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As filed with the Securities and Exchange Commission on January 21, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FALCONITE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
ILLINOIS 7353 31-149049
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2525 WAYNE SULLIVAN DRIVE
PADUCAH, KENTUCKY 42002-8048
TELEPHONE: (502) 442-4754
FACSIMILE: (502) 575-0570
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
KEVIN S. PUGH
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FALCONITE, INC.
2525 WAYNE SULLIVAN DRIVE
PADUCAH, KENTUCKY 42002-8048
TELEPHONE: (502) 442-4754
FACSIMILE: (502) 575-0570
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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THOMAS A. LITZ, ESQ. PETER C. KRUPP, ESQ.
THOMPSON COBURN SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
ONE MERCANTILE CENTER 333 WEST WACKER DRIVE, SUITE 2100
ST. LOUIS, MISSOURI 63101 CHICAGO, ILLINOIS 60606
TELEPHONE: (314) 552-6000 TELEPHONE: (312) 407-0700
FACSIMILE: (314) 552-7000 FACSIMILE: (312) 407-0411
</TABLE>
Approximate date of commencement of proposed sale to public: As soon as
practical after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
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Common Stock, $.01 par value.............. shares $ $98,164,000 $29,747
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 21, 1997
PROSPECTUS
, 1997
SHARES
[LOGO]
FALCONITE, INC.
COMMON STOCK
---------------------
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being sold by Falconite, Inc., an Illinois corporation
("Falconite" or the "Company"), except that certain shareholders of the Company
(the "Selling Shareholders") have granted the Underwriters the option to
purchase up to an aggregate of shares of Common Stock solely to cover
over-allotments. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "FCNT."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Selling Shareholders have granted to the Underwriters a 30-day option
to purchase up to an aggregate of additional shares at the Price to
the Public less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to the Public, Underwriting Discounts and Commissions and
Proceeds to the Company will be $ , $ and $ ,
respectively, and the Selling Shareholders would receive proceeds of
$ . The Company will not receive any proceeds from the exercise of
the over-allotment option. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to various prior conditions, including their right to reject orders in
whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York, New York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE WILLIAM BLAIR & COMPANY
SECURITIES CORPORATION
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[GRAPHICS/PICTURES]
---------------------
The Company intends to distribute to its shareholders annual reports
containing consolidated financial statements audited by an independent public
accounting firm and quarterly reports containing unaudited consolidated
financial information for each of the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. For purposes of this Prospectus, unless the context otherwise
requires, the "Company" or "Falconite" refers to Falconite, Inc. and its
subsidiaries. Unless otherwise indicated, the information in this Prospectus:
(i) gives effect to the Combination (as defined below); and (ii) assumes that
the over-allotment option granted to the Underwriters is not exercised. See "The
Company" and "Underwriting."
THE COMPANY
Falconite is a leading rental equipment company serving a diverse range of
more than 5,000 active commercial customers from locations in nine southern and
midwestern states. The Company's rental fleet includes over 3,000 units and
consists primarily of large equipment, such as aerial work platforms, cranes and
forklifts, as well as other industrial and construction equipment. The Company
rents equipment on a daily, weekly and monthly basis and, occasionally, for
periods of up to one year. The Company also is a distributor of new equipment
for several leading manufacturers and sells used equipment from its rental
fleet, in addition to complementary parts, supplies and accessories. The
Company's customers operate in a wide range of industries, including commercial
construction, chemical, petrochemical, pulp and paper, automotive and utilities.
The Company focuses on renting large equipment, which generates high
revenue per unit, and believes that it differentiates itself by seeking to offer
the most comprehensive and well maintained fleet of such equipment in its market
areas. Aerial work platforms, which include scissor lifts, boom lifts and
personnel lifts, together with cranes and forklifts comprised approximately 90%
of the Company's rental fleet as of September 30, 1996, based on original cost.
The original per unit cost of such equipment ranges up to $1.2 million, with an
average per unit cost of approximately $40,000 as of September 30, 1996. At such
date, the Company's fleet had an average age of approximately 18 months and an
original cost of $77.8 million.
Falconite currently operates from 17 locations, eight of which were opened
in November and December 1996, and plans to open one additional location during
1997. The Company tailors its equipment fleet at each location to meet the needs
and preferences of the local customer base. The Company's locations are managed
by experienced professionals who average approximately 15 years of service in
the rental equipment industry, and who have knowledge of their local markets and
substantial established customer contacts. The Company's products and services
are marketed through a dedicated sales force consisting of approximately 70
individuals. Each location generally serves customers within a 100-mile radius
and offers a broad selection of equipment for rental and sale, as well as repair
and maintenance services.
The Company has sought to position its product and service offerings to
capitalize on the trend among businesses to outsource non-core operations.
Outsourcing of equipment needs allows customers to more efficiently deploy
capital, substitute variable costs for fixed costs, eliminate maintenance and
storage costs associated with equipment ownership and ensure access to new and
modern equipment. The Company believes that this trend has created significant
growth opportunities in the equipment rental industry. The industry, which is
highly fragmented, generated revenues estimated at $15 billion in 1995, with the
largest 100 companies accounting for approximately 20% of such amount, according
to published reports.
From 1993 to 1995, the Company's revenues increased at a compound annual
rate of 86.2%, from $10.3 million to $35.7 million, while its operating income
increased at a compound annual rate of 89.2%, from $3.2 million to $11.3
million. The Company believes it can continue its growth in revenue and income
by pursuing the following business and growth strategies:
BUSINESS STRATEGIES
- Focus on Large, High Revenue Per Unit Equipment. The Company focuses on
renting large equipment, which generates higher revenue per unit than smaller,
less costly equipment. The Company's average per unit rental revenue was
approximately $12,300 in 1995. The Company believes this focus allows it to
favorably
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leverage its overhead costs over a larger stream of rental revenue per unit. In
addition, the Company believes that there is strong demand for renting this
larger equipment because it enables customers to avoid the significant capital
investments required to purchase such equipment, as well as ongoing expenses for
maintenance, repair and storage.
- Operate as an Efficient Low Cost Provider. As a distributor with high
volume purchases of equipment in its primary product categories, Falconite is
able to acquire a significant portion of its equipment directly from
manufacturers at wholesale prices. This purchasing power enhances the Company's
ability to offer competitive rental rates and resell its used equipment at
favorable margins. Moreover, the Company's focus on large equipment with high
revenue per unit has enabled it to operate more efficiently and with a lower
level of staffing than that required by other equipment rental companies that
have lower revenue per unit fleets.
- Serve Diverse Commercial Customer Base. Falconite primarily serves
commercial customers that operate in a wide variety of commercial construction
and industrial sectors. By serving commercial accounts, the Company is able to
provide large equipment and maximize its revenue per customer. Also, by serving
a well diversified base of customers, the Company is able to reduce its
dependence on a single industry. In addition, Falconite is not dependent on a
single large customer, with no customer accounting for more than 2% of
Falconite's revenues in 1995 or 1996. Falconite provides its products and
services to companies such as Amoco Corporation, Brown & Root, Inc., Champion
Papers, Inc., Chrysler Corporation, Fluor Daniel, Inc. and the Tennessee Valley
Authority.
- Offer Superior Products and Customer Service. The Company attracts new
customers and retains existing customers by offering: (i) a comprehensive
selection of aerial work platforms, cranes and forklifts, which in many cases is
not available from its competitors in the Company's market areas; (ii) timely
delivery of rental equipment seven days a week, generally within 24 hours,
through its own radio-dispatched fleet; (iii) high quality equipment from
leading manufacturers including JLG, Genie, Manitex, Broderson, Gehl and Lull;
(iv) well maintained and modern equipment, which as of September 30, 1996, had
an average age of approximately 18 months; (v) on-site maintenance and repair
services available 24 hours a day; and (vi) equipment safety and training
programs.
GROWTH STRATEGIES
- Expand Through New Locations. The Company intends to expand by opening
new locations in selected markets. In 1997, the Company plans to focus on the
growth and development of the eight locations opened in November and December
1996, of which five were start-up and three were acquired locations. The Company
also intends to open one additional location during 1997 and eight additional
locations in 1998. The Company generally establishes new locations in markets
contiguous to its existing markets, which has allowed it to rent equipment into
these markets prior to opening a new location. As a result, the Company gains
valuable customer and market information, builds name recognition among its
customer base in new markets and facilitates the opening of new locations with a
significant initial base of business.
- Pursue Selected Acquisitions. The Company intends to selectively pursue
acquisitions of rental equipment companies located in its current markets, as
well as in other markets perceived to offer favorable business potential. The
equipment rental industry is highly fragmented and consists primarily of a large
number of relatively small independent businesses serving local markets. Five of
the Company's locations were obtained through acquisitions since 1993. The
Company believes that there are significant opportunities for larger,
well-capitalized companies such as Falconite to grow through the acquisition of
other rental equipment companies.
- Expand Relationships With Existing Customer Base. The Company seeks to
broaden the selection of lighter equipment and complementary products and
services provided to existing customers. For example, the Company cross-sells
products such as safety equipment and small tools to its rental customers. The
Company believes that this strategy will enhance its ability to leverage its
customer relationships, and thereby increase revenues without significant
incremental operating expenses.
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- Establish New Equipment Remanufacturing Center. The Company has begun
construction of an equipment remanufacturing center scheduled to be completed
during the third quarter of 1997. This facility will enhance the Company's
ability to perform major repair and maintenance operations and ensure that
Falconite's rental fleet remains in top condition. Management anticipates that
the center will increase resale profit margins by maximizing the value of the
used equipment the Company sells from its rental fleet. The Company also expects
that the center will provide an additional source of revenue by allowing
Falconite to perform repair and rebuild services for third party equipment
owners.
THE OFFERING
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<S> <C>
Common Stock offered hereby.................. shares
Common Stock to be outstanding after the
Offering................................... shares(1)
Use of proceeds.............................. The estimated net proceeds to the Company of
$ million from the Offering will be used
to repay substantially all outstanding
indebtedness of the Company. Remaining
proceeds, together with future borrowings,
will be used for rental equipment purchases,
start-up location costs and possible future
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol................ FCNT
</TABLE>
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(1) Does not include (i) shares of Common Stock reserved for issuance
pursuant to the Falconite, Inc. Long Term Incentive Plan (the "Plan")
pursuant to which options for shares presently are outstanding
with an exercise price equal to the initial public offering price of the
Common Stock and (ii) shares of Common Stock reserved for issuance
pursuant to the Falconite, Inc. Directors Stock Option Plan (the "Directors'
Plan") pursuant to which options for shares presently are
outstanding with an exercise price equal to the initial public offering
price of the Common Stock. See "Management -- Long Term Incentive Plan" and
"-- Director Compensation."
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SUMMARY COMBINED FINANCIAL DATA
The following table sets forth summary financial and other data for the
Company as of and for the four years in the period ended December 31, 1995 and
as of September 30, 1996 and for the nine months ended September 30, 1995 and
1996. See "The Company," "Selected Combined Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
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PRO PRO
FORMA FORMA
AS AS
ADJUSTED ADJUSTED
1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
------ ------- ------- ------- -------- ----------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues..................... $6,147 $10,289 $23,249 $35,661 $35,661 $25,265 $35,006 $35,006
Gross profit....................... 2,663 4,889 10,229 17,576 17,576 12,345 17,300 17,300
Operating income................... 1,550 3,160 6,816 11,306 11,306 8,010 10,323 10,323
Interest expense, net.............. 368 684 1,734 3,172 125 2,131 3,114 129
Income before income taxes and
minority interests............... 1,182 2,517 5,130 8,094 11,141 5,941 7,358 10,343
Income taxes....................... 490 963 1,919 2,893 4,153 2,104 2,145 3,798
Minority interests(2).............. 83 301 725 1,429 1,948 1,100 1,359 2,019
Net income......................... 609 1,253 2,486 3,772 5,040 2,737 3,854 4,526
Net income per share...............
Weighted average common shares.....
SELECTED OPERATING DATA:
Number of locations at end of
period........................... 2 3 5 9 7 9
Rental equipment capital
expenditures..................... $5,851 $12,855 $21,840 $29,100 $19,068 $22,417
Average cost of rental
equipment(3)..................... 9,333 16,823 28,104 47,972 44,699 69,598
</TABLE>
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<CAPTION>
SEPTEMBER 30, 1996
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PRO FORMA
ACTUAL AS ADJUSTED(1)
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Net book value of rental equipment....................................................... $66,051 $ 66,051
Total assets............................................................................. 82,671
Total debt(4)............................................................................ 54,295 1,776
Shareholders' equity..................................................................... 14,079
</TABLE>
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(1) Gives effect to: (i) the sale of shares of Common Stock in the
Offering, at an assumed initial public offering price of $ per share;
(ii) a reduction in interest expense as a result of repayment of
substantially all outstanding debt with the proceeds of the Offering; and
(iii) the change from S corporation to C corporation status of M&F Equipment
(as defined below), in each case as if such transactions had occurred on
January 1, 1995 in the case of statement of operations data and September
30, 1996 in the case of balance sheet data. The Company's Combined Financial
Statements include the results of McCurry & Falconite Equipment Co., Inc.
("M&F Equipment"), which was organized in March 1995. The pro forma
provision for income taxes includes amounts to reflect the results of
operations as if M&F Equipment had been liable for income taxes. S
corporation distributions were $320 and $231 in 1995 and the nine months
ended September 30, 1996, respectively. M&F Equipment's status as an S
corporation was terminated as of the time of the Combination. See "The
Company," "Use of Proceeds," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Combined
Financial Statements and the Notes thereto.
(2) The minority interests were eliminated as a result of the acquisition of the
minority interest in Erzinger Equipment (as defined below) in September 1996
and the acquisition of the minority interest in M&M Equipment (as defined
below) pursuant to the Combination in December 1996. See "The Company,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements and the Notes thereto.
(3) Average cost of rental equipment represents the average of month-end
original cost of rental equipment during the period. Original cost
represents the undepreciated original price paid by the Company for rental
equipment.
(4) Total debt includes term debt, revolving lines of credit and obligations
under capital leases.
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RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information set forth in this Prospectus, in evaluating
an investment in the shares of Common Stock offered hereby.
RISKS RELATING TO GROWTH STRATEGY
A principal component of the Company's growth strategy is to continue to
expand through additional start-up locations and possible acquisitions that
complement the Company's business in new or existing markets. The Company's
future growth will be dependent upon a number of factors including, among
others, the Company's ability to identify suitable start-up locations, obtain
sites for start-up locations on favorable terms, recruit qualified personnel,
promptly and successfully integrate start-up locations with the Company's
existing operations, expand its customer base and obtain financing to support
expansion. To the extent the Company pursues acquisitions, the success of this
strategy will be dependent on its ability to, among other things, identify
acceptable acquisition candidates, complete acquisitions on favorable terms and
successfully integrate acquired businesses with the Company's existing
operations. The Company currently has 17 locations, of which eight were opened
in November and December 1996. The Company currently plans to open one location
during 1997 and eight additional locations in 1998. There can be no assurance
that the Company will successfully integrate its recently opened locations or
that any further expansion will be profitable. The failure to effectively
identify, evaluate and integrate start-up locations and acquired businesses
could adversely affect the Company's operating results, possibly causing adverse
effects on the market price of the Common Stock. In addition, the results
achieved to date by the Company may not be indicative of its prospects or
ability to penetrate new markets, which may have different competitive
conditions and demographic characteristics than the Company's current markets.
The Company's anticipated growth also will create the need to dispose of
increasing amounts of used rental equipment to optimize the age and condition of
the Company's rental fleet. There can be no assurance that the Company will
continue to realize its historical resale margins as its rental fleet grows, or
that future resale margins will not be negatively affected by market conditions
over which the Company has no control.
The Company anticipates that as it implements its growth strategy it will
need to hire additional employees and enhance its operating and financial
systems. Future growth will increase the operating complexity of the Company and
the level of responsibility for both existing and new personnel. In light of
these demands, the Company intends to invest further in its operating and
financial systems and to continue to expand, train and manage its employee base.
There can be no assurance that the Company will be able to attract and retain
qualified employees or that the Company's current operating and financial
systems will be adequate as the Company grows or that any steps taken to improve
such systems will be sufficient. See "Business -- Growth Strategies."
IDENTIFIED NEED FOR IMPROVED MANAGEMENT AND ACCOUNTING INFORMATION SYSTEMS AND
CONTROLS
Over the past few years, the Company has experienced substantial growth
which has strained its management, administrative and operational resources and
financial control systems. The Company recently has added various key officers,
including Kevin S. Pugh, as Vice President and Chief Financial Officer, and
Bruce A. Wilcox, as Controller, both of whom joined the Company in December
1996. Following the audit of the Company's combined financial statements as of
December 31, 1995 and September 30, 1996 and for the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1996 on which KPMG Peat
Marwick LLP ("KPMG") issued an unqualified audit opinion, the Company also
received a management letter from KPMG. The letter identified certain material
weaknesses in the design and operation of the Operating Subsidiaries' (as
defined below) internal controls, which could adversely affect their ability to
record, process, summarize and report financial data consistent with the
assertions of management in the financial statements. Specifically, KPMG noted
weaknesses with respect to the controls relating to timely preparation of
financial statements in accordance with generally accepted accounting
principles, reporting of fixed assets, borrowing base calculations and
compliance with debt covenants. KPMG also reported on conditions, not considered
to be material weaknesses, relative to physical counting of equipment and
inventory,
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<PAGE> 9
maintenance of billing backup, credit memos, timing of inventory and accounts
payable and recognition of earnings in excess of billings. The management letter
also suggested several policies and procedures to improve the Company's
accounting systems and controls. The Company has carefully considered and
discussed with representatives of KPMG the control weaknesses and conditions
cited and the recommended enhancements of policies and procedures. The Company
believes that it has implemented steps to correct the deficiencies noted,
including the hiring of Messrs. Pugh and Wilcox as senior management personnel
with substantial experience in accounting and auditing. See "Management --
Directors, Executive Officers and Key Employees."
Historically, the Company's two Operating Subsidiaries have functioned as
separate business units, each with separate management and accounting
information systems. The Company began to consolidate these systems as of
January 1, 1997; however, there can be no assurance that such consolidation will
be completed on a timely or cost-effective basis or will not result in
disruptions and operating inefficiencies. Failure by the Company to develop and
implement plans for enhancing its internal controls and administrative
infrastructure and to consolidate the separate management and accounting
information systems at its two Operating Subsidiaries could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Fleet Management and Information Systems."
DEPENDENCE ON ADDITIONAL CAPITAL AND EQUIPMENT PURCHASES FOR FUTURE GROWTH
The Company will continue to incur substantial capital expenditures to
maintain the age and condition of its rental equipment fleet. In addition, the
Company will require significant equipment purchases that, in turn, will require
significant capital expenditures. The Company estimates that its business will
require cash outlays for capital expenditures of approximately $56 million in
1997 and $67 million in 1998. As of December 31, 1996, the Company had open
purchase orders aggregating $11.6 million for equipment. The Company
historically has financed capital expenditures, start-up locations and
acquisitions through secured bank borrowings and internally generated cash flow.
To implement its growth strategy and meet its capital needs, the Company expects
to incur additional indebtedness and may in the future issue additional equity
securities (which could result in dilution to the purchasers of Common Stock
offered hereby). Such additional indebtedness may make the Company more
vulnerable to economic downturns and may weaken the Company's competitive
position. Moreover, given the lead time of several months in acquiring new
equipment, the Company must commit well in advance to take and pay for its
equipment purchases. There can be no assurance that the Company will accurately
forecast its needs for new equipment. Commitments by the Company for too much or
too little equipment relative to its actual needs could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that additional capital and equipment, when required,
will be available on terms acceptable to the Company, or at all. Failure by the
Company to obtain sufficient additional capital and equipment on a timely basis
in the future could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Growth Strategies."
GENERAL ECONOMIC CONDITIONS
The equipment rental industry is dependent upon the level of activity in
the commercial construction and industrial segments. Accordingly, the industry
is sensitive to national, regional and local slowdowns in commercial
construction, as well as in particular industries such as chemical,
petrochemical, pulp and paper, automotive and utilities. More particularly, most
of the Company's rental revenues are derived from customers in industries which
the Company believes are cyclical or subject to downturns during economic
slowdowns. A significant amount of work done by industrial customers relates to
plant construction activity which could be reduced or postponed during an
economic downturn. The Company's operating results may be adversely affected by
events or conditions in a particular region where it operates, such as regional
economic slowdowns, adverse weather and other factors. In addition, the
Company's operating results may be adversely affected by increases in interest
rates that may lead to a decline in economic activity, while simultaneously
resulting in higher interest payments by the Company under variable rate credit
facilities. There can be no
8
<PAGE> 10
assurance that economic slowdowns or adverse economic or competitive conditions
will not have a material adverse effect on the Company's operating results and
financial condition. See "Business -- Locations."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend, to a
significant extent, upon the efforts and abilities of members of senior
management, particularly Michael A. Falconite, President and Chief Executive
Officer, Ralph W. McCurry, Executive Vice President, Kevin S. Pugh, Vice
President and Chief Financial Officer, J. David Melber, Vice
President -- Operations, and Bruce A. Wilcox, Controller. The loss of service of
one or more members of senior management could have a material adverse effect on
the Company's business. The Company's future success also will depend on its
ability to attract, train and retain skilled personnel in all areas of its
business. See "Management."
COMPETITION
The equipment rental industry is highly competitive. The Company's
competitors include: national and multi-regional companies (such as Hertz
Equipment Rental Corporation, Prime Service, Inc., Rental Service Corporation
and BET Plant Services U.S.A.); regional competitors that operate in a small
number of states; small, independent businesses with one or a few rental
locations; and equipment vendors and dealers who both sell and rent equipment
directly to customers. Certain of the Company's competitors may have greater
financial resources, more geographic diversification and greater name
recognition than the Company. The Company may encounter increased competition
from existing competitors or new market entrants, some of whom may be
significantly larger and have greater business resources. In addition, to the
extent that existing or future competitors seek to gain or retain market share
by reducing prices, the Company might be compelled to lower its prices, thereby
adversely affecting operating results. The Company also will compete for
acquisition candidates, thereby possibly increasing the price for acquisitions
or reducing the number of desirable acquisition candidates and for start-up
locations, thereby possibly limiting the number of attractive locations for
expansion. See "Business -- Competition."
CONTROL BY EXISTING SHAREHOLDERS
After the Offering, the Company's executive officers and directors will in
the aggregate beneficially own or control approximately % of the Company's
outstanding Common Stock ( % if the Underwriters' over-allotment option is
exercised in full). Accordingly, such persons, acting together, generally will
be able to elect a majority of the directors and exercise significant control
over the business, policies and affairs of the Company. Similarly, such persons,
acting together, would be in a position to prevent a takeover of the Company by
one or more third parties, which could deprive the Company's shareholders of a
control premium that might otherwise be realized by them in connection with an
acquisition of the Company. See "Principal Shareholders."
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's revenues and operating results have historically varied from
quarter to quarter and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including seasonal
rental patterns of the Company's customers, general economic conditions in the
Company's markets, the timing of start-up locations and acquisitions and related
costs, the effectiveness of integrating start-up locations and acquisitions, the
timing of fleet expansion capital expenditures and price changes in response to
competitive factors. In addition, the Company incurs various costs in
establishing or integrating start-ups and newly acquired locations, and the
profitability of a new location is generally expected to be lower during a
period of approximately 24 months after it is opened, than in subsequent
periods. These factors, among others, make it likely that in some future quarter
the Company's results of operations may be below the expectations of securities
analysts and investors, which could have a material adverse effect on the market
price of Common Stock. Historically, operating results have been seasonally
lower during the first and fourth fiscal quarters, than during the other
quarters of the fiscal year, due to the impact of weather on construction
9
<PAGE> 11
activity in certain of the Company's markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality."
LIABILITY AND INSURANCE
The Company's business exposes it to claims for personal injury or death
resulting from the use of equipment rented or sold by the Company and from
injuries caused in motor vehicle accidents in which Company delivery and service
personnel are involved, and workers' compensation claims and other
employment-related claims. The Company carries substantial coverage for product
liability, general and automobile liability and employment-related claims from
various insurance carriers. There can be no assurance, however, that existing or
future claims will not exceed the level of the Company's insurance, or that such
insurance will continue to be available on economically reasonable terms, or at
all. In addition, certain types of claims, such as claims for punitive damages
or for damages arising from intentional misconduct, generally are not covered by
the Company's insurance. See "Business -- Legal Proceedings."
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company's operations are subject to various federal, state and local
laws and regulations governing, among other things, worker safety, operation of
its delivery fleet, air emissions, water discharge and the generation, handling,
storage, transportation, treatment and disposal of hazardous substances and
wastes. Under such laws, an owner or lessee of real estate may be liable for the
costs of removal or remediation of certain hazardous or toxic substances located
on or in, or emanating from, property it owns or leases, as well as related
costs of investigation and property damage. Such laws often impose liability
without regard to whether the owner or lessee knew of, or was responsible for,
the presence of such substances at its property. There can be no assurance that
acquired or leased locations have been operated in compliance with all
environmental laws and regulations or that future uses or conditions will not
result in the imposition of environmental liability upon the Company or expose
the Company to third-party actions such as tort suits. The Company dispenses
petroleum products from above-ground storage tanks located at certain rental
locations that it owns or leases. The Company seeks to minimize the potential
for leaks and spills, maintain appropriate records and monitor tanks. There can
be no assurance, however, that these tanks have been or will remain free from
leaks or that the use of these tanks will not result in spills or other
releases. The Company also uses hazardous materials such as solvents and paint
to clean and maintain its rental equipment fleet, and the Company expects that
its planned remanufacturing center will use such materials on a greatly
increased scale than the Company's existing operations. In addition, the Company
generates and disposes of wastes such as used motor oil, radiator fluid and
solvents utilizing disposal firms that the Company believes are operating in
accordance with applicable legal standards. However, there can be no assurance
that the Company will not be liable under various federal, state and local laws
for environmental contamination at facilities where its waste is or has been
disposed. The facility ownership and operations associated with the planned
remanufacturing center will also likely subject the Company to various federal,
state and local laws and regulations concerning the environment and worker
safety and health. See "Business -- Government and Environmental Regulation."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation (the "Articles of Incorporation")
and Bylaws (the "Bylaws") include provisions that may delay, defer or prevent a
takeover attempt that may be in the best interest of shareholders. These
provisions include a classified Board of Directors, pursuant to which directors
are divided into three classes, with three-year staggered terms. The classified
board provision could increase the likelihood that, in the event an outside
party acquired a controlling block of the Company's stock, incumbent directors
nevertheless would retain their positions for a substantial period, which may
have the effect of discouraging, delaying or preventing a change in control of
the Company. In addition, the Articles of Incorporation provide for the ability
of the Board of Directors to issue up to 1,000,000 shares of preferred stock
without any further shareholder approval, a provision under which only the Board
of Directors or holders of at least two-thirds of the outstanding shares may
call meetings of shareholders, a requirement that any shareholder action without
a meeting be pursuant to unanimous written consent and certain advance notice
procedures for nominating
10
<PAGE> 12
candidates for election to the Board of Directors. Issuance of preferred stock
could also discourage bids for the Common Stock at a premium as well as create a
depressive effect on the market price of the Common Stock. In addition, under
certain conditions, Section 11.75 of the Illinois Business Corporation Act of
1983, as amended (the "Illinois Act"), would prohibit the Company from engaging
in a "business combination" with an "interested shareholder" (in general, a
shareholder owning 15% or more of the Company's outstanding voting shares) for a
period of three years. The possible impact of these provisions on takeover
attempts could adversely affect the price of the Common Stock. See "Description
of Capital Stock."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
as a result of the Offering or, if a trading market does develop, that it will
be sustained or that the shares of Common Stock could be resold at or above the
initial public offering price. The initial public offering price of the Common
Stock offered hereby will be determined through negotiations between the Company
and the representatives (the "Representatives") of the Underwriters and may not
be indicative of the price at which the Common Stock will trade after the
Offering. After completion of the Offering, the market price of the Common Stock
could be subject to significant variation due to fluctuations in the Company's
operating results, changes in earnings estimates by investment analysts, the
degree of success the Company achieves in implementing its business and growth
strategies, changes in business or regulatory conditions affecting the Company,
its customers or its competitors and other factors. In addition, the Nasdaq
National Market historically has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to the operating
performance of companies. These fluctuations, as well as general economic,
political and market conditions, may adversely affect the market price of the
Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon consummation of the Offering, the Company will have outstanding an
aggregate of shares of Common Stock. Future sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options) by the Company's current shareholders after the Offering, or the
perception that such sales could occur, could adversely affect the market price
of the Common Stock. In addition, the Company has the authority to issue
additional shares of Common Stock and shares of one or more series of preferred
stock. The Company also intends to register an aggregate of shares of
Common Stock for issuance under the Plan and the Directors Plan as soon as
practicable following the consummation of the Offering. The issuance of such
shares could result in the dilution of the voting power of the shares of Common
Stock purchased in the Offering and could have a dilutive effect on earnings per
share. No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock. The Company currently has no plans to designate
and/or issue any shares of preferred stock.
The Company and its directors and executive officers have, subject to
certain exceptions in the case of the Company described in "Underwriting,"
agreed not to directly or indirectly offer, sell, contract to sell or otherwise
dispose of or transfer any capital stock of the Company, or any security
convertible into, or exercisable or exchangeable for, such capital stock, for a
period of 180 days after the date of this Prospectus, without the prior written
consent of the Representatives. Certain existing shareholders of the Company are
entitled to rights to register their shares of Common Stock under the Securities
Act of 1933, as amended (the "Securities Act"), for resale, at the expense of
the Company. Such shares also are subject to resale pursuant to Rule 144 under
the Securities Act, depending on the holding period of such securities and
subject to significant restrictions in the case of shares held by persons deemed
to be affiliates of the Company. See "Principal Shareholders," "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."
11
<PAGE> 13
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock reflected in the Company's
combined balance sheet as of September 30, 1996. Investors purchasing shares of
Common Stock in the Offering will be subject to immediate dilution in net
tangible book value of $ per share. See "Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The matters set forth under
"Risk Factors" constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including (among other factors)
the need to identify, acquire and integrate additional start-up locations and
possible acquisitions, identified needs for improved management and accounting
information systems and controls and dependence upon additional capital and
equipment purchases for future growth, that could cause actual results to differ
materially from those in such forward-looking statements.
12
<PAGE> 14
THE COMPANY
The Company was incorporated in December 1996 as a holding company for its
operating subsidiaries, Falconite Equipment, Inc., an Illinois corporation
formerly known as Falconite, Inc. ("Falconite Equipment"), and M&M Properties,
Inc., an Alabama corporation ("M&M Equipment;" and, together with Falconite
Equipment, collectively referred to as the "Operating Subsidiaries"). Falconite
Equipment and M&M Equipment were related by common ownership prior to the
organization of the Company at which time the shareholders of the Operating
Subsidiaries combined them by exchanging such shares for shares of Common Stock
(the "Combination").
Falconite Equipment was founded by Joseph A. Falconite, Chairman of the
Board of the Company, and began renting equipment in 1955. M&M Equipment
commenced equipment rental operations in 1991. Since the early 1990s, the
Operating Subsidiaries have grown substantially by opening and acquiring new
locations. Falconite Equipment and M&M Equipment historically have operated as
separate business units with Falconite Equipment operating primarily in the
northern portion of the Company's geographic area and M&M Equipment in the
southern portion. In October 1993, Falconite Equipment acquired a 70% ownership
interest in Erzinger Equipment Co. ("Erzinger Equipment"), St. Louis, Missouri,
and acquired the remaining interest in September 1996. In December 1996,
Erzinger Equipment was liquidated and its assets and operations were transferred
to Falconite Equipment. Pursuant to the Combination, the Company also acquired
the stock of McCurry & Falconite Equipment Co., Inc. ("M&F Equipment"), an
Alabama corporation organized in 1995 by Michael A. Falconite and Ralph W.
McCurry to engage in certain equipment rental business in Alabama. In December
1995, the Company acquired a location in Calvert City, Kentucky. In December
1996, the Company acquired three rental locations in, respectively, Fort
Campbell, Kentucky, Clarksville, Tennessee and Tallahassee, Florida. See
"Business -- Locations."
The Company's principal executive offices are located at 2525 Wayne
Sullivan Drive, Paducah, Kentucky 42002-8048, telephone (502) 442-4754.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby (after deducting underwriting discounts and estimated expenses of the
Offering) are estimated to be approximately $ million, assuming an initial
public offering price of $ per share ($ if the Underwriters'
over-allotment option is exercised in full). The actual net proceeds will vary
if the actual initial public offering price or the estimated expenses are
different.
The Company will use approximately $ million of the estimated net
proceeds to repay substantially all its outstanding borrowings, together with
accrued interest thereon. Such borrowings bear interest at rates ranging from
8.25% to 11.25% per annum and mature from 1997 to 2001. The proceeds of such
borrowings were used for acquisition of rental equipment, start-up location
costs, recent acquisitions and for general working capital purposes. Any
remaining proceeds of the Offering, together with future borrowings, will be
used for equipment purchases, start-up location costs and possible acquisitions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Pending application of the net proceeds for the purposes specified above,
they will be invested in short-term, interest-bearing obligations.
The Company will not receive any proceeds from the exercise of the
over-allotment option granted by the Selling Shareholders. See "Underwriting."
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation, although M&F Equipment made S corporation distributions to its
shareholders in respect of taxable income recognized as a result of their
ownership of such corporation (which was acquired by the Company pursuant to the
Combination in December 1996). The Company does not currently intend to pay cash
dividends for the foreseeable future. Management anticipates that all earnings
and other cash resources of the Company, if any, will be retained by the Company
for the operation and expansion of its business and for general corporate
purposes. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, results of operations, level of
indebtedness, capital requirements, general business conditions and contractual
restrictions on payment of dividends, if any, as well as such other factors as
the Board of Directors may deem relevant. The Company is effectively restricted
by its loan agreements from paying cash dividends on its Common Stock, and may
in the future enter into loan or other agreements or issue debt or equity
securities that restrict the payment of cash dividends on Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
14
<PAGE> 16
DILUTION
At September 30, 1996, the Company had a net tangible book value of $13.7
million, or $ per share of Common Stock. Net tangible book value per share
is equal to the Company's total tangible assets less its total liabilities,
divided by the total number of outstanding shares of Common Stock as reflected
on the Company's combined balance sheet as of such date. After giving effect to
the sale of shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share (the midpoint of the estimated
offering range) and the receipt and application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company at September 30,
1996 would have been $ million or $ per share. This represents an
immediate increase in the net tangible book value of $ per share to the
existing shareholders and an immediate dilution of $ per share to new
shareholders purchasing shares in the Offering. The following table illustrates
this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Net tangible book value per share before the Offering............ $
Increase in net tangible book value per share attributable to new
shareholders..................................................
------
Pro forma net tangible book value per share after the Offering.....
------
Dilution per share to new shareholders............................. $
======
</TABLE>
The following table summarizes (as of September 30, 1996) the differences
between the existing shareholders and the new shareholders with respect to the
number of shares of Common Stock offered hereby, the total consideration paid to
the Company and the average price paid per share (assuming an initial public
offering price of $ per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... % $ % $
New shareholders...............
---------- ----- ---------- -----
Total................ 100.0% $ 100.0%
========== ===== ========== =====
</TABLE>
The calculations in the tables set forth above: (i) assume no exercise of
the Underwriters' over-allotment option; and (ii) do not reflect a total of
and shares reserved for issuance pursuant to awards granted
under the Plan and the Directors Plan, respectively. See "Management -- Long
Term Incentive Plan" and "-- Director Compensation."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as
reflected on the Company's combined balance sheet as of September 30, 1996 and
as adjusted to reflect the sale of the shares of Common Stock offered by the
Company hereby (assuming an offering price of $ per share) and the
application of the net proceeds therefrom. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and the Combined Financial
Statements and the Notes thereto.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revolving lines of credit.............................................. $21,139 $ --
Term debt.............................................................. 31,380 --
Obligations under capital leases....................................... 1,776 1,776
------- -------
Total debt and capital leases................................ 54,295 1,776
Shareholders' equity:
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized; none issued or outstanding............................ -- --
Common stock:
Falconite Equipment, $10.00 par value, 25,000 shares authorized,
13,000 shares issued and outstanding actual...................... 130 --
M&M Equipment, $1.00 par value, 1,000 shares authorized, issued
and outstanding actual........................................... 1 --
M&F Equipment, $1.00 par value, 10,000 shares authorized, 1,000
shares issued and outstanding actual............................. 1 --
Company, $.01 par value, 50,000,000 shares authorized, no shares
issued or outstanding actual, shares outstanding, as
adjusted......................................................... --
Additional paid-in capital........................................... 87
Retained earnings.................................................... 13,860 13,860
------- -------
Total shareholders' equity................................... 14,079
------- -------
Total capitalization....................................... $68,374 $
======= =======
</TABLE>
- ------------------------------
(1) Does not include and shares of Common Stock reserved for
issuance upon exercise of stock options or other awards under the Plan (of
which options to purchase shares with an exercise price per share
equal to the initial public offering price of the Common Stock offered
hereby, are outstanding at the date of this Prospectus) and the Directors
Plan (of which no options are outstanding at the date of this Prospectus),
respectively.
16
<PAGE> 18
SELECTED COMBINED FINANCIAL AND OPERATING DATA
The following selected combined statement of operations financial
information for the years ended December 31, 1995 and the nine months ended
September 30, 1996, and selected combined balance sheet data as of December 31,
1994 and 1995 and September 30, 1996, has been derived from the audited combined
financial statements of the Company appearing elsewhere in this Prospectus. The
selected combined financial information with respect to the Company's statement
of operations data for the years ended December 31, 1992 and 1993 and with
respect to the balance sheet data as of December 31, 1992, 1993 and 1994 has
been derived from unaudited combined financial statements of the Company that
are not included in this Prospectus, but which, in the opinion of management,
contain all adjustments necessary for a fair presentation. The selected combined
financial information with respect to the Company's statement of operations data
for the nine months ended September 30, 1995 has been derived from the unaudited
combined financial statements of the Company, which, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments), necessary to present fairly the Company's results of operations
for such period. The results for the nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for future
periods or for the year ending December 31, 1996.
The selected combined financial and operating data presented below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined Financial Statements and
the Notes thereto appearing elsewhere in this Prospectus.
17
<PAGE> 19
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------- ----------------------------------
PRO PRO
FORMA AS FORMA AS
ADJUSTED ADJUSTED
1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
------ ------- ------- ------- -------- ----------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Equipment rentals................ $3,839 $ 6,378 $14,387 $23,395 $23,395 $16,685 $24,130 $24,130
Sales of new and used equipment,
parts, supplies and service.... 2,308 3,911 8,862 12,266 12,266 8,580 10,876 10,876
------- ------- ------- ------- ------- ------- ------- -------
Total revenues..................... 6,147 10,289 23,249 35,661 35,661 25,265 35,006 35,006
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Cost of equipment rentals,
excluding equipment rental
depreciation................... 1,112 1,347 3,446 4,651 4,651 3,386 4,909 4,909
Rental equipment depreciation.... 717 1,244 2,660 4,437 4,437 3,332 4,705 4,705
Cost of sales of new and used
equipment, parts, supplies and
service........................ 1,655 2,809 6,914 8,997 8,997 6,202 8,092 8,092
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues............. 3,484 5,400 13,020 18,085 18,085 12,920 17,706 17,706
------- ------- ------- ------- ------- ------- ------- -------
Gross profit....................... 2,663 4,889 10,229 17,576 17,576 12,345 17,300 17,300
Selling, general and administrative
expenses......................... 1,024 1,574 3,163 5,858 5,858 3,960 6,381 6,381
Depreciation and amortization,
excluding equipment rental
depreciation..................... 89 155 250 412 412 375 596 596
------- ------- ------- ------- ------- ------- ------- -------
Operating income................... 1,550 3,160 6,816 11,306 11,306 8,010 10,323 10,323
Interest expense, net.............. 368 684 1,734 3,172 125 2,131 3,114 129
Other income (expense)............. -- 41 48 (40) (40) 62 149 149
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes and
minority interests............... 1,182 2,517 5,130 8,094 11,141 5,941 7,358 10,343
Income taxes....................... 490 963 1,919 2,893 4,153 2,104 2,145 3,798
Minority interests(2).............. 83 301 725 1,429 1,948 1,100 1,359 2,019
------- ------- ------- ------- ------- ------- ------- -------
Net income......................... $ 609 $ 1,253 $ 2,486 $ 3,772 $ 5,040 $ 2,737 $ 3,854 $ 4,526
======= ======= ======= ======= ======= ======= ======= =======
Net income per common share........
Weighted average common shares.....
SELECTED OPERATING DATA:
Number of locations at end of
period........................... 2 3 5 9 7 9
Rental equipment capital
expenditures..................... $5,851 $12,855 $21,840 $29,100 $19,068 $22,417
Average cost of rental
equipment(3)..................... 9,333 16,823 28,104 47,972 44,699 69,598
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------
DECEMBER 31, PRO FORMA
------------------------------------------- AS
1992 1993 1994 1995 ACTUAL ADJUSTED(1)
------- ------- ------- ------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net book value of rental equipment................. $ 9,736 $18,296 $30,814 $52,574 $66,051 $66,051
Total assets....................................... 11,879 22,553 40,909 64,153 82,671
Total debt(4)...................................... 7,353 14,107 27,060 43,176 54,295 1,776
Shareholders' equity............................... 2,988 4,241 6,727 10,340 14,079
</TABLE>
- ------------------------------
(1) Gives effect to: (i) the sale of shares of Common Stock in the
Offering, at an assumed initial public offering price of $ per share;
(ii) a reduction in interest expense as a result of repayment of
substantially all outstanding debt with the proceeds of the Offering; and
(iii) the change from S corporation to C corporation status of M&F
Equipment, in each case as if such transactions had occurred on January 1,
1995 in the case of statement of operations data and September 30, 1996 in
the case of balance sheet data. The Company's Combined Financial Statements
include the results of M&F Equipment, which was organized in March 1995. The
pro forma provision for income taxes includes amounts to reflect the results
of operations as if M&F Equipment had been liable for income taxes. S
corporation distributions were $320 and $231 in 1995 and the nine months
ended September 30, 1996, respectively. M&F Equipment's status as an S
corporation was terminated as of the time of the Combination. See "The
Company," "Use of Proceeds," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Combined
Financial Statements and the Notes thereto.
(2) The minority interests were eliminated as a result of the acquisition of the
minority interest in Erzinger Equipment (as defined below) in September 1996
and the acquisition of the minority interest in M&M Equipment (as defined
below) pursuant to the Combination in December 1996. See "The Company,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements and the Notes thereto.
(3) Average cost of rental equipment represents the average of month-end
original cost of rental equipment during the period. Original cost
represents the undepreciated original price paid by the Company for rental
equipment.
(4) Total debt includes term debt, revolving lines of credit and obligations
under capital leases.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's combined financial
condition and combined results of operations should be read in conjunction with
the Company's Combined Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus.
OVERVIEW
Falconite is a holding company with its business operations conducted by
the Operating Subsidiaries. Falconite derives revenue from four sources: (i)
rental of equipment; (ii) sales of new equipment and used rental equipment;
(iii) sales of parts and merchandise; and (iv) service and other income. From
1993 to 1995, the Company's revenues increased at a compound annual rate of
86.2% from $10.3 million to $35.7 million, while its operating income increased
at a compound annual rate of 89.2%, from $3.2 million to $11.3 million.
The principal components of the Company's cost structure include
depreciation of rental equipment, costs of new and used equipment sold,
personnel costs, occupancy costs and vehicle operations. The Company continually
incurs capital expenditures in order to acquire and maintain a competitive, high
quality rental equipment fleet. For the years ended December 31, 1994 and 1995
and the nine months ended September 30, 1996, the Company's capital expenditures
for rental equipment aggregated $21.8 million, $29.1 million and $22.4 million,
respectively.
The Company reported equipment rental depreciation of $2.7 million, $4.4
million and $4.7 million for the years ended December 31, 1994 and 1995 and for
the nine months ended September 30, 1996, respectively. Prior to January 1,
1997, the Operating Subsidiaries utilized different depreciation policies for
their respective rental equipment fleets. Falconite Equipment used the
straight-line method with useful lives ranging from three to 15 years and no
salvage value. M&M Equipment used the straight-line method with useful lives
ranging from five to ten years, with a 25% salvage value. Beginning January 1,
1997, the Operating Subsidiaries will depreciate newly acquired rental equipment
on a straight-line method utilizing the estimated useful lives and salvage
values set forth in the following table.
<TABLE>
<CAPTION>
TYPE OF EQUIPMENT USEFUL LIFE SALVAGE VALUE
------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Large (28 tons and greater) cranes.......................... 15 years 25%
Small (less than 28 tons) cranes............................ 10 years 10%
Large lifts................................................. 10 years 10%
Small lifts................................................. 7 years 10%
Fork lifts.................................................. 7 years 10%
Dirt moving................................................. 7 years 10%
Other small equipment....................................... 5 years 10%
Vehicles and trailers....................................... 5 years 0%
</TABLE>
The Company believes that had it utilized the foregoing depreciation policy
during the nine months ended September 30, 1996, its results of operations for
such period would not have varied materially from reported amounts.
The Company historically has financed its rental fleet equipment purchases,
start-up location costs and acquisitions primarily through internally generated
cash flow and bank borrowings. Such borrowings have resulted in significantly
increased interest expense. During the process of opening a start-up or acquired
location, the Company typically incurs expenses related to recruiting and
training employees, installing information systems, setting up facilities and
marketing. The Company's acquired locations typically contribute to net income
and cash flow beginning in the first month after they are opened. The Company's
start-up locations typically contribute to net income during the first 60 days
and generate positive cash flow within 90 days after opening.
The Company incurs capital expenditures of approximately $3.0 million for
the initial complement of rental equipment at each start-up location. Rental
equipment assigned to a new location may increase to as
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<PAGE> 21
much as $7.5 million over the first 12 months the location is open depending
upon demand, local market conditions, proximity to other Company locations and
the rate of market penetration. In addition to the rental equipment investment,
new locations require various delivery and service trucks, computer systems,
service equipment and working capital requiring aggregate investments of
$300,000 to $350,000 per location.
The Company regularly investigates and evaluates potential start-up
locations and acquisitions. Any such transactions are typically subject to
numerous conditions, including business and financial due diligence
investigation, environmental review and, in the case of acquisitions,
negotiation of definitive purchase agreements. In evaluating an acquisition
target, the Company considers, among other things, its competitive market
position, personnel, equipment mix, growth position and the characteristics of
the target market.
The Company's largest acquisition to date was of Erzinger Equipment, St.
Louis, Missouri, of which a 70% ownership interest was acquired in October 1993
for $550,000, and the balance of the equity was acquired in September 1996 for
$875,000, at which time the Company also agreed to pay an additional $450,000 in
respect of non-competition agreements with former minority shareholders. The
Company also acquired a location in Calvert City, Kentucky, in December 1995 for
$585,000, and locations in Clarksville, Tennessee and Fort Campbell, Kentucky in
December 1996 for an aggregate purchase price of $985,000. Additionally, in
December 1996 the Company acquired an equipment rental company in Tallahassee,
Florida for $1.1 million. The Company financed all of these acquisitions with
internally generated cash flow and bank borrowings.
As a result of the Combination which occurred December 31, 1996, the
remaining minority interest reported by the Company was eliminated. The
acquisition of such minority interest will be accounted for under the purchase
method of accounting. Accordingly, the 49% interest in M&M Equipment's net
assets will be recorded at the estimated fair market value, while the remaining
51% will continue to be recorded at historical cost. The excess, if any, of the
purchase price over the fair value of assets acquired will be recorded as
goodwill and amortized on a straight-line basis over its expected useful life,
currently anticipated to be 30 years.
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<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the combined statements of operations of the Company expressed as a
percentage of total revenues, and the percentage change in such items compared
to the same period in the prior year. There can be no assurance that the trends
in revenue growth or operating results will continue in the future.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
----------------------------------- PERCENTAGE INCREASE
NINE MONTHS ----------------------------
YEARS ENDED ENDED NINE MONTHS
DECEMBER 31, SEPTEMBER 30, ENDED
--------------- --------------- SEPTEMBER 30,
1994 1995 1995 1996 1994VS1995 1995VS1996
----- ----- ----- ----- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals.................................. 61.9% 65.6% 66.0% 68.9% 62.6% 44.6%
Sales of new and used equipment, parts, supplies
and service...................................... 38.1 34.4 34.0 31.1 38.4 26.8
----- ----- ----- ----- ----- -----
Total revenues....................................... 100.0 100.0 100.0 100.0 53.4 38.6
Cost of revenues:
Cost of equipment rentals, excluding equipment
rental depreciation.............................. 14.8 13.0 13.4 14.0 35.0 45.0
Rental equipment depreciation...................... 11.4 12.4 13.2 13.4 66.8 41.2
Cost of sales of new and used equipment, parts,
supplies and service............................. 29.7 25.2 24.5 23.1 30.1 30.5
----- ----- ----- ----- ----- -----
Total cost of revenues............................... 56.0 50.7 51.1 50.6 38.9 37.0
----- ----- ----- ----- ----- -----
Gross profit......................................... 44.0 49.3 48.9 49.4 71.8 40.1
Selling, general and administrative expenses......... 13.6 16.4 15.7 18.2 85.2 61.1
Depreciation and amortization, excluding equipment
rental depreciation................................ 1.1 1.2 1.5 1.7 64.8 58.9
----- ----- ----- ----- ----- -----
Operating income..................................... 29.3 31.7 31.7 29.5 65.9 28.9
Interest expense, net................................ 7.5 8.9 8.4 8.9 82.9 46.1
----- ----- ----- ----- ----- -----
Income before income taxes and minority interests.... 22.1 22.7 23.5 21.0 57.8 23.9
Net income........................................... 10.7% 10.6% 10.8% 11.0% 51.7% 40.8%
===== ===== ===== ===== ===== =====
Other data:
Rental gross profit................................ 57.6% 61.2% 59.7% 60.2% 72.8% 45.6%
Sales gross profit................................. 22.0 26.7 27.7 25.6 67.8 17.1
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Revenues. Total revenues increased from $25.3 million to $35.0 million or
39% in the nine months ended September 30, 1995 and 1996, respectively. Rental
revenue growth accounted for $7.4 million or 76% of such increase. Rental
revenues increased primarily as a result of the addition of locations in Memphis
(opened in November 1995) and Birmingham (opened in April 1995) and, to a lesser
extent, Knoxville (opened in April 1995). The balance of the rental revenue
increases were attributable to locations open throughout both periods, primarily
due to an increase in the Company's rental fleet. Sales of used rental equipment
increased by $2.1 million or 62% to $5.5 million in the 1996 year-to-date
period, reflecting the opening of new locations and the Company's increased
emphasis on selling used equipment in order to dispose of excess equipment
allocated to Erzinger Equipment and to optimize the average age of the Company's
expanding fleet. Sales of new equipment decreased by $362,000 or 11% reflecting
the Company's determination to allocate available new equipment to its rental
fleet, which generates higher profit margins, rather than selling such new
equipment. Sales of parts, supplies, accessories and service increased by
$558,000 or 31% due to the expansion of the Company's business.
Gross Profit. Gross profit increased from $12.3 million to $17.3 million or
40% due principally to revenue growth. Gross margin increased from 48.9% to
49.4%, as rental gross margin increased from 59.7% to 60.2%, partially offset by
a sales gross margin decrease from 27.7% to 25.6%. Rental gross margin was
adversely affected by the operations of Erzinger Equipment during 1996, which
reported rental gross margin of 42.4% under its former management, due to
substantial underutilization of equipment allocated to it based upon poor
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<PAGE> 23
forecasting of its equipment needs. In September 1996, the Company terminated
the former managers in connection with the acquisition of the 30% minority
interest of Erzinger Equipment. Rental gross margin for the Company's operations
other than Erzinger Equipment during 1996 improved compared to amounts reported
for 1995 due to efficiencies based upon greater volume. Sales gross margin
declined from 27.7% to 25.6% principally due to greatly reduced selling prices
in the 1996 period as the Company emphasized selling used equipment in order to
resell excess rental equipment allocated to Erzinger Equipment and offer rental
customers the latest equipment available.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 61% from $4.0 million to $6.4 million in the
1996 period, primarily reflecting costs incurred to support the growth in the
Company's business. As a percentage of total revenues, these expenses increased
from 15.7% to 18.2%, reflecting the lag between incurrence of expenses and the
related growth in revenues from locations opened in late 1994 and 1995, as well
as inefficiencies at the Erzinger Equipment operation under its prior
management.
Depreciation and Amortization. Depreciation and amortization, excluding
rental equipment, increased from $375,000 to $596,000 in the nine months ended
September 30, 1995 and 1996, respectively. As a percentage of sales,
depreciation and amortization, excluding rental equipment increased from 1.5% to
1.7%. This increase resulted primarily from the addition of locations during
1995, in particular, related transportation equipment and furniture, fixtures
and equipment.
Interest Expense. Interest expense increased 45% from $2.2 million to $3.1
million in the nine months ended September 30, 1995 and 1996, respectively. This
increase was attributable primarily to increased borrowings utilized to purchase
new equipment for the Company's rental fleet, both at new and existing
locations.
Income Taxes. Income tax expense was unchanged at $2.1 million in both the
nine months ended September 30, 1995 and 1996. The Company's effective tax rate
decreased from 35.4% in the 1995 period to 29.2% in the 1996 period, due to the
profit contribution of M&F Equipment, an S corporation organized in March 1995.
On a pro forma basis, as if M&F Equipment were taxed as a C corporation, the
effective tax rates would have been approximately equivalent. M&F Equipment's
status as an S corporation was terminated as of December 31, 1996 pursuant to
the Combination.
Net Income. As a result of the foregoing, net income increased 41% from
$2.7 million to $3.9 million in the nine months ended September 30, 1995 and
1996, respectively.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Total revenues increased 53% from $23.2 million in 1994 to $35.7
million in 1995. Rental revenue growth accounted for $9.0 million or 73% of such
increase. The rental revenue comparison reflects the operation of locations in
Mobile (opened February 1994), Nashville (opened December 1994), Knoxville
(opened April 1995) and Birmingham (opened April 1995). In addition, existing
locations reported significant growth due to the Company's ability to generate
rental revenues from an expanding fleet. The Company also reported increases in
new equipment sales, rental equipment sales and sales of parts, supplies and
related service as a result of the increase in the scope of its business.
Gross Profit. Gross profit increased 72% from $10.2 million in 1994 to
$17.6 million in 1995 primarily as a result of the increase in revenues, while
gross margin increased from 44.0% to 49.3%. Cost of equipment rentals, excluding
depreciation, as a percentage of rental revenues decreased from 24.0% to 19.9%
reflecting improved leveraging of costs associated with rental operations.
Equipment rental depreciation as a percentage of equipment rental revenue was
relatively unchanged. Sales gross margin increased from 22.0% to 26.7% primarily
as a result of enhanced purchasing power due to larger volume purchases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 85% from $3.2 million in 1994 to $5.9 million
in 1995. As a percentage of total revenues, these expenses increased from 13.6%
to 16.4%. These increases reflected the above-mentioned growth in the number of
the Company's locations, including corporate level costs associated with
managing a more geographically diverse
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<PAGE> 24
group of locations. Additionally, expenditures related to enhancement of the
Company's information systems contributed to the increase.
Depreciation and Amortization. Depreciation and amortization, excluding
rental equipment, increased 65% from $250,000 in 1994 to $412,000 in 1995. This
increase related to the growth in the number of the Company's locations.
Interest Expense. Interest expense increased 83% from $1.8 million in 1994
to $3.2 million in 1995. This increase was attributable to increased borrowings
incurred to expand the Company's rental fleet at newly added locations, as well
as existing locations.
Income Taxes. Income tax expense increased 51% from $1.9 million in 1994 to
$2.9 million in 1995 reflecting the increase in income before income taxes and
minority interests. The Company's effective tax rate was 37.4% in 1994 compared
to 35.7% in 1995. The decrease in the effective tax rate was due primarily to
M&F Equipment, an S corporation which began operations in March 1995.
Net Income. As a result of the foregoing, net income increased 52% from
$2.5 million in 1994 to $3.8 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been the funding of rental fleet
equipment purchases and, to a lesser extent, start-up location costs and
acquisitions. The Company has financed its cash requirements principally with
secured bank borrowings and funds provided by operations. The Company reported
cash and cash equivalents of $1.5 million at September 30, 1996 and $258,000 at
December 31, 1995.
During the nine months ended September 30, 1996, the Company's operating
activities provided net cash flow of $9.9 million compared to $6.9 million for
the corresponding period in the prior year. The increase was due to increased
net income and the timing of cash flows related to operations. For the years
ended December 31, 1994 and 1995, operating activities provided $4.7 million and
$9.3 million of cash, respectively, also primarily attributable to net income
and the timing of cash flows related to operations. Net cash provided by
operating activities excludes proceeds from the sale of used rental equipment,
which generated $5.5 million of cash in the nine months ended September 30, 1996
compared to $3.8 million for the corresponding period of 1995. This increase was
primarily the result of growth in the Company's business.
Investing activities used $18.9 million in the nine months ended September
30, 1996 compared to $16.5 million in the corresponding period of 1995. The
increase was primarily attributable to increased rental fleet equipment
purchases, for existing as well as newer locations. During the years ended
December 31, 1994 and 1995, the Company reported net cash used in investing
activities of $17.2 million and $25.8 million, respectively. In addition, the
Company incurred other capital expenditures of $1.8 million in 1995, and $1.2
million and $1.1 million in the respective 1995 and 1996 nine-month periods.
Such capital expenditures were primarily in connection with new locations.
Financing activities provided $10.9 million for the nine months ended
September 30, 1995 compared to $10.2 million for the nine months ended September
30, 1996. The source of the funds primarily was secured borrowings. Net cash
provided by financing activities was $13.1 million and $15.7 million for the
years ended December 31, 1994 and 1995, respectively. These funds also were
generated primarily from secured borrowings.
In addition to internally generated funds and bank borrowings, the Company
has financed a limited amount of vehicles and equipment for its rental fleet
through capital leases. The Company also incurred approximately $1.1 million of
long-term financing in connection with the acquisition of an aircraft used by
Company personnel in managing the Company's various locations.
The Company, through the Operating Subsidiaries, has various sources of
financing, all of which bear interest at rates which vary based upon changes in
specified reference rates. Falconite Equipment has entered into a Revolving
Credit and Term Loan Agreement with Citizens Bank & Trust Company of Paducah
(the "Citizens Facility"). Falconite Equipment also finances individual
equipment purchases through separate
23
<PAGE> 25
loans from Southwest Bank of St. Louis (the "Southwest Loans"). M&M Equipment
has entered into credit facilities with Citicorp Del-Lease, Inc. (the "Citicorp
Facility") and Deutsche Financial Services (the "Deutsche Facility").
The Citizens Facility consists of a term loan, a swing line, a revolving
line of credit and availability of letters of credit. At December 31, 1996,
approximately $6.9 million was outstanding under the term loan, and the interest
rate on such borrowing was 8.25%. The total amount of credit available under the
revolving line is limited to the lesser of: (i) $13 million; or (ii) an amount
determined pursuant to a formula based primarily on accounts receivable and
inventory. The total amount available under the swing line is limited to the
greater of: (i) $2 million; or (ii) a formula based primarily on accounts
receivable and inventory. The Citizens Facility contains customary financial
covenants regarding tangible net worth, debt ratios and debt coverage. The
Citizens Facility also contains covenants and provisions that restrict, among
other things, Falconite Equipment's ability to: (i) incur additional
indebtedness; (ii) incur liens on its property; (iii) engage in certain sales or
purchases of assets; (iv) declare or pay dividends (including dividends to the
Company); (v) merge or consolidate with or acquire another person or engage in
other fundamental changes; (vi) make investments; and (vii) engage in certain
transactions with affiliates. The Citizens Facility restricts Falconite
Equipment's capital expenditures (other than for the purchase of inventory) to
$350,000 during each fiscal year, without the lender's consent. The Citizens
Facility provides for certain customary events of default. Borrowings under the
Citizens Facility are secured by all of the personal property of Falconite
Equipment located in Kentucky and Tennessee. The obligations of Falconite
Equipment under the Citizens Facility are guaranteed by Michael A. Falconite,
Joseph A. Falconite and Betty L. Falconite. As of December 31, 1996, the
principal amount outstanding under the Citizens Facility was $21.1 million, and
the interest rate on such borrowings was 8.25%. As of December 31, 1996, an
additional $747,000 was available to Falconite Equipment under the Citizens
Facility.
Since the acquisition of the 70% interest in Erzinger Equipment in 1993,
Falconite Equipment has financed some of its equipment purchases through
Southwest Bank of St. Louis. In general, Falconite Equipment enters into a
separate and distinct Southwest loan with respect to each individual purchase of
equipment. The obligations of Falconite Equipment under the Southwest Loans are
secured by all of the personal property of Falconite Equipment located in
Missouri and are guaranteed by Michael A. Falconite, Joseph A. Falconite and
Betty L. Falconite. As of December 31, 1996, the aggregate principal amount
outstanding under the Southwest Loans was $8.3 million, and the interest rate on
the Southwest Loans was 8.75%.
The Citicorp Facility is comprised of a revolving line of credit extended
to M&M Equipment. The total amount of credit available under the Citicorp
Facility is limited to a borrowing base equal to the lesser of (i) $9 million;
or (ii) a formula based on accounts receivable, parts inventory and rental
equipment inventory. The obligations of M&M Equipment under the Citicorp
Facility are secured by all of the inventory of M&M Equipment. The Citicorp
Facility has customary financial covenants regarding tangible net worth, debt
ratios and debt coverage. The Citicorp Facility also contains covenants and
provisions that restrict, among other things, M&M's ability to: (i) incur liens
on its property; (ii) engage in certain sales of assets; (iii) merge or
consolidate with or acquire another person or engage in other fundamental
changes; and (iv) engage in certain transactions with affiliates. The Citicorp
Facility restricts M&M's capital expenditures (other than for the purchase of
inventory to replace inventory which has been sold) to $4.5 million during its
1996 fiscal year, without the lender's consent. The Citicorp Facility provides
for certain customary events of default. At December 31, 1996, the principal
amount outstanding under the Citicorp Facility was $9.0 million, and the
interest rate on such borrowings was 8.4%. At December 31, 1996, no additional
borrowings were available to M&M Equipment under the Citicorp Facility.
The Deutsche Facility is comprised of a line of credit, which amount is
determined in Deutsche's sole discretion, extended to M&M Equipment for the
purchase of equipment from certain designated manufacturers. The obligations of
M&M Equipment under the Deutsche Facility are secured by all of M&M Equipment's
inventory and equipment manufactured by such designated manufacturers, including
all accounts, rights, instruments and proceeds arising from such inventory and
equipment. The Deutsche Facility has customary financial covenants and
provisions regarding tangible net worth and debt ratios. The obligations of M&M
Equipment under the Deutsche Facility are guaranteed by Falconite Equipment,
Ralph W.
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<PAGE> 26
McCurry and Wanda R. McCurry. At December 31, 1996, the principal amount
outstanding under the Deutsche Facility was $4.0 million, and the interest rate
on such borrowings was 8.125%.
The Company intends to apply approximately $ million of the net
proceeds received by it from the Offering to reduce outstanding bank borrowings,
together with accrued interest thereon.
After the Offering, the Company expects to have improved liquidity and
capital resources due to the repayment of substantially all its debt. As part of
its growth strategy, the Company is continually involved in the investigation
and evaluation of new start-up locations and potential acquisitions. The Company
expects to add one location in 1997 and eight locations in 1998. The Company's
liquidity and capital resources have been and will continue to be significantly
impacted by its growth strategy and operating strategy of offering a
comprehensive selection of large, high revenue per unit equipment.
The Company currently estimates that it will incur capital expenditures of
approximately $41.6 million in 1996 ($22.4 million of which was expended through
September 30, 1996) for rental fleet expansion. The Company's commitments for
capital expenditures, at December 31, 1996, were $11.6 million. The Company
expects to enter into short-term financing arrangements with its primary lenders
for approximately $30 million to fund its equipment purchase requirements
pending completion of the Offering. Such financing would be included in the
borrowings to be repaid with the proceeds of the Offering. The Company currently
estimates that it will incur cash outlays for capital expenditures for additions
to its rental fleet of $56 million in 1997 and $67 million in 1998. The Company
believes that internal cash flow from operations, together with the proceeds of
the Offering and bank facilities expected to be available, will be sufficient to
support its operations and capital requirements through 1998. However, if
significant acquisition opportunities arise, the Company may need to seek
additional capital to complete them. Such acquisitions could be financed through
incurrence of additional indebtedness or issuance of common or preferred stock
(which may be issued to third parties or to sellers of acquired businesses),
depending on market conditions. Additional indebtedness would increase the
Company's leverage and may make the Company more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. However,
there can be no assurance that the Company's business will generate sufficient
cash flow or that future borrowings or additional capital, if and when required,
will be available on terms acceptable to the Company, or at all.
The Company has begun construction of a remanufacturing center in the
Paducah, Kentucky area which is expected to be completed by the end of the third
quarter of 1997. The Company estimates that the cost to construct and equip such
facility will be approximately $2.0 million, which the Company expects to
finance with internally generated funds and bank borrowings.
ENVIRONMENTAL
The Company and its operations are subject to a variety of federal, state
and local laws and regulations governing, among other things, worker safety, air
emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes. Under
such laws, an owner or lessee of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, such property, as well as related costs of investigation
and property damage. Generators of hazardous substances and wastes may also be
subject to liability for cleanup at facilities where its waste is or has been
disposed. The Company has not, however, received any written or verbal notice
from any government agency or third party of actual or threatened legal
proceedings relating to environmental conditions at owned or leased properties
or off-site waste disposal areas. In addition, the Company will likely incur
additional compliance costs relating to the construction and operations at the
proposed remanufacturing center. The Company believes that the impact of the
cost of additional environmental compliance costs on cash flows will not be
material since cash flows from operations and credit facilities are believed to
provide sufficient financial resources to pay these costs.
COMMITMENTS TO PURCHASE EQUIPMENT
As of December 31, 1996, the Company had commitments to purchase $11.6
million of equipment for its rental fleet, primarily for deployment at the
Company's locations that were opened toward the end of 1996 and
25
<PAGE> 27
will be opened during 1997. Such purchases are expected to be financed through
the proceeds of the Offering, bank borrowings and internally generated funds.
SEASONALITY
Historically, the Company's revenues and operating results have varied from
quarter to quarter and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including: general
economic conditions in the Company's markets; the timing of start-up locations
and acquisitions and related costs; the effectiveness of integrating start-up
locations and acquired locations; the timing of fleet expansion capital
expenditures; the realization of targeted equipment utilization rates; seasonal
rental patterns of the Company's customers; weather; and price changes in
response to competitive factors. In addition, operating results have reflected
seasonal slowdowns during winter months.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("SFAS") 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted SFAS 121 in the first
quarter of 1996 and the effect of adoption was not material.
In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25 in accounting
for stock-based compensation issued to employees. SFAS 123 allows for a fair
value based method of accounting for employee stock options and similar equity
instruments. The Company intends to apply the recognition and measurement
provisions of APB Opinion No. 25 to all employee stock options and similar
equity instruments awarded after December 31, 1995.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation
on its operations, it does not believe that inflation has had, or is likely in
the foreseeable future to have, a material impact on its results of operations.
The Company's operating results may be adversely affected by events or
conditions in a particular region, such as regional economic downturns, weather
and other factors. In addition, the Company's operating results may be adversely
affected by increases in interest rates that may lead to a decline in economic
activity, while simultaneously resulting in higher interest payments by the
Company under variable rate credit facilities.
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<PAGE> 28
BUSINESS
GENERAL
Falconite is a leading rental equipment company serving a diverse range of
more than 5,000 active commercial customers from locations in nine southern and
midwestern states. The Company's rental fleet includes over 3,000 units and
consists primarily of large equipment, such as aerial work platforms, cranes and
forklifts, as well as other industrial and construction equipment. The Company
rents equipment on a daily, weekly and monthly basis and, occasionally, for
periods of up to one year. The Company also is a distributor of new equipment
for several leading manufacturers and sells used equipment from its rental
fleet, in addition to complementary parts, supplies and accessories. The
Company's customers operate in a wide range of industries, including commercial
construction, chemical, petrochemical, pulp and paper, automotive and utilities.
The Company focuses on renting large equipment, which generates high
revenue per unit, and believes that it differentiates itself by seeking to offer
the most comprehensive and well maintained fleet of such equipment in its market
areas. Aerial work platforms, which include scissor lifts, boom lifts and
personnel lifts, together with cranes and forklifts comprised approximately 90%
of the Company's rental fleet as of September 30, 1996, based on original cost.
The original per unit cost of such equipment ranges up to $1.2 million, with an
average per unit cost of approximately $40,000 as of September 30, 1996. At such
date, the Company's fleet had an average age of approximately 18 months and an
original cost of $77.8 million.
Falconite currently operates from 17 locations, eight of which were opened
in November and December 1996, and plans to open one additional location during
1997. The Company tailors its equipment fleet at each location to meet the needs
and preferences of the local customer base. The Company's locations are managed
by experienced professionals who average approximately 15 years of service in
the rental equipment industry, and who have knowledge of their local markets and
substantial established customer contacts. The Company's products and services
are marketed through a dedicated sales force consisting of approximately 70
individuals. Each location generally serves customers within a 100-mile radius
and offers a broad selection of equipment for rental and sale, as well as repair
and maintenance services.
The Company has sought to position its product and service offerings to
capitalize on the trend among businesses to outsource non-core operations.
Outsourcing of equipment needs allows customers to more efficiently deploy
capital, substitute variable costs for fixed costs, eliminate maintenance and
storage costs associated with equipment ownership and ensure access to new and
modern equipment. The Company believes that this trend has created significant
growth opportunities in the equipment rental industry. The industry, which is
highly fragmented, generated revenues estimated at $15 billion in 1995, with the
largest 100 companies accounting for approximately 20% of such amount, according
to published reports.
From 1993 to 1995, the Company's revenues increased at a compound annual
rate of 86.2%, from $10.3 million to $35.7 million, while its operating income
increased at a compound annual rate of 89.2%, from $3.2 million to $11.3
million. The Company believes it can continue its growth in revenue and income
by pursuing the following business and growth strategies:
BUSINESS STRATEGIES
- Focus on Large, High Revenue Per Unit Equipment. The Company focuses on
renting large equipment, which generates higher revenue per unit than smaller,
less costly equipment. The Company's average per unit rental revenue was
approximately $12,300 in 1995. The Company believes this focus allows it to
favorably leverage its overhead costs over a larger stream of rental revenue per
unit. In addition, the Company believes that there is strong demand for renting
this larger equipment because it enables customers to avoid the significant
capital investments required to purchase such equipment, as well as ongoing
expenses for maintenance, repair and storage.
- Operate as an Efficient Low Cost Provider. As a distributor with high
volume purchases of equipment in its primary product categories, Falconite is
able to acquire a significant portion of its equipment directly
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<PAGE> 29
from manufacturers at wholesale prices. This purchasing power enhances the
Company's ability to offer competitive rental rates and resell its used
equipment at favorable margins. Moreover, the Company's focus on large equipment
with high revenue per unit has enabled it to operate more efficiently and with a
lower level of staffing than that required by other equipment rental companies
that have lower revenue per unit fleets.
- Serve Diverse Commercial Customer Base. Falconite primarily serves
commercial customers that operate in a wide variety of commercial construction
and industrial sectors. By serving commercial accounts, the Company is able to
provide large equipment and maximize its revenue per customer. Also, by serving
a well diversified base of customers, the Company is able to reduce its
dependence on a single industry. In addition, Falconite is not dependent on a
single large customer, with no customer accounting for more than 2% of
Falconite's revenues in 1995 or 1996. Falconite provides its products and
services to companies such as Amoco Corporation, Brown & Root, Inc., Champion
Papers, Inc., Chrysler Corporation, Fluor Daniel, Inc. and the Tennessee Valley
Authority.
- Offer Superior Products and Customer Service. The Company attracts new
customers and retains existing customers by offering: (i) a comprehensive
selection of aerial work platforms, cranes and forklifts, which in many cases is
not available from its competitors in the Company's market areas; (ii) timely
delivery of rental equipment seven days a week, generally within 24 hours,
through its own radio-dispatched fleet; (iii) high quality equipment from
leading manufacturers including JLG, Genie, Manitex, Broderson, Gehl and Lull;
(iv) well maintained and modern equipment, which as of September 30, 1996, had
an average age of approximately 18 months; (v) on-site maintenance and repair
services available 24 hours a day; and (vi) equipment safety and training
programs.
GROWTH STRATEGIES
- Expand Through New Locations. The Company intends to expand by opening
new locations in selected markets. In 1997, the Company plans to focus on the
growth and development of the eight locations opened in November and December
1996, of which five were start-up and three were acquired locations. The Company
also intends to open one additional location during 1997 and eight additional
locations in 1998. The Company generally establishes new locations in markets
contiguous to its existing markets, which has allowed it to rent equipment into
these markets prior to opening a new location. As a result, the Company gains
valuable customer and market information, builds name recognition among its
customer base in new markets and facilitates the opening of new locations with a
significant initial base of business.
- Pursue Selected Acquisitions. The Company intends to selectively pursue
acquisitions of rental equipment companies located in its current markets, as
well as in other markets perceived to offer favorable business potential. The
equipment rental industry is highly fragmented and consists primarily of a large
number of relatively small independent businesses serving local markets. Five of
the Company's locations were obtained through acquisitions since 1993. The
Company believes that there are significant opportunities for larger,
well-capitalized companies such as Falconite to grow through the acquisition of
other rental equipment companies.
- Expand Relationships With Existing Customer Base. The Company seeks to
broaden the selection of lighter equipment and complementary products and
services provided to existing customers. For example, the Company cross-sells
products such as safety equipment and small tools to its rental customers. The
Company believes that this strategy will enhance its ability to leverage its
customer relationships, and thereby increase revenues without significant
incremental operating expenses.
- Establish New Equipment Remanufacturing Center. The Company has begun
construction of an equipment remanufacturing center scheduled to be completed
during the third quarter of 1997. This facility will enhance the Company's
ability to perform major repair and maintenance operations and ensure that
Falconite's rental fleet remains in top condition. Management anticipates that
the center will increase resale profit margins by maximizing the value of the
used equipment the Company sells from its rental fleet. The Company also expects
that the center will provide an additional source of revenue by allowing
Falconite to perform repair and rebuild services for third party equipment
owners.
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<PAGE> 30
INDUSTRY OVERVIEW
The equipment rental industry is comprised of a large number of companies,
ranging in size from large national and regional companies to small, independent
operators with a single location. Equipment rented includes a wide variety of
items used in commercial construction, industrial and homeowner markets.
According to published estimates, rental revenues increased from approximately
$13 billion in 1993 to $15 billion in 1995.
The Company believes that various aspects of the rental equipment industry
offer significant opportunities for growth. For example, the Company has sought
to position its product and service offerings to capitalize on the trend of many
businesses to outsource non-core operations in order to more efficiently deploy
capital and eliminate maintenance, repair and storage costs associated with
equipment ownership.
Although historically many rental equipment customers utilized rented
equipment for special needs (for example, adding capacity at peak periods) there
has been a trend for equipment users to rely on rentals on a more regular basis
due to economic advantages and convenience. According to recent surveys
conducted by The CIT Group, contractors intended to increase the percentage of
equipment they rent without a purchase option from less than 5% in 1995 to 8% in
1996.
The Company believes that its industry offers significant growth
opportunities for large, well-capitalized operators. Relative to smaller
companies with only one or a few rental locations, the Company believes that
larger operators, such as Falconite, benefit from several competitive
advantages, including access to capital, volume purchasing, professional
management, the ability to transfer equipment among rental locations to satisfy
customer demand, the ability to service major accounts and brand identity. The
Company believes that the operations of smaller acquired operations are enhanced
by implementation of the Company's business strategies, including availability
of a larger and more comprehensive product line. According to the Rental
Equipment Register ("RER"), estimated 1995 rental revenues of the top 100 rental
equipment companies increased by 22% to $2.5 billion in 1995 compared to 1994
rental revenues. Notwithstanding such trend, published reports indicate that the
largest 100 companies accounted only for approximately 20% of the estimated
total industry rental revenues. See "-- Competition."
PRODUCTS
Falconite focuses on renting large, high revenue per unit equipment,
including aerial work platforms, cranes and forklifts. The Company also is a
distributor of new equipment on behalf of several leading manufacturers. The
balance of Falconite's revenues are derived from the sale of used equipment from
its rental fleet, as well as complementary parts, supplies, accessories and
service. The following table sets forth the respective contributions of these
sources of revenue in 1994 and 1995 and the nine months ended September 30,
1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------- NINE MONTHS ENDED
1994 1995 SEPTEMBER 30, 1996
------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Equipment rentals.................................... $14,387 61.9% $23,395 65.6% $24,130 68.9%
New equipment sales.................................. 2,716 11.7 4,393 12.3 3,004 8.6
Rental equipment sales............................... 4,606 19.8 5,448 15.3 5,490 15.7
Sales of parts, supplies and equipment............... 495 2.1 979 2.7 964 2.8
Service and other revenues........................... 1,045 4.5 1,446 4.1 1,418 4.0
------- ----- ------- ----- ------- -----
Total........................................ $23,249 100.0% $35,661 100.0% $35,006 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Rental Equipment. The Company focuses on renting large equipment, which
generates high revenue per unit, and believes it differentiates itself by
seeking to offer the most comprehensive and well maintained fleet of such
equipment in its market areas. The Company's rental equipment fleet consists of
more than 3,000 units. Aerial work platforms, cranes and forklifts accounted for
54%, 22% and 14%, respectively, of the original cost of the Company's fleet as
of September 30, 1996. The Company tailors the product mix at each of its rental
locations to satisfy the needs and preferences of the local customer base.
Falconite seeks to maintain a
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modern and efficient rental fleet through ongoing capital investment in new
rental equipment and the regular sale of used rental equipment. In addition, the
Company believes its preventive maintenance programs extend the useful life of
its rental equipment and result in favorable resale margins. The Company offers
a variety of rental terms and conditions to its customers, renting its equipment
on a daily, weekly or monthly basis and, occasionally, for periods of up to one
year. Generally, Falconite's industrial customers tend to rent for longer
periods of time than construction customers. The Company also provides
maintenance, repair and support services to customers, including in many cases,
service at the customer's job site, available 24 hours per day. The following
table sets forth the primary types of equipment rented by the Company.
<TABLE>
<CAPTION>
AERIAL WORK PLATFORMS CRANES
----------------------------------------- -----------------------------------------
<S> <C>
- Scissor lifts (13' to 50') - Industrial cranes (2.5 to 15 tons)
-- Rough terrain - Boom truck cranes (12 to 30 tons)
-- Electric - Rough terrain cranes (15 to 80 tons)
-- Four-wheel drive - Hydraulic truck cranes (15 to 175 tons)
-- Dual fuel
OTHER INDUSTRIAL AND CONSTRUCTION
- Boom lifts (30' to 150') EQUIPMENT
-- Rough terrain - Skid steer loaders
-- Electric - Backhoes
-- Four-wheel drive - Bulldozers
-- Dual fuel - Track loaders
- Personnel lifts - Air compressors
- Light towers
FORKLIFTS - Welders
- Industrial forklifts (1 to 17.5 tons) - Generators
- Rough terrain forklifts (3 to 5 tons) - Concrete equipment
- Compaction equipment
</TABLE>
Sales of New Equipment. The Company is a distributor of new equipment on
behalf of several leading manufacturers, including Genie Industries, Snorkel
Economy, JLG, SkyJack, Strato-Lift, Manitex Crane, Broderson Crane, Komatsu
Forklift, Lull, Sky Trak, Gehl Equipment, Atlas-Copco and Sullivan. Falconite
believes that its new equipment distribution relationships, together with the
volume of its equipment purchases, help it to achieve favorable pricing and
terms on its rental fleet equipment purchases, and enhance equipment resale
margins. Sales of new equipment offer flexibility to the customer and also
provide the Company with expanded relationships and visibility with its
customers.
The Company has distributor agreements with various manufacturers. Certain
of such agreements provide the Company exclusive territories while others are
non-exclusive. The distributorship agreements are terminable at will by either
party after notice periods ranging from 30 to 90 days. The Company's new
locations generally do not become designated by leading manufacturers as new
equipment distributorships for periods of six to 12 months after opening.
Although to date all the Company's locations have been so designated, there can
be no assurance that future locations will be designated new equipment
distributorships.
Sales of Used Equipment. Falconite sells used equipment to optimize the
size and composition of its rental fleet in response to market conditions and to
maintain the quality and condition of its fleet. Management attempts to balance
the objective of obtaining acceptable prices from used equipment sales against
the potential revenues from equipment rentals. Management also is able to adjust
and balance the rate of used equipment sales and new equipment purchases to deal
with changing economic conditions and thereby minimize the short-term adverse
effects of declines in economic activity. Since the beginning of 1994, the
Company has received an average of approximately 90% of the original cost of
equipment upon resale. The Company attributes this recovery rate primarily to:
(i) price inflation in the new equipment market; (ii) its concentration on
larger, heavy equipment which tends to have relatively long economic lives;
(iii) its ability to opportunistically resell equipment at relatively early
stages in the equipment's life; (iv) the favorable pricing terms that the
Company enjoys as a distributor; and (v) its ongoing preventive maintenance
program, which
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significantly increases the remaining useful life of its equipment at the time
of resale. The Company resells used equipment directly to end users and dealers
through its sales force or through brokers.
Sales of Complementary Parts, Supplies and Accessories. The Company also
sells parts, supplies and accessories, including, at selected locations, safety
equipment and small hand tools as a complement to its equipment rental and sale
business. These items tend to be used by rental customers in conjunction with
activities utilizing rental equipment, including plant shutdowns and
maintenance, and represent opportunities for the Company to leverage its
customer relationships to expand revenues without significantly increasing
operating expenses.
Other Services. Falconite also offers repair and maintenance services to
its customers that own equipment and generates revenues from damage waiver
charges, delivery charges and warranty income.
FLEET MANAGEMENT AND INFORMATION SYSTEMS
The Company seeks to manage its rental fleet to optimize the return on its
investment in rental equipment. Each of the Company's locations are connected
via a network to all other locations within its Operating Subsidiary. The
systems enable employees to locate a specific item throughout the region and
determine the status of that item (that is, whether it is currently rented to a
customer, undergoing maintenance or available for delivery). Once identified,
the employee can reserve equipment for a customer and schedule delivery,
typically within 24 hours, to the job site via the Company's radio-dispatched
fleet.
Management continuously interacts with branch managers to monitor equipment
utilization and indicated demand at each location in order to ascertain and
react to trends and imbalances between supply and demand for equipment. The
Company seeks to optimize utilization in terms of dollar return on invested
capital, based upon the experience and industry knowledge of its branch-level
and corporate personnel.
Falconite's custom-configured information systems are used by management to
track the Company's rental fleet. The Company's management is able to access
information regarding financial performance, fleet utilization, sales and
pricing on a real-time basis. Capabilities made available by the systems include
price and sales trends by location, region, salesperson, customer and equipment
category, fleet utilization by individual asset or asset class, maintenance
history and financial and operating results by location and region. The systems
enable the Company to track each item of rental equipment in its fleet on a real
time basis and assess, among other information, each item's current location,
its availability, maintenance history and rental rate. The Company also believes
that its information systems are an integral component in its ability to manage
new locations to ensure that the proper levels of inventory are maintained.
Effective January 1997, the Company began the process of consolidating the
separate management and accounting information systems previously utilized by
the Operating Subsidiaries. Management expects that this consolidation will
enhance its ability to coordinate the operations of the Company's locations,
particularly in light of the Company's recent and planned growth.
PLANNED REMANUFACTURING CENTER
The Company has begun construction of a 45,000 square foot equipment
remanufacturing facility in the Paducah, Kentucky area, which is scheduled to be
completed before the end of the third quarter of 1997. This facility will
enhance the Company's ability to perform major repair and maintenance operations
and ensure that its rental fleet remains in top condition. Management
anticipates that the center will increase resale profit margins by maximizing
the value of the used equipment that the Company sells from its rental fleet.
The Company also expects that the center will provide an additional source of
revenue by allowing Falconite to perform repair and rebuild services for third
party equipment owners, which should enhance the appeal of Falconite as a new
equipment distributor.
The Company expects that the remanufacturing center will require an
investment of approximately $2.0 million to construct and equip. The plans call
for a design incorporating four production lines to simultaneously refurbish
equipment to like new condition by replacing the mechanical and electrical
systems and repainting the exterior.
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<PAGE> 33
CUSTOMERS
Falconite's customers predominantly consist of commercial accounts and
represent a wide variety of industries, including commercial construction,
chemical, petrochemical, pulp and paper, automotive and utilities. Serving a
number of different industries enables the Company to reduce its dependence on a
single industry. In 1996, the Company rented equipment to approximately 5,000
customers, with no one customer accounting for more than 2% of the Company's
total revenues, and the ten largest customers representing less than 10% of
total revenues. The composition of Falconite's customer base varies widely by
location and is determined by several factors, including the business
composition of the local economy. The Company believes the loss of any one
customer would not have a material adverse effect on the Company's business.
The Company's customer base can be separated into two broad categories: (i)
customers using equipment for industrial and manufacturing applications,
including the operating companies themselves and mechanical and electrical
contractors utilizing the equipment for projects involving industrial and
manufacturing facilities; and (ii) commercial construction companies and
contractors. During the first nine months of 1996, the Company estimates that
approximately 50% of revenues were derived from industrial customers with
approximately 50% from construction customers.
Industrial. The Company has benefited from the growing trend among large
industrial corporations to outsource many non-core components of their business,
as well as heightened safety and environmental standards that require additional
maintenance for compliance. Falconite's industrial customers typically use
equipment rented from the Company to construct, install, maintain and repair
major industrial and manufacturing facilities. Many maintenance and repair
projects tend to be less sensitive to economic conditions than other types of
rental applications since they generally are not considered discretionary. Plant
maintenance engagements often involve plant shutdowns and may require the use of
equipment 24 hours per day during this period. In addition to routine
maintenance, booms and aerial work platforms are also used by companies for
routine safety inspections of their equipment. The Company's industrial
customers in this category include facilities operated by Amoco Corporation, The
Boeing Company, Boise Cascade Corporation, Champion Papers, Inc., Chrysler
Corporation, Monsanto Company, Raytheon Company and the Tennessee Valley
Authority, among others.
Commercial Construction. Falconite's commercial construction customers
include national and regional contractors and subcontractors involved in
commercial construction projects, such as shopping centers, apartment and office
buildings, bridges, highways and manufacturing facilities. Falconite's equipment
is used in each phase of a commercial construction project, and includes
backhoes used for digging, compaction equipment used for compacting earth,
trowels used for laying concrete, and welding machines, booms, cranes and lifts
used in the construction of structures. Although the commercial construction
market is cyclical on a regional basis, Falconite believes its geographic
diversity makes it less sensitive to downturns in any one region. The Company's
commercial construction customers include J.S. Alberici Construction Co., Inc.,
Bechtel Corporation, Brown & Root, Inc. and Fluor Daniel, Inc., among others.
SALES AND MARKETING
The Company markets its products and services primarily through an
experienced sales force consisting of approximately 70 individuals, of which
approximately 35 are field-based and the balance are store-based. The
field-based sales force calls regularly on contractors' job sites and industrial
facilities with the objectives of building strong business relationships and
ensuring that such customers' rental needs are fulfilled. The store-based sales
force handles telephone inquiries and assists customers at each rental location
to select the proper equipment to meet their rental needs. Falconite's sales
force is knowledgeable about all of the Company's products and services,
including the rental of equipment, sales of new and used equipment and the sale
of various parts, supplies and accessories. Members of the Company's sales force
are provided with various training programs, including in-house training by
supplier representatives regarding the operating features, safety procedures and
maintenance requirements of new equipment. This training enables the sales force
to develop extensive product knowledge and refine their customer service skills.
Salespeople are provided the opportunity to earn commission on each sale of new
or used equipment that they generate.
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<PAGE> 34
The Company promotes its products and services through direct mail and
advertising. Falconite primarily advertises in regional industry publications,
local newspapers and the yellow pages in the markets it serves. The Company
supplements its sales and marketing activities through participation in industry
trade shows and conferences. In addition to its principal marketing methods, the
Company has introduced an Internet web page (http://www.falconite.com) that
describes the Company's locations, product lines and used equipment available
for sale, as well as allows customers to order equipment.
LOCATIONS
Falconite currently has 17 locations, eight of which were opened in
November and December 1996. The following table sets forth each of the Company's
locations, the date each location was opened or acquired and whether such
location was a start-up or an acquisition.
<TABLE>
<CAPTION>
ACQUISITION OR
DATE OPENED START-UP
LOCATION OR ACQUIRED LOCATION
------------------------------------------------------- ------------- --------------
<S> <C> <C>
Paducah, Kentucky...................................... January 1981 Start-up
Huntsville, Alabama.................................... January 1991 Start-up
St. Louis, Missouri.................................... October 1993 Acquisition
Mobile, Alabama........................................ February 1994 Start-up
Nashville, Tennessee................................... December 1994 Start-up
Birmingham, Alabama.................................... April 1995 Start-up
Knoxville, Tennessee................................... April 1995 Start-up
Memphis, Tennessee..................................... November 1995 Start-up
Calvert City, Kentucky................................. December 1995 Acquisition
Tallahassee, Florida................................... November 1996 Acquisition
Atlanta, Georgia....................................... December 1996 Start-up
Baton Rouge, Louisiana................................. December 1996 Start-up
Clarksville, Tennessee................................. December 1996 Acquisition
Columbus, Mississippi.................................. December 1996 Start-up
Fort Campbell, Kentucky................................ December 1996 Acquisition
Fort Wayne, Indiana.................................... December 1996 Start-up
South Bend, Indiana.................................... December 1996 Start-up
</TABLE>
The Company plans to open one additional location during 1997 and eight
additional locations in 1998. Management continually investigates and evaluates
potential location sites. Site selection is based upon a number of factors,
including: local industrial and construction business activity levels; re-rent
activity (instances where Falconite rented equipment to another rental company
for rental to the end user); site specific characteristics such as visibility,
accessibility and proximity to industrial and commercial customers; and
competition in the area. New location openings will depend upon, among other
things, locating satisfactory sites, negotiating favorable property acquisition
or lease terms, completing any needed improvements to facilities and obtaining
any necessary governmental approvals and permits. The Company expects that it
will continue to staff key management, sales and service positions at the new
locations with experienced equipment industry personnel, many of whom have
worked at existing Company facilities prior to being assigned to the new
location. See "Risk Factors -- Risks Relating to Growth Strategy."
The Company's senior management is actively involved in selecting markets
for new locations, making arrangements for necessary facilities, recruiting key
personnel and developing the new location's business plan, including determining
the rental equipment mix to be provided at such location. While the Company
expects that new units will continue to build business during approximately the
first 24 months after opening, the Company considers a unit to be fully
operational when managerial, sales and technical personnel are in place and the
location offers a full complement of rental equipment.
The Company incurs capital expenditures of approximately $3.0 million for
the initial complement of rental equipment at each start-up location. Rental
equipment assigned to a new location may increase to as
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<PAGE> 35
much as $7.0 million over the first 12 months the location is open depending
upon demand, local market conditions, proximity to other Company locations and
the rate of penetration. In addition to the rental equipment investment, new
locations require various delivery and service trucks, computer systems, service
equipment and working capital requiring aggregate investments of $300,000 to
$350,000 per location.
Each of Falconite's locations offers a broad selection of equipment for
rental and sale, as well as equipment repair and maintenance services. However,
the Company tailors the product mix at each location to meet the needs and
preferences of the local customer base. Each location generally serves customers
within a 100-mile radius. The Company regularly transfers equipment among
locations to maximize utilization of the fleet and provide a high level of
service to customers.
The Company's rental locations are generally situated in industrial,
commercial or mixed-use zones. These locations range from approximately 3,500 to
22,000 square feet, consisting of a customer showroom, an equipment service area
and storage facilities. One of the Company's rental locations is owned, and the
remaining locations are leased with terms expiring from 1997 to 2001. Most of
the leases with unrelated parties include renewal options. In certain instances,
the Company's rental locations are leased from entities in which the Company's
principal shareholders have an interest. See "Certain Transactions."
The Company employs a tiered approach to adding new locations. Under this
approach, the Company analyzes the suitability of markets for larger facilities
with a broad line of rental equipment and full maintenance capability versus
smaller facilities that could profitably service the trade area with a more
limited selection and maintenance capability. In this way, the Company seeks to
adapt its presence to individual markets to optimize profitability.
COMPETITION
The equipment rental industry is highly competitive. The Company's
competitors include: large national companies (such as Hertz Equipment Rental
Corporation, Prime Service, Inc., Rental Service Corporation and BET Plant
Services U.S.A.); regional competitors which operate in one or a few states;
small, independent businesses with one or two rental locations; and equipment
manufacturers and dealers who rent equipment directly to customers, as well as
sell equipment to them. Certain of the Company's competitors have greater
financial resources, are more geographically diverse and have greater name
recognition than the Company. Existing or future competitors also may seek to
compete with the Company for acquisition candidates, which could have the effect
of increasing the price for acquisitions or reducing the number of suitable
acquisition candidates. In addition, such competitors may also compete with the
Company for start-up locations, thereby limiting the number of attractive
locations for expansion.
The Company believes that it competes primarily on the basis of equipment
selection and availability, delivery time, product quality, equipment condition,
customer service and price. The Company believes it competes favorably by
offering customers: (i) a comprehensive selection of aerial work platforms,
cranes and forklifts; (ii) timely delivery of equipment seven days a week,
generally within 24 hours, through its own radio-dispatched fleet; (iii) high
quality equipment from leading manufacturers; (iv) well maintained, modern
equipment; (v) on-site maintenance and repair; and (vi) competitive rental
rates. Relative to smaller companies with only one or a few rental locations,
the Company believes that larger operators such as Falconite benefit from
several competitive advantages, including access to capital, volume purchasing,
professional management, the ability to transfer equipment among rental
locations to satisfy customer demand and substantial maintenance and repair
capabilities.
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company and its operations are subject to a variety of federal, state
and local laws and regulations governing, among other things, worker safety, air
emissions, water discharge, operation of its delivery fleet and the generation,
handling, storage, transportation, treatment and disposal of hazardous
substances and wastes. Under such laws, an owner or lessee of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on or in, or emanating from, such property, as well as
related costs of investigation and property damage. Such laws often impose such
liability without regard to whether
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<PAGE> 36
the owner or lessee knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with its start-up and acquired
locations, the Company may obtain Phase I environmental assessment reports
prepared by independent environmental consultants. A Phase I assessment consists
of a site visit, historical record review, interviews and report, with the
purpose of identifying potential environmental conditions associated with the
subject real estate. There can be no assurance, however, that acquired or leased
locations have been operated in compliance with environmental laws and
regulations or that future uses or conditions will not result in the imposition
of environmental liability upon the Company or expose the Company to third-party
actions such as tort suits.
The Company dispenses petroleum products from above-ground storage tanks
located at certain rental locations that it owns or leases. The Company seeks to
minimize the potential for leaks and spills, maintain records and regularly test
and monitor tanks. There can be no assurance, however, that these tanks have
been or will remain free from leaks or that the use of these tanks has not or
will not result in spills or other releases. The Company also uses hazardous
materials such as solvents and paints to clean and maintain its rental equipment
fleet. In addition, the Company generates and disposes waste such as motor oil,
radiator fluid and solvents, which it disposes of using licensed disposal firms.
However, the Company could be liable under various federal, state and local laws
for environmental contamination at facilities where its waste is or has been
disposed. The Company believes that it currently conducts its operations in
material compliance with all applicable laws and regulations. Compliance by the
Company with applicable environmental laws has not had a material adverse effect
on the Company's financial condition or competitive position to date.
TRADE NAMES
The Operating Subsidiaries currently do business under the name Falconite,
Inc., in Kentucky, Tennessee, Missouri, Indiana and surrounding areas, and under
the name M&M Equipment, Inc., in Alabama, Georgia, Mississippi, Louisiana and
Florida and surrounding areas. The Company believes that the Operating
Subsidiaries have established reputations for quality and service for these
trade names in their respective regions.
EMPLOYEES
At December 31, 1996, the Company and its subsidiaries employed 224 full
time employees, including 69 salespeople, 140 operational employees and 15
corporate and management employees.
Approximately ten of the Company's employees at its St. Louis, Missouri
facility are covered by a collective bargaining agreement between the Company
and the Construction, Building Material, Ice and Coal, Laundry, and Dry
Cleaning, Meat and Food Products Drivers, Helpers, Warehousemen, Yardmen,
Salesmen and Allied Workers, Local Union No. 682, Affiliated with the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America ("Teamsters") which expires April 30, 1998. Approximately five of the
Company's employees at its Paducah, Kentucky facility are covered by a
collective bargaining agreement between the Company and the Teamsters Local
Union No. 181 which expires March, 1998.
The Company has also entered into collective bargaining agreements for
part-time, casual labor with the International Union of Operating Engineers
Local 513-C AFL-CIO (for the St. Louis facility) and the International Union of
Operating Engineers Local 181 AFL-CIO (for the Paducah, Kentucky facility). The
agreements with Local 513-C and Local 181 expire April 30, 1997 and June 30,
1998, respectively.
The Company believes that the foregoing collective bargaining agreements
will be renewed on terms acceptable to the Company, at or about the time of
their expiration. The Company's management considers its relations with its
employees, including those covered by collective bargaining agreements, to be
good.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various lawsuits and are
involved in various other legal matters, in most cases involving ordinary and
routine claims incidental to the business of the Company. Apart
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<PAGE> 37
from claims for employment-related injuries that the Company believes to be
adequately covered by worker's compensation insurance, all but one of these
claims is being defended by the Company's general liability insurer. The
ultimate legal and financial liability of the Company with respect to its
pending litigation matters cannot be estimated with certainty, but the Company
believes, based on its examination of those matters, any ultimate liability will
not have a material adverse effect on either the business or the financial
condition of the Company. See "Risk Factors -- Liability and Insurance."
The Company has received notifications from the Illinois Department of
Revenue and the Tennessee Department of Revenue asserting certain deficiencies
in sales and use taxes. The Illinois Department of Revenue has asserted
deficiencies for use taxes approximating $520,000 plus interest and penalties
arising out of the rental of equipment to customers within such state from July
1991 to May 1995. The Tennessee Department of Revenue has asserted deficiencies
for sales tax of approximately $325,000 plus interest and penalties arising out
of the rental of equipment to customers within such state from 1991 to the
present. The Company is contesting such alleged deficiencies and believes that
the ultimate resolution thereof will not have a material adverse effect on the
Company's financial condition or results of operations after consideration of
accrued expenses recognized in connection with such potential liabilities.
