<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1997
FILE NO.: 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 5013 95-2920557
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
700 EAST BONITA AVENUE
POMONA, CALIFORNIA 91767
(909) 624-8041
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHARLES J. HOGARTY
PRESIDENT
700 EAST BONITA AVENUE
POMONA, CALIFORNIA 91767
(909) 624-8041
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
PAUL H. IRVING, ESQ. DALE E. SHORT, ESQ.
MANATT, PHELPS & PHILLIPS, LLP TROY & GOULD PROFESSIONAL CORPORATION
11355 WEST OLYMPIC BOULEVARD 1801 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90064 LOS ANGELES, CALIFORNIA 90067
(310) 312-4196 (310) 553-4441
FAX: (310) 312-4224 FAX: (312) 201-4746
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement has become effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2)........ 4,370,000 shares $15.25 $66,642,500 $20,826
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating
the registration fee.
(2) Includes 570,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 6, 1997
PROSPECTUS
3,800,000 SHARES
[LOGO OF KEYSTONE AUTOMOTIVE INDUSTRIES, INC.]
COMMON STOCK
-----------
Of the 3,800,000 shares of Common Stock being offered hereby, 1,500,000
shares are being offered by Keystone Automotive Industries, Inc. ("Keystone" or
the "Company") and 2,300,000 shares are being offered by certain shareholders
(the "Selling Shareholders"). See "Principal and Selling Shareholders." The
Company will not receive any proceeds from the sale of shares by the Selling
Shareholders.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "KEYS." On June 5, 1997, the last reported sale price of the Common
Stock on that market was $15.25 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) TO COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
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Total(3)................. $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated to be $400,000, payable by the
Company.
(3) The Company and certain shareholders have granted the Underwriters a 30-day
option from the date of this Prospectus to purchase up to 570,000
additional shares of Common Stock (of which the first 310,0000 shares will
be sold by certain shareholders and the remaining shares will be sold by
the Company) on the same terms and conditions as set forth above solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the Underwriters' right to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that delivery of the shares of
Common Stock offered hereby will be made on or about , 1997.
-----------
MORGAN KEEGAN & COMPANY, INC.
A.G. EDWARDS & SONS, INC.
CROWELL, WEEDON & CO.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
PHOTO CAPTIONS OF:
[KEYSTONE SERVICE CENTER]
[AUTOMOTIVE BODY PARTS]
[REMANUFACTURED ALUMINUM WHEELS]
[AUTOMOTIVE PAINT & BODY SUPPLIES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
[MAP OF SERVICE CENTERS ON TWO-PAGE GATEFOLD]
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve risks and uncertainties, such as statements of
the Company's strategies, plans, objectives, expectations and intentions. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus. The
cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus.
Except as otherwise specifically set forth, all information, financial and
otherwise, with respect to Keystone Automotive Industries, Inc. ("Keystone" or
the "Company") (i) includes its wholly-owned subsidiary, North Star Plating
Company ("North Star"), which was combined with the Company on March 28, 1997
in a transaction accounted for as a pooling of interests, and (ii) assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus.
THE COMPANY
Keystone is the nation's leading distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks. Keystone distributes products primarily to collision repair shops
throughout most of the United States. In addition, the Company recycles and
produces chrome plated and plastic bumpers and remanufactures alloy wheels. The
Company's product lines consist of automotive body parts, bumpers, autoglass
and remanufactured alloy wheels, as well as paint and other materials used in
repairing a damaged vehicle. Keystone currently offers more than 19,000 stock
keeping units to over 22,000 collision repair shop customers, out of an
estimated 48,000 shops nationwide. Founded in Southern California in 1947, the
Company operates a "hub and spoke" distribution system consisting of 11
regional hubs and 71 service centers located in 33 states in the West, Midwest,
Northeast, Mid-Atlantic and South, as well as in Tijuana, Mexico. From these
service centers, Keystone has approximately 360 professional and highly-trained
salespersons who call on an average of over 5,000 collision repair shops per
day.
On March 28, 1997, a wholly-owned subsidiary of the Company merged into North
Star in a transaction (the "North Star Merger") accounted for as a pooling of
interests. At the time of the North Star Merger, North Star operated four
regional hubs and 23 service centers located in the Midwest and Mid-Atlantic,
and the Company believes that North Star was the second largest distributor of
aftermarket collision replacement parts in the United States. North Star's
operations are very similar to the Company's and strategically expand the
Company's geographic market coverage, as only two of the North Star service
centers operate in markets already served by Keystone. In addition, the North
Star Merger adds depth and experience to the Company's management capabilities.
For the fiscal year ended March 28, 1997, the Company generated record
revenues, net income and net income per share of $194.3 million, $6.8 million
and $0.72, respectively. These results represented increases of approximately
23.8%, 56.6% and 35.8%, respectively, over revenues of $157.0 million, net
income of $4.3 million and net income per share of $0.53 in fiscal 1996. For
fiscal 1995, 1996 and 1997, the Company generated increases in comparable
service center sales of approximately 16%, 13% and 13%, respectively.
Keystone's growth has been due primarily to a combination of (i) strategic
acquisitions of independent distributors, both in new and existing geographic
markets, (ii) expansion of existing product lines and introduction of new
product lines and (iii) increased demand for aftermarket collision parts.
3
<PAGE>
The Aftermarket Body Parts Association ("ABPA"), the principal industry trade
group, estimates that the wholesale market for aftermarket collision parts in
the United States and Canada has grown since its inception in the early 1980s
to between $800 million and $1.2 billion in annual expenditures in 1995, or
approximately 10% of the collision parts market. Substantially all of the
remainder of the collision parts market consists of parts produced by original
equipment manufacturers ("OEMs"), which prior to 1980 were the sole source of
all collision parts. Aftermarket collision parts generally sell for between 20%
and 40% less than comparable OEM parts. According to Body Shop Business' 1996
Industry Survey, the percentage of collision repair facilities using
aftermarket collision replacement parts increased from approximately 54% in
1993 to 69% in 1995. The aftermarket collision parts market has grown primarily
due to the increasing availability of quality parts and cost containment
efforts by the insurance industry. Industry sources estimate that approximately
87% of all automobile collision repair work in the United States is paid for in
part by insurance.
The aftermarket collision parts distribution industry is highly fragmented
and is in the process of consolidation. Typically, the Company's competitors
are independently owned distributors operating from one to three locations. As
a result of the increasing number of aftermarket collision parts and makes and
models of automobiles and light trucks, there is increasing pressure on
distributors to maintain larger inventories. In addition, the trend towards
larger, more efficient collision repair shops has increased the pressure on
distributors to provide price concessions, just-in-time delivery and certain
value-added services, such as training, that collision repair shops require in
their increasingly complex and competitive industry. As a result of its
competitive strengths, the Company believes that it is well-positioned to take
advantage of the consolidation in its industry and to meet the increasing
demands of its customers.
Keystone believes that its growth in sales and earnings has been and will
continue to be driven by its competitive strengths, which include the
following:
. Leading Market Position. As the nation's leading distributor of
aftermarket collision parts, Keystone offers its customers one of the
broadest available selections of aftermarket collision parts, just-in-
time delivery, lower prices due to volume purchasing, worldwide product
sourcing, priority access to new products and superior technical
expertise.
. Relationship with Insurance Companies. Since the founding of its
business in 1947, Keystone has fostered its relationship with insurance
companies, whose increasing efforts to contain the escalating cost of
collision repairs have been a principal factor in the growth of the
market for aftermarket collision parts.
. Experienced Management. Keystone's executive officers have been employed
by the Company for an average of 20 years, and the Company's service
center managers have been employed for an average of over nine years.
The experience and tenure of the Company's personnel and their long-
standing relationships with collision repair shop operators have been
instrumental in the growth of the Company.
. Entrepreneurial Corporate Culture. The manager of each Keystone service
center is responsible for its day-to-day operations and is eligible to
earn a bonus of more than 100% of base salary based on the performance
of the service center.
. Superior Customer Service. The Company strives to provide responsive
customer service and to foster close customer relations. In particular,
the Company maintains large inventories of parts to meet diverse
customer requirements, provides prompt delivery of customer orders,
usually within 24 hours, by professional and highly-trained route
salespersons and has a policy of complete customer satisfaction backed
by a limited warranty of parts for as long as the repair shop's customer
owns the repaired vehicle.
4
<PAGE>
. Management Information and Other Systems. The Company has developed its
own computerized order taking, inventory control and management
information systems in an effort to achieve additional operating
efficiencies and a higher level of customer service.
The Company intends to continue its growth through an integrated strategy of
selectively acquiring other independent distributors, expanding its existing
product lines and introducing new product lines. Since its initial public
offering in June 1996, Keystone has acquired 30 service centers by means of the
North Star Merger and six other acquisitions and has opened alloy wheel
remanufacturing operations at four centers. In addition, the Company has
entered into agreements which, if successfully completed, will result in an
expansion into the Southwest through the acquisition of six service centers
located in Arizona, Colorado, New Mexico, Nevada and Texas. The Company seeks
to acquire well-established independent distributors with strong management and
significant market share in order to expand into new geographic markets and to
increase its penetration in existing markets. Keystone also continually expands
its existing product lines as additional aftermarket collision parts become
available. Since April 1991, the Company has introduced such additional
products as paint and related supplies and equipment, radiators and condensers,
head and tail light assemblies and autoglass. In addition, in fiscal 1996 the
Company began remanufacturing alloy wheels.
The Company's principal executive offices are located at 700 East Bonita
Avenue, Pomona, California 91767, and its telephone number is (909) 624-8041.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............... 1,500,000 shares
Common Stock offered by the Selling Shareholders.. 2,300,000 shares(1)
Common Stock to be outstanding after the Offering. 11,250,000 shares(2)
Use of proceeds................................... The net proceeds will be
used primarily to pay down
the Company's bank line of
credit. The balance of the
proceeds and future
borrowings under the line
of credit will be used for
working capital and general
corporate purposes and
acquisitions. The Company
will not receive any
proceeds from the sale of
shares by the Selling
Shareholders. See "Use of
Proceeds."
Nasdaq National Market symbol..................... KEYS
</TABLE>
- --------
(1) See "Principal and Selling Shareholders."
(2) Excludes shares reserved for issuance under the Company's 1996 Employee
Stock Incentive Plan (the "Stock Incentive Plan"), of which 587,000 shares
were subject to outstanding options as of May 31, 1997, at a weighted
average exercise price of $12.86 per share. See "Management--Stock
Incentive Plan."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(In thousands, except share and per share amounts and operating data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 28,
1993 1994 1995(1) 1996 1997
----------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Income Data
Net sales............... $ 99,165 $ 110,918 $ 132,655 $ 157,021 $ 194,321
Gross profit............ 39,766 45,205 53,336 61,890 79,269
Operating income........ 2,424 3,592 5,178 8,662 12,521
Net income.............. 821 1,526 2,435 4,336 6,789
========= ========= ========= ========= =========
Net income per common
share.................. $ 0.10 $ 0.18 $ 0.29 $ 0.53 $ 0.72
========= ========= ========= ========= =========
Weighted average common
shares outstanding(2).. 8,313,000 8,313,000 8,255,000 8,250,000 9,408,000
========= ========= ========= ========= =========
Operating Data
(Unaudited)
Number of service
centers(3)
Starting sites......... 38 49 49 53 64
Sites acquired........ 14 2 6 10 10
Sites opened.......... 2 -- -- 3 --
Sites consolidated.... 3 2 1 2 3
Sites closed.......... 2 -- 1 -- 1
Ending sites........... 49 49 53 64 70
Comparable service
center sales
increase(4)
Keystone...................................... 19% 10% 13%
North Star.................................... 7% 22% 13%
Combined.................................... 16% 13% 13%
</TABLE>
<TABLE>
<CAPTION>
MARCH 28, 1997
-------------------
AS
ACTUAL ADJUSTED(5)
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data
Working capital............................................. $26,847 $48,007
Total assets................................................ 78,800 87,331
Total current liabilities................................... 35,438 22,809
Long-term debt.............................................. 1,105 1,105
Shareholders' equity........................................ 41,854 63,014
</TABLE>
- --------
(1) Fiscal 1995 contained 53 weeks.
(2) Includes Common Stock equivalents attributable to stock options
outstanding, which are not material.
(3) Information with respect to service centers includes combined operating
data of both Keystone and North Star. As a result of the North Star Merger,
the Company acquired 23 service centers. Since March 28, 1997, the Company
has acquired one additional service center.
(4) Comparable service center sales have been computed using sales of service
centers that were open throughout both fiscal years being compared.
(5) Adjusted to reflect the sale of the shares of Common Stock offered by the
Company hereunder and the application of the net proceeds at an assumed
public offering price of $15.25 per share. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this
Prospectus, including, without limitation, the statements under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" regarding the Company's
strategies, plans, objectives and expectations; the Company's ability to
acquire other distributors and integrate those distributors into the Company's
operations; pricing or other competitive pressures; the continued acceptance
of the Company's aftermarket collision repair parts; the Company's ability to
expand its existing product lines and introduce new product lines; the
anticipated growth of its markets; the effect of government regulations; its
future operating results; and other matters are forward-looking statements.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable at this time, it can give no assurance that
such expectations will prove to be correct. Important factors that could cause
actual results to differ materially from the Company's expectations
("Cautionary Statements") are set forth in these "Risk Factors," as well as
elsewhere in this Prospectus. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
Prospective investors should consider carefully the following factors,
together with the other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
ACQUISITION STRATEGY
A principal component of the Company's growth strategy is to acquire other
independent distributors operating in new geographic markets, as well as to
increase its penetration in existing markets. Since April 1992, the Company
has completed 18 acquisitions of a total of 42 service centers (including four
acquisitions of 11 service centers by North Star prior to the North Star
Merger), in the Northeast, Midwest, Mid-Atlantic, South and Mexico, of which
11 have been consolidated with existing locations and four have been closed.
During this same period, North Star opened five additional service centers.
The Company's ability to maintain or exceed its historical growth rate will
depend in large part on its ability to successfully execute its acquisition
strategy. The successful execution of this strategy will depend on the
Company's ability to identify and to compete for appropriate acquisition
candidates, to consummate such acquisitions on favorable terms (including
obtaining acquisition financing, if necessary), to maintain and expand the
sales and profitability of the acquired centers, and to anticipate the changes
that continued growth would impose on its financial reporting and control
systems, data processing systems and management. There can be no assurance
that the Company will be successful in executing its strategy. Although the
Company regularly evaluates new geographic markets and potential acquisition
candidates, and believes that numerous acquisition opportunities exist due to
the preponderance of small local and regional competitors, as of the date of
this Prospectus, other than as described herein, the Company has no existing
commitments or agreements with respect to any acquisition, and no assurance
can be given that significant additional acquisitions can be consummated on
terms favorable to the Company. See "Business -- Growth Strategy --
Acquisitions."
ACQUISITION RISKS
Although the Company investigates the operations and assets that it
acquires, there may be liabilities that the Company fails or is unable to
discover, and for which the Company as a successor owner or operator, may be
responsible. The Company seeks to mitigate the risk of these potential
liabilities by obtaining indemnities and warranties from the seller and, in
some cases, deferring payments of a portion of the purchase price. However,
these indemnities, warranties and holdbacks, if obtained, may not fully cover
the liabilities due to their limited scope, amounts or duration, the limited
financial resources of the indemnitor or warrantor or other reasons. In
addition, the Company's acquisitions accounted for under the purchase method
of accounting generally involve the recording of goodwill and deferred charges
on its balance sheet, which are amortized over varying periods of
7
<PAGE>
time of up to 15 years. This amortization has the effect of reducing the
Company's reported earnings. At March 28, 1997, the Company had recorded $1.3
million in goodwill, net of accumulated amortization. The Company had also
recorded $2.4 million in deferred charges net of accumulated amortization,
primarily related to noncompetition agreements, which are amortized over the
terms of those agreements.
The efficient and effective integration of acquired companies' operations is
necessary for the Company's acquisition strategy to be successful. This
generally requires, among other things, an integration of purchasing,
distribution, marketing and sales efforts, pricing, employee benefits
policies, liquidity and capital expenditure requirements, management teams and
management information and other systems. The challenges of integration may be
increased by the need to coordinate geographically separated organizations. In
addition, the integration generally requires a commitment of management
resources which may temporarily divert attention from day-to-day operations of
the Company.
The North Star Merger was only recently consummated. Although the Company
expects that the North Star Merger will result in benefits to the combined
companies, there can be no assurance that the integration issues described
above with respect to the combination of the two companies can be dealt with
in an efficient and effective manner. The inability of management to
successfully integrate the two companies could have a material adverse effect
on the business and the future results of operations of the Company.
COMPETITION
Based upon industry estimates, the Company believes that 85% of collision
parts for automobiles and light trucks are supplied by OEMs, compared with
approximately 10% by independent distributors of aftermarket collision parts
and an additional 5% by distributors of salvaged parts. The Company competes
directly with, and encounters intense competition from, OEMs, all of which
have substantially greater financial, distribution, marketing and other
resources, including greater brand recognition and a broader selection of
collision parts. Accordingly, OEMs are in a position to exert pricing and
other competitive pressures on the Company and other independent distributors,
which could have a material adverse effect on the results of operations of the
Company. The aftermarket collision parts distribution industry is highly
fragmented. Typically, the Company's competitors are independently owned
distributors having from one to three distribution centers. The Company
anticipates that it will encounter significant competition in the future,
including competition from OEMs, automobile dealerships, distributors of
salvage parts, buying groups and other large distributors. See "Business --
Competition."
DEPENDENCE ON KEY AND FOREIGN SUPPLIERS
The Company is dependent on a small number of suppliers. For the fiscal year
ended March 28, 1997, the ten largest suppliers accounted for approximately
43% of the products purchased by the Company. Although alternative suppliers
exist for substantially all products distributed by the Company, the loss of
any one supplier could have a material adverse effect on the Company until
alternative suppliers are located and have commenced providing products. In
fiscal 1997, approximately 75% of the products distributed by the Company were
manufactured in the United States or Canada and approximately 25% were
imported directly from manufacturers in Taiwan. As a result, the Company's
operations are subject to the customary risks of doing business abroad,
including, among other things, transportation delays, political instability,
expropriation, currency fluctuations and the imposition of tariffs, import and
export controls and other non-tariff barriers (including changes in the
allocation of quotas), as well as the uncertainty regarding future relations
between China and Taiwan. The percentage of imported products may decline in
the future if sales of autoglass, paint and related supplies and equipment and
remanufactured alloy wheels, which are manufactured in the United States,
continue to grow. Any significant disruption in the Company's Taiwanese
sources of supply or in its relationship with its suppliers located in Taiwan
could have a material adverse effect on the Company. See "Business --
Suppliers."
8
<PAGE>
CONTINUED ACCEPTANCE OF AFTERMARKET COLLISION PARTS
Based upon industry sources, the Company estimates that approximately 87% of
automobile collision repair work is paid for in part by insurance;
accordingly, the Company's business is highly dependent upon the continued
acceptance of such parts by the insurance industry. The Company's business is
also dependent upon the continued acceptance of such parts by collision repair
shops, consumers and governmental agencies. See "Business -- Industry
Overview" and "Business -- Prior Ford Litigation."
CONSOLIDATION IN THE COLLISION REPAIR INDUSTRY
The collision repair shop industry is in the process of consolidation. The
trend towards larger, more efficient repair shops will increase the
competition among distributors for the remaining accounts and the pressure on
distributors to provide price concessions, just-in-time delivery, larger
inventories, training and other value-added services, which may have a
material adverse effect on the Company's sales and profitability. See
"Business -- Industry Overview."
DECLINE IN THE NUMBER OF COLLISION REPAIRS
The number of collision repairs has declined significantly in recent years,
and may continue to do so, due to, among other things, automotive safety
improvements, more rigorous enforcement of stricter drunk driving laws
resulting in fewer accidents and the increase in unit body construction and
higher collision repair costs resulting in a larger number of automobiles
being declared a total loss in lieu of being repaired. The continuation of
such decline may have a material adverse effect on the Company. See
"Business -- Industry Overview -- Consolidation."
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
The Company has experienced, and expects to continue to experience,
variations in its sales and profitability from quarter to quarter due, in
part, to the timing and integration of acquisitions and to the seasonal nature
of the Company's business. The number of collision repair jobs is directly
impacted by the weather. Other factors which influence quarterly variations
include the reduced number of business days during the holiday seasons, the
timing of the introduction of new products, the level of consumer acceptance
of new products, general economic conditions that affect consumer spending,
the timing of supplier price changes and the timing of expenditures in
anticipation of increased sales and customer delivery requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Variability of Quarterly Results and Seasonality."
RELIANCE ON KEY PERSONNEL
The operations of the Company depend to a great extent on the efforts of its
executive officers, including Charles J. Hogarty, Al A. Ronco, Kim D. Wood
(who joined the Company in March 1997 in connection with the North Star
Merger) and John M. Palumbo. The loss of the services of any such person, or
the failure of the Company to attract and retain other qualified personnel,
could have a material adverse effect on its operations. Although the Company
has employment agreements with Messrs. Hogarty, Ronco and Wood, such
agreements may be ineffective in enabling the Company to retain the services
of such officers or restricting them from competing with the Company in the
event of a termination of employment. In addition, although the Company has
generally been successful in retaining the services of its senior management
to date, there can be no assurance that it will be able to do so in the
future. See "Business -- Competitive Strengths" and "Management." In addition,
see "Certain Transactions" with respect to the resignation in May 1997 of
Virgil K. Benton II, the former Chairman of the Board and Chief Executive
Officer of the Company.
COMPLIANCE WITH GOVERNMENT REGULATIONS; ENVIRONMENTAL HAZARDS
The Company is subject to increasing restrictions imposed by various
federal, state and local laws and regulations. Various state and federal
regulatory agencies, such as the Occupational Safety and Health
9
<PAGE>
Administration and the United States Environmental Protection Agency (the
"EPA"), have jurisdiction over the Company's operations with respect to
matters including worker safety, community and employee "right-to-know" laws,
and laws regarding clean air and water. Under various federal, state and local
laws and regulations, an owner or lessee of real estate or the operator of a
business may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in, or emanating from, property
owned or used in the business, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner, lessee or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. Other than as described below
with respect to its bumper plating operations, the Company does not currently
generate substantial hazardous waste in the ordinary course of its business.
The Company believes that it currently is in substantial compliance with all
applicable laws and regulations, and is not aware of any material
environmental problem at any of its current or former facilities. No assurance
can be given, however, that the Company's prior activities or the activities
of a prior owner or operator of an acquired service center or other facility
did not create a material environmental problem for which the Company could be
responsible or that future uses or conditions (including, without limitation,
changes in applicable laws and regulations) will not result in material
environmental liability to the Company. Furthermore, compliance with
legislative or regulatory changes may cause future increases in the Company's
operating costs or otherwise adversely affect operations. Certain of the
Company's products, such as paints and solvents, are highly flammable.
Accordingly, the storage and transportation of these materials expose the
Company to the inherent risk of fire.
The Company acquired North Star's bumper plating operations in connection
with the North Star Merger. In addition, the Company currently conducts
limited bumper plating operations at one site and previously conducted similar
operations at 11 additional sites which were closed between 1983 and 1993. See
"Business -- Products-- Bumpers." The Company's bumper plating operations,
which use a number of hazardous materials, are subject to a variety of federal
and state laws and regulations relating to environmental matters, including
the release of hazardous materials into the air, water and soil. The Company
endeavors to ensure that its chrome plating operation complies with applicable
environmental laws and regulations. Compliance with such laws and regulations
has not had a material effect on the Company's capital expenditures, earnings
or competitive position, and no material capital expenditures with respect to
the Company's bumper plating operations are anticipated for the remainder of
this fiscal year. Although the Company believes it is in substantial
compliance with all applicable environmental laws and regulations relating to
its bumper plating operations, there can be no assurance that the Company's
current or former operations have not, or will not in the future, violate such
laws and regulations or that compliance with such laws and regulations will
not have a material adverse effect on the Company's operations. Any
inadvertent mishandling of hazardous materials or similar incident could
result in costly remediation efforts and administrative and legal proceedings,
which could materially and adversely affect the Company's business and results
of operations. In addition, future environmental regulations could add to
overall costs of the Company's bumper plating business or otherwise materially
and adversely affect these operations. See "Business -- Government Regulation
and Environmental Hazards."
ANTI-TAKEOVER PROVISIONS
The ownership positions of the existing officers and directors of Keystone,
together with the anti-takeover effect of certain provisions in the California
General Corporation Law and in Keystone's Articles of Incorporation and
Bylaws, may delay, defer or prevent a change in control of Keystone, may
discourage bids for Keystone's Common Stock at a premium over the market price
of the Common Stock and may adversely affect the market price of the Common
Stock. See "Description of Capital Stock."
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been, and is likely to
continue to be, subject to significant fluctuations in response to quarterly
variations in the Company's actual or anticipated operating results, changes
in general market conditions and other factors. In recent years, the stock
market generally has experienced significant price and volume fluctuations
which often have been unrelated or disproportionate to the
10
<PAGE>
operating performance of a specific company or industry. There can be no
assurance that the market price of the Company's Common Stock will not decline
below the current market price. It is possible that in some future quarter,
the Company's operating results will be below the expectations of public
market analysts or investors. In such event, the price of the Company's Common
Stock may be materially and adversely affected. See "Price Range of Common
Stock."
SHARES ELIGIBLE FOR FUTURE SALE
At May 31, 1997, there were 9,750,000 shares of Common Stock outstanding. Of
these shares, the 3,105,000 shares sold in the Company's initial public
offering and the 2,450,000 shares issued in the North Star Merger are freely
tradeable without restriction or further registration under the Securities
Act, except for any such shares held by an "affiliate" of the Company. The
remaining 4,195,000 shares are "restricted securities" as that term is defined
in Rule 144 under the Securities Act, and, accordingly, may not be sold
without registration under the Securities Act or pursuant to an applicable
exemption therefrom. Of these shares, 1,700,000 shares are being included in
this Offering by certain of the Selling Shareholders. See "Principal and
Selling Shareholders." The market price of the Company's Common Stock could be
adversely affected by the availability for sale of such shares or of shares
which may be issued under the Company's Stock Incentive Plan. The Company and
certain of its officers, directors and shareholders have agreed, in connection
with this Offering, not to offer, sell, contract to sell, transfer or
otherwise dispose of, directly or indirectly, shares of Common Stock held by
them in the public market, without the prior written consent of the
representatives of the Underwriters. This lock-up period will expire 180 days
from the date of this Prospectus, at which time such shares will become
eligible for sale in the public market under Rule 144. Upon expiration of the
lock-up period, the market price for the Company's Common Stock could be
materially and adversely affected by the sale or availability for sale of such
shares. See "Management -- Stock Incentive Plan" and "Description of Capital
Stock -- Shares Eligible for Future Sale."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,500,000 shares of Common Stock offered by it in this Offering, after
deducting underwriting discounts and commissions and offering expenses, are
estimated to be $21.2 million, assuming a public offering price of $15.25 per
share. The Company will not receive any proceeds from the sale of shares by
the Selling Shareholders.
The net proceeds of the Offering will be used primarily to pay down the
Company's indebtedness under its $25.0 million unsecured revolving line of
credit, which indebtedness was incurred for general corporate purposes and
acquisitions. At May 31, 1997, the outstanding balance under the Company's
primary revolving bank line of credit was $19.3 million, which bears interest
at LIBOR plus 0.75% (6.46% at May 31, 1997). The line of credit expires in
March 1998. The amounts repaid under the line of credit will be reborrowed
from time to time and may be used, together with the remaining net proceeds of
this Offering, for working capital and general corporate purposes and
acquisitions. See "Business -- Growth Strategy." For further information with
respect to the Company's line of credit, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 5 of Notes to Consolidated Financial Statements.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any future earnings to provide funds to operate
and expand its business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The payment of dividends is within the
discretion of the Company's Board of Directors, and will depend upon, among
other things, the Company's earnings, financial condition and capital
requirements, general business conditions and any restrictions in credit
agreements.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading publicly on the Nasdaq National
Market under the symbol "KEYS" on June 20, 1996. The following table sets
forth, for the periods indicated, the range of high and low sale prices for
Keystone's Common Stock as reported by the Nasdaq National Market. These
prices do not include retail mark-ups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1997
First Quarter (beginning June 20, 1996)....................... $ 10.50 $ 9.25
Second Quarter................................................ 13.75 10.13
Third Quarter................................................. 17.25 12.00
Fourth Quarter................................................ 18.13 15.50
Fiscal 1998
First Quarter (through June 5, 1997).......................... $ 16.75 $ 15.25
</TABLE>
On June 5, 1997, the last reported sale price for the Common Stock of the
Company as reported on the Nasdaq National Market was $15.25 per share. As of
June 5, 1997, there were approximately 1,089 shareholders of record of the
Common Stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization of
the Company at March 28, 1997 and as adjusted as of that date to give effect
to the sale of the 1,500,000 shares of Common Stock offered by the Company at
an assumed public offering price of $15.25 per share and the anticipated use
of the estimated net proceeds therefrom. See "Use of Proceeds." The
information set forth below should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
MARCH 28, 1997
----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Line of credit.............................................. $12,629 $ --
Bankers acceptances and short-term debt..................... 3,538 3,538
Long-term debt, due within one year......................... 741 741
------- -------
Total short-term debt..................................... $16,908 $ 4,279
======= =======
Long-term debt................................................ $ 1,105 $ 1,105
Shareholders' equity:
Preferred Stock, no par value; 3,000,000 shares authorized;
none issued and outstanding................................ -- --
Common Stock, no par value; 20,000,000 shares authorized;
9,750,000 shares issued and outstanding; 11,250,000 shares
as adjusted(1)............................................. 15,921 37,081
Additional paid-in capital.................................... 553 553
Retained earnings............................................. 25,380 25,380
------- -------
Total shareholders' equity................................ 41,854 63,014
------- -------
Total capitalization...................................... $42,959 $64,119
======= =======
</TABLE>
- --------
(1) Does not include shares of Common Stock reserved for issuance under the
Stock Incentive Plan, of which 587,000 shares were subject to outstanding
options as of May 31, 1997, at a weighted average exercise price of $12.86
per share. See "Management -- Stock Incentive Plan."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of the
end of, each of the fiscal years in the two-year period ended March 28, 1997
have been derived from financial statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors, appearing elsewhere in
this Prospectus. The selected financial data presented below for, and as of
the end of the fiscal year ended March 31, 1995, have been derived from the
financial statements audited by Ernst & Young LLP, of which the balance sheet
is not included in this Prospectus. The selected financial data presented
below for, and as of the end of, each of the fiscal years in the two-year
period ended March 25, 1994 have been derived from unaudited financial
statements of the Company not included herein and which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the years ended
March 26, 1993 and March 25, 1994. The operating data presented below were
derived from unaudited information maintained by the Company.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND
OPERATING DATA)
FISCAL YEAR ENDED
-----------------------------------------------------
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 28,
1993 1994 1995(1) 1996 1997
----------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA
Net sales................ $ 99,165 $ 110,918 $ 132,655 $ 157,021 $ 194,321
Cost of sales............ 59,399 65,713 79,319 95,131 115,052
--------- --------- --------- --------- ---------
Gross profit............. 39,766 45,205 53,336 61,890 79,269
Selling and distribution
expenses................ 30,632 33,773 38,601 43,800 53,503
General and administra-
tive expenses........... 6,710 7,840 9,557 9,428 12,340
Merger costs............. -- -- -- -- 905
--------- --------- --------- --------- ---------
Operating income......... 2,424 3,592 5,178 8,662 12,521
Interest expense......... 1,037 824 1,200 1,490 1,297
--------- --------- --------- --------- ---------
Income before income tax-
es...................... 1,387 2,768 3,978 7,172 11,224
Income taxes............. 566 1,108 1,543 2,836 4,435
Cumulative effect of
accounting change for
income taxes............ -- 134 -- -- --
--------- --------- --------- --------- ---------
Net income............... $ 821 $ 1,526 $ 2,435 $ 4,336 $ 6,789
========= ========= ========= ========= =========
Net income per share..... $0.10 $0.18 $0.29 $0.53 $0.72
========= ========= ========= ========= =========
Weighted average common
shares outstanding(2)... 8,313,000 8,313,000 8,255,000 8,250,000 9,408,000
OPERATING DATA (UNAU-
DITED)
Number of service centers
(3)
Starting sites......... 38 49 49 53 64
Sites acquired........ 14 2 6 10 10
Sites opened.......... 2 -- -- 3 --
Sites consolidated.... 3 2 1 2 3
Sites closed.......... 2 -- 1 -- 1
--------- --------- --------- --------- ---------
Ending sites........... 49 49 53 64 70
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Comparable service center sales increase
Keystone.......................................................... 19% 10% 13%
North Star........................................................ 7% 22% 13%
Combined........................................................ 16% 13% 13%
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 28,
1993 1994 1995(1) 1996 1997
----------- ----------- --------- --------- -------------------
AS
(UNAUDITED) (UNAUDITED) ACTUAL ADJUSTED(5)
----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA
Working capital......... $10,402 $11,518 $13,583 $16,954 $26,847 $48,007
Total assets............ 39,859 45,613 49,811 64,715 78,800 87,331
Total current
liabilities............ 22,321 26,971 27,429 35,063 35,438 22,809
Long-term debt.......... 2,346 1,666 2,505 5,904 1,105 1,105
Shareholders' equity.... 14,370 16,278 19,107 23,443 41,854 63,014
</TABLE>
- --------
(1) Fiscal 1995 contained 53 weeks.
(2) Includes Common Stock equivalents attributable to stock options
outstanding, which are not material.
(3) Information with respect to service centers includes combined operating
data of both Keystone and North Star. As a result of the North Star
Merger, the Company acquired 23 service centers. Since March 28, 1997, the
Company has acquired one additional service center.
(4) Comparable service center sales have been computed using sales of service
centers that were open throughout both fiscal years being compared.
(5) As adjusted to reflect the sale of shares of Common Stock offered by the
Company hereunder and the application of the net proceeds at an assumed
public offering price of $15.25 Per share. See "Use of Proceeds."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is qualified in its entirety by, and
should be read in conjunction with, the "Selected Consolidated Financial Data"
and the financial statements and notes thereto included elsewhere in this
Prospectus. Except for the historical information contained herein, the
matters addressed in this Prospectus constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements are subject to a variety of
risks and uncertainties, such as statements of the Company's strategies,
plans, objectives, expectations and intentions, that could cause the Company's
actual results to differ materially from those anticipated in these forward-
looking statements. The Cautionary Statements made in this Prospectus should
be read as being applicable to all related forward-looking statements wherever
they appear in this Prospectus.
RECENT ACQUISITIONS
On March 28, 1997, the Company completed the North Star Merger which was
accounted for as a pooling of interests, in which the Company issued 2,450,000
shares of its Common Stock. The pooling of interests method of accounting
requires that financial information be presented on an historical combined
basis for all periods presented. Therefore, unless otherwise indicated, the
following discussion of results of operations and liquidity and capital
resources reflects the combined companies. See "Index to Financial
Statements."
In August 1996, the Company acquired five service centers located in Mobile,
Montgomery, Birmingham, Dothan and Huntsville, Alabama from After Market Parts
& Supply, Inc. In September 1996, the Company acquired the assets of Southern
Wrecker Sales, Inc. ("Augusta") located in Augusta, Georgia. Augusta will be
operated as a depot of the Company's Atlanta service center. Also in September
1996, the Company acquired the assets related to the aftermarket collision
replacement parts business of Glenn Automotive Paint & Body Supply, Inc.
("Glenn"). Glenn operated two locations, Atlanta, Georgia and Chattanooga,
Tennessee, which have been consolidated into the Company's existing service
centers in those cities. In October 1996, the Company acquired the assets
related to the bumper distribution business of Stockton Plating, Inc. located
in Stockton, California. These acquisitions were accounted for under the
purchase method of accounting.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
income statement items as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 59.8 60.6 59.2
----- ----- -----
Gross profit................................... 40.2 39.4 40.8
Selling and distribution expenses.............. 29.1 27.9 27.5
General and administrative expenses............ 7.2 6.0 6.4
North Star Merger costs........................ -- -- 0.5
----- ----- -----
Operating income............................... 3.9 5.5 6.4
Interest expense............................... 0.9 0.9 0.7
----- ----- -----
Income before income taxes..................... 3.0 4.6 5.8
Income taxes................................... 1.2 1.8 2.3
----- ----- -----
Net income..................................... 1.8% 2.8% 3.5%
===== ===== =====
</TABLE>
16
<PAGE>
Fiscal 1997 Compared to Fiscal 1996
Net sales were $194.3 million in fiscal 1997 compared to $157.0 million in
fiscal 1996, an increase of $37.3 million, or 23.8%. This increase was due
primarily to an increase of $14.2 million in sales of automotive body parts,
an increase of $10.1 million in sales of paint and related materials and an
increase of $9.5 million in sales of new and recycled bumpers, which represent
increases of approximately 23.5%, 40.7% and 14.7%, respectively, over fiscal
1996. In addition, the Company sold $2.9 million of remanufactured alloy
wheels in fiscal 1997 compared to $250,000 in the prior fiscal year, an
increase of 1,060%.
The increased net sales were attributable primarily to an increase in the
number of service centers in operation and an increase in unit volume. Price
increases were not a material factor in increased net sales.
Gross profit increased to $79.3 million (40.8% of net sales) in fiscal 1997
from $61.9 million (39.4% of net sales) in fiscal 1996, an increase of 28.1%,
primarily as a result of the increase in net sales. The Company's gross profit
margin has fluctuated, and is expected to continue to fluctuate, depending on
a number of factors, including changes in product mix, acquisitions and
competition.
Selling and distribution expenses increased to $53.5 million (27.5% of net
sales) in fiscal 1997 from $43.8 million (27.9% of net sales) in fiscal 1996,
an increase of 22.2%. The decrease in these expenses as a percentage of net
sales was generally the result of certain fixed costs being absorbed over a
larger revenue base, which were partially offset by costs associated with
consolidating and assimilating acquisitions.
General and administrative expenses increased to $12.3 million (6.4% of net
sales) in fiscal 1997 from $9.4 million (6.0% of net sales) in fiscal 1996, an
increase of 30.9%. The increase in these expenses as a percentage of net sales
in fiscal 1997 was primarily the result of costs incurred in assimilating
acquired operations.
In addition, during fiscal 1997, the Company incurred $905,000 of costs
related to the North Star Merger, consisting primarily of legal, accounting
and regulatory fees which were required to be expensed as incurred. All costs
associated with the North Star Merger were expensed in fiscal 1997.
As a result of the above factors, net income increased to $6.8 million (3.5%
of net sales) in fiscal 1997 from $4.3 million (2.8% of net sales) in fiscal
1996. The increase in net income as a percentage of net sales was primarily
the result of an increase in gross profit as a percentage of sales. Gross
profit margin in fiscal 1997 increased primarily as a result of changes in
product mix, including an increase in the sale of remanufactured alloy wheels.
However, there can be no assurance that the Company can maintain its gross
profit margin at the level experienced in fiscal 1997, which was above
historical levels.
Fiscal 1996 Compared to Fiscal 1995
Net sales were $157.0 million in fiscal 1996 compared to $132.7 million in
fiscal 1995, an increase of $24.3 million, or 18.4%. This increase was due
primarily to an increase of $11.0 million in sales of automotive body parts,
an increase of $8.0 million in sales of new and recycled bumpers and an
increase of $5.3 million in the sale of paint and related materials, which
represent increases of approximately 22.3%, 14.1% and 28.2%, respectively,
over fiscal 1995.
Increased net sales were attributable primarily to an increase in the number
of service centers in operation, including centers acquired in fiscal 1995 for
which fiscal 1996 was the first full year that results of operations were
included with the Company's, and an increase in unit volume. Price increases
were not a material factor in increased net sales.
Gross profit increased to $61.9 million in fiscal 1996 from $53.3 million in
fiscal 1995, an increase of 16.0%, primarily as a result of the increase in
sales. Gross profit decreased as a percentage of sales from 40.2% in fiscal
1995 to 39.4% in fiscal 1996, primarily as a result of changes in product mix.
17
<PAGE>
Selling and distribution expenses increased to $43.8 million (27.9% of net
sales) in fiscal 1996 from $38.6 million (29.1% of net sales) in fiscal 1995,
an increase of 13.5%. The decrease in these expenses as a percentage of net
sales is generally the result of certain fixed costs being absorbed over a
larger revenue base, which were partially offset by costs associated with
consolidating and assimilating acquisitions.
General and administrative expenses decreased to $9.4 million (6.0% of net
sales) in fiscal 1996 from $9.6 million (7.2% of net sales) in fiscal 1995, a
reduction of 1.3%. These expenses decreased in amount and as a percentage of
net sales in fiscal 1996 as a result of a net reduction in certain charges
incurred in fiscal 1996 of $1.4 million as compared to fiscal 1995, of which
$1.2 million represented compensation paid in fiscal 1995 pursuant to the
Company's restricted stock option plan.
As a result of the above factors, net income increased to $4.3 million (2.8%
of net sales) in fiscal 1996 from $2.4 million (1.8% of net sales) in fiscal
1995. The increase in net income as a percentage of net sales was primarily
the result of a decrease in operating expenses as a percentage of net sales
from 36.3% in fiscal 1995 to 33.9% in fiscal 1996, which was partially offset
in part by a decrease in gross profit margin from 40.2% in fiscal 1995 to
39.4% in fiscal 1996. The decrease in operating expenses in fiscal 1996
related primarily to certain charges incurred in 1995 which are not expected
in future years and, consequently, the Company does not expect to realize
significant decreases in operating expenses as a percentage of sales in the
future.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
The Company has experienced, and expects to continue to experience,
variations in its sales and profitability from quarter to quarter due, in
part, to the timing and integration of acquisitions and the seasonal nature of
Keystone's business. The number of collision repairs is directly impacted by
the weather. Accordingly, the Company's sales generally are highest during the
five-month period between December and April. Such seasonality may be reduced
somewhat in the future as Keystone becomes more geographically diversified.
Other factors which influence quarterly variations include the reduced number
of business days during the holiday seasons, the timing of the introduction of
new products, the level of consumer acceptance of new products, general
economic conditions that affect consumer spending, the timing of supplier
price changes and the timing of expenditures in anticipation of increased
sales and customer delivery requirements.
The following unaudited table sets forth the Company's net sales, operating
income and net income for the eight quarters ended March 28, 1997. The
operating results for any quarter are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
------------------------------- -------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $34,667 $35,420 $38,763 $48,171 $45,561 $43,894 $49,905 $54,961
Operating income........ 1,596 1,717 2,346 3,003 3,017 2,846 3,555 3,103
Net income.............. 760 824 1,199 1,553 1,519 1,636 1,857 1,777
</TABLE>
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In June 1996, Keystone completed an initial public offering of 1,500,000
shares of its Common Stock, yielding net proceeds to the Company, after
discounts, commissions and expenses, of $11.6 million.
Approximately $10.9 million of the proceeds were used to pay down the
Company's revolving credit facility with a commercial bank and approximately
$700,000 of the proceeds were used to retire two outstanding mortgages on the
Company's facilities located in Bethlehem, Pennsylvania and Louisville,
Kentucky. Subsequently, $5.4 million under the Company's line of credit was
used to fund acquisitions.
On March 25, 1997, the Company entered into a revolving loan agreement with
a commercial lender that provides for a $25.0 million unsecured credit
facility that expires on March 24, 1998. Advances under the revolving line of
credit bear interest at LIBOR plus 0.75% (6.46% at May 31, 1997). At May 31,
1997, the outstanding balance of the line of credit was $19.3 million. The
revolving loan agreement is subject to certain restrictive covenants and
requires that the Company maintain certain financial ratios. The Company was
in compliance with all covenants as of March 28, 1997.
The Company's primary need for funds has been to finance the growth of
inventory and accounts receivable and acquisitions. At March 28, 1997, working
capital was $26.8 million compared to $17.0 million at March 29, 1996.
Historically, the Company has financed its working capital requirements from
its cash flow from operations, advances drawn under lines of credit and, to a
limited extent, indebtedness to certain of the sellers of acquired service
centers.
The Company believes that its cash flow from operations and the credit
available under its line of credit will enable it to finance its anticipated
growth in sales (excluding growth from acquisitions) for at least the next 12
months.
The Company believes that consolidation among independent distributors of
aftermarket collision parts is creating opportunities for the Company to
acquire service centers in new and existing markets. The Company intends to
explore acquisition opportunities that may arise from time to time. To date,
the Company's acquisitions have been financed by cash flow from operations,
advances drawn under its credit facilities and indebtedness to certain of the
sellers of acquired service centers. The Company is offering the shares set
forth in this Prospectus primarily to allow it to implement its acquisition
strategy. As of the date of this Prospectus, other than as described herein,
there are no existing commitments or agreements with respect to any
acquisition and no assurance can be given that significant additional
acquisitions can be consummated on terms favorable to the Company. See
"Business -- Growth Strategy -- Acquisitions." Once the proceeds of this
Offering are utilized, the Company may incur indebtedness or issue equity or
debt securities to third parties or the sellers of the acquired businesses to
complete additional acquisitions. There can be no assurance that additional
capital, if and when required, will be available on terms acceptable to the
Company, or at all. In addition, current and future issuance of equity
securities, if any, will result in dilution to the shareholders of the
Company, including investors in this Offering.
INFLATION
The Company does not believe that the relatively moderate rates of inflation
over the past three years have had a significant effect on its net sales or
its profitability.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company has adopted Statement
121 in fiscal 1997 and the effect of adoption was not material. In October
1995, the FASB issued Statement No. 123, Accounting for Stock-based
Compensation, which establishes financial accounting and reporting standards
for stock-based compensation plans. The Company has adopted Statement No. 123
in fiscal 1997.
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BUSINESS
GENERAL
Keystone is the nation's leading distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks. Keystone distributes products primarily to collision repair
shops throughout most of the United States. In addition, the Company recycles
and produces chrome plated and plastic bumpers and remanufactures alloy
wheels. The Company's product lines consist of automotive body parts, bumpers,
autoglass and remanufactured alloy wheels, as well as paint and other
materials used in repairing a damaged vehicle. Keystone currently offers more
than 19,000 stock keeping units to over 22,000 collision repair shop
customers, out of an estimated 48,000 shops nationwide. Founded in Southern
California in 1947, the Company operates a "hub and spoke" distribution system
consisting of 11 regional hubs and 71 service centers located in 33 states in
the West, Midwest, Northeast, Mid-Atlantic and South, as well as in Tijuana,
Mexico. From these service centers, Keystone has approximately 360
professional and highly-trained salespersons who call on an average of over
5,000 collision repair shops per day.
On March 28, 1997, a wholly-owned subsidiary of the Company merged into
North Star in a transaction (the "North Star Merger") accounted for as a
pooling of interests. At the time of the North Star Merger, North Star
operated four regional hubs and 23 service centers located in the Midwest and
Mid-Atlantic, and the Company believes that North Star was the second largest
distributor of aftermarket collision replacement parts in the United States.
North Star's operations are very similar to the Company's and strategically
expand the Company's geographic market coverage, as only two of the North Star
service centers operate in markets already served by Keystone. In addition,
the North Star Merger adds depth and experience to the Company's management
capabilities.
For the fiscal year ended March 28, 1997, the Company generated record
revenues, net income and net income per share of $194.3 million, $6.8 million
and $0.72, respectively. These results represented increases of approximately
23.8%, 56.6% and 35.8%, respectively, over revenues of $157.0 million, net
income of $4.3 million and net income per share of $0.53 in fiscal 1996. For
fiscal 1995, 1996 and 1997, the Company generated increases in comparable
service center sales of approximately 16%, 13% and 13%, respectively.
Keystone's growth has been due primarily to a combination of (i) strategic
acquisitions of independent distributors, both in new and existing geographic
markets, (ii) expansion of existing product lines and introduction of new
product lines and (iii) increased demand for aftermarket collision parts.
INDUSTRY OVERVIEW
History. The Aftermarket Body Parts Association ("ABPA") estimates that the
wholesale market for aftermarket collision parts in 1995 ranged between $800
million and $1.2 billion in annual expenditures, or approximately 10% of the
collision parts market. In addition, industry sources estimate that wholesale
sales of paint and related supplies and equipment for collision repair, which
constitute a growing part of the Company's business, accounted for
approximately $2.4 billion in 1995. Substantially all of the remainder of the
collision parts market consists of parts produced by OEMs, and a substantial
number of collision parts are available exclusively from OEMs and are likely
to remain so. The growth in sales of aftermarket collision parts has been due
primarily to the increased availability of quality parts and to cost
containment efforts by the insurance industry.
Before 1980, automotive collision parts were manufactured almost exclusively
by OEMs. During the 1960s and 1970s, due to prohibitive tariffs in Taiwan on
imported automobiles and restrictions on foreign ownership of manufacturing
facilities in Taiwan, certain Taiwanese automobile manufacturers commenced
producing automobiles for sale in Taiwan. Since the early 1980s, these
Taiwanese manufacturers have sought to reduce the effect on their business of
the cyclical demand for new automobiles by producing aftermarket collision
parts.
Collision Repair Industry Insight ("Insight"), an industry trade
publication, estimates that approximately 87% of all automobile collision
repair work is paid for in part by insurance. Accordingly, major insurance
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companies exert significant influence over the selection of collision parts
used by collision repair shops. The availability of aftermarket collision
parts has been a major factor in the insurance industry's efforts to contain
the escalating cost of collision repairs. According to Body Shop Business'
1996 Industry Survey, the percentage of collision repair facilities using
aftermarket collision replacement parts increased from approximately 54% in
1993 to 69% in 1995.
Aftermarket collision parts generally sell for between 20% and 40% less than
comparable OEM parts. The ABPA estimates that the competition afforded by
aftermarket collision parts has resulted in price reductions of between 25%
and 50% for selected OEM collision parts, and that the availability of
aftermarket collision parts saved insurance companies approximately $800
million in 1994 by providing consumers with less expensive aftermarket parts
and creating competition resulting in lower prices for comparable OEM parts.
The Company believes that it is somewhat insulated from downturns in the
general economy as a result of the fact that 87% of all automobile collision
repair work is paid for in part by insurance.
As a part of their ongoing efforts to improve customer service, most major
insurance companies have adopted programs designating selected collision
repair shops in particular geographic areas as Direct Repair Providers
("DRPs"). DRPs are generally directed additional collision repair business by
the insurers in return for adhering to certain criteria, which include the use
of aftermarket collision parts when available. To encourage consumers to use
DRPs, the insurers authorize the repair of collision damage without obtaining
the prior approval of the insurer's adjuster (thereby generally providing for
a quicker return of the vehicle to its owner) and offer additional warranties
concerning the repair services and parts used. According to Insight, during
1996, DRPs accounted for approximately 9% to 11% of total collision repair
costs and this market share is estimated to grow to 25% by 1998.
Companies offering collision support services, including Automated Data
Processing ("ADP"), Mitchell International and CCC Information Services, Inc.,
have developed proprietary software and databases to provide insurance claims
adjustors and collision repair shops with computerized access to the
inventories and prices of selected distributors of both aftermarket and OEM
collision parts nationwide. The Company's inventory and prices are included in
these databases. Access to the providers' databases enables distributors with
computerized inventory control systems, such as the Company, to update prices
rapidly and notify collision repair shops of the availability of new products.
Quality Assurance. In 1987, the Certified Automotive Parts Association
("CAPA") was founded to provide insurance companies, distributors, collision
repair shops and consumers with an objective method of evaluating the
functional equivalence of aftermarket collision parts and OEM collision parts.
CAPA, a non-profit association of insurance companies, manufacturers,
importers, distributors, collision repair shops and consumer groups,
establishes the specifications for, tests and certifies the quality of
aftermarket automotive collision parts. Through independent testing
laboratories, CAPA develops engineering specifications for aftermarket
collision parts based upon an examination of OEM parts; certifies the
factories, manufacturing processes and quality control procedures used by
independent manufacturers; and certifies the materials, fit and finish of
specific aftermarket collision parts. According to CAPA, the number of
collision part applications entitled to bear the CAPA certification had
increased from approximately 600 in January 1994 to approximately 1,600 by
October 1996. CAPA randomly reviews both the factories and individual parts
previously certified by it and solicits comments concerning the quality of
certified parts from collision repair shops and consumers on a regular basis.
Most major insurance companies have adopted policies recommending or
requiring the use of parts certified by CAPA, when available. The Company
distributes parts certified by CAPA when available and actively participates
with CAPA, insurance companies and consumer groups in encouraging independent
manufacturers of collision parts to seek CAPA certification. Management
believes that the Company is the largest distributor of CAPA-certified parts
in the United States.
Consolidation. The collision repair shop industry is in the process of
consolidation due to, among other things, (i) an increase in the technical
complexity of collision repairs generally, (ii) an increase in governmental
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regulations, including environmental regulations, applicable to collision
repair shops, (iii) the designation of certain collision repair shops as DRPs
and (iv) a reduction in the number of collision repairs generally. The
increasing number of aftermarket collision parts and makes and models of
automobiles has resulted in distributors being required to maintain larger
inventories. In addition, the trend towards fewer, larger and more efficient
collision repair shops has increased the pressure on distributors to provide
price concessions, just-in-time delivery and certain value-added services,
such as training, that collision repair shops require in their increasingly
complex and competitive industry. The above factors, in turn, are contributing
to a consolidation of distributors of aftermarket collision parts, providing
the Company with an opportunity through acquisitions to expand its operations
into new markets and to penetrate further existing markets.
COMPETITIVE STRENGTHS
Keystone believes that the following characteristics enable it to compete
effectively.
Leading Market Position. As the nation's leading distributor of aftermarket
collision parts, Keystone offers its customers one of the broadest available
selections of aftermarket collision parts, just-in-time delivery, lower prices
as a result of volume purchasing power, worldwide product sourcing and
priority access to new products and superior technical expertise, and thereby
allows its customers to simplify their business by relying on fewer vendors.
As a result of the Company's volume purchases, it can assemble entire
containers for shipment from foreign manufacturers more efficiently than its
generally smaller competitors. In addition, as a result of its leading market
position, the Company periodically is requested by independent producers to
introduce new aftermarket collision parts.
Relationship with Insurance Companies. Since the founding of its business in
1947, the Company has fostered its relationship with insurance companies whose
increasing efforts to contain escalating costs of collision repairs have been
a principal factor in the growth of the market for aftermarket collision
parts. The Company's inventory and prices are included in the parts databases
used by most major insurance companies. In addition, the Company's national
marketing staff routinely conducts seminars for regional insurance executives
and claims adjusters to explain the role of aftermarket collision parts in
containing the cost of claims and to encourage the implementation of the
insurance companies' policies favoring such parts. Charles J. Hogarty, the
Company's President and Chief Executive Officer, and Kim D. Wood, the
President of North Star, were active in the efforts of ABPA and CAPA to
provide insurance companies an objective method of evaluating the quality of
aftermarket collision parts. As a result of its distribution system, which
covers 33 states and Tijuana, Mexico, and its position as the nation's largest
distributor of aftermarket collision parts, the Company believes that it is
well-positioned to deal with major insurance companies on a national basis.
The Company's business is highly dependent upon the continued acceptance of
aftermarket collision parts by the insurance industry.
Experienced Executive Management and Service Center Managers. Keystone
believes that its key employees, including its service center managers, are
among the most experienced in its industry. The Company's executive officers
have been employed by the Company for an average of 20 years, and the
Company's service center managers have been employed for an average of over
nine years. The experience and tenure of the Company's service center managers
and their long-standing relationships with collision repair shop operators
have enabled the Company to compete successfully in local markets.
Entrepreneurial Corporate Culture. Keystone fosters an entrepreneurial
corporate culture in which the manager of each service center is responsible
for its day-to-day operations, including the management of a staff of six to
70 employees. Each service center manager participates in an incentive
compensation program through which the manager is eligible to earn a bonus
which may exceed 100% of base salary. The Company believes that its
entrepreneurial corporate culture has contributed to its growth in sales and
profitability and has enabled the Company to attract and retain employees and
to be highly responsive to customer requirements and preferences, actions by
competitors and changes in local market conditions.
Superior Customer Service. Keystone believes that its high level of customer
service is one of the most important factors which differentiates it from its
competitors. The Company periodically introduces new
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programs to provide responsive customer service and to foster close customer
relations. For example, most orders are filled by the Company within 24 hours
of receipt out of inventories maintained in its regional hubs and service
centers utilizing a computerized inventory control system and its own fleet of
over 600 delivery trucks. In addition, the Company offers its customers one of
the broadest available selections of aftermarket collision parts and it makes
placing orders convenient and accurate through computerized order taking
systems which regularly update the prices and the availability of parts.
Moreover, the Company generally warrants its products against defects in
material and workmanship for as long as the repair shop's customer owns the
vehicle. To date the Company's warranty costs have been immaterial. The
Company has approximately 360 professional and highly-trained route
salespersons, who call on an average of over 5,000 collision repair shops per
day, and are a resource for customers concerning technical and regulatory
developments in an increasingly complex and competitive industry. The Company
believes that its superior customer service has resulted in long-term customer
relationships which present the opportunity to cross-sell additional products.
Management Information Systems. The Company believes that its computerized
order taking, inventory control and management information systems are among
the most advanced in its industry. The Company periodically upgrades these
systems to achieve additional operating efficiencies and a higher level of
customer service. The ordering, shipment, storage and delivery of the
Company's products are managed through two centralized information systems
that allow the Company's and North Star's corporate headquarters, regional
hubs and service centers to obtain timely information regarding the location
and availability of products, customers, sales and other financial and
operating data. The Company's electronic parts catalog and price list allows
rapid updating of prices and availability of products both within the
Company's distribution system and within the electronic databases maintained
by various collision support services for use by claims adjusters and
collision repair shops. The Company's computerized order taking system reduces
the time required for a customer to place an order, reduces errors in order
taking and facilitates the cross-selling of related products.
North Star has developed and maintains its own computerized order taking,
inventory control and management information systems, which are similar to
Keystone's systems. Summary financial information is transmitted weekly from
North Star's corporate headquarters to the Company's executive offices.
GROWTH STRATEGY
The Company's growth strategy includes the following key elements:
Acquisitions and Service Center Additions. From April 1992 through the end
of fiscal 1997, the Company had completed 18 acquisitions of 42 service
centers in the Northeast, Midwest, Mid-Atlantic, South and Mexico, of which 11
had been consolidated with existing locations and four had been closed. Of
these, North Star had completed four acquisitions of 11 service centers.
During the same period, North Star opened five additional service centers.
Since the North Star Merger, the Company has acquired an alloy wheel
remanufacturing operation with facilities located in Minnesota and Illinois
and a distributor of new and recycled bumpers located in Florida. In addition,
the Company has entered into agreements which, if successfully completed, will
result in an expansion into the Southwest through the acquisition of six
service centers located in Arizona, Colorado, New Mexico, Nevada and Texas.
The Company intends to continue to take advantage of the consolidation of
its industry by acquiring service centers in new and existing markets. In the
ordinary course of its business, the Company regularly evaluates new
geographic markets and potential acquisitions and believes that numerous
acquisition opportunities exist due to the preponderance of small local or
regional competitors. In evaluating potential acquisitions, the Company seeks
well-established local distributors with strong management and significant
market share, which operate in markets which the Company believes will provide
additional growth and acquisition opportunities. Through a combination of
broader product lines, volume purchase discounts, efficient inventory
management, experienced management and a national distribution system, the
Company believes that it generally has been able to increase revenues and to
operate acquired service centers more profitably than the prior owners.
Expansion of Products. Since April 1992, the Company has introduced several
new product lines, including autoglass, remanufactured alloy wheels and paint
and related supplies and equipment. In addition, the
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Company has expanded its existing product lines as additional aftermarket
collision parts have become available, to include such products as radiators,
condensers and head and tail light assemblies for the growing number of makes
and models of automobiles and light trucks on the road today. The number of
automotive and light truck parts distributed by the Company has increased from
approximately 3,000 at December 31, 1992 to more than 4,900 at March 28, 1997.
The Company intends to continue to expand its existing product lines, as well
as to continue to introduce new product lines compatible with its distribution
system.
Increase in Comparable Service Center Sales. Comparable service center sales
for the Company increased approximately 16% in fiscal 1995, 13% in fiscal 1996
and 13% in fiscal 1997. The Company's strategy is to continue to increase its
market share in existing markets by introducing new products and product
lines, by capitalizing on the competitive advantages provided by its position
as a market leader and by continuing to emphasize customer service.
PRODUCTS
The Company distributes more than 19,000 stock keeping units of aftermarket
collision parts and repair materials for most popular models of domestic and
foreign automobiles and light trucks, generally for the seven most recent
model years. The Company's principal product lines consist of automotive body
parts, bumpers, paint and other materials, autoglass, light truck accessories
and remanufactured alloy wheels. In addition, the Company, primarily through
North Star, recycles, produces and distributes new and remanufactured plastic
and chrome bumpers to wholesale bumper distributors and manufacturers of truck
accessories.
Automotive Body Parts. The Company distributes automotive and light truck
parts manufactured by six foreign and nine domestic manufacturers, including
fenders, hoods, radiators and condensers and head and tail light assemblies.
These products accounted for $74.9 million, or 38.5% of the Company's net
sales in the fiscal year ended March 28, 1997.
Bumpers. The Company distributes new and remanufactured plastic bumper
covers and steel bumpers manufactured by five foreign and six domestic
manufacturers. For the fiscal year ended March 28, 1997, sales of plastic and
steel bumpers accounted for $74.0 million, or 38.1% of the Company's net
sales.
In addition, the Company recycles, produces and distributes new and recycled
chrome and plastic bumpers, primarily at North Star. Management believes that
North Star is one of the nation's largest non-OEM producers of new and
recycled chrome plated bumpers to the collision repair and restoration
markets. On an annual basis, North Star electro-plates approximately 150,000
steel plated bumpers for automobiles and light trucks. Bumpers used in the
operations include new steel stampings, collision-damaged bumpers that require
straightening and replating and older model or antique bumpers that require
restoration and replating. The bumper repair and replating process generally
includes some or all of the following steps: straightening or reforming to
original dimensions; welding breaks or cracks; surface grinding to remove rust
and corrosion; chemical stripping to remove the original electro-plated
finishes; metal polishing and buffing; electro-plating layers of copper,
nickel and chromium; and inspecting and packaging.
