<PAGE> 1
As filed with the Securities and Exchange Commission on March 18, 1997
Registration No. 333-20047
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
FALCONITE, INC.
(Exact name of registrant as specified in its charter)
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<C> <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)
---------------------
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
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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(2)
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) The Registrant previously paid $29,747 with the original filing on January
21, 1997.
---------------------
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.
================================================================================
<PAGE> 2
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 MARCH 18, 1997
PROSPECTUS
, 1997
SHARES
FALCONITE 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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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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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $950,000.
(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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[Photograph of telescoping [Map of the eastern
manlifts at the Company's one-half of the United
St. Louis, Missouri facility] States that shows the
locations of the Company's
facilities in Alabama, Florida,
Georgia, Indiana, Kentucky,
Louisiana, Mississippi, Missouri
and Tennessee]
[Photograph of telescoping [Photograph of employees
manlifts, telescoping forklifts of the Company loading rental
and scissorlifts at the Company's equipment on a tractor trailer
Paducah, Kentucky facility] with a dove-tail trailer]
</TABLE>
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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.
Subsequent to the Offering, the Company will be subject to the Securities
Exchange Act of 1934, as amended, and pursuant thereto will file quarterly,
annual and other reports with the Securities and Exchange Commission.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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<PAGE> 4
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
one of the most comprehensive and well maintained fleets 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
88% of the Company's rental fleet as of December 31, 1996, based on original
cost. The original per unit cost of the Company's rental fleet ranges up to $1.2
million, with an average per unit cost of approximately $27,200 as of December
31, 1996. At such date, the Company's fleet had an average age of approximately
19 months and an aggregate original cost of $94.6 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
enable its customers 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 1994 to 1996, the Company's revenues increased at a compound annual
rate of 43.8%, from $23.2 million to $48.1 million, while its operating income
increased at a compound annual rate of 33.1%, from $6.8 million to $12.1
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 believes this focus
3
<PAGE> 5
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 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 December 31, 1996, had an
average age of approximately 19 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.
4
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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, at an estimated cost of approximately $2.0
million. 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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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 the substantial majority of the
Company's outstanding indebtedness. See "Use
of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital
Resources."
Nasdaq National Market symbol................ FCNT
</TABLE>
- ------------------------------
(1) Does not include (i) shares of Common Stock reserved for issuance
pursuant to the Falconite, Inc. Amended and Restated 1997 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 no options 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."
5
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary financial and other data for the
Company as of and for the five years in the period ended December 31, 1996. See
"The Company," "Selected Consolidated Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the Notes thereto.
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YEARS ENDED DECEMBER 31,
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PRO
FORMA
AS
ADJUSTED
1992 1993 1994 1995 1996 1996(1)
---- ---- ---- ---- ---- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Total revenues.......................................... $ 6,147 $10,289 $23,249 $35,661 $48,086 $48,086
Gross profit............................................ 2,663 4,889 10,229 17,576 22,824 22,623
Operating income........................................ 1,550 3,160 6,816 11,306 12,075 11,326(2)
Interest expense, net................................... 368 684 1,734 3,172 4,298 164
Income before income taxes and minority interests....... 1,182 2,517 5,130 8,094 7,959 11,344
Income taxes............................................ 490 963 1,919 2,893 2,328 4,486
Minority interests(3)................................... 83 301 725 1,429 1,714 --
Net income.............................................. 609 1,253 2,486 3,772 3,917 6,858
Pro forma net income per share.......................... $
Pro forma weighted average common shares................
SELECTED OPERATING DATA:
Number of locations at end of year...................... 2 3 5 9 17
Rental equipment capital expenditures................... $ 5,851 $12,855 $21,840 $29,100 $41,092
Original cost of rental equipment at end of year(4)..... 11,819 21,832 35,922 60,758 94,572
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DECEMBER 31, 1996
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PRO FORMA
ACTUAL AS ADJUSTED(1)
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(DOLLARS IN THOUSANDS)
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BALANCE SHEET DATA:
Net book value of rental equipment.......................... $ 81,583 $ 81,583
Total assets................................................ 117,458
Total debt(5)............................................... 60,619(6)
Shareholders' equity........................................ 34,156
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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; (iii)
the change from S corporation to C corporation status of M&F Equipment (as
defined below); and (iv) the Combination, in each case as if such
transactions had occurred on January 1, 1996 in the case of the consolidated
statements of operations and as of December 31, 1996 in the case of the
consolidated balance sheets. The Company's Consolidated 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
$320,000 and $431,000 in 1995 and 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
Consolidated Financial Statements and the Notes thereto.
(2) Pro forma operating income reflects additional goodwill amortization of
$539,000 and additional depreciation expense of $210,000 attributable to the
Combination.
(3) 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 Consolidated Financial Statements and the Notes thereto.
(4) Original cost represents the undepreciated original price paid by the
Company for rental equipment.
(5) Total debt includes term debt, revolving lines of credit and obligations
under capital leases.
(6) Subsequent to December 31, 1996, the Company has incurred additional
indebtedness, the proceeds of which were utilized primarily to pay accounts
payable in respect to rental equipment purchases. The Company expects that
total debt (excluding capital leases) will be approximately $ million
immediately prior to the completion of the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
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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. The Company's existing credit agreements contain certain restrictive
covenants, including (among others) limitations on its ability to incur
additional indebtedness, pay dividends, maintain a minimum tangible net worth
and make capital expenditures, which limit the Company's ability to expand.
However, the Company expects that upon completion of the Offering it will have
improved liquidity and capital resources due to the repayment of the substantial
majority of its outstanding debt. As a result, management anticipates the
Company will enter into a new credit facility after the Offering, with covenants
which will not materially limit its ability to execute its growth plans,
however, there can be no assurance the Company will obtain such new credit
facility on favorable terms or at all. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." 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 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
7
<PAGE> 9
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, 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. Management believes that these steps,
which include the additional accounting personnel and policies and procedures
adopted in response to the management letter, are adequate to resolve the
conditions raised in such letter. 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 continue 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 $57 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 sectors. 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,
8
<PAGE> 10
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
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 historically 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 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
9
<PAGE> 11
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
activity in certain of the Company's markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality and
Quarterly Results."
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. Such coverage ranges from $1.0 million to $19.0
million per occurrence. 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
10
<PAGE> 12
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, and the Bylaws have a provision under
which only the Board of Directors, the President of the Company 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
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. As soon as practicable after the Offering, the Company intends to
register on Form S-8 under the Securities Act an aggregate of shares
of Common Stock for future issuance under the Plan and the Directors Plan. The
future 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
11
<PAGE> 13
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."
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
consolidated balance sheet as of December 31, 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. The actual net proceeds will vary if
the actual initial public offering price or the estimated expenses are
different.
The Company will use all of the estimated net proceeds to repay the
substantial majority of its outstanding borrowings, together with accrued
interest thereon. Such borrowings bear interest at rates ranging from 8.15% to
11.25% per annum and mature from 1997 to 2001. The proceeds of such borrowings
were used primarily for acquisition of rental equipment and, to a lesser extent,
start-up location costs, recent acquisitions and for general working capital
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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 December 31, 1996, the Company had a net tangible book value of $16.3
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 consolidated 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 December 31, 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 December 31, 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......... % $ 219,000 % $
New shareholders..............
---------- ----- ----------- -----
Total............... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The calculations in the tables set forth above: (i) assume no exercise of
the option granted by certain existing shareholders to the Underwriters to cover
over-allotments, which option may be exercised as to an aggregate of
shares; 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," "-- Director
Compensation" and "Underwriting."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as
reflected on the Company's consolidated balance sheet as of December 31, 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 Consolidated Financial
Statements and the Notes thereto.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revolving lines of credit................................... $27,152 $ --
Term debt................................................... 31,867 --
Obligations under capital leases............................ 1,600 1,600
------- -------
Total debt and capital leases..................... 60,619(1) 1,600
Shareholders' equity:
Preferred stock, par value $.01 per share, 1,000,000
shares authorized; none issued or outstanding.......... -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, shares issued and outstanding
actual, shares outstanding, as adjusted(2)..
Additional paid-in capital................................ 20,250
Retained earnings......................................... 13,823 13,823
------- -------
Total shareholders' equity........................ 34,156
------- -------
Total capitalization............................ $94,775 $
======= =======
</TABLE>
- ------------------------------
(1) Subsequent to December 31, 1996, the Company has incurred additional
indebtedness, the proceeds of which were utilized primarily to pay accounts
payable in respect of rental equipment purchases. The Company expects that
total debt (excluding capital leases) will be approximately $ million
immediately prior to completion of the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
(2) 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 CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1994, 1995 and 1996, and selected consolidated balance
sheet data as of December 31, 1995 and 1996, has been derived from the audited
consolidated financial statements of the Company appearing elsewhere in this
Prospectus. The selected consolidated financial information with respect to the
Company's consolidated 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 consolidated 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 Consolidated Financial
Statements and the Notes thereto appearing elsewhere in this Prospectus.
17
<PAGE> 19
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
PRO FORMA
AS ADJUSTED
1992 1993 1994 1995 1996 1996(1)
---- ---- ---- ---- ---- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Equipment rentals...................................... $3,839 $ 6,378 $14,387 $23,395 $32,883 $32,883
Sales of new and used equipment, parts, supplies and
service.............................................. 2,308 3,911 8,862 12,266 15,203 15,203
------ ------- ------- ------- ------- -------
Total revenues........................................... 6,147 10,289 23,249 35,661 48,086 48,086
------ ------- ------- ------- ------- -------
Cost of revenues:
Cost of equipment rentals, excluding equipment rental
depreciation......................................... 1,112 1,347 3,446 4,651 7,332 7,332
Rental equipment depreciation.......................... 717 1,244 2,660 4,437 6,823 7,024
Cost of sales of new and used equipment, parts,
supplies and service................................. 1,655 2,809 6,914 8,997 11,107 11,107
------ ------- ------- ------- ------- -------
Total cost of revenues................................... 3,484 5,400 13,020 18,085 25,262 25,463
------ ------- ------- ------- ------- -------
Gross profit............................................. 2,663 4,889 10,229 17,576 22,824 22,623
Selling, general and administrative expenses............. 1,024 1,574 3,163 5,858 9,985 9,985
Depreciation and amortization, excluding equipment rental
depreciation........................................... 89 155 250 412 764 1,312
------ ------- ------- ------- ------- -------
Operating income......................................... 1,550 3,160 6,816 11,306 12,075 11,326(2)
Interest expense, net.................................... 368 684 1,734 3,172 4,298 164
Other income (expense)................................... -- 41 48 (40) 182 182
------ ------- ------- ------- ------- -------
Income before income taxes and minority interests........ 1,182 2,517 5,130 8,094 7,959 11,344
Income taxes............................................. 490 963 1,919 2,893 2,328 4,486
Minority interests....................................... 83 301 725 1,429 1,714 --
------ ------- ------- ------- ------- -------
Net income(3)............................................ $ 609 $ 1,253 $ 2,486 $ 3,772 $ 3,917 $ 6,858
====== ======= ======= ======= ======= =======
Pro forma net income per common share.................... $
Pro forma weighted average common shares.................
SELECTED OPERATING DATA:
Number of locations at end of year....................... 2 3 5 9 17
Rental equipment capital expenditures.................... $5,851 $12,855 $21,840 $29,100 $41,092
Original cost of rental equipment at end of year(4)...... 11,819 21,832 35,922 60,758 94,572
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
PRO FORMA
AS ADJUSTED
1992 1993 1994 1995 1996 1996(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 $ 81,583 $ 81,583
Total assets.......................................... 11,879 22,553 40,909 64,153 117,458
Total debt(5)......................................... 7,353 14,107 27,060 43,066 60,619(6) 1,600
Shareholders' equity.................................. 2,988 4,241 6,727 10,340 34,156
</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; (iii)
the change from S corporation to C corporation status of M&F Equipment; and
(iv) the Combination, in each case as if such transactions had occurred on
January 1, 1996 in the case of the consolidated statements of operations and
as of December 31, 1996 in the case of the consolidated balance sheets. The
Company's Consolidated 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
$320,000 and $431,000 in 1995 and 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
Consolidated Financial Statements and the Notes thereto.
(2) Pro forma operating income reflects additional goodwill amortization of
$539,000 and additional depreciation expense of $210,000 attributable to the
Combination.
(3) The minority interests were eliminated as a result of the acquisition of the
minority interest in Erzinger Equipment in September 1996 and the
acquisition of the minority interest in M&M Equipment pursuant to the
Combination in December 1996. See "The Company," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the Notes thereto.
(4) Original cost represents the undepreciated original price paid by the
Company for rental equipment.
(5) Total debt includes term debt, revolving lines of credit and obligations
under capital leases.
(6) Subsequent to December 31, 1996, the Company has incurred additional
indebtedness, the proceeds of which were utilized primarily to pay accounts
payable in respect to rental equipment purchases. The Company expects that
total debt (excluding capital leases) will be approximately $ million
immediately prior to the completion of the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated
financial condition and consolidated results of operations should be read in
conjunction with the Company's Consolidated 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
1994 to 1996, the Company's revenues increased at a compound annual rate of
43.8% from $23.2 million to $48.1 million, while its operating income increased
at a compound annual rate of 33.1%, from $6.8 million to $12.1 million.
Growth in rental revenue is dependent on several factors, including the
demand for rental equipment, the amount of equipment available for rent, rental
rates and general economic conditions. The level of new and used equipment sales
is primarily a function of the supply and demand for such equipment, price and
general economic conditions. The Company's revenues derived from the sale of
used equipment are also affected by its need to maintain the appropriate age,
quality and mix of its rental equipment. Depreciation related to new rental
equipment periodically contributes to short-term margin pressure, since new
rental equipment may not immediately generate revenues at historical equipment
utilization rates.
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, 1995 and
1996, the Company's capital expenditures for rental equipment aggregated $21.8
million, $29.1 million and $41.1 million, respectively.
The Company reported equipment rental depreciation of $2.7 million, $4.4
million and $6.8 million for the years ended December 31, 1994, 1995 and 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 year ended December 31, 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
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<PAGE> 21
information systems, setting up facilities and marketing, as well as increased
depreciation charges resulting from upgrading or converting information systems
and expanding the rental fleet. 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 90 days and generate positive cash flow within 120 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 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 unaffiliated 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 in cash, 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 is accounted for under the purchase method
of accounting. Accordingly, the 49% interest in M&M Equipment's net assets were
recorded at the estimated fair market value, while the remaining 51% continues
to be recorded at historical cost. The excess of the purchase price over the
fair value of assets acquired (amounting to $16.2 million) was recorded as
goodwill and is being amortized on a straight-line basis over its expected
useful life of 30 years.
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<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the consolidated 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
PERCENTAGE OF TOTAL REVENUES INCREASE (DECREASE)
--------------------------------- ------------------------
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996 1994VS1995 1995VS1996
---- ---- ---- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...................................... 61.9% 65.6% 68.4% 62.6% 40.6%
Sales of new and used equipment, parts, supplies and
service.............................................. 38.1 34.4 31.6 38.4 23.9
----- ----- -----
Total revenues........................................... 100.0 100.0 100.0 53.4 34.8
Cost of revenues:
Cost of equipment rentals, excluding equipment rental
depreciation......................................... 14.8 13.0 15.2 35.0 57.6
Rental equipment depreciation.......................... 11.4 12.4 14.2 66.8 53.8
Cost of sales of new and used equipment, parts,
supplies and service................................. 29.7 25.2 23.1 30.1 23.5
----- ----- -----
Total cost of revenues................................... 56.0 50.7 52.5 38.9 39.7
----- ----- -----
Gross profit............................................. 44.0 49.3 47.5 71.8 29.9
Selling, general and administrative expenses............. 13.6 16.4 20.8 85.2 70.5
Depreciation and amortization, excluding equipment rental
depreciation........................................... 1.1 1.2 1.6 64.8 85.4
----- ----- -----
Operating income......................................... 29.3 31.7 25.1 65.9 6.8
Interest expense, net.................................... 7.5 8.9 8.9 82.9 35.5
----- ----- -----
Income before income taxes and minority interests........ 22.1 22.7 16.6 57.8 (1.7)
Net income............................................... 10.7% 10.6% 8.1% 51.7 3.8
===== ===== =====
Other data:
Rental gross profit.................................... 57.6% 61.2% 57.0% 72.8% 30.9%
Sales gross profit..................................... 22.0 26.7 26.9 67.8 25.3
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Total revenues increased from $35.7 million to $48.1 million or
35% in the years ended December 31, 1995 and 1996, respectively. Rental revenue
growth accounted for $9.5 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 $2.2 million or 41% to $7.7 million in 1996, 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 $335,000 or 8% 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 $1.0 million or 43% due to the
expansion of the Company's business.
Gross Profit. Gross profit increased from $17.6 million to $22.8 million or
30% due principally to revenue growth. Gross margin decreased from 49.3% to
47.5%, as rental gross margin decreased from 61.2% to 57.0%, partially offset by
a sales gross margin increase from 26.7% to 26.9%. Rental gross margin was
adversely affected by the operations of Erzinger Equipment during 1996, which,
under its former management, reported significantly lower rental gross margin
through September 1996 due to substantial underutilization of equipment
allocated to it based upon poor 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
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<PAGE> 23
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 increased from
26.7% to 26.9% principally due to improved margins on new equipment sales and
parts, supplies and service, which were partially offset by reduced used rental
equipment selling prices 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 70% from $5.9 million to $10.0 million in
1996, primarily reflecting facilities, personnel and administrative
infrastructure costs incurred to support the growth in the Company's business,
as well as increased bad debt expense. As a percentage of total revenues, these
expenses increased from 16.4% to 20.8%, reflecting the lag between incurrence of
expenses and the related growth in revenues from new location openings, as well
as inefficiencies at the Erzinger Equipment operation under its prior
management.
Depreciation and Amortization. Depreciation and amortization, excluding
rental equipment, increased from $412,000 to $764,000 in the years ended
December 31, 1995 and 1996, respectively. As a percentage of sales, depreciation
and amortization, excluding rental equipment depreciation, increased from 1.2%
to 1.6%. This increase resulted primarily from the addition of locations during
1995, in particular, related transportation equipment and furniture, fixtures
and equipment.
Interest Expense. Net interest expense increased 36% from $3.2 million to
$4.3 million in the years ended December 31, 1995 and 1996, respectively. This
increase was attributable primarily to increased borrowings utilized to purchase
new equipment for the Company's rental fleet, for both new and existing
locations.
Income Taxes. Income tax expense decreased 20% from $2.9 million to $2.3
million in the years ended December 31, 1995 and 1996, respectively. The
Company's effective tax rate decreased from 35.7% in 1995 to 29.3% in 1996, 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.
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $3.8 million, which are available to offset future
taxable income through the year 2006. The utilization of the net operating loss
carryforwards are limited to M&M Equipment and may be subject to certain
limitations due to changes in ownership. The Company expects to pursue certain
tax planning strategies that management believes make it more likely than not
that the Company will recover the benefit of the net operating loss
carryforwards.
Net Income. As a result of the foregoing, net income increased 4% from $3.8
million to $3.9 million in the years ended December 31, 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,
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<PAGE> 24
including corporate level costs associated with managing a more geographically
diverse 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. Net 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 $416,000 and $258,000 at December 31, 1996 and
1995, respectively.
During the year ended December 31, 1996, the Company's operating activities
provided net cash flow of $23.3 million compared to $9.3 million for the prior
year. The increase was due to increased net income and the timing of cash flows
related to operations. During 1996, trade accounts payable increased by $11.7
million, primarily due to the increase in accounts payable for equipment
purchases which aggregated $11.2 million at December 31, 1996. For the year
ended December 31, 1994, operating activities provided $4.7 million of cash,
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 $7.7 million of cash in the
year ended December 31, 1996 compared to $5.4 million for 1995. This increase
was primarily the result of growth in the Company's business.
Investing activities used $39.5 million in the year ended December 31, 1996
compared to $25.8 million in 1995. The increase was primarily attributable to
increased rental fleet equipment purchases, for existing as well as newer
locations. During the year ended December 31, 1994, the Company reported net
cash used in investing activities of $17.2 million. In addition, the Company
incurred other capital expenditures of $1.8 million in 1995 and $3.2 million in
1996. Such capital expenditures were primarily in connection with new locations.
Financing activities provided $16.4 million for the year ended December 31,
1996 compared to $15.7 million for 1995. The source of the funds primarily was
secured borrowings. Net cash provided by financing activities was $13.1 million
for the year ended December 31, 1994. 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"), as agent for a group of four participating banks. M&M
Equipment has entered into credit facilities with Citicorp Del-Lease, Inc. (the
"Citicorp Facility") and Deutsche Financial Services (the "Deutsche Facility").
23
<PAGE> 25
The Citizens Facility consists of a term loan, a swing line, a revolving
line of credit and availability of letters of credit. Approximately $6.9 million
currently is outstanding under the term loan, and the interest rate on such
borrowing is 8.25%. The total amount of credit available under the revolving
line is $38.5 million. 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
$1.8 million during the period January 1, 1997 to June 30, 1997, 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. The obligations of Falconite Equipment
under the Citizens Facility are guaranteed by the Company, Michael A. Falconite,
Joseph A. Falconite and Betty L. Falconite. The principal amount outstanding
under the Citizens Facility was approximately $31.0 million as of February 28,
1997, and the interest rate on such borrowings is 8.25%. The Citizens Facility
matures on June 30, 1997. The Company expects to refinance such obligations,
whether or not the Offering is completed prior to such date.
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) $20 million
through June 30, 1997 and $15 million thereafter; 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 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 obligations of M&M
Equipment under the Citicorp Facility are guaranteed by the Company, Falconite
Equipment, Ralph W. McCurry and Michael A. Falconite.
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. 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 all of the net proceeds, estimated to be
approximately $ million, received by it from the Offering to reduce
outstanding bank borrowings which the Company estimates will aggregate
approximately $ million immediately prior to the completion of the Offering.
As a result, the Company expects to repay in full its term debt and that its
revolving lines of credit will be reduced to approximately $ million upon
completion of the Offering, with capital lease obligations aggregating $1.6
million.
After the Offering, the Company expects to have improved liquidity and
capital resources due to the repayment of the substantial majority of 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
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<PAGE> 26
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 incurred capital expenditures of approximately $41.1 million in
1996 for rental fleet expansion. The Company's commitments for capital
expenditures, at December 31, 1996, were $11.6 million. The Company currently
estimates that it will incur cash outlays for capital expenditures for additions
to its rental fleet of $57 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.