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<PAGE> 38
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information as of the date of this
Prospectus with respect to the directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------ --- --------------------------------------
<S> <C> <C>
Joseph A. Falconite........... 76 Chairman of the Board
Michael A. Falconite.......... 40 President, Chief Executive Officer and
Director
Ralph W. McCurry.............. 45 Executive Vice President and Director
Kevin S. Pugh................. 37 Vice President, Chief Financial
Officer, Secretary and Director
J. David Melber............... 29 Vice President -- Operations and
Director
Bruce A. Wilcox............... 30 Controller
</TABLE>
Messrs. Melber and Pugh serve as directors with terms expiring in 1998; Mr.
Joseph A. Falconite serves as a director with a term expiring in 1999; and
Messrs. Michael Falconite and McCurry serve as directors with terms expiring in
2000. Officers serve at the pleasure of the Board of Directors.
The principal occupations and positions for the past five years and, in
certain cases prior years, of the directors and executive officers named above
are as follows:
Joseph A. Falconite -- Mr. Falconite founded Falconite Equipment in 1957
and served as its President and Chief Executive Officer until his retirement in
1989. He has served as Chairman of the Board since the incorporation of the
Company in December 1996. Joseph A. Falconite is Michael A. Falconite's father.
Michael A. Falconite -- Mr. Falconite has served as the President and Chief
Executive Officer of Falconite Equipment since 1990 and as President, Chief
Executive Officer and a director of the Company since December 1996. Mr.
Falconite joined Falconite Equipment in 1970 and, during his 26 years with
Falconite Equipment, has held virtually every operational position in the
Company.
Ralph W. McCurry -- Mr. McCurry has been engaged in the equipment rental
business since 1986 and has served as the President of M&M Equipment since its
formation in 1991. He has served as Executive Vice President and a director of
the Company since December 1996.
Kevin S. Pugh -- Mr. Pugh has served as Vice President, Chief Financial
Officer and a director of the Company since December 1996. Prior to such time,
he was Vice President of Finance and Operations of Matweld, Inc., a hydraulic
tool manufacturing company in Paducah, Kentucky, from March 1995 to November
1996, and as Treasurer and Chief Financial Officer of Computer Services, Inc., a
data processing firm in Paducah, Kentucky, from August 1988 to March 1995.
J. David Melber -- Mr. Melber has served as Vice President -- Operations
and a director of the Company since December 1996. Mr. Melber has served in
various capacities of increasing responsibility at Falconite Equipment since
October 1990.
Bruce A. Wilcox -- Mr. Wilcox has served as Controller of the Company since
December 1996. For approximately four years prior to such time he was associated
with Williams, Williams and Lentz, a public accounting firm in Paducah,
Kentucky, as an audit manager. Prior to such time, Mr. Wilcox was Assistant
Controller of Surgical Care Affiliates, Inc., a health care provider in
Nashville, Tennessee, from September 1992 to March 1993 and, prior thereto, was
a senior auditor for Deloitte & Touche for approximately four years.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. Following the Offering, the Board of Directors will
establish an audit committee (the "Audit Committee"), to be comprised of at
least two independent directors, to make recommendations concerning the
engagement of independent public accountants, review with the independent public
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<PAGE> 39
accountants the scope and results of the audit engagement, approve professional
services provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of the Company's internal accounting controls.
Compensation Committee. Following the Offering, the Board of Directors will
establish a compensation committee (the "Compensation Committee"), to be
comprised of at least two independent directors, to establish remuneration
levels for executive officers of the Company and implementation of the
Falconite, Inc. Long Term Incentive Plan and any other incentive programs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company and the Operating Subsidiaries have not had a compensation
committee or other committee of the Board of Directors performing similar
functions. Decisions concerning compensation of executive officers were made by
the Operating Subsidiaries' Boards of Directors. Other than Michael A. Falconite
and Ralph W. McCurry there are no officers or employees of the Company who
participated in deliberations concerning such compensation matters.
DIRECTOR COMPENSATION
Directors who are not also employees of the Company will be paid $1,000 per
board or committee meeting attended. In addition, each of the directors who is
not also an employee of the Company (an "Eligible Director") will participate in
the Directors Plan. The Directors Plan provides for the granting of
non-qualified stock options to Eligible Directors. Under the Directors Plan,
each person who is an Eligible Director will receive options to acquire 5,000
shares of Common Stock at the commencement of service as a director of the
Company, and, on the first business day following each date of the Company's
annual meeting of shareholders after the first full year of service as an
Eligible Director, will be granted options to acquire 2,000 shares of Common
Stock. The Directors Plan otherwise does not establish a limit on the aggregate
number of options that may be granted thereunder. Options granted pursuant to
the Directors Plan entitle the director to purchase Common Stock at a price
equal to the Fair Market Value (as defined in the Directors Plan) on the date of
grant. Except for transfers to certain immediate family members and entities
controlled by them, the option by its terms is not transferable by the director
except by will or the laws of descent and distribution. Except in the case of
such permitted transferees, the option is exercisable during the director's
lifetime solely by the director. Each option is immediately exercisable as to
any or all shares and may be exercised at any time or from time to time. Options
that are outstanding and unexercised at the time the holder ceases to be a
director of the Company for any reason terminate on the first to occur of the
expiration date of the option or the expiration of 24 months after the date the
holder ceases to be a director, subject to extension by the Board of Directors.
Unless exercised or terminated sooner, each option expires on the tenth
anniversary of the date of grant.
LIMITATIONS ON LIABILITY
The Company's Articles of Incorporation provide that a director of the
Company will not be personally liable to the Company or its shareholders for
breach of fiduciary duties as a director, except in the case of: (i) a breach of
the duty of loyalty to the Company or its shareholders; (ii) acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law; (iii) a violation of Section 8.65 of the Illinois Act (relating to the
improper distribution of corporate assets); or (iv) any transaction from which
the director derived an improper personal benefit.
The Articles of Incorporation also provide that, subject to certain
exceptions, the Company shall indemnify, to the fullest extent permitted by law,
any person who is or was a director, executive officer, employee or agent of the
Company or any subsidiary, or who is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred by such person in connection with any civil, criminal,
administrative or investigative action, suit, proceeding or claim by reason of
the fact that such person is or was serving in such capacity. Such provisions
have no effect on any non-monetary remedies that may be available to the Company
or its shareholders, nor does it relieve the Company or its officers, directors
or agents from compliance with federal
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<PAGE> 40
or state securities laws. The Company has obtained director and officer
liability insurance that insures the Company's directors and officers against
certain liabilities.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the other executive officers of the Company
who earned more than $100,000 (salary and bonus) (the "Named Executive
Officers") for all services rendered in all capacities to the Company during the
year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)
--------- -------- ---------------
<S> <C> <C> <C>
Michael A. Falconite(1)
President and Chief Executive Officer........ $254,220(2) $425,000 $73,173(3)
Ralph W. McCurry(1)
Executive Vice President..................... 130,000 210,000 79,023(3)(4)
J. David Melber
Vice President -- Operations................. 117,760 46,059 --
</TABLE>
- ------------------------------
(1) Effective January 1, 1997, the base annual salary of Michael A. Falconite
and Ralph W. McCurry will be $250,000 and $215,000, respectively, subject to
periodic adjustment by the Board of Directors.
(2) Includes $60,000 in management fees paid by Erzinger Equipment and M&M
Equipment, which were discontinued in December 1996 upon completion of the
Combination.
(3) Represents amounts received from various equipment manufacturers pursuant to
equipment rebate programs. All future payments from manufacturers will be
paid to the Company.
(4) Includes $5,850 in matching contributions to M&M Equipment's Section 401(k)
Savings Plan.
LONG TERM INCENTIVE PLAN
In December 1996, the Board of Directors and shareholders of the Company
approved the Plan. The purpose of the Plan is to encourage certain employees of
the Company to acquire shares of Common Stock or to receive payments based on
the value of Common Stock or upon achieving certain goals on a basis mutually
advantageous to such employees and the Company and thus provide an incentive for
continuation of the efforts of employees for the success of the Company and for
continuity of employment. The Plan is administered by the Board or a committee
appointed by the Board of Directors (in either case, the "Committee") and
provides that participants under the Plan may be eligible to receive: (i) stock
options ("Stock Options"); (ii) stock appreciation rights ("SARs"); (iii)
restricted shares of Common Stock of the Company ("Restricted Stock"); and (iv)
performance awards ("Performance Awards"). The Committee has the full authority
and discretion, subject to the terms of the Plan, to determine those individuals
who are eligible to be granted awards under the Plan and the terms of each
award. A total of shares of Common Stock are reserved for issuance
under the Plan, subject to adjustment in the event of any change in the
outstanding shares of the Company by reason of stock dividend, stock split,
reorganization, sale, merger, consolidation or other similar occurrence
affecting shareholders of the Company generally. As of December 31, 1996, no
options were outstanding.
Stock Options granted under the Plan shall entitle the holder thereof to
purchase shares of Common Stock at the "Base Price" established therefor by the
Committee. The Plan provides for the granting of Stock Options which qualify as
incentive stock options, as well as the granting of non-qualified stock options.
The Base Price for incentive stock options shall not be less than the "Fair
Market Value" (as defined in the Plan)
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<PAGE> 41
of Common Stock at the time of the grant. Under the Plan, no individual may be
awarded more than shares in the form of Stock Options. In addition,
for any employee, the aggregate Fair Market Value of Common Stock subject to
incentive stock options pursuant to the Plan or any other stock option plan of
the Company that are exercisable for the first time in any calendar year may not
exceed $100,000.
A SAR gives to the holder thereof a right to receive, at the time of
surrender, cash or Common Stock or a combination thereof equal in value to the
difference between the Fair Market Value of Common Stock at the date of
surrender of the SAR and the "Base Price" established by the Committee therefor
at the time of grant. The Base Price established on any SAR shall not be less
than the Fair Market Value of Common Stock on the date of the grant of the SAR.
The Committee may impose any limitation that it may determine in its discretion
on the maximum amount of appreciation to be paid pursuant thereto. The term of a
SAR shall be established by the Committee, but in no event shall its term exceed
ten years from the date of grant.
The Committee may issue shares of Restricted Stock to an employee at a
purchase price, if any, determined by the Committee. Such Restricted Stock may
be subject to forfeiture or repurchase in the event of the termination of
employment within a specified period, or in the event any other conditions
specified by the Committee at the time of grant are not subsequently met. During
the period of restriction, holders of Restricted Stock shall be entitled to
receive and retain all dividends and other distributions made in respect of such
stock and to vote such stock without limitations.
The Committee may grant Performance Awards which may consist of shares of
Common Stock, monetary units or a combination thereof in the event that certain
performance goals established by the Committee are achieved during periods
determined by the Committee (not to exceed five years from the date of grant).
The goals established by the Committee shall be based upon one or more financial
measures of the Company. In the event the goal is not achieved at the conclusion
of the designated performance period, no payment shall be made to the
participant.
In the event of a "Change of Control" (as defined in the Plan), the
following shall occur, unless the Board of Directors acts to waive such
provisions: (a) Stock Options, if not otherwise exercisable, become immediately
exercisable; (b) unexercised Stock Options automatically include a SAR feature
for a period of six months and seven days after the date of Change of Control,
which is in addition to any SAR separately granted in connection with such Stock
Option; (c) SARs become, if not otherwise then surrenderable, immediately
surrenderable; (d) Performance Awards are deemed earned to the fullest extent
scheduled in the award; and (e) restrictions lapse on Restricted Stock already
earned, and such Restricted Stock becomes immediately vested.
The Plan is to remain in effect until: (a) the Board terminates the Plan;
or (b) December 30, 2006, whichever shall first occur. The Board at any time may
terminate and, from time to time, may amend or modify its terms; provided,
however, that no such action of the Board may, without the approval of the
shareholders of the Company: (a) increase the total amount of stock or increase
the amount and type of awards that may be issued under the Plan; (b) change the
provisions of the Plan regarding the minimum price, if any, of awards; or (c)
change the class of employees entitled to participate in the Plan.
40
<PAGE> 42
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's capital stock outstanding immediately prior to the
Offering and as adjusted to reflect the sale of Common Stock offered hereby by:
(i) each person known by the Company to own beneficially 5% or more of any class
of the Company's voting securities; (ii) each director and Named Executive
Officer of the Company; and (iii) all directors and executive officers of the
Company as a group. Except as otherwise indicated, each shareholder listed below
has informed the Company that such shareholder has sole voting and investment
power with respect to such shareholder's shares of stock (except to the extent
that authority is shared by spouses under applicable law) and record and
beneficial ownership with respect to such shareholder's shares of stock.
<TABLE>
<CAPTION>
PERCENT OF CLASS
---------------------
PRIOR TO AFTER
NAME AND ADDRESS SHARES BENEFICIALLY OWNED(1)(2) OFFERING OFFERING
- ------------------------------------------------ ------------------------------- -------- --------
<S> <C> <C> <C>
Joseph A. Falconite(3)(4).......................
Michael A. Falconite(3)(5)......................
Ralph W. McCurry(3)(6)..........................
J. David Melber.................................
All directors and executive officers as a group
(6 persons)...................................
</TABLE>
- ------------------------------
* Less than 1.0%.
(1) A person is deemed as of any date to have "beneficial ownership" of any
security that such person has a right to acquire within 60 days after such
date. Shares that each identified shareholder has the right to acquire
within 60 days of the date of the table set forth above are deemed to be
outstanding in calculating the percentage ownership of such shareholder, but
are not deemed to be outstanding as to any other person.
(2) For purposes of this table, information as to shares of Common Stock
assumes: (i) the persons in the table do not purchase shares in the
Offering; and (ii) no exercise of the Underwriters' over-allotment option.
(3) See "Underwriting" for information with respect to options granted by Joseph
A. Falconite and Michael A. Falconite pursuant to respective revocable
trusts established by them, Mr. McCurry and Falconite Investments, L.P., a
Colorado limited partnership of which Michael A. Falconite's revocable trust
is the managing general partner ("Falconite Investments"), to the
Underwriters to purchase up to shares to cover over-allotments, if
any. If such option is exercised in full, Joseph Falconite would own
shares ( % of the shares to be outstanding after the
Offering), Michael Falconite would own shares ( % of the
shares to be outstanding after the Offering), Mr. McCurry would own
shares ( % of the shares to be outstanding after the Offering)
and all directors and officers as a group would own shares ( %
of the shares to be outstanding after the Offering).
(4) Such shares are held by the Joseph A. Falconite Revocable Trust of which
Joseph A. Falconite is the trustee and has sole voting and investment power.
(5) Includes (i) shares held by the Michael A. Falconite Revocable
Trust of which Michael A. Falconite is the trustee and has sole voting and
investment power and (ii) shares held by Falconite Investments.
(6) Includes shares held by the Ralph W. McCurry Children's Trust of
which Mr. McCurry's spouse is the trustee and has sole voting and investment
power.
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<PAGE> 43
CERTAIN TRANSACTIONS
LEASES AND SALES TRANSACTIONS WITH CERTAIN SHAREHOLDERS
The Company historically has leased certain properties from companies owned
or controlled by shareholders of the Company. The Company leases its facilities
in Nashville and Memphis, Tennessee and Calvert City, Kentucky, as well as
storage property in Paducah, Kentucky, from F&F Leasing, a Kentucky partnership
("F&F"), of which each of Michael A. Falconite and Joseph A. Falconite own 50%
of the interests. Such leases are for five-year terms expiring from May 2000 to
August 2001 and provide for monthly rental payments ranging from $2,500 to
$10,000. During 1994, 1995 and 1996, the Company paid F&F an aggregate of $0,
$61,000 and $182,000, respectively, under such leases. The Company has
guaranteed borrowings by F&F to acquire and improve these properties, which
borrowings currently are in the amount of $1.8 million.
The Company leases its facility in St. Louis, Missouri from E.F. Leasing,
Inc., a Kentucky corporation ("E&F"), of which Michael A. Falconite is the sole
shareholder. The current lease between the parties provides for a five-year term
expiring in December 2000 and rental payments of $17,500 per month. During 1994,
1995 and 1996, the Company paid E&F an aggregate of $0, $27,121 and $187,795,
respectively, under such lease.
The Company leases its facilities in Huntsville and Birmingham, Alabama
from M&F Investments, L.L.C., an Alabama limited liability company ("M&F"), of
which Michael A. Falconite and Ralph W. McCurry each own 50% of the interests.
Such leases are for terms ranging from one to three years, expiring from
February 1997 to December 1998, and provide for monthly rental payments ranging
from $3,500 to $6,325. During 1994, 1995 and 1996, the Company paid M&F an
aggregate of $0, $6,000 and $83,000, respectively, under such leases.
In January 1996, the Company entered into a Sale Agreement with M&F
pursuant to which the Company sold the property it currently leases in
Huntsville, Alabama to M&F. M&F paid the Company $423,465 in connection with the
purchase of this property.
The Company currently anticipates that upon completion of the Offering,
leases with respect to new locations will be entered into with only unrelated
third parties. In addition, from time to time, the Company will evaluate the
advisability of renewing existing leases with related parties or acquiring the
properties subject to such leases. Any such renewals or acquisitions would be at
amounts determined to approximate the fair market value of such properties.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS TO THE COMPANY
Certain of the directors and executive officers of the Company and
companies owned or controlled by such individuals were indebted to the Company
for varying amounts during the last three fiscal years. Michael A. Falconite's
largest aggregate indebtedness outstanding during such period equalled $252,126,
and the amount of such indebtedness outstanding on December 31, 1994, 1995 and
1996 was $0, $0 and $76,692, respectively. This indebtedness was not evidenced
by a written instrument and did not require the payment of any interest by Mr.
Falconite.
The Company has loaned M&F various amounts during the last three years. The
largest aggregate indebtedness outstanding during such period equalled $125,000,
while no amounts were outstanding on December 31, 1994, 1995 and 1996. The rate
of interest paid on this indebtedness was 6% per annum.
The Company has loaned F&F various amounts during the last three years. The
largest amount of indebtedness outstanding during such period equalled $177,880
and the amount of indebtedness outstanding on December 31, 1994, 1995 and 1996
was $32,000, $32,000 and $0, respectively. This indebtedness does not bear
interest.
The Company does not expect to loan any additional amounts to affiliated
parties in the future.
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<PAGE> 44
INDEBTEDNESS OF THE COMPANY TO DIRECTOR
In connection with the purchase by the Company of certain equipment from
Joseph A. Falconite, the Company executed separate installment notes bearing
interest at prime plus one-half percent. The largest amount of indebtedness to
Mr. Falconite during such period equalled $488,251 and the amount of
indebtedness outstanding on December 31, 1994, 1995 and 1996 was $201,210,
$142,709 and $56,683, respectively.
The Company does not anticipate that it will enter into any financing
transactions with affiliated parties in the future.
OTHER TRANSACTIONS
From January 1, 1994 to December 31, 1996, an aggregate of $12,600 and
$111,400 was paid to Joseph A. Falconite and Michael A. Falconite, respectively,
for management services rendered to the Company. This arrangement was terminated
as of December 31, 1996.
Falconite Equipment and a trust for the benefit of the descendants of
Joseph A. Falconite (the "Trust") are parties to an agreement whereby Falconite
Equipment pays the premiums on a split-dollar life insurance policy insuring the
lives of Joseph A. and Betty L. Falconite. The Trust reimburses Falconite
Equipment for a portion of each year's premiums. The unreimbursed portion of
each premium payment constitutes an account receivable from the Trust to
Falconite Equipment, which receivable will be paid by the Trust no later than a
reasonable time following the death of the survivor of the insured. During the
years ended December 31, 1994, 1995 and 1996, Falconite Equipment paid premiums
of $140,425, $140,425 and $50,632, respectively. As of December 31, 1996, the
receivable to Falconite Equipment equalled $331,482.
In connection with the Combination, the Company granted the then-existing
shareholders of the Company certain registration rights under the Securities Act
at the expense of the Company. See "Shares Eligible for Future
Sale -- Registration Rights."
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Articles of Incorporation authorizes 50,000,000 shares of Common Stock,
par value $.01 per share, and 1,000,000 shares of preferred stock, par value
$.01 per share. As of December 31, 1996, no shares of Preferred Stock and
shares of Common Stock were issued and outstanding, and
shares of Common Stock were issuable upon exercise of outstanding options. As of
December 31, 1996, there were ten record holders of the Company's Common Stock.
The discussion below describes the capital stock of the Company as it will
exist upon the closing of the Offering. The discussion below does not purport to
be complete, and is subject to and qualified in its entirety by reference to the
Articles of Incorporation and Bylaws of the Company, which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Board of Directors of the Company, in its sole discretion, may issue
Common Stock from the authorized and unissued shares of Common Stock. Each share
of Common Stock is entitled to one vote at all meetings of shareholders of the
Company for the election of directors and all other matters submitted to
shareholder vote. There are no cumulative voting rights. Accordingly, the
holders of a majority of the outstanding shares of Common Stock can elect all
the directors if they choose to do so. The rights, privileges and preferences of
the holders of Common Stock are subject to the rights of the holders of any
shares of preferred stock that may be designated and issued by the Company in
the future. Subject to any restrictions contained in preferred stock issued by
the Company, if any, and to restriction imposed by certain debt agreements of
the Company, holders of Common Stock are entitled to receive dividends when and
if declared by the Board of Directors out of legally available assets of the
Company. The Common Stock has no preemptive or similar rights. There are no
redemption or sinking fund provisions applicable to the Common
43
<PAGE> 45
Stock. Holders of Common Stock are not liable to further call or assessment by
the Company. Upon any liquidation, dissolution or winding up of the Company,
after payment of the debts and other liabilities of the Company and subject to
the rights of holders of shares of preferred stock, if any, holders of Common
Stock are entitled to share pro rata in any distribution to the shareholders.
All outstanding shares of Common Stock are, and the shares offered hereby will
be, when issued and sold, fully paid and nonassessable.
Prior to the date of this Prospectus, there has been no public trading
market for the Common Stock. Subject to notice of issuance, the Common Stock
offered hereby has been approved for quotation and trading on the Nasdaq
National Market under the symbol "FCNT."
PREFERRED STOCK
The Company's Board of Directors, without the approval of the holders of
the Common Stock is authorized to fix the number of shares of any series of
preferred stock and to designate for issuance up to 1,000,000 shares of
preferred stock, par value $.01 per share, in such number of series and with
such rights, preferences, privileges and restrictions (including, without
limitation, voting rights) as the Board of Directors may from time to time
determine. Issuance of preferred stock, while providing flexibility in
connection with possible acquisitions, may adversely affect the rights,
privileges and preferences afforded the holders of Common Stock, including a
decrease in the amount available for distribution to holders of the Common
Stock, including a decrease in the amount available for distribution to holders
of the Common Stock in the event of a liquidation or payment of preferred stock
dividends. Issuance of shares of preferred stock may also have the effect of
preventing or delaying a change in control of the Company without further action
by the shareholders and could make removal of present management of the Company
more difficult.
ILLINOIS LAW AND LIMITATIONS ON CHANGES IN CONTROL
Section 11.75 of the Illinois Act prevents an "interested shareholder"
(defined in Section 11.75, generally, as a person owning 15% or more of a
corporation's outstanding voting shares) from engaging in a "business
combination" with a publicly-held Illinois corporation for three years following
the date upon which such person became an interested shareholder unless: (i)
before such person became an interested shareholder, the board of directors of
the corporation approved the transaction in which the interested shareholder
became an interested shareholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the shareholder becoming an
interested shareholder, the interested shareholder owned at least 85% of the
voting shares of the corporation outstanding at the same time the transaction
commenced (excluding shares held by directors who are also officers of the
corporation and by employee shares plans that do not provide employee
participants with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer); or (iii) on
or subsequent to the date upon which such person became an interested
shareholder, the business combination is approved by the board of directors of
the corporation and authorized at a special meeting of shareholders (not by
written consent) by the affirmative vote of the holders of at least 66 2/3% of
the outstanding voting shares of the corporation not owned by the interested
shareholder. A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to a shareholder. Section 11.75
could prohibit or delay mergers or other takeover or change in control attempts
with respect to the Company and, accordingly, may discourage attempts to acquire
the Company.
The Company's Bylaws will generally require at least 60 days' advance
notice of any action to be proposed at a meeting of shareholders and see forth
other specific procedures that a shareholder must follow. There are also
specific procedures, including advance notice, for the nomination of a person to
the Board of Directors when such person is nominated other than at the direction
of the Board. In addition, the Company's Bylaws provide that a special meeting
of the Company's shareholders may only be called by certain officers of the
Company or by the Board of Directors; no such meeting may be called by
shareholders. These provisions could have the effect of delaying, deferring or
preventing a change in control of the Company or the removal of existing
management.
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<PAGE> 46
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is
.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Common Stock outstanding. All of the shares sold in the Offering will be freely
tradeable by persons other than affiliates of the Company. Shares held by
affiliates will be subject to the resale limitations of Rule 144 under the
Securities Act.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement, dated as of December 31, 1996,
the Company has granted to all of the Company's shareholders prior to the
Offering certain "demand" and "piggyback" registration rights with respect to
Common Stock owned by such shareholders as of such date. Pursuant to such
Registration Rights Agreement, after the expiration of 180 days following the
completion of the Offering the holders of a majority of the Common Stock
outstanding prior to the Offering have the right, subject to certain conditions,
to require the Company to effect registration of their shares of Common Stock
under the Securities Act. In addition, subject to certain conditions, after the
expiration of 180 days following the completion of the Offering such holders
have the rights to request on that the Company include their shares of Common
Stock in any public offering of shares of its capital stock under the Securities
Act (other than with respect to a registration with respect to (i) Common Stock
to be offered and sold by the Company pursuant to an employee benefit plan, or
(ii) Common Stock for the purpose of consummating any acquisition by the
Company).
Upon the completion of the Offering, there will be shares of
Common Stock subject to either demand or piggyback registration rights pursuant
to the Registration Rights Agreement. The Company is required to bear
substantially all fees, costs and expenses of all such registrations (except for
underwriting discounts or commissions), including the reasonable fees and
disbursements of one counsel for all holders of Common Stock subject to such
registration rights.
The Company has reserved an aggregate of shares of Common Stock
for issuance pursuant to the Plan. As of the date hereof, the Company has issued
options to purchase an aggregate of shares of Common Stock under the
Plan. In addition, pursuant to the Directors Plan upon the completion of the
Offering the non-employee directors of the Company will receive options to
purchase 5,000 shares of Common Stock, and will receive additional option grants
with respect to an additional 2,000 shares in each year thereafter in which they
remain as a director, excluding the year in which they first became a director.
Following the Offering the Company intends to file a registration statement on
Form S-8 under the Securities Act to register shares to be issued upon exercise
of options granted pursuant to the Plan and the Directors Plan. To the extent
not held by affiliates or subject to a lock-up agreement, shares of Common Stock
issued under the Plan after the effective date of the registration statement
covering the Plan and the Directors Plan will be available for sale in the
public market without restriction. See "Management -- Long Term Incentive Plan"
and "Management -- Director Compensation."
RULE 144
In general, Rule 144, as currently in effect, provides that a person (or
persons whose sales are aggregated) who is an affiliate or who has beneficially
owned shares that are issued and sold in reliance upon certain exemptions from
registration under the Securities Act ("Restricted Shares") for at least two
years is entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares of Common Stock
(beginning on the 91st day immediately after the Offering) or the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
filing of a notice of intent to sell. Sales under Rule 144 are also subject to
certain manner-of-sale provisions, notice requirements and the availability of
current public information about the Company. However, a person who is not
deemed to have been an "affiliate" of the Company at any time during the three
months preceding a sale,
45
<PAGE> 47
and who has beneficially owned Restricted Shares for at least three years, would
be entitled to sell such shares under Rule 144 without regard to volume
limitations, manner-of-sale provisions, notice requirements or the availability
of current public information about the Company. If a proposed amendment to Rule
144 is adopted, the two- and three-year holding period requirement described
above would be reduced to one and two years, respectively. The Company, each of
the Company's executive officers and directors and certain shareholders have
agreed, subject to certain exceptions in relation to the Company, that they will
not, directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock or any other
securities convertible into or exercisable or exchangeable for Common Stock, or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of such Common Stock, or to cause a registration
statement covering any shares of Common Stock to be filed, for a period of 180
days after the date of this Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. See "Underwriting."
Prior to the Offering, there has been no public market for the shares of
Common Stock, and no predictions can be made as to the effect that the sales of
Common Stock under Rule 144, pursuant to a registration statement or otherwise,
or the availability of shares of Common Stock for sale, will have on the market
price from time to time. Nevertheless, sales of substantial amounts of Common
Stock (including shares issued upon the exercise of stock options) in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices and could impair the Company's future ability to raise
capital through an offering of its equity securities.
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation
and William Blair & Company, L.L.C. are acting as representatives (the
"Representatives") have severally agreed to purchase from the Company
shares of Common Stock. The number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...........
William Blair & Company, L.L.C................................
-------
Total.........................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. If any shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all such shares (other than
shares covered by the over-allotment option described below) must be purchased.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public initially at the price to the public set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not to exceed
$ per
46
<PAGE> 48
share. The Underwriters may allow, and such dealers may re-allow, discounts not
in excess of $ per share to any other Underwriter and certain other
dealers.
The Selling Shareholders have granted to the Underwriters an option to
purchase up to an aggregate of additional shares of Common Stock, at
the initial public offering price set forth on the cover page hereof, less
underwriting discounts and commissions solely to cover over-allotments. Such
option may be exercised at any time within 30 days after the date of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite such Underwriter's name in the preceding table bears
to the total number of shares of Common Stock set forth above.
Subject to certain exceptions, the Company and certain shareholders have
agreed not to directly or indirectly, offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or in any
other manner transfer all or a portion of the economic consequences associated
with the ownership of such Common Stock, or to cause a registration statement
covering any shares of Common Stock to be filed, for a period of 180 days from
the date of this Prospectus, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
The Representatives have advised the Company that the Underwriters will not
confirm sales of Common Stock to any accounts over which they exercise
discretionary authority without the prior specific written approval of the
transaction by the customer.
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active market for the Common Stock
will develop or be sustained or that the market price of the Common Stock after
the Offering will equal or exceed the initial public offering price set forth on
the cover page of this Prospectus. The initial public offering price will be
determined by negotiations between the Company and the Underwriters. Among the
factors to be considered in determining the initial public offering price will
be the history of, and prospects for, the Company and the equipment rental
industry generally, an assessment of the Company's management, its past and
present operations and financial performance, the prospects for future earnings
of the Company, the general condition of the securities markets at the time of
the Offering, and the market prices of and demand for publicly traded common
stock of comparable companies in recent periods. The Common Stock has been
approved for listing on the Nasdaq National Market under the symbol "FCNT."
No action has been taken in any jurisdiction by the Company or the
Underwriters that would permit a public offering of Common Stock offered
pursuant to the Offering in any jurisdiction where action for that purpose is
required, other than the United States. The distribution of this Prospectus and
the offering or sale of Common Stock offered hereby may not be offered or sold,
directly or indirectly, and neither this Prospectus nor any other offering
material or advertisements in connection with the Common Stock may be
distributed or published, in or from any jurisdiction, except under
circumstances that will result in compliance with applicable rules and
regulations of any such jurisdiction. Such restrictions may be set out in
applicable Prospectus supplements. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any applicable restrictions. This Prospectus does not
constitute an offer of, or an invitation to subscribe for purchase, any shares
of Common Stock and may not be used for the purpose of an offer to, or
solicitation by, anyone in any jurisdiction or in any circumstances in which
such offer or solicitation is not authorized or is unlawful.
No underwriter may offer or sell and, prior to the date six months after
the latest closing date, offer or sell any Common Stock in the United Kingdom by
means of any document other than to persons whose ordinary activity is to
acquire, hold, manage or dispose of securities or debentures, whether as
principal or agent, for purposes of their business or otherwise in circumstances
that do not constitute an offer to the public within the meaning of the public
offers of Securities Regulations 1996. Each underwriter will (i) comply with all
applicable provisions of The Financial Services Act 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom and (ii) only issue or pass on in the
47
<PAGE> 49
United Kingdom any document received by it in connection with the issue of the
common stock to any person of a kind described in Article II(3) of The Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996, or to any
person to whom the document may otherwise lawfully be issued or passed on.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Thompson Coburn, St. Louis, Missouri. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois.
EXPERTS
The combined financial statements of the Company as of December 31, 1995
and September 30, 1996 and for each of the years in the two-year period ended
December 31, 1995 and for the nine months ended September 30, 1996 appearing in
this Prospectus have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and have been so included upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form S-1 under the Securities Act, with respect to the
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock, reference
is hereby made to the Registration Statement and the exhibits and schedules
thereto. The Registration Statement may be inspected, without charge, and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also
maintains a World Wide Web site that contains registration statements, reports,
proxy and information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval system. This
World Wide Web site can be accessed at http://www.sec.gov.
The Company will issue annual reports and quarterly reports containing
unaudited financial information to its shareholders for the first three quarters
of each year. Annual reports will include audited consolidated financial
statements prepared in accordance with generally accepted accounting principles
and a report of its independent public accountants with respect to the
examination of such financial statements.
48
<PAGE> 50
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Combined Balance Sheets as of December 31, 1995 and September 30, 1996................ F-3
Combined Statements of Operations for the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1995 (unaudited) and 1996....................... F-4
Combined Statements of Shareholders' Equity for the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1996................................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1995 (unaudited) and 1996....................... F-6
Notes to Combined Financial Statements................................................ F-7
</TABLE>
F-1
<PAGE> 51
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
St. Louis, Missouri
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Falconite, Inc.:
We have audited the accompanying combined balance sheets of Falconite, Inc.
(the Company) as of December 31, 1995 and September 30, 1996, and the related
combined statements of operations, shareholders' equity, and cash flows for the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1996. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Falconite,
Inc. as of December 31, 1995 and September 30, 1996 and the results of their
operations and their cash flows for the years ended December 31, 1994 and 1995
and the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
------------------------------------
December 20, 1996, except for note 7 as it
relates to debt covenant waivers for which the date is
January 16, 1997
F-2
<PAGE> 52
FALCONITE, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 30,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 258,000 $ 1,499,000
Trade accounts receivable, less allowance for doubtful accounts of
$20,000 and $234,000 at December 31, 1995 and September 30, 1996,
respectively....................................................... 5,944,000 7,851,000
Due from affiliated companies and related parties.................... 313,000 430,000
Income taxes receivable.............................................. -- 107,000
Inventories.......................................................... 416,000 911,000
Rental equipment, principally machinery, at cost less accumulated
depreciation of $8,184,000 and $11,745,000 as of December 31, 1995
and September 30, 1996, respectively............................... 52,574,000 66,051,000
Operating property and equipment, net................................ 4,079,000 4,172,000
Excess of cost over net assets of purchased businesses, less
accumulated amortization........................................... 202,000 415,000
Prepaid and other assets, at cost less accumulated amortization...... 367,000 1,235,000
----------- -----------
$64,153,000 $82,671,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable............................................... $ 1,811,000 $ 2,962,000
Income taxes payable................................................. 16,000 373,000
Accrued expenses..................................................... 299,000 470,000
Accrued interest payable............................................. 129,000 141,000
Revolving lines of credit............................................ 11,362,000 21,139,000
Obligations under capital leases..................................... 3,088,000 1,776,000
Term debt............................................................ 28,726,000 31,380,000
Deferred income taxes................................................ 5,395,000 6,965,000
Due to affiliated companies and related parties...................... 361,000 129,000
Other liabilities.................................................... 78,000 120,000
----------- -----------
Total liabilities.......................................... 51,265,000 65,455,000
----------- -----------
Minority interests................................................... 2,548,000 3,137,000
Commitments and contingencies
Shareholders' equity:
Common stock, Falconite, Inc. (operating company), $10 par value.
Authorized 25,000 shares; issued and outstanding 13,000
shares.......................................................... 130,000 130,000
Common stock, M&M Properties, Inc., $1 par value. Authorized,
issued, and outstanding 1,000 shares............................ 1,000 1,000
Common stock, McCurry and Falconite Equipment Company, Inc., $1 par
value. Authorized 10,000 shares; issued and outstanding 1,000
shares.......................................................... 1,000 1,000
Additional paid-in capital......................................... 87,000 87,000
Retained earnings.................................................. 10,121,000 13,860,000
----------- -----------
Total shareholders' equity................................. 10,340,000 14,079,000
----------- -----------
$64,153,000 $82,671,000
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 53
FALCONITE, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
-------------------------- --------------------------
1994 1995 1996
----------- ----------- 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals....................... $14,387,000 $23,395,000 $16,685,000 $24,130,000
New equipment sales..................... 2,716,000 4,393,000 3,366,000 3,004,000
Rental equipment sales.................. 4,606,000 5,448,000 3,390,000 5,490,000
Sales of parts, supplies, and
equipment............................ 495,000 979,000 554,000 964,000
Service revenues and other income....... 1,045,000 1,446,000 1,270,000 1,418,000
----------- ----------- ----------- -----------
Total revenues.................. 23,249,000 35,661,000 25,265,000 35,006,000
----------- ----------- ----------- -----------
Cost of revenues:
Cost of equipment rentals, excluding
equipment rental depreciation........ 3,446,000 4,651,000 3,386,000 4,909,000
Equipment rental depreciation........... 2,660,000 4,437,000 3,332,000 4,705,000
Cost of new equipment sales............. 2,431,000 3,651,000 2,794,000 2,509,000
Cost of rental equipment sales.......... 3,905,000 4,332,000 2,584,000 4,438,000
Costs of sales of parts, supplies,
equipment, and other services........ 578,000 1,014,000 824,000 1,145,000
----------- ----------- ----------- -----------
Total cost of revenues.......... 13,020,000 18,085,000 12,920,000 17,706,000
----------- ----------- ----------- -----------
Gross profit.................... 10,229,000 17,576,000 12,345,000 17,300,000
Selling, general, and administrative
expenses................................ 3,163,000 5,858,000 3,960,000 6,381,000
Depreciation and amortization, excluding
equipment rental depreciation........... 250,000 412,000 375,000 596,000
----------- ----------- ----------- -----------
Operating income................ 6,816,000 11,306,000 8,010,000 10,323,000
----------- ----------- ----------- -----------
Other income (expense):
Interest income......................... 25,000 41,000 32,000 28,000
Interest expense........................ (1,759,000) (3,213,000) (2,163,000) (3,142,000)
Other, net.............................. 48,000 (40,000) 62,000 149,000
----------- ----------- ----------- -----------
(1,686,000) (3,212,000) (2,069,000) (2,965,000)
----------- ----------- ----------- -----------
Income before income taxes and
minority interests............ 5,130,000 8,094,000 5,941,000 7,358,000
Income taxes.............................. 1,919,000 2,893,000 2,104,000 2,145,000
Minority interests........................ 725,000 1,429,000 1,100,000 1,359,000
----------- ----------- ----------- -----------
Net income...................... $ 2,486,000 $ 3,772,000 $ 2,737,000 $ 3,854,000
=========== =========== =========== ===========
Pro forma net income data:
Net income as reported.................. 2,486,000 3,772,000 2,737,000 3,854,000
Pro forma adjustment to income taxes.... -- 124,000 94,000 557,000
----------- ----------- ----------- -----------
Pro forma net income.................... $ 2,486,000 $ 3,648,000 $ 2,643,000 $ 3,297,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 54
FALCONITE, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993............. 14,000 $131,000 $ 87,000 $ 4,023,000 $ 4,241,000
Net income................................ -- -- -- 2,486,000 2,486,000
------ -------- ---------- ----------- -------------
Balances at December 31, 1994............. 14,000 131,000 87,000 6,509,000 6,727,000
Common stock issued by McCurry and
Falconite Equipment Company, Inc. ...... 1,000 1,000 -- -- 1,000
Net income................................ -- -- -- 3,772,000 3,772,000
Capital distribution to shareholder of
McCurry and Falconite Equipment Company,
Inc. ................................... -- -- -- (160,000) (160,000)
------ -------- ---------- ----------- -------------
Balances at December 31, 1995............. 15,000 132,000 87,000 10,121,000 10,340,000
Net income................................ -- -- -- 3,854,000 3,854,000
Capital distribution to shareholder of
McCurry and Falconite Equipment Company,
Inc. ................................... -- -- -- (115,000) (115,000)
------ -------- ---------- ----------- -------------
Balances at September 30, 1996............ 15,000 $132,000 $ 87,000 $13,860,000 $ 14,079,000
====== ======== ======= ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 55
FALCONITE, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEARS ENDED DECEMBER 31 30
---------------------------- ----------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 2,486,000 $ 3,772,000 $ 2,737,000 $ 3,854,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 2,910,000 4,849,000 3,741,000 5,301,000
Minority interests.................................. 725,000 1,429,000 1,100,000 1,359,000
Provision for losses on trade accounts receivable... 120,000 323,000 2,000 587,000
Provision for deferred income taxes................. 1,272,000 2,308,000 1,466,000 1,570,000
Net gain on sale of rental equipment and operating
property and equipment........................... (701,000) (987,000) (673,000) (613,000)
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Trade accounts receivable........................ (1,819,000) (2,302,000) (1,144,000) (2,494,000)
Due from affiliated companies and related
parties........................................ (143,000) (173,000) (312,000) (117,000)
Income taxes receivable.......................... -- -- -- (107,000)
Inventories...................................... (410,000) 226,000 268,000 (495,000)
Prepaid and other assets......................... (311,000) (89,000) (65,000) (418,000)
Trade accounts payable, accrued expenses, and
accrued interest payable....................... 523,000 245,000 (173,000) 1,334,000
Income taxes payable............................. 111,000 (274,000) (174,000) 357,000
Due to affiliated companies and related
parties........................................ (15,000) (97,000) (74,000) (232,000)
Other liabilities................................ -- 64,000 167,000 42,000
------------ ------------ ------------ ------------
Net cash provided by operating activities...... 4,748,000 9,294,000 6,866,000 9,928,000
------------ ------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of rental operations, net of cash
acquired............................................ -- (451,000) -- (868,000)
Proceeds from sales of rental equipment and operating
assets.............................................. 4,606,000 5,622,000 3,844,000 5,519,000
Capital expenditures for rental equipment............. (21,840,000) (29,100,000) (19,068,000) (22,417,000)
Capital expenditures for operating property and
equipment........................................... -- (1,829,000) (1,243,000) (1,099,000)
------------ ------------ ------------ ------------
Net cash used in investing activities.......... (17,234,000) (25,758,000) (16,467,000) (18,865,000)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Net borrowings under revolving lines of credit........ 2,735,000 7,899,000 989,000 9,777,000
Proceeds from issuance of term debt................... 30,924,000 33,261,000 21,474,000 17,413,000
Principal payments on term debt....................... (20,577,000) (25,190,000) (11,559,000) (16,782,000)
Proceeds from issuance of common stock................ -- 1,000 1,000 --
Capital distributions to shareholder.................. -- (160,000) -- (115,000)
Capital distributions to minority interest............ -- (160,000) -- (115,000)
------------ ------------ ------------ ------------
Net cash provided by financing activities...... 13,082,000 15,651,000 10,905,000 10,178,000
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................. 596,000 (813,000) 1,304,000 1,241,000
Cash and cash equivalents at beginning of period........ 475,000 1,071,000 1,071,000 258,000
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period.............. $ 1,071,000 $ 258,000 $ 2,375,000 $ 1,499,000
============ ============ ============ ============
Supplemental cash flow disclosures:
Cash paid for:
Interest............................................ $ 1,671,000 $ 3,227,000 $ 2,193,000 $ 3,130,000
Income taxes........................................ 539,000 912,000 812,000 218,000
Noncash financing activities -- the purchase of property
and equipment with capital leases..................... 326,000 1,119,000 2,381,000 261,000
Reduction in term debt due to sale of property.......... -- 1,123,000 -- --
Term debt entered into for purchases of businesses, and
covenants -- not-to-compete........................... -- 150,000 -- 450,000
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 56
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Principles of Combination
The combined financial statements of Falconite, Inc. include the financial
statements of Falconite, Inc., the operating company (Falconite), and its
subsidiary, Erzinger Equipment Co. (Erzinger). In addition, the combined
financial statements include the Company's affiliates M & M Properties, Inc.,
d/b/a M & M Equipment Company (M&M), and a subchapter S corporation, McCurry and
Falconite Equipment Company, Inc. (M&F Equipment). All significant intercompany
balances and transactions have been eliminated in the combined financial
statements. The combined entities are referred to, collectively, as the Company.
In January 1990, M&M was formed by two shareholders of Falconite and an
outside party. M&M is considered an entity under common control as the
controlling shareholders of Falconite own 51% of M&M. The combined financial
statements for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1996 reflect the 49% minority interest.
In October 1993, Falconite acquired a 70% ownership of Erzinger.
Subsequently, on September 10, 1996, Falconite acquired the remaining 30% of
Erzinger. Accordingly, the minority interest is reflected for the years ended
December 31, 1994 and 1995 and through September 10, 1996. As of September 30,
1996 and for the period September 10, 1996 through September 30, 1996, Erzinger
is accounted for as a wholly owned subsidiary of Falconite.
In March 1995, a stockholder of Falconite and the minority shareholder of
M&M created a subchapter S corporation, M&F Equipment. M&F Equipment has been
operated as a branch of M&M since inception. The combined financial statements
reflect the operations of M&F Equipment since inception and reflect the minority
shareholder's interest in M&F Equipment.
The combined balance sheets are presented in an unclassified format, as
management believes it more accurately reflects its operations and presents its
financial position on a basis comparable to other companies in its industry.
(b) Description of Business
The Company is engaged primarily in a single-industry segment -- the
rental, sales, and service of cranes, other lift equipment, and smaller
equipment ranging from pumps, generators to larger equipment such as backhoes,
and forklifts. The Company's operations are based in Paducah, Kentucky; Madison,
Alabama; and St. Louis, Missouri. During 1995, the Company opened additional
branches in Nashville, Knoxville, and Memphis, Tennessee. The Company also began
operations in 1995 in Calvert City, Kentucky, through the purchase of a small
tool and equipment rental company.
(c) Cash Equivalents
For purposes of the combined statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
(d) Inventories
Inventories consist of parts and supplies and equipment held for sale.
Inventories are stated at cost. Cost is determined using the first-in, first-out
method.
F-7
<PAGE> 57
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Rental Equipment and Operating Property and Equipment
Rental equipment and operating property and equipment are stated at cost.
Rental equipment and operating property and equipment under capital leases are
stated at the present value of minimum lease payments at inception of the lease.
Depreciation is calculated on the straight-line method over the estimated
useful lives of the assets. Within the combined financial statements, M&M's
rental equipment is assigned a salvage value of 25% of its original acquisition
costs, whereas Falconite does not provide for a salvage value on rental
equipment. Equipment held under capital leases and leasehold improvements are
amortized on the straight-line basis over the shorter of the lease term or
estimated useful life of the asset. Amortization of assets under capital leases
is included in depreciation expense. Depreciation expense is computed over the
following useful lives in years:
<TABLE>
<CAPTION>
FALCONITE M&M
--------- ---
<S> <C> <C>
Rental equipment:
Cranes........................................................... 10-15 10
Lift equipment................................................... 10 10
Other heavy equipment............................................ 7 7
Miscellaneous.................................................... 3-5 5-7
Operating equipment:
Buildings........................................................ 45 --
Other buildings and leasehold improvements....................... 20-40 39
Vehicles......................................................... 5 5
Furniture and fixtures........................................... 5 5-7
Computer equipment............................................... 3 5-7
</TABLE>
Rental equipment acquired subsequent to January 1, 1997 will be depreciated
using the straight-line method, after giving effect to an estimated salvage
value, as follows:
<TABLE>
<CAPTION>
TYPE OF EQUIPMENT USEFUL LIFE SALVAGE VALUE
------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Large (28 tons and greater) cranes.......................... 15 years 25%
Small (less than 28 tons) cranes............................ 10 years 10%
Large lifts................................................. 10 years 10%
Small lifts................................................. 7 years 10%
Forklifts................................................... 7 years 10%
Dirt moving................................................. 7 years 10%
Other small equipment....................................... 5 years 10%
Vehicles and trailers....................................... 5 years --
</TABLE>
Equipment reported under the classification of "rental equipment," although
primarily utilized within the rental aspect of the operations, is available for
sale in the ordinary course of business.
(f) Excess of Cost Over Net Assets of Purchased Businesses
The excess of cost over net assets of purchased businesses (goodwill) is
amortized on a straight-line basis over the expected periods to be benefited,
generally 15 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through the undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected future operating cash flows on a discounted basis.
F-8
<PAGE> 58
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Use of Estimates
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions relating to the reporting of assets and liabilities and the
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.
(i) Concentrations of Risks
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash with high quality financial institutions
in amounts that from time to time exceed federally insured limits. No losses
have been incurred on such deposits.
The Company's customers are primarily concentrated in the construction and
manufacturing industries and the dependence on those industries has been
addressed by expanding the operations throughout certain Southern and Midwestern
states. The Company performs ongoing credit evaluations of its customers'
financial condition but does not require collateral to support customer
receivables. In certain instances, the Company may file a mechanic's lien to
protect its interest.
(j) Revenue Recognition
Equipment rental revenue is recognized when earned.
New and used equipment sales and revenues from the sale of parts and
supplies are recognized when title passes to the purchaser usually at the time
of delivery or pickup. When equipment is sold, the cost consists of actual costs
in the case of new equipment and the net book value in the case of used
equipment.
(k) Debt Issuance Costs
Debt issuance costs are amortized to interest expense over the term of the
related debt, utilizing the interest method. Debt issuance costs are included in
prepaid and other assets.
(l) Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(SFAS 121), which requires the Company to review for the impairment of
long-lived assets and certain identifiable intangibles to be held and used by
the Company whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company adopted SFAS 121
in the first quarter of 1996. The effect of adoption was not material to the
combined financial statements.
F-9
<PAGE> 59
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), which establishes a fair value based method for
financial accounting and reporting for stock-based employee compensation plans.
However, the new standard allows compensation to continue to be measured by
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, but
requires expanded disclosures. SFAS 123 is effective in fiscal year 1996. The
Company has elected to apply the intrinsic value based method of accounting for
stock options. The effect of SFAS 123 was not material to the combined financial
statements.
(m) Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share have not been presented on
the face of the combined statements of operations as the presentation of such
information on a combined basis would not be meaningful nor would such
presentation be indicative of future events.
(n) Interim Financial Statements
The accompanying combined statements of operations and cash flows for the
nine months ended September 30, 1995 are unaudited and have been prepared on the
same basis as the audited combined financial statements included herein. In the
opinion of management, such unaudited combined financial statements include all
adjustments necessary to present fairly the information set forth therein, which
consist solely of normal recurring adjustments. The results of operations for
the interim periods presented are not necessarily indicative of results for a
full year.
(2) ACQUISITIONS
In October 1993, Falconite acquired 70% of the outstanding common stock of
Erzinger for $550,000 in cash. In September 1996, the Company purchased the
remaining 30% for approximately $875,000 in cash and a note payable, and entered
into covenants not-to-compete for $450,000. The covenants not-to-compete are
being amortized on a straight-line basis over the life of the agreements, 2
years. The acquisitions were accounted for using the purchase method, with the
operating results of Erzinger included in the combined operating results since
the date of the original acquisition. The operating results have been adjusted
to reflect the minority shareholder's interest in the operating results for the
respective periods disclosed. Total goodwill of $191,000 is being amortized on a
straight-line basis over a 15-year period.
In December 1995, the Company acquired a rental company located in Calvert
City, Kentucky. This acquisition was accounted for under the purchase method,
with the operating results being included within the combined financial
statements since the date of acquisition. The total purchase price was
approximately $585,000, for which the Company recognized total goodwill of
approximately $100,000 which is being amortized on a straight-line basis over a
15-year period. The acquisition of Calvert City is not material to the Company's
financial condition or results of operations. As such, no pro forma information
reflecting the acquisition as of the beginning of the year are provided.
(3) FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments (SFAS
107), requires disclosure of fair value information about financial instruments,
whether or not recognized in the combined balance sheet. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. The use of different
market assumptions and estimation methodologies may have a material effect on
the estimated fair value amounts. SFAS 107 excludes certain financial
F-10
<PAGE> 60
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts referred to do not represent the
underlying value of the Company.
Because of their relatively short maturities, the estimated fair values of
all financial instruments approximate their carrying amounts on the combined
balance sheet. The estimated fair value of term debt approximates the carrying
amounts for all adjustable rate instruments. For fixed rate instruments, the
estimated fair values are calculated using a discounted cash flow calculation
that applies current incremental borrowing rates for similar types of
arrangements. At December 31, 1995 and September 30, 1996, there were no
material differences between the carrying amount and the fair value of term
debt.
(4) OPERATING PROPERTY AND EQUIPMENT, NET
Operating property and equipment, net at December 31, 1995 and September
30, 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Land, building, and leasehold improvements.................. $1,421,000 $1,365,000
Transportation equipment.................................... 3,224,000 3,569,000
Office furniture, fixtures, and computer equipment.......... 441,000 567,000
---------- ----------
5,086,000 5,501,000
Less accumulated depreciation and amortization.............. 1,007,000 1,329,000
---------- ----------
$4,079,000 $4,172,000
========== ==========
</TABLE>
(5) LEASES
The Company is party to several noncancellable operating leases, primarily
for transportation equipment and certain office and warehouse facilities that
expire at various times through the year 2001. These leases require the Company
to pay all executory costs such as maintenance and insurance. Rental expense for
operating leases (except those with lease terms of a month or less that were not
renewed) for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1996 was $136,000, $303,000, and $543,000, respectively.
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) as of September 30, 1996
are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING SEPTEMBER 30: LEASES
- ------------------------- ----------
<S> <C> <C>
1997................................................................... $ 660,000
1998................................................................... 555,000
1999................................................................... 417,000
2000................................................................... 246,000
2001................................................................... 73,000
----------
Total minimum lease payments................................. $1,951,000
==========
</TABLE>
In addition to the above, the Company leases various facilities from a
shareholder, an executive officer of Falconite, and the minority shareholder of
M&M. Certain of the facility leases are on a month-to-month basis. Management
believes these lease arrangements reflect those which could be obtained from a
third party. Total rent expense associated with these leases for the years ended
December 31, 1994 and 1995 and the nine months ended September 30, 1996 was
$45,000, $155,000, and $393,000, respectively.
F-11
<PAGE> 61
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has capitalized certain rental and transportation equipment
under various lease agreements. The book value of these leased assets is
included within the recorded amounts for rental equipment and operating property
and equipment.
A schedule of future minimum lease payments under capital leases at
September 30, 1996 consists of the following:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30: AMOUNT
- ------------------------- ----------
<S> <C> <C>
1997................................................................... $ 585,000
1998................................................................... 562,000
1999................................................................... 498,000
2000................................................................... 293,000
2001................................................................... 80,000
Later years............................................................ 73,000
----------
Total minimum lease payments................................. 2,091,000
Less amount representing imputed interest.............................. 315,000
----------
Present value of minimum lease payments...................... $1,776,000
==========
</TABLE>
(6) REVOLVING LINES OF CREDIT
At December 31, 1995 and September 30, 1996, Falconite had available
revolving lines of credit in the amount of $7,000,000 and $15,000,000,
respectively, which were secured by substantially all the assets of Falconite
and by guarantees of the majority shareholders. Borrowings under available lines
of credit at December 31, 1995 and September 30, 1996 were $6,912,000 and
$12,478,000, respectively. The revolving lines of credit bore interest at prime
(8.25% at September 30, 1996), and mature June 30, 1998. At December 31, 1995
and September 30, 1996, M&M had available revolving lines of credit in the
amount of $5,000,000 and $9,000,000, respectively, which were secured by
substantially all the assets of M&M and by guarantees of the majority
shareholders. Borrowings under available lines of credit at December 31, 1995
and September 30, 1996 were $4,450,000 and $8,661,000, respectively. The lines
of credit bore interest at LIBOR (5.63% at September 30, 1996), plus 3.0% and
mature July 27, 1997. Total borrowings under the revolving lines of credit are
restricted each month to a prescribed percentage of accounts receivable, rental
equipment, and operating property and equipment. The credit arrangements contain
financial and other covenants with respect to, and among other things,
borrowings, working capital, tangible net worth, and cash flow. See note 7
regarding debt covenant waivers. In addition, the credit arrangements restrict
fixed asset purchases and do not allow the payment of cash dividends. Management
expects the lines of credit to be refinanced in the normal course of business.
F-12
<PAGE> 62
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) TERM DEBT
Term debt at December 31, 1995 and September 30, 1996 consists of the
following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Various notes payable with Southwest Bank of St. Louis
with monthly payments of principal and interest.
Interest rates range from prime plus .75% (9.0% at
December 31, 1995 and September 30, 1996) to 10%........ $ 4,510,000 $ 9,021,000
Various notes payable with Citizens Bank and Trust with
monthly payments of principal and interest at prime
(8.25% at December 31, 1995 and September 30, 1996)
secured by a guarantee of the majority shareholder...... 6,650,000 7,300,000
Notes payable with ITT Commercial Finance, wholesale
credit agreements issued July 28, 1994. Interest at 2.0%
above prime beginning on the 91st day from invoice of
purchase. Repayment terms range from 60 to 72 months.... 3,045,000 4,225,000
Note payable with the Kentucky Development Finance
Authority. Monthly payments of $2,660. Interest is
stated at a fixed rate of 5.06% and is collateralized by
real estate............................................. 136,000 118,000
Various notes payable, with monthly payments of principal
and interest. Interest rates range from 7.1% to 11.25%
with maturities ranging from December 31, 1996 to April
27, 2001................................................ 14,385,000 10,716,000
----------- -----------
$28,726,000 $31,380,000
=========== ===========
</TABLE>
Certain of the Company's credit arrangements contain financial and other
covenants with respect to, among other things, borrowings, working capital,
tangible net worth, and cash flow. In addition, the credit arrangements restrict
fixed asset purchases and do not allow the payment of cash dividends. In
addition, several of the notes payable are guaranteed personally by the
shareholders of Falconite.
As of and subsequent to September 30, 1996, the Company was in violation of
various covenant provisions of its credit agreements. The Company has received
waivers from the respective lending institutions which waive the institutions'
rights to the various remedies in which it is entitled through December 30,
1996. Additionally, the Company is currently negotiating with its lenders to
restructure its existing credit agreements in order to modify the covenants and
increase the amount of available borrowings to fund planned capital expenditures
and ongoing operations.
F-13
<PAGE> 63
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Management expects the current maturities to be repaid or refinanced during
1997 in the normal course of business. The annual maturities schedule is based
upon the original maturity of the debt agreements. Annual maturities of term
debt at September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $13,788,000
1998............................................................ 10,725,000
1999............................................................ 3,987,000
2000............................................................ 2,378,000
2001............................................................ 463,000
Thereafter...................................................... 39,000
-----------
Total................................................. $31,380,000
===========
</TABLE>
(8) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1994:
U.S. federal.................................. $587,000 $1,093,000 $1,680,000
State and local............................... 60,000 179,000 239,000
-------- ---------- ----------
$647,000 $1,272,000 $1,919,000
======== ========== ==========
Year ended December 31, 1995:
U.S. federal.................................. $565,000 $2,011,000 $2,576,000
State and local............................... 20,000 297,000 317,000
-------- ---------- ----------
$585,000 $2,308,000 $2,893,000
======== ========== ==========
Nine months ended September 30, 1996:
U.S. federal.................................. $511,000 $1,418,000 $1,929,000
State and local............................... 64,000 152,000 216,000
-------- ---------- ----------
$575,000 $1,570,000 $2,145,000
======== ========== ==========
</TABLE>
Income tax expense was $1,919,000, $2,893,000, and $2,145,000 for the years
ended December 31, 1994 and 1995 and the nine months ended September 30, 1996,
respectively, and differed from the amounts computed by applying the federal
income tax rate of 34% to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense................ $1,744,000 $2,752,000 $2,502,000
Increase (reduction) in income taxes resulting
from:
Nontaxable M&F Equipment income.............. -- (124,000) (557,000)
State and local income taxes, net of federal
income tax benefit........................ 157,000 209,000 143,000
Other, net................................... 18,000 56,000 57,000
---------- ---------- ----------
$1,919,000 $2,893,000 $2,145,000
========== ========== ==========
</TABLE>
Since the time of its inception, March 20, 1995, M&F Equipment has been
taxed as an S corporation under subchapter S of the Internal Revenue Code. The
pro forma income tax adjustments included in the combined statements of
operations represent federal and state income tax expense that would have been
required had M&F Equipment been a C corporation. M&F Equipment's S corporation
election was
F-14
<PAGE> 64
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
terminated on December 31, 1996. For financial statement presentation, M&F
Equipment's undistributed earnings, less any capital distributions to
shareholders, will be reclassified to additional paid-in capital.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and September 30, 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Trade accounts receivable, principally due to allowance
for doubtful accounts................................ $ 7,000 $ 211,000
Alternative minimum tax credit carryforwards............ 1,155,000 950,000
Net operating loss carryforwards........................ 407,000 1,069,000
Other................................................... 60,000 94,000
----------- -----------
Net deferred tax assets......................... 1,629,000 2,324,000
----------- -----------
Deferred tax liabilities:
Rental and operating property and equipment, principally
due to difference in depreciation.................... (7,014,000) (9,270,000)
Other................................................... (10,000) (19,000)
----------- -----------
Total gross deferred liabilities................ (7,024,000) (9,289,000)
----------- -----------
Net deferred tax liability...................... $(5,395,000) $(6,965,000)
=========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
At September 30, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $3,057,000 which are available to
offset future federal taxable income, if any, through the year 2006. The
utilization of the net operating loss carryforwards are subject to annual
limitations due to changes in ownership.
In addition, the Company has alternative minimum tax credit carryforwards
of approximately $950,000 which are available to reduce future federal regular
income taxes, if any, over an indefinite period.
(9) EMPLOYEE BENEFIT PLANS
Falconite has a discretionary profit-sharing plan covering substantially
all of its employees. Profit-sharing expense is funded through annual
contributions to the plan. For the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1996, Falconite contributions totaled
$72,000, $95,000, and $-0-, respectively. Falconite also contributes to a
union-administered pension plan as required. Falconite's contributions to these
plans for the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996 totaled $57,000, $71,000, and $66,000, respectively.
Falconite could, under certain circumstances, be liable for unfunded vested
benefits or other expenses of jointly administered union plans. At this time,
Falconite has not established any liabilities because withdrawal from these
plans is not probable.
F-15
<PAGE> 65
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
M&M has a discretionary 401(k) plan substantially covering all of its
employees. Plan expense is funded through annual contributions. For the years
ended December 31, 1994 and 1995 and the nine months ended September 30, 1996,
M&M contributions amounted to $21,000, $38,000, and $48,000, respectively.
(10) RELATED PARTY TRANSACTIONS
The individual companies included in the combined financial statements
enter into various related party transactions with affiliated companies and
shareholders of the individual companies.
A summary of receivables/payables included in the combined balance sheets
as of December 31, 1995 and September 30, 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Due from affiliated companies and related parties:
Note receivable -- officer................................... $ -- $ 77,000
Note receivable -- majority shareholder...................... 281,000 294,000
Due from F&F Leasing......................................... 32,000 35,000
Due from M&F Leasing......................................... -- 24,000
-------- --------
$313,000 $430,000
======== ========
Due to affiliated companies and related parties:
Due to F&F Leasing........................................... $112,000 $ 31,000
Notes payable -- majority shareholder........................ 139,000 94,000
Note payable -- minority shareholder......................... 110,000 --
Due to -- officer............................................ -- 4,000
-------- --------
$361,000 $129,000
======== ========
</TABLE>
A summary of expenses included in the combined statements of operations for
the years ended December 31, 1994 and 1995 and the nine months ended September
30, 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Building rent expense paid to affiliates and related parties:
Rent paid to F&F Leasing..................................... $ 63,000 $126,000
Rent paid to an officer...................................... 30,000 20,000
Rent paid to M&F Investments................................. 13,000 89,000
Rent paid to the minority shareholder of M&M................. 22,000 --
Rent paid to E&F Leasing..................................... 27,000 158,000
-------- --------
$155,000 $393,000
======== ========
Equipment rent expense paid to F&F Leasing..................... $123,000 $112,000
======== ========
Interest expense paid to director.............................. $ 19,000 $ 85,000
======== ========
Management fee paid to officers:
From M&M..................................................... $ 28,000 $ 21,000
From Erzinger................................................ 31,000 24,000
-------- --------
$ 59,000 $ 45,000
======== ========
</TABLE>
Falconite, Erzinger, and M&M lease buildings from affiliated companies for
which the companies pay monthly rental to the affiliated companies pursuant to
no definitive lease agreement. Erzinger leased its facility from E&F Leasing
(E&F), a related party, through July 31, 1996 for approximately $24,000 a month.
Effective August 1, 1996, the monthly rental was reduced retroactively to
January 1, 1996 to $15,000 such that
F-16
<PAGE> 66
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
no additional rent expense was incurred in August or September 1996. The ongoing
agreed-upon monthly rent will be $15,000 per month.
(11) COMMITMENTS AND CONTINGENCIES
Department of Revenue Notifications
During 1995, Falconite received a notification from the Illinois Department
of Revenue asserting deficiencies in Illinois' use taxes for the period from
July 1989 to May 1995. The asserted deficiencies, which totaled approximately
$520,000 plus interest and penalties, result from Falconite's rental of
equipment to customers within the State of Illinois. Falconite is in the process
of challenging the asserted deficiencies.
During 1996, Falconite received a notification from the Tennessee
Department of Revenue asserting certain deficiencies in Tennessee sales tax for
the period from 1991 to the present. The asserted deficiencies, which totaled
approximately $325,000 plus interest and penalties, result from Falconite's
rental of equipment to customers within the State of Tennessee. Falconite is in
the process of challenging the asserted deficiencies.
Management believes the ultimate outcome of the alleged deficiencies will
not result in a material impact on the Company's combined results of operations
or financial position, after consideration of the amounts included in accrued
expenses.
Government and Environmental Regulations
The Company and its operations are subject to various federal, state, and
local laws and regulations governing, among other things, worker safety, air
emissions, water discharge, and the generation, handling, storage,
transportation, treatment, and disposal of hazardous substances and wastes.
Under such laws, an owner or lessee of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on,
in, or emanating from, such property, as well as related costs of investigation
and property damage. Such laws often impose such liability without regard to
whether the owner or lessee knew of, or was responsible for, the presence of
such hazardous or toxic substances. There can be no assurance that acquired or
leased locations have been operated in compliance with environmental laws and
regulations or that future uses or conditions will not result in the imposition
of environmental liability upon the Company or expose the Company to third-party
actions such as tort suits. In addition, the Company dispenses petroleum
products from above-ground storage tanks located at certain rental locations
that it owns or leases. The Company maintains an environmental compliance
program that includes the implementation of required technical and operational
activities designed to minimize the potential for leaks and spills, the
maintenance of records, and the regular testing and monitoring of tank systems.
There can be no assurance, however, that these tank systems have been or will at
all times remain free from leaks so that the use of these tanks has not or will
not result in spills or other releases. The Company also uses hazardous
materials such as solvents to clean and maintain its rental equipment fleet. In
addition, the Company generates and disposes waste such as used motor oil,
radiator fluid, and solvents, and may be liable under various federal, state,
and local laws for an environmental contamination at facilities where its waste
is or has been disposed. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on the Company's
combined financial position or its ongoing results of operations.
Legal Proceedings
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position, results of operations, or liquidity.
F-17
<PAGE> 67
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Guaranties
As of September 30, 1996, Falconite has issued guarantees aggregating
approximately $1,847,000 on borrowings by certain personal investments of its
shareholders. The guarantees are secured by the various assets of Falconite.
Management believes Falconite will not be required to make payments under its
guarantees and, accordingly, no amounts have been accrued for Falconite's
potential obligation under these guaranty arrangements.
Commitments for Capital Expenditures
The Company has outstanding firm commitments for capital expenditures of
approximately $7,500,000 at September 30, 1996. The commitments relate to the
purchasing of additional rental equipment and the replacement of older lease
fleet assets. In addition, the Company has outstanding commitments for the
purchase of real estate, from a related party, and leases of real estate at
various locations. The total commitment for the purchase of real estate was
approximately $120,000 at September 30, 1996.
Workers' Compensation
The Company is fully insured, subject to varying deductibles, for workers'
compensation claims in substantially all states in which it operates. In the
remaining states, the Company provides for workers' compensation claims through
incurred loss retrospective policies. Management believes that the Company has
sufficiently provided for estimated claims, including the effect of any
retroactive premium adjustments, at December 31, 1995 and September 30, 1996.
(12) BUSINESS AND CREDIT CONCENTRATIONS
The Company's main line of business is rental of equipment to a variety of
industrial and construction customers which are significantly impacted by the
U.S. economy as well as the regional and local economies. The Company believes
diversifying into other states reduces the impact of events or conditions in a
particular region, such as regional slowdowns, adverse weather, and other
factors. In addition, the Company's operating results may be adversely affected
by increases in interest rates that may lead to a decline in economic activity
while simultaneously resulting in higher interest payments by the Company under
its variable rate credit facilities.
Most of the Company's customers are located in a four-state area: Kentucky,
Tennessee, Alabama, and Missouri. No single customer accounted for more than 2%
of the Company's combined sales in 1994, 1995, and 1996, and no trade account
receivable from any customer exceeded $285,000 at September 30, 1996. The
Company estimates an allowance for doubtful accounts based on the credit
worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimate of its bad debts.
(13) SUBSEQUENT EVENTS -- UNAUDITED
Subsequent to September 30, 1996, a holding company was created to effect
the combination of all of the companies included in these combined financial
statements, Falconite, M&M, and M&F Equipment. The holding company was named
Falconite, Inc. (the Holding Company). The Holding Company exchanged shares with
the shareholders of Falconite and M&M such that these entities became wholly
owned subsidiaries.
The acquisition of the minority interest in M&M will be accounted for under
the purchase method. The 49% interest in M&M's net assets acquired will be
recorded at the estimated fair value whereas the remaining 51% will be recorded
at the historical cost of such net assets. The excess of the purchase price over
the estimated fair values of the net assets acquired has not yet been
determined. The excess will be recorded as
F-18
<PAGE> 68
FALCONITE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
goodwill, and will be amortized on a straight-line basis over its expected
useful life, currently anticipated to be 30 years.
Subsequent to September 30, 1996, M&M executed an agreement to purchase a
rental company, Florida Construction Specialist, Inc., for approximately
$1,050,000. The acquisition will be accounted for under the purchase accounting
method. Falconite also executed an agreement to purchase Western Kentucky Sales
and Rentals and a rental company located in Clarksville, Tennessee for
approximately $300,000 and $985,000 in cash, respectively. These acquisitions
will be accounted for under the purchase method. The acquisitions discussed
above will not be material to the Company's financial condition or results of
operations, either individually or in the aggregate.
M&F Equipment
Subsequent to September 30, 1996, M&F Equipment's subchapter S election was
terminated. The remaining undistributed earnings, net of a capital distribution
to shareholders for payment of federal and state income taxes of M&M Equipment
will be reclassified to additional paid-in capital.
Initial Public Offering
The Holding Company is in the process of filing an initial public offering
for the issuance of shares of common stock. This offering is expected to be
completed during the first quarter of 1997. In connection with the common stock
offering, the Holding Company will use a portion of the net proceeds to retire a
portion of its lines of credit and term debt, and fund the capital expenditure
commitments.
F-19
<PAGE> 69
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.......................... 3
Risk Factors................................ 7
The Company................................. 13
Use of Proceeds............................. 14
Dividend Policy............................. 14
Dilution.................................... 15
Capitalization.............................. 16
Selected Combined Financial and Operating
Data...................................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 19
Business.................................... 27
Management.................................. 37
Principal Shareholders...................... 41
Certain Transactions........................ 42
Description of Capital Stock................ 43
Shares Eligible For Future Sale............. 45
Underwriting................................ 46
Legal Matters............................... 48
Experts..................................... 48
Available Information....................... 48
Index to Combined Financial Statements...... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is expected that the following expenses, all of which will be paid by
the Company, will be incurred in connection with the registration and
distribution of the securities being offered (all such fees except the
Securities and Exchange Commission filing fee, NASD filing fee and the Nasdaq
listing fee):
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee...................... $ 29,747
NASD filing fee.................................................... 10,316
Nasdaq listing fee................................................. *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Printing and engraving............................................. *
Transfer agent fees and expenses................................... *
Miscellaneous...................................................... *
--------
Total.................................................... $ *
========
</TABLE>
- ------------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.75 of the Illinois Business Corporation Act provides generally
and in pertinent part that an Illinois corporation may indemnify its directors
and officers against expenses (in the case of actions by or in the right of the
corporation) or against expenses, judgments, fines and settlements (in all other
cases) actually and reasonably incurred by them in connection with any action,
suit or proceeding if, in connection with the matters in issue, they acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
the best interests of the corporation and, in connection with any criminal suit
or proceeding, if in connection with the matters in issue, they had no
reasonable cause to believe their conduct was unlawful. Section 8.75 further
permits an Illinois corporation to grant to its directors and officers
additional rights of indemnification through bylaw provisions, agreements, votes
of shareholders or interested directors or otherwise, to purchase indemnity
insurance on behalf of such indemnifiable persons and to advance to such
indemnifiable persons expenses incurred in defending a suit or proceeding upon
receipt of certain undertakings.
Article 10 of the Company's Articles of Incorporation provides that,
subject to certain exceptions, the Company shall indemnify, to the fullest
extent permitted by law, any person who is or was a director or executive
officer of the Company or any subsidiary, and may indemnify, subject to certain
exceptions and to the extent that the Board of Directors deems appropriate and
as set forth in the Bylaws or a resolution, any person who is or was a
non-executive officer, or employee or agent of the Company or any subsidiary or
who is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including an employee benefit plan) against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred by such person in connection with any civil, criminal,
administrative or investigative action, suit, proceeding or claim (including any
action by or in the right of the Company or a subsidiary) by reason of the fact
that such person is or was serving in such capacity. In addition, Article 10
authorizes the Company to purchase insurance for itself or any person to whom
indemnification is or may be available against any liability asserted against
such person in, or arising out of, such person's status as director, officer,
employee or agent of the Company, any of its subsidiaries or another
corporation, partnership, joint venture, trust or other enterprise (including an
employee benefit plan) which such person is serving at the request of the
Company. Article 10 also authorizes the Company, to the extent that the Board of
Directors deems appropriate, to make advances of expenses to an indemnifiable
person upon the receipt by the Company of a written undertaking by such person
to repay any amounts advanced in the event that it is ultimately determined that
such person is not entitled to such indemnification.
II-1
<PAGE> 71
Section of the Underwriting Agreement also provides for indemnification
by the Underwriters of the Company's officers and directors for certain
liabilities under the Securities Act.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
Until December 1996, the operations of the Company were conducted
principally in three separate corporations: Falconite, Inc., an Illinois
corporation now known as "Falconite Equipment, Inc.;" Erzinger, a Missouri
corporation and a wholly-owned subsidiary of the preceding corporation; and M&M
Properties, Inc., an Alabama corporation which uses the trade name "M&M
Equipment." In November 1996, Erzinger transferred its assets and liabilities to
its parent corporation in a complete liquidation.
In December 1996, the respective shareholders of Falconite Equipment, Inc.,
M&M Properties, Inc. and M&F Equipment agreed to exchange their shares of those
corporations for newly issued shares of Common Stock. The newly issued shares
were exchanged pursuant to transactions not involving a public offering pursuant
to a claim of exemption under Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits. See Exhibit Index.
b. Financial Statement Schedules.
Rule 12-09 Valuation and Qualifying Accounts and Reserves for the two years
in the period ended December 31, 1995 and for the nine months ended September
30, 1996.
ITEM 28. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
(2) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such manner as required by the
underwriters to permit prompt delivery to each purchaser.
(3) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(b) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
a new Registration Statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE> 72
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company has duly caused the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Paducah, State of
Kentucky, January 17, 1997.
FALCONITE, INC.
By: /s/ MICHAEL A.
FALCONITE
------------------------------------
Michael A. Falconite, President
POWER OF ATTORNEY
We, the undersigned officers and directors of Falconite, Inc., hereby
severally and individually constitute and appoint Michael A. Falconite, Ralph W.
McCurry and Kevin S. Pugh, and each of them, the true and lawful attorneys and
agents of each of us to execute in the name, place and stead of each of us
(individually and in any capacity stated below) any and all amendments to this
Registration Statement on Form S-1, registering the issuance by Falconite, Inc.
of shares of its common stock in connection with the Offering, and all
instruments necessary or advisable in connection therewith and to file the same
with the Securities and Exchange Commission, each of said attorneys and agents
to have the power to act with or without the others and to have full power and
authority to do and perform in the name and on behalf of each of the undersigned
every act whatsoever necessary or advisable to be done in the premises as fully
and to all intents and purposes as any of the undersigned might or could do in
person, and we hereby ratify and confirm our signatures as they may be signed by
our said attorneys and agents or each of them to any and all such amendments and
instruments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ MICHAEL A. FALCONITE President, Chief Executive January 17, 1997
- --------------------------------------------- Officer and Director
Michael A. Falconite
Principal Executive Officer
/s/ KEVIN S. PUGH Vice President, Chief January 17, 1997
- --------------------------------------------- Financial Officer and
Kevin S. Pugh Director
Principal Financial and Accounting Officer
/s/ JOSEPH A. FALCONITE Chairman of the Board January 17, 1997
- ---------------------------------------------
Joseph A. Falconite
/s/ RALPH W. MCCURRY Director January 17, 1997
- ---------------------------------------------
Ralph W. McCurry
/s/ J. DAVID MELBER Director January 17, 1997
- ---------------------------------------------
J. David Melber
</TABLE>
II-3
<PAGE> 73
FALCONITE, INC.
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER ENDED
31, SEPTEMBER
----------------------- 30,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Balance at beginning of period........................... $ 13,870 $ 21,009 $ 20,269
Bad debt expense......................................... 120,431 322,659 587,294
Write-offs of uncollectible receivables.................. (113,292) (323,399) (373,563)
--------- --------- --------
Balance at end of period................................. $ 21,009 $ 20,269 $ 234,000
========= ========= ========
</TABLE>
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Articles of Incorporation of the Company.
3.2 -- Bylaws of the Company.
4.1 -- Form of Stock Certificate for Common Stock.
4.2 -- Recapitalization Agreement dated December 31, 1996 by and among
the Company, Falconite Investments, Joseph A. Falconite as
Trustee of the Joseph A. Falconite Revocable trust U/A/D December
17, 1996, Michael A. Falconite as Trustee of the Michael A.
Falconite Revocable Trust U/A/D December 17, 1996, Joseph A.
Falconite, Michael A. Falconite, Emilie Nicole Falconite, Angela
S. Grimm, J. David Melber, Ralph W. McCurry and Wanda Rene
McCurry as Trustee of the Ralph W. McCurry Children's Trust U/A/D
December 30, 1996.
4.3 -- Registration Rights Agreement dated as of December 31, 1996 by
and among the Company, Falconite Investments, Joseph A. Falconite
as Trustee of the Joseph A. Falconite Revocable trust U/A/D
December 17, 1996, Michael A. Falconite as Trustee of the Michael
A. Falconite Revocable Trust U/A/D December 17, 1996, Joseph A.
Falconite, Michael A. Falconite, Emilie Nicole Falconite, Angela
S. Grimm, J. David Melber, Ralph W. McCurry and Wanda Rene
McCurry as Trustee of the Ralph W. McCurry Children's Trust U/A/D
December 30, 1996.
5.1 -- Legal Opinion of Thompson Coburn.*
10.1 -- Falconite, Inc. 1996 Long Term Incentive Plan.
10.2 -- Falconite, Inc. 1996 Directors Stock Option Plan.
10.3 -- Dealer Security Agreement dated June 19, 1995 by and between
Citicorp Del-Lease, Inc. and M&M Equipment.
10.4 -- Revolving Credit Note dated July 25, 1995 executed by M&M
Equipment and M&M Equipment in favor of Citicorp Del-Lease, Inc.
10.5 -- Amendment No. 1 to the Dealer Security Agreement dated July 25,
1995 by and between Citicorp Del-Lease, Inc. and M&M Equipment
and M&F Equipment.
10.6 -- Amendment No. 2 to the Dealer Security Agreement dated July 29,
1996 by and between Citicorp Del-Lease, Inc. and M&M Equipment
and M&F Equipment.
10.7 -- Amendment No. 3 to the Dealer Security Agreement dated September
9, 1996 by and between Citicorp Del-Lease, Inc. and M&M Equipment
and M&F Equipment.
10.8 -- Amended and Restated Revolving Credit Note dated September 9,
1996 executed by M&M Equipment and M&F Equipment in favor of
Citicorp Del-Lease, Inc.
10.9 -- Amendment No. 4 to the Dealer Security Agreement dated as of
December 1, 1996 by and between Citicorp Del-Lease, Inc. and M&M
Equipment and M&F Equipment.
10.10 -- Amended and Restated Revolving Credit Note dated December 1, 1996
executed by M&M Equipment and M&F Equipment in favor of Citicorp
Del-Lease, Inc.
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<C> <S> <C>
10.11 -- Master Lease Agreement dated March 30, 1995 by and between
Southwest Bank of St. Louis and Erzinger.
10.12 -- Security Agreement dated May 19, 1994 by and between Erzinger and
Southwest Bank of St. Louis.
10.13 -- Consent and Assumption Agreement dated December 31, 1996 by and
among Erzinger, Falconite Equipment and Southwest Bank of St.
Louis.
10.14 -- Continuing Unlimited Guaranty Agreement dated December 31, 1996
executed by the Company in favor of Southwest Bank of St. Louis
(Erzinger debt).
10.15 -- Continuing Unlimited Guaranty Agreement dated December 31, 1996
executed by the Company in favor of Southwest Bank of St. Louis
(E.F. Leasing debt).
10.16 -- Security Agreement dated October 5, 1995 by Falconite Equipment
in favor of Citizens Bank & Trust Company of Paducah.
10.17 -- Revolving Credit and Term Loan Agreement dated October 5, 1995 by
and between Falconite Equipment and Citizens Bank & Trust Company
of Paducah.
10.18 -- Revolving Credit Note dated October 5, 1995 executed by Falconite
Equipment in favor of Citizens Bank & Trust Company of Paducah.
10.19 -- First Amendment to Term Loan Promissory Note dated January 5,
1996 by and between Falconite Equipment & Citizens Bank & Trust
Company of Paducah.
10.20 -- First Amendment to Revolving Credit and Term Loan Agreement dated
January 5, 1996 by and between Falconite Equipment and Citizens
Bank & Trust Company of Paducah.
10.21 -- Swing Line Note dated June 14, 1996 executed by Falconite
Equipment in favor of Citizens Bank & Trust Company of Paducah.
10.22 -- First Amendment to Revolving Credit Note dated June 14, 1996 by
Falconite Equipment and accepted by Citizens Bank & Trust
Company.
10.23 -- Second Amendment to Term Loan Promissory Note dated June 14, 1996
by Falconite Equipment and accepted by Citizens Bank & Trust
Company.
10.24 -- Second Amendment to Revolving Credit and Term Loan Agreement
dated June 14, 1996 between Falconite Equipment and Citizens Bank
& Trust Company of Paducah.
10.25 -- Aircraft Security Agreement dated November 25, 1996 by and
between General Electric Capital Corporation and Falconite
Aviation, Inc.
10.26 -- Corporate Guaranty dated November 25, 1996 executed by Falconite,
Inc. in favor of General Electric Capital Corporation.
10.27 -- Promissory Note dated December 2, 1996 executed by Falconite
Aviation, Inc. in favor of General Electric Capital Corporation.
10.28 -- Agreement for Wholesale Financing dated July 28, 1994 by and
between M&M Equipment and Deutsche Financial Services.
10.29 -- Guaranty dated August 11, 1994 executed by Falconite Equipment in
favor of Deutsche Financial Services.
10.30 -- Addendum to Agreement for Wholesale Financing dated January 6,
1995 by and between M&M Equipment and Deutsche Financial
Services.
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<C> <S> <C>
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Thompson Coburn (included in Exhibit No. 5).*
24.1 -- Power of Attorney (included on signature page hereto).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
FALCONITE, INC.
Pursuant to the provisions of The Illinois Business
Corporation Act of 1983, the undersigned incorporator hereby adopts the
following Articles of Incorporation:
ARTICLE I
The name of the Corporation is Falconite, Inc.
ARTICLE II
The address, including street and number, of the Corporation's
initial registered office in this State is 208 S. LaSalle Street, Chicago,
Illinois 60607, County of Cook, and the name of its initial registered agent at
such address is CT Corporation System.
ARTICLE III
The Corporation is formed for the purpose of transacting any
or all lawful businesses which may be conducted by corporations incorporated
under The Illinois Business Corporation Act of 1983.
ARTICLE IV
4.1 The Corporation shall have authority to issue the
following shares:
(1) Fifty Million (50,000,000) shares of Common Stock
having a par value of One Cent ($0.01) per share; and
(2) One Million (1,000,000) shares of Preferred Stock
having a par value of One Cent ($0.01) per share ("Preferred Stock").
<PAGE> 2
Dividends on outstanding shares of Preferred Stock shall be
paid or declared and set apart for payment before any dividends shall be paid
or declared and set apart for payment on the Common Stock with respect to the
same dividend period. Upon any voluntary or involuntary dissolution or
liquidation of the Corporation, the rights of the holders of the Common Stock
shall be junior and subordinate to the rights of the holders of the Preferred
Stock.
(a) The Board of Directors, by adoption of an
authorizing resolution, may cause Preferred Stock to be issued from time to
time in one or more series.
(b) The Board of Directors, by adoption of an
authorizing resolution with regard to the shares of any series of Preferred
Stock, may:
(1) Fix the distinctive serial
designation of the shares;
(2) Fix the dividend rate, if any;
(3) Fix the date from which dividends on
shares issued before the date for payment of the first
dividend shall cumulate, if any;
(4) Fix the redemption price and terms
of redemption, if any;
(5) Fix the amount payable per share in
the event of dissolution or liquidation of the Corporation, if
any;
(6) Fix the terms and amounts of any
sinking fund to be used for the purchase or redemption of
shares, if any;
(7) Fix the terms and conditions under
which the shares may be converted, if any;
(8) Provide whether such shares shall be
non-voting, or shall have full or limited voting rights or
voting rights contingent upon the occurrence of specified
events, and the rights, if any, of such shares to vote as a
class on some or all matters on which such shares may be
entitled to vote; and
- 2 -
<PAGE> 3
(9) Establish any other preferences,
qualifications, limitations, restrictions and special or
relative rights with respect to such series not required by
law.
4.2 Except as otherwise required by The Illinois Business
Corporation Act of 1983, whenever the holders of shares of stock of the
Corporation shall be entitled to vote as a class with respect to any matter,
the affirmative vote of the holders of a majority of the outstanding shares of
such class shall be required to constitute the act of such class. There shall
be no right to cumulative voting in the election of directors.
ARTICLE V
No holder of shares of any class of stock of the Corporation,
either now or hereafter authorized or issued, shall have any preemptive or
preferential right of subscription to any shares of any class of stock of the
Corporation, either now or hereafter authorized, or to any securities
convertible into stock of any class of the Corporation, issued or sold, nor any
right of subscription to any such security, other than such, if any, as the
Board of Directors in its discretion may from time to time determine and at
such prices as the Board of Directors may from time to time fix, pursuant to
the authority conferred by these Articles of Incorporation.
ARTICLE VI
The class and number of shares which the Corporation proposes
to issue initially, and the consideration to be received by the Corporation
therefor, are:
<TABLE>
<CAPTION>
Total consideration
Class Number of shares to be received therefor
----- ---------------- -----------------------
<S> <C> <C>
Common 100 $1,000
</TABLE>
- 3 -
<PAGE> 4
ARTICLE VII
7.1 The number of Directors to constitute the Board of
Directors shall be fixed, from time to time, at not less than three (3) nor
more than ten (10), by, or in the manner provided in, the By-Laws of the
Corporation. The Directors shall be divided into three classes: Class I,
Class II and Class III. The number of Directors in any such class shall not
exceed the number of Directors in any other class by more than one (1). The
term of office of the initial Class I Directors shall expire at the annual
meeting of shareholders of the Corporation in 1998; the term of office of the
initial Class II Directors shall expire at the annual meeting of shareholders
of the Corporation in 1999; and the term of office of the initial Class III
Directors shall expire at the annual meeting of shareholders of the Corporation
in 2000; or in each case thereafter until their respective successors are duly
elected and qualified. At each annual meeting beginning in 1998 the Directors
elected to succeed those whose terms then expire shall be identified as being
of the same class as the Directors they succeed and shall be elected for a term
of three (3) years expiring at the third succeeding annual shareholder meeting
or thereafter until their respective successors are duly elected and qualified.
If the number of Directors is changed, any increase or decrease in the number
of Directors shall be apportioned among the classes so as to maintain the
number of Directors in each class as nearly as possible. Directors need not be
residents of the State of Illinois or shareholders of the Corporation.
7.2 Any vacancy on the Board (whether such vacancy is
caused by death, resignation, or removal for cause or is the result of a newly
created directorship) shall be filled by a majority of the Directors then in
office. Any Director elected to fill a vacancy in any class (whether such
vacancy is caused by death, resignation, or removal with cause, or is the
result
- 4 -
<PAGE> 5
of an increase in the number of Directors in such class) shall hold office for
a term which shall expire with the term of the Directors in such class.
7.3 No Director may be removed without cause from office
during such Director's term of office. At a meeting called expressly for that
purpose, any Director may be removed by the shareholders for cause by the
affirmative vote of the holders of a majority of the shares entitled to vote at
an election of Directors.
ARTICLE VIII
The duration of the Corporation is perpetual.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation. Amendments
to the Articles of Incorporation shall be made in the manner prescribed by The
Illinois Business Corporation Act of 1983, provided that any amendment to these
Articles of Incorporation which has not been approved by the Board of Directors
of the Corporation shall be effective only upon the affirmative vote of the
holders of at least two-thirds (2/3) of the outstanding shares of Common Stock,
and two-thirds (2/3) of the outstanding shares of each other class or series of
stock entitled to vote as a class or series (if any) with respect to such
amendment. The power to make, alter, amend, or repeal the By-Laws of the
Corporation shall be vested in the Board of Directors, unless otherwise
provided in such By-Laws. The Board of Directors shall have and exercise such
further powers as are provided it under present or future laws of the State of
Illinois.
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<PAGE> 6
ARTICLE X
A director shall have no personal liability to the Corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, provided that the foregoing shall have no effect on a director's
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
under Section 8.65 of the Illinois Business Corporation Act of 1983, or (iv)
for any transaction from which the director derived an improper personal
benefit.
ARTICLE XI
11.1 The Corporation shall indemnify any person who was or
is a party, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he or she
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<PAGE> 7
reasonably believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his or her conduct was unlawful.
11.2 The Corporation shall indemnify any person who was or
is a party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, if such person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to the best interests of the Corporation,
provided that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
Corporation, unless, and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper.
11.3 To the extent that a director, officer, employee or
agent of the Corporation has been successful, on the merits or otherwise, in
the defense of any action, suit or proceeding referred to in Section 11.1 and
11.2, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
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<PAGE> 8
11.4 Any indemnification under Section 11.1 and 11.2
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case, upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in Section 11.1 or
11.2. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or even
if obtainable, if a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the shareholders.
11.5 Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, as authorized by the
Board of Directors in the specific case, upon receipt of an undertaking by or
on behalf of the director, officer, employee or agent to repay such amount,
unless it shall ultimately be determined that he or she is entitled to be
indemnified by the Corporation as authorized in this Article.
11.6 This Article is intended to provide for
indemnification to the fullest extent permitted by law, as in effect on the
date hereof or as hereafter adopted or amended. The indemnification provided
by this Article shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any other By- Law,
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
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<PAGE> 9
11.7 The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or who is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify such person against such liability under the
provisions of this Article.
11.8 If the Corporation has paid indemnification or has
advanced expenses to a director, officer, employee or agent, the Corporation
shall report the indemnification or advance in writing to the shareholders with
or before the notice of the next shareholders meeting.
11.9 For purposes of this Article, references to "the
Corporation" shall include, in addition to the surviving corporation, any
merging corporation (including any corporation having merged with a merging
corporation) absorbed in a merger which, if its separate existence had
continued, would have had the power and authority to indemnify its directors,
officers, and employees or agents, so that any person who was a director,
officer, employee or agent of such merging corporation, or was serving at the
request of such merging corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the surviving corporation as such person would have with respect to
such merging corporation if its separate existence had continued.
11.10 For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person
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<PAGE> 10
with respect to an employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves
services by such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries. A person who acted
in good faith and in a manner he or she reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article.
* * *
The undersigned incorporator hereby declares, under penalties
of perjury, that the statements made in the foregoing Articles of Incorporation
are true.
Dated December 24, 1996
/s/ Ronald E. Haglof
----------------
Ronald E. Haglof, Incorporator
One Mercantile Center
St. Louis, Missouri 63101
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<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
FALCONITE, INC.
Effective As
Of: December 31, 1996.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.3. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.4. Notice of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.5. Meetings, How Convened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.6. Fixing of Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.7. Voting Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.9. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.10. Voting of Shares; No Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.11. Voting of Shares by Certain Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.12. Shareholder Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.13. Notice of Shareholder Business and Nominations . . . . . . . . . . . . . . . . . . . . . 4
Section 2.14. Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.15. Books and Records -- Examination by Shareholders . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III. BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1. General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2. Number, Term and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.5. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.6. Quorum; Participation by Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.7. Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.8. Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.9. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.10. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.11. Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.12. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.1. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.2. Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.4. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.5. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.6. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.7. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
Section 4.8. The Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.9. The Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.10. The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.11. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.1. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.2. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.3. Checks, Drafts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.4. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1. Certificates for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VIII. DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IX. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . . . . . . 13
Section 9.1. General Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.2. Action by Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.3. Success on Merits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.4. Determination to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.5. Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.6. Non-Exclusive Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.8. Report to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.9. Definition of Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9.10. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE X. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XI. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XII. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 4
BY-LAWS
OF
FALCONITE, INC.
ARTICLE I. OFFICES
The principal office of the Corporation shall be located at
2525 Wayne Sullivan Blvd., Paducah, Kentucky. The Corporation may have such
other offices, either within or without the State of Illinois, as the Board of
Directors may designate or as the business of the Corporation may require from
time to time.
The registered office of the Corporation required by The
Business Corporation Act of Illinois to be maintained in the State of Illinois
may be changed from time to time by the Board of Directors.
ARTICLE II. SHAREHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the
shareholders shall be held on the third Thursday in the month of May, in each
year, beginning with the year 1998, at the hour of 10:00 a.m., or at such other
date and time as the Board of Directors may determine, for the purpose of
electing Directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Illinois, such meeting shall be held on the next
succeeding business day.
Section 2.2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the President, by the Board of Directors, or by the
holders of not less than two-thirds of all outstanding shares of the
Corporation entitled to vote at a meeting.
Section 2.3. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Illinois, as the
place of meeting for any annual meeting of the shareholders or for any special
meeting of the shareholders called by the Board of Directors, except that a
meeting called expressly for the purpose of removal of directors shall be held
at the registered office or principal business office of the Corporation in the
State of Illinois or in the city or county of the State of Illinois in which
the principal business office of the Corporation is located. A waiver of
notice signed by all shareholders entitled to vote at a meeting may designate
any place, either within or without the State of Illinois, as the place for the
holding of such meeting unless such meeting is called expressly for the purpose
of removal of directors, in which event the place for the holding of such
meeting shall be at the registered office or principal business office of the
Corporation in the State of Illinois or in the city or county of the State of
Illinois in which the principal business office of the Corporation is located.
If no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the registered office of the Corporation in the State
of Illinois.
1
<PAGE> 5
Section 2.4. Notice of Meeting. Written notice stating
the place, day and hour of the meeting and the purpose or purposes for which
the meeting is called, shall, unless otherwise allowed or prescribed by
statute, be delivered not less than ten nor more than sixty days before the
date of the meeting, or in the case of a merger or consolidation not less than
twenty nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each shareholder
of record entitled to vote at such meeting.
Section 2.5. Meetings, How Convened. Every meeting, for
whatever purpose, of the shareholders in the Corporation shall be convened by
its President, Secretary or other officer or any of the persons calling the
meeting by notice given as herein provided.
Section 2.6. Fixing of Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors of the Corporation may fix in advance a date as the
record date for any such determination of shareholders, such date in any case
to be not more than sixty days and, for a meeting of shareholders, not less
than ten days, or in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty days,
immediately preceding such meeting. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof.
Section 2.7. Voting Lists. The officer or agent having
charge of the transfer books for shares of the Corporation shall make, within
twenty days after the record date for a meeting of shareholders or ten days
before such meeting, whichever is earlier, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the registered office
of the Corporation and shall be subject to inspection by any shareholder, and
to copying at the shareholder's expense, at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during
the whole time of the meeting. The original share ledger or transfer books, or
a duplicate thereof kept in the State of Illinois, shall be prima facie
evidence as to who are the shareholders entitled to examine such list or share
ledger or transfer book or to vote at any meeting of the shareholders.
Section 2.8. Quorum. A majority of the outstanding shares
of the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders. If a quorum is present,
the affirmative vote of a majority of the shares represented at the meeting
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by law, the Articles of Incorporation, or these
By-Laws.
2
<PAGE> 6
Section 2.9. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by his or her duly authorized attorney in fact. Such proxy
shall be filed with the Secretary of the Corporation before or at the time of
the meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy. A duly executed proxy shall
be irrevocable only if it states that it is irrevocable and otherwise complies
with The Business Corporation Act of Illinois. If any instrument of proxy
designates two or more persons to act as proxy, in the absence of any
provisions in the proxy to the contrary, the persons designated may represent
and vote the shares in accordance with the vote or consent of the majority of
the persons named as proxies. If only one such proxy is present, the proxy may
vote all of the shares, and all the shares standing in the name of the
principal or principals for whom such proxy acts shall be deemed represented
for the purpose of obtaining a quorum. The foregoing provisions shall apply to
the voting of shares by proxies for any two or more administrators, executors,
trustees or other fiduciaries, unless an instrument or order of court
appointing them otherwise directs.
Section 2.10. Voting of Shares; No Cumulative Voting. Each
outstanding share shall be entitled to one vote upon each matter submitted to a
vote at a meeting of the shareholders. There shall be no right to cumulative
voting in the election of directors.
Section 2.11. Voting of Shares by Certain Holders. Shares
standing in the name of another corporation may be voted by any officer, agent,
proxy or other legal representative authorized to vote such shares under the
law of incorporation of such corporation. The Corporation may treat the
president or other person holding the position of chief executive officer of
such other corporation as authorized to vote such shares, together with any
other person indicated and any other holder of an office indicated by the
corporate shareholder to the Corporation as a person or an office authorized to
vote such shares. Such persons and offices indicated shall be registered by
the Corporation on the transfer books for shares and included in any voting
list prepared in accordance with Section 2.7.
