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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-KSB
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended February 25, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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COMMISSION FILE NO. 0-28812
RANKIN AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0838383
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(State of incorporation or organization) (IRS tax number)
3711 MACARTHUR DRIVE, ALEXANDRIA, LA 71302
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (318)487-1081
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.01
PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure or delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 25, 1998, 4,535,000 shares of the Registrant's Common
Stock were outstanding, and the aggregate market value of the voting stock of
the Registrant held by non-affiliates (1,741,000 shares) was approximately
$5,549,438 based on the market price at that date.
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DOCUMENT INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement regarding the 1998 annual
shareholders meeting is incorporated by reference in Part III (Items 9 through
13) of this Report.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," as well as those discussed elsewhere
in this Report. Statements contained in this Report that are not historical
facts are forward-looking statements that are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. A number of
important factors could cause the Company's actual results for fiscal 1999 and
beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These factors include,
without limitation, those listed below in "Risk Factors."
RISK FACTORS
Growth through Acquisitions. The Company's growth strategy includes
acquisitions, and the Company intends to continue to seek additional
acquisition opportunities. There can be no assurance that the Company will be
able successfully to identify suitable acquisition candidates, secure financing
on acceptable terms, complete acquisitions, integrate acquired operations into
existing operations or expand into new markets. There can also be no assurance
that future acquisitions will not have an adverse effect upon the Company's
operating results, particularly in the fiscal quarters immediately following
the completion of such acquisitions while the operations of the acquired
business arc being integrated into the Company's operations. Once integrated,
acquired operations may not achieve levels of revenues, profitability or
productivity comparable with those achieved by the Company's existing
operations, or otherwise perform as expected. In addition, the Company
competes for acquisition and expansion opportunities with companies that have
substantially greater resources.
Need for Additional Financing. To the extent that the Company incurs
indebtedness to fund its growth program, the Company will be subject to the
risks associated with incurring additional indebtedness, including the risks
that interest rates may fluctuate and cash flow may be insufficient to pay
principal and interest on any such indebtedness. There can be no assurance
that any additional financing above that available from the line of credit will
be available to the Company on commercially reasonable terms. If such
additional financing is not available, the Company may have to curtail its
long-range growth program.
Competition. Both the Professional Installer and the "do-it-yourself"
(DIY) portions of the Company's business are highly competitive. The Company's
major competitors in the Professional Installer portion of its business include
independent warehouse distributors and parts stores, automobile dealerships and
national warehouse distributors and associations, such as National Automotive
Parts Association ("NAPA"), Carquest and All Pro. Competitors in the DIY
portion of the Company's business include national and regional automotive
parts chains such as Auto Zone, Western Auto, Pep Boys, independently owned
parts stores, automobile dealerships and mass or general merchandise, and
discount
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and convenience chains that carry automotive products. Many of the Company's
competitors are larger and have greater financial resources than the Company.
Some of the larger DIY competitors have entered into the Professional Installer
portion of the business and this could have a material adverse effect on the
Company's operations.
Reliance on One Supplier. The Company's business has been dependent
in a material respect upon its close relationship with its principal vendor,
APS, Inc., and its ability to continue to purchase products from this vendor at
favorable prices and favorable terms, including those offered through financial
incentives, such as cooperative advertising arrangements, other marketing
incentive programs and non-financial benefits such as distribution services.
In January 1998, due to non-competitive pricing from APS, Inc., the Company by
contract sent notice to APS, Inc., informing them that the product purchase
agreement had been cancelled. The Company is continuing to evaluate its
available potential alternatives.
In February 1998, APS, Inc., along with its parent and affiliated
companies, filed for protection and is seeking reorganization under Chapter 11
of the United States Bankruptcy Code ("Chapter 11"). The Company continues to
purchase most of its product from APS, Inc., however, the Company has begun
negotiations with potential new suppliers. If the Company was unable to
identify and enter into agreements with alternative vendors of similar parts
that offer similar programs to APS, Inc., or there is a disruption of the
Company's vendor relationship with APS, Inc., or there is a material change in
any terms of purchase, advertising, incentive or other programs offered by APS,
Inc., it could have a material adverse affect on the Company's business.
Management of the Company believes that the outcome of the APS, Inc., Chapter
11 proceedings will not have a material adverse effect on its business.
Dependence Upon Key Personnel. The success of the Company has been
largely dependent on the efforts of Mr. Randall Rankin. The loss of the
services of Mr. Rankin could have a materially adverse effect on the Company's
business and results of operations. In order to successfully implement and
manage its growth strategy, the Company will be dependent upon its ability to
continue to attract and retain qualified personnel. There can be no assurance
that the Company will be able to attract such personnel.
Continued Control of the Company by Principal Shareholder. Mr.
Randall Rankin owns beneficially approximately 62% of the then outstanding
shares of the Company's Common Stock. As a result, Mr. Rankin has the ability
to exercise effective voting control of the Company, including the election of
all of the Company's directors, and on any other matter being voted on by the
Company's shareholders, including any merger, sale of assets or other change in
control of the Company.
No Dividends and None Anticipated. The Company has not paid any
dividends since its inception and does not intend to pay dividends in the
foreseeable future.
Volatility of Stock Price. The trading price of the Company's Common
Stock may continue to be highly volatile and could be subject to significant
fluctuations in response to variations in the Company's quarterly operating
results, and other factors. In addition, the stock market is subject to price
and volume fluctuations affecting the market price for the securities of many
companies generally, which fluctuations often are unrelated to operating
results.
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PART I
Item 1. Description of Business
The Company is a specialty supplier and retailer of automotive
replacement parts, tools, supplies, equipment and accessories to both
Professional Installers and DIY customers. The Company operates 40 auto parts
stores and three machine shops in Louisiana, Mississippi and Eastern Texas,
twelve of which were acquired on October 25, 1996. Six of the stores are
"wholesale oriented" selling primarily to the Professional Installers while the
remaining 34 stores are traditional stores selling to both the Professional
Installers and DIY customers. The Company also maintains approximately 165
trucks that can make most deliveries to its wholesale customers within 30
minutes. Stores carry an extensive product line of hard parts including
brakes, belts, hoses, filters, cooling system parts, tune-up parts, shock
absorbers, gaskets, batteries, bearings, engine parts, remanufactured
alternators and starters, chassis parts and exhaust systems. In addition, the
Company also carries (i) maintenance items, such as oil, antifreeze, fluids,
engine additives and appearance products; (H) accessories, such as floor mats
and seat covers; (iii) automotive tools and (iv) professional service
equipment. For the fiscal year ended February 25, 1998, approximately 90% of
the Company's sales was derived from hard parts, approximately 70% of the
Company's product sales was derived from Professional Installers and the
remaining 30% from DIY customers.
STORE OPERATIONS
Company stores generally range in size from 4,200 to 10,000 square
feet. The Company believes that its stores are "destination stores" generating
their own traffic rather than relying on traffic created by the presence of
other stores in the immediate vicinity. Consequently, most traditional stores
are free-standing buildings situated on or near major traffic thoroughfares,
which offer ample parking and easy customer access. Each traditional store
carries a mixture of hard parts and accessories. The inventory of a wholesale
store consists only of hard parts. Traditional stores carry 18,000-20,000
different SKUs of which 13,000 to 15,000 represent hard parts, whereas a
wholesale store will carry 17,000-19,000 different hard part SKUs. Both the
traditional store and wholesale store sales are generated by a full-time sales
force of knowledgeable employees and free delivery service.
Company stores service two distinct types of customers - the
Professional Installer (wholesale) customer and the DIY (retail) customer. The
Company's traditional stores average 65% to 70% in Professional Installer sales
and 30% to 35% in DIY sales. The Company's wholesale stores sell only to the
Professional Installer. In addition, because wholesale stores carry a greater
selection of hard parts SKUs, including certain lower turnover hard parts not
generally carried in the traditional store, a wholesale store also provides the
additional stores within its area with access to a greater selection of hard
parts SKUs on a same day basis. The Company also provides a delivery service
to its wholesale customers with 165 trucks. The Company's 40 stores also
receive inventory deliveries nightly from APS, Inc.. The deliveries replenish
each store with the inventory sold the previous day and also provide a store
with the ability to special order SKUs not normally stocked by the Company's
stores. This enables the Company to provide next day service to both the
wholesale and DIY customers.
The Company's stores offer the Professional Installer and the DIY
customer a wide selection of nationally recognized brand names and "Big A"
(APS, Inc. private label) products for domestic and imported automobiles, vans
and trucks. For the year ended February 25, 1998, new and remanufactured
automotive hard parts, such as engine and transmission parts, alternators,
starters, water pumps, and brake shoes and pads, accounted for approximately
90% of the Company's total sales. Each traditional store
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also carries an extensive selection of maintenance items, such as oil,
antifreeze, fluids, engine additives, appearance products, and accessories,
such as floor mats and seat covers, automotive tools and professional service
equipment.
OPERATING STRATEGY
Because the Company pursues both the Professional Installer and the
DIY portions of the automotive aftermarket through its store network, the
Company believes that it is able to reach most consumers of automotive products
within its market areas. The demand generated by this customer base permits
the Company to: (i) offer a broad selection of SKUs and (ii) restock and fill
special orders from its principal supplier, APS, Inc., on an overnight or in
some cases, a same-day basis. Because of its distribution arrangement with
APS, Inc., the Company does not need to maintain a warehouse for those products
supplied by APS, Inc.. This allows the Company to utilize its working capital
and management resources for store operations, but still provide its customers
with up to 160,000 SKUs. In January 1998, due to non-competitive pricing from
APS, Inc., the Company by contract sent notice to APS, Inc., informing them
that the product purchase agreement had been cancelled. The Company is
continuing to evaluate its available potential alternatives. In February 1998,
APS, Inc., along with its parent and affiliated companies, filed for protection
and is seeking reorganization under Chapter 11. The Company continues to
purchase most of its product from APS, Inc., however, the Company has begun
negotiations with potential new suppliers. See "Purchasing" and "Inventory
Management."
The Company also believes that its service to both the Professional
Installer and DIY portions of the automotive market results in additional
benefits not generally enjoyed by competitors serving only one portion of the
market. Because the Company principally deals with the more
technically-oriented Professional Installer, the Company's sales personnel are
required to be more technically proficient, particularly with regard to hard
parts. The Company has found that such technical proficiency is also valued by
its DIY consumers, thereby enhancing the Company's ability to fulfill its
customer service strategy. The Company's philosophy is to be a wholesale
customer's one call and a DIY customer's one stop for all their automotive
needs.
GROWTH STRATEGY
The Company's growth strategy is to expand its operations throughout
the mid-South by purchasing automotive parts stores as they become available.
The Company's growth to date has been accomplished primarily through the
purchase of existing automotive parts stores. The Company believes that
because of the recent trend in consolidation occurring in the auto parts
industry, a large number of independent operators will be available for
purchase. Key factors considered by the Company in the acquisition selection
process include population density and growth-patterns, age and per capita
income, vehicle traffic counts, the number and type of existing automotive
repair facilities, other auto parts stores and other competitors within a
predetermined radius, and the operational strength of such competitors.
Although the cost to acquire the business of an independently owned parts store
varies, depending primarily on the amount of inventory and the size of real
estate, if any, being acquired, the Company estimates that the average cost to
acquire such a business and convert it to a Company store ranges from
approximately $225,000 to $350,000, excluding real estate. Of this amount,
approximately $175,000 to $250,000 is allocable to inventory and the remainder
to fixed assets. The Company estimates that an additional $75,000 would be
needed to fund the stores' operations for the initial four month period of
operations. In the event acquisitions in a targeted area are not possible, or
impractical, the Company may attempt to lease a store site and refurbish it as
a Company store. The costs associated with opening a new leased location are
slightly greater than acquiring a business and converting it to a Company
store.
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Because the majority of the Company's sales comes from its wholesale customer
base, the first determining factor in selecting a new store location is the
amount of wholesale business available in that area. When the Company targets
an area for a new store in a metropolitan market, a study is performed on
available sites. If retail space is available at reasonable rates and market
size and local competition warrant it, a traditional store would be opened. If
not, a wholesale store would be opened. During the fiscal year ended February
25, 1998, the Company acquired one traditional store in Natchitoches, LA and
opened four traditional stores - two each in Louisiana and Texas.
Same store growth through increased sales and profitability is also an
important part of the Company's growth strategy. To achieve improved sales and
profitability at Company stores, the Company continually strives to improve
upon the service provided to its customers. The Company believes that while
pricing is essential in the highly competitive environment of the automotive
aftermarket business, ultimately it is customer satisfaction (whether of the
Professional Installer or the DIY customer), resulting from superior customer
service, that generates increased sales and profitability.
ACQUISITIONS
Since March 1, 1993, the Company has made the following acquisitions:
<TABLE>
<CAPTION>
Date No. Stores Location
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<S> <C> <C>
May 1993 6 Monroe, LA
June 1994 3 Opelousas and Lafayette, LA
October 1994 1 Franklin, LA
March 1995 1 Nacogdoches and Jasper,TX
July 1995 1 Center, TX
September 1995 4 Hammond, North Shore, New Orleans, LA
May 1996 1 Baton Rouge, LA
July 1996 1 Lufkin, TX
October 1996 12 Mississippi
March 1997 2* Winnfield, LA and Jasper, TX
June 1997 1 Natchitoches, LA
August 1997 1* Ruston, LA
September 1997 1* Livingston, TX
</TABLE>
* New Store Openings
CUSTOMER SERVICE
The Company believes it is not only in the business of selling auto
parts, but, as important, is in the service business. Heavy emphasis is placed
on having professional personnel to provide responsive customer service.
Employees receive extensive on-the-job training and participate in a cash
incentive program, allowing them to participate in the Company's financial
success.
The Company's number one priority is customer satisfaction. The
Company seeks to attract new Professional Installer and DIY customers and to
retain existing customers by conducting a variety of advertising and
promotional programs and by offering (i) superior in-store service through
highly motivated, technically-proficient sales people using advanced
point-of-sale systems, (ii) an extensive
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selection of SKUs stocked in each store, (iii) same day or next day delivery of
over 160,000 SKUs, (iv) attractive stores in convenient locations, (v)
competitive pricing and (vi) a national warranty program.
Each of the Company's sales personnel is required to be technically
proficient in the workings and application of Automotive Products. See
"Personnel Training." This degree of technical proficiency is essential because
of the significant portion of the Company's business represented by the
Professional Installer. The Company has found that the typical DIY customer
often seeks assistance from sales people, particularly in connection with the
purchase of hard parts. The Company believes that the ability of its sales
personnel to provide such assistance is valued by the DIY customer, and
therefore is likely to result in repeat DIY business. To assist the Company's
sales personnel in providing customer service, the Company has installed
advanced point-of-sale information systems. These systems provide individual
stores with access to the Company's data base of manufacturer recommended parts
and the ability to locate parts at other stores.
PURCHASING
In 1993, in connection with the purchase of six (6) stores from APS,
Inc., the Company entered into a product purchase agreement with APS, Inc., a
national distributor of a broad array of "Big A" brand and manufacturers
branded automotive replacement parts, as well as tools, equipment, supplies and
accessories. Under the terms of this agreement, the Company agreed to purchase
merchandise from APS, Inc. over any given four (4) month consecutive billing
period at a minimum average of 80% of the Company's cost of goods less certain
exceptions. On October 21, 1996, the Company agreed to extend the purchase
agreement through September 2002. Purchases under this agreement aggregated
approximately $12.2 million and $17.2 million during the fiscal years ended
February 25, 1997 and 1998, respectively. The Company has maintained its
accounts payable with APS, Inc. on a current basis and by reason thereof has
been able to take advantage of discounted payment terms offered by APS, Inc..
In January 1998, due to non-competitive pricing from APS, Inc., the
Company by contract sent notice to APS, Inc. informing them that the product
purchase agreement had been cancelled. The Company is continuing to evaluate
its available potential alternatives. In February 1998, APS, Inc., along with
it parent and affiliated companies, filed for protection and is seeking
reorganization under Chapter 11. The Company continues to purchase most of its
product from APS, Inc., however, the Company has begun negotiations with
potential new suppliers.
APS, Inc. operates approximately 27 warehouses throughout the United
States with the nearest warehouses to the Company's stores being located in
Monroe, Louisiana; Dallas, Texas; and Jackson, Mississippi. APS, Inc. has been
able to provide the Company with same day or next day delivery of needed parts.