The Company has guaranteed the debt of entities owned by existing
shareholders, which own facilities leased to the Company. Such debt was in the
aggregate principal amount of $1.8 million as of December 31, 1996. If the
affiliated entities were to default on their loans and the Company were
obligated to pay amounts guaranteed, the Company would succeed to the rights of
the lender as against the affiliated entities. See "Certain Transactions."
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. These alleged deficiencies arose out of issues relating
to the movement of equipment and the availability of exemptions in particular
states. The Company has reviewed the alleged deficiencies with its counsel and
has established reserves based upon its assessment of the likely outcome of the
pending proceedings, which are subject to significant uncertainties. The Company
seeks to comply with its state sales and use tax obligations and analyzes and
implements compliance efforts in connection with expanding the scope of its
operations into new states.
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
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<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, 1996.
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 (defined as non-homeowner 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
one of the most comprehensive and well maintained fleets 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
88% of the Company's rental fleet as of December 31, 1996, based on original
cost. The original per unit cost of the Company's rental fleet ranges up to $1.2
million, with an average per unit cost of approximately $27,200 as of December
31, 1996. At such date, the Company's fleet had an average age of approximately
19 months and an aggregate original cost of $94.6 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
enable its customers 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 1994 to 1996, the Company's revenues increased at a compound annual
rate of 43.8%, from $23.2 million to $48.1 million, while its operating income
increased at a compound annual rate of 33.1%, from $6.8 million to $12.1
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 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 from
manufacturers at wholesale prices. This purchasing power enhances the Company's
ability to offer
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<PAGE> 29
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 December 31, 1996, had an
average age of approximately 19 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, at an estimated cost of approximately $2.0
million. 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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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), management believes there has been a trend for equipment users to
rely on rentals on a more regular basis due to economic advantages and
convenience.
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, 1995 and 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Equipment rentals.................................... $14,387 61.9% $23,395 65.6% $32,883 68.4%
New equipment sales.................................. 2,716 11.7 4,393 12.3 4,058 8.4
Rental equipment sales............................... 4,606 19.8 5,448 15.3 7,674 16.0
Sales of parts, supplies and equipment............... 495 2.1 979 2.7 1,391 2.9
Service and other revenues........................... 1,045 4.5 1,446 4.1 2,080 4.3
------- ----- ------- ----- ------- -----
Total........................................ $23,249 100.0% $35,661 100.0% $48,086 100.0%
======= ===== ======= ===== ======= =====
</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
59%, 17% and 12%, respectively, of the original cost of the Company's fleet as
of December 31, 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 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,
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<PAGE> 31
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.
The Company's size and stature in the equipment rental industry, as well as
its long-standing vendor relationships, enable it to purchase equipment directly
from manufacturers at what management believes are among the best prices and
terms in the industry. The Company has developed relationships with many leading
equipment manufacturers, which has led to exclusive distribution rights for
certain lines of equipment in several of its markets. Management believes that
the favorable pricing, service, training and information that the Company
receives from its suppliers represent a significant competitive advantage for
the Company. During 1996, the Company purchased approximately $41.1 million of
rental equipment, of which approximately 83.6% was obtained from its ten largest
suppliers. The Company believes it could readily replace any of its existing
suppliers if it were to lose its ability to purchase equipment from such
supplier.
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 seeks 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. For the year ended December 31, 1996,
upon resale the Company received over 85% of the original cost of used
equipment. The Company
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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 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
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<PAGE> 33
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.
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. For the year ended December 31, 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.,
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
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<PAGE> 34
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.
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."
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<PAGE> 35
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 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. Lease
payments range from $2,500 to $17,500 per month, depending upon the size and
location of the facility. 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" and the Consolidated Financial Statements and the
Notes thereto.
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,
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<PAGE> 36
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 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. If a Phase I
assessment indicates possible contamination, a Phase II assessment involving
soil and water testing could be undertaken. 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 207 full
time employees, including 40 salespeople, 162 operational employees and five
corporate and management employees.
Approximately five 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 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
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<PAGE> 37
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
1997 and June 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. 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, including insurance coverage, 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.................. 77 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 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 1955
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 $100,000 (salary and bonus) (the "Named Executive
Officers") for all services rendered in all capacities to the Company during the
year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------- ALL OTHER
SALARY($) BONUS($) COMPENSATION($)
NAME AND PRINCIPAL POSITION --------- -------- ---------------
<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) 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
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<PAGE> 41
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.
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<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
-----------------------------------------------
AFTER OFFERING
SHARES WHICH ------------------------------------
MAY BE SOLD ASSUMING ASSUMING
SHARES PURSUANT TO OVER-ALLOTMENT OVER-ALLOTMENT
BENEFICIALLY OVER-ALLOTMENT PRIOR TO OPTION IS OPTION IS EXERCISED
NAME AND ADDRESS(1) OWNED(2)(3) OPTION(4) OFFERING NOT EXERCISED IN FULL
------------------- ------------ -------------- -------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Joseph A. Falconite........... (5) 36.6% % %
Michael A. Falconite.......... (6) (7) 42.2
Ralph W. McCurry.............. (8) 19.7
J. David Melber............... -- * * *
All directors and executive
officers as a group (6
persons).................... 98.6
</TABLE>
- ------------------------------
* Less than 1.0%.
(1) The address of each person listed in the table is 2525 Wayne Sullivan Drive,
Paducah, Kentucky.
(2) 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.
(3) For purposes of this table, information as to shares of Common Stock assumes
the persons in the table do not purchase shares in the Offering.
(4) 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.
(5) 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.
(6) 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 of
which Michael A. Falconite has sole voting and investment power.
(7) Includes shares of Common Stock which may be purchased pursuant to
an option granted to the Underwriters by Falconite Investments, of which
Michael A. Falconite has sole voting and investment power, and shares
of Common Stock which may be purchased pursuant to an option granted to the
Underwriters by the Michael A. Falconite Revocable Trust.
(8) 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 or its shareholders an
aggregate of $0, $93,000 and $230,000, 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 ten-year term
expiring in February 2007 and rental payments of $17,500 per month. During 1994,
1995 and 1996, the Company paid E&F an aggregate of $0, $27,000 and $188,000,
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 or its
shareholders an aggregate of $0, $35,000 and $122,000, 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 $423,000 in connection with the
purchase of this property.
In February 1997, the Company entered into an agreement with F&F pursuant
to which the Company purchased approximately one and one-half acres of land in
Clarksville, Tennessee. The Company paid F&F $147,000 in connection with the
purchase of this property.
The Company believes that the foregoing leases and sale are on terms no
less favorable to the Company than those available from unaffiliated parties.
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 $252,000,
and the amount of such indebtedness outstanding on December 31, 1994, 1995 and
1996 was $0, $0 and $77,000, 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 $178,000
and the amount of indebtedness outstanding
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<PAGE> 44
on December 31, 1994, 1995 and 1996 was $32,000, $32,000 and $44,000,
respectively. This indebtedness does not bear interest.
The Company does not expect to loan any additional amounts to affiliated
parties in the future.
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 $488,000 and the amount of
indebtedness outstanding on December 31, 1994, 1995 and 1996 was $201,000,
$139,000 and $79,000, 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 $140,000, $140,000 and $51,000, respectively. As of December 31, 1996, the
receivable to Falconite Equipment equalled $332,000.
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."
Michael A. Falconite, Joseph A. Falconite, Betty Falconite and Ralph W.
McCurry have personally guaranteed the Company's borrowings. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
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 the date hereof, no shares of Preferred Stock and
shares of Common Stock were issued and outstanding, and no shares of
Common Stock were issuable upon exercise of outstanding options. As of the date
hereof, 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.
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<PAGE> 45
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 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
44
<PAGE> 46
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 set 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 the President of the
Company, the Board of Directors or the holders of at least two-thirds of the
outstanding shares of the Company entitled to vote at such meeting; 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boatmen's Trust
Company, St. Louis, Missouri.
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. Such shareholders have the right to demand (i) two
registrations of their shares of Common Stock on Form S-1 and (ii) three
registrations of their shares of Common Stock on Form S-3 or S-3, provided, the
Company will not be obligated to effect any demand registration within six
months after the effective date of a previous demand registration. 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). The Company is required
to use its best efforts to effect a registration of such shares of Common Stock
pursuant to such registration rights. The Company has been advised by the
Company's existing shareholders that they presently have no intention to
exercise their registration rights.
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
45
<PAGE> 47
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, 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, pledge, 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 (regardless of
whether any of the foregoing actions is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise), 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.
46
<PAGE> 48
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 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, pledge, 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 (regardless of whether any of the foregoing
actions is to be settled by the delivery of Common Stock, or such other
securities, in cash or otherwise), 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.
47
<PAGE> 49
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."
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the Offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
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.
Prior to the date six months after their date of issue, no underwriter may
offer or sell any Common Stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
business or otherwise in circumstances which will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995. Each underwriter must 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. Each Underwriter may only issue or pass on in the United Kingdom any
document received by it in connection with the issue of the Common Stock to a
person who is of a kind described in Article II(3) of The Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such 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.
48
<PAGE> 50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1994, 1995 and 1996.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996.......................... F-6
Notes to Consolidated Financial Statements as of December
31, 1995 and 1996......................................... F-7
</TABLE>
F-1
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Falconite, Inc.:
We have audited the accompanying consolidated balance sheets of Falconite,
Inc. (the Company) as of December 31, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Falconite, Inc. as of December 31, 1995 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
February 20, 1997
F-2
<PAGE> 52
FALCONITE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 258,000 $ 416,000
Trade accounts receivable, less allowance for doubtful
accounts of $20,000 and $522,000 at December 31, 1995 and
1996, respectively........................................ 5,944,000 7,294,000
Due from affiliated companies and related parties........... 313,000 453,000
Income taxes receivable..................................... -- 136,000
Inventories................................................. 416,000 1,615,000
Rental equipment, principally machinery, at cost less
accumulated depreciation of $8,184,000 and $12,989,000 as
of December 31, 1995 and 1996, respectively............... 52,574,000 81,583,000
Operating property and equipment, net....................... 4,079,000 7,018,000
Excess of cost over net assets of purchased businesses, less
accumulated amortization.................................. 202,000 17,059,000
Prepaid and other assets, at cost less accumulated
amortization.............................................. 367,000 1,884,000
----------- ------------
$64,153,000 $117,458,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable...................................... $ 1,904,000 $ 13,587,000
Income taxes payable........................................ 33,000 --
Accrued expenses............................................ 299,000 657,000
Accrued interest payable.................................... 129,000 140,000
Revolving lines of credit................................... 14,406,000 27,152,000
Obligations under capital leases............................ 3,088,000 1,600,000
Term debt................................................... 25,572,000 31,867,000
Deferred income taxes....................................... 5,395,000 7,801,000
Due to affiliated companies and related parties............. 361,000 121,000
Other liabilities........................................... 78,000 377,000
----------- ------------
Total liabilities...................................... 51,265,000 83,302,000
----------- ------------
Minority interests.......................................... 2,548,000 --
Commitments and contingencies
Shareholders' equity:
Preferred stock, Falconite, Inc., $0.01 par value.
Authorized 1,000,000 shares; issued and outstanding
zero shares............................................ -- --
Common stock, Falconite, Inc., $0.01 par value. Authorized
50,000,000 shares; issued and outstanding 8,330,000
shares................................................. -- 83,000
Common stock, Falconite Equipment, Inc., $10 par value.
Authorized 25,000 shares; issued and outstanding 13,000
shares................................................. 130,000 --
Common stock, M&M Properties, Inc., $1 par value.
Authorized, issued, and outstanding 1,000 shares....... 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 --
Additional paid-in capital................................ 87,000 20,250,000
Retained earnings......................................... 10,121,000 13,823,000
----------- ------------
Total shareholders' equity............................. 10,340,000 34,156,000
----------- ------------
$64,153,000 $117,458,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 53
FALCONITE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Equipment rentals................................... $14,387,000 $23,395,000 $32,883,000
New equipment sales................................. 2,716,000 4,393,000 4,058,000
Rental equipment sales.............................. 4,606,000 5,448,000 7,674,000
Sales of parts, supplies, and equipment............. 495,000 979,000 1,391,000
Service revenues and other income................... 1,045,000 1,446,000 2,080,000
----------- ----------- -----------
Total revenues................................. 23,249,000 35,661,000 48,086,000
----------- ----------- -----------
Cost of revenues:
Cost of equipment rentals, excluding equipment
rental depreciation.............................. 3,446,000 4,651,000 7,332,000
Equipment rental depreciation....................... 2,660,000 4,437,000 6,823,000
Cost of new equipment sales......................... 2,431,000 3,651,000 3,104,000
Cost of rental equipment sales...................... 3,905,000 4,332,000 6,697,000
Costs of sales of parts, supplies, equipment, and
other services................................... 578,000 1,014,000 1,306,000
----------- ----------- -----------
Total cost of revenues......................... 13,020,000 18,085,000 25,262,000
----------- ----------- -----------
Gross profit................................... 10,229,000 17,576,000 22,824,000
Selling, general, and administrative expenses......... 3,163,000 5,858,000 9,985,000
Depreciation and amortization, excluding equipment
rental depreciation................................. 250,000 412,000 764,000
----------- ----------- -----------
Operating income............................... 6,816,000 11,306,000 12,075,000
----------- ----------- -----------
Other income (expense):
Interest income..................................... 25,000 41,000 32,000
Interest expense.................................... (1,759,000) (3,213,000) (4,330,000)
Other, net.......................................... 48,000 (40,000) 182,000
----------- ----------- -----------
(1,686,000) (3,212,000) (4,116,000)
----------- ----------- -----------
Income before income taxes and minority
interests................................... 5,130,000 8,094,000 7,959,000
Income taxes.......................................... 1,919,000 2,893,000 2,328,000
Minority interests.................................... 725,000 1,429,000 1,714,000
----------- ----------- -----------
Net income..................................... $ 2,486,000 $ 3,772,000 $ 3,917,000
=========== =========== ===========
Pro forma net income data:
Net income as reported.............................. 2,486,000 3,772,000 3,917,000
Pro forma adjustment to provision for income
taxes............................................ -- 124,000 666,000
----------- ----------- -----------
Pro forma net income................................ $ 2,486,000 $ 3,648,000 $ 3,251,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 54
FALCONITE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
FALCONITE, INC. COMBINED COMPANIES'
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
--------------------- ------------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- -------- ------- --------- ----------- ----------- -------------
<S> <C> <C> <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.................. -- -- -- -- -- 3,917,000 3,917,000
Capital distribution to
shareholder of McCurry and
Falconite Equipment
Company, Inc.............. -- -- -- -- -- (215,000) (215,000)
Formation of Falconite, Inc.
and Recapitalization
Agreement transactions.... 8,330,000 83,000 (15,000) (132,000) 20,163,000 -- 20,114,000
---------- -------- ------- --------- ----------- ----------- -----------
Balances at
December 31, 1996......... 8,330,000 $ 83,000 -- $ -- $20,250,000 $13,823,000 $34,156,000
========== ======== ======= ========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 55
FALCONITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 2,486,000 $ 3,772,000 $ 3,917,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 2,910,000 4,849,000 7,587,000
Minority interests................................... 725,000 1,429,000 1,714,000
Provision for losses on trade accounts receivable.... 120,000 323,000 891,000
Provision for deferred income taxes.................. 1,272,000 2,308,000 2,208,000
Net gain on sale of rental equipment and operating
property and equipment............................ (701,000) (987,000) (978,000)
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Trade accounts receivable......................... (1,819,000) (2,302,000) (2,139,000)
Due from affiliated companies and related
parties......................................... (143,000) (173,000) (140,000)
Income taxes receivable........................... -- -- (136,000)
Inventories....................................... (410,000) 226,000 (989,000)
Prepaid and other assets.......................... (311,000) (89,000) (752,000)
Trade accounts payable, accrued expenses, and
accrued interest payable........................ 523,000 245,000 12,052,000
Income taxes payable.............................. 111,000 (274,000) (33,000)
Due to affiliated companies and related parties... (15,000) (97,000) (240,000)
Other liabilities................................. -- 64,000 299,000
------------ ------------ ------------
Net cash provided by operating activities....... 4,748,000 9,294,000 23,261,000
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of rental operations, net of cash
acquired............................................. -- (451,000) (3,094,000)
Proceeds from sales of rental equipment and operating
assets............................................... 4,606,000 5,622,000 7,936,000
Capital expenditures for rental equipment.............. (21,840,000) (29,100,000) (41,092,000)
Capital expenditures for operating property and
equipment............................................ -- (1,829,000) (3,229,000)
------------ ------------ ------------
Net cash used in investing activities........... (17,234,000) (25,758,000) (39,479,000)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings under revolving lines of credit......... 2,735,000 7,899,000 12,746,000
Proceeds from issuance of term debt.................... 30,924,000 33,261,000 22,100,000
Principal payments on term debt and obligations under
capital leases....................................... (20,577,000) (25,190,000) (18,039,000)
Proceeds from issuance of common stock................. -- 1,000 --
Capital distributions to shareholder................... -- (160,000) (215,000)
Capital distributions to minority shareholder.......... -- (160,000) (216,000)
------------ ------------ ------------
Net cash provided by financing activities....... 13,082,000 15,651,000 16,376,000
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................. 596,000 (813,000) 158,000
Cash and cash equivalents at beginning of year........... 475,000 1,071,000 258,000
------------ ------------ ------------
Cash and cash equivalents at end of year................. $ 1,071,000 $ 258,000 $ 416,000
============ ============ ============
Supplemental cash flow disclosures:
Cash paid for:
Interest............................................. $ 1,671,000 $ 3,227,000 $ 4,319,000
Income taxes......................................... 539,000 912,000 505,000
Noncash financing activities:
Refinancings of term debt.............................. -- -- 8,346,000
Purchase of equipment with capital leases.............. 326,000 1,119,000 296,000
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
Noncash consideration for acquisitions of minority
interest............................................... -- -- 20,287,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 56
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Principles of Consolidation
Falconite, Inc. (Falconite or the Company) was formed on December 31, 1996
when the shareholders of Falconite Equipment, Inc. (Falconite Equipment),
formerly known as Falconite, Inc., M&M Properties, Inc., d/b/a M&M Equipment
Company (M&M Equipment), and McCurry and Falconite Equipment Company, Inc. (M&F
Equipment) entered into a Recapitalization Agreement. Pursuant to the terms of
the Recapitalization Agreement, the shareholders of Falconite Equipment, M&M
Equipment, and M&F Equipment exchanged their common shares for common shares of
Falconite (the Recapitalization). The exchange of shares was accounted for at
historical basis for the controlling shareholders of Falconite and at fair
market value for the minority interests in M&M Equipment and M&F Equipment.
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. Prior to formation of the Company, the
historical financial statements of Falconite Equipment, M&M Equipment, and M&F
Equipment were combined for financial reporting purposes. For purposes of these
financial statements, the 1996 consolidated and 1994 and 1995 combined financial
statements will be referred to as consolidated financial statements. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements. The consolidated statements of operations
reflect the 49% minority interest through December 31, 1996 for M&M Equipment
and M&F Equipment when the remaining interests were purchased by Falconite.
In January 1990, M&M Equipment was formed by two shareholders of Falconite
Equipment and a third party. Subsequent to its formation, M&M Equipment was
considered an entity under common control as the controlling shareholders of
Falconite Equipment owned 51% of M&M Equipment. The combined financial
statements for the years ended December 31, 1994 and 1995 reflect the 49%
minority interest.
In October 1993, Falconite Equipment acquired a 70% ownership of Erzinger
Equipment Co. (Erzinger). Subsequently, on September 10, 1996, Falconite
Equipment acquired the remaining 30% of Erzinger. The minority interest is
reflected for the years ended December 31, 1994 and 1995 and through September
10, 1996. For the period September 10, 1996 through December 31, 1996, Erzinger
is accounted for as a wholly owned subsidiary of Falconite Equipment.
In March 1995, a shareholder of Falconite Equipment and the minority
shareholder of M&M Equipment created a subchapter S corporation, M&F Equipment.
M&F Equipment has been operated as a branch of M&M Equipment since its
inception. The consolidated financial statements reflect the operations of M&F
Equipment since inception and reflect the minority shareholder's interest in M&F
Equipment through December 31, 1996. On December 31, 1996, as part of the
Recapitalization, the Subchapter S Corporation election was terminated.
The consolidated 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.
Management believes the consolidated statements of operations reflect all costs
of doing business.
(b) Description of Business
Falconite, an Illinois corporation, through its wholly owned subsidiaries,
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.
Falconite's operations are based in Paducah, Kentucky; Madison, Alabama; and St.
Louis, Missouri. During 1995, Falconite opened additional branches in Nashville,
Knoxville, and Memphis, Tennessee. Falconite also began operations in 1995 in
Calvert City, Kentucky, through the purchase of a tool and equipment rental
company.
F-7
<PAGE> 57
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, Falconite opened five additional branches in Atlanta, Georgia;
Baton Rouge, Louisiana; Columbus, Mississippi; and Fort Wayne and South Bend,
Indiana. Additionally, through acquisitions, Falconite purchased existing
businesses in Tallahassee, Florida; Clarksville, Tennessee; and Fort Campbell,
Kentucky.
(c) Cash Equivalents
For purposes of the consolidated 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.
(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 the inception of the
lease.
Depreciation is calculated on the straight-line method over the estimated
useful lives of the assets. M&M Equipment assigns a salvage value of 25% to its
rental equipment purchases, whereas Falconite Equipment does not provide for a
salvage value on its 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
EQUIPMENT EQUIPMENT
--------- ---------
<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>
F-8
<PAGE> 58
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
USEFUL LIFE
TYPE OF EQUIPMENT IN YEARS SALVAGE VALUE
----------------- ----------- -------------
<S> <C> <C>
Large (28 tons and greater) cranes.......................... 15 25%
Small (less than 28 tons) cranes............................ 10 10
Large lifts................................................. 10 10
Small lifts................................................. 7 10
Forklifts................................................... 7 10
Dirt moving................................................. 7 10
Other small equipment....................................... 5 10
Vehicles and trailers....................................... 5 --
</TABLE>
The Company believes that had it utilized the foregoing depreciation policy
during the year ended December 31, 1996, its results of operations for such
period would not have varied materially from reported amounts.