Shares standing in the name of a deceased person, a minor ward
or a person under legal disability, may be voted by his or her administrator,
executor or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor or court
appointed guardian.
Shares standing in the name of a trustee may be voted by such
trustee, either in person or by proxy.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into such receiver's name if
authority so to do is contained in an appropriate order of the court by which
such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
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Shares of its own stock held by the Corporation in a fiduciary
capacity may be voted and shall be counted in determining the total number of
outstanding shares entitled to vote at any given time.
Section 2.12. Shareholder Action Without a Meeting. Any
action required to be taken at a meeting of the shareholders, or any action
which may be taken at a meeting of the shareholders, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof.
If the action consented to requires the filing of a
certificate under the Illinois Business Corporation Act of 1983, the
certificate filed under such Act shall state, in lieu of any statement required
concerning any vote of shareholders, that written consent has been given in
accordance with the provisions of such Act.
Section 2.13. Notice of Shareholder Business and
Nominations.
(A) Annual Meetings of Shareholders. (1) Nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the shareholders may be made at an
annual meeting of shareholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
shareholder of the Corporation who was a shareholder of record at the time of
giving of notice provided for in this By-Law, who is entitled to vote at the
meeting and who has complied with the notice procedures set forth in this
By-Law.
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause (c) of
paragraph (A)(1) of this Section 2.13, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual meeting
or the 10th day following the day on which public announcement of the date of
such meeting is first made by the Corporation. Such shareholder's notice shall
set forth (a) as to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareholder giving the
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notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such shareholder, as they appear
on the Corporation's books, and of such beneficial owner and (ii) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 2.13 of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice required by this Section 2.13
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the Corporation not later than the close
of business on the 10th day following the day on which such public announcement
is made by the Corporation.
(B) Special Meetings of Shareholders. Only such business
shall be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of shareholders at which directors are to be elected pursuant
to the Corporation's notice of meeting (a) by or at the direction of the Board
of Directors or (b) by any shareholder of the Corporation who is a shareholder
of record at the time of giving of notice provided for in this Section 2.13,
who shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.13 Board of Directors may be made at
such a special meeting of shareholders if the shareholder's notice required by
paragraph (A)(2) of this Section 2.13 principal executive offices of the
Corporation not earlier than the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting.
(C) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 2.13 shall be eligible
to serve as directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.13. Except as otherwise provided by
law, the Articles of Incorporation or these By-Laws, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Section 2.13 and, if any proposed nomination
or business is not in compliance with this Section 2.13, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 2.13, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in
a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 of 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this
Section 2.13, a shareholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this By-Law. Nothing in this Section 2.13 shall be
deemed to affect any rights of shareholders to request inclusion of proposals
in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
Section 2.14. Inspectors. At any meeting of the
shareholders, the Chairman of the meeting may, or upon the request of any
shareholder shall, appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of
shares represented at the meeting, based upon their determination of the
validity and effect of proxies; count all votes and report the results; and do
such other acts as are proper to conduct the election and voting with
impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by
him or her or by a majority of them if there be more than one inspector at such
meeting. If there is more than one inspector, the report of a majority shall
be the report of the inspectors. The report of the inspector or inspectors on
the number of shares represented at the meeting and the results of the voting
shall be prima facie evidence thereof.
Section 2.15. Books and Records -- Examination by
Shareholders. This Corporation shall keep correct and complete books and
records of account, as well as minutes of the proceedings of the shareholders
and Board of Directors and committees thereof. A record of the names and
addresses of the Corporation's shareholders, and the number and class of the
shares held by each shall be kept at the Corporation's registered office or
principal place of business in Illinois, or at the office of a transfer agent
or registrar in Illinois. Any person who is a shareholder of record shall have
the right to examine, in person or by agent, at any reasonable time or times,
for any proper purpose, the Corporation's books and records of account,
minutes, voting trust agreements filed with the Corporation and record of
shareholders, and to make extracts therefrom. Upon the written request of any
shareholder, this Corporation shall mail to such shareholder, within fourteen
days after receipt of such request, a balance sheet as of the close of the
fiscal year most recently ended and a profit and loss statement for such fiscal
year; provided that if such request is received by the Corporation before such
financial statements are available, the Corporation shall mail such financial
statements within fourteen days after they become available, but in any event
within one hundred twenty days after the close of said fiscal year.
ARTICLE III. BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of
the Corporation shall be managed by a Board of Directors.
Section 3.2. Number, Term and Qualifications. The number
of directors of the Corporation shall consist of such number of directors, not
less than three (3) nor more than ten (10), as shall be fixed from time to time
by resolution of the Board of Directors. The directors
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shall be divided into three classes: Class I, Class II and Class III. The
number of directors in any such class shall not exceed the number of directors
in any other class by more than one (1). The term of office of the initial
Class I directors shall expire at the annual meeting of shareholders of the
Corporation in 1998; the term of office of the initial Class II directors shall
expire at the annual meeting of shareholders of the Corporation in 1999; and
the term of office of the initial Class III directors shall expire at the
annual meeting of shareholders of the Corporation in 2000; or in each case
thereafter until their respective successors are duly elected and qualified.
At each annual election beginning in 1998 the directors elected to succeed
those whose terms then expire shall be identified as being of the same class as
the directors they succeed and shall be elected for a term of three (3) years
expiring at the third succeeding annual shareholder meeting or thereafter until
their respective successors are duly elected and qualified. If the number of
directors is changed, any increase or decrease in the number of directors shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly as possible. Directors need not be residents of the State
of Illinois or shareholders of the Corporation.
Any vacancy on the Board (whether such vacancy is caused by
death, resignation, or removal for cause or is the result of a newly created
directorship) shall be filled by a majority of the directors then in office.
Any director elected to fill a vacancy in any class (whether such vacancy is
caused by death, resignation, or removal with cause, or is the result of an
increase in the number of directors in such class) shall hold office for a term
which shall expire with the term of the directors in such class.
No director may be removed without cause from office during
such director's term of office. At a meeting called expressly for that
purpose, any director may be removed by the shareholders for cause by the
affirmative vote of the holders of a majority of the shares entitled to vote at
an election of directors.
Section 3.3. Regular Meetings. A regular meeting of the
Board of Directors shall be held without other notice than this Section 3.3,
immediately after, and at the same place as, the annual meeting of
shareholders. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of Illinois, for the holding of
additional regular meetings without other notice than such resolution.
Section 3.4. Special Meetings. Special meetings of the
Board of Directors may be called by or at the request of the Chairman, the
President or any three directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place, either within or
without the State of Illinois, as the place for holding any special meeting of
the Board of Directors called by them.
Section 3.5. Notice. Notice of any special meeting shall
be given at least two business days prior to such meeting by written notice
delivered personally or mailed to each director at his or her business address,
or by telegram. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, so addressed, with postage thereon
prepaid. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. The
attendance of a director at a meeting shall
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constitute a waiver of notice of such meeting, except where a Director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 3.6. Quorum; Participation by Telephone. A
majority of the full Board of Directors shall constitute a quorum for the
transaction of business. Members of the Board of Directors may participate in
and act at any meeting of such Board through the use of a conference telephone
or other communications equipment by means of which all persons participating
in the meeting can hear each other. Participation in such a meeting shall
constitute attendance and presence in person at the meeting of the person or
persons so participating.
Section 3.7. Manner of Acting. The act of a majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless the act of a different number is required
by statute, the Articles of Incorporation or these By-Laws.
Section 3.8. Action Without a Meeting. Any action which
may be taken at a meeting of the Board of Directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors. Such written consent shall be filed with the
minutes of the proceedings of the Board of Directors. Such action by consent
shall have the same force and effect as a unanimous vote of such Directors.
Section 3.9. Resignations. Any director may resign at any
time by giving written notice to the Board of Directors, the President or the
Secretary of the Corporation. Written notice shall be delivered by certified
or registered mail, with postage thereon prepaid and a return receipt
requested. Such resignation shall take effect at the date of the receipt of
such notice which date of receipt shall be deemed to be the date indicated upon
the registered or certified mail return receipt, or at any later time specified
therein; unless otherwise specified, acceptance of such resignation shall not
be necessary to make it effective.
Section 3.10. Compensation. By resolution of the Board of
Directors, each director may be paid his or her expenses, if any, of attendance
at each meeting of the Board of Directors, and may be paid a stated salary as
director or a fixed sum for attendance at each meeting of the Board of
Directors or both. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Section 3.11. Presumption of Assent. A director of the
Corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be conclusively presumed to have
assented to the action taken unless his or her dissent shall be entered in the
minutes of the meeting or unless he or she shall file a written dissent to such
action with the person acting as secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
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Section 3.12. Committees. The Board of Directors, by
resolution adopted by a majority of the directors, may create one or more
committees. Each committee shall consist of two or more directors and, to the
extent specified by the Board of Directors in the resolution establishing the
committee, shall have and exercise all of the authority of the Board of
Directors in the management of the Corporation, provided, such committee may
not authorize distributions with respect to shares of stock of the Company;
amend the Corporation's Articles of Incorporation; approve a plan of merger;
approve or recommend to the shareholders any act required by law to be approved
by them; adopt, amend or repeal the By-Laws of the Corporation; elect or remove
officers of the Corporation or fix the compensation of any member of the
committee; authorize or approve reacquisition of shares of the Corporation,
except according to a general formula or method prescribed by the Board of
Directors; authorize or approve the issuance or sale, or contract for sale, of
shares or determine the designation and relative rights, preferences, and
limitations of a series of shares, except that the Board of Directors may
direct a committee to fix the specific terms of the issuance or sale or
contract for sale or the number of shares to be allocated to particular
employees under an employee benefit plan; fill vacancies on the Board of
Directors or on any of its committees; amend, alter, repeal or take action
inconsistent with any resolution or action of the Board of Directors which by
its terms provides that it shall not be amended, altered or repealed by action
of a committee.
ARTICLE IV. OFFICERS
Section 4.1. Number. The officers of the Corporation
shall be a Chairman of the Board of Directors, President, one or more Vice
Presidents (the number thereof to be determined by the Board of Directors), a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or
more offices may be held by the same person.
Section 4.2. Election and Term of Office. The officers of
the Corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as conveniently may be arranged. Each officer shall serve at
the pleasure of the Board of Directors and shall hold office until his or her
successor shall have been duly elected and shall have qualified or until his or
her death or until he or she shall resign or shall have been removed in the
manner hereinafter provided.
Section 4.3. Removal. Any officer or agent may be removed
by the Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4.4. Resignations. Any officer may resign at any
time by giving written notice to the Board of Directors, the President or the
Secretary of the Corporation. Written notice shall be delivered by certified
or registered mail, with postage thereon prepaid and a return receipt
requested. Such resignation shall take effect at the date of the receipt of
such
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notice which date of receipt shall be deemed to be the date indicated upon the
registered or certified mail return receipt, or at any later time specified
therein; unless otherwise specified herein. The acceptance of such resignation
shall not be necessary to make it effective.
Section 4.5. Vacancies. A vacancy in any office because
of death, incapacity, resignation, removal, disqualification or otherwise, may
be filled by the Board of Directors for the unexpired portion of the term.
Section 4.6. Chairman of the Board. The Chairman of the
Board shall provide overall direction and guidance to the Corporation. He or
she shall preside at all meetings of the shareholders and of the Board of
Directors. The Chairman shall in general perform all duties incident to the
office of Chairman of the Board and such other duties as may be prescribed by
the Board of Directors from time to time.
Section 4.7. President. The President shall be the chief
executive officer of the Corporation and shall in general supervise and control
all of the business and affairs of the Corporation. The President may sign,
with the Secretary or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed.
The President may vote in person or by proxy shares in other corporations
standing in the name of this Corporation. The President shall in general
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board of Directors from time to time.
Section 4.8. The Vice Presidents. In the absence of the
President, whether due to resignation, incapacity or any other cause, or in the
event of the President's death, inability or refusal to act, the Vice President
(or in the event there be more than one Vice President, the Vice Presidents in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice President shall exercise
such powers only so long as the President remains absent or incapacitated, or
until the Board of Directors elects a new President. Any Vice President may
sign, with the Secretary, an Assistant Secretary, Treasurer or an Assistant
Treasurer, certificates for shares of the Corporation; and shall perform such
other duties as from time to time may be assigned to him or her by the
President or by the Board of Directors. The Board may affix qualifying titles
in conjunction with the election or appointment of a Vice President, such as
"Executive," "Senior," "Junior" and the like.
Section 4.9. The Secretary. The Secretary shall (a) keep
the minutes of the proceedings of the shareholders and of the Board of
Directors in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these By-Laws or as
required by law; (c) be custodian of the corporate records and of the seal of
the Corporation and see that the seal of the Corporation is affixed to all
documents the execution
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of which on behalf of the Corporation under its seal is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) sign with the President, or
a Vice President, certificates for shares of the Corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books of the Corporation; (g) have
the authority to certify these By-Laws, resolutions of the shareholders and
Board of Directors and committees thereof, and other documents of the
Corporation as true and correct copies thereof; and (h) in general perform all
duties incident to the office of Secretary and such other duties as from time
to time may be assigned to the Secretary by the President or by the Board of
Directors.
Section 4.10. The Treasurer. The Treasurer shall: (a)
have charge and custody of and be responsible for all funds and securities of
the Corporation; (b) receive and give receipts for moneys due and payable to
the Corporation from any source whatsoever, and deposit all such moneys in the
name of the Corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of Article V of these By-
Laws; and (c) in general perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to the
Treasurer by the President or by the Board of Directors. If required by the
Board of Directors, the Treasurer shall give a bond for the faithful discharge
of the Treasurer's duties in such sum and with such surety or sureties as the
Board of Directors shall determine.
Section 4.11. Salaries. The salaries of the officers shall
be fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that the officer is
also a director of the Corporation and participated in determining and voting
upon the salary.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 5.1. Contracts. The Board of Directors may
authorize any officer or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Section 5.2. Loans. No loans shall be contracted on
behalf of the Corporation and no evidences of indebtedness shall be issued in
its name unless authorized by a resolution of the Board of Directors. Such
authority may be general or confined to specific instances.
Section 5.3. Checks, Drafts, etc. All checks, drafts or
other orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation, shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
Section 5.4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board
of Directors may select.
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ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 6.1. Certificates for Shares. Certificates
representing shares of the Corporation shall be in such form as shall be
determined by the Board of Directors. The shares of the Corporation
represented by certificates shall be signed by the President or a Vice
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, and may be sealed with the seal, or a facsimile of the
seal, of the Corporation. In case the seal of the Corporation is changed after
the certificate is sealed with the seal or a facsimile of the seal of the
Corporation, but before it is issued, the certificate may be issued by the
Corporation with the same effect as if the seal had not been changed. If a
certificate is countersigned by a transfer agent or registrar, other than the
Corporation itself or its employee, any other signatures or countersignature on
the certificate may be facsimiles. If the Corporation is authorized to issue
shares of more than one class, a notice shall be set forth upon the face or the
back of each certificate representing shares issued by the Corporation which
shall state that a full summary or statement of all of the designations,
preferences, qualifications, limitations, restrictions, and special or relative
rights of the shares of each class authorized to be issued, and, if the
Corporation is authorized to issue any preferred or special class in series,
the variations in the relative rights and preferences between the shares of
each series so far as the same have been fixed and determined and the authority
of the Board of Directors to fix and determine the relative rights and
preferences of subsequent series, will be furnished by the Corporation upon
request and without charge. Each certificate representing shares shall also
state: (a) that the Corporation is organized under the laws of Illinois; (b)
the name of the person to whom issued; (c) the number and class of shares, and
the designation of the series, if any, which such certificate represents. No
certificate shall be issued for any share until such share is fully paid.
All certificates surrendered to the Corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the Corporation
as the Board of Directors may prescribe.
Section 6.2. Transfer of Shares. Transfer of shares of
the Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by his or her legal
representative, or by his or her attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
ARTICLE VII. FISCAL YEAR
The fiscal year of the Corporation shall be as fixed from time
to time by the Board of Directors.
ARTICLE VIII. DIVIDENDS
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The Board of Directors may, from time to time, declare and the
Corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and the Articles of Incorporation of
the Corporation.
ARTICLE IX. INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
Section 9.1. General Action. This Corporation shall
indemnify any person who was or is a party, or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the Corporation or, with respect to any
criminal action or proceeding, that the person had reasonable cause to believe
that his or her conduct was unlawful.
Section 9.2. Action by Corporation. This Corporation
shall indemnify any person who was or is a party, or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact
that such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit, if such person acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to
the best interests of the Corporation, provided that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his or her duty to the Corporation, unless, and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability, in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses as the court shall deem proper.
Section 9.3. Success on Merits. To the extent that a
director, officer, employee or agent of the Corporation has been successful, on
the merits or otherwise, in the defense of any action, suit or proceeding
referred to in Section 9.1 and 9.2, or in defense of any claim,
13
<PAGE> 17
issue or matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection therewith.
Section 9.4. Determination to Indemnify. Any
indemnification under Section 9.1 and 9.2 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case, upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in Section 9.1 or 9.2. Such determination shall
be made (1) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the shareholders.
Section 9.5. Time of Payment. Expenses incurred in
defending a civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding, as authorized by the Board of Directors in the specific case, upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount, unless it shall ultimately be determined that he or
she is entitled to be indemnified by the Corporation as authorized in this
Article.
Section 9.6. Non-Exclusive Right. This Article is
intended to provide for indemnification to the fullest extent permitted by law,
as in effect on the date hereof or as hereafter adopted or amended. The
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
other By-Law, agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 9.7. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or who is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify such person against such
liability under the provisions of this Article.
Section 9.8. Report to Shareholders. If the Corporation
has paid indemnification or has advanced expenses to a director, officer,
employee or agent, the Corporation shall report the indemnification or advance
in writing to the shareholders with or before the notice of the next
shareholders meeting.
Section 9.9. Definition of Corporation. For purposes of
this Article, references to "the Corporation" shall include, in addition to the
surviving corporation, any merging corporation (including any corporation
having merged with a merging corporation) absorbed in a merger which, if its
separate existence had continued, would have had the power and authority
14
<PAGE> 18
to indemnify its directors, officers, and employees or agents, so that any
person who was a director, officer, employee or agent of such merging
corporation, or was serving at the request of such merging corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article with respect to the surviving corporation as such
person would have with respect to such merging corporation if its separate
existence had continued.
Section 9.10. Other Definitions. For purposes of this
Article, references to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries. A person who
acted in good faith and in a manner he or she reasonably believed to be in the
best interests of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article.
ARTICLE X. CORPORATE SEAL
The Board of Directors shall provide a corporate seal in the
form of a circle with the name of the Corporation inscribed thereon.
ARTICLE XI. WAIVER OF NOTICE
Whenever any notice is required to be given under the
provisions of these By-Laws or of the Articles of Incorporation or of The
Business Corporation Act of Illinois, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XII. AMENDMENTS
These By-Laws may be altered, amended or repealed and new
By-Laws adopted by action of the shareholders or the Board of Directors.
15
<PAGE> 19
Adopted as of December 31, 1996.
/s/ Michael A. Falconite
-------------------------------------------------------
Michael A. Falconite, President-Chief Executive Officer
ATTEST:
/s/ Kevin S. Pugh
- ---------------------------------------------
Kevin S. Pugh, Vice President-Chief Financial
Officer-Secretary
16
<PAGE> 1
Exhibit 4.1
NUMBER SHARES
ORGANIZED UNDER THE LAWS OF THE STATE OF
ILLINOIS
FALCONITE, INC.
COMMON STOCK
AUTHORIZED 50,000,000 SHARES OF $0.01 PAR VALUE EACH
------------------ ---------
THIS CERTIFIES THAT SPECIMEN is the owner of ____________ Shares of the Capital
Stock of the above named Corporation, fully paid, non-assessable and
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this __________ day of ____________ 19_____________
- ------------------------------- -------------------------
SECRETARY PRESIDENT
<PAGE> 2
CERTIFICATE
FOR
SHARES
OF
ISSUED TO
DATED
For Value Received, ____________ hereby sell, assign and transfer unto
_____________________________________Shares of the Capital Stock represented by
the within Certificate and do hereby irrevocably constitute and appoint
___________________ Attorney to transfer the said Stock on the books of the
within named Corporation with full power of substitution in the premises.
Dated ___________ 19 ____
In presence of
- ------------------------------------- --------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER
<PAGE> 1
Exhibit 4.2
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT (this "Agreement") is made and
entered into as of December 31, 1996, by Falconite, Inc., an Illinois
corporation ("Holdings"), Falconite Investments, L.P., a Colorado limited
partnership ("FILP"), Joseph A. Falconite as Trustee of the Joseph A. Falconite
Revocable Trust U/A/D December 17, 1996 ("Joseph Trust"), Michael A. Falconite
as Trustee of the Michael A. Falconite Revocable Trust U/A/D December 17, 1996
("Michael Trust"), Joseph A. Falconite ("Joseph"), Michael A. Falconite
("Michael"), Emilie Nicole Falconite ("Emilie"), Angela S. Grimm ("Grimm"),
David Melber ("Melber"), Ralph W. McCurry ("McCurry") and Wanda Rene McCurry as
Trustee of the Ralph W. McCurry Children's Trust U/A/D 12/30/96 ("McCurry
Trust").
RECITALS
A. All capitalized terms used in these recitals without
definition shall have the respective meanings ascribed thereto in Article 1 of
this Agreement.
B. FILP, Joseph Trust, Michael Trust, Emilie, Grimm and
Melber collectively own all of the issued and outstanding shares of the Company
Common Stock.
C. Joseph, Michael, McCurry and McCurry Trust collectively
own all of the issued and outstanding shares of the Properties Common Stock.
D. Michael and McCurry collectively own all of the issued and
outstanding shares of the Equipment Common Stock.
E. The Shareholders have reached an understanding pursuant to
which (i) the Company Shareholders will exchange their Company Common Stock for
shares of Holdings Common Stock, (ii) the Properties Shareholders will exchange
their Properties Common Stock for shares of Holdings Common Stock, and (iii)
the Equipment Shareholders will exchange their Equipment Common Stock for
shares of Holdings Common Stock.
F. Holdings and the Shareholders desire to set forth certain
representations, warranties and covenants made to induce the execution of this
Agreement, and certain conditions precedent to their respective obligations
hereunder.
NOW, THEREFORE, in consideration of these premises, the
covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged,
Holdings and each of the Shareholders hereby agree as follows:
<PAGE> 2
Article 1
Definitions
In addition to the terms defined in the preamble and elsewhere
in this Agreement, the following terms used herein shall have the respective
meanings ascribed thereto:
1.1 Business Day. "Business Day" means any day other
than a Saturday, Sunday, legal holiday or other day on which banks in Chicago,
Illinois are permitted to be closed.
1.2 Closing. "Closing" means the closing of the
transactions contemplated by this Agreement at the time and place designated in
or established pursuant to Article 6 of this Agreement.
1.3 Closing Date. "Closing Date" means the date of this
Agreement as set forth in the preamble to this Agreement.
1.4 Company. "Company" means Falconite Equipment, Inc.,
an Illinois corporation f/k/a Falconite, Inc..
1.5 Company Common Stock. "Company Common Stock" means
the common stock of the Company, par value $10.00 per share.
1.6 Company Shareholders. "Company Shareholders" means,
collectively, FILP, Joseph Trust, Michael Trust, Emilie, Grimm and Melber, and
"Company Shareholder" means any of the Company Shareholders.
1.7 Equipment. "Equipment" means McCurry & Falconite
Equipment Co., Inc., an Alabama corporation.
1.8 Equipment Common Stock. "Equipment Common Stock"
means the common stock of Equipment, par value $1.00 per share.
1.9 Equipment Shareholders. "Equipment Shareholders"
means, collectively, Michael and McCurry, and "Equipment Shareholder" means any
of the Equipment Shareholders.
1.10 Exchange Act. "Exchange Act" means the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated by
the SEC thereunder.
1.11 Holdings Common Stock. "Holdings Common Stock" means
the common stock of Holdings, par value $0.01 per share.
1.12 Holdings Preferred Stock. "Holdings Preferred Stock"
means the preferred stock of Holdings, par value $0.01 per share.
1.13 Person. "Person" means any individual, corporation,
partnership, limited liability company, joint venture, association,
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<PAGE> 3
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
1.14 Properties. "Properties" means M & M Properties,
Inc., d/b/a M & M Equipment, Inc., an Alabama corporation.
1.15 Properties Common Stock. "Properties Common Stock"
means the common stock of Properties, par value $1.00 per share.
1.16 Properties Shareholders. "Properties Shareholders"
means, collectively, Joseph, Michael, McCurry and McCurry Trust, and
"Properties Shareholder" means any of the Properties Shareholders.
1.17 SEC. "SEC" means the Securities and Exchange
Commission.
1.18 Securities Act. "Securities Act" means the
Securities Act of 1933, as amended, and the rules and regulations of the SEC
promulgated thereunder.
1.19 Shareholders. "Shareholders" means, collectively,
the Company Shareholders, the Properties Shareholders and the Equipment
Shareholders, and "Shareholder" means any of the Company Shareholders, the
Properties Shareholders or the Equipment Shareholders.
Article 2
Exchange and Issuance of Common Stock
Subject to the terms and conditions set forth in this
Agreement, at the Closing the Shareholders and Holdings shall take the
following actions:
2.1 Company Common Stock. Each Company Shareholder shall
deliver to Holdings contemporaneously with the execution of this Agreement
certificates representing all Company Common Stock held by such Company
Shareholder, each such certificate to be duly endorsed for transfer in blank.
In consideration therefor, Holdings shall issue to each Company Shareholder,
and deliver certificates evidencing, 767.161196 shares of Holdings Common Stock
for each share of Company Common Stock transferred to Holdings by such Company
Shareholder (with fractional shares to be rounded up or down to the nearest
whole share); provided that the total number of Holdings Shares to be issued to
the Company Shareholders shall be 9,980,000, and if the rounding of fractional
shares results in any other number, then the number of Holdings Shares to be
issued to FILP shall be adjusted upward or downward by the amount necessary to
cause the total so issued to be 9,980,000.
2.2 Properties Common Stock. Each Properties Shareholder
shall deliver to Holdings contemporaneously with the execution of this
Agreement certificates representing all
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<PAGE> 4
Properties Common Stock held by such Properties Shareholder, each such
certificate to be duly endorsed for transfer in blank. In consideration
therefor, Holdings shall issue to each Properties Shareholder, and deliver
certificates evidencing, 4,990 shares of Holdings Common Stock for each share
of Properties Common Stock transferred to Holdings by such Properties
Shareholder (with fractional shares to be rounded up or down to the nearest
whole share); provided that the total number of Holdings Shares to be issued to
the Properties Shareholders shall be 6,653,330, and if the rounding of
fractional shares results in any other number, then the number of Holdings
Shares to be issued to McCurry shall be adjusted upward or downward by the
amount necessary to cause the total so issued to be 6,653,330.
2.3 Equipment Common Stock. Each Equipment Shareholder
shall deliver to Holdings contemporaneously with the execution of this
Agreement certificates representing all Equipment Common Stock held by such
Equipment Shareholder, each such certificate to be duly endorsed for transfer
in blank. In consideration therefor, Holdings shall issue to each Equipment
Shareholder, and deliver certificates evidencing, 1663.33 shares of Holdings
Common Stock for each share of Equipment Common Stock transferred to Holdings
by such Equipment Shareholder (with fractional shares to be rounded up or down
to the nearest whole share).
2.4 Registration Agreement. As additional consideration
for the Holdings Common Stock, each Shareholder agrees to execute and deliver
to Holdings at the Closing a Registration Agreement, substantially in the form
attached hereto as Schedule 2.4.
2.5 Date of Issuance and Legends. All shares of Holdings
Common Stock to be issued pursuant to this Article 2 shall be issued as of the
Closing Date. All certificates representing such shares shall bear the legend
required by Section 7.2 of this Agreement and any other legend required by law.
Article 3
Shareholders' Representations and Warranties
To induce Holdings and each of the other Shareholders to enter
into this Agreement, each Shareholder hereby represents and warrants to
Holdings and the other Shareholders as follows:
3.1 No Violation; Noncontravention. The execution and
delivery by such Shareholder of this Agreement do not, and the consummation of
the transactions contemplated hereby will not, violate, constitute a breach of
or cause a default under (a) any note, mortgage, material agreement or other
instrument or other obligation to which such Shareholder is a party or by which
he or she or his or her property is bound; or (b) any law, regulation, rule,
judgment or order binding upon such Shareholder, the violation of which would
have a material adverse effect on the performance of such Shareholder's
obligations hereunder.
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<PAGE> 5
3.2 Execution and Delivery; Binding Effect. Such
Shareholder has duly and validly executed and delivered this Agreement. This
Agreement constitutes the valid and binding obligation of such Shareholder
enforceable in accordance with its terms.
3.3 Stock Ownership. Such Shareholder is the record and
beneficial owner of the number of shares of the Company Common Stock,
Properties Common Stock and/or Equipment Common Stock reflected on Schedule 5.4
as being owned by such Shareholder, free and clear of all liens, claims,
security interests, encumbrances and restrictions on transfer of any nature
whatsoever.
Article 4
Investment Representations
As a further inducement to cause Holdings to enter into this
Agreement and to issue the Holdings Common Stock to the Shareholders, each
Shareholder hereby represents and warrants to Holdings as follows:
4.1 Private Placement.
(a) Such Shareholder understands that (i) the
offering and sale of the Holdings Common Stock is intended to be exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act, and (ii) there is no existing public or other market for
Holdings Common Stock and there can be no assurance that such Shareholder will
be able to sell or dispose of Holdings Common Stock.
(b) The Holdings Common Stock to be acquired by
such Shareholder pursuant to this Agreement is being acquired without a view to
the resale or public distribution of such Holdings Common Stock or any interest
therein in violation of applicable law; provided that such Shareholder shall
have the right at all times to sell or otherwise dispose of all or any part of
Holdings Common Stock pursuant to registration, or exemption therefrom, under
the Securities Act and applicable state securities laws, and subject,
nevertheless, to the disposition of such Shareholder's property being at all
times within his or her control.
(c) Such Shareholder has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of his or her investment in Holdings Common Stock and is
capable of bearing the economic risks of such investment for an indefinite
period, including a complete loss of his or her investment in Holdings Common
Stock.
(d) Such Shareholder has had the opportunity to
ask questions of, and receive answers from, Holdings concerning the terms and
conditions of Holdings Common Stock, this Agreement and
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<PAGE> 6
other related matters. Such Shareholder further acknowledges that Holdings has
made available to such Shareholder or his or her agents all documents and
information relating to an investment in Holdings Common Stock requested by or
on behalf of such Shareholder.
(e) Such Shareholder is exchanging his or her
Company Common Stock, Properties Common Stock and/or Equipment Common Stock, as
the case may be, for Holdings Common Stock on the basis of his or her own
knowledge of the value of the Company, Properties and/or Equipment, as the
case may be, and on the basis of his or her own evaluation of the documents and
information relating to an investment in Holdings Common Stock which he or she
has reviewed or received, and not in reliance on any representation or warranty
of Holdings other than as set forth herein. Such Shareholder has such
knowledge and experience in financial matters that he or she is capable of
making such an evaluation.
(f) Such Shareholder resides at the address set
forth on the signature page hereof and has no present intention of establishing
a residence in any other state or jurisdiction.
(g) Such Shareholder acknowledges that the
Holdings Common Stock being delivered to him or her pursuant to this Agreement
may not be transferred, sold, assigned, pledged, hypothecated or otherwise
disposed of except (i) pursuant to an effective registration statement under
the Securities Act, (ii) pursuant to Rule 144 or 144A, or any successor rule,
under the Securities Act, or (iii) upon receipt by Holdings of a written
opinion of the holder's counsel addressed to Holdings reasonably satisfactory
in form and substance to Holdings, that the proposed disposition would comply
with the Securities Act.
4.2 Reliance. Each Shareholder acknowledges that in
entering into this Agreement, such Shareholder is relying solely on the
representations, warranties and covenants of Holdings and the Shareholders set
forth herein.
Article 5
Holdings' Representations and Warranties
In order to induce the Shareholders to enter into this
Agreement, Holdings hereby represents and warrants to each of the Shareholders
as follows:
5.1 Organization, Standing, Qualification, Etc. Holdings
(a) is a corporation duly incorporated, validly existing and in good standing
under the laws of the State of Illinois, (b) is duly licensed or qualified to
do business and is in good standing under the laws of each jurisdiction where
the ownership, lease or operation of property or the conduct of its business
requires such qualification, except for such jurisdictions where the failure to
be so qualified or licensed would not have a
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<PAGE> 7
material adverse effect on the business, operations, properties or condition
(financial or otherwise) of Holdings, and (c) has full power and lawful
corporate authority to carry on its business and to own and operate its assets,
properties and business.
5.2 Authorization; Governmental and Other Approvals;
Noncontravention of Basic Documents. The execution, delivery and performance
by Holdings of this Agreement (a) are within the corporate powers of Holdings,
(b) have been duly authorized by all necessary corporate action of Holdings,
(c) will require no action by or in respect of, or filing with, any
governmental body, agency or official (except for applicable Blue Sky laws and
except for such other filings or approvals, all of which have been or will be
obtained prior to the Closing), (d) will not contravene, conflict or be
inconsistent with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
right of acceleration or any similar right, or require the consent, of any
other party to (as applicable in the context) (i) any provisions of applicable
law, rule or regulation, (ii) the certificate of incorporation or bylaws of
Holdings (as in effect immediately following the Closing) or (iii) any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument or any judgment, writ, injunction, order, decree or other instrument
of any government or subdivision thereof, binding upon Holdings or its
property, and (e) will not result in the creation or imposition of any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind on
any asset of Holdings, except to the extent any such contravention, conflict,
inconsistency, breach, default, right, requirement, creation or imposition
would not have a material adverse effect on the business, operations, property
or condition (financial or otherwise) of Holdings.
5.3 Execution and Delivery; Binding Effect. Holdings has
duly and validly executed and delivered this Agreement. This Agreement
constitutes the valid and binding obligation of Holdings enforceable in
accordance with its terms.
5.4 Capitalization.
(a) The authorized capital stock of Holdings
consists, and will consist immediately prior to and immediately following the
Closing, of 50,000,000 shares of Holdings Common Stock and 1,000,000 shares of
Holdings Preferred Stock.
(b) No shares of Holdings Common Stock are issued
and outstanding as of the date hereof.
(c) Immediately following the Closing, the issued
and outstanding capital stock of Holdings will consist of 16,633,430 shares of
Holdings Common Stock, which shares will be owned of record by the respective
Shareholders and in the respective amounts set forth in Schedule 5.4 attached
hereto, free and clear of all liens, claims, security interests, encumbrances
and restrictions on transfer of any nature whatsoever, except for
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<PAGE> 8
generally applicable legal restrictions on transfers of unregistered
securities, and except to the extent described in or contemplated by this
Agreement. All of such shares will have been duly authorized and validly
issued, and will be fully paid and nonassessable.
(d) Except as stated in this Section 5.4,
immediately following the Closing, there will be outstanding no other capital
stock of Holdings, and no other securities convertible into, exchangeable for
or carrying the right to acquire, or subscriptions, options, warrants or other
rights to acquire from Holdings, or other obligations of Holdings to issue,
directly or indirectly, any capital stock of Holdings.
5.5 Registration Rights. Holdings is not, and
immediately following the Closing will not be, a party to any agreement
granting registration rights to any Person with respect to any of its equity or
debt securities.
5.6 Governmental Regulation. Other than the Securities
Act and any applicable state securities laws, Holdings is not subject to any
federal or state law or regulation limiting its ability to issue Holdings
Common Stock.
5.7 Compliance with Laws. Holdings is not in default
under or in violation of any applicable statute, law, ordinance, decree, rule
or regulation of any governmental body, and the consummation of the
transactions contemplated hereby will not constitute or result in any such
default or violation, except in each case where such a default or violation
would not have a material adverse effect on the business, operations, property
or condition (financial or otherwise) of Holdings.
5.8 Litigation. There is no suit, claim, proceeding, or
governmental investigation now pending or, to the best of Holdings's knowledge,
threatened against Holdings which contests the validity of this Agreement or
the ability of Holdings to carry out its obligations under this Agreement.
5.9 Private Offering.
(a) Assuming the accuracy of the representations
and warranties of the Shareholders set forth in Article 4 of this Agreement,
the sale of Holdings Common Stock hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act. Holdings has not
offered Holdings Common Stock to anyone other than the Shareholders.
(b) No form of general solicitation or general
advertising was used by Holdings or any Person acting on its behalf, in respect
of Holdings Common Stock or in connection with the offer and sale of Holdings
Common Stock. Neither Holdings nor, to the best of Holdings's knowledge, any
Person acting on behalf of Holdings, has directly or indirectly sold or offered
for sale to
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<PAGE> 9
any Person any of Holdings Common Stock or any other similar security of
Holdings, except as contemplated by this Agreement.
Article 6
Closing and Closing Date
Each of the transactions described in this Agreement shall be
closed and become effective at the Closing, which shall take place on the
Closing Date commencing at 10:00 a.m. local time at the principal office of the
Company in Paducah, Kentucky, or at such other place as shall be agreed upon by
the parties hereto.
Article 7
Limitation on Transfers of Securities
7.1 Restriction on Transfer. From and after the Closing
Date, neither Holdings Common Stock nor any interest therein shall be
transferable except upon satisfaction of the relevant conditions specified in
Section 7.3 of this Agreement, which conditions are intended to ensure
compliance with the provisions of the Securities Act with respect to the
transfer of any of Holdings Common Stock or any interest therein. Each
Shareholder will cause any proposed transferee of Holdings Common Stock (or of
any interest therein) held by it to agree to take and hold such Holdings Common
Stock (or any interest therein) subject to the provisions and upon the
conditions specified in Section 7.3 of this Agreement.
7.2 Restrictive Legend.
(a) Each certificate for Holdings Common Stock
issued to the Shareholders or to a subsequent transferee shall (unless
otherwise permitted by the provisions of Section 7.3 of this Agreement) include
a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (I)
A REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE
UNDER SUCH ACT, (II) RULE 144 OR 144A UNDER SUCH ACT, OR IF REASONABLY
REQUIRED BY HOLDINGS (III) AN OPINION OF THE HOLDER'S COUNSEL,
REASONABLY SATISFACTORY TO HOLDINGS, TO THE EFFECT THAT SUCH SALE,
TRANSFER, HYPOTHECATION OR OTHER ASSIGNMENT IS IN COMPLIANCE WITH THE
PROVISIONS OF SUCH ACT.
(b) The foregoing legend shall be in addition to
any other legend required by law or by any agreement to which any of the
Shareholders and/or Holdings are parties.
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<PAGE> 10
7.3 Notice of Proposed Transfers. Not less than two
Business Days prior to any proposed transfer of any Holdings Common Stock
bearing the restrictive legend set forth in Section 7.2 or any interest
therein, the holder thereof shall give written notice to Holdings of such
holder's intention to effect such transfer, setting forth the manner and
circumstances of the proposed transfer in reasonable detail. If required by
Holdings, any such proposed transfer which is not made pursuant to a
registration statement filed under the Securities Act may be effected only if
Holdings shall have received such notice of transfer accompanied by (i) an
opinion of counsel reasonably satisfactory to Holdings, addressed to Holdings,
to the effect that the proposed transfer of such Holdings Common Stock or such
interest therein may be effected without registration of such Holdings Common
Stock under the Securities Act (except that such an opinion shall not be
required for transfers pursuant to Rule 144 or 144A of the Securities Act), and
(ii) such representation letters in form and substance reasonably satisfactory
to Holdings to the extent required by the provisions of the Securities Act. In
addition, if the holder of Holdings Common Stock delivers to Holdings an
opinion of the holder's counsel reasonably satisfactory to Holdings that
subsequent transfers of such Holdings Common Stock will not require
registration under the Securities Act, Holdings will promptly after such
contemplated transfer deliver new certificates for such Holdings Common Stock
that do not bear the legend set forth in Section 7.2 above. If the foregoing
conditions entitling the holder to effect a proposed transfer of such Holdings
Common Stock without registration have not been satisfied, the holder in each
case will not transfer the Holdings Common Stock proposed to be transferred.
Each certificate evidencing Holdings Common Stock transferred as above provided
shall bear the appropriate legend set forth in Section 7.2 and each agreement
purporting to transfer any interest in any Holdings Common Stock shall bear a
similar legend, except that such certificate or agreement shall not bear such
legend (i) if the opinion of counsel referred to above is reasonably
satisfactory in form and substance to Holdings and is to the further effect
that neither such legend nor the restriction on transfer in this Section 7.3
are required in order to ensure compliance with the provisions of the
Securities Act, or (ii) if Holdings determines that such legend is not
required. Notwithstanding the foregoing, the restrictions imposed by this
Section 7.3 upon the transferability of any Holdings Common Stock shall cease
and terminate when such Holdings Common Stock have been sold pursuant to an
effective registration statement under the Securities Act or transferred
pursuant to Rule 144 or 144A promulgated under the Securities Act (or any
similar or successor provision then in force). The holder of any Holdings
Common Stock as to which such restrictions shall have terminated shall be
entitled to receive from Holdings, without expense, a new security of the same
type but not bearing the restrictive legend set forth above and not containing
any other reference to the restrictions imposed by this Section 7.3.
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<PAGE> 11
Article 8
Miscellaneous
8.1 Notices. All notices, requests and other
communications to any party hereunder shall be in writing and shall be given to
such party at its address or telecopier number set forth on the signature page
hereof, or such other address or telecopier number as such party may
hereinafter specify for the purpose. Each such notice, request or other
communication shall be effective (a) if given by telecopy, when such telecopy
is transmitted to the telecopy number specified in this Section 8.1 and the
transmitting telecopier receives confirmation of delivery, (b) if given by
overnight air courier, on the next Business Day after the date of shipment, or
(c) if given by any other means, when delivered at the address referred to in,
or specified by such party pursuant to, this Section 8.1.
8.2 No Waivers; Amendments.
(a) No failure or delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement may be
amended or waived if, but only if such amendment or waiver is in writing and is
signed by each party against whom or which such amendment or waiver is to be
enforced. Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by any party from the terms of any provision of this
Agreement, shall be effective only in the specific instance and for the
specific purpose for which made or given.
8.3 Survival of Provisions. All representations,
warranties, covenants and agreements contained herein or made in writing by or
on behalf of any party to this Agreement in connection herewith shall survive
the execution and delivery of this Agreement and shall remain operative and in
full force and effect regardless of (i) any investigation made by or on behalf
of any of the Shareholders, or by or on behalf of Holdings, (ii) acceptance of
any Holdings Common Stock and payment therefor, or (iii) any termination of
this Agreement.
8.4 Headings and Schedules. The headings herein are for
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof. The
Schedules attached hereto, and the certificates and other documents delivered
as specified herein, are expressly made a part of this Agreement.
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<PAGE> 12
8.5 Successors and Assigns. This Agreement shall bind
and inure to the benefit of the respective heirs, personal representatives,
executors, administrators, successors and assigns of each of the parties
hereto, including, without limitation, any holder of any Holdings Common Stock.
8.6 Illinois Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Illinois, without
regard to the conflict of laws provisions thereof.
8.7 Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts, each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument. The parties hereto agree that any facsimile signature will have
the same effect as an original signature. This Agreement shall become
effective when signed by or on behalf of all of the parties hereto.
8.8 Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings of the parties, written or
oral, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
8.9 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected,
it being intended that all of the rights and privileges of the Shareholders and
the other holders of any Holdings Common Stock shall be enforceable to the
fullest extent permitted by law.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
FALCONITE, INC.
By: /s/ Michael A. Falconite
------------------------------------------
Michael A. Falconite
President
FALCONITE INVESTMENTS, L.P.
By MICHAEL A. FALCONITE REVOCABLE
TRUST U/A/D 12/17/96, its
Managing General Partner
By:/s/ Michael A. Falconite
-----------------------------------
Michael A. Falconite
Trustee
JOSEPH A. FALCONITE REVOCABLE TRUST
U/A/D 12/17/96
By: /s/ Joseph A. Falconite
------------------------------------------
Joseph A. Falconite, Trustee
MICHAEL A. FALCONITE REVOCABLE
TRUST U/A/D 12/17/96
By: /s/ Michael A. Falconite
------------------------------------------
Michael A. Falconite, Trustee
/s/ Joseph A. Falconite
----------------------------------------------
Joseph A. Falconite
Address: 3835 Londonderry Drive
Paducah, Kentucky 42001
/s/ Michael A. Falconite
----------------------------------------------
Michael A. Falconite
Address: 6305 Turnberry Drive
Paducah, Kentucky 42001
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<PAGE> 14
/a/ Emilie Nicole Falconite
-----------------------------------------------
Emilie Nicole Falconite
Address: 2114 West Park Drive
Paducah, Kentucky 42001
/s/ Angela S. Grimm
-----------------------------------------------
Angela S. Grimm
Address: 6305 Turnberry Drive
Paducah, Kentucky 42001
/s/ David Melber
-----------------------------------------------
David Melber
Address: 610 Springwell Lane
Paducah, Kentucky 42001
/s/ Ralph W. McCurry
-----------------------------------------------
Ralph W. McCurry
Address: 217 Sunset Circle
Madison, Alabama 35758
RALPH W. MCCURRY CHILDREN'S TRUST
U/A/D 12/30/96
By: /s/ Wanda Rene McCurry
-------------------------------------------
Wanda Rene McCurry, Trustee
- 14 -
<PAGE> 1
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of December 31, 1996, by and among Falconite, Inc., an Illinois corporation
(the "Company"), Falconite Investments, L.P., a Colorado limited partnership
("FILP"), Joseph A. Falconite as Trustee of the Joseph A. Falconite Revocable
Trust U/A/D December 17, 1996 ("Joseph Trust"), Michael A. Falconite as Trustee
of the Michael A. Falconite Revocable Trust U/A/D December 17, 1996 ("Michael
Trust"), Joseph A. Falconite ("Joseph"), Michael A. Falconite ("Michael"),
Emilie Nicole Falconite ("Emilie"), Angela S. Grimm ("Grimm"), David Melber
("Melber"), Ralph W. McCurry ("McCurry") and Wanda Rene McCurry as Trustee of
the Ralph W. McCurry Children's Trust U/A/D 12/30/96 ("McCurry Trust"). Each
of FILP, Joseph Trust, Michael Trust, Joseph, Michael, Emilie, Grimm, Melber,
McCurry and McCurry Trust is sometimes referred to herein individually as a
"Shareholder" and collectively as the "Shareholders".
W I T N E S S E T H:
WHEREAS, the Shareholders are the holders of all of the issued
and outstanding shares of the Company's Common Stock; and
WHEREAS, in connection that certain Recapitalization
Agremeent, dated as of December 31, 1996, the parties agreed to execute and
deliver this Agreement setting forth certain rights of the Shareholders with
respect to registration under the Securities Act of 1933, as amended, of the
shares of the Common Stock held by the Shareholders.
NOW, THEREFORE, in consideration of these premises, the
covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged,
the parties hereto agree as follows:
Article 1
Registration of Registrable Securities
1.1 Certain Definitions. For purposes of this Agreement
the following terms shall have the following meanings:
(a) The term "Act" means the Securities Act of
1933, as amended;
(b) The term "Common Stock" shall mean shares of
the Company's Common Stock, $.01 per value per share, and any stock or
securities issued with respect to such Common Stock by reason of a stock
dividend, stock split, combination of shares, recapitalization
reclassification, merger, consolidation, corporate reorganization or otherwise;
<PAGE> 2
(c) The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended;
(d) The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Act and the declaration or
ordering of effectiveness of such registration statement;
(e) The term "Registrable Securities" means the
shares of Common Stock held by the Shareholders; provided, however, such shares
shall not be deemed to be Registrable Securities to the extent that the Company
shall have received an opinion of counsel reasonably acceptable to the Company
that such shares may be resold without registration under Rule 144 under the
Act (or any successor rule) or an applicable exemption from registration under
the Act.
(f) The term "Rule 144" means Rule 144 under the
Act (or any similar rule then in force); and
(g) The term "Holder" means (a) each of the
Shareholders, and (b) any other person holding Registerable Securities to whom
the registration rights set forth in this Agreement have been transferred
pursuant to Section 1.9.
1.2 Demand Registrations.
(a) Requests for Registration. At any time on or
after the expiration of 180 days following the consummation of the Company's
initial public offering, as set forth in this Section 1.2 the Holders of a
majority of the Registrable Securities may request registration under the Act
of all or part of their Registrable Securities on Form S-1 or any similar
long-form registration statement ("Long-Form Registrations") or on Form S-2 or
S-3 or any similar short-form registration ("Short Form Registrations") if
available. Each request for registration shall state that it is being made
pursuant to this Section 1.2 and shall specify the number of Registrable
Securities requested to be registered. Within ten days after receipt of such
notice, the Company shall promptly notify all other Holders of such requested
registration and as soon as practicable shall include, subject to the
limitations of this Section 1.2 hereof, all Registrable Securities with respect
to which the Company has received written requests for inclusion therein. All
registrations requested pursuant to Sections 1.2(b) and 1.2(c) are referred to
herein as "Demand Registrations."
(b) Long-Form Registrations. The Holders of a
majority of the Registrable Securities shall be entitled to request two
Long-Form Registrations. A registration will not count as a permitted
Long-Form Registration until it has become effective and unless the Holders of
Registrable Securities are able to register and sell at least 75% of the
Registrable Securities requested to be included in such registration.
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<PAGE> 3
(c) Short-Form Registrations. In addition to the
Long-Form Registrations provided pursuant to Section 1.2(b), at any time after
the Company has completed a public offering of the Company's Common Stock under
the Act the holders of a majority of the Registrable Securities shall be
entitled to request three Short-Form Registrations. Demand Registrations will
be Short-Form Registrations whenever the Company is permitted to use any
applicable short-form. After the Company has become subject to the reporting
requirements of the Exchange Act, the Company will use commercially reasonable
efforts to make Short-Form Registrations available for the sale of Registrable
Securities.
(d) Limitations on Demand Registrations.
Notwithstanding any other provision of this Section 1.2, the Company shall not
be obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Registration. The Company may postpone for
no more than 90 days in any 360-day period, the filing or the effectiveness of
a registration statement of a Demand Registration if the Board of Directors,
acting in good faith, believes that such Demand Registration might reasonably
be expected to have an adverse effect on any proposal or plan to engage in any
acquisition or disposal of stock or assets or any merger, consolidation, tender
offer or similar transaction; provided that in such event, the Holders of
Registrable Securities requesting such Demand Registration will be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as a Demand Registration; provided, however, that
(i) the Company may not exercise this right to delay a Demand Registration on
more than one occasion during any period of 12 consecutive months and (ii) the
Company shall reimburse each Holder for all expenses (including, without
limitation, fees, expenses and disbursements of counsel) incurred in connection
with any such registration prior to a delay by the Company.
(e) Underwriting Requirements. In connection
with any Demand Registration involving an underwriting, the Company shall
(together with all Holders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters of recognized standing,
reasonably acceptable to the Company, selected for such underwriting by a
majority-in-interest of the Holders proposing to sell Registrable Securities
pursuant to such Demand Registration. If a Demand Registration is an
underwritten offering and the representative of the underwriters advises the
Holders in writing that marketing factors require a limitation of the number of
Registrable Securities to be included in the registration and underwriting,
then, the number of shares of Common Stock that may be included in the
registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective aggregate amount of
Registerable Securities proposed to be sold by such Holders at the time of
initial filing the Registration Statement. If in connection with any Demand
Registration involving
- 3 -
<PAGE> 4
an underwriting, the Holders requesting registration are unable for any reason
to include in such registration all of the Registrable Securities for which
registration has been requested, then such Holder or Holders shall be entitled
to one additional Demand Registration pursuant to this Section 1.2. If the
underwriter has not limited the number of Registerable Securities to be
underwritten, then the Company may include securities for its own account or
for the account of others in such registration if the underwriter so agrees in
writing and if the number of Registerable Securities that would otherwise have
been included in such registration and underwriting will not thereby be limited
for any reason, including but not limited to the price for which the
Registerable Securities will be sold.
(f) Expenses of Demand Registration. All
expenses incurred in connection with a Demand Registration (excluding
underwriters' discounts and commissions), including without limitation all
registration and qualification fees, fees and expenses of compliance with
securities or blue sky laws, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to this Section 1.2
if the registration request is subsequently withdrawn, unless the Holders agree
to forfeit their right to a demand registration pursuant to this Section 1.2.
1.3 Piggyback Registrations. If at any time after the
expiration if 180 days after the consummation of the Company's initial public
offering, the Company proposes to register any of its Common Stock under the
Act and the registration form to be used can be used to register the resale of
the Common Stock (other than a registration statement (A) on Form S-8 or any
successor form relating to securities issuable pursuant to any benefit plan; or
(B) on Form S-4, or any successor form to each such form relating to an
exchange offer or relating to a transaction pursuant to Rule 145 of the Act),
the Company shall, each such time, promptly give the Holders written notice of
such determination to effect such a registration not later than twenty (20)
days prior to the anticipated date of filing with the Securities and Exchange
Commission (the "Commission") of the registration statement. Upon the written
request of any of the Holders given within fifteen (15) days after mailing of
any such notice by the Company, as part of the registration to which such
notice relates, the Company shall use its best efforts to cause to be
registered under the Act all of the Registrable Securities that the Holders
have requested to be registered.
(a) Underwritten Offerings. If the registration
of which the Company gives notice is for a registered public offering involving
an underwriting, then the Company shall so advise the Holders as a part of such
written notice. In such event, the right of the Holders to registration
pursuant to this Section shall be
- 4 -
<PAGE> 5
conditioned upon the Holders' agreeing to participate in such underwriting upon
the terms and condition as shall be negotiated by the Company, and the
inclusion of the Registrable Securities in the underwriting to the extent
provided herein. The Holders proposing to distribute securities through such
underwriting shall (together with the Company) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by the Company. Notwithstanding any other provisions of this
Section, if the underwriter determines in writing, in its sole and absolute
discretion, that marketing factors require a limitation of the number of shares
to be underwritten, then the underwriter may exclude some or all Registrable
Securities from such registration and underwriting in accordance with the
provisions of this Section; provided, however, that if any securities are being
offered for the account of any holder of the Company's securities other than
the Holders, the reduction in the number of Registrable Securities included in
such registration shall not represent a greater percentage of the amount of
Registrable Securities originally requested to be registered and sold in such
registration than the lowest percentage reduction imposed upon any holder of
the Company's securities other than the Holders. The Company shall so advise
the Holders distributing securities through such underwriting, and the number
of Registrable Securities that may be included in the registration and
underwriting on behalf of the Holders shall be allocated among the Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities which the Holders requested to be included in the registration. If
the Holders disapprove of the terms of any such underwriting, then the Holders
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any securities so excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
(b) Expenses of Piggyback Registrations. In the case
of any registration effected pursuant to this Section, any additional
registration and qualification fees and expenses, and any additional costs
(other than underwriters discounts and commissions) that result from the
inclusion of securities held by the Holders participating in the registration
shall be borne by the Company. In addition, the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
1.4 Obligations of the Company. If the Company is
required to use its best efforts to effect a registration of the Registrable
Securities under this Agreement, the Company shall:
(a) file with the Commission a registration
statement on an appropriate form of registration statement with respect to the
Registrable Securities as soon as practicable after receipt of the written
request from the Shareholders to do so and use its best efforts thereafter to
cause such registration statement to become effective;
- 5 -
<PAGE> 6
(b) prepare and file as soon as reasonably
practicable with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective and such prospectus
current and to comply with the provisions of the Act with respect to the
disposition of the Registrable Securities until the earlier of (A) such time as
all of the Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the Holders; (B) the expiration of six
months from the effective date of such registration statement; or (C) such time
as the Registrable Securities are otherwise freely tradeable;
(c) furnish such number of copies of the
registration statement, the preliminary prospectus, term sheet (if any) and
prospectus included in such registration statement, and each amendment and
supplement thereto, as the Holders may reasonably request;
(d) use its best efforts to register or qualify
the Registrable Securities under the applicable state securities laws as
reasonably necessary for the intended distribution of the Registrable
Securities and to keep such registration or qualification in effect for so long
as the registration statement filed with the Commission remains in effect as
provided in (b), above, provided that Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction in which it would not otherwise be obligated to be so qualified,
or to subject itself to taxation in any such jurisdictions or to consent to
general service of process in any such jurisdiction, or to qualify as a dealer
in securities;
(e) notify the Holders, at any time when a
prospectus is required to be delivered by the Holders under the Act, upon
discovery by the Company that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which they were made, whereupon the Holders shall suspend any offers or sales
of the Registrable Securities until such time as such prospectus, as amended or
supplemented from time to time, shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made;
(f) list the Registrable Securities on any
securities exchange (and/or on any system of automated dissemination of
quotations of securities prices) on which shares of the Common Stock are at any
time listed, upon official notice of issuance, and maintain such listing, or,
if not so listed, to be listed upon The Nasdaq Stock Market and to maintain
such listing; and
- 6 -
<PAGE> 7
(g) furnish (or cause to be furnished) to each
Holder, all undertakings, agreements, certificates, opinions, financial
statements and (if reasonably requested by such Holders) "comfort letters" of
the sort customarily provided to selling shareholders in secondary
distributions and to the managing underwriters, if the transaction in question
is or were an underwritten public offering.
1.5 Obligations of the Holders. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Agreement that the Holders shall furnish to the Company such information
regarding them, the Registerable Securities held by them, and the intended
method of disposition of such securities as the Company shall reasonably
request and as shall be required in connection with the action to be taken by
the Company.
1.6 Black-Out Period Agreement. In consideration for the
Company agreeing to its obligations under this Agreement, the Holders agree in
connection with any registration of the Company's securities (other than
pursuant to a registration statement (A) on Form S-8 or any successor form
relating to securities issuable pursuant to any benefit plan; or (B) on Form
S-4, or any successor form relating to an exchange offer or relating to a
transaction pursuant to Rule 145 under the Act) that, upon the request of the
underwriters managing any underwritten offering of the Company's securities,
not to sell, make any short sale of, loan, grant any option for the purchase
of, or otherwise dispose of any of the Common Stock (other than those included
in the registration) without the prior written consent of such underwriters for
ninety (90) days from the effective date of such registration or such shorter
period as may be agreed to by the underwriters with regard to such dispositions
of the Common Stock by executive officers and directors of the Company.
1.7 Delay of Registration. No Holder shall have any
right to take any action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
1.8 Rule 144 Reporting. With a view toward making
available to the holders of Common Stock the benefits of certain rules and
regulations of the Commission which may permit the sale of the Common Stock to
the public without registration, the Company agrees to use its best efforts to:
(a) make and keep current public information
available, within the meaning of Rule 144 or any similar or analogous rule
promulgated under the Act, at all times after it has become subject to the
reporting requirements of the Exchange Act;
(b) file with the Commission, in a timely manner,
all reports and other documents required of the Company under the
- 7 -
<PAGE> 8
Act and the Exchange Act (after it has become subject to the reporting
requirements); and
(c) so long as any party hereto owns any
Registrable Securities, furnish to such party forthwith upon request, a written
statement by the Company as to its compliance with the reporting requirements
of Rule 144 (at any time commencing 90 days after the effective date of the
first registration filed by the Company for an offering of its securities to
the general public), the Act and the Exchange Act (at any time after it has
become subject to such reporting requirements); a copy of the most recent
annual or quarterly report of the Company; and such other reports and documents
as such party may reasonably request in availing itself of any rule or
regulation of the Commission allowing it to sell any such securities without
registration.
1.9 Transfer of Registration Rights. The registration
rights of the Shareholders under this Agreement may not be transferred to any
transferee except a transferee who is the heir or personal representative of a
Shareholder or a revocable trust voluntarily established by him primarily for
his benefit.
Article 2
Indemnification
2.1 General Indemnification. In connection with any
registration or qualification of the Registrable Securities under this
Agreement, (i) the Company shall indemnify and hold harmless each of the
Shareholders, including but not limited to each person, if any, who controls a
Shareholder within the meaning of Section 15 of the Act, against all losses,
claims, damages, liabilities and expenses (including but not limited to
reasonable expenses incurred in investigating, preparing and defending against
any claim) to which a Shareholder or such controlling person may become subject
under the Act, the Exchange Act or otherwise, insofar as the same arise out of
or are based upon or are caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) furnished pursuant to this Agreement or
insofar as the same arise out of or are based upon or are caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
ultimately determined to have arisen out of or were based upon or were caused
by any untrue statement or alleged untrue statement or omission or alleged
omission based upon written information furnished to the Company by or on
behalf of any Shareholder or any such control person for inclusion in any
registration statement or prospectus (and any amendments or supplements
thereto), and (ii) the Shareholders severally and not jointly, shall indemnify
the Company, its affiliates, any person who signed any registration statement,
and
- 8 -
<PAGE> 9
their respective officers, directors and control persons against all such
losses, claims, damages, liabilities and expenses (including but not limited to
reasonable expenses incurred in investigating, preparing and defending against
any claim) insofar as the same are ultimately determined to have arisen out of
or were based upon or were caused by any such untrue statement or alleged
untrue statement or any such omission or alleged omission based upon written
information furnished to the Company by or on behalf of any Shareholder or any
such control person for the inclusion in any registration statement or
prospectus (and any amendments or supplements thereto); provided, however, that
the liability of each Shareholder under this Section 2.1 shall be limited to
net proceeds actually received by such Shareholder pursuant to a prospectus
included in a registration statement under this Agreement.
2.2 Notice of, and Procedures for, Collecting
Indemnification. Promptly upon receipt by a party indemnified under this
Agreement of notice of the commencement of any action against such indemnified
party in respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Agreement, such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may have to any indemnified party otherwise than under this
Agreement unless such failure shall materially and adversely affect the defense
of such action. In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party shall
be entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable expenses incurred in investigating, preparing and defending against
any claim) shall be paid by the indemnified party unless (a) the indemnifying
party agrees to pay the same, (b) the indemnifying party fails to assume the
defense of such action with counsel reasonably satisfactory to the indemnified
party (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified party), or (c) the
named parties to any such action (including any impleaded parties) have been
advised by such counsel that representation of such indemnified party and the
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party). In the event that either of the circumstances described in
clauses (b) and (c) of the sentence immediately preceding shall occur, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defense and otherwise to participate in the defense of any
such action, with the expenses and fees of such separate counsel and other
expenses
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<PAGE> 10
related to such participation to be reimbursed by the indemnifying party as
incurred. No indemnifying party shall be liable for any settlement entered
into without its consent, which consent shall not be unreasonably withheld or
delayed.
Article 3
Miscellaneous
3.1 Notices. All notices, requests and other
communications to any party hereunder shall be in writing and shall be given to
such party at its address or telecopier number set forth on the signature page
hereof, or such other address or telecopier number as such party may
hereinafter specify for the purpose. Each such notice, request or other
communication shall be effective (a) if given by telecopy, when such telecopy
is transmitted to the telecopy number specified in this Section 3.1 and the
transmitting telecopier receives confirmation of delivery, (b) if given by
overnight air courier, on the next business day after the date of shipment, or
(c) if given by any other means, when delivered at the address referred to in,
or specified by such party pursuant to, this Section 3.1.
3.2 Amendment and Waiver. The provisions of this
Agreement may be amended or waived only upon the prior written consent of the
Company and the Holders of a majority of the Registrable Securities.
3.3 Counterparts. This Agreement may be executed in two
or more counterparts, all of which taken together shall constitute one
instrument.
3.4 Binding on Successors and Assigns. This Agreement
shall be binding upon, inure to the benefit of and be enforceable by and
against the parties hereto and their respective successors and permitted
assigns in accordance with the terms hereof.
3.5 Headings. The headings in the sections and
subsections of this Agreement are inserted for convenience only and in no way
alter, amend, modify, limit or restrict the contractual obligations of the
parties.
3.6 Severablity. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohbiited by or invalid under applcable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
3.6 Arbitration. Any and all disputes relating to this
Agreement and the transactions contemplated hereby (including, without
limitation, that a party hereto is entitled to indemnification and/or the
amount thereof) shall be settled by
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<PAGE> 11
binding arbitration before a single commercial arbitrator in St. Louis,
Missouri. The disputing parties shall jointly select a single arbitrator from
a list furnished by the American Arbitration Association, and if such parties
cannot agree on an arbitrator within ten (10) days after either party requested
the other to select a mutually agreeable arbitrator, then an arbitrator shall
be appointed by the American Arbitration Association. The decision and/or
award of any such arbitrator shall be final and binding upon all parties having
an interest in the dispute.
3.7 Entire Agreement; Law Governing. All prior
negotiations and agreements between the parties hereto are superseded by this
Agreement, and there are no representations, warranties, understandings or
agreements other than those expressly set forth herein, except as modified in
writing concurrently herewith or subsequent hereto. This Agreement shall be
governed by and construed and interpreted according to the internal laws of the
State of Illinois, determined without reference to conflicts of law principles.
* * *
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives on the day
and year first above written.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
FALCONITE, INC.
By: /s/ Michael A. Falconite
--------------------------------------
Michael A. Falconite
President
FALCONITE INVESTMENTS, L.P.
By MICHAEL A. FALCONITE REVOCABLE
TRUST U/A/D 12/17/96, its
Managing General Partner
By:/s/ Michael A. Falconite
-------------------------------
Michael A. Falconite Trustee
JOSEPH A. FALCONITE REVOCABLE TRUST
U/A/D 12/17/96
By: /s/ Joseph A. Falconite
--------------------------------------
Joseph A. Falconite, Trustee
MICHAEL A. FALCONITE REVOCABLE
TRUST U/A/D 12/17/96
By: /s/ Michael A. Falconite
--------------------------------------
Michael A. Falconite, Trustee
/s/ Joseph A. Falconite
------------------------------------------
Joseph A. Falconite
Address: 3835 Londonderry Drive
Paducah, Kentucky 42001
/s/ Michael A. Falconite
------------------------------------------
Michael A. Falconite
Address: 6305 Turnberry Drive
Paducah, Kentucky 42001
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<PAGE> 13
/a/ Emilie Nicole Falconite
------------------------------------------
Emilie Nicole Falconite
Address: 2114 West Park Drive
Paducah, Kentucky 42001
/s/ Angela S. Grimm
------------------------------------------
Angela S. Grimm
Address: 6305 Turnberry Drive
Paducah, Kentucky 42001
/s/ David Melber
------------------------------------------
David Melber
Address: 610 Springwell Lane
Paducah, Kentucky 42001
/s/ Ralph W. McCurry
------------------------------------------
Ralph W. McCurry
Address: 217 Sunset Circle
Madison, Alabama 35758
RALPH W. MCCURRY CHILDREN'S TRUST
U/A/D 12/30/96
By: /s/ Wanda Rene McCurry
--------------------------------------
Wanda Rene McCurry, Trustee
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<PAGE> 1
EXHIBIT 10.1
FALCONITE, INC.
1997 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the Falconite, Inc. 1997 Long Term
Incentive Plan (the "Plan") is to encourage certain employees of
Falconite, Inc., an Illinois corporation (the "Corporation"), and of such
subsidiaries of the Corporation as the Committee administering the Plan
designates, to acquire shares of the Corporation's common stock, $.01 par
value (the "Common Stock"), or to receive monetary payments based on the
value of such stock or based upon achieving certain goals on a basis mutually
advantageous to such employees and the Corporation and thus provide an
incentive for continuation of the efforts of employees for the success of the
Corporation and for continuity of employment.
2. ADMINISTRATION. The Plan will be administered by the Compensation
Committee (the "Committee") of the Board of Directors of the
Corporation consisting of two or more Directors as the Board may designate from
time to time, each of whom is an "outside director" as that term is defined
pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the rules and regulations promulgated thereunder and
each of whom is qualified to administer the Plan as contemplated by Rule 16b-3
("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the
"Act").
The determinations of the Committee shall be made in accordance
with their judgment as to the best interests of the Corporation and its
shareholders and in accordance with the purpose of the Plan. Subject to
the provisions of the Plan, the Administrator shall have exclusive authority
to interpret and administer the Plan, to select persons eligible to participate
in the Plan, to grant benefits in accordance with the Plan, to establish
the timing, pricing, amount and other terms and conditions of such grants
(which need not be uniform with respect to the various participants or with
respect to different grants to the same participant), to establish appropriate
rules relating to the Plan, to delegate some or all of its authority under the
Plan and to take all such steps and make all such determinations in connection
with the Plan and the benefits granted pursuant to the Plan as it may deem
necessary or advisable. A majority of members of the Committee shall
constitute a quorum, and all determinations of the Committee shall be made
by a majority of its members. Any determination of the Committee under the
Plan may be made without notice or meeting of the Committee, by a writing
signed by a majority of the Committee members. Any act or determination that
the Committee is authorized to perform hereunder may instead be performed by
the Board of Directors of the Corporation, at its discretion, and to the extent
the Board so acts, references in the Plan to the Committee shall refer to the
Board as applicable.
3. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for
issuance under the Plan an aggregate of 2,300,000 shares of Common Stock,
which may be authorized but unissued or treasury shares. As used in this
Section 3, the term "Plan Maximum" shall refer to the number of shares of
Common Stock that are available for grant of awards pursuant to the Plan.
Common Stock underlying outstanding options, stock appreciation rights or
performance awards will reduce the Plan Maximum while such options, stock
appreciation rights or performance awards are outstanding. Shares
underlying expired, canceled or forfeited options, stock appreciation rights
or performance awards shall be added back to the Plan Maximum. When the
exercise price of stock options is paid by delivery of shares of Common Stock,
or if the Committee approves the withholding of shares from a distribution in
payment of the exercise price, the Plan Maximum shall be reduced by the
net (rather than the gross) number of shares issued pursuant to such
exercise, regardless of the number of shares surrendered or withheld in
payment. If the Committee approves the payment of cash to an optionee
equal to the difference between the Fair Market Value (as defined in Section
14) and the exercise price of stock subject to an option, or if a stock
appreciation right is exercised for cash or a performance award is paid in
cash the Plan
<PAGE> 2
Maximum shall be increased by the number of shares with respect to which
such payment is applicable. Restricted stock issued pursuant to the Plan
will reduce the Plan Maximum while outstanding even while subject to
restrictions. Shares of restricted stock shall be added back to the Plan
Maximum if such restricted stock is forfeited.
Notwithstanding the above, the maximum number of shares subject to
stock options that may be awarded in any calendar year to any individual shall
not exceed 350,000 shares (as adjusted in accordance with Section 11).
4. PARTICIPANTS. Participants will consist of such officers and
key employees of the Corporation or any designated subsidiary as the
Committee in its sole discretion shall determine. Designation of a
participant in any year shall not require the Committee to designate such
person to receive a benefit in any other year or to receive the same type or
amount of benefit as granted to the participant in any other year or as granted
to any other participant in any year. The Committee shall consider such
factors as it deems pertinent in selecting participants and in determining
the type and amount of their respective benefits.
5. TYPES OF BENEFITS. The following benefits may be granted under
the Plan: (a) stock appreciation rights ("SARs"); (b) restricted stock
("Restricted Stock"); (c) performance awards ("Performance Awards"); (d)
incentive stock options ("ISOs"); and (e) nonqualified stock options ("NQSOs"),
all as described below.
6. STOCK APPRECIATION RIGHTS. A SAR is the right to receive all or a
portion of the difference between the Fair Market Value of a share of Common
Stock at the time of exercise of the SAR and the exercise price of the SAR
established by the Committee, subject to such terms and conditions set forth
in a SAR agreement as may be established by the Committee in its sole
discretion. SARs may be granted which, at the discretion of the Committee,
may be exercised (1) in lieu of exercise of an option, (2) in conjunction
with the exercise of an option, (3) upon lapse of an option, (4) independent of
an option or (5) each of the above in connection with a previously awarded
option under the Plan. If the option referred to in (1), (2) or (3) above
qualified as an ISO pursuant to Section 422 of the Code, the related SAR shall
comply with the applicable provisions of the Code and the regulations
issued thereunder. At the time of grant, the Committee may establish, in
its sole discretion, a maximum amount per share which will be payable upon
exercise of a SAR, and may impose such conditions on exercise of a SAR
(including, without limitation, the right of the Committee to limit the
time of exercise to specified periods) as may be required to satisfy the
requirements of Rule 16b-3. At the discretion of the Committee, payment for
SARs may be made in cash or shares of Common Stock, or in a combination
thereof. SARs will be exercisable not earlier than six months and not later
than ten years after the date they are granted and will expire in
accordance with the terms established by the Committee. The following
will apply upon exercise of a SAR:
(a) Exercise of SARs in Lieu of Exercise of Options. SARs exercisable in
lieu of options may be exercised for all or part of the shares
subject to the related option upon the exercise of the right
to exercise an equivalent number of options. A SAR may be
exercised only with respect to the shares for which its related
option is then exercisable.
(b) Exercise of SARs in Conjunction with Exercise of Options.
SARs exercisable in conjunction with the exercise of options
shall be deemed to be exercised upon the exercise of the related
options.
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<PAGE> 3
(c Exercise of SARs Upon Lapse of Options. SARs exercisable
upon lapse of options shall be deemed to have been exercised upon
the lapse of the related options as to the number of shares
subject to the options.
(d) Exercise of SARs Independent of Options. SARs exercisable
independent of options may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon the
SARs.
7. RESTRICTED STOCK. Restricted Stock shall consist of Common Stock
issued or transferred under the Plan (other than upon exercise of stock
options or as Performance Awards) at any purchase price less than the Fair
Market Value thereof on the date of issuance or transfer, or as a bonus. In
the case of any Restricted Stock:
(a) The purchase price, if any, will be determined by the Committee.
(b) Restricted Stock may be subject to: (i) restrictions
on the sale or other disposition thereof; (ii) rights of the Corporation
to reacquire such Restricted Stock at the purchase price, if any,
originally paid therefor upon termination of the employee's employment
within specified periods; (iii) representation by the employee that he or
she intends to acquire Restricted Stock for investment and not for
resale; and (iv) such other restrictions, conditions and terms as the
Committee deems appropriate.
(c) The participant shall be entitled to all dividends paid with
respect to Restricted Stock during the period of restriction and shall
not be required to return any such dividends to the Corporation in the
event of the forfeiture of the Restricted Stock.
(d) The participant shall be entitled to vote the Restricted
Stock during the period of restriction.
(e) The Committee shall determine whether Restricted Stock is to
be delivered to the participant with an appropriate legend imprinted
on the certificate or if the shares are to be deposited in escrow
pending removal of the restrictions.
8. PERFORMANCE AWARDS. Performance Awards shall consist of Common Stock,
monetary units or some combination thereof, to be issued without any payment
therefor, in the event that certain performance goals established by the
Committee are achieved over a period of time designated by the Committee, but
not in any event more than five years. The goals established by the
Committee may include return on average total capital employed, earnings
per share, increases in share price or such other goals as may be established by
the Committee. In the event the minimum corporate goal is not achieved at the
conclusion of the period, no payment shall be made to the participant.
Actual payment of the award earned shall be in cash or in Common Stock or
in a combination of both, as the Committee, in its sole discretion, determines.
If Common Stock is used, the participant shall not have the right to vote and
receive dividends until the goals are achieved and the actual shares are issued.
9. INCENTIVE STOCK OPTIONS. ISOs shall consist of stock options to
purchase shares of Common Stock at purchase prices not less than 100% of the
Fair Market Value of the shares on the date the option is granted. Said
purchase price may be paid (i) by check or, in the discretion of the
Committee, either (ii) by the delivery of shares of Common Stock then owned by
the participant or (iii) by directing the Corporation to withhold from the
number of shares of Common Stock otherwise issuable upon exercise of the option
that whole number of shares of Common Stock having an aggregate Fair Market
Value on
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<PAGE> 4
the date of exercise at least equal to the exercise price for all of the shares
of Common Stock subject to such exercise, or (iv) by a combination of any of
the foregoing, in the manner provided in the option agreement. In lieu of
exercising an option and subject to the approval of the Committee, the
optionee may request that the Corporation pay in cash the difference between
the Fair Market Value of part or all of the stock that is the subject of the
option and the exercise price thereof. ISOs will be exercisable not later
than ten years after the date they are granted and will terminate not later
than three months after termination of employment for any reason other
than death or disability. In the event termination of employment occurs as a
result of death or disability, such an option will be exercisable for 12
months after such termination. If the optionee dies within 12 months after
termination of employment by disability, then the period of exercise
following death shall be the remainder of the 12-month period or three
months, whichever is longer. If the optionee dies within three months
after termination of employment for any other reason, then the period of
exercise following death shall be three months. However, in no event shall
any ISO be exercised more than ten years after its grant. Leaves of absence
granted by the Corporation for military service, illness and transfers of
employment between the Corporation and any subsidiary thereof shall not
constitute termination of employment. The aggregate Fair Market Value
(determined as of the time an option is granted) of the stock with respect
to which ISOs are exercisable for the first time by an optionee during any
calendar year (under all option plans of the Corporation and its subsidiary
corporations) shall not exceed $100,000.
10. NONQUALIFIED STOCK OPTIONS. NQSOs shall consist of nonqualified
stock options to purchase shares of Common Stock at purchase prices not less
than 100% of the Fair Market Value of the shares on the date the option is
granted. Said purchase price may be paid (i) by check or, in the
discretion of the Committee, either (ii) by the delivery of shares of Common
Stock then owned by the participant or (iii) by directing the
Corporation to withhold from the number of shares of Common Stock otherwise
issuable upon exercise of the option that whole number of shares of Common
Stock having an aggregate Fair Market Value on the date of exercise at least
equal to the exercise price for all of the shares of Common Stock subject to
such exercise, or (iv) by a combination of any of the foregoing, in the
manner provided in the option agreement. In lieu of exercising an option
and subject to the approval of the Committee, the optionee may request that
the Corporation pay in cash the difference between the Fair Market Value of
part or all of the stock which is the subject of the option and the exercise
price thereof. NQSOs will be exercisable not later than ten years after the
date they are granted and will terminate not later than three months after
termination of employment for any reason other than death, retirement or
disability. In the event termination of employment occurs as a result of
death, retirement or disability, such an option will be exercisable for 12
months after such termination. If the optionee dies within 12 months after
termination of employment by retirement or disability, then the period of
exercise following death shall be the remainder of the 12-month period or
three months, whichever is longer. However, in no event shall any option be
exercised more than ten years after its grant. Leaves of absence granted by the
Corporation for military service, illness and transfers of employment
between the Corporation and any subsidiary thereof shall not constitute
termination of employment. The Committee shall have the right to determine at
the time the option is granted whether shares issued upon exercise of a NQSO
shall be subject to restrictions, and if so, the nature of the restrictions.
11. ADJUSTMENT PROVISIONS.
(a) If the Corporation shall at any time change the number of
issued shares of Common Stock without new consideration to the
Corporation (such as by stock dividends or stock splits), the total
number of shares reserved for issuance under this Plan and the number of
shares covered by each outstanding benefit shall be adjusted so that
the aggregate consideration payable to the Corporation, if any, and the
value of each such benefit shall not be changed. Benefits may also
contain provisions for their continuation or for other equitable
adjustments after changes in the
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<PAGE> 5
Common Stock resulting from reorganization, sale, merger, consolidation,
issuance of stock rights or warrants, or similar occurrence.
(b) Notwithstanding any other provision of this Plan, and without
affecting the number of shares reserved or available hereunder, the
Board of Directors may authorize the issuance or assumption of benefits
in connection with any merger, consolidation, acquisition of property or
stock, or reorganization upon such terms and conditions as it may deem
appropriate.
(c) The six-month holding periods in Sections 9 and 10 above shall
not apply in the event that more than 20% of the Common Stock, business or
assets are purchased or acquired by any person, firm, corporation or
group acting in concert and without agreement of the Corporation's
Board of Directors. In such event, any such option or right shall be
deemed exercisable upon grant and with no waiting period.
12. CHANGE OF CONTROL. Notwithstanding any other provision of this Plan,
if the terms of an agreement under which the Committee has granted an
award under this Plan shall so provide, upon a Change of Control,
outstanding awards shall become immediately and fully exercisable or
payable according to the following terms:
(a) Any outstanding and unexercised option shall become
immediately and fully exercisable, and shall remain exercisable until it
would otherwise expire by reason of lapse of time.
(b) During the six month and seven day period from and after a
Change of Control (the "Exercise Period"), unless the Committee shall
determine otherwise at the time of grant, a participant shall have the
right, in lieu of the payment of the exercise price of the shares of
Common Stock being purchased under an option and by giving notice to the
Committee, to elect (within the Exercise Period) in lieu of exercise
thereof, to surrender all or part of the option to the Corporation and to
receive in cash, within 30 days of such notice, an amount equal to the
amount by which the Change in Control Price per share of Common Stock
on the date of such election shall exceed the exercise price per share
of Common Stock under the option multiplied by the number of shares of
Common Stock granted under the option as to which the right granted under
this subsection 12(b) shall have been exercised. Change in Control Price
shall mean the higher of (i) (A) for any period during which the Common
Stock shall not be listed for trading on a national securities
exchange, but when prices for the Common Stock shall be reported by the
Nasdaq National Market, the highest price per share as quoted by the Nasdaq
National Market, (B) for any period during which the Common Stock
shall not be listed for trading on a national securities exchange or its
price reported by the Nasdaq National Market, but when prices for the
Common Stock shall be reported by the Nasdaq SmallCap Market, the highest
average of the high bid and low asked prices as reported by the Nasdaq
SmallCap Market, (C) for any period during which the Common Stock shall be
listed for trading on a national securities exchange, the highest closing
price per share of Common Stock on such exchange as of the close of such
trading day, (D) if the Common Stock shall not be listed for trading on
a national securities exchange or quoted on the Nasdaq National Market
or the Nasdaq SmallCap Market, the closing bid price as furnished by
the OTC Bulletin Board or similar quotation medium used by members of
the National Association of Securities Dealers, Inc., or (E) the price
per share determined in good faith by the Board of Directors using any
factors they may deem relevant in the event that neither (A), (B), (C) or
(D) above shall be applicable, in each case during the 60-day period
prior to and ending on the date of the Change of Control and (ii) if
the Change of Control is the result of a transaction or series of
transactions described in subsections 14(f)(i) or
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<PAGE> 6
(iii) hereof, the highest price per share of the Common Stock paid in
such transaction or series of transactions (which in the case of
paragraph (i) shall be the highest price per share of the Common
Stock as reflected in a Schedule 13D by the person having made the
acquisition); provided, however, that with respect to any ISO, the Change
of Control Price shall not exceed the market price of a share of Common
Stock (to the extent required pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended) on the date of surrender thereof.
(c) Any outstanding and unexercised SARs (other than such rights
which arise pursuant to subsection 12(b) hereof) shall become exercisable
as follows:
(i) Any SAR described in subsections 10(a) or (b) shall continue
to be treated as provided in those subsections.
(ii) Any SAR described in subsection 10(c) shall be deemed to
have been exercised if and when the Participant advises
the Committee in writing that he or she elects to have
Options with respect to which the SAR was granted
treated as having lapsed.
(iii) Any SAR described in subsection 10(d) shall be exercisable
immediately, without regard to limitations imposed upon
such exercise which are related to the passage of time.
(d) Any Restricted Stock granted pursuant to Section 7 shall become
immediately and fully transferable, and the Committee shall be deemed
to have exercised its discretion to waive any automatic forfeitures
provided with respect to such Restricted Stock. Any shares held in escrow
shall be delivered to the participant, and the share certificates shall
not contain the legend specified by subsection 7(e).
(e) Any Performance Award granted pursuant to Section 8 that
has not expired or been forfeited shall be deemed to have been earned
on the assumption that all performance goals have been achieved to the
fullest extent scheduled in the award. All payments shall be made promptly
in a lump sum, notwithstanding any other provision for installment or
deferred payment prescribed in the award.
(f) For purposes of this Plan, Change of Control shall mean a change
in control of the Corporation of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Act; provided that, for purposes of this Plan, a
Change in Control shall be deemed to have occurred if: (i) any
Person (other than the Corporation) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Corporation which represent 20% or more of the combined
voting power of the Corporation's then outstanding securities; (ii)
during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the
nomination for election, by the Corporation's shareholders, of each new
director is approved by a vote of at least two-thirds (2/3) of the
directors then still in office who were directors at the beginning of the
period but excluding any individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such term is used in Rule 14a-11 of Regulation 14A promulgated under the
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Board; (iii) there is consummated
any consolidation or merger of the Corporation in which the Corporation is
not the continuing or
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<PAGE> 7
surviving corporation or pursuant to which shares of Common Stock are
converted into cash, securities or other property, other than a merger of
the Corporation in which the holders of the Common Stock immediately prior
to the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger; (iv) there is
consummated any consolidation or merger of the Corporation in which the
Corporation is the continuing or surviving corporation in which the holders
of the Common Stock immediately prior to the merger do not own seventy
percent (70%) or more of the stock of the surviving corporation immediately
after the merger; (v) there is consummated any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Corporation, or (vi) the
shareholders of the Corporation approve any plan or proposal for the
liquidation or dissolution of the Company.
13. NONTRANSFERABILITY. Each benefit granted under the Plan to an
employee shall not be transferable otherwise than by will or the laws of
descent and distribution; provided, however, NQSOs granted under the Plan may
be transferred to a Permitted Transferee (as defined below). Benefits granted
under the Plan shall be exercisable, during the participant's lifetime, only
by the participant or a Permitted Transferee. In the event of the death of a
participant, exercise or payment shall be made only:
(a) By or to the Permitted Transferee, executor or administrator
of the estate of the deceased participant or the person or persons to
whom the deceased participant's rights under the benefit shall pass by
will or the laws of descent and distribution; and
(b) To the extent that the deceased participant or the Permitted
Transferee, as the case may be, was entitled thereto at the date of
his death.
For purposes of this Section 13, "Permitted Transferee" shall include (i) one
or more members of the participant's family, (ii) one or more trusts for the
benefit of the participant and/or one or more members of the participant's
family, or (iii) one or more partnerships (general or limited), corporations,
limited liability companies or other entities in which the aggregate interests
of the participant and members of the participant's family exceed 80% of all
interests. For this purpose, the participant's family shall include only the
participant's spouse, children and grandchildren.
14. FAIR MARKET VALUE OF COMMON STOCK. For purposes of this Plan,
the Fair Market Value of the Common Stock shall mean, for any particular date
(i) for any period during which the Common Stock shall not be listed for
trading on a national securities exchange, but when prices for the Common
Stock shall be authorized for quotation on the Nasdaq National Market,
the last transaction price per share as quoted by the Nasdaq National Market,
(ii) for any period during which the Common Stock shall not be listed for
trading on a national securities exchange or its price reported by the Nasdaq
National Market, but when prices for the Common Stock shall be authorized for
quotation on the Nasdaq SmallCap Market, the closing bid price per share
as reported by the Nasdaq SmallCap Market, (iii) for any period during which
the Common Stock is neither listed for trading on a national securities
exchange nor its price reported by the Nasdaq National Market or the Nasdaq
SmallCap Market, but when prices of the Common Stock are quoted in the OTC
Bulletin Board or similar quotation medium used by members of the National
Association of Securities Dealers, Inc., the closing bid price as provided by
the OTC Bulletin Board or similar quotation medium, (iv) for any period during
which the Common Stock shall be listed for trading on a national securities
exchange, the closing price per share on such exchange, or (v) the market price
per share as determined by a nationally recognized investment banking firm
selected by the Board in the event neither (i), (ii), (iii) nor (iv) above
shall be applicable. If Fair Market Value is to be determined as of a day when
the securities markets are not open, the Fair Market Value on that day shall be
the Fair Market Value on the preceding day when the markets were open.
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<PAGE> 8
15. TAXES. The Corporation shall be entitled to withhold the amount of
any tax attributable to any amounts payable or shares deliverable under the
Plan after giving the person entitled to receive such payment or delivery
notice as far in advance as practicable, and the Corporation may defer
making payment or delivery as to any benefit if any such tax is payable until
indemnified to its satisfaction. The person entitled to any such delivery
may, by notice to the Corporation at the time the requirement for such delivery
is first established, elect to have such withholding satisfied by a reduction
of the number of shares otherwise so deliverable, such reduction to be
calculated based on a closing market price on the date of such notice.
16. TENURE. A participant's right, if any, to continue to serve the
Corporation and its subsidiaries as an officer, employee or otherwise,
shall not be enlarged or otherwise affected by his or her designation as
a participant under the Plan.
17. DURATION, INTERPRETATION, AMENDMENT AND TERMINATION. No benefit
shall be granted more than ten years after the date of adoption of this Plan;
provided, however, that the terms and conditions applicable to any benefit
granted within such period may thereafter be amended or modified by mutual
agreement between the Corporation and the participant or such other person as
may then have an interest therein. Also, by mutual agreement between the
Corporation and a participant hereunder, stock options or other benefits may
be granted to such participant in substitution and exchange for, and in
cancellation of, any benefits previously granted such participant under this
Plan. To the extent that any stock options or other benefits which may be
granted within the terms of the Plan would qualify under present or future laws
for tax treatment that is beneficial to a recipient, then any such beneficial
treatment shall be considered within the intent, purpose and operational purview
of the Plan and the discretion of the Committee, and to the extent that any
such stock options or other benefits would so qualify within the terms of the
Plan, the Committee shall have full and complete authority to grant stock
options or other benefits that so qualify (including the authority to grant,
simultaneously or otherwise, stock options or other benefits which do not so
qualify) and to prescribe the terms and conditions (which need not be
identical as among recipients) in respect to the grant or exercise of any such
stock option or other benefits under the Plan. The Board of Directors may amend
the Plan from time to time or terminate the Plan at any time. However, no
action authorized by this paragraph shall reduce the amount of any existing
benefit or change the terms and conditions thereof without the participant's
consent. No amendment of the Plan shall, without approval of the shareholders
of the Corporation: (a) increase the total number of shares which may be issued
under the Plan or increase the amount or type of benefits that may be granted
under the Plan; (b) change the minimum purchase price, if any, of shares of
Common Stock which may be made subject to benefits under the Plan; or
(c) modify the requirements as to eligibility for benefits under the Plan.
18. SHAREHOLDER APPROVAL. The Plan was adopted by the Board of
Directors and approved by the shareholders of the Corporation on December
31, 1996.
- 8 -
<PAGE> 1
EXHIBIT 10.2
FALCONITE, INC.
DIRECTORS STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
Falconite, Inc. hereby establishes a stock option plan to be named the
Falconite, Inc. Directors Stock Option Plan, for certain directors of the
Company. The purpose of the Plan is (1) to induce directors of the Company to
remain directors of the Company, to offer them incentives and rewards in
recognition of their contributions to the Company's progress, and to encourage
them to continue to promote the best interests of the Company and its
subsidiaries, and (2) to aid the Company and its subsidiaries in competing
with other enterprises for the services of new directors needed to help insure
the Company's continued progress.
SECTION 2. DEFINITIONS.
(a) ACT means the Securities Exchange Act of 1934, as amended from time
to time.
(b) ADMINISTRATOR means the Secretary of the Company.
(c) BOARD means the Board of Directors of the Company.
(d) CODE means the Internal Revenue Code of 1986, as amended and in
effect from time to time.
(e) COMMON STOCK means the Common Stock, $.01 par value, of the
Company.
(f) COMPANY means Falconite, Inc., a corporation organized and existing
under the laws of the State of Illinois.
(g) ELIGIBLE DIRECTOR means a director of the Company who is not
otherwise an officer or employee of the Company or of any
subsidiary thereof.
(h) FAIR MARKET VALUE of a share of the Company's Common Stock means,
for any particular date, (i) for any period during which the
Stock shall not be listed for trading on a national securities
exchange, but when prices for the Stock shall be authorized for
quotation on the Nasdaq National Market, the last transaction
price per share as quoted by the Nasdaq National Market, (ii) for
any period during which the Stock shall not be listed for trading
on a national securities exchange or its price reported by the
Nasdaq National Market, but when prices for the Stock shall be
authorized for quotation on the Nasdaq Small Cap Market, the
closing bid price per share as reported by the Nasdaq SmallCap
Market, (iii) for any period during which the Stock is neither
listed for trading on a national securities exchange nor its
price reported by the Nasdaq National Market or the Nasdaq
SmallCap Market, but when prices of the Stock are quoted in the OTC
Bulletin Board or similar quotation medium used by members of the
National Association of Securities Dealers, Inc., the closing bid
price as provided by the OTC Bulletin Board or similar quotation
medium, (iv) for any period during which the Stock shall be
listed for trading on a national securities exchange, the closing
price per share on such exchange, or (v) the market price per
share as determined by a nationally recognized investment banking
firm selected by the Board in the event neither (i), (ii), (iii)
nor (iv)
<PAGE> 2
above shall be applicable. If Fair Market Value is to be determined
as of a day when the securities markets are not open, the Fair
Market Value on that day shall be the Fair Market Value on the
preceding day when the markets were open.
(i) OPTION means an option granted under this Plan to acquire Stock.
(j) OPTIONEE means the person to whom an Option is granted.
(k) OPTION AGREEMENT means an Agreement issued to each Eligible Director
with respect to each Option.
(l) OPTION DATE means the date as of which an Option is granted, which
shall be the first business day after the annual meeting of
shareholders of the Company.
(m) PLAN means the Falconite, Inc. Directors Stock Option Plan.
(n) PERMITTED TRANSFEREE means either (i) one or more members of an
Optionee's spouse, children or grandchildren ("Optionee Family
Members"), (ii) one or more trusts for the exclusive benefit of the
Optionee and/or one or more Optionee Family Members, or (iii) one or
more partnerships (general or limited), corporations, limited
liability companies or other entities in which the aggregate
interest of the Optionee and Optionee Family Members exceed 80% of
all interests.
(o) POST-DEATH REPRESENTATIVE(S) means the executor(s) or
administrator(s) of the Optionee's estate or the person or persons
to whom the Optionee's rights under his or her Option pass by the
Optionee's will or the laws of descent and distribution.
(p) RULE 16B-3 means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Act, as amended from time to time, or
any successor rule.
(q) STOCK means authorized and unissued shares of Common Stock or
reacquired shares of Common Stock held in its treasury.
Generally, terms used herein shall have the meanings which they have under
Section 422 of the Code and regulations thereunder and, except to the extent
contrary to such Section or regulations, under Rule 16b-3.
SECTION 3. ADMINISTRATION.
The Plan shall be administered on behalf of the Company by the
Administrator. The Administrator may adopt, amend and rescind from time to time
such administrative rules, and may take from time to time such actions, with
or without notice to affected Optionees or Permitted Transferees, as the
Administrator may deem appropriate to implement or interpret the provisions
of this Plan or to exercise any authority, discretion or power explicitly or
implicitly granted to the Administrator under this Plan, provided that no
such rules or actions may be inconsistent with the provisions of this Plan, or
Rule 16b-3. The Administrator may make rules or take action pursuant to this
Section by any appropriate means.
2
<PAGE> 3
SECTION 4. SHARES RESERVED UNDER THE PLAN.
(a) At any time during the existence of the Plan, there shall be
reserved for issuance upon the exercise of Options granted under the Plan an
amount of Stock (subject to adjustment as provided in Section 10 hereof) equal
to the total number of shares then issuable pursuant to all such Option grants
which shall have been made prior to such time. The Company in its discretion
may use reacquired shares held in the Treasury in lieu of authorized but
unissued shares.
(b) If an Option terminates in whole or in part, by expiration or for
any other reason except exercise of such Option, the shares previously reserved
for issuance upon grant of the Option shall again be available for issuance, as
if such shares had never been subject to an Option.
SECTION 5. GRANTING OF OPTIONS.
(a) Each person who is an Eligible Director on the date of the
Company's initial public offering of its Stock (which shall be deemed the
Option Date for 1997) shall receive an Option to acquire 5,000 shares of
Stock at the initial public offering price and each individual who first
commences service as an Eligible Director after the initial public offering
shall receive an Option to acquire 5,000 shares of stock at the commencement of
service as director at an option price equal to the Fair Market Value of a
share of Stock on the date of grant. In each subsequent year, each person who
is an Eligible Director on the Option Date shall receive Options to acquire
2,000 shares of Stock; provided, however, that an Eligible Director shall not
receive Options to acquire 2,000 shares of Stock in any year during which such
director first commenced service as a director of the Company.
(b) All Options granted under the Plan shall be granted as of an
Option Date. Promptly after each Option Date, the Company shall notify the
Optionee of the grant of the Option, and shall hand deliver or mail to the
Optionee a Stock Option Agreement, duly executed by and on behalf of the
Company, with the request that the Optionee execute and return the Agreement
within thirty days after the Option Date. If the Optionee shall fail to
execute and return the written Option Agreement within said thirty-day period,
his or her Option shall be automatically terminated, except that if the
Optionee dies within said thirty-day period such Option Agreement shall be
effective notwithstanding the fact that it has not been signed prior to death.
SECTION 6. TERMS OF OPTIONS.
Notwithstanding any other provision of the Plan, each Option shall be
evidenced by an Option Agreement, which shall include the substance of the
following terms and conditions:
(a) The option price for each share of Stock covered by an Option
shall be an amount equal to 100% of the Fair Market Value of a share of Stock
on the Option Date of such Option.
(b) The Option by its terms shall not be transferable by the
Optionee otherwise than by will or by the laws of descent and distribution;
provided, however, that an Option granted under the Plan may be transferred
to a Permitted Transferee and following such a transfer the Option shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer. The designation of a beneficiary does not
constitute a transfer. The Option shall be exercisable, during the
Optionee's lifetime, only by the Optionee or a Permitted Transferee, as the
case may be.
3
<PAGE> 4
(c) The Option by its terms shall be immediately exercisable as to
any or all shares and may be exercised at any time and from time to time.
(d) The Option shall not be exercisable after the earlier of (i) the
last day of the twenty-fourth month after the month in which the Optionee's
service as a director terminates for any reason, or (ii) the expiration of ten
years from the Option Date.
SECTION 7. NO RIGHT TO REMAIN A DIRECTOR.
The grant of an Option shall not create any right in any person to remain
as a director of the Company.
SECTION 8. EXERCISE OF OPTIONS.
(a) An Option shall be exercisable only (i) upon payment to the
Company on the exercise date of cash in the full amount of the option price of
the shares with respect to which the Option is exercised, or (ii) upon delivery
to the Company on the exercise date of certificates representing shares of
Stock, owned by the Optionee or Permitted Transferee and registered in the
Optionee's or Permitted Transferee's name, having a Fair Market Value, on the
date of such exercise and delivery, equal to the full amount of the purchase
price of the shares with respect to which the Option is exercised, or (iii) a
combination of (i) and (ii).
