33,973,043 31,138,451 LONG-TERM DEBT, net of current portion -- -- DEFERRED INCOME TAXES 2,129,000 2,129,000 COMMITMENTS -- -- STOCKHOLDERS' EQUITY Preferred stock - $.01 par value; authorized 5,000,000 shares; issued and outstanding, none -- -- Preferred stock - Series A Junior Participating - $.01 par value; authorized 100,000 shares; issued and outstanding, none -- -- Common stock - $.01 par value; authorized 10,000,000 shares; issued and outstanding, 2,960,481 shares at July 31, 1995 and April 30, 1995 29,605 29,605 Capital in excess of par value 7,258,757 7,258,757 Retained earnings 17,924,035 18,323,858 Foreign currency translation adjustment 73,767 (24,598) ------------ ----------- 25,286,164 25,587,622 Less note receivable from Employee Stock Ownership Plan (272,263) (272,263) ------------ ----------- 25,013,901 25,315,359 ------------ ----------- $ 61,115,944 $58,582,810 ============ ===========
The accompanying notes are an integral part of these statements. -3- 4 CIMCO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended July 31, ------------------------------ 1995 1994 ----------- ----------- Net sales $25,212,788 $18,267,693 Costs and expenses: Manufacturing costs 21,889,607 15,751,934 Engineering and tooling expenses 1,261,388 1,132,051 Selling, general and administrative expenses 2,287,218 2,024,105 Operating loss (225,425) (640,397) Interest income (12,123) (19,724) Interest expense 370,521 269,006 ----------- ----------- 358,398 249,282 ----------- ----------- Loss before benefit for income taxes (583,823) (889,679) Benefit for income taxes (184,000) (320,000) ----------- ----------- Net loss $ (399,823) $ (569,679) =========== =========== Loss per common share $ (.14) $ (.19) =========== ===========
The accompanying notes are an integral part of these statements. -4- 5 CIMCO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended July 31, ----------------------------- 1995 1994 ------------- ------------- Increase (decrease) in cash and cash equivalents Cash flow from operating activities: Net earnings (loss) $ (399,823) $ (569,679) Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 908,683 845,371 (Gain) loss on sale of property, plant and equipment (5,576) (10,712) Provision for bad debts 5,000 - (Increase) decrease in accounts receivable (953,790) (1,562,225) (Increase) decrease in federal income tax receivable - (505,026) (Increase) decrease in inventories (859,497) (389,337) (Increase) decrease in prepaid expenses 62,769 (47,076) (Increase) decrease in other assets 769,127 (61,471) Increase (decrease) in accounts payable 3,309,672 1,269,451 Increase (decrease) in accrued expenses (191,741) (5,967) Increase (decrease) in income taxes payable (285,289) (3,660) Increase (decrease) in deferred income taxes - - ------------ ----------- Net cash provided by (used in) operating activities 2,359,535 (1,040,331) ------------ ----------- Cash flow from investing activities: Proceeds from the sale of property, plant and equipment 182,071 852,152 Redemption of short-term cash investments - 7,000 Purchase of short-term cash investments - (11,058) Capital expenditures (1,388,100) (596,471) ------------ ----------- Net cash used in investing activities (1,206,029) 251,623 ------------ ----------- Cash flow from financing activities: Net increase (decrease) in short-term borrowings 573,000 (941,589) Proceeds from issuance of common stock - - Proceeds from issuance of long-term debt - 500,000 Principal payments on long-term debt (571,050) (444,841) Repurchase of common stock - - Loan to Employee Stock Ownership Program - - ------------ ----------- Net cash provided by (used in) financing activities 1,950 (886,430) ------------ ----------- Foreign currency translation gain (loss) 98,365 (26,829) ------------ ----------- Net increase (decrease) in cash and cash equivalents 1,253,821 (1,701,967) Cash and cash equivalents at beginning of the year 802,887 2,284,191 ----------- ----------- Cash and cash equivalents at end of the year $ 2,056,708 $ 582,224 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 371,528 $ 264,607 Income taxes $ 35,180 $ 2,328
The accompanying notes are an integral part of these statements. -5- 6 CIMCO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PRESENTATION OF INTERIM INFORMATION The consolidated balance sheet as of July 31, 1995 and the related consolidated statements of operations and cash flows for the three-month periods ended July 31, 1995 and 1994 are unaudited; in the opinion of management, all adjustments for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the Company's audited financial statements and notes for the fiscal year ended April 30, 1995. 2. EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per common equivalent share are based on the weighted average number of shares of common stock and common stock equivalents (dilutive stock options) outstanding during the related periods. The weighted average number of common stock equivalent shares includes shares issuable upon the assumed exercise of stock options less the number of shares assumed purchased with the proceeds available from such exercise. Fully diluted net earnings per share does not differ materially from net earnings per common share and common share equivalent. Weighted average shares outstanding were 2,960,481 and 2,980,566 for the three-month periods ended July 31, 1995 and 1994, respectively. -6- 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A. RESULTS OF OPERATIONS Three Months Ended July 31, 1995 vs. July 31, 1994 The following table shows the amounts of certain items included in the Company's statements of operations and percentages of these items as they relate to net sales for the three months ended July 31, 1995 and 1994; also shown are the amounts and percentages of increase or decrease of these items in the current period as compared to the corresponding period in the preceding year.
Amounts and Percentages of Certain Items (Dollars in Thousands) Three Months Ended Increase -------------------------------- (Decrease) July 31, 1995 July 31, 1994 1995 vs. 1994 --------------- --------------- --------------- Amount % Amount % Amount % --------------- --------------- --------------- Net sales $25,213 100.0 $18,268 100.0 $6,945 38.0 ------- ----- ------- ----- ------ Manufacturing costs 21,890 86.8 15,752 86.2 6,138 39.0 Engineering and tooling expenses 1,261 5.0 1,132 6.2 129 11.4 Selling expenses 863 3.4 639 3.5 224 35.1 General and administrative expenses 1,425 5.7 1,386 7.6 39 2.8 Interest expense, net 358 1.4 249 1.4 109 43.1 ------- ----- ------- ----- ------ Loss before benefit for income taxes (584) (2.3) (890) (4.9) 306 34.4 Benefit for income taxes (184) (0.7) (320) (1.8) 136 42.5 ------- ----- ------- ----- ------ Net loss $ (400) (1.6) $ (570) (3.1) $ 170 29.9 ======= ===== ======= ===== ======