The Company participates in several APS, Inc. "Big A" programs, among
which are the following:
o A national warranty program ("NWP"). The Company is able to
offer its customers a NWP, good at approximately 2,000 Big A
parts sources across the country. This program is fully
funded by APS, Inc..
o A national advertising program. The Company believes that
because of the expanse of geographic coverage included in its
market area, the national advertising program, plus the NWP,
gives the Company stores added recognition and a competitive
edge.
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o A national account program. This program makes the Company a
pre-approved vendor to most national service centers such as
Firestone, Sears, Montgomery Ward, Pep Boys, etc.
In addition to the above programs, APS, Inc. provides the Company
with: (i) brand name products, (ii) pricing economies through increased
purchasing power and (iii) various services, including assistance in marketing,
cataloging and inventory control.
APS, Inc. is a publicly held corporation whose shares of common stock
are traded Over-the-Counter. According to reports filed with the Securities
and Exchange Commission, APS, Inc., formed in 1989, believes that it is the
second largest wholly owned warehouse distributor of automotive replacement
parts in the United States. It supplies parts to more than 1,650 "Big A" parts
stores owned by independent jobbers and approximately 500 APS, Inc.-owned auto
parts stores. For the year ended January 25, 1998, APS, Inc. had net sales of
approximately $812.9 million and a loss of approximately $95.3 million. Its
total stockholders' equity at January 25, 1998 was approximately $18.6 million.
If the Company were unable to purchase product from APS, Inc. or if
APS, Inc. had a material reduction in the terms of product purchases and if the
Company were unable to find a replacement supplier with favorable terms, then
the Company's business could be materially adversely affected.
INVENTORY MANAGEMENT
While the Company continues to purchase most of its product from APS,
Inc., the Company has begun negotiations with potential new suppliers. At this
early stage, the Company has not determined if a new supplier will replace APS,
Inc.. The Company currently warehouses product on a limited basis. If the
Company decides to purchase product directly from its manufacturers, a larger
warehouse operation would be required.
The Company maintains an inventory control department which, with the
help of APS, Inc. and their vendors, assures that the inventory in the stores
is current and up-to-date. The department is constantly adding new SKUs and
deleting SKUs that have become less popular. APS, Inc. provides the Company
with the ability to return substantially all APS, Inc. inventory, thereby
virtually eliminating loss from obsolescence.
All inventory records are maintained on a computer which establishes a
minimum and a maximum order point for each SKU. The Company is in the process
of upgrading its computer system to better enable management to monitor sales
and recommend stocking levels to its stores. The Company's computer system is
equipped with electronic cataloging that has improved productivity. The
computer system also supplies the Company with productivity reports by counter
and sales personnel.
MARKETING
Since a majority of the Company's revenues are derived from the sale
of Automotive Products to the Professional Installer, the Company devotes
substantial time and energy to the development of its Professional Installer
business. The Company's Vice Presidents are primarily responsible for the
development and maintenance of the Company's Professional Installer business.
There are approximately twenty full-time sales people operating from the
Company's traditional and wholesale stores dedicated solely to calling upon and
selling to the Professional Installer. Moreover, each store manager
participates
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in these activities by calling on existing and potential new Professional
Installers on a regular and periodic basis. The Company has 165 trucks to
provide prompt delivery service to the Professional Installer. Approximately
200 inside technically trained sales personnel market products to retail and
wholesale customers.
The Company promotes sales to DIY consumers through an advertising
program which includes direct mail, newspaper and limited radio and television
advertising in selected markets. Newspaper advertisements are generally
directed toward specific product and price promotions, frequently in connection
with specific sales events and promotions. The Company also sponsors several
automotive related events in its market area each year in an effort to reach
wholesale and retail customers. The Company believes that its advertising and
promotional activities have resulted in significant name recognition in its
market area.
The Company believes that a competitive pricing policy is essential
within product categories in order to compete successfully. Product pricing is
generally established to meet the pricing policies of competitors in the market
area served by each store. Most automotive products sold by the Company are
priced at discounts from the manufacturer suggested list prices and additional
savings are offered through volume discounts and special promotional pricing.
PERSONNEL TRAINING
The Company believes that technical proficiency on the part of each
sales person is essential to meet the needs of its customers, particularly the
Professional Installer, and that as a result of the Company's training program,
the enhanced technical proficiency of its sales personnel provides the Company
with a significant advantage over the smaller retail operators and the less
specialized mass merchandisers.
The Company's training function is led and managed by its Vice
Presidents through a series of bi-weekly, monthly and semi-annual sessions for
store managers, area managers and sales personnel. The Company views its
training and development program as the key to its continued long term success.
Management believes that if it trains, develops, manages and motivates the
Company's employees properly, then customers, in turn, will receive the
superior service the Company views as its competitive advantage in the
marketplace.
COMPETITION
The automotive parts aftermarket is highly competitive. Automotive
products, similar or identical to those sold at the Company's stores, are
generally available from a variety of different competitors in the communities
served by the Company's stores. The principle modes of competition are
customer service, merchandise selection and availability, location and price.
The Company's major competitors in the Professional Installer portion
of its business include independent warehouse distributors and independently
owned parts stores, automobile dealers and national warehouse distributors and
associations, such as National Automotive Parts Association (NAPA), Carquest
and All Pro. Competitors in the DIY portion of its business within its current
market area include automotive parts chains such as AutoZone, Western Auto, Pep
Boys, independently owned parts stores, automobile dealerships and mass or
general merchandisers, and discount and convenience chains that carry
automotive products. Some of the larger DIY competitors have entered into the
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Professional Installer portion of the business and this could have a material
adverse effect on the Company's operations.
Although the Company believes that it has competed effectively in its
market area in the past, some of its competitors, or their parent
organizations, are larger in terms of sales volume and have access to greater
capital and management resources.
EMPLOYEES
As of February 25, 1998, the Company had 420 employees, 155 of whom
are employed at the Company's traditional stores, 58 are employed at the
Company's wholesale stores, 24 are engaged as sales personnel, 150 are engaged
as delivery personnel and 33 are engaged as corporate and administrative
personnel. The Company's employees are not subject to a collective bargaining
agreement. The Company considers its relations with its employees to be
excellent, and strives to promote good employee relations through various
programs designed for such purposes.
SERVICE MARKS AND TRADEMARKS
The Company has registered the trademark USA AUTO STORES in the States
of Louisiana, Texas and Mississippi. The Company believes that its business is
not materially dependent on any patent, trademark, service mark or copyright.
ITEM 2. DESCRIPTION PROPERTIES
The Company operates 40 auto parts stores and three machine shops in
31 cities located in Louisiana, Mississippi and Eastern Texas. Of such stores,
three are leased from the Company's founder and President, Randall B. Rankin,
with the remaining 37 stores being leased from nonaffiliated third parties. In
addition, the Company leases one of three machine shops, a 2,200 sq. ft.
storage facility and the Company's executive offices located at 3510 MacLee
Drive and 3709 S. MacArthur Drive, Alexandria, Louisiana from Mr. Rankin. The
Company stores generally range in size from 4,200 to 10,000 square feet. See
"Item 13" for information with regard to the terms of the leases with Mr.
Rankin.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
From the effective date of Company's initial public offering on
November 18, 1996, the Company's Common Stock has been and continues to be
traded on the over-the-counter market and is included for quotation on the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System ("Nasdaq"). There was no public market for the
Company's Common Stock prior to November 18, 1996.
The following table sets forth the range of high and low bid
information for the Company's Common Stock for the period from the initial
public offering to the end of the fourth quarter of 1998.
<TABLE>
<CAPTION>
February 25, February 25,
1997 1998
---------------------- ------------------
High Low High Low
---------------------- ------------------
<S> <C> <C> <C> <C>
First Quarter N/A N/A 24 1/2 13 1/2
Second Quarter N/A N/A 19 1/4 5 1/2
Third Quarter 14 7/8 10 3/8 6 1/4 2 1/8
Fourth Quarter 20 3/4 12 1/8 4 1/8 1 5/8
</TABLE>
The market information above is derived from quotations on the
National Market System of Nasdaq. Such market quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs, or commission and may not
necessarily represent actual transactions.
HOLDERS
As of February 25, 1998 the approximate number of holders of record of
the Company's Common Stock was 42 and the approximate number of beneficial
holders, including individual participants in security position listings with
clearing agencies, was 1,500.
DIVIDENDS
The Company has not paid any cash dividends to date and does not
anticipate or contemplate paying cash dividends in the foreseeable future. It
is the present intention of management of the Company to utilize all available
funds for working capital and expansion of operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company opened its first store in 1979 and expanded to seven
stores by fiscal 1993. In 1993, the Company entered into a product purchasing
agreement with APS, Inc.. In fiscal 1994, the Company acquired from APS, Inc.
five automotive parts stores and a machine shop located in and around Monroe,
Louisiana, for a total purchase price of approximately $2.5 million. During
the fiscal year ended
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February 25, 1995, the Company acquired four additional automotive parts stores
for a total purchase price of approximately $1.5 million. During the fiscal
year ended February 25, 1996, the Company (i) acquired five additional
automotive parts stores for a total purchase price of approximately $1.7
minion, four of which were acquired from APS, Inc. (who had recently acquired
them from USA Auto Stores, Inc.) for a total purchase price of approximately
$1.3 million, (ii) closed one store and opened two stores. In May and July
1996, the Company acquired two additional automotive parts stores for a total
purchase price of approximately $900,000 and on October 25, 1996 the Company
acquired the twelve Jackson Stores for a total purchase price of approximately
$2.5 million. During the fiscal year ended February 25, 1998, the Company
opened four new traditional stores, two in Louisiana and two in East Texas, and
consolidated one store in Opelousas, Louisiana. In addition, one traditional
store was acquired in Natchitoches, LA for a purchase price of $478,000. As a
result of these acquisitions, the Company's net sales have increased from
approximately $4.1 million for the fiscal year ended February 25, 1993 to
approximately $38.7 million for the fiscal year ended February 25, 1998.
The decline in net earnings for the year ended February 25, 1998
compared to the year ended February 25, 1997 was due to negative results in
fourth quarter operations. During the fourth quarter the Company experienced a
net loss of approximately $881,000 ($.19 per share). This, in part, was
attributable to several factors. The inconsistent shipping from APS, Inc.
during the fourth quarter and the associated circumstances with the anticipated
and actual filing of their Chapter 11 Petition caused much apprehension and
disruption within our customer and employee ranks. Also, during this quarter,
the weather was very unseasonable, producing poor automotive parts sales
nationwide.
RESULTS OF OPERATIONS
The following table sets forth certain selected historical operating
results for the Company as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended
February 25,
------------
1997 1998
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.2 66.8
---- ----
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.8 33.2
Operating, selling, general and administrative expenses . . . . . . . . . . . . 31.7 35.3
---- ----
Earnings (loss) from operations. . . . . . . . . . . . . . . . . . . . 2.1 -2.1
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 0.1
Income taxes (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 -0.2
----- -----
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5% -2.0%
===== =====
</TABLE>
Year Ended February 25, 1997 Compared to Year Ended February 25, 1998
Net Sales. Product sales increased approximately $8.7 million, or
approximately 29.1%, from approximately $29.9 million from the year ended
February 25, 1997 to $38.7 million for year of 1998. Approximately $3.1
million of the increase was due to the four new store openings and one
acquisition and the remaining increase was due primarily to an increase in same
store sales and acquisitions which were consummated in the prior year. See
"Business - Operating Strategy" and "Business - Recent Acquisitions."
12
<PAGE> 13
Cost of Goods Sold. Cost of goods sold increased from approximately
$19.8 million (66.2% of net sales) for the year ended February 25, 1997 to
approximately $25.8 million (66.8% of net sales) for the fiscal year of 1998.
The increase in the dollar amount of cost of goods sold was primarily
attributable to sales increases. Cost of goods sold as a percentage of sales
increased primarily from sales increases in lower gross margin sales and new
store sales that initially operate at lower gross margins. These new stores'
cost of goods sold as a percentage of net sales should gradually decrease as
these new stores mature and sales volumes increase. The Company continues to
purchase most of its product from APS, Inc., however, the Company has begun
negotiations with potential new suppliers. If the Company decides to purchase
products directly from its manufacturers, a larger warehouse operation would be
required, the acquisition cost of parts should decrease and warehousing and
distribution expenses would increase. At this early stage, the Company has not
determined if a new supplier will replace APS, Inc..
Operating, Selling, General and Administrative Expenses. Operating,
selling, general and administrative expenses ("OSG&A") increased from
approximately $9.5 million (approximately 31.7% of net sales) for the year
ended February 25, 1997 to approximately $13.6 million (approximately 35.3% of
net sales) for fiscal of 1998. This $4.1 million increase (approximately 10.6%
of net sales) for the year ended February 25, 1998, resulted primarily from
additional store personnel and corporate overhead to support the increased
sales volume and store acquisitions.
Interest Expense. Net interest expense decreased from approximately
$427,000 (approximately 1.4% of the sales) for the fiscal year ended February
25, 1997 to approximately $53,000 (approximately 0.1% of net sales) for the
comparable year ended February 25, 1998. The dollar and percentage decreases
were primarily attributable to the retirement of debt with funds received from
the initial public offering in November, 1996.
Income Taxes. Income taxes decreased from $65,000 (approximately 32%
tax rate) for the fiscal year ended February 25, 1997 to a $60,000 credit
(approximately a -7.1% tax rate) for the comparable year ended February 25,
1998. See Footnote 9 to accompanying audited financial statements for further
explanation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements have been the funding of
new store acquisitions, increased inventory levels and accounts receivables and
the expansion of the Company's delivery fleet of vehicles. New store
acquisitions and the expansion of the delivery fleet have been funded by
borrowings secured by Company assets and more recently from the proceeds
received from the Company's initial public offering.
The Company proposes to expand its operations by acquiring stores in
the next twelve month period. The total cost of each additional store is
expected to range from approximately $225,000 to $350,000. The cost of
acquiring such stores is expected to come from available cash, cash from
operations and the Company's line of credit with Hibernia National Bank. The
Company has a line of credit of $7.5 million with the bank. Loan financing will
be sought only in connection with acquisitions if available funds are
insufficient to consummate the purchase. If such loan financing occurs, the
Company will be subject to the risks that interest rates may fluctuate and the
cash flow from such acquisition or acquisitions may be insufficient to pay the
principal and interest on such indebtedness. At February 25, 1998 approximately
$2.5 million was available under the line of credit. As a result of APS, Inc.
filing for protection under Chapter 11 in February 1998, the percentage applied
to the amount
13
<PAGE> 14
of eligible inventory that is used in the borrowing limit calculation could be
reduced from 70% to 50%. Management believes this potential modification will
not have a material adverse effect on its business.
Management believes that the cash expected to be provided by operating
activities, existing cash, existing bank credit facilities and trade credit
will be sufficient to fund both the short and long-term capital and liquidity
needs of the Company for the foreseeable future if the Company continues to use
APS, Inc. to warehouse and distribute the majority of its product needs. If
the Company decides to purchase directly from manufacturers, a warehouse
operation would be needed which may require additional financing. At this
early stage, the Company has not determined if a new supplier will replace APS,
Inc..
Management's Discussion and Analysis of Financial Condition, Risk
Factors, Description of Business and Other Items contain statements regarding
matters that are not historical facts (including statements as to beliefs or
expectations of the Company) which are forward-looking statements. Because
such forward-looking statements include risks and uncertainties, the Company's
actual results could differ materially from those discussed herein.
YEAR 2000
The Company has begun addressing all the system modifications to
accommodate the turn of the century. Management believes that it has dedicated
adequate resources to this project and does not believe that the cost of
implementation will have a significant impact on the Company's financial
condition.
INFLATION AND SEASONALITY
The Company does not believe its operations are materially affected by
inflation. The Company has been successful, in some cases, in reducing the
effects of merchandise cost increases principally by taking advantage of vendor
incentive programs, economies of scale resulting from increased volume of
purchases and selective forward buying.
Store sales have historically been somewhat higher in the first and
second quarters (March through August).
ITEM 7. FINANCIAL STATEMENTS
The information required by this Item is found immediately following
the signature page of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
14
<PAGE> 15
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
OFFICERS
The following table sets forth the names and ages of all executive
officers of the Company at February 25, 1998, including all positions and
offices with the Company held by him or her, and the period during which he has
served as such.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Randall B. Rankin 48 President and Director
Deborah N. Eddlemon 42 Chief Financial Officer and Director
Ricky D. Gunn 39 V. Pres. of Operations and Director
Harris Lake Smith, Jr 41 V. Pres. of Sales and Director
</TABLE>
Each of the executive officers listed above serves at the pleasure of
the Board of Directors for a term until his successor is duly elected and
qualified. Mr. Randall Rankin is a party to an employment agreement with the
Company through November, 1998. The following is a summary of the business
experience during the past five years of each of the Company's executive
officers.