(b) An Optionee or Permitted Transferee shall have none of the rights
of a shareholder with respect to shares of Stock subject to his or her Option
until shares of Stock are issued to him or her upon the exercise of his or her
Option.
SECTION 9. GENERAL PROVISIONS.
The Company shall not be required to issue or deliver any certificate for
shares of Stock to an Optionee or Permitted Transferee upon the exercise of
his or her Option prior to:
(a) if requested by the Company, the filing with the Company by the
Optionee or a Permitted Transferee or the Optionee's Post-Death Representative
of a representation in writing that at the time of such exercise it is his or
her then present intention to acquire the shares of Stock being purchased for
investment and not for resale, and/or the completion of any registration or
other qualification of such shares of Stock under any state or Federal laws or
rulings or regulations of any governmental regulatory body, which the Company
shall determine to be necessary or advisable; and
(b) the obtaining of any other consent, approval or permit from any
state or Federal governmental agency which the Administrator shall, in the
Administrator's absolute discretion upon the advice of counsel, determine to be
necessary or advisable.
SECTION 10. ADJUSTMENT PROVISIONS.
In the event any stock dividend is declared upon the Common Stock or in
the event outstanding shares of Stock shall be changed into or exchanged for a
different number, class or kind of shares of stock or other securities of the
Company or of another corporation, whether by reason of a split or
4
<PAGE> 5
combination of shares, recapitalization, reclassification, reorganization,
merger, consolidation or otherwise, the number of shares of Stock reserved for
issuance upon the exercise of outstanding Options shall be appropriately and
proportionately adjusted, and in any such event a corresponding adjustment shall
be made changing the number, class or kind of shares of Stock or other
securities which are deliverable upon the exercise of any Option theretofore
granted without change in the total price applicable to the unexercised portion
of such Option, but with a corresponding adjustment in the price for each
share of Stock covered by the unexercised portion of such Option. In the event
the Company is merged, consolidated or reorganized with another corporation,
appropriate provision shall be made for the continuance of outstanding Options
with respect to shares of the succeeding parent corporation following a merger,
or with respect to shares of the consolidated or reorganized corporation in the
case of a consolidation or reorganization, and to prevent their dilution or
enlargement compared to the total shares issuable therein in respect of the
Stock. Adjustments under this Section 10 shall be made in an equitable manner
by the Administrator, whose determination shall be conclusive and binding on all
concerned.
SECTION 11. DURATION, AMENDMENT AND TERMINATION.
(a) The Board may at any time terminate the Plan or make such
amendments thereof as it shall deem advisable and in the best interests of
the Company, without further action on the part of the shareholders of the
Company; provided, however, that no such termination or amendment shall, without
the consent of the Optionee or a Permitted Transferee, adversely affect or
impair the rights of such Optionee or a Permitted Transferee, and provided
further that no amendment shall cause the Plan not to comply with Rule 16b-3 or
any successor rule.
(b) The period during which Options may be granted under the Plan
shall terminate on December 30, 2006, unless the Plan earlier shall have been
terminated as provided above.
SECTION 12. SHAREHOLDER APPROVAL.
The Plan shall be effective as of the effective date of the Company's
Registration Statement on Form S-1 filed in connection with the Company's
initial public offering of its common stock. The Plan was approved by the
shareholders of the Company as of December 31, 1996.
5
<PAGE> 1
EXHIBIT 10.3
[CITICORP LOGO]
DEALER SECURITY AGREEMENT CITICORP DEALER FINANCE
This Dealer Security Agreement ("Agreement"), made this 19th day of
June, 1995 by and between CITICORP DEL-LEASE, INC., d/b/a Citicorp Dealer
Finance (hereinafter referred to as "Lender") having its principal place of
business at 450 Mamaroneck Avenue, Harrison, NY 10528, and M & M Properties, Inc
dba M & M Equipment Rental, an AL /x/ corporation: / / ________________________
partnership; / / sole proprietorship (check applicable term), having its
principal place of business at 8519 Hwy 20 West, Madison, AL 35758 (hereinafter
referred to as "Borrower") and other locations from which it conducts its
business as follows ______. Borrower engages in the business of buying, selling
and generally dealing in goods of various types, at retail or otherwise.
Borrower hereby requests Lender to make extensions of credit as Lender may deem
advisable to make from time to time to enable Borrower to finance the
acquisition of inventory and equipment:
________________________________________________________________________________
________________________________________________________________________________
In consideration of the mutual promises, and of the covenants and conditions of
this Agreement, the parties hereto agree as follows:
1. EXTENSIONS OF CREDIT.
a. Borrower hereby requests Lender to advance and/or commit to advance
sums of money on behalf of Borrower ("Extensions of Credit") from time
to time, for the purchase of all or part of the Borrower's Inventory
(hereinafter defined). Any Extensions of Credit shall be made in
amounts to be determined by Lender in Lender's sole discretion
provided, however, that Lender, with or without cause, may refuse to
advance any such sum of money. Extensions of credit shall be
conditioned upon Borrower's delivery of such documents, agreements and
instruments as Lender may require in its sole discretion, all in form
and substance satisfactory to Lender. Unless specified in notes or
other instruments made by Borrower and accepted by Lender, all
Extensions of Credit shall be evidenced solely by entries upon the books
and records of Lender. Borrower acknowledges that no Extension of
Credit previously made shall require Lender to make any future
Extensions of Credit.
b. Lender is hereby authorized and directed to pay on Borrower's behalf
up to the amount due on each invoice from the manufacturer or
distributor of an item of Inventory (a "Supplier") submitted to Lender
by Borrower and other instruments required by Lender to evidence the
Extensions of Credit and the Collateral securing such Extensions of
Credit. Lender, in its sole discretion, shall determine the eligibility
of any such invoices for Extensions of Credit pursuant to this
Agreement. Payment when so made by Lender to Supplier shall be deemed
to be an Extension of Credit to Borrower and shall become due and
payable by Borrower under this Agreement. Lender shall have no
responsibility for the validity or genuineness of any such invoice, and
Lender shall have no responsibility for any breach of contract between
Borrower and Supplier or any other person or entity. Borrower agrees
to indemnify and hold Lender harmless from and against any demand,
claim, action, cost, liability, damage or expense of any kind,
including attorney's fees, arising from or in connection with the
transactions contemplated herein.
2. COLLATERAL.
a. The term "Collateral" as used herein shall mean: All new and used
inventory now owned or hereafter acquired by the Borrower, including
but not limited to See attached Schedule A
wherever located and any and all returned, exchanged and repossessed
items thereof and trade-ins thereon and any and all attachments,
additions and accessions thereto and accessories, substitutions,
replacements and parts therefor ("Inventory"); all chattel paper,
leases, contract rights, accounts and general intangibles now owned or
hereafter acquired by Debtor arising from or related to the above
Inventory; and all proceeds of the foregoing, including all cash, rents
and non-cash proceeds thereof, including insurance proceeds.
b. Borrower hereby specifically mortgages and hypothecates to and in favor
of Lender, and grants to Lender, a security interest in the Collateral.
The security interest granted hereunder shall secure the payment and
performance of all Extensions of Credit and all other advances, debts,
liabilities and obligations owed by the Borrower to Lender, incurred
directly or contingently, which are presently existing or hereafter
arising whether under this Agreement or any other agreement between
Borrower and Lender (collectively, the "Obligations").
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that on
the date hereof and at the time of each Extension of Credit:
a. Borrower is engaged in the business of buying, selling and generally
dealing in goods at retail or otherwise;
b. Borrower's chief place of business and the Collateral are located at
the address indicated above except where Borrower has other locations
from which it conducts its business or where some of the Collateral
may be located and the address of such locations have been indicated
above, and it has authority to conduct its business in such locations:
c. Borrower is not in default under any contract to which it is a party;
d. There is no security agreement, mortgage, chattel mortgage, deed of
trust, conditional sale contract, pledge, assignment of receivable or
other agreement executed by it and presently outstanding covering any
of the Collateral and the proceeds thereof, other than with Lender,
except for that certain security agreement between Borrower and SEE
ATTACHED SCHEDULE B;
e. The Collateral is free from all liens, claims, security interests and
encumbrances other than that created hereby and as described above in
Section 3(d);
f. No financing statements covering Collateral are now on file in favor of
anyone other than Lender, except pursuant to Section 3(d) above;
g. There is no litigation pending or threatened against Borrower, its
officers or directors or partners which, if adversely determined, might
have a material adverse affect on Borrower's business condition; and
h. Borrower's possession of Inventory is solely for the purpose of
procuring the sale, rental or exchange thereof to a retail buyer in the
ordinary course of Borrower's business.
4. COVENANTS. Borrower covenants and agrees:
a. To maintain the Inventory in good repair, working order, condition and
appearance, make all necessary or appropriate repairs, restorations,
replacements and renewals thereto, and not permit its value to be
impaired;
b. Not to grant or suffer to exist any security interest, mortgage,
attachment, lien or other encumbrance of any sort (other than Lender's
security interest or those detailed in Section 3(d) hereof on any
Collateral without Lender's prior written consent;
c. To notify Lender in advance of any change in, or addition or
discontinuation of Borrower's places of business, and any change in the
name, identity or form of Borrower;
d. To defend the Collateral against all claims and legal proceedings by
persons or entities other than Lender.
<PAGE> 2
e. To pay and discharge when due all taxes, fees, levies or other charges
of any sort upon the Collateral;
f. Not to permit any Inventory to become an accession or fixture to any
other property;
g. Not to deliver possession of any Collateral consisting of contract
rights, rental instruments, documents, money or chattel paper
to anyone other than Lender or Lender's designee(s);
h. Not to permit any Collateral to be used in violation of any applicable
law, rule, regulation or policy of insurance;
i. To use its property in the regular and ordinary course of business,
solely for business purposes, and comply with all laws, rules
and regulations applicable in any way to Borrower.
j. Not to remove or allow the removal of any Collateral from Borrower's
places of business without the prior written consent of Lender except
in the regular and ordinary course of business; and
k. To make the Collateral and the records relating thereto available for
inspection by Lender, or its designee, upon request, at reasonable
places and times;
l. To provide Lender with copies of its balance sheet, profit and loss
statement and such other financial reports within one hundred
twenty (120) days of the close of each fiscal year of Dealer; and
m. To deliver or cause to be delivered to Lender, upon requests of Lender,
the invoices, warehouse receipts, bills of lading, certificates
of title and other documents issued for each item of Inventory
financed hereunder, and Lender shall have the right to hold the same
until such items of Inventory are sold and to have its lien or security
interest noted thereon.
n. To notify Lender of any material disputes between Borrower and any
Supplier, including but not limited to threatened or actual
termination of Borrower's authorization to represent, purchase goods for
resale from, or otherwise engage in normal commercial relations with
such Supplier, and
o. If a corporation, to continuously maintain, preserve and keep in full
force and effect, its corporate existence, registry, good
standing, rights, and privileges in its corporate jurisdiction and all
jurisdictions wherein Borrower is doing business. Borrower shall not
permit any material change in the legal or equitable ownership of
Borrower without thirty (30) days prior written notification to Lender.
5. PAYMENTS.
a. Borrower agrees that the amount of each and every Extension of Credit
with any accrued and unpaid interest and other charges, shall be payable
in accordance with the Schedule of Terms (hereinafter defined) announced
from time to time by Lender; provided, however, that all such amounts
shall be due and payable, and Borrower agrees to pay to Lender such
amounts, upon demand made upon or after the occurrence of any one or
more of the following events: (i) as to the outstanding Extension of
Credit applicable to any item of Inventory immediately upon the sale
thereof, and (ii) an Event of Default as set forth in Paragraphs 7 and 8
hereof.
b. Interest shall be charged on the Extensions of Credit and Borrower
agrees to pay such interest charges promptly as billed and upon such
terms as Lender shall require in this Agreement and in accordance with
the rates and terms as announced in schedules from time to time by
Lender (the "Schedule of Terms", which Schedules of Terms are
incorporated by reference herein and made a part hereof). Interest
charges for each Extension of Credit outstanding during the prior month
shall be computed and accrued at the lesser of (i) the interest rate as
set forth in the Schedule of Terms, or (ii) the highest rate of interest
that Borrower can legally obligate itself to pay and/or Lender can
legally collect ("Maximum Legal Rate"). Interest shall accrue from and
including the date of each Extension of Credit as a simple interest rate
per annum based on a year of three hundred sixty (360) days for the
actual number of days elapsed. "Base Rate" shall mean the rate
announced from time to time by Citibank, N.A. in New York as its Base
Rate. Notwithstanding any other provision to the contrary set forth
herein, if at any time implementation of any provision hereof shall
raise the interest or other charges of Lender herein above the Maximum
Legal Rate, if any, in effect from time to time in the applicable
jurisdiction for Extensions of Credit to Borrowers of the type, in the
amount, for the purposes, and otherwise of the kind herein contemplated,
then such interest or other charges shall be limited to the Maximum
Legal Rate and any excess interest or other charges inadvertently
collected shall be deemed to be a partial prepayment of an Extension of
Credit and so applied.
c. All amounts payable pursuant hereto are payable at Lender's address
set forth above or at such other address as Lender may specify from time
to time in writing. Lender shall provide Borrower, on either a monthly
or other periodic basis, an invoice or statement of Borrower's account
prepared from Lender's records.
6. INSURANCE. Borrower shall at all times bear all risk of loss of, damage to,
or destruction of, the Collateral. Borrower shall maintain public liability
insurance and shall keep all Collateral insured against risks covered by
standard forms of fire, theft, and extended coverage insurance and such other
risks as may be required by Lender, in amounts, and having such deductibles
under policies issued by such insurance companies as are satisfactory to Lender.
Borrower agrees to deliver promptly to Lender certificates, or if requested,
policies of insurance, satisfactory to Lender, each with an endorsement naming
Lender or its assigns as additional insured or loss payee as their interests may
appear, along with proof of payment of the premium therefor. Each policy shall
provide that Lender's interest therein will not be invalidated by the acts,
omissions or neglect of anyone other than Lender, and will contain the insurer's
agreement to give thirty (30) days prior written notice to Lender before the
cancellation of or any material change in the policy will be effective as to
Lender, whether such cancellation or change is at the direction of Borrower or
insurer. Borrower assigns to Lender all policies and all proceeds of such
insurance, including returned and unearned premiums, not to exceed the sum of
all Obligations, as additional security. Borrower directs all insurers to pay
such proceeds directly to Lender, and Borrower shall hold in trust for Lender
and promptly remit to Lender, in the form received, with all necessary
endorsements, any proceeds of such insurance which Borrower may receive. Lender
shall apply any proceeds of insurance which may be received by it toward payment
of the Obligations to which such insurance proceeds relate, whether or not
then due, such proceeds to be applied first to interest and then to principal.
Excess insurance proceeds, if any, shall be returned to Borrower or applied to
any other Obligations, should such other Obligations be then due and unpaid, in
the event any item of Collateral is damaged and a claim submitted to the insurer
is in dispute. Borrower will pay the unpaid balance plus all accrued interest
of all Extensions of Credit attributable to the damaged Collateral, within five
(5) days of Lender's request. If, in the opinion of Lender, Borrower fails to
maintain insurance on the Collateral in a manner satisfactory to Lender, Lender
may, but shall not be obligated to, purchase such insurance, and Borrower agrees
to immediately reimburse Lender, upon demand, for any payment made or expense
incurred by Lender in purchasing such insurance, plus interest thereon at the
After Maturity Rate specified in the Schedule of Terms.
7. DEFAULT. The occurrence of any of the following events shall be deemed to
constitute an Event of Default under this Agreement;
a. Borrower shall fail to pay when due any amount owed by it to Lender or
to any parent, subsidiary or affiliate of Lender whether
hereunder or under any other instrument or agreement;
b. Borrower shall fail to perform or observe any other obligation,
covenant, or term to be performed or observed by it hereunder
or under any other instrument or agreement;
c. Any warranty, representation or statement made by Borrower in
connection with this Agreement or any other agreement between
Lender and Borrower is false or breached;
d. Borrower or any guarantor or surety for the Obligations
shall die, become insolvent or cease to do business as a going concern
or any guarantor or surety terminates such guaranty or suretyship with
respect to the Borrower;
e. The Collateral shall suffer a reduction in value, other than any
reduction in value from ordinary wear and tear resulting from
any of the Collateral being leased or rented by Borrower to third
parties under the terms of this Agreement;
<PAGE> 3
f. Borrower or any guarantor of or surety for the Obligations shall make
an assignment for the benefit of creditors, file a petition in
bankruptcy, apply to or petition any tribunal for the appointment of a
custodian, receiver or trustee for itself or for any substantial part of
its property, or shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, or if there shall have
been filed any such petition or application, or any such proceeding
shall have been commenced against any such person or entity, or any
such person or entity by any act or omission shall indicate its consent
to, approval of or acquiescence in any such petition, application,
proceeding, order for relief or such appointment of a custodian,
receiver or trustee;
g. Borrower shall have concealed or removed, or permitted to be concealed
or removed, any part of its assets, so as to hinder, delay or
defraud any of its creditors, or made or suffered a transfer of any of
its assets which transfer would be fraudulent under any bankruptcy,
insolvency, fraudulent conveyance or similar law or shall have made any
transfer of its assets to or for the benefit of a creditor at a time
when other creditors similarly situated have not been paid or shall
have suffered or permitted, while insolvent, any creditor to obtain a
lien upon any of its property through legal proceedings or distraint;
h. Loss, theft, damage, destruction, transfer, sale (except as expressly
permitted herein) or encumbrance of the Collateral, without
prior written consent of Lender, or the making of any levy, seizure or
attachment thereon;
i. Dissolution, merger, consolidation or transfer of any substantial part
of the property or ownership of Borrower, without the prior written
consent of Lender; or
j. A material adverse change in the Borrower's financial condition or
operations.
8. REMEDIES OF LENDER.
a. Upon the occurrence of an Event of Default, and at any time thereafter,
Lender shall have the right, at its option, to immediately exercise
one or more of the following remedies; (i) without demand or notice of
any kind, refuse to make any further Extensions of Credit; (ii)
terminate this Agreement immediately without notice; (iii) declare
immediately due and payable all sums and other Obligations then owing
by Borrower to Lender whether pursuant hereto or under any other
document, instrument or agreement, or otherwise, notwithstanding the
provisions of any writings evidencing the same; (iv) exercise any and
all rights it may have under the Uniform Commercial Code or other law;
(v) take immediate and exclusive possession of the Collateral, wherever
it may be found, and enter any of the premises of the Borrower, with or
without process of law, wherever the Collateral may be, or is supposed
to be, and search for same, and if found to take possession of, and
remove the Collateral, all without liability on the part of Lender or
its agents for such entry or for property or other damage; (vi) sell
any or all of the Collateral, at public or private sale, without notice
to Borrower or advertisement or otherwise, for cash or on credit, as
the Lender may elect, at its option, and Lender reserves the right to
bid and become the purchaser at any such sale; (vii) notify, in
Lender's own name, or in the name of the Borrower, all obligors of
Borrower and demand, collect, receive, receipt for, sue, compromise and
give acquittance for, any and all amounts due to Borrower on contracts
and credits; (viii) direct Borrower to assemble the Collateral and
deliver it to Lender, at Borrower's expense, at a place designated by
Lender which is reasonably convenient to Lender and Borrower; and/or
(ix) hold, appropriate, apply or set-off any and all moneys, credits,
indebtedness due from Lender, its affiliates, parents or subsidiaries,
to Borrower or any Suppliers of any item of inventory or other property
of or belonging to borrower which is or comes into possession of
Lender, its affiliates, parents or subsidiaries.
b. Borrower shall pay all reasonable costs of Lender incurred in the
collection of any of the Obligations owed Lender by Borrower
and for the enforcement of any Obligations of Borrower to Lender,
including reasonable attorney's fees and legal expenses. The foregoing
remedies shall not be deemed exclusive or alternative but shall be
cumulative and in addition to all other remedies in favor of Lender
existing at law or in equity. Notwithstanding the foregoing and in
addition, thereto, if Borrower fails to perform any of its obligations
hereunder, Lender may perform the same, but shall not be obligated to
do so, for the account of Borrower, and Borrower shall immediately repay
to Lender any amounts paid by Lender in such performance together with
interest thereon at the After Maturity Rate specified in the Schedule
of Terms.
c. Any proceeds realized by Lender upon the sale or other disposition of
the Collateral pursuant to this Section 8 may be applied by Lender to
the payment of the reasonable expenses of retaking, holding, preparing
for sale, selling and the like, including reasonable attorney's fees
and legal expenses, and any balance of such proceeds may be applied by
Lender toward the satisfaction of Borrower's Obligations in such
order of application as Lender may in its sole discretion determine.
Any surplus shall be paid to Borrower. Borrower shall be liable for
and shall promptly pay on demand any deficiency resulting from any such
disposition of Collateral.
9. TERMINATION. Either party upon not less than thirty (30) days prior written
notice to the other party may terminate this Agreement with respect to future
Extensions of Credit. Termination of this Agreement shall not affect the
rights and obligations of the parties with respect to transactions occurring
prior to the date of termination. Provided that all Borrower's Obligations to
Lender are paid in full, Lender will, upon Borrower's written request made
after the effective date of termination, release or terminate any and all
financing statements filed by Lender against Borrower.
10. BORROWER'S RIGHT TO SELL OR RENT. Borrower may sell its inventory to
buyers in the regular course of business, but nothing herein shall be
deemed to waive or release any interest Lender may have hereunder, or under any
other agreement, in any proceeds of such inventory. Upon any sale of such
inventory, Borrower shall pay to Lender such payment to be made on the earlier
of (a) twenty-four (24) hours after Dealer receives the proceeds of such sale,
or (b) thirty (30) days after the earlier of the date of delivery of the
Inventory to the Buyer or the date of the invoice therefor an amount equal to
the unpaid balance of the Extension of Credit plus accrued and unpaid interest
with respect to the item of Inventory sold; provided, however, that if Borrower
is in default, Borrower shall pay the entire proceeds of such sale to Lender.
For purposes hereof, the term "sale" shall include a cash sale, conditional
sale, installment sale, finance lease, or other similar transaction. Inventory
may not be rented or leased by Borrower without the prior written consent of
Lender, unless permitted by the applicable Schedule of Terms.
11. POWER OF ATTORNEY. Borrower hereby constitutes Lender, its successors and
assigns, Borrower's true and lawful attorney, irrevocably, with full power (in
Borrower's name or otherwise) to execute promissory notes or other evidence of
indebtedness and to execute and file, at such locations as Lender shall
determine, UCC financing statements and, upon the occurrence of an Event of
Default to ask, require, demand and receive any and all payments and other
claims for money due and to become due with respect to Inventory and to endorse
any checks or instruments or other orders in connection therewith, all without
affecting Dealer's liability in any manner whatsoever.
12. GENERAL PROVISIONS.
a. This Agreement may be executed in multiple counterparts which together
shall constitute but one and the same instrument. This Agreement shall
be binding on the parties, their heirs, executors, administrators,
successors and assigns, provided, however, that Borrower may not
assign this Agreement without the prior written consent of Lender.
b. It is understood and agreed, any law, custom or usage to the contrary
notwithstanding, that Lender shall have the right at all times
to enforce the covenants and provisions of this Agreement in strict
accordance with the terms thereof, notwithstanding any conduct or
custom on the part of Lender in refraining from so doing at any time or
times; and further, that the failure of Lender at any time or times to
enforce its right under said covenants and provisions strictly in
accordance with the same shall not be construed as having created a
custom in any way or manner contrary to the specific terms and
provisions of this Agreement or as having in any way or manner
modified, altered or waived the same.
<PAGE> 4
c. Lender may hold any sums of monies belonging to Borrower which come into
the possession of Lender and may apply all or a portion of said sums of
monies to any past due Obligations, or to any other claims that Lender
or any of its affiliates or subsidiaries may have against Borrower.
Borrower hereby constitutes and appoints Lender, its successors and
assigns, Borrower's true and lawful attorney, irrevocably, with full
power, to endorse checks or other instruments in connection therewith.
d. Borrower shall not assert against Lender any claim or defense Borrower
may have against any third party with respect to the Collateral.
e. This instrument contains the entire agreement between the parties
relating to the financing of inventory and the security interest provided
herein, and supersedes all prior representations, promises and conditions,
whether oral or written, in connection with the subject matter hereof,
and any representation, promise or condition not incorporated herein
shall not be binding upon the parties.
f. Waiver of any particular default shall not be a waiver of any other
default. All of Lender's rights are cumulative and not alternative. No
modification or change in this Agreement or in any related agreement
shall bind Lender unless in writing signed by a duly authorized officer
of Lender. The term "Lender" shall include any assignee of Lender. Any
provisions of this Agreement found by judicial interpretation or
construction to be prohibited by law shall be ineffective to the extent
of such prohibition, without invalidating the remaining provisions
hereof. All words used shall be understood and construed to be of such
number, tense and gender as the circumstances may require.
g. Lender may (i) insert dates, amounts and inventory serial numbers and
descriptions when known in any promissory notes taken or documents
related hereto, and (ii) correct any patent errors or omissions therein
or in this Agreement.
IN WITNESS WHEREOF, the parties have caused this agreement to be executed on
the day, month and year hereinabove written.
Lender Citicorp Del-Lease, Inc. Borrower: M & M Properties, Inc.
d/b/a Citicorp Dealer Finance dba M & M Equipment Rental
By: /s/ David B. Hilton By: /s/ Ralph McCurry
----------------------------------- --------------------------------
(Authorized Signature) (Authorized Signature)
David B. Hilton V.P. Ralph McCurry
----------------------------------- --------------------------------
(Printed Name and Title) (Printed Name and Title)
SECRETARY'S CERTIFICATE RELATING TO INCUMBENCY AND CORPORATE RESOLUTIONS
The undersigned, C. Cummings (Ass't) Secretary of M & M Properties, Inc. dba
M & M Equipment Rental
--------------------------
an Alabama corporation (herein the "Corporation"), does hereby certify:
1. That he is the duly elected, qualified and acting (Ass't) Secretary of
the Corporation and has the custody of the corporate records, minutes
and corporate seal.
2. That the following named person(s) has/have been properly designated,
elected and assigned to the office in such corporation as indicated
below; that such person(s) hold(s) such office at this time and that the
specimen signature appearing beside the name of such officer is his true
and correct signature.
Name Title Specimen Signature
Ralph McCurry Pres. /s/ Ralph McCurry
-----------------------------------------------------------------------------
Carol Cummings Ass't Secretary /s/ C. Cummings
-----------------------------------------------------------------------------
3. That at a meeting of the Board of Directors of the Corporation, duly
called, convened and held on ________________________, at which meeting
a quorum was present and voted throughout, the following resolutions(s)
were duly adopted by said Board and said resolution(s) have not been
amended, altered or repealed and remain in full force and effect on the
date hereof:
RESOLVED, that the Corporation enter into a Dealer Security Agreement
with Citicorp Dealer Finance ("Citicorp") whereby the Corporation shall
borrow money from time to time to finance the purchase of inventory:
FURTHER RESOLVED, that the person(s) named above of this Corporation be
and any one of them is, authorized for and on behalf of this Corporation
as its corporate act and deed to execute and deliver the Dealer Security
Agreement and such ancillary documents as Citicorp may request all in
form as may be satisfactory to such person(s): and it is
FURTHER RESOLVED, that any such action heretofore taken by such officer
be and the same hereby is ratified and confirmed.
4. That he is one of the duly authorized and proper officers of such
corporation to make certificates in its behalf and that he has caused
this certificate to be executed and the seal of the corporation to be
hereunto appended this 19 day of June, 1995.
(Corporate Seal)
/s/ C. Cummings
--------------------------------
(Ass't) Secretary
<PAGE> 5
SCHEDULE "A"
UCC-1 LANGUAGE
All new and used inventory now owned or hereafter acquired by the Borrower,
including but not limited to industrial lift trucks, aerial lifts, industrial
tractors, industrial material handling vehicles, industrial sweepers,
wherever located and any and all returned, exchanged and repossessed items
hereof and trade-ins thereon and any and all attachments, additions and
accessions thereto and accessories, substitutions, replacements and parts
therefor ("Inventory"); all goods, equipment, machinery, fixtures, motor
vehicles, furniture, chattel paper, leases, contract rights, accounts
receivable, accounts, documents, instruments and general intangibles now owned
or hereafter acquired by Debtor, and all proceeds of the foregoing, including
all cash, rents and non-cash proceeds thereof, including insurance proceeds.
DEBTOR: SECURED PARTY:
M & M PROPERTIES, INC. DBA CITICORP DEALER FINANCE
M & M EQUIPMENT RENTAL
BY: /s/ R. McCurry BY: /s/ David B. Hilton
------------------------ --------------------------
<PAGE> 6
SCHEDULE B
----------
GEHL FINANCE Dept #760
P.O. Box 2088
Milwaukee, WI 53201-2088
CASE CREDIT CORPORATION 700 State Street
Racine, WI 53404
AMERICAN EQUIPMENT LEASING P.O. Box 13428
Reading, PA 19612-3428
ASSOCIATES COMMERCIAL CORPORATION 1427 Thomas Drive
P.O. Box 612
Cape Girardeau, MO 63702-0612
ASSOCIATES COMMERCIAL CORPORATION P.O. Box 23407
305 N. Hurstbourne Pkwy
Louisville, KY 40222
HYSTER CREDIT COMPANY P.O. Box 5605
Portland, OR 97228-5605
PEOPLES FIRST NATIONAL BANK P.O. Box 2200
Paducah, KY 42002-2200
(ITT) DEUTSCHE FINANCIAL SERVICES P.O. Box 7780-3057
Philadelphia, PA 19182-3057
CONCORD COMMERCIAL P. O. Box 751146
Charlotte, NC 28275
CITIZENS BANK & TRUST P.O. Box 2400
Paducah, KY 42002-2400
FIRST ALABAMA BANK P.O. Box 680
Huntsville, AL 35804
ASSOCIATES/CLARK CREDIT P.O. Box 419314
Kansas City, MO 64141-6314
<PAGE> 7
SCHEDULE B
----------
CONTINUED
---------
FORD MOTOR CREDIT COMPANY P.O. Box 2212
Decatur, AL 35609
CIT GROUP/EQUIPMENT FINANCING, INC. P.O. Box 7777-W0800X
Philadelphia, PA 19175
NAVISTAR FINANCIAL CORPORATION Dept. 9002
Carol Stream, IL 60128-9002
CITICORP NORTH AMERICA, INC. 450 Mamaroneck Avenue
Harrison, NY 10528
COMPASS BANK P.O. Box 10566
Loan Operations
Birmingham, AL 35296
ORIX CREDIT ALLIANCE, INC. P.O. Box 1687
Pittsburgh, PA 15230-1687
GMAC P.O. Box 51014
Carol Stream, IL 60125-1014
DEUTSCHE CREDIT CORPORATION P.O. Box 75308
Chicago, IL 60675-5308
GE CAPITAL FLEET SERVICES Drawer CS 100363
Atlanta, GA 30384-0363
MERCEDES-BENZ CREDIT CORPORATION Dept. CH#10548
Palatine, IL 60055-0548
REGIONS FINANCIAL LEASING, INC. P.O. Box 1203
Montgomery, AL 36102
<PAGE> 8
Schedule B
----------
Continued
----------
ATLAS COPCO 161 Lower Westfield Road
P.O. Box 431
Holyoke, MA 01041
GEHL COMPANY 143 Water Street
P.O. Box 179
West Bend, WI 53095
GENIE INDUSTRIES 18340 NE 76th Street
Redmond, WA 98052
JLG INDUSTRIES, INC. 1 JLG Drive
McConnellsburg, PA 17233
K.D. MANITOU, INC. P.O. Box 154009
Waco, TX 76715
MANITEX, INC. 3000 South Austin Avenue
P.O. Box 1609
Georgetown, TX 78627
SKYJACK, INC. 55 Campbell Road
Guelph Ontario, Canada N1H1B9
TRAK INTERNATIONAL, INC. 369 West Western Avenue
Port Washington, WI 53074
<PAGE> 1
Exhibit 10.4
REVOLVING CREDIT NOTE
$5,000,000.00 Date: July 25, 1995
M&M PROPERTIES, INC. and McCURRY & FALCONITE EQUIPMENT CO., INC, (individually,
"Borrower" and collectively, "Borrowers") for value received, unconditionally
promise to jointly and severally pay to the order of CITICORP DEL-LEASE, INC.,
doing business as CITICORP DEALER FINANCE ("Lender"), at its office located at
450 1-Mamaroneck Avenue, Harrison, New York 10528, the principal amount of Five
Million Dollars ($5,000,000.00) or, if less, the unpaid principal amount of
each Extension of Credit (as defined in the Agreement defined below; all
capitalized terms not otherwise defined herein shall have the meanings
attributed thereto in the Agreement) made to either or both Borrowers by Lender
and outstanding under this Revolving Credit Note, on the Revolver Termination
Date.
Borrowers promise to jointly and severally pay interest on the unpaid principal
amount of each Extension of Credit from the date advanced by Lender until such
principal amount is paid in full, at such interest rates, and at such times, as
are specified in the Agreement.
This is the Revolving Credit Note referred to in that certain Dealer Security
Agreement, dated as of June 19, 1995, among Borrowers and Lender (as amended
or otherwise modified from time to time, the "Agreement"). The Agreement, among
other things, provides for the making of Extensions of Credit by Lender to
Borrowers from time to time in an aggregate amount not to exceed at any time
outstanding the dollar amount first above mentioned, the indebtedness of
Borrowers resulting from each such Extensions of Credit being evidenced by this
Revolving Credit Note.
The Agreement provides for the acceleration of the maturity of this Revolving
Credit Note upon the occurrence of certain Events of Default and for prepayment
of the Revolving Credit Loan on the terms and conditions specified therein.
Borrowers waive presentment, notice of dishonor, protest and any other notice or
formality with respect to this Revolving Credit Note.
Borrowers agree to jointly and severally reimburse Lender on demand for all
reasonable costs, expenses and charges (including, without limitation, fees
and charges of legal counsel for Lender) in connection with the interpretation,
performance or enforcement of this Revolving Credit Note.
<PAGE> 2
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
M&M PROPERTIES, INC.
By: /s/ Ralph McCurry
--------------------------
Name: Ralph McCurry
------------------------
Title: President
-----------------------
MCCURRY & FALCONITE EQUIPMENT
CO., INC.
By: /s/ Ralph McCurry
--------------------------
Name: Ralph McCurry
------------------------
Title: President
-----------------------
<PAGE> 1
Exhibit 10.5
AMENDMENT NO. 1
TO
THE DEALER SECURITY AGREEMENT
THIS AMENDMENT NO. 1 to the DEALER SECURITY AGREEMENT (this
"Amendment"), dated as of July 25, 1995, is by and between CITICORP DEL-LEASE,
INC., doing business as CITICORP DEALER FINANCE ("Lender"), and M&M PROPERTIES,
INC. and McCURRY & FALCONITE EQUIPMENT CO., INC. (jointly and severally referred
to herein as "Borrower").
W I T N E S S E T H:
WHEREAS, Lender and each Borrower are parties to a Dealer Security
Agreement each dated June 19, 1995 (each Dealer Security Agreement being
referred to herein as the "Agreement"; capitalized terms not otherwise defined
in this Amendment shall have the meanings attributed thereto in the Agreement);
and
WHEREAS, Lender and Borrower have agreed to amend the Agreement as set
forth herein;
NOW, THEREFORE, in consideration of the premises and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Borrower hereby agree to amend the Agreement as
follows:
SECTION 1. DEFINITIONS.
(a) The first line of the Agreement is hereby amended by deleting the
parenthetical ("Agreement") and substituting therefor the parenthetical "(as
amended or otherwise modified from time to time, "Agreement")."
(b) All capitalized terms not otherwise defined in this Amendment shall
have the meanings given to them in the Agreement. The following Section 13
shall be added to the Agreement immediately following Section 12 thereof:
"13. DEFINITIONS. Whenever the following terms are used in the
Agreement, they shall have the following meanings unless the context requires
otherwise:
<PAGE> 2
"Account" means, any right to payment for goods sold or leased or for
services rendered, including but not limited to "accounts" as defined in
Section 9-106 of the Uniform Commercial Code of the State of New York in effect
as of the date hereof, whether or not such right is evidenced by an instrument
or chattel paper and whether or not it has been earned by performance.
"Account Percentage" means zero percent (0%) initially or such other
percentage established by Lender.
"Adjusted Libor Rate" means, a rate of interest equal to three hundred
fifty six basis points (3.56%) per annum above the Libor Rate.
"Borrowing Base" means, the lesser of (a) $5,000,000 or (b) the sum of
(i) Eligible Accounts multiplied by the Account Percentage, plus (ii) Eligible
Parts Inventory multiplied by the Parts Inventory Percentage plus (iii) the
then-amount of Eligible Rental Equipment Inventory determined by the fully
depreciated book value thereof multiplied by the Rental Equipment Inventory
Percentage. The depreciated book value of the Eligible Rental Equipment
Inventory shall be computed in accordance with the method of depreciation being
used by Borrower (not to exceed unless otherwise approved by Lender (a) for
boom lifts and cranes, the lO-year, straight line depreciation method with a
salvage value of 25%, (b) for air compressors, forklifts and scissor lifts, the
7-year, straight line depreciation method with a salvage value of 25%, (c) for
back hoes and skid steers, the 10-year, straight line depreciation method with a
salvage value of zero and (d) for personnel lifts, the 5-year, straight line
depreciation method with a salvage value of 25%).
"Borrowing Base Certificate" means, the Borrowing Base Certificate
detailing the components of the Borrowing Base in substantially the form of
Exhibit A attached hereto.
"Borrowing Certificate" means, the Borrowing Certificate required with
each Extension of Credit and payment in substantially the form of Exhibit B
attached hereto.
"Business Day" means, any day of the year on which commercial banks in
the State of New York are not required or authorized to be closed and on which
commercial banks in London are open for dealings in U.S. dollar deposits in the
London Interbank Market.
"Effective Date" means, July 25, 1995.
-2-
<PAGE> 3
"Eligible Accounts" means the Accounts of Borrower which are and at all
times shall continue to be in all respects acceptable to Lender in its
reasonable credit judgment, but excluding (a) Accounts which do not consist of
ordinary trade accounts receivable owned by Borrower, payable in cash in United
States dollars and arising out of the final sale of Inventory or provision of
services in the ordinary course of Borrower's business as presently conducted
by it; (b) Accounts which are not due and payable, absolutely and
unconditionally, within thirty (30) days from the date of the original invoice
applicable thereto; (c) Accounts with respect to which more than ninety (90)
days have elapsed since the date of the original invoice applicable thereto,
and all Accounts owed by a particular account debtor if 50% or more of such
Accounts fail to be Eligible Accounts by virtue of this clause (c); (d)
Accounts with respect to which the account debtor is an affiliate of Borrower;
(e) Accounts with respect to which the account debtor is the United States of
America or any department, agency or instrumentality thereof; (f) Accounts with
respect to which the account debtor is not a resident of the United States,
unless the account debtor has supplied the Borrower with an irrevocable
commercial letter of credit, issued by a financial institution and in form and
substance satisfactory to Lender, and, if so requested by Lender, delivered to
Lender or its agent in pledge for negotiation and presentment; (g) Accounts
with respect to which the account debtor is the subject of bankruptcy or a
similar insolvency proceeding, or has made an assignment for the benefit of
creditors, or whose assets have been conveyed to a receiver or trustee, or who
has failed or gone out of business; (h) Accounts that are proceeds of financed
inventory, parts or equipment; (i) Accounts with respect to which the account
debtor is also a creditor of Borrower, but only to the extent of the amount
owed by Borrower to such account debtor if such amount is less than the amount
of all Accounts with respect to such account debtor which otherwise would be
Eligible Accounts; (j) Accounts which are evidenced by a promissory note or
other instrument; (k) any Accounts with respect to which Lender does not have a
first prior perfected Lien; (l) Accounts for any warranty services rendered by
Borrower; and (m) Accounts with respect to which the terms or conditions
prohibit or restrict assignment or collection rights; provided, however, that
notwithstanding the foregoing, Lender may determine from time to time, in the
good faith exercise of its reasonable discretion, which Accounts comprise
Eligible Accounts.
"Eligible Parts Inventory" menas Parts Inventory of Borrower (including
raw materials and finished products) which is and at all times shall continue
to be in good condition and in all respects acceptable to Lender in its
reasonable credit judgment, but excluding (a) work-in-process; (b) any Parts
Inventory which is the subject of an Eligible Receivable; (c) any Parts
Inventory not in the lawful possession of Borrower at a place of business of
Borrower; (d) any Parts Inventory which is not usable and saleable in the
ordinary course of Borrower's business; (e) any Parts Inventory for which there
is a warehousemen's receipt, bill of lading, or other document of title which
is negotiable and which is not delivered to Lender; (f) any Parts Inventory
with respect to which Lender does not have a first prior perfected Lien; (g)
any Parts Inventory unit held in inventory twelve or more months from the
invoice date unless the same type of unit has been sold during the
-3-
<PAGE> 4
twelve month period prior to the date of determination of the Borrowing Base;
and (h) any Parts Inventory unit consisting of tools, used engines or units
marked or otherwise deemed unacceptable by Borrower; provided, however, that,
notwithstanding the foregoing, Lender may determine from time to time, in the
good faith exercise of its reasonable discretion, which Parts Inventory
comprises Eligible Parts Inventory.
"Eligible Rental Equipment Inventory" means Rental Equipment Inventory
which (a) was acquired by Borrower in new or used condition for lease, all in
the ordinary course of business, (b) is and at all times shall continue to be
in good condition and in all respects acceptable to Lender in its reasonable
credit judgment and (c) has been included as an asset on Borrower's financial
statements, but excluding (a) any Rental Equipment Inventory which has been sold
and the purchase price thereof is not due and payable, absolutely and
unconditionally, within thirty (30) days of the date of the original invoice,
(b) any Rental Equipment Inventory which has been sold and more than thirty
(30) days have elapsed since the date of the earlier of the original invoice
date or the delivery date, (c) any Rental Equipment Inventory subject to any
Lien except for Lender's Lien and those Liens permitted herein, (d) any Rental
Equipment Inventory upon which Borrower owes specific indebtedness to a
creditor other than Lender under the Revolving Credit Note, (e) any Rental
Equipment Inventory which has been sold and only partial payment has been
received by Borrower in which case the amount of the partial payment shall be
excluded, (f) any Rental Equipment Inventory which is on the balance sheet of
Borrower at book salvage value for more than one (1) year and (g) any Rental
Equipment Inventory which is in the process of being refurbished in a manner
requiring more than forty (40) hours of service.
"Libor Rate" means, a fluctuating rate of interest per annum as shall
be in effect from time to time which rate shall be at all times equal to the
rate of interest per annum at which deposits in U.S. dollars are offered by
Citibank, N.A. to prime banks in the London or, at the option of Lender, the
Nassau interbank market at 11:00 a.m. (London time or Bahamas time) two (2)
Business Days before such rate shall become effective hereunder in an amount
substantially equal to the unpaid principal balance outstanding under the
Revolving Credit Note and for a period equal to ninety (90) days.
"Lien" means, any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction).
"Parts Inventory" means, all of Borrower's replacement parts and kits
of parts held for sale or lease or to be furnished under contracts of service,
or raw materials, work in process or materials used or consumed in its
business.
-4-
<PAGE> 5
"Parts Inventory Percentage" means, zero percent (0%) initially
or such other percentage established by Lender.
"Rental Equipment Inventory Percentage" means, 90% initially or
such other percentage established by Lender.
"Revolving Credit Loan" shall have the meaning set forth in
subsection 14(a).
"Standby Term Loan Note" means, a promissory note in the form
of Exhibit "C" attached hereto.
"Revolving Credit Note" shall have the meaning set forth in
subsection 14(b).
"Termination Date" means, July 25, 1996.
SECTION 2. New Sections. The following sections shall be added to the
Agreement immediately following Section 13 thereof:
14. Revolving Credit Loan.
(a) Subject to, and upon the terms and conditions
contained herein, Lender, in its sole and absolute discretion, may make loans
to Borrower in the aggregate principal amount at any one time outstanding not
to exceed the Borrowing Base (the "Revolving Credit Loan"); provided, however,
Borrower expressly understands that Lender, with or without cause, may refuse
to loan any sum of money under the Revolving Credit Loan. It is contemplated
that Borrower will repay and reborrow under the Revolving Credit Loan in
accordance with the terms of the Agreement. Unless either party elects to
terminate it sooner in accordance with the terms hereof, the Revolving Credit
Loan shall be available from the Effective Date to and including the
Termination Date provided all conditions precedent have been and are at the
time of each advance complied with.
(b) The Revolving Credit Loan shall be evidenced by a
Revolving Credit Note, in substantially the form of Exhibit D hereto (the
"Revolving Credit Note") with appropriate insertions, which shall be issued and
delivered by Borrower to Lender, evidencing the obligation of Borrower to pay
the aggregate unpaid principal amount of all advances made by Lender pursuant
to the Revolving Credit Loan together with interest thereon at the Adjusted
Libor Rate.
(c) Borrower may request or make up to an aggregate of
four (4) advances or principal repayments of the Revolving Credit Loan during
any calender month unless otherwise agreed to in writing by Lender. Any
advance or principal repayment of the Revolving Credit Loan shall be in the
amount of $25,000.00 or more; provided, however, that Borrower shall pay the
actual amount of any excess of the Revolving Credit Loan outstanding over the
Borrowing Base as necessary from time to time.
-5-
<PAGE> 6
(d) Not later than noon (eastern standard time) of the
day at least one (1) Business Day prior to the date of any proposed borrowing
under the Revolving Credit Loan, Borrower shall give written notice of its
intention to borrow to Lender and specify the Business Day on which the
proposed loan will take place and the amount thereof. Unless otherwise provided
in the Agreement, Lender will disburse the loan as requested by Borrower in
accordance with Borrower's written instructions.
(e) Borrower shall repay the Revolving Credit Loan on
the Termination Date. To enable Borrower to do so, Lender in its sole
discretion, may make a loan to Borrower, jointly and severally, in an original
principal sum equal to the aggregate amount of their Obligations to Lender,
which loan shall be evidenced by the Standby Term Loan Note, upon such terms as
Lender may determine in the sole and exclusive exercise of its credit judgment.
Such terms shall include an amortization schedule not to exceed forty-eight
(48) monthly payments, an interest rate as mutually agreed upon by Borrower and
Lender and, if the parties agree upon a fixed-rate of interest, a prepayment
fee as Lender requires to compensate Lender for its loss of bargain. No
prepayment fee shall be payable in the event the parties agree upon a floating
rate of interest.
(f) Interest at the Adjusted Libor Rate shall accrue on
each Extension of Credit from the date advanced by Lender until paid in full.
Interest accrued hereunder shall be computed on the basis of a 360 day year for
the actual number of days elapsed and shall be payable monthly in arrears on
the 15th day of each calendar month, commencing on the first such date to occur
immediately following the date on which the initial Extension of Credit is
advanced. The Adjusted Libor Rate shall change in accordance with changes in
the Libor Rate. Lender's determination of the Libor Rate shall be conclusive
and binding upon Borrower. Each change in the Adjusted Libor Rate shall take
effect on the same day as the corresponding change in the Libor Rate.
(g) Borrower shall submit to Lender a Borrowing
Certificate with each requested advance and each repayment of the Revolving
Credit Loan.
(h) Lender may, in its reasonable credit judgment,
from time to time, change the percentage specified for the Account Percentage,
the Parts Inventory Percentage and the Rental Equipment Inventory Percentage.
Lender may, in its reasonable credit judgment, from time to time, determine and
revise the criteria for Eligible Accounts, Eligible Parts Inventory and
Eligible Rental Equipment Inventory.
15. FINANCIAL COVENANTS. Borrower agrees that so long as
any obligations remain outstanding Borrower shall:
(a) Combined Leverage: maintain a combined ratio of
total liabilities to tangible net worth of not more than (i) 5.25 to 1 for any
fiscal quarter ending through September 30, 1995 and (ii) 4.5 to 1 for any
fiscal quarter ending thereafter;
-6-
<PAGE> 7
(b) Minimum Net Worth: maintain total tangible assets
less total liabilities of at least $1,800,000 until December 31, 1995, which
amount (as recalculated each quarter pursuant to this subsection) shall be
increased at the end of each fiscal quarter thereafter by 50% of the net profit
of Borrower; provided, however, that in no event shall such minimum amount be
decreased if Borrower suffers a net loss;
(c) Debt Service: maintain an annualized combined
ratio of Borrower's earnings before interest, taxes, depreciation and
amortization ("EBITDA") to Debt (defined below) greater than 33% measured at
the end of any fiscal quarter. "Debt" means all short and long-term
obligations of Borrower which should be classified as liabilities on the
combined balance sheet of Borrower (including, but not limited to, the
indebtedness evidenced by the Revolving Credit Note, short term rentals,
floorplan financing, mortgages, term and other amortizing loans);
(d) Capital Expenditures: limit to a maximum of
$6,000,000 during fiscal-year 1995 and $2,500,000 during fiscal-year 1996
Borrower's acquisition of Rental Equipment Inventory exclusive of replacement
units (that is, units acquired by Borrower to replace sold units of similar or
like kind)."
16. CONDITIONS PRECEDENT. The effectiveness of this
Amendment, and as a condition precedent to Lender making the Revolving Credit
Loan to Borrower, is subject to the delivery of each of the following documents
in form and substance satisfactory to Lender:
(a) a duly executed Revolving Credit Note;
(b) duly executed original counterparts of this
Amendment;
(c) a duly executed Borrowing Base Certificate;
(d) a duly executed Borrowing Certificate;
(e) a duly executed Corporate Guaranty of each
Borrower;
(f) a duly executed Personal Guaranty of Michael
Falconite and Ralph McCurry;
(g) proof of insurance of the Collateral including the
naming of Lender as loss payee;
(h) UCC-1 financing statements covering the Collateral
executed by Borrower and duly filed in the State of Alabama;
-7-
<PAGE> 8
(i) copies of termination statements or releases of collateral
duly filed in the State of Alabama by prior, competing secured parties having
an interest in the Collateral; and
(j) an audit conducted by a third-party, chosen by Lender at
the expense of Borrower, to verify the Borrowing Base Certificate."
SECTION 3. COVENANTS. The following subsections shall be added to
Section 4 of the Agreement:
"p. On or before the 15th day of each month, to provide Lender with
(i) a Borrowing Base Certificate as of the end of the preceding calendar month;
q. Borrower agrees that it will not change the Rental Equipment
Inventory depreciation method or the salvage value without the prior written
consent of Lender;
r. In the event that the Borrowing Base is less than the unpaid
Revolving Credit Loan outstanding, to immediately repay to Lender an amount
equal to the excess of the unpaid Revolving Credit Loan outstanding over the
Borrowing Base (as determined by the most recent Borrowing Base Certificate);
s. To grant Lender at all times access to and the right to examine,
inspect and audit the Collateral and Borrower's books of account, records,
reports and other papers (and to make copies and extracts therefrom) in order
to verify the accuracy of the Borrowing Base Certificate;
t. As soon as available, and in any event not more than ninety (90)
days after the end of each fiscal year of Borrower, to furnish to Lender a copy
of the annual combined audited financial statements of Borrower (consisting of
at least a combined balance sheet and related statements of income, retained
earnings and changes in financial condition), all in reasonable detail and
audited by a firm of public accountants acceptable to Lender, to the effect
that such statements have been prepared in accordance with generally accepted
accounting principles consistently maintained and applied (except for changes
with which such accountants concur);
u. As soon as available, and in any event not more than forty-five
(45) days after the end of the first three fiscal quarters of each fiscal year
of Borrower, to furnish to Lender a copy of the combining balance sheet and
related statements of income, retained earnings and changes in financial
condition for such quarter, all in reasonable detail and certified by a
Responsible Officer of each Borrower as being true, correct and complete, and
as having been prepared in accordance with generally accepted accounting
principles consistently maintained and applied, subject to year-end
adjustments;
-8-
<PAGE> 9
v. that Ralph McCurry shall participate in the conduct
of Borrower's affairs and devote his entire time thereto and shall not, without
the prior written consent of Lender, engage in any business or occupation
directly or indirectly other than Borrower;
w. that Borrower shall not lend or advance money,
credit or property to any owner, director or officer of Borrower if, after
giving effect thereto, the aggregate outstanding principal balance of all such
loans, advances or other extensions of credit to all such persons shall exceed
the sum of $200,000 at any one time."
SECTION 4. REMEDIES. The following subsection shall be added to
Section 8 of the Agreement:
"d. Upon the occurrence of an Event of Default, the
Revolving Credit Loan shall automatically and immediately terminate."
SECTION 5. OTHER. The following provisions shall be added to the
Agreement:
(a) at the end do subparagraph 4(a) add: "Without
limiting the generality of the foregoing, Borrower agrees that all Collateral
and components thereof will be complete and have no missing parts. All
Collateral will be maintained to its manufacturer's recommended guidelines
for preventive maintenance throughout the term hereof and will be able to pass
performance tests within the manufacturer's specifications and, if applicable,
lift the weight for which it was originally designed. Tires will have 60% or
better tread remaining and be of original casings; lifts and lift cylinders
will be kept dry and free of leaks; all Collateral will be kept free of oil
leaks; transmission and differential will be in good condition as determined by
the manufacturer; engines will be kept free of smoke and knocks; and, all drive
pumps and motors will be in good condition;"
(b) at the end of subparagraph 4(k) add: "Lender or
its representatives may, from time to time, in the reasonable credit judgment
of Lender, audit the books and records of the Borrower and the cost of such
audit shall be borne by Borrower;"
SECTION 6. MISCELLANEOUS. The obligations of Borrower under the
Agreement as amended hereby shall be the joint and several obligations of each
of them. The terms and conditions of this Amendment are hereby incorporated
into the Agreement. This Amendment shall take precedence in the event any
terms and conditions of the Agreement conflict herewith. Except as provided
herein, all other terms and conditions of the Agreement shall remain in full
force and effect and are hereby ratified and confirmed.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.
M&M PROPERTIES, INC.
By: /s/ Ralph McCurry
--------------------------
Name: Ralph McCurry
------------------------
Title: President
-----------------------
MCCURRY & FALCONITE EQUIPMENT
CO., INC.
By: /s/ Ralph McCurry
--------------------------
Name: Ralph McCurry
------------------------
Title: President
-----------------------
CITICORP DEL-LEASE, INC., d/b/a
CITICORP DEALER FINANCE
By: /s/ David B. Hilton
--------------------------
Name: David B. Hilton
------------------------
Title: Vice President
-----------------------
-10-
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 2
TO
THE DEALER SECURITY AGREEMENT
THIS AMENDMENT NO. 2 to the DEALER SECURITY AGREEMENT (this "Amendment"),
dated as of July 29, 1996, is by and between CITICORP DEL-LEASE, INC., doing
business as CITICORP DEALER FINANCE ("Lender"), and M&M PROPERTIES, INC. and
McCURRY & FALCONITE EQUIPMENT CO., INC. (jointly and severally referred to
herein as "Borrower").
WITNESSETH:
WHEREAS, Lender and each Borrower are parties to a Dealer Security
Agreement each dated June 19, 1995 (each Dealer Security Agreement being
referred to herein as the "Agreement"; capitalized terms not otherwise defined
in this Amendment shall have the meanings attributed thereto in the Agreement);
and
WHEREAS, Lender and Borrower desire to extend the Termination Date (as
defined in the Agreement) as set forth herein;
NOW, THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender and Borrower hereby agree to amend the Agreement as follows:
1. The definition of "Termination Date" in Section 13 (Definitions) of the
Agreement is hereby amended to read in its entirety as follows:
"Termination Date" means, July 25, 1997.
2. The terms and conditions of this Amendment are hereby incorporated
into the Agreement. This Amendment shall take precedence in the event any terms
and conditions of the Agreement conflict herewith. Except as provided herein,
all other terms and conditions of the Agreement shall remain in full force and
effect and are hereby ratified and confirmed.
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.
M & M PROPERTIES, INC.
By: /s/ Ralph McCurry
---------------------------
Name: RALPH McCURRY
-------------------------
Title: President
-----------------------
McCURRY & FALCONITE EQUIPMENT
CO., INC.
By: /s/ Ralph McCurry
--------------------------
Name: RALPH McCURRY
------------------------
Title: President
-----------------------
CITICORP DEL-LEASE, INC., d/b/a
CITICORP DEALER FINANCE
By: /s/ Mark A. Malec
---------------------------
Name: MARK A. MALEC
--------------------------
Title: Vice President
-------------------------
2
<PAGE> 1
EXHIBIT 10.7
AMENDMENT NO. 3
TO
THE DEALER SECURITY AGREEMENT
THIS AMENDMENT NO. 3 to the DEALER SECURITY AGREEMENT (this "Amendment"),
dated as of September 9, 1996, is by and between CITICORP DEL-LEASE, INC., doing
business as CITICORP DEALER FINANCE ("Lender"), and M&M PROPERTIES, INC. AND
McCURRY & FALCONITE EQUIPMENT CO., INC. (jointly and severally referred to
herein as "Borrower").
W I T N E S S E T H:
WHEREAS, Lender and each Borrower are parties to a Dealer Security
Agreement each dated June 19, 1995 (each Dealer Security Agreement being
referred to herein as the "Agreement"; capitalized terms not otherwise defined
in this Amendment shall have the meanings attributed thereto in the Agreement);
and
WHEREAS, Lender and Borrower have agreed to amend the Agreement as set
forth herein;
NOW, THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender and Borrower hereby agree to amend the Agreement as follows:
SECTION 1. DEFINITIONS.
(a) All capitalized terms not otherwise defined in this Amendment
shall have the meanings given to them in the Agreement.
(b) The definition of the term "Adjusted Libor Rate" is amended by
deleting the words "three hundred fifty six basis points (3.56%)" therefrom and
substituting therefor the words "three hundred basis points (3.00%)".
(c) The definition of the term "Borrowing Base" is amended by
deleting the amount "$5,000,000" therefrom and substituting therefor the amount
"$9,000,000".
(d) The definition of the term "Termination Date" is amended by
deleting it in its entirety and substituting therefor the following:
"Termination Date means, December 1, 1996 as such date may be amended or
extended from time to time."
SECTION 2. FINANCIAL COVENANTS. Borrower agrees that so long as any
Obligations remain outstanding Borrower shall:
(a) Combined Leverage: maintain a combined ratio of total
liabilities to tangible net worth of not more than 4.5 to 1 for any fiscal
quarter;
(b) Minimum Net Worth: maintain total tangible assets less total
liabilities of at least $3,500,000 at December 31, 1995, which amount (as
recalculated each quarter pursuant to this subsection) shall be increased at
the end of each fiscal quarter thereafter
<PAGE> 2
by 50% of the net profit of Borrower; provided, however, that in no event shall
such minimum amount be decreased if Borrower suffers a net loss;
(c) Debt Service: maintain an annualized combined ratio of
Borrower's earnings before interest, taxes, depreciation and amortization
("EBITDA") to Debt (defined below) greater than 33% measured at the end of any
fiscal quarter. "Debt" means all short and long-term obligations of Borrower
which should be classified as liabilities on the combined balance sheet of
Borrower (including, but not limited to, the indebtedness evidenced by the
Revolving Credit Note, short term rentals, floorplan financing, mortgages, term
and other amortizing loans);
(d) Capital Expenditures: limit to a maximum of $4,500,000 during
fiscal-year 1996 Borrower's acquisition of Rental Equipment Inventory
exclusive of inventory purchased for the purpose of resale and replacement
units (that is, units acquired by Borrower to replace sold units of similar or
like kind).
SECTION 3. NEW SECTIONS. The following sections shall be added to the
Agreement immediately following Section 16 thereof:
17. FURTHER ASSURANCES. Borrower will, from time-to-time, at its
expense, execute, deliver, file and record any statement, assignment, security
agreement, instrument, document, agreement or other paper and take any other
action (including, without limitation, any filings of financing statements on
Form UCC-1 or continuation statements on Form UCC-3 under the Uniform Commercial
Code) that from time-to-time may be necessary or desirable, or that Lender may
reasonably request, to create, preserve, upgrade in rank, perfect, confirm or
validate the security interests created hereunder, or to enable Lender to obtain
the full benefits of this Agreement, or to enable Lender to exercise and enforce
any of its rights, powers and remedies hereunder with respect to any of the
Collateral. To the extent permitted by law, Borrower hereby authorizes Lender
to execute and file financing statements on Form UCC-1 or continuation
statements on Form UCC-3 without Borrower's signature appearing thereon.
Borrower agrees that a carbon, photographic, photostatic or other reproduction
of the Agreement or of a financing statement is sufficient as a financing
statement. Borrower shall pay the costs of, or incidental to, any recording or
filing of any financing or continuation statements concerning the Collateral.
18. WAIVER OF JURY TRIAL EACH OF BORROWER AND LENDER IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THE AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT MADE
IN CONNECTION THEREWITH OR THE TRANSACTIONS CONTEMPLATED THEREBY.
19. FACSIMILES. Anything transmitted by Borrower to Lender via
facsimile in connection with the transactions contemplated by the Agreement
shall, if accepted by Lender, be binding upon Borrower as if it were manually
signed and the original thereof delivered to Lender. Borrower agrees that,
notwithstanding any rule of evidence to the contrary, in any hearing, trial or
proceeding of any kind, Lender may produce, and introduce into evidence, a
facsimile copy of the Agreement and of all ancillary instruments, agreements,
documents and other papers, and such facsimile copy shall be deemed to be the
-2-
<PAGE> 3
original thereof.
19. CHOICE OF LAW. The validity, construction and enforceability
of the Agreement shall be governed by the internal laws of the State of New York
without giving effect to conflict of laws principles thereof.
SECTION 4. MISCELLANEOUS. The obligations of Borrower under the Agreement
as amended hereby shall be the joint and several obligations of each of them.
The terms and conditions of this Amendment are hereby incorporated into the
Agreement. This Amendment shall take precedence in the event any terms and
conditions of the Agreement conflict herewith. Except as provided herein, all
other terms and conditions of the Agreement shall remain in full force and
effect and are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written:
M&M PROPERTIES, INC.
By: /s/ Ralph McCurry
---------------------------
Name: RALPH McCURRY
-------------------------
Title: President
------------------------
McCURRY & FALCONITE EQUIPMENT
CO., INC.
By: /s/ Ralph McCurry
--------------------------
Name: RALPH McCURRY
-------------------------
Title: President
------------------------
CITICORP DEL-LEASE, INC., d/b/a
CITICORP DEALER FINANCE
By: /s/ Mark A. Malec
---------------------------
Name: MARK A. MALEC
--------------------------
Title: Vice President
-------------------------
-3-
<PAGE> 1
EXHIBIT 10.8
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$9,000,000.00 DATE: SEPTEMBER 9, 1996
M&M PROPERTIES, INC. AND McCURRY & FALCONITE EQUIPMENT CO., INC. (individually,
"Borrower" and collectively, "Borrowers") for value received, unconditionally
promise to jointly and severally pay to the order of CITICORP DEL-LEASE, INC.,
DOING BUSINESS AS CITICORP DEALER FINANCE ("Lender"), at its office located at
450 Mamaroneck Avenue, Harrison, New York 10528, the principal amount of Nine
Million Dollars ($9,000,000.00) or, if less, the unpaid principal amount of
each Extension of Credit (as defined in the Agreement defined below; all
capitalized terms not otherwise defined herein shall have the meanings
attributed thereto in the Agreement) made to either or both Borrowers by Lender
and outstanding under this Amended and Restated Revolving Credit Note (the
"Revolving Credit Note"), on the Termination Date; provided; however, that the
Termination Date shall automatically be extended for additional terms of
one-year each unless either Borrowers or Lender notifies the other in writing
at least thirty (30) days prior to the Termination Date of its decision not to
so extend for an additional one-year term.
Borrowers promise to jointly and severally pay interest on the unpaid principal
amount of each Extension of Credit from the date advanced by Lender until such
principal amount is paid in full, at such interest rates, and at such times, as
are specified in the Agreement.
This is the Revolving Credit Note referred to in that certain Dealer Security
Agreement, dated as of June 19, 1995, among Borrowers and Lender (as amended or
otherwise modified from time to time, the "Agreement"). The Agreement, among
other things, provides for the making of Extensions of Credit by Lender to
Borrowers from time to time in an aggregate amount not to exceed at any time
outstanding the dollar amount first above mentioned, the indebtedness of
Borrowers resulting from each such Extensions of Credit being evidenced by this
Revolving Credit Note.
The Agreement provides for the acceleration of the maturity of this Revolving
Credit Note upon the occurrence of certain Events of Default and for prepayment
of the Revolving Credit Loan on the terms and conditions specified therein.
Borrowers waive presentment, notice of dishonor, protest and any other notice
or formality with respect to this Revolving Credit Note.
Borrowers agree to jointly and severally reimburse Lender on demand for all
reasonable costs, expenses and charges (including, without limitation, fees and
charges of legal counsel for Lender) in connection with the interpretation,
performance or enforcement of this Revolving Credit Note.
<PAGE> 2
This Revolving Credit Note shall replace and supersede the Revolving Credit
Note of the Borrowers dated July 25, 1995, in the principal sum of $5,000,000
(the "1995 Note"); provided; however Borrowers agree that the execution and
delivery of this Revolving Credit Note shall not relieve or discharge
Borrowers from any Obligations incurred by Borrowers under the 1995 Note.
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
M&M PROPERTIES, INC.
By: /s/ Ralph McCurry
-------------------------
Name: RALPH McCURRY
-----------------------
Title: President
----------------------
McCURRY & FALCONITE EQUIPMENT
CO., INC.
By: /s/ Ralph McCurry
-------------------------
Name: RALPH McCURRY
-----------------------
Title: President
----------------------
<PAGE> 1
EXHIBIT 10.9
AMENDMENT NO. 4
TO
THE DEALER SECURITY AGREEMENT
THIS AMENDMENT NO. 4 to the DEALER SECURITY AGREEMENT (this
"Amendment"), dated as of December 1, 1996, is by and between CITICORP
DEL-LEASE, INC., doing business as CITICORP DEALER FINANCE ("Lender"), and M&M
PROPERTIES, INC. AND McCURRY & FALCONITE EQUIPMENT CO., INC. (jointly and
severally referred to herein as "Borrower").
W I T N E S S E T H:
WHEREAS, Lender and each Borrower are parties to a Dealer Security
Agreement each dated June 19, 1995 (each Dealer Security Agreement being
referred to herein as the "Agreement"; capitalized terms not otherwise defined
in this Amendment shall have the meanings attributed thereto in the Agreement);
and
WHEREAS, Lender and Borrower have agreed to amend the Agreement as set
forth herein;
NOW THEREFORE, in consideration of the premises and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Borrower hereby agree to amend the Agreement as
follows:
SECTION 1. DEFINITIONS.
(a) The definition of the term "Termination Date" is
amended by deleting it in its entirety and substituting therefor the
following: "Termination Date means, January 31, 1998 as such date may be
amended or extended from time to time."
SECTION 2. MISCELLANEOUS. The obligations of Borrower under the
Agreement as amended hereby shall be the joint and several obligations of each
of them. The terms and conditions of this Amendment are hereby incorporated
into the Agreement. This Amendment shall take precedence in the event any terms
and conditions of the Agreement conflict herewith. Except as provided herein,
all other terms and conditions of the Agreement shall remain in full force and
effect and are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.
M&M PROPERTIES, INC.
By: /s/ Ralph McCurry
--------------------------
Name: RALPH McCURRY
------------------------
Title: President
-----------------------
<PAGE> 2
McCURRY & FALCONITE EQUIPMENT
CO., INC.
By: /s/ Ralph McCurry
-------------------------
Name: RALPH McCURRY
-----------------------
Title: President
----------------------
CITICORP DEL-LEASE, INC., d/b/a
CITICORP DEALER FINANCE
By: /s/ Mark A. Malec
-------------------------
Name: MARK A. MALEC
-----------------------
Title: Vice President
----------------------
-2-
<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$9,000,000.00 DATE: DECEMBER 1, 1996
M&M PROPERTIES, INC. and McCURRY & FALCONITE EQUIPMENT CO., INC. (individually,
"Borrower" and collectively, "Borrowers") for value received, unconditionally
promise to jointly and severally pay to the order of CITICORP DEL-LEASE, INC.,
DOING BUSINESS AS CITICORP DEALER FINANCE ("Lender"), at its office located
at 450 Mamaroneck Avenue, Harrison, New York 10528, the principal amount of
Nine Million Dollars ($9,000,000.00) or, if less, the unpaid principal amount
of each Extension of Credit (as defined in the Agreement defined below; all
capitalized terms not otherwise defined herein shall have the meanings
attributed thereto in the Agreement) made to either or both Borrowers by Lender
and outstanding under this Amended and Restated Revolving Credit Note (the
"Revolving Credit Note"), on the Termination Date; provided; however, that the
Termination Date shall automatically be extended for additional terms of
thirteen (13) months each unless either Borrowers or Lender notifies the other
in writing at least thirty (30) days prior to the Termination Date of its
decision not to so extend for an additional thirteen (13) month term.
Borrowers promise to jointly and severally pay interest on the unpaid principal
amount of each Extension of Credit from the date advanced by Lender until such
principal amount is paid in full, at such interest rates, and at such times, as
are specified in the Agreement.
This is the Revolving Credit Note referred to in that certain Dealer Security
Agreement, dated as of June 19, 1995, among Borrowers and Lender (as amended or
otherwise modified from time to time, the "Agreement"). The Agreement, among
other things, provides for the making of Extensions of Credit by Lender to
Borrowers from time to time in an aggregate amount not to exceed at any time
outstanding the dollar amount first above mentioned, the indebtedness of
Borrowers resulting from each such Extensions of Credit being evidenced by this
Revolving Credit Note.
The Agreement provides for the acceleration of the maturity of this Revolving
Credit Note upon the occurrence of certain Events of Default and for prepayment
of the Revolving Credit Loan on the terms and conditions specified therein.
Borrowers waive presentment, notice of dishonor, protest and any other notice or
formality with respect to this Revolving Credit Note.
<PAGE> 2
Borrowers agree to jointly and severally reimburse Lender on demand for all
reasonable costs, expenses and charges (including, without limitation, fees and
charges of legal counsel for Lender) in connection with the interpretation,
performance or enforcement of this Revolving Credit Note.
This Revolving Credit Note shall replace and supersede the Revolving Credit Note
of the Borrowers dated September 9, 1996, in the principal sum of $9,000,000
(the "1996 Note"); provided; however Borrowers agree that the execution and
delivery of this Revolving Credit Note shall not relieve or discharge Borrowers
from any Obligations incurred by Borrowers under the 1996 Note.
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
M&M PROPERTIES, INC.
By: /s/ Ralph McCurry
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Name: Ralph McCurry
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Title: Pres.
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McCURRY & FALCONITE EQUIPMENT
CO., INC.
By: /s/ Ralph McCurry
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Name: Ralph McCurry
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Title: Pres.
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EXHIBIT 10.11
SOUTHWEST BANK OF ST. LOUIS
MASTER LEASE AGREEMENT
MASTER LEASE NO. 132956-1039452
THIS MASTER LEASE AGREEMENT dated as of March 30, 1995, by and between
SOUTHWEST BANK OF ST. LOUIS, (hereinafter called "Lessor"), 2301 South
Kingshighway, St. Louis, Missouri 63110, and Erzinger Equipment Co.
(hereinafter called "Lessee") having its chief executive office and principal
place of business at 4303 Bi-State Industrial Drive, St. Louis, MO 63128-1913.
In consideration of the mutual agreements hereinafter set forth, and the
payment of rent as herein provided for, the parties hereto agree as follows:
1. LEASE AGREEMENT.
Lease hereby leases to Lessee and Lessee hereby leases from Lessor all
of the equipment and other tangible personal property described in each of the
Equipment Schedule(s) which are executed from time to time by Lessor and
Lessee pursuant to this Master Lease Agreement. Each Equipment Schedule shall
constitute a separate lease on the terms and conditions stated therein and, to
the extent not inconsistent with the Equipment Schedule, on the terms and
conditions stated in this Master Lease Agreement which shall be incorporated by
this reference into each Equipment Schedule. The term "Equipment" as used
herein shall mean, with respect to any Equipment Schedule, the Equipment
described therein. Lessee shall cause the Equipment to be delivered and
installed at the location specified in the Equipment Schedule (the "Equipment
Location"). Once installed, the Equipment will not be moved from the Equipment
Location without Lessor's prior written consent.
2. TERM.
(a) This Master Lease Agreement shall be effective when signed by
both parties and shall continue in effect until all obligations of Lessee under
each Equipment Schedule are fully discharged.
(b) The "Interim Rental Term" for each Equipment Schedule shall
commence on the first day of the month following the month in which the
Installation Date occurs, or the Installation Date if such date is the first
day of the month ("Interim Rental Date") and shall continue thereon until the
Commencement Date. The "Installation Date" shall be the earlier of (i) the date
the Equipment is installed at the Equipment Location and declared acceptable by
Lessee, or if Lessee causes a delay in the installation and acceptance, seven
(7) days after delivery of the Equipment; or (ii) if the Equipment is already
in place under lease from another party and is being purchased by Lessor for
lease to Lessee hereunder, the date Lessor pays for the Equipment. Lessee shall
promptly sign and deliver to Lessor a Certificate of Acceptance as to the
Equipment.
(c) The "Commencement Date" shall be first day of the month
following complete funding by the Lessor under any applicable lease commitment
to Lessee. On said Commencement Date, all Equipment Schedules shall continue
for the number of months specified in the respective Equipment Schedules
("Initial Lease Term"). Lessee hereby authorizes Lessor to insert the
Commencement Date on the respective Equipment Schedules.
3. RENT.
As rent for the Equipment, Lessee shall pay to Lessor at its address
set forth above, or at such other places as Lessor may hereafter designate,
rent in the amount set forth in the Equipment Schedule payable in advance on
the Commencement Date and on the first day of each month thereafter during the
Initial Lease Term. Lessee shall pay Lessor "Interim Rent" in the amount set
forth in the Equipment Schedule, payable in advance on the Interim Rental
Date, and on the first day of each month thereafter during the Interim Rental
Term. If the Interim Rental Date is not the same date as the Installation Date,
Lessee shall pay Lessor Interim Rate on the Installation Date for that period
of time from the Installation Date up to, but not including, the Interim Rental
Date in an amount equal to 1/30th of the Interim Rent amount multiplied by the
number of days from (and including) the Installation Date.
4. TAXES.
(a) PAYMENT OF TAXES: Lessee covenants and agrees to pay to the
appropriate taxing authority and discharge before the same become delinquent,
all taxes, fees, or other charges of any nature whatsoever (together with any
related interest or penalties) now or hereafter imposed, assessed or payable
("Impositions") during the term of this Master Lease Agreement against Lessor,
Lessee or the Equipment by any federal, state, country or local government or
taxing authority upon or with respect to (i) the Equipment, (ii) the ordering,
purchase, sale, ownership, use, operation, return or other disposition thereof,
(iii) the interim rental, monthly rental or any other sums due hereunder with
respect to any Equipment Schedule, or (iv) the leasing of the Equipment
(excepting only federal, state and local taxes measured by the net income of
Lessor).
(b) BILLING: Lessee shall, to the extent permitted by law, cause
all impositions to be billed to Lessee. Lessee shall, at its expense, timely
file all forms and returns and timely do all things required to be done in
connection with the levy, assessment and payment of any impositions. Lessee
shall submit written
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evidence to Lessor of the payment of all Impositions required to be paid by
Lessee hereunder promptly after such payment. Notwithstanding the foregoing,
Lessor, in its sole discretions, may pay any Imposition itself or file any forms
or returns with respect thereto. If Lessor pays any Imposition, Lessee shall
promptly reimburse Lessor for such payment.
(c) CONTEST: Lessee may contest any Imposition by appropriate legal
proceedings, provided the nonpayment of such Imposition thereof or such
proceedings will not, in the opinion of Lessor, adversely affect the title,
property interest or rights of Lessor in the Equipment and provided further
that, if requested by Lessor, Lessee shall give to Lessor security, sufficient
in form and amount, in Lessor's reasonable judgment, to fully satisfy the
amount of the contested Imposition, together with any interest or penalties
thereon.
5. DELIVERY AND RETURN.
Lessee shall arrange for delivery and Lessee shall pay all delivery
expenses (including, without limitation, transportation costs and the cost of
in-transit insurance) associated with the delivery of Equipment from its
previous location to the Equipment Location. Lessee shall inspect the Equipment
upon delivery, identify any damage prior to accepting delivery, and note any
such damage on the bill of lading or any other such delivery document. Costs of
repair which are not recovered from the carrier shall be borne and promptly paid
by Lessee. Lessee shall provide a suitable place for installation of the
Equipment and all appropriate facilities as specified by the manufacturer.
Lessee shall pay for the installation of the Equipment. Upon the termination of
Lessee's right to possession of the Equipment (by expiration of the term of the
relevant Equipment Schedule or otherwise) Lessee shall, in accordance with
Lessor's instructions and at Lessee's expense (including, without limitation,
transportation costs and the costs of in-transit insurance) return the Equipment
to such location within the Continental United States as shall be designated by
Lessor. Lessee shall reimburse Lessor for all expenses paid by Lessor associated
with the return of the Equipment when billed. Lessee shall return the Equipment
in the same operating order, repair, condition and appearance as when received,
excepting only normal wear and tear, and with all engineering changes
(prescribed by the manufacturer prior to the termination of Lessee's right of
possession) incorporated in the Equipment. Lessee, at its expense, shall make
any repairs necessary in order to certify that the Equipment is eligible for a
manufacturer's maintenance contract acceptable to Lessor upon its return and
shall have the Equipment certified as eligible for the same. In additional,
Lessee further agrees that such Equipment may remain on its premises for up to
thirty (30) days at no charge to Lessor for the purpose of storage, pending
return shipment.
6. EQUIPMENT CARE.
(a) USE AND MAINTENANCE: Lessee shall, at its expense, maintain the
Equipment in good operating order, repair, and condition. Lessee shall not use
the Equipment for any purpose other than that for which it was designed, and
shall use the Equipment in a careful and proper manner in conformance with the
manufacturer's specifications. Lessee shall, at its expense, enter into and
maintain in force for the Equipment, a maintenance contract with the
manufacturer of the Equipment acceptable to the Lessor and shall provide Lessor
with a copy of such contract, provided, however, Lessee shall not be required to
enter into such a contract for any Equipment so long as the Equipment is under
a manufacturer's warranty.
(b) ALTERATIONS AND ATTACHMENTS: With the prior written consent of the
Lessor, Lessee may at its expense, make alterations or add attachments to the
Equipment which are removable and which do not diminish the value of the
Equipment, do not interfere with the normal and satisfactory operation or
maintenance of the Equipment or Lessee's ability to obtain the maintenance
contract required in subparagraph (a) above. Upon the termination of Lessee's
right to possession of the Equipment, any alterations or attachments to such
Equipment shall become the property of Lessor unless removed at Lessee's expense
prior to such termination. Lessor shall have the right, following termination of
Lessee's right to possession of the Equipment, to remove any attachments or
alterations made by Lessee to such Equipment and dispose of the same without any
liability therefor to Lessee and Lessee shall pay the costs of such removal
when billed.
(c) INSPECTION: Lessee shall make the Equipment available to Lessor and
Assignee (hereinafter defined) or the designees of any of them during normal
working hours for inspection or for any other reasonable purpose.
7. INSURANCE.
During the term of this Master Lease Agreement, Lessee, at its expense,
shall insure the Equipment against theft and all risks of loss or damage in an
amount not less than the "Stipulated Loss Value" (hereinafter defined in the
Equipment Schedule or Amendments thereto) and shall maintain a loss payable
endorsement in favor of Lessor and its assigns. Lessee shall also maintain
comprehensive general liability insurance, both personal injury and property
damage, naming Lessor and its assigns as additional insured. All insurance shall
be in form and amount and with a company satisfactory to Lessor and shall
contain the insurer's agreement to give thirty (30) days written notice to
Lessor and its assigns before cancellation of or material change to any policy
of insurance. Upon the request of Lessor, Lessee shall deliver to Lessor
certificates of insurance in compliance with the above, Lessee shall be liable
for all deductible portions of all required insurance. Insurance proceeds shall
be applied as set forth in Paragraph 8 hereof.
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8. RISK OF LOSS OR DAMAGE.
Lessee hereby assumes the entire risk of damage to or loss of the Equipment
or any item thereof from any cause whatsoever, whether or not insured against,
from and after the date the Equipment is delivered to the Equipment Location
until return to Lessor. No damage to or loss of the Equipment shall alter or
relieve Lessee of any obligation under this Master Lease Agreement, which shall
continue in full force and effect. Lessee agrees to give Lessor prompt notice of
any damage to or loss of the Equipment. In the event of damage to or loss of the
Equipment or any item thereof, and irrespective of any payment from any
insurance coverage maintained by Lessee, but applying full credit therefor,
Lessee shall, at the option of Lessor (i) place the Equipment in good repair,
condition and working order, or (ii) replace the Equipment with identical
Equipment in good repair, condition and working order and transfer clear title
to such replacement Equipment to Lessor whereupon such replacement Equipment
shall be deemed the Equipment for all purposes hereof; or (iii) pay to Lessor,
on the next rent payment date an amount equal to all rent and other amounts, if
any, due at the time of such payment plus an amount equal to the remaining
rental payments payable hereunder for the remainder of the initial Lease Term,
or any renewal term then in effect, plus the amount due Lessor pursuant to
Paragraph 14 hereof. Upon Lessor's receipt of such payment, this Master Lease
Agreement shall terminate only with respect to such Equipment so paid for, and
Lessee shall become entitled thereto AS IS, WHERE IS without any warranty
whatsoever, express or implied.
9. ASSIGNMENT.
(a) ASSIGNMENT, SUBLEASE OR RELOCATION BY LESSEE: Upon at least thirty
(30) days prior written notice to Lessor, Lessee may assign or sublease
Equipment to any party, or relocate Equipment to any location, within any state
of the Continental United States, provided that Lessor or Assignee (hereinafter
defined) in such party's sole discretion, shall have approved such assignee,
sublease, or location and provided further that (i) all costs of any nature
whatsoever (including any additional impositions and any additional expenses of
insurance coverage) resulting from any relocation, assignment or sublease shall
be borne by Lessee; (ii) any assignment or sublease shall be made expressly
subject and subordinate to the terms of this Master Lease Agreement; and (iii)
Lessee shall assign its rights under such assignment or sublease to Lessor or
Assignee (hereinafter defined) as additional collateral and security for
Lessee's obligations hereunder. In the event of a relocation, assignment, or
sublease, Lessee and its assignee or its sublessee, shall cooperate with Lessor
in taking all reasonable measures to protect the title of Lessor or Assignee
(hereinafter defined) to and in the Equipment. No relocation, assignment, or
sublease shall relive Lessee of its primary obligations under the relevant
Equipment Schedule and this Master Lease Agreement.
(b) ASSIGNMENT BY LESSOR: Lessor shall have the right to sell or
otherwise dispose of any or all of the Equipment described on any Equipment
Schedule, subject to the prior right of Lessee in such Equipment, and to assign
its interest as Lessor under such Equipment Schedule or the Master Lease
Agreement to any assignee ("Assignee"). Lessee hereby consents to and shall
acknowledge such assignment or assignments as shall be designated by written
notice to Lessee by Lessor. Lessee further covenants and agrees that:
(1) Any such Assignee shall have and be entitled to exercise any and all
discretions, rights and powers of Lessor under the Equipment
Schedule in which it has an interest, provided that an Assignee
shall not be obligated to perform any of the obligations of Lessor;
(2) Lessee shall pay directly to the Assignee all rental payments and all
other sums due upon receipt of notice of any assignment and of
instructions to do so; and
(3) After an assignment to an Assignee, Lessee's obligations hereunder
including its obligation to pay the rental payments and any and all
other amounts payable under the Equipment Schedule by Lessee shall
remain absolute and unconditional and shall not be subject to any
abatement, reduction, recoupment, defense, off-set, or counterclaim
available to Lessee against Lessor for any reason whatsoever.
10. FINANCIAL INFORMATION.
Lessee covenants for the benefit of Lessor and any Assignee that when
requested from time to time by Lessor, Lessee will promptly deliver to Lessor
and any Assignee current financial statements and other reasonable business
information and cause to be delivered current financial information or statement
on any guarantor of Lessee's obligations hereunder.
11. EVENTS OF DEFAULT.
The occurrence of any of the following shall constitute an "Event of
Default" hereunder:
(a) Lessee fails to pay when due any installment of rent or other
payment required hereunder and such failure continues for fifteen
(15) days;
(b) Lessee fails to pay when due any other sums owing by Lessee to
Lessor, or to any other party, under any other agreement for
indebtedness or borrowed money.
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(c) Lessee fails to observe or perform any of the provisions required
to be observed or performed by Lessee hereunder or breaches any
representation or warranty contained herein or any other document
furnished Lessor in connection herewith, and such failure or breach
shall continue unremedied for a period of fifteen (15) days;
(d) Lessee ceases doing business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay
its debts as they come due, or consents to the appointment of a
trustee or receiver, or if either shall be appointed for it or for
all or a substantial part of its property; or
(e) Any petition or proceeding is filed by or against Lessee under any
federal or state bankruptcy or insolvency law or similar law
providing for the relief of debtors.
12. REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default and at any time
thereafter, Lessor may, in its sole discretion, do any one or more of the
following:
(1) By notice to Lessee terminate this Master Lease Agreement;
(2) Proceed by appropriate court action to enforce performance of the
items of this Master Lease Agreement and/or recover damages for the
breach thereof;
(3) Whether or not this Lease is terminated, take possession of the
Equipment wherever located, without demand, notice, liability, court
order or other process of law and for purposes thereof, Lessee
hereby authorizes Lessor or its agents to enter upon the premises
where such Equipment is located; or cause Lessee, and Lessee hereby
agrees, to return such Equipment to Lessor in accordance with
Paragraph 5 hereof; or
(4) By notice to Lessee declare as immediately due and payable and
recover from Lessee, as liquidated damages and not as a penalty; the
remaining rental payments payable hereunder for the remainder of the
Initial Lease Term, or any renewal term then in effect, together
with all sums then due and unpaid or recoverable hereunder.
(b) Upon return or repossession of the Equipment, Lessor shall use
reasonable efforts to sell, release or otherwise dispose of such Equipment, in
such manner and upon such terms as Lessor may determine in its sole discretion,
with or without notice to Lessee which Lessee hereby waives. Lessor shall be
entitled to the benefit of any available manufacturer warranties. Upon
disposition of the Equipment, Lessor shall credit the Net Proceeds (hereinafter
defined) to the liquidated damages paid or payable by Lessee. Proceeds upon the
sale of the Equipment shall be the sales price less an amount equal to the
remaining rental payments payable hereunder for the remainder of the Initial
Lease Term, or any renewal term then in effect. Proceeds upon a release of the
Equipment shall be all rents to be received for a term not to exceed the
remaining Initial Lease Term, or any renewal term then in effect, less an amount
equal to the remaining rental payments payable hereunder for the remainder of
the Initial Lease Term, or any renewal term then in effect. "Net Proceeds" shall
be the Proceeds of sale or re-lease less all costs and expenses incurred by
Lessor in recovery, storage and repair of the Equipment, and the disposition
thereof, or otherwise as a result of Lessee's default, including any court costs
and reasonable attorneys' fees. Lessee shall remain liable for the amount by
which all sums, including liquidated damages, due from Lessee exceed the Net
Proceeds. Net Proceeds in excess of all sums, including liquidated damages, due
from Lessee, shall be deemed the property of and shall be reclaimed by Lessor.
(c) No termination, repossession or other act by Lessor in the exercise
of its rights and remedies upon an Event of Default shall relieve Lessee from
any of its obligations hereunder. No remedy referred to in this paragraph is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Lessor at law or in
equity. Lessee shall in any event be liable to Lessor for all costs and
expenses, including court costs and reasonable attorneys' fees, incurred as a
result of Lessee's default or in the enforcement of Lessor's rights and remedies
hereunder. No express or implied waiver by Lessor of any default shall
constitute a waiver of any other default by Lessee, or waiver of any of Lessor's
rights.
13. INDEMNIFICATION.
Lessee shall and does hereby indemnify and hold Lessor and any Assignee,
harmless from and against any and all claims, costs, attorneys' fees, expenses,
damages and liabilities arising out of the manufacture, ownership, purchase,
selection, possession, leasing, operation, control, use, maintenance, delivery,
or return or other disposition of the Equipment, any claim for patent, trademark
or copyright infringement or any claim arising out of strict liability in tort.
This indemnity shall survive the expiration or other termination of this Master
Lease Agreement and any Equipment Schedules executed in connection herewith.
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14. TAX INDEMNIFICATION.
(a) This Master Lease Agreement is entered into on the basis that
Lessor shall be the owner of the Equipment for federal, state and local tax
purposes and entitled to such deductions, credits and other benefits
(hereinafter collectively referred to as "Tax Benefits") as are provided an
owner of property, including but not limited to:
(1) The maximum cost recovery deductions for the Equipment as
determined under Section 168 of the Internal Revenue Code of
1986, as amended (the "Code"); and
(2) Interest deductions in the full amount of any interest paid or
accrued with respect to any loan made to Lessor to finance the
purchase of the Equipment.
If, with respect to any item of Equipment, Lessor shall not have or shall lose
the right to claim all or any portion of the Tax Benefits or if all or any
portion of the Tax Benefits shall be disallowed or recaptured (hereinafter
referred to as "Tax Benefit Loss"), then subject to the exceptions set forth
below in Paragraph 14(c), Lessee shall, within thirty (30) days after written
notice from Lessor that a Tax Benefit Loss has occurred, pay to Lessor at
Lessor's option, either a lump-sum payment or an increase to the remaining
monthly payments due under this Master Lease Agreement in an amount which,
after taking into account the effects of interest, penalties and additional
taxes payable by Lessor as a result of the Tax Benefit Loss and the receipt of
payment hereunder will cause Lessor's net effective after-tax return over the
term of this Master Lease Agreement to equal the net effective after-tax return
which would have been available if Lessor had been entitled to the utilization
of all the Tax Benefits.
(b) For purposes hereof a Tax Benefit Loss shall occur upon the
earliest of (i) the happening of an event which causes such Tax Benefit Loss,
(ii) the payment by Lessor to the Internal Revenue Service or the applicable
revenue office of the tax increase (including any penalties and interest
thereon) resulting from such Tax Benefit Loss, or (iii) the adjustment of the
tax return of Lessor to reflect such Tax Benefit Loss.
(c) The foregoing notwithstanding, Lessor shall not be entitled to
a payment hereunder on account of any Tax Benefit Loss directly attributable to
any of the following: (i) any act on the part of Lessor which is the sole
cause of a Tax Benefit Loss; or (ii) the failure of Lessor to have sufficient
taxable income or tax liability to utilize such Tax Benefits.
(d) This section is expressly made for the benefit of, and shall be
enforceable by Lessor, any person, firm, corporation or other entity to which
Lessor transfers title to, or a portion of, the Equipment, and their successors
and assigns ("Owner"). For purposes hereof, the term "Owner" shall include an
affiliated group (within the meaning of the Code) of which it is a member for
any year in which a consolidated income tax return is filed for such affiliated
group. Lessee agrees to indemnify and hold any such Owner harmless from any Tax
Benefit Loss on the same terms and to the same extent as it would have
indemnified and held Lessor harmless as if said Owner were the Lessor hereunder.
All of Lessor's rights and privileges arising from the indemnities contained
herein shall survive the expiration or other termination of this Master Lease
Agreement.
15. WARRANTIES
(a) AFFIRMATIVE WARRANTY: Lessor represents and warrants that it
will have legal title to the Equipment leased hereunder and that during the
term of this Master Lease Agreement, if no Event of Default has occurred,
Lessee's quiet enjoyment and peaceable possession of the Equipment shall not be
interrupted by Lessor or anyone claiming through or under Lessor.
(b) DISCLAIMER OF WARRANTIES: LESSEE ACKNOWLEDGES THAT LESSEE MADE
THE SELECTION OF THE EQUIPMENT BASED ON ITS OWN JUDGMENT AND IS NOT RELYING ON
LESSOR'S SKILL OR JUDGMENT TO SELECT OR FURNISH GOODS SUITABLE FOR ANY
PARTICULAR PURPOSE, LESSEE ACKNOWLEDGES THAT LESSOR HAS NOT MADE AND DOES NOT
MAKE ANY WARRANTIES, EXPRESS OR IMPLIED, DIRECTLY OR INDIRECTLY, INCLUDING,
WITHOUT LIMITATION, THE WARRANTY OF MERCHANTABILITY AND OF FITNESS, CAPACITY OR
DURABILITY FOR ANY PARTICULAR PURPOSE AND/OR WARRANTIES AS TO THE DESIGN OR
CONDITION OF THE EQUIPMENT AND THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF
THE EQUIPMENT. LESSOR SHALL HAVE NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS OR
DAMAGE OF ANY KIND OR NATURE WHATSOEVER, INCLUDING ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, TO ANY EXTENT WHATSOEVER, RELATING TO OR ARISING OUT OF
THE SELECTION, QUALITY, CONDITION, MERCHANTABILITY, SUITABILITY, FITNESS,
OPERATION OR PERFORMANCE OF THE EQUIPMENT. NO DEFECT IN OR UNFITNESS OF THE
EQUIPMENT SHALL RELIEVE LESSEE OF ITS OBLIGATIONS UNDER THIS MASTER LEASE
AGREEMENT. Lessee agrees that Lessor assumes no liability for and makes no
representation as to the treatment by Lessee of this Master Lease Agreement,
the Equipment or the rent payments or other sums due hereunder for financial
statement or tax purposes.
(c) MANUFACTURER WARRANTIES: For the term of this Master Lease
Agreement, Lessor hereby assigns to Lessee and Lessee may have the benefit of
any and all manufacturer's warranties, service agreements and patent
indemnities, if any, with respect to the Equipment to the extent assignable by
Lessor, provided, however, that Lessee's sole remedy for the breach of any such
warranty, indemnification or service agreement shall be against the
manufacturer and not against Lessor or any Assignee, nor shall any such breach
have any effect whatsoever on the rights and obligations of either party with
respect to this Master Lease Agreement.
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16. NET LEASE.
Each Equipment Schedule constitutes a Net Lease. Lessee shall be solely
responsible for all costs and expenses of every nature arising out of
possession, use, and operation of the Equipment. Lessee's obligation to pay
rental and all other sums due hereunder shall be absolute and unconditional and
shall not be subject to any set-off, abatement, counterclaim, recoupment,
defense, or any other right that Lessee may have against Lessor. Except as
expressly provided for herein, neither this Master Lease Agreement, nor any
Equipment Schedule, shall terminate nor shall the obligations of Lessee be
affected by any reason of any defect in, damage to, or any loss or destruction
of the Equipment, from any cause whatsoever, or the interference with the use
thereof by any private person, corporation, or governmental authority or as a
result of any war, riot, insurrection or act of God. It is the express
intention of Lessor and Lessee that all rental payments by Lessee under each
Equipment Schedule shall be and continue to be payable in all events
throughout the terms thereof.
17. PERFORMANCE AND EXECUTION.
Lessee represents and warrants to Lessor both as of the date hereof and as
of the date of each Equipment Schedule (i) that the execution and performance
of this Master Lease Agreement and Equipment Schedule has been duly authorized
by Lessee and that upon execution by Lessee and Lessor this Master Lease
Agreement and each Equipment Schedule will constitute a valid obligation
binding upon, and enforceable against, Lessee in accordance with the terms of
the Master Lease Agreement and each Equipment Schedule; (ii) that neither the
execution of this Master Lease Agreement or any Equipment Schedule nor the due
performance thereof by Lessee, will result in any breach of, or constitute any
default under or violation of Lessee's articles of incorporation or similar
organizational documents, Lessee's by-laws or any agreement to which Lessee is
a party or by which any interest of Lessee may be affected; (iii) that Lessee
is in good standing in its state of incorporation or similar organization and
in the states where any of the Equipment is to be located; (iv) that the
persons executing this Master Lease Agreement and each Equipment Schedule on
behalf of Lessee have been duly authorized to do so; and (v) that any and all
financial statements and other information with respect to Lessee heretofore
furnished by Lessee to Lessor in connection with negotiations concerning one or
more Equipment Schedules were, when furnished, and remain at the time of
execution of any Equipment Schedule, true and without any misleading omissions,
excepting any changes which have been disclosed in a written notice to Lessor.
18. MISCELLANEOUS.
(a) TITLE: The Equipment is and at all times shall remain the
property of Lessor. Lessee shall have no right, title or interest in the
Equipment, except as set forth herein. This Master Lease Agreement is
intended to be a true lease and not a lease intended as security or lease in
the nature of a security interest. Lessee shall, at its expense, protect and
defend Lessor's title to the Equipment and the interest of any Assignee against
all persons claiming against or through Lessee. Lessee shall keep and maintain
the Equipment free and clear of all liens and encumbrances (other than those
placed on the same by Lessor and the liens for current taxes not yet payable).
At Lessor's request, Lessee shall mark, or affix plates to, each item of
Equipment to indicate Lessor's ownership thereof.
(b) FIXTURES: Lessee covenants and agrees that the Equipment is and
shall at all times remain personal property regardless of the manner in which it
may be installed. Lessee agrees that Lessee will not affix any of the
Equipment to any real property, if, as a result thereof, the Equipment will
become a fixture under applicable law.
(c) ENTIRE AGREEMENT: This Master Lease Agreement (together with all
schedules and attachments hereto) constitutes the entire agreement between
Lessor and Lessee and no provision hereof may be amended or modified except in
writing signed by Lessor and Lessee. No provision of this Master Lease
Agreement may be waived except in writing signed by the party from whom such
waiver is sought and any such waiver shall be effective only in the specific
instance and for the specific purpose given.
(d) NOTICES: All notices hereunder shall be in writing and shall be
delivered in person or sent by United States mail, to the address of the party
contained herein, and shall be deemed received five (5) days after deposit in
the United States Mail with postage prepaid. Either party may change its
address for notice purposes by notifying the other party in the manner
aforesaid of such change. Lessee shall also send copies of all notices sent to
Lessor and to Assignee (if any).
(e) SEVERABILITY: Any provision hereof prohibited by, or unlawful or
unenforceable under, any applicable law of any jurisdiction shall be
ineffective as to such jurisdiction without invalidating the remaining
provisions of this Master Lease Agreement; provided, however, that where the
provisions of any such applicable law may be waived, they are hereby waived by
Lessee and Lessor to the full extent permitted by law.
(f) GOVERNING LAW: This Master Lease Agreement and all Equipment
Schedules and any other instruments executed in connection herewith shall be
governed by, and construed and interpreted under, the laws of the state of
Missouri.