Equipment reported under the classification of "rental equipment," although
primarily utilized within the rental aspect of the business, is available for
sale in the ordinary course of business and is recorded at the lower of cost,
net of accumulated depreciation, or market. Rental equipment sold by the Company
is sold "as is."
(f) Excess of Cost Over Net Assets of Purchased Businesses
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 5 to 30 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.
(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.
M&F Equipment had elected S corporation status in accordance with the
provisions of Subchapter S of the Internal Revenue Code. Pursuant to this
election, the taxable income of M&F Equipment was reported in the federal and
state income tax returns of the shareholders. Accordingly, a provision for
federal and state income taxes that is payable by an S corporation, has not been
reflected in the accompanying consolidated financial statements. The pro forma
income tax adjustment included on the consolidated statements of operations
represents federal income tax expense that would have been incurred had M&F
Equipment been a C corporation.
F-9
<PAGE> 59
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Allowance for Doubtful Accounts
The Company determines the allowance for doubtful accounts by reserving
specific trade accounts receivable and providing an estimate based on the aging
of the trade receivables. The Company recognized bad debt expense of $120,000,
$323,000, and $891,000 for the years ended December 31, 1994, 1995, and 1996,
respectively. The Company writes-off trade receivables when considered
uncollectible.
(i) Use of Estimates
The preparation of the consolidated 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.
(j) 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.
Falconite's customers are primarily concentrated in the construction and
manufacturing industries and the dependence on those industries. Management
believes it has addressed this concentration by expanding its operations
throughout certain Southern and Midwestern states. Falconite performs ongoing
credit evaluations of its customers' financial condition but does not require
collateral to support customer receivables. In certain instances, Falconite may
file a mechanic's lien to protect its interest.
(k) Revenue Recognition
Equipment rental and delivery charge 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.
Revenue associated with repairs and maintenance of equipment owned by
customers of Falconite or by customers that rent equipment from the Company (and
waive damage coverage at the time of a rental) are recognized when earned. Fees
for repairs and maintenance on equipment owned by customers of the Company are
either paid by the customer or reimbursed to the Company under the original
manufacturer's warranty agreement. Revenue associated with the warranty work is
recognized when earned.
(l) Deferred 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.
Falconite has deferred costs of approximately $427,000 as of December 31,
1996, in connection with its planned initial public offering. These costs have
been reflected in prepaid and other assets in the accompanying consolidated
balance sheets. If the planned offering is consummated, the costs will be
deducted from the proceeds received from the offering. If the planned offering
is not consummated, the costs will be charged to expense in the period in which
a decision is made to terminate the offering.
F-10
<PAGE> 60
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(m) 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 Falconite to review for the impairment of long-lived
assets and certain identifiable intangibles to be held and used by Falconite
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Falconite adopted SFAS 121 in the first quarter
of 1996. The effect of adoption was not material to the consolidated financial
statements.
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.
Falconite has elected to apply the intrinsic value based method of accounting
for stock options. The effect of SFAS 123 was not material to the consolidated
financial statements.
(n) Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share have not been presented on
the face of the consolidated statements of operations as the presentation of
such information would not be meaningful, nor would such presentation be
indicative of future events.
(2) ACQUISITIONS
In December 1995, Falconite Equipment acquired the assets of 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
consolidated financial statements since the date of the acquisition. The total
purchase price was approximately $585,000, for which Falconite recognized total
goodwill of approximately $100,000 which is being amortized on a straight-line
basis over a five-year period.
In September 1996, Falconite purchased the 30% minority interest of
Erzinger for approximately $875,000 in cash, a note payable, certain assets of
Erzinger, 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, two years. The acquisitions were accounted for using the purchase
method, with the operating results of Erzinger included in the consolidated
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
$543,000 is being amortized on a straight-line basis over a five-year period.
In November 1996, M&M Equipment acquired various pieces of rental equipment
from a rental company in Tallahassee, Florida for $653,000. The total purchase
price was $1,053,000 which included $400,000 in covenants not-to-compete.
Covenants not-to-compete are being amortized over three years.
In December 1996, Falconite Equipment acquired the assets of another rental
company in Calvert City, Kentucky. This acquisition was accounted for under the
purchase method, with the operating results being included within the
consolidated financial statements since the date of acquisition. The total
purchase price was $300,000, for which Falconite Equipment recognized total
goodwill of approximately $86,000. Goodwill for this acquisition is being
amortized on a straight-line basis over a five-year period.
In December 1996, Falconite Equipment acquired 100% of the outstanding
common stock of a rental company with locations in Fort Campbell, Kentucky and
Clarksville, Tennessee. This acquisition was
F-11
<PAGE> 61
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for under the purchase method, with the operating results being
included within the consolidated financial statements since the date of
acquisition. The total purchase price was $985,000, for which Falconite
Equipment recognized total goodwill of approximately $286,000, which is being
amortized on a straight-line basis over a five-year period.
These acquisitions are not material to Falconite's financial condition or
results of operations. As such, no pro forma financial information has been
provided.
As part of the Recapitalization, on December 31, 1996, Falconite purchased
the 49% minority interest in M&M Equipment by exchanging 1,225,000 shares of its
common stock. The 49% minority interest in M&M Equipment's net assets acquired
were recorded at their estimated fair market value of $20,080,000 whereas the
remaining 51% was recorded at the historical cost of such assets. The excess of
the purchase price over the fair market value of the net assets acquired of
$16,178,000 was recorded as goodwill, and will be amortized on a straight-line
basis over its expected useful life of 30 years.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using quoted
market prices when available, or fair values which 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. The aggregate fair value amounts referred to
do not represent the underlying value of Falconite.
Because of their relatively short maturities, generally the estimated fair
values of the Company's financial instruments approximate their carrying amounts
on the consolidated balance sheets. The estimated fair value of term debt with
adjustable rates approximate their carrying amounts. 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 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 1996,
consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Land, buildings, and leasehold improvements................. $1,421,000 $1,608,000
Transportation equipment.................................... 3,224,000 6,044,000
Office furniture, fixtures, and computer equipment.......... 441,000 871,000
---------- ----------
5,086,000 8,523,000
Less accumulated depreciation and amortization.............. 1,007,000 1,505,000
---------- ----------
$4,079,000 $7,018,000
========== ==========
</TABLE>
(5) LEASES
Falconite 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 Falconite 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, 1995, and 1996 was $136,000,
$303,000, and $396,000, respectively.
F-12
<PAGE> 62
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31: LEASES
- ------------------------- ----------
<S> <C> <C>
1997............................................................................ $1,068,000
1998............................................................................ 874,000
1999............................................................................ 689,000
2000............................................................................ 446,000
2001............................................................................ 262,000
Thereafter...................................................................... 888,000
----------
Total minimum lease payments.......................................... $4,227,000
==========
</TABLE>
In addition to the above, Falconite leases various facilities and equipment
from its shareholders. The facility leases are on varying terms ranging from
eleven months to five years. 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, 1995, and
1996 was $45,000, $278,000, and $689,000, respectively.
Falconite 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
December 31, 1996 consists of the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: AMOUNT
- ------------------------ ----------
<S> <C> <C>
1997.................................................................... $ 622,000
1998.................................................................... 595,000
1999.................................................................... 463,000
2000.................................................................... 236,000
2001.................................................................... 101,000
Later years............................................................. 54,000
----------
Total minimum lease payments.................................. 2,071,000
Less amount representing imputed interest............................... 471,000
----------
Present value of minimum lease payments....................... $1,600,000
==========
</TABLE>
(6) REVOLVING LINES OF CREDIT AND TERM DEBT
Subsequent to year end, Falconite Equipment entered into the Third
Amendment to the Revolving Credit and Term Loan Agreement and the Fourth
Amendment to the Revolving Credit and Term Loan Agreement, each with Citizens
Bank & Trust Company (the Citizens Facility), as agent for a group of four
participating banks, for purposes of increasing the available borrowings and
modifying certain covenants. The Company intends to apply all of the net
proceeds received by it from the public stock offering to reduce outstanding
bank borrowings. If for some reason the public stock offering does not occur as
planned, it will be necessary for the Company to refinance its borrowings in
order to fulfill its obligations under the Citizens Facility which are due on
June 30, 1997.
The Citizens Facility consists of a term loan, a swing line, a revolving
line of credit and availability of letters of credit. Approximately $6,900,000
was outstanding under the term loan at December 31, 1996, and the interest rate
on such borrowing was 8.25%. Approximately $13,000,000 was outstanding under the
F-13
<PAGE> 63
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revolving line at December 31, 1996 and the total amount of credit available
under the revolving line is $38,500,000. The total amount available under the
swing line is limited to the greater of: (i) $2,000,000; or (ii) a formula based
primarily on accounts receivable and inventory. At December 31, 1996,
approximately $1,300,000 was outstanding under the swing line. 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 $1,800,000 during the period January 1, 1997 to June
30, 1997, 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. The obligations
of Falconite Equipment under the Citizens Facility are guaranteed by the
Company, Michael A. Falconite, Joseph A. Falconite and Betty L. Falconite. The
total principal amount outstanding under the Citizens Facility was approximately
$21,200,000 at December 31, 1996, and the interest rate on such borrowings is
8.25%.
Term debt at December 31, 1995 and 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 (8.25% at December 31,
1995 and 1996) plus .75% to 10%......................... $ 4,510,000 $ 8,346,000
Notes payable with Citizens Bank & Trust with monthly
payments of principal and interest at prime secured by a
guarantee of the majority shareholder................... 6,650,000 6,850,000
Note payable with GE Capital with monthly principal and
interest payments of $11,217. Interest is at the 30 days
commercial paper rate (5.41% at December 31, 1996) plus
2.08%................................................... -- 1,088,000
Note payable with the Kentucky Development Finance
Authority. Monthly principal and interest payments of
$2,660. Interest is stated at a fixed rate of 5.06% and
is collateralized by
real estate............................................. 136,000 111,000
Various notes payable, with monthly principal and interest
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..................... 14,276,000 15,472,000
----------- -----------
$25,572,000 $31,867,000
=========== ===========
</TABLE>
Annual maturities of term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $23,803,000
1998........................................................ 3,208,000
1999........................................................ 2,356,000
2000........................................................ 1,662,000
2001........................................................ 412,000
Thereafter.................................................. 426,000
-----------
Total............................................. $31,867,000
===========
</TABLE>
F-14
<PAGE> 64
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the Citizens
Facility. M&M Equipment has entered into credit facilities with Citicorp
Del-Lease, Inc. (the Citicorp Facility) and Deutsche Financial Services (the
Deutsche Facility).
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) $20,000,000
through June 30, 1997 and $15,000,000 thereafter; 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 provides for certain
customary events of default. At December 31, 1996, the principal amount
outstanding under the Citicorp Facility was $9,000,000, 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 obligations of M&M
Equipment under the Citicorp Facility are guaranteed by the Company, Falconite
Equipment, Ralph W. McCurry and Michael A. Falconite.
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. McCurry and Wanda R. McCurry. At December 31, 1996, the principal
amount outstanding under the Deutsche Facility was $4,000,000, and the interest
rate on such borrowings was 8.125%.
The Company intends to apply all of the net proceeds received by it from
its offering of common stock (see Note 13) to reduce outstanding bank
borrowings.
At December 31, 1996, the trade accounts payable of $13,587,000 included
liabilities of $11,200,000 to certain equipment vendors with extended payment
terms. Subsequent to December 31, 1996 the Company utilized the borrowing
capacity under the Citizens Facility and the Citicorp Facility to pay these
vendors.
F-15
<PAGE> 65
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) 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
======== ========== ==========
Year ended December 31, 1996:
U.S. federal.................................. $196,000 $2,006,000 $2,202,000
State and local............................... (76,000) 202,000 126,000
-------- ---------- ----------
$120,000 $2,208,000 $2,328,000
======== ========== ==========
</TABLE>
Income tax expense was $1,919,000, $2,893,000, and $2,328,000 for the years
ended December 31, 1994, 1995, and 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 $2,706,000
Increase (reduction) in income taxes resulting
from:
Nontaxable M&F Equipment income.............. -- (124,000) (666,000)
State and local income taxes, net of federal
income tax benefit........................ 157,000 209,000 84,000
Other, net................................... 18,000 56,000 204,000
---------- ---------- ----------
$1,919,000 $2,893,000 $2,328,000
========== ========== ==========
</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 on the consolidated statements of
operations represent federal income tax expense that would have been required
had M&F Equipment been a C Corporation. M&F Equipment's undistributed earnings
were contributed to additional paid-in capital, on December 31, 1996, the date
the S Corporation election was terminated.
F-16
<PAGE> 66
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 $ 195,000
Alternative minimum tax credit carryforwards............ 1,155,000 1,713,000
Net operating loss carryforwards........................ 407,000 1,402,000
Inventory obsolescence reserves......................... -- 175,000
Other................................................... 60,000 175,000
----------- ------------
Net deferred tax assets......................... 1,629,000 3,660,000
Deferred tax liabilities - rental and operating property
and equipment, principally due to difference in
depreciation............................................ (7,024,000) (11,461,000)
----------- ------------
Net deferred tax liability...................... $(5,395,000) $ (7,801,000)
=========== ============
</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 Falconite 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 December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $3,835,000 which are available to
offset future federal taxable income through the year 2006. The utilization of
these net operating loss carryforwards are limited to M&M Equipment and may be
subject to certain limitations due to changes in ownership. The Company expects
to pursue certain tax planning strategies that management believes make it more
likely than not that the Company will recover the tax benefit of the net
operating loss carryforwards.
In addition, the Company has alternative minimum tax credit carryforwards
of approximately $1,713,000 which are available to reduce future federal regular
income taxes, if any, over an indefinite period.
(8) EMPLOYEE BENEFIT PLANS
Falconite Equipment 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, 1995,
and 1996, Falconite contributions totaled $72,000, $95,000, and $-0-,
respectively. Falconite Equipment also contributes to a union-administered
pension plan as required. Falconite Equipment's contributions to these plans for
the years ended December 31, 1994, 1995, and 1996 totaled $57,000, $71,000, and
$45,000, respectively. Falconite Equipment 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.
M&M Equipment 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, 1995, and 1996, M&M Equipment contributions
totaled $21,000, $38,000, and $60,000, respectively.
F-17
<PAGE> 67
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) RELATED PARTY TRANSACTIONS
The individual companies included in the consolidated 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 consolidated balance
sheets as of December 31, 1995 and 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................... 281,000 332,000
Due from F&F Leasing...................................... 32,000 44,000
-------- --------
$313,000 $453,000
======== ========
Due to affiliated companies and related parties:
Due to F&F Leasing........................................ $112,000 $ 42,000
Notes payable -- majority shareholder..................... 139,000 79,000
Note payable -- a shareholder............................. 110,000 --
-------- --------
$361,000 $121,000
======== ========
</TABLE>
A summary of expenses included in the consolidated statements of operations
for the years ended December 31, 1995 and 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 $200,000
Rent paid to an officer................................... 30,000 30,000
Rent paid to M&F Investments.............................. 13,000 122,000
Rent paid to the minority shareholder of M&M.............. 22,000 --
Rent paid to E&F Leasing.................................. 27,000 188,000
-------- --------
$155,000 $540,000
======== ========
Equipment rent expense paid to F&F Leasing $123,000 $149,000
======== ========
Interest expense paid to director........................... $ 19,000 $ 11,000
======== ========
Management fee paid to officers:
From M&M Equipment........................................ $ 28,000 $ 28,000
From Erzinger............................................. 31,000 36,000
-------- --------
$ 59,000 $ 64,000
======== ========
</TABLE>
Falconite Equipment and M&M Equipment lease buildings from affiliated
companies for which the companies pay monthly rental to the affiliated companies
pursuant to various lease agreements. Falconite Equipment leased its Erzinger
facility from E&F Leasing, 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 no rent expense
was incurred in August or September 1996. The ongoing agreed-upon monthly rent
will be $15,000 per month.
F-18
<PAGE> 68
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES
Department of Revenue Notifications
During 1995, Falconite Equipment 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
Equipment's rental of equipment to customers within the State of Illinois and
complexities of how use taxes should be calculated. Falconite Equipment is in
the process of challenging the asserted deficiencies.
During 1996, Falconite Equipment 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
Equipment's rental of equipment to customers within the State of Tennessee and
varying interpretations of exempted property. Falconite Equipment is in the
process of challenging the asserted deficiencies.
Management, after consultation with counsel, believes the ultimate outcome
of the alleged deficiencies will not result in a material impact on Falconite
Equipment's consolidated results of operations or financial position. Accrued
expenses have been recorded for management's best estimate of the probable loss.
Government and Environmental Regulations
Falconite 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. In addition, Falconite dispenses petroleum
products from above-ground storage tanks located at certain rental locations
that it owns or leases. Falconite 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.
Falconite also uses hazardous materials such as solvents to clean and maintain
its rental equipment fleet. In addition, Falconite 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. While there can be no
assurance that the Company's operations have been operated in compliance with
governmental regulations, in the opinion of management, the ultimate disposition
of any matters, that may arise, will not have a material adverse effect on
Falconite's consolidated financial position or its ongoing results of
operations.
Legal Proceedings
Falconite 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
Falconite's consolidated financial position, results of operations, or
liquidity.
Guarantees
As of December 31, 1996, Falconite Equipment has issued guarantees
aggregating approximately $622,000 on borrowings by certain personal investments
of its shareholders. The guarantees are secured by the various assets of
Falconite Equipment. Management believes Falconite Equipment will not be
required to
F-19
<PAGE> 69
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
make payments under its guarantees and, accordingly, no amounts have been
accrued for Falconite Equipment's potential obligation under these guaranty
arrangements.
Commitments for Capital Expenditures
Falconite has outstanding firm commitments for capital expenditures of
approximately $11,600,000 at December 31, 1996. The commitments relate to the
purchasing of additional rental equipment and the replacement of older lease
fleet assets. In addition, Falconite 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 December 31, 1996.
Workers' Compensation
Falconite is fully insured, subject to varying deductibles, for workers'
compensation claims in substantially all states in which it operates. In the
remaining states, Falconite provides for workers' compensation claims through
incurred loss retrospective policies. Management believes any potential
liability for estimated claims, including the effect of any retroactive premium
adjustments, is immaterial.
(11) BUSINESS AND CREDIT CONCENTRATIONS
Falconite'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. Management 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, Falconite'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 Falconite under
its variable rate credit facilities.
Most of Falconite's customers are located in a four-state area: Kentucky,
Tennessee, Alabama, and Missouri. No single customer accounted for more than
2.0% of Falconite's consolidated sales in 1994, 1995, and 1996, and no trade
account receivable from any customer exceeded $240,000 at December 31, 1996.
Falconite 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 management's
estimate of its bad debts.
(12) STOCK COMPENSATION PLAN
Long Term Incentive Plan
In December 1996, the Board of Directors (the Board) and shareholders of
the Company approved the Falconite, Inc. Long Term Incentive Plan, which was
subsequently amended and restated (the Plan). The Plan is administered by the
Board or a committee appointed by the Board (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 Falconite (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 1,300,000 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 under
the Plan.
Stock Options granted under the Plan shall entitle the holder thereof to
purchase shares of Falconite's common stock at the base price established
therefor by the Committee. The Plan provides for the granting of
F-20
<PAGE> 70
FALCONITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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) of the common
stock at the time of the grant.
In the event of a "Change of Control" (as defined in the Plan), the
following shall occur, unless the Board 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.
Directors Stock Option Plan
In December 1996, the Board and shareholders of the Company approved the
Falconite, Inc. Directors' Stock Option Plan (the Directors' Plan). The
Directors' Plan is also administered by the Committee as defined above and
provides that non-employee directors of Falconite will receive options to
purchase 5,000 shares of the Company's 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. As of December 31, 1996, no options were outstanding under
the Directors' Plan.
(13) SUBSEQUENT EVENTS
Falconite is in the process of filing an initial public offering for the
issuance of shares of its common stock. This offering is expected to be
completed during the first or second quarter of 1997. In connection with the
common stock offering, the Company intends to use the net proceeds to reduce
outstanding bank borrowings.
Effective February 21, 1997 the Company's issued and outstanding common
stock was reverse split. Prior to the reverse split, 16,633,430 shares of common
stock were issued and outstanding and subsequent to the reverse split 8,330,000
shares were issued and outstanding as retroactively reflected in the December
31, 1996 balance sheet.
F-21
<PAGE> 71
======================================================
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 Consolidated 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 Consolidated 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
FALCONITE LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY
, 1997
======================================================
<PAGE> 72
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 amounts are estimates
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.......................................... 50,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 500,000
Printing and engraving...................................... 150,000
Transfer agent fees and expenses............................ 5,000
Miscellaneous............................................... 54,937
--------
Total............................................. $950,000
========
</TABLE>
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> 73
Section 8 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 three
years in the period ended December 31, 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> 74
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Paducah, State of Kentucky, February 27, 1997.
FALCONITE, INC.
By: /s/ MICHAEL A. FALCONITE
----------------------------------
Michael A. Falconite, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the 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 February 27, 1997
- ----------------------------------------------------- Officer and Director
Michael A. Falconite
Principal Executive Officer
/s/ KEVIN S. PUGH Vice President, Chief February 27, 1997
- ----------------------------------------------------- Financial Officer and
Kevin S. Pugh Director
Principal Financial and Accounting Officer
* Chairman of the Board February 27, 1997
- -----------------------------------------------------
Joseph A. Falconite
* Director February 27, 1997
- -----------------------------------------------------
Ralph W. McCurry
* Director February 27, 1997
- -----------------------------------------------------
J. David Melber
</TABLE>
*By: /s/ MICHAEL A. FALCONITE
-----------------------------------
Michael A. Falconite
Michael A. Falconite, by signing his name hereto, does sign this document
on behalf of the persons named above, pursuant to a power of attorney duly
executed by such persons and previously filed.
II-3
<PAGE> 75
FALCONITE, INC.
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year............................ $ 14,000 $ 21,000 $ 20,000
Bad debt expense........................................ 120,000 323,000 891,000
Write-offs of uncollectible receivables................. (113,000) (324,000) (389,000)
--------- --------- ---------
Balance at end of year.................................. $ 21,000 $ 20,000 $ 522,000
========= ========= =========
</TABLE>
<PAGE> 76
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, L.P., 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,
L.P., 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. Amended and Restated 1997 Long Term
Incentive Plan.
