<PAGE> 1
As filed with the Securities and Exchange Commission on August 7, 1997
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEADOWCRAFT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2500 63-0891252
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code Number) Number)
1401 MEADOWCRAFT ROAD
BIRMINGHAM, ALABAMA 35215
(205) 853-2220
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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WILLIAM J. MCCANNA
PRESIDENT
MEADOWCRAFT, INC.
1401 MEADOWCRAFT ROAD
BIRMINGHAM, ALABAMA 35215
(205) 853-2220
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of Communications To:
JOHN H. COOPER, ESQ. JAMES C. SCOVILLE, ESQ.
SIROTE & PERMUTT, P.C. DEBEVOISE & PLIMPTON
2222 ARLINGTON AVENUE SOUTH 875 THIRD AVENUE
BIRMINGHAM, ALABAMA 35255-5727 NEW YORK, NEW YORK 10022
TEL: (205) 930-5108 TEL: (212) 909-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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: [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AGGREGATE OFFERING REGISTRATION FEE
TO BE REGISTERED PRICE(1)(2)
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<S> <C> <C>
Common Stock, par value $.01 per share............ $50,000,000 $15,152
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</TABLE>
(1) Includes shares that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 7, 1997
PROSPECTUS
Shares
MEADOWCRAFT, INC.
Common Stock
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All of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Meadowcraft, Inc.
(the "Company" or "Meadowcraft"). Prior to the Offering, there has been no
public market for the Common Stock of the Company. It is currently anticipated
that the initial public offering price will be between $ and $ per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied for the
Common Stock to be listed on the New York Stock Exchange under the symbol
"MWI."
Upon consummation of the Offering, the existing stockholders of the
Company will own approximately % of the outstanding Common Stock
(approximately % if the Underwriters' over-allotment option is exercised in
full). See "Principal Stockholders."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
shares of Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting Discount
and Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
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The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them and
subject to certain conditions, including the approval of certain legal matters
by counsel. The Underwriters reserve the right to withdraw, cancel or modify
the Offering and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made against payment therefor
on or about , 1997, at the offices of Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York 10167.
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BEAR, STEARNS & CO. INC. A.G. EDWARDS & SONS, INC.
The date of this Prospectus is , 1997
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[LOGO]
[PHOTO TO BE FILED BY AMENDMENT]
"Meadowcraft," "Plantation Patterns," "Arlington House," "Salterini,"
"Interior Images by Salterini," and "Home Collection from Plantation Patterns"
are trademarks of Meadowcraft, Inc.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS, OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF
THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and the financial
statements and related notes thereto appearing elsewhere in this Prospectus.
Unless otherwise indicated, (i) all information in this Prospectus assumes that
the Underwriters' over-allotment option is not exercised; (ii) all references to
the assumed initial public offering price of $ per share of Common Stock
are based on the midpoint of the range set forth on the cover page of this
Prospectus; (iii) references to "Fiscal 1991," "Fiscal 1992," "Fiscal 1993,"
"Fiscal 1994," "Fiscal 1995," and "Fiscal 1996" refer to the Company's fiscal
year ending on the Sunday closest to April 30 of that year, references to
"Fiscal 1997" refer to the Company's fiscal year ended May 3, 1997, and
references to "Fiscal 1998" refer to the Company's fiscal year ending July 31,
1998; and (iv)"Seasonal" year refers to the 12-month period ending July 31 of
the particular year and represents the fiscal year to which the Company plans to
change upon consummation of the Offering.
THE COMPANY
Meadowcraft is one of the leading domestic producers of casual outdoor
furniture and is the largest manufacturer of outdoor wrought iron furniture in
the United States. The Company designs, manufactures and distributes a variety
of wrought iron consumer products, including outdoor and indoor furniture and
accessories, outdoor cushions and umbrellas, and garden products, which it
markets to mass merchandisers and specialty stores primarily in the United
States. The Company believes that it has established a reputation as an
innovator in the design, manufacturing, distribution and marketing of moderately
priced, quality wrought iron furniture. Meadowcraft's net sales have grown from
$50.5 million in Fiscal 1991 to $141.9 million in Fiscal 1997, while pro forma
net income has increased from $1.2 million to $15.9 million over the same
period. For Seasonal 1997, Meadowcraft had net sales of $ million and pro forma
net income of $ million.
The Company offers consumers a wide variety of products across
different price points in three markets: the outdoor mass market under the
Plantation Patterns brand name; the outdoor specialty market under the
Meadowcraft, Arlington House and Salterini brand names; and the indoor specialty
and mass markets under the Interior Images by Salterini and Home Collection from
Plantation Patterns brand names, respectively. For Fiscal 1997, outdoor mass
market sales accounted for approximately 75.1% of the Company's gross sales,
while outdoor specialty market sales represented approximately 16.9% of gross
sales and indoor specialty and mass market sales constituted approximately 4.2%
of gross sales.
Meadowcraft attributes its strong market position in the casual outdoor
furniture industry to the following competitive strengths:
- Meadowcraft's ability to produce quality wrought iron
furniture and accessories with traditional, "high-end" design
features, broad consumer appeal, and high value-to-price
characteristics.
- Meadowcraft's ability to ship large quantities of products on
a reliable and timely basis due to its advanced manufacturing
and distribution facilities and computerized inventory
tracking and shipping systems.
- Meadowcraft's excellent relationships with its mass market
retail customers and its extensive network of specialty retail
customers.
- Meadowcraft's senior managers with their extensive experience
in the casual furniture and other manufacturing industries.
Meadowcraft's objective is to continue to grow sales, earnings and
market share of the casual outdoor and indoor furniture markets by:
- Introducing new products and expanding offerings in its
existing product lines with the same quality and customer
value as its existing products.
- Increasing its manufacturing and product distribution capacity
to meet the demands of new and existing customers in new
geographic regions, as well as to enhance the Company's
ability to provide products to all customers on a timely and
reliable basis.
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<PAGE> 5
- Heightening brand name awareness and increasing consumer
demand for the Company's products through expanded product
offerings and national marketing and advertising campaigns,
such as the Paul Harvey national radio show.
The Company was incorporated under the laws of Delaware in 1985 as Sam
Blount Company, Inc. and changed its name to Meadowcraft, Inc. in July 1994. The
Company's principal executive and administrative offices are located at 1401
Meadowcraft Road, Birmingham, Alabama 35215, and the Company's telephone number
is (205) 853-2220.
OWNERSHIP
Upon consummation of the Offering, the existing stockholders of the
Company will own an aggregate of approximately % of the outstanding Common
Stock (approximately % if the Underwriters' over-allotment option is exercised
in full), with Samuel R. Blount, Chairman of the Board of Directors, and his
immediate family owning an aggregate of approximately % of the outstanding
Common Stock (approximately % if the Underwriters' over-allotment option is
exercised in full). See "Principal Stockholders."
THE OFFERING
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<S> <C>
Common Stock offered by the Company .......................... shares
Common Stock to be outstanding after the Offering ............ shares(1)
Use of Proceeds .............................................. The Company will use the net proceeds from the Offering to pay
approximately $32.7 million of the S Corporation Distribution
(as defined herein) to the Company's existing stockholders, and
the balance will be used to finance capital expenditures. See
"Use of Proceeds."
Proposed NYSE symbol ......................................... MWI
</TABLE>
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(1) Excludes 1,000,000 shares of Common Stock reserved for issuance and not
yet issued under the Company's 1997 Stock Option Plan (the "Plan"). See
"Management--1997 Stock Option Plan."
RISK FACTORS
For a discussion of certain factors that should be considered in
evaluating an investment in the Common Stock, see "Risk Factors."
4
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SUMMARY HISTORICAL AND SEASONAL FINANCIAL DATA(1)
(in thousands, except per share data)
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<CAPTION>
FISCAL YEARS ENDED
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APRIL 28, MAY 3, MAY 2, MAY 1, APRIL 30, APRIL 28, MAY 3,
1991 1992 1993 1994 1995 1996 1997
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ................................. $50,523 $68,359 $73,062 $96,189 $120,767 $117,419 $141,945
Gross profit .............................. 13,111 17,519 17,191 25,384 32,180 29,570 43,630
Operating income .......................... 6,126 9,082 8,491 14,972 20,914 17,572 30,652
Pro forma net income(2) ................... 1,206 3,244 2,790 6,415 9,962 7,869 15,939
Pro forma net income per share(3)..........
Pro forma weighted average shares
outstanding(3)...........................
OTHER DATA:
Capital expenditures(4) ................... $ 297 $ 1,508 $ 1,700 $ 7,615 $ 16,034 $ 18,676 $ 4,081
Depreciation and amortization ............. 1,242 1,189 1,221 1,482 2,340 4,006 5,099
</TABLE>
<TABLE>
<CAPTION>
MAY 3, 1997
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PRO FORMA
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ACTUAL PRO FORMA(5) AS ADJUSTED(6)
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(unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets......................... $127,061 $ 118,561
Total debt........................... 68,966 68,966
Stockholders' equity (deficit)....... 39,328 (1,842)
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SEASONAL YEARS ENDED JULY 31,
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(unaudited)
1991 1992 1993 1994 1995 1996
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<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ................... $54,750 $67,144 $83,937 $99,155 $116,894 $126,926
Gross profit ................ 14,960 17,105 20,394 27,909 29,139 32,930
Operating income ............ 7,858 7,683 10,910 18,047 17,715 20,642
Pro forma net income(2) ..... 2,151 2,497 4,243 8,280 7,915 9,725
OTHER DATA:
Capital expenditures(4) ..... $ 596 $ 1,506 $ 1,735 $ 9,825 $ 19,049 $ 13,973
Depreciation and amortization 1,038 1,196 1,272 1,576 2,664 4,226
</TABLE>
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(1) The Company utilizes a 52/53 week fiscal year. In each of Fiscal 1991,
1992, 1993, 1994, 1995 and 1996, the fiscal year ended on the Sunday
closest to the last day of April. In Fiscal 1997, the Company changed
its fiscal year end to the Saturday closest to the last day of April.
All fiscal and seasonal years presented herein represent 52 weeks of
operations, except for Fiscal 1992 and Fiscal 1997 which include 53
weeks of operations. The 12-month period ended July 31 ("Seasonal
Year") represents the Company's natural, or seasonal, year which
corresponds to the Company's annual business cycle. However, due to
certain regulations under the Internal Revenue Code of 1986, as amended
(the "Code") relating to S corporation elections, the Company's fiscal
year was not permitted to match its Seasonal Year. Upon consummation of
the Offering, the Company will terminate its S corporation election and
change its fiscal year end to July 31 to coincide with the Company's
Seasonal Year. As a result, certain unaudited Seasonal Year information
is presented to aid investors in measuring and identifying trends with
respect to the Company's performance related to its Seasonal Years.
(2) Pro forma net income is presented as if the Company were a C
corporation for tax purposes for all periods presented. See Notes 2 and
7 of the Company's audited financial statements and related notes
thereto (the "Financial Statements") included elsewhere in this
Prospectus.
(3) The weighted average number of shares of Common Stock outstanding gives
effect to the estimated number of shares of Common Stock that would be
required to be sold, at an assumed initial public offering price of $
per share, to pay the portion of the S Corporation Distribution to be
paid out of the net proceeds of the Offering in excess of Fiscal 1997
earnings. See "Use of Proceeds."
(4) Capital expenditures include capital leases and capital expenditures
financed with debt.
(5) Reflects, as appropriate, (i) the approximately $32.7 million portion
of the S Corporation Distribution to be paid out of the net proceeds of
the Offering, which represents undistributed earnings from October 1,
1986 through May 3, 1997 that were previously taxed to the existing
stockholders, (ii) the $11.5 million distribution to the existing
stockholders declared and paid on June 6, 1997, which represents the
approximate amount of income taxes attributable to Fiscal 1997 earnings
(see Note 11 of the Financial Statements included elsewhere in this
Prospectus), and (iii) the effect of recording net deferred tax assets
which will result from the termination of the Company's S corporation
election, amounting to approximately $3.0 million at May 3, 1997 (see
Notes 2 and 7 of the Financial Statements included elsewhere in this
Prospectus). See "Use of Proceeds."
(6) Represents pro forma balance sheet data as adjusted to reflect the
issuance and sale of shares of Common Stock by the Company at an
assumed initial public offering price of $ per share providing
assumed net proceeds of $ million and the application of such
proceeds to pay approximately $32.7 million of the S Corporation
Distribution. See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider the following factors in evaluating the
Company and its business before purchasing any of the shares of the Common Stock
offered hereby.
CUSTOMER CONCENTRATION
A substantial portion of the Company's sales is derived from a limited
number of customers. In Fiscal 1997, the Company's top five customers
represented approximately 62.6% of the Company's net sales. Wal-Mart Stores,
Inc. and Sam's Club, Inc. (each of which is a subsidiary of Wal-Mart, Inc.)
represented approximately 21.4% and 12.6%, respectively, of net sales in Fiscal
1997. The Company has no long-term written contracts for the purchase of
products with its customers, but instead sells its products under short-term
purchase orders, which is consistent with general industry practice. The loss of
any significant customer or a substantial reduction in purchases by any such
customer would have a material adverse effect on the Company if the Company were
unable to replace such customer or purchases. In addition, changes and
consolidation in the retail industry could adversely affect one or more of the
Company's significant customers which, in turn, could materially adversely
affect the Company. See "Business--Customers and Marketing."
SEASONALITY
The Company's sales in its quarter ended October are significantly
lower than its sales in other quarters due to the seasonal nature of the casual
outdoor furniture industry. The Company has historically experienced operating
losses in the quarter ended October of each year. During the months of August,
September and October, shipments of products to customers are relatively low due
to the completion of the mass market retail selling season and reduced demand
for outdoor casual furniture in the fall and winter months. At the same time,
the Company continues to manufacture products to build inventory to meet
customer orders and anticipated demand for the next selling season, incurring
operating and overhead costs without corresponding sales during the period. In
addition, the Company's sales are also subject to fluctuations on a quarterly
basis due to such factors as weather and customer ordering decisions. Trading
volume and prices for the Common Stock could be subject to wide fluctuations in
response to these variations in operating results. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Quarterly Results
and Seasonality."
CYCLICALITY
The Company's business is subject to cyclical fluctuations based on
economic conditions generally and conditions in the casual furniture industry,
including the effects of consumer behavior, preferences, and confidence; the
level of discretionary spending; housing activity; demographics; interest rates;
and credit availability. These factors not only affect the ultimate consumer,
but also impact mass and specialty retailers, the Company's primary customers.
Recessions or prolonged economic downturns could have a material adverse effect
on the Company's business, financial condition or results of operations.
COMPETITION
The casual furniture industry is highly competitive and includes a
large number of manufacturers, none of which dominate the market. The Company
competes against other domestic and foreign wrought iron furniture manufacturers
as well as manufacturers of aluminum, resin and plastic, wicker and rattan, and
wood casual furniture with respect to its outdoor products and traditional
furniture companies with respect to its indoor products. A number of the
companies which compete directly with the Company may have greater financial and
other resources than the Company. Management believes that competition in the
casual furniture industry is generally a function of timeliness of delivery,
price, quality, product design, product availability and customer service. While
sales of imported, foreign-produced wrought iron consumer products represent a
small percentage of total U.S. wrought iron
6
<PAGE> 8
furniture sales, such sales have increased in recent years and could adversely
affect the Company's sales. See "Business--Industry and Competition."
MANAGEMENT OF GROWTH
As part of its planned expansion, the Company is constructing an
approximately 530,000 square foot distribution facility and office in
Birmingham, Alabama, and is expanding its Selma and Wadley, Alabama facilities
by approximately 70,000 and 20,000 square feet, respectively. In addition, the
Company is planning to construct an approximately 600,000 square foot
manufacturing, distribution and office facility in Arizona in Fiscal 1998, and
has entered into a definitive agreement for the purchase of an approximately
175,000 square foot manufacturing facility in Sonora, Mexico. See
"Business--Properties." The Company also plans to introduce new products,
including a new line of tubular steel furniture in Fiscal 1998, and further
diversify its product offerings. Although the Company has been successful in
managing its recent growth and has taken steps to ensure that its systems and
controls are adequate to address its current and anticipated needs, there can be
no assurance that the Company's systems and controls or staff will be adequate
to sustain future growth. If the Company is unable to manage expansion
effectively, its business, results of operations or financial condition could be
materially adversely affected.
FLUCTUATIONS IN PRICE OF RAW MATERIALS
The principal raw materials used by the Company in manufacturing and
distributing its products are steel, fabrics, cardboard, paint and umbrella
frames. Although the Company purchases raw materials from a number of domestic
and foreign suppliers and believes that there are an adequate number of
alternative suppliers available, there can be no assurance that the cost of
these raw materials will not increase in the future or that the Company will
continue to have available necessary raw materials at reasonable prices. The
Company has annual contracts with many of its major suppliers. The Company
commits to purchase the raw materials that it estimates will be needed for the
ensuing year at fixed prices in order to attempt to control production costs and
has historically been able to build increased raw material costs into the prices
of its products. However, there can be no assurance that market and competitive
pressures will permit the Company to build these costs into the prices of its
products on a timely basis if raw material prices increase or that the Company
will be able to offset such raw material cost increases through cost reductions
and, therefore, enable it to maintain the level of profit margins for its
products. See "Business--Raw Materials and Suppliers."
RISK OF BUSINESS INTERRUPTION
Any prolonged disruption at any of the Company's production facilities
due to labor difficulties, equipment failure, destruction of or material damage
to such facility, or other reasons, could have a material adverse effect on the
Company's business, financial condition or results of operations. Although the
Company maintains property and business interruption insurance to protect
against any such disruptions (other than for labor-related disruptions), there
can be no assurance that the proceeds from such insurance would be adequate to
compensate the Company for losses, including the loss of customers, incurred
during the period of any such disruption or thereafter. See
"Business--Properties."
DEPENDENCE ON KEY PERSONNEL
The Company's growth has been dependent upon the skills and efforts of
its senior managers and many other key employees. Although the Company has been
successful in hiring qualified and experienced personnel, the loss of services
of any of these executive officers or other key personnel could have a material
adverse effect on the Company's business, financial condition or results of
operations. In addition, the Company's future growth and development will
require it to continue to attract and retain additional qualified personnel.
There can be no assurance that the Company will be able to attract and retain
personnel with the skills and experience necessary to manage successfully the
Company's business and operations. The Company has no employment agreements or
noncompete agreements with any of its employees. The Company has a key-man life
insurance policy on Mr. McCanna in the face amount of five million dollars. See
"Management."
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<PAGE> 9
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, existing stockholders of the Company
will own an aggregate of approximately % of the outstanding Common Stock
(approximately % assuming that the Underwriters' over-allotment option is
exercised in full), with Samuel R. Blount, Chairman of the Board of Directors,
beneficially owning an aggregate of approximately % of the outstanding Common
Stock ( % assuming that the Underwriters' over-allotment option is exercised in
full). Mr. Blount will have effective control over the Company through his
ability to control the election of directors and all other matters that require
action by the Company's stockholders. Such control may have the effect of
preventing any change in control of the Company opposed by him, which may have
an adverse effect on the market price of the Common Stock. See
"Management--Executive Officers and Directors," "Principal Stockholders" and
"Description of Capital Stock."
GOVERNMENT REGULATIONS
The Company's operations must meet federal, state and local regulatory
standards in the areas of safety, health, labor and environmental pollution
controls. Historically, compliance with these standards has not had any material
adverse effect on the Company. If the Company fails to comply with such
regulations, the Company could be subject to liability ranging from monetary
damages to injunctive action, which could have an adverse effect on the
Company's business, financial condition or results of operations. Future changes
in such regulations could also have an adverse effect on the Company's business,
financial condition or results of operations. See "Business--Regulatory
Matters."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares
( shares if the Underwriters' over-allotment option is exercised in
full) of Common Stock sold in the Offering will be freely tradeable without
restriction or limitation under the Securities Act of 1933, as amended (the
"Securities Act"), except to the extent such shares are subject to the agreement
with the Underwriters described below, and except for any shares purchased by
"affiliates," as that term is defined under the Securities Act, of the Company.
The remaining 16,000,000 shares are "restricted securities" within the meaning
of Rule 144 under the Securities Act, and as such, may not be sold in the
absence of registration under the Securities Act or an exemption therefrom,
including the exemption under Rule 144. The restricted shares were issued and
sold by the Company in private transactions in reliance upon exemptions from
registration under the Securities Act. In addition, the Company has reserved
1,000,000 shares of Common Stock for issuance upon the exercise of options to be
granted under the 1997 Stock Option Plan (the "Plan"). In general, pursuant to
Rule 701 under the Securities Act, any employee, officer or director of the
Company who purchases his or her shares of Common Stock pursuant to the Plan is
entitled to rely on the resale provisions of Rule 701, which permit
non-affiliates to sell such shares without compliance with the public
information, holding period, volume limitation or notice provisions of Rule 144,
and permit affiliates to sell such shares without compliance with the holding
period provisions of Rule 144, in each case commencing 90 days after the date of
this Prospectus. As of the date of this Prospectus, no options have been granted
under the Plan, but the Board of Directors of the Company expects to grant
options under the Plan to certain key employees immediately prior to
consummation of this Offering. See "Management--1997 Stock Option Plan." Shares
of Common Stock purchased pursuant to the exercise of options granted under the
Plan will be eligible for resale pursuant to Rule 701 90 days following the date
of this Prospectus (although the holders of those options will be required to
agree not to offer or sell any of those shares during the 270-day period after
consummation of the Offering). The Company, its existing stockholders, certain
officers and its directors have agreed not to issue, sell, offer or agree to
sell, grant any option or other right for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any securities
convertible into, exercisable for, or exchangeable for Common Stock) during a
period of 270 days from the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc., with certain limited exceptions. After
expiration of the 270-day period, the Company and such stockholders, officers
and directors may sell shares of Common Stock without regard to such
limitations, subject to the volume limitations, as applicable, of Rule 144. The
sale of a substantial number of shares of Common Stock held by existing
stockholders, or the perception that such sales could
8
<PAGE> 10
occur, could adversely affect the market price of the Common Stock. See
"Principal Stockholders" and "Underwriting."
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value per share of
the Common Stock of $ from the initial public offering price. See
"Dilution."
NO PRIOR MARKET FOR COMMON STOCK; 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
or be sustained in the future or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price of the Common Stock will be determined by negotiations between the Company
and the representatives of the Underwriters and may not be indicative of the
market price of the Common Stock after the Offering. See "Underwriting." From
time to time after the Offering, there may be significant volatility in the
market price for the Common Stock. Quarterly operating results of the Company;
changes in general conditions in the economy, the financial markets, or the
casual furniture industry; or other developments affecting the Company or its
competitors could cause the market price of the Common Stock to fluctuate
substantially. In addition, in recent years, the stock market has experienced
significant price and volume fluctuations. This volatility has affected the
market prices of securities issued by many companies for reasons unrelated to
their operating performance.
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
of Common Stock offered by the Company hereby are estimated to be $
($ if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $ per share and after
deducting discounts and commissions and estimated Offering expenses.
The Company elected to be taxed as a corporation under subchapter S of
the Code ("S Corporation") beginning October 1, 1986, and, therefore, the income
of the Company is attributable to its existing stockholders for federal and
certain state tax purposes. Upon consummation of the Offering, the Company will
terminate its S Corporation election and will become subject to U.S. federal and
state income taxes at prevailing corporate rates. In connection with the
termination of the Company's S Corporation election, the Company will pay to its
existing stockholders a distribution (the "S Corporation Distribution"), which
will be declared, but not paid, prior to the Offering. The S Corporation
Distribution will be equal to the amount of the Company's undistributed earnings
from October 1, 1986 to May 3, 1997 which were previously taxed to its existing
stockholders plus the Company's S Corporation earnings attributable to the
period from May 4, 1997 to the date of termination of the S Corporation
election. It is not possible to predict the actual amount of the S Corporation
Distribution at this time, because the Company's S Corporation earnings for the
period from May 4, 1997 to the date of termination of the S Corporation election
will be based on a pro rata allocation of the Company's earnings for the
12-month period ending May 2, 1998 (based on the number of days in the period).
The Company will use approximately $32.7 million of the net proceeds of the
Offering to pay a portion of the S Corporation Distribution upon consummation
of the Offering, and, once the actual S Corporation Distribution is determined,
the Company expects to use cash on hand to fund the balance of the S Corporation
Distribution. Purchasers of shares of Common Stock in the Offering will not be
entitled to any portion of the S Corporation Distribution. The Company intends
to use the balance of the net proceeds to finance capital expenditures.
DIVIDEND POLICY
The Company made distributions to its stockholders of $5.1 million in
Fiscal 1995, $8.3 million in Fiscal 1996 and $6.3 million in Fiscal 1997 to pay
their tax liabilities resulting from the Company's status as an S Corporation.
See "Use of Proceeds" and the Financial Statements included elsewhere in this
Prospectus. Except as described under "Use of Proceeds," the Company currently
intends to retain its earnings following the Offering for use in the operation
and expansion of its business, and the Company currently does not anticipate
declaring or paying cash dividends for the foreseeable future. The payment of
cash dividends in the future will depend upon such factors as the Company's
earnings, capital requirements, financial condition, contractual restrictions
and other factors deemed relevant by the Board of Directors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
10
<PAGE> 12
DILUTION
The net tangible book value of the Company at May 3, 1997, was $38.9
million, or $ per share of Common Stock. Net tangible book value per
share represents total tangible assets less total liabilities, divided by the
number of outstanding shares of Common Stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of the shares of Common Stock in
the Offering and the net tangible book value per share upon consummation of the
Offering. Net tangible book value per share, after giving effect to (i) the
$11.5 million distribution to the existing stockholders declared and paid
subsequent to May 3, 1997, (ii) the approximately $32.7 million portion of the S
Corporation Distribution to be paid out of the net proceeds of the Offering and
(iii) the approximately $3.0 million of pro forma net deferred tax assets that
will be recorded as a result of the termination of the Company's S Corporation
election, would be a deficit of approximately $1.8 million or $ per share
of Common Stock. After giving effect to the issuance and sale by the Company of
the shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share (after deducting underwriting discounts and
estimated expenses of the Offering) and the application of the estimated net
proceeds therefrom, the net tangible book value of the Company after the
Offering would be $ , or $ per share of Common Stock. This
represents an immediate increase in net tangible book value of $ per share
to the existing stockholders and an immediate dilution of $ per share
to new investors. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................................. $
Net tangible book value per share prior to the Offering........................ $
Decrease in net tangible book value per share attributable
to the $11.5 million distribution declared and paid..........................
Decrease in net tangible book value per share attributable
to approximately $32.7 million of the S Corporation Distribution.............
Increase in net tangible book value per share attributable to pro forma
net deferred tax assets......................................................
Increase in net tangible book value per share attributable to net proceeds
of the Offering..............................................................
Pro forma net tangible book value per share after the Offering...................
-----------
Dilution in net tangible book value per share to new investors................... $
===========
</TABLE>
The following table summarizes (i) the number and percentage of shares
of Common Stock purchased from the Company (assuming no exercise of the
Underwriters' over-allotment option), (ii) the total cash consideration paid for
the Common Stock, and (iii) the average price per share of Common Stock paid by
existing stockholders and by purchasers of the Common Stock offered hereby (at
an assumed initial public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------
AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders ..... 16,000,000 % $ 500,000 % $.03
New investors .............
---------- ----- ----------- -----
Total ................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
Each of the foregoing tables excludes 1,000,000 shares of Common Stock
reserved for issuance and not yet issued under the Plan. See "Management--1997
Stock Option Plan."
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
May 3, 1997 (i) on an actual basis, (ii) on a pro forma basis after giving
effect to the $11.5 million distribution to the existing stockholders declared
and paid on June 6, 1997, the payment of approximately $32.7 million of the S
Corporation Distribution and the recording of net deferred tax assets of
approximately $3.0 million and (iii) on a pro forma as adjusted basis after
giving effect to the issuance and sale of the shares of Common Stock
offered by the Company hereby, based on an assumed initial public offering price
of $ per share, and the application of the net proceeds therefrom as
described in "Use of Proceeds" and assuming no exercise of the Underwriters'
over-allotment option. This table should be read in conjunction with the
Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MAY 3, 1997
----------------------------------------------
(dollar amounts in thousands)
PRO Pro Forma As
ACTUAL FORMA(1) Adjusted(2)
-------- -------- ------------
<S> <C> <C> <C>
Long-term debt............................................. $ 15,320 $ 15,320 $ 15,320
-------- -------- --------
Stockholders' equity:
Common Stock, par value $.01 per share;
100,000,000 shares authorized; 16,000,000
shares issued and outstanding, actual and pro forma;
shares issued and outstanding, as adjusted(3).... 160 160
Additional paid-in capital............................. 340 340
Retained earnings (deficit)............................ 38,828 (2,342)
-------- -------- --------
Total stockholders' equity (deficit)................ 39,328 (1,842)
-------- -------- --------
Total capitalization ............................. $ 54,648 $ 13,478 $
======== ======== ========
</TABLE>
- --------------------
(1) Pro forma stockholders' equity reflects (i) the approximately $32.7
million portion of the S Corporation Distribution to be paid out of the
net proceeds of the Offering, which represents undistributed earnings
from October 1, 1986 through May 3, 1997 that were previously taxed
directly to the existing stockholders, (ii) the $11.5 million
distribution to the existing stockholders declared and paid on June 6,
1997, which represents the approximate amount of income taxes
attributable to Fiscal 1997 earnings (see Note 11 of the Financial
Statements included elsewhere in this Prospectus), and (iii) the effect
of recording net deferred tax assets which will result from the
termination of the Company's S Corporation election, amounting to
approximately $3.0 million at May 3, 1997 (see Notes 2 and 7 of the
Financial Statements included elsewhere in this Prospectus). The actual
net deferred tax assets will be adjusted to reflect the effect of
operations of the Company for the period from May 4, 1997 to the date
of termination of its S Corporation election. The actual amount of the
S Corporation Distribution will be equal to approximately $32.7 million
plus an additional amount based on the Company's S Corporation earnings
attributable to the 12-month period ending May 2, 1998. The Company
expects to use cash on hand to fund such additional amount. See "Use of
Proceeds."