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(g) PERFORMANCE OF LESSEE'S OBLIGATIONS: If Lessee shall fail to make
any payment or perform any act required by this Master Lease Agreement or any
Equipment Schedule, Lessor may at Lessee's expense, but shall not be obligated
to, make such payment or perform such act without notice to or demand upon
Lessee without waiving or releasing any obligation or Event of Default. Lessee
shall, when billed, reimburse Lessor for any expense incurred hereunder by
Lessor in performing Lessee's obligations.
(h) OVERDUE PAYMENTS: Any rental due to Lessor under this Master Lease
Agreement, if not paid within fifteen (15) days of its due date, shall accrue
interest from the due date at the rate of eighteen percent (18%) per annum or
the maximum rate allowable by law, whichever is less. Any other amounts
payable to Lessor by Lessee under this Master Lease Agreement or any Equipment
Schedule are due and payable within fifteen (15) days after the billing date,
and if not paid on or before such due date, shall accrue interest from the due
date until paid at the rate of eighteen percent (18%) per annum or the maximum
rate allowable by law, whichever is less.
(i) SURVIVAL: All representations, warranties, indemnities, and
covenants contained in this Master Lease Agreement and in any Equipment
Schedule shall continue in full force and effect and shall survive
notwithstanding the full payment of all amounts due hereunder or the
termination of Lessee's right to possession of any Equipment.
(j) ADDITIONALLY REQUIRED DOCUMENTS: Lessee shall provide Lessor with
such documents as Lessor may reasonably request from time to time including,
but not limited to, resolutions, opinions of counsel, financial statements, UCC
Financing Statements or waiver or subordination documents.
(k) HEADINGS: Headings and captions are for convenience of reference
only and shall not be construed as part of this Master Lease Agreement.
(l) DELIVERY FOR EXAMINATION: Submission of the form of this Master
Lease Agreement for examination shall not bind Lessor in any manner and no
obligation shall arise until this instrument is signed by both Lessor and
Lessee.
(m) TERMS IN EQUIPMENT SCHEDULES: If the provisions of any Equipment
Schedule are inconsistent with the provisions of this Master Lease Agreement
then the provisions of such Equipment Schedule shall control.
(n) PURCHASE/LEASE BACK: In the event Lessor is purchasing any of the
Equipment from Lessee then Lessor's performance hereunder is conditioned on
Lessee's performance under any sales contract for such Equipment.
(o) AUTHORIZATION TO DATE, COMPLETE BLANKS, AND CORRECT ERRORS: Lessee
hereby irrevocably authorizes Lessor and Lessor's agents, representatives, and
employees to date, to complete any blank spaces contained in, and to correct
any errors appearing in, this Master Lease Agreement, any Equipment Schedule or
in any documents relating thereto.
(p) STATUTORY NOTICE: ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU
(LESSEE) AND US (LESSOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS
WE MAY LATER AGREE IN WRITING TO MODIFY IT.
IN WITNESS WHEREOF, Lessor and Lessee have signed this Master Lease
Agreement as of the date set forth above.
=============================================================================
LESSOR: LESSEE:
SOUTHWEST BANK OF ST. LOUIS ERZINGER EQUIPMENT CO.
- -----------------------------------------------------------------------------
BY:
/s/ Lansden McCandless, III /s/ Michael Falconite
- -----------------------------------------------------------------------------
PRINTED NAME AND TITLE: PRINTED NAME AND TITLE:
Lansden McCandless, III Michael Falconite
Vice President Secretary
=============================================================================
-7-
<PAGE> 1
EXHIBIT 10.12
SECURITY AGREEMENT
1. Grant of Security Interest. Erzinger Equipment, Inc., 4303
Bi-State Industrial Drive, St. Louis, MO 63128, a Missouri corporation (the
"Debtor"), in order to induce SOUTHWEST BANK OF ST. LOUIS, 2301 South
Kingshighway, St. Louis, Missouri 63110-3498 (the "Bank") to extend certain
financial accommodations and in consideration thereof and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, hereby transfers, assigns, and grants to Bank a continuing and
irrevocable security interest and general lien in and to all of the following
property and rights of Debtor:
(a) All accounts, accounts receivable, other receivables,
leases and lease payments, contract rights, chattel paper,
instruments and documents, and notes; any other obligations or
indebtedness owed to Debtor from whatever source arising; all
rights of Debtor to receive any performance or any payments in
money or kind; all guaranties of the foregoing and insurance
policies and proceeds relating thereto, and all rights of
Debtor as an unpaid seller of goods and services, including,
but not limited to, the rights to stoppage in transit,
replevin, reclamation, and resale; and all of the foregoing
whether now owned or existing or hereafter created or acquired
or arising. The rights and property described in this Section
1(a) are referred to herein collectively as the "Accounts
Collateral."
(b) All inventory (including without limitation all
goods, merchandise, raw materials, goods in process, finished
goods, findings or component materials, and all supplies,
incidentals, goods, office supplies, packaging materials, and
any and all goods or items used or consumed in the operation
of the business of Debtor or which contribute to the finished
products or to the sale, promotion and shipment thereof,
without exception) now owned or hereafter acquired by Debtor
and held for sale, lease or resale or furnished or to be
furnished under contracts of service, or used or consumed in
Debtor's business and all documents of title evidencing any
part of any of the foregoing accounts, contract rights, notes,
drafts, acceptances, instruments and chattel paper, all
returned or repossessed goods arising from or relating to any
contract rights, accounts or other sale or disposition of
inventory all wherever located; as well as products,
accessions and all cash and non-cash proceeds, immediate or
remote, of any sale or other disposition of any of the
foregoing. The rights and property described in this Section
1(b) are referred to herein collectively as the "Inventory
Collateral."
<PAGE> 2
(c) All now owned or hereafter acquired equipment,
computers, including hardware and software, machinery,
furniture, furnishings, fixtures, tools, aircraft, vessels and
vehicles of every kind and description, all parts and
accessories for and relating to all of the foregoing, together
with the products of all of the foregoing and all additions and
accessions to, replacements of, insurance or condemnation
proceeds of, and documents covering all of the foregoing, all
property received wholly or partly in trade or exchange for
all of the foregoing, and all rents, revenues, issues,
profits, accessions, proceeds arising from the sale, lease,
rent, license, encumbrance, collection, use or any other
temporary or permanent disposition of, all of the foregoing or
any interest therein. The rights and property described in
this Section 1(c) are referred to herein collectively as the
"Equipment Collateral."
(d) All choses in action and causes of action, general
intangibles and all other intangible personal property of
Debtor of every kind and nature now owned or hereafter
acquired by Debtor or arising, including, without limitation,
corporate or other business records, all books, ledgers, books
of account, records, writings, data bases, information and
other property of Debtor, inventions, designs, blueprints,
plans specifications, patents, patent applications, service
marks, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, tax refund
claims, insurance proceeds thereof, pension and insurance
surpluses, and any letter of credit, guarantee, claim,
security interest or other security held by or granted to
Debtor to secure payment by an account debtor of any of the
accounts of Debtor. The rights and property described in this
section 1(d) are referred to herein as the "General
Intangibles Collateral".
In addition to, and not by way of limitation of, the grant of
a security interest in service marks, trademarks and
patents set forth above Debtor hereby, effective upon the
occurrence of a default under this Agreement and upon the
written demand of Bank, assigns, grants, sells, conveys,
transfers title to and sets over to Bank for the benefit of
the Bank all of Debtor's right, title and interest, whether
now or hereafter existing or acquired, in and to such service
marks, trademarks and patents.
(e) All products and proceeds of all of the foregoing and all
additions and accessions to, replacements
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<PAGE> 3
of, insurance condemnation proceeds of, and documents covering
all of the foregoing, all property received wholly or partly in
trade or exchange for all of the foregoing, and all rents,
revenues, issues, profits cash or non-cash, proceeds and
accessions arising from the sale, lease, license, encumbrance,
collection, or any other temporary or permanent disposition of,
all of the foregoing or any interest therein (the "Proceeds").
The Accounts Collateral, Inventory Collateral, Equipment Collateral,
General Intangibles Collateral and Proceeds are collectively referred to herein
as the "Collateral".
2. Proceeds. The security interests granted Bank in any proceeds or
other property arising out of the disposition of the Collateral and anything
contained herein or in any financing statement shall not be deemed permission or
assent by the Bank to any sale or disposition of the Collateral except to the
extent expressly provided herein.
3. Indebtedness Secured. The security interest granted hereby is to
secure payment in full of (i) any and all sums from time to time due from
Debtor to the Bank, any instruments evidencing the indebtedness of Debtor to the
bank and the full and complete performance of all agreements and documents
executed or delivered pursuant to any indebtedness due from Debtor to the Bank
all as same may be amended, modified or extended from time to time, (ii) any
other indebtedness of Debtor, whether evidenced by instruments executed by
Debtor or not, payable and owing to the Bank as provided by the terms of any
such instrument (iii) all advances made by the Bank to discharge taxes or
levies on, or made for repairs to, maintenance of, or insurance of, the
Collateral, (iv) all money or other credit heretofore and hereafter advanced by
the Bank to or for the account of Debtor, (v) all other present or future,
direct or contingent, liabilities of Debtor to the Bank of any nature whatsoever
and (vi) all costs and expenses incurred in the collection of the foregoing,
including representation in any bankruptcy proceedings, including attorney's
fees.
It is the true, clear, and express intention of the Debtor that the
continuing grant of this security interest remain as security for payment and
performance of the indebtedness secured hereby, whether now existing, or
which may hereinafter be incurred, or whether or not contemplated by the
parties at the time of the granting of this security interest. The notice of
the continuing grant of this security interest, therefore, shall not be
required to be stated on the face of any document representing any such
indebtedness, nor otherwise identify it as being secured hereby; and if such
indebtedness shall remain, or become that of less than all of the Debtors
herein, any Debtor not liable therefrom hereby expressly hypothecates his, her,
its, or their ownership interest in the collateral to the extent required to
satisfy said
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Indebtedness, without restriction, or limitation. Any such Indebtedness shall
be deemed to have been made pursuant to Section 400.9-204(5) of the Uniform
Commercial Code of Missouri.
4. Debtor's Name and Place of Business. Debtor's name and address
indicated in Section 1 hereof are the sole name and business address of Debtor
and Debtor shall not change its name or address nor establish any other name(s)
or addresses without the Bank's prior written consent.
5. Collateral Use. The Collateral shall be kept in good order and repair
and Debtor will not permit waste or do anything to impair the value of the
Collateral or any part thereof or use or permit others to use the Collateral in
violation of any insurance policy covering the collateral or any statute,
ordinance or state federal regulation. Debtor shall give Bank immediate written
notice of any damage, destruction, theft, loss or the occurrence of any event
which impairs the value of the Collateral.
6. Adverse Security Interests and Liens. Except for the security interest
granted hereby, Debtor is, or, to the extent that the Collateral will be
acquired after the date hereof, will be, the owner of the Collateral free from
any and all liens, security interests or encumbrances; Debtor shall not transfer
or assign any interest in the Agreement or the Collateral; and Debtor, at
Debtor's expense, will defend the Collateral against all claims and demands of
all other persons at any time claiming the same or an interest therein. There is
no financing statement now on file in any public office covering the Collateral,
or intended so to be, or in which Debtor is named or signed as debtor, and
Debtor will not execute and there will not be on file in any public office any
financing statement or statements covering the Collateral except the financing
statement to be filed in respect of and for the security interest in
Bank hereby granted or provided for.
7. Insurance. Debtor, at Debtor's sole cost, shall at all times keep the
Collateral insured at the replacement value thereof against fire with extended
coverage insurance and such other risks as Bank may require, in such form, for
such periods and written by such companies as may be satisfactory to Bank,
payable to and protecting Bank for not less than the total amount owing on all
indebtedness and obligations secured hereby. All policies of insurance shall
provide that Bank be the loss payee and that the proceeds shall be paid first to
Bank and that Bank shall be protected against loss from any act or neglect of
Debtor or third parties, and such other endorsements as Bank may from time to
time request. Debtor will promptly provide Bank with evidence of such insurance.
Such insurance policies shall provide for at least ten (10) days written notice
to Bank prior to cancellation. Debtor hereby assigns to Bank, its successors and
assigns, the proceeds of all such insurance to the extent of the unpaid balance
of the indebtedness secured hereby; and appoints Bank as its attorney-in-fact to
file claims under any such insurance policies, to receive, receipt and give
acquittance for any payments that may be payable
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<PAGE> 5
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies. Bank or its successors or assigns may cancel such insurance at any
time and shall receive the return premium, if any, therefor, and may apply such
return premium to the purchase of similar insurance or to the balance due on
the indebtedness secured hereby at its election.
8. Location of Collateral. The Collateral will be kept only at
Debtor's place of business as indicated above in Section 1 hereof. Collateral
shall not be attached to any real estate. To the extent collateral is located
on premises owned by any person other than Debtor or subject to a lien, deed of
trust or mortgage, Debtor will provide Bank an executed N/A (Landlord/Mortgage
Lien Waiver) agreement. Debtor agrees to notify Bank in writing of any intended
sale, mortgage or conveyance of the realty and to give written notice of the
terms and conditions of this Agreement to any prospective purchaser, mortgagee
or grantee of said realty and a copy of such notice to Bank. None of the
Collateral has, within four (4) months preceding the date hereof, been located
at any place other than the location(s) shown in Section 1.
9. Records. The records concerning the Collateral will be kept at
the address indicated in Section 1 hereof. Bank may inspect such records or the
Collateral at any time at any address. Debtor will not remove any part of such
records from said location without the prior written consent of the Bank.
10. Financing Statement and Other Acts. Debtor will join with the
Bank in executing Financing Statements, including continuations and amendments
of same, pursuant to the Uniform Commercial Code in form satisfactory to Bank
and will pay the cost of filing the same in all public offices wherever filing
is deemed by Bank to be necessary or desirable. Debtor hereby irrevocably
authorizes and appoints Bank the attorney-in-fact of Debtor to execute any and
all Financing Statements, including continuations and amendments of same, which
Bank deems necessary. If any applicable law requires the registration of the
Collateral or the issuance of a certificate of title therefor or both, Debtor
agrees to promptly comply with such law(s) and shall cause notice of the
security interest of Bank to be shown on any such certificate of title and will
join in executing such application for the title forms as Bank shall require.
Upon request of the Bank, Debtor will promptly do all other acts and
things, and will execute and file all other instruments deemed necessary to
Bank under applicable law to establish, maintain and continue perfected the
Bank's first priority security interest in the Collateral and to effectuate the
intent of this Agreement and will pay all costs and expenses of filing and
recording or promptly reimburse Bank therefor if such costs and expenses are
incurred by Bank, including the costs of any searches
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<PAGE> 6
deemed necessary by Bank to establish, determine or maintain the validity and
the priority of the security interest of Bank, and pay or otherwise satisfy all
other claims and charges which in the opinion of Bank might prejudice, imperil
or otherwise affect the Collateral or Bank's security interest therein. A
photocopy of this Agreement shall be deemed an original for purposes of filing
or recording.
11. Taxes and Assessments. Debtor will pay promptly when due all
taxes, assessments and other charges levied or assessed upon the Collateral or
for its use or operation or upon this Agreement or upon any or other documents
evidencing the indebtedness or obligations secured hereby.
12. Collateral Certificates and Schedules. Debtor shall furnish to
Bank from time to time, upon request, written statements, certificates and
schedules identifying and describing the Collateral and any additions thereto
and substitutions therefor in such detail as Bank may require and certified as
to accuracy by the President or Chief Executive Officer of Debtor.
13. Collateral Disposition. Until default hereunder or receipt of
contrary instructions from Bank:
(a) Debtor may have possession of the Collateral and use
it in any lawful manner not inconsistent with this
Agreement or with any policy of insurance thereon.
(b) Debtor may sell the Inventory Collateral in the
ordinary course of business, but not a transfer or
disposition on satisfaction of debt, and Debtor may
use and consume raw materials or supplies, the use and
consumption of which is necessary in order to carry on
Debtor's business.
(c) Debtor will, at its own expense, collect, as and when
due, all amounts due under the Accounts Collateral,
including the taking of such action with respect to
such collection as Bank may reasonably request or, in
the absence of such request, as Debtor may deem
advisable, and may grant, in the ordinary course of
business, to any party obligated on any of the Accounts
Collateral, any rebate, refund or adjustment to which
such party may be lawfully entitled, and may accept, in
connection therewith, the lawful return of goods, the
sale or lease or which shall have given rise to such
Accounts Collateral. Bank may, however, at any time and
at Debtor's expense, notify any parties obligated on
any of the Accounts Collateral to make payment directly
to Bank of any amounts due or to become due thereunder
and enforce collection of any of the Accounts
Collateral by suit or
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<PAGE> 7
otherwise and surrender, release or exchange all or any part
thereof, or compromise, extend or renew same for any period.
14. Undertakings by Bank. Bank may from time to time, at its sole
option, and without notice to Debtor, perform any undertaking of Debtor
hereunder which the Debtor shall fail to perform and take any other action which
Bank deems necessary for the maintenance or preservation of any of the
Collateral or the interest of the Bank therein (including, without limitation,
the discharge of taxes or liens of any kind against the Collateral or the
procurement of insurance) and Debtor agrees to forthwith reimburse Bank, on
demand, for all expenses of Bank in connection with the foregoing, together
with interest thereon at a per annum rate equal to the highest rate of
interest applicable to any of the indebtedness secured hereby, until reimbursed
by Debtor and all amounts not so reimbursed shall be added to and become a part
of the indebtedness secured hereby. Bank may, for the foregoing purposes, act
in its own name or that of Debtor and may also act for the purpose of adjusting
or settling any policy of insurance on the Collateral, or endorsing any draft
received in connection therewith. For all of the foregoing purposes, Debtor
hereby grants to any officer of Bank its power of attorney, irrevocable so long
as any of the indebtedness secured hereby shall be outstanding.
15. Warranties Correct. Debtor hereby warrants and represents that all
financial statements, certificates and schedules heretofore and hereafter
delivered to Bank by or on behalf of Debtor, and any statement and data
submitted in writing to Bank in connection with this Agreement or any
indebtedness of Debtor to Bank, are true and correct and fairly present the
financial condition of Debtor for the periods involved.
16. Identification of Collateral. Upon request of the Bank, Debtor will
stamp on its records concerning the Collateral, a notation, in form satisfactory
to the Bank, of the security interest of the Bank hereunder and when requested
by the Bank, Debtor shall further affix to the Collateral such signs or labels
as shall be satisfactory to Bank to indicate the security interest of Bank in
the Collateral. Upon request of Bank at anytime, Debtor will deliver to Bank
lists or copies of all Collateral promptly and will deliver to Bank, promptly
upon receipt, all proceeds of Collateral received by Debtor, including proceeds
of the Accounts Collateral referred to above, in the exact form in which they
are received. To protect Bank's rights hereunder, Debtor will assign or endorse
proceeds to Bank as Bank may request, and hereby constitutes any officer or
employee of Bank its true and lawful attorney-in-fact, with full power to
endorse the name of Debtor upon any invoice, freight or express bill or bill of
lading relating to any such accounts, upon drafts against account debtors and
assignments and verifications of accounts and notices to account debtors; upon
any and every remittance or instrument of payment, including checks, drafts and
money orders, and in whatever form received; and to do and perform all other
acts and things
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<PAGE> 8
necessary, proper and requisite to carry out the intent of this Agreement. The
power herein granted shall be deemed to be coupled with an interest and shall
not be revoked by Debtor until Bank has been paid all sums due it, including
all proper expenses, with interest. All such items received by Bank for the
Collateral shall be deposited to the credit of Debtor in an account maintained
at Bank, as security for the payment of the indebtedness. Bank may, from time
to time, in its discretion, (a) apply all of the then balance, representing
collected funds, in such deposit account, toward payment of all or any part of
the indebtedness secured hereby, whether or not then due, in such order of
application as Bank, in its sole discretion, may determine, or (b) permit
Debtor to use all or part of said account in the normal course of Debtor's
business.
17. Account Debtors. With respect to the Accounts collateral, Bank may
at anytime notify account debtors that the accounts have been assigned to Bank
and shall be paid to Bank. Upon request of Bank at any time, Debtor will so
notify such account debtors and will indicate on all invoices to such account
debtors that the accounts are payable to Bank.
18. Accounts Collateral Warranties. The Debtor warrants and represents
with respect to the Accounts Collateral that:
(a) All accounts are due and payable in cash not more than thirty
(30) days from the date of the invoice evidencing the account.
(b) The accounts are genuine in all respects and are as purported and
the account debtor has the capacity to enter into the
transaction.
(c) The accounts have not been previously assigned or encumbered.
(d) Debtor has full right and authority to assign them.
(e) If arising from the sale or lease of goods, such goods have been
shipped or delivered to the account debtor.
(f) The accounts are valid, legally enforceable obligation of the
account debtor thereunder and are not subject to any offset,
counterclaim or other defense on the part of such account debtor
or to any claim on the part of such account debtor denying
liability thereunder in whole or in part.
(g) No partial payment not shown upon the accounts have been made by
anyone.
(h) They are enforceable according to terms.
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<PAGE> 9
(i) They are evidenced by invoices, dated not later than the date of
shipment or performance rendered to such account debtor and are
not evidenced by any instrument or chattel paper.
(j) Bank has not notified Debtor that any such account or account
debtor is unsatisfactory.
19. Default. Debtor shall be in default under this Agreement upon the
occurrence of any one or more of the following events or conditions:
(a) Failure of Debtor to pay any sum due under any indebtedness or
liability secured hereby;
(b) Breach or failure to perform by Debtor of any covenant, promise,
condition, obligation or liability contained or refrred to
herein, in the indebtedness secured hereby or in any other
agreement to which Debtor and Bank are parties;
(c) The making or furnishing in any manner of any representation,
statement or warranty to Bank by or on behalf of Debtor in
connection with this Agreement or all or any part of the
indebtedness secured hereby, which representation, statement or
warranty was false in any material respect when made or
furnished;
(d) Any loss, theft, damage, destruction, sale or encumbrance to or
of any of the Collateral;
(e) Any tax levy, attachment, garnishment, levy or execution or other
process issued against Debtor or the Collateral;
(f) Any suspension of payment by Debtor to any creditor or any event
or occurrence which constitutes an event of default or which
results in the acceleration of the maturity of any indebtedness
of Debtor to others, under any indenture, agreement, undertaking
or other instrument;
(g) Merger, consolidation dissolution, termination of existence,
insolvency, business failure, bankruptcy, appointment of a
custodian or receiver of any part of the property of, the
commencement of any bankruptcy or insolvency proceedings or any
assignment for the benefit of any creditors by or against Debtor
or any co-maker, accommodation maker, surety or guarantor of
Debtor, or entry of any judgment against any of them, or failure
of any
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<PAGE> 10
guarantor or surety of Debtor to provide Bank with financial
information promptly when requested by Bank;
(h) Any modification or change of the name of Debtor, as set forth
Section 1 hereof, without the express prior written consent of
Bank;
(i) Determination by Bank that a material adverse change has occurred
in the financial condition of Debtor from that disclosed in the
financial statement of Debtor heretofore furnished to Bank, or
from the condition of Debtor or the Collateral as heretofore
most recently disclosed to Bank in any manner.
20. Remedies. Upon the occurrence of any default in this Agreement, Bank
may at its option, without notice or demand, declare all indebtedness secured
hereby immediately due and payable and Bank, upon the occurrence of any such
default, may exercise any and all of the rights and remedies of a secured party
under the Uniform Commercial Code of Missouri, then in effect. Bank may take
immediate possession of the Collateral or any part, thereof wherever the same
may be found, and for said purposes may, and is hereby appointed Debtor's agent
and authorized by Debtor to, enter Debtor's premises for the purpose of
removing, assembling or taking possession of the Collateral without liability
for trespass or any other right of action by reason of taking possession of said
Collateral. Whenever the Collateral is in Bank's possession, Bank may use and
operate same as appropriate for the purpose of protecting Bank's interest with
respect thereto. In addition, if any Collateral shall require rebuilding,
repairing, maintenance, preparation, or is in process or other unfinished state,
Bank shall have the right at its option to, do such rebuilding, repairing
preparation, processing or completion of manufacturing on or off Debtor's
premises, for the purpose of putting the Collateral in such saleable form as
Bank shall deem appropriate. Bank may require Debtor at Debtor's expense to
assemble the Collateral and make it available to Bank at a place to be
designated by Bank. Debtor agrees to pay all costs of Bank in the collection of
the indebtedness and enforcement of rights hereunder, including reasonable
attorney's fees and legal expense of any repairs to any realty or other property
to which any of the Collateral may be affixed or be a part. Any notice of any
sale, lease, or other disposition, or other intended action by Bank shall be
deemed reasonable if it is in writing and deposited in the United States mail at
least ten (10) days in advance of the intended disposition or other intended
action or, with respect to a private sale, at least ten (10) days in advance of
the date after which a private sale or sales shall occur, first class postage
prepaid, addressed to Debtor at the address first above set forth or to any
other address of Debtor appearing on the records of Bank. Debtor waives all
rights to require any marshalling of assets.
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Bank shall also have the right to apply for and have a receiver appointed
by a court of competent jurisdiction to enforce its rights and remedies
hereunder in order to manage, protect and preserve the Collateral, continue the
operation of the business of the Debtor; and collect all revenues and profits
thereof and apply the same to the payment of (i) all expenses and other charges
of such receivership, including the compensation of the receiver, and (ii) the
indebtedness secured hereby until a sale or other disposition of such Collateral
shall be finally made and consummated.
Bank may notify any and all parties obligated on any of the Collateral that
the Collateral has been assigned to Bank and that all payments thereon are to be
made directly to Bank. Bank may settle, compromise or release, on terms
acceptable to Bank, in whole or in part, any amounts owing on such Collateral;
sue to enforce payments and prosecute any action or proceeding with respect to
the Collateral in its own name or the name of Debtor; and extend the time of
payment, make allowance and adjustments, and issue credits in its own name or
the name of the Debtor.
The proceeds of any sale shall be applied in the following order: first, to
pay all costs and expenses of every kind for care, safekeeping, collection,
sale, delivery or otherwise (including expenses incurred in the protection of
Bank's title to or lien upon or right in any such property, expenses for legal
services of any kind in connection therewith or in making any such sale or
sales, insurance, commission for sale and guaranty) then to interest on all
indebtedness or obligations of Debtor to Bank; then to principal thereof,
whether or not such indebtedness or obligations are due or accrued. Any
remaining surplus shall be paid to whomever shall be legally entitled.
Application of proceeds as between particular indebtedness or obligations to
Bank shall be in the absolute and sole discretion of Bank. If the proceeds of
any such sales are insufficient to pay all indebtedness or obligations of Debtor
with interest, Debtor shall remain liable for the deficiency.
21. Set Off Rights. Regardless of the adequacy of any security which
Bank may at any time hold hereunder or of the adequacy of any other security
which Bank may obtain from Debtor in connection with any other transactions and
regardless of any other rights which Bank may have herein and in addition to all
rights Bank has pursuant to any agreement, instrument, guaranty, certificate,
assignment, document or note or notes held by Bank to which Debtor and the Bank
are parties or relating to this Agreement, any deposits or other monies due from
Bank at any of its offices to Debtor shall constitute additional security for,
and may be set off against, the indebtedness or obligations secured hereby even
though said indebtedness or obligations may not then be due. Any and all
instruments, documents, policies and certificates of insurance, securities,
goods, accounts receivable, choses in action, chattel paper, cash, property and
proceeds thereof owned by Debtor or in which Debtor has an interest, which now
or hereafter
11
<PAGE> 12
are at any time in possession or control of Bank, or in transit by mail or
carrier to or from Bank, or in the possession of any third party acting in
Bank's behalf, without regard to whether Bank received the same in pledge, for
safekeeping, as agent for collection or transmission, or otherwise, or whether
Bank has conditionally released the same shall constitute additional security
for the indebtedness and obligations of Debtor to Bank. Bank shall have the
right in its sole discretion to determine which rights, security liens,
security interest or remedies it shall at any time, pursue, relinquish,
subordinate, modify or take any action with respect thereto, without in any way
modifying or affecting any other security or any of Bank's rights hereunder.
22. Inspection. Bank or its nominee shall have the privilege at any
time, upon request, of inspecting during reasonable business hours any of the
business properties or premises of the Debtor and the books and records of the
Debtor relating not only to the Collateral, or the processing or collecting
thereof, but also those relating to its general business affairs and financial
condition. The Debtor further agrees from time to time to furnish such other
reports, data and financial statements, in respect of its business and
financial condition, as Bank may reasonably require.
23. Miscellaneous.
(a) Bank shall not be deemed to have waived or modified any
of Bank's right hereunder, by course of conduct of
otherwise, or under any other writing signed by Debtor
unless such waiver or modification be in writing
and signed by an officer of Bank and then such waiver
or modification shall be effective only for the period
and under the terms and conditions as are specifically
set forth therein. No delay or commission on the part
of Bank in exercising any right shall operate as a
waiver or modification of such right or any other
right. No waiver of any default on one occasion shall
operate as a waiver of any other default or of the same
default on a future or different occasion. All Bank's
rights and remedies, whether evidenced hereby or by any
other writing, shall be cumulative and may be exercised
from time to time singularly, concurrently or
sucessively. If any Section or any part of any Section
of this Agreement shall be construed to be illegal or
invalid, such Section shall be considered separately
from the remainder of this Agreement and shall have no
effect on the validity or legality of the remainder of
this Agreement.
(b) If there be more than one Debtor, all undertakings,
warranties, convenants and agreements made by Debtor
and all rights, powers and authorities given to or
conferred on Bank shall be made or given jointly
12
<PAGE> 13
and severally. When used herein, the male gender shall include
the female and neuter, as the case may be and the singular shall
include the plural and vice versa where appropriate.
(c) This Agreement and all rights and liabilities hereunder and in
and to any and all Collateral shall inure to the benefit of Bank
and it successors and assigns, and shall be binding on Debtor
and Debtor's heirs, executors, administrators, successors and
assigns.
(d) This Agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with
the law of the State of Missouri.
(e) Debtor expressly agrees that to the extent a payment or
payments to Bank, or any part thereof, are subsequently
invalidated, declared to be void or voidable, set aside and are
required to be repaid to a trustee, custodian, receiver or any
other party under any bankruptcy act, state or federal law,
common law or equitable cause, then to the extent of such payment
or repayment, the obligation or part thereof intended to be
satisfied and any collateral given therefore including this
Agreement shall be revived and continued in full force and effect
as if said payment has not been made.
(f) This Agreement may be executed in any number of counterparts
and by the different parties on separate counterparts and each
such counterpart shall for all purposes be deemed an original,
but all such counterparts shall together constitute but one and
the same Agreement. Debtor hereby acknowledges receipt of a
true, correct and complete counterpart of this Agreement.
(g) The Bank, from time to time, without notice to Debtor, assign
or transfer any or all of its interest in the indebtedness
secured hereby; and, notwithstanding any such assignment or
transfer or any subsequent assignment or transfer thereof, such
indebtedness secured hereby shall be and remain indebtedness
secured hereby for the purposes of this Agreement, and each and
every immediate and successive assignee or transferee of any of
the indebtedness secured hereby or of any interest therein shall,
to the extent of the interest of such assignee or transferee in
the indebtedness secured hereby, be entitled to the benefits of
this Agreement.
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<PAGE> 14
(h) This agreement shall be construed in accordance with
and governed by the internal laws of the State of
Missouri without regard to its principles of conflicts
of law. Whenever possible, each provision of this
agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any
provision of this agreement shall be prohibited by or
invalid under such law, such provision shall be
ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such
provision or the remaining provisions of this agreement.
All obligations of Debtor, and rights of the Bank shall
be in addition to and not in limitation of those
provided in applicable law or in other written
instrument or agreement relating to any of the
indebtedness or liabilities secured hereby.
(i) At the option of the Bank, this Agreement, or a carbon,
photographic or other reproduction of this Agreement or
of any Uniform Commericial Code financing statement
covering the Collateral or any portion thereof, shall
be sufficient as a Uniform Commercial Code financing
statement and may be filed as such.
(j) The section headings in this Agreement are inserted for
convenience of reference and shall not be considered a
part of this Agreement or used in its interpretation.
(k) Debtor hereby acknowledges that there are no conditions
to the effectiveness of this Agreement.
(l) If any item of Collateral hereunder also constitutes
collateral granted to the Bank under any other
mortgage, deed of trust, agreement or
instrument, in the event of any conflict between the
provisions under this Agreement and those under such
other mortgage, agreement or instrument relating to
such Collateral, the provision or provisions selected
by the Bank shall control with respect to such
Collateral.
IN WITNESS WHEREOF, this Security Agreement has been executed and
delivered by Debtor this 19th day of May, 1994.
ERZINGER EQUIPMENT, INC.
By: /s/ Phil Erzinger
-------------------------
14
<PAGE> 1
EXHIBIT 10.13
CONSENT AND ASSUMPTION AGREEMENT
THIS CONSENT AND ASSUMPTION AGREEMENT (this "Agreement") is made and
entered into as of the 31st day of December, 1996, by and among Erzinger
Equipment Co., whose address is 4303 Bi-State Industrial Drive, St. Louis,
Missouri 63128 ("Original Borrower"); Falconite Equipment, Inc., whose address
is 2525 Wayne Sullivan Drive, Paducah, Kentucky 42002 ("Assuming Borrower") and
Southwest Bank of St. Louis, a Missouri banking corporation, whose address is
2301 South Kingshighway, St. Louis, Missouri 63110 ("Southwest").
W I T N E S S E T H:
WHEREAS, Original Borrower executed and delivered to Southwest a
certain Note (the "Note") dated December 16, 1996 payable to the order of
Southwest in the original principal amount of EIGHT MILLION THREE HUNDRED
FORTY-SIX THOUSAND THREE HUNDRED FOURTEEN AND 42/100 DOLLARS ($8,346,314.42)
(the "Loan"); and
WHEREAS, the Original Borrower executed and delivered to Southwest a
certain Master Lease dated March 30, 1995 (the "Lease");
WHEREAS, the Loan, Lease as well as all other obligations of Original
Borrower are entitled to the benefits and security of certain agreements and
documents described in Schedule 1 attached hereto (collectively the "Collateral
Documents") (the Note, Lease, Collateral Documents as well as all other
documents executed or delivered by the Original Borrower in connection with the
Note and the Lease, all as from time to time amended, notified, renewed or
extended, are referred to herein collectively as the "Loan Documents");
WHEREAS, Original Borrower desires to convey substantially all its
assets and property (the "Property"), to Assuming Borrower (the "Conveyance");
and
WHEREAS, Assuming Borrower desires to assume all rights, liabilities
and obligations of Original Borrower under the Loan Documents and be bound by
all terms and conditions contained therein; and
WHEREAS, Original Borrower and Assuming Borrower desire that Southwest
consent to the Conveyance and assumption and Southwest is willing to do so
subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the covenants,
conditions and provisions hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Consent. Southwest hereby consents to the Conveyance and the
assignment and assumption of the rights and obligations of Original Borrower
under the Loan Documents by Assuming Borrower. Following the Conveyance,
Original Borrower shall be dissolved and Assuming Borrower shall be a wholly
owned subsidiary of Falconite, Inc., an Illinois corporation ("Falconite").
Southwest hereby consents to the foregoing and waives any provisions of the
Loan Documents that would otherwise prohibit such actions including, but not
limited to, dissolution, conveyance of assets or change of control provisions.
Provided, however, that the foregoing consent and waiver shall be
<PAGE> 2
effective only for the Conveyance and the foregoing reorganization of Original
Borrower and Assuming Borrower and shall not constitute a consent or waiver to
any other transfer or sale of the Property or other reorganization. Assuming
Borrower agrees that so long as any amounts due Southwest under the Loan or the
Lease shall be outstanding it shall at all times remain a wholly owned
subsidiary of Falconite, not less than seventy percent (70%) of the capital
stock of Falconite and E.F. Leasing, Inc. ("E.F.") shall be owned by Michael A.
Falconite, Joseph A. Falconite (or trusts established for their benefit or the
benefit of their family members) or Falconite Investments, L.P. ("FILP") and
FILP shall be owned beneficially by Michael A. Falconite, Joseph A. Falconite,
Betty Falconite or their lineal descendents (or trusts established for their
benefit or the benefit of their family members).
2. Conveyance. The Conveyance shall be effectuated subject to
the Loan Documents and all instruments evidencing the Conveyance shall
expressly provide that the Property is being transferred subject to the terms
and provisions of the Loan Documents.
3. Assumption. Assuming Borrower hereby assumes and agrees to
perform all duties, obligations and liabilities of Original Borrower under the
Loan Documents, including without limitation all payment obligations
thereunder, according to the tenor, purpose and effect thereof, and the
performance and observance of every covenant and condition therein contained.
Whenever references are made to Original Borrower in the Loan Documents, the
same shall be deemed to mean Assuming Borrower. The Assuming Borrower and
Southwest acknowledge and agree that as of the date hereof, the current
principal balance outstanding under the Note is $8,346,314.42 and the balance
of payments due under the Lease is $57,567.72.
4. Representations and Warranties. Assuming Borrower hereby
represents and warrants to Southwest that:
(a) The execution, delivery and performance by Assuming
Borrower of this Agreement and the Loan Documents do not
conflict with or result in a breach of the terms, conditions
or provisions of the Articles of Incorporation or Bylaws or
constitute a default under or result in any violation of, any
applicable law, rule, regulation, order, writ, judgment or
decree of any court or government agency or instrumentality,
or any agreement or instrument to which Assuming Borrower is a
party, or by which Assuming Borrower is bound or otherwise
subject.
(b) This Agreement has been duly authorized, executed and
delivered and constitutes the legal, valid and binding
obligation of Assuming Borrower enforceable in accordance with
its terms.
5. Ratification. Except to the extent expressly modified by this
Agreement, all of the terms, provisions, agreements, covenants and powers
contained in the Loan Documents shall remain in full force and effect, and the
same are hereby ratified and confirmed and Southwest reserves unto itself all
rights and privileges granted thereunder. Until such time as a $278,037.45
Note dated June 8, 1994 made by E.F. to the order of Southwest and with a
current principal balance due of $139,018.65 shall be paid (and not
thereafter), Assuming Borrower agrees that the Property shall continue to serve
as collateral security for the repayment and performance of all obligations of
EF to Southwest as provided in one or more of the Collateral Documents.
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<PAGE> 3
6. No Defense or Offset to Indebtedness. It is agreed that
neither Original Borrower nor Assuming Borrower has any defenses or offsets
against repayment of the outstanding indebtedness evidenced by the Note, Lease
or any other Loan Document.
7. Further Assurances. Assuming Borrower and Original Borrower
agree to execute and deliver to Southwest such Uniform Commercial Code
Financing Statements, title lien notations and any other documents requested by
Southwest to further perfect the interests of Southwest in the Property or
further evidence or effectuate the terms of the Agreement.
8. Costs and Expenses. Assuming Borrower shall pay all costs and
expenses incurred by Southwest in connection with this Agreement and
transactions contemplated hereunder, including, without limitation, all legal
expenses, recording costs and search charges.
9. Miscellaneous. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Missouri and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The use in this Agreement of any particular
gender or the plural or singular number is intended to include the appropriate
gender or number as the content so requires. This Agreement may be executed in
several counterparts, and as executed shall constitute one agreement
notwithstanding that not all parties are signatories to the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"ASSUMING BORROWER"
FALCONITE EQUIPMENT, INC.
By: /s/ Michael A. Falconite
-------------------------------
Michael A. Falconite, President
"ORIGINAL BORROWER"
ERZINGER EQUIPMENT CO.
By: /s/ Michael A. Falconite
-------------------------------
Michael A. Falconite, President
"SOUTHWEST"
SOUTHWEST BANK OF ST. LOUIS
By: /s/ Lansden McCandless
------------------------------------
Title: Vice President
---------------------------------
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<PAGE> 4
SCHEDULE 1
Assumed Note, Lease, Security Agreements and
Other Loan Documents
COLLATERAL PLEDGED FOR E.F. LEASING, INC. OBLIGATIONS
1. Security Agreement dated 5/19/94 covering accounts receivable,
inventory and equipment executed by Erzinger Equipment Co.
Title: SECURITY AGREEMENT
2. Assumption Agreement dated 12/29/95 (without recourse) Title:
CONSENT AND ASSUMPTION AGREEMENT WITH RELEASE
3. Pledge Agreement dated 12/29/95 executed by Erzinger Equipment
Co. Title: PLEDGE AGREEMENT
4. Security Agreement dated 6/18/94 covering personal property
executed by Erzinger Equipment Co. Title: SECURITY
AGREEMENT
5. Security Agreement dated 5/19/94 covering accounts
receivables, inventory and equipment executed by Erzinger
Equipment Co. Title: SECURITY AGREEMENT EQUIPMENT AND/OR
CONSUMER GOODS
6. Assumption Agreement dated 12/29/95 (without recourse) Title:
CONSENT AND ASSUMPTION AGREEMENT WITH RELEASE
7. Pledge Agreement dated 12/29/95 executed by Erzinger Equipment
Co. Title: PLEDGE AGREEMENT
ERZINGER EQUIPMENT CO. DIRECT OBLIGATIONS
1. Note dated 12/16/96 Principal balance $8,346,314.42
Collateral:
A. Loan Agreement dated 1/25/95 Title: LOAN AGREEMENT
B. Security Agreement dated 12/29/95 covering equipment
Title: SECURITY AGREEMENT EQUIPMENT AND/OR CONSUMER
GOODS
<PAGE> 5
C. Security Agreement dated 12/20/95 covering 1995 Ford
Truck Title: SECURITY AGREEMENT EQUIPMENT AND/OR
CONSUMER GOODS
D. Security Agreement dated 9/13/95 covering 1995 Ford
Truck and equipment Title: SECURITY AGREEMENT
EQUIPMENT AND/OR CONSUMER GOODS
E. Security Agreement dated 5/19/94 covering accounts
receivable, inventory and equipment Title: SECURITY
AGREEMENT
F. Security Agreement dated 9/1/96 covering 1997 Chevy
Lumina Title: SECURITY AGREEMENT EQUIPMENT AND/OR
CONSUMER GOODS
G. Security Agreement dated 7/1/96 covering 1996 Chevy
Van Title: SECURITY AGREEMENT EQUIPMENT AND/OR
CONSUMER GOODS
H. Security Agreement dated 5/17/96 covering 1994 Ford
F-150 PU Title: SECURITY AGREEMENT EQUIPMENT AND/OR
CONSUMER GOODS
I. Security Agreement dated 2/16/96 covering 1996 Ford
Truck and 1996 Crane Title: SECURITY AGREEMENT
EQUIPMENT
J. Security Agreement dated 2/16/96 covering 1996 Ford
Truck and Manitex Crane Title: SECURITY AGREEMENT
EQUIPMENT
2. Lease Agreement #1039452 dated 3/30/95 and Assignment of
Purchase Order dated 5/30/95 Title: ASSIGNMENT OF PURCHASE
ORDER(S)
<PAGE> 1
EXHIBIT 10.14
CONTINUING UNLIMITED GUARANTY AGREEMENT
WHEREAS, Falconite Equipment, Inc. (hereinafter referred to as
"Borrower") has applied for credit, or is presently indebted or obligated to
Southwest Bank of St. Louis (hereinafter referred to as "Bank"); and
WHEREAS, for the purpose of inducing Bank to extend credit to
Borrower, or to presently refrain from making demand on Borrower or otherwise
pursuing Bank's rights or remedies against Borrower, the undersigned (hereunder
referred to as "Guarantor") agrees to guarantee the prompt payment of the
indebtedness and liabilities of Borrower to Bank in accordance with the terms
and conditions hereinafter set forth.
NOW, THEREFORE, for value received, and in consideration of the
financial accommodations given or to be given or continued to Borrower by Bank
and/or of Bank's presently refraining from making demand on Borrower or
otherwise pursuing Bank's legal remedies against Borrower, and for other good
and valuable consideration to Guarantor moving, the receipt and sufficiency of
which is hereby acknowledged:
1. Guarantor hereby unconditionally guarantees to Bank the prompt
payment when due, whether by acceleration or otherwise, and at all times
thereafter, of any and all indebtedness and obligations of Borrower to Bank,
including extensions, renewals or refundings thereof (and extensions, renewals
or refundings made after any release or termination hereof), whether such be
direct or indirect, liquidated or unliquidated, absolute or contingent, single,
joint, by the entirety or several, now existing or hereafter arising, due or to
become due whether or not originally contracted with Bank, including interests
acquired by Bank through whole or partial assignment of an item which would
have been a Liability if created between Borrower and Bank (hereinafter
collectively referred to as "Liabilities" or, in the singular "Liability").
"Liabilities" or a "Liability" shall also include expenses including attorney's
fees, incurred by Bank in the efforts to collect any Liability or to enforce
the undertakings of Guarantor hereunder. Whenever any such Liabilities shall
become due and remain unpaid, Guarantor will on demand, make prompt payment of
the amount due thereon.
2. Guarantor shall be obligated to make payment in full to Bank in
accordance with the terms and provisions hereof irrespective of the validity,
regularity or enforceability of any instrument or writing evidencing such
Liability or of the Liability itself, and if the Liability is secured, said
obligation of Guarantor to make payment hereunder shall be made irrespective of
the validity, perfection, regularity or enforceability of any instrument or
writing evidencing such security or of the security itself and it shall not be
necessary for Bank to resort to such security before enforcing Guarantor's
liability hereunder. Demand may be made upon Guarantor for the enforcement of
this Guaranty without the necessity of action at any time by Bank against
Borrower or any collateral or to first accelerate the maturity of any
Liabilities. Any action taken by Bank against Borrower, including foreclosure
of any security held by Bank, shall in no event be considered a waiver or
diminishment of any rights against Guarantor under this Guaranty and Bank
shall, at its sole discretion, have the right at any time to discontinue any
action or proceeding against Borrower and require full payment by Guarantor of
the Liabilities together with attorneys' fees, cost of the proceedings and
court costs. It is agreed that a compromise and settlement of any Liability
shall, in no sense, compromise or settle Guarantor's liability hereunder. Bank
may apply any collateral for the Liabilities in such order as it may elect and
without any obligation to account to Guarantor or any of them for the manner or
order of application.
<PAGE> 2
3. Guarantor does hereby waive presentment of any instrument, demand
for payment, protest and notice of dishonor or nonpayment and Guarantor waives
all rights arising out of any statute now existing or hereafter enacted with
respect to guaranty or suretyship and which may otherwise require Bank at any
time to take legal action against Borrower. Guarantor does hereby waive notice
of the acceptance of this Guaranty and notice of any Liability contracted or
incurred by Borrower.
4. Bank may, from time to time, without the consent of or notice to
Guarantor, change the manner, interest rate, place or terms of payment, and
change or extend the time of payment of, refund, increase, decrease, renew or
alter in any manner any Liability or security therefor, and may, from time to
time, at its own discretion, without the consent of or notice to Guarantor,
exchange, release, surrender, realize upon or otherwise deal with in any manner
and in any order, any collateral pledged or mortgaged to secure any Liability,
without in any way affecting Guarantor's obligation hereunder.
5. The obligations of Guarantor hereunder shall apply to all
Liabilities, including Liabilities, arising on or prior to notice in writing
from any Guarantor that such Guarantor will not be responsible for any further
Liabilities or notice from a Guarantor's personal representative that such
Guarantor has died or been adjudicated incompetent. Any such notice, to be
effective, must be actually received by the Bank. Notwithstanding the giving
of such notice, the obligations of the Guarantors shall continue in full force
and effect as to all Liabilities then existing including those contingent,
unliquidated or not yet accrued and to any Liabilities thereafter arising, to
the extent that Bank may be bound or permitted by contract or otherwise to
create or permit the creation of additional Liabilities including those which
may or might have been contingent, unliquidated or not yet accrued Liabilities
at the time such notice is given. Termination or revocation of this Guaranty
by notice or by operation of law shall affect only the obligations of the
Guarantor for or on behalf of whom such notice is given or as to whom such
event occurs, the obligations of the other Guarantors to continue unabated.
6. Guarantor does hereby give and grant unto Bank, as security for
Guarantor's liability and obligations hereunder, a first lien and security
interest, with full right of setoff, upon any deposit or other account of
Guarantor with Bank and all property of any kind and of whatsoever nature
belonging to Guarantor or in which Guarantor has any right, title or interest
and which, for any purpose, has come into the possession, custody or control of
Bank.
7. Guarantor acknowledges and agrees that it has derived or will
derive a financial advantage from each and every loan, advance, or other
extension of credit and from each and every renewal, extension, modification,
release of collateral, or other relinquishment of legal rights made or granted
or to be granted by the Bank to the Borrower and further represents and
warrants to the Bank that it has full power and authority (corporate or
otherwise) to execute and deliver this Guaranty.
8. This Guaranty shall be understood to be for the benefit of Bank or
for such other person or persons as may from time to time become or be the
holders of the Liabilities; and this Guaranty shall be transferable and
negotiable without notice to Guarantor with the same force and effect and to
the same extent as such Liabilities may be transferable.
9. Guarantor agrees that Guarantor's liability hereunder is several
and independent of any other guaranties at any time in effect with respect to
all or any part of the Liabilities, and that Guarantor's liability hereunder
may be enforced regardless of the existence of any such other guaranty
agreements.
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<PAGE> 3
10. The word "Guarantor," as used herein, shall designate one or more
guarantors. In the event that more than one guarantor is a party to this
Guaranty, the liability of each of the undersigned shall be joint and several,
each of the undersigned to be fully liable hereunder irrespective of the death,
bankruptcy, incapacity or other disqualification of any other of the
undersigned or the Borrower and Bank may proceed against one or less than all
of the undersigned, such proceeding not being deemed an election, the Bank may,
at any time thereafter in the event full payment has not been realized, proceed
against any other of the undersigned. Bank may release any Guarantor hereon or
any other surety, guarantor or Borrower or any collateral or security pledged
by any Guarantor or surety without affecting the liability hereunder of any
Guarantor not released by Bank in writing. This Guaranty Agreement shall be
binding upon Guarantor and upon Guarantor's heirs, executors, personal
representatives, administrators, legal representatives, successors and assigns
and shall likewise be enforceable against any trusts created by Guarantor and
shall inure to the benefit of Bank, its successors and assigns.
11. This Guaranty Agreement shall not supersede any earlier guaranty
of Guarantor or any of them in which Bank has an interest nor shall any later
guaranty of Guarantor or any of them in which Bank has an interest be construed
to supersede this Guaranty. The effect of any earlier, later or other guaranty
shall be cumulative with this Guaranty, whether or not the interests of Bank in
such earlier, later or other guaranty derives from arrangements made directly
with Guarantor or indirectly by way of Bank being a transferee of all or part
of obligations of Borrower guaranteed by Guarantor.
12. In addition to all other collateral and security provided for
herein, this Guaranty shall be secured by all collateral and security
previously, now or hereafter pledged to Bank by Guarantor and any security
previously, now or hereafter granted Bank by Guarantor whether such pledge or
grant of security interest specifically relates to the Liabilities or not.
13. Guarantor agrees that this Guaranty Agreement, and all obligations
hereunder shall remain in full force and effect at all times hereinafter during
the term hereof, notwithstanding any action or undertakings by, or against, the
Bank, or concerning any collateral securing the Liabilities in any proceeding
under any bankruptcy law; including without limitation, matters relating to
valuation of collateral, election or imposition of secured or unsecured claim
status upon claims by the Bank, pursuant to the Bankruptcy Code, or Rules of
Bankruptcy Procedure as may be applicable from time to time. Guarantor
understands and agrees that in the event any payment made by or on behalf of
Borrower respecting any Liability or any portion of any such payment shall at
any time be repaid by the recipient in compliance with an order (whether or not
final) by a court of competent jurisdiction pursuant to any provision of any
bankruptcy law as now existing or hereafter amended or applicable state law,
the Liabilities shall not be deemed to have been paid to the extent of the
repayment so made, the obligations of Guarantor shall continue in full force
and effect and such recipient, whether or not that be Bank, will continue to be
entitled to the full benefits of this Guaranty notwithstanding any release,
termination or return of this Guaranty Agreement. If acceleration of the time
for payment of any amount payable by Borrower to Bank is stayed upon the
insolvency, bankruptcy or reorganization of such Borrower, all such amounts
otherwise subject to acceleration under the terms of the Liabilities shall
nonetheless by payable by Guarantor hereunder forthwith on demand by the Bank.
14. The Bank shall have no obligation to inform Guarantor, and
Guarantor agrees to assume all responsibility for keeping informed as to
Borrower's or other Guarantors financial condition, the possible non-payment
and non-performance of the Liabilities, the obligations of any Guarantor and
all matters relating to any collateral for the Liabilities or for this Guaranty
Agreement. At its option, the Bank may at any time, disclose information
concerning the Borrower or any collateral for the
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<PAGE> 4
Liabilities or this Guaranty Agreement, but such disclosure shall not obligate
the Bank to provide the same information, now or in the future, to all of the
Guarantors or additional information of any kind to Guarantor.
15. Guarantor hereby agrees that no payment of any Liability shall
entitle it by subrogation, indemnification, contribution, reimbursement or
otherwise to any payment by Borrower or by any other guarantor of any Liability
or from or out of any property of Borrower or of any other guarantor of any
Liability until all Liabilities have been paid in full.
16. Guarantor agrees to provide upon request of Bank financial
statements or such other information on Guarantor as Bank shall from time to
time request.
17. This Guaranty Agreement and the rights and obligations of Bank and
Guarantor hereunder shall be governed and construed in accordance with the
internal laws of the State of Missouri.
18. Any indebtedness of Borrower for borrowed money now or hereafter
owed to Guarantor is hereby subordinated in right of payment to the payment of
amounts owing under this Agreement, any evidence of such indebtedness shall be
so marked with an appropriate legend and if a default in the payment of any
amounts owing under this Agreement shall have occurred and be continuing, any
such indebtedness of Borrower owed to Guarantor, if collected or received by
Guarantor, shall be held in trust by Guarantor for Bank and be paid over to
Bank for application in accordance with this Agreement.
19. The liability of Guarantor under this Guaranty Agreement with
respect to the Liabilities shall not exceed the maximum amount of such
Liability that can be hereby incurred without rendering this Guaranty
Agreement, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount. For purposes of determining such liability of any Guarantor,
due consideration shall be given to the amount of loan proceeds received,
directly or indirectly, by such Guarantor (whether or not borrowed by such
Guarantor) and the benefits to Guarantor of maintaining an integrated cash
management system.
20. Guarantor hereby irrevocably submits to the jurisdiction of any
State or Federal court sitting in the County or City of St. Louis, Missouri
over any action or proceeding arising out of or relating to this Guaranty, and
Guarantor hereby irrevocably agrees that all claims in respect to such action
or proceeding may be heard and determined in such State or Federal court.
Guarantor hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action
or proceeding. Guarantor irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to Guarantor at its address set forth below. Guarantor agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
21. ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT YOU (GUARANTOR AND US (BANK)
FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY GUARANTOR
AND BANK COVERING SUCH MATTERS ARE CONTAINED IN THIS AGREEMENT, WHICH AGREEMENT
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
-4-
<PAGE> 5
AGREEMENTS BETWEEN GUARANTOR AND BANK, EXCEPT AS GUARANTOR AND BANK MAY LATER
AGREE IN WRITING TO MODIFY THEM.
IN WITNESS WHEREOF, this instrument has been duly executed by
Guarantor this 31st day of December, 1996.
FALCONITE, INC.
By: /s/ Michael A. Falconite
-------------------------------
Michael A. Falconite, President
Address:
2525 Wayne Sullivan Drive
Paducah, Kentucky 42002
-5-
<PAGE> 1
EXHIBIT 10.15
CONTINUING UNLIMITED GUARANTY AGREEMENT
WHEREAS, E. F. Leasing, Inc. (hereinafter referred to as "Borrower")
has applied for credit, or is presently indebted or obligated to Southwest Bank
of St. Louis (hereinafter referred to as "Bank"); and
WHEREAS, for the purpose of inducing Bank to extend credit to
Borrower, or to presently refrain from making demand on Borrower or otherwise
pursuing Bank's rights or remedies against Borrower, the undersigned (hereunder
referred to as "Guarantor") agrees to guarantee the prompt payment of the
indebtedness and liabilities of Borrower to Bank in accordance with the terms
and conditions hereinafter set forth.
NOW, THEREFORE, for value received, and in consideration of the
financial accommodations given or to be given or continued to Borrower by Bank
and/or of Bank's presently refraining from making demand on Borrower or
otherwise pursuing Bank's legal remedies against Borrower, and for other good
and valuable consideration to Guarantor moving, the receipt and sufficiency of
which is hereby acknowledged:
1. Guarantor hereby unconditionally guarantees to Bank the prompt
payment when due, whether by acceleration or otherwise, and at all times
thereafter, of any and all indebtedness and obligations of Borrower to Bank,
including extensions, renewals or refundings thereof (and extensions, renewals
or refundings made after any release or termination hereof), whether such be
direct or indirect, liquidated or unliquidated, absolute or contingent, single,
joint, by the entirety or several, now existing or hereafter arising, due or to
become due whether or not originally contracted with Bank, including interests
acquired by Bank through whole or partial assignment of an item which would
have been a Liability if created between Borrower and Bank (hereinafter
collectively referred to as "Liabilities" or, in the singular "Liability").
"Liabilities" or a "Liability" shall also include expenses including attorney's
fees, incurred by Bank in the efforts to collect any Liability or to enforce
the undertakings of Guarantor hereunder. Whenever any such Liabilities shall
become due and remain unpaid, Guarantor will on demand, make prompt payment of
the amount due thereon. Nothing contained herein to the contrary
withstanding, this Guaranty Agreement shall cease and the obligations of
Guarantor hereunder shall terminate upon the payment in full of a $278,037.45
Note dated June 8, 1994 made by Borrower to the order of Bank with a current
principal balance due of $139,018.65
2. Guarantor shall be obligated to make payment in full to Bank in
accordance with the terms and provisions hereof irrespective of the validity,
regularity or enforceability of any instrument or writing evidencing such
Liability or of the Liability itself, and if the Liability is secured, said
obligation of Guarantor to make payment hereunder shall be made irrespective of
the validity, perfection, regularity or enforceability of any instrument or
writing evidencing such security or of the security itself and it shall not be
necessary for Bank to resort to such security before enforcing Guarantor's
liability hereunder. Demand may be made upon Guarantor for the enforcement of
this Guaranty without the necessity of action at any time by Bank against
Borrower or any collateral or to first accelerate the maturity of any
Liabilities. Any action taken by Bank against Borrower, including foreclosure
of any security held by Bank, shall in no event be considered a waiver or
diminishment of any rights against Guarantor under this Guaranty and Bank
shall, at its sole discretion, have the right at any time to discontinue any
action or proceeding against Borrower and require full payment by Guarantor of
the Liabilities together with attorneys' fees, cost of the proceedings and
court costs. It
<PAGE> 2
is agreed that a compromise and settlement of any Liability shall, in no sense,
compromise or settle Guarantor's liability hereunder. Bank may apply any
collateral for the Liabilities in such order as it may elect and without any
obligation to account to Guarantor or any of them for the manner or order of
application.
3. Guarantor does hereby waive presentment of any instrument, demand
for payment, protest and notice of dishonor or nonpayment and Guarantor waives
all rights arising out of any statute now existing or hereafter enacted with
respect to guaranty or suretyship and which may otherwise require Bank at any
time to take legal action against Borrower. Guarantor does hereby waive notice
of the acceptance of this Guaranty and notice of any Liability contracted or
incurred by Borrower.
4. Bank may, from time to time, without the consent of or notice to
Guarantor, change the manner, interest rate, place or terms of payment, and
change or extend the time of payment of, refund, increase, decrease, renew or
alter in any manner any Liability or security therefor, and may, from time to
time, at its own discretion, without the consent of or notice to Guarantor,
exchange, release, surrender, realize upon or otherwise deal with in any manner
and in any order, any collateral pledged or mortgaged to secure any Liability,
without in any way affecting Guarantor's obligation hereunder.
5. The obligations of Guarantor hereunder shall apply to all
Liabilities, including Liabilities, arising on or prior to notice in writing
from any Guarantor that such Guarantor will not be responsible for any further
Liabilities or notice from a Guarantor's personal representative that such
Guarantor has died or been adjudicated incompetent. Any such notice, to be
effective, must be actually received by the Bank. Notwithstanding the giving
of such notice, the obligations of the Guarantors shall continue in full force
and effect as to all Liabilities then existing including those contingent,
unliquidated or not yet accrued and to any Liabilities thereafter arising, to
the extent that Bank may be bound or permitted by contract or otherwise to
create or permit the creation of additional Liabilities including those which
may or might have been contingent, unliquidated or not yet accrued Liabilities
at the time such notice is given. Termination or revocation of this Guaranty
by notice or by operation of law shall affect only the obligations of the
Guarantor for or on behalf of whom such notice is given or as to whom such
event occurs, the obligations of the other Guarantors to continue unabated.
6. Guarantor does hereby give and grant unto Bank, as security for
Guarantor's liability and obligations hereunder, a first lien and security
interest, with full right of setoff, upon any deposit or other account of
Guarantor with Bank and all property of any kind and of whatsoever nature
belonging to Guarantor or in which Guarantor has any right, title or interest
and which, for any purpose, has come into the possession, custody or control of
Bank.
7. Guarantor acknowledges and agrees that it has derived or will
derive a financial advantage from each and every loan, advance, or other
extension of credit and from each and every renewal, extension, modification,
release of collateral, or other relinquishment of legal rights made or granted
or to be granted by the Bank to the Borrower and further represents and
warrants to the Bank that it has full power and authority (corporate or
otherwise) to execute and deliver this Guaranty.
8. This Guaranty shall be understood to be for the benefit of Bank or
for such other person or persons as may from time to time become or be the
holders of the Liabilities; and this Guaranty shall be transferable and
negotiable without notice to Guarantor with the same force and effect and to
the same extent as such Liabilities may be transferable.
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<PAGE> 3
9. Guarantor agrees that Guarantor's liability hereunder is several
and independent of any other guaranties at any time in effect with respect to
all or any part of the Liabilities, and that Guarantor's liability hereunder
may be enforced regardless of the existence of any such other guaranty
agreements.
10. The word "Guarantor," as used herein, shall designate one or more
guarantors. In the event that more than one guarantor is a party to this
Guaranty, the liability of each of the undersigned shall be joint and several,
each of the undersigned to be fully liable hereunder irrespective of the death,
bankruptcy, incapacity or other disqualification of any other of the
undersigned or the Borrower and Bank may proceed against one or less than all
of the undersigned, such proceeding not being deemed an election, the Bank may,
at any time thereafter in the event full payment has not been realized, proceed
against any other of the undersigned. Bank may release any Guarantor hereon or
any other surety, guarantor or Borrower or any collateral or security pledged
by any Guarantor or surety without affecting the liability hereunder of any
Guarantor not released by Bank in writing. This Guaranty Agreement shall be
binding upon Guarantor and upon Guarantor's heirs, executors, personal
representatives, administrators, legal representatives, successors and assigns
and shall likewise be enforceable against any trusts created by Guarantor and
shall inure to the benefit of Bank, its successors and assigns.
11. This Guaranty Agreement shall not supersede any earlier guaranty
of Guarantor or any of them in which Bank has an interest nor shall any later
guaranty of Guarantor or any of them in which Bank has an interest be construed
to supersede this Guaranty. The effect of any earlier, later or other guaranty
shall be cumulative with this Guaranty, whether or not the interests of Bank in
such earlier, later or other guaranty derives from arrangements made directly
with Guarantor or indirectly by way of Bank being a transferee of all or part
of obligations of Borrower guaranteed by Guarantor.
12. In addition to all other collateral and security provided for
herein, this Guaranty shall be secured by all collateral and security
previously, now or hereafter pledged to Bank by Guarantor and any security
previously, now or hereafter granted Bank by Guarantor whether such pledge or
grant of security interest specifically relates to the Liabilities or not.
13. Guarantor agrees that this Guaranty Agreement, and all obligations
hereunder shall remain in full force and effect at all times hereinafter during
the term hereof, notwithstanding any action or undertakings by, or against, the
Bank, or concerning any collateral securing the Liabilities in any proceeding
under any bankruptcy law; including without limitation, matters relating to
valuation of collateral, election or imposition of secured or unsecured claim
status upon claims by the Bank, pursuant to the Bankruptcy Code, or Rules of
Bankruptcy Procedure as may be applicable from time to time. Guarantor
understands and agrees that in the event any payment made by or on behalf of
Borrower respecting any Liability or any portion of any such payment shall at
any time be repaid by the recipient in compliance with an order (whether or not
final) by a court of competent jurisdiction pursuant to any provision of any
bankruptcy law as now existing or hereafter amended or applicable state law,
the Liabilities shall not be deemed to have been paid to the extent of the
repayment so made, the obligations of Guarantor shall continue in full force
and effect and such recipient, whether or not that be Bank, will continue to be
entitled to the full benefits of this Guaranty notwithstanding any release,
termination or return of this Guaranty Agreement. If acceleration of the time
for payment of any amount payable by Borrower to Bank is stayed upon the
insolvency, bankruptcy or reorganization of such Borrower, all such amounts
otherwise subject to acceleration under the terms of the Liabilities shall
nonetheless by payable by Guarantor hereunder forthwith on demand by the Bank.
-3-
<PAGE> 4
14. The Bank shall have no obligation to inform Guarantor, and
Guarantor agrees to assume all responsibility for keeping informed as to
Borrower's or other Guarantors financial condition, the possible non-payment
and non-performance of the Liabilities, the obligations of any Guarantor and
all matters relating to any collateral for the Liabilities or for this Guaranty
Agreement. At its option, the Bank may at any time, disclose information
concerning the Borrower or any collateral for the Liabilities or this Guaranty
Agreement, but such disclosure shall not obligate the Bank to provide the same
information, now or in the future, to all of the Guarantors or additional
information of any kind to Guarantor.
15. Guarantor hereby agrees that no payment of any Liability shall
entitle it by subrogation, indemnification, contribution, reimbursement or
otherwise to any payment by Borrower or by any other guarantor of any Liability
or from or out of any property of Borrower or of any other guarantor of any
Liability until all Liabilities have been paid in full.
16. Guarantor agrees to provide upon request of Bank financial
statements or such other information on Guarantor as Bank shall from time to
time request.
17. This Guaranty Agreement and the rights and obligations of Bank and
Guarantor hereunder shall be governed and construed in accordance with the
internal laws of the State of Missouri.
18. Any indebtedness of Borrower for borrowed money now or hereafter
owed to Guarantor is hereby subordinated in right of payment to the payment of
amounts owing under this Agreement, any evidence of such indebtedness shall be
so marked with an appropriate legend and if a default in the payment of any
amounts owing under this Agreement shall have occurred and be continuing, any
such indebtedness of Borrower owed to Guarantor, if collected or received by
Guarantor, shall be held in trust by Guarantor for Bank and be paid over to
Bank for application in accordance with this Agreement.
19. The liability of Guarantor under this Guaranty Agreement with
respect to the Liabilities shall not exceed the maximum amount of such
Liability that can be hereby incurred without rendering this Guaranty
Agreement, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount. For purposes of determining such liability of any Guarantor,
due consideration shall be given to the amount of loan proceeds received,
directly or indirectly, by such Guarantor (whether or not borrowed by such
Guarantor) and the benefits to Guarantor of maintaining an integrated cash
management system.
20. Guarantor hereby irrevocably submits to the jurisdiction of any
State or Federal court sitting in the County or City of St. Louis, Missouri
over any action or proceeding arising out of or relating to this Guaranty, and
Guarantor hereby irrevocably agrees that all claims in respect to such action
or proceeding may be heard and determined in such State or Federal court.
Guarantor hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action
or proceeding. Guarantor irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to Guarantor at its address set forth below. Guarantor agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
-4-
<PAGE> 5
21. ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT YOU (GUARANTOR AND US (BANK)
FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY GUARANTOR
AND BANK COVERING SUCH MATTERS ARE CONTAINED IN THIS AGREEMENT, WHICH AGREEMENT
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN GUARANTOR AND
BANK, EXCEPT AS GUARANTOR AND BANK MAY LATER AGREE IN WRITING TO MODIFY THEM.
IN WITNESS WHEREOF, this instrument has been duly executed by
Guarantor this 31st day of December, 1996.
FALCONITE, INC.
By: /s/ Michael A. Falconite
---------------------------------
Michael A. Falconite, President
Address:
2525 Wayne Sullivan Drive
Paducah, Kentucky 42002
-5-
<PAGE> 1
EXHIBIT 10.16
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made this 5th
day of October, 1995, by FALCONITE, INC., an Illinois corporation ("Borrower"),
in favor of CITIZENS BANK & TRUST COMPANY OF PADUCAH ("Secured Party").
WITNESSETH:
WHEREAS, Borrower and Secured Party are herewith entering into
that certain Revolving Credit and Term Loan Agreement dated the date hereof (as
the same may from time to time be amended, modified, extended or renewed, the
"Loan Agreement"; all capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings ascribed to them in the Loan
Agreement); and
WHEREAS, as a condition precedent to Secured Party entering
into the Loan Agreement, Secured Party has required that Borrower execute and
deliver this Agreement to Secured Party; and
WHEREAS, in order to induce Secured Party to enter into the
Loan Agreement, Borrower has agreed to execute and deliver this Agreement to
Secured Party;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower hereby covenants and agrees with Secured Party as
follows:
1. Defined Terms. Unless the context otherwise requires, the
following terms as used in this Agreement shall have the following meanings:
"Account Debtor" shall have the meaning assigned to such term
in Section 5(d) hereof.
"Accounts" shall have the meaning assigned to such term in the
UCC.
"Agreement" shall have the meaning assigned to such term in
the preamble hereof.
"Books and Records" shall have the meaning assigned to such
term in Section 2(j) hereof.
"Borrower" shall have the meaning assigned to such term in the
preamble hereof.
"Chattel Paper" shall have the meaning assigned to such term
in the UCC.
"Collateral" shall have the meaning assigned to such term in
Section 2 hereof.
<PAGE> 2
"Equipment" shall have the meaning assigned to such term in
the UCC.
"Event of Default" shall have the meaning assigned to such
term in Section 7 hereof.
"Fixtures" shall have the meaning assigned to such term in the
UCC.
"General Intangibles" shall have the meaning assigned to such
term in the UCC.
"Goods" shall have the meaning assigned to such term in the
UCC.
"Instruments" shall have the meaning assigned to such term in
the UCC.
"Inventory" shall have the meaning assigned to such term in
the UCC.
"Lease" and "Leases" shall have the respective meanings
assigned to such terms in Section 4(a) hereof.
"Lease Payments" shall have the meaning assigned to such term
in Section 4(a) hereof.
"Loan Agreement" shall have the meaning assigned to such term
in the preamble hereof.
"Loan Documents" shall have the meaning assigned to such term
in the Loan Agreement.
"Secured Party" shall have the meaning assigned to such term
in the preamble hereof.
"UCC" shall mean the Uniform Commercial Code in effect in the
Commonwealth of Kentucky, as amended, except as the Uniform Commercial Code of
other states shall govern lien perfection in those states.
2. Grant of Security Interest. For value received,
Borrower hereby sells, assigns, transfers, conveys and mortgages to Secured
Party, and grants Secured Party a continuing security interest in, all assets
of Borrower, including, without limitation, those assets and properties of
Borrower of the types described below, wherever located, however arising or
created, and whether now owned or existing or hereafter arising, created or
acquired (collectively, the "Collateral"):
- 2 -
<PAGE> 3
(a) all Accounts, including, without limitation (and
regardless of whether the same fall within the
definition of Accounts), all accounts, lease
payments, rental payments, lease rights, contract
rights and other forms of obligation and other rights
to the payment of money, and all goods whose sale,
lease, rental or other disposition by Borrower have
given rise to Accounts and have been returned to or
repossessed or stopped in transit by Borrower;
(b) all Chattel Paper, including, without limitation (and
regardless of whether the same fall within the
definition of Chattel Paper), all leases, rental
agreements, installment sale agreements, conditional
sale agreements and other chattel paper relating to
or arising out of the sale, rental, lease or other
disposition of any of the assets and properties of
Borrower;
(c) all Equipment, including, without limitation (and
regardless of whether the same fall within the
definition of Equipment), all equipment, machinery,
motor vehicles, trucks, tractors, trailers,
furniture, appliances, furnishings, tools, dies, jigs
and other tangible personal property;
(d) all Fixtures;
(e) all Inventory, including, without limitation (and
regardless of whether the same fall within the
definition of Inventory), all goods held for sale or
lease or furnished or to be furnished under contracts
of service, raw materials, work in process, finished
goods, supplies, goods, incidentals, office supplies
and packaging and shipping materials as well as all
returns of such Inventory;
(f) all Goods;
(g) all Instruments;
(h) all General Intangibles, including, without
limitation (and regardless of whether the same fall
within the definition of General Intangibles), all
contract rights, choses in action, causes of action,
corporate and other business records, inventions,
designs, patents, patent applications, trademarks,
trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, tax refunds,
rights to tax refunds, claims under
- 3 -
<PAGE> 4
guaranties, security interests or other
security held or granted to secure payment of
contracts by Account Debtors, all rights to
indemnification and all other intangible property of
every kind and nature;
(i) all Instruments, documents, Chattel Paper, Goods,
moneys, securities, drafts and other property of
Borrower now in the possession of and/or at any time
and from time to time hereafter delivered to Secured
Party or its agents, whether for safekeeping, pledge,
custody, transmission, collection or otherwise, and
all of Borrower's deposits (general or special),
balances, sums, proceeds and credits with, and any of
its claims against, Secured Party, at any time
existing, together with the increases and profits
received therefrom and the proceeds thereof,
including insurance payable because of loss or damage
thereto and all "deposit accounts", as such term is
defined in the UCC;
(j) all books, records, files, computer programs, data
processing records, computer software, documents and
other information, property or general intangibles,
at any time evidencing, describing or pertaining to,
and all containers and packages for, the property
described or referred to in Subsections (a) through
(i) above (collectively, the "Books and Records");
(k) all accessories, attachments and other additions to,
substitutes and replacements for, and improvements
of, such property described or referred to in
Subsections (a) through (i) above, together with all
tools, parts and appurtenances now or at any time
used in connection therewith; and
(l) all products and proceeds (as defined in the UCC) of
any of the property described above in any form, and
all proceeds of such proceeds, including, without
limitation, all cash and credit balances, all
payments under any indemnity, warranty or guaranty
with respect to any of such property, all awards for
taking by eminent domain, all proceeds of fire or
other insurance, including any refunds of unearned
premiums in connection with any cancellation,
adjustment or termination of any insurance policy,
all proceeds obtained as a result of any legal action
or proceeding with respect to any of such property,
and claims by Borrower
- 4 -
<PAGE> 5
against third parties for loss or damage to, or
destruction of, any of such property;
to secure the payment of all of the present and future Obligations of Borrower.
3. Representations and Covenants of Borrower. Borrower
hereby represents and warrants to Secured Party, and covenants and agrees with
Secured Party, that:
(a) Borrower is and will remain a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois;
(b) Borrower has full corporate power and authority to
borrow money and obtain letters of credit from Secured Party and to grant to
Secured Party the security interest in the property hereby stated to be
granted;
(c) the officer(s) of Borrower executing this Agreement
have been duly elected and qualified and have been duly authorized and
empowered to execute, deliver and perform the terms of this Agreement on behalf
of Borrower;
(d) the execution, delivery and performance of this
Agreement by Borrower do not and will not violate any of the terms or
provisions of the Articles of Incorporation or By-Laws of Borrower;
(e) the execution, delivery and performance of this
Agreement by Borrower do not and will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to Borrower or the terms of any indenture,
agreement, document, instrument or undertaking to which Borrower is a party or
by which it is bound;
(f) Borrower's chief executive office and principal place
of business and the location of the only office where it keeps its Books and
Records is that given at the end of this Agreement and all other places of
business of Borrower are listed on Exhibit A attached hereto and incorporated
herein by reference; and Borrower's registered office in the Commonwealth of
Kentucky is located at 2525 Wayne Sullivan Drive, Paducah, Kentucky 42003;
(g) unless otherwise consented to in writing by Secured
Party, all of the Collateral (other than Inventory which is in the possession
of a lessee under a Lease) (i) is and will be kept solely at Borrower's
principal place of business or at one of the other locations of Borrower listed
on Exhibit A attached hereto and incorporated herein by reference (if mobile
equipment or equipment of a type normally used in more than one location,
remaining there
- 5 -
<PAGE> 6
when not in use), (ii) will not be attached or affixed in any manner to or
become a part of any real estate or other personal property apart from other
items of the Collateral and (iii) is in the exclusive possession and control of
Borrower;
(h) Borrower is, or, as to Collateral acquired after the
date hereof, will be, the sole and absolute owner of the Collateral, free and
clear of any and all liens, claims, security interests and encumbrances of any
kind or nature whatsoever other than the security interest granted hereby and
other Permitted Liens, and Borrower will defend the Collateral against all
claims and demands of all persons at any time claiming the same or any interest
therein;
(i) no financing statement (other than any filed on
behalf of Secured Party or any filed with respect to Permitted Liens) covering
any of the Collateral is or will be on file in any public office at any time
during the term of this Agreement;
(j) Borrower will not, without the prior written consent
of Secured Party, sell, transfer, lease or otherwise dispose of or offer to
dispose of any of the Collateral or any interest therein (other than Leases
entered into by Borrower in the ordinary course of its business and sales of
Inventory by Borrower in the ordinary course of its business);
(k) Borrower will at all times keep the Collateral
consisting of Inventory or Equipment or cause the Collateral consisting of
Inventory or Equipment to be kept in first class order and repair, excepting
any loss, damage or destruction which is fully covered by proceeds of
insurance, and will not use the Collateral or permit the Collateral to be used
in violation of any law, rule, regulation, ordinance or insurance policy;
(l) Borrower will pay promptly when due all taxes and
assessments on the Collateral or for its use or operation or upon this
Agreement or any of the Borrower's Obligations or with respect to the
perfection of any security interest or other lien hereunder (except as
otherwise provided by law);
(m) Borrower will at all times keep all of the Collateral
of an insurable nature insured or cause all of the Collateral of an insurable
nature to be insured against loss, damage, theft and other risks, in such
amounts, with such companies and under policies in such form, all as shall be
satisfactory to Secured Party. Such policies of insurance shall contain an
endorsement acceptable to Secured Party naming Secured Party as loss payee as
its interests may appear. Such endorsement, or an independent instrument
furnished to Secured Party, shall provide that the insurance companies will
give Secured Party at least thirty (30) days written notice before any such
policy or policies of insurance shall be amended or cancelled and that no act
or
- 6 -
<PAGE> 7
default of Borrower, any lessee under any Lease or any other person shall
affect the right of Secured Party to recover under such policy or policies of
insurance in the event of any loss of or damage to any of the Collateral.
Borrower hereby directs all insurers under such policies of insurance to pay
all proceeds payable thereunder directly to Secured Party as its interest may
appear. So long as no Event of Default under this Agreement and no event which
with the passage of time or the giving of notice or both would constitute an
Event of Default under this Agreement has occurred and is continuing, all
insurance proceeds received by Secured Party on account of any loss of or
damage to any of the Collateral involving a total claim of less than
$25,000.00, after deducting therefrom the reasonable charges and expenses paid
or incurred in connection with the collection and disbursement of said
proceeds, may, at the option of Borrower, either be used and applied for the
sole purpose of paying the cost of repair, restoration or replacement of the
Collateral damaged or destroyed, or be applied to the payment of the Borrower's
Obligations in such order and manner as Secured Party may elect. All insurance
proceeds received by Secured Party on account of any loss of or damage to any
of the Collateral involving a total claim in an amount equal to or in excess of
$25,000.00, after deducting therefrom the reasonable charges and expenses paid
or incurred in connection with the collection and disbursement of said
proceeds, shall be applied to the payment of the Borrower's Obligations in such
order and manner as Secured Party may elect unless otherwise consented to in
writing by Secured Party. If any Event of Default under this Agreement or any
event which with the passage of time or the giving of notice or both would
constitute an Event of Default under this Agreement has occurred and is
continuing, all insurance proceeds received or held by Secured Party on account
of any loss of or damage to any of the Collateral, after deducting therefrom
the reasonable charges and expenses paid or incurred in connection with the
collection and disbursement of said proceeds, shall be applied to the payment
of the Borrower's Obligations in such order and manner as Secured Party may
elect unless otherwise consented to in writing by Secured Party. Borrower
irrevocably makes, constitutes and appoints Secured Party (and all officers,
employees or agents designated by Secured Party) as Borrower's true and lawful
attorney (and agent-in-fact) for the purpose of making, settling and adjusting
claims under such policies of insurance, endorsing the name of Borrower on any
check, draft, instrument or other item of payment of the proceeds of such
policies of insurance and for making all determinations and decisions with
respect to such policies of insurance. In the event Borrower at any time or
times hereafter shall fail to obtain or maintain any of the policies of
insurance required above or to pay any premium in whole or in part relating
thereto, then Secured Party, without waiving or releasing any obligation or
default by Borrower hereunder, may at any time or times thereafter (but shall
be under no obligation to do so) obtain and maintain such policies of insurance
and pay such premium and take any other action with respect thereto which
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<PAGE> 8
Secured Party deems advisable. All sums so disbursed by Secured Party,
including, without limitation, reasonable attorneys' fees, court costs,
expenses and other charges relating thereto, shall be part of the Borrower's
Obligations, payable by Borrower to Secured Party on demand;
(n) Borrower will permit Secured Party to examine,
inspect and/or audit the Collateral or any part thereof, wherever located, at
any reasonable time or times;
(o) Borrower will not (i) change the location of its
principal place of business and chief executive office, (ii) change the
location of any of its other places of business, (iii) establish any additional
places of business, (iv) change its registered office in the Commonwealth of
Kentucky, (v) change the location of any of its Books and Records, unless (A)
such office or location is located within the continental United States of
America and (B) Borrower gives Secured Party thirty (30) days prior written
notice of the same, and, prior to making any such change or establishing any
such new location, Borrower agrees to execute or obtain any and all additional
Uniform Commercial Code financing statements, mortgagee waivers, bailee
waivers, landlord waivers, warehousemen waivers and other documents or notices
as may be required by Secured Party;
(p) as of the date of this Agreement, none of the
Collateral (including, without limitation, none of the Collateral which is in
the possession of a lessee under a Lease) is situated at any location other
than (A) Borrower's principal place of business, (B) one of the other locations
of Borrower listed on Exhibit A attached hereto and incorporated herein by
reference or (C) one of the jurisdictions listed on Exhibit B attached hereto
and incorporated herein by reference; provided, however, that it shall not be a
breach of this representation and warranty if (1) the aggregate fair market
value of all of the Collateral not so located does not exceed the sum of
$200,000.00 and (2) Borrower does not now have notice or actual knowledge that
any of the Collateral is not so located. Borrower will, within five (5) days
after the date thereof, notify Secured Party in writing of any Collateral
(including, without limitation, any Collateral which is in the possession of a
lessee under a Lease) which is or becomes located at any location other than
(A) Borrower's principal place of business, (B) one of the other locations of
Borrower listed on Exhibit A attached hereto and incorporated herein by
reference or (C) one of the jurisdictions listed on Exhibit B attached hereto
and incorporated herein by reference; provided, however, that Borrower's
failure to comply with the provisions of this sentence shall not constitute an
Event of Default under this Agreement if (1) the aggregate fair market value of
all Collateral so located and with respect to which Borrower has not timely
given Secured Party the required notice does not exceed the sum of $200,000.00
and (2) Borrower gives Secured Party the required notice within
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<PAGE> 9
five (5) days after Borrower obtains notice or actual knowledge of any
Collateral being so located;
(q) if any Event of Default under this Agreement or any
event which with the passage of time or the giving of notice or both would
constitute an Event of Default under this Agreement has occurred and is
continuing, if requested by Secured Party, Borrower will immediately (i)
conspicuously mark each original of each Lease with the following legend "THIS
LEASE HAS BEEN ASSIGNED BY FALCONITE, INC. TO CITIZENS BANK & TRUST COMPANY OF
PADUCAH, PURSUANT TO A SECURITY AGREEMENT DATED OCTOBER 5, 1995" and deliver a
copy of each Lease (as so marked) to Secured Party and/or (ii) deliver
possession of all originals of each of the Leases to Secured Party, as
requested by Secured Party;
(r) if any Event of Default under this Agreement or any
event which with the passage of time or the giving of notice or both would
constitute an Event of Default under this Agreement has occurred and is
continuing, if requested by Secured Party, Borrower will immediately assign to
Secured Party (pursuant to Uniform Commercial Code assignments in recordable
form) all Uniform Commercial Code financing statements relating to Inventory
which is subject to a Lease and which have been signed by the lessee(s), as
debtor(s), in favor of Borrower, as secured party;
(s) if any of the Accounts is evidenced by a promissory
note or other Instrument, Borrower will, unless Secured Party otherwise agrees
in writing, endorse such promissory note or other Instrument "Pay to the order
of Citizens Bank & Trust Company of Paducah" and deliver the original(s) of
such promissory note or other Instrument to Secured Party;
(t) Borrower will from time to time, at its own expense,
execute, deliver and file such Uniform Commercial Code financing and
continuation statements and such amendments thereto and such other agreements,
documents and instruments and do such other acts and things as may be necessary
or as Secured Party may from time to time request, to establish and maintain a
valid and perfected first priority security interest in the Collateral in favor
of Secured Party (subject only to Permitted Liens) to secure the payment of the
Borrower's Obligations, including, without limitation, the execution and filing
of applications for certificates of title naming Secured Party as first
lienholder and the delivery of the originals of such certificates of title to
Secured Party. Borrower hereby authorizes Secured Party to file one or more
Uniform Commercial Code financing or continuation statements or amendments
thereto relating to all or any part of the Collateral without the signature of
Borrower where permitted by law; provided, however, that nothing in this
Agreement shall relieve Borrower of its obligation to file all necessary
Uniform Commercial Code financing and continuation statements and amendments
thereto in order to
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<PAGE> 10
perfect and protect the security interest granted to Secured Party under this
Agreement;
(u) Borrower will reimburse Secured Party upon demand for
(A) all costs and expenses incident to perfecting, maintaining or terminating
the security interest granted hereby, including filing and recording fees, fees
for obtaining and transferring certificates of title and all taxes and legal
and other out-of-pocket fees and expenses paid or incurred by Secured Party in
connection with any of the foregoing and (B) all costs and expenses, including,
without limitation, reasonable attorneys' fees and expenses, incurred by
Secured Party in seeking to collect or enforce any rights under this Agreement
or incurred by Secured Party in seeking to collect or enforce any of the
Borrower's Obligations;
(v) Borrower does not now and will not any time during
the term of this Agreement conduct business under any fictitious business name
or trade name;
(w) Borrower will from time to time, as Secured Party may
request, prepare and deliver to Secured Party at Borrower's expense (i)
schedules identifying each Account and each Lease and (ii) such additional
schedules, certificates, test verifications and reports respecting the
Collateral, the Leases and the proceeds thereof as Secured Party may request.
Any such schedule, certificate or report shall be executed by a duly authorized
officer of Borrower and shall be in such form and detail as Secured Party may
specify. Any such schedule identifying any Account shall be accompanied (if
Secured Party so requests) by the originals or true and correct copies (as
Secured Party requests) of the invoice and other documents evidencing such
Account and evidence of shipment or performance;
(x) based on the locations of Borrower's offices and
places of business and the location of the Collateral (including, without
limitation, any Collateral which is in the possession of a lessee under a
Lease), Exhibit C attached hereto and incorporated herein by reference sets
forth a complete list of all of the offices where Uniform Commercial Code
financing statements must be filed in order to perfect the Secured Party's
security interest in the Collateral to the extent such security interest can be
perfected by the filing of Uniform Commercial Code financing statements under
the Uniform Commercial Codes of the applicable states;
(y) as of the date hereof, the fair market value of all of the
Collateral located in the State of Tennessee does not exceed Seven Percent
(7.0%) of the total fair market value of all of the Collateral. Borrower will
not, without the prior written consent of Secured Party (which consent shall
not be unreasonably withheld) permit the fair market value of all of the
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<PAGE> 11
Collateral located in the State of Tennessee to at any time exceed Seven
Percent (7.0%) of the total fair market value of all of the Collateral;
(z) there has been no change in the name of Debtor, or
the name under which Debtor conducts its business, within the five (5) years
preceding the date of execution of this Agreement. Borrower will give Secured
Party thirty (30) days' advance written notice prior to changing its name and,
prior to making any such change, Borrower agrees to execute and/or obtain any
and all additional financing statements and other documents or notices as may
be required by Secured Party; and
(aa) Borrower will not use the Collateral illegally and,
whenever any of the Collateral includes obligations of third parties to
Borrower, such Collateral shall conform to the requirements of all applicable
federal and state consumer credit and/or leasing laws and other applicable laws
and Borrower shall hold Secured Party harmless and indemnify Secured Party for
any costs, losses or expenses incurred by Secured Party, including, without
limitation, attorneys' fees and expenses, arising from any illegality in
connection with the Collateral.
4. Assignment of Leases. (a) Borrower hereby assigns,
transfers and sets over unto Secured Party all of Borrower's now owned and/or
hereafter acquired right, title and interest in, to and under any and all
present and future leases agreements and rental agreements under which Borrower
is the lessor (hereinafter individually referred to as a "Lease" and
collectively referred to as the "Leases"). From and after the occurrence of
any Event of Default under this Agreement, (i) Secured Party shall have the
immediate and exclusive right to (A) notify the lessee(s) under the Leases that
the Leases have been assigned to Secured Party and to receive and collect all
rents and other sums payable to or receivable by Borrower from the lessee(s)
under or pursuant to the provisions of the Leases, whether as rent, late fees,
interest, casualty payments, indemnity payments, liquidated or unliquidated
damages or otherwise (such moneys being hereinafter collectively referred to as
the "Lease Payments") and (B) receive possession of the Inventory subject to
the Leases upon the expiration, termination or cancellation of the Leases and
(ii) Secured Party shall have the immediate and exclusive right to make all
agreements, grant all waivers, give all notices, consents and releases, take
all actions upon the occurrence of any default or event of default under any of
the Leases and to do any and all other acts and things whatsoever which
Borrower is or may become entitled to do under the Leases, including, without
limitation, the right, power, privilege and authority to (A) enforce payment of
any and all sums of money payable under or with respect to the Leases, (B)
enforce the due and prompt performance by any Person obligated to Borrower of
each and every term, provision, covenant and condition contained in the Leases,
(C) institute any suit, action
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<PAGE> 12
or other proceeding at law or in equity to enforce the Leases and (D) enforce
any right or remedy which Borrower has or may have or be entitled to under the
provisions of the Leases.
(b) This Agreement shall not transfer to or impose upon
Secured Party or subject Secured Party to any of the obligations, duties,
warranties, covenants, undertakings or liabilities of Borrower to any person
under the terms of any of the Leases, and this Agreement shall not affect,
modify, relieve or release Borrower from any of its obligations, duties,
warranties, covenants, undertakings and/or liabilities under the terms of any
of the Leases, it being understood that, notwithstanding this Agreement, all of
such obligations, duties, warranties, covenants, undertakings and liabilities
of Borrower under or with respect to the Leases shall be and remain enforceable
by the parties thereto against, and only against, Borrower and not against
Secured Party, it being further understood that this Agreement is executed as
security for the Borrower's Obligations, and that Secured Party has not assumed
and shall not be deemed to have assumed any of the Leases or any obligation,
duty or liability of Borrower thereunder.
(c) Borrower agrees that this assignment is irrevocable,
and Borrower will not, while this assignment is in effect, assign any of the
present or future rentals or other payments, revenues or income under any of
the Leases to any other Person; and any such assignment inconsistent herewith
shall be void. Borrower covenants and agrees to perform all of its obligations
and duties under the Leases and to pay all expenses of collecting all sums due
Borrower under the Leases whether incurred by Borrower or Secured Party.
(d) The costs of collection and enforcement of the
Leases, including, without limitation, attorneys' fees and expenses, shall be
borne solely by Borrower whether the same are incurred by Secured Party or by
Borrower. Borrower will keep and maintain at its expense satisfactory and
complete records of the Leases, including, without limitation, a record of all
payments received, all credits granted thereon and all other dealings
therewith.
5. Collection, Preservation and Disposition of
Collateral.
(a) So long as no Event of Default under this Agreement
and no event which with the passage of time or the giving of notice or both
would constitute an Event of Default under this Agreement has occurred and is
continuing, Borrower may have possession of the Equipment and use the same in
any lawful manner not inconsistent with this Agreement or any policy of
insurance covering any of the Equipment.
(b) So long as no Event of Default under this Agreement
and no event which with the passage of time or the giving of notice
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<PAGE> 13
or both would constitute an Event of Default under this Agreement has occurred
and is continuing, Borrower may, in the ordinary course of its business, at its
own expense, sell, lease or furnish under contracts for service any of the
Inventory normally held by Borrower for such purpose, and use and consume, in
the ordinary course of its business, any raw materials, work in process or
materials normally held by Borrower for such purpose.
(c) Borrower covenants and agrees to, at its own expense,
use its best efforts to collect, as and when due, all amounts due with respect
to Accounts and Lease Payments.
(d) So long as no Event of Default under this Agreement
and no event which with the passage of time or the giving of notice or both
would constitute an Event of Default under this Agreement has occurred and is
continuing, Borrower may grant, in the ordinary course of business, to any
party obligated on any Account or any Lease Payment (an "Account Debtor"), any
rebate, refund or allowance to which such party may be lawfully entitled, and
may accept, in connection therewith, the return of goods, the sale or lease of
which shall have given rise to such Account or Lease Payment. From and after
the occurrence of any Event of Default under this Agreement, Secured Party may
notify any Account Debtor to make payment to Secured Party (or to a lock box or
bank account controlled by Secured Party) of all amounts due or to become due
under any Account or Lease Payment and enforce collection of any of the
Accounts and/or Lease Payments by suit or otherwise and surrender, release or
exchange all or any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby, all without releasing Borrower from any of its
obligations to Secured Party. Upon request of Secured Party (which request may
be made only after the occurrence of an Event of Default under this Agreement),
Borrower will, at its own expense, notify each Account Debtor to make payment
to Secured Party (or to a lock box or bank account controlled by Secured Party,
as directed by Secured Party) of any amounts due or to become due under all
Accounts and Lease Payments.
(e) Borrower covenants and agrees to forthwith upon
receipt deposit into Borrower's Operating Account at Secured Party in precisely
the form received all cash, checks, drafts, chattel paper and other instruments
or writings for the payment of money (properly endorsed, where required) which
may be received by Borrower at any time in full or partial payment or otherwise
as proceeds of any of the Collateral (including, without limitation, all
collections of Accounts and/or Lease Payments).
6. Additional Actions by Secured Party. Secured Party,
at its option, may from time to time perform any agreement of Borrower
hereunder which Borrower shall fail to perform and take any other action which
Secured Party deems necessary for the
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<PAGE> 14
maintenance or preservation of any of the Collateral or its interest therein
(including, without limitation, the discharge of taxes or liens of any kind
against the Collateral or the procurement of insurance or the payment of
warehousing charges, landlord's bills or other charges), and Borrower agrees to
forthwith reimburse Secured Party for all costs and expenses incurred by
Secured Party in connection with the foregoing, together with interest thereon
at a rate per annum equal to the lesser of Two Percent (2%) over and above the
Prime Rate (as defined in the Loan Agreement) (which interest rate shall
fluctuate as and when said Prime Rate shall change) or the highest rate allowed
by law from the date incurred until reimbursed by Borrower. Secured Party may
for the foregoing purposes act in its own name or that of Borrower and may also
so act for the purposes of adjusting, settling or cancelling any policy of
insurance on the Collateral or endorsing any draft received in connection
therewith, in payment of a loss or otherwise, for all of which purposes
Borrower hereby grants to Secured Party its power of attorney, irrevocable
during the term of this Agreement.
7. Defaults. The occurrence of any of the following
events or conditions shall constitute an "Event of Default" hereunder: (a)
non-payment of any principal of, interest on or other amount with respect to
any of the Borrower's Obligations as and when the same shall become due and
payable, whether by reason of demand, maturity, acceleration or otherwise; (b)
default by Borrower in the due performance or observance of any of the terms,
provisions, covenants or agreements contained in Sections 3(g), 3(h), 3(i),
3(j), 3(m), 3(n), 3(o), 3(p), 3(q), 3(r), 3(t), 3(v), 3(w), 3(z), 3(aa) or 4(c)
of this Agreement; (c) default by Borrower in the due performance or observance
of any of the other terms, provisions, covenants or agreements contained in
this Agreement and any such default shall remain unremedied for ten (10) days
after the earlier of (i) written notice of default is given to Borrower by
Secured Party or (ii) an officer of Borrower obtaining knowledge of such
default; (d) any representation or warranty made by Borrower in this Agreement
shall prove to be untrue or incorrect in any material respect; or (e) any
"Event of Default" (as defined therein) shall occur under or within the meaning
of the Loan Agreement.
8. Remedies. Upon the occurrence of any Event of
Default: (a) notwithstanding any provision contained in the Loan Agreement or
any of the other Loan Documents to the contrary, Secured Party may, at its
option, declare that the obligation of Secured Party to make Loans under the
Loan Agreement and/or to issue Letters of Credit under the Loan Agreement have
terminated, whereupon such obligations of Secured Party shall be immediately
and forthwith terminated, and Secured Party may, at its option, declare the
entire outstanding principal balance of and all accrued and unpaid interest on
the Notes and all of the other Loans under the Loan Agreement and all of the
other Borrower's Obligations to
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<PAGE> 15
be forthwith due and payable, whereupon all of the unpaid principal balance of
and all accrued and unpaid interest on the Notes and all of the other Loans
under the Loan Agreement and all such other Borrower's Obligations shall become
and be immediately due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower; (b) whether or not any or all of the Borrower's Obligations are
declared to be forthwith due and payable, Secured Party shall have the right to
take immediate possession of the Collateral covered hereby, and, for that
purpose may pursue the same wherever said Collateral may be found, and may
enter upon any of the premises of Borrower with or without force or process of
law, wherever said Collateral may be or may be supposed to be, and search for
the same, and, if found, take possession of and remove and sell and dispose of
said Collateral, or any part thereof; (c) Secured Party may, at its option,
notify any lessee under any Lease and any Account Debtor with respect to any
Account to make all payments of rent and other amounts under the Leases and the
Accounts directly to Secured Party and demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose and realize on the Leases and the
Accounts and all amounts due under the Leases and the Accounts as Secured Party
may determine; (d) Secured Party may, at its option, exercise such of the other
rights and remedies accruing to a secured party under the Uniform Commercial
Code of the relevant state or states and any other applicable law upon default
by a debtor as Secured Party may elect; and (e) Secured Party may, at its
option, enter, with or without process of law and without breach of the peace,
any premises where the Books and Records of Borrower are or may be located, and
without charge or liability on the part of Secured Party therefor seize and
remove said Books and Records from said premises or remain upon said premises
and use the same for the purpose of collecting, preparing and disposing of the
Collateral and/or for the purpose of identifying and locating any of the
Collateral. Borrower shall, upon Secured Party's request, assemble the
Collateral and make the Collateral available to Secured Party at any place
designated by Secured Party which is reasonably convenient to Borrower.