Beginning in the late 1970s and the early 1980s, manufacturers of new
automobiles began changing from an almost exclusive use of chrome plated steel
bumpers to painted plastic bumpers. By the 1996 model year, manufacturers were
using painted plastic bumpers almost exclusively for their automobiles. Chrome
plated steel bumpers are still used extensively on light trucks and sport
utility vehicles. The Company's sales of chrome bumpers accounted for $27.7
million, or 14.3% of the Company's net sales for the fiscal year ended March
28, 1997.
Paint and Other Materials. Beginning in fiscal 1993, the Company
significantly increased its emphasis on the sale of paint and other materials
used in repairing a damaged vehicle, including sandpaper, abrasives, masking
products and plastic filler. The paint and other materials distributed by the
Company are purchased from approximately 20 domestic suppliers. For the fiscal
year ended March 28, 1997, sales of paint and other materials accounted for
$34.8 million, or 18.0% of the Company's net sales. Certain of these products
are distributed under the name "Keystone."
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Light Truck Accessories. The Company distributes parts and accessories for
light trucks, including grills, step bumpers and bedliners. For the fiscal
year ended March 28, 1997, sales of parts and accessories for light trucks
accounted for $9.3 million, or 4.8% of the Company's net sales.
Autoglass. The Company distributes autoglass, including windshields, side
windows and rear windows, which are purchased from two domestic manufacturers.
For the fiscal year ended March 28, 1997, sales of autoglass, which was
introduced in fiscal 1993, accounted for $2.7 million, or 1.4% of the
Company's net sales.
Remanufactured Alloy Wheels. In October 1995, the Company acquired a
remanufacturer of collision damaged alloy wheels located in Denver, Colorado,
and during fiscal 1997 it opened remanufacturing operations in four of its
facilities. The Company opened a remanufacturing operation in Atlanta, Georgia
in May 1997 and acquired remanufacturing operations located in Roseville,
Minnesota and Chicago, Illinois in June 1997. According to industry sources,
the percentage of new automobiles equipped with alloy wheels, as opposed to
steel wheels and hub caps, has increased from approximately 11% in 1985 to 45%
for the 1996 model year. The average wholesale cost of a new replacement alloy
wheel is $225, compared to an average wholesale cost of $140 for a
remanufactured alloy wheel. The alloy wheel remanufacturing process generally
includes some or all of the following steps: straightening, welding minor
breaks or chips, machining, painting and applying clear coat. For the fiscal
year ended March 28, 1997, sales of remanufactured alloy wheels accounted for
$2.9 million, or 1.5% of the Company's net sales.
The remanufacturing of alloy wheels is generally conducted by many small
independent operators. The Company believes that there is a large and growing
demand for remanufactured alloy wheels and that, using its existing
distribution system and customer base, the Company is well-positioned to
service that demand.
DISTRIBUTION, MARKETING AND SALES
The Company's distribution system is designed to provide responsive customer
service and to foster long-term customer relations.
Distribution System. The Company has developed a national "hub and spoke"
distribution system consisting of 11 regional hubs and 71 service centers.
Each regional hub receives container shipments directly from foreign and
domestic manufacturers. Using the Company's fleet of over 600 delivery trucks,
each regional hub makes regular shipments to the service centers in its
region, which in turn make regular deliveries to its repair shop customers. By
maintaining a fleet of delivery trucks, the Company ensures rapid delivery
within its distribution system and to its customers. In addition, each service
center can order products directly from any hub or service center. The Company
manages its inventory and the ordering, shipment, storage and delivery of
products through centralized information systems that allow the Company's and
North Star's corporate headquarters, regional hubs and service centers to
obtain timely information regarding the location and availability of products.
The continuing increase in the number of makes and models of automobiles and
light trucks and the number of aftermarket collision parts has increased the
pressure on distributors to maintain larger inventories. The Company believes
that its "hub and spoke" distribution system allows it to offer its customers
one of the broadest available selections of aftermarket collision parts and to
fill most orders within 24 hours, while minimizing inventory costs.
Sales and Marketing Staff. The Company has a ten-person marketing staff,
which operates from its corporate headquarters, and has 78 sales
representatives and approximately 360 route salespersons who operate from its
service centers. The marketing staff develops all marketing and promotional
materials, assists the service centers in recruiting and training sales
representatives, route salespersons and customer service representatives,
supervises the Company's in-house management training program and supports
general managers of its service centers, sales representatives and route
salespersons with computerized analyses of sales by product, route and
customer. In addition, the marketing staff conducts educational programs for
regional insurance executives and claims adjusters to explain the role of
aftermarket collision parts in containing the escalating costs of claims and
in order to facilitate the implementation of insurance companies' policies
favoring aftermarket collision parts.
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The general managers of the Company's service centers have been employed by
the Company for an average of over nine years and are actively involved in
customer calls. The Company believes that this local control and expertise
have contributed significantly to its growth. In addition, through periodic
training programs and performance reviews, the Company seeks to enhance the
professionalism and technical expertise of its route salespersons. As a
result, the Company believes that its route salespersons are highly attendant
to the needs of the Company's customers.
Marketing Programs. The Company offers various marketing programs to foster
closer customer relations, including a warranty program in which the Company
generally warrants its products against defects in material and workmanship
for as long as the repair shop's customer owns the vehicle. In addition, the
Company's management information systems allow it to provide individual
collision repair shops with personalized product usage reports which enable
its customers to better manage their inventory by controlling inventory
shrinkage and ensuring timely reordering.
CUSTOMERS
The Company's current customers consist of more than 22,000 collision repair
shops located in 33 states and Tijuana, Mexico, none of which accounted for
more than 1% of the Company's net sales during the fiscal year ended March 28,
1997. The Company also distributes its bumpers to wholesale distributors and
manufacturers of truck accessories. The size of its customer base reduces the
Company's dependence on any single customer and its national scope mitigates
the effects of regional economic changes and regional weather patterns.
Insight estimates that there are over 48,000 collision repair shops
nationwide. The number of collision repair shops to whom Keystone sold
products increased from approximately 13,400 in fiscal 1993 to approximately
22,000 following the North Star Merger in March 1997.
The Company's regional hubs also sell collision parts to local distributors
who may compete with the Company. Approximately 12% of the Company's net sales
during the fiscal year ended March 28, 1997 were attributable to sales to
other local distributors. No distributor accounted for more than 1% of the
Company's net sales for such fiscal year.
SUPPLIERS
The products distributed by the Company are manufactured by over 60
manufacturers, the ten largest of which provided approximately 43% of the
products purchased by the Company during the fiscal year ended March 28, 1997,
and no single supplier provided as much as ten percent. The Company believes
that it is one of the largest customers of each of its ten largest suppliers.
In fiscal 1997, approximately 75% of the products distributed by the Company
were manufactured in the United States or Canada, and approximately 25% were
imported directly from manufacturers in Taiwan. The Company's orders from
domestic suppliers generally are received within 10 days and orders from
foreign manufacturers generally are received in between 60 and 90 days.
Although the Company has no manufacturing agreements with any of its suppliers
and competes with other distributors for production capacity, the Company
believes that its sources of supply and its relationships with its suppliers
are satisfactory. Although alternative suppliers exist for substantially all
products distributed by the Company, the loss of any one supplier could have a
material adverse effect on the Company until alternative suppliers are located
and have commenced providing products.
North Star generally sells only automotive paint manufactured by PPG
Industries, Inc. ("PPG") at certain of its service centers. Keystone derived
approximately 5% of its revenues from North Star's sale of PPG paint in fiscal
1997. In the event PPG's paint became unavailable for any reason, the Company
believes North Star could replace its use of PPG paint by using a different
company's paint products.
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COMPETITION
Based upon industry estimates, the Company believes that approximately 85%
of collision parts are supplied by OEMs, compared with approximately 10% by
distributors of aftermarket collision parts and 5% by distributors of salvage
parts. The Company encounters intense competition from OEMs, all of which have
substantially greater financial, distribution, marketing and other resources,
including greater brand recognition and a broader selection of collision
parts, than the Company. Accordingly, OEMs are in a position to exert pricing
and other competitive pressure on the Company. The distribution industry for
aftermarket collision parts is highly fragmented. The Company's competitors
generally are independently owned distributors having from one to three
distribution centers. The Company expects to encounter significant competition
in the future, including competition from OEMs, automobile dealerships,
distributors of salvage parts, buying groups and other large distributors.
The Company competes with OEMs primarily on the basis of price, and it
competes with distributors of aftermarket collision parts primarily on the
basis of the competitive advantages provided by its position as a market
leader, experienced executive management and service center managers,
entrepreneurial corporate culture, superior customer service, relationship
with insurance companies and management information systems and centralized
administrative functions, and, to a lesser extent, on the basis of price.
The Company's chrome bumper plating operations compete in the wholesale
bumper distribution segment of the market with four companies, whom the
Company believes have greater regional sales than the Company. It also
competes with small chrome bumper platers or distributors in virtually every
geographical market in which it operates. The Company competes with small
chrome bumper platers and distributors primarily on the basis of quality and
service. Over the last ten years, there has been a significant decrease in the
number of small bumper platers as a result of the decreasing use of chrome
plated bumpers on new automobiles and the increasing environmental
requirements for electro-platers. Bumper Recyclers Association of North
America ("BRANA"), the nation's only bumper trade association, membership
decreased from approximately 100 companies in 1982 to approximately 32
companies in 1996. The Company believes that this trend will continue,
creating more sales opportunities for larger regional chrome bumper platers,
who are capable of meeting the increased financial and environmental
requirements in the future.
The Company also encounters competition from the OEM's who supply new
replacement bumpers to the collision repair market, and have significantly
greater resources than the Company. The Company competes with the OEM's
primarily on the basis of price.
GOVERNMENT REGULATION AND ENVIRONMENTAL HAZARDS
The Company is subject to increasing restrictions imposed by various
federal, state and local laws and regulations. Various state and federal
regulatory agencies, such as the Occupational Safety and Health Administration
and the EPA, have jurisdiction over the Company's operations with respect to
matters including worker safety, community and employee "right-to-know" laws,
and laws regarding clean air and water. Under various federal, state and local
laws and regulations, an owner or lessee of real estate or the operator of a
business may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in, or emanating from, property
owned or used in the business, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner, lessee or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. Other than as described below
with respect to its bumper plating operations, the Company does not currently
generate substantial hazardous waste in the ordinary course of its business.
The Company believes that it currently is in substantial compliance with all
applicable laws and regulations, and is not aware of any material
environmental problem at any of its current or former facilities. No assurance
can be given, however, that the Company's prior activities or the activities
of a prior owner or operator of an acquired service center or other facility
did not create a material environmental problem for which the Company could be
responsible or that future uses or conditions (including, without limitation,
changes in applicable laws and regulations) will not result in material
environmental liability to the
27
<PAGE>
Company. Furthermore, compliance with legislative or regulatory changes may
cause future increases in the Company's operating costs or otherwise adversely
affect operations. Certain of the Company's products, such as paints and
solvents, are highly flammable. Accordingly, the storage and transportation of
these materials expose the Company to the inherent risk of fire.
The Company acquired North Star's bumper plating operations in connection
with the North Star Merger. In addition, the Company currently conducts
limited bumper plating operations at one site and previously conducted similar
operations at 11 additional sites which were closed between 1983 and 1993. See
"Business -- Products-- Bumpers." The Company's bumper plating operations,
which use a number of hazardous materials, are subject to a variety of federal
and state laws and regulations relating to environmental matters, including
the release of hazardous materials into the air, water and soil. The Company
endeavors to ensure that its chrome plating operation complies with applicable
environmental laws and regulations. Compliance with such laws and regulations
has not had a material effect on the Company's capital expenditures, earnings
or competitive position, and no material capital expenditures with respect to
the Company's bumper plating operations are anticipated for the remainder of
this fiscal year. Although the Company believes it is in substantial
compliance with all applicable environmental laws and regulations relating to
its bumper plating operations, there can be no assurance that the Company's
current or former operations have not, or will not in the future, violate such
laws and regulations or that compliance with such laws and regulations will
not have a material adverse effect on the Company's operations. Any
inadvertent mishandling of hazardous materials or similar incident could
result in costly remediation efforts and administrative and legal proceedings,
which could materially and adversely affect the Company's business and results
of operations. In addition, future environmental regulations could add to
overall costs of the Company's bumper plating business or otherwise materially
and adversely affect these operations.
PRIOR FORD LITIGATION
In 1987, Ford Motor Company ("Ford") filed suit against the Company on the
grounds that between 1982 and 1987, the Company had misrepresented the quality
of the aftermarket collision parts sold by it for Ford automobiles. In May
1992, Ford and the Company settled this lawsuit. As part of the settlement,
the Company and its insurance companies paid Ford $1.8 million, of which the
Company contributed $450,000, as damages and agreed to finance a one-year
corrective advertising campaign conducted by Ford using the Company's name. As
a result of this settlement and the corrective advertising campaign, certain
insurance companies ceased listing the Company as an approved supplier of
aftermarket collision parts. Currently, most major insurance companies list
the Company as an approved supplier of aftermarket collision parts, and all
major insurance companies reimburse the cost of collision repairs using the
Company's products. The Company's business is highly dependent on the
continued acceptance of aftermarket collision parts in general, and the
Company's products in particular, by insurers, collision repair shops,
consumers and governmental agencies.
EMPLOYEES
At May 31, 1997, the Company had approximately 1,537 full-time employees, of
whom 11 were engaged in corporate management, 131 in administration, 809 in
sales and customer service, 235 in warehousing and shipping and 351 in
manufacturing. Seven persons in the Newark, New Jersey chrome bumper recycling
facility and six persons in its Kenilworth, New Jersey service center are
covered by collective bargaining agreements. The Company considers its
relations with its employees to be satisfactory.
PROPERTIES
Keystone's principal executive offices are located in Pomona, California and
North Star's principal executive offices are located in Minneapolis,
Minnesota. These premises contain approximately 20,000 square feet and 75,000
square feet, respectively. The Pomona, California offices are owned by the
Company and the Minneapolis, Minnesota offices are leased. In addition, the
Company owns facilities used as service centers in
28
<PAGE>
Chicago, Illinois; Bethlehem, Pennsylvania; Denver, Colorado; New Albany,
Indiana and Palmyra, New Jersey, of which two of the facilities also serve as
regional hubs and three serve as wheel remanufacturing facilities. The Company
leases its remaining facilities, consisting of 65 service centers, of which
eight serve as regional hubs and four also serve as remanufacturing centers.
The Company's regional hubs range from approximately 25,000 square feet to
163,000 square feet. Its service centers range from approximately 2,500 square
feet to 30,000 square feet. All of its leased properties are leased for terms
expiring on dates ranging from the date hereof to February 2005, many with
options to extend the lease term. The Company believes that no single lease is
material to its operations, its facilities are adequate for the foreseeable
future and alternative sites presently are available at market rates. Eight of
the Company's service centers are leased from parties in whom current or
former officers or directors of the Company have an interest. The Company
believes that the terms and conditions of leases with affiliated parties are
no less favorable to the Company than could have been obtained from
unaffiliated parties in arm's-length transactions at the time of the execution
of such leases. See "Management -- Certain Transactions." The Company also
leases small depots in ten larger cities to facilitate distribution.
LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company currently is not a party to any material
pending litigation.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
YEARS
EMPLOYED
NAME AGE POSITION BY COMPANY
---- --- -------- ----------
<C> <C> <S> <C>
Ronald G. Brown...... 59 Chairman of the Board 29(1)
Charles J. Hogarty... 56 President, Chief Executive Officer 36
and Director
Al A. Ronco.......... 60 Executive Vice President and Director 37
Kim D. Wood.......... 40 Vice President and President and 15(1)
Chief Operating Officer of North
Star
John M. Palumbo...... 41 Vice President, Treasurer, and Chief 1
Financial Officer
Robert L. Blanton.... 53 Vice President -- Finance 27
Christopher Northup.. 37 Vice President -- Sales and Marketing 13
James C. Lockwood.... 59 Vice President -- General Counsel and *
Secretary
Timothy C. McQuay(2). 45 Director --
George E. Seebart(2). 68 Director --
</TABLE>
- --------
* Less than one year.
(1) Includes years of service at North Star.
(2) Member of the Audit Committee and the Compensation Committee.
RONALD G. BROWN was elected a director of the Company upon completion of the
North Star Merger pursuant to the terms of the Merger Agreement and was
elected as Chairman of the Board of Directors in May 1997. Mr. Brown served as
President of North Star from its founding in 1968 until the North Star Merger
and he is currently the Vice-President -- Manufacturing of North Star. From
1982 to the present, he has been a member of the Board of Directors of First
Bank N.A. of Brainerd, Minnesota, an affiliate of North Star's primary bank
lender. Mr. Brown has served as a member of the Board of Directors and Vice
President of the Bumper Recycling Association of North America.
CHARLES J. HOGARTY has served as the President, Chief Operating Officer and
a director of the Company since 1987 and was appointed the Chief Executive
Officer of the Company in May 1997. From his joining the Company in 1960 until
1987, Mr. Hogarty held various positions, including salesman, sales manager,
general manager and regional manager. Mr. Hogarty served as a director of the
Aftermarket Body Parts Association from 1984 to 1993, President in 1989 and
Chairman in 1990.
AL A. RONCO has served as the Executive Vice President and a director of the
Company since 1987 and as Secretary from 1987 until he resigned that position
in May 1997. From his joining the Company in 1959 until 1987, Mr. Ronco held
various positions, including salesman, production manager, general manager and
regional manager.
KIM D. WOOD was elected President and Chief Operating Officer of North Star
upon completion of the North Star Merger in March 1997 and was elected a Vice
President of the Company in May 1997. Mr. Wood served as Vice President of
North Star from 1982 until the completion of the North Star Merger. Mr. Wood
is a member of the Aftermarket Body Parts Association and the Certified
Automotive Parts Association. From 1993 through 1995, he was the Chairman of
the Board of the Aftermarket Body Parts Association.
JOHN M. PALUMBO joined the Company as Vice President and Treasurer in March
1996 and was appointed Chief Financial Officer in May 1997. From 1988 until he
joined the Company in 1996, Mr. Palumbo served as Chief Financial Officer,
Treasurer and Corporate Secretary of American United Global, Inc., a public
company engaged in the manufacture of certain automotive parts.
30
<PAGE>
ROBERT L. BLANTON has served as the Vice President -- Finance of the Company
since 1976. From his joining the Company in 1969 until 1976, Mr. Blanton held
various positions, including office manager of a wheel fabrication plant and
staff accountant.
CHRISTOPHER NORTHUP has served as Vice President -- Sales and Marketing since
October 1996. From 1987 until October 1996, Mr. Northup served as the National
Marketing Director. From his joining the Company in 1983 until 1987, Mr.
Northup held the position of Publications Manager.
JAMES C. LOCKWOOD joined the Company in April 1997 and was appointed Vice
President -- General Counsel and Secretary in May 1997. From July 1985 until he
joined the Company in April 1997, Mr. Lockwood was a member of the law firm of
Troy & Gould Professional Corporation.
TIMOTHY C. MCQUAY was appointed a director of the Company upon the completion
of its initial public offering in June 1996. Mr. McQuay joined the Corporate
Finance Department of Crowell, Weedon & Co. as Managing Director -- Corporate
Finance in October 1994. From May 1993 to October 1994, Mr. McQuay was Vice
President, Corporate Development with Kerr Group, Inc., a NYSE-listed plastics
manufacturing company. From May 1990 to May 1993, Mr. McQuay was Managing
Director -- Merchant Banking with Union Bank.
GEORGE E. SEEBART was appointed a director of the Company upon the completion
of its initial public offering in June 1996. From 1964 until his retirement in
1993, Mr. Seebart was employed in various executive positions with Farmers
Group, Inc., including as Senior Vice President -- California Zone beginning in
1992 and President of Mid-Century Insurance Company from 1987 to 1992.
Pursuant to the North Star Merger, certain shareholders of the Company,
including Virgil K. Benton II, Charles J. Hogarty, Al A. Ronco, Robert L.
Blanton and John M. Palumbo, agreed to vote all shares held by them to elect
Ronald G. Brown as a director of Keystone.
All directors are elected annually and serve until the next annual meeting of
shareholders or until their successors have been elected and qualified. The
Company's Articles of Incorporation provide that, upon the satisfaction of
certain conditions, the Board of Directors will be divided into three classes
of directors, each serving for staggered three-year terms. The Company believes
that the conditions have been satisfied and that the Board of Directors will be
divided into three classes of Directors at the Annual Meeting of Shareholders
scheduled to be held in August 1997. See "Description of Capital Stock --
Certain Provisions in the Company's Articles and Bylaws."
COMMITTEES OF THE BOARD
The Board of Directors has established an Audit Committee and a Compensation
Committee, whose members are currently Messrs. McQuay and Seebart.
DIRECTOR COMPENSATION
The Company pays an annual retainer of $7,500 to each director who is not
also an employee, payable in equal quarterly installments, $1,000 for each
board meeting and $500 for each committee meeting attended; and reimburses such
person for all reasonable and documented expenses incurred as a director. In
addition, each non-employee director, upon joining the Board of Directors,
receives an option to purchase 10,000 shares of the Common Stock of the Company
pursuant to the Stock Incentive Plan. Such options will have an exercise price
equal to the market price of such shares on the date of grant, will be
immediately exercisable and will have a term of 10 years. The Board of
Directors may modify such compensation in the future.
31
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the Company
for services rendered in all capacities during the fiscal year ended March 28,
1997 to the Company's Chief Executive Officer and the Company's four other
most highly compensated executive officers at the end of fiscal 1997 (the
"Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------
OTHER ANNUAL ALL OTHER
COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($)(2)
--------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Virgil K. Benton II(3)....... 1997 295,000 142,345 20,718 3,979
1996 425,000 182,744 20,718 9,069
1995 402,870 -- 20,718 2,930
Charles J. Hogarty........... 1997 250,000 122,010 11,616 2,099
1996 145,000 214,395 11,616 310
1995 134,006 184,836 11,616 1,518
Al A. Ronco.................. 1997 185,000 101,675 11,640 3,725
1996 125,000 187,787 11,640 3,682
1995 117,258 117,258 11,640 10,000
Robert L. Blanton............ 1997 100,000 40,670 3,195 5,070
1996 102,000 25,000 3,195 5,391
1995 68,250 94,403 3,195 3,170
John M. Palumbo(4)........... 1997 97,500 -- 6,000 783
1996 3,958 -- -- --
</TABLE>
- --------
(1) Consists of automobile lease and related expenses.
(2) Consists of reimbursement of medical and dental expenses not covered by
insurance plans provided to employees generally.
(3) Mr. Benton resigned as Chairman of the Board and Chief Executive Officer
of the Company in May 1997. See "Principal and Selling Shareholders" and
"Certain Transactions."
(4) Mr. Palumbo joined the Company in March 1996.
The Company has entered into employment agreements with Messrs. Hogarty,
Ronco and Blanton, terminable by either party at the end of three years by
written notice, pursuant to which each such person is entitled to (i) receive
an annual base salary of $250,000, $195,000 and $100,000, respectively, (ii)
receive such performance-based bonus, if any, as may be determined by the
Board of Directors, (iii) participate in all plans sponsored for executive
officers in general and (iv) receive the use of an automobile leased and
maintained by the Company. In the event the Company terminates employment
before the end of the stated term without cause or the individual terminates
his employment for specified causes, the Company is obligated to pay the base
salary through the stated term of the agreement. In the event the Company
terminates employment before the end of the stated term with cause, the
Company is obligated to pay the base salary only through the date of
termination.
Upon consummation of the North Star Merger, North Star entered into
employment agreements with Messrs. Brown and Wood. Under a five-year
employment agreement, Mr. Brown is employed as the Vice President-
Manufacturing of North Star and is entitled to (i) receive an annual base
salary for the 12 months commencing March 1, 1997, 1998, 1999, 2000 and 2001
of $325,000, $300,000, $275,000, $225,000 and $150,000, respectively, and (ii)
participate in any group health, medical reimbursement or dental plan
sponsored by the Company or North Star for executive officers in general. In
the event North Star terminates his employment before the end of the stated
term with cause, or Mr. Brown terminates his employment for specified causes,
North Star is obligated to pay the compensation described in clauses (i) and
(ii) only through the date of
32
<PAGE>
termination. In the event North Star terminates his employment before the end
of the stated term other than with cause, North Star is obligated to pay such
compensation through the stated term of the agreement. The agreement further
provides that Mr. Brown will not engage in any "competitive activity" (as
defined in the agreement) during the period commencing on the date of the
employment agreement and ending on the later to occur of the seventh
anniversary of such date or two years after the termination of his employment.
Under an employment agreement terminable by either party at the end of three
years by giving written notice, Mr. Wood is employed as the President and
Chief Operating Officer of North Star and is entitled to (i) receive an annual
base salary of $175,000, (ii) receive such performance-based bonus, if any, as
may be determined by the Board of Directors, (iii) participate in all plans
sponsored by North Star for employees in general and (iv) receive the use of
an automobile leased and maintained by North Star. In the event North Star
terminates his employment before the end of the stated term with cause, or Mr.
Wood terminates his employment for specified causes, North Star is obligated
to pay such compensation only through the date of termination. In the event
North Star terminates employment before the end of the stated term other than
with cause, North Star is obligated to pay such compensation through the
stated term of the agreement, but in no event for less than 12 months. The
agreement further provides that Mr. Wood will not engage in any "competitive
activity" (as defined in the agreement) during the 12-month period commencing
on the termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the initial public offering of the Company's Common Stock, all
decisions involving executive officer compensation were made by the Company's
Board of Directors, which consisted of Virgil K. Benton, Sr., John G. Jordan,
Virgil K. Benton II, Charles J. Hogarty, Al A. Ronco and Robert L. Blanton.
Since completion of the initial public offering of the Company's Common Stock
in June 1996, the Company's Compensation Committee, consisting of Messrs.
McQuay and Seebart, has made recommendations to the Board of Directors
regarding executive compensation.
STOCK INCENTIVE PLAN
General. The Board of Directors of the Company adopted the 1996 Employee
Stock Incentive Plan (the "Stock Incentive Plan") pursuant to which officers,
directors, employees and independent contractors are eligible to receive
shares of the Common Stock of the Company or other securities or benefits with
a value derived from the value of the Common Stock of the Company. The purpose
of the Stock Incentive Plan is to enable the Company to attract, retain and
motivate officers, directors, employees and independent contractors by
providing for or increasing their proprietary interests in the Company and, in
the case of non-employee directors, to attract such directors and further
align their interests with those of the Company's shareholders by providing
for or increasing their proprietary interests in the Company. The maximum
number of shares of Common Stock that may be issued pursuant to awards granted
under the Stock Incentive Plan currently is 730,000 (subject to adjustments to
prevent dilution), of which options to purchase 587,000 shares were
outstanding as of May 31, 1997. The Board of Directors has approved an
increase in the number of shares issuable under the Stock Incentive Plan to
1,100,000, subject to completion of this Offering and obtaining shareholder
approval.
Administration. The Stock Incentive Plan is administered by a committee of
two or more disinterested directors appointed by the Board of Directors (the
"Committee"), except that grants to non-employee directors are made by the
Board of Directors pursuant to a predetermined formula. The Committee has full
and final authority to select the recipients of awards and to grant such
awards. Subject to the provisions of the Stock Incentive Plan, the Committee
has a wide degree of flexibility in determining the terms and conditions of
awards and the number of shares to be issued pursuant thereto, including
conditioning the receipt or vesting of awards upon the achievement by the
Company of specified performance criteria. The expenses of administering the
Stock Incentive Plan are borne by the Company.
Terms of Awards. The Stock Incentive Plan authorizes the Committee to enter
into any type of arrangement with an eligible recipient that, by its terms,
involves or might involve the issuance of Common
33
<PAGE>
Stock or any other security or benefit with a value derived from the value of
Common Stock. Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
stock options, reload stock options, stock purchase warrants, other rights to
acquire stock, securities convertible into or redeemable for stock, stock
appreciation rights, phantom stock, dividend equivalents, performance units or
performance shares. An award may consist of one such security or benefit or
two or more of them in tandem or in the alternative.
An award granted under the Stock Incentive Plan may include a provision
accelerating the receipt of benefits upon the occurrence of specified events,
such as a change of control of the Company or a dissolution, liquidation,
merger, reclassification, sale of substantially all of the property and assets
of the Company or other significant corporate transactions. The Committee may
grant options that either are intended to be "incentive stock options" as
defined under Section 422 of the Internal Revenue Code of 1986, as amended, or
are not intended to be incentive stock options ("non-qualified stock
options"). Awards to non-employee directors may only be non-qualified stock
options.
An award may permit the recipient to pay all or part of the purchase price
of the shares or other property issuable pursuant thereto, or to pay all or
part of such recipient's tax withholding obligation with respect to such
issuance, by (i) delivering previously owned shares of capital stock of the
Company or other property, (ii) reducing the amount of shares or other
property otherwise issuable pursuant to the award or (iii) delivering a
promissory note, the terms and conditions of which will be determined by the
Committee. If an option permits the recipient to pay for the shares issuable
pursuant thereto with previously owned shares, the recipient would be able to
exercise the option in successive transactions, starting with a relatively
small number of shares and, by a series of book-entry exercises using shares
acquired from each such transaction to pay the purchase price of the shares
acquired in the following transaction, to exercise an option for a large
number of shares with no more investment than the original share or shares
delivered. The exercise price and any withholding taxes are payable in cash by
non-employee directors, although the Board of Directors at its discretion may
permit such payment by delivery of shares of Common Stock, or by delivery of
broker instructions authorizing a loan secured by the shares acquired upon
exercise or payment of proceeds from the sale of such shares.
Subject to limitations imposed by law, the Board of Directors may amend or
terminate the Stock Incentive Plan at any time and in any manner. However, no
such amendment or termination may deprive the recipient of an award previously
granted under the Stock Incentive Plan of any rights thereunder without his
consent.
Fiscal 1997 Awards. During the fiscal year ended March 28, 1997, options
were granted to (i) Messrs. McQuay and Seebart, upon their appointment to the
Board of Directors, to purchase 10,000 shares of Common Stock each, (ii) John
M. Palumbo and Robert L. Blanton to purchase 5,000 and 10,000 shares of Common
Stock, respectively, and (iii) 77 other employees to purchase 417,000 shares
of Common Stock, at a weighted average exercise price equal to $12.92. The
options granted to Messrs. McQuay and Seebart became exercisable immediately
upon grant. The options granted to Mr. Palumbo and to the other employees are
exercisable in four equal annual installments. Other than the grant to Mr.
Palumbo, no options were granted to the Named Executives during fiscal 1997.
All such options expire on the tenth anniversary of the date of grant.
Fiscal 1998 Awards. During the current fiscal year, options were granted to
(i) Messrs. Hogarty, Ronco and Wood to purchase 40,000 shares of Common Stock
each, (ii) John M. Palumbo to purchase 15,000 shares of Common Stock and (iii)
James C. Lockwood to purchase 20,000 shares of Common Stock, at an exercise
price equal to $15.75 per share. No other options have been granted to the
Named Executives during fiscal 1998. All such options expire on the tenth
anniversary of the date of grant and are exercisable in four equal annual
installments.
34
<PAGE>
The following table sets forth certain information with respect to options
granted under the Stock Incentive Plan during fiscal 1997 to the Named
Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE OF TOTAL VALUE AT ASSUMED
OPTIONS GRANTED ANNUAL RATE OF STOCK
SHARES OF COMMON STOCK TO EMPLOYEES IN EXERCISE EXPIRATION PRICE APPRECIATION
NAME UNDERLYING OPTIONS FISCAL YEAR PRICE DATE FOR OPTION TERM
---- ---------------------- ------------------- -------- -------------- ---------------------
5% 10%
---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Palumbo......... 5,000(1) 2.7% $15.50 March 27, 2007 $ 21,390 $ 47,353
Robert L. Blanton....... 10,000(1) 5.5% $15.50 March 27, 2007 $ 42,780 $ 74,705
</TABLE>
- --------
(1) The options vest in four equal annual installments, with the first
installment vesting on March 28, 1998.
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAR YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT YEAR-END YEAR-END
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John M. Palumbo......... -- -- 0/ 5,000 $0/0
Robert L. Blanton....... -- -- 0/10,000 0/0
</TABLE>
The Company has registered under the Securities Act the shares of its Common
Stock issuable pursuant to the Stock Incentive Plan. See "Description of
Capital Stock -- Shares Eligible For Future Sale."
EMPLOYEE DEFINED BENEFIT PENSION PLAN
General. The Board of Directors adopted the Employee Defined Benefit Pension
Plan (the "Pension Plan"), originally effective as of April 1, 1978, for the
benefit of the eligible employees of the Company. Since the implementation of
the Pension Plan, the Company has amended the Pension Plan from time to time.
The primary purpose of the Pension Plan was to provide a retirement benefit
for participating employees who continue in the employ of the Company until
their retirement. Effective April 30, 1997, the Pension Plan was suspended
with no further contributions or vesting to occur pending a determination of
benefits due under the Pension Plan. It is anticipated that the Pension Plan
will be terminated within the next two years and that the termination will not
have a material adverse impact on the financial condition of the Company upon
that event. The Pension Plan has been replaced with the 401(k) Savings Plan
described below.
35
<PAGE>
Estimated Monthly Benefits. The following table sets forth the estimated
monthly benefit under the Pension Plan based on the current benefit structure.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------
REMUNERATION 15 20 25 30 35
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$125,000.............................. $1,172 $1,563 $1,953 $2,344 $2,734
150,000.............................. 1,407 1,875 2,344 2,813 3,281
175,000.............................. 1,407 1,875 2,344 2,813 3,281
200,000.............................. 1,407 1,875 2,344 2,813 3,281
225,000.............................. 1,407 1,875 2,344 2,813 3,281
250,000.............................. 1,407 1,875 2,344 2,813 3,281
300,000.............................. 1,407 1,875 2,344 2,813 3,281
400,000.............................. 1,407 1,875 2,344 2,813 3,281
450,000.............................. 1,407 1,875 2,344 2,813 3,281
500,000.............................. 1,407 1,875 2,344 2,813 3,281
</TABLE>
The compensation covered by the Pension Plan includes basic salary or wages,
overtime payments, bonuses, commissions and all other direct current
compensation, but does not include contributions by Keystone to Social
Security, benefits from stock options (whether qualified or not),
contributions to this or any other retirement plans or programs, or the value
of any other fringe benefits provided at the expense of Keystone. For benefit
calculation purposes, a "highest-five-year" average of compensation is used.
Benefits are paid as straight-life annuities with no subsidies or offsets. The
compensation covered by the Pension Plan for all of the Named Executive
Officers was limited to $150,000 in accordance with Section 401(a)(17) of the
Internal Revenue Code of 1986, as amended.
The years of credited service for each Named Executive who participates in
the Pension Plan are as follows:
<TABLE>
<CAPTION>
NAME YEARS
---- -----
<S> <C>
Virgil K. Benton II................ 22
Charles J. Hogarty................. 37
Al A. Ronco........................ 38
Robert L. Blanton.................. 28
John M. Palumbo.................... 1
</TABLE>
401(K) SAVINGS PLAN
Effective April 1, 1997, the Section 401(k) Savings Plan (the "Plan") in
effect at North Star was amended to make the Plan available to Keystone
employees. Pursuant to the amendment, the Company became the Plan sponsor and
North Star became an adopting employer. All employees of the Company as of
April 1, 1997, became participants in the Plan and the amendment had no affect
upon those persons who were employed at North Star on April 1, 1997. Persons
becoming employees of the Company subsequent to April 1, 1997 are not eligible
to participate until they complete one year of service and are at least 21
years of age.
Under the terms of the Plan, participants can contribute, by way of payroll
deductions, from 1% to 15% of their pre-tax compensation annually, subject to
certain legal limitations. The Plan also provides for a matching contribution
by the Company equal to 50% of a participant's contribution, up to a maximum
6% of compensation. For purposes of determining the amount of contributions
and matching contributions to be allocated to a participant's account,
compensation is defined as the annual income amount reportable by the Company
for federal income tax purposes, including overtime, commissions and bonuses.
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<PAGE>
A participant is always 100% vested in his own Plan contributions. A
participant becomes 100% vested in the matching contributions allocated to his
account upon his attainment of early retirement age (age 55 and four years of
service), normal retirement age (age 65), disability while employed by the
Company, his death while employed by the Company or the termination or
complete discontinuance of contributions to the Plan.
If a participant terminates employment with the Company for any other
reason, a participant vests 25% in his benefits after one year of service, 25%
each year thereafter, with 100% vesting after four or more years of service.
EMPLOYEE STOCK OWNERSHIP PLAN
General. The Board of Directors adopted the Employee Stock Ownership Plan
(the "ESOP"), originally effective as of April 1, 1975, for the benefit of the
eligible employees of the Company. Since the implementation of the ESOP, the
Company has amended the ESOP from time to time. Most recently, the Company
amended and restated the ESOP in order to comply with the requirements of the
Tax Reform Act of 1986 and later legislation, generally effective as of April
1, 1989. The primary purpose of the ESOP is to permit participating employees
to share in the growth and prosperity of the Company through the ownership of
the Company's Common Stock under the ESOP. All employees of the Company are
eligible to participate in the ESOP as of their date of hire. The Company does
not intend to make contributions to the ESOP for the foreseeable future.
Administration. The ESOP is administered by a committee (the "Committee")
that is appointed by the Board of Directors. The Committee oversees the day-
to-day administration of the ESOP and is responsible for making determinations
on questions of administration, interpretation and application of ESOP terms,
including questions of eligibility, service and distribution of plan benefits
to participants. The Committee will carry out its responsibilities under the
ESOP in a uniform and nondiscriminating manner.
ESOP Contributions and Vesting. The ESOP provides for employer contributions
only, the amount of which is determined by the Board of Directors on an annual
basis. Tax law limits deductible contributions to the ESOP to 15% of the total
compensation paid during the year to participating employees.
For purposes of calculating the amount of a participant's employer
contributions in any year, compensation means all wages and salaries paid to
the participant during the year, including bonuses, overtime and commissions.
A participant will become fully vested in his employer contributions upon
the attainment of normal retirement age, death or termination of the ESOP. If
the participant terminates employment prior to retirement age, the vested
interest he has in his employer contributions will be based on his years of
service, with 20% of vesting upon the completion of three years of service,
and 20% for each additional year thereafter, with 100% vesting after seven or
more years of service.
ESOP Investments. Because the ESOP is an employee stock ownership plan, it
is designed to comply with the legal requirement that all plan assets be
invested primarily in the Company's Common Stock. Cash contributions made by
the Company to the ESOP, therefore, are used by the trustee to purchase the
Company's Common Stock at such time as the trustee deems it prudent to do so.
In compliance with applicable legal requirements, the ESOP also permits
eligible participants to diversify the investment of their plan assets under
the ESOP. An eligible participant is a participant who has attained age 55 and
who has at least ten years of participation in the ESOP. An eligible
participant is entitled to diversify up to 25% of his account balance for a
six-year period, and at the end of the six-year period, he will be entitled to
diversify up to 50% of his account balance. For purposes of meeting
diversification requirements, the Company will either make a distribution to
the eligible participant of his diversified amount, or provide three
investment funds under the ESOP to enable the eligible participant to
diversify the investment of his plan assets.
37
<PAGE>
ESOP Amendment or Termination. Under the terms of the ESOP, the Company
reserves the right to amend or terminate the ESOP at any time and in any
manner. No amendment or termination, however, may deprive a participant of any
benefit he has accrued under the ESOP prior to the effective date of the
amendment or termination.
CERTAIN TRANSACTIONS
The Company has entered into three lease agreements with two partnerships
whose partners include certain of the Company's directors and officers and two
lease agreements with a corporation which is owned by a family member of a
former officer and director of the Company. In addition, as a result of the
North Star Merger, the Company is a party to four leases with partnerships
whose partners include persons, or their spouses, who are currently officers
or directors of the Company. The Company believes that the terms and
conditions of such leases with affiliated parties are no less favorable to the
Company than could have been obtained from unaffiliated parties in arm's
length transactions at the time such leases were entered into.
The Company entered into a lease dated January 5, 1995, with V-JAC
Properties, Ltd. for an 8,000 square feet warehouse facility in Ontario,
California, with a lease term of three years (with an option to renew the
lease for an additional three years on the same terms and conditions), for a
monthly rent of $3,494. V-JAC Properties, Ltd. is a partnership whose
interests are held equally by Virgil K. Benton, Sr., and John G. Jordan, each
of whom is a co-founder of the Company, and Al A. Ronco and Charles J.
Hogarty, who are currently directors and executive officers of the Company.
The Company has also entered into a lease dated January 5, 1995, with V- JAC
Properties, Ltd. for a 10,000 square feet warehouse facility in Palmyra, New
Jersey, with a lease term of three years (with an option to renew the lease
for an additional three years on the same terms and conditions), for a monthly
rent of $2,985.
The Company entered into a lease dated January 5, 1995, with B-J Properties,
Ltd. for a 25,000 square feet warehouse facility in St. Louis, Missouri, with
a lease term of three years (with an option to renew the lease for an
additional three years on the same terms and conditions), for a monthly rent
of $5,067. B-J Properties, Ltd. is a partnership whose interests are held
61.75% by Virgil K. Benton, Sr. and 38.25% by John G. Jordan, the Company's
co-founders, both of whom retired as directors effective March 31, 1996.
The Company entered into a lease dated April 1, 1995, with Benton Real
Properties, Inc. relating to approximately 24,082 square feet in Ontario,
California, with a lease term of five years, for a monthly rent of $6,088 in
the first year of the lease, increasing to $6,271, $6,549, $6,653 and $6,853,
respectively, in each year thereafter. In January 1996, the Company exercised
a five-year lease option expiring December 31, 2000, with respect to a lease
dated January 1, 1991, with Benton Real Properties, Inc. relating to
approximately 20,000 square feet in Ontario, California for a monthly rent of
$5,634 in the first year of the lease, increasing to $5,803, $5,977, $6,157
and $6,341, respectively, in each year thereafter. Benton Real Properties,
Inc. is wholly owned by Bertha Benton, the mother of Virgil Benton II. Mr.
Benton resigned as the Company's Chief Executive Officer and a director in May
1997.
On January 1, 1995, North Star entered into a ten-year lease agreement with
a partnership owned by the spouses of Ronald G. Brown and Kim D. Wood to lease
property occupied by North Star's East Peoria, Illinois service center. The
initial base rent under the lease was $6,975 per month, which is subject to
increase on each anniversary of the lease term by the percentage increase in
the Consumer Price Index during the preceding year. In addition to the base
rent, North Star pays real estate taxes, maintenance, utilities and insurance
costs associated with the property.
On January 1, 1995, North Star entered a ten-year lease agreement with a
partnership owned by the spouse of Raymond Wood, a former shareholder, officer
and director of North Star, and the spouse of Ronald G. Brown to lease the
property occupied by North Star's Brainerd, Minnesota chrome bumper plating
center. The initial base rent under the lease was $21,300 per month, which is
subject to increase on each anniversary of the lease
38
<PAGE>
term by the percentage increase in the Consumer Price Index during the
preceding year. In addition to the base rent, North Star pays real estate
taxes, maintenance, utilities and insurance costs associated with the
property. Pursuant to the lease agreement, North Star is responsible for
certain occurrences on the premises, including any environmental
contamination.
On January 1, 1995, North Star entered into a ten-year lease agreement with
a partnership owned by Kim D. Wood and Richard Monson, the general manager of
North Star's Brainerd, Minnesota chrome bumper manufacturing and recycling
center to lease the property occupied by North Star's St. Cloud, Minnesota
service center. The initial base rent under the lease was $5,000 per month,
which is subject to increase on each anniversary of the lease term by the
percentage increase in the Consumer Price Index during the preceding year. In
addition to the base rent, North Star pays real estate taxes, maintenance,
utilities and insurance costs associated with the property.
On May 20, 1996, North Star entered into a ten-year lease agreement with a
partnership owned by the spouses of Ronald G. Brown and Kim D. Wood and the
Brown Family Limited Partnership to lease property occupied by North Star's
headquarters and Minneapolis, Minnesota service center hub. The initial base
rent under the lease was $12,000 per month, which is subject to increase on
the anniversary of the lease term by the percentage increase in the Consumer
Price Index during the preceding year. In addition to the base rent, North
Star pays real estate taxes, maintenance utilities and insurance costs
associated with the property. In an amendment to the lease dated September 23,
1996, the partnership agreed to construct a 37,260 square foot addition to the
existing building. North Star began occupying the addition in January 1997
and, accordingly, the base rent increased to $25,627 per month.
From time to time, the Company has borrowed funds from its directors,
officers and principal shareholders for general working capital purposes. In
March 1996, all such indebtedness was repaid. During the last three fiscal
years, the maximum principal amount outstanding under each such loan was
$123,668 and $240,596 to John G. Jordan, who retired as a director effective
March 31, 1996, and Charles J. Hogarty, respectively. The Company believes the
terms of such transactions were no less favorable to the Company than could
have been obtained from an unaffiliated party.
Crowell, Weedon & Co., one of the representatives of the underwriters of the
Company's initial public offering, provided certain financial advisory
services to the Company during fiscal 1996. In January 1996, the Company
entered into an agreement with Crowell, Weedon & Co. to provide certain
financial advisory services to the Company in connection with evaluating the
North Star Merger. Upon the consummation of the North Star Merger, Crowell,
Weedon & Co. received $125,000 in consideration of such services. Timothy C.
McQuay, a director of the Company, is a Managing Director -- Corporate Finance
of Crowell, Weedon & Co.
In May 1997, Virgil K. Benton II resigned as the Chairman of the Board,
Chief Executive Officer and director of the Company. In connection with his
resignation, the Company and Mr. Benton entered into a Resignation Agreement
and General Release, pursuant to which the Company (i) paid Mr. Benton cash
and properties having a value of approximately $700,000, representing its
obligations to Mr. Benton under the remaining two years of his employment
agreement; (ii) agreed to register Mr. Benton's and certain related and
affiliated persons' shares for sale in this Offering; and (iii) granted Mr.
Benton a piggyback registration right in the event less than one million of
the shares of Common Stock being offered by Mr. Benton and certain of his
relatives and affiliates pursuant to this Prospectus are sold, unless the
shares are withdrawn by those Selling Shareholders.
The Company intends that it will not enter into any material transaction in
which a director or officer of the Company has a direct or indirect financial
interest, unless the transaction is determined by the Company's Board of
Directors to be fair to the Company and is approved by a majority of the
Company's disinterested directors or by the Company's shareholders, as
provided for under California law.
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<PAGE>
LIMITATION ON LIABILITY AND INDEMNIFICATION
The Articles of Incorporation of the Company limit the liability of the
Company's directors for monetary damages arising from a breach of their
fiduciary duties to the Company and its shareholders, except to the extent
otherwise required by the California General Corporation Law. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by applicable law, including
circumstances in which indemnification is otherwise discretionary. The Company
has entered into indemnification agreements with each of its directors and
executive officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the California
General Corporation Law. Such agreements may require the Company, among other
things, (i) to indemnify its officers and directors against certain
liabilities that may arise by reason of their status or service as directors
or officers provided such persons acted in good faith and in a manner
reasonably believed to be in the best interests of the Company and, with
respect to any criminal action, had no cause to believe their conduct was
unlawful, (ii) to advance the expenses actually and reasonably incurred by its
officers and directors as a result of any proceeding against them as to which
they could be indemnified and (iii) to obtain directors' and officers'
insurance if available on reasonable terms. There is no action or proceeding
pending or, to the knowledge of the Company, threatened which may result in a
claim for indemnification by any director, officer, employee or agent of the
Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described above or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the shares offered hereby, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of May 31, 1997, and as adjusted to reflect
the sale of the shares offered hereby, by (i) each person known to the Company
to be the beneficial owner of more than five percent of the outstanding Common
Stock of the Company, (ii) those shareholders of the Company who are selling
shares in this Offering (the "Selling Shareholders"), (iii) each director and
the Named Executives and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO AFTER OFFERING
OFFERING(2) (2)(3)
------------------ ------------------
PERCENT NUMBER OF PERCENT
NUMBER OF OF SHARES NUMBER OF OF
NAME AND ADDRESS(1) SHARES CLASS(4) OFFERED SHARES CLASS(4)
------------------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Ronald G. Brown (5)....... 1,547,877 15.9% 500,000 1,047,877 9.3%
Employee Stock Ownership
Plan..................... 1,398,285 14.3 -- 1,398,285 12.4
Virgil K. Benton II (6)... 1,162,019 11.9 1,162,019 -- --
Charles J. Hogarty (7).... 504,014 5.2 142,427 361,587 3.2
Al A. Ronco (8)........... 399,570 4.1 150,000 249,570 2.2
Kim D. Wood (9)........... 252,166 2.6 100,000 152,166 1.4
John M. Palumbo (10)...... 25,000 * 10,000 15,000 *
Robert L. Blanton (11).... 93,559 * 6,376 87,183 *
Timothy C. McQuay(12)..... 10,000 * -- 10,000 *
George E. Seebart(12)..... 10,000 * -- 10,000 *
Philip Wolfe, Trustee
(13)..................... 100,000 1.0 100,000 -- --
Virgil K. Benton.......... 72,000 * 72,000 -- --
C. Tucker Cheadle, Trust-
ee....................... 44,868 * 44,868 -- --
Tally Benton.............. 12,310 * 12,310 -- --
Rhonda Brown (14)......... 186,861 1.92 -- 186,861 1.66
Vanessa Brown (14)........ 186,861 1.92 -- 186,861 1.66
Vincent B. Brown (14)..... 186,861 1.92 -- 186,861 1.66
Ronald K. Brown (14)...... 29,347 * -- 29,347 *
All directors and execu-
tive officers as a group
(10 persons) (15)........ 2,853,186 29.2 908,803 1,944,383 17.2
</TABLE>
- -------
* Less than one percent.
(1) The business address of each beneficial owner is 700 East Bonita Avenue,
Pomona, California 91767.
(2) Each person has sole voting and investment power over the shares of
Common Stock shown as beneficially owned, subject to community property
laws where applicable.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Shares of Common Stock which the person (or group) has the right to
acquire within 60 days after May 31, 1997 are deemed to be outstanding in
calculating the percentage ownership of the person (or group) but are not
deemed to be outstanding as to any other person or group.
(5) Mr. Brown has granted the Underwriters an option to purchase 100,000
shares of Common Stock solely to cover over-allotments, if any. To the
extent such option is exercised, the number and percent of shares shown
as beneficially owned by Mr. Brown after the Offering will be reduced
accordingly.
(6) Mr. Benton resigned as the Chairman of the Board, Chief Executive Officer
and director of the Company in May 1997. Excludes 261,887 shares held by
or in trust for members of the Benton family, as to which shares Mr.
Benton disclaims beneficial ownership.
(7) Includes 56,788 shares held for the benefit of Mr. Hogarty by the ESOP
and excludes options to acquire 40,000 shares of Common Stock under the
Stock Incentive Plan, which are not exercisable within 60 days of May 31,
1997. Mr. Hogarty has granted the Underwriters an option to purchase
60,000 shares of Common Stock solely to cover over-allotments, if any. To
the extent such option is exercised, the number of shares shown as
beneficially owned by Mr. Hogarty after the Offering will be reduced
accordingly.
(8) Includes (i) 347,677 shares held by the Ronco Family Trust and (ii)
51,893 shares held for the benefit of Mr. Ronco by the ESOP and excludes
options to acquire 40,000 shares of Common Stock under the Stock
Incentive Plan, which are not exercisable within 60 days of May 31, 1997.
Mr. Ronco has granted the Underwriters an option to purchase 50,000
shares of Common Stock solely to cover over-allotments, if any. To the
extent such option is exercised, the number and percent of shares shown
as beneficially owned by Mr. Ronco after the Offering will be reduced
accordingly.
(9) Includes 81,700 shares of Common Stock held by Mr. Wood as Trustee for
Kristine and Kathryn Wood pursuant to irrevocable trusts, of which 80,000
shares are being sold in this Offering. Excludes options to acquire
40,000 shares of Common Stock under the Stock Incentive Plan, which are
not exercisable within 60 days of May 31, 1997.
(10) Excludes options to acquire 20,000 shares of Common Stock under the Stock
Incentive Plan, which are not exercisable within 60 days of May 31, 1997.
(11) Includes 27,183 shares held for the benefit of Mr. Blanton by the ESOP.
(12) Consists of shares issuable upon the exercise of stock options granted
under the Company's Stock Incentive Plan to the named individual.
(13) Represents shares held by Mr. Wolfe as Trustee for the Benton Charitable
Trust.
(14) Each of these shareholders has granted the Underwriters an option to
purchase up to 25,000 shares of Common Stock solely to cover over-
allotments, if any. To the extent such option is exercised, the number
and percent of shares shown as beneficially owned by each of these
shareholders after the Offering will be reduced accordingly.
(15) Excludes 200,000 shares subject to options which are not exercisable
within 60 days of May 31, 1997 and includes (i) 135,864 shares held for
the benefit of directors and executive officers by the ESOP and
(ii) 30,000 shares subject to options exercisable within 60 days of May
31, 1997.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company currently is authorized to issue up to (i) 20,000,000 shares of
Common Stock, of which 9,750,000 shares were outstanding at May 31, 1997, and
(ii) 3,000,000 shares of Preferred Stock, none of which are outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. While the Company's
shareholders currently may cumulate their votes for the election of directors,
cumulative voting will no longer be required or permitted under the Company's
Articles of Incorporation (the "Articles") at such time as the Company's
shares of Common Stock are listed on the Nasdaq National Market and the
Company has at least 800 holders of its equity securities as of the record
date of the Company's most recent annual meeting of shareholders. At the same
time, the Company will divide its Board into three classes of directors. The
Common Stock is listed on the Nasdaq National Market and the Company believes
that it has, and will at the record date for its annual meeting of
shareholders scheduled to be held in August 1997 have, at least 800 holders of
its Common Stock. Subject to preferences which may be granted to the holders
of Preferred Stock, each holder of Common Stock is entitled to share ratably
in distributions to shareholders and to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor
and, in the event of the liquidation, dissolution or winding up of the
Company, is entitled to share ratably in all assets of the Company remaining
after payment of liabilities. Holders of Common Stock have no conversion,
preemptive or other rights to subscribe for additional shares, and there are
no redemption rights or sinking fund provisions with respect to the Common
Stock. The outstanding shares of Common Stock are, and the shares to be sold
by the Company in this Offering will be, when issued and delivered against
receipt of the consideration set forth in this Prospectus, validly issued,
fully paid and nonassessable. Additional shares of Common Stock may be issued
by the Company from time to time.
PREFERRED STOCK
The Board of Directors, without further action by the holders of Common
Stock, may issue shares of Preferred Stock in one or more series and may fix
or alter the relative, participating, optional or other rights, preferences,
privileges and restrictions, including the voting rights, redemption
provisions (including sinking fund provisions), dividend rights, dividend
rates, liquidation preferences and conversion rights, and the description of
and number of shares constituting any wholly unissued series of Preferred
Stock. The Board of Directors, without further shareholder approval, can issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock. No shares of Preferred Stock
presently are outstanding, and the Company currently has no plans to issue
shares of Preferred Stock. The issuance of Preferred Stock in certain
circumstances may delay, defer or prevent a change in control of the Company
without further action by the shareholders, may discourage bids for the
Company's Common Stock at a premium over the market price of the Common Stock
and may adversely affect the market price, and the voting and other rights of
the holders, of Common Stock.
CERTAIN PROVISIONS IN THE COMPANY'S ARTICLES AND BYLAWS
Shareholder Meetings. The Articles provide that any action required to be
taken or that may be taken at any meeting of the Company's shareholders may
only be taken at a meeting of shareholders or by the written consent of the
holders of two-thirds of the outstanding voting shares. In addition, if a
shareholder wishes to propose an item for consideration at a special meeting
of shareholders, or at the annual meeting of shareholders to be held in August
1997, he must give written notice to the Company not less than 30 nor more
than 60 days prior to the meeting or, if later, the tenth day following the
first public announcement of such meeting, or such other date as is necessary
to comply with applicable federal proxy solicitation rules or other
regulations. The Bylaws of the Company (the "Bylaws") provide that, if a
shareholder wishes to propose an item for
42
<PAGE>
consideration at any annual meeting of shareholders (other than the first
annual meeting after the date of this offering), he must give written notice
to the Company not less than 90 days prior to the day and month on which, in
the immediately preceding year, the annual meeting for such year had been
held.
Board of Directors. The Bylaws provide that the number of directors shall be
not less than five nor more than nine until changed by an amendment duly
adopted by the Company's shareholders. The Bylaws further provide that the
exact number of directors shall be fixed from time to time, within such range,
by the Board of Directors. The number of directors currently is fixed at five.
The Articles provide that, upon the satisfaction of certain conditions, the
Board of Directors will be divided into three classes of directors, each
serving for staggered three-year terms. It is anticipated that this will occur
at the next annual meeting of shareholders of the Company, which is scheduled
to be held in August 1997.
Amendment of Articles and Bylaws. The Bylaws may not be amended without the
approval of the holders of at least two-thirds of the outstanding voting
shares or the approval of at least two-thirds of the authorized directors;
provided, however, that the provisions of the Bylaws relating to shareholder
proposals and the number and nomination of directors require the approval of
the holders of at least two-thirds of the outstanding voting shares. In
addition, the provisions contained in the Articles and Bylaws with respect to
the required vote for shareholder action without a meeting, the classification
of the Board of Directors, the elimination of cumulative voting,
indemnification of directors, officers and others and the Preferred Stock may
not be amended without the affirmative vote of at least two-thirds of the
outstanding voting shares.
The foregoing provisions of the Articles and the Bylaws may delay, defer or
prevent a change in control of the Company without further action by the
shareholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of the Common Stock.
TRANSFER AGENT AND REGISTRAR
The Company has appointed U.S. Stock Transfer Corporation, Glendale,
California as the transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of the Common Stock of the Company in
the public market could adversely affect prevailing market prices.
At May 31, 1997, there were 9,750,000 shares of Common Stock outstanding. Of
these shares, the 3,105,000 shares sold in the Company's initial public
offering and the 2,450,000 shares issued in the North Star Merger are freely
tradeable without restriction or further registration under the Securities
Act, except for any such shares held by an "affiliate" of the Company. The
remaining 4,195,000 shares are "restricted securities" as that term is defined
in Rule 144 and, accordingly, may not be sold without registration under the
Securities Act or pursuant to an applicable exemption therefrom. Of these
shares, 1,700,000 shares are being included in this Offering by certain of the
Selling Shareholders.
In general, under Rule 144 promulgated under the Securities Act, as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner other than an "affiliate" of the Company),
or who is an "affiliate" of the Company, is entitled to sell within any three-
month period a number of such Restricted Shares or, in the case of an
"affiliate," a number of such Restricted Shares and shares purchased in the
public market, that does not exceed the greater of (i) 1% of the then
outstanding shares of the Company's Common Stock (approximately 97,500 shares,
112,500 shares if this Offering is completed) or (ii) the average weekly
trading volume of the Company's Common Stock in the public market during the
four calendar weeks immediately preceding such sale. Sales under Rule 144 are
also subject to certain requirements as to the manner of sale, notice and
availability
43
<PAGE>
of current public information regarding the Company. A person who has not been
an "affiliate" of the Company at any time during the three months preceding a
sale, and who has beneficially owned Restricted Shares for at least two years,
is entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements. On the date of
this Prospectus substantially all of the Restricted Shares may be deemed to
have been held for more than one year.
The Company and certain of its officers, directors and shareholders have
agreed, in connection with this Offering, not to, directly or indirectly, sell
or otherwise dispose of shares of Common Stock held by them in the public
market, without the prior written consent of the representatives of the
Underwriters. The lock-up period will expire 180 days from the date of this
Prospectus, at which time such shares will become eligible for sale in the
public market under Rule 144. Upon expiration of the lock-up period, the
market price for the Company's Common Stock could be materially and adversely
affected by the sale or availability for sale of such shares.
An aggregate of 730,000 shares, which the Company proposes to increase to
1,100,000 shares, are currently reserved for issuance under the Stock
Incentive Plan. The Company has registered the sale of such shares under the
Securities Act. Accordingly, as awards under the Company's stock incentive
plan vest, shares issued pursuant thereto will be freely tradeable, except
such shares as may be acquired by an "affiliate" of the Company.
44
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Morgan
Keegan & Company, Inc., A.G. Edwards & Sons, Inc. and Crowell, Weedon & Co.
(the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Selling Shareholders the
number of shares of Common Stock indicated below opposite their respective
names at the public offering price less the underwriting discount set forth on
the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
Morgan Keegan & Company, Inc.......................................
A.G. Edwards & Sons, Inc...........................................
Crowell, Weedon & Co...............................................
---------
Total.......................................................... 3,800,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any of such shares
are purchased. The Company and the Selling Shareholders have been advised by
the Underwriters that the Underwriters propose to offer the shares of Common
Stock to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
in excess of $ per share of Common Stock. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to
other dealers. The public offering price and the concessions and discount to
dealers may be changed by the Underwriters after the public offering.
The Company and certain shareholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase
up to an additional 570,000 shares of Common Stock (of which the first 310,000
shares will be sold by certain shareholders and the remaining shares will be
sold by the Company) at the public offering price, less underwriting discounts
and commissions, as shown on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of the shares of Common Stock offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters or to contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Company and each of its executive officers and directors have agreed,
for a period of 180 days from the date of this Prospectus, not to offer, sell,
offer to sell, contract to sell, grant any option to purchase, or otherwise
dispose of, directly or indirectly, any shares of Common Stock, or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock, in the public market, without the prior written consent of the
Representatives.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Timothy C. McQuay, a partner with Crowell, Weedon & Co., serves as a
director of the Company. See "Management" and "Certain Transactions."
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with
Regulation M under the Exchange Act. Over-allotment involves syndicate sales
in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids for and purchases of Common Stock so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve the purchase of Common Stock in the open market in order
to cover a
45
<PAGE>
syndicate short position. Penalty bids permit the Underwriters to reclaim a
selling concession from a syndicate
member when the shares of Common Stock originally sold by such syndicate
member are purchased in a stabilizing transaction or syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions, and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the Nasdaq National
Market, or otherwise, and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Manatt, Phelps &
Phillips, LLP, Los Angeles, California. Certain legal matters will be passed
upon for the Underwriters by Troy & Gould Professional Corporation, Los
Angeles, California.