RANDALL B. RANKIN has been President of the Company since its
inception in 1978. Prior thereto, he operated the business as a sole
proprietorship since its founding in 1968. He has essentially spent his entire
adult life in various sales, marketing and administrative capacities with the
Company. Mr. Rankin has served on numerous warehouse associations and
councils, advising aftermarket manufacturers on the needs of the auto parts
industry. He is Chairman of the Board of the Louisiana Auto Parts Association.
DEBORAH N. EDDLEMON is Senior Vice-President of Finance and
Administration. She has over twenty-one years of experience in both public and
private accounting. This includes nine years with a certified public
accounting firm in which she ultimately became a partner. Ms. Eddlemon was the
CFO for a group of fourteen privately held companies. She is a member of the
board of directors for a bank and serves on the executive and audit committees.
Ms. Eddlemon serves as the Chief Financial Officer and Secretary for Rankin
Automotive Group, Inc. She became a director of the Company in August, 1997.
RICKY D. GUNN is Vice President of Operations for the Company. Mr.
Gunn began his automotive aftermarket experience in February 1976 with Motor
Supply Company in Monroe, Louisiana. In 1987 he joined APS, Inc., and became
Division Manager when the Monroe stores were acquired by APS, Inc.. He joined
the Company in May 1993 as Vice President when the Monroe stores were acquired
by the Company. Mr. Gunn is active on many advisory councils throughout the
auto parts industry including the "Big A" Jobber Council. He became a director
of the Company in August 1996.
HARRIS LAKE SMITH, JR. is Vice President of Sales and Marketing for
the Company. He began his employment with the Company in 1974 as an outside
sales person covering the East Texas market. He started the Lufkin, Texas
operation in 1991 and opened the Nacogdoches, Texas operation in early 1992.
Mr. Smith is active on several advisory councils including the "Big A" Jobber
Council. He is also active in the Texas Auto Parts Association. He became a
director of the Company in August 1996.
15
<PAGE> 16
DIRECTORS
Reference is made to the Company's definitive information statement
for the 1998 annual shareholders meeting involving the election of directors
which will be filed with the Commission within 120 days after the end of the
fiscal year covered by this Report. The information required by this Item and
contained in such definitive proxy statement is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
Reference is made to the Company's definitive information statement
for the 1998 annual meeting of shareholders involving the election of directors
which will be filed with the Commission within 120 days after the end of the
fiscal year covered by this Report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Company's definitive information statement
for the 1998 annual meeting of shareholders involving the election of
directors, which will be filed with the Commission within 120 days after the
end of the fiscal year covered by this Report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Company's definitive information statement
for the 1998 annual meeting of shareholders involving the election of
directors, which will be filed with the Commission within 120 days after the
end of the fiscal year covered by this Report.
16
<PAGE> 17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------------------------------------------
<S> <C>
3. (a) Articles of Incorporation, as amended*
(b) By-laws*
4. Form of Common Stock Certificate*
10. (a) Copy of Stock Option Plan*
(b) Copy of Underwriter's Warrant Agreement*
(c) Copy of Product Purchase Agreement between the Registrant and A.P.S., Inc.*
(d) Copy of Lease Agreement between the Registrant and Mr. Randall Rankin dated September 1, 1993
(corporate office)*
(e) Copy of Lease Agreement between the Registrant and Mr. Randall Rankin dated July 1, 1991
(machine shop)*
(f) Copy of Lease Agreement between the Registrant and Mr. Randall Rankin dated July 1, 1991
(Monroe Street store)*
(g) Copy of Lease Agreement between the Registrant and Mr. Randall Rankin dated July 1,
1991 (South MacArthur Drive stores and redistribution facility)*
(h) Copy of Lease Agreement between the Registrant and Mr. Randall Rankin dated July 1, 1991
(storage facility)*
(i) Copy of Agreement of Sale by and Between Registrant and Parts, Inc. dated September 12, 1996
relating to the acquisition of the Jackson Stores*
(j) Copy of Agreement of Sale between Registrant and American Parts System, Inc. dated October 20,
1994 relating to the acquisition of the Hammond Stores*
(k) Copy of employment contract between the Registrant and Mr. Randall Rankin*
(l) Commitment Letter from Hibernia National Bank dated September 11, 1996*
(m) Copy of Lock-up Agreement between the Registrant and Mr. Randall Rankin*
(n) Copy of Hibernia National Bank's Amended & Restated Loan Agreement dated October 7, 1997**
(o) Copy of Hibernia National Bank's 1st Amendment to Amended & Restated Loan Agreement dated May 19, 1998**
</TABLE>
* Incorporated by reference to the Company's Registration Statement
filed with the Securities and Exchange Commission (File No.
333-5562-A) ordered effective November 18, 1996.
** Filed herewith
(b) Reports on Form 8-K
None
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
Dated: May 20, 1998 RANKIN AUTOMOTIVE GROUP, INC.
By: /s/ Randall B. Rankin
----------------------
Randall B. Rankin, President and
Chief Executive Officer
By: /s/ Deborah N. Eddlemon
-------------------------
Deborah N. Eddlemon,
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Randall B. Rankin Director May 20, 1998
- ---------------------------
Randall B. Rankin
/s/ Otis Al Cannon, Jr. Director May 20, 1998
- ---------------------------
Otis Al Cannon, Jr.
/s/ Ricky D. Gunn Director May 20, 1998
- ---------------------------
Ricky D. Gunn
/s/ Harris Lake Smith, Jr. Director May 20, 1998
- ---------------------------
Harris Lake Smith, Jr.
/s/ Ricky L. Sooter Director May 20, 1998
- ---------------------------
Ricky L. Sooter, Esq.
/s/ Deborah N. Eddlemon Director May 20, 1998
- ---------------------------
Deborah N. Eddlemon
18
<PAGE> 19
RANKIN AUTOMOTIVE GROUP, INC.
FINANCIAL STATEMENTS FOR THE YEARS ENDED
FEBRUARY 25, 1997 AND 1998 AND INDEPENDENT
AUDITORS' REPORT
F-1
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
Board of Directors
Rankin Automotive Group, Inc.
Alexandria, Louisiana
We have audited the accompanying balance sheet of Rankin Automotive Group, Inc.
as of February 25, 1998, and the related statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended February
25, 1998. 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. These 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of February 25, 1998, and the
results of its operations and its cash flows for each of the two years in the
period ended February 25, 1998, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
April 27, 1998
F-2
<PAGE> 21
RANKIN AUTOMOTIVE GROUP, INC.
BALANCE SHEET
FEBRUARY 25, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,962,065
Accounts receivable:
Trade, net of allowance for doubtful accounts of $61,000 2,317,873
Related party 18,904
Inventory 12,874,352
Prepaid expenses and other current assets 167,924
------------
Total current assets 19,341,118
PROPERTY AND EQUIPMENT - net 1,994,265
GOODWILL AND INTANGIBLE ASSETS - net 629,112
------------
TOTAL $ 21,964,495
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,383,715
Accrued expenses 593,477
Current portion of long-term debt 155,186
------------
Total current liabilities 4,132,378
LONG-TERM DEBT 5,188,160
------------
Total liabilities 9,320,538
------------
COMMITMENTS AND CONTIGENCIES --
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 2,000,000 shares authorized,
none issued --
Common stock, $.01 par value, 10,000,000 shares authorized,
4,550,000 shares issued 45,500
Additional paid-in capital 13,083,830
Accumulated deficit (290,373)
Less treasury stock, 15,000 shares at cost (195,000)
------------
Total stockholders' equity 12,643,957
------------
TOTAL $ 21,964,495
============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 22
RANKIN AUTOMOTIVE GROUP, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 25, 1997 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
NET SALES $ 29,946,333 $ 38,655,609
COST OF GOODS SOLD (19,825,239) (25,823,966)
------------ ------------
Gross profit 10,121,094 12,831,643
OPERATING, SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES (9,489,231) (13,627,824)
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 631,863 (796,181)
INTEREST EXPENSE (426,852) (52,655)
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (CREDIT) 205,011 (848,836)
INCOME TAXES (CREDIT) 65,000 (60,000)
------------ ------------
NET EARNINGS (LOSS) $ 140,011 $ (788,836)
============ ============
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE $ 0.04 $ (0.17)
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,442,000 4,539,000
============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 23
RANKIN AUTOMOTIVE GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 25, 1997 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
----------------------------- PAID-IN (ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT) STOCK TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 26, 1996 3,050,000 $ 30,500 $ 106,348 $ 358,452 $ -- $ 495,300
Net earnings for the year ended
February 25, 1997 140,011 140,011
Issuance of common stock 1,500,000 15,000 12,977,482 12,992,482
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT FEBRUARY 25, 1997 4,550,000 45,500 13,083,830 498,463 13,627,793
Net loss for the year ended
February 25, 1998 (788,836) (788,836)
Purchase of treasury stock (195,000) (195,000)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT FEBRUARY 25, 1998 4,550,000 $ 45,500 $ 13,083,830 $ (290,373) $ (195,000) $ 12,643,957
============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 24
RANKIN AUTOMOTIVE GROUP, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 25, 1997 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 140,011 $ (788,836)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 270,221 396,284
Changes in assets and liabilities:
Increase in accounts receivable (506,078) (146,390)
Increase in inventories (2,040,553) (2,286,196)
(Increase) decrease in other assets, net 35,654 (50,398)
Increase in accounts payable 793,762 761,345
Increase (decrease) in accrued expenses 297,398 (121,517)
------------ ------------
Net cash used in operating activities (1,009,585) (2,235,708)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (458,833) (931,460)
Cash paid in connection with acquisition -- (408,000)
------------ ------------
Net cash used in investing activities (458,833) (1,339,460)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering 12,992,482 --
Borrowings under revolving line of credit 32,982,504 20,951,351
Repayments of borrowings under revolving
line of credit (35,717,159) (17,407,603)
Proceeds from other long-term obligations -- 320,827
Repayments of other long-term obligations (4,930,560) (154,629)
Purchase of treasury stock -- (195,000)
Decrease in notes payable to stockholder (145,706) --
------------ ------------
Net cash provided by financing activities 5,181,561 3,514,946
------------ ------------
NET INCREASE (DECREASE) IN CASH 3,713,143 (60,222)
CASH, BEGINNING OF YEAR 309,144 4,022,287
------------ ------------
CASH, END OF YEAR $ 4,022,287 $ 3,962,065
============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 25
RANKIN AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF ORGANIZATION AND BUSINESS
BUSINESS - Rankin Automotive Group, Inc., (the Company) was incorporated
under the laws of the State of Louisiana in June 1978 and is a specialty
wholesaler and retailer of automotive replacement parts, maintenance items
and accessories for the professional installer and "do it yourself"
markets through stores located in Louisiana, Mississippi and East Texas.
2. COMPLETION OF PUBLIC OFFERING
On November 21, 1996, the Company completed a public offering whereby the
Company issued 1,500,000 shares of common stock for gross proceeds of
$15,000,000 ($12,992,482 net of underwriting commissions and expenses).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
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 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 revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
INVENTORIES - Inventories, which consist of automotive hard parts,
maintenance items, accessories and tools, are stated at the lower of cost
or market with cost determined using the first-in, first-out (FIFO)
method.
PROPERTY AND EQUIPMENT, NET - Property and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the
estimated useful lives of the assets.
Expenditures for additions, major renewals or betterments are capitalized
and expenditures for repairs and maintenance are charged to operations as
incurred.
INTANGIBLE ASSETS - Intangible assets consist primarily of goodwill and
customer lists. These assets are being amortized on a straight-line basis
over 5 to 25 years. Accumulated amortization amounted to approximately
$70,000 at February 25, 1998.
PRE-OPENING COSTS - Cost associated with the opening of new stores, which
consist primarily of payroll and occupancy costs, are charged to
operations as incurred.
ADVERTISING - The Company expenses its share of all advertising costs as
such costs are incurred. The portion of advertising expenditures which are
to be recovered from vendors and other cooperative programs are recorded
as a receivable. The Company does not defer any portion of its share of
advertising costs.
F-7
<PAGE> 26
STOCK BASED COMPENSATION - The Company applies APB Opinion No. 25 and
related interpretations in accounting for its stock options. Accordingly,
no compensation cost has been recognized.
INCOME TAXES - The Company accounts for income taxes using the liability
method.
CONCENTRATION OF CREDIT RISK - The Company grants credit to customers who
meet pre-established credit requirements. The Company does not require
collateral when trade credit is granted to customers. Credit losses are
provided for in the financial statements as soon as they become probable.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the Company's
financial instruments such as accounts receivable, accounts payable and
long-term debt approximate their carrying amounts.
EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards
Board issued Statement of Accounting Standards (SFAS) No. 128, "Earnings
per Share," which is effective for financial statements issued for periods
ending after December 15, 1997. SFAS No. 128 replaces APB Opinion 15,
Earnings per Share, and simplifies the computation of earnings per share
(EPS) by replacing the presentation of primary EPS with a presentation of
basic EPS. In addition, the Statement requires dual presentation of basic
and diluted EPS by companies with complex capital structure. Basic EPS
includes no dilution and is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share
in the earnings of a company, similar to fully diluted EPS. The adoption
of SFAS No. 128 by the Company did not have any impact on EPS as
previously presented. Basic and diluted earnings (loss) per share is based
on the weighted average number of shares outstanding of 3,442,000 in 1997
and 4,539,000 in 1998.
4. ACQUISITION OF BUSINESSES
During the year ended February 25, 1997, the Company acquired 14 auto
parts stores (all of which were acquired from A.P.S., Inc.). During the
year ended February 25, 1998, the Company acquired one auto parts store.
These acquisitions were accounted for as purchases and, accordingly, the
purchase prices were allocated to the assets and liabilities based upon
their estimated fair values as of the dates of acquisition. The Company
paid cash totaling approximately $-0- in 1997 and $408,000 in 1998, and
incurred debt to the seller of approximately $3,450,000 in 1997 and
assumed liabilities of $70,000 in 1998 in exchange for assets with a
purchase price of approximately $3,450,000 in 1997 and $478,000 in 1998.
The results of operations of each acquisition are included in the
accompanying Statements of Operations from the dates of acquisition. The
following unaudited pro forma results of operations give effect to the
acquisitions as though they had occurred on February 26, 1996 (in
thousands except per share data):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net sales $ 38,082 $ 38,956
Net earnings (loss) 149 (789)
Basic and diluted earnings (loss) per share .04 (0.17)
</TABLE>
The unaudited pro forma information is not necessarily indicative either
of the results of operations that would have occurred had the purchases
been made as of February 26, 1996 or of future results of operations of
the combined companies.
F-8
<PAGE> 27
5. ACCOUNTS RECEIVABLE, RELATED PARTY
The accounts receivable from the related party represents non-interest
bearing trade receivables from a company partially owned and a company
wholly owned by the principal stockholder of the Company and are due
within thirty days.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at February 25, 1998:
<TABLE>
<CAPTION>
LIFE
(YEARS)
<S> <C> <C>
Furniture and fixtures and other office equipment $ 633,159 5-7
Leasehold improvements 510,603 10-15
Warehouse equipment 971,253 10-15
Transportation equipment 1,107,418 5
-----------
3,222,433
Less: accumulated depreciation and amortization 1,228,168
-----------
$ 1,994,265
===========
</TABLE>
7. LONG-TERM DEBT
Long-term debt at February 25, 1998, consists of the following:
<TABLE>
<S> <C>
Borrowing under revolving line of credit with a maximum amount of $7,500,000
with a bank requiring monthly payments of interest at LIBOR plus 2.5% (8.2% at
February 25, 1998) with principal due December 1, 2001, collateralized by
substantially all assets of the Company $ 4,952,972
Various notes payable, requiring monthly installments of approximately $12,700
including interest at various rates;
a portion of which are collateralized by equipment and vehicles 390,374
-----------
5,343,346
Less current maturities (155,186)
-----------
$ 5,188,160
===========
</TABLE>
Aggregate maturities of long-term debt are as follows for the years ending
February 25,
<TABLE>
<S> <C>
1999 $ 155,186
2000 142,950
2001 89,037
2002 4,956,173
-----------
$ 5,343,346
===========
</TABLE>
The revolving line of credit agreement contains certain financial
covenants relating to, among other things, current ratio, interest
coverage and debt to equity ratio.