9. Foreclosure. Foreclosure on the Collateral covered
hereby may be had at public or private sale or sales, disposing of such portion
or portions of the Collateral at each such sale, for cash or on credit, on such
terms, at such place or places, and with or without the Collateral being
present at such sale, all as Secured Party in its sole and absolute discretion
shall determine from time to time. In the case of public sale, notice thereof
shall be deemed and held to be adequate and reasonable if such notice shall
appear three (3) times in a newspaper published in the City or County wherein
the sale is to be held, the first such publication being at least ten (10) days
before such sale and the last such publication being not more than three (3)
days before such sale. In the case of a private sale, notice thereof shall be
deemed and held to be adequate and reasonable if such notice shall
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<PAGE> 16
be mailed to Borrower at its last known address at least ten (10) days before
such sale. The enumeration of these methods of notice shall not be deemed or
construed to render unreasonable any other method of notice which would
otherwise be reasonable under the circumstances.
10. Application of Proceeds and Deficiency. Secured
Party may apply the net proceeds of any sale, lease or other disposition of any
of the Collateral or of any other collection of the proceeds of any of the
Collateral, after deducting all costs and expenses of every kind incurred
therein or incidental to the retaking, holding, preparing for sale, selling,
leasing or the like of the Collateral on Borrower's premises, or elsewhere, or
in any way related to Secured Party's rights hereunder (including, without
limitation, attorneys' fees and expenses, court costs, bonds and other legal
expenses, insurance, security guard and alarm expenses incurred in connection
with the holding of the Collateral, advertisements of sale of the Collateral,
and rental and utilities expense on the premises or elsewhere in connection
with storage and sale of the Collateral) to the payment, in whole or in part,
of the Borrower's Obligations, whether due or not due, absolute or contingent,
and only after payment by Secured Party of any other amounts required by any
existing or future provision of law (including Section 9-504(1)(c) of the
Uniform Commercial Code or any comparable statutory provision of any
jurisdiction in which any of the Collateral may at the time be located) need
Secured Party account to Borrower for the surplus, if any. The proceeds of any
sale(s), lease(s) or other disposition(s) of any of the Collateral and/or of
any collection(s) of any of the Collateral shall be applied by Secured Party to
the payment or prepayment of the Borrower's Obligations in such order and
manner as Secured Party may elect; and any surplus remaining after the payment
of all of the Borrower's Obligations in full shall be paid to Borrower or to
whomsoever may be lawfully entitled thereto. Borrower shall remain liable to
Secured Party for the payment of any deficiency, with interest.
11. Secured Party's Care of Collateral. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if it takes such action for
that purpose as Borrower requests in writing, but failure of the Secured Party
to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care, and no failure of Secured Party to preserve or
protect any rights with respect to such Collateral against prior parties, or to
do any act with respect to the preservation of such Collateral not so requested
by Borrower, shall be deemed a failure to exercise reasonable care in the
custody or preservation of such Collateral.
12. Amendments; Waivers; Remedies Cumulative. No delay
on the part of Secured Party in the exercise of any right hereunder shall
operate as a waiver thereof and no single or partial exercise
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<PAGE> 17
by Secured Party of any right shall preclude other or further exercise thereof
or the exercise of any other right. Each and every right granted to Secured
Party hereunder, under the Loan Agreement and under the other Loan Documents,
or at law or in equity, shall be deemed cumulative and may be exercised from
time to time. Secured Party shall not by any act, delay, omission or otherwise
be deemed to have waived any of its rights or remedies hereunder and no waiver
whatsoever shall be valid unless in writing and signed by Secured Party, and
then only to the extent therein set forth. A waiver by Secured Party of any
right or remedy hereunder on any one occasion shall not be construed as a bar
to any right or remedy which Secured Party would otherwise have on any future
occasion. This Agreement may not be amended except by a writing duly signed by
Borrower and Secured Party. The headings of the paragraphs hereof shall not be
considered in the construction or interpretation of this Agreement.
13. Durable Power of Attorney. Borrower hereby makes,
constitutes and appoints Secured Party the true and lawful agent and
attorney-in-fact of Borrower with full power of substitution (a) if an Event of
Default has occurred, to receive, open and dispose of all mail addressed to
Borrower relating to the Collateral, (b) if an Event of Default has occurred,
to notify and direct the United States Post Office authorities by notice given
in the name of Borrower and to sign on behalf of Borrower, to change the
address for delivery of all mail addressed to Borrower relating to the
Collateral to an address to be designated by Secured Party, and to cause such
mail to be delivered to such designated address where Secured Party may open
all such mail and remove therefrom any notes, checks, acceptances, drafts,
money orders or other instruments included in the Collateral in which Secured
Party has a security interest under the terms of this Agreement, with full
power to endorse the name of Borrower upon any such notes, checks, acceptances,
drafts, money orders, instruments or other documents relating to the Collateral
or security of any kind and to effect the deposit and collection thereof, and
Secured Party shall have the further right and power to endorse the name of
Borrower on any documents relating to the Collateral, (c) to sign the name of
Borrower to drafts against its lessees or other debtors, to notices to such
lessees or other debtors, to assignments and notices of assignments, financing
statements or other public records or notices and all other instruments and
documents, (d) to do any and all things necessary and take such actions in the
name and on behalf of Borrower to carry out the intent of this Agreement,
including, without limitation, the grant of the security interest granted under
this Agreement and to perfect and protect the security interest granted to
Secured Party in respect to the Collateral and Secured Party's rights created
under this Agreement. Borrower agrees that neither Secured Party nor any of
its agents, designees or attorneys-in-fact will be liable for any acts of
commission or omission (other than for acts of commission or omission which
constitute gross negligence or willful misconduct as
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<PAGE> 18
determined by a court of competent jurisdiction in a final, nonappealable
order), or for any error of judgment or mistake of fact or law in respect to
the exercise of the power of attorney granted under this Section. The power of
attorney granted under this Section shall be irrevocable during the term of
this Agreement.
14. Notices. All notices provided for in this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or when deposited in the United States mail, registered or certified
mail, return receipt requested and postage prepaid, addressed as follows, or to
such other address as may hereafter be designated in writing by the respective
parties hereto: if to Secured Party to 333 Broadway, Paducah, Kentucky 42001,
Attention: Commercial Lending Department, and if to Borrower, to the address of
the principal place of business of Borrower listed at the end of this
Agreement.
15. Applicable Law and Severability. It is the intention
of the parties hereto that this Agreement is entered into pursuant to the
provisions of the UCC. Any applicable provisions of the UCC, not specifically
included herein, shall be deemed a part of this Agreement in the same manner as
if set forth herein at length; and any provisions of this Agreement that might
in any manner be in conflict with any provision of the UCC shall be deemed to
be modified so as not to be inconsistent with the UCC. In all respects this
Agreement and all transactions, assignments and transfers hereunder, and all
the rights of the parties, shall be governed as to validity, construction,
enforcement and in all other respects by the laws of the Commonwealth of
Kentucky (without reference to conflict of law principles). To the extent any
provision of this Agreement is not enforceable under applicable law, such
provision shall be deemed null and void and shall have no effect on the
remaining portions of this Agreement.
16. Successors and Assigns; Other Borrower's Obligations;
Duration of Security Interest. This Agreement shall be binding upon and inure
to the benefit of Borrower and Secured Party and their respective successors
and assigns; provided, however, that Borrower may not assign any of its rights
or delegate any of its obligations under this Agreement. This Agreement shall
continue in full force and effect and the security interest granted hereby and
all of the representations, warranties, covenants and agreements of Borrower
hereunder and all of the terms, conditions and provisions hereof relating
thereto shall continue to be fully operative until such time as (a) Borrower
shall have paid or caused to be paid, or otherwise discharged, all of the
Borrower's Obligations, (b) no Letters of Credit shall be outstanding and (c)
there shall be no remaining commitment or obligation of Secured Party to
advance funds or make loans to Borrower or to issue letters of credit for the
account of Borrower under the Loan Agreement or any of the other Loan
Documents. Borrower expressly
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<PAGE> 19
agrees that to the extent a payment or payments to Secured Party, or any part
thereof, are subsequently invalidated, declared to be void or voidable or set
aside and are required to be repaid to a trustee, custodian, receiver or any
other party under any bankruptcy act, state or federal law, common law or
equitable cause, then to the extent of such payment or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
17. Consent to Jurisdiction; Waiver of Jury Trial.
BORROWER IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY KENTUCKY
STATE COURT OR ANY UNITED STATES OF AMERICA COURT SITTING IN THE WESTERN
DISTRICT OF KENTUCKY (PADUCAH DIVISION), AS SECURED PARTY MAY ELECT, IN ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT TO SUCH SUIT,
ACTION OR PROCEEDING MAY BE HELD AND DETERMINED IN ANY OF SUCH COURTS.
BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH BORROWER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND BORROWER
FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. BORROWER
HEREBY EXPRESSLY WAIVES ALL RIGHTS OF ANY OTHER JURISDICTION WHICH BORROWER MAY
NOW OR HEREAFTER HAVE BY REASON OF ITS PRESENT OR SUBSEQUENT DOMICILES.
BORROWER AUTHORIZES THE SERVICE OF PROCESS UPON BORROWER BY REGISTERED MAIL
SENT TO BORROWER AT ITS ADDRESS REFERRED TO IN SECTION 14. BORROWER AND
SECURED PARTY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
ACTION IN WHICH BORROWER AND SECURED PARTY ARE PARTIES RELATING TO OR ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
IN THE EVENT ANY OF THE BORROWER'S OBLIGATIONS SECURED HEREBY ARE PAYABLE ON
DEMAND, NEITHER THIS AGREEMENT NOR ANYTHING CONTAINED HEREIN SHALL BE DEEMED TO
ALTER OR IMPINGE UPON THE DEMAND CHARACTER OF SUCH OBLIGATION.
- 19 -
<PAGE> 20
IN WITNESS WHEREOF, Borrower has executed this Security
Agreement this 5th day of October, 1995.
<TABLE>
<S><C>
FALCONITE, INC. (Borrower)
By: /s/ Michael A. Falconite
-------------------------------------------------------------------
Name: Michael A. Falconite
-----------------------------------------------------------------
Title: President
----------------------------------------------------------------
Address of Principal Place of Business and Chief Executive Office of
Borrower and Location of Books and Records of Borrower:
2525 Wayne Sullivan Drive
Paducah, Kentucky 42003
</TABLE>
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<PAGE> 1
EXHIBIT 10.17
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS REVOLVING CREDIT AND TERM LOAN AGREEMENT (this
"Agreement") is made and entered into this 5th day of October, 1995, by and
between FALCONITE, INC., an Illinois corporation whose address is 2525 Wayne
Sullivan Drive, Paducah, Kentucky 42003 (the "Borrower"), and CITIZENS BANK &
TRUST COMPANY OF PADUCAH, whose address is 333 Broadway, Paducah, Kentucky
42001 (the "Lender").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender provide Borrower
with a revolving credit facility and a term loan facility and Lender is willing
to provide such facilities to Borrower upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other valuable consideration, Borrower and Lender hereby
agree as follows:
ARTICLE I
DEFINITION OF TERMS
Section 1.01. Definitions. For the purposes of this
Agreement, unless the context otherwise requires, the following terms shall
have the respective meanings assigned to them in this Article I or in the
section or recital referred to below:
"Account Debtor" shall mean any Person who is and/or may
become obligated to Borrower under or on account of any of the Accounts of the
Borrower.
"Accounts" shall have the meaning assigned to such term in the UCC.
"Adjusted Net Income" shall mean, with respect to any period,
net earnings (after income taxes) of Borrower for such period, determined in
accordance with Generally Accepted Accounting Principles, but excluding (i) any
gain or loss arising from the sale of capital assets, (ii) any gain arising
from any write-up of assets and (iii) any gain arising from the acquisition of
any securities of Borrower.
"Affiliate" of any Person shall mean any other Person (i)
which directly or indirectly (through one or more intermediaries), controls, is
controlled by or is under common control with, such Person, (ii) which directly
or indirectly (through one or more intermediaries), beneficially owns or holds
or has the power to direct the voting power of Five Percent (5%) or more of any
class of capital stock (or other equity interests) of such Person, (iii) which
directly or indirectly (through one or more intermediaries), has Five Percent
(5%) or more of any class of capital stock (or, in the case of a Person that is
not a corporation, Five Percent (5%)
<PAGE> 2
or more of its equity interest) beneficially owned or held by, such Person or
(iv) who is a shareholder, director, officer, employee or agent of such Person.
For the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise.
"Agreement" shall have the meaning assigned to such term in
the preamble hereof.
"Borrower" shall have the meaning assigned to such term in
the preamble hereof.
"Borrower's Operating Account" shall have the meaning assigned
to such term in Section 2.02(a).
"Borrowing Base" shall mean, as of any date, the sum of (i)
the lesser of (A) Sixty-Five Percent (65%) of the aggregate face amount of
Eligible Accounts of Borrower or (B) One Million Two Hundred Thousand Dollars
($1,200,000.00), plus (ii) Eighty Percent (80%) of the aggregate value of all
Eligible Inventory of Borrower minus (iii) the then outstanding principal
balance of the Term Note. Lender retains the right in its sole discretion to
reduce the allowable percentage of the Eligible Accounts and Eligible Inventory
(the "Eligible Collateral") to be used in calculating the Borrowing Base based
upon (i) the Eligible Collateral changing in character (i.e., type or category)
from the Eligible Collateral originally presented to and agreed upon between
Borrower and Lender prior to signing this Agreement and/or (ii) the present or
projected operating or financial condition of Borrower.
"Borrowing Base Certificate" shall have the meaning assigned
to such term in Section 8.01(c).
"Business Day" shall mean a day on which Lender is open for
business in the Commonwealth of Kentucky.
"Capital Expenditure" shall mean any expenditure by a Person
for an asset which will be used in a year or years subsequent to the year in
which the expenditure is made and which asset is properly classifiable in
relevant financial statements of such Person as equipment, real property or
improvements, fixed assets or a similar type of capitalized asset in accordance
with Generally Accepted Accounting Principles.
"Capital Lease" shall mean, as of any date, any lease of
property, real or personal, which would be capitalized on a balance sheet of
the lessee prepared as of such date in accordance with Generally Accepted
Accounting Principles, together with any other
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<PAGE> 3
lease by such lessee which is in substance a financing lease, including,
without limitation, any lease under which (i) such lessee has or will have an
option to purchase the property subject thereto at a nominal amount or an
amount less than a reasonable estimate of the fair market value of such
property as of the date such lease is entered into or (ii) the term of the
lease approximates or exceeds the expected useful life of the property leased
thereunder.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of the Code shall be construed to also refer to any
successor sections.
"Commitment Period" shall mean the period beginning on the
date hereof and ending on the earlier of (i) the Commitment Termination Date or
(ii) the date on which Lender terminates its Revolving Credit Commitment after
the occurrence of an Event of Default.
"Commitment Termination Date" shall mean June 30, 1996, or, if
such date is not a Business Day, the Business Day next preceding such date.
"Consolidated Tangible Net Worth" shall mean, as of any date,
the total shareholder's equity (including capital stock, additional paid-in
capital and retained earnings after deducting treasury stock) which would
appear on a consolidated balance sheet of Borrower and its Subsidiaries
prepared as of such date in accordance with Generally Accepted Accounting
Principles, minus the aggregate book value of Intangible Assets shown on such
balance sheet plus the aggregate principal amount of Subordinated Indebtedness
of Borrower shown on such balance sheet.
"Continuing Guaranty" shall mean that certain Continuing
Guaranty dated the date hereof and executed by the Guarantors in favor of
Lender (an unexecuted copy of which is attached hereto as Exhibit F), as the
same may from time to time be amended, modified, extended or renewed.
"Controlled Group" shall mean (i) the controlled group of
corporations as defined in Section 1563 of the Code or (ii) the group of trades
or businesses under common control as defined in Section 414(c) of the Code, of
which Borrower is a part or may become a part.
"Current Assets" shall mean, as of any date, the current
assets which would be reflected on a balance sheet of Borrower prepared as of
such date in accordance with Generally Accepted Accounting Principles, and
including in any event the net book value of all Inventory of Borrower.
- 3 -
<PAGE> 4
"Current Liabilities" shall mean, as of any date, the current
liabilities which would be reflected on a balance sheet of Borrower prepared as
of such date in accordance with Generally Accepted Accounting Principles, but
excluding the balloon payment on the Term Note which is due on the Maturity
Date.
"Current Maturities of Debt" shall mean, for any period, the
aggregate current portion of all principal payments required, scheduled or
anticipated to be made during such period on account of all Debt (other than
principal payments on the Revolving Credit Loans and the balloon payment on the
Term Note which is due on the Maturity Date) which would be reflected on a
balance sheet of Borrower prepared as of any date in accordance with Generally
Accepted Accounting Principles.
"Debt" of Borrower shall mean, as of the date of determination
thereof, the sum of (i) all Indebtedness of Borrower for borrowed money or
which has been incurred in connection with the purchase or other acquisition of
property or assets, plus (ii) all Capital Lease obligations of Borrower plus
(iii) all Guaranties by Borrower of Debt of others.
"Debtor Laws" shall mean all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization or similar laws from time to time in effect affecting the rights
of creditors generally.
"Default" shall mean any of the events specified in Article X,
regardless of whether there shall have occurred any passage of time or giving
of notice or both that would be necessary in order to constitute such event an
Event of Default.
"Dividends", in respect of any corporation, shall mean (i)
cash distributions or any other distributions on, or in respect of, any class
of capital stock of such corporation, except for distributions made solely in
shares of stock of the same class and (ii) any and all funds, cash or other
payments made in respect of the redemption, repurchase or acquisition of such
stock, unless such stock shall be redeemed or acquired through the exchange of
such stock with stock of the same class.
"Dollars" and the sign "$" shall refer to currency of the
United States of America.
"Eligible Accounts" shall mean, at the time of any
determination thereof, each Account as to which the following requirements have
been fulfilled to the reasonable satisfaction of Lender:
(i) Borrower has lawful and absolute title to such Account;
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<PAGE> 5
(ii) such Account arose from a transaction in the ordinary
course of business of Borrower;
(iii) such Account is a valid, legally enforceable obligation
of the Account Debtor for goods or services previously sold, leased, rented or
rendered to such Account Debtor;
(iv) such Account is evidenced by an invoice rendered to the
Account Debtor and such Account is not evidenced by any chattel paper,
promissory note or other instrument;
(v) such Account does not represent a progress billing. For
the purposes of this definition, "progress billing" shall mean any invoice for
goods or services sold or services rendered under contract or agreement
pursuant to which the Account Debtor's obligation to pay such invoice is
conditioned upon Borrower's completion of any further performance under the
contract or agreement;
(vi) such Account is not conditional such as those accounts
commonly known as "bill and hold accounts" or accounts of a similar or like
arrangement;
(vii) such Account did not arise from a transaction whereby it
is subject to a "consignment sale", a "sale on approval" or a "sale or return"
arrangement;
(viii) such Account does not remain unpaid for more than
ninety (90) days from the invoice date and such Account is not due and payable
more than ninety (90) days from the invoice date;
(ix) no Account Debtor in respect to such Account, if it is
owing to Borrower on any Accounts that have remain unpaid for more than ninety
(90) from the invoice date, has more than Twenty Percent (20%) of the aggregate
dollar value of such Accounts remaining unpaid for more than ninety (90) days
from the invoice date;
(x) such Account is not subject to any dispute, offset,
counterclaim, discount (except for prompt payment discounts that do not exceed
Two Percent (2%) of the invoice amount) or other claim or defense on the part
of the Account Debtor or to any claim on the part of the Account Debtor denying
liability under such Account;
(xi) Borrower has not extended the time for payment of such
Account;
(xii) in respect to an Account owing by an Account Debtor
located in New Jersey, Minnesota or West Virginia, Borrower has filed all
legally required Notice of Business Activities Reports with the New Jersey
Division of Taxation, the Minnesota Department of Revenue or the West Virginia
Tax Commissioner, as the case may
- 5 -
<PAGE> 6
be, or Borrower is otherwise exempt from such reporting requirements under the
laws of such State(s);
(xiii) no Account Debtor in respect of such Account is (A)
conducting business in any jurisdiction located outside the United States of
America, (B) an Affiliate of Borrower, (C) any Governmental Authority, domestic
or foreign or (D) the subject of a proceeding under any Debtor Laws;
(xiv) Borrower has the full and unqualified right to assign
and grant a security interest in such Account to Lender as security for the
Obligations;
(xv) such Account is subject to a fully perfected first
priority security interest in favor of Lender pursuant to the Security
Agreement, prior to the rights of, and enforceable as such against, any other
Person;
(xvi) such Account is not subject to any Lien in favor of any
Person other than the Lien of Lender pursuant to the Security Agreement; and
(xvii) Lender has not otherwise advised Borrower that such
Account (or Account Debtor) is, in its sole discretion, ineligible.
"Eligible Collateral" shall have the meaning assigned to such
term in Section 1.01 under the defined term "Borrowing Base".
"Eligible Inventory" shall mean, at the time of any
determination thereof, each item of Inventory valued (in accordance with
Generally Accepted Accounting Principles) at the lower of (i) cost minus
accumulated depreciation (determined in accordance with method of depreciation
used by Borrower in the preparation of its December 31, 1994, audited financial
statements, but in no event shall such depreciation method exceed, unless
otherwise approved by Lender in writing, (A) for cranes, the 15-year straight
line depreciation method with no salvage value, (B) for boom lifts, scissor
lifts, back hoes, forklifts, skid steers and personnel lifts, the 10-year
straight line depreciation method with no salvage value, (C) for air
compressors, the 7-year straight line depreciation method with no salvage value
and (D) for all other types of Inventory, the 7-year straight line depreciation
method with no salvage value) or (ii) market, as to which the following
requirements have been fulfilled to the reasonable satisfaction of Lender:
(i) Borrower has lawful and absolute title to such Inventory;
(ii) such Inventory consists of new or used machinery or
equipment held for sale, lease or rent by Borrower in the ordinary
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<PAGE> 7
course of its business;
(iii) such Inventory is not obsolete. For the purposes of
this definition, "obsolete" shall mean Inventory in which Borrower does not
intend to sell, lease or rent and/or cannot sell, lease or rent in the ordinary
course of business at regularly listed prices;
(iv) such Inventory is not more than five (5) years old,
except for Inventory classified as "cranes" which shall not be more than seven
(7) years old;
(v) such Inventory is not in the process of being
refurbished in a manner requiring more than forty (40) hours of service;
(vi) such Inventory is not unacceptable to Lender due to type,
category and/or quantity;
(vii) such Inventory is located at 2525 Wayne Sullivan Drive,
Paducah, Kentucky 42003, one of the other offices of Borrower listed on Exhibit
A to the Security Agreement or one of the jurisdictions listed on Exhibit B to
the Security Agreement or such other addresses and locations approved in
writing by Lender;
(viii) such Inventory is subject to a fully perfected first
priority security interest in favor of Lender pursuant to the Security
Agreement, prior to the rights of, and enforceable as such against, any other
Person;
(ix) such Inventory is not subject to any Lien in favor of any
Person other than the Lien of Lender pursuant to the Security Agreement; and
(x) Lender has not otherwise advised Borrower that such
Inventory is, in its sole discretion, ineligible.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, together with all regulations issued pursuant thereto.
"Event of Default" shall have the meaning assigned to such
term in Section 10.01.
"Floor Balance" shall have the meaning assigned to such term
in Section 2.02(a).
"FLSA" shall have the meaning assigned to such term in Section
7.21.
"Generally Accepted Accounting Principles" shall mean those
generally accepted accounting principles and practices which
- 7 -
<PAGE> 8
are recognized as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or by the Financial
Accounting Standards Board or through other appropriate boards or committees
thereof and which are consistently applied for all periods after the date
hereof so as to properly reflect the financial condition, and the results of
operations and changes in financial position, of Borrower, except that any
accounting principle or practice required to be changed by the said Accounting
Principles Board or Financial Accounting Standards Board (or other appropriate
board or committee of the said Boards) in order to continue as a generally
accepted accounting principle or practice may so be changed. In the event of a
change in Generally Accepted Accounting Principles, Lender and Borrower will
thereafter negotiate in good faith to revise any covenants of this Agreement
affected thereby in order to make such covenants consistent with Generally
Accepted Accounting Principles then in effect.
"Governmental Authority" shall mean any government (or any
political subdivision or jurisdiction thereof), court, bureau, agency or other
governmental or regulatory authority having jurisdiction over Borrower or any
of its businesses, operations or properties.
"Guarantors" shall mean Michael A. Falconite, Joseph A.
Falconite and Betty L. Falconite.
"Guaranty" of any Person shall mean any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "Primary Obligor")
in any manner, whether directly or indirectly, including, without limitation,
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor, (ii) to advance or supply funds (A) for the purchase or
payment of such Indebtedness or (B) to maintain net worth or working capital or
other balance sheet conditions, or otherwise to advance or make available funds
for the purchase or payment of such Indebtedness, (iii) to purchase property,
securities or service primarily for the purpose of assuring the holder of such
Indebtedness of the ability of the Primary Obligor to make payment of the
Indebtedness or (iv) otherwise to assure the holder of the Indebtedness of the
Primary Obligor against loss in respect thereof; except that "Guaranty" shall
not include the endorsement by Borrower in the ordinary course of business of
negotiable instruments or documents for deposit or collection.
"Indebtedness" shall mean, with respect to any Person, all
indebtedness, obligations and liabilities of such Person, including, without
limitation: (i) all "liabilities" which would be reflected on a balance sheet
of such Person, prepared in accordance with Generally Accepted Accounting
Principles, (ii) all obligations of such Person in respect of any Guaranty,
(iii) all obligations of such Person in respect of any Capital Lease, (iv) all
obligations,
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<PAGE> 9
indebtedness and liabilities secured by any Lien or any security interest on
any property or assets of such Person and (v) all redeemable preferred stock of
such Person valued at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends.
"Intangible Assets" of any Person shall mean those assets of
such Person which are (i) deferred assets, other than prepaid insurance and
prepaid taxes, (ii) patents, copyrights, trademarks, tradenames, franchises,
goodwill, experimental expenses and other similar assets which would be
classified as intangible assets on a balance sheet of such Person, prepared in
accordance with Generally Accepted Accounting Principles, (iii) unamortized
debt discount and expense, (iv) all amounts due from any Affiliate, (v) assets
located, and notes and receivables due from obligors domiciled, outside of the
United States of America, (vi) all write-ups in the book value of any asset
owned resulting from a revaluation thereof subsequent to the date of this
Agreement and (vii) any Investment in any other Person (other than Permitted
Investments of the types set forth in clauses (i) through (iv) of the
definition of Permitted Investments and such other "cash equivalent"
investments as Lender may from time to time approve).
"Interest Payment Date" shall mean (i) with respect to each
Revolving Credit Loan, (A) the last Business Day of each calendar month
commencing on the first of such days to occur after such Loan is made and (B)
the Commitment Termination Date and (ii) with respect to the Term Loan, (A) the
last day of each calendar month commencing on the first of such days to occur
after such Loan is made and (B) the Maturity Date.
"Inventory" shall have the meaning assigned to such term in
the UCC.
"Investment" in any Person shall mean any investment, whether
by means of share purchase, loan, advance, extension of credit, capital
contribution or otherwise, in or to such Person, the Guaranty of any
Indebtedness of such Person or the subordination of any claim against such
Person to other Indebtedness of such Person.
"Lender" shall have the meaning assigned to such term in the
preamble hereof.
"Letter of Credit" and "Letters of Credit" shall have the
meanings assigned to such term in Section 4.01(a).
"Letter of Credit Application" shall mean an Application and
Authorization for Irrevocable Letter of Credit in the form of Exhibit C
attached hereto and incorporated herein by reference (or in such other form as
Lender may then be using as its standard form for letter of credit
applications) executed by Borrower, as account
- 9 -
<PAGE> 10
party, and delivered to Lender pursuant to Section 4.01(a), as the same may
from time to time be amended, modified, extended or renewed.
"Letter of Credit Commitment Fee" shall have the meaning
assigned to such term in Section 4.01(d).
"Letter of Credit Issuance Fee" shall have the meaning
assigned to such term in Section 4.01(d).
"Letter of Credit Loan" shall have the meaning assigned to
such term in Section 4.01(c).
"Letter of Credit Request" shall have the meaning assigned to
such term in Section 4.01(a).
"Lien" shall mean any lien, mortgage, security interest, tax
lien, pledge, encumbrance, conditional sale or title retention arrangement, or
any other interest in property designed to secure the repayment of
Indebtedness, whether arising by agreement or under any statute or law or
otherwise.
"Life Insurance Assignment" shall mean that certain Assignment
of Life Insurance Policy as Collateral dated the date hereof and executed by
Michael A. Falconite in favor of Lender (an unexecuted copy of which is
attached hereto as Exhibit G), as the same may from time to time be amended,
modified, extended or renewed.
"Loan" shall mean each Revolving Credit Loan, each Letter of
Credit Loan and the Term Loan and "Loans" shall mean any or all of the
foregoing.
"Loan Documents" shall mean this Agreement, the Notes, the
Letter of Credit Application(s), the Security Agreement, the Continuing
Guaranty, the Life Insurance Assignment and any and all other agreements,
documents, instruments and/or certificates executed or delivered pursuant to
the terms of this Agreement, all as the same may from time to time be amended,
modified, extended or renewed.
"Material Adverse Effect" shall mean any (i) material adverse
effect whatsoever upon the validity, performance or enforceability of any of
the Loan Documents, (ii) material adverse effect on the properties, assets,
liabilities, business, operations, prospects, income or condition (financial or
otherwise) of Borrower, (iii) material impairment of Borrower's ability to
perform any of its obligations under this Agreement, any of the Notes, any of
the Letter of Credit Applications, the Security Agreement or any of the other
Loan Documents or (iv) material impairment of the enforceability of the rights
of, or benefits available to, Lender under this Agreement, any of the Notes,
any of
- 10 -
<PAGE> 11
the Letter of Credit Applications, the Security Agreement or any of the other
Loan Documents.
"Maturity Date" shall mean June 30, 1996, or, if such date is
not a Business Day, the Business Day next preceding such date.
"Net Cash Flow" of Borrower shall mean, for any period, the
sum of the following: (i) the amount of Adjusted Net Income for such period
plus (ii) all non-cash charges (such as deferred taxes, depreciation and
amortization of goodwill) which, in determining Adjusted Net Income for such
period, were deducted from the gross income of Borrower for such period.
"Notes" shall mean the Revolving Credit Note and the Term
Note.
"Obligations" shall mean:
(i) all present and future indebtedness, obligations and
liabilities of Borrower to Lender arising pursuant to this Agreement,
regardless of whether such indebtedness, obligations and liabilities are
direct, indirect, fixed, contingent, joint, several or joint and several;
(ii) all present and future indebtedness, obligations and
liabilities of Borrower to Lender arising pursuant to or represented by the
Notes and all interest accruing thereon;
(iii) all present and future indebtedness, obligations and
liabilities of Borrower evidenced by or arising pursuant to any of the other
Loan Documents (including, without limitation, reimbursement obligations with
respect to standby letters of credit issued by Lender for the account of
Borrower pursuant to any of the Letter of Credit Applications);
(iv) all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by Lender to collect such
indebtedness, liabilities and obligations, to obtain, preserve, perfect and/or
enforce the liens and security interests securing payment of such indebtedness,
liabilities and obligations and/or to maintain, preserve and collect the
property in which Lender has been granted a Lien to secure payment of such
indebtedness, liabilities and obligations, or any part thereof, including but
not limited to, taxes, assessments, insurance premiums, repairs, rent, storage
charges, advertising costs, brokerage fees and expenses of sale; and
(v) all amendments, modifications, extensions and renewals of
the indebtedness, liabilities and obligations referred to in the foregoing
clauses, or any part thereof.
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<PAGE> 12
"PBGC" shall mean the Pension Benefit Guaranty Corporation,
and any successor to all or any of the Pension Benefit Guaranty Corporation's
functions under ERISA.
"Permitted Investments" shall mean the following types of
Investments (i) direct obligations of the United States of America or any
agency thereof, or obligations fully guaranteed by the United States of America
or any agency thereof, provided that such obligations mature within twelve (12)
months of the date of acquisition thereof by Borrower, (ii) commercial paper
rated in the highest grade by two or more national credit rating agencies and
which matures not more than two hundred seventy (270) days from the date of
creation thereof, (iii) time deposits with, and certificates of deposit and/or
banker's acceptances issued by, Lender or any other bank or trust company
organized under the laws of the United States of America or any state thereof
having capital surplus and undivided profits aggregating at least
$50,000,000.00, (iv) repurchase agreements, which shall be collateralized for
at least 102% of face value, issued by Lender or any other bank or trust
company organized under the laws of the United States of America or any state
thereof having capital surplus and undivided profits aggregating at least
$50,000,000.00, (v) Investments existing as of the date hereof as described in
Exhibit L attached hereto, and any future retained earnings in respect thereof,
(vi) loans or advances in the usual and ordinary course of business to officers
and/or employees of Borrower for business expenses in the aggregate principal
amount of up to $50,000.00 at any one time outstanding, (vii) loans to the
Joseph A. Falconite and Betty L. Falconite Irrevocable Trust U/T/A dated
September 7, 1994, solely to allow such trust to pay insurance premiums on life
insurance policies on the life of Joseph A. Falconite and on the life of Betty
L. Falconite and (viii) demand deposits which constitute the normal operating
checking accounts of the Borrower.
"Permitted Liens" shall mean: (i) Liens (if any) granted to
Lender to secure the Obligations, (ii) Liens for taxes, assessments and
governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable or if
the same are being contested in good faith and as to which adequate cash
reserves have been provided in accordance with Generally Accepted Accounting
Principles, (iii) Liens imposed by mandatory provisions of law such as
materialmen's, mechanics', warehousemen's and other like Liens arising in the
ordinary course of business, securing Indebtedness whose payment is not yet
due, (iv) pledges or deposits made to secure payment of worker's compensation
insurance (or to participate in any fund in connection with worker's
compensation insurance), unemployment insurance, pensions or social security
programs, (v) Liens arising from good faith deposits in connection with
tenders, leases, real estate bids or contracts (other than contracts involving
the borrowing of money or the purchase or other acquisition of property),
pledges or deposits to secure public or
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statutory obligations and deposits to secure (or in lieu of) surety, stay,
appeal or customs bonds and deposits to secure the payment of taxes,
assessments, customs duties or other similar charges, (vi) encumbrances
consisting of zoning restrictions, easements or other restrictions on the use
of real property, provided that such items do not impair the use of such
property for the purposes intended, and none of which is violated by existing
or proposed structures or land use, (vii) Liens existing as of the date of this
Agreement and described on Exhibit K attached hereto and (viii) purchase money
Liens on any property (other than Inventory) hereafter acquired or the
assumption of any Lien on property (other than Inventory) existing at the time
of such acquisition (and not created in contemplation of such acquisition), or
a Lien incurred in connection with any conditional sale or other title
retention agreement or a finance lease, provided that (A) any property subject
to any such purchase money Lien is acquired by Borrower in the ordinary course
of its business and the Lien on any such property is created contemporaneously
with any such acquisition, (B) the Indebtedness secured by any purchase money
Lien so created, assumed or existing shall not exceed the lesser of cost or
fair market value as of the time of acquisition of the property covered thereby
by Borrower, (C) each such purchase money Lien shall attach only to the
property so acquired and fixed improvements thereon and (D) the total
Indebtedness secured by all such purchase money Liens shall not exceed
$750,000.00 in the aggregate at any one time outstanding.
"Person" shall include an individual, a sole proprietorship, a
general or limited partnership, a joint venture, a trust, an unincorporated
organization, an association, a corporation, a limited liability company, an
institution, a government or any agency or political subdivision thereof, or
any other form of legal entity.
"Plan" shall mean an employee benefit plan or other plan
maintained by Borrower for employees of Borrower and covered by Title IV of
ERISA, or subject to the minimum funding standards under Section 412 of the
Code.
"Primary Obligor" shall have the meaning assigned to such term
in Section 1.01 under the defined term "Guaranty".
"Prime Rate" shall mean the highest annual rate of interest
identified as the "Prime Rate" as published from time to time in the "Money
Rates" section (or such other section title or caption) of The Wall Street
Journal. In the event that The Wall Street Journal, during the term hereof,
shall abolish or abandon the practice of publishing a Prime Rate, or should the
same become unascertainable, Lender shall designate a comparable reference rate
which shall be deemed to be the Prime Rate for purposes hereof. With respect
to the Term Loan, the Letter of Credit Loans and all of the other Obligations
of Borrower other than the Revolving
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Credit Loans, the Prime Rate shall be subject to adjustment daily (without
prior notice to Borrower) based on the Prime Rate on such day and shall
fluctuate as and when said Prime Rate shall change. With respect to the
Revolving Credit Loans, the Prime Rate shall be subject to adjustment monthly
(without prior notice to Borrower) on the first day after the last Business Day
of every calendar month based on the Prime Rate on such day.
"Process Agent" shall mean Michael A. Falconite, whose address
is 2525 Wayne Sullivan Drive, Paducah, Kentucky 42003.
"Regulation G" shall mean Regulation G of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 207, or any successor
or other regulation relating to reserve requirements applicable to member banks
of the Federal Reserve System.
"Regulation U" shall mean Regulation U promulgated by the
Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any
successor or other regulation hereafter promulgated by said Board to replace
the prior Regulation U and having substantially the same function.
"Regulation X" shall mean Regulation X promulgated by the
Board of Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any
successor or other regulation hereafter promulgated by said Board to replace
the prior Regulation X and having substantially the same function.
"Rentals" of any Person shall mean, as of any date, the
aggregate amount of the obligations and liabilities (including future
obligations and liabilities not yet due and payable) of such Person to make
payments under all leases, subleases and similar arrangements for the use of
real, personal or mixed property, other than leases which are Capital Leases.
"Reportable Event" shall have the meaning assigned to such
term in Title IV of ERISA.
"Revolving Credit Commitment" shall mean the sum of Seven
Million Dollars ($7,000,000.00).
"Revolving Credit Loan" and "Revolving Credit Loans" shall
have the meaning assigned to such terms in Section 2.01.
"Revolving Credit Note" shall have the meaning assigned to
such term in Section 2.03.
"Security Agreement" shall have the meaning assigned to such
term in Section 5.01.
"Solvent" means, with respect to any Person on a particular
date, that on such date (i) the fair value of the
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property of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person, (ii) the
present fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on
its debts as they become absolute and matured, (iii) such Person is able to
realize upon its assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (iv) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature and (v) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such Person is engaged. In computing the amount of contingent liabilities at
any time, it is intended that such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Subordinated Indebtedness" shall mean, as of the date of any
determination thereof, the aggregate principal amount of all Indebtedness of
Borrower outstanding as of such date which is subordinated in writing (either
by its terms or pursuant to a subordination agreement) to the payment and
priority of all of the Borrower's Obligations in form and substance
satisfactory to Lender.
"Subsidiary" shall mean any corporation Fifty Percent (50%) or
more of the Voting Shares of which is owned, directly or indirectly, by
Borrower.
"Tangible Net Worth" shall mean, as of any date, the total
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock) which would appear on a
balance sheet of Borrower prepared as of such date in accordance with Generally
Accepted Accounting Principles, minus the aggregate book value of Intangible
Assets shown on such balance sheet plus the aggregate principal amount of
Subordinated Indebtedness shown on such balance sheet.
"Term Loan" shall have the meaning assigned to such term in
Section 3.01.
"Term Loan Commitment" shall mean the sum of Seven Million
Dollars ($7,000,000.00).
"Term Note" shall have the meaning assigned to such term in
Section 3.02.
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"Total Outstandings" shall mean, as of any date, the sum of
(i) the aggregate principal amount of all Revolving Credit Loans outstanding as
of such date, plus (ii) the aggregate principal amount of all Letter of Credit
Loans outstanding as of such date plus (iii) the aggregate undrawn face amount
of all Letters of Credit outstanding as of such date.
"UCC" shall mean the Uniform Commercial Code in effect in the
Commonwealth of Kentucky, as amended, except as the Uniform Commercial Code of
other states may govern lien perfection in those states.
"Voting Shares" of any corporation shall mean shares of any
class or classes (however designated) having ordinary voting power for the
election of at least a majority of the members of the Board of Directors (or
other governing bodies) of such corporation, other than shares having such
power only by reason of the happening of a contingency.
Section 1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have such
meanings when used in the other Loan Documents, unless the context therein
shall otherwise require.
(b) Defined terms used herein in the singular shall import the
plural and vice-versa.
(c) The words "hereof," "herein," "hereunder" and similar
terms when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
(d) Except as otherwise specified in this Agreement, all
accounting terms used in this Agreement shall be interpreted, all accounting
determinations under this Agreement shall be made and all financial statements
required to be delivered under this Agreement shall be prepared in accordance
with Generally Accepted Accounting Principles as in effect from time to time,
applied on a basis consistent (except for changes approved by Lender and by
Borrower's independent certified public accountants) with the most recent
audited financial statements of Borrower delivered to Lender. Notwithstanding
the foregoing, the financial covenants contained in this Agreement (including,
without limitation, the financial covenants contained in Sections 9.14(a),
9.14(b), 9.14(c), 9.14(d) and 9.15 of this Agreement but excluding the
financial covenant contained in Section 9.14(e) of this Agreement) shall be
determined for Borrower only on a stand alone basis and not for Borrower and
its Subsidiaries on a consolidated basis. The financial covenant contained in
Section 9.14(e) of this Agreement shall be determined for Borrower and its
Subsidiaries on a consolidated basis.
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ARTICLE II
THE REVOLVING CREDIT LOANS
Section 2.01. Lender's Revolving Credit Commitment. Subject
to the terms and conditions of this Agreement and so long as no Default or
Event of Default under this Agreement has occurred, during the Commitment
Period, Lender hereby agrees to loan funds to Borrower as Borrower may from
time to time request pursuant to Section 2.02(a) (individually, a "Revolving
Credit Loan" and collectively, the "Revolving Credit Loans"). The aggregate
principal amount of Revolving Credit Loans which Lender shall be required to
have outstanding hereunder at any one time shall not exceed the sum of (a) the
lesser of (i) the Lender's Revolving Credit Commitment or (ii) the Borrowing
Base, minus (b) the aggregate principal amount of all outstanding Letter of
Credit Loans minus (c) the aggregate undrawn face amount of all outstanding
Letters of Credit. Within the limits set forth herein, Borrower may borrow,
repay and reborrow such sums.
If at any time the Borrowing Base as shown on the most recent
Borrowing Base Certificate submitted to Lender pursuant to Section 8.01(c)
should be less than the Total Outstandings, Borrower shall be automatically
required (without demand or notice of any kind by Lender, all of which are
hereby expressly waived by Borrower) to immediately either (i) reduce the Total
Outstandings to an amount less than or equal to the most recent Borrowing Base
or (ii) pledge cash or cash equivalents with Lender as additional collateral
for the Total Outstandings in an amount at least equal to the difference
between the Total Outstandings and the Borrowing Base.
If at any time the Total Outstandings are greater than the
amount of the Lender's Revolving Credit Commitment, Borrower shall be
automatically required (without demand or notice of any kind by Lender, all of
which are hereby expressly waived by Borrower) to immediately reduce the Total
Outstandings to an amount less than or equal to the amount of the Lender's
Revolving Credit Commitment.
Section 2.02. Manner of Borrowing.
(a) Borrowings; Prepayments. Upon fulfillment of all
applicable conditions set forth herein and so long as no Default or Event of
Default has occurred hereunder, Borrower hereby irrevocably requests and
authorizes Lender, without any other request or authorization from Borrower and
without any notice to Borrower, to automatically make a Revolving Credit Loan
to Borrower at the end of each Business Day on which the collected balance in
Borrower's operating account with Lender, identified as Account No. 001-0940-1
("Borrower's Operating Account"), is below the amount set forth in a cash
management agreement executed herewith by and
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between Borrower and Lender, as the same may from time to time be amended (the
"Floor Balance"), by crediting the amount of such Revolving Credit Loan, which
shall be in an amount sufficient to bring such collected balance back up to the
Floor Balance, to Borrower's Operating Account. In addition, Borrower hereby
irrevocably requests and authorizes Lender to automatically apply any collected
balance in Borrower's Operating Account with Lender at the end of any Business
Day in excess of the Floor Balance to the prepayment of the Revolving Credit
Loans.
(b) Revolving Credit Loan Irrevocable. Each Revolving Credit
Loan made in accordance with Section 2.02(a) shall be irrevocable and binding
on Borrower, and Borrower shall indemnify Lender and hold Lender harmless from
and against any and all claims, demands, damages, liabilities, costs, losses or
expenses (including, without limitation, reasonable attorneys' fees and
expenses) relating to or arising out of or in connection with making Revolving
Credit Loans or repayments hereunder.
Section 2.03. Revolving Credit Note. The Revolving Credit
Loans made under Section 2.01 hereof by Lender shall be evidenced by a
Revolving Credit Note of Borrower dated the date hereof and payable to the
order of Lender in a principal amount equal to Lender's Revolving Credit
Commitment in the form attached hereto as Exhibit A and incorporated herein by
reference (as the same may from time to time be amended, modified, extended or
renewed, the "Revolving Credit Note"). Notwithstanding the principal amount of
the Revolving Credit Note as stated on the face thereof, the amount of
principal actually owing on such Revolving Credit Note at any given time shall
be the aggregate principal amount of all Revolving Credit Loans theretofore
made by Lender to Borrower hereunder less all payments of principal theretofore
actually received hereunder by Lender.
Section 2.04. Interest Rates. Each Revolving Credit Loan
shall bear interest prior to maturity at a rate per annum equal to the Prime
Rate, fluctuating as described in the definition of "Prime Rate". From and
after the maturity of the Revolving Credit Note, whether by reason of
acceleration or otherwise, the unpaid principal balance of each Revolving
Credit Loan shall bear interest payable on demand until paid at a rate per
annum equal to Two Percent (2%) over and above the Prime Rate, fluctuating as
aforesaid. Interest shall be computed with respect to all Revolving Credit
Loans on an actual day, 360-day year basis.
Section 2.05. Principal Payments. The unpaid principal
amount of the Revolving Credit Note shall be due and payable on the Commitment
Termination Date.
Section 2.06. Payment of Interest on the Revolving Credit
Note. Interest upon the Revolving Credit Note shall be due and payable on each
Interest Payment Date. Borrower hereby
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irrevocably requests and authorizes Lender to automatically debit Borrower's
Operating Account on each Interest Payment Date for all interest payments due
under the Revolving Credit Note on such Interest Payment Date.
Section 2.07. Prepayment. Borrower shall have the right to
prepay all at any time or any portion from time to time of the unpaid principal
of any Revolving Credit Loan prior to maturity, without penalty or premium.
All prepayments shall be applied solely to the payment of principal.
Section 2.08. Manner and Application of Payments. All
payments and prepayments of principal of, interest on and fees and other
amounts relating to the Revolving Credit Note to or for the account of Lender
shall be made by Borrower to Lender before 4:00 p.m. (Central Standard Time),
in immediately available funds in Dollars at Lender's principal banking office
in Paducah, Kentucky. Any payment or prepayment received by Lender after 4:00
p.m. (Central Standard Time) shall be deemed to have been received by Lender
on the next succeeding Business Day. All payments (other than prepayments)
made on the Revolving Credit Note shall be allocated among the principal,
interest, late fees, collection costs and expenses and other amounts due under
the Revolving Credit Note in such order and manner as Lender shall elect.
Section 2.09. Revolving Credit Fee. Upon execution hereof,
Borrower shall pay to Lender as consideration for the Revolving Credit
Commitment to be made in accordance herewith, a revolving credit fee of
$5,000.00. Said fee shall not be subject to reduction and shall not be
refundable.
Section 2.10. Use of Proceeds. The proceeds of each
Revolving Credit Loan shall be used for the general corporate purposes of
Borrower.
ARTICLE III
THE TERM LOAN
Section 3.01. Term Loan Commitment. Subject to the terms and
conditions of this Agreement and so long as no Default or Event of Default
under this Agreement has occurred, Lender agrees to make Borrower a term loan
on or about the date of this Agreement in an amount equal to the Term Loan
Commitment (the "Term Loan").
Section 3.02. Term Note. The Term Loan made under Section
3.01 hereof by Lender shall be evidenced by a Term Loan Promissory Note of
Borrower dated the date hereof and payable to the order of Lender in a
principal amount equal to Lender's Term Loan Commitment in the form attached
hereto as Exhibit B and incorporated herein by reference (as the same may from
time to time be amended, modified, extended or renewed, the "Term Note").
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Section 3.03. Interest Rates. The Term Loan shall bear
interest prior to maturity at a rate per annum equal to the Prime Rate,
fluctuating as described in the definition of "Prime Rate". From and after the
maturity of the Term Note, whether by reason of acceleration or otherwise, the
unpaid principal balance of the Term Loan shall bear interest payable on demand
until paid at a rate per annum equal to Two Percent (2%) over and above the
Prime Rate, fluctuating as aforesaid. Interest shall be computed with respect
to the Term Loan on an actual day, 360-day year basis.
Section 3.04. Principal Payments. Principal on the Term Note
shall be due and payable in nine (9) consecutive monthly installments as
follows: eight (8) equal consecutive monthly installments in the amount of One
Hundred Sixteen Thousand Six Hundred Sixty-Six and 67/100 Dollars ($116,666.67)
each, due and payable on the last day of each calendar month commencing October
31, 1995, with the ninth (9th) and final installment in the amount of the then
outstanding and unpaid principal balance of the Term Note due and payable on
the Maturity Date.
Section 3.05. Payment of Interest on the Term Note. Interest
upon the Term Note shall be due and payable on each Interest Payment Date.
Section 3.06. Prepayment. Borrower shall have the right to
prepay all at any time or any portion from time to time of the unpaid principal
balance of the Term Note prior to maturity, without penalty or premium,
provided that: (i) partial prepayments shall be applied to installments of
principal under the Term Note in the inverse order of their stated maturities;
and (ii) on each prepayment date, Borrower shall pay to the order of Lender all
accrued and unpaid interest on the principal portion of the Term Note being
prepaid to and including the date of such prepayment.
Section 3.07. Manner and Application of Payments. All
payments and prepayments of principal of, interest on and fees and other
amounts relating to the Term Note to or for the account of Lender shall be made
by Borrower to Lender before 11:00 a.m. (Central Standard Time), in immediately
available funds in Dollars at Lender's principal banking office in Paducah,
Kentucky. Any payment or prepayment received by Lender after 11:00 a.m.
(Central Standard Time) shall be deemed to have been received by Lender on the
next succeeding Business Day. Should the principal of or interest on the Term
Note become due and payable on a day other than a Business Day, the due date
thereof shall be extended to the next succeeding Business Day. All payments
made on the Term Note shall be allocated among the principal, interest, late
fees, collection costs and expenses and other amounts due under the Term Note
in such order and manner as Lender shall elect.
Section 3.08. Use of Proceeds. The proceeds of the Term Loan
shall be used for the general corporate purposes of Borrower.
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ARTICLE IV
LETTERS OF CREDIT
Section 4.01. Letter of Credit Commitment. (a) Subject to
the terms and conditions of this Agreement and so long as no Default or Event
of Default under this Agreement has occurred, during the Commitment Period,
Lender hereby agrees to issue irrevocable standby letters of credit for the
account of Borrower (individually, a "Letter of Credit" and collectively, the
"Letters of Credit") in an amount and for the term specifically requested by
Borrower by notice in writing to Lender in the form of Exhibit D attached
hereto and incorporated herein by reference (a "Letter of Credit Request") at
least three (3) Business Days prior to the requested issuance thereof;
provided, however, that:
(i) Borrower shall have executed and delivered to Lender a
Letter of Credit Application with respect to such Letter of Credit;
(ii) the term of any such Letter of Credit shall not extend
beyond the date one (1) year after the date of issuance thereof;
(iii) any Letter of Credit may only be utilized to guaranty
the payment of obligations of Borrower;
(iv) the Total Outstandings shall not at any one time exceed
the lesser of (A) the Lender's Revolving Credit Commitment or (B) the Borrowing
Base;
(v) the sum of (A) the aggregate undrawn face amount of all
outstanding Letters of Credit plus (B) the aggregate principal amount of all
outstanding Letter of Credit Loans shall not at any one time exceed the sum of
Seven Hundred Fifty Thousand Dollars ($750,000.00); and
(vi) the text of any such Letter of Credit is provided to
Lender no less than three (3) Business Days prior to the requested issuance
date, which text must be acceptable to Lender in its sole and absolute
discretion.
(b) The acceptance or payment of drafts under each Letter
of Credit shall be made in accordance with the terms thereof and, in that
connection, Lender shall be entitled to honor any drafts and accept any
documents presented to it by the beneficiary of such Letter of Credit in
accordance with the terms of such Letter of Credit and believed in good faith
by Lender to be genuine. Lender shall not have any duty to inquire as to the
accuracy or authenticity of any draft or other drawing document that may be
presented to it other than the duties contemplated by the applicable Letter of
Credit Application. If Lender shall have
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received documents that in its good faith judgment constitute all of the
documents that are required to be presented before payment or acceptance of a
draft under a Letter of Credit, it shall be entitled to pay or accept such
draft provided such documents conform on their face to the requirements of such
Letter of Credit.
(c) In the event of any payment by Lender of a draft
presented or accepted under a Letter of Credit, Borrower agrees to pay to
Lender in immediately available funds at the time of such drawing an amount
equal to the sum of such drawing plus Lender's customary negotiation,
processing and other fees related thereto. Borrower hereby authorizes Lender
to charge or cause to be charged Borrower's Operating Account to the extent
there are balances of immediately available funds therein, in an amount equal
to the sum of such drawing plus Lender's customary negotiation, processing and
other fees related thereto, and Borrower agrees to pay the amount of any such
drawing (and/or Lender's customary negotiation, processing and other fees
related thereto) not so charged prior to the close of business of Lender on the
day of such drawing. In the event any payment under a Letter of Credit is made
by Lender prior to receipt of payment from Borrower, such payment by Lender
shall constitute a loan (a "Letter of Credit Loan") by Lender to Borrower,
payable on demand of Lender. Borrower agrees to pay interest on demand of
Lender on any unpaid Letter of Credit Loan at a rate per annum equal to Two
Percent (2%) over and above the Prime Rate (fluctuating as described in the
definition of "Prime Rate") until such Letter of Credit Loan is paid in full,
calculated on an actual day, 360-day year basis.
(d) Borrower hereby further agrees to pay to the order of
Lender with respect to each Letter of Credit:
(i) a nonrefundable issuance fee in the amount of One Hundred
Dollars ($100.00) (the "Letter of Credit Issuance Fee"), which Letter of Credit
Issuance Fee shall be due and payable on the date of issuance of each such
Letter of Credit;
(ii) a nonrefundable commitment fee in an amount equal to One
and One-Half Percent (1-1/2%) per annum (calculated on an actual day, 360-day
year basis) of the face amount (taking into account any scheduled increases or
decreases therein during the period in question) of such Letter of Credit (the
"Letter of Credit Commitment Fee"), which Letter of Credit Commitment Fee shall
be due and payable annually in advance on the date of issuance of each such
Letter of Credit; and
(iii) such other fees as may be charged by Lender from time
to time in accordance with Lender's published schedule of fees in effect from
time to time, which fees shall be due and payable on demand by Lender.
Section 4.02. Replacement or Collateralization of
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Letters of Credit. Notwithstanding any provision contained in this Agreement
or any of the Letter of Credit Applications to the contrary: (a) if any of the
Letters of Credit remain outstanding on the last day of the Commitment Period,
Borrower shall, on or before 11:00 a.m. (Central Standard time) on the last day
of the Commitment Period, (i) surrender the originals of the applicable
Letter(s) of Credit to Lender for cancellation or (ii) provide Lender with cash
collateral (or other collateral acceptable to Lender in its sole and absolute
discretion) in an amount at least equal to the aggregate undrawn face amount of
all Letter(s) of Credit which remain outstanding at such time and execute and
deliver to Lender such agreements as Lender may require to grant Lender a first
priority perfected security interest in such cash or other collateral; and (b)
upon the occurrence of any Event of Default under this Agreement (including,
without limitation, Borrower's failure to comply with the requirements of
clause (a) above), at Lender's option and without demand or further notice to
Borrower, an amount equal to the aggregate undrawn face amount of all Letter(s)
of Credit then outstanding shall be deemed (as between Lender and Borrower) to
have been paid or disbursed by Lender (notwithstanding that such amounts may
not in fact have been so paid or disbursed by Lender), and a Letter of Credit
Loan to Borrower in such amount to have been made and accepted by Borrower,
which Letter of Credit Loan shall be immediately due and payable. In lieu of
the foregoing, at the election of Lender, Borrower shall, upon Lender's demand,
deliver to Lender cash, or other collateral acceptable to Lender in its sole
and absolute discretion, having a value, as determined by Lender, at least
equal to the aggregate undrawn face amount of all outstanding Letters of
Credit. Any such collateral and/or any amounts received by Lender in payment
of the Letter of Credit Loan made pursuant to this Section 4.02 shall be held
by Lender in a separate account at Lender appropriately designated as a cash
collateral account in relation to this Agreement and the Letters of Credit and
retained by Lender as collateral security for the payment of the Borrower's
Obligations. Cash amounts delivered to Lender pursuant to the foregoing
requirements of this Section 4.02 shall be invested, at the request and for the
account of Borrower, in investments of a type and nature and with a term
acceptable to Lender. Such amounts, including in the case of cash amounts
invested in the manner set forth above, any investment realized thereon, shall
not be used by Lender to pay any amounts drawn or paid under or pursuant to any
Letter of Credit, but may be applied to reimburse Lender for drawings or
payments under or pursuant to the Letters of Credit which Lender has paid, or
if no such reimbursement is required to the payment of such other of Borrower's
Obligations as Lender shall determine. Any amounts remaining in any cash
collateral account established pursuant to this Section 4.02 after the payment
in full of all of the Borrower's Obligations and the expiration or cancellation
of all of the Letters of Credit shall be returned to Borrower (after deduction
of Lender's expenses, if any).
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ARTICLE V
SECURITY
Section 5.01. Security Agreement. In order to secure the
payment when due of the Borrower's Obligations, Borrower shall grant Lender a
security interest in the Collateral (as defined in the Security Agreement),
which security interest shall be a first and prior interest in all such items
except for those Uniform Commercial Code security interests described on
Exhibit K attached hereto. Said security interest shall be evidenced by a
Security Agreement dated the date hereof and executed by Borrower in favor of
Lender in the form attached hereto as Exhibit E and incorporated herein by
reference (as the same may from time to time be amended, modified, extended or
renewed, the "Security Agreement"). Borrower further covenants and agrees to
execute and deliver to Lender any and all financing statements, continuation
statements and such other documentation as may from time to time be requested
by Lender in order to create, perfect and continue said security interest.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01. Initial Loan or Letter of Credit. The
obligation of Lender to make its initial Loan hereunder or to issue its initial
Letter of Credit hereunder is subject to the condition precedent that Lender
shall have received the following in form and substance satisfactory to Lender:
(a) Notes. The duly executed Revolving Credit Note and
the Term Note completed with appropriate insertions.
(b) Opinion of Borrower's Counsel. A favorable opinion
of Denton & Keuler L.L.P., legal counsel for Borrower and the Guarantors, in
the form of Exhibit H attached hereto.
(c) Officer's Certificate. A certificate in the form of
Exhibit N attached hereto signed by a duly authorized officer of Borrower,
stating that (to the best knowledge and belief of such officer, after
reasonable and due investigation and review of matters pertinent to the subject
matter of such certificate): (i) all of the representations and warranties
contained in this Agreement and in the other Loan Documents are true and
correct as of the date of the initial Loan or the initial Letter of Credit, as
the case may be; (ii) no event has occurred and is continuing, or would result
from the Loan or the Letter of Credit, as the case may be, which constitutes a
Default or an Event of Default; and (iii) no litigation, investigation or
proceeding before or by an arbitrator or Governmental Authority is continuing
or threatened against Borrower (A) with respect to this Agreement, any of the
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<PAGE> 25
Notes, any of the Letter of Credit Applications, the Security Agreement or any
of the other Loan Documents, or any of the transactions contemplated hereby or
thereby or (B) which could have a Material Adverse Effect.
(d) Resolutions of Borrower. Resolutions of Borrower
approving the execution, delivery and performance of this Agreement, the Notes,
the Letter of Credit Applications, the Security Agreement, the other Loan
Documents and the transactions contemplated herein and therein, duly adopted by
Borrower's Board of Directors and accompanied by a certificate of the Secretary
or Assistant Secretary of Borrower stating that such resolutions are true and
correct, have not been altered or repealed and are in full force and effect.
(e) Incumbency Certificate of Borrower. A signed
certificate of the Secretary or Assistant Secretary of Borrower which shall
certify the names of the officers of Borrower authorized to sign each of the
Loan Documents to be executed by such Person and the other documents or
certificates to be delivered by such Person pursuant to the Loan Documents,
together with the true signatures of each of such officers. Lender may
conclusively rely on the certificate of Borrower until Lender shall receive a
further certificate of the Secretary or Assistant Secretary of Borrower
canceling or amending the prior certificate and submitting the signatures of
the officers named in such further certificate.
(f) Certificates. A certified copy of the Articles of
Incorporation (including any amendments thereto) of Borrower and a certificate
of good standing for Borrower issued by the Secretary of State of the State of
Illinois, and certificates of qualification and good standing (or other similar
instruments) for Borrower issued by the Secretary of State of each of the
states wherein Borrower is qualified or required to be qualified to do business
as a foreign corporation, each dated within twenty (20) days of the initial
Loan.
(g) By-Laws. A copy of the By-Laws of Borrower, and all
amendments thereto, certified by the Secretary or Assistant Secretary of
Borrower, as appropriate, as being true, correct and complete as of the date of
such certification.
(h) Financial Information. Copies of the financial
statements referred to in Section 7.06.
(i) Security Agreement. The Security Agreement duly
executed by Borrower. Each document (including, without limitation, any
Uniform Commercial Code financing statement) required by the Security Agreement
or under law or requested by Lender to be filed, registered or recorded in
order to create, in favor of Lender, a perfected first Lien on the collateral
described therein shall have been properly filed, registered or recorded in
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<PAGE> 26
each jurisdiction or such other place in which the filing, registration or
recordation thereof is so required or requested, and Lender shall have received
(i) an acknowledgment copy, or other evidence satisfactory to it, of each such
filing, registration or recordation, (ii) evidence satisfactory to Lender of
the payment by Borrower of any necessary fee, tax or expense relating thereto
and (iii) evidence satisfactory to Lender of Lender's Lien priority (including,
without limitation, evidence of the release of all Liens other than Permitted
Liens).
(j) Guaranty. The Continuing Guaranty, duly executed by
the Guarantors.
(k) Litigation. A summary and analysis of all litigation
in which Borrower is involved and an opinion of Borrower's counsel, in form and
substance acceptable to Lender, to the effect that no litigation in which
Borrower is involved could, in the event of an adverse determination, have a
Material Adverse Effect.
(l) Insurance. Evidence satisfactory to Lender that
Borrower has obtained the insurance policies required by this Agreement and the
Security Agreement.
(m) Borrowing Base Certificate. The initial Borrowing
Base Certificate.
(n) Payment of Fees, Costs and Expenses. Payment of all
fees, costs and expenses specified in this Agreement and the other Loan
Documents.
(o) Field Audit Report. The results of the field audit
of the Collateral (as defined in the Security Agreement) conducted by Lender.
(p) Participation Agreements. A participation agreement
in form and substance satisfactory to Lender executed by PNC Bank, Kentucky,
Inc. whereby PNC Bank, Kentucky, Inc. purchases a Fifty Percent (50%)
participation interest in the Term Loan and a participation agreement in form
and substance satisfactory to Lender executed by NBD Bank whereby NBD Bank
purchases a Fifty Percent (50%) participation interest in the Term Loan.
(q) Life Insurance Assignment. The Life Insurance
Assignment, duly executed by Michael A. Falconite and duly acknowledged by The
Northwestern Mutual Life Insurance Company.
(r) Additional Information. Such other information,
agreements, documents, instruments and certificates as may reasonably be
required by Lender and Lender's counsel.
Section 6.02. All Revolving Credit Loans and Term Loan.
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<PAGE> 27
Notwithstanding any provision contained herein to the contrary, Lender shall
have no obligation to make any Revolving Credit Loan or the Term Loan hereunder
unless:
(a) Lender shall have received a current Borrowing Base
Certificate;
(b) on the date of and immediately after such Loan, no
Default or Event of Default under this Agreement shall have occurred and be
continuing;
(c) no material adverse change in the properties, assets,
liabilities, business, operations, prospects, income or condition (financial or
otherwise) of Borrower shall have occurred since the date of this Agreement and
be continuing;
(d) all of the representations and warranties of Borrower
contained in this Agreement and in the other Loan Documents shall be true and
correct in all material respects on and as of the date of such Loan as if made
on and as of the date of such Loan (and for purposes of this Section 6.02(d),
the representations and warranties made by Borrower in Section 7.06 shall be
deemed to refer to the most recent financial statements of Borrower delivered
to Lender pursuant to Section 8.01); and
(e) no proceeding or case under the United States
Bankruptcy Code or similar law or any other reorganization, receivership or
liquidation proceedings shall have been commenced by or against Borrower or any
of the Guarantors.
Each request for a Loan by Borrower hereunder shall be deemed
to be a representation and warranty by Borrower on the date of such Loan as to
the facts specified in clauses (b), (c), (d) and (e) of this Section 6.02.
Section 6.03. All Letters of Credit. Notwithstanding any
provision contained herein to the contrary, Lender shall have no obligation to
issue any Letter of Credit hereunder unless:
(a) Lender shall have received a current Borrowing Base
Certificate;
(b) Lender shall have received a Letter of Credit Request
for such Letter of Credit as required by Section 4.01(a);
(c) Lender shall have received a Letter of Credit
Application for such Letter of Credit as required by Section 4.01(a), duly
executed by an authorized officer of Borrower as account party;
(d) Borrower shall have complied with all of the
procedures and requirements set forth in Section 4.01;
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<PAGE> 28
(e) on the date of and immediately after the issuance of
such Letter of Credit, no Default or Event of Default under this Agreement
shall have occurred and be continuing;
(f) no material adverse change in the properties, assets,
liabilities, business, operations, prospects, income or condition (financial or
otherwise) of Borrower shall have occurred since the date of this Agreement and
be continuing;
(g) all of the representations and warranties of Borrower
contained in this Agreement and in the other Loan Documents shall be true and
correct in all material respects on and as of the date of the issuance of such
Letter of Credit as if made on and as of the date of the issuance of such
Letter of Credit (and for purposes of this Section 6.03(g), the representations
and warranties made by Borrower in Section 7.06 shall be deemed to refer to the
most recent financial statements of Borrower delivered to Lender pursuant to
Section 8.01);
(h) no proceeding or case under the United States
Bankruptcy Code or similar law or any other reorganization, receivership or
liquidation proceedings shall have been commenced by or against Borrower or any
of the Guarantors; and
(i) Lender shall have received such other documents,
certificates and agreements as it may reasonably request.
Each request for the issuance of a Letter of Credit by
Borrower hereunder shall be deemed to be a representation and warranty by
Borrower on the date of the issuance of such Letter of Credit as to the facts
specified in clauses (e), (f), (g) and (h) of this Section 6.03.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Revolving Credit Loans and the
Term Loan and to issue the Letters of Credit hereunder, Borrower represents and
warrants to Lender that:
Section 7.01. Organization and Good Standing. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois, is duly qualified as a foreign corporation and
in good standing in all states in which it is doing business or is otherwise
required to be qualified, has the corporate power and authority to own its
properties and assets and to transact the business in which it is engaged and
is or will be qualified in those states wherein it proposes to transact
business in the future.
Section 7.02. Authorization and Power. Borrower has the
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corporate power and requisite authority to execute, deliver and perform the
Loan Documents to be executed by Borrower. Borrower is duly authorized to, and
has taken all corporate action necessary to, authorize the execution, delivery
and performance by Borrower of the Loan Documents executed by Borrower.
Borrower is and will continue to be duly authorized to perform the Loan
Documents executed by Borrower.
Section 7.03. No Conflicts or Consents. Neither the
execution and delivery of the Loan Documents, nor the consummation of any of
the transactions therein contemplated, nor compliance with the terms and
provisions thereof, will contravene or conflict with any provision of law,
statute or regulation to which Borrower is subject or any judgment, license,
order or permit applicable to Borrower, or any indenture, loan agreement,
mortgage, deed of trust, or other agreement, document or instrument to which
Borrower is a party or by which Borrower may be bound, or to which Borrower may
be subject, or violate any provision of the Articles of Incorporation or
By-Laws of Borrower. No consent, approval, authorization or order of any court
or governmental authority or third party is required in connection with the
execution and delivery by Borrower of the Loan Documents or to consummate the
transactions contemplated hereby or thereby.
Section 7.04. Enforceable Obligations. The Loan Documents
have been duly executed and delivered by Borrower and constitute the legal and
binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms, except as such enforceability may be limited by
Debtor Laws.
Section 7.05. No Liens. Except for Permitted Liens, all of
the properties and assets of Borrower are free and clear of all Liens and other
adverse claims of any nature, and Borrower has good and marketable title to all
such properties and assets.
Section 7.06. Financial Condition. Borrower has delivered to
Lender copies of the balance sheet of Borrower as of December 31, 1994, and the
related statements of income, changes in stockholders' equity and cash flows
for the year ended such date, certified by D. Steven Hawkins, P.S.C.,
independent certified public accountants; such financial statements are true
and correct, fairly represent the financial condition of Borrower as of such
date and have been prepared in accordance with Generally Accepted Accounting
Principles applied on a basis consistent with that of prior periods; as of the
date hereof, there are no obligations, liabilities or Indebtedness (including
contingent and indirect liabilities and obligations) of Borrower which are
(separately or in the aggregate) material and are not reflected in such
financial statements; no changes having a Material Adverse Effect have occurred
since the date of such financial statements.
Section 7.07. Full Disclosure. There is no material
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<PAGE> 30
fact that Borrower has not disclosed to Lender which could have a Material
Adverse Effect on the properties, business, prospects or condition (financial
or otherwise) of Borrower. Neither the financial statements referenced in
Section 7.06 hereof, nor any certificate or statement delivered herewith or
heretofore by Borrower to Lender in connection with negotiations of this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary to keep the statements contained herein or therein
from being misleading.
Section 7.08. No Default. No event has occurred and is
continuing which constitutes a Default or an Event of Default.
Section 7.09. Material Agreements. Borrower is not in
default under any contract, lease, loan agreement, indenture, mortgage,
security agreement or other material agreement or obligation to which it is a
party or by which any of its properties is bound.
Section 7.10. No Litigation. Except as disclosed to Lender
pursuant to Section 6.01(k), there are no actions, suits or legal, equitable,
arbitration or administrative proceedings pending, or to the knowledge of
Borrower threatened, against Borrower that could, if adversely determined, have
a Material Adverse Effect. There has been no change since the date of this
Agreement in the status of any of the actions, suits, investigations,
litigation or proceedings referred to in the litigation disclosed to Lender
pursuant to Section 6.01(k) that is materially adverse to Borrower or to any
transactions contemplated by any of the Loan Documents.
Section 7.11. Burdensome Contracts. Borrower is not a party
to, or bound by, any contract which is a burdensome contract having a Material
Adverse Effect.
Section 7.12. Use of Proceeds; Margin Stock. The proceeds of
the Revolving Credit Loans and the Term Loan will be used by Borrower solely
for the purposes specified in Sections 2.10 and 3.08. None of such proceeds
will be used for the purpose of purchasing or carrying any "margin stock" as
defined in Regulation U, Regulation X or Regulation G, or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry a "margin stock" or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of such Regulation U,
Regulation X or Regulation G. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stocks.
Neither Borrower nor any Person acting on behalf of Borrower has taken or will
take any action which might cause the Notes or any of the other Loan Documents,
including this Agreement, to violate Regulation U, Regulation X or Regulation G
or any other regulations of the Board of Governors of the Federal Reserve
System or to violate Section 8
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of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in
each case as now in effect or as the same may hereinafter be in effect.
Borrower owns no "margin stock" except for that described in the financial
statements referred to in Section 7.06 hereof and, as of the date hereof, the
aggregate value of all "margin stock" owned by Borrower does not exceed 25% of
the value of all of the assets of Borrower.
Section 7.13. No Financing of Corporate Takeovers. No
proceeds of any of the Loans will be used to acquire any security in any
transaction which is subject to Sections 13 or 14 of the Securities Exchange
Act of 1934, including particularly (but without limitation) Sections 13(d) and
14(d) thereof.
Section 7.14. Taxes. All tax returns required to be filed by
Borrower in any jurisdiction have been filed and all taxes (including mortgage
recording taxes), assessments, fees and other governmental charges upon
Borrower or upon any of its properties, income or franchises have been paid
prior to the time that such taxes could give rise to a Lien thereon. There is
no proposed tax assessment against Borrower and there is no basis for such
assessment.
Section 7.15. Principal Office, Etc. The principal office,
chief executive office and principal place of business of Borrower is located
at 2525 Wayne Sullivan Drive, Paducah, Kentucky 42003. Borrower maintains its
principal books and records at such address.
Section 7.16. ERISA. If applicable, (a) no Reportable Event
has occurred and is continuing with respect to any Plan; (b) PBGC has not
instituted proceedings to terminate any Plan; (c) neither the Borrower, any
member of the Controlled Group, nor any duly-appointed administrator of a Plan
(i) has incurred any liability to PBGC with respect to any Plan other than for
premiums not yet due or payable or (ii) has instituted or intends to institute
proceedings to terminate any Plan under Sections 4041 or 4041A of ERISA or
withdraw from any Multi-Employer Pension Plan (as that term is defined in
Section 3(37) of ERISA); (d) each Plan of Borrower has been maintained and
funded in all material respects in accordance with its terms and with all
provisions of ERISA and the Code applicable thereto; (e) Borrower and all
members of any Controlled Group have complied with all applicable minimum
funding requirements of ERISA and the Code with respect to each Plan; (f) no
member of any Controlled Group has ever been required to contribute to a
Multi-Employee Pension Plan; (g) there are no unfunded benefit liabilities (as
defined in Section 4001(a)(18) of ERISA) with respect to any Plan of Borrower
or any member of the Controlled Group which pose a risk of causing a lien to be
created in the assets of Borrower; and (h) no material prohibited transaction
under the Code or ERISA has occurred with respect to any Plan of Borrower or a
member of the Controlled Group.
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Section 7.17. Compliance with Law. Borrower is in compliance
with all laws, rules, regulations, orders and decrees which are applicable to
Borrower or its properties.
Section 7.18. Government Regulation. Borrower is not subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act (as any of the preceding acts have been
amended) or any other law which regulates the incurring by Borrower of
Indebtedness, including but not limited to laws relating to common contract
carriers or the sale of electricity, gas, steam, water or other public utility
services.
Section 7.19. Insider. Borrower is not, and no Person having
"control" (as that term is defined in 12 U.S.C. Section(s) 375(b)(5) or in
regulations promulgated pursuant thereto) of Borrower is, an "executive
officer", "director" or "principal shareholder" (as those terms are defined in
12 U.S.C. Section(s) 375(b) or in regulations promulgated pursuant thereto) of
Lender, of a bank holding company of which Lender is a subsidiary, or of any
subsidiary of a bank holding company of which Lender is a subsidiary, or of any
bank at which Lender maintains a "correspondent account" (as such term is
defined in such statute or regulations) or of any bank which maintains a
correspondent account with Lender.
Section 7.20. Subsidiaries. Borrower does not have any
Subsidiaries other than Erzinger Equipment Co., a Missouri corporation.
Section 7.21. Fair Labor Standards Act. Borrower has
complied with, and will continue to comply with, the provisions of the Fair
Labor Standards Act of 1938, 29 U.S.C. Section(s) 200, et seq., as amended from
time to time (the "FLSA"), including specifically, but without limitation, 29
U.S.C. Section(s) 215(a). This representation and warranty, and each
re-confirmation hereof, shall constitute written assurance from Borrower, given
as of the date hereof and as of the date of each re-confirmation, that Borrower
has complied with the requirements of the FLSA, in general, and Section
15(a)(1), 29 U.S.C. Section(s) 15(a)(1), thereof, in particular.
Section 7.22. Casualties. Neither the business nor the
properties of Borrower are affected by any environmental hazard, fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, flood, earthquake, embargo, act of God or other casualty (whether or not
covered by insurance), which could have a Material Adverse Effect.
Section 7.23. Investment Company Act. Borrower is not an
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, and is not
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controlled by such a company.
Section 7.24. Sufficiency of Capital. Borrower is, and after
consummation of this Agreement and after giving effect to all Indebtedness
incurred and Liens created by Borrower in connection herewith will be, Solvent.
Section 7.25. Hazardous Substances. All real property owned,
leased or operated by Borrower is free from "hazardous substances" as defined
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section(s) 9601 et seq., as amended, and the regulations
promulgated pursuant thereto, and no portion of any such real property is
subject to federal, state or local regulation or liability because of the
presence of stored, leaked or spilled petroleum products, waste materials or
debris, "PCB's" or PCB items (as defined in 40 C.F.R. Section(s) 761.3),
underground storage tanks, "asbestos" (as defined in 40 C.F.R. Section(s)
763.63) or the past or present accumulation, spillage or leakage of any such
substance.
Section 7.26. Security Agreement; Description of Collateral.
The Security Agreement contains a description of all of the personal property
owned by Borrower sufficient to grant to Lender a perfected security interest
therein pursuant to applicable law. Upon the filing by Lender of Uniform
Commercial Code financing statements in McCracken County, Kentucky and with the
Secretaries of State of the States of Tennessee, Illinois, Missouri, Indiana,
Arkansas, Alabama and Mississippi, Lender will have a perfected first priority
security interest in all of the "Collateral" (as defined in the Security
Agreement) but excluding any portion of the Collateral consisting of "Fixtures"
(as defined in the Security Agreement), subject only to Permitted Liens.
Section 7.27. Corporate Name. Borrower has not, during the
preceding five (5) years, been known as or used any other corporate, fictitious
or tradenames except as disclosed on Exhibit M. Except as set forth on Exhibit
M, Borrower has not, during the preceding five (5) years, been the surviving
corporation of a merger or consolidation or acquired all or substantially all
of the assets of any Person.
Section 7.28. Non-Owned Assets. Borrower does not own or
have any right, title or interest in or to any of the assets listed on Exhibit
P attached hereto and incorporated herein by reference.
Section 7.29. Representations and Warranties. Each Loan made
in accordance with Section 2.01(a) and/or Section 3.01 and each Letter of
Credit issued in accordance with Section 4.01 shall constitute, without the
necessity of specifically containing a written statement, a representation and
warranty by Borrower that no Default or Event of Default exists and that all
representations
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and warranties of Borrower contained in this Agreement or in any of the other
Loan Documents are true and correct on and as of the date the requested Loan is
made or the requested Letter of Credit is issued, as the case may be, as if
made on and as of the date such Loan is made or such Letter of Credit is
issued.
Section 7.30. Survival of Representations and Warranties.
All representations and warranties by Borrower herein shall survive delivery of
the Notes, the making of the Loans and the issuance of the Letter of Credit,
and any investigation at any time made by or on behalf of Lender shall not
diminish Lender's right to rely thereon.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as (i) Lender has
any obligation to make any Loan hereunder or to issue any Letter of Credit
hereunder, (ii) any Letter of Credit remains outstanding or (iii) any of
Borrower's Obligations remain unpaid:
Section 8.01. Financial Statements, Reports and Documents.
Borrower shall deliver or cause to be delivered to Lender each of the
following:
(a) Monthly Statements of Borrower. As soon as available and
in any event within thirty (30) days after the end of each monthly fiscal
period of each fiscal year of Borrower, copies of the unaudited balance sheet
of Borrower as of the end of such monthly fiscal period, and unaudited
statements of income, changes in stockholders' equity and cash flows of
Borrower for that monthly fiscal period and for the portion of the fiscal year
ending with such period, in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail, and certified by the chief financial officer or chief
executive officer of Borrower as being true and correct and as having been
prepared in accordance with Generally Accepted Accounting Principles, subject
to year-end audit adjustments;
(b) Annual Statements of Borrower. As soon as available and
in any event within ninety (90) days after the close of each fiscal year of
Borrower, copies of the audited consolidated and consolidating balance sheets
of Borrower and its Subsidiaries as of the close of such fiscal year and the
related audited consolidated and consolidating statements of income, changes in
stockholders' equity and cash flows of Borrower and its Subsidiaries for such
fiscal year, in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and accompanied by an opinion
thereon (which shall not be qualified by reason of any limitation imposed by
Borrower) of D. Steven Hawkins,
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P.S.C., or of other independent public accountants selected by Borrower and
satisfactory to Lender, to the effect that such financial statements have been
prepared in accordance with Generally Accepted Accounting Principles
consistently maintained and applied (except for changes in which such
accountants concur) and that the examination of such accountants in connection
with such financial statements has been made in accordance with generally
accepted auditing standards and, accordingly, includes such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(c) Borrowing Base Certificates. As soon as available and in
any event within fifteen (15) days after the end of each monthly fiscal period
of each fiscal year of Borrower, or more frequently if requested by Lender, a
Borrowing Base Certificate, executed by the chief financial officer or chief
executive officer of Borrower, dated as of the end of the preceding fiscal
month, in the form of Exhibit I attached hereto (the "Borrowing Base
Certificate"), setting forth (i) the Borrowing Base and its components as of
the end of the immediately preceding month, and (ii) the difference, if any,
between the Borrowing Base and the Total Outstandings;
(d) Aging Reports; Schedules of Accounts. As soon as
available and in any event within fifteen (15) days after the end of each
quarterly fiscal period of each fiscal year of Borrower, or more frequently if
requested by Lender, a detailed aging report of Borrower's Accounts, in a form
and detail acceptable to Lender, which detail shall include, at a minimum,
complete addresses and telephone numbers for each of Borrower's Account
Debtors;
(e) Inventory Reports. As soon as available and in any event
within fifteen (15) days after the end of each quarterly fiscal period of each
fiscal year of Borrower, or more frequently if requested by Lender, a detailed
report of Borrower's Inventory, in a form and detail acceptable to Lender
(including, if requested by Lender, information relating to the "Leases" and
the "Account Debtors" (as defined in the Security Agreement) and the location
of the Inventory);
(f) Aging Reports; Schedules of Accounts Payable. As soon as
available and in any event within fifteen (15) days after the end of each
quarterly fiscal period of each fiscal year of Borrower, or more frequently if
requested by Lender, a detailed aging report of Borrower's accounts payable, in
a form and detail acceptable to Lender;
(g) Audit Reports. Promptly upon receipt thereof, one copy of
each written report submitted to Borrower by independent accountants in any
annual, quarterly or special audit made, it being understood and agreed that
all audit reports which are furnished to Lender pursuant to this Article VIII
shall be treated
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as confidential, but nothing herein contained shall limit or impair Lender's
right to disclose such reports to any appropriate Governmental Authority, or to
use such information to the extent pertinent to an evaluation of the
Obligations, or to enforce compliance with the terms and conditions of this
Agreement, or to take any lawful action which Lender deems necessary to protect
its interests under this Agreement;
(h) Compliance Certificate. Within thirty (30) days after the
end of each fiscal month of Borrower hereafter, a certificate in the form of
Exhibit O attached hereto executed by the chief financial officer or chief
executive officer of Borrower, stating that a review of the activities of
Borrower during such fiscal month has been made under his supervision and that
Borrower has observed, performed and fulfilled each and every obligation and
covenant contained herein and is not in default under any of the same or, if
any such default shall have occurred, specifying the nature and status thereof,
and setting forth a computation in reasonable detail as of the end of the
period covered by such statements, of compliance with Sections 9.14 and 9.15
hereof;
(i) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion
with respect to such financial statements, stating that they have reviewed this
Agreement and stating further whether, in making their audit, such accountants
have become aware of any condition or event which would constitute a Default or
an Event of Default under any of the terms or provisions of this Agreement
(insofar as any such terms or provisions pertain to accounting matters) and, if
any such condition or event then exists, specifying the nature and period of
existence thereof;
(j) Monthly Statements of Erzinger Equipment Co. As soon as
available and in any event within thirty (30) days after the end of each
monthly fiscal period of each fiscal year of Erzinger Equipment Co., a Missouri
corporation, copies of the unaudited balance sheet of Erzinger Equipment Co. as
of the end of such monthly fiscal period, and unaudited statements of income,
changes in stockholders' equity and cash flows of Erzinger Equipment Co. for
that monthly fiscal period and for the portion of the fiscal year ending with
such period, in each case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, all in reasonable detail,
and certified by the chief financial officer or chief executive officer of
Erzinger Equipment Co. as being true and correct and as having been prepared in
accordance with Generally Accepted Accounting Principles, subject to year-end
audit adjustments;
(k) Monthly Statements of M&M Properties, Inc. As soon as
available and in any event within thirty (30) days after the end of each
monthly fiscal period of each fiscal year of M&M Properties, Inc., an Alabama
corporation, copies of the unaudited
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balance sheet of M&M Properties, Inc. as of the end of such monthly fiscal
period, and unaudited statements of income, changes in stockholders' equity and
cash flows of M&M Properties, Inc. for that monthly fiscal period and for the
portion of the fiscal year ending with such period, in each case setting forth
in comparative form the figures for the corresponding period of the preceding
fiscal year, all in reasonable detail, and certified by the chief financial
officer or chief executive officer of M&M Properties, Inc. as being true and
correct and as having been prepared in accordance with Generally Accepted
Accounting Principles, subject to year-end audit adjustments;
(l) Annual Statements of M&M Properties, Inc. As soon as
available and in any event within ninety (90) days after the close of each
fiscal year of M&M Properties, Inc., copies of the audited balance sheet of M&M
Properties, Inc. as of the close of such fiscal year and the related audited
statements of income, changes in stockholders' equity and cash flows of M&M
Properties, Inc. for such fiscal year, in each case setting forth in
comparative form the figures for the preceding fiscal year, all in reasonable
detail and accompanied by an opinion thereon (which shall not be qualified by
reason of any limitation imposed by M&M Properties, Inc.) of Beason, Cutter &
Nalley, P.C., or of other independent public accountants selected by M&M
Properties, Inc. and satisfactory to Lender, to the effect that such financial
statements have been prepared in accordance with Generally Accepted Accounting
Principles consistently maintained and applied (except for changes in which
such accountants concur) and that the examination of such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards and, accordingly, includes such tests of
the accounting records and such other auditing procedures as were considered
necessary in the circumstances; and
(m) Other Information. Such other information concerning the
business, properties or financial condition of Borrower, any Subsidiary of
Borrower or M&M Properties, Inc. as Lender shall from time to time reasonably
request.
Section 8.02. Compliance with Loan Documents. Borrower shall
timely comply with any and all covenants and provisions of the Loan Documents
executed by Borrower.
Section 8.03. Payment of Taxes and Other Indebtedness.
Borrower shall pay and discharge (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
property belonging to it, before delinquent, (ii) all lawful claims (including
claims for labor, materials and supplies), which, if unpaid, might give rise to
a Lien upon any of its property and (iii) all of its other Indebtedness, except
as prohibited hereunder; provided, however, that Borrower shall not be required
to pay any such tax,
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assessment, charge or levy if and so long as the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate
proceedings and appropriate accruals and cash reserves therefor have been
established in accordance with Generally Accepted Accounting Principles.
Section 8.04. Maintenance of Existence and Rights; Conduct of
Business. Borrower shall preserve and maintain its corporate existence and all
of its rights, privileges and franchises necessary or desirable in the normal
conduct of its business, and conduct its business in an orderly and efficient
manner consistent with good business practices and in accordance with all
applicable regulations and orders of any Governmental Authority.
Section 8.05. Compliance with Material Agreements. Borrower
shall comply with all material agreements, indentures, mortgages or documents
binding on it or affecting its properties or business.
Section 8.06. Operations and Properties. Borrower shall act
prudently and in accordance with customary industry standards in managing or
operating its assets, properties, business and investments. Borrower shall
keep in good working order and condition, ordinary wear and tear excepted, all
of its assets and properties which are necessary to the conduct of its
business. Borrower shall maintain all real property which it owns, leases,
occupies or controls free from hazardous substances. Borrower shall indemnify
Lender and hold Lender harmless from and against any loss, cost or expense
(including, without limitation, reasonable attorneys' fees and expenses)
relating to or arising out of or in connection with any pollution, hazardous
substances or contamination of any property owned, leased, occupied or
controlled by Borrower.
Section 8.07. Compliance with Law. Borrower shall comply
with all applicable laws, rules, regulations and all orders of any Governmental
Authority applicable to it or any of its property, business operations or
transactions, a breach of which could have a Material Adverse Effect.
Section 8.08. Insurance. Borrower shall maintain worker's
compensation insurance, liability insurance and insurance on its properties,
assets and business, now owned or hereafter acquired, against such casualties,
risks and contingencies, and in such types and amounts, as are consistent with
customary practices and standards of companies engaged in similar businesses.
Section 8.09. Authorizations and Approvals. Borrower shall
promptly obtain, from time to time at its own expense, all such governmental
licenses, authorizations, consents, permits and approvals as may be required to
enable it to comply with its
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obligations hereunder and under the other Loan Documents.
Section 8.10. ERISA Compliance. Borrower shall (i) at all
times, make prompt payment of all contributions required under all Plans and
required to meet the minimum funding standard set forth in ERISA with respect
to its Plans, (ii) within thirty (30) days after the filing thereof, furnish to
Lender copies of each annual report/return (Form 5500 Series), as well as all
schedules and attachments required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA, and the regulations
promulgated thereunder, in connection with each of its Plans for each Plan
year, (iii) notify Lender immediately of any fact, including, but not limited
to, any Reportable Event arising in connection with any of its Plans, which
might constitute grounds for termination thereof by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer such Plan, together with a statement, if requested by Lender, as to
the reason therefor and the action, if any, proposed to be taken with respect
thereto and (iv) furnish to Lender, upon its request, such additional
information concerning any of its Plans as may be reasonably requested.
Section 8.11. Notice of Default. Borrower shall furnish to
Lender, immediately upon becoming aware of the existence of any condition or
event which constitutes a Default or would become a Default or an Event of
Default, written notice specifying the nature and period of existence thereof
and the action which Borrower is taking or proposes to take with respect
thereto.
Section 8.12. Other Notices. Borrower shall promptly notify
Lender of (i) any material adverse change in its financial condition or its
business, (ii) any default under any material agreement, contract or other
instrument to which it is a party or by which any of its properties are bound,
or any acceleration of the maturity of any Indebtedness owing by Borrower,
(iii) any material adverse claim against or affecting Borrower or any of its
properties and (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any Governmental
Authority affecting Borrower.
Section 8.13. Books and Records; Access. Borrower shall give
any representative of Lender access during all business hours to, and permit
such representative to, examine, copy or make excerpts from, any and all books,
records and documents in the possession of Borrower and relating to its
affairs, and to inspect any of the properties of Borrower. Borrower shall
maintain complete and accurate books and records of its transactions in
accordance with good accounting practices.
Section 8.14. Further Assurances. Borrower shall make,
execute or endorse, and acknowledge and deliver or file or cause the same to be
done, all such vouchers, invoices, notices,
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certifications and additional agreements, undertakings, conveyances, deeds of
trust, mortgages, transfers, assignments, financing statements or other
assurances, and take any and all such other action, as Lender may, from time to
time, deem reasonably necessary or proper in connection with any of the Loan
Documents, the obligations of Borrower thereunder, or for better assuring and
confirming unto Lender all or any part of the security for any of such
obligations, or for granting to Lender any security for the Obligations which
Lender may request from time to time.
Section 8.15. Operating Account. Borrower shall, at all
times, maintain Borrower's Operating Account with Lender.
Section 8.16. Indemnity by Borrower. Borrower shall
indemnify, save and hold harmless Lender and its directors, officers, agents,
attorneys, and employees (collectively, the "indemnitees") from and against:
(i) any and all claims, demands, actions or causes of action that are asserted
against any indemnitee by any Person if the claim, demand, action or cause of
action directly or indirectly relates to a claim, demand, action or cause of
action that the Person asserts or may assert against Borrower or any Affiliate
of Borrower, (ii) any and all claims, demands, actions or causes of action that
are asserted against any indemnitee if the claim, demand, action or cause of
action directly or indirectly relates to the Revolving Credit Commitment, the
Term Loan Commitment, the use of proceeds of the Revolving Credit Loans or the
Term Loan or the relationship of Borrower and Lender under this Agreement or
any transaction contemplated pursuant to this Agreement, (iii) any
administrative or investigative proceeding by any Governmental Authority
directly or indirectly related to a claim, demand, action or cause of action
described in clauses (i) or (ii) above and (iv) any and all liabilities,
losses, costs or expenses (including attorneys' fees and disbursements) that
any indemnitee suffers or incurs as a result of any of the foregoing; provided,
however, that Borrower shall have no obligation under this Section to Lender
with respect to any of the foregoing arising out of the gross negligence or
willful misconduct of Lender or the breach by Lender of this Agreement. Any
obligation or liability of Borrower to any indemnitee under this Section shall
survive the expiration or termination of this Agreement and the repayment of
the Obligations.
Section 8.17. Mortgagee's Consent. Borrower will deliver to
Lender on or before November 15, 1995, a Mortgagee's Consent in form and
substance satisfactory to Lender duly executed by The Kentucky Development
Finance Authority relating to the existing mortgage on the Borrower's office
located at 2525 Wayne Sullivan Drive, Paducah, Kentucky 42003.
ARTICLE IX
NEGATIVE COVENANTS
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<PAGE> 41
Borrower covenants and agrees that, so long as (i) Lender has
any obligation to make any Loan hereunder or to issue any Letter of Credit
hereunder, (ii) any Letter of Credit remains outstanding or (iii) any of the
Borrower's Obligations remain unpaid, unless the prior written consent of
Lender is obtained:
Section 9.01. Limitation on Indebtedness; Guaranties; Leases;
Sale and Leaseback. Borrower shall not:
(i) incur, create, contract, waive, assume, have outstanding,
guarantee or otherwise be or become, directly or indirectly, liable in respect
of any Indebtedness, except (A) Indebtedness arising out of this Agreement, (B)
Indebtedness secured by the Permitted Liens, (C) current liabilities for taxes
and assessments incurred in the ordinary course of business, (D) Indebtedness
in respect of current accounts payable or accrued (other than for borrowed
funds or purchase money obligations) and incurred in the ordinary course of
business, provided that all such liabilities, accounts and claims shall be
promptly paid and discharged when due or in conformity with customary trade
terms, (E) Indebtedness of Borrower as reflected on the attached Exhibit J and
(F) Indebtedness not otherwise permitted by this Section 9.01(i) in an amount
not exceeding $250,000.00 in the aggregate at any time outstanding;
(ii) become or be liable in respect of any Guaranty except for
the Guaranties in existence on the date of this Agreement and listed on Exhibit
J attached hereto and any renewals or extensions thereof;
(iii) become or be liable to pay Rentals during any 12-month
period which in the aggregate exceed $700,000.00; or
(iv) enter into any arrangement with any Person (including,
without limitation, any insurance company, bank or trustee) pursuant to which
Borrower will lease, as lessee, any property which it owned as of the date
hereof and which it sold, transferred or otherwise disposed of to such other
Person.
Section 9.02. Negative Pledge. Borrower shall not create,
incur, permit or suffer to exist any Lien upon any of its property or assets,
now owned or hereafter acquired, except for Permitted Liens.
Section 9.03. Liquidation, Mergers, Consolidations, Purchase
and Dispositions of Substantial Assets. Borrower shall not dissolve or
liquidate, or become a party to any merger or consolidation, or acquire by
purchase, lease or otherwise all or substantially all of the assets or capital
stock of any other Person, or sell, assign, convey, exchange, transfer, lease
or otherwise dispose of all or any substantial part of its properties,
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rights, assets or business, whether now owned or hereafter acquired, except for
sales or leases of Inventory in the ordinary course of business, or sell,
assign or discount any Accounts.
The term "substantial part" as used herein shall mean Ten
Percent (10%) or more of such property or assets of Borrower.
Section 9.04. Lines of Business. Borrower shall not,
directly or indirectly, engage in any business other than those in which it is
presently engaged, or discontinue any of its existing lines of business or
substantially alter its method of doing business.
Section 9.05. Alteration of Material Agreements. Borrower
shall not consent to or permit any alteration, amendment, modification,
release, waiver or termination of any material agreement to which it is a
party.
Section 9.06. Change in Management. Borrower shall not make
any significant change in its executive management.
Section 9.07. Name, Fiscal Year and Accounting Method.
Borrower shall not employ a trade name or assumed name, change its name or
change its fiscal year or method of accounting except as required by Generally
Accepted Accounting Principles; provided, however, Borrower may employ a trade
name or assumed name or change its name if Borrower has given Lender thirty
(30) days prior written notice of such trade name or assumed name or such name
change and taken such action as Lender deems necessary to continue the
perfection of the Liens securing payment of the Obligations.
Section 9.08. No Amendments. Borrower shall not amend its
Articles of Incorporation or its By-Laws.
Section 9.09. Restrictions on Dividends. Borrower shall not
directly or indirectly declare or make, or incur any liability to make, any
Dividend.
Section 9.10. Prepayments on Subordinated Indebtedness.
Borrower shall not directly or indirectly make any payment of any Subordinated
Indebtedness which would violate the terms of such Subordinated Indebtedness or
any subordination agreement applicable to such Subordinated Indebtedness.
Section 9.11. Limitation on Investments. Borrower shall not
make or have outstanding any Investments in any Person, except for Permitted
Investments and such other "cash equivalent" investments as Lender may from
time to time approve.
Section 9.12. Affiliate Transactions. Borrower shall not
enter into any transaction with, or pay any management fees to, any Affiliate;
provided, however, that Borrower may enter into
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<PAGE> 43
transactions with Affiliates upon terms no less favorable to Borrower than
would be obtainable at the time in comparable transactions by Borrower in arms
length dealings with Persons other than Affiliates.
Section 9.13. Subsidiaries. Borrower shall not create, form
or acquire any new Subsidiaries.
Section 9.14. Financial Covenants.