10.2 -- Falconite, Inc. 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> 77
<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> 78
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<C> <S> <C>
10.31 -- Term Loan Promissory Note dated October 5, 1995 executed
by Falconite Equipment in favor of Citizens Bank & Trust
Company of Paducah.
10.32 -- Agreement dated February 9, 1997 by and between Citicorp
Del-Lease, Inc. and the Company.
10.33 -- Guaranty dated February 9, 1997 executed by the Company
in favor of Citicorp Del-Lease, Inc.
10.34 -- Guaranty dated February 9, 1997 executed by Falconite
Equipment in favor of Citicorp Del-Lease, Inc.
10.35 -- Amended and Restated Revolving Credit Note dated February
7, 1997 executed by M&M Equipment and M&F Equipment in
favor or Citicorp Del-Lease, Inc.
10.36 -- Amendment No. 5 to The Dealer Security Agreement dated
February 7, 1997 by and between Citicorp Del-Lease, Inc.,
M&M Equipment and M&F Equipment.
10.37 -- First Amendment to Security Agreement dated February 19,
1997 by Falconite Equipment in favor of Citizens Bank &
Trust Company of Paducah.
10.38 -- Third Amendment to Revolving Credit and Term Loan
Agreement dated February 19, 1997 by and between
Falconite Equipment and Citizens Bank & Trust Company of
Paducah.
10.39 -- Second Amendment to Revolving Credit Note dated February
19, 1997 by Falconite Equipment in favor of Citizens Bank
& Trust Company of Paducah.
10.40 -- Third Amendment to Term Loan Promissory Note dated
February 19, 1997 by Falconite Equipment in favor of
Citizens Bank & Trust Company of Paducah.
10.41 -- First Amendment to Swing Line Note dated February 19,
1997 by Falconite Equipment in favor of Citizens Bank &
Trust Company of Paducah.
10.42 -- Continuing Guaranty dated February 19, 1997 by the
Company in favor of Citizens Bank & Trust Company of
Paducah.
10.43 -- Fourth Amendment to Revolving Credit and Term Loan
Agreement dated February 19, 1997 by and between
Falconite Equipment and Citizens Bank & Trust Company of
Paducah.
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>
- ------------------------------
* Previously filed on January 21, 1997.
** To be filed by amendment.
<PAGE> 1
Exhibit 1.1
Shares
FALCONITE, INC.
Common Stock
UNDERWRITING AGREEMENT
_____________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY, L.L.C.
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Falconite, Inc., an Illinois corporation (THE "COMPANY"),
proposes to issue and sell ________ shares of Common Stock, $.01 par value per
share, of the Company (THE "FIRM SHARES"), to the several underwriters named in
Schedule I hereto (THE "UNDERWRITERS"). In addition, the stockholders of the
Company named in Schedule II hereto (COLLECTIVELY, THE "SELLING STOCKHOLDERS"),
propose to sell to the several Underwriters not more than __________ additional
shares of Common Stock, $.01 par value per share, of the Company (THE
"ADDITIONAL SHARES"), if requested by the Underwriters as provided in Section 2
hereof. The Firm Shares and the Additional Shares are hereinafter referred to
collectively as the "SHARES". The shares of common stock of the Company to be
outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the "COMMON STOCK". The Company and the Selling
Stockholders are hereinafter collectively called the "SELLERS".
<PAGE> 2
SECTION 1. Registration Statement and Prospectus. The
Company has prepared and filed with the Securities and Exchange Commission (THE
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(COLLECTIVELY, THE "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to
Rule 430A under the Act, is hereinafter referred to as the "REGISTRATION
STATEMENT", and the prospectus in the form first used to confirm sales of
Shares is hereinafter referred to as the "PROSPECTUS". If the Company has
filed or is required pursuant to the terms hereof to file a registration
statement pursuant to Rule 462(b) under the Act registering additional shares
of Common Stock (A "RULE 462(B) REGISTRATION STATEMENT"), then, unless
otherwise specified, any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up
Agreements. On the basis of the representations and warranties contained in
this Agreement, and subject to its terms and conditions, the Company agrees to
issue and sell, and each Underwriter agrees, severally and not jointly, to
purchase from the Company at a price per Share of $_______ (THE "PURCHASE
PRICE") the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Selling
Stockholders agree to sell the Additional Shares and the Underwriters shall
have the right to purchase, severally and not jointly, up to 700,500
Additional Shares from the Selling Stockholders at the Purchase Price.
Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
Underwriters may exercise their right to purchase Additional Shares in whole or
in part from time to time by giving written notice thereof to the Selling
Stockholders, care of the Company, within 30 days after the date of this
Agreement. You shall give any such notice on behalf of the Underwriters and
such notice shall specify the aggregate number of Additional Shares to be
purchased pursuant to such exercise and the date for payment and delivery
thereof, which date shall be a business day (i) no earlier than two business
days after such notice has been given (and, in any event, no earlier than the
Closing Date (as hereinafter defined)) and (ii) no later than ten business days
after such notice has been given. If any Additional Shares are to be
purchased, each Underwriter, severally and not jointly, agrees to purchase from
the Selling Stockholders the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears
the same proportion to the total number of Additional Shares to be purchased
from the Selling Stockholders as the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I bears to the total number of Firm
Shares.
2
<PAGE> 3
The Company hereby agrees not to register for sale or offer,
sell, pledge, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of 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 any Common Stock (regardless of whether any of
the foregoing actions is to be settled by the delivery of Common Stock, or such
other securities, in cash or otherwise), except to the Underwriters pursuant to
this Agreement, for a period of 180 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall, concurrently with the execution of this
Agreement, deliver an agreement executed by (i) each of the directors and
officers of the Company and (ii) each stockholder listed on Annex I hereto to
the effect that such person will not engage in any of the foregoing
transactions with respect to any Common Stock or any securities convertible
into or exchangeable for Common Stock, in each case, beneficially owned by such
person during such period. Notwithstanding the foregoing, during such period
(i) the Company may grant stock options pursuant to the Company's existing
stock option plan and (ii) the Company may issue shares of Common Stock upon
the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof.
SECTION 3. Terms of Public Offering. The Sellers are
advised by you that the Underwriters propose (i) to make a public offering of
their respective portions of the Shares as soon after the execution and
delivery of this Agreement as in your judgment is advisable and (ii) initially
to offer the Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at 9:00 A.M.,
Chicago time, on ____________, 1997 (THE "CLOSING DATE") at such place as you
shall designate. The Closing Date and the location of delivery of and the
form of payment for the Firm Shares may be varied by agreement between you and
the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at such place as you
shall designate at 9:00 A.M., Chicago time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (AN "OPTION
CLOSING DATE"). Any such Option Closing Date and the location of delivery of
and the form of payment for such Additional Shares may be varied by agreement
between you and the Selling Stockholders.
Certificates for the Shares shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date or an Option Closing Date, as
the case may be. Such certificates shall be made available to you for
inspection not later than 8:30 A.M., Chicago time, on the business day next
preceding the Closing Date or the applicable Option Closing Date, as the case
may be. Certificates in definitive form evidencing the Shares shall be
delivered to you on the Closing Date or the applicable Option Closing Date, as
the case may be, with any transfer
3
<PAGE> 4
taxes thereon duly paid by the respective Sellers, for the respective accounts
of the several Underwriters, against payment to the order of the applicable
Sellers of the Purchase Price therefor by wire transfer of Federal or other
funds immediately available in New York City.
SECTION 5. Agreements of the Company. The Company agrees
with you:
(a) To advise you promptly and, if requested by you,
to confirm such advice in writing, (i) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to the
Prospectus or for additional information, (ii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for offering or
sale in any jurisdiction, or the initiation of any proceeding for such
purposes, (iii) when any amendment to the Registration Statement becomes
effective, (iv) if the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, when the Rule 462(b)
Registration Statement has become effective and (v) of the happening of any
event during the period referred to in paragraph (d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires the making of any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the Company
will use its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
(b) To furnish to you, without charge, three (3)
signed copies of the Registration Statement as first filed with the Commission
and of each amendment to it, including all exhibits, and to furnish to you and
each Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(c) To prepare the Prospectus in a form approved by
you and to file the Prospectus in such form with the Commission within the
applicable period specified in Rule 424(b) under the Act; not to file any
further amendment to the Registration Statement and not to make any amendment
or supplement to the Prospectus of which you shall not previously have been
advised or to which you shall reasonably object after being so advised; and to
prepare and file with the Commission, promptly upon your reasonable request,
any amendment to the Registration Statement or supplement to the Prospectus
which may be necessary or advisable in connection with the distribution of the
Shares by you, and to use its best efforts to cause any such amendment to the
Registration Statement to become promptly effective.
(d) Prior to 9:00 A.M., Chicago time, on the
business day next succeeding the date of this Agreement, and from time to time
thereafter for such period as in the opinion of counsel for the Underwriters a
prospectus is required by law to be delivered in connection with sales by an
Underwriter or a dealer, to furnish in New York City to each
4
<PAGE> 5
Underwriter and dealer as many copies of the Prospectus (and of any amendment
or supplement to the Prospectus) as such Underwriter or dealer may reasonably
request.
(e) If during the period specified in paragraph (d),
any event shall occur as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with applicable law,
forthwith to prepare and file with the Commission an appropriate amendment or
supplement to the Prospectus so that the statements in the Prospectus, as so
amended or supplemented, will not in the light of the circumstances when it is
so delivered, be misleading, or so that the Prospectus will comply with law,
and to furnish to each Underwriter and to such dealers as you shall specify,
such number of copies thereof as such Underwriter or dealers may reasonably
request.
(f) Prior to any public offering of the Shares, to
cooperate with you and counsel for the Underwriters in connection with the
registration or qualification of the Shares for offer and sale by the several
Underwriters and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, to continue such qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification.
(g) To mail and make generally available to its
stockholders as soon as practicable an earnings statement covering a period of
at least twelve months after the effective date of the Registration Statement
(but in no event commencing later than 90 days after such date) which shall
satisfy the provisions of Section 11(a) of the Act, and to advise you in
writing when such statement has been so made available.
(h) During the period of three years after the date
of this Agreement, to furnish to you as soon as available copies of all reports
or other communications furnished to the record holders of Common Stock or
filed with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, to pay or cause
to be paid all expenses incident to the performance of its obligations under
this Agreement, including (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Act and all other fees or
expenses in connection with the preparation, printing, filing and distribution
of the Registration Statement (including financial statements and exhibits),
any preliminary prospectus, the Prospectus and all amendments and supplements
to any of the foregoing prior to or during the period specified in paragraph
(d), including the mailing and delivering of
5
<PAGE> 6
copies thereof to the Underwriters and dealers in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) all costs of printing or producing this Agreement and any other
documents in connection with the offering, purchase, sale or delivery of the
Shares, (iv) all expenses in connection with the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of the
several states and the cost of printing or producing any Preliminary and
Supplemental Blue Sky Memoranda in connection therewith (including the filing
fees and fees and disbursements of counsel for the Underwriters in connection
with such registration or qualification and memoranda relating thereto), (v)
the filing fees and disbursements of counsel for the Underwriters in connection
with the review and clearance of the offering of the Shares by the National
Association of Securities Dealers, Inc., (vi) all fees and expenses in
connection with the preparation and filing of the registration statement on
Form 8-A relating to the Common Stock and all costs and expenses incident to
the listing of the Shares on the Nasdaq National Market, (vii) the cost of
printing certificates representing the Shares, (viii) the costs and charges of
any transfer agent, registrar or depositary and (ix) all other costs and
expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section.
(j) To use its best efforts to list for quotation
the Shares on the Nasdaq National Market and to maintain the listing of the
Shares on the Nasdaq National Market for a period of three years after the date
of this Agreement.
(k) To use its best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by
the Company prior to the Closing Date or any Option Closing Date, as the case
may be, and to satisfy all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Shares, to file a
Rule 462(b) Registration Statement with the Commission registering the Shares
not so covered in compliance with Rule 462(b) by 9:00 P.M., Chicago time, on
the date of this Agreement and to pay to the Commission the filing fee for such
Rule 462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
SECTION 6. Representations and Warranties of the Company.
The Company represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective
(other than any Rule 462(b) Registration Statement to be filed by the Company
after the effectiveness of this Agreement); any Rule 462(b) Registration
Statement filed after the effectiveness of this Agreement will become effective
no later than 9:00 P.M., New York City time, on the date of this Agreement; no
stop order suspending the effectiveness of the Registration Statement is
6
<PAGE> 7
in effect, and no proceedings for such purpose are pending before or threatened
by the Commission.
(b) (i) The Registration Statement (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement), when it became effective, did not contain
and, as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement (other than any Rule 462(b) Registration Statement
to be filed by the Company after the effectiveness of this Agreement) and the
Prospectus comply and, as amended or supplemented, if applicable, will comply
in all material respects with the Act, (iii) if the Company is required to file
a Rule 462(b) Registration Statement after the effectiveness of this Agreement,
such Rule 462(b) Registration Statement and any amendments or supplements
thereto when they become effective (1) will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (2) will comply
in all material respects with the Act and (iv) the Prospectus does not contain
and, as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the Act, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph (c) do not apply to statements or
omissions in any preliminary prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(d) Each of the Company and its subsidiaries has
been duly incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and to
own, lease and operate its properties, and each is duly qualified and is in
good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
7
<PAGE> 8
(e) There are no outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of sale or liens
granted or issued by the Company or any of its subsidiaries related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of the Company or any of its subsidiaries except as otherwise
disclosed in the Registration Statement.
(f) All the outstanding shares of capital stock of
the Company (including the Shares to be sold by the Selling Stockholders) have
been duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights; and the Shares to be issued
and sold by the Company hereunder have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.
(g) All of the outstanding shares of capital stock
of, or other ownership interests in, each of the Company's subsidiaries have
been duly authorized and validly issued and are fully paid and non-assessable,
and are owned by the Company, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company
conforms to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries
is in violation of its respective charter or by-laws or in default in the
performance of any obligation, agreement, covenant or condition contained in
any indenture, loan agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which it or any
of its subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this
Agreement by the Company, compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby will not
require any consent, approval, authorization or other order of, or
qualification with, any court or other governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or any
of its subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which it or any of its subsidiaries is a party or by which
it or any of its subsidiaries or their respective property is bound, or violate
or conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property.
8
<PAGE> 9
(k) There are no legal or governmental proceedings
pending or threatened to which the Company or any of its subsidiaries is a
party or to which any of their respective property is subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(l) Neither the Company nor any of its subsidiaries
has violated any foreign, federal, state or local law or regulation relating to
the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS")
or any provisions of the Employee Retirement Income Security Act or the rules
and regulations promulgated thereunder, except for such violations which,
singly or in the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of the Company
and its subsidiaries, taken as a whole.
(m) Each of the Company and its subsidiaries has
such permits, licenses, franchises and authorizations of governmental or
regulatory authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate its
respective properties and to conduct its business and are in compliance with
all terms and conditions thereof; and no event has occurred which allows or,
after notice or lapse of time or both, would allow revocation or termination of
such permits or results or, after notice or lapse of time or both, would result
in any other impairment of the rights of the holder of any such permit; and
such permits contain no restrictions that are burdensome to the Company or any
of its subsidiaries; except where such failure to have, or comply with the
terms or conditions of, such permits, the occurrence of any such event or the
presence of any such restriction would not, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated
with Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized,
executed and delivered by the Company.
(p) Except as otherwise set forth in the Prospectus
or such as are not material to the business, prospects, financial condition or
results of operation of the
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<PAGE> 10
Company and its subsidiaries, taken as a whole, the Company and each of its
subsidiaries has good and marketable title, free and clear of all liens,
claims, encumbrances and restrictions except liens for taxes not yet due and
payable, to all property and assets described in the Registration Statement as
being owned by it. All leases to which the Company or any of its subsidiaries
is a party are valid and binding and no default has occurred or is continuing
thereunder, which might result in any material adverse effect on the business,
prospects, financial condition or results of operation of the Company and its
subsidiaries, taken as a whole, and the Company and its subsidiaries enjoy
peaceful and undisturbed possession under all such leases to which any of them
is a party as lessee with such exceptions as do not materially interfere with
the use made by the Company or such subsidiary.
(q) The Company and its subsidiaries have and will
maintain insurance covering their properties, operations, personnel and
businesses, which insurance is in amounts and insures against such losses and
risks, in each case as is reasonable and in accordance with customary industry
practice to protect the Company, its subsidiaries and their businesses.
Neither the Company nor any of its subsidiaries has received notice from any
insurer or agent of such insurer that capital improvements or other
expenditures will have to be made in order to continue such insurance, except
such as could not reasonably be expected, singularly or in the aggregate, to
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(r) KPMG Peat Marwick LLP are independent public
accountants with respect to the Company as required by the Act.
(s) The financial statements, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) is, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books and
records of the Company.
(t) The Company is not and, after giving effect to
the offering and sale of the Shares and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(u) Except as disclosed in the Prospectus, there are
no contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to
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<PAGE> 11
any securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration Statement.
(v) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(w) The Company has filed a registration statement
pursuant to Section 12(g) of the Exchange Act, to register the Common Stock,
has filed an application to list the Shares on the Nasdaq National Market, and
has received notification that the listing has been approved, subject to notice
of issuance.
(x) Except as disclosed in the Prospectus, there are
no business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
(y) There is (i) no significant unfair labor
practice complaint pending against the Company or any of its subsidiaries or,
to the best knowledge of the Company, threatened against any of them, before
the National Labor Relations Board or any state or local labor relations board,
and no significant grievance or more significant arbitration proceeding arising
out of or under any collective bargaining agreement is so pending against the
Company or any of its subsidiaries or, to the best knowledge of the Company,
threatened against any of them, and (ii) no significant strike, labor dispute,
slowdown or stoppage pending against the Company or any of its subsidiaries or,
to the best knowledge of the Company, threatened against it or any of its
subsidiaries except for such actions specified in clause (i) or (ii) above,
which, singly or in the aggregate could not reasonably be expected to have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(z) The Company and each of its subsidiaries
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The statistical
and market-related data included in the Prospectus are based on or derived from
sources which the Company believes to be reliable and accurate in all material
respects.
(aa) All material tax returns required to be filed
by the Company and each of its subsidiaries in any jurisdiction have been
filed,other than those filings being contested in good faith, and all material
taxes, including withholding taxes, penalties and interest, assessments, fees
and other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other than
those being contested in good faith and for which adequate reserves have been
provided.
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<PAGE> 12
(ab) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change, in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, (ii) there has not been any material
adverse change or any development involving a prospective material adverse
change in the capital stock or in the long-term debt of the Company or any of
its subsidiaries and (iii) neither the Company nor any of its subsidiaries has
incurred any material liability or obligation, direct or contingent.
(ac) The Company or its subsidiaries own or have the
legal or contractual right to use the patents, trade names, trademarks, service
marks, copyrights, trade secrets and other proprietary rights which are
material to the conduct of the business of the Company and its subsidiaries,
taken as a whole. Neither the Company nor any of its subsidiaries has received
notice of any claim being asserted by any person to the use of, or the right to
use, any such patents, trade names, trademarks, service marks, copyrights,
trade secrets or other proprietary rights and to the best knowledge of the
Company there is no valid basis for any such claim. Neither the Company nor
any of its subsidiaries has received notice of any person challenging or
questioning the validity or effectiveness of any such patents, trade names,
trademarks, service marks, copyrights, trade secrets or other proprietary
rights.
(ad) The Company, and each of its subsidiaries has
conducted and is conducting its business in compliance with all applicable
federal, state, local and foreign statutes, laws, rules, regulations,
ordinances, codes, decisions, decrees, directives and orders, except where the
failure to do so would not be reasonably likely, singly or in the aggregate, to
have a material adverse effect on the business, prospects, financial condition
or results of operations of the Company and its subsidiaries considered as a
whole.
(ae) All offers and sales of capital stock of the
Company prior to the date hereof were at all relevant times duly registered or
exempt from the registration requirements of the Act and were duly registered
or subject to an available exemption from the registration requirements of the
applicable state securities or Blue Sky laws.
(af) Except as disclosed in or contemplated by the
Prospectus, the Company is not engaged in any discussions or negotiations
concerning, and is not a party to any existing agreements, arrangements or
understandings with respect to, any acquisitions, combinations or dispositions.
SECTION 7. Representations and Warranties of the Selling
Stockholders. Each Selling Stockholder severally represents and warrants to
each Underwriter that:
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<PAGE> 13
(a) Such Selling Stockholder is the lawful owner of
the Shares to be sold by such Selling Stockholder pursuant to this Agreement
and has, and on the Closing Date (and Option Closing Date, if applicable) will
have, good and clear title to such Shares, free of all restrictions on
transfer, liens, encumbrances, security interests and claims whatsoever.
(b) Upon delivery of and payment for such Shares
pursuant to this Agreement, good and clear title to such Shares will pass to
the Underwriters, free of all restrictions on transfer, liens, encumbrances,
security interests and claims whatsoever.
(c) Such Selling Stockholder has, and on the Closing
Date will have, full legal right, power and authority to enter into this
Agreement and the Custody Agreement between the Selling Stockholders and
______________, as Custodian (the "Custody Agreement") and to sell, assign,
transfer and deliver such Shares in the manner provided herein and therein, and
this Agreement and the Custody Agreement have been duly authorized, executed
and delivered by such Selling Stockholder and each of this Agreement and the
Custody Agreement is a valid and binding agreement of such Selling Stockholder
enforceable in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable law.
(d) The power of attorney signed by such Selling
Stockholder appointing ______________ and ______________, or either one of
them, as his attorney-in-fact to the extent set forth therein with regard to
the transactions contemplated hereby and by the Registration Statement and the
Custody Agreement has been duly authorized, executed and delivered by or on
behalf of such Selling Stockholder and is a valid and binding instrument of
such Selling Stockholder enforceable in accordance with its terms, and,
pursuant to such power of attorney, such Selling Stockholder has authorized
______________ and ______________, or either one of them, to execute and
deliver on his behalf this Agreement and any other document necessary or
desirable in connection with transactions contemplated hereby and to deliver
the Shares to be sold by such Selling Stockholder pursuant to this Agreement.