Net sales increased 38.0% to $25,213,000 in the current quarter from $18,268,000 in the first quarter of fiscal 1995 after eliminating intersegment sales of $271,000 and $976,000, respectively, in those quarters. Costs and expenses did not increase at the same rate as sales, largely for the reasons discussed below. Gross sales of the Commercial/Industrial Segment decreased 23.8% to $5,396,000 in the current quarter from $7,077,000 of a year ago. The decrease was largely the result of the continued downward trend of sales to the segment's three largest customers, partially offset by price increases. The operating loss for the current quarter was $1,706,000 versus a loss of $558,000 for the same quarter last fiscal year. Underutilization of molding plant capacity, resulting from the previously mentioned decrease in sales volume, as well as increases in workers' compensation expense, loss on sale of obsolete inventory and employee relocation expenses, reduced operating profit for the current quarter. The Medical Segment's gross sales increased 3.9% to $2,881,000 in the current quarter from $2,774,000 during the same period last year. The increase was due to volume and price increases related to several of the Segment's existing customers, partially offset by a decrease in sales to the Segment's largest customer. The operating loss for the current quarter was $121,000 compared to a loss of $330,000 for the same quarter last year. The reduction in operating loss in the current quarter was primarily due to decreases, as a percentage of sales, in raw materials, outside costs, and direct labor. A reduction in general and administrative expenses further -7- 8 contributed to the reduction of the operating loss. The loss on disposition of leasehold improvements relating to a restructuring, partially offset the improvements in operating profit described above. The Compounding Segment's gross sales were $17,207,000 for the first quarter of this year, up 83.2% from $9,393,000 during the same quarter last year. The greater sales were primarily the result of higher sales volumes and prices to the Segment's largest customer and its molders. Sales to several other customers also increased, but not to the same magnitude as sales to the largest customer. Sales were up at all of the Compounding Segment's facilities, particularly Singapore and Corona. Operating profit increased 546.0% to $1,602,000 in the current quarter versus $248,000 for the first quarter a year ago. The increase in operating profit is primarily attributable to the increase in sales as noted above, and the resulting greater utilization of plant capacity. All major manufacturing cost components, as well as selling, general and administrative expenses, increased at a lesser rate than did gross sales. Engineering and tooling expenses increased 11.4% to $1,261,000 in the current quarter from $1,132,000 during the same quarter last year as tooling sales increased 13.1%. Selling expenses increased 35.1% to $863,000 in the current quarter from $639,000 in the same quarter last year. The increase resulted primarily from greater sales and commission expense in connection with the 38.0% increase in sales. The expenses were 3.4% of net sales in the current quarter and 3.5% of net sales for the quarter last year. General and administrative expenses increased 2.8% to $1,425,000 in the current quarter from $1,386,000 the same quarter last year. The expenses decreased to 5.7% of net sales in the current quarter from 7.6% for the same quarter last year. Net interest expense increased to $358,000 or 1.4% of net sales in the current quarter from $249,000 or 1.4% of net sales in the same quarter a year ago. Interest expense increased as a result of greater debt and higher costs of borrowed funds in the first quarter of this year. The decreased tax benefit in the current quarter versus the same quarter a year ago was the result of the decreased pre-tax loss in the current quarter versus a year ago. The net loss for the first quarter of the current year was $400,000 versus net loss of $570,000 for the same quarter last year. The current period's reduced net loss resulted primarily from the continued trend of increased sales and operating profit of the Compounding Segment, partially offset by the continued trend of declining sales and resulting underutilization of the Commercial/Industrial Segment's plant capacity. B. LIQUIDITY AND CAPITAL RESOURCES The Company has previously financed its capital expenditures and working capital requirements from operating cash flow, trade credit, cash reserves, and borrowings under its line of credit. In fiscal 1994, the Company borrowed $5,625,000 through an industrial development revenue bond ("IDRB") issued by the state of Nevada. The proceeds of this bond were used to construct and equip the new molding facility in Dayton, Nevada. On February 1, 1995, the Company replaced its credit agreement with its bank. The credit agreement ("Credit Agreement") provides for a $6,000,000 revolving line of credit expiring September 15, 1995 ("Line of Credit"), a $7,500,000 term loan ("Term Loan"), and a standby letter of credit in the amount of $5,736,000 which secures the $5,625,000 IDRB discussed above. As of July 31, 1995, the Company had borrowed $4,389,000 under the Line of Credit, which bears interest at the bank's prime rate plus 1/4%. The Term Loan is payable in forty-eight equal monthly installments commencing March 1, 1995, and bears interest at the bank's prime rate plus -8- 9 1/2%. Borrowings under the Credit Agreement are collateralized by substantially all of the Company's assets, except for certain of the Costa Mesa land and buildings and all of the Singapore assets. In addition to the borrowings described above the Company has a standby letter of credit in favor of the State of California for Workers' Compensation, as well as various other letters of credit. The Credit Agreement contains various covenants that, among other things, require the maintenance of certain balance sheet ratios, minimum levels of net worth (as defined in the agreement), restrictions which limit the payment of dividends to $100,000 annually, and limitations on the acquisition of, or investment in, other entities. At July 31, 1995, the Company was not in compliance with certain financial covenants of the Credit Agreement. On August 24, 1995, the Company amended the Credit Agreement with its bank which extends the expiration of the Credit Agreement until November 1, 1995, waives financial covenant requirements, provides for additional revolving borrowings of $1,800,000 at the banks' prime rate plus 2%, and requires the Company to pledge 100% of the outstanding capital stock of Compounding Technology, Inc. Available sources of funds at July 31, 1995 consisted of approximately $2,057,000 in cash and cash equivalents, and $152,000 in unused lines of credit with its bank. Statement of Financial Accounting Standards No. 78 (SFAS No. 78) requires that long-term obligations that are callable by the creditor within a one year period