(a) Minimum Current Ratio. Borrower shall not permit its
ratio of Current Assets to Current Liabilities, as of any date, to be less than
1.7 to 1.0.
(b) Minimum Tangible Net Worth. Borrower shall not permit its
Tangible Net Worth to be less than (i) $5,500,000.00 at any time during the
period commencing on the date of this Agreement and ending December 30, 1995,
or (ii) $6,250,000.00 at any time on or after December 31, 1995.
(c) Maximum Indebtedness to Tangible Net Worth. Borrower
shall not permit the ratio of the Indebtedness of Borrower, determined in
accordance with Generally Accepted Accounting Principles consistently applied
but excluding the Indebtedness and Guaranties of Borrower listed on Exhibit J
attached hereto and marked with an asterisk or a double asterisk, to Tangible
Net Worth to be greater than (i) 2.75 to 1.0 at any time during the period
commencing on the date of this Agreement and ending December 30, 1995, or (ii)
2.25 to 1.0 at any time on or after December 31, 1995.
(d) Net Cash Flow to Current Maturities of Debt. Borrower
shall not permit the ratio of Net Cash Flow for any fiscal year of Borrower to
the Current Maturities of Debt for the next succeeding fiscal year of Borrower
to be less than 1.5 to 1.0. For the purposes of this Section, Borrower's "Net
Cash Flow" shall be that shown on the annual officer's certificate delivered
with respect to such fiscal year unless Lender makes an independent, good faith
determination of Net Cash Flow for such fiscal year.
If Lender's determination of Net Cash Flow for any fiscal year
end is less than Net Cash Flow as stated in the applicable officer's
certificate: (i) such determination by Lender shall be, if determined in
accordance with the foregoing provision and the definition of "Net Cash Flow"
in this Agreement, conclusive for purposes hereof and (ii) Lender shall
promptly advise Borrower of its determination.
(e) Maximum Consolidated Indebtedness to Consolidated Tangible
Net Worth. Borrower shall not permit the ratio of the Indebtedness of Borrower
and its Subsidiaries, determined on a consolidated basis and in accordance with
Generally Accepted
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Accounting Principles consistently applied but excluding the Indebtedness and
Guaranties of Borrower listed on Exhibit J attached hereto and marked with a
double asterisk, to Consolidated Tangible Net Worth to be greater than 4.5 to
1.0 as of December 31, 1995.
Section 9.15. Limitation on Capital Expenditures. Borrower
will not make any Capital Expenditure (excluding Capital Expenditures for
Inventory) if the sum of the aggregate amount of all Capital Expenditures
(including the Capital Expenditure in question) made by Borrower during any
fiscal year of Borrower would exceed $350,000.00.
Section 9.16. Calculation of Depreciation on Inventory.
Borrower will not change the methods or salvage value percentages used to
calculate depreciation on any of its Inventory from the methods and salvage
value percentages used in the preparation of Borrower's December 31, 1994,
audited financial statements.
Section 9.17. Limits on Guaranties. Borrower will not cause
or permit (i) any of the existing Guaranties executed by Borrower with respect
to Indebtedness of M&M Properties, Inc. to cover any Indebtedness incurred by
M&M Properties, Inc. on or after the date of this Agreement or (ii) the
aggregate outstanding principal amount of Indebtedness of Erzinger Equipment
Co. to Southwest Bank of St. Louis which is guaranteed by Borrower to exceed
$6,250,000.00 at any one time.
ARTICLE X
EVENTS OF DEFAULT
Section 10.01. Events of Default. An "Event of Default"
shall exist if any one or more of the following events (herein collectively
called "Events of Default"):
(a) Borrower shall fail or refuse to pay when due any
principal of, or interest on, any of the Notes or any of the other Obligations
or shall fail to pay when due any fee, expense or other payment required
hereunder;
(b) any representation or warranty made under this Agreement,
or any of the other Loan Documents, or in any certificate or statement
furnished or made to Lender pursuant hereto or in connection herewith or with
the Loans or Letters of Credit hereunder, shall prove to be untrue or
inaccurate in any material respect as of the date on which such representation
or warranty is made;
(c) Borrower shall fail or refuse to perform or observe any of
the terms, covenants, agreements or conditions contained in Sections 2.01,
2.10, 8.01(c), 8.01(e), 8.08, 8.11, 8.12, 8.13,
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8.14, 8.15 or 8.17 or Article IX herein;
(d) Borrower shall fail or refuse to perform or observe any of
the other terms, covenants, agreements or conditions contained in this
Agreement (other than those specified in Subsections 10.01(a), 10.01(b) or
10.01(c) above) or any of the other Loan Documents and any such failure or
refusal shall remain unremedied for fifteen (15) days after the earlier of (i)
written notice of default is given to Borrower by Lender or (ii) any officer of
Borrower obtaining knowledge of such default;
(e) default shall occur in the payment of any material
Indebtedness of Borrower or any of the Guarantors (other than the Obligations)
or default shall occur in respect of any note, loan agreement or credit
agreement relating to any such Indebtedness and such default shall continue for
more than the period of grace, if any, specified therein; or any such
Indebtedness shall become due before its stated maturity by acceleration of the
maturity thereof or shall become due by its terms and shall not be promptly
paid or extended;
(f) any of the Loan Documents shall cease to be legal, valid
and binding agreements enforceable against the Person executing the same in
accordance with the respective terms thereof or shall in any way be terminated
or become or be declared ineffective or inoperative or shall in any way
whatsoever cease to give or provide the respective liens, security interests,
rights, titles, interests, remedies, powers or privileges intended to be
created thereby;
(g) Borrower or any of the Guarantors shall (i) apply for or
consent to the appointment of a receiver, trustee, custodian, intervenor or
liquidator of itself or of all or a substantial part of such Person's assets,
(ii) file a voluntary petition in bankruptcy, admit in writing that such Person
is unable to pay such Person's debts as they become due or generally not pay
such Person's debts as they become due, (iii) make a general assignment for the
benefit of creditors, (iv) file a petition or answer seeking reorganization of
an arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (v) file an answer admitting the material allegations of, or
consent to, or default in answering, a petition filed against such Person in
any bankruptcy, reorganization or insolvency proceeding or (vi) take corporate
or other action for the purpose of effecting any of the foregoing;
(h) an involuntary petition or complaint shall be filed
against Borrower or any of the Guarantors seeking bankruptcy or reorganization
of such Person or the appointment of a receiver, custodian, trustee, intervenor
or liquidator of such Person, or all or substantially all of such Person's
assets, and such petition or complaint shall not have been dismissed within
thirty (30) days of the filing thereof; or an order, order for relief, judgment
or
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decree shall be entered by any court of competent jurisdiction or other
competent authority approving a petition or complaint seeking reorganization of
Borrower or any of the Guarantors or appointing a receiver, custodian, trustee,
intervenor or liquidator of such Person, or of all or substantially all of such
Person's assets;
(i) any final judgment(s) for the payment of money shall be
rendered against Borrower or any of the Guarantors and such judgment or
judgments shall not be satisfied or discharged at least ten (10) days prior to
the date on which any of its assets could be lawfully sold to satisfy such
judgment;
(j) both the following events shall occur: (i) either (x)
proceedings shall have been instituted to terminate, or a notice of termination
shall have been filed with respect to, any Plan (other than a Multi-Employer
Pension Plan as that term is defined in Section 3(37) of ERISA) by Borrower,
any of the Guarantors, any member of the Controlled Group, PBGC or any
representative of any thereof, or any such Plan shall be terminated, in each
case under Section 4041 or 4042 of ERISA, or (y) a Reportable Event, the
occurrence of which would cause the imposition of a lien under Section 4068 of
ERISA, shall have occurred with respect to any Plan (other than a
Multi-Employer Pension Plan as that term is defined in Section 3(37) of ERISA)
and be continuing for a period of sixty (60) days; and (ii) the sum of the
estimated liability to PBGC under Section 4062 of ERISA and the currently
payable obligations of Borrower or any of the Guarantors to fund liabilities
(in excess of amounts required to be paid to satisfy the minimum funding
standard of Section 412 of the Code) under the Plan or Plans subject to such
event shall exceed Ten Percent (10%) of Tangible Net Worth at such time;
(k) any or all of the following events shall occur with
respect to any Multi-Employer Pension Plan (as that term is defined in Section
3(37) of ERISA) to which Borrower contributes or contributed on behalf of its
employees: (i) Borrower or any of the Guarantors incurs a withdrawal liability
under Section 4201 of ERISA; or (ii) any such plan is "in reorganization" as
that term is defined in Section 4241 of ERISA; or (iii) any such Plan is
terminated under Section 4041A of ERISA and Lender determine in good faith that
the aggregate liability likely to be incurred by Borrower or any of the
Guarantors, as a result of all or any of the events specified in Subsections
(i), (ii) and (iii) above occurring, shall have a Material Adverse Effect;
(l) there shall occur any change in the condition (financial
or otherwise) of Borrower or any of the Guarantors which, in the reasonable
opinion of Lender, has a Material Adverse Effect;
(m) the death or incompetence of any of the Guarantors;
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(n) any "Event of Default" (as defined therein) shall occur
under or within the meaning of the Security Agreement;
(o) the Continuing Guaranty shall at any time for any reason
cease to be in full force and effect or shall be declared to be null and void
by a court of competent jurisdiction, or if the validity or enforceability
thereof shall be contested or denied by any of the Guarantors, or if any of the
Guarantors shall deny that he or she has any further liability or obligation
thereunder or if any of the Guarantors shall fail to comply with or observe any
of the terms, provisions or conditions contained in the Guaranty;
(p) the Life Insurance Assignment shall at any time for any
reason cease to be in full force and effect or shall be declared to be null and
void by a court of competent jurisdiction, or if the validity or enforceability
thereof shall be contested or denied by Michael A. Falconite, or if Michael A.
Falconite shall deny that he has any further liability or obligation thereunder
or if Michael A. Falconite shall fail to comply with or observe any of the
terms, provisions or conditions contained in the Life Insurance Assignment; or
(q) Lender, in good faith, deems itself insecure.
Section 10.02. Remedies Upon Event of Default. If an Event
of Default shall have occurred and be continuing, then Lender shall and may
exercise any one or more of the following rights and remedies, and any other
remedies provided in any of the Loan Documents, as Lender in its sole
discretion, may deem necessary or appropriate: (i) terminate Lender's
commitment to lend hereunder, (ii) declare the principal of, and all interest
then accrued on, the Notes and all of the other Obligations hereunder to be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Notes to the contrary notwithstanding, (iii) reduce any claim to judgment
and/or (iv) without notice of default or demand, pursue and enforce any of
Lender's rights and remedies under the Loan Documents, or otherwise provided
under or pursuant to any applicable law or agreement; provided, however, that
if any Event of Default specified in Sections 10.01 (g) and/or (h) shall occur,
the principal of, and all interest on, the Notes and all of the other
Obligations hereunder shall thereupon become due and payable concurrently
therewith, and Lender's obligations to lend shall immediately terminate
hereunder, without any further action by Lender and without presentment,
demand, protest, notice of default, notice of acceleration or of intention to
accelerate or other notice of any kind, all of which Borrower hereby expressly
waives.
Section 10.03. Performance by Lender. Should Borrower
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<PAGE> 48
fail to perform any covenant, duty or agreement contained herein or in any of
the Loan Documents, Lender may perform or attempt to perform such covenant,
duty or agreement on behalf of Borrower. In such event, Borrower shall, at the
request of Lender, promptly pay any amount expended by Lender in such
performance or attempted performance to Lender at its principal office in
Paducah, Kentucky, together with interest thereon at a rate per annum equal to
Two Percent (2%) over and above the Prime Rate (fluctuating as described in the
definition of "Prime Rate") from the date of such expenditure until paid.
Notwithstanding the foregoing, it is expressly understood that Lender does not
assume any liability or responsibility for the performance of any duties of
Borrower hereunder or under any of the Loan Documents or other control over the
management and affairs of Borrower.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Strict Compliance. If any action or failure
to act by Borrower violates any covenant or obligation of Borrower contained
herein, then such violation shall not be excused by the fact that such action
or failure to act would otherwise be required or permitted by any covenant (or
exception to any covenant) other than the covenant violated.
Section 11.02. Modification. All modifications, consents,
amendments or waivers of any provision of any Loan Document, or consent to any
departure by Borrower therefrom, shall be effective only if the same shall be
in writing by Lender and then shall be effective only in the specific instance
and for the purpose for which given.
Section 11.03. Accounting Terms and Reports. All accounting
terms not specifically defined in this Agreement shall be construed in
accordance with Generally Accepted Accounting Principles consistently applied
on the basis used by Borrower in prior years. All financial reports furnished
by Borrower to Lender pursuant to this Agreement shall be prepared in such form
and such detail as shall be satisfactory to Lender, shall be prepared on the
same basis as those prepared by Borrower in prior years and shall be the same
financial reports as those furnished to Borrower's officers and directors. All
financial projections furnished by Borrower to Lender pursuant to this
Agreement shall be satisfactory to Lender and shall be prepared on the same
basis as the financial reports furnished by Borrower to Lender.
Section 11.04. Waiver. No failure to exercise, and no delay
in exercising, on the part of Lender, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The
rights of Lender hereunder
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<PAGE> 49
and under the Loan Documents shall be in addition to all other rights provided
by law. No modification or waiver of any provision of this Agreement, the
Notes or any of the other Loan Documents, nor consent to departure therefrom,
shall be effective unless in writing and no such consent or waiver shall extend
beyond the particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other action in the
same, similar or other instances without such notice or demand.
Section 11.05. Payment of Expenses. Borrower agrees to pay
all costs and expenses of Lender (including, without limitation, the reasonable
attorneys' fees and expenses of Lender's legal counsel) incurred by Lender in
connection with the preservation and enforcement of and Lender's rights under
this Agreement, the Notes and/or the other Loan Documents, and all reasonable
costs and expenses of Lender (including, without limitation, the reasonable
fees and expenses of Lender's legal counsel) in connection with the
negotiation, preparation, execution and delivery of this Agreement, the Notes
and the other Loan Documents and any and all amendments, modifications and
supplements thereof or thereto.
Section 11.06. Notices. Except for telephonic notices
permitted herein, any notices or other communications required or permitted to
be given by this Agreement or any other documents and instruments referred to
herein must be given in writing and personally delivered, deposited with a
nationally recognized courier for overnight delivery, or mailed by prepaid
certified or registered mail to the party to whom such notice of communication
is directed, to the address of such party as follows:
(a) Borrower:
Falconite, Inc.
2525 Wayne Sullivan Drive
Paducah, Kentucky 42003
(Attention: Michael A. Falconite); and
(b) Lender: at its address shown below its name on
the signature page(s) hereof with a copy to James J. Murphy, Esq., Thompson &
Mitchell, One Mercantile Center, Suite 3300, St. Louis, Missouri 63101. Any
notice to be mailed or personally delivered may be mailed or delivered to the
principal offices of the party to whom such notice is addressed. Any such
notice or other communication shall be deemed to have been given (whether
actually received or not) on the day it is mailed or personally delivered as
aforesaid. Any party may change its address for purposes of this Agreement by
giving notice of such change to the other parties pursuant to this Section
11.06.
Section 11.07. Governing Law. This Agreement has been
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<PAGE> 50
prepared, is being executed and delivered and is intended to be performed in
the Commonwealth of Kentucky, and the substantive laws of such state and the
applicable federal laws of the United States of America shall govern the
validity, construction, enforcement and interpretation of this Agreement and
all of the other Loan Documents.
Section 11.08. Choice of Forum; Consent to Service of Process
and Jurisdiction. Any suit, action or proceeding against Borrower with respect
to this Agreement, the Notes or any judgment entered by any court in respect
thereof, may be brought in the courts of the Commonwealth of Kentucky, County
of McCracken, or in the United States courts located in the Commonwealth of
Kentucky, as Lender in its sole discretion may elect and Borrower hereby
submits to the non-exclusive jurisdiction of such courts for the purpose of any
such suit, action or proceeding. Borrower hereby agrees that service of all
writs, process and summonses in any such suit, action or proceeding brought in
the Commonwealth of Kentucky may be brought upon the Process Agent, and
Borrower hereby irrevocably appoints the Process Agent as its true and lawful
attorney-in-fact in the name, place and stead of Borrower to accept such
service of any and all such writs, process and summonses, and agrees that the
failure of Process Agent to give any notice of such service of process to it
shall not impair or affect the validity of such service or of any judgment
based thereon. Borrower hereby irrevocably consents to the service of process
in any suit, action or proceeding in said court by the mailing thereof by
Lender by registered or certified mail, postage prepaid, to Borrower's address
set forth in Section 11.06 hereof. Borrower hereby irrevocably waives any
objections which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
of the Notes brought in the courts located in the Commonwealth of Kentucky,
County of McCracken, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
any inconvenient forum.
Section 11.09. Invalid Provisions. If any provision of any
Loan Document is held to be illegal, invalid or unenforceable under present or
future laws during the term of this Agreement, such provision shall be fully
severable; such Loan Document shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of such
Loan Document; and the remaining provisions of such Loan Document shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from such Loan Document.
Furthermore, in lieu of each such illegal, invalid or unenforceable provision,
a provision mutually agreeable to Borrower and Lender shall be added as part of
such Loan Document as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
In the event Borrower and Lender are unable to agree
- 50 -
<PAGE> 51
upon a provision to be added to the Loan Document within a period of ten (10)
Business Days after a provision of the Loan Document is held to be illegal,
invalid or unenforceable, then a provision acceptable to Lender as similar in
terms to the illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable shall be added automatically to such Loan
Document. In either case, the effective date of the added provision shall be
the date upon which the prior provision was held to be illegal, invalid or
unenforceable.
Section 11.10. Conflicting Provisions. All of the terms,
covenants, agreements and conditions contained in this Agreement and the other
Loan Documents shall be given independent effect so that if a particular
action, event or condition is prohibited by any one of such terms, covenants,
agreements or conditions, the fact that it would be permitted by an exception
to, or otherwise be in compliance within the provisions of, another term,
covenant, agreement or condition shall not avoid the occurrence of a Default or
an Event of Default if such action is taken, such event occurs or such
condition exists.
Section 11.11 Confidentiality. Lender agrees to hold any
Confidential Information which it may receive from Borrower pursuant to this
Agreement in confidence, except for disclosure (i) to legal counsel,
accountants and other professional advisors, (ii) to regulatory officials,
(iii) as required by law or legal process or in connection with any legal
proceeding and (iv) to another financial institution in connection with a
disposition or proposed disposition (whether by way of assignment,
participation or otherwise) of any of Lender's interests hereunder or under the
Notes or any of the other Loan Documents. For purposes of this Section 11.11,
"Confidential Information" shall mean all documents, materials and information
concerning Borrower which are furnished, made available or otherwise disclosed
to Lender by or on behalf of Borrower other than information which (i) was or
becomes generally available to the public other than as a result of a
disclosure by Lender or its agents or representatives, (ii) was available to
Lender on a nonconfidential basis prior to its disclosure by Borrower or (iii)
becomes available to Lender on a nonconfidential basis from an independent
source, provided that such source was not itself bound by an obligation of
confidentiality owed to Borrower and known to Lender.
Section 11.12. Nonliability of Lender. The relationship
between Borrower and Lender is, and shall at all times remain, solely that of
borrower and lender, and Lender neither undertakes nor assumes any
responsibility or duty to Borrower to review, inspect, supervise, pass judgment
upon or inform Borrower of any matter in connection with any phase of
Borrower's business, operations or condition, financial or otherwise. Borrower
shall rely entirely upon its own judgment with respect to such matters, and any
review, inspection, supervision, exercise of judgment or
- 51 -
<PAGE> 52
information supplied to Borrower by Lender in connection with any such matter
is for the protection of Lender, and neither Borrower nor any third party is
entitled to rely thereon.
Section 11.13. Offset. Borrower hereby grants to Lender the
right of offset, to secure repayment of the Obligations, upon any and all
moneys, securities or other property of Borrower and the proceeds therefrom,
now or hereafter held or received by or in transit to Lender, or any of its
agents, from or for the account of Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower, and any and all claims
of Borrower against Lender at any time existing.
Section 11.14. Binding Effect. The Loan Documents shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors, assigns and legal representatives; provided, however,
that Borrower may not, without the prior written consent of Lender, assign or
delegate any of its rights, powers, duties or obligations thereunder.
Section 11.15. Entirety. The Loan Documents embody the
entire agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof.
Section 11.16. Headings. Section headings are for
convenience of reference only and shall in no way affect the interpretation of
this Agreement.
Section 11.17. Survival. All representations and warranties
made by Borrower herein shall survive delivery of the Notes and the making of
the Loans.
Section 11.18. Loan Participations and Transfers. In
addition to its rights to assign duties and rights hereunder pursuant to
Section 11.14 hereof, Lender shall have the right to enter into one or more
participation agreements with any other creditor(s) with respect to the Notes
or transfer its rights and duties hereunder and the other Loan Documents to any
other creditor(s) and thereafter have no further responsibility hereunder.
Section 11.19. No Third Party Beneficiary. The parties do
not intend the benefits of this Agreement to inure to any third party, nor
shall this Agreement be construed to make or render Lender liable to any
materialman, supplier, contractor, subcontractor, purchaser or lessee of any
property owned by Borrower, or for debts or claims accruing to any such persons
against Borrower. Notwithstanding anything contained herein, in the Notes or
in any other Loan Document, or any conduct or course of conduct by any or all
of the parties hereto, before or after
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<PAGE> 53
signing this Agreement neither this Agreement nor any other Loan Document shall
be construed as creating any right, claim or cause of action against Lender or
any of its officers, directors, agents or employees, in favor of any
materialman, supplier, contractor, subcontractor, purchaser or lessee of any
property owned by Borrower nor to any other person or entity other than
Borrower.
Section 11.20. Multiple Counterparts. This Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart.
Section 11.21. Resurrection of Borrower's Obligations. To the
extent that Lender receives any payment on account of any of Borrower's
Obligations, and any such payment(s) or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, subordinated
and/or required to be repaid to a trustee, receiver or any other Person under
any bankruptcy act, state or federal law, common law or equitable cause, then,
to the extent of such payment(s) received, Borrower's Obligations or part
thereof intended to be satisfied and any and all Liens upon or pertaining to
any property or assets of Borrower and theretofore created and/or existing in
favor of Lender as security for the payment of such Borrower's Obligations
shall be revived and continue in full force and effect, as if such payment(s)
had not been received by Lender and applied on account of Borrower's
Obligations.
SECTION 11.22. WAIVER OF TRIAL BY JURY. BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY
BORROWER MAY HAVE IN ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH
THE LOAN DOCUMENTS. BORROWER CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF
LENDER OR LENDER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER
WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF THE
JURY TRIAL PROVISION. BORROWER ACKNOWLEDGES THAT LENDER HAS BEEN INDUCED TO
EXECUTE THE LOAN DOCUMENTS IN PART BY THE PROVISIONS OF THIS WAIVER.
IN WITNESS WHEREOF, Borrower and Lender have executed this
Revolving Credit and Term Loan Agreement as of the day and year first above
written.
BORROWER:
FALCONITE, INC.
By: /s/ Michael A. Falconite
-------------------------------------------
Name: Michael A. Falconite
-----------------------------------------
Title: President
----------------------------------------
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<PAGE> 54
LENDER:
------
CITIZENS BANK & TRUST COMPANY
OF PADUCAH
By: /s/ Scott A. Houston
------------------------------------------------
Name: Scott A. Houston
----------------------------------------------
Title: Vice President
---------------------------------------------
Address for Notice:
333 Broadway
P.O. Box 2400
Paducah, Kentucky 42002
Attn: Commercial Banking
Department
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<PAGE> 1
EXHIBIT 10.18
REVOLVING CREDIT NOTE
$7,000,000.00 October 5, 1995
FOR VALUE RECEIVED, on the Commitment Termination Date, the
undersigned, FALCONITE, INC., an Illinois corporation (the "Borrower"), hereby
unconditionally promises to pay to the order of CITIZENS BANK & TRUST COMPANY OF
PADUCAH (the "Lender"), the principal sum of Seven Million Dollars
($7,000,000.00), or such lesser amount as may then be outstanding under this
Note. The aggregate principal amount which Lender shall be committed to have
outstanding under this Note at any one time shall not exceed the lesser of (i)
Seven Million Dollars ($7,000,000.00) or (ii) the Borrowing Base, which amount
may be borrowed, paid, reborrowed and repaid, in whole or in part, subject to
the terms and conditions hereof and of the Loan Agreement.
Borrower further promises to pay to the order of Lender interest on
the from time to time outstanding principal balance of this Note at the rates
and on the dates set forth in the Loan Agreement. All payments under this Note
(other than prepayments) shall be allocated among the principal, interest, late
fees, collection costs and expenses and other amounts due under this Note in
such order and manner as Lender shall elect. All prepayments under this Note
shall be applied solely to the payment of principal.
If Borrower fails to make any payment of any principal of or interest
on this Note within ten (10) days after the date the same shall become due and
payable, whether by reason of maturity, acceleration or otherwise, in addition
to all of Lender's other rights and remedies under the Loan Documents and at law
or in equity, Borrower hereby promises to pay to the order of Lender on demand
with respect to each such late payment a late fee in an amount equal to the
greater of (a) Five Percent (5%) of the amount of such late payment or (b) Fifty
Dollars ($50.00). Borrower hereby authorizes Lender to automatically debit
Borrower's Operating Account (or any one of its other depository accounts) with
Lender for any late charge Lender is entitled to and Borrower does not include
it with its regularly scheduled payment(s) when paid.
The amount of interest accruing under this Note shall be computed on
an actual day, 360-day year basis. All payments of principal and interest under
this Note shall be made in lawful currency of the United States in Federal or
other immediately available funds at the office of Lender situated at 333
Broadway, Paducah, Kentucky 42001, or at such other place as the holder hereof
shall designate in writing.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
<PAGE> 2
This Note has been executed and delivered pursuant to the terms of that
certain Revolving Credit and Term Loan Agreement dated the date hereof by and
between Borrower and Lender (as the same may from time to time be amended,
modified, extended or renewed, the "Loan Agreement") and is the "Revolving
Credit Note" referred to therein. Reference is hereby made to the Loan
Agreement for a statement of (i) the obligations of Lender to advance funds
hereunder, (ii) the events upon which the maturity of this Note may be
accelerated and (iii) other terms and conditions, including prepayment, which
may affect this Note. All capitalized terms used and not otherwise defined
herein shall have the respective meanings assigned to them in the Loan
Agreement.
This Note is secured by that certain Security Agreement dated the date
hereof and executed by Borrower in favor of Lender (as the same may from time
to time be amended, modified, extended or renewed, the "Security Agreement").
Reference is hereby made to the Security Agreement for (i) a description of the
security and (ii) a statement of the terms and conditions upon which this Note
is secured.
As consideration for this Note, the Guarantors have executed a
Continuing Guaranty dated the date hereof in favor of Lender (as the same may
from time to time be amended, modified, extended or renewed, the "Continuing
Guaranty"). Reference is hereby made to the Continuing Guaranty for (i) a
description of the guaranty and (ii) a statement of the terms and conditions
upon which this Note is guaranteed.
If Borrower shall fail to make any payment of principal of or interest
on this Note as and when the same shall become due and payable, or if any
"Event of Default" (as defined therein) shall occur under or within the meaning
of the Loan Agreement or the Security Agreement, then Lender may, at its
option, terminate its obligation to make any additional loans under this Note
and Lender may further declare the entire outstanding principal balance of this
Note and all accrued and unpaid interest thereon to be immediately due and
payable.
Borrower and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable on this Note jointly and
severally waive demand for payment, presentment, protest, notice of protest and
non-payment, or other notice of default, notice of acceleration and intention
to accelerate, and agree that their liability under this Note shall not be
affected by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the payment of
this Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes, regardless of the number of such renewals, extensions,
indulgences, releases or changes.
No waiver by Lender of any of its rights or remedies hereunder or under
any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other
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<PAGE> 3
subsequent right or remedy of Lender; no delay or omission in the exercise or
enforcement by Lender of any rights or remedies shall ever be construed as a
waiver of any right or remedy of Lender; and no exercise or enforcement of any
such rights or remedies shall ever be held to exhaust any right or remedy of
Lender.
This Note is being executed and delivered, and is intended to be
performed, in the Commonwealth of Kentucky. Except to the extent that the laws
of the United States of America may apply to the terms hereof, the substantive
laws of the Commonwealth of Kentucky shall govern the validity, construction,
enforcement and interpretation of this Note. In the event of a dispute
involving this Note or any other instruments executed in connection herewith,
Borrower irrevocably agrees that venue for such dispute shall lie in any court
of competent jurisdiction located in McCracken County, Kentucky.
If this Note is placed in the hands of an attorney for collection or
or foreclosure of the Security Agreement securing payment hereof, or if this
Note is collected through any legal proceedings at law or in equity or in
bankruptcy, receivership or other court proceedings, Borrower promises to pay
all costs and expenses of such collection and/or foreclosure, including,
without limitation, court costs and the reasonable attorney's fees and expenses
of the holder hereof.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVERS ANY
RIGHT TO TRIAL BY JURY BORROWER MAY HAVE IN ANY LITIGATION ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE. BORROWER CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF LENDER OR LENDER'S COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION,
SEEK TO ENFORCE THIS WAIVER OF JURY TRIAL PROVISION. BORROWER ACKNOWLEDGES
THAT LENDER HAS BEEN INDUCED TO ACCEPT THIS NOTE IN PART BY THE PROVISIONS OF
THIS WAIVER.
IN WITNESS WHEREOF, Borrower has executed this Revolving Credit Note as
of the day and year first above written.
BORROWER:
FALCONITE, INC.
By: /s/ Michael A. Falconite
----------------------------------
Name: Michael A. Falconite
--------------------------------
Title: Pres.
-------------------------------
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<PAGE> 1
EXHIBIT 10.19
FIRST AMENDMENT TO TERM LOAN PROMISSORY NOTE
THIS FIRST AMENDMENT TO TERM LOAN PROMISSORY NOTE (this
"Amendment") is made this 5th day of January, 1996, by FALCONITE, INC., an
Illinois corporation ("Borrower"), and is accepted by CITIZENS BANK & TRUST
COMPANY OF PADUCAH ("Lender").
WITNESSETH:
WHEREAS, Borrower has heretofore executed and delivered to
Lender its Term Loan Promissory Note dated October 5, 1995, and payable to the
order of Lender in the original principal amount of Seven Million Dollars
($7,000,000.00) (the "Note"); and
WHEREAS, Borrower desires to (i) borrow an additional sum of
Two Million Dollars ($2,000,000.00) from Lender and (ii) amend the Note to,
among other things, increase the principal amount of the Note from Seven
Million Dollars ($7,000,000.00) to Nine Million Dollars ($9,000,000.00), and
Lender is willing to make said additional Two Million Dollar ($2,000,000.00)
loan to Borrower and to consent to said amendments to the Note on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower hereby amends the Note as follows:
1. The reference at the top of the Note to the number
"$7,000,000.00" is hereby deleted in its entirety and the number
"$9,000,000.00" substituted in lieu thereof.
2. The first full paragraph on page 1 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"FOR VALUE RECEIVED, the undersigned, FALCONITE,
INC., an Illinois corporation (the "Borrower"), hereby
unconditionally promises to pay to the order of CITIZENS BANK
& TRUST COMPANY OF PADUCAH (the "Lender"), the principal sum
of Nine Million Dollars ($9,000,000.00) in the manner and on
the dates set forth in the Loan Agreement."
3. The first full paragraph on page 2 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"This Note has been executed and delivered pursuant
to the terms of that certain Revolving Credit and Term Loan
Agreement dated October 5, 1995, by and between Borrower and
Lender, as amended by that certain First Amendment to
Revolving Credit and Term Loan Agreement dated January 5, 1996
(as so amended and as the same may from time to time be
further amended, modified, extended or renewed, the "Loan
Agreement") and is the
<PAGE> 2
"Term Note" referred to therein. Reference is hereby made to
the Loan Agreement for a statement of (i) the events upon
which the maturity of this Note may be accelerated and (ii)
other terms and conditions, including prepayment, which may
affect this Note. All capitalized terms used and not
otherwise defined herein shall have the respective meanings
assigned to them in the Loan Agreement."
4. The third full paragraph on page 2 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"As consideration for this Note, the Guarantors have
executed a Continuing Guaranty dated October 5, 1995, in favor
of Lender, as amended by a First Amendment to Continuing
Guaranty dated January 5, 1996 (as so amended and as the same
may from time to time be further amended, modified, extended
or renewed, the "Continuing Guaranty"). Reference is hereby
made to the Continuing Guaranty for (i) a description of the
guaranty and (ii) a statement of the terms and conditions
upon which this Note is guaranteed."
5. Except to the extent specifically amended by this
Amendment, all of the terms, provisions and conditions contained in the Note
shall be and remain in full force and effect and the same are hereby ratified
and confirmed.
6. All references in the Note to "this Note" and any
other references of similar import shall henceforth mean the Note as amended by
this Amendment.
7. Borrower hereby represents and warrants to Lender
that:
(a) the execution, delivery and performance by Borrower
of this Amendment are within the corporate powers of Borrower, have been duly
authorized by all necessary corporate action and require no action by or in
respect of, or filing with, any governmental or regulatory body, agency or
official or any other third party;
(b) the execution, delivery and performance by Borrower
of this Amendment do not conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under or result in any
violation of, the terms of the Articles of Incorporation or By-Laws of
Borrower, any applicable law, rule, regulation, order, writ, judgment or decree
of any court or governmental or regulatory agency or instrumentality or any
agreement, document or instrument to which Borrower is a party or by which it
is bound or to which it is subject;
(c) this Amendment has been duly executed and delivered
by Borrower and constitutes the legal, valid and binding obligation
- 2 -
<PAGE> 3
of Borrower enforceable against Borrower in accordance with its terms; and
(d) as of the date hereof, all of the representations,
warranties and covenants of Borrower set forth in the Note are true and correct
and no default or event of default under or within the meaning of the Note has
occurred and is continuing.
8. This Amendment shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns,
except that Borrower may not assign or delegate any of its rights or
obligations hereunder.
9. This Amendment shall be governed by and construed in
accordance with the substantive laws of the Commonwealth of Kentucky (without
reference to conflict of law principles).
10. In the event of any inconsistency or conflict between
the Note and this Amendment, the terms, provisions and conditions contained in
this Amendment shall govern and control.
11. Lender is hereby authorized to attach this Amendment
to the Note as a part thereof.
IN WITNESS WHEREOF, Borrower has executed this First Amendment
to Term Loan Promissory Note this 5th day of January, 1996.
FALCONITE, INC.
By: /s/ Michael A. Falconite
------------------------------------
Name: Michael A. Falconite
------------------------------------
Title: President
------------------------------------
Accepted this 5th day of January, 1996.
CITIZENS BANK & TRUST COMPANY OF PADUCAH
By: /s/ Scott A. Houston
------------------------------------
Name: Scott A. Houston
------------------------------------
Title: Vice President
------------------------------------
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<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN
AGREEMENT (this "Amendment") is made and entered into this 5th day of
January, 1996, by and between FALCONITE, INC., an Illinois corporation
("Borrower"), and CITIZENS BANK & TRUST COMPANY OF PADUCAH ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender have heretofore entered into that
certain Revolving Credit and Term Loan Agreement dated October 5, 1995 (the
"Loan Agreement"; all capitalized terms used and not otherwise defined in this
Amendment shall have the respective meanings ascribed to them in the Loan
Agreement as amended by this Amendment); and
WHEREAS, Borrower desires to borrow an additional sum of Two
Million Dollars ($2,000,000.00) from Lender; and
WHEREAS, Borrower and Lender desire to amend the Loan
Agreement in the manner hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Lender hereby agree as follows:
1. The definition of "Continuing Guaranty" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Continuing Guaranty" shall mean that certain
Continuing Guaranty dated October 5, 1995, and executed by the
Guarantors in favor of Lender (an unexecuted copy of which is
attached hereto as Exhibit F), as amended by that certain
First Amendment to Continuing Guaranty dated January 5,
1996 (an unexecuted copy of which is attached hereto as
Exhibit F-1), and as the same may from time to time be further
amended, modified, extended or renewed."
2. The definition of "Eligible Accounts" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Eligible Accounts" shall mean, at the time of any
determination thereof, each Account as to which the following
requirements have been fulfilled to the reasonable
satisfaction of Lender:
(i) Borrower has lawful and absolute title to such
Account;
<PAGE> 2
(ii) such Account arose from a transaction in the
ordinary course of business of Borrower;
(iii) such Account is a valid, legally enforceable
obligation of the Account Debtor for goods or services
previously sold, leased, rented or rendered to such Account
Debtor;
(iv) such Account is evidenced by an invoice rendered
to the Account Debtor and such Account is not evidenced by any
chattel paper, promissory note or other instrument;
(v) such Account does not represent a progress
billing. For the purposes of this definition, "progress
billing" shall mean any invoice for goods or services sold or
services rendered under contract or agreement pursuant to
which the Account Debtor's obligation to pay such invoice is
conditioned upon Borrower's completion of any further
performance under the contract or agreement;
(vi) such Account is not conditional such as those
accounts commonly known as "bill and hold accounts" or
accounts of a similar or like arrangement;
(vii) such Account did not arise from a transaction
whereby it is subject to a "consignment sale", a "sale on
approval" or a "sale or return" arrangement;
(viii) such Account does not remain unpaid for more
than, and is not due and payable more than, (A) ninety (90)
days from the invoice date for all Accounts other than
Accounts owed by The Carbide/Graphite Group, Inc. or the
Tennessee Valley Authority, (B) one hundred twenty (120) days
from the invoice date for all Accounts owed by The
Carbide/Graphite Group, Inc. or (C) one hundred fifty (150)
days from the invoice date for all Accounts owed by the
Tennessee Valley Authority;
(ix) no Account Debtor in respect to such Account, if
it is owing to Borrower on any Accounts that have remain
unpaid for more than (A) ninety (90) days from the invoice
date for all Account Debtors other than The Carbide/Graphite
Group, Inc. or the Tennessee Valley Authority, (B) one hundred
twenty (120) days from the invoice date for The
Carbide/Graphite Group, Inc. or (C) one hundred fifty (150)
days from the invoice date for the Tennessee Valley Authority,
has more than Twenty Percent (20%) of the aggregate dollar
value of Accounts owed by such Account Debtor remaining unpaid
for more than (A) ninety (90) days from the invoice date for
all Account Debtors other than The Carbide/Graphite Group,
Inc. or the Tennessee Valley Authority, (B) one hundred twenty
(120) days from the invoice date for The
- 2 -
<PAGE> 3
Carbide/Graphite Group, Inc. or (C) one hundred fifty (150)
days from the invoice date for the Tennessee Valley Authority;
(x) such Account is not subject to any dispute,
offset, counterclaim, discount (except for prompt payment
discounts that do not exceed Two Percent (2%) of the invoice
amount) or other claim or defense on the part of the Account
Debtor or to any claim on the part of the Account Debtor
denying liability under such Account;
(xi) Borrower has not extended the time for payment
of such Account;
(xii) in respect to an Account owing by an Account
Debtor located in New Jersey, Minnesota or West Virginia,
Borrower has filed all legally required Notice of Business
Activities Reports with the New Jersey Division of Taxation,
the Minnesota Department of Revenue or the West Virginia Tax
Commissioner, as the case may be, or Borrower is otherwise
exempt from such reporting requirements under the laws of such
State(s);
(xiii) no Account Debtor in respect of such Account
is (A) conducting business in any jurisdiction located outside
the United States of America, (B) an Affiliate of Borrower,
(C) any Governmental Authority, domestic or foreign (other
than the Tennessee Valley Authority) or (D) the subject of a
proceeding under any Debtor Laws;
(xiv) Borrower has the full and unqualified right to
assign and grant a security interest in such Account to Lender
as security for the Obligations;
(xv) such Account is subject to a fully perfected
first priority security interest in favor of Lender pursuant
to the Security Agreement, prior to the rights of, and
enforceable as such against, any other Person;
(xvi) such Account is not subject to any Lien in
favor of any Person other than the Lien of Lender pursuant to
the Security Agreement; and
(xvii) Lender has not otherwise advised Borrower that
such Account (or Account Debtor) is, in its sole discretion,
ineligible."
3. The definition of "Life Insurance Assignment" set forth
in Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Life Insurance Assignment" shall mean (i) that
certain Assignment of Life Insurance Policy as Collateral
dated October 5, 1995, and executed by Michael A.
- 3 -
<PAGE> 4
Falconite in favor of Lender (an unexecuted copy of which is
attached hereto as Exhibit G), as the same may from time to
time be amended, modified, extended or renewed and/or (ii)
that certain Assignment of Life Insurance Policy as Collateral
dated January 5, 1996, and executed by Michael A. Falconite in
favor of Lender (an unexecuted copy of which is attached
hereto as Exhibit G-1), as the same may from time to time be
amended, modified, extended or renewed."
4. The definition of "Term Loan Commitment" set forth
in Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Term Loan Commitment" shall mean the sum of Nine
Million Dollars ($9,000,000.00)."
5. Sections 3.01 and 3.02 of the Loan Agreement are
hereby deleted in their entirety and the following substituted in lieu thereof:
"Section 3.01. Term Loan Commitment. Lender made
Borrower a term loan in the amount of Seven Million Dollars
($7,000,000.00) on October 13, 1995, and, subject to the terms
and conditions of this Agreement and so long as no Default or
Event of Default under this Agreement has occurred, Lender
agrees to loan Borrower an additional sum of Two Million
Dollars ($2,000,000.00) on or about January 8, 1996, and
thereby increase the amount of said term loan from Seven
Million Dollars ($7,000,000.00) to Nine Million Dollars
($9,000,000.00) (said term loan as so increased is hereinafter
referred to as the "Term Loan").
Section 3.02. Term Note. The Term Loan made under
Section 3.01 hereof by Lender shall be evidenced by a Term
Loan Promissory Note of Borrower dated October 5, 1995, and
payable to the order of Lender in the original principal
amount of Seven Million Dollars ($7,000,000.00) in the form
attached hereto as Exhibit B and incorporated herein by
reference, as amended by a First Amendment to Term Loan
Promissory Note dated January 5, 1996, in the form attached
hereto as Exhibit B-1 and incorporated herein by reference (as
so amended and as the same may from time to time be further
amended, modified, extended or renewed, the "Term Note")."
6. Section 3.04 of the Loan Agreement is hereby deleted
in its entirety and the following substituted in lieu thereof:
"Section 3.04. Principal Payments. Principal on the
Term Note shall be due and payable in nine (9) consecutive
monthly installments as follows: three (3) equal consecutive
monthly installments in the amount of
- 4 -
<PAGE> 5
One Hundred Sixteen Thousand Six Hundred Sixty-Six and 67/100
Dollars ($116,666.67) each, due and payable on the last day of
each calendar month commencing October 31, 1995; five (5)
equal consecutive monthly installments in the amount of One
Hundred Fifty Thousand Dollars ($150,000.00) each, due and
payable on the last day of each calendar month commencing
January 31, 1996; with the ninth (9th) and final installment
in the amount of the then outstanding and unpaid principal
balance of the Term Note due and payable on the Maturity Date.
In addition to the scheduled monthly principal payments set
forth above, if at any time the Borrowing Base as shown on the
most recent Borrowing Base Certificate submitted to Lender
pursuant to Section 8.01(c) should be less than Zero Dollars
($0.00), Borrower shall be automatically required (without
demand or notice of any kind by Lender, all of which are
hereby expressly waived by Borrower) to immediately either (i)
make a permanent prepayment on the Term Note in an amount
sufficient to increase the amount of the Borrowing Base to at
least Zero Dollars ($0.00) or (ii) pledge cash or cash
equivalents with Lender as additional collateral for the Term
Loan in an amount at least equal to the difference between the
amount of the Borrowing Base and Zero Dollars ($0.00)."
7. Exhibits B-1, F-1 and G-1 attached to this Amendment
are hereby added as Exhibits B-1, F-1 and G-1 to the Loan Agreement.
8. Exhibit I attached to the Loan Agreement is hereby
deleted in its entirety and the Exhibit I attached to this Amendment is
substituted in lieu thereof.
9. Lender hereby acknowledges that the accounting firm
of Williams, Williams and Lentz is satisfactory to Lender for purposes of the
Loan Agreement.
10. Pursuant to Section 9.03 of the Loan Agreement,
Lender hereby consents to Borrower's acquisition of all or substantially all of
the assets of the Large Area Rentals division of Lucas and Sons Construction,
Inc.
11. Borrower hereby agrees to reimburse Lender upon
demand for all out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by Lender in the preparation,
negotiation and execution of this Amendment and all other agreements, documents
and instruments relating to the amendment of Borrower's existing credit
facilities with Lender (collectively, the "Amendment Documents"). Borrower
further agrees to pay or reimburse Lender for (a) any stamp or other taxes
(excluding income or gross receipts taxes) which may be payable with respect to
the execution, delivery or recording of the Loan Documents and (b) the cost of
any filings and searches, including, without limitation, Uniform Commercial
Code filings and
- 5 -
<PAGE> 6
searches. All of the obligations of Borrower under this Paragraph 11 shall
survive the payment of the Borrower's Obligations and the termination of the
Loan Agreement.
12. All references in the Loan Agreement to "this
Agreement" and any other references of similar import shall henceforth mean the
Loan Agreement as amended by this Amendment.
13. Except to the extent specifically amended by this
Amendment, all of the terms, provisions, conditions, covenants, representations
and warranties contained in the Loan Agreement shall be and remain in full
force and effect and the same are hereby ratified and confirmed.
14. This Amendment shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns,
except that Borrower may not assign, transfer or delegate any of its rights or
obligations hereunder.
15. Borrower hereby represents and warrants to Lender
that:
(a) the execution, delivery and performance by
Borrower of this Amendment are within the corporate powers of Borrower, have
been duly authorized by all necessary corporate action and require no action by
or in respect of, or filing with, any governmental or regulatory body, agency
or official or any other third party;
(b) the execution, delivery and performance by
Borrower of this Amendment do not conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under or result in
any violation of, the terms of the Articles of Incorporation or By-Laws of
Borrower, any applicable law, rule, regulation, order, writ, judgment or decree
of any court or governmental or regulatory agency or instrumentality or any
agreement, document or instrument to which Borrower is a party or by which it
is bound or to which it is subject;
(c) this Amendment has been duly executed and
delivered by Borrower and constitutes the legal, valid and binding obligation
of Borrower enforceable against Borrower in accordance with its terms; and
(d) as of the date hereof, all of the
representations, warranties and covenants of Borrower set forth in the Loan
Agreement are true and correct and no Default or Event of Default under or
within the meaning of the Loan Agreement has occurred and is continuing.
16. In the event of any inconsistency or conflict between
this Amendment and the Loan Agreement, the terms, provisions and conditions
contained in this Amendment shall govern and control.
- 6 -
<PAGE> 7
17. This Amendment shall be governed by and construed in
accordance with the substantive laws of the Commonwealth of Kentucky (without
reference to conflict of law principles).
IN WITNESS WHEREOF, Borrower and Lender have executed this
First Amendment to Revolving Credit and Term Loan Agreement this 5th day of
January, 1996.
FALCONITE, INC.
By /s/ Michael A. Falconite
--------------------------------------------
Name: Michael A. Falconite
-----------------------------------------
Title: President
----------------------------------------
CITIZENS BANK & TRUST COMPANY OF PADUCAH
By /s/ Scott A. Houston
--------------------------------------------
Name: Scott A. Houston
-----------------------------------------
Title: Vice President
----------------------------------------
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<PAGE> 1
EXHIBIT 10.21
SWING LINE NOTE
$2,000,000.00 June 14, 1996
FOR VALUE RECEIVED, on the Commitment Termination Date, the
undersigned, FALCONITE, INC., an Illinois corporation (the "Borrower"), hereby
unconditionally promises to pay to the order of CITIZENS BANK & TRUST COMPANY
OF PADUCAH (the "Lender"), the principal sum of Two Million Dollars
($2,000,000.00), or such lesser amount as may then be outstanding under this
Note. The aggregate principal amount which Lender shall be committed to have
outstanding under this Note at any one time shall not exceed the sum of Two
Million Dollars ($2,000,000.00), which amount may be borrowed, paid, reborrowed
and repaid, in whole or in part, subject to the terms and conditions hereof and
of the Loan Agreement.
Borrower further promises to pay to the order of Lender interest on
the from time to time outstanding principal balance of this Note at the rates
and on the dates set forth in the Loan Agreement. All payments under this Note
(other than prepayments) shall be allocated among the principal, interest, late
fees, collection costs and expenses and other amounts due under this Note in
such order and manner as Lender shall elect. All prepayments under this Note
shall be applied solely to the payment of principal.
If Borrower fails to make any payment of any principal of or interest
on this Note within ten (10) days after the date the same shall become due and
payable, whether by reason of maturity, acceleration or otherwise, in addition
to all of Lender's other rights and remedies under the Loan Documents and at
law or in equity, Borrower hereby promises to pay to the order of Lender on
demand with respect to each such late payment a late fee in an amount equal to
the greater of (a) Five Percent (5%) of the amount of such late payment or (b)
Fifty Dollars ($50.00). Borrower hereby authorizes Lender to automatically
debit Borrower's Operating Account (or any one of its other depository
accounts) with Lender for any late charge Lender is entitled to and Borrower
does not include it with its regularly scheduled payment(s) when paid.
The amount of interest accruing under this Note shall be computed on
an actual day, 360-day year basis. All payments of principal and interest
under this Note shall be made in lawful currency of the United States in
Federal or other immediately available funds at the office of Lender situated
at 333 Broadway, Paducah, Kentucky 42001, or at such other place as the holder
hereof shall designate in writing.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
<PAGE> 2
This Note has been executed and delivered pursuant to the terms of
that certain Revolving Credit and Term Loan Agreement dated October 5, 1995, by
and between Borrower and Lender, as amended by that certain First Amendment to
Revolving Credit and Term Loan Agreement dated January 5, 1996, and that
certain Second Amendment to Revolving Credit and Term Loan Agreement dated June
14, 1996 (as so amended and as the same may from time to time be further
amended, modified, extended or renewed, the "Loan Agreement") and is the "Swing
Line Note" referred to therein. Reference is hereby made to the Loan Agreement
for a statement of (i) the obligations of Lender to advance funds hereunder,
(ii) the events upon which the maturity of this Note may be accelerated and
(iii) other terms and conditions, including prepayment, which may affect this
Note. All capitalized terms used and not otherwise defined herein shall have
the respective meanings assigned to them in the Loan Agreement.
This Note is secured by that certain Security Agreement dated October
5, 1995, and executed by Borrower in favor of Lender (as the same may from time
to time be amended, modified, extended or renewed, the "Security Agreement").
Reference is hereby made to the Security Agreement for (i) a description of the
security and (ii) a statement of the terms and conditions upon which this Note
is secured.
As consideration for this Note, the Guarantors have executed that
certain Continuing Guaranty dated October 5, 1995, in favor of Lender, as
amended by that certain First Amendment to Continuing Guaranty dated January 5,
1996, and that certain Second Amendment to Continuing Guaranty dated June 14,
1996 (as so amended and as the same may from time to time be further amended,
modified, extended or renewed, the "Continuing Guaranty"). Reference is hereby
made to the Continuing Guaranty for (i) a description of the guaranty and (ii)
a statement of the terms and conditions upon which this Note is guaranteed.
If Borrower shall fail to make any payment of principal of or interest
on this Note as and when the same shall become due and payable, or if any
"Event of Default" (as defined therein) shall occur under or within the meaning
of the Loan Agreement or the Security Agreement, then Lender may, at its
option, terminate its obligation to make any additional loans under this Note
and Lender may further declare the entire outstanding principal balance of this
Note and all accrued and unpaid interest thereon to be immediately due and
payable.
Borrower and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable on this Note jointly and
severally waive demand for payment, presentment, protest, notice of protest and
non-payment, or other notice of default, notice of acceleration and intention
to accelerate, and agree that their liability under this Note shall not be
affected by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the payment of
this Note, and hereby consent to any and all renewals,
-2-
<PAGE> 3
extensions, indulgences, releases or changes, regardless of the number of such
renewals, extensions, indulgences, releases or changes.
No waiver by Lender of any of its rights or remedies hereunder or
under any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other subsequent right or remedy of Lender; no delay
or omission in the exercise or enforcement by Lender of any rights or remedies
shall ever be construed as a waiver of any right or remedy of Lender; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Lender.
This Note is being executed and delivered, and is intended to be
performed, in the Commonwealth of Kentucky. Except to the extent that the laws
of the United States of America may apply to the terms hereof, the substantive
laws of the Commonwealth of Kentucky shall govern the validity, construction,
enforcement and interpretation of this Note. In the event of a dispute
involving this Note or any other instruments executed in connection herewith,
Borrower irrevocably agrees that venue for such dispute shall lie in any court
of competent jurisdiction located in McCracken County, Kentucky.
If this Note is placed in the hands of an attorney for collection or
for foreclosure of the Security Agreement securing payment hereof, or if this
Note is collected through any legal proceedings at law or in equity or in
bankruptcy, receivership or other court proceedings, Borrower promises to pay
all costs and expenses of such collection and/or foreclosure, including,
without limitation, court costs and the reasonable attorneys' fees and expenses
of the holder hereof.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO TRIAL BY JURY BORROWER MAY HAVE IN ANY LITIGATION ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE. BORROWER CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF LENDER OR LENDER'S COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION,
SEEK TO ENFORCE THIS WAIVER OF JURY TRIAL PROVISION. BORROWER ACKNOWLEDGES
THAT LENDER HAS BEEN INDUCED TO ACCEPT THIS NOTE IN PART BY THE PROVISIONS OF
THIS WAIVER.
IN WITNESS WHEREOF, Borrower has executed this Swing Line Note as of
the day and year first above written.
BORROWER:
FALCONITE, INC.
By: /s/ Michael A. Falconite
----------------------------------------
Name: Michael A. Falconite
--------------------------------------
Title: President
-------------------------------------
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<PAGE> 1
EXHIBIT 10.22
FIRST AMENDMENT TO REVOLVING CREDIT NOTE
THIS FIRST AMENDMENT TO REVOLVING CREDIT NOTE (this
"Amendment") is made this 14th day of June, 1996, by FALCONITE, INC., an
Illinois corporation ("Borrower"), and is accepted by CITIZENS BANK & TRUST
COMPANY OF PADUCAH ("Lender").
WITNESSETH:
WHEREAS, Borrower has heretofore executed and delivered to
Lender its Revolving Credit Note dated October 5, 1995, and payable to the
order of Lender in the maximum principal amount of Seven Million Dollars
($7,000,000.00) (the "Note"); and
WHEREAS, Borrower desires to amend the Note to, among other
things, increase the maximum principal amount of the Note from Seven Million
Dollars ($7,000,000.00) to Thirteen Million Dollars ($13,000,000.00), and
Lender is willing to consent thereto on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower hereby amends the Note as follows:
1. The reference at the top of the Note to the number
"$7,000,000.00" is hereby deleted in its entirety and the number
"$13,000,000.00" is substituted in lieu thereof.
2. The first full paragraph on page 1 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"FOR VALUE RECEIVED, on the Commitment Termination
Date, the undersigned, FALCONITE, INC., an Illinois
corporation (the "Borrower"), hereby unconditionally promises
to pay to the order of CITIZENS BANK & TRUST COMPANY OF
PADUCAH (the "Lender"), the principal sum of Thirteen Million
Dollars ($13,000,000.00), or such lesser amount as may then be
outstanding under this Note. The aggregate principal amount
which Lender shall be committed to have outstanding under this
Note at any one time shall not exceed the sum of Thirteen
Million Dollars ($13,000,000.00), which amount may be
borrowed, paid, reborrowed and repaid, in whole or in part,
subject to the terms and conditions hereof and of the Loan
Agreement."
<PAGE> 2
3. The first full paragraph on page 2 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"This Note has been executed and delivered pursuant
to the terms of that certain Revolving Credit and Term Loan
Agreement dated October 5, 1995, by and between Borrower and
Lender, as amended by that certain First Amendment to
Revolving Credit and Term Loan Agreement dated January 5,
1996, and that certain Second Amendment to Revolving Credit
and Term Loan Agreement dated June 14, 1996 (as so amended
and as the same may from time to time be further amended,
modified, extended or renewed, the "Loan Agreement") and is
the "Revolving Credit Note" referred to therein. Reference is
hereby made to the Loan Agreement for a statement of (i) the
obligations of the Lender to advance funds hereunder, (ii) the
events upon which the maturity of this Note may be accelerated
and (iii) other terms and conditions, including prepayment,
which may affect this Note. All capitalized terms used and
not otherwise defined herein shall have the respective
meanings assigned to them in the Loan Agreement."
4. The third full paragraph on page 2 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"As consideration for this Note, the Guarantors have
executed that certain Continuing Guaranty dated October 5,
1995, in favor of Lender, as amended by that certain First
Amendment to Continuing Guaranty dated January 5, 1996, and
that certain Second Amendment to Continuing Guaranty dated
June 14, 1996 (as so amended and as the same may from time
to time be further amended, modified, extended or renewed, the
"Continuing Guaranty"). Reference is hereby made to the
Continuing Guaranty for (i) a description of the guaranty and
(ii) a statement of the terms and conditions upon which this
Note is guaranteed."
5. Except to the extent specifically amended by this
Amendment, all of the terms, provisions and conditions contained in the Note
shall be and remain in full force and effect and the same are hereby ratified
and confirmed.
6. All references in the Note to "this Note" and any
other references of similar import shall henceforth mean the Note as amended by
this Amendment.
- 2 -
<PAGE> 3
7. Borrower hereby represents and warrants to Lender that:
(a) the execution, delivery and performance by
Borrower of this Amendment are within the corporate powers of Borrower, have
been duly authorized by all necessary corporate action and require no action by
or in respect of, or filing with, any governmental or regulatory body, agency
or official or any other third party;
(b) the execution, delivery and performance by
Borrower of this Amendment do not conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under or result in
any violation of, the terms of the Articles of Incorporation or By-Laws of
Borrower, any applicable law, rule, regulation, order, writ, judgment or decree
of any court or governmental or regulatory agency or instrumentality or any
agreement, document or instrument to which Borrower is a party or by which it
is bound or to which it is subject;
(c) this Amendment has been duly executed and
delivered by Borrower and constitutes the legal, valid and binding obligation
of Borrower enforceable against Borrower in accordance with its terms; and
(d) as of the date hereof, all of the
representations, warranties and covenants of Borrower set forth in the Note are
true and correct and no default or event of default under or within the meaning
of the Note has occurred and is continuing.
8. This Amendment shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns,
except that Borrower may not assign or delegate any of its rights or
obligations hereunder.
9. This Amendment shall be governed by and construed in
accordance with the substantive laws of the Commonwealth of Kentucky (without
reference to conflict of law principles).
10. In the event of any inconsistency or conflict between
the Note and this Amendment, the terms, provisions and conditions contained in
this Amendment shall govern and control.
11. Lender is hereby authorized to attach this Amendment
to the Note as a part thereof.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, Borrower has executed this First Amendment
to Revolving Credit Note this 14th day of June, 1996.
FALCONITE, INC.
By: /s/ Michael A. Falconite
------------------------------------
Name: Michael A. Falconite
----------------------------------
Title: President
---------------------------------
Accepted this 14th day of June, 1996.
CITIZENS BANK & TRUST COMPANY OF PADUCAH
By: /s/ Scott A. Houston
------------------------------------
Name: Scott A. Houston
----------------------------------
Title: Vice President
---------------------------------
- 4 -
<PAGE> 1
EXHIBIT 10.23
SECOND AMENDMENT TO TERM LOAN PROMISSORY NOTE
THIS SECOND AMENDMENT TO TERM LOAN PROMISSORY NOTE (this
"Amendment") is made this 14th day of June, 1996, by FALCONITE, INC., an
Illinois corporation ("Borrower"), and is accepted by CITIZENS BANK & TRUST
COMPANY OF PADUCAH ("Lender").
WITNESSETH:
WHEREAS, Borrower has heretofore executed and delivered to
Lender its Term Loan Promissory Note dated October 5, 1995, and payable to the
order of Lender in the original principal amount of Seven Million Dollars
($7,000,000.00), as amended by that certain First Amendment to Term Loan
Promissory Note dated January 5, 1996, pursuant to which, among other things,
the principal amount of said Term Loan Promissory Note was increased from Seven
Million Dollars ($7,000,000.00) to Nine Million Dollars ($9,000,000.00) (as so
amended, the "Note"); and
WHEREAS, Borrower desires to amend the Note in the manner
hereinafter set forth and Lender is willing to consent thereto on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower hereby amends the Note as follows:
1. The first full paragraph on page 2 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"This Note has been executed and delivered pursuant
to the terms of that certain Revolving Credit and Term Loan
Agreement dated October 5, 1995, by and between Borrower and
Lender, as amended by that certain First Amendment to
Revolving Credit and Term Loan Agreement dated January 5,
1996, and that certain Second Amendment to Revolving Credit
and Term Loan Agreement dated June 14, 1996 (as so amended
and as the same may from time to time be further amended,
modified, extended or renewed, the "Loan Agreement") and is
the "Term Note" referred to therein. Reference is hereby made
to the Loan Agreement for a statement of (i) the events upon
which the maturity of this Note may be accelerated and (ii)
other terms and conditions, including prepayment, which may
affect this Note. All capitalized terms used and not
otherwise defined herein shall have the respective meanings
assigned to them in the Loan Agreement."
<PAGE> 2
2. The third full paragraph on page 2 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"As consideration for this Note, the Guarantors have
executed that certain Continuing Guaranty dated October 5,
1995, in favor of Lender, as amended by that certain First
Amendment to Continuing Guaranty dated January 5, 1996, and
that certain Second Amendment to Continuing Guaranty dated
June 14, 1996 (as so amended and as the same may from time
to time be further amended, modified, extended or renewed, the
"Continuing Guaranty"). Reference is hereby made to the
Continuing Guaranty for (i) a description of the guaranty and
(ii) a statement of the terms and conditions upon which this
Note is guaranteed."
3. Except to the extent specifically amended by this
Amendment, all of the terms, provisions and conditions contained in the Note
shall be and remain in full force and effect and the same are hereby ratified
and confirmed.
4. All references in the Note to "this Note" and any
other references of similar import shall henceforth mean the Note as amended by
this Amendment.
5. Borrower hereby represents and warrants to Lender
that:
(a) the execution, delivery and performance by
Borrower of this Amendment are within the corporate powers of Borrower, have
been duly authorized by all necessary corporate action and require no action by
or in respect of, or filing with, any governmental or regulatory body, agency
or official or any other third party;
(b) the execution, delivery and performance by
Borrower of this Amendment do not conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under or result in
any violation of, the terms of the Articles of Incorporation or By-Laws of
Borrower, any applicable law, rule, regulation, order, writ, judgment or decree
of any court or governmental or regulatory agency or instrumentality or any
agreement, document or instrument to which Borrower is a party or by which it
is bound or to which it is subject;
(c) this Amendment has been duly executed and
delivered by Borrower and constitutes the legal, valid and binding obligation
of Borrower enforceable against Borrower in accordance with its terms; and
(d) as of the date hereof, all of the
representations, warranties and covenants of Borrower set forth in
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<PAGE> 3
the Note are true and correct and no default or event of default under or
within the meaning of the Note has occurred and is continuing.
6. This Amendment shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns,
except that Borrower may not assign or delegate any of its rights or
obligations hereunder.
7. This Amendment shall be governed by and construed in
accordance with the substantive laws of the Commonwealth of Kentucky (without
reference to conflict of law principles).
8. In the event of any inconsistency or conflict between
the Note and this Amendment, the terms, provisions and conditions contained in
this Amendment shall govern and control.
9. Lender is hereby authorized to attach this Amendment
to the Note as a part thereof.
IN WITNESS WHEREOF, Borrower has executed this Second
Amendment to Term Loan Promissory Note this 14th day of June, 1996.
FALCONITE, INC.
By: /s/ Michael A. Falconite
--------------------------------
Name: Michael A. Falconite
------------------------------
Title: President
-----------------------------
Accepted this 14th day of June, 1996.
CITIZENS BANK & TRUST COMPANY OF PADUCAH
By: /s/ Scott A. Houston
--------------------------------
Name: Scott A. Houston
------------------------------
Title: Vice President
-----------------------------
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<PAGE> 1
EXHIBIT 10.24
SECOND AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING CREDIT AND TERM LOAN
AGREEMENT (this "Amendment") is made and entered into this 14th day of June,
1996, by and between FALCONITE, INC., an Illinois corporation ("Borrower"), and
CITIZENS BANK & TRUST COMPANY OF PADUCAH ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender have heretofore entered into that
certain Revolving Credit and Term Loan Agreement dated October 5, 1995, as
amended by that certain First Amendment to Revolving Credit and Term Loan
Agreement dated January 5, 1996 (as so amended, the "Loan Agreement"; all
capitalized terms used and not otherwise defined in this Amendment shall have
the respective meanings ascribed to them in the Loan Agreement as amended by
this Amendment); and
WHEREAS, Borrower and Lender desire to amend the Loan
Agreement in the manner hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Lender hereby agree as follows:
1. The definition of "Borrowing Base" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Borrowing Base" shall mean, as of any date, the sum
of (i) the lesser of (A) Sixty-Five Percent (65%) of the
aggregate face amount of Eligible Accounts of Borrower or (B)
One Million Five Hundred Thousand Dollars ($1,500,000.00),
plus (ii) Eighty Percent (80%) of the aggregate value of all
Eligible Inventory of Borrower minus (iii) the then
outstanding principal balance of the Term Note. Lender
retains the right in its sole discretion to reduce the
allowable percentage of the Eligible Accounts and Eligible
Inventory (the "Eligible Collateral") to be used in
calculating the Borrowing Base based upon (i) the Eligible
Collateral changing in character (i.e., type or category) from
the Eligible Collateral originally presented to and agreed
upon between Borrower and Lender prior to signing this
Agreement and/or (ii) the present or projected operating or
financial condition of Borrower."
<PAGE> 2
2. The definition of "Commitment Termination Date" set
forth in Section 1.01 of the Loan Agreement is hereby deleted in its entirety
and the following substituted in lieu thereof:
""Commitment Termination Date" shall mean June 30,
1998, or, if such date is not a Business Day, the Business Day
next preceding such date."
3. The definition of "Continuing Guaranty" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Continuing Guaranty" shall mean that certain
Continuing Guaranty dated October 5, 1995, and executed by the
Guarantors in favor of Lender (an unexecuted copy of which is
attached hereto as Exhibit F), as amended by that certain
First Amendment to Continuing Guaranty dated January 5, 1996
(an unexecuted copy of which is attached hereto as Exhibit
F-1) and that certain Second Amendment to Continuing Guaranty
dated June 14, 1996 (an unexecuted copy of which is attached
hereto as Exhibit F-2), and as the same may from time to time
be further amended, modified, extended or renewed."
4. The definition of "Current Maturities of Debt" set
forth in Section 1.01 of the Loan Agreement is hereby deleted in its entirety
and the following substituted in lieu thereof:
""Current Maturities of Debt" shall mean, for any
period, the aggregate current portion of all principal
payments required, scheduled or anticipated to be made during
such period on account of all Debt (other than principal
payments on the Swing Line Loans and the Revolving Credit
Loans and the balloon payment on the Term Note which is due on
the Maturity Date) which would be reflected on a balance sheet
of Borrower prepared as of any date in accordance with
Generally Accepted Accounting Principles."
5. The definition of "Debt" set forth in Section 1.01 of
the Loan Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
""Debt" of Borrower shall mean, as of the date of
determination thereof, the sum of (i) all Indebtedness of Borrower for borrowed
money or which has been incurred in connection with the purchase or other
acquisition of property or assets, plus (ii) all Capital Lease obligations of
Borrower, plus (iii) all Guaranties by Borrower of Debt of others plus (iv) all
Indebtedness of Borrower under any interest rate swap agreements, interest rate
cap agreements, interest rate collar agreements and/or any other similar
agreements or arrangements designed to protect Borrower against fluctuations in
interest rates."
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<PAGE> 3
6. The definition of "Indebtedness" set forth in Section
1.01 of the Loan Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
""Indebtedness" shall mean, with respect to any
Person, all indebtedness, obligations and liabilities of such
Person, including, without limitation: (i) all "liabilities"
which would be reflected on a balance sheet of such Person,
prepared in accordance with Generally Accepted Accounting
Principles, (ii) all obligations of such Person in respect of
any Guaranty, (iii) all obligations of such Person in respect
of any Capital Lease, (iv) all obligations, indebtedness and
liabilities secured by any Lien or any security interest on
any property or assets of such Person, (v) all net liabilities
of such Person under any interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements
and/or any other similar agreements or arrangements designed
to protect such Person against fluctuations in interest rates
and (vi) all redeemable preferred stock of such Person valued
at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends."
7. The definition of "Interest Payment Date" set forth
in Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Interest Payment Date" shall mean (i) with respect
to each Swing Line Loan and each Revolving Credit Loan, (A)
the last Business Day of each calendar month commencing on the
first of such days to occur after such Loan is made and (B)
the Commitment Termination Date and (ii) with respect to the
Term Loan, (A) the last business day of each calendar month
commencing on the first of such days to occur after such Loan
is made and (B) the Maturity Date."
8. The definitions of "Loan" and "Loans" set forth in
Section 1.01 of the Loan Agreement are hereby deleted in their entirety and the
following substituted in lieu thereof:
""Loan" shall mean each Swing Line Loan, each
Revolving Credit Loan, each Letter of Credit Loan and the Term
Loan and "Loans" shall mean any or all of the foregoing."
9. The definition of "Maturity Date" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Maturity Date" shall mean June 30, 1998, or, if
such date is not a Business Day, the Business Day next
preceding such date."
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<PAGE> 4
10. The definition of "Notes" set forth in Section 1.01
of the Loan Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
""Notes" shall mean the Swing Line Note, the Revolving
Credit Note and the Term Note."
11. The definition of "Permitted Investments" set forth
in Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
"Permitted Investments" shall mean the following
types of Investments (i) direct obligations of the United
States of America or any agency thereof, or obligations fully
guaranteed by the United States of America or any agency
thereof, provided that such obligations mature within twelve
(12) months of the date of acquisition thereof by Borrower,
(ii) commercial paper rated in the highest grade by two or
more national credit rating agencies and which matures not
more than two hundred seventy (270) days from the date of
creation thereof, (iii) time deposits and money market
accounts with, and certificates of deposit and/or banker's
acceptances issued by, Lender or any other bank or trust
company organized under the laws of the United States of
America or any state thereof having capital surplus and
undivided profits aggregating at least $50,000,000.00, (iv)
repurchase agreements, which shall be collateralized for at
least 102% of face value, issued by Lender or any other bank
or trust company organized under the laws of the United States
of America or any state thereof having capital surplus and
undivided profits aggregating at least $50,000,000.00, (v)
Investments existing as of the date hereof as described in
Exhibit L attached hereto, and any future retained earnings in
respect thereof, (vi) loans or advances in the usual and
ordinary course of business to officers and/or employees of
Borrower for business expenses in the aggregate principal
amount of up to $50,000.00 at any one time outstanding, (vii)
loans to the Joseph A. Falconite and Betty L. Falconite
Irrevocable Trust U/T/A dated September 7, 1994, solely to
allow such trust to pay insurance premiums on life insurance
policies on the life of Joseph A. Falconite and on the life of
Betty L. Falconite and (viii) demand deposits which constitute
the normal operating checking accounts of the Borrower."
12. The definition of "Prime Rate" set forth in Section
1.01 of the Loan Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
""Prime Rate" shall mean the highest annual rate of
interest identified as the "Prime Rate" as published from time
to time in the "Money Rates" section (or such other
- 4 -
<PAGE> 5
section title or caption) of The Wall Street Journal. In the
event that The Wall Street Journal, during the term hereof,
shall abolish or abandon the practice of publishing a Prime
Rate, or should the same become unascertainable, Lender shall
designate a comparable reference rate which shall be deemed to
be the Prime Rate for purposes hereof. With respect to the
Revolving Credit Loans, the Term Loan, the Letter of Credit
Loans and all of the other Obligations of Borrower other than
the Swing Line Loans, the Prime Rate shall be subject to
adjustment daily (without prior notice to Borrower) based on
the Prime Rate on such day and shall fluctuate as and when
said Prime Rate shall change. With respect to the Swing Line
Loans, the Prime Rate shall be subject to adjustment monthly
(without prior notice to Borrower) on the first day after the
last Business Day of every calendar month based on the Prime
Rate on such day."
13. The definitions of "Revolving Credit Commitment",
"Revolving Credit Loan", "Revolving Credit Loans" and "Revolving Credit
Note" set forth in Section 1.01 of the Loan Agreement are hereby deleted in
their entirety and the following substituted in lieu thereof:
""Revolving Credit Commitment" shall mean the sum of
Thirteen Million Dollars ($13,000,000.00).
"Revolving Credit Loan" and "Revolving Credit Loans"
shall have the meaning assigned to such terms in Section
2.01(b).
"Revolving Credit Note" shall have the meaning
assigned to such term in Section 2.03(b)."
14. The definition of "Total Outstandings" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety
and the following substituted in lieu thereof:
""Total Outstandings" shall mean, as of any date, the
sum of (i) the aggregate principal amount of all Swing Line
Loans outstanding as of such date, plus (ii) the aggregate
principal amount of all Revolving Credit Loans outstanding as
of such date, plus (iii) the aggregate principal amount of all
Letter of Credit Loans outstanding as of such date plus (iv)
the aggregate undrawn face amount of all Letters of Credit
outstanding as of such date."
15. The following new definitions of "Borrowing Notice",
"Interest Expense", "Operating Cash Flow", "Swing Line Commitment",
"Swing Line Loan", "Swing Line Loans" and "Swing Line Note" are hereby added to
Section 1.01 of the Loan Agreement:
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<PAGE> 6
""Borrowing Notice" shall have the meaning assigned
to such term in Section 2.02(b).
"Interest Expense" shall mean, for the period in
question, without duplication, all gross interest expense of
Borrower (including, without limitation, all commissions,
discounts and/or related amortization and other fees and
charges owed by Borrower with respect to letters of credit and
bankers' acceptance financing, the net costs associated with
interest swap obligations of Borrower, capitalized interest
expense, the interest portion of Capital Lease obligations and
the interest portion of any deferred payment obligation)
during such period, all determined in accordance with
Generally Accepted Accounting Principles.
"Operating Cash Flow" shall mean, for the period in
question, the sum of (a) Adjusted Net Income during such
period plus (b) to the extent deducted in determining Adjusted
Net Income, the sum of (i) Interest Expense during such
period, plus (ii) all provisions for any Federal, state, local
and/or foreign income taxes made by Borrower during such
period (whether paid or deferred) plus (iii) all depreciation
and amortization expenses of Borrower during such period, all
determined in accordance with Generally Accepted Accounting
Principles.
"Swing Line Commitment" shall mean the sum of Two
Million Dollars ($2,000,000.00).
"Swing Line Loan" and "Swing Line Loans" shall have
the meaning assigned to such terms in Section 2.01(a).
"Swing Line Note" shall have the meaning assigned to
such term in Section 2.03(a)."
16. Article II of the Loan Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
"ARTICLE II
THE REVOLVING CREDIT LOANS
Section 2.01. Lender's Commitments. (a) Subject to
the terms and conditions of this Agreement and so long as no
Default or Event of Default under this Agreement has occurred,
during the Commitment Period, Lender hereby agrees to loan
funds to Borrower as Borrower may from time to time request
pursuant to Section 2.02(a) (individually, a "Swing Line Loan"
and collectively, the "Swing Line Loans"). The aggregate
principal amount of Swing Line Loans which Lender shall be
required to have outstanding hereunder at any one time shall
not exceed the sum of (i) the lesser of (A) the Lender's Swing
Line
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<PAGE> 7
Commitment or (B) the sum of (1) the Borrowing Base minus (2)
the aggregate principal amount of all outstanding Revolving
Credit Loans, minus (3) the aggregate principal amount of all
outstanding Letter of Credit Loans minus (4) the aggregate
undrawn face amount of all outstanding Letters of Credit;
provided, however, that in no event shall (i) the sum of (A)
the aggregate principal amount of all outstanding Swing Line
Loans, plus (B) the aggregate principal amount of all
outstanding Letter of Credit Loans plus (C) the aggregate
undrawn face amount of all outstanding Letters of Credit
exceed the amount of the Lender's Swing Line Commitment or
(ii) the amount of the Total Outstandings exceed the sum of
(A) the amount of the Lender's Swing Line Commitment plus (B)
the amount of the Lender's Revolving Credit Commitment.
Within the limits set forth herein, Borrower may borrow, repay
and reborrow such sums.
(b) Subject to the terms and conditions of this
Agreement and so long as no Default or Event of Default under
this Agreement has occurred, during the Commitment Period,
Lender hereby agrees to loan funds to Borrower as Borrower may
from time to time request pursuant to Section 2.02(b)
(individually, a "Revolving Credit Loan" and collectively, the
"Revolving Credit Loans"). Each Revolving Credit Loan shall
be in the principal amount of at least One Hundred Thousand
Dollars ($100,000.00). The aggregate principal amount of
Revolving Credit Loans which Lender shall be required to have
outstanding hereunder at any one time shall not exceed the sum
of (i) the lesser of (A) the Lender's Revolving Credit
Commitment or (B) the sum of (1) the Borrowing Base minus (2)
the aggregate principal amount of all outstanding Swing Line
Loans, minus (3) the aggregate principal amount of all
outstanding Letter of Credit Loans minus (4) the aggregate
undrawn face amount of all outstanding Letters of Credit;
provided, however, that in no event shall the amount of the
Total Outstandings exceed the sum of (i) the amount of the
Lender's Swing Line Commitment plus (ii) the amount of the
Lender's Revolving Credit Commitment. Within the limits set
forth herein, Borrower may borrow, repay and reborrow such
sums.
(c) If at any time the Borrowing Base as shown on
the most recent Borrowing Base Certificate submitted to Lender
pursuant to Section 8.01(c) should be less than the Total
Outstandings, Borrower shall be automatically required
(without demand or notice of any kind by Lender, all of which
are hereby expressly waived by Borrower) to immediately either
(i) reduce the Total Outstandings to an amount less than or
equal to the most recent Borrowing Base or (ii) pledge cash or
cash equivalents with Lender as additional collateral for the
Total Outstandings in an
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<PAGE> 8
amount at least equal to the difference between the Total
Outstandings and the Borrowing Base.
(d) If at any time the Total Outstandings are
greater than the sum of (i) the amount of the Lender's Swing
Line Commitment plus (ii) the amount of the Lender's Revolving
Credit Commitment, Borrower shall be automatically required
(without demand or notice of any kind by Lender, all of which
are hereby expressly waived by Borrower) to immediately reduce
the Total Outstandings to an amount less than or equal to the
sum of (i) the amount of the Lender's Swing Line Commitment
plus (ii) the amount of the Lender's Revolving Credit
Commitment.
(e) If at any time the sum of (i) the aggregate
principal amount of all outstanding Swing Line Loans, plus
(ii) the aggregate principal amount of all outstanding Letter
of Credit Loans plus (iii) the aggregate undrawn face amount
of all outstanding Letters of Credit exceed the amount of the
Lender's Swing Line Commitment, Borrower shall be
automatically required (without demand or notice of any kind
by Lender, all of which are hereby expressly waived by
Borrower) to immediately repay the Swing Line Loans and/or the
Letter of Credit Loans and/or surrender for cancellation the
outstanding Letters of Credit, in either case in an amount
sufficient to reduce the sum of (i) the aggregate principal
amount of all outstanding Swing Line Loans, plus (ii) the
aggregate principal amount of all outstanding Letter of Credit
Loans plus (iii) the aggregate undrawn face amount of all
outstanding Letters of Credit to an amount equal to or less
than the amount of the Lender's Swing Line Commitment.
Section 2.02. Manner of Borrowing. (a) Upon
fulfillment of all applicable conditions set forth herein and
so long as no Default or Event of Default has occurred
hereunder, Borrower hereby irrevocably requests and authorizes
Lender, without any other request or authorization from
Borrower and without any notice to Borrower, to automatically
make a Swing Line Loan to Borrower at the end of each Business
Day on which the collected balance in Borrower's operating
account with Lender, identified as Account No. 001-0940-1
("Borrower's Operating Account"), is below the amount set
forth in a cash management agreement executed herewith by and
between Borrower and Lender, as the same may from time to time
be amended (the "Floor Balance"), by crediting the amount of
such Swing Line Loan, which shall be in an amount sufficient
to bring such collected balance back up to the Floor Balance,
to Borrower's Operating Account. In addition, Borrower hereby
irrevocably requests and authorizes Lender to automatically
apply any collected balance in Borrower's Operating Account
with Lender at
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<PAGE> 9
the end of any Business Day in excess of the Floor Balance to
the prepayment of the Swing Line Loans. Each Swing Line Loan
made in accordance with this Section 2.02(a) shall be
irrevocable and binding on Borrower, and Borrower shall
indemnify Lender and hold Lender harmless from and against any
and all claims, demands, damages, liabilities, costs, losses
or expenses (including, without limitation, reasonable
attorneys' fees and expenses) relating to or arising out of or
in connection with making Swing Line Loans or repayments
hereunder.
(b) Subject to the terms and conditions of this
Agreement, Lender shall cause the Revolving Credit Loans to be
made to Borrower at any time and from time to time during the
Commitment Period upon timely prior oral or written notice
("Borrowing Notice") to Lender specifying (i) the desired
amount of the Revolving Credit Loan and (ii) the date on which
the Revolving Credit Loan proceeds are to be made available to
Borrower, which must be a Business Day. Such Borrowing
Notice, if in writing, shall be in the form of the notice
attached hereto as Exhibit R. Each Borrowing Notice must be
received by Lender not later than 10:00 a.m. (Central Standard
Time) on the Business Day before the Business Day on which a
Revolving Credit Loan is to be made. A Borrowing Notice shall
not be revocable by Borrower. Subject to the terms and
conditions of this Agreement, provided that Lender has
received the Borrowing Notice, Lender shall (unless Lender
determines that any applicable condition specified in Article
VI has not been satisfied) make such Revolving Credit Loan to
Borrower by crediting the amount of such Revolving Credit Loan
to Borrower's Operating Account, not later than 2:30 p.m.
(Central Standard Time) on the Business Day specified in said
Borrowing Notice. Borrower hereby authorizes Lender to rely
on telephonic, telegraphic, telecopy, telex or written
instructions of any person identifying himself or herself as a
person authorized to request a Revolving Credit Loan or make a
repayment hereunder, and on any signature which Lender
believes to be genuine, and Borrower shall be bound thereby in
the same manner as if such person were actually authorized or
such signature were genuine. Borrower also hereby agrees to
indemnify Lender and hold Lender harmless from and against any
and all claims, demands, damages, liabilities, losses, costs
and expenses (including, without limitation, reasonable
attorneys' fees and expenses) relating to or arising out of or
in connection with the acceptance of instructions for making
Revolving Credit Loans or repayments hereunder.
Section 2.03. Swing Line Note and Revolving Credit
Note. (a) The Swing Line Loans made under Section 2.01(a)
hereof by Lender shall be evidenced by a Swing Line Note of
Borrower dated June 14, 1996, and
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<PAGE> 10
payable to the order of Lender in a principal amount equal to
Lender's Swing Line Commitment in the form attached hereto as
Exhibit Q and incorporated herein by reference (as the same
may from time to time be amended, modified, extended or
renewed, the "Swing Line Note"). Notwithstanding the
principal amount of the Swing Line Note as stated on the face
thereof, the amount of principal actually owing on such Swing
Line Note at any given time shall be the aggregate principal
amount of all Swing Line Loans theretofore made by Lender to
Borrower hereunder less all payments of principal theretofore
actually received hereunder by Lender.
(b) The Revolving Credit Loans made under Section
2.01(b) hereof by Lender shall be evidenced by a Revolving
Credit Note of Borrower October 5, 1995, and payable to the
order of Lender in a principal amount equal to Lender's
Revolving Credit Commitment in the form attached hereto as
Exhibit A and incorporated herein by reference, as amended by
a First Amendment to Revolving Credit Note dated June 14,
1996, in the form attached hereto as Exhibit A-1 and
incorporated herein by reference (as so amended and as the
same may from time to time be further amended, modified,
extended or renewed, the "Revolving Credit Note").
Notwithstanding the principal amount of the Revolving Credit
Note as stated on the face thereof, the amount of principal
actually owing on such Revolving Credit Note at any given time
shall be the aggregate principal amount of all Revolving
Credit Loans theretofore made by Lender to Borrower hereunder
less all payments of principal theretofore actually received
hereunder by Lender.
Section 2.04. Interest Rates. (a) Each Swing Line
Loan shall bear interest prior to maturity at a rate per annum
equal to the Prime Rate, fluctuating as described in the
definition of "Prime Rate". From and after the maturity of
the Swing Line Note, whether by reason of acceleration or
otherwise, the unpaid principal balance of each Swing Line
Loan shall bear interest payable on demand until paid at a
rate per annum equal to Two Percent (2%) over and above the
Prime Rate, fluctuating as aforesaid. Interest shall be
computed with respect to all Swing Line Loans on an actual
day, 360-day year basis.
(b) Each Revolving Credit Loan shall bear interest
prior to maturity at a rate per annum equal to the Prime Rate,
fluctuating as described in the definition of "Prime Rate".
From and after the maturity of the Revolving Credit Note,
whether by reason of acceleration or otherwise, the unpaid
principal balance of each Revolving Credit Loan shall bear
interest payable on demand until paid at a rate per annum
equal to Two
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<PAGE> 11
Percent (2%) over and above the Prime Rate, fluctuating as
aforesaid. Interest shall be computed with respect to all
Revolving Credit Loans on an actual day, 360-day year basis.
Section 2.05. Principal Payments. (a) The unpaid
principal amount of the Swing Line Note shall be due and
payable on the Commitment Termination Date.
(b) The unpaid principal amount of the Revolving
Credit Note shall be due and payable on the Commitment
Termination Date.
Section 2.06. Payment of Interest on the Swing Line
Note and the Revolving Credit Note. (a) Interest upon the
Swing Line Note shall be due and payable on each Interest
Payment Date. Borrower hereby irrevocably requests and
authorizes Lender to automatically debit Borrower's Operating
Account on each Interest Payment Date for all interest
payments due under the Swing Line Note on such Interest
Payment Date.
(b) Interest upon the Revolving Credit Note shall be
due and payable on each Interest Payment Date. Borrower
hereby irrevocably requests and authorizes Lender to
automatically debit Borrower's Operating Account on each
Interest Payment Date for all interest payments due under the
Revolving Credit Note on such Interest Payment Date.
Section 2.07. Prepayment. (a) Borrower shall have
the right to prepay all at any time or any portion from time
to time of the unpaid principal of any Swing Line Loan prior
to maturity, without penalty or premium. All prepayments
shall be applied solely to the payment of principal.
(b) Borrower shall have the right to prepay all at
any time or any portion from time to time of the unpaid
principal of any Revolving Credit Loan prior to maturity,
without penalty or premium. All partial prepayments of the
Revolving Credit Loans shall be in a minimum amount of
$100,000.00. All prepayments shall be applied solely to the
payment of principal.
Section 2.08. Manner and Application of Payments.
(a) All payments and prepayments of principal of, interest on
and fees and other amounts relating to the Swing Line Note to
or for the account of Lender shall be made by Borrower to
Lender before 2:00 p.m. (Central Standard Time), in
immediately available funds in Dollars at Lender's principal
banking office in Paducah, Kentucky. Any payment or
prepayment received by Lender after 2:00 p.m. (Central
Standard Time) shall be deemed
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<PAGE> 12
to have been received by Lender on the next succeeding
Business Day. All payments (other than prepayments) made on
the Swing Line Note shall be allocated among the principal,
interest, late fees, collection costs and expenses and other
amounts due under the Swing Line Note in such order and manner
as Lender shall elect.
(b) All payments and prepayments of principal of,
interest on and fees and other amounts relating to the
Revolving Credit Note to or for the account of Lender shall be
made by Borrower to Lender before 11:00 a.m. (Central Standard
Time), in immediately available funds in Dollars at Lender's
principal banking office in Paducah, Kentucky. Any payment or
prepayment received by Lender after 11:00 a.m. (Central
Standard Time) shall be deemed to have been received by Lender
on the next succeeding Business Day. All payments (other than
prepayments) made on the Revolving Credit Note shall be
allocated among the principal, interest, late fees, collection
costs and expenses and other amounts due under the Revolving
Credit Note in such order and manner as Lender shall elect.
Section 2.09. Revolving Credit Fee. Upon execution
hereof, Borrower shall pay to Lender as consideration for the
Revolving Credit Commitment to be made in accordance herewith,
a revolving credit fee of $5,000.00. Said fee shall not be
subject to reduction and shall not be refundable. Lender
acknowledges receipt of said fee.
Section 2.10. Use of Proceeds. (a) The proceeds of
each Swing Line Loan shall be used for the general corporate
purposes of Borrower.
(b) The proceeds of each Revolving Credit Loan shall
be used for the general corporate purposes of Borrower."
17. Section 3.02 of the Loan Agreement is hereby deleted
in its entirety and the following substituted in lieu thereof:
"Section 3.02. Term Note. The Term Loan made under
Section 3.01 hereof by Lender shall be evidenced by a Term
Loan Promissory Note of Borrower dated October 5, 1995, and
payable to the order of Lender in the original principal
amount of Seven Million Dollars ($7,000,000.00) in the form
attached hereto as Exhibit B and incorporated herein by
reference, as amended by a First Amendment to Term Loan
Promissory Note dated January 5, 1996, in the form attached
hereto as Exhibit B-1 and incorporated herein by reference and
a Second Amendment to Term Loan Promissory Note dated June 14,
1996, in the form attached hereto as Exhibit B-2 and
incorporated herein by reference (as so amended and as the
same may from time to
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<PAGE> 13
time be further amended, modified, extended or renewed, the
"Term Note")."
18. Sections 3.04 and 3.05 of the Loan Agreement are
hereby deleted in their entirety and the following substituted in lieu thereof:
"Section 3.04. Principal Payments. Principal on the
Term Note shall be due and payable in thirty-three (33)
consecutive monthly installments as follows: three (3) equal
consecutive monthly installments in the amount of One Hundred
Sixteen Thousand Six Hundred Sixty-Six and 67/100 Dollars
($116,666.67) each, due and payable on the last day of each
calendar month commencing October 31, 1995; twenty-nine (29)
equal consecutive monthly installments in the amount of One
Hundred Fifty Thousand Dollars ($150,000.00) each, due and
payable on the last business day of each calendar month
commencing January 31, 1996; with the thirty-third (33rd) and
final installment in the amount of the then outstanding and
unpaid principal balance of the Term Note due and payable on
the Maturity Date. In addition to the scheduled monthly
principal payments set forth above, if at any time the
Borrowing Base as shown on the most recent Borrowing Base
Certificate submitted to Lender pursuant to Section 8.01(c)
should be less than Zero Dollars ($0.00), Borrower shall be
automatically required (without demand or notice of any kind
by Lender, all of which are hereby expressly waived by
Borrower) to immediately either (i) make a permanent
prepayment on the Term Note in an amount sufficient to
increase the amount of the Borrowing Base to at least Zero
Dollars ($0.00) or (ii) pledge cash or cash equivalents with
Lender as additional collateral for the Term Loan in an amount
at least equal to the difference between the amount of the
Borrowing Base and Zero Dollars ($0.00). Borrower hereby
irrevocably requests and authorizes Lender to automatically
debit Borrower's Operating Account on each date on which a
payment of principal is due on the Term Note for the principal
payment due under the Term Note on such date.
Section 3.05. Payment of Interest on the Term Note.
Interest upon the Term Note shall be due and payable on each
Interest Payment Date. Borrower hereby irrevocably requests
and authorizes Lender to automatically debit Borrower's
Operating Account on each Interest Payment Date for all
interest payments due under the Term Note on such Interest
Payment Date."
19. Clause (iv) of Section 4.01(a) of the Loan Agreement
is hereby deleted in its entirety and the following substituted in lieu
thereof:
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<PAGE> 14
"(iv) (A) the sum of (1) the aggregate principal
amount of all outstanding Swing Line Loans, plus (2) the
aggregate principal amount of all outstanding Letter of Credit
Loans plus (3) the aggregate undrawn face amount of all
outstanding Letters of Credit shall not at any one time exceed
the lesser of (1) amount of the Lender's Swing Line Commitment
or (2) the sum of the Borrowing Base minus the aggregate
principal amount of all outstanding Revolving Credit Loans and
(B) the amount of the Total Outstandings shall not at any one
time exceed the lesser of (1) the sum of the amount of the
Lender's Swing Line Commitment plus the amount of the Lender's
Revolving Credit Commitment or (2) the Borrowing Base;"
20. Section 6.02 of the Loan Agreement is hereby deleted
in its entirety and the following substituted in lieu thereof:
"Section 6.02. All Loans. Notwithstanding any
provision contained herein to the contrary, Lender shall have
no obligation to make any Loan hereunder unless:
(a) Lender shall have received a current
Borrowing Base Certificate;
(b) if such Loan is a Revolving Credit Loan,
Lender shall have received a Borrowing Notice for such
Revolving Credit Loan as required by Section 2.02(b);
(c) on the date of and immediately after such
Loan, no Default or Event of Default under this Agreement
shall have occurred and be continuing;
(d) no material adverse change in the properties,
assets, liabilities, business, operations, prospects, income
or condition (financial or otherwise) of Borrower shall have
occurred since the date of this Agreement and be continuing;
(e) all of the representations and warranties of
Borrower contained in this Agreement and in the other Loan
Documents shall be true and correct in all material respects
on and as of the date of such Loan as if made on and as of the
date of such Loan (and for purposes of this Section 6.02(e),
the representations and warranties made by Borrower in Section
7.06 shall be deemed to refer to the most recent financial
statements of Borrower delivered to Lender pursuant to Section
8.01); and
(f) no proceeding or case under the United States
Bankruptcy Code or similar law or any other reorganization,
receivership or liquidation proceedings shall have been
commenced by or against Borrower or any of the Guarantors.
- 14 -
<PAGE> 15
Each request for a Loan by Borrower hereunder shall
be deemed to be a representation and warranty by Borrower on
the date of such Loan as to the facts specified in clauses
(c), (d), (e) and (f) of this Section 6.02."
21. The lead-in language to Article VII of the Loan
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof:
"To induce Lender to make the Swing Line Loans, the
Revolving Credit Loans and the Term Loan and to issue the
Letters of Credit hereunder, Borrower represents and warrants
to Lender that:"
22. The first sentence of Section 7.12 of the Loan
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof:
"The proceeds of the Swing Line Loans, the Revolving Credit
Loans and the Term Loan will be used by Borrower solely for
the purposes specified in Sections 2.10 and 3.08."
23. Section 8.01(h) of the Loan Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
"(h) Compliance Certificate. Within thirty (30)
days after the end of each fiscal month of Borrower other than
the last fiscal month of each fiscal year of Borrower and
within ninety (90) days after the end of the last fiscal month
of each fiscal year of Borrower, a certificate in the form of
Exhibit O attached hereto executed by the chief financial
officer or chief executive officer of Borrower, stating that a
review of the activities of Borrower during such fiscal month
has been made under his supervision and that Borrower has
observed, performed and fulfilled each and every obligation
and covenant contained herein and is not in default under any
of the same or, if any such default shall have occurred,
specifying the nature and status thereof, and setting forth a
computation in reasonable detail as of the end of the period
covered by such statements, of compliance with Sections 9.14
and 9.15 hereof;"
24. Section 8.13 of the Loan Agreement is hereby deleted
in its entirety and the following substituted in lieu thereof:
"Section 8.13. Maintenance of Books and Records;
Consultations and Inspections. Borrower will maintain books
and records in accordance with Generally Accepted Accounting
Principles and in which full, true and correct entries shall
be made of all dealings and transactions in
- 15 -
<PAGE> 16
relation to its business and activities. Borrower will permit
Lender (and any accountants and/or other Persons appointed by
Lender to whom Borrower does not reasonably object) to discuss
the affairs, finances and accounts of Borrower with the
officers of Borrower and its independent public accountants,
all at such reasonable times and as often as Lender may from
time to time reasonably request. Borrower will also permit
inspection of its properties, books and records by Lender (and
by any accountants and/or other Persons selected by Lender to
whom Borrower does not reasonably object) during normal
business hours and at other reasonable times. Borrower will
reimburse Lender upon demand for all out-of-pocket costs and
expenses incurred by Lender in connection with any such
inspection conducted by Lender and/or by any accountants
and/or other Persons selected by Lender (including, without
limitation, any amounts paid by Lender to any accountants or
other third parties in connection with any such inspection);
provided, however, that without limiting the number of such
inspections which may be conducted by Lender, the maximum
amount of such out-of-pocket costs and expenses for which
Lender may seek reimbursement from Borrower shall not exceed
the sum of $750.00 during any calendar year so long as no
Default or Event of Default under this Agreement has occurred
and is continuing."
25. Section 8.16 of the Loan Agreement is hereby deleted
in its entirety and the following substituted in lieu thereof:
"Section 8.16. Indemnity by Borrower. Borrower
shall indemnify, save and hold harmless Lender and its
directors, officers, agents, attorneys, and employees
(collectively, the "indemnitees") from and against: (i) any
and all claims, demands, actions or causes of action that are
asserted against any indemnitee by any Person if the claim,
demand, action or cause of action directly or indirectly
relates to a claim, demand, action or cause of action that the
Person asserts or may assert against Borrower or any Affiliate
of Borrower, (ii) any and all claims, demands, actions or
causes of action that are asserted against any indemnitee if
the claim, demand, action or cause of action directly or
indirectly relates to the Swing Line Commitment, the Revolving
Credit Commitment, the Term Loan Commitment, the use of
proceeds of the Swing Line Loans, the Revolving Credit Loans
or the Term Loan or the relationship of Borrower and Lender
under this Agreement or any transaction contemplated pursuant
to this Agreement, (iii) any administrative or investigative
proceeding by any Governmental Authority directly or
indirectly related to a claim, demand, action or cause of
action described in clauses (i) or (ii) above and (iv) any and
all liabilities, losses, costs or expenses (including
attorneys' fees and disbursements)
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<PAGE> 17
that any indemnitee suffers or incurs as a result of any of
the foregoing; provided, however, that Borrower shall have no
obligation under this Section to Lender with respect to any of
the foregoing arising out of the gross negligence or willful
misconduct of Lender or the breach by Lender of this
Agreement. Any obligation or liability of Borrower to any
indemnitee under this Section shall survive the expiration or
termination of this Agreement and the repayment of the
Obligations."