(e) Such Selling Stockholder has not taken, and will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of
the Shares pursuant to the distribution contemplated by this Agreement, and
other than as permitted by the Act, the Selling Stockholder has not distributed
and will not distribute any prospectus or other offering material in connection
with the offering and sale of the Shares.
(f) The execution, delivery and performance of this
Agreement by such Selling Stockholder, compliance by such Selling Stockholder
with all the provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body (except as such may be required under the Act, state
securities
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<PAGE> 14
laws or Blue Sky laws) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, organizational documents of
such Selling Stockholder, if not an individual, or any agreement, indenture or
other instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder or property of such Selling Stockholder is bound, or
violate or conflict with any laws, administrative regulation or ruling or court
decree applicable to such Selling Stockholder or property of such Selling
Stockholder.
(g) Such parts of the Registration Statement under
the caption "Principal Stockholders" which specifically relate to such Selling
Stockholder do not, and will not on the Closing Date (and any Option Closing
Date, if applicable), contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of circumstances under which they were made,
not misleading.
(h) At any time during the period described in
Section 5(e) hereof, if there is any change in the information referred to in
Section 7(g) above, the Selling Stockholders will immediately notify you of
such change.
(i) Such Selling Stockholder is not prompted to sell
the Shares to be sold by such Selling Stockholder pursuant to this Agreement
by any information concerning the Company or any of its subsidiaries that is
not set forth in the Prospectus or other documents filed with the Commission.
(j) The representations and warranties of such
Selling Stockholder in the Custody Agreement are, and on the Closing Date will
be, true and correct.
(k) Such Selling Stockholder does not have any
knowledge or any reason to believe that the Registration Statement or the
Prospectus (or any amendment or supplement thereto) contains any untrue
statement of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 8. Indemnification. (a) The Company and each
Selling Stockholder, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages, liabilities and
judgments caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or 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,
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<PAGE> 15
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriter furnished in
writing to the Company by or on behalf of such Underwriter through you
expressly for use therein; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages and liabilities and judgments purchased Shares, or any director
or officer of, or person controlling, such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended and supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or judgment.
(b) In case any proceeding (including any
governmental investigation) shall be brought against any Underwriter or any
director or officer of, or person controlling, such Underwriter, based upon any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto and with respect to which indemnity may be
sought against the Sellers, such Underwriter shall promptly notify the Sellers
in writing and the Sellers shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses, as incurred. Any Underwriter or any director
or officer of, or person controlling, such Underwriter shall have the right to
employ separate counsel in any such proceeding and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter, director, officer or controlling person unless (i) the
employment of such counsel shall have been specifically authorized in writing
by the Company, (ii) the Sellers shall have failed to assume the defense and
employ counsel or (iii) the named parties to any such proceeding (including any
impleaded parties) include both such Underwriter, director, officer or
controlling person and the Company or any Selling Stockholder, as the case may
be, and such Underwriter, director, officer or controlling person shall have
been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
the Company or the Selling Stockholders, as the case may be, (in which case the
Sellers shall not have the right to assume the defense of such proceeding on
behalf of such Underwriter, director, officer or controlling person). In any
such case described in the immediately preceding sentence, the Sellers shall
not, in connection with any one proceeding or separate but substantially
similar or related proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all such Underwriters, directors, officers and controlling persons. In any
case where any Underwriter or any director or officer of, or person
controlling, such Underwriter has the right to employ separate counsel at the
Company's expense, such counsel shall be designated in writing by Donaldson,
Lufkin & Jenrette Securities Corporation and the fees and expenses of such
counsel shall be reimbursed as they are incurred. The Sellers agree to
indemnify and hold harmless any Underwriter
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<PAGE> 16
and any director or officer of, or person controlling, such Underwriter from
and against any loss or liability by reason of any proceeding (x) settled with
the written consent of the Company or (y) settled more than ten business days
after the Sellers receive a request for reimbursement of legal fees and
expenses from such Underwriter, director, officer or controlling person in any
case where such fees and expenses are at the expense of the Company if the
Company shall have failed to comply with such reimbursement request prior to
the date of such settlement. The Sellers shall not, without the prior written
consent of each Underwriter and each person controlling such Underwriter,
effect any settlement of any pending or threatened proceeding in respect of
which such Underwriter or controlling person or any director or officer of such
Underwriter is or could have been a party and indemnity could have been sought
hereunder by such Underwriter, director, officer or controlling person, unless
such settlement includes an unconditional release of such Underwriter and each
such director, officer and controlling person from all liability on claims that
are the subject matter of such proceeding.
(c) Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement, any person controlling the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each Selling Stockholder and each person, if any, controlling
such Selling Stockholder within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, to the same extent as the foregoing indemnity from the
Sellers to each Underwriter but only with reference to information relating to
such Underwriter furnished in writing by or on behalf of such Underwriter
through you expressly for use in the Registration Statement, the Prospectus or
any preliminary prospectus. In case any proceeding shall be brought against
the Company, any of its directors, any such officer or any person controlling
the Company or any Selling Stockholder or any person controlling such Selling
Stockholder based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought against
any Underwriter, such Underwriter shall have the rights and duties given to the
Sellers (except that if any Seller shall have assumed the defense thereof, such
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof but the fees and expenses of
such counsel shall be at the expense of such Underwriter), and the Company, its
directors, any such officers and any person controlling the Company and the
Selling Stockholders and any person controlling such Selling Stockholders shall
have the rights and duties given to such Underwriter, by Section 8(b) hereof
(except that if the Company, any of its directors, any such officers or any
such controlling person shall have the right to employ separate counsel at such
Underwriter's expense pursuant to the second sentence of Section 8(b), such
counsel shall be designated by the Company).
(d) To the extent the indemnification provided for
in this Section 8 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages, liabilities or judgments referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and judgments (i) in
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<PAGE> 17
such proportion as is appropriate to reflect the relative benefits received by
the Sellers on the one hand and the Underwriters on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Sellers and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers and the
Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Sellers,
and the total underwriting discounts and commissions received by the
Underwriters, bear to the total price to the public of the Shares, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Sellers and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Company, the Selling Stockholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 8(d) are several in proportion to the
respective number of Shares purchased by each of the Underwriters hereunder and
not joint.
(e) The remedies provided for in this Section 8 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) Each Seller hereby designates Falconite, Inc.,
2525 Wayne Sullivan Drive, Paducah, Kentucky 42002, as its authorized agent,
upon which process may be served in any action, suit or proceeding which may be
instituted in any state or federal court in the State of New York by any
Underwriter or person controlling an Underwriter asserting a
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<PAGE> 18
claim for indemnification or contribution under or pursuant to this Section 8,
and each Seller will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall
be sent or given to such Seller, at the address for notices specified in
Section 13 hereof.
SECTION 9. Conditions of Underwriters' Obligation. The
several obligations of the Underwriters to purchase the Firm Shares under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the
Company contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such Rule
462(b) Registration Statement shall have become effective by 9:00 P.M. Chicago
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) On or after the date hereof there shall not have
occurred any downgrading, nor shall any notice have been given of any intended
or potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded any of
the Company's securities (including, without limitation, the placing of any
securities on negative or developing watch or negative or developing outlook)
by any "nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Act.
(d) You shall have received, on the Closing Date, a
certificate dated the Closing Date, signed by Michael A. Falconite and Kevin
S. Pugh, in their respective capacities as President, Chief Executive Officer
and Director and Vice President, Chief Financial Officer, Secretary and
Director of the Company, confirming the matters set forth in paragraphs (a),
(b), and (c) of this Section 9.
(e) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken
as a whole, (ii) there shall not have been any change or any development
involving a prospective change in the capital stock or in the long-term debt of
the Company or any of its subsidiaries and (iii) neither the Company nor any of
its subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause (i), (ii)
or (iii), in your judgment, is material and adverse and, in your judgment,
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<PAGE> 19
makes it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(f) All the representations and warranties of the
Selling Stockholders contained in this Agreement shall be true and correct on
the Closing Date with the same force and effect as if made on and as of the
Closing Date and you shall have received a certificate to such effect, dated
the Closing Date, from each Selling Stockholder.
(g) You shall have received on the Closing Date an
opinion (satisfactory to you and counsel for the Underwriters), dated the
Closing Date, of Thompson Coburn, counsel for the Company and the Selling
Stockholders, to the effect that:
(i) each of the Company and its subsidiaries
has been duly incorporated, is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation and
has the corporate power and authority to carry on its business as
described in the Prospectus and to own, lease and operate its
properties;
(ii) each of the Company and its
subsidiaries is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole;
(iii) all the outstanding shares of
capital stock (including the Shares to be sold by the Selling
Stockholders) have been duly authorized and validly issued and are
fully paid, non-assessable and not subject to any preemptive or
similar rights;
(iv) the Shares have been duly
authorized, and when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, the Shares to be
issued and sold by the Company hereunder, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares is not
subject to any preemptive or similar rights;
(v) all of the outstanding shares of
capital stock of, or other ownership interests in, each of the
Company's subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company,
free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature;
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<PAGE> 20
(vi) this Agreement has been duly
authorized, executed and delivered by the Company and each of the
Selling Stockholders and is a valid and binding agreement of the
Company and each Selling Stockholder enforceable in accordance with
its terms (except as rights to indemnity and contribution hereunder
may be limited by applicable law);
(vii) the authorized capital stock of the
Company conforms as to legal matters to the description thereof
contained in the Prospectus;
(viii) the Registration Statement has
become effective under the Act, no stop order suspending its
effectiveness has been issued and no proceedings for that purpose are,
to the best of such counsel's knowledge after due inquiry, pending
before or contemplated by the Commission;
(ix) the statements under the captions
"Risk Factors -- Anti-Takeover Provisions", "Risk Factors -- Shares
Eligible for Future Sale; Registration Rights", "Management --
Limitations on Liability", "-- Long Term Incentive Plan", "Principal
Shareholders", "Certain Transactions", "Description of Capital Stock",
"Shares Eligible For Future Sale" and "Underwriting" in the Prospectus
and Items 14 and 15 of Part II of the Registration Statement, insofar
as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents
and proceedings;
(x) neither the Company nor any of its
subsidiaries is in violation of its respective charter or by-laws and,
to the best of such counsel's knowledge after due inquiry, neither the
Company nor any of its subsidiaries is in default in the performance
of any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or
instrument material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or
by which it or any of its subsidiaries or their respective property is
bound;
(xi) the execution, delivery and
performance of this Agreement by the Company and each Selling
Stockholder, compliance by the Company and each Selling Stockholder
with all the provisions hereof and the consummation of the
transactions contemplated hereby will not require any consent,
approval, authorization or other order of, or qualification with, any
court or other governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms
or provisions of, or a default under, the charter or by-laws of the
Company or any of its subsidiaries or the organizational documents of
any Selling Stockholder that is not an
20
<PAGE> 21
individual or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which it or any of its subsidiaries
or any Selling Stockholder is a party or by which it or any of its
subsidiaries or any Selling Stockholder or their respective property
is bound, or violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any other
governmental body or agency having jurisdiction over the Company, any
of its subsidiaries or any Selling Stockholder or their respective
property;
(xii) after due inquiry, such counsel does
not know of any legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of their respective property is subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described, or of any statutes, regulations,
contracts or other document that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;
(xiii) to the best of such counsel's
knowledge, after due inquiry, neither the Company nor any of its
subsidiaries has violated any Environmental Law or any provisions of
the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, except such violations which,
singly or in the aggregate, would not have a material adverse effect
on the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole;
(xiv) each of the Company and its
subsidiaries has such permits, licenses, franchises and authorizations
of governmental or regulatory authorities ("permits"), including,
without limitation, under any applicable Environmental Laws, as are
necessary to own, lease and operate its respective properties and to
conduct its business and, to the best of such counsel's knowledge,
after due inquiry, are in compliance with all terms and conditions
thereof; and no event has occurred which allows or, after notice or
lapse of time or both, would allow, revocation or termination of such
permits or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
permit; and such permits contain no restrictions that are burdensome
to the Company or any of its subsidiaries; except where such failure
to have, or comply with the terms or conditions of, such permits, the
occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a material adverse effect
on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole;
21
<PAGE> 22
(xv) the Company is not and, after giving
effect to the offering and sale of the Shares and the application of
the proceeds thereof as described in the Prospectus, will not be, an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended;
(xvi) to the best of such counsel's
knowledge after due inquiry, except as disclosed in the Prospectus,
there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to
any securities of the Company or to require the Company to include
such securities with the Shares registered pursuant to the
Registration Statement;
(xvii) (A) the Registration Statement and
the Prospectus and any supplement or amendment thereto (except for the
financial statements and other financial and statistical data included
therein, as to which no opinion need be expressed) comply as to form
in all material respects with the Act, (B) such counsel has no reason
to believe that (except for the financial statements and other
financial and statistical data as to which such counsel need not
express any belief) at the time the Registration Statement became
effective and on the date of this Agreement, the Registration
Statement and the prospectus included therein contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (C) such counsel has no reason to believe
that the Prospectus, as amended or supplemented, if applicable (except
for the financial statements and other financial and statistical data,
as aforesaid) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(xviii) the Custody Agreement has been duly
authorized, executed and delivered by each Selling Stockholder and is
a valid and binding agreement of such Selling Stockholder enforceable
in accordance with its terms;
(xix) each Selling Stockholder has full
legal right, power and authority, and any approval required by law
(other than any approval imposed by the applicable state securities
and Blue Sky laws) to sell, assign, transfer and deliver the Shares to
be sold by him in the manner provided in this Agreement and the
Custody Agreement;
(xx) to the best of such counsel's
knowledge, after due inquiry, each Selling Stockholder has good and
clear title to the certificates for the Shares to be sold by him and
upon delivery thereof, pursuant hereto and
22
<PAGE> 23
payment therefor, good and clear title will pass to the Underwriters,
severally, free of all restrictions on transfer, liens, encumbrances,
security interests and claims whatsoever;
(xxi) the power of attorney signed by each
Selling Stockholder appointing ______________ and ______________, or
either of them, as his attorney-in-fact to the extent set forth
therein with regard to the transactions contemplated hereby and by the
Registration Statement has been duly authorized, executed and
delivered by or on behalf of each Selling Stockholder and are valid
and binding instruments of such Selling Stockholder enforceable in
accordance with its terms, and pursuant to such power of attorney,
each of the Selling Stockholders has authorized ______________ and
______________, or either of them, to execute and deliver on their
behalf this Agreement and any other document necessary or desirable in
connection with transactions contemplated hereby and to deliver the
Shares to be sold by them pursuant to this Agreement;
(xxii) to the best of such counsel's
knowledge, after due inquiry, except as otherwise set forth in the
Registration Statement or such as are not material to the business,
prospects, financial condition or results of operation of the Company
and its subsidiaries, taken as a whole, the Company and each of its
subsidiaries has good and marketable title, free and clear of all
liens, claims, encumbrances and restrictions except liens for taxes
not yet due and payable, to all property and assets described in the
Registration Statement as being owned by it; and
(xxiii) to the best of such counsel's
knowledge, after due inquiry, all leases to which the Company or any
of its subsidiaries is a party are valid and binding and no default
has occurred or is continuing thereunder, which might result in any
material adverse change in the business, prospects, financial
condition or results of operation of the Company and its subsidiaries
taken as a whole, and the Company and its subsidiaries enjoy peaceful
and undisturbed possession under all such leases to which any of them
is a party as lessee with such exceptions as do not materially
interfere with the use made by the Company or such subsidiary.
The opinion of Thompson Coburn described in paragraph (g)
above shall be rendered to you at the request of the Company or one or more of
the Selling Stockholders, as the case may be, and shall so state therein.
(h) You shall have received on the Closing Date an
opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel for the Underwriters, as to the matters referred to in
clauses (iv), (vi) (but only with respect to the Company), (ix) (but only with
respect to the statements under the captions "Description of
23
<PAGE> 24
Capital Stock" and "Underwriting") and (xvii) of the foregoing paragraph (g).
In giving such opinion with respect to the matters covered by clause (xvii)
such counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
(i) You shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to you, from KPMG
Peat Marwick LLP, independent public accountants, containing the information
and statements of the type ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus.
(j) The Company shall have delivered to you the
agreements specified in Section 2 hereof which agreements shall be in full
force and effect on the Closing Date.
(k) The Shares shall have been duly listed for
quotation on the Nasdaq National Market.
(l) The Company and the Selling Stockholders shall
not have failed at or prior to the Closing Date to perform or comply with any
of the agreements herein contained and required to be performed or complied
with by the Company and the Selling Stockholders at or prior to the Closing
Date.
(m) You shall have received on the Closing Date, a
certificate of each Selling Stockholder who is not a U.S. Person to the effect
that such Selling Stockholder is not a U.S. Person (as defined under applicable
U.S. federal tax legislation), which certificate may be in the form of a
properly completed and executed United States Treasury Department Form W-8 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
The several obligations of the Underwriters to purchase any
Additional Shares hereunder are subject to the delivery to you on the
applicable Option Closing Date of such documents as you may reasonably request
with respect to the good standing of the Company, title to the Additional
Shares and other matters related to the purchase of such Additional Shares.
SECTION 10. Effectiveness of Agreement and Termination.
This Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Sellers if any of the following
has occurred: (i) any outbreak or
24
<PAGE> 25
escalation of hostilities or other national or international calamity or crisis
or change in economic conditions or in the financial markets of the United
States or elsewhere that, in your judgment, is material and adverse and would,
in your judgment, make it impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus, (ii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market or limitation on prices
for securities on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in
the over-the- counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business or
operations of the Company or any of its subsidiaries, (v) the declaration of a
banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it or
they have agreed to purchase hereunder on such date and the aggregate number of
Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase on such date; provided that in no event shall the number of Firm
Shares or Additional Shares, as the case may be, which any Underwriter has
agreed to purchase pursuant to Section 2 hereof be increased pursuant to this
Section 10 by an amount in excess of one-ninth of such number of Firm Shares or
Additional Shares, as the case may be, without the written consent of such
Underwriter. If on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased by all Underwriters and
arrangements satisfactory to you and the Company for purchase of such Firm
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter and
the Sellers. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or
25
<PAGE> 26
refuse to purchase Additional Shares and the aggregate number of Additional
Shares with respect to which such default occurs is more than one- tenth of the
aggregate number of Additional Shares to be purchased on such date, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase such Additional Shares or (ii) purchase not
less than the number of Additional Shares that such non-defaulting Underwriters
would have been obligated to purchase on such date in the absence of such
default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
SECTION 11. Agreements of the Selling Stockholders. Each
Selling Stockholder severally agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes
with respect to the Shares to be sold by such Selling Stockholder; and
(b) To take all reasonable actions in cooperation
with the Company and the Underwriters to cause the Registration Statement to
become effective at the earliest possible time, to do and perform all things to
be done and performed under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares pursuant to this
Agreement.
SECTION 12. Miscellaneous. Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (a) if to the
Company, to Falconite, Inc., 2525 Wayne Sullivan Drive, Paducah, Kentucky
42002, (b) if to the Selling Stockholders, to [NAME OF ATTORNEY-IN-FACT] c/o
[ADDRESS OF ATTORNEY-IN-FACT] and (c) if to any Underwriter or to you, to you
c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New
York, New York 10172, Attention: Syndicate Department, or in any case to such
other address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Selling Stockholders,
the Company and the several Underwriters set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Shares, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of any Underwriter,
the officers or directors of any Underwriter, any person controlling any
Underwriter, the Sellers, the officers or directors of the Company or any
person controlling the Sellers, (ii) acceptance of the Shares and payment for
them hereunder and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf
of the Sellers as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Sellers agree to reimburse the
several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
26
<PAGE> 27
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Sellers, the
Underwriters, the Underwriters' directors and officers, any controlling persons
referred to herein, the Company's directors and the Company's officers who sign
the Registration Statement and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
27
<PAGE> 28
Please confirm that the foregoing correctly sets forth the
agreement between the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
FALCONITE, INC.
By:
-----------------------------------
Title:
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II
HERETO
By:
-----------------------------------
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY, L.L.C.
Acting severally on behalf of themselves
and the several Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-------------------------------
28
<PAGE> 29
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters to be Purchased
------------ ----------------------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
William Blair & Company, L.L.C.
------------------
Total
</TABLE>
29
<PAGE> 30
SCHEDULE II
Selling Stockholders
<TABLE>
<CAPTION>
Number of Additional Shares
Name to be Purchased
---- ---------------------------
<S> <C>
------------------
Total
</TABLE>
30
<PAGE> 31
ANNEX I
Required Stockholder Lock-Ups
Falconite Investments, L.P.
Joseph A. Falconite Revocable Trust
Michael A. Falconite Revocable Trust
Ralph W. McCurry Children's Trust
[Emilie Nicole Falconite]
[Angela S. Grimm]
31
<PAGE> 1
EXHIBIT 10.1
FALCONITE, INC.
AMENDED AND RESTATED
1997 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the Falconite, Inc. 1997 Amended and
Restated 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 1,300,000 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.
- 2 -
<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
- 3 -
<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
- 5 -
<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 originally adopted by the
Board of Directors and approved by the shareholders of the Corporation on
December 31, 1996 and was amended and restated by action of the Board of
Directors and the shareholders of the Corporation as of February 21, 1997.
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<PAGE> 1
EXHIBIT 10.31
TERM LOAN PROMISSORY NOTE
$7,000,000.00 October 5, 1995
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 Seven Million Dollars ($7,000,000.00) in the manner and on the dates set
forth in 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 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.
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 33
Broadway, Paducah, Kentucky 42001, or at such other place as the holder hereof
may designate in writing.
Borrower shall have the right to prepay all at any time or any part from
time to time of the unpaid principal of this Note prior to maturity, without
penalty or premium, provided that: (i) partial prepayments shall be applied to
the installments of principal of this 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 this Note
being prepaid to and including the date of such prepayment.
Lender may record the date and amount of all payments of principal and
interest on this Note in the records it maintains
<PAGE> 2
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.
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 "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.
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, the Lender may, at its
option 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.
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<PAGE> 3
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 Term Loan
Promissory 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 10.32
AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of February 9, 1997, is by and
between CITICORP DEL-LEASE, INC., a Delaware corporation doing business as
CITICORP DEALER FINANCE ("Lender"), and FALCONITE, INC. ("Falconite"), an
Illinois corporation.