F-9
<PAGE> 28
8. ACCRUED EXPENSES
Accrued expenses consist of the following at February 25, 1998:
<TABLE>
<S> <C>
Accrued payroll and related taxes $527,076
Other 66,401
--------
$593,477
========
</TABLE>
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets as of February
25, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets -
Net operating loss carryforward $ 210,000
Vacation pay and other items, net 12,000
---------
Total deferred tax assets 222,000
Less valuation allowance (222,000)
---------
Net deferred tax assets $ --
=========
</TABLE>
The components of income taxes (credit) are as follows:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Currently payable (refundable) $ 25,000 $ (20,000)
Deferred 40,000 (40,000)
---------- ----------
$ 65,000 $ (60,000)
========== ==========
</TABLE>
Income taxes (credit) differ from the amounts computed by applying the
U.S. Federal income tax rate of 34% to earnings (loss) before income
taxes. The reasons for these differences are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 25,
-------------------------
1997 1998
<S> <C> <C>
Income taxes (credit) computed at statutory rates $ 70,000 $ (289,000)
Increase (decrease) in taxes due to:
Change in valuation allowance -- 222,000
Other, net (5,000) 7,000
---------- ----------
Actual income taxes (credit) $ 65,000 $ (60,000)
========== ==========
Actual tax rate 32 % (7)%
</TABLE>
F-10
<PAGE> 29
At February 25, 1998, the Company's management evaluated its deferred tax
assets and determined that it was more likely than not that the deferred
tax asset would not be realized and established a valuation allowance
against its deferred tax assets.
At February 25, 1998, the Company had a net operating loss carryforward of
approximately $600,000 available to reduce future taxable income through
2013.
Income taxes paid amounted to approximately $60,000 in 1998 and were not
significant in 1997.
10. STOCKHOLDERS' EQUITY
In connection with the public offering, on August 28, 1996, the Board of
Directors approved an increase in the Company's capital stock authorized
from 1,000 shares to 10,000,000 shares of $.01 par value common stock and
authorized 2,000,000 shares of no par value preferred stock. On August 28,
1996, the Company also effected a stock split whereby each share of common
stock was exchanged for 3,050 shares of common stock. The weighted average
common shares outstanding and all share data has been retroactively
adjusted to reflect these transactions.
The Board of Directors is authorized, without further stockholder action,
to divide any or all shares of the authorized preferred stock into series
and to fix and determine the designation, preferences and relative,
participating, option or other special rights, and qualifications,
limitations, or restrictions thereon of any series so established,
including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges. As of February 25, 1998, the
Board had not authorized any issuances of any series of preferred stock
and there are no plans, agreements or understandings for the authorization
or issuance of any shares of preferred stock.
The Board also instituted a stock option plan under which 250,000 shares
of common stock are reserved for issuance at no less than the fair market
value of the stock at the date of grant. Options to purchase 6,000 shares
of common stock were granted in August 1996 and are exercisable at $10 per
share beginning one year after the date of grant and expire ten years
after the date of grant. All such options are outstanding and exercisable
at February 25, 1998.
The Company is applying APB Opinion No. 25 and related interpretations in
accounting for the stock option plan. All options granted in 1997 were at
the estimated fair market value on the date of grant. Accordingly, no
compensation expense has been recognized. If the Company determined
compensation cost based on the fair value at the date of grant of $1.75
per each share under option, consistent with the requirements of Financial
Accounting Standards Board Statement No. 123 "Accounting for Stock Based
Compensation," the Company's net earnings (loss) and earnings (loss) per
share would have been approximately $135,000 and $.04 in 1997 and
$(784,000) and $(0.17) in 1998. In computing these pro forma amounts, the
Company used the Black-Scholes Pricing Model and assumed a risk-free
interest rate equal to approximately 6-1/2%, no dividends, no volatility
and an expected life of approximately 3 years. The effects of applying
SFAS No. 123 in this disclosure are not indicative of future amounts.
F-11
<PAGE> 30
11. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
On October 21, 1996, the Company entered into an amended product purchase
agreement with A.P.S., Inc. ("APS"), a national distributor of replacement
auto parts. Under the terms of this agreement, the Company agreed to
purchase merchandise from APS through September 2002, over any given
four-month consecutive billing period at a minimum average of 80% of the
Company's cost of goods as defined. Purchases under this agreement
aggregated approximately $12,200,000 and $17,000,000 in 1997 and 1998,
respectively.
In January 1998, due to non-competitive pricing from APS, Inc., the
Company by contract sent notice to APS, Inc. informing them that the
product purchase agreement had been canceled. The Company is continuing to
evaluate its available potential alternatives.
In February 1998, APS, Inc. along with its parent and affiliated
companies, filed for protection and is seeking reorganization under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The
Company continues to purchase most of its product from APS, Inc., however,
the Company has begun negotiations with potential new suppliers. If the
Company was unable to identify and enter into agreements with alternative
vendors of similar parts that offer similar programs to APS, Inc., or
there is a disruption of the Company's vendor relationship with APS, Inc.,
or there is a material change in any terms of purchase, advertising,
incentive or other programs offered by APS, Inc., it could have a material
adverse effect on the Company's business. Management of the Company
believes that the outcome of the APS, Inc., Chapter 11 proceedings will
not have a material adverse effect on its business.
LEASES
The Company leases three of its stores, a machine shop, a storage
facility, and its administrative offices from the principal stockholder of
the Company and 29 (including 19 noncancelable operating leases from APS)
of its stores from unrelated parties under noncancelable operating leases.
In addition the Company leases eight of its stores from unrelated parties
on a month to month basis. Such leases to unrelated parties expire during
the fiscal years 1999 to 2003. Rent expense under leases with the
principal stockholder aggregated approximately $244,000 in 1997 and
$262,000 in 1998. Rent expense to other parties aggregated $520,000 in
1997 and $850,000 in 1998. Most leases include provisions for lease
extensions and also require the Company to pay real estate taxes,
insurance and certain other expenses.
Future minimum lease payments under noncancelable operating leases with
initial or remaining terms of one year or more, for each of the next five
years and thereafter are as follows:
<TABLE>
<CAPTION>
PRINCIPAL UNRELATED
STOCKHOLDER PARTIES TOTAL
<S> <C> <C> <C>
1999 $ 262,000 $ 701,000 $ 963,000
2000 262,000 485,000 747,000
2001 262,000 336,000 598,000
2002 207,000 182,000 389,000
2003 180,000 41,000 221,000
Thereafter 600,000 4,000 604,000
---------- ---------- ----------
$1,773,000 $1,749,000 $3,522,000
========== ========== ==========
</TABLE>
F-12
<PAGE> 31
The Company subleases a portion of one of its locations and sublease
rental income amounted to approximately $15,000 in 1997 and $31,000 in
1998. There are no significant sublease commitments at February 28, 1998.
12. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 25,
------------------------
1997 1998
<S> <C> <C>
Noncash investing and financing activities:
Purchase of stores financed by seller $3,450,000 $ 70,000
Cash paid for interest 487,200 230,000
</TABLE>
******
F-13
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10 (n) Copy of Hibernia National Bank's Amended & Restated Loan Agreement dated October 7, 1997**
10 (o) Copy of Hibernia National Bank's 1st Amendment to Amended & Restated Loan Agreement dated May 19, 1998**
27 Financial Data Schedule**
</TABLE>
** Filed herewith.
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
LOAN AGREEMENT
<TABLE>
<CAPTION>
==============================================================================================================================
Principal Date Maturity Loan No. Call Collateral Account Officer Initials
$7,500,000.00 October 7, 1997 October 7, 2002 0001 7373872 945
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
==============================================================================================================================
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C>
BORROWER: RANKIN AUTOMOTIVE GROUP, INC. LENDER: HIBERNIA NATIONAL BANK
F/K/A RANKIN AUTOMOTIVE WAREHOUSE, INC. (TIN: 72-0210640)
(TIN: 72-0838383) P. O. BOX 351
3709 SOUTH MACARTHUR DRIVE ALEXANDRIA, LOUISIANA 71309
ALEXANDRIA, LOUISIANA 71301
</TABLE>
WHEREAS BORROWER AND LENDER ENTERED INTO A LOAN AGREEMENT ON THE 12TH DAY OF
DECEMBER, 1995;
WHEREAS BORROWER AND LENDER HAVE AGREED TO VARIOUS AMENDMENTS TO THE LOAN
AGREEMENT EFFECTIVE THE 7TH DAY OF OCTOBER, 1997;
THIS AMENDED AND RESTATED LOAN AGREEMENT between RANKIN AUTOMOTIVE GROUP, INC.
F/K/A RANKIN AUTOMOTIVE WAREHOUSE, INC. ("BORROWER") and HIBERNIA NATIONAL BANK
("LENDER") is made and executed on the following terms and conditions. Borrower
has applied to Lender for a loan or loans and other financial accommodations,
including those which may be described on any exhibit or schedule attached to
this Agreement.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Louisiana Commercial Laws (La.-R.S.
10:1-101, et seq.). All references to dollar amounts shall mean amounts in
lawful money of the United States of America.
ACCOUNT. The word "Account" means a trade account, account receivable,
other receivable, or other right to payment for goods sold or services
rendered owing to Borrower (or to a third party grantor acceptable to
Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADJUSTED NET WORTH. The term "Adjusted Net Worth" shall mean Borrower's
Tangible Net Worth less amounts (a) due from an officer, an employee or
agent of Borrower, or (b) due from any person or entity which is a
subsidiary of, or is affiliated with, or related to, Borrower or any of
its shareholders, officers, or directors, (c) due for any intangible
assets as defined in accordance with generally accepted accounting
principles (GAAP), or (e) due for any assets which are excluded
pursuant to the exercise of reasonable discretion of Lender.
ADVANCE. The word "Advance" means a disbursement of Loan funds under
this Agreement.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with
all exhibits and schedules attached or to be attached to this Loan
Agreement from time to time.
APPLICABLE INTEREST MARGIN. The term "Applicable Interest Margin" shall
mean that percentage interest rate per annum of 2.50% added on to the
"LIBOR Index Rate" as defined herein.
AFCO, INC. The term "AFCO, Inc." means Autoparts Finance Company, Inc.,
(TIN: 51-0001902), a Delaware corporation, World Houston Plaza, 15710
John F. Kennedy Boulevard, Suite 700, Houston, TX 77032-2347, its
successors and assigns.
<PAGE> 2
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 2
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
A.P.S., INC.. The term "A.P.S., Inc." means American Parts System,
Inc., a Delaware Corporation, (TIN: 95-2221166), World Houston Plaza,
15710 John F. Kennedy Boulevard, Suite 700, Houston, Texas 77032- 2347,
its successors and assigns.
A.P.S., INC., MERCHANDISE REPURCHASE AGREEMENT. The term "A.P.S., Inc.,
Merchandise Repurchase Agreement" shall mean that Merchandise
Repurchase Agreement dated the 11th day of December, 1995, by and
between A.P.S., Inc., Borrower and Lender.
AUTHORIZED PERSONS. The words "Authorized Persons" mean individually,
collectively and interchangeably Randall B. Rankin.
BORROWER. The word "Borrower" means individually, collectively and
interchangeably RANKIN AUTOMOTIVE GROUP, INC.. The word "Borrower" also
includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates of
Borrower".
BORROWING BASE. The words "Borrowing Base" mean, as determined by
Lender from time to time, the lesser of (a) $7,500,000.00; or (b) the
sum of (i) 80% of the aggregate amount of ELIGIBLE RECEIVABLES or such
lesser percentage as Lender determines appropriate, in its sole
discretion, exercising reasonable credit judgment, plus (ii) the lesser
of (1)$5,000,000.00 or (2) 70% of the aggregate amount of the
Borrower's cost of inventory covered by the A.P.S., Inc. Merchandise
Repurchase Agreement and 50% of the Borrower's cost of all other
inventory. "ELIGIBLE RECEIVABLES" mean, at any time, all of Borrower's
Accounts which contain selling terms and conditions acceptable to
Lender. The net amount of any ELIGIBLE RECEIVABLE against which
Borrower may borrow shall exclude all returns, discounts, credits, and
offsets of any nature. Unless otherwise agreed to by Lender in writing,
ELIGIBLE RECEIVABLES do not include: (a) Accounts that are not
encumbered by a first priority perfected security interest granted in
favor of Lender, where first priority perfection is confirmed by
evidence or opinions acceptable to Lender; (b) Accounts that are not
free and clear of all security interests, liens, encumbrances, and
claims of third parties, except for Permitted Liens; (c) Accounts that
have not been paid in full within ninety (90) days from the invoice
date; (d) Accounts of any Account Debtor with more than fifty percent
(50%) aggregate Accounts owned being due and payable for more than
ninety (90) days from the Invoice date, unless Lender, upon request of
Borrower and in its sole discretion, agrees to allow inclusion of the
Accounts from any particular Account Debtor for a particular month as
ELIGIBLE RECEIVABLES; (e) Accounts with respect to which the Account
Debtor is a shareholder, a director, an officer, an employee, or an
agent of Borrower; (f) Accounts with respect to which the Account
Debtor is a subsidiary of, or affiliated with or related to Borrower or
its shareholders, officers, or directors; (g) Accounts with respect to
which goods are placed on consignment, guaranteed sale, or other terms
by reason of which the payment by the Account Debtor may be
conditional; (h) Accounts with respect to which the Account Debtor is
not a resident of the United States, except to the extent such Accounts
are supported by insurance, bonds or other assurances satisfactory to
Lender; (i) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower; (j) Accounts which are subject to dispute,
counterclaim or setoff; (k) Accounts with respect to which the goods
have not been shipped or delivered, or the services have not been
rendered, to the Account Debtor; (l) Accounts with respect to which
Lender, in its sole discretion, reasonably deems the creditworthiness
or financial condition of the Account Debtor to be unsatisfactory or
uncollectible; (m) Accounts of any Account Debtor who has filed or has
had filed against it a petition in bankruptcy or an application for
relief under any provision of any state or federal bankruptcy,
insolvency, or debtor-in-relief acts; or who has had appointed a
trustee, custodian, or receiver for the assets of such Account Debtor;
or who has made an assignment for the benefit of creditors or has
become insolvent or fails generally to pay its debts (including its
payrolls) as such debts become due; (n) Accounts with respect to which
the Account Debtor is the United States government or any department or
agency of the United States, unless encumbered by a first priority
perfected security interest granted in favor of Lender, acknowledged by
the appropriate governmental agency and where first priority perfection
is confirmed by evidence or opinions acceptable to Lender; (o) Notes
Receivable; (p) any other type or class of accounts receivable
determined as ineligible by any field audit conducted by the Lender or
its agent. Furthermore, if Borrower has accounts receivable from a
Person and Borrower has accounts payable to the same Person, the
Lender, at its option, may exclude that portion of the accounts
receivable equal to the accounts payable, so that only the excess (if
any) of the accounts receivable over the accounts payable will be
included in the Borrowing Base. In no instance shall "ELIGIBLE
INVENTORY" exceed $7,142,857.14. ELIGIBLE INVENTORY shall be valued at
Borrower's cost. "ELIGIBLE INVENTORY" mean, at any time, all of the
inventory of Borrower as defined below except: (a) Inventory that is
not encumbered by a first priority perfected security interest granted
in favor of Lender, where first priority perfection is confirmed by
evidence or opinions acceptable to Lender; (b) Inventory that is not
owned by Borrower free and clear of all security interests, liens,
encumbrances, and
<PAGE> 3
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 3
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
claims of third parties, except for Permitted Liens; (c) Inventory that
Lender, in its sole discretion, deems to be obsolete, unsalable,
damaged, defective, or unfit for sale or further processing; and, (d)
Inventory recommend to be excluded by field audit conducted by the
Lender or its agent. The amount of the Borrowing Base shall be
established at least monthly if Borrower has not been directed by
Lender to establish and maintain Dominion Account Status. In the event
Lender has directed Borrower to establish and maintain Dominion Account
Status then, in such an event, the amount of the Borrowing Base shall
be established daily based on the Borrowing Base Certificate provided
by each Borrower to the Bank. Any inventory or accounts receivable that
are ELIGIBLE INVENTORY or ELIGIBLE RECEIVABLES at any time, but which
subsequently fail to meet any of the foregoing requirements, shall
forthwith cease to be ELIGIBLE INVENTORY or ELIGIBLE RECEIVABLES, as
the case may be, until such time as they once again meet all of the
foregoing requirements.