EXPERTS
The consolidated financial statements of the Company at March 29, 1996 and
March 28, 1997 and for each of the three years in the period ended March 28,
1997, and the financial statements of North Star at September 30, 1995 and
1996 and for each of the three years in the period ended September 30, 1996,
appearing in this Prospectus and the Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
(including any amendments thereto) on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
a part of the Registration Statement, omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto
on file with the Commission pursuant to the Securities Act and the rules and
regulations of the Commission thereunder. The Registration Statement,
including exhibits and schedules thereto, may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and copies may be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office in
Washington, D.C. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith, files reports, proxy or
information statements, and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
the following Regional Offices: 7 World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 W. Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials also can be obtained
from the Public Reference Section of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, by mail at prescribed
rates. In addition, the Commission has a Web site on the World Wide Web at
http://www.sec.gov, containing registration statements, reports, proxy and
information statements and other information that registrants, such as the
Company, file electronically with the Commission. The Common Stock is traded
on the Nasdaq National Market, and the Company's reports, proxy or information
statements and other information may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at March 29, 1996 and March 28, 1997.......... F-3
Consolidated Statements of Income for the years ended March 31, 1995,
March 29, 1996 and
March 28, 1997........................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1995, March 29, 1996 and March 28, 1997.............................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1995,
March 29, 1996 and March 28, 1997........................................ F-6
Notes to Consolidated Financial Statements................................ F-7
NORTH STAR PLATING COMPANY
Report of Independent Auditors............................................ F-18
Balance Sheets at September 30, 1995 and September 30, 1996............... F-19
Statements of Income and Shareholders' Equity for the years ended
September 30, 1994, September 30, 1995 and September 30, 1996............ F-20
Statements of Cash Flows for the years ended September 30, 1994, September
30, 1995 and September 30, 1996.......................................... F-21
Notes to Financial Statements............................................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.
We have audited the accompanying balance sheets of Keystone Automotive
Industries, Inc. and subsidiaries as of March 28, 1997 and March 29, 1996, and
the related statements of income, shareholders' equity, and cash flows for
each of the three years in the periods ended March 28, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Keystone Automotive
Industries, Inc. at March 28, 1997 and March 29, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
March 28, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
May 23, 1997
F-2
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 3,876 $ 1,352
Accounts receivable, less allowance for doubtful accounts
of $355 in 1996 and $658 in 1997......................... 15,919 18,738
Inventories, primarily finished goods..................... 30,576 39,512
Prepaid expenses and other current assets................. 867 897
Deferred taxes............................................ 779 1,786
------- -------
Total current assets.................................... 52,017 62,285
Property, plant and equipment, at cost:
Land...................................................... 376 486
Buildings and leasehold improvements...................... 4,973 5,959
Machinery and equipment................................... 5,823 7,359
Furniture and fixtures.................................... 6,820 8,187
------- -------
17,992 21,991
Accumulated depreciation and amortization................. (9,470) (11,241)
------- -------
8,522 10,750
Intangibles................................................ 2,584 3,719
Other assets............................................... 1,592 2,046
------- -------
Total assets............................................ $64,715 $78,800
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $13,250 $12,629
Bankers acceptances and other short term debt............. 3,520 3,538
Accounts payable.......................................... 13,086 15,994
Accrued salaries, wages and related benefits.............. 1,540 1,432
Other accrued liabilities................................. 1,140 718
Long-term debt, due within one year....................... 2,527 741
Deferred taxes............................................ -- 386
------- -------
Total current liabilities............................... 35,063 35,438
Long-term debt, less current maturities................... 5,712 913
Notes payable to officers, shareholders and other related
parties 192 192
Deferred taxes............................................ 269 403
Accrued pension cost...................................... 36 --
Shareholders' equity:
Preferred stock, no par value:
Authorized shares--3,000,000
None issued and outstanding............................... -- --
Common stock, no par value:
Authorized shares--20,000,000
Issued and outstanding shares--8,250,000 in 1996 and
9,750,000 in 1997, at stated value....................... 4,299 15,921
Additional paid-in capital................................ 553 553
Retained earnings......................................... 18,591 25,380
------- -------
Total shareholders' equity.............................. 23,443 41,854
------- -------
Total liabilities and shareholders' equity.............. $64,715 $78,800
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales..................................... $ 132,655 $ 157,021 $ 194,321
Cost of sales................................. 79,319 95,131 115,052
---------- ---------- ----------
Gross profit.................................. 53,336 61,890 79,269
Operating expenses:
Selling and distribution expenses............ 38,601 43,800 53,503
General and administrative................... 9,557 9,428 12,340
Merger costs................................. -- -- 905
---------- ---------- ----------
48,158 53,228 66,748
---------- ---------- ----------
Operating income.............................. 5,178 8,662 12,521
Interest expense.............................. 1,200 1,490 1,297
---------- ---------- ----------
Income before income taxes.................... 3,978 7,172 11,224
Income taxes.................................. 1,543 2,836 4,435
---------- ---------- ----------
Net income.................................... $ 2,435 $ 4,336 $ 6,789
========== ========== ==========
Net income per share.......................... $ .29 $ .53 $ .72
========== ========== ==========
Weighted averages shares outstanding.......... 8,255,000 8,250,000 9,408,000
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
MARCH 28, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at March 25, 1994, as
previously reported.......... 5,682,622 $ 3,905 $436 $ 6,228 $10,569
Pooling of interests with
North Star Plating
Company..................... 2,450,000 -- 117 5,592 5,709
--------- ------- ---- ------- -------
Balance at March 25, 1994, as
adjusted..................... 8,132,622 3,905 553 11,820 16,278
Retirement of 62,755 shares
of common stock ($3.32 per
share)...................... (62,755) (209) -- -- (209)
Issuance of 180,133 shares of
common stock to
officers ($3.35 per share).. 180,133 603 -- -- 603
Net income................... -- -- -- 2,435 2,435
--------- ------- ---- ------- -------
Balance at March 31, 1995..... 8,250,000 4,299 553 14,255 19,107
Net income................... -- -- -- 4,336 4,336
--------- ------- ---- ------- -------
Balance at March 29, 1996..... 8,250,000 4,299 553 18,591 23,443
Issuance of 1,500,000 shares
in connection with initial
public offering at $9.00 a
share net of offering costs
and commissions of $1,878... 1,500,000 11,622 -- -- 11,622
Net income................... -- -- -- 6,789 6,789
--------- ------- ---- ------- -------
Balance at March 28, 1997..... 9,750,000 $15,921 $553 $25,380 $41,854
========= ======= ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................... $2,435 $4,336 $ 6,789
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 1,401 1,607 2,617
Deferred taxes................................ (639) 239 (487)
Provision of losses on uncollectible accounts. 270 317 673
Provision for losses on inventory............. 1,324 641 322
(Gain) loss on sales of assets................ 87 (11) (150)
Stock issued for compensation................. 603 -- --
Changes in operating assets and liabilities:
Accounts receivable.......................... (857) (4,672) (2,736)
Inventories.................................. (267) (5,700) (6,834)
Prepaid expenses and other receivables....... (454) 574 (30)
Other assets................................. 176 445 (454)
Accounts payable............................. (520) 3,947 2,908
Accrued salaries, wages and related benefits. (195) 539 (108)
Other accrued liabilities and accrued pension
costs....................................... (60) (524) (458)
------ ------ -------
Net cash provided by operating activities....... 3,304 1,738 2,052
INVESTING ACTIVITIES:
Proceeds from sales of assets................... 66 75 270
Acquisitions of certain service centers......... (1,289) (3,051) (3,175)
Intangible assets acquired...................... (175) (2,003) (1,751)
Purchases of property, plant and equipment...... (2,504) (1,945) (3,854)
------ ------ -------
Net cash used in investing activities........... (3,902) (6,924) (8,510)
FINANCING ACTIVITIES:
Borrowings under bank credit facility........... 2,950 1,560 19,129
Payments under bank credit facility............. (1,210) (50) (19,750)
Bankers acceptances and other short-term debt,
net............................................ (1,024) 1,067 18
Borrowings on notes payable to officers,
shareholders and other related parties......... 14 178 --
Payments on notes payable to officers,
shareholders and other related parties......... (13) (364) --
Borrowings on long-term debt.................... 2,944 4,351 24
Principal payments on long-term debt............ (1,762) (2,131) (7,109)
Proceeds from initial public offering........... -- -- 11,622
Principal payments on capital lease obligations. (141)
Retirement of stock............................. (209) -- --
------ ------ -------
Net cash provided by financing activities....... 1,549 4,611 3,934
------ ------ -------
Net increase (decrease) in cash................. 951 (575) (2,524)
Cash at beginning of year....................... 3,500 4,451 3,876
------ ------ -------
Cash at end of year............................. $4,451 $3,876 $ 1,352
====== ====== =======
Supplemental disclosures
Interest paid during the year................. $1,145 $1,503 $ 1,338
Income taxes paid during the year............. $2,631 $2,412 $ 5,311
Acquisition of businesses using debt.......... $ -- $1,666 $ 500
------ ------ -------
</TABLE>
See accompanying notes.
F-6
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS INFORMATION
The principal business of Keystone Automotive Industries, Inc. (the
"Company") is the distribution of replacement parts for automobiles and light
trucks to collision repair shops through a network of seventy service centers
located within the United States and one in Mexico.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Keystone Automotive Industries, Inc. and its wholly-owned subsidiary, North
Star Plating Co. All significant intercompany transactions have been
eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash
and cash equivalents are held by major financial institutions.
FISCAL YEAR
The Company uses a 52/53 week fiscal year. The Company's fiscal year ends on
the last Friday of March. The fiscal years ended March 31, 1995, March 29,
1996 and March 28, 1997, included 53, 52 and 52 weeks, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents, short-term borrowings and the
current portion of long-term debt approximate cost due to the short period of
time to maturity. Fair values of long-term debt, which have been determined
based on borrowing rates currently available to the Company for loans with
similar terms or maturity, approximate the carrying amounts in the
consolidated financial statements.
INVENTORIES
The Company's inventories consist primarily of automotive collision
replacement parts, paint and related materials and bumpers. Inventories are
stated at the lower of cost (first-in, first-out) or market.
DEPRECIATION
The Company uses the straight-line method for depreciation of property,
plant, and equipment over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings............................... 20 years
Machinery and equipment................. 5-12 years
Furniture and fixtures.................. 5-6 years
Auto and truck.......................... 3-5 years
Leasehold improvements.................. Term of lease or life of the asset,
whichever is shorter, or 5-20 years.
</TABLE>
Depreciation expenses amounted to approximately $1,369,000, $1,483,000, and
$2,001,000 for the years ended March 31, 1995, March 29, 1996 and March 28,
1997, respectively.
F-7
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF RISK
Accounts receivable subject the Company to a potential concentration of
credit risk. Substantially all of the Company's customers are in the auto body
repair business, none representing more than 1% of sales. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Receivables are generally due within 30
days. Credit losses have consistently been within management's expectations.
During 1997 Keystone imported 25% of its products from the Far East.
ACCOUNTING ESTIMATES
The preparation of 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
STOCK-BASED COMPENSATION
The Company elected to continue to account for stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees," and related interpretations. Management has determined
that the effect of applying Financial Accounting Standards Board Statement No.
123's fair value method to the Company's stock-based awards results in net
income and earnings per share that are not materially different from amounts
reported. Under the provisions of APB 25, compensation expense is measured at
the grant date for the difference between the fair value of the stock and the
exercise price.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
The Company provides its customers the right to return products that are
damaged or defective. The effect of these programs is estimated and current
period sales and costs of sales are reduced accordingly.
INTANGIBLES
Excess of cost over net assets acquired is amortized over a fifteen-year
period using the straight-line method. Covenants not to compete are amortized
using the straight-line method over the terms of the agreements. Amortization
expense for the years ended March 31, 1995, March 29, 1996, and March 28, 1997
were $32,000, $124,000, and $616,000, respectively.
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Covenants not to compete..................................... $1,135 $3,012
Excess of cost over net assets acquired...................... 1,605 1,479
------ ------
2,740 4,491
Less: Accumulated amortization............................... (156) (772)
------ ------
Total........................................................ $2,584 $3,719
====== ======
</TABLE>
F-8
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Board of Directors authorized management of the Company to file a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. The Company
restated its Articles of Incorporation and Bylaws to increase the authorized
shares of common stock to 20,000,000 and to authorize 3,000,000 shares of
preferred stock. No preferred stock has been issued. Additionally, the Board
of Directors and shareholders approved a common stock split of 3.8467 to 1 on
April 16, 1996. All share and per share amounts in these financial statements
have been adjusted for the common stock split.
Earnings per share are computed using the weighted average number of shares
of common stock and common stock equivalents (attributable to stock options
which are not material) outstanding during each period. Common stock
equivalents were calculated using the treasury stock method.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted for fiscal years
ending after December 15, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating basic earnings
per share, the dilutive effect of stock options will be excluded. The impact
of Statement 128 on the calculation of basic earnings per share and fully
diluted earnings per share for the years ended March 31, 1995, March 29, 1996,
and March 28, 1997 will not be material.
2. MERGER AND ACQUISITIONS
Effective March 28, 1997, the Company completed a merger with North Star
Plating Company ("North Star"). An aggregate of 2,450,000 shares of Keystone
common stock was exchanged for all of the outstanding common stock of North
Star. The transaction was accounted for as a pooling of interests and
therefore, all prior period financial statements presented include North
Star's historical activities. North Star used a September 30 year end. The
North Star balance sheets and statements of income and cash flow have been
conformed to Keystone's fiscal years ended March 31, 1995, March 29, 1996 and
March 28, 1997.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Keystone..................................... $101,596 $115,326 $138,380
North Star................................... 32,479 43,317 58,227
Intercompany eliminations.................... (1,420) (1,622) (2,286)
-------- -------- --------
Combined....................................... $132,655 $157,021 $194,321
======== ======== ========
Net income:
Keystone..................................... $ 1,406 $ 3,106 $ 4,836
North Star................................... 1,029 1,230 1,953
-------- -------- --------
Combined....................................... $ 2,435 $ 4,336 $ 6,789
======== ======== ========
Other changes in shareholders' equity:
Keystone..................................... $ 394 $ -- $ 11,622
North Star................................... -- -- --
-------- -------- --------
Combined....................................... $ 394 $ $ 11,622
======== ======== ========
</TABLE>
F-9
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
2. MERGER AND ACQUISITIONS (CONTINUED)
Changes in shareholders' equity for the year ended March 31, 1995 are due to
the issuance of 180,133 shares of common stock to officers for $3.35 a share
and the retirement of 62,755 shares of common stock. Changes in shareholders'
equity for the year ended March 28, 1997 are due to the proceeds from the
Company's initial public offering less offering expenses, underwriters
commissions and discounts.
In connection with the merger, $905,000 of merger costs and expenses were
incurred and have been charged to expense during the third and fourth quarter
of the year ended March 28, 1997. The merger costs and expenses consisted
primarily of legal, accounting, and investment banking fees.
During the year ended March 29, 1996, the Company purchased substantially
all of the assets, primarily inventory, furniture and fixtures, and equipment
of M.A.P. International, C.D. Wheel and United Bumper. The Company paid
approximately $1,192,000 in cash and a note for $150,000 due October 1998.
In January of 1996 the Company's wholly-owned subsidiary (North Star)
purchased substantially all of the assets of Carolina Bumper, Inc., Carolina
Auto and Paint Supply, Inc., Carolina Truck Specialties/Automotive Colors,
Inc. and Carolina Bumper/Automotive Colors, Inc., automotive and retail supply
businesses. As consideration for the assets purchased, North Star paid cash of
approximately $3,700,000, assumed certain liabilities and issued a one-year
promissory note in the amount of $647,000. The note is due in monthly
installments and bears interest at the rate of 8%. Promissory notes of
$200,000 (due in 12 equal monthly installments) and $500,000 (due in 60 equal
monthly installments), were issued in exchange for a five year covenant not to
compete. Each note bears interest at a rate of 8%.
The acquisitions for the year ended March 29, 1996 were accounted for using
the purchase method. The acquired assets and liabilities were recorded at
their estimated fair values. The results of operations have been included
since the respective dates of acquisition. These results were not significant
to the financial results of the Company.
During fiscal 1997, the Company purchased substantially all of the assets
primarily inventory, furniture and fixtures, and equipment of After Market
Parts & Supply ("AMPS"), Augusta Bumper, Glenn Automotive Paint & Body Supply,
Inc., and Stockton Plating Inc. The Company paid approximately $5,900,000 in
total for these acquisitions. The acquired assets and liabilities were
recorded at their estimated fair values. The acquisitions were accounted for
using the purchase method. The results of operations have been included since
the respective dates of acquisition. These results were not significant to the
consolidated financial results of the Company.
3. SHAREHOLDERS' EQUITY
In June 1996, the Company's Registration Statement of Form S-1 was declared
effective by the Securities and Exchange Commission, permitting the Company to
sell shares of its common stock to the public. The Company and selling
shareholders sold 1,500,000 and 1,605,000 shares, respectively, at the initial
offering price of $9.00 per share. The Company proceeds of $11,622,000 (net of
underwriter commissions and offering costs) were used to pay down bank debt
and for working capital.
F-10
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
4. LONG-TERM DEBT
Long-term debt consists of the following at March 29, 1996, and March 28,
1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Note payable to bank, due in monthly installments of
$50,000, plus interest at the prime rate (8.25% at March
29, 1996), plus .5% due August 1, 1996..................... $ 250 $ --
Various covenants not-to-compete, payable with interest up
to 8%, through 2001........................................ 804 884
Notes payable to Bumper Exchange, monthly principal of
$6,790 and interest at 1% above the prime rate (8.25% at
March 29, 1996), payable through October 1997. Secured by
inventory, property and equipment.......................... 129 --
Note payable to PNC bank, monthly payments of $6,649 with a
variable interest rate (9.25% at March 29, 1996), payable
through April 30, 1999. Secured by property................ 674 --
Note payable to D. Fales, interest at 1% above the prime
rate, (8.25% at March 28, 1997), payable through October
1998....................................................... 150 150
Note payable to bank, secured by all inventories, equipment,
accounts receivable and fixed assets, payable in monthly
installments of $62,877, including 8.23% interest until
December 31, 2000.......................................... 3,883 --
Note payable, XRJ, Inc., secured by acquired assets, payable
in monthly installments of $56,438 until December 15, 1996. 544 --
Capital lease obligation, payable in monthly installments of
$5,678, including 6.73% interest through December 1, 1998.. 175 117
Other interest bearing notes, payable through 1999.......... 1,822 695
------ ------
8,431 1,846
Less amount due within one year............................. (2,527) (741)
------ ------
Amounts due after one year.................................. $5,904 $1,105
====== ======
</TABLE>
Long-term debt due after one year matures approximately as follows: 1998--
$741,000; 1999--$685,000; 2000--$225,000; 2001--$195,000; 2002 and
thereafter--$0.
5. FINANCING ARRANGEMENTS
On March 25, 1997 the Company entered into a revolving loan agreement with a
commercial lender that provides a $25,000,000 unsecured credit facility that
expires on March 24, 1998. Initial advances under the revolving line of credit
are made with interest at the prime rate (8.5% at March 28, 1997), however at
the Company's option, all advances may be converted to LIBOR plus 0.75%-
0.875%. The weighted average interest rate on the line of credit was 8.3% and
8.1% for the years ended March 29, 1996 and March 28, 1997, respectively. The
agreement also contains an unused line charge of 0.125%. At March 28, 1997 the
unused portion of the line of credit was $12,371,000.
The revolving loan agreement is subject to certain restrictive covenants and
requires that the company maintain certain financial ratios. The Company was
in compliance with all covenants as of March 28, 1997.
F-11
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
6. RELATED PARTY TRANSACTIONS
The Company has entered into various property lease agreements with related
parties including certain of the Company's directors and officers and
agreements with a corporation which is owned by a family member of a Company
officer and director. The leases contain terms up to 10 years. The Company
believes that the terms and conditions of such leases with affiliated parties
are no less favorable than could have been obtained from unaffiliated parties
in arm's length transactions at the time such leases were entered into. Rent
expense paid to related parties, included in the total rent expense, amounted
to $724,000, $665,000 and $931,000 for 1995, 1996 and 1997, respectively,
exclusive of the Company's obligation for property taxes and insurance.
Notes payable to officers, shareholders, and other related parties are
unsecured, due October 1, 1998, and bear interest at the prime rate (8.25% at
March 28, 1997) plus 1%. Interest expense incurred in connection with these
obligations was $32,000 at March 31, 1995, $43,000 at March 29, 1996 and
$21,000 at March 28, 1997.
7. INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Significant components of the Company's deferred tax liabilities and assets
as of year end as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----- ------
<S> <C> <C>
Deferred tax assets:
Book depreciation over tax.................................. $ 36 $ --
Uniform cost capitalization................................. 546 765
Inventory reserve........................................... 204 206
Accrued expenses not currently deductible for tax........... 413 696
Other, net.................................................. 108 313
----- ------
Total deferred tax assets..................................... 1,307 1,980
Deferred tax liabilities:
Prepaid expenses............................................ (381) (385)
Tax depreciation over book.................................. -- (182)
----- ------
Total deferred tax liabilities................................ (381) (567)
----- ------
Net deferred tax assets....................................... $ 926 $1,413
===== ======
</TABLE>
No valuation allowance was necessary for deferred tax assets in 1996 or
1997.
F-12
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
7. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes attributable to
operations under the liability method are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................. $1,760 $2,064 $3,958
State............................................... 422 533 964
------ ------ ------
2,182 2,597 4,922
Deferred:
Federal............................................. (436) 203 (390)
State............................................... (203) 36 (97)
------ ------ ------
(639) 239 (487)
------ ------ ------
$1,543 $2,836 $4,435
====== ====== ======
</TABLE>
The reconciliation of income taxes at the U.S. federal statutory tax rate to
reported income tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Income taxes at statutory tax rate.................... $1,353 $2,438 $3,816
State income taxes, net of federal tax effect......... 210 381 565
Non-deductible expenses............................... 14 17 47
Other, net............................................ (34) -- 7
------ ------ ------
$1,543 $2,836 $4,435
====== ====== ======
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has an employee stock ownership plan which covers substantially
all of its employees. Under the terms of the Internal Revenue Code, each
year's tax deductible contribution is limited to a maximum of 15% of the
Company's qualified payroll. A carryover of unused allowable contributions is
allowed, subject to certain limits. Under the terms of the plan, the Company
makes the contribution to the Trustee, who is required to follow the
Administrative Committee's investment decisions. The Company's contributions
to the plan were $190,000, in 1995, and none in 1996 and 1997, respectively.
In March 1979, the Company adopted a defined benefit pension plan (the
"Plan") to provide pension benefits to all non-union employees. Plan benefits
are based on an employee's years of service and the compensation during the
five years of employment which would yield the highest average compensation.
The assets of the plan consist primarily of investments in mutual funds, time
certificates of deposit, and marketable debt securities. The Company's policy
is to fund pension cost accrued.
F-13
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The net periodic pension cost for the Plan for the years ended March 31,
1995, March 29, 1996 and March 28, 1997, consisted of the following (in
thousands).
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Service costs-- benefits earned during the year......... $ 120 $ 132 $ 154
Interest cost on projected benefit obligation........... 188 213 232
Actual return on assets................................. (136) (153) (199)
Net amortization and deferral........................... 40 45 40
----- ----- -----
$ 212 $ 237 $ 227
===== ===== =====
</TABLE>
The following is a summary of the status of the funding of the Plan (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations.............................. $(2,414) $(2,783)
Non-vested benefit obligations.......................... (65) (81)
------- -------
Accumulated benefit obligations........................... $(2,479) $(2,864)
======= =======
Projected benefit obligations............................. $(2,902) $(3,380)
Assets of the plan at market.............................. 2,442 2,989
------- -------
Projected benefit obligation greater than assets of the
plan..................................................... (460) (391)
Unrecognized net obligation not yet recognized in periodic
pension cost............................................. 1,148 1,195
Unrecognized net transition obligation at March 28, 1987,
being recognized over 25 years........................... 128 120
Adjustment required to recognize minimum liability:
Accrued but not expensed................................ (1) --
Unfunded liability...................................... 36 --
------- -------
Prepaid pension included in other assets and prepaid
expenses.................................................. $ 851 $ 924
======= =======
</TABLE>
In determining the actuarial present value of projected benefit obligations
at March 29, 1996 and March 28, 1997, a discount rate of 8% was used. Future
compensation levels are assumed to increase at an annual rate of 5%. The
expected long-term annual rate of return on assets was 8% for the years ended
March 31, 1995, March 29, 1996, and March 28, 1997. In April 1997 the Board of
Directors approved the freezing of the defined benefit pension plan.
Management estimates, after consulting with the Company's actuary, that the
curtailment of the plan is not material to the Company's results of
operations. However, this estimate depends on the plan's asset values at the
date of curtailment.
North Star, a wholly-owned subsidiary, adopted a 401(k) plan in fiscal 1996
that covers substantially all of its employees. Employees who have completed
more than one year of service are eligible and may contribute from 1% to 15%
of their base pay. The Company matches 50% of the first 4% of employee
contributions. Employee contributions vest immediately, while employer
contributions vest based on years of service. Contributions to the plan were
$43,000 and $173,000, as of March 29, 1996 and March 28, 1997, respectively.
On April 1, 1997 the plan was amended to include substantially all of the
Company's employees and to increase the matching contribution to 6% of
employee contribution.
F-14
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
9. STOCK COMPENSATION PLANS
In 1996, the Board of Directors of the Company adopted a Stock Incentive
Plan (the "Plan"). There were 730,000 shares of Common Stock reserved for
issuance under the 1996 Plan. The 1996 Plan provides for granting of stock
options that may be either "incentive stock options" within the meaning of
Section 422A of the Internal Revenue Code of 1986 (the "Code") or "non-
qualified stock options," which do not satisfy the provisions of Section 422A
of the Code. Options are required to be granted at an option price per share
equal to the fair market value of Common Stock on the date of grant. Stock
options may not be granted longer that 10 years from the date of the 1996
Plan. All options granted have ten-year terms and vest at the rate of 25% per
year, commencing one year from the date of grant.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
STOCK OPTION PLAN SHARES PRICE
----------------- ------- --------
<S> <C> <C>
Outstanding at March 29, 1996 -- --
Granted................................................... 432,000 $11.90
Exercised................................................. -- --
Expired................................................... -- --
Outstanding at March 28, 1997............................... 432,000 $11.90
</TABLE>
The following tabulation summarizes certain information concerning
outstanding and exercisable options at March 28, 1997:
<TABLE>
<CAPTION>
PRICE RANGE
---------------
$12.25
TO
$9.00 $15.00
------- -------
<S> <C> <C>
Outstanding options:
Number outstanding......................................... 220,000 212,000
Weighted average exercise price............................ $ 9.00 $ 14.90
Weighted average remaining contractual life in years....... 9.2 9.3
Exercisable options:
Number exercisable......................................... 20,000 45,000
Weighted average exercise price............................ $ 9.00 $ 12.69
</TABLE>
There were no exercisable options outstanding in fiscal years 1996 and 1995.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by Statement of
Financial Accounting Standards No. 123, net income and earnings per share
would have been reduced to the pro forma amounts shown below:
<TABLE>
<CAPTION>
1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------
<S> <C>
Pro forma:
Net income.......................................................... $6,667
Earnings per share:
Primary............................................................ $ 0.71
Fully diluted...................................................... $ 0.71
</TABLE>
F-15
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
9. STOCK COMPENSATION PLANS (CONTINUED)
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Risk free interest rate................................................ 6.52%
Expected life in years................................................. 4
Expected volatility.................................................... 26.8%
Expected dividend yield................................................ 0.00%
</TABLE>
In fiscal 1995 the Company had 180,133 shares exercised at a weighted
average price of $3.35. This resulted in compensation expense of $1,200,000.
The plan under which these option were granted was terminated in 1995.
10. COMMITMENTS
The Company leases substantially all of its property and a portion of its
plant and equipment. Certain of the leases contain renewal options from two to
five years.
Future minimum lease payments, under noncancelable operating leases with
initial terms of one year or more, are approximately as follows at March 28,
1997 (in thousands):
<TABLE>
<CAPTION>
RELATED TOTAL
PARTY OPERATING
LEASES OTHER LEASES
------- ------- ---------
<S> <C> <C> <C>
1998............................................... $1,002 $ 3,987 $ 4,989
1999............................................... 946 3,200 4,146
2000............................................... 1,078 2,699 3,777
2001............................................... 1,005 1,749 2,754
2002............................................... 977 774 1,751
Thereafter......................................... 2,881 234 3,115
------ ------- -------
Total minimum rental payments...................... $7,889 $12,643 $20,532
====== ======= =======
</TABLE>
Total rent expense amounted to $2,707,000, $4,044,000 and $4,985,000 for
1995, 1996 and 1997, respectively, exclusive of the Company's obligation for
property taxes and insurance. Certain leases contain provisions for rent
escalation that is being amortized on a straight-line basis over the lives of
the leases.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended March 29, 1996 and March 28, 1997.
<TABLE>
<CAPTION>
SEPT.
JUNE 30 SEPT. 29 DEC. 29 MAR. 29
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
-------------------------------
<S> <C> <C> <C> <C>
1996:
Net Sales.................................. $34,667 $35,420 $38,763 $48,171
Gross Profit............................... 13,810 13,773 15,479 18,828
Net Income................................. 760 824 1,199 1,553
Earnings Per Share......................... 0.09 0.10 0.15 0.19
</TABLE>
F-16
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
JUNE 28 SEPT 27 DEC. 27 MAR. 28
------- -------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------
<S> <C> <C> <C> <C>
1997:
Net Sales.................................. $45,561 $43,894 $49,905 $54,961
Gross Profit............................... 18,296 17,712 20,566 22,695
Net Income................................. 1,519 1,636 1,857 1,777
Earnings Per Share......................... 0.18 0.17 0.19 0.18
</TABLE>
12. SUBSEQUENT EVENTS
Effective on May 23, 1997, the Company's Chairman and Chief Executive
Officer resigned his positions to pursue other interests. Under the terms of
the employment agreement, the Company is obligated to pay the balance of his
contract and to provide for certain employee benefits. The Company will record
a pre tax charge of approximately $700,000 in the first quarter of fiscal year
1998 in connection with the settlement of all outstanding obligations.
The Company is planning to file a Form S-1 Registration Statement with the
SEC in connection with a secondary offering of its common stock. The filing is
expected to be effective June 1997. Management has indicated the proceeds from
the offering will be used to paydown the Company's indebtedness under its
revolving lines of credit.
The Company is currently negotiating acquisitions for substantially all the
assets and specific liabilities of a bumper distributor located in the
Southeast and a wheel remanufacturer located in the Midwest for approximately
$4,100,000 in cash. The acquisitions are expected to be completed in June of
1997.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
North Star Plating Company
We have audited the accompanying balance sheets of North Star Plating
Company as of September 30, 1996 and 1995, and the related statements of
income and shareholders' equity and cash flows for each of the three years in
the period ended September 30, 1996. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North Star Plating Company
at September 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
November 11, 1996
F-18
<PAGE>
NORTH STAR PLATING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................... $ 80,234 $ 360,844
Accounts receivable, less allowance for doubtful
accounts and reserve for sales returns and
discounts of $245,000 in 1996 and $75,000 in 1995.. 3,442,079 4,909,622
Other receivables................................... 16,599 114,514
Inventories, less obsolescence reserve of $340,000
in 1996 and $195,000 in 1995....................... 5,633,439 9,849,535
Prepaid expenses.................................... 429,215 317,089
Deferred income taxes............................... 394,000 640,613
----------- -----------
Total current assets................................. 9,995,566 16,192,217
Property and equipment
Leasehold improvements.............................. 413,604 601,355
Shop machinery and equipment........................ 1,187,113 1,722,650
Office furniture and equipment...................... 1,501,016 2,399,607
Vehicles............................................ 1,947,227 2,530,113
----------- -----------
5,048,960 7,253,725
Accumulated depreciation............................ (2,694,208) (3,352,143)
----------- -----------
2,354,752 3,901,582
Other assets
Intangible assets, net of accumulated amortization
of $205,993 in 1996 and $54,417 in 1995............ 130,591 1,973,848
Other............................................... 74,642 36,108
----------- -----------
205,233 2,009,956
----------- -----------
Total assets......................................... $12,555,551 $22,103,755
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable....................................... $ 1,000,000 $ 1,000,000
Accounts payable.................................... 1,972,050 5,159,894
Accrued liabilities................................. 464,222 537,455
Accrued wages....................................... 246,028 444,986
Current maturities of long-term debt................ 661,651 1,678,947
----------- -----------
Total current liabilities............................ 4,343,951 8,821,282
Long-term debt, less current maturities.............. 1,112,008 4,323,405
Deferred income taxes................................ 269,080 335,227
Shareholders' equity
Common Stock, $.01 par value:
Authorized shares--100,000.........................
Issued and outstanding--6,762...................... 68 68
Additional paid-in capital.......................... 117,250 117,250
Retained earnings................................... 6,713,194 8,506,523
----------- -----------
Total shareholders' equity........................... 6,830,512 8,623,841
----------- -----------
Total liabilities and shareholders' equity........... $12,555,551 $22,103,755
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
NORTH STAR PLATING COMPANY
STATEMENT OF INCOME AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales.................................. $29,611,965 $34,838,287 $52,152,195
Cost of sales.............................. 17,446,572 20,780,903 31,284,394
----------- ----------- -----------
Gross margin............................... 12,165,393 14,057,384 20,867,801
=========== =========== ===========
Other expenses
General and administrative................ 1,206,881 1,700,668 2,240,722
Selling................................... 9,512,088 10,364,118 15,121,049
----------- ----------- -----------
10,718,969 12,064,786 17,361,771
----------- ----------- -----------
Operating income........................... 1,446,424 1,992,598 3,506,030
Interest expense........................... 182,826 220,658 535,121
Other expense (income)..................... 3,225 (28,697) 27,466
----------- ----------- -----------
Net income before taxes.................... 1,260,373 1,800,637 2,943,443
----------- ----------- -----------
Income tax expense......................... 496,260 728,007 1,150,114
----------- ----------- -----------
Net income................................. 764,113 1,072,630 1,793,329
=========== =========== ===========
Beginning retained earnings................ 4,876,451 5,640,564 6,713,194
----------- ----------- -----------
Ending retained earnings................... $ 5,640,564 $ 6,713,194 $ 8,506,523
=========== =========== ===========
Net income per share....................... $ 113 $ 159 $ 265
=========== =========== ===========
Weighted average shares outstanding........ 6,737 6,762 6,762
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
NORTH STAR PLATING COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ 764,113 $ 1,072,630 $ 1,793,329
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Depreciation and amortization........ 527,989 638,016 946,000
Loss on disposal of equipment........ 8,753 63,778 33,032
Deferred income taxes................ (63,510) (64,210) (180,466)
Cash surrender value of officers'
life insurance, net of loans........ (48,090) -- --
Changes in operating assets and
liabilities:
Accounts receivable.................. (306,351) (605,135) (1,104,985)
Inventories.......................... (1,313,602) (743,915) (2,550,815)
Prepaids and other assets............ (269,547) 254,014 150,660
Accounts payable, taxes and other
liabilities......................... 465,367 292,161 3,379,129
----------- ----------- -----------
Net cash (used in) provided by
operating activities.................. (234,878) 907,339 2,465,884
INVESTING ACTIVITIES
Purchase of plant and equipment........ (1,311,206) (580,002) (1,132,424)
Purchase of business................... -- -- (132,914)
Proceeds from sale of property, plant
and equipment......................... 9,910 27,572 71,099
----------- ----------- -----------
Net cash used in investing activities.. (1,301,296) (552,430) (1,194,239)
FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term borrowings.............. 1,678,086 635,222 720,189
Principal payments on revolving line of
credit and long-term debt............. (938,525) (1,008,823) (1,711,224)
Issuance of common stock............... 83,646 -- --
----------- ----------- -----------
Net cash provided by (used in)
financing activities.................. 823,207 (373,601) (991,035)
----------- ----------- -----------
Increase (decrease) in cash............ (712,967) (18,692) 280,610
Cash and cash equivalents at beginning
of year............................... 811,893 98,926 80,234
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 98,926 $ 80,234 $ 360,844
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
North Star Plating Company, in existence since April 1, 1968, is a
manufacturer and wholesale distributor of automotive aftermarket parts and a
wholesale distributor of paint and body supplies.
As stated in Note 2, in January 1996, the Company purchased substantially
all of the assets of Carolina Bumper, Inc., Carolina Auto Body and Paint
Supply, Inc., Carolina Truck Specialties/Automotive Colors, Inc. and Carolina
Bumper/Automotive Colors, Inc., automotive wholesale and retail supply
businesses.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of delivery or
shipment. The Company provides its customers the right to return products that
are damaged or defective. The effect of these programs is estimated and
current period sales and cost of sales are reduced accordingly.
INVENTORIES
The Company's inventories consist primarily of automotive crash parts,
bumpers and automotive paint. Inventories are stated at the lower of cost
(first-in, first-out method) or market.
INTANGIBLES
Goodwill is amortized over a fifteen-year period using the straight-line
method. The non-compete agreements are amortized using the straight-line
method over the terms of the agreements.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting
and tax basis or assets and liabilities.
NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation," which establishes financial accounting and report
standards for stock-based compensation plans. The Company will comply with
this standard in 1997.
F-22
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying value. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The effect of the adoption by the
Company in 1996 was not material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from the estimates.
DEPRECIATION
The Company uses the straight-line method for depreciation of property,
plant and equipment over the following estimated useful lives:
<TABLE>
<S> <C>
Shop machinery and equipment...................................... 5-12 years
Office furniture and equipment.................................... 5-10 years
Vehicles.......................................................... 3-5 years
Leasehold improvements and capital leases......................... 5-20 years
</TABLE>
CONCENTRATION OF CREDIT RISK
Accounts receivable subject the Company to a potential concentration of
credit risk. Substantially all of the Company's customers are in the auto body
repair business, five representing more than 1% of sales. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Receivables are due within 30 days.
Credit losses have consistently been within management's expectations.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees and Related Interpretations."
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure of
fair value information about financial instruments for which it is practicable
to estimate that value. The Company records its financial instruments at
market value.
F-23
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
2. ACQUISITION
On January 1, 1996, the Company purchased substantially all of the assets of
Carolina Bumper Inc., Carolina Auto Body and Paint Supply, Inc., Carolina
Truck Specialties/Automotive Colors, Inc. and Carolina Bumper/Automotive
Colors, Inc., automotive wholesale and retail supply businesses. As
consideration for the assets purchased, the Company paid cash of approximately
$3,700,000, assumed certain liabilities and issued a one-year promissory note
in the original amount of $646,818. The note is due in monthly installments
and bears interest at the rate of 8%.
The Company also issued promissory notes of $200,000 and $500,000 in
exchange for a five-year covenant not to compete on the part of the sole
shareholder and an executive. The first promissory note is due in 12 equal
monthly installments and bears interest at the rate of 8%. The second
promissory note is due in 60 equal monthly installments and bears interest at
the rate of 8%. The related intangible assets are being amortized over the
life of the agreements.
The acquisition was accounted for using the purchase method and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair values. The results of operations have been included since the
date of acquisition.
The following unaudited supplemental pro forma information has been prepared
assuming the acquisition had occurred at the beginning of the period
presented. Pro forma results are not necessarily indicative of the results
that would have occurred had the acquisition actually taken place at the
beginning of the periods shown, or the expected results of future operations.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1995 1996
------------ -----------
<S> <C> <C>
Net Sales............................................ $42,948,000 $54,067,000
Net Income........................................... 780,000 1,743,000
Net Income per share................................. 115 258
</TABLE>
3. INVENTORIES
The major classes of inventories are as follows as of September 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Raw materials........................................ $ 726,733 $ 915,984
Work-in-process...................................... 39,600 83,712
Finished goods....................................... 5,062,106 9,189,839
Less reserve for obsolescence........................ (195,000) (340,000)
---------- ----------
$5,633,439 $9,849,535
========== ==========
</TABLE>
4. NOTES PAYABLE
Under terms of its outstanding credit agreements, the Company can borrow up
to $1,000,000 based on certain percentages of eligible collateral, primarily
inventory and receivables. Borrowings under the agreements are at the lender's
sole discretion, are due on demand, bear interest at .5% over the base rate
and are secured by substantially all of the Company's assets. The outstanding
balance of the credit facility at September 30, 1996 and 1995 was $1,000,000.
The Company is prohibited from selling or disposing of its property,
consolidating or merging or declaring or paying dividends except for amounts
required to pay shareholder taxes due on earnings. The Company must also
maintain certain specified financial ratios.
F-24
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
5. LONG-TERM DEBT
Long-term debt at September 30 consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Installment loans, each loan secured by a vehicle,
maturing at various times through March 25, 1999,
payable in monthly installments of $41,739,
including interest from 7.00% to 9.75%............. $ 487,163 $ 568,114
Note payable to bank, secured by all inventories,
equipment and accounts receivable, payable in
monthly installments of $5,385, including interest
at .50% over the bank's base rate through
December 15, 1997.................................. 140,362 86,131
Note payable, C. Fagerhaugh, due in monthly
installments of $3,965 and $1,322, including 10%
interest, maturing November 1, 1995. Guaranteed by
an officer and former shareholder of the Company... 5,242 --
Note payable, Trombley, Nozel & Howard, unsecured,
due in monthly installments of $4,978, including
9.00% interest until July 15, 1998................. 149,082 100,808
Note payable to bank, secured by all inventories,
equipment, accounts receivable and fixed assets,
payable in monthly installments of $62,877
including 8.23% interest until December 31, 2000... -- 3,663,984
Note payable, XRJ, Inc., secured by acquired assets,
payable in monthly installments of $56,438 until
December 15, 1996.................................. -- 222,040
Demand loan payable, R. Wood, interest 8%,
unsecured.......................................... 42,000 42,000
Loan payable, W. Farmer, unsecured, payable in
monthly installments of $7,124, including variable
interest of .50% over First Chicago's base rate,
through January 15, 1998........................... 173,526 100,706
Note payable, Automotive Enterprises Company,
payable in monthly installments of $15,638,
including 7% interest, until April 15, 1999,
secured by certain vehicles, equipment, inventory,
accounts receivable and goodwill................... 593,194 442,285
Covenants-not-to-compete, payable in monthly
installments of $5,385, no interest, through July
15, 1998........................................... 183,090 118,470
Covenants-not-to-compete, original issue of
$200,000, payable in monthly installments of
$17,451, including interest of 8%, until January
15, 1997........................................... -- 68,656
Covenant-not-to-compete with Melvin Smith, original
issue of $500,000, payable in monthly installments
of $10,138, including interest of 8%, until January
15, 2001........................................... -- 442,400
Capital lease obligation, payable in monthly
installments of $5,678, including 6.73% interest,
through December 1, 1998........................... -- 146,758
---------- ----------
1,773,659 6,002,352
Less current maturities............................. 661,651 1,678,947
---------- ----------
$1,112,008 $4,323,405
========== ==========
</TABLE>
F-25
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt at September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,678,947
1998.............................................................. 1,220,874
1999.............................................................. 826,210
2000.............................................................. 715,669
2001.............................................................. 1,560,652
----------
$6,002,352
==========
</TABLE>
6. OPERATING LEASES
The Company leases operating facilities and equipment. The terms of the
leases vary. Future lease commitments at September 30, 1996 for noncancelable
operating leases are approximately as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,334,539
1998.............................................................. 1,243,008
1999.............................................................. 1,148,785
2000.............................................................. 1,156,225
2001.............................................................. 1,127,442
Thereafter........................................................ 2,957,006
----------
$8,967,005
==========
</TABLE>
Total rent expense was $1,362,855, $1,030,903 and $943,794 for the years
ended September 30, 1996, 1995 and 1994, respectively. Rent expense to related
parties, included in the total rent expense, during those same years was
$580,371, $527,815 and $495,415, respectively. Certain leases contain
provisions for rent escalation which are being amortized on a straight-line
basis over the lives of the leases.
7. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current
Federal..................................... $456,084 $600,368 $1,084,671
State....................................... 103,686 191,848 245,909
-------- -------- ----------
Total current................................ 559,770 792,216 1,330,580
Deferred benefit............................. (63,510) (64,210) (180,466)
-------- -------- ----------
$496,260 $728,006 $1,150,114
======== ======== ==========
</TABLE>
F-26
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
7. INCOME TAXES (CONTINUED)
The effective tax rate for the years ended September 30, 1996, 1995 and 1994
differs from the federal statutory rate primarily as a result of the provision
for state income taxes and permanent differences. The reconciliation of income
taxes computed at the U.S. federal statutory tax rates to income tax expense
is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book income..... $1,260,373 100.0% $1,800,637 100.0% $2,943,443 100.0%
========== ===== ========== ===== ========== =====
Federal tax at 34%...... $ 428,527 34.0% $ 612,217 34.0% $1,000,771 34.0%
State tax net of federal
benefit................ 60,498 4.8 86,968 4.8 137,627 4.7
Other................... 7,235 0.6 28,822 1.6 11,716 0.4
---------- ----- ---------- ----- ---------- -----
$ 496,260 39.4% $ 728,007 40.4% $1,150,114 39.1%
========== ===== ========== ===== ========== =====
</TABLE>
Deferred income taxes are recorded to reflect temporary differences between
financial and tax reporting. The significant components of the net deferred
tax assets and deferred tax liabilities at September 30, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------------ ------------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Deferred tax assets
Accrued vacation.................... $ 34,000 $ -- $ 45,800 $ --
Bad debt reserve.................... 20,000 -- 30,000 --
Allowance for sales returns......... -- -- 40,250 --
Allowance for sales discounts....... -- -- 27,603 --
Inventory obsolescence.............. 78,000 -- 136,960 --
UNICAP.............................. 262,000 -- 360,000 --
Non-compete covenant................ -- 13,320 -- 47,413
-------- --------- -------- ---------
394,000 13,320 640,613 47,413
Deferred tax liabilities
Depreciation........................ -- 282,400 -- 382,640
-------- --------- -------- ---------
Net deferred asset (liability)....... $394,000 $(269,080) $640,613 $(335,227)
======== ========= ======== =========
</TABLE>
8. EMPLOYEE BENEFITS PLAN
The Company adopted a 401(k) plan in fiscal 1996 that covers substantially
all of its employees. Employees who have completed more than one year of
service are eligible and may contribute from 1% to 15% of their base pay. The
Company matches 50% of the first 4% of employee contributions. Employee
contributions vest immediately, while employer contributions vest based on
years of service. The Company's contribution to the plan was $124,665 during
1996.
9. SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Interest paid during the year.................. $185,326 $220,212 $ 530,267
Income taxes paid during the year.............. 696,365 778,830 1,238,375
Purchase of business........................... -- -- 5,219,547
</TABLE>
F-27
<PAGE>
PHOTO CAPTIONS OF:
[RADIATORS & CONDENSERS]
[STEEL & PLASTIC BUMPERS]
[PRIVATE LABEL PRODUCT LINE]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION PRESENTED HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE AS OF WHICH SUCH INFORMATION IS GIVEN. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES, OR ANY
SUCH SHARES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 7
Use of Proceeds .......................................................... 12
Dividend Policy .......................................................... 12
Price Range of Common Stock .............................................. 12
Capitalization ........................................................... 13
Selected Consolidated Financial Data ..................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business ................................................................. 20
Management ............................................................... 30
Principal and Selling Shareholders........................................ 41
Description of Capital Stock ............................................. 42
Underwriting ............................................................. 45
Legal Matters ............................................................ 46
Experts .................................................................. 46
Additional Information ................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,800,000 SHARES
[LOGO OF KEYSTONE AUTOMOTIVE INDUSTRIES, INC.]
KEYSTONE AUTOMOTIVE
INDUSTRIES, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
MORGAN KEEGAN &
COMPANY, INC.
A.G. EDWARDS & SONS, INC.
CROWELL, WEEDON & CO.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the offering are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $20,826
NASD filing fee................................................... 7,164
Nasdaq filing fee................................................. 17,500
Blue Sky filing fees and expenses................................. 5,000
Printing and engraving expenses................................... 75,000
Legal fees and expenses........................................... 100,000
Accounting fees and expenses...................................... 105,000
Registrar and transfer agent fees................................. 2,000
Miscellaneous..................................................... 67,510
--------
Total........................................................... $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporations Law provides that California
corporations may include provisions in their Articles of Incorporation
relieving directors of monetary liability for breach of their fiduciary duty
as directors, except for the liability of a director resulting from (i) any
transaction from which the director derives an improper personal benefit, (ii)
acts or omissions involving intentional misconduct or a knowing and culpable
violation of law, (iii) acts or omissions that a director believes to be
contrary to the best interest of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (iv) acts or
omissions constituting an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its shareholders, (v)
acts or omissions showing a reckless disregard for the director's duty to the
corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the corporation or its
shareholders, (vi) any improper transaction between a director and the
corporation in which the director has a material financial interest, or (vii)
the making of an illegal distribution to shareholders or any illegal loan or
guaranty. The Registrant's Restated Articles of Incorporation contain such a
provision.
The Underwriting Agreement, a proposed form of which is filed as Exhibit 1.1
hereto, provides for the indemnification of directors, officers, employees,
agents and controlling persons of the Registrant by the Underwriters under
certain circumstances.
The Bylaws of the Registrant require the Registrant to indemnify its
directors and officers to the fullest extent permitted by applicable law.
The Registrant has entered into indemnification agreements with its
directors and executive officers that require the Registrant to indemnify the
directors and executive officers to the fullest extent permitted by applicable
law.
ITEM 15. RECENT SALES
Since June 1, 1994, the Company has issued and sold (without payment of any
selling commission to any person) the following securities, which were not
registered under the Securities Act of 1933, as amended (the "Securities
Act"):
(a) From April 1, 1994 to March 31, 1995, the Company sold an aggregate
of 180,133 shares of Common Stock for an aggregate purchase price of
$602,208 to various employees pursuant to the exercise of options granted
under the Restricted Stock Option Plan in reliance on Section 4(2) of the
Securities Act as not involving a public offering.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+++ Amended and Restated Bylaws of the Registrant. [3.4]*
3.1.1 Amendment to Amended and Restated Bylaws of the Registrant.
3.2+++ Restated Articles of Incorporation of the Registrant. [3.5]*
4.1+++ Form of stock certificate.
5.1 Opinion of Manatt, Phelps & Phillips, LLP.
10.1+ Employment Agreement dated June 20, 1996, between the Registrant and
Virgil K. Benton II. [10.1]*
10.2+ Employment Agreement dated June 20, 1996, between the Registrant and
Charles J. Hogarty. [10.2]*
10.3+ Employment Agreement dated June 20, 1996, between the Registrant and
Al A. Ronco. [10.3]*
10.4+ Employment Agreement dated June 20, 1996, between the Registrant and
Robert L. Blanton. [10.4]*
10.5++++ Employment Agreement between North Star and Ronald G. Brown. [10.5]*
10.6++++ Employment Agreement between North Star and Kim D. Wood. [10.6]*
10.7+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Virgil K. Benton II. [10.5]*
10.8+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Charles J. Hogarty. [10.6]*
10.9+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Al A. Ronco. [10.7]*
10.10+ Indemnification Agreement dated June 20, 1996, between the
Registrant and Robert L. Blanton. [10.8]*
10.11+ Indemnification Agreement dated June 20, 1996, between the
Registrant and John M. Palumbo. [10.9]*
10.12++++ Indemnification Agreement between the Registrant and Ronald G.
Brown. [10.12]*
10.13++++ Indemnification Agreement between the Registrant and Kim D. Wood.
[10.13]*
10.14+ Keystone Automotive Industries, Inc. 1996 Stock Incentive Plan,
together with forms of incentive stock option, non-qualified stock
option and restricted stock agreements. [10.10]*
10.15+ The Registrant's Employee Defined Benefit Pension Plan, as amended.
[10.11]*
10.16+ The Registrant's Employee Stock Ownership Plan, as amended. [10.12]*
10.17+ The Registrant's 1989 Restricted Stock Option Plan. [10.13]*
10.18+ Lease Agreement, dated January 5, 1995, between V-JAC Properties,
Ltd. and the Registrant. [10.14]*
10.19+ Lease Agreement, dated January 5, 1995, between B-J Properties, Ltd.
and the Registrant. [10.15]*
10.20+ Lease and Option Agreement, dated April 1, 1995, between Benton Real
Properties, Inc. and the Registrant. [10.16]*
10.21+ Lease and Option Agreement, dated January 1, 1991, between Benton
Real Properties, Inc. and the Registrant. [10.17]*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.22+ Lease Agreement, dated January 5, 1995, between V-JAC Properties,
Ltd. and the Registrant. [10.18]*
10.23+ Loan and Security Agreement, dated December 17, 1990, between Union
Bank and the Registrant, as amended. [10.19]*
10.24++ Letter dated May 24, 1996 from Union Bank to the Registrant.
[10.19.1]*
10.25+ Term Loan Rider, dated December 17, 1990, between Union Bank and the
Registrant. [10.20]*
10.26+ Inventory Rider Agreement, dated December 17, 1990, between Union
Bank and the Registrant, as amended. [10.21]*
10.27+ Term Promissory Note, dated December 17, 1990, by the Registrant in
favor of Union Bank. [10.22]*
10.28+ Letter of Credit/Bankers Acceptance Rider, dated December 17, 1990,
between Union Bank and the Registrant, as amended. [10.23]*
10.29+ ERISA Rider, dated December 17, 1990, between Union Bank and the
Registrant. [10.24]*
10.30+ Equipment Rider, dated December 17, 1990, between Union Bank and the
Registrant, as amended. [10.25]*
10.31+ Waiver Letter, dated April 15, 1994, between Union Bank and the
Registrant. [10.26]*
10.32+ Promissory Note, dated September 28, 1992, from the Registrant to
the order of Bumper Exchange, Inc. [10.27]*
10.33++++ Underwriting Agreement dated June 20, 1996, among the Registrant,
certain selling shareholders and Morgan Keegan & Company, Inc. and
Crowell, Weedon & Co., as representatives of the several
underwriters. [10.33]*
10.34++++ Letter Agreement dated January 15, 1996, between Registrant and
Crowell, Weedon & Co. [10.34]*
10.35++++ Affiliate Agreement dated December 6, 1996, among the Registrant,
North Star Plating Company, Ronald G. Brown and Kim D. Wood.
[10.35]*
10.36++++ Form of Registration Rights Agreement among the Registrant, North
Star Plating Company, Ronald G. Brown and Kim D. Wood [10.36]*
10.37++++ Voting Agreement dated December 6, 1996, among the Registrant, North
Star Plating Company, Virgil K. Benton, II, Charles J. Hogarty,
Al A. Ronco, Robert L. Blanton and John M. Palumbo. [10.37]*
10.38 Credit Agreement dated March 25, 1997 between the Registrant and
Mellon Bank, N.A.
10.39++++ Agreement and Plan of Merger among the Registrant, North Star
Merger, Inc., North Star Plating Company, Ronald G. Brown and
Kim D. Wood dated December 6, 1996. [2.1]*
10.40 Resignation Agreement and General Release effective as of May 23,
1997 between the Registrant and Virgil K. Benton II.
10.41 Lease Agreement, dated January 1, 1995, between North Star and the
spouses of Ronald G. Brown and Kim D. Wood.
10.42 Lease Agreement, dated January 1, 1995, between North Star and the
spouse of Ronald G. Brown and a third party.
10.43 Lease Agreement, dated January 1, 1995, between North Star and a
partnership owned by Kim D. Wood and an employee of North Star.
10.44 Lease Agreement, dated May 20, 1996, between North Star and a
partnership owned by the spouses of Ronald G. Brown and Kim Wood
and the Brown Family Limited Partnership.
11.1 Computation of per share earnings.
21.1 Subsidiaries.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
23.1 Consent of Ernst & Young LLP, independent auditors of Registrant.
23.2 Consent of Ernst & Young LLP, independent auditors of North Star
Plating Company.
23.3 Consent of Manatt, Phelps & Phillips, LLP (see Exhibit 5.1).
24.1 Power of Attorney (see signature page).
27.1** Financial Data Schedule.
</TABLE>
- --------
* Indicates the exhibit number of the document in the original filing.
** Not applicable--no updated interim or annual financial statements.
+ Filed as an exhibit to the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on April 18, 1996 (File No. 333-
3994).
++ Filed as an exhibit to Amendment No. 1 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 30,
1996.
+++ Filed as an exhibit to Amendment No. 2 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on June 17,
1996.
++++ Filed as an exhibit to the Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on December 23, 1996 (File No.
333-18663).
Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the Registrant's financial statements or the
related notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(a) That for the purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(b) That for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pomona, State of
California, on June 6, 1997.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By: /s/ Charles J. Hogarty
--------------------------
Charles J. Hogarty,
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles J. Hogarty and John M. Palumbo, and
either of them, his attorneys-in-fact, with full power of substitution, for
him in any and all capacities, to sign any amendments to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their
substitutes, may do or cause to be done by virtue thereof.
Pursuant to the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles J. Hogarty President, Chief Executive June 6, 1997
- ------------------------------------ Officer and Director
Charles J. Hogarty
/s/ Al A. Ronco Executive Vice President, June 6, 1997
- ------------------------------------ and Director
Al A. Ronco
/s/ John M. Palumbo Vice President and Treasurer June 6, 1997
- ------------------------------------ (Principal Financial and
John M. Palumbo Accounting Officer)
Director
- ------------------------------------
Ronald G. Brown
/s/ Timothy C. McQuay Director June 6, 1997
- ------------------------------------
Timothy C. McQuay
Director
- ------------------------------------
George E. Seebart
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.
We have audited the financial statements of Keystone Automotive Industries,
Inc. as of March 28, 1997, March 29, 1996 and March 31, 1995 and for each of
the three years in the period ended March 28, 1997, and have issued our report
thereon dated May 23, 1997, (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule of
Keystone Automotive Industries, Inc. listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Los Angeles, California
May 23, 1997
S-1
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1995
Allowance for
uncollectible accounts. $418 $270 $-- $257(1) $431
Year ended March 31, 1996
Allowance for
uncollectible accounts. 431 317 -- 393(1) 355
Year ended March 28, 1997
Allowance for
uncollectible accounts. 355 673 -- 370 658
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1995
Allowance for slow-
moving inventory....... $ 80 $1,324 $-- $ 42 $1,362
Year ended March 31, 1996
Allowance for slow-
moving inventory....... 1,362 641 -- 1,508 495
Year ended March 28, 1997
Allowance for slow-
moving inventory....... 495 322 -- 307 510
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+++ Amended and Restated Bylaws of the Registrant. [3.4]*
3.1.1 Amendment to Amended and Restated Bylaws of the Registrant.
3.2+++ Restated Articles of Incorporation of the Registrant. [3.5]*
4.1+++ Form of stock certificate.
5.1 Opinion of Manatt, Phelps & Phillips, LLP.
10.1+ Employment Agreement dated June 20, 1996, between the Registrant and
Virgil K. Benton II. [10.1]*
10.2+ Employment Agreement dated June 20, 1996, between the Registrant and
Charles J. Hogarty. [10.2]*
10.3+ Employment Agreement dated June 20, 1996, between the Registrant and
Al A. Ronco. [10.3]*
10.4+ Employment Agreement dated June 20, 1996, between the Registrant and
Robert L. Blanton. [10.4]*
10.5++++ Employment Agreement between North Star and Ronald G. Brown. [10.5]*
10.6++++ Employment Agreement between North Star and Kim D. Wood. [10.6]*
10.7+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Virgil K. Benton II. [10.5]*
10.8+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Charles J. Hogarty. [10.6]*
10.9+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Al A. Ronco. [10.7]*
10.10+ Indemnification Agreement dated June 20, 1996, between the
Registrant and Robert L. Blanton. [10.8]*
10.11+ Indemnification Agreement dated June 20, 1996, between the
Registrant and John M. Palumbo. [10.9]*
10.12++++ Indemnification Agreement between the Registrant and Ronald G.
Brown. [10.12]*
10.13++++ Indemnification Agreement between the Registrant and Kim D. Wood.
[10.13]*
10.14+ Keystone Automotive Industries, Inc. 1996 Stock Incentive Plan,
together with forms of incentive stock option, non-qualified stock
option and restricted stock agreements. [10.10]*
10.15+ The Registrant's Employee Defined Benefit Pension Plan, as amended.
[10.11]*
10.16+ The Registrant's Employee Stock Ownership Plan, as amended. [10.12]*
10.17+ The Registrant's 1989 Restricted Stock Option Plan. [10.13]*
10.18+ Lease Agreement, dated January 5, 1995, between V-JAC Properties,
Ltd. and the Registrant. [10.14]*
10.19+ Lease Agreement, dated January 5, 1995, between B-J Properties, Ltd.
and the Registrant. [10.15]*
10.20+ Lease and Option Agreement, dated April 1, 1995, between Benton Real
Properties, Inc. and the Registrant. [10.16]*
10.21+ Lease and Option Agreement, dated January 1, 1991, between Benton
Real Properties, Inc. and the Registrant. [10.17]*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.22+ Lease Agreement, dated January 5, 1995, between V-JAC Properties,
Ltd. and the Registrant. [10.18]*
10.23+ Loan and Security Agreement, dated December 17, 1990, between Union
Bank and the Registrant, as amended. [10.19]*
10.24++ Letter dated May 24, 1996 from Union Bank to the Registrant.
[10.19.1]*
10.25+ Term Loan Rider, dated December 17, 1990, between Union Bank and the
Registrant. [10.20]*
10.26+ Inventory Rider Agreement, dated December 17, 1990, between Union
Bank and the Registrant, as amended. [10.21]*
10.27+ Term Promissory Note, dated December 17, 1990, by the Registrant in
favor of Union Bank. [10.22]*
10.28+ Letter of Credit/Bankers Acceptance Rider, dated December 17, 1990,
between Union Bank and the Registrant, as amended. [10.23]*
10.29+ ERISA Rider, dated December 17, 1990, between Union Bank and the
Registrant. [10.24]*
10.30+ Equipment Rider, dated December 17, 1990, between Union Bank and the
Registrant, as amended. [10.25]*
10.31+ Waiver Letter, dated April 15, 1994, between Union Bank and the
Registrant. [10.26]*
10.32+ Promissory Note, dated September 28, 1992, from the Registrant to
the order of Bumper Exchange, Inc. [10.27]*
10.33++++ Underwriting Agreement dated June 20, 1996, among the Registrant,
certain selling shareholders and Morgan Keegan & Company, Inc. and
Crowell, Weedon & Co., as representatives of the several
underwriters. [10.33]*
10.34++++ Letter Agreement dated January 15, 1996, between Registrant and
Crowell, Weedon & Co. [10.34]*
10.35++++ Affiliate Agreement dated December 6, 1996, among the Registrant,
North Star Plating Company, Ronald G. Brown and Kim D. Wood.