26. Section 9.14 of the Loan Agreement is hereby deleted
in its entirety and the following substituted in lieu thereof:
"Section 9.14. Financial Covenants.
(a) Minimum Tangible Net Worth. Borrower shall
not permit its Tangible Net Worth to be less than (i)
$5,800,000.00 at any time during the period commencing June
14, 1996, and ending December 30, 1996, (ii) $7,800,000.00
at any time during the period commencing December 31, 1996,
and ending December 30, 1997, or (iii) $9,300,000.00 at any
time on or after December 31, 1997.
(b) Maximum Indebtedness to Tangible Net Worth.
Borrower shall not permit the ratio of the Indebtedness of
Borrower, determined in accordance with Generally Accepted
Accounting Principles consistently applied but excluding the
Indebtedness and Guaranties of Borrower listed on Exhibit J
attached hereto and marked with an asterisk or a double
asterisk, to Tangible Net Worth to be greater than (i) 3.75 to
1.0 at any time during the period commencing June 14, 1996,
and ending December 30, 1996, or (ii) 3.35 to 1.0 at any time
on or after December 31, 1996.
(c) Minimum Net Cash Flow to Current Maturities
of Debt. Borrower shall not permit the ratio of Net Cash Flow
for any fiscal year of Borrower to the Current Maturities of
Debt for the next succeeding fiscal year of Borrower to be
less than 1.5 to 1.0. For the purposes of this Section,
Borrower's "Net Cash Flow" shall be that shown on the annual
officer's certificate delivered with respect to such fiscal
year unless Lender makes an independent, good faith
determination of Net Cash Flow for such fiscal year. If
Lender's determination of Net Cash Flow for any fiscal year
end is less than Net Cash Flow as stated in the applicable
officer's certificate: (i) such determination by Lender shall
be, if determined in accordance with the foregoing provision
and the definition of "Net Cash Flow" in this Agreement,
conclusive for purposes hereof and (ii) Lender shall promptly
advise Borrower of its determination.
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<PAGE> 18
(d) Minimum Operating Cash Flow. Borrower shall
not permit its Operating Cash Flow to be less than (i)
$7,000,000.00 for the fiscal year of Borrower ending December
31, 1996, or (ii) $7,500,000.00 for the fiscal year of
Borrower ending December 31, 1997. For the purposes of this
Section, Borrower's "Operating Cash Flow" shall be that shown
on the annual officer's certificate delivered with respect to
such fiscal year unless Lender makes an independent, good
faith determination of Operating Cash Flow for such fiscal
year. If Lender's determination of Operating Cash Flow for
any fiscal year end is less than Operating Cash Flow as stated
in the applicable officer's certificate: (i) such
determination by Lender shall be, if determined in accordance
with the foregoing provision and the definition of "Operating
Cash Flow" in this Agreement, conclusive for purposes hereof
and (ii) Lender shall promptly advise Borrower of its
determination.
(e) Maximum Consolidated Indebtedness to
Consolidated Tangible Net Worth. Borrower shall not permit
the ratio of the Indebtedness of Borrower and its
Subsidiaries, determined on a consolidated basis and in
accordance with Generally Accepted Accounting Principles
consistently applied but excluding the Indebtedness and
Guaranties of Borrower listed on Exhibit J attached hereto and
marked with a double asterisk, to Consolidated Tangible Net
Worth to be greater than 4.5 to 1.0 as of the last day of any
fiscal year of Borrower commencing with the fiscal year of
Borrower ending December 31, 1996."
27. Clause (c) of Section 10.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
"(c) Borrower shall fail or refuse to perform or
observe any of the terms, covenants, agreements or conditions
contained in Sections 2.01, 2.10, 4.01(iv), 4.01(v), 8.01(c),
8.01(e), 8.08, 8.11, 8.12, 8.13, 8.14, 8.15 or 8.17 or Article
IX herein;"
28. Exhibits A-1, B-2, F-2, Q and R attached to this
Amendment are hereby added as Exhibits A-1, B- 2, F-2, Q and R to the Loan
Agreement.
29. Exhibit I attached to the Loan Agreement is hereby
deleted in its entirety and the Exhibit I attached to this Amendment is
substituted in lieu thereof.
30. Exhibit O attached to the Loan Agreement is hereby
deleted in its entirety and the Exhibit O attached to this Amendment is
substituted in lieu thereof.
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<PAGE> 19
31. Pursuant to Borrower's request, Lender hereby waives
the existing Events of Defaults under the Loan Agreement caused solely by (i)
Borrower's having Indebtedness not otherwise permitted by Section 9.01(i) of
the Loan Agreement in excess of $250,000.00 in the aggregate as of December 31,
1995, in violation of Section 9.01(i) of the Loan Agreement, (ii) Borrower's
having a Tangible Net Worth of less than $6,250,000.00 as of December 31, 1995,
in violation of Section 9.14(b) of the Loan Agreement, (iii) Borrower's having
a ratio of Indebtedness to Tangible Net Worth in excess of 2.25 to 1.00 as of
December 31, 1995, in violation of Section 9.14(c) of the Loan Agreement and
(iv) Borrower's making Capital Expenditures during its fiscal year ended
December 31, 1995, in excess of $350,000.00 in violation of Section 9.15 of the
Loan Agreement. This paragraph is not and shall not be construed as (i) a
waiver of any of the other terms, provisions, conditions or covenants contained
in the Loan Agreement or of any other Default or Event of Default, if any,
existing under the Loan Agreement as of the date hereof or (ii) a commitment on
the part of Lender to waive any future Default or Event of Default under the
Loan Agreement resulting from any subsequent violation of Sections 9.01(i),
9.14(b), 9.14(c) or 9.15 of the Loan Agreement or any other future Default or
Event of Default under the Loan Agreement.
32. Borrower hereby agrees to reimburse Lender upon
demand for all out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by Lender in the preparation,
negotiation and execution of this Amendment and all other agreements, documents
and instruments relating to the amendment of Borrower's existing credit
facilities with Lender (collectively, the "Amendment Documents"). Borrower
further agrees to pay or reimburse Lender for (a) any stamp or other taxes
(excluding income or gross receipts taxes) which may be payable with respect to
the execution, delivery or recording of the Loan Documents and (b) the cost of
any filings and searches, including, without limitation, Uniform Commercial
Code filings and searches. All of the obligations of Borrower under this
paragraph shall survive the payment of the Borrower's Obligations and the
termination of the Loan Agreement.
33. All references in the Loan Agreement to "this
Agreement" and any other references of similar import shall henceforth mean the
Loan Agreement as amended by this Amendment.
34. Except to the extent specifically amended by this
Amendment, all of the terms, provisions, conditions, covenants, representations
and warranties contained in the Loan Agreement shall be and remain in full
force and effect and the same are hereby ratified and confirmed.
35. This Amendment shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns,
except that Borrower may not assign, transfer or delegate any of its rights or
obligations hereunder.
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<PAGE> 20
36. Borrower hereby represents and warrants to Lender
that:
(a) the execution, delivery and performance by
Borrower of this Amendment are within the corporate powers of Borrower, have
been duly authorized by all necessary corporate action and require no action by
or in respect of, or filing with, any governmental or regulatory body, agency
or official or any other third party;
(b) the execution, delivery and performance by
Borrower of this Amendment do not conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under or result in
any violation of, the terms of the Articles of Incorporation or By-Laws of
Borrower, any applicable law, rule, regulation, order, writ, judgment or decree
of any court or governmental or regulatory agency or instrumentality or any
agreement, document or instrument to which Borrower is a party or by which it
is bound or to which it is subject;
(c) this Amendment has been duly executed and
delivered by Borrower and constitutes the legal, valid and binding obligation
of Borrower enforceable against Borrower in accordance with its terms; and
(d) as of the date hereof, all of the
representations, warranties and covenants of Borrower set forth in the Loan
Agreement are true and correct and no Default or Event of Default under or
within the meaning of the Loan Agreement has occurred and is continuing.
37. In the event of any inconsistency or conflict between
this Amendment and the Loan Agreement, the terms, provisions and conditions
contained in this Amendment shall govern and control.
38. This Amendment shall be governed by and construed in
accordance with the substantive laws of the Commonwealth of Kentucky (without
reference to conflict of law principles).
IN WITNESS WHEREOF, Borrower and Lender have executed this
Second Amendment to Revolving Credit and Term Loan Agreement this 14th day of
June, 1996.
FALCONITE, INC.
By /s/ Mike Falconite
--------------------------------------------
Name: Mike Falconite
-----------------------------------------
Title: President
----------------------------------------
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<PAGE> 21
CITIZENS BANK & TRUST COMPANY OF PADUCAH
By /s/ Scott A. Houston
--------------------------------------------
Name: Scott A. Houston
-----------------------------------------
Title: Vice President
----------------------------------------
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<PAGE> 1
EXHIBIT 10.25
AIRCRAFT SECURITY AGREEMENT
THIS AIRCRAFT SECURITY AGREEMENT ("AGREEMENT") is made and entered into as of
11-25-96, by and between GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation having an office at 1415 WEST 22ND STREET SUITE 300, OAKBROOK, IL
("SECURED PARTY") and FALCONITE AVIATION, INC, a corporation organized and
existing under the laws of the State of DELAWARE and having its chief executive
offices located at FALCONITE AVIATION, INC. 2525 WAYNE SULLIVAN DR., PADUCAH,
KY 42002("DEBTOR").
1. GRANT OF SECURITY INTEREST. To secure Debtor's payment and performance
of any and all debts, obligations and liabilities of any kind, nature or
description whatsoever (whether due or to become due) of Debtor to Secured
Party, including but not limited to those arising under the promissory note of
even date herewith (the "Note"), this Agreement, and/or any related documents
(the Note, this Agreement and all such related documents being hereinafter
collectively referred to as the "DEBT DOCUMENTS"), and any renewals,
extensions, replacements and modifications of such debts, obligations and
liabilities (all of the foregoing being hereinafter referred to as the
"OBLIGATIONS"), Debtor grants to Secured Party a security interest in the
aircraft and other property described below and in all additions and
accessions thereto and substitutions therefor, now or hereafter owned, all
unearned insurance premiums and insurance proceeds relating to such property,
and the proceeds of all the foregoing (all of such property and proceeds are
collectively referred to as the "AIRCRAFT"):
AIRCRAFT MAKE: Citation; Model No.: 501; Serial No.: 501-0174; Registration
No.: N454DQ; Engine make: Pratt & Whitney; Model No.: J2T-15D-1A; Serial
Numbers: PCE-77248 & PCE-77249; Propeller make: NA; Model No.: NA; Serial
Numbers; NA; together with all other property essential and appropriate to the
operation of the Aircraft, including but not limited to all instruments,
avionics, equipment and accessories attached to and connected with the
Aircraft, and all logs, manuals and other documents issued for, or reflecting
use or maintenance of, the Aircraft.
2. HOME AIRPORT. The home airport of the Aircraft will be:
Barkley Airport, West Paducah, Mc Cracken County, KY
(Name of Airport, Township, County, State)
and will not be changed without the prior written consent of Secured Party.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor
represents, warrants and covenants that:
(a) Debtor (i) is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the preamble of this
Agreement, (ii) has its chief executive offices at the location set forth in
such paragraph, (iii) is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations, and
(iv) is and will continue to be a "citizen of the United States", within the
meaning of the Federal Aviation Act of 1958, as amended, and the regulations
thereunder so long as any Obligations are due to Secured Party under the Debt
Documents or otherwise;
(b) Debtor has adequate power and capacity to enter into, and to perform its
obligations under, each of the Debt Documents and has full right and lawful
authority to grant the security interest described in this Agreement;
(c) The Debt Documents have been duly authorized, executed and delivered by
Debtor and constitute legal, valid and binding agreements enforceable under all
applicable laws in accordance with their terms, except to the extent that the
enforcement of remedies may be limited under applicable bankruptcy and
insolvency laws;
(d) No approval, consent or withholding of objections required from any
governmental authority or instrumentality or any other entity with respect to
the entry into, or performance by, Debtor of any of the Debt Documents, except
such as have already been obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents will not
(i) violate any of Debtor's organizational documents or any judgment, order,
law or regulation applicable to Debtor, or (ii) result in any breach of,
constitute a default under, or result in the creation of, any lien, claim or
encumbrance on any of Debtor's property (except for liens in favor of Secured
Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit
agreement, or other agreement or instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened in court or before
any commission, board or other administrative agency against or affecting Debtor
which could, in the aggregate, have a material adverse effect on Debtor, its
business or operations, or its ability to perform its obligations under the
Debt Documents;
(g) All financial statements delivered to Secured Party in connection with the
Obligations have been prepared in accordance with generally accepted accounting
principles, and since the date of the most recent financial statement there has
been no material adverse change in Debtor's financial condition or business
prospects;
(h) Debtor is (or, to the extent that the Aircraft is to be acquired
hereafter, will be) and will remain the sole lawful owner, in sole, open and
notorious possession of the Aircraft, free from any security interest, lien or
encumbrance whatsoever other than those in favor of Secured Party and Debtor
shall defend the Aircraft against all claims and demands of all other persons
claiming any interest therein;
(i) Debtor shall promptly pay or cause to be paid all taxes, license fees,
assessments and public and private charges, that are or may be levied or
assessed on or against the Aircraft or the ownership or use thereof, or on this
Agreement;
(j) if at the time of Debtor's execution of this Agreement, Debtor is not the
registered owner of the Aircraft, as shown in the records of the United States
Federal Aviation Administration ("FAA"), Debtor at its own expense shall
immediately register the Aircraft in its name with the FAA and, so long as any
Obligation is due to Secured Party, Debtor shall not impair such registration
or cause it to be impaired, suspended or cancelled, nor register the Aircraft
<PAGE> 2
under the laws of any country except the United States of America.
(k) Debtor shall promptly notify Secured Party of any facts or occurrences
which do or, by passage of time or otherwise will, constitute a breach of any
of the above warranties and covenants;
4. DEBTOR SHALL EXECUTE AND DELIVER DOCUMENTS. Debtor shall, at Secured
Party's request, furnish Secured Party such information and execute and deliver
to Secured Party such documents and do all such acts and things as Secured
Party may reasonably request as necessary or appropriate to establish and
maintain a valid first priority security interest in the Aircraft and to assure
that the Aircraft is titled, registered and the security interest perfected to
Secured Party's satisfaction. Debtor shall pay the cost of filing all
appropriate documents in all public offices where Secured Party deems such
filings necessary or desirable.
5. USE, OPERATION, MAINTENANCE AND REPAIR. Debtor shall use, operate,
maintain and repair the Aircraft and retain actual and operational control and
possession thereof in compliance with the following provisions:
(a) Debtor shall use, operate, maintain and store the Aircraft, and every
part thereof, properly, carefully and in compliance with all applicable
statutes, ordinances and regulations of all jurisdictions in which the
Aircraft is operated or used, as well as all applicable insurance policies,
manufacturer's recommendations and operating and maintenance manuals. Debtor
shall use the Aircraft predominately for business purposes and only for the
purposes and in the manner set forth in the application for insurance executed
at the time of negotiating the purchase of the Aircraft. At all times during
the term of this Agreement, Debtor shall not operate or locate the aircraft, or
suffer or permit the aircraft to be operated, located, or otherwise permitted
to go into or over (i) any country or jurisdiction that does not maintain full
diplomatic relations with the United States, (ii) any area of hostilities,
(iii) any geographic area which is not covered by the insurance policies
required by this Agreement, or (iv) any country or jurisdiction for which
exports or transactions are subject to specific restrictions under any United
States export or other law or United Nations Security Council directive,
including, without limitation: The Trading With the Enemy Act, 50 U.S.C. App.
Section 1 et seq., the International Emergency Economic Powers Act, 50 U.S.C.
App. Section 1701 et seq. and The United States Export Administration Act, 50
U.S.C. App. Section 2401 et seq. or to otherwise violate, or suffer or permit
the violation of, such laws. Debtor also agrees to prohibit any national of
such restricted nations from operating the Aircraft. The engines identified in
Section 1 of this Agreement shall be used only on the airframe described in
that Section and shall only be removed for maintenance in accordance with the
provisions of this Agreement. Debtor shall not use, attempt to use, or suffer
the Aircraft to be used in any manner which may or does contravene any
applicable law, rule or regulation governing the Aircraft, including without
limitation those relating to intoxicating liquors, narcotics, firearms or
similar products, and shall not attempt to sell, lease, rent, assign or dispose
of the Aircraft, or any interest herein or therein, or any part thereof,
without Secured Party's prior written consent.
(b) The Aircraft will be operated at all times by a currently certificated
pilot having the minimum total pilot hours and minimum pilot-in-command hours
required by FAA rules or regulations or as required by applicable insurance
policies, whichever requirements are stricter. Debtor shall be responsible for
and pay for all expenses of owning and operating the Aircraft, including but
not limited to storage, fuel, lubricants, service, inspections, overhauls,
replacements, maintenance and repairs, all in compliance with the
manufacturer's operating and maintenance manuals and with FAA rules and
regulations. Debtor shall properly maintain all records and other materials
pertaining to the maintenance and operation of the Aircraft, including but not
limited to those required by applicable law, rule or regulation and by the
manufacturer for the enforcement of any warranty.
(c) The Aircraft is and shall at all times be maintained by Debtor at its
expense in good repair in the configuration and condition existing on the date
hereof and in airworthy condition necessary for all aircraft licenses under the
laws, ordinances, rules and regulations of all jurisdictions in which the
Aircraft will at any time be operated. Debtor shall ensure timely compliance
with all applicable mandatory Service Bulletins, Service Letters,
Manufacturer's Directives and Airworthiness Directives. Debtor shall submit
written evidence of such maintenance and condition to Secured Party upon its
written request from time to time. Debtor shall use reasonable care to prevent
the Aircraft from being damaged or injured, and shall promptly replace any part
or component of the Aircraft which may be damaged, worn out, lost, destroyed,
confiscated or otherwise rendered unsatisfactory or unavailable for use in or
upon the Aircraft.
(d) The Aircraft shall at all times have the same utility and quality as
that which it originally had. Debtor shall at its expense timely make any
alterations or modifications to the Aircraft that may at any time during the
term of this Agreement be required to maintain the Aircraft in the condition
required by this Agreement. Debtor shall in no way alter, attempt to alter or
otherwise change the identity or appearance of the Aircraft, including but not
limited to the "N" number, exterior paint and symbols, without the express
prior written consent of Secured Party.
6. INDEMNIFICATION AND INSURANCE.
(a) Debtor shall indemnify and save Secured Party harmless from and against
all claims, expenses, damages and liabilities whatsoever, including without
limitation personal injury, death and property damage claims arising in tort or
otherwise, under any legal theory including but not limited to strict
liability, in any manner occasioned by or related to the Aircraft, its
operation, use, ownership, possession, manufacture or otherwise.
(b) Debtor shall at all times bear all risk of loss, damage, destruction
or confiscation of or to the Aircraft. Debtor shall, at its own expense, keep
the Aircraft insured at all times against all physical damage to the Aircraft
including damage or destruction by fire, theft, crash, vandalism, and all other
causes with standard loss payable clause and breach of warranty endorsement in
favor of Secured Party and shall carry liability insurance, all of which shall
be in such amounts, under such forms of policies, upon such terms, for such
periods and with such companies or underwriters as Secured Party may approve,
losses or refunds in all cases to be first payable to Secured Party or its
assigns, as its interest may appear. Notwithstanding any provision of this
Agreement to the contrary, failure to obtain Secured Party's approval of any
insurer or policy shall not excuse Debtor from its obligation to maintain
insurance coverage. In no event shall the amounts of such insurance be less
than the principal amount of the Obligations evidenced by the Debt Documents.
All insurance policies shall provide for at least 30 days prior written notice
to Secured Party of any cancellation or material modification, shall contain a
severability of interest clause providing that such policy shall operate in the
same manner as if a separate policy covered each insured, shall waive any right
of set-off against Debtor or Secured Party, shall waive any right of
subrogation against Secured Party and shall be primary and not subject to any
offset by any other insurance carried by Debtor or Secured Party. Debtor shall
pay any deductible portion of such insurance and any expense incurred in
collecting insurance proceeds. Debtor shall furnish to Secured Party copies of
all insurance policies required by this paragraph. Debtor hereby assigns to
Secured Party the proceeds of all such insurance (including any refund of
premium) to the extent of the Obligations secured hereby, directs the insurer
to pay any losses or refunds due Debtor directly to Secured Party, and appoints
Secured Party as attorney-in-fact to make proof of loss and claim for all
insurance and refunds thereupon and to endorse all documents, contracts drafts,
checks or forms of payment of insurance or premiums. Secured Party may at its
option apply insurance proceeds, in whole or in part, to (i) repair or replace
the Aircraft or any part thereof or (ii) satisfy any of Debtor's Obligations to
Secured Party. Any surplus proceeds shall be paid to Debtor.
<PAGE> 3
The cost of this insurance, if obtained from or through the Secured Party is:
$NA (Hull Insurance) and OBTAINED FROM OUTSIDE SOURCE
$NA (Liability).
DEBTOR HAS THE RIGHT TO OBTAIN THE INSURANCE REQUIRED HEREIN THROUGH ANY AGENT
OR OTHER PERSON OF DEBTOR'S CHOICE AS WELL AS THROUGH SECURED PARTY.
7. DEBTOR'S POSSESSION. Until default, Debtor may possess the Aircraft
and use it in any lawful manner not inconsistent with this agreement. Debtor
shall at all times keep the Aircraft and any proceeds therefrom separate and
distinct from other property of the Debtor and shall keep accurate and complete
records of the Aircraft and all such proceeds. Secured Party may examine and
inspect the Aircraft, wherever located, at any reasonable time, on land and in
flight.
8. DEFAULT. Debtor shall be in default under this Agreement and each of
the other Debt Documents upon the occurrence of any of the following Events of
Default:
(a) Debtor fails to pay within 10 days after its due date any installment
or other amount due or coming due under any of the Debt Documents;
(b) Debtor fails to maintain at all times insurance coverage as required by
paragraph 6(b) of this Agreement;
(c) Any attempt by Debtor, without the prior written consent of Secured
Party, to sell, rent, lease, mortgage, grant a security interest in or
otherwise deliver possession of (except for maintenance purposes), transfer or
encumber the Aircraft;
(d) Debtor breaches any of its other Obligations under any Debt Document
and fails to cure the breach within 30 days after Secured Party gives Debtor
written notice thereof;
(e) Any warranty, representation or statement made by Debtor in any of the
Debt Documents or otherwise in connection with any of the Obligations is false
or misleading in any material respect;
(f) Debtor or any guarantor or surety for the Obligations dies, becomes
insolvent or ceases to do business as a going concern;
(g) The Aircraft or any other property of Debtor is confiscated,
sequestered, seized or levied upon;
(h) The Aircraft or any part thereof which would cost more than $10,000 to
repair or replace is lost, stolen, secreted, abused, illegally used, misused,
or destroyed;
(i) Debtor is declared in default under any contract or obligation
requiring the payment of money in an original principal amount greater than
$50,000.00;
(j) Debtor defaults under any other agreement between Debtor and Secured
Party;
(k) Debtor or any guarantor of or surety for the Obligations makes an
assignment for the benefit of creditors, applies to or petitions any tribunal
for the appointment of a custodian, receiver or trustee for itself or for any
substantial part of its property, or commences any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, or if any such petition or
application is filed or any such proceeding is commenced against Debtor or any
guarantor or surety, and such petition, application or proceeding is not
dismissed within 30 days, or Debtor or any such guarantor or surety by any act
or omission shall indicate its consent to, approval of or acquiescence in any
such petition, application, proceeding, order for relief or such appointment of
a custodian, receiver or trustee;
(l) Debtor conceals or removes, or permits to be concealed or removed, any
part of its assets, so as to hinder, delay or defraud any of its creditors, or
makes or suffers a transfer of any of its assets which would be fraudulent
under any bankruptcy, insolvency, fraudulent conveyance or similar law or makes
any transfer of its assets to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid, or suffers or permits,
while insolvent, any creditor to obtain a lien upon any of Debtor's property
through legal proceedings or distraint, or if a tax lien is filed against
Debtor.
9. Remedies of Secured Party:
(a) Upon the occurrence of any Event of Default under this Agreement,
Secured Party, at its option, may declare any or all of the Obligations,
including but not limited to the Note, to be immediately due and payable,
without demand or notice to Debtor or any guarantor. The Obligations and
liabilities accelerated thereby shall bear interest from the Event of Default
(both before and after any judgment) until paid in full at the lesser of
eighteen percent (18%) per annum or the maximum rate not prohibited by
applicable law.
(b) Upon the occurrence of any Event of Default, Secured Party shall
additionally have all of the rights and remedies of a secured party under the
Uniform Commercial Code and under any other applicable law. Without limiting
the foregoing and without notice or demand, Secured Party shall have the right
at its option to immediately exercise one or more of the following remedies:
(i) refuse to extend any further credit to Debtor; (ii) terminate this
Agreement immediately without notice; (iii) take immediate and exclusive
possession of the Aircraft, wherever it may be found; (iv) enter any of
Debtor's premises, with or without process of law, wherever the Aircraft may be
or Secured Party reasonably believes it to be, and search for it, and if the
Aircraft or any part of it is found, to take possession of and remove it; (v)
sell, lease and otherwise dispose of the Aircraft or any part of it, at public
auction or private sale, for cash or on credit, as Secured Party may elect at
its option and Secured Party shall have the right to bid and become the
purchaser at any such sale, or keep the Aircraft idle; (vi) notify, in Secured
Party's own name, or in Debtor's name, all obligors of Debtor and demand,
collect, receive, receipt for, sue, compromise and give acquittance for, any
and all amounts due on contracts and credits, and endorse Debtor's name on any
commercial paper or instrument given as full or partial payment thereon; (vii)
direct the Debtor to assemble all parts and components of the Aircraft and
deliver it to Secured Party, at Debtor's expense, at a place designated by
Secured Party which is reasonably convenient to Secured Party and Debtor;
and/or (viii) hold, appropriate, apply or set-off any and all moneys, credits
and indebtedness due from Secured Party, its affiliates, parents or
subsidiaries, to Debtor.
(c) Debtor shall pay all reasonable costs incurred by Secured Party in
collecting any of the Obligations owned Secured Party by Debtor and enforcing
any
<PAGE> 4
Obligations of Debtor to Secured Party, including but not limited to reasonable
attorney's fees and legal expenses.
(d) Notwithstanding the availability of any other remedy and in addition
thereto, if Debtor fails to perform any of its Obligations hereunder or under
any of the Debt Documents, Secured Party may perform the same, but shall not be
obligated to do so, for the account of Debtor, and Debtor shall immediately
repay to Secured Party on demand any amounts paid or incurred by Secured Party
in such performance together with interest thereon accrued from the date paid or
incurred by Secured Party until repaid in full by Debtor at the lesser of one
and one half percent (1 1/2%) per month and the maximum interest rate permitted
by applicable law to be charged Debtor by Secured Party.
(e) Notwithstanding any other provision hereof to the contrary, any notice
required to be given by law or pursuant to this Agreement with respect to
disposition of the Aircraft or any part of it shall be deemed reasonably and
properly given if mailed by first class United States Mail, postage prepaid, by
prepaid express mail service (private or government) or by hand delivery to
Debtor at its last known address, at least ten (10) days before the disposition
of the subject matter of such notification.
(f) Any proceeds realized by Secured Party upon the sale or other
disposition of the Aircraft shall first be applied by the Secured Party to the
payment of the reasonable expenses (including interest) of retaking, holding,
preparing for sale, selling and the like, including reasonable attorneys' fees
and legal expenses and any balance of such proceeds may be applied by the
Secured Party toward the satisfaction of Debtor's Obligations in such order of
application as the Secured Party may in its sole discretion determine. Any
surplus remaining after all of Debtor's Obligations to Secured Party
shall have been paid in full shall be paid to Debtor. Debtor shall be liable
for and shall promptly pay on demand any deficiency resulting from any such
disposition of Aircraft.
(g) The foregoing remedies shall not be exclusive or alternative but shall
be cumulative and in addition to all other remedies in favor of Secured Party
existing at law or in equity.
10. PRINCIPALS AND WAIVERS. All signers and endorsers hereof are to be
regarded as principals, jointly and severally. Every maker, endorser,
guarantor and surety hereof hereby waives presentment, notice, protest and
impairment of collateral, and consents to all extensions, deferrals, partial
payments and refinancings hereof before or after maturity.
11. WAIVER OF DEFAULT. No waiver by Secured Party of any default shall
operate as a waiver of any other default or of the same default on a future
occasion.
12. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event of (i) any
change in Debtor's name, (ii) any relocation of Debtor's chief executive
offices, (iii) any permanent or indefinite relocation of the Aircraft or its
home airport, (iv) the Aircraft being lost, stolen, missing, confiscated,
appropriated, seized, sequestered, destroyed, materially damaged or worn out,
(v) any accident involving the Aircraft or (vi) any lien, claim or encumbrance
attaching or being made against the Aircraft (other than liens in favor of
Secured Party). Such notice shall contain all pertinent details of the event
being reported, and shall be supplemented promptly upon Secured Party's
request.
(b) Debtor agrees to furnish its annual financial statements and such
interim statements as Secured Party may required in form satisfactory to
Secured Party. Any and all financial statements submitted and to be submitted
to Secured Party have and will have been prepared on a basis of generally
accepted accounting principles consistently applied, and are and will be
complete and correct and fairly present Debtor's financial condition as at the
date thereof. Secured Party may at any reasonable time examine Debtor's books
and records and make copies thereof.
13. MISCELLANEOUS:
(a) This Agreement, the Note and/or any of the other Debt Documents may be
assigned, in whole or in part, by Secured Party without notice to Debtor, and
Debtor hereby waives and agrees not to assert against any assignee any defense,
counterclaim, right of set-off or cross-complaint Debtor may have against
Secured Party for any reason whatsoever, agreeing that Secured Party shall be
solely responsible therefor.
(b) All notices to be given in connection with this Agreement and the Debt
Documents shall be in writing, shall be addressed to the parties at their
respective addresses set forth hereinabove (unless and until a different
address may be specified in a written notice to the other party), and shall be
deemed given (i) on the date of receipt if delivered in hand or by facsimile
transmission, (ii) on the next business day after being sent by express mail
(government or private), and (iii) on the fourth business day after being sent
by regular, registered or certified mail. As used herein, "business day" means
any day other than a Saturday, a Sunday, or other day on which commercial banks
in New York, New York are required or authorized to be closed.
(c) Secured Party may correct patent errors herein and fill in all blanks
herein or in the Debt Documents consistent with the agreement of the parties.
(d) Time is of the essence hereof. This Agreement and the Debt Documents
shall be binding, jointly and severally, upon all parties described as the
"Debtor" and their respective heirs, executors, representatives, successors and
assigns, and shall inure to the benefit of Secured Party, its successors and
assigns.
(e) The unenforceability of any provision hereof or of the Debt Documents
shall not affect the validity of any other provision hereof or thereof.
(f) This Agreement and the Debt Documents constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior understandings (whether written, oral or implied) with respect thereto,
except representations made by Debtor to Secured Party. THIS AGREEMENT AND THE
DEBT DOCUMENTS SHALL NOT BE CHANGED OR TERMINATED, NOR SHALL ANY WAIVER BE
GIVEN, ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING SIGNED BY BOTH
PARTIES HERETO. Section headings in this Agreement are for convenience only,
and shall not affect the construction or interpretation hereof.
(g) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY,
THIS AGREEMENT, ANY OF THE DEBT DOCUMENTS, ANY DEALINGS BETWEEN DEBTOR AND
SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED
TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR
AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN
<PAGE> 5
WRITINGS AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO
ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
(h) This Agreement shall continue in full force and effect until all of the
Obligations have been indefeasibly paid in full to Secured Party. This
Agreement shall automatically be reinstated in the event that Secured Party is
ever required to return or restore the payment of all or any portion of the
Obligations (all as though such payment had never been made).
SECURED PARTY: DEBTOR:
GENERAL ELECTRIC CAPITAL CORPORATION FALCONITE AVIATION, INC.
By: /s/ GT CHANEZ By: /s/ Mike Falconite
------------------------------ --------------------------------
Name: GT CHANEZ Name: Mike Falconite
------------------------------ --------------------------------
Title: Credit Analyst Title: President
------------------------------ --------------------------------
<PAGE> 1
EXHIBIT 10.26
CORPORATE GUARANTY
Date: November 25, 1996
General Electric Capital Corporation
1415 West 22nd Street Suite 300
Oakbrook, IL 60521
To induce you to enter into, purchase or otherwise acquire, now or at
any time hereafter, any promissory notes, security agreements, chattel
mortgages, pledge agreements, conditional sale contracts, lease agreements,
and/or any other documents or instruments evidencing, or relating to, any
lease, loan, extension of credit or other financial accommodation (collectively
"ACCOUNT DOCUMENTS" and each an "ACCOUNT DOCUMENT") to FALCONITE AVIATION,
INC., A OTHER organized and existing under the laws of the State of DELAWARE
("CUSTOMER"), but without in any way binding you to do so, the undersigned, for
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, does hereby guarantee to you, your successors and assigns, the
due regular and punctual payment of any sum or sums of money which the Customer
may owe to you now or at any time hereafter, whether evidenced by an Account
Document, on open account or otherwise, and whether it represents principal,
interest, rent, late charges, indemnities, an original balance, an accelerated
balance, liquidated damages, a balance reduced by partial payment, a deficiency
after sale or other disposition of any leased equipment, collateral or
security, or any other type of sum of any kind whatsoever that the Customer may
owe to you now or at any time hereafter, and does hereby further guarantee to
you, your successors and assigns, the due, regular and punctual performance of
any other duty or obligation of any kind or character whatsoever that the
Customer may owe to you now or at any time hereafter (all such payment and
performance obligations being collectively referred to as "OBLIGATIONS").
Undersigned does hereby further guarantee to pay upon demand all losses, costs,
attorneys' fees and expenses which may be suffered by you by reason of
Customer's default or default of the undersigned.
This Guaranty is a guaranty of prompt payment and performance (and not
merely a guaranty of collection). Nothing herein shall require you to first
seek or exhaust any remedy against the Customer, its successors and assigns, or
any other person obligated with respect to the Obligations, or to first
foreclose, exhaust or otherwise proceed against any leased equipment,
collateral or security which may be given in connection with the Obligations.
It is agreed that you may, upon any breach or default of the Customer, or at
any time thereafter, make demand upon the undersigned and receive payment and
performance of the Obligations, with or without notice or demand for payment or
performance by the Customer, its successors or assigns, or any other person.
Suit may be brought and maintained against the undersigned, at your election,
without joinder of the Customer or any other person as parties thereto. The
obligations of each signatory to this Guaranty shall be joint and several.
The undersigned agrees that its obligations under this Guaranty shall
be primary, absolute, continuing and unconditional, irrespective of and
unaffected by any of the following actions or circumstances (regardless of any
notice to or consent of the undersigned): (a) the genuineness, validity,
regularity and enforceability of the Account Documents or any other document;
(b) any extension, renewal, amendment, change, waiver or other modification of
the Account Documents or any other document; (c) the absence of, or delay in,
any action to enforce the Account Documents, this Guaranty or any other
document; (d) your failure or delay in obtaining any other guaranty of the
Obligations (including, without limitation, your failure to obtain the
signature of any other guarantor hereunder); (e) the release of, extension of
time for payment or performance by, or any other indulgence granted to the
Customer or any other person with respect to the Obligations by operation of
law or otherwise; (f) the existence, value, condition, loss, subordination or
release (with or without substitution) of, or failure to have title to or
perfect and maintain a security interest in, or the time, place and manner of
any sale or other disposition of any leased equipment, collateral or security
given in connection with the Obligations, or any other impairment (whether
intentional or negligent, by operation of law or otherwise) of the rights of
the undersigned; (g) the Customer's voluntary or involuntary bankruptcy,
assignment for the benefit of creditors, reorganization, or similar proceedings
affecting the Customer or any of its assets; or (h) any other action or
circumstances which might otherwise constitute a legal or equitable discharge
or defense of a surety or guarantor.
This Guaranty may be terminated upon delivery to you (at your address
shown above) of a written termination notice from the undersigned. However, as
to all Obligations, (whether matured, unmatured, absolute, contingent or
otherwise) incurred by the Customer prior to your receipt of such written
termination notice (and regardless of any subsequent amendment, extension or
other modification which may be made with respect to such Obligations), this
Guaranty shall nevertheless continue and remain undischarged until all such
Obligations are indefeasibly paid and performed in full.
The undersigned agrees that this Guaranty shall remain in full force
and effect or be reinstated (as the case may be) if at any time payment or
performance of any of the Obligations (or any part thereof) is rescinded,
reduced or must otherwise be restored or returned by you, all as though such
payment or performance had not been made. If, by reason of any bankruptcy,
insolvency or similar laws effecting the rights of creditors, you shall be
prohibited from exercising any of your rights or remedies against the Customer
or any other person or against any property, then, as between you and the
undersigned, such prohibition shall be of no force and effect, and you shall
have the right to make demand upon, and receive payment from, the undersigned
of all amounts and other sums that would be due to you upon a default with
respect to the Obligations.
Notice of acceptance of this Guaranty and of any default by the
Customer or any other person is hereby waived. Presentment, protest demand,
and notice of protest, demand and dishonor of any of the Obligations, and the
exercise of possessory, collection or other remedies for the Obligations, are
hereby waived. The undersigned warrants that it has adequate means to obtain
from the Customer on a continuing basis financial data and other information
regarding the Customer and is not relying upon you to provide any such data or
other information. Without limiting the foregoing, notice of adverse change in
the Customer's financial condition or of any other fact which might materially
increase the risk of the undersigned is also waived. All settlements,
compromises, accounts stated and agreed balances made in good faith between the
Customer, its successors or assigns, and you shall be binding upon and shall
not affect the liability of the undersigned.
Payment of all amounts now or hereafter owed to the undersigned by the
Customer or any other obligor for any of the Obligations is hereby subordinated
in right of payment to the indefeasible payment in full to you of all
Obligations and is hereby assigned to you as a security therefor. The
undersigned hereby irrevocably and unconditionally waives and relinquishes all
statutory, contractual, common law, equitable and all other claims against the
Customer, any other obligor for any of the Obligations, any collateral
therefor, or any other assets of the Customer or any such other obligor, for
<PAGE> 2
subrogation, reimbursement, exoneration, contribution, indemnification, setoff
or other recourse in respect of sums paid or payable to you by the undersigned
hereunder, and the undersigned hereby further irrevocably and unconditionally
waives and relinquishes any and all other benefits which it might otherwise
directly or indirectly receive or be entitled to receive by reason of any
amounts paid by, or collected or due from, it, the Customer or any other
obligor for any of the Obligations, or realized from any of their respective
assets.
THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY
TRAIL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE
RELATED DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF
OR THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE
SCOPE OF THIS WAVIER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER LAW AND STATUTORY CLAIMS).
THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED
HEREBY, OR ANY RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY
MAY BE FILED AS A WRITTEN CONSENT TO A TRAIL BY THE COURT.
As used in this Guaranty, the word "person" shall include any
individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, or any government or any political
thereof.
This Guaranty is intended by the parties as a final expression of the
guaranty of the undersigned and is also intended as a complete and exclusive
statement of the terms thereof. No course of dealing, course of performance or
trade usage, nor any paid evidence of any kind, shall be used to supplement or
modify any of the terms thereof. Nor are there any conditions to the full
effectiveness of this Guaranty. This Guaranty and each of its provisions may
only be waived, modified, varied, released, terminated or surrendered, in whole
or in part, by a duly authorized written instrument signed by you. No failure
by you to exercise your rights hereunder shall give rise to any estoppel
against you, or excuse the undersigned from performing hereunder. Your waiver
of any right to demand performance hereunder shall not be a waiver of any
subsequent or other right to demand performance hereunder.
This Guaranty shall bind the undersigned's successors and assigns and
the benefits thereof shall extend to and include your successors and assigns in
the event of default hereunder, you may at any time inspect undersigned's
records, or at your option, undersigned shall furnish you with a current
independent audit report.
If any provisions of this Guaranty are in conflict with any applicable
statute, rule or law, then such provisions shall be deemed null and void to the
extent that may conflict therewith, but without invalidating any other
provisions hereof.
Each signatory on behalf of a corporate guarantor warrants that he had
authority to sign on behalf of such corporation and by so signing, to bind said
guarantor corporation hereunder.
IN WITNESS HEREOF, this Guaranty is executed the day and year above
written.
FALCONITE, INC.
By: /s/ Mike Falconite
---------------------------
(Signature)
Title: President
------------------------
(Officer's Title)
ATTEST: /s/ Angie Grimm
-----------------------------
Secretary/Assistant Secretary
<PAGE> 1
EXHIBIT 10.27
CPR TTI W/OTC
PROMISSORY NOTE
December 2, 1996
----------------
(Date)
2525 Wayne Sullivan Dr., Paducah, KY
(Address of Maker)
FOR VALUE RECEIVED, Falconite Aviation, Inc. ("MAKER") promises, jointly and
severally if more than one, to pay to the order of General Electric Capital
Corporation or any subsequent holder hereof (each, a "PAYEE") at its office
located at 1415 West 22nd Street, Suite 300, Oak Brook, Illinois 60521, or at
such other place as Payee or the holder hereof may designate, the principal sum
of ONE MILLION EIGHTY EIGHT THOUSAND AND 00/100 Dollars ($1,088,000.00), with
interest thereon, from the date hereof through and including the dates of
payment, at the floating per annum simple interest rate ("CONTRACT RATE")
calculated as hereinafter set forth.
Until the Option to Convert (as defined below) is exercised, the Contract Rate
shall be adjusted once each calendar month, and such adjustment shall be
effective during the adjustment period ("ADJUSTMENT PERIOD") as hereinafter
defined. Each Adjustment Period shall commence at the close of business on the
2nd day of a calendar month and shall continue through the same day of the
next succeeding calendar month. The Contract Rate for each Adjustment Period
shall be equal to the sum of (i) TWO AND EIGHT ONE HUNDREDTH percent (2.08%)
per annum plus (ii) a variable per annum interest rate which shall be equal to
the rate listed for "1-Month" Commercial Paper under the column indicating an
average rate as stated in the Federal Reserve Statistical Release H.15 (519)
for the second calendar month ("CURRENT CPR") preceding the calendar month in
which the Adjustment Period commences. If, for any reason whatsoever, the
Federal Reserve Statistical Release H.15 (519) is no longer published, the
Current CPR shall be equal to the latest Commercial Paper Rate for high grade
unsecured notes of 30 days maturity sold through dealers by major corporations
in multiples of $1,000, as indicated in the "Money Rates" column of the Wall
Street Journal, Eastern Edition, published on the first Business Day of the
calendar month preceding the month in which the interest payment being adjusted
shall be due and payable.
So long as no default exists hereunder and all of the terms and conditions of
this Note are fulfilled, Maker may elect to convert (the "Option to Convert")
the Contract Rate to a fixed per annum simple interest rate as of any date on
which a Periodic Installment is due upon at least 30 but no more than 60 days
prior written notice (the "Notice Date") to Payee accompanied by a Conversion
Fee of $500.00 (which notice shall be irrevocable and shall be sent to the
attention of Payee's Business Center Manager, 44 Ridgebury Road, Danbury, CT
06810-5105). Such notice shall state the due date of a Periodic Installment on
which Maker elects the fixed Contract Rate to apply. Maker shall pay to Payee,
if necessary, prior to the effective date of the fixed Contract Rate, an
additional sum sufficient to amortize the unpaid principal over the balance of
the original term hereof at the Contract Rate applicable for the first Periodic
Installment. If Maker elects to exercise this Option to Convert, the fixed
Contract Rate shall be equal to the sum of
(i) two and forty five hundredth percent (2.45%) per annum plus
(ii) the applicable Current Rate (as defined below):
(a) If there are less than eighteen (18) months remaining before the Final
Installment of this Note is due, the "Current Rate" shall be the per annum
interest rate listed for "1-Year" Treasury, constant maturity, under the column
indicating an average rate as stated in the Federal Reserve Statistical Release
H.15 (519) for the second calendar month preceding the calendar month in which
the fixed Contract Rate will be effective. If, for any reason whatsoever, the
Federal Reserve Statistical Release H.15 (519) is no longer published, the
Current Rate shall be equal to the latest annualized interest rate for
"one-year" U.S. Treasury Bills as reported by the Federal Reserve Board on a
weekly-average basis, adjusted for constant maturity as indicated in the "Money
Rates" column of the
<PAGE> 2
Wall Street Journal, Eastern Edition, published on the first Business Day of
the calendar month preceding the month in which the fixed Contract Rate will be
effective.
(b) If there are more than eighteen (18) but less than forty-two (42) months
remaining before the Final Installment of this Note is due, the "Current Rate"
shall be determined in the same manner as noted in subparagraph (a) above except
it shall be based upon the rate listed for "2-Year" Treasury bills.
(c) If there are more than forty-two (42) but less than sixty (60) months
remaining before the Final Installment of this Note is due, the "Current Rate"
shall be determined in the same manner as noted in subparagraph (a) above
except it shall be based upon the rate listed for "3-Year" Treasury bills.
(d) If there are more than sixty (60) but less than eighty-four (84) months
remaining before the Final Installment of this Note is due, the "Current Rate"
shall be determined in the same manner as noted in subparagraph (a) above
except it shall be based upon the average rate listed for "3-Year" Treasury
bills and "5-Year" Treasury bills.
(e) If there are more than eighty-four (84) but less than one hundred twenty
(120) months remaining before the Final Installment of this Note is due, the
"Current Rate" shall be determined in the same manner as noted in subparagraph
(a) above except it shall be based upon the rate listed for "5-Year" Treasury
bills.
Subject to the other provisions hereof, the principal on this Note is payable in
lawful money of the United States in Ninety Five (95) consecutive monthly
installments of Eleven Thousand Two Hundred Sixteen and 50/100 Dollars
($11,216.50) each ("PERIODIC INSTALLMENT") and a final installment which shall
be in the amount of the total outstanding unpaid principal and interest. The
first Periodic Installment shall be due and payable on January 2, 1997 and the
following Periodic Installments and the final installment shall be due and
payable on the same day of each succeeding period (each, a "PAYMENT DATE"). In
addition to the payments of principal provided above interest at the Contract
Rate shall be payable on the Payment Date. All payments shall be applied first
to interest and then to principal. Each payment may, at the option of the
Payee, be calculated and applied on an assumption that such payment would be
made on its due date. The acceptance by Payee of any payment which is less than
payment in full of all amounts due and owing at such time shall not constitute a
waiver of Payee's right to receive payment in full at such time or at any prior
or subsequent time. Interest shall be calculated on the basis of a 365 day year
(366 day leap year).
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which being hereinafter called a
"SECURITY AGREEMENT").
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
the applicable due date, the Maker agrees to pay, in addition to the amount of
each such installment or other sum, a late payment charge of five percent (5%)
of said installment or other sum, but not exceeding any lawful maximum. If (i)
Maker fails to make payment of any amount due hereunder within ten (10) days
after the same becomes due and payable; or (ii) Maker is in default under or
fails to perform under any term or condition contained in any Security
Agreement, then the entire principal sum remaining unpaid, together with all
interest thereon and any other sum payable under this Note or the Security
Agreement, at the election of Payee, shall immediately become due and payable,
with interest thereon at the lesser of eighteen percent (18%) per annum or the
highest rate not prohibited by applicable law from the date of such accelerated
maturity until paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness
hereunder upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
<TABLE>
<S> <C> <C>
Prior to the first annual anniversary date of this Note: Two percent (2%)
Thereafter and prior to the second annual anniversary date of this Note: One percent (1%)
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Thereafter and prior to the third annual anniversary date of this Note: Zero percent (0%)
Thereafter and prior to the fourth annual anniversary date of this Note: Zero percent (0%)
Thereafter and prior to the fifth annual anniversary date of this Note: Zero percent (0%)
</TABLE>
and zero percent (0%) thereafter, plus all other sums due hereunder or under
any Security Agreement.
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or the Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or refunded
to Maker, at the option of the Payee, and (d) the effective rate of interest
shall be automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
this Note or the Security Agreement which are made for the purpose of
determining whether such rate exceeds the maximum lawful contract rate, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full stated
term of the indebtedness evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise by Payee in connection with
such indebtedness; provided, however, that if any applicable state law is
amended or the law of the United States of America preempts any applicable state
law, so that it becomes lawful for the Payee to receive a greater interest per
annum rate than is presently allowed, the Maker agrees that, on the effective
date of such amendment or preemption, as the case may be, the lawful maximum
hereunder shall be increased to the maximum interest per annum rate allowed by
the amended state law or the law of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "OBLIGOR") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all
substitutions or releases of, security or of any party primarily or secondarily
liable on this Note or any Security Agreement or any term and provision of
either, which may be made, granted or consented to by Payee, and agree that
suit may be brought and maintained against any one or more of them, at the
election of Payee without joinder of any other as a party thereto, and that
Payee shall not be required first to foreclose, proceed against, or exhaust any
security hereof in order to enforce payment of this Note. The Maker and each
Obligor hereby waive presentment, demand for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, and all other notices in
connection herewith, as well as filing of suit (if permitted by law) and
diligence in collecting this Note or enforcing any of the security hereof, and
agree to pay (if permitted by law) all expenses incurred in collection,
including Payee's actual attorneys' fees. Maker and each Obligor agree that
fees not in excess of twenty percent (20%) of the amount then due shall be
deemed reasonable.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
<PAGE> 4
OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT
IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION,
THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supersedes all
prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or
altered to conform thereto.
x /s/ Angie Grimm By: /s/ Mike Falconite
- ---------------------- ------------------------
(Witness) (Signature)
x Angie Grimm x Mike Falconite
- ---------------------- ----------------------------
(Print name) Print name (and title, if applicable)
x 6305 Turnberry Dr. x 61-1312696
- ---------------------- ----------------------------
(Address) Paducah, KY 42001 (Federal tax identification number)
<PAGE> 1
EXHIBIT 10.28
AGREEMENT FOR WHOLESALE FINANCING
(SECURITY AGREEMENT - ARBITRATION)
This Agreement for Wholesale Financing ("Agreement") is made as of 28th July
1994 between ITT Commercial Finance Corp. ("ITT") and M & M Properties, Inc., a
[ ] SOLE PROPRIETORSHIP, [ ] PARTNERSHIP, [X] CORPORATION (check applicable
term)("Dealer"), having a principal place of business located 126 Jetplex
Circle, Madison, Alabama 35758.
1. INVENTORY CREDIT LINE. In the course of Dealer's business, Dealer acquires
inventory which is manufactured or sold by Skyjack, Inc. ("Vendor") or any of
its subsidiaries or affiliated companies, and/or which bears a trademark or
trade name of Vendor or any of its subsidiaries or affiliated companies
("Inventory"). Subject to the terms of this Agreement, ITT, in its sole
discretion, may extend credit to Dealer from time to time to purchase Inventory
from Vendor. ITT may combine all of ITT's advances to Dealer or on Dealer's
behalf, whether under this Agreement or any other agreement, to make one debt
owed by Dealer. ITT's decision to advance funds on any Inventory will not be
binding until the funds are actually advanced. ITT may, at any time and without
notice to Dealer, elect not to finance any Inventory if Vendor is in default of
its obligations to ITT, or with respect to which ITT reasonably feels insecure.
2. STATEMENTS OF TRANSACTION. Dealer and ITT agree that certain financial terms
of any advance made by ITT under this Agreement, whether regarding finance
charges, other fees, maturities, curtailments or other financial terms, are not
set forth herein because such terms depend, in part, upon the availability from
time to time of Vendor subsidies, prevailing economic conditions, and other
economic factors which may vary over time. It is therefore in ITT's and Dealer's
best interest to set forth in this Agreement only the general terms of Dealer's
financing arrangement with ITT. Upon agreeing to finance a particular item of
Inventory for Dealer, ITT will send Dealer a Statement of Transaction, and any
amendment thereto ("Statement of Transaction"), identifying such Inventory and
the applicable financial terms. Unless Dealer notifies ITT in writing of any
objection within fifteen (15) days after a Statement of Transaction is mailed to
Dealer: (a) the amount shown on such Statement of Transaction will be an account
stated; (b) Dealer will have agreed to all rates, charges and other terms shown
on such Statement of Transaction; (c) Dealer will have agreed that the items of
Inventory referenced in such Statement of Transaction are being financed by ITT
at Dealer's request; and (d) such Statement of Transaction will be incorporated
herein by reference, will be made a part hereof as if originally set forth
herein, and will constitute an addendum hereto. If Dealer objects to the terms
of any Statement of Transaction, Dealer will pay ITT for such Inventory in
accordance with the most recent terms for similar Inventory to which Dealer has
not objected (or, if there are no prior terms, at the lesser of 16% per annum or
at the maximum lawful contract rate of interest permitted under applicable law),
but Dealer acknowledges that ITT may then elect to terminate Dealer's financing
program pursuant to Section 12, and cease making additional advances to Dealer.
Any termination for that reason, however, will not accelerate the maturities of
advances previously made, unless Dealer shall otherwise be in default of this
Agreement.
3. SECURITY INTEREST. To secure payment of all Dealer's current and future debts
to ITT, whether under this Agreement or any current or future guaranty or other
agreement, Dealer grants ITT a security interest in all of Dealer's inventory
and equipment manufactured or sold by Vendor or any of its subsidiaries or
affiliated companies, and/or bearing any trademark or trade name of Vendor or
any of its subsidiaries or affiliated companies, whether now owned or hereafter
acquired by Dealer, and all accounts, contract rights, chattel paper, documents,
general intangibles and instruments arising from such inventory and equipment,
and all attachments, accessories, accessions, substitutions and replacements
thereto and all proceeds thereof. All such assets are as defined in the Uniform
Commercial Code and referred to herein as the "Collateral." All Collateral
financed by ITT, and all proceeds thereof, will be held in trust by Dealer for
ITT, with such proceeds being payable in accordance with Section 7.
4. LOCATION OF COLLATERAL. Dealer represents that all Collateral will be kept at
Dealer's principal place of business listed above, and, if any, the following
other locations 5776 Larue Steiner Road, Theodore, Alabama 36582. Dealer will
give ITT at least 30 days prior written notice of any change in Dealer's
identity, name, form of business organization, ownership, principal place of
business, Collateral locations or other business locations.
5. REPRESENTATIONS AND WARRANTIES. Dealer will: (a) only exhibit and sell
Inventory financed by ITT to buyers in the ordinary course of business; (b) keep
and maintain the Inventory in good order and operating condition; (c) execute
all documents ITT requests to perfect ITT's security interest in the Collateral;
(d) deliver to ITT immediately upon each request, and ITT may retain, each
Certificate of Title or Statement of Origin issued for Inventory financed by
ITT; and (e) immediately provide ITT with copies of Dealer's annual financial
statements upon their completion (which in no event will exceed 120 days after
the end of Dealer's fiscal year), and all other information regarding Dealer
that ITT requests from time to time. All financial information Dealer delivers
to ITT will accurately represent Dealer's financial condition either as of the
date of delivery, or, if different, the date specified therein, and Dealer
acknowledges ITT's reliance thereon.
6. INSURANCE; INSPECTIONS. Dealer will: (a) pay all taxes and fees assessed
against Dealer or the Collateral when due; (b) immediately notify ITT of any
loss, theft or damage to any Collateral; (c) keep the Inventory insured for its
full insurable value under a property insurance policy with a company acceptable
to ITT, naming ITT as a loss-payee and containing standard lender's loss payable
and termination provisions; and (d) provide ITT with written evidence of such
insurance coverage and loss-payee and lender's clauses. If Dealer fails to pay
any taxes, fees or other obligations which may impair ITT's interest in the
Collateral, or fails to keep the Inventory insured, ITT may pay such taxes, fees
or obligations and pay the cost to insure the Inventory, and the amounts paid
will be: (i) an additional debt owned by Dealer to ITT; and (ii) due and payable
immediately in full. Dealer grants ITT an irrevocable license to enter Dealer's
business locations during normal business hours without notice to Dealer to: (A)
account for and inspect all Collateral; (B) verify Dealer's compliance with this
Agreement; and (C) examine and copy Dealer's books and records related to the
Collateral.
CFM1-AWF-IND(A) 1/7133Z(9/93)
<PAGE> 2
7. Payment. Dealer will immediately pay ITT the principal indebtedness owed ITT
on each item of Inventory financed by ITT on the earliest occurrence of any of
the following events: (a) when such Inventory is lost, stolen, or damaged; (b)
when such Inventory is sold, transferred, rented, leased, or otherwise disposed
of; provided, however, if any item of Inventory is sold and Dealer does not
receive payment for each item at the time of sale, Dealer will pay ITT the full
amount of the principal balance owed ITT on such item of Inventory within thirty
(30) days immediately following the sale date of such item of Inventory or
immediately upon Dealer's receipt of payment for such item of Inventory,
whichever occurs first; (c) in strict accordance with any curtailment schedule
for such Inventory (as shown on the Statement of Transaction identifying such
Inventory); (d) when any item of Inventory matures (as shown on the Statement of
Transaction identifying such Inventory). If Dealer from time to time is
required to make immediate payment to ITT of any past due obligation discovered
during any Inventory audit, or at any other time, Dealer agrees that acceptance
of such payment by ITT will not be construed to have waived or amended the terms
of its financing program. Dealer will send all payments to ITT's branch
office(s) responsible for Dealer's account. ITT may apply: (i) payments to
reduce finance charges first and then principal, regardless of Dealer's
instructions; and (ii) principal payments to the oldest (earliest) invoice for
Inventory financed by ITT, but, in any event, all principal payments will first
be applied to such Inventory which is sold, lost, stolen, damaged, rented,
leased, or otherwise disposed of or unaccounted for. Any third party discount,
rebate, bonus or credit granted to Dealer for any Inventory will not reduce the
debt Dealer owes ITT until ITT has received payment therefor in cash. Dealer
will: (i) pay ITT even if any Inventory is defective or fails to conform to any
warranties extended by any third party; (ii) not assert against ITT any claim or
defense Dealer has against any third party; and (iii) indemnify and hold ITT
harmless against all claims and defenses asserted by any buyer of the Inventory
relating to the condition of, or any representations regarding, any of the
Inventory. Dealer waives all rights of offset Dealer may have against ITT.
8. Finance Charges. Dealer will pay ITT finance charges on the outstanding
principal debt Dealer owes ITT for each item of Inventory financed by ITT at the
rate(s) shown on the Statement of Transaction identifying such Inventory, unless
Dealer objects thereto as provided in Section 2. The finance charges
attributable to the rate shown on the Statement of Transaction will: (a) be
computed based on a 360 day year; (b) be calculated by multiplying the Daily
Charge (as defined below) by the actual number of days in the applicable billing
period; and (c) accrue from the invoice date of the Inventory identified on such
Statement of Transaction until ITT receives full payment of the principal debt
Dealer owes ITT for each item of such Inventory. The "Daily Charge" is the
product of the Daily Rate (as defined below) multiplied by the Average Daily
Balance (as defined below). The "Daily Rate" is the quotient of the annual rate
shown on the Statement of Transaction divided by 360, or the monthly rate shown
on the Statement of Transaction divided by 30. The "Average Daily Balance" is
the quotient of (i) the sum of the outstanding principal debt owed ITT on each
day of a billing period for each item of Inventory identified on a Statement of
Transaction, divided by (ii) the actual number of days in such billing period.
Dealer will also pay ITT $100 for each check returned unpaid for insufficient
funds (an "NFS check") (such $100 payment repays ITT's estimated administrative
costs; it does not waive the default caused by the NSF check). Dealer
acknowledges that ITT intends to strictly conform to the applicable usury laws
governing this Agreement and understands that Dealer is not obligated to pay any
finance charges billed to Dealer's account exceeding the amount allowed by such
usury laws, and any such excess finance charges Dealer pays will be applied to
reduce Dealer's principal debt owed to ITT. The annual percentage rate of the
finance charges relating to any item of Inventory financed by ITT will be
calculated from the invoice date of such Inventory, regardless of any period
during which any finance charge subsidy will be paid or payable by any third
party. ITT will send Dealer a monthly billing statement identifying all charges
due on Dealer's account with ITT. The charges specified on each billing
statement will be: (A) due and payable in full immediately on receipt, and (B)
an account stated, unless ITT receives Dealer's written objection thereto within
15 days after it is mailed to Dealer. If ITT does not receive, by the 25th day
of any given month, payment of all charges accrued to Dealer's account with ITT
during the immediately preceding month, Dealer will (to the extent allowed by
law) pay ITT a late fee ("Late Fee") equal to the greater of $5 or 5% of the
amount of such finance charges (such Late Fee repays ITT's estimated
administrative costs; it does not waive the default caused by the late payment).
ITT may adjust the billing statement at any time to conform to applicable law
and this Agreement.
9. Events of Default. Dealer will be in default under this Agreement if: (a)
Dealer breaches any terms, warranties or representations contained herein, in
any Statement of Transaction to which Dealer has not objected as provided in
Section 2, or in any other agreement between ITT and Dealer; (b) any guarantor
of Dealer's debts to ITT breaches any terms, warranties or representations
contained in any guaranty or other agreement between the guarantor and ITT; (c)
any representation, statement, report, or certificate made or delivered by
Dealer or any guarantor to ITT is not accurate when made; (d) Dealer fails to
pay any portion of Dealer's debts to ITT when due and payable hereunder or under
any other agreement between ITT and Dealer; (e) Dealer abandons any Collateral;
(f) Dealer or any guarantor is or becomes in default in the payment of any debt
owed to any third party; (g) a money judgment issues against Dealer or any
guarantor; (h) an attachment, sale or seizure issues or is executed against any
assets of Dealer or of any guarantor; (i) the undersigned dies while Dealer's
business is operated as a sole proprietorship or any general partner dies while
Dealer's business is operated as a general or limited partnership: (j) any
guarantor dies; (k) Dealer or any guarantor ceases existence as a corporation,
partnership or trust; (l) Dealer or any guarantor ceases or suspends business;
(m) Dealer or any guarantor makes a general assignment for the benefit of
creditors; (n) Dealer or any guarantor becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law; (o) any receiver is appointed for any of
Dealer's or any guarantor's assets; (p) any guaranty of Dealer's debts to ITT is
terminated; (q) Dealer or any guarantor misrepresents Dealer's or such
guarantor's financial condition or organizational structure; or (r) any of the
Collateral becomes subject to any lien, claim, encumbrance or security interest
prior or superior to ITT's. In the event of a default:
(i) ITT may at any time at ITT's election, without notice or demand to
Dealer, do any one or more of the following: declare all of any part
of the debt Dealer owes ITT immediately due and payable, together with
all costs and expenses of ITT's collection activity, including,
without limitation, all reasonable attorney's fees; exercise any or
all rights under applicable law including, without limitation, the
right to possess, transfer and dispose of the Collateral); and/or
cease extending any additional credit to Dealer (ITT's right to cease
extending credit will not be construed to limit the discretionary
nature of this credit facility).
(ii) Dealer will segregate and keep the Collateral in trust for ITT, and in
good order and repair, and will not exhibit, sell, rent, lease,
further encumber, otherwise dispose of or use any Collateral.
(iii) Upon ITT's oral or written demand, Dealer will immediately deliver
the Collateral to ITT, in good order and repair, at a place specified
by ITT, together with all related documents; or ITT may, in ITT's sole
discretion and without notice or demand to Dealer, take immediate
possession of the Collateral together with all related documents.
<PAGE> 3
(iv) ITT may, without notice, apply a default finance charge to Dealer's
outstanding principal indebtedness equal to the default rate specified
in Dealer's financing program with ITT, if any, or if there is none so
specified, at the lesser of 3% per annum above the rate in effect
immediately prior to the default, or the highest lawful contract rate
of interest permitted under applicable law.
(v) Dealer grants ITT an irrevocable power of attorney to: execute or
endorse on Dealer's behalf any checks, drafts or other forms of
exchange received as payment on any Collateral for deposit in ITT's
account; execute financing statements, instruments, Certificates of
Title and Statements of Origin pertaining to the Collateral; supply
any omitted information and correct errors in any documents between
ITT and Dealer; sell, assign, transfer, negotiate, demand, collect,
receive, settle, extend, or renew any amounts due on any of the
Collateral; do anything Dealer is obligated to do hereunder; initiate
and settle any insurance claim pertaining to the Collateral; and do
anything to preserve and protect the Collateral and ITT's rights and
interests therein.
All ITT's rights and remedies are cumulative. ITT's failure to exercise any of
ITT's rights or remedies hereunder will not waive any of ITT's rights or
remedies as to any past, current or future default.
10. DISPOSITION OF COLLATERAL. Dealer agrees that if ITT conducts a private sale
of any Collateral by requesting bids from 10 or more dealers or distributors in
that type of Collateral, any sale by ITT of such Collateral in bulk or in
parcels within 120 days of: (a) ITT's taking possession and control of such
Collateral; or (b) when ITT is otherwise authorized to sell such Collateral;
whichever occurs last, to the bidder submitting the highest cash bid therefor,
is a commercially reasonable sale of such Collateral under the Uniform
Commercial Code. Dealer agrees that the purchase of any Collateral by Vendor, as
provided in any agreement between ITT and Vendor, is a commercially reasonable
disposition and private sale of such Collateral under the Uniform Commercial
Code, and no request for bids will be required. Dealer further agrees that 7 or
more days prior written notice will be commercially reasonable notice of any
public or private sale (including any sale to Vendor). If ITT disposes of any
such Collateral other than as herein contemplated, the commercial reasonableness
of such disposition will be determined in accordance with the laws of the state
governing this Agreement.
11. POWER OF ATTORNEY; CREDIT INFORMATION. Dealer grants ITT an irrevocable
power of attorney to do anything necessary to preserve and protect the
Collateral and ITT's rights and interest therein. ITT may provide to any third
party any credit, financial or other information on Dealer that ITT may from
time to time possess.
12. MISCELLANEOUS. Time is of the essence. This Agreement is deemed to have been
entered into at the ITT branch office executing this Agreement. Either party may
terminate this Agreement at any time by written notice received by the other
party. If ITT terminates this Agreement, Dealer agrees that if Dealer: (a) is
not in default hereunder, 30 days prior notice of termination is reasonable and
sufficient (although this provision will not be construed to mean that shorter
periods may not, in particular circumstances, also be reasonable and
sufficient); or (b) is in default hereunder, no prior notice of termination is
required. Dealer will not be relieved from any obligation to ITT arising out of
ITT's advances or commitments made before the effective termination date of
this Agreement. ITT will retain all of its rights, interests and remedies
hereunder until Dealer has paid all Dealer's debt to ITT. Dealer cannot assign
Dealer's interest in this Agreement without ITT's prior written consent,
although ITT may assign or participate ITT's interest, in whole or in part,
without Dealer's consent. This Agreement will protect and bind ITT's and
Dealer's respective heirs, representatives, successors and assigns. All
agreements or commitments to extend or renew credit or refrain from enforcing
payment of a debt must be in writing. Any oral or other amendment or waiver
claimed to be made to this Agreement that is not evidenced by a written
document executed by ITT and Dealer (except for each Statement of Transaction
that Dealer does not object to in the manner stated in Section 2) will be null,
void and have no force or effect whatsoever. If any provision of this Agreement
or its application is invalid or unenforceable, the remainder of this Agreement
will not be impaired or affected and will remain binding and enforceable. If
Dealer previously executed any security agreement with ITT, this Agreement will
only amend and supplement such agreement. If the terms hereof conflict with the
terms of any such prior security agreement, the terms of this Agreement will
govern. Dealer agrees to pay all of ITT's reasonable attorneys' fees and
expenses incurred by ITT in enforcing ITT's rights hereunder.
13. BINDING ARBITRATION. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, or any other tort, all contract actions,
whether regarding express or implied terms, such as implied covenants of good
faith, fair dealing, and the commercial reasonableness of any Collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Agreement, and whether directly or indirectly relating to: (a) this Agreement
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between ITT and
Dealer; and/or (c) any other relationship, transaction or dealing between ITT
and Dealer (collectively the "Disputes"), will be subject to and resolved by
binding arbitration.
13.1 All arbitration hereunder will be pursuant to either: (a) the Code of
Procedure in effect from time to time ("Code") of the National Arbitration Forum
("NAF"), currently located at 2124 Dupont Avenue South, Minneapolis, Minnesota
55405; or (b) the Commercial Arbitration Rules ("Rules") in effect from time to
time of the American Arbitration Association ("AAA"), currently located at 140
West 51st Street, New York, New York 10020-1203. The party first filing any
claim for arbitration will designate which arbitration procedures are to be
applied for all Disputes between Dealer and ITT, although if either the NAF or
AAA is dissolved, the procedures of the remaining arbitration body must be used.
A copy of the Code, Rules and any fee schedule of the NAF or AAA may be obtained
by contacting the NAF or AAA, as applicable. The parties agree that all
arbitrators selected will be attorneys. The arbitrator(s) will decide if any
inconsistency exists between the Code, or Rules, as applicable, and the
arbitration provisions contained herein. If any such inconsistency exists, the
arbitration provisions contained herein will control and supersede the Code, or
Rules, as applicable. The site of all arbitration participatory hearings will be
in the Division of the Federal Judicial District of ITT's branch office closest
to Dealer at the time of the filing of the claim for arbitration. The laws of
the State of Alabama will govern this Agreement; provided, however, that the
Federal Arbitration Act ("FAA"), to the extent inconsistent, will supersede the
laws of such state and govern. This Agreement concerns transactions involving
commerce among the several states. All arbitration proceedings, including
testimony or evidence at hearings, will be kept
<PAGE> 4
confidential, although any award or order rendered by the arbitrator(s) or
director of arbitration pursuant to the terms of this Agreement may be entered
as a judgment or order and enforced by either party in any state or federal
court having competent jurisdiction.
13.2 Nothing herein will be construed to prevent ITT's or Dealer's use of
bankruptcy, receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, dation and/or any
other prejudgment or provisional action or remedy relating to any Collateral
for any current or future debt owed by either party to the other. Any such
action or remedy will not waive ITT's or Dealer's right to compel arbitration of
any Dispute. If either Dealer or ITT brings any other action for judicial
relief with respect to any Dispute, the party bringing such action will be
liable for and immediately pay all of the other party's costs and expenses
(including attorney's fees) incurred to stay or dismiss such action and remove
or refer such Dispute to arbitration. If either Dealer or ITT brings or
appeals an action to vacate or modify an arbitration award and such party does
not prevail, such party will pay all costs and expenses, including attorneys'
fees, incurred by the other party in defending such action.
13.3 Any arbitration proceeding must be instituted: (a) with respect to any
Dispute for the collection of any debt owed by either party to the other,
within two (2) years after the date the last payment was received by the
instituting party; and (b) with respect to any other Dispute, within two (2)
years after the date the incident giving rise thereto occurred, whether or not
any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such
period will constitute an absolute bar and waiver to the institution of any
proceeding with respect to such Dispute. Except as otherwise stated herein, all
notices, arbitration claims, responses, requests and documents will be
sufficiently given or served if mailed or delivered: (i) to Dealer at Dealer's
principal place of business specified above; and (ii) to ITT at 8251 Maryland
Avenue, Clayton, Missouri 63105, Attention: General Counsel, or such other
address as the parties may specify from time to time in writing. No
arbitration hereunder will include, by consolidation, joinder or otherwise, any
third party, unless such third party agrees to arbitrate pursuant to the
arbitration provisions contained herein and the Code, or Rules, as applicable.
14. IF SECTION 13 OF THIS AGREEMENT OR ITS APPLICATION IS INVALID OR
UNENFORCEABLE, ANY LEGAL PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED
IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. DEALER AND ITT
WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING.
THIS CONTRACT CONTAINS BINDING ARBITRATION AND JURY WAIVER PROVISIONS.
<TABLE>
<S><C>
ITT COMMERCIAL FINANCE CORP. M & M Properties, Inc. (Dealer's Name)
----------------------------------------
By: /s/ Michael J. Marcelino By: /s/ Ralph McCurry
--------------------------------------- -------------------------------------
Print Name: Michael J. Marcelino Print Name: Ralph McCurry
------------------------------- -----------------------------
Title: Branch Manager Title: President
------------------------------------ -----------------------------------
ATTEST:
/s/ Mike Falconite ([Assistant] Secretary)
----------------------------------
Print Name: Mike Falconite
------------------------------
</TABLE>
SECRETARY'S CERTIFICATE OF RESOLUTION
I certify that I am the Secretary or Assistant Secretary of the
corporation named below, and that the following completely and accurately sets
forth certain resolutions of the Board of Directors of the corporation adopted
at a special meeting thereof held on due notice (and with shareholder approval,
if required by law), at which meeting there was present a quorum authorized to
transact the business described below, and that the proceedings of the meeting
were in accordance with the certificate of incorporation, charter and by-laws
of the corporation, and that they have not been revoked, annulled or amended in
any manner whatsoever.
Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion:
"RESOLVED, That the several officers, directors, and agents of this
corporation, or any one or more of them, are hereby authorized and empowered on
behalf of this corporation: to obtain financing from ITT Commercial Finance
Corp. ("ITT") in such amounts and on such terms as such officers, directors or
agents deem proper; to enter into financing, security, pledge and other
agreements with ITT relating to the terms upon which such financing may be
obtained and security and/or other credit support is to be furnished by this
corporation therefor; from time to time to supplement or amend any such
agreements; and from time to time to pledge, assign, mortgage, grant security
interests, and otherwise transfer, to ITT as collateral security for any
obligations of this corporation to ITT, whenever and however arising, any
assets of this corporation, whether now owned or hereafter acquired; the Board
of Directors hereby ratifying, approving and confirming all that any of said
officers, directors or agents have done or may do with respect to the
foregoing."
IN WITNESS WHEREOF, I have executed and affixed the seal of the
corporation on the date stated below.
Dated: 7-28, 1994 /s/ Mike Falconite ([Assistant] Secretary)
------------ ----------------------
M & M Properties, Inc. (Corporate Name)
----------------------
(SEAL)
<PAGE> 5
AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING
(SECURITY INTEREST)
THIS AMENDMENT IS HEREBY MADE TO THE AGREEMENT FOR WHOLESALE FINANCING EXECUTED
ON THE 28 DAY OF JULY, 1994, ("AGREEMENT") BY AND BETWEEN ITT COMMERCIAL FINANCE
CORP. ("ITT") AND M & M Properties, Inc., 126 Jetplex Circle, Madison, Alabama
35758 ("DEALER").
For good and valuable consideration, ITT and Dealer agree that the first
sentence of Section 3 of the Agreement is hereby deleted in its entirety and is
restated as follows:
"To secure payment of all Dealer's current and future debts to ITT,
whether under this Agreement or any current or future guaranty or
other agreement, Dealer grants ITT a security interest in all of
Dealer's inventory and equipment financed by ITT which is manufactured
or sold by Vendor or any of its subsidiaries or affiliated companies,
and/or bearing any trademark or trade name of Vendor or any of its
subsidiaries or affiliated companies, whether now owned or hereafter
acquired by Dealer, and all accounts, contract rights, chattel paper,
documents, general intangibles and instruments arising from such
inventory and equipment, and all attachments, accessories, accessions,
substitutions and replacements thereto and all proceeds thereof."
All other terms of the Agreement, to the extent consistent with the foregoing,
are hereby ratified and will continue to be in full force and effect.
IN WITNESS WHEREOF, the duly authorized representatives of ITT and Dealer have
executed this Amendment on this 28 day of July, 1994.
M & M Properties, Inc. (Dealer)
--------------------------------
By: /s/ Ralph McCurry
-----------------------------
Title: President, Ralph McCurry
--------------------------
ITT COMMERCIAL FINANCE CORP.
By: /s/ Michael J. Marcelino
-----------------------------
Title: Branch Manager
--------------------------
CMF3-AMT AWF-IND(A) 09/93
<PAGE> 1
EXHIBIT 10.29
GUARANTY (ARBITRATION)
TO: ITT COMMERCIAL FINANCE CORP.
In consideration of financing provided or to be provided by you to M & M
Properties, Inc. ("Dealer"), and for other good and valuable consideration
received, we jointly, severally, unconditionally and absolutely guaranty to you,
from property held separately, jointly or in community, the immediate payment of
all current and future liabilities owed by Dealer to you when due, whether such
liabilities are direct or indirect ("Liabilities"). We will pay you on demand
the full amount of all sums owed by Dealer to you, together with all costs and
expenses (including, without limitation, reasonable attorneys' fees). We also
indemnify and hold you harmless from and against all (a) losses, costs and
expenses you incur and/or are liable for (including, without limitation,
reasonable attorneys' fees) and (b) claims, actions and demands made by Dealer
or any third party against you, which in any way relate to any relationship or
transaction between you and Dealer.
Our guaranty will not be affected by any: (a) change in the manner, place or
terms of payment or performance in any current or future agreement between you
and Dealer, the release, settlement or compromise of or with any party liable
for the payment or performance thereof or the substitution, release,
non-perfection, impairment, sale or other disposition of any collateral
thereunder; (b) change in Dealer's financial condition; (c) interruption of
relation's between Dealer and you or us; (d) claim or action by Dealer against
you; and/or (e) increases or decreases in any credit you may provide to Dealer.
We will pay you even if you have not (i) notified Dealer that it is in default
of the Liabilities and/or that you have accelerated the payment of all or any
part of the Liabilities, or (ii) exercised any of your rights or remedies
against Dealer, any other person or any current or future collateral. This
Guaranty is assignable by you and will inure to the benefit of your assignee. If
Dealer hereafter undergoes any change in its ownership, identity or
organizational structure, this Guaranty will extend to all current and future
obligations owed to you by such new or changed legal entity.
We irrevocably waive: notice of your acceptance of this Guaranty, presentment,
demand, protest, nonpayment, nonperformance, any right of contribution from
other guarantors, dishonor, the amount of indebtedness of Dealer outstanding at
any time, the number and amount of advances made by you to Dealer in reliance on
this Guaranty and any claim or action against Dealer; notice and hearing as to
any prejudgment remedy; all other demands and notices required by law; all
rights of offset and counterclaims against you or Dealer; all rights in, and
notices or demands relating to, any collateral now or hereafter securing any
Liabilities (including, without limitation, all rights, notices or demands
directly or indirectly relating to the sale or other disposition of such
collateral or the manner of such sale or other disposition): all defense to the
enforceability of this Guaranty (including, without limitation, fraudulent
inducement; and all of our present and future rights and remedies (a) of
subrogation to any of your rights or remedies against Dealer, (b) of
contribution, reimbursement, indemnification and restoration from Dealer and (c)
to assert any other claim or action against Dealer directly or indirectly
relating to this Guaranty. All our waivers hereto will survive any termination
of this Guaranty.
We have made an independent investigation of the financial condition of Dealer
and given this Guaranty based on that investigation and not upon any
representation made by you. We have access to current and future Dealer
financial information which enables us to remain continuously informed of
Dealer's financial condition. This Guaranty will survive any federal and/or
state bankruptcy or insolvency action involving Dealer. We are solvent and our
execution of this Guaranty will not make us insolvent. If you are required in
any action involving Dealer to return or rescind any payment made to or value
received by you from or for the account of Dealer, this Guaranty will remain in
full force and effect and will be automatically reinstated without any further
action by you and notwithstanding any termination of this Guaranty or your
release of us. Any delay or failure by you, or your successors or assigns, in
exercising any of your rights or remedies hereunder will not waive any such
rights or remedies. This Guaranty supersedes all prior oral and written
agreements concerning the subject matter hereof. Any oral or other amendment or
waiver made or claimed to be made to this Guaranty that is not evidenced by a
written document signed by your and our authorized representatives will be null,
void and have no force or effect whatsoever. We may terminate this Guaranty by a
written notice to you, the termination to be effective sixty (60) days after you
receive and acknowledge it, but the termination will not terminate our
obligations hereunder arising prior to the effective termination date. The
meanings of all terms herein are equally applicable to both the singular and
plural forms of such terms.
BINDING ARBITRATION. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, or any other tort all contract actions,
whether regarding express or implied terms, such as implied convenants of
good faith, fair dealing, and the commercial reasonableness of any collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Guaranty, and whether directly or indirectly relating to: (a) this Guaranty
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between you and
us; and/or (c) any other relationship, transaction or dealing between you and
us (collectively the "Disputes"), will be subject to and resolved by binding
arbitration.
All arbitration hereunder will be pursuant to either: (a) the Code of Procedure
in effect from time to time ("Code") of the National Arbitration Forum ("NAF"),
currently located at 2124 Dupont Avenue South, Minneapolis, Minnesota 55405; or
(b) the Commercial Arbitration Rules ("Rules") in effect from time to time of
the American Arbitration Association ("AAA"), currently located at 140 West
51st Street, New York, New York 10020-1203. The party first filing any claim
for arbitration shall designate which arbitration procedures are to be applied
for all Disputes between you and us, although if either the NAF or AAA is
dissolved, the procedures of the remaining arbitration body must be used. A
copy of the Code, Rules and any fee schedule of the NAF or AAA may be obtained
by contacting the NAF or AAA, as applicable. The parties agree that all
arbitrators selected shall be attorneys. The arbitrator(s) will decide if any
inconsistency exists between the Code, or Rules, as applicable, and the
arbitration provisions contained herein. If any such inconsistency exists, the
arbitration provisions contained herein will control and supersede the Code, or
Rules, as applicable. The site of all arbitration participatory hearings will
be in the Division of the Federal Judicial District of your branch office
closest to Dealer. The laws of the State of Alabama will govern this Guaranty;
provide, however, that the Federal Arbitration Act ("FAA"), to the extent
inconsistent, will supersede the laws of such state and govern. This Guaranty
concerns transactions involving commerce among the several states. All
arbitration proceedings, including testimony or evidence at hearings, will be
kept confidential, although any award or order rendered by the arbitrator(s) or
director of arbitration pursuant to the terms of this Guaranty may be entered
as a judgment or order and enforced by either party in any state or federal
court having competent jurisdiction.
Nothing herein will be construed to prevent your or our use of bankruptcy,
receivership, injunction, repossession, replevin, claim and delivery,
sequestration, seizure, attachment, foreclosure, dation and/or any other
prejudgment or provisional action or remedy relating to any collateral for any
current or future debt owed by either party to the other. Any such action or
remedy will not waive your or our right to compel arbitration of any Dispute.
CMF 701 10/92
<PAGE> 2
If either of us brings any other action for judicial relief with respect to any
Dispute, the party bringing such action will be liable for and immediately
pay all of the other party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer such Dispute to
arbitration. If either of us brings or appeals in action to vacate or modify an
arbitration award and such party does not prevail, such party will pay all
costs and expenses, including attorneys' fees, incurred by the other party in
defending such action.
Any arbitration proceeding must be instituted: (a) with respect to any Dispute
for the collection of any debt owed by either party to the other, within two (2)
years after the date the last payment was received by the instituting party; and
(b) with respect to any other Dispute, within two (2) years after the date the
incident giving rise thereto occurred, whether or not any damage was sustained
or capable of ascertainment or either party knew of such incident. Failure to
institute an arbitration proceeding within such period will constitute an
absolute bar and waiver to the institution of any proceeding with respect to
such Dispute. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or served
if mailed or delivered: (i) to us at our address specified below: and (ii) to
you at 8251 Maryland Avenue, Clayton, Missouri 63105, Attention: General
Counsel, or such other address as the parties may specify from time to time in
writing. No arbitration hereunder will include, by consolidation, joinder or
otherwise, any third party, unless such third party agrees to arbitrate pursuant
to the arbitration provisions contained herein and the Code, or Rules, as
applicable.
If the arbitration section of this Guaranty or its application is invalid or
unenforceable, any legal proceeding with respect to any Dispute will be tried
in a court of competent jurisdiction by a judge without a jury. We waive any
right to a jury trial in any such proceeding.
THIS GUARANTY CONTAINS BINDING ARBITRATION AND JURY WAIVER PROVISIONS.
Date: August 11, 1994
<TABLE>
<S> <C>
(1)INDIVIDUAL GUARANTOR(S): (2)CORPORATE OR PARTNERSHIP GUARANTOR:
SIGNED By: /s/ Ralph McCurry (3) --------------------------------------------
--------------------------- (Name of Corporate or Partnership Guarantor)
(Print Name: Ralph McCurry )
- -------------------------------------
By: (5)
--------------------------------------
WITNESS: (4) (Print Name )
----------------------------- --------------------------------
(Print Name Title: (6)
--------------------------) -----------------------------------
SIGNED By: /s/ Rene McCurry (3) ADDRESS OF GUARANTOR(S):
----------------------------
(Print Name: Rene McCurry ) --------------------------------------------
--------------------------
--------------------------------------------
(4)
WITNESS: --------------------------------------------
------------------------------
(Print Name
---------------------------)
</TABLE>
(1) NOTARY STATEMENT
On this 11 day of August, 1994, before, me, the subscriber, a Notary Public,
personally appeared Ralph McCurry(7) known to me to be the person(s) described
in and who executed the above Guaranty (Arbitration), and who acknowledged the
execution thereof to be their free act and deed.
My Commission Expires: June 16, 1998 Notary Public: /s/ Carol Cummings
------------------------
(SEAL)
(8)SECRETARY'S CERTIFICATE
I herby certify that I am the Secretary of ___________________________________
("Guarantor") and that execution of the above Guaranty (Arbitration) was
ratified, approved and confirmed by the Shareholders at a meeting, if necessary,
and pursuant to a resolution of the Board of Directors of Guarantor at a meeting
of the Board of Directors duly called, and which is currently in effect, which
resolution was duly presented, seconded and adopted and reads as follows:
"BE IT RESOLVED that any officer of this corporation is hereby authorized to
execute a guaranty of the obligations of _____________________________
("Dealer") to ITT Commercial Finance Corp. on behalf of the corporation, which
instrument may contain such terms as the above named persons may see fit
including, but not limited to a waiver of notice of the acceptance of the
guaranty; presentment; demand; protest; notices of nonpayment, nonperformance,
dishonor, the amount of indebtedness of Dealer outstanding at any time, any
legal proceedings against Dealer, and any other demands and notices required by
law; any right of contribution from other guarantors; and all effects." IN
WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal on
this __ day of ______________, 19__.
<TABLE>
<S> <C>
(SEAL) Secretary:____________________
******************************
(1)Complete Section only if Individual Guarantor(s) (5)Signature of Corporate or Partnership Representative
(2)Complete Section only if Corporate or Partnership Guarantor (6)Title of Corporate or Partnership Representative
(3)Individual Guarantor's Signature (7)Name of Each Individual Guarantor
(4)Signature of Witness to Individual Guarantor's Signature (8)Complete Section only if Corporate Guarantor
(Must be ITT CMF Employee)
</TABLE>
<PAGE> 3
Date: Aug 2, 1994
(1)INDIVIDUAL GUARANTOR(S): (2)CORPORATE OR PARTNERSHIP GUARANTOR:
SIGNED By: (3) Falconite, Inc.
---------------------- -------------------------------------
(Print Name: ) (Name of Corporate or Partnership
---------------------- Guarantor)
WITNESS: (4) By: /s/ Michael Falconite (5)
------------------------ ----------------------------------
(Print Name: ) (Print Name: Michael Falconite )
---------------------- ---------------------------
Title: President (6)
SIGNED By: (3)
----------------------
(Print Name: ) Address of Guarantor(s):
--------------------
---------------------------------------
WITNESS: (4) ---------------------------------------
------------------------
(Print Name: ) ---------------------------------------
----------------------
(1)NOTARY STATEMENT
On this 2nd day of August, 1994, before me, the subscriber, a Notary Public,
personally appeared Michael Falconite(7) known to me to be the person(s)
described in and who executed the above Kentucky Collateralized Guaranty
(Arbitration), and who acknowledged the execution thereof to be their free act
and deed.
Notary Public: /s/ Angie L. Grimm
---------------------------
(SEAL)
My Commission Expires: 6-18, 1998
(8)SECRETARY'S CERTIFICATE
I hereby certify that I am the Secretary of Falconite, Inc. ("Guarantor")
and that execution of the above Kentucky Collateralized Guaranty (Arbitration)
was ratified, approved and confirmed by the Shareholders at a meeting, if
necessary, and pursuant to a resolution of the Board of Directors of Guarantor
at a meeting of the Board of Directors duly called, and which is currently in
effect, which resolution was duly presented, seconded and adopted and reads as
follows:
"BE IT RESOLVED that any officer of this corporation is hereby authorized
to execute a guaranty of the obligations of M & M Properties, Inc. ("Dealer") to
ITT Commercial Finance Corp. on behalf of the corporation, which instrument may
contain such terms as the above named persons may see fit including, but not
limited to a waiver of notice of the acceptance of the guaranty; presentment;
demand; protest; notices of nonpayment, nonperformance, dishonor, the amount of
indebtedness of Dealer outstanding at any time, any legal proceedings against
Dealer and any other demands and notices required by law; any right of
contribution from other guarantors; and all offsets."
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate
seal on this __ day of _____________, 19__.
(SEAL) Secretary: ________________________
*******
(1)Complete this Section only if Individual Guarantor(s)
(2)Complete this Section only if Corporate or Partnership Guarantor
(3)Individual Guarantor's Signature
(4)Signature of Witness to Individual Guarantor's Signature (Must be ITT CMF
Employee)
(5)Signature of Corporate or Partnership Representative
(6)Title of Corporate or Partnership Representative
(7)Name of Each Individual Guarantor
(8)Complete this Section only if Corporate Guarantor
10/92/5666u
<PAGE> 1
EXHIBIT 10.30
ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
This Addendum is made to that certain Agreement for Wholesale Financing
entered into by and between M&M Properties, Inc. ("Dealer") and ITT Commercial
Finance Corp. ("ITT") on July 28, 1994, as amended ("Agreement").
FOR VALUE RECEIVED, ITT and Dealer agree as follows:
1. The following section is incorporated into the Agreement as Section 15
as if fully and originally set forth therein:
"Dealer will at all times maintain:
(a) a Tangible Net Worth and Subordinated Debt in the combined amount
of not less than One Million Dollars ($1,000,000.00); and
(b) a ratio of Debt to Tangible Net Worth and Subordinated Debt of not
more than five to one (5.0:1).
For purposes of this paragraph: (1) 'Tangible Net' Worth means the
book value of Dealer's assets less liabilities, excluding from such
assets all Intangibles; (ii) 'Intangibles' means and includes general
intangibles (as that term is defined in the Uniform Commercial Code);
accounts receivable and advances due from officers, directors,
employees, stockholders and affiliates; leasehold improvements net of
depreciation; licenses; good will; prepaid expenses; escrow deposits;
covenants not to compete, the excess of cost over book value of
acquired assets; franchise fees; organizational costs; finance reserves
held for recourse obligations; capitalized research and development
costs; and such other similar items as ITT may from time to time
determine in ITT's sole discretion; (iii) 'Debt' means all of Dealer's
liabilities and indebtedness for borrowed money of any kind and nature
whatsoever, whether direct or indirect, absolute or contingent, and
including obligations under capitalized leases, guaranties or with
respect to which Dealer has pledged assets to secure performance,
whether or not direct recourse liability has been assumed by Dealer;
and (iv) 'Subordinated Debt' means all of Dealer's Debt which is
subordinated to the payment of Dealer's liabilities to ITT by an
agreement in form and substance satisfactory to ITT. The foregoing
terms will be determined in accordance with generally accepted
accounting principles consistently applied, and, if applicable, on a
consolidated basis."
2. Section "1" of the Agreement is hereby deleted in its entirety and
restated to provide as follows:
"1. Inventory Credit Line. In the course of Dealer's business, Dealer
acquires inventory which is manufactured or sold by Skyjack, Inc. and
JLG, Inc. (separately and jointly 'Vendor') or any of its subsidiaries
or affiliated companies, and/or which bears a trademark or trade name
of Vendor or any of its subsidiaries of affiliated companies
('Inventory'). Subject to the terms of this Agreement, ITT, in its
sole discretion, may extend credit to Dealer from time to time to
purchase Inventory from Vendor. ITT may
<PAGE> 2
combine all of ITT's advances to Dealer or on Dealer's behalf,
whether under this Agreement or any other agreement, to make one
debt owed by Dealer. ITT's decision to advance funds on any
Inventory will not be binding until the funds are actually
advanced. ITT may, at any time and without notice to Dealer,
elect not to finance any Inventory if Vendor is in default of its
obligations to ITT, or with respect to which ITT reasonably feels
insecure."
3. The following provision is incorporated into Section 7 of the
Agreement as if fully set forth therein:
"With respect to Inventory financed by ITT and held for rent and/or
lease, Dealer will owe ITT and agree to pay ITT monthly the percentage
of the principal balance owed on each item of such Inventory that is
required under the terms of Dealer's financing program with ITT.
However, if any Inventory financed by ITT and held for rent and/or
lease: (A) is sold and Dealer does not receive payment for such item
at the time of sale, Dealer will pay ITT the full amount of the
principal balance owed to ITT on such item of Inventory within thirty
(30) days immediately following the sale date of such item of
Inventory or immediately upon Dealer's receipt of payment for such
item of Inventory, whichever occurs first; or (B) is stolen, destroyed
or otherwise disposed of, Dealer will immediately pay ITT the full
amount of Dealer's outstanding indebtedness owed to ITT for such
Inventory."
4. The following provision is incorporated into Section 9 of the
Agreement as if fully set forth therein:
"(vi) Upon ITT's oral or written demand, Dealer will immediately
deliver the original Rental Contracts to ITT, and ITT may collect in
ITT's name all amounts owed to Dealer under the Rental Contracts."
5. The following provision is incorporated into the Agreement as if fully
set forth therein:
"16. Rental Contracts. Dealer may rent the Inventory pursuant to
the terms of Dealer's rental contracts ("Rental Contracts"). Such
Inventory will thereafter be subject to the rates and terms of ITT's
financing program in effect for goods which are rented, as reflected
in the Statement of Transaction for such Inventory. All of Dealer's
Rental Contracts, agreements, and rental transactions will be in a
form satisfactory to ITT and will be in accordance with all applicable
Federal, State and local laws. Dealer will indemnify ITT against any
loss or damage which ITT suffers, whether direct or indirect,
resulting in any way from the Rental Contracts, agreements, or rental
transactions which fail to comply with such laws. All Rental
Contracts will be transferable to ITT. Dealer will indemnify ITT
against any claims by its customers regarding Dealer's obligations
under the Rental Contracts. Dealer will immediately, upon ITT's
request, deliver to ITT all Rental Contracts and all related
documents. This assignment is a transfer for security only, and, until
ITT has foreclosed its interest in the Rental Contracts, will not be
deemed to delegate any of Dealer's duties under the Rental Contracts
to ITT, nor is it intended to alter or impair
<PAGE> 3
performance by either party to the Rental Contracts. ITT may, from
time to time, verify the accuracy of the Rental Contracts, and Dealer
will immediately, upon ITT's request, provide ITT with the following
information regarding Rental Contracts which are in effect on the date
of such request: (a) the name, address and telephone number of each
customer who has executed a Rental Contract; (b) the location of the
Inventory; (c) the date of each Rental Contract; (d) the date when the
Inventory is to be returned under each Rental Contract; and, (e) any
other information which ITT may reasonably request. If the rental
period under the Rental Contract is ninety (90) days or longer, Dealer
will stamp the original of such Rental Contract with the following
legend:
'FOR VALUE RECEIVED, THIS AGREEMENT HAS BEEN ASSIGNED TO ITT
COMMERCIAL FINANCE CORP. AND THERE ARE NO DEFENSES AGAINST THE
ASSIGNEE.'
Other than to ITT, Dealer will not assign, sell, pledge, convey or by
any other means transfer any Rental Contracts or chattel paper,
without ITT's prior written consent. Dealer will not enter into any
Rental Contracts for Inventory pursuant to which: (i) the original
term of the Rental Contract is greater than three hundred sixty (360)
days; (ii) the original term of the Rental Contract is equal to or
greater than the remaining economic life of Inventory; (iii) the
customer is bound to renew the Rental Contract for the economic life
of the Inventory or is bound to become the owner of the Inventory; or,
(iv) the customer has an option to renew the Rental Contract for the
remaining economic life of the Inventory, or to become the owner of
the Inventory, for nominal consideration, or for consideration which
is less than the unpaid balance owed to ITT for such Inventory. If
any such Rental Contracts are issued, Dealer will take any action
which ITT may reasonably require to perfect and/or protect ITT's
security interest in such Rental Contracts and/or the Inventory
subject thereto."
Dealer waives notice of ITT's acceptance of this addendum.
All other terms and provisions of the Agreement, to the extent consistent
with the foregoing, are ratified and remain unchanged and in full force and
effect.
M & M PROPERTIES, INC.
ATTEST:
/s/ Carol Cummings By: /s/ Ralph McCurry
- ---------------------------- ------------------------------
(Assistant) Secretary Title: President
---------------------------
JANUARY 3, 1995
ITT COMMERCIAL FINANCE CORP.
By: /s/ Michael J. Marcelino
------------------------------
Title: Branch Manager
---------------------------
JANUARY 6, 1995
1/6876z/12
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
CORPORATION JURISDICTION
- ----------- ------------
M&M Properties, Inc. Alabama
Falconite Equipment, Inc. Illinois
Falconite Aviation, Inc. Delaware
McCurry & Falconite Equipment Co., Inc. Alabama
Carl's Midsouth Rent-All Center Incorporated Tennessee
<PAGE> 1
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
Falconite, Inc.:
The audits referred to in our report dated December 20, 1996, except for note 7
as it relates to debt covenant waivers for which the date is January 16, 1997,
included the related financial statement schedule as of December 31, 1995 and
September 30, 1996, and for the years ended December 31, 1994 and 1995 and the
nine months ended September 30, 1996, included in the registration statement.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic combined financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
St. Louis, Missouri
January 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME OF FALCONITE, INC. FILED AS A PART OF THE COMPANY'S REGISTRATION
STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REGISTRATION STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 DEC-31-1995
<CASH> 1,499 258
<SECURITIES> 0 0
<RECEIVABLES> 8,085 5,964
<ALLOWANCES> 234 20
<INVENTORY> 911 416
<CURRENT-ASSETS> 0 0
<PP&E> 81,968 64,837
<DEPRECIATION> 11,745 8,184
<TOTAL-ASSETS> 82,671 64,153
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
<COMMON> 132 132
0 0
0 0
<OTHER-SE> 13,947 10,208
<TOTAL-LIABILITY-AND-EQUITY> 82,671 64,153
<SALES> 9,458 10,820
<TOTAL-REVENUES> 35,006 35,661
<CGS> 17,706 18,085
<TOTAL-COSTS> 17,706 18,085
<OTHER-EXPENSES> 7,945 7,699
<LOSS-PROVISION> 214 (1)
<INTEREST-EXPENSE> 3,142 3,213
<INCOME-PRETAX> 7,358 8,094
<INCOME-TAX> 2,145 2,893
<INCOME-CONTINUING> 3,854 3,772
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,854 3,772
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