BORROWING BASE CERTIFICATE. The words "Borrowing Base Certificate" mean
the borrowing base certificate described below.
BUSINESS DAY. The words "Business Day" mean a day on which commercial
banks are open for business in Alexandria, Louisiana, excluding
Saturdays.
COLLATERAL. The word "Collateral" means and includes individually,
collectively, interchangeably and without limitation all property and
assets granted as collateral security for a Loan, whether real or
personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a
security interest, mortgage, collateral mortgage, deed of trust,
assignment, pledge, crop pledge, chattel mortgage, collateral chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien, charge, lien or title retention contract,
lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law, contract,
or otherwise. The word "Collateral" includes without limitation all
collateral described below in the section titled "COLLATERAL".
COLLATERAL VALIDITY GUARANTY. The words "Collateral Validity Guaranty"
means that agreement executed by Randall B. Rankin on October 7, 1997.
DEBT. The term "Debt" shall mean all of Borrower's liabilities.
DOMINION ACCOUNT STATUS. The term "Dominion Account Status" shall mean
Lender's written notification to Borrower, to: (1) establish and
maintain a "Dominion Account" as hereinafter defined, (2) and upon
Borrower's receipt of such notice, Borrower shall initiate and comply
with within thirty (30) days, the procedures set forth and further
described in the section herein entitled (a) "Borrowing Base
Certificates" (b) and the section herein entitled "Line of Credit" as
it relates more particularly to the "Borrowing Base calculation" in
conjunction with Borrower's "request for an advance". Upon initiation
of "Dominion Account Status," this status shall remain in full force,
and effect, and this status shall not be terminated until written
notice of its termination shall have been delivered by Lender to
Borrower.
DEBTOR. The word "Debtor" means individually, collectively and
interchangeably each person or entity obligated upon any Account and
any grantor of a security interest as security for any Account.
EARNINGS BEFORE INTEREST EXPENSE AND TAXES. (EBIT) The term "EBIT"
shall mean Total Revenues minus Operating Expenses as defined herein.
EFFECTIVE DATE. The words "Effective Date" mean the 1st day of August,
1997 the date this Amended an Restated Loan Agreement became effective.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean individually,
collectively, and interchangeably any of the Events of Default set
forth below in the Section titled "EVENTS OF DEFAULT".
EXPIRATION DATE. The words "Expiration Date" mean the earlier of (a) in
the event an Event of Default occurs, the date Lender demands
repayment, in full, of the aggregate unpaid principal amount of all
Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet
paid, (b) the date of termination of Lender's commitment to lend under
this Agreement, or (c) the latest stated maturity date of the Note,
August
<PAGE> 4
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 4
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
31, 2002, and any renewals and extensions of the Note (PROVIDED,
HOWEVER, THAT LENDER HAS MADE NO COMMITMENT TO, AND IS NOT OBLIGATED
TO, RENEW THE NOTE OR EXTEND THE MATURITY DATE OF THE NOTE).
GRANTOR. The word "Grantor" means and includes individually,
collectively, interchangeably and without limitation each and all of
the persons or entities granting a Security Interest in any Collateral
for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word " Guarantor" means and includes individually,
collectively, interchangeably and without limitation, RANDALL B. RANKIN
(SSN ###-##-####), AS DEFINED BY THE COLLATERAL VALIDITY GUARANTY.
INDEBTEDNESS. The word "Indebtedness" means and includes individually,
collectively, interchangeably and without limitation, any and all
present and future loans, extensions of credit, liabilities and/or
obligations of every nature and kind whatsoever that Borrower may now
and in the future owe to or incur in favor of Lender and its successors
or assigns, including without limitation, Borrower's Indebtedness in
favor of Lender under the Note, whether such loans, extensions of
credit, liabilities and/or obligations are direct or indirect, or by
way of assignment, and whether related or unrelated, or whether
committed or purely discretionary, and whether absolute or contingent,
voluntary or involuntary, determined or undetermined, liquidated or
unliquidated, due or to become due, together with interest, costs,
expenses, attorneys' fees and other fees and charges, whether or not
any such Indebtedness may be barred under any statute of limitations or
may be otherwise unenforceable or voidable for any reason.
PRIME RATE INDEX. The term "Prime Rate Index" shall mean THE CHASE
MANHATTAN BANK N.A. COMMERCIAL LENDING RATE subject to change from time
to time, however, the interest rate change will not occur more often
than daily.
INTEREST EXPENSE. The term "Interest Expense" shall mean all interest
paid on the "Borrower's Debt".
LENDER. The word "Lender" means HIBERNIA NATIONAL BANK (TIN:
72-0210640), its successors and assigns, and any subsequent holder or
holders of Borrower's Loan and Note, or any interest therein.
LEVERAGE POSITION. The ratio "Leverage Position" shall mean "Debt" as
defined herein divided by Adjusted Net Worth as defined herein plus as
defined herein.
LIBOR OPTION. During any period of time that this "LIBOR Option" is in
effect, the interest rate on all advances under the Line of Credit
shall be the "LIBOR Index Rate", as hereinafter defined, plus 2.50%.
"LIBOR Index Rate" is defined as the ninety (90) day London Interbank
Offered Rate as quoted in the Wall Street Journal, as of the last day
of any calendar quarter, commencing with the 30th day of September,
1997.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the section titled "LINE OF CREDIT".
LOAN. The words "Loan" and "Loans" mean and include any and all loans
and financial accommodations from Lender to Borrower (or any of them)
whether now or hereafter existing, and however evidenced, including
without limitation those loans and financial accommodations described
herein or described on any exhibit or schedule attached to this
Agreement from time to time, and further including any and all
subsequent amendments, additions, substitutions, renewals and
refinancings of Borrower's Loan.
OPERATING EXPENSES. The words "Operating Expenses" shall mean all
expenses incurred during the ordinary course of business, excluding
interest expense, and taxes.
NOTE. The word "Note" means Borrower's promissory note or notes
evidencing Borrower's Loan obligations in favor of Lender, as well as
any substitute, replacement or refinancing note or notes therefor. The
Note shall be drawn for the maximum amount of the Borrowing Base, shall
provide for interest at the rate established for the Line of Credit,
shall provide for payment, in full, of all principal interest and other
charges by no later than the Expiration Date, and shall contain such
other provisions (including, without limitation, provisions relating to
calculation of interest, late charges, acceleration, default interest,
cross-defaults, rights upon default, payment application, and
attorneys' fees) as customarily incorporated by Lender in its
commercial loan notes.
<PAGE> 5
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 5
LOAN NO. 7373872;0001 (CONTINUED)
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PERMITTED LIENS. The words "Permitted Liens" mean (a) liens and
security interests securing indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet due
or being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of
Borrower's assets; (g) those liens and security interest with respect
to equipment and/or motor vehicles acquired in the ordinary course of
business securing debt of the Borrower aggregating no more than
$250,000.00.
RELATED DOCUMENTS. The words "Related Documents" mean and include
individually, collectively, interchangeably and without limitation all
promissory notes, credit agreements, loan agreements, guaranties,
security agreements, mortgages, collateral mortgages, deeds of trust,
A.P.S., Inc., Merchandise Repurchase Agreement, Subordination
Agreement, Subordination of Lien Agreements, UCC-3, Dominion and Master
Account and Disbursement Procedure Agreement, attached hereto as
Exhibit "A", and all other instruments and documents, whether now or
hereafter existing, executed in connection with the "Indebtedness."
SECURITY AGREEMENT. The words "Security Agreement" mean and include
individually, collectively, interchangeably and without limitation any
agreements, promises, covenants, arrangements, understandings or other
agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
individually, collectively, interchangeably and without limitation any
and all present and future mortgages, pledges, crop pledges,
assignments and other security agreements directly or indirectly
securing the repayment of Borrower's Loan and Note, whether created by
law, contract, or otherwise.
MINIMUM INTEREST COVERAGE. The ratio " Minimum Interest Coverage" shall
mean "Earning Before Taxes and Interest" as defined herein, divided by
"Interest Expense" as defined herein.
INTEREST EXPENSE. The term " Interest Expense" shall mean all interest
expense accrued and paid on " Debt" as defined herein.
SUBSIDIARY. The word "Subsidiary" and "Subsidiaries" mean and include
any wholly-owned subsidiary of Borrower, except that business known as
The Travel Company operating at 1404 North 18th Street, Monroe,
Louisiana.
TANGIBLE NET WORTH. The term "Tangible Net Worth" shall mean Borrower's
total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible expenses, but including leaseholds and leasehold
improvements) less total Debt in accordance with generally accepted
accounting principles, consistently applied except for changes in
account principals or practices with which the independent public
accountants for Borrower occur.
TOTAL REVENUE. The words "Total Revenue" shall mean all income
generated during the ordinary course of business including, but not
limited to, income generated from the sale of goods.
APPLICATION FOR AND PURPOSE OF THE LOAN. Borrower has applied to Lender for a
Loan in the aggregate principal amount of U.S. $7,500,000.00 for the purpose of
financing Borrower's origination and acquisition of Inventory in the ordinary
course of business of Borrower and working capital.
LINE OF CREDIT. (a) Subject to and upon the terms and conditions contained in
this Agreement, and relying on the representations and warranties contained in
this Agreement, the Lender agrees to make a revolving line of credit available
to the Borrower equal to the lesser of the Borrowing Base (as shown on the most
recent timely submitted Borrowing Base Certificate) or $7,500,000.00. The line
of credit is represented by a promissory note in the principal amount of
$7,500,000.00, payable to the order of the Lender. The principal shall be
payable as set forth in the note. Interest on the note shall accrue and be
payable as set forth in the note. The note shall mature on October 7, 2002.
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OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 6
LOAN NO. 7373872;0001 (CONTINUED)
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(b) If the date of the Borrowing Base calculation on the most recently
submitted Borrowing Base Certificate is more than 5 days prior to a request for
advance, the Borrower shall not be entitled to an advance until a timely
Borrowing Base Certificate is provided to the Lender. If at the time of the
request for an advance is made Borrower is not on Dominion Account Status then
the Borrowing Base Certificate shall be prepared not later than the fifth (5th)
day of the month in which the advance has been requested in accordance with
Exhibit "B". If at the time of the Request for an advance is made Borrower is on
Dominion Account Status, then the Borrowing Base Certificate shall be prepared
not later than three (3) days prior to the date the request for an advance is
made in accordance with Exhibit "B."
Within the foregoing limits, Borrower may borrow, partially or wholly prepay,
and reborrow under this Agreement as follows:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
initial Advance and any subsequent Advance to or for the account of
Borrower under this Agreement is subject to the following conditions
precedent, with all documents, instruments, opinions, reports, and
other items required under this Agreement to be in form and substance
satisfactory to Lender:
(a) Lender shall have received evidence that this
Agreement and all Related Documents have been duly
authorized, executed, and delivered by Borrower to
Lender, including, without limitation (i) the Note,
(ii) Security Agreements granting to Lender security
interests in the Collateral, (iii) Financing
Statements perfecting Lender's Security Interests;
(iv) evidence of insurance as required below; and (v)
any other documents required under this Agreement or
by Lender or its counsel.
(b) Lender shall have received and reviewed Borrower's
annual financial statements for the fiscal year
ending February and these annual financial statements
reflect no material adverse change in the financial
condition or business of Borrower or any Subsidiary
other than charge-offs discussed with Lender prior to
execution of this Agreement.
(c) Lender be in possession of all Eligible Receivables
and Eligible Inventory documentation.
(d) Lender shall have received copies of all evidences of
unpaid indebtedness to others issued by Borrower and
each Subsidiary.
(e) The form of all evidences of unpaid indebtedness
issued by Borrower and each Subsidiary has been
submitted to Lender for review.
(f) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may
request.
(g) The security interests in the Collateral shall have
been duly authorized, created, and perfected with
first lien priority and shall be in full force and
effect and Lender shall have received evidence,
acceptable to Lender, of the priority of Lender's
security interests in the Collateral as contemplated
by this Agreement.
(h) All guaranties required by Lender for the Line of
Credit shall have been executed by each Guarantor,
delivered to Lender, and be in full force and effect.
(i) Lender, at its option and for its sole benefit, shall
have conducted an audit of the payment records,
ledger sheets, and computer tapes or disks kept by
Borrower and each Subsidiary to record payment
information, and other books, records, and operations
of Borrower and each Subsidiary, and Lender shall be
satisfied as to their condition.
(j) Borrower shall have paid to Lender all other fees,
costs, and expenses specified in this Agreement and
the Related Documents as are then due and payable.
(k) The representations and warranties set forth in this
Agreement, in the Related Documents, and any document
or certificate delivered to Lender under this
Agreement are true and correct.
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OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 7
LOAN NO. 7373872;0001 (CONTINUED)
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(l) There shall not exist at the time of any Advance a
condition which would constitute an Event of Default
under this Agreement.
MAKING LOAN ADVANCES. Advances under the Line of Credit, as well as
directions for payment from Borrower's accounts, may be requested
orally or in writing by authorized persons. Lender may, but need not,
require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and
for the benefit of Borrower (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with
the instructions of an authorized person. Lender, at its option, may
set a cutoff time, after which all requests for Advances will be
treated as having been requested on the next succeeding Business Day.
VARIABLE INTEREST RATE All advances under the Line of Credit shall bear
interest at a variable rate, which rate shall be determined pursuant to
either the "Prime Rate Option" (as defined below) or the "LIBOR Option"
(as defined below) (each an "Interest Rate Option"):
(A) "Prime Rate Option" During any period of time that this "Prime
Rate Option" is in effect, the interest rate on all advances
under the Line of Credit shall be the Wall Street Journal
Prime Commercial Lending Rate as published by the Wall Street
Journal, as it may change from time to time, adjusted daily.
Lender may, in its sole discretion, designate a substitute
interest rate for the Wall Street Journal Prime Commercial
Lending Rate if that rate becomes unavailable during any
period of time that this Prime Rate Option is in effect will
not occur more often than once each day.
(B) "LIBOR Option" During any period of time that this "LIBOR
Option" is in effect, the interest rate on all advances under
the Line of Credit shall be the "LIBOR Index Rate", as
hereinafter defined, plus 2.50%. "LIBOR Index Rate" is defined
as the ninety (90) day London Interbank Offered Rate as quoted
in the Wall Street Journal, as of the last day of any calendar
quarter, commencing with the 30th day of September, 1997.
(C) The Interest Rate Option to be used under this Line of Credit
shall be determined as of the last day of each calendar
quarter during the term of this Agreement, and once
determined, that Interest Rate Option shall remain in effect
from the first day of the following calendar quarter until the
last day of the following calendar quarter. As of the last day
of any calendar quarter, the Interest Rate Option to be used
for the following calendar quarter shall be the Interest Rate
Option that is, as of the last day of a calendar quarter, the
lower of (i) the Wall Street Journal Prime Lending Rate, or
(ii) the LIBOR Index Rate plus 2.50%. Notwithstanding anything
to the contrary herein during the period from the Effective
Date to the 30th day of September, 1997, Borrower has selected
the "LIBOR Option". During the period from the Effective Date
to the 30th day of September, 1997, the LIBOR Index Rate is
the ninety (90) day London Interbank Offered Rate as quoted in
the Wall Street Journal on the 30th day of September, 1997.
(D) The term "calendar quarter" as used herein shall mean the four
three month periods consisting of January 1 to March 31, April
1 to September 30, July 1 to September 30, and October 1, to
December 31 of each year during the term of this Note.
(E) The interest rate charged on advances under the Line of Credit
are not necessarily the lowest rates charged by Lender on its
loans. Borrower understands that Lender may make loans based
on other rates as well. Under no circumstance, however, will
the interest rate under the Line of Credit be more than the
maximum interest rate allowed by applicable law.
OVERLINES AND OVERADVANCES. In the event the unpaid principal amount of
the outstanding Advances under the Line of Credit ever exceeds
$7,500,000.00 (the maximum amount of the Borrowing Base), Borrower
agrees to pay the excess amount (an "overline") immediately upon demand
by lender. In the event the unpaid principal amount of the outstanding
Advances under the Line of Credit ever exceeds the Borrowing Base,
Borrower agrees to pay the excess amount (an "overadvance") immediately
upon demand by Lender. Overlines and overadvances shall bear interest
at the rate stated in the Note. If not sooner paid, interest on
overlines and overadvances shall be paid on the lst day of each month,
until the Expiration Date. Upon request of Lender, Borrower shall
execute a promissory note, payable to the order of Lender, to represent
the amount of any overline and any overadvance; however, Borrower
acknowledges and agrees that the records
<PAGE> 8
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 8
LOAN NO. 7373872;0001 (CONTINUED)
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of Lender and this Agreement shall constitute conclusive evidence of
any overline or overadvance and the obligation of Borrower to repay any
overline or overadvance, with interest. All overlines and overadvances
for which Lender has not demanded payment earlier, and all unpaid and
accrued interest on overlines and overadvances not due and payable
earlier, shall be due and payable on the Expiration Date. Borrower
acknowledges and agrees that Lender is not obligated to Borrower to
fund any Advance that would create an overline or an overadvance.