subsequent to year end be classified as current liabilities. Accordingly, the Company has reclassified all long-term debt to the current portion of long-term debt, resulting in a working capital deficit. Working capital was $(1,291,000) at July 31, 1995 versus $(1,456,000) at April 30, 1995. Capital expenditures aggregated $1,388,000 and $596,000 in the first three months of the current and last fiscal year. New molding machines comprised the majority of the Commercial/Industrial Segment's $1,067,000 of capital expenditures. The balance of the expenditures were used to upgrade machinery and equipment in the other two segments. The Compounding Segment has made a commitment to establish a facility in Saint Etienne, France, which will require approximately $2,000,000 in capital expenditures in fiscal 1996, the major source of which will be derived from the additional credit availability described above. The Company has sustained substantial losses from operations in fiscal 1994, fiscal 1995, and the first quarter of fiscal 1996, used cash in its operations in fiscal 1995, and at July 31,1995, had a deficit in working capital caused by a reclassification of debt as per SFAS No. 78. The Company's continuation as a going concern is dependent upon its ability to secure sufficient additional financing. Management has implemented measures to reduce operating costs and is continuing discussions with the Company's primary lender and others regarding extension and expansion of the Company's credit facilities. Of the alternatives available management believes that bank financing is the most desirable option at this time. Subject to the Company's ability to secure additional financing and successfully replace its existing credit facility, management believes that financial resources will be adequate to support working capital requirements and planned capital expenditures during the next twelve months. However, there can be no assurance that the Company will be successful in securing additional financing and replacing its existing credit facility. -9- 10 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) EXHIBITS 10.23 First Amendment dated June 9, 1995 to Credit Agreement between Wells Fargo Bank, National Association and Registrant. 10.24 Second Amendment dated August 24, 1995 to Credit Agreement between Wells Fargo Bank, National Association and Registrant. 27 Financial Data Schedule (b) No report on Form 8-K was filed during the quarter covered by this report. -10- 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CIMCO, INC. (Registrant) Date: September 13, 1995 /s/ RUSSELL T. GILBERT ------------------------------------------- Russell T. Gilbert President and Chief Executive Officer Date: September 13, 1995 /s/ L. RONALD TREPP -------------------------------------------- L. Ronald Trepp Chief Financial Officer (Principal Financial and Accounting Officer) -11- EX-10.23 2 FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.23 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of June 9, 1995, by and between CIMCO, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of February 1, 1995, as amended from time to time, ("Credit Agreement"). WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes. NOW, THEREFORE, the Credit Agreement is hereby amended as follows: 1. Section 1.1. shall be amended (a) by deleting "SIX MILLION DOLLARS ($6,000,000.00)" as the maximum principal amount available under the Line of Credit, and by substituting for said amount "SIX MILLION SEVEN HUNDRED FIFTY-EIGHT THOUSAND FIVE HUNDRED DOLLARS ($6,758,500.00)", up to and including July 31, 1995 at which time the maximum principal 1 2 amount available under the Line of Credit shall reduce to "SIX MILLION DOLLARS ($6,000,000.00)", with such changes to be effective upon the execution and delivery to Bank of a promissory note substantially in the form of Exhibit A attached hereto (which promissory note shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts, instruments and documents required by Bank to evidence such change. 2. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 3. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment, other than as specifically referenced in the Forbearance, there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. WELLS FARGO BANK, CIMCO, INC. NATIONAL ASSOCIATION By: /s/ RUSSELL T. GILBERT By: /s/ MARK MAGDELENO --------------------------- --------------------------- Mark Magdeleno Title: President Vice President 3 4 Exhibit A REVOLVING LINE OF CREDIT NOTE $6,758,500.00 Irvine, California June 9, 1995 FOR VALUE RECEIVED, the undersigned CIMCO, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its Orange Coast Regional Commercial Banking Office at 2030 Main Street, Suite 900, Irvine, CA 92714, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of SIX MILLION SEVEN HUNDRED FIFTY EIGHT THOUSAND FIVE HUNDRED DOLLARS ($6,758,500.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement at a rate per annum (computed on the basis of a 360-day year, actual days elapsed) one quarter of one percent (.25%) above the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. Notwithstanding the principal amount set forth above, the maximum outstanding principal amount available under this Note 4 5 shall reduce on July 31, 1995 to SIX MILLION DOLLARS ($6,000,000.00) until the maturity date hereof. Interest accrued on this Note shall be payable on the fifteenth day of each month, commencing June 15, 1995. The outstanding principal balance of this Note shall be due and payable in full on September 15, 1995. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (a) Russell T. Gilbert or Jennifer Shea any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (b) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of February 5, 1995, as amended from time to time. Any default in the payment or performance of any obligation, or any defined event of default, under said Credit Agreement shall constitute an "Event of Default" under this Note. 5 6 Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to any Borrower. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. This Note shall be governed by and construed in accordance with the laws of the State of California, except to the extent Bank has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of California law shall not be deemed to deprive Bank of any such rights and remedies as may be available under Federal law. CIMCO, INC. By: --------------------------------- Title: ------------------------------ 6 EX-10.24 3 SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.24 SECOND AMENDMENT TO CREDIT AGREEMENT AND REVOLVING LINE OF CREDIT NOTE THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND REVOLVING LINE OF CREDIT NOTE (this "Amendment") is entered into as of August 24, 1995, by and between CIMCO, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement, dated as of February 1, 1995, as heretofore amended pursuant to a First Amendment to Credit Agreement, dated as of June 9, 1995, and as may be further amended from time to time ("Credit Agreement"). WHEREAS, pursuant to the terms of the Credit Agreement, Borrower has executed a Revolving Line of Credit Note in favor of Bank, dated as of June 9, 1995 and in the original principal amount of $6,758,500.00 (as amended from time to time, "Revolving Note"). WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and the Revolving Note and have agreed to amend the Credit Agreement and the Revolving Note to reflect said changes. NOW, THEREFORE, the Credit Agreement and the Revolving Note are hereby amended as follows: 1. The second sentence of the first full paragraph on page 2 of the Revolving Note is amended to read "The outstanding principal balance of this Note shall be due and payable in full on November 1, 1995." 