[10.35]*
10.36++++ Form of Registration Rights Agreement among the Registrant, North
Star Plating Company, Ronald G. Brown and Kim D. Wood [10.36]*
10.37++++ Voting Agreement dated December 6, 1996, among the Registrant, North
Star Plating Company, Virgil K. Benton, II, Charles J. Hogarty,
Al A. Ronco, Robert L. Blanton and John M. Palumbo. [10.37]*
10.38 Credit Agreement dated March 25, 1997 between the Registrant and
Mellon Bank, N.A.
10.39++++ Agreement and Plan of Merger among the Registrant, North Star
Merger, Inc., North Star Plating Company, Ronald G. Brown and
Kim D. Wood dated December 6, 1996. [2.1]*
10.40 Resignation Agreement and General Release effective dated May 1997
between the Registrant and Virgil K. Benton II.
10.41 Lease Agreement, dated January 1, 1995, between North Star and the
spouses of Ronald G. Brown and Kim D. Wood.
10.42 Lease Agreement, dated January 1, 1995, between North Star and the
spouse of Ronald G. Brown and a third party.
10.43 Lease Agreement, dated January 1, 1995, between North Star and a
partnership owned by Kim D. Wood and an employee of North Star.
10.44 Lease Agreement, dated May 20, 1996, between North Star and a
partnership owned by the spouses of Ronald G. Brown and Kim Wood
and the Brown Family Limited Partnership.
11.1 Computation of per share earnings.
21.1 Subsidiaries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
23.1 Consent of Ernst & Young LLP, independent auditors of Registrant.
23.2 Consent of Ernst & Young LLP, independent auditors of North Star
Plating Company.
23.3 Consent of Manatt, Phelps & Phillips, LLP (see Exhibit 5.1).
24.1 Power of Attorney (see signature page).
27.1** Financial Data Schedule.
</TABLE>
- --------
* Indicates the exhibit number of the document in the original filing.
** Not applicable--no updated interim or annual financial statements.
+ Filed as an exhibit to the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on April 18, 1996 (File No. 333-
3994).
++ Filed as an exhibit to Amendment No. 1 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 30,
1996.
+++ Filed as an exhibit to Amendment No. 2 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on June 17,
1996.
++++ Filed as an exhibit to the Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on December 23, 1996 (File No.
333-18663).
<PAGE>
EXHIBIT 1.1
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
_____________ Shares of Common Stock*
UNDERWRITING AGREEMENT
___________, 1997
MORGAN KEEGAN & COMPANY, INC.
A.G. EDWARDS & SONS, INC.
CROWELL, WEEDON & CO.
As Representatives of the
Several Underwriters
named in Schedule II hereto
c/o Morgan Keegan & Company, Inc.
50 Front Street
Memphis, Tennessee 38103
Ladies and Gentlemen:
Keystone Automotive Industries, Inc., a California corporation (the
"Company"), and the several shareholders of the Company named in Schedule I
hereto (collectively, the "Selling Shareholders") propose to sell to the several
underwriters named in Schedule II hereto (collectively, the "Underwriters")
__________ shares and __________ shares, respectively (collectively, the "Firm
Shares") of the Company's common stock ("Common Stock"), as set forth in
Schedule II hereto. The Firm Shares are to be sold to each Underwriter, acting
severally and not jointly, in such amounts as are set forth in Schedule II
opposite the name of such Underwriter. In addition, for the sole purpose of
covering over-allotments in connection with the sale of the Firm Shares, the
Company and Selling Shareholders propose to grant to the Underwriters an option
to purchase an aggregate of up to ___________ additional shares (collectively,
the "Option Shares") of Common Stock. The Firm Shares and any Option Shares
purchased pursuant to this Agreement are herein referred to as the "Shares."
You have advised the Company and the Selling Shareholders that you are
authorized to enter into this Agreement on behalf of the Underwriters for whom
you are acting as representatives (the "Representatives"), and that Morgan
Keegan & Company, Inc. has authority to execute this Agreement, bind the
Underwriters and the Representatives and take all actions on behalf of the
Representatives referenced in this Agreement.
- ----------------
/*/ Plus an option to purchase from the Company and the Selling Shareholders an
aggregate of up to ______ additional shares to cover over-allotments.
<PAGE>
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with, each Underwriter and each Selling Shareholder
that:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in conformity with the requirements of
the Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-1 (No. 333-______), including a preliminary prospectus, subject to
completion, relating to the Shares. The registration statement, as amended at
the time it becomes effective and, in the event any post-effective amendment
thereto becomes effective prior to the Closing Date (as hereinafter defined), as
so amended, including financial statements and exhibits and the information (if
any) contained in a prospectus that is deemed to be a part of the registration
statement at the time of its effectiveness pursuant to Rule 430A under the Act,
is hereinafter referred to as the "Registration Statement," and the prospectus
in the form first used to confirm sales of the Shares is hereinafter referred to
as the "Prospectus."
(b) No order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus or any
preliminary prospectus has been issued and no proceedings for that purpose are
pending, threatened or, to the knowledge of the Company, contemplated by the
Commission; no stop order suspending the sale of the Shares in any jurisdiction
designated by you pursuant to Section 5(d) hereof has been issued and no
proceedings for that purpose are pending, threatened or, to the knowledge of the
Company, contemplated; and any request of the Commission and each securities
authority or agency of each other jurisdiction for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) has been
complied with.
(c) Each preliminary prospectus in the form filed as part of the
Registration Statement as originally filed or filed as part of any amendment
thereto, or, if different, in the form used in connection with the offering of
the Shares, complied fully in all material respects when so filed or used with
the Act, and when the Registration Statement becomes effective and at all times
subsequent thereto, the Registration Statement (including, if applicable, the
information deemed to be part of the Registration Statement at the time it was
declared effective pursuant to Rule 430A under the Act) and the Prospectus and
any supplements or amendments thereto, shall comply in all material respects
with the provisions of the Act and the Registration Statement and any such
amendment thereto at the time such Registration Statement or such amendment
becomes effective will not contain any 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, and the Prospectus and any supplements or
amendments thereto, will not at any such time contain any untrue statement of
2.
<PAGE>
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except that the foregoing shall not apply to statements
in, or omissions from, any such document, in reliance upon, and in conformity
with, written information furnished to the Company by you, specifically for use
in the preparation thereof. The Company and the Selling Shareholders
acknowledge for all purposes under this Agreement (including this paragraph and
Section 9 hereof) that the statements appearing in any preliminary prospectus,
the Prospectus or the Registration Statement in the _____, ______ and ______
paragraphs and the sentence of the ______ paragraph under the caption
"Underwriting", the last paragraph on the cover page and the inside front cover
concerning stabilization and overallotment by the Underwriters constitute the
only written information furnished to the Company by you for use in the
Registration Statement or the Prospectus or any preliminary prospectus (or any
amendment or supplement thereto). There is no contract or document required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required.
(d) Ernst & Young LLP, whose report appears in the Prospectus, are, to
the best knowledge of the Company, independent public accountants with respect
to the Company as required by the Act. The consolidated financial statements
(including the related notes) included in the Prospectus and the Registration
Statement (and any amendments or supplements thereto) comply as to form with the
requirements of the Act, present fairly the consolidated financial condition,
the consolidated results of the operations and consolidated changes in cash
flows and equity of the entities purported to be shown thereby at the dates and
for the periods indicated and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated; and the other financial and statistical information and the
supporting schedules included in the Prospectus and the Registration Statement
(and any amendments or supplements thereto), present fairly, in all material
respects, the information required to be stated therein. No other financial
statements or schedules are required by Form S-1 or otherwise to be included in
the Registration Statement or the Prospectus.
(e) The only subsidiaries of the Company are Keystone Warehouse
Distributors, Inc., a California corporation, which is not a "significant"
subsidiary as defined under the Act, and has no assets, liabilities, employees
or operations, and North Star Plating Company, a Minnesota corporation ("North
Star"). The Company and North Star each has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own or lease and
occupy its properties and conduct its business as it is currently being
conducted and as described in the Prospectus and, in the Company's case, to
authorize the offering of
3.
<PAGE>
the Shares and to execute, deliver and perform this Agreement and to issue, sell
and deliver the Shares to be sold by it, and each of the Company and North Star
is duly qualified to do business and is in good standing in each jurisdiction in
which the character of the business conducted by it or the location of the
properties owned or leased by it makes such qualification necessary except where
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect (as defined); and the Company and North Star each holds all
licenses, certificates and permits from governmental authorities necessary for
the conduct of its business as described in the Prospectus. The expiration of
any such licenses, permits or other governmental authorizations would not
materially affect the operations of the Company or North Star, as the case may
be. Complete and correct copies of the respective articles of incorporation and
bylaws of the Company and North Star and all amendments thereto have been
delivered to you, and no changes therein will be made subsequent to the date
hereof and prior to the date of the consummation of the sale of the Shares.
(f) The capitalization of the Company is as set forth under the
caption "Capitalization" in the Prospectus, and the Common Stock conforms to all
statements relating thereto contained in the Registration Statement and the
Prospectus; the outstanding shares of Common Stock (including any Shares to be
purchased by the Underwriters from the Selling Shareholders) have been, and the
Shares that are being sold by the Company, upon issuance and delivery and
payment therefor in the manner herein described, will be, duly authorized,
validly issued, fully paid and nonassessable. Except for the capital stock of
North Star and Keystone Warehouse Distributors, Inc., neither the Company nor
North Star owns, or at the date of the consummation of the sale of the Firm
Shares will own, directly or indirectly through North Star or otherwise, any
shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity. The issued shares of capital stock of North Star
have been duly authorized and validly issued, are fully paid and nonassessable
and are owned of record and beneficially by the Company, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity. There
are no preemptive or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock or any
shares of capital stock of North Star pursuant to the Company's or North Star's
respective articles of incorporation, bylaws or other governing documents or any
agreement or other instrument to which the Company or North Star is a party or
by which the Company or North Star may be bound. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock.
4.
<PAGE>
(g) There has not been any material adverse change in, or any adverse
development which materially affects, the business, properties, financial
condition, results of operations or prospects of the Company and North Star,
taken as a whole, from the date as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein,
and neither the Company nor North Star has, directly or indirectly, incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, which are material to the
business of the Company and North Star, taken as a whole, and there has not been
any change in the capital stock of, or any incurrence of long-term debt or
material increase in short-term debt by, the Company or North Star, or any
issuance or grant of options, warrants or rights to purchase the capital stock
of the Company or North Star, or any declaration or payment of any dividend or
other distribution on the capital stock of the Company from the date as of which
information is given in the Registration Statement and the Prospectus.
(h) Neither the Company nor North Star is, nor with the giving of
notice or lapse of time or both would be, in violation of or in default under
its articles of incorporation or bylaws, or any material agreement, indenture or
other instrument, to which the Company or North Star is a party or by which
either of them are bound, or to which either of their properties are subject.
Neither the issuance, sale or delivery by the Company of the Shares, nor the
execution, delivery and performance of this Agreement nor the consummation by
the Company of the transactions contemplated hereby will result in a violation
of, or constitute a default under, the restated articles of incorporation or
amended and restated bylaws of the Company, or any agreement, indenture or other
instrument to which the Company or North Star is a party or by which either of
them is bound, or to which either of their properties are subject, nor will the
performance by the Company of its obligations hereunder violate any law,
ordinance, rule, administrative regulation or decree of any court or any
governmental agency or body having jurisdiction over the Company or North Star
or any of their respective properties or assets, or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of the Company or North Star. Except for permits and similar authorizations
required under the Act and the securities or "blue sky" laws of certain
jurisdictions and for such permits and authorizations which have been obtained,
no consent, approval, authorization or order of any court, governmental agency
or body or financial institution is required in connection with the consummation
of the transactions contemplated by this Agreement.
(i) This Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms except as
rights to indemnity and contribution hereunder may be limited by federal or
state securities laws or principles of public policy, and except as enforcement
5.
<PAGE>
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to creditors' rights generally or by general
equitable principles.
(j) The Company and North Star each has good and marketable title to
its properties, free and clear of all liens, encumbrances and defects except
such as are described or referred to in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made or proposed to be made of such property by the Company or North Star, and
any real property and buildings held under lease by the Company or North Star
are held by it under valid, existing and enforceable leases with such exceptions
as are not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or North Star and except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally or by general equitable principles. The properties of the Company and
North Star necessary to the conduct of their respective businesses (as presently
conducted and as described in the Prospectus) are in good repair (reasonable
wear and tear excepted) and are insured in accordance with industry practice and
suitable for their uses.
(k) Neither the Company nor North Star, nor any other person or entity
for whom the Company or North Star is or may be liable, is in violation of any
federal, state, local, provincial or foreign laws or regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products, asbestos or asbestos-containing materials, or
polychlorinated biphenyls ("Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "Environmental Laws"), which violation could have a material
adverse effect on the condition, financial or otherwise, or the results of
operations, cash flow, business affairs or business prospects of the Company and
North Star, taken as a whole (a "Material Adverse Effect"). "Violation"
includes, but is not limited to, noncompliance with any permit or other
governmental authorization required under applicable Environmental Laws and
noncompliance with the terms and conditions of any such permit or authorization.
(l) Neither the Company nor North Star has received any communication
(written or oral), whether from a governmental authority, citizens' group,
employee or otherwise, alleging that the Company or North Star, any other person
or entity for whom the Company is or may be liable, is not in full compliance
with any
6.
<PAGE>
Environmental Laws or permit or authorization required under applicable
Environmental Laws, and there are no circumstances that may prevent or interfere
with such full compliance in the future, except where failure to so comply would
not have a Material Adverse Effect.
(m) There is no claim, action, cause of action, investigation or
notice (written or oral) by any person or entity alleging potential liability
(including, without limitation, potential liability for investigatory costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (i) the presence in or release into
the environment of any Materials of Environmental Concern at any location owned,
leased or operated, now or in the past, by the Company or North Star, or any
other person or entity for whom the Company or North Star is or may be liable,
or (ii) circumstances forming the basis of any violation or alleged violation of
any Environmental Law (collectively, "Environmental Claims") pending or
threatened against the Company or North Star or to the Company's knowledge, any
other person or entity whose liability for any Environmental Claim the Company
or North Star has retained or assumed either contractually or by operation of
law.
(n) Except as set forth in the Registration Statement and Prospectus,
there are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Materials of Environmental Concern, that
could form the basis of any Environmental Claim against the Company or North
Star with respect to property owned, leased or operated by or for the Company or
North Star, now or in the past, or against any person or entity whose liability
for any Environmental Claim the Company or North Star has retained or assumed
either contractually or by operation of law.
(o) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, neither the Company nor North Star has (A) violated any
applicable federal, state, provincial or foreign law relating to employment or
employment practices or the terms and conditions of employment, including,
without limitation, discrimination in the hiring, promotion or pay of employees,
wages, hours of work, plant closings and layoffs, collective bargaining, and
occupational safety and health, or any provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") or the rules and regulations promulgated
thereunder or any other applicable law (whether foreign or domestic) relating to
or governing the operation or maintenance of any plan or arrangement falling
within the definition of an "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA) or any other employee benefit plan or arrangement, nor
(B) engaged in any unfair labor practice. There is (i) no unfair labor practice
charge or complaint pending or threatened against the Company before the
National Labor Relations Board or any corresponding state, local,
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provincial or foreign agency, and no grievance or arbitration proceeding arising
out of or under any collective bargaining agreement is so pending or threatened
against the Company or North Star which would, singly or in the aggregate, have
a Material Adverse Effect; and (ii) no union representation claim pending with
respect to the employees of the Company or North Star and to the Company's
knowledge, no union organizing activities taking place. No labor dispute
involving the employees of the Company or North Star is pending or is threatened
or to the Company's knowledge, is imminent which could singly or in the
aggregate have a Material Adverse Effect; and the Company is not aware of any
existing, threatened or imminent labor disturbance by the employees of any
principal suppliers, manufacturers or contractors of the Company or North Star
which could singly or in the aggregate have a Material Adverse Effect.
(p) There is no legal or governmental proceeding to which the Company
or North Star is a party or to which any of their respective properties are
subject or which is pending or, to the Company's knowledge, threatened or
contemplated against the Company or North Star which could result in any
Material Adverse Effect or which is required to be disclosed in the Registration
Statement or the Prospectus.
(q) Neither the Company nor North Star is in violation of any law,
ordinance, rule, administrative regulation or decree known to the Company of any
court or governmental agency or body having jurisdiction over the Company or
North Star or any of their respective properties or assets, which violation
could have a Material Adverse Effect.
(r) The Company has not taken, and shall not take, directly or
indirectly, any action designed to cause or result in, or which might reasonably
be expected to constitute, the stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(s) The Company and North Star have timely (giving effect to permitted
extensions) and properly prepared and filed all necessary federal, state, local
and foreign income, franchise and any other required tax returns and have paid
all taxes shown as due thereon (other than those being contested in good faith),
and neither the Company nor North Star has any knowledge of any tax deficiency
which has been or might have a Material Adverse Effect.
(t) (A) Neither the Company nor North Star or any current officers or
directors of the Company or North Star has at any time and (B) no employee or
agent acting on behalf of the Company or North Star has at any time within the
last five (5) years, (i) made any contributions to any candidate for political
office in violation of law, or failed to disclose fully any contributions to any
candidate for political office in accordance with any applicable statute, rule,
regulation or ordinance
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requiring such disclosure, (ii) made any payment to any local, state, federal or
foreign governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or allowed by
applicable law, (iii) made any payment outside the ordinary course of business
to any purchasing or selling agent or person charged with similar duties of any
entity to which the Company or North Star sells or from which the Company or
North Star buys products for the purpose of influencing such agent or person to
buy products from or sell products to the Company or North Star, or (iv) engaged
in any transaction, maintained any bank account or used any corporate funds
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the Company.
(u) Except as contemplated by this Agreement, the Company is not aware
of any claims for services in the nature of a finder's fee, brokerage fee or
otherwise with respect to this offering for which the Company or North Star or
any of the several Underwriters may be responsible.
(v) The Company and North Star own or possess adequate rights to use
all trademarks, service marks, trade names and copyrights necessary for the
conduct of their respective businesses described in the Prospectus and has taken
reasonable security measures to protect the secrecy, confidentiality and value
of their respective trade secrets and know-how which are valid and protectible
and are not part of the public knowledge or literature and which are necessary
for, used in, or proposed to be used in the conduct of their respective
businesses described in the Prospectus. Neither the Company nor North Star has
received any notice of infringement of or conflict with, and neither the Company
nor North Star, to the best of the Company's knowledge, is infringing or in
conflict with asserted rights of others with respect to any trademarks, service
marks, trade names, copyrights or trade secrets.
(w) There are no outstanding loans or advances or guarantees of
indebtedness by the Company or North Star to or for the benefit of any affiliate
of the Company or North Star, any of the officers or directors of the Company or
North Star, or any of the members of the families of any of the foregoing, which
are required by the Act to be described in the Registration Statement or the
Prospectus except such that are so described.
(x) The Company and North Star maintain systems of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary in order to permit preparation of
financial statements in accordance with generally accepted accounting
principles and to maintain accountability for assets, (iii) access to assets is
permitted only in accordance with management's general
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or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(y) The Company and North Star each had at all relevant times full
corporate power and authority to execute and deliver the Agreement and Plan of
Merger, dated December 6, 1996, among the Company, North Star, North Star
Merger, Inc. and Ronald G. Brown and Kim D. Wood (the "North Star Merger
Agreement") and to carry out the transactions contemplated thereby
(collectively, the "North Star Merger"). The execution, delivery and
performance by the Company and North Star of the North Star Merger Agreement and
the consummation of the North Star Merger were duly authorized by all requisite
corporate action of the Company and North Star, and the North Star Merger
Agreement constitutes a valid and binding agreement of each of the Company and
North Star, enforceable against the Company and North Star in accordance with
its terms, except as rights to indemnity thereunder may be limited by federal or
state securities laws and the public policy underlying such laws, and except as
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally or by general equitable principles.
(z) Neither the execution and delivery by the Company or North Star of
the North Star Merger Agreement nor the consummation by the Company and North
Star of the North Star Merger (i) violated, conflicted with or resulted in a
breach of any provision of the respective articles of incorporation or bylaws of
the Company and North Star, (ii) violated, conflicted with or resulted in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the properties of the Company or North Star under, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, lease, contract, agreement
or other instrument to which the Company or North Star, or any of their
respective properties, may be bound, (iii) violated any order, injunction,
judgment, ruling, law or regulation of any court or governmental authority
applicable to the Company or North Star or any of their respective properties,
or (iv) except for applicable requirements of the Securities Act, the Exchange
Act, and the rules and regulations promulgated thereunder, and the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), required
any consent, approval or authorization of, or notice to, or declaration, filing
or registration with, any governmental or regulatory authority or other third
party, which, in the case of clauses (ii), (iii) and (iv) above, would have a
Material Adverse Effect.
(aa) No broker, finder or investment banker is entitled to any fee or
commission in connection with the transactions contemplated by the North Star
Merger Agreement other than as have
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been paid or accrued by the Company or North Star as reflected in the Company's
consolidated financial statements included in the Prospectus and the
Registration Statement.
(bb) All applicable periods for asserting any dissenter's rights or
appraisal rights in connection with the North Star Merger have expired, and no
person has asserted or, to the best knowledge of the Company has threatened to
asset, any dissenter's rights or appraisal rights under applicable law arising
from or in connection with the North Star Merger.
(cc) To the best of the Company's knowledge, no facts or circumstances
exist giving rise to any claim of the Company for indemnification pursuant to
the North Star Merger Agreement.
Any certificate signed by any duly authorized officer of the Company or by
or on behalf of the Selling Shareholders, respectively, and delivered to you or
counsel for the Underwriters shall be deemed a representation and warranty by
the Company or the Selling Shareholders, respectively, to each Underwriter as to
the matters covered thereby.
2. Representations and Warranties of the Selling Shareholders.
-----------------------------------------------------------
(a) Each Selling Shareholder, severally and not jointly, represents
and warrants to, and agrees with, each Underwriter, the Company and the other
Selling Shareholders that:
(i) The execution, delivery and performance of this Agreement
by such Selling Shareholder, the sale of the Shares to be sold by such Selling
Shareholder, and the performance of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result in a breach of
any of the terms or provisions, or constitute a default or cause an acceleration
of any obligation under any agreement, indenture or other instrument to which
such Selling Shareholder is a party or by which such Selling Shareholder or the
property of such Selling Shareholder is subject, nor will the performance by
such Selling Shareholder of his obligations hereunder violate any law,
ordinance, rule, administrative regulation or decree of any court or any
governmental agency or body known to such Selling Shareholder having
jurisdiction over such Selling Shareholder or any of his properties or assets,
or result in the creation or imposition of any lien, charge, claim, or
encumbrance upon any property or asset of such Selling Shareholder.
(ii) Such Selling Shareholder is, and on the applicable
Closing Date (as defined) will be, the lawful owner of the number of Shares to
be sold by such Selling Shareholder and has, and on the applicable Closing Date
will have, good and marketable title to the Shares to be sold by him to the
Underwriters hereunder, free and clear of any security interest,
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mortgage, pledge, lien, encumbrance, restriction on transfer, claim or equity
(including, without limitation, claims made by reason of community property
rights), other than those imposed by the Act, the securities or Blue Sky laws of
certain jurisdictions and the Power of Attorney and Custody Agreement, as
defined below); and upon delivery to the Underwriters of the Shares to be sold
by such Selling Shareholder hereunder and payment of the purchase price therefor
by the Underwriters as herein contemplated in good faith and without notice of
an adverse claim within the meaning of Article VII of the Uniform Commercial
Code, each of the Underwriters will receive good and marketable title to its
ratable share of the Shares purchased by it from such Selling Shareholder, free
and clear of any security interest, mortgage, pledge, lien, encumbrance,
restriction on transfer, claim or equity (including, without limitation, claims
made by reason of community property rights), other than those imposed by the
Act and the securities or Blue Sky laws of certain jurisdictions.
(iii) All authorizations, approvals and consents necessary for
the execution, delivery and performance by such Selling Shareholder of this
Agreement, the Irrevocable Custody Agreement and Power of Attorney in the form
previously furnished to you (collectively, the "Custody Agreement") and the sale
and delivery by such Selling Shareholder to the Underwriters of the Shares to be
sold by such Selling Shareholder hereunder have been obtained and are in full
force and effect, other than those imposed by the Act and the securities or Blue
Sky laws of certain jurisdictions; and such Selling Shareholder has, and on each
applicable Closing Date will have, all requisite right, power and authority to
enter into and perform its obligations under this Agreement and to sell,
transfer and deliver the Shares to be sold by such Selling Shareholder to the
Underwriters hereunder.
(iv) Such Selling Shareholder has not taken, and shall not
take, directly or indirectly, any action designed to cause or result in, or
which might reasonably be expected to constitute, stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of the Shares
to be sold by such Selling Shareholder, and other than as permitted by the Act,
such Selling Shareholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares.
(v) This Agreement and the Custody Agreement have each been
duly and validly authorized, executed and delivered by or on behalf of such
Selling Shareholder and each constitutes the valid and legally binding agreement
of such Selling Shareholder, enforceable against such Selling Shareholder in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy, and except as enforcement may be limited by applicable
bankruptcy, insolvency,
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reorganization, moratorium or other similar laws relating to creditors' rights
generally or by general equitable principles.
(vi) The sale of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement is neither prompted by nor based upon any
material adverse information concerning the Company known to such Selling
Shareholder that is not set forth in the Prospectus.
(vii) The information relating to such Selling Shareholder in
each preliminary prospectus in the form filed as part of the Registration
Statement as originally filed or filed as part of any amendment thereto, or, if
different, in the form used in connection with the offering of the Shares,
complied fully in all material respects when so filed or used with the Act, and
when the Registration Statement becomes effective and at all times subsequent
thereto, the information relating to the Selling Shareholder in the Registration
Statement (including, if applicable, the information deemed to be part of the
Registration Statement at the time it was declared effective pursuant to Rule
430A under the Act) and the Prospectus and any supplements or amendments
thereto, shall comply in all material respects with the provisions of the Act,
and the Registration Statement and any such information in any amendment thereto
at the time such Registration Statement or such amendment becomes effective,
will not contain any untrue statement of a material fact relating to such
Selling Shareholder or omit to state with respect to such Selling Shareholder a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus and any supplements or amendments
thereto, will not at any such time contain any untrue statement of a material
fact relating to the Selling Shareholder or omit to state with respect to the
Selling Shareholder any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Virgil K. Benton II, Ronald G. Brown, Charles J. Hogarty, Al A.
Ronco, Robert L. Blanton, John M. Palumbo and Kim D. Wood (collectively, the
"Insider Selling Shareholders"), severally and not jointly, further represent
and warrant to, and agree with the Underwriters, the Company and the other
Selling Shareholders that the Registration Statement and any amendments thereto,
at the time such Registration Statement or such amendment becomes effective,
will not contain any 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 and the Prospectus and any amendments or supplements
thereto will not at any such time contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
13.
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3. Sale and Delivery of the Shares to the Underwriters.
---------------------------------------------------
(a) Subject to the terms and conditions and upon the basis of the
representations and warranties herein set forth, (i) the Company agrees to sell
to the several Underwriters, at a price per share of $_____ (the "Purchase
Price"), an aggregate of ________ Firm Shares, (ii) each Selling Shareholder
agrees, severally and not jointly, to sell to the several Underwriters, at the
Purchase Price, the number of Firm Shares set forth opposite the name of such
Selling Shareholder on Schedule I hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from the Company and the Selling
Shareholders, at the Purchase Price, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto.
(b) In addition, subject to the terms and conditions and upon the
basis of the representations and warranties herein set forth, (i) the Company
agrees to sell to the Underwriters, at the Purchase Price, up to __________
Option Shares, (ii) each Selling Shareholder agrees, severally and not jointly,
to sell to the several Underwriters, at the Purchase Price, up to the number of
Option Shares shown opposite such Selling Shareholder's name on Schedule II
hereto, and (iii) the Underwriters shall have the right to purchase, severally
and not jointly, from time to time for a period of 30 days from the date of the
Prospectus, up to __________ Option Shares and an aggregate of up to ___________
Option Shares, respectively, from the Company and the Selling Shareholders at
the Purchase Price. Option Shares may be purchased as provided in Section 4
hereof solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. The underwriters shall not exercise the
foregoing option granted by the Company unless and until they have first
exercised in full the foregoing option granted by the Selling Shareholders.
Subject to the foregoing sentence, if any Option Shares are to be purchased,
each Underwriter, severally and not jointly, agrees to purchase from each
Selling Shareholder in the proportion that the number of Option Shares set forth
opposite such Selling Shareholder's name on Schedule II hereto bears to the
total number of Option Shares to be purchased pursuant to the exercise, the
aggregate number of Option Shares (subject to adjustments to eliminate
fractional shares as you may determine) which bears the same proportion to the
total number of Option Shares to be purchased from the Selling Shareholders as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto bears to the total number of Firm Shares. If any Option
Shares are to be purchased in excess of the aggregate Option Shares which the
Selling Shareholders have agreed to sell, each underwriter, severally and not
jointly, agrees to purchase from the Company the aggregate number of Option
Shares (subject to adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Option Shares
to be purchased from the Company as the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule II bears to the total number of Firm
Shares.
4. Delivery of and Payment for Shares. Delivery of certificates for the
----------------------------------
Firm Shares to be purchased by the Underwriters
14.
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from the Company and the Selling Shareholders shall be made against payment
therefor by certified or official bank check or checks in New York Clearing
House next-day funds to the order of the Company, with respect to the Shares
purchased from the Company, or to Mr. Charles J. Hogarty or Virgil K. Benton II,
as the case may be, with respect to the Shares purchased from such Selling
Shareholders as custodian for each of the Selling Shareholders (collectively,
the "Custodians"), as the case may be. Such delivery and payment shall be made
at 9:00 A.M., local time, at the offices of Morgan Keegan & Company, Inc., 50
Front Street, Memphis, Tennessee (or such other place as mutually may be agreed
upon by you, the Company and the Custodians), on the third full business day
following the date of the public offering as advised by you to the Company or at
such other date not more than seven full business days thereafter as shall be
determined by you, the Company and the Custodian (unless, in either case,
postponed pursuant to Section 11) (the "First Closing Date").
The option to purchase Option Shares granted in Section 3 hereof may be
exercised during the term thereof by written notice to the Company and the
Custodians from you. Such notice shall set forth the aggregate number of Option
Shares as to which the option is being exercised and the time and date, not
earlier than either the First Closing Date or the second business day after the
date on which the option shall have been exercised nor later than the seventh
business day after the date of such exercise, as determined by you, when the
Option Shares are to be delivered (the "Option Closing Date"). Delivery and
payment for such Option Shares is to be at the offices set forth above for
delivery and payment of the Firm Shares. Delivery of certificates for the
Option Shares to be purchased by the Underwriters from the Selling Shareholders
shall be made against payment therefor by certified or official bank checks
drawn upon or by a New York Clearing House bank and payable in next-day funds to
the order of the Company and the respective Custodians as provided above in this
Section 4 with respect to payment for the Firm Shares. (The First Closing Date
and the Option Closing Date are herein individually referred to as the "Closing
Date" and collectively referred to as the "Closing Dates.")
Delivery of certificates for the Shares shall be made by or on behalf of
the Company or the Selling Shareholders, as applicable, to you, or the
respective accounts of the Underwriters, against payment by you, for the several
accounts of the Underwriters, to the Company or the Selling Shareholders, as
applicable. The certificates for the Shares shall be registered in such names
and denominations as you shall have requested at least three full business days
prior to the applicable Closing Date, and shall be made available for checking
and packaging at a location as may be designated by you not later than 10:00
A.M. at least two full business days prior to such Closing Date. Time shall be
of the essence and delivery at the time and place specified in this
15.
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Agreement is a further condition to the obligations of each Underwriter.
5. Offering. Upon your authorization of the release of the Firm Shares,
--------
the Underwriters propose to offer the Shares for sale to the public at the
public offering price and upon the other terms set forth in the Prospectus.
6. Covenants. The Company covenants and agrees with each Underwriter
---------
that:
(a) The Company shall use its reasonable best efforts to cause the
Registration Statement to become effective at the earliest possible time or, if
the procedure in Rule 430A of the Act is utilized, to comply with the provisions
of, and make all requisite filings with the Commission pursuant to, Rule 430A of
the Act and to notify you promptly (in writing, if requested) of all such
filings. The Company shall notify you promptly and confirm such notification in
writing, (i) when the Registration Statement has become effective (if such
Registration Statement has not otherwise become effective prior to the execution
of this Agreement), if and when any Prospectus is mailed (or otherwise sent for
filing pursuant to Rule 424 under the Act), and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the happening
of any event during the period referred to in paragraph (c) below that makes any
statement of a material fact made in the Registration Statement untrue or that
requires the making of any additions to or changes in the Registration Statement
(as amended or supplemented from time to time) in order to make the statement
therein not misleading or that makes any statement of a material fact made in
the Prospectus (as amended or supplemented from time to time) untrue or that
requires the making of any additions to or changes in the Prospectus (as amended
or supplemented from time to time) in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
(iii) of any request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional information relating
thereto. The Company shall prepare and file with the Commission, promptly upon
your request, any amendments of or supplements to the Registration Statement or
the Prospectus which, in the opinion of counsel to the several Underwriters, may
be necessary or advisable in connection with the distribution of the Shares and
shall use every reasonable effort to cause the same to become effective as
promptly as possible; and the Company shall not file any amendment of or
supplement to the Registration Statement or the Prospectus, whether before or
after the time when the Registration Statement becomes effective, which has not
previously been submitted to you a reasonable time before the proposed filing
thereof or to which you shall reasonably object in writing thereof. The Company
shall advise you promptly after it shall receive notice thereof of the issuance
by the Commission or any State or other regulatory body of any stop order or
other order suspending the effectiveness of the
16.
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Registration Statement, suspending or preventing the use of any preliminary
prospectus or the Prospectus or suspending the qualification of the Shares for
offering or sale in any jurisdiction, or of the institution or threatening of
any proceedings for any such purpose; and the Company shall use every reasonable
effort to prevent the issuance of any stop order or other such order and, should
a stop order or other such order be issued, to obtain as soon as possible the
lifting thereof.
(b) The Company shall furnish to the Underwriters, from time to time
and without charge, a reasonable number of copies of the Registration Statement
of which two for you and one for counsel to the Underwriters shall be signed and
shall include exhibits and all amendments and supplements to such Registration
Statement.
(c) Within the time during which a Prospectus relating to the Shares
is required to be delivered under the Act the Company shall furnish to each
Underwriter, at the Company's expense, as many copies of the Prospectus (and of
each amendment or supplement thereto) as such Underwriter may reasonably
request, and the Company shall comply with all requirements imposed upon it by
the Act, as now and hereafter amended, so far as is necessary to permit the
continuance of sales of or dealings in the Shares as contemplated by the
provisions hereof and the Prospectus. If during such period any event occurs as
a result of which, in the opinion of counsel for the Underwriters or in the
judgment of the Company, the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the Act, the
Company shall promptly notify you and, subject to the provisions of Section
5(a), shall amend the Registration Statement or supplement the Prospectus (at
the expense of the Company) so as to correct such statement or omission or
effect such compliance, and will furnish to each Underwriter and to such dealers
as you shall specify such number of copies as such Underwriter or dealers may
reasonably request.
(d) The Company shall use its reasonable best efforts to take or cause
to be taken all necessary action and furnish to whomever you may direct such
information as may be required in qualifying the Shares for sale under the laws
of such jurisdictions which you shall designate and to continue such
qualifications in effect for as long as may be required for the distribution of
the Shares; except that in no event shall the Company be obligated in connection
therewith to file any general consent to service of process or to qualify as a
foreign corporation in any jurisdiction in which it is not otherwise so subject.
The Company shall file such statements and reports as may be required by the
laws of each jurisdiction in which the Shares have been qualified as above
provided.
17.
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(e) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158 under the Act, as soon as
practicable but in any event not later than 45 days after the end of its fiscal
quarter in which the first anniversary date of the effective date of the
Registration Statement occurs, an earnings statement satisfying the requirements
of Section 11(a) of the Act covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) For a period of 180 days following the date of the Prospectus, the
Company will not, without your prior written consent, (i) purchase any shares of
Common Stock or equity securities of the Company or (ii) offer, issue, sell,
contract to sell, transfer or otherwise dispose of, for value or otherwise,
directly or indirectly, any shares of Common Stock or other equity securities of
the Company or any securities convertible into or exchangeable for, or warrants
to purchase or acquire, Common Stock, except (w) pursuant to this Agreement or
(x) pursuant to the exercise of stock options outstanding as of the date of the
Prospectus and disclosed therein or (y) pursuant to sales not in the public
market, if the transferees of such non-public sales deliver to you their
agreement to be bound by the terms of this provision or (z) pursuant to the
issuance of options to employees or directors of the Company pursuant to the
Company's 1996 Employee Stock Incentive Plan, provided that such options do not
vest prior to 180 days following the date of the Prospectus.
(g) The Company shall apply the net proceeds of the sale of the Shares
sold by it in the manner specified under the caption "Use of Proceeds" in the
Prospectus.
(h) The Company shall timely complete all required filings and
otherwise fully comply in a timely manner with all provisions of the Act in
connection with the public offering of the Shares.
(i) The Company shall pay or cause to be paid (A) all expenses
(including stock transfer taxes) incurred in connection with the delivery to the
several Underwriters of the Shares, (B) all fees and expenses (including,
without limitation, fees and expenses of the Company's accountants and counsel)
in connection with the preparation, printing, filing, delivery and shipping of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each preliminary prospectus and the
Prospectus, as amended or supplemented, and the printing, delivery and shipping
of this Agreement and other underwriting documents, including Underwriters'
Questionnaires, Underwriters' Powers of Attorney, Blue Sky Memoranda, Agreements
Among Underwriters and Selected Dealer Agreements and any letters transmitting
the offering material to Underwriters or selling group members (including costs
of mailing and shipment), (C) all filing fees and reasonable fees and
disbursements of counsel to the Underwriters incurred in connection with the
qualification of the
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Shares under state securities laws as provided in Section 5(d) hereof up to a
maximum of $12,500, (D) the filing fee of the National Association of Securities
Dealers, Inc., (E) any applicable listing fees, including the fee for listing
the Company's Common Stock on the Nasdaq National Market of the National
Association of Securities Dealers Automated Quotation System ("The Nasdaq
National Market"), (F) the cost of printing certificates representing the
Shares, (G) the cost and charges of any transfer agent or registrar, (H) the
costs and expenses of all pre-closing and post-closing advertisements relating
to the offering of the Shares, (I) the costs related to travel and lodging
incurred by the Company and its representatives relating to meetings with and
presentations to prospective purchasers of the Shares and (J) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise provided for in this section. If this Agreement is terminated for
any reason whatsoever (other than by reason of a default by any of the
Underwriters), the Company shall pay the several Underwriters on demand for all
reasonable out-of-pocket expenses (including reasonable fees and disbursements
of counsel) incurred by the Underwriters in reviewing the Registration Statement
and the Prospectus and in connection with the investigation, preparing to market
and marketing of the Shares or in contemplation of performing their obligations
hereunder. The provisions of this Section are intended to relieve the
Underwriters from payment of the expenses and the costs that the Company and the
Selling Shareholders agree to pay, and shall not affect any agreements that the
Company and the Selling Shareholders may make, or may have made, for the sharing
of any such expenses and costs.
(j) The Company, at its expense, shall furnish to its shareholders an
annual report (including financial statements prepared in accordance with
generally accepted accounting prin ciples audited by independent certified
public accountants), and, as soon as practicable after the end of each of the
first three quarters of each fiscal year, a statement of operations of the
Company for such quarter (which may be in summary form), all in reasonable
detail, and during the five-year period after the date hereof, at its expense,
will furnish you (i) concurrently with providing such reports to its
shareholders, a balance sheet of the Company and any subsidiaries as and at the
end of such fiscal year, together with statements of income or operations,
shareholders' equity and cash flows of the Company and any consolidated
subsidiaries, and of any non-consolidated significant subsidiaries, for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent certified public accountants; (ii)
as soon as they are available, a copy of all reports (financial or other) mailed
to security holders; (iii) as soon as they are available, a copy of all periodic
reports and financial statements furnished to or filed with the Commission, any
securities exchange or the NASD; and (iv) such other information of a public
nature concerning the Company as you may from time to time reasonably request.
In addition, during
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such five-year period the Company shall furnish you, concurrently with its
release, every material press release and every material news item or article in
respect of the Company or its affairs that is released or prepared by the
Company.
(k) So long as the Company has an active subsidiary or subsidiaries,
the financial statements provided for in Section 5(j) shall be on a consolidated
basis to the extent the accounts of the Company and its subsidiary or
subsidiaries are consolidated in reports furnished to its shareholders
generally. Separate financial statements shall be furnished for any
subsidiaries whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Act.
(l) At or before the First Closing Date, you shall receive from each
Selling Shareholder and from each officer and director of the Company and North
Star a written agreement not to offer, sell, contract to sell, transfer or
otherwise dispose of, directly or indirectly, for value or otherwise, any shares
of Common Stock or other equity securities of the Company or any securities
convertible into or exchangeable for, or warrants to purchase or acquire, Common
Stock, now owned or hereafter acquired by such person, for a period of 180 days
from the date of the Prospectus, except (i) pursuant to sales not in the public
market or (ii) pursuant to bona fide gifts or (iii) with your prior written
consent, provided that, in the case of (i) and (ii), the transferees of such
non-public sales or bona fide gifts, as applicable, deliver to you their
agreement to be bound by the terms of this provision.
(m) The Company and North Star shall continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(n) The Company shall comply with all registration, filing and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which may from time to time be applicable to the Company.
(o) The Company shall make all filings required, including
registration under the Exchange Act, to obtain and maintain the listing of the
Common Stock on the Nasdaq National Market concurrently with the effective date
of the Registration Statement.
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(p) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(q) If at any time when a prospectus is required by law to be
delivered any rumor, publication or event relating to or affecting the Company
shall occur as a result of which in your opinion the market price of the Common
Stock has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or amendment of
the Prospectus), the Company shall, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of, and if deemed appropriate by the Company and its
counsel in consultation with you and your counsel disseminate, a press release
or other public statement reasonably satisfactory to you responding to or
commenting on such rumor, publication or event.
(r) The Company's Board of Directors shall include at least two
independent directors.
(s) The Company is familiar with the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder (collectively, the "1940
Act") and has in the past conducted its affairs, and will in the future conduct
its affairs, in such a manner so as to ensure that the Company was not and will
not be an "investment company" within the meaning of the 1940 Act.
(t) The Company will supply the Underwriters with copies of all
correspondence to and from and all documents issued to and by the Commission or
the Commission's staff in connection with the registration of the Shares under
the Act.
7. Conditions to the Underwriters' Obligations. The obligations of the
-------------------------------------------
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and each Closing Date (as if made at such Closing Date), of the
representations and warranties of the Company and the Selling Shareholders
contained herein or in certificates of any officer of the Company or Selling
Shareholder delivered pursuant to the provisions hereof, to the performance by
the Company and the Selling Shareholders of their respective obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective not later than 5:30 P.M., eastern time, on
the date following the date of this Agreement or, with your consent, at a later
time and date as you may agree in writing; all filings required by Rule 424 and
Rule 430A of the Act shall have been made; no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued; no proceedings for the issuance of such an order
shall have been commenced or shall be
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pending, or, to the knowledge of the Company, threatened or contemplated by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been disclosed to you and complied with to your satisfaction; and no stop
order suspending the sale of the Shares in any jurisdiction shall have been
issued, and no proceeding for that purpose shall have been instituted, or, to
the knowledge of the Company, threatened or contemplated.
(b) On each Closing Date (i) the Registration Statement and the
Prospectus, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the Act and shall
conform in all material respects to the Act, the Company shall have complied in
all material respects with Rule 430A (if it shall have elected to rely thereon)
and neither the Registration Statement nor the Prospectus, as they may then be
amended or supplemented, shall 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 (with respect to the Prospectus, in the light of the
circumstances under which they were made) not misleading; (ii) there shall not
have been, since the respective dates as of which information is given in the
Registration Statement, any material adverse change in the business prospects,
properties, assets, results of operation or condition (financial or otherwise)
of the Company and North Star, taken as a whole, whether or not arising in the
ordinary course of business; (iii) no action, suit or proceeding at law or in
equity shall be pending or, to the knowledge of the Company or any of the
Selling Shareholders, threatened against the Company that would be required to
be set forth in the Prospectus other than as set forth therein and no
proceedings shall be pending or, to the knowledge of the Company or any of the
Selling Shareholders, threatened against the Company before or by any federal,
state or other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding could materially adversely affect the business,
prospects, properties, assets, results of operations or condition (financial or
otherwise) of the Company and North Star, taken as a whole, other than as set
forth in the Prospectus; (iv) the Company and the Selling Shareholders shall
have complied with all agreements and satisfied all conditions on their
respective parts to be performed or satisfied at or prior to the applicable
Closing Date, and (v) the representations and warranties of the Company set
forth in Section 1 and the representations and warranties of the Selling
Shareholders set forth in Section 2 shall be accurate as though expressly made
at and as of the applicable Closing Date. At each applicable Closing Date, you
shall have received a certificate executed by the President and the Chief
Executive Officer of the Company, dated as of the applicable Closing Date, to
such effect and with respect to the following additional matters: (A) the
Registration Statement has become effective under the Act and no stop order
suspending the effectiveness of the Registration Statement or preventing or
suspending the use of the Prospectus has
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been issued, and no proceedings for that purpose have been instituted or are
pending or, to the best of their knowledge, threatened under the Act; and (B)
they have carefully reviewed the Registration Statement and the Prospectus and
when the Registration Statement became effective and at all times subsequent
thereto up to the delivery of such certificate, the Registration Statement and
the Prospectus and any amendments or supplements thereto contained all
statements and information required to be included therein or necessary to make
the statements therein (with respect to the Prospectus, in the light of the
circumstances under which they were made) not misleading and neither the
Registration Statement nor the Prospectus and any amendment or supplement
thereto included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein (with respect to the Prospectus, in light of the
circumstances under which they were made) not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus that has not
been so set forth, and (C) all representations, warranties, covenants and
statements made herein by the Company are true and correct in all material
respects at such Closing Date, with the same effect as if made on and as of such
Closing Date, and all agreements herein to be performed by the Company on or
prior to such Closing Date have been duly performed. At each applicable Closing
Date, you shall have received certificates executed by each Selling Shareholder,
dated as of the applicable Closing Date, with respect to the following matters:
all representations, warranties, covenants and statements made herein by such
Selling Shareholder are true and correct in all material respects at such
Closing Date, with the same effect as if made on and as of such Closing Date,
and all agreements herein to be performed by the Company on or prior to such
Closing Date have been duly performed.
(c) On the business day immediately preceding the date of this
Agreement you shall have received from Ernst & Young LLP, a letter, dated the
date hereof in form and substance satisfactory to you, together with signed or
reproduced copies of such letter for each of the other Underwriters, confirming
that they are independent public accountants with respect to the Company within
the meaning of the Act, stating in effect that:
(i) in their opinion, the financial statements of the Company
and of North Star included in the Registration Statement and covered by their
reports therein comply as to form in all material respects with the applicable
accounting requirements of the Act;
(ii) on the basis of limited procedures (set forth in detail
in such letter and made in accordance with such procedures as may be reasonably
specified by you) not constituting an audit in accordance with generally
accepted auditing standards, consisting of (but not limited to) a reading of the
latest
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available internal unaudited consolidated financial statements of the Company, a
reading of minute books of the Company, inquiries of officials of the Company
responsible for financial and accounting matters, and such other inquiries and
procedures, as may be specified in such letter, nothing has come to their
attention which caused them to believe that:
(A) the unaudited financial statements and other unaudited
financial data of the Company included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the Act or are not presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration Statement;
(B) the amounts of net sales, income before income taxes, net
income and net income per share for the three fiscal years ended March 28, 1997,
included in the Prospectus under the caption "Prospectus Summary-Summary
Consolidated Financial and Operating Data" do not agree with the corresponding
amounts in the audited statements of income;
(C) at a specified date not more than five business days
prior to the date of delivery of such letter, there was any change in the
capital stock or long-term debt or obligations under capital leases of the
Company other than scheduled repayments or any decreases in total assets,
stockholders' equity or other items of the Company specified by the Underwriters
from that set forth in the consolidated balance sheet at March 28, 1997,
included in the Prospectus, except as described in the Prospectus or such
letter; or
(D) for the period from March 28, 1997, to a specified date
not more than five days prior to the date of delivery of such letter, there were
any decreases in revenue, gross profit or income before income taxes of the
Company, in each case as compared with the corresponding period of the preceding
year, except in each case for decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in such letter; and
(iii) in addition to the procedures referred to in clause (ii)
above and the audit referred to in their report included in the Registration
Statement, they have carried out certain specific procedures, not constituting
an audit in accordance with generally accepted auditing standards, with respect
to certain amounts, percentages and financial information specified by you which
are derived from the general accounting records of the Company or North Star,
which appear in the Registration Statement or the exhibits or schedules thereto
and are specified by you, and have compared such amounts, percentages and
financial information
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with the accounting records of the Company or North Star and with material
derived from such records and have found them to be in agreement.
(d) At each Closing Date you shall have received from Ernst & Young
LLP a letter, in form and substance satisfactory to you and dated as of such
Closing Date, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (c) above, except that the specified date
referred to shall be a date not more than five business days prior to such
Closing Date.
(e) In the event that any of the letters to be delivered pursuant to
subsections (c) and (d) above sets forth any such changes, decreases or
increases, it shall be a further condition to your obligations that you shall
have determined, after discussions with officers of the Company responsible for
financial and accounting matters and with Ernst & Young LLP, that such changes,
decreases or increases as are set forth in such letters do not reflect a
material adverse change in the capital stock, long-term debt, obligations under
capital leases, total assets, or stockholders' equity of the Company as compared
with the amounts shown in the latest condensed consolidated balance sheet of the
Company, or a material adverse change in revenues or the total or per share
amounts of income before extraordinary items or net income, of the Company, in
each case as compared with the corresponding period of the prior year.
(f) On each Closing Date, you shall have received from Troy & Gould
Professional Corporation, counsel for the Underwriters, such opinion or
opinions with respect to the Registration Statement, the Prospectus and other
related matters as you reasonably may require and such counsel shall have
received such papers and information as they reasonably may request to enable
them to pass upon such matters.
(g) On each Closing Date, there shall have been furnished to you the
respective opinions (addressed to the Underwriters) of Manatt, Phelps &
Phillips, LLP, counsel for the Company and the Selling Shareholders, and
Fredrikson & Byron, P.A., special counsel for North Star, each dated such
Closing Date and in form and substance reasonably satisfactory to you and
counsel for the Underwriters and stating that it may be relied upon by counsel
for the Underwriters in giving their opinion, to the effect that:
(i) The Company and North Star each has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to own or
lease and occupy its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business and is in good standing in each
jurisdiction in which, to such counsel's knowledge, the character of the
business conducted by it or the location of the
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properties owned or leased by it makes such qualification necessary, except
where the failure to so qualify would not have a Material Adverse Effect.
(ii) The authorized, issued and outstanding capital stock of
the Company conforms as to legal matters in all material respects to the
description thereof as set forth under the caption "Capitalization" in the
Prospectus. The Common Stock of the Company conforms as to legal matters in all
material respects to the description thereof contained under the caption
"Description of Capital Stock" in the Registration Statement and the Prospectus.
The outstanding shares of Common Stock (including any Shares to be purchased by
the Underwriters from the Selling Shareholders) have been, and the Shares that
are being sold by the Company, upon issuance and delivery and payment therefor
in the manner herein described will be, duly authorized, validly issued, fully
paid and nonassessable. There are no preemptive or to the knowledge of such
counsel other rights to subscribe for or to purchase, or any restrictions upon
the voting or transfer of, any shares of Common Stock or any capital stock of
North Star pursuant to the Company's or North Star's respective articles of
incorporation or bylaws, or any agreement or other instrument known to such
counsel to which the Company or North Star is a party or by which the Company or
North Star may be bound; and to such counsel's knowledge, neither the filing of
the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock. To such counsel's knowledge, neither the Company nor North Star
has any subsidiaries other than North Star and Keystone Warehouse Distributors,
Inc. All of the issued and outstanding shares of capital stock of North Star is
owned of record and beneficially by the Company, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(iii) Neither the issuance, sale or delivery by the Company and
the sale and delivery by the Selling Shareholders of the Shares, nor the
execution, delivery and performance of this Agreement by the Company and the
Selling Shareholders, nor the consummation by the Company or the Selling
Shareholders of any of the other transactions contemplated hereby will result in
a violation of, or constitute a default under, the articles of incorporation or
bylaws of the Company, or result in a material violation of or constitute a
default under any material agreement, indenture or other instrument known to
such counsel, to which the Company or any Selling Shareholder is a party or by
which any of them is bound, or to which any of their properties are subject,
nor, to such counsel's knowledge, will the performance by the Company or any
Selling Shareholder of its obligations hereunder violate any law, ordinance,
rule, administrative regulation or decree of any court or any governmental
agency or body having jurisdiction over the Company or any Selling
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Shareholder or any of their respective properties or assets, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company; provided, however, that no opinion need be
rendered regarding any state securities or Blue Sky laws. Except for permits
and similar authorizations required under the Act, by the NASD or under the
securities or "blue sky" laws of certain jurisdictions and for such permits and
authorizations which have been obtained, no consent, approval, authorization or
order of any court or governmental agency or body is required in connection with
the consummation by the Company or the Selling Shareholders of the transactions
contemplated by this Agreement. To such counsel's knowledge, the Company and
North Star is conducting its business so as to comply in all material respects
with all applicable statutes and regulations.
(iv) The Company is not, nor with the giving of notice or
lapse of time or both would be, in violation of or in default under its articles
of incorporation or, to such counsel's knowledge, in material violation of or in
material default under its bylaws, and neither the Company nor North Star is,
nor with the giving of notice of lapse of time or both would be, in violation of
or in default under any material agreement, indenture or other instrument known
to such counsel, to which the Company or North Star is a party or by which the
Company or North Star is bound or to which their respective properties are
subject.
(v) The Registration Statement and all post-effective
amendments thereto have become effective under the Act and, to such counsel's
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending before or contemplated by the Commission and all
filings required by Rule 424 and Rule 430A of the Act have been made in a timely
manner; and the Registration Statement and the Prospectus and any amendment or
supplement thereto, as of their respective effective dates and as of each
Closing Date, complied as to form in all material respects with the requirements
of the Act (except that counsel need express no opinion on the financial or
statistical statements or other financial or statistical data contained
therein).
(vi) The statements under the captions "Business -- Government
Regulation and Environmental Hazards," "Description of Capital Stock," "Shares
Eligible for Future Sale," "Dividend Policy," "Underwriting," and "Management"
in the Prospectus and in Items 14 and 15 of Part II of the Registration
Statement, insofar as such statements constitute a summary of legal matters,
documents or proceedings referred to therein, provide a fair summary of such
legal matters, documents and proceedings; and such counsel does not know of any
contracts or documents of a character required to be summarized or described in
the
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Registration Statement or the Prospectus or required to be filed as exhibits to
the Registration Statement which are not so summarized, described or filed.
There are no statutes or regulations applicable to the Company or North Star or
certificates, permits or other authorizations from governmental regulatory
officials or bodies required to be obtained or maintained by the Company or
North Star of a character required to be disclosed in the Registration Statement
or the Prospectus which have not been so disclosed and described therein.
(vii) Except as described in the Prospectus, such counsel does
not know of any past, pending or threatened action, suit, proceeding, inquiry or
investigation before any court or before or by any public, regulatory or
governmental body or board against or involving the properties or business of
the Company or North Star or any of the Selling Shareholders of a character
required to be disclosed in the Prospectus or, as to threatened litigation, of a
character which would be required to be disclosed if filed, or in either case
which, if successful, would have a Material Adverse Effect.
(viii) Such contracts and documents as are summarized in the
Prospectus are fairly summarized in all material respects; and, to such
counsel's knowledge, each contract or document so described is in full force and
effect in accordance with its terms.
(ix) The Company has the corporate power and authority to
enter into and perform this Agreement, and to issue, sell and deliver the Shares
being issued, sold and delivered by the Company hereunder; this Agreement has
been duly authorized, executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, constitutes the valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the rights of creditors generally
and by general equitable principles, and except as rights to indemnification or
contribution may be limited under federal and state securities laws and the
public policy underlying such laws.
(x) All corporate action required in connection with the
authorization and issuance of the Shares and the sale of the Shares by the
Company in accordance with the terms of this Agreement has been taken and all
authorizations, consents, approvals, licenses or other orders of any regulatory
body, administrative agency or other governmental body or, to such counsel's
knowledge, any other person or entity required for the valid issuance, sale and
delivery of the Shares hereunder have been obtained (except that no opinion need
be expressed with respect to such authorizations, consents, approvals, licenses
or other orders as may be required by the Blue Sky or state securities laws of
any jurisdiction in connection with the sale of the Shares).
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(xi) To such counsel's knowledge, no consents or waivers from
the holders of the Company's capital stock are required to consummate the
transactions contemplated hereby other than such consents and waivers as have
been obtained.
(xii) The Company and North Star each had at all relevant
times the corporate power and authority to enter into and perform the North Star
Merger Agreement and to consummate the North Star Merger as consummated, and the
North Star Merger Agreement constitutes the valid and binding agreement of the
Company and North Star, enforceable against the Company and North Star in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the rights of creditors generally and by general equitable
principles, and except as rights to indemnification may be limited under federal
and state securities laws and the public policy underlying such laws.
(xiii) All corporate action each of the Company and North Star
required in connection with the authorization of the North Star Merger Agreement
and the consummation of the North Star Merger has been taken and all
authorizations, consents, approvals, licenses or other orders of any regulatory
body, administrative agency or other governmental body or, to such counsel's
knowledge, any other person or entity required for the consummation of the North
Star Merger have been timely obtained.
(xiv) No person has any dissenter's rights or appraisal rights
arising from or in connection with the North Star Merger.
(xv) Each Selling Shareholder has full legal right, power and
authority, and all consents and approvals required pursuant to any agreement,
indenture, or other instrument known to such counsel to which such Selling
Shareholder is a party or by which he or any of his property or assets are
bound, to enter into this Agreement and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by him in the manner provided
in this Agreement (except that no opinion need be expressed as to permits,
consents and similar authorizations under the state securities or Blue Sky laws
of any jurisdiction in connection with the sale of the Shares).
(xvi) This Agreement and the Custody Agreement have been duly
authorized, executed and delivered by each Selling Shareholder, and is a legal,
valid and binding agreement of each Selling Shareholder, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the rights of creditors generally and by general equitable
principles, and except as rights to indemnification and
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contribution may be limited under federal and state securities laws and the
public policy underlying such laws.
(xvii) Upon delivery of certificates for the Shares to be
sold by each Selling Shareholder pursuant hereto and payment for such Shares as
provided herein, valid and marketable title to such Shares will pass to the
Underwriters, severally, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, restriction on transfer, claim or equity, provided
that the Underwriters are without notice of any defect in the title of such
Shares and take such Shares in good faith, without notice of any adverse claim.
(xviii) To such counsel's knowledge, (1) the Company and
North Star has obtained all material licenses, permits and other governmental
authorizations necessary to the conduct of its business as described in the
Prospectus; and (2) such licenses, permits and other governmental authorizations
are in full force and effect and the Company and North Star is in all material
respects complying therewith.
(xix) The form of certificate representing the Common Stock
and filed as an exhibit to the Registration Statement is in due and proper form
under California law.
(xx) The offer and sale of all securities of the Company
made within the last three years as set forth in Item 15 of the Registration
Statement were exempt from the registration requirements of the Act pursuant to
the provisions set forth in such Item and from the registration or qualification
requirements of all relevant state securities laws.
(xxi) The Shares have been approved for quotation on The
Nasdaq National Market, subject to official notice of issuance.
(xxii) The Company is not an "investment company" within the
meaning of the 1940 Act.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company, counsel for
the Underwriters, representatives of the independent public accountants for the
Company, the Selling Shareholders, and you and your counsel, at which the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although such counsel is not passing upon, and does not
assume responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (other
than as set forth in clause (v) above), on the basis of the foregoing, no facts
have come to such counsel's attention that lead them to believe either that the
Registration Statement at the time such Registration Statement became effective
contained an untrue statement of a material fact or omitted to
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state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, or at the applicable
Closing Date contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that such
counsel need express no opinion with respect to the financial statements and
other financial and statistical data included in the Registration Statement or
the Prospectus.
In rendering the foregoing opinion, such counsel may rely on the following:
(A) as to matters involving the application of laws other
than the laws of the United States and the State of California in which they are
admitted, to the extent such counsel deems proper and to the extent specified in
such opinion, upon an opinion or opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel familiar with applicable
laws; and
(B) as to matters of fact, to the extent they deem proper, on
certificates of officers of the Company and the Selling Shareholders and
certificates or other written statements of officers or departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company and certificates of the Company's transfer agent,
provided that copies of all such opinions, statements or certificates shall be
delivered to Underwriters' counsel, and, if written confirmation of the
Commission is not available at the time such opinion is rendered, upon the
current oral representations of members of the Commission's staff with respect
to the Registration Statement or any amendment or supplement thereto having
become effective and the lack of issuance of a stop order or institution of
proceedings for that purpose.
(h) At or prior to the First Closing Date, you shall have received the
written agreements described in Section 6(l) hereof.