MANDATORY PRINCIPAL REPAYMENTS. If at any time the aggregate principal
amount of the outstanding Advances shall exceed the applicable
Borrowing Base, Borrower, immediately upon written or oral notice from
Lender, shall pay to Lender an amount equal to the difference between
the outstanding principal balance of the Advances and the Borrowing
Base. On the Expiration Date, Borrower shall pay to Lender in full the
aggregate unpaid principal amount of all Advances then outstanding and
all accrued unpaid interest, together with all other applicable fees,
costs and charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the Line of
Credit. Lender shall provide Borrower with periodic statements of
Borrower's account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies Lender to
the contrary within thirty (30) days after Borrower's receipt of any
such statement, which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower and each
Subsidiary (and others, if required) shall grant to Lender Security Interests in
such property and assets as Lender may require (the "COLLATERAL"), including
without limitation all present and future accounts, inventory, instruments,
documents, contract rights, and general intangibles of Borrower and each
Subsidiary. Lender's Security Interests in the Collateral shall be continuing
liens and shall include the proceeds and products of the Collateral, including
without limitation the proceeds of any insurance. With respect to the
Collateral, Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute, and cause
each Subsidiary to execute, such financing statements and to take
whatever other actions are requested by Lender to perfect and continue
Lender's Security Interests in the Collateral. Upon request of Lender,
Borrower shall deliver, and cause each Subsidiary to deliver, to Lender
any and all of the documents evidencing or constituting the Collateral,
and note Lender's interest upon any and all Accounts if not delivered
to Lender for possession by Lender. Contemporaneous with the execution
of this Agreement, Borrower will execute, and cause each Subsidiary to
execute, one or more UCC financing statements and any similar
statements as may be required by applicable law, and will file such
financing statements and all such similar statements in the appropriate
location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may
at any time, and without further authorization from Borrower, file a
carbon, photograph, facsimile, or other reproduction of any financing
statement for use as a financing statement. Borrower will reimburse
Lender for all expenses for the perfection, termination, and
continuation of the perfection of Lender's security interest in the
Collateral. Borrower promptly will notify Lender of any name change of
Borrower or any of the Subsidiaries including any change to the assumed
business names of Borrower or any of the Subsidiaries. Borrower also
promptly will notify Lender of any change in the Social Security Number
or Employer Identification Number of Borrower or any of the
Subsidiaries. Borrower further agrees to notify Lender in writing prior
to any change in address or location of any office of Borrower or any
of the Subsidiaries or should Borrower or any of the Subsidiaries merge
or consolidate with any other entity.
COLLATERAL RECORDS. Borrower and each Subsidiary does now, and at all
time hereafter shall, keep correct and accurate records of the
Collateral and all payment and balance information, all of which
records shall be available to Lender or Lender's representative upon
demand for inspection and copying at any reasonable time. With respect
to the Accounts Receivable, Borrower agrees to keep and maintain, and
cause each Subsidiary to keep and maintain, such balance and payment
history records as Lender may require, including, without limitation,
delinquency information.
RIGHT TO COLLECT. Until an Event of Default occurs, Borrower, and each
Subsidiary, may collect amounts due under any Accounts Receivable,
subject to the obligation, if any, of Borrower and each Subsidiary to
deposit all collections in a Dominion Account. At any time after any
Event of Default occurs, Lender may exercise its rights to collect the
Accounts Receivable and to notify Debtors to make payments directly to
Lender for application to the indebtedness. This provision supersedes
any contrary provision in any Security Agreement.
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OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 9
LOAN NO. 7373872;0001 (CONTINUED)
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REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS RECEIVABLE. With
respect to all Accounts Receivable, Borrower represents and warrants to
Lender: (a) Each Account represents by Borrower or any of the
Subsidiaries to be Eligible Receivables for purposes of this Agreement
conforms to the requirements of the definition of Eligible Receivables;
(b) All Accounts Receivable information listed on schedules delivered
to Lender will be true and correct, subject to immaterial variance; and
(c) Lender, its assigns, or agents shall have the right at any time and
at Borrower's expense to inspect, examine, and audit the records of
Borrower and each Subsidiary and to verify and confirm with Debtors the
accuracy of the balance and payment history of any account, to
determine whether such Debtors have any offsets or counterclaims
against Borrower or any Subsidiary, and such other matters which Lender
may inquire.
DOMINION ACCOUNT. Until the Expiration Date, Borrower and each Subsidiary if
required by Lender pursuant to Written Notice of "Dominion Account Status" shall
establish and maintain a deposit account with Lender or with a bank designated
by Lender (the "DOMINION ACCOUNT') into which Borrower shall deposit, daily, all
amounts paid on any Accounts Receivable. All deposits shall be made no later
than the first Business day after receipt by Borrower. Borrower shall have no
right to draw upon the Dominion Account. On the second Business Day after a
deposit into the Dominion Account, the amount of the deposit shall be drawn from
the Dominion Account by Lender and applied to repayment of the Loan. Until an
Event of Default occurs, the Dominion Account procedures established under this
Agreement are provided in lieu of, and supersedes, the lock box provisions of
any Security Agreement. Borrower acknowledges that upon execution of this Loan
Agreement, it is required to establish a Dominion Account pursuant to the
requirements of this section.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of
the date of this Agreement and as of the date of each disbursement of Loan
proceeds:
ORGANIZATION. Borrower and each Subsidiary are corporations which are
duly organized, validly existing, and in good standing under the laws
of the State of Louisiana.
AUTHORIZATION. Borrower's execution, delivery and performance of this
Agreement have been duly authorized, and do not conflict with, and will
not result in a violation of, or constitute or give rise to an event of
default under Borrower's Articles of Incorporation or Bylaws, or any
agreement or other instrument which may be binding upon Borrower, or
under any law or governmental regulation or court decree or order
applicable to Borrower and/or its properties. Borrower has the power
and authority to enter into Borrower's Loan and Note and to grant
collateral security therefor. Each Subsidiary has the power and
authority to grant Security Interests in its property as security for
Borrower's Loan and Note. Borrower and each Subsidiary have the further
power and authority to own and to hold all or each of its assets and
properties, and to carry on each of its businesses as presently
conducted.
INDEBTEDNESS OR DEBT. Payment of all notes, bonds, debentures, and all
other evidences of indebtedness issued by Borrower and each Subsidiary
(other than trade debt) has been subordinated to repayment of
Borrower's Loan in an amount sufficient to maintain compliance at all
times with all financial ratios.
SUBSIDIARIES. Each of the Subsidiaries is a wholly-owned subsidiary of
Borrower. The Subsidiaries are the only companies owned or operated by
Borrower or any Guarantor.
FIDUCIARY OBLIGATION OF BORROWER. Borrower and each Subsidiary shall
act in a fiduciary capacity as to Lender with regard to receipt and
collection by Borrower and each Subsidiary, in trust for and on behalf
of Lender, of any and all amounts paid on the Collateral. If on
Dominion Account Status, ALL AMOUNTS PAID ON THE COLLATERAL SHALL BE
DEPOSITED INTO A DOMINION ACCOUNT. Any diversion or use by Borrower or
any Subsidiary of any portion of any amount paid on the Collateral
shall constitute an Event of Default.
FINANCIAL INFORMATION. The financial statements of Borrower and each
Subsidiary previously furnished to Lender are and were complete and
correct, and were prepared in accordance with generally accepted
accounting principles, and fairly represent the financial conditions
and solvency of Borrower and each Subsidiary as of the date thereof. To
the best of Borrower's knowledge, neither Borrower nor any Subsidiary
has any contingent obligations or liabilities that were not disclosed
or reserved against in Borrower's financial statements or in the notes
thereto. Since the dates of such financial statements, there has been
no material adverse change in the financial condition or business of
Borrower or any Subsidiary.
PROPERTIES. Except for Permitted Liens, Borrower and each Subsidiary
own and have good title to all of their properties free and clear of
all Security Interests, and have not executed any security documents or
financing statements relating to such
<PAGE> 10
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 10
LOAN NO. 7373872;0001 (CONTINUED)
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properties. All properties of Borrower and each Subsidiary are titled
in the legal name of Borrower and each Subsidiary, and neither Borrower
nor any Subsidiary has used, or filed a financing statement under, any
other name for at least the last five (5) years other than those trade
names listed on page 11 of this agreement listed under the section
entitled "Trade Names".
HAZARDOUS SUBSTANCES. The terms "hazardous substance", "disposal",
"release", and "threatened release", as used in this Agreement, shall
have the same meanings as set forth in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 1801, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conversation and Recovery Act, 49 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants
that: (a) During the period of the ownership by Borrower and each
Subsidiary of the properties of Borrower and each Subsidiary, there has
been no use, generation, manufacture, storage, treatment, disposal,
release or threatened release of any hazardous waste or substance by
any person on, under, or about any of the properties; (b) Borrower has
no knowledge of, or reason to believe that there has been (i) any use,
generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance by any prior
owners or occupants of any of the properties, or (ii) any actual or
threatened litigation or claims of any kind by any person relating to
such matters; (c) Neither Borrower nor any tenant, contractor, agent or
other authorized user of any of the properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous waste
or substance on, under, or about any of the properties; and any such
activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents, and will cause each
Subsidiary to authorize Lender and its agents, to enter upon the
properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section
of this Agreement. Any inspections or tests made by Lender shall be for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. Borrower hereby releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws.
LITIGATION. There are no suits or proceedings pending, or to the
knowledge of Borrower, threatened against or affecting Borrower, any
Subsidiary, or any assets of Borrower or any Subsidiary, before any
court or by any governmental agency, other than those previously
disclosed to Lender in writing, which, if adversely determined, may
have a material adverse effect on the financial condition or business
of Borrower or any Subsidiary.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower and each Subsidiary that are or were required to be filed,
have been filed, and all taxes, assessments and other governmental
charges have been paid in full, except those presently being or to be
contested by Borrower or any Subsidiary in good faith in the ordinary
course of business and for which adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, neither Borrower nor any Subsidiary has not entered into or
granted any Security Agreements, or permitted the filing or attachment
of any Security Interests on or affecting any of the Collateral
directly or indirectly securing repayment of Borrower's Loan and Note,
that would be prior or that may in any way be superior to Lender's
Security interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, Borrower's Note and all Security
Agreements directly or indirectly securing repayment of Borrower's Loan
and Note are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms. The Security Agreements and
Guarantees executed by each of the Subsidiaries is binding upon each
Subsidiary.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
or any Subsidiary may have any liability complies in all material
respects with all applicable requirements of law and regulations, and
(a) no Reportable Event (as defined in ERISA) has occurred with respect
to any such plan, (b) neither Borrower nor any Subsidiary has withdrawn
from any such plan or initiated steps to do so, and (c) no steps have
been taken to terminate any such plan.
<PAGE> 11
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 11
LOAN NO. 7373872;0001 (CONTINUED)
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LOCATION OF BORROWER'S OFFICES AND RECORDS. Each of the chief places of
business of Borrower, and the office or offices where Borrower keeps
its records concerning any of the Collateral is located at 3709 SOUTH
MACARTHUR DRIVE, ALEXANDRIA, LOUISIANA.
TAX IDENTIFICATION NUMBER OF BORROWER. The Tax Identification Number of
Borrower is 72-0838383, and is the only Tax Identification Number used
by Borrower for the last ten (10) years.
TRADE NAMES. Neither Borrower nor any Subsidiary has operated any of
its businesses under any other Trade Name for a period of ten (10)
years preceding the date of this Agreement, except Big A Auto Parts,
Grand Big A Auto Parts, Fas Parts, USA Auto Stores, Franklin Motor
Supply, Grand Auto, Grand Auto of Texas, Motor Supply, East Texas Auto
Supply, Rankin, Inc., Standard Machine Co., The Travel Co., Big A
Machine Shop, Pineville Motor Supply, Bastrop Motor Supply, Rankin Auto
Warehouse, Grand Big A Auto, Grand Big A Auto Warehouse, Grand/USA Auto
Parts, National Auto Parts and any additional trade names shown on
Exhibit "C" attached.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower and any Subsidiary to Lender for the purposes of
or in connection with this Agreement or any transaction contemplated
hereby is, and all information hereafter furnished by or on behalf of
Borrower and any Subsidiary to Lender will be, true and correct in
every material respect on the date as of which such information is
dated or certified; and one of such information is or will be
incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATION AND WARRANTIES. Borrower understands and
agrees that Lender is relying upon the above representations and
warranties in making the above referenced Loan to Borrower. Borrower
further agrees that the foregoing representations and warranties shall
be continuing in nature and shall remain in full force and effect until
such time as Borrower's Loan and Note shall be paid in full, or until
the Expiration Date, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in the financial condition of Borrower or any
Subsidiary, and (b) all litigation and claims and threatened litigation
and claims affecting Borrower, any Subsidiary, or any other Guarantor
which could materially affect the financial condition of Borrower, the
financial condition of any Subsidiary, or the financial condition of
any other Guarantor.
FINANCIAL RECORDS. Maintain its books and records, and cause each
Subsidiary to maintain its books and records, in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender, and cause each Subsidiary to permit Lender,
to examine and audit the books and records of Borrower and each
Subsidiary at all reasonable times, at Borrower's expense.
FINANCIAL REPORTS. All financial statements and reports required to be
provided under this Agreement, shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent
basis, and certified as being true and correct to the best knowledge
and belief by the chief financial officer or other officer or person
acceptable to Lender.
BORROWER'S ANNUAL FINANCIAL STATEMENT. Without demand or request by
Lender, furnish Lender with, as soon as available, but in no event
later than ninety (90) days after the end of each fiscal year, fiscal
year-end financial statements of Borrower (which, beginning the
statements for the fiscal year ending February 25, 1997, shall be
consolidated statements for Borrower and the Subsidiaries), including a
balance sheet and an income statement and a statement of changes in
financial position, audited by a certified public accountant acceptable
to Lender in accordance with generally accepted accounting principals.
At the request of Lender, Borrower shall also furnish fiscal year-end
financial statements for each Subsidiary, including a balance sheet and
an income statement and a statement of changes in financial position,
prepared and certified as correct to the best knowledge and belief by
the chief financial officer of the Subsidiary or other officer or
person acceptable to Lender.
MONTHLY FINANCIAL STATEMENTS. Without demand or request by Lender,
furnish Lender with, as soon as available, but in no event later than
thirty (30) days after the end of each calendar month, month-end
financial statements of Borrower (which shall be consolidated
statements for Borrower and the Subsidiaries), including a balance
sheet and an income statement,
<PAGE> 12
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 12
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
prepared and certified as correct to the best knowledge and belief by
Borrower's chief financial officer or other officer or person
acceptable to Lender. Without demand or request by Lender, furnish
Lender with, as soon as available, but in no event later than thirty
(30) days after the end of each calendar month, month-end financial
statements for Subsidiary, including a balance sheet and an income
statement, prepared and certified as correct to the best knowledge and
belief by the chief financial officer of the Subsidiary or other
officer or person acceptable to Lender. Notwithstanding any other
provisions to the contrary herein financial statements due for the
months of May, August and November will be due forty-five (45) days
from the end of the calendar month; and, financial statements due for
the month of February will be due ninety (90) days from the end of the
calendar month.
ACCOUNTS PAYABLE AGING. Without demand or request by Lender, furnish
Lender with, as soon as available, and in no event later than fifteen
(15) days after the end of each calendar month end, a listing of all
Accounts Payable balance and payment information, a listing of all
Suppliers and/or Creditors for the prior month, with a payment aging of
each Account Payable.
MONTHLY LISTS OF DEBTORS. Without demand or request by Lender, furnish
Lender with, as soon as available, but in no event later than fifteen
(15) days after the end of each calendar month, for Borrower and each
Subsidiary keeping computerized records of Accounts Receivable balance
and payment information, a listing of all Debtors for the prior month,
with a payment aging of each Accounts Receivable. Each list shall be
prepared by Borrower and each Subsidiary and certified as correct to
the best knowledge and belief by the chief financial officer of
Borrower and each Subsidiary or other officer or person acceptable to
Lender, and shall be in form and content acceptable to Lender.