(2) Represents pro forma capitalization as adjusted to reflect the issuance
and sale of shares of Common Stock by the Company at an assumed
initial public offering price of $ per share providing assumed net
proceeds of $ million and the application of such proceeds to
pay approximately $32.7 million of the S Corporation Distribution. See
"Use of Proceeds."
(3) Excludes 1,000,000 shares of Common Stock reserved for issuance and not
yet issued under the Plan. See "Management--1997 Stock Option Plan" and
Note 11 to the Financial Statements included elsewhere in this
Prospectus.
12
<PAGE> 14
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The selected statement of income data, other data and balance sheet
data for each of the five fiscal years in the period ended May 3, 1997 set forth
below have been derived from the financial statements of the Company audited by
Arthur Andersen LLP, independent public accountants. The selected statements of
income data, other data and balance sheet data for each of the two fiscal years
in the period ended May 3, 1992 set forth below have been derived from the
audited financial statements of the Company. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Financial Statements included
elsewhere in this Prospectus.
The selected statement of income data, other data and balance sheet
data set forth below with respect to the Company's Seasonal Years have been
derived from the Company's unaudited financial statements based on the twelve
month periods ending July 31, 1991-1996, which represent the Company's Seasonal
Year and correspond to its annual business cycle. Due to certain Code
regulations relating to S Corporation elections, the Company's fiscal year was
not permitted to match its Seasonal Year. Upon consummation of the Offering, the
Company will terminate its S Corporation election and change its fiscal year end
to July 31 to coincide with the Company's Seasonal Year. As a result, certain
unaudited Seasonal Year information is presented to aid investors in measuring
and identifying trends with respect to the Company's performance related to its
Seasonal Years. In the opinion of management, the unaudited financial statements
from which Seasonal Year data have been derived include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the Seasonal Year information set forth below.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED (1)
-----------------------------------------------------------------------
APRIL 28, MAY 3, MAY 2, MAY 1, APRIL 30, APRIL 28, MAY 3,
1991 1992 1993 1994 1995 1996 1997
------- ------- ------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ........................ $50,523 $68,359 $73,062 $96,189 $120,767 $117,419 $141,945
Cost of sales .................... 37,412 50,840 55,871 70,805 88,587 87,849 98,315
------- ------- ------- ------- -------- -------- --------
Gross profit ..................... 13,111 17,519 17,191 25,384 32,180 29,570 43,630
Selling expense .................. 3,015 4,675 4,328 5,551 6,101 6,092 6,939
General and administrative expense 3,970 3,762 4,372 4,861 5,165 5,906 6,039
------- ------- ------- ------- -------- -------- --------
Operating income ................. 6,126 9,082 8,491 14,972 20,914 17,572 30,652
Interest expense ................. 4,226 3,974 4,076 4,885 4,881 5,018 5,274
------- ------- ------- ------- -------- -------- --------
Income before provision for
income taxes .................. 1,900 5,108 4,415 10,087 16,033 12,554 25,378
Pro forma provision for income
taxes(2) ...................... 694 1,864 1,625 3,672 6,071 4,685 9,439
------- ------- ------- ------- -------- -------- --------
Pro forma net income(2) .......... $ 1,206 $ 3,244 $ 2,790 $ 6,415 $ 9,962 $ 7,869 $ 15,939
======= ======= ======= ======= ======== ======== ========
Pro forma net income per share(3)
Pro forma weighted average shares ========
outstanding(3) ................ ========
OTHER DATA:
Capital expenditures(4) .......... $ 297 $ 1,508 $ 1,700 $ 7,615 $ 16,034 $ 18,676 $ 4,081
Depreciation and amortization .... 1,242 1,189 1,221 1,482 2,340 4,006 5,099
</TABLE>
<TABLE>
<CAPTION>
APRIL 28, MAY 3, MAY 2, MAY 1, APRIL 30, APRIL 28,
1991 1992 1993 1994 1995 1996 MAY 3, 1997
-------- -------- -------- ------- -------- -------- -----------------------------------
BALANCE SHEET DATA: PRO FORMA
PRO AS
ACTUAL FORMA(5) ADJUSTED(6)
------ -------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets ................... $ 39,142 $ 46,353 $ 56,133 $79,921 $111,815 $126,479 $127,061 $ 118,561
Total debt ..................... 44,867 44,471 50,219 64,614 71,836 84,737 68,966 68,966
Stockholders' equity (deficit).. (14,559) (9,451) (5,036) 5,051 15,984 20,200 39,328 (1,842)
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
SEASONAL YEARS ENDED JULY 31,(1)
-----------------------------------------------------------------
(unaudited)
1991 1992 1993 1994 1995 1996
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ............................. $ 54,750 $ 67,144 $ 83,937 $99,155 $116,894 $126,926
Cost of sales ......................... 39,790 50,039 63,543 71,246 87,755 93,996
-------- -------- -------- ------- -------- --------
Gross profit .......................... 14,960 17,105 20,394 27,909 29,139 32,930
Selling expense ....................... 3,371 5,295 4,463 5,250 6,072 6,198
General and administrative expense .... 3,731 4,127 5,021 4,612 5,352 6,090
-------- -------- -------- ------- -------- --------
Operating income ...................... 7,858 7,683 10,910 18,047 17,715 20,642
Interest expense ...................... 4,470 3,751 4,196 5,028 4,987 5,135
-------- -------- -------- ------- -------- --------
Income before provision for income
taxes ............................... 3,388 3,932 6,714 13,019 12,728 15,507
Pro forma provision for income taxes(2) 1,237 1,435 2,471 4,739 4,813 5,782
-------- -------- -------- ------- -------- --------
Pro forma net income(2) ............... $ 2,151 $ 2,497 $ 4,243 $ 8,280 $ 7,915 $ 9,725
======== ======== ======== ======= ======== ========
OTHER DATA:
Capital expenditures(4) ............... $ 596 $ 1,506 $ 1,735 $ 9,825 $ 19,049 $ 13,973
Depreciation and amortization ......... 1,038 1,196 1,272 1,576 2,664 4,226
<CAPTION>
JULY 31,
-----------------------------------------------------------------
(unaudited)
1991 1992 1993 1994 1995 1996
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets .......................... $ 15,255 $ 16,410 $ 28,233 $37,706 $ 61,842 $ 68,339
Total debt ............................ 25,907 21,338 25,275 26,626 40,384 38,909
Stockholders' equity (deficit) ........ (14,154) (10,221) (3,507) 5,497 11,126 18,795
</TABLE>
- --------------------
(1) The Company utilizes a 52/53 week fiscal year. In each of Fiscal 1991,
1992, 1993, 1994, 1995 and 1996, the fiscal year ended on the Sunday
closest to the last day of April. In Fiscal 1997, the Company changed
its fiscal year end to the Saturday closest to the last day of April.
All fiscal years and seasonal years presented herein represent 52 weeks
of operations, except for Fiscal 1992 and Fiscal 1997 which include 53
weeks of operations.
(2) Pro forma provision for income taxes and pro forma net income are
presented as if the Company were a C corporation for tax purposes for
all periods presented. See Notes 2 and 7 of the Financial Statements
included elsewhere in this Prospectus.
(3) The weighted average number of shares of Common Stock outstanding gives
effect to the estimated number of shares of Common Stock that would be
required to be sold, at an assumed initial public offering price of
$ per share, to pay the portion of the S Corporation Distribution
to be paid out of the net proceeds of the Offering in excess of Fiscal
1997 earnings. See "Use of Proceeds."
(4) Capital expenditures include capital leases and capital expenditures
financed with debt.
(5) Reflects, as appropriate, (i) the approximately $32.7 million portion
of the S Corporation Distribution to be paid out of the net proceeds of
the Offering, which represents undistributed earnings from October 1,
1986 through May 3, 1997 that were previously taxed to the existing
stockholders, (ii) the $11.5 million distribution to the existing
stockholders declared and paid on June 6, 1997, which represents the
approximate amount of income taxes attributable to Fiscal 1997 earnings
(see Note 11 of the Financial Statements included elsewhere in this
Prospectus), and (iii) the effect of recording net deferred tax assets
which will result from the termination of the Company's S Corporation
election, amounting to approximately $3.0 million at May 3, 1997 (see
Notes 2 and 7 of the Financial Statements included elsewhere in this
Prospectus). See "Use of Proceeds."
(6) Represents pro forma balance sheet data as adjusted to reflect the
issuance and sale of shares of Common Stock by the Company at
an assumed initial public offering price of $ per share providing
assumed net proceeds of $ million and the application of such
proceeds to pay approximately $32.7 million of the S Corporation
Distribution. See "Use of Proceeds."
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Meadowcraft is one of the leading domestic producers of casual outdoor
furniture and is the largest manufacturer of outdoor wrought iron furniture in
the United States. The Company sells its products in three markets: the outdoor
mass market under the Plantation Patterns brand name; the outdoor specialty
market under the Meadowcraft, Arlington House and Salterini brand names; and the
indoor specialty and mass markets under the Interior Images by Salterini and
Home Collection from Plantation Patterns brand names, respectively. During
Fiscal 1997, the Company introduced a line of wrought iron garden products to
both the specialty and mass markets. The following is a summary of the
percentage of gross sales by market category for each of the last three fiscal
years:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------
APRIL 30, APRIL 28, MAY 3,
1995 1996 1997
--------- --------- ------
<S> <C> <C> <C>
Outdoor mass 75.7% 75.7% 75.1%
Outdoor specialty 21.3 18.7 16.9
Indoor specialty and mass 2.6 4.6 4.2
Garden products 0.0 0.0 2.3
Other 0.4 1.0 1.5
----- ----- -----
Total gross sales 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
In recent years, the Company has supported its sales growth by
investing in additional manufacturing and distribution capacity. During the last
three fiscal years, Meadowcraft has invested $38.8 million in expanding and
enhancing its facilities. In 1994 and 1995, Meadowcraft increased distribution
capacity by approximately 1,300,000 square feet with the completion of the
Birmingham (Carson Road) and Wadley distribution facilities. In 1996,
Meadowcraft completed the construction of a new production facility in
Birmingham and a manufacturing and distribution facility in Selma. At present,
the Company is constructing a new 530,000 square foot distribution center and
office building in Birmingham (Carson Road) as well as expanding the Selma and
Wadley plants, all of which are expected to be completed by December 1997.
Additionally, the Company intends during Fiscal 1998 to establish manufacturing
and distribution facilities in Mexico and Arizona to serve customers in the
western United States.
The Company was on a 52/53 week year with the fiscal year ending on the
Sunday closest to the last day of April. During Fiscal 1997, the Company changed
its reporting period to a fiscal year ending on the Saturday closest to the last
day of April. As a result of this change, Fiscal 1997 includes 53 weeks of
operations versus 52 weeks in each of Fiscal 1996 and 1995.
Net sales as reflected throughout Management's Discussion and Analysis
of Financial Condition and Results of Operations reflect gross sales less
returns, allowances and discounts. The Company offers up to a 36-month limited
warranty on certain products. As such, estimated warranty costs are accrued at
the time products are sold based on a historical percentage of warranty costs to
gross sales. The charge for such accrual is reflected as returns and allowances,
which reduces gross sales to net sales. See Note 2 of the Financial Statements
included elsewhere in this Prospectus.
15
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth certain information relating to the
Company's operations expressed as a percentage of the Company's net sales for
the respective fiscal year:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------
April 30, April 28, May 3,
1995 1996 1997
--------- --------- ------
<S> <C> <C> <C>
Net sales ..................................... 100.0% 100.0% 100.0%
Cost of sales ................................. 73.4 74.8 69.3
----- ----- -----
Gross profit .................................. 26.6 25.2 30.7
Selling expense ............................... 5.1 5.2 4.8
General and administrative expense ............ 4.2 5.0 4.3
----- ----- -----
Operating income .............................. 17.3 15.0 21.6
Interest expense .............................. 4.1 4.3 3.7
----- ----- -----
Income before provision for income taxes ...... 13.2 10.7 17.9
Pro forma provision for income taxes .......... 5.0 4.0 6.7
----- ----- -----
Pro forma net income .......................... 8.2% 6.7% 11.2%
===== ===== =====
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales
Net sales in Fiscal 1997 increased $24.5 million, or 20.8%, to $141.9
million from $117.4 million in Fiscal 1996. This increase was primarily due to a
$17.7 million, or 18.8%, increase in gross sales of the Company's Plantation
Patterns outdoor products resulting from higher sales volumes to existing
customers, new store openings by existing customers and increased outdoor
cushion and umbrella sales, as well as a successful new product launch. In
addition, other product lines contributed to the growth in sales. The Home
Collection from Plantation Patterns indoor furniture line increased from $1.0
million in gross sales in Fiscal 1996 to $3.3 million in Fiscal 1997, while
gross sales of the newly introduced garden products line were $3.3 million in
Fiscal 1997.
Gross Profit
Gross margin is defined as gross profit as a percentage of net sales.
Gross margin improved to 30.7% in Fiscal 1997 from 25.2% in Fiscal 1996.
Improvements in manufacturing efficiency, higher production volumes required to
meet additional customer demand, efficiencies realized at the new Birmingham
production facility (Carson Road), and a more favorable product mix contributed
to the improvement in gross margins. Gross profit in Fiscal 1997 increased $14.0
million, or 47.5%, to $43.6 million from $29.6 million in Fiscal 1996.
Selling Expense
Selling expense as a percentage of net sales declined to 4.8% in Fiscal
1997 from 5.2% in Fiscal 1996 because of increases in net sales without
corresponding increases in selling expense. In Fiscal 1997, selling expense,
which includes commissions, advertising and promotion expense, increased by $0.8
million, or 13.9%, to $6.9 million from $6.1 million in Fiscal 1996, due
primarily to increases in advertising expense related to the Company's newly
implemented national radio advertising campaign featuring Paul Harvey.
Additionally, higher net sales resulted in an increase in sales commissions and
other variable selling costs.
16
<PAGE> 18
General and Administrative Expense
General and administrative expense as a percentage of net sales
decreased to 4.3% in Fiscal 1997 from 5.0% in Fiscal 1996 as the growth in sales
outpaced increases in general and administrative expense. General and
administrative expense, which includes corporate salaries, employee benefits and
professional fees, increased $0.1 million, or 2.3%, to $6.0 million in Fiscal
1997 from $5.9 million in Fiscal 1996. This increase was due to increases in
management incentives which were attributable to the increased performance of
the Company in Fiscal 1997. Such increases were partially offset by a legal
settlement in favor of the Company in the amount of $0.7 million.
Interest Expense
Interest expense as a percentage of net sales declined to 3.7% in
Fiscal 1997 from 4.3% in Fiscal 1996. Interest expense, which includes factor
fees, increased by $0.3 million, or 5.1%, to $5.3 million in Fiscal 1997 from
$5.0 million in Fiscal 1996 due to higher interest rates on consistent debt
levels.
Pro Forma Provision for Income Taxes
Since the Company has elected to be taxed as an S Corporation, no
provision for income taxes has been provided in the Company's historical
financial statements. The pro forma provision for income taxes gives effect to
the application of income taxes that would have been reported had the Company
been a C corporation subject to federal and state income taxes. The pro forma
income tax provision in Fiscal 1997 was $9.4 million versus $4.7 million in
Fiscal 1996. The effective tax rate in Fiscal 1997 was 37.2% versus 37.3% in
Fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales
Net sales in Fiscal 1996 decreased $3.3 million, or 2.8%, to $117.4
million from $120.8 million in Fiscal 1995. Net sales during the first quarter
of Fiscal 1996 (May, June and July of 1995) were $3.9 million lower than the
comparable period in Fiscal 1995. The first quarter decline was primarily due to
decreased sales of outdoor products in both the mass and specialty markets
caused principally by weak consumer confidence in the first half of 1995 and a
late spring in most parts of the U.S., which caused retailers to reduce late
season purchases in order to liquidate inventory.
Gross Profit
Gross margin declined to 25.2% in Fiscal 1996 from 26.6% in Fiscal
1995. The reduction in gross margin was primarily due to higher raw material
costs and inefficiencies associated with the start up of the new Birmingham
production facility. The decline in net sales during the first quarter of Fiscal
1996 and the resulting cut back in production levels also contributed to the
gross margin decline. Gross profit in Fiscal 1996 declined $2.6 million, or
8.1%, to $29.6 million from $32.2 million in Fiscal 1995.
Selling Expense
Selling expense as a percentage of net sales in Fiscal 1996 rose
modestly to 5.2% from 5.1% in Fiscal 1995 primarily as a result of lower sales
in Fiscal 1996 without a corresponding reduction in certain fixed selling costs.
Selling expense remained virtually flat at $6.1 million in Fiscal 1996.
17
<PAGE> 19
General and Administrative Expense
General and administrative expense as a percentage of net sales
increased to 5.0% in Fiscal 1996 from 4.2% in Fiscal 1995. General and
administrative expense increased $0.7 million, or 14.3%, to $5.9 million in
Fiscal 1996 from $5.2 million in Fiscal 1995. The increase in general and
administrative expense in Fiscal 1996 was primarily due to higher salary cost
resulting from an increase in employees related to the expansion of the
Company's operations and, to a lesser extent, higher legal fees related to
certain litigation.
Interest Expense
Interest expense as a percentage of net sales increased to 4.3% in
Fiscal 1996 from 4.1% in Fiscal 1995. Interest expense, which includes factor
fees, increased by $0.1 million, or 2.8%, to $5.0 million in Fiscal 1996, from
$4.9 million in Fiscal 1995 due to higher debt levels incurred to fund capital
expansion programs. Higher debt levels were offset in part with lower interest
rates achieved by the Company on revolving credit borrowings.
Pro Forma Provision for Income Taxes
The pro forma income tax provision in Fiscal 1996 was $4.7 million
versus $6.1 million in Fiscal 1995. The effective tax rate in Fiscal 1996 was
37.3% versus 37.9% in Fiscal 1995 which was due to a higher federal tax rate
that was applicable in Fiscal 1995 as a result of higher income in Fiscal 1995.
QUARTERLY RESULTS AND SEASONALITY
Consistent with the nature of the casual outdoor furniture industry,
the Company's sales are very seasonal. Historically, approximately 50% of the
Company's net sales have been realized in the fourth fiscal quarter, while only
approximately 5% of the Company's net sales have occurred in the quarter ended
October. As a result, Meadowcraft typically shuts down its production facilities
during August for vacation, repairs and maintenance. The Company begins
manufacturing in September and October to build inventory to meet customer
orders and anticipated demand for the next selling season, incurring increased
operating and overhead costs without corresponding sales for the period. In
addition, the Company's sales are subject to fluctuations on a quarterly basis
due to such factors as weather and customer ordering decisions.
In order to stimulate off-season sales and, thus, lessen the effects of
seasonality, Meadowcraft utilizes several incentive programs. Most of these
programs provide for some form of deferred payment, referred to as "dating," to
promote the early shipment of products to customers and the recognition of sales
during the off-season. Upon shipment, the Company recognizes sales. Although
shipments are made early in the Company's seasonal year, dated receivables are
generally due from April through June.
Since the Company's revolving credit facility is used to support both
the build-up of inventory during the fall and winter months and the dating
programs, short term borrowings and interest expense peak during the period from
January through April. To lessen further the effects of seasonality, the Company
has expanded its offerings of indoor products and diversified into garden
products. By increasing off-season sales, Meadowcraft can extend its production
period and level its production activity and, thus, better match sales to
operating expenses.
18
<PAGE> 20
The following table sets forth certain unaudited financial statement
data from the Company's statements of income for each of the Company's last 12
quarters. In the opinion of management, the unaudited financial statements from
which this data have been derived include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. Pro forma net income (loss) is presented as if
the Company were a C corporation for tax purposes for all periods presented. See
"Use of Proceeds" and "Selected Financial Data."
<TABLE>
<CAPTION>
TWELVE
MONTHS
QUARTER ENDED ENDED
----------------------------------------------------- --------
(unaudited)
OCTOBER 31, JANUARY 31, MAY 3, JULY 31, JULY 31,
1996 1997 1997 1997 1997
----------- ----------- ------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net sales ........................................ $ 6,622 $27,183 $75,907
Gross profit ..................................... 555 9,137 25,975
Operating income (loss) .......................... (1,841) 7,043 20,051
Pro forma net income (loss) ...................... (1,775) 3,684 11,458
<CAPTION>
TWELVE
MONTHS
QUARTER ENDED ENDED
----------------------------------------------------- --------
(unaudited)
OCTOBER 31, JANUARY 31, APRIL 28, JULY 31, JULY 31,
1995 1996 1996 1996 1996
----------- ----------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net sales ........................................ $ 5,277 $21,971 $67,445 $32,233 $126,926
Gross profit (loss) .............................. (1,339) 5,222 21,084 7,963 32,930
Operating income (loss) .......................... (3,488) 2,434 16,297 5,399 20,642
Pro forma net income (loss) ...................... (2,714) 727 9,140 2,572 9,725
<CAPTION>
TWELVE
MONTHS
QUARTER ENDED ENDED
----------------------------------------------------- --------
(unaudited)
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, JULY 31,
1994 1995 1995 1995 1995
----------- ----------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net sales ........................................ $ 6,987 $23,272 $63,909 $22,726 $116,894
Gross profit (loss) .............................. (731) 6,024 19,243 4,603 29,139
Operating income (loss) .......................... (2,723) 3,466 14,643 2,329 17,715
Pro forma net income (loss) ...................... (2,104) 1,387 7,916 716 7,915
</TABLE>
In the quarter ended October, the Company's sales to mass merchandisers
are relatively low since at this time these customers have just completed the
mass retail selling season (namely, the period from January through July) and
are planning their product selections for the next selling season. The Company's
sales during this period are primarily to specialty retail customers who have a
longer selling season. Gross profit in this quarter is normally low due to the
lower amount of sales. In addition, production levels of inventory are lower in
this quarter due to the shutdown of facilities which reduces the absorption of
fixed costs.
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<PAGE> 21
In the quarter ended January, sales increase over the previous quarter
as the selling season begins with mass merchandisers and specialty retailers
filling their floor space. Production of inventory is at its highest level
thereby absorbing fixed costs more efficiently than in the previous quarter. As
a result of these factors, gross profit increases during this period.
Sales and profitability are highest in the quarter ended April since
this is the high point of the mass retail selling season. Production continues
at high levels during this quarter to meet existing orders and to replenish
retailers' inventories. In the quarter ended May 3, 1997, the Company changed
its year end to the Saturday closest to April 30 from the Sunday closest to
April 30. The effect of this change was to increase the number of weeks in the
quarter ended May 3, 1997 to 14 weeks versus 13 weeks in the quarters ended
April 28, 1996 and April 30, 1995.
In the quarter ended July, the Company's sales are significantly lower
than in the previous quarter as the mass retail selling season comes to a close.
Additionally, production levels generally decrease resulting in less efficient
absorption of fixed costs than in the quarter ended April. As a result of these
factors, gross profit is lower than in the quarter ended April.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for
each of the last three fiscal years:
<TABLE>
<CAPTION>
APRIL 30, April 28, May 3,
1995 1996 1997
--------- --------- --------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operations.................... $ 6,137 $ 14,361 $ 26,102
INVESTING ACTIVITIES:
Capital expenditures............................... (16,034) (15,676) (3,406)
FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable......... 11,704 2,656 (11,632)
Proceeds from issuance of long-term debt........... 8,720 10,500 0
Principal payments of long-term debt............... (5,374) (3,255) (4,814)
Payment of S Corporation distributions............. (5,100) (8,338) (6,250)
</TABLE>
The Company has historically financed its operations and growth from
seasonal borrowings under its bank line of credit, from internally generated
funds, and from other term debt. The Company's primary liquidity requirements
are for capital expenditures, working capital and debt service.
The Company's operating activities over the last three fiscal years
have generated cash of $46.6 million. Net cash provided by operations for Fiscal
1997 amounted to $26.1 million, primarily the result of $25.4 million in net
income in Fiscal 1997. Net cash provided by operations in Fiscal 1996 of $14.4
million was primarily the result of net income of $12.6 million. In Fiscal 1995,
net cash provided by operations of $6.1 million was the result of net income of
$16.0 million and the offset of higher accounts receivable balances due to the
growth in sales primarily in the fourth quarter of Fiscal 1995. See
"--Factoring."
Cash flows from investing activities are related solely to capital
expenditures. Capital expenditures (excluding capital leases and certain capital
expenditures financed with debt) incurred by the Company over the last three
fiscal years amounted to $35.1 million and were primarily related to the
Company's new manufacturing and distribution facilities in Birmingham, Alabama
and construction of the Selma, Alabama facility. Capital expenditures in Fiscal
1997 were significantly lower than in Fiscal 1996 and 1995 as these projects
were completed in Fiscal 1996. It is anticipated that the Company will invest
approximately $32.5 million over the next twelve months for production and
distribution facilities to service the western United States, new distribution
facilities in Birmingham and Selma and continued productivity and product line
improvements for existing facilities.
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<PAGE> 22
Financing activities are generally related to the issuance and
repayment of debt and the payment of S Corporation distributions. Financing
activities in Fiscal 1997 resulted in net payments of debt in the amount of
$16.4 million as compared to net borrowings of debt in Fiscal 1996 and Fiscal
1995 of $9.9 million and $15.1 million, respectively. The decline in permanent
debt financing is primarily attributable to the improvement in cash generated
from operations in Fiscal 1995, Fiscal 1996 and Fiscal 1997 and the reduction in
capital expenditures in Fiscal 1997 as the major capital projects were completed
in Fiscal 1996. S Corporation distributions in Fiscal 1997, 1996 and 1995 were
$6.3 million; $8.3 million; and $5.1 million, respectively. Such distributions
were utilized by the stockholders to pay income taxes on the Company's earnings.
Upon consummation of the Offering, the Company intends to terminate its
S Corporation election and, as a result, the Company will become a taxable C
corporation. While S Corporation distributions, other than the portion of the S
Corporation Distribution which will not be paid out of the net proceeds of the
Offering, will no longer be made upon conversion to a C corporation, the Company
will be required to pay the income tax liability which arises from the Company's
future earnings. The actual amount of the S Corporation Distribution will be
equal to approximately $32.7 million plus an additional amount based on the
Company's S Corporation earnings attributable to the 12-month period ending May
2, 1998. The Company expects to use cash on hand to fund such additional amount.
See "Use of Proceeds."
Currently, the Company maintains an $80 million line of credit with a
consortium of banks led by NationsBank N.A. (South) ("NationsBank") (the "Credit
Facility") and various term debt facilities. As a result of the seasonal nature
of the Company's business, the Company utilizes the Credit Facility to build up
inventory levels during the first half of the Company's fiscal year, among other
things. This build-up is necessary to meet the peak selling season which occurs
in the latter part of the quarter ended April and generally lasts through June.
See "--Quarterly Results and Seasonality." The Company also finances this
inventory build-up through a vendor deferred payment program, which allows the
Company to order and receive raw materials for production in the fall and winter
months and delay vendor payments until the spring.
The Credit Facility is subject to certain borrowing base limitations
and compliance with customary financial and other covenants. As of May 3, 1997,
the outstanding balance under the Credit Facility amounted to $46.2 million, and
$14.5 million was available to be borrowed at May 3, 1997 based upon the
borrowing base.
The Company's debt agreements contain, among other things, certain
restrictions relating to net worth, capital expenditures, current ratio and debt
service ratio. The Company was in compliance with all covenants at May 3, 1997.
The Company's total debt obligations maturing in each of the next five fiscal
years are as follows: $4.8 million in 1998, $4.5 million in 1999, $3.4 million
in 2000, $2.4 million in 2001, $1.0 million in 2002 and $4.1 million thereafter.
The Company believes that cash flow from operations, together with the
Company's unused borrowing capacity under the Credit Facility, will be
sufficient to fund the Company's operating needs through the maturity date of
the Credit Facility. Pursuant to its terms, the Credit Facility expires on
August 31, 1997 and the principal balances outstanding on all loans thereunder
will mature on that date. The Company expects to renew the Credit Facility
through July 1999 and is currently negotiating with the lenders for such renewal
which would include additional borrowing capacity and the amendment of certain
restrictions related to the use of proceeds of the Offering. In addition, to
provide any additional funds necessary for the continued pursuit of the
Company's growth strategies, the Company may incur, from time to time,
additional short- and long-term bank indebtedness and may issue additional debt
or equity securities, the availability and terms of which would depend upon
market and other conditions. There can be no assurance that such additional
financing would be available on terms acceptable to the Company.