(i) At the Closing Date, the Shares shall have been approved for
listing on The Nasdaq National Market, subject to official notice of issuance.
(j) The Company and the Selling Shareholders shall have furnished to
you such additional documents and certificates as you may reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and to counsel for the Underwriters. The Company
shall furnish you with such conformed copies of such opinions, certificates,
letters and other
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documents as you shall reasonably request for each of the Underwriters. If any
of the conditions specified in this Section 6 shall not have been fulfilled when
and as required by this Agreement, this Agreement and all obligations of the
Underwriters hereunder may be cancelled at, or at any time prior to, each
Closing Date, by you. Any such cancellation shall be without liability of the
Underwriters to the Company. Notice of such cancellation shall be given to the
Company in writing, or by telegraph or telephone and confirmed in writing.
8. Agreements of the Selling Shareholders. Each Selling Shareholder,
--------------------------------------
severally and not jointly, agrees with the Underwriters and the Company:
(a) To pay or cause to be paid his own underwriting discounts and
commissions.
(b) To take all reasonable actions in cooperation with the Company and
the Underwriters to cause the Registration Statement to become effective at the
earliest possible time, to do and perform all such things to be done and
performed relating to such Selling Shareholder under this Agreement prior to
each Closing Date, and to satisfy all conditions precedent to the delivery of
the Shares pursuant to this Agreement relating to such Selling Shareholder.
(c) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the securities or Blue Sky Laws of such jurisdictions as you
may reasonably request and to continue such qualification in effect so long as
reasonably required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification, provided, however that no Selling
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Shareholder shall be required to take any action that would subject him to the
general service of process in any jurisdiction where he is not now so subject.
(d) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, to deliver to the Underwriters
prior to or at the First Closing Date a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).
9. Indemnification.
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(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject
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under the Act, specifically including but not limited to losses, claims, damages
or liabilities related to negligence on the part of any Underwriter, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any breach of any warranty or covenant of the
Company herein contained or any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any preliminary
prospectus, the Prospectus, or any amendment or supplement thereto, or in any
"blue sky" application or other document executed by the Company or based upon
any information furnished in writing by the Company, filed in any jurisdiction
in order to qualify any or all of the Shares under the securities laws thereof
("Blue Sky Application"), 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 (with respect to the Prospectus, in the
light of the circumstances under which they were made) therein not misleading;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall 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 an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such preliminary prospectus or the Prospectus, or such
amendment or supplement, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you expressly for use therein; provided, further, that the
Company will not be liable for any such losses, claims, damages, or liabilities
arising from the sale of the Shares to any person if a copy of the Prospectus
(as first filed pursuant to Rule 424(b)) or the Prospectus as amended or
supplemented by all amendments or supplements thereto which has been furnished
to the Underwriters shall not have been sent, mailed or given to such person, at
or prior to the written confirmation of the sale of such Shares to such person,
but only if and to the extent that such Prospectus, if so sent or delivered,
would have cured the defect giving rise to such losses, claims, damages or
liabilities. In addition to its other obligations under this Section 9(a), the
Company agrees that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 9(a), it will reimburse the Underwriters on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expense and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. This
indemnity agreement shall be in addition to any liabilities that the Company may
otherwise have.
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(b) Each Underwriter, severally but not jointly, will indemnify and
hold harmless the Company and the Selling Shareholders against any losses,
claims, damages or liabilities to which the Company or the Selling Shareholders
may become subject, under the Act specifically including but not limited to
losses, claims, damages or liabilities related to negligence on the part of the
Company and the Selling Shareholders, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
breach of any warranty or covenant by you herein contained or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, such preliminary prospectus or the
Prospectus, or such amendment or supplement or any Blue Sky Application, in
reliance upon and in conformity with information furnished to the Company by
such Underwriter expressly for use therein; and will reimburse the Company and
the Selling Shareholders for any legal or other expenses reasonably incurred by
the Company or the Selling Shareholders in connection with investigating or
defending any such loss, claim, damage, liability or action. In addition to
their other obligations under this Section 9(b), the Underwriters agree that, as
an interim measure during the pendency of any such claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 9(b),
they will reimburse the Company and the Selling Shareholders on a monthly basis
for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding notwithstanding the absence of a judicial determination as to
the propriety and enforceability of their obligation to reimburse the Company or
the Selling Shareholders for such expense and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
This indemnity agreement shall be in addition to any liabilities which the
Underwriters may otherwise have.
The indemnity agreement in this Section 9(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director or partner of the Company or of a Selling Shareholder and each person,
if any, who controls the Company or a Selling Shareholder within the meaning of
the Act to the same extent as such agreement applies to the Company or the
Selling Shareholder.
(c) The Selling Shareholders, severally and not jointly, shall
indemnify and hold harmless the Company and the Underwriters
34.
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against any losses, claims, damages or liabilities to which the Company or the
Underwriters may become subject, under the Act specifically including but not
limited to losses, claims, damages or liabilities related to negligence on the
part of the Company or the Underwriters, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any breach of any warranty or covenant by the Selling Shareholders herein
contained or any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or any Blue Sky Application
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, such preliminary
prospectus or the Prospectus, or such amendment or supplement or any Blue Sky
Application, in reliance upon and in conformity with information furnished to
the Company by such Selling Shareholder expressly for use therein, it being
understood that for all purposes of this Agreement that the statements appearing
in any preliminary prospectus, the Prospectus or the Registration Statement
under the caption "Principal and Selling Shareholders" constitute the only
written information furnished to the Company by the Selling Shareholders (other
than the Insider Selling Share holders), for use in the Registration Statement
or the Prospectus or any preliminary prospectus (or any amendment or supplement
thereto); and will reimburse the Company and the Underwriters for any legal or
other expenses reasonably incurred by the Company or the Underwriters in
connection with investigating or defending any such loss, claim, damage,
liability or action. In addition to their other obligations under this Section
9(c), the Selling Shareholders agree that, as an interim measure during the
pendency of any such claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in this Section 9(c), they will reimburse the Company and
the Underwriters on a monthly basis for all reasonable legal and other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of their
obligation to reimburse the Company or the Underwriters for such expense and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. This indemnity agreement shall be in
addition to any liabilities which the Selling Shareholders may otherwise have.
The indemnity agreement in this Section 9(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company and each person, if
35.
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any, who controls the Company within the meaning of the Act to the same extent
as such agreement applies to the Company.
(d) Within ten days after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; no indemnification provided in Section
9(a), 9(b) or 9(c) shall be available to any party who shall fail to give notice
as provided in this Section 9(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
that it may have to any indemnified party otherwise than under this Section 9 or
to the extent that it is not prejudiced as a proximate result of such failure.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it shall elect by written notice delivered to the indemnified party,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized by the indemnifying party, (ii) the indemnified party shall have been
advised by such counsel that there may be a conflict of interest between the
indemnifying party and the indemnified party in the conduct of the defense of
such action (in which case the indemnifying party shall not have the right to
direct the defense of such action on behalf of the indemnified party) or (iii)
the indemnifying party shall not in fact have employed counsel to assume the
defense of such action, in any of which events such fees and expenses shall be
borne by the indemnifying party. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 9(a), 9(b) and 9(c)
hereof, including the amounts of any
36.
<PAGE>
requested reimbursement payments, the method of determining such amounts and the
basis on which such amounts shall be apportioned among the indemnifying parties,
shall be settled by arbitration conducted pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or a written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 9(a), 9(b) and 9(c)
hereof and will not resolve the ultimate propriety or enforce ability of the
obligation to indemnify for expenses that is created by the provisions of
Sections 9(a), 9(b) and 9(c).
(f) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 9 is for
any reason judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Selling Shareholders and the Underwriters shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity incurred by the Company, the Selling Shareholders and one or more
of the Underwriters, as incurred, in such proportions that (i) the Underwriters
are responsible pro rata for that portion represented by the underwriting
discount appearing on the cover page of the Prospectus bears to the public
offering price (before deducting expenses) appearing thereon, and (ii) the
Company and the Selling Shareholders are responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation; provided,
however, that if the allocation provided above is not permitted by applicable
law, the Company, the Selling Shareholders and the Underwriters shall contribute
to the aggregate losses in such proportion as is appropriate to reflect not only
the relative benefits referred to above but also the relative fault of the
Company, the Selling Shareholders and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, by the Selling Shareholders or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages or liabilities referred to
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<PAGE>
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (f), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of this
Section 9(f), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company or a Selling Shareholder within the meaning of Section 15 of the Act
shall have the same rights to contribution as the Company or such Selling
Shareholder.
(g) The parties to this Agreement acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions of this Agreement, including without
limitation, the provisions of this Section 9, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Section 9
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act. The
parties are advised that federal or state public policy, as interpreted by the
courts in certain jurisdictions, may be contrary to certain of the provisions
of this Section 9, and the parties hereto hereby expressly waive and relinquish
any right or ability to assert such public policy as a defense to a claim under
this Section 9 and further agree not to attempt to assert any such defense.
In no event shall any of the Selling Shareholders, as such, be required
pursuant to the indemnity agreement under this Section 9 or otherwise under this
Agreement to pay a total amount in excess of the net amount received by such
Selling Shareholder hereunder for the sale of Shares to the Underwriters.
10. Representations and Agreements to Survive Delivery. The
--------------------------------------------------
representations, warranties, indemnities, agreements and other statements of the
Underwriters, the Selling Shareholders, the Company or its officers set forth in
or made pursuant to this Agreement will remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Company, the
Selling Shareholders or any Underwriter or controlling person, with respect to
an Underwriter or the Company and will survive delivery of and payment for the
Shares or termination of this Agreement.
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11. Effective Date of Agreement and Termination.
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(a) This Agreement shall become effective (i) if at the time of
execution of this Agreement the Registration Statement has not become effective,
at 10:00 A.M. eastern time on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of execution
of this Agreement, the Registration Statement has been declared effective, at
10:00 A.M. eastern time on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Shares for sale to the public. For the purposes of this Section 11,
the Shares shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by you of telegrams or facsimile messages (i) advising the Underwriters
that the Shares are released for public offering, or (ii) offering the Shares
for sale to securities dealers, whichever may occur first. By giving notice
before the time this Agreement becomes effective, you, as the Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective, without liability of any party to any other party, except
that the Company shall remain obligated to pay costs and expenses to the extent
provided in Section 6(i) hereof.
(b) You may terminate this Agreement by notice to the Company and the
Selling Shareholders at any time at or prior to the Closing Date (i) in
accordance with the last paragraph of Section 7 of this Agreement; or (ii) if
there has been, since the respective dates as of which information is given in
the Registration Statement, any material adverse change, or any development
which might reasonably be viewed as resulting in a material adverse change in or
affecting the assets, properties, results of operation, financial condition or
business prospects of the Company, whether or not arising in the ordinary course
of business, including without limitation, any failure of refusal for any reason
of any Selling Shareholder to sell Shares in the Offering as contemplated in the
Registration Statement and any preliminary prospectus disseminated in connection
with the Offering; or (iii) if there has occurred or accelerated any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions the effect of which on the financial markets of
the United States is such as to make it, in your judgment, impracticable to
market the Shares or enforce contracts for the sale of the Shares; or (iv) if
trading in any securities of the Company has been suspended by the Commission or
by the NASD or the Nasdaq National Market, or if trading generally on the New
York Stock Exchange or in the over-the-counter market has been suspended, or
limitations on prices for trading (other than limitations on hours or numbers of
days of trading) have been fixed, or maximum ranges for prices for securities
have been required, by such exchange or the NASD or by order of the
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Commission or any other governmental authority; or (v) if a banking moratorium
has been declared by federal or New York, California or Tennessee authorities;
or (vi) any federal or state statute, regulation, rule or order of any court or
other governmental authority has been enacted, published, decreed or otherwise
promulgated which in your reasonable opinion materially adversely affects or
will materially adversely affect the business or operations of the Company, or
(vii) any action has been taken by any federal, state or local government or
agency in respect of its monetary or fiscal affairs which in your reasonable
opinion has a material adverse effect on the securities markets in the United
States.
(c) If this Agreement is terminated pursuant to this Section 11, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 6(i). Notwithstanding any such termination,
the provisions of Section 9 shall remain in effect.
12. Default by One or More of the Underwriters.
------------------------------------------
(a) If any Underwriter shall default in its obligation to purchase the
Firm Shares which it has agreed to purchase hereunder, you shall use your best
efforts to arrange for you or another party or other parties to purchase such
Firm Shares on the terms contained herein. If within 36 hours after such
default by any Underwriter you do not arrange for the purchase of such Firm
Shares, then the Company or the Selling Shareholders shall be entitled to a
further period of 36 hours within which to procure another party or other
parties satisfactory to you to purchase such Firm Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Shareholders that you have so arranged for the purchase of such Firm
Shares, or the Company or the Selling Shareholders notifies you that it has so
arranged for the purchase of such Firm Shares, you or the Company or the Selling
Shareholders shall have the right to postpone the Closing Date for a period of
not more than seven days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any persons substituted under this Section 11 with like effect as
if such person had originally been a party to this Agreement with respect to
such Firm Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Firm Shares of a defaulting Underwriter or Underwriters made by you or the
Company or the Selling Shareholders as provided in subsection (a) above, the
aggregate number of Firm Shares which remains unpurchased does not exceed
_______ [10% of Firm Shares] then the Company shall have the right to require
each
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nondefaulting Underwriter to purchase the Firm Shares which such Underwriter
agreed to purchase hereunder and, in addition, to require each nondefaulting
Underwriter to purchase its pro rata share (based on the number of Firm Shares
which such Underwriter agreed to purchase hereunder) of the Firm Shares of such
defaulting Underwriter or Underwriters for which such arrangements have not been
made; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Firm Shares of a defaulting Underwriter or Underwriters made by you or the
Company or the Selling Shareholders as provided in subsection (a) above, the
number of Firm Shares which remains unpurchased exceeds _________ [10% of Firm
Shares], or if the Company shall not exercise the right described in subsection
(b) above to require nondefaulting Underwriters to purchase Firm Shares of a
defaulting Underwriter or Underwriters, then the Company, the Selling
Shareholders or you shall have the right, by written notice within the next
twenty-four (24) hours, to terminate this Agreement, without liability on the
part of any nondefaulting Underwriter or the Company or the Selling Shareholders
except for the expenses to be borne by the Company and the Selling Shareholders
as provided in Section 6(i) hereof and the indemnity and contribution agreements
in Section 9 hereof, but nothing herein shall relieve a defaulting Underwriter
from liability for its default.
13. Default by the Company or the Selling Shareholders. If the Company or
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the Selling Shareholders shall fail at the First Closing Date to sell and
deliver the respective aggregate number of Firm Shares that they are obligated
to sell, then this Agreement shall terminate without any liability on the part
of any nondefaulting party, except to the extent provided in Section 6(i) and
except that the provisions of Section 9 shall remain in effect. No action taken
pursuant to this Section shall relieve the Company or the Selling Shareholders
from liability, if any, in respect of its default.
14. Notices. Except as otherwise provided in this Agreement, (a) whenever
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notice is required by the provisions of this Agreement to be given to the
Company, such notice shall be in writing, addressed to the Company at 700 East
Bonita Avenue, Pomona, California 91767, or by telecopier (confirmed in writing)
at (909) 624-9136, Attention: Charles J. Hogarty, with a copy to Manatt, Phelps
& Phillips, LLP at 11355 West Olympic Boulevard, Los Angeles, California 90064,
or by telecopier at (310) 312-4224, Attention: Paul H. Irving, (b) whenever
notice is required by the provisions of this Agreement to be given to the
Selling Shareholders, such notice shall be in writing addressed to the Selling
Shareholders in care of Keystone Automotive Industries, Inc., 700 East Bonita
Avenue, Pomona, California 91767, or by telecopier (confirmed in writing) at
(909) 624-9136, with a copy to Manatt, Phelps & Phillips, LLP at 11355 West
Olympic Boulevard, Los
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Angeles, California 90064, or by a telecopier at (310) 312-4209, Attention: Paul
H. Irving, and (c) whenever notice is required by the provisions of this
Agreement to be given to the several Underwriters, such notice shall be in
writing addressed to the Underwriters in care of Morgan Keegan & Company, Inc.,
50 Front Street, Memphis, Tennessee 58103, or by telecopier at (901) 579-4355,
Attention: William P. Allen, Jr., with a copy to Troy & Gould Professional
Corporation at 1801 Century Park East, Suite 1600, Los Angeles, California
90067, or by telecopier at (310) 201-4746, Attention: Dale E. Short, Esq.
15. Parties. This Agreement is made solely for the benefit of the several
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Underwriters, the Company, the Selling Shareholders, any officer, director or
controlling person referred to in Section 9 hereof, and their respective
successors and assigns, and no other person shall acquire or have any right by
virtue of this Agreement. The term "successors and assigns," as used in this
Agreement, shall not include any purchaser of any of the Shares from any of the
Underwriters merely by reason of such purchase. In all dealings with the
Company and the Selling Shareholders under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company and the Selling
Shareholders shall be entitled to act and rely upon any statement, request,
notice or agreement made or given by you jointly or by Morgan Keegan & Company,
Inc. on behalf of you.
16. Governing Law. This Agreement shall be governed by and construed in
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accordance with the laws of the State of Tennessee, without giving effect to the
choice of law or conflict of laws principles thereof.
17. Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
42.
<PAGE>
Please confirm, by signing and returning to us counterparts of this
Agreement, that you are acting on behalf of yourselves and the several
Underwriters and that the foregoing correctly sets forth the Agreement among the
Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
KEYSTONE AUTOMOTIVE
INDUSTRIES, INC.
By:
---------------------------
Name: Charles J. Hogarty
Title: Chief Executive
Officer
THE SELLING SHAREHOLDERS
By:
---------------------------
Charles J. Hogarty, as
Attorney-in-Fact
By:
---------------------------
Virgil K. Benton, as
Attorney-in-Fact
Confirmed and accepted as of
the date first above mentioned
MORGAN KEEGAN & COMPANY, INC.
A.G. EDWARDS & SONS, INC.
CROWELL, WEEDON & CO.
as Representatives of the
several Underwriters named in
Schedule II hereto
By: MORGAN KEEGAN & COMPANY, INC.
By:
-----------------------------
Name: William P. Allen, Jr.
Title: First Vice President
43.
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Number of
Firm Shares Option Shares
Name of Selling Shareholder to be Sold to be Sold
- --------------------------- ----------- -------------
<S> <C> <C>
TOTAL...........................
=========== =============
</TABLE>
44.
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Firm Shares
Name of Underwriter To be Purchased
- ------------------- ---------------
<S> <C>
Morgan Keegan & Co.................................
A.G. Edwards & Sons, Inc...........................
Crowell, Weedon & Co..............................
---------------
TOTAL..........................................
===============
</TABLE>
45.
<PAGE>
EXHIBIT 3.1.1
AMENDMENT TO AMENDED AND
RESTATED BYLAWS OF THE REGISTRANT
---------------------------------
Sections 4.6 and 4.7 are studies in their
entirety and replaced by the following new Sections 4.6 and 4.7
Section 4.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if
---------------------
there shall be such an officer, shall, if present, preside at all meetings of
the Board of Directors and exercise and perform such other powers and duties as
may be from time to time assigned to him by the Board of Directors or prescribed
by these Bylaws.
Section 4.7 PRESIDENT. The President shall be the chief executive
---------
officer of the corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business of
the corporation. He shall preside at all meetings of the shareholders and, in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He shall have the general powers and duties of
management usually vested in the office of the President of a corporation, and
shall have such other powers and duties as may be prescribed by the Board of
Directors or the Bylaws.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MANATT PHELPS PHILLIPS]
File No: 11629-044
June 6, 1997
Keystone Automotive Industries, Inc.
700 East Bonita Avenue
Pomona, California 91767
Re: Registration Statement on Form S-1
----------------------------------
Gentlemen:
We have acted as special counsel for Keystone Automotive Industries,
Inc., a California corporation (the "Company"), in connection with the proposed
underwritten public offering (the "Offering") by the Company of 1,760,000 shares
(the "Shares") of the Company's Common Stock, no par value, of which 260,000
shares may be issued pursuant to an option granted to the underwriters to cover
over-allotments, if any, pursuant to that certain proposed form of Underwriting
Agreement (the "Underwriting Agreement") by and among the Company and Morgan
Keegan & Company, Inc., A.G. Edwards & Sons, Inc. and Crowell, Weedon & Co., the
representatives of the several underwriters (the "Representatives").
In rendering the opinions contained herein, we have examined and
relied upon the originals or copies, certified or otherwise identified to our
satisfaction to be complete and accurate, of the following:
1. Amended and Restated Articles of Incorporation of the Company, as
amended to date;
2. Amended and Restated Bylaws of the Company, as amended to date;
3. Registration Statement on Form S-1 (File No. 333-____) of the
Company (the "Registration Statement");
4. Records of proceedings of the Board of Directors of the Company
pertaining to the issuance of the Shares; and
5. The proposed form of Underwriting Agreement filed as Exhibit 1.1
to the Registration Statement.
<PAGE>
Keystone Automotive Industries, Inc.
June 6, 1997
Page 2
With respect to the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to the originals of all documents submitted to
us as copies.
In rendering the opinions expressed below, we have relied as to
certain factual matters on certificates executed by officers of the Company.
While we have no reason to believe that the officers executing such certificates
did not have personal knowledge of the matters contained therein or did not
accurately set out such knowledge in such certificates, we did not independently
verify the matters set forth in such certificates. We have also obtained and
relied on certificates and other communications from governmental authorities as
to matters concerning the due incorporation, valid existence and good standing
of the Company.
Based upon the foregoing and subject to receipt of the following
documents or satisfaction of the following conditions:
(a) The order to be issued by the Securities and Exchange
Commission declaring the Registration Statement to be effective;
(b) As required, exemptive orders, permits, licenses or no action
letters issued by the appropriate regulatory or governmental agencies in the
states where the offer and sale of the Shares is to be made;
(c) All other conditions and legal requirements necessary to
consummate the transactions contemplated by the Underwriting Agreement; and
(d) The due execution and delivery of the Underwriting Agreement;
upon which our opinions are expressly conditioned, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing
under the laws of the State of California.
2. The issuance and sale of the Shares have been duly authorized
and, when issued and delivered against payment therefor as provided in the
Underwriting Agreement, will be validly issued by the Company, fully paid and
nonassessable.
We are members of the Bar of the State of California. This opinion is
limited to the current laws of the State of California and the United States of
America, to present judicial interpretations thereof and to facts as they
presently exist. In rendering this opinion, we have no
<PAGE>
Keystone Automotive Industries, Inc.
June 6, 1997
Page 3
obligation to revise or supplement it should the current laws of the State of
California or the United States of America be changed by legislative action,
judicial decision or otherwise.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference of this firm under the heading
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement.
Respectfully submitted,
/s/ Manatt, Phelps & Phillips, LLP
----------------------------------
Manatt, Phelps & Phillips, LLP
<PAGE>
EXHIBIT 10.38
CREDIT AGREEMENT
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
AND
MELLON BANK, N.A.
MARCH 25, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
ARTICLE I DEFINITIONS..................................................... 1
SECTION 1.1 Defined Terms........................................... 1
SECTION 1.2 Other Definitional Provisions........................... 9
ARTICLE II THE CREDIT..................................................... 9
SECTION 2.1 The Revolving Loans..................................... 9
(a) The Revolving Commitment................................... 9
(b) Making the Revolving Loans................................. 9
(c) Reduction of the Revolving Commitment...................... 10
(d) Revolving Note............................................. 10
SECTION 2.2 Letters of Credit....................................... 10
SECTION 2.3 Repayment............................................... 13
(a) Mandatory Repayments....................................... 13
(b) Optional Payment........................................... 13
SECTION 2.4 Interest Rate and Payment Dates......................... 13
(a) Payment.................................................... 13
(b) Interest Rate.............................................. 13
(c) Rate Periods............................................... 14
(d) Default Rate of Interest................................... 14
(e) Selection, Conversion or Renewal of Rate Options........... 14
(f) Prime Rate Fallback........................................ 14
SECTION 2.5 Commitment Fee.......................................... 15
ARTICLE III GENERAL PROVISIONS CONCERNING THE LOANS....................... 15
SECTION 3.1 Use of Proceeds......................................... 15
SECTION 3.2 Computation of Interest and Fees........................ 15
(a) Calculations............................................... 15
(b) Determination by Bank...................................... 15
SECTION 3.3 Payments................................................ 15
SECTION 3.4 Payment on Non-Business Days............................ 16
SECTION 3.5 Reduced Return.......................................... 16
SECTION 3.6 Indemnities and Losses.................................. 16
(a) Indemnities................................................ 16
(b) Funding Losses............................................. 17
SECTION 3.7 Requirements of Law..................................... 17
ARTICLE IV CONDITIONS OF LENDING.......................................... 18
SECTION 4.1 Conditions Precedent to Initial Loans................... 18
SECTION 4.2 Conditions Precedent to Each Borrowing.................. 19
ARTICLE V REPRESENTATIONS AND WARRANTIES.................................. 20
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
SECTION 5.1 Representations and Warranties.......................... 20
(a) Organization............................................... 20
(b) Authorization.............................................. 20
(c) Governmental Consents...................................... 21
(d) Validity................................................... 21
(e) Financial Condition........................................ 21
(f) Litigation................................................. 21
(g) Employee Benefit Plans..................................... 21
(h) Disclosure................................................. 21
(i) Environmental Matters...................................... 22
(j) Employee Matters........................................... 22
(k) Solvency................................................... 22
(l) Title to Properties........................................ 22
(m) Tax Returns................................................ 23
(n) Compliance with Other Agreements and Applicable Laws....... 23
ARTICLE VI COVENANTS...................................................... 23
SECTION 6.1 Affirmative Covenants................................... 23
(a) Financial Information...................................... 23
(b) Notices and Information.................................... 24
(c) Corporate Existence, Etc................................... 25
(d) Payment of Taxes and Claims................................ 25
(e) Maintenance of Properties; Insurance....................... 26
(f) Inspection................................................. 26
(g) Compliance with Laws Etc................................... 26
(h) Hazardous Waste Studies.................................... 26
SECTION 6.2 Negative Covenants...................................... 27
(a) Consolidated Fixed Charge Coverage Ratio................... 27
(b) Consolidated Current Ratio................................. 27
(c) Consolidated Total Liabilities to Tangible Net Worth Ratio. 27
(d) Consolidated Net Income.................................... 27
(e) Liens Etc.................................................. 27
(f) Indebtedness............................................... 27
(g) Consolidation, Merger or Dissolution....................... 27
(h) Loans, Investments, Secondary Liabilities.................. 27
(i) Asset Sales................................................ 28
(j) Dividends.................................................. 28
(k) Limitation on Granting of Liens and on Restrictions on
Subsidiary Dividends and Other Transfers................... 28
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
(l) Transactions with Affiliates............................... 29
(m) Books and Records.......................................... 29
(n) Restructure................................................ 29
(o) No Further Negative Pledges................................ 29
ARTICLE VII EVENTS OF DEFAULT............................................. 29
SECTION 7.1 Events of Default....................................... 29
ARTICLE VIII MISCELLANEOUS................................................ 32
SECTION 8.1 Amendments, Etc......................................... 32
SECTION 8.2 Notices, Etc............................................ 32
SECTION 8.3 Right of Setoff......................................... 32
SECTION 8.4 No Waiver; Remedies..................................... 32
SECTION 8.5 Costs and Expenses...................................... 32
SECTION 8.6 Participations.......................................... 33
SECTION 8.7 Effectiveness: Binding Effect........................... 33
SECTION 8.8 Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver........................................... 33
SECTION 8.9 Waiver of Notices....................................... 34
SECTION 8.10 Destruction of Borrower's Documents.................... 34
SECTION 8.11 Entire Agreement....................................... 34
SECTION 8.12 Severability of Provisions............................. 35
SECTION 8.13 Execution in Counterparts.............................. 35
</TABLE>
iii
<PAGE>
CREDIT AGREEMENT
This Credit Agreement dated as of March 25, 1997 is entered into
between KEYSTONE AUTOMOTIVE INDUSTRIES, INC., a California corporation (the
"Borrower") and MELLON BANK, N.A. (the "Bank"). The Borrower and the Bank agree
- --------- ----
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Defined Terms. As used in this Agreement, the following
-------------
terms have the following meanings:
"Agreement": This Credit Agreement, as amended, supplemented or
---------
modified from time to time.
"Applicable Margin": As of any date of determination, with respect to
-----------------
Prime Rate Option Revolving Loans or Libor Rate Option Revolving Loans, as
applicable, the percentage set forth opposite the Leverage Ratio in effect as of
such date set forth in the table below:
<TABLE>
<CAPTION>
================================================================================
LEVERAGE RATIO APPLICABLE MARGIN APPLICABLE MARGIN
LIBOR RATE OPTION PRIME RATE OPTION
<S> <C> <C>
- --------------------------------------------------------------------------------
Less than or equal to 1.15:1.00 .75% 0%
- --------------------------------------------------------------------------------
Greater than 1.15:1.00 .875% 0%
================================================================================
</TABLE>
provided, however, that, notwithstanding the foregoing, for purposes of
- -------- -------
determining the Applicable Margin, the Leverage Ratio shall be deemed to be
greater than 1.15 to 1.0 at all time when an Event of Default or Potential Event
of Default has occurred and is continuing based on the Borrower's failure to
deliver any financial statement or compliance certificate as and when required
pursuant to Sections 6.1(a)(i) and (iv) or 6.1(a)(ii) and (iv), as applicable.
For purposes of this Agreement, any change in the Applicable Margin based on a
change in the Leverage Ratio shall be effective at such time as the Bank shall
have (i) reviewed the financial statements and compliance certificate required
by Sections 6.1(a)(i) and (iv) or 6.1(a)(ii) and (iv), as applicable, reflecting
such change in the Leverage Ratio warranting a change in the Applicable Margin
and (ii) redetermined the Applicable Margin based upon such financial statements
and compliance certificate. The initial Applicable Margin to be effective as of
the date hereof shall be .75% with respect to Libor Rate Option Revolving Loans
and 0% with respect to the Prime Rate Option Revolving Loans until such time as
Bank has received the audited annual financial statements for Borrower's fiscal
year ending March 28, 1997.
1
<PAGE>
"Average Unused Portion of the Revolving Commitment": The Revolving
--------------------------------------------------
Credit less the average Daily Balance for the immediately preceding three-month
period.
"Bank": As set forth in the introductory paragraph of this Agreement.
----
"Borrower": As set forth in the introductory paragraph of this
--------
Agreement.
"Borrowing": As defined in Section 2.1.
---------
"Business Day": Any day on which the Bank is open for business at the
------------
location where the Note is payable unless otherwise stated.
"Capital Expenditures": As applied to any Person, all expenditures
--------------------
made and liabilities incurred for the acquisition of any fixed asset or
improvement, replacement, substitution or addition thereto which has a useful
life of more than one year and including, without limitation, those arising in
connection with Capital Leases.
"Capital Leases": As applied to any Person, any lease of any property
--------------
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of that Person.
"Change of Control": Shall be deemed to have occurred at such times
-----------------
as: (a) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Act of 1934), becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than thirty percent (30%) of the total voting power of all
classes of stock then outstanding of Borrower normally entitled to vote in the
election of directors; or (b) the Borrower shall fail to own directly one
hundred percent (100%) of the issued and outstanding common stock of any
Guarantor or shall lose voting control of the issued and outstanding common
stock of any Guarantor.
"Commitment": The Bank's obligation to make Loans to the Borrower
----------
pursuant to Article II in the amount or amounts referred to therein.
"Consolidated Interest Expense": For any period shall mean total
-----------------------------
interest expense (including amounts properly attributable to Capital Leases in
accordance with GAAP) of Borrower and its Subsidiaries on a consolidated basis
for such period determined in conformity with GAAP.
"Consolidated Tangible Net Worth": At any date of determination, the
-------------------------------
sum of the capital stock, additional paid-in capital, and retained earnings (or
minus accumulated deficit) of the Borrower and its Subsidiaries on a
consolidated basis, minus (i) treasury stock, and (ii) intangible assets
-----
(including, without limitation, franchises, patents, patent applications,
trademarks, brand names, goodwill, purchased contracts and deferred charges
(including unamortized debt discount and expense and organization costs)),
determined in conformity with GAAP.
2
<PAGE>
"Daily Balance": The amount of Loans and Letters of Credit owed at
-------------
the end of a given day.
"Dollars and $": Dollars in lawful currency of the United States of
-------------
America.
"EBITDA": For any period, the consolidated net income of Borrower and
------
its Subsidiaries before Consolidated Interest Expense and provision for income
taxes and without giving effect to any extraordinary gains and gains from sales
of assets (other than sales of inventory in the ordinary course of business),
for such period, adjusted by adding thereto the amount of (a) depreciation and
(b) amortization of intangibles, in each case to the extent deducted in arriving
at consolidated net income for such period.
"ERISA": The Employee Retirement Income Security Act of 1974, as
-----
amended to the date hereof and from time to time hereafter and any successor
statute.
"ERISA Affiliate": As applied to any Person, any trade or business
---------------
(whether or not incorporated) which is a member of a group of which that Person
is a member and which is under common control within the meaning of Section
414(b) and (c) of the Internal Revenue Code.
"Events of Default": Has the meaning set forth in Section 7.1.
-----------------
"Fixed Charge Coverage Ratio": As of the date of determination,
---------------------------
EBITDA, for the twelve month period preceeding the date of determination minus
-----
Capital Expenditures for the twelve month period preceeding the date of
determination (excluding Permitted Acquisitions), divided by the sum of (i)
----------
Consolidated Interest Expense for the preceding twelve month period preceding
the date of determination, (ii) cash dividends or other cash distributions on
the capital stock of the Borrower actually paid during the twelve month period
preceding the date of determination, (iii) the principal amount of all long-term
liabilities determined in accordance with GAAP including Capital Leases coming
due within the twelve month period following the date of determination, and (iv)
provision for income taxes for the twelve month period preceeding the date of
determination.
"GAAP": Generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession or any public commission having regulatory responsibility over the
Borrower or any Subsidiary.
"Guarantors": Any material Subsidiary of the Borrower, as determined
----------
by Bank, organized under the laws of the United States of America or any
political subdivision thereof.
"Indebtedness": Of any Person, without duplication:
------------
3
<PAGE>
(a) all indebtedness of such Person for borrowed money;
(b) all Obligations of such Person for the deferred purchase
price of property or services but excluding trade payables and accrued
expenses incurred in the ordinary course of business;
(c) all Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments but excluding trade payables
and accrued expenses incurred in the ordinary course of business;
(d) all Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though 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);
(e) all Obligations of such Person as lessee under Capital
Leases;
(f) all Obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities;
(g) all Indebtedness of others referred to in clauses (a) through
(f) above guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such
Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of such Indebtedness or to
assure the holder of such Indebtedness against loss, (iii) to supply
funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise
to assure a creditor against loss; and
(h) all Indebtedness referred to in clauses (a) through (f) above
secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness.
"Interest Rate Options": Has the meaning set forth in Section 2.4(b).
---------------------
"Internal Revenue Code": The Internal Revenue Code of 1986, as
---------------------
amended to the date hereof and from time to time hereafter and any successor
statute.
4
<PAGE>
"Letters of Credit": The trade or standby letters of credit which are
-----------------
from time to time issued or opened by Bank for the account of Borrower.
"Leverage Ratio": At any date of determination, the ratio of (a)
--------------
total liabilities of the Borrower and its Subsidiaries on a consolidated basis
at such date to (b) Consolidated Tangible Net Worth.
"Lien": Any lien, mortgage, deed of trust, pledge, security interest,
----
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"Libor Rate": For any day for any proposed or existing Rate Segment
----------
corresponding to a Rate Period shall mean the rate per annum determined by the
Bank to be the rate per annum obtained by dividing (the resulting quotient to be
rounded upward to the nearest 1/16 of 1%) (A) the rate of interest (which shall
be the same for each day in such Rate Period) estimated in good faith by the
Bank in accordance with its usual procedures (which determination shall be
conclusive) to be the average of the rates per annum for deposits in United
States dollars offered to major money center banks in the London interbank
market at approximately 11:00 a.m., London time, two London Business Days prior
to the first day of such Rate Period for delivery on the first day of such Rate
Period in amounts comparable to such Rate Segment (or, if there are no such
comparable amounts actively traded, the smallest amounts actively traded) and
have maturities comparable to such Rate Period by (B) a number equal to 1.00
minus the Libor Rate Reserve Percentage for such day.
The "Libor Rate" may also be expressed by the following formula:
----------
[average of rates offered to major
money banks in the London inter-
Libor Rate = bank market estimated by the Bank]
------------------------------------
[1.00 - Libor Rate Reserve Percentage]
"LIBOR Rate Option": Has the meaning set forth in Section 2.4(b).
-----------------
"Libor Rate Reserve Percentage": For any day shall mean the
-----------------------------
percentage (rounded upward to the nearest 1/16 of 1%), as determined in good
faith by the Bank (which determination shall be conclusive) as representing for
such day the maximum effective reserve requirement (including, without
limitation, supplemental, marginal and emergency requirements ) for member banks
of the Federal Reserve System with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of any maturity. Each Libor Rate
------------------------
shall be adjusted automatically as of the effective date of any change in the
Libor Rate Reserve Percentage.
"Loans": Loans made to the Borrower pursuant to Section 2.1.
-----
5
<PAGE>
"Loan Documents": This Agreement, the Note(s) and each guarantee,
--------------
including, but not limited to, the guaranties of the Guarantors, and other
document required by the Bank in connection with this Agreement and/or the
credit extended hereunder.
"London Business Day": A day for dealing in deposits in Dollars by
-------------------
and among banks in the London interbank market.
"Maturity Date": March 23, 1998.
-------------
"Note" and "Notes": The Revolving Note(s).
---- -----
"Obligation": With respect to any Person, any obligation of such
----------
Person of any kind, including, without limitation, any liability of such Person
on any claim, whether or not the right of any creditor to payment in respect of
such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured, and
whether or not such claim is discharged, stayed or otherwise affected by any
insolvency proceeding under the U.S. Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency law. Without limiting the generality of the
foregoing, the Obligations of the Borrower under the Loan Documents include (a)
the obligation to pay principal, interest, charges, expenses, fees, attorneys'
fees and disbursements, indemnities and other amounts payable by the Borrower
under any Loan Document and (b) the obligation to reimburse any amount in
respect of any of the foregoing that any Lender, in its sole discretion, may
elect to pay or advance on behalf of the Borrower.
"PBGC": The Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA.
"Permitted Acquisitions": Acquisitions, whether by merger or
----------------------
consolidation with any Person or the acquisition of all or substantially all of
the assets of any Person, of the Borrower and its Subsidiaries that meet all of
the following criteria: (i) the Borrower must be the surviving entity of any
such acquisition, (ii) the acquired business shall be engaged in the manufacture
or distribution of aftermarket collision replacement parts for automobiles and
light trucks, (iii) the Borrower shall be in pro-forma covenant compliance after
giving effect to the acquisition (including giving effect to the incurrence of
any debt associated with the acquisition) as of the most recently ended
reporting period, (iv) the acquired business, if acquired as an entity, must
have a positive net income for the trailing twelve months to the date of the
acquisition, (v) the Borrower shall not have acquired the business through a
hostile takeover or similar nonconsensual transaction, (vi) the total cash
consideration paid for any Permitted Acquisition (in a single transaction or in
a series of related transactions) shall not exceed $5,000,000; provided that the
--------
total cash consideration paid by Borrower for the acquisition of North Star
Plating Company shall not be included in determining Borrower's compliance with
the $5,000,000 maximum cash consideration to be paid for Permitted Acquisitions,
(vii) no Event of Default or Potential Event of Default would result from such
acquisition, and (viii) with respect to the acquisition by Borrower of North
Star Plating
6
<PAGE>
Company, the Bank shall have approved any Liens remaining on the assets of North
Star Plating Company after giving effect to the acquisition.
"Person": An individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
"Plan": Any employee pension benefit plan maintained or contributed
----
to by the Borrower or any ERISA Affiliate of the Borrower and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
"Portion": "Prime Rate Portion" shall mean at any time the part,
------- ------------------
including the whole, of the unpaid principal amount of the Note bearing interest
at such time under the Prime Rate Option, in accordance with the first sentence
of Section 2.4(d) hereof, or in accordance with Section 2.4(f) hereof. "Libor
-----
Rate Portion" shall mean at any time, the part, including the whole, of the
- ------------
unpaid principal amount of the Note bearing interest at such time under the
Libor Rate Option or in accordance with the second sentence of Section 2.4(d)
hereof.
"Potential Event of Default": A condition or event which, after
--------------------------
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable grace or cure
period.
"Prime Rate": The interest rate per annum announced from time to time
----------
by the Bank as its Prime Rate. The Prime Rate may be greater or less than other
interest rates charged by the Bank to other borrowers and is not solely based or
dependent upon the interest rate which the Bank may charge any particular
borrower or class of borrowers. Information concerning the Prime Rate may be
obtained from the Bank.
"Prime Rate Option": Has the meaning set forth in Section 2.4(b).
-----------------
"Rate Period": As defined in Section 2.4(c).
-----------
"Rate Segment": Of the Libor Rate Portion at any time shall mean the
------------
entire principal amount of such Portion to which at such time there is
applicable a particular Rate Period beginning on a particular day and ending on
another particular day. (By definition, each Portion is at all times composed
of an integral number of discrete Rate Segments, each corresponding to a
particular Rate Period, and the sum of the principal amounts of all Rate
Segments of a particular Portion at any time equals the principal amount of such
Portion at such time).
"Regulation G, T, U and X": Regulations G, T, U and X, respectively,
------------------------
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time, and any successors thereto.
7
<PAGE>
"Revolving Commitment": The amount of $25,000,000, as such amount may
--------------------
be reduced pursuant to Section 2.1(c); provided, however, $5,000,000 of the
-------- -------
Revolving Commitment amount shall be reserved to be made available by Bank to
the Borrower at such time and as needed to finance the acquisition by Borrower
of North Star Plating Company, such increased Revolving Commitment amount to
remain in effect thereafter upon the effectiveness of such acquisition.
"Revolving Loans": As defined in Section 2.1(a).
---------------
"Revolving Note": As defined in Section 2.1(d).
--------------
"S.E.C.": The United States Securities and Exchange Commission and
------
any successor institution or body which performs the functions or substantially
all of the functions thereof.
"Solvent": When used with respect to any Person, that as of the date
-------
as to which the Person's solvency is to be measured:
(i) the fair saleable value of its assets is in excess of the
total amount of its liabilities (including contingent
liabilities) as they become absolute and matured;
(ii) it has sufficient capital to conduct its business; and
(iii) it is able to meet its debts as they mature.
"Standard Notice": An irrevocable notice provided by the Borrower to
---------------
the Bank on a Business Day which is:
(i) at least the Business Day of the selection of, conversion to
or renewal of the Prime Rate Option or prepayment of any
Prime Rate Portion; and
(ii) at least three London Business Days in advance in the case
of selection of, conversion to or renewal of the Libor Rate
Option or prepayment of any Libor Rate Portion.
Standard Notice must be provided no later than 11:00 a.m., Los Angeles time, on
the last day permitted for such notice.
"Subsidiary": Of any Person means any corporation, partnership, joint
----------
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
8
<PAGE>
limited liability company or joint venture or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or controlled
by such Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries. References to a "wholly owned
Subsidiary" shall be deemed to include a Subsidiary that is wholly owned by such
Person except for directors or other qualifying shares.
"Total Indebtedness": All consolidated Indebtedness of the Borrower
------------------
and its Subsidiaries.
SECTION 1.2 Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms not defined in
subsection 1.1, and accounting terms partly defined in subsection 1.1 to the
extent not defined, shall have the respective meanings given to them under GAAP.
(c) 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, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
ARTICLE II
THE CREDIT
SECTION 2.1 The Revolving Loans.
-------------------
(a) The Revolving Commitment. The Bank agrees, on the terms and
------------------------
conditions hereinafter set forth, to make loans ("Revolving Loans") to the
---------------
Borrower from time to time during the period from the date hereof to and
including the Maturity Date in an aggregate amount not to exceed the Revolving
Commitment, as such amount may be reduced pursuant to Section 2.1(c). Each
borrowing under this Section (a "Borrowing") shall be in a minimum amount of
---------
$1.00; provided that every selection of, conversion to or renewal of the Libor
--------
Rate Option shall be in a minimum principal amount of $500,000 or an integral
multiple of $100,000 above such amount. Within the limits of the Revolving
Commitment and prior to the Maturity Date, the Borrower may borrow, repay
pursuant to Section 2.2(b) and reborrow under this Section.
9
<PAGE>
(b) Making the Revolving Loans. The Borrower may borrow under the
--------------------------
Revolving Commitment on any Business Day, provided that the Borrower shall give
the Bank Standard Notice specifying (i) the amount of the proposed Borrowing and
(ii) the requested date of the Borrowing. Upon satisfaction of the applicable
conditions set forth in Article IV, the proceeds of all such Loans will then be
made available to the Borrower by the Bank by crediting the account of the
Borrower on the books of the Bank, or as otherwise directed by the Borrower.
The Standard Notice may be given in writing (including facsimile
transmission) signed by one (1) authorized officer of the Borrower or orally,
but if the Standard Notice is provided orally, the Borrower shall confirm the
oral Standard Notice on the same day in writing (including facsimile
transmission) no later than 11:00 a.m., Los Angeles time, and any conflict
regarding a written or oral notice and the Bank's books and records applicable
to the same Borrowing shall be conclusively determined by the Bank's books and
records. The Bank shall not incur any liability to the Borrower in acting upon
any oral or written notice of Borrowing which the Bank believes in good faith to
have been given by a Person duly authorized to borrow on behalf of the Borrower.
(c) Reduction of the Revolving Commitment. The Borrower shall have
-------------------------------------
the right, upon at least two Business Days' notice to the Bank, to terminate in
whole or reduce permanently in part the unused portion of the Revolving
Commitment, without premium or penalty, provided that each partial reduction
shall be in the aggregate amount of One Million Dollars ($1,000,000) or an
integral multiple thereof and that such reduction shall not reduce the Revolving
Commitment to an amount less than the amount outstanding hereunder on the
effective date of the reduction. Such notice shall be irrevocable and such
reduction shall not be reinstated.
(d) Revolving Note. The Loans made by the Bank pursuant hereto shall
--------------
be evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit A, with any appropriate insertions (the "Revolving Note"), payable to
- --------- --------------
the order of the Bank and representing the obligation of the Borrower to pay the
aggregate unpaid principal amount of all Revolving Loans made by the Bank, with
interest thereon as prescribed in Section 2.4. The Bank is hereby authorized to
record in its books and records and on any schedule annexed to the Revolving
Note, the date and amount of each Revolving Loan made by the Bank, and the date
and amount of each payment of principal thereof, and in the case of Libor Rate
Option Loans, the Libor Rate, the Libor Rate Portion, and the Rate Period with
respect thereto, and any such recordation shall constitute prima facie evidence
----- -----
of the accuracy of the information so recorded; provided that failure by the
Bank to effect such recordation shall not affect the Borrower's obligations
hereunder.
SECTION 2.2 Letters of Credit.
-----------------
(a) Subject to, and upon the terms and conditions contained herein,
at the request of Borrower, Bank agrees to issue Letters of Credit for the
account of Borrower containing terms and conditions acceptable to Bank. Borrower
agrees to execute and deliver
10
<PAGE>
any Bank applications or other agreements or documents required by the Bank for
the issuance of a Letter of Credit.
(b) In addition to any charges, fees or expenses charged by Bank in
connection with the application for, issuance, administration, or amendment of
any Letters of Credit, Borrower shall pay to Bank (i) with respect to each
issued standby letter of credit, a letter of credit fee at a rate equal to one
percent (1%) per annum of the face amount, subject to a minimum charge of $500,
payable upon issuance, such fee calculated on the basis of a three hundred sixty
(360) day year and for the actual number of days of the term for which the
standby letter of credit is to be outstanding; and (ii) with respect to trade
letters of credit, the Bank's customary charges, payable upon Borrower's receipt
of the Bank's invoice for such charges. The Borrower's obligation to pay such
fees shall survive the termination or non-renewal of this Agreement.
(c) No Letters of Credit shall be available unless on the date of the
proposed issuance of any Letter of Credit, the Revolving Loans available to
Borrower (subject to the Revolving Commitment and any availability reserves) are
equal to or greater than one hundred percent (100%) of the face amount thereof
and all other commitments and obligations made or incurred by Bank with respect
thereto. Effective on the issuance of each Letter of Credit, the amount of
Revolving Loans which might otherwise be available to Borrower shall be reduced
by one hundred percent (100%) of the face amount of the Letter of Credit. Each
Letter of Credit shall have an expiry date no later than the Maturity Date and
all such Letters of Credit shall be in form and substance acceptable to Bank in
its sole discretion. If Bank is obligated to advance funds under a Letter of
Credit, Borrower shall immediately reimburse such amount to Bank and, in the
absence of such reimbursement, the amount so advanced immediately and
automatically shall be deemed to be an advance under Section 2.1(a) above and,
thereafter, shall bear interest as a Revolving Loan initially at the Prime Rate
Option.
(d) Except in Bank's discretion, the amount of all outstanding
Letters of Credit and all other commitments and obligations made or incurred by
Bank in connection therewith shall not at any time exceed Five Million Dollars
($5,000,000).
(e) Borrower shall indemnify and hold Bank harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses which Bank
may suffer or incur in connection with any Letter of Credit and any documents,
drafts or acceptances relating thereto, including, but not limited to, any
losses, claims, damages, liabilities, costs and expenses due to any action taken
by any issuer or correspondent with respect to any Letter of Credit. Borrower
assumes all risks with respect to the acts or omissions of the drawer under or
beneficiary of any Letter of Credit and for such purposes the drawer or
beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for,
and agrees to pay, all foreign, Federal, State and local taxes, duties and
levies relating to any goods subject to any Letter of Credit or any documents,
drafts or acceptances thereunder. Borrower hereby releases and holds Bank
harmless from and against any acts, waivers, errors, delays or omissions,
whether caused by Borrower, by any correspondent or otherwise with respect to or
relating to any Letter of Credit. The provisions of this Section 2.2(e) shall
survive the payment of
11
<PAGE>
Obligations and the termination or non-renewal of this Agreement. Bank agrees to
provide Borrower written notice of any event giving rise to Borrower's indemnity
obligation hereunder, but Bank shall not be liable to Borrower or any third
party for any failure to provide such notice to Borrower.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Bank in any manner.
Borrower shall be bound by any interpretation made in good faith by Bank, absent
gross negligence, or any correspondent under or in connection with any Letter of
Credit or any documents, drafts or acceptances thereunder, notwithstanding that
such interpretation may be inconsistent with any instructions of Borrower. Bank
shall have the sole and exclusive right and authority to, and Borrower shall
not: (i) at any time an Event of Default or Potential Event of Default exists or
has occurred and is continuing, (A) approve or resolve any questions of non-
compliance of documents, (B) give any instructions as to acceptance or rejection
of any documents or goods or (C) execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders, and (ii) at all times, (A)
grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letters of Credit, or
documents, drafts or acceptances thereunder. Bank may take such actions either
in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken
by Borrower to any correspondent in any application for any Letter of Credit, or
any other agreement in favor of any correspondent relating to any Letter of
Credit, shall be deemed to have been granted or undertaken by Borrower to Bank.
Any duties or obligations undertaken by Bank to any issuer or correspondent in
any application for any Letter of Credit, or any other agreement by Bank in
favor of any correspondent relating to any Letter of Credit, shall be deemed to
have been undertaken by Borrower to Bank and to apply in all respects to
Borrower.
(h) Any and all charges, commission, fees, and costs incurred by Bank
relating to the Letters of Credit shall be considered Bank expenses under
Section 8.5 hereof and immediately reimbursable by Borrower to Bank.
(i) Immediately upon the termination of this Agreement, Borrower
agrees to either (i) provide cash collateral to be held by Bank in an amount
equal to 102% of the maximum amount of Bank's obligations under outstanding
Letters of Credit, or (ii) cause to be delivered to Bank releases of all of
Bank's obligations under outstanding Letters of Credit. At any time an Event of
Default or Potential Event of Default exists or has occurred and is continuing,
upon Bank's request, Borrower will either furnish cash collateral to Bank for
the Letters of Credit, and the Revolving Loans otherwise available to Borrower
shall not be reduced as provided in Section 2.2(c) to the extent of such cash
collateral. At Bank's discretion, any proceeds of Collateral received by Bank
after the occurrence and during the
12
<PAGE>
continuation of an Event of Default or Potential Event of Default may be held as
the cash collateral required by this Section 2.2(i).
(j) If by reason of (i) any change in any applicable law, treaty,
rule, or regulation or any change in the interpretation or application by any
governmental authority of any such applicable law, treaty, rule, or regulation,
or (ii) compliance by Bank with any direction, request, or requirement
(irrespective of whether having the force of law) of any governmental authority
or monetary authority including, without limitation, Regulation D of the Board
of Governors of the Federal Reserve System as from time to time in effect (and
any successor thereto):
(A) any reserve, deposit, or similar requirement is or shall be
imposed or modified in respect of any Letters of Credit issued hereunder, or
(B) there shall be imposed on Bank any other condition regarding
any letter of credit, or Letter of Credit, as applicable, issued pursuant
thereto; and the result of the foregoing is to increase, directly or indirectly,
the cost to the Bank of issuing, making, or maintaining any Letter of Credit, or
to reduce the amount receivable in respect thereof by Bank, then, and in any
such case, Bank may, at any time within a reasonable period after the additional
cost is incurred or the amount received is reduced, notify Borrower, and
Borrower shall pay on demand such amounts as the Bank may specify to be
necessary to compensate the Bank for such additional cost or reduced receipt,
together with interest on such amount from the date of such demand until payment
in full thereof at the Prime Rate Option. The determination by the Bank, as the
case may be, of any amount due pursuant to this Section (j), as set forth in a
certificate setting forth the calculation thereof in reasonable detail, shall,
in the absence of manifest or demonstrable error, be final and conclusive and
binding on all of the parties hereto.
SECTION 2.3 Repayment.
---------
(a) Mandatory Repayments. The aggregate principal amount of the
--------------------
Revolving Loans outstanding on the Maturity Date, together with accrued interest
thereon, shall be due and payable in full on the Maturity Date. If at any time
the aggregate outstanding Borrowings exceed the Revolving Commitment then in
effect, the Borrower shall immediately repay the excess to the Bank.
(b) Optional Payment. The Borrower shall have the right at its option
----------------
from time to time to prepay the Prime Rate Portion in whole or in part without
premium or penalty. The Borrower shall have the right to prepay the Libor Rate
Portion in whole or in part subject to Borrower's reimbursement of Lender's
funding losses, if any, resulting from such prepayment under Section 3.6(b)
hereof. Prepayments shall be made by giving the Bank Standard Notice thereof
(which shall be irrevocable), specifying the date, and amount and type of
prepayment, and upon such date the amount so specified, accrued interest
thereon, and any amounts payable under Section 3.6(b) hereof shall be due and
payable.
13
<PAGE>
SECTION 2.4 Interest Rate and Payment Dates.
-------------------------------
(a) Payment. The principal balance of the Note shall be paid in
-------
accordance with the terms set forth in the Note. Accrued interest on the Prime
Rate Portion shall be due and payable on the last Business Day of each month
commencing on April 30, 1997. Interest on each Rate Segment of the Libor Rate
Portion shall be due and payable on the last day of the corresponding Rate
Period. Interest on each Rate Segment of the Libor Rate Portion which has a
Rate Period equal to or less than three months shall be due and payable on the
last day of the corresponding Rate Period. Interest on each Rate Segment of the
Libor Rate Portion which has a Rate Period greater than three months shall be
due and payable on the third and sixth month anniversary date of the first day
of the corresponding Rate Period, if any, and on the last day of the
corresponding Rate Period. After maturity of any part of a Note (by
acceleration or otherwise), interest on such part of the Note shall be due and
payable ON DEMAND.
(b) Interest Rate. The unpaid principal amount of the Note shall bear
-------------
interest for each day until due on one or more bases selected by the Borrower
from among the interest rate options (the "Interest Rate Options") set forth
---------------------
below. The Borrower understands and agrees that, subject to the provisions
hereof, the Borrower may select any number of Interest Rate Options to apply
simultaneously to different parts of the unpaid principal amount of the Note and
may select any number of Rate Segments to apply simultaneously to different
parts of the Libor Rate Portion.
Available Interest Rate Options
-------------------------------
Prime Rate Option: A rate per annum for each day equal to the Prime Rate plus
- -----------------
the Applicable Margin.
Libor Rate Option: A rate per annum for each day equal to the Libor Rate for
- -----------------
such day plus the Applicable Margin.
(c) Rate Periods. At any time the Borrower selects, converts to or
------------
renews the Libor Rate Option, the Borrower shall fix a period (the "Rate
----
Period") which shall be one, two, three or six months, which shall be acceptable
to the Bank in the Bank's sole discretion, during which the Libor Rate Option
shall apply to the corresponding Rate Segment; provided, that the Borrower may
--------
not elect a Rate Period which will end after the Maturity Date. The Bank's
right to payment of principal and interest under the Note shall in no way be
affected by the fact that one or more Rate Periods may be in effect.
(d) Default Rate of Interest. All Loans hereunder with accrued
------------------------
interest thereon, regardless of the Rate Option, and all other amounts owing
under the Loan Documents shall bear interest at a rate equal to 2% above the
applicable Interest Rate Option from and after the occurrence and during the
continuance of an Event of Default.
14
<PAGE>
(e) Selection, Conversion or Renewal of Rate Options. Subject to the
------------------------------------------------
other provisions hereof, the Borrower may select any Interest Rate Option to
apply to the borrowings evidenced by the Note. Subject to the other provisions
hereof, the Borrower may convert any part of the unpaid principal amount of the
Note from any Interest Rate Option to the other Interest Rate Option: (a) at
any time with respect to the conversion from the Prime Rate Option to the Libor
Rate Option and (b) at the expiration of any Rate Period with respect to
conversion from or renewals of the Libor Rate Option as to the Rate Segment
corresponding to such expiring Rate Period. Whenever the Borrower desires to
select, convert or renew the Libor Rate Option, the Borrower shall give the Bank
Standard Notice thereof (which shall be irrevocable), specifying the date,
amount and type of the proposed new Rate Option. If such notice has been duly
given, and if the Bank in its sole discretion approves the proposed selection,
conversion or renewal, on and after the date specified in such notice, interest
shall be calculated upon the unpaid principal amount of the Note taking into
account such selection, conversion or renewal.
(f) Prime Rate Fallback. If any Rate Period expires, any part of the
-------------------
Rate Segment corresponding to such Rate Period which has not been converted or
renewed in accordance with Section 2.4(e) hereof automatically shall be
converted to the Prime Rate Option. If the Borrower fails to select, or if the
Bank fails to approve an Interest Rate Option to apply to the borrowings
evidenced by the Note, such borrowings shall be deemed to be at the Prime Rate
Option. If at any time the Bank shall have determined in good faith (which
determination shall be conclusive) that the accrual of interest at the Libor
Rate Option has been made unascertainable, impractical or unlawful by compliance
by the Bank in good faith with any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of any government or political subdivision or any agency, authority,
bureau, central bank, commission, department or instrumentality of either, or
any court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic, or administration thereof by any official body charged with the
interpretation or administration thereof or with any request or directive of any
such event, the outstanding principal amount of the Note subject to the Libor
Rate Option shall accrue interest at the Prime Rate Option and the Borrower
shall not have the right to select the Libor Rate Option.
SECTION 2.5 Commitment Fee. The Borrower shall pay to the Bank on
--------------
the dates set forth in the following sentence, a fee (the "Commitment Fee") in
--------------
an amount equal to one-eight of one percent (.125%) per annum times the Average
Unused Portion of the Revolving Commitment. The Borrower shall pay the
Commitment Fee to the Bank quarterly in arrears, commencing on the last Business
Day of June 1997 and continuing on the last Business Day of each three-month
period ending thereafter during the term of this Agreement, and on the Maturity
Date.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
15
<PAGE>
SECTION 3.1 Use of Proceeds. The proceeds of the Loans hereunder
---------------
shall be initially used by Borrower to repay Borrower's existing Indebtedness
with Union Bank of California and to refinance any Indebtedness assumed by the
Borrower upon the acquisition of North Star Plating Company. The remaining
balance of Loan proceeds shall be used from time to time for (i) general working
capital and corporate purposes, and (ii) Permitted Acquisitions and related
expenses.
SECTION 3.2 Computation of Interest and Fees.
--------------------------------
(a) Calculations. Interest in respect of the Prime Rate Option Loans
------------
shall be calculated on the basis of a 360 day year for the actual days elapsed.
Any change in the interest rate on a Prime Rate Loan resulting from a change in
the Prime Rate shall become effective as of the opening of business on the day
on which such change in the Prime Rate shall become effective. Interest in
respect of the Libor Rate Option Loans, and any fees payable hereunder, shall be
calculated on the basis of a 360 day year for the actual days elapsed.
(b) Determination by Bank. Each determination of an interest rate or
---------------------
fee by the Bank pursuant to any provision of this Agreement shall be conclusive
and binding on the Borrower in the absence of manifest error.
SECTION 3.3 Payments. The Borrower shall make each payment of
--------
principal, interest and fees hereunder and under the Notes, without setoff or
counterclaim, not later than 11:00 a.m. (Los Angeles time) on the day when due
in lawful money of the United States of America to the Bank at the office of the
Bank designated in writing in immediately available funds.
SECTION 3.4 Payment on Non-Business Days. Whenever any payment to be
----------------------------
made hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
SECTION 3.5 Reduced Return. If the Bank shall have determined that
--------------
any applicable law, regulation, rule or regulatory requirement generally
applicable to banks located in California and Pennsylvania (collectively in this
Section 3.5, "Requirement" regarding capital adequacy, or any change therein, or
-----------
any change in the interpretation or administration thereof by any United States
federal or state governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's capital as a consequence of its Commitments and obligations hereunder to
a level below that which would have been achieved but for such Requirement,
change or compliance (taking into consideration the Bank's policies with respect
to capital adequacy) by an amount deemed by the Bank to be material (which
amount shall be
16
<PAGE>
determined by the Bank's reasonable allocation of the aggregate of such
reductions resulting from such events), then from time to time, within five (5)
Business Days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts as will compensate the Bank for such reduction. The
Bank does not presently have knowledge of any new Requirement or any pending
change in any existing Requirement which would result in such additional amounts
being owed.