2. A new Section 6.1 (k) is hereby added to the Credit Agreement, and shall read as follows: "(k) Any Event of Default (as defined therein) shall occur under the terms of that certain Promissory Note made by Borrower in favor of Bank, dated as of August 24, 1995 and in the face principal amount of $1,800,000.00." 3. Compliance with the financial covenants specified in Section 4.9 of the Credit Agreement is hereby waived by Bank for the period from April 30, 1995 through -1- 2 October 31, 1995 only. For all points in time from and after November 1, 1995, full compliance with such Section 4.9 shall be required as though this waiver had not occurred. 4. Concurrently with the effectiveness of this Amendment, Borrower covenants to deliver to Bank a Pledge Agreement, in form and substance satisfactory to Bank, whereby 100% of the outstanding capital stock in Compounding Technology, Inc. ("CTI"), a California corporation and a wholly owned subsidiary of Borrower, is pledged to Bank to secure all obligations of Borrower to Bank. This Pledge Agreement shall be considered a Loan Document, as that term is used in the Credit Agreement. 5. Reference is made to that certain Promissory Note made by Borrower in favor of Bank, dated as of August 24, 1995 and in the face principal amount of $1,800,000. Nothing in said Note or the Loan Documents is intended to prohibit the incurrence of secured or unsecured debt by Compounding Technology, PTE. Ltd., a Singapore private company and a wholly-owned subsidiary of CTI. 6. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 7. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment, other than as heretofore disclosed in writing to Bank, there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. CIMCO, INC., a Delaware corporation By: /s/ RUSSELL T. GILBERT --------------------------------- Russell T. Gilbert President -2- 3 WELLS FARGO BANK, NATIONAL ASSOCIATION By: ----------------------------------- ----------------------------------- Printed Name and Title -3- 4 PROMISSORY NOTE $1,800,000.00 Los Angeles, California August 24, 1995 FOR VALUE RECEIVED, the undersigned CIMCO, INC., a Delaware corporation ("Borrower"), promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender"), at its 333 South Grand Avenue (Suite 940) office in Los Angeles, California, or at such other place as may be designated in writing by Lender, the principal sum of ONE MILLION EIGHT HUNDRED THOUSAND AND NO/100THS DOLLARS ($1,800,000.00) or so much thereof as may be disbursed by Lender to or for the benefit or account of Borrower, with interest thereon at the rate of two percent (2.0%) per annum in excess of Lender's "Prime Rate" in effect from time to time (based on a 360-day year and charged on the basis of actual days elapsed). As used herein, the term "Prime Rate" means a base rate of interest which Lender establishes from time to time and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Any change in the rate of interest on this note due to a change in the Prime Rate shall become effective on the date each change in the Prime Rate is announced within Lender. All sums owing hereunder are payable in lawful money of the United States of America, in immediately available funds. Interest accrued on this note ("Note") shall be due and payable on the first day of each month commencing with the first month after the date of this Note. The outstanding principal balance of this Note, together with all accrued and unpaid interest, shall be due and payable in full on November 1, 1995 ("Maturity Date"). This Note is secured by certain personal property pursuant to, without limitation: a. That certain Continuing security Agreement: Rights to Payment and Inventory, dated as of October 14, 1994 and executed in favor of Lender by Borrower; b. That certain Security Agreement: Equipment, dated as of October 14, 1994 and executed in favor of Lender by Borrower; c. That certain Pledge Agreement, dated as of August 24, 1995 and executed in favor of Lender by Borrower; -1- 5 d. That certain Third Party Security Agreement: Equipment, dated as of October 14, 1994 and executed in favor of Lender by Medical Molding Corporation of America; e. That certain Third Party Security Agreement: Rights to Payment and Inventory, dated as of October 14, 1994 and executed in favor of Lender by Medical Molding Corporation of America; f. That certain Third Party Security Agreement: Equipment, dated as of October 14, 1994 and executed in favor of Lender by Compounding Technology, Inc.; and g. That certain Third Party Security Agreement: Rights to Payment and Inventory, dated as of October 14, 1994 and executed in favor of Lender by Compounding Technology, Inc. Concurrently with the execution hereof, and as a condition to the disbursement of amounts hereunder, Borrower shall pay Lender a nonrefundable loan fee of $2,000.00. From and after the Maturity Date, or such earlier date as all sums owing on this Note become due and payable by acceleration or otherwise, all sums owing on this Note shall bear interest until paid in full at a rate equal to five percent (5%) per annum (based on a 360-day year and charged on the basis of actual days elapsed) in excess of the interest rate otherwise accruing under this Note. Each of the following shall constitute a default (an "Event of Default") hereunder: 1. Failure of Borrower to pay when due any sums payable to Lender hereunder; or 2. The occurrence of any "Event of Default" under that certain Credit Agreement by and between Borrower and Lender, dated as of February 1, 1995, as may be amended from time to time. 3. The occurrence of: (a) Borrower's filing of a petition for relief under the Bankruptcy Code (11 USC Section 101-1330), as amended or recodified ("Bankruptcy Code"), or under any other present or future state or federal law regarding bankruptcy, reorganization or other relief to debtors (collectively, "Debtor Relief Law"); or (b) the entry or issuance of an order for Relief in a case brought against Borrower under the Bankruptcy Code or any other Debtor Relief -2- 6 Law; or (c) Borrower's