FACTORING
In order to provide additional liquidity and to reduce the Company's
exposure to the credit risk of certain of its customers, the Company factors a
significant portion of its trade accounts receivable without recourse to the
21
<PAGE> 23
Company with respect to credit risk. Currently, the Company maintains two
factoring agreements with financial institutions. The vast majority of the
factored receivables are with an affiliate of NationsBank, and the proceeds from
factoring are generally used to repay the outstanding borrowings on the Credit
Facility. When the Company makes a sale to a customer, generally the receivable
from that customer is factored without recourse. Thereafter, the Company removes
the receivable from the balance sheet and records a receivable from the factor
at a discounted amount. Such amount is referred to as "Due from Factor" in the
Financial Statements. The difference in the account receivable from the customer
and the amount recorded as Due from Factor represents factor fees which are
reflected as interest expense in the Financial Statements. The Due from Factor
amount is paid to the Company by the factor on a predetermined date, based
primarily upon the customer's invoice due date, and is not contingent upon
collection of the customer's receivable by the factor. The Company does not
factor its receivables related to certain of its large customers. Therefore, the
Company retains credit risk with respect to these customers, which the Company
believes is insignificant. See Note 2 to the Financial Statements included
elsewhere in this Prospectus.
INFLATION
The Company believes that the relatively moderate rate of inflation
experienced over the last three years has not had a material impact on its sales
or profitability. The Company generally has been able to absorb increases in
costs without significantly increasing the selling prices of its products due to
cost reductions and improved manufacturing efficiencies. However, there can be
no assurances that the Company's business will not be adversely affected by
inflation in the future.
FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other sections of this Prospectus contain
forward-looking statements which are subject to various risks and uncertainties.
Actual results could differ materially from those discussed herein. Important
factors that could cause or contribute to such differences include those
discussed under "Risk Factors" as well as those discussed elsewhere in this
Prospectus.
22
<PAGE> 24
BUSINESS
OVERVIEW
Meadowcraft is one of the leading domestic producers of casual outdoor
furniture and is the largest manufacturer of outdoor wrought iron furniture in
the United States. The Company designs, manufactures and distributes a variety
of wrought iron consumer products, including outdoor and indoor furniture and
accessories, outdoor cushions and umbrellas, and garden products, which it
markets to mass merchandisers and specialty stores primarily in the United
States. The Company believes that it has established a reputation as an
innovator in the design, manufacturing, distribution and marketing of moderately
priced, quality wrought iron furniture. Meadowcraft's net sales have grown from
$50.5 million in Fiscal 1991 to $141.9 million in Fiscal 1997, while pro forma
net income has increased from $1.2 million to $15.9 million over the same
period. For Seasonal 1997, Meadowcraft had net sales of $ million and pro
forma net income of $ million.
The Company offers consumers a wide variety of products across
different price points in three markets: the outdoor mass market under the
Plantation Patterns brand name; the outdoor specialty market under the
Meadowcraft, Arlington House and Salterini brand names; and the indoor specialty
and mass markets under the Interior Images by Salterini and Home Collection from
Plantation Patterns brand names, respectively. For Fiscal 1997, outdoor mass
market sales accounted for approximately 75.1% of the Company's gross sales,
while outdoor specialty market sales represented approximately 16.9% of gross
sales and indoor specialty and mass market sales constituted approximately 4.2%
of gross sales.
COMPETITIVE STRENGTHS
Meadowcraft attributes its strong market position to the high
value-to-price characteristics and design of its products as well as its
low-cost production and efficient distribution systems. These factors have
contributed to Meadowcraft's success with its customers--both mass and specialty
retailers and consumers. The Company believes its competitive strengths include
the following:
Low-Cost Producer. The Company believes that its low-cost, high-volume
production systems have enabled it to design, manufacture and distribute quality
wrought iron furniture and accessories with traditional, "high-end" design
features, broad consumer appeal, and high value-to-price characteristics.
Meadowcraft developed its low-cost production systems by combining design and
production expertise developed for the specialty markets with efficient,
innovative manufacturing and distribution systems designed to accommodate the
needs of mass merchandisers. Management believes that by applying its low-cost
manufacturing expertise to additional product lines it can increase its share of
the casual outdoor furniture market as well as gain market share in the indoor
furniture market.
Advanced Manufacturing and Distribution Systems. The Company's advanced
manufacturing and distribution facilities and computerized inventory tracking
and shipping systems enable Meadowcraft to produce and ship large quantities of
products on a timely and reliable basis. Timely and reliable shipment of
products is an important competitive factor in the casual furniture industry,
especially in the mass market where customers often require shipment of large
volumes of products on short notice throughout the spring and summer months. The
Company's manufacturing facilities are designed to accommodate efficient
production of products for both the mass and specialty markets, with common
product design elements and flexible production systems permitting rapid
transition between product styles and colors. In addition, the Company's
management information systems integrate all aspects of the production,
distribution and shipping.
Relationships with Mass Market and Specialty Retail Customers. By
manufacturing and delivering quality products reliably, Meadowcraft has built
excellent relationships with its mass market customers and has developed an
extensive network of specialty retailers. Meadowcraft sells its mass market
products to seven of the top ten U.S. discount retailers/mass merchants and home
centers in terms of 1996 revenues, and believes that it has excellent
relationships with its existing mass market customers. For example, Meadowcraft
was named "Vendor/Partner of the Year" by Wal-Mart in the outdoor products
category for 1995, the most recent period for which the award was
23
<PAGE> 25
given, and was one of only 40 of Wal-Mart's approximately 10,000 vendors to
receive this award. In the specialty market, the Company maintains an extensive
network of over 1,500 specialty accounts, which allows the Company to test new
products before introducing them into the mass markets. The Company believes
that its relationships with mass market retail customers and specialty retail
customers position it to increase sales of existing products and introduce new
products and product lines successfully through these distribution channels. In
addition, by leveraging relationships established in the outdoor furniture
market, management believes that the Company will be able to gain access to
distribution channels for new products such as indoor furniture and accessories
and garden products.
Experienced Management. The Company believes that its experienced and
dedicated management team has been instrumental in its success and distinguishes
the Company from other manufacturers of wrought iron furniture. Meadowcraft's
top five senior executives have each been with the Company for over six years,
and its senior management team has extensive experience in the casual furniture
and other manufacturing industries. The Company's Chairman has 18 years of
experience in the casual furniture industry, and its President has 32 years of
management experience in the casual furniture and other manufacturing
industries, the most recent six of which have been at Meadowcraft.
STRATEGY
Since 1991, Meadowcraft has profitably built its business by providing
quality wrought iron furniture to the mass and specialty markets. Meadowcraft
has redefined and expanded the outdoor wrought iron furniture market by
designing, producing and shipping on a reliable, timely and cost-effective basis
quality products with broad consumer appeal and high value-to-price
characteristics. Meadowcraft has identified future growth opportunities and has
developed a strategy to increase its sales, earnings and market share of the
casual outdoor and indoor furniture markets, including the following
initiatives:
Introduce New Products and Expand Product Offerings. The Company
intends to apply its low-cost production expertise to introduce more new
products with traditional, "high end" design features, broad consumer appeal,
and high value-to-price characteristics, and to expand product offerings in its
existing product lines. For example, in the outdoor market, the Company
introduced a new line of wrought iron garden products in Fiscal 1997 and plans
to introduce a new line of tubular steel outdoor furniture in Fiscal 1998. In
the indoor market, Meadowcraft is expanding the product offerings under its Home
Collection from Plantation Patterns and Interior Images by Salterini lines. This
strategy is designed to expand market share within the casual outdoor and indoor
furniture markets.
Increase Manufacturing and Distribution Capacity. Meadowcraft plans to
increase its manufacturing and product distribution capacity to allow the
Company to meet the demands of new and existing customers in new geographic
regions, as well as to enhance the Company's ability to provide products to all
customers on a timely and reliable basis. For example, Meadowcraft plans to add
a manufacturing facility in Mexico and a distribution facility in the
southwestern United States in Fiscal 1998 to serve customers in the western
United States. In addition, the Company is converting an idle manufacturing
facility in Alabama to the production of tubular steel outdoor furniture, which
is expected to be completed by December 1997. The Company will continue to
evaluate opportunities to produce and distribute products efficiently in markets
outside of the United States.
Heighten Brand Awareness. In addition to expanded offerings of products
with high value-to-price characteristics, management believes that by targeting
the ultimate consumer directly through national marketing and advertising
campaigns, such as the Paul Harvey national radio show, the Company will
heighten brand name awareness and increase consumer demand for the Company's
products.
PRODUCTS
The Company designs and manufactures a variety of quality wrought iron
outdoor and indoor furniture and accessories, cushions and umbrellas, and garden
products. These products are sold primarily in the United States through mass
merchants and specialty retailers. For Fiscal 1997, sales of the Company's
outdoor furniture and
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<PAGE> 26
accessories (including cushions and umbrellas) constituted approximately 92.0%
of gross sales, while sales of indoor furniture and accessories and garden
products represented 4.2% and 2.3% of gross sales, respectively.
Historically, the Company manufactured exclusively outdoor wrought iron
furniture. In Fiscal 1993, the Company expanded its product lines to include
indoor wrought iron furniture and accessories. In addition, Meadowcraft further
broadened its product offerings with the introduction of wrought iron garden
products in Fiscal 1997. In Fiscal 1998, the Company plans to introduce a line
of tubular steel outdoor furniture.
The Company's outdoor products are sold through mass merchandisers
under the Plantation Patterns brand name and include dining groups composed of
action chairs, stack chairs, dining tables, bistro groups and accent tables;
accessories such as chaises, gliders, bakers' racks and tea carts; cushions and
umbrellas; and garden products. In addition, the Company sells a similar line of
outdoor products in the specialty market under the Meadowcraft, Arlington House
and Salterini brand names. The Company's outdoor casual furniture products come
in a variety of styles and colors and are sold across different price points to
appeal to a range of consumers in the mass and specialty markets.
The Company's indoor wrought iron furniture is sold to specialty
furniture stores and department stores under the Interior Images by Salterini
brand name and to mass merchants under the Home Collection from Plantation
Patterns brand name. The indoor collections include occasional tables, dining
groups and beds, as well as accent pieces. The Company's garden products include
shepherds' hooks, trellises, arbors, and plant stands and are sold through both
mass merchandisers and specialty retailers under the Plantation Patterns brand
name.
The Company continuously designs and develops new products and new
product styles and expands product lines to meet customer demand and changes in
consumer preferences. The Company's product design process begins with marketing
personnel identifying customer needs and creating product ideas. A variety of
sketches are produced, usually by Company engineers, from which prototype
products are built. The Company's engineering department then prepares the
prototype for actual full-scale production. The Company consults with its
marketing personnel, sales representatives and selected customers throughout
this process to develop quality products that satisfy both specialty and mass
market consumers. The Company often introduces new products through its network
of over 1,500 specialty accounts in order to gather market feedback before
introducing the products in the mass market.
CUSTOMERS AND MARKETING
The Company's primary customers are domestic retailers in the mass and
specialty markets. Meadowcraft serves three markets: the outdoor mass market,
which includes national chains, discount retailers, mass merchants, and home
centers; the outdoor specialty market, which includes furniture stores,
specialty stores and garden shops; and the indoor market, which includes
specialty furniture stores, mass merchandisers and department stores. In Fiscal
1997, the Company sold products to over 1,500 mass and specialty accounts,
including seven of the top ten U.S. discount retailers/mass merchants and home
centers (based on 1996 revenues). Sales to its top five customers accounted for
approximately 62.6% of the Company's net sales in Fiscal 1997. The Company's top
three customers, Wal-Mart Stores, Inc., Sam's Club, Inc. (each of which is a
subsidiary of Wal-Mart, Inc.) and Service Merchandise, Inc., represented
approximately 21.4%, 12.6% and 9.8%, respectively, of the Company's net sales in
Fiscal 1997.
The Company believes that its relationship with all of its top
customers is excellent, which management believes positions the Company to
increase sales of existing products and introduce new products. In 1996,
Wal-Mart awarded the Company its "Vendor/Partner of the Year" award in the
outdoor products category for 1995, the most recent period for which the award
was given. The Company was one of only 40 vendors of Wal-Mart's approximately
10,000 vendors to receive this award. In 1997 ShopKo Stores, Inc. awarded the
Company its "Vendor of the Year" award in the indoor and outdoor furniture
category. For Seasonal 1998, Wal-Mart has informed the Company that it has been
selected as the sole supplier for Wal-Mart's outdoor wrought iron furniture
products.
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<PAGE> 27
To service its mass merchant and specialty accounts, Meadowcraft has
tailored its sales strategy to meet the distinct needs of each market.
The mass market sales team consists of the Vice President of Sales and
Marketing (Mass Accounts) and three national sales managers. This four person
in-house sales staff is supported by 15 independent sales representatives with
account coverage organized by territory. Each summer, Meadowcraft's sales
managers meet with their mass market accounts to plan product purchases and
shipping schedules for the following selling season. The Company's marketing
efforts in the mass market culminate with the National Hardware Show in August
at which Meadowcraft exhibits its product line for the upcoming mass retail
selling season. Typically, by September of each year, the Company has received
estimated requirements from customers for approximately seventy percent of the
sales that it will produce and ship during the following selling season.
Throughout the selling season, Meadowcraft works closely with its customers to
assure timely shipment of sales orders and to monitor and respond to sales
trends and feedback.
The specialty market sales team is served by an in-house team
consisting of the Vice President of Sales and Marketing (Specialty Accounts) and
four regional sales managers (including two who cover international accounts),
as well as 35 independent sales representatives. This team markets both standard
and made-to-order products to over 1,500 specialty accounts throughout North
America and Europe. Given the number of specialty accounts and the seasonality
of its business, the Company believes that the use of independent
representatives is an effective and cost-efficient means to serve the specialty
market. These representatives are paid on a commission-only basis, which the
Company believes makes them highly entrepreneurial. Participation in trade
shows, particularly the International Casual Furniture Market held at the
Merchandise Mart in Chicago, is an important element of Meadowcraft's marketing
efforts directed at specialty retail customers.
To supplement its sales efforts to mass market and specialty account
customers, Meadowcraft uses a variety of means to advertise and promote its
products, including product brochures, trade shows and cooperative advertising
with some of its specialty accounts.
In addition, to complement the Company's marketing efforts to its mass
and specialty accounts, Meadowcraft targets consumers directly through a
national radio advertising campaign featuring Paul Harvey. The Company believes
that by enhancing brand awareness among consumers, Meadowcraft can build a brand
franchise and ultimately increase sales.
MANUFACTURING AND DISTRIBUTION
The Company operates four manufacturing facilities and three
distribution centers in Alabama. The Company believes that it operates one of
the most advanced manufacturing and distribution systems in the casual furniture
industry, although there are no published industry studies available. These
facilities are run by well-trained and experienced production personnel and have
allowed the Company to become a low-cost producer in the wrought iron furniture
industry.
The Company's manufacturing process combines sophisticated,
computerized materials handling systems and advanced primer and paint systems
with a skilled work force. The Company emphasizes cost-efficiencies in the
manufacturing process and has consistently modernized its manufacturing
equipment and facilities through capital expenditures in order to improve the
process. Due to the Company's high volume of business with mass merchandisers,
Meadowcraft begins production and warehouses products during the off season in
order to meet in-season purchases from customers. Through the extension of the
production season and the leveling of production activity, Meadowcraft reduces
the seasonality of the manufacturing process.
The Company's modern distribution facilities are located adjacent to
its manufacturing facilities and utilize integrated materials handling systems.
The Company utilizes sophisticated computer systems to code and track inventory
and to coordinate and monitor loading and shipment of products to retailers.
Coordination of the manufacturing, packaging and distribution functions allows
for greater quality control and production efficiencies.
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<PAGE> 28
MANAGEMENT INFORMATION SYSTEMS
The Company believes that it is technologically advanced and that its
manufacturing and distribution systems and computerized inventory tracking and
shipping systems are superior to its competitors largely because of its
sophisticated management information systems. Initially, the Company developed
its proprietary management information systems for its specialty retail business
in order to track special orders (particularly made-to-order items) and to
determine what and when to build. The Company subsequently expanded the systems
to support all product lines. The Company uses a forecasting system that
integrates all aspects of production, distribution and shipping and guides the
Company by one Company-wide plan. The forecasting system allows the Company to
build sales forecasts based on feedback from retail buyers and then to derive
materials planning and production allocation, as well as to monitor production
capacity, inventory and invoicing of finished goods. The Company employs its own
computer programmers and owns all of its information systems hardware, which is
serviced under maintenance and support agreements.
INDUSTRY AND COMPETITION
Although there are no published figures available, the Company
estimates that wholesale sales of outdoor casual furniture exceeded $1.0 billion
in 1996. Home Furnishings News ("HFN"), a trade publication, reported that
retail sales of outdoor casual furniture were $1.5 billion in 1996. The
residential casual furniture market consists of five principal product
categories: aluminum (including tubular, wrought and cast), wrought iron, resin
and plastic, wicker and rattan, and wood.
Access to diverse distribution channels is an important factor in the
residential casual furniture industry. According to the HFN, the major
distribution channels for outdoor casual furniture in 1996 included mass
merchants (32%), home centers (30%), national chains (13%), specialty stores
(12%) and warehouse clubs (10%). Management believes that the Company is well
positioned to service these channels. In May 1997, Home Improvement Executive,
another industry publication, reported that home center chains predicted that
the Company's Plantation Patterns line would comprise approximately 76% of their
outdoor wrought iron furniture business. Management believes that the Company's
Plantation Patterns products will have equal or greater penetration in Fiscal
1998 with certain national mass merchants, home center chains and warehouse
clubs.
The casual furniture industry is highly competitive and includes a
large number of manufacturers, none of which dominate the market. The Company
competes against other domestic and foreign wrought iron furniture manufacturers
as well as manufacturers of aluminum, resin and plastic, wicker and rattan, and
wood casual furniture with respect to its outdoor products and traditional
furniture companies with respect to its indoor products. A number of the
companies which compete directly with the Company may have greater financial and
other resources than the Company. Management believes that the competition in
the wrought iron furniture industry is generally a function of timeliness of
delivery, price, quality, product design, product availability and customer
service. In addition to the factors which the Company believes allow it to
compete effectively with all of its competitors, the Company believes that the
proximity of its U.S. manufacturing and distribution facilities to its customers
is a competitive advantage over foreign manufacturers due to its ability to
respond timely to in-season orders and the higher freight costs incurred in
shipping products from foreign manufacturers.
RAW MATERIALS AND SUPPLIERS
The primary raw materials used by the Company to manufacture and
distribute its products are steel, fabrics, cardboard, paint and umbrella
frames. Each year, the Company purchases its raw materials from a number of
domestic and foreign suppliers. The Company has annual contracts with many of
its major suppliers, and the Company does not anticipate, nor has it
experienced, any difficulty in obtaining any of its raw materials. The Company
believes that there are a relatively large number of other suppliers of raw
materials available, which enable the Company to obtain competitive prices for
its raw materials. While the cost of raw materials is subject to fluctuations,
the Company commits to purchase the raw materials that it estimates will be
needed for the ensuing year at fixed prices in order to attempt to control
production costs. Significant increases in the costs of raw
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<PAGE> 29
materials in a particular year could have an effect on the Company's margins for
its products if the Company were unable to build these costs into the prices of
its products or to offset such raw material cost increases through cost
reductions in the following year. See "Risk Factors--Raw Materials."
REGULATORY MATTERS
The Company's operations must meet federal, state and local regulatory
standards in the areas of safety, health, labor and environmental pollution
controls. To the best of the Company's knowledge, it is in substantial
compliance with all federal, state and local regulatory standards and
environmental protection provisions. Historically, compliance with these
standards has not had any material adverse effect on the Company's results of
operations. In addition, the Company is subject to numerous environmental laws
and regulations concerning air emissions, discharges into waterways and the
generation, handling, storage, transportation, treatment and disposal of waste
materials. These laws and regulations are subject to change, and it is
impossible to predict with accuracy the effect they may have on the Company in
the future. Like many other industrial companies, the Company's manufacturing
operations entail the risk of noncompliance, which may result in fines,
penalties and remediation costs, and there can be no assurance that such costs
will be insignificant. The Company believes that any future fines, penalties and
remediation costs associated with noncompliance should not have a material
adverse effect on capital expenditures, earnings or the Company's competitive
position. However, legal and regulatory requirements in those areas have been
increasing, and there can be no assurance that significant costs and liabilities
will not be incurred in the future due to regulatory noncompliance.
LEGAL PROCEEDINGS
The Company, from time to time, is subject to legal proceedings and
other claims arising in the ordinary course of its business. Management believes
that the Company is not presently a party to any litigation, the outcome of
which would have a material adverse effect on its business or operations.
EMPLOYEES
As of May 3, 1997, the Company employed approximately 1,630 persons,
approximately 1,409 of whom were subject to collective bargaining agreements.
Employment levels fluctuate throughout the year due to the seasonal nature of
the Company's business. The Company's non-salaried employees are covered by
three separate collective bargaining agreements. One of the Company's collective
bargaining agreements, covering an aggregate of approximately 786 employees at
two facilities in Birmingham, Alabama, expires on July 1, 1998. The Company
believes that its relations with its employees are good.
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<PAGE> 30
PROPERTIES
The table below presents certain information with respect to the
Company's principal properties. The Company believes that all of its properties
are well-maintained and in good condition and are capable of handling increased
production. All of the properties are equipped with automatic sprinkler systems
and modern fire protection equipment, which management believes are adequate.
<TABLE>
<CAPTION>
APPROXIMATE SIZE
LOCATION PRIMARY USE (SQUARE FEET) OWNED/LEASED
- --------------------- --------------------------- ---------------- ------------
<S> <C> <C> <C>
Birmingham, AL
Carson Road Manufacturing/Offices/
Distribution 1,000,000 Owned
Meadowcraft Road Manufacturing/Distribution/
Offices 240,000 Leased(1)
Goodrich Drive Distribution 340,000 Leased(2)
Wadley, AL Manufacturing/Distribution 989,000 Owned
Selma, AL Manufacturing/Distribution 202,000 Owned
</TABLE>
- ----------------------------
(1) Lease expires August 29, 2000.
(2) Lease expires September 30, 1997.
In addition to these properties, the Company is constructing a new
530,000 square foot distribution facility and office in Birmingham, Alabama,
that is expected to be completed in December 1997. The Company is also expanding
the Selma and Wadley plants, which should be completed in December 1997. The
Company also leases approximately 9,000 square feet of showroom space in
Chicago, Illinois and approximately 5,400 square feet of showroom space in High
Point, North Carolina.
The Company has entered into a definitive agreement for the purchase of
an approximately 175,000 square foot manufacturing facility in Sonora, Mexico
and has an option to purchase approximately 75 acres in Yuma County, Arizona on
which it plans to construct an approximately 100,000 square foot painting and
packing facility and an approximately 500,000 square foot distribution facility.
These facilities will enable the Company to serve mass and specialty retailers
in the western United States. These purchases are expected to close in October
1997, but there can be no assurances that they will close when scheduled or at
any time.
TRADEMARKS
The Company has registered the trade name "Interior Images by
Salterini" with the United States Patent and Trademark Office ("USPTO"). The
Company has filed applications with the USPTO to register the trade names
"Meadowcraft," "Plantation Patterns," "Arlington House," "Salterini," and "Home
Collection from Plantation Patterns." In the opinion of management, the
Company's trademark position is adequately protected in all markets in which the
Company does business. The Company believes that its various trade names are
generally well recognized by dealers and distributors and are associated with a
high level of quality and value.
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<PAGE> 31
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Certain information concerning the executive officers and directors of
the Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Samuel R. Blount ..................................... 50 Chairman of the Board of Directors
William J. McCanna.................................... 57 President and Director
Steven C. Braswell ................................... 47 Vice President of Finance,
Chief Financial Officer and Secretary
Timothy M. LeRoy ..................................... 33 Vice President of Sales and
Marketing (Mass Accounts)
Rory S. Rehmert....................................... 37 Vice President of Sales and
Marketing (Specialty Accounts)
</TABLE>
Samuel R. Blount. Mr. Blount is Chairman of the Board of Directors of
the Company and has served in such capacity since 1986. Mr. Blount has 18 years
of experience in the industry. Mr. Blount served in various positions with
Blount, Inc. and HBC Company. Mr. Blount attended the University of the South.
William J. McCanna. Mr. McCanna is President and a director of the
Company and has served in such capacities since 1991. Mr. McCanna has over 30
years of experience in manufacturing, operations and senior management. Prior to
joining the Company, Mr. McCanna served as Chief Operating Officer and Director
of Philips Industries in Dayton, Ohio. Mr. McCanna has also served in a variety
of capacities at General Electric, Emerson Electric and Allis Chalmers. Mr.
McCanna received his BSc. in Electrical Engineering from Penn State University
in 1965. Mr. McCanna is also a graduate of the Advanced Management Program at
Harvard Business School.
Steven C. Braswell. Mr. Braswell is Vice President of Finance, Chief
Financial Officer and Secretary of the Company and has served in such capacities
since 1991. Mr. Braswell has over 25 years of experience in finance and
accounting, including thirteen years at Hanson Industries in various financial
positions including Group Controller and Vice President, two years as Manager of
Finance and Accounting at Perkin Elmer Corporation in its Interdata Division and
five years at Price Waterhouse. Mr. Braswell received his BS in Accounting from
Rider College in 1972. Mr. Braswell is a Certified Public Accountant in the
state of New Jersey.
Timothy M. LeRoy. Mr. LeRoy is Vice President of Sales and Marketing
(Mass Accounts) of the Company and has served in such capacity since 1991. Prior
to joining the Company, Mr. LeRoy was with Central Hardware Company for eight
years as Supervisor, Buyer and Merchandiser. Mr. LeRoy received his BS from the
University of Missouri in 1987.
Rory S. Rehmert. Mr. Rehmert is Vice President of Sales and Marketing
(Specialty Accounts) of the Company and has served in such capacity since 1991.
Prior to joining Meadowcraft, Mr. Rehmert served as National Sales Manager for
Lyon Shaw Furniture Company and Special Accounts Manager for Winston Furniture
Company and as Store Manager with Flower City, Inc. Mr. Rehmert received his BS
from Kansas State University in 1981.
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<PAGE> 32
BOARD OF DIRECTORS
The members of the Board of Directors are elected annually and serve
for terms of one year until reelected or replaced or until their earlier
resignation or removal. Executive officers of the Company are elected annually
by, and serve at the discretion of, the Board of Directors. After the Offering,
the Company intends to add two outside directors.
Upon consummation of the Offering, there will be an Audit Committee and
Compensation Committee of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or
accrued by the Company for services rendered in all capacities to the Company
during Fiscal 1997, to the Company's Chairman of the Board of Directors and the
four other highest paid executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
BASE ALL OTHER
NAME AND PRINCIPAL POSITION HELD SALARY BONUS COMPENSATION(2)
- -------------------------------- ------ ----- ---------------
<S> <C> <C> <C>
Samuel R. Blount............................. $300,000 $ 0 $1,566
Chairman of the Board of
Directors
William J. McCanna........................... $276,242 $584,144(1) $4,050
President
Steven C. Braswell........................... $108,975 $ 51,962 $1,169
Vice President of Finance,
Chief Financial Officer and
Secretary
Timothy M. Leroy............................. $105,192 $ 89,308 $ 343
Vice President of Sales and
Marketing (Mass Accounts)
Rory S. Rehmert.............................. $ 89,167 $ 76,205 $ 351
Vice President of Sales and
Marketing (Specialty Accounts)
</TABLE>
- ---------------
(1) Includes $333,333, which was paid to Mr. McCanna pursuant to an
agreement to pay him a bonus of $1.0 million in three equal annual
installments, plus interest at the average prime rate on the last two
installments. Mr. McCanna received the first installment in Fiscal 1996
and received the last installment in August 1997. See "--Employment
Agreements; Confidentiality Agreements."
(2) Represents dollar value of insurance premiums paid with respect to life
insurance for the benefit of the Named Executive Officer.
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<PAGE> 33
EMPLOYMENT AGREEMENTS; CONFIDENTIALITY AGREEMENTS
The Company has not entered into any employment agreements or
noncompete agreements with any of its employees. In 1992, the Company agreed to
pay William J. McCanna a bonus of $1.0 million when the Company achieved audited
year-end equity of $10.0 million, provided certain other conditions were
satisfied. Mr. McCanna became eligible to receive the bonus in August 1995. The
bonus was accrued in each of Fiscal 1995, 1996 and 1997 and was paid out in
three annual installments.
The Company maintains a long-term incentive program for certain of its
key employees, excluding the Chairman of the Board of Directors and President.
Cash awards are granted to the key employees as determined by the Chairman of
the Board of Directors and President. The cash bonuses vest at the rate of 20%
per year based on the attainment of goals and objectives by the Company and by
the employee. Once fully vested, the bonuses are payable to the employee at the
rate of 20% per year and the unpaid balance bears interest at the prime rate.
The bonus is subject to forfeiture if the employee voluntarily terminates
employment before the bonus is fully vested. If employment is terminated for
any other reason, the employee is entitled to receive the vested portion of the
bonus at the rate of 20% per year.
All of the Company's exempt salaried employees, including the executive
officers, have each signed a confidentiality agreement pursuant to which each
has agreed not to disclose any of the Company's confidential information and to
assign to the Company any rights he or she may have in any design, invention,
software, process, trade secret or intellectual property that relates to or
resulted from work performed at the Company.