DETAILED INVENTORY REPORT. Without demand or request by Lender, furnish
Lender with, as soon as available, and in no event later than fifteen
(15) days after the end of each calendar month end, a listing of all
inventory on hand and/or merchandise for sale maintained by Borrower,
or otherwise carried on Borrower's books and records, in sufficient
detail as to provide for classification, age, type, cost and/or other
information to satisfaction of Lender.
BORROWING BASE CERTIFICATES. Without demand or request by Lender,
within fifteen (15) days after the end of each month and at such times
as Lender may request, furnish Lender with Borrowing Base Certificates,
for Borrower and each Subsidiary, in reasonable detail and in form and
content acceptable to Lender, prepared by Borrower and each Subsidiary
and certified as correct to the best knowledge and belief by the chief
financial officer of Borrower and each Subsidiary or other officer or
person acceptable to Lender, identifying the calculation of the
Borrowing Base, and certifying that Borrower is in compliance with all
terms and conditions of this Agreement, including statements that (i)
the amount owed to Lender attributed to each Subsidiary is less than
80% of each Subsidiary's Eligible Receivables, (ii) the amount owed to
Lender attributed to each Subsidiary is less than 70% of the Borrower's
cost of inventory covered by the A.P.S., Inc. Merchandise Repurchase
Agreement and 50% of the Borrower's cost of all other inventory, (iii)
all of the representations and warranties in this Agreement are true
and correct, (iv) no Event of Default has occurred under this
Agreement, and (v) no event has occurred which, with notice, the lapse
of time or otherwise, could constitute an Event of Default under this
Agreement. The Borrowing Base Certificates of Borrower shall be a
compilation of the Borrowing Base Certificates of the Subsidiaries. The
amount of gross receivables plus the amount of gross inventory of
Borrower and each Subsidiary shown on the month-end Borrowing Base
Certificates must be equal to the amount of gross receivables plus the
amount of gross inventory shown on the Monthly Financial Statements
prepared for the same month-end. A copy of the current Borrowing Base
Certificate form to be used by Borrower and acceptable to Lender is
attached to this Agreement as Exhibit "B"; however, Lender reserves the
right to make changes to the form.
GUARANTOR FINANCIAL STATEMENTS. Without demand or request by Lender,
Borrower shall maintain on file with Lender a current (no more than one
year old) personal financial statement for each Guarantor (excluding
Subsidiaries), originally signed and dated by each Guarantor, in a form
and content acceptable to Lender.
TAX RETURNS. By July 15 of each year or within thirty (30) days of the
filing of each, whichever occurs later, without demand or request,
Borrower shall furnish copies of the federal tax returns for the prior
year filed by Borrower, each Subsidiary, and each other Guarantor, with
all schedules and supporting documentation.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of Inventory, assets and liabilities, agings of
receivables and Accounts Payable (aged), tax returns, and other reports
with respect to the financial condition and business operations of
Borrower and each Subsidiary as Lender may request from time to time.
<PAGE> 13
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 13
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
INSURANCE. Maintain fire and other risk insurance in an amount of not
less than 80% of the average annual reported value of inventory as
reflected in inventory reported to Lender, and public liability
insurance, in form, amounts, coverages and with insurance companies
reasonably acceptable to Lender. Borrower, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be canceled or diminished without at least thirty
(30) days' prior written notice to Lender. In connection with all
policies covering assets in which Lender holds or is offered a security
interest for the Loans, Borrower will provide Lender with such lender's
loss payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining these values; and (f) the expiration date of the
policy.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for the business operations
of Borrower and the Subsidiaries, unless specifically consented to the
contrary by Lender in writing. Borrower agrees not to use any Loan
proceeds to acquire or carry margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve
System). Provided, however, that Borrower and the Subsidiaries may use
loan proceeds to pay bonuses and to repurchase up to $300,000 of
Borrower's stock as long as an Event of Default has not occurred and
such a use of loan proceeds will not cause Borrower to be in default
under any of the covenants listed in the section titled FINANCIAL
COVENANTS.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower, the Subsidiaries, or
properties, income or profits of Borrower or the Subsidiaries, prior to
the date on which penalties would attach, and all lawful claims that,
if unpaid, might become a lien or charge upon any of the properties,
income, or profits of Borrower or the Subsidiaries. Provided, however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate proceedings, and
(b) Borrower or the Subsidiary shall have established on its books
adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against the
properties, income, or profits of Borrower and the Subsidiaries.
PERFORMANCE. Perform and comply with all terms, conditions and
provisions set forth in this Agreement and in all other instruments and
agreements between Borrower and Lender in a timely manner, and promptly
notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement.
OPERATIONS. Conduct its business affairs, and cause each Subsidiary to
conduct its business affairs, in a reasonable and prudent manner and in
compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including compliance with all minimum
funding standards and other requirements of the ERISA and other laws
applicable to employee benefit plans of Borrower and the Subsidiaries.
OTHER SUBSIDIARIES. In the event Borrower creates or acquires an
interest in any entity (other than any Subsidiary), the Borrower shall
cause such other entity to grant to Lender Security Interests in such
property and assets as Lender may require, including without
limitation, all present and future accounts, inventory, rolling stock,
fixed assets, instruments, documents, contract rights, and general
intangibles of such entity. Borrower also agrees to cause such entity
to execute a guarantee as required by Lender. The property and assets
of such entity affected by the Security Interests granted to Lender
shall be included in the definition of "Collateral" as set forth above
and such entity shall be included in the definitions of "Guarantor" and
"Subsidiary" as set forth above. Borrower also agrees to cause such
entity to execute such financing statements and to take whatever other
actions are requested by Lender to perfect and continue Lender's
Security Interests in the Collateral. Borrower also agrees to cause
such entity to comply with all of the reporting requirements for each
<PAGE> 14
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 14
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
Guarantor and each Subsidiary under this Agreement. Borrower also
agrees to cause such entity to comply with all other covenants imposed
upon each Guarantor and each Subsidiary under this Agreement.
INSPECTION. Permit employees or agents of Lender at any reasonable time
to inspect any and all collateral for the Loan or Loans and other
properties of Borrower or any Subsidiary and to examine or audit the
books, accounts, ledger sheets, and records of Borrower and any
Subsidiary and to make copies and memoranda of the books, accounts,
ledger sheets, and records of Borrower or any Subsidiary, at Lender's
expense. If Borrower or any Subsidiary now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer programs for the generation of such records) in
the possession of a third party, Borrower, upon request of Lender,
shall notify such party to permit Lender free access to such records at
all reasonable times and to provide Lender with copies of any records
it may request, at Lender's expense.
CHANGE OF LOCATION. Immediately notify Lender in writing of any
additions to or changes in the location of the businesses of Borrower
and of any Subsidiary.
TITLE TO ASSETS AND PROPERTY. Maintain good and marketable title to all
of Borrower's assets and properties and cause each Subsidiary to
maintain good and marketable title to its assets and properties.
NOTICE OF DEFAULT, LITIGATION AND ERISA MATTERS. Forthwith upon
learning of the occurrence of any of the following, Borrower shall
provide Lender with written notice thereof, describing the same and the
steps being taken by Borrower with respect thereto: (a) the occurrence
of any Event of Default, or (b) the institution of, or any adverse
determination in, any litigation, arbitration proceeding or
governmental proceeding, or (c) the occurrence of a Reportable Event
under, or the institution of steps by Borrower or any Subsidiary to
withdraw from, or the institution of any steps to terminate, any
employee benefit plan as to which Borrower or any Subsidiary may have
any liability.
OTHER INFORMATION. From time to time, Borrower will provide Lender with
such other information as Lender may reasonably request.
EMPLOYEE BENEFIT PLANS. So long as this Agreement remains in effect,
Borrower will maintain, and cause each Subsidiary to maintain, each
employee benefit plan as to which it may have any liability, in
compliance with all applicable requirements of law and regulations.
OTHER AGREEMENTS. Borrower will not enter into any agreement containing
any provision which would be violated or breached by the performance of
its obligations hereunder or under any instrument or document delivered
or to be delivered by it hereunder or in connection herewith and will
not allow any Subsidiary to enter into such an agreement.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender, and cause
each Subsidiary to make, execute and deliver to Lender, such promissory
notes, security agreements, and financing statements, as Lender or its
attorneys may reasonably request to evidence and secure the Loans and
to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that as long as
this Agreement remains in effect Borrower shall not, without prior written
consent of Lender:
ISSUANCE OF SHARES. Issue, sell or otherwise dispose of, any shares of
capital stock of Borrower or any subsidiary or other securities, or
rights, warrants or options to purchase or acquire any shares or
securities of Borrower or any subsidiary, or allow any Subsidiary to
issue, sell or otherwise dispose of, any shares of its capital stock or
other securities, or rights, warrants or options to purchase or acquire
any of its own shares or securities. This section does not preclude the
Borrower from complying with the issuance of stock as set forth in the
Prospectus issued in connection with the initial public offering of
November 18, 1996.
REDEMPTION OF SHARES. Redeem, retire, or repurchase any shares of its
capital stock or other securities, or allow any Subsidiary to redeem,
retire or repurchase any shares of its capital stock or other
securities. Provided, however, that Borrower may repurchase up to
$300,000 of its Capital Stock for the purpose of providing for
executive compensation incentive, as previously disclosed to Lender.
<PAGE> 15
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 15
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, or allow any Subsidiary to create,
incur or assume such indebtedness in excess of $250,000.00, (b) except
as allowed as a Permitted Lien, sell, transfer, mortgage, assign,
pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or allow any Subsidiary to sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
its assets, in excess of $500,000.00 in aggregate value for
collateralizing loans for furniture, fixtures and equipment, motor
vehicles, small equipment, etc., in the ordinary course of business, or
(c) sell with recourse any of Borrower's accounts, or instruments
except to Lender, or to allow any Subsidiary to sell with recourse any
of its accounts, or instruments except to Lender.
Borrower, as of the Effective Date, is operating 48 locations as shown
on Exhibit "C" attached.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, or allow any Subsidiary to engage in any business activities
substantially different than those in which any such Subsidiary is
presently engaged, (b) operate under any Trade Name other than Trade
Names, if any, identified in this Agreement, or allow any Subsidiary to
operate under any Trade Name other than Trade Names, if any, identified
in this Agreement save and accept the travel company, (c) cease
operations, liquidate, merge or consolidate with any other entity,
change ownership, dissolve or transfer or sell Collateral out of the
ordinary course of business, or allow any Subsidiary to cease
operations, liquidate, merge or consolidate with any other entity,
change ownership, dissolve or transfer or sell Collateral out of the
ordinary course of business, or (d) pay any dividends on Borrower's
stock or purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure, or allow any Subsidiary to
pay any dividends on its stock or purchase or retire any of its
outstanding shares or alter or amend its capital structure. Provided,
however, that Borrower may repurchase up to $300,000 of its Capital
Stock for the purpose of providing for executive compensation
incentive, as previously disclosed to Lender.
LOANS, ACQUISITIONS, AND GUARANTIES. (a) Loan, invest in or advance
money or assets other than in the ordinary course of business, or allow
any Subsidiary to loan, invest in or advance money or assets other than
in the ordinary course of business, (b) purchase, create or acquire any
interest in any other enterprise or entity, or allow any Subsidiary to
purchase, create or acquire any interest in any other enterprise or
entity, or (c) incur any obligation as surety or guarantor other than
in the ordinary course of business, or allow any Subsidiary to incur
any obligation as surety or guarantor other than in the ordinary course
of business.
OTHER OPERATIONS. Create or acquire an interest in any entity or
establish any new operations or locations, or allow any Subsidiary or
to create or acquire an interest in any entity or establish any new
operations or locations. Notwithstanding the preceding sentence,
Borrower may establish up to twelve (12) new locations per fiscal year
1998 and up to ten (10) new locations for fiscal year 1999, 2000, 2001
and 2002, so long as Borrower maintains compliance with all ratio
requirements at all times.
FINANCIAL COVENANTS. Borrower covenants and agrees with Lender that as long as
this Agreement remains in effect Borrower shall comply with the following
financial covenants. All computations made to determine compliance with these
Financial Covenants shall be made in accordance with generally accepted
accounting principals, applied on a consistent basis, and certified by Borrower
as being true and correct.
MINIMUM CURRENT RATIO. The Borrower will maintain a ratio of current
assets to current liabilities of not less than 1.05 to 1.00 as of the
date of closing. On the 25th day of February, 1998, and thereafter, the
Borrower will maintain a ratio of current assets to current liabilities
of not less than 1.05 to 1.00. On the 25th day of February, 1999, and
thereafter, the Borrower will maintain a ratio of current assets to
current liabilities of not less than 1.07 to 1.00. On the 25th day of
February, 2000, and thereafter, the Borrower will maintain a ratio of
current assets to current liabilities of not less than 1.10 to 1.00. On
the 25th day of February, 2001, the Borrower will maintain a ratio of
current assets to current liabilities of not less than 1.12 to 1.00. On
the 25th day of February, 2002, and thereafter, the Borrower will
maintain a ratio of current assets to current liabilities of not less
than 1.15 to 1.00.
MINIMUM INTEREST COVERAGE. Borrower shall maintain at all times an
interest coverage of at least 1.40 to 1.00, where interest coverage is
the result of the following formula:
<PAGE> 16
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 16
LOAN NO. 7373872;0001 (CONTINUED)
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EBIT
----------------
Interest Expense
On the 25th day of February, 1998, and thereafter Borrower shall
maintain an interest coverage of at least 1.50 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
On the 25th day of February, 1999, and thereafter Borrower shall
maintain an interest coverage of at least 1.60 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
On the 25th day of February, 2000, and thereafter Borrower shall
maintain an interest coverage of at least 1.70 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
On the 25th day of February, 2001, and thereafter Borrower shall
maintain an interest coverage of at least 1.80 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
On the 25th day of February, 2002, and thereafter Borrower shall
maintain an interest coverage of at least 1.90 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
MAXIMUM LEVERAGE POSITION. Borrower shall maintain a leverage position
of no more than 2.00 to 1.00, beginning the date of closing, where
Leverage Position is the result of the following formula:
Debt
------------------
Adjusted Net Worth
On or before the 25th day of February, 1998, and thereafter, Borrower
shall maintain a leverage position of no more than 2.00 to 1.00, where
leverage position is the result of the following formula:
Debt
------------------
Adjusted Net Worth
On or before the 25th day of February, 1999, and thereafter, Borrower
shall maintain a leverage position of no more than 2.00 to 1.00, where
leverage position is the result of the following formula:
Debt
------------------
Adjusted Net Worth
On or before the 25th day of February, 2000, and thereafter, Borrower
shall maintain a leverage position of no more than 2.00 to 1.00, where
leverage position is the result of the following formula:
Debt
------------------
Adjusted Net Worth
<PAGE> 17
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 17
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
On or before the 25th day of February, 2001, and thereafter, Borrower
shall maintain a leverage position of no more than 2.00 to 1.00, where
leverage position is the result of the following formula:
Debt
------------------
Adjusted Net Worth
On or before the 25th day of February, 2002, and thereafter, Borrower
shall maintain a leverage position of no more than 2.00 to 1.00, where
leverage position is the result of the following formula:
Debt
------------------
Adjusted Net Worth
TESTING FREQUENCY. Borrower shall be tested quarterly (based on the
fiscal year of Borrower) for compliance with Minimum Current Ratio,
Minimum Interest Coverage and Maximum Leverage Position requirements
after receipt of Borrower's monthly and annual financial statements.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower whether under this Agreement or under any other agreement, Lender shall
have no obligation to make Loan Advances or to disburse Loan proceeds if: (a)
Borrower, any Subsidiary, or any other Guarantor is in default under the terms
of this Agreement or any of the Related Documents or any other agreement that
Borrower, any Subsidiary has with Lender; (b) Borrower or any Subsidiary becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged
a bankruptcy, (c) there occurs a material adverse change in the financial
condition of Borrower or any Subsidiary, or in the financial condition of any
other Guarantor, or in the value of any Collateral securing any Loan; (d) any
Subsidiary seeks, claims, or otherwise attempts to limit, modify or revoke any
Security Interest granted to Lender; (e) any Guarantor claims or otherwise
attempts to limit, modify, or revoke such Guarantor's guaranty of the Loan with
Lender; or (f) Lender in good faith deems itself insecure even though no Event
of Default shall have occurred.