filing any pleading in any involuntary proceeding under the Bankruptcy Code or other Debtor Relief Law, which admits the jurisdiction of the court or the petition's material allegations regarding Borrower's insolvency; or (d) Borrower's making a general assignment for the benefit of creditors; or (e) Borrower's applying for, or the appointment of, a receiver, trustee, custodian or liquidator of Borrower or any of its property; or (f) the death of Borrower, if an individual, or the filing by or against Borrower of a petition seeking the liquidation or dissolution of Borrower or the commencement of any other procedure to liquidate or dissolve Borrower; or 4. Borrower's failure to effect a full dismissal of any involuntary petition under the Bankruptcy Code or any other Debtor Relief Law, that is filed against Borrower or in any way restrains or limits Borrower or Lender regarding the Loan prior to the earlier of the entry of an order granting relief sought in the involuntary petition, or thirty (30) days after the date of filing of the petition; or 5. The sale, transfer, hypothecation, assignment or encumbrance, whether voluntary, involuntary or by operation of law, of any corporate stock or assets, or any partnership or joint venture interest or assets, of Borrower, or of the partners or venturers of Borrower, by any shareholder, partner or venturer thereof without the prior written consent of Lender; or 6. A monetary default by Borrower under the terms of any agreements or instruments pursuant to which Borrower has borrowed money from any other financial institution or entity; or 7. The occurrence of any of the events specified in paragraphs 3, 4, 5 or 6 hereof with respect to any person or entity in any manner obligated to Lender under this Note, including, without limitation, any guarantor. Upon the occurrence of any Event of Default hereunder, Lender may, at its sole option, declare all sums owing under this Note immediately due and payable; provided, however, that if an Event of Default defined in paragraph 3 or 4 hereof occurs, or if an Event of Default defined in paragraph 7 which is an event specified in paragraph 3 or 4 hereof occurs, all sums owing hereunder shall be automatically due and payable as of the date of such occurrence. If any attorney is engaged by Lender to enforce or defend any provision of this Note, or as a consequence of any Default, with or without the filing of any legal action or proceeding, then Borrower shall pay to Lender immediately upon -3- 7 demand all attorneys' fees and all costs incurred by Lender in connection therewith, together with interest thereon from the date of such demand until paid at the rate of interest applicable to the principal balance owing hereunder as if such unpaid attorneys' fees and costs had been added to the principal. No previous waiver and no failure or delay by Lender in acting with respect to the terms of this Note shall constitute a waiver of any breach, default or failure of condition under this Note. A waiver of any term of this Note must be made in writing and shall be limited to the express written terms of such waiver. Except as otherwise provided in any agreement executed in connection with this Note, Borrower waives: presentment; demand; notice of dishonor; notice of default or delinquency; notice of acceleration; notice of protest and nonpayment; notice of costs, expenses or losses and interest thereon; notice of late charges; and diligence in taking any action to collect any sums owing under this Note or in proceeding against any of the rights or interests in or to properties securing payment of this Note. Time is of the essence with respect to every provision hereof. This Note shall be construed and enforced in accordance with the laws of the State of California, except to the extent that Federal laws preempt the laws of the State of California, and all persons and entities in any manner obligated under this Note consent to the jurisdiction of any Federal or State Court within the State of California having proper venue and also consent to service of process by any means authorized by California or Federal law. "BORROWER" CIMCO, INC., a Delaware corporation By: /s/ RUSSELL T. GILBERT --------------------------------- Russell T. Gilbert President -4- 8 PLEDGE AGREEMENT This PLEDGE AGREEMENT ("Agreement"), dated as of August 24, 1995, is made by CIMCO, INC., a Delaware corporation ("Grantor"), in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Secured Party"), with reference to the following facts: RECITALS A. Secured Party and Grantor are parties to certain credit arrangements, including without limitation (i) that certain Credit Agreement, dated as of February 1, 1995, by and between Grantor and Secured Party, as heretofore amended (the "Loan Agreement"), and (ii) that certain Promissory Note, dated as of August 24, 1995 and in the initial face amount of $1,800,000.00 made by Grantor in favor of Secured Party. B. As a condition precedent to the extension of certain credit facilities by Secured Party to Grantor, Grantor has agreed to enter into this Agreement and to pledge certain Pledged Collateral to Secured Party, all under the terms and conditions set forth in this Agreement. AGREEMENT NOW, THEREFORE, in order to induce Secured Party to extend credit facilities to Grantor, and for other good and valuable consideration, the receipt and adequacy of which hereby is acknowledged, Grantor hereby represents, warrants, covenant, agrees, and pledges as follows: 1. Definitions. Terms defined in the Loan Agreement and not otherwise defined in this Agreement shall have the meanings given those terms in the Loan Agreement as though set forth herein in full. The following terms shall have the meanings respectively set forth after each: "Certificates" means all certificates, instruments or other documents now or hereafter representing or evidencing any Pledged Securities. "Obligations" means (a) all present and future indebtedness of any nature of Grantor to Secured Party; (b) all obligations of Grantor to Secured Party under this Agreement; and (c) all present and future obligations of Grantor to Secured Party of other kinds. The word "indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Grantor heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, -1- 9 determined or undetermined, and whether Grantor may be liable individually or jointly, or whether recovery upon such indebtedness may be or hereafter become unenforceable. "Pledged Collateral" means any and all property of Grantor now or hereafter pledged and delivered to Secured Party, and includes without limitation the Pledged Securities, the Certificates representing or evidencing same, any and all proceeds and products of any of the foregoing, and any and all collections, dividends, distributions, redemption payments or liquidation payments with respect to any of the foregoing. "Pledged Securities" means (i) any and all shares of capital stock of COMPOUNDING TECHNOLOGY, INC., a California corporation ("CTI"), (ii) any and all securities now or hereafter issued in substitution, exchange or replacement therefor, or with respect thereto, (iii) any and all warrants, options or other rights to subscribe to or acquire any additional capital stock of CTI, and (iv) any and all additional capital stock of CTI. 2. Incorporation of Representations, Warranties, Covenants and Other Provisions of Loan Documents. This Agreement is one of the Loan Documents referred to in the Loan Agreement. All representations, warranties, affirmative and negative covenants and other provisions contained in any Loan Document that are applicable to the Loan Documents generally are fully applicable to this Agreement and are incorporated herein by this reference as though set forth in full. 3. Creation of Security Interest. 