SECTION 3.6 Indemnities and Losses.
----------------------
(a) Indemnities. Whether or not the transactions contemplated hereby
-----------
shall be consummated, the Borrower agrees to indemnify, pay and hold the Bank,
and the shareholders, officers, directors, employees and agents of the Bank
(each, an "Indemnified Person"), harmless from and against any and all claims,
-------------------
liabilities, losses, damages, costs and expenses (whether or not any of the
foregoing Indemnified Persons is a party to any litigation), including, without
limitation, reasonable attorneys' fees and costs (including, without limitation,
the reasonable estimate of the allocated cost of in-house legal counsel and
staff) and costs of investigation, document production, attendance at a
deposition, or other discovery, prior to the assumption of defense by the
Borrower, with respect to or arising out of any proposed acquisition by the
Borrower or any of its Subsidiaries of any Person or any securities (including a
self-tender), this Agreement or any use of proceeds hereunder, or any claim,
demand, action or cause of action being asserted against the Borrower or any of
its Subsidiaries (collectively, the "Indemnified Liabilities"), provided that
-----------------------
the Borrower shall have no obligation hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of any such
Indemnified Persons. If any claim is made, or any action, suit or proceeding is
brought, against any Indemnified Person pursuant to this Section, the
Indemnified Person shall notify the Borrower within thirty (30) days of the
Bank's being notified in writing of the commencement of such action, suit or
proceeding, and the Borrower will assume the defense of such action, suit or
proceeding, employing counsel selected by the Borrower and reasonably
satisfactory to the Indemnified Person, and pay the fees and expenses of such
counsel. This covenant shall survive termination of this Agreement and payment
of the outstanding Notes for a period of six (6) years.
(b) Funding Losses. The Borrower agrees to indemnify the Bank and to
--------------
hold the Bank harmless from any loss or expense, including, but not limited to,
any such loss or expense arising from interest or fees payable by the Bank to
lenders of funds obtained by it in order to maintain its Libor Rate Option Loans
hereunder, which the Bank may sustain or incur as a consequence of (i) payment,
prepayment or conversion of any part of any Rate Segment of the Libor Rate
Portion on a day other than the last day of the corresponding Rate Period
(whether or not any such payment is pursuant to demand by the Bank under the
Note and whether or not any such payment, prepayment or conversion is consented
to by the Bank, unless the Bank shall have expressly waived such indemnity in
writing); (ii) default by the Borrower in making a conversion or continuation
after the Borrower has given a notice thereof, (iii) default by the Borrower in
making any payment after the Borrower has given a notice of payment, (iv)
attempt by Borrower to revoke in whole or part any irrevocable notice given
pursuant to Section 2.4(e) hereof; or (v) breach of or default by any obligor in
the
17
<PAGE>
performance or observance of any covenant or condition in the Note, any separate
security, guarantee or suretyship agreement between the Bank and any obligor, or
any other document executed and delivered to the Bank by any obligor in
connection with the indebtedness evidenced by the Note. If the Bank sustains any
such loss or expense, it shall from time to time notify the Borrower of the
amount determined in good faith by the Bank (which determination shall be
conclusive) to be necessary to indemnify the Bank for such loss or expense. Such
amount shall be due and payable by the Borrower ON DEMAND. This covenant shall
survive termination of this Agreement and payment of the outstanding Notes.
SECTION 3.7 Requirements of Law. In the event that any law,
-------------------
regulation or directive generally applicable to banks located in California or
Pennsylvania or any change therein or in the interpretation or application
thereof or compliance by the Bank with any request or directive (whether or not
having the force of law) from any United States federal or state central bank or
other governmental authority, agency or instrumentality:
(a) does or shall impose, modify or hold applicable any reserve,
assessment rate, special deposit, compulsory loan or other requirement
(collectively in this Section 3.7 "Requirements") against assets held by, or
------------
deposits or other liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by, any office of
the Bank which are not otherwise included in the determination of any Libor Rate
at the last Borrowing, conversion or continuation date of a Loan;
(b) does or shall impose, modify or hold applicable any of the
Requirements against Commitments to extend credit;
(c) does or shall impose on the Bank any other condition; and the
result of any of the foregoing is to increase the cost to the Bank of making,
renewing or maintaining its Revolving Commitment, or the Libor Rate Option Loans
or to reduce any amount receivable thereunder (which increase or reduction shall
be determined by the Bank's reasonable allocation of the aggregate of such cost
increases or reduced amounts receivable resulting from such events), then, in
any such case, the Borrower shall pay to the Bank, within five (5) Business Days
of its demand, any additional amounts necessary to compensate the Bank for such
additional cost or reduced amount receivable as determined by the Bank with
respect to Sections 3.5 and 3.7 of this Agreement. If the Bank becomes entitled
to claim any additional amounts pursuant to this subsection, it shall notify the
Borrower of the event by reason of which it has become so entitled. Such notice
shall contain a statement incorporating the calculation as to any additional
amounts payable pursuant to the foregoing sentence, and such statement submitted
by the Bank to the Borrower shall be conclusive in the absence of manifest
error. The Bank does not presently have knowledge of any new Requirement or any
pending change in any existing Requirement which would result in such additional
amounts being owed.
18
<PAGE>
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.1 Conditions Precedent to Initial Loans. The obligation of
-------------------------------------
the Bank to make its initial Loan is subject to the conditions precedent that:
(a) The Bank shall have received on or before the day of the initial
Borrowing the following, each dated prior to or as of such day, in form and
substance satisfactory to the Bank:
(i) The Note(s) issued by the Borrower to the order of the
Bank;
(ii) Copies of the Articles of Incorporation, partnership
agreement or other organizational document of the Borrower, certified as of a
recent date by the Secretary of State of its state of formation or
incorporation;
(iii) Copies of the Bylaws, if any, of the Borrower,
certified by the Secretary or an Assistant Secretary of the Borrower;
(iv) Copies of resolutions of the Board of Directors or
other authorizing documents of the Borrower, in form and substance satisfactory
to the Bank, approving the Loan Documents and the Borrowings hereunder;
(v) An incumbency certificate executed by the Secretary or
an Assistant Secretary of the Borrower, or equivalent document, certifying the
names and signatures of the officers of the Borrower or other Persons authorized
to sign the Loan Documents and the other documents to be delivered hereunder;
(vi) An executed original of all Loan Documents;
(b) The Bank shall have completed its due diligence review of the
Borrower, and the scope and results thereof shall be satisfactory to the Bank in
its discretion;
(c) All fees required to be paid at closing shall have been paid;
(d) The Bank shall have received an opinion of counsel to the
Borrower and the Guarantors in form and substance acceptable to the Bank and its
counsel;
(e) No material adverse change shall have occurred since December 27,
1996 in the business, assets, operations, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries, taken as a whole, or in the
facts and information regarding such entities represented by the Borrower to the
Bank as of such date;
19
<PAGE>
(f) No action, suit, investigation or proceeding shall have been
pending or threatened in any court or before any arbitration or governmental
authority that purports to affect the Borrower, any of its Subsidiaries or the
Loans contemplated hereby, or that could have a material adverse effect on the
Borrower or any of its Subsidiaries or the Loans contemplated hereby, or on the
ability of the Borrower and its Subsidiaries to perform their obligations under
the Loan Documents;
(g) The Borrower and its Subsidiaries shall have been in compliance
with all of their existing financial obligations;
(h) All information previously furnished by the Borrower to the Bank
shall be true and correct in all material respects;
(i) With the exception of Liens permitted under Section 6.2(e)
hereof, the Bank shall have received searches reflecting their release of all
other financing statements and fixture filings including, but not limited to,
those that may have been filed by Union Bank of California; and
(j) All corporate and legal proceedings and all instruments and
documents in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in content, form and substance to the Bank and
its counsel, and the Bank and such counsel shall have received any and all
further information and documents which the Bank or such counsel may reasonably
have requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.
SECTION 4.2 Conditions Precedent to Each Borrowing. The obligation
--------------------------------------
of the Bank to make a Loan on the occasion of each Borrowing (including the
initial Borrowing) shall be subject to the further conditions precedent that on
the date of such Borrowing (a) the following statements shall be true and the
Bank shall have received the notice required by Section 2.1(b), which notice
shall be deemed to be a certification by the Borrower that:
(i) The material representations and warranties contained in
Section 5.1 are correct on and as of the date of such Borrowing as
though made on and as of such date;
(ii) No event has occurred and is continuing, or would result
from such Borrowing, which constitutes an Event of Default or
Potential Event of Default;
(iii) Nothing shall have occurred and the Bank shall not have
become aware of any fact or condition not previously known, which the
Bank shall determine has, or could reasonably be expected to have, a
material adverse effect on the rights or remedies of the Bank, or on
the ability of the Borrower to perform its obligations to the Bank or
which has, or could
20
<PAGE>
reasonably be expected to have, a materially adverse effect on the
performance, business, property, assets, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as
a whole; and
(iv) The security interests and liens in favor of the Bank are valid,
enforceable, and prior to all others' rights and interests, except
those the Bank consents to in writing; and
(v) All Loan Documents are in full force and effect;
and (b) the Bank shall have received such other approvals, opinions or documents
as the Bank may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties. The Borrower represents
------------------------------
and warrants as follows:
(a) Organization. The Borrower and each of its Subsidiaries is duly
------------
organized, validly existing and in good standing under the laws of the state of
its incorporation. The Borrower and each of its Subsidiaries is also duly
authorized, qualified and licensed in all applicable jurisdictions, and under
all applicable laws, regulations, ordinances or orders of public authorities, to
carry on its business in the locations and in the manner presently conducted
except where the failure to do so would not cause a material adverse effect.
(b) Authorization. The execution, delivery and performance by the
-------------
Borrower of the Loan Documents, and the making of Borrowings hereunder, are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) the Borrower's charter, by-
laws or other organizational document or (ii) any law or regulation (including
Regulations G, T, U and X) binding on or affecting the Borrower or its
properties, and will not constitute an event of default under any material
agreement to which the Borrower is a party or by which its assets or properties
may be bound.
(c) Governmental Consents. No authorization or approval or other
---------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body (except routine reports required pursuant to the Securities
Exchange Act of 1934, as amended (if such act is applicable to the Borrower),
which reports will be made in the ordinary course of business) is required for
the due execution, delivery and performance by the Borrower of the Loan
Documents.
21
<PAGE>
(d) Validity. The Loan Documents are the binding obligations of the
--------
Borrower or other executing Person, if any, enforceable in accordance with their
respective terms.
(e) Financial Condition. The balance sheets of the Borrower and its
-------------------
consolidated Subsidiaries as of March 29, 1996 and December 27, 1996, and the
related statements of income and retained earnings of the Borrower and its
consolidated Subsidiaries, respectively, for the fiscal year and for the fiscal
nine months then ended, copies of which have been furnished to the Bank, fairly
present the financial condition of the Borrower and its consolidated
Subsidiaries as at such dates and the results of the operations of the Borrower
and its consolidated Subsidiaries for the respective periods ended on such
dates, all in accordance with GAAP, consistently applied, and since December 27,
1996, there has been no material adverse change in the business, operations,
properties, assets or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole.
(f) Litigation. Except as set forth on Schedule 5.1(f) hereto, there
----------
is no known pending or threatened action or proceeding affecting the Borrower or
any of its Subsidiaries before any court, governmental agency or arbitrator,
which may materially and adversely affect the consolidated financial condition
or operations of the Borrower or which may have a material adverse effect on the
Borrower's ability to perform its obligations under the Loan Documents, having
regard for its other financial obligations.
(g) Employee Benefit Plans. The Borrower and each of its ERISA
----------------------
Affiliates has fulfilled its obligations, if any, under the minimum funding
standards of ERISA and the Internal Revenue Code with respect to each Plan and
is in compliance in all material respects with the applicable provisions of
ERISA and the Internal Revenue Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA. No reportable event has occurred
under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. No
action by the Borrower or of any ERISA Affiliate of the Borrower to terminate or
withdraw from any Plan has been taken and no notice of intent to terminate a
Plan has been filed under Section 4041 of ERISA. No proceeding has been
commenced with respect to a Plan under Section 4042 of ERISA, and no event has
occurred or condition exists which might constitute grounds for the commencement
of such a proceeding.
(h) Disclosure. No representation or warranty of the Borrower
----------
contained in this Agreement or any other document, certificate or written
statement furnished to the Bank by or on behalf of the Borrower for use in
connection with the transactions contemplated by this Agreement contains any
known untrue statement of a material fact or omits to state a known material
fact (known to the Borrower in the case of any document not furnished by it)
necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to the Borrower (other than matters of a
general economic nature) which materially and adversely affects the business,
operations, property, assets or condition (financial or otherwise) of the
Borrower and its Subsidiaries, taken as a whole, which has not been disclosed
herein or in such other documents, certificates and statements furnished to the
Bank for use in connection with the transactions contemplated hereby.
22
<PAGE>
(i) Environmental Matters. Except as set forth in Schedule 5.1(i)
---------------------
hereto, neither the Borrower nor any Subsidiary, nor any of their respective
officers, employees, representatives or agents, nor, to the best of their
knowledge, any other person, has treated, stored, processed, discharged,
spilled, or otherwise disposed of any substance defined as hazardous or toxic by
any applicable federal, state or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at any real property or any other
facility owned, leased or used by the Borrower or any Subsidiary, in violation
of any applicable statutes, regulations, ordinances or directives of any
governmental authority or court, which violations may result in liability to the
Borrower or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $100,000 for all
such violations; and the unresolved violations set forth in said Schedule 5.1(i)
will not result in liability to the Borrower or any Subsidiary or any of their
respective officers, employees, representatives, agents or shareholders in an
amount exceeding $100,000 for all such unresolved violations. Except as set
forth in said Schedule, no employee or other person has made a claim or demand
against the Borrower or any Subsidiary based on alleged damage to health caused
by any such hazardous or toxic substance or by any waste or by-product thereof;
and the unsatisfied claims or demands against the Borrower or any Subsidiary set
forth in said Schedule 5.1(i) will not result in uninsured liability to the
Borrower or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $100,000 in
excess of reserves on the books of the Borrower for all such unsatisfied claims
or demands. Except as set forth in said Schedule 5.1(i), neither the Borrower
nor any Subsidiary has been charged by any governmental authority with
improperly using, handling, storing, discharging or disposing of any such
hazardous or toxic substance or waste or by-product thereof or with causing or
permitting any pollution of any body of water; and the outstanding related
charges set forth in said Schedule 5.1(i) will not result in liability to the
Borrower or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $100,000 for all
such outstanding charges.
(j) Employee Matters. There is no known strike or work stoppage in
----------------
existence or threatened involving the Borrower or its Subsidiaries that may
materially and adversely affect the consolidated financial condition or
operations of the Borrower or that may have a material adverse effect on the
Borrower's ability to perform its obligations under the Loan Documents.
(k) Solvency. The Borrower and each of its Subsidiaries is Solvent.
--------
(l) Title to Properties. The Borrower and each of its Subsidiaries
-------------------
has good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind except those permitted under Section 6.2(e) hereof.
(m) Tax Returns. The Borrower and each of its Subsidiaries has filed
-----------
or caused to be filed, in a timely manner all tax returns, reports and
declarations which are required to be filed by it (without requests for
extension except as previously disclosed in writing to the Bank). All
information in such tax returns, reports and declarations is complete
23
<PAGE>
and accurate in all material respects. The Borrower and each of its Subsidiaries
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to the Borrower or its Subsidiary and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
(n) Compliance with Other Agreements and Applicable Laws. Neither
----------------------------------------------------
Borrower nor any of its Subsidiaries is in default in any material respect
under, or in violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound and Borrower and each of its
Subsidiaries is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
ARTICLE VI
COVENANTS
SECTION 6.1 Affirmative Covenants. So long as any Note shall remain
---------------------
unpaid or the Bank shall have any Commitment hereunder, the Borrower will,
unless the Bank shall otherwise consent in writing:
(a) Financial Information. Furnish to the Bank:
---------------------
(i) as soon as available, but in any event within 120 days
after the end of each fiscal year of the Borrower, (A) a copy of the
Borrower's audited consolidated balance sheet of itself and its
consolidated Subsidiaries as at the end of each fiscal year and the
related audited consolidated statements of income and retained
earnings (or comparable statement) employed in the business and
changes in financial position and cash flow for such year, setting
forth in each case in comparative form the figures for the previous
year, accompanied by an unqualified report and opinion thereon of
independent certified public accountants acceptable to the Bank, and,
if prepared, such accountants' letter to management, and (B) a copy of
the Borrower-prepared consolidating balance sheet, income statement
and cash flow prepared in connection with the statement provided in
subpart (A) above;
(ii) as soon as available, but in any event within 45 days
after the end of each fiscal quarter, the Borrower's unaudited
consolidated and consolidating balance sheets of itself and its
consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated and consolidating statements of income and
retained earnings (or comparable statement) and changes in financial
24
<PAGE>
position and cash flow for such period and year to date, setting forth
in each case in comparative form the figures as at the end of the
previous fiscal year as to the balance sheet and the figures for the
previous corresponding period as to the other statements, certified by
the Vice President - Finance or the Treasurer of the Borrower as being
fairly stated in all material respects subject to year end
adjustments; all such financial statements to be complete and correct
in all material respects and to be prepared in reasonable detail
acceptable to the Bank and in accordance with GAAP applied
consistently throughout the periods reflected therein (except as
approved by such accountants and disclosed therein); and
(iii) as soon as available, copies of all reports which the
Borrower sends to any of its security holders, and copies of all
reports and registration statements which the Borrower or any
Subsidiary files with the S.E.C. or any national securities exchange,
if any; and
(iv) (a) together with each delivery of financial statements
of Borrower and its Subsidiaries pursuant to subdivision (i) above, a
certificate, executed by the Vice President - Finance or the Treasurer
of the Borrower stating that such officer has reviewed the terms of
this Agreement and has made, or caused to be made under his
supervision, a review in reasonable detail of the transactions and
condition of the Borrower and its Subsidiaries during the accounting
period covered by such financial statements and that such review has
not disclosed the existence during or at the end of such accounting
period, and that such officer does not have knowledge of the existence
as at the date of such certificate, of any condition or event that
constitutes an Event of Default or Potential Event of Default, or, if
any such condition or event existed or exists, specifying the nature
and period of existence thereof and what action the Borrower has
taken, is taking and proposes to take with respect thereto; and (b)
together with each delivery of financial statements of the Borrower
and its Subsidiaries pursuant to subdivision (i) and (ii) above, a
certificate demonstrating in reasonable detail compliance during and
at the end of the applicable accounting periods with the restrictions
contained in Section 6.2 hereof.
(b) Notices and Information. Deliver to the Bank:
-----------------------
(i) promptly upon any officer of the Borrower obtaining
knowledge (a) of any condition or event which constitutes an Event of
Default or Potential Event of Default, (b) that any Person has given
any notice to the Borrower or any Subsidiary of the Borrower or taken
any other action with respect to a claimed default or event or
condition of the type referred to in Section 7.1(e), (c) of the
institution of any litigation involving an alleged liability
(including possible forfeiture of property) of the Borrower or any of
its Subsidiaries equal to or greater than $1,000,000 or any adverse
determination in any litigation
25
<PAGE>
involving a potential liability of the Borrower or any
of its Subsidiaries equal to or greater than $100,000, or (d) of a
material adverse change in the business, operations, properties,
assets or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole, an officer's certificate specifying
the nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person
and the nature of such claimed default, Event of Default, Potential
Event of Default, event or condition, and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
(ii) promptly upon becoming aware of the occurrence of or
forthcoming occurrence of (a) any reportable event under Section
4043(b) of ERISA for which the PBGC requires 30 day notice, (b) any
action by the Borrower or any ERISA Affiliate of the Borrower to
terminate or withdraw from a Plan or the filing of any notice of
intent to terminate under Section 4041 of ERISA, (c) any notice of
noncompliance made with respect to a Plan under Section 4041(b) of
ERISA, and (d) the commencement of any proceeding with respect to a
Plan under Section 4042 of ERISA;
(iii) promptly, and in any event within 30 days after receipt
thereof, a copy of any notice, summons, citation, directive, letter or
other form of communication from any governmental authority or court
in any way concerning any action or omission on the part of the
Borrower or any of its Subsidiaries in connection with any substance
defined as toxic or hazardous by any applicable federal, state or
local law, rule, regulation, order or directive or any waste or
byproduct thereof, or concerning the filing of a lien upon, against or
in connection with the Borrower, its Subsidiaries, or any of their
leased or owned real or personal property, in connection with a
Hazardous Substance Superfund or a Post-Closure Liability Fund as
maintained pursuant to (S) 9507 of the Internal Revenue Code; and
(iv) promptly upon the Bank's request, such other
statements, lists of property and accounts, budgets, forecasts or
reports as to the Borrower and its Subsidiaries as the Bank may
reasonably request.
(c) Corporate Existence, Etc. At all times preserve and keep in full
-------------------------
force and effect its and its Subsidiaries' corporate existence and rights and
franchises material to its business and those of each of its Subsidiaries.
(d) Payment of Taxes and Claims. Pay, and cause each of its
---------------------------
Subsidiaries to pay, taxes, assessments and other governmental charges imposed
upon it or any of its properties or assets or in respect of any of its
franchises, business, income or property before any penalty or interest accrues
thereon, and all claims (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 upon any of its properties or assets,
prior to the time
26
<PAGE>
when any penalty or fine shall be incurred with respect thereto; provided that
no such charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if such
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor.
(e) Maintenance of Properties; Insurance. Maintain or cause to be
------------------------------------
maintained in good repair, working order and condition all material properties
used or useful in the business of the Borrower and its Subsidiaries and from
time to time will make or cause to be made all appropriate repairs, renewals and
replacements thereof. The Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and business of its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other corporations. The Borrower will
comply with any other insurance requirement set forth in any other Loan Document
and, upon the request of the Bank, deliver to the Bank a copy of each insurance
policy, or, if permitted by the Bank, a certificate of insurance listing all
insurance in force.
(f) Inspection. Permit any authorized representatives designated by
----------
the Bank to visit and inspect any of the properties of the Borrower or any of
its Subsidiaries, including its and their financial and accounting records, and
to make copies and take extracts therefrom, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants, all at such reasonable times during normal business hours
and as often as may be reasonably requested.
(g) Compliance with Laws Etc. Exercise, and cause each of its
-------------------------
Subsidiaries to exercise, all due diligence in order to comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including, without limitation, all rules and regulations
of public utility commissions or similar regulatory authorities, and all
environmental laws, rules, regulations and orders, noncompliance with which
would materially and adversely affect the business, properties, assets,
operations or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole.
(h) Hazardous Waste Studies. Promptly, and in any event within thirty
-----------------------
(30) days after submission, provide the Bank with copies of all such
investigations, studies, samplings and testings as may be requested by any
governmental or regulatory authority relative to any substance defined as
hazardous or toxic by any applicable federal, state or local law, rule,
regulation, order or directive, or any waste or by-product thereof, at or
affecting any real property or any facility owned, leased or used by the
Borrower or any Subsidiary.
SECTION 6.2 Negative Covenants. So long as any Note shall remain
------------------
unpaid or the Bank shall have any Commitment hereunder, the Borrower will not,
without the written consent of the Bank:
27
<PAGE>
(a) Consolidated Fixed Charge Coverage Ratio. As of the end of each
----------------------------------------
fiscal quarter, Borrower and its Subsidiaries on a consolidated basis permit the
Fixed Charge Coverage Ratio to be less than 1.2:1.0.
(b) Consolidated Current Ratio. At any time, permit the ratio of (i)
--------------------------
the total current assets of the Borrower and its Subsidiaries on a consolidated
basis to (ii) the total current liabilities of the Borrower and its Subsidiaries
on a consolidated basis to be less than 1.40:1.00.
(c) Consolidated Total Liabilities to Tangible Net Worth Ratio. At
----------------------------------------------------------
any time, permit the ratio of (i) the total liabilities of the Borrower and its
Subsidiaries on a consolidated basis to (ii) Consolidated Tangible Net Worth to
be greater than 1.25:1.00.
(d) Consolidated Net Income. For any fiscal quarter of the Borrower,
-----------------------
commencing with the Borrower's fiscal quarter ending March 28, 1997, permit the
net income of the Borrower and its Subsidiaries on a consolidated basis to be
less than $1.00.
(e) Liens Etc. Create or suffer to exist, or permit any of its
---------
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, whether now owned or hereafter acquired, or assign, or permit
any of its Subsidiaries to assign, any right to receive income, in each case to
secure any indebtedness of any Person other than Liens in favor of Bank and, to
the extent the aggregate Indebtedness secured thereby does not exceed
$2,500,000, the following: (i) Liens reflected on Schedule 6.2(e) hereto; (ii)
---------------
purchase money Liens upon or in any property acquired or held by the Borrower or
any Subsidiary in the ordinary course of business to secure the purchase price
of such property or to secure indebtedness incurred solely for the purpose of
financing the acquisition of such property; and (iii) Liens for taxes not yet
due;
(f) Indebtedness. Create, incur, assume or permit to exist, or permit
------------
any Subsidiary to create, incur, assume or permit to exist, any direct or
contingent Indebtedness, liabilities or lease obligations (other than those to
the Bank), or become liable for the debts of others without the Bank's written
consent, except for (i) acquiring goods, supplies or merchandise on normal trade
credit; (ii) endorsing negotiable instruments received in the usual course of
business; (iii) obtaining surety bonds in the usual course of business; and (iv)
Indebtedness of the Borrower and its Subsidiaries in an aggregate amount
outstanding at any one time not to exceed $3,500,000.
(g) Consolidation, Merger or Dissolution. Consolidate with or merge
------------------------------------
into any other corporation or entity except for Permitted Acquisitions.
(h) Loans, Investments, Secondary Liabilities. Make or permit to
-----------------------------------------
remain outstanding, or permit any Subsidiary to make or permit to remain
outstanding, any loan or advance to, or guarantee, induce or otherwise become
contingently liable, directly or indirectly, in connection with the obligations,
stock or dividends of, or own, purchase or acquire any stock, obligations or
securities of or any other interest in, or make any capital
28
<PAGE>
contribution to, any other Person, or make or permit to remain outstanding loans
and advances to any of its officers, directors and shareholders or enter into or
permit to remain outstanding guarantees in connection with the obligations of
any of its officers, directors and shareholders, in an aggregate amount
outstanding at any time, collectively among the Borrower and its Subsidiaries,
in excess of $250,000, except that the Borrower and its Subsidiaries may,
without limitation as to the dollar amount of any such transactions:
(i) own, purchase or acquire certificates of deposit issued
by the Bank, commercial paper rated Moody's P-1, municipal bonds rated
Moody's AA or better, direct obligations of the United States of
America or its agencies, and obligations guaranteed by the United
States of America;
(ii) continue to own the existing capital stock of the
Borrower's Subsidiaries;
(iii) endorse negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
and
(iv) allow the Borrower's Subsidiaries to make or permit to
remain outstanding advances from the Borrower's Subsidiaries to the
Borrower.
(i) Asset Sales. Convey, sell, lease, transfer or otherwise dispose
-----------
of, or permit any Subsidiary to convey, sell, lease, transfer or otherwise
dispose of, during any fiscal year of the Borrower, in one transaction or a
series of transactions, outside the ordinary course of business, assets of the
Borrower or of any of its Subsidiaries, whether now owned or hereafter acquired,
having an aggregate value in excess of $100,000.
(j) Dividends. Authorize, declare or pay any dividends, except that
---------
for so long as no Event of Default or Potential Event of Default has occurred
and is continuing, the Borrower may declare and pay dividends on its equity
securities.
(k) Limitation on Granting of Liens and on Restrictions on Subsidiary
-----------------------------------------------------------------
Dividends and Other Transfers. Borrower will not, and it will not permit any of
- -----------------------------
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
(i) any Subsidiary to (A) pay dividends or make any other distribution on its
capital stock or any other equity interest or participation in its profits owned
by Borrower or any Subsidiary, or pay or repay any indebtedness owed to Borrower
or a Subsidiary, (B) make loans or advances to Borrower or (C) transfer any of
its properties or assets to the Borrower or any Subsidiary or (ii) Borrower or
any Subsidiary to grant Liens or security interests on the assets of such Person
in favor of Bank, except for such encumbrances or restrictions existing under or
by reason of (A) applicable law, (B) this Agreement, (C) customary provisions
restricting subletting or assignment of any lease governing a leasehold interest
of Borrower or any Subsidiary, and (D) customary restrictions on dispositions of
real property interests found in reciprocal easement agreements of Borrower or
any Subsidiary.
29
<PAGE>
(l) Transactions with Affiliates. Neither the Borrower nor any of its
----------------------------
Subsidiaries shall enter into any transaction for the purchase, sale or exchange
of property or the rendering of any service to or by any affiliate, except in
the ordinary course of and pursuant to the reasonable requirements of the
Borrower's or its Subsidiary's business and upon fair and reasonable terms no
less favorable to the Borrower or its Subsidiary than the Borrower or its
Subsidiary would obtain in a comparable arm's length transaction with an
unaffiliated person.
(m) Books and Records. The Borrower will, and will cause each of the
-----------------
Guarantors to, keep proper books of record and account in which full, true and
correct entries in conformity with GAAP and all requirements of applicable law
shall be made of all dealings and transactions in relation to their businesses
and activities.
(n) Restructure. Make any change in the principal nature of the
-----------
Borrower's business operations (taken as a whole), or the date of its fiscal
year.
(o) No Further Negative Pledges. Except with respect to specific
---------------------------
property encumbered to secure payment of particular Indebtedness, neither the
Borrower nor any of its Subsidiaries shall enter into any agreement prohibiting
the creation or assumption of any Lien upon any of its properties or assets,
whether now owned or hereafter acquired.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.1 Events of Default. If any of the following events
-----------------
("Events of Default") shall occur and be continuing:
- -------------------
(a) The Borrower shall fail to pay any installment of principal or
interest or any other amount payable hereunder within five (5) Business Days of
the due date thereof; or
(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with the Loan Documents
shall prove to have been incorrect in any material respect when made; or
(c) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in this Agreement on its part to be performed or observed
other than as described in Section 7.1(a) above and such failure shall continue
for ten (10) consecutive days; provided, that such ten (10) day period shall not
-------- ----
apply in the case of: (i) any failure to observe any such term, covenant,
condition or provision which is not capable of being cured at all or within such
ten (10) day period or which has been the subject of a prior failure within a
six (6) month period, or (ii) an intentional breach by Borrower of any such
term, covenant, condition or provision; or
30
<PAGE>
(d) The Borrower or any of its Subsidiaries shall default in the
performance of or compliance with any term contained in any Loan Document other
than this Agreement and such default shall not have been remedied or waived
within any applicable grace period; or
(e) (i) The Borrower or any of its Subsidiaries shall (A) fail to pay
any principal of, or premium or interest on, any indebtedness when due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise)
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such indebtedness, or (B)
fail to perform or observe any term, covenant or condition on its part to be
performed or observed under any agreement or instrument relating to any such
indebtedness or material to the performance, business, property, assets,
condition (financing or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole, when required to be performed or observed, and
such failure shall continue after the applicable grace period, if any, specified
in such agreement or instrument; or
(f) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unhanded for a period of sixty (60) days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii) and (iii)
above; or (v) the Borrower or any of its Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(g) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance or reserves) equal to or greater than
$250,000 and all such judgments or decrees shall not have been vacated,
discharged, or stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or
(h) Any guaranty for any reason other than satisfaction in full of all
obligations of the Borrower under the Loan Documents, ceases to be in full force
and effect or
31
<PAGE>
is declared null and void, or any Guarantor denies that it has any further
liability under such guaranty or gives notice to such effect and any such
cessation, declaration or denial shall not have been rescinded, and such
guarantee reaffirmed, to the satisfaction of the Bank within thirty (30) days
after the Borrower knows of such development; or
(i) The occurrence of any one or more of the following events with
respect to the Borrower or any ERISA Affiliate of the Borrower provided such
event or events could reasonably be expected, in the judgment of the Bank, to
subject the Borrower or any ERISA Affiliate of the Borrower to any tax, penalty
or liability (or any combination of the foregoing) which, in the aggregate,
could have a material adverse effect on the financial condition of the Borrower
or any ERISA Affiliate of the Borrower with respect to a Plan: (A) a reportable
event shall occur with respect to a Plan which is, in the reasonable judgment of
the Bank, likely to result in the termination of such Plan for purposes of Title
IV of ERISA, or (B) any Plan termination (or commencement of proceedings to
terminate a Plan) or the full or partial withdrawal from a Plan by the Borrower
or any ERISA Affiliate of the Borrower; or
(j) There shall be instituted against the Borrower or any Subsidiary,
or against any Guarantor, any proceeding for which forfeiture of any property is
a potential penalty and such proceeding remains undismissed, undischarged or
unbonded for a period of thirty (30) days from the date the Borrower knows of
such proceeding; or
(k) A Change of Control shall have occurred.
Then, (i) upon the occurrence of any Event of Default described in
clause (f) above, the Commitment shall immediately terminate and all Loans
hereunder with accrued interest thereon, and all other amounts owing under the
Loan Documents shall automatically become due and payable, and (ii) upon the
occurrence of any other Event of Default, the Bank may, by notice to the
Borrower, declare the Commitment to be terminated forthwith, whereupon the
Commitment shall immediately terminate; and, by notice to the Borrower, declare
the Loans hereunder, with accrued interest thereon, and all other amounts owing
under the Loan Documents to be due and payable forthwith, whereupon the same
shall immediately become due and payable. Bank shall have all rights, powers
and remedies available under each of the Loan Documents, or accorded by law,
including, without limitation, the right to make demand upon any or all of the
Guarantors. All rights, powers and remedies of Bank in connection with each of
the Loan Documents may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
Notwithstanding any other provision of this Agreement, including Section 8.2,
notices to the Borrower under this Section shall be communicated in writing
(including facsimile transmissions).
32
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Amendments, Etc. No amendment or waiver of any provision
---------------
of the Loan Documents nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Bank, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 8.2 Notices, Etc. Except as otherwise set forth in this
------------
Agreement, all notices and other communications provided for hereunder shall be
in writing (including facsimile communication) and mailed or sent by facsimile
or delivered, if to the Borrower, at its address set forth on the signature page
hereof; and if to the Bank, at its address set forth on the signature page
hereof; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party. All such notices and
communications shall be effective when sent by facsimile, or three days after
such notice or communication is deposited in the mails, except that notices and
communications to the Bank pursuant to Article II or VII shall not be effective
until received by the Bank.
SECTION 8.3 Right of Setoff. Upon and only after the occurrence of
---------------
any uncured Event of Default, the Bank is hereby authorized by the Borrower, at
any time and from time to time, without notice, (a) to set off against, and to
appropriate and apply to the payment of, the obligations and liabilities of the
Borrower under the Loan Documents (whether matured or unmatured, fixed or
contingent or liquidated or unliquidated) any and all amounts owing by the Bank
to the Borrower (whether payable in Dollars or any other currency, whether
matured or unmatured, and, in the case of deposits, whether general or special,
time or demand and however evidenced) and (b) pending any such action, to the
extent necessary, to hold such amounts as collateral to secure such obligations
and liabilities and to return as unpaid for insufficient funds any and all
checks and other items drawn against any deposits so held as the Bank in its
sole discretion may elect. The Bank is authorized to debit any account
maintained with it by the Borrower for any amount of principal, interest or fees
which are then due and owing to the Bank.
SECTION 8.4 No Waiver; Remedies. No failure on the part of either
-------------------
party hereto to exercise, and no delay in exercising, any right under any of the
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any of the Loan Documents preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 8.5 Costs and Expenses. The Borrower shall pay to the Bank
------------------
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of the Bank's in-house counsel), incurred by the Bank in connection with
(a) the negotiation and preparation of this
33
<PAGE>
Agreement and each other of the Loan Documents, and the preparation of any
amendments and waivers hereto and thereto, (b) the enforcement of the Bank's
rights and/or the collection of any amounts which become due to the Bank under
any of the Loan Documents (including, without limitation, in appellate,
bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar
proceedings) or the restructuring of the Loan Documents, and (c) the prosecution
or defense of any action in any way related to any of the Loan Documents,
including, without limitation, any action for declaratory relief.
SECTION 8.6 Participations. The Bank may sell, assign, transfer,
--------------
negotiate or grant participations to other financial institutions in all or part
of the obligations of the Borrower outstanding under the Loan Documents,
provided that any such sale, assignment, transfer, negotiation or participation
shall be in compliance with the applicable federal and state securities laws;
and provided further that any assignee or transferee agrees to be bound by the
terms and conditions of this Agreement. The Bank may, in connection with any
actual or proposed assignment or participation, disclose to the actual or
proposed assignee or participant, any information relating to the Borrower or
any of its Subsidiaries.
SECTION 8.7 Effectiveness: Binding Effect. This Agreement shall
-----------------------------
become effective when it shall have been executed by the Borrower and the Bank
and thereafter shall be binding upon and inure to the benefit of the Borrower,
the Bank and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Bank.
SECTION 8.8 Governing Law; Choice of Forum; Service of Process; Jury
--------------------------------------------------------
Trial Waiver.
- ------------
(a) The validity, interpretation and enforcement of this Agreement
and the other Loan Documents and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of California (without
giving effect to principles of conflicts of law).
(b) The Borrower and the Bank irrevocably consent and submit to the
non-exclusive jurisdiction of the state courts of the County of Los Angeles and
the United States District Court for the Central District of California and
waive any objection based on venue or forum non conveniens with respect to any
----- --- ----------
action instituted therein arising under this Agreement or any of the other Loan
Documents or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Loan
Documents or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above.
(c) The Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so
34
<PAGE>
deposited in the U.S. mails, or, at the Bank's option, by service upon the
Borrower in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, the Borrower shall appear in answer to such
process, failing which the Borrower shall be deemed in default and judgment may
be entered by the Bank against the Borrower for the amount of the claim and
other relief requested.
(d) THE BORROWER AND THE BANK EACH HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR (2) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE BORROWER AND THE BANK EACH 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 THE BORROWER OR THE BANK MAY
FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
(e) The Bank shall not have any liability to the Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by the Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on the Bank, that the losses were the
result of acts or omissions constituting gross negligence or willful misconduct.
In any such litigation, the Bank shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
SECTION 8.9 Waiver of Notices. The Borrower hereby expressly waives
-----------------
demand, presentment, protest and notice of protest and notice of dishonor with
respect to any and all instruments and commercial paper, included in or
evidencing any of the obligations, and any and all other demands and notices of
any kind or nature whatsoever with respect to the obligations and this
Agreement, except such as are expressly provided for herein. No notice to or
demand on the Borrower which the Bank may elect to give shall entitle the
Borrower to any other or further notice or demand in the same, similar or other
circumstances.
SECTION 8.10 Destruction of Borrower's Documents. The Bank will not
-----------------------------------
be obligated to return any schedules, invoices, statements, budgets, forecasts,
reports or other papers delivered by the Borrower. The Bank will destroy or
otherwise dispose of such materials at such time as the Bank, in its discretion,
deems appropriate.
35
<PAGE>
SECTION 8.11 Entire Agreement. This Agreement with Exhibits and
----------------
Schedules and the other Loan Documents embody the entire agreement and
understanding between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof.
SECTION 8.12 Severability of Provisions. In case any one or more of
--------------------------
the provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION 8.13 Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
MELLON BANK, N.A. KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By:____________________________ By:_____________________________
Name:__________________________ Name:___________________________
Title:_________________________ Title:__________________________
By:_____________________________
Name:___________________________
Title:__________________________
Address: Address:
Mellon Bank 700 East Bonita Avenue
Mellon Bank Center Pomona, California 91767
400 South Hope Street Attention: John M. Palumbo
5th Floor Vice President and Treasurer
Los Angeles, California 90071
Attention: Kevin D. Kelly
Vice President
36
<PAGE>
Exhibit 10.40
RESIGNATION AGREEMENT AND GENERAL RELEASE
This Resignation Agreement and General Release ("Agreement") is made
and entered into effect as of this _____ day of May, 1997, by and between
Keystone Automotive Industries, Inc., a California corporation ("the Company")
and Virgil K. Benton II, an individual residing in the State of California
("Executive").
RECITALS
A. Executive has served as the Chief Executive Officer of the Company
pursuant to that certain Employment Agreement between Executive and the Company,
effective June 26, 1996 (the "Employment Agreement");
B. Executive as served as a member of the Board of Directors (the
"Board") of the Company and has been designated by the Board as the Company's
Chairman.
C. Pursuant to and in consideration of this Agreement, Executive has
determined to resign all of his respective positions as an officer and director
of the Company, such resignation to be effective as of the date of this
Agreement (the "Deemed Effective Date");
D. The Company wishes to accept Executive's resignation, such resignation
to be deemed to be effective as of the close of the Company's business on the
Deemed Effective Date, to terminate the Employment Agreement as of the Deemed
Effective Date and to provide Executive with certain severance benefits, all as
set forth herein; and
E. As part of this Agreement and in consideration of certain
accommodations provided to Executive by the Company hereunder and other mutual
consideration, and Executive has agreed to release the Company and its
respective directors, officers, employees, agents and assigns from certain
claims and causes of action that Executive may now or hereafter have, whether
known or unknown.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing recitals, which are
incorporated as an integral part of this Agreement, the mutual promises of the
parties and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. RESIGNATION OF EXECUTIVE. Executive hereby irrevocably resigns
all of his positions as a director and officer of the Company, effective as of
the close of the Company's business on the Deemed Effective Date.
2. SEVERANCE PAYMENT. On the Termination Date, as defined in
Section 14 hereof, the Company shall pay to Executive, in cash or other readily
available funds, the gross sum
<PAGE>
of Six Hundred and Seventy-One Thousand Dollars ($671,000), less any amounts
required to be deducted by the Company for federal and state taxes or other
applicable requirements. In addition, the Company agrees to convey to Executive
as of the Termination Date, all of its right, title and interest in the
following assets currently being used by Executive: (i) the 1994 Chevrolet
Suburban, (ii) the 1994 Model 850 Volvo and (iii) certain computer equipment
consisting of an AST laptop computer, docking station, monitor, keyboard and
printer.
3. TERMINATION OF EMPLOYMENT AGREEMENT. The Employment Agreement
shall be terminated as of the Deemed Effective Date, and all obligations of any
party thereunder shall thereby be forever released and discharged, except for
Section 4 of the Employment Agreement which shall remain in full force and
effect according to its terms.
4. HEALTH/OTHER BENEFITS. Executive shall not be entitled to
continue to participate in the Company's health and other benefit programs to
which he is currently entitled, rights of Executive, if any, are compensated for
in the payment provided in Section 2. Thereafter, Executive, if he so elects
and pays all applicable costs and expenses, shall be entitled to receive the
benefits to which he is entitled pursuant to the Consolidated Budget
Reconciliation Act of 1985, as amended ("COBRA").
5. ACCRUED VACATION PAY. Executive agrees that the Company is not
to be obligated to Executive for any accrued but unused vacation pay, rights of
Executive, if any, are compensated for in the payment provided in Section 2.
6. MUTUAL GENERAL RELEASE. In further consideration of the promises
and agreements made hereunder, and except for the Indemnification Agreement,
effective as of June 26, 1996 by and between Executive and the Company (the
"Indemnification Agreement") which is not being released hereunder. Executive
agrees unconditionally and forever to release and discharge the Company and its
respective subsidiaries, affiliates, officers, directors, employees,
representatives, attorneys, agents and assigns, and the Company agrees
unconditionally and forever to release and discharge Executive and his
representatives, attorneys, agents and assigns, from any and all claims,
actions, causes of action, demands, liabilities, rights or damages of any kind
or nature which any of them may now have, or ever have, whether known or
unknown, against the other, including any claims, causes of action or demands of
any nature arising out of or in any way relating to Executive's employment with,
or separation from the Company.
This release specifically includes, but is not limited to, any claims
for discrimination and/or violation of any statutes, rules, regulations or
ordinances, whether federal, state or local, including, but not limited to,
Title VII of the Civil Rights Act of 1964, as amended, age claims under the Age
Discrimination in Employment Act of 1967, as amended by the Older Workers
Benefits Protection Act of 1990, Section 1981 of Title 42 of the United States
Code, and the California Fair Employment and Housing Act.
2
<PAGE>
The parties further agree knowingly to waive the provisions and
protections of Section 1542 of the California Civil Code, which reads:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which, if known by him, must have materially affected his
settlement with the debtor.
Executive represents and agrees that, prior to the execution of this
Agreement, Executive has had the opportunity to discuss the terms of this
Agreement with legal counsel of his choosing. Executive affirms that no promise
or inducement was made to cause him to enter into this Agreement, other than the
severance benefits described herein. Executive further confirms that he has not
relied upon any other statement or representation by anyone other than what is
in this Agreement as a basis for his agreement.
7. NEWS RELEASE. The parties shall cooperate in the preparation of
a news release for dissemination on or prior to the Termination Date; however,
the final determination as to the content of such news release shall be made by
the Company.
8. REIMBURSEMENT OF BUSINESS EXPENSES. Executive shall be entitled
to reimbursement of properly submitted claims for business expenses in
accordance with the Company's policies and practices through the Termination
Date.
9. INDEMNIFICATION. The Indemnification Agreement shall remain in
full force and effect in accordance with the terms and conditions set forth
therein. Upon reasonable notice from the Company, Executive shall make himself
reasonably available to assist and otherwise cooperate with the Company in
connection with any litigation matters involving the Company. If said
cooperation requires Executive to travel outside the San Diego, California area,
the Company agrees to reimburse Executive for his reasonable travel expenses.
10. NON-DISPARAGEMENT. The parties hereby agree that none of them
shall disparage the other in any future statements or communications concerning
Executive and his employment with the Company or otherwise.
11. INQUIRIES BY THIRD PARTIES. The parties hereby agree that they
will consult with one another with respect to appropriate responses to inquiries
from stock exchanges, analysts, the press, customers, governmental authorities
and other third parties regarding Executive's resignation from the Company. The
parties further agree that, except as required by law or regulation, none of
them will respond to such inquiries or make other public statements regarding
these matters (other than the news release referred to in Section 7 hereof)
until such consultation has occurred.
3
<PAGE>
12. ARBITRATION. Any and all disputes or claims arising out of or in
any way related to Executive's employment with, or separation from the Company,
as well as any and all disputes or claims arising out of or in any way related
to this Agreement, including without limitation, fraud in the inducement of this
Agreement, or relating to the general validity or enforceability of this
Agreement, shall be submitted to final and binding arbitration before a single
arbitrator of the American Arbitration Association in Los Angeles County,
California in accordance with the rules of that body governing commercial
disputes, and the prevailing party shall be entitled to reasonable cost, other
out-of-pocket expenses and attorneys' fees. Judgment on the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
13. GOVERNING LAW. This Agreement shall be construed under the laws
of the State of California, both procedural and substantive, except as may be
required under federal laws and regulations applicable to federally chartered
savings associations or their subsidiaries or affiliates.
14. REVOCATION RIGHT. Executive acknowledges that he has been
advised that he has twenty-one (21) days to consider this Agreement and that he
was informed that he has the right to consult with counsel regarding this
Agreement. To the extent that Executive has taken less than twenty-one (21)
days to consider this Agreement, Executive acknowledges that he has had
sufficient time to consider the Agreement and to consult with counsel and that
he does not desire additional time. This Agreement is revocable by Executive
for a period of seven (7) days following Executive's execution of this
Agreement. The revocation by Executive of this Agreement must be in writing,
must specifically revoke this Agreement, and must be received by the Company
prior to the eighth (8th) day following the execution of this Agreement by
Executive. This Agreement becomes effective, enforceable and irrevocable on the
eighth (8th) day following Executive's execution of this Agreement (the
"Termination Date").
15. BOARD OF DIRECTORS ACTION. The Company represents and warrants
that the resolutions attached hereto as Exhibit 15 have been duly adopted by the
Board of Directors and are, and will be, in full force and effect as of the
Termination Date.
16. REGISTRATION RIGHTS. The Company agrees to use its best efforts
to include up to 1,500,000 shares of its Common Stock owned beneficially by
Executive and those persons set forth on Schedule 1 to this Agreement
("Executive's Shares") in the proposed underwritten public offering currently
being considered by the Company (the "1997 Public Offering"). In connection
with the 1997 Public Offering, and as additional consideration to Executive for
entering into this Agreement, the Company agrees to pay all fees, costs and
expenses of and incidental to registering Executive's Shares for sale; provided,
--------
however, that the holders of Executive's Shares shall bear their pro rata share
of the underwriting discounts and commissions and shall bear their own legal and
accounting expenses, if any, incurred in reviewing the registration statement
and prospectus. In the event that less than all of Executive's Shares are sold
in the 1997 Public Offering, each of the beneficial holders of Executive's
Shares not sold in said Offering agree to enter into a lock-up agreement with
the underwriters agreeing not to sell any of their remaining shares for such
period after the effective date of the 1997 Public Offering as is being agreed
to by the officers and directors
4
<PAGE>
of the Company. In the event that less than 1,000,000 of Executive's Shares are
actually sold in the 1997 Public Offering for any reason other than the
beneficial owners of said shares withdrawing the shares from the 1997 Public
Offering, then the Company agrees to register Executive's Shares under the
following terms and conditions:
(a) Whenever the Company proposes to register any of its securities
under the Securities Act of 1933, as amended (the "Securities Act"), and the
registration form to be used therefor may be used for the registration of the
Common Stock of the Company (other than Forms S-8 or S-4 or any successor
thereto), the Company shall give prompt written notice to the Executive of its
intention to effect such a registration and, subject to the terms and conditions
contained in this Agreement, shall include in such registration any unsold
Executives' Shares with respect to which the Company has received a written
request for inclusion therein within twenty (20) days after the Company has
given the notice required by this subsection.
(b) If a registration subject to subsection (a) above is an
underwritten registration, and the managing underwriters advise the Company in
writing that in their opinion the number of shares of Common Stock to be
included in such registration exceeds the number which can be sold in such
offering, the Company shall include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, such number of shares of
Common Stock as the Company is obligated to include pursuant to the Registration
Rights Agreement effective as of December 6, 1996 among the Company and
shareholders of North Star Plating Company, (iii) third, unsold Executive's
Shares for which a written request for inclusion has been timely received; and
(iv) fourth, then other securities requested to be included in such
registration; provided, however, that the Executive shall have the right to
--------
include any Executive's Shares which are thus excluded from such registration in
the next registration statement of the Company under the Securities Act which
may be used for the registration of the Common Stock of the Company (other than
Forms S-8 or S-4 or any successor thereto), all on the terms and conditions set
forth in this Agreement applicable to the initial exercise by the Executive of
registration rights hereunder.
(c) Except as expressly provided in the proviso to subsection (b)
above, notwithstanding anything to the contrary contained in this Agreement, the
Company shall be required to give notice to the Executive of a registration, and
to include therein Executive's Shares, only with respect to the first
registration of the securities of the Company occurring after the later to occur
of (i) the Termination Date and (ii) the consummation of the 1997 Public
Offering.
(d) The Company shall indemnify, to the extent permitted by law, each
holder of Executive's Shares included in any registration statement pursuant to
subsection (a) above, its officers and directors and each person who controls
such holder (within the meaning of the Securities Act of 1933) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished to the Company in
writing by such
5
<PAGE>
holder expressly for use therein or by such holder's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished such holder with a sufficient number of
copies of the same.
(e) Each holder of Executive's Shares included in any registration
statement pursuant to subsection(a) above shall indemnify, to the extent
permitted by law, the Company, its officers and directors and each person who
controls the Company (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent the same
are caused by or contained in any information furnished to the Company in
writing by such holder expressly for use therein or by such holder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, such holder shall indemnify the underwriters, their officers and
directors and each person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the Company.
(f) With respect to each inclusion of Executive's Shares in a
registration statement pursuant to subsection (a) above, all fees, costs and
expenses of and incidental to such registration and public offering in
connection therewith shall be borne by the Company; provided, however, that
--------
holders participating in any such registration shall bear their pro rata share
of the underwriting discount and commissions and shall bear their own legal and
accounting expenses, if any, incurred in reviewing the registration statement or
prospectus.
(g) Any Executive's Shares which are included in an underwritten
registration pursuant to subsection (a) above shall be sold by the holder
thereof pursuant to the terms of the underwriting agreement among the Company,
the managing underwriters and the holders of the securities included in such
registration.
17. ESOP SHARES. The Company agrees to use its best efforts to
distribute all shares of Common Stock beneficially owned by Executive in the
Company's ESOP to Executive as soon as reasonably possible after the Termination
Date.
18. REIMBURSEMENT OF ATTORNEY'S FEES. On the Termination Date,
the Company agrees to pay Executive the sum of Five Thousand ($5,000) Dollars as
reimbursement of Executive's legal fees. The parties hereto agree that all other
costs and expenses shall be paid by the incurring party.
19. MISCELLANEOUS. This Agreement sets forth the entire agreement
between Executive and the Company relating to the subject matter hereof and
supersedes all prior oral or written agreements relating thereto, including,
without limitation, the Employment Agreement. This
6
<PAGE>
Agreement shall be binding upon all parties' respective heirs, representatives,
successors and assigns. If any portion of this Agreement is found to be illegal
or unenforceable, such action shall not affect the validity or enforceability of
the remaining paragraphs or subparagraphs of this Agreement. No amendments to
this Agreement will be valid unless written and signed by Executive and an
authorized representative of the Company. This Agreement may be executed in one
or more counterparts, all of which, taken together, shall constitute one
original document. The undersigned agree to the terms of this Agreement and
voluntarily enter into it with the intent to be bound thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day and year first written above.
EXECUTIVE: KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
/s/ Virgil K. Benton II By: /s/ John M. Palumbo
- ---------------------------- -----------------------------------
Virgil K. Benton II Its: Vice President
-------------------------------
Reviewed and approved as to form
and content as counsel to Executive
this 23rd day of May, 1997.
/s/ Tucker Cheadle
- ----------------------------
Tucker Cheadle, Esq.
7
<PAGE>
EXHIBIT 10.41
NORTH STAR PLATING COMPANY
BUILDING LEASE
(PEORIA, ILLINOIS PROPERTY)
THIS LEASE, Made and entered into as of the 1/st/ day of January, 1995, by
and between J & K PROPERTIES, a Minnesota general partnership of Karen Wood and
Jean M. Brown (hereinafter referred to as "Landlord"), and NORTH STAR PLATING
COMPANY, a Minnesota corporation (hereinafter referred to as "Tenant").
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant leases from Landlord the
premises described in Exhibit A attached and hereby made a part hereof, which
----------
premises are hereinafter referred to as the "leased premises".
TO HAVE AND TO HOLD the leased premises and appurtenances for a term of ten
(10) years, commencing on the date hereof and ending at 12:00 midnight, on the
tenth (10th) anniversary of the date hereof, plus any renewal term pursuant to
Article 13 hereinbelow, subject to the following terms and conditions.
ARTICLE 1. RENT. Landlord reserves and Tenant covenants to pay to
---------------
Landlord, without demand, at the place at which notices to Landlord are to be
given pursuant to Article 16, base rent for the leased premises of Six Thousand
Nine Hundred Seventy Five Dollars ($6,975.00) per calendar month payable in
advance on the first day of each and every calendar month during the term and
any renewal term of this Lease. A pro rata portion of such monthly base rent
shall be due for any partial calendar month during the term or any renewal term
of this Lease, in proportion to the number of days of such calendar month
falling within the term or renewal term.
ARTICLE 2. ESCALATION OF BASE RENT. The monthly base rent shall be
----------------------------------
increased as of the first day of the calendar month following the first (1/st/)
anniversary of the commencement date of this Lease and following every
anniversary of the commencement date of this Lease thereafter, during the term
and any renewal term of this Lease, by a percentage equal to the percentage
increase in the Consumers' Price Index for All Urban Consumers for the
Minneapolis/St. Paul Metropolitan Area, "All Items" [1982-84 = 100] published
by the United States Bureau of Labor Statistics (the "CPIU") between the CPIU
last published as of the commencement date of this Lease or the second previous
anniversary of the commencement date of this Lease, as the case may be, and the
CPIU last published as of the immediately preceding anniversary of the
commencement date of this Lease. Such adjusted monthly rent shall be rounded to
the nearest One Dollar ($1.00). Should the CPIU be discontinued, or discontinued
for the Minneapolis/St. Paul Metropolitan Area, a similar figure representative
of an overall price average for the Minneapolis/St. Paul Metropolitan Area
shall be used or the Consumers' Price Index for All Urban Consumers "All Items"
for the United States shall be used.
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FOR EXAMPLE: Assume the CPIU last published as of the first anniversary of
the date hereof (in 1996) is 140 and the CPIU last published as of the second
anniversary of the date hereof (in 1997) is 144.2 (representing a 3% annual
increase), the monthly base rent shall be increased as of the first day of the
calendar month following the second anniversary of the date hereof by 1.5%.
ARTICLE 3. NET LEASE. Without limitation of the specific provisions of
--------------------
this Lease, the parties declare that this Lease shall be construed in all
respects to be a net lease, with all expenses of operating, maintaining and
insuring the leased premises, and paying taxes and special assessments and
similar charges against the leased premises, to be borne by Tenant, with the
exception only of reasonable wear and tear and loss by reason of fire and other
casualty insurable under the current "special cause of loss" form of building
and personal property insurance policy published by the Insurance Services
Office or equivalent (hereinafter referred to as "Standard Hazard Insurance").
ARTICLE 4. TAXES AND SPECIAL ASSESSMENTS. Tenant shall pay, when due and
-----------------------------------------
before penalty attaches, all real estate taxes and installments of special
assessments, and any similar charges or liens due and payable during the term
hereof with respect to the leased premises and improvements situated thereon,
provided that election shall be made to pay any special assessment over the
longest period allowed by law. For any partial calendar year at the end of the
term or any renewal term of this Lease, Tenant shall be responsible for a pro
rata portion of such taxes and special assessments due and payable in such
calendar year in proportion to the number of days of such calendar year falling
within the term or renewal term of this Lease, and appropriate adjustments shall
be made at the beginning of the term and at the end of the term or renewal term
hereof. Tenant shall be responsible for all taxes and installments of special
assessments payable in the year 1995, since Tenant will occupy the leased
premises for the entire year, either pursuant to this Lease or pursuant to the
Prior Lease (as defined in Article 15 below). In the event any mortgagee of the
leased premises requires an escrow account to be maintained for the payment of
real estate taxes and special assessments, with respect to the leased premises
and improvements situated thereon, Tenant shall fund and make monthly or other
periodic payments to such an escrow account all as may be required by such
mortgagee. Any funds held in such escrow account in excess of Tenant's accrued
liability under this Article 4 shall be the property of Tenant and purchased by
Landlord upon expiration or termination of this Lease.
ARTICLE 5. MAINTENANCE AND REPAIR. Tenant hereby accepts the leased
---------------------------------
premises in the condition they are in. Tenant, at its sole cost and expense,
will keep, maintain and rebuild, if necessary, the leased premises, including
any altered, rebuilt, additional or substituted improvements, in good repair and
appearance during the term an any renewal term of this Lease, ordinary wear and
tear and damage by fire or other casualty insurable under Standard Hazard
Insurance excepted. All repairs made by Tenant shall be at least equal to the
original work in class and quality. Tenant shall put, keep and maintain all
portions of the leased premises and the sidewalks, curbs, drives, parking areas,
landscaped areas, and passageways adjoining the same in a clean and orderly
condition, free of dirt, rubbish, snow, ice and unlawful obstructions.
2
<PAGE>
ARTICLE 6. ALTERATIONS AND ADDITIONS. Tenant may, at any time and from
------------------------------------
time to time during the term and any renewal term of this Lease, at its sole
cost and expense, make additions to, alterations of, substitutions and
replacements for, and removals from the improvements on the leased premises
(hereinafter "alterations"), provided, however, that (i) the total market value
of the leased premises shall not be lessened by reason of any such alterations,
(ii) any alterations shall be done in a good and first class workmanlike manner,
(iii) all such alterations shall be expeditiously completed in compliance with
all laws, ordinances, orders, rules, regulations and requirements applicable
thereto, (iv) if Tenant or Tenant's contractor estimates that any such
alterations will cost more than Ten Thousand and no/100 Dollars ($10,000.00),
Tenant shall give to Landlord notice of its intention to undertake the same at
least thirty (30) days prior to commencement of the work, and (v) prior to
commencement of the work Tenant shall have obtained all required consents and
approvals of all mortgagees of the leased premises. Tenant shall promptly pay
for all such alterations and shall hold Landlord harmless from any liens or
charges against the leased premises by reason of any such work. Tenant shall
procure and pay for all required permits, certificates and licenses in
connection with such alterations. All such alterations shall become the
property of Landlord, except that trade fixtures which may be removed without
material damage to the leased premises shall remain t e property of Tenant.
ARTICLE 7. USE OF LEASED PREMISES; COMPLIANCE WITH LAWS; ENVIRONMENTAL
----------------------------------------------------------------------
COVENANTS. The leased premises shall be used and occupied by Tenant as an
- ---------
automotive bumper sales and repair facility and other ancillary purposes, and
for no other purpose, and such use and occupancy shall be in compliance with all
applicable laws, ordinances and governmental regulations. Without limiting the
foregoing, Tenant shall, at Tenant's expense, make all such improvements and
alterations required by reason of Tenant's use of the leased premises under the
Americans with Disabilities Act and shall comply with all Environmental Laws as
hereinafter provided, and Landlord shall have no responsibility for the same.
Tenant shall indemnify, defend and hold harmless Landlord from any loss or
liability incurred by reason of any failure by Tenant to comply with applicable
laws in its use and occupancy of the leased premises.
As used herein, the following terms shall have the following meanings:
"Environmental Law" - The Comprehensive Environmental Response Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. (S)9601 et seq.; the Resource Conservation and Recovery Act, 42
------
U.S.C. (S)6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
-------
(S)1802 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S)2601 et seq.;
------- -------
the Federal Water Pollution Control Act, 33 U.S.C. (S)1251 et seq.; the Clean
-------
Water Act, 33 U.S.C. (S)1321 et seq.; the Clean Air Act, 42 U.S.C. (S)7401 et
------- --
seq.; and any other federal, state, county, municipal or local statute, law,
- ----
ordinance or regulation which relates to or deals with human health or the
environment, all as may from time to time be amended or subsequently enacted.