1997 STOCK OPTION PLAN
On July 31, 1997, the Board of Directors of the Company adopted the
Company's 1997 Stock Option Plan (the "Plan"), which was approved by the
Stockholders on July 31, 1997. The Plan provides for the grant of stock options
("Options") to participants. The objectives of the Plan are to promote the
success and enhance the value of the Company by providing flexibility in the
Company's ability to motivate, attract and retain the services of employees. A
total of 1,000,000 shares of Common Stock have been reserved for issuance under
the Plan. The Plan authorizes the grant of nonqualified Options and Options
intended to qualify as incentive stock options ("Incentive Options") under
Section 422 of the Code.
The Plan will be administered by the Board of Directors, which has the
exclusive power to (i) designate participants, (ii) determine the number of
Options to be granted, (iii) fix the terms and conditions of any Option, (iv)
prescribe the form of each Option agreement, (v) decide all other matters that
must be determined in connection with an Option, (vi) establish, adopt or revise
any rules and regulations as it may deem necessary or advisable to administer
the Plan, and (vii) make all other decisions and determinations that may be
required under the Plan. The Plan provides that the Board of Directors will
select participants from among employees, officers and directors of the Company
or its future subsidiaries.
The exercise price for each Option granted under the Plan will be
determined by the Board of Directors, but will not be less than the fair market
value of the Common Stock on the date of grant. No Incentive Options may be
granted to any employee who owns, at the date of grant, stock representing in
excess of 10% of the combined voting power of all classes of stock of the
Company or any subsidiary unless the exercise price for stock subject to such
Incentive Options is at least 110% of the fair market value of such stock at the
time of grant and the Incentive Option term does not exceed five years.
The term of each Option will be for the period as determined by the
Board of Directors, provided no Option will exceed a period of 10 years from the
date of grant. If a participant who holds Options ceases, for any reason, to be
an employee of the Company (the "Termination"), the Options expire three months
after such Termination. Notwithstanding the foregoing, in the event of
Termination due to the optionee's death, the Options
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<PAGE> 34
may be exercised for a period of 12 months following the date of such optionee's
death. Options granted under the Plan may be exercisable in installments.
Upon the exercise of Incentive Options, the option exercise price must
be paid in full, either in cash or other form acceptable to the Board of
Directors, including delivery of shares of Common Stock already owned by the
optionee. Unless terminated earlier, the Plan will terminate on July 30, 2007.
As of the date hereof, no Options have been granted under the Plan.
401(K) PLAN
The Company maintains a Section 401(k) Profit Sharing Plan (the
"KPlan") for its salaried employees. The KPlan is a Code Section 401(k) plan
which requires, subject to certain limited exceptions, 12 months of service and
attainment of age 21 to become a participant in the KPlan. The KPlan allows the
employees to make pretax contributions to the KPlan, which are matched at a rate
determined by the Company's Board of Directors (currently 33%) up to a maximum
of 10% of the employee's compensation. The total KPlan expense for Fiscal 1997,
1996 and 1995 was $94,000, $82,000 and $63,000, respectively.
COMPENSATION OF DIRECTORS
All nonemployee directors will each receive annual compensation in the
form of stock options for serving on the Board of Directors, pursuant to the
Plan. The chairman of the Audit Committee will receive additional compensation
in the form of stock options each year. No additional compensation will be paid
to directors for serving on committees. All directors will receive reimbursement
of travel expenses incurred in attending meetings of the Board of Directors and
committees.
33
<PAGE> 35
CERTAIN TRANSACTIONS
S CORPORATION TERMINATION
Upon consummation of the Offering, the Company will terminate its S
Corporation election. In connection therewith, the Company intends to declare a
distribution effecting the S Corporation Distribution to its existing
stockholders before the completion of the Offering. The Company expects to pay
approximately $32.7 million of S Corporation Distribution with a portion of
the net proceeds from the Offering. See "Use of Proceeds."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of July 31, 1997, and as
adjusted to reflect the sale of the Common Stock offered hereby, by: (i) each
director of the Company, (ii) all directors and executive officers as a group,
and (iii) each stockholder known by the Company to be the beneficial owner of
more than five percent of the outstanding Common Stock. Except as otherwise
indicated, each person or entity listed below has sole voting and investment
power with respect to all shares shown to be beneficially owned by such person.
Under the rules of the Securities and Exchange Commission (the "Commission"), a
person is deemed to be a "beneficial owner" of a security if such person has or
shares the power to vote or direct the voting of such security or the power to
dispose of or to direct the disposition of such security. Accordingly, more than
one person may be deemed to be a beneficial owner of the same security.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
--------------------------------
NUMBER OF SHARES PRIOR TO THE AFTER THE
NAME OF BENEFICIAL OWNER (1) BENEFICALLY OWNED OFFERING OFFERING
---------------------------- ----------------- -------- --------
<S> <C> <C> <C>
Samuel R. Blount......................... 14,400,000(2) 90.0% %
William J. McCanna....................... 1,600,000 10.0% %
All Named Executive Officers
and directors as a group (5 persons)... 16,000,000 100.0% %
</TABLE>
- -----------------------
(1) The address of the directors and Named Executive Officers set forth in the
table is the address of the Company appearing elsewhere in this
Prospectus.
(2) Includes 11,200,000 shares of Common Stock held of record by Mr. Blount
and 3,200,000 shares of Common Stock beneficially owned by him.
34
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 100,000,000 shares
of common stock, par value $.01 per share. The following summary is qualified in
its entirety by reference to the Amended and Restated Certificate of
Incorporation ("Restated Certificate"), which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares
of Common Stock being offered will be, upon payment therefor, validly issued,
fully paid and nonassessable. The holders of outstanding shares of Common Stock
are entitled to receive dividends out of assets legally available therefor at
such times and in such amounts as the Board of Directors may from time to time
determine. The shares of Common Stock are neither redeemable nor convertible,
and the holders thereof have no preemptive or subscription rights to purchase
any securities of the Company. Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive pro rata the
assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities. Each outstanding share of Common
Stock is entitled to one vote on all matters submitted to a vote of
stockholders.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is a Delaware corporation and is subject to Section 203 of
the Delaware General Corporation Law ("DGCL"). In general, Section 203 prevents
an "interested stockholder" (defined generally as a person owning 15% or more
of a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the time such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the stockholder's becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer) or (iii) following the transaction
in which such person became an interested stockholder, the business combination
was approved by the board of directors of the corporation and authorized at a
meeting of stockholders, and not by written consent, by the affirmative vote of
the holders of two thirds of the outstanding shares of voting stock of the
corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the
corporation and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval
of a majority of the corporation's directors, if such extraordinary transaction
is approved or not opposed by a majority of the directors who were directors
prior to any person's becoming an interested stockholder during the previous
three years or were recommended for election or elected to succeed such
directors by a majority of such directors.
CERTAIN PROVISIONS OF RESTATED CERTIFICATE AND BYLAWS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Delaware law, directors
are accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to
35
<PAGE> 37
equitable remedies such as injunction or rescission. The Restated Certificate
limits the liability of directors of the Company to the Company or its
stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The inclusion of this provision in the Restated Certificate may have
the effect of reducing the likelihood of derivative litigation against directors
and may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefitted the Company and its stockholders.
The Restated Certificate provides indemnification to the Company's officers and
directors and certain other persons with respect to certain matters.
The Restated Certificate provides that the number of directors will be
fixed from time to time by, or in the manner provided in, the bylaws of the
Company. The Amended and Restated Bylaws of the Company provide that the number
of directors constituting the whole Board of Directors of the Company will be
fixed by the affirmative vote of a majority of the members at any time
constituting the Board of Directors, and such number may be increased or
decreased from time to time; provided, however, that no such decrease may
shorten the term of any incumbent director. The Restated Certificate also
provides that directors may be removed only for cause. These provisions, in
conjunction with provisions of the Restated Certificate authorizing the Board of
Directors to fill vacant directorships, will prevent stockholders from removing
incumbent directors without cause and filling the resulting vacancies with their
own nominees.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is .
36
<PAGE> 38
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding
shares of Common Stock ( if the Underwriters' over-allotment
option is exercised in full) of which the shares sold in the Offering ( if the
Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act,
except for those held by "affiliates" (as defined in the Securities Act) of the
Company, which shares will be subject to the resale limitations of Rule 144
under the Securities Act. The remaining 16,000,000 shares of Common Stock are
deemed "restricted securities" under Rule 144 in that they were originally
issued and sold by the Company in private transactions in reliance upon
exemptions under the Securities Act, and may be publicly sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act as described below.
In general, under Rule 144, if a minimum of one year has elapsed since
the later of the date of acquisition of restricted securities from the issuer or
from an affiliate of the issuer, the acquirer or subsequent holder would be
entitled to sell within any three-month period a number of those shares that
does not exceed the greater of one percent of the number of shares of such class
of stock then outstanding or the average weekly trading volume of the shares of
such class of stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the issuer. In addition, if a
period of at least two years has elapsed since the later of the date of
acquisition of restricted securities from the issuer or from any affiliate of
the issuer, and the acquirer or subsequent holder thereof is deemed not to have
been an affiliate of the issuer of such restricted securities at any time during
the 90 days preceding a sale, such person would be entitled to sell such
restricted securities under Rule 144(k) without regard to the requirements
described above. Rule 144 does not require the same person to have held the
securities for the applicable periods. The foregoing summary of Rule 144 is not
intended to be a complete description thereof.
As of July 31, 1997, 1,000,000 shares of Common Stock were reserved for
issuance upon the exercise of options to be granted under the Plan. See
"Management--1997 Stock Option Plan." In general, pursuant to Rule 701 under the
Securities Act, any employee, officer or director of the Company who purchases
his or her shares of Common Stock pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701, which permit
non-affiliates to sell such shares without compliance with the public
information, holding period, volume limitation or notice provisions of Rule 144,
and permit affiliates to sell such shares without compliance with the holding
period provisions of Rule 144, in each case commencing 90 days after the date of
this Prospectus. As of the date of this Prospectus, no options have been granted
under the Plan, but the Board of Directors of the Company expects to grant
options under the Plan to certain key employees immediately prior to
consummation of this Offering. See "Management--1997 Stock Option Plan." Shares
of Common Stock purchased pursuant to the exercise of options granted under the
Plan will be eligible for resale pursuant to Rule 701 90 days following the date
of this Prospectus (although the holders of those options will be required to
agree not to offer or sell any of those shares during the 270-day period after
the date of this Prospectus).
The Company, its existing stockholders, certain officers and its
directors have agreed not to issue, sell, offer or agree to sell, grant any
option or other right for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable for Common Stock) during the 270-day period
after the date of this Prospectus without the prior written consent of Bear,
Stearns & Co. Inc., with certain limited exceptions.
Prior to the Offering, there has been no established public market for
the Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale will
have on the market price of the Common Stock prevailing from time to time after
the Offering. The Company is unable to estimate the number of shares that may be
sold in the public market under Rule 144, or otherwise, because such amount will
depend on the trading volume in, and market price for, the Common Stock and
other factors. Nevertheless, sales of substantial amounts of shares in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock of the Company.
See "Underwriting."
37
<PAGE> 39
UNDERWRITING
The Underwriters named below, for whom Bear, Stearns & Co. Inc. and
A.G. Edwards & Sons, Inc. are acting as representatives, have severally agreed
with the Company, subject to the terms and conditions of the Underwriting
Agreement to purchase from the Company the aggregate number of shares of Common
Stock set forth below:
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER
------------------- OF SHARES
---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
A.G. Edwards & Sons, Inc. ..................................
Total ...................................................
==========
</TABLE>
The nature of the respective obligations of the Underwriters is such
that all of the shares of Common Stock must be purchased if any are purchased.
Those obligations are subject, however, to various conditions, including the
approval of certain matters by counsel. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and, where such indemnification is unavailable, to contribute to
payments that the Underwriters may be required to make in respect of such
liabilities.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock initially at the public offering price set forth on the
cover page of this Prospectus, and to certain selected dealers at such price
less a concession not to exceed $ per share; that the Underwriters may allow,
and such selected dealers may reallow, a concession to other dealers not to
exceed $ per share, and that after the commencement of the Offering, the
public offering price and the concessions may be changed.
The Company has granted the Underwriters an option to purchase in the
aggregate up to additional shares of Common Stock solely to cover
over-allotments, if any. The option may be exercised in whole or in part at any
time within 30 days after the date of this Prospectus. To the extent the option
is exercised, the Underwriters will be severally committed, subject to certain
conditions, to purchase the additional shares of Common Stock in proportion to
their respective purchase commitments as indicated in the preceding table.
The Underwriters have informed the Company that they do not intend to
confirm sales in excess of five percent of the number of shares of Common Stock
offered hereby to accounts over which they exercise discretionary authority.
The Company, its existing stockholders, certain officers and its
directors have agreed not to issue, sell, offer or agree to sell, grant any
option or other right for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable for Common Stock) during the 270-day period
after the date of this Prospectus without the prior written consent of Bear,
Stearns & Co. Inc., with certain limited exceptions.
Prior to the Offering, there was no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations between the Company and the representatives of
the Underwriters. Among the factors to be considered in making such
determination will be the Company's financial and operating history and
condition, its prospects and such prospects for the industry in which it does
business in general, the management of the Company, prevailing equity market
conditions and the demand for securities considered comparable to those of the
Company.
38
<PAGE> 40
The Company has applied for the Common Stock to be listed on the New
York Stock Exchange under the symbol "MWI".
In order to facilitate the offering of the Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock. Specifically, the Underwriters may
over-allot in connection with the Offering, creating a short position in the
Common Stock for their own account. The representatives of the Underwriters may
elect to reduce any short position by exercising all or part of the
over-allotment option described above. In addition, to cover over-allotments or
to stabilize the price of the Common Stock, the representatives of the
Underwriters may bid for, and purchase, shares of Common Stock on the open
market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an Underwriter or dealer for distributing the Common Stock in the
Offering, if the syndicate repurchases previously distributed Common Stock in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of that security.
Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the representatives of the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
Bear, Stearns & Co. Inc. has provided certain financial advisory
services to the Company for which it has received a customary fee.
EXPERTS
The audited balance sheets of the Company as of April 28, 1996, and May
3, 1997 and the related statements of income, stockholders' equity, and cash
flows for each of the three fiscal years in the period ended May 3, 1997,
included in this Prospectus and the Registration Statement of which this
Prospectus is a part, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Sirote & Permutt, P.C., Birmingham, Alabama. Certain legal
matters related to the Offering will be passed upon for the Underwriters by
Debevoise & Plimpton, New York, New York.
39
<PAGE> 41
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-1 (together with all exhibits, schedules and amendments relating thereto,
the "Registration Statement") with respect to the Common Stock offered hereby.
This Prospectus, filed as part of the Registration Statement, does not contain
all the information contained in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement including
the exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or other document filed as an exhibit to the Registration
Statement accurately describe the material provisions of such document and are
qualified in their entirety by reference to such exhibits for complete
statements of their provisions. All of these documents may be inspected without
charge at the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
regional offices of the Commission: Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies can also be obtained from the Commission at
prescribed rates. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Upon
completion of the Offering, the Company will be subject to the information
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file reports, proxy statements and other information with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by the Company's independent accountants
and quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information after the completion of the
Offering.
40
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
MEADOWCRAFT, INC.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Independent Public Accountants ...........................................................F-2
Balance Sheets as of April 28, 1996 and May 3, 1997.................................................F-3
Statements of Income for the years ended April 30, 1995, April 28, 1996 and May 3, 1997.............F-4
Statements of Stockholders' Equity for the years ended April 30, 1995, April 28, 1996 and
May 3, 1997.......................................................................................F-5
Statements of Cash Flows for the years ended April 30, 1995, April 28, 1996 and May 3, 1997.........F-6
Notes to Financial Statements ......................................................................F-7
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Meadowcraft, Inc.:
We have audited the accompanying balance sheets of Meadowcraft, Inc. (a Delaware
corporation) as of April 28, 1996 and May 3, 1997 and the related statements of
income, stockholders' equity, and cash flows for each of the three fiscal years
in the period ended May 3, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Meadowcraft, Inc. as of April
28, 1996 and May 3, 1997, and the results of its operations and its cash flows
for each of the three fiscal years in the period ended May 3, 1997, in
conformity with generally accepted accounting principles.
Birmingham, Alabama /s/ Arthur Andersen LLP
June 27, 1997 (except with respect
to certain of the matters discussed in Note 11
as to which the date is July 31, 1997)
F-2
<PAGE> 44
MEADOWCRAFT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
PRO FORMA
STOCKHOLDERS'
(DEFICIT) AT
APRIL 28, 1996 MAY 3, 1997 MAY 3, 1997
-------------- ------------- ------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Due from factor...................................................$ 41,067,000 $ 35,549,000
Accounts receivable, net.......................................... 22,938,000 27,915,000
Inventories....................................................... 19,240,000 21,472,000
Prepaid expenses and other........................................ 319,000 330,000
------------- -------------
83,564,000 85,266,000
------------- -------------
PROPERTY, PLANT, AND EQUIPMENT:
Land.............................................................. 4,183,000 4,801,000
Buildings......................................................... 21,996,000 22,459,000
Machinery and equipment........................................... 24,828,000 26,141,000
Leasehold improvements............................................ 1,287,000 1,287,000
Furniture and fixtures............................................ 1,698,000 2,707,000
Construction in process........................................... 208,000 403,000
------------- -------------
54,200,000 57,798,000
Less accumulated depreciation and amortization.................... (12,123,000) (16,670,000)
------------- -------------
42,077,000 41,128,000
------------- -------------
OTHER ASSETS 838,000 667,000
------------- -------------
$126,479,000 $127,061,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................................. $ 4,790,000 $ 4,750,000
Notes payable..................................................... 60,528,000 48,896,000
Accounts payable.................................................. 11,488,000 9,331,000
Accrued expenses.................................................. 7,047,000 6,720,000
Warranty and other reserves....................................... 3,007,000 2,716,000
------------- -------------
86,860,000 72,413,000
------------- -------------
LONG-TERM DEBT 19,419,000 15,320,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized,
16,000,000 shares issued and outstanding...................... 160,000 160,000 $ 160,000
Additional paid-in capital........................................ 340,000 340,000 340,000
Retained earnings (deficit)....................................... 19,700,000 38,828,000 (2,342,000)
------------- ------------- ------------
20,200,000 39,328,000 $(1,842,000)
------------- ------------- ============
$126,479,000 $127,061,000
============= =============
</TABLE>
The accompanying notes are an integral part of
these balance sheets.
F-3
<PAGE> 45
MEADOWCRAFT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------
APRIL 30, APRIL 28, MAY 3,
1995 1996 1997
-------------- --------------- --------------
(52 Weeks) (52 Weeks) (53 Weeks)
<S> <C> <C> <C>
NET SALES $ 120,767,000 $ 117,419,000 $ 141,945,000
COST OF SALES 88,587,000 87,849,000 98,315,000
-------------- --------------- --------------
Gross profit........................................... 32,180,000 29,570,000 43,630,000
-------------- --------------- --------------
OPERATING EXPENSES:
Selling ................................................ 6,101,000 6,092,000 6,939,000
General and administrative.............................. 5,165,000 5,906,000 6,039,000
-------------- --------------- --------------
11,266,000 11,998,000 12,978,000
-------------- --------------- --------------
Operating income............................... 20,914,000 17,572,000 30,652,000
INTEREST EXPENSE 4,881,000 5,018,000 5,274,000
-------------- --------------- --------------
Net income--historical.........................$ 16,033,000 $ 12,554,000 $ 25,378,000
============== =============== ==============
PRO FORMA PRESENTATION:
Net income--historical..................................$ 16,033,000 $ 12,554,000 $ 25,378,000
Pro forma provision for income taxes
(Notes 2 and 7)....................................... 6,071,000 4,685,000 9,439,000
-------------- --------------- --------------
Pro forma net income (Notes 2 and 7)....................$ 9,962,000 $ 7,869,000 $ 15,939,000
Pro forma net income per share ============== =============== ==============
(Notes 2 and 7).......................................
==============
</TABLE>
The accompanying notes are an integral part
of these statements.
F-4
<PAGE> 46
MEADOWCRAFT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL
SHARES PAID-IN RETAINED
ISSUED AMOUNT CAPITAL EARNINGS TOTAL
----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 1, 1994................ 16,000,000 $160,000 $340,000 $ 4,551,000 $ 5,051,000
Net income for the year........... 0 0 0 16,033,000 16,033,000
S corporation distributions....... 0 0 0 (5,100,000) (5,100,000)
----------- -------- -------- ----------- -----------
BALANCE, APRIL 30, 1995............. 16,000,000 160,000 340,000 15,484,000 15,984,000
Net income for the year........... 0 0 0 12,554,000 12,554,000
S corporation distributions....... 0 0 0 (8,338,000) (8,338,000)
----------- -------- -------- ----------- -----------
BALANCE, APRIL 28, 1996............. 16,000,000 160,000 340,000 19,700,000 20,200,000
Net income for the year........... 0 0 0 25,378,000 25,378,000
S corporation distributions....... 0 0 0 (6,250,000) (6,250,000)
----------- -------- -------- ----------- -----------
BALANCE, MAY 3, 1997................ 16,000,000 $160,000 $340,000 $38,828,000 $39,328,000
=========== ======== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these statements.
F-5
<PAGE> 47
MEADOWCRAFT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
April 30, April 28, May 3,
1995 1996 1997
------------ ------------ -------------
(52 Weeks) (52 Weeks) (53 Weeks)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................$16,033,000 $ 12,554,000 $ 25,378,000
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................... 2,340,000 4,006,000 5,099,000
Changes in assets and liabilities:
Due from factor.......................................(25,462,000) 22,736,000 5,518,000
Accounts receivable, net.............................. 12,410,000 (22,938,000) (4,977,000)
Inventories........................................... (5,094,000) 496,000 (2,232,000)
Prepaid expenses and other............................ 93,000 4,000 (11,000)
Other assets.......................................... (94,000) (44,000) 102,000
Accounts payable...................................... 4,624,000 (4,064,000) (2,157,000)
Accrued expenses...................................... 422,000 1,603,000 (327,000)
Warranty and other reserves........................... 865,000 8,000 (291,000)
----------- ------------ ------------
Total adjustments.................................. (9,896,000) 1,807,000 724,000
----------- ------------ ------------
Net cash provided by operating activities.......... 6,137,000 14,361,000 26,102,000
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................(16,034,000) (15,676,000) (3,406,000)
----------- ------------ ------------
Net cash used in investing activities..............(16,034,000) (15,676,000) (3,406,000)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable.................. 11,704,000 2,656,000 (11,632,000)
Proceeds from issuance of long-term debt.................... 8,720,000 10,500,000 0
Principal payments of long-term debt........................ (5,374,000) (3,255,000) (4,814,000)
Payment of loan costs....................................... (53,000) (248,000) 0
Payment of S corporation distributions...................... (5,100,000) (8,338,000) (6,250,000)
----------- ------------ ------------
Net cash provided by (used in) financing
activities...................................... 9,897,000 1,315,000 (22,696,000)
----------- ------------ ------------
Net change in cash................................. 0 0 0
CASH, BEGINNING OF YEAR....................................... 0 0 0
----------- ------------ ------------
CASH, END OF YEAR.............................................$ 0 $ 0 $ 0
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest................... $ 4,886,000 $ 4,736,000 $ 5,395,000
=========== ============ ============
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital leases originated.................................$ 0 $ 3,000,000 $ 0
=========== ============ ============
Capital expenditures financed with debt...................$ 0 $ 0 $ 675,000
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 48
MEADOWCRAFT, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS
Meadowcraft, Inc. (the "Company") designs, manufactures and distributes a
variety of wrought iron consumer products, including outdoor and indoor
furniture and accessories, outdoor cushions and umbrellas, and garden products,
which it markets to mass merchandisers and specialty stores primarily in the
United States.
Revenue and expenses are subject to material seasonal variations. The seasonal
nature of the Company's business requires an inventory build-up during the fall
and winter months in order to meet customer demand during the spring and summer
selling seasons. The Company relies upon bank borrowings and cash flow from
operations to finance this production (see Note 3).
The Company is proceeding with an initial public offering of Common Stock (the
"Offering"). A portion of the estimated net proceeds to the Company will be used
to make an S corporation distribution, which will be declared, but not paid,
prior to the Offering. The S corporation distribution will be equal to the
amount of the Company's undistributed earnings from October 1, 1986 to May 3,
1997 which were previously taxed to its existing stockholders plus the Company's
S Corporation earnings attributable to the period from May 4, 1997 to the date
of termination of the S corporation election. This amount has not been accrued
as of May 3, 1997. The Company intends to use the balance of the net proceeds
for capital expenditures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR END
Prior to Fiscal 1997, the Company was on a 52/53 week year with the fiscal year
ending on the Sunday closest to the last day of April. During fiscal 1997, the
Company changed its reporting period to a fiscal year ending on the Saturday
closest to the last day of April. As a result of this change, fiscal 1997
includes 53 weeks of operations versus 52 weeks in each of fiscal 1996 and 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect (1) the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
(2) the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DUE FROM FACTOR
The Company maintains agreements with two financial institutions under which a
substantial portion of its trade accounts receivable are factored. Such
agreements provide for the factoring of accounts receivables without recourse;
therefore, the financial institutions assume all credit risk with respect to
factored customer accounts. The vast majority of the Company's factored
accounts receivable are factored with the bank which provides its $80,000,000
revolving line of credit (see Note 3). The Company does not factor the
receivables related to four of its customers, and the related amounts are
reflected in Accounts receivable, net in the accompanying balance sheets (see
Note 10).
F-7
<PAGE> 49
INVENTORIES
Inventories are valued at first-in, first-out ("FIFO") cost which is not in
excess of market. An analysis of inventories at April 28, 1996 and May 3, 1997
follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Raw materials and purchased parts.................. $ 7,405,000 $ 8,207,000
Work-in-process.................................... 422,000 610,000
Finished goods..................................... 11,413,000 12,655,000
----------- -----------
$19,240,000 $21,472,000
=========== ===========
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost less accumulated
depreciation and amortization and include expenditures for major renewals and
betterments that substantially increase the useful lives of existing assets as
well as the net amount of interest cost associated with significant capital
additions. Interest cost incurred during fiscal 1996 and 1997 amounted to
$5,456,000 and $5,274,000, respectively, of which $438,000 and $0, respectively,
was capitalized. Maintenance and repairs are charged to expense as incurred.
Upon sale, retirement, or other disposition of these assets, the cost and
related accumulated depreciation are removed from the respective accounts, and
the related gain or loss is credited or charged to income.
Depreciation is computed using the straight-line method over the estimated
service lives of the depreciable assets as follows:
<TABLE>
<S> <C>
Buildings.............................. 13 to 28 years
Machinery and equipment................ 5 to 13 years
Furniture and fixtures................. 3 to 5 years
Leasehold improvements................. Shorter of lease term or 13 years
</TABLE>
REVENUE RECOGNITION/WARRANTY AND OTHER RESERVES
The Company recognizes sales when products are shipped. As the Company offers up
to a 36-month limited warranty on certain products, estimated warranty costs are
accrued at the time products are sold based on a historical percentage of
warranty costs to gross sales. The charge for such accrual is reflected as
returns and allowances, which reduces gross sales to net sales. Included in the
warranty reserve is an estimate for customer credits arising from co-op
advertising programs and purchased volume discounts. These amounts are accrued
based on individual customer agreements or Company rebate programs.
SELF-INSURANCE ACCRUAL
The Company is substantially self insured for workers' compensation and health
care claims. The Company purchases insurance for all workers' compensation
claims in excess of $250,000 per occurrence with an annual aggregate stop loss
limit of $1,440,000 and for all employee health care claims in excess of
$100,000 per occurrence. Amounts are accrued currently for the estimated cost of
claims incurred, including related expenses. Management considers the accrued
liabilities for unsettled claims to be adequate; however, there is no assurance
that the amounts accrued will not vary from the ultimate amounts incurred upon
final disposition of all outstanding claims. As a result, periodic adjustments
to the reserves will be made as events occur which indicate changes are
necessary. In the opinion of management, based on current information, these
periodic adjustments will not be material to the Company's financial condition
or results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company, from time to time, uses interest rate swap contracts ("Swaps") and
interest rate caps ("Caps") to manage interest rate risks arising from certain
of the Company's financing sources, such as the revolving credit line and
certain long-term debt. All Swaps and Caps employed by the Company represent
end-user activities designed
F-8
<PAGE> 50
as hedges, and, therefore, changes in fair values of such derivatives are not
included in the results of operations. Interest receivable or payable from such
contracts is accrued and recognized as an adjustment to interest expense related
to the specific financing source being hedged.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In preparing disclosures about the fair value of financial instruments,
management has assumed that the carrying amount approximates fair value for
current financial instruments due to the short maturities of those instruments.
The estimated fair values of long-term debt instruments are based upon the
current interest rate environment and remaining term to maturity.
PRO FORMA INFORMATION
Pro forma stockholders' equity at May 3, 1997 reflects (i) $32,670,000 of the S
corporation distribution, which represents undistributed earnings from October
1, 1986 through May 3, 1997 that were previously taxed to the existing
stockholders, (ii) an $11,500,000 distribution declared and paid on June 6,
1997, which represents the approximate amount of income taxes attributable to
fiscal 1997 earnings (see Note 11), and (iii) the effect of recording net
deferred tax assets which will result from the termination of the Company's S
Corporation election, amounting to approximately $3,000,000 at May 3, 1997
(unaudited). (See Note 7).