3.1 Pledge of Pledged Collateral. Grantor hereby pledges to Secured Party and grants to Secured Party a security interest in and to all Pledged Collateral for the benefit of Secured Party, together with all products, proceeds, dividends, redemption payments, liquidation payments, cash, instruments and other property, and any and all rights, titles, interests, privileges, benefits and preferences appertaining or incidental to the Pledged Collateral. The security interest and pledge created by this Section 3.1 shall continue in effect so long as any obligation is owed to Secured Party or any commitment to extend credit to Grantor remains outstanding from Secured Party. 3.2 Delivery of Certain Pledged Collateral. On or before the date of this Agreement, Grantor agrees to cause -2- 10 to be pledged and delivered to Secured Party the following Pledged Collateral: Certificate No. I evidencing 5000 shares of common stock of CTI, which Grantor hereby represents and warrants constitutes 100% of the capital stock of CTI. Following the date of this Agreement, additional Pledged Collateral may from time to time be delivered to Secured Party by agreement between Secured Party and Grantor. All Certificates at any time delivered to Secured Party shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. Secured Party shall hold all Certificates pledged hereunder pursuant to this Agreement. The Certificates, when delivered and pledged to Secured Party hereunder, shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. 4. Security for Obligations. This Agreement and the pledge and security interests granted herein secure the prompt payment, in full in cash, and full performance of, all obligations, whether for principal, interest, fees, expenses or otherwise, including, without limitation, all Obligations of Grantor now or hereafter existing under this Agreement, and all interest that accrues on all or any part of any of the obligations after the filing of any petition or pleading against Grantor or any other person or entity for a proceeding under any bankruptcy or debtor relief law. 5. Further Assurances. Grantor agrees that at any time, and from time to time, at its own expense Grantor will promptly execute, deliver and file or record all further financing statements, instruments and documents, and will take all further actions, including, without limitation, causing CTI to so execute, deliver, file or take other actions, that may be necessary or desirable, or that Secured Party reasonably may request, in order to perfect and protect any pledge or security interest granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral and to preserve, protect and maintain the Pledged Collateral and the value thereof, including, without limitation, payment of all taxes, assessments and other charges imposed on or relating to the Pledged Collateral. Grantor hereby consents and agrees that the issuers of, or obligors on, the Pledged Collateral, or any registrar or transfer agent or trustee for any of the Pledged Collateral, shall be entitled to accept the provisions of this Agreement as conclusive evidence of the right of Secured Party to effect any transfer or exercise any right hereunder, notwithstanding any -3- 11 other notice or direction to the contrary heretofore or hereafter given by Grantor or any other person or entity to such issuers or such obligors or to any such registrar or transfer agent or trustee. 6. Voting Rights; Dividends; etc. So long as no Event of Default under the Loan Agreement occurs and remains continuing: 6.1 Voting Rights. Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Securities, or any part thereof, for any purpose not inconsistent with the terms of this Agreement, the Loan Agreement, or the other Loan Documents; provided, however, that Grantor shall not exercise, or shall refrain from exercising, any such right if it would result in an Event of Default. 6.2 Dividend and Distribution Rights. Grantor shall be entitled to receive and to retain and use any and all dividends or distributions paid in respect of the Pledged Securities; provided, however, that any and all such dividends or distributions received in the form of capital stock shall be, and the Certificates representing such capital stock forthwith shall be delivered to Secured Party to hold as, Pledged Collateral and shall, if received by Grantor, be received in trust for the benefit of Secured Party, be segregated from the other property of Grantor, and forthwith be delivered to Secured Party as Pledged Collateral in the same form as so received (with any necessary endorsements). 7. Rights During Event of Default. When an Event of Default has occurred and is continuing: 7.1 Voting, Dividend, and Distribution Rights. At the option of Secured Party, all rights of Grantor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6.1 above, and to receive the dividends and distributions which it would otherwise be authorized to receive and retain pursuant to Section 6.2 above, shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and to hold as Pledged Collateral such dividends and distributions. Secured Party shall give notice to Grantor of its election to exercise voting rights with respect to the Pledged Collateral; provided, however, that (i) neither the giving of such notice nor the receipt thereof by Grantor shall be a condition to exercise of any rights of Secured Party hereunder, and (ii) Secured Party shall incur no liability for failing to give such notice. -4- 12 7.2 Dividends and Distributions Held in Trust. All dividends and other distributions which are received by Grantor contrary to the provisions of this Agreement shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Grantor, and forthwith shall be paid over to Secured Party as Pledged Collateral in the same form as so received (with any necessary endorsements). 