"Hazardous Substances" - Asbestos, ureaformaldehyde, polychlorinated biphenyls,
nuclear fuel or material, chemical or medical waste, radioactive material,
explosives, known carcinogens,
3
<PAGE>
petroleum products and by-products and any other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified as such in, or regulated by, any Environmental Law.
Tenant covenants and agrees with Landlord that Tenant shall not use, or
permit the use of, the leased premises for the handling, storage,
transportation, manufacture, release or disposal of any Hazardous Substances,
except for Hazardous Substances of such types and in such quantities as normally
used in Tenant's business as specified in this Article, which are kept and used
in compliance with all Environmental Laws. In addition, the Tenant shall not
install or maintain, or permit the installation or maintenance of, any above-
ground or underground storage tanks for the storage of petroleum, petroleum by-
products or other Hazardous Substances in, about or under the leased premises
unless (i) the Tenant has obtained the prior written consent of the Landlord for
such installation and maintenance and (ii) the Tenant installs and maintains
such above-ground or underground storage tanks in compliance with all applicable
Environmental Laws. Upon the occurrence of an event of default hereunder or if
the Landlord receives information which leads the Landlord, in its reasonable
discretion, to believe that a Hazardous Substance is present on or is being
handled, stored, transported, manufactured, released or disposed of in, on or
about the leased premises, except as permitted above, the Landlord may, at its
option, through its employees, agents or independent contractors, enter upon the
leased premises and perform, at the Tenant's expense, environmental tests
(including core drilling), studies, investigations and reports from a reputable
environmental consultant chosen by Landlord. If any such environmental reports
indicates any presence, handling, storage, transportation, manufacture, release
or disposal of Hazardous Substances in, on or about the leased premises, except
as permitted above, the Landlord may require the Tenant, at the Tenant's
expense, to refrain from and take remedial action with respect to any such
presence, handling, storage, transportation, manufacture, release or disposal to
the satisfaction of the Landlord. The Tenant shall immediately notify the
Landlord in writing of any claim, investigation, administrative proceeding,
litigation, regulatory hearing or request or demand for remedial or response
action or for compensation which may be proposed, threatened or pending,
alleging the presence, handling, storage, transportation, manufacture, release,
disposal or improper handling of Hazardous Substances in, on or about the leased
premises not permitted hereby. The Landlord shall have the right, but not the
obligation, to join and participate in any such investigation, administrative
proceeding, litigation, regulatory hearing or other action, and Tenant shall pay
upon demand its attorneys' fees and expenses in connection therewith. The
Tenant shall not take any remedial or response action or enter into any
settlement or other compromise with respect to any claim, investigation,
administrative proceeding, litigation, regulatory hearing or request or demand
for remedial or response action or for compensation without prior written notice
to and consent by Tenant. Tenant shall defend, indemnify and hold Landlord
harmless from any and all claims, actions, damages, costs, expenses and
liability suffered or incurred or paid by or asserted against Landlord,
including but not limited to reasonable attorneys fees incurred in the defense
of such claims and actions, whether for cleanup or other response costs or for
damage to property, personal injury or death, and whether to public agencies or
authorities or to private persons (i) arising from or with respect to acts or
practices of Tenant occurring prior to or after the date hereof in violation of
any Environmental Law, or (ii) resulting from the presence on or about the
leased premises or the release from or onto the leased premises of any Hazardous
Substances
4
<PAGE>
occurring during the term of this Lease. The Tenant's liability hereunder shall
not be limited to the extent of insurance carried by or provided by the Tenant
or subject to any exclusions from coverage in any insurance policy.
The covenants and obligations of Tenant contained in this Article shall
survive expiration or earlier termination of the term of this Lease.
ARTICLE 8. UTILITIES. Tenant will pay or cause to be paid when due all
--------------------
charges for gas, water, sewer, electricity, telephone and other utilities and
services used, rendered or supplied to, upon or in connection with the leased
premises, and Landlord shall have no responsibility to supply the same. Without
limiting Tenant's general duty to maintain and repair, Tenant shall maintain in
good order and condition during the term and any renewal term of this Lease all
pipes, wires, conduits, boilers and other equipment for the provision of utility
services to the leased premises.
ARTICLE 9. INSURANCE.
--------------------
(a) Public Liability. At all times during the term and any renewal term of
this Lease, Tenant shall keep in full force and effect at its expense a policy
or policies of commercial general liability insurance with respect to the leased
premises and the business of Tenant and any subtenant, licensee or
concessionaire, with companies licensed to do business in the State of Illinois,
in which both Tenant and Landlord shall be named as insureds and adequately
covered under reasonable limits of liability not less than $2,000,000 general
liability aggregate and $1,000,000 per occurrence Such limits of liability shall
be adjusted as of each fifth anniversary of the commencement date of this Lease
according to the formula stated in Article 2 above. Tenant shall furnish
Landlord with certificates or other acceptable evidence that such insurance is
in effect, which evidence shall state that Landlord shall be notified in writing
thirty (30) days prior to cancellation, material change or renewal of insurance.
(b) Hazard Insurance. At all times during the term and any renewal term of
this Lease, Tenant shall keep in full force and effect a policy of Standard
Hazard Insurance, with companies licensed to do business in the State of
Illinois, covering all improvements on the property in the amount of their full
insurable replacement value, naming both Landlord and Tenant as insureds, but
payable only to Landlord and containing a loss payable clause as required by any
mortgagees of the leased premises; and shall furnish Landlord and all such
mortgagees with certificates or other acceptable evidence that such insurance is
in effect, which evidence shall state that Landlord and all such mortgagees
shall be notified in writing thirty (30) days prior to cancellation, material
change or renewal of such insurance. In the event any mortgagee of the leased
premises requires an escrow account to be maintained for the payment of hazard
insurance premiums, Tenant shall fund and make monthly or other periodic
payments to such an escrow account, all as may be required by such mortgagee.
Any funds held in such escrow account in excess of Tenant's accrued liability
under this Article shall be the property of Tenant and purchased by Landlord
upon expiration or termination of this Lease. Tenant may separately or under the
same policy insure any trade fixtures, equipment, supplies and other personal
property owned by Tenant and located upon the leased premises.
5
<PAGE>
(c) Waiver of Subrogation. To the extent such waiver does not void or
diminish the coverage under any policy, Landlord and Tenant hereby waive any
rights each may have against the other on account of any loss or damage
occasioned to Landlord or Tenant, as the case may be, or their respective
property, to the extent such loss or damage is covered by insurance carried by
either Landlord or Tenant or may be insured (regardless of whether coverage is
actually in effect) under Standard Hazard Insurance.
ARTICLE 10. NON-LIABILITY; COVENANTS TO HOLD HARMLESS. Landlord shall be
------------------------------------------------------
held harmless by Tenant from any liability for damages to any person or property
in or upon the leased premises and the sidewalks adjoining same, including the
property of Tenant and its employees and all persons in the building at its or
their invitation. All property kept, stored or maintained in the leased
premises shall be so kept, stored or maintained at the sole risk of Tenant.
Tenant agrees to make payment when due for any labor, services, materials,
supplies or equipment furnished or alleged to have been furnished to Tenant in
or about the leased premises which may be secured by any mechanic's,
materialmen's or other lien against the leased premises or the Landlord's
interest therein and will cause each such lien to be discharged at the time
performance of any obligation secured thereby i-natures; provided that Tenant
may contest such lien by appropriate proceedings which stay the enforcement
thereof, upon providing reasonable assurances or security to Landlord that
Tenant will pay the amount secured by such lien if found to be valid, but if
such lien is reduced to final judgment and if such judgment or process thereon
is not stayed, or if stayed and said stay expires, then and in such event Tenant
shall forthwith pay and discharge said judgment. Landlord shall have the right
to post and maintain on the leased premises notice of nonresponsibility under
the laws of Illinois.
ARTICLE 11. EMINENT DOMAIN.
--------------------------
(a) Entire Premises. If substantially all of the leased premises shall be
taken under the power of eminent domain then the term of this Lease shall cease
as of the day possession shall be taken and the rent shall be paid up to that
day with a proportionate refund by Landlord of such rent as may have been paid
in advance.
(b) Partial Taking. If more than twenty percent (20%) of the floor space
in the building or buildings located on the leased premises shall be taken under
the power of eminent domain, both Landlord and Tenant shall have the right to
terminate this Lease as of the day possession shall be taken by notice to the
other party given within ten (10) days after possession is so taken. If the
unexpired portion of the term or any renewal term of this Lease shall be two (2)
years or less at the date of taking of any portion of the building or buildings
located on the leased premises, Landlord shall have the right to terminate this
Lease as of the day possession shall be taken by like notice to Tenant. If more
than one third (1/3) of the parking area in the leased premises is taken under
the power of eminent domain, Tenant shall have the right to terminate this Lease
as of the day possession shall be taken by like notice to Landlord, unless
Landlord shall provide, on or before the day possession shall be taken, a
reasonably equivalent substitute parking area. Tenant shall be allowed a
reasonable time not to exceed thirty (30) days after any such termination to
vacate the remainder of the leased premises, and rent shall be paid
6
<PAGE>
up to the day possession shall be taken or the day Tenant vacates the remainder
of the leased premises, whichever is later.
(c) Continuation of Lease. In the event this Lease is not terminated
pursuant to paragraphs (a) or (b) of this Article, all the terms of this Lease
shall continue in effect, except that the base rent shall be reduced in
proportion to the reduction in floor space in the building or buildings located
on the leased premises as a result of the taking, and Landlord shall, at its own
cost and expense, make all necessary repairs or alterations to the basic
building or buildings, exterior and interior work to be in conformance with the
then existing architectural design of the improvements so as to constitute the
remaining premises a complete architectural unit.
(d) Damages. In any event all damages awarded for such taking under the
power of eminent domain, whether for the whole or a part of the leased premises,
shall belong to and be the property of Landlord whether such damages shall be
awarded as compensation for diminution in value to the leasehold or to the fee
of the premises; provided, however, that Landlord shall not be entitled to any
award made to Tenant for relocation benefits provided by Illinois law, "for
going concern" value of its business, loss of business, fair value of, and cost
of removal of stock and fixtures or for temporary requisition of the use or
occupancy of the leased premises or a part thereof, which shall belong to
Tenant.
(e) Definition. The term "eminent domain" shall include the exercise of
any similar power and any purchase or other acquisition in lieu of condemnation.
ARTICLE 12. DAMAGE.
-------------------
(a) Partial or Total Destruction. In case the leased premises shall be
partially or totally destroyed by fire or other casualty insurable under
Standard Hazard Insurance so as to become partially or totally untenantable, the
same, unless Landlord or Tenant shall terminate this Lease as hereinafter
provided, shall be repaired or rebuilt as quickly as practicable at the cost of
Landlord, and the base rent shall abate during the period of repair in
proportion to the portion of the floor space in the building or buildings
located on the leased premises that is untenantable or unfit for use by Tenant
in its business.
(b) Extensive Damage; Election. If the building or buildings located on
the leased premises shall be destroyed or damaged by fire or other casualty
insurable under Standard Hazard Insurance, so as to become wholly untenantable,
and:
1. the leased premises cannot be repaired or restored within one hundred
eighty days (180) after such damage or destruction; or
2. the unexpired portion of the term or any renewal term of this Lease is
two (2) years or less at the date of the damage;
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<PAGE>
then either Landlord or Tenant may terminate this Lease as of the date of such
destruction or damage by giving written notice to the other party of such
election within thirty (30) days after such damage or destruction.
ARTICLE 13. SURRENDER; HOLDING OVER. On the last day of the term or any
-----------------------------------
renewal term hereof or on the sooner termination thereof, Tenant shall peaceably
surrender the leased premises in good order, condition and repair, broom-clean,
fire and other casualty insurable under Standard Hazard Insurance and reasonable
wear and tear only excepted. Tenant shall repair any damage to the leased
premises caused by removal of Tenant's trade fixtures or equipment. Any of
Tenant's property not removed on the last day of the term or any renewal term
hereof or on the sooner termination thereof, shall be deemed abandoned. In the
event Tenant remains in possession of the leased premises after the expiration
of the term and any renewal term of this Lease without the execution of a new
lease but with the acquiescence of Landlord, it shall be deemed to be occupying
said premises as a Tenant from month-to-month, subject to all the conditions,
provisions and obligations of this Lease insofar as the same can be applicable
to a month-to-month tenancy. The period of such month-to-month tenancy shall be
considered a renewal term of this Lease.
If Tenant desires to lease the leased premises after the expiration of the
term and any renewal term of this Lease, Tenant will notify Landlord of Tenant's
desire to enter into a lease of the leased premises at least six (6) months
prior to the expiration of the term or the renewal term, as the case may be.
ARTICLE 14. DEFAULT; REMEDIES.
------------------------------
(a) Default. The occurrence of any of the following shall constitute an
event of default under this Lease:
1. Tenant shall have failed to pay any installment of base rent to
Landlord when the same shall be due and payable; or
2. Tenant shall have failed to keep in full force and effect the
insurance policies required by Article 9 above or shall have failed to
pay taxes and special assessments when due as required by Article 4
above; or
3. Tenant shall have failed to comply with any other provision of this
Lease, and shall not have cured such failure within thirty (30) days
after Landlord, by written notice, has informed Tenant of such
noncompliance; provided, however, in the case of a default which
cannot be cured, with due diligence, within a period of thirty (30)
days, Tenant shall have such additional time to cure such default as
may be reasonably necessary, provided that Tenant proceeds promptly
and with due diligence to cure such default after receipt of said
notice; or
4. Tenant shall have filed a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee for it
or its property,
8
<PAGE>
or any similar petition, or shall have made an assignment for the
benefit of creditors, or an order for relief shall have been entered
in any proceeding under the federal Bankruptcy Code in which Tenant is
named as the debtor; or
5. Any involuntary petition of the type or similar to those referred to
in Paragraph 4 of this Subsection (a) shall have been filed against
Tenant, and shall not be vacated or withdrawn within sixty (60) days
after the date of the filing thereof; or
6. Tenant shall have abandoned the leased premises, which shall be
conclusively presumed if Tenant shall vacate the premises for thirty
(30) days without giving written notice of its intent to return to
possession of the leased premises.
(b) Remedies. Whenever any event of default shall have occurred and be
subsisting, Landlord may elect either:
1. To cancel and terminate this Lease; or
2. To reenter and take possession of the leased premises, and terminate
Tenant's right to possession of the leased premises, without
terminating this Lease or any of Tenant's obligations for the balance
of the term of this Lease.
Landlord may at any time elect to terminate this Lease despite a prior election
to exercise its remedies under Paragraph 2 above. In the event Landlord
exercises its remedies under Paragraph 2 above, it may remove all persons and
property from the leased premises and store such property at the cost of and for
the account of Tenant, may make alterations and repairs and redecorate the
premises to the extent deemed by Landlord necessary or desirable, and may relet
the premises, or any part thereof, for the account of Tenant, to any person,
firm or corporation, other than Tenant, for such rent, for such time and upon
such terms as Landlord, in Landlord's sole discretion, shall determine; but
Landlord shall not be required to accept any tenant offered by Tenant or to
observe any instruction given by Tenant concerning such reletting. Any rent and
other amounts received by Landlord upon such reletting shall be applied first to
the costs and expenses of Landlord in regaining possession of the leased
premises, storing property removed from the premises, making alterations or
repairs or redecorating the leased premises, and reletting the premises,
including, without limitation, brokerage and reasonable attorneys fees, then to
the rentals and other obligations of Tenant under this Lease, and any surplus
shall be paid to Tenant.
In the event Landlord elects to terminate this Lease, all base rent and
payments for hazard insurance premiums and taxes (excluding special assessments)
for the balance of the term or any renewal term of this Lease shall be
immediately due and payable to Landlord, without credit for any subsequent
reletting by Landlord, provided that all such payments shall be discounted from
the unaccelerated due dates to present value on the date of termination, using a
discount factor of five percent (5%), and such accelerated payments shall bear
interest from the date of termination to the date actually paid at the rate of
ten percent (10%) per annum. For purposes of making this calculation, payments
for hazard insurance premiums shall be presumed to remain the same as the last
annual hazard insurance premium paid, and to be due and payable on each
anniversary of
9
<PAGE>
said last hazard insurance premium payments and payments for taxes and
installments of special assessments shall be presumed to remain the same as the
last semiannual payment of taxes and installments of special assessments, and to
be due and payable semi-annually on May 15 and October 15 of each year.
ARTICLE 15. PRIOR LEASE. This Lease supersedes the existing lease between
------------------------
Landlord and Tenant with respect to the leased premises (the "Prior Lease"),
which shall have no further force or effect as of the date hereof, except for
Tenant's continuing obligation to pay rent and perform its obligations which
accrued under the Prior Lease prior to the date hereof which shall continue in
effect until such rent has been paid and such obligations performed.
ARTICLE 16. NOTICES. Any notice required or permitted under this Lease
--------------------
shall be deemed sufficiently given or served when personally delivered (in
person, by commercial courier service, by facsimile with confirmed transmission,
or otherwise) or forty-eight (48) hours after mailed by registered or certified
mail to Tenant at the address of the leased premises and to Landlord at the
address then fixed for the payment of rent, and either party may by like written
notice at any time designate a different address to which notices shall
subsequently be sent.
ARTICLE 17. GENERAL. This Lease does not create the relationship of
--------------------
principal and agent or of partnership or of joint venture or of any association
between Landlord and Tenant, the sole relationship between Landlord and Tenant
being that of Landlord and Tenant. One or more waivers of any default of Tenant
by Landlord shall not be construed as a waiver of a subsequent breach of the
same covenant, term or condition. The consent to or approval by Landlord of any
act by Tenant requiring Landlord's consent or approval shall not waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant. Each term and each provision of this Lease performable by Tenant shall
be construed to be both a covenant and a condition. The marginal or topical
headings of the several articles, paragraphs and clauses are for convenience
only and do not define, limit or construe the contents of such articles,
paragraphs or clauses. All preliminary negotiations and all prior written
agreements regarding the subject matter of this Lease (including, without
limitation, the Prior Lease) are superseded and merged into and incorporated in
this Lease. The laws of the State of Illinois shall govern the validity,
performance and enforcement of this Lease. The terms, covenants and conditions
hereof shall be binding upon and inure to the benefit of the successors in
interest and assigns of the parties hereto.
ARTICLE 18. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
----------------------------
that upon Tenant paying the rent and performing all of the terms and conditions
on Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the premises hereby leased, subject, nevertheless, to the terms and
conditions of this Lease.
ARTICLE 19. SUBORDINATION. Tenant agrees that its interest in the leased
--------------------------
premises is and shall be subordinate to any mortgages that may hereafter be
placed upon said premises and to any and all advances to be made thereunder, and
to the interest thereon and all renewals, replacements and extensions thereof,
provided the mortgagee named in said mortgages shall agree not to disturb
Tenant's occupancy under this Lease in the event of foreclosure if Tenant is
10
<PAGE>
not in default beyond applicable periods of grace. Tenant agrees to execute such
documents as may be reasonably required by such mortgagee to confirm the same.
In the event that any mortgagee elects to have the Lease a prior lien to its
mortgage, then and in such event upon such mortgagee notifying Tenant to that
effect, this Lease shall be deemed prior in lien to the said mortgage, whether
this Lease is dated prior to or subsequent to the date of said mortgage.
ARTICLE 20. ASSIGNMENT AND SUBLETTING. Landlord may freely transfer the
--------------------------------------
leased premises, subject to this Lease, and/or assign its rights under this
Lease. Upon any transfer of the leased premises, subject to this Lease,
Landlord shall be relieved of all of its obligations under this Lease provided
the transferee assumes such obligations in writing. Tenant shall not assign
this Lease or sublease all or part of the leased premises without the prior
written consent of Landlord; provided that Tenant shall have the right to assign
its interest under this Lease one time and one time only in connection with the
sale or transfer of all or substantially all the assets of Tenant including all
or substantially all of Tenant's assets located at the leased premises.
ARTICLE 21. MEMORANDUM OF LEASE. The parties agree not to record or
--------------------------------
register this Lease, but the parties shall execute on the date hereof two (2)
copies of the Memorandum of Lease attached hereto as Exhibit B, and either party
may record or register said Memorandum of Lease.
11
<PAGE>
IN WITNESS WHEREOF, the Landlord and the Tenant have caused this Lease to be
executed as of the day and year first above written.
J & K PROPERTIES
By______________________________________
Karen Wood, Partner
And_____________________________________
Jean M. Brown, Partner
NORTH STAR PLATING COMPANY
By______________________________________
Its______________________________
[SIGNATURE PAGE TO BUILDING LEASE BETWEEN
J & K PROPERTIES AND
NORTH STAR PLATING COMPANY]
2021682-1
12
<PAGE>
EXHIBIT A
TO
BUILDING LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
[To be provided.]
<PAGE>
EXHIBIT B
TO
BUILDING LEASE
MEMORANDUM OF LEASE
THIS AGREEMENT, Made and entered into as of the ____, day of
_____________ 1995, by and between J & K PROPERTIES, a Minnesota general
partnership (hereinafter referred to as "Landlord"), and NORTH STAR PLATING
COMPANY, a Minnesota corporation (hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, the parties have this day entered into that certain Building
Lease, wherein Landlord has leased to Tenant certain property located in the
City of Peoria, Illinois, described in Exhibit A attached hereto, which premises
---------
are hereinafter referred to as the "leased premises".
NOW, THEREFORE, in consideration of the mutual covenants contained in said
Lease and for other good and valuable consideration, Landlord hereby leases to
Tenant, upon the terms and conditions and for the rent set forth in the Lease,
which is hereby incorporated herein and made a part hereof, the leased premises,
for a term of ten (10) years from the date hereof.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day and
year first above written.
J & K PROPERTIES
By______________________________________
Karen Wood, Partner
And_____________________________________
Jean M. Brown, Partner
NORTH STAR PLATING COMPANY
By______________________________________
Its___________________________
1
<PAGE>
STATE OF MINNESOTA )
)SS.
COUNTY OF___________ )
The foregoing instrument was acknowledged before me this _____ day of
__________, 1995, by Karen Wood and Jean M. Brown, partners of J & K PROPERTIES,
a Minnesota general partnership, on behalf of the partnership.
(Notarial Seal) _______________________________
Notary Public
STATE OF MINNESOTA )
)SS.
COUNTY OF___________ )
The foregoing instrument was acknowledged before me this _____ day of
__________, 1995, by _______________________, the ______________________ of
NORTH STAR PLATING COMPANY, A Minnesota Corporation, on behalf of the
corporation.
(Notarial Seal) _______________________________
Notary Public
THIS INSTRUMENT DRAFTED BY:
FREDRIKSON & BYRON, P.A.
I 1 00 International Centre
900 Second Avenue South
Minneapolis, MN 55402
2
<PAGE>
EXHIBIT A
TO
MEMORANDUM OF LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
[To be provided.]
3
<PAGE>
EXHIBIT 10.42
NORTH STAR PLATING COMPANY
BUILDING LEASE
(BRAINERD INDUSTRIAL PARK)
THIS LEASE, Made and entered into as of the 1st day of January, 1995, by
and between BX PROPERTIES, a Minnesota general partnership of Marjorie A. Wood
and Jean M. Brown (hereinafter referred to as "Landlord"), and NORTH STAR
PLATING COMPANY, a Minnesota corporation (hereinafter referred to as "Tenant").
W I T N E S S E T H :
Landlord hereby leases to Tenant, and Tenant leases from Landlord the
premises described in Exhibit A attached and hereby made a part hereof, which
----------
premises are hereinafter referred to as the "leased premises."
TO HAVE AND TO HOLD the leased premises and appurtenances for a term of ten
(10) years, commencing on the date hereof and ending at 12:00 midnight, on the
tenth (10th) anniversary of the date hereof, plus any renewal term pursuant to
Article 13 hereinbelow, subject to the following terms and conditions.
ARTICLE 1. RENT. Landlord reserves and Tenant covenants to pay to
----------------
Landlord, without demand, at the place at which notices to Landlord are to be
given pursuant to Article 16, base rent for the leased premises of Twenty One
Thousand Three Hundred Dollars ($21,300.00) per calendar month payable in
advance on the first day of each and every calendar month during the term and
any renewal term of this Lease. A pro rata portion of such monthly base rent
shall be due for any partial calendar month during the term or any renewal term
of this Lease, in proportion to the number of days of such calendar month
falling within the term or renewal term.
ARTICLE 2. ESCALATION OF BASE RENT. The monthly base rent shall be
-----------------------------------
increased as of the first day of the calendar month following the first (1st)
anniversary of the commencement date of this Lease and following every
anniversary of the commencement date of this Lease thereafter, during the term
and any renewal term of this Lease, by a percentage equal to the percentage
increase in the Consumers' Price Index for All Urban Consumers for the
Minneapolis/St. Paul Metropolitan Area, "All Items" [1982-84 = 100] published by
the United States Bureau of Labor Statistics (the "CPIU") between the CPIU last
published as of the commencement date of this Lease or the second previous
anniversary of the commencement date of this Lease, as the case may be, and the
CPIU last published as of the immediately preceding anniversary of the
commencement date of this Lease. Such adjusted monthly rent shall be rounded to
the nearest One Dollar ($1.00). Should the CPIU be discontinued, or discontinued
for the Minneapolis/St. Paul Metropolitan Area, a similar figure representative
of an overall price average for the Minneapolis/St. Paul Metropolitan Area shall
be used or the Consumers' Price Index for All Urban Consumers "All Items" for
the United States shall be used.
1
<PAGE>
FOR EXAMPLE: Assume the CPIU last published as of the first anniversary of
the date hereof (in 1996) is 140 and the CPIU last published as of the second
anniversary of the date hereof (in 1997) is 144.2 (representing a 3% annual
increase), the monthly base rent shall be increased as of the first day of the
calendar month following the second anniversary of the date hereof by 1.5 %.
ARTICLE 3. NET LEASE. Without limitation of the specific provisions of
--------------------
this Lease, the parties declare that this Lease shall be construed in all
respects to be a net lease, with all expenses of operating, maintaining and
insuring the leased premises, and paying taxes and special assessments and
similar charges against the leased premises, to be borne by Tenant, with the
exception only of reasonable wear and tear and loss by reason of fire and other
casualty insurable under the current "special cause of loss" form of building
and personal property insurance policy published by the Insurance Services
Office or equivalent (hereinafter referred to as "Standard Hazard Insurance").
ARTICLE 4. TAXES AND SPECIAL ASSESSMENTS. Tenant shall pay, when due and
-----------------------------------------
before penalty attaches, all real estate taxes and installments of special
assessments, and any similar charges or liens due and payable during the term
hereof with respect to the leased premises and improvements situated thereon,
provided that election shall be made to pay any special assessment over the
longest period allowed by law. For any partial calendar year at the end of the
term or any renewal term of this Lease, Tenant shall be responsible for a pro
rata portion of such taxes and special assessments due and payable in such
calendar year in proportion to the number of days of such calendar year falling
within the term or renewal term of this Lease, and appropriate adjustments shall
be made at the beginning of the term and at the end of the term or renewal term
hereof. Tenant shall be responsible for all taxes and installments of special
assessments payable in the year 1995, since Tenant will occupy the leased
premises for the entire year, either pursuant to this Lease or pursuant to the
Prior Lease (as defined in Article 15 below). In the event any mortgagee of the
leased premises requires an escrow account to be maintained for the payment of
real estate taxes and special assessments, with respect to the leased premises
and improvements situated thereon, Tenant shall fund and make monthly or other
periodic payments to such an escrow account all as may be required by such
mortgagee. Any funds held in such escrow account in excess of Tenant's accrued
liability under this Article 4 shall be the property of Tenant and purchased by
Landlord upon expiration or termination of this Lease.
ARTICLE 5. MAINTENANCE AND REPAIR. Tenant hereby accepts the leased
----------------------------------
premises in the condition they are in. Tenant, at its sole cost and expense,
will keep, maintain and rebuild, if necessary, the leased premises, including
any altered, rebuilt, additional or substituted improvements, in good repair and
appearance during the term and any renewal term of this Lease, ordinary wear and
tear and damage by fire or other casualty insurable under Standard Hazard
Insurance excepted. All repairs made by Tenant shall be at least equal to the
original work in class and quality. Tenant shall put, keep and maintain all
portions of the leased premises and the sidewalks, curbs, drives, parking areas,
landscaped areas, and passageways adjoining the same in a clean and orderly
condition, free of dirt, rubbish, snow, ice and unlawful obstructions.
ARTICLE 6. ALTERATIONS AND ADDITIONS. Tenant may, at any time and from
-------------------------------------
time to time during the term and any renewal term of this Lease, at its sole
cost and expense,
2
<PAGE>
make additions to, alterations of, substitutions and replacements for, and
removals from the improvements on the leased premises (hereinafter
"alterations"), provided, however, that (i) the total market value of the leased
premises shall not be lessened by reason of any such alterations, (ii) any
alterations shall be done in a good and first class workmanlike manner, (iii)
all such alterations shall be expeditiously completed in compliance with all
laws, ordinances, orders, rules, regulations and requirements applicable
thereto, (iv) if Tenant or Tenant's contractor estimates that any such
alterations will cost more than Ten Thousand and no/100 Dollars ($10,000.00),
Tenant shall give to Landlord notice of its intention to undertake the same at
least thirty (30) days prior to commencement of the work, and (v) prior to
commencement of the work Tenant shall have obtained all required consents and
approvals of all mortgagees of the leased premises. Tenant shall promptly pay
for all such alterations and shall hold Landlord harmless from any liens or
charges against the leased premises by reason of any such work. Tenant shall
procure and pay for all required permits, certificates and licenses in
connection with such alterations. All such alterations shall become the property
of Landlord, except that trade fixtures which may be removed without material
damage to the leased premises shall remain the property of Tenant.
ARTICLE 7. USE OF LEASED PREMISES; COMPLIANCE WITH LAWS; ENVIRONMENTAL
--------------------------------------------------------- -------------
COVENANTS. The leased premises shall be used and occupied by Tenant as an
- ---------
automotive bumper sales and repair facility and other ancillary purposes, and
for no other purpose, and such use and occupancy shall be in compliance with all
applicable laws, ordinances and governmental regulations. Without limiting the
foregoing, Tenant shall, at Tenant's expense, make all such improvements and
alterations required by reason of Tenant's use of the leased premises under the
Americans with Disabilities Act and shall comply with all Environmental Laws as
hereinafter provided, and Landlord shall have no responsibility for the same.
Tenant shall indemnify, defend and hold harmless Landlord from any loss or
liability incurred by reason of any failure by Tenant to comply with applicable
laws in its use and occupancy of the leased premises.
As used herein, the following terms shall have the following meanings:
"Environmental Law" - The Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. (S)9601 et seq.; the Resource Conservation and Recovery Act, 42
-------
U.S.C. (S)6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
-------
(S)1802 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S)2601 et seq.;
------- -------
the Federal Water Pollution Control Act, 33 U.S.C. (S)1251 et seq.; the Clean
-------
Water Act, 33 U.S.C. (S)1321 et seq.; the Clean Air Act, 42 U.S.C. (S)7401 et
------- --
seq.; the Minnesota Environmental Response and Liability Act, Minn. Stat. Chap.
- ----
115B; the Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat. Chap. 115C;
and any other federal, state, county, municipal or local statute, law, ordinance
or regulation which relates to or deals with human health or the environment,
all as may from time to time be amended or subsequently enacted.
"Hazardous Substances" - Asbestos, ureaformaldehyde, polychlorinated biphenyls,
nuclear fuel or material, chemical or medical waste, radioactive material,
explosives, known carcinogens, petroleum products and by-products and any other
dangerous, toxic or hazardous pollutants, contaminants, chemicals, materials or
substances listed or identified as such in, or regulated by, any Environmental
Law.
3
<PAGE>
Tenant covenants and agrees with Landlord that Tenant shall not use, or
permit the use of, the leased premises for the handling, storage,
transportation, manufacture, release or disposal of any Hazardous Substances,
except for Hazardous Substances of such types and in such quantities as normally
used in Tenant's business as specified in this Article, which are kept and used
in compliance with all Environmental Laws. In addition, the Tenant shall not
install or maintain, or permit the installation or maintenance of, any above-
ground or underground storage tanks for the storage of petroleum, petroleum by-
products or other Hazardous Substances in, about or under the leased premises
unless (i) the Tenant has obtained the prior written consent of the Landlord for
such installation and maintenance and (ii) the Tenant installs and maintains
such above-ground or underground storage tanks in compliance with all applicable
Environmental Laws. Upon the occurrence of an event of default hereunder or if
the Landlord receives information which leads the Landlord, in its reasonable
discretion, to believe that a Hazardous Substance is present on or is being
handled, stored, transported, manufactured, released or disposed of in, on or
about the leased premises, except as permitted above, the Landlord may, at its
option, through its employees, agents or independent contractors, enter upon the
leased premises and perform, at the Tenant's expense, environmental tests
(including core drilling), studies, investigations and reports from a reputable
environmental consultant chosen by Landlord. If any such environmental reports
indicates any presence, handling, storage, transportation, manufacture, release
or disposal of Hazardous Substances in, on or about the leased premises, except
as permitted above, the Landlord may require the Tenant, at the Tenant's
expense, to refrain from and take remedial action with respect to any such
presence, handling, storage, transportation, manufacture, release or disposal to
the satisfaction of the Landlord. The Tenant shall immediately notify the
Landlord in writing of any claim, investigation, administrative proceeding,
litigation, regulatory hearing or request or demand for remedial or response
action or for compensation which may be proposed, threatened or pending,
alleging the presence, handling, storage, transportation, manufacture, release,
disposal or improper handling of Hazardous Substances in, on or about the leased
premises not permitted hereby. The Landlord shall have the right, but not the
obligation, to join and participate in any such investigation, administrative
proceeding, litigation, regulatory hearing or other action, and Tenant shall pay
upon demand its attorneys' fees and expenses in connection therewith. The
Tenant shall not take any remedial or response action or enter into any
settlement or other compromise with respect to any claim, investigation,
administrative proceeding, litigation, regulatory hearing or request or demand
for remedial or response action or for compensation without prior written notice
to and consent by Tenant.
Tenant shall defend, indemnify and hold Landlord harmless from any and all
claims, actions, damages, costs, expenses and liability suffered or incurred or
paid by or asserted against Landlord, including but not limited to reasonable
attorneys fees incurred in the defense of such claims and actions, whether for
cleanup or other response costs or for damage to property, personal injury or
death, and whether to public agencies or authorities or to private persons (i)
arising from or with respect to acts or practices of Tenant occurring prior to
or after the date hereof in violation of any Environmental Law, or (ii)
resulting from the presence on or about the leased premises or the release from
or onto the leased premises of any Hazardous Substances occurring during the
term of this Lease. The Tenant's liability hereunder shall not be limited to
the extent of insurance carried by or provided by the Tenant or subject to any
exclusions from coverage in any insurance policy.
4
<PAGE>
The covenants and obligations of Tenant contained in this Article shall
survive expiration or earlier termination of the term of this Lease.
ARTICLE 8. UTILITIES. Tenant will pay or cause to be paid when due all
---------------------
charges for gas, water, sewer, electricity, telephone and other utilities and
services used, rendered or supplied to, upon or in connection with the leased
premises, and Landlord shall have no responsibility to supply the same. Without
limiting Tenant's general duty to maintain and repair, Tenant shall maintain in
good order and condition during the term and any renewal term of this Lease all
pipes, wires, conduits, boilers and other equipment for the provision of utility
services to the leased premises.
ARTICLE 9. INSURANCE.
---------------------
(a) Public Liability. At all times during the term and any renewal term of
this Lease, Tenant shall keep in full force and effect at its expense a policy
or policies of commercial general liability insurance with respect to the leased
premises and the business of Tenant and any subtenant, licensee or
concessionaire, with companies licensed to do business in the State of
Minnesota, in which both Tenant and Landlord shall be named as insureds and
adequately covered under reasonable limits of liability not less than $2,000,000
general liability aggregate and $1,000,000 per occurrence. Such limits of
liability shall be adjusted as of each fifth anniversary of the commencement
date of this Lease according to the formula stated in Article 2 above. Tenant
shall furnish Landlord with certificates or other acceptable evidence that such
insurance is in effect, which evidence shall state that Landlord shall be
notified in writing thirty (30) days prior to cancellation, material change or
renewal of insurance.
(b) Hazard Insurance. At all times during the term and any renewal term of
this Lease, Tenant shall keep in full force and effect a policy of Standard
Hazard Insurance, with companies licensed to do business in the State of
Minnesota, covering all improvements on the property in the amount of their full
insurable replacement value, naming both Landlord and Tenant as insureds, but
payable only to Landlord and containing a loss payable clause as required by any
mortgagees of the leased premises; and shall furnish Landlord and all such
mortgagees with certificates or other acceptable evidence that such insurance is
in effect, which evidence shall state that Landlord and all such mortgagees
shall be notified in writing thirty (30) days prior to cancellation, material
change or renewal of such insurance. In the event any mortgagee of the leased
premises requires an escrow account to be maintained for the payment of hazard
insurance premiums, Tenant shall fund and make monthly or other periodic
payments to such an escrow account, all as may be required by such mortgagee.
Any funds held in such escrow account in excess of Tenant's accrued liability
under this Article shall be the property of Tenant and purchased by Landlord
upon expiration or termination of this Lease. Tenant may separately or under the
same policy insure any trade fixtures, equipment, supplies and other personal
property owned by Tenant and located upon the leased premises.
(c) Waiver of Subrogation. To the extent such waiver does not void or
diminish the coverage under any policy, Landlord and Tenant hereby waive any
rights each may have against the other on account of any loss or damage
occasioned to Landlord or Tenant, as the case may be, or their respective
property, to the extent such loss or damage is covered by insurance carried
5
<PAGE>
by either Landlord or Tenant or may be insured (regardless of whether coverage
is actually in effect) under Standard Hazard Insurance.
ARTICLE 10. NON-LIABILITY; COVENANTS TO HOLD HARMLESS. Landlord shall be
------------------------------------------------------
held harmless by Tenant from any liability for damages to any person or property
in or upon the leased premises and the sidewalks adjoining same, including the
property of Tenant and its employees and all persons in the building at its or
their invitation. All property kept, stored or maintained in the leased
premises shall be so kept, stored or maintained at the sole risk of Tenant.
Tenant agrees to make payment when due for any labor, services, materials,
supplies or equipment furnished or alleged to have been furnished to Tenant in
or about the leased premises which may be secured by any mechanic's,
materialmen's or other lien against the leased premises or the Landlord's
interest therein and will cause each such lien to be discharged at the time
performance of any obligation secured thereby matures; provided that Tenant may
contest such lien by appropriate proceedings which stay the enforcement thereof,
upon providing reasonable assurances or security to Landlord that Tenant will
pay the amount secured by such lien if found to be valid, but if such lien is
reduced to final judgment and if such judgment or process thereon is not stayed,
or if stayed and said stay expires, then and in such event Tenant shall
forthwith pay and discharge said judgment. Landlord shall have the right to
post and maintain on the leased premises notice of nonresponsibility under the
laws of Minnesota.
ARTICLE 11. EMINENT DOMAIN.
---------------------------
(a) Entire Premises. If substantially all of the leased premises shall be
taken under the power of eminent domain then the term of this Lease shall cease
as of the day possession shall be taken and the rent shall be paid up to that
day with a proportionate refund by Landlord of such rent as may have been paid
in advance.
(b) Partial Taking. If more than twenty percent (20%) of the floor space
in the building or buildings located on the leased premises shall be taken under
the power of eminent domain, both Landlord and Tenant shall have the right to
terminate this Lease as of the day possession shall be taken by notice to the
other party given within ten (10) days after possession is so taken. If the
unexpired portion of the term or any renewal term of this Lease shall be two (2)
years or less at the date of taking of any portion of the building or buildings
located on the leased premises, Landlord shall have the right to terminate this
Lease as of the day possession shall be taken by like notice to Tenant. If more
than one third (1/3) of the parking area in the leased premises is taken under
the power of eminent domain, Tenant shall have the right to terminate this Lease
as of the day possession shall be taken by like notice to Landlord, unless
Landlord shall provide, on or before the day possession shall be taken, a
reasonably equivalent substitute parking area. Tenant shall be allowed a
reasonable time not to exceed thirty (30) days after any such termination to
vacate the remainder of the leased premises, and rent shall be paid up to the
day possession shall be taken or the day Tenant vacates the remainder of the
leased premises, whichever is later.
(c) Continuation of Lease. In the event this Lease is not terminated
pursuant to paragraphs (a) or (b) of this Article, all the terms of this Lease
shall continue in effect, except that the base rent shall be reduced in
proportion to the reduction in floor space in the building or
6
<PAGE>
buildings located on the leased premises as a result of the taking, and Landlord
shall, at its own cost and expense, make all necessary repairs or alterations to
the basic building or buildings, exterior and interior work to be in conformance
with the then existing architectural design of the improvements so as to
constitute the remaining premises a complete architectural unit.
(d) Damages. In any event all damages awarded for such taking under the
power of eminent domain, whether for the whole or a part of the leased premises,
shall belong to and be the property of Landlord whether such damages shall be
awarded as compensation for diminution in value to the leasehold or to the fee
of the premises; provided, however, that Landlord shall not be entitled to any
award made to Tenant for relocation benefits provided by M.S.A. Section 117.52
or similar successor statute, for "going concern" value of its business, loss of
business, fair value of, and cost of removal of stock and fixtures or for
temporary requisition of the use or occupancy of the leased premises or a part
thereof, which shall belong to Tenant.
(e) Definition. The term "eminent domain" shall include the exercise of
any similar power and any purchase or other acquisition in lieu of condemnation.
ARTICLE 12. DAMAGE.
-------------------
(a) Partial or Total Destruction. In case the leased premises shall be
partially or totally destroyed by fire or other casualty insurable under
Standard Hazard Insurance so as to become partially or totally untenantable, the
same, unless Landlord or Tenant shall terminate this Lease as hereinafter
provided, shall be repaired or rebuilt as quickly as practicable at the cost of
Landlord, and the base rent shall abate during the period of repair in
proportion to the portion of the floor space in the building or buildings
located on the leased premises that is untenantable or unfit for use by Tenant
in its business.
(b) Extensive Damage; Election. If the building or buildings located on
the leased premises shall be destroyed or damaged by fire or other casualty
insurable under Standard Hazard Insurance, so as to become wholly untenantable,
and:
1. the leased premises cannot be repaired or restored within one hundred
eighty days (180) after such damage or destruction; or
2. the unexpired portion of the term or any renewal term of this Lease is
two (2) years or less at the date of the damage;
then either Landlord or Tenant may terminate this Lease as of the date of such
destruction or damage by giving written notice to the other party of such
election within thirty (30) days after such damage or destruction.
ARTICLE 13. SURRENDER; HOLDING OVER. On the last day of the term or any
------------------------------------
renewal term hereof or on the sooner termination thereof, Tenant shall peaceably
surrender the leased premises in good order, condition and repair, broom-clean,
fire and other casualty insurable under Standard Hazard Insurance and reasonable
wear and tear only excepted. Tenant shall repair any damage to the leased
premises caused by removal of Tenant's trade fixtures or equipment. Any of
Tenant's property not removed on the last day of the term or any renewal term
7
<PAGE>
hereof or on the sooner termination thereof, shall be deemed abandoned. In the
event Tenant remains in possession of the leased premises after the expiration
of the term and any renewal term of this Lease without the execution of a new
lease but with the acquiescence of Landlord, it shall be deemed to be occupying
said premises as a Tenant from month-to-month, subject to all the conditions,
provisions and obligations of this Lease insofar as the same can be applicable
to a month-to-month tenancy. The period of such month-to-month tenancy shall be
considered a renewal term of this Lease.
If Tenant desires to lease the leased premises after the expiration of the
term and any renewal term of this Lease, Tenant will notify Landlord of Tenant's
desire to enter into a lease of the leased premises at least six (6) months
prior to the expiration of the term or the renewal term, as the case may be.
ARTICLE 14. DEFAULT; REMEDIES.
------------------------------
(a) Default. The occurrence of any of the following shall constitute an
event of default under this Lease:
1. Tenant shall have failed to pay any installment of base rent to
Landlord when the same shall be due and payable; or
2. Tenant shall have failed to keep in full force and effect the
insurance policies required by Article 9 above or shall have failed to
pay taxes and special assessments when due as required by Article 4
above; or
3. Tenant shall have failed to comply with any other provision of this
Lease, and shall not have cured such failure within thirty (30) days
after Landlord, by written notice, has informed Tenant of such
noncompliance; provided, however, in the case of a default which
cannot be cured, with due diligence, within a period of thirty (30)
days, Tenant shall have such additional time to cure such default as
may be reasonably necessary, provided that Tenant proceeds promptly
and with due diligence to cure such default after receipt of said
notice; or
4. Tenant shall have filed a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee for it
or its property, or any similar petition, or shall have made an
assignment for the benefit of creditors, or an order for relief shall
have been entered in any proceeding under the federal Bankruptcy Code
in which Tenant is named as the debtor; or
5. Any involuntary petition of the type or similar to those referred to
in Paragraph 4 of this Subsection (a) shall have been filed against
Tenant, and shall not be vacated or withdrawn within sixty (60) days
after the date of the filing thereof; or
6. Tenant shall have abandoned the leased premises, which shall be
conclusively presumed if Tenant shall vacate the premises for thirty
(30) days without giving written notice of its intent to return to
possession of the leased premises.
8
<PAGE>
(b) Remedies. Whenever any event of default shall have occurred and be
subsisting, Landlord may elect either:
1. To cancel and terminate this Lease; or
2. To reenter and take possession of the leased premises, and terminate
Tenant's right to possession of the leased premises, without
terminating this Lease or any of Tenant's obligations for the balance
of the term of this Lease.
Landlord may at any time elect to terminate this Lease despite a prior election
to exercise its remedies under Paragraph 2 above. In the event Landlord
exercises its remedies under Paragraph 2 above, it may remove all persons and
property from the leased premises and store such property at the cost of and for
the account of Tenant, may make alterations and repairs and redecorate the
premises to the extent deemed by Landlord necessary or desirable, and may relet
the premises, or any part thereof, for the account of Tenant, to any person,
firm or corporation, other than Tenant, for such rent, for such time and upon
such terms as Landlord, in Landlord's sole discretion, shall determine; but
Landlord shall not be required to accept any tenant offered by Tenant or to
observe any instruction given by Tenant concerning such reletting. Any rent and
other amounts received by Landlord upon such reletting shall be applied first to
the costs and expenses of Landlord in regaining possession of the leased
premises, storing property removed from the premises, making alterations or
repairs or redecorating the leased premises, and reletting the premises,
including, without limitation, brokerage and reasonable attorneys fees, then to
the rentals and other obligations of Tenant under this Lease, and any surplus
shall be paid to Tenant.
In the event Landlord elects to terminate this Lease, all base rent and
payments for hazard insurance premiums and taxes (excluding special assessments)
for the balance of the term or any renewal term of this Lease shall be
immediately due and payable to Landlord, without credit for any subsequent
reletting by Landlord, provided that all such payments shall be discounted from
the unaccelerated due dates to present value on the date of termination, using a
discount factor of five percent (5%), and such accelerated payments shall bear
interest from the date of termination to the date actually paid at the rate of
ten percent (10%) per annum. For purposes of making this calculation, payments
for hazard insurance premiums shall be presumed to remain the same as the last
annual hazard insurance premium paid, and to be due and payable on each
anniversary of said last hazard insurance premium payments and payments for
taxes and installments of special assessments shall be presumed to remain the
same as the last semiannual payment of taxes and installments of special
assessments, and to be due and payable semi-annually on May 15 and October 15 of
each year.
ARTICLE 15. PRIOR LEASE. This Lease supersedes the existing lease between
------------------------
Landlord and Tenant with respect to the leased premises (the "Prior Lease"),
which shall have no further force or effect as of the date hereof, except for
Tenant's continuing obligation to pay rent and perform its obligations which
accrued under the Prior Lease prior to the date hereof which shall continue in
effect until such rent has been paid and such obligations performed.
ARTICLE 16. NOTICES. Any notice required or permitted under this Lease
--------------------
shall be deemed sufficiently given or served when personally delivered (in
person, by commercial courier
9
<PAGE>
service, by facsimile with confirmed transmission, or otherwise) or forty-eight
(48) hours after mailed by registered or certified mail to Tenant at the address
of the leased premises and to Landlord at the address then fixed for the payment
of rent, and either party may by like written notice at any time designate a
different address to which notices shall subsequently be sent.
ARTICLE 17. GENERAL. This Lease does not create the relationship of
--------------------
principal and agent or of partnership or of joint venture or of any association
between Landlord and Tenant, the sole relationship between Landlord and Tenant
being that of Landlord and Tenant. One or more waivers of any default of Tenant
by Landlord shall not be construed as a waiver of a subsequent breach of the
same covenant, term or condition. The consent to or approval by Landlord of any
act by Tenant requiring Landlord's consent or approval shall not waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant. Each term and each provision of this Lease performable by Tenant shall
be construed to be both a covenant and a condition. The marginal or topical
headings of the several articles, paragraphs and clauses are for convenience
only and do not define, limit or construe the contents of such articles,
paragraphs or clauses. All preliminary negotiations and all prior written
agreements regarding the subject matter of this Lease (including, without
limitation, the Prior Lease) are superseded and merged into and incorporated in
this Lease. The laws of the State of Minnesota shall govern the validity,
performance and enforcement of this Lease. The terms, covenants and conditions
hereof shall be binding upon and inure to the benefit of the successors in
interest and assigns of the parties hereto.
ARTICLE 18. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
----------------------------
that upon Tenant paying the rent and performing all of the terms and conditions
on Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the premises hereby leased, subject, nevertheless, to the terms and
conditions of this Lease.
ARTICLE 19. SUBORDINATION. Tenant agrees that its interest in the leased
--------------------------
premises is and shall be subordinate to any mortgages that may hereafter be
placed upon said premises and to any and all advances to be made thereunder, and
to the interest thereon and all renewals, replacements and extensions thereof,
provided the mortgagee named in said mortgages shall agree not to disturb
Tenant's occupancy under this Lease in the event of foreclosure if Tenant is not
in default beyond applicable periods of grace. Tenant agrees to execute such
documents as may be reasonably required by such mortgagee to confirm the same.
In the event that any mortgagee elects to have the Lease a prior lien to its
mortgage, then and in such event upon such mortgagee notifying Tenant to that
effect, this Lease shall be deemed prior in lien to the said mortgage, whether
this Lease is dated prior to or subsequent to the date of said mortgage.
ARTICLE 20. ASSIGNMENT AND SUBLETTING. Landlord may freely transfer the
--------------------------------------
leased premises, subject to this Lease, and/or assign its rights under this
Lease. Upon any transfer of the leased premises, subject to this Lease,
Landlord shall be relieved of all of its obligations under this Lease provided
the transferee assumes such obligations in writing. Tenant shall not assign
this Lease or sublease all or part of the leased premises without the prior
written consent of Landlord; provided that Tenant shall have the right to assign
its interest under this Lease one time and one time only in connection with the
sale or transfer of all or substantially all the assets of Tenant including all
or substantially all of Tenant's assets located at the leased premises.
10
<PAGE>
ARTICLE 21. MEMORANDUM OF LEASE. The parties agree not to record or
--------------------------------
register this Lease, but the parties shall execute on the date hereof two (2)
copies of the Memorandum of Lease attached hereto as Exhibit B, and either party
may record or register said Memorandum of Lease.
ARTICLE 22. OPTION TO PURCHASE. If, during the term of this Lease or
-------------------------------
during any tenancy after the end of such term (otherwise than pursuant to an
agreement which supersedes this Lease), the Tenant shall sell substantially all
of its assets, or if substantially all of the stock of the Tenant is sold, the
Tenant, or its assigns, shall have the option to purchase the leased premises.
Such option shall be exercised by written notice to the Landlord and shall
terminate on the earlier of (i) one year after the closing of any such sale, or
(ii) the date when the Tenant (or any assignee of the Tenant's interest under
this Lease) no longer occupies the leased premises. The purchase price shall be
the fair market value of the leased premises as then agreed upon by the Landlord
and the Tenant or, if not so agreed upon, as determined by appraisal. The
appraisal shall be conducted by an independent appraiser satisfactory to the
Landlord and the Tenant or, in the event that a single independent appraiser
cannot be agreed upon within thirty (30) days of a demand for appraisal, the
Landlord and the Tenant shall each select an independent appraiser who is
experienced in appraising similar property. If the Landlord and the Tenant are
not able to agree upon the qualification of the appraiser as so selected by the
other in accordance with the preceding sentence, than the senior judge of the
District Court of the county in which the leased premises is located shall
select both of the appraisers. The appraisers shall each render a written
report within ninety (90) days after the selection of the second such appraiser,
and the purchase price shall be the arithmetic mean of the value determined by
such appraisers or, in the event that one appraiser is agreed upon, the purchase
price shall be the value as determined by such single appraiser. The reasonable
fees of the appraiser (or both appraisers if two are selected) shall be shared
equally by the Landlord and the Tenant unless they shall otherwise agree. In
determining the value of the leased premises, the rent and other terms of this
Lease shall be ignored. The purchase price as so determined shall be paid, in
cash, within thirty (30) days after the report of the appraisers. Upon payment
of the purchase price, Landlord shall convey the leased premises to Tenant or
its assigns by general warranty deed free and clear of all monetary liens and
encumbrances and free and clear of all other easements, restrictions, covenants
or encumbrances except any easements, restrictions, covenants or other
encumbrances of record on the date hereof. If the Tenant fails to pay the
purchase price as so determined within such thirty (30) day period, the Tenant
shall be deemed to have not effectively exercised its option and all of the
Tenant's rights to purchase the leased premises under this Article shall be
terminated and of no further force or effect without notice or any action on the
part of the Landlord. Tenant's option to purchase under this Article is hereby
assigned and set over to Ronald G. Brown, and Ronald G. Brown shall have the
exclusive right to purchase the leased premises on the terms and conditions set
forth in this Article during the term of the option herein granted.
11
<PAGE>
IN WITNESS WHEREOF, the Landlord and the Tenant have caused this Lease to
be executed as of the day and year first above written.
BX PROPERTIES
By______________________________________________
Marjorie A. Wood, Partner
And_____________________________________________
Jean M. Brown, Partner
NORTH STAR PLATING COMPANY
By______________________________________________
Its_______________________________________
[SIGNATURE PAGE TO BUILDING LEASE BETWEEN
BX PROPERTIES AND
NORTH STAR PLATING COMPANY]
2021668
12
<PAGE>
EXHIBIT A
TO
BUILDING LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
Lot 4, Block 4, Brainerd Industrial Park, except the South 250 feet thereof,
according to the map or plat thereof on file and of record in the Office of the
Registrar of Titles in and for Crow Wing County, Minnesota.
<PAGE>
EXHIBIT B
TO
BUILDING LEASE
MEMORANDUM OF LEASE
THIS AGREEMENT, Made and entered into as of the 2/nd/ day of January 1995,
by and between BX PROPERTIES, a Minnesota general partnership (hereinafter
referred to as "Landlord"), and NORTH STAR PLATING COMPANY, a Minnesota
corporation (hereinafter referred to as "Tenant").
W I T N E S S E T H :
WHEREAS, the parties have this day entered into that certain Building
Lease, wherein Landlord has leased to Tenant certain property located in Crow
Wing County, Minnesota, described in Exhibit A attached hereto, which premises
are hereinafter referred to as the "leased premises".
NOW, THEREFORE, in consideration of the mutual covenants contained in said
Lease and for other good and valuable consideration, Landlord hereby leases to
Tenant, upon the terms and conditions (including an option to purchase in favor
of the Tenant or its assignees) and for the rent set forth in the Lease, which
is hereby incorporated herein and made a part hereof, the leased premises, for a
term of ten (10) years from the date hereof.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day and
year first above written.
BX PROPERTIES
By______________________________________________
Marjorie A. Wood, Partner
And_____________________________________________
Jean M. Brown, Partner
NORTH STAR PLATING COMPANY
By______________________________________________
Its_______________________________________
<PAGE>
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 2/nd /day of
January, 1995, by Marjorie A. Wood and Jean M. Brown, partners of BX PROPERTIES,
a Minnesota general partnership, on behalf of the partnership.
----------------------------------------------------
Notary Public
(Notarial Seal)
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 2/nd /day of
January, 1995, by Ronald G. Brown, the President of NORTH STAR PLATING COMPANY,
a Minnesota corporation, on behalf of the corporation.
----------------------------------------------------
Notary Public
(Notarial Seal)
THIS INSTRUMENT DRAFTED BY:
FREDRIKSON & BYRON, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
2021668
2
<PAGE>
EXHIBIT A
TO
MEMORANDUM OF LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
Lot 4, Block 4, Brainerd Industrial Park, except the South 250 feet thereof,
according to the map or plat thereof on file and of record in the Office of the
Registrar of Titles in and for Crow Wing County, Minnesota.
<PAGE>
EXHIBIT 10.43
NORTH STAR PLATING COMPANY
BUILDING LEASE
(ST. CLOUD PROPERTY)
THIS LEASE, Made and entered into as of the 1st day of January, 1995, by
and between K & R PROPERTIES, a Minnesota general partnership of Kim Wood and
Richard Monson (hereinafter referred to as "Landlord"), and NORTH STAR PLATING
COMPANY, a Minnesota corporation (hereinafter referred to as "Tenant").
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant leases from Landlord the
premises located in the City of St. Cloud, Minnesota, described in Exhibit A
attached and hereby made a part hereof, which premises are hereinafter referred
to as the "leased premises".
TO HAVE AND TO HOLD the leased premises and appurtenances for a term of ten
(10) years, commencing on the date hereof and ending at 12:00 midnight, on the
tenth (10th) anniversary of the date hereof, plus any renewal term pursuant to
Article 13 hereinbelow, subject to the following terms and conditions.
ARTICLE 1. RENT. Landlord reserves and Tenant covenants to pay to
----------------
Landlord, without demand, at the place at which notices to Landlord are to be
given pursuant to Article 16, base rent for the leased premises of Five Thousand
Dollars ($5,000.00) per calendar month payable in advance on the first day of
each and every calendar month during the term and any renewal term of this
Lease. A pro rata portion of such monthly base rent shall be due for any
partial calendar month during the term or any renewal term of this Lease, in
proportion to the number of days of such calendar month falling within the term
or renewal term.
ARTICLE 2. ESCALATION OF BASE RENT. The monthly base rent shall be increased
- -----------------------------------
as of the first day of the calendar month following the first (1st) anniversary
of the commencement date of this Lease and following every anniversary of the
commencement date of this Lease thereafter, during the term and any renewal term
of this Lease, by a percentage equal to the percentage increase in the
Consumers' Price Index for All Urban Consumers for the Minneapolis/St. Paul
Metropolitan Area, "All Items" [1982-84 = 100] published by the United States
Bureau of Labor Statistics (the "CPIU") between the CPIU last published as of
the commencement date of this Lease or the second previous anniversary of the
commencement date of this Lease, as the case may be, and the CPIU last published
as of the immediately preceding anniversary of the commencement date of this
Lease. Such adjusted monthly rent shall be rounded to the nearest One Dollar
($1.00). Should the CPIU be discontinued, or discontinued for the
Minneapolis/St. Paul Metropolitan Area, a similar figure representative of an
overall price average for the Minneapolis/St. Paul Metropolitan Area shall be
used or the Consumers' Price Index for All Urban Consumers "All Items" for the
United States shall be used.
1
<PAGE>
FOR EXAMPLE: Assume the CPIU last published as of the first anniversary of
the date hereof (in 1996) is 140 and the CPIU last published as of the second
anniversary of the date hereof (in 1997) is 144.2 (representing a 3% annual
increase), the monthly base rent shall be increased as of the first day of the
calendar month following the second anniversary of the date hereof by 1.5%.
ARTICLE 3. NET LEASE. Without limitation of the specific provisions of
---------------------
this Lease, the parties declare that this Lease shall be construed in all
respects to be a net lease, with all expenses of operating, maintaining and
insuring the leased premises, and paying taxes and special assessments and
similar charges against the leased premises, to be borne by Tenant, with the
exception only of reasonable wear and tear and loss by reason of fire and other
casualty insurable under the current "special cause of loss" form of building
and personal property insurance policy published by the Insurance Services
Office or equivalent (hereinafter referred to as "Standard Hazard Insurance").
ARTICLE 4. TAXES AND SPECIAL ASSESSMENTS. Tenant shall pay, when due and
-----------------------------------------
before penalty attaches, all real estate taxes and installments of special
assessments, and any similar charges or liens due and payable during the term
hereof with respect to the leased premises and improvements situated thereon,
provided that election shall be made to pay any special assessment over the
longest period allowed by law. For any partial calendar year at the end of the
term or any renewal term of this Lease, Tenant shall be responsible for a pro
rata portion of such taxes and special assessments due and payable in such
calendar year in proportion to the number of days of such calendar year falling
within the term or renewal term of this Lease, and appropriate adjustments shall
be made at the beginning of the term and at the end of the term or renewal term
hereof. Tenant shall be responsible for all taxes and installments of special
assessments payable in the year 1995, since Tenant will occupy the leased
premises for the entire year, either pursuant to this Lease or pursuant to the
Prior Lease (as defined in Article 15 below). In the event any mortgagee of the
leased premises requires an escrow account to be maintained for the payment of
real estate taxes and special assessments, with respect to the leased premises
and improvements situated thereon, Tenant shall fund and make monthly or other
periodic payments to such an escrow account all as may be required by such
mortgagee. Any funds held in such escrow account in excess of Tenant's accrued
liability under this Article 4 shall be the property of Tenant and purchased by
Landlord upon expiration or termination of this Lease.
ARTICLE 5. MAINTENANCE AND REPAIR. Tenant hereby accepts the leased premises
- ----------------------------------
in the condition they are in. Tenant, at its sole cost and expense, will keep,
maintain and rebuild, if necessary, the leased premises, including any altered,
rebuilt, additional or substituted improvements, in good repair and appearance
during the term and any renewal term of this Lease, ordinary wear and tear and
damage by fire or other casualty insurable under Standard Hazard Insurance
excepted. All repairs made by Tenant shall be at least equal to the original
work in class and quality. Tenant shall put, keep and maintain all portions of
the leased premises and the sidewalks, curbs, drives, parking areas, landscaped
areas, and passageways adjoining the same in a clean and orderly condition, free
of dirt, rubbish, snow, ice and unlawful obstructions.