Prior to the Offering, the Company was taxed under the provisions of Subchapter
S of the Internal Revenue Code. As such, the taxable income of the Company had
been included in the individual income tax returns of the Company's stockholders
for income tax purposes. Accordingly, no provision for income taxes had been
provided in the Company's financial statements. Upon consummation of the
Offering, the Company intends to terminate its S Corporation election and, as a
result, the Company will become a taxable C corporation. The pro forma net
income shown on the statements of income presented herein gives effect to the
application of pro forma income taxes that would have been reported had the
Company been a C corporation subject to federal and state income taxes for all
periods presented.
Pro forma net income per share for the year ended May 3, 1997 is calculated by
dividing pro forma net income by the weighted average number of shares of common
stock outstanding ( ) and shares of common stock that would be
required to be sold, at an assumed initial public offering price of $
per share, to pay the portion of the S corporation distribution to be paid out
of the net proceeds of the Offering in excess of fiscal 1997 earnings. Share
information reflects the 16,000-for-1 stock split described in Note 11.
Historical per share information has not been presented in view of the
Company's S Corporation status and the anticipated change in capital structure
upon completion of the Offering.
3. NOTES PAYABLE
In order to meet working capital needs, the Company maintains a variable rate
(7.48% and 7.73% at April 28, 1996 and May 3, 1997, respectively) revolving line
of credit in the amount of $80,000,000. At May 3, 1997, $46,196,000 was
outstanding under the line of credit and $14,478,000 was available to be
borrowed. The average borrowings outstanding were $33,305,000 and $30,945,000,
and the maximum borrowings outstanding were $58,276,000 and $59,460,000 in
fiscal 1996 and 1997, respectively. The weighted average interest rate on these
borrowings was approximately 7.79% and 7.53% in fiscal 1996 and 1997,
respectively. All bank borrowings are collateralized by all assets of the
Company, except for preexisting pledged assets.
The Company also maintains a $3,000,000 variable rate (7.75% and 8.0% at April
28, 1996 and May 3, 1997, respectively) line of credit. Of this amount,
$3,000,000 and $2,700,000 were outstanding at April 28, 1996 and May 3, 1997,
respectively. The average borrowings outstanding were $3,000,000 and $2,986,000,
in fiscal 1996 and 1997, respectively, and the maximum borrowings outstanding
were $3,000,000 in each year. The weighted average interest rate on these
borrowings was approximately 8.17% and 7.78% in fiscal 1996 and 1997,
respectively. The $3,000,000 line of credit is guaranteed by the Company's
principal stockholder.
The Company maintains an interest rate cap as a hedge against the variable
interest rate exposure on the $80,000,000 line of credit. This interest rate cap
establishes the maximum interest rate at 8% on varying notional amounts, which
range from $0 to $30,000,000, and have been based on expected seasonal
borrowings.
F-9
<PAGE> 51
4. LONG-TERM DEBT
Long-term debt consists of the following at April 28, 1996 and May 3, 1997:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Term note, 8.33%, due in quarterly installments of
$450,000, plus interest, until February 28, 2001,
secured by building and equipment with a net book
value of $14,074,000...................................... $ 8,550,000 $ 6,750,000
Term note, 8.89%, due in quarterly installments of
$146,875, plus interest, until August 16, 2005,
secured by building and equipment with a net book
value of $6,960,000....................................... 5,434,000 4,847,000
Capitalized lease obligation, variable rates
(4.75% at May 3, 1997), subject to an interest rate
swap (see below) due in semiannual installments of $100,000
until February 1, 2011, secured by building
and equipment with a net book value of $3,817,000......... 3,000,000 2,800,000
Promissory notes, variable rates (8.09% at May 3, 1997),
due in quarterly installments of $250,000 until January
1, 1999, cross-collateralized by all
assets except preexisting pledged assets.................. 2,750,000 1,750,000
Term note, 7.90%, due in quarterly installments of
$200,000, plus interest, until June 30, 1999, secured
by building and equipment with a net book value of
$5,570,000................................................ 2,400,000 1,600,000
Promissory notes, 7.73%, due in monthly installments
through November 2002, secured by land and building
with a net book value of $1,556,000....................... 1,156,000 953,000
Promissory note, 8.50%, due in monthly installments
through June 2, 1999, guaranteed by the principal
stockholder............................................... 833,000 733,000
Promissory note, 8.00%, due in monthly installments
through May 29, 2006, secured by equipment with a net
book value of $710,000.................................... 0 637,000
Various capital leases, repaid in fiscal 1997............. 86,000 0
------------ ------------
24,209,000 20,070,000
Less amounts due within one year.......................... (4,790,000) (4,750,000)
------------ ------------
$ 19,419,000 $ 15,320,000
============ ============
</TABLE>
During fiscal 1996, the Company entered into an interest rate swap agreement
which expires in 2011 related to its capital lease obligation covering the
entire principal balance outstanding on such obligation. The agreement is
designed to fix the interest rate at 5.85%.
The Company's debt agreements contain, among other things, certain restrictions
relating to net worth, capital expenditures, the current ratio, and the debt
service ratio. The Company was in compliance with all covenants at May 3, 1997.
The Company's total debt obligations maturing in each of the next five fiscal
years are as follows: $4,750,000 in 1998, $4,479,000 in 1999, $3,367,000 in
2000, $2,388,000 in 2001, $1,009,000 in 2002, and $4,077,000 thereafter.
F-10
<PAGE> 52
5. OPERATING LEASES
The Company has operating leases for office, plant, and warehouse facilities and
manufacturing and office equipment. Minimum future rental payments for all
operating leases having remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
Fiscal year ending in:
1998..................................... $ 862,000
1999..................................... 646,000
2000..................................... 644,000
2001..................................... 308,000
2002..................................... 180,000
Thereafter............................... 60,000
----------
$2,700,000
==========
</TABLE>
Total rental expense amounted to $1,746,000, $1,400,000, and $1,361,000 for the
years ended April 30, 1995, April 28, 1996, and May 3, 1997, respectively.
6. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Profit Sharing Plan (the "Plan") for its salaried
employees which allows these employees to make pretax contributions to the Plan.
The Plan covers all full-time salaried employees who have completed one year of
service and who are at least 21 years of age. Participants in the Plan may
voluntarily contribute from 3% to 10% of their annual compensation within
certain dollar limits as allowed by law. Company contributions to the Plan are
determined by the Company's Board of Directors and are limited to a maximum of
10% of the employee's compensation. Contribution expense for the years ended
April 30, 1995, April 28, 1996, and May 3, 1997 amounted to $63,000, $82,000,
and $94,000, respectively.
The Company also maintains a defined benefit pension plan covering the hourly
employees of the Birmingham plants. The benefits are based on certain Company
monthly contributions for each year of credited service. The Company's funding
policy is to contribute annually no less than the minimum amount required by
ERISA and no more than the maximum amount that can be deducted for federal
income tax purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future.
Net pension expense for the years ended April 30, 1995, April 28, 1996, and May
3, 1997 includes the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Service cost of the current period................................. $113,000 $130,000 $158,000
Interest cost on the projected benefit obligation.................. 75,000 98,000 115,000
Actual return on assets held in the plan........................... (58,000) (52,000) (64,000)
Net amortization and deferral of prior service cost,
transition liability, and net gain........................ (8,000) (11,000) 4,000
-------- -------- -------
Net pension expense................................................ $122,000 $165,000 $213,000
======== ======== ========
</TABLE>
F-11
<PAGE> 53
The following sets forth the funded status of the pension plan at April 30,
1995, April 28, 1996, and May 3, 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Accumulated benefit obligation................................. $1,201,000 $1,360,000 $1,529,000
========== ========== ==========
Vested accumulated benefit obligation.......................... $1,144,000 $1,283,000 $1,452,000
========== ========== ==========
Projected benefit obligation................................... $1,289,000 $1,473,000 $1,726,000
Fair value of assets held in the plan.......................... 1,067,000 1,040,000 1,453,000
Excess of projected benefit obligation over fair value ---------- ---------- ----------
of plan assets......................................... (222,000) (433,000) (273,000)
Unrecognized net loss.......................................... 152,000 205,000 210,000
Unrecognized initial obligation................................ 62,000 53,000 44,000
Unrecognized prior service cost................................ 57,000 83,000 149,000
---------- ---------- ----------
Prepaid (accrued) pension cost........................ $ 49,000 $ (92,000) $ 130,000
========== ========== ==========
</TABLE>
Pension plan assets consist primarily of group annuity policies at April 30,
1995, April 28, 1996, and May 3, 1997. The weighted average discount rate used
to measure the projected benefit obligation and the expected long-term rate of
return on assets was 7.50% at April 30, 1995, April 28, 1996, and May 3, 1997.
The Company uses the straight-line method of amortization for prior service cost
and unrecognized gains and losses.
The Company contributes to the Retail, Wholesale, and Department Store Union
Industry Pension Plan on behalf of each employee of the plants not covered by
the aforementioned pension plan as prescribed in the Company's collective
bargaining agreements. The Company contributes $2.40 to $3.40 per week for each
full-time employee on the active payroll subject to these agreements. Pension
expense under these plans amounted to approximately $67,000, $70,000, and
$88,000 for the years ended April 30, 1995, April 28, 1996, and May 3, 1997,
respectively.
The Company also maintains discretionary performance compensation plans covering
certain management employees as approved by the Chairman and President of the
Company. The Company's discretionary provision for these plans amounted to
$1,500,000, $1,752,000, and $2,100,000 for the years ended April 30, 1995, April
28, 1996, and May 3, 1997, respectively.
The Company does not provide any additional post-retirement or post-employment
benefits to its employees.
7. INCOME TAXES
Upon consummation of the Offering, the Company intends to terminate its S
corporation election and, accordingly, will become a taxable C corporation. Upon
termination of its S corporation election, the Company will record net deferred
tax assets which at May 3, 1997 the pro forma components are as follows:
<TABLE>
<S> <C>
Depreciation......................... $ (728,000)
Inventory............................ 595,000
Warranty reserve..................... 1,459,000
Payroll-related accrued expenses..... 781,000
Other accrued expenses............... 938,000
----------
Pro forma deferred tax assets, net... $3,045,000
==========
</TABLE>
F-12
<PAGE> 54
A summary of the components of the pro forma provision for income taxes is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------
APRIL 30, APRIL 28, MAY 3,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current.............................. $6,316,000 $4,580,000 $7,658,000
Deferred............................. (780,000) (312,000) 941,000
---------- ---------- ----------
5,536,000 4,268,000 8,599,000
---------- ---------- ----------
State:
Current.............................. 611,000 448,000 748,000
Deferred............................. (76,000) (31,000) 92,000
---------- ---------- ----------
535,000 417,000 840,000
---------- ---------- ----------
Pro forma provision for income taxes.......... $6,071,000 $4,685,000 $9,439,000
========== ========== ==========
</TABLE>
The provision for income taxes differs from the amounts computed by applying
federal statutory rates due to the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------
APRIL 30, APRIL 28, MAY 3,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Tax provision computed at the
federal statutory rate (35%)........ $5,612,000 $4,394,000 $8,882,000
Effect of state income taxes,
net of benefits..................... 348,000 271,000 546,000
Other........................................ 111,000 20,000 11,000
---------- ---------- ----------
$6,071,000 $4,685,000 $9,439,000
========== ========== ==========
</TABLE>
8. CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business.
In the opinion of management, after consultation with legal counsel, the
ultimate liability, if any, with respect to these proceedings will not
materially affect the financial position or results of operations of the
Company.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL
INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosure About
Fair Value of Financial Instruments," requires all businesses to disclose the
fair value of financial instruments, both assets and liabilities recognized and
not recognized on the balance sheet, for which it is practicable to estimate
fair value. The estimated fair value of the Company's on-balance sheet financial
instruments at May 3, 1997, approximated their carrying value at that date.
As of May 3, 1997, and as discussed in Notes 3 and 4, the Company is party to an
interest rate cap agreement and an interest rate swap agreement, both of which
are considered derivative financial instruments. The fair value of these
instruments, which are specifically used for hedging purposes, is the estimated
amount that the Company would pay or receive if these agreements were terminated
as of May 3, 1997. Such estimates of fair value take into account current
interest rates and the present creditworthiness of the counterparties. Under the
restrictions of the bank credit agreements, the Company does not expect to
cancel these agreements, and expects them to expire as originally contracted. As
of May 3, 1997, the carrying amount of these financial instruments, which
represents amounts paid to obtain such instruments, exceeds the estimated fair
value by $127,000.
F-13
<PAGE> 55
10. MAJOR CUSTOMERS
During the years ended April 30, 1995, April 28, 1996, and May 3, 1997 three
major customers accounted for sales of approximately $56,319,000, $55,266,000,
and $72,133,000, respectively, of total net sales. As of April 28, 1996, and May
3, 1997, the outstanding balance, included in accounts receivable, net on the
respective balance sheets, related to these customers was $18,389,000 and
$24,615,000, respectively.
11. SUBSEQUENT EVENTS
On June 6, 1997, distributions amounting to $11,500,000 were declared and paid
to the Company's stockholders and represent the approximate amount of income
taxes attributable to fiscal 1997 earnings.
On July 31, 1997, the Board of Directors approved a 16,000-for-1 stock split of
the Company's Common Stock. All share information presented herein reflects this
stock split.
On July 31, 1997, the Company adopted a Stock Option Plan reserving 1,000,000
shares of the Company's common stock for grants to executive officers,
directors, and key employees. Options to be granted will expire within ten years
after the date of grant and the option exercise price will equal the fair market
value of the common stock on the date of the grant. As of July 31, 1997, no
options had been granted under the plan.
On July 31, 1997, the Company paid the 7.73% promissory notes, which had
$953,000 in principal outstanding as of May 3, 1997.
F-14
<PAGE> 56
<TABLE>
<CAPTION>
========================================================= ======================================================
<S> <C> <C>
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS SHARES
PROSPECTUS IN CONNECTION WITH THE
OFFER CONTAINED HEREIN AND, IF GIVEN [LOGO]
OR MADE, SUCH OTHER INFORMATION OR MEADOWCRAFT, INC.
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY UNDERWRITER OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY COMMON STOCK
SECURITY OTHER THAN THE SHARES OF
COMMON STOCK OFFERED BY THIS
PROSPECTUS, OR AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, TO
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 ANYONE
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 THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE
INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
TABLE OF CONTENTS Page ___________________
Prospectus Summary............................ 3 P R O S P E C T U S
Risk Factors ................................. 6
Use of Proceeds............................... 10 ___________________
Dividend Policy............................... 10
Dilution ..................................... 11
Capitalization................................ 12
Selected Financial Data....................... 13
Management's Discussion and Analysis BEAR, STEARNS & CO. INC.
of Financial Condition and Results A.G. EDWARDS & SONS, INC.
of Operations............................... 15
Business...................................... 23
Management.................................... 30
Certain Transactions.......................... 34
Principal Stockholders........................ 34
Description of Capital Stock.................. 35
Shares Eligible for Future Sale............... 37
Underwriting.................................. 38
Experts....................................... 39
Legal Matters................................. 39
Additional Information ....................... 40
Index to Financial Statements................. F-1
--------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY , 1997
REQUIREMENT 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.
================================================================ ======================================================
</TABLE>
<PAGE> 57
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred
in connection with the issuance and distribution of the shares of Common Stock,
par value $.01 per share, offered hereby.
<TABLE>
<CAPTION>
TO BE PAID
BY THE
COMPANY
----------
<S> <C>
Securities and Exchange Commission Registration Fee...............$ 15,152
NASD Filing Fee................................................... 5,500
NYSE Original Listing Fee......................................... *
Blue Sky Fees and Expenses........................................ *
Legal Fees and Expenses........................................... *
Accounting Fees................................................... *
Printing and Engraving Costs...................................... *
Transfer Agent's Fee.............................................. *
Miscellaneous Expenses............................................ *
----------
Total....................................................$
==========
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
II-1
<PAGE> 58
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or, if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and
advancement of expenses provided by, or granted pursuant to, the other
subsections of Section 145 shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and
advancement of expenses provided by, or granted pursuant to, Section 145 shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such a person.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Amended and Restated Certificate of Incorporation (the "Restated
Certificate") of the Company provides that a director of the Company shall not
be personally liable to the Company or its stockholders for
II-2
<PAGE> 59
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Company, in addition to the limitation on personal liability described
above, shall be eliminated or limited to the fullest extent permitted by the
amended DGCL. Further, any repeal or modification of such provision of the
Restated Certificate by the stockholders of the Company shall be prospective
only, and shall not adversely affect any limitation on the personal liability of
a director of the Company existing at the time of such repeal or modification.
The Restated Certificate also provides that each person who was or is
made a party or is threatened to be made a party or is involved in any
threatened, pending or completed action, suit or proceeding, whether formal or
informal, whether of a civil, criminal, administrative or investigative nature
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Company, whether the basis of such proceeding is an alleged action or
inaction in an official capacity or in any other capacity while serving as a
director or officer, shall be indemnified and held harmless by the Company to
the fullest extent permissible under Delaware law, as in effect on the date of
filing of the Restated Certificate or to such greater extent as applicable law
may thereafter permit, against all costs, charges, expenses, liabilities and
losses (including, without limitation, attorneys' fees, judgments, fines,
Employee Retirement Income Security Act of 1974 excise taxes, or penalties and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors and administrators. The Restated
Certificate further provides that the Company shall pay expenses actually
incurred in connection with any proceeding in advance of its final disposition;
provided, however, that if Delaware law then requires, the payment of such
expenses incurred in advance of the final disposition of a proceeding shall be
made only upon delivery to the Company of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified.
The Company may, but is not required to, provide indemnification to
employees and agents of the Company to the fullest extent permissible under
Delaware law.
The foregoing rights to indemnification conferred on directors,
officers, employees and agents are contract rights and any repeal or amendment
of the provisions in the Restated Certificate granting such rights shall not
adversely affect any right thereunder of any person existing at the time of such
repeal or amendment with respect to any act or omission occurring prior to the
time of such repeal or amendment, and, further, shall not apply to any
proceeding, irrespective of when the proceeding is initiated, arising from
service of such person prior to such repeal or amendment.
II-3
<PAGE> 60
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
NONE.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
* 1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
* 4 Form of Stock Certificate
* 5 Opinion of Sirote & Permutt, P.C. regarding legality
10.1 Assignment of Sublease between Champion International Corporation,
Pinson Partners and the Company, dated July 1, 1997
10.2 Sublease Agreement between The Uniroyal Goodrich Tire Company and
the Company, dated September 30, 1993
* 10.3 Amended and Restated Credit Facility
* 10.4 1997 Stock Option Plan
23.1 Consent of Arthur Andersen LLP
* 23.2 Consent of Sirote & Permutt, P.C. (included in Exhibit 5
above)
24 Powers of Attorney (included in Page II-6)
27 Financial Data Schedule
(b) Financial Statements Schedules:
All schedules are omitted because they are not applicable or the
requested information is shown in the Financial Statements of the
Registrant or the Notes thereto.
</TABLE>
- ----------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant undertakes hereby to provide to the
Underwriters at the Closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to Item 14 hereof,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such
II-4
<PAGE> 61
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities 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 (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized in the City of Birmingham,
State of Alabama, on the 7th day of August, 1997.
MEADOWCRAFT, INC.
By: /s/ Samuel R. Blount
---------------------------
Samuel R. Blount
Chairman of the Board of
Directors
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William J. McCanna and Steven C.
Braswell, and each or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments and any subsequent registration statements
filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended) to
this registration statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or either of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------- ------------------------ ---------------
<S> <C> <C>
/s/ Samuel R. Blount Chairman of the Board of August 7, 1997
- --------------------------------- Directors
Samuel R. Blount
/s/ William J. McCanna President and Director August 7, 1997
- -------------------------------- (Principal Executive Officer)
William J. McCanna
/s/ Steven C. Braswell Vice President of Finance, August 7, 1997
- -------------------------------- Chief Financial Officer and
Steven C. Braswell Secretary (Principal Financial and
Accounting Officer)
</TABLE>
II-6
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
* 1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
* 4 Form of Stock Certificate
* 5 Opinion of Sirote & Permutt, P.C. regarding legality
10.1 Assignment of Sublease between Champion International Corporation,
Pinson Partners and the Company, dated July 1, 1997
10.2 Sublease Agreement between The Uniroyal Goodrich Tire Company and
the Company, dated September 30, 1993
* 10.3 Amended and Restated Credit Facility
* 10.4 1997 Stock Option Plan
23.1 Consent of Arthur Andersen LLP
* 23.2 Consent of Sirote & Permutt, P.C. (included in Exhibit 5 above)
24 Powers of Attorney (included in Page II-6)
27 Financial Data Schedule
(b) Financial Statements Schedules:
All schedules are omitted because they are not applicable or the
requested information is shown in the Financial Statements of the
Registrant or the Notes thereto.
</TABLE>
- ----------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
THIS INSTRUMENT WAS PREPARED BY:
John H. Cooper, Esq.
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, AL 35205
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MEADOWCRAFT, INC.
MEADOWCRAFT, INC., a corporation organized and existing under
and by virtue of the Delaware General Corporation Law ("DGCL"), does hereby
certify:
That the present name of the corporation is Meadowcraft, Inc.
(the "Corporation");
That the original name of the corporation was Sam Blount
Company, Inc.;
That the date of filing of the original Certificate of
Incorporation of the Corporation with the Secretary of State was January 14,
1985;
That this Amended and Restated Certificate of Incorporation
restates, integrates, and amends the Certificate of Incorporation of the
Corporation;
That the Board of Directors of the Corporation, by Unanimous
Written Consent dated July 31, 1997, adopted a resolution proposing and
declaring advisable this Amended and Restated Certificate of Incorporation in
accordance with the provisions of Sections 242 and 245 of the DGCL;
That this Amended and Restated Certificate of Incorporation
was duly adopted by the stockholders of the Corporation by Unanimous Written
Consent, dated July 31, 1997, in accordance with the provisions of Sections 242
and 245 of the DGCL;
That the text of the Certificate of Incorporation, as amended,
is hereby amended and restated to read as herein set forth in full:
ARTICLE 1.
NAME OF CORPORATION
The name of the corporation is Meadowcraft, Inc.
<PAGE> 2
ARTICLE 2.
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Zip Code 19801. The registered agent is The
Corporation Trust Company.
ARTICLE 3.
PURPOSES
The purposes of the Corporation are to engage in any lawful
act or activity for which corporations may be organized under the Delaware
General Corporation Law (the "DGCL"), including but not limited to the
following:
SECTION 3.1 To manufacture, purchase or otherwise acquire,
invest in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose
of, trade, deal in and deal with goods, wares and merchandise and personal
property of every class and description;
SECTION 3.2 To acquire, and pay for in cash, stock or bonds of
the Corporation or otherwise, the good will, rights, assets and property, and to
undertake or assume the whole or any part of the obligations or liabilities of
any person, firm, association or corporation;
SECTION 3.3 To acquire, hold, use, sell, assign, lease, grant
licenses in respect of, mortgage or otherwise dispose of letters patent of the
United States or any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, copyrights, trademarks and trade names,
relating to or useful in connection with any business of the Corporation;
SECTION 3.4 To acquire by purchase, subscription or otherwise,
and to receive, hold, own, guarantee, sell, assign, exchange, transfer,
mortgage, pledge or otherwise dispose of or deal in and with any of the shares
of the capital stock, or any voting trust certificates in respect of the shares
of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust
receipts, and other securities, obligations, choses in action and evidences of
indebtedness or interest issued or created by any corporations, joint stock
companies, syndicates, associations, firms, trusts or persons, public or
private, or by the government of the United States of America, or by any foreign
government, or by any state, territory, province, municipality or other
political subdivision or by any governmental agency, and as owner thereto to
possess and exercise all the rights, powers and privileges of ownership,
including the right
2
<PAGE> 3
to execute consents and vote thereon, and to do any and all acts and things
necessary or advisable for the preservation, protection, improvement and
enhancement in value thereof;
SECTION 3.5 To borrow or raise money for any of the purposes
of the Corporation and, from time to time without limit as to amount, to draw,
make, accept, endorse, execute and issue promissory notes, drafts, bills of
exchange, warrants, bonds, debentures and other negotiable or non-negotiable
instruments and evidences of indebtedness, and to secure the payment of any
thereof and of the interest thereon by mortgage upon or pledge, conveyance or
assignment in trust of the whole or any part of the property of the Corporation,
whether at the time owned or thereafter acquired, and to sell, pledge or
otherwise dispose of such bonds or other obligations of the Corporation for its
corporate purposes;
SECTION 3.6 To purchase, receive, take by grant, gift, devise,
bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ,
use and otherwise deal in and with real or personal property, or any interest
therein, wherever situated, and to sell, convey, lease, exchange, transfer or
otherwise dispose of, or mortgage or pledge, all or any of the Corporation's
property and assets, or any interest therein, wherever situated;
SECTION 3.7 In general, to possess and exercise all the powers
and privileges granted by the DGCL or by any other law of the State of Delaware
or by this Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") together with any powers incidental thereto, so far as such
powers and privileges are necessary or convenient to the conduct, promotion or
attainment of the business or purposes of the Corporation.
SECTION 3.8 The business and purposes specified in the
foregoing clauses shall, except where otherwise expressed, be in nowise limited
or restricted by reference to, or inference from, the terms of any other clause
in this Certificate of Incorporation, but the business and purposes specified in
each of the foregoing clauses of this article shall be regarded as an
independent business and purpose.
ARTICLE 4.
CAPITAL STOCK
SECTION 4.1 Authorization of Capital. The total number of
shares of all classes of capital stock which the Corporation shall have
authority to issue is One Hundred Million (100,000,000) shares of Common Stock,
with a par value of $.01 per share, which constitutes a total authorized capital
of all classes of capital stock of One Million Dollars ($1,000,000.00).
3
<PAGE> 4
ARTICLE 5.
BOARD OF DIRECTORS
SECTION 5.1 General Provisions. The business and affairs of
the Corporation shall be managed under the direction of the Board of Directors.
The exact number of directors shall be fixed from time to time by, or in the
manner provided in, the ByLaws of the Corporation and may be increased or
decreased as therein provided. Directors of the Corporation need not be elected
by ballot unless required by the Bylaws.
SECTION 5.2 Nominations. Advance notice of nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
SECTION 5.3 Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors, or by a sole
remaining director. Any director elected in accordance with the preceding
sentence of this Section 5.3 shall hold office for the remainder of the full
term of the directors and until such director's successor shall have been
elected and qualified, unless sooner displaced.
SECTION 5.4 Powers. In furtherance and not in limitation of
the powers conferred upon it by law, the Board of Directors is expressly
authorized:
(a) To adopt, repeal, alter or amend the Bylaws of
the Corporation by the vote of a majority of the entire Board of Directors.
(b) To authorize and cause to be executed mortgages
and liens upon the real and personal property of the Corporation.
(c) To set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any proper purpose
and to abolish any such reserve in the manner in which it was created.
(d) By a majority of the whole Board of Directors, to
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The By-Laws may provide
that in the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such
4
<PAGE> 5
committee, to the extent provided in the resolution of the Board of Directors,
or in the By-Laws of the Corporation, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws of the Corporation; and, unless the resolution or by-laws expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
(e) When and as authorized by the stockholders in
accordance with the DGCL, to sell, lease or exchange all or substantially all of
the property and assets of the corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such consideration,
which may consist in whole or in part of money or property including shares of
stock in, and/or other securities of, any other corporation or corporations, as
its board of directors shall deem expedient and for the best interests of the
corporation.
SECTION 5.5 Limitation of Liability of Directors. A director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
If the DGCL is amended after the date hereof to authorize
action by corporations organized pursuant to the DGCL to further eliminate or
limit the personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent permitted
by the DGCL, as amended. Any repeal or amendment of this Section 5.5 by the
stockholders of the Corporation shall be prospective only and shall not
adversely affect any elimination or limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or amendment.
5
<PAGE> 6
ARTICLE 6.
INDEMNIFICATION
SECTION 6.1 Indemnification of Directors and Officers.
(a) Each person who was or is made a party or is
threatened to be made a party or is involved in any threatened, pending or
completed action, suit or proceeding, whether formal or informal, whether of a
civil, criminal, administrative or investigative nature (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation, whether the basis of such proceeding is an alleged action or
inaction in an official capacity or in any other capacity while serving as a
director or officer, shall be indemnified and held harmless by the Corporation
to the fullest extent permissible under Delaware law, as the same exists or may
hereafter exist in the future (but, in the case of any future change, only to
the extent that such change permits the Corporation to provide broader
indemnification rights than the law permitted prior to such change), against all
costs, charges, expenses, liabilities and losses (including, without limitation,
attorneys' fees, judgments, fines, Employee Retirement Income Security Act of
1974 excise taxes, or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or her heirs, executors and
administrators.
(b) The Corporation shall pay expenses actually
incurred in connection with any proceeding in advance of its final disposition;
provided, however, that if Delaware law then requires, the payment of such
expenses incurred in advance of the final disposition of a proceeding shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified.
(c) If a claim under subsection 6.1(a) hereof is not
paid in full by the Corporation within thirty (30) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of the claimant
is permissible in the circumstances because the claimant has met the applicable
standard of conduct, if any, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met the standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
standard of conduct.
6
<PAGE> 7
SECTION 6.2 Indemnification of Employees and Agents. The
Corporation may provide indemnification to employees and agents of the
Corporation to the fullest extent permissible under Delaware law.
SECTION 6.3 Expenses as a Witness. To the extent that any
director, officer, employee or agent of the Corporation is by reason of such
position, or position with another entity at the request of the Corporation, a
witness in any action, suit or proceeding, he or she shall be indemnified
against all costs and expenses actually and reasonably incurred by him or her on
his or her behalf in connection therewith.