DEPOSIT ACCOUNTS. As collateral security for repayment of Borrower's Note and
all renewals and extensions, as well as to secure any and all other loans,
notes, indebtedness and obligations that Borrower may now and in the future owe
to Lender or incur in Lender's favor, whether direct or indirect, absolute or
contingent, due or to become due, of any nature and kind whatsoever (with the
exception of any indebtedness under a consumer credit card account), Borrower is
granting Lender a continuing security interest in any and all funds that
Borrower may now and in the future have on deposit with Lender or in
certificates of deposit or other deposit accounts as to which Borrower is an
account holder (with the exception of IRA, pension, and other tax-deferred
deposits). Borrower further agrees that Lender may apply any funds that Borrower
may have on deposit with Lender or in certificates of deposit or other deposit
accounts as to which Borrower is an account holder against the unpaid balance of
Borrower's Note and any and all other present and future indebtedness and
obligations that Borrower (or any of them) may then owe to Lender, in principal,
interest, fees, costs, expenses, and attorneys' fees; provided, however that the
Event of Default prerequisite for application authority shall not apply to any
Dominion Account.
EVENTS OF DEFAULT. The following actions or inactions or both shall constitute
Events of Default under this Agreement:
DEFAULT UNDER THE INDEBTEDNESS. Should Borrower default in the payment
of principal or interest under the Indebtedness.
DEFAULT UNDER THIS AGREEMENT. Should Borrower or any Subsidiary
violate, or fail to comply fully with any of the terms and conditions
of, or default under this Agreement, including, without limitation,
failure to deposit into a Dominion Account, if applicable, any
collection made of any amounts due under any account within one
Business Day of receipt.
DEFAULT UNDER OTHER AGREEMENTS. Should any event of default occur or
exist under any Related Document which directly or indirectly secures
repayment of the Loan and the Indebtedness.
OTHER DEFAULTS IN FAVOR OF LENDER. Should Borrower or any Guarantor
default under any other loan, extension of credit, security agreement,
or obligation in favor of Lender.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Guarantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, Lease Agreement, or any other agreement,
in favor of any other creditor or person
<PAGE> 18
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 18
LOAN NO. 7373872;0001 (CONTINUED)
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that may materially affect any of the property of Borrower or any
Subsidiary, or the ability of Borrower or any Guarantor to perform
their respective obligations under this Agreement, or any Related
Document, or pertaining to the Indebtedness.
OTHER OPERATIONS. Should any Borrower or any Subsidiary create or
acquire an interest in any entity or establish any new operations or
locations without the written consent of Lender.
DEATH OR INTERDICTION. Should RANDALL B. RANKIN die or be interdicted
and such death or interdiction result in a material adverse change and
all indebtedness is not fully paid within one hundred eighty (180) days
after Lender notifies Borrower that Lender intends to exercise its
option to accelerate payment of all indebtedness due to the death or
interdiction of RANDALL B. RANKIN. Any default event or Event of
Default provided in any of the Related Documents based on the death or
interdiction of any person, shall act as a default event or an Event of
Default only in the event of the death or interdiction of a person
named in this provision of this Agreement.
INSOLVENCY. Should the suspension, failure, or insolvency, however
evidenced, of Borrower, any Subsidiary, A.P.S., Inc., and/or AFCO, Inc.
READJUSTMENT OF INDEBTEDNESS. Should proceedings for readjustment of
indebtedness, reorganization, composition or extension under any
insolvency law be brought by or against Borrower, any Subsidiary,
A.P.S., Inc., and/or AFCO, Inc.
ASSIGNMENT FOR BENEFIT OF CREDITORS. Should Borrower, A.P.S., Inc.,
and/or AFCO, Inc., file proceedings for a respite or make a general
assignment for the benefit of creditors.
RECEIVERSHIP. Should a receiver of all or any part of Borrower's
property be applied for or appointed.
DISSOLUTION PROCEEDINGS. Should proceedings for the dissolution or
appointment of a liquidator of Borrower, A.P.S., Inc., and/or AFCO,
Inc.
FALSE STATEMENTS. Should any representation or warranty of Borrower or
any Guarantor made in connection with the Loan prove to be incorrect or
misleading in any material respect.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make further Loan Advances or disbursements), and, at Lender's
option, all Loans immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Notwithstanding any provision to the contrary herein, should an Event
of Default occur by A.P.S., Inc., or AFCO, Inc., of the type described in the
"Insolvency", "Readjustment of Indebtedness", "Assignment for Benefit of
Creditor's", or "Dissolution Proceedings" subsections above, then, in such an
event, at the option of Lender, the percentage of "Eligible Inventory" used in
the calculation of the "Borrower Base" shall be reduced from 70% of Borrower's
cost to 50% of Borrower's cost.
If any Event of Default shall occur, Lender shall have the right at its sole
option, to accelerate payment of Borrower's Note in full, in principal,
interest, costs, expenses, attorneys' fees, and other fees and charges, as well
as to accelerate the maturity of any and all other loans and/or obligations that
Borrower may then owe to Lender, whether direct or indirect, or by way of
assignment or purchase of a participation interest, and whether absolute or
contingent, liquidated or unliquidated, voluntary or involuntary, determined or
undetermined, due or to become due, and whether now existing or hereafter
arising, and whether Borrower is obligated alone or with others on a "solidary"
or "joint and several" basis, as a principal obligor or as a surety, of every
nature and kind whatsoever, whether any such indebtedness may be barred under
any statute of limitations.
If any Event of Default shall occur, Lender shall have the additional right,
again at its sole option, to file an appropriate collection action against
Borrower and/or against any Guarantor, and/or to proceed or exercise any rights
against any Collateral then securing repayment of Borrower's Loan and Note.
Borrower further agrees that Lender's remedies shall be cumulative in nature and
nothing under this Agreement or otherwise, shall be construed as to limit or
restrict the options and remedies available to Lender following any event of
default under this Agreement or otherwise.
<PAGE> 19
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 19
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
If any Event of Default shall occur, Lender shall have the additional right,
again at its sole option, to notify Debtors to make payments directly to Lender.
Lender may remove from the business premises of Borrower and the Subsidiaries,
all documents, files, ledgers, computer tapes and disks, and all other records
relating to the Collateral to facilitate in making direct collections. Borrower
shall be responsible for and pay all costs and expenses incurred by Lender in
making direct collections, including Lender's internal costs and attorneys'
fees. As soon as practical after receipt of payments directly from Debtors,
Lender shall deposit the collections into a Dominion Account if applicable.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
INSOLVENCY, READJUSTMENT OF INDEBTEDNESS, ASSIGNMENT FOR BENEFIT OF CREDITORS,
DISSOLUTION PROCEEDINGS OF A.P.S., INC., AND/OR AFCO, INC. Should the
suspension, failure or insolvency, however evidenced, of A.P.S., Inc., and/or
AFCO, Inc. occur or exist; or should proceedings for readjustment of
indebtedness, reorganization, composition or extension under any insolvency law,
be brought by or against A.P.S., Inc. and/or AFCO, Inc.; or should A.P.S., Inc.
and/or AFCO, Inc., file proceedings for a respite or make a general assignment
for the benefit of creditors; or should proceedings for the dissolution or
appointment of a liquidator of A.P.S., Inc. and/or AFCO, Inc., then, in such an
event, at the option of the Lender, the percentage of "Eligible Inventory" used
in the calculation of the "Borrower Base" shall be reduced from 70% of
Borrower's cost to 50% of Borrower's cost.
ADDITIONAL DOCUMENTS. Borrower shall provide Lender with the following
additional documents:
CORPORATE RESOLUTION. Borrower has provided or will provide Lender with
a certified copy of resolutions properly adopted by Borrower's Board of
Directors, and certified by Borrower's corporate secretary or assistant
secretary, under which Borrower's Board of Directors authorized one or
more designated officers or employees to execute this Agreement on
behalf of Borrower and to execute the above referenced Note and any and
all Security Agreements directly or indirectly securing repayment of
the same, and to consummate the borrowings and other transactions as
contemplated hereunder, and to consent to the remedies following
Borrower's default as provided herein and under the above referenced
Security Agreements.
CERTIFICATION. Where required by Lender, Borrower has provided or will
provide Lender with a certificate executed by Borrower's principal or
executive officer, certifying that the representations and warranties
set forth in this Agreement are true and correct, and further
certifying that no Event of Default presently exists under this
Agreement, or under Borrower's Note, or under any Security Agreement
directly or indirectly securing repayment of the same, as of the date
hereof.
OPINION OF COUNSEL. Where required by Lender, Borrower has provided or
will provide Lender with an opinion of Borrower's counsel certifying to
and that: (a) Borrower is validly existing and in good standing; (b)
Borrower has authority to enter into this Agreement and to consummate
the transactions contemplated hereunder; and, (c) such other matters as
may have been requested by Lender or by Lender's counsel.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of Louisiana. Lender and Borrower
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Borrower against the other.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Louisiana.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, who must be insured
by the Federal Deposit Insurance
<PAGE> 20
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 20
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
Corporation, whether related or unrelated to Lender. Lender may
provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge
Lender may have about Borrower or about any other matter relating to
the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of
any repurchase of such participation interests. Borrower also agrees
that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests.
CONTROLLING TERMS. The Related Documents shall contain such terms and
provisions as the parties thereto shall agree (including provisions for
repayment, interest and security) and the terms and conditions of each
of the Related Documents shall be cumulative and in addition to the
terms and provision of this Agreement, which shall apply to all Related
Documents. This Agreement and all of the Related Documents shall be
construed in such a manner as to give full force and effect to all
provisions of this Agreement and the Related Documents; however, in the
event of any irreconcilable conflict between the terms and provisions
contained in this Agreement and in any of the Related Documents, the
terms and provisions of this Agreement shall control.
COSTS AND EXPENSES. Borrower agrees to pay upon demand one-half (1/2)
of Lender's out-of-pocket expenses, including attorneys' fees, incurred
in connection with this Agreement or in connection with the Loans made
pursuant to this Agreement. If an Event of Default occurs, Lender may
pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and legal
expenses, whether or not there is a lawsuit, including attorneys' fees
for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-
judgment collection services. Borrower also will pay any court costs,
in addition to all other sums provided by law.
NOTICES. To give Borrower any notice required under this Agreement,
Lender shall mail the notice to Borrower by registered or certified
mail at the address specified in this Agreement, or at any other
address that Borrower may have given to Lender by written notice as
provided in this paragraph. In the event that there is more than one
Borrower under this Agreement, notice to a single Borrower shall be
considered as notice to all Borrowers. To give Lender any notice under
this Agreement, Borrower (or any Borrower) shall mail the notice to
Lender by registered or certified mail at the address specified in this
Agreement, or at any other address that Lender may have given to
Borrower (or any Borrower) by written notice as provided in this
paragraph. All notices required or permitted under this Agreement must
be in writing and will be considered as given on the day it is
delivered by hand or deposited in the U. S. Mail, by registered or
certified mail to the address specified in this Agreement.
POWER OF ATTORNEY. Each Power of Attorney granted in a Security
Agreement by Borrower, any Subsidiary, or any other Grantor shall
become effective only after an Event of Default occurs.
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SOLE DISCRETION OF LENDER. Whenever Lender's consent or approval is
required under this Agreement, the decision as to whether or not to
consent or approve shall be in the sole and exclusive discretion of
Lender and Lender's decision shall be final and conclusive. Provided,
however, that Lender will act reasonably and in good faith in
exercising its discretion.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and affiliates
of Borrower. Notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require Lender to
make any Loan or other financial accommodation to any subsidiary or
affiliate of Borrower.
<PAGE> 21
OCTOBER 7, 1997 AMENDED AND RESTATED LOAN AGREEMENT PAGE 21
LOAN NO. 7373872;0001 (CONTINUED)
- --------------------------------------------------------------------------------
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of
Borrower or of any Grantor as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of
such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required and in
all cases such consent may be granted or withheld in the sole
discretion of Lender.
WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. (a) The Borrower and
the Lender hereby waive trial by jury in any action or proceeding to
which the Borrower and the Lender may be parties, arising out of or in
any way pertaining to (i) the Note, (ii) this Agreement, (iii) the
Related Documents, or (iv) the Collateral. It is agreed and understood
that this waiver constitutes a waiver of trial by jury of all claims
against all parties to such actions or proceedings, including claims
against parties who are not willingly and voluntarily made by the
Borrower and the Lender, and the Borrower and the Lender hereby
represent that no representations of fact or opinion have been made by
any individual to induce this waiver of trial by jury or to in any way
modify or nullify its effect. The Borrower and the Lender further
represent that it has been represented in the signing of this Agreement
and in the making of this waiver by independent legal counsel, selected
of its own free will, and that it has had the opportunity to discuss
this waiver with counsel.
(b) The Borrower hereby irrevocably consents to the jurisdiction of the
state courts of Louisiana and the Federal Courts in Louisiana, and
agrees that any action or proceeding arising out of or brought to
enforce the provisions of the note, this Agreement and/or the
Collateral Documents may be brought in any court having subject matter
jurisdiction.
(c) The Borrower and Lender hereby irrevocably consent to venue in
Rapides Parish, Louisiana.
BORROWER ACKNOWLEDGES HAVING READ ALL OF THE PROVISIONS OF THIS AMENDED AND
RESTATED LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS
DATED AS OF THE 7TH DAY OF OCTOBER, 1997.
BORROWER: LENDER:
RANKIN AUTOMOTIVE GROUP, INC. HIBERNIA NATIONAL BANK
F/K/A RANKIN AUTOMOTIVE WAREHOUSE, INC.
BY: BY:
------------------------------- ----------------------------
RANDALL B. RANKIN, PRESIDENT KERMIT W. PHARRIS, JR.
VICE PRESIDENT
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT
MAY 19, 1998 TO PAGE 1
LOAN NO. 7373872;0001 AMENDED AND RESTATED LOAN AGREEMENT
- --------------------------------------------------------------------------------
This First Amendment to Amended and Restated Loan Agreement is dated the 19th
day of May, 1998, but effective October 7, 1997, is made between Rankin
Automotive Group, Inc. ("Borrower") and Hibernia National Bank ("Lender:).
WHEREAS, Borrower has executed a Amended and Restated Loan Agreement, dated
October 7, 1997; and
WHEREAS, Borrower and Lender desire to Amend said Amended and Restated Loan
Agreement as follows:
Borrower and Lender desire to amend in part the Financial Covenants as contained
on page 15 and 16 of the Amended and Restated Loan Agreement in the following
respects:
MINIMUM INTEREST COVERAGE. Borrower shall maintain at all times
subsequent to May 25, 1998 an interest coverage of at least 1.40 to
1.00, where interest coverage is the result of the following formula:
EBIT
----------------
Interest Expense
On the 25th day of February, 1999, and thereafter Borrower shall
maintain an interest coverage of at least 1.60 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
On the 25th day of February, 2000, and thereafter Borrower shall
maintain an interest coverage of at least 1.70 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
On the 25th day of February, 2001, and thereafter Borrower shall
maintain an interest coverage of at least 1.80 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
On the 25th day of February, 2002, and thereafter Borrower shall
maintain an interest coverage of at least 1.90 to 1.00 where interest
coverage is the result of the following formula:
EBIT
----------------
Interest Expense
Except as expressly modified in this agreement, all terms and provisions of the
Amended and Restated Loan Agreement are hereby ratified and confirmed, and shall
remain in full force and effect, and forcible in accordance with their terms.
BORROWER: LENDER:
RANKIN AUTOMOTIVE GROUP, INC. HIBERNIA NATIONAL BANK
F/K/A RANKIN AUTOMOTIVE
WAREHOUSE, INC.
BY: /s/ RANDALL B. RANKIN BY: /s/ KERMIT W. PHARRIS, JR.
------------------------------ -------------------------------------
RANDALL B. RANKIN, PRESIDENT KERMIT W. PHARRIS, JR., VICE PRESIDENT
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-25-1998
<PERIOD-START> FEB-26-1997
<PERIOD-END> FEB-25-1998
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<RECEIVABLES> 2,397,777
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0
0
<COMMON> 45,500
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<TOTAL-LIABILITY-AND-EQUITY> 21,964,495
<SALES> 38,655,609
<TOTAL-REVENUES> 38,655,609
<CGS> 25,823,966
<TOTAL-COSTS> 13,627,824
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<INCOME-TAX> (60,000)
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<NET-INCOME> (788,836)
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