2
<PAGE>
ARTICLE 6. ALTERATIONS AND ADDITIONS. Tenant may, at any time and from
-------------------------------------
time to time during the term and any renewal term of this Lease, at its sole
cost and expense, make additions to, alterations of, substitutions and
replacements for, and removals from the improvements on the leased premises
(hereinafter "alterations"), provided, however, that (i) the total market value
of the leased premises shall not be lessened by reason of any such alterations,
(ii) any alterations shall be done in a good and first class workmanlike manner,
(iii) all such alterations shall be expeditiously completed in compliance with
all laws, ordinances, orders, rules, regulations and requirements applicable
thereto, (iv) if Tenant or Tenant's contractor estimates that any such
alterations will cost more than Ten Thousand and no/100 Dollars ($10,000.00),
Tenant shall give to Landlord notice of its intention to undertake the same at
least thirty (30) days prior to commencement of the work, and (v) prior to
commencement of the work Tenant shall have obtained all required consents and
approvals of all mortgagees of the leased premises. Tenant shall promptly pay
for all such alterations and shall hold Landlord harmless from any liens or
charges against the leased premises by reason of any such work. Tenant shall
procure and pay for all required permits, certificates and licenses in
connection with such alterations. All such alterations shall become the
property of Landlord, except that trade fixtures which may be removed without
material damage to the leased premises shall remain the property of Tenant.
ARTICLE 7. USE OF LEASED PREMISES, COMPLIANCE WITH LAWS, ENVIRONMENTAL
-------------------------------------------------------- -------------
COVENANTS. The leased premises shall be used and occupied by Tenant as an
- ---------
automotive bumper sales and repair facility and other ancillary purposes, and
for no other purpose, and such use and occupancy shall be in compliance with all
applicable laws, ordinances and governmental regulations. Without limiting the
foregoing, Tenant shall, at Tenant's expense, make all such improvements and
alterations required by reason of Tenant's use of the leased premises under the
Americans with Disabilities Act and shall comply with all Environmental Laws as
hereinafter provided, and Landlord shall have no responsibility for the same.
Tenant shall indemnify, defend and hold harmless Landlord from any loss or
liability incurred by reason of any failure by Tenant to comply with applicable
laws in its use and occupancy of the leased premises.
As used herein, the following terms shall have the following meanings:
"Environmental Law" - The Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. (S) 9601 et seq.; the Resource Conservation and Recovery Act, 42
U.S.C. (S) 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
-------
(S) 1802 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq.;
------- -------
the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.; the Clean
-------
Water Act, 33 U.S.C. (S) 1321 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et
------- --
seq.; the Minnesota Environmental Response and Liability Act, Minn. Stat. Chap.
- ----
115B; the Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat. Chap. 115C;
and any other federal, state, county, municipal or local statute, law, ordinance
or regulation which relates to or deals with human health or the environment,
all as may from time to time be amended or subsequently enacted.
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"Hazardous Substances" - Asbestos, ureaformaldehyde, polychlorinated biphenyls,
nuclear fuel or material, chemical or medical waste, radioactive material,
explosives, known carcinogens, petroleum products and by-products and any other
dangerous, toxic or hazardous pollutants, contaminants, chemicals, materials or
substances listed or identified as such in, or regulated by, any Environmental
Law.
Tenant covenants and agrees with Landlord that Tenant shall not use, or permit
the use of, the leased premises for the handling, storage, transportation,
manufacture, release or disposal of any Hazardous Substances, except for
Hazardous Substances of such types and in such quantities as normally used in
Tenant's business as specified in this Article, which are kept and used in
compliance with all Environmental Laws. In addition, the Tenant shall not
install or maintain, or permit the installation or maintenance of, any above-
ground or underground storage tanks for the storage of petroleum, petroleum by-
products or other Hazardous Substances in, about or under the leased premises
unless (i) the Tenant has obtained the prior written consent of the Landlord for
such installation and maintenance and (ii) the Tenant installs and maintains
such above-ground or underground storage tanks in compliance with all applicable
Environmental Laws. Upon the occurrence of an event of default hereunder or if
the Landlord receives information which leads the Landlord, in its reasonable
discretion, to believe that a Hazardous Substance is present on or is being
handled, stored, transported, manufactured, released or disposed of in, on or
about the leased premises, except as permitted above, the Landlord may, at its
option, through its employees, agents or independent contractors, enter upon the
leased premises and perform, at the Tenant's expense, environmental tests
(including core drilling), studies, investigations and reports from a reputable
environmental consultant chosen by Landlord. If any such environmental reports
indicates any presence, handling, storage, transportation, manufacture, release
or disposal of Hazardous Substances in, on or about the leased premises, except
as permitted above, the Landlord may require the Tenant, at the Tenant's
expense, to refrain from and take remedial action with respect to any such
presence, handling, storage, transportation, manufacture, release or disposal to
the satisfaction of the Landlord. The Tenant shall immediately notify the
Landlord in writing of any claim, investigation, administrative proceeding,
litigation, regulatory hearing or request or demand for remedial or response
action or for compensation which may be proposed, threatened or pending,
alleging the presence, handling, storage, transportation, manufacture, release,
disposal or improper handling of Hazardous Substances in, on or about the leased
premises not permitted hereby. The Landlord shall have the right, but not the
obligation, to join and participate in any such investigation, administrative
proceeding, litigation, regulatory hearing or other action, and Tenant shall pay
upon demand its attorneys' fees and expenses in connection therewith. The
Tenant shall not take any remedial or response action or enter into any
settlement or other compromise with respect to any claim, investigation,
administrative proceeding, litigation, regulatory hearing or request or demand
for remedial or response action or for compensation without prior written notice
to and consent by Tenant.
Tenant shall defend, indemnify and hold Landlord harmless from any and all
claims, actions, damages, costs, expenses and liability suffered or incurred or
paid by or asserted against Landlord, including but not limited to reasonable
attorneys fees incurred in the defense of such claims and actions, whether for
cleanup or other response costs or for damage to property,
4
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personal injury or death, and whether to public agencies or authorities or to
private persons (i) arising from or with respect to acts or practices of Tenant
occurring prior to or after the date hereof in violation of any Environmental
Law, or (ii) resulting from the presence on or about the leased premises or the
release from or onto the leased premises of any Hazardous Substances occurring
during the term of this Lease. The Tenant's liability hereunder shall not be
limited to the extent of insurance carried by or provided by the Tenant or
subject to any exclusions from coverage in any insurance policy.
The covenants and obligations of Tenant contained in this Article shall
survive expiration or earlier termination of the term of this Lease.
ARTICLE 8. UTILITIES. Tenant will pay or cause to be paid when due all
---------------------
charges for gas, water, sewer, electricity, telephone and other utilities and
services used, rendered or supplied to, upon or in connection with the leased
premises, and Landlord shall have no responsibility to supply the same. Without
limiting Tenant's general duty to maintain and repair, Tenant shall maintain in
good order and condition during the term and any renewal term of this Lease all
pipes, wires, conduits, boilers and other equipment for the provision of utility
services to the leased premises.
ARTICLE 9. INSURANCE.
---------------------
(a) Public Liability. At all times during the term and any renewal term of
this Lease, Tenant shall keep in full force and effect at its expense a policy
or policies of commercial general liability insurance with respect to the leased
premises and the business of Tenant and any subtenant, licensee or
concessionaire, with companies licensed to do business in the State of
Minnesota, in which both Tenant and Landlord shall be named as insureds and
adequately covered under reasonable limits of liability not less than $2,000,000
general liability aggregate and $1,000,000 per occurrence. Such limits of
liability shall be adjusted as of each fifth anniversary of the commencement
date of this Lease according to the formula stated in Article 2 above. Tenant
shall furnish Landlord with certificates or other acceptable evidence that such
insurance is in effect, which evidence shall state that Landlord shall be
notified in writing thirty (30) days prior to cancellation, material change or
renewal of insurance.
(b) Hazard Insurance. At all times during the term and any renewal term of
this Lease, Tenant shall keep in full force and effect a policy of Standard
Hazard Insurance, with companies licensed to do business in the State of
Minnesota, covering all improvements on the property in the amount of their full
insurable replacement value, naming both Landlord and Tenant as insureds, but
payable only to Landlord and containing a loss payable clause as required by any
mortgagees of the leased premises; and shall furnish Landlord and all such
mortgagees with certificates or other acceptable evidence that such insurance is
in effect, which evidence shall state that Landlord and all such mortgagees
shall be notified in writing thirty (30) days prior to cancellation, material
change or renewal of such insurance. In the event any mortgagee of the leased
premises requires an escrow account to be maintained for the payment of hazard
insurance premiums, Tenant shall fund and make monthly or other periodic
payments to such an escrow account, all as may be required by such mortgagee.
Any funds held in such escrow account in
5
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excess of Tenant's accrued liability under this Article shall be the property of
Tenant and purchased by Landlord upon expiration or termination of this Lease.
Tenant may separately or under the same policy insure any trade fixtures,
equipment, supplies and other personal property owned by Tenant and located upon
the leased premises.
(c) Waiver of Subrogation. To the extent such waiver does not void or
diminish the coverage under any policy, Landlord and Tenant hereby waive any
rights each may have against the other on account of any loss or damage
occasioned to Landlord or Tenant, as the case may be, or their respective
property, to the extent such loss or damage is covered by insurance carried by
either Landlord or Tenant or may be insured (regardless of whether coverage is
actually in effect) under Standard Hazard Insurance.
ARTICLE 10. NON-LIABILITY; COVENANTS TO HOLD HARMLESS. Landlord shall
------------------------------------------------------
be held harmless by Tenant from any liability for damages to any person or
property in or upon the leased premises and the sidewalks adjoining same,
including the property of Tenant and its employees and all persons in the
building at its or their invitation. All property kept, stored or maintained in
the leased premises shall be so kept, stored or maintained at the sole risk of
Tenant. Tenant agrees to make payment when due for any labor, services,
materials, supplies or equipment furnished or alleged to have been furnished to
Tenant in or about the leased premises which may be secured by any mechanic's,
materialmen's or other lien against the leased premises or the Landlord's
interest therein and will cause each such lien to be discharged at the time
performance of any obligation secured thereby matures; provided that Tenant may
contest such lien by appropriate proceedings which stay the enforcement thereof,
upon providing reasonable assurances or security to Landlord that Tenant will
pay the amount secured by such lien if found to be valid, but if such lien is
reduced to final judgment and if such judgment or process thereon is not stayed,
or if stayed and said stay expires, then and in such event Tenant shall
forthwith pay and discharge said judgment. Landlord shall have the right to
post and maintain on the leased premises notice of nonresponsibility under the
laws of Minnesota.
ARTICLE 11. EMINENT DOMAIN.
---------------------------
(a) Entire Premises. If substantially all of the leased premises shall be
taken under the power of eminent domain then the term of this Lease shall cease
as of the day possession shall be taken and the rent shall be paid up to that
day with a proportionate refund by Landlord of such rent as may have been paid
in advance.
(b) Partial Taking. If more than twenty percent (20%) of the floor space
in the building or buildings located on the leased premises shall be taken under
the power of eminent domain, both Landlord and Tenant shall have the right to
terminate this Lease as of the day possession shall be taken by notice to the
other party given within ten (10) days after possession is so taken. If the
unexpired portion of the term or any renewal term of this Lease shall be two (2)
years or less at the date of taking of any portion of the building or buildings
located on the leased premises, Landlord shall have the right to terminate this
Lease as of the day possession shall be taken by like notice to Tenant. If more
than one third (1/3) of the parking area in the leased premises is taken under
the power of eminent domain, Tenant shall have the right to
6
<PAGE>
terminate this Lease as of the day possession shall be taken by like notice to
Landlord, unless Landlord shall provide, on or before the day possession shall
be taken, a reasonably equivalent substitute parking area. Tenant shall be
allowed a reasonable time not to exceed thirty (30) days after any such
termination to vacate the remainder of the leased premises, and rent shall be
paid up to the day possession shall be taken or the day Tenant vacates the
remainder of the leased premises, whichever is later.
(c) Continuation of Lease. In the event this Lease is not terminated
pursuant to paragraphs (a) or (b) of this Article, all the terms of this Lease
shall continue in effect, except that the base rent shall be reduced in
proportion to the reduction in floor space in the building or buildings located
on the leased premises as a result of the taking, and Landlord shall, at its own
cost and expense, make all necessary repairs or alterations to the basic
building or buildings, exterior and interior work to be in conformance with the
then existing architectural design of the improvements so as to constitute the
remaining premises a complete architectural unit.
(d) Damages. In any event all damages awarded for such taking under the
power of eminent domain, whether for the whole or a part of the leased premises,
shall belong to and be the property of Landlord whether such damages shall be
awarded as compensation for diminution in value to the leasehold or to the fee
of the premises; provided, however, that Landlord shall not be entitled to any
award made to Tenant for relocation benefits provided by M.S.A. Section 117.52
or similar successor statute, for "going concern" value of its business, loss of
business, fair value of, and cost of removal of stock and fixtures or for
temporary requisition of the use or occupancy of the leased premises or a part
thereof, which shall belong to Tenant.
(e) Definition. The term "eminent domain" shall include the exercise of
any similar power and any purchase or other acquisition in lieu of condemnation.
ARTICLE 12. DAMAGE.
-------------------
(a) Partial or Total Destruction. In case the leased premises shall be
partially or totally destroyed by fire or other casualty insurable under
Standard Hazard Insurance so as to become partially or totally untenantable, the
same, unless Landlord or Tenant shall terminate this Lease as hereinafter
provided, shall be repaired or rebuilt as quickly as practicable at the cost of
Landlord, and the base rent shall abate during the period of repair in
proportion to the portion of the floor space in the building or buildings
located on the leased premises that is untenantable or unfit for use by Tenant
in its business.
(b) Extensive Damage; Election. If the building or buildings located on
the leased premises shall be destroyed or damaged by fire or other casualty
insurable under Standard Hazard Insurance, so as to become wholly untenantable,
and:
1. the leased premises cannot be repaired or restored within one hundred
eighty days (180) after such damage or destruction; or
7
<PAGE>
2. the unexpired portion of the term or any renewal term of this Lease is
two (2) years or less at the date of the damage;
then either Landlord or Tenant may terminate this Lease as of the date of such
destruction or damage by giving written notice to the other party of such
election within thirty (30) days after such damage or destruction.
ARTICLE 13. SURRENDER; HOLDING OVER. On the last day of the term or any
------------------------------------
renewal term hereof or on the sooner termination thereof, Tenant shall peaceably
surrender the leased premises in good order, condition and repair, broom-clean,
fire and other casualty insurable under Standard Hazard Insurance and reasonable
wear and tear only excepted. Tenant shall repair any damage to the leased
premises caused by removal of Tenant's trade fixtures or equipment. Any of
Tenant's property not removed on the last day of the term or any renewal term
hereof or on the sooner termination thereof, shall be deemed abandoned. In the
event Tenant remains in possession of the leased premises after the expiration
of the term and any renewal term of this Lease without the execution of a new
lease but with the acquiescence of Landlord, it shall be deemed to be occupying
said premises as a Tenant from month-to-month, subject to all the conditions,
provisions and obligations of this Lease insofar as the same can be applicable
to a month-to-month tenancy. The period of such month-to-month tenancy shall be
considered a renewal term of this Lease.
If Tenant desires to lease the leased premises after the expiration of the
term and any renewal term of this Lease, Tenant will notify Landlord of Tenant's
desire to enter into a lease of the leased premises at least six (6) months
prior to the expiration of the term or the renewal term, as the case may be.
ARTICLE 14. DEFAULT, REMEDIES.
------------------------------
(a) Default. The occurrence of any of the following shall constitute an
event of default under this Lease:
1. Tenant shall have failed to pay any installment of base rent to
Landlord when the same shall be due and payable; or
2. Tenant shall have failed to keep in full force and effect the
insurance policies required by Article 9 above or shall have failed to
pay taxes and special assessments when due as required by Article 4
above; or
3. Tenant shall have failed to comply with any other provision of this
Lease, and shall not have cured such failure within thirty (30) days
after Landlord, by written notice, has informed Tenant of such
noncompliance; provided, however, in the case of a default which
cannot be cured, with due diligence, within a period of thirty (30)
days, Tenant shall have such additional time to cure such default as
may be reasonably necessary, provided that Tenant proceeds promptly
and with due diligence to cure such default after receipt of said
notice; or
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<PAGE>
4. Tenant shall have filed a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee for it
or its property, or any similar petition, or shall have made an
assignment for the benefit of creditors, or an order for relief shall
have been entered in any proceeding under the federal Bankruptcy Code
in which Tenant is named as the debtor; or
5. Any involuntary petition of the type or similar to those referred to
in Paragraph 4 of this Subsection (a) shall have been filed against
Tenant, and shall not be vacated or withdrawn within sixty (60) days
after the date of the filing thereof; or
6. Tenant shall have abandoned the leased premises, which shall be
conclusively presumed if Tenant shall vacate the premises for thirty
(30) days without giving written notice of its intent to return to
possession of the leased premises.
(b) Remedies. Whenever any event of default shall have occurred and be
subsisting, Landlord may elect either:
1. To cancel and terminate this Lease; or
2. To reenter and take possession of the leased premises, and terminate
Tenant's right to possession of the leased premises, without
terminating this Lease or any of Tenant's obligations for the balance
of the term of this Lease.
Landlord may at any time elect to terminate this Lease despite a prior election
to exercise its remedies under Paragraph 2 above. In the event Landlord
exercises its remedies under Paragraph 2 above, it may remove all persons and
property from the leased premises and store such property at the cost of and for
the account of Tenant, may make alterations and repairs and redecorate the
premises to the extent deemed by Landlord necessary or desirable, and may relet
the premises, or any part thereof, for the account of Tenant, to any person,
firm or corporation, other than Tenant, for such rent, for such time and upon
such terms as Landlord, in Landlord's sole discretion, shall determine; but
Landlord shall not be required to accept any tenant offered by Tenant or to
observe any instruction given by Tenant concerning such reletting. Any rent and
other amounts received by Landlord upon such reletting shall be applied first to
the costs and expenses of Landlord in regaining possession of the leased
premises, storing property removed from the premises, making alterations or
repairs or redecorating the leased premises, and reletting the premises,
including, without limitation, brokerage and reasonable attorneys fees, then to
the rentals and other obligations of Tenant under this Lease, and any surplus
shall be paid to Tenant.
In the event Landlord elects to terminate this Lease, all base rent and
payments for hazard insurance premiums and taxes (excluding special assessments)
for the balance of the term or any renewal term of this Lease shall be
immediately due and payable to Landlord, without credit for any subsequent
reletting by Landlord, provided that all such payments shall be discounted from
the unaccelerated due dates to present value on the date of termination, using a
discount factor of five percent (5%), and such accelerated payments shall bear
interest from the date of termination
9
<PAGE>
to the date actually paid at the rate of ten percent (10%) per annum. For
purposes of making this calculation, payments for hazard insurance premiums
shall be presumed to remain the same as the last annual hazard insurance premium
paid, and to be due and payable on each anniversary of said last hazard
insurance premium payments and payments for taxes and installments of special
assessments shall be presumed to remain the same as the last semiannual payment
of taxes and installments of special assessments, and to be due and payable
semi-annually on May 15 and October 15 of each year.
ARTICLE 15. PRIOR LEASE. This Lease supersedes the existing lease between
------------------------
Landlord and Tenant with respect to the leased premises (the "Prior Lease"),
which shall have no further force or effect as of the date hereof, except for
Tenant's continuing obligation to pay rent and perform its obligations which
accrued under the Prior Lease prior to the date hereof which shall continue in
effect until such rent has been paid and such obligations performed.
ARTICLE 16. NOTICES. Any notice required or permitted under this Lease
--------------------
shall be deemed sufficiently given or served when personally delivered (in
person, by commercial courier service, by facsimile with confirmed transmission,
or otherwise) or forty-eight (48) hours after mailed by registered or certified
mail to Tenant at the address of the leased premises and to Landlord at the
address then fixed for the payment of rent, and either party may by like written
notice at any time designate a different address to which notices shall
subsequently be sent.
ARTICLE 17. GENERAL. This Lease does not create the relationship of principal
- --------------------
and agent or of partnership or of joint venture or of any association between
Landlord and Tenant, the sole relationship between Landlord and Tenant being
that of Landlord and Tenant. One or more waivers of any default of Tenant by
Landlord shall not be construed as a waiver of a subsequent breach of the same
covenant, term or condition. The consent to or approval by Landlord of any act
by Tenant requiring Landlord's consent or approval shall not waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant. Each term and each provision of this Lease performable by Tenant shall
be construed to be both a covenant and a condition. The marginal or topical
headings of the several articles, paragraphs and clauses are for convenience
only and do not define, limit or construe the contents of such articles,
paragraphs or clauses. All preliminary negotiations and all prior written
agreements regarding the subject matter of this Lease (including, without
limitation, the Prior Lease) are superseded and merged into and incorporated in
this Lease. The laws of the State of Minnesota shall govern the validity,
performance and enforcement of this Lease. The terms, covenants and conditions
hereof shall be binding upon and inure to the benefit of the successors in
interest and assigns of the parties hereto.
ARTICLE 18. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
----------------------------
that upon Tenant paying the rent and performing all of the terms and conditions
on Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the premises hereby leased, subject, nevertheless, to the terms and
conditions of this Lease.
ARTICLE 19. SUBORDINATION. Tenant agrees that its interest in the leased
--------------------------
premises is and shall be subordinate to any mortgages that may hereafter be
placed upon said premises and
10
<PAGE>
to any and all advances to be made thereunder, and to the interest thereon and
all renewals, replacements and extensions thereof, provided the mortgagee named
in said mortgages shall agree not to disturb Tenant's occupancy under this Lease
in the event of foreclosure if Tenant is not in default beyond applicable
periods of grace. Tenant agrees to execute such documents as may be reasonably
required by such mortgagee to confirm the same. In the event that any mortgagee
elects to have the Lease a prior lien to its mortgage, then and in such event
upon such mortgagee notifying Tenant to that effect, this Lease shall be deemed
prior in lien to the said mortgage, whether this Lease is dated prior to or
subsequent to the date of said mortgage.
ARTICLE 20. ASSIGNMENT AND SUBLETTING. Landlord may freely transfer the
--------------------------------------
leased premises, subject to this Lease, and/or assign its rights under this
Lease. Upon any transfer of the leased premises, subject to this Lease,
Landlord shall be relieved of all of its obligations under this Lease provided
the transferee assumes such obligations in writing. Tenant shall not assign
this Lease or sublease all or part of the leased premises without the prior
written consent of Landlord; provided that Tenant shall have the right to assign
its interest under this Lease one time and one time only in connection with the
sale or transfer of all or substantially all the assets of Tenant including all
or substantially all of Tenant's assets located at the leased premises.
ARTICLE 21. MEMORANDUM OF LEASE. The parties agree not to record or
--------------------------
register this Lease, but the parties shall execute on the date hereof two (2)
copies of the Memorandum of Lease attached hereto as Exhibit B, and either party
---------
may record or register said Memorandum of Lease.
IN WITNESS WHEREOF, the Landlord and the Tenant have caused this Lease to
be executed as of the day and year first above written.
K & R PROPERTIES
By_____________________________________
Kim Wood, Partner
And____________________________________
Richard Monson, Partner
NORTH STAR PLATING COMPANY
By_____________________________________
Ron Brown
2021683 Its President
[SIGNATURE PAGE TO BUILDING LEASE BETWEEN
K & R PROPERTIES AND
NORTH STAR PLATING COMPANY]
11
<PAGE>
EXHIBIT A
TO
BUILDING LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
[To be provided.]
12
<PAGE>
EXHIBIT B
TO
BUILDING LEASE
MEMORANDUM OF LEASE
THIS AGREEMENT, Made and entered into as of the _____ day of ____________
1995, by and between K & R PROPERTIES, a Minnesota general partnership
(hereinafter referred to as "Landlord"), and NORTH STAR PLATING COMPANY, a
Minnesota corporation (hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, the parties have this day entered into that certain Building
Lease, wherein Landlord has leased to Tenant certain property located in
_____________ County, Minnesota, described in Exhibit A attached hereto, which
premises are hereinafter referred to as the "leased premises".
NOW, THEREFORE, in consideration of the mutual covenants contained in said
Lease and for other good and valuable consideration, Landlord hereby leases to
Tenant, upon the terms and conditions (including an option to purchase in favor
of the Tenant or its assignees) and for the rent set forth in the Lease, which
is hereby incorporated herein and made a part hereof, the leased premises, for a
term of ten (10) years from the date hereof.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day and
year first above written.
K & R PROPERTIES
By_________________________________________
Kim Wood, Partner
And________________________________________
Richard Monson, Partner
NORTH STAR PLATING COMPANY
By_________________________________________
Ron Brown
2021683 Its President
1
<PAGE>
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this _____ day of
__________, 1995, by Kim Wood and Richard Monson, partners of K & R PROPERTIES,
a Minnesota general partnership, on behalf of the partnership.
--------------------------------------------
Notary Public
(Notarial Seal)
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this _____ day of
__________, 1995, by ______________________, the ___________________ of NORTH
STAR PLATING COMPANY, a Minnesota corporation, on behalf of the corporation.
--------------------------------------------
Notary Public
(Notarial Seal)
THIS INSTRUMENT DRAFTED BY:
FREDRIKSON & BYRON, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
2
<PAGE>
EXHIBIT A
TO
MEMORANDUM OF LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
[To be provided.]
3
<PAGE>
EXHIBIT 10.44
NORTH STAR PLATING COMPANY
BUILDING LEASE
(MARSHALL STREET)
THIS LEASE, Made and entered into as of the 20th day of May 1996, by and
between J&K PROPERTIES LIMITED LIABILITY PARTNERSHIP, a Minnesota limited
liability partnership (hereinafter referred to as "Landlord"), and NORTH STAR
PLATING COMPANY, a Minnesota corporation (hereinafter referred to as "Tenant").
W I T N E S S E T H :
Landlord hereby leases to Tenant, and Tenant leases from Landlord the
premises described in Exhibit A attached and hereby made a part hereof, which
---------
premises are hereinafter referred to as the "leased premises".
TO HAVE AND TO HOLD the leased premises and appurtenances for a term of ten
(10) years, commencing on the date hereof and ending at 12:00 midnight, on the
tenth (10th) anniversary of the date hereof, plus any renewal term pursuant to
Article 13 hereinbelow, subject to the following terms and conditions.
ARTICLE 1. RENT. Landlord reserves and Tenant covenants to pay to
---------------
Landlord, without demand, at the place at which notices to Landlord are to be
given pursuant to Article 16, base rent for the leased premises of Twelve
Thousand and no/100 Dollars ($12,000.00) per calendar month payable in advance
on the first day of each and every calendar month during the term and any
renewal term of this Lease. A pro rata portion of such monthly base rent shall
be due for any partial calendar month during the term or any renewal term of
this Lease, in proportion to the number of days of such calendar month falling
within the term or renewal term.
ARTICLE 2. ESCALATION OF BASE RENT. The monthly base rent shall be
----------------------------------
increased as of the first day of the calendar month following the first (1st)
anniversary of the commencement date of this Lease and following every
anniversary of the commencement date of this Lease thereafter, during the term
and any renewal term of this Lease, by a percentage equal to the percentage
increase in the Consumers' Price Index for All Urban Consumers for the
Minneapolis/St. Paul Metropolitan Area, "All Items" [1982-84 = 100] published by
the United States Bureau of Labor Statistics (the "CPIU") between the CPIU last
published as of the commencement date of this Lease or the second previous
anniversary of the commencement date of this Lease, as the case may be, and the
CPIU last published as of the immediately preceding anniversary of the
commencement date of this Lease. Such adjusted monthly rent shall be rounded to
the nearest One Dollar ($1.00). Should the CPIU be discontinued, or
discontinued for the Minneapolis/St. Paul Metropolitan Area, a similar figure
representative of an overall price average for the Minneapolis/St. Paul
Metropolitan Area shall be used or the Consumers' Price Index for All Urban
Consumers "All Items" for the United States shall be used.
1
<PAGE>
FOR EXAMPLE: Assume the CPIU last published as of the first anniversary of
the date hereof (in 1996) is 140 and the CPIU last published as of the second
anniversary of the date hereof (in 1997) is 144.2 (representing a 3% annual
increase), the monthly base rent shall be increased as of the first day of the
calendar month following the second anniversary of the date hereof by 3%.
ARTICLE 3. NET LEASE. Without limitation of the specific provisions of
--------------------
this Lease, the parties declare that this Lease shall be construed in all
respects to be a net lease, with all expenses of operating, maintaining and
insuring the leased premises, and paying taxes and special assessments and
similar charges against the leased premises, to be borne by Tenant, with the
exception only of reasonable wear and tear and loss by reason of fire and other
casualty insurable under the current "special cause of loss" form of building
and personal property insurance policy published by the Insurance Services
Office or equivalent (hereinafter referred to as "Standard Hazard Insurance").
ARTICLE 4. TAXES AND SPECIAL ASSESSMENTS. Tenant shall pay, when due and
----------------------------------------
before penalty attaches, all real estate taxes and installments of special
assessments, and any similar charges or liens due and payable during the term
hereof with respect to the leased premises and improvements situated thereon,
provided that election shall be made to pay any special assessment over the
longest period allowed by law. For any partial calendar year at the end of the
term or any renewal term of this Lease, Tenant shall be responsible for a pro
rata portion of such taxes and special assessments due and payable in such
calendar year in proportion to the number of days of such calendar year falling
within the term or renewal term of this Lease, and appropriate adjustments shall
be made at the beginning of the term and at the end of the term or renewal term
hereof. Tenant shall be responsible for all taxes and installments of special
assessments payable in the year 1995, since Tenant will occupy the leased
premises for the entire year, either pursuant to this Lease or pursuant to the
Prior Lease (as defined in Article 15 below). In the event any mortgagee of the
leased premises requires an escrow account to be maintained for the payment of
real estate taxes and special assessments, with respect to the leased premises
and improvements situated thereon, Tenant shall fund and make monthly or other
periodic payments to such an escrow account all as may be required by such
mortgagee. Any funds held in such escrow account in excess of Tenant's accrued
liability under this Article 4 shall be the property of Tenant and purchased by
Landlord upon expiration or termination of this Lease.
ARTICLE 5. MAINTENANCE AND REPAIR. Tenant hereby accepts the leased
---------------------------------
premises in the condition they are in. Tenant, at its sole cost and expense,
will keep, maintain and rebuild, if necessary, the leased premises, including
any altered, rebuilt, additional or substituted improvements, in good repair and
appearance during the term and any renewal term of this Lease, ordinary wear and
tear and damage by fire or other casualty insurable under Standard Hazard
Insurance excepted. All repairs made by Tenant shall be at least equal to the
original work in class and quality. Tenant shall put, keep and maintain all
portions of the leased premises and the sidewalks, curbs, drives, parking areas,
landscaped areas, and passageways adjoining the same in a clean and orderly
condition, free of dirt, rubbish, snow, ice and unlawful obstructions.
2
<PAGE>
ARTICLE 6. ALTERATIONS AND ADDITIONS. Tenant may, at any time and from
------------------------------------
time to time during the term and any renewal term of this Lease, at its sole
cost and expense, make additions to, alterations of, substitutions and
replacements for, and removals from the improvements on the leased premises
(hereinafter "alterations"), provided, however, that (i) the total market value
of the leased premises shall not be lessened by reason of any such alterations,
(ii) any alterations shall be done in a good and first class workmanlike manner,
(iii) all such alterations shall be expeditiously completed in compliance with
all laws, ordinances, orders, rules, regulations and requirements applicable
thereto, (iv) if Tenant or Tenant's contractor estimates that any such
alterations will cost more than Ten Thousand and no/100 Dollars ($10,000.00),
Tenant shall give to Landlord notice of its intention to undertake the same at
least thirty (30) days prior to commencement of the work, and (v) prior to
commencement of the work Tenant shall have obtained all required consents and
approvals of all mortgagees of the leased premises. Tenant shall promptly pay
for all such alterations and shall hold Landlord harmless from any liens or
charges against the leased premises by reason of any such work. Tenant shall
procure and pay for all required permits, certificates and licenses in
connection with such alterations. All such alterations shall become the
property of Landlord, except that trade fixtures which may be removed without
material damage to the leased premises shall remain the property of Tenant.
ARTICLE 7. USE OF LEASED PREMISES; COMPLIANCE WITH LAWS; ENVIRONMENTAL
----------------------------------------------------------------------
COVENANTS. The leased premises shall be used and occupied by Tenant as an
- ---------
automotive bumper sales and repair facility and other ancillary purposes, and
for no other purpose, and such use and occupancy shall be in compliance with all
applicable laws, ordinances and governmental regulations. Without limiting the
foregoing, Tenant shall, at Tenant's expense, make all such improvements and
alterations required by reason of Tenant's use of the leased premises under the
Americans with Disabilities Act and shall comply with all Environmental Laws as
hereinafter provided, and Landlord shall have no responsibility for the same.
Tenant shall indemnify, defend and hold harmless Landlord from any loss or
liability incurred by reason of any failure by Tenant to comply with applicable
laws in its use and occupancy of the leased premises.
As used herein, the following terms shall have the following meanings:
"Environmental Law" - The Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. (S)9601 et seq.; the Resource Conservation and Recovery Act, 42
U.S.C. (S)6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
-------
(S)1802 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S)2601 et seq.;
------- -------
the Federal Water Pollution Control Act, 33 U.S.C. (S)1251 et seq.; the Clean
------
Water Act, 33 U.S.C. (S)1321 et seq.; the Clean Air Act, 42 U.S.C. (S)7401 et
------- --
seq.; the Minnesota Environmental Response and Liability Act, Minn. Stat. Chap.
- ----
115B; the Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat. Chap. 115C;
and any other federal, state, county, municipal or local statute, law, ordinance
or regulation which relates to or deals with human health or the environment,
all as may from time to time be amended or subsequently enacted.
"Hazardous Substances" - Asbestos, ureaformaldehyde, polychlorinated biphenyls,
nuclear fuel or material, chemical or medical waste, radioactive material,
explosives, known carcinogens,
3
<PAGE>
petroleum products and by-products and any other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified as such in, or regulated by, any Environmental Law.
Tenant covenants and agrees with Landlord that Tenant shall not use, or
permit the use of, the leased premises for the handling, storage,
transportation, manufacture, release or disposal of any Hazardous Substances,
except for Hazardous Substances of such types and in such quantities as normally
used in Tenant's business as specified in this Article, which are kept and used
in compliance with all Environmental Laws. In addition, the Tenant shall not
install or maintain, or permit the installation or maintenance of, any above-
ground or underground storage tanks for the storage of petroleum, petroleum by-
products or other Hazardous Substances in, about or under the leased premises
unless (i) the Tenant has obtained the prior written consent of the Landlord for
such installation and maintenance and (ii) the Tenant installs and maintains
such above-ground or underground storage tanks in compliance with all applicable
Environmental Laws. Upon the occurrence of an event of default hereunder or if
the Landlord receives information which leads the Landlord, in its reasonable
discretion, to believe that a Hazardous Substance is present on or is being
handled, stored, transported, manufactured, released or disposed of in, on or
about the leased premises, except as permitted above, the Landlord may, at its
option, through its employees, agents or independent contractors, enter upon the
leased premises and perform, at the Tenant's expense, environmental tests
(including core drilling), studies, investigations and reports from a reputable
environmental consultant chosen by Landlord. If any such environmental reports
indicates any presence, handling, storage, transportation, manufacture, release
or disposal of Hazardous Substances in, on or about the leased premises, except
as permitted above, the Landlord may require the Tenant, at the Tenant's
expense, to refrain from and take remedial action with respect to any such
presence, handling, storage, transportation, manufacture, release or disposal to
the satisfaction of the Landlord. The Tenant shall immediately notify the
Landlord in writing of any claim, investigation, administrative proceeding,
litigation, regulatory hearing or request or demand for remedial or response
action or for compensation which may be proposed, threatened or pending,
alleging the presence, handling, storage, transportation, manufacture, release,
disposal or improper handling of Hazardous Substances in, on or about the leased
premises not permitted hereby. The Landlord shall have the right, but not the
obligation, to join and participate in any such investigation, administrative
proceeding, litigation, regulatory hearing or other action, and Tenant shall pay
upon demand its attorneys' fees and expenses in connection therewith. The
Tenant shall not take any remedial or response action or enter into any
settlement or other compromise with respect to any claim, investigation,
administrative proceeding, litigation, regulatory hearing or request or demand
for remedial or response action or for compensation without prior written notice
to and consent by Tenant.
Tenant shall defend, indemnify and hold Landlord harmless from any and all
claims, actions, damages, costs, expenses and liability suffered or incurred or
paid by or asserted against Landlord, including but not limited to reasonable
attorneys fees incurred in the defense of such claims and actions, whether for
cleanup or other response costs or for damage to property, personal injury or
death, and whether to public agencies or authorities or to private persons (i)
arising from or with respect to acts or practices of Tenant occurring prior to
or after the date hereof in violation
4
<PAGE>
of any Environmental Law, or (ii) resulting from the presence on or about the
leased premises or the release from or onto the leased premises of any Hazardous
Substances occurring during the term of this Lease. The Tenant's liability
hereunder shall not be limited to the extent of insurance carried by or provided
by the Tenant or subject to any exclusions from coverage in any insurance
policy.
The covenants and obligations of Tenant contained in this Article shall
survive expiration or earlier termination of the term of this Lease.
ARTICLE 8. UTILITIES. Tenant will pay or cause to be paid when due all
--------------------
charges for gas, water, sewer, electricity, telephone and other utilities and
services used, rendered or supplied to, upon or in connection with the leased
premises, and Landlord shall have no responsibility to supply the same. Without
limiting Tenant's general duty to maintain and repair, Tenant shall maintain in
good order and condition during the term and any renewal term of this Lease all
pipes, wires, conduits, boilers and other equipment for the provision of utility
services to the leased premises.
ARTICLE 9. INSURANCE.
--------------------
(a) Public Liability. At all times during the term and any renewal term
of this Lease, Tenant shall keep in full force and effect at its expense a
policy or policies of commercial general liability insurance with respect to the
leased premises and the business of Tenant and any subtenant, licensee or
concessionaire, with companies licensed to do business in the State of
Minnesota, in which both Tenant and Landlord shall be named as insureds and
adequately covered under reasonable limits of liability not less than $2,000,000
general liability aggregate and $1,000,000 per occurrence Such limits of
liability shall be adjusted as of each fifth anniversary of the commencement
date of this Lease according to the formula stated in Article 2 above. Tenant
shall furnish Landlord with certificates or other acceptable evidence that such
insurance is in effect, which evidence shall state that Landlord shall be
notified in writing thirty (30) days prior to cancellation, material change or
renewal of insurance.
(b) Hazard Insurance. At all times during the term and any renewal term
of this Lease, Tenant shall keep in full force and effect a policy of Standard
Hazard Insurance, with companies licensed to do business in the State of
Minnesota, covering all improvements on the property in the amount of their full
insurable replacement value, naming both Landlord and Tenant as insureds, but
payable only to Landlord and containing a loss payable clause as required by any
mortgagees of the leased premises; and shall furnish Landlord and all such
mortgagees with certificates or other acceptable evidence that such insurance is
in effect, which evidence shall state that Landlord and all such mortgagees
shall be notified in writing thirty (30) days prior to cancellation, material
change or renewal of such insurance. In the event any mortgagee of the leased
premises requires an escrow account to be maintained for the payment of hazard
insurance premiums, Tenant shall fund and make monthly or other periodic
payments to such an escrow account, all as may be required by such mortgagee.
Any funds held in such escrow account in excess of Tenant's accrued liability
under this Article shall be the property of Tenant and purchased by Landlord
upon expiration or
5
<PAGE>
termination of this Lease. Tenant may separately or under the same policy
insure any trade fixtures, equipment, supplies and other personal property owned
by Tenant and located upon the leased premises.
(c) Waiver of Subrogation. To the extent such waiver does not void or
diminish the coverage under any policy, Landlord and Tenant hereby waive any
rights each may have against the other on account of any loss or damage
occasioned to Landlord or Tenant, as the case may be, or their respective
property, to the extent such loss or damage is covered by insurance carried by
either Landlord or Tenant or may be insured (regardless of whether coverage is
actually in effect) under Standard Hazard Insurance.
ARTICLE 10. NON-LIABILITY; COVENANTS TO HOLD HARMLESS. Landlord shall be
-----------------------------------------------------
held harmless by Tenant from any liability for damages to any person or property
in or upon the leased premises and the sidewalks adjoining same, including the
property of Tenant and its employees and all persons in the building at its or
their invitation. All property kept, stored or maintained in the leased
premises shall be so kept, stored or maintained at the sole risk of Tenant.
Tenant agrees to make payment when due for any labor, services, materials,
supplies or equipment furnished or alleged to have been furnished to Tenant in
or about the leased premises which may be secured by any mechanic's,
materialmen's or other lien against the leased premises or the Landlord's
interest therein and will cause each such lien to be discharged at the time
performance of any obligation secured thereby matures; provided that Tenant may
contest such lien by appropriate proceedings which stay the enforcement thereof,
upon providing reasonable assurances or security to Landlord that Tenant will
pay the amount secured by such lien if found to be valid, but if such lien is
reduced to final judgment and if such judgment or process thereon is not stayed,
or if stayed and said stay expires, then and in such event Tenant shall
forthwith pay and discharge said judgment. Landlord shall have the right to
post and maintain on the leased premises notice of nonresponsibility under the
laws of Minnesota.
ARTICLE 11. EMINENT DOMAIN.
--------------------------
(a) Entire Premises. If substantially all of the leased premises shall be
taken under the power of eminent domain then the term of this Lease shall cease
as of the day possession shall be taken and the rent shall be paid up to that
day with a proportionate refund by Landlord of such rent as may have been paid
in advance.
(b) Partial Taking. If more than twenty percent (20%) of the floor space
in the building or buildings located on the leased premises shall be taken under
the power of eminent domain, both Landlord and Tenant shall have the right to
terminate this Lease as of the day possession shall be taken by notice to the
other party given within ten (10) days after possession is so taken. If the
unexpired portion of the term or any renewal term of this Lease shall be two (2)
years or less at the date of taking of any portion of the building or buildings
located on the leased premises, Landlord shall have the right to terminate this
Lease as of the day possession shall be taken by like notice to Tenant. If more
than one third (1/3) of the parking area in the leased premises is taken under
the power of eminent domain, Tenant shall have the right to terminate this Lease
as of the day
6
<PAGE>
possession shall be taken by like notice to Landlord, unless Landlord shall
provide, on or before the day possession shall be taken, a reasonably equivalent
substitute parking area. Tenant shall be allowed a reasonable time not to
exceed thirty (30) days after any such termination to vacate the remainder of
the leased premises, and rent shall be paid up to the day possession shall be
taken or the day Tenant vacates the remainder of the leased premises, whichever
is later.
(c) Continuation of Lease. In the event this Lease is not terminated
pursuant to paragraphs (a) or (b) of this Article, all the terms of this Lease
shall continue in effect, except that the base rent shall be reduced in
proportion to the reduction in floor space in the building or buildings located
on the leased premises as a result of the taking, and Landlord shall, at its own
cost and expense, make all necessary repairs or alterations to the basic
building or buildings, exterior and interior work to be in conformance with the
then existing architectural design of the improvements so as to constitute the
remaining premises a complete architectural unit.
(d) Damages. In any event all damages awarded for such taking under the
power of eminent domain, whether for the whole or a part of the leased premises,
shall belong to and be the property of Landlord whether such damages shall be
awarded as compensation for diminution in value to the leasehold or to the fee
of the premises; provided, however, that Landlord shall not be entitled to any
award made to Tenant for relocation benefits provided by M.S.A. Section 117.52
or similar successor statute, for "going concern" value of its business, loss of
business, fair value of, and cost of removal of stock and fixtures or for
temporary requisition of the use or occupancy of the leased premises or a part
thereof, which shall belong to Tenant.
(e) Definition. The term "eminent domain" shall include the exercise of
any similar power and any purchase or other acquisition in lieu of condemnation.
ARTICLE 12. DAMAGE.
------------------
(a) Partial or Total Destruction. In case the leased premises shall be
partially or totally destroyed by fire or other casualty insurable under
Standard Hazard Insurance so as to become partially or totally untenantable, the
same, unless Landlord or Tenant shall terminate this Lease as hereinafter
provided, shall be repaired or rebuilt as quickly as practicable at the cost of
Landlord, and the base rent shall abate during the period of repair in
proportion to the portion of the floor space in the building or buildings
located on the leased premises that is untenantable or unfit for use by Tenant
in its business.
(b) Extensive Damage; Election. If the building or buildings located on
the leased premises shall be destroyed or damaged by fire or other casualty
insurable under Standard Hazard Insurance, so as to become wholly untenantable,
and:
1. the leased premises cannot be repaired or restored within
one hundred eighty days (180) after such damage or destruction; or
7
<PAGE>
2. the unexpired portion of the term or any renewal term of
this Lease is two (2) years or less at the date of the damage; then
either Landlord or Tenant may terminate this Lease as of the date of
such destruction or damage by giving written notice to the other party
of such election within thirty (30) days after such damage or
destruction.
ARTICLE 13. SURRENDER; HOLDING OVER. On the last day of the term or any
-----------------------------------
renewal term hereof or on the sooner termination thereof, Tenant shall peaceably
surrender the leased premises in good order, condition and repair, broom-clean,
fire and other casualty insurable under Standard Hazard Insurance and reasonable
wear and tear only excepted. Tenant shall repair any damage to the leased
premises caused by removal of Tenant's trade fixtures or equipment. Any of
Tenant's property not removed on the last day of the term or any renewal term
hereof or on the sooner termination thereof, shall be deemed abandoned. In the
event Tenant remains in possession of the leased premises after the expiration
of the term and any renewal term of this Lease without the execution of a new
lease but with the acquiescence of Landlord, it shall be deemed to be occupying
said premises as a Tenant from month-to-month, subject to all the conditions,
provisions and obligations of this Lease insofar as the same can be applicable
to a month-to-month tenancy. The period of such month-to-month tenancy shall be
considered a renewal term of this Lease.
If Tenant desires to lease the leased premises after the expiration of the
term and any renewal term of this Lease, Tenant will notify Landlord of Tenant's
desire to enter into a lease of the leased premises at least six (6) months
prior to the expiration of the term or the renewal term, as the case may be.
ARTICLE 14. DEFAULT; REMEDIES.
-----------------------------
(a) Default. The occurrence of any of the following shall constitute an
event of default under this Lease:
1. Tenant shall have failed to pay any installment of base rent
to Landlord when the same shall be due and payable; or
2. Tenant shall have failed to keep in full force and effect
the insurance policies required by Article 9 above or shall have
failed to pay taxes and special assessments when due as required by
Article 4 above; or
3. Tenant shall have failed to comply with any other provision
of this Lease, and shall not have cured such failure within thirty
(30) days after Landlord, by written notice, has informed Tenant of
such noncompliance; provided, however, in the case of a default which
cannot be cured, with due diligence, within a period of thirty (30)
days, Tenant shall have such additional time to cure such default as
may be reasonably necessary, provided that Tenant proceeds promptly
and with due diligence to cure such default after receipt of said
notice; or
8
<PAGE>
4. Tenant shall have filed a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver
or trustee for it or its property, or any similar petition, or shall
have made an assignment for the benefit of creditors, or an order for
relief shall have been entered in any proceeding under the federal
Bankruptcy Code in which Tenant is named as the debtor; or
5. Any involuntary petition of the type or similar to those
referred to in Paragraph 4 of this Subsection (a) shall have been
filed against Tenant, and shall not be vacated or withdrawn within
sixty (60) days after the date of the filing thereof; or
6. Tenant shall have abandoned the leased premises, which shall
be conclusively presumed if Tenant shall vacate the premises for
thirty (30) days without giving written notice of its intent to return
to possession of the leased premises.
(b) Remedies. Whenever any event of default shall have occurred and be
subsisting, Landlord may elect either:
1. To cancel and terminate this Lease; or
2. To reenter and take possession of the leased premises, and
terminate Tenant's right to possession of the leased premises, without
terminating this Lease or any of Tenant's obligations for the balance
of the term of this Lease.
Landlord may at any time elect to terminate this Lease despite a prior election
to exercise its remedies under Paragraph 2 above. In the event Landlord
exercises its remedies under Paragraph 2 above, it may remove all persons and
property from the leased premises and store such property at the cost of and for
the account of Tenant, may make alterations and repairs and redecorate the
premises to the extent deemed by Landlord necessary or desirable, and may relet
the premises, or any part thereof, for the account of Tenant, to any person,
firm or corporation, other than Tenant, for such rent, for such time and upon
such terms as Landlord, in Landlord's sole discretion, shall determine; but
Landlord shall not be required to accept any tenant offered by Tenant or to
observe any instruction given by Tenant concerning such reletting. Any rent and
other amounts received by Landlord upon such reletting shall be applied first to
the costs and expenses of Landlord in regaining possession of the leased
premises, storing property removed from the premises, making alterations or
repairs or redecorating the leased premises, and reletting the premises,
including, without limitation, brokerage and reasonable attorneys fees, then to
the rentals and other obligations of Tenant under this Lease, and any surplus
shall be paid to Tenant.
In the event Landlord elects to terminate this Lease, all base rent and
payments for hazard insurance premiums and taxes (excluding special assessments)
for the balance of the term or any renewal term of this Lease shall be
immediately due and payable to Landlord, without credit for any subsequent
reletting by Landlord, provided that all such payments shall be discounted from
the unaccelerated due dates to present value on the date of termination, using a
discount factor of five
9
<PAGE>
percent (5%), and such accelerated payments shall bear interest from the date of
termination to the date actually paid at the rate of ten percent (10%) per
annum. For purposes of making this calculation, payments for hazard insurance
premiums shall be presumed to remain the same as the last annual hazard
insurance premium paid, and to be due and payable on each anniversary of said
last hazard insurance premium payments and payments for taxes and installments
of special assessments shall be presumed to remain the same as the last
semiannual payment of taxes and installments of special assessments, and to be
due and payable semi-annually on May 15 and October 15 of each year.
ARTICLE 15. PRIOR LEASE. This Lease supersedes Tenant's existing lease
-----------------------
with respect to the leased premises (the "Prior Lease"), which shall have no
further force or effect as of the date hereof, except for Tenant's continuing
obligation to pay rent and perform its obligations which accrued under the Prior
Lease prior to the date hereof which shall continue in effect until such rent
has been paid and such obligations performed.
ARTICLE 16. NOTICES. Any notice required or permitted under this Lease
-------------------
shall be deemed sufficiently given or served when personally delivered (in
person, by commercial courier service, by facsimile with confirmed transmission,
or otherwise) or forty-eight (48) hours after mailed by registered or certified
mail to Tenant at the address of the leased premises and to Landlord at the
address then fixed for the payment of rent, and either party may by like written
notice at any time designate a different address to which notices shall
subsequently be sent.
ARTICLE 17. GENERAL. This Lease does not create the relationship of
-------------------
principal and agent or of partnership or of joint venture or of any association
between Landlord and Tenant, the sole relationship between Landlord and Tenant
being that of Landlord and Tenant. One or more waivers of any default of Tenant
by Landlord shall not be construed as a waiver of a subsequent breach of the
same covenant, term or condition. The consent to or approval by Landlord of any
act by Tenant requiring Landlord's consent or approval shall not waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant. Each term and each provision of this Lease performable by Tenant shall
be construed to be both a covenant and a condition. The marginal or topical
headings of the several articles, paragraphs and clauses are for convenience
only and do not define, limit or construe the contents of such articles,
paragraphs or clauses. All preliminary negotiations and all prior written
agreements regarding the subject matter of this Lease (including, without
limitation, the Prior Lease) are superseded and merged into and incorporated in
this Lease. The laws of the State of Minnesota shall govern the validity,
performance and enforcement of this Lease. The terms, covenants and conditions
hereof shall be binding upon and inure to the benefit of the successors in
interest and assigns of the parties hereto.
ARTICLE 18. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
---------------------------
that upon Tenant paying the rent and performing all of the terms and conditions
on Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the premises hereby leased, subject, nevertheless, to the terms and
conditions of this Lease.
10
<PAGE>
ARTICLE 19. SUBORDINATION. Tenant agrees that its interest in the leased
-------------------------
premises is and shall be subordinate to any mortgages that may hereafter be
placed upon said premises and to any and all advances to be made thereunder, and
to the interest thereon and all renewals, replacements and extensions thereof,
provided the mortgagee named in said mortgages shall agree not to disturb
Tenant's occupancy under this Lease in the event of foreclosure if Tenant is not
in default beyond applicable periods of grace. Tenant agrees to execute such
documents as may be reasonably required by such mortgagee to confirm the same.
In the event that any mortgagee elects to have the Lease a prior lien to its
mortgage, then and in such event upon such mortgagee notifying Tenant to that
effect, this Lease shall be deemed prior in lien to the said mortgage, whether
this Lease is dated prior to or subsequent to the date of said mortgage.
ARTICLE 20. ASSIGNMENT AND SUBLETTING. Landlord may freely transfer the
-------------------------------------
leased premises, subject to this Lease, and/or assign its rights under this
Lease. Upon any transfer of the leased premises, subject to this Lease,
Landlord shall be relieved of all of its obligations under this Lease provided
the transferee assumes such obligations in writing. Tenant shall not assign
this Lease or sublease all or part of the leased premises without the prior
written consent of Landlord; provided that Tenant shall have the right to assign
its interest under this Lease one time and one time only in connection with the
sale or transfer of all or substantially all the assets of Tenant including all
or substantially all of Tenant's assets located at the leased premises.
ARTICLE 21. MEMORANDUM OF LEASE. The parties agree not to record or
-------------------------------
register this Lease, but the parties shall execute on the date hereof two (2)
copies of the Memorandum of Lease attached hereto as Exhibit B, and either party
---------
may record or register said Memorandum of Lease.
11
<PAGE>
IN WITNESS WHEREOF, the Landlord and the Tenant have caused this Lease to
be executed as of the day and year first above written.
J&K PROPERTIES LIMITED LIABILITY PARTNERSHIP
By____________________________________________
Karen Wood, Partner
And___________________________________________
Jean M. Brown, Partner
And BROWN FAMILY LIMITED PARTNERSHIP
By Brown Family Corporation
By____________________________________________
Ronald G. Brown, President
NORTH STAR PLATING COMPANY
By____________________________________________
Its___________________________________________
[SIGNATURE PAGE TO BUILDING LEASE BETWEEN
J&K PROPERTIES AND
NORTH STAR PLATING COMPANY]
12
<PAGE>
EXHIBIT A
TO
BUILDING LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
<PAGE>
EXHIBIT B
TO
BUILDING LEASE
<PAGE>
MEMORANDUM OF LEASE
THIS AGREEMENT, Made and entered into as of the ___ day of May, 1996, by
and between J&K PROPERTIES LIMITED LIABILITY PARTNERSHIP, a Minnesota limited
liability partnership (hereinafter referred to as "Landlord"), and NORTH STAR
PLATING COMPANY, a Minnesota corporation (hereinafter referred to as "Tenant").
W I T N E S S E T H :
WHEREAS, the parties have this day entered into that certain Building
Lease, wherein Landlord has leased to Tenant certain property located in
Hennepin County, Minnesota, described in Exhibit A attached hereto, which
---------
premises are hereinafter referred to as the "leased premises".
NOW, THEREFORE, in consideration of the mutual covenants contained in said
Lease and for other good and valuable consideration, Landlord hereby leases to
Tenant, upon the terms and conditions and for the rent set forth in the Lease,
which is hereby incorporated herein and made a part hereof, the leased premises,
for a term of ten (10) years from the date hereof.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day and
year first above written.
J&K PROPERTIES LIMITED LIABILITY PARTNERSHIP
By____________________________________________
Karen Wood, Partner
And___________________________________________
Jean M. Brown, Partner
And BROWN FAMILY LIMITED PARTNERSHIP
By Brown Family Corporation
By____________________________________________
Ronald G. Brown, President
<PAGE>
NORTH STAR PLATING COMPANY
By____________________________________________
Its_____________________________________
STATE OF _________ )
) SS.
COUNTY OF_________ )
The foregoing instrument was acknowledged before me this _______ day of May,
1996, by Karen Wood, one of the partners of J&K PROPERTIES LIMITED LIABILITY
PARTNERSHIP, a Minnesota limited liability partnership, on behalf of the
partnership.
(Notarial Seal) Notary Public
STATE OF _________ )
) SS.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this _______ day of May,
1996, by Jean M. Brown, one of the partners of J&K PROPERTIES LIMITED LIABILITY
PARTNERSHIP, a Minnesota limited liability partnership, on behalf of the
partnership.
(Notarial Seal) Notary Public
STATE OF _________ )
) SS.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this _______ day of May,
1996, by Ronald G. Brown, President of Brown Family Corporation, the general
partner of Brown Family Limited Partnership, a Minnesota limited partnership,
one of the partners of J&K PROPERTIES LIMITED LIABILITY PARTNERSHIP, a Minnesota
limited liability partnership, on behalf of the partnership.
<PAGE>
(Notarial Seal) Notary Public
STATE OF _________ )
) SS.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this _______ day of May,
1996, by __________________________, the _______________________ of NORTH STAR
PLATING COMPANY, a Minnesota corporation, on behalf of the corporation.
(Notarial Seal) Notary Public
THIS INSTRUMENT DRAFTED BY:
FREDRIKSON & BYRON, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
<PAGE>
EXHIBIT A
TO
MEMORANDUM OF LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
<PAGE>
MEMORANDUM OF LEASE
THIS AGREEMENT, Made and entered into as of the ___ day of May, 1996, by
and between J&K PROPERTIES LIMITED LIABILITY PARTNERSHIP, a Minnesota limited
liability partnership (hereinafter referred to as "Landlord"), and NORTH STAR
PLATING COMPANY, a Minnesota corporation (hereinafter referred to as "Tenant").
W I T N E S S E T H :
WHEREAS, the parties have this day entered into that certain Building
Lease, wherein Landlord has leased to Tenant certain property located in
Hennepin County, Minnesota, described in Exhibit A attached hereto, which
---------
premises are hereinafter referred to as the "leased premises".
NOW, THEREFORE, in consideration of the mutual covenants contained in said
Lease and for other good and valuable consideration, Landlord hereby leases to
Tenant, upon the terms and conditions and for the rent set forth in the Lease,
which is hereby incorporated herein and made a part hereof, the leased premises,
for a term of ten (10) years from the date hereof.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day and
year first above written.
J&K PROPERTIES LIMITED LIABILITY PARTNERSHIP
By____________________________________________
Karen Wood, Partner
And___________________________________________
Jean M. Brown, Partner
And BROWN FAMILY LIMITED PARTNERSHIP
By Brown Family Corporation
By____________________________________________
Ronald G. Brown, President
<PAGE>
NORTH STAR PLATING COMPANY
By____________________________________________
Its_____________________________________
STATE OF _________ )
) SS.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this _______ day of May,
1996, by Karen Wood, one of the partners of J&K PROPERTIES LIMITED LIABILITY
PARTNERSHIP, a Minnesota limited liability partnership, on behalf of the
partnership.
(Notarial Seal) Notary Public
STATE OF _________ )
) SS.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this _______ day of May,
1996, by Jean M. Brown, one of the partners of J&K PROPERTIES LIMITED LIABILITY
PARTNERSHIP, a Minnesota limited liability partnership, on behalf of the
partnership.
(Notarial Seal) Notary Public
STATE OF _________ )
) SS.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this _______ day of May,
1996, by Ronald G. Brown, President of Brown Family Corporation, the general
partner of Brown Family Limited Partnership, a Minnesota limited partnership,
one of the partners of J&K PROPERTIES LIMITED LIABILITY PARTNERSHIP, a Minnesota
limited liability partnership, on behalf of the partnership.
<PAGE>
(Notarial Seal) Notary Public
STATE OF _________ )
) SS.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this _______ day of May,
1996, by __________________, the _______________________ of NORTH STAR PLATING
COMPANY, a Minnesota corporation, on behalf of the corporation.
(Notarial Seal) Notary Public
THIS INSTRUMENT DRAFTED BY:
FREDRIKSON & BYRON, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
<PAGE>
EXHIBIT A
TO
MEMORANDUM OF LEASE
LEGAL DESCRIPTION OF LEASED PREMISES
<PAGE>
EXHIBIT 11.1
Keystone Automotive Industries, Inc.
Computation of Earnings per Share
<TABLE>
<CAPTION>
YEAR
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Common Shares outstanding at the beginning of
the year..................................... 5,682,622 5,800,000 5,800,000
Pooling of Interest with North Star Plating,
Inc.......................................... 2,450,000 2,450,000 2,450,000
---------- ---------- ----------
8,132,622 8,250,000 8,250,000
Issuance of 180,133........................... 106,689 -- --
Retirement of 62,755 shares................... 15,689 -- --
Initial Public Offering of 1,500,000 in June
1996......................................... 1,158,000
---------- ---------- ----------
Weighted average shares outstanding........... 8,255,000 8,250,000 9,408,000
========== ========== ==========
Net income.................................... $2,435,000 $4,336,000 $6,789,000
========== ========== ==========
Earnings per share............................ $ .29 $ .53 $ .72
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 21.1
Registrant had the following significant subsidiary as of March 28, 1997:
Name State of Incorporation Percentage Ownership
---- ---------------------- --------------------
North Star Plating Company Minnesota 100%
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions, "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated May
23, 1997 with respect to the financial statements and schedule, included in
the Registration Statement (Form S-1 No. 333-3994) and related Prospectus of
Keystone Automotive Industries, Inc. for the registration of 4,370,000 shares
of its common stock.
/s/ ERNST & YOUNG LLP
Los Angeles, California
June 6, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions, "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
November 11, 1996, with respect to the financial statements of North Star
Plating Company included in the Registration Statement (Form S-1 No. 333-3994)
and related Prospectus of Keystone Automotive Industries, Inc. for the
registration of 4,370,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
June 6, 1997