SECTION 6.4 Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
SECTION 6.5 Indemnity Agreements. The Corporation may enter
into agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the fullest extent permissible under Delaware
law.
SECTION 6.6 Separability. Each and every paragraph, sentence,
term and provision of this Article 6 is separate and distinct, so that if any
paragraph, sentence, term or provision hereof shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or unenforceability of any other paragraph, sentence, term
or provision hereof. To the extent required, any paragraph, sentence, term or
provision of this Article 6 may be modified by a court of competent jurisdiction
to preserve its validity and to provide the claimant with, subject to the
limitations set forth in this Article 6 and any agreement between the
Corporation and claimant, the broadest possible indemnification permitted under
applicable law.
SECTION 6.7 Contract Right. Each of the rights conferred on
directors, officers, employees or agents of the Corporation by this Article 6
shall be a contract right and any repeal or amendment of the provisions of this
Article shall not adversely affect any right hereunder of any person existing at
the time of such repeal or amendment with respect to any act or omission
occurring prior to the time of such repeal or amendment, and, further, shall not
apply to any proceeding, irrespective of when the proceeding is initiated,
arising from the service of such person prior to such repeal or amendment.
SECTION 6.8 Nonexclusivity. The rights conferred in this
Article 6 shall not be exclusive of any other rights that any person may have or
hereafter acquire under any statute, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
7
<PAGE> 8
ARTICLE 7.
AMENDMENT TO ARTICLES
The Corporation reserves the right to amend, alter or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are subject to this reservation.
IN WITNESS WHEREOF, Meadowcraft, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by William J. McCanna,
the President of the Corporation, this 31st day of July, 1997.
MEADOWCRAFT, INC.
By: /s/ William J. McCanna
-------------------------------
William J. McCanna
President
8
<PAGE> 9
ACKNOWLEDGEMENT
I, the undersigned, as President of Meadowcraft, Inc., do
hereby acknowledge that the above and foregoing instrument represents the
Amended and Restated Certificate of Incorporation of Meadowcraft, Inc., a
Delaware corporation, duly approved and adopted by the Board of Directors and
the Stockholders of the Corporation by Unanimous Written Consents on July 31,
1997, and that the statements contained therein are true and correct.
This 31st day of July, 1997.
/s/ William J. McCanna
-------------------------------------
William J. McCanna
President
Sworn to and subscribed before me on this 31st day of July,
1997.
/s/ Katherine W. Brannan
-------------------------------------
Notary Public
My commission expires: April 19, 2000
--------------
9
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
MEADOWCRAFT, INC.
ARTICLE I
OFFICES
The registered office shall be in the City of Wilmington, County of New
Castle, State of Delaware. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Stockholder Meetings. All meetings of the stockholders for
the election of directors shall be held at such place as may be fixed from time
to time by the Board of Directors, or at such other place either within or
without the State of Delaware as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of the stockholders shall
be held on such date as shall be designated from time to time by the Board of
Directors and stated in the
<PAGE> 2
notice of the meeting, at which they shall elect by a plurality vote a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 4. Voting List. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, as amended from time to time (the "Certificate of
Incorporation"), may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
2
<PAGE> 3
Section 6. Notice of Special Meeting. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
Section 7. Transaction of Business. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Section 8. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the
3
<PAGE> 4
statutes or of the Certificate of Incorporation, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 9. Voting of Shares. Unless otherwise provided in the
Certificate of Incorporation each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period.
Section 10. Written Consent. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if there is a
consent in writing, setting forth the action so taken, bearing the signature and
date of signature of the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
Section 11. Stockholder Proposals at Annual Meetings. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
otherwise properly brought before the meeting by or at the direction of the
Board of
4
<PAGE> 5
Directors or otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than sixty days nor
more than ninety days prior to the meeting; provided, however, that in the event
that less than seventy days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting, (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the stockholder
proposing such business, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
the stockholder, (iv) a description of all arrangements or understandings
between the stockholder and any other person or persons (including their names)
in connection with the proposal of such business by the stockholder and any
material interest of the stockholder in such business, and (v) a representation
that the stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
Notwithstanding anything in these Amended and Restated Bylaws (these
"Bylaws") to the contrary, no business shall be conducted at the annual meeting
except in accordance with the
5
<PAGE> 6
procedures set forth in this Section 11, provided, however, that nothing in this
Section 11 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with said
procedure.
The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 11, and if
he or she should so determine, he or she shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Section 12. Nominations of Persons for Election to the Board of
Directors. In addition to any other applicable requirements, only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 12. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than sixty days nor
more than ninety days prior to the meeting; provided, however, that in the event
that less than seventy days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholders to be
timely must be so received not later than the close of business
6
<PAGE> 7
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or re-election as a director, (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or employment
of the person, (iii) the class and number of shares of the Corporation which are
beneficially owned by the person and (iv) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Section 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice, (i) the name and
record address of the stockholder, (ii) the class or series and number of shares
of capital stock of the Corporation which are owned beneficially or of record by
the stockholder, (iii) a description of all arrangements or understandings
between the stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nominations(s) are to be
made by the stockholder, (iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the persons named in
such notice and (v) any other information relating to the stockholder that would
be required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for the election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee being named as a nominee and to serve as a director if
elected. The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of
7
<PAGE> 8
such proposed nominee to serve as a director of the Corporation. No person shall
be eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein. The provisions of this Section
12 shall not apply to directors governed by Section 15 and Section 16 of Article
III.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business of the Corporation shall be
managed by or under the direction of its Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 2. Number. The number of directors that shall constitute the
whole Board of Directors of the Corporation shall be fixed by the affirmative
vote of a majority of the members at any time constituting the Board of
Directors, and such number may be increased or decreased from time to time;
provided, however, that no such decrease shall have the effect of shortening the
term of any incumbent director.
Section 3. Term of Office and Removal. At each annual meeting of
stockholders, the directors shall be elected for a one-year term. A director
shall hold office until the next
8
<PAGE> 9
annual meeting and until his or her successor has been elected and qualifies.
The Board of Directors shall increase or decrease the number of directors by
resolution of the Board, but in no case shall a decrease in the number of
directors shorten the term of any incumbent director. A director may be removed
from office for cause only and, subject to such removal, death, resignation,
retirement or disqualification, shall hold office until the annual meeting for
the year in which his or her term expires and until his or her successor shall
be elected and qualify. No alteration, amendment or repeal of these Bylaws shall
be effective to shorten the term of any director holding office at the time of
such alteration, amendment or repeal or to permit any such director to be
removed without cause, unless such alteration, amendment or repeal has been
approved by either the holders of all shares of stock entitled to vote thereon
or by a vote of a majority of the entire Board of Directors.
Section 4. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by the affirmative vote of a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, in accordance with the
provisions of the Certificate of Incorporation, and the directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by law.
Section 5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
9
<PAGE> 10
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the president on two days' notice to each director, either
personally or by mail telegram or facsimile transmission; special meetings shall
be called by the president or secretary in like manner and on like notice on the
written request of two directors unless the Board of Directors consists of only
one director, in which case special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of the sole
director.
Section 8. Quorum. At all meetings of the Board of Directors a majority
of the directors shall constitute a quorum for the transaction of business and
the act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unanimous Consent. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing,
10
<PAGE> 11
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 10. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors as provided in the Certificate of Incorporation fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class
11
<PAGE> 12
or classes or any other series of the same or any other class or classes of
stock of the Corporation), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock or to
adopt a certificate of ownership and merger. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors.
Section 12. Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 13. Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
12
<PAGE> 13
ARTICLE IV
NOTICES
Section 1. Giving Notice. Whenever, under the provisions of the
Delaware General Corporation Law, or any successor statutes, or of the
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his or her address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or by facsimile
transmission.
Section 2. Waiver of Notice. Whenever any notice is required to be
given by law or by the Certificate of Incorporation or by these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
OFFICERS
Section 1. Number. The Corporation shall have a President who shall be
elected by the Board of Directors. One or more Vice Presidents, a Secretary, a
Treasurer and such other officers and assistant officers as may be required by
law or as may be deemed necessary shall be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person where not
otherwise prohibited by law.
13
<PAGE> 14
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting after
each annual meeting of stockholders. Such officers shall hold office at the
pleasure of the Board of Directors and until their successors are elected and
qualified. In its discretion, the Board of Directors by a vote of a majority
thereof may leave unfilled for such period as it may fix by resolution any
offices except that of President.
Section 3. Vacancies and Removal. Vacancies in any office arising from
any cause may be filled by the Board of Directors at any regular or special
meeting. The Board of Directors may remove any officer, with or without cause,
at any time by an affirmative vote of a majority of the Board of Directors.
Section 4. President. The President shall be the principal executive
officer of the Corporation and shall have in his or her charge the general
direction and promotion of the Corporation's affairs with authority to do such
acts and to make such contracts as are necessary or proper to carry on the
business of the Corporation. He or she shall preside over all official meetings
of the Corporation, provided no one has been specifically elected to the office
of Chairman of the Board, and shall also perform those duties which usually
devolve upon a president of a Corporation under the laws of the State of
Delaware. The President may, during the absence of any officer, delegate said
officer's duties to any other officer or director.
Section 5. Vice President. The Vice President, if any, in the absence
or disability of the President, shall perform the duties of the President and
shall perform such other duties as may be delegated to him or her from time to
time by the Board of Directors or by the President.
14
<PAGE> 15
Section 6. Secretary. The Secretary, if any, shall issue notices of all
meetings of stockholders and all meetings of the Board of Directors, shall keep
the minutes of all such meetings, shall have charge of the seal of the
Corporation, shall serve as custodian for all corporate records, and shall make
such reports and perform such duties as are incident to his office or which may
be delegated to him or her by the President or Board of Directors.
Section 7. Treasurer. The Treasurer, if any, shall render to the
President and the Board of Directors at such times as may be requested an
account of all his or her transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall perform such other duties as
are incident to the office or as may be delegated to that office by the
President or by the Board of Directors.
Section 8. Salaries. The salaries of the officers may be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he or she is also a director or
stockholder of the Corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
15
<PAGE> 16
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates. Ownership of the capital shares of the
Corporation shall be represented by certificates, in such form as shall be
determined by the Board of Directors. Each certificate shall be signed by an
officer of the Corporation and may be sealed with the seal of the Corporation or
a facsimile thereof. A record of such certificates shall be kept.
Section 2. Cancellation. All certificates transferred on the books of
the Corporation shall be surrendered and cancelled. No new certificates shall be
issued until the former certificate, or certificates, for the same number of
shares have been surrendered and cancelled, except in case of lost or destroyed
certificates, when new certificates therefor may be issued under such conditions
as the Board of Directors may prescribe.
16
<PAGE> 17
Section 3. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his or her legal representatives, who shall furnish
proper evidence of their authority in writing, upon the surrender for
cancellation of the certificate for such shares.
Section 4. Fixing Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
17
<PAGE> 18
ARTICLE VIII
DIVIDENDS
Section 1. Paying Dividends. The Board of Directors may from time to
time declare, and the Corporation may pay, dividends on the outstanding shares
of the Corporation in the manner and upon the terms and conditions provided by
law and by the Certificate of Incorporation of the Corporation or any amendments
thereto. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation.
Section 2. Setting Aside Funds. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall think conducive to
the interest of the Corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or Board of Directors, or at any special
meeting of the stockholders or of the Board of Directors
18
<PAGE> 19
if notice of such alteration, amendment, repeal or adoption of new Bylaws be
contained in the notice of such special meeting. If the power to adopt, amend or
repeal Bylaws is conferred upon the Board of Directors by the Certificate of
Incorporation, it shall not divest or limit the power of the stockholders to
adopt, amend or repeal these Bylaws.
ARTICLE X
MISCELLANEOUS
Section 1. Fiscal Year. The initial taxable year of the Corporation
shall commence on the date the Certificate of Incorporation is filed, and end on
such date as the Board of Directors may determine, in accordance with all
applicable provisions of the Internal Revenue Code of 1986, as amended.
Section 2. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
These Amended and Restated Bylaws of Meadowcraft, Inc. were adopted by
the Board of Directors of the Corporation and approved by the
Stockholders of the Corporation by unanimous written consent on the
31st day of July, 1997.
19
<PAGE> 1
EXHIBIT 10.1
ASSIGNMENT OF SUBLEASE
----------------------
This Assignment entered into by and between Champion International
Corporation, a New York corporation ("CIC"), Meadowcraft, Inc., an Alabama
corporation ("Meadowcraft"), Pinson Partners, an Alabama general partnership
composed of Gregory D. Bergquist and T. Morris Hackney, ("Pinson") and Sam
Blount Company, Inc., a Delaware corporation ("Blount").
RECITALS:
---------
A. CIC is a party as Sublessor to that certain Sublease Agreement
dated January 31, 1977 by and between it and Birmingham Ornamental Iron
Company, Inc. as sublessee of certain property located in Tarrant City,
Alabama, a copy of which Sublease is attached hereto as Exhibit "A" (the
"Sublease").
B. Meadowcraft is now a party to the Sublease as the party having the
rights and obligations of the original sublessee, Birmingham Ornamental Iron
Company, Inc., an Alabama corporation.
C. Meadowcraft is owned by Gregory D. Bergquist and T. Morris Hackney.
D. All of the parties hereto have agreed that upon the sale of
substantially all of the assets of Meadowcraft to Blount, the within Assignment
of the Sublease would be executed by the parties hereto.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein the parties do hereby agree as follows:
1. Meadowcraft does hereby assign all of its right, title and interest
in the Sublease to Pinson and to Blount to be allocated between Pinson and
Blount in accordance with the terms and conditions herein provided.
<PAGE> 2
2. Pinson (and not Blount) shall hereafter have all the rights of the
Sublessee to acquire, pursuant to Section 16 of the Sublease, the leasehold
rights of CIC under that certain Project Lease dated March 1, 1968 between CIC
as assignee and the City of Tarrant City as amended (the "Project Lease");
provided that, in the event Pinson acquires the rights of CIC under the Project
Lease and thereafter defaults under said lease agreement, Blount shall have the
right, and shall be obligated to promptly cure such default, and thereafter
perform the obligations of CIC under the Project Lease.
3. Blount (and not Pinson) shall hereafter have all of the other
rights and obligations of the Sublessee under the Sublease, provided, however,
if Blount shall default under its obligations under the Sublease and such
default shall continue beyond any applicable grace period such that CIC would
have the right to terminate the Sublease, then before terminating the Sublease
CIC shall so inform Pinson in writing and Pinson shall have the right within 15
days to cure said default. Pinson shall, upon cure of such default, become
immediately vested with all of the rights and obligations of the Sublessee
under the Sublease. Blount does hereby accept such assignment of Meadowcraft's
interest (exclusive of Section 16) in the Sublease and does specifically assume
and agree to perform, observe and be bound by, all of the obligations of the
sublessee under the Sublease. Pinson does hereby guarantee the full and prompt
performance of Blount of all of its obligations as Sublessee under the
Sublease.
4. CIC does hereby consent to the said Assignment and does confirm and
agree that the Sublease as herein is in full force and effect according to its
terms.
In Witness Whereof, the Parties have signed and sealed this Assignment
to be effective as of July 1, 1987.
2
<PAGE> 3
<TABLE>
<S> <C>
CHAMPION INTERNATIONAL
CORPORATION,
a New York corporation
By/s/
------------------------------------
Its Sr. VP Finance
---------------------------------
ATTEST:
- ---------------------------
MEADOWCRAFT, INC.,
an Alabama corporation
By/s/
------------------------------------
Its President
ATTEST:
/s/ T. Morris Hackney
- ----------------------------
PINSON PARTNERS,
an Alabama general partnership
By/s/ T. Morris Hackney
-------------------------------------
T. Morris Hackney, general partner
WITNESS:
/s/
- -----------------------------
By/s/ Gregory D. Bergquist
-------------------------------------
Gregory D. Bergquist, general partner
WITNESS:
/s/
- -----------------------------
SAM BLOUNT COMPANY, INC.,
A Delaware corporation
By/s/ S. Roberts Blount
------------------------------------
Its Chairman
ATTEST:
/s/
- -----------------------------
</TABLE>
3
<PAGE> 4
SUBLEASE
--------
This SUBLEASE by and between CHAMPION INTERNATIONAL CORPORATION, a New
York corporation, as Sublessor (hereinafter "CIC"), and BIRMINGHAM ORNAMENTAL
IRON COMPANY, INC., an Alabama corporation as Sublessee (hereinafter
"Sublessee"),
WITNESSETH
----------
WHEREAS, by virtue of an Assignment and Assumption Agreement dated
December 3, 1969, CIC is the assignee of the rights of Birmingham Ornamental
Iron Company, Inc. (hereinafter "BOI, INC." under a lease agreement dated as of
March 1, 1968, as amended by Supplemental Lease Agreements dated November 1,
1969, December 1, 1969 and September 21, 1971, between BOI, INC., and the City
of Tarrant City, a municipal corporation under the laws of the State of Alabama
(hereinafter the "Lease") copies of which are attached hereto as Exhibits A
through D; and
WHEREAS, pursuant to the terms and conditions of the Lease, CIC may
sublease the said real property subject to the Lease and the Indenture; and
WHEREAS, Sublessee desires to sublease said real property according to
the terms and conditions of the Sublease.
NOW, THEREFORE, the parties hereto agree as follows:
1. Sublease. CIC hereby subleases to Sublessee and Sublessee hereby
rents from CIC, subject to the Lease and the Indenture for and during the term
of this Sublease and upon and subject to the terms and conditions hereinafter
specified the property described in Exhibit "E" hereto.
2. Term. Unless sooner terminated, the term of this Sublease shall
commence on February 1st, 1977 and shall end on midnight August 29, 2000.
3. Rent. Sublessee agrees to make rental payments to CIC in the
amounts and during the periods set forth hereinafter, as follows:
(a) From the date of commencement of the term of this Sublease
until such date as CIC shall have paid $400,000 in basic rent
to the City of Tarrant City pursuant to the terms and conditions
of Section 5.2(a) of the lease, the rent shall
be.........................................$0.00
(b) From the date of commencement of the term of this Sublease,
Sublessee shall pay Supplemental Rent as specified in Section
5.2(b) of the Lease.
(c) From the date upon which CIC shall have paid the said
$400,000.00 (as set forth in subparagraph (a) hereof), Sublessee
shall pay rent to CIC according to the terms and conditions and in
the same amounts set forth in Section 5.2(a) of the Lease provided
that all such rent payments shall be made to CIC by the 10th of any
given month, notwithstanding anything to the contrary in Article V
of the Lease.
Any rent due hereunder that is not paid within three (3) days after the
due date shall bear interest from its due date until paid at the rate of 8% per
annum.
<PAGE> 5
4. Obligation of Sublessee Unconditional. The obligation of the
Sublessee to pay the Rent, to make all other payments provided for herein, and
to perform and observe the other agreements on its part herein contained, shall
be absolute and unconditional, irrespective of any rights of setoff, recoupment
or counterclaim it might otherwise have against CIC. The Sublessee will not
suspend or discontinue any such payments or fail to perform and observe any of
its other agreements contained herein or terminate this Sublease for any cause
including, without limiting the generality of the foregoing, any acts or
circumstances that may constitute an eviction or constructive eviction, failure
of consideration, commercial frustration of purpose, damage to or destruction
of the Subleased Premises or any part thereof, the taking by eminent domain of
title to or the right to temporary use of all or any part of the Subleased
premises, change in the tax or other laws of the Unitd States of America or the
State or any political subdivision of either thereof, or failure of CIC to
perform and observe any agreement or any duty, liability or obligation on its
part arising out of or connected with this Sublease whether express or
implied. Notwithstanding the foregoing, the Sublessee may, at its own cost and
expense and in its own name or in the name of CIC prosecute or defend any
action or proceeding or take any other action involving third persons which the
Sublessee deems reasonably necessary in order to secure or protect its rights
of occupancy and use its other rights hereunder.
5. Maintenance, Taxes, Removals and Releases
(a) Maintenance, Alterations and Improvements. During the Sublease
Term, the Sublease will at its own expense (a) keep the Subleased premises in
as reasonably safe condition as its operation permits, (b) keep the Plant and
other improvements located on the Subleased premises in good repair and in good
operating condition, and (c) make from time to time all repairs to and renewals
of the Plant as may be necessary to maintain the same as an efficient
manufacturing plant. The Sublessee may, at its own expense, make any
additions, alterations or improvements to the Subleased premises that it may
deem desirable for its business purposes and that do not adversely affect the
structural integrity of the Plant. All such additions, alterations or
improvements shall become part of the subleased premises, subject to this
sublease, the Lease and the Indenture. Any fixtures installed by the Sublessee
at the Plant without expense to CIC and not constituting a part of the Plant or
any replacements thereof or repairs thereto may be removed by the Sublessee at
any time and from time to time while it is not in default under the terms of
this Sublease; provided, that any damage to the Subleased premises occasioned
by such removal shall be repaired by the Sublessee at its own expense.
Sublessee may, also at its own expense, connect or "tie-in" utility and other
facilities located on the Subleased Premises to other facilities erected at its
expense on real property adjacent to the Subleased premises, but only if the
Sublessee furnished CIC a certificate of an Independent Engineer that such
connection and "tie-in" of facilities will not impair the operating unity or
the productive capacity of the Plant or its character as a manufacturing plant.
The Sublessee will cause each such connection or "tie-in" to be so effected as
to be subject to prompt disconnection at minimum expense.
The Sublessee will not permit any mechanics' or other liens to stand
against the Subleased premises for labor or materials furnished in connection
with any additions, alterations, improvements, repairs, renewals or connections
so made by it; provided, that the Sublessee shall first notify CIC of its
intention so to do, the
<PAGE> 6
Sublessee may at its own expense and in good faith contest any such mechanics'
or other liens and in the event of such contest may permit any such liens to
remain unsatisfied and undischarged during the period of such contest and any
appeal therefrom; provided further, that if CIC shall notify the Sublessee
that, in the opinion of CIC by nonpayment of any such items the lien of the
Indenture as to and of the Subleased premises or any part thereof shall be
subject to loss or forfeiture, then in that event the Sublessee shall promptly
pay and cause to be satisfied and discharged all such unpaid items.
(b) Taxes, Other Governmental Charges and Utility Charges. CIC and the
Sublessee acknowledge: (a) that under present law no part of the Subleased
premises is subject to ad valorem taxation by the State or by any political or
taxing subdivision thereof. If, however, such conditions should cease to
exist, the Sublessee agrees that it will pay, as the same respectively become
due (1) all taxes and governmental charges of any kind whatsoever that may be
lawfully assessed or levied against or with respect to the Subleased premises
or any part thereof, that may be or become secured by a lien thereof or on any
part thereof (including, without limiting the generality of the foregoing, all
taxes levied upon or with respect to the income or profits of CIC or the City
of Tarrant City from the Subleased premises which, if not paid, will become a
lien on the Subleased premises prior to or on a parity with the lien of the
indenture or a charge on the revenues and receipts therefrom prior to or on a
parity with the pledge and assignment thereof to be created and made in the
Indenture); (2) all utility and other charges incurred in the operation,
maintenance, use, occupancy and upkeep of the Subleased premises etc., and (2)
all assessments and charges at any time lawfully made by any governmental body
for public improvements that may be secured by a lien on the Subleased premises
or any part thereof; provided, that with respect to special assessments or
other government charges that may lawfully be paid in installments over a
period of years, the Sublessee shall be obligated to pay only such installments
as come due during the Sublease Term.
If the Sublessee shall first notify CIC of its intention so to do, the
Sublessee may, in good faith and at its own expense and in its own name and
behalf or in the name and behalf of CIC, contest any such taxes, assessments or
other charges and, in the event of any such contest, may permit the taxes,
assessments or other charges so contested to remain unpaid during the period of
such contest and any appeal therefrom unless CIC shall be of the opinion that
by such action the title of the City of Tarrant City to or the lien of the
Indenture on any part of the Subleased premises shall be materially endangered
or the Subleased premises or any part thereof shall become subject to loss or
forfeiture, in which event such taxes, assessments or charges shall be paid
prior to becoming delinquent. CIC will cooperate fully with the Sublessee in
any such contest.
6. (a) Insurance Required. The Sublessee shall take out and
continuously maintain in effect, throughout the Lease Term the following
classes and amounts of insurance, paying as the same become due all premiums
with respect thereto:
(1) Insurance to the extent of the full replacement value of
the Plant against loss or damage thereto by fire, with uniform
standard extended coverage endorsement limited only as may be provided
in the standard form of extended coverage endorsement at the time in
use in Alabama; and
<PAGE> 7
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(2) In time of war declared by or against the United States
of America and in which it is a participant, such insurance to the extent
of the full replacement value of the Plant as may be available against
loss thereof or damage thereto by the risks and hazards of war.
(3) Basic insurance against liability for injury to or death of
persons or for damage to or loss of property arising out of or in any way
related to the Subleased premises, in amounts not less than $250,000 for
the death of or personal injury to any one person, $500,000 for the total
of the personal injuries to or deaths of two or more persons resulting
from any one accident, with such additional insurance of like kinds under
an "umbrella policy" that will be sufficient, when added to the basic
insurance of each type referred to in this paragraph, to afford total
insurance coverage of each such type of not less than $1,000,000;
(4) Insurance in amounts sufficient to cover all liability of
the Sublessee under the Workmen's Compensation Act of Alabama for deaths
of or injuries to persons arising out of any act or omission during the
preparation for or the construction, maintenance, replacement or
operation of the Subleased premises or any part thereof; and
(5) Business interruption insurance in such amount as may at
the time be customarily carried by companies of similar size and engaged
in like business as the Sublessee.
(b) Handling of Insurance Policies. All insurance required in this
Section shall be taken out and maintained in generally recognized responsible
insurance companies, qualified under the laws of the State to assume the
respective risks undertaken thereunder and acceptable to the CIC; and may be
written with deductible amounts comparable to those on similar policies carried
by other companies engaged in businesses similar in size, character and the
Subleased premises. All policies evidencing such insurance shall be deposited
with CIC; provided, that in lieu of such policies there may be so deposited a
certificate or certificates of the respective insurers attesting the fact that
such insurance is in force and effect. Prior to the expiration of any such
policy, the Sublessee shall cause to be furnished to CIC evidence satisfactory
to CIC that such policy has been renewed or replaced by another policy. The
Sublessee will furnish to CIC on March 1 of each year hereunder a certificate
made by some person (who may be an employee of the Sublessee), who has
knowledge of the facts and is acceptable to CIC, reciting that the amounts and
types and insurance evidenced by policies or certificates of insurance then on
deposit with CIC comply with the requirements hereof.
All policies evidencing the insurance required by paragraphs (1) and (2)
shall be carried in the names of the Trustee, the City of Tarrant City, CIC and
the Sublessee, as their respective interests may appear, and shall contain
standard mortgage clauses in favor of the Trustee providing that all payments
made with respect to each claim for loss thereunder of not more than $25,000
shall be paid to the Sublessee, and all payments made with respect to each claim
for loss thereunder in excess of $25,000 shall be made to the Trustee (or to
<PAGE> 8
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CIC if none of the Bonds are outstanding); providing that all claim thereunder
for losses in any amount may be adjusted by the Sublessee with the insurers
subject, in the case of any claim for loss in excess of $25,000, to the approval
of CIC and the Trustee while any of the Bonds are outstanding, and thereafter to
the approval of CIC and the City of Tarrant City. So long as any of the Bonds
remain outstanding the Trustee alone shall have the right to receive the
proceeds of, and to collect and receipt for claims for losses in excess of
$25,000 under all policies of insurance required in Paragraphs (1) and (2).
All policies evidencing the insurance required in paragraph (3) shall
be carried in the names of CIC, the City of Tarrant City, the Sublessee and the
Trustee, as their respective interests may appear. All policies evidencing the
insurance required in paragraphs (4) and (5) shall be carried in the name of the
Sublessee.
(c) Application of Proceeds from Insurance Required in Paragraphs (1)
and (2); Sublessee's Obligations to Repair, Restore and Replace Property
Damaged. The gross proceeds of the insurance required in paragraphs (1) and
(2) shall be applied first for the payment of all expenses (including Counsel
fees and the charges for any Extraordinary Services or Extraordinary Services
or Extraordinary Expenses) incurred in the collection of such gross proceeds.
Subject to the provisions of Subsection 6(f), CIC will cause the Net Proceeds
thereafter remains to be applied as follows:
(i) The Net Proceeds of such insurance arising from any claim
for a loss not in excess of $25,000 shall be paid to the Sublessee and
shall be applied by the Sublessee as promptly as may be feasible toward
the repair, restoration, or replacement of the damaged or destroyed
property with respect to which the insurance proceeds were paid, or for
acquiring or constructing additions or improvements to or modifications
or changes in the Subleased premises, at the option of the Sublessee, who
shall report to CIC respecting such application upon completion thereof.