WITNESSETH
WHEREAS, M&M Properties, Inc. and McCurry & Falconite Equipment Co.,
Inc. (jointly and severally referred to herein as "Borrower") are wholly-owned
subsidiaries of Falconite;
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 "Security Agreement"); and
WHEREAS, as a condition to Lender entering into Amendment No. 5 to the
Security Agreement, Falconite has agreed to execute and deliver this
Agreement to Lender;
NOW, THEREFORE, in consideration of the premises and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Falconite hereby agree as follows:
1. All capitalized terms not otherwise defined in this Agreement
shall have the meanings given to them in the Security Agreement.
2. Falconite agrees that so long as any Obligations remain
outstanding Falconite shall:
(a) CONSOLIDATED LEVERAGE: maintain Consolidated Leverage
(as defined below) of not more than 3.5 to 1 measured at the end of any fiscal
quarter of Falconite. "Consolidated Leverage" means a ratio of (i) total
liabilities to (ii) tangible net worth (excluding, as an example, good will)
plus deferred taxes of Falconite and its subsidiaries on a consolidated basis;
(b) DEBT SERVICE: maintain on a combined basis with its
subsidiaries an annualized ratio, measured at the end of any fiscal quarter of
Falconite, of earnings before interest, taxes, depreciation and amortization
("EBITDA") to Debt (as defined below) of at least (i) 20% for any fiscal
quarter through June 30, 1997 and (ii) 25% for any fiscal quarter thereafter.
"Debt" means all short and long-term obligations of Falconite and its
subsidiaries on a consolidated basis, excluding accounts payable and accruals,
deferred taxes and taxes payable, which should be classified as liabilities on
the balance sheet of Falconite and its subsidiaries (including, but not limited
to, any indebtedness owed to Lender, short-term rentals, floorplan financing,
mortgages, term and other amortizing loans);
<PAGE> 2
(c) EBITDA TO REVENUE: maintain on a combined basis with its
subsidiaries a ratio, measured at the end of any fiscal quarter of Falconite,
of EBITDA to Revenue (as defined below) of at least 35%. "Revenue" means gross
sales less returns for credit and allowances, freight out, and cash discounts
allowed;
(d) QUARTERLY STATEMENTS: as soon as available, and in any event
not more than forty-five (45) days after the end of each fiscal quarter of
Falconite, to furnish to Lender copies of the consolidated and consolidating
balance sheet of Falconite and its subsidiaries and related statements of
income, retained earnings and changes in financial condition of Falconite and
its subsidiaries for such quarter, all in reasonable detail and certified by
the chief financial officer of Falconite 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; and
(e) ANNUAL STATEMENTS: as soon as available, and in any event
not more than one hundred twenty (120) days after the end of each fiscal year
of Falconite, to furnish to Lender a copy of the annual financial statements
of Falconite (consisting of at least the consolidated and consolidating
balance sheet of Falconite and its subsidiaries and related statements of
income, retained earnings and changes in financial condition of Falconite and
its subsidiaries), 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).
3. The validity, construction and enforceability of this Agreement
shall be governed by the internal laws of the State of New York without giving
effect to conflict of laws principles thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
FALCONITE, INC.
By: /s/ Michael A. Falconite
----------------------------
Name: Michael A. Falconite
--------------------------
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 10.33
[CITICORP LOGO]
GUARANTY
(FOR EXECUTION BY CORPORATION)
For good and valuable consideration, the receipt of which is acknowledged, the
undersigned (herein "Guarantor") unconditionally guarantees to Citicorp Dealer
Finance (herein "Citicorp"), the full and prompt performance by
M & M Properties, Inc. 8519 Hwy 20 West, Madison, AL 35758
- --------------------------------------------------------------------------------
(Insert Name and Address of Obligor and State of Incorporation)
(herein "Obligor"), of all obligations which Obligor presently or hereafter may
have to Citicorp and payment when due of all sums presently or hereafter owing
by Obligor to Citicorp, whether arising by lease, note or otherwise, and whether
secured or unsecured. Guarantor further agrees to indemnify Citicorp against any
losses it may sustain and expenses it may incur as a result of any wrongful act
of Obligor with respect to the performance of Obligor's obligations to
Citicorp.
The Guarantor agrees that it shall not be necessary, as a condition to enforce
this guaranty, that suit be first instituted against Obligor or that any rights
or remedies against Obligor be first exhausted. It being understood and agreed
that the liability of the Guarantor hereunder shall be primary, direct, and in
all respects unconditional.
For the purposes of this Guaranty and indemnity, all sums owing to Citicorp by
Obligor shall be deemed to have become immediately due and payable if (a)
Obligor defaults in any of its obligations to Citicorp: (b) a petition under
any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed by or against the
Obligor and be not dismissed within thirty (30) days: (c) Obligor makes a
general assignment for the benefit of creditors, suspends business or commits
any act amounting to a business failure, or, (d) an attachment is levied or tax
lien is filed against any of Obligor's property.
This shall be a continuing guaranty and indemnity and irrespective of the lack
of any notice to or consent of Guarantor, its obligations hereunder shall not be
impaired in any manner whatsoever by any
(a) new agreements or obligations of Obligor with or to Citicorp:
amendments, extensions, modification, renewals or waivers of
default as to any existing or future agreements or
obligations of Obligor or third parties with or to Citicorp or
extensions of credit by Citicorp to Obligor;
(b) adjustments, compromises or releases of any obligations to
Obligor, Guarantor or other parties, or exchanges, releases or
sales of any security of Obligor, Guarantor or other parties;
(c) fictiousness, incorrectness, invalidity or unenforceability, for
any reason, of any instrument or writing, or acts of commission
or omission by Citicorp or Obligor;
(d) compositions, extensions, moratoria or other relief granted to
Obligor pursuant to any statute presently in force or
hereafter enacted, or;
(e) interruptions in the business relations between Citicorp and
Obligor.
Notice of Citicorp's acceptance hereof, of default or nonpayment by Obligor or
any other parties, of presentment, protest and demand, and of all other matters
of which Guarantor otherwise might be entitled, is waived.
The obligations hereunder of Guarantor shall be binding upon its respective
successors, assigns and legal representatives. The failure of any person to
sign this or a similar guaranty and indemnity shall not affect the liability
hereunder of Guarantor. The dissolution or release from liability of any other
guarantor shall not relieve Guarantor from liability hereunder. Guarantor may
terminate its obligation hereunder as to then future transactions between
Citicorp and Obligor by written Notice to Citicorp sent by registered mail to
Citicorp at 450 Mamaroneck Avenue, Harrison, New York 10528, provided, however,
that such termination shall not affect its liability hereunder with respect to
any obligations of Obligor to Citicorp incurred prior to receipt of such notice
by Citicorp.
Guarantor shall reimburse Citicorp on demand, for all expenses incurred by it in
the enforcement or attempted enforcement of any of its rights hereunder against
Obligor or Guarantor, including costs and attorneys' fees.
This guaranty and indemnity is assignable without notice to guarantor, shall be
construed liberally in favor of Citicorp and shall inure to the benefit of its
successors and assigns. If Obligor should default in the performance of any of
Obligor's obligations to Citicorp, and if any third party makes any payment to
Citicorp with respect thereto, such third party shall, to the extent, hereof,
be subrogated to all of its rights against Guarantor hereunder.
The undersigned corporation warrants for itself that it is authorized by law
and by its articles of incorporation to execute this Guaranty, and the officers
signing the same warrant that they are specifically authorized thereunto by a
duly adopted resolution of the board of directors or the by-laws of the
corporation.
IN WITNESS WHEREOF, Guarantor has caused this instrument to be executed this 9
day of Feb, 1997. -
--- --
*Citicorp Del-Lease, Inc. d/b/a
ATTEST: FALCONITE, INC.
-------------------------------
(NAME OF CORPORATION)
By: /s/ Michael A. Falconite
-------------------------------
Michael A. Falconite, President
-------------------------------
(PRINTED NAME AND TITLE)
<PAGE> 1
EXHIBIT 10.34
[CITICORP LOGO]
GUARANTY
(FOR EXECUTION BY CORPORATION)
For good and valuable consideration, the receipt of which is acknowledged, the
undersigned (herein "Guarantor") unconditionally guarantees to* Citicorp Dealer
Finance (herein "Citicorp"), the full and prompt performance by
M & M Properties, Inc. 8519 Hwy 20 West, Madison, AL 35758
- -------------------------------------------------------------------------------
(Insert Name and Address of Obligor, and State of Incorporation)
(herein "Obligor"), of all obligations which Obligor presently or hereafter
may have to Citicorp and payment when due of all sums presently or hereafter
owing by Obligor to Citicorp, whether arising by lease, note or otherwise, and
whether secured or unsecured. Guarantor further agrees to indemnify Citicorp
against any losses it may sustain and expenses it may incur as a result of
any wrongful act of Obligor with respect to the performance of Obligor's
obligations to Citicorp.
The Guarantor agrees that it shall not be necessary, as a condition to enforce
this guaranty, that suit be first instituted against Obligor or that any rights
or remedies against Obligor be first exhausted, it being understood and agreed
that the liability of the Guarantor hereunder shall be primary, direct, and in
all respects unconditional.
For the purposes of this Guaranty and indemnity, all sums owing to Citicorp
by Obligor shall be deemed to have become immediately due and payable if (a)
Obligor defaults in any of its obligations to Citicorp; (b) a petition under
any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed by or against the
Obligor and be not dismissed within thirty (30) days: (c) Obligor makes a
general assignment for the benefit of creditors, suspends business or commits
any act amounting to a business failure, or; (d) an attachment is levied or
tax lien is filed against any of Obligor's property.
This shall be a continuing guaranty and indemnity and irrespective of the
lack of any notice to or consent of Guarantor, its obligations hereunder shall
not be impaired in any manner whatsoever by any
(a) new agreements or obligations of Obligor with or to Citicorp;
amendments, extensions, modifications, renewals, or waivers of default as
to any existing or future agreements or obligations of Obligor or third
parties with or to Citicorp or extensions of credit by Citicorp to Obligor:
(b) adjustments, compromises or releases of any obligations to Obligor.
Guarantor or other parties, or exchanges, releases or sales of any security
of Obligor, Guarantor or other parties;
(c) fictitiousness,
incorrectness, invalidity or unenforceability, for any reason, of any
instrument or writing, or acts of commission or omission by Citicorp or
Obligor;
(d) compositions, extensions, moratoria or other relief granted
to Obligor pursuant to any statute presently in force or hereafter enacted,
or;
(e) interruptions in the business relations between Citicorp and
Obligor.
Notice of Citicorp's acceptance hereof, of default or nonpayment by Obligor or
any parties, of presentment, protest and demand, and of all other matters of
which Guarantor otherwise might be entitled, is waived.
The obligations hereunder of Guarantor shall be binding upon its respective
successors, assigns and legal representatives. The failure of any person to
sign this or a similar guaranty and indemnity shall not affect the liability
hereunder of Guarantor. The dissolution or release from liability of any other
guarantor shall not relive Guarantor from liability hereunder. Guarantor may
terminate its obligation hereunder as to then future transactions between
Citicorp and Obligor by written Notice to Citicorp at 450 Mamaroneck Avenue,
Harrison, New York 10528, provided, however,that such termination shall not
affect its liability hereunder with respect to any obligations of Obligor to
Citicorp incurred prior to receipt of such notice by Citicorp.
Guarantors shall reimburse Citicorp on demand, for all expenses incurred by it
in the enforcement or attempted enforcement of any of its rights hereunder
against Obligor or Guarantor, including costs and attorneys' fees.
This guaranty and indemnity is assignable without notice to guarantor, shall be
construed liberally in favor of Citicorp and shall inure to the benefit of its
successors and assigns. If Obligor should default in the performance of any of
Obligor's obligations to Citicorp, and if any third party makes any payment to
Citicorp with respect thereto, such third party shall,to the extent thereof, be
subrogated to all of its rights against Guarantor hereunder.
The undersigned corporation warrants for itself that it is authorized by law and
by its articles of incorporation to execute this Guaranty, and the officers
signing the same warrant that they are specifically authorized thereunto by a
duly adopted resolution of the board of directors or the by-laws of the
corporation.
IN WITNESS WHEREOF, Guarantor has caused this instrument to be executed this
9 day of Feb., 1997.
* Citicorp Del-Lease, Inc. d/b/a
ATTEST: Falconite Equipment Company,Inc.
---------------------------------
(NAME OF CORPORATION)
By: /s/ Michael A. Falconite
---------------------------------
(AUTHORIZED SIGNATURE)
Michael A. Falconite, President
---------------------------------
(PRINTED NAME AND TITLE)
<PAGE> 1
EXHIBIT 10.35
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$20,000,000.00 DATE: FEBRUARY 7, 1997
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 Twenty
Million Dollars ($20,000,000.00) 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
of 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 December 1, 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
-----------------------------
Name: Ralph McCurry
----------------------------
Title: President
---------------------------
MCCURRY & FALCONITE EQUIPMENT CO.,
INC.
By: /s/ Ralph McCurry
-----------------------------
Name: Ralph McCurry
----------------------------
Title: President
---------------------------
<PAGE> 1
EXHIBIT 10.36
AMENDMENT NO. 5
TO
THE DEALER SECURITY AGREEMENT
THIS AMENDMENT NO. 5 to the DEALER SECURITY AGREEMENT (this "Amendment"),
dated as of February 7, 1997, 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:
1. The definition of the term "Borrowing Base" is amended by deleting the
amount "$9,000,000" therefrom and substituting therefor the following:
"$20,000,000 through June 30, 1997 and $15,000,000 thereafter".
2. Section 2 (Financial Covenants) of Amendment No. 3 to the Agreement,
dated as of September 9, 1996, is hereby deleted in its entirety.
3. Section 4 (Covenants) of the Agreement is amended by deleting
subsections t. and u. therefrom.
4. Section 7 (Default) of the Agreement is amended by deleting subsection
j. therefrom and substituting therefor the following:
"j. Falconite, Inc. shall fail to perform or observe
any obligation, covenant or term to be performed or observed by it
under any agreement between Lender and Falconite or a material adverse
change in the Borrower's financial condition operations."
5. The effectiveness of this Amendment, and as a common 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 Amended and Restated Revolving Credit Note:
<PAGE> 2
b. duly executed original counterparts of this Amendment;
c. an agreement between Lender and Falconite, Inc. regarding
financial covenants and reporting financial information;
d. a duly executed Corporate Guaranty of Falconite, Inc. and each
Borrower; and
e. a duly executed Personal Guaranty of Michael Falconite and
Ralph McCurry.
6. 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 Agreements 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
-------------------
Time: President
-------------------
CITICORP DEI-LEASE, INC., d/b/a
CITICORP DEALER FINANCE
By: /s/ Mark A. Malec
---------------------
Name: Mark A. Malec
-------------------
Time: Vice President
-------------------
-2-
<PAGE> 1
EXHIBIT 10.37
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT (this "Amendment")
is made this 19th day of February, 1997, by FALCONITE EQUIPMENT, INC.
(formerly known as Falconite, Inc.), an Illinois corporation ("Borrower"), and
is accepted by CITIZENS BANK & TRUST COMPANY OF PADUCAH ("Secured Party").
WITNESSETH:
WHEREAS, Borrower has heretofore executed and delivered to
Secured Party that certain Security Agreement dated October 5, 1995 (the
"Security Agreement"); and
WHEREAS, Borrower desires to amend the Security Agreement to
in the manner hereinafter set forth and Secured Party 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 Security Agreement as follows:
1. All references in the Security Agreement to
"Falconite, Inc." shall henceforth mean Falconite Equipment, Inc. (formerly
known as Falconite, Inc.), an Illinois corporation.
2. The first "WHEREAS" clause on page 1 of the Security
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof:
"WHEREAS, Borrower and Secured Party have entered
into that certain Revolving Credit and Term Loan Agreement
dated October 5, 1995, by and between Borrower and Secured
Party, as amended by that certain First Amendment to Revolving
Credit and Term Loan Agreement dated January 5, 1996, that
certain Second Amendment to Revolving Credit and Term Loan
Agreement dated June 14, 1996, and that certain Third
Amendment to Revolving Credit and Term Loan Agreement dated
February 19, 1997 (as so amended and as the same may from
time to time be further 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"
<PAGE> 2
3. Section 3(q) of the Security Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
"(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 EQUIPMENT, INC.
(FORMERLY KNOWN AS FALCONITE, INC.) TO CITIZENS BANK & TRUST
COMPANY OF PADUCAH, PURSUANT TO A SECURITY AGREEMENT DATED
OCTOBER 5, 1995, AS AMENDED" 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;"
4. Section 3(y) of the Security Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
"(y) as of the date hereof, the fair market value of
all of the Collateral located in the State of Tennessee does
not exceed Twelve Percent (12%) 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 Collateral located in the State of
Tennessee to at any time exceed Twelve Percent (12%) of the
total fair market value of all of the Collateral;"
5. Exhibit A attached to the Security Agreement is
hereby deleted in its entirety and the Exhibit A attached to this Amendment is
substituted in lieu thereof.
6. Exhibit C attached to the Security Agreement is
hereby deleted in its entirety and the Exhibit C attached to this Amendment is
substituted in lieu thereof.
7. Except to the extent specifically amended by this
Amendment, all of the terms, provisions and conditions contained in the
Security Agreement shall be and remain in full force and effect and the same
are hereby ratified and confirmed.
8. All references in the Security Agreement to "this
Agreement" and any other references of similar import shall henceforth mean the
Security Agreement as amended by this Amendment.
- 2 -
<PAGE> 3
9. Borrower hereby represents and warrants to Secured
Party 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 Security Agreement are true and correct and no
Event of Default under or within the meaning of the Security
Agreement has occurred and is continuing.
10. This Amendment shall be binding upon and inure to the
benefit of Borrower and Secured Party and their respective successors and
assigns, except that Borrower may not assign or delegate any of its rights or
obligations hereunder.
11. 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).
12. In the event of any inconsistency or conflict between
the Security Agreement and this Amendment, the terms, provisions and conditions
contained in this Amendment shall govern and control.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, Borrower has executed this First Amendment
to Security Agreement this 19th day of February, 1997.
FALCONITE EQUIPMENT, INC.
By: /s/ Mike Falconite
------------------------------
Name: Mike Falconite
----------------------------
Title: President
---------------------------
Accepted this 19th day of February, 1997.
CITIZENS BANK & TRUST COMPANY OF
PADUCAH
By: /s/ Scott Powell
------------------------------
Name: Scott Powell
----------------------------
Title: Senior Vice President
----------------------------
- 4 -
<PAGE> 5
EXHIBIT A
Additional Locations of Places of Business of Borrower
723 Massman Drive
Nashville, Tennessee 37210
1515 North Cherry Street
Knoxville, Tennessee 37917
5321 Republic Avenue
Memphis, Tennessee 38118
589 Main Street HWY 95
Calvert City, Kentucky 42029
4303 Bi-State Industrial Drive
St. Louis, Missouri 63128
1044 South Riverside Drive
Clarksville, Tennessee 37040
1886 Fort Campbell Boulevard
Clarksville, Tennessee 37042
4717 Speedway Drive
Fort Wayne, Indiana 46825
1311 South Olive Street
South Bend, Indiana 46619
- 5 -
<PAGE> 6
EXHIBIT C
UCC-1 Financing Statements
McCracken County, Kentucky
Tennessee Secretary of State
Illinois Secretary of State
Missouri Secretary of State
St. Louis County, Missouri
Indiana Secretary of State
Arkansas Secretary of State
Mississippi Secretary of State
Alabama Secretary of State
- 6 -
<PAGE> 1
EXHIBIT 10.38
THIRD AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT
(this "Amendment") is made and entered into this 19th day of February, 1997,
by and between FALCONITE EQUIPMENT, INC. (formerly known as 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, and that certain Second Amendment to Revolving
Credit and Term Loan Agreement dated June 14, 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. All references in the Loan Agreement and in the other
Loan Documents to Falconite, Inc. (other than the references to Falconite, Inc.
in the Parent Guaranty and in the definition of Parent Guarantor set forth in
Section 1.01 of the Loan Agreement) shall henceforth mean Falconite Equipment,
Inc. (formerly known as Falconite, Inc.), an Illinois corporation.
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,
1997, or, if such date is not a Business Day, the Business Day
next preceding such date."
3. The definition of "Consolidated Tangible Net Worth"
set forth in Section 1.01 of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu thereof:
""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 the Parent Guarantor and its subsidiaries
prepared as of such date
<PAGE> 2
in accordance with Generally Accepted Accounting Principles,
minus the aggregate book value of Intangible Assets shown on
such balance sheet."
4. 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
Shareholder 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), that certain Second Amendment to Continuing Guaranty dated
June 14, 1996 (an unexecuted copy of which is attached hereto as
Exhibit F-2) and that certain Third Amendment to Continuing
Guaranty dated February 19, 1997 (an unexecuted copy of
which is attached hereto as Exhibit F-3), and as the same may
from time to time be further amended, modified, extended or
renewed."
5. The definition of "Eligible Inventory" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""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 the following methods of depreciation, unless
otherwise approved by Lender in writing, (A) for cranes, the
15-year straight line depreciation method with (1) a salvage
value of Ten Percent (10%) for large (28-ton or greater) cranes
purchased on or after January 1, 1997, (2) no salvage value for
all other cranes, (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 course of its business;
- 2 -
<PAGE> 3
(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."
6. The definition of "Guarantors" set forth in Section
1.01 of the Loan Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
""Guarantors" shall mean the Shareholder Guarantors and
the Parent Guarantor."
7. The definition of "Loan Documents" set forth
in Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""Loan Documents" shall mean this Agreement, the Notes,
the Letter of Credit Application(s), the Security Agreement, the
Continuing Guaranty, the Parent 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
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<PAGE> 4
Agreement, all as the same may from time to time be amended,
modified, extended or renewed."
8. 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, 1997, or, if such
date is not a Business Day, the Business Day next preceding such
date."
9. The definition of "Revolving Credit Commitment" set
forth in Section 1.01 of the Loan Agreement is hereby deleted in its entirety
and the following substituted in lieu thereof:
""Revolving Credit Commitment" shall mean the sum of
Thirty-Eight Million Five Hundred Thousand Dollars
($38,500,000.00)."
10. The definition of "Tangible Net Worth" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
""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."