7.3 Irrevocable Proxy. Grantor hereby revokes all previous proxies with regard to the Pledged Securities and appoints Secured Party as its proxyholder to attend and vote at any and all meetings of the shareholders of the corporations which issued the Pledged Securities, and any adjournments thereof, held on or after the date of the giving of this proxy and prior to the termination of this proxy and to execute any and all written consents of shareholders of such corporations executed on or after the date of the giving of this proxy and prior to the termination of this proxy, with the same effect as if Grantor had personally attended the meetings or had personally voted its shares or had personally signed the written consents; provided, however, that the proxyholder shall have rights hereunder only upon the occurrence and during the continuance of an Event of Default under the Loan Agreement. Grantor hereby authorizes Secured Party to substitute another person as the proxyholder and, upon the occurrence or during the continuance of any Event of Default, hereby authorizes and directs the proxyholder to file this proxy and the substitution instrument with the secretary of the appropriate corporation. This proxy is coupled with an interest and is irrevocable until such time as no commitment to extend credit to Grantor remains outstanding from Secured Party and until such time as all Obligations have been paid and performed in full. 8. Transfers and other Liens. Grantor agrees that, except as specifically permitted under the Loan Documents, it will not (i) sell, assign, exchange, transfer or otherwise dispose of, or contract to sell, assign, exchange, transfer or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, (ii) create or permit to exist any lien upon or with respect to any of the Pledged Collateral, except for liens in favor of Secured Party, or (iii) take any action with respect to the Pledged Collateral which is inconsistent with the provisions or purposes of this Agreement or any other Loan Document. 9. Secured Party Appointed Attorney-in-Fact. Grantor hereby irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full authority in the place and stead of Grantor, and in the name of Grantor, or otherwise, from time to time, in Secured Party's sole and absolute discretion to do any of the following acts or things: (a) to do all acts and things and to execute all documents necessary or advisable to perfect and continue perfected the security interests created by this -5- 13 Agreement and to preserve, maintain and protect the Pledged Collateral; (b) to do any and every act which Grantor is obligated to do under this Agreement; (c) to prepare, sign, file and record, in Grantor's name, any financing statement covering the Pledged Collateral; and (d) to endorse and transfer the Pledged Collateral upon foreclosure by Secured Party; provided, however, that Secured Party shall be under no obligation whatsoever to take any of the foregoing actions, and Secured Party shall have no liability or responsibility for any act (other than Secured Party's own gross negligence or willful misconduct) or omission taken with respect thereto. Grantor hereby agrees to repay immediately upon demand all reasonable costs and expenses incurred or expended by Secured Party in exercising any right or taking any action under this Agreement, together with interest as provided for in the Loan Agreement. 10. Secured Party May Perform Obligations: If Grantor fails to perform any Obligation contained herein, Secured Party may, but without any obligation to do so and without notice to or demand upon Grantor, perform the same and take such other action as Secured Party may deem necessary or desirable to protect the Pledged Collateral or Secured Party's security interests therein, Secured Party being hereby authorized (without limiting the general nature of the authority hereinabove conferred) to pay, purchase, contest and compromise any lien which in the reasonable judgment of Secured Party appears to be prior or superior to Secured Party's security interests, and in exercising any such powers and authority to pay necessary expense, employ counsel and pay reasonable attorneys' fees. Grantor hereby agrees to repay immediately upon demand all sum so expended by Secured Party, together with interest from the date of expenditure at the rates provided for in the Loan Agreement. Secured Party shall not be under any duty or obligation to (i) preserve, maintain or protect the Pledged Collateral or any of any Grantor's rights or interest therein, (ii) exercise any voting rights with respect to the Pledged Collateral, whether or not an Event of Default has occurred or is continuing, or (iii) make or give any notices of default, presentments, demands for performance, notices of nonperformance or dishonor, protests, notices of protest or notice of any other nature whatsoever in connection with the Pledged Collateral on behalf of Grantor or any other person or entity having any interest therein; and Secured Party does not assume and shall not be obligated to perform the obligations of Grantor, if any, with respect to the Pledged Collateral. 11. Reasonable Care. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially similar to that which Secured Party accords its own property, it being -6- 14 understood that Secured Party shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any person or entity with respect to any Pledged Collateral. 12. Events of Default and Remedies. 12.1 Rights Upon Event of Default. Upon the occurrence and during the continuance of an Event of Default under the Loan Agreement, Grantor shall be in default hereunder and Secured Party shall have in any jurisdiction where enforcement is sought, in addition to all other rights and remedies that Secured Party may have under this Agreement and under applicable law or in equity, all rights and remedies of a secured party under the Uniform Commercial Code as enacted in any such jurisdiction, and in addition the following rights and remedies, all of which may be exercised with or without further notice to Grantor: (a) to notify any issuer of any Pledged Securities, and any and all other obligors on any Pledged Collateral, that the same has been pledged to Secured Parties and that all dividends and other payments thereon are to be made directly and exclusively to Secured Party; to renew, extend, modify, amend, accelerate, accept partial payments on, make allowances and adjustments and issue credits with respect to, release, settle, compromise, compound, collect or otherwise liquidate, on terms acceptable to Secured Party, in whole or in part, the Pledged Collateral and any amounts owing thereon or any guaranty or security therefor; to enter into any other agreement relating to or affecting the Pledged Collateral; and to give all consents, waivers and ratifications with respect to the Pledged Collateral and exercise all other rights (including voting rights), powers and remedies and otherwise act with respect thereto as if Secured Party were the owner thereof; (b) to enforce payment and prosecute any action or proceeding with respect to