(ii) If any of the Bonds are outstanding at the time of the
payment of the insurance proceeds, the Net Proceeds of such insurance
arising from any claim for a loss in excess of $25,000 shall be paid to
the Trustee and shall be deposited in the Construction Fund and applied
as promptly as may be feasible for the purpose of paying the costs of
repairing, installing and replacing the property damaged or destroyed so
that it will be in substantially the same condition or character as it
existed immediately prior to the event that caused the damage or
destruction, with such changes, alterations and modifications in the
Plant as may be requested by the Sublessee and certified by an
Independent Engineer as not impairing the operating unity or the
productive capacity of the Plant or its character as a manufacturing
plant. Withdrawals of the Net Proceeds so paid into the Construction
Fund shall be effected in the same manner and upon compliance with the
applicable requirements contained in Section 4.3 of the Lease, governing
the disbursement of the moneys initially deposited in the Construction
Fund. If the Net Proceeds of the insurance referable to such damage or
destruction are in excess of the amount necessary to effect such repair,
restoration or replacement, the said excess shall be paid into the
Redemption Account until there shall be paid therein an amount
sufficient to redeem or pay all Outstanding Bonds on the earliest
practicable date or dates thereafter, and the balance if any shall be
paid to the Sublessee.
<PAGE> 9
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(iii) If none of the Bonds are outstanding at the time of the
payment of the insurance proceeds, the Net Proceeds of such insurance
arising from any claim for a loss in excess of $25,000 shall be paid to
CIC and shall be applied by CIC as promptly as may be feasible for
payment of the costs of repairing, installing and replacing the property
damaged or destroyed so that it will be in substantially the same
condition or character as it existed immediately prior to the event that
caused the damage or destruction, with such changes, alterations and
modifications in the Plant as may be requested by the Sublessee and
certified by an Independent Engineer as not impairing the operating unity
or the productive capacity of the Plant or its character as a
manufacturing plant. If the Net Proceeds of the insurance referable to
such damage or destruction are in excess of the amount necessary to
effect such repair, restoration or replacement, the said excess shall be
paid to the Sublessee.
If at any time while any of the Bonds are outstanding the Net Proceeds of the
insurance referable to any such damage or destruction are less than the amount
necessary to effect the repair, restoration or replacement required in this
section, the Sublessee will promptly supply from its own funds such additional
moneys as may be necessary to effect such repair, restoration or replacement.
If, after being furnished with the necessary moneys (whether by the Sublessee,
from Net Proceeds of insurance, or from both sources,) CIC after reasonable
request so to do fails or refuses so to repair, restore or replace the property
damaged or destroyed, the Sublessee may, in the name of and on behalf of CIC,
perform the work of such repair, restoration or replacement, and in that event
CIC shall, promptly upon request by the Sublessee so to do, reimburse the
Sublessee for the costs and expenses so expended by the Sublessee, such
reimbursement to be made from the Net Proceeds of insurance referable to the
damage or destruction necessitating such repair, restoration and replacement,
to the extend such Net Proceeds are sufficient therefor.
(d) Application of the Proceeds from the Insurance Required in
Paragraph (3). The gross proceeds of the insurance required in Paragraph (3)
shall be applied first toward payment of the expenses (including Counsel fees
and the charges for any Extraordinary Services and Extraordinary Expenses)
incurred in the collection of such proceeds, and the Net Proceeds remaining
shall be applied toward extinguishment or satisfaction of the liability with
respect to which such insurance proceeds may be paid.
(e) Application of the Proceeds from the Insurance Required in
Paragraphs (4) & (5). The gross proceeds from the insurance required in
Paragraph (4) and Paragraph (5) shall be paid to the Sublessee.
(f) Conditions Under Which Repair, Restoration or Replacement of the
Plant Not Required. If the Plant is damaged or destroyed by fire or other
casualty to such extent that the Sublessee is entitled to exercise the option to
cause CIC to purchase and reconvey to Sublessee the Subleased premises as
granted to it in Section 15 hereinafter, and if the Sublessee elects to
exercise the said option, the Sublessee may elect not to cause the Plant to be
repaired, restored or replaced, and upon the closing of the purchase of the
Subleased premises pursuant to the exercise of such option the Net Proceeds of
the insurance shall be applied, and title to the Subleased premises shall be
conveyed, as is provided in Section 15 hereinafter.
<PAGE> 10
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7. Provisions Respecting the Exercise of the Power of Eminent Domain.
(a) Continuance of This Agreement in the Event of Condemnation;
Sublessee's Obligation to Restore. If the Subleased premises, or any part
thereof, shall be taken under the exercise of the power of eminent domain by any
governmental body, or by any person, firm or corporation acting under
governmental authority, the Sublessee shall, subject to the provisions of
Subsection 7(b), be obligated to continue to pay the Rent without diminution and
to observe and perform all the other agreements on its part herein contained.
The gross proceeds received from any award made in such eminent domain
proceedings shall be paid to CIC if any of the Bonds are then outstanding who
shall pay over said award to the Trustee, otherwise they shall be paid to CIC.
Such gross proceeds shall be first applied for the payment of all expenses
(including Counsel fees and any charges for Extraordinary Services and
Extraordinary Expenses) incurred in the collection of such gross proceeds.
Subject to the provisions of Subsection 7(b), if any of the Bonds are
outstanding at the time of the payment of such award, CIC will cause the Net
Proceeds then remaining to be applied in one or more of the following ways as
shall be directed by the Sublessee:
(i) The said Net Proceeds shall be deposited in the
Construction Fund and applied as promptly as may be feasible for the
purpose of paying the costs of restoring and reconstituting the
Subleased premises to substantially the same condition and character in
which it existed immediately prior to the making of such award, so far as
such actions may be feasible, with such changes, alterations and
modifications in the Subleased premises as may be requested by the
Sublessee and certified by an Independent Engineer as not impairing the
operating unity or the productive capacity of the Plant or its character
as a manufacturing plant, including in that connection payment for and
the acquisition in the name of CIC of title to other property and
improvements suitable for the Sublessee's operations, which other
property and improvements shall be deemed a part of the Subleased
premises available for use and occupancy by the Sublessee, without
payment of any Rent other than that herein provided for to the same
extent as if such other property and improvements were specifically
described herein and demised hereby; provided, that such other property
and improvements shall be acquired by CIC subject to no liens or
encumbrances other than Permitted Encumbrances; and provided further,
that such other property and improvements shall by Supplemental Indenture
be conveyed to the Trustee on the terms and conditions contained in the
Indenture. If the Net Proceeds of the condemnation award so paid to the
Trustee by CIC are in excess of the amount necessary to effect such
restoration or reconstitution, the said excess shall be paid into the
Redemption Account until there shall have been paid therein an amount
sufficient to effect redemption and payment on the earliest practicable
date or dates thereafter of all of the Bonds then outstanding, and the
balance if any then remaining shall be paid to the Sublessee.
(ii) The said Net Proceeds shall be applied to the redemption of
Callable Bonds in their inverse numerical order on the earliest
practicable Redemption Date at a Redemption Price equal to the face value
of the Bonds to be redeemed and a premium equal to 5% of the said face
value; provided, that if less than all of
<PAGE> 11
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the Bonds at the time outstanding are to be redeemed pursuant to the
provisions of this paragraph, an Independent Engineer shall have
certified (1) that the property taken by the power of eminent domain
is not essential to the Sublessee's operations then being conducted at
the Subleased premises or, if no operations are then being conducted
thereat, that the said property is not essential to the operations for
which the Subleased premises were designed or last modified, or (2)
that the Subleased premises have been restored to substantially the
same condition or character in which it existed immediately prior to
the making of such award, or (3) that other improvements to the
Subleased premises have been acquired which are suitable for the
Sublessee's operations then being conducted at the Subleased premises
or, if no operations are then being conducted at the Subleased
premises, that the said improvements are suitable for the operations
for which the Subleased premises were designed or last modified.
If none of the Bonds is outstanding at the time of the payment of the
condemnation award, the Net Proceeds from such award shall be paid to CIC and
applied by it as promptly as may be feasible for the purpose of paying the
costs of restoring and reconstituting the Subleased premises to substantially
the same condition of character in which it existed immediately prior to the
making of such award, so far as such action may be feasible, with such changes,
alterations and modifications in the Subleased premises as may be requested by
the Sublessee and certified by an Independent Engineer as not impairing the
operating unity or the productive capacity of the Plant or its character as a
manufacturing plant, including in that connection the payment for and
acquisition in the name of CIC of title to other property and improvements
suitable for the Sublessee's operations, which other property and improvements
shall be deemed a part of the Subleased premises available for use and
occupancy by the Sublessee, without payment of any Rent other than that herein
provided for, to the same extent as if such other property and improvements
were specifically described herein and demised hereby; provided, that such
other property and improvements shall be acquired by CIC subject to no liens or
encumbrances other than Permitted Encumbrances. If, after being furnished with
the necessary moneys (whether by the Sublessee, from Net Proceeds of the
condemnation award, or from both sources), CIC after reasonable request so to
do fails or refuses so to restore and reconstitute the Subleased premises, the
Sublessee may, in the name of and on behalf of CIC, perform the work of such
restoration and reconstitution and in that event CIC shall promptly upon
request by the Sublessee so to do, reimburse the Sublessee for the costs and
expenses so expended by the Sublessee, such reimbursement to be made from the
Net Proceeds of the condemnation award to the extent that such Net Proceeds are
sufficient therefor.
CIC shall cooperate fully with the Sublessee in the handling and
conduct of any prospective or pending condemnation proceedings with respect to
the Subleased premises or any part thereof and will, to the extent it may
lawfully do so, permit the Sublessee to litigate in any such proceedings in the
name and behalf of CIC. In no event will CIC voluntarily settle, or consent, to
the settlement of, any prospective or pending condemnation proceeding with
respect to the Subleased premises or any part thereof without the consent of
the Sublessee.
<PAGE> 12
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(b) Conditions Under Which Restoration or Reconstitution of Subleased
Premises Not Required. If all or substantially all of the Subleased premises
should be taken in the exercise of the power of eminent domain to such extent
that the Sublessee is entitled to exercise the option to purchase the Subleased
premises granted to it in Subsection 15(b), and if the Sublessee elects to
exercise the said option, the Sublessee may elect not to restore or reconstitute
the Subleased premises and upon the closing of the purchase of the Subleased
premises pursuant to the exercise of such option the Net Proceeds of the
insurance shall be applied, and title to the Subleased premises shall be
conveyed, as is provided in Subsection 15(b).
(c) Condemnation of Right to Use the Subleased Premises for Limited
Period. If the use, for a limited period, of all or part of the Subleased
premises is taken by eminent domain proceedings, this sublease shall continue
in full force and effect; unless the Sublessee elects to exercise the option
granted in Section 15 to purchase the Subleased premises. If the period of such
taking expires on or before the expiration of the Lease Term, the Sublessee
shall be entitled to receive the entire condemnation award made therefor,
whether by way of damages, rent or otherwise, and as soon as may be feasible
after regaining possession of the Subleased premises restore it as nearly as
may be practicable to the condition in which it existed immediately prior to
such taking, with such changes, alterations and modifications as will not
impair the operating unity or the productive capacity of the Plant or its
character as a manufacturing plant. If the period of such taking expires after
the expiration of the Lease Term, the Sublessee shall be entitled to receive
that portion of the award allocable to the period from the date of such taking
up to the date of expiration of the Lease Term; and CIC shall be entitled to
the remainder thereof.
(d) Condemnation of Sublessee-Owned Property. The Sublessee shall be
entitled to any condemnation award or portion thereof made for damages to or
takings of its own property, as well as all other sums awarded as compensation
for the interest of the Sublessee in the part of the Subleased premises taken
as damages to the interest of the Sublessee in any part thereof not taken, but
there shall be paid directly by the Sublessee all Counsel's fees and other
expenses incurred in connection with the receipt of such award or sum or
portion thereof.
8. Special Covenants of the Lessee.
(a) General Covenants. The Sublessee will not do or permit anything to
be done on or about the Subleased premises that will affect, impair or
contravene any policies of insurance that may be carried on the Subleased
premises or any part thereof against loss or damage by fire, casualty or
otherwise. The Sublessee will, in the use of the Subleased premises and the
public ways abutting the same, comply with all lawful requirements of all
governmental bodies.
(b) No Warranty of Condition of Suitability by CIC. The Sublessee
acknowledges that it has made a thorough inspection of the Subleased premises,
that the improvements constructed thereon are acceptable to Sublessee,
<PAGE> 13
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that the Subleased premises are suitable for the conduct of the operations
proposed to be conducted thereat by the Sublessee. In consequence thereof CIC
makes no warranty, either express or implied, as to the condition of the
Subleased premises or that it is suitable for the Sublessee's purposes or
needs. The Sublessee releases CIC from, agrees that CIC shall not be liable
for, and agrees to hold CIC harmless against, any loss or damage to property or
any injury to or death of any person that may be occasioned by any cause
whatsoever pertaining to the Subleased premises or the use thereof; provided,
that the indemnity in this sentence shall be effective only to the extent of
any loss that may be sustained by CIC in excess of the Net Proceeds received
from any insurance carried with respect to the loss sustained.
(c) Inspection of the Subleased Premises. CIC, the Trustee, the City of
Tarrant City and their or either of their duly authorized agents shall have the
right at all reasonable times to enter upon the Subleased premises and to
examine and inspect it, specifically including (without limiting the generality
of the foregoing) the right to show the Subleased premises to prospective
tenants and purchasers in the event the Sublessee shall be in default hereunder,
and in any event within a reasonable period prior to the expiration of the Lease
Term. CIC and its duly authorized agents shall have such rights of access to and
possession of the Subleased premises for the proper maintenance of the Subleased
premises in the event of failure by the Sublessee to perform its obligations
under Subsection 5(a) hereof.
(d) Sublessee to Maintain its Corporation Existence; Conditions Under
Which Exceptions Permitted. The Sublessee agrees that during the Lease Term it
will maintain its corporate existence, will not dissolve or otherwise dispose of
all or substantially all of its assets, and will not consolidate with or merge
into another corporation or permit one or more corporations to consolidate with
or merge into the Sublessee; provided, that the words "corporation" and
"corporations" as used in the foregoing restrictive agreement shall not be
construed as including any Affiliated Company; and provided further, that the
Sublessee may, without violating the agreement contained in this section, do or
perform any of the following:
(i) It may consolidate with or merge into another corporation,
or permit one or more other corporations to consolidate with or merge
into it, if (1) the corporation surviving such merger or resulting from
such consolidation (if it shall be one other than the Sublessee)
expressly assumes in writing all the obligations of the Sublessee
contained in this Sublease, and (2) there shall be filed with CIC a
letter or certificate by a firm of Certified Public Accountants (which
is of the size and type commonly referred to as nationally known
Certified Public Accountants and which is acceptable to the Trustee),
stating in substance that in the opinion of the said firm upon
consummation of such consolidation or merger the corporation surviving
the merger or resulting from such consolidation will have net worth and
net working capital not less than the net worth and the net working
capital of the Sublessee immediately prior to such merger or
consolidation.
<PAGE> 14
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(ii) It may transfer to another corporation all or
substantially all of its assets as an entirety and thereafter dissolve
if (1) the corporation to which such transfer shall be made expressly
assumes in writing all the obligations of the Sublessee contained in
this Sublease, and (2) there shall be filed with CIC a letter or
certificate by a firm of Certified Public Accountants which is
acceptable to CIC stating in substance that in the opinion of such firm
upon consummation of such transfer the corporation to which such
transfer is proposed to be made will have net working capital and net
worth no less than the net working capital and net worth of the
Sublessee. The computations of net working capital and net worth
provided for in this sub-paragraph (b) shall be made on the basis of
audited balance sheets of the Sublessee and of the corporation to which
such transfer is proposed to be made as at the end of the respective
fiscal years most recently ended of the Sublessee and of said
corporation.
"Net working capital" and "net worth" as used in this section shall be computed
according to generally accepted accounting principles.
(e) Maintenance of Records and Furnishing of Copies of Quarterly
Statements, Annual Audits and Annual Stockholders' Reports. The Sublessee will
(a) maintain proper books of record and account in which it will make full and
correct entries of its business activities in accordance with generally
accepted accounting principles, (b) have quarterly balance sheets and income
and expense statements prepared in the form of and in accordance with the usual
practice of the Sublessee, showing in reasonable detail its financial condition
at the close of each quarterly period and its financial operations during such
period, and within thirty days after the close of each such period furnish a
copy thereof to CIC, the Trustee, and to the Original Purchaser (c) have an
annual audit made promptly as may be feasible following the end of each fiscal
year of the Sublessee, and (d) within 120 days after the end of each fiscal
year of the Sublessee, it will furnish to each of CIC, the Trustee, and to the
Original Purchaser (1) a certificate signed by the president or vice president
of the Sublessee stating that there has been no violation by the Sublessee of
the terms of this Agreement during the then preceding fiscal year of the
Sublessee or, in the event that there has been or is any such violation,
stating such violation as may have occurred and the steps taken, if any, to
correct such violation, (2) a balance sheet showing the financial condition of
the Sublessee and its consolidated subsidiaries (if any) at the close of such
fiscal year, and (3) a profit and loss statement showing the results of the
operations of the Sublessee and its consolidated subsidiaries (if any) for such
fiscal year. Such balance sheet and profit and loss statement shall in each
case be accompanied by a certificate or opinion of a Certified Public
Accountant in form acceptable to CIC and the Trustee.
<PAGE> 15
(f) Qualification in Alabama. The Sublessee warrants and represents
that it is now duly qualified to do business in Alabama and will continuously
remain so qualified during the Lease Term; provided, that if, in accordance with
the permissive provisions of Subsection 8(d), the Sublessee should merge into or
with a corporation not organized and existing under the laws or with a
corporation not organized and existing under the laws of Alabama, or should
consolidate with one or more corporations under circumstances wherein the
consolidated corporation is not a corporation organized and existing under the
laws of Alabama, or should transfer all or substantially all of its assets to a
corporation not organized and existing under the laws of Alabama, it will cause
the corporation into or with which it may so merge, the corporation resulting
from such consolidation, or the corporation to which all or substantially all
its assets were transferred, as the case may be, to qualify to do business in
Alabama as a foreign corporation and to remain so qualified continuously during
the remainder of the Lease Term.
(g) Installation of Sublessee's Own Machinery and Equipment; Landlord's
Lien Thereon. The Sublessee may from time to time, in its sole discretion and at
its own expense, install or cause to be installed in the Plant and on the
Subleased premises, machinery and equipment of such type as it may deem
desirable. The machinery and equipment so installed shall remain the sole
property of the Sublessee or the other owner installing it, the title thereto
shall not vest in CIC as a result of such installation, and the said machinery
and equipment shall remain personal property and shall not be or become a part
of the property demised hereunder even though affixed to the Subleased premises
or the Plant in such wise that they would become a fixture except for the
provisions of this section. None of the said machinery or equipment shall be
subject to the Security Agreement and the Landlord lien created in Article 2 of
Chapter 2 of Title 31 of the Code of Alabama of 1940. Nothing contained in the
preceding provisions of this section shall prevent the Sublessee from
purchasing, after the execution of this Sublease, machinery and equipment on
conditional sale contract or lease sale contract, or subject to vendor's lien or
purchase money mortgage, as security for the unpaid portion of the purchase
price thereof, and each such conditional sale contract, lease sale contract,
vendor's lien and purchase money mortgage made by the Sublessee with respect to
machinery and equipment purchased by it under the provisions of this section
after the execution of the Sublease shall, if filed for record in the office of
the Judge of Probate of Jefferson County, Alabama, and in the office of the
Secretary of State of Alabama, and in the office of the Secretary of State of
Alabama, simultaneously with or prior to the installation in the Plant of the
machinery and equipment covered thereby be subordinate to the said landlord's
lien, Security Agreement and the Indenture. The Sublessee agrees to pay as due
the purchase price of and all costs and expenses incurred in the acquisition
and installation of any machinery and equipment installed in the Plant or on
the Subleased premises by it or pursuant to its authorization.
9. Events of Default Defined. The following shall be events of
default under this Sublease, and the happening of any of the following events
(including the continuance thereof for the time herein specified where any time
is so specified) shall constitute a default hereunder:
(a) Failure by the Sublessee to pay any installment of the
Rent at the maturity thereof and the continuance of such failure for a
period of three (3) days after the giving of notice to the Sublessee by
CIC;
<PAGE> 16
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(b) Failure be the Sublessee to perform any of its agreements with
CIC herein contained (other than its agreement to pay the Rent) or to
perform any of its obligations under the Promissory Note or the
Security Agreement, and, with respect only to its performance under
this Sublease, continuance of such failure for a period of fifteen
(15) days after receipt by the Sublessee of written notice from CIC
specifying the agreement or agreements remaining unperformed and
requiring that the same be performed, unless the Sublessee shall be
proceeding diligently to cure such failure or to cause the same to be
cured; or
(c) The dissolution or liquidation of the Sublessee or the
filing by the Sublessee of a voluntary petition in bankruptcy or its
failure promptly to lift any execution, garnishment or attachment of
such size as will seriously impair its ability to carry on its
operations, the commission by it of any act of bankruptcy or its
adjudication as a bankrupt, an assignment by it for the benefit of
creditors, the entry by it into an agreement of composition with its
creditors, or the approval by a court of competent jurisdiction as
having been filed in good faith of a petition applicable to it in any
proceeding for its reorganization instituted under the provisions of
the general bankruptcy act, as amended, or under any similar act that
may hereafter be enacted; provided, that the term "dissolution or
liquidation of the Sublessee" as used in this subsection (c) shall not
be construed to include the termination of the corporate existence of
the Sublessee resulting from a merger into or a consolidation with
another corporation or the transfer of all or substantially all its
assets to another corporation under the conditions in Subsection 8(d)
permitting such actions.
10. Remedies on Default. Whenever any such event of default
shall have happened and shall be continuing, CIC may take any of the following
remedial steps after having given not less than five (5) days' written notice
to the Sublessee of its intention to take any such steps:
(a) CIC may reenter and take possession of the Subleased
premises, exclude the Sublessee from possession thereof, and rent the
same for the account of the Sublessee, holding the Sublessee liable
for the balance due hereunder;
(b) CIC may terminate this Sublease, exclude the Sublessee
from possession of the Subleased premises and lease the same for the
account of CIC holding the Sublessee liable for all Rent due up to the
date such lease is made for the account of CIC.
(c) CIC may, by written notice to the Sublessee, declare
immediately due and payable all installments of Rent payable hereunder,
whereupon the same shall become immediately due and payable; provided,
that the total amount of such Rent that may be so declared immediately
due and payable shall be that amount which, when added to the total of
the amounts then on deposit in the Construction Fund, will be
sufficient to pay, retire or redeem all Bonds then outstanding on the
earliest practicable date or dates thereafter on which, under their
terms, they may be paid or redeemed, including but without limitation
the premium, the principal and interest to mature until and on such
earliest practicable date or dates, the expenses of redemption, and
the Trustee's fees and charges;
<PAGE> 17
(d) In the event any of the Bonds shall at the time be outstanding
and unpaid, CIC may have access to and inspect, examine and make copies of
the books and records and any and all accounts, data and income tax and
other tax returns of the Subleasee; and
(c) CIC may take whatever other action at law or in equity may appear
necessary or desirable to collect the Rent then due, or to enforce any
obligation or agreement of the Sublessee under this Sublease.
11. Advances by CIC. In the event the Sublessee fails to take out
or maintain the full insurance coverage required by this Sublease, or fails to
keep the Plant in as reasonably safe condition as its operating conditions
permit and in good repair and good operating condition, CIC, after first
notifying the Sublessee of any such failure on the part of the Sublessee, may
(but shall not be obligated to) take out the required policies of insurance and
pay the premiums on the same or make such repairs, renewals and replacements as
may be necessary to maintain the Plant in as reasonably safe condition as the
Subleasee's operations permit and in good repair and good operating condition;
all amounts so advanced by CIC shall become an additional obligation of the
Sublessee to CIC, as the case may be, and the Sublessee agrees to pay such
amounts promptly upon request therefor together with interest thereon at the
rate of 8% per annum from the date of advancement thereof. Any remedy herein
vested in CIC for the collection of all such amounts so advanced.
12. Agreement to Pay Attorney's fees. In the event CIC should
employ attorneys at law or incur other expenses in or about the collection of
Rent or the enforcement of any obligation, covenant, agreement, term or
condition of this Sublease, the Sublessee will on demand pay CIC reasonable
attorney's fees and other expenses so incurred by CIC.
13. No Remedy Exclusive. No remedy herein conferred upon or
reserved to CIC is intended to be exclusive of any other available remedy or
remedies, but each such remedy shall be cumulative and shall be in addition to
every other remedy given under this Sublease or now or hereafter existing at
law or in equity or by statute. No delay or omission to exercise any right or
power accruing upon any default shall impair any such right or power or shall be
construed to be a waiver thereof but any such right or power may be exercised
from time to time and as often as may be deemed expedient. In order to entitle
CIC to exercise any remedy reserved to it in this Section, it shall not be
necessary to give any notice, other than such notice as is herein expressly
required.
14. No Additional Waiver Implied by One Waiver. In the event any
agreement contained in this Sublease should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
15. Option to Purchase Project Upon the Happening of Certain
Events. The Sublessee is hereby granted an option to cause CIC to purchase the
Subleased premises and to reconvey said Subleased premises to Sublessee upon
the happening of any one or more of the following events:
(a) If the Plant is destroyed by fire or other casualty so that (i)
in the discretion of the Sublessee the Subleased premises cannot reasonably be
restored within six (6) months to the condition thereof immediately preceding
such damage or destruction, (ii) in the sole discretion of the Sublessee it
cannot carry on its normal operations at the Subleased premises for a period of
six (6) months, or (iii) the cost of restoration of the Subleased premises would
be as much as $100,000.00; or
<PAGE> 18
(b) if the title to, or temporary use of, all or
substantially all of the Subleased premises shall have been
taken under the exercise of the power of eminent domain,
including such taking as would result in the Sublessee being
prevented from carrying on its normal operations at the
Subleased premises for a period of six (6) months; or
(c) If (i) any changes should be made in the
Constitution of the State or in the Constitution of the United
States of America, or (ii) any legislation shall have been
enacted or any administrative action shall have been taken, or
(iii) any final decree, judgment or order of any court or
administrative body shall have been entered after the contest
thereof by CIC or the City of Tarrant City in good faith, and
upon the happening of any of the said events (A) this
Sublease shall have become void or unenforceable or impossible
or performance in accordance with the intent and purposes of the
parties as expressed herein, or (B) in the event that
legislation is enacted, a regulation is promulgated, or a
revenue ruling is issued that would affect the tax exempt
status of interest paid or to be paid on the Bonds.
To exercise the option granted in this section, the Sublessee (1) shall give
to CIC written notice of its election so to do at least sixty days prior to the
date the purchase and reconveyance to Sublessee is to be consummated, (2) shall
state in such notice the date on which the Sublessee desires that the purchase
be consummated, and (3) shall state in such notice the event or events referred
to in the foregoing paragraphs (a), (b) and (c) of this section on which it
relies in exercising such option. The Sublessee shall, upon request by CIC so
to do, furnish to CIC information to establish the existence of the event or
events entitling the Sublessee to exercise such option. The option granted in
this Section may be exercised notwithstanding the pendency of any proceeding
for the condemnation of the Subleased premises or any part thereof. At the
closing of CIC's purchase of the Subleased premises and prior to the
reconveyance by CIC to Sublessee of the Subleased premises pursuant to the
exercise of the option granted in this section, and as a condition thereto, the
Sublessee shall pay to CIC the following amounts:
A. the sum of $500,000.00;
B. an amount equal to the total basic rent CIC has paid
to the City of Tarrant City during the Lease Term;
C. the then remaining balance due under the Promissory
Note; plus
such sum, which, when added to the moneys then on deposit in the Construction
Fund and the Bond Fund and the Net Proceeds then remaining undisbursed that
were heretofore received by the Trustee CIC or the City of Tarrant City from
any insurance referable to damage or destruction of the Subleased property and
also from any condemnation award, will be sufficient (i) to pay or redeem all
of the Bonds and Coupons then outstanding which may have heretofore matured
(whether by maturity or call for redemption) and which have not been presented
for payment or redemption, (ii) to pay or redeem all of the Bonds and Coupons
on the earliest practicable date or dates thereafter on which under the terms
of the Bonds they may be paid or redeemed, (iii) to pay all interest that will
mature on the Bonds on and prior to such earliest practicable date or dates,
and (iv) to pay all of the unpaid fees and expenses of the Trustee which have
become or will become payable under the Indenture on and prior to such earliest
practicable date or dates, including such fee (if any) as may be payable in
effecting
<PAGE> 19
- 16 -
such redemption. CIC shall thereupon take all actions necessary to effect
payment and redemption of the Bonds on the earliest practicable date or dates
thereafter and to execute and deliver to the Sublessee a warranty deed
conveying the Subleased premises to the Sublessee, subject only to any
Permitted Encumbrances that may then be applicable, other than this Sublease,
the Lease and the Indenture, that were in existence on the date of this
Sublease, and any then existing liens or encumbrances suffered or created by
CIC prior to the date hereof and the Sublease with respect to the Subleased
premises.
16. Assignment of Lease. Sublessee is hereby granted an
option to acquire an assignment of the Lease upon the following terms and
conditions:
(a) The option provided in this Section 16 may be exercised
at any time during the first eleven (11) years of the
Lease Term;
(b) In order to exercise the option granted in this Section,
Sublessee shall notify CIC in writing of its intention
to exercise such option, at least thirty (30) days but
no more than sixty (60) days prior to the date of
the closing of the assignment as specified in such
notice.
(c) Upon compliance by the Sublessee with all of the
foregoing requirements of this section and upon payment
to CIC by Sublessee at the Closing Date of the
following amounts.