11. The following new definitions of "Parent Guarantor",
"Parent Guaranty" and "Shareholder Guarantors" are hereby added to Section 1.01
of the Loan Agreement:
""Parent Guaranty shall mean that certain Continuing Guaranty
dated February 19, 1997, and executed by the Parent Guarantor in favor of
Lender, as the same may from time to time be amended, modified, extended or
renewed.
"Parent Guarantor" shall mean Falconite, Inc., an Illinois
corporation."
"Shareholder Guarantors" shall mean Michael A. Falconite, Joseph
A. Falconite and Betty L. Falconite."
12. Paragraph (d) of Section 1.02 of the Loan Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
"(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
- 4 -
<PAGE> 5
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 the Parent Guarantor and its
subsidiaries on a consolidated basis."
13. Section 2.03 of the Loan Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
"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 payable to the order of Lender
in the principal amount of Two Million Dollars ($2,000,000.00)
in the form attached hereto as Exhibit Q and incorporated herein
by reference, as amended by a First Amendment to Swing Line Note
dated February 19, 1997, in the form attached hereto as
Exhibit Q-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 "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 the principal amount of Seven Million Dollars
($7,000,000.00) 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 and a Second Amendment to Revolving Credit Note dated
February 19, 1997, in the form attached hereto as Exhibit
A-2 and incorporated herein by reference (as so amended and as
the same may from time to time be
- 5 -
<PAGE> 6
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."
14. 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, 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 and a
Third Amendment to Term Loan Promissory Note dated February
19, 1997, in the form attached hereto as Exhibit B-3 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")."
15. 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 twenty-one (21)
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; seventeen (17) 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 twenty-first (21st) 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
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<PAGE> 7
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."
16. Section 5.01 of the Loan Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
"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 October 5, 1995, and executed by Borrower in favor of
Lender in the form attached hereto as Exhibit E and
incorporated herein by reference, as amended by a First
Amendment to Security Agreement dated February 19, 1997,
and executed by Borrower in favor of Lender in the form
attached hereto as Exhibit E-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
"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."
17. Section 7.06 of the Loan Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
"Section 7.06. Financial Condition. Borrower has
delivered to Lender copies of the balance sheet of Borrower as
of September 30, 1996, and the related statements of income,
changes in stockholders' equity and cash flows for the period
ended on such date, certified by KPMG Peat Marwick LLP,
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;
- 7 -
<PAGE> 8
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."
18. Section 7.20 of the Loan Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
"Section 7.20. Subsidiaries. Borrower does not have
any Subsidiaries other than Carl's Mid-South Rent-All Center
Incorporated, a Tennessee corporation."
19. Paragraph (b) of Section 8.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
"(b) Annual Statements of Parent Guarantor. As soon
as available and in any event within ninety (90) days after the
close of each fiscal year of the Parent Guarantor, copies of the
audited consolidated and consolidating balance sheets of the
Parent Guarantor 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 the Parent Guarantor 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 (including, without limitation, footnotes
and supplemental schedules detailing all selling and general and
administrative expenses) and accompanied by an opinion thereon
(which shall not be qualified by reason of any limitation
imposed by the Parent Guarantor) of KPMG Peat Marwick LLP, or of
other independent public accountants selected by the Parent
Guarantor 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;"
20. Paragraph (g) of Section 8.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
"(g) Audit Reports. Promptly upon receipt thereof, one
copy of each management letter and/or other written
- 8 -
<PAGE> 9
report submitted to Borrower or the Parent Guarantor 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 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;"
21. Paragraph (j) of Section 8.01 of the Loan Agreement is
hereby deleted in its entirety.
22. Paragraph (l) of Section 8.01 of the Loan Agreement is
hereby deleted in its entirety.
23. Paragraph (m) of Section 8.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
"(m) Other Information. Such other information
concerning the business, properties or financial condition of
Borrower, any Subsidiary of Borrower, the Parent Guarantor, any
subsidiary of the Parent Guarantor or M&M Properties, Inc. as
Lender shall from time to time reasonably request."
24. Section 8.17 of the Loan Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
"Section 8.17. Landlord Consents. Borrower will
obtain and deliver to Lender on or before February 28, 1997,
Landlord's Consents and Waivers of Liens in form and substance
satisfactory to Lender duly executed by the applicable
landlord(s) with respect to Borrower's facilities located at
4303 Bi-State Industrial Drive, St. Louis, Missouri 63128, 1044
South Riverside Drive, Clarksville, Tennessee 37040, 186 Fort
Campbell Boulevard, Clarksville, Tennessee 37042, 4717 Speedway
Drive, Fort Wayne, Indiana 46825 and 1311 South Olive Street,
South Bend, Indiana 46619."
25. Sections 9.14, 9.15, 9.16 and 9.17 of the Loan
Agreement are hereby deleted in their 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 $12,000,000.00 at
any time on or after December 31, 1996.
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<PAGE> 10
(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, to Tangible Net
Worth to be greater than 4.5 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 consecutive twelve (12) month period (commencing with the
consecutive twelve (12) month period ended December 31, 1996) to
the Current Maturities of Debt for the next succeeding
consecutive twelve (12) month period 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 officer's certificate delivered with
respect to the applicable consecutive twelve (12) month period
unless Lender makes an independent, good faith determination of
Net Cash Flow for such consecutive twelve (12) month period. If
Lender's determination of Net Cash Flow for any consecutive
twelve (12) month period 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.
(d) Minimum Operating Cash Flow. Borrower shall
not permit its Operating Cash Flow to be less than
$10,000,000.00 for any consecutive twelve (12) month period
commencing with the consecutive twelve (12) month period ended
December 31, 1996. For the purposes of this Section, Borrower's
"Operating Cash Flow" shall be that shown on the officer's
certificate delivered with respect to the applicable twelve (12)
consecutive month period unless Lender makes an independent,
good faith determination of Operating Cash Flow for such
consecutive twelve (12) month period. If Lender's determination
of Operating Cash Flow for any consecutive (12) month period 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 the Parent Guarantor and its
subsidiaries, determined on a consolidated basis and in
accordance with Generally
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<PAGE> 11
Accepted Accounting Principles consistently applied, to
Consolidated Tangible Net Worth to be greater than 7.0 to 1.0 at
any time on or after December 31, 1996.
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 the period
commencing January 1, 1997, and ending June 30, 1997, would
exceed $1,800,000.00.
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 following methods and salvage value
percentages: (a) for cranes, the 15-year straight line
depreciation method with (1) a salvage value of Ten Percent
(10%) for large (28-ton or greater) cranes purchased on or after
January 1, 1997, (2) no salvage value for all other cranes, (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).
Section 9.17. Limit on Expansion. Borrower will not
open any additional offices or places of business or expand into
any new territories unless and until (a) the Parent Guarantor
has consummated an initial public offering of its capital stock
(the "IPO") and (b) the IPO results in net cash proceeds to the
Parent Guarantor of at least $65,000,000.00."
26. Clause (m) of Section 10.01 of the Loan Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
"(m) the death or incompetence of any of the
Shareholder Guarantors;"
27. Clauses (o), (p) and (q) of Section 10.01 of the Loan
Agreement are hereby deleted in their entirety and the following substituted in
lieu thereof:
"(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 Shareholder Guarantors, or
if any of the Shareholder Guarantors shall deny that he or she
has any further
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<PAGE> 12
liability or obligation thereunder or if any of the Shareholder
Guarantors shall fail to comply with or observe any of the
terms, provisions or conditions contained in the Continuing
Guaranty;
(p) the Parent 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 the Parent Guarantor, or if the Parent Guarantor shall
deny that it has any further liability or obligation thereunder
or if the Parent Guarantor shall fail to comply with or observe
any of the terms, provisions or conditions contained in the
Parent Guaranty;
(q) 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;
(r) the Parent Guarantor shall at any time for any
reason own less than One Hundred Percent (100%) of all of the
issued and outstanding shares of each class of capital stock of
the Borrower;
(s) the Parent Guarantor shall at any time for any
reason own less than One Hundred Percent (100%) of all of the
issued and outstanding shares of each class of capital stock of
M&M Properties, Inc.; or
(t) Lender, in good faith, deems itself insecure."
28. 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.
29. Exhibit J attached to the Loan Agreement is hereby
deleted in its entirety and the Exhibit J attached to this Amendment is
substituted in lieu thereof.
30. Exhibit L attached to the Loan Agreement is hereby
deleted in its entirety and the Exhibit L attached to this Amendment is
substituted in lieu thereof.
31. Exhibit M attached to the Loan Agreement is hereby
deleted in its entirety and the Exhibit M attached to this Amendment is
substituted in lieu thereof.
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<PAGE> 13
32. 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.
33. Exhibits A-2, B-3, E-1, F-3 and Q-1 attached to this
Amendment are hereby added as Exhibits A-2, B-3, E-1, F-3 and Q-1 to the Loan
Agreement.
34. Borrower agrees to pay Lender a nonrefundable amendment
and facility fee in the amount of $42,500.00 contemporaneously with the
execution of this Amendment.
35. Borrower hereby agrees to pay or 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.
36. 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.
37. 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.
38. 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.
39. 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;
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<PAGE> 14
(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 and warranties 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.
40. 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.
41. 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 Third
Amendment to Revolving Credit and Term Loan Agreement this 19th day of
February, 1997.
FALCONITE EQUIPMENT, INC.
By /s/ Mike Falconite
----------------------
Name: Mike Falconite
-------------------
Title: President
------------------
CITIZENS BANK & TRUST COMPANY OF
PADUCAH
By /s/ Scott Powell
-------------------------
Name: Scott Powell
----------------------
Title: Senior Vice President
---------------------
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<PAGE> 1
EXHIBIT 10.39
SECOND AMENDMENT TO REVOLVING CREDIT NOTE
THIS SECOND AMENDMENT TO REVOLVING CREDIT NOTE (this
"Amendment") is made this 19th day of February, 1997, by FALCONITE EQUIPMENT,
INC. (formerly known as 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), as amended by that certain First Amendment to Revolving Credit
Note dated June 14, 1996 (the "Note"); and
WHEREAS, Borrower desires to amend the Note to, among other
things, increase the maximum principal amount of the Note from Thirteen Million
Dollars ($13,000,000.00) to Thirty-Eight Million Five Hundred Thousand Dollars
($38,500,000.00), 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
"$13,000,000.00" is hereby deleted in its entirety and the number
"$38,500,000.00" 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 EQUIPMENT, INC. (formerly
known as 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 Thirty-Eight Million Five
Hundred Thousand Dollars ($38,500,000.00), 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 Thirty-Eight Million Five Hundred Thousand
Dollars ($38,500,000.00), 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, second and third full paragraphs on page 2
of the Note are hereby deleted in their 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, that certain Second Amendment to Revolving Credit and
Term Loan Agreement dated June 14, 1996, and that certain
Third Amendment to Revolving Credit and Term Loan Agreement
dated February 19, 1997 (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.
This Note is secured by that certain Security
Agreement dated October 5, 1995, and executed by Borrower in
favor of Lender, as amended by that certain First Amendment to
Security Agreement dated February 19, 1997 (as so amended
and as the same may from time to time be further 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 Shareholder
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, that certain Second Amendment to Continuing Guaranty
dated June 14, 1996, and that certain Third Amendment to
Continuing Guaranty dated February 19, 1997 (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. As
consideration for this Note, the Parent Guarantor has executed
that certain Continuing Guaranty dated
- 2 -
<PAGE> 3
February, 19, 1997, in favor of Lender (as the same may
from time to time be amended, modified, extended or renewed,
the "Parent Guaranty"). Reference is hereby made to the
Parent Guaranty for (i) a description of the guaranty and (ii)
a statement of the terms and conditions upon which this Note
is guaranteed."
4. 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.
5. 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.
6. 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.
7. 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.
- 3 -
<PAGE> 4
8. 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).
9. 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.
10. 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 Revolving Credit Note this 19th day of February, 1997.
FALCONITE EQUIPMENT, INC.
By: /s/ Mike Falconite
---------------------------------
Name: Mike Falconite
--------------------------------
Title: President
-------------------------------
Accepted this 19th day of February, 1997.
CITIZENS BANK & TRUST COMPANY OF
PADUCAH
By: /s/ Scott Powell
---------------------------------
Name: Scott Powell
--------------------------------
Title: Senior Vice President
-------------------------------
- 4 -
<PAGE> 1
EXHIBIT 10.40
THIRD AMENDMENT TO TERM LOAN PROMISSORY NOTE
THIS THIRD AMENDMENT TO TERM LOAN PROMISSORY NOTE (this
"Amendment") is made this 19th day of February, 1997, by FALCONITE EQUIPMENT,
INC. (formerly known as 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, and that certain Second Amendment to Term
Loan Promissory Note dated June 14, 1996 (as so amended, the "Note"); and
WHEREAS, as of the date hereof, the outstanding principal
balance of the Note is Six Million Six Hundred Ninety-Nine Thousand Nine Hundred
Ninety-Nine and 99/100 Dollars ($6,699,999.99); 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 1 of the Note is
hereby deleted in its entirety and the following substituted in lieu thereof:
"FOR VALUE RECEIVED, the undersigned, FALCONITE
EQUIPMENT, 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."
2. The first, second and third full paragraphs on page 2
of the Note are hereby deleted in their 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, that
certain Second Amendment to Revolving Credit and Term Loan
Agreement dated June 14,
<PAGE> 2
1996, and that certain Third Amendment to Revolving Credit and
Term Loan Agreement dated February 19, 1997 (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.
This Note is secured by that certain Security Agreement
dated October 5, 1995, and executed by Borrower in favor of
Lender, as amended by that certain First Amendment to Security
Agreement dated February 19, 1997 (as so amended and as the
same may from time to time be further 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 Shareholder
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,
that certain Second Amendment to Continuing Guaranty dated June
14, 1996, and that certain Third Amendment to Continuing
Guaranty dated February 19, 1997 (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.
As consideration for this Note, the Parent Guarantor
has executed that certain Continuing Guaranty dated February
19, 1997, in favor of Lender (as the same may from time to
time be amended, modified, extended or renewed, the "Parent
Guaranty"). Reference is hereby made to the Parent 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.
- 2 -
<PAGE> 3
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 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.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, Borrower has executed this Third Amendment
to Term Loan Promissory Note this 19th day of February, 1997.
FALCONITE EQUIPMENT, INC.
By: /s/ Mike Falconite
---------------------------------
Name: Mike Falconite
--------------------------------
Title: President
-------------------------------
Accepted this 19th day of February, 1997.
CITIZENS BANK & TRUST COMPANY OF
PADUCAH
By: /s/ Scott Powell
---------------------------------
Name: Scott Powell
--------------------------------
Title: Senior Vice President
-------------------------------
- 4 -
<PAGE> 1
EXHIBIT 10.41
FIRST AMENDMENT TO SWING LINE NOTE
THIS FIRST AMENDMENT TO SWING LINE NOTE (this "Amendment") is
made this 19th day of February, 1997, by FALCONITE EQUIPMENT, INC. (formerly
known as 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 Swing Line Note dated June 14, 1996, and payable to the order of
Lender in the maximum principal amount of Two Million Dollars ($2,000,000.00)
(the "Note"); and
WHEREAS, Borrower desires to amend the Note to 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 sentence of 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 EQUIPMENT, INC. (formerly known
as 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."
2. The first, second and third full paragraphs on page 2
of the Note are hereby deleted in their 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, that
certain Second Amendment to Revolving Credit and Term Loan
Agreement dated June 14, 1996, and that certain Third Amendment
to Revolving Credit and Term Loan Agreement dated February 19,
1997 (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
<PAGE> 2
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 amended by that certain First Amendment to Security
Agreement dated February 19, 1997 (as so amended and as the
same may from time to time be further 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 Shareholder
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,
that certain Second Amendment to Continuing Guaranty dated June
14, 1996, and that certain Third Amendment to Continuing
Guaranty dated February 19, 1997 (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.
As consideration for this Note, the Parent Guarantor
has executed that certain Continuing Guaranty dated February
19, 1997, in favor of Lender (as the same may from time to
time be amended, modified, extended or renewed, the "Parent
Guaranty"). Reference is hereby made to the Parent 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.
- 2 -
<PAGE> 3
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 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.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, Borrower has executed this First Amendment
to Swing Line Note this 19th day of February, 1997.
FALCONITE EQUIPMENT, INC.
By: /s/ Mike Falconite
---------------------------------
Name: Mike Falconite
--------------------------------
Title: President
--------------------------------
Accepted this 19th day of February, 1997.
CITIZENS BANK & TRUST COMPANY OF
PADUCAH
By: /s/ Scott Powell
---------------------------------
Name: Scott Powell
--------------------------------
Title: Senior Vice President
-------------------------------
- 4 -
<PAGE> 1
EXHIBIT 10.42
CONTINUING GUARANTY
THIS CONTINUING GUARANTY (this "Guaranty") is entered into this 19th day of
February, 1997, by FALCONITE, INC., an Illinois corporation, whose address is
2525 Wayne Sullivan Drive, Paducah, Kentucky 42003 (the "Guarantor"), for the
benefit of CITIZENS BANK & TRUST COMPANY OF PADUCAH, whose address is 333
Broadway, Paducah, Kentucky 42001 (the "Lender").
Section 1. Payment Guaranty.
(a) The Guarantor hereby unconditionally guarantees the performance and
punctual payment when due, whether at stated maturity, by acceleration, by
demand or otherwise, in legal tender of the United States of America, of all
Indebtedness (as hereinafter defined) of FALCONITE EQUIPMENT, INC. (formerly
known as Falconite, Inc.), an Illinois corporation (the "Borrower") to Lender,
including, without limitation, the payment to Lender of all of the Borrower's
"Obligations" as defined in the Loan Agreement (as hereinafter defined), and
the Guarantor agrees to pay any and all costs and expenses (including, without
limitation, attorneys' fees and expenses) incurred by Lender: (i) in enforcing
any rights under this Guaranty; (ii) in collecting any Indebtedness from
Borrower or the Guarantor; (iii) in realizing upon or protecting any collateral
for this Guaranty or for any of the Indebtedness; and/or (iv) for any other
purpose related to the Indebtedness or this Guaranty. "Costs and expenses" as
used in the preceding sentence shall include, without limitation, the actual
attorneys' fees incurred by Lender in retaining counsel for advice, suit,
appeal, any insolvency or other proceedings under the Federal Bankruptcy Code
or otherwise, or for any purpose specified in the preceding sentence.
(b) As used in this Guaranty, "Indebtedness" shall mean any and all present
and future indebtedness (principal, interest, fees, collection costs and
expenses and other amounts), liabilities and obligations of Borrower to Lender
evidenced by or arising under 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, that certain Second Amendment to Revolving Credit and
Term Loan Agreement dated June 14, 1996, and that certain Third Amendment to
Revolving Credit and Term Loan Agreement dated February 19, 1997, and as
the same may from time to time be further amended, modified, extended or
renewed (the "Loan Agreement"; all capitalized terms used and not otherwise
defined in this Guaranty shall have the respective meanings ascribed to them in
the Loan Agreement), the Swing Line Note, the Revolving Credit Note, the Term
Note and/or any of the other Loan Documents.
(c) The Guarantor acknowledges that valuable consideration supports this
Guaranty, including, without limitation, any commitment to lend, extension of
credit or other financial accommodation, whether heretofore, now or hereafter
made
<PAGE> 2
by Lender to Borrower, any amendment, modification, extension, renewal or
replacement of any Indebtedness, any forbearance with respect to any
Indebtedness or otherwise, any cancellation of any existing guaranty, any
purchase of any of Borrower's assets by Lender or any other valuable
consideration.
Section 2. Continuing and Unconditional Guaranty.
(a) This Guaranty is and is intended to be a continuing guaranty of payment
of the Indebtedness (irrespective of the aggregate amount thereof), independent
of, in addition and without modification to, and does not impair or in any way
affect, any other guaranty, indorsement or other agreement held by Lender
therefor or with respect thereto, whether or not furnished by the Guarantor.
This Guaranty and the Guarantor's obligations hereunder shall not be modified,
terminated, impaired or in any way affected by the execution, delivery or
performance by the Guarantor, Borrower or any other person of any other
guaranty, indorsement or other agreement or the delivery of collateral
therefor. The Guarantor shall have no right of subrogation, reimbursement,
contribution or indemnity whatsoever with respect to Borrower or any other
guarantor(s) and no right of recourse to or with respect to any assets or
property of Borrower or any other guarantor(s) or to any collateral owned by
Borrower, any other guarantor(s) or any other person for the Indebtedness of
Borrower guaranteed hereby unless and until all of said Indebtedness shall have
been paid in full in cash. If any amount shall be paid to the Guarantor on
account of any such subrogation, reimbursement, contribution or indemnity
rights at any time prior to the payment of all such Indebtedness of Borrower in
full in cash, such amount shall be held in trust for the benefit of Lender and
shall forthwith be paid to Lender to be credited and applied upon the
Indebtedness of Borrower, whether matured or unmatured, in such order and
manner as Lender in its sole discretion may deem advisable.
(b) The maximum aggregate liability of the Guarantor under this Guaranty is
limited to Fifty Million Dollars ($50,000,000.00), plus all accrued and unpaid
interest thereon and all the costs and expenses described in Section 1(a)
above. This Guaranty is absolute and unconditional and shall not be changed or
affected by any representation, oral agreement, act or thing whatsoever, except
as herein provided. This Guaranty is intended by the Guarantor to be the
final, complete and exclusive expression of the agreement between the Guarantor
and Lender regarding the subject matter hereof. The Guarantor expressly
disclaims any reliance on any course of dealing or usage of trade or oral
representation of Lender including, without limitation, representations of
Lender to make loans to Borrower or enter into any other agreement with
Borrower or the Guarantor. No modification or amendment of any provision of
this Guaranty and no waiver of any right by Lender shall be effective unless in
writing and signed by a duly authorized officer of Lender. The Guarantor
guarantees that the Indebtedness of Borrower will be paid strictly in
accordance with its terms, regardless of any law, regulation or
- 2 -
<PAGE> 3
order now or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of Lender with respect thereto. The liability of the
Guarantor under this Guaranty shall be absolute and unconditional irrespective
of any change in the time, manner or place of payment of, or in any other term
of (including, without limitation, changes in the interest rates applicable
to), all or any of the Indebtedness of Borrower, or any other amendment or
waiver of or any consent to departure from the terms therein.
Section 3. Rights of Lender.