any and all of the Pledged Collateral and take or bring, in Secured Parties' names or in the name of Grantor, all steps, actions, suits or proceedings deemed by Secured Party necessary or desirable to effect collection of or to realize upon the Pledged Collateral; (c) in accordance with applicable law, to take possession of the Pledged Collateral with or without judicial process; (d) to endorse, in the name of Grantor, all checks, notes, drafts, money orders, instruments and other evidences of payment relating to the Pledged Collateral; -7- 15 (e) to transfer any or all of the Pledged Collateral into the name of Secured Party or its nominee or nominees; and (f) in accordance with applicable law, to foreclose the liens and security interests created under this Agreement or under any other agreement relating to the Pledged Collateral by any available judicial procedure or without judicial process, and to sell, assign or otherwise dispose of the Pledged Collateral or any part thereof, either at public or private sale or at any broker's board or securities exchange, in lots or in bulk, for cash, on credit or on future delivery, or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to secured Party; all at the sole option of and in the sole discretion of Secured Party. 12.2 Notice of Sale. Secured Party shall give Grantor at least five (5) days' written notice of sale of all or any part of the Pledged Collateral. Any sale of the Pledged Collateral shall be held at such time or times and at such place or places as Secured Party may determine in the exercise of its sole and absolute discretion. Secured Party may bid (which bid may be, in whole or in part, in the form of cancellation of Obligations) for and purchase for the account of Secured Party or any nominee of Secured Party the whole or any part of the Pledged Collateral. Secured Party shall not be obligated to make any sale of the Pledged Collateral if it shall determine not to do so regardless of the fact that notice of sale of the Pledged Collateral may have been given. Secured Party may, without notice or publication, adjourn the sale from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. 12.3 Private Sales. Whether or not any of the Pledged Collateral has been effectively registered under the Securities Act of 1933 or other applicable laws, Secured Party may, in its sole and absolute discretion, sell all or any part of the Pledged Collateral at private sale in such manner and under such circumstances as Secured Party may deem necessary or advisable in order that the sale may be lawfully conducted. Without limiting the foregoing, Secured Party may (i) approach and negotiate with a limited number of potential purchasers, and (ii) restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or resale thereof. In the event that any of the Pledged Collateral is sold at private sale, Grantor agrees that if the Pledged Collateral is sold for a price which Secured Party in good faith believe to be reasonable, then (A) the sale shall be deemed to be -8- 16 commercially reasonable in all respects, (B) Grantor shall not be entitled to a credit against the Obligations in an amount in excess of the purchase price, and (C) Secured Party shall not incur any liability or responsibility to Grantor in connection therewith, notwithstanding the possibility that a substantially higher price might have been realized at a public sale. Grantor recognizes that a ready market may not exist for Pledged Collateral which is not regularly traded on a recognized securities exchange, and that a sale by the Secured Party of any such Pledged Collateral for an amount substantially less than a pro rata share of the fair market value of the issuer's assets minus liabilities may be commercially reasonable in view of the difficulties that may be encountered in attempting to sell a large amount of Pledged Collateral or Pledged Collateral that is privately traded. 12.4 Title of Purchasers. Upon consummation of any sale of Pledged Collateral pursuant to this Section 12, Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold. Each such purchaser at any such sale shall hold the Pledged Collateral sold absolutely free from any claim or right on the part of Grantor, and Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. If the sale of all or any part of the Pledged Collateral is made on credit or for future delivery, Secured Party shall not be required to apply any portion of the sale price to the Obligations until such amount actually is received by Secured Party, and any Pledged Collateral so sold may be retained by Secured Party until the sale price is paid in full by the purchaser or purchasers thereof. Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to pay for the Pledged Collateral so sold, and, in case of any such failure, the Pledged Collateral may be sold again upon like notice. 12.5 Disposition of Proceeds of Sale. The net cash proceeds resulting from the collection, liquidation, sale or other disposition of the Pledged Collateral shall be applied, first, to the reasonable costs and expenses (including reasonable attorneys: fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting and liquidating the Pledged Collateral, and the like; second, to the satisfaction of all obligations in such order and manner as Secured Party in its sole and absolute discretion may determine. 13. Covenant Not to Issue Uncertificated Securities. Grantor represents and warrants to Secured Party that all of the capital stock of each of its Subsidiaries that is a corporation is in certificated form (as contemplated by -9- 17 Division 8 of the California Commercial Code), and covenants to Secured Party that it will not cause or permit CTI to issue any capital stock in uncertificated form or seek to convert all or any part of its existing capital stock into uncertificated form (as contemplated by Division 8 of the California Commercial Code). 14. Covenant Not to Dilute Interests of Secured Party in Pledged Securities. Grantor represents, warrants and covenants to Secured Party that it will not at any time cause or permit CTI to issue any additional capital stock, or any warrants, options or other rights to acquire any additional capital stock, if the effect thereof would be to dilute in any way the interests of Secured Party in any Pledged Securities or any corporation whose securities constitute Pledged Securities. IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed as of the date first above written. "Grantor" CIMCO, INC., a Delaware corporation By: /s/ RUSSELL T. GILBERT ---------------------------- Russell T. Gilbert President 10 EX-27 4 FINANCIAL DATA SCHEDULE
5 3-MOS APR-30-1995 JUL-31-1995 2,056,708 0 17,609,502 209,000 12,118,387 32,681,960 48,841,851 22,670,174 61,115,944 33,973,043 0 29,605 0 0 24,984,296 61,115,944 25,212,788 25,212,788 21,889,607 21,889,607 3,543,606 5,000 358,398 (583,823) (184,000) (399,823) 0 0 0 (399,823) (0.14) (0.14)