(i) the sum of $500,000.00;
(ii) an amount equal to the total basic rent CIC has
paid to the City of Tarrant City during the
Lease Term; and
(iii) the then remaining balance due under the
Promissory Note;
and provided the Sublessee is not in default under any
of the provisions of this Sublease and the Security
Agreement, CIC will deliver to Sublessee an
assignment of the Lease and Sublessee will assume all
the obligations of CIC thereunder, and this Sublease
shall terminate without further action of the parties
hereto.
17. Definitions. The following words and phrases and
others evidently intended as the equivalent thereof shall, in the absence of
clear implication herein to the contrary, be given the following respective
interpretations in this agreement:
<PAGE> 20
-17-
"Affiliated Company" means a corporation which owns or otherwise controls a
majority of the capital stock of the Sublessee, or a majority of the capital
stock of which is owned or otherwise controlled by the Sublessee.
"Basic Rent" means the basic rental payments provided for in Section 5.2(a) of
the lease.
"Bond Fund" means the Bond Principal and Interest Fund created in the Indenture
(hereinafter defined).
"Bonds" means the First Mortgage Industrial Development Revenue Bonds
(Birmingham Ornamental Iron Series) of the City of Tarrant City dated March 1,
1968.
"Callable Bonds" means those of the Bonds that are subject to redemption at the
option of the City of Tarrant City prior to their stated maturities.
"Certified Public Accountant" means an accountant qualified to practice as a
certified public accountant by the laws of any state in the United States of
America, or a firm of which such an accountant is a member, and who or which is
not a full time employee of any one or more of the Sublessor, the Sublessee or
an Affiliated Company.
"Construction Fund" means the fund created in the Indenture and referred to in
Section 4.3 of the Lease.
"Extraordinary Services and Extraordinary Expenses" means all services rendered
and all expenses incurred by the Trustee under the Indenture other than
Ordinary Services and Ordinary Expenses and which CIC is obliged to pay
pursuant to the terms of the Lease.
"Indenture" means the Mortgage Indenture and Deed of Trust between the City of
Tarrant City and Exchange Security Bank dated March 1, 1968, pursuant to which
the Bonds are authorized to be issued, and every supplemental Indenture in
pursuance thereof.
"Independent Engineer" means an engineer registered and qualified to practice
the profession of engineering under the laws of any state in the United States
of America, or a firm of which such engineer is a member, and who or which
shall be acceptable to CIC and is not a full time employee of either CIC, the
Sublessee or an Affiliated Company.
"Lease Term" means the duration of the Sublease created by this Sublease
Agreement and as is specified in Section 2 hereof.
"Net Proceeds" means the gross proceeds from the source with respect to which
that term is used remaining after payment of all expenses (including Attorneys'
Fees and any charges for Extraordinary Services and Extraordinary Expenses)
incurred in the collection of such gross proceeds.
<PAGE> 21
-18-
"Ordinary Services and Ordinary Expenses" means those services normally
rendered and those expenses normally incurred by a Trustee under instruments
similar to the Indenture, including all charges of the Trustee for payment of
the Bonds and Coupons presented to it for payment.
"Permitted Encumbrances" means as of any particular time, (a) liens for ad
valorem taxes not then delinquent, (b) utility, access and other easements and
rights of way, restrictions and exceptions that an Independent Engineer
certifies will not interfere with or impair the operations being conducted in
the Subleased premises (or, if no operations are being conducted therein, the
operations for which the Subleased premises were designed or last modified),
(c) this Sublease Agreement, (d) the Lease, (e) the Indenture, and (f) such
minor defects, irregularities, encumbrances and clouds on title as normally
exist with respect to property similar in character to the Subleased premises
and as do not, in the opinion of Counsel, materially impair the title to the
property affected thereby for the purposes for which such property was acquired
or is held by CIC.
"Promissory Note" means the promissory note issued by the Sublessee to CIC of
even date herewith in connection with the sale by CIC to Sublessee of CIC's
casual metal furniture and miscellaneous metals business.
"Redemption Account" means the Bond Redemption Account created in the Indenture
as a part of the Bond Fund.
"Redemption Date" means the date fixed for the redemption of Callable Bonds in
any notice of redemption of Callable Bonds published pursuant to the applicable
provisions of the Indenture.
"Redemption Price" means the price at which Callable Bonds called for
redemption may be redeemed on the Redemption Date.
"Rent" means the rental payments provided for in Section 3.
"Security Agreement" means the agreement entered into between the Sublessee and
CIC of even date whereby Sublessee grants a security interest in certain assets
of Sublessee to secure payment of the Promissory Note and other indebtedness of
Sublessee to CIC.
"Subleased premises" means the real property described in Exhibit "A" to this
Sublease Agreement.
"Supplemental Sublease Agreement" means an agreement supplemental hereto.
"Supplemental Indenture" means an agreement between the Sublessor and the
Trustee supplemental to the Indenture.
"Trustee" means the Trustee at the time serving as such under the Indenture.
<PAGE> 22
-19-
17. Miscellaneous
(a) Covenant of Quiet Enjoyment; Surrender of Project.
So long as the Sublessee performs and observes all of the agreements on its
part herein contained it shall peaceably and quietly have, hold and enjoy the
Subleased premises during the Lease Term, subject to all the terms and
provisions hereof. At the end of the Lease Term, or upon prior termination of
this Sublease, unless the Sublessee exercises its option under Section 15, the
Sublessee will surrender possession of the Subleased premises peaceably and
promptly to CIC in as good condition as at the commencement of the Lease Term,
loss by fire or other casualty covered by insurance, and ordinary wear, tear
and obsolescence only excepted.
(b) Grant of Easements for Utility Facilities. CIC will consent to
the grant of such utility, access and other similar easements over, across or
under the Subleased premises as shall be requested by the Sublessee and as are
necessary or convenient for the efficient operation of the Subleased premises;
provided, that each such easement shall be granted subject to the following
conditions: (a) the use of that portion of the Subleased premises with respect
to which the easement is granted shall be such as will not interfere with the
operation of the Subleased premises by any Sublessee thereof and (b) CIC shall
have the option of terminating any such easement at any time after the
expiration of the Lease Term, or after the termination of this Sublease
pursuant to the provisions hereof, or in the event of foreclosure of the
Indenture following default thereunder.
(c) This Sublease a Net Sublease. The Subleasee understands that it is
the intention hereof that this Sublease shall be a net Sublease, that the
Sublessee shall pay absolutely net during the Lease Term all Rent and all other
payments required to be made by the Sublessee hereunder and/or by the Lessee
under the Lease, free of any deductions and without abatement, deductions or
set-off, and that all Rent provided to be paid hereunder shall be available for
payment of debt service on the Bonds. This Sublease shall be construed to
effectuate such intent.
(d) Approval and Notices. All approvals and notices hereunder shall
be in writing. Any notice hereunder shall be sufficient if sent by United
States Registered or Certified Mail, postage prepaid, or by telegram with all
charges therefor prepaid, addressed as follows:
If such notice is intended to be given to CIC;
it shall be addressed to:
Champion International Corp.
Knightsbridge
Hamilton, Ohio 45020
Attention: Real Estate Facilities
If such notice is intended to be given to the
Sublessee, it shall be addressed to:
Birmingham Ornamental Iron Co. Inc.
P.O. Box 1357
Pinson Valley Highway 79
Birmingham, Alabama 35201
<PAGE> 23
-20-
(e) Assignment and Subletting. Sublessee may not sublease or assign
all or a portion of the Subleased premises or any part of this Sublease,
without the prior written consent of CIC, which consent shall not be
unreasonable withheld by CIC, provided no such sublease or assignment shall
relieve the Sublessee of liability for payment of rent or other sums herein
provided or from the obligation to keep and be bound by the terms, conditions
and covenants of the Sublease.
(f) Severability. In the event any provision of this Sublease shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision
thereof.
IN WITNESS WHEREOF, the parties hereto have caused execution of this
Sublease and their respective corporate seals to be hereunto affixed and
attested by their duly authorized officers, this 31 day of January, 1977.
ATTEST: CHAMPION INTERNATIONAL CORPORATION
/s/ By:/s/
- -------------------------- ----------------------------
Assistant Secretary Vice President
ATTEST: BIRMINGHAM ORNAMENTAL IRON COMPANY,INC.
/s/ By:/s/
- -------------------------- -----------------------------
Secretary Chairman
<PAGE> 24
-21-
STATE OF CONNECTICUT
COUNTY OF FAIRFIELD
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Richard W. Lowry whose name as Vice President of
Champion International Corporation, a Corporation, is signed to the foregoing
Sublease and who is known to me, acknowledged before me on this day that, being
informed of the contents of the above and foregoing Sublease, he, as such
officer and with full authority, executed the same voluntarily for and as the
act of said Corporation on the day the same bears date.
Given under my hand and official seal of office this 31st day of
January, 1977.
/s/ Laurie E. Scarcella
-------------------------------------
Notary Public
My Commission Expires: March 31, 1980
--------------
(NOTARIAL SEAL)
STATE OF New York
---------
COUNTY OF New York
---------
I, Stephen B. Brown, a Notary Public in and for the said county in the
said state, hereby certify that B. F. Harrison whose name as CHAIRMAN of
____________________ a corporation organized under the laws of the State of
Alabama, is signed to the foregoing instrument and who is known to me,
acknowledged before me on this day that, being informed of the contents of the
within instrument, he, as such officer and with full authority, executed the
same voluntarily for and as the act of the said corporation.
Given under my hand and official seal this 7th day of June, 1997.
/s/ Stephen B. Brown
---------------------------------------
Notary Public
My Commission Expires: March 31, 1979
---------------------------------------
(NOTARIAL SEAL)
<PAGE> 1
EXHIBIT 10.2
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT, made and entered into as of this 30th day of
September, 1993, by and between THE UNIROYAL GOODRICH TIRE COMPANY, a Delaware
corporation, with offices at One Parkway South, Greenville, South Carolina
29615, hereinafter referred to as "SUBLESSOR", and SAM BLOUNT COMPANY, INC., a
Delaware corporation with offices at 1401 Meadowcraft Road, Birmingham, Alabama
35215, hereinafter referred to as "SUBTENANT."
WITNESSETH:
WHEREAS, SUBLESSOR is now leasing the premises hereinafter described, from
The Industrial Development Board of the City of Birmingham, Alabama, a public
corporation of the State of Alabama, hereinafter referred to as "BASE
LANDLORD", under a LEASE AGREEMENT as amended, dated January 1, 1972, a true
and correct copy of which (omitting certain exhibits) is attached hereto as
EXHIBIT B, and incorporated herein by reference as fully as if its terms and
provisions were herewith set forth in full, said LEASE AGREEMENT being
hereinafter referred to as the "LEASE AGREEMENT"; and
WHEREAS, SUBTENANT is desirous of subleasing all of said premises
(approximately 340,000 square feet) from SUBLESSOR.
NOW, THEREFORE, IT IS MUTUALLY AGREED by and between the parties hereto
that SUBLESSOR does hereby sublet and sublease to SUBTENANT, and SUBTENANT does
hereby take and hire from SUBLESSOR the premises described in EXHIBIT A
attached hereto and made a part of this Agreement, more commonly known as
Outlet No. 7002, 3400 Pinson Valley Parkway, in the City of Birmingham, County
of Jefferson and State of Alabama, for the following terms:
Phase 1 - for a term beginning October 1, 1993 and ending September 30,
1997, or on such earlier date as may be determined in the manner
hereinafter provided at a rental specified hereinbelow:
Phase 2 - for a term beginning December 1, 1993 and ending September 30,
1997, or on such earlier date as may be determined in the manner
hereinafter provided at a rental specified hereinbelow; and
Phase 3 - for a term beginning January 1, 1994 and ending September 30,
1997, or on such earlier date as may be determined in the manner
hereinafter provided at a rental specified hereinbelow for Phase 3.
The rentals and square footage for Phase 1, Phase 2, and Phase 3 are more
fully described in EXHIBIT C attached hereto and made a part of this Agreement.
Phase 1, Phase 2, and Phase 3 are hereinafter collectively referred to as the
"Premises".
If SUBLESSOR shall be unable for any reason whatsoever to deliver
possession of the
<PAGE> 2
Premises, or any portion thereof, on the commencement date of the term
applicable thereto, then and in that event this SUBLEASE shall be null and void
and of no effect and the parties hereto shall thereupon be under no further
obligation or liability to each other by reason thereof.
IT IS MUTUALLY AGREED by and between the parties hereto that said
subletting is and shall be on the following mutual covenants, agreements and
conditions:
1. RENTAL:
The SUBTENANT shall pay to the SUBLESSOR as fixed annual rental for the
Premises during the applicable term thereof the rents set forth on EXHIBIT
C (the "Rents"). The Rents shall be payable in equal monthly payments in
advance of the first day of each and every month during the term hereof
with the first rental payment being due on October 1, 1993. Unless
otherwise notified in writing by SUBLESSOR, rental checks are to be mailed
to: THE UNIROYAL GOODRICH TIRE COMPANY, Post Office Box 198396, Atlanta,
GA 30384-8396.
Any rent not received by SUBLESSOR by the tenth day of the month in which
it is due shall be considered delinquent and shall bear interest at the
annual prime rate (as set forth in the listing of "Money Rates" appearing
in The Wall Street Journal on the due date) plus 2% or at the maximum
legal rate, whichever is less.
2. SECURITY DEPOSIT:
No security deposit is required.
3. REAL ESTATE TAXES:
SUBTENANT shall pay or cause to be paid its pro rated share of all real
estate taxes, assessments, and other governmental charges levied or
assessed on the Premises during the term of this SUBLEASE as may be
required under the LEASE AGREEMENT when due, before any interest or other
penalty accrues.
4. SUBTENANT expressly assumes and shall be bound by all of the terms,
conditions, covenants and agreements of this SUBLEASE and the LEASE
AGREEMENT as incorporated herein by reference, and will perform fully all
duties, obligations and responsibilities assumed by or imposed upon by the
SUBLESSOR herein as TENANT under the LEASE AGREEMENT except that in the
event of a variation between the fixed annual rent specified in Paragraph
1 hereof and the fixed annual rent specified in the LEASE AGREEMENT,
SUBTENANT will be obligated to pay the fixed annual rent specified in
Paragraph 1 of this SUBLEASE and not the fixed annual rent specified in
the LEASE AGREEMENT during the terms hereof.
5. USE, ASSIGNMENT AND SUBLETTING:
2
<PAGE> 3
SUBTENANT may use and occupy the Premises for warehouse purposes only and
not for manufacturing or any other use. SUBTENANT may not assign, sublet
or underlet all or any portion of the Premises without prior written
consent of SUBLESSOR, which consent will not be unreasonably withheld,
but SUBTENANT shall not be released from any of SUBTENANT'S obligations
hereunder by reason of any such assignment or subletting. SUBLESSOR shall
have the right, in addition to its rights to grant or withhold consent to
any assignment or subletting, to terminate this SUBLEASE within thirty
(30) days after receipt of a request from SUBTENANT for consent to any
assignment or subletting by SUBTENANT herein. SUBLESSOR shall also have
the right to assign this SUBLEASE to any of its affiliates.
6. INSURANCE:
SUBTENANT shall keep the Premises insured consistent with the provisions
of the LEASE AGREEMENT. SUBLESSOR, as TENANT under the BASE LEASE, shall
not be liable to BASE LANDLORD for the cost of such insurance.
Notwithstanding the foregoing, SUBTENANT will reimburse SUBLESSOR for the
cost of any insurance paid by SUBLESSOR, as TENANT under the BASE LEASE,
as a result of any default on the part of the SUBTENANT hereunder. In
this event, SUBTENANT will reimburse SUBLESSOR, as additional rent, for
the cost of such coverage paid by SUBLESSOR or reimbursed to others, as
follows:
On the same day of each month during the term of this SUBLEASE that the
fixed rent is payable pursuant to Paragraph 1 hereof, SUBTENANT shall pay
to SUBLESSOR a sum equal to the cost of such insurance coverage.
All premiums for all of the foregoing shall be paid promptly by SUBTENANT
when due. SUBTENANT will furnish to SUBLESSOR certificates of the
insurance required to be taken out hereunder and under the LEASE AGREEMENT
which shall provide that the policies shall not be modified or cancelled
except upon thirty (30) days' written notice to THE UNIROYAL GOODRICH TIRE
COMPANY. The certificates shall be addressed to the attention of the Risk
Management Department. In the event of default in payment of the premiums
upon such policies, the SUBLESSOR may pay the premiums and charge the cost
thereof to SUBTENANT as hereinabove provided.
7. INDEMNIFICATION:
During the term of this SUBLEASE, SUBLESSOR and BASE LESSOR shall not be
liable to SUBTENANT or SUBTENANT's employees, patrons or visitors for any
damage to person or property caused by or resulting from the use of
occupancy of the Premises or the condition thereof whether or not
resulting in whole or in part from any action of SUBLESSOR, its agents,
servants or employees, and SUBTENANT agrees to hold SUBLESSOR harmless
from all claims for any such damage. During the term of
3
<PAGE> 4
this SUBLEASE, SUBTENANT shall indemnify BASE LANDLORD and SUBLESSOR
harmless against, any loss or damage to property or any injury to or death
of any person occurring on or about or resulting from any defect in the
Premises.
SUBTENANT agrees that it shall be solely responsible to any party,
including but not limited to SUBLESSOR, BASE LANDLORD, claimants and
governmental authorities, for any and all claims, obligations and
liabilities caused by or arising out of or in connection with environmental
problems that were caused by or related to SUBTENANT's operations during
the term of this SUBLEASE, and further that SUBTENANT will cure and abate
all such environmental problems at SUBTENANT's cost and on a timely basis.
SUBTENANT shall indemnify, defend and hold harmless SUBLESSOR and BASE
LANDLORD from any such claims, obligations and liabilities.
8. DEFAULT:
If SUBTENANT fails to perform any of its obligations under this SUBLEASE,
the SUBLESSOR shall have all rights and remedies provided by law and by the
provisions of the LEASE AGREEMENT and this SUBLEASE, cumulatively and in
the alternative. In addition to, and not in limitation or restriction
upon any rights and remedies granted to SUBLESSOR by law or by any of the
other provisions of this SUBLEASE, this SUBLEASE may be forfeited at
SUBLESSOR's discretion if any default by SUBTENANT continues for a period
of thirty (30) days after SUBLESSOR shall notify SUBTENANT of such default.
In such event SUBLESSOR may immediately, or at any time thereafter,
re-enter the Premises and remove all persons and all or any property
therefrom, by any suitable action or proceeding at law, or by force or
otherwise, without being liable to indictment, prosecution or damages
therefor, and repossess and enjoy the Premises together with all additions,
alterations and improvements and such re-entry or repossession shall not
relieve SUBTENANT from liability hereunder. In any such case SUBLESSOR may
either relet the Premises or any part or parts thereof for its own account,
or as the agent of the SUBTENANT, and receive the rents therefor, applying
the same first to the payment of such expenses as SUBLESSOR may have
incurred, and then to the fulfillment of the covenants of SUBTENANT herein,
and the balance, if any, at the expiration of the term first above provided
for, shall be paid to SUBTENANT. SUBLESSOR may rent the Premises for a term
extending beyond the term hereby granted without releasing SUBTENANT from
any liability on this SUBLEASE. In the event that the term of this SUBLEASE
shall be forfeited as above provided, or terminated by legal action, or
otherwise, and if SUBLESSOR shall not relet the Premises for SUBLESSOR's own
account, then whether or not the Premises be relet SUBTENANT shall remain
liable for, and SUBTENANT hereby agrees to pay to the SUBLESSOR, until the
time when this SUBLEASE should have expired but for such termination or
forfeiture, the equivalent of the amount of all of the rent and the
"additional rent" reserved herein, less the avails of reletting, if any,
and the same shall be due and payable by SUBTENANT to
4
<PAGE> 5
SUBLESSOR on the several rent days above specified, that is, upon each
of such rent days SUBTENANT shall pay to SUBLESSOR the amount of deficiency
then existing. SUBTENANT hereby expressly waives any and all right of
redemption in case the SUBTENANT shall be dispossessed by judgment or writ
or rule of any court or judge, and SUBTENANT waives and will waive all
right to trial by jury in any legal action hereafter instituted by
SUBLESSOR against SUBTENANT in respect to the Premises of this SUBLEASE.
The filing of a petition in bankruptcy or under any Federal law for the
relief of debtors by or against SUBTENANT or any assignment by SUBTENANT
for the benefit of creditors shall constitute a default by SUBTENANT under
this SUBLEASE.
SUBLESSOR shall have the right at any time to apply any sum received
from SUBTENANT against any obligation then due from SUBTENANT to SUBLESSOR,
whether or not such obligation arises under the provisions of this SUBLEASE
or otherwise, and SUBLESSOR shall have the right to declare this SUBLEASE
in default if SUBTENANT fails to meet any of its obligations to SUBLESSOR,
however arising, promptly when the same becomes due.
SUBLESSOR herein shall not be liable to SUBTENANT for the performance
of obligations imposed on the BASE LANDLORD under the LEASE AGREEMENT, but
SUBTENANT herein shall have the right to enforce, at its own expense, but
in the name of the SUBLESSOR any and all obligations imposed on the BASE
LANDLORD under the LEASE AGREEMENT.
9. OPTION TO RENEW, EXTEND, OR TERMINATE:
SUBTENANT shall not have the right under this SUBLEASE to exercise, or
call upon SUBLESSOR to exercise, any right or option which SUBLESSOR may
have to renew, extend, or terminate the term of the LEASE AGREEMENT.
10. OPTION TO TERMINATE EARLY:
Either party to this SUBLEASE shall have the option to terminate this
SUBLEASE prior to its stated expiration date by giving written notice to
the other party at least ninety (90) days prior to the effective date of
such termination, provided that the effective date of such early
termination may not occur prior to July 31, 1995.
Notwithstanding the foregoing, SUBLESSOR'S right to terminate this
SUBLEASE is subject to the right of first refusal hereby granted to
SUBTENANT to continue to sublease the Premises or purchase the SUBLESSOR'S
leasehold interest therein, as the case may be, pursuant to the same terms
and conditions as are stated in a signed letter of intent to SUBLESSOR from
a prospective subtenant or prospective purchaser, as the case may be. In
order to exercise the right of first refusal granted herein, SUBTENANT
shall deliver to SUBLESSOR a written notice specifying its unambiguous and
irrevocable
5
<PAGE> 6
election to exercise such right. Such notice shall be delivered to
SUBLESSOR not more than fourteen days following its receipt from SUBLESSOR
of the letter of intent.
11. NOTICES:
Notices of every kind and nature to be given pursuant to this SUBLEASE
shall be addressed as follows:
If to SUBTENANT:
SAM BLOUNT COMPANY
Post Office Box 1357
Birmingham, AL 35201
Attn: Mr. Larry York
If to SUBLESSOR:
THE UNIROYAL GOODRICH TIRE COMPANY
600 South Main Street
Akron, Ohio 44397-0001
ATTN: Director of Real Estate
Any notices shall be deemed duly given if and when enclosed in a properly
sealed envelope and deposited postage prepaid, registered or certified
mail, return receipt requested, addressed as aforesaid in any United
States Post Office or any depositor thereof.
12. SUBORDINATION:
This SUBLEASE is subject and subordinate to the LEASE AGREEMENT and to any
mortgage which may now or hereafter be placed on the Premises to the same
extent that the rights of THE UNIROYAL GOODRICH TIRE COMPANY under the LEASE
AGREEMENT are subject to such mortgages. This SUBLEASE shall also be
subject to termination of the term of the LEASE AGREEMENT by the BASE
LANDLORD therein or any successor, or by mutual agreement between the
SUBLESSOR herein and said BASE LANDLORD in the LEASE AGREEMENT following
total or partial condemnation or damage or destruction of the Premises by
fire or other casualty or following termination of the term of the LEASE
AGREEMENT for any reason whatever and SUBLESSOR herein shall have no
obligation to SUBTENANT herein because of any termination for any
reason whatever.
13. SEVERABILITY:
Should any part, term or provision of this contract be held unenforceable
by a court of
6
<PAGE> 7
competent jurisdiction, it is agreed that the remaining portions, terms or
provisions are operative and survive unaffected.
14. ENTIRE AGREEMENT:
This SUBLEASE consisting of 45 pages, together with EXHIBIT A
consisting of 1 page, EXHIBIT B consisting of 1 page, and EXHIBIT C
consisting of 1 page, in the aggregate constitutes the entire SUBLEASE of
the parties upon the subject matter hereof, and this SUBLEASE cannot be
altered or amended except by a written agreeemnt executed in the same
manner as this SUBLEASE.
15. ACKNOWLEDGEMENT:
SUBTENANT hereby acknowledges that it has been fully advised by
SUBLESSOR of the condition of the roof covering the Premises and of
SUBLESSOR's efforts to have Crow Birmingham Developers fulfill its repair
and replacement obligation with respect to the roof as described in the
Maintenance Agreement between the SUBLESSOR and Crow Birmingham Developers.
SUBTENANT further acknowledges that it has been provided an opportunity to
have its own consultants inspect the condition of the roof.
IN WITNESS WHEREOF, the parties hereto have caused this SUBLEASE to be
executed the day and year first above written.
THE UNIROYAL GOODRICH
TIRE COMPANY (SUBLESSOR)
/s/ Donna Helnick By:/s/ Richard J. Barbieri
--------------------------- ---------------------------
Its: Executive Vice President
and CFO
/s/ Diana S. Davis
---------------------------
Witness
SAM BLOUNT COMPANY (SUBTENANT)
/s/ Jennifer Caldwell By: /s/ Larry York
--------------------------- ---------------------------
Witness Its: Vice President-H.R.
--------------------------
/s/ Sara Lashley
---------------------------
Witness
7
<PAGE> 8
ACKNOWLEDGEMENT-SUBLESSOR
STATE OF OHIO )
: SS
COUNTY OF SUMMIT )
On this 8th day of October, 1993, before me, the undersigned Notary
Public, personally appeared Richard J. Barbieri, who acknowledged himself to be
Executive Vice President and CFO of THE UNIROYAL GOODRICH TIRE COMPANY, a
Delaware corporation, and that he as such Vice President being authorized so
to do, executed the foregoing instrument for the purpose therein contained, by
signing the name of the corporation by himself as Vice President:
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Diana S. Davis
--------------------------
NOTARY PUBLIC FOR OHIO
MY COMMISSION EXPIRES: 9-6-95
DIANA S. DAVIS, NOTARY PUBLIC
PROVIDENCE-SUMMIT COUNTY
STATE WIDE JURISDICTION, OHIO
MY COMMISSION EXPIRES SEPT. 6, 1995
ACKNOWLEDGEMENT-SUBTENANT
STATE OF ALABAMA )
: SS
COUNTY OF JEFFERSON )
On this 30 day of September, 1993, before me, the undersigned Notary
Public, personally appeared Larry York, who acknowledged himself to be the Vice
President-HR of Sam Blount Co., Inc., and that he as such Vice President being
authorized so to do, executed the foregoing instrument for the purpose therein
contained, by signing the name of the corporation by himself as Vice
President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
Linda L. Heflin Green
Notary Public for Alabama
My Commission Expires: 9-16-97
NOTARY PUBLIC STATE OF ALABAMA AT LARGE.
MY COMMISSION EXPIRES: SEPT. 16, 1997.
BONDED THRU NOTARY PUBLIC UNDERWRITERS.
<PAGE> 9
EXHIBIT B
[Exhibit B contains a graphical depiction of the Premises which identifies the
location and relative size of each of Phase I, Phase II and Phase III
constituting a part of the Premises and the parking lot and access roads
servicing the Premises.]
<PAGE> 10
EXHIBIT C
SCHEDULE A: RENTAL PRIOR TO ROOF REPLACEMENT
- ---------------------------------------------
<TABLE>
<CAPTION>
SQUARE FEET MONTHLY RENTAL
----------- --------------
<S> <C> <C>
Phase I 120,000 $14,117.65
Phase I and II 240,000 $28,235.29
Phase I, II, and III 340,000 $40,000.00
</TABLE>
SCHEDULE B: RENTAL SUBSEQUENT TO ROOF REPLACEMENT
- --------------------------------------------------
<TABLE>
<CAPTION>
SQUARE FEET MONTHLY RENTAL
----------- --------------
<C> <C>
Phases I, II, and III 340,000 $43,350.00
</TABLE>
Schedule B rental above shall be effective on the 1st of the month following
the completion of the necessary roof replacement and notification in writing to
subtenant by sublessor of completion of said roof replacement.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated June 27, 1997 (except with respect to certain of the matters discussed in
Note 11 as to which the date is July 31, 1997) and to all references to our
Firm included in or made a part of this Registration Statement.
/s/ Arthur Andersen LLP
Birmingham, Alabama
August 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MEADOWCRAFT, INC. FOR THE FISCAL YEAR ENDED MAY 3, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-03-1997
<PERIOD-START> APR-29-1996
<PERIOD-END> MAY-03-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 63,464
<ALLOWANCES> 0
<INVENTORY> 21,472
<CURRENT-ASSETS> 85,266
<PP&E> 57,798
<DEPRECIATION> 16,670
<TOTAL-ASSETS> 127,061
<CURRENT-LIABILITIES> 72,413
<BONDS> 15,320
0
0
<COMMON> 160
<OTHER-SE> 39,168
<TOTAL-LIABILITY-AND-EQUITY> 127,061
<SALES> 141,945
<TOTAL-REVENUES> 141,945
<CGS> 98,315
<TOTAL-COSTS> 98,315
<OTHER-EXPENSES> 12,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,274
<INCOME-PRETAX> 25,378
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,378
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