(a) The Guarantor authorizes Lender, without notice, demand or additional
reservation of rights against the Guarantor and without affecting the
Guarantor's obligations hereunder, from time to time: (i) to renew, refinance,
modify, subordinate, extend, increase, accelerate or otherwise change the time
for payment of, the terms of or the interest on the Indebtedness or any part
thereof; (ii) to accept from any person or entity and hold collateral for the
payment of the Indebtedness or any part thereof, and to exchange, enforce or
refrain from enforcing, or release such collateral or any part thereof; (iii)
to accept and hold any indorsement or guaranty of payment of the Indebtedness
or any part thereof or any negotiable instrument or other writing intended by
any party to create an accord and satisfaction with respect to the Indebtedness
or any part thereof, and to discharge, terminate, release, substitute, replace
or modify any such obligation of any such indorser or guarantor, or any person
or entity who has given any security interest in any collateral as security for
the payment of the Indebtedness or any part thereof, or any other person or
entity in any way obligated to pay the Indebtedness or any part thereof, and to
enforce or refrain from enforcing, or compromise or modify, the terms of any
obligation of any such indorser, guarantor, person or entity; (iv) to dispose
of any and all collateral securing the Indebtedness in any manner as Lender, in
its sole discretion, may deem appropriate, and to direct the order or manner of
such disposition and the enforcement of any and all indorsements and guarantees
relating to the Indebtedness or any part thereof as Lender, in its sole
discretion, may determine; and (v) to determine the manner, amount and time of
application of payments and credits, if any, to be made on all or any part of
any component or components of the Indebtedness (whether principal, interest,
fees, costs and expenses, or otherwise).
(b) The Guarantor hereby waives promptness, diligence, notice of acceptance
and any other notice with respect to any of the Indebtedness of Borrower under
this Guaranty, and any requirement that Lender protect, secure, perfect,
continue to perfect or insure any security interest or lien on any property
subject thereto or exhaust any right or take any action against Borrower or any
other person or entity or any collateral securing payment of any Indebtedness
or the Guarantor's obligation hereunder. If any default shall be made in the
payment of any Indebtedness, the Guarantor agrees to pay any and all
Indebtedness in full.
- 3 -
<PAGE> 4
(c) The Guarantor's obligations hereunder shall not be affected by any of
the following, all of which the Guarantor hereby waives: (i) the invalidity,
unenforceability, propriety of manner of enforcement of, or loss or change in
priority of any security interest or other lien securing payment of any
Indebtedness or the Guarantor's obligation hereunder; (ii) any taking, holding,
continuation, collection, modification, leasing, impairment, surrender or
abandonment of, or any failure to protect, preserve or insure, any such
collateral; (iii) any delay in the exercise or waiver of, any failure to
exercise, or any forbearance in the exercise of, any right or remedy of Lender
or any person against the Guarantor, Borrower or any person or relating to the
Indebtedness or any part thereof or the collateral therefor; (iv) failure of
the Guarantor to receive notice of any intended disposition of such collateral;
(v) any defense arising by reason of the cessation from any cause whatsoever of
liability of Borrower including, without limitation, any failure, delay,
waiver, forbearance, negligence or omission by Lender in enforcing its claims
against Borrower or any collateral therefor including, without limitation, any
failure to make, prove, or vote any claim relating to the Indebtedness or any
collateral therefor in any case or proceeding pursuant to the Federal
Bankruptcy Code or any similar law, or any satisfaction of the Indebtedness or
any part thereof by reason of the failure of Lender to recover against any
collateral therefor or the failure of Lender to obtain a judgment for any
deficiency; (vi) any release, settlement, composition, adjustment, compromise,
replacement, cancellation, discharge, assignment, sale, exchange, conversion,
participation or other transfer or disposition of any obligation of Borrower or
of any collateral thereof; (vii) the creation of any security interest, lien or
other encumbrance in favor of any person other than Lender; (viii) any refusal
or failure of Lender or any other person prior to the date hereof or hereafter
to grant any additional loan or other credit accommodation to Borrower or
Lender's or any other party's receipt of notice of such refusal or failure;
(ix) any refusal or failure of Lender or any other person to provide to the
Guarantor any information relating to Borrower, any other guarantor or indorser
or any person or entity who has given any collateral as security for the
payment of the Indebtedness or any information relating to Borrower's, the
Guarantor's or any such indorser's, person's or entity's financial condition,
business or assets, or if such information is provided, to provide such
information completely and accurately; (x) any change in the ownership or
management of Borrower; and (xi) the expiration of the period of any statute of
limitations with respect to any lawsuit or other legal proceeding against
Borrower or any person in any way related to the Indebtedness or a part thereof
or any collateral therefor.
Section 4. Termination of Guaranty.
This Guaranty shall remain in full force and effect as to the Guarantor until
either (i) Lender shall actually receive from the Guarantor written notice of
its discontinuance or (ii) June 30, 2000 (the "Guaranty Termination Date"),
whichever occurs first,
- 4 -
<PAGE> 5
provided, however, this Guaranty shall remain in full force and effect
thereafter until all Indebtedness outstanding, or contracted or committed for
(whether or not outstanding), before the receipt of such notice by Lender or
the Guaranty Termination Date, and any extensions or renewals thereof (whether
made before or after receipt of such notice), together with interest accruing
thereon after such notice or Guaranty Termination Date, shall be finally and
irrevocably paid in full. Payment of all of the Indebtedness from time to time
prior to the Guaranty Termination Date shall not operate as a discontinuance of
this Guaranty, unless notice of discontinuance as above provided has
theretofore actually been received by Lender. This Guaranty shall continue to
be effective or be reinstated, as the case may be, if at any time any payment
of any of the Indebtedness of Borrower is rescinded or must otherwise be
returned by Lender upon the insolvency, bankruptcy or reorganization of
Borrower or otherwise, all as though such payment had not been made. As of the
date any payment is returned, the statute of limitations shall start anew with
respect to any action or proceeding by Lender against the Guarantor under this
Guaranty. The Guarantor shall defend and indemnify Lender against and from any
claim or loss under this paragraph including actual attorneys' fees and
expenses in the defense of any such action or suit.
Section 5. Financial Reporting.
The Guarantor hereby covenants and agrees to deliver to Lender:
(a) as soon as available and in any event within ninety (90) days after
the close of each fiscal year of the Guarantor, copies of the audited
consolidated and consolidating balance sheets of the Guarantor 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 the Guarantor 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 (including, without
limitation, footnotes and supplemental schedules detailing all selling and
general and administrative expenses) and accompanied by an opinion thereon
(which shall not be qualified by reason of any limitation imposed by the
Guarantor) of KPMG Peat Marwick LLP, or of other independent public
accountants selected by the Guarantor 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
- 5 -
<PAGE> 6
records and such other auditing procedures as were considered
necessary in the circumstances;
(b) as soon as available and in any event within thirty (30) days
after the end of each fiscal month of each fiscal year of the
Guarantor, consolidated and consolidating balance sheets of the
Guarantor and its subsidiaries as of the end of such fiscal month and
the related consolidated and consolidating statements of income,
retained earnings and cash flows for such fiscal month and for the
portion of the Guarantor's fiscal year ended at the end of such
fiscal month, setting forth in each case in comparative form, the
figures for the corresponding fiscal month and the corresponding
portion of the Guarantor's previous fiscal year, all in reasonable
detail and satisfactory in form to Lender and certified (subject to
normal year-end adjustments and footnote disclosures) as to fairness
of presentation, generally accepted accounting principles and
consistency by the chief financial officer of the Guarantor; and
(c) with reasonable promptness, such further information regarding
the business, affairs and financial condition of the Guarantor or
any subsidiary of the Guarantor as Lender may from time to time
reasonably request.
Section 6. Miscellaneous.
(a) "Borrower" as used in this Guaranty shall include: (i) any
successor individual or individuals, association, partnership or corporation to
which all or a substantial part of the business or assets of Borrower shall
have been transferred including, without limitation, a debtor in possession
under the Federal Bankruptcy Code; and (ii) any other corporation into or with
which Borrower shall have been merged, consolidated, reorganized or absorbed.
(b) The liability of the Guarantor under this Guaranty shall be
absolute and unconditional irrespective of any lack of validity or
enforceability of the loan documents evidencing the Indebtedness or any other
agreement or instrument relating thereto or any other circumstance which might
otherwise constitute a defense available to, or a discharge of, Borrower or the
Guarantor. The Guarantor's obligation hereunder is to pay the Indebtedness in
full when due according to its terms, and shall not be affected by any
extension of time for payment by Borrower, or any limitation on the right to
attorneys' fees resulting from any proceeding under the Federal Bankruptcy Code
or any similar law. The Guarantor's obligation under this Guaranty shall also
include payment of interest accrued on the Indebtedness before or after a
filing of a petition under the bankruptcy laws and interest on, and principal
of, loans made to the debtor in possession after the filing of such a petition
by or against Borrower.
- 6 -
<PAGE> 7
(c) No course of dealing or usage of trade, and no oral or written
representations or agreement between Borrower or the Guarantor and Lender,
whether or not relied on or acted upon, and no act, delay or omission by Lender
in exercising any right or remedy hereunder or with respect to any Indebtedness
shall operate as a waiver thereof or of any other right or remedy, and no
single or partial exercise thereof shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. The giving of notice or
a demand by Lender at any time shall not operate as a waiver in the future of
Lender's right to exercise any right or remedy without notice or demand.
Lender may remedy any default by Borrower under any agreement with Borrower or
with respect to any Indebtedness in any reasonable manner without waiving the
default remedied and without waiving any other prior or subsequent default by
Borrower. After Borrower's failure to pay the Indebtedness in full, or any
part thereof, Lender may exercise against the Guarantor each right and remedy
of a creditor against a principal debtor upon a past due liquidated obligation.
All rights and remedies of Lender hereunder are cumulative.
(d) In addition to all liens upon, and rights of setoff against, the moneys,
securities or other property of the Guarantor given to Lender by law, Lender
shall have, with respect to the Guarantor's obligations to Lender under this
Guaranty and to the extent permitted by law, a contractual possessory security
interest in and a right of setoff against, and the Guarantor hereby assigns,
conveys, delivers, pledges and transfers to Lender all of the Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of the Guarantor now or hereafter in possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding, however, all IRA, Keogh and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
the Guarantor. No security interest or right of setoff shall be deemed to have
been waived by any act or conduct on the part of Lender or by any neglect to
exercise such right of setoff or to enforce such security interest or by any
delay in so doing.
(e) The Guarantor agrees that the Indebtedness of Borrower to Lender,
whether heretofore, now or hereafter created, shall be prior to any claim that
the Guarantor may now have or hereafter acquire against Borrower, whether or
not Borrower becomes insolvent. The Guarantor hereby expressly subordinates
any claim the Guarantor may have against Borrower, upon any account whatsoever,
to any claim that Lender may now or hereafter have against Borrower. In the
event of insolvency and consequent liquidation of the assets of Borrower,
through bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation or otherwise, the assets of Borrower applicable to the payment of
the claims of both Lender and the Guarantor shall be paid to Lender and shall
be first applied by Lender to the Indebtedness of Borrower to Lender. The
Guarantor hereby assigns to Lender all
- 7 -
<PAGE> 8
claims which it may have or acquire against Borrower or against any assignee or
trustee in bankruptcy or Borrower; provided, however, that such assignment
shall be effective only for the purpose of assuring to Lender full payment in
legal tender of the Indebtedness. If Lender so requests, any notes or credit
agreements heretofore or hereafter evidencing any debts or obligations of
Borrower to the Guarantor shall be marked with a legend that the same are
subject to this Guaranty and shall be delivered to Lender. The Guarantor
agrees, and Lender hereby is authorized, in the name of the Guarantor, from
time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions
as Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
(f) Lender and Guarantor as used herein shall include the successors and
assigns of those parties (except that the Guarantor shall have no right to
assign or delegate any of its rights or obligations under this Guaranty). The
rights and benefits of Lender hereunder shall, if Lender so directs, inure to
any party acquiring any interest in the Indebtedness or any part thereof. If
any right of Lender hereunder is construed to be a power of attorney, such
power of attorney shall not be affected by the subsequent disability or
incompetence of Borrower or the Guarantor.
(g) Lender's rights and remedies under this Guaranty are assignable and any
participation may be granted by Lender herein in connection with the assignment
or granting of a participation by Lender in the Indebtedness or any part
thereof.
(h) The Guarantor agrees that any action or proceeding to enforce or arising
out of this guaranty may be commenced in any Kentucky state court or in the
United States District Court for the Western District of Kentucky, Paducah
Division, and the Guarantor waives personal service of process and agrees that
a summons and complaint commencing an action or proceeding in any such court
shall be properly served and shall confer personal jurisdiction if served by
registered mail to the Guarantor at its address specified above, or as
otherwise provided by the laws of the Commonwealth of Kentucky or the United
States of America.
(i) If any provision of this Guaranty is unenforceable in whole or in part
for any reason, it shall be deemed modified to the extent necessary to make it
or the applicable provision enforceable, or if for any reason such provision is
not deemed modified, the remaining provisions shall continue to be effective.
(j) Any payment or other act which results in the extension or renewal of
the statute of limitations in connection with any action or proceeding against
Borrower relating to the Indebtedness, shall extend or renew the statute of
limitations in connection with any action or any proceeding against the
Guarantor
- 8 -
<PAGE> 9
in connection with this Guaranty whether or not the Guarantor had notice of, or
consented to, such payment or act.
(k) Any demand for payment against the Guarantor made by Lender under this
Guaranty shall be in writing and delivered in person or by first class mail
postage prepaid at the Guarantor's address first written above (or at such
other address as the Guarantor may from time to time designate as its address
for notices under this Guaranty by written notice to Lender), and shall be
deemed received: (i) upon delivery, if delivered in person; or (ii) two (2)
days after deposited in the mail or delivered to the post office, if mailed.
(l) This Guaranty and the transactions evidenced hereby shall be governed by
and construed in accordance with the substantive laws of the Commonwealth of
Kentucky without regard to principles of conflicts of law.
(m) THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO A TRIAL BY JURY THE GUARANTOR MAY HAVE IN ANY LITIGATION ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS GUARANTY. THE GUARANTOR 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. THE GUARANTOR
ACKNOWLEDGES THAT LENDER HAS BEEN INDUCED TO EXECUTE THIS GUARANTY IN PART BY
THE PROVISIONS OF THIS WAIVER.
IN WITNESS WHEREOF, the Guarantor has executed this Continuing Guaranty as of
the day and year first above written.
FALCONITE, INC.
By /s/ Mike Falconite
----------------------------
Name: Mike Falconite
--------------------------
Title: President
-------------------------
- 9 -
<PAGE> 1
EXHIBIT 10.43
FOURTH AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS FOURTH AMENDMENT TO REVOLVING CREDIT AND TERM LOAN
AGREEMENT (this "Amendment") is made and entered into effective as of the 19th
day of February, 1997, by and between FALCONITE EQUIPMENT, INC. (formerly
known as 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, that certain Second Amendment to Revolving
Credit and Term Loan Agreement dated June 14, 1996, and that certain Third
Amendment to Revolving Credit and Term Loan Agreement dated February 19, 1997
(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 "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 (i) principal
payments on the Revolving Credit Loans, (ii) the balloon
payment on the Term Note which is due on the Maturity Date and
(iii) principal payments on those two certain Promissory Notes
of Borrower dated December 16, 1996, and January 15, 1997,
respectively, payable to the order of Southwest Bank of St.
Louis in the aggregate principal amount of $9,744,559.49 as of
February 19, 1997) which would be reflected on a balance sheet
of Borrower prepared as of any date in accordance with
Generally Accepted Accounting Principles."
2. The definition of "Eligible Inventory" set forth in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
<PAGE> 2
""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 the following methods of
depreciation, unless otherwise approved by Lender in writing,
(A) for large (28-ton or greater) cranes (1) the 15-year
straight line depreciation method with no salvage value if
purchased prior to January 1, 1997, or (2) the 15-year
straight line depreciation method with a salvage value of
Twenty-Five Percent (25%) if purchased on or after January 1,
1997, (B) for small (less than 28-tons) cranes (1) the
15-year straight line depreciation method with no salvage
value if purchased prior to January 1, 1997, or (2) the
10-year straight line depreciation method with a salvage value
of Ten Percent (10%) if purchased on or after January 1, 1997,
(C) for large lifts, (1) the 10-year straight line
depreciation method with no salvage value if purchased prior
to January 1, 1997, or (2) the 10-year straight line
depreciation method with a salvage value of Ten Percent (10%)
if purchased on or after January 1, 1997, (D) for small lifts
and fork lifts, (1) the 10-year straight line depreciation
method with no salvage value if purchased prior to January 1,
1997, or (2) the 7-year straight line depreciation method with
a salvage value of Ten Percent (10%) if purchased on or after
January 1, 1997, (E) for dirt moving equipment, (1) the 7-year
straight line depreciation method with no salvage value if
purchased prior to January 1, 1997, or (2) the 7-year straight
line depreciation method with a salvage value of Ten Percent
(10%) if purchased on or after January 1, 1997, (F) for
vehicles and trailers, the 5-year straight line depreciation
method with no salvage value and (G) for all other types of
Inventory, (1) the 5-year straight line depreciation method
with no salvage value if purchased prior to January 1, 1997,
or (2) the 5-year straight line depreciation method with a
salvage value of Ten Percent (10%) if purchased on or after
January 1, 1997, 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 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
- 2 -
<PAGE> 3
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."
3. Paragraph (d) of Section 1.02 of the Loan Agreement
is hereby deleted in its entirety and the following substituted in lieu
thereof:
"(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 consolidated
and consolidating financial statements of Parent Guarantor and
its subsidiaries 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 the Parent Guarantor and its
subsidiaries on a consolidated basis."
4. Section 9.14(a) of the Loan Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
"(a) Minimum Tangible Net Worth. Borrower shall
not permit its Tangible Net Worth to be less than
$9,000,000.00 at any time on or after December 31, 1996."
5. Section 9.14(b) of the Loan Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
-3-
<PAGE> 4
"(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, to Tangible Net
Worth to be greater than 5.50 to 1.0 at any time on or after
December 31, 1996."
6. Section 9.14(d) of the Loan Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
"(d) Minimum Operating Cash Flow. Borrower shall
not permit its Operating Cash Flow to be less than
$8,500,000.00 for any consecutive twelve (12) month period
commencing with the consecutive twelve (12) month period ended
December 31, 1996. For the purposes of this Section,
Borrower's "Operating Cash Flow" shall be that shown on the
officer's certificate delivered with respect to the applicable
twelve (12) consecutive month period unless Lender makes an
independent, good faith determination of Operating Cash Flow
for such consecutive twelve (12) month period. If Lender's
determination of Operating Cash Flow for any consecutive (12)
month period 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."
7. Section 9.16 of the Loan Agreement is hereby deleted
in its entirety and the following substituted in lieu thereof:
"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 following methods and salvage value
percentages: (a) for large (28-ton or greater) cranes (i) the
15-year straight line depreciation method with no salvage
value if purchased prior to January 1, 1997, or (ii) the
15-year straight line depreciation method with a salvage value
of Twenty-Five Percent (25%) if purchased on or after January
1, 1997, (b) for small (less than 28-tons) cranes (i) the
15-year straight line depreciation method with no salvage
value if purchased prior to January 1, 1997, or (ii) the
10-year straight line depreciation method with a salvage value
of Ten Percent (10%) if purchased on or after January 1, 1997,
(c) for large lifts, (i) the 10-year straight line
depreciation method with no salvage value if purchased prior
to January 1, 1997, or (ii) the 10-year straight line
depreciation method with a salvage value of Ten Percent (10%)
-4-
<PAGE> 5
if purchased on or after January 1, 1997, (d) for small
lifts and fork lifts, (i) the 10-year straight line
depreciation method with no salvage value if purchased prior
to January 1, 1997, or (ii) the 7-year straight line
depreciation method with a salvage value of Ten Percent (10%)
if purchased on or after January 1, 1997, (e) for dirt moving
equipment, (i) the 7-year straight line depreciation method
with no salvage value if purchased prior to January 1, 1997,
or (2) the 7-year straight line depreciation method with a
salvage value of Ten Percent (10%) if purchased on or after
January 1, 1997, (f) for vehicles and trailers, the 5-year
straight line depreciation method with no salvage value and
(g) for all other types of Inventory, (1) the 5-year straight
line depreciation method with no salvage value if purchased
prior to January 1, 1997, or (ii) the 5-year straight line
depreciation method with a salvage value of Ten Percent (10%)
if purchased on or after January 1, 1997."
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. 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.
10. Borrower hereby agrees to pay or 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.
11. 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.
12. 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.
13. 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.
14. Borrower hereby represents and warrants to Lender
that:
-5-
<PAGE> 6
(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 and warranties 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.
15. 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.
16. 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
Fourth Amendment to Revolving Credit and Term Loan Agreement this 5th day of
March, 1997, effective as of February 19, 1997.
FALCONITE EQUIPMENT, INC.
By /s/ Mike Falconite
------------------------------
Name: Mike Falconite
---------------------------
Title: President
--------------------------
CITIZENS BANK & TRUST COMPANY OF PADUCAH
-6-
<PAGE> 7
By /s/ Scott Powell
----------------------------
Name: Scott Powell
-------------------------
Title: Senior Vice President
------------------------
-7-
<PAGE> 1
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
Falconite, Inc.:
The audits referred to in our report dated February 20, 1997 included
the related financial statement schedule as of December 31, 1995 and 1996, and
for the years ended December 31, 1994, 1995 and 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
consolidated 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
March 17, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE 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>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 416
<SECURITIES> 0
<RECEIVABLES> 7,294
<ALLOWANCES> 522
<INVENTORY> 1,615
<CURRENT-ASSETS> 0
<PP&E> 103,095
<DEPRECIATION> 14,494
<TOTAL-ASSETS> 117,458
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 83
0
0
34,073
<TOTAL-LIABILITY-AND-EQUITY> 117,458
<SALES> 15,203
<TOTAL-REVENUES> 48,086
<CGS> 25,262
<TOTAL-COSTS> 25,262
<OTHER-EXPENSES> 7,985
<LOSS-PROVISION> 891
<INTEREST-EXPENSE> 4,330
<INCOME-PRETAX> 7,959
<INCOME-TAX> 2,328
<INCOME-CONTINUING> 3,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,914
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
-92-